II. C O R P O R AT E G O v E R n A n C E 24 Corporate Governance Report and Statement on Corporate Management 33 Takeover-related Statements and Explanations 37 Remuneration Report
M A n A G E M E n T D I S C u S S I O n A n D A n A l y S I S 85 Business Environment 87 Executive Summary of 2011 Results 96 Property-Casualty Insurance Operations 106 life/Health Insurance Operations 114 Asset Management 118 Corporate and Other 131 Balance Sheet Review 140 liquidity and Funding Resources 147 Reconciliations
Additional information in Annual Report n A v I G A T I O n H E l P
Total revenues | ▶ page 89 net income | ▶ page 91
1 | After elimination of transactions between Allianz Group companies in different geographic regions and different segments. 2 | Gross premiums written from our specialty lines have been allocated to the respective geographic regions. 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 € 26 bn as of December 31, 2011 and € 19 bn as of December 31, 2010, respectively).
I n C O M E S T A T E M E n T 1 net income from continuing operations 5 € mn 2,804 (46.2 %) 5,209 4,650 4,268 7,991 7,843 — ▶ 91 net income (loss) from discontinued operations, net of income taxes 5 € mn — — — (395) (6,373) 723 467 — ▶ —
4 | The Allianz Group uses operating profit as a key financial indicator to assess the performance of its business segments and the Group as a whole. 5 | Following the announcement of the sale on August 31, 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 January 12, 2009. Starting as of 2006 the results from these operations are presented in a separate net income line "net income (loss) from discontinued operations, net of income taxes".
Further comparison periods are not provided due to subsequent changes in presentation.
the world is in turmoil. fukushima. the sovereign debt crisis. the euro crisis. political stalemate in the united states. the Arab spring. Banks under stress. nonstop. 2011 was certainly a hard year for Allianz. hard for politics and hard for the economy, which had to readjust to a downturn after just one good year. how does this affect you, our investors?
the 2011 financial statements attest to the solid ground on which Allianz stands. our capital strength is intact with a solvency ratio of 179 %, despite highly adverse market conditions.
With € 7.9 bn we met our published target for operating results. once again, asset management made a key contribution to revenues and value creation. last year it contributed almost as much to operating results as our life insurance division.
in such a challenging market environment, these figures are an impressive testimony to the excellent work of our employees and distribution partners. i would like to warmly thank our approximately 142,000 employees and our several hundred thousand distribution partners for their commitment on your behalf.
Admittedly we also had to cope with setbacks. the amounts due to our customers following natural disasters far exceeded our expectations, totaling € 1.8 bn net. there were earthquakes in new zealand, turkey and Japan. Japan also suffered a powerful tsunami followed by the resulting failure of the nuclear power plant in fukushima. tropical hurricanes and flooding ravaged parts of Australia, the united states and thailand. storm and hail damage was also exceptionally severe in germany.
the value of the Allianz share was down 16.9 % in the reporting year, a price drop comparable to that of the stoXX europe 600 insurance index, which lost 13.7 % during the same period. even though our stock outperformed the broadbased euro stoXX 50 index, this price change is unsatisfactory, both for you and me.
nevertheless, consider your investment in this way: Allianz is a global financial services provider with units worldwide. some of these units are growing rapidly, like our indian and Brazilian operations. others are expan ding moderately but making a huge contribution to revenues and earnings, such as our insurance companies in germany, france and italy. yet other units are just at the start of a long growth curve extending far into the future, as in indonesia, russia and china. our global Automotive business continues to develop our insurance business worldwide in close cooperation with leading automobile manufacturers. We act quickly and consistently if risks become unmanageable. for example, in Japan we stopped our pension business in 2011 because the low level of interest rates was having an adverse long-term effect on profitability. All in all, Allianz shares are an investment that is providing considerable potential for growth and delivering solid results even in turbulent times.
the good operating results in 2011 and the certainty that the clear path we have chosen will prove its value under difficult market conditions in the coming fiscal year have led us to propose a stable dividend of € 4.50 per share to the Annual general Meeting. in doing so, our intention is to demonstrate our depth of conviction about the fundamental power of our business and allow you to share in this strength and reliability.
i would like to take this opportunity to express my appreciation and high regard for three members of the Board of Management who left Allianz at the end of the year, or who are about to do so. Dr. Joachim faber retired after twelve years on the Board of Management and having successfully developed the Asset Management segment. Mr. enrico cucchiani is now head of the italian intesa san paolo Bank, and Dr. paul Achleitner was invited to become chairman of the super visory Board of Deutsche Bank. the new professional challenges pursued by Dr. Achleitner and Mr. cucchiani are well-deserved honors for them personally. Although the fact that they were chosen is a loss for Allianz, it is even more an honor. My colleagues and i have worked extremely well together with Dr. Achleitner, Mr. cucchiani and Dr. faber. they spared no effort to promote the interests of Allianz and i would like to express my sincere thanks to them personally and on your behalf. We wish them success, happiness and satisfaction on the new paths they have chosen.
A change is also taking place in the supervisory Board itself. Dr. schulte-noelle, chairman of the supervisory Board, is no longer putting himself forward for election now that he has reached retirement age. With the departure of Dr. schulte-noelle, Allianz is losing a highly experienced helmsman whose knowledge of Allianz and its business is second to none. he has applied great prudence, diplomacy and expertise in organizing and modernizing the work of the supervisory Board. the Board of Management and i are grateful for his wise advice and the supportive and constructive criticism that a company and its Board need in order to achieve success. i warmly thank Dr. schulte-noelle on your behalf for the excellent work he has done for Allianz and wish him health and happiness on his new path in life.
so what are our objectives for the current fiscal year 2012?
overall, we are confident that your Allianz will increase the operating profit to € 8.2 bn – plus or minus € 500 mn – based on its strong and balanced portfolio.
to o ur in ve st or s regular discussions about major developments and decisions. All of the supervisory Board‘s meetings were attended by every member, except for the March meeting, when a shareholder- and an employee representative were absent with a valid excuse. no conflicts of interest occurred in 2011 that must be disclosed to the supervisory Board and reported to the Annual general Meeting.
the supervisory Board paid particular attention to the effects of the sovereign debt crisis in europe. in particular, we focused on possible scenarios and their consequences, especially those related to the solvency ratio and valuation issues. We also conferred with the Board of Management about what action to take in the wake of the market disruptions.
on May 4, 2011, just before the Annual general Meeting, the Board of Management briefed us on first quarter business results and on the Allianz group’s current situation. We also used this meeting to prepare for the Annual general Meeting. once the Annual general Meeting had elected Mr. heiß to the supervisory Board, we chose him to sit on the risk Committee.
Further explanations on corporate governance in the Allianz group can be found in the Corporate governance report and statement on Corporate Management, starting on page 24. More information on corporate governance can also be found on the Allianz website at w w w . a l l i a n z . c o m / c o r p o r a t e - g o v e r n a n c e .
the a u d i t c o m m i t t e e held five meetings in fiscal year 2011. together with the auditors, we discussed the Allianz se and Allianz group annual financial statements, management reports and auditor’s reports. in addition, the committee checked the half-yearly and quarterly financial reports and, together with the auditors, went through the details of the auditor’s review of these financial statements. After carrying out these checks, the Audit Committee saw no reason to raise objections. the committee also reviewed the auditor’s engagement and established priorities for the annual audit. in addition, assignments to the auditors for services not connected to the audit itself were discussed. Further topics discussed included the risk management and monitoring system, the compliance system, the internal auditing system and the accounting process, and internal financial reporting control mechanisms. the committee received regular reports from the heads of the group Audit, legal and Compliance departments about material audit results as well as legal and compliance issues. At the March meeting, the Board of Management briefed the committee on the Allianz group’s private equity investments. in August, the committee conducted an efficiency review. Based on suggestions by members, we discussed opportunities for improvement and agreed on appropriate measures for the future in the following meeting in november. in the meeting in August, group Audit also presented the audit plan for 2012.
the r i S k c o m m i t t e e held two meetings in 2011. in both meetings, we discussed the Allianz group’s current risk situation with the Board of Management and dealt with the current status of preparations for the risk-oriented development of the capital requirements for insurance companies (solvency ii). the committee also dealt extensively with the consequences of the sovereign debt crisis in europe and the risks from natural catastrophes. in addition, we focused on the risk organizational structure. We verified the risk report in the management and group management reports as well as other risk-related statements within the annual se and consolidated financial statements. We then briefed the Audit Committee on our results. in our september meeting, we conducted an efficiency review. We discussed improvement opportunities based on a list of topics that were sent earlier to the members.
t o o u r i n v e s t o r s1 0
C h A i r M A n o F t h e s u p e r v i s o r y B o A r D | Dr. henning schulte-noelle
D e p u t y C h A i r M e n | Dr. gerhard Cromme, rolf zimmermann
on the basis of our own reviews of the annual Allianz se and consolidated financial statements, the management and group management report 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 financial statements are therefore adopted. We agree with the Board of Management’s proposal on the appropriation of earnings.
the supervisory Board would like to thank all Allianz group employees for their great personal efforts over the past year.
Mr. Cucchiani resigned from the Board of Management of Allianz se with effect from December 21, 2011, and Dr. Faber from December 31, 2011. the supervisory Board expressed its gratitude for their excellent and very successful work. Mr. ralph took over Dr. Faber’s responsibility for global Asset Management on January 1, 2012.
the supervisory Board appointed Mr. Bhojwani, Dr. Jung, and Dr. Wemmer to the Board of Management as of January 1, 2012. Mr. Bhojwani was already working for Allianz group, most recently as Ceo of Allianz life, and has taken over responsibility for insurance usA from Mr. ralph. Dr. Jung is responsible for insurance iberia & latin America, legal & Compliance, strategic participations and M&A. she has been with Allianz group for many years and most recently as head of M&A. Dr. Wemmer took over responsibility for insurance Western & southern europe (excluding german speaking Countries and iberia) from Mr. Cucchiani and is additionally responsible for global property-Casualty. Before that, Dr. Wemmer was Chief Financial officer of the zurich Financial services group and Chairman of european business at zurich Financial services group.
Dr. Achleitner will resign from the Board of Management of Allianz se as of May 31, 2012. the supervisory Board has appointed Dr. zimmerer as Dr. Achleitner’s successor on the Board, as of June 1, 2012. he will also take over global life. until he joins the Board, Dr. zimmerer will remain a member of the Board of Management of Allianz Deutschland Ag and Chairman of the Board of Management of Allianz lebensversicherungs-Ag.
t o o u r i n v e s t o r s1 2 i. Board of Management
Dr. Dieter WeMMer insurance Western & southern europe since January 1, 2012
D r . H e n n i n g s C H u lt e- n o e l l e Chairman Former Chairman of the Board of Management, Allianz Ag
D r . W u l F B e r n otAt Former Chairman of the Board of Management, e.on Ag
t o o u r i n v e s t o r s1 6 i. Allianz share
◾ Financial services share prices burdened by market concerns. ◾ persisting low interest rate environment. ◾ escalating european sovereign debt crisis. ◾ Worsening industry sentiment.
t o t A l D i v i D e n D A n D D i v i D e n D p e r s h A r e
Financial services share prices Burdened by Market Concerns over the course of 2011, the low interest rate environment persisted, which continued to have a negative impact on financial institution results and related outlook for the near term. insurers also continue to be impacted due to the guarantees provided in many of their products. given the continuing global deleveraging, the markets are expecting low interest rates to continue and industry returns to remain at modest levels, which is also being reflected in share price developments. For more information, please refer to our Business and economic environment section starting on page 85.
unfortunately, we were not immune from the impact of the changing sentiment for banks. During August 2011, several european countries - excluding germany - introduced a temporary ban on short selling of financial stocks. As a consequence, Allianz was one of the few big financial institutions in the eurozone which could be targeted by short-sellers seeking to benefit as the crisis escalated in the second half of the year.
Your Allianz shares performed much better than the sector average in the first half of the year but fared worse in the second half, despite our strong operational performance throughout. We partially attribute this second half shift to the short selling ban of financial stocks and the sentiment shift as the crisis escalated. Consequently, however, Allianz shares decreased by 16.9 % and closed the year at € 73.91. the overall return of the Allianz share – i.e. performance plus dividend distribution – amounted to minus 13.2 %. nevertheless, after our financial results for 2011 were published, 64 % of analysts recommended buying Allianz shares. the overall average target price was € 104. You can find analysts' current recommendations and earnings estimates at w w w . a l l i a n z . c o m / a n a l y s t s r e c o m m e n d a t i o n s .
40 Jan Feb Mar Apr May Jun Jul Aug Sep Nov DecOct
STOXX Europe 600 Insurance source: thomson reuters Data stream. up-to-date information on the development of the Allianz share price is available at w w w . a l l i a n z . c o m / s H a r e .
A n A l Y s t s ’ r e C o M M e n D A t i o n s | as of March 1, 2012 in %
t o o u r i n v e s t o r s1 8 over the last five years, Allianz shares have outperformed the stoXX europe 600 insurance index, however, under performing it over the last ten years. As a convenience, we provide investors with a share price calculator at w w w . a l l i a n z . c o m / s H a r e which can be used to determine their own performance of an investment in Allianz shares.
Allianz (excl. dividends) (16.9) (13.7) (11.0) Allianz (incl. dividends) (13.2) (10.0) (8.4)
3 | proposal. 4 | Based on net income from continuing operations after non-controlling interests. 5 | Dividend sum based on total amount of shares. Actual dividend payment will be reduced by the dividend amount attributable to treasury shares. 6 | 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.
W e i g h t i n g o F t h e A l l i A n z s h A r e i n M A J o r i n D i C e s | as of D e cemb er 31, 2011
With around 486,000 shareholders, Allianz is one of the most widely held publicly owned corporations in europe. Apart from approximately 0.6 % of Allianz shares held in treasury, all of our shares continue to be held in free float. At the end of the year, 83 % were held by institutional investors and 17 % by private investors. the breakdown by region shows that 71 % of Allianz shares were owned by european investors, while 29 % were in the hands of non-european investors. Compared to the previous year the number of shareholders rose by about 2,000.
the work of our ir team was again awarded several times by analysts and portfolio managers in 2011.
◾ For the fifth time in a row, we ranked top of the european insurance sector in the renowned “extel pan european survey” by thomson reuters, which assesses the investor relations work of 54 european insurance companies. in its study, thomson reuters awarded our head of investor relations the title of “leading pan-european ir-professional” across all industry sectors.
◾ the finance magazine “institutional investor” selected our ir team in 2011 as the best in european insurance. ◾ in the “investor perception study 2011” conducted by “ir Magazine”, Allianz’s ir work was chosen as the best within the european insurance sector.
◼ A l l i A n z i n v e s t o r r e l A t i o n s h D
the a l l i a n z i n v e s t o r r e l a t i o n s H d App ensures that you have the most important financial information ready on hand – at all times. this includes the current Allianz stock price, Allianz bond information, our investor relations news, podcasts of our analysts' conferences, video interviews with the management and a financial calendar. this new App contains comprehensive information on the development of Allianz's shares, Allianz bonds and news. Another centerpiece is a "library" with all information released on quarterly and fiscal year results.
to o ur in ve st or s 1 | the german securities trading Act (“Wertpapierhandelsgesetz”) obliges issuers to announce immediately any information which may have a substantial price impact, irrespective of the communicated schedules. therefore we cannot exclude that we have to announce key figures related to quarterly and fiscal year results ahead of the dates mentioned above. As we can never rule out changes of dates, we recommend checking them on the internet at w w w . a l l i a n z . c o m / f i n a n c i a l c a l e n d a r .
FinAnCiAl CAlenDAr i m p o r t a n t d a t e s f o r s H a r e H o l d e r s a n d a n a l y s t s 1
Annual general Meeting May 9, 2012 interim report 1Q May 15, 2012 interim report 2Q August 3, 2012 interim report 3Q november 9, 2012
1977: Twenty years before the world’s five leading airlines formed their Star Alliance, Allianz had already become a household name for millions of new customers in the U.S. 2011: Today, about 78 million customers around the world place their trust in the comprehensive insurance cover provided by Allianz for any situation.
C o r p o r At e C o n S t i t u t i o n o f t h e e u r o p e A n C o M pA n y
f u n C t i o n o f t h e B o A r D o f M A n A g e M e n t the Board of Management manages Allianz Se and the Allianz group. it currently comprises eleven members from different countries, reflecting the international character of Allianz. its responsibilities include setting business objectives and strategic direction, coordinating and supervising the operating entities, as well as implementing and supervising an efficient risk management system. the Board of Management prepares the quarterly and half-yearly financial reports as well as the consolidated Annual report of the group and the Annual report of Allianz Se. in addition, the Board of Management is responsible for monitoring adherence to statutory provisions and official regulations.
g r o u p C A p i t A l C o M M i t t e e Michael Diekmann (Chair), Dr. paul Achleitner, oliver Bäte proposals to the Board of Management concerning risk strategy, strategic asset allocation and risk capital allocation within the group.
g r o u p f i n A n C e C o M M i t t e e Dr. paul Achleitner (Chair), oliver Bäte, Dr. Joachim faber | until December 31, 2011, Dr. helga Jung | since february 1, 2012, Jay ralph | since January 1, 2012, Dr. Werner zedelius
Designing, monitoring and improving compensation systems, yearly report on the results of its monitoring, along with proposals for improvements. the group Compensation Committee satisfies the requirements of the regulation governing Compensation Systems in the insurance Sector ("versicherungs-vergütungsverordnung") that took effect in october 2010.
Discussing overall strategic issues for the Allianz group (for composition see page 13).
the Allianz group runs its operating entities and business segments via an integrated management and control process. the holding and the operating entities first define the business strategies and goals. on this basis, joint plans are then prepared for the Supervisory Board’s consideration when setting targets for performance-based remuneration of individual board members (for details please see the remuneration report starting on page 37). When filling managerial positions, the Board of Management takes diversity into consideration and, in particular, aims for an appropriate represen tation of women.
C o r p o r A t e g o v e r n A n C e2 6 the Board of Management reports regularly and comprehensively to the Supervisory Board on business development, the financial position and earnings, budgeting and achievement of objectives, business strategy and risk exposure. in line with the Code’s recommendation, the Supervisory Board has issued reporting guidance which more clearly defines the information and reporting requirements of the Board of Management.
p r i n C i p l e S A n D f u n C t i o n o f t h e S u p e r v i S o r y B o A r D
the german Co-Determination Act (“Mitbestimmungsgesetz”) no longer applies to Allianz Se because it has the legal form of a european Company (Se). the size and composition of the Supervisory Board is now determined by general european Se regulations. these regulations have been implemented in the Statutes and by the Agreement Concerning the participation of employees in Allianz Se, which was signed on September 20, 2006 with representatives of european Allianz employees. this agreement can be found on our website at W W W . A L L I A N Z . C O M / A L L I A N Z - S E .
the size of the Supervisory Board is stipulated by the Statutes as twelve members appointed by the Annual general Meeting. Six of these twelve members are appointed on the basis of proposals from employees, which the Annual general Meeting is bound to accept.
the Supervisory Board regularly reviews the efficiency of its activities. the plenary Supervisory Board discusses recommendations for improvements and adopts appropriate measures on the basis of the recommendation by the Standing Committee.
