Net income from continuing operations 4) � mn 3,967 (45.8) % 7,316 6,640 — — 44 Net income (loss) from discontinued operations, net of income taxes and minority interests in earnings 4) � mn (6,411) n. m. 650 381 — — 44
Return on equity after income tax 7) % 9.7 8) (5.3) pts 15.0 8) 15.0 8) 12.9 7.8 Third-party assets under management as of December 31 � mn 703,478 (8.0) % 764,621 763,855 742,937 584,624 66 1) 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.
1 Letter to the Shareholder 5 Supervisory Board Report 11 Corporate Governance and
Board of Management 28 International Executive Committee 30 Strategy 33 Allianz Share
Life/Health Our product portfolio comprises a variety of life and health insurance solutions for private customers, as well as products for corporate provision needs. Ranging from life insurance policies to complicated pension management issues.
– Difficult market environment heavily impacted sales of investment-oriented products especially through the bancassurance channel.
The Allianz Group is one of the leading integrated financial services providers worldwide. With nearly 153,000 employees, the Allianz Group serves approximately 75 million customers in about 70 countries. We are able to offer our clients a wide range of insurance and finance products as well as extensive advisory capacity through our sub - sidiaries under strong and well-known brands. We operate and manage our activities primarily through four operating segments: Property-Casualty, Life/Health, Banking and Asset Management.
2) Gross premiums written from our specialty lines have been allocated to the respective geographic regions.
– Fixed income business continued to deliver robust results, while equity business suffered from the difficult market environment.
� 22 bn and � 22 bn as of December 31, 2008 and December 31, 2007, respectively) and Dresdner Bank (approximately � 9 bn and � 18 bn as of December 31, 2008 and December 31, 2007, respectively).
2) Following the sale of almost all of Dresdner Bank to Commerzbank, our Banking segment reflects our existing banking operations as well as Oldenburgische Landesbank and the banking clients from Dresdner Bank introduced through our tied agents channel.
1) Compound annual growth rate (CAGR) is the year-over-year growth rate over a multiple year period.
Operating revenues � mn 544 622 604 Operating profit � mn (31) 32 63 Net income (loss) from continuing operations � mn (114) 55 69
Test of our business model. This crisis has been extremely hard on all financial institutions. It ruthlessly revealed whether a company’s business model was sustainable and, if so, whether it would remain viable in the future. Allianz passed this test. In spite of the financial unrest, we have remained a reliable partner to our customers and employees. Since the upheavals of 2002 and 2003, our risk function has taken into account the fact that nothing happens as planned, that models cannot reflect reality and that extremely unlikely, even unimaginable events can happen at any time.
Unfortunately, Allianz was not immune to the economic downturn and the state of the market is reflected in the revenue and profit from our ongoing business. Customer interest in capital market oriented products dropped sharply in the second half of the year. Unit-linked life insurance revenue was down, standard contracts saw a modest increase. The picture was similar in Asset
We fulfilled this task under extremely difficult conditions. With the sale of Dresdner Bank to
Risk management and investment of capital are of particular importance this year. In 2009 it is also important that opportunities and risks should be managed with a particular focus on maintaining the solid capital base of Allianz. This must not be jeopardized as it is this capital base which allows us to take on the appropriate degree of risk for our customers and shareholders.
These statements are of course supported by programs and processes which we describe in full in the chapter Strategy on the pages 30 to 32 of this Annual Report.
Officer will be responsible. Dr. Perlet will be retiring at the end of the summer after 37 very successful years with Allianz, including 13 years on the Board of Management. I have worked very closely with him and I appreciate the extraordinary contributions he has made. Dr. Perlet has contributed significantly to making Allianz what it is today. I think I speak for all of us when I thank him for the work he has done here. He will continue to exercise his duties with undiminished energy in his remaining months here. I would like to take this opportunity to wish him all the best for the future.
During financial year 2008, the Supervisory Board observed the duties incumbent on it in accordance with the law and the Statutes. We supervised the management of the company and advised the Board of Management concerning the running of the business. We were directly involved in all decisions of fundamental importance.
Additionally, the chairman of the Supervisory Board was continually kept up to date on major developments and decisions.
The Board of Management reports on the business situation and all the presentations on particular issues were accompanied by written supporting documentation, all of which was sent to each Supervisory Board member prior to the meeting for preparation purposes. The same applied to all the financial statements and auditor’s reports. Whenever management actions described in more detail in this report required the approval of the Supervisory Board or one of its committees, resolutions were passed in this respect. Beyond the requirements of the Statutes or Rules of Procedure, the
Wide range of subjects discussed in the plenary Supervisory Board meetings
Board of Management reported on turnover and results in the Group. The Board of Management also gave further details on how business was running in each individual operating segment and reported on the financial situation.
We were kept continually up-to-date by the Board of Management on significant equity investment projects and on the current situation in the U.S. life insurance business.
Within our work on the Supervisory Board we put special emphasis on the worldwide crisis of financial and capital markets which has evolved in the aftermath of the turbulences on the U.S. real estate and mortgage market and which still persists. The Board of Management constantly explained the impact on the Allianz Group and Dresdner
Lebensversicherungs-AG, which was completed in December 2008. On the basis of the written and verbal explanations provided by the Board of Management, the Supervisory
Board granted the required approval to Allianz SE’s management control and transfer-of-profit agreements with
Meeting. Through a written and verbal report by the Board of
On May 21, 2008, before the General Meeting, the Board of
Dresdner Bank on a standalone basis in the Allianz Group, an offer by the Commerzbank and the possibility of the sale of Dresdner Bank to a foreign financial institution. The
Board of Management justified its recommendation of sale to Commerzbank and explained to us the key figures that had been negotiated for a merger with Commerzbank. The
On January 6, 2009, the Supervisory Board met once again for an extraordinary telephone conference call in connection with the Dresdner Bank transaction. Given the unfavorable market developments in the fourth quarter of 2008, the purpose of the meeting was to discuss Allianz’ contribution in a further strengthening of the bank’s capital in connection with completion of the transaction and to pass a resolution to that effect. The Supervisory Board approved the actions presented. This ensured that the transaction would be completed quickly on January 12, 2009.
Supervisory Board issued our Declaration of Compliance in accordance with § 161 of the German Stock Corporation Act
We used the meeting of December 10, 2008 for our regular review of the efficiency of the Supervisory Board. Previously, all members of the Supervisory Board were surveyed in writing on important aspects of the Supervisory Board’s work. At the meeting, without the presence of the Board of
In financial year 2008, the Standing Committee held four regular meetings. These related primarily to corporate governance issues, preparation for the ordinary General
During the financial year, the Committee passed resolutions requiring approval on use of Authorized Capital 2006/II
The Audit Committee held five meetings in financial year 2008, in February, March, May, August and November. Together with the auditors the committee discussed the
In these meetings the Committee also received a report of the General Counsel regarding material legal proceedings.
Allianz Group Annual Report 2008 Supervisory Board Report two other shareholder representatives elected by the shareholder side. The committee is responsible for drawing up selection criteria for shareholder representatives on the
Supervisory Board, seeking suitable candidates for the election of shareholder representatives to the Supervisory Board and proposing suitable Supervisory Board candidates to the
In compliance with special provisions applying to insurance companies (§ 341 k (2) of the German Commercial Code), the statutory auditor and the auditor for the review of the half year financial report are appointed by the Supervisory
Board has appointed KPMG AG Wirtschaftsprüfungsgesellschaft, Munich, as statutory auditor for the annual accounts and the consolidated financial statements as well as for the review of the half year financial report. KPMG audited the financial statements of Allianz SE and Allianz Group as well as the respective management reports and issued an audit certificate thereon without any reservations. The consolidated financial statements were prepared in accordance
In the meeting in November Group Audit presented the audit plan for the year 2009.
Standing Committee, the Risk Committee held two additional meetings in 2008. At both ordinary meetings, the
Board of Management presented the current risk situation of the Allianz Group and we discussed the issue with the
Board of Management. The focus of the committee’s work was the effects of the financial market crisis and the treatment of risks arising from natural disasters. We also dealt in detail with the effects of the planned risk-oriented further development of the European solvency regulations (equity finance requirements) for insurance companies (Solvency
The Nomination Committee held no meetings in the last financial year. Allianz SE followed the recommendation of the German Corporate Governance Code to establish this type of committee (No. 5.3.3 of the Code). The Nomination
Board. The current term of the Supervisory Board expires following the ordinary General Meeting in 2012.
