1 Magazine for The annual reporT 2012 a To our investors 35 Letter to the Investors 40 Supervisory Board Report 49 Supervisory Board 50 Board of Management 53 International Executive Committee 54 Allianz Share 59 Services for Allianz Investors
MAnAGeMent Discussion AnD AnAlYsis 122 Business Environment 124 Executive Summary of 2012 Results 132 Property-Casualty Insurance Operations 140 Life/Health Insurance Operations 148 Asset Management 152 Corporate and Other 166 Balance Sheet Review 175 Liquidity and Funding Resources 182 Reconciliations risk report AnD FinAnciAl control 184 Risk Report 214 Controls and Procedures
Net income from continuing operations 5 € mn 5,491 95.8 % 2,804 5,209 4,650 4,268 7,991 7,843 128 Net income (loss) from discontinued operations, net of income taxes 5 € mn – – – – (395) (6,373) 723 467 –
Share price as of 31 December € 104.80 41.8 % 73.91 88.93 87.15 75.00 147.95 154.76 54 Market capitalization as of 31 December € mn 47,784 42.0 % 33,651 40,419 39,557 33,979 66,600 66,880 56
Standard & Poor’s rating 11 AA – AA AA AA AA AA AA– 186 Total assets under management as of 31 December € mn 1,852,332 11.8 % 1,656,993 1,517,538 1,202,122 950,548 1,009,586 1,011,802 149 thereof: Third-party assets under management as of 31 December € mn 1,438,425 12.3 % 1,281,256 1,163,982 925,699 703,478 764,621 763,855 149 1 Figures prior to 2008 have not been restated to reflect the change in the Allianz Group’s accounting policy for fixed-indexed annuities, effective 1 July 2010.
2 Total revenues comprise statutory gross premiums written in Property-Casualty and Life/ Health, operating revenues in Asset Management and total revenues in Corporate and Other (Banking).
5 Following the announcement of the sale on 31 August 2008, Dresdner Bank was classified as held for sale and discontinued operations. Therefore, all revenue and profit figures presented for our continuing business do not include the parts of Dresdner Bank that we sold to Commerzbank on 12 January 2009. The results from these operations are presented in a separate net income line “Net income (loss) from discontinued operations, net of income taxes”.
7 Dividend sum based on total amount of shares. Actual dividend payment will be reduced by the dividend amount attributable to treasury shares. 8 Based on average shareholders’ equity. Average shareholders’ equity has been calculated based upon the average of the current and the preceding year’s shareholders’ equity as of 31 December.
9 Based on net income from continuing operations after non-controlling interests. 10 Pro-forma after sale of Dresdner Bank completed. 11 For further information about insurer financial strength ratings of Allianz SE, please refer to page 186.
Dividend per share (proposal) page 55 € 4.50 Operating profit page 126
1 After elimination of transactions between Allianz Group companies in different geographic regions and different segments.
3 Based on the origination of assets by the asset management company. 4 Consists of third-party assets managed by other Allianz Group companies (approximately € 28 BN as of 31 December 2012 and € 26 BN as of 31 December 2011, respectively).
By region / country – yeAr 2012 [2011] – in %
By region / country – As of 31 decemBer 2012 [31 decemBer 2011] – in %
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We’re there when people and companies get into trouble, utilizing all our capabilities to help our clients. We have the right product for every occasion. We grow profitably and sustainably. Our investments are prudent and far-sighted. We know the risks, but make the most of opportunities. All of these are the building blocks of our success – and the strength of our great community.
ALP GÜL ALLIANZ AGeNcy, ISTANBUL alp gül has built up a very promising allianz agency in istanbul. the country’s rising standard of living has brought a sharp increase in demand for insurance.
The population is growing steadily too, with the flight from rural areas causing rapid growth in large cities. More than 14 million people already live in the Istanbul metropolitan area. Along with the booming economy, this explains why the city is a very attractive business location. The former capital’s middle class, in particular, is growing con siderably. And they want to safeguard their new standard of living. In addition to property, health and life insurance, Gül’s clients also want car insurance. Many of his clients opt for the products he offers because they are familiar with the Allianz brand. “We’re benefiting from the fact that Allianz has been in Turkey for many years now,” the agent says. “We also get a lot of clients who come to us because they remember Allianz from the days when they were working in Germany. They got to know Allianz there as a symbol of quality.”
Allianz’s sound, solvent reputation is a crucial advantage when it comes to life insurance. That’s because many people in Turkey still have vivid memories of how inflation rose to more than 100 percent in the 1990s. Which is why people there will tie themselves to an insurance company only if they really trust it.
More than 2,000 agencies almost 350,000 new clients in 2012 acquired nearly 600,000 new insurance contracts and
Strategy talks about what direction the company and the agency should take provide orientation in leading the agency to lasting success.
reAl Gross doMestic product – forecAsts percentAGe chAnGe over previous period %
WOLfGANG HILLeR ALLIANZ AGeNcy, BIBeRAcH the 45-year-old is one of allianz’s most successful general agents in germany. because of the broad range of services and products offered by allianz, the biberach native is able to serve his clients optimally.
For example, Hiller once combined multiple insurance products into a customized coverage plan for a medium-sized retail company with about 350 stores. Each individual type of policy was supposed to be covered with an annual premium. Hiller reviewed every store for risk of fire, burglary, water damage and business interruptions and the annual premium was calculated on the basis of the results.
“ As an agent, we want to understand what the client really needs, what products out of Allianz’s broad portfolio will benefit him or her ”
Allianz made it possible for this client to get a customized corporate solution. “Insurers don’t normally do that. But I am able to offer such services because I can rely on a strong, flexible company with a broad range of products.”
Wolfgang Hiller has known the insurance business since he was a kid, quite literally. Twenty-two years ago, his father handed over the Allianz agency to him. So the family firm, founded nearly 83 years ago, is now in the hands of the third generation. Today he has 24 employees and is one of Allianz’s most successful agents in Germany.
Each insurance case is treated with care. Even trainees are already taught how to deliver quick, thorough responses to client inquiries.
The agency has many corporate as well as private clients and contracts for medium-sized or large companies are coordinated in-house.
“ allianz products let me serve any client, whether private individuals or corporates, in unique, personalized ways. i take advantage of synergies within the allianz portfolio and can sell my clients tailor-made products”
Staying regularly informed about clients’ concerns is an important prerequisite for working out the best offer.
a partner to rely on for reconstruction allianz’s solid capitalization means clients can count on us when they have a claim. When clients suffer large losses or a natural disaster, Allianz’s first concern is to get help to them expediently and effectively. companies in particular depend on getting back into business quickly after an event, so they can avoid further economic harm – like loss of market share. Thanks to Allianz’s financial strength, our claims adjusters always have enough funds at their disposal to provide substantial assistance to our clients, even at short notice.
Titan Italia was back in production just a few weeks after the Emilia-Romagna earthquake in Northern Italy (above).
An Allianz loss adjuster assesses the first repair works at the severely damaged factory shortly after the quake (right).
“ as soon as we hear of a major loss or natural disaster, we contact our clients, get on site, work out the necessary emergency steps with them, and organize the claims handling process”
Last year’s earthquake in Italy left homes in ruins. Streets had to be closed off. Reconstruction was time-consuming and is still not complete.
The assessment of a claim depends on many different factors. For example, it makes a difference whether the damaged or destroyed property was an office building or a production facility, where structural issues are less of a concern than restoring the machinery. “Every claim is essentially a new project. Each time we have to find the best way to get the client quickly back into production,” Shell explains. “You have to get a picture of the circumstances, assess where the key problems are and work out a fast way to help the client.”
Titan Italia got its first interim payments from Allianz very quickly. Maria Cecilia la Manna, Vice President and Managing Director at Titan Italia, had insured the production site with Allianz, with coverage not just for the buildings and production equipment, but for the financial consequences of a business interruption. The earthquake caused serious property damage. Part of the plant collapsed.
the most frequently mentioned issue is business interruption or supply chain risk : the top global buSineSS riSk for 2013
Ultimately, how fast, efficiently and to what extent a claim can be adjusted depends on cooperation between the insurer and the insured. Many clients are challenged after a major loss. They suddenly have to cope with three different tasks at once. Day-to-day business has to be kept as close to normal as possible. The crisis has to be managed by communicating with clients and meeting obligations – for example, by boosting production at other sites. At the same time, decisions have to be made about how to rebuild, or how to get hold of new machinery. “During this phase, it’s important for the insured to work closely with us, and especially to pay attention to getting back into business as fast as possible. The quicker everything gets resolved with us, the quicker the client can go back to giving full attention to his or her business. That’s why we always tell clients at our client events that insurance is an important aid, but not the solution,” says Shell.
“ every claim is essentially a new project. each time we have to find the best way to get the client quickly back into production”
dr. AndreAs shell, AGcs agcs ag agcs fraNce agcs NorTh america soLveNcy raTio solvency rAtios
Life in Newport Beach starts shortly after dawn. The Californian city with a population of not quite 86,000 is on the Pacific, barely an hour south of Los Angeles (left).
Mark Kiesel meets his team in the portfolio review meeting every Friday early in the morning (right).
PIMCO’s fund managers have meticulously researched all relevant data before suggesting companies that are worth investing in.
It is part of Kiesel’s job to project what industries, and especially what companies, will evolve in financially promising ways. His forecasts are outstanding, in the truest sense of the word. Early this year, Mark earned one of the highest honors the industry has to offer when he was named the 2012 “Fixed-Income Fund Manager of the Year” by Morningstar, the leading provider of independent investment analyses.
Mark Kiesel and his colleagues always think a couple of years ahead. They’re willing to take risks where others wouldn’t dare. But not from gut instinct – their choices are based on meticulous research. For example, while many portfolio managers at other companies rely on their analysts’ written reports, the managers at PIMCO always assess companies on location. “You have to get a look at all the facilities and equipment and talk to management,” says Kiesel. “Of course it’s also important to know their competitors and to get in close contact with the local banks and government. We visit every company to get an independent picture and we travel over a hundred thousand miles on airplanes each year to do ‘bottom-up’ research in ‘face-to-face’ meetings with senior management of companies all over the world.”
Back at the credit team portfolio review meeting, Kiesel continues: “We should buy bonds from companies that have the strongest ability to organically de-lever through cash flow generation.” He recommends buying securities from companies that have higher debt profiles – something people may find incomprehensible. (Leverage is a ratio between debt capital and equity capital.)
“ you need determination, a work ethic and the abilities of a chess player. what makes us so successful at PIMCO is that we’re usually five or six moves ahead”
MArk kiesel, GlobAl heAd of the corporAte bond portfolio MAnAGeMent Group At piMco, newport beAch, usA
Later, Kiesel explains: “In two years, the leverage will be less than 3x and it will likely be investment grade rated. We need to ‘look forward’ several years ahead of others.” This kind of investment, he says, is “diamonds in the rough,” because their brilliance isn’t immediately visible. “We look at companies like this very, very carefully,” says the fund manager. “Others do, too. What’s different about us is that we look just as carefully at the whole sector and the macro-environment where the company is operating.” This combination of detailed analysis and longer-term overall perspective is one of the reasons why PIMCO is a worldwide leader in the global credit business.
And PIMCO itself – where will asset management be five years from now? “We’ll keep expanding. We’ll be a global authority on investments,” Kiesel answers. You can trust his projections – his own fund has been in operation for over 12 years, and has had positive market returns for clients every year, even during the recent financial crisis.
So what keeps driving Mark Kiesel? “When you wake up at 2:45 am and are in the office by 3:30 am, you only do it because you love your job, because you’re a fund manager with all your heart and passion,” says Kiesel. “You need determination, a work ethic and the abilities of a chess player, because the market is constantly changing and the companies involved are in permanent flux. You have to watch all these changes, which can bring major advantages for our clients. What makes us so successful at PIMCO is that we’re usually five or six moves ahead.”
“When you wake up at 2:45 am and are in the office by 3:30 am, you only do it because you love your job, because you’re a fund manager with all your heart and passion,” Mark Kiesel says about himself (left).
While the sun is setting in Newport Beach, the markets in Asia are opening again (bottom).
A fund manager describes the leverage of a company whose bonds he recommends as a buy. As leverage declines, the bonds’ value will rise.
take the right risks and you get real opportunities Sophisticated, disciplined risk management builds lasting value for all stakeholders. As a trusted partner of clients, investors and society, Allianz makes its decisions on the basis of well-informed risk management. Whether in deciding investment strategies or calculating potential losses, correct risk assessment and valuation plays a crucial role in ensuring Allianz’s stability and reliability.
What do volatile financial markets, technological advances, the threat of terrorist attacks, an aging population and climate change have in common with Allianz? A lot more than one might think at first glance.
Trends like global warming and demographic change may involve higher risks, but they also offer opportunities for an insurance company if it manages risks in the right way. “Offering property insurance is good for us and good for our clients,” explains Wilson. “The same is true for savings and retirement products. But nobody can tell with certainty what long-term effects climate change will have on the frequency or severity of natural disasters or how long people will live on average given medical and social advances. We have to include that uncertainty in our underwriting, pricing and limit decisions and, although it may seem counter-intuitive, knowing what we don’t know helps.”
Wilson, who has dual nationality – American and Swiss – is a native of San Francisco, California. After completing his PhD in Economics at Stanford University, he moved to Europe – first to Zurich, then to London, Amsterdam and now to Munich. He has been a risk manager for years and is considered an authority in his field. “Risk Magazine”, an industry magazine, crowned him 2010 “Insurance Chief Risk Officer of the Year” and “Life and Pensions” named Allianz “Mulitnational Insurance Company of the Year” in 2009 based on actions taken following the 2008 financial crisis.
1 the values for 2011 were recalculated on the basis of the model updated in 2012.
Pre-diversified before tax. Total Group internal risk capital. Total internal risk capital of the Group: eur 45,063 mN [eur 41,747 mN].
AllocAted internAl risk cApitAl As of 31 deceMber 2012 [31 deceMber 20111]
Forward-looking, prudent, responsible risk management ensures that when the time comes, Allianz can fulfill the promises it makes its clients. And this is important, believes Wilson. “One of the biggest contributions Allianz can make to society and as a partner in our local communities is through our products and services: our life insurance, savings and investment products help families protect themselves against many of life’s uncertainties,” he says. “And our property in surance helps protect companies against disruptions and losses. Allianz does this while at the same time offering attractive returns for its shareholders and creating a great work environment for its staff. This is a win-win combination.”
quaLiTy DeficieNcies, seriaL DefecTs markeT fLucTuaTioNs markeT sTagNaTioN or DecLiNe eurozoNe BreakDowN
Loss of repuTaTioN of BraND vaLue top 10 GlobAl business risks for 2013 internal solvency ratio 2012 : internal SolVency ratio
In these challenging times, financial service providers rarely generate positive headlines. Therefore, I am very pleased to report that in 2012, Allianz achieved its best result since the beginning of the financial crisis, with an operating profit of € 9.5 BN. A result like ours doesn’t simply fall into one’s lap. It is the reward for hard work, professionalism and commitment above and beyond the norm. I would like to express my sincere gratitude to all employees and distribution partners for this outstanding achievement. I remain convinced that a motivated and well-qualified workforce is of utmost importance and the basis for our success. Likewise the positive results of our annual Allianz Engagement Survey show that our employees continue to value Allianz as an attractive employer.
2012. They were succeeded by Gary Bhojwani, Helga Jung, Dieter Wemmer and Maximilian Zimmerer. I can assure you that the new team is working well together. It has the quality, as well as the experience, to address current and future challenges and seize new opportunities.
In terms of business, we increased operating profits across all segments despite this challenging environment. In particular, the Asset Management business grew profits by 33.6 % and now represents over 30 % of our operating profit. Our Life/Health business was able to grow its operating profit by 22.1 % while our Property-Casualty (P&C) business increased by 12.5 %. The only negative development this year came
In 2012, we invested to expand our market share in selected markets. On the one hand, we took advantage of the trend towards consolidation in the European financial sector by making acquisitions in France and Belgium. On the other hand, we invested further in emerging markets in Asia, where Allianz signed an agreement with Hong Kong Shanghai Banking Corporation (HSBC) for the exclusive distribution of life insurance products in six Asian countries.
Many of the challenges that accompanied us in 2012 will also play an important role in 2013, in particular the uncertain economic outlook, the continuing low interest rate environment, as well as the upcoming changes in nearly all aspects of financial regulation.
A To Our Investors 35 Letter to the Investors 40 Supervisory Board Report 49 Supervisory Board 50 Board of Management 53 International Executive Committee 54 Allianz Share 59 Services for Allianz Investors
Our goal for the coming years is profitable and sustainable growth. For 2013, we expect an operating profit of € 9.2 bn – plus/minus € 500 mn. We will do everything to maintain and increase our financial strength in order to remain a reliable partner for you. I thank you for your continued trust.
During the 2012 fiscal year, the Supervisory Board fulfilled its duties and obligations as laid out in the company Statutes and applicable law. We monitored the management of the company and advised the Board of Management regarding the conduct of business. The Supervisory Board was directly involved in all major company decisions.
issues discussed in the supervisOry BOard plenary sessiOns In all of the Supervisory Board’s regular 2012 meetings, the Board of Management reported on Group revenues and results, as well as the capital and financial situation. The Board also reported on developments in individual business divisions. We were regularly informed by the Board of Management about the impact of natural catastrophes, the status of major legal disputes and other essential developments.
In our 22 March 2012 meeting, the Supervisory Board adopted a resolution regarding the extension of the appointments of Mr. Bäte, Dr. Mascher and Mr. Ralph as members of the Board of Management until 31 December 2017. We also reviewed the extent to which individual members of the Board of Management had achieved their targets, and set their variable remuneration accordingly. During this meeting the Supervisory Board particularly focused on the annual Allianz SE and consolidated financial statements and the Board of Management’s recommendation for the appropriation of profits for the 2011 fiscal year. The commissioned audit firm, KPMG AG Wirtschaftsprüfungsgesellschaft (KPMG), Munich, reported on key results from their audit. The Supervisory Board also dealt with the agenda for the 2012 AGM of Allianz SE and approved our proposals to be submitted to it for resolution. In addition, we resolved to appoint KPMG as auditor for the individual and consolidated financial statements for the 2012 fiscal year as well as for the auditor’s review of the half-yearly interim report. With a presentation prepared by the Board of Management, the Supervisory Board was also informed in detail on the impact of the sovereign debt crisis in Europe and on the measures taken by Allianz in this respect.
On 9 May 2012, just before the AGM, the Board of Management briefed us on first quarter 2012 performance and on the Group’s current situation. In this context, we were also updated on current cooperation and investment projects. We further used this meeting to prepare for the subsequent AGM. Given the imminent elections to the Supervisory Board, we also expressed our thanks to outgoing members for their work and participation on the Supervisory Board.
Following the resignation of Dr. Cromme from the Supervisory Board effective 14 August 2012, as well as the court appointment of Ms. Bosse effective from 15 August 2012, the Supervisory Board appointed Dr. Bernotat Deputy Chairman and elected the committees by written procedure.
In our meeting on 13 September 2012, we first dealt extensively with the strategy of the Allianz Group, including its risk strategy and the realignment of life insurance business in a low interest-rate environment. The Board of Management then reported on the business performance and financial position of the Group. The Supervisory Board welcomed the Board of Management’s decision to give Allianz Group employees in 21 countries the opportunity to buy Allianz shares under favorable conditions. The Standing Committee approved the use of Authorized Capital 2010/II to issue these shares to employees. In the executive session, we dealt with changes to the German Corporate Governance Code (Code) and with the preparation for the efficiency review.
declaratiOn Of cOnfOrmity with the German cOrpOrate GOvernance cOde The Supervisory Board dealt with the new version of the Code dated 15 May 2012. Necessary changes to the Supervisory Board’s rules of procedure as well as new objectives for the composition of the Board were resolved at the December meeting.