(Dr. Wulf Bernotat, Dr. gerhard Cromme) ◾ t W o e M p loy e e r e p r e S e n tAt i v e S
◾ preparation of the Declaration of Conformity pursuant to § 161 Aktg and control of corporate governance
◾ initial review of the Allianz Se and Allianz group annual financial statements, management reports (incl. risk report) and the dividend proposal, review of half-yearly and quarterly financial reports
◾ Monitoring the financial reporting process, the effectiveness of the internal risk management and control system, internal audit system and legal and compliance issues
◾ Monitoring the audit procedures, including the independence of the auditor and the services additionally rendered, awarding the audit contract and discussing key issues of the external audit r i S k C o M M i t t e e | 5 members ◾ C h A i r : appointed by the Supervisory Board (Dr. Schulte-noelle) ◾ t h r e e S h A r e h o l D e r r e p r e S e n tAt i v e S (prof. Dr. renate köcher,
C o r p o r A t e g o v e r n A n C e2 8
employee representation within Allianz Se, as provided by the Se Agreement concerning the participation of employees dated September 20, 2006, contributes to diversity of work experience and cultural background. pursuant to § 6 (2) sentence 2 of the Act on the participation of employees in a european Company (SeBg), the number of women and men appointed as german employee representatives should be proportional to the number of women and men working in the german companies. however, the Supervisory Board does not have the right to select the employee representatives.
i i . r e q u i r e M e n t S r e l A t i n g t o t h e C o M p o S i t i o n o f t h e B o A r D A S A W h o l e 1. g e n e r A l S e l e C t i o n C r i t e r i A ◾ Managerial or operational experience ◾ general knowledge of the insurance and financial services business ◾ Willingness and ability to make sufficient commitments on time and substance ◾ fulfillment of the regulatory requirements: ◾ reliability ◾ knowledge of the field of corporate governance and regulation 1
◾ Compliance with the limitation of the number of memberships as recommended by the german Corporate governance Code and required by § 7 a (4) of the german insurance Supervision Act ("ver siche rungsaufsichtsgesetz – vAg").
on the basis of the Se Agreement concerning the participation of employees, two employee representatives from other e.u. member states are already members of the Supervisory Board.
3 . D i v e r S i t y A n D A p p ro p r i At e r e p r e S e n tAt i o n o f W o M e n the members of the Supervisory Board shall appoint new members taking into account their background, professional experience and specialist knowledge, in order to provide the Board with the most diverse sources of experience and specialist knowledge possible.
in the next elections of the Supervisory Board in the spring of 2012, the Supervisory Board will strive to achieve a minimum female membership of 25 %. the representation of women is generally considered to be the joint responsibility of the shareholder and employee representatives.”
the nomination proposals of the Supervisory Board for the election by the Annual general Meeting on May 9, 2012, have considered such aims. the nomination Committee prepared the proposals for the shareholder representatives in several meetings and verified their alignment with the requirements for each individual candidate as well as for the 1 | for further details, please see Bafin guidance notice on the Monitoring of Members of Administrative and Supervisory Bodies pursuant to the german Banking Act and the german insurance Supervision Act, dated february 22, 2010.
Co rp or at e go ve rn an ce composition of the Board as a whole. the proposals to the Annual general Meeting 2012 will comprise four candidates with international background and three female candidates. Should all of these candidates be elected at the Annual general Meeting, we would, in particular, achieve our objectives regarding international character and representation by women. the current composition of the Supervisory Board and its committees is described on page 15.
S h A r e S h e l D B y M e M B e r S o f t h e B o A r D o f M A n A g e M e n t A n D t h e S u p e r v i S o r y B o A r D
D i r e C t o r S ’ D e A l i n g S
Members of the Board of Management and Supervisory Board – and related parties – are required by the german Securities trading Act (“Wertpapierhandelsgesetz”) to disclose any acquisition or divestment of shares of Allianz Se worth € 5 thousand or more within a calendar year. these notifications are published on our website at W W W . A L L I A N Z . C O M / C O r p O r A t E - g O v E r N A N C E .
Shareholders exercise their rights at the Annual general Meeting. When adopting resolutions, each share carries one vote. in order to facilitate the exercise of shareholders’ rights, Allianz allows shareholders to follow the meeting’s proceedings on the internet and be represented by proxies appointed by Allianz Se. these proxies exercise voting rights exclusively on the basis of instructions given by the shareholder. Shareholders are also able to cast their votes by postal vote. this option is also available via the internet in the form of online voting. Allianz Se regularly promotes the use of email and internet services.
Members of the Supervisory Board are appointed by the Annual general Meeting. regarding the election of employee representatives, the Annual general Meeting is bound by the employees’ proposals. the Annual general Meeting also approves actions taken by the Board of Management and the Supervisory Board. it decides on the use of profits, capital transactions and the approval of intercompany agreements, as well as the remuneration of the Supervisory Board and changes to company’s Statutes. Changes to the Statutes require the backing of at least half of the share capital or a two-thirds majority of votes cast in accordance with european regulations and the Statutes. each year, an ordinary Annual general Meeting takes place at which the Board of Management and Supervisory Board give an account of the preceding financial year. for special decisions, the german Stock Corporation Act provides for the convening of an extraordinary general Meeting.
A C C o u n t i n g p o l i C i e S A n D A u D i t o f f i n A n C i A l S tAt e M e n t S
the Allianz group prepares its accounting according to § 315 a of the german Commercial Code (“handelsgesetzbuch – hgB”), on the basis of ifrS international accounting standards as applied within the european union. the financial statements of Allianz Se are prepared in accordance with german law, in particular, the hgB.
the financial calendar for 2012 and 2013 is presented on page 23.
the Statement on Corporate Management forms part of the consolidated 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.
1. Allianz Se fully complies and will continue to fully comply with the recommendations of the german Corporate governance Code Commission in the version of May 26, 2010, published by the federal Ministry of Justice in the official section of the electronic federal gazette (“elektronischer Bundesanzeiger”) with the following single exception: Deviating from no. 5.4.6 para. 2 sentence 1 of the german Corporate governance Code (“Code”), the compensation rules for the Supervisory Board of Allianz Se resolved by the shareholders’ meeting on May 4, 2011 and set forth in the Articles of Association do not provide for any performance-related components. the Company believes a fair fixed remuneration is more suitable to the control function of the Supervisory Board irrespective of success of the Company.
2. Since the last Declaration of Conformity as of December 15, 2010, Allianz Se has complied with the recommendations of the Code in the version of May 26, 2010 with the above-mentioned exception to no. 5.4.6 para. 2 sentence 1 of the Code.
Allianz Se for the Board of Management: signed Michael Diekmann signed Dr. paul Achleitner for the Supervisory Board: signed Dr. henning Schulte-noelle”
Co rp or at e go ve rn an ce risk governance
the Declaration of Conformity and further information on corporate governance at Allianz can be found on our website at W W W . A L L I A N Z . C O M / C O r p O r A t E - g O v E r N A N C E .
◼ i n t e r n A l C o n t r o l S y S t e M S
the sustained success of the Allianz group is based on the responsible behavior of all group employees, who embody trust, respect and integrity. By means of its compliance and anti-money laundering program, Allianz supports and follows internationally and nationally recognized guidelines and standards for rules-compliant and value-based corporate governance. these include the un global Compact program, the oeCD guidelines for Multinational enterprises, embargo regulations and the recommendations of the financial Action task force on Money laundering. Allianz manages the risk of infringements against statutory provisions and requirements (compliance risk) through its support of and adherence to these international and national principles. At the same time, it integrates sustainability and social responsibility into its corporate conduct. the central compliance department is responsible, in close cooperation with local compliance departments, for ensuring the effective implementation and monitoring of the compliance and anti-money laundering program within Allianz as well as for the investigation of any suspected infringement.
C o r p o r A t e g o v e r n A n C e3 2 there are legal provisions against corruption and bribery in almost all countries in which Allianz has a presence. for this reason, a global Anti-Corruption program was established in the summer of 2009, which provides for the continuous monitoring and improvement of the internal anti-corruption controls.
A major component of Allianz’s compliance program is a whistleblower system that allows employees to alert the relevant compliance department confidentially about irregularities. employees who voice concerns about irregularities in good faith should not fear retribution in any form, even if the concerns turn out to be unfounded at a later date.
◼ C o D e o f e t h i C S
◼ D e S C r i p t i o n o f t h e f u n C t i o n S o f t h e B o A r D o f M A n A g e M e n t A n D t h e S u p e r v i S o r y B o A r D A n D o f t h e C o M p o S i t i o n A n D f u n C t i o n S o f t h e i r C o M M i t t e e S
no direct or indirect interests in the share capital of allianz Se that exceed 10 % of the voting rights have been reported to allianz Se; nor is it otherwise aware of any such interests.
S h a r e S w i t h S p e C i a l r i G h t S C o n f e r r i n G p o w e r S o f C o n t r o l there are no shares with special rights conferring powers of control.
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 under takings, pension funds, insurance holding companies or insurance special purpose vehicles. however, more than two such mandates can be permitted by the supervisory authority if they are held within the same group (§§ 121 a, 7 a German insurance Supervision act (“versicherungsaufsichtsgesetz ”, vaG)). the intention of appointing a member to the Board of management must be notified to the federal financial Services Supervisory authority (“Bundesanstalt für finanzdienst leistungsaufsicht”) pursuant to §§ 121 a, 13 d no. 1 German insurance Supervision act.
amendments to the Statutes must be adopted by the General meeting. § 13 (4) sentence 2 of the Statutes of allianz Se stipulates that, unless this conflicts with mandatory law, changes to the Statutes require a two-thirds majority of the votes cast, or, if at least one half of the share capital is represented, a simple majority of the votes cast. the Statutes thereby make use of the option set out in § 51 sentence 1 Se implementation act (“Se-ausführungsgesetz”) which is based upon article 59 (1) and (2) Se regulation. a larger majority is, inter alia, required for a change in the corporate object or the relocation of the registered office to another member State (§ 51 sentence 2 Se implementation act). the Supervisory Board may alter the wording of the Statutes (§ 179 (1) sentence 2 Ger man Stock Corporation act and § 10 of the Statutes).
the Board of management is authorized to issue shares as well as to acquire and use treasury shares as follows: it may increase the Company’s share capital, on or before may 4, 2015, upon approval of the Supervisory Board, by issuing new registered no-par value shares against contributions in cash and/or in kind, on one or more occasions: ◾ up to a total of € 550,000,000 (authorized Capital 2010/i). the shareholders’ subscription rights for these shares can be excluded, with the consent of the Supervisory Board, for fractional amounts, for safeguarding the rights pertaining to holders of convertible bonds or bonds with warrants, in the event of a capital increase against cash contribution of up to 10 % if the issue price of the new shares is not significantly less than the stock market price, and in the event of a capital increase against contributions in kind.
the Company’s share capital is conditionally increased by up to € 250,000,000 (Conditional Capital 2010). this conditional capital increase will only be carried out to the extent that conversion or option rights resulting from bonds issued by allianz Se or its subsidiaries on the basis of the authorization of the General meeting of may 5, 2010 are exercised, or that conversion obligations tied to such bonds are fulfilled.
domestic or foreign banks that are majority-owned by allianz Se may buy and sell allianz shares for trading purposes (§ 71 (1) no. 7 and (2) German Stock Corporation act) under an authorization of the General meeting valid until may 4, 2015. the total number of shares acquired thereunder, together with treasury shares held by allianz Se or attributable to it under §§ 71 a et seq. German Stock Corporation act, shall at no time exceed 10 % of the share capital of allianz Se.
◾ Bilateral credit agreements in some cases provide for termination rights in case of a change of control, mostly defined as the acquisition of at least 30 % of the voting rights within the meaning of § 29 (2) German takeover act (“wert papiererwerbs- und Übernahmegesetz”, wpÜG). in cases where such termination rights are exercised, the respective credit lines would have to be replaced by new credit lines under conditions then applicable.
Co rp or at e Go ve rn an ce ii. 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 ◾ Supervisory Board
The key principles of Board of management remuneration are as follows: ◾ S u p p o r t f o r t h e G r o u p ’ S S t r a t e G y : performance targets reflect the allianz Group’s business strategy.
There are four main remuneration components, excluding pensions/similar benefits and perquisites. each has approximately the same weighting within annual target remuneration: Base salary, annual bonus, annualized Three-year bonus and equity-related remuneration. The split of remuneration is approximately 25 % fixed and 75 % target variable.
2. Three-year bonus (mid-term): a performance-related cash payment that rewards multi-year sustainable achievement of targets.
The following chart illustrates the potential value of the offer – excluding pension and perquisites – at different performance outcomes (zero, target and maximum). in addition, they show the corresponding proportions delivered through fixed and variable remuneration.
e xample: re gular memb er of the B o ard of management w ith € 70 0 thou f ixe d and € 2,10 0 thou t arget var iable remunerat ion
The remaining remuneration components comprise of pensions/similar benefits and perquisites. These are described below.
Company contributions for 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. an additional risk premium of 5 % of the regular pension contribution 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 % (widow/widower) and 20 % (per child) of the original employee’s pension, with the aggregate not to exceed 100 %. in the avk a benefit appreciation will occur in case of death or disability. Should board membership cease prior to retirement age for other reasons, the accrued pension rights are maintained if vesting requirements are met.
C o r p o r a T e G o v e r n a n C e4 0
◼ p e r q u i S i T e S
q ua n T i TaT i v e Ta rG e T S 75 %
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.
p o r T F o l i o d e v e lo p m e n T
G ro u p l e v e l ◾ 2010 - 2012 average growth ◾ 2012 return on capital
S u S Ta i n a B i l i T y a S S e S S m e n T q ua l i TaT i v e C r i T e r i a
◾ 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)
annual performance drives the value of the annual bonus and also influences the opportunity of the mid- and longterm components. However, the values delivered under the three-year and equity components ultimately depend on sustained performance over longer periods.
1 | example based on at target values of a regular member of the Board of management with an annual target of € 700 thousand for the Three-year bonus. 2 | actual accrual for the Three-year bonus (mid-term) usually equals the annual bonus payout of the respective financial year. Since the performance assessment and the final payout occur after completion of the performance cycle this value is only a notional indication. 3 | Final payout is subject to the sustainability assessment of the Supervisory Board and may vary within the full range between 0 % - 165 % of the cumulative target values independent of the notional accruals.
C o r p o r a T e G o v e r n a n C e4 2 p a y o u T o F v a r i a B l e r e m u n e r a T i o n
We discuss below the 2011 remuneration results and the link to performance against targets.
◾ b a S e S a l a r y : The Supervisory Board approved an increase to the base salaries of Clement Booth, enrico Cucchiani, dr. Joachim Faber and dr. Werner zedelius by € 50 thousand in december 2010. This resulted in a base salary of € 750 thousand as of January 1, 2011. For all other Board members base salaries for 2011 were maintained at their existing levels.
◾ a n n u a l b o n u S : The target achievement for the Group, the business division/corporate functions and the qualitative performance was on average assessed at 84 % and ranged between 71 % and 98 %. Consequently, total annual bonus awards ranged between 71 % and 98 % of target with an average bonus award of 84 % of target bonus. This represents 51 % of the maximum payout.
◾ t h r e e - y e a r b o n u S : Three-year performance achievement for the 2010 - 2012 plan will be measured and bonus outcomes determined during the first half of 2013. For accrual purposes, the target achievement of the annual bonus serves as the notional indication.
◾ p e r q u i S i t e S : For 2011 the total value of the perquisites amounted to € 0.5 mn (2010: € 0.5 mn).
◾ p e n S i o n S : Company contributions in the current plan are 29.25 % of base salary, increasing to 36.56 % after five years and to 43.88 % 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 annual pension from that plan.
Total pensions Total incl. pensions € thou € thou € thou € thou € thou € thou € thou € thou 2010 — — — — — — — —
The total remuneration of the Board of management of allianz Se for 2011, excluding the notional annual accrual of the Three-year bonus, amounts to € 22 mn 8 (2010: € 28 mn).
4 | according to his contract dr. paul achleitner receives a transition payment after leaving the allianz Se Board of management. The payment is calculated based on six months of the latest Base salary and a final lump-sum payment of 25 % of the target variable remuneration. in total the transition payment amounts to € 1,027.5 thousand.
5 | enrico Cucchiani left the allianz Se Board of management effective december 21, 2011. For the period January 1, 2011 to december 21, 2011 he received a pro-rated Base salary, annual bonus and equity-related remuneration. The annual bonus and the equity-related remuneration will be paid in cash in spring 2012. no pro-rata Three-year bonus for 2010 and 2011 or a transition payment were awarded. rSu (restricted Stock units) and Sar (Stock appreciation rights) granted during his service are not forfeited and can be exercised according to the terms and conditions of the respective plans. The non-forfeitable pension entitlements continue.
The allianz Group paid € 5 mn (2010: € 4 mn) to increase reserves for pensions and similar benefits for active members of the Board of management. as of december 31, 2011, reserves for pensions and similar benefits for active members of the Board of management amounted to € 36 mn (2010: € 38 mn).
SC 5 dBo 6 SC 5 dBo 6 SC 5 dBo 6 SC 5 dBo 6 Sc 5 dbo 6 € thou € thou € thou € thou € thou € thou € thou € thou € thou € thou € thou
The sum of total remuneration of the Board of management of allianz Se and the pension service costs for 2011 (excluding the notional annual mid-term bonus accrual) amounts to € 26 mn 12 (2010: € 32 mn).
3 | For details on the transition payment see section Termination of Service starting on page 45. 4 | expected annual pension payment at assumed retirement age. 5 | SC = Service Cost.
G r a n t S a n d o u t S t a n d i n G h o l d i n G S i n e q u i t y i n c e n t i V e S : The equity-related remuneration that applied before 2010 1 consisted of two vehicles, virtual stock awards known as restricted Stock units (rSu) and virtual stock options known as Stock appreciation rights (Sar). only rSu are awarded as of 2010.
Strike price range in 2011, remuneration and other benefits totaling € 6 mn (2010: € 7 mn) were paid to retired members of the Board of management and dependents. reserves for current pensions and accrued pension rights totaled € 73 mn (2010: € 58 mn).
◼ T e r m i n a T i o n o F S e r v i C e
6 | For the financial year 2011 the equity-related remuneration for dr. paul achleitner will be delivered in cash, therefore he will not receive a rSu grant on march 8, 2012. 7 | enrico Cucchiani left the allianz Se Board of management on december 21, 2011. The equity-related remuneration will be paid in cash on a pro rata basis in spring 2012. Therefore he will not receive a rSu grant on march 8, 2012. rSu and Sar granted during his service are not forfeited and can be exercised according to the terms and conditions of the respective plans. 8 | The expense is based on Board of management service through december 21, 2011.
C o r p o r a T e G o v e r n a n C e4 6 arrangements for termination of service including retirement are as follows: 1. Board members who were appointed before January 1, 2010 – and who have served a term of at least five years – are eligible for a six-month transition payment after leaving the Board of management.
T r a n S i T i o n pay m e n T
S e v e r a n C e pay m e n T C a p payments to Board members for early termination with a remaining term of contract of more than two years are capped at two year’s compensation: a regular Board member with last year Base salary of 700 and target variable remuneration of 2,100
Based on the example from above: 150 % of the severance payment cap. 150 % of the severance payment cap (3,500) = 5,250 Consequently, the payout is less than two years total remuneration at target.
