Loans and advances to banks and customers Loans and advances to banks and customers are nonderivative financial assets with fixed or determinable payments, which are not quoted in an active market and which are not classified as available-for-sale investments or held-to-maturity investments, financial assets held for trading, or financial assets designated at fair value through income. Loans to banks and customers are initially recognized at fair value. Subsequently they are recorded at amortized cost using the effective interest method. Interest income is accrued on the unpaid principal balance, net of charge-offs. Using the effective interest method, net deferred fees and premiums or discounts are recorded as an adjustment of interest income yield over the lives of the related loans.
Liabilities to banks and customers Liabilities to banks and customers are subsequently measured at amortized cost. Herein included are repurchase (“repo”) agreements and securities lending transactions.
If a held-to-maturity debt security or a loan is impaired, the related impairment loss is measured as the difference between the carrying amount and the present value of estimated future cash flows discounted at the original effective interest rate.
If the amount of the impairment of a held-to-maturity debt security or a loan subsequently increases or decreases due to an event occurring after the initial measurement of impairment, the change is recorded in the income statement.
In a subsequent period, if the fair value of an availablefor -sale debt security instrument increases and the increase can be objectively related to an event occurring after the recognition of an impairment loss, such as an improvement in the debtor’s credit rating, the impairment is reversed through impairments of investments (net).
Impairment of available-for-sale equity securities If there is objective evidence that the cost may not be recovered, an available-for-sale equity security is considered to be impaired. Objective evidence that the cost may not be recovered, in addition to qualitative impairment criteria, includes a significant or prolonged decline in the fair value below cost. The Allianz Group’s policy considers a significant decline to be one in which the fair value is below the weighted average cost by more than 20 % or a prolonged decline to be one in which fair value is below the weighted average cost for a period of more than nine months.
If an available-for-sale equity security is impaired, any further declines in the fair value at subsequent reporting dates are recognized as impairments. Therefore, at each reporting period, for an equity security that was determined to be impaired, additional impairments are recognized for the difference between the fair value and 152 Consolidated Financial Statements 159 Notes to the Consolidated Financial Statements 208 Supplementary Information to the Consolidated Balance Sheets 242 Supplementary Information to the Consolidated Income Statements 257 Other Information
the original cost basis, less any previously recognized impairments. Reversals of impairments of available-forsale equity securities are not recorded through the income statement but recycled out of other comprehensive income when sold.
– Debt instruments, classified as “held for trading” (at fair value through income) or as “available-for-sale” may be reclassified to the “loans and receivable” category, if they meet the definition of loans and receivables at the reclassification date and where the Allianz Group has the intent and ability to hold the assets for the foreseeable future or until maturity.
– Any other debt instrument and any other equity instrument, classified as “held for trading” (at fair value through income) may be reclassified to the “held-tomaturity ” category (debt instruments) or to the “available-for-sale” category in rare circumstances (e.g. deterioration of the world’s financial markets in 2008) and where the Allianz Group does not have the intention to sell or trade the assets in the short term.
Derecognition of financial instruments A financial asset is derecognized when the contractual rights to the cash flows from the financial asset expire or the Allianz Group transfers the asset and substantially all of the risks and rewards of ownership. A financial liability is derecognized when it is extinguished.
For derivative financial instruments used in hedge transactions that meet the criteria for hedge accounting (accounting hedges), the Allianz Group designates the derivative as a hedging instrument in a fair value hedge, cash flow hedge, or hedge of a net investment in a foreign entity. The Allianz Group documents the hedge relationship, as well as its risk management objective and strategy for entering into the hedge transaction. The Allianz Group assesses, both at the hedge’s inception and on an ongoing basis, whether the derivative financial instruments that are used for hedging transactions are highly effective in offsetting changes in fair values or cash flows of the hedged items. Derivative financial instruments used in accounting hedges are recognized as follows: 166 Allianz Group Annual Report 2010 Consolidated Financial Statements
Hedges of a net investment in a foreign entity Hedge accounting may be applied to derivative financial instruments used to hedge the foreign currency risk associated with a net investment in a foreign entity. The proportion of gains or losses arising from valuation of the derivative financial instrument, which is determined to be an effective hedge, is recognized in foreign currency translation adjustments in other comprehensive income, while any ineffectiveness is recognized directly in income from financial assets and liabilities carried at fair value through income (net).
The risk disclosure requirements of IFRS 7 and the requirements of IAS 1, Presentation of Financial Statements, with regard to capital disclosures are reflected in the consolidated financial statements and the risk report in the group management report.
Balance sheet line items, IAS 39 categories and IFRS 7 classes of financial instruments Measurement basis
Financial assets Cash and cash equivalents Nominal value Financial assets carried at fair value through income
– Financial liabilities held for trading Fair value – Financial liabilities designated at fair value through income Fair value
Off-balance sheet Financial guarantees Nominal value Irrevocable loan commitments Nominal value 1 Include receivables and obligations of deferred compensation plans outsourced to a trust.
Reinsurance contracts The Allianz Group’s consolidated financial statements reflect the effects of ceded and assumed reinsurance contracts. Assumed reinsurance refers to the acceptance of certain insurance risks by the Allianz Group that other companies have underwritten. Ceded reinsurance refers to the transfer of insurance risk, along with the respective premiums, to one or more reinsurers who will share in the risks. When the reinsurance contracts do not transfer significant insurance risk according to the related reinsurance accounting provisions of US GAAP, deposit accounting is applied as required under the related reinsurance accounting provisions of US GAAP or under IAS 39, respectively.
For short-duration and traditional long-duration contracts and limited-payment contracts, DAC is amortized in proportion to premium revenue recognized. For universal life-type contracts, participating life insurance contracts and investment contracts with discretionary participation features, DAC is amortized over the contract life of a book of contracts based on estimated gross profits (EGP) or estimated gross margins (EGM), as appropriate, based on historical and anticipated future experience, which is evaluated regularly.
The value of an insurance business acquired or the value of an insurance portfolio acquired is measured by the PVFP which is the present value of net cash flows anticipated in the future from insurance contracts in force at the date of acquisition. It is amortized over the life of the related contracts. PVFP was determined using discount rates ranging from 8.0 % to 12.0 %. Interest accrues on the PVFP balance based upon the policy liability rate or contract rate. Interest currently accrues on PVFP at rates between 2.0 % and 6.5 %.
Sales inducements on insurance contracts that meet the following criteria are generally deferred and amortized using the same methodology and assumptions used for amortized deferred acquisition costs: – recognized as part of reserves for insurance and investment contracts,
Shadow accounting in a broader sense is also applied to all valuation differences between statutory accounting, which is the basis for profit participation of policyholders and IFRS accounting. These valuation differences are accounted for as latent reserves for premium refunds. Further information is included in a succeeding section entitled “Reserves for insurance and investment contracts and financial liabilities for unit-linked contracts”.
Bifurcation Certain of the Allianz Group’s universal life-type and investment-type insurance contracts contain features where the Allianz Group bears investment risk and which are not closely related to insurance contracts. These features are bifurcated from the insurance contracts and accounted for as derivatives under IAS 39.
Reserves for loss and loss adjustment expenses Reserves are established for the payment of losses and loss adjustment expenses (LAE) on claims which have occurred but are not yet settled. Reserves for loss and loss adjustment expenses fall into two categories: case reserves for reported claims and reserves for incurred but not reported losses (IBNR).
The process of estimating loss and LAE reserves is by nature uncertain due to the large number of variables affecting the ultimate amount of claims. The Allianz Group reduces the uncertainty in reserve estimates through the use of multiple actuarial and reserving techniques and certain Group-wide processes and controls. For further information please see note 3.
Aggregate policy reserves also consider liabilities for guaranteed minimum death, and similar mortality and morbidity benefits related to non-traditional contracts with annuitization options. These liabilities are calculated based on contractual obligations using actuarial assumptions.
The aggregate policy reserves for investment contracts are equal to the account balance, which represents premiums received and investment returns credited to the policy less deductions for mortality costs and expense charges. The aggregate policy reserves for unit-linked investment contracts without DPF are equal to fair value, the aggregate policy reserves for non-unit-linked investment contracts without DPF are equal to amortized cost.
Reserves for premium refunds include the amounts allocated under the relevant local statutory or contractual regulations to the accounts of the policyholders and the amounts resulting from the differences between these IFRS based financial statements and the local financial statements (latent reserve for premium refunds), which will reverse and enter into future profit participation calculations. Unrealized gains and losses recognized for available-for-sale investments are recognized in the latent reserve for premium refunds to the extent that policyholders will participate in such gains and losses on the basis of statutory or contractual regulations when they are realized. The profit participation allocated to participating policyholders or disbursed to them reduces the reserve for premium refunds.
Liability adequacy tests are performed for each insurance portfolio on the basis of estimates of future claims, costs, premiums earned and proportionate investment income. For short-duration contracts, a premium deficiency is recognized if the sum of expected claim costs and claim adjustment expenses, expected dividends to policyholders, unamortized acquisition costs, and maintenance expenses exceeds related unearned premiums while considering anticipated investment income. For traditional long-duration contracts and limited payment contracts, if actual experience regarding investment yields, mortality, morbidity, terminations or expense indicate that existing contract liabilities, along with the present value of future gross premiums, will not be sufficient to cover the present value of future benefits and to recover deferred policy acquisition costs, then a premium deficiency is recognized. For other long-duration contracts, if the present value of estimated gross profits or margins, plus unearned revenue liability if applicable, will not be sufficient to recover deferred policy acquisition costs, then a premium deficiency is recognized.
Other assets Other assets primarily consist of receivables, prepaid expenses, derivative financial instruments used for hedging that meet the criteria for hedge accounting, firm commitments, property and equipment and other assets.
Property and equipment includes real estate held for own use, software, equipment and fixed assets of fully consolidated private equity investments and Alternative Investments.
Non-current assets or disposal groups classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell. Any subsequent increases in fair value less costs to sell are recognized as a gain but not in excess of the cumulative impairment loss that has been recognized. A non-current asset is not depreciated while classified as held for sale. A gain or loss on the date of the sale not previously recognized is recorded at the date of derecognition.
– is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations, or
– is a subsidiary acquired exclusively with a view to resale.
Similar to goodwill, an intangible asset with an indefinite useful life is subject to an annual impairment test, or more frequently if there is an indication that it is not recoverable. The impairment test includes comparing the recoverable amount to the carrying amount. Where it is not possible to identify separate cash flows for esti174 Allianz Group Annual Report 2010 Consolidated Financial Statements
Premiums earned and claims and insurance benefits paid Premiums for short-duration contracts are recognized as revenues over the period of the contract in proportion to the amount of insurance protection provided. Unearned premiums are calculated separately for each individual policy to cover the unexpired portion of written premiums. Premiums for short-duration contracts could arise from Property-Casualty, Life and Health insurance contracts. For those contracts, benefits are recognized when incurred.
Long-duration contracts are contracts that are noncancelable by the insurance company and guaranteed renewable and that are expected to remain in force over an extended period of time. Premiums for long-duration contracts are recognized as earned when due. Longduration contracts can comprise Property-Casualty, Life and Health insurance contracts.
Income from financial assets and liabilities carried at fair value through income (net) Income from financial assets and liabilities carried at fair value through income includes all investment income, and realized and unrealized gains and losses from financial assets and liabilities carried at fair value through income. In addition, commissions attributable to trading operations and related interest expenses and transaction costs are included in this line item. Also foreign currency gains and losses are reported within Income from financial assets and liabilities carried at fair value through income (net).
Investment advisory fees are recognized as the services are performed. Such fees are primarily based on percentages of the market value of the assets under management.
– immediate recognition of all actuarial gains and losses in other comprehensive income outside the income statement in a statement of changes in equity titled “statement of recognized income and expense (SORIE)”, or
Share based compensation plans The share-based compensation plans of the Allianz Group are classified as either equity settled or cash settled plans. Equity settled plans are measured at fair value on the grant date and recognized as an expense, with a corresponding increase to shareholders’ equity, over the vesting period. Equity settled plans include a best estimate of the number of equity instruments that are expected to vest in determining the amount of expense to be recognized. For cash settled plans, the Allianz Group accrues the fair value of the award as compensation expense over the vesting period. Upon vesting, any change in the fair value of any unexercised awards is also recognized as compensation expense.
Reserves for loss and loss adjustment expenses, insurance and investment contracts and deferred acquisition costs As of December 31, 2010, the Allianz Group reported: 1
Life/Health reserves are dependent on estimates and assumptions, especially on the life expectancy of an insured individual (mortality and longevity risk) and on the development of interest rates and investment returns (asset-liability mismatch risk). These assumptions also have an impact on the presentation of costs arising from the origination of insurance business (acquisition costs and sales inducements) and the value of acquired insurance business (PVFP). To ensure consistency in the application of actuarial methods and assumptions in the Life/Health reserving process, the Allianz Group has designed a two stage reserving process. In a first stage, Life/Health reserves are calculated by qualified local staff experienced in the business of the subsidiaries. Actuaries in the local entities also conduct tests of the adequacy of the premiums and reserves to cover future claims and expenses (liability adequacy tests). The process follows Group-wide standards for applying consistent and plausible assumptions. The appropriateness of the reserves and compliance with the Group-wide standards is confirmed by the local actuary. In a second stage, the Allianz Group Actuarial Department regularly reviews the local reserving processes, including the appropriateness and consistency of assumptions, and analyzes the movements of reserves. Any adjustments to reserves and other insurance related reporting items are reported to 1 Please refer to note 2 Summary of significant accounting policies, and, for further details, to note 12 Deferred acquisition costs, note 19 Reserves for loss and loss adjustment expenses, and note 20 Reserves for insurance and investment contracts.
The preceding note 2 describes the accounting policies that the Allianz Group follows in preparing their consolidated financial statements. The section below describes how certain reported figures can be significantly affected by the use of estimates and assumptions, and the processes the Allianz Group has in place to control the judgments which are made.
Subsidiaries of the Allianz Group are required to establish controls which promote a culture of good judgment and sound decision-making around accounting estimates. These include providing training programs, hiring people with the right background for the job (i. e., certified or experienced accountants, actuaries and finance professionals ), and providing formalized policies and procedures manuals for accounting and internal controls.
Fi na nc ia l S ta te m en ts 152 Consolidated Financial Statements 159 Notes to the Consolidated Financial Statements 208 Supplementary Information to the Consolidated Balance Sheets 242 Supplementary Information to the Consolidated Income Statements 257 Other Information and analyzed together with the Allianz Group Reserve Committee.
In a first stage, in each jurisdiction, reserves are calculated for individual lines of business, taking into consideration a wide range of local factors. This local reserving process begins with local reserving actuaries gathering data, typically dividing reserving data into the smallest possible homogeneous segments, while maintaining sufficient volume to form the basis for stable projections. Once data is collected, they derive patterns of loss payment and emergence of claims based on historical data organized into development triangles arrayed by accident year versus development year. Loss payment and reporting patterns are selected based on observed historical development factors and also on the judgment of the reserving actuary using an understanding of the underlying business, claims processes, data and systems as well as the market, economic, societal and legal environment. Expected loss ratios are then developed, which are derived from the analysis of historical observed loss ratios, adjusted for a range of factors such as loss development, claims inflation, changes in premium rates, changes in portfolio mix and change in policy terms and conditions.
