Liabilities to banks and customers ¤ mn 348,628 4.7 333,044 149
Assets under management ¤ bn 1,078 8.2 996 79 1) Items within the “Earnings” and “Balance sheet“ sections are Allianz Group consolidated numbers. 2) Total revenues comprise property-casualty segment´s gross premiums written, life/health segment´s statutory premiums, banking segment´s operating revenues, and asset management segment´s operating revenues. 3) Excluding treasury shares.
¤ mn ¤ mn ¤ mn ¤ mn ¤ mn n.m.
In 2004, we successfully drove forward the restructuring of our banking business. Operating revenues decreased by 4.0 %
The goal of the Allianz Group is to achieve sustainable growth of our competitive strength and value. In order to accomplish this, we implemented a number of initiatives in 2003, which we characterize as our
Improvement in risk position surplus according to our internal risk model
In addition, increased net capital gains and lower impairments on investments contributed positively to the improved earnings in 2004.
A L L I A N Z G R O U P 1
These pronouncements have now become reality. We have, in point of fact, surpassed our promises. For instance, Dresdner Bank was in the black even after restructuring costs had been accounted for. The AGF achieved its target of pushing the combined ratio below 100 %, hitting 98.4 %. In Germany, we pushed our “integrated financial services provider” concept up to the next level. In 2004, our representatives completed the necessary professional training and will, during the current fiscal year, offer clients a comprehensive range of banking services and products. Our aim in pursuing this sales channel is to gain no fewer than 300,000 new Dresdner
Bank clients. Overall, all four business segments made significant operating improvements, demonstrating clear purpose-driven determination. Your Allianz is therefore clearly back on course again, moving ever closer to its goal of becoming one of the world’s leading financial services providers and a company people can trust.
Alongside our successes, 2004 did of course see a few setbacks. Over the year as a whole, development of the Allianz share price was disappointing, despite a sharp upturn in the final quarter. Since my first Letter to the Shareholder, there have been continued improvements in the development of our business. This development was acknowledged by the media and financial analysts, but was only moderately rewarded on the stock exchange. This causes me deep regret for I am fully aware that you have invested your hard-earned money in the future of Allianz. Although Allianz is managed on your behalf to promote long-term, predictable and sustainable revenue growth, I believe that in the past fiscal year you, our shareholders, certainly deserved to see a more positive market reaction to our future business outlook. Why then, did the share price fail to reflect our business successes?
A L L I A N Z G R O U P 3
In discussions with financial analysts and investors, we have gone to great lengths to explain and discuss our results and our plans for the future. Over the past year, we have been in direct contact with many Allianz shareholders and taken their opinions on board. Therefore, the share price cannot have been adversely affected by a lack of transparency or accessibility.
Perhaps, following the shocks of recent years, there is not yet sufficient trust in our “3+One”
program that runs until 2006 performing as promised and taking Allianz to the Number One position. It is clear that in order to maintain this trust we have to deliver, without fail, on all our promises. The positive development in the share price after publication of our 2004 third quarter figures served to support my conviction that you are prepared to follow us if our work stands the test of time.
I can offer you the next best thing: an outline of the initiatives we intend to introduce to accelerate the profitable growth of your company and increase its competitiveness and value on a sustainable basis.
As an enterprise, if you want to achieve extraordinary growth, you need to ensure that the entire organization is fully behind you. That is why, one and a half years ago, we introduced new leadership values, outlining the exact areas we want to focus on, the way we work with our clients and the way we work together as a team. This is a set of guiding principles that provide the highest professional management benchmarks for the implementation of our strategy and our program.
Firstly, having a corporate image helps us to overcome what I call the “silo syndrome” – a mentality whereby employees work within the narrow confines of their department walls and do not feel part of a whole. If I were to single out just one aspect of our corporate culture that I want every employee to have in mind, it is this: I work for an international corporation
– not a national division, and not a department. A silo mentality leads to redundancies and inefficiency, and potentially prevents the best of our Group’s business ideas and methods from reaching clients in other markets. It means that we, unnecessarily, fail to get the most out of our strengths and, as a result, give away competitive advantages.
Secondly, the leadership values are also important for making sure the entire organization is focused on delivering on promises. It forces every individual to put the customer’s interests first. The customer is the boss. His success is our business. If we do the job well and our products, services and approaches live up to customer expecta tions, customers will be prepared to pay a premium for services that are relevant to them and cannot be found elsewhere.
Dear Shareholders, we are still facing many challenges, but do not forget that Allianz already has a lot going for it. I am speaking here primarily about our 162,200 employees and about the representatives and sales agents in our team. I am extremely proud of their achievements, their tenacity and their determination to bring success both for Allianz and for our customers.
In the course of 2004, the members of the Supervisory Board worked intensively on dealing with the situation and perspectives of the company. We advised the Board of Management with respect to the management of the company, oversaw its conduct of business and were directly involved in decisions of fundamental importance.
The Supervisory Board held four meetings during the reporting period. Between meetings, the Board of Management informed us in writing on important matters. In addition, the Chairman of the
The Board of Management regularly provided us with timely and comprehensive information on the economic and financial development of the Allianz Group, including the risk situation, important business transactions and corporate strategy. We discussed company planning for the year 2005 and asked for explanations of the deviations from existing plans and objectives in the course of business.
Implementation of the “3+One” program Our deliberations were centered on the measures taken by the
Board of Management to implement the “3+One” program, which summarizes the Group’s objectives and initiatives through 2005.
Continuation of the positive earnings trend In all meetings, the Board of Management reported to us on the development of the Group’s revenues and earnings, developments in the individual business segments and the financial situation. After the return to profitability achieved in fiscal 2003, the positive trend continued in the reporting year. We found that operating profitability had improved significantly in all business areas.
Developments were encouraging in both cases. Both the bank and the French group company showed a profit in 2004.
Strengthening the capital base and reducing complexity The Group’s capital resources were regularly discussed at meetings. The Management Board stated that the capital base had been strengthened by a number of different measures, and that the Group’s high rating had been secured. In order to render investment income less dependent on market movements, both the proportion of funds invested in equities and the concentration of these funds in individual stocks were further reduced.
Other topics of discussion We again considered the planned reforms to the social security system in Germany, in as much as these impinge on the business of Allianz. A critical look was taken in this context at the fiscal treatment of pension provision under the regulations of the
German Act on the Taxation of Pensions and Annuities. We also tackled the future of private health insurance in Germany, with detailed discussions on the proposed “citizens’ insurance” and
We received a separate report on the development of the insurance business in the U.S.A., which showed that the Group companies there have achieved, in some cases, significant improvements in their results.
Legal proceedings in connection with the World Trade Center loss have still not yet been concluded, but we were kept informed on a regular basis of the current state of affairs. The same applied as regards the investigations by the U.S. supervisory authorities into the conduct of business by companies in the asset management industry, where our attention was focused mainly on the effects of these enquiries on the companies in the Allianz Global
At the December meeting we again examined the effectiveness of our work, in the absence of the Board of Management.
Activities of the committees The members of the Supervisory Board formed the Audit Committee, the Standing Committee, the Personnel Committee and the
Committees of the Supervisory Board of Allianz AG As of December 31, 2004
Management and the determination of the variable and equitybased remuneration components. There was no need for the Mediation Committee to convene.
In the presence of the auditors, it discussed the annual financial statements of Allianz AG and of the Group, the audit reports and the 20-F filing required in the U.S.A. It also examined the quarterly reports and dealt with the assignment of the mandate to the auditor and the setting of priorities for the audit. Other subjects of deliberation were the measures to be taken to comply with the requirements of the U.S. Sarbanes Oxley Act on the effectiveness of internal control systems for financial reporting. The award of contracts to the auditors for non-auditing services was also discussed. A special report was forwarded to the Board on the tasks and responsibilities of internal audits and the main results of internal audits in the past year. Finally, the Audit Committee examined the effectiveness of its own activity and made decisions concerning its future work.
Annual accounts and consolidated financial statements KPMG Deutsche Treuhand-Gesellschaft AG Wirtschaftsprüfungsgesellschaft, Munich, audited the financial statements of Allianz
AG and the Allianz Group as well as the respective management reports and issued their certification without any reservations.
The consolidated financial statements were prepared in accordance with the International Financial Reporting Standards (IFRS).
The independent auditors have confirmed that the consolidated financial statements and the management report meet the conditions required to exempt the company from its obligation to prepare consolidated financial statements in accordance with
The financial statements and the auditor’s reports submitted by KPMG were made available to all members of the Supervisory
The independent auditors participated in these discussions. They presented the results of the audits and were available to provide supplementary information.
Allianz AG and the Allianz Group, the corresponding management reports and the recommendation for appropriation of profit, we concurred with the findings of the audit by KPMG and ap proved the financial statements of Allianz AG and the Allianz Group prepared by the Board of Management, and we hereby adopt the individual accounts. We consent to the appropriation of earnings as proposed by the Board of Management.
Members of the Supervisory Board and the Board of Management A number of changes have taken place in the Supervisory Board. For the shareholders, Jürgen Dormann, Prof. Jürgen E. Schrempp and
Dr. Albrecht Schäfer and Prof. Dr.-Ing. Hermann Scholl have resigned from the Supervisory Board as shareholder representatives with effect from the end of the Annual General Meeting on
General Meeting elects Franz Fehrenbach and Dr. Franz B. Humer as their successors.
For the employees, Herbert Pfennig has resigned early as the representative of managerial staff; his successor is Dr. Max Link.
Frank Ley will end his many years of service in the Supervisory
Board at the end of the Annual General Meeting on May 4, 2005.
With effect from May 1, 2005, the Supervisory Board has appointed Dr. Mario Greco, currently Chief Executive Officer of the Italian group company RAS, as a member of the Management
The managerial tasks of the Board of Management are primarily to determine the strategic direction and to manage the Group, and the planning, establishment and monitoring of a risk management system. The work of the Board of Management is co-ordinated by the Chairman.
Supervisory Board. It keeps the Supervisory Board comprehensively informed on a regular basis about business developments, the financial position and results, planning and achievement of goals, and the strategy and any existing risks. Some specific decisions by the Board of Management require the approval of the
Allianz AG and the Group, and for the dealing with the quarterly reports.
We are committed to the principles of good corporate governance and strive to maintain the confidence and trust of our shareholders, customers and staff on a lasting basis. Accordingly, the Management and Supervisory Boards work closely together with the objective of sustainable value creation. Our decision and control structures are designed to be efficient and clear. We stand for transparent communication, and guarantee immediate and comprehensive disclosure of all information concerning the company. To make it easier for our shareholders to exercise their rights, we offer the chance to follow the General Meeting on the Internet and to vote by proxy.
The EU Commission launched initiatives on the independence and remuneration of members of organs of companies, and on cross-border voting. The OECD also published its proposals for global corporate governance principles. The political discussion of increasing breadth was resumed at all levels, reflecting the multilayered complexity of the subject of corporate governance.
The audit committee consists of three shareholder representatives and two employee representatives. The main task of the Audit Committee is the preliminary examination of the Group’s Annual Financial Statements and Consolidated Financial Statements as well as the Management Report and the Recommendation for Appropriation of Profit. In addition, it examines the quarterly reports and the 20-F filing required in the U.S.A. Finally, the audit committee is an important contact partner for the auditors, whose independence it also monitors.
Supervisory Board as well as one representative each of the shareholders and employees. It prepares the appointment of members of the Board of Management, tends to ongoing personnel matters of members of the Board of Management and handles questions concerning their remuneration. It is also involved in the long-term succession planning for the Board of Management.
Board fails to obtain the two-thirds majority required by law in a vote on the appointment or removal of a member of the Board of Management.
Board and changes to the Articles of Association of the company.
German Allianz companies in dealing with fundamental matters of economics. This Council comprises leading personalities in international economic affairs. The composition of these bodies is set out on pages 196 and 197.
June 30 of each fiscal year. Under new accounting regulations in
However, under clause 161 of the Stock Corporation Law, Boards of Management and Supervisory Boards of all listed companies in
We can therefore state that in future, Allianz AG will follow all the recommendations of the German Corporate Governance Code in its Declaration of Compliance.
2. Allianz AG has complied with the recommendations of the Government Commission on the German Corporate Governance
In addition, we comply with most of the non-binding recommendations of the German Corporate Governance Code. The suggestion that the performance-based remuneration of the Supervisory
Declarations of Compliance on December 6 and 10, 2004, respectively. Allianz Lebensversicherungs-AG disclosed therein, as in the previous year, the deviations from the recommendation concerning the individual publication of remuneration for the
Allianz AG is subject to U.S. corporate governance rules in as much as these are applicable to foreign issuers.
“Form-20-F” for the first time for fiscal year 2005, even though the SEC on March 2, 2005 extended the time allowed for foreign companies listed on U.S. stock exchanges to comply with this rule by one year. Like most comparable undertakings, we have expended considerable resources in complying with these requirements.
Financial Expert. As part of compliance with the rules of the SOA,
The NYSE has also further developed its corporate governance standards. For foreign bond issuers, the greater part of these rules are not mandatory. Nonetheless, there is a duty to disclose the main differences between a company’s own corporate governance and the NYSE standards, in the form of a brief summary. We have published such a summary on our web site.
Government on strengthening investor protection and business integrity will be the object of legislative activity. European initiatives will gain in significance, as evidenced by the “European
Europaea”) could act as the catalyst for greater convergence of national corporate governance systems. At the same time, the
For Allianz, appropriate development of its own management and control systems, taking into account the national discussion and also international developments, is a continuing duty in the interest of all its stakeholders.
Up-to-date information on corporate governance is also available on our website at www.allianz.com/corporate-governance.
The remuneration of the Board of Management of Allianz AG supports sustainable value-oriented management. In the last several years, the remuneration instruments were increasingly differentiated. The objective of this differentiation is to arrive at a remuneration system that is balanced in its structure, and appropriate and competitive in terms of its amount.
The individual remuneration components for the Board of Management include: Fixed remuneration The amount of the fixed remuneration is, on the one hand, determined by the delegated function or responsibility. On the other hand, it is influenced by external market conditions.
Variable remuneration This component consists of an annual and a mid-term 3-year bonus, each of which is performance- and success-related and limited to a maximum amount.
The valuation of the stock-based remuneration is merely a mathematically calculated reference value. If and when the stock-based remuneration will actually lead to a payment depends on the future development of the share price, the strike price and the date of exercise. Stock appreciation rights (SAR) can be exercised at the earliest upon expiration of a two-year vesting period; the vesting period for restricted stock units (RSU) is five years. The exercise, the number of rights issued and the development of the value of stock-based remuneration are shown in the income statement.
Variable remuneration and stock-based remuneration together form a three-tier incentive system.
1) Appointed chairman of Board of Management since 04/29/2003 2) Member of Allianz AG Board of Management since 05/01/2003 3) Member of Allianz AG Board of Management since 03/19/2003 4) 2005 inflow for fiscal 2004 5) Total from fixed remuneration and annual bonus 6) Pro rated share of provisions for reporting year 7) Change over previous year on the basis of adjusted or pro rated remuneration in 2003 8) Total remuneration from Allianz Group Board mandates. Allianz AG has a 50 % share in this remuneration. 9) Total remuneration from Allianz Group Board mandates. Allianz AG has a 25 % share in this remuneration.
Board at the end of his mandate, old age pension is paid no earlier than upon completion of the 60th year of age, except for cases of professional disability or general disability for medical reasons, or payments to a beneficiary in the case of death. If the mandate is terminated for other reasons before the retirement age has been reached, a non-expiring pension claim is maintained.
The remuneration of the members of the Supervisory Board includes two components: a fixed amount of € 4,000 and a variable amount dependent on the dividend. This amount is calculated as
Number of rights granted Mathematical value of GEI at the date of grant
¤ thou ¤ thou ¤ thou 1) Following a vesting period, the SARs may be exercised at any time between May 19, 2006 and May 18, 2011 at the latest, provided that the Allianz share price stands at a minimum of ¤100.16 and has outperformed the Dow Jones EURO STOXX Price Index (600) at least once for a period of 5 consecutive days during the contractual term. For more detailed information about SARs, see page 182 of the Annual Report.
2) RSUs are exercised the day following expiration of a five-year vesting period; i. e. on May 5, 2009, at the Allianz AG share price applicable on that date. For more detailed information about RSUs, see page 183 of the Annual Report.
3) Total remuneration from Allianz Group Board mandates. Allianz AG has a 50 % share in this remuneration. 4) Total remuneration from Allianz Group Board mandates. Allianz AG has a 25 % share in this remuneration.
follows: for each cent by which the dividend per share exceeds the amount of 15 cents, an additional remuneration of € 500 is paid.
The amount of the dividend is determined by the appropriation of profit decided by the Annual General Meeting. The chairman of the Supervisory Board receives double, and his deputy one and a half times the amount of this remuneration. The remuneration of the members of the Personnel Committee and of the Standing
Committee is increased by 25 %, that of the chairmen of these committees by 50 %. To prevent a conflict of interest on the part of the members of the Audit Committee with respect to the dividend proposal of the Supervisory Board, these members receive a fixed annual remuneration of € 30,000 for their work in this committee, while the chairman receives a fixed amount of € 45,000.
The additional remuneration of the committee members is capped by an upper limit. This limits takes effect when the remuneration of the chairman of the Supervisory Board has reached triple and that of the other members of the Supervisory Board double the basic remuneration. Since the dividend policy of the Allianz
In addition to members of the Allianz AG‘s Board of Management, the International Executive Committee includes the heads of the major subsidiaries. Chaired by Michael Diekmann, this body discusses overall strategic issues at Group level.
In order to make significant progress towards achieving this strategic objective, we are pressing ahead with our efforts to leverage on the size, reach, internationality and competence of Allianz.
The repercussions this has on our corporate identity and the way we work together as a group is changing fundamentally. We have introduced an internal capital market and are working with a dividend model with a minimum prerequisite that capital costs have to be generated before any further capital is allocated. This approach has been successfully strengthened by group-wide management guidelines and a mutual incentive system.
We are now going a step further and are consolidating our excellent resources to become a global organization within which everybody really learns from each other. Our intention is to become an Allianz with a less fragmented structure and units that no longer follow their own arbitrary laws as regards business results.
Our objective is to be the international financial services provider that is trusted because we deliver on, or surpass, all of our promises. And we are modifying our business model to achieve this. Our first step in this direction was the introduction of our strategic “3+One” program. In the year under review, we drove forward implementation of the program’s first three items in an outstanding joint effort with our operating units. We also prepared for the launch of two sizeable initiatives that will help increase our competitive strength and value on a sustainable basis. Starting in 2005, these initiatives are set to give a significant boost to the “+One” element of the program, thus putting all the key elements in place for improving the return on equity.
Allianz with a higher value by the year 2006, with the aim of driving value creation up a level and assuring increases in value.
In respect of this next phase, we addressed the following questions: _ Will we be able to achieve the same level of operating excellence across all subsidiaries to achieve a proficiency level that is far superior to that of any competitor? We are convinced that we can achieve this excellence if we do our utmost to implement the best business ideas and business methods of our Group across all of our units.
_ Can we claim to be the first choice of customers, wherever they are in the world, because our products, customer service, and advisory services meet – or surpass – the customers’ expectations, and because we resolve issues in a fair and professional manner?
In 2004, we used these questions as a launching pad for two initiatives. Under the first initiative, our Sustainability Program, our top specialists search systematically and worldwide throughout the entire company, to seek out outstanding successes in product offerings, service offerings and operating implementation within both property and casualty insurance and life insurance.
Allianz standards. Only the best is good enough for our organization; and as a result of our subsidiaries working closely together, we are avoiding too much interference from above in the program.
The second initiative, which is also being implemented across the entire group, is even more customer-focused. At present, the project team is undertaking a ruthless analysis. Starting from summer 2005, we will then implement the initial projects for this program. The objective is to take a more customer-oriented approach towards our product and service offerings, and our flexibility and awareness in order that customers perceive us to be excellent, recommend us to others, and see us as the first place to turn when they need financial services.
We are confident that these projects will give a substantial boost to the “+One” element of our program for the following reasons: One, because we are ensuring that every promising idea for potential progress and improvement is given a chance; and two, because we will make sure that every member of the organization is brought along with us. These projects represent a general guiding principle for every Allianz employee – irrespective of the business segment, region or position in which they work for clients and shareholders.