Dr. Herbert Walter resigned from the Board of Management of Allianz SE with the change of ownership at Dresdner
Chairman with § 315 a German Commercial Code (Handelsgesetzbuch ) on the basis of international financial reporting standards IFRS, as to be applied in the European Union. The half year financial report and the other quarterly financial statements were also reviewed by KPMG.
March 11, 2009 by the Audit Committee and in the Supervisory Board plenary session. The auditors took part in these discussions. They gave an account of the main findings of the audit and were available for any questions or further information.
of September 20, 2006. We recognize her strong commitment to the Supervisory Board and express our gratitude. In accordance with the allocation of seats on the Supervisory
of Munich as a member of the Supervisory Board until the next ordinary General Meeting. The employees will nomi-
As a European Company, Allianz SE is, in addition to German stock corporation law, also subject to special European
SE regulations and the German law implementing the European Company. This gives rise to some differences with the structure of an Aktiengesellschaft (stock corporation), primarily in relation to the Supervisory Board. The main features of the Company’s existing corporate constitution, in particular the two-tier board system (Board of Management and Supervisory Board), as well as the principle of equal employee representation on the Supervisory Board, have been maintained in Allianz SE. For further details on the differences between a German stock corporation and a
Rules of procedure specify in more detail the work of the
Board of Management to increase the share capital (Authorised Capital), acquire treasury stock, or issue convertible bonds or bonds with warrants. In addition to these decisions, in accordance with § 9 of the Statutes the Supervisory
Board also must approve intercompany agreements and the launch of new business segments or closure of existing ones, insofar as such actions are material to the Group.
Supervisory Board. An overview of the Board of Management’s members can be found on page 27 of this report.
Co-Determination Act (Mitbestimmungsgesetz) no longer applies. The size and the members of the Supervisory Board are now based on the European general regulations on SE’s.
Supervisory Board currently in office comprises four employee representatives from Germany and one each from
Audit Committee is an important contact for the external auditors, whose independence it also monitors. It also deals with Compliance issues. Allianz follows the suggestion of the German Corporate Governance Code by which former members of the Board of Management should not chair the
The Standing Committee is responsible for the approval of certain transactions that need to be approved by the Supervisory Board. These include, in particular, certain capital transactions and acquisitions or divestments. Furthermore, it is responsible for preparation of the Declaration of Compliance pursuant to § 161 of the German Stock Corporation
Management, takes decisions concerning their contracts with the Company including their individual remuneration and is involved in long-term succession planning for the
The Risk Committee monitors the risk strategy, the appropriateness of the Company’s risk management organisation and related Group policies. It also addresses the Group’s overall risk and specific risk developments. This committee
is also responsible for prior verification of any particular risk-related statements within the annual financial statements and management report, and for reporting to the
Supervisory Board and two other shareholder representatives elected by the shareholder side. The committee is responsible for drawing up selection criteria for shareholder representatives on the Supervisory Board, seeking suitable potential shareholder representatives for election and proposing them to the Supervisory Board for its election proposals to the General Meeting. This procedure complies with the recommendation in No. 5.3.3 of the German Corporate Governance Code.
In the course of the transformation of the Company into an
Economic Area (EEA) and from Switzerland, was elected to represent the European Allianz employees. The SE works council mainly has information and consultation rights regarding cross-border matters within Europe affecting Allianz
Group. As such, the SE works council, in simple terms, is a company-wide representative body for European employees with special responsibility for cross-border matters within
When adopting resolutions, each share grants one vote. To facilitate shareholders’ participation, we allow shareholders to follow General Meetings on the Internet and to be represented by proxies appointed by Allianz. The proxies appointed by Allianz exercise the voting rights exclusively on the basis of the instructions given by the shareholder. We constantly promote the use of e-mail and Internet services.
General Meeting takes place at which the Board of Management and Supervisory Board give an account of the preceding financial year. For special decisions, the German Stock
Governance. The primary objective of the associated changes is to ensure greater transparency in equity holdings. By enacting respective provisions in their Statutes, companies with registered shares will be in a position to improve the disclosure of shareholders in their share register. This will also reduce the current difficulties encountered in sending general meeting and voting documentation to shareholders, particularly abroad. As a consequence, the advantages of registered shares can be used more effectively.
Further changes will be brought about by the law on the implementation of the EU Directive on shareholders rights
(ARUG), which is currently in the legislative procedure. This will foster increased participation by foreign shareholders, inter alia by the possibility to introduce direct voting via internet or voting by correspondence. It is also expected to help increase shareholder attendance at general meetings in the long-term, in conjunction with other measures.
The German Corporate Governance Code is effective as amended dated June 6, 2008. Besides repeating important legal provisions, the Code also contains recommendations and suggestions for proper corporate governance. There is no legal obligation to comply with these standards. Under
In Germany the Code is taken as the benchmark of good corporate governance and control. Surveys show that acceptance of the German Corporate Governance Code remains high. At 2008 year end, the DAX-30 companies met an average of 96 % of all recommendations whereas in the
Allianz SE in accordance with § 161 of the German Stock
1. Allianz SE will comply with all the recommendations made by the Government Commission on the German Corporate Governance Code (Code version dated June 6, 2008).
2. Since the last Declaration of Compliance dated December 20, 2007, which referred to the German Corporate Governance Code in its June 14, 2007 version, Allianz SE has complied with all recommendations made by the Government Commission on the German Corporate Governance
The Declaration of Compliance can be found on our website under www.allianz.com/corporate-governance.
Furthermore, we also comply with all voluntary recommendations of the German Corporate Governance Code.
With the exception of the recommendation of a deductible on its Directors & Officers liability insurance, Oldenburgische
Ethics” that applies to the members of the Board of Management and to senior employees in certain divisions, mainly in finance.
In the Allianz SE Disclosure Committee first drafts of the financial reports are reviewed and discussed by the heads of the relevant units. In this way the Disclosure Committee assists the Board of Management and particularly the Chairman of the Board of Management and the Chief Financial
Officer in providing their certifications of the financial statements to the SEC, as laid down in the Sarbanes-Oxley Act.
Board are required, pursuant to § 15 a of the German
Securities Trading Act (Wertpapierhandelsgesetz, WpHG), to disclose any acquisitions or divestments of Allianz SE
securities, if the value of such acquisitions or divestments made by the board member or any person close to him or her amounts to at least � 5,000 in one calendar year.
� 64.9865 each. On December 11, 2008 Dr. Joachim Faber, also a member of the Board of Management of Allianz SE, bought 10,125 Allianz shares at a price of � 73.476 each.
Group Management Report. It was prepared in accordance with the requirements of the German Commercial Code
The remuneration of the Board of Management is set by the
Group operates and its performance and prospects relative to peers. Its aim is to provide a suitable mix and weight of remuneration components, optimally balance risk and opportunity to achieve an appropriate level of remuneration in different performance scenarios and business circumstances. It is designed to support sustained value-oriented management performance.
The key principles of the remuneration strategy are: – Total remuneration is set at a level appropriate to attract and retain highly qualified executives.
– Incentive awards are earned through the achievement of the financial and strategic goals of the Allianz Group and are consistent with shareholder interests.
To achieve these objectives, a significant portion of the overall remuneration of the members of the Board of Management is variable. It comprises a three-tier incentive system which includes short- and mid-term cash bonus plans and equity-related long-term incentives.
The aim of the three-tier incentive system is to achieve an appropriate balance between components linked to shortterm financial performance and those linked to long-term success and sustained shareholder value creation. The
Supervisory Board reviews the goals regularly to ensure they remain appropriate in the context of the strategic priorities of the Group. An overview is set out below: Three-tier incentive system
Details of the annual bonus amounts to be paid in March 2009 to each member of the Board of Management in respect of the performance year 2008 are shown in the Remuneration table on page 18.
Board of Management are set by the Supervisory Board. For the 2007 – 2009 plan, the target bonus amounts to approximately 128.0 % of the 2007 base salary over the three-year performance period. The maximum achievement is set at 140.0 % of target performance. Details of the mid-term bonus amounts accrued for each member of the Board of
In exceptional circumstances, the Supervisory Board can decide to award bonuses moderately above maximum level.
It can also decide to reduce bonuses where warranted and, in exceptional circumstances, could reduce them to zero.