On 12 December 2012, the Board of Management and the Supervisory Board issued the Declaration of Conformity in accordance with § 161 of the German Stock Corporation Act (“Aktiengesetz”). The Declaration was posted on the company website, where it is available to shareholders at all times. Allianz SE fully complies and will continue to fully comply with all recommendations of the German Corporate Governance Code Commission made in the Code’s version of 15 May 2012. The exception in the Declaration of Conformity dated 14 December 2011 whereby, in deviation from no. 5.4.6 paragraph 2 sentence 1 of the Code (version 26 May 2010), Supervisory Board remuneration as resolved at the 4 May 2011 AGM and as regulated in the Statutes contains no performance-based component, is repealed. The recommendation for performance-related remuneration for members of the Supervisory Board is no longer part of the Code in its new version.
Further explanations of corporate governance in the Allianz Group can be found in the “Corporate Governance Report” starting on page 63 and the “Statement on Corporate Management pursuant to § 289a of the HGB” starting on page 69. More information on corporate governance can also be found on the Allianz website at www.allianz.com/corporate-governance.
cOmmittee activities The Supervisory Board has formed various committees in order to perform its duties efficiently: the Standing Committee, the Personnel Committee, the Audit Committee, the Risk Committee and the Nomination Committee. The committees prepare the discussion and adoption of resolutions in the plenary sessions. Furthermore, in appropriate cases, the authority to adopt resolutions has been delegated to the committees. There is no Conciliation Committee because the German Co-Determination Act (“Mitbestimmungsgesetz”), which provides for such a committee, does not apply to Allianz SE. Please find the composition of the committees at the end of the reporting period on page 46.
The Personnel Committee met three times. The committee dealt with personnel matters for both active and former members of the Board of Management. The committee prepared the review of the Board of Management’s remuneration system, including the setting of targets for variable remuneration. The committee also dealt with the structure of targets for members of the Board of Management in 2013 and reviewed the current achievement of targets by Board of Management members for the 2010-2012 Mid-term bonus. In addition, the committee dealt with the mandates held by Board
35 Letter to the Investors 40 Supervisory Board Report 49 Supervisory Board 50 Board of Management 53 International Executive Committee 54 Allianz Share 59 Services for Allianz Investors
Annual Report 2012 Allianz Group of Management members in the interests of Allianz Group. In relation to this, resolutions were also adopted in May and August 2012 by written procedure.
The Supervisory Board was regularly and comprehensively informed of the committees’ work.
On the basis of our own reviews of the annual Allianz SE and consolidated financial statements, the management and group management reports and the recommendation for appropriation of earnings, we raised no objections and agreed with the results of the KPMG audit. We approved the annual Allianz SE and consolidated financial statements prepared by the Board of Management. The company’s financial statements are therefore adopted. We agree with the Board of Management’s proposal on the appropriation of earnings.
Dr. Henning ScHulte-noelle until 9 May 2012 Chairman Former Chairman of the Board of Management of Allianz AG
Dr. Wulf Bernotat Vice Chairman (since 15 August 2012) Former Chairman of the Board of Management of E.ON AG
Dr. gerHarD cromme until 14 August 2012 Vice Chairman Chairman of the Supervisory Board of ThyssenKrupp AG
ira gloe-Semler since 9 May 2012 Chairwoman of the federal insurance group of ver.di Germany goDfrey roBert HayWarD until 9 May 2012 Employee of Allianz Insurance plc franZ HeiSS Employee of Allianz Beratungs- und Vertriebs-AG
Prof. Dr. renate köcHer Head of Institut für Demoskopie Allensbach (Allensbach Insitute)
A To Our Investors 35 Letter to the Investors 40 Supervisory Board Report 49 Supervisory Board 50 Board of Management 53 International Executive Committee 54 Allianz Share 59 Services for Allianz Investors www.allianz.com/supervisory-board
Dr. Werner ZeDeliuS gary BHoJWani from left to right from left to right
Dr. Dieter Wemmer Dr. cHriStof maScHer Jay ralPH from left to right
Board of Management micHael Diekmann Chairman of the Board of Management
Dr. Dieter Wemmer Insurance Western & Southern Europe until 31 December 2012 Finance, Controlling, Risk since 1 January 2013
Wolfram litticH Allianz Elementar Austria cHriStof maScHer Allianz SE Germany niran PeiriS Allianz Australia Australia
Allianz Share − Allianz shares increase in value by 41.8 % – the highest rise in 15 years. − The firm commitment of the European Central Bank to the Euro triggers a market turnaround.
Allianz shares gained 41.8 %, the highest increase in value in 15 years, closing the year at € 104.80. In this respect, Allianz shares outperformed all the major benchmark indices, including the STOXX Europe 600 Insurance, which gained 32.9 % – i.e. 8.9 percentage points less than Allianz shares did. Our shares were also well ahead of cross-sector indices like the DAX (+29.1 %) or the EURO STOXX 50 (+13.8 %). Assuming that the dividend was reinvested in Allianz shares, total shareholder return amounted to 49.8 %. Our outstanding share price result was not only due to the easing of the European sovereign debt crisis but also due to our strong business performance. Following the publi cation of our 2012 results, 74 % of analysts recommended buying Allianz shares – with an average price target of € 116. The current analysts’ recommendations and earnings estimates can be found at www.allianz.com/analystsrecommendations. www
Share performance shAre price Development AgAinst stoXX europe 600 insurAnce A 004 €
Allianz (excl. dividends) 41.8 (6.7) 2.6 Allianz (incl. dividends) 49.8 (2.0) 6.2
Total number of issued shares as of 31 December 455,950,000 455,300,000 454,500,000 453,900,000 453,050,000 Weighted number of shares outstanding 452,666,296 451,764,842 451,280,092 450,845,024 450,161,145 Share price as of 31 December € 104.80 73.91 88.93 87.15 75.00
Share price performance in the year % 41.8 (16.9) 2.0 16.2 (49.3)
5 Based on average shareholders‘ equity. Average shareholders‘ equity has been calculated based upon the average of the current and the preceding year’s shareholders’ equity.
Stock exchange turnover for Allianz shares In 2012, around 74 % of trading in Allianz shares was conducted via German stock exchanges (including Xetra).
Allianz is one of the most highly valued financial services providers in the world, with our strength reflected in the weighting of Allianz shares in major German, European and global indices. In the STOXX Europe 600 Insurance, which includes 33 insurance companies, our shares carry the highest weight. In the MSCI World Financials index we are among the top companies.
Weighting of AlliAnz shAres in mAjor inDices A 009 as of 31 December 2012 Weighting in % Ranking Index members msci World Financials 1.2 15 330
A To Our Investors 35 Letter to the Investors 40 Supervisory Board Report 49 Supervisory Board 50 Board of Management 53 International Executive Committee 54 Allianz Share 59 Services for Allianz Investors www.allianz.com/sustainability www.allianz.com/shareholders
as of 31 December 2012 [31 December 2011] in % of subscribed capital
On 9 May 2012, around 4,000 shareholders and shareholder representatives attended our AGM in Munich’s Olympiahalle. Subscribed capital of 43.8 % was represented (2011: 45.1 %). The meeting approved each of the proposed resolutions with a clear majority and re-elected the Supervisory Board.
– The cross-sector “German Investor Relations Prize” was also awarded to the head of ir at Allianz in 2012.
Simply visit the Apple App Store and download the apps from there, or scan the QR code: “Allianz Investor Relations HD” for iPad
A To Our Investors 35 Letter to the Investors 40 Supervisory Board Report 49 Supervisory Board 50 Board of Management 53 International Executive Committee 54 Allianz Share 59 Services for Allianz Investors www.allianz.com/results www.allianz.com/investor-relations
The members of the Board of Management are jointly responsible for overall management. Notwithstanding the overall responsibility of all members of the Board of Management, the individual members of the Board head the departments they have been assigned independently and at their own responsibility. There are divisional responsibilities for business segments as well as functional responsibilities.
The Board of Management meets regularly and meetings are convened by its Chairman, who coordinates the Board’s activities. Each member of the Board may request a meeting providing notification of the proposed resolution. The Board takes decisions by ordinary resolution of participating members. In the event of a tie, the Chairman casts the deciding vote. The Chairman can also veto decisions. However, he cannot impose any decisions against the majority vote of the Board of Management.
Statement on Corporate Management pursuant to § 289a of the HGB
Proposals to the Board of Management concerning risk strategy, strategic asset allocation and risk capital allocation within the Group.
Group finanCe CoMMittee Dr. Paul Achleitner (Chairman) until 31 May 2012, Dr. Maximilian Zimmerer (Chairman) from 1 June 2012, Oliver Bäte until 31 December 2012, Dr. Helga Jung from 1 February 2012, Jay Ralph from 1 January 2012, Dr. Dieter Wemmer from 1 January 2013, Dr. Werner Zedelius
Group risk CoMMittee Oliver Bäte (Chairman) until 31 December 2012, Dr. Dieter Wemmer (Chairman) from 1 January 2013, Dr. Paul Achleitner until 31 May 2012, Clement Booth, Jay Ralph, Dr. Maximilian Zimmerer from 1 June 2012
Designing, monitoring and improving compensation systems, annual submission of a report on the results of its monitoring, along with proposals for improvements.
Group underwritinG CoMMittee Members of the Board of Management, executives below Allianz se Board level and Chief Underwriting Officers of Group companies
Monitoring of the underwriting business and its risk management, developing an underwriting policy and strategy.
Allianz SE’s and the Allianz Group’s annual financial statements. The Supervisory Board’s activities in the 2012 fiscal year are described in the Supervisory Board Report starting on page 40.
supervisory Board CoMMittees B 003 supervisory Board CoMMittees responsiBiLities standinG CoMMittee 5 members − Chairman: Chairman of the Supervisory Board (Dr. Helmut Perlet) − Two further shareholder representatives (Prof. Dr. Renate Köcher,
Dr. Wulf Bernotat) − Two employee representatives (Gabriele Burkhardt-Berg, Rolf Zimmermann)
− Approval of certain transactions which require approval of the Supervisory Board, e.g. capital increases, acquisitions and disposals of participations
Dr. Helmut Perlet) − Two employee representatives (Ira Gloe-Semler, Jean-Jacques Cette) − Independent members with expert knowledge of accounting/auditing: Dr. Wulf Bernotat, Igor Landau
Peter Denis Sutherland) − Two employee representatives (Dante Barban, Franz Heiß)
− Monitoring of the risk situation and special risk developments − Monitoring of the effectiveness of the risk management system − Initial review of the risk report and other risk-related statements in the annual financial statements and management reports of Allianz se and the Allianz Group, informing the Audit Committee on the results of such reviews personneL CoMMittee 3 members − Chairman: Chairman of the Supervisory Board (Dr. Helmut Perlet) − One further shareholder representative (Christine Bosse) − One employee representative (Rolf Zimmermann)
− Preparation of the appointment of Board of Management members − Preparation of plenary session resolutions on the compensation system and the overall compensation of Board of Management members − Conclusion, amendment and termination of service contracts of Board of
− Setting of concrete objectives for the composition of the Supervisory Board − Establishment of selection criteria for shareholder representatives on the
I. Requirements relating to the individual members of the Supervisory Board
II. Requirements relating to the composition of the board as a whole 1. General selection criteria – Managerial or operational experience – General knowledge of the insurance and financial services business – Willingness and ability to make sufficient commitments in time and substance – Fulfillment of the regulatory requirements: – Reliability – Knowledge of the field of corporate governance and supervisory law1 – Knowledge of the main features of accounting and risk management1 – Compliance with the limitation on the number of mandates as recommended by the German Corporate Governance Code and required by § 7a (4) of the German Insurance Supervision Act (“Versicherungsaufsichtsgesetz – vaG”).
2. Independence At least eight members of the Supervisory Board should be independent within the meaning of No. 5.4.2 of the Corporate Governance Code, i.e. they may in particular not have any business or personal relations with Allianz se or its Executive Bodies, a controlling shareholder or an enterprise associated with the latter, which may cause a substantial and not merely temporary conflict of interests. In case shareholder representatives and employee representatives are viewed separately, at least four members should be independent within the meaning of No. 5.4.2 of the Corporate Governance Code, respectively. Regarding employee representatives, however, the mere fact of employee representation and the existence of a working relationship with the company shall not itself affect independence.
In addition, at least one member must be independent within the meaning of § 100 (5) of the German Stock Corporation Act.
It must be taken into account that the possible emergence of conflicts of interest in individual cases cannot, as a general rule, be excluded. Potential conflicts of interest must be disclosed to the Chairman of the Supervisory Board and will be resolved by appropriate measures.
3. Retirement age According to the Supervisory Board’s Rules of Procedure, its members may not, in general, be older than 70 years of age.
2. International character At least four of the members must, on the basis of their origin or function, represent regions or cultural areas in which Allianz se conducts significant business.
Since the establishment of Allianz se as a Societas Europaea (European Company), Allianz employees from different Member States of the eu are considered in the distribution of Supervisory Board seats for employee representatives, according to the Agreement concerning the Participation of Employees in Allianz se dated 20 September 2006.
The aim is for at least 25 % of the Supervisory Board members to be women. The representation of women is considered to be the joint responsibility of the shareholder and employee representatives.”
The total holdings of members of the Board of Management and the Supervisory Board of Allianz SE amounted to less than 1 % of the company’s issued shares as of 31 December 2012.
In compliance with special legal provisions applying to insurance companies, the auditor of the annual financial statements and of the half-yearly financial report is appointed by the Supervisory Board and not by the AGM. The audit of the financial statements covers the individual financial statements of Allianz SE and also the consolidated financial statements of the Allianz Group.
The financial calendars for 2013 and 2014 are on the back cover of the Annual Report.
Statement on Corporate Manage ment pursuant to § 289a of the HGB The Statement on Corporate Management pursuant to § 289a of the German Commercial Code (“Handelsgesetzbuch – HGB”) forms part of the Group Management Report. According to § 317 (2), sentence 3 of the HGB, this Statement does not have to be included within the scope of the audit.
Declaration of conformity with the German Corporate Governance Code On 12 December 2012, the Board of Management and the Supervisory Board issued the following Declaration of Compliance of Allianz SE with the German Corporate Governance Code: In addition, Allianz SE follows all the suggestions of the German Corporate Governance Code Commission in its 15 May 2012 version. The suggestions in the previous version of 26 May 2010 were followed with the exception of the suggestion in No. 5.4.6 para. 2 sentence 2 (performance-related remuneration of the Supervisory Board based on the longterm performance of the company).
Internal control systems Effective internal control systems for our internal and external financial reporting are essential in order to gain the confidence of the capital market, our customers and the public. Consequently, Allianz Group has implemented a comprehensive risk management system that involves regular assessments of the effectiveness of internal controls as well as a quantitative limit system that helps the company avoid unwanted risks. The internal requirements regarding the control of financial reporting refer to accounting, the reporting of Market Consistent Embedded Value (MCEV), and risk capital. For further information on the risk organization and risk principles, please refer to page 210. (For further information on the internal controls over financial reporting and risk capital, please refer to page 214.)
The quality of the internal control systems is assessed by Allianz Group internal audit staff who are independent of the activities which are audited. Internal Audit is an independent, objective assurance and consulting activity designed to add value and improve our organization’s operations.
DeclaratIon oF conFormIty WItH tHe German corPorate GoVernance coDe B 005
B Corporate Governance 63 Corporate Governance Report 69 Statement on Corporate Management pursuant to § 289a of the HGB 71 Takeover-related Statements and Explanations 74 Remuneration Report www.allianz.com/corporate-governance
DescrIPtIon oF tHe FunctIons oF tHe BoarD oF manaGement anD tHe suPerVIsory BoarD anD oF tHe comPosItIon anD FunctIons oF tHeIr commIttees A description of the composition of the Supervisory Board and its committees can be found on page 46 and 49 of the Annual Report. On page 52, reference is made to the composition of the Board of Management and a description of the composition of the Board of Management’s committees can be found on page 64 of the Corporate Governance Report. The information can also be found on our website at www.allianz.com/corporate-governance.
restriCtions on voting rights and share transfers; exerCise of voting rights in Case of employee equity partiCipations Shares may only be transferred with the consent of the Company. The Company may withhold a duly applied approval only if it deems this to be necessary in the interest of the Company on exceptional grounds. The applicant will be informed of the reasons.
Shares acquired by employees of the Allianz Group as part of the Employee Stock Purchase Plan are in principle subject to a one-year lock-up period. Outside Germany, the lock-up period may in some cases be up to five years. In some countries, in order to ensure that the lock-up period is observed, the employee shares are held throughout that period by a bank, another natural person or a legal entity acting as a trustee. Nevertheless, employees may instruct the trustee to exercise voting rights or have power-of- attorney granted to them to exercise such voting rights. Lock-up periods contribute to the Employee Stock Purchase Plan’s aims of committing employees to the Company and letting them benefit from the performance of the stock price.
shares with speCial rights Conferring powers of Control There are no shares with special rights conferring powers of control.
legal and statutory provisions appliCable to the appointment and removal of members of the board of management and to amendments of the statutes The Supervisory Board appoints the members of Allianz SE’S Board of Management for a maximum term of five years (Article 9 (1), Article 39 (2) and Article 46 of the SE Regulation, §§ 84, 85 of the German Stock Corporation Act and § 5 (3) of the Statutes). Reappointments, in each case for a maximum of five years, are permitted. A simple majority of the votes cast in the Supervisory Board is required to appoint members of the Board of Management. In the case of a tie vote, the Chairperson of the Supervisory Board, who pursuant to Article 42 sentence 2 of the SE Regulation must be a shareholder representative, shall have the casting vote (§ 8 (3) of the Statutes). If the Chairperson does not participate in the vote, the Deputy Chairperson shall have the casting vote, provided that he or she is a shareholder representative. A Deputy Chairperson who is an employee representative has no casting vote (§ 8 (3) of the Statutes). If a required member of the Board of Management is missing, in urgent cases the courts must appoint such member upon the appli cation of an interested party (§ 85 of the German Stock Corporation Act). The Supervisory Board may dismiss members of the Board of Management if there is an important reason (§ 84 (3) of the German Stock Corporation Act).
German insurance supervisory law requires that members of the Board of Management have the reliability and professional competence needed to manage an insurance company.
A person cannot become a member of the Board of Management if he or she is already a manager of two other insurance undertakings, pension funds, insurance holding companies or insurance special purpose vehicles. However, more than two such mandates may be permitted by the supervisory authority if they are held within the same group (§§ 121 a, 7a of the German Insurance Supervision Act (“Versicherungsaufsichtsgesetz”, VAG)). The Federal Financial Services Supervisory Authority (“Bundesanstalt für Finanzdienstleistungsaufsicht”) must be notified about the intention of appointing a Board of Management member pursuant to §§ 121a, 13d no. 1 of the German Insurance Supervision Act.
essential agreements of allianz se with Change of Control Clauses and Compensation agreements providing for takeover sCenarios The following essential agreements of the Company are subject to a change of control condition following a takeover bid: − Our reinsurance contracts in principle include a provision under which both parties to the contract have an extraordinary termination right in the case where the other party to the contract merges or its ownership or control situation changes materially. Agreements with brokers regarding services connected with the purchase of reinsurance cover also provide for termination rights in case of a change of control. Such clauses are standard market practice.
− The 10-year exclusive bancassurance distribution agreement between Allianz and HSBC for life insurance products in Asia (China, Indonesia, Malaysia, Australia, Sri Lanka, Taiwan, Brunei, Philippines), includes a provision under which both parties have an extraordinary termination right in case there is a change of control of the other party’s ultimate holding company.
B Corporate Governance 63 Corporate Governance Report 69 Statement on Corporate Management pursuant to § 289a of the hgb 71 Takeover-related Statements and Explanations 74 Remuneration Report
Remuneration Report This report comprises three sections covering the remuneration arrangements for the: − Allianz SE Board of Management, − Executives below the Board of Management of Allianz SE
Allianz SE Board of Management remuneration GOVERNANCE SYSTEM The remuneration of the Board of Management is set by the full Supervisory Board. Meetings are prepared by the Personnel Committee while Group HR and other corporate functions provide internal support as requested or required. Outside advice is sought from time-to-time from external consultants. The Personnel Committee and Supervisory Board consult with the Chairman of the Board of Management as appropriate in assessing the performance and remuneration of members of the Board of Management. The Chairman of the Board of Management is not present when his own remuneration is discussed. Regarding the activities and decisions taken by the Personnel Committee and the Supervisory Board, please refer to the Supervisory Board Report section. The remuneration system for the Board of Management was presented and approved at the 2010 Annual General Meeting.