In order to be even better prepared for this demand and to live up to our customers’ high expectations, we will be working even more resolutely towards further strengthening our sales channels and providing specialist training to our sales employees. To benefit from the extraordinary dynamic growth of strategic future markets, we also intend to strengthen our market position within
We are confident that these initiatives will bring us a good deal closer to the target we have set for ourselves; i. e., becoming the international financial services provider that is trusted because it delivers on, or surpasses, each and every one of its promises.
The goal of value-based management is to consistently meet the expectations of our shareholders over the long-term. We want shareholders, employees, customers, and our community to profit from the value our company creates.
The capital that is employed by a company must yield a higher return than a comparable alternative investment. In order to reach this objective, we apply the EVA® (Economic Value Added)
The basic idea behind EVA® involves comparing profit with the cost of capital. EVA® – whether positive or negative – is the difference between the two. It tells us whether or not our profits exceed the return expected by our shareholders. Thus, EVA® is the result of the following calculation: EVA® = profit – (capital employed x cost of capital)
The cost of capital represents the return an investor can expect from an alternative investment with comparable risk. An EVA®
Since EVA® is an important factor in managing our business, the remuneration of senior management is based to a significant extent upon this factor. That means we have opted for an incentivebased system that helps make the continuous increase in the value of the Allianz Group a priority across our entire organization.
Development of the Allianz share price versus Dow Jones EURO STOXX 50 and Dow Jones EURO STOXX Insurance
Allianz share lost momentum in 2004 and remained almost unchanged over the year as a whole. With a 2.5 % drop in value, our share performed weaker than both the Dow Jones EURO STOXX
EURO STOXX 50 constituents, which experienced the biggest increase in value over that period.
Allianz is one of the most highly valued financial services providers in Europe. Our share is listed on all the major European indexes: Germany’s DAX, Dow Jones EURO STOXX 50 and MSCI
Sustainability indexes. The latter index only lists the top 10 % of companies in a given industry that have obtained the best rankings in a sustainability rating. The ranking is based on economic, ecological and social criteria. For more information about this, visit www.allianz.com/sustainability.
Weighting of the Allianz share in major indexes on December 31, 2004 in %
Sources: Deutsche Börse, Dow Jones Indexes/STOXX Ltd., Morgan Stanley Capital International
Substantial progress in the operating business helped to increase net profit to € 2.2 billion (2003: € 1.9 billion). Despite the fact that share numbers were higher than the previous year (attributable to the capital increase in April 2003), earnings per share
in the previous year to 86 % at the end of 2004. This was primarily attributable to the fact that Munich Re disposed of approximately 3 % of its Allianz stocks and by December 31, 2004 had only a 9 %
stake in Allianz. Allianz has approximately 540,000 shareholders and, as such, is one of the biggest publicly held corporations in
Since the end of 2000, Allianz shares have also been traded on the New York Stock Exchange in the form of American Depositary Receipts (ADR). Ten ADRs are the equivalent of one Allianz share. For detailed information, visit www.allianz.com/investorrelations.
Average number of shares traded per day on Xetra mn 2.6 3.9 1.7
Earnings per share before amortization of goodwill ¤ 9.19 9.77 (1.21 )
Return on equity before amortization of goodwill % 11.3 13.1 –
Security codes WKN 840 400 ISIN DE 000 840 400 5
Our Annual General Meeting for fiscal 2003 was well attended by 6,000 shareholders, representing 37% of the capital stock –
We continued to strengthen communication with investors and, in particular, increased the frequency and reach of our roadshows.
Stockholm, Milan, Madrid and Chicago. In addition to our annual analysts’ conference we have conducted a “Capital Markets Day”
where we present a special topic to analysts and investors. In the year under review, we presented “Risk Management”, the response to which was so encouraging that we decided to make the
We are continually increasing communication and service offerings for our private investors, mainly through our website. Here, investors can find an online version of this Annual Report and a wealth of supplementary information on aspects such as detailed figures, business strategy, Board of Management and Supervisory
Allianz publications can be downloaded or ordered from our site and there is also a newsletter which can be subscribed to, providing up-to-date information about the business development and special topics. For investors who prefer to receive information by phone, our “Allianz Investor Line” is available around the clock, seven days a week. In the year under review, the Investor Relations team answered approximately 5,000 inquiries from private investors.
As we cannot rule out changes of dates, we recommend to check them on the Internet at www.allianz.com/financialcalendar.
A key focus of our “3+One” program is to secure and strengthen our capital base – an area in which we achieved much success throughout 2004. We increased shareholders’ equity to ¤30.8 billion – an increase of ¤2.2 billion, while simultaneously reducing
The balance of unrealized gains and losses from securities availablefor -sale is part of shareholders’ equity. This balance increased to € 5.6 billion (2003: € 4.2 billion) following the market gains in equity and bond prices during the final quarter of 2004.
At December 31, 2004, the capital elements eligible for the solvency margin, which is a legal requirement in Germany for insurance groups, amounted to € 30.0 billion (2003: € 26.0 billion), surpassing the minimum legally stipulated level by € 16.6 billion.
This resulted in a cover ratio of 223.9 % compared to 206.3 % in 2003. The solvency margin directive applies only to our insurance segments and does not contain any capital requirements for our banking business.
However, the Supervision of Financial Conglomerates, a supplementary EU directive that came into effect in Germany on January 1, 2005, applies both to banking and insurance business in equal measure. Under this directive, a financial conglomerate is de fined as any financial parent holding company that, together with its subsidiaries, has significant cross-border and cross-sector activities. The authority responsible for implementing this directive is to establish the required level of capital that such a group should have in order to be able to bear the risks of cross-sector activities.
In 2004, all Allianz Group companies complied with their local solvency requirements.
As a provider of financial services, our superior capital strength is an important asset. Allianz AG enjoys very strong ratings with all major rating agencies. In 2004, these ratings remained unaltered from the previous year. Standard & Poor’s affirmed its “AA–” longterm insurer financial strength and counterparty credit ratings, while A.M. Best continued to rate Allianz as “A+”, its second highest rating category. Despite the negative outlook of both agencies, they did recognize our progress in strengthening operating profitability.
Commercial paper (short term) A-1+ P-1 not rated *) Ratings vary on the basis of maturity period and terms.
In February 2004, we issued a perpetual subordinated bond with a nominal value of € 1.5 billion. We thereby took advantage of the low interest environment and the high liquidity in the market to refinance short-term with long-term debt at attractive conditions.
DAX index. The Allianz Group can choose to redeem the BITES
Interest cost ¤63.7 mn 5.0 % bond issued by Allianz Finance B. V., Amsterdam Volume ¤1.6 bn Year of issue 1998 Maturity date 3/25/2008
Interest cost ¤52.5 mn 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 cost ¤66.2 mn 5.5 % bond issued by Allianz AG Volume ¤1.5 bn Year of issue 2004 Maturity date Perpetual Bond SIN A0A HG3
Total interest cost for subordinated bonds ¤290.5 mn 3. Convertible bonds 2.0 % convertible bond issued by Allianz Finance B. V., Amsterdam Convertible for Siemens AG shares Volume ¤1.7 bn Year of issue 2000 Maturity date 3/23/2005 Current exchange price ¤149.64
Total interest cost for convertible bonds ¤133.8 mn 4. Participation certificate Allianz AG participation certificate Volume ¤85.1 mn SIN 840 405
Issues that reached maturity in 2004 Index-linked convertible bond (MILES) issued by Allianz Finance II B. V., Amsterdam
76 Corporate Other 77 Asset Management Operations 77 Earnings Summary 79 Assets Under Management 80 Third-Party Assets 82 Group’s Own Investments 84 Investment Result 87 Risk Report 87 Risk governance structure 87 Principles 88 Instruments 88 Risk controlling in the insurance business 90 Risk controlling in the banking business 93 Risk control in asset management 93 Risk monitoring by third parties 93 Outlook 94 Our Employees 94 Leadership values 95 Expatriation and international training programs 95 eLearning 95 Performance orientation and compensation 96 Outlook for 2005 96 Solid, but tempered economic growth 96 Favorable conditions for financial services providers 97 Outlook for Allianz 97 Recommendation for Appropriation of Profit 98 Global Compact
Despite continued uncertainties, the world economic growth trend helped to boost our business success.
Although economic development in 2004 was very good in retrospect, this was not at all clear in the course of the year itself. Circumstances continually conspired to sow doubts on the durability of the exceptionally satisfactory economic situation. In particular, the weak labor market data in all industrialized countries and the rampant U.S. balance of payments deficit urged caution, as did wildly fluctuating exchange rates and the fact that the rel ative value of the U.S. dollar fell uninterruptedly against other lead ing currencies. Additional unrest, especially in the second half of the year, was further caused by rising commodity prices and the fear that China’s strong growth would overheat its economy.
This good overall economic trend encouraged significant company consolidation activities in most industrial countries. However, many of them remained heavily indebted, which dampened readiness to invest or increase jobs. Uncertainty in Germany on the continued progress of the political reform process represented a particular burden, since its effect was often the postponement of planned consumption and investment. Consequently, domestic demand lagged behind expectations. The fact that Germany nonetheless managed to break free of the stagnation of previous years and achieve economic growth, albeit at a level under the average for the euro zone, was the consequence of very brisk foreign trade that more than made up for the domestic deficits.
wrought unimaginable human suffering but inflicted devastating economic damage, which resulted overall in claims expenses for natural disasters at a level not seen in the property and casualty insurance business for the past 30 years.
Car insurance business, by far the largest and most important line in property and casualty insurance, continued to develop variedly from market to market, as in the previous year. One of the major governing factors here is new vehicle registrations. Since these scarcely increased in Germany, car insurance premium income in this market remained at the same level as the previous year, while in Spain a rapid climb in new registrations resulted in a strong upturn in premiums. The following chart shows this development in the most important Allianz markets.
The banking sector continued its recovery in 2004. Profits improved in almost all significant markets. As a result of the stronger economic climate there were fewer insolvencies, which benefited the banking industry. Investment banks, particularly those in the
U.S.A., profited from the positive developments on the financial markets. Consolidation in the banking industry continued.
In Germany the need for consolidation is still especially high, since cross-sector mergers remain taboo. Loan processes were also changed in anticipation of new equity rules soon to take effect in
500) was similar. Initially the curve seemed trapped in a corridor between 1,060 and 1,100 points, before finally swinging up towards 1,200 points. The performance of the stock markets over the year as a whole was correspondingly mediocre. The DAX rose
April and June, yields on ten-year government bonds rose by 60 basis points in Germany and 120 in the U.S.A. Yields dropped noticeably in the middle of year when worries about inflation were compounded with fears that the rising oil price would nip any economic improvement in the bud. At the end of the year, interest rates followed different paths in Europe and Germany: yields started climbing again in the United States, but dropped further in Europe. Since the U.S. dollar weakened considerably against the euro in tandem with this country development, there is much to suggest that institutional investors and a number of central banks were converting large proportions of their portfolios from U.S. dollars to Euro securities. Overall, yields on European bond markets by the end of the year had fallen to below the level of the beginning of the year; yields on fixed-interest securities on U.S. markets were roughly the same at the beginning and the end of the year.
The following discussion is based on our audited consolidated financial statements and should be read in conjunction with those statements. We evaluate the results of our Property-Casualty, Life/Health insurance, Banking and Asset Management segments using a financial performance measure we refer to herein as “operating profit”. We define our segment operating profit as earnings from ordinary activities before taxation, excluding, as applicable for each respective segment, either all or some of the following items: net capital gains and impairments on investments, net trading income, intra-
IFRS. Our definition of operating profit may differ from similar measures used by other companies, and may change over time. For further information on operating profit, as well as the particular reconciling items between operating profit and net income, see Note 5 to the Consolidated Financial
_ 2004 was also a year of continued operational discipline to strengthen our earnings power, thereby achieving a significant improvement in our operating profit by ¤2.8 billion to ¤6.9 billion.
_ Shareholders’ equity increased by ¤2.2 billion to ¤30.8 billion, further strengthening our capital base.
2004 was a year of carefully managed growth, increasing our total revenues by € 3.1 billion, or 3.3 %, to € 96.9 billion. Excluding effects from foreign currency translation and changes in scope of consolidation (or “internal growth”), our total revenues increased by 6.0 %.
Property-Casualty Gross written premiums remained fairly constant with growth of 0.8 %, as we sought opportunities that offered a profitable correlation between premium rates and risks and were willing to forego premium growth in certain markets where this objective could not be achieved.
Banking Operating revenues stabilized with internal growth of 0.3 %, experiencing only a 4.0 % decline despite a reduced portfolio of interest-bearing assets. However, both net fee and commission income and net trading income increased 5.8. % and 1.1 %, respectively.
Property-Casualty We managed to reduce our combined ratio by 4.1 percentage points to 92.9 % in 2004 (2003: 97.0 %) as a result of our disciplined underwriting and pricing practices, as well as stringent expense control. This positive development increased operating profit
Our strengthened earnings power was also reflected in our consolidated net income, which rose by more than € 300 million to € 2.2 billion in 2004 (2003: € 1.9 billion). Net capital gains, including non-operating trading income, and impairments on investments decreased by € 1.6 billion to € 1.3 billion in 2004, largely attributable to significant realized gains on reductions of certain shareholdings in 2003. These gains in 2003 were partly offset by charges of € 1.3 billion relating to derivatives used for hedging of our equity portfolio. Restructuring charges fell 67.3 % to € 292 million in 2004 (2003: € 892 million), of which
Dresdner Bank accounted for 99.3 % (2003: 94.2 %). Interest expense on external debt remained fairly constant, amounting to € 863 million in 2004 (2003: € 831 million). These developments resulted in earnings before taxes and minorities of € 5.2 billion (2003: € 2.9 billion ). Our consolidated tax expense increased by € 1.6 billion to € 1.7 billion in 2004, largely as a consequence of the significantly reduced level of tax-exempt capital gains, representing an overall effective income tax rate of 32.6 % (2003: 3.2 %). Minority interests in earnings also increased to € 1.3 billion in 2004 (2003: € 825 million).
The following table sets forth the total revenues, operating profit and
IFRS net income for each of our business segments for the years 2004 and 2003, as well as IFRS consolidated net income of the Allianz
*) Total revenues comprise property-casualty segment’s gross premiums written, life/health segment’s statutory premiums, banking segment’s operating revenues, and asset management segment’s operating revenues.
A L L I A N Z G R O U P 41
Total assets and liabilities increased in 2004 by € 58.8 billion and € 55.4 billion, respectively. These increases resulted primarily from increased trading assets from Dresdner Bank refinanced by trading liabilities and liabilities to banks. In addition, insurance reserves increased by € 43.7 billion, or 14.0%, to € 355.2 billion at December 31, 2004 (2003: € 311.5 billion), mainly attributable to the growth of our universal-life type and investment contracts within our life/health segment. As a result of the increase in available-for-sale securities, investments grew by
Gross premiums written Our property-casualty insurance segment’s gross premiums written in 2004 increased by € 360 million, or 0.8 %, to € 43,780 million from € 43,420 million in 2003. Based on internal growth, gross premiums written increased by 2.1 %. This increase was specifically due to rate increases, particularly in Germany, Italy, and Switzerland, and to growth in new business, particularly in
_ In property-casualty insurance, we continued to focus on profitable growth through selectively increasing our business volume where risk-adequate premiums could be attained. Overall, our gross premiums written increased by 0.8% to ¤ 43.8 billion in 2004. Our property-casualty gross premiums written, based on internal growth, grew by 2.1% in 2004.
_ We succeeded in reducing our combined ratio by a further 4.1 percentage points to 92.9% in 2004. Net current income from investments rose by ¤507 million to ¤3.1 billion in 2004. As a result, operating profit increased significantly by 63.3% to ¤4.0 billion in 2004.
_ Non-operating results decreased by 40.6% in 2004 as compared to 2003, which included significant net realized gains from the sale of investments.
underwriting and pricing practices. We believe this improvement was positive in light of losses arising from natural catastrophe claims in 2004. As a result of our risk management system, we recorded only € 216 million of net losses in connection with claims arising from the hurricanes which struck the South-Eastern United
December 2004 amounted to 22 million. Our expense ratio also continued to decrease from 25.5 % in 2003 to 25.2 % in 2004.
Net income Net capital gains and impairments on investments decreased by € 4,033 million to € 1,287 million in 2004 as compared to € 5,320 million in 2003, primarily as a result of significant realized gains in connection with the sale of certain shareholdings in 2003. Net trading income/(expense) improved significantly to a loss of € 49 million in 2004 as compared to a loss of € 1,490 million in 2003, which reflected losses in the first half of 2003 relating to the use of certain derivative financial instruments to hedge our equity exposure. Intra-group dividends and profit transfer and interest expense on external debt were € 1,963 million and € 863 million in 2004 as compared to € 676 million and € 831 million in 2003, respectively. Due to improved operating profitability, tax expense increased by € 849 million to € 1,490 million in 2004. Similarly, minority interests in earnings increased by € 714 million to € 1,121 million in 2004. Overall, net income declined by € 1,356 million to € 3,325 million in 2004.
Net income 3,325 4,681 1) Net of earned premiums ceded to reinsurers of ¤5,298 mn (2003: ¤5,539 mn). 2) Net of investment management expenses of ¤352 mn (2003: ¤412 mn) and interest expenses of
¤482 mn (2003: ¤883 mn). 3) Comprises net claims incurred of ¤25,867 mn (2003: ¤26,659 mn), changes in other net underwriting provisions of ¤470 mn (2003: ¤326 mn) and net expenses for premium refunds of ¤324 mn (2003: ¤334 mn). Net expenses for premium refunds were adjusted for income of ¤268 mn (2003: expense of ¤396 mn) related to policyholders’ participation of net capital gains and impairments on investments, as well as net trading income/(expense), that were excluded from the determination of operating profit.
5) Comprises net realized gains on investments of ¤1,482 mn (2003: ¤6,449 mn), and net impairments on investments of ¤195 mn (2003: ¤1,129 mn). These amounts are net of policyholders’ participation.
Gross Earnings Gross Earnings Gross Earnings premiums after taxes premiums af ter taxes premiums af ter taxes writ ten and before writ ten and before writ ten and before goodwill goodwill goodwill amortization amortization amortization
_ In addition to being the parent company of the Allianz Group, Allianz AG is also the Allianz Group’s reinsurer, with gross premiums written of ¤5.3 billion in 2004.
Earnings after taxes and before goodwill amortization Earnings after taxes and before goodwill amortization improved strong ly by € 870 million, or 148.5 %, to € 1,456 million in 2004 from € 586 million in 2003 mainly due to an increased investment result driven by lower impairments stemming from positive stock market developments and higher capital gains. In addition, earnings after taxes and before goodwill amortization was positively affected by improved underwriting result primarily due to a lower negative impact from both large individual and natural catastrophe claims, as well as reduced frequency of claims in almost all lines of business. As a result of these developments, coupled with our strict underwriting policy, our loss ratio continued to decrease to 63.5 % in 2004 from 68.1 % in 2003. The expense ratio decreased to 24.7 % from 24.9 % in 2003, due to our ongoing efforts to reduce administrative expenses.
¤ mn ¤ mn ¤ mn ¤ mn ¤ mn ¤ mn *) Represents elimination of transactions between German Property-Casualty Group and Allianz AG.
Earnings after taxes and before goodwill amortization ¤ mn 2,327 4,829 9,498
Earnings after taxes and before goodwill amortization Earnings after taxes and before goodwill amortization decreased significantly by € 2,502 million, or 51.8 %, to € 2,327 million in 2004 from € 4,829 million in 2003, which reflected significant tax-exempt realized gains from dispositions of certain shareholdings. Excluding these realized gains, earnings after taxes and before goodwill amortization increased by € 1,266 million or 119.3 %. This increase was primarily due to an improved underwriting result, as well as higher current investment income. Our underwriting result benefited from significant improvements in premium rates and conditions achieved during our last renewal negotiations, as well as a very low level of net losses from large claims and natural catastrophes as compared to the levels we have experienced in recent years. As a consequence, our combined ratio decreased to 92.6 % in 2004 from 105.1 % in 2003. Excluding life and health reinsurance business, our combined ratio for our property-casualty reinsurance declined significantly from 100.2 %
Earnings after taxes and before goodwill amortization ¤ mn 1,537 321 371
Gross premiums written Gross premiums written decreased by € 85 million, or 1.6 %, to € 5,282 million in 2004 from € 5,367 million in 2003. The decrease was due primarily to our policy of increased focus on continuous profitability and underwriting discipline particularly in our international corporate business, as well as in our automobile insurance business. Therefore, we experienced a negative volume effect, which was offset in part by increased gross premiums written in our individual lines, as well as small and medium commercial lines. Our distribution arrangement with Crédit Lyonnais continued to contribute to the increase in individual lines and remains exclusive until 2009.