The number of SAR and RSU awarded to the members of the
Board of Management is dependent upon the discretionary decision of the Supervisory Board based on their designated role as well as the performance of the Group and their respective business division. The value of the GEI program granted in any year cannot exceed the sum of base salary and the annual target bonus.
SAR, applicable to all plan participants. These are directly linked to the performance of Allianz SE stock. The conditions consist of a relative measure linked to the Dow Jones
To encourage long-term value creation the RSU normally have a vesting period of five years, at the end of which they are automatically released as set out in the plan conditions.
Corporate Governance and Remuneration Report Allianz Group Annual Report 2008 applicable, a travel allowance for non-resident Board Members is provided. For 2008 the total value of the perquisites amounted to � 0.7 million (2007: � 0.5 million).
Change from previous year in % 8) 3.1 46.6 5.5 (50.5) (31.8) (30.1) (35.8) (38.0) (32.3)
7) Dr. Herbert Walter resigned from the Board of Management of Allianz SE on January 12, 2009 upon the change of control of Dresdner Bank (sale to Commerzbank). Further, Dr.
Walter resigned from the Board of Management of Dresdner Bank AG, upon appointment of Dr. Blessing as Chairman of the Board of Management of Dresdner Bank AG on January 19, 2009. In a separation agreement of December 23, 2008 and in accordance with the terms of his service contract it was agreed that upon his resignation Dr. Walter will receive a gross termination payment amounting to � 3,595,100 as compensation for the termination of his service contract running until December 31, 2012. Pursuant to the terms of his service contract, Dr. Walter will further receive a transition payment for a period of six months after termination of his service (see “Termination of service” below). Dr. Walter has waived his entitlement to his 2008 annual bonus and to his 2008 three-year bonus (pro-rated). His three-year bonus for 2007 (pro-rated) has been calculated according to the terms of his service contract and will be paid out in 2009. With respect to the outstanding Stock Appreciation Rights (SAR) granted to Dr. Walter during his term of service it was agreed that such rights will remain in force. They can be exercised by Dr. Walter subject to the current plan terms and conditions and subject to the applicable exercise hurdles and vesting periods.
8) Mr. Jan Carendi retired from the Board of Management on December 31, 2007. The total remuneration for 2007 and the percentage change between 2007 and 2008 reflects the remuneration of the full Board of Management active in the respective years.
The total remuneration of the Board of Management for fiscal year 2008, excluding the interim assessment value for the three-year bonus plan, was � 24 million (2007: � 35 million).
Remuneration for Allianz Group mandates and for mandates from outside the Allianz Group
For a list of Supervisory Board mandates in companies outside the Allianz Group see page 268.
The pension agreements for members of the Board of Management up to 2004 provided for retirement benefits of a fixed amount that were not linked to the increases in salary or variable pay. With effect from 2005, Allianz SE changed from this defined benefit arrangement to a contributionbased system. The respective pension rights that existed at that point in time were frozen. As a result of the change, since 2005, annual contributions have been made by the
The contribution payments are guaranteed only as required for further regular financing of accrued pension rights resulting from defined benefit promises existing on December 31, 2004. In the case of an insured event, the accumulated capital is converted to equivalent annuity payments which are then paid out for the rest of the member’s life or, where applicable, to dependents. The increase in reserves for pensions (current service cost) includes the required expenditures for further financing of accrued pension rights as well as the contribution payments for the new contribution-based system.
When a mandate of a member of the Board of Management ends, a pension may become payable at the earliest upon reaching the age of 60, except for cases of occupational or general disability for medical reasons, or in case of death, when a pension may become payable to the dependents. If
Corporate Governance and Remuneration Report Allianz Group Annual Report 2008 the mandate is terminated for other reasons before retirement age has been reached, a pension promise is maintained if non-forfeitable. This does not include, however, a right to pension payments beginning immediately.
Michael Diekmann (Chairman) 157 396 553 Dr. Paul Achleitner 237 237 474 Oliver Bäte – 267 267 Clement B. Booth – 261 261 Enrico Cucchiani – 293 293 Dr. Joachim Faber 133 213 346
Members of the Board of Management who leave the Board after serving a term of at least five years are entitled to a transition payment for a period of six months. The amount payable is calculated on fixed salary and a proportion of the annual target bonus and is paid in monthly instalments.
acting alone or together with other shareholders holds more than 50.0 % of voting rights in Allianz SE. If the appointment of a member of the Board of Management is unilaterally revoked by the Supervisory Board as a result of such a change of control within a period of twelve months after the event, or if the member terminates service by resignation due to a substantial decrease in managerial responsibilities and, without giving cause for termination, all contracted benefits will be payable in the form of a lump1 ) No current service cost for the defined benefit pension plan of Dr. Perlet, as above age 60.
sum for the duration of the employment contract. The amount to be paid is based on the fixed salary at the time of the change of control, the annual and current three-year bonus, in each case discounted according to market conditions at the time of payment. A target achievement of 100.0 % is the basis for the annual and three-year bonus. If the remaining duration of the service contract is not at least three years at the time of change of control, the lump-sum payment in respect of fixed salary and annual bonus is increased to correspond to a term of three years. If the member reaches the age of 60 before the three years have elapsed, the lump-sum payment decreases correspondingly. For the equity-based remuneration the member is treated as having retired. These regulations are also effective if the Board of Management mandate is not extended within two years after the change of control.
Since their introduction in June 2007, Allianz SE complies with the provisions of rule 4.2.3 sections 4 and 5 of the German Corporate Governance Code setting out suggestions and – later on – recommendations on severance payment caps in case of premature termination of Board of Management contracts without serious cause. Thus, for the appointment of new Board of Management members or for extensions of the existing mandates, the service contract provides that payments for early termination shall neither exceed the value of two times annual compensation (severance payment cap) nor the payments due for the remaining term of the contract. In case of early termination due to a change of control payments shall not exceed 150.0 % of the severance payment cap.
German Stock Corporation Act, the General Meeting is responsible for establishing the Supervisory Board’s remuneration. Accordingly, the provisions on the amount and structure of the Supervisory Board remuneration in § 11 of the Statutes were ratified by the Annual General Meeting in 2005. Upon the conversion of Allianz AG into Allianz SE in 2006, these provisions were adopted by shareholders without changes.
– An appropriate balance is maintained between fixed remuneration and short-term and long-term performance based components in order to adhere to the principles of neutrality and independence of the Supervisory Board members, while at the same time providing adequate performance incentives.
– The remuneration conforms to the individual functions and responsibilities of the Supervisory Board members, such as chair or vice-chair or committee mandates.
– The first performance-based component of remuneration has a short-term focus. It depends on the increase of the consolidated earnings-per-share compared to the previous fiscal year. It amounts to � 150 for each tenth percentage point by which the Group’s earnings-per-share increased in comparison to the preceding year and is set at a maximum limit per member of � 24,000.
With the two variable remuneration components being capped at a maximum limit of � 24,000 and a fixed sum of
Supervisory Board committees receive additional remuneration as follows: The Chairperson of the Supervisory
Committee, Standing Committee and Risk Committee receive an additional 25.0 % above the regular remuneration, and the Chairpersons of each of these committees receive 50.0 % over the regular remuneration. Members of the Audit
Committee are entitled to a fixed sum of � 30,000 per year and the Audit Committee Chairperson receives � 45,000.
The members of the Supervisory Board receive a � 500 attendance fee for each Supervisory Board or committee meeting that they attend in person. This sum remains unchanged if several meetings occur on one day or when various meetings are held on consecutive days.
Dr. Henning Schulte-Noelle (Chairman) 100,000 100,000 0 48,000 0 16,200 75,000 123,150 Dr. Gerhard Cromme (Deputy Chairman) 75,000 75,000 0 36,000 0 12,150 36,250 86,050 Claudia Eggert-Lehmann (Deputy Chairwoman)
Dr. Henning Schulte-Noelle (Chairman) 150,0003) 246,3001) 4,000 2,500 154,000 248,800 Dr. Gerhard Cromme (Deputy Chairman) 100,0004) 164,2002) 4,000 3,500 104,000 167,700 Claudia Eggert-Lehmann (Deputy Chairwoman)
Loans to members of the Board of Management and Supervisory Board
Group companies to members of the Board of Management and Supervisory Board totaled � 85,000 on the date of balance (December 31, 2008). Loan amounts repaid in 2008 totaled � 50,876. Loans are provided at standard market conditions or at the conditions as applied to employees.