− Alignment of pay and performance: A significant performance -based, variable component.
− Variable remuneration focused on sustainability: Two thirds of the variable remuneration reflect sustained performance. Thereof, 50 % is subject to a multi-year target achievement and sustainability assessment with a deferred payout after three years. The remaining 50 % rewards sustained performance through share price development with a deferred payout after five years.
− Alignment with shareholder interests: 25 % of total target remuneration is dependent upon share price performance.
− Integration and balance: Incentives complement each other and represent an appropriate balance of opportunity and managed risk that is effective over varying performance scenarios and consistent with good governance.
The structure, weighting and level of remuneration is discussed by the Supervisory Board. Survey data is provided by external consultants. The peer group consists primarily of other DAX 30 companies. Compensation levels are usually around the median or third quartile of this group. The structure of Allianz’s total remuneration is more strongly weighted to variable, longer-term components. Remuneration and benefit arrangements are also periodically compared with best practices. Board of Management remuneration relative to remuneration levels within the Group is also taken into account when the Supervisory Board determines the need for any adjustments.
REMUNERATION STRUCTURE AND COMPONENTS There are four main remuneration components. Each has approximately the same weighting within annual target remuneration: Base salary, Annual bonus, annualized Three- year bonus and Equity-related remuneration. In addition Allianz offers pensions/similar benefits and perquisites.
Variable remuneration Variable remuneration aims for balance between short-term performance, longer-term success and sustained value creation. It is designed to balance risk and opportunity to achieve an appropriate level of remuneration in different performance scenarios and business circumstances. The grant of variable remuneration components is related to performance and can vary between 0 % and 165 % of the respective target values. All variable awards are made under the rules and conditions of the “Allianz Sustained Performance Plan” (ASPP) which consists of the following equallyweighted components: − Annual bonus (short-term): A cash payment which rewards annual achievement of targets.
− Three-year bonus (mid-term): A deferred award subject to a multi-year sustainability assessment.
Example: Regular member of the Board of Management with € 700 THOU fixed and € 2,100 THOU target variable remuneration € THOU
Pensions and similar benefits The purpose is to provide competitive and cost-effective retirement and disability benefits using risk-appropriate vehicles. Board members participate in a contributionbased system covering Board service from 1 January 2005. Prior to 2005, Board members participated in a defined benefit plan that provided fixed benefits not linked to Base salary increases. Benefits generated under this plan were frozen at the end of 2004. Additionally, most Board members participate in the Allianz Versorgungskasse VVaG (AVK), a contribution-based pension plan and the Allianz Pensionsverein e.V. (APV), which provide pension benefits for salaries up to the German social security ceiling.
Company contributions to the current pension plan depend on the years of service on the Board of Management. They are invested in a fund with a guaranteed minimum interest rate per year. On retirement the accumulated capital is converted to a lifetime annuity. Each year the Supervisory Board decides whether and to what extent a budget is provided. Independent from this decision, an additional risk premium is paid to cover death and disability. The earliest age a pension can be drawn is 60, except for cases of occupational or general disability for medical reasons. In these cases it may become payable earlier on. In the case of death, a pension may be paid to dependents. Surviving dependents normally receive 60 % (surviving partner) and 20 % (per child) of the original Board member’s pension, with the aggregate not to exceed 100 %. Should Board membership cease prior to retirement age for other reasons, the accrued pension rights are maintained if vesting requirements are met.
TARGET SETTING AND PERFORMANCE ASSESSMENT FOR VARIABLE REMUNERATION Each year, the Supervisory Board agrees on performance targets for the variable remuneration with the members of the Board of Management. These are documented for the upcoming financial year and, every three years, for the respective mid-term period.
The Three-year bonus reflects the achievement of the annual target by accruing an amount identical to the Annual bonus. To recognize sustainability, the final award is subject to a subsequent (retrospective) assessment of the portfolio development by the Supervisory Board. It considers both growth and return on capital to ensure that the final award not only depends on accounting profits but also profitable growth over the three-year period. This is supported by a review of qualitative criteria and may lead to an adjustment of the award within the range of 0 % to 165 %.
The performance achievement of the Chairman is determined by the average target achievement of the other Board of Management members and can be adjusted by the Supervisory Board based on the Chairman’s personal performance.
– Actual growth versus expectations – Profitability development – Comparison with peers – Extraordinary events – Capital situation against internal risk capital model – Additional sustainability criteria (e.g. customer/employee satisfaction)
Equity-related remuneration is granted after the end of the financial year with the Annual bonus performance of plan participants determining the value of the equity grant. The number of RSU granted results from dividing this value by the calculated market value of an RSU at the time of grant. Following the end of the four-year vesting period, the company makes a payment based on the market price of the Allianz share at that time. In this way the ultimate value is driven by our share performance, thereby providing an alignment with shareholder interests. To avoid extreme payouts, the RSU payout is capped at 200 % above grant price.
Outstanding holdings are forfeited in accordance with the plan rules should executives leave at their own request or would be terminated for cause.
Annual performance drives the value of the Annual bonus and also influences the mid- and long-term components. However, the values delivered under the three-year and equity components ultimately depend on sustained performance over longer periods.
IllustratIon of the process and the underlyIng tImelIne of the three-year bonus cycle, from target settIng to fInal performance assessment1 B 008 € thou
Year 1 Year 2 Year 3 1 Example based on target values of a regular member of the Board of Management with an annual target of € 700 Thou for the Three-year bonus.
2012 REMUNERATION AND LINK TO PERFORMANCE Total remuneration: The following table shows individual remuneration for 2012 and 2011, including fixed and variable remuneration and the pension service cost. For the Three-year bonus 2010 – 2012, the individualized remuneration table shows the 2012 annual allocation per member of the Board of Management to provide information on the individual remuneration components in a way which is comparable to previous years, the actual settlement is disclosed below the table.
4 50 % of Gary Bhojwani’s Base salary (€ 350 ThoU) is denominated in USD and equals USD 471,768.50. The amount of € 350 ThoU was derived by applying the contractually agreed USD/EUR exchange rate of 1.347910 (2011 fourth quarter average).
6 Gary Bhojwani does not receive pension contributions into the Allianz SE pension plans but only under his Allianz of America employment agreement.
B Corporate Governance 63 Corporate Governance Report 69 Statement on Corporate Management pursuant to § 289a of the hGB 71 Takeover-related Statements and Explanations 74 Remuneration Report
− Annual bonus: The 2012 target achievement for the Group, the business division/corporate functions and the qualitative performance was on average assessed at 128 % and ranged between 113 % and 137 %. Consequently, total Annual bonus awards ranged between 113 % and 137 % of target with an average bonus award of 128 % of target. This represents 78 % of the maximum payout.
Regulation also requires the disclosure of the final cash payout on an individual level. The following Three-year bonus 2010 – 2012 payments per member of the Board of Management1 were made: Michael Diekmann € 4,104 THoU Dr. Paul Achleitner € 2,162 THoU Oliver Bäte € 2,582 THoU Manuel Bauer € 1,410 THoU Gary Bhojwani2 € 793 THoU Clement Booth € 2,417 THoU Dr. Helga Jung € 857 THoU Dr. Christof Mascher € 2,318 THoU Jay Ralph € 2,313 THoU Dr. Dieter Wemmer € 958 THoU Dr. Werner Zedelius € 2,292 THoU Dr. Maximilian Zimmerer € 543 THoU.
1 For joining or leaving members of the Allianz SE Board only the pro-rated Three-year bonus relating to their service as Board members is disclosed.
2 As disclosed in the Annual Report 2011 the Equity-related grant in 2012 was made to participants as part of their 2011 remuneration. The disclosure in the Annual Report 2011 was based on a best estimate of the RSu grants. The actual grants, as of 8 March 2012, deviate from the estimated values and have to be disclosed accordingly. The actual grants as of 8 March 2012 under the Allianz equity program in the form of RSu are as follows: Michael Diekmann: 14,939, Oliver Bäte: 9,675, Manuel Bauer: 7,188, Clement Booth: 7,019, Dr. Joachim Faber: 9,161, Dr. Christof Mascher: 8,374, Jay Ralph 7,385, Dr. Werner Zedelius: 7,857.
3 SAR are released to plan participants upon expiry of the vesting period, assuming all other exercise hurdles are met. For SAR granted until and including 2008, the vesting period was two years. For SAR granted from 2009, the vesting period is four years. SAR can be exercised on condition that the price of Allianz SE stock is at least 20 % above their strike price at the time of grant. Additionally, the price of the Allianz SE stock must have exceeded the Dow Jones
6 For the financial year 2011 and 2012 the Equity-related remuneration for Dr. Paul Achleitner will be delivered in cash. As a result he did not receive an RSu grant on 8 March 2012. Neither will he receive an RSu grant on 7 March 2013.
8 Dr. Maximilian Zimmerer joined Allianz SE Board of Management on 1 June 2012 and receives a pro rated grant.
− Pensions: Company contributions in the current plan are 28.35 % of Base salary, increasing to 35.44 % after five years and to 42.53 % after ten years service on the Board of Management. These are invested in a fund and have a minimum guaranteed interest rate of 2.75 % each year. If the net annual return of the AVK exceeds 2.75 %, the full increase in value is credited in the same year. For members with pension rights in the frozen plan, the above contribution rates are reduced by an amount equivalent to 19 % of the expected annual pension from that plan.
Annual pension payment4 SC5 DBO6 SC5 DBO6 SC5 DBO6 SC5 DBO6 SC5 DBO6 2011 – – – – – – – – – – – –
2011 – – – – – – – – – – – –
1 For Gary Bhojwani the frozen Allianz Retirement Plan (ARP) and the frozen Supplemental Retirement Plan (SRP).
2 Following Allianz’s founding of the APV in 1998 the plan participants contribute 3 % of their relevant salary to the AVK. For the AVK the minimum guaranteed interest rate is 2.75 % - 3.50 % depending on the date of joining Allianz. In general, the company funds the balance required via the APV. Before 1998 both Allianz and the plan participants were contributing to the AVK.
8 Gary Bhojwani only holds pension plans subject to his Allianz of America employment agreement, denominated in uSD. All amounts in the table are EuR amounts derived by applying the contractually agreed uSD/EuR exchange rate of 1.347910. The Allianz Retirement Plan (ARP) and the Supplemental Retirement Plan (SRP) are two completely frozen DB-plans, i.e. there are no future accruals in these plans. Current Pension Plans for Gary Bhojwani include the Deferred Compensation Plan (DCP) and the 401(k) plan. Both current plans are Defined Contribution plans. Their contributions are included in the table.
9 In the ARP he can choose between a lump sum payment or an annuity. The lump sum benefit amount projected with actual interest rates is uSD 120 Thou and likely to change when he retires at age 65. In the SRP he will get three annual installments at age 65 of uSD 69.4 Thou, which as we have shown in the table total uSD 208 Thou.
10 The DBo for the ARP is uSD 58 Thou and for the SRP uSD 115 Thou. 11 The contribution to the DCP is uSD 266 Thou and to the 401(k) plan uSD 17 Thou. There is no
− Perquisites: For 2012 the total value of the perquisites amounted to € 0.6 mn (2011: € 0.5 mn).
− Total remuneration: We disclose below the total remuneration per member of the Board of Management for 2012 and 2011: The total remuneration for 2012 includes the payout of the Three-year bonus for 2010 – 2012 but excludes the pension service cost. The figures for 2011 (in parentheses) exclude the notional annual accruals of the Three-year bonus for 2010 to 2012: Michael Diekmann € 8,404 (3,355) THoU Dr. Paul Achleitner € 3,437 1 (3,165) 2 THoU Oliver Bäte € 5,282 (2,126) THoU Manuel Bauer € 3,923 (1,735) THoU Gary Bhojwani 3 € 3,146 (–) THoU Clement Booth € 5,155 (1,892) THoU Dr. Helga Jung € 3,281 (–) THoU Dr. Christof Mascher € 4,724 (1,919) THoU Jay Ralph € 4,936 (1,804) THoU Dr. Dieter Wemmer € 3,592 (–) THoU Dr. Werner Zedelius € 5,007 (1,884) THoU Dr. Maximilian Zimmerer € 2,044 (–) THoU
The sum of total remuneration of Allianz SE Board of Management for 2012, including the payment of the Three-year bonus, amounts to € 53 mn (2011 excluding the notional accruals for the Three-year bonus: € 22 mn 2). The corresponding amount including pension service cost equals € 57 mn (2011 excluding the notional accruals for the Three-year bonus: € 26 mn2).
3. Special terms, also compliant with the German Corporate Governance Code, apply if service is terminated as a result of a “change of control”. A change of control requires that a shareholder of Allianz SE, acting alone or together with other shareholders, holds more than 50 % of voting rights in Allianz SE. Termination as a result of a change of control occurs within twelve months if a. the Management Board appointment is unilaterally revoked by the Supervisory Board, or b. the Board member resigned due to a substantial decrease in managerial responsibilities and without giving cause for termination, or c. a Management Board appointment is terminated by mutual agreement or where it is not extended within two years of the change of control.
Contracts do not contain provisions for any other cases of early termination from the Board of Management.
− The Mid-term bonus1 (mTB) 2013 – 2015 will provide an even stronger focus on sustainability. The sustainability assessment includes: − adjusted capital growth vs. plan development − balance sheet strength − comparison with peers −“partner of choice” for stakeholders − extraordinary events 1 Mid-term bonus is the former Three-year bonus.
TRANSITION PAYMENT (APPOINTMENT BEFORE 1 JANUARY 2010) Board members receiving a transition payment are subject to a six months non-compete clause.
A regular Board member with last Base salary of 700 and target variable remuneration of 2,100
Base Salary (1,400) + 50 % of the total variable remuneration at target (2,100) = 3,500
Severance payment cap: the lower of 3,500 or 5,600b. shall not exceed the latest year’s actual total compensation. Assumption: Last year’s actual total compensation at 2,800
CHANGE OF CONTROL In case of an early termination as a result of a change of control, severance payments made to Board members generally amount to a three years' compensation (yearly compensation as defined above) and shall not exceed
Executive remuneration below the Allianz SE Board of Management For the purpose of this report, senior executives are defined as Allianz employees who may either have a material impact on the company’s financial or risk positions, or lead critical operations of the Group. In 2012 this totaled 167 (2011: 164) individuals. In general, the same principles and governance standards described for the Board of Management apply to the remuneration of senior executives. However, executives below the Board of Management are more directly responsible for specific lines of business or product groups. Likewise, their remuneration is more closely aligned with their specific business, country and/or regional operating environments. The general objective for all Allianz remuneration structures is to offer competitive reward in terms of components, structures and levels, which allows Allianz to attract, motivate and retain high-performing employees without encouraging excessive risk-taking.
FRAMEWORK AND MINIMUM STANDARDS Allianz’s global governance frameworks and minimum standards are centrally managed. This ensures global consistency and allows for timely updates to reflect changing business needs and evolving regulatory requirements. It also supports continuous improvement in sustainable reward and performance management and exemplary governance principles.
Allianz conducted its annual remuneration risk assessment in companies classified as significant according to VersVergV to confirm that the remuneration structures for senior executives were appropriate to their role, transparent and aligned with the sustainable development principles of the company. The aim of this review was to develop recommendations for improving risk mitigation and aligning pay with performance and, ultimately, to confirm compliance with regulation. The results of these analyses were incorporated in the required internal Compensation Report to the 1 In accordance with the VersVergV, Compensation Committee membership in Allianz generally does not solely consist of Board members and managing directors but also includes representatives of the business as well as representatives of hR and control functions. In order to avoid potential conflicts of interest, each Compensation Committee comprises members whose own remuneration is not covered by its remit.
Board of Management. The Board of Management provided the Supervisory Board with a summary of the analyses, recommendations for improvements in the remuneration and governance systems, and an overall assurance of compliance with regulations.
REMUNERATION PRINCIPLES Remuneration structures and incentives are designed to encourage sustainable value-creating activities for Allianz. As a result, we deploy a number of different remuneration structures and strategies across the Group which take into account the particular roles of executives, business activities and local remuneration and regulatory environments. The key additional principles of our executive remuneration strategy are to: − align pay with both the performance of individuals and the achievement of the Allianz Group’s financial and strategic goals in a way that is consistent with shareholder interests
− vary the mix and weight of fixed versus variable remuneration and short-term versus long-term incentives to reflect the executive’s influence on the results of the Group, business division or operating entity
REMUNERATION COMPONENTS The primary model is that of the Allianz insurance businesses.
Most executives are covered by the Allianz Sustained Performance Plan (ASPP). The model provides for a balance of fixed and variable remuneration components with a stronger focus on the longer-term realization of results in determining the final value of total remuneration. For the majority of operations the following components set the remuneration structure for senior executives to comply with applicable regulations, although not everyone receives all of them, or has the same mix of components: − Base salary − Variable remuneration, including: − Short- and, where applicable, mid-term incentives − Long-term incentives in the form of Equity-related remuneration.
Variable remuneration Variable remuneration is designed to encourage and reward achievement of both annual performance goals and the sustainable success of the Group and local companies. It is structured to align with Allianz’s risk positioning strategy and to reward personal contributions. Annual targets and, where applicable, multi-year targets are set, communicated and documented in advance of the performance period and generally conform with SmART (specific, measurable, attainable, relevant and time-bound) principles. In the case of breaches of the Allianz’s Code of Conduct, compliance or other relevant criteria, payout can be reduced partially or in full.
Additionally, depending on the specific country or operating entity, Allianz operates a number of pension and flexible benefit plans in particular deferred compensation schemes
2012 REMUNERATION For senior executives who assume positions of high risk in the sense of the VersVergV, we disclose aggregate percentages of the 2012 target remuneration. The number of functions across the Group identified for analysis was 167 (2011: 164), as outlined above.
− Set total remuneration at a level aligned with the scale and scope of the Supervisory Board duties and appropriate to the Company’s activities, business and financial situation.
REMUNERATION STRUCTURE AND COMPONENTS The Supervisory Board discussed changes to the remuneration structure during the second half of 2010, considering a review of market practices and developments by Kienbaum Management Consultants. The new remuneration structure, which comprises fixed and committee-related remuneration only, was approved by the Annual General Meeting 2011 and is laid down in the Statutes of Allianz SE. It became effective for the financial year 2011.
Fixed annual remuneration The remuneration of a member of the Supervisory Board consists of a fixed cash amount paid after the end of each business year to a Supervisory Board member for services rendered over that period. A regular Supervisory Board member receives a fixed remuneration of € 100 THoU per year; each deputy Chairperson receives € 150 THoU and the Chairperson € 200 THoU.
REMUNERATION FOR 2012 The total remuneration for all Supervisory Board members, including attendance fees, amounted to € 2,089 THoU in 2012 (€ 2,009 THoU in 2011). The following table shows the individual remuneration for 2012 and 2011: INDIVIDUAL REMUNERATION 2012-2011 B 017
Loans to members of the Supervisory Board On 31 December 2012, there was one outstanding loan granted by Allianz Group companies to members of the Supervisory Board of Allianz SE. One member received a mortgage loan of € 80 THoU from Allianz Bank in 2010. The loan has a duration of 10 years and was granted at a normal market interest rate.