Board members who were appointed before January 1, 2011, are eligible to use a company car for a period of twelve months after their retirement.
Co rp or at e Go ve rn an ce m i S C e l l a n e o u S
◼ i n T e r n a l a n d e x T e r n a l B o a r d a p p o i n T m e n T S
When a member of the Board of management holds an appointment in another company within the allianz Group, the full remuneration amount is transferred to allianz Se. in recognition of the benefits to the organization, Board of management members are supported if they accept a limited number of non-executive supervisory roles in appropriate external organizations. in these cases, 50 % of the remuneration received is paid to allianz Se. a Board member retains the full remuneration only when the Supervisory Board qualifies the appointment as a personal one. remuneration paid by external organizations is shown in the annual reports of the companies concerned. The remuneration relating to the external appointment is set by the governing body of the relevant organization.
◾ dr. paul achleitner will leave allianz by may 31, 2012.
◾ approved base salary adjustments for those members of the Board of management who had not received an increase since 2008. The base salary shall be increased (in € thousand): michael diekmann by 80, dr. paul achleitner by 55 and oliver Bäte by 50. This leads to the following base salary levels as of January 1, 2012 (in € thousand): michael diekmann 1,280, dr. paul achleitner 855 and oliver Bäte 750.
Contributions as a percentage of base salary currently paid by the company to the contribution-based pension plan will continue to decrease from 2011 onwards to achieve target provision levels using new actuarial and increasing tenure assumptions: allianz Se Board member service Current contribution level Contribution level from 2012 less than 5 years 29.25 28.35 executive remuneration Below the allianz Se Board of management
The general objective for all allianz remuneration structures is to offer competitive reward in terms of components, structure and level which allows allianz to attract, motivate and retain high performing employees without encouraging excessive risk-taking.
The duties of the Group Compensation Committee (GCC) are to assist the allianz Se Board of management in discharging its responsibilities for all compensation matters relating to the Chief executive officers, Board members of the international executive Committee (ieC) companies and the heads of the major functions of allianz Se. in addition, the committee and representatives of companies classified as significant according to the German insurance remuneration regulation of october 13, 2010 have identified and approved a list of other key executives for additional review.
F r a m e W o r k a n d m i n i m u m S Ta n d a r d S
The results of these analyses were incorporated in the required internal Compensation report to the 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.
Co rp or at e Go ve rn an ce r e m u n e r aT i o n p r i n C i p l e S
The key additional principles of executive remuneration strategy are: ◾ align pay with both the performance of individuals and the achievement of the allianz Group’s financial and strategic goals consistent with shareholder interests.
r e m u n e r aT i o n C o m p o n e n T S
according to the general terms applicable to all employees, senior executives who are not members of a Board of management may also participate in the global employee Stock purchase plan.
additionally, depending on the specific country or operating entity, allianz operates a number of pension and flexible benefit plans, in particular deferred compensation schemes – which may provide participants with other opportunities to accumulate retirement income.
S p l i T B e T W e e n F i x e d a n d v a r i a B l e r e m u n e r a T i o n a l l o C a T i o n p e r r e m u n e r a T i o n C o m p o n e n T
Three-year bonus (mid-term): 14 v a r i a B l e r e m u n e r a T i o n e q u i T y - r e l a T e d v a r i a B l e r e m u n e r a T i o n in % in %
The remuneration of the Supervisory Board is governed by the Statutes of allianz Se and the German Stock Corporation act. Since changing to a new remuneration system with fixed remuneration only, allianz Se deviates from the recommendation of the German Corporate Governance Code to provide a performance-related remuneration. allianz believes that a fair, fixed remuneration is more suitable to the control function of the Supervisory Board. The structure of the Supervisory Board’s remuneration is regularly reviewed with respect to German, european and international corporate governance recommendations and regulations.
The Supervisory Board discussed changes to the remuneration structure in its September 2010 and december 2010 meetings based on a proposal from the personnel Committee – 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.
◼ F i x e d a n n u a l r e m u n e r a T i o n
C o r p o r a T e G o v e r n a n C e5 2
in addition, members of the Supervisory Board receive an attendance fee for each Supervisory Board or committee meeting they attend in person. along with the changes to the remuneration system as of January 1, 2011 the attendance fee was adjusted from € 500 to € 750. This amount remains unchanged if several meetings occur on one day or when various meetings are held on consecutive days.
allianz Se reimburses the members of the Supervisory Board for their out-of-pocket expenses and the vaT payable for their remuneration and expenses. For the performance of his duties, the Chairman of the Supervisory Board is furthermore entitled to an office with secretarial support and use of the allianz carpool service. in the financial year 2011, allianz Se reimbursed expenses in the total amount of € 35 thousand.
The total remuneration for all Supervisory Board members, including attendance fees, amounted to € 2,009 thousand in 2011 (€ 1,463 thousand in 2010). The average annual remuneration for the Supervisory Board members increased to € 167 thousand (2010: € 122 thousand). The reason for such difference is that in 2010 no long-term variable remuner ation was paid out from the previous remuneration system.
1 | abbreviations: a - audit, n - nomination, p - personnel, r - risk, S - Standing. 2 | only applicable for 2010 remuneration. 3 | Total remuneration (excluding attendance fees) was capped at € 222 thousand (for the Chairperson, the limit was three times the 2010 basic remuneration). 4 | The total remuneration reflects the remuneration of the full Supervisory Board in the respective year.
◼ r e m u n e r a T i o n F o r m a n d a T e S i n o T H e r a l l i a n z C o m p a n i e S a n d F o r o T H e r F u n C T i o n S
all employee representatives of the Supervisory Board except for mr. Jörg reinbrecht are employed by allianz Group companies and receive a remuneration at arms length for their services.
◼ l o a n S T o m e m B e r S o F T H e S u p e r v i S o r y B o a r d on december 31, 2011, there were no outstanding loans granted by allianz Group companies to members of the Supervisory Board of allianz Se.
Revenues for 2012 126 Financing and liquidity Development and capitalization 126 expected Dividend Development 126 Management’s Assessment of expected earnings for 2013 127 Management’s Views on Future challenges and opportunities 129 opportunity Management and Strategic investments 130 Management’s overall Assessment of the current economic Situation of the Allianz Group 131 Balance Sheet Review 131 Shareholders’ equity 131 Regulatory capital Adequacy 132 total Assets and total liabilities 139 off-Balance Sheet Arrangements 140 liquidity and Funding Resources 140 organization 140 liquidity Management of our operating entities 141 liquidity Management of Allianz Se 145 Allianz Group consolidated cash Flows 147 Reconciliations 147 composition of total Revenues 148 composition of total Revenue Growth
◼ R i S k R e P o R t A n D F i n A n c i A l c o n t R o l 149 Risk Report 149 Management’s Assessment on Risk Profile 151 capitalization 155 internal Risk Assessment 173 Risk Governance 177 Disclosures Relating to Financial instruments 177 Risk Management Priorities for 2012 178 controls and Procedures 178 internal controls over Financial Reporting 179 Risk capital controls
insurance operations our product portfolio includes a wide range of property-Casualty and life/Health insurance products for both private and corporate customers. We are the leading property-casualty insurer globally and rank among the top five in the life/ health insurance business.
most of our insurance markets are served by local Allianz companies while selected business lines are run globally such as global Corporate Customers, Credit insurance, Assistance Services, Worldwide Care, global Automotive and reinsurance. Based on premiums, we estimate the split between private and corporate clients to be about 50 % and 50 % for our property-Casualty segment, and about 80 % and 20 % for our life/Health segment, respectively.
As of december 31, 2011, we are one of the largest asset managers in the world which manage third-party assets with active investment strategies, with over € 1,600 bn assets under management. through 2011, our Asset management business was governed by Allianz global investors, Agi, operating with investment and distribution arms in all major markets, under brands such as pimCo, Agi, rCm or Agi Capital. particular strongholds include the united States, germany, france, italy, the united Kingdom and the Asia-pacific region. As of december 31, 2011, Agi managed € 1,255 bn of third-party assets of which the share from institutional clients amounted to 67 % while 33 % came from retail clients.
As of January 1, 2012, we are running the Asset management business out of two distinct investment management businesses, pimCo and Agi. Both units will operate under Allianz Asset management (AAm), focusing solely on financial and overarching governance matters. this change is driven by the significant growth in our Asset management business in recent years. We intend to tailor products, solutions and distribution that best meet our clients’ needs, and further strengthen both brands.
S e l e C t e d p r o d u C t r A n g e e q u i t y
◾ Systematic ◾ Sector/theme funds ◾ region /country funds ◾ Style funds ◾ Small cap funds ◾ Stocks plus f i x e d - i n C o m e
A l t e r n A t i v e S
◾ life-cycle concepts ◾ multi-asset solution ◾ variable annuity solutions ◾ Asset/liability management ◾ risk management concepts
r e t A i l A n d i n S t i t u t i o n A l C l i e n t S
◼ B A n K i n g o p e r A t i o n S
our banking operations support our insurance business and complement our product offerings in germany, italy, france and Bulgaria. As a division of Allianz deutschland Ag, oldenburgische landesbank Ag (olB) is Allianz’s main banking product and service provider in germany. olB, germany’s largest private regional bank, covers the northwest of germany with 176 branches, concentrating its business on retail and corporate clients. in our core market germany we focus our assurbanking activities (distribution of banking products through our german insurance agents’ network) under the brand name Allianz Bank (operating as a branch of olB). the number of Allianz Bank branches and certified agencies, offering integrated financial services and products, increased in 2011 to 819. Additional agencies are planned to be certified in 2012.
an ag em en t R ep or t 1955: In the days of the “economic miracle”, travelers were able to get insurance from Allianz in Germany and its partner RAS in Italy in the event of a rain-soaked vacation. 2011: With a total of more than 63 million vacation trips throughout the world, many Germans can count on Allianz travel insurance coverage.
g r o u p m A n A g e m e n t r e p o r t5 8
◼ iii. ◼ iii. india ◼ iii. ◼ ii. indonesia ◼ — ◼ iv. Japan 1
◼ iii. South Korea ◼ iii. ◼ iv. Sri lanka ◼ iii. taiwan
CentrAl And eAStern europe ◼ ii. ◼ i. ◼ Bulgaria ◼ ii. ◼ i. Croatia ◼ ii. ◼ iii. Czech republic ◼ i. ◼ ii. Hungary ◼ ii. Kazakhstan ◼ ii. ◼ iii. poland ◼ ii. ◼ ii. romania ◼ iii. ◼ iii. russia ◼ i. ◼ i. Slovakia ◼ iv. ukraine
AmeriCA ◼ ◼ united States ◼ Canada europe/middle eASt ◼ ◼ germany ◼ ◼ france ◼ ◼ italy ◼ ◼ portugal ◼ ◼ Spain ◼ ◼ Switzerland ◼ ◼ Austria ◼ ◼ netherlands ◼ ◼ united Kingdom ◼ ◼ nordics ◼ ◼ middle east
Insurance Europe, South America, Africa europe ◼ ii. ◼ ii. ◼ italy ◼ ii. ◼ iv. Spain ◼ ii. ◼ iv. portugal ◼ iii. ◼ iii. greece ◼ ii. ◼ iii. turkey ◼ ii. ◼ iii. ◼ france ◼ iii. ◼ iii. Belgium ◼ ii. ◼ iii. netherlands ◼ iv. ◼ iv. luxembourg
◼ property-Casualty ◼ life/Health ◼ Banking ◼ retail Asset management ◼ institutional Asset management insurance market position by gross premiums written: 2 i. position 1 ii. position 2 to 5 iii. position 6 to 10 iv. not in the top 10 1 | property-Casualty business now belongs to Allianz global Corporate and Specialty. 2 | Source: own local estimations as of 2010.
Worldwide presence and Business divisions t r A v e l i n S u r A n C e , A S S i S t A n C e A n d p e r S o n A l S e r v i C e A l l i A n z g l o B A l A u t o m o t i v e via Allianz global Assistance, we are the worldwide leader of travel insurance, assistance services and personal services, based on revenue . 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.
Selected markets motor/non-motor as % of total property-casualty gross premiums traditional/non-traditional as % of total life statutory premiums 1
◼ property-Casualty ◼ life/Health market position by gross premiums written: 4 i. position 1 ii. position 2 to 5 iii. position 6 to 10 iv. not in the top 10
As the market leader in the german p r o p E r T y - C A S u A L T y market, we offer a wide variety of insurance products for private and commercial clients. germany is a rather mature market for property-casualty business, with a high degree of competition. in 2011 our motor retail business benefited from the new modular tariff (“meinAuto”) and attractive growth in direct business.
for L I F E I N S u r A N C E , we are active in the private and commercial markets and offer a comprehensive range of products. the main classes of coverage offered include annuity, endowment, term and disability insurance. in our commercial lines, we offer group life insurance and provide companies with services and solutions in connection with pension arrangements and defined contribution plans. in 2011, we successfully increased our market share for traditional life products with individual and group contracts.
in L I F E / h E A L T h business, Allianz Austria offers traditional insurance contracts, government subsidized products as well as unit-linked and investment-oriented products. premium volume in the Austrian life market decreased by 7.6 % in 2011 driven by substantially lower production of single premium business in the bancassurance channel. Since Allianz Austria does not distribute products in the bancassurance channel, gross written premium increased by 5.6 % driven by both traditional and corporate business. profitability in 2011, however, was hit by the turmoil of the financial markets.
over the next few years, we expect to grow in line with the market in p r o p E r T y - C A S u A L T y . in L I F E business, the business environment has become more challenging. Although this has dampened growth expectations, our focus will remain on low risk tolerance and conservative investment management.
◼ S W i t z e r l A n d
Allianz Suisse started a quality program in 2011 with focus on further improvements in claims handling, service standards and distribution measures. We expect to reap the rewards from 2011 onwards, which should help us overcome strong competition and price pressure. We believe that our customer focus and service standards as well as our favorable cost position will be the basis for our success in the coming years.
Allianz serves the italian market primarily through Allianz S.p.A., which is our company mainly dedicated to the agent and broker channels. We also distribute our products through genialloyd (a leading company in direct business), Allianz Bank, the latter’s financial Advisors network (one of the top 5 in the market), and the bancassurance channel (with unicredit as the main partner).
Allianz italy, after shrinking in p r o p E r T y - C A S u A L T y in 2010, returned to growth again in 2011. this achievement was mainly driven by motor and our direct company genialloyd, which grew by 26 %. At the same time, we further improved profitability – largely due to better underwriting margins.
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 (over 11,800 in Spain and over 4,100 in portugal). in both countries, we maintain strong bancassurance partnerships, working with Banco popular in Spain and Bpi in portugal.
in 2011, the p r o p E r T y - C A S u A L T y markets stagnated in both countries due to the economic crisis. regarding L I F E insurance, Spanish market grew while the sector shrank in portugal, largely due to the weakness in the local banking sector.
in p r o p E r T y - C A S u A L T y markets we clearly outperformed the local markets both in terms of growth (premiums and customers) and profitability. in both countries we focused our L I F E operations on profitability: growth in Spain and protection of our portuguese portfolio in a shrinking market.
uncertainties linked to the financial crisis will continue to heavily influence the evolution of the Spain and portugal economies, as well as their respective insurance markets. unemployment remains at very high levels, particularly in Spain. yet, we remain confident that our efficient operating platform and strong distribution capabilities in both countries will enable Allianz to outperform the market.
the french p r o p E r T y - C A S u A L T y market has seen limited growth in recent years and remains highly competitive. in this market, we continue to concentrate on increasing the efficiency of company structures and processes. to offer our customers a competitive value proposition we are committed to fully implementing our four-part strategy in france, which is based on profitable growth and enhanced financial and technical services, operational excellence and a performance culture.
We consider the french L I F E / h E A L T h business to be a growth area. in the highly competitive life market, we respond to the needs of our customers with an attractive range of traditional and unit-linked products in both group and individual business. product innovations allow us to continuously provide attractive products to our customers, even in the current low interest rate environment. As with property-Casualty, we focus on operating profitability.
in the french p r o p E r T y - C A S u A L T y market, competition will remain tough, even though we expect to benefit from price increases. We expect dynamic evolution of the L I F E market in france over the coming years.
the dutch insurance market is characterized by intense competition and Allianz has chosen to concentrate on profitability. therefore, we are continuously improving our cost position. in this context, we have successfully centralized our operations to rotterdam.
Allianz Belgium S.A. markets a wide range of L I F E and p r o p E r T y - C A S u A L T y insurance products. life insurance continues to be the major product line. We only distribute our products and services through brokers. We have reinforced our strong commitment through the implementation of our new broker strategy, while continuously advancing and tailoring our services and product offerings to our partners.
◼ t u r K e y our entities Allianz Sigorta A.S. and Allianz Hayat ve emeklilik A.S serve the turkish market. We offer a wide variety of p r o p E r T y - C A S u A L T y products, both in retail (distributed mainly via agents) and commercial markets (distributed mainly via brokers). We also provide our customers with L I F E insurance and pension solutions.
in all three markets, we concentrate on p r o p E r T y - C A S u A L T y , with motor generally representing the largest individual line of business, followed by industrial business. in addition to offering L I F E insurance in Colombia, we are also one of the leading h E A L T h insurers in both Brazil and Colombia. We primarily distribute via brokers.
despite a slowdown of the local economy in 2011, we are pleased with the performance of the Brazilian insurance market, which mirrors the growth of Brazil as it develops into a major economy. even though the general performance of the insurance sector was very strong, Allianz Brazil still managed to surpass market growth by a solid margin.
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. We offer p r o p E r T y - C A S u A L T y products in all African countries where we are present. L I F E products are offered by our operating entities in Burkina faso, ivory Coast, Cameroon, madagascar and Senegal.
We intend to consider further business opportunities in Africa where there is potential for organic growth. As a consequence, we have expanded our franchise into Congo Brazzaville, where we acquired insurance license in the fourth quarter of 2011.
i n S u r A n C e n A f tA m A r K e t S
our p r o p E r T y - C A S u A L T y insurance business in the united States is conducted through fireman’s fund insurance Company (fireman’s fund) and the u.S. operations of Allianz global Corporate & Specialty (AgCS). our L I F E A N d
through fireman’s fund, we underwrite personal, commercial and agribusiness lines, selling these products through independent agents and brokers. our personal business unit focuses on affluent and high net worth individuals while our commercial business unit offers specialized p r o p E r T y - C A S u A L T y coverage for small and medium-sized businesses. our agribusiness unit offers crop, farm and ranch insurance. fireman’s fund is one of the few carriers in the united States that has a nation-wide personal and commercial presence.
especially in the first half of 2011, the u.S. property-casualty insurance market experienced huge catastrophe losses resulting from a series of severe weather events – including tornadoes, hailstorms and flooding – and put further pressure on an already soft market. in addition, the state of the economy as well as the low investment yield environment continued to put pressure on premium growth and profits.
◼ m e x i C o in mexico, our company Allianz méxico, S.A. Compañía de Seguros serves the market by offering p r o p E r T y - C A S u A L T y and L I F E / h E A L T h products. Allianz mexico has a solid position in the commercial and personal market segments with distribution primarily carried out by brokers. our mexican unit recorded stronger than average growth in recent years, most notably in life/Health product lines. We view mexico as an attractive market due to its strong market growth, regulatory effectiveness and potential for growth in insurance demand.