Estimates for the current accident year determine the loss ratios and profitability of the business of the most recent year. For all prior accident years the change in estimates is reported as run-off – adverse or favorable – in the consolidated income statement.
For Life/Health, as well as for Property-Casualty the central oversight process includes the following key components: – Group-wide standards and guidelines: They define the reserving practices which must be conducted by each subsidiary including aspects of assumptions and estimates. This includes the organization and structure, data, methods, and reporting. The Allianz Group Actuarial Department monitors compliance with these standards and guidelines.
– Regular site visits: The Allianz Group Actuarial Department regularly visits Allianz subsidiaries in order to ensure that they apply the Group-wide standards and guidelines. The on-site review focuses on all significant changes in assumptions and methodologies as well as on procedures and professional practices relevant for the reserving process. Furthermore, these meetings are to update knowledge of the underlying local business developments.
Fair value and impairments of financial instruments As of December 31, 2010, the Allianz Group reported financial instruments carried at fair value of: 1
– € 155,650 mn of the financial assets and € 3,373 mn of the financial liabilities carried at fair value are classified within level 2 of the fair value hierarchy (valuation technique with observable market inputs)
– € 7,314 mn of the financial assets and € 4,842 mn of the financial liabilities carried at fair value are classified within level 3 of the fair value hierarchy (valuation technique with significant input being non-observable ). Level 3 financial assets represent less than 2 % of the Allianz Group’s total financial assets carried at fair value
Goodwill As of December 31, 2010, the Allianz Group reported total goodwill of € 12,020 mn, of which: 1
required to be consistent with the parameters of the well defined planning and controlling processes. The recoverable amounts of all cash generating units are generally determined on the basis of value in use calculations. Important input factors for those calculations are the business plan, the estimate of the sustainable returns and eternal growth rates as it is further explained in note 15. The Allianz Group also performs sensitivity tests with regard to key value drivers, such as projected long-term combined ratios or discount rates. Furthermore, the Allianz Group reviews market-based business transaction multiples where available. This information is used to assess reasonableness since directly comparable market value information is not generally available. Although the Allianz Group believes short term fluctuations in the market capitalization do not reflect the long term value of the aggregate of the CGUs, the market capitalization is also compared to the aggregate of the CGU’s realizable values as a high level test of the entire process. The Allianz Group believes that the controls over assessing the recoverability of goodwill ensures both consistent and reliable results.
Deferred tax assets As of December 31, 2010, the Allianz Group reported deferred tax assets of € 2,663 mn. € 1,985 mn thereof resulted from tax losses which are carried forward to future periods. 2
Deferred taxes are determined based on temporary differences between the Allianz Group’s carrying amounts of assets and liabilities in its consolidated balance sheet and their tax bases, on unused tax credits and on tax loss carry forwards. Deferred tax assets are recognized only to the extent it is probable that sufficient future taxable income will be available for their realization.
The analysis and forecasting required in this process, and in result the determination of the deferred tax assets, is performed for individual jurisdictions by qualified local 2 Please refer to note 2 Summary of significant accounting policies, and note 43 Income taxes, for further details.
182 Allianz Group Annual Report 2010 Consolidated Financial Statements tax and financial professionals. Given the potential significance surrounding the underlying estimates and assumptions, Group-wide policies and procedures have been designed to ensure consistency and reliability around the recoverability assessment process. Forecasted operating results are based upon approved business plans which are themselves subject to a well defined process of control. As a matter of policy, especially strong evidence supporting the recognition of a tax asset is required if an entity has suffered a loss in either the current or preceding period.
Recognition and recoverability of all significant deferred tax assets are reviewed by tax professionals and the Allianz Group Tax Committee. The Allianz Group Tax Committee consists of senior Group financial staff and is chaired by the Head of Allianz Group Tax department.
In order to determine the pension expenses and liabilities associated with these plans, extensive use of assumptions is necessary. The key assumptions, which include discount rate, inflation rates and expected rate of return on plan assets, are centrally defined at the Allianz Group level involving experts from the actuarial and economic disciplines and considering the circumstances in the particular countries. Estimating future returns is particularly subjective as the estimate requires an assessment of possible future market returns based on the plan asset mix and observed historical returns. In order to ensure a thorough and consistent determination of pension expenses and liabilities, all input parameters are discussed and defined, taking into consideration economic developments, peer reviews, currently available market and industry data as well as historical performance of the plans and their assets. Furthermore, Allianz Group performs sensitivity analysis regarding certain parameters. The results of the sensitivity analysis as well as the certain parameters are explained in note 48.
1 Please refer to note 2 Summary of significant accounting policies, and note 48 Pensions and similar obligations, for further details.
Based on Group-wide standards, subsidiaries determine pension expenses and pension liabilities, which are in return submitted to the Allianz Group Human Resources department and reviewed by external experts.
Provisions for restructuring programs are recognized when the Allianz Group has a detailed formal plan for the restructuring and has raised a valid expectation in those affected that it will carry out the restructuring by starting to implement the plan or by announcing its main features. The detailed formal plan of a restructuring program is in particular based on estimates and assumptions, such as the number of employees to be dismissed, amount of compensation payments, impacts of onerous contracts, possibilities of sub-leases, timing of the various steps of the program and in consequence timing of the expected cash flows.
2 Please refer to note 2 Summary of significant accounting policies, and note 50 Restructuring plans, for further details..
– Transactions with non-controlling interests, i. e. changes in a parent’s ownership interest in a subsidiary that do not result in a loss of control, are accounted for as equity transactions.
– Any retained non-controlling investment at the date control is lost is remeasured to fair value.
The Allianz Group adopted the revised IFRS 3 and the amended IAS 27 as of January 1, 2010. The carrying amounts of any assets and liabilities that arose under business combinations prior to the application of the revised IFRS 3 are not adjusted. The amendments to IAS 27 need to be applied retrospectively with certain exceptions. Both standards have to be applied together. The adoption of these standards did not have a material impact on the Allianz Group’s consolidated financial statements.
– Improvements to IFRSs issued in May 2008 and April 2009 with effective date as of January 1, 2010
The Allianz Group adopted the revisions, amendments and interpretations as of January 1, 2010, with no material impact on its financial result or financial position.
– Contingent consideration must be recognized and measured at fair value at the acquisition date. Subsequent changes in fair value are recognized in accordance with other IFRS, usually in profit or loss instead of adjusting goodwill.
IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value, replacing the many different rules in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial instruments (its business model) and the contractual cash flow characteristics of the financial assets. The new proposals require a single impairment method to be used, replacing the many different impairment methods in IAS 39.
Further amendments and interpretations In addition to the above mentioned recently issued accounting pronouncements, the following amendments and revisions to standards and interpretations have been issued by the IASB but are not yet effective for or early adopted by the Allianz Group: Standard / interpretation Effective date
IAS 32 Financial Instruments: Presentation – Amendments relating classification of rights issues annual periods beginning on or after February 1, 2010
Changes in accounting policies of the consolidated financial statements Change in accounting policy for fixed-indexed annuities Future policy benefits of the fixed-indexed annuity business implicitly include a series of annual market value liability options (MVLO) that are accounted for as derivatives at fair value. These embedded derivatives have been separated from the related policy reserves and presented within financial liabilities carried at fair value through income in our consolidated balance sheet. Historically, once the annual index option was credited to the policyholder’s account, this benefit continued to be classified as a derivative at fair value. As such, the MVLO would continually grow over time.
Effective July 1, 2010, the Allianz Group voluntarily changed its accounting policy with regard to the valuation of the MVLO. Specifically, the fixed benefit accruing to the policyholder’s account balance is reclassified back to policyholder reserves upon crediting. In addition, the fair value of the MVLO has been refined to incorporate a discount rate that is more consistent with the returns on the assets used to fund these derivative liabilities.
The effects of these changes are that the portion of the policyholder’s account balance representing a credited amount will no longer be accounted for at fair value and the ongoing valuation of the MVLO will better reflect the indexed returns being offered to policyholders. The Allianz Group believes these changes mitigate artificial accounting volatility and better reflect the economics of the fixed-annuity business, consequently resulting in the presentation of more relevant and reliable financial information.
In conjunction with the change in accounting policy, the Allianz Group also sold a portfolio of financial assets which were designated at fair value through income which was previously held to mitigate interest rate volatility of the embedded derivatives. As of December 31, 2009, the portfolio had a fair value of approximately € 3.6 bn. The portfolio was liquidated during the year ended December 31, 2010. The proceeds were reinvested in debt securities classified as available for sale.
Impacts of the changes in accounting policies on the Allianz Group’s consolidated balance sheets and consolidated income statements The following table summarizes the impact on the consolidated balance sheets as of December 31, 2009 and January 1, 2009 relating to the change in accounting policy for fixed-indexed annuities: As of December 31, 2009 As of January 1, 2009
Loans and advances to banks and customers 128,996 — 128,996 116,990 — 116,990 Financial assets for unit-linked contracts 56,963 — 56,963 50,450 — 50,450
Reserves for loss and loss adjustment expenses 64,441 — 64,441 63,924 — 63,924 Reserves for insurance and investment contracts 322,188 1,613 323,801 296,557 1,500 298,057 Financial liabilities for unit-linked contracts 56,963 — 56,963 50,450 — 50,450
The following table summarizes the impacts on the consolidated income statements for the years ended December 31, 2009 and 2008 relating to the change in accounting policy for fixed-indexed annuities: As previously reported
Interest and similar income 18,233 — 18,233 19,072 — 19,072 Income from financial assets and liabilities carried at fair value through income (net) 954 (80) 874 (341) 714 373 Realized gains/losses (net) 3,416 — 3,416 3,603 — 3,603 Fee and commission income 6,239 — 6,239 6,032 — 6,032
Claims and insurance benefits incurred (gross) (47,879) — (47,879) (48,287) — (48,287) Claims and insurance benefits incurred (ceded) 2,233 — 2,233 2,628 — 2,628 Claims and insurance benefits incurred (net) (45,646) — (45,646) (45,659) — (45,659) Change in reserves for insurance and investment contracts (net) (9,560) (200) (9,760) (5,140) (238) (5,378)
Net income (loss) attributable to: Basic earnings per share (in €) 9.53 (0.20) 9.33 (5.43) 0.18 (5.25) Diluted earnings per share (in €) 9.50 (0.20) 9.30 (5.47) 0.18 (5.29)
Number of fully consolidated Special Purpose Entities (SPE) 4 4 59 Total of fully consolidated entities 986 949 1,204 Number of joint ventures valued at equity 17 14 10 Number of associated entities valued at equity 125 146 167
1 Includes 6 (2009: 8; 2008: 10) subsidiaries where the Allianz Group owns less than the majority of the voting power of the subsidiary, including CreditRas Vita S.p.A. (CreditRas) and Antoniana Veneta Popolare Vita S.p.A. (Antoniana). The Allianz Group controls these entities on the basis of shareholder agreements between the Allianz Group subsidiary owning 50.0 % of each such entity and the other shareholders. Pursuant to these shareholder agreements, the Allianz Group has the power to govern the financial and operating policies of these subsidiaries and the right to appoint the general manager, in the case of CreditRas, and the CEO, in the case of Antoniana, who have been given unilateral authority over all aspects of the financial and operating policies of these entities, including the hiring and termination of staff and the purchase and sale of assets. Furthermore, all management functions of these subsidiaries are performed by the employees of the Allianz Group and all operations are undertaken in Allianz Group’s facilities. The Allianz Group also develops all insurance products written through these subsidiaries. Although the Allianz Group and the other shareholders each have the right to appoint half of the directors of each subsidiary, the rights of the other shareholders are limited to matters specifically reserved to the board of directors and shareholders under Italian law, such as decisions concerning capital increases, amendments to articles and similar matters. In addition, in the case of Antoniana, the Allianz Group has the right to appoint the Chairman, who has double board voting rights, thereby giving the Allianz Group a majority of board votes. The shareholder agreements for CreditRas and Antoniana are subject to automatic renewal and are not terminable prior to their stated terms.
At the date of the acquisition, goodwill reflects to a large extent the strengthening and expansion of the market position of the Allianz Group’s asset management operations.
The impact of cominvest on the Allianz Group’s net income for the year ended December 31, 2009, was € (23) mn.
If the acquisition date of the combined entity ( Allianz Group including cominvest) would have been on January 1, 2009, the revenues and net income for the year ended December 31, 2009, would have been immaterially different from the revenues and net income as presented in the consolidated income statement for the year ended December 31, 2009.
For details on the impact of the acquisition on the consolidated statement of cash flows, please refer to the consolidated statement of cash flows.
The cost of the investment in Ayudhya Allianz C.P. Life Public Company Limited amounted to € 71 mn.
Allianz Hayat ve Emeklilik AŞ, Istanbul 89.0 07/21/2008 Life/Health 81 Increase in equity interest 1 At the date of first-time consolidation.
2009 Significant acquisitions Cominvest On January 12, 2009, the Allianz Group acquired, as part of the consideration received for the sale of Dresdner Bank to Commerzbank, 100 % of the fund manager cominvest (including cominvest Asset Management GmbH, cominvest Asset Management S.A. (Luxembourg ), cominvest Vertriebs AG and MK Luxinvest S.A. (Luxembourg)).
The impact of the acquisition, net of cash acquired, on the consolidated statement of cash flows for the year ended December 31, 2009 was: € mn
Investments (1,708) Deferred acquisition costs (PVFP) (230) Other assets (93) Unearned premiums 5 Reserves for insurance and investment contracts 1,973 Other liabilities 26 Non-controlling interests 33 Less: previous investments in Ayudhya 71 Acquisition of subsidiary, net of cash acquired 77 2008 Significant acquisitions Allianz Sigorta AŞ, Istanbul and Allianz Hayat ve Emeklilik AŞ, Istanbul In April 2008, the Allianz Group signed a share purchase agreement to acquire 47.1 % of shares in the propertycasualty insurer Allianz Sigorta AŞ, Istanbul, and 51.0 % of the shares in the life insurance and pension company Allianz Hayat ve Emeklilik AŞ, Istanbul, for a total consideration of € 373 mn. The transaction has been approved by the relevant regulatory and competition board on July 21, 2008, so that Allianz Group holds 84.2 % and 89.0 % of shares, respectively.
The impact of the acquisition, net of cash acquired, on the consolidated statement of cash flows for the year ended December 31, 2008, was: € mn
Intangible assets (247) Other assets (914) Other liabilities 870 Non-controlling interests 38 Less: previous investment in Allianz Sigorta and Hayat 101 Acquisition of subsidiaries, net of cash acquired (152)
Dresdner Bank Aktiengesellschaft, Frankfurt am Main 100.0 01/12/2009 5,140 Corporate and Other 1,511 Sale to third party
Investments 686 Reinsurance assets 29 Deferred acquisition costs 16 Other assets 39 Unearned premiums (38) Reserves for insurance and investment contracts (548) Other liabilities (80) Other comprehensive income (27) Realized gain from the disposal 130 Consolidation (7) Disposal of subsidiaries, net of cash disposed 200
Investments 284 Other assets 15 Liabilities to banks and customers (173) Other liabilities (32) Other comprehensive income 2 Less non-cash components: Available-for-sale investments received (8) Impairment losses (42)
Allianz Lebensversicherungs-Aktiengesellschaft, Stuttgart during 2008 5.2 425 (352) (73) Allianz Global Investors of America L.P., Dover (Delaware) 02/28/2008 2.5 122 (122) — Russian People‘s Insurance Society „ROSNO“, Moscow 10/27/2008 2.6 34 (30) (4) Allianz Mena Holding Bermuda, Beirut 08/25/2008 30.3 26 (16) (10)
The impact of the disposal, net of cash disposed, on the consolidated statement of cash flows for the year ended December 31, 2009, was: € mn
Assets of disposal groups classified as held for sale 417,874 Less: cash and cash equivalents (30,238) Liabilities of disposal groups classified as held for sale (410,469) Non-controlling interests (1,738) Treasury shares 69 Less non-cash components of the consideration received: Commerzbank shares (746) Distribution agreement (480) Cominvest (net of cash acquired) (652)
The reportable segment Banking consists of the banking activities in Germany, France, Italy and Central and Eastern Europe. The banks offer a wide range of products for corporate and retail clients with the main focus on the latter.