Moreover, overdraft facilities were granted to members of the Board of Management and Supervisory Board as part of existing account relationships, likewise corresponding to conditions according to market standard or those applied to employees. The loans and overdrafts mentioned above
(1) were made in the ordinary course of business, (2) were granted on conditions that are comparable to those of loans and overdrafts granted to people in peer groups and (3) did not involve more than the normal risk of collectability or present other unfavorable features. For members of the
Key drivers underpinning these achievements include: – The 3+One program, which sets out our most important management objectives, was initiated in 2003 and remains in effect.
– The transformation of our operating business model launched in 2006 with the objective to place the customer, and the best possible fulfillment of his financial services needs and wishes, at the center of the whole organization.
Nevertheless, we remain convinced that Allianz will do more than just meet these challenges – it will continue to strengthen its international competitive position.
– And, despite all the difficulties, we are in a position to distribute an attractive dividend to our shareholders, without putting our capital base at risk.
Many former leading competitors have ceased to exist or have been partly nationalized in recent months. It is not just our customers but many other parts of society that now recognize that financial service providers like Allianz, reliable even in times of crisis, are an increasingly scarce phenomenon. Stable financial institutions that can withstand crises are the foundation of a functioning economic system.
For this reason, we intend to make even greater efforts to achieve our goal of becoming the most trusted global financial services provider. In our pursuit of this goal, we are guided by our fundamental principles and management priorities.
We remain convinced that Allianz can make a significant contribution towards continuously improving the management of rising retiring and investment risks in our society. In doing this, we not only create sustainable value for our customers and shareholders, we also assume social responsibility in our areas of expertise.
Our management priorities have been proven to be correct in the current financial crisis.
Building on our experiences in the last capital market crisis in 2001/2002, we created our “3+One” program in 2003.
At the same time, we have strengthened our solvency and risk management capabilities and reduced significant concentration risks in our investments. In spite of the dramatic distortions in the financial markets our solvency is strong in comparison to our competitors and remains within our target range of 150 % – 170 %.
We greatly simplified the group structure of Allianz by buying out the minority holdings in RAS in Italy, AGF in
(Germany). The consolidation of our legal units in Germany also made a major contribution in this area.
And as a prerequisite for long-term growth we have increased our focus on customers and innovation. The introduction of uniform leadership principles has firmly anchored this concept in our culture.
Allianz companies where customer loyalty outstrips that of competitors. CFI will be part of the central market management of our new operating model.
The “3+One” program has more than made the core operations of the Allianz Group leaner, more profitable and more resilient. We have also shown that a core element of our success so far has been the consistent identification and systematic sharing of our best ideas and skills. This knowledge forms the basis for the further development of the 3+One program and our management priorities for the coming years, years that will see great uncertainty and enormous opportunities.
– Financial strength: We will continue to improve our capital management and significant economies of scale in investments by further strengthening our Allianz Investment Management unit (AIM) and our group reinsurance program.
“Delivering the Best of Allianz” thus means resolute costumer orientation and operational excellence supported by best practice transfer. We are confident that through this approach we will make major strides again in 2009 towards our goal of becoming the most trusted global financial services provider.
With the sale of Dresdner Bank to Commerzbank, which was concluded on January 12, 2009, our banking strategy has been realigned. We are going to focus on leveraging our distribution agreements for the sale of insurance and investment products with over 200 banking partners worldwide. Furthermore, in countries where we have a presence through a major network of Allianz representatives, we will complement our product offerings with either our own basic banking products or those of our partners. This allows us to concentrate on banking transactions that are in the interest of customers of our own distribution organizations.
– Global equity markets fell dramatically in 2008. – Pressure created by increasing fears of recession hit every sector, not just financials. – The Allianz share did not remain unaffected by the subsequent downturn of the market. It lost 49.3 % of its value during the year, almost in line with the insurance sector as a whole.
Equity markets suffered heavy losses in 2008. In the previous year, the financial sector was virtually the only sector to disappoint. This year, however, stock prices in all sectors fell dramatically, particularly beginning in the fall, as fears grew that the financial crisis would have a major impact on the real economy. This is reflected in the performance of the
during the year. Insurance stocks were down on average by 47.3 %, while the share price of Allianz fell 49.3 % to close the year at � 75.00 per share. Our share price has bounced back more than 30 % in the last weeks of 2008 supported by the news that we had succeeded in accelerating the sale of
Dresdner Bank. Upon publication of the results for the fiscal year 2008 almost three quarters of analysts recommended to buy the Allianz share, one sixth was neutral and only one in ten advised to sell.
Allianz (excluding dividends) (49.3) (5.6) (12.4) Allianz (including dividends) (47.0) (3.3) (11.0) Dow Jones EURO STOXX Insurance (47.3) (4.9) (8.7) Dow Jones EURO STOXX 50 (44.4) (2.4) (3.1)
With our dividend proposal of � 1,586 million or � 3.50 per share we are endeavoring to take into account both our earnings performance and the need for an appropriate capital base as well as the justified shareholder interest in an attractive dividend.
Number of shares outstanding as of December 31 453,050,000 450,150,000 432,150,000 Weighted number of shares outstanding 450,161,145 442,544,977 410,871,602 Share price as of December 31 � 75.00 147.95 154.76 High of the year � 145.92 178.64 156.75 Low of the year � 46.64 133.92 111.20 Share price performance in the year % (49.3) (4.4) 21.0 Market capitalization as of December 31 � bn 34.0 66.6 66.9 Average number of shares traded per day mn 5.0 4.2 3.3
Allianz remains one of the most highly valued financial services providers in the world. We are among the top 10 in the MSCI World Financials Index.
European and world indices. Because of its strong market position, it is among the heavyweights in sector indices for insurers, such as the Dow Jones EURO STOXX Insurance where it had a weighting of 22.9 % at year-end, making it the number one stock out of 17 stocks contained in the index.
Our holistic entrepreneurial approach has long been recognized and has resulted in our stock’s inclusion in major sustainability indices, including the FTSE4Good since 2002 and, since 2004, the Dow Jones Sustainability Index. This is a testament to the attractiveness of Allianz shares for investors taking a socially responsible approach to investment.
Allianz has around 474,000 shareholders and is one of the biggest publicly owned corporations in Europe. The number of shareholders increased by more than 15 % over the last year. All of our shares continue to be held in free float. At the end of the year, 86 % were held by institutional investors, 14 % (up 4 percentage points) by private investors. The breakdown by country shows that 32 % of Allianz shares were held by German investors, while 68 % were held by non-German investors, including 22 % by investors in the U.S. and 13 % by investors in the United Kingdom. The high percentage of shareholders outside Germany is an indication of the regard in which our stock is held on the international financial markets.
Regional breakdown as of December 31, 2008 in % of subscribed capital
During our roadshows over the reporting year, we visited 571 investors in 26 cities in Europe, Asia and the U.S. We devoted 38 days to this effort in an extremely turbulent period. This gave many investors the opportunity to meet personally with Members of the Board of Management or our Investor Relations team and to clarify outstanding questions. We held roadshows in Kuwait, Oslo and Copenhagen for the first time and made new contacts there. Including discussions held at the Munich headquarters, we met with analysts and institutional investors a total of 405 times during the year under review.
Our work in the area of Investor Relations was again recognized by analysts and portfolio managers in 2008. Our
“Best Investor Relations Germany”. Our IR team was top ranked in the independent sector study by Institutional
Investor and the head of IR was named “Best IR Professional ” in the European insurance sector. The well-known
IR team and its Head as number one among European insurers.
View our 2008 Annual Report on the Internet at www.allianz.com/annualreport. Make the most of the
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German Commercial Code and Explanations 133 Reconciliation of Consolidated Operating Profit and
To go directly to any chapter, simply click  on the head- line or the page number
1) The Allianz Group operates and manages its activities primarily through four operating segments: Property-Casualty, Life/Health, Banking and Asset Management. Effective January 1, 2006, in addition to our four operating segments and with retrospective application, we introduced a fifth business segment named Corporate.
– Underlying fundamentals remained strong despite difficult market environment. – Revenues fell by � 5,133 million as sales in investment-oriented products were seriously impacted by the financial markets crisis. – Operating profit of � 7,433 million robust in the circumstances. – Net income from continuing operations of � 3,967 million in spite of net capital losses.