C A S u A L T y products for both commercial and retail customers via direct, broker and bancassurance distribution channels.
2011’s difficult economic environment led to falling exposures in commercial lines, a segment which is still characterized by over- capacity and intense competition. rate increases in personal lines were implemented in 2011 and despite the adverse economic environment, Allianz ireland managed to increase its number of policies. for 2012 we expect the market to remain challenging.
◼ u n i t e d K i n g d o m
◼ A l l i A n z g l o B A l C o r p o r A t e & S p e C i A l t y
g r o u p m A n A g e m e n t r e p o r t6 6 in 2011 AgCS was severely affected by natural catastrophes, in particular by the earthquakes in new zealand, the tsunami and nuclear disaster in Japan and the floods in thailand and Australia. AgCS is well positioned to cope with the challenging economic environment and the increasing number of natural catastrophes because of its global diversification and spread of exposures. on the whole, the outlook for 2012 in terms of pricing remains stable.
Since June 2009, euler Hermes has been gradually increasing risk coverage to help its customers benefit from an eventual economic upswing. Although the economic climate deteriorated again in autumn 2011, we reorganized the company to show full benefits and enabled us to work with the same structures and guidelines around the world. the strengthened centralized risk governance will allow the company to continue supporting its clients through the times ahead.
◼ A l l i A n z W o r l d W i d e C A r e
Allianz Worldwide Care (AWC), based in dublin, is our specialist h E A L T h insurer offering international health products to expatriates and high net worth individuals. our products are distributed by brokers, agents and via the internet and call centers. With a tight control of expenses, process improvements and rigorous underwriting discipline, we maintained our strong growth and level of profitability in 2011. We expect to see further growth in the next years, while sustaining our profitability and widening our product offerings.
during the past four years, we have managed to preserve a steady momentum in developing our South Korean business. in 2011, Allianz life Korea established a new sales channel of professional advisors that have abundant field experience in providing financial advice.
Active in 11 countries in the region, Allianz continuously ranks among the top three players in six of the largest markets in Cee. We offer L I F E , h E A L T h , p r o p E r T y - C A S u A L T y products and pension funds to our 7.4 mn customers. our operating subsidiaries are located in Bulgaria, Croatia, the Czech republic, Hungary, Kazakhstan (until december 2011), 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 revenues.
in 2011 our L I F E / h E A L T h business in Cee developed positively, particularly in investment-oriented product sales. poland, Hungary and the Czech republic made major contributions to growth, while diversified insurance portfolios, continuous product innovations and a multi-channel distribution approach led to strong business growth in russia. despite the competitive business environment, our operating entities maintained their market positions. flexible and liquid unit-linked products became more competitive, as interest rates on bank deposits decreased.
through Allianz egypt, Allianz Saudi fransi and Allianz SnA (lebanon) we offer p r o p E r T y - C A S u A L T y and L I F E /
an ag em en t R ep or t y o u R a l l i a n z iii. our strategy despite last year’s turbulence, we have demonstrated once again that our balanced strategy, supported by our solid business model and our strong brand, has been essential to guide us through the storm and towards building the world’s strongest financial community.
More specifically, our strategy includes five major goals: 1. We seek to achieve profitable and sustainable growth, 2. have a well-balanced and synergetic array of businesses, 3. strong, though not excessive, capitalization, 4. world-class investment management, and 5. a state-of-the-art risk framework.
2011 offered multiple opportunities to demonstrate the value of our b a l a n c e d a n d i n t e r l i n k e d p o r t f o l i o o f b u s i n e s s segments and markets. the robustness of our property-Casualty segment and the strong performance of our asset Management business helped offset a softened demand for investment-oriented life products. We also benefited from our broad geographic scope; while some of our property-Casualty operations were hit very hard by natural catastrophes, others thrived.
our customers are the main beneficiaries of our diversified product offerings, and our global presence enables us to well serve those who seek and need a globally trusted partner, such as our commercial clients or the clients of our global health or assistance businesses.
G R o u p M a n a G e M e n t R e p o R t7 0 even after the turmoil of 2011, our c a p i t a l i z a t i o n r e m a i n s s t r o n g : our equity grew slightly, and our conglomerate solvency was 179 % at the end of 2011; this means that our available funds exceeded the current regulatory requirements by almost 80 %. We continue to protect our capital position in the interest of our clients and our investors. For that purpose, we have allocated key resources and have prioritized our efforts to prepare for the future solvency ii requirements. thus we are confident in our ability to maintain our strong capitalization, even under this new regulatory regime, which will help us to weather future storms.
in essence, we did not reach all of our strategic goals last year, especially regarding profitable growth, but we also doubt that we would have steered so safely through that extraordinarily turbulent year without our solid strategy and business model. looking at the challenges ahead, we want to regain a path of careful growth offering solid profits, while continuing to reduce risks in our balance sheet, especially if they are not essential to support our core businesses. in the following table, we have listed an essential, though not comprehensive, list of targets to support our strategic goals. We elaborate on those targets in more detail in the chapter outlook 2012 and 2013.
World-class investment management in the current low interest environment we focus on generating attractive returns and minimizing vulnarability to price fluctuations. Focus investments on businesses with stronger cash returns and lower tail risk.
note: as described in our chapter outlook 2012 and 2013, all targets are subject to cautious assumptions regarding the development of the financial markets, the global economy, and depending on natural events.
1 | For detailed growth targets and underlying assumptions see outlook 2012 and 2013.
B o a R d o F M a n a G e M e n t a n d o R G a n i z at i o n a l s t R u C t u R e
F u n C t i o n a l d i v i s i o n s
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 processes, 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, 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 85.
Besides performance steering we also have a risk steering process in place which is described in the Risk Report starting on page 149.
in 2011, we continued to integrate sustainability into our business to contribute to the company’s sustainable and profitable growth. our approach combines long-term economic value creation with a holistic approach to environmental stewardship, social responsibility and corporate governance. this is underscored by our ambition to be transparent in our performance as demonstrated by our a+ rating from the Global Reporting initiative. this section highlights allianz’s sustainability performance, presenting developments in key steering indicators in the following areas: E C O N O M I C , E N V I R O N M E N T , S O C I A L and G O V E R N A N C E . a full presentation of our progress can be found online at our strategy
◾ interbrand: allianz ranked as “best Global Green brand” in Financial services. ◾ trendence: allianz ranked 32nd, up from 38th in 2010, in a ranking of the most attractive employers in europe. ◾ My Finance Coach: the German unesCo Committee has declared My Finance Coach to be an official project of the united nations Decade of education for sustainable Development.
◾ allianz is ranked among the top performers within the financial services sector in the interbrand global toP 100 brand ranking. based on the interbrand ranking, the value of the allianz brand increased from approximately u.s. Dollar 4.9 bn in 2010 to u.s. Dollar 5.3 bn in 2011. in the category of european financial services providers, our brand value showed the highest growth rate.
a brand provides identification and orientation for our many customers and stakeholders. allianz builds on the heritage of a strong brand that is based on two pillars – outstanding delivery in products, services and sales to clients, and branding that is insightful, consistent and within a global perspective. the constant delivery on our brand positioning “trusted Partner”, sets us apart from our competition and creates a sustainable, long-term competitive advantage. our brand is an important and valuable asset and therefore an essential element of our business strategy.
◼ e n G a G i n G C o M M u n i C a t i o n in 2010 we successfully launched our worldwide communication campaign “one”. this campaign places the customer at the center of our activities and is based on real people sharing real experiences and advice. encouraging dialogue and sharing the wealth of our knowledge and expertise with our employees and customers is at the heart of our communication strategy. this approach aims to help us build honest and long-lasting relationships with our stakeholders to build the strongest financial community. “one” has worked well with stakeholders across different business lines and markets. in 2011, we have seen the local adaptation of our global brand building concept in 20 markets and 4 lines of business, reaching 68 % 1 of our customers worldwide. While the overall spending has stayed on a high level we saw a significant increase in strategic markets like the united states (€ 20 mn, gross rate card), brazil (€ 15 mn, gross rate card) and spain (€ 25 mn, gross rate card).
allianz continues to invest in a strong global brand. Despite the rough market conditions and the efficiency imperative we have kept global brand investments in 2011 stable compared to the previous year. after the strategic consolidation of our global sponsoring portfolio to four platforms (Formula onetM, football, Paralympics and golf) we have seen a major increase in local activation of the assets we provided globally (about € 30 mn annually). also on the advertising side we stayed the course globally and maintained a strong investment level of € 7 mn (gross rate card) at ten global airports.
another aspect of our communication approach is our long-term involvement in sports such as Formula onetM, golf, Paralympics, and with “FC bayern München” and the allianz arena. these global platforms allow our allianz entities in about 70 countries to build the brand locally. they also enable allianz to link the brand with its business, as illustrated by our Formula onetM safety Car engagement. in 2011, more than 20 local allianz entities were engaged in the “Drive safely” initiative in their local markets.
allianz also continues to drive its communication through the consistent use of digital communication. the evolution of the digital world has dramatically changed the way customers search for information, receive recommendations, and buy products. added to this, expectations about service levels are increasing. allianz is continually adapting to this new digital lifestyle in order to keep in touch with the next-generation target audience. Digital technologies provide many opportunities which allianz wants to leverage in the framework of its digital program.
C u s t o M e R F o C u s since we aim to be the loyalty leader in all our markets, we regard customer feedback as a vital tool in monitoring customer satisfaction and ensuring an ongoing improvement in our products, services and processes. net Promoter score (nPs), a regular measurement of a customer’s willingness to recommend allianz, has been established as the key global metric for customer loyalty. it is applied on two levels: top-down and bottom-up.
top-down nPs is measured on an annual basis and benchmarks allianz against relevant local competitors. in 2011, 33 allianz companies participated representing about 80 % of our business. in bottom-up nPs allianz directly collects customer feedback on key interactions, such as after-claims handling or sales. this method is used throughout the Group and delivers valuable insight from about a million customers annually.
achieving loyalty leadership is one key lever for business success as loyalty leaders tend to outperform their local peers in growth and profitability. based on empirical analysis in many of our local markets, we could observe a positive link of nPs to new business, agent productivity and customer value growth. the reason for this is that more loyal and satisfied customers have fewer complaints, are less likely to churn and are more inclined to buy other services and products and make referrals.
1 | based on argentina, austria, brazil, China, the Czech Republic, Germany, hungary, india, indonesia, ireland, luxembourg, Malaysia, Poland, Portugal, slovakia, south Korea, spain, switzerland, taiwan, usa.
G R o u P M a n a G e M e n t R e P o R t7 6 as a consequence, allianz is experiencing an overall growth in customer numbers to approximately 78 mn customers in 2011 based on reduced customer losses in our Western european markets and significant customer gains in our growth markets such as asia-Pacific. For further information about our customers for selected markets please refer to our insurance Markets on page 59.
Italy: 7.4 [7.7] Rest of Europe & South America: 12.6 [12.3]
s u s ta i n a b i l i t y i n P R o D u C t s a n D s e R v i C e s
◼ G R e e n s o l u t i o n s the allianz Group has developed more than 80 products and services that help mitigate climate change or take its environmental impact into account. the solutions range from asset management to insurance and assistance. the increasing number of green products and services offered is a reflection of the need to prepare for the negative effects of climate change on allianz’s business and customers and to mitigate the associated economic risks. the current focus is on aligning the Group-wide understanding of what constitutes green products and services and ongoing efforts to leverage their business potential.
◾ agricultural insurance: Climate change increases the intensity and frequency of weather extremes in europe. hailstorms, floods and droughts threaten the crop yields of farmers. allianz Germany provides a variety of solutions for the agricultural sector including livestock, crop yield and machinery insurance.
◾ RCM Global Water Fund: this fund invests in companies that are improving the availability of clean water around the globe.
1 | Due to change of the scope of operating entities, prior year figures have been adjusted. 2 | Customer figures exclude microinsurance and pension funds clients.
For poor families in emerging markets and developing countries, microinsurance is a means of managing the risks associated with natural disasters, accidents and illness. allianz provides a health and financial safety net to millions of people in asia, africa and south america through its microinsurance offering. 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.
M i C R o i n s u R a n C e K e y F i G u R e s 1
Revenues from our microinsurance portfolio in € mn 35 78 n.a. Microinsurance customers (rounded) in mn, as of December 31 2.6 3.8 2.4
◼ s u s t a i n a b i l i t y i n t h i R D - P a R t y a s s e t M a n a G e M e n t in recent years, environmental, social and governance (esG) factors have become more important in investment analysis and asset management, with private and institutional investors increasingly considering these factors in their investment decisions. allianz is meeting this demand, offering a range of sustainable and Responsible investment (sRi) funds across the major asset classes through its third-party asset managers. at the end of 2011, the assets allianz managed in sRi funds increased by more than 10 % compared to the previous year, totalling € 3.4 bn (2010: € 3.1 bn). this increase was mainly driven by a general appreciation and inflow of new assets into our fixed income sRi funds. Given the turbulences on the equity markets in 2011, investors were generally seeking investments with a lower risk profile as has also been the case for our overall portfolio. our assets under management in equity sRi funds developed very much in line with the total market, although our performance was slightly better. Despite slight outflows, our assets under management in equity sRi remained fairly stable.
◼ i n v e s t M e n t s i n R e n e W a b l e e n e R G y insurance companies are not only risk managers but also large-scale institutional investors. investment management is thus an integral part of our business. integrating sustainability into investment strategies is not only important for allianz’s third-party asset Management, but also influences decisions on proprietary business, i.e. how we invest the 1 | excluding figures from november and December 2011 from india, as the data was not yet available at the date this report was published. 2 | bajaj allianz life insurance Company, india, is not a fully consolidated company of allianz.
G R o u P M a n a G e M e n t R e P o R t7 8 income from insurance premiums. as large institutional investors, insurance companies are important players in the financing of a low-carbon economy. allianz sees renewable energies as an attractive growth market for two reasons: first, for portfolio diversification; and second, because sound returns are expected in the long run. allianz, which is already one of the world’s largest investors in this field, is building up a long-term portfolio in wind energy and solar power. allianz’s total direct investments in renewable energy projects topped the € 1.3 bn mark in 2011 and we plan to further increase them.
◼ C a R b o n i n v e s t M e n t s in addition to allianz’s voluntary commitment to reduce carbon emissions from its business operations, from 2012 we will neutralize our remaining emissions by directly investing in carbon projects that generate certificates. as only some of the certificates will be required to ensure allianz’s carbon neutrality, the rest can be sold and generate a financial return. this creates a direct incentive for us to intensify our emission reduction efforts. in this way, carbon investments are not just a voluntary means of becoming carbon-neutral, but also a viable business case for allianz. investments undertaken in 2011 included: ◾ w I L d L I f E w O R k S C A R b O N L L C ( w w C ) : allianz is fostering forest protection in developing and emerging countries through the acquisition of a 10 % share in the developer of Reducing emissions from Deforestation and Forest Degradation (ReDD) projects. the first project is a 208,000 hectare forest in south-east Kenya which acts as a corridor between two national parks. over the course of the project’s 30-year lifetime, the release of up to 36 mn tons of carbon dioxide will be avoided, generating the equivalent number of carbon credits.
an ag em en t R ep or t e n v i R o n M e n ta l F o o t P R i n t 1 allianz continued to reduce its carbon footprint in 2011, reducing Co2 emissions from its business operations by a further 6 percentage points compared to 2010. our overall Co2 reduction since 2006 now stands at 33 % 2 per employee. although we are seemingly close to our new target, as the economy continues to improve the challenge for allianz will be in controlling our emissions over the business cycles.
Scope 1 – 3 GHG emissions, per employee 1 | our environmental performance reporting has been independently verified by KPMG.
4 | in the current reporting period, we investigated methods to reduce uncertainties in our environmental data. by applying these new methods we have also restated historic performance indicators. 5 | historic data back to our base year of 2006 has been recalculated and restated for the current reporting period due to the divestment of manroland. 6 | Company cars were reclassified from scope 3 to scope 1 in the current reporting period and restated back to 2009.
G R o u P M a n a G e M e n t R e P o R t8 0 social b e s t P e o P l e – t o D ay a n D t o M o R R o W
e M P l o y e e e n G a G e M e n t allianz annually collects feedback from employees, managers and board members to measure the overall level of engagement and identify its drivers. in 2011 we conducted the second Group-wide allianz engagement survey, which brought together local surveys in gathering employees’ feedback. 116,229 employees from 66 allianz companies were invited to participate. the participation rate of 78 % was 9 percentage points up compared to 2010. the survey results are factors in the remuneration of the Group’s board of Management and top management.
Women in executive positions 2 in % 19.2 17.6 17.2 share of women in overall workforce in % 52.3 52.4 52.2 ta l e n t M a n a G e M e n t
2 | basis for calculation 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). Restated figures for previous years are provided.
◼ C o R P o R a t e G i v i n G
engaging employees in social projects is a key component of our responsibility towards society. We support the development of effective solutions to critical social issues by drawing on our core competencies. through the My Finance Coach (MFC) program, for example, allianz and its partners aim to foster financial literacy among 11- to 15-year-olds. Familiarizing these young people with financial issues will help them to make educated financial decisions now and in the future. in 2011 more than 65,800 pupils were reached with the MFC program in Germany. the German unesCo Committee declared MFC to be an official project of the united nations Decade of education for sustainable Development (2005 - 2014). allianz also shares its know-how and business skills with socially committed organizations by engaging both employees and retirees. in 2011, for example, through one of allianz’s leadership development and employee volunteering programs such projects were carried out in eight countries involving a total of 44 allianz employees and 21 social entrepreneurs.
since 2007 allianz has trained 82,000 employees in anti-discrimination and anti-harassment procedures. in addition, allianz’s employees gave top marks in our employee engagement survey for the statement that “My company makes it clear that discrimination will not be tolerated”.
G R o u P M a n a G e M e n t R e P o R t8 4
D i a l o G u e s W i t h G o v e R n M e n t s a n D R e l at e D i n s t i t u t i o n s the financial and sovereign debt crises urgently require solutions – preferably sooner rather than later – since they heavily impact our industry. allianz is working to create an enabling political environment for the company’s development by engaging with governments and other institutions on these and other key economic, governmental and societal issues.
the goal in 2011 was to increase contacts and interaction in order to conduct dialogue on fundamental issues and societal challenges. the key topics impacting allianz’s activities included the sovereign debt crisis, the stability of the european Monetary union, regulatory and supervisory issues relating to solvency ii, accounting standards, the proposed financial transaction tax as well as environmental issues.
in 2011, allianz se contributed equal amounts to political parties representing a variety of views within the German political spectrum: the Green Party (bündnis 90/Die Grünen), Christian Democrats (CDu), Christian social union (Csu), liberals (FDP) and social Democrats (sPD). a donation of €50,001 was made to each party. this figure is specifically chosen to ensure it is officially published by the German Parliament, thus guaranteeing total transparency. all contributions are made on July 1 to ensure that they are in no manner connected, or perceived to be connected, to any legislative initiatives or elections.