_ AGF maintained its third place ranking among French property-casualty insurers based on market share.
Earnings after taxes and before goodwill amortization Earnings after taxes and before goodwill amortization increased significantly by € 1,216 million to € 1,537 million in 2004 from € 321 million in 2003, due primarily to increased operating results through the implementation of more disciplined underwriting and cost-cutting measures, thereby achieving the main target of a combined ratio below 100 %. Investment results in 2004 reflected significantly higher dividend payouts by subsidiaries of AGF
Our expense ratio increased slightly to 24.9 % in 2004 from 24.4 %
Earnings after taxes and before goodwill amortization ¤ mn 720 474 893
Gross premiums written Gross premiums written were € 5,271 million in 2004, an increase of € 154 million, or 3.0 %, from € 5,117 million in 2003, of which the RAS Group and Lloyd Adriatico Group accounted for € 3,935 million and € 1,336 million, respectively. This increase was due to growth in almost all lines of business, particularly in our automobile, general liability, fire and personal property lines. Automobile premiums increased by € 85 million, or 2.5 %, in 2004, reflecting an increase in the number of vehicles insured.
General liability premiums increased by € 32 million, or 8.4 %, in 2004, reflecting primarily new business and rate increases resulting from an ongoing review of our existing portfolio. Gross premiums written from our fire and personal property lines of business increased, primarily due to the positive reception of our new products.
_ These Groups jointly increased gross premiums written by 3.0% to ¤5.3 billion.
_ We continue to be ranked third in Italy based on market share.
July 1, 2003. In addition, portfolio review measures of our liability line also had a positive effect on our loss ratio. Our expense ratio decreased to 22.4 % from 22.9 % in 2003, primarily due to increased premium volume and comparatively lower increase in commission payments.
Earnings after taxes and before goodwill amortization ¤ mn 228 206 256
Gross premiums written Gross premiums written increased by € 94 million, or 3.7 %, to € 2,632 million in 2004 from € 2,538 million in 2003 due primarily to increased business in our commercial lines and specialty insur ance, reflecting strong growth in our engineering business and pet insurance lines, offset in part by decreased gross premiums written in our personal lines business, attributable largely to the withdrawal from a major motor affinity relationship following a decision to rate for profit rather than volume.
_ With gross premiums written of ¤1.2 billion, Allianz Suisse ranks fourth in the Swiss property-casualty insurance market based on market share.
Gross premiums written Gross premiums written decreased to € 1,239 million in 2004, compared with € 1,250 million in 2003, due primarily to the negative effect of exchange rate movements. Excluding the effects of exchange rate movements, gross premiums written increased by 3.3 %, mainly as a result of increases in our automobile line.
Earnings after taxes and before goodwill amortization Earnings after taxes and before goodwill amortization increased significantly by € 73 million to € 95 million in 2004 from € 22 million in 2003, reflecting primarily improved underwriting and investment results and a decrease in tax expenses. Our loss ratio increased to 78.1 % in 2004 from 74.3 % in 2003, reflecting a more stringent loss reserving practice and increased losses from weather events. Our expense ratio decreased to 18.6 % in 2004 from 24.7 % in 2003, as a result of reduced administrative expenses through cost-cutting measures introduced in 2004. Our expense ratio was also positively affected by an income of € 35 million resulting from the change of assumptions for calculating deferred policy acquisition costs.
Gross premiums written Gross premiums written rose by 17.3 % to € 577 million in 2004.
Earnings after taxes and before goodwill amortization Earnings after taxes and before goodwill amortization increased by € 15 million, or 39.5 %, to € 53 million in 2004 from € 38 million in 2003, mainly due to improved underwriting and investment results. The primary driver for the improvement in our underwriting result was the decline in our expense ratio, which was positively affected by lower commission payments. Our investment result rose by € 6 million to € 40 million.
Earnings after taxes and before goodwill amortization ¤ mn 175 96 62
_ Gross premiums written rose to ¤1.8 billion, making us number two in Spain based on market share.
Gross premiums written Gross premiums written in Other Europe decreased by € 108 million, or 2.1 %, to € 5,154 million in 2004 from € 5,262 million in 2003, primarily as a result of a decline in most markets within
States, which represented over 86 % and 94 % of gross premiums written and earnings after taxes and before goodwill amortization, respectively. In December 2004, we sold our Canadian private client business as we did not have the critical business volume necessary in this competitive market.
_ In the United States, Fireman’s Fund Insurance Company (or “Fireman’s Fund”) provides insurance to private and commercial clients.
Earnings after taxes and before goodwill amortization Earnings after taxes and before goodwill amortization rose significantly to € 518 million in 2004. This significant increase was primarily due to the United States, which reflected higher dividend payouts by subsidiaries of Allianz of America, as well as lower interest payments on notes payable to Allianz AG.
Gross premiums written ¤ mn 1,672 1,654 1,596 thereof Australia ¤ mn 1,324 1,254 1,163
Earnings after taxes and before goodwill amortization ¤ mn 139 92 (18 )
Earnings after taxes and before goodwill amortization Earnings after taxes and before goodwill amortization increased significantly by € 47 million, or 51.1 % to € 139 million in 2004 from € 92 million in 2003, due primarily to increased earnings after taxes and before goodwill amortization in our Australian operations, mainly reflecting increa sed investment income. Our loss ratio increased to 72.8 % in 2004, compared with 71.7 % in 2003, reflecting primarily increased net insurance benefits in our
Earnings after taxes and before goodwill amortization ¤ mn 50 13 47
negative effect of exchange rate movements. Excluding the effects from exchange rate movements as well as changes in the scope of consolidation, gross premiums written rose by 8.9 %. This increase was primarily due to rate increases and organic growth, mainly in
Earnings after taxes and before goodwill amortization Earnings after taxes and before goodwill amortization improved significantly to € 50 million in 2004 as compared to € 13 million in 2003, resulting primarily from increased investment income and improved underwriting results. Our loss ratio decreased significantly to 64.7 % in 2004, compared with 71.3 % in 2003, reflecting primarily disciplined underwriting practice in South
Earnings after taxes and before goodwill amortization Earnings after taxes and before goodwill amortization increased significantly by € 98 million to € 217 million in 2004 from € 119 million in 2003, due primarily to an increase in gross premiums written, as well as a decrease in claims costs in a historically low claims environment characterized by a drop in the frequency of claims, a lower number of major claims and positive development of previous years’ claim reserves. As a result of these developments, our loss ratio, expense ratio, and therefore, our combined ratio, decreased significantly to 40.8 %, 28.2 % and 69.0 %, respectively, in 2004.
In December 2004, Euler Hermes decided to sell its factoring activities to Crédit Argicole S. A. for € 187 million in order to focus its resources on its core business, credit insurance. The proceeds from the sale were used to reduce the debt of the Euler
Earnings after taxes and before goodwill amortization ¤ mn 52 77 (257 )
Gross premiums written Gross premiums written remained unchanged in 2004, reflecting the general market environment in most countries in which we conduct our business. Gross premiums written for the entire Allianz
in 2004 from 27.9 % in 2003 due primarily to a change in the calculation method for our deferred policy acquisition costs as compared to 2003. For the entire Allianz Global Risks business, we achieved a combined ratio of 92.9 %, an improvement of 0.9 percentage points over 2003.
_ Mondial Assistance Group is the worldwide leading provider of travel insurance and assistance services.
Earnings after taxes and before goodwill amortization ¤ mn 81 64 21
Gross premiums written Gross premiums written decreased by 11.6 % to € 949 million in 2004, primarily due to our intentional reduction in selected business segments and exchange rate effects, offset in part by growth of our business in Great Britain.
Earnings after taxes and before goodwill amortization Earnings after taxes and before goodwill amortization increased to € 81 million in 2004 from to € 64 million in 2003, due primarily to significant positive tax effects resulting from a reduction in previous year’s provision for income taxes. Mainly attributable to this effect, taxes decreased by € 42 million. Our continuous portfolio monitoring, re-underwriting measures and an absence of significant large losses contributed to the decrease in our loss ratio, which declined from 65.5 % in 2003 to 64.4 % in 2004.
Kingdom, as well as increased operating expenses in our German operations primarily attributable to the introduction of new information technology systems and profit commissions.
We achieved strong growth in both our operating profit and net income.
Operating Profit In 2004, operating profit from our life/health insurance operations increased significantly by 12.1 % to € 1,418 million as compared to 2003. This was due primarily to increases in net current income from investments and our net trading result, as well as lower net other operating income/(expenses), offset in part by increases in net insurance benefits and net acquisition costs. Important drivers for these beneficial developments were an increase in business volume, pricing of new business and further efficiency gains. Administrative expenses decreased by € 37 million to € 1,270 million in 2004, primarily as a result of efficiency gains.
_ Non-operating results were up significantly by ¤637 million to ¤228 million in 2004, largely due to increased net capital gains and lower impairments on investments, as well as reduced amortization of goodwill. In 2003, amortization of goodwill reflected an impairment on goodwill of ¤224 million attributable to South Korea.
A L L I A N Z G R O U P 61 icy acquisition costs. Accordingly, our statutory expense ratio increased to 9.1 % in 2004 from 7.9 % in 2003. Net trading income and net insurance benefits were affected by a new U.S. GAAP
Korea. Tax expense decreased to € 469 million in 2004 from € 583 million in 2003, which reflected a charge of € 409 million relating primarily to a change in tax law in Germany. Minority interests in earnings grew by € 134 million to € 369 million in 2004 primarily due to our improved earnings, in particular in France and Italy.
Statutory expense ratio8) in % 9.1 7.9 1) Under the Allianz Group’s accounting policies for life insurance contracts, for which we have adopted U.S. GAAP accounting standards, gross written premiums include only the cost- and risk-related components of premiums generated from unit-linked and other investment-oriented products, but do not include the full amount of statutory premiums written on these products. Statutory premiums are gross premiums written from sales of life 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.
7) Includes realized gains of ¤743 mn from sales of Crédit Lyonnais shares in 2003. 8) Represents ratio of net acquisition costs and administrative expenses to net premiums earned
Statutory Gross Earnings Statutory Gross Earnings Statutory Gross Earnings premiums2) premiums after taxes premiums2) premiums af ter taxes premiums2) premiums af ter taxes writ ten and before writ ten and before writ ten and before goodwill goodwill goodwill amortization amortization amortization
¤ mn ¤ mn ¤ mn ¤ mn ¤ mn ¤ mn ¤ mn ¤ mn ¤ mn 1) Represents elimination of transactions between Allianz Group companies in different geographic regions.
2) Under the Allianz Group’s accounting policies for life insurance contracts, for which we have adopted U.S. GAAP accounting standards, gross written premiums include only the cost- and risk-related components of premiums generated from unit-linked and other investment-oriented products, but do not include the full amount of statutory premiums written on these products. Statutory premiums are gross premiums written from sales of life 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.
_ In the German market, we provide life insurance products through Allianz Leben, which includes the companies Allianz Lebensversicherungs-AG, Deutsche Lebensversicherungs-AG and Allianz Pensionskasse AG.
_ We are number one in the German market in life insurance and number three in health insurance based on market share.
As a result, Allianz Leben sold a record high of approximately 1.3 million insurance policies in 2004, representing an increase of 38.6 % as compared to the number of policies sold in 2003. In addition to the effect from the introduction of the new law, the rise in statutory premiums was also driven by growth in new business through all our distribution channels. By far, the most important distribution channel continued to be our captive underwriting organization (“Ausschließlichkeitsorganisation”), which account ed for approximately 55 % of new business in 2004. Distribution through our bancassurance channel saw a marked increase of
¤ mn ¤ mn ¤ mn ¤ mn ¤ mn ¤ mn ¤ mn ¤ mn ¤ mn *) Represents elimination of transactions between Germany Life and Germany Health.
Earnings after taxes and before goodwill amortization Earnings after taxes and before goodwill amortization from life insurance operations increased by € 225 million to € 219 million in 2004 from a loss of € 6 million in 2003, reflecting an im proved investment result and lower tax charges, offset in part by increased net policy acquisition costs. Our statutory expense ratio increased to 10.4 % in 2004 from 6.8 % in 2003, reflecting primarily the growth in new business, as well as the “true-up” of deferred policy acquisition costs as a result of the annual changes in calculation assumptions.
Gross premiums written on medical expense insurance, which accounted for 72.2 % of health insurance premiums in Germany in 2004, increased by € 45 million, or 2.1 % to € 2,181 million in 2004 from € 2,136 million in 2003. The increase was attributable primarily to rate increases and, to a lesser extent, new business.
_ AGF Group ranks eighth in the French life insurance market.
_ We are number three in health insurance in France based on market share.
Statutory premiums Statutory premiums decreased € 459 million, or 5.0 %, to € 8,738 million in 2004 from € 9,197 million in 2003. This decrease was primarily attributable to a reduction in sales of life insurance products through our bancassurance channel. This decrease was
Earnings after taxes and before goodwill amortization Earnings after taxes and before goodwill amortization increased to € 294 million in 2004 from € 223 million in 2003, due primarily to an increase in investment result, attributable to lower net impairments and higher net realized gains on investments. Our statutory expense ratio increased to 4.4 % in 2004 from 3.5 % in 2003 primarily due to the decrease in our statutory premiums.
Earnings after taxes and before goodwill amortization ¤ mn 45 33 30
_ Together, they increased their statutory premiums by 10.6 % to ¤676 million.
Earnings after taxes and before goodwill amortization Earnings after taxes and before goodwill amortization increased by € 12 million, or 36.4 %, to € 45 million in 2004 from € 33 million in 2003, due primarily to increased net current income from investments as a result of higher business volume. Our statutory expense ratio decreased to 5.8 % in 2004 from 6.3 % in 2003 mainly due to growth in sales of commission-free products and efficiency gains.
a reduction in our individual life insurance business, which was in line with the general market trend, mainly attributable to the reductions in interest rates.
Europe increased by € 59 million to € 97 million in 2004, compared with € 38 million in 2003, reflecting primarily increases in
Belgium and the Netherlands, offset in part by a decrease in the
In December 2004, we sold our life insurance business in the
_ In 2004, we experienced continued growth in most of our other European markets, especially in Central and Eastern Europe.
Statutory premiums Statutory premiums increased significantly by € 2,668 million to € 11,234 million in 2004, from € 8,566 million in 2003. Excluding the negative effect of exchange rate movements of € 1,071 million, statutory premiums in the United States grew by 43.6 %.
This increase was primarily due to higher sales of both fixed and variable annuity products, primarily driven by an expanding distribution network, the launch of new and innovative products and a relatively stable capital markets environment.
_ Our life insurer in the United States of America is Allianz Life of North America.
_ Allianz Life of North America is the leading provider of equity-indexed annuities in the United States.
Earnings after taxes and before goodwill amortization Earnings after taxes and before goodwill amortization increased to € 277 million in 2004 from € 165 million in 2003, reflecting primarily dividend income of € 77 million received from an
Allianz Group’s enterprise in 2004. The dividend income received was eliminated at the Allianz Group level. After eliminating this dividend income, earnings after taxes and before goodwill amortization increased by € 35 million, or 21.2 %.
Statutory premiums Statutory premiums decreased by € 52 million, or 2.0 %, to € 2,551 million in 2004 from € 2,603 million in 2003. On a constant currency basis, statutory premiums increased by € 111 million, or 4.3 %, due primarily to growth in Taiwan attributable to new business, offset in part by decreased statutory premiums in
Earnings after taxes and before goodwill amortization Earnings after taxes and before goodwill amortization decreased by € 28 million, to a loss of € 10 million in 2004 from a gain of € 18 million in 2003, reflecting primarily decreased earnings in
Korea increased primarily as a result of significant realized gains on investments, offset in part by an impairment of deferred tax assets relating to capitalized tax losses that expire in March 2006 and 2007.
Net income from our banking segment was € 104 million in 2004, of which € 142 million was generated by Dresdner Bank. After the divestment of our French mortgage banking subsidiary, Entenial, in January 2004, our banking segment’s results of operations are almost exclusively represented by Dresdner Bank, accounting for 96.6 % of the total banking segment’s operating revenues in 2004.
Accordingly, the discussion of our banking segment’s results of operations for the years 2004 and 2003 relate solely to the operations of Dresdner Bank.
to € 2,060 million. Our net loan loss provisions were reduced by 66.8 % to € 337 million in 2004, primarily as a result of further improved risk management processes, absence of large defaults and the reduction in our non-strategic loan business within the
Net Income Net income of Dresdner Bank improved significantly to € 142 million in 2004 from a loss of € 1,305 million in 2003. In addition to the positive developments in our operating profit, Dresdner Bank’s net income was also strengthened by a significant reduction in restructuring charges, which declined to € 290 million in 2004
_ In 2004, we successfully drove forward the turnaround of our banking business.
A L L I A N Z G R O U P 71 from € 840 million in 2003, as well as an improvement in net other non-operating income/(expenses), € 335 million to a loss of € 278 million in 2004 from a loss of € 613 million in 2003. During 2004, restructuring charges of € 96 million resulted from our
Kleinwort Wasserstein divisions, as well as the reorganization of our business in Latin America. Additionally, the sale of non-strategic investments contributed to our net capital gains and impairments on investments, which increased to € 134 million in 2004 from a loss of € 170 million in 2003.
Other non-operating income/(expenses)(net) (288 ) (278 ) (553 ) (613 )
Operating Earnings af ter taxes Operating Earnings af ter taxes revenues2) and before goodwill revenues2) and before goodwill amortization amortization
¤ mn ¤ mn ¤ mn ¤ mn 1) The current reporting structure reflects (a) the splitting of the former Private & Business Clients division into two new divisions, Personal Banking and Private & Business Banking, effective in 2004, (b) the reorganization of the banking divisions in 2003, including the splitting of the former Corporates & Markets division into two new divisions, Corporate Banking and Dresdner Kleinwort Wasserstein, as well as the formation of IRU in 2003, and (c) the reclassification of the banking operations, other than Dresdner Bank, that were previously included within our former Private & Business Clients division and our former Corporates & Markets division to our former Other division. Furthermore, for the purpose of presenting the results of operations of Dresdner Bank separately from others within the banking segment, we have also split our former Other division into Corporate Other division and Other Banks.
Earnings after taxes and before goodwill amortization Earnings after taxes and before goodwill amortization increased by € 42 million, or 27.8 %, to € 193 million in 2004 from € 151 million in 2003. This result was driven by a strengthening of our operating revenues, as well as a stable net loan loss provision and declining restructuring charges and net other non-operating income/(expense) of € 14 million and € 12 million, respectively, from 2003.
Earnings after taxes and before goodwill amortization Earnings after taxes and before goodwill amortization decreased by € 65 million, or 26.4 %, to € 181 million in 2004 from € 246 million in 2003. As a result of strict cost control, administrative expenses declined to € 1,828 million in 2004 from € 1,876 million in 2003. However, our cost-income ratio increased to 88.1 %
Earnings after taxes and before goodwill amortization Earnings after taxes and before goodwill amortization was € 21 million in 2004, an increase of € 892 million from a loss of € 871 million in 2003, reflecting a significant decline in both restructuring charges and net other non-operating income/(expenses) of € 72 million and € 134 million, respectively. Administrative expenses decreased by € 178 million from € 465 million in 2003 to € 287 million in 2004 primarily due to measures taken to reduce headcount and operating costs in light of the reduction of IRU
The assets under management by the Allianz Group consist of third-party assets, group’s own investments and separate account assets.
Operating Revenues Operating revenues of Allianz Global Investors increased by € 63 million, or 2.8 %, to € 2,301 million in 2004. Excluding the negative effects from exchange rate movements, operating revenues increased by € 226 million, representing a growth rate of 10.1 %.