93 Insurance operations 94 asset Management 94 Corporate and other 95 Worldwide presence and business divisions 96 our insurance markets 106 our Strategy 108 our steering 109 our Progress in Sustainable Development 109 Sustainable business 110 economic 116 environment 118 Social 118 our employees 120 Governance
MAnAgeMent Discussion AnD AnAlYsis 122 Business environment 122 economic environment 2012 122 Business environment 2012: insurance and asset management industry 124 executive Summary of 2012 results 125 earnings summary 126 total revenues 126 operating profit 127 non-operating result 128 Income taxes 128 net income 130 Proposal for appropriation of profit 130 events after the balance sheet date 131 Changes in segment structure, presentation and accounting policies 131 other parts of the Group Management report 132 Property-Casualty Insurance operations 133 Gross premiums written 134 operating profit 138 Property-Casualty insurance operations by business divisions 140 Life/Health Insurance operations 141 Statutory premiums 143 operating profit 146 Life/Health insurance operations by business divisions 148 asset Management 149 assets under management 150 operating revenues 151 operating profit 152 Corporate and other 153 earnings summaries by operations 154 overview: 2012 results versus previous year outlook 155 economic outlook 155 Insurance industry outlook 156 asset management industry outlook 156 outlook for the allianz Group 157 overview: outlook and assumptions 2013 158 Management’s assessment of expected revenues and earnings for 2013 160 Financing and liquidity development and capitalization 161 expected dividend development 161 Management’s assessment of expected earnings for 2014 161 Management’s views on future challenges and opportunities 163 opportunity management and strategic investments 165 Management’s overall assessment of the current economic situation of the allianz Group 166 Balance Sheet review 166 Shareholders’ equity 166 regulatory capital adequacy 167 total assets and total liabilities 174 off-balance sheet arrangements 175 Liquidity and Funding resources 175 organization 175 Liquidity management of our operating entities 175 Liquidity management and funding of allianz se 180 allianz Group consolidated cash flows 182 reconciliations 182 Composition of total revenues 183 Composition of total revenue growth risk report AnD FinAnciAl control 184 risk report 184 allianz risk profile and management assessment 185 Capitalization 189 Internal risk capital framework 195 Internal risk assessment 210 risk governance 213 risk management priorities for 2013 214 Controls and Procedures 214 Internal controls over financial reporting 215 risk capital controls annual report 2012 allianz Group92
– Motor (liability/ own damage) – Liability – Property – Accident – Travel and assistance
Our two major investment management businesses, PIMCO and AllianzGI operate under Allianz Asset Management (AAM). With over € 1,800 bn (including Allianz Group assets) assets under management we are one of the largest asset managers in the world which manage third-party assets with active investment strategies. Approximately 65 % of third-party assets are from institutional investors, while 35 % are from retail clients. Particular strongholds include the United States, Germany, France, Italy, the United Kingdom and the Asia-Pacific region.
The Corporate and Other segment’s activities include the management and support of the Allianz Group’s businesses through its central holding functions, as well as Banking and Alternative Investments.
– Money market – Low duration – Real return – Global – Investment grade – Diversified income – High yield – Emerging markets – Convertible bonds
Travel Insurance, Assistance and Personal Service 1 Allianz Global Automotive 1
Via Allianz Global Assistance, we are the worldwide leader of travel insurance, assistance services and personal services. Allianz Global Assistance is one of our fast growing entities and is successfully developing highly sophisticated new products. Some services provided by Allianz Global Assistance are sold with our insurance products, thus enriching our global portfolio.
Allianz Global Automotive is the leading strategic partner to the automotive industry, combining sales expertise around the car dealer point-of-sale with product know-how in warranty, motor insurance and credit protection and lean and cost efficient end-to-end delivery. Based on premiums we are the worldwide market leader in this segment, serving over 40 car brands across more than 25 countries.
1 In 2013, our global entities Allianz Global Automotive, Allianz Global Assistance, Allianz Worldwide Care and the international health insurance business of Allianz France will be bundled to provide a comprehensive product range to our customers.
Number of employees € mn € mn mn thou thou thou
Germany We provide our customers in Germany with a full range of insurance and financial services through Allianz Deutschland AG. Products are mainly provided by Allianz Versicherungs -AG (Allianz Sach), Allianz Lebensversicherungs-AG (Allianz Leben) and Allianz Private KrankenversicherungsAG (Allianz Private Kranken). Our products are mostly distributed through a network of full-time tied agents. The Allianz Beratungs- und Vertriebs-AG serves as our distribution company.
As the market leader in the German property-casualty market, we offer a wide variety of insurance products for private and commercial customers. Germany is a rather mature market for property-casualty business, with intensive competition. 2012 showed premium growth in nearly all lines of business and a remarkable increase in the operating result. The motor business registered the largest advance due to the modular tariff (“Mein Auto”) and the successful implementation of sales measures in the broker, direct and global automotive business.
For life insurance, we are active in the private and commercial markets and provide a comprehensive range of products. The main classes of coverage offered include annuity, endowment, term, disability and nursing care insurance.
◼ Property-Casualty ◼ Life/Health Market position by gross premiums written: 3 I. Position 1 II. Position 2 to 5 III. Position 6 to 10 IV. Not in the top 10 1 Country specifics are excluded (e.g. microinsurance and pension funds clients). This also applies to the following pages.
2 Including agents and financial advisors. This also applies to the following pages. 3 Source: Own local estimations as of 2011. This also applies to the following pages.
Over the next few years, we expect to grow in line with the market in Property-Casualty. In the life business, market conditions continue to be very challenging. Our clear focus will remain on profitability of new business and prudent management of existing business.
In 2012, we followed up on further improvements in claims handling, service standards and distribution measures. We launched new service guarantees which are constantly measured and disclosed transparently to our customers. We expect to reap the rewards from 2013 onwards, which should help us to withstand strong competition and price pressure.
insurance western & southern europe insurance western & southern europe C 005
Looking ahead, we aim to further consolidate our strong competitive position in Property-Casualty by leveraging our technical know-how, strong brand and innovation capabilities. In life, we are in a solid situation, which will allow us to face sustained market volatility.
In the French property-casualty market, competition will remain tough, even though low interest rates should push the entire sector to increasingly focus on technical profitability and sufficient pricing levels. Concerning the life market in France, we anticipate a continued period of volatile capital markets, making short-term growth rates unpredictable but reinforcing customer interest in financially strong insurance partners.
Belgium and the Netherlands Allianz Belgium S.A. markets a wide range of life and property -casualty insurance products. Life insurance continues to be the major product line. We distribute our products and services through brokers.
In 2012, we acquired business from Mensura CCA and its subsidiary Mensura Assurances SA (Mensura), a workers accident specialist, thereby offering to our brokers and customers a full range of products and services to address all commercial insurance needs. After adjusting for this acquisition and for a portfolio transfer to Allianz Global Corporate & Specialty (AGCS), Allianz Belgium managed to maintain its focus on profitability and expand its property- casualty insurance despite strong competition.
The Dutch property-casualty market is characterized by intense competition and was hit by extraordinary adverse developments in 2012, such as reserve strengthening in income insurance. In this context we are focusing on profitability, in particular by continuously improving our cost position. After successfully centralizing our operations in Rotterdam in 2011, we continue to further harmonize our core processes.
Allianz Netherlands and Allianz Belgium. Joint investments in IT, processes and technical skills will allow us to further improve our products and services.
In Property-Casualty, the market has had four years of marginal profits, with many insurers suffering significant losses. We, however, again recorded a profit significantly above the market average and increased market share via growth in Motor insurance. An expanded distribution channel, improved pricing and underwriting, and transformed operational processes underpin this performance.
Taking advantage of this situation, Allianz and HSbC Turkey have negotiated a 10-year bancassurance agreement to distribute Allianz life and pension and long-term savings products through HSbC branches in Turkey. The implementation is expected to take place in the second quarter of 2013 following final local regulatory approvals.
Africa We serve the market through Allianz Africa, our specialist for Sub-Saharan Africa. We have local subsidiaries in eleven Sub-Saharan countries and additional partners in bordering countries. Providing both insurance and reinsurance coverage, we are present in the market via a multi-channel distribution network consisting of agents, local and international brokers, as well as direct and bancassurance partnerships.
Besides Motor, which is our largest line of business, we offer products for property and liability protection and life/ health coverage in both countries. In Portugal, we also offer workers compensation coverage. We distribute our products through agents and brokers. In both countries we maintain strong bancassurance partnerships, working with Banco Popular in Spain and Banco Português de Investimento in Portugal.
In the property-casualty markets we outperformed the local markets in Spain in terms of premiums and profitability. In both countries our life operations focused on reducing risk and protecting profitability. Our business developed better than the industry and we intend to protect our portfolios in a shrinking market.
South America In South America, three companies form the basis of our local presence: Allianz Brazil Seguros S.A., Allianz Colombia S.A. and Allianz Argentina Compañía de Seguros S.A. In 2012, our entity in Colombia was rebranded from Aseguradora Colseguros S.A. into Allianz Colombia, which helped us to strengthen our brand in South America. Furthermore, we have established a local reinsurance company in Argentina.
In all three markets, we mainly concentrate on PropertyCasualty, with Motor generally representing the largest individual line of business, followed by industrial business. In addition to offering life insurance in Colombia, we are also one of the leading health insurers in both Brazil and Colombia. We primarily distribute via brokers.
Looking to the future, we believe that the South American markets in which we are present offer significant potential for further growth. We will continue to strengthen our presence in this region, particularly in retail lines.
Through FFIC, we underwrite personal and commercial lines, selling these products through independent agents and brokers. We also participate in a crop insurance program through a reinsurance arrangement. Our personal business unit focuses on affluent and high-net-worth individuals while our commercial business unit offers specialized property-casualty coverage for small and mediumsized businesses. FFIC is one of the few carriers in the United States that has a nationwide personal and commercial lines presence.
Our life and annuity business primarily underwrites fixed, fixed-indexed and variable annuities, and fixed-indexed universal life insurance products which are sold through independent distribution channels, as well as large financial institutions such as banks and wire houses. Redesign activity across product categories continued within the industry in 2012 and business dynamics were impacted by new competitors as well as shifts in the market leader peer group. In this environment, we continued to create and offer value-added products to help our customers address their financial needs, particularly in the retirement market. Our flexible fee structures and profitability management levers again allowed us to respond to the difficult market conditions which persisted in 2012. As a result, our life and annuity insurance business performed well overall and we were able to expand both product portfolio and distribution partnerships.
◼ Property-Casualty ◼ Life/Health Market position by gross premiums written: I. Position 1 II. Position 2 to 5 III. Position 6 to 10 IV. Not in the top 10
Australia Allianz Australia Insurance Ltd. serves the Australian and New Zealand property-casualty and life insurance markets. Measured by premium income, Allianz Australia is the fourth largest insurer in Australia, providing insurance coverage for retail and corporate segments.
We also operate in certain niche markets, including premium financing, agriculture and pleasure craft insurance.
With our disciplined underwriting, we successfully responded to the unprecedented series of natural disasters that hit Australia and New Zealand between December 2010 and March 2012. Continued measures to increase operational efficiency and our constant focus on improving customer service and experience contributed to the excellent result.
As Allianz Australia markets its products and services through a multi-distribution approach and given the strong positioning in the market good growth opportunities are available in 2013.
Operating in a highly competitive market, we continue to concentrate on active cycle management, market-leading customer focus and sophisticated fraud detection to support profitable growth. This underwriting discipline continues to prove itself with results consistently ahead of peer competitors.
Ireland In Ireland, we offer a wide variety of property and casualty products for both commercial and private customers.
In 2012, AGCS was affected by adverse weather conditions in North America, most notably the damage caused by Storm Sandy. Despite this, AGCS remains well positioned to cope with the continuously challenging economic environment and the rising number of natural catastrophes due to its global diversification and spread of exposures.
The market environment is anticipated to remain competitive in 2013 with positive economic developments in emerging markets expected to offer opportunities for growth.
Credit Insurance Euler Hermes, the global leader in credit insurance, underwrites credit insurance in major markets around the world, providing businesses with protection against the risk of non-payment of accounts receivables and buyer insolvency. Additionally, Euler Hermes holds a strong position in bonding and guarantees, debt collection and fidelity insurance.
In 2012, Euler Hermes continued its organizational transformation and efficiency improvements that in recent years have streamlined infrastructure and operating processes and made the company more consistent and more agile in responding to client requirements and changing market conditions. In parallel, the company implemented several prudent underwriting measures and organizational disciplines to minimize the impact of a possible economic downturn.
Allianz Worldwide Care Our specialist health insurer, Allianz Worldwide Care (AWC), sells international health products to expatriates and high-net-worth individuals. Its products are distributed by brokers, agents as well as via the internet and call centers. With a tight control of expenses, process improvements and strict underwriting discipline, AWC has seen strong profitable growth over the years, especially during 2012. With a number of newly signed global contracts with Non-governmental Organizations (nGOs) and Intergovernmental Organizations (IGOs), AWC is expected to see further growth in the coming years, while sustaining profitability and widening its product offerings.
Asia Our group companies in Asia achieved a notable performance and remained a strong partner for all our stakeholders. We will continue to develop our business buoyed by the positive economic outlook in the region and a growing need for protection and provision products in these economies. Our aim is to further position ourselves as a leading multinational insurer in the Asia-Pacific region.
In Asia, we offer life/health, property-casualty insurance and asset management products. We serve more than 21 million customers with a full suite of products through our multi-distribution networks, including approximately 200,000 tied agents, brokers, bancassurance and direct marketing.
general insurer in the country with a market share of over 10 %, Allianz Life has been one of the strongest and fastest growing life insurance companies in the industry. It is a leading provider of investment-linked protection business, offering innovative products and solutions to our customers, especially through our main distribution channel agency. Both our life and general insurance businesses have been able to increase their agency forces significantly with over two thousand agents joining in 2012.
Central and Eastern Europe (cee)/ Commonwealth of Independent States (cis) Active in 10 countries in the region, we continuously rank among the top 3 players in six of the largest markets in CEE. We provide property-casualty, life/health products and pension funds to our 7.3 million customers in Bulgaria, Croatia, the Czech Republic, Hungary, Poland, Russia, Romania, Slovakia, Slovenia and the Ukraine. Within two decades, we have become one of the leading international insurers in the region with a market share of over 9 %, based on gross premiums written.
In Property-Casualty, we remain amongst the leading companies in the CEE region despite the difficult ongoing market conditions. Our main products are motor, property and liability insurance for retail, commercial and industrial customers. In 2012, we continued our efforts to secure the overall profitability of the property-casualty portfolio by focusing on technical underwriting. This allowed most of our local companies to capture a major share of the total local market profitability. During early 2012, Allianz Russia successfully completed the integration of three previously separate property-casualty entities. By doing so, we created an effective platform for future growth and a single point of entry under one brand for customers.
We also have a leading position in the pension market in CEE. Growth benefited from regulatory changes in the Czech Republic. Further opportunities for expansion are expected from the pension reform in the Czech Republic, which was finally approved by Parliament in late 2012.
Product innovation and brand positioning remain key levers for attracting new customers. We are optimistic that we will remain on course for growth in the CEE region, even though on a moderate level, despite the challenging economic environment. In addition to this, several initiatives for our proprietary networks have already shown initial results in improving the productivity and attrition ratio of tied agents. Our business partners in the broker channel appreciate our improvements in terms of enhanced services and state-of-the art collaboration, especially the recently introduced standardized workflow and dedicated Key Account Managers.
Our ambition is to be the leading property-casualty insurer in the world, in terms of gross premiums written and profitability. In our Life/Health core business we strive to stand amongst the three most profitable insurers globally, and want to grow where our requirements regarding profitability are met. Moreover, we want to be the top active asset manager in terms of assets under management and by profitability.
Furthermore, we aspire to not only reach but maintain size and profitability in the long run. Therefore, sustainability is at the heart of our business and we have incentivized our leaders accordingly. For further information, please refer to Our Progress in Sustainable Development starting on page 109 and the Remuneration Report starting on page 74.
The quest for operational excellence is omnipresent in our business: In order to be market leaders by size and also in terms of quality, we need smart, synergistic and fairlypriced products, clever and reliable service, top-notch execution and an agile organization – all supported by comprehensive and timely monitoring and steering. In the past years, we have, for example, strengthened our distribution networks, harmonized the way our operational units are organized, built global lines of business where our clients demanded it and invested in focused capabilities and systems – such as a global investment function, world-class risk management and an organization to nurture our global brand. Currently, the main thrust of our investments in operational excellence support the digitalization of our products, our market presence and customer service, as well as our underlying administrative and steering processes.
Recently, we have further reduced the risks in our balance sheet and currently we put a high emphasis on enhancing our capital allocation.
These three pillars should help us be the best in class and most trusted partner for our clients in managing risks and investments, but also for our agents, banks, brokers and other distribution partners, as well as for society. We serve our clients where they need us, in our local markets as well as through our global lines of business. We serve them directly or through our trusted distribution partners. We defend and build on our strength in existing markets and selectively engage new clients in new markets. We offer personal advice and services and provide our clients with the opportunity to communicate with us over the internet. Where needed, our clients can obtain a broad range of offerings from us to manage their risks and cover their financial needs. As such, the diversification of the Allianz Group creates real, practical synergies where it matters most – for our partners.
Assets under management: 2nd (Allianz Asset Management) Cost Income Ratio: 3rd (Allianz Asset Management)
1 For detailed growth targets and underlying assumptions see Outlook 2013 and 2014. 2 Information does not show the position of Allianz in comparison to the total global insurance industry. It shows the positioning of Allianz in comparison to our main peers in 2011 (2012 figures are not yet available). The key performance indicators for peers have been adjusted to the Allianz definition.
BOARD OF MANAGEMENT AND ORGANIZATIONAL STRUCTURE We serve our customers mainly through three business segments: Property-Casualty insurance, Life/Health insurance and Asset Management. Our Banking business is reported under our Corporate and Other segment, which also includes our Group functions.
Each member of Allianz SE’s Board of Management is responsible for a particular division within the Allianz Group. The two insurance business segments PropertyCasualty and Life/Health are subdivided into six business divisions while Asset Management is a stand-alone segment overseen by seven of the board members. The other four board members, including the Chairman of the Board of Management, are in charge of Group functions such as Finance, Investments and Operations.
MEMBERS OF ThE BOARD OF MANAGEMENT AND ThEIR RESpONSIBILITIES IN 2012 AND 20131 C 012
Controlling, Reporting, Risk (until 31 December 2012) Finance, Controlling, Risk (as of 1 January 2013)
Dr. Paul Achleitner (until 31 May 2012) Dr. Maximilian Zimmerer (as of 1 June 2012)
We continuously monitor our business performance against these targets through monthly reviews to ensure that appropriate measures can be taken in the event of negative developments. Throughout these reviews, we monitor key financial and operational metrics. Operating profit is the main financial performance indicator across all business segments for the Allianz Group. In addition, we also use segment-specific figures such as the combined ratio for our Property-Casualty segment, inforce and new business margins and margin on reserves for our Life/ Health segment and the cost-income ratio for our Asset Management segment. For a comprehensive view of our segment performance, please refer to the Management Discussion and Analysis starting on page 122.
Besides performance steering we also have a risk steering process in place which is described in the Risk Report starting on page 184.
In terms of environmental sustainability, Allianz is committed to supporting the development of a low-carbon economy. Climate protection, however, is not an end in itself. At Allianz, it is also a viable business and investment case. Allianz is one of the world’s largest investors in renewables and is building up a long-term portfolio in wind energy and solar power. We also offer a growing range of products and services to help individual and institutional customers mitigate the effects of climate change or manage their own environmental impact.
– Carbon Disclosure Project: Allianz is the leading insurance company globally and is included in the Global Carbon Disclosure Leadership Index and Carbon Performance Leadership Index.
2 Rebranding to Allianz Global Assistance completed for 22 business units including the headquarter; six business units will begin migration in the course of 2013.
Our global-local communication approach supports cost synergies, best practice sharing and a consistent brand experience around the world; the activation of our global assets at a local country level helps our entities to position themselves as a trusted partner and to create a link to their local business – as illustrated by our Formula 1™ engagement. In 2012, 28 Allianz entities participated in the “Drive Safely” campaign in their local markets. With over 50 million cars insured worldwide, road safety is an issue Allianz has always been committed to.