Life/Health In the Life/Health category, reportable segments offer a comprehensive range of life and health insurance products on both individual and group basis, including annuity, endowment and term insurance, unit-linked and investment-oriented products as well as full private health and supplemental health and care insurance.
Reportable segments measure of profit or loss The Allianz Group uses operating profit to evaluate the performance of its reportable segments and the Group as a whole. Operating profit highlights the portion of income before income taxes attributable to the ongoing core operations of the Allianz Group. The Allianz Group considers the presentation of operating profit to be useful and meaningful to investors because it enhances the understanding of the Allianz Group’s underlying operating performance and the comparability of its operating performance over time.
ASSETS Cash and cash equivalents 2,520 2,281 4,482 2,478 Financial assets carried at fair value through income 1,852 2,100 6,867 11,269 Investments 82,786 80,401 247,568 213,036 Loans and advances to banks and customers 17,697 16,325 97,377 100,316 Financial assets for unit-linked contracts — — 64,847 56,963 Reinsurance assets 8,365 8,885 4,793 4,691 Deferred acquisition costs 4,121 3,789 16,460 16,357 Deferred tax assets 1,110 1,329 208 316 Other assets 21,738 19,980 16,424 16,024 Non-current assets and assets of disposal groups classified as held for sale 1 28 — 24 — Intangible assets 2,308 2,361 2,346 2,306
LIABILITIES AND EQUITY Financial liabilities carried at fair value through income 79 68 4,905 4,689 Liabilities to banks and customers 1,368 426 796 861 Unearned premiums 14,206 13,471 2,291 2,210 Reserves for loss and loss adjustment expenses 57,509 55,715 8,984 8,738 Reserves for insurance and investment contracts 9,338 9,159 340,539 314,631 Financial liabilities for unit-linked contracts — — 64,847 56,963 Deferred tax liabilities 2,461 2,656 1,559 1,286 Other liabilities 16,756 15,642 15,124 14,131 Liabilities of disposal groups classified as held for sale 2 — — — — Certificated liabilities — 139 2 2 Participation certificates and subordinated liabilities 398 846 65 65 Total liabilities 102,115 98,122 439,112 403,576 1 Comprise the assets from the disposal group Allianz Bank Polska S.A., Warsaw, in Corporate and Other and non-current assets classified as held for sale amongst others of Allianz IARD S.A., Paris, in Property-Casualty and of Allianz Vie S.A., Paris, in Life/Health. See note 14 for further information.
Interest and similar income 3,680 3,612 4,477 15,085 13,971 13,772 Operating income from financial assets and liabilities carried at fair value through income (net) 18 118 9 19 636 405 Operating realized gains/losses (net) 42 57 37 2,125 1,755 874 Interest expenses, excluding interest expenses from external debt (92) (104) (295) (103) (127) (283) Operating impairments of investments (net) (9) (75) (437) (434) (1,663) (5,747) Investment expenses (240) (238) (254) (704) (622) (583) Subtotal 3,399 3,370 3,537 15,988 13,950 8,438
Fee and commission income 1,099 1,075 1,247 539 491 571 Other income 22 19 271 81 17 140 Claims and insurance benefits incurred (net) (27,141) (26,320) (25,986) (18,955) (19,326) (19,673) Change in reserves for insurance and investment contracts (net) (300) (355) 3 (13,329) (8,499) (5,360) Loan loss provisions — (18) (17) 6 (75) (13) Acquisition and administrative expenses (net), excluding acquisition-related expenses (11,044) (10,540) (10,478) (5,175) (5,591) (4,691) Fee and commission expenses (1,024) (995) (1,141) (258) (246) (253) Operating restructuring charges — — — (8) (15) 1 Other expenses (10) — (2) (55) — (7) Reclassification of tax benefits — — — — — —
Income from fully consolidated private equity investments (net) — — — — — (2) Interest expenses from external debt — — — — — — Acquisition-related expenses — — — — — — Amortization of intangible assets (156) (21) (17) (3) (3) (3) Non-operating restructuring charges (178) (69) (75) (31) (19) (51) Reclassification of tax benefits — — — — — — Non-operating items 16 78 289 (85) (57) (535)
Claims and insurance benefits incurred (net) (6,838) (6,537) (6,453) (8,456) (8,566) (8,496) Change in reserves for insurance and investment contracts (net) (280) (312) 56 (1) (2) (11)
Interest expenses (79) (71) (166) (51) (82) (178) Loan loss provisions — (9) (12) — — (1) Operating impairments of investments (net) (9) (75) (437) — — — Investment expenses (89) (80) (93) (94) (96) (111) Acquisition and administrative expenses (net) (2,475) (2,497) (2,372) (3,083) (3,052) (3,143) Fee and commission expenses (125) (161) (337) (30) (50) (71) Other expenses (9) — — — — — Operating expenses (9,904) (9,742) (9,814) (11,715) (11,848) (12,011)
4 Represents acquisition and administrative expenses (net) divided by premiums earned (net). 5 Represents the total of acquisition and administrative expenses (net) and claims and insurance benefits incurred (net) divided by premiums earned (net). 6 Presentation not meaningful.
€ mn € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn
— — — — — — — — — — — —
Consolidation Property-Casualty € mn € mn € mn € mn € mn € mn
Claims and insurance benefits incurred (net) (9) (11) (9) (27,141) (26,320) (25,986)
Operating impairments of investments (net) — — — (9) (75) (437)
German Speaking Countries Europe incl. South America NAFTA Markets € mn € mn € mn € mn € mn € mn € mn € mn € mn
Statutory premiums 1 21,070 20,036 18,273 19,755 18,544 16,451 8,266 6,557 6,111 Ceded premiums written (187) (196) (205) (355) (355) (373) (144) (150) (158) Change in unearned premiums (57) (78) (34) 38 65 16 14 5 8 Statutory premiums (net) 20,826 19,762 18,034 19,438 18,254 16,094 8,136 6,412 5,961 Deposits from insurance and investment contracts (5,095) (5,576) (3,846) (14,510) (13,416) (11,011) (7,456) (5,788) (5,209) Premiums earned (net) 15,731 14,186 14,188 4,928 4,838 5,083 680 624 752 Interest and similar income 7,848 7,501 7,628 4,132 3,868 3,820 2,389 2,027 1,715 Operating income from financial assets and liabilities carried at fair value through income (net) 148 5 2,018 65 355 (960) (216) 216 (646) Operating realized gains/losses (net) 1,331 1,104 312 597 613 569 156 13 2 Fee and commission income 30 27 44 410 379 421 49 35 38 Other income 65 12 112 2 3 6 — 1 1 Operating revenues 25,153 22,835 24,302 10,134 10,056 8,939 3,058 2,916 1,862
Claims and insurance benefits incurred (net) (12,974) (13,408) (13,797) (4,479) (4,557) (4,449) (103) (81) (69) Changes in reserves for insurance and investment contracts (net) (8,640) (5,062) (3,697) (2,216) (1,495) 163 (1,574) (1,219) (1,382) Interest expenses (114) (126) (162) (35) (51) (172) (7) (5) (5) Loan loss provisions (3) (14) (10) — 1 — 3 (62) (3) Operating impairments of investments (net) (274) (1,168) (3,863) (151) (427) (1,580) (8) (66) (153) Investment expenses (422) (361) (340) (206) (191) (203) (46) (40) (27) Acquisition and administrative expenses (net) (1,381) (1,759) (1,572) (1,854) (1,986) (1,998) (912) (959) (296) Fee and commission expenses (30) (25) (41) (194) (181) (186) (45) (48) (28) Operating restructuring charges (8) (15) 1 — — — — — — Other expenses (51) — — (2) — — — — — Operating expenses (23,897) (21,938) (23,481) (9,137) (8,887) (8,425) (2,692) (2,480) (1,963)
1 Statutory premiums are gross premiums written from sales of life and health insurance policies, as well as gross receipts from sales of unit-linked and other investment- oriented products, in accordance with the statutory accounting practices applicable in the insurer’s home jurisdiction.
2 Represents deposits from insurance and investment contracts, claims and insurance benefits incurred (net), changes in reserves for insurance and investment contracts (net) and acquisition and administrative expenses (net) divided by statutory premiums (net), interest and similar income, operating income from financial assets and liabilities carried at fair value through income (net), operating realized gains/losses (net), fee and commission income, other income, interest expenses, loan loss provisions, operating impairments of investments (net), investment expenses, fee and commission expenses, operating restructuring charges and other expenses.
1 Represents fee and commission income less fee and commission expenses. 2 Represents interest and similar income less interest expenses. 3 Represents operating expenses divided by operating revenues.
Interest expenses, excluding interest expenses from external debt (383) (445) (648) (333) (395) (677) Loan loss provisions — — — (56) (48) (29) Investment expenses (94) (81) (150) — — — Administrative expenses (net), excluding acquisition-related expenses (621) (574) (531) (591) (634) (554) Fee and commission expenses (215) (195) (9) (210) (200) (193) Other expenses — — — (3) (2) (3) Operating expenses (1,313) (1,295) (1,338) (1,193) (1,279) (1,456)
Cost-income ratio 1 for the reportable segment Banking in % 101.4 122.5 100.4 1 Represents investment expenses, administrative expenses (net), excluding acquisition-related expenses and other expenses divided by interest and similar income, operating income from financial assets and liabilities carried at fair value through income (net), fee and commission income, other income, interest expenses, excluding interest expenses from external debt and fee and commission expenses.
208 Allianz Group Annual Report 2010 Consolidated Financial Statements 8 Financial assets carried at fair value through income
Financial assets held for trading Debt securities 546 363 Equity securities 139 105 Derivative financial instruments 1,416 1,663
Balances with banks payable on demand 5,813 5,243 Balances with central banks 279 198 Cash on hand 169 159 Treasury bills, discounted treasury notes, similar treasury securities, bills of exchange and checks 1 2,486 489 1 Includes reclassification of € 2,050 mn from loans and advances to banks and customers at the U.S. subsidiaries.
Unrealized losses on available-for-sale investments and held-to-maturity investments The following table sets forth gross unrealized losses on available-for-sale investments and held-to-maturity investments and the related fair value, segregated by investment category and length of time such investments have been in a continuous unrealized loss position as of December 31, 2010 and 2009.
Government and government agency bonds 39,520 (1,366) 3,762 (892) 43,282 (2,258)
Government and agency mortgage-backed securities (residential and commercial) 2,205 (53) 4 — 2,209 (53) Corporate mortgage-backed securities (residential and commercial) 2,841 (127) 3,105 (317) 5,946 (444)
Corporate mortgage-backed securities (residential and commercial) Total unrealized losses amounted to € 174 mn as of December 31, 2010. The unrealized loss positions mainly stem from issues in the security market of certain European countries. The largest part of these issues is backed by mortgages on commercial real estate. During 2010, corporate bond performance has been positive with spreads narrowing which resulted in a decrease of the unrealized losses of € 270 mn. Based on a detailed analysis of the underlying securities and collaterals the Allianz Group does not consider these investments to be impaired at December 31, 2010.
Government and government agency bonds Total unrealized losses amounted to € 2,258 mn as of December 31, 2010. The Allianz Group holds a large variety of government bonds, mostly of OECD countries (Organization of Economic Cooperation and Development ). Given the fact that the issuers of these bonds are backed by the fiscal capacity of the issuers and the issuers typically hold an “investment grade” country- and/or issue-rating, credit risk is as a general rule not a significant factor. The unrealized losses on Allianz Group’s investment in government bonds were mainly caused by investments in certain European countries. These unrealized losses are attributable to changes in credit spreads, caused by concerns in the market. The Allianz Group believes that this is a temporary issue and that markets will recover. Based on a detailed analysis of the underlying securities the Allianz Group does not consider these investments to be impaired at December 31, 2010.
Contractual term to maturity The amortized cost and estimated fair value of availablefor -sale debt securities and held-to-maturity debt securities as of December 31, 2010, by contractual term to maturity, are as follows: Amortized Cost
Equity investments carried at cost As of December 31, 2010, fair values could not be reliably measured for equity investments with carrying amounts totaling € 352 mn (2009: € 375 mn). These investments are primarily investments in privately held corporations and partnerships. During the year ended December 31, 2010, such investments with carrying amounts of € 52 mn (2009: € — mn) were sold leading to gains of € 1 mn (2009: € — mn) and losses of € — mn (2009: € — mn).
Changes in the consolidated subsidiaries of the Allianz Group 544 — 14
Reversals of impairments 35 14 54 Carrying amount as of December 31, 8,672 7,514 7,551 Accumulated depreciation as of December 31, 2,958 2,899 2,588 Cost as of December 31, 11,630 10,413 10,139
212 Allianz Group Annual Report 2010 Consolidated Financial Statements 10 Loans and advances to banks and customers
Collateral paid for securities borrowing transactions and derivatives 38 — 38 — — —
As of December 31, 2010 Up to 3 months > 3 months up to 1 year > 1 year up to 3 years > 3 years up to 5 years
Short-term investments and certificates of deposit 1,165 4,051 5,216 5,406 5,124 10,530
Industry, wholesale and retail trade and service providers 5,854 5,500 Financial institutions (excluding banks) and insurance companies 1,521 989
Reconciliation of allowances for credit losses by class of financial assets As of December 31, 2010, the overall volume of allowance for credit losses includes loan loss allowances deducted from loans and advances to banks and customers in the amount of € 146 mn (2009: € 144 mn; 2008: € 119 mn) and provisions for credit losses included in other liabilities in the amount of € 7 mn (2009: € 8 mn; 2008: € 8 mn).
Loan loss allowance Provision for credit losses Total € mn € mn € mn € mn € mn € mn € mn € mn € mn
Changes in aggregate policy reserves ceded to reinsurers are as follows: € mn € mn € mn
Carrying amount as of January 1, 4,613 5,018 5,319 Foreign currency translation adjustments 193 (82) 150 Changes recorded in the consolidated income statements (46) (11) (47)
The Allianz Group reinsures a portion of the risks it underwrites in an effort to control its exposure to losses and events and protect capital resources. In general international corporate and specialty business is either underwritten directly or assumed by Allianz Global Corporate & Specialty AG (AGCS) from other Allianz Group’s subsidiaries. AGCS buys global reinsurance cover in the external reinsurance market, other parts are reinsured internally by Allianz SE. The Allianz Group maintains a centralized program for natural catastrophe events that pools exposures from a number of subsidiaries by internal reinsurance agreements with Allianz SE. Allianz SE limits exposures in this portfolio through external reinsurance. For other risks, the subsidiaries of the Allianz Group have individual reinsurance programs in place. Allianz SE participates as a reinsurer on an arm’s length basis in these programs.