This growth reflected positive business developments worldwide, resulting primarily from higher average assets under management driven by significant net inflows and favorable capital markets in 2004. We recorded the strongest growth rate in our Asia-Pacific business, which was also due to a much lower base (assets under management) as compared to our businesses in the United States and Europe. 2003 2004
_ The Allianz Group is one of the five largest asset managers in the world based on assets under management. In 2004, we achieved net inflows of ¤31 billion to third-party assets under management.
As a result of the above mentioned developments, our costincome ratio improved from 67.2 % in 2003 to 63.0 % in 2004.
Asset Allianz Asset Allianz Management Global Management Global Segment Investors Segment Investors
Earnings from ordinary activities before taxes 53 48 (103 ) (103 )
1) Comprises amortization charges of ¤125 mn (2003: ¤137 mn) relating to capitalized loyalty bonuses for PIMCO management, charges of ¤125 mn (2003: ¤159 mn) relating to retention payments for the management and employees of PIMCO and Nicholas Applegate, as well as charges of ¤173 mn (2003: ¤171 mn) in connection with the deferred purchases of interests in PIMCO.
PIMCO were agreed upon at the time these investment companies were acquired.
(approximately € 16 billion, or 2.8 %). The remaining group’s own investments, as well as separate account assets continue to be managed by the respective Allianz Group’s insurance companies around the world.
1) Assets are presented at fair value. 2) Includes adjustments to reflect real estate and investments in associated enterprises and joint ventures at fair value. These adjustments were made in order to reflect the definition of group’s own investments used by management for its controlling purposes. 3) As a result of a new accounting standard, investments from certain unit-linked contracts were reclassified from separate account assets to trading assets, which are included within group’s own investments.
Allianz Global Investors 1) Represents location of Allianz Group asset management operations. 2) Consists of third-party assets managed by Dresdner Bank (¤19 bn, ¤20 bn and ¤24 bn in 2004, 2003 and 2002, respectively) and by other Allianz Group companies (¤16 bn, ¤22 bn and ¤24 bn in 2004,
Overall, third-party assets account for approximately 54.2 % or € 585 billion of assets managed by the Allianz Group. The value of this portfolio increased by € 20 billion, including net inflows of € 31 billion and market-related increases of € 32 billion. This increase in value of our third-party assets more than compensates the negative effects from exchange rate movements of € 31 billion, resulting primarily from the weakness of the U.S. dollar as compared to the Euro. Our third-party assets under management were also negatively affected by the withdrawal from our joint venture with Meiji Life in Japan, which resulted in a € 12 billion decline in our third-party assets under management.
A L L I A N Z G R O U P 81
We have strong market positions in the United States and Germany. 70.3 % and 15.2 % of our third-party assets under management originated from the United States and Germany, respectively. Of the total third-party assets under management, 74.7 %
In 2004, we achieved a number of successes: _ With net inflows of € 37.0 billion, our fixed-income fund business achieved significant growth.
_ Due to its strong product performance, our PIMCO Total Return
States increased by € 7.8 billion to € 267.4 billion in 2004. Assets managed for retail clients increased to € 143.6 billion in 2004 from € 132.8 billion in 2003.
In the institutional business, PIMCO, our entity specializing in fixed income investments, again achieved significant improvements in third-party assets. Despite a negative currency effect of € 26.5 billion, PIMCO increased third-party assets by € 26.6 billion to € 342.2 billion in 2004, with net inflows of € 33.2 billion and market-related increases of € 19.9 billion.
Our U.S. companies specializing in equities, managed thirdparty assets of € 68.8 billion at December 31, 2004, compared to € 76.8 billion in 2003. Negative effects from exchange rate movements of € 6.4 billion accounted for the majority of this decrease.
Germany As of December 31, 2004, Allianz Global Investors’ German subsidiaries managed assets of € 224.0 billion, representing an increase of € 15.5 billion compared to 2003. Thereof, group’s own investments and third-party assets accounted for € 134.7 billion and € 89.3 billion (2003: € 124.9 billion and € 83.6 billion), respectively. Of the total third-party assets under management, institutional business accounted for € 44.2 billion, representing an increase of € 2.3 billion. Assets managed for the retail business increased by € 3.4 billion to € 45.1 billion at December 31, 2004.
German asset management companies based on assets under management at December 31, 2004, according to the BVI.
Real estate used by third-parties 3,534 5,613 1,479 2 — 10,628
3) As a result of a new U.S. GAAP accounting standard (SOP 03-1), investments from certain unit-linked contracts were reclassified from separate account assets to trading assets, which are included within group’s own investments.
Funds held by others under reinsurance contracts assumed 7,848 102 – – (5,938 ) 2,012
Trading portfolio 1) Group’s own investments are stated at balance sheet value. Fair values amounted to ¤7,135 mn on investments in associated enterprises and joint ventures and to ¤13,804 mn on real estate used by third-parties.
2) Consists of loans issued by Allianz Group operating entities within the Property-Casualty and Life/Health segments (¤21,300 mn), bank deposits (¤10,686 mn), as well as loans to associated enterprises and joint ventures (¤7 mn).
2) Excludes interest and similar income from loans issued by the Allianz Group’s banking operating entities. 3) Represents net trading income.
Property-Casualty Property-casualty insurance investments increased by € 325 million to € 143,370 million in 2004 from € 143,045 million in 2003.
The total investment result from property-casualty investments decreased by € 309 million, or 4.6 %, to € 6,407 million in 2004 from € 6,716 million in 2003, due primarily to lower net realized gains, offset in part by the negative impact on net trading income from the use of certain financial derivative instruments in 2003. Realized investment gains decreased by € 5,755 million, or 72.3 %, to € 2,208 million in 2004 compared with € 7,963 million in 2003, mainly as a result of significant realized gains on the reductions of certain shareholdings in 2003. Current income from investments increased by € 1,565 million, or 36.1 %, to € 5,905 million in 2004, compared with € 4,340 million in 2003, due to higher current income from our investments in associated enterprises and joint ventures. Investment expenses decreased by € 2,713 million, or 57.8 %, to € 1,984 million in 2004, compared with € 4,697 million in 2003, due primarily to reduced impairments on investments, which decreased to € 634 million in 2004 compared to € 1,911 million in 2003, largely as a result of more stable capital markets during 2004. Losses from the trading portfolio decreased significantly by € 1,443 million to € 47 million, as compared to € 1,490 million in 2003. The high level of losses in 2003 reflected primarily losses relating to certain financial derivative instruments that were used in a macro hedge for hedging our equity exposure in 2003. Under IFRS, financial derivatives used in macro hedges do not qualify for hedge accounting and changes in their fair value are recognized in trading income. Changes in the fair value of the underlying equity investments are recognized in shareholders’ equity and are only recognized in the income statement when they are sold.
1) Includes respective income and expenses from investments in associated enterprises and joint ventures, and loans issued by the Allianz Group’s operating entities within the Property-Casualty and Life/Health segments.
Life/Health Life/health insurance investments increased by € 46,429 million, or 20.0 %, to € 278,461 million in 2004 from € 232,032 million in 2003, primarily as a result of reclassification of investments related to unit-linked products at our Italian subsidiaries from separate account assets to trading assets in 2004. The total investment result from life/health investments increased by € 3,651 million, or 36.0 %, to € 13,790 million in 2004 from € 10,139 million in 2003, largely due to lower net realized investment losses as well as impairments on investments. This effect was partly offset by reduced realized investment gains. A strong positive effect resulted from an increase in trading income of € 1,132 million to € 1,350 million in 2004 compared with € 218 million in 2003 driven, to a large extent, by the effects of a new accounting standard whereby investments from certain unit-linked contracts were reclassified from separate account assets to trading assets. This change led to an equal increase in both net trading income and net insurance benefits. Current income from investments decreased slightly by € 90 million, or 0.8 %, to € 11,579 million in 2004, compared with € 11,669 million in 2003, while realized investment gains decreased by € 1,605 million, or 43.3 %, to € 2,099 million in 2004, compared with € 3,704 million in 2003, primarily due to lower realized gains from the disposition of investments in 2004 as compared to 2003. Depreciation and impairments on investments was € 330 million in 2004, as compared to € 2,352 million in 2003, largely due to more favorable capital markets during 2004.
Current income from investments decreased slightly to € 1,028 million in 2004, compared with € 1,080 million in 2003. Realized investment gains decreased to € 556 million in 2004, compared with € 584 million in 2003. Investment expenses decreased to € 517 million in 2004 from € 1,035 million in 2003. Thereof, depreciation and impairments of investments decreased by € 258 million, to € 433 million in 2004, compared with € 691 million in 2003, due primarily to more stable capital markets during 2004.
Asset Management Asset management investments decreased by € 79 million, or 10.6 %, to € 668 million in 2004 from € 747 million in 2003, reflecting primarily a decrease in short-term investments. The total investment result from asset management investments declined by € 29 million to € 35 million in 2004 from € 64 million in 2003.
Insurance, banking, and asset management are all heavily influenced by legal factors; legislative changes in particular have a primary influence on our activities. Legal risks also include major litigation and disputes, regulatory proceedings, and contractual clauses that are unclear or construed differently by the Courts.
Group further strengthened the principle of independent risk oversight. There is a clear distinction between risk assumption (i.e. the responsibility for the business including associated risk management ) and independent risk monitoring. The latter also analyses alternative courses of action and proposes recommendations to the Risk Committee and the Management Board of Allianz AG.
Risk policies The Group Risk Policy sets down the minimum requirements that are binding for all operating units. In the year under review, these general principles were concretized for the insurance, banking, and assets management segments; in the course of this, specific risk standards were set down (so-called
As providers of financial services, we consider risk management one of our core competencies. Risk management is therefore an integrated part of our controlling process. We identify and measure, aggregate and manage risks. The result of this process determines among other things how much capital is allocated to the Group’s various divisions.
Group and increase its value on a sustained basis. Therefore, the
Group from this, and regularly informs management about the current situation. In addition, Group Risk Control makes sure that the risk governance principles of the Allianz Group are fully adhered to. Group Risk Control is also responsible for the centralized monitoring of accumulation risk over all business lines. This ensures that we control our local and global risks equally, and are not exposed to the danger of overall risk increasing unnoticed.
worldwide and monitored on a regular basis within a structured process by Group Risk Control.
Risk capital We control our activities through our respective local companies. The most important parameters used in our valueoriented controlling process are Economic Value Added (EVA®)
and risk capital. Risk capital serves as a buffer against unexpected losses. In the fiscal 2004, we used our internal risk capital model as input for the value-oriented management framework of our insurance companies and Dresdner Bank. For asset management, we used a model based on a concept developed by Standard &
Our risk capital model quantifies the following risk categories: _ Market risks Possible losses caused by changes in interest rates, exchange rates, share prices and other relevant market prices
_ Credit risks Possible losses caused by the inability to pay or a downgrade in the credit rating of debtors or counterparties.
“AA” rating from Standard & Poor’s. The risk capital after group diversification and before minority interests amounted to € 34.3 billion.
Stress tests In addition to risk capital analysis we also carry out stress tests, which act as early-warning indicators to secure external capital requirements. This affects capital requirements from the viewpoint of the supervisory authorities and rating agencies.
If, the interest curve had moved upwards by 100 basis points, our shareholders’ equity would have decreased by € 3.0 billion if the fixed-interest securities available for sale are taken into account.
In certain insurance lines, there is a direct link between investments and obligations to our customers. Life insurance is subject to the guaranteed interest risk: it must generate the interest payments it guarantees in the promised amount. The tight link between insurance obligations and investment of the capital related to these obligations is investigated by using specific models for asset-liability management. We are continuously developing our asset-liability management. In the past fiscal year we started a project to use new methods of mathematical finance for examining the value drivers of our life insurance business.
are distributed over debtors that have been assigned at least an
Ceded reserves by rating classes (net of amounts due from reinsurers)
Allianz Group on a monthly basis. Approximately 93 % of the investment credit risks of the insurance companies of Allianz Group have an investment grade rating. More than 86 % are distributed over debtors that have been assigned at least an “A” rating.
Where such models do not exist, for example for the flood risk in
At the end of fiscal 2004, the risk capital of our insurance companies, considering local solvency requirements and before group diversification and minority interests, was composed as follows: risk capital of property and casualty insurance was € 21.9 billion, while that of life insurance was € 8.7 billion.
Providers (BaFin) has approved Dresdner Bank’s value-at-risk mod el for purposes of reporting in accordance with Principle I of the German Banking Act. The value-at-risk model is complemented by scenario analyses.
For purposes of setting internal limits and risk management, we calculate value-at-risk with a confidence level of 95 % and a oneday holding period. Unlike the value-at-risk calculation required by the supervisory authority, which is based on market data from the past, we thus assign greater weight to the most recent market fluctuations.
Liquidity control and liquidity risk management are the responsibility of the treasury. As part of the Group liquidity policy, Treasury and Risk Controlling of Dresdner Bank established principles for liquidity management. This liquidity policy meets both regulatory requirements and internal standards. The liquidity risk limits set include a reporting process for limit breaches and provisions for emergency planning.
In the year under review, we pushed ahead with both the expansion of industry-specific expertise, and the internal organization of risk management units by customer segments. As part of improved risk monitoring, risk reporting has been broadened, and adapted to the lending business minimum requirements (MaK) of the German supervisory authorities. Measures to limit concentration risks were also continued.
Counterparty risks from trading activities In the credit-sensitive trading business with OTC derivatives, the selection of counterparties plays a decisive role. The selection process is aimed at counterparties with top-quality credit ratings. In assessing the current counterparty risk, positive replacement values from the Bank’s point of view are the determining factor. These correspond to the additional expense or lower yield that would result from restoring an equivalent position in the event of a trading partner defaulting.
The banking and other financial services provider sectors account for a large proportion of the positive replacement values.
Risk capital At the end of fiscal 2004 the risk capital of the Dresdner Bank, before group diversification, amounted to € 7.9 billion.
Risk control in asset management is an integated part of the processes of the local units or the investment platform. The Corporate
Center ensures that Group-wide standards for asset management are applied at the local level. The individual asset management companies continually monitor the portfolio risks of the customer assets they manage by using analytical tools specifically adapted to the risk profile of the product concerned. At the same time, the performance of the various product lines is periodically monitored and analyzed at the Group level. At the end of fiscal 2004, risk capital in the asset management segment – calculated according to the Standard & Poor’s model and before minority interests
Allianz Group risk governance by introducing the Group Insurance Risk Committee. This Committee will support the Group
Risk Committee in respect of insurance risks. We will also be concluding a project involving the analysis of value drivers in our life insurance business using the latest mathematical methods.
We are also committed to improving our risk management processes for natural hazard liabilities and, for 2005, for the first time, have centrally grouped together and reinsured extreme natural disaster risks to which we are exposed. This is a direct result of insights gained from our internal risk capital model.
We are also working intensively on a project to evaluate derivatives on the basis of a group-wide uniform IT system. We will also strengthen and clarify our guidelines for handling derivatives.
_ We are continually optimizing our internal bank risk assessment procedures – including data entry and associated processes
On December 31, 2004 we had 162,180 (2003: 173,750) employees in over 70 countries. The decline in employee numbers is primarily the result of the restructuring of Dresdner Bank, AGF
We intend to recruit, promote and train new managers primarily from among our own ranks and, in so doing, give them a good grounding in international business and help them become efficient, highly qualified and self-assured managers. We therefore set great store by sending our managers on international job placements – not least because this promotes a common global understanding of our leadership values and our business strategy throughout every country and every company belonging to the
Short or long-term expatriation offers Allianz managers, junior managers with potential and experienced specialists the opportunity to prove themselves in foreign markets and different cultures, thus driving forward the transfer of know-how throughout the entire Group.
Our management is run on the basis of individual target setting. As far as possible, remuneration reflects the results attained. Remuneration of upper- and mid-level management is already directly tied to meeting objectives and to the success with which our strategy for increasing the value of the company is implemented.
Total wages and salaries paid by the Group to its employees worldwide amounted to € 9.0 billion (2003: € 8.8 billion) in 2004. Social security contributions, pensions and other employee benefits amounted to € 2.1 billion (2003: € 2.2 billion).
Income Act on sales of such policies can be clearly understood.
In the current business year, global economic growth will likely be less dynamic than in 2004. It will probably fall in the range between 2.5 % and 2.8 % (instead of 3.8 % in 2004). We also believe that global trade will increase at a more moderate rate of around 7 %, as opposed to 10 % last year. This forecast is based in part on the energy price increases of 2004 and on the measures taken by the Chinese government to prevent their economy from overheating. Consequently, the Chinese economy is likely to grow at a rate of 8 % in 2005, one full percentage point less than in 2004. Disregarding Japan, as an exceptional case, the expansion in Asia as a whole will fall by one percentage point to 6 %. In the
In the European Union, the economic slowdown will be very moderate, due in particular to the worsened outlook for Great
Britain. That means, however, that we can expect GDP growth roughly on the level of last year in the euro zone, driven by improved economic conditions in Italy and the Netherlands. In fact, the positive developments in these countries could well offset worsening developments in countries like Germany. Domestic demand will be critically important for the economy as a whole, because the slower rate of expansion of the world trade will primarily affect countries, such as Germany, for example, in which economic growth in 2004 was driven by exports.
Health segment will achieve its operating profit target of at least € 1.5 billion and Dresdner Bank will earn its cost of capital in 2005. Additionally, we are targeting a 10 % increase in operating profit for our Asset Management business. However, as always, natural catastrophes and adverse developments on the capital markets may severely impact our profitability.
The Board of Management and the Supervisory Board propose that the unappropriated earnings of Allianz AG for fiscal 2004 in the amount of € 852,000,000.00 be appropriated as follows: _ Distribution of a dividend of € 1.75 per eligible share: _ Allocation of € 177,635,811.25 to other appropriated retained earnings
Annual General Meeting may increase or decrease the number of shares eligible for dividends. In this case, an amended proposal for the appropriation of profit based upon an unchanged dividend in the amount of € 1.75 per eligible share will be submitted to the
European Monetary Union, (xi) changes in the policies of central banks and/or foreign governments, (xii) the impact of acquisitions, including related integration issues, (xiii) reorganization measures and (xiv) general competitive factors, in each case on a local, regional, national and/or global basis. Many of these factors may be more likely to occur, or more pronounced, as a result of terrorist activities and their consequences. The company assumes no obligation to update any forward-looking information contained herein.
Below we summarize our activities in 2004 to realize the Global
Group Risk Policy _ The new Group Risk Policy demands that consideration must be given to newly emerging dangers (e. g. in connection with nanotechnology) and ethical risks relating, fo example, to human rights violations.
Code of Conduct _ A new Code of Conduct has been released in 2005. The new code also makes reference to the UN Global Compact and the
Environmental Management System (EMS) _ The Allianz Group is gradually introducing its EMS in all subsidiary com panies. 61 percent of our employees worldwide are already working in accordance with these principles.
Allianz Services & Research _ We carry out Environmental Due Diligence Investigations at companies which aim to identify the financial implications of environmental risks.
_ ACT (Allianz Center for Technology) offers wide-ranging technical risk management consulting services for environmental and technical due diligence surveys on a world-wide basis.
Allianz Group is among the signatories of the Global Compact, an initiative of UN Secretary General Kofi Annan.
The Global Compact has established ten principles that govern human rights, labor standards, environmental protection and corruption. The Global Compact thus represents a reference system by which we can determine the extent to which we are conducting responsible business activities.