With our increased brand presence in digital and social media we encourage a more engaging, emotional and
− a weather app with weather forecasts, warnings and advice to help our customers stay safe,
− a travel app that offers location-based travel insurance on the go, pay-per-use functionality, a document safe and other useful information about travelling safely, as well as
Customer foCus The loyalty of our customers is one of the key factors for sustainable growth. Our aspiration is to outperform our local peers. We regard constant feedback from our customers as vital to ensure ongoing improvement in our products, services and processes. As part of our customer-focused activities, we use key feedback tools such as the Net Promoter Score (nPS).
nPS is a measurement of customers’ willingness to recommend Allianz and has been established as our key global metric for customer loyalty. It is regularly measured in about 40 Allianz companies worldwide, representing around 90 % of gross premiums written (GPW). Based on empirical analysis in many of our local markets, we have observed a positive correlation between nPS and new business, profitability and agent productivity. More loyal and satisfied customers have fewer complaints, are less likely to churn and are more inclined to buy other services or products and to make referrals. We apply nPS in two ways: Top-down nPS is measured annually by our local companies according to global standards and allows benchmarking against local competitors in the respective markets. Our joint efforts to further improve the loyalty of our customers proved effective again in 2012. The proportion of Allianz businesses with significantly more loyal and satisfied customers than the local market average rose from 52 % in 2011 to 55 % in 2012. The percentage of Allianz companies that have attained loyalty leadership in their market also increased, from 28 % in 2011 to 30 % in 2012.
Bottom-up nPS is used to measure customer loyalty after key interactions at critical touch points such as claims handling or sales. It enables us to better understand customer expectations as well as their changing needs. By asking for direct feedback after important customer interactions, we
Despite a difficult economic environment, we managed to keep our customer base stable at approximately 78 million customers worldwide in 2012. For further information about our customers in selected markets, please refer to Our Insurance Markets on page 96.
custoMers by region/country 1 C 014 as of 31 December 2012 [31 December 2011] in %
Green solutions Allianz has a Group-wide strategy covering climate-related risks and opportunities for our business and clients, which commits us to play a leading role in supporting the development of a low-carbon economy. We work to both reduce our own carbon footprint and use our position as a leading global financial services provider to raise awareness about the risks and opportunities arising from climate change. We also aim to develop and offer green products.
We offer our private and commercial customers a growing number of green products and services that help mitigate the negative physical or economic effects of climate change or take its environmental impact into account. We currently offer more than 130 green products, which cover all of our business segments, including (re)insurance, assistance and asset management. We were the first financial services company to establish a comprehensive, Groupwide definition of green products and are working on further increasing transparency regarding their contribution to our overall financial performance by, for example collecting revenue indicators centrally.
Examples of green products on the commercial side include tailor-made insurance products for large-scale renewable energy projects and green building insurance to cover facilities or offices that have been built or refurbished to be more energy efficient. For private customers, examples include rewarding drivers with climate-friendly and fuelefficient cars with a special discount on car insurance, property insurance – including roof-mounted solar panels
Microinsurance For low-income families in developing countries, microinsurance is a means of managing the risks associated with natural disasters, accidents and illness. Allianz provides a safety net to over 17 million people in Asia, Africa and Latin America through its microinsurance offering. Our products range from life insurance and savings plans to crop index insurance. While profit expectations are much lower than in the traditional insurance business, there is a strong belief that familiarizing low-income customers with the concept of insurance in general, and the Allianz brand in particular, will pay off over the years as these customers move up the economic ladder.
GROSS PREMIUMS WRITTEN (IN € MN) NUMBER OF INSURED PEOPLE (IN MN)
We strive to invest sustainably across all asset classes over time. The practical implementation of sustainability in proprietary asset management involves integrating ESG factors into our investment process through research, corporate and country analysis, strategic asset allocation, portfolio construction, asset manager selection, monitoring and risk management. We firmly believe that considering ESG factors in performance evaluation is not a short-term trend but one that will fundamentally change business performance, and consequently, investment performance over time.
Concerns about climate change are changing the way assets are managed and giving rise to new and alternative asset classes, especially in the field of renewable energy and carbon investments. The following examples illustrate how we are implementing our commitment to ESG in specific asset categories: Renewables As large institutional investors, insurance companies are important players in the financing of a low-carbon economy. We are already one of the leading investors in renewables with a strong portfolio in wind energy and solar power amounting to € 1.3 bn in 2012. Since renewables are seen as an investment opportunity with an attractive risk-return profile, we are gradually expanding our investments in this sector. Investments in renewable energy projects provide sound long-term returns that fit well with Allianz’s longterm investment strategy.
Carbon investments Carbon has arisen as an asset class on the back of concern about climate change and CO2 emissions. By being an early investor in this up-and-coming market, Allianz has already gained valuable experience and is benefiting from the o pportunities this offers. Investments to date include forest protection in Kenya and an energy efficiency project in India. Combined, these projects will avoid the release of around 40 million metric tons of CO2 over their lifespan. We plan to expand our portfolio in this field and certificates from such projects will be used for our own carbon neutrality.
Real estate Allianz Real Estate (ARE) has launched a comprehensive sustainability program, with a focus on environmental factors, to support our Group commitment to significantly reduce our carbon emissions and meet the market’s demand for sustainable real estate. Specific sustainability standards now apply to ARE’s core investment and property management processes. These include the application of sustainability criteria in decision-making for new investments and metrics to measure the sustainability performance of ARE’s real estate portfolio. Furthermore, ARE actively engages with its tenants to further enhance the sustainability performance of its buildings – at the same time helping tenants to reduce their running costs.
Investment dilemmas We are aware of the criticism directed at a number of our investment activities, which are perceived as controversial by some of our stakeholders. By their very nature, topics
that are considered contentious by some stakeholders are not considered so by others. These issues are complex and subjective, and are often influenced by culture and individual experiences. They are frequently interconnected with other issues and it is often difficult to establish a single, simple viewpoint on such topics, which explains their divisive effect.
Food security In recent years, rising and volatile food prices have increased the profile of food security as an issue of global concern. Recently, financial institutions have been targeted with the accusation that their increased presence in agricultural commodity markets is contributing to food price hikes or price bubbles and thus, increased hunger among the world’s poor.
We take the allegation very seriously and are engaging with non-governmental organizations (nGOs) and other organizations to better understand their concerns and expectations and to outline our own position. As well as engaging with these nGOs, we conduct internal reviews in order to fully understand our potential impacts in this area.
On one hand, we have no insurance assets invested in physical agricultural commodities, their derivatives or in related indices, as these investments do not fit our investment strategy. On the other hand, Allianz customers are able to invest in shares of commodities producers (equity funds) and in commodity funds that invest solely in commodities derivatives through our Asset Management business.
It is important to stress that our asset management products also do not directly invest in physical agricultural commodities but only in related derivatives and indices. This means clients may benefit from rising as well as falling commodity prices, depending on the investment strategy of the fund. In these funds, commodity futures positions are closed well before the expiration of the contract since this precludes us from being in the position of having to accept or make physical delivery of the actual commodities. Of course, our third-party mutual funds meet the high transparency standards set by regulations; all product prospectuses provide details about the portfolio composition as well as underlying financial instruments. We comprehensively inform our customers, who usually have longerterm investment horizons, so they can take informed investment decisions.
resPonsibility in tHird-Party asset ManageMent Allianz Asset Management (AAM), through its ownership of AllianzGI and PIMCO, is one of the world’s largest asset managers. AAM is responsible for the Group’s third-party asset management business as well as for managing the majority of our proprietary assets. AllianzGI concentrates on its specialized asset management units and PIMCO specializes in multi-asset global solutions.
Even with different regional focuses and investment strategies, embedding ESG into asset management and offering corresponding products and services is already common practice across our third-party asset management entities. Building strong ESG research capabilities, engaging with the companies they invest in where practical and pursuing active share ownership through proxy voting are at the heart of all their ESG strategies.
Taking environmental responsibility seriously carbon reduction strategy Despite the fact that the financial services sector is a comparatively low-carbon industry, Allianz is nevertheless committed to reducing its environmental impact. We have a target to reduce our carbon emissions per employee by 35 % by 2015 against a 2006 baseline. Because energy use is the largest contributor to our carbon footprint, we have also set ourselves a specific energy target to support our overall carbon reduction objective – by 2015, we aim to reduce energy consumption per employee by 10 % measured against a 2010 baseline.
While we have already reached our 2015 CO2 reduction target and are seemingly close to our new energy target (minus 8.3 % per employee), as the economy continues to improve, the challenge for Allianz will be in controlling our consumption and emissions over business cycles. In 2013, we will also continue to improve the quality of our environmental data; specifically focusing on further improving our carbon accounting methodology and formalizing and further automating our reporting systems. Better data quality will also be the basis for future decision-making on environmental activities and targets.
Scope 1 – Direct gHg emissions, total Scope 2 – Indirect gHg emissions, total Scope 3 – Other indirect gHg emissions, total
2 Renewable energy includes direct and intermediate energy from specific clean energy technologies or proportional allocation according to energy mixes specified by the suppliers.
A committed corporate citizen As a global company with a business presence in over 70 countries worldwide, we take our responsibility to society seriously. By offering skills, time and money, we strive to advance social well-being and give financial and practical support to our local communities. In addition to being a major taxpayer, we also make donations to address social, environmental and cultural issues of relevance to Allianz and the societies in which it operates. Furthermore, our inter national network of 13 Allianz affiliated corporate foundations – for example the Allianz Cultural and Environmental Foundations – supports us in living out our role as a responsible corporate citizen. In 2012, studies were conducted to analyze the impact of our Corporate Responsibility activ ities on brand value, employee engagement and financial literacy education. The preliminary outcome was that there is a strong positive correlation and further research will be conducted in 2013 to better understand where we can improve and further increase our impact.
Corporate giving Over the past three years Allianz has implemented a Groupwide corporate giving framework. Robust processes have been set up and data collection has been integrated into our financial accounting system, with the aim of systematically increasing the transparency of corporate giving and improving its management. As part of these ongoing enhancements, we now collect data on our local activities according to the London Benchmark Group (LbG) model and have adjusted internal tools for collecting information about our affiliated foundations accordingly.
In addition to being a major taxpayer, Allianz donated € 20.4 Mn (2011: € 22.2 Mn) to support local communities. The total corporate giving sum comprises donations, charitable memberships, as well as grants made by our affiliated corporate foundations. In addition to corporate giving activities, Allianz offers its employees the possibility to donate in the event of natural catastrophes. For that we have a global platform to involve all our employees in donation campaigns, which is supported by our partner, the International Federation of Red Cross and Red Crescent Societies.
Talent management We take a common and systematic approach to developing talent across all Allianz companies. To ensure the quality and performance of our employees, we focus on managing and developing talents and careers by assessing performance and potential, providing appropriate development actions and ensuring robust succession plans. We also develop both leadership and functional skills to ensure our employees can achieve current and future business goals. In order to meet future staff needs, we promote the necessity of lifelong learning. In addition, our Strategic Workforce Planning proactively supports strategic human resources decision-making, by supplying up to 10-year forecasts on economic, demographic and socio-cultural trends.
Total expenses in training 2 in € Mn 93 88 80 Training expenses per employee 2 in € 707 667 606 Average training days per employee, staff 2.6 2.7 2.9 Average training days per employee, managers 2.8 2.5 3.7 Employees undergoing at least one training session, staff in % 64.2 60.6 55.5 Employees undergoing at least one training session, managers in % 70.0 68.0 81.8 1 Figures based on the number of employees in Allianz’s core business; all companies in and related to the insurance and Asset Management business including our banking activities in Germany, France, Italy, the Netherlands and Bulgaria. Excluded are fully consolidated companies which are considered as pure financial investments and companies classified as held for sale.
2 Calculation basis was changed in 2011: it includes the effective spending on training and excludes related expenses (e.g. travel expenses) and further costs (e.g. internal academy costs). Previous year figures have been restated.
1 Total number of employees with an employment contract of all consolidated companies (core and non-core business).
2 Figures based on the number of employees in Allianz’s core business; all companies in and related to the insurance and Asset Management business including our banking activities in Germany, France, Italy, the Netherlands and Bulgaria. Excluded are fully consolidated companies which are considered as pure financial investments and companies classified as held for sale.
3 Including women at all executive positions below the Board of Management. 4 Including women functionally responsible for other staff, regardless of level, e.g. division, department and team managers.
Remuneration The Allianz Group paid a total of € 8.9 bn (2011: € 8.4 bn) to its employees worldwide in 2012. Of this, approximately 30 % was for performance-related (variable) remuneration elements. € 2.3 bn (2011: € 2.2 bn) was spent on social security contributions, pension and other social benefits.
Further employee figures tenure by region1,2 in years C 021 as of 31 December 2012
Full-time employees 87.6 88.7 88.3 Part-time employees 12.4 11.3 11.7 eMPloyee Qualification2 in %
3 Trainees are employees at the beginning of their career participating in a trainee program, i.e. are undergoing practical training designed to facilitate their development of knowledge and skills, e.g. apprentices, trainees, interns and working students and with a formal arrangement (e.g. employment contract or third-party agreement with a school or university).
4 Number of employees who left the Allianz Group during the reporting period.
Our integrity calls upon us to make only promises we can keep and take only risks we can manage. Good corporate governance and transparency are key to gaining and keeping the trust of our shareholders, clients and employees.
strengtHening sustainability goVernance In 2012, Allianz set up the ESG Board, a committee with Board member leadership, responsible for further promoting and strengthening environmental, social and governance (ESG) aspects in our insurance and investing activities. The establishment of the ESG Board serves to further elevate these issues in our Group corporate governance.
Trainings about anti-discrimination and anti-harassment procedures are also offered, in alignment with local legal requirements.
Allianz’s Anti-Corruption Program and organizational transparency were highlighted by Transparency International. We were able to explain and to provide evidence showing that Allianz is actually delivering on its promises and that our management and employees are working hard to prevent non-compliance.
Independent ratings serve as yardsticks in helping us achieve our objective of being perceived as a trusted financial services provider and attracting the right talent and investor base. Trust is the basis for our business and can only be established if we are transparent. The recognition from Transparency International is highly motivating and challenges us to improve further.
Global Economic EnGinE sputtErinG The world economy lost more steam in the course of 2012. On an annual average, global industrial production increased by less than 3.5 % in 2012, having risen by a total of 5.4 % in 2011. The increase in 2012 was attributable almost entirely to the emerging markets, above all in Asia, with production rising by more than 6 %. By contrast, production in industrial countries practically stagnated. World trade was also subdued. With an increase of around 2.5 %, 2012 saw the weakest growth in trade since the drop in 2009 following the Lehman collapse.
Gross domestic product (GDP) in industrialized countries increased by about 1.1 % on average in 2012. While the United States registered fairly solid growth of 2.2 %, the Eurozone’s real GDP contracted by 0.5 %. As in previous years, economic performance varied widely within the single currency area. The GDP of Greece and Portugal fell by around 6 5 % and 3.2 %, respectively, while other countries like Ireland and Austria registered moderate growth rates of around 0.6 %. The economic impact of the debt crisis also dampened German growth. Following strong economic expansion of 3 % in 2011, real GDP in 2012 was up only 0.7 % compared to the previous year. By contrast, emerging markets grew 4.5 % on average, with Asian markets recording growth rates of 6.1 %.
During the second half of 2012, however, the sentiment on financial markets improved markedly. Practically all asset classes, with the exception of cash, notched up significant positive returns by the end of 2012. Stock markets rallied and spreads on debt-ridden Eurozone countries narrowed sharply. Yields on 10-year German government bonds ended 2012 at 1.3 %. The Euro, which depreciated considerably against the U.S. Dollar until the summer, rose in value during the second half of the year, more than compensating for its earlier losses. Key factors in shoring up confidence were the European Central Bank president’s commitment to the irreversibility of the Euro and the announcement of outright monetary transactions in secondary sovereign bond markets (OMT). More decisive action to manage the crisis at both the national and E.U. level also helped. Intensified national reforms and consolidation efforts are starting to bear fruit and progress is being made towards enhanced E.U. integration: the European Stability Mechanism (ESM) was inaugurated in early October 2012, proposals for a European banking supervisory regime – which is to start operating in 2014 – were fleshed out and work on a roadmap for the Eurozone is high on the agenda in the first half of 2013.
Furthermore, the European sovereign debt and banking crises, persistent low interest rates and financial market volatility all contributed to a very difficult invest ment environment for the insurance industry. As a result, investment returns continued to suffer, putting the sector’s profitability under pressure. The industry responded to these challenges by strengthening its investment and risk management processes and reducing operational costs. With the
looming increase in capital requirements under Solvency II – which will introduce among other things substantial capital requirement increases for more risky assets – insurance companies generally continued to de-risk their balance sheets. It is expected that the implementation of Solvency II will be further delayed and as such, adoption in 2014 is no longer guaranteed.
In the property-casualty sector, market conditions continued to improve in 2012. Premium growth in advanced markets, where it occurred, was mainly driven by rate increases – for example in Germany and U.S. commercial lines. However, with the Eurozone in recession and despite rate increases, premium growth turned negative in some European markets such as Spain and Italy. Supported by increased economic activity, premium growth in emerging markets generally proved robust, albeit slightly below the previous year’s level. Emerging Asia remained the strongest region. Overall, according to our own market estimates and based on preliminary figures, global premiums grew around 4 % in 2012 (adjusted for foreign currency translation effects).
2012 provided a slightly more favorable market environment for the asset management industry compared to 2011, with market volatility receding and investor concerns about the European sovereign debt crisis easing over the course of the year. As a result, revenue growth in the industry as a whole picked up moderately, while profitability was under pressure due to rising costs resulting from the trend towards more localized distribution, higher marketing and branding expenses as well as increasing regulatory requirements.
Executive Summary of 2012 Results − Revenues increased to € 106.4 bn.
− Operating profit grew 20.8 % to € 9,501 mn. − Net income nearly doubled to € 5,491 mn. − Solvency ratio strong at 197 %, 1 an increase of 18 percentage points.
Our solvency ratio further strengthened to 197 %,1 an increase of 18 percentage points.
Operating profit + 20.8 % Operating prOfit allianz grOup C 023 € mn
Earnings summary ecOnOmic and industry envirOnment in 2012 The world economy lost more steam in 2012 and continued to present challenges for the insurance industry.
In the property-casualty insurance industry, market conditions recovered slightly and the positive pricing momentum continued into 2012. Premium growth was largely driven by rate increases, whereas volumes declined – particularly in recession-hit countries in Europe, such as Spain and Italy. Claims from natural catastrophes remained significantly lower than in the previous year, which was burdened by severe losses. However, claims resulting from Storm Sandy and the drought in the United States weighed heavily on industry profitability, while those in Europe and emerging markets were relatively benign.
In the asset management industry most asset classes saw a positive flow development in the majority of countries, with money market funds in the United States and equity mutual funds in Europe experiencing redemptions. Growth in the industry as a whole picked up moderately and fixed income absorbed the major bulk of the inflows.
Solid growth in all our operating segments resulted in a strong increase of 20.8 % to € 9,501 mn in our operating profit. The excellent result in our Asset Management segment was driven by the increase in assets under management and higher performance fees. Our Life/Health business benefited from an improved investment result while our PropertyCasualty segment recorded a higher underwriting result – supported by lower natural catastrophe claims. The operating result from the Corporate and Other segment deteriorated mainly due to a lower net fee and commission result. Overall, we significantly exceeded our original upper operating profit target of € 8.2 bn plus € 0.5 bn.
Net income nearly doubled to € 5,491 mn, driven by the strong operating performance in all our operating segments as well as a higher non-operating result. In 2012, we benefited from an easing European sovereign debt crises in contrast to the previous year when both our operating as well as non-operating investment results were heavily impacted by the impairments on Greek sovereign bonds and financial sector assets. Net income attributable to shareholders and non-controlling interests was € 5,169 mn (2011: € 2,545 mn) and € 322 mn (2011: € 259 mn), respectively.