The following table presents information relating to the Allianz Group’s impaired loans: As of December 31, 2010 2009 € mn € mn
Fi na nc ia l S ta te m en ts 12 Deferred acquisition costs
Deferred acquisition costs Property-Casualty 4,121 3,789 Life/Health 14,459 14,452 Asset Management 152 149
Changes in the consolidated subsidiaries of the Allianz Group (10) — 18 Foreign currency translation adjustments 492 (42) 53
Cost as of January 1, 2,694 2,415 2,344 Accumulated amortization as of January 1, (1,482) (1,180) (1,139) Carrying amount as of January 1, 1,212 1,235 1,205 Changes in the consolidated subsidiaries of the Allianz Group — 230 54 Foreign currency translation adjustments 48 (2) 3
Carrying amount as of December 31, 1,180 1,212 1,235 Accumulated amortization as of December 31, 1,602 1,482 1,180 Cost as of December 31, 2,782 2,694 2,415 1 During the year ended December 31, 2010, includes interest accrued on unamortized PVFP of € 65 mn (2009: € 40 mn; 2008: € 65 mn).
216 Allianz Group Annual Report 2010 Consolidated Financial Statements 13 Other assets
Derivative financial instruments used for hedging that meet the criteria for hedge accounting and firm commitments 452 304 Property and equipment
Fixed assets of Alternative Investments 1,117 822 1 As of December 31, 2010, includes prepaid benefit costs for defined benefit plans of € 372 mn (2009: € 276 mn).
As of December 31, 2010, other assets due within one year totaled € 27,448 mn (2009: € 24,898 mn), and those due in more than one year totaled € 6,553 mn (2009: € 8,149 mn).
Changes in the consolidated subsidiaries of the Allianz Group (97) 27 27
Reclassifications out of/(into) noncurrent assets and assets of disposal groups classified as held for sale (11) 4 (902) Foreign currency translation adjustments 89 31 (40)
Reclassifications (27) — — Reclassifications out of/(into) noncurrent assets and assets of disposal groups classified as held for sale 1 (22) — (482) Foreign currency translation adjustments 22 13 (14)
Carrying amount as of December 31, 1,117 822 419 Accumulated depreciation as of December 31, 470 330 119 Cost as of December 31, 1,587 1,152 538 1 Includes fixed assets of wind parks, solar parks, manroland and Selecta. 2 Includes fixed assets of Selecta for the year ended December 31, 2009.
During the fourth quarter of 2010, the Allianz Group contractually agreed to dispose of one commercial property of Allianz Hungaria in Budapest. Thus, the asset allocated to the segment Property-Casualty and previously classified as real estate held for own use was reclassified and presented as non-current assets held for sale. The sale is expected to occur during the first quarter of 2011. Upon measurement of the non-current asset at fair value less cost to sell an impairment loss of € 5 mn was recognized in the consolidated income statement.
Disposals during the year ended December 31, 2010 Alba Allgemeine Versicherungs-Gesellschaft AG (Alba), Basel, Phenix Compagnie d’assurances SA (Phenix), Lausanne and Phenix Compagnie d’assurances sur la vie SA (Phenix Vie), Lausanne In November 2010, the Allianz Group sold Alba, Phenix and Phenix Vie, which were classified as disposal groups held for sale during the third quarter of 2010, to Helvetia Group. Unrealized gains of € 27 mn were reclassified from other comprehensive income to the consolidated income statement.
Total 299 — Liabilities of disposal groups classified as held for sale
Non-current assets and assets and liabilities of disposal groups classified as held for sale as of December 31, 2010 Allianz Bank Polska S.A. During the fourth quarter of 2010, the Allianz Group contractually agreed to dispose of Allianz Bank Polska S.A. Thus, the assets and liabilities related to the Allianz Group’s 100 % ownership of Allianz Bank Polska S.A. and allocated to the segment Corporate and Other, were reclassified as disposal group held for sale.
The following table presents the classes of assets and liabilities reclassified as held for sale: As of December 31, 2010 Allianz Bank Polska S.A, € mn
Cash and cash equivalents 39 Investments 49 Loans and advances to banks and customers 126 Deferred tax assets 2 Other assets 31 Total assets of disposal groups classified as held for sale 247 Liabilities to banks and customers 144 Deferred tax liabilities 1 Other liabilities 43 Total liabilities of disposal groups classified as held for sale 188
Fi na nc ia l S ta te m en ts 15 Intangible assets
Intangible assets with finite useful lives Long-term distribution agreement with Commerzbank AG 585 620 Customer relationships 287 352 1 Includes primarily the brand name of Selecta AG, Muntelier. 2 Includes primarily research and development costs of € 67 mn (2009: € 81 mn)
Cost as of January 1, 12,291 11,445 12,677 Accumulated impairments as of January 1, (277) (224) (224) Carrying amount as of January 1, 12,014 11,221 12,453
Reclassification out of/(into) noncurrent assets and assets of disposal groups classified as held for sale — 491 (1,511) Carrying amount as of December 31, 12,020 12,014 11,221 Accumulated impairments as of December 31, 583 277 224 Cost as of December 31, 12,603 12,291 11,445
Additions of 2010 include goodwill from the acquisition of a 100 % participation in Windpark Werder Zinndorf GmbH & Co. KG, Sehestedt, the acquisition of a 100 % participation in Solarpark BPS Brindisi S.r.l., Brindisi, and the acquisition of a 100 % participation in Solarpark Orsa Maggiore PV S.r.l., Milano.
The reclassification affects the goodwill of Dresdner Bank, Frankfurt am Main, as this subsidiary was reclassified to non-current assets and assets of disposal groups classified as held for sale.
– Global Insurance Lines & Anglo Markets, – NAFTA Markets, – Specialty Lines I, including Allianz Global Corporate &
Cash generating units in the Life/Health segment are: – German Speaking Countries, – Health Germany, – Europe, including France, the Netherlands, Belgium,
Cash generating units in the Corporate and Other segment are: – Banking Germany, – Banking Europe, – manroland AG, – Selecta AG.
In 2010,the CGU Banking in the Corporate and Other segment was separated into the two CGU Banking Germany and Banking Europe. In addition the CGU Alternative Investments in the Corporate and Other segment was split into the two CGU manroland AG and Selecta AG. The level at which goodwill is tested for impairment has changed as the activities of these CGU are managed and monitored separately from each other for internal management purposes.
The discount rate is based on the capital asset pricing model and appropriate eternal growth rates. The assumptions, including the risk free interest rate, market risk premium, segment beta and leverage ratio, used to calculate the discount rates are in general consistent with the parameters used in the Allianz Group’s planning and controlling process.
South America 14.3 3.0 Asia-Pacific and Middle East 9.6 3.0 Central and Eastern Europe 10.2 2.3 Global Insurance Lines & Anglo Markets 8.4 1.5 NAFTA Markets 7.8 1.5 Specialty Lines I 7.9 1.0 Specialty Lines II 7.9 2.0
An increase of 0.5 %-points in the discount rate or the combined ratio could result in the recoverable amount for the CGU NAFTA Markets reaching its carrying value. For the CGU Asia-Pacific and Middle East a simultaneous increase in the discount rate and the long-term combined ratio of 1 %-point would lead to a recoverable amount equal to the carrying value.
For all CGU in the Life/Health segment the goodwill impairment test is based on an Appraisal Value method which is derived from the Market Consistent Embedded Value and a multiple of the Market Value of new business.
For Taiwan and the U.S.A. instead of the Market Consistent Embedded Value the Appraisal Value was derived from a Traditional Embedded Value and new business value calculation as no adequate valuation reflecting a long-term view in line with management judgment and market experience could be derived from market consistent methodology.
Sensitivity analyses were performed with regard to considered new business values. For the CGU German Speaking Countries and Health Germany even a significant reduction in the applied new business multiple would lead to respective Appraisal Value sensitivities which still exceed their respective carrying values. This is not the case for the CGU Asia-Pacific and Middle East as well as NAFTA Markets, where appraisal values exceed carrying values assuming five times new business value for Asia-Pacific and Middle East three times for NAFTA markets respectively.
The carrying amounts of goodwill and brand names are allocated to the Allianz Group’s CGU as of December 31, 2010 and 2009 as follows: As of December 31, 2010 2009
Life/Health German Speaking Countries 590 — 563 — Health Germany 325 — 325 —
Asia-Pacific and Middle East 320 — 320 — NAFTA Markets 440 — 431 —
Brand names The position brand names consists primarily of the brand name “Selecta”. The brand name “Selecta” has an indefinite life, as there is no foreseeable end to its economic life. The fair value of this brand name, registered as a trade name, was determined using a royalty savings approach.
The longterm distribution agreements have useful lives of 13.5 years and 15 years, which were determined by contractual agreements. They are amortized on a straight line basis over the remaining useful lives of 12.5 years and 13 years.
The customer relationships of cominvest and Selecta have useful lives of 4 years and 10 years, which were determined by average customer retention period for German mutual funds and by the multi-period excess earnings method. They are amortized on a straight line basis over the remaining useful lives of 2 years and 6.5 years.
Fi na nc ia l S ta te m en ts 16 Financial liabilities carried at fair value through income
Financial liabilities held for trading Derivative financial instruments 5,012 4,808 Other trading liabilities 1 83
Term deposits and certificates of deposit 1,328 2,301 3,629 1,188 2,185 3,373
224 Allianz Group Annual Report 2010 Consolidated Financial Statements 18 Unearned premiums
Reserves for loss and loss adjustment expenses for the Property-Casualty segment Reconciliation of beginning and ending reserves for loss and loss adjustment expenses The following table reconciles the beginning and ending reserves of the Allianz Group, including the effect of reinsurance ceded, for the Property-Casualty segment for each of the years in the three-year period ended December 31, 2010.
2 Since the first quarter of 2008, health business in Belgium and France is shown within Life/Health segment. Prior year balances have not been adjusted.
Fi na nc ia l S ta te m en ts and LAE by accident year as recorded in the consolidated balance sheet, the effect in the consolidated income statement in the respective calendar year combines the accident year loss ratio for the current year with the favorable or adverse development from prior years (run-off). The tables below first show the loss development by accident year followed by the resulting change for the most recent calendar years.
The tables below show the net run-off triangles of the Property-Casualty business.
Prior years’ loss and loss adjustment expenses incurred reflect the changes in estimation charged or credited to the consolidated income statement in each year with respect to the reserves for loss and loss adjustment expenses established as of the beginning of that year. During the year ended December 31, 2010, the Allianz Group recorded additional income of € 1,544 mn (2009: € 1,067 mn; 2008: € 1,443 mn) with respect of losses occurring in prior years. During the year ended December 31, 2010, these amounts as percentages of the net balance of the beginning of the year were 3.2 % (2009: 2.2 %; 2008: 3.0 %).
As of December 31, 2003 & Prior € mn € mn € mn € mn € mn € mn € mn € mn € mn 1 Includes foreign exchange effects. 2 Presentation not meaningful.
The ultimate loss of an accident year comprises all payments made for that accident year up to the reporting date, plus the loss reserve at the reporting date. Given complete information regarding all losses incurred up to the balance sheet date, the ultimate loss status for each accident-year period would remain the same. In practice, however, the ultimate loss status (based on estimates) is exposed to fluctuations that reflect the growth in knowledge about the loss cases. The loss ratio varies slightly from the reported loss ratio because the ultimate loss in the table above is based on the sum of the payments plus the loss reserve, and not the incurred loss from the profit and loss account.
The run-off triangles are not prepared on a currencyadjusted basis. This means all figures are translated from the respective local currency into the Allianz Group currency (Euro), consistently using the exchange rates applicable at the reporting date. This ensures that the reserves reconcile with reserves in the consolidated balance sheet reserves.
The bottom section compares the latest re-estimated gross and net reserves, respectively, for loss and LAE to the gross and net reserves, respectively, as initially
Fi na nc ia l S ta te m en ts established, and indicates the cumulative development of the initially established reserves through December 31, 2010. The surplus (deficiency) shown in the table for each year represents the aggregate amount by which the original estimates of reserves at that year-end have changed in subsequent years. Accordingly, the cumulative surplus (deficiency) for a year-end relates only to reserves at that year-end and such amounts are not additive. Caution should be exercised in evaluating the information shown in this table, as each amount includes the effects of all changes in amounts for prior periods. For example, the development of 2005 reserves during 2008 is included in the cumulative surplus (deficiency ) of the 2005 through 2007 columns.
€ mn € mn € mn € mn € mn € mn € mn
Four years later 22,926 24,807 24,159 Five years later 25,145 26,812 Six years later 26,719 Net liabilities re-estimated as of
Net surplus after changes in the consolidated subsidiaries of the Allianz Group 2 4,299 6,570 6,083 3,326 654 (163) Net surplus as a % of initial reserves 9.5 % 13.2 % 12.3 % 6.8 % 1.4 % (0.3 %)
Gross surplus after changes in the consolidated subsidiaries of the Allianz Group 2 4,989 7,756 7,211 4,083 1,769 552 1 Gross/Net surplus represents the cumulative surplus from re-estimating the reserves for loss and loss adjustment expenses for prior years claims and includes foreign currency translation adjustments of gross € 1,999 mn (2009: € 607 mn) and net € 1,707 mn (2009: € 536 mn). This leads to an effective run-off result excluding effects of foreign currency translation of gross € 2,551 mn (2009: € 1,962 mn) and net € 1,544 mn (2009: € 1,067 mn) which can be found in the table “Changes in reserves for loss and loss adjustment expenses during 2010, gross and net of reinsurance” within this section. Please note that the 2009 numbers refer to the surplus presented in the consolidated financial statements 2009 and not the cumulative surplus of the calendar year 2009 presented in the table above.
Composition of loss and LAE by line of business The time required to learn of and settle claims is an important consideration in establishing reserves. Short-tail claims, such as motor property damage claims, are typically reported within a few days or weeks and are generally settled within two to three years. Medium-tail claims such as personal and commercial motor liability claims generally take four to six years to settle, while long-tail claims, such as general liability, workers compensation, construction and professional liability claims take longer.
Motor 19,088 19,018 18,710 Case Reserves 15,540 15,851 15,237 IBNR Reserves 3,547 3,167 3,474
Inwards Reinsurance 2,186 1,854 1,899 Case Reserves 1,219 1,095 1,106 IBNR Reserves 967 759 792
Credit Insurance 1,302 1,417 1,407 Case Reserves 1,179 1,387 1,315 IBNR Reserves 123 31 92
AGCS 1 7,632 7,062 7,215 Case Reserves 4,553 4,189 4,477 IBNR Reserves 3,079 2,873 2,738
Allianz Group Total 3 57,509 55,501 55,405 Case Reserves 39,883 38,954 37,522 IBNR 17,626 16,547 17,883 1 Allianz Global Corporate & Specialty was established in 2006 and combines reserves formerly presented as Marine & Aviation and as part of reserves for Germany, NAFTA Region and Allianz Risk Transfer (ART).
3 Alba and Phenix were sold to an external party during 2010. As a result, the historical data for this unit was removed from the 2008 and 2009 reporting period. The reduction in the gross reserves associated with the sale was € 214 mn in 2009 and € 204 mn in 2008. A portion of the health portfolio from Allianz Suisse was transferred effective January 1, 2008 to another Swiss insurance company. As a result, the historical data for this unit was removed from the 2008 reporting period. The total reserves removed from 2008 was €7.44 mn. Furthermore a portfolio from the Spanish subsidiary was transferred to AGCS and hence the history for 2009 and 2008 has been restated. The total gross reserves transferred to AGCS was € 154 mn.