_ The business community should uphold the freedom of association and the effective recognition of the right to collective bargaining; furthermore, it should support
_ the elimination of all forms of forced and compulsory labor; _ the effective abolition of child labor; and
_ The business community should support a precautionary approach to environmental challenges; _ undertake initiatives to promote greater environmental responsibility; and
_ In January 2005, CO2 emission trading started in the EU. Dresdner
UN Millennium Development Goals _ Together with the United Nations Development Programm and
Consolidated Financial Statements 102 Consolidated Balance Sheets 103 Consolidated Income Statements 104 Consolidated Statements of Changes in Shareholders’ Equity 105 Consolidated Cash Flow Statements
Nature of Operations and Basis of Presentation 107 2 Summary of significant accounting and valuation policies 117 3 Restatement of prior period consolidated financial statements, changes to significant accounting and valuation policies, recently issued accounting pronouncements, and recently adopted accounting pronouncements 122 5 Segment Reporting
Supplementary Information on Group Liabilities and Equity 144 14 Shareholders’ equity 146 15 Minority interests in shareholders’ equity 147 16 Participation certificates and subordinated liabilities 148 17 Insurance reserves 149 18 Liabilities to banks 150 19 Liabilities to customers 150 20 Certificated liabilities 151 21 Trading liabilities 151 22 Other accrued liabilities 155 23 Other liabilities 155 24 Deferred income
Other Information 171 41 Derivative financial instruments 175 42 Fair value 176 43 Related party transactions 177 44 Contingent liabilities, commitments and guarantees 180 45 Other information 181 46 Stock Based Compensation Plans in the Allianz Group and Management Compensation 187 47 Events after the balance sheet date 188 Selected subsidiaries and other holdings 194 Independant Auditors’ Report 200 Glossary
Consolidated Income Statements for the years ended December 31, 2004, 2003*) and 2002*)
Income (net) from investments in associated enterprises and joint ventures 27 777 3,030 4,398
Fee and commission income, and income from service activities 30 6,823 6,060 6,102
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2004, 2003*) and 2002*)
Net income for the year – (1,496 ) – – (1,496 )
Changes in the group of consolidated companies – (1,117 ) – 876 (241 )
Changes in the group of consolidated companies – (73 ) 64 (27 ) (36 )
*) As indicated in Note 3, reflects restatement. See accompanying notes to the consolidated financial statements.
Consolidated Cash Flow Statements for the years ended December 31, 2004, 2003*) and 2002*)
Change in trading securities (including trading liabilities) (28,856 ) 8,909 14,064
Change in other receivables and liabilities 5,451 (4,250 ) (1,370 )
Net cash flow provided by (used in) operating activities 10,340 5,152 (741 )
Net cash flow used in investing activities (20,560 ) (2,810 ) (13,779 )
Change in participation certificates and subordinated liabilities 999 (1,943 ) 2,784
Cash and cash equivalents at beginning of period 25,528 21,008 21,240
Cash and cash equivalents at end of period 15,628 25,528 21,008 *) As indicated in Note 3, reflects restatement. See accompanying notes to the consolidated financial statements.
Notes to the Consolidated Financial Statements 1 Issuance of the Declaration of Compliance with the German Corporate Governance Code according to clause 161 AktG, Nature of Operations and Basis of Presentation
AG were issued on December 6 and 10, 2004, respectively, and were made available to the shareholders.
Group”) have global property-casualty insurance, life/health insurance, banking and asset management operations in more than 70 countries, with the largest of its operations in Europe. The Allianz Group’s headquarters are located in Munich, Germany. The parent company of the Allianz Group is Allianz AG, Munich. Allianz AG is an “Aktiengesellschaft” (public stock corporation) incorporated in Germany. It is recorded in the Commercial
Register of the municipal court Munich under its registered address at
Königinstraße 28, 80802 München. Besides serving as holding company for the Allianz Group, Allianz AG also acts as the primary reinsurance carrier for the Allianz Group.
(IFRS), in accordance with clause 292 a of the German Commercial Code
(HGB). Since 2002, the designation IFRS applies to the overall framework of all standards approved by the International Accounting Standards Board
Accounting Standards (IAS). All standards currently in force for the years under review have been adopted in the presentation of the consolidated financial statements. For years through 2004, IFRS does not provide specific guidance concerning the reporting of insurance and reinsurance transactions. Therefore, as envisioned in the IFRS Framework, the provisions embodied under accounting principles generally accepted in the United States of America (U.S. GAAP) have been applied. The calculation of aggregate
It excludes the effects of major changes in the scope of consolidation, which in 2004 included in particular influences from the deconsolidation of ENTENIAL, Guyancourt, President General Insurance, Taiwan and Allianz of Canada, Toronto and from the acquisition of Banca BNL Investimenti,
Milan, and Four Seasons Health Care Ltd., Wilmslow. In 2003 it included influences from the deconsolidation of Pioneer Allianz Life Assurance
Corporation, Metro Manila, and during 2002, the purchase of additional shares of Allianz Lebensversicherungs-AG, Stuttgart, Bayerische Versicherungsbank AG, Munich, Frankfurter Versicherungs-AG, Frankfurt am Main,
Bratislava, as well as the deconsolidation of Deutsche Hyp Deutsche Hypothekenbank Frankfurt-Hamburg AG, Frankfurt am Main. Subsequent to the date of acquisition, the cash of these companies has been included in the
¤43,558 mn); the acquisition increased the goodwill by ¤311 mn (2003: no change; 2002: increase by ¤2,924); the net total of other assets and liabilities increased by ¤3,221 mn (2003: increase of ¤24 mn; 2002: increase of ¤51,416 mn). Cash outflow related to these acquisitions amounted to ¤515 mn (2003: ¤1,450 mn; 2002: ¤10,764 mn). Changes in the scope of consolidation during 2004 led to a decrease in cash funds by ¤786 mn (2003: no change; 2002: decrease of ¤23 mn). Cash paid for taxes on income amounted to ¤1,785 mn (2003: outflow of ¤2,665 mn; 2002: outflow of ¤1,196 mn). The reduction of cash and cash equivalents during 2004 is mainly due to the increase in the volume of lending business and the resulting increase in the amount of collateral paid.
policy reserves and deferred policy acquisition costs is in accordance with various U.S. GAAP Statements of Financial Accounting Standards (SFAS), including SFAS 60, SFAS 97, and SFAS 120. The consolidated financial statements of the Allianz Group have been prepared in Euros (¤).
Changes in Foreign Exchange Rates, by the method of functional currency.
Group to make estimates and assumptions that affect items reported in the consolidated balance sheet and consolidated income statement, as well as under contingent liabilities. The actual values may differ from those reported. The most important of such items are the reserve for loss and loss adjustment expenses, the aggregate policy reserves, the loan loss allowance, fair value and impairments of investments, goodwill, brand names, deferred policy acquisition costs, deferred taxes and reserves for pensions and similar obligations.
Intangible Assets Goodwill resulting from business combinations represents the difference between the acquisition cost of the business combination and the Allianz
Group’s proportionate share of the net fair value of identifiable assets, liabilities and contingent liabilities. Goodwill resulting from business combinations with an agreement date on or after March 31, 2004, is not subject to amortization and is carried at cost less accumulated impairments.
Goodwill resulting from business combinations before January 1, 1995, was recorded directly in revenue reserves in shareholders’ equity in accordance with the transitional provisions of IAS 22.
October 1, in addition to whenever there is an indication that goodwill is not recoverable. The impairment review includes comparing the present value of each cash generating unit to its respective carrying value in the consolidated balance sheet, including goodwill. If the present value is greater, an impairment is not recorded. If the carrying value of the cash generating unit in the consolidated balance sheet exceeds the present value of the cash generating unit, the implicit present value of the related goodwill is determined with a corresponding impairment charge recorded in the consolidated income statement, reducing the respective goodwill to its present value. Impairments of goodwill are not reversed. Gains or losses realized on the disposal of subsidiaries include any related goodwill.
Intangible assets acquired in business combinations with an agreement date after March 31, 2004, are recorded at fair value on the acquisition date if the intangible asset is separable or arises from contractual or other legal rights. Intangible assets with an indefinite useful life are not subject to amortization. Intangible assets with a definite useful life are amortized over their useful lives. Intangible assets acquired in business combinations with an agreement date before March 31, 2004, were recorded at fair value on the acquisition date and are amortized over their useful lives.
Present value of future profits (PVFP) is the present value of net cash flows anticipated in the future from insurance policies in force at the date of acquisition and is amortized over the life of the related contracts. PVFP
Intangible assets also include capitalized loyalty bonuses for senior management of the PIMCO Group, that are amortized on a straight-line basis over five years, as well as the value of the brand names “Dresdner
Bank” and “dit” (Deutscher Investment-Trust) that are amortized on a straight-line basis over twenty years. The fair values for the brand names, registered as trade names, were determined using a royalty savings approach.
Similar to goodwill, intangible assets are subject to an annual impairment test, in addition to whenever there is an indication that it is not recoverable. If there are indications that intangible assets are impaired, their respective recoverable amounts are determined. If the recoverable amounts of intangible assets are less than their carrying amounts, an impairment is recorded in the consolidated income statement, reducing the respective intangible asset to its current recoverable amount.
Income from investments in associated enterprises and joint ventures is included as a separate component of total income as the Allianz Group considers income earned from such investments to be consistent with revenues such as realized gains, interest, and dividends earned from other investments.
Securities held-to-maturity are comprised of fixed income securities, which the Allianz Group has the positive intent and ability to hold to maturity. These securities are carried at amortized cost and the related premium or discount is amortized using the effective interest method over the life of the security. Amortization of premium or discount is included in interest income.
Other-than-temporary impairments are not recorded as a result of declines in fair value resulting from general market interest, credit spreads or exchange rate movements unless the Allianz Group intends to dispose of the security.
Recognition of an impairment loss on available-for-sale equity securities is recorded if a decline in fair value below the cost basis of an investment is considered other-than-temporary. The Allianz Group generally considers unrealized losses on equity securities to be other-than-temporary if the fair value has been below the weighted-average cost by more than 20 % for more than 6 months. Further, equity securities are considered to be other-than-temporarily impaired if the fair value has been below the weighted-average cost more than 12 months. Further, equity securities are
considered to be other-than-temporarily impaired if objective evidence indicates the cost is not recoverable or if the Allianz Group intends to dispose of the security.
For fixed income securities, if, in a subsequent period, the amount of the other-than-temporary impairment previously recorded on a security decreases and the decrease can be objectively related to an event occurring after the other-than-temporary impairment, such as an improvement in the debtor’s credit rating, the impairment is reversed through other income from investments in the Allianz Group’s consolidated income statement.
Real estate used by third-parties (i.e., real property and equivalent rights and buildings, including buildings on leased land) is carried at cost less accumulated depreciation and impairments. Real estate used by third parties is depreciated on a straight-line basis over its estimated life, with a maximum of 50 years. When testing for impairment, the fair value of real estate used by third parties is determined by the discounted cash flow method. Improvement costs are capitalized if they extend the useful life of the asset, otherwise they are recognized as an expense.
Funds held by others under reinsurance contracts assumed relate to cash deposits to which the Allianz Group is entitled, but which the ceding insurer retains as collateral for future obligations of the Allianz Group. The cash deposits are recorded on the balance sheet at face value, less any impairments for balances that are deemed to not be fully recoverable.
_ all investment performance, must as a result of contractual, statutory, or regulatory requirements be passed through to the individual contract holder.
Contracts that do not meet the separate account criteria above, are treated as general account assets and liabilities. The contract holder liability, which represents the fair value of the related assets, is recorded in the consolidated balance sheet as insurance reserves, with changes recorded in the consolidated income statement as insurance benefits. The assets related to such contracts are recorded in the consolidated balance sheet as trading assets, with changes in fair value recorded in the consolidated income statement as trading income.
Allianz Group’s consolidated balance sheet. Interest income on reverse repo agreements is accrued over the duration of the agreements and is
Loans and advances to customers include the Allianz Group’s gross investment in leases, less unearned finance income, related to lease financing transactions for which the Allianz Group is the lessor. The gross investment in leases is the aggregate of the minimum lease payments and any unguaranteed residual value accruing to the Allianz Group. Lease financing transactions include direct financing leases and leveraged leases.
The unearned finance income is amortized over the period of the lease in order to produce a constant periodic rate of return on the net investment outstanding in respect of finance leases.
Loan impairments and provisions Impaired loans represent loans for which, based upon current information and events, it is probable that the Allianz Group will not be able to collect all interest and principal amounts due in accordance with the contractual terms of the loan agreements.
The loan loss allowance represents management’s estimate of probable losses that have occurred in the loan portfolio and other lendingrelated commitments as of the date of the consolidated balance sheet.
A general allowance is established to provide for incurred but unidentified losses that are inherent in the loan portfolio as of the date of the consolidated balance sheet. General allowances are established for loans not specifically identified as impaired. The amount of the allowance is based on historical loss experience and management’s evaluation of the loan portfolio under current events and economic conditions.
Trading assets Trading assets consist of debt and equity securities, promissory notes and precious metal holdings, which have been acquired principally for the purpose of generating a profit from short-term fluctuations in price and derivative financial instruments that do not meet the criteria for hedge accounting with positive market values. Trading assets are reported at fair value as of the date of the consolidated balance sheet. Changes in fair value are recognized directly in the consolidated income statement.
In the Allianz Group’s banking segment, derivative financial instruments are used both for trading purposes and to hedge against movements in interest rates, currency and other price risks of investments, loans, deposit liabilities and other interest sensitive assets and liabilities.
Pursuant to IAS 39, derivative financial instruments that do not meet the criteria for hedge accounting are reported at fair value as trading assets or trading liabilities. Gains or losses on these derivative financial instruments arising from valuation at fair value are included in the Allianz
Group’s consolidated income statement in trading income. This treatment is also applicable for bifurcated embedded derivatives of a hybrid financial instrument.
A L L I A N Z G R O U P 111 objective and strategy for entering into various hedge transactions. The
Derivative financial instruments used in hedge transactions that meet the criteria for hedge accounting are recognized as follows: Fair value hedges
The risk of changes in the fair value of reported assets or liabilities (hedged item) is hedged by a fair value hedge. Changes in the fair value of a derivative financial instrument (hedging instrument) together with the pro rata share of the change in fair value of the hedged item are recognized in the consolidated income statement.
Cash flow hedges reduce the exposure to variability in cash flows that is attributable to a particular risk associated with a recognized asset or liability or attributable to future cash flows from a firm commitment or a forecasted transaction (hedged item). Changes in the fair value of derivative financial instruments (hedging instrument) that represent an effective hedge are recorded in unrealized gains and losses (net) in shareholders’
equity, and recognized in the consolidated income statement when the offsetting gain or loss associated with the hedged item is recognized.
The ineffective part of the cash flow hedge is recognized directly in the consolidated income statement.
The Allianz Group discontinues hedge accounting prospectively when it is determined that the derivative financial instrument is no longer highly effective, the derivative financial instrument or the hedged item expires, or is sold, terminated or exercised, or when management determines that designation of the derivative financial instrument as a hedging instrument is no longer appropriate. When a fair value hedge is discontinued, the
Allianz Group continues to carry the derivative financial instrument on the consolidated balance sheet at its fair value, and no longer recog nizes changes in fair value of the hedged item in the consolidated income statement. When hedge accounting for a cash flow hedge is discontinued, the
Derivative financial instruments are netted when there is a legally enforceable right to offset and when the Allianz Group intends to settle on a net basis.
Income taxes The tax shown in the Allianz Group’s consolidated income statement consists of the taxes actually charged to individual Allianz Group enterprises and changes in deferred tax assets and liabilities.
Other assets Other assets, amongst others, consist of real estate owned by the Allianz
deferred policy acquisition costs, deferred sales inducements, prepaid expenses and miscellaneous assets.
Deferred policy acquisition costs generally consist of commissions, underwriting expenses and policy issuance costs, which vary with and are directly related to the acquisition and renewal of insurance contracts. Such acquisition costs are deferred, to the extent they are recoverable, and amortized over the life of the related contracts.
Sales inducements on insurance contracts that meet the following criteria are deferred and amortized using the same methodology and assumptions used to amortize deferred policy acquisition costs: _ recognized as part of insurance reserves,
Asset securitizations The Allianz Group transfers financial assets to certain special purpose entities (SPEs) in revolving securitizations of commercial mortgage or other loan portfolios. The Allianz Group consolidates these SPEs as the Allianz
Leases Property and equipment holdings are used by the Allianz Group under operating leases, whereby the risks and benefits relating to ownership of the assets remain with the lessor, and are not recorded on the Allianz
Any translation differences, including those arising in the process of equity consolidation, are recorded as foreign currency translation adjustments directly in shareholders’ equity without affecting earnings.
Insurance reserves Insurance reserves include unearned premiums, aggregate policy reserves, reserves for loss and loss adjustment expenses, the reserve for premium refunds, premium deficiency reserves and other insurance reserves.
(EGMs) based upon historical and anticipated future experience, which is determined on a best estimate basis and evaluated regularly. The present value of EGMs is computed using the expected investment yield. EGMs include premiums, investment income including realized gains and losses, insurance benefits, administration costs, changes in the aggregate reserves and policyholder dividends. The effect of changes in EGMs are recognized in the period revised.
The aggregate policy reserves for universal life-type and investment contracts in accordance with SFAS 97 is equal to the account balance, which represents premiums received and investment return credited to the policy less deductions for mortality costs and expense charges. Deferred policy acquisition costs and PVFP for universal life-type and investment contracts are amortized over the expected life of the contracts in proportion to estimated gross profits (EGPs) based upon historical and anticipated future experience, which is determined on a best estimate basis and evaluated regularly. The present value of EGPs is computed using the interest rate that accrues to the policyholders, or the credited rate.
EGPs include margins from mortality, administration, investment income including realized gains and losses and surrender charges. The effect of changes in EGPs are recognized in the period revised.
Current and historical client data, as well as industry data, are used to determine the assumptions. Assumptions for interest reflect expected earnings on assets, which back the future policyholder benefits. The information used by the Allianz Group’s qualified actuaries in setting such assumptions includes, but is not limited to, pricing assumptions, available experience studies, and profitability analyses.
The interest rate assumptions used in the calculation of aggregate policy reserves were as follows: Traditional Long-duration participating insurance insurance contracts contracts (SFAS 120) (SFAS 60)
In connection with the adoption of SOP 03-1 effective January 1, 2004, insurance reserves include liabilities for guaranteed minimum death and similar mortality and morbidity benefits related to non-traditional contracts, annuitization options, and sales inducements. These liabilities are calculated based on contractual obligations using actuarial assumptions.
Reserves for loss and loss adjustment expenses are established for the payment of losses and loss adjustment expenses (LAE) on claims which have occurred but are not yet settled. Reserves for loss and loss adjustment expenses fall into two categories: case reserves for reported claims and reserves for incurred but not reported (IBNR) reserves.
Case reserves for reported claims are based on estimates of future payments that will be made in respect of claims, including LAE relating to such claims. Such estimates are made on a case-by-case basis, based on the facts and circumstances available at the time the reserves are established. The estimates reflect the informed judgment of claims personnel based on general insurance reserving practices and knowledge of the nature and value of a specific type of claim. These case reserves are regularly re-evaluated in the ordinary course of the settlement process and adjustments are made as new information becomes available.
to recognize the estimated costs, including expenses, necessary to bring claims to final settlement. Since nothing is known about the occurrence, the Allianz Group relies on its past experience, adjusted for current trends and any other relevant factors. IBNR reserves are estimates based on actuarial and statistical projections of the expected cost of the ultimate settlement and administration of claims. The analyzes are based on facts and circumstances known at the time, predictions of future events, estimates of future inflation and other societal and economic factors. Late reported claim trends, claim severity, exposure growth and future inflation are examples of factors used in projecting the IBNR reserves. IBNR reserves are reviewed and revised periodically as additional information becomes available and actual claims are reported.
There is no adequate statistical data available for some risk exposures in liability insurance, such as environmental and asbestos claims and largescale individual claims, because some aspects of these types of claims are still evolving. Appropriate provisions have been made for such cases based on the Allianz Group’s judgment and an analysis of the portfolios in which such risks occur. These provisions represent the Allianz Group’s best estimate. The current reserves for loss and loss adjustment expenses for asbestos claims are based on the estimate of an external independent actuarial report which was completed in 2002. Our United States propertycasualty subsidiaries have commissioned a new report. We anticipate that this report will be completed during 2005. The new actuarial report could result in Allianz Group adjusting its reserves for loss and loss adjustment expenses for asbestos claims.
The reserves for premium refunds includes the amounts allocated under the relevant local statutory or contractual regulations to the accounts of the policyholders and the amounts resulting from the differences between these IFRS based financial statements and the local financial statements (latent reserve for premium refunds), which will reverse and enter into future deferred profit participation calculations. These differences are recognized on a future accrual basis and reported in profit participation accounts. Unrealized gains and losses recognized in connection with the valuation of securities available-for-sale are recognized in the latent reserve for premium refunds to the extent that policyholders will participate in such gains and losses on the basis of statutory or contractual regulations when they are realized. The profit participation allocated to participating policyholders or disbursed to them reduces the reserve. Any dividends allocated or disbursed over and above the reserve are recorded in other expenses.