Bank for 2008 amounts to � 6.4 billion. In addition, our results for the first quarter of 2009 will be burdened by another � 0.4 billion stemming from unrealized gains and losses and foreign exchange movements which, according to IFRS 5, can only be taken after the completion of the transaction. 2)
Bank. In contrast, our other business segments proved to be resilient in the early part of the year. However, the worsening of the crisis progressively affected other segments. Sales of investment-oriented products slowed significantly, depressing results from our Life/Health and Asset Management businesses and we recorded a decline in our asset base driven by lower asset values. Furthermore, soaring impairments and decreased harvesting led to a decline in net income from continuing operations of 45.8 % to � 3,967 million. The situation in the financial markets had a strong impact on the results and the sale of Dresdner Bank.
Casualty operations were up 1.7 % on an internal basis, as we achieved selective growth in mixed pricing environments. Premium growth was largely driven by increased revenues from the United States. Activities in the emerging markets5) also contributed to growth. On a nominal basis, gross premiums written decreased by 2.0 % to � 43,387 million. Gross premiums written for 2007 include � 1,134 million of premiums relating to AGF’s health business. In 2008, this business was transferred to the Life/Health segment (comparatives not restated).
4) Total revenues include � 115 mn, � 144 mn and � 130 mn from consolidation for 2008, 2007 and 2006, respectively.
With this lower asset base, fee and commission income from Asset Management was down by 8.4 % to � 4,032 million. Other revenue components also contributed to the decline.
At � 5,649 million, the Property-Casualty segment continued to deliver solid returns in operating profit although 10.3 % lower than in the previous year. This decline was mainly attributable to a lower underwriting result. Our combined ratio increased to 95.1 %.
Non-operating items showed a loss of � 1,960 million coming from a gain of � 250 million in 2007. This was the result of massively higher impairments.
� 3,296 million, mainly reflecting impairments on equity securities. This decline could not be compensated by realized gains that increased by � 277 million to � 2,656 million, including higher gains on equity securities due to the execution of forward sales and lower losses from debt securities.
� 945 million primarily stemming from the redemption of the bridge loan which we had issued in connection with the minority buy-out at AGF in France early in 2007.
� 1,287 million. Against this background the effective tax rate was almost stable, down 0.8 percentage points to 23.5 %.
Consequently, net income from continuing operations was down by 45.8 % to � 3,967 million.
Due to the structure of the transaction, Allianz ceased to be exposed to changes in the results of Dresdner Bank Group from the signing date. Instead Allianz is exposed to changes in the fair value of its stake in Commerzbank. Therefore, the loss from discontinued operations is mainly subject to changes in the fair value of the consideration received.
� 2.1 billion until the change in ownership and an impairment charge of � 1.4 billion, reflecting the difference between the fair value of considerations agreed (� 7.8 billion)
1) Compound annual growth rate (CAGR) is the year-over-year growth rate over a multiple-year period.
an ag em en t R ep or t and the carrying value of � 9.2 billion. Between October 1, 2008 and the date of completion of the transaction on January 12, 2009, the fair value of the agreed consideration declined by � 2.7 billion.
Change in fair value of the agreed consideration (2.7) Other (0.2) Net loss from discontinued operations 1/1/2008 – 12/31/2008 (6.4)
The net loss translates into negative basic earnings per share of � 5.43 (diluted: � (5.47)). Taking only net income from continuing operations into account, basic earnings per share were � 8.81 (diluted: � 8.59).
Main drivers for the decline were net unrealized losses from investments of � 8,459 million, the dividend payment of
4) For further information please refer to Note 50 to our consolidated financial statements. 5) Does not include minority interests. 6) Compound annual growth rate (CAGR) is the year-over-year growth rate over a multiple-year period.
Net income (loss) from continuing operations 4,335 327 (114) 379 (725) (235) 3,967
Income (loss) from continuing operations before income taxes and minority interests in earnings 7,560 2,700 76 735 (987) (521) 9,563
In 2008, the crisis that started as a subprime mortgage crisis, broadly spilled over to other sectors of the financial industry and ultimately also hit the real economy. The year has been characterized by weak equity markets, volatile credit spreads and further declines in U.S. house and mortgage prices.
The downgrading of monoline insurers (monoliners) led to further writedowns on derivatives contracts banks held with the insurers. Investors faced further downgrades and market losses on insured bonds. In September, the global financial system almost collapsed: large financial institutions faltered, leading to changes in business models, failures, mergers and nationalization. Furthermore, some economies were on the verge of national bancruptcy. These developments led to continuously deteriorating market sentiments and falling stock markets worldwide. Ultimately, governments took coordinated actions and announced rescue plans and guarantees for distressed institutions.
Our operations were significantly impacted by impairments on equity and fixed-income securities as well as lower sales of investment-oriented life insurance and asset management products. In addition, credit spread widening, higher volatility and lower interest rates impacted our trading and fair value option (FVO) result significantly.
(ABS) made up � 4.4 bil lion as of December 31, 2008, which is around 5 % of our asset-base. CDOs accounted for � 0.1 billion of this amount.
Dresdner Bank was engaged in various business activities involving structured products. These comprise ABS, credit enhancements, conduits, leveraged buy-out commitments
(LBO) and structured investment vehicles (SIV). Furthermore, Dresdner Bank has sold credit protection for thirdparty ABS and has re-insured these positions with monoliners.
For further information on recently adopted and issued accounting pronouncements please refer to Note 3 to our consolidated financial statements.
2) After markdowns 3) Gross counterparty risk after counterparty default adjustments (CDA)
To the extent Allianz SE holds own shares on the day of the
Area of focus Exposure definition Exposure Negative impact on operating profit
In the year under review, the global economy entered the deepest recession it has seen in decades. The situation is not expected to stabilize until sometime later in 2009, not least because of the time lag for the massive global expansion of monetary and fiscal policy to have an effect. Nevertheless despite these policy actions, gross national product in the industrialized countries is expected to fall for the year as a whole. In contrast, we expect the emerging economies to grow overall. The financial markets will not be calm in 2009. The distortions from the boom years have not yet fully worked through, particularly in the banking sector. The process of adjustment and consolidation that is required will continue to create an atmosphere of great uncertainty in the markets. Central banks and governments remain obligated to avert the risk of a systemic crisis. Taken together, these developments create a very challenging environment for financial services providers in 2009.
The gross national product in all the industrialized countries will shrink in 2009. We estimate the drop in Japan at 2 %. Although the Japanese economy itself has been relatively untouched by the financial crisis, its dependence on export demand will have a noticeable impact on the economy ’s performance, given the current environment. The same will hold true for Germany, where we expect economic activity to decline by 1.5 %. Also the economy of the United
Additional public measures may be required to stabilize the financial sector. In any case, a rapid normalization of the markets is not foreseen, but we expect investor confidence to return if the economy picks up during the year. Given the rapid increase in government indebtedness, the focus will likely shift to inflation and rising interest rates. An economic recovery should have a positive impact on the equity markets.
The aging of society continues. Sustainable retirement and healthcare cannot be built solely on a pay-as-you-go basis
After the direct impact of the financial crisis, additional impairments are now threatening the traditional lending business, where more defaults are expected during the economic downturn. In 2009, banks will attempt to shore up liquidity and capital, though it is far from clear how long it will take for the changed regulations to provide relief and the degree of impact these changes will have.
The major part of our operating profit is driven by our Property -Casualty business, which is least affected by the financial markets crisis. Our combined ratio is strong and expected to benefit from the ongoing efficiency and effectiveness improvements we are realizing from our operational transformation program and sustainability initiative. This will serve to mitigate claims and cost inflation. Even if a severe recession would cause a shortfall in revenues, the shortterm impact on operating profit would not be significant.
In the Life/Health operations we expect a consistently positive development in traditional business, while a recovery in the investment-oriented products is likely to occur over the longer-term. The investment margins will remain vulnerable to adverse financial market developments.
As mentioned repeatedly throughout this report, we expect the difficult conditions in the capital markets to continue throughout 2009. We are in the midst of the toughest economic downturn for decades, and reliable statements about profit levels for 2009 are not possible in this environment.
As always, natural catastrophes and adverse developments in the capital markets, as well as the factors stated in our cautionary note regarding forward-looking statements, may severely impact our results of operations.
ahead of the previous year on an internal basis. Despite a slightly negative pricing impact of approximately 0.5 % for the segment, which stemmed from ongoing soft markets in many countries, we achieved selective growth. Premiums increased in the United States and organic growth was evident in South America, France, Poland and our Travel
On a nominal basis, premium growth was impacted by the transfer of AGF’s health business to the Life/Health segment in 2008 (respective premiums in 2007: � 1,134 million).