When reviewing the foregoing tables, caution should be used in comparing the split between case and IBNR reserves across line of business. The portion of IBNR on total loss reserves varies by line of business due to different reporting and settlement patterns. For short-tail lines of business, such as property, claims are generally
Fi na nc ia l S ta te m en ts reported immediately after occurrence and settled in a period of only a few years. For long-tail lines of business, such as product liability, it is not unusual that a claim is reported years after its occurrence and settlement can also take a significant length of time, in particular for bodily injury claims.
Changes in the reserves for loss and loss adjustment expenses during 2010, gross and net of reinsurance
Net development related to prior years 1 In % of gross reserves as of December 31, 2009.
Below, the major highlights of the reserve developments in 2010 are discussed by line of business. The discussion is based on net loss and LAE reserves in the local currency of the relevant local operating entity before consolidation and converted into Euro for uniform presentation. Individual explanations of amounts in the following discussion, which includes only significant developments for our major operating entities, do not fully reconcile to the line of business totals in the above table.
Motor For Motor, net loss and LAE reserves developed favorably during 2010 by approximately € 659 mn, or 3.9 % of reserves at December 31, 2009. Favorable development was seen across a large number of operating entities. The following subsidiaries were the largest contributors: € 122 mn at the Allianz Group’s Spanish subsidiary. The reduction was driven by lower than expected claim severity for three reasons: an increase was anticipated to respond to a legislative change which did not become effective, extraordinarily low inflation and the price conditions with external providers, especially repair shops, lawyers and doctors, reached more favorable agreements.
The following table shows, by line of business, the carrying amounts of reserves for claims and claim adjustment expenses that have been discounted, and the interest rates used for discounting for the years ended December 31: Discounting of reserves for loss and loss adjustment expenses
Allianz Global Corporate and Specialty Allianz Global Corporate and Specialty (AGCS) is the Allianz Group’s global carrier for corporate and specialty risks and also includes the corporate branch of the German business. Overall, AGCS experienced € 278 mn of favorable development in 2010 net of reinsurance, or 5.7 % of the reserves as at December 31, 2009. The major contributors of the run-off included: € 144 mn in the global engineering and liability portfolios from favorable settlements on some individual large claims and a lower than anticipated number of larger losses emerging in long-tailed lines.
In general, reserves for loss and loss adjustment expenses are not discounted, except when payment amounts are fixed and timing is reasonable determinable. Reserves are discounted to varying degrees in the U.S.A., Germany, Hungary, Switzerland, Portugal and France. The reserve discounts relate to reserves for structured settlements in various classes of business. These classes include personal accident, general liability and motor liability in Germany and Hungary, workers’ compensation in the U.S.A., Switzerland and Portugal and motor liability in France.
While the U.S. A&E claims still represent a majority of the total A&E claims reported to the Allianz Group, the insurance industry is facing an increased prominence in exposures to A&E claims on a global basis. The Allianz Group continues to analyze these non-U.S. A&E exposures. The results of the non-U.S. A&E reserve analysis support the prior and current levels of carried A&E reserves without any need for additional reserve strengthening in 2010.
For the U.S. A&E exposure, an independent actuarial analysis was initiated in 2009 and finalized in 2010. As a result of this study Fireman’s Fund Insurance Company has increased its reserves for asbestos and environmental risks on a stand-alone statutory basis by USD 301 mn net. The increase of reserves at Fireman’s Fund Insurance Company has had no impact on the financial results of the Allianz Group.
The following table summarizes the gross and net loss and LAE reserves for A&E claims.
Total asbestos and environmental: Loss and LAE reserves as of January 1, 3,099 3,140 3,287 – Loss and LAE payments (195) (166) (199) + Change in loss and LAE
232 Allianz Group Annual Report 2010 Consolidated Financial Statements 20 Reserves for insurance and investment contracts
Aggregate policy reserves 324,189 298,725 Reserves for premium refunds 24,802 24,430 Other insurance reserves 802 646
Participating life insurance contracts 138,588 132,774 Traditional long-duration insurance contracts 54,860 50,948 Universal life-type insurance contracts 129,680 114,054 Non-unit-linked investment contracts 1,061 949
As of December 31, 2010, participating life business represented approximately 59 % (2009: 62 %) of the Allianz Group’s gross insurance in force. During the year ended December 31, 2010, participating policies represented approximately 64 % (2009: 64 %) of gross statutory premiums written and 63 % (2009: 63 %) of life premiums earned. As of December 31, 2010, reserves for conventional participating policies were approximately 49 % (2009: 51 %) of the Allianz Group’s consolidated aggregate policy reserves.
Foreign currency translation adjustments 35 4 6 Changes in the consolidated subsidiaries of the Allianz Group (20) — —
Foreign currency translation adjustments 150 (6) 67 Changes due to fluctuations in market value (682) 6,599 (7,024) Changes in the consolidated subsidiaries of the Allianz Group (7) — — Changes due to valuation differences charged to income 1,755 691 (2,093)
Foreign currency translation adjustments 3,606 23 (978) 2 Changes in the consolidated subsidiaries of the Allianz Group (85) — — —
1 The transfers mainly relate to insurance contracts when policyholders change their contract from a unit-linked to a universal life-type contract. 2 Includes for the year ended December 31, 2010, transfers from universal life-type contracts to traditional long-duration insurance contracts of € (913) mn.
Allianz Group, while unit-linked contracts generally result in the contract holder assuming the investment risk. Traditional contracts include life, endowment, annuity, and health contracts. Traditional annuity contracts are issued in both deferred and immediate types. In addition, the Allianz Group’s life insurance operations in the U.S.A. issue a significant amount of equity-indexed deferred annuities. In certain markets, the Allianz Group also issues group life, group health and group pension contracts.
As of December 31, 2010 and 2009, the Allianz Group’s deferred acquisition costs and reserves for insurance and investment contracts for the Life/Health segment are summarized as follows: Deferred acquisition costs
Other Western and Southern Europe 335 2,352 25 5 2,382 4,661 7,043
Central and South America 3 371 — — 371 — 371
A majority of the Allianz Group’s Life/Health segment operations is conducted in Western Europe. Insurance laws and regulations in Western Europe have historically been characterized by legal or contractual minimum participation of contract holders in the profits of the insurance company issuing the contract. In particular, Germany, Switzerland and Austria, which comprise approximately 48 % and 49 %, of the Allianz Group’s reserves for insurance and investment contracts as of December 31, 2010 and 2009, respectively, include a substantial level of policyholder participation in all sources of profit including mortality/morbidity, investment and expense. As a result of this policyholder participation, the Allianz Group’s exposure to insurance, investment and expense risk is mitigated.
The Allianz Group’s Life/Health segment is exposed to significant investment risk as a result of guaranteed minimum interest rates included in most of its non-unitlinked contracts. The weighted average guaranteed minimum interest rates of the Allianz Group’s largest operating entities in the Life/Health segment (comprising 85 % of non-unit-linked reserves in both 2010 and 2009) can be summarized by country as follows: As of December 31, 2010 2009
236 Allianz Group Annual Report 2010 Consolidated Financial Statements 21 Financial liabilities for unit-linked contracts
Changes in financial liabilities for unit-linked insurance contracts and unit-linked investment contracts for the years ended December 31, 2010 and 2009 were as follows: Unitlinked
Foreign currency translation adjustments 1,677 241 (233) 14 Changes in the consolidated subsidiaries of the Allianz Group (4) — — —
Provisions Pensions and similar obligations 3,925 3,819 Employee related 1,887 1,887 Share-based compensation plans 1,099 1,296 Restructuring plans 409 346 Loan commitments 7 8 Contingent losses from non- insurance business 155 137 Other provisions 1,564 1,395
As of December 31, 2010, other liabilities due within one year amounted to € 24,748 mn (2009: € 25,411 mn) and those due after more than one year amounted to € 8,465 mn (2009: € 7,874 mn).
Contractual interest rate 0.70 % — — — — — — —
As of December € mn 1 € mn 1 € mn 1 € mn 1 € mn 1 € mn 1 € mn € mn
Contractual interest rate — — — — — 7.31 % — —
Contractual interest rate — — — — — 2.44 % — —
Total all other subsidiaries — — — — — 443 443 891 1 Except for interest rates. Interest rates represent the weighted average.
2 Includes subordinated bonds issued by Allianz Finance II B.V. and guaranteed by Allianz SE. 3 With effect of December 31, 2009, the profit participation certificates issued by Allianz SE have been called for redemption pursuant to § 6 para. 4 of the conditions of the profit participation certificates. As of January 4, 2010, holders received a cash compensation of € 103.32 for each profit participation certificate of € 5.12 nominal value. As of December 31, 2009, the balance sheet line item “participation certificates and subordinated liabilities” included the total cash compensation payable for the 1,175,554 outstanding profit participation certificates.
Foreign currency translation adjustments (2,339) (3,626) Unrealized gains and losses (net) 2 5,057 5,457
Non-controlling interests 2,071 2,121 1 As of December 31, 2010, includes € (237) mn (2009: € (213) mn) related to treasury shares.
2 As of December 31, 2010, includes € 196 mn (2009: € 187 mn) related to cash flow hedges.
Change in treasury shares held for trading purposes — 895,558 (223,904) Issued shares outstanding as of December 31, 451,548,760 451,197,223 451,490,223
All shares issued during the years ended December 31, 2010, 2009 and 2008 are qualifying shares from the beginning of the year of issue.
In the fourth quarter of 2010, 271,834 own shares were purchased at a share price of € 89.71 for the purpose of hedging liabilities from the Allianz Equity Incentive Program. Furthermore, in the fourth quarter of 2010, 600,000 new Allianz shares were issued in the context of a capital increase for the Employee Stock Purchase Plan 2010. In 2010, 623,412 shares were sold to employees of Allianz SE and its subsidiaries. Thereof, 250,032 shares originated from the capital increase for the Employee Stock Purchase Plan in 2009 and 373,380 shares from the capital increase for the Employee Stock Purchase Plan in 2010. The remaining 226,620 shares from the capital increase 2010 will be utilized for the Employee Stock Purchase Plan of Allianz SE and its subsidiaries in 2011. The total change of holdings in own shares for the year ended December 31, 2010, amounts to an increase of 248,422 (2009: 2,038,560) shares which corresponds to € 635,960 (2009: € 5,218,714) or 0.05 % (2009: 0.45 %) of issued capital.
As of December 31, 2010, the Allianz Group’s eligible capital for the solvency margin, required for the insurance segments and the Asset Management and Banking business, was € 39.6 bn (2009: € 34.8 bn) including offbalance sheet reserves 1 of € 2.1 bn (2009: € 2.0 bn), surpassing the minimum legally stipulated level by € 16.7 bn (2009: € 13.6 bn). This margin resulted in a preliminary cover ratio of 173 % (2009: 164 %) as of De-
Certain of the Allianz Group’s insurance subsidiaries prepare individual financial statements based on local laws and regulations. These laws establish restrictions on the minimum level of capital and surplus an insurance entity must maintain and the amount of dividends that may be paid to shareholders. The minimum capital requirements and dividend restrictions vary by jurisdiction. The minimum capital requirements are based on various criteria including, but not limited to, volume of premiums written or claims paid, amount of insurance reserves, investment risk, mortality risk, credit risk, underwriting risk and off-balance sheet risk.
domicile. The Allianz Group believes that these restrictions will not affect the ability of Allianz SE to pay dividends to its shareholders in the future. In addition, Allianz SE is not subject to legal restrictions on the amount of dividends it can pay to its shareholders, except the legal reserve in the appropriated retained earnings, which is required according to § 150 (1) of the Aktiengesetz.
Corporate and Other segment Income (expenses) from financial assets and liabilities held for trading for the year ended December 31, 2010, includes in the Corporate and Other segment income of € 72 mn (2009: € 317 mn; 2009: expenses of € 173 mn) from derivative financial instruments. This includes income of € 33 mn (2009: € 84 mn; 2008: expenses of € 11 mn) from financial derivative instruments to protect investments and liabilities against foreign exchange rate fluctuations. In 2010, hedging of strategic equity investments not designated for hedge accounting induced expenses of € 16 mn (2009: € 182 mn; 2008: income of € 420 mn). Financial derivatives related to investment strategies exhibited income of € 68 mn (2009: € 370; 2008: expenses of € 118 mn). Additionally, income (expenses) from financial assets and liabilities held for trading (net) for the year ended December 31, 2010 includes expenses of € 14 mn (2009: € 36 mn; 2008: income of € 110 mn) from the hedges of share based compensation plans (restricted stock units).
Income (expenses) from financial assets and liabilities held for trading (net) (114) (1,040) 1 76 3 (1,074) Income (expenses) from financial assets and liabilities designated at fair value through income (net) 107 867 27 2 (1) 1,002 Income (expenses) from financial liabilities for puttable equity instruments (net) (21) (286) (12) — — (319) Foreign currency gains and losses (net) (18) 438 3 (68) (2) 353
Income (expenses) from financial assets and liabilities held for trading (net) 89 1,812 — (66) (69) 1,766 Income (expenses) from financial assets and liabilities designated at fair value through income (net) (112) (2,108) (236) (24) — (2,480) Income (expenses) from financial liabilities for puttable equity instruments (net) 29 765 166 1 — 961 Foreign currency gains and losses (net) 47 (90) (1) 166 4 126
Investments in associates and joint ventures 2 (21) (8) (6) Real estate held for investment (3) (12) (99) Loans to banks and customers (82) (102) (28)
1 During the year ended December 31, 2010, includes realized gains from the disposal of subsidiaries and businesses of € 224 mn (2009: € 14 mn; 2008: € 143 mn).
Foreign currency gains and losses (net) Foreign currency gains and losses are reported within income from financial assets and liabilities carried at fair value through income (net). These foreign currency gains and losses arise subsequent to initial recognition on all assets and liabilities denominated in a foreign currency, that are monetary items. This excludes exchange differences arising on financial assets and liabilities measured at fair value through profit or loss, which do not have to be disclosed separately. The Allianz Group is substantially hedged against foreign currency fluctuations with freestanding derivatives resulting in an offsetting effect of € (267) mn (2009: € 89 mn) on the foreign currency gains and losses (net) for the year ended De-
Property-Casualty Fees from credit and assistance business 661 (4) 657 663 — 663 769 (2) 767
Investment advisory and Banking activities 563 (252) 311 512 (200) 312 596 (216) 380
Income Sales and service revenues 1,684 1,812 2,516 Other operating revenues 15 96 20
1 The presented subtotal for expenses and total income and expenses from fully consolidated private equity investment for the year ended December 31, 2010 differs from the amounts presented in the “Consolidated Income Statements” and in “Total revenues and reconciliation of Operating profit (loss) to Net income (loss)”. This difference is due to a consolidation effect of € 113 mn (2009: € 132 mn) for the year ended December 31, 2010. This consolidation effect results from the deferred policyholder participation, recognized on the result from fully consolidated private equity investments within operating profit in the Life/Health segment, that was reclassified into expenses from fully consolidated private equity investments in non-operating profit to ensure a consistent presentation of the Allianz Group‘s operating profit.