Other insurance reserves include experience-rated and other premium refunds in favor of policyholders.
Miscellaneous accrued liabilities primarily include reserves for restructuring, anticipated losses arising from non-insurance business, litigation, employees (e.g., early retirement, phased retirement, employee awards for long service, and vacation) and agents (e.g., unpaid commissions).
Other liabilities Other liabilities include funds held under reinsurance business ceded, accounts payable on direct insurance business, accounts payable on reinsurance business, and miscellaneous liabilities. These liabilities are reported at redemption value.
Revenues for universal life-type and investment contracts, such as universal life and variable annuity contracts, represent charges assessed against the policyholders’ account balances for the cost of insurance, surrenders and policy administration and are included within premiums earned on the Allianz Group’s consolidated income statement. Benefits charged to expense include benefit claims incurred during the period in excess of policy account balances and interest credited to policy account balances.
Interest and similar income/expense Interest income and interest expense are recognized on an accrual basis.
Assets and liabilities held in trust by the Allianz Group in its own name, but for the account of third parties, are not reported in its consolidated balance sheet. Commissions received from such business are shown in fee and commission income in the Allianz Group’s consolidated income statement.
Such fees are primarily based on percentages of the market value of the assets under management. Investment advisory fees receivable for private accounts consist primarily of accounts billed on a quarterly basis. Private accounts may also generate a fee based on investment performance, which are recognized at the end of the respective contract period if the prescribed performance hurdles have been achieved.
Distribution and servicing fees are recognized as the services are performed. Such fees are primarily based on percentages of the market value of assets under management.
Administration fees are recognized as the services are performed. Such fees are primarily based on percentages of the market value of assets under management.
Stock based compensation plans The Allianz Group accounts for its stock based compensation plans under the fair value recognition provisions of SFAS 123, Accounting for Stock-
Reclassifications For reasons of comparability with the current reporting year, some prioryear figures were adjusted in the consolidated balance sheet and the consolidated income statement through reclassifications that do not affect net income or shareholders’ equity.
German Commercial Code (HGB). By its reference to the creation of future commercial benefit for the company without any prerequisite of an acquisition against payment, items such as software developed in-house also must be reported in the accounts under IFRS as assets.
HGB the units of special funds are recognized in the balance sheet.
_ trading assets and large proportions of the investments are shown in the balance sheet at market value, and
_ insurance reserves in property and casualty insurance are lower under
Claims reserves Claims reserves tend to be somewhat lower under IFRS
because they are not calculated in accordance with the prudence concept but at the best estimate of the ultimate cost.
Acquisition costs Under IFRS acquisition costs are capitalized and amortized over the term of the policy.
Fund for general banking risks According to HGB, provisions may be made for general banking risks pursuant to clause 340 f of the HGB, setting aside a special item pursuant to clause 340 g of HGB. This is, however, not permitted for consolidated financial statements under IFRS rules.
Group companies are deducted from shareholders’ equity. Gains or losses from trading in own shares are added to, or subtracted from, equity with no impact on the income statement. According to HGB, own shares must be reported as assets, with reserves for treasury shares set aside at the same time. Also, in financial statements prepared according to HGB, gains or losses from trading in own shares would be transferred to the income statement and reported under trading income.
IFRS as follows: _ over 10 years for property and casualty insurance companies,
Group continued to monitor and analyze the status of the Nine Positions, consistent with its disclosed policies, and as a result recorded impairments on seven of the Nine Positions during 2003. The remaining 2 securities recovered in value such that no impairments were necessary in 2003.
Such activity was reflected in Allianz Group’s 2003 consolidated financial statements presented in its Annual Report (Geschäftsbericht) released in
Nine Positions, and the recognition of corresponding recoveries, if any, on such positions experienced in 2003, including the aforementioned recoveries on two of the securities, consistent with the requirements of IFRS.
The impact of the restatement of the Allianz Group’s consolidated net income (loss) and basic and diluted earnings per share for the years ended
Basic earnings per share – as previously reported2) 4.78 (4.44 )
1) Except per share data 2) Adjusted for the capital increase in April 2003.
Prior to 2003, the Allianz Group accounted for its stock-based compensation plans under the recognition and measurement provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25). In the third quarter of 2003, the Allianz Group adopted the fair value recognition provisions of Statement of Financial
The following table illustrates the effect on the Allianz Group’s consolidated net income and earnings per share as if the fair value method had been applied to all outstanding and unvested awards in all years presented.
Share-based compensation expense included in reported net income, net of related tax effects 313 206 67
The Allianz Group stock-based compensation plans are more fully described in Note 46.
In December 2003, the IASB issued the revised IAS 39, Financial Instruments: Recognition and Measurement (“IAS 39 revised”). IAS 39 revised is effective January 1, 2005. IAS 39 revised prohibits reversals of impairment losses on equity securities that are classified as available for
A L L I A N Z G R O U P 119 N O
sale. According to the Allianz Group’s previous accounting policy, if the amount of an impairment previously recorded on an available for sale equity security decreases, the impairment was reversed. As IAS 39 revised requires retrospective application, the Allianz Group’s consolidated financial statements will be restated to include the effects of this change.
In February 2004, the IASB issued IFRS 2, Share Based Payments
“an obligation to settle in cash”. A company is considered to have a cash settled plan if the shares issued are redeemable, either mandatorily or at the counter-party’s option. In this respect, IFRS 2 has incorporated the
2 is effective January 1, 2005. As a result of the implementation of IFRS 2, the PIMCO LLC Class B Unit Purchase Plan (“Class B Plan”) is considered a cash settled plan as the equity instruments issued are puttable at the counter-party’s option. According to the Allianz Group’s previous accounting policy, Class B Plan was considered an equity settled plan.
Further, IFRS 2 requires that share-based compensation plans include a best estimate of the amount of number of shares that are expected to vest in determining the amount of expense to be recognized. The Allianz
Group’s previous accounting policy required that forfeitures of shares be recognized when incurred.
In March 2004, the IASB issued IFRS 3, Business Combinations (“IFRS
3”). In accordance with IFRS 3, a company must cease the amortization of goodwill and intangible assets with a definite life and rather test for impairment on an annual basis in addition to whenever there is an indication that the carrying value is not recoverable. As a result of the adoption on IFRS 3 on January 1, 2005, the Allianz Group will cease amortization of goodwill and brand names.
IFRS 4 represents the completion of phase I and is a transitional standard until the IASB has more fully addressed the recognition and measurement of insurance contracts. IFRS 4 requires that all contracts issued by insurance companies be classified as either insurance contracts or investment contracts. Contracts with significant insurance risk are considered insurance contracts. IFRS 4 permits a company to continue with its previously adopted accounting policies with regards to recognition and measurement of insurance contracts. Contracts issued by insurance companies without significant insurance risk are considered investment contracts. Investment contracts are accounted for in accordance with IAS 39 revised. IFRS 4 is effective on January 1, 2005. As a result of the adoption of IFRS 4, certain contracts will be classified as investment contracts under IFRS 4.
Effective January 1, 2004, the Allianz Group adopted American Institute of
Duration Contracts and for Separate Accounts (“SOP 03-1”). The most significant accounting implications of SOP 03-1 for the Allianz Group are as follows: _ reporting and measuring assets and liabilities of certain unit linked contracts as general account assets and liabilities, when specified criteria are not met,
_ recognizing a liability for guaranteed minimum death and similar mortality and morbidity benefits only for contracts determined to incorporate mortality and morbidity risk that is other than nominal and when the risk charges made for a period are not proportionate to the risk borne for the period,
_ for contracts containing an annuitization benefit option contract feature, an additional liability is established, if a provision for such a contract feature is not required under other applicable accounting standards and if the present value of expected annuitization payments at the expected annuitization date exceeds the expected account balance at the expected annuitization date, and
Scope of the consolidation In addition to Allianz AG, 156 (2003: 193; 2002: 213) German and 907
(2003: 972; 2002: 1,045) foreign enterprises have been consolidated as of December 31, 2004. In addition, 68 (2003: 61; 2002: 74) German and 29 (2003: 39; 2002: 79) foreign investment funds were also consolidated as of December 31, 2004.
Allianz AG controls these entities on the basis of shareholder agreements between the Allianz Group subsidiary owning 50 % of each such entity and the other sharesholders. Pursuant to these shareholder agreements, the Allianz Group has the pow er to govern the financial and operating policies of these subsidiaries and the right to appoint the subsidiaries’
general manager, in the case of CreditRas and Duerrevita (merged in 2002 with CreditRas), and the CEO, in the case of Antoniana, who have been given unilateral authority over all aspects of the financial and operating policies of these entities, including the hiring and termination of staff and the purchase and sale of assets. In addition, all management functions of these subsidiaries are performed by Allianz Group employees and all operations are undertaken in Allianz Group’s facilities. The Allianz Group also develops all insurance products written through these subsidiaries.
Although the Allianz Group and the other shareholder each have the right to appoint half of the directors of each subsidiary, the rights of the other shareholders are limited to matters specifically reserved to the board of directors and shareholders under Italian law, such as decisions concerning capital increases, amendments to articles and similar matters. In addition, in the case of Antoniana, the Allianz Group has the right to appoint the
Acquisitions The following are the significant companies consolidated for the first-time for the years ended December 31, 2004, 2003 and 2002: Effects on the Consolidated Financial Statements in Year of Acquisition1)
Principal New Acquisitions Date of First-time Gross Premiums Net Income Goodwill 2) Amortization Consolidation of Goodwill
Allianz Group acquired 100.0 % of Four Seasons Health Care Ltd., Wilmslow at a purchase price of ¤1,167 mn. Four Seasons Health Care Ltd.,
Wilmslow operates care homes and specialist centres in England, Scotland and Northern Ireland.
PIMCO Advisors L.P., Delaware In January, April and November 2004, the Allianz Group increased its interest in PIMCO Advisors L.P., Delaware, by a total of 9.7 % to 93.6 %, resulting in additional goodwill of ¤583 mn.
A L L I A N Z G R O U P 121 N O
In the course of the year, no major subsidiaries were acquired or consol idated for the first time.
Allianz Group increased its interest in Riunione Adriatica di Sicurtà S. p. A.,
Delaware, by a total of 14.4 % to 83.9 %, resulting in additional goodwill of
¤624 mn. The acquisition cost for the additional interest was ¤640 mn.
Slovenská poist’ovna a. s., Bratislava On July 22, 2002, the Allianz
poist’ovna amounted to ¤216 mn, resulting in goodwill of ¤138 mn.
by 50.0 % to 100.0%, resulting in additional goodwill of ¤57 mn. The acquisition cost for the additional interest was ¤930 mn.
Dresdner Bank AG, Frankfurt am Main On January 15, 2002, June 28, 2002, July 2, 2002 and August 23, 2002, the Allianz Group increased its interest in Dresdner Bank AG by 21.5 % to 100.0 %, resulting in additional goodwill of ¤2,002 mn. The acquisition cost for the additional interest totaled ¤6,338 mn.
was merged into Eurohypo AG, a company into which Commerzbank AG,
Deutsche Bank AG and Dresdner Bank AG merged their mortgage lending subsidiaries. The proceeds from the sale of Deutsche Hyp amounted to
Group are also further analyzed by geographical areas or regions in matrixes that comprise a number of profit and service-center segments (see following pages). This geographic analysis is performed to provide further understanding of trends and results underlying the segment data.
Property-Casualty The Allianz Group is the largest German property-casualty insurance company based on gross premiums written in 2004. Principal product lines offered primarily within Germany include automobile liability and other automobile insurance, fire and property insurance, personal accident insurance, liability insurance and legal expense insurance. The Allianz Group is also among the largest property-casualty insurance companies in other countries, including France, Italy, the United Kingdom, Switzerland and
Allianz Group’s insurance operations. The Allianz Group managed approximately ¤1,078 bn of third-party assets, Allianz Group’s own investments and separate account assets on a worldwide basis as of December 31, 2004, with key management centers in Munich, Frankfurt, London, Paris,
San Diego and Newport Beach, California. As measured by total assets under management at December 31, 2004, the Allianz Group is one of the five largest asset managers in the world. The United States is the Allianz
Amounts ceded to reinsurers from insurance reserves 12,337 14,400 16,382 16,875
¤ mn ¤ mn ¤ mn ¤ mn ¤ mn ¤ mn ¤ mn ¤ mn
Income (net) from associated enterprises and joint ventures 2,438 3,611 8,494 438 712 445
Business Segment Information – Insurance as of and for the years ended December 31, 2004, 2003 and 2002
Travel Insurance and Assistance Services 863 784 740 59.8 60.6 62.0 6. Consolidation adjustments4) — — —
¤ mn ¤ mn ¤ mn 5. Consolidation adjustments4) – – –
% % % ¤ mn ¤ mn ¤ mn ¤ mn ¤ mn 4) Represents elimination of intercompany transactions between Allianz Group companies in different geographic regions. In the life/health insurance segment, consolidation adjustments also include the elimination of intercompany transactions between Germany Life and Germany Health. 5) The statutory expense ratio represents net acquisition costs and administrative expenses as a percentage of net premiums earned (statutory).
Operating Earnings af ter taxes Operating Earnings af ter taxes revenues2) and before goodwill revenues2) and before goodwill amortization3) amortization3)
¤ mn ¤ mn ¤ mn ¤ mn 1) The Current Reporting Structure reflects (a) the splitting of the former Private and Business Clients division into two new divisions, Personal Banking and Private & Business Banking, effective in 2004, (b) the reorganization of the banking divisions in 2003, including the splitting of the former Corporates & Markets division into two new divisions, Corporate Banking and Dresdner Kleinwort Wasserstein, as well as the formation of IRU, and (c) the reclassification of the banking operations, other than the Dresdner Bank, that were included within the former Private and Business Clients division and the former Corporates & Markets division to the former Other division. Furthermore, for the purpose of presenting the results of operations of Dresdner Bank separately from others within the banking segment, the former Other division has been split into Corporate Other division and Other Banks. The 2003 Reporting Structure, however, does not reflect any of these reorganizations.
A L L I A N Z G R O U P 131
The Allianz Group evaluates the results of its property-casualty, life/health insurance, banking and asset management segments using a financial performance measure referred to herein as “operating profit”. The Allianz
Earnings from ordinary activities before taxes 5,936 1,646 (81 ) 53 (2,371 ) 5,183
Earnings from ordinary activities before taxes 5,729 856 (2,200 ) (103 ) (1,421 ) 2,861 *) Total revenues comprise property-casualty segment’s gross premiums written, life/health segment’s statutory premiums, banking segment’s operating revenues, as well as asset management segment’s operating revenues.
¤482 mn (2003: ¤883 mn). 3) Comprises net claims incurred of ¤25,867 mn (2003: ¤26,659 mn), changes in other net underwriting provisions of ¤470 mn (2003: ¤326 mn) and net expenses for premium refunds of ¤324 mn (2003: ¤334 mn). Net expenses for premium refunds were adjusted for income of ¤268 mn (2003: expense of ¤396 mn) related to policyholders’ participation of net capital gains and impairments on investments as well as net trading income/(expense) that were excluded from the determination of operating profit.
6) Includes significant net realized gains from sales of certain shareholdings. 7) Net trading income/(expense) are net of policyholders’ participation. 8) Represents ratio of net claims incurred to net premiums earned. 9) Represents ratio of net acquisition costs and administrative expenses to net premiums earned.
Statutory expense ratio7) in % 9.1 7.9 1) Under the Allianz Group’s accounting policies for life insurance contracts, for which we have adopted U.S. GAAP accounting standards, gross written premiums include only the cost- and risk-related components of premiums generated from unit-linked and other investment-oriented products, but do not include the full amount of statutory premiums written on these products. Statutory premiums are gross premiums written from sales of life 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.
5) Comprises net acquisition costs of ¤2,635 mn (2003: ¤1,885 mn) and administrative expenses of ¤1,270 mn (2003: ¤1,307 mn). Net acquisition costs and administrative expenses do not include expenses for the management of investments and, accordingly, do not reconcile to the acquisition costs and administrative expenses as presented in the Consolidated Financial Statements.
7) Includes realized gains of ¤743 mn from sales of Credit Lyonnais shares in 2003. 8) Represents ratio of net acquisition costs and administrative expenses to net premiums earned
After the divestment of our French mortgage banking subsidiary, Entenial, in January 2004, the Allianz Group’s banking segment’s results of operations are almost exclusively represented by Dresdner Bank, accounting for 96.6 % of the total banking segment’s operating revenues in 2004.
Earnings from ordinary activities before taxes (81 ) (79 ) (2,200 ) (2,375 )
1) Comprises amortization charges of ¤125 mn (2003: ¤137 mn) relating to capitalized loyalty bonuses for PIMCO management, and charges of ¤125 mn (2003: ¤159 mn) relating to retention payments for the management and employees of PIMCO and Nicholas Applegate, as well as charges of ¤173 mn (2003: ¤171 mn) in connection with the deferred purchases of interests in PIMCO.
The Allianz Group’s asset management segment’s results of operations are almost exclusively represented by Allianz Global Investors, which accounted for 99.7 % of the Allianz Group’s total asset management segment’s operating revenues in 2004.
Supplementary Information on Allianz Group Assets 6 Intangible assets 12/31/2004 12/31/2003
Amortization expense of intangible assets is estimated to be ¤479 mn in 2005, ¤430 mn in 2006, ¤411 mn in 2007, ¤389 mn in 2008 and ¤371 mn in 2009.
Gross amount capitalized as of 12/31 previous year 17,259 17,262 14,963
The impairment charge of ¤224 mn in 2003 concerns Allianz Life
Insurance Company Ltd., Seoul. In the course of the annual goodwill impairment review the amount of the impairment was determined on the basis of an evaluation of future cash flows from the existing contract portfolio and new business. This amount reflects the effects of persistently lower interest rates in the capital markets and the overall unsatisfactory earnings performance of the company.
This reclassification is comprised of: _ ¤181 mn related to Münchener Rückversicherungs-AG, Munich, and
Gross amount capitalized as of 12/31 previous year 3,083 2,692 2,439
Changes in the group of consolidated companies (70 ) (69 ) (68 )
The Allianz Group’s consolidated balance sheet value of software amounting to ¤972 mn at December 31, 2004 (2003: ¤1,064 mn) includes ¤608 mn (2003: ¤598 mn) for software developed in-house and ¤364 mn
Brand names and loyalty bonuses During the year ended December 31, 2002, assets of ¤224 mn (2001: ¤659 mn) were recognized for the value of the brand names “Dresdner
Bank” and “dit” (Deutscher Investment-Trust) in connection with the acquisition of Dresdner Bank AG. The accumulated amortization of the brand names amounted to ¤143 mn at December 31, 2004 (2003: ¤101 mn) .
The accumulated amortization of the capitalized loyalty bonuses for senior management of the PIMCO Group amounted to ¤680 mn at December 31, 2004 (2003: ¤555 mn).
Amortized cost Unrealized gains Unrealized losses Fair values 12/31/2004 12/31/2003 12/31/2004 12/31/2003 12/31/2004 12/31/2003 12/31/2004 12/31/2003
The Allianz Group has entered into reverse repurchase agreement transactions with related collateral fair value of ¤176,249 mn and ¤166,006 mn as of December 31, 2004 and 2003, respectively, which consists primarily of government and corporate debt securities. In addition, the fair value of collateral that has been sold or repledged on reverse repurchase agreements transactions was ¤131,838 mn and ¤56,947 mn as of December
The fair value of real estate used by third parties as of December 31, 2004 was ¤14,181 mn (2003: ¤13,804 mn). Depreciation expense on real estate includes impairments of ¤653 mn for the year ended December 31, 2004
(2003: ¤30 mn; 2002: ¤104 mn). Real estate pledged as security, and other restrictions on title, amounted to ¤61 mn as of December 31, 2004
(2003: ¤60 mn). Commitments outstanding at December 31, 2004 to purchase real estate amounted to ¤52 mn (2003: ¤51 mn).