M a n a G e M e n t D i s c u s s i o n a n D a n a l y s i s iii. business environment economic environment 2011
Following a robust start, the global economy had to deal with a wave of shocks as 2011 proceeded. in the first half of the year, two factors in particular contributed to a global economic slowdown. First, the natural and nuclear catastrophe in Japan temporarily disrupted supply chains around the globe. secondly, a steep rise in commodity prices took a chunk out of the real incomes of both households and businesses. in the second half of 2011, the sovereign debt crisis escalated in the eurozone, causing substantial financial market turmoil. the global economic slowdown continued and by the end of the year the eurozone was on the brink of recession.
Gross domestic product (GDP) in industrialized countries increased in 2011 by about 1.3 % on average in 2011. the united states and the eurozone registered fairly similar growth rates of 1.7 % and 1.5 % respectively. as in 2010, growth varied widely within the eurozone. the GDP of Greece and Portugal contracted by around 6 % and 1.3 % respectively, while other countries like Finland and austria registered solid growth rates of more than 2.5 %. Germany was once again an important economic engine for europe, with a GDP increase of 3 %. emerging markets grew almost 6 % on average, with economic expansion in emerging asian markets coming in at 7.8 %.
For the a s s e t M a n a g e M e n t industry, 2011 was a difficult year characterized by the lingering debt crisis in developed countries, a renewed spike in market volatility in the second half of the year and an increasingly burdensome regulatory environment. in spite of these headwinds, both the asset base and operating profit of our asset Management operations grew in 2011, albeit at a more moderate pace than in the exceptionally strong previous year.
among the most noteworthy developments in the asset management industry in 2011 was the way mutual fund flow patterns differed between investment regions. european funds as a whole suffered significant outflows in a number of asset classes. the united states witnessed massive redemptions of money market funds but strong inflows into fixed income products. asia attracted robust inflows both in fixed income and equity. on a global scale, fixed income remained the dominant asset class collecting roughly 80 % of total net flows into long-term mutual funds.
◼ s e G M e n t o v e R v i e w the allianz Group consists of our subsidiaries in about 70 countries and the parent company allianz se. the Group’s results are reported by business segment: Property-casualty insurance, life/Health insurance, asset Management and corporate and other activities. although the majority of profits are still derived from our insurance operations, contributions from asset Management have grown steadily over recent years.
◼ k e y f i G u R e s 2 year total revenues operating profit net income solvency ratio 1 € mn € mn ∆ | D i f f e R e n c e f R o M y e a R to y e a R € mn %
1 | solvency according to the e.u. financial conglomerates Directive. off-balance sheet reserves are accepted by the authorities as eligible capital only upon request; allianz se has not submitted an application so far. excluding off-balance sheet reserves, the solvency ratio would be 170 % (2010: 164 %; 2009: 155 %).
on top, we experienced heavy turmoil in financial markets, fueled by a sovereign debt crisis predominantly in the eurozone. in essence, this crisis affected us at two fronts: firstly, the financial markets experienced a drastic increase in spreads for selected sovereign borrowers reflecting a paradigm shift – a default of an euro member state, an improbable scenario at the beginning of 2011, meanwhile emerged as a looming threat, causing a mass flight to quality. as one consequence, we had to impair our Greek sovereign bonds, iteratively, to ever diminishing market values. secondly, the fallout of the eurozone crisis raised volatility in the equity and corporate bond markets, especially affecting financial services companies. consequently, both our operating and non-operating income was burdened by impairments in our equity portfolio in general, and on selected strategic and financial participations in particular.
Despite the impact of the european sovereign debt crisis, our c a p i T a l i z a T i o n remained strong. shareholder’s equity grew by 1.0 % to € 44,915 mn, and at 179 % our conglomerate solvency even topped our target range in principle of between 150 % and 170 %.
1 | internal total revenue growth excludes the effects of foreign currency translation as well as acquisitions and disposals. Please refer to page 148 for a reconciliation of nominal total revenue growth to internal total revenue growth for each of our segments and the allianz Group as a whole.
an ag em en t R ep or t total Revenues 1 t o t a l R e v e n u e s – s e G M e n t s | in � mn 2
l i f e / H e a l T H statutory premiums declined by 6.9 % on an internal basis. while traditional business was stable, lower sales of investment-oriented products accounted for nearly all of this decrease, especially in italy and asia-Pacific, and to a lesser extent in france.
total revenues from our Banking operations (reported in our c o r p o r a T e a n d o T H e r segment) amounted to € 567 mn, a slight decrease compared to the previous year.
operating Profit o P e R a t i n G P R o f i t – s e G M e n t s | in � mn 3
l i f e / H e a l T H operating profit decreased by € 448 mn to € 2,420 mn, primarily because of a lower investment result, which was largely due to the impacts of the financial crisis and market conditions. although our average asset base and related interest and similar income both grew around 7 %, our total operating investment result decreased by 6.9 %. this swing is reflected in the losses from impairments and financial assets and liabilities carried at fair value through income which in total deteriorated by € 2,135 mn before policyholder participation compared to 2010.
non-operating Result the european sovereign debt crisis and related deterioration in equity markets had a profound effect on our n o n - o p e r a T i n g r e s u l T , which declined by € 1,950 mn to a loss of € 3,020 mn. the most pronounced effects are reflected in our non-operating investment result, which decreased by € 2,181 mn, resulting in a loss of € 1,159 mn. this fall was mainly driven by higher impairments on equities and debt.
we recorded significant i m p a i r m e n T s ( n e T ) of € 1,931 mn, up by € 1,471 mn. equity impairments accounted for € 937 mn of this increase, primarily driven by investments in financial sector assets. also included is a negative impact of € 185 mn related to our offer to acquire certain participation rights from allianz customers resulting from the difference between our offer price and the related market value at year-end.1 Debt impairments increased by € 550 mn to € 646 mn, of which € 573 mn was attributable to Greek sovereign bonds.
1 | for further information please refer to the events after the Balance sheet Date on page 94. 2 | when PiMco was acquired, B-units were created entitling senior management to profit participation. under the B-unit plan, allianz has the right to call, while PiMco senior management has the right to put, those B-units over several years. fair value changes due to changes in operating earnings are reflected in acquisition-related expenses. the marginal difference between a higher call versus the put price upon any exercise, and distributions received by the senior management B-unit holders, are also included.
an ag em en t R ep or t a m o r T i z a T i o n o f i n T a n g i b l e a s s e T s increased by € 122 mn to € 449 mn, largely due to higher goodwill impairments of € 90 mn compared to 2010. for further information please refer to note 15 of our consolidated financial statements.
Basic Diluted 1 | net income from continuing operations. 2 | for further information please refer to note 51 of our consolidated financial statements.
1 | this does not include non-controlling interests. 2 | this includes foreign currency translation effects of € (1,996) mn, € (2,339) mn and € (3,626) mn as of December 31, 2011, December 31, 2010 and December 31, 2009, respectively. 3 | solvency according to the e.u. financial conglomerates Directive. off-balance sheet reserves are accepted by the authorities as eligible capital only upon request; allianz se has not submitted an application so far. excluding off-balance sheet reserves, the solvency ratio would be 170% (2010: 164 %, 2009: 155 %).
an ag em en t R ep or t € mn € mn € mn
Premiums earned (net) 63,668 63,337 59,792 operating investment result interest and similar income 20,502 19,428 18,233 operating income from financial assets and liabilities carried at fair value through income (net) (844) 19 726 operating realized gains/losses (net) 2,220 2,169 1,799 interest expenses, excluding interest expenses from external debt (518) (522) (579) operating impairments of investments (net) (1,730) (384) (1,738)
income from fully consolidated private equity investments (net) (35) (102) (232) interest expenses from external debt (973) (889) (905) acquisition-related expenses (209) (440) (406) amortization of intangible assets (449) (327) (125) non-operating restructuring charges (167) (263) (183) Reclassification of tax benefits (28) (71) (774) non-operating items (3,020) (1,070) (1,854)
◼ c o s t a c o n c o R D i a the italian cruise ship costa concordia partially sank on January 13, 2012 after hitting a reef off the italian coast and running aground at isola del Giglio, tuscany. the fleet operated by costa crociere is insured via a global insurance program, of which the allianz Group covers only a minor stake. as of today, the allianz Group expects a maximum net loss of € 20 mn.
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 october 8, 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.
◼ a l l i a n Z c o M P l e t e s a c q u i s i t i o n o f n o R w e G i a n G a s G R i D s t a k e on January 31, 2012 a consortium including the allianz Group completed the acquisition of a 24.1 % stake in the norwegian gas grid Gassled. the total value of the transaction was norwegian krone 17.35 bn (€ 2.26 bn). the stake was acquired through solveig Gas norway as, a holding company, which is 40 % owned by canada Pension Plan investment Board, 30 % by the allianz investor allianz capital Partners and 30 % by infinity investments s.a., wholly owned by the abu Dhabi investment authority.
on January 24, 2012, allianz Group, acting through allianz capital Partners, had already completed the acquisition of a 6.4 % stake in Gassled. the total value of the transaction was norwegian krone 4.639 bn (€ 606 mn).
◼ c o M M i t M e n t t o B u y D e G i s H a R e s the aberdeen immobilien kapitalanlagegesellschaft mbH announced on october 25, 2011 that the DeGi international fund will be liquidated on october 15, 2014. allianz Germany has made an offer to allianz customers (valid until february 15, 2012) to acquire their participation right at the repurchase price as of october 25, 2011 (€ 42.78). During the fourth quarter of 2011, the allianz Group recorded a loss provision to account for the difference between the offered repurchase price and the market price of as of December 31, 2011. on february 15, 2012 approximately 98 % of allianz customers accepted the offer resulting in a repurchase volume of € 679 mn. the allianz Group will recognize the purchased shares in the first quarter of 2012 as available-for-sale equity instruments.
changes in segment structure, Presentation and accounting Policies in 2011 there were no changes of the allianz Group structure. as of January 1, 2012, we have an additional business division – insurance iberia & latin america, legal & compliance, M&a – under the responsibility of Dr. Helga Jung as a new board member of allianz se. further changes to the Board of Management and their responsibilities are summarized on page 71.
g r o u p m A n A g e m e n t r e p o r t9 6 m A n A g e m e n t D i s c u s s i o n A n D A n A l y s i s iii. property-casualty insurance operations
◾ operating profit at € 4,196 mn, despite the highest ever losses from natural catastrophes.
◼ e A r n i n g s s u m m A r y
G r o s s p r e m i u m s w r i t t e n grew by € 877 mn to € 44,772 mn. on an internal basis, gross premiums increased by 2.3 %, with our crop business in the united states accounting for about half the growth.
gr ou p m an ag em en t r ep or t gross premiums written 1
G r o s s p r e m i u m s w r i t t e n increased by 2.3 % consisting of a positive volume effect of 1.5 % and a positive price effect of 0.8 %. our crop business in the united states accounted for about half the growth. the remaining increase in gross premiums – resulting mainly from south America, Agcs, the united kingdom and Australia – was partly offset by declines in our reinsurance business.
on a nominal basis, gross premiums written grew by 2.0 % – or € 877 mn – to € 44,772 mn. foreign currency translation effects had a negative impact of € 84 mn on our nominal growth, primarily because of the depreciation of the u.s. Dollar and the turkish lira against the euro, partly compensated for by the appreciation of the swiss franc and Australian Dollar 2.
Analyzing internal premium growth in terms of price and volume, we use four clusters based on 2011 internal growth over 2010: overall growth – both price and volume effects are positive.
g r o u p m A n A g e m e n t r e p o r t9 8
in the u n i t e d s t a t e s gross premiums increased to € 3,415 mn, despite unfavorable foreign currency translation effects of € 223 mn. the strong internal growth of 9.8 % stemmed from a positive volume effect from our crop business as a result of higher commodity prices. in our commercial and personal lines we saw volume losses, reflecting the continuing soft market conditions. however, tariff increases across all business lines led to an overall positive price effect of about 1.7 %.
in a u s t r a l i a gross premiums amounted to € 2,508 mn. even after adjusting for positive foreign currency translation effects of € 156 mn, we recorded robust internal growth of 8.1 %. we benefited from a significant volume increase in both retail and commercial lines through our agent and broker distribution channels. the overall price effect was positive, at around 2.1 %.
c l u s t e r 2 in a s i a - p a c i f i c gross premiums totaled € 486 mn thanks to the strong development of our malaysian operations. internal growth was 10.9 %, considering the transfers of singapore and hong kong from Asia-pacific to Agcs as well as the transfer of our china branch from germany to Asia-pacific. the negative price effect was estimated at 0.2 %.
in our c r e d i t i n s u r a n c e business, gross premiums stood at € 1,902 mn, up 7.6 % thanks to an increase in our customers’ business volumes. in the fourth quarter of 2011, however, the growth trend in these volumes slowed. overall the price effect was negative at about 4.4 % following higher rebates to our customers due to a lower claims environment.
in s p a i n gross premiums were stable at € 2,011 mn and we continued to outperform the market in a difficult economic environment. internal growth was 0.3 % accounting for a transfer of marine, aviation and transportation business to Agcs. the recessionary environment had a particularly harsh impact on our commercial lines, resulting in a negative price effect of around 2.3 %.
in i t a l y gross premiums amounted to € 3,990 mn. we achieved a slight growth of 0.1 % as strong tariff increases in our motor business and the double-digit growth of our direct channel more than offset other volume losses. our nonmotor business declined slightly as a result of the difficult business environment and our enforcement of strict underwriting rules. we estimate the overall positive price effect to be 3.4 %.
operating profit we analyze the operating profit in the property-casualty segment in terms of underwriting result, operating investment income and other result 1.
1 | consists of fee and commission income/expenses and other income/expenses as well as loan loss provisions.
u n D e r w r i t i n g r e s u l t 1 € mn € mn € mn premiums earned (net) 39,898 39,303 37,828 Accident year claims (29,580) (28,685) (27,387) previous year claims (run-off) 1,660 1,544 1,067 claims and insurance benefits incurred (net) (27,920) (27,141) (26,320) Acquisition and administrative expenses (net) (11,115) (11,044) (10,540) change in reserves for insurance and investment contracts (net) (without expenses for premium refunds) 1 (162) (119) (102)
◾ f r a n c e : 0.5 percentage points. this was largely due to the high volume of losses from natural catastrophes in 2010 as well as a positive development of large claims. furthermore, the french market is hardening, and hence we benefited from tariff increases, in particular in our personal lines.
◾ a G c s : 0.7 percentage points. within a soft market environment we recorded higher losses from natural catastrophes and large claims.
in 2011, total expenses stood at € 11,115 mn, compared to € 11,044 mn the previous year. several special effects in 2010 and 2011 accounted for the improvement of our e x p e n s e r a t i o of 0.2 percentage points to 27.9 %. the underlying trend was flat.
o p e r A t i n g i n v e s t m e n t i n c o m e 1 € mn € mn € mn interest and similar income (net of interest expenses) 3,717 3,588 3,508 operating income from financial assets and liabilities carried at fair value through income (net) 48 18 118 operating realized gains/losses (net) 21 42 57 operating impairments of investments (net) (46) (9) (75)
o p e r a t i n G i n c o m e f r o m f i n a n c i a l a s s e t s a n d l i a b i l i t i e s c a r r i e d a t f a i r v a l u e t h r o u G h i n c o m e ( n e t ) improved by € 30 mn to € 48 mn mainly due to the foreign currency result.
we recorded lower o p e r a t i n G r e a l i z e d G a i n s / l o s s e s ( n e t ) of € 21 mn compared to € 42 mn in the previous year.
1 | the “operating investment income” for our property-casualty segment consists of the “operating investment result” – as shown in note 6 of the consolidated financial statements – and “expenses for premium refunds (net)”(policyholder participation) as shown in note 34 of the consolidated financial statements.
loan loss provisions — — (18) operating impairments of investments (net) (46) (9) (75)
1 | for the property-casualty segment, total revenues are measured based upon gross premiums written. 2 | represents claims and insurance benefits incurred (net) divided by premiums earned (net). 3 | represents acquisition and administrative expenses (net) divided by premiums earned (net). 4 | represents the total of acquisition and administrative expenses (net) and claims and insurance benefits incurred (net) divided by premiums earned (net).
property-Casualty operations by Business Divisions gross premiums written premiums earned (net) operating profit (loss)
internal 1 € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn
Global Insurance Lines & Anglo Markets 15,593 15,093 13,664 15,412 15,161 11,888 11,513 10,226 1,478 1,844 1,453 middle east and north Africa 68 76 69 71 75 48 44 35 5 2 1 1 | this reflects gross premiums written on an internal basis (adjusted for foreign currency translation and (de-)consolidation effects). 2 | in 2011 Allianz China general insurance Company ltd., a former branch of Allianz Versicherungs-Ag, was transferred from germany to Asia-pacific (excl. Australia). prior year figures have not been adjusted.
3 | in november 2010 the Allianz group sold the subsidiaries Alba and phenix iart. 4 | the reserve strengthening for asbestos risks in 2011 at Allianz S.p.A., at Fireman’s Fund insurance Company and at AgCS in total of € 153 mn had no impact on the financial results of the Allianz group and the single entitites’ combined ratio under iFrS.
5 | Corporate customer business in the netherlands and Belgium as well as Allianz insurance (Hong Kong) ltd. and Allianz insurance Company of Singapore pte. ltd. were transferred to
AgCS in 2010 and 2011. prior year figures have not been adjusted.
Global Insurance Lines & Anglo Markets 96.2 92.1 94.6 68.6 64.5 67.1 27.6 27.6 27.5 middle east and north Africa 101.5 109.9 135.4 69.1 73.9 72.2 32.4 36.0 63.2
Allianz offers a broad range of life, 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. in 17 countries we are one of the market leaders based on premiums.
S T A T U T O R Y P R e m i U m S amounted to € 52,863 mn, a decrease of € 3,953 mn on an internal basis. this was almost entirely due to a drop in sales of our investment-oriented products, mainly in italy, Asia-pacific and france. we attribute this decline to the general market deterioration, low interest rates and strong competition – particularly within our banking channels with low margin products. A proportion of the premium decline is also attributable to extraordinary effects in 2010, especially in italy, the united states and the Asia-pacific region, which we did not benefit from in 2011. Despite these effects, total premiums as well as new business margin managed to remain on a high level. premiums from our traditional life/Health business were relatively stable.
1 | represents operating profit (loss) divided by the average of the current and prior year net reserves, whereby net reserves equals reserves for loss and loss adjustment expenses, reserves for insurance and investment contracts and financial liabilities for unit-linked contracts less reinsurance assets.
gr ou p m an ag em en t r ep or t statutory premiums 1 in 2011, statutory premiums amounted to € 52,863 mn, a decrease of € 3,953 mn – or 6.9 % – on an internal basis. However, our traditional business was overall stable and declined only by 0.5 % on an internal basis. growth mainly in Belgium, switzerland and central and eastern europe was not enough to compensate for the declines in other major markets such as italy, Asia-pacific, france and germany. the decline was partly an effect of the extraordinary high premium growth we had in 2010, due to new product introductions and tax incentives in certain markets, which we did not benefit from in 2011.
.1 in S O U T h A m e R i c A we reached an internal growth of 32.1 % with total premiums amounting to € 72 mn. As we do not offer investment-oriented products in this region, the growth was entirely attributable to our traditional insurance business, in particular to the good performance of a risk life product and annuities.