Management Discussion and Analysis 122 Business Environment 124 Executive Summary of 2012 Results 132 Property-Casualty Insurance Operations 140 Life/Health Insurance Operations 148 Asset Management 152 Corporate and Other 166 Balance Sheet Review 175 Liquidity and Funding Resources 182 Reconciliations
Property-Casualty Life/Health Asset Management Corporate and Other Internal growth 1 Total revenues include € (229) mn, € (144) mn and € (115) mn from consolidation for 2012, 2011 and 2010, respectively.
1 Total revenues comprise statutory gross premiums written in Property-Casualty and in Life/ Health, operating revenues in Asset Management and total revenues in Corporate and Other (Banking).
Non-operating income from financial assets and liabilities carried at fair value through income (net) improved by € 653 mn to € 210 mn. Of this change, € 496 mn was related to the valuation of The Hartford warrants. While in 2011 revaluation losses amounted to € 316 mn, in 2012, we recognized revaluation gains of € 180 mn prior to the sale of the warrants in April 2012.
Restructuring programs at AllianzGI and the “Zukunftsprogramm Sachversicherung” at Allianz Germany accounted for the majority of the non-operating restructuring charges which increased by € 85 mn to € 252 mn. For further information, please refer to note 49 to the consolidated financial statements.
Income taxes increased by € 1,098 mn to € 3,140 mn and the effective tax rate amounted to 36.4 % (2011: 42.1 %). With a decrease of 5.7 percentage points, the effective tax rate returned closer to the expected level. In 2011, the higher effective tax rate was a result of high non tax-effective losses on equities and natural catastrophe related losses in jurisdictions with below average tax rates which did not occur in 2012.
Basic earnings per share Diluted earnings per share 1 For further information, please refer to note 50 to the consolidated financial statements.
tOtal revenues and recOnciliatiOn Of Operating prOfit (lOss) tO net incOme (lOss) C 029 € mn
Interest and similar income 21,084 20,502 19,428 Operating income from financial assets and liabilities carried at fair value through income (net) (721) (844) 19 Operating realized gains/losses (net) 3,215 2,220 2,169 Interest expenses, excluding interest expenses from external debt (486) (518) (522) Operating impairments of investments (net) (421) (1,730) (384)
Reclassification of tax benefits 17 28 71 Operating profit (loss) 9,501 7,866 8,243
Income from fully consolidated private equity investments (net) (59) (35) (102) Interest expenses from external debt (991) (973) (889) Acquisition-related expenses (101) (209) (440) Amortization of intangible assets (259) (449) (327) Non-operating restructuring charges (252) (167) (263) Reclassification of tax benefits (17) (28) (71) Non-operating items (870) (3,020) (1,070)
2 Includes expenses for premium refunds (net) in Property-Casualty of € (292) mn (2011: € (110) mn; 2010: € (181) mn).
The Board of Management and the Supervisory Board propose that the available net earnings (“Bilanzgewinn”) of Allianz SE of € 2,312,520,269.84 for the 2012 fiscal year shall be appropriated as follows: − Distribution of a dividend of € 4.50 per no-par share entitled to a dividend: € 2,039,354,635.50
1 The provisions of the German Stock Corporation Act (Aktiengesetz) apply to the Company pursuant to Art. 9 (1) lit. c) ii), Art. 10 of the Council Regulation (EC) No. 2157/2001 dated 8 October 2001 on the Statute for a European company (SE) (hereinafter SE-Regulation or SE-VO), insofar as nothing else is stipulated in special rules of the SE-Regulation.
AlliAnz BAnk ceAses Business On 24 January 2013, it was announced that Allianz Bank is set to cease business operations on 30 June 2013. The bank’s business activities for employees and agents, as Allianz Bank customers, will be continued by Oldenburgische Landesbank AG. As of today, the Allianz Group expects that closure-related expenses could approximate € 100 mn.
life insurAnce distriBution Agreement in turkey On 28 January 2013, Allianz SE and HSBC Bank plc agreed to a 10-year exclusive bancassurance distribution agreement for life insurance in Turkey. Allianz life insurance and pension products will be distributed by HSBC in Turkey. The upfront cash consideration by Allianz amounts to € 23 mn. This local bancassurance agreement, which is subject to regulatory approval, is expected to be completed in the first half of 2013.
AlliAnz cApitAl pArtners (Acp) sells sdu to editions lefeBvre sArrut (els) Allianz Capital Partners (ACP) and AAC Capital Partners (AAC) reached an agreement with the French publishing company Editions Lefebvre Sarrut (ELS) to sell the Dutch publishing company Sdu. The transaction was completed on 31 January 2013. Sdu was jointly acquired by ACP and AAC in 2007 in a privatization from the Dutch State. The disposal did not have a material effect on Allianz Group’s net income.
Effective 1 January 2013, we introduced the new combined region – Belgium, Netherlands and Luxembourg.
Changes in the Board of Management since 1 January 2013 are summarized on page 108.
There have been no material changes in our presentation and accounting policies in 2012. Effective 1 January 2013, in particular the amendments to IAS 19 will result in material changes. For further details, please refer to note 4 to the consolidated financial statements. In addition, all restructuring charges will be presented within the operating profit effective 1 January 2013. For further details, please refer to note 6 to the consolidated financial statements.
Our operating profit amounted to € 4,719 MN, a rise of € 523 MN or 12.5 %. The underwriting result increased by € 701 MN to € 1,402 MN, mainly due to an improvement in our accident year loss ratio supported by lower natural catastrophe claims and our positive price momentum. Our investment income decreased by € 165 MN to € 3,229 MN.
The combined ratio was 96.3 % compared to 97.8 % in 2011. Lower losses from natural catastrophes, the favorable pricing environment and positive impacts from our underwriting strategies drove the improvement.
Gross premiums written increased by 2.5 % comprising a positive volume effect of 1.2 % and a positive price effect of 1.3 %. The increase in gross premiums primarily came from our subsidiaries in Latin America and Australia as well as Allianz Global Corporate & Specialty (AGCS).
On a nominal basis, we recorded gross premiums written of € 46,889 MN – up € 2,117 MN or 4.7 %. Foreign currency translation effects had a favorable impact of € 875 MN, largely due to the appreciation of the U.S. Dollar, the Australian Dollar and the British Pound against the Euro.2
Cluster 3: Overall decline – either price or volume effects are positive.
Cluster 4: Overall decline – both price and volume effects are negative.
gross premiums written by operating entity – internal growth rates1 C 033
In Australia we recorded gross premiums of € 3,018 MN, including favorable foreign currency translation effects of € 242 MN. The growth of 10.2 % was driven by tariff increases in our retail and commercial business. The price effect was positive at about 7.2 %.
In the United Kingdom gross premiums increased to € 2,318 MN, including favorable foreign currency translation effects of € 153 MN. The growth of 2.6 % benefited from both higher volumes in our retail motor business and tariff increases in our commercial lines. The price effect was positive at about 1.2 %.
cluster 2 In Asia-Pacific gross premiums amounted to € 596 MN, up 14.6 %. We benefited from strong growth in our Malaysian motor business as well as from our liability business in China. This more than compensated the slightly negative price effect of about 0.3 %.
In our Credit Insurance business, gross premiums went up 6.0 % to € 2,034 MN, supported by the acquisition of new customers, especially in growth markets. The overall price effect was negative at about 1.3 %.
In Germany gross premiums increased to € 9,158 MN. Our growth of 2.0 % was driven by tariff increases in our motor business. This was partly offset by volume declines in our non-motor business. The price effect was positive at around 3.6 %.
cluster 4 In Central and Eastern Europe we recorded gross premiums of € 2,393 MN, including unfavorable foreign currency translation effects of € 25 MN. The decrease of 4.9 % was largely attributable to volume declines in our motor business in Hungary, Poland and Russia, selective underwriting in our health portfolio as well as lower volumes in our property business in Russia. The price effect was slightly negative at about 0.6 %.
Operating investment income 3,229 3,394 3,218 1 Consists of fee and commission income/expenses and other income/expenses.
1 Consists of the underwriting-related part (aggregate policy reserves and other insurance reserves) of “change in reserves for insurance and investment contracts (net)”. For further information, please refer to note 34 to the consolidated financial statements.
Excluding natural catastrophes, our accident year loss ratio was 69.5 %, a 0.2 percentage point improvement compared to 2011. This was mainly attributable to the continued positive price momentum and a favorable outcome in claims frequency in our motor business. These favorable developments were partly offset by losses from our crop business in the United States, due to severe drought and higher large losses at our Credit Insurance business.
The following operations contributed positively to the development of our accident year loss ratio: Reinsurance: 1.7 percentage points. This improvement was attributable to the lower burden of losses from natural catastrophes compared to the previous year.
Germany: 0.8 percentage points. The positive impact was due to lower losses from natural catastrophes but was partially offset by higher other weather related claims compared to the previous year. It was further supported by favorable price trends particularly in our motor business, lower large claims and a positive impact from our claims improvement measures.
AGCS: 0.4 percentage points. The positive impact was mainly a result of lower attritional claims and a reduced burden from natural catastrophes.
Australia: 0.3 percentage points. This primarily reflects a significantly lower number of natural catastrophes in 2012 compared to the previous year. Additionally, we benefited from continuous positive price momentum in both retail and commercial business.
Credit Insurance: 0.1 percentage points. This was driven by an unfavorable development in severity, in particular a few large losses, but also by increasing frequency due to an unfavorable economic environment and a higher level of insolvencies compared to a rather exceptional 2011. However, underwriting profitability is still high.
Interest and similar income (net of interest expenses) 3,723 3,717 3,588 Operating income from financial assets and liabilities carried at fair value through income (net) (46) 48 18 Operating realized gains/losses (net) 168 21 42 Operating impairments of investments (net) (17) (46) (9)
2 Refers to policyholder participation, mainly from UBR (accident insurance with premium refunds) business, and consists of the investment-related part of “change in reserves for insurance and investment contracts (net)”. For further information, please refer to note 34 to the consolidated financial statements.
Operating investment income decreased by € 165 MN to € 3,229 MN. This reduction was driven by decreasing interest rates and lower dividend income from private equity funds.
Interest and similar income (net of interest expenses) increased slightly by € 6 MN to € 3,723 MN driven by higher income on debt securities which was partly offset by lower income on equity and cash. Higher income on debt is related to the changed presentation of the separate income and expense result from our Australian premium funding business as well as the reinvestment in available-for-sale securities from the fair value option portfolio. The total average asset base1 grew by 5.4 % from € 95.7 BN in 2011 to € 100.9 BN in 2012. This growth offset the effect of decreasing yields.
1 As of 1 January 2012, the asset base changed as liabilities from cash pooling are now included. Previous years were adjusted accordingly.
2 Represents claims and insurance benefits incurred (net) divided by premiums earned (net).
Middle East and North Africa 68 68 76 63 63 48 48 44 5 5 2 1 This reflects gross premiums written on an internal basis (adjusted for foreign currency translation and (de-)consolidation effects).
2 In 2012, “Münchener und Magdeburger Agrarversicherung AG” was transferred from Consolidation and Other to German Speaking Countries. Prior year figures have not been adjusted. 2012 contains € 33 mn gross premiums written, € 15 mn premiums earned (net) and € 7 mn operating profit.
Middle East and North Africa 105.1 101.5 109.9 70.1 69.1 73.9 35.0 32.4 36.0
6 Contains € 16 mn, € 12 mn and € 15 mn operating profit for 2012, 2011 and 2010, respectively, from a management holding located in Luxembourg.
Insurance Lines & Anglo Markets to Global Assistance. Prior year figures have been adjusted. 9 Contains € (5) mn, € 5 mn and € (0.1) mn operating profit (loss) for 2012, 2011 and 2010, respectively, from AGF UK.
10 Contains income and expense items from a management holding and consolidations between countries in this region.
Life/Health Insurance Operations − Statutory premiums stable at € 52,347 mn. − Operating profit increased to € 2,955 mn.
2 Represents operating profit divided by the average of current year-end and previous yearend net reserves, whereby net reserves equal reserves for loss and loss adjustment expenses, reserves for insurance and investment contracts and financial liabilities for unit-linked contracts less reinsurance assets.
Segment overview Allianz offers a broad range of life, health, savings and investment-oriented products, including individual and group life insurance contracts. Via our distribution channels – mainly tied agents, brokers and bank partnerships – we offer life and health products for both private and corporate clients. As one of the worldwide market leaders in life business we serve customers in more than 45 countries.
Operating profit increased by € 535 mn to € 2,955 mn, largely driven by a higher operating investment result which recovered from the effects of the financial market turmoil and impair ments in 2011 and benefited from higher realized gains in 2012.
Operating profit + 22.1 % Operating prOfit life/HealtH C 040 € mn
However, premiums from investment-oriented products dropped by 6.5 %, especially in the United States, Germany and Italy.
Premiums were impacted by the continuing competitive environment in some of our major markets and our ongoing efforts to protect our margin through product innovation and pricing actions. These efforts and impacts are reflected in the discontinuation of selling new business in Japan by the end of 2011. Excluding Japan, premiums decreased by 1.7 % on an internal basis. The persistent low yield environment continued to impact customer demand for long-term insurance saving products. Premiums of protection and health products contributed favorably. We also saw a higher proportion of recurring premiums over single premium business compared to 2011.
In the following section, we comment on the development of our statutory premiums written on an internal basis, i.e. adjusted for foreign currency translation and (de-)consolidation effects in order to provide more comparable information.
statutOry premiums – internal grOwtH rates in selected marKets 1 C 043
United States 1 Before elimination of transactions between Allianz Group companies in different geographic regions, countries and different segments.
In Belgium/Luxembourg we recorded premiums of € 2,019 mn, an increase of 57.1 %. This increase mainly resulted from investment-oriented products in Luxembourg, which is largely related to French-originated business. A decrease in the guaranteed interest rate on traditional products in Belgium resulted in a lower business volume as not all competitors followed at the same time.
In Spain, premiums were up 10.9 % to € 1,075 mn. Considering the continuing recessionary market environment, including high unemployment and turmoil in the banking industry, our strong growth has been remarkable. This was largely driven by the ongoing positive trend in long-term investment -oriented product sales but also by the sale of traditional individual and group pension products.
With total premiums amounting to € 255 mn in Latin America, we recorded growth of 11.0 %, excluding positive foreign currency translation effects of € 13 mn. The growth in the South American region was attributable to our traditional insurance business, while increased investment-oriented premiums in Mexico more than compensated for a decrease in its traditional premiums.
In our German life business, premiums decreased 3.2 % to € 15,179 mn. This was mainly driven by investment-oriented products, while premiums from traditional products grew. The increase in recurring premiums, mostly due to higher sales at year-end 2011, could only partially offset the drop in single premiums. Premiums in our German health business increased 2.0 % to € 3,269 mn. This growth was due to a higher number of policies in our supplementary coverage insurance in 2012.
Operating profit increased by € 535 mn to € 2,955 mn, mainly as a result of the € 2,986 mn improvement of the operating investment result.
Operating income from financial assets and liabilities carried at fair value through income (net) improved by € 139 mn to a loss of € 727 mn. This increase was mainly due to the favorable impact of the equity market performance on our Fair Value Option assets in France and a more favorable trading result in the United States compared to 2011. These effects were partly offset by trading losses in Germany and France, mainly due to losses from derivatives used to hedge market movements. Gains resulting from foreign currency hedges more than offset the foreign currency translation losses in Germany.
Operating impairments of investments (net) significantly decreased from the exceptionally high level of € 1,684 mn in 2011 to € 428 mn. The previous year was burdened by both equity impairments, mainly on our investments in financial sector assets, and impairments on debt investments. As in 2011, equity impairments in 2012 related mainly to investments in financial sector assets, while impairments on Greek sovereign bonds in 2011 were € 450 mn. In 2012, we had no major debt impairments.
Claims and insurance benefits incurred (net) amounted to € 20,386 mn, a decrease of € 561 mn, due to higher payments for maturities of traditional German life products in 2011.
Margin on reserves increased from 58 to 67 basis points, mainly due to the improved operating profit.
Loan loss provisions – – 6 Operating impairments of investments (net) (428) (1,684) (434)
Acquisition and administrative expenses (net) (5,316) (5,027) (5,175) Fee and commission expenses (228) (210) (258) Operating restructuring charges (16) (1) (8)
Middle East and North Africa 170 163 137 160 153 138 122 126 1 Statutory premiums are gross premiums written from sales of life and health insurance policies, as well as gross receipts from sales of unit-linked and other investment-oriented products, in accordance with the statutory accounting practices applicable in the insurer’s home jurisdiction.
2 Represents operating profit (loss) divided by the average of current year-end and previous year-end net reserves, whereby net reserves equal reserves for loss and loss adjustment expenses, reserves for insurance and investment contracts and financial liabilities for unitlinked contracts less reinsurance assets.
Global Insurance Lines & Anglo Markets 47 28 23 208 126 102
Segment overview Allianz offers Asset Management products and services for third-party investors and the Allianz Group’s insurance operations. We serve a wide range of retail and institutional clients worldwide with investment and distribution capacities in all major markets. Based on total assets under management, we are one of the largest asset managers in the world which manage third-party assets with active investment strategies. We are particularly strong in the United States, Europe and the AsiaPacific region.
Our strong performance continued with a € 758 mn increase in operating profit to € 3,014 mn. On an internal basis, our operating profit grew by 24.2 % again driven by higher assets under management as well as the efficiency of our operational business.
The cost-income ratio improved to 55.6 % compared to 59.0 % in 2011. This was supported by an increase in performance fees and our expense discipline.
Cost-income ratio in % 55.6 59.0 58.7 Total assets under management in € bn 1,852 1,657 1,518 1 Revenues adjusted for foreign currency translation and (de-)consolidation effects.
As of 31 December 2012, total assets under management reached € 1,852 bn consisting of third-party assets of € 1,438 bn and € 414 bn of Allianz Group assets. We show the development of total assets under management based on asset classes as they are relevant for the segment’s business development.
Net inflows of total assets under management amounted to € 115 bn. Of this, € 114 bn related to third-party net inflows and € 1 bn to Allianz Group assets. This positive development was due to fixed income with net inflows of € 119 bn. Equities recorded net outflows of € 4 bn. We experienced strong net inflows in all regions, especially in the United States and Europe.
“assets under administration” of € 57 bn which had no impact on our revenue base. Unfavorable foreign currency translation effects accounted for € 19 bn, primarily due to the depreciation of the U.S. Dollar against the Euro. 1 1 Based on the closing rate on the respective balance sheet date.
1 Based on the origin of assets by the asset management company. 2 “Other” consists of third-party assets managed by other Allianz Group companies (approximately € 28 bn as of 31 December 2012 and € 26 bn as of 31 December 2011, respectively).
Benefiting from strong net inflows from our retail clients, the share of third-party assets under management between retail and institutional clients shifted slightly with a two percentage point increase in our retail clients to 36 % versus 64 % for institutional clients.
Outperforming assets under management Underperforming assets under management 1 On 1 January 2012, we brought our PImCO and Allianz Global Investors (AllianzGI) business units under the common governance of Allianz Asset Management Holding (AAm). Therefore, we show the rolling investment performance of PImCO and AllianzGI versus their respective benchmarks. In addition, we enhanced our investment performance measurement method - ology. For comparability, the enhanced methodology is applied retrospectively. The investment performance is based on Allianz Asset Management account-based, asset-weighted three-year investment performance of third-party assets versus the primary target including all accounts managed by portfolio managers of Allianz Asset Management. For some retail funds, the net of fee performance is compared to the median performance of the corresponding Morningstar peer group (first and second quartile mean outperformance). For all other retail funds and for all institutional accounts, the gross of fee perfor mance (revaluated based on closing prices) is compared to the respective benchmark based on different metrics.
Fee and commission expenses (1,310) (1,122) (1,127) Net fee and commission income 6,731 5,470 4,927
Administrative expenses only grew 16.2 % to € 3,772 Mn. This reflected the efficiency of our operational business but still included investments into infrastructure and new products. On an internal basis, administrative expenses increased by 9.2 %.