Loans and advances to banks net of the loan loss allowance 12/31/2004 12/31/2003 12/31/2002
Reverse repurchase agree ments and collateral paid for securities borrowing transactions 103,406 91,201 59,061
Loans and advances to customers by type of loan 12/31/2004 12/31/2003
Reverse repurchase agreements and collateral paid for securities borrowing transactions 70,459 63,296
Unearned income related to discounts deducted from loan balances as of December 31, 2004 was ¤103 mn (2003: ¤340 mn).
(2003: ¤450 mn) due within one to five years, and ¤758 mn (2003: ¤466 mn) due after more than five years, as of December 31, 2004.
A L L I A N Z G R O U P 141 N O
The effects of the deconsolidation of Deutsche Hyp in 2002 are shown in the line “Changes in the Allianz Group of consolidated companies”.
At December 31, 2004 the Allianz Group had ¤6,732 mn (2003: ¤9,498 mn) of impaired loans of which ¤6,048 mn (2003: ¤8,722 mn) had a related valuation allowance. For the year ended December 31, 2004, the average balance in impaired loans was ¤8,479 mn (2003: ¤11,780 mn)
and the interest income recognized on impaired loans was ¤104 mn
The loan portfolio contains non-accrual loans of ¤5,605 mn (2003: ¤8,374 mn). The total amount of loans with provisions against the principal include ¤2,092 mn (2003: ¤3,068 mn) of loans on which the Allianz Group continues accruing interest with a specific allowance against the total interest accrued. The interest income not recognized from loans on non-accrual status amounted to ¤244 mn (2003: ¤367 mn; 2002: ¤470 mn). The amount of interest collected and recorded on non-accrual loans in 2004 was approximately ¤49 mn (2003: ¤49 mn; 2002: ¤66 mn).
Restructured loans totaled ¤71 mn as of December 31, 2004 (2003: ¤207 mn).
The portion of trading gains and losses from trading securities held at
Compulsory deposits on accounts with national central banks under re s trictions due to required reserves from the European Central Bank totaled
Bundesbank of ¤221 mn (2003: ¤3,321 mn), for the credit institutions of the Allianz Group as of December 31, 2004.
The Allianz Group reinsures a portion of the risks it underwrites in an effort to control its exposure to losses, and protect capital resources. The majority of the business ceded by the Allianz Group is placed on a quotashare basis. For its property-casualty business, the Allianz Group retained
Reinsurance involves credit risk and is subject to aggregate loss limits.
Allianz Group to the extent of the reinsurance ceded, the Allianz Group remains primarily liable as the direct insurer on all risks it underwrites, including the portion that is reinsured. The Allianz Group monitors the financial condition of its reinsurers on an ongoing basis and reviews its reinsurance arrangements periodically in order to evaluate the reinsurer’s ability to fulfill its obligations to the Allianz Group under existing and planned reinsurance contracts. The Allianz Group’s evaluation criteria, which includes the claims-paying and debt ratings, capital and surplus levels, and marketplace reputation of its reinsurers, are such that the Allianz Group believes any risks of collectibility to which it is exposed are not significant, and historically the Allianz Group companies have not experienced difficulty in collecting from their reinsurers. Additionally, and as appropriate, the
Gross capitalized values as of 12/31 previous year 6,543 6,854 6,175
¤34 mn (2003: ¤28 mn). At December 31, 2004, commitments outstanding to purchase real estate amounted to ¤47 mn (2003: ¤39 mn).
for agents and other distributors. Allowance for doubtful amounts related to direct insurance business amounted to ¤133 mn (2003: ¤189 mn).
Other receivables Other receivables include tax refunds amounting to ¤2,227 mn (2003: ¤2,381 mn) and interest and rental receivables amounting to ¤5,286 mn
Other assets Included in other assets are derivative financial instruments used for hedging purposes that meet the criteria for hedge accounting totaling ¤969 mn (2003: ¤868 mn) and deferred sales inducements of
Changes in the Allianz Group of consolidated companies (60 ) 2 (36 )
Changes in the Allianz Group of consolidated companies (158 ) 153 (1,551 )
¤69.37 per share. The remaining 5,059 shares were sold on the Frankfurt stock exchange at an average price of ¤95.74 per share. The shares issued in 2004 are qualifying shares from the beginning of the year of issue.
¤70.51 per share. The remaining 21,000 shares were sold on the Frankfurt stock exchange at an average price of ¤92.07 per share.
In April 2003, 117,187,500 shares with participation rights were issued in connection with a capital increase, which raised approximately ¤4.4 bn based on a subscription price of ¤38.00 per share. Expenses from the capital increase amounted to ¤116 mn after taxes, and diminished revenue reserves accordingly.
In November 2002, 137,625 shares held by Allianz AG were issued at a price of ¤114.00 per share, enabling employees of Allianz Group enterprises in Germany and abroad to purchase 136,222 shares at prices between ¤79.80 and ¤96.90 per share. The remaining 1,403 shares were sold on the Frankfurt stock exchange at an average price of ¤90.60 per share. The shares issued in 2002 are qualifying shares from the beginning of the year of issue.
(175,781,250 shares) of authorized unisssued capital (Authorized Capital 2004/I) which can be issued at any time up to May 4, 2009. The Management Board, with approval of the Supervisory Board, is authorized to exclude the pre-emptive rights of shareholders if the shares are issued against a contribution in kind and, in certain cases, if they are issued against a cash contribution.
As of December 31, 2004, the Allianz Group had ¤7,296,000 (2,850,000 shares) of authorized unissued capital (Authorized Capital 2004/II) which can be issued at any time up to May 4, 2009. The Management Board, with approval of the Supervisory Board, is authorized to exclude the preemptive rights of shareholders if the shares are issued to employees of the Allianz Group.
Treasury stock In connection with an exchange offer to the holders of Allianz AG participation certificates, a total of 6,148,110 of Allianz AG treasury shares were exchanged for participation certificates of Allianz AG as of January
AG, the Annual General Meeting on May 5, 2004 authorized the Allianz
Group’s domestic or foreign credit institutions in which Allianz AG has a majority holding to acquire treasury stock for trading purposes pursuant to clause 71 (1) no. 7 of the German Stock Corporation Law (Aktiengesetz).
A L L I A N Z G R O U P 147 N O
Interest rate (range in %) – – – – – 5.50 – 7.25
Interest rate (range in %) – – – – – –
Interest rate (range in %) – – – – – 3.62 1) Except for rates.
2) Includes subordinated bonds issued by Allianz Finance B.V. and Allianz Finance II B.V. and guaranteed by Allianz AG. 3) The terms of the profit participation certificates provide for an annual cash distribution of 240% of the dividend paid by Allianz AG per one Allianz AG share. If certain conditions are met, the holders of profit participation certificates also have a subscription right to new profit participation certificates; to this extent, the subscription rights of Allianz AG shareholders is excluded. Holders of profit participation certificates do not have voting rights, or any rights to convert the certificates into Allianz AG shares, or rights to liquidation proceeds. Profit participation certificates are unsecured and rank pari passu with the claims of other unsecured creditors. Profit participation certificates can be redeemed by holders upon twelve months prior notice every fifth year. The next call date is December 31, 2006. Allianz AG has the right to call the profit participation certificates for redemption, upon six months’ prior notice every fifth year. The next call date is December 31, 2006. Upon redemption by Allianz AG, the cash redemption price per certificate would be equal to 122.9% of the then current price of one Allianz AG share during the last three months preceding the recall of the participation certificate. In lieu of redemption for cash, Allianz AG may offer 10 Allianz AG ordinary shares per 8 profit participation certificates.
4) Participation certificates issued by the Dresdner Bank Group which entitle holders to annual interest payments, which take priority over its shareholders’ dividend entitlements. They are subordinated to obligations for all other creditors of the issuer, except those similarly subordinated, and share in losses of the respective issuers in accordance with the conditions attached to the participation certificates. The profit participation certificates will be redeemed subject to the provisions regarding loss sharing.
Aggregate policy reserves for universal life type and investment contracts includes ¤26,238 mn of liabilities related to unit-linked contracts that do not meet the criteria for classification as separate account liabilities.
Participating life business represented approximately 70 % and 71 % of the Allianz Group’s gross insurance in-force at December 31, 2004 and 2003, respectively. Participating policies represented approximately 64 %
(2003: 60 %) of the gross premiums written and 61 % (2003: 56 %) of the life premiums earned in 2004. Conventional participating reserves were approximately 49 % (2003: 56 %) of the Allianz Group’s consolidated aggregate policy reserves as of December 31, 2004.
Changes in the reserves for loss and loss adjustment expenses for property-casualty insurance
Claims in the year under review (11,374 ) (11,860 ) (12,642 )
Changes due to valuation differences charged (credited) to income 467 (2,014 ) (2,191 )
Repurchase agreements and collateral received from securities lending transactions 78,675 52,460
Liabilities to domestic banks amounted to ¤80,329 mn (2003: ¤81,635 mn) and liabilities to foreign banks amounted to ¤111,025 mn (2003: ¤96,681 mn) as of December 31, 2004.
Repurchase agreements and collateral received from securities lending transactions 49,276 40,416
Liabilities to customers 157,274 154,728 *) Including registered bonds totaling ¤6,887 mn for the year ended December 31, 2004 (2003: ¤6,747 mn).
Offered Rate (LIBOR), although in certain instances they are subject to minimum interest rates as specified in the agreements governing the respective issues.
A L L I A N Z G R O U P 151 N O
Allianz Group’s certificated liabilities as December 31, 2004: 21 Trading liabilities 12/31/2004 12/31/2003
¤ mn1) ¤ mn1) ¤ mn1) ¤ mn1) ¤ mn1) ¤ mn1) ¤ mn1) ¤ mn1)
Interest rate (range in %) 2.00 1.25 – – – –
Interest rate (range in %) 2.10–2.27 – – – – –
Money market securities 1,124 – – – – – 1,124 1,154
Interest rate (range in %) 0.00 – 2.08 – – – – –
As of January 1, 2004, reserves for postretirement benefits other than pensions are included in reserves for pensions. Retirement benefits in the Allianz Group are either in the form of defined benefit or defined contribution plans. Employees, including agents in Germany, are granted such retirement benefits by the various legal entities of the Allianz Group.
In Germany, these are primarily defined benefit in nature, while pension plans in other countries are either defined benefit or defined contribution in nature.
For defined benefit plans, the participant is granted a defined benefit by the employer or via an external entity. In contrast to defined contribution arrangements, the future cost to the employer of a defined benefit plan is not known with certainty in advance.
Funded Status The following table summarizes the funded status of the defined benefit plans as of December 31: 12/31/2004 12/31/2003
¤12,499 mn and ¤11,054 mn at December 31, 2004 and 2003, respectively.
Expected return on plan assets (366 ) (312 ) (329 )
Included in the net periodic benefit cost for the year ended December 31, 2004, is ¤7 mn related to postretirement health benefits.
Most of the amounts expensed are charged in the Allianz Group’s consolidated income statement as acquisition and administrative expenses, and loss and loss adjustment expenses (claims settlement expenses).
The weighted-average assumptions, for the Allianz Group’s pension plans, used to determine projected and accumulated benefit obligation: Years ended 12/31 2004 2003
The weighted-average assumptions used to determine net periodic benefit cost: Years ended 12/31 2004 2003
The weighted expected long-term return on plan assets for the year 2004 was derived from the following target allocation and expected long-term rate of return for each asset category: Asset category Target Weighted allocation expected long-term rate of return
Plan assets do not include equity securities issued by the Allianz Group or real estate used by the Allianz Group.
Defined contribution plans Defined contribution pension plans are funded through independent pension funds or similar organizations. Contributions fixed in advance (e.g., based on salary) are paid to these institutions and the beneficiary’s right to benefits exists against the pension fund. The employer has no obligation beyond payment of the contributions (premiums). The main pension fund is the Versicherungsverein des Bankgewerbes a.G., Berlin, which covers most of the banking employees in Germany.
Amounts expensed by the Allianz Group for defined contribution pension plans were ¤110 mn for the year ended December 31, 2004 (2003: ¤105 mn; 2002: ¤123 mn).
¤371 mn (2003: ¤549 mn), reserves for employee expenses amounting to ¤2,635 mn (2003: ¤2,224 mn), loss reserves from the non-insurance business amounting to ¤243 mn (2003: ¤319 mn), reserves for litigation amounting to ¤155 mn (2003: ¤142 mn), and commission reserves for agents amounting to ¤333 mn (2003: ¤198 mn).
Release of provisions via payments (282 ) (212 ) (234 )
Release of provisions via payments (274 ) (196 ) (142 )
Accounts payable on direct insurance business and accounts payable on reinsurance are due within one year. Of the remaining other liabilities,
¤10,884 mn (2003: ¤8,593 mn) are due within one year, and ¤2,350 mn
¤2,039 mn (2003: ¤2,433 mn), which is primarily comprised of accrued interest of ¤1,737 mn (2003: ¤1,681 mn).
Supplementary Information on the Allianz Group Consolidated Income Statement 25 Premiums earned (net)
Interest and similar income includes dividend income of ¤1,150 mn (2003: ¤1,512 mn; 2002: ¤1,806 mn).
27 Income (net) from investments in associated enterprises and joint ventures
(net) from investments in associated enterprises and joint ventures is attributable to associated enterprises.
Net interest margin after loan loss provisions 1,956 30 1,986 1,791 12 1,803 1,605 180 1,785 *) After eliminating intra-Allianz Group transactions between segments.
changes in the fair value of the underlying equities were directly recognized in the Allianz Group’s consolidated shareholders’ equity. The changes in the fair value of the respective underlying equities were recognized in the
Allianz Group’s consolidated income statement only at the time of their realization in the capital market. The use of derivatives for macro hedges that did not meet the criteria for hedge accounting resulted in a loss of
Other trading income of the life/health insurance segments includes income of ¤1,256 mn related to assets of unit linked contracts that do not meet the criteria for classification as separate account assets.
Other trading activities *) 363 317 91 *) Other trading activities of the banking segment includes expenses from the application of IAS 39 for the year ending December 31, 2004 totaling ¤340 mn (2003: ¤161 mn).
Net fee and commission income from the Allianz Group’s banking operations*)
Net fee and commission income from the Allianz Group’s banking operations, by type of business, is comprised of the following*): ¤ mn ¤ mn ¤ mn
Net fee and commission income from the Allianz Group’s asset management *) operations, by type of business, is comprised of the following: ¤ mn ¤ mn ¤ mn
Net fee and commission income 2,401 2,295 2,351 31 Other income
A L L I A N Z G R O U P 161 N O
Change in reserves *) After eliminating intra-Allianz Group transactions between segments.
The interest expense for certificated liabilities includes ¤269 mn (2003: ¤288 mn; 2002: ¤363 mn) and ¤155 mn (2003: ¤171 mn; 2002: ¤80 mn) for Allianz Finance B.V. and Allianz Finance II B.V., respectively.
Depreciation on real estate used by third parties 258 267 229 35 Loan loss provisions
Change in deferred acquisition costs (168 ) (31 ) (199 ) (247 ) 42 (205 ) (197 ) 3 (194 )
Less commissions and profit received on reinsurance business ceded (241 ) 73 (168 ) (247 ) 52 (195 ) (295 ) 116 (179 )
Total acquisition costs and administrative expenses 6,008 (84 ) 5,924 6,590 (77 ) 6,513 7,581 (19 ) 7,562
Expense of transferring or increasing miscellaneous or accrued liabilities 390 671 648
The Allianz Group’s earnings from ordinary activites before income taxes and minority interests is composed of the following: ¤ mn ¤ mn ¤ mn
The 2004 current income tax expense included a charge of ¤17 mn (2003: charge of ¤531 mn) related to prior periods.
Allianz Group refrained from applying the increased corporate tax rate of 26.5 %, which was adopted as part of the Flood Victim Solidarity Act and concerns the year 2003 only.
In 2004 a deferred tax charge of ¤129 mn (2003: ¤0 mn) was recognized due to a devaluation of deferred tax assets on tax losses carried forward.
Losses carried forward are scheduled according to their expiry periods as follows: Years ending ¤ mn >10 years 3,810
The recognized income tax charge for 2004 is ¤154 mn (2003: lower than expected by ¤782 mn; 2002: lower than expected by ¤335 mn) higher than the expected income tax charge. The fol lowing table shows the reconciliation of the expected income tax charge of the Allianz Group with the effectively recognized tax charge. The Allianz Group’s reconciliation is a summary of the individual company-related reconciliations, which are based on the respective country-specific tax rates after consolidation effects are taken into account.
The effective tax rate is determined on the basis of the effective income tax charge, on earnings from ordinary activities (before income tax and before minority interests), net of other taxes.
Volume of foreign currency exposure from banking operations The amounts reported constitute aggregate Euro equivalents of a wide variety of currencies outside the European Monetary Union (EMU). Any differences between assets and liabilities are a result of differing valuation principles. Loans and advances to banks, loans and advances to customers, liabilities to banks and liabilities to customers are reported at amortized cost, while all derivative transactions are accounted for at fair value.
Investment management, interest charges and other investment expenses (696 ) (885 ) (1,131 ) (344 ) (390 ) (550 ) (1,040 ) (1,275 ) (1,681 )
The following table presents the assets pledged as collateral for the above liabilities and contingencies: ¤ mn ¤ mn
Group’s banking operations according to their final maturity or call dates.
Other terms liabilities to customers 101,833 88,461 5,707 1,809 5,856 1) Loans and advances to customers with a residual term of up to 3 months include ¤9,837 mn of undated claims. These claims include credit lines available until further notice, overdraft facilities, called or overdue loans, unauthorized overdrafts, call money and internal account balances.
Total liabilities 6,759 6,573 *) Including ¤5,016 mn (2003: ¤5,101 mn) of trustee loans.
Other banking information The Allianz Group had deposits that have been reclassified as loan balances of ¤8,555 mn (2003: ¤5,829 mn) and deposits with related parties of
The aggregate amount of time deposits in the amount of ¤100,000 or more issued by the Allianz Group’s non-German offices at December 31, 2004 was ¤26,505 mn, including banks and customers (2003: ¤57,904 mn).
Derivatives used by individual enterprises in the Allianz Group comply with the relevant supervisory regulations and the Allianz Group’s own internal guidelines. The Allianz Group’s investment and monitoring rules exceed regulations imposed by supervisory authorities. In addition to local management supervision, comprehensive financial and risk management systems are in force across the Allianz Group. Risk management is an integral part of the Allianz Group’s controlling process that includes identifying, measuring, aggregating and managing risks. Risk management objectives are implemented at both the Allianz Group level and by the local operational units. The use of derivatives is one key strategy used by the Allianz Group to manage its market and investment risks.
Within the Allianz Group’s banking business, derivatives are used both for trading purposes and to hedge against movements in interest rates, currency rates and other price risks of the Allianz Group’s investments, loans, deposit liabilities and other interest-sensitive assets and liabilities.
The counterparty settlement risk is virtually excluded in the case of exchange-traded products, as these are standardized products. By contrast, over-the-counter (OTC) products, which are individually traded contracts, carry a theoretical credit risk amounting to the replacement value. The
Property-Casualty and Life/Health Insurance Segments Derivative financial instruments in the Property-Casualty and Life/Health insurance segments: Included under equity index option contracts are equity indexed annuities with negative fair values of ¤2,039 mn and guaranteed minimum income benefits/guaranteed minimum death benefits with a positive fair value of ¤37 mn.
Interest rate contracts, consisting of OTC Swaps 238 2,226 3,003 5,467 143 (113 ) 4,319 96 (84 )
Banking and Asset Management Segments Derivative financial instruments in the Banking and Asset Management segments: Maturity by notional amount 12/31/2004 12/31/2003
Interest rate contracts, consisting of OTC Forwards 96,462 9,326 – 105,788 25 (31 ) 99,794 35 (30 )
For detailed information about certificated and subordinated liabilities, see Note 16 and Note 20, respectively.
Allianz Group had a total negative fair value at December 31, 2004 of ¤282 mn (2003: ¤55 mn). Ineffectiveness in fair value hedge transactions led to a net realized loss of ¤10 mn (2003: net realized gain of ¤1 mn) and was classified consistently with the respective hedged item; ¤1 mn (2003: ¤2 mn) was excluded from the assessment of hedge effectiveness.