Ceded Claims and insurance benefits paid 2,523 463 (16) 2,970 Change in loss and loss adjustment expenses (733) (4) — (737)
Net Claims and insurance benefits paid (26,167) (19,074) — (45,241) Change in loss and loss adjustment expenses (153) (252) — (405)
Ceded Claims and insurance benefits paid 2,521 490 (13) 2,998 Change in loss and loss adjustment expenses (350) (17) (3) (370)
Net Claims and insurance benefits paid (25,135) (19,567) — (44,702) Change in loss and loss adjustment expenses (851) (106) — (957)
Fi na nc ia l S ta te m en ts 34 Change in reserves for insurance and investment contracts (net)
Ceded Aggregate policy reserves 23 32 — 55 Other insurance reserves 1 12 — 13 Expenses for premium refunds 4 18 — 22
Ceded Aggregate policy reserves 3 70 — 73 Other insurance reserves 1 9 — 10 Expenses for premium refunds 6 — — 6
250 Allianz Group Annual Report 2010 Consolidated Financial Statements 35 Interest expenses € mn € mn € mn
Recoveries on loans previously impaired 20 35 27 37 Impairments of investments (net)
Group € mn € mn € mn € mn € mn € mn € mn € mn € mn
Commissions and profit received on reinsurance business ceded 509 (3) 506 555 (4) 551 643 (5) 638
Amortization of deferred acquisition costs (4,966) — (4,966) (4,807) — (4,807) (4,089) — (4,089)
Commissions and profit received on reinsurance business ceded 94 (1) 93 79 (1) 78 83 — 83
252 Allianz Group Annual Report 2010 Consolidated Financial Statements 40 Fee and commission expenses
Property-Casualty Fees from credit and assistance business (597) — (597) (594) — (594) (606) — (606)
Investment advisory and Banking activities (209) 1 (208) (202) 1 (201) (193) 1 (192)
42 Net income (loss) from discontinued operations, net of income taxes € mn € mn € mn
Net income (loss) from discontinued operations, net of income taxes — (395) (6,373)
Net income (loss) from discontinued operations attributable to: Non-controlling interests — — 38
Fi na nc ia l S ta te m en ts 43 Income taxes € mn € mn € mn
Foreign currency translation adjustments 41 (13) 63 Available-for-sale investments (146) (1,312) 972 Cash flow hedges (9) 3 (32) Share of other comprehensive income of associates (6) — 21
During the year ended December 31, 2010, current income taxes included an income of € 150 mn (2009: income of € 320 mn, 2008: expense of € 6 mn) related to prior years.
The effective tax rate is determined on the basis of the effective income tax expense on income from continuing operations before income taxes.
During the year ended December 31, 2010, the writedown of deferred tax assets on tax losses carried forward resulted in a deferred tax expense of € 153 mn (2009: € 11 mn; 2008: € 5 mn). The non-recognition of deferred taxes on tax losses for the current fiscal year increased the tax expense by € 142 mn (2009: € 85 mn; 2008: € 46 mn). Due to the use of tax losses carried forward for which no deferred tax asset was recognized the current income tax expense decreased by € 15 mn (2009: € 5 mn; 2008: € 19 mn). Deferred tax income of € 1 mn (2009: € 150 mn; 2008: € 4 mn) resulted from the recognition of deferred tax assets on tax losses carried forward from earlier periods for which no deferred taxes had yet been recognized. The above mentioned effects are shown in the reconciliation statement as “effects of tax losses”.
The tax rates used in the calculation of the Allianz Group deferred taxes are the applicable national rates, which in 2010 ranged from 10.00 % to 42.05 %. Changes to tax rates already adopted on December 31, 2010, are taken into account.
Deferred tax assets are recognized to the extent to which it is more likely than not that sufficient future taxable profits will be available for realization. Taxable entities which suffered a loss in either the current or the preceding period recognized deferred tax assets in excess of deferred tax liabilities amounting to € 873 mn.
Deferred acquisition costs 958 561 Other assets 845 891 Intangible assets 137 140 Tax losses carried forward 2,748 2,560 Insurance reserves 3,763 3,751 Pensions and similar obligations 225 189 Other liabilities 842 637 Total deferred tax assets 12,471 11,251 Non-recognition or valuation allowance for deferred tax assets on tax losses carried forward (763) (484) Effect of netting (9,045) (8,048) Net deferred tax assets 2,663 2,719 Deferred tax liabilities Financial assets carried at fair value through income 100 61
Taxable temporary differences associated with investments in Allianz Group companies, for which no deferred tax liabilities are recognized because the Allianz Group is able to control the timing of their reversal and they will not reverse in the foreseeable future, amount to € 521 (2009: € 418 mn). Deductible temporary differences arising from investments in Allianz Group companies, for which no deferred tax assets are recognized because it is not probable that they reverse in the foreseeable future amount to € 208 (2009: € 253 mn).
Examples of derivatives include contracts for future delivery in the form of futures or forwards, options on shares or indices, interest rate options such as caps and floors, and swaps relating to both interest rate and noninterest rate markets. The latter include agreements to exchange previously defined assets or payment series.
1 As of December 31, 2010, includes embedded derivatives related to equity-indexed annuities with negative fair values of € 3,861 mn (2009: € 3,724 mn).
On local level, Allianz subsidiaries are obliged to assess whether the criteria for hedge accounting are met, in particular whether the hedge relationships are highly effective in offsetting changes in fair values or cash flows between the hedging instrument and the hedged item. Furthermore, the Allianz subsidiaries have to prepare the required hedge documentation. At inception of all hedge relationships, the conclusions reached by the Allianz
(2009: net loss of € 412 mn; 2008: net gain of € 2,115 mn) on the hedging instrument and a net loss of € 30 mn (2009: net gain of € 390 mn; 2008: net loss of € 2,027 mn) on the hedged item attributable to the hedged risk, resulting in an ineffectiveness of € (31) mn (2009: € (22) mn).
Cash flow hedges During the year ended December 31, 2010, cash flow hedges were used to hedge variable cash flows exposed to interest rate and exchange rate fluctuations. As of December 31, 2010, the derivative instruments utilized had a positive fair value of € 17 mn (2009: € 43 mn). Unrealized gains and losses (net) in shareholders’ equity increased by € 9 mn (2009: decreased by € 16 mn).
subsidiaries must be approved on Group level to ensure that all hedge requirements are fulfilled and the hedge documentation is complete.
Fair values and carrying amounts of financial instruments The following table compares the carrying amount with the fair value of the Allianz Group’s financial assets and financial liabilities.
Liabilities to banks and customers: For short-term liabilities the carrying amount represents a reasonable estimate of the fair value. For long-term ins truments the fair value is determined by discounting future cash flows. The fair value determination reflects current market interest rates and the credit rating of the Allianz Group.
Certificated liabilities, participation certificates and subordinated liabilities: The fair value of certificated liabilities, participation certificates and subordinated liabilities is determined using quoted market prices, if available. If quoted prices are not available, for shortterm liabilities the carrying amount represents a reasonable estimate of the fair value. For long-term instruments the fair value is determined by discounting the remaining contractual future cash flows at a discount rate at which Allianz Group could issue debt with a similar remaining maturity. The fair value determination reflects current market interest rates and considers the credit rating of the Allianz Group.
2 For the purpose of this disclosure to match the disclosures made in note 9, the Allianz Group‘s unlisted equity securities and investments in limited partnerships of € 352 mn, which are measured at cost less impairment charges because the fair value cannot be reliably measured, are included.
Level 2 Financial instruments for which the fair value is determined by using valuation-techniques, with any significant input being based on observable market data (observable inputs), are classified into this category.
Financial assets transferred from Level 1 to Level 2 Government and government agency bonds 1,105
Level 3 portfolios The fair value of certain financial instruments is determined using valuation techniques with non-market observable input parameters (Level 3).
Reconciliation of Level 3 financial instruments The following table shows a reconciliation of the financial instruments carried at fair value and classified as Level 3: Carrying value (fair value)
Financial assets for unit-linked contracts 13 19 131 (8) Assets held in trust — 56 — (35) Total financial assets at fair value 6,539 1,943 (678) (954)
Net losses (gains) for financial instruments held at the reporting date € mn € mn € mn € mn € mn € mn € mn
During the year ended December 31, 2010, the Allianz Group transferred certain corporate bonds from Level 3 into Level 2. This was due to the fact that the valuation techniques of these securities were modified and are no longer based on significant non-observable inputs.
Maturity of financial liabilities The risk disclosure requirements in IFRS 7 with regard to liquidity risk are reflected in the risk report in group management report. This risk report is an integral part of the audited consolidated financial statements.
Reclassification of financial assets In January 2009, certain USD-denominated CDOs with a fair value of € 1.1 bn (notional amount of € 2.2 bn) were retained from Dresdner Bank. On January 31, 2009, subsequent to the derecognition of Dresdner Bank, the CDOs were reclassified from financial assets held for trading to loans and advances to banks and customers in accordance with IAS 39. The fair value of € 1.1 bn became the new carrying amount of the CDOs at the reclassification date. The expected recoverable cash flows as of the date of reclassification were € 1.8 bn, leading to an effective interest rate of approximately 7 %.
Fi na nc ia l S ta te m en ts the consolidated financial statements. Due to the uncertainty of the assumptions used, the amount presented could be materially different from the actual incurred payments in future periods.
Future policy benefits Reserves for insurance and investment contracts of € 1,049,033 mn presented in the table include contracts where the timing and amount of payments are considered fixed and determinable and contracts which have no specified maturity dates and may result in a payment to the contract holder depending on mortality and morbidity experience and the incidence of surrenders, lapses or maturities. Furthermore, the amounts presented in the table above are undiscounted and therefore exceed the reserves for insurance and investment contracts presented in the consolidated balance sheet that reflect the time value of the money.
Reserves for loss and loss adjustment expenses 16,991 22,216 18,302 57,509 Other liabilities 1 For materiality reasons the carrying amount is split up into the different contractual maturities. 2 Including investment contracts with policyholders and financial liabilities for unit-linked contracts. 3 The amount of € 2,262 mn is gross of € 50 mn related to subleases, which represent cash inflow to the Allianz Group. 4 Purchase obligations only include transactions related to goods and services; purchase obligations for financial instruments are not included.
Derecognition of financial assets The Allianz Group enters into repurchase-agreementtransactions in which previously recognized financial assets, mainly available-for-sale debt securities, are transferred, but substantially all of the risks and rewards of those assets are retained. As of December 31, 2010, the carrying amount of those assets amounted to € 868 mn (2009: € 967 mn) and the carrying amount of the related liabilities amounted to € 875 mn (2009: € 1,004 mn).
268 Allianz Group Annual Report 2010 Consolidated Financial Statements 46 Related party transactions
Business relations with associates are set on an arm’s length basis and are additionally of subordinate importance as a whole.
The U.S. Department of Justice (DOJ) is conducting an investigation into whether certain employees of Fireman ’s Fund Insurance Company’s (FFIC), a subsidiary of Allianz SE, engaged in violation (criminal or civil) of the 47 Contingent liabilities, commitments, guarantees, and assets pledged and collateral
Contingent liabilities Litigation Allianz Group companies are involved in legal, regulatory, and arbitration proceedings in Germany and a number of foreign jurisdictions, including the United States. Such proceedings arise in the ordinary course of businesses, including, amongst others, their activities as insurance, banking and asset management companies, employers, investors and taxpayers. It is not feasible to predict or determine the ultimate outcome of the pending or threatened proceedings. Management does not believe that the outcome of these proceedings, including those discussed below, will have a material adverse effect on the financial position and the results of operations of Allianz Group, after consideration of any applicable reserves.
Allianz and HT1 Funding GmbH have signed a Contingent Indemnity Agreement in July 2006, pursuant to which Allianz may, in certain circumstances, be obliged to make payments to HT1 Funding GmbH. HT1 Funding GmbH issued nominal € 1,000 mn Tier 1 Capital Securities with an annual coupon of 6.352 % (as of June 30 2017, the coupon will be 12-months EURIBOR plus a margin of 2.0 % p.a.). The securities have no scheduled maturity and the security holders have no right to call for their redemption. The securities may be redeemed at the option of the issuer on June 30, 2017, and thereafter. It is not possible for the Allianz Group to predict potential payment obligations for the fiscal year 2011 and future periods at this time, but management currently does not expect any material negative financial impact for the Allianz Group.
Three members of the Fireman’s Fund group of companies in the U.S.A., all subsidiaries of Allianz SE, are among the defendants named in a class action filed on August 1, 2005 in the United States District Court of New Jersey in connection with allegations relating to contingent commissions in the insurance industry. No class has been certified yet. The court dismissed with prejudice the federal court causes of action and dismissed without prejudice the state law causes of action. Upon plaintiffs’ appeal the Court of Appeals affirmed the dismissal of the majority of plaintiffs’ claims. It vacated and remanded the remainder of the claims. It is currently not possible to predict the potential outcome or exposure of this lawsuit.
Commitments Loan commitments The Allianz Group engages in various lending commitments to meet the financing needs of its customers. The following table represents the amounts at risk should customers draw fully on all facilities and then default, excluding the effect of any collateral. Since the majority of these commitments may expire without being drawn upon, the amounts shown may not be representative of actual liquidity requirements for such commitments.
As of December 31, 2010, the future minimum lease payments under non-cancelable operating leases were as follows: € mn
For the year ended December 31, 2010, rental expense, totaled € 239 mn (2009: € 271 mn; 2008: € 253 mn), net of sublease rental income received of € 12 mn.
In addition, as of December 31, 2010, the Allianz Group has other commitments of € 252 mn (2009: € 193 mn) referring to maintenance, real estate development, sponsoring and purchase obligations.
Other commitments Other principal commitments of the Allianz Group include the following: Pursuant to §§ 124 ff. of the German Insurance Super- vision Act (“Versicherungsaufsichtsgesetz – VAG”), a mandatory insurance guarantee scheme (“Sicherungsfonds ”) for life insurers is implemented in Germany. Each member of the scheme is obliged to make to the scheme annual contributions as well as special payments under certain circumstances. The exact amount of obligations for each member is calculated according to the provisions of a Federal Regulation (“SicherungsfondsFinanzierungs -Verordnung (Leben) – SichLVFinV”). As of December 31, 2010, the future liabilities of Allianz Lebensversicherungs -Aktiengesellschaft and its subsidiaries to the insurance guarantee scheme amount to annual contributions of € 0.1 mn (2009: € 2 mn) and an obligation for special payments of € 101 mn (2009: € 97 mn).
Fi na nc ia l S ta te m en ts deduction of payments already provided to the insurance guarantee scheme. As of December 31, 2010, and under inclusion of the contributions to the mandatory insurance scheme mentioned above, the aggregate outstanding commitment of Allianz Lebensversiche-rungsAktiengesellschaft and its subsidiaries to the insurance guarantee scheme and to Protektor was € 905 mn (2009: € 879 mn).
According to the German Deposit Guarantee and Investor Compensation Act (EAEG – Einlagensicherungs- und Anlegerentschädigungsgesetz) all credit institutions and investment companies licenced to do business in Germany must adhere to a statutory compensation scheme. Allianz Global Investors Advisory GmbH, Allianz Global Investors Kapitalanlagegesellschaft mbH and Allianz Global Investors Europe GmbH are currently members of EdW (Entschädigungseinrichtung der Wertpapierhandelsunternehmen, Berlin). The annual contribution is determined in consideration of each member’s scope of business.