Gross premiums written at Allianz Sach in Germany decreased – both on an internal and on a nominal basis – by 0.9 % or � 81 million, in particular due to the soft pricing conditions in the motor insurance market.
In the United States, gross premiums written grew by 11.1 %
– Selective growth achieved in mixed pricing environments. – Combined ratio of 95.1 % close to our target.
Despite the challenging market conditions, the segment delivered another solid operating profit of � 5,649 million, albeit 10.3 % below previous year’s value. This is the result of our disciplined underwriting approach, cost control and a stable investment income. The decline was mainly attributable to a lower underwriting result, the majority of which related to credit insurance and the U. S. crop insurance business. The overall higher claims level was partly compensated by a reduction in expenses.
The combined ratio of 95.1 % was close to our target level albeit 1.5 percentage points above 2007, mainly impacted by a 2.2 percentage points increase in the accident year loss ratio, to 71.8 %. In our Credit Insurance business at Euler
In Italy, premiums declined by � 471 million or 9.0 % on an internal basis. This shortfall was mainly due to a significant decrease in motor insurance business, driven by a lower number of new car registrations and our rigorous underwriting approach. Furthermore, prices were impacted by the Bersani law, which resulted in a market-wide price reduction. The negative pricing impact on our Italian business is estimated to be 2.8 %. On a nominal basis, premiums declined by 9.3 %.
Net realized gains from investments increased by � 916 million to � 2,349 million mainly due to forward sales of participations in RWE, Linde and Siemens which were already locked-in in 2007.
The lower operating profit and the decrease in non-operating items were the main drivers of the 16.2 % reduction in net income to � 4,335 million.
Income tax expenses decreased to � 1,489 million. The effective tax rate increased from 22.8 % to 25.1 %. The low tax rate in 2007 was mainly driven by tax benefits due to the tax reform in Germany and tax rate changes in Italy and France.
Woolworths – started to increase. As a result, the accident year loss ratio for credit insurance was 85.0 %, after 57.1 % in 2007. Following a slump in commodity prices in the United
Net investment income decreased by � 562 million. While interest and similar income was stable, we recorded shortfalls in other investment income, such as the negative market performance of special funds (fair value option, FVO)
Interest and similar income 4,477 4,473 4,096 Operating income from financial assets and liabilities carried at fair value through income (net) 3) (158) 144 106 Operating realized gains/losses (net) 4) 37 46 46 Fee and commission income 1,247 1,178 1,014
Loan loss provisions (17) (6) (2) Operating impairments of investments (net) 5) (437) (67) (25)
Income before income taxes and minority interests in earnings 5,936 7,261 7,560
3) The total of these items equals income from financial assets and liabilities carried at fair value through income (net) in the segment income statement included in Note 6 to the consolidated financial statements.
Group Management Report Allianz Group Annual Report 2008 1) Reflect gross premiums written on an internal basis (adjusted for foreign currency translation and (de-)consolidation effects). 2) Reinsurance business of Allianz Suisse was transferred to Allianz SE. Effective 1Q 2008, renewal business is shown in Germany, and run-off business is shown in Switzerland. 3) Effective July 21, 2008, Koç Allianz Sigorta AS was consolidated following the acquisition of approximately 47.1 % of the shares in Koç Allianz Sigorta AS by the Allianz Group, increasing our holding to approximately 84.2 %.
Germany 2) 95.0 91.0 92.0 69.5 64.9 64.9 25.5 26.1 27.1 Switzerland 2) 92.8 95.1 92.8 70.2 69.5 69.3 22.6 25.6 23.5 Austria 93.7 95.8 98.4 70.1 73.1 73.1 23.6 22.7 25.3 German Speaking Countries 94.6 92.0 92.7 69.6 66.3 66.4 25.0 25.7 26.3
Reinsurance PC 87.9 94.1 95.6 62.0 64.6 65.8 25.9 29.5 29.8 Allianz Global Corporate & Specialty 89.5 96.0 92.2 62.3 67.9 62.5 27.2 28.1 29.7 AZ Insurance plc 94.7 98.7 94.3 60.4 65.4 63.0 34.3 33.3 31.3 Australia 97.1 95.7 96.2 72.7 70.8 70.3 24.4 24.9 25.9 Ireland 91.9 95.1 74.4 67.0 69.6 50.2 24.9 25.5 24.2 ART 81.3 — — 31.3 — — 50.0 — — Anglo Broker Markets/
Russia 7) 101.1 104.2 88.5 59.7 64.7 34.7 41.4 39.5 53.8 Hungary 93.3 96.7 97.0 61.2 67.1 64.8 32.1 29.6 32.2 Poland 93.3 94.4 92.8 60.7 58.6 57.4 32.6 35.8 35.4 Romania 102.0 101.2 92.0 73.1 79.7 72.4 28.9 21.5 19.6 Slovakia 77.5 66.8 86.4 46.1 38.2 55.4 31.4 28.6 31.0 Czech Republic 80.8 79.5 82.6 60.5 56.7 61.4 20.3 22.8 21.2 Bulgaria 77.8 85.5 80.2 48.0 43.6 41.7 29.8 41.9 38.5 Croatia 97.7 100.1 95.6 64.8 65.1 63.8 32.9 35.0 31.8
Asia-Pacific (excl. Australia) 96.9 98.6 93.8 63.0 60.2 55.7 33.9 38.4 38.1 Middle East 127.2 105.3 101.9 66.0 60.2 33.0 61.2 45.1 68.9 Growth Markets 93.4 94.7 92.1 59.4 60.7 60.4 34.0 34.0 31.7
The global financial and economic crisis accelerated in the fourth quarter of the year leading to further equity market downturns, unprecedented volatility, widening credit spreads and declining interest rates. As a result, we recorded significantly higher impairments, losses in the fair value option stemming from credit spread widening, trading losses from derivatives, and lower results from harvesting.
The impact on operating investment income was a decline of � 6,403 million.
The turbulences in the fourth quarter seriously affected most of Life/Health businesses, of which the biggest impact was recorded in the United States.
At � 46,297 million, statutory premiums were down 8.3 % on an internal basis mainly driven by the significant slowdown in sales of unit-linked and other investment-oriented products. In addition, bancassurance partners promoted deposit products rather than unit-linked contracts driven by their own liquidity concerns. On a nominal basis, statutory premiums were down 7.6 % to � 45,615 million, notwithstanding � 1,199 million of premiums in 2008 relating to the
A continuing weak bancassurance market and lower sales of unit-linked products were the main reasons for this downturn. In addition, sales were impacted as one of our local bancassurance partners withdrew from cooperation following a change in ownership.
2) Before elimination of transactions between Allianz Group companies in different geographic regions and different segments.
The financial market conditions left its mark on our operations in the United States, where we recorded lower sales of both fixed index and variable annuity products, which resulted in a statutory premium decline of 8.5 % or � 590 million.
We recorded premium growth in France of 4.8 % or � 367 million, primarily benefiting from two major group life contracts. However, due to the current market environment, sales from unit-linked contracts decreased. On a nominal basis, that includes the effect from the already mentioned reclassification of AGF’s health business, revenue growth
Our business in Spain grew by 14.2 % or � 105 million. Here we benefited from higher tax free transfers of pension products from banks to insurance companies. Furthermore, short-term investment products and group life business contributed to the increase.
Statutory premiums by regions as of December 31, 2008 in %
We achieved an operating profit of � 1,206 million. The sharp drop of 59.7 % compared to previous year’s figure reflects the impacts from the financial market crisis as already described. The large negative effects recorded in the fourth quarter led to a decline in operating profit for the full year.
� 945 million a year earlier. This stemmed primarily from higher write-ups and lower write-downs on derivatives in the German life business, which were partly compensated by unfavorable changes in fair value driven by the financial market trends in France and the United States.
1) For further information on the composition of our Life/Health asset base please refer to page 78.
2) Loans and advances to banks and customers, held-to-maturity investments, and real estate held for investment are stated at amortized cost. Investments in associates and joint ventures are stated at either amortized cost or equity, depending upon, among other factors, our ownership percentage. For further information see Note 2 to the consolidated financial statements.
Minority interests in earnings declined by 59.8 % to � 86 million, mainly reflecting the the lower income.