1 | in the following section we comment on the development of our statutory premiums written on an internal basis, i.e. adjusted for foreign currency translation and (de-)consolidation effects in order to provide more comparable information.
premiums in S w i T z e R l A n d amounted to € 1,707 mn and the internal growth was € 48 mn, or 3.3 %. the main drivers for this development were our group life business with an increase from recurring premiums and individual life business due to large single premium accounts. investment-oriented products also saw positive premium growth.
our g e R m A n life business ended the year with premiums at € 15,673 mn, a 1.8 % decline on an internal basis. while the investment-oriented business grew slightly, it was not enough to compensate for the decline in our traditional products. regular premium business increased whereas single premium business declined and was the sole reason for the overall decline in new business premiums. However, the lapse rate further declined in 2011 by 17 basis points to 4.2 %. premiums in our german health business remained stable (a decrease of 0.2 %) and amounted to € 3,204 mn. the number of individuals insured increased by 1.9 % driven by supplementary insurance products. Both in-force premiums and the number of insured persons benefited from lower lapses.
f R A n c e experienced a decrease in premiums from € 8,014 mn to € 7,705 mn, or 5.9 % on an internal basis. in line with the general market decrease in life insurance, investment contracts in partnership and individual life decreased. this can be further explained by firstly, the uncertainties regarding a potential new tax on life insurance in 2011 – which the french government finally decided not to implement. secondly, there was a trend which drove savers to invest less in life investment products in favor of short-term products with attractive yields. thirdly, 2010 benefited from promotional offers which were reduced in 2011. regarding type of premiums, single premium business declined while recurring premiums increased slightly.
premiums in the A S i A - P A c i f i c region dropped from € 6,487 mn to € 4,970 mn. on an internal basis, premiums decreased by 23.7 %, or € 1,535 mn, related to the slowing down sales in taiwan, Japan and south korea. of this, taiwan experienced a premium decline of € 889 mn, primarily attributable to high tax incentives in 2010. Also, new business sales were lower because unit-linked products were less attractive in an uncertain global economy. in Japan, premiums declined by € 735 mn due to the decision announced in september 2011 to cease writing new business in order to protect our margin. south korea had a decrease in premiums of € 168 mn as a result of the shrinking bancassurance market since new regulations were introduced in April 2011.
gr ou p m an ag em en t r ep or t operating profit
O P e R A T i n g i n c O m e f R O m f i n A n c i A l A S S e T S A n d l i A B i l i T i e S c A R R i e d A T f A i R v A l U e T h R O U g h i n c O m e ( n e T ) decreased from € 19 mn to a loss of € 866 mn. one main driver was our fair value Bond portfolio which had been sold in the united states in 2010 and reinvested in assets classified as available-for-sale (a decrease of € 419 mn compared to 2010). in addition, we were affected by lower fair values due to unfavorable market conditions in france as well as a negative effect from the united states.
O P e R A T i n g R e A l i z e d g A i n S A n d l O S S e S ( n e T ) saw a slight increase of € 63 mn and remained at a stable level of € 2,188 mn. overall, higher realized gains from equity – and to some extent real estate – were partly offset by lower realized gains from debt.
c l A i m S A n d i n S U R A n c e B e n e f i T S i n c U R R e d ( n e T ) amounted to € 20,947 mn , an increase of € 1,992 mn, due to higher payments for maturities of traditional german life products.
Acquisition and administrative expenses (net) (5,027) (5,175) (5,591) fee and commission expenses (210) (258) (246) operating restructuring charges (1) (8) (15) other expenses (76) (55) —
margin on reserves 2 in basis points 58 73 74 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 the current and prior year net reserves, whereby net reserves equals reserves for loss and loss adjustment expenses, reserves for insurance and investment contracts and financial liabilities for unit-linked contracts less reinsurance assets.
life/Health operations by Business Divisions Statutory premiums 1 premiums earned (net) operating profit (loss) margin on reserves 2 internal 3 € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn bps bps bps
Europe incl. South America 17,693 19,755 18,544 17,711 20,021 4,891 4,928 4,838 Europe incl. South America 906 997 1,169 70 78 97
m A n A g e m e n t D i s c u s s i o n A n D A n A l y s i s iii. Asset management
◼ s e g m e n t o v e r v i e w
Allianz offers Asset management products and services for third-party investors and the Allianz group’s insurance operations. we serve a comprehensive range of retail and institutional clients worldwide. we operate on a global basis with investment and distribution capacities in all major markets with particular strongholds in the united states, europe and the Asia-pacific region. Based on total assets under management we are one of the four largest asset managers in the world which manage third-party assets with active investment strategies.
the c O s t - i n c O m e r a t i O remained excellent at 59.0 %, representing a marginal 0.3 percentage points increase compared to the previous year.
Assets under management our Asset management segment continued to prove its strength even in this difficult economic environment. As of December 31, 2011, total assets under management reached a record high of € 1,657 bn, consisting of third-party assets of € 1,281 bn and € 376 bn of Allianz group assets.
market-related appreciation accounted for growth in total assets of € 61 bn. of this, fixed income contributed with € 72 bn whereas equity had a € 12 bn negative impact. total assets grew further by € 34 bn due to higher appreciation of the u.s. Dollar versus the euro in 2011 1. positive consolidation effects of € 9 bn were mainly attributable to the consolidation of two spanish entities in the third quarter.
in the following section we focus on the development of third-party assets under management.
Based on the regional split of third-party assets under management, the united states increased its share slightly by 1.1 percentage points to 63.2 %. germany decreased by 1.9 percentage points to 9.3 % mainly due to market related depreciation of equity investments and net outflows.
As a result of lower mark-to-market valuation of seed money investments and cash/cash pool assets, i n c O m e f r O m f i n a n c i a l a s s e t s a n d l i a b i l i t i e s c a r r i e d a t f a i r v a l u e t h r O u g h i n c O m e ( n e t ) recorded a loss of € 11 mn, a decrease of € 30 mn compared to 2010.
1 | Allianzgi account-based, asset-weighted three-year investment performance of third-party assets vs. benchmark including all accounts managed by equity and fixed income managers of Allianzgi. for some retail equity funds the net of fee performance is compared to the median performance of an appropriate peer group (morningstar or lipper; first and second quartile mean out-performance). for all other retail funds and for all institutional accounts, performance is calculated gross of fees using closing prices (revaluated) where appropriate and compared to the benchmark of each individual fund or account. other than under gips (global investment performance standards), the performance of closed funds/accounts is not included in the analysis. Accounts at Allianzgi investments europe, zurich Branch, and Joint-venture gtJA china, and in parts wrAp accounts, are not considered.
our c O s t - i n c O m e r a t i O increased by a marginal 0.3 percentage points and is still remarkable at 59.0 % (2010: 58.7 %).
€ mn € mn € mn management and loading fees 5,923 5,393 3,922 fee and commission income 6,592 6,054 4,440 fee and commission expenses (1,122) (1,127) (850) net fee and commission income 5,470 4,927 3,590 income from financial assets and liabilities carried at fair value through income (net) (11) 19 40
H o l D i n g & t r e A s u r y
i n t e r e s t a n d s i m i l a r i n c O m e increased by € 61 mn to € 354 mn, benefiting from higher yields and a slightly higher asset base. the increase of € 55 mn in i n t e r e s t e x p e n s e s , e x c l u d i n g i n t e r e s t e x p e n s e s f r O m e x t e r n a l d e b t had an offsetting effect, which was mainly due to growth in group internal financing and higher yields.
a d m i n i s t r a t i v e e x p e n s e s ( n e t ) , e x c l u d i n g a c q u i s i t i O n r e l a t e d e x p e n s e s , decreased by € 55 mn to € 566 mn largely due to a reduction in legal and consulting fees as well as lower pension costs due to actuarial related changes.
our n e t f e e a n d c O m m i s s i O n r e s u l t worsened by € 51 mn to a loss of € 68 mn. the buildup of our internal it service provider led to losses.
earnings summary – Banking overall, the O p e r a t i n g r e s u l t in our Banking business declined slightly by € 4 mn to € (68) mn. the reduced losses related to the disposed Banking businesses in Hungary and poland of € 55 mn were more than offset by an increase in the loan loss provisions of our ongoing businesses.
in the following section we focus on the development of our ongoing Banking businesses, excluding the disposed operations.
our n e t i n t e r e s t , f e e a n d c O m m i s s i O n r e s u l t remained stable and amounted to € 563 mn. the net interest result increased by € 25 mn to € 354 mn, due to both volume and rate effects. However, the net fee and commission result deteriorated by € 26 mn to € 209 mn.
our l O a n l O s s p r O v i s i O n amounted to € 118 mn in 2011. the increase of € 78 mn was primarily driven by the spillover effects of the financial crisis on our customers – in particular in our ship financing business.
A l l i A n z g ro u p operating profit of € 8.0 bn, plus or minus € 0.5 bn. operating profit of € 7.9 bn. u.s. Dollar exchange rate of 1.40 on average. u.s. Dollar exchange rate of 1.39 on average. protection of both capital and solvency position. regulatory solvency ratio improved to 179 % (173 % in 2010).
AA standard & poor’s rating maintained but with negative outlook. protection of the investments of our shareholders while continuing to provide attractive returns and dividends.
return on equity after income taxes of 5.7 % (2010: 11.9 %) impacted by lower net income but proposed dividend of € 4.50 (2010: € 4.50) per share even in a tough year.
investment strategy focused on generating attractive returns and on minimizing vulnerability to price fluctuations.
operating profit in the range of € 4.2 bn to € 4.8 bn. operating profit of € 4.2 bn, at the lower end of our target range, mainly due the highest claims from natural catastrophes we have ever recorded.
commitment to our combined ratio target of 96 %. combined ratio increased by 0.6 percentage points to 97.8 %, due to higher than expected claims from natural catastrophes.
Decrease of large claims from natural catastrophes to long-term average levels.
pressure on investment income due to the short duration of investments in this segment combined with the low interest rate environment. continuous striving to adapt our investment strategy to the market conditions.
operating investment income increased by 5.5 % to € 3,394 mn.
A s s e t m A n A g e m e n t continuation of inflows in 2011, especially into fixed income products, at an overall lower level compared to 2010.
operating profit in the range of € 1.8 bn to € 2.2 bn. operating profit of € 2.3 bn due to strong growth in assets under management and high performance fees.
1 | for more detailed information on the prior year outlook for 2011, please see the Annual report 2010, starting on page 99.
gr ou p m an ag em en t r ep or t economic outlook following a dip in late 2011 and early 2012, the world economy is likely to regain some momentum as the year progresses. global output is expected to grow moderately by 2.8 % in 2012 and by 3.3 % next year (2011: 2.8 %). on both sides of the Atlantic, public and private sector efforts to adjust to high debt levels will continue to restrain economic activity. monetary policy, however, is still very accommodative in the united states, Japan and europe and favorable financing conditions are providing economic impetus for private households and the corporate sector. monetary tightening is unlikely to materialize before 2013 in the eurozone. in the united states it might take even longer. the emerging markets remain a key driver of global growth and their importance in the world economy continues to rise. We expect emerging markets to grow by 5.3 % this year and 5.9 % next year.
As the global economy recovers during 2012 and 2013, we expect growth in the insurance industry to pick up too. throughout the period we anticipate that industry growth in emerging markets will remain robust and outpace industrialized markets.
in the n o n - l i f e sector, we anticipate that prices – which slowly increased in 2011 – will continue to rise during 2012 and 2013. typically, these cyclical trends tend to be fairly robust and are only loosely linked with the economic and financial environment. this momentum is being driven by a combination of underwriting losses caused by years of under-pricing and heavy catastrophe losses in 2010 and 2011, a less favorable development related to claims reserves and lower investment yields. in addition, we expect demand to be stronger with the introduction of new catastrophe models in the united states and europe, a pick-up in economic growth and increased penetration of insurance policies in emerging markets. overall, we expect underwriting margins to expand moderately in 2012 and 2013 while also anticipating that the delayed effects of the lingering soft market, which includes significant under-pricing, will manifest itself unevenly across individual companies.
in the l i f e sector, we expect relatively low interest rates to continue, limiting sales and profitability in mature markets, but growth in emerging markets is expected to remain robust. At the product level, traditional offerings will be less favored by insurers due to the high cost of providing guarantees and stringent capital requirements. competition with banks in the short-term savings market is also expected to remain intense - to the detriment of bancassurance life sales. if low interest rates continue as anticipated, we also envisage that the life business mix will continue to slowly evolve towards more profitable unit-linked and protection business. As this shift takes place we expect new business profitability and the quality of earnings to improve.
As discussed earlier in this section, the economic upswing will continue but at a measured pace, and we look set to enter a period of moderate global economic growth. Despite the fairly strong global recovery, there are of course risks for 2012 and beyond. the outlook provided here assumes that there is only a limited impact of severe shocks such as major geopolitical tensions, sovereign debt crises in large industrial countries or currency and trade wars.
A l l i A n z g ro u p operating profit of € 8.2 bn, plus or minus € 0.5 bn. Assuming a u.s. Dollar exchange rate of 1.36 on average. protect capital, solvency ratios and the investments of our shareholders. We protect the investments of our shareholders and rather miss an opportunity than to risk losing money in terms of our investments. We continue to strengthen our drive for profitable growth.
p ro p e r t yc A s uA lt y gross premiums written are expected to grow slightly, in a range of 2.0 % to 3.0 %, driven by positive price and volume effects. We expect an operating profit in the range of € 4.0 bn to € 5.0 bn. 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 the 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.
We expect our business mix and profitability contributions to remain unchanged: our property-casualty business will continue to contribute the majority of our operating profit. However, we anticipate that some positive and negative effects observed in 2011 will not recur in 2012 and beyond. Although the global economy has made a recovery over the last year, investment results are likely to remain under pressure due to low interest rates. this will be partially offset by better operational performance in the business segments and a growth-driven increase in our asset base. given the magnitude of mark-to-market valuations in our profit and loss account, a precise prediction of net income for the year 2012 and beyond is not possible at this point.
management’s Assessment of expected earnings and revenues for 2012 in 2011, our total revenues decreased slightly to € 103.6 bn, a 2.1 % decline on an internal basis compared to 2010. While revenues still exceeded 2009 levels, life/Health revenues specifically reflected the current financial instability’s effect on desires for investment oriented products and, to a certain extent, the trade-off between volume and margins in 2011. ultimately, the level of total revenues will depend on market cycles, financial market developments and our ability to exploit new business opportunities, as described in the opportunities section.
given the inherent uncertainties described above and the susceptibility of our non-operating results to adverse capital market developments, we do not provide an outlook for net income. However, since our outlook presumes no further disruptions of capital markets, we would nevertheless expect some rebound from the low net income level experienced in 2011.
Against this background, we expect for 2012 an operating profit of € 8.2 bn plus or minus € 0.5 bn, assuming no significant deviations from the assumptions stated here and the segment-specific sensitivities mentioned below. this range is driven by operating profit sensitivities to changes in interest rates and foreign exchange rates: ◾ A 100 bps increase (decrease) of interest rates would boost (reduce) operating profit by approximately € 0.2 bn. this does not include fair value changes in interest rate sensitive positions that are reported in our income statement.
p r o p e r t y- c A s u A lt y i n s u r A n c e gross premiums written are expected to grow moderately in 2012 in a range of 2.0 % to 3.0 % supported by favorable price and volume effects. for 2013, we expect top line growth to further speed up. this planned development indicates that the positive growth we experienced in 2011 is expected to accelerate (based on internal growth).
We remain committed to our combined ratio target of 96 %. We expect that in 2012 we will make further progress towards this target as the aggregate effect of improvements in pricing, claims management and productivity gains will more than compensate for underlying claims inflation. A 1.0 percentage point change in the combined ratio would have an impact of around € 0.4 bn on our 2012 result. it is important to recognize that investment income will remain under pressure due to the rather short duration of investments in the property-casualty segment and the low interest rate environment. nevertheless we continuously strive to adapt our investment strategy to the current market conditions.
l i f e / H e A lt H i n s u r A n c e revenues dropped in 2011 by € 4.2 bn to € 52.9 bn, in particular driven by germany, italy, france and Asia-pacific after an extraordinary high level in 2010. revenues in 2011 suffered from the low interest rate environment and the challenging markets in general. furthermore, our focus on achieving adequate margins has resulted in a shift towards higher margin and recurring premium business. As we expect the difficult market conditions to persist, we forecast the revenue level in 2012 to remain stable. We expect premiums to moderately increase in 2013 driven by both traditional as well as investment-oriented products.
operating profit of € 2.4 bn was substantially impacted by the extreme market developments in 2011 and was at the lower end of the targeted range of € 2.2 bn to € 2.8 bn. We expect operating profit in our life/Health business to again be in the range of € 2.2 bn to € 2.8 bn in 2012 and a moderate increase in 2013 consistent with the underlying growth in our asset base. the investment result for 2012 is expected to improve compared with 2011. We will continue to take action in 2012 in response to the challenging market environment, particularly low interest rates. this includes product and pricing actions, expense management, asset/liability management and capital optimization. still , it must be noted that market volatility and the level of net harvesting can significantly affect the life/Health segment results and make a precise prediction of results difficult.
in 2012 we expect net inflows from fixed income products to continue; in addition we expect net inflows in equity products to pick up subject to capital market development. Assuming favorable market developments and investor sentiment in 2012 and 2013, a further moderate increase of total net inflows is expected for 2013.
We expect to maintain a cost-income ratio well below 65 % in 2012 and 2013.
the Allianz group maintains a healthy liquidity position combined with a capitalization well above what supervisory authorities currently require, and superior financial strength and stability. We expect to have steady access to the financial markets at reasonable costs in order to maintain our strong financial flexibility. this will be supported by prudent steering of our liquidity resources and a maturity profile focusing on a long-dated average remaining term. Based on our current expectations of interest rates, our average capital market financing costs in 2012 should be broadly in line with the previous year.
Due to our effective capital management, which is supplemented 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 operating entity level and we will continue to further strengthen our capital and solvency positions. As a consequence, we will continue to selectively de-risk our peripheral counterparty and sovereign exposures and take actions to reduce our net exposure to volatile equity investments. Additionally, we will optimize our interest rate and spread sensitivities through asset-liability management and life product design. moreover, we will continue focusing our investments on businesses with strong cash returns or lower tail risks.
As we continuously strive to both protect our investors’ capital and provide attractive returns and dividends, we strike a balance between payout and solvency when determining our dividend proposal. our dividend policy is net earningsbased in principle and since 2008 our dividend payout ratio has been 40 % of net income attributable to shareholders from continued operations. this ratio allowed us to retain the capital which was needed to support our growth and provide an attractive dividend.
given the effects of the volatile environment on our 2011 results, striking the right balance was more difficult. Although our net results were not immune from the ongoing crisis, our operating performance and capital position remained strong. As such, we are proposing to the Annual general meeting that a dividend of € 4.50 per share be distributed to shareholders, the same amount as in the previous year. However, given the uncertainties for 2012 as described above, it is not possible to predict how the dividend might develop in the near term. Although we may re-visit the sustainability of the principles around a net earnings based payout ratio, we currently would expect that a net earnings based payout ratio would resume as the crisis resolves itself and the underlying strength of our operating performance is better reflected in our net results.