In 2004, cash flow hedges were used to hedge variable cash flows exposed to interest rate fluctuations. As of December, 31, 2004 the interest rate swaps utilized had a negative fair value of ¤4 mn (2003: ¤5 mn) other reserves in shareholders’ equity increased by ¤0.3 mn (2003: decrease ¤41 mn). Ineffectiveness of the cash flow hedges led to net realized losses of ¤0.5 mn (2003: ¤4 mn) in 2004.
The Allianz Group uses the following methods and assumptions to determine fair values: Cash and cash equivalents The carrying amount corresponds to the fair value due to its short-term nature.
(such as present value models or option pricing models) are used to value
OTC-traded derivatives. In addition to interest rate curves and volatilities, these models also take into account market and counterparty risks. Fair value represents the capital required to settle in full all the future rights and obligations arising from the financial contract.
Separate account assets and separate account liabilities The fair values of separate account assets were determined using the market value of the underlying investments. Fair values of separate accounts liabilities are equal to the fair value of the separate account assets.
Münchener Rückversicherungs-Gesellschaft Aktiengesellschaft in München (Munich Re) In prior years, Allianz AG described Munich Re as a related party, primarily as a result of significant mutual cross-shareholdings, mutual board interlocks and important contractual relationships. Each of these factors has changed significantly in recent years, as described below.
Allianz Group reduced its ownership interest in Munich Re’s share capital during the first quarter 2003 to below 20 %. Consequently, Munich Re was as of that time no longer accounted for as an associated company of the Allianz Group. During the fiscal year 2003, the Allianz Group further reduced its ownership interest in Munich Re and as of December 31, 2003 held only approximately 12.4 % of Munich Re’s share capital. On March 2, 2004 the Allianz Group reduced its ownership interest in Munich Re’s share capital to approximately 9.4 %. Consequently, Allianz’s interest in
Munich Re was no longer considered as a participation pursuant to German insurance group solvency rules. As of December 31, 2004 Allianz
Munich Re also reduced its ownership interest in Allianz AG during 2003, and held as of December 31, 2003 approximately 12.2 % of Allianz
AG’s share capital, or approximately 12.8 % of the outstanding shares as of this date. Further reductions occurred during the fiscal year 2004. On
August 6, 2004, Munich Re reduced its shareholding in Allianz AG to below 10 %. Afterwards, further reductions occurred and Munich Re held as of
AG or approximately 9.4 % of the outstanding shares of Allianz AG as of this date.
Loans and advances to banks and customers 314,786 316,740 320,770 321,219
Derivative financial instruments included in other assets 969 969 868 868
Certificated liabilities, participation certificates and subordinated liabilities 71,001 72,903 75,568 77,009
Certain provisions regarding ordinary course quota share reinsurance remain in effect, as noted below.
(life and health, as well as property and casualty) and are subject to arms-length conditions. A major part of the reinsurance premiums relates to a quota share agreement for 10.5 % of the gross self-retention of the insurance business of the companies of the Allianz German Property Casualty Group via Allianz AG.
EXTREMUS Versicherungs-AG (EXTREMUS) Allianz Versicherungs-AG holds a 16 % interest in EXTREMUS, a terror risk insurance company which was founded in Germany in the aftermath of the terrorist attack of September 11, 2001. Until March 31, 2004, and on the basis of a ¤10 bn state guarantee granted by the Federal Republic of
Germany, EXTREMUS was able to provide excess coverage of up to ¤13 bn for terror risks encountered in Germany. This coverage was reduced to ¤10 bn on the basis of a reduced state guarantee of ¤8 bn as of April 1, 2004. EXTREMUS provides terror risk insurance coverage to German
Allianz Group companies and Allianz Versicherungs-AG is one of the reinsurers of EXTREMUS. All business relationships between Allianz Group companies and EXTREMUS are subject to market terms.
Loans to Members of the Board of Management and the Supervisory Board In the normal course of business, and subject to applicable legal restrictions, members of the Board of Management and the Supervisory Board may be granted loans by Dresdner Bank AG and other Allianz Group companies. Other than such normal course loans, no loans have been granted since 2002 and at December 31, 2004, no loans to board members were outstanding.
States District Court for the Southern District of New York by purported purchasers of Deutsche Telekom American Depositary Shares (ADSs). The securities were issued pursuant to a registration statement filed with the
SEC on May 22, 2000 and pursuant to a prospectus dated June 17, 2000.
alleges that the offering prospectus contained material misrepresentations and/or omissions relating to Deutsche Telekom. On January 28, 2005,
Dresdner Bank. As a result we do currently not expect any adverse effects resulting from this litigation for Dresdner Bank AG.
commenced an investigation against several property-casualty insurance companies in Germany, in connection with alleged coordinated behavior to achieve premium increases for the commercial and industrial property and liability insurance business and submitted written charges to several insurance companies, among them Allianz Versicherungs-AG, on July 19, 2003. A decision is still outstanding. We currently expect a decision of the
On November 5, 2001, a lawsuit, Silverstein v. Swiss Re International
Business Insurance Company Ltd., was filed in the United States District
AG to compensate the insolvency assets (Insolvenzmasse) of KirchMedia for the loss of a 25 % shareholding in the Spanish television group Telecinco. This shareholding had been pledged by subsidiaries of KirchMedia to Dresdner Bank AG as collateral for a loan of ¤500 mn from Dresdner
(or TaurusHolding). Following TaurusHolding’s default on the loan in April 2002 and insolvency in June 2002, Dresdner Bank AG enforced its security interest and acquired through a subsidiary the Telecinco shareholding in a forced auction sale. The insolvency administrator contends that the pledge was created under circumstances that cause it to be invalid or void and may initiate legal action against Dresdner Bank AG. The management of
Dresdner Bank AG believes that there is no valid basis for the insolvency administrator’s demand. At the end of June 2004, the 25 % shareholding in Telecinco was placed within Telecinco’s initial public offering.
On May 24, 2002, pursuant to a statutory squeeze-out procedure, the general meeting of Dresdner Bank AG resolved to transfer shares from its minority shareholders to Allianz AG as principal shareholder in return for payment of a cash settlement amounting to ¤51.50 per share. The amount of the cash settlement was established by Allianz AG on the basis of an expert opinion, and its adequacy was confirmed by a court-appointed auditor. Some of the former minority shareholders applied for a court review of the appropriate amount of the cash settlement in a mediation procedure (Spruchverfahren), which is pending with the district court (Landgericht ) of Frankfurt. Management believes, that a claim to increase the cash settlement does not exist. In the event that the court were to determine a higher amount as an appropriate cash settlement, this would affect all approximately 16 mn shares which were transferred to Allianz AG.
PA Distributors LLC, all subsidiaries of Allianz Global Investors of America
Global Investors is cooperating with the SEC with respect to this review.
LIKO; Dresdner Bank AG’s participation is ¤12.1 mn. Dresdner Bank AG is contingently liable to pay future assessments to LIKO up to ¤60.5 mn. In addition, under clause 5 (4) of the Articles of Association of LIKO, Dresdner Bank AG is committed to a secondary liability, which arises if other shareholders do not fulfill their commitments to pay their respective future assessments. In all cases of secondary liability, the financial status of the other shareholders involved is sound.
Dresdner Bank AG is a member of the German banks’ Joint Fund for
Fund, which is itself a shareholder in LIKO, Dresdner Bank AG is liable with the other members of the Joint Fund for additional capital contributions,
Applegate: _ if average income growth during this period is at least 25 %, this purchase price component will be USD 1.09 bn, with bonus payments of USD 150 mn; _ if average income growth is between 10 % and 25 %, payments will be scaled down; _ if average income growth is below 10 %, no payments will be made.
Commitments The Allianz Group engages in various lending and underwriting related commitments to meet the financing needs of its customers.
Other principal commitments of the Allianz Group include the following: For Allianz of America Inc., Wilmington, Allianz AG posted a surety declaration for obligations in connection with the acquisition of PIMCO Advisers
Protektor may hold more than 10 % of the capital of Protektor. Therefore, the obligation to finance Protektor is limited for each shareholder to a maximum of 10 % of ¤5,230 mn. The latter amount will be subject to review in 2007. Therefore, Allianz Lebensversicherungs-AG’s maximum obligation to
The Allianz Group occupies leased space in many locations under various long-term operating leases and has entered into various operating leases covering the long-term use of data processing equipment and other
As of December 31, 2004, the future minimum lease payments under non-cancelable operating leases were as follows: ¤ mn
Bank Group, in which third-party receivables and receivables of the Dresdner Bank Group are securitized, and which is refinanced by commercial paper, Dresdner Bank Group has granted short-term credit lines in the amount of ¤10.5 bn in the event that a refinancing through commercial paper is not possible. As of December 31, 2004, ¤0.01 bn of such credit lines had been used for refinancing instead of the placement of commercial paper. The risk exists that the Dresdner Bank Group would be required to use its own credit lines by up to further ¤8.25 bn, which would accordingly raise its regulatory risk-weighted assets.
Group would be required to fully fund either the liquidity facilities or the letter of credit for a maximum of USD 4.42 bn, which would accordingly raise its regulatory risk-weighted assets.
Earnings per share Basic earnings per share is computed by dividing the Allianz Group’s consolidated net income by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the effect of potentially dilutive securities. As of December 2004, 1,175,554 (2003: 1,175,554) participation certificates issued by Allianz AG were outstanding which can potentially be converted to 1,469,443 (2003: 1,469,443) Allianz shares (on a weighted basis: 1,469,443 (2003: 1,271,446) Allianz shares)
A L L I A N Z G R O U P 181 N O
The Allianz Group’s stock compensation plans with potentially dilutive securities of 729,596 are included in the calculation of diluted earnings per share for 2004.
46 Stock Based Compensation Plans in the Allianz Group and Management Compensation
Shares in Allianz AG are offered to qualified employees in Germany and abroad within pre-defined timeframes at favorable conditions. In order to be qualified, employees must have been employed in continuous service, or had a position as an apprentice, for a period of six months prior to the share offer and notice of termination of employment must not have been served. Share purchase plans also include restrictions relating to the amount that the employee can invest in shares. All participating enterprises in Germany and abroad impose restrictions on the disposal of shares, however, the length of time varies from a minimum of one year to a maximum of five years, depending on the country involved. The shares are freely disposable after the expiration of the minimum holding period. The number of shares sold to employees under these plans was 1,051,191 during the year ended December 31, 2004 (2003: 944,625; 2002: 136,222).
Since 2002 the AGF Group offered on a yearly basis AGF shares to qualified employees in France at favorable conditions. During the year
Allianz Group Equity Incentives (GEI) plans support the orientation of senior management, in particular the Board of Management, toward the long-term increase of the value of the Allianz Group. Allianz Group senior management worldwide is entitled to participate in these GEI plans. During the year ended December 31, 2004, more than 600 senior managers in 35 countries and 81 companies participated.
Appreciation Rights (SARs) through which part of total remuneration is directly tied to the development of the Allianz AG share price. During the year ended December 31, 2003, Restricted Stock Units (RSUs) with a 5-year vesting period were introduced.
Awards were granted by the respective companies in accordance with uniform Allianz Group-wide conditions. The grant price for SARs and RSUs applicable for the award is calculated on the basis of the average daily closing Allianz AG share price in Xetra trading on the ten trading days following the Annual General Meeting of Allianz AG. The grant price for the year ended December 31, 2004 was ¤83.47 (2003: ¤65.91) per share.
Numerator for diluted earnings per share (net income after assumed conversion) ¤ mn 2,202 1,893 (1,496 )
Denominator for diluted earnings per share (adjusted weighted-average after assumed conversion) 368,129,623 339,786,075 276,854,381
The volume of the rights granted, and thus the potential gain for the participant depends essentially on economic performance.
Of the GEI plans, half of the value determined at the grant date is allocated to SAR and RSU, respectively. Depending on the different values calculated per SARs and RSUs at the grant date, participants in the plan receive a different number of SARs and RSUs.
Following a two-year vesting period, the SARs may be exercised at any time between the 2nd and the 7th anniversary of the effective date of the relevant plan, provided that
_ the Allianz AG share price outperforms the reference price by at least 20 % at the time when the rights are exercised. The reference price for the 1,788,458 SARs awarded during the year ended December 31, 2004, ¤83.47 is the average closing price of Allianz AG shares for the first ten trading days after May 5, 2004, the date of the Annual General
SARs may be exercised before the end of the vesting period when an
Allianz Group Company is sold to a third party. As Allianz of Canada was sold in 2004 certain plan participants exercised their rights (SAR 2003: 3,075).
Under this plan, 749,030 (2003: 542,141) RSUs have been granted to senior management as of May 19, 2004, 732,477 of which remain outstanding as of December 31, 2004. The Allianz Group will exercise these rights uniformly for all plan participants on the first stock exchange day that succeeds the five-year vesting period. At the date of exercise, the Allianz
Group can choose to settle the plan by: _ cash payment to the grantees in the amount of the average closing price of Allianz AG’s share in the ten trading days preceding the end of the vesting period, or by
Allianz Group Company is sold to a third party. As Allianz of Canada was sold in 2004 certain plan participants exercised their rights (RSU 2004 and 2003: 4,123).
The fair value as of the grant date of the 749,030 RSUs granted in 2004 was ¤58 mn (2003: ¤36 mn) based on the Allianz AG share price.
outstanding RSUs was ¤120 mn (2003: ¤55 mn). Taking into account the expired portion of the vesting period, a reserve of ¤24 mn (2003: ¤6 mn)
caused Allianz Global Investors LP to enter into a Class B Purchase Plan
upon death, disability or termination of the participant. In addition, beginning in 2005, Allianz Global Investors LP will have the right to repurchase, and the participants will have the right to cause Allianz Global Investors LP
All of the options granted have an exercise price of at least 85 % of the market price on the day of grant. The maximum term for these options is eight years. The following table provides the weighted-average fair val ue of options granted as of the grant date and the assumptions used in calculating their fair value by application of the Black-Scholes option pricing model.
Range of exercise price AGF options out- Weighted-average Weighted-average AGF options Weighted-average standing as of remaining contrac- exercise price exercisable as of exercise price 12/31/2004 tual life years 12/31/2004
Options may be exercised at any time after the vesting period and before expiration, provided that
_ at the time of exercise, the RAS share price is at least 20 % higher than the average share price in January of the grant year (for the 2001 award grant the hurdle is 10 %), and
_ the performance of the RAS share in the year of grant exceeds the
RAS Group stock option activ ity during the periods indicated was as follows: Number of Weighted RAS Options Average Exercise Price
The RAS Group recorded compensation expense of ¤3 mn (2003: ¤3 mn) during the year ended December 31, 2004, related to these stock option awards.
Dresdner Kleinwort Wasserstein (DrKW) has awarded eligible employees a promise to deliver Allianz AG shares (share awards) on the vesting dates. In jurisdictions in which regulatory restrictions do not allow for delivery of shares, the awards are settled in cash (cash awards). Under the plan, 1,086,963 share awards and 74,651 cash awards were granted on February 10, 2004 with an fair value of ¤113 mn. The awards vest in three installments in each of the 3 years following the initial award. Each year, immediately prior to vesting, the number of unvested shares (or notional shares for the cash awards) is adjusted up or down according to the performance adjustment.
The stock awards are treated as equity-settled awards. They are measured at fair value as of the award date and expensed over the three-year vesting period. As of December 31, 2004, the total number of forfeited share awards is 75,583. As of December 31, 2004, the total number of unvested share awards was 1,011,380, for which ¤60 mn was expensed
The cash awards are treated as cash-settled awards. The total compensation expense of the cash awards is remeasured at each reporting period based on changes in the Allianz AG share price and is expensed over the three-year vesting period. As of December 31, 2004 the total number of forfeited cash awards was 6,678. As of December 31, 2004, the total number of unvested cash awards was 67,973, for which ¤4 mn was expensed in 2004.
Other stock option and shareholding plans The Allianz Group has other local share-based compensation plans, including stock option and employee stock purchase plans, none of which, individually or in the aggregate, are material to the consolidated financial statements. The total expense, in the aggregate, recorded for these plans during the year ending December 31, 2004 was ¤3 mn (2003: ¤5 mn).
In the reporting year, fixed compensation of the Management Board amounted to ¤6.5 mn. For 2004, fixed compensation represented 25 %
Group equity incentives (at grant date) 12,393 9,474 *) 2003 information contains income-equivalent ancillary benefits. As of 2004, income-equivalent ancillary benefits are listed separately under Miscellaneous.
Group equity incentives are granted by the Allianz Group in the form of stock appreciation rights (SAR) and in the form of restricted stock units
The granting price of the Group equity incentive programs for 2004 was ¤83.47 (average of the daily closing rate of the Allianz share in Xetra trading on the 10 trading days following the Annual General Meeting on
The mathematical value of the rights granted to the Management Board in the reporting year was ¤12.4 mn at the date of grant. Of this total, ¤5.0 mn correspond to the mathematical value of the stock appreciation rights
(SAR) granted and ¤7.4 mn to the value of the restricted stock units (RSU)
No payouts were made on SARs or RSUs granted in previous years.
In 2004, pensions and other benefits payments for retired members of the Management Board and their beneficiaries amounted to ¤4.2 mn
(2003: ¤8.2 mn). In 2004 no amount (2003: ¤4.2 mn) was set aside for compensating the claims of former members of the Management Board.
In fiscal 2004, remuneration for the Supervisory Board amounted to ¤2.2 mn.
In connection with the exercise of Supervisory Board mandates or comparable mandates in other companies of the Allianz Group, Claudia
On January 27, 2005, AGF issued ¤400 mn of perpetual deeply subordinated notes targeted at French and Belgian investors. The notes pay an annual coupon of 4.625 %, corresponding to a spread of 107.2 basis points vs Bund.
On January 28, 2005, the Allianz Group successfully completed its “All-inone ” capital market transactions. The All-in-one capital market transactions 1) reduced the Allianz Group’s equity gearing; 2) helped to deleverage the Allianz Group; and 3) helped Dresdner Bank to further reduce its non-strategic asset portfolio.
_ Reduction of equity gearing: In order to further reduce its exposure to equities, the Allianz Group issued a three-year index linked exchangeable bond of ¤1.2 bn. The redemption value of this security, BITES
Re or Siemens AG. Investors will receive an annual outperformance premium of 0.75 % on the prevailing future DAX level and a repayment premium of 1.75 %, based on the DAX level at redemption. The BITES were placed with international institutional investors through JPMorgan.
_ Deleveraging from rating perspective: The Allianz Group refinanced part of its 2005 ¤2.7 bn maturing bonds through the issuance of a subordinated bond in the amount of ¤1.4 bn. The subordinated bond, which bears a coupon of 4.375 % for the first twelve years, was issued at a price of 98.923%, yielding 4.493 % p.a. While this is a perpetual bond, it is callable by Allianz AG for the first time in 2017. Attached o the bond is 11.2 mn warrants on Allianz AG shares with a maturity of three years.
¤88.75 per share to investment bank JPMorgan. JPMorgan placed these shares in the market in the form of a Mandatory Exchangeable. This structure enabled the Allianz Group to benefit from a portion of Allianz
On March 15, 2005, AGF sold its 22.3 % stake in Gecina to the Spanish property company Metrovacesa for ¤89.75 per share, amounting to ¤1,240 mn payable on December 30, 2005.
DEGI Deutsche Gesellschaft für Immobilienfonds mbH, Frankfurt am Main 23 94.0
Dresdner Bank AG, Frankfurt am Main 10,547 100.0 dresdner bank investment management Kapitalanlagegesellschaft mbH, Frankfurt am Main 24 100.0
1) Percentage includes equity participations held by dependent enterprises in full, even if the Allianz Group’s share in the dependent enterprise is under 100%. 2) 99.91% of the voting share capital. 3) Controlled by Allianz.
Wm. H McGee & Co. Inc., New York 40 100.0 1) Percentage includes equity participations held by dependent enterprises in full, even if the Allianz Group’s share in the dependent enterprise is under 100 %. 2) 99.99 % of the voting share capital. 3) Controlled by Allianz.
OTHER SELECTED HOLDINGS IN LISTED COMPANIES1) Market Value owned2) Group equity Net Profit Balance sheet
Banco Portuguès de Investimento (BPI — SGPS) S.A., Porto 191 8.7 1,490 174 12/31/2003