Our revenues continued to grow at a stronger rate than our operational expense base. This resulted in a 3.4 percentage point improvement in our cost-income ratio to 55.6 %.
Corporate and Other Operating loss increased by € 231 mn to € 1,128 mn, driven by Holding & Treasury.
Segment overview Corporate and Other encompasses the operations of Holding & Treasury, Banking and Alternative Invest­ ments. Holding & Treasury includes the management and support of the Allianz Group’s businesses through its strategy, risk, corporate finance, treasury, financial reporting, controlling, communication, legal, human resources and technology functions. Our banking prod­ ucts offered in Germany, Italy, France, the Netherlands and Bulgaria complement our insurance product port­ folio. We also provide global alternative investment management services in the private equity, real estate, renewable energy and infrastructure sectors, mainly on behalf of the Allianz Group.
Earnings summary Our operating result worsened by € 231 mn to € (1,128) mn. This was driven by the € 291 mn decrease in Holding & Treasury. The reduction of our operating loss in Banking by € 34 mn and the € 27 mn higher operating result in Alternative Investments were not able to offset the deterioration in Holding & Treasury.
BanKing alternative investments 1 Consolidation included. For further information about our Corporate and Other segment, please refer to note 6 to the consolidated financial statements. Banking figures include loan loss provisions in operating expenses.
Administrative expenses (net), excluding acquisition-related expenses, grew by € 71 mn to € 637 mn. This was primarily attributable to higher pension costs and salaries.
Administration expenses remained stable at € 511 mn (2011: € 512 mn).
alternative investments Alternative Investments’ operating result improved by € 27 mn to record an income of € 22 mn. This was mainly due to a € 24 mn higher net fee and commission income. € 6 mn lower administrative expenses also contributed positively to this development.
Given the current interest rate environment our investment strategy remains focused on generating attractive returns and minimizing vulnerability to price fluctuations.
Operating investment result increased by € 3.0 bn (16.1 %) and non-operating investment result improved by € 2.0 bn leading to a higher net income.
property-Casualty Gross premiums written are expected to grow slightly, in the range of 2.0 % to 3.0 %, driven by positive price and volume effects.
We remain committed to our combined ratio target of 96 % over the cycle.
We anticipate large claims from natural catastrophes to decrease to long-term average levels.
Investment result will remain under pressure due to the rather short duration of investments in this segment and the low interest rate environment. Nevertheless, we continuously strive to adapt our investment strategy to current market conditions.
We expect that the aggregate effect of improvements in pricing, claims management and productivity gains will more than compensate for underlying claims inflation.
life/HealtH We expect another strong but stable revenue level in 2012. Statutory premiums of € 52.3 bn, compared to € 52.9 bn in 2011. Revenues remained under pressure as a result of low interest rates and our selective focus on profitable growth.
Operating investment result increased by 20.1 % to € 17.9 bn, supported by higher realized gains following duration extension program and lower impairments compared to previous year.
Operating profit of € 3.0 bn due to strong growth in total assets under management and high performance fees.
Overall profitability for the property­casualty sector is expected to remain stable in the next two years, with low yields working their way through to earnings, prices in­ creasing only modestly and reserve releases dwindling somewhat but helped by the benign inflationary environ­ ment.
Competition with banks in the short­term savings market is expected to persist – to the detriment of bancassurance life sales. If interest rates remain at their depressed levels, we envisage that the life business mix will move further in the direction of unit­linked and protection business. This structural shift in the business mix is also being acceler­ ated by higher capital and reserve requirements, which is putting the life insurance products with guarantees under further pressure. As this shift occurs we expect new busi­ ness profitability and the quality of earnings to gradually improve on a risk­adjusted basis. Return on equity there­ fore could rise above the 2012 range, possibly to 10.0 – 12.0 %.
In 2013, we envisage operating profit of € 9.2 bn, plus or minus € 0.5 bn.
The outlook for the asset management industry for 2013 and beyond remains uncertain. Driven by massive liquidity support from major central banks, financial markets appre­ ciated in 2012. Still, the debt crisis in developed countries persists and economic fundamentals remain far­from­ perfect. Capital markets are expected to be vulnerable to potential setbacks in the near future. As a result, investors
Overview: outlook and assumptions 2013 allianz Group Operating profit of € 9.2 bn, plus or minus € 0.5 bn.1 Maintenance of strong capital and solvency ratios 2.
property-Casualty Growth in gross premiums written between 2.5 % and 3.5 %. Operating profit in the range of € 4.3 bn to € 5.1 bn. Combined ratio of 96 % over the cycle. Pressure on investment income due to reinvestments in a low interest rate environment. Overcompensation of the underlying claims inflation by the aggregate effect of improvements in pricing, claims management and productivity gains.
life/HealtH Revenues at 2012 levels. Operating profit in the range of € 2.5 bn to € 3.1 bn.
1 From 2013 onwards, restructuring costs will be classified as operating. For further information on the changes in presentation, please refer to note 6 to the consolidated financial statements.
assuMptions Our outlook is based on the following assumptions: − Moderate global economic growth − Interest rates remain low − No dramatic interest rate movements − No severe disruptions of the capital markets − No disruptive fiscal or regulatory interference − Level of claims from natural catastrophes returning to more expected average levels − Average U.S. Dollar to Euro exchange rate of 1.25
Although the global economy is showing signs of a slow recovery, investment results are likely to remain under pressure due to low interest rates and the continued uncer­ tainty surrounding sovereign debts. This will be partly offset by a better operational performance in the business seg­ ments and a growth­driven increase in our asset base.
How the level of our future total revenues will evolve is – apart from financial market developments – also dependent on market cycles and our ability to address continuing and emerging challenges and exploit new business opportuni­ ties, as described in the Management’s views on future challenges and opportunities section.
As our product and service offerings differ from country to country, information about the development of our sales markets and modifications to our product portfolio also varies. Overall, we expect our market and product mix to remain relatively unaltered. Our Property­Casualty product mix will change slightly, driven by our recent acquisitions of the activities of Mensura (specialist in worker’s accident insurance) and Gan Eurocourtage (focused on commercial lines), and the expected decline in our crop premiums in the U.S. due to our reduced share in the reinsurance agree­ ment. In the Life/Health segment, in line with expected market trends, we could see a fall in premiums from life insurance products with guarantees. In addition, we de­ cided to cease business operations under the Allianz Bank brand with effect from 30 June 2013, not affecting the other banking business of OLb.
In 2013, we envisage operating profit of € 9.2 bn, plus or minus € 0.5 bn, as we expect a normalized level of performance fees in the Asset Management segment and a lower overall investment result in the Life/Health segment. Furthermore, all restructuring charges will be presented within the oper­ ating profit from 2013 onwards.1 The increase compared to the 2012 operating profit outlook given last year, is driven by a continued strengthening of our Asset Management and Life/Health asset bases along with top­line growth in Property­Casualty.
The operating profit outlook presented here and in the follow ing sections assumes no significant deviations from the assumptions we make here and the segment­specific sensitivities mentioned below.
Among other uncertainties, our operating profit range is sensitive to changes in interest rates and foreign exchange rates: − A 100 bPS increase or decrease in interest rates would, respectively, either raise or lower operating profits by approximately € 0.2 bn. This does not include fair value changes in interest rate sensitive positions that are re­ ported in our income statement.
− A 10 % weakening or strengthening of the U.S. Dollar ver­ sus our planned exchange rate of 1.25 to the Euro would have a negative or positive impact of approximately € 0.3 bn, respectively.
1 For further information on the changes in presentation, please refer to note 6 to the consolidated financial statements.
property-Casualty insuranCe In 2012, gross premiums written increased by 4.7 % on a nominal basis. The rise was attributable to an internal growth of 2.5 % fueled by both positive price and volume effects, favorable foreign currency translation effects, and the effect of our recent acquisitions of the activities of Gan Eurocourtage in France and Mensura in Belgium.
In 2013, revenues are expected to increase within a range of 2.5 % to 3.5 % on a nominal basis. We believe this moderate growth will be supported by favorable price and volume ef­ fects and the impact of our above­mentioned acquisitions, which will add approximately € 0.9 bn to our top line. This growth will more than offset expected reductions in our crop business in the United States. For 2014, we expect the growth in gross premiums written to increase further.
The anticipated upswing in 2013 will be mainly driven by our global insurance lines, the Anglo markets, emerging countries in Latin America and Asia, as well as by improve­ ments in some of our core markets such as Germany, Italy and France.
Growth in our mature markets will be also supported by our acquisitions of the brokerage portfolio­related activi­ ties of Gan Eurocourtage – which will allow us to strengthen our position in the profitable commercial lines segment in France – and the insurance activities of Mensura, which will help Allianz Belgium to increase scale by re­entering the worker’s accident business and offering our commer­ cial lines clients a full product range.
We expect that the overall slow rise in prices we witnessed in 2012 will continue, contributing to the expected growth in our gross premiums. However, consistent with previous years, we will keep focusing on the production of outstanding underwriting results by adhering to our strict underwriting discipline and will be willing to accept a lower top line if target margins cannot be achieved.
In 2012, operating profit in Property­Casualty increased to € 4.7 bn, driven by an improvement in the combined ratio – which finished at 96.3 % compared to 97.8 % in 2011. The result benefited from lower natural catastrophe claims, which decreased to € 715 Mn after two consecutive years of extra­ ordinarily high losses (€ 1.8 bn and € 1.3 bn for 2011 and 2010, respectively). Despite the high volatility of natural catastro­ phes in recent years, we anticipate such claims in 2013 and 2014 to be more in line with their expected average level.
life/HealtH insuranCe Revenues remained stable at € 52.3 bn in 2012. On an internal basis, premiums decreased by 2.6 %, driven in particular by declines in Italy, the United States and Asia­Pacific. Low in­ terest rates and stiffer competition from banks continued to exert a negative effect on revenues. Furthermore, our focus on achieving adequate margins resulted in lower volumes in some regions, and in some cases even withdrawal from the market – for example in Japan. We will continue to prior­ itize profitability over growth in 2013. As we expect continued pressure from volatile financial markets in the near term, we anticipate the 2013 revenue level to remain relatively sta­ ble at between € 50 – 53 bn, with the potential for a modest increase depending on interest rate developments and the competitive landscape. Our outlook for 2014 is for moderate growth as the insurance market continues to rationalize, though competition with banks may remain a challenge.
In 2012, our operating profit of € 3.0 bn exceeded our target range of € 2.2 bn to € 2.8 bn. Results were supported by sig­ nificantly lower impairments and by a high level of realized gains, driven to a large extent by portfolio rebalancing to lengthen duration, particularly in Germany. For 2013, we expect operating profit in our Life/Health segment to be between € 2.5 bn and € 3.1 bn, supported by growth in our underlying asset base. The decline in the outlook compared to 2012 actual operating profit is due to the expected normal­ ization of our investment result, which was extraordinarily elevated due to the high net harvesting result and will remain under pressure in the expected low interest rate environ­ ment. Our outlook equates to a margin on reserves ranging
between 50 and 70 basis points. We envisage modest oper­ ating profit growth in 2014 in line with growth in our under­ lying asset base.
Throughout 2012, we actively worked on mitigating the im­ pacts of the difficult market conditions, particularly low interest rates. This included product and pricing actions, expense management, and asset/liability management. We will continue to take appropriate measures along these lines as necessary in 2013, while exploring options to further optimize the use of capital. Still, it must be noted that market volatility and the level of net harvesting can significantly affect the Life/Health segment results and make precise predictions difficult.
asset ManaGeMent Our Asset Management segment saw another year of strong and profitable growth, with net cash inflows from third par­ ties amounting to € 113.6 bn and operating profit rising 33.6 % to € 3.0 bn. This was mostly driven by higher net fee and commission income, in particular performance fees.
After 2012’s very strong result, we expect our 2013 operating profit to be in the range of € 2.7 bn to € 3.1 bn. The high per­ formance fee level of 2012 is expected to normalize, leaving the 2013 growth to be driven mainly by the underlying asset base. Depending on developments in 2013, we consider a further increase in our result in 2014 to be possible.
Overall, operating profits are strongly dependent on finan­ cial markets, U.S. Dollar rates, investment management performance and investor sentiment. In particular, net fee and commission income, including performance fees, are highly dependent on market valuations, investment perfor­ mance and business mix.
Due to our effective capital management, which is supple­ mented by our liquidity management, the Allianz Group is well capitalized and its solvency ratio is resilient. We closely monitor the capital positions of the Group and at the oper­ ating entity level and will further strengthen our capital and solvency positions. As a consequence, we will continue to selectively derisk our peripheral counterparty and sover­ eign exposures and take actions to manage our net expo­ sure to volatile equity investments. Additionally, we will continue to optimize our interest rate and spread sensitiv­ ities through asset/liability management and life product
design. Moreover, we will keep focusing our investments on businesses with strong cash returns or lower tail risks.
As we continuously strive to protect our investors’ capital and provide attractive returns and dividends, we aim to strike a balance between payout, solvency and sustainability when determining our dividend proposal. In a normal earnings environment we consider a payout ratio of 40% of net income attributable to shareholders to allow us to retain the capital needed to support our growth and provide an attractive dividend. This policy was reflected in our consistent payout ratio of 40 % between 2008 and 2010. In 2011, given the profound effects of the heavy turmoil in the financial markets and the severe impact of natural catastrophes on our financial results, striking the right balance was more difficult. Our effort to maintain a stable dividend and attractive return for shareholders resulted in a payout ratio well above 40 %.
Overall, our business exhibited a very strong performance in 2012, which resulted in a significant increase in our net earnings. This leaves us in a very healthy capital position and allows us to return to our earnings-based dividend policy. We will propose at the Annual General Meeting to maintain our dividend at € 4.50 per share, which again reflects a payout ratio of 40 %.
Management’s assessment of expected earnings for 2014 Based on current estimates, we expect our 2014 operating profit to improve compared to 2013 and to be driven again by positive contributions from all operating segments.
MacroeconoMic environMent and stability of financial Markets Persistently low interest rates will present further challenges to the life insurance sector, while ongoing economic uncertainties – primarily around the sovereign debt crisis in the Eurozone and the lack of strong growth in developed markets – will continue to put pressure on the insurance as well as the asset management industries.
environMental CHanGes 2012 saw fewer natural catastrophes and insured losses were lower than in 2011. Nonetheless, the implications of natural disasters for the insurance industry are still signif­ icant. Related payouts to customers have risen dramatically; losses have grown by a factor of 15 over the past 30 years. This rise is partly attributable to a greater number of insured assets worldwide.
As an integrated financial services company, we are well aware that climate change could result in a range of com­ pound risks and opportunities that affect our entire business. As a result, we are committed to supporting the develop­ ment of a low­carbon economy and see this as not just a sustainability priority, but a viable business and invest­ ment case. In recognition of this, we have been implement­ ing a Group­wide strategy covering climate­related risks and opportunities for our business and our clients. We work to reduce our direct carbon footprint and to develop products to help solve our clients’ challenges and to identify new investment opportunities relating to climate change risks and solutions.
We offer our private and commercial customers a growing number (currently more than 130) of “green” products and services that mitigate the negative physical or economic effects of climate change or take its environmental impact into account. These aspects are a growing part of our prod­ uct strategy.
Customer behavior/expectations The evolution of the digital world has dramatically changed the way customers consume media, search for information or recommendations, and buy products. Social networks and other online channels are gaining in importance. In parallel, expectations of service levels are increasing. We are continuously adapting to this new digital lifestyle to stay connected with our stakeholders and improve cus­ tomer service. In the framework of our Digital Target Picture program we leverage the opportunities which changing customer preferences provide.
For more information, please refer to the Strategic invest­ ments section.
Aging societies Western industrialized countries face the challenge of ag­ ing and shrinking populations, caused by falling birth rates and increasing life expectancy. As a result of these changing demographics, there is a growing demand for private­sector pension schemes and healthcare solutions. Our solid mar­ ket position in continental Europe and the United States, as well as our strong brand and well­diversified product port­ folio, put us in an excellent position to further benefit from providing products and services for old­age, health care and assistance.
Rise of the middle class The global middle class is estimated to surge from 1.8 bil­ lion in 2009 to around five billion by 2030, with growth mostly in Asia, but also in Latin America and Africa. The rising middle class population in emerging markets pro­ vides growth opportunities in all business segments. As these consumers accumulate assets – such as homes, cars and other valuables – which were previously beyond their financial reach, they also require insurance protection. With a strong presence and experience in these markets the Allianz Group is well positioned to serve this growing pool of future customers.
Complexity reduction Reducing complexity will remain among our top priorities, with sizable efforts taken both at the Group and local en­ tity level. Holistic initiatives – such as the streamlining of the legal structure of our worldwide entities – process stan­ dardization as well as our drive for sharing best practices on a continuous basis put us in a good position to be suc­ cessful in increasing the effectiveness of the Allianz Group.
Expense management In our global context, both mature and growing markets require tailored and intensified strategies to achieve intel­ ligent and sustainable expense management. We will con­ tinue to improve our performance while delivering a qual­ ity outcome for all our stakeholders.
The strategy development process comprises three steps: 1. Analysis of markets and customers to gain insights, for example on trends, customer needs and behavior.
The implementation of the strategy is as important as its development in terms of driving and coordinating concrete initiatives and projects. Both aspects are the responsibility of the local Boards of Management, but they are also stand­ ing agenda items in the management dialogues between the operating entities and the Holding. This demonstrates the attention given by top management to identifying and exploiting opportunities globally and locally.
As a global company with operating entities in over 70 countries, Allianz has a huge base of local expertise and examples of good practice. A key task of the Holding func­ tions is to make use of this valuable knowledge by sharing it across the Group and supporting its transfer to other Group companies. This also allows opportunities to be identified and exploited on an ongoing basis.
In addition to strategic approaches and knowledge sharing, major sources of opportunities stem from employees’ ideas and from customer feedback. Processes and tools are established to systematically leverage these two important areas of insight and to develop innovative solutions that fulfill evolving customer requirements. By asking for direct feedback after important customer interactions, such as claims handling or sales for example, we are systemati­ cally collecting and analyzing feedback to improve business processes and make the customer’s voice heard through­ out the company.
strateGiC investMents Allianz continues to leverage the opportunities of an increasingly global and digital environment. We drive harmo nization of systems and processes across the Group to reduce complexity and improve efficiency as well as pro­ ductivity. At the same time, Allianz is developing web­based and multi­access customer interaction to address changing customer behaviors and further increase their loyalty.
Productivity is the third key area in driving Allianz’s global platform strategy of deploying scalable, lean and flexible processes and leveraging economies of scale, scope and skills. Global core insurance platforms have been rolled out to various entities and further migration projects will be started.
Key multi­year strategic infrastructure programs are the basis for the above­mentioned initiatives. Allianz is prepar­ ing the worldwide consolidation of data center operations. This should simplify the launch and operations of global applications while reducing costs. It should also benefit Allianz Group with improved recovery in case of major data losses and interruption of operations caused by disasters. The continued harmonization of local networks in the Group­wide Allianz Global Network program also supports this consolidation.
Balance Sheet Review − Shareholders’ equity increased by € 8.6 bn to € 53.6 bn. − Strong solvency ratio up by 18 percentage points to 197 %.1
As of 31 December 2012, shareholders’ equity went up by 19.2 % (or € 8,638 mn) to € 53,553 mn3 after dividend payments of € 2,037 mn in May 2012. The growth mainly stemmed from our net income attributable to shareholders of € 5,169 mn and the € 5,496 mn increase in net unrealized gains. The latter was driven by our debt securities, mainly due to the decline in selected sovereign bond yields as well as lower interest rates.
1 Off-balance sheet reserves are accepted by the authorities as eligible capital only upon request. Allianz SE has not submitted an application so far. Excluding off-balance sheet reserves, the solvency ratio as of 31 December 2012 would be 188 % (2011: 170 %, 2010: 164 %).