Based on current estimates we expect our 2013 operating profit to improve and to be driven again by positive contributions from all operating segments.
However, due to the volatile economic environment, it is difficult to make concrete predictions concerning our net income development.
As always, natural catastrophes and adverse developments in the capital markets, as well as factors stated in our cautionary note regarding forward-looking statements, may adversely affect the results of our operations.
gr ou p m an ag em en t r ep or t management’s views on future challenges and opportunities it is essential that we maintain and strengthen the trust our customers, employees, investors and the public, place in us. By consistently following our group strategy, we are confident that the Allianz group is in a privileged position to build on this trust and deal with the myriad challenges and opportunities ahead.
While many of these challenges and opportunities are specific to our segments, business lines or markets, there are many issues that are global and cross-business in nature. Allianz is evaluating the potential impacts and interdependencies as these trends cannot be viewed in isolation. the future key challenges and opportunities, as we see them, are outlined below.
While current financial turbulence may primarily be driven by the european sovereign debt and banking crisis, the pressure on the insurance sector as a whole is increasing with regulation to become much more demanding for insurers. low interest rates primarily impact the life insurance sector (due to financial guarantees to customers), while ongoing economic uncertainties and high market volatilities are challenging in general. We therefore see a continued pressure on insurers’ balance sheets well into the future.
to date, the Allianz group has developed more than 80 products and services that help mitigate climate change or take its environmental impact into account. As the world becomes more aware of the anthropogenic contribution to climate change, the increasing popularity of renewable energy and other “green” investment products is likely to gain more momentum. our Asset management products already include funds that invest in renewable energies, green technology and companies that are sustainably managed. moreover, by implementing a sustainable, long-term carbon neutralization strategy alongside our internal carbon emission reduction measures, carbon investments are not just a means of voluntary neutralization, but also a viable business case for us.
a C C e s s t o f i n a n C e : We also see a continued shift of economic power to emerging markets with china, india and other Asian economies currently driving global economic growth. for Allianz, this increases the attractiveness of these markets. An estimated 2.6 bn people live on a daily income of between usD 1.25 and 4 per day. poor people are more severely affected by natural disasters, accidents and illness. they also lack the opportunity to save or to take out insurance to hedge against these threats. Allianz offers a variety of microinsurance products to more than two million customers. microinsurance can be profitable, although at a lower margin rate than traditional business. making low-income customers familiar with the concept of insurance should pay off over the years as these customers move up the economic ladder.
However, increasing international regulatory harmonization will also create a level playing field; this will facilitate access to new markets and business segments even though the impact will only be in the longer term.
C o m p l e x i t y r e d u C t i o n : Also driven by increasing regulation and reporting requirements we continue to reduce the complexity of our business, supported by our Allianz operating model that standardizes business processes and organizational structures in our insurance segments. in parallel, we fight entropy with a group-sponsored initiative to reduce the number of legal entities, especially insurance carriers, in Western europe.
clear roles and responsibilities as well as processes involving all stakeholders ensure that identifying opportunities, evaluating their potential and driving promising ideas to implementation becomes an institutionalized part of our business. market management, for example, is responsible for developing and constantly evolving the local market strategy linking clear objectives with customer, sales channel, product, service and brand strategies.
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 standing 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.
in addition to strategic approaches and knowledge sharing, major sources of opportunities stem from customer interaction and employees’ ideas. processes and tools are in place to systematically leverage these two important areas of insight. for example, Allianz conducts well over one million calls every year to collect feedback from customers at critical points of interaction. the feedback is systematically analyzed to improve business processes and make the customer’s voice heard throughout the organization.
s t r At e g i c i n v e s t m e n t s the implementation of strategy and seizing of opportunities, however, requires a commensurate investment in providing the requisite tools and platforms.
Allianz systematically leverages the opportunities of an increasingly global and digital environment. Allianz strives to further improve its it efficiency ratio, while successfully addressing changing customer behaviors and needs as well as increasing each employee’s productivity.
the company is investing approximately € 350 mn into the digitalization of the business. Allianz group supports the operating entities by building reusable group assets. As one example “oneWeb” is a cost-efficient Web interaction solution, which delivers an outstanding user experience across all digital devices. “oneWeb” enables customers, agents and employees to communicate, access customer data and enter claims digitally. “oneWeb” enables quick and easy local customization to address the needs of the local business, while keeping the integrity of common core elements across all local implementations. the first operating entities are already live on “oneWeb”, while others will follow in 2012 and 2013. A second key digitalization example is Allianz’s continued investment to implement its global core insurance platform strategy. flexible, reusable and adaptable components allow for local customization while leveraging economies of scale and skill for the entire group and accelerating time-to-market.
since 2008 Allianz has focused significant resources to further developing its global it architecture to support its approach to risk management. the completion of the technical platforms to calculate its risk and solvency positions is well on-track and Allianz group already benefits from improved data quality and enhanced analytical capabilities. While significant effort will be required in 2012 and 2013 to finalize its solvency ii program, Allianz group is well prepared to satisfy all regulatory requirements.
Cautionary note regarding forward-looking statements the statements contained herein may include prospects, future expectations and other forward-looking statements that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those expressed in such forward-looking statements. such deviations may arise, without limitation, because of changes in the general economic condition and competitive situation, particularly in the Allianz group’s core business and core markets or the impact of acquisitions, related integration issues and reorganization measures. Deviations may also arise from the frequency and severity of insured loss events, including natural catastrophes, and from the development of loss expenses, mortality and morbidity levels and trends, persistency levels, and particularly in our banking business, the extent of credit defaults. in addition, the performance of the financial markets (particularly market volatility, liquidity and credit defaults) as well as changes in interest rate levels, currency exchange rates and changes in national and international laws and regulations, particularly tax regulation, may have a relevant impact. many of these factors may be more likely to occur, or more pronounced, as a result of terrorist activities and their consequences. the company assumes no obligation to update any forwardlooking statement.
◾ strong solvency ratio increased from 173 % to 179 %.1 shareholders’ equity 2 12/31/201012/31/2009 12/31/2011
as of December 31, 2011, s h a r e h o l d e r s ’ e q u i t y amounted to € 44,915 mn, an increase of € 424 mn compared to December 31, 2010. net income attributable to shareholders contributed € 2,545 mn. in addition, foreign currency translation effects improved by € 343 mn to € (1,996) mn, primarily due to the strengthening of the u.s. Dollar. 4 these increases were partially offset by dividend payments of € 2,032 mn. Furthermore, unrealized gains decreased by € 431 mn, driven by both realizations and market developments. lower interest rates led to an increase in unrealized gains on bonds. this was more than offset by lower unrealized gains on equities, which was mainly attributable to negative developments on equity markets.
3 | this includes foreign currency translation effects of € (1,996) mn, € (2,339) mn and € (3,626) mn as of December 31, 2011, December 31, 2010 and December 31, 2009, respectively. 4 | Based on the closing rate on the respective balance sheet dates.
Requirement 12/31/2010 the conglomerate solvency ratio 2 has strengthened by 6 percentage points to 179 % since the end of 2010. as of December 31, 2011, the Group’s eligible capital for solvency purposes amounted to € 42.6 bn (2010: € 39.6 bn), including an off-balance sheet reserve of € 2.2 bn (2010: € 2.1 bn). the increase of € 3.0 bn was mainly driven by the issuance of € 2.5 bn of subordinated debt and our net income of € 2.5 bn (net income net of proposed dividends: € 0.5 bn). the required funds increased by € 0.9 bn to € 23.8 bn mostly due to higher aggregate policy reserves in our life/health segment. as a result, our eligible capital remains strong, surpassing the minimum legally stipulated level by € 18.8 bn.
as of December 31, 2011, total assets amounted to € 641.5 bn and total liabilities were € 594.2 bn. when compared to year-end 2010, total assets and total liabilities increased by € 16.5 bn and € 15.8 bn, respectively.
this section mainly concentrates on our financial investments (debt instruments, equities, real estate, cash and other), since our own property and equipment had little effect on the balance sheet.
F i n a n c i a l m a r k e t s were very volatile in 2011, especially in the second half of the year. almost all major international equity indices dropped sharply in 2011. economic uncertainties also drove German and u.s. government bond yields to low levels, in particular in the third and fourth quarter. overall, c r e d i t s p r e a d s for less well-rated debtors widened in the united states and europe.
10-year German government bond 10-year U.S. government bond s t R u c t u R e o F i n v e s t M e n t s – p o R t F o l i o o v e R v i e w the allianz Group’s investment portfolio is mainly determined by our core business of insurance. the following asset allocation covers the insurance segments and the corporate and other segment.
Allianz Group's investment portfolio as of December 31, 2011: � 461.1 bn [as of December 31, 2010: � 444.9 bn]
our gross exposure to e q u i t i e s decreased from € 33.0 bn to € 28.8 bn, mainly due to market developments. our equity gearing – a ratio of our equity holdings allocated to the shareholder after policyholder participation and hedges to shareholder’s equity plus off-balance sheet reserves less goodwill – decreased from 37 % to 31 %.
the vast majority of our investment portfolio is made up of d e b t i n s t r u m e n t s . our investments in this asset class increased from € 395.6 bn to € 416.5 bn, to a large extent based on reinvested interest flows. our exposure in this asset class was well diversified, with more than 60 % in government and covered bonds. in line with our operating business profile, 64 % of our fixed income portfolio was invested in eurozone bonds and loans. about 94 % of our portfolio of debt instruments 2 was invested in investment-grade bonds and loans.
Total fixed income portfolio as of December 31, 2011: � 416.5 bn [as of December 31, 2010: � 395.6 bn]
1 | this does not include our banking operations. 2 | excluding self-originated German private retail mortgage loans. please refer to our Risk Report on page 165 for a description of our debt portfolio composition by ratings.
our portfolio included asset-backed securities (aBs) of € 19.9 bn, of which more than 80 % were related to mortgagebacked securities (MBs). around 26 % of our aBs securities are made up of MBs issued by u.s. agencies and backed by the u.s. government. overall, 96 % of the total aBs-portfolio received an investment grade rating, with 84 % rated “aa” or better.
as a result of our growing asset base – mainly within the life/health segment – i n t e r e s t a n d s i m i l a r i n c o m e
( n e t ) 4 increased by € 1,078 mn to € 19,984 mn.
1 | Before policyholder participation and taxes. 2 | after policyholder participation and taxes; based on December 31, 2011, balance sheet figures reflected in accumulated other comprehensive income. 3 | after impairments. 4 | net of interest expenses (excluding interest expenses from external debt).
i n v e s t m e n t e x p e n s e s ( n e t ) slightly increased to € 852 mn.
a s s e t s a n D l i a B i l i t i e s o F t h e p R o p e R t y- c a s u a lt y s e G M e n t
◼ p R o p e R t y - c a s u a l t y a s s e t s in 2011, our property-casualty asset base amounted to € 98.3 bn, an increase of € 1.0 bn. the decreases in equity investments and cash and cash pool assets were more than compensated for by higher debt securities.
◼ p R o p e R t y - c a s u a l t y l i a B i l i t i e s
D e v e l o p M e n t o F R e s e R v e s F o R l o s s a n D l o s s a D J u s t M e n t e x p e n s e s 1 | in € bn
Foreign currency translation adjustments and other changes, changes in the consolidated subsidiaries of the Allianz Group and reclassifications
◼ l i F e / h e a l t h a s s e t s in 2011 the life/health asset base grew by 2.6 % to € 428.4 bn. of this total, € 63.5 bn were financial assets for unit-linked contracts. overall, our debt investments increased by € 16.8 bn to € 229.6 bn, primarily due to reinvested interest inflows. equities were down by 9.4 % to € 22.1 bn, mainly driven by market developments. cash and cash pool assets decreased slightly to € 6.0 bn.
2 | this comprises assets of € 1.9 bn and € 1.0 bn and liabilities (including the market value liability option) of € (6.3) bn and € (4.9) bn as of December 31, 2011 and December 31, 2010, respectively. 3 | these do not include affiliates of € 1.4 bn and € 1.6 bn as of December 31, 2011 and December 31, 2010, respectively.
M a n a G e M e n t D i s c u s s i o n a n D a n a l y s i s within our life/health asset base, aBs amounted to € 15.6 bn as of December 31, 2011. this represents 3.6 % of total life/health assets.
F i n a n c i a l a s s e t s F o R u n i t - l i n k e D c o n t R a c t s | in € bn 12/31/2010 C
◼ l i F e / h e a l t h l i a B i l i t i e s
◼ a s s e t M a n a G e M e n t l i a B i l i t i e s liabilities in our asset Management segment increased by € 1.3 bn to € 5.7 bn, due to growth in Group internal financing.
a s s e t s a n D l i a B i l i t i e s o F t h e c o R p o R at e a n D o t h e R s e G M e n t
5 | For further information on allianz se debt as of December 31, 2011, please refer to the liquidity and Funding Report and to notes 23 and 24 of our consolidated financial statements.
M a n a G e M e n t D i s c u s s i o n a n D a n a l y s i s off-Balance sheet arrangements 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 offbalance sheet arrangements as a significant source of revenue or financing, our off-balance sheet exposure to loss is immaterial relative to our financial position.
the allianz Group has investments in seven special purpose vehicles. please refer to note 5 of our consolidated financial statements for more details on such investments and to note 45 for more details on our collateralized debt obligations.
please refer to the Risk Report from page 149 onwards for a description of the main concentrations of risk and other relevant risk positions.
liquidity management of our operating entities i n s u r A n c e o p e r At i o n s the principal sources of liquidity for our operational activities include primary and reinsurance premiums earned, reinsurance receivables collected, as well as investment income and proceeds generated from the maturity or sale of investments. those funds are mainly used to pay property-casualty claims and related expenses, life policy benefits, surrenders and cancellations, acquisition as well as other operating costs.
B A n k i n g o p e r At i o n s the primary sources of liquidity in our banking operations include customer deposits, interbank loans and interest and similar income from our lending transactions. the major uses of funds are investments in fixed income securities and the issuance of new loans. the liquidity of our banking operations is largely dependent on the ability of our private and corporate customers to meet their payment obligations arising from credit lines and other outstanding commitments. equally important is our ability to retain the deposits provided by our customers.
Allianz se is responsible for identifying the Allianz group’s liquidity needs and maximizing the access to funding sources while minimizing borrowing costs.
Allianz se ensures adequate access to liquidity and capital for our operating subsidiaries. the main sources of liquidity available are dividends received from subsidiaries and funding provided by capital markets. We define liquidity resources as assets that are readily available – namely cash, money-market investments as well as 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. Allianz group’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.
F u n D i n g s o u r c e s the financial sources available to Allianz se in the capital markets for both short- and long-term funding needs are described below. in general, mid- to long-term financing is covered by issuing senior or subordinated bonds, or by issuing ordinary shares.
As of December 31, 2011, the issued capital registered at the commercial register was € 1,165,568,000 divided into 455,300,000 registered shares with restricted transferability. As of December 31, 2011, Allianz se held 2,754,556 (2010: 2,832,789) own shares.
Allianz se has the option to increase its equity capital base according to authorizations provided by our shareholders. the following table outlines Allianz se’s capital authorizations as of December 31, 2011: c A p i t A l A u t h o r i z A t i o n n o m i n A l A m o u n t e x p i r y D A t e o F t h e A u t h o r i z A t i o n
please refer to page 34 regarding authorizations to issue and repurchase shares.
◼ l o n g - t e r m D e B t F u n D i n g
As of December 31, 2011, Allianz se had senior and subordinated bonds in a variety of maturities outstanding reflecting our focus on long-term financing. As the cost and availability of external funding may be negatively affected by general market conditions or by matters specific to the financial services industry or the Allianz group, we seek to mitigate refinancing risk by actively steering the maturity profile of our funding structure.
interest expenses on senior bonds were almost stable amounting to € 262.5 mn (2010: € 262.2 mn); for subordinated bonds they increased to € 624.2 mn (2010: € 543.8 mn) driven by additional volumes raised in 2011.
Authorizations of the Board of management to issue and repurchase shares
As of December 31, 2011 2010 nominal value carrying value interest expense
the table below details the long-term debt issuances and redemptions of Allianz se during the full years 2011 and 2010: As of December 31, 2011 2010 issuances 2 redemptions 2 issuances net of redemptions issuances 2 redemptions 2 issuances net of redemptions senior bonds — — — — — —
◼ s h o r t - t e r m D e B t F u n D i n g short-term funding sources available are the medium-term note programme and the commercial paper programme.
As of December 31, 2011, Allianz se had money market securities outstanding with a carrying value of € 1,119 mn: a € 672 mn decrease in the use of commercial paper compared to the previous year-end. interest expenses on money market securities decreased to € 13.0 mn (2010: € 13.9 mn) due to lower volumes outstanding with higher short-term interest rates having an almost offsetting effect.
1 | For further information on Allianz se debt (issued or guaranteed) as of December 31, 2011, please refer to notes 23 and 24 of our consolidated financial statements. 2 | Based on nominal value.
2 | senior bonds provide for early termination rights in case of non-payment of amounts due under the bond (interest and principal) as well as in case of insolvency of the relevant issuer or, if applicable, the relevant guarantor ( Allianz se). the same applies to one subordinated bond issued in 2002.
3 | the terms of the subordinated bonds (except for the one subordinated bond mentioned in footnote 2 above) do not explicitly provide for early termination rights in favor of the bond holder. interest payments are subject to certain conditions which are linked, inter alia, to our net income, and may have to be deferred. nevertheless, the terms of the relevant bonds provide for alternative settlement mechanisms which allow us to avoid an interest deferral using cash raised from the issuance of specific newly issued instruments.
interest expense in 5.625 % bond issued by Allianz Finance ii B.V., Amsterdam Volume € 0.9 bn year of issue 2002 maturity date 11/29/2012 interest expense € 50.6 mn 5.0 % bond issued by Allianz Finance ii B.V., Amsterdam Volume € 1.5 bn year of issue 2008 maturity date 3/6/2013 isin De 000 A0t r7k 7 interest expense € 76.3 mn 4.0 % bond issued by Allianz Finance ii B.V., Amsterdam Volume € 1.5 bn year of issue 2006 maturity date 11/23/2016 interest expense € 62.1 mn 4.75 % bond issued by Allianz Finance ii B.V., Amsterdam Volume € 1.5 bn year of issue 2009 maturity date 7/22/2019 isin De 000 A1A khB 8 interest expense € 73.5 mn Total interest expense for senior bonds € 262.5 mn 6.125 % bond issued by Allianz Finance ii B. V., Amsterdam Volume € 2.0 bn year of issue 2002 maturity date 5/31/2022 interest expense € 112.4 mn 6.5 % bond issued by Allianz Finance ii B. V., Amsterdam Volume € 1.0 bn year of issue 2002 maturity date 1/13/2025 interest expense € 66.3 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 interest expense in 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 5.375 % bond issued by Allianz Finance ii B. V., Amsterdam Volume € 0.8 bn year of issue 2006 maturity date perpetual Bond isin De 000 A0g npz 3 interest expense € 43.6 mn 8.375 % bond issued by Allianz se Volume usD 2.0 bn year of issue 2008 maturity date perpetual Bond interest expense € 132.1 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 € 95.2 mn Total interest expense for subordinated bonds € 597.6 mn 7.25 % bond issued by Allianz Finance ii B. V., Amsterdam Volume usD 0.5 bn year of issue 2002 maturity date perpetual Bond interest expense € 11.3 mn
N e T c a s h f l o w p r o v i d e d b y o p e r a T i N g a c T i v i T i e s amounted to € 16.6 bn, up by € 1.2 bn compared to the previous year. net cash flow provided by operating activities is comprised of net income plus adjustments for non-cash charges, credits and other items included in net earnings and cash flows related to the net change in operating assets and liabilities. net income after adding back non-cash charges and similar items, which were driven by a higher level of impairments for our available-for-sale investments, rose from € 8,501 mn in 2010 to € 9,646 mn in 2011 representing an increase of € 1,145 mn. there was a slight growth in operating cash flows from the net change in operating assets and liabilities from € 6,913 mn in 2010 to € 6,996 mn in 2011. this was mainly driven by higher allocations to reserves for loss and loss adjustment expenses in our property-casualty business, mainly in germany and the united states. We also recorded net cash inflows from financial assets and liabilities held for trading. lower reserves for insurance and investment contracts from our life/health business, especially in germany and France and higher net changes from our operating receivables/payables, offset these positive effects.