Claims and insurance benefits incurred (net) (19,673) (17,637) (17,625) Changes in reserves for insurance and investment contracts (net) (5,122) (10,268) (10,525)
Non-operating income from financial assets and liabilities carried at fair value through income (net) 3) (26) 5 — Non-operating realized gains/losses (net) 4) (39) 137 195 Non-operating impairments of investments (net) 5) (414) (3) — Amortization of intangible assets (3) (3) (26) Non-operating restructuring charges 6) (51) (29) (34) Non-operating items (533) 107 135
Income before income taxes and minority interests in earnings 673 3,102 2,700
Minority interests in earnings (86) (214) (416) Net income (loss) 327 1,991 1,643 1) Since 2008, our health business in Belgium and France is shown within Life/Health segment. Prior year balances have not been adjusted. 2) For the Life/Health segment, total revenues are measured based upon statutory premiums. 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. 3) The total of these items equals income from financial assets and liabilities carried at fair value through income (net) in the segment income statement included in Note 6 to the consolidated financial statements.
Germany Life 13,487 13,512 13,009 13,503 13,512 10,313 10,381 10,543 Germany Health 3) 3,119 3,123 3,091 3,119 3,123 3,119 3,123 3,091 Switzerland 1,205 992 1,005 1,174 992 478 432 455 Austria 461 396 380 461 396 277 288 283 German Speaking Countries 18,272 18,023 17,485 18,257 18,023 14,187 14,224 14,372
France 5) 7,991 6,550 5,792 8,019 7,652 2,887 1,760 1,436 Belgium 5) 681 664 597 681 713 345 310 302 Netherlands 371 399 424 371 399 133 137 146 Luxembourg 82 83 58 82 83 26 26 30 Africa 40 35 32 40 35 17 15 16 Europe II incl. Africa 9,165 7,731 6,903 9,193 8,882 3,408 2,248 1,930
South Korea 1,580 2,188 2,054 1,971 2,188 709 975 986 Taiwan 997 1,812 1,336 1,035 1,812 148 72 107 Malaysia 142 126 107 147 126 121 104 88 Indonesia 214 224 115 243 224 75 49 38 Other 532 288 121 531 288 125 18 37
Asia-Pacific 3,465 4,638 3,733 3,927 4,638 1,178 1,218 1,256 Hungary 181 141 96 181 141 79 80 75 Slovakia 290 235 183 269 235 175 157 135 Czech Republic 101 96 76 91 96 60 56 54 Poland 428 431 367 401 431 192 121 96 Romania 32 30 25 34 30 15 12 12 Bulgaria 33 35 25 33 35 29 28 23 Croatia 59 58 48 58 58 42 40 36 Russia 17 13 8 18 13 16 12 7
New Europe 1,141 1,039 828 1,085 1,039 608 506 438 Middle East 88 70 68 92 70 81 65 60 Growth Markets 4,694 5,747 4,629 5,104 5,747 1,867 1,789 1,754 1) 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.
Italy 206 372 339 8.9 5.8 6.4 Spain 103 104 92 8.8 9.2 9.3 Portugal 1 25 25 24.6 26.5 15.1 Greece 2 6 13 22.9 20.7 22.6 South America 10 — 1 10.3 32.6 16.9 Turkey 4) 5 — — 38.5 — — Europe I incl. South America 327 507 470 9.4 6.6 7.0
France 5) 128 632 582 14.9 15.4 12.6 Belgium 5) 53 68 62 9.9 10.1 12.5 Netherlands (1) 44 50 24.1 9.8 18.4 Luxembourg 3 4 5 10.3 10.8 12.2 Africa 3 2 2 13.4 16.5 19.6 Europe II incl. Africa 186 750 701 14.9 14.6 13.0
NAFTA (228) 385 418 (0.1) 11.9 8.0 AZ Reinsurance LH 9 29 41 19.6 21.0 27.8 United Kingdom 7) (2) (3) (2) — — — Anglo Broker Markets / Global Lines (221) 411 457 0.8 12.3 8.7
South Korea 96 286 64 13.6 14.4 13.9 Taiwan 11 26 14 11.8 2.9 5.0 Malaysia 9 12 10 15.8 17.2 19.9 Indonesia 12 6 3 15.7 12.7 19.3 Other (87) (30) (10) 17.2 17.0 18.4
New Europe 48 61 50 24.4 20.0 19.6 Middle East 11 6 5 27.5 24.6 30.4 Growth Markets 100 367 136 16.6 12.1 13.0 5) Effective 1Q 2008, our health business in France and Belgium is shown within Life/Health segment. Prior year balances have not been adjusted. 6) Effective 2007, life business in Mexico is shown within the Life/Health segment. Prior year balances have not been adjusted. 7) Contains run-off � (2) mn , � (3) mn and � (2) mn for 2008, 2007 and 2006, respectively, from our former life insurance business in the United Kingdom which we sold in
December 2004. 8) Represents elimination of transactions between Allianz Group companies in different geographic regions.
We recorded an operating loss of � 31 million coming from a profit in 2007 of almost the same magnitude. Lower operating revenues and higher loan loss provisions (net additions of � 29 million in 2008 compared to net additions of
� 5 million in the previous year) were only partially offset by reduced operating expenses. Operating expenses decreased by 6.7 % to � 546 million whereas our cost-income ratio increased by 6.3 percentage points to 100.4 %.
1) Following the sale of almost all of Dresdner Bank AG (Dresdner Bank) to Commerzbank AG (Commerzbank), our continuing banking operations consist of Oldenburgische Landesbank AG (OLB) and the clients introduced through the tied agents channel to Dresdner Bank, together with our non-Dresdner Bank existing banking operations. Therefore, all revenue and profit figures presented for our continuing business exclude the parts of Dresdner Bank sold to Commerzbank. Since the third quarter 2008, following the announcement of the sale, Dresdner Bank qualified as held-for-sale and discontinued operations and is presented as “Discontinued Operations of Dresdner Bank” on pages 72 and 73. The results from these operations are presented in a separate net income line “net income from discontinued operations, net of income taxes and minority interests in earnings”. For further information please see Note 4 in our consolidated financial statements.
2) On January 1, 2009, Banque AGF was re-branded to Allianz Banque.
The non-operating result was negative at � 130 million compared to a positive result of � 13 million in 2007. This is primarily due to significantly higher net impairments of investments, up � 117 million to � 120 million, which were mainly caused by write-downs on structured products in
France. In addition, net realized losses of � 6 million (2007: gains of � 18 million), largely from the sale of investments in
After tax and minority interests, we recorded a net loss from continuing operations of � 114 million, coming from a gain of � 55 million a year earlier.
– Due to the sale of Dresdner Bank, the commentary on the banking segment only refers to the continuing banking operations of the Group.
Loan loss provisions (29) (5) 3 Operating profit (loss) (31) 32 63
The following table sets forth our banking operating revenues, operating profit and cost-income ratio by geographic region for the years ended December 31, 2008, 2007 and 2006. Consistent with our general practice, these figures are presented before consolidation adjustments, representing the elimination of transactions between Allianz Group companies in different segments.
� mn � mn � mn � mn � mn � mn % % %
1) Represents interest and similar income less interest expenses. 2) Represents fee and commission income less fee and commission expenses. 3) The total of these items equals income from financial assets and liabilities carried at fair value through income (net) in the segment income statement included in Note 6 to the consolidated financial statements.
Third-party assets under management by geographic region as of December 31, 2008 (December 31, 2007) 1)
(26 %) increased following stronger outflows from retail products and a shift in investments towards the United
1) Based on the origination of assets. 2) Consists of third-party assets managed by other Allianz Group companies (approximately
Despite the negative impact the crisis had on the fair value of our assets under management, we still generated positive net inflows in the first nine months of 2008. In contrast, we saw large outflows in the fourth quarter as a consequence of increased risk aversion of investors. The twelve month net inflow figure was zero, as full year inflows of � 11 billion from fixed-income products was entirely offset by outflows from equity products. Following a sharp decline in market values, market-related depreciation amounted to � 86 billion; thereof � 58 billion and � 27 billion related to equity and fixed-income products, respectively. Deconsolidation effects of � 5 billion were to a large extent due to the disposal of our former real estate fund company, DEGI. The strengthening U.S. Dollar versus the Euro resulted in a positive currency translation effect of � 29 billion.