In addition, EdW may levy special contributions from investment companies, if the funds available to EdW are insufficient to satisfy all eligible claims. Special contributions are determined by reference to the preceding year’s contribution. Regular and extraordinary contributions are capped at a certain percentage of the member’s profit of the relevant year. In 2010, AGI companies made regular contributions in the aggregate amount of approximately € 1 mn. Special contributions have been claimed with respect to the insolvency of Phoenix Kapitaldienst GmbH in relation to which the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – BaFin) has determined that certain investor claims will be covered under the compensation scheme. In 2010, AGI companies have been requested to contribute € 3 mn in special contributions. In the same context, AGI companies have adequately provisioned for potential liabilities for future extraordinary contributions.
As of December 31, 2010, the Allianz Group has received collateral, consisting of fixed income and equity securities, with a fair value of € 567 mn (2009: € 660 mn), which the Allianz Group has the right to sell or repledge. As of December 31, 2010 and 2009, respectively, no previously received collateral was sold or repledged by the Allianz Group.
As of December 31, 2010, the Allianz Group did not take possession of collateral it holds as security (2009: € 21 mn).
The following table sets forth the changes in the defined benefit obligation, the changes in fair value of plan assets and the net amount recognized for the various Allianz Group defined benefit plans: € mn € mn
Actuarial (gains)/losses 835 956 Foreign currency translation adjustments 240 70 Benefits paid (593) (582) Changes in the consolidated subsidiaries of the Allianz Group 64 54 Divestitures (43) — Settlements, curtailments, termination benefits (17) (71) Defined benefit obligation as of December 31, 1 15,320 13,727 Change in fair value of plan assets Fair value of plan assets as of January 1, 8,913 7,964 Expected return on plan assets 454 440 Actuarial gains/(losses) 53 283 Employer contributions 392 385 Plan participants’ contributions 72 68 Foreign currency translation adjustments 229 60
Changes in the consolidated subsidiaries of the Allianz Group 61 93 Divestitures (48) — Assets distributed on settlement (10) (53) Fair value of plan assets as of December 31, 9,780 8,913 Funded status as of December 31, 5,540 4,814 Unrecognized net actuarial gains/(losses) (2,058) (1,375) Unrecognized past service costs 5 3 Amount not recognized due to asset ceiling 66 101 Net amount recognized as of December 31, 3,553 3,543 1 As of December 31, 2010, € 5,329 mn (2009: € 4,707 mn) of the defined benefit obligation are wholly unfunded, while € 9,991 mn (2009: € 9,020 mn) are wholly or partly funded.
The increase in actuarial losses is basically due to the decrease in the discount rate. Besides this is also the main reason for exceeding the 10 %-corridor as of December 31, 2010, which results in an amortization of a part of the unrecognized actuarial losses through profit and loss in 2011.
Net amount recognized as of January 1, 3,543 3,611 Changes in the consolidated subsidiaries of the Allianz Group — 5 Foreign currency translation adjustments 2 (2)
Net amount recognized as of December 31, 3,553 3,543 thereof assets (372) (276) thereof liabilities 3,925 3,819
Expected return on plan assets (454) (440) (448) Amortization of past service cost 3 (8) 38 Amortization of net actuarial (gain)/loss 124 (55) 6 Effect of asset ceiling (48) 99 — (Income)/expenses of plan curtailments or settlements — (8) — Expense recognized in profit or loss 658 571 589
The actual return on plan assets during the year ended December 31, 2010, amounted to € 507 mn (2009: € 723 mn; 2008: € (333) mn).
The calculations are based on current actuarially calculated mortality estimates. Projected turnover depending on age and length of service have also been used, as well as internal Allianz Group retirement projections.
The weighted average value of the assumptions for the Allianz Group’s defined benefit plans used to determine defined benefit obligation and the expense recognized in profit or loss are as follows: Expected long-term return on plan assets 5.0 5.4 5.5 Rate of compensation increase 2.4 2.4 2.5 Rate of pension increase 1.5 1.6 1.9 Rate of medical cost trend 4.1 5.4 7.5
Especially the discount rate assumption results in uncertainty and a significant risk. A change in the discount rate by 25 bps would lead to an effect of € 603 mn on the defined benefit obligation.
Fi na nc ia l S ta te m en ts 49 Share-based compensation plans
During the year ended December 31, 2010, the Allianz Group recognized expenses for defined contribution plans of € 163 mn (2009: € 149 mn; 2008: € 212 mn). Additionally, the Allianz Group paid contributions for state pension schemes of € 367 mn (2009: € 373 mn; 2008: € 317 mn).
Equity securities 20.0 7.7 Debt securities 72.0 4.2 Real estate 6.2 4.9
Plan assets The defined benefit plans’ weighted average asset allocations by asset category are as follows: As of December 31, 2010 2009
The fair value of the SARs at grant date is measured using a Cox-Rubinstein binomial tree option pricing model. Volatility was derived from observed historical market prices. In the absence of historical information regarding employee stock appreciation exercise patterns (all plans issued between 2006 and 2008 are significantly “out of the money”), the expected life has been estimated to equal the term to maturity of the SARs.
The SARs are accounted for as cash settled plans by the Allianz Group. Therefore, the Allianz Group accrues the fair value of the SARs as compensation expense over the vesting period. Upon vesting, any changes in the fair value of the unexercised SARs are recognized as compensation expense. During the year ended December 31, 2010, the Allianz Group recognized compensation expense related to the unexercised SARs of € 5 mn (2009: € 12 mn; 2008: € (116) mn).
As of December 31, 2010, the Allianz Group recorded for the unexercised SARs a provision of € 48 mn (2009: € 50 mn) in other liabilities.
The RSUs are virtual stocks without dividend payments. The fair value is calculated by substracting the net present value of expected future dividend payments until maturity of the RSUs from the prevailing share price as of the valuation date.
The RSUs are accounted for as cash settled plans as the Allianz Group intends to settle in cash. Therefore, the Allianz Group accrues the fair value of the RSUs as compensation expense over the vesting period. During the year ended December 31, 2010, the Allianz Group recognized compensation expense related to the non-vested RSUs of € 58 mn (2009: € 72 mn; 2008: € (19) mn).
Due to the new remuneration structure effective January 1, 2010 the RSUs 2011 are deemed to have been granted to participants as part of the 2010 remuneration. The additional liability and compensation expense for the RSU component granted in March 2011 are estimated on a 100 % target achievement as announced in the target letter of each beneficiary for the year 2010.
The RSUs granted to a plan participant obligate the Allianz Group to pay in cash the average closing price of an Allianz SE share on the last day of the vesting period and the prior nine trading days or to convert one RSU to one Allianz SE share. The payout is capped at 200 % share price growth over the grant price.
The RSUs are subject to a vesting period of four years. The RSUs will be released on the last day of the vesting period. The Allianz Group can choose the settlement method for each RSU.
The following table provides the assumptions used in calculating the fair value of the RSUs at grant date: Share price € 105.85 Average dividend yield 4.7 % Average interest rate 2.6 % Expected volatility 18.0 %
1 The RSUs 2011 are deemed to have been granted to participants as part of their 2010 remuneration. Consequently, the assumptions for RSU grants delivered in March 2011 are based on best estimation.
The RSUs are accounted for as cash settled plans as the Allianz Group intends to settle in cash. Therefore, the Allianz Group accrues the fair value of the RSUs as compensation expense over the service period of one year and afterwards over the vesting period. During the year ended December 31, 2010, the Allianz Group recognized compensation expense related to the RSU component of the AEI plan of € 17 mn.
Therefore, the Allianz Group accrues the fair value of the Class B equity units as compensation expense over the vesting period. Upon vesting, any changes in the fair value of the Class B equity units are recognized as compensation expense. During the year ended December 31, 2010, the Allianz Group recognized compensation expense related to the Class B equity units of € 367 mn (2009: € 311 mn; 2008: € 185 mn). In addition, the Allianz Group recognized expense related to the priority claim on the adjusted operating profits of PIMCO LLC of € 74 mn (2009: € 92 mn; 2008: € 93 mn). During the year ended December 31, 2010, the plan participants put 174 Class B equity units. The total amount paid related to the put of the Class B equity units was € 4 mn. Further the Allianz Group called 25,680 Class B equity units during the year ended December 31, 2010. The total amount paid related to the call of the Class B equity units was € 636 mn.
The total recognized compensation expense for Class B equity units that are outstanding is recorded as a liability in other liabilities. As of December 31, 2010, the Allianz Group recorded a liability for the Class B equity units of € 902 mn (2009: € 1,118 mn).
PIMCO LLC Class M-unit Plan In 2008, Allianz Global Investors of America L.P. (AGI L.P.) launched a new management share-based payment incentive plan for certain senior level executives of PIMCO LLC and certain of its affiliates. Participants in the plan are granted options to acquire a new class of equity instruments (M-units), which vest in one-third increments on approximately the third, fourth and fifth anniversary of the option valuation date. Upon vesting, options will be automatically exercised in a cashless transaction. Participants may elect to defer the receipt of M-units through the M-unit Deferral Plan. With the M-unit Plan, participants can directly participate in PIMCO’s performance. Class M-units are non-voting common equity with limited information rights. They bear quarterly distributions equal to a pro-rata share of PIMCO’s net distributable income. Deferred M-units have a right to receive quarterly cash compensation equal to and in lieu of quarterly dividend payments.
The following table provides the assumptions used in calculating the fair value of the M-options at grant date: Weighted average fair value of options granted € 1,462.84 € 1,207.91 € 577.44 Assumptions: Expected term (years) 3.83 3.85 3.85
The cash settlement is based upon the initial offer proposed for each AGF share during the Tender Offer. As of December 31, 2007, all shares issued under these plans were fully vested and exercisable.
Due to the change in settlement arising from the Liquidity Agreement, the Allianz Group accounts for the AGF share option plans as cash settled plans, as all AGF employees will receive cash for their AGF shares. Therefore, the Allianz Group recognizes any change in the fair value of the unexercised plans as compensation expense.
The M-options outstanding as of December 31, 2010 have an exercise price between € 6,335.95 and € 11,515.04 and a weighted average remaining contractual life of 3.31 years.
During the year ended December 31, 2007, Allianz acquired all of the remaining AGF shares from noncontrolling interests in the context of the Tender Offer and Squeeze-out. Under the terms of an agreement (the ”Liquidity Agreement”) between Allianz SE, AGF and the beneficiaries of the AGF share option plans 2003-2006 (AGF employees), Allianz has the right to purchase all AGF shares issued through the exercise of these AGF share option plans after the put period (where the beneficiaries have the right to sell to Allianz). The price payable by Allianz per AGF share is a cash consideration equal to the Allianz 20-day-average share price prior to the date the right to buy or to sell is exercised, multiplied by a ratio representing the consideration proposed in the Tender Offer for each AGF share (€ 126.43) divided by the Allianz share price on January 16, 2007 (€ 155.72). This ratio is subject to adjustments in case of transactions impacting Allianz or AGF share capital or net equity.
The options outstanding as of December 31, 2010, have an exercise price of € 93.99 and a weighted average remaining contractual life of 1 year.
As all share option plans are completely vested the Allianz Group recorded no compensation expenses for the years ended December 31, 2010, 2009 and 2008.
Employee stock purchase plans The Allianz Group offers Allianz SE shares in 19 countries to qualified employees at favorable conditions. The shares have a minimum holding period of 1 to 5 years. During the year ended December 31, 2010, the number of shares sold to employees under these plans was 623,465 (2009: 721,740; 2008: 721,830). During the year ended December 31, 2010, the Allianz Group recognized compensation expense, the difference between the market price (closing price of the Allianz SE stock in Xetra on September 7, 2010) and the discounted price of the shares purchased by employees, of € 10 mn (2009: € 11 mn; 2008: € 10 mn).
Other share option and shareholding plans The Allianz Group has other local share-based compensation plans, including share option and employee share purchase plans, none of which, individually or in the aggregate, are material to the consolidated financial statements. During the year ended December 31, 2010, the total expense recorded for these plans was € 1 mn (2009: € 2 mn; 2008: € 2 mn).
Fi na nc ia l S ta te m en ts 50 Restructuring plans
As of December 31, 2010, the Allianz Group has provisions for restructuring resulting from a number of restructuring programs in various segments. These provisions for restructuring primarily include personnel costs, which result from severance payments for employee terminations, and contract termination costs, including those relating to the termination of lease contracts that will arise in connection with the implementation of the respective initiatives.
Additions to existing provisions 3 — — — — 16 19 Release of provisions recognized in previous years (10) — — — — (1) (11) Utilization of provisions via payments (10) (2) — — — (70) (82) Utilization of provisions via transfers (61) — — — — (5) (66) Reclassification to liabilities of disposal groups classified as held for sale — — — — — (166) 2 (166)
Utilization of provisions via cash payments € mn € mn € mn € mn € mn € mn € mn € mn € mn
The restructuring activities of the Allianz France resulted in a reduction of locations within France from 14 to 10 and a relocation of employees and activities in order to ensure that experts are present in each location as well as a strong reduction of non-HR costs (especially IT, purchasing, facilities).
As of December 31, 2010 the ABV AG restructuring provision for the plan announced in 2010 was € 42 mn. During the year ended December 31, 2010 ABV AG recorded restructuring charges of € 42 mn.
In addition, Euler Hermes Belgium decided in 2010 to close its retail credit insurance business at the Brussels office which is no longer profitable in the long run. This measure comprises a reduction of approximately 40 employees, mainly through early retirement. The program will be completed in the third quarter of 2011.
As of December 31, 2010, Euler Hermes Belgium recorded a restructuring provision of € 10 mn. During the year ended December 31, 2010, Euler Hermes Belgium recorded restructuring charges of € 10 mn.
During the year ended December 31, 2010, manroland AG recorded restructuring charges of € 52 mn (2009: € 89 mn). As of December 31, 2010, the provision for restructuring of manroland AG was € 90 mn (2009: € 87 mn).
Restructuring charges for the year ended December 31, € mn € mn € mn € mn € mn
Allianz Nederland Group ( Allianz Netherlands) 20 — 27 2 —
Allianz Belgium S.A. ( Allianz Belgium) In 2009, the Board of Allianz Belgium announced the realization of two major initiatives of the Operational Transformation Program: the closing of the headquarters of Antwerp and the outsourcing of the IT developments.
Companhia de Seguros Allianz Portugal S.A. ( Allianz Portugal) In 2009, Allianz Portugal announced a restructuring program for the integration of IT platforms between Portugal and Spain. The objective is to establish a common and shared IT infrastructure by IT transformation and process redesign as well as to enlarge the scope of the shared service of Allianz Iberica Services Center. The program intends to integrate support services and to harmonize procedures. The product offer diversity shall be enlarged and the complexity is supposed to be reduced. In addition, the scope of agents sales support tool is going to be enlarged. Moreover, Allianz Portugal plans to leverage internal redundant resources to eliminate external ones and to benefit from lower costs.
Allianz Nederland Group ( Allianz Netherlands) As part of the restructuring plan Allianz 2012 whose execution was started already in 2009, Allianz Netherlands announced in 2010 to centralize all main activities at its headquarter in Rotterdam. This reorganization is a direct outcome of the implementation of the Target Operating Model and intends cost savings according to the Operational Transformation Plan.
dilutive common shares. Potentially dilutive common shares arise from the assumed conversion of participation certificates issued by Allianz SE, warrants issued by Allianz SE and share-based compensation plans into Allianz shares, as well as from the conversion of derivatives on own shares.