Solvency ratio Eligible capital Requirement 1 Off-balance sheet reserves are accepted by the authorities as eligible capital only upon request. Allianz SE has not submitted an application so far. Excluding off-balance sheet reserves, the solvency ratio as of 31 December 2012 would be 188 % (2011: 170 %, 2010: 164 %).
Compared to year-end 2011, our conglomerate solvency ratio strengthened further by 18 percentage points to 197 %. In line with the development of our shareholders’ equity, the Group’s eligible capital for solvency purposes rose to € 48.4 bn. This includes an off-balance sheet reserve of € 2.2 bn (31 December 2011: € 2.2 bn). The growth of € 5.8 bn was largely driven by our net income (net of proposed dividends ) of € 3.1 bn and the placement of subordinated bonds. The required funds went up by € 0.8 bn to € 24.6 bn, primarily due to higher aggregate policy reserves in our Life/Health business. Thus, we improved our already strong solvency position further with our eligible capital surpassing the minimum legally stipulated level by € 23.8 bn.
The conglomerate solvency ratio decreased by approximately 17 percentage points as of 1 January 2013 due to amendments to IAS 19.1
As of 31 December 2012, total assets amounted to € 694.6 bn and total liabilities were € 638.4 bn. Compared to year-end 2011, total assets and total liabilities increased by € 53.1 bn and € 44.2 bn, respectively.
1 For further details on the amendments to IAS 19, please refer to note 4 to the consolidated financial statements.
As highlighted in the Business Environment starting on page 122, stock market indices in Europe and the United States experienced a positive development in the second half of the year, overcoming the second quarter downturn. After the decline in German and U.S. government bond yields in the second quarter driven by the “flight to quality”, yields on U.S. government bonds went up towards the end of the year. However, yields on German government bonds decreased further. Italian government bond yields finished the year lower than year-end 2011.
Overall, U.S. and European corporate credit spreads for A-rated debtors narrowed during 2012.
Business Environment intereSt rateS development in 2012 C 059 10-year German government bond %
Our exposure to real estate held for investment increased to € 9.7 bn (31 December 2011: € 8.7 bn).
Total fixed income portfolio as of 31 December 2012: € 460.8 bn [as of 31 December 2011: € 416.5 bn] in %
Our government bond exposure totaled € 174.2 bn, which equals 38 % of our fixed income portfolio. We reduced our investments in Spanish, Greek, Irish and Portuguese sovereign bonds over the course of the year. Our sovereign bond exposure in Italy, Spain, Portugal, Greece and Ireland comprised approximately 7.4 % of our fixed income portfolio, thereof about 6.7 % in Italy and 0.5 % in Spain.
Carrying valueS and unrealized gainS/loSSeS in SpaniSh, greek, iriSh, portugueSe and italian Sovereign bondS C 063 € mn as of 31 December 2012 Carrying value
50 % of our covered bonds portfolio were German Pfandbriefe, backed by either public sector loans or mortgage loans. Another 15 % and 9 % of the covered bonds were allocated to France and Spain, respectively. Covered bonds provide a cushion against real estate price deterioration and payment defaults through minimum required security buffers and over-collateralization.
Due to a reduction in the Tier 2 share, our exposure to subordinated securities in banks amounted to € 6.7 bn, representing a decrease of € 1.7 bn compared to year-end 2011.
Interest and similar income (net) 1 20,598 19,984 614 Income from financial assets and liabilities carried at fair value through income (net) (511) (1,287) 776 Realized gains/losses (net) 4,327 3,435 892 Impairments of investments (net) (934) (3,661) 2,727
The growth of € 614 mn to € 20,598 mn in interest and similar income (net)1 mainly resulted from the increased asset base in our Life/Health segment.
1 Net of interest expenses (excluding interest expenses from external debt).
CompoSition of aSSet baSe – fair valueS1 C 065 € bn as of 31 December 2012 2011
4 Including cash and cash equivalents, as stated in our segment balance sheet of € 2.7 bn and € 2.4 bn and receivables from cash pooling amounting to € 2.8 bn and € 2.1 bn, net of liabilities from securities lending and derivatives of € (0.2) bn and € (0.3) bn, as well as liabilities from cash pooling of € (0.2) bn and € (0.1) bn as of 31 December 2012 and 31 December 2011, respectively. As of 1 January 2012, the definition of cash and cash pool assets has changed. Now, they also include liabilities from cash pooling. Therefore the previous year’s figures have been adjusted accordingly.
Property-Casualty liabilities development of reServeS for loSS and loSS adjuStment expenSeS1 C 066 € bn b a c d 12/31/2012 12/31/2011
+2.3 a Loss and loss adjustment expenses paid in current year relating to previous years b Loss and loss adjustment expenses incurred in previous years c Foreign currency translation adjustments and other changes, changes in the consolidated subsidiaries of the Allianz Group and reclassifications d Reserves for loss and loss adjustment expenses in current year
Reserves net Reserves ceded Changes 1 After group consolidation. For further information about changes in the reserves for loss and loss adjustment expenses for the Property-Casualty segment, please refer to note 19 to the consolidated financial statements.
Compared to year-end 2011, the gross reserves for loss and loss adjustment expenses for our Property-Casualty business increased by € 3.2 bn to € 62.7 bn. On a net basis, our reserves grew by € 3.0 bn to € 55.8 bn. Foreign currency translation effects and other changes accounted for € 2.3 bn of the increase. This includes the activities acquired from Mensura and Gan Eurocourtage.1 1 For further details, please refer to note 5 to the consolidated financial statements.
CompoSition of aSSet baSe – fair valueS C 067 € bn as of 31 December 2012 2011
Financial assets for unit-linked contracts Changes 1 Financial assets for unit-linked contracts represent assets owned by, and managed on behalf of, policyholders of the Allianz Group, with all appreciation and depreciation in these assets accruing to the benefit of policyholders. As a result, the value of financial assets for unitlinked contracts in our balance sheet corresponds to the value of financial liabilities for unitlinked contracts. The International Financial Reporting Standards (IFRS) require the classification of any contract written by an insurance company either as an insurance contract or as an investment contract, depending on whether an insurance component is included. This requirement also applies to unit-linked products. In contrast to unit-linked investment contracts, unit-linked insurance contracts include coverage for significant mortality or morbidity risk.
Life/Health liabilities The segment’s reserves for insurance and investment contracts increased by € 28.4 bn or 8.1 % to € 381.0 bn in 2012. The growth of € 11.8 bn in aggregate policy reserves was mainly driven by our operations in Germany (€ 7.6 bn), Belgium/ Luxembourg (€ 1.2 bn), France (€ 0.7 bn) and Italy (€ 0.5 bn). Reserves for premium refunds went up by € 16.7 bn as the policyholders’ share in net unrealized gains and losses on bonds grew significantly (€ 14.4 bn). The currency impact was small as losses on the U.S. Dollar (loss of € 0.8 bn) were almost compensated by gains from selected Asian currencies (€ 0.5 bn), the Swiss Franc (€ 0.1 bn) and several others.1 1 Based on the closing rate of the respective balance sheet dates.
development of reServeS for inSuranCe and inveStment ContraCtS C 069 € bn
+16.7 a Change in aggregate policy reserves b Change in reserves for premium refunds c Foreign currency translation adjustments
Corporate and Other assets As of 31 December 2012, our Corporate and Other asset base amounted to € 42.0 bn. The increase of € 6.2 bn was mainly attributable to debt securities, cash and cash pool assets and loans and advances.
Loans and advances to banks and customers 16.9 17.7 Corporate and Other asset base 42.0 35.8 1 This comprises assets of € 0.2 bn and € 0.2 bn and liabilities of € (0.4) bn and € (0.5) bn as of 31 December 2012 and 31 December 2011, respectively.
3 Including cash and cash equivalents, as stated in our segment balance sheet, of € 4.2 bn and € 1.8 bn and receivables from cash pooling amounting to € 0.2 bn and € 0.5 bn, net of liabilities from securities lending and derivatives of € (0.1) bn and € 0.0 bn, as well as liabilities from cash pooling of € (4.7) bn and € (4.2) bn as of 31 December 2012 and 31 December 2011, respectively.
As of 31 December 2012, AbS amounted to € 0.4 bn, representing 0.9 % of its asset base.
In the normal course of business, the Allianz Group may enter into arrangements that do not lead to the recognition of assets and liabilities in the consolidated financial statements under IFRS. Since the Allianz Group does not rely on off-balance sheet arrangements as a significant source of revenue or financing, our off-balance sheet exposure to loss is immaterial relative to our financial position.
BankIng OperatIOns The primary sources of liquidity in our Banking operations include customer deposits, interbank loans and interest and similar income from our lending transactions. The ma­ jor uses of funds are the issuance of new loans and invest­ ments in fixed income securities. The liquidity of our Banking operations is largely dependent on the ability of our private and corporate customers to meet their payment obligations arising from credit lines and other outstanding commit­ ments. Equally important is our ability to retain our cus­ tomers’ deposits.
LIQuIDItY resOurces anD uses Allianz SE ensures adequate access to liquidity and capital for our operating subsidiaries. The main sources of liquidity available for Allianz SE are dividends received from subsidia­ ries and funding provided by capital markets. We define liquidity resources as assets that are readily available – namely cash, money market investments as well as highly liquid government bonds. The major uses of funds include paying interest expenses on our debt funding, operating costs, internal and external growth investments as well as dividends to our shareholders.
FUNDING SOURCES Allianz SE’s access to external funds depends on various factors such as capital market conditions, access to credit facilities as well as credit ratings and credit capacity. The financial resources available to Allianz SE in the capital markets for short-, mid- and long-term funding needs are described below. In general, mid- to long-term financing is covered by issuing senior or subordinated bonds or ordinary shares.
MatURIty StRUCtURE OF allIaNz SE’S SENIOR aND SUbORDINatED bONDS aS OF 31 DECEMbER 2012 C 072 nominal value in € bN
Authorized Capital 2010/II € 9,752,000 (3,809,375 shares) 4 May 2015 Authorization to issue bonds carrying conversion and/or option rights € 9,500,000,000 (nominal bond value) 4 May 2015 (issuance of bonds)
Weighted average interest rate2 € mn € mn € mn % € mn € mn € mn %
1 For further information on Allianz SE debt (issued or guaranteed) as of 31 December 2012, please refer to notes 23 and 24 to the consolidated financial statements.
The table below details the long­term debt issuances and redemptions of Allianz SE during 2012 and 2011: Issuances anD reDemptIOns OF aLLIanz se’s senIOr anD suBOrDInateD BOnDs C 074 € mn as of 31 December 2012 2011
Short-term debt funding Short­term funding sources available are the Medium­ Term Note Program and the Commercial Paper Program. As of 31 December 2012, Allianz SE had money market securities outstanding with a carrying value of € 1,180 MN: a € 61 MN increase in the use of commercial paper compared to the previous year­end. Interest expenses on money market secu­ rities decreased to € 11.4 MN (2011: € 13.0 MN) due to a lower level of short­term interest rates on average in 2012.
mOneY market securItIes OF aLLIanz se C 076 as of 31 December 2012 2011
2. suBOrDInateD BOnDs3 6.5 % bond issued by Allianz Finance II B. V., Amsterdam Volume € 1.0 Bn Year of issue 2002 Maturity date 1/13/2025
Interest expense € 66.4 mn 5.5 % bond issued by Allianz se Volume € 1.5 Bn Year of issue 2004 Maturity date perpetuaL BOnD
Interest expense € 84.5 mn 4.375 % bond issued by Allianz Finance II B. V., Amsterdam Volume € 1.4 Bn Year of issue 2005 Maturity date perpetuaL BOnD
Interest expense € 63.5 mn 1 This does not include, among others, the € 0.5 BN 30-year convertible subordinated note issued in July 2011. For further information on Allianz SE debt (issued or guaranteed) as of 31 December 2012, please refer to notes 23 and 24 to the consolidated financial statements.
Interest expense € 140.1 mn 5.75 % bond issued by Allianz Finance II B. V., Amsterdam Volume € 2.0 Bn Year of issue 2011 Maturity date 7/8/2041 IsIn De 000 a1gnah1 Interest expense € 116.6 mn 5.625 % bond issued by Allianz se Volume € 1.5 Bn Year of issue 2012 Maturity date 10/17/2042 IsIn De 000 a1re1Q3 Interest expense € 18.2 mn 5.5 % bond issued by Allianz se Volume usD 1.0 Bn Year of issue 2012 Maturity date perpetuaL BOnD
Interest expense € 4.0 mn Total interest expense for subordinated bonds € 536.3 MN
3. Issues reDeemeD In 2012 6.125 % bond issued by Allianz Finance II B. V., Amsterdam Volume € 2.0 Bn Year of issue 2002 Maturity date 5/31/2022
Change in cash and cash equivalents1 2010 2011 2012 1 Includes effect of exchange rate changes on cash and cash equivalents of € (47) MN, € 111 MN and € 265 MN in 2012, 2011 and 2010, respectively.
Cash and cash equivalents increased by € 1.9 bN to € 12.4 bN as of 31 December 2012, mainly stemming from Allianz SE and our Banking operation in Italy.
cash anD cash eQuIVaLents C 079 € mn as of 31 December 2012 2011
For further information, please refer to note 6 to the consoli­ dated financial statements.
Asset Management consisting of: Net fee and commission income 6,731 5,470 4,927 Net interest income 24 22 21 Income from financial assets and liabilities carried at fair value through income (net) 16 (11) 19
reConCiliation of nominal total revenue growth to internal total revenue growth C 081
Risk Report − The Allianz risk management approach is designed to add value by focusing on both risk and return.
The European sovereign debt crisis The financial repression caused by the European sovereign debt crisis continued and has led to an increase in financial market volatility and risk premia as well as to lower risk free interest rates. Although the situation had stabilized by the end of 2012, many of the root causes of the crisis remain unresolved and markets could fluctuate widely again in the future. The heightened market volatility and low interest rate environment may continue to have adverse implications for Allianz’s risk profile through our business development, asset values and the value of our liabilities.
ManageMent assessMent The Allianz Group’s management feels comfortable with the Group’s overall risk profile and has confidence in the effectiveness of its risk management framework to meet the challenges of a rapidly changing environment as well as day-to-day business needs. This confidence is based on several factors which are outlined in more detail in the sections that follow and which are summarized here: − The Allianz Group is well capitalized and is comfortably meeting its internal and regulatory solvency targets as of 31 December 2012. Standard & Poor’s affirmed our AA ratings in January 2012, while reducing the outlook to
“negative” due to the impact of capital market developments in the second half of 2011. Nonetheless, with this rating, Allianz remains one of the highest-rated insurance groups in terms of its creditworthiness.
Our internal risk capital model plays a significant role in the management of capital. In addition, we take into account the external requirements of regulators and rating agencies. While capital requirements imposed by regulators constitute a binding constraint, meeting rating agencies’ capital requirements and maintaining strong credit ratings are strategic business objectives of the Allianz Group. These capital requirements are imposed at the level of the Allianz Group’s operating entities and the Group as a whole.
As a consequence of our effective capital management, the Allianz Group is well capitalized and met its internal and regulatory solvency targets as of 31 December 2012.
The capital management framework is supplemented by an effective liquidity management framework, which is designed to retain our financial flexibility by maintaining a strong liquidity position and access to a range of capital markets.1
1 For detailed information regarding liquidity management, please refer to Other risks – Liquidity risks from page 208 and the chapter Liquidity and Funding Resources from page 175 onwards.
Solvency ratio Eligible capital Requirement 1 Off-balance sheet reserves are included in the calculation but accepted by the authorities as eligible capital only upon request. Allianz SE has not submitted an application so far. Excluding off-balance sheet reserves, the solvency ratio would be 188 % (2011: 170 %; 2010: 164 %).
The conglomerate solvency ratio has increased by 18 per­ centage points. This was caused by an increase in eligible capital mainly due to net income (net of proposed divi­ dends) and the placement of subordinated bonds. To a smaller extent our solvency requirement is higher as well caused by higher aggregate policy reserves in the Life/ Health segment.1
2 For further details on amended IAS 19, please refer to note 4 to the consolidated financial statements.
Following a review in January 2012, the Allianz Group’s AA rating was affirmed by Standard & Poor’s. However, as a result of the rating actions against numerous Eurozone governments in December 2011, Standard & Poor’s placed the ratings of various European insurers, among them Allianz Group, under credit watch with negative implica­ tions. In June 2012, A.M. Best affirmed its A+ Financial Strength Rating and withdrew its review with negative impli­ cations. Allianz Group still has one of the highest ratings amongst its peers. The following table provides evidence of the sustainable financial strength of Allianz SE and our ability to meet ongoing obligations.
In addition to its long­term financial strength rating, Standard & Poor’s has a separate rating for “Enterprise Risk Manage ment” (ERM). In September 2011, Standard & Poor’s assigned Allianz a “strong” rating for the ERM capabilities of our insurance operations. This rating indicates that Standard & Poor’s regards it as “unlikely that Allianz Group will experience major losses outside its risk tolerance”. Standard & Poor’s stated that the assessment is based on the Allianz Group’s strong risk management culture, strong controls for the majority of key risks and strong stra­ tegic risk management. In addition, for the ERM score, Stan­ dard & Poor’s reviewed Allianz’s internal economic capital model (ECM) in 2012 and is giving further credit to the capi­ tal position of the Allianz Group from 4Q 2012 onwards.
ratings of allianz se C 084 ratings1 standard & poor’s moody’s a.m. best
Not rated 1 Includes ratings for securities issued by Allianz Finance II B.V. and Allianz Finance Corporation.
We updated our internal risk capital model in 2012 and present in the following sections all 2011 internal risk capital results based on the updated model. More details regarding these updates and their impact on available and internal risk capital are provided in the section Model updates in 2012.
Our objective is to maintain available capital at the Group level that is significantly above the minimum indicated 1 Available capital is calculated under consideration of liquidity premium and yield curve extension as described in Yield curve and liquidity premium assumptions on page 189.
Property-Casualty Life/Health Asset Management Corporate and Other Tax impact Total after tax 1 2011 figures recalculated based on model updates in 2012.
inteRnal Risk caPital Model Our internal risk capital model is based on a Value-at-Risk (VaR) approach using the Monte Carlo simulation. Following this approach, we determine the maximum loss in the portfolio value of our businesses in the scope of the model within a specified timeframe (“holding period”) and probability of occurrence (“confidence level”). We assume a confidence level of 99.5 % following the anticipated Solvency II parameterization. We apply a holding period of one year because it is generally assumed that it may take up to one year to identify a counterparty to which we can transfer the assets and liabilities in our portfolio – an assumption consistent with the anticipated Solvency II rules.
Using a Monte Carlo simulation based on 50,000 scenarios we consider market, credit, insurance and other business events (“sources of risk”) and calculate the portfolio value based on the net fair value of assets and liabilities under potentially adverse conditions. This determines the portfolio value distribution taking the holding period into account.
Our internal risk capital model makes use of various quantitative methods which require a significant number of assumptions applied to risk and financial data, derived internally and externally. We use four specific sets of assumptions which are discussed below in more detail.
In addition we adjust the risk-free yield curves for the Life/ Health segment to make allowance for a liquidity premium consistent with QIS 5.
Risk Report and Financial Control 184 Risk Report 214 Controls and Procedures
We complement our diversification strategy with a comprehensive framework of limits for risks which can accumulate. This framework limits our reliance on diversification or correlation assumptions (see section on Concentrations of risk).
Assessment of assumptions We consider the assumptions made for our calculations to be appropriate and adequate taking into account the potential impact on our internal risk capital. Comprehensive controls exist within our internal risk capital and financial reporting frameworks for analyzing the assumptions we make.1 1 For additional information regarding our internal controls over financial reporting, please refer to the chapter Controls and Procedures from page 214 onwards.
Market risk ◼ Possible losses caused by changes in interest rates, equity prices and real estate values or their volatilities as well as by changes in credit spreads and foreign exchange rates.
Strategic asset allo cation benchmarks, equity and interest rate sensitivity limits