N e T c a s h o u T f l o w u s e d i N i N v e s T i N g a c T i v i T i e s decreased by € 2.5 bn to € 17.0 bn in 2011. this was, to a large extent, due to lower net cash outflows for available-for-sale investments at the holding company and in our life/ health operations in the united states, germany and italy. the decrease was partially offset by higher net cash outflows from loans and advances to banks and customers, particularly at the holding company. moreover, we recorded lower net cash inflows from financial assets designated at fair value through income , especially at our life/health operation in the united states.
N e T c a s h i N f l o w p r o v i d e d b y f i N a N c i N g a c T i v i T i e s amounted to € 2.0 bn in 2011, compared to € 4.5 bn in 2010. net cash inflows from policyholders’ deposits and withdrawals, especially from our life/health businesses in italy, France and germany, fell as a result of the general market decline. Additionally we recorded higher dividend payments to shareholders. lower repayments from our refinancing activities 3 partly offset these effects.
composition of total Revenues 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).
Corporate and Other Total revenues (Banking) 567 587 517 consisting of: interest and similar income 734 683 708 income from financial assets and liabilities carried at fair value through income (net) (2) 1 17 Fee and commission income 430 445 389
We believe that an understanding of our total revenue performance is enhanced when the effects of foreign currency translation as well as acquisitions and disposals (or “changes in scope of consolidation”) are separately analyzed. accordingly, in addition to presenting “nominal growth”, we also present “internal growth”, which excludes these effects.
R i s k R e p o R t a n D F i n a n c i a l c o n t R o l iii. Risk Report
Management's assessment on Risk profile a l l i a n z G R o u p the allianz Group’s management feels comfortable with the Group’s overall risk profile and has confidence in the effectiveness of the Group’s risk management framework to meet the challenges of a rapidly changing environment as well as day-to-day business needs. this confidence is based on several factors which are outlined in more detail in the sections below. they can be summarized as follows: the allianz Group is well capitalized and is comfortably meeting its internal and regulatory solvency targets as of December 31, 2011. standard & poor’s affirmed our aa ratings in January 2012, while reducing the outlook to “negative” due to the impact of the capital market developments in the second half of 2011. With this rating, allianz remains one of the highest-rated insurance groups with regards to its creditworthiness.
the Group’s management also believes that allianz is well positioned to deal with potential future adverse events, in part due to our internal limit framework which limits the impact of adverse developments on our regulatory and economic solvency ratios. similarly, the Group’s net exposure to natural catastrophes is also limited and remains within our risk appetite. the Group’s management is confident that, through this risk appetite, we have achieved an appropriate balance between potential earnings, earnings volatility and solvency considerations.
Finally, the Group has the additional advantage of being internationally diversified, key for competing in the insurance industry, with a conservative investment profile and disciplined business practices in the P r o P e r t y - C a s u a l t y , l i f e /
H e a l t H and a s s e t M a n a g e M e n t segments.
Greece ireland italy portugal spain € bn € bn € bn € bn € bn i n s u R a n c e a c t i v i t i e s of which property-casualty 0.1 0.7 4.0 0.3 2.0 of which life/Health 0.1 0.0 6.9 0.2 1.0
Greece ireland italy portugal spain € bn € bn € bn € bn € bn of which property-casualty 0.1 0.1 3.7 0.2 1.1 of which life/Health 0.2 0.3 22.0 0.4 3.8 of which held domestically 24.7 % 41.3 % 74.6 % 38.8 % 63.1 %
◼ o t H e R s i G n i F i c a n t F a c t o R s although details of the future regulatory requirements, especially related to solvency ii and systemically relevant financial institutions, are becoming clearer, the final rules are still evolving. this creates some uncertainties in terms of ultimate capital requirements and business implications. Due to the “market consistent” valuation of both assets and liabilities, the solvency ii regime is expected to lead to a higher volatility of regulatory capital requirements compared to solvency i especially with regard to long-term asset accumulation and savings products in the life insurance segment. therefore, product designs, investment strategies and hedging programs may be gradually adopted throughout the industry to mitigate this volatility.
Depending on the individual investment strategy, a continuation of the low interest rate environment may create challenges for some life insurance companies, especially in delivering sufficient investment income to meet policyholders ’ future expectations and the long-term guarantees embedded in individual life insurance products. at the same time, the industry may have to deal with expectations of higher interest rates due to the potential for inflation, resulting in a precarious interest rate balancing act.
in the following sections, we provide an overview of the allianz capital and risk management frameworks, which allow the allianz Group to effectively manage its risks.
We closely monitor the capital positions on the Group and operating entity level and apply regular stress tests based on standard adverse scenarios. this allows us to take appropriate measures to ensure the continued strength of capital and solvency positions.
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
R e G u l at o R y c a p i ta l a D e q u a c y the allianz Group is a financial conglomerate within the scope of the e.u. Financial conglomerates Directive and related German law. the law requires that a financial conglomerate calculate the capital available to meet its solvency requirements on a consolidated basis, which we refer to as “eligible capital”. currently, the requirements for our insurance business within the conglomerate solvency are based on solvency i. the capital requirements and definition of eligible will be replaced by the solvency ii rules, once solvency ii becomes binding. also the calculation of the eligible capital for the conglomerate solvency will be changed due to the solvency ii introduction.
e x t e R n a l R at i n G a G e n c y c a p i ta l a D e q u a c y
Rating agencies apply their own models to evaluate the relationship between the required risk capital of a company and its available capital resources. the assessment of capital adequacy is usually an integral part of the rating process. Meeting rating agencies’ capital requirements and maintaining strong credit ratings are strategic business objectives of the allianz Group.
Following a review in January 2012, the allianz Group’s aa rating was affirmed by standard and 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 implications. in addition, as a consequence of the european debt crises aM Best placed the a+ Rating under review with negative implications. Despite the rating action 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.
the overview below presents selected ratings, assigned to allianz se by major rating agencies.
insurer financial strength rating aa negative outlook (outlook changed Jan 27, 2012)
a+ 2 under review with negative implications (changed Dec 14, 2011)
Internal risk capital overall, our internal model solvency ratio deteriorated from 166 % to 143 %. this was due to two factors: First, a decrease in available capital which was mainly driven by a decrease in present value of future profits of in-force business and, second, due to higher internal risk capital requirements, both of which were largely caused by lower interest rates, lower equity market levels and higher credit spreads.
Detailed discussions of movements are provided in the sections specifically related to the risk categories.
While internal risk capital as an economic solvency measure focuses on extreme events according to a confidence level of 99.97 % over a holding period of one year, we also monitor risk indicators representing possible economic value impacts that would be more “tangible” or likely. specifically we monitor a 1:10 year capital-at-Risk event (caR) defined as the maximum economic loss over a one year time horizon with a significantly lower confidence level of 90.0 % (€ 14.2 bn as of December 31, 2011).
We define internal risk capital as the capital required to protect against unexpected, extreme economic losses. on a quarterly basis, we calculate and aggregate internal risk capital consistently across all business segments providing a common standard for measuring and comparing risks across the wide range of different activities that we undertake as an integrated financial services provider.
We apply an internal risk capital model for the management of our risk and solvency position and are working towards meeting forthcoming solvency ii internal model requirements. the model is based on a best practice technical platform with an up-to-date methodology covering all modeled sources of quantifiable risks and forms the integral part of our internal risk capital framework.
the results of our Monte carlo simulation allow us to analyze our exposure to each source of risk, both separately and in aggregate. therefore it can also be applied towards managing the risks resulting from reasonably possible, smaller adverse events that could occur in the near term.
our internal risk capital model makes use of various techniques which require a significant number of estimates and assumptions applied to risk and financial data, both internally and externally derived. We use four specific sets of assumptions discussed below in more detail.
When calculating the fair values of assets and liabilities, the assumptions regarding the underlying risk-free yield curve are crucial to determine future cash flows and to discount them. We apply the same methodology as provided by the european insurance and occupational pensions authority (eiopa) in the fifth quantitative impact study (qis 5).
in addition we adjust the risk-free yield curves for the l i f e / H e a l t H segment to make allowance for a liquidity premium consistent with qis 5.
◼ v a l u a t i o n a s s u M p t i o n : R e p l i c a t i n G p o R t F o l i o s since efficient valuation and advanced, timely analysis is desired, we use a replicating portfolio technique to determine and revalue the liabilities of our l i f e / H e a l t H insurance business under 30,000 potentially adverse Monte carlo scenarios, including guarantees embedded in these products.
We strive to diversify the risks to which we are exposed in order to limit the impact of any single source of risk and to help ensure that the positive developments of some businesses neutralize the possibly negative developments of others. the degree to which diversification can be realized depends in part on the level of relative concentration of those risks. For example, the greatest diversification is generally obtained in a balanced portfolio without any disproportionately large exposures to any one or more risks. in addition, the diversification effect depends upon the co-movement of sources of risks. one measure of the degree of co-movement of two sources of risk is linear correlation, characterized by a value between “–1” and “+1”.
R i s k c a t e G o R y insuRance asset ManaGeMent coRpoRate anD otHeR D e s c R i p t i o n exaMple
ManaGe Ment leveRsinsuRance o u R i n t e R n a l R i s k c a p i t a l M o D e l c o v e R s : ◾ all of our major insurance operations.
For our a s s e t M a n a g e M e n t segment as well as smaller insurance operating entities that have an immaterial impact on the Group’s risk profile, we assign internal risk capital requirements based on an approach which takes local regulatory rules and results from a risk factor based model into account. this approach uses the same risk categories as our internal risk capital model, thereby allowing us to consistently aggregate internal risk capital for all segments at the Group level.
approximately 99.8 % of the investments managed by the a s s e t M a n a g e M e n t operating entities are held for the benefit of third parties or allianz Group insurance entities and, therefore, do not result in significant market and credit risk for the segment. as a result, the internal risk capital requirements for the asset Management segment only reflect business risk. However, the assessment of market risk and credit risk on the account of third parties is an integral part of the risk management process of our local operating entities. internal risk capital related to our banking operations in Germany, italy, France as well as central and eastern europe is allocated to the C o r P o r a t e a n d o t H e r segment, based on the approach as applied by banks under the Basel ii standards. it represents an insignificant amount of approximately 1.5 % of total pre-diversified internal risk capital. therefore, risk management with respect to banking operations is not discussed in detail below.
We also assume that model and scenario parameters derived from historical data, where available, are a useful approximation to characterize future possible risk events; if future market conditions differ substantially from the past, as in an unprecedented crisis, then our vaR approach may be too conservative or too liberal in ways that are too difficult to predict. our ability to back-test the model’s accuracy is limited because of the high confidence level of 99.97 % and the one-year holding period as well as only limited data for some insurance risk events such as natural catastrophes is available. Furthermore, as historical data is used where possible to calibrate the model, it cannot be used for validation. instead, we validate the model and parameters through sensitivity analyses and external reviews by independent consulting firms focusing on methods for selecting parameters and control processes. overall, we believe that our validation efforts are effective to the extent validation is possible and that our model adequately assesses the risks to which we are exposed.
since required internal risk capital takes into account the change in economic “fair value” of our assets and liabilities, it is crucial to accurately estimate the “fair market value” of each item. For some assets and liabilities, it may be difficult if not impossible, in turbulent financial markets, to obtain either a current market price or to apply a meaningful markto -market approach. For certain assets and liabilities, where a current market price for that instrument or similar instruments is not available, we apply a mark-to-model approach. For some of our liabilities, the accuracy of fair values depends on the quality of the actuarial cash flow estimates. Despite these limitations, we believe the estimated fair values are appropriately assessed.
an ag em en t R ep or t c o n c e n t R at i o n o F R i s k s as we are an integrated financial services provider offering a variety of products across different business segments and geographic regions, diversification is key to our business model. Diversification helps us manage our risks efficiently by limiting the economic impact of any single event and by contributing to relatively stable results and risk profile in general. as discussed in section Diversification and correlation assumptions, the degree to which the diversification effect can be realized depends not only on the correlation between risks but also on the relative concentration level of those risks. therefore, our aim is to maintain a balanced risk profile without any disproportionately large risks.
at the Group level, we generally identify and measure concentration risks consistently across the business segments in terms of pre-diversified internal risk capital and in line with the risk categories covered by our internal risk capital model. Within the individual categories, we use supplementary approaches to manage concentration risks, which are described in the remainder of this section. in the subsequent sections all risks are presented on a pre-diversified and Groupdiversified basis and concentrations of single sources of risk are discussed accordingly.
to avoid disproportionately large risks that might accumulate and have the potential to produce substantial losses (e. g. natural or man-made catastrophes or credit events) we closely monitor those risks on a standalone basis (i. e. before the diversification effect) within a global limit framework.
For credit risk concentration, we run a Group-wide country and obligor group limit management framework (cRisp), which is based on consistent data used by the investment and risk functions on Group level as well as on the operating entity level. it forms the basis for discussions on credit actions and provides notification services for a quick and broad communication of credit related decisions across the Group.
clearly defined processes ensure exposure concentrations and use of limits are appropriately monitored and managed. the limit framework covers counterparty concentration risk that is related to credit and equity exposures.
it is the ultimate responsibility of the Board of Management to decide upon maximum country and obligor exposure limits from the Group’s perspective (i.e. the maximum concentration limit). this limit takes into account the allianz Group’s portfolio size and structure as well as its overall risk strategy. the Board of Management delegates authorities for limit setting and modification to the Group Risk committee and Group cRo by clearly defining maximum limit amounts. all limits are subject to annual review and approval according to the delegated authorities.
in order to assess and monitor concentration risk, standardized cRisp reports are provided quarterly to senior management of the Group and operating entities presenting the top 100 obligor group concentrations and their contribution to the credit risk of the respective portfolio.
q u a n t i F i a B l e R i s k s the following table shows an overview of Group-diversified risk capital figures by risk category.
◼ M a R k e t R i s k the allianz Group holds and uses many different financial instruments in managing its businesses. as part of our insurance operations, we collect premiums from our customers and invest them in a wide variety of assets. these investment portfolios ultimately cover the future claims and benefits to our customers. in addition we need to invest shareholders’ capital, which is required to support the risks underwritten. as the fair values of our investment portfolios depend on financial markets, which may change over time, we are exposed to market risks. For example, an unexpected overall increase in interest rates or an unanticipated drop in equity markets may generally result in a devaluation of the portfolios.
Movements in financial markets also have an impact on the fair value of our insurance liabilities. therefore, our exposure to market risks is ultimately determined by the net positions between assets and liabilities.
an ag em en t R ep or t in the following table, we present our Group-wide internal risk capital related to market risks: a l l o c a t e D i n t e R n a l M a R k e t R i s k c a p i t a l B y B u s i n e s s s e G M e n t a n D s o u R c e o F R i s k interest rate credit spread equity Real estate currency total € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn p R e - D i v e R s i F i e D property-casualty 545 717 834 482 1,931 2,084 1,078 1,305 531 542 4,919 5,130 life/Health 4,031 2,944 3,711 2,445 3,785 3,584 854 1,069 634 788 13,015 10,830 asset Management — — — — — — — — — — — — corporate and other 292 421 1,121 732 748 1,660 84 166 34 56 2,279 3,036 total group 4,868 4,082 5,666 3,660 6,464 7,328 2,016 2,541 1,199 1,386 20,213 18,997 share of total Group-internal risk capital in % 40.5 42.0
asset Management — — — — — — — — — — — —
the following diagram presents the sensitivity of the internal solvency ratio under certain standard financial scenarios which are defined by reasonably possible individual movements in key market parameters while keeping all other parameters constant with the effects impacting both the available capital and internal risk capital.
� i n t e R e s t R a t e R i s k
Due to our insurance business model, interest rate risk is highly relevant for the l i f e / H e a l t H segment, bearing in mind that our life insurance entities, e. g. in Germany, France, italy, the united states and south korea, typically offer long-term asset accumulation and savings products subject to minimum guaranteed crediting rates. However, many local fixed income asset markets, in particular bonds are not sufficiently deep and liquid to adequately match our longterm life insurance obligations which gives rise to re-investment risk.
therefore, because the Group reports in euro, the predominant part of foreign currency risk results from the economic value of our non-euro operating entities. if non-euro foreign exchange rates decline against the euro, from a Group perspective the euro equivalent net asset values also decline. this risk is allocated to the respective business segments.
in addition, certain exposures to non-euro denominated assets and liabilities are held at the C o r P o r a t e a n d o t H e r segment level. Based on a foreign exchange management limit framework, currency risk is monitored and managed through the Group Finance committee process with the support of Group treasury and corporate Finance at the Group level.
counterparty risk arises from our fixed income investments, cash positions, derivatives, structured transactions, receivables from allianz agents and other debtors as well as reinsurance recoverables. our credit insurance activities also expose us to counterparty risk. if a counterparty’s credit quality deteriorates (“migration risk”), the instrument’s fair value will decline, resulting in a loss in portfolio value. Migration risk also includes overdue payments and the inability or unwillingness of the counterparty to fulfill contractual obligations (“default risk”).
exposures to the national governments of oecD and eea states are modeled as risk free in the credit risk internal model, if the exposure is issued in the local currency of the government. this is in line with the eiopa's advice on level 2 implementation Measures on solvency ii.
country risk is specifically related to counterparties with cross-border payment obligations. For example, capital transfers may be prohibited or restricted by sovereign acts, currency moratoria, freezing of money or repatriation of capital (“transfer risk”) or currency conversion is prohibited or restricted (“convertibility risk”).
the allianz Group monitors and manages credit risk exposures and concentrations with the objective of ensuring that it is able to meet policyholder obligations when they are due, and to maintain adequate capital and solvency positions for the operating entities and the Group as a whole. this objective is supported by the Group-wide country and obligor group limit management framework (cRisp) as described under concentration of Risks. in addition, standard credit portfolio analysis reports are available for the investment and risk functions on the Group and operating entity levels. they allow us to closely monitor the credit risk profile of the different portfolios.
the allianz Group’s internal credit risk capital model is an integral part of the overall internal risk capital framework. it is centrally developed, parameterized and controlled. Group-wide credit data is collected following a centralized process and using standard obligor and obligor group mappings.