Basic earnings per share (in €) 11.20 9.33 (5.25) from continuing operations 11.20 10.21 8.99 from discontinued operations — (0.88) (14.24)
Diluted earnings per share Diluted earnings per share are calculated by dividing net income (loss) attributable to shareholders by the weighted average number of common shares outstanding for the period, both adjusted for the effects of potentially € mn € mn € mn
from continuing operations 5,031 4,602 4,000 from discontinued operations — (395) (6,411)
Weighted average number of common shares outstanding 451,280,092 450,845,024 450,161,145 Potentially dilutive common shares resulting from assumed conversion of: Participation certificates — 728,683 1,469,443 Warrants — — 36,338 Share-based compensation plans 1,221,057 814,046 3,226,670 Derivatives on own shares — — 1,139,945
Weighted average number of common shares outstanding after assumed conversion 452,501,149 452,387,753 456,033,541
The Declaration of Compliance of the publicly traded group company Oldenburgische Landesbank AG was issued in December 2010 and was made permanently available to the shareholders.
Principal accountant fees and services KPMG AG Wirtschaftsprüfungsgesellschaft (KPMG AG) serves as the external auditing firm for the Allianz Group.
Fees billed by KPMG AG and affiliated entities and KPMG AG and the worldwide member firms of KPMG International (KPMG) are disclosed in four categories: Fees billed
Increase in ownership in China Pacific Insurance On January 8, 2011, the Allianz Group increased its investment in China Pacific Insurance (Group) Co., Ltd. (CPIC) H shares by USD 855 mn.
All services provided by KPMG to Allianz Group companies must be approved by the Audit Committee of the Allianz SE Supervisory Board. Services other than audit services must be pre-approved by the Audit Committee. The Audit Committee pre-approval process is based on the use of a “Positive List” of activities decided by the Audit Committee and, in addition, a “Guiding Principles and User Test” is applied. Group Compliance and KPMG report to the Audit Committee periodically with respect to services performed.
The total cash remuneration of the Board of Management of Allianz SE for 2010 (excluding the notional annual Mid-term bonus accrual) amounted to € 18.0 mn (2009 including the payout of the Three-year bonus for the period 2007 - 2009: € 27.8 mn). The equity-related remuneration which applied before 2010 consisted of two vehicles, known as Stock Appreciation Rights (SAR) and Restricted Stock Units (RSU). The new arrangement continue to award RSU. Likewise, 114,156 1 (2009: 95 288) restricted stock units (and 2009: 192 709 stock appreciation rights) with a total fair value at grant date of € 9.9 mn (2009: € 8.4 mn) were granted to the Board of Management for the year ended December 31, 2010. 2 1 The relevant share price to determine the final number of RSU granted is only available after the sign-off by KPMG, thus numbers are based on a best estimate.
2 In the Annual Report 2009 disclosure of the equity related remuneration was based on best estimate. The figures shown here now include the actual figures as of the grant date.
Total compensation to the Supervisory Board amounted to € 1.5 mn (2009: € 1.5 mn).
ESA Cargo & Logistics GmbH, Bad Friedrichshall 100.0 esa EuroShip GmbH, Bad Friedrichshall 51.0
Oldenburgische Landesbank Aktiengesellschaft, Oldenburg 89.6 ppi Media GmbH, Hamburg 74.8 rehacare GmbH, Munich 74.9 risklab GmbH, Munich 100.0
Group’s consolidated financial statements. 5 Group share through indirect holder Roland Holding GmbH, 6 Classified as associated entity according to SIC-12. 7 Special Purpose Entity according to SIC-12 (SPE). 8 Significant influence.
Infrastruktur Putlitz Ost II GmbH, Putlitz 100.0 manroland Heusenstamm GmbH, Heusenstamm 100.0 manroland Versicherungsvermittlungs GmbH, Offenbach 100.0
Allianz Finance Management Pty Ltd., Sydney 100.0 1 Percentage includes equity participations held by dependent enterprises in full, even if the Allianz Group’s share in the dependent enterprise is under 100 %.
3 Mutual-, Private Equity- or Specialfunds. 4 Releasing impact according to § 264 (3) HGB through Allianz
AZB HS INSTITUCIONAL PLUS RENDA FIXA FI, Sao Paulo 100.0 3
AZb ST Institucional Plus II Renda Fixa FI, Sao Paulo 100.0 3
Challenging Financial Careers Insurance Marketing Corp., LLC, Huntington Beach, CA 100.0
Allianz ZB d.o.o. Company for the Management of an Obligatory Pension Fund, Zagreb 51.0
Allianz ZB d.o.o. company of the management of voluntary pension funds, Zagreb 51.0
Euler Hermes Crédito Compañía de Seguros y Reaseguros S.A., Madrid 100.0
Euler Hermes Services AG, Zurich 100.0 1 Percentage includes equity participations held by dependent enterprises in full, even if the Allianz Group’s share in the dependent enterprise is under 100 %.
Magdeburger Sigorta A.S., Istanbul 100.0 manroland (China) Ltd., Hong Kong 100.0 manroland (India) Pvt. Ltd., New Delhi 100.0 manroland (Korea) Ltd., Seoul 100.0 manroland (Shenzhen) Ltd., Shenzhen 100.0 manroland (Taiwan) Ltd., Taipeh 100.0 manroland Australasia PTY Limited, Regents Park 100.0 manroland Baltics SIA, Riga 100.0 manroland Benelux N.V., Wemmel 100.0 manroland Bulgaria-eood, Sofia 100.0 manroland Canada Inc., Toronto 100.0 manroland CEE AG, Vienna 100.0 manroland Ceská Republika spol. S.r.o., Prague 100.0 manroland Co. Ltd., Tokyo 100.0 manroland d.o.o., Ljubljana 100.0 manroland Danmark A/S, Vaerloese 100.0 manroland do Brasil Servicios Ltda., Sao Paulo 100.0 manroland Finland Oy, Vantaa 100.0 manroland France SA, Paris 100.0 manroland Great Britain Ltd., Mitcham, Surrey 100.0 manroland Hrvatska d.o.o., Novaki-SV. Nedjelja 100.0 manroland Iberica Sistemas S.A., Cascais 74.0 manroland Iberica Sistemas S.L., Madrid 100.0 manroland Inc., Westmont, IL 100.0 manroland Ireland Ltd., Dublin 99.7 manroland Italia SpA, Milan 99 3 manroland latina Argentina, Buenos Aires 100.0 manroland latina Colombia, Bogota D.C. 100.0 manroland latina Peru, Lima 100.0 manroland latina S.A. de C.V., Mexico City 100.0 manroland latina S.A., Santiago de Chile 100.0 manroland Magyarorszag Kft., Budapest 100.0 manroland Mexico Servicios S.A. de C.V., Mexico City 100.0 manroland Norge AS, Lörenskog 100.0 manroland Poland SP. Z.o.o., Nadarzyn 100.0 manroland Polska Sp. z.o.o., Nadarzyn 100.0
GTS - GESTION DE TELESECURITE ET DE SERVICES S.A., Chatillon 100.0
Home & Legacy Insurance Services Limited, London 100.0 manroland Printing Equipment (Shanghai) Ltd., Shanghai 100.0 manroland Printing Equipment (Shenzen) Co. Ltd., Shenzhen 100.0 manroland Romeania S.R.L., Bucharest 100.0 manroland Singapore PTE.Ltd., Singapore 100.0 manroland Southern Africa (Pty) Ltd., Cape Town 100.0 manroland Sverige AB, Trollhättan 100.0 manroland Swiss AG, Kirchberg 100.0 manroland Thailand Ltd., Bangkok 100.0 manroland Western Europe Group B.V., Amsterdam 100.0
Medisalud Compania Colombiana de Medicina Prepagada S.A. en Liquidación, SA, Bogota D.C. 100.0
Mondial Assistance Portugal Servicos de Assistência LDA, Paco de Aros 100.0
Wm. H McGee & Co. of Puerto Rico Inc., San Juan 100.0
Non consolidated affiliated entities 75 WALL STREET ADVISERS, New York, NY 99.8
Prof. Dr.-Ing. e. h. Hans-Olaf Henkel Honorary Professor, University of Mannheim
Dr.-Ing. Dieter Hundt, Honorary Senator Chairman of the Supervisory Board, Allgaier Werke GmbH
Prof. Dr. Dennis J. Snower President, Institut für Weltwirtschaft, University of Kiel
Dr. Jürgen Hambrecht Chairman of the Board of Executive Directors, BASF SE
Franz B. Humer Chairman of the Board of Directors, Roche Holding Ltd.
Rahmi Koç Honorary Chairman of the Board of Directors, Koç Holding AS
nf or m at io n 300 Joint Advisory Council and International Advisory Board 301 Mandates 304 Glossary 308 Index
Jean-Jacques Cette Membership in comparable 2 supervisory bodies Membership in group bodies Allianz France S.A.
Dr. Gerhard Cromme Membership in other statutory supervisory boards and SE administrative boards in Germany Axel Springer AG Siemens AG (Chairman) ThyssenKrupp AG (Chairman)
Karl Grimm until December 31, 2010 Membership in other statutory supervisory boards and SE administrative boards in Germany Membership in group bodies Allianz Versorgungskasse VVaG (Deputy Chairman)
Rolf Zimmermann 1 As of December 31, 2010 or (with members who resigned) day of resignation. 2 We regard memberships in other supervisory bodies as “comparable” if the company is listed on a stock exchange or has more than 500 employees.
Membership in comparable 2 supervisory bodies Membership in Group bodies Allianz France S.A. (Vice President) Allianz S.p.A.
Membership in Group bodies Allianz Global Investors AG Allianz Investment Management SE (Chairman)
Manuel Bauer since January 1, 2011 Membership in comparable 2 supervisory bodies Zagrebacka Banka
Membership in Group bodies Allianz Bulgaria Insurance and Reinsurance Company Ltd. (Chairman) Allianz Hungária Biztosító Rt. Allianz Life Insurance Co. Ltd. Korea Allianz pojistovna a.s. (Chairman) Allianz-Slovenská poist’ovna a.s. Allianz Tiriac Asigurari SA (Chairman) Allianz Zagreb d.d. (Chairman) Russian People’s Insurance Society “ROSNO” TU Allianz Polska S.A. TU Allianz Życie Polska S.A.
Membership in comparable 2 supervisory bodies Membership in Group bodies Allianz Australia Limited Allianz Holdings plc (Chairman) Allianz Insurance plc (Chairman) Allianz Irish Life Holdings plc Allianz UK Ltd (Chairman) Euler Hermes S.A. (Chairman)
Membership in Group bodies Allianz Global Investors Deutschland GmbH (Chairman) Allianz Global Investors Kapitalanlagegesellschaft mbH (Chairman)
Membership in comparable 2 supervisory bodies Membership in Group bodies Allianz France S.A. Allianz S.p.A.
Dr. Christof Mascher Membership in other statutory supervisory boards and SE administrative boards in Germany Membership in Group bodies Allianz Deutschland AG (until December 31, 2010) Allianz Managed Operations and Services SE (Chairman)
1 As of December 31, 2010 or (with members who resigned) day of resignation. 2 We regard memberships in other supervisory bodies as “comparable” if the company is listed on a stock exchange or has more than 500 employees.
Membership in comparable 1 supervisory bodies Membership in Group bodies Allianz Life Insurance Company of North America (Chairman), Fireman’s Fund Insurance Company (Chairman)
Dr. Gerhard Rupprecht until December 31, 2010 Membership in other statutory supervisory boards and SE administrative boards in Germany Fresenius SE Heidelberger Druckmaschinen AG
Membership in Group bodies Allianz Deutschland AG (Chairman) (until December 31, 2010)
Membership in comparable 1 supervisory bodies Membership in Group bodies (until December 31, 2010) Allianz Elementar Lebensversicherungs-AG (Chairman) Allianz Elementar Versicherungs-AG (Chairman) Allianz Investmentbank AG (Vice Chairman) Allianz Suisse Lebensversicherungs-Gesellschaft Allianz Suisse Versicherungs-Gesellschaft
Dr. Werner Zedelius Membership in other statutory supervisory boards and SE administrative boards in Germany Membership in Group bodies Allianz Deutschland AG (Chairman) (since January 1, 2011) Allianz Private Krankenversicherungs-AG (Deputy Chairman) (until January 31, 2011)
Membership in Group bodies Allianz Elementar Lebensversicherungs-AG (Chairman-designate) Allianz Elementar Versicherungs-AG (Chairman-designate) Allianz Hungária Biztosító Rt. (Chairman) Allianz Investmentbank AG (Vice Chairman-designate) Allianz-Slovenská poist’ovna a.s. (Chairman) Russian People’s Insurance Society “ROSNO” (Chairman) TU Allianz Polska S.A. (Chairman) TU Allianz Życie Polska S.A. (Chairman)
The accounting terms explained here are intended to help the reader understand this Annual Report. Most of these terms concern the balance sheet or the income statement. Terminology relating to particular segments has not been included.
Business combination A business combination is a transaction or event in which an acquirer obtains control of one or more businesses. Business combinations are accounted for using the acquisition method.
Deferred acquisition costs Expenses of an insurance company which are incurred in connection with the acquisition of new insurance policies or the renewal of existing policies. They include commissions paid, underwriting expenses and policy issuance costs.
Defined contribution plans Defined contribution plans are funded through independent pension funds or similar organizations. Contributions fixed in advance (e. g. based on salary) are paid to these institutions and the beneficiary’s right to benefits exists against the pension fund. The employer has no obligation beyond payment of the contributions and is not participating in the investment success of the contributions.
Derivative financial instruments 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, foreign currency exchange rates or prices of goods). Important examples of derivative financial instruments are options, futures, forwards and swaps.
Equity method 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 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.
Held-to-maturity investments Held-to-maturity investments comprise debt securities held with the intent and ability that they will be held-to-maturity. They are valued at amortized cost.
Retained earnings 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.
Segment reporting Financial information based on the consolidated financial statements, reported by business segments (Property-Casualty, Life/Health, Asset Management and Corporate and Other) as well as by reportable segments.
Assets and liabilities 105 Associated enterprises and joint ventures 290 Audit Committee 9, 25
B Balance Sheet Review 105 Banking 59, 95 Basic earnings per share 17, 286 Belgium/Luxembourg 85 Board of Management 12, 22 Board of Management Remuneration 35 Board of Management’s committees 23, 30 Brand 61 Business divisions 58, 82, 88 Business environment 65 Business operations 59
May 4, 2011 Annual General Meeting May 12, 2011 Interim Report 1st quarter 2011 August 5, 2011 Interim Report 2nd quarter 2011 November 11, 2011 Interim Report 3rd quarter 2011 February 23, 2012 Financial press conference for 2011 financial year February 24, 2012 Analysts’ conference for 2011 financial year March 23, 2012 Annual Report 2011 May 9, 2012 Annual General Meeting
As we can never rule out changes of dates, we recommend checking them on the Internet at www.allianz.com/financialcalendar
View our 2010 Annual Report on the Internet at www.allianz.com/annualreport. Make the most of the Internet’s advantages: – select individual data and compare key ratios over a number of years,
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