For equity products, 62 % of our assets under management outperformed their respective benchmarks. Fixed income markets were severely hit by unprecedented and unforeseeable market disruptions in the second half of the year, which had a negative impact on our performance track record, driving outperformance down to 48 %.
Major awards received during the year in the asset management business in 2008 include: – Allianz RCM Global EcoTrends Fund was announced joint winner of “Best Climate Change Fund 2008”, awarded by
– Allianz RCM-managed Charter European Trust was awarded “Best European Trust 2008” at Investment
1) AGI account-based, asset-weighted 3-year investment performance of 3rd party assets vs. benchmark including all accounts managed on a discretionary basis by equity and fixed-income managers of AGI (including direct accounts, Spezialfonds and CPMs of Allianz with AGI Germany). For some retail funds the net of fee performance is compared to the median performance of an appropriate peer group (Micropal or Lipper; 1st and 2nd quartile mean out-performance). For all other retail funds and for all institutional accounts performance is calculated gross of fees using closing prices (revaluated ) where appropriate and compared to the benchmark of each individual fund or account. Other than under GIPS, the performance of closed funds/accounts is not included in the analysis. Also not included: AGI Taiwan, AGI Singapore, GTJA Allianz China, AGI Korea, AGI France, AGI Netherlands and AGI Italy.
– A total of 24 Lipper Awards have been awarded to group funds across Asia and Europe.
Operating revenues decreased by 6.0 % to � 2,813 million on an internal basis. The decline in the asset base resulted in lower net fee and commission income. In addition, we recorded a net loss from financial assets and liabilities carried at fair value through income. On a nominal basis, operating revenues were 11.5 % lower.
Net fee and commission income declined by 8.1 % as the lower level of third-party assets under management led to decreasing management fees. The unprecedented market disruptions were reflected in the volatility of performance fees, which more than halved.
In a difficult market environment, operating profit was down 27.9 % on an internal basis. At � 904 million, it was 31.6 % lower than the previous year’s result. This was mainly driven by lower net fee and commission income, negative mark-to-market valuation of seed money investments together with a slight increase in operating expenses.
Acquisition-related expenses declined significantly to � 278 million (2007: � 491 million). This was almost exclusively due to a lower number of outstanding PIMCO LLC Class B
Units (or B Units). As of December 31, 2008, the Allianz
We recorded net income of � 369 million, a 21.5 % decline compared to a year ago.
Net fee and commission income 1) 2,874 2,812 3,133 3,060 2,924 2,874
Administrative expenses, excluding acquisition-related expenses 4) (1,961) (1,909) (1,900) (1,857) (1,754) (1,713)
Income before income taxes and minority interests in earnings 633 617 865 829 735 720 1) Represents fee and commission income less fee and commission expenses.
At � 725 million, the net loss was � 567 million higher than in the prior year reflecting higher impairments and significantly lower realized gains in the Holding Function.
The non-operating loss amounted to � 1,154 million coming from a gain of � 37 million in the prior year. Due to the weak market conditions impairments increased significantly by � 638 million and capital gains were � 838 million lower compared to the prior year. Trading income improved and expenses for external debt decreased mostly driven by the redemption of the bridge loan for the minority buy-out at AGF.
Operating profit increased by 7.4 % to � 130 million. This development was driven by a higher margin from fully consolidated private equity investments and a rise in net fee and commission income, whereas interest and similar income declined due to higher profits from private equity fund investments in the prior year when the market environment was friendlier than in 2008.
Net income increased by � 77 million to � 87 million mostly as a consequence of the reduced non-operating loss. Income tax expenses amounted to � 31 million compared to
– Operating loss declined by � 137 million mainly driven by foreign currency gains. – Net loss heavily affected by increased impairments and lower realized gains.
� 1,439 million, had the biggest impact on revenues. This income category was heavily affected by the credit crisis.
Result from operating activities of discontinued operations for the nine months ended September 30, 2008
We recorded non-operating items of � 164 million. Despite the negative pre-tax income of � 1,633 million, we recorded an income tax charge of � 398 million. Therefore, we recorded a result from operating activities of discontinued operations of � (2,074) million.
– Discontinued operations of Dresdner Bank continued to suffer from weak markets.
Income from financial assets and liabilities designated at fair value through income (net) 4) (77) 33 53 Other income — — 25
Loan loss provisions (327) 131 (31) Operating profit (loss) (1,797) 602 1,167
Realized gains/losses (net) 285 540 230 Impairments of investments (net) (102) (87) (215) Amortization of intangible assets (2) — —
Impairment loss recognized on remeasurement of assets of disposal group to fair value less costs to sell as of September 30, 2008 6) (1,409) — —
Result of transaction between September 30, 2008 and December 31, 2008 6) (2,928) — — After-tax loss on remeasurement of assets of disposal group to fair value less costs to sell (4,337) — —
4) The total of these items equals income from financial assets and liabilities carried at fair value through income (net) included in Note 4 to the consolidated financial statements. 5) For the discontinued operations of Dresdner Bank, total revenues are measured based upon operating revenues. 6) No income taxes were related to the impairment loss of September 30, 2008 and to the result from transaction between September 30, 2008 and December 31, 2008. 7) Represents operating expenses divided by operating revenues.
Cash and cash equivalents 8,958 31,337 Financial assets carried at fair value through income 2) 14,240 185,461
2) As of December 31, 2008, � 101 mn are pledged to creditors and can be sold or repledged (2007: � 23,163 mn). 3) As of December 31, 2008, � 826 mn are pledged to creditors and can be sold or repledged (2007: � 7,384 mn). 4) For further information on our segment reporting please refer to Note 6 to our consolidated financial statements.
Cash flow hedges 30 Miscellaneous (65) Total income and expense recognized directly in shareholders’ equity (8,896)
Net loss (2,444) Total recognized income and expense for the year (11,340)
Group as of December 31, 2008, please refer to “Risk Report
For detailed information on Allianz SE issued debt outstanding as of December 31, 2008, please refer to the section
“Liquidity and Capital Resources” and Note 23 and 24 to our consolidated financial statements.
3) During the year ended December 31, 2008 unrealized gains and losses (net) arising during the year included in shareholders’ equity are net of deferred tax benefit of � 1,690 mn (2007: � 720 mn; 2006: � 478 mn).
In the following sections, we analyze important developments within the balance sheets of our Property-Casualty,
Due to timing differences between premium payments and the claim or contractual fulfillment, insurers need to invest the money they collected from their clients. Therefore, insurance assets, including financial assets and liabilities carried at fair value through income, investments, loans and advances to banks and customers, and for the Life/
Health segment financial assets for unit-linked contracts, account for the most part of the assets in our consolidated balance sheet.
December 31, 2008. Thereof, the fixed-income portfolio which comprised bonds and loans 2) accounted for � 315.8 billion, equities for � 33.8 billion and other investment categories for � 8.6 billion. 3)
1) For further information on the development of these third-party assets please refer to pages 66 and 67.
2) Excluding internal loans. 3) As part of the transaction with Commerzbank Allianz committed to purchase certain
Fixed-income portfolio of � 315.8 billion by type of issuer in %
We consider our fixed-income portfolio to be both of high quality and well diversified. A share of more than 60 % relate to governments and covered bonds that help mitigate against possible future deteriorations in the credit markets.
Nearly 80 % of our government exposure was attributable to the Eurozone.
69 % of covered bonds are German Pfandbriefe backed by either public sector loans or mortgage loans. On these as well as on all other covered bond exposures, minimum required security buffers as well as voluntary over-collateralization offer a substantial cushion for house price deterioration and payment defaults.
Our Property-Casualty asset base decreased by � 13.2 billion, which was almost entirely attributable to the decline in equity investments. These were down by � 4.9 billion due to reduced equity values following the weak capital markets and by � 5.0 billion due to net divestments stemming from equity realizations. Furthermore, � 2.7 billion stemmed from capital upstreaming from Allianz Sach in Germany to
2) Do not include affiliates of � 10.7 bn and � 10.0 bn as of December 31, 2008 and 2007, respectively.
In 2008, the segment’s gross reserves for loss and loss adjustment expenses decreased by 2.3 % to � 55.6 billion. Main contributors for this development were the reclassification of AGF’s health insurance business from the Property-Casualty segment to the Life/Health segment and foreign currency trans lation effects.
3) Loans and advances to banks and customers, held-to-maturity investments, and real estate held for investment are stated at amortized cost. Investments in associates and joint ventures are stated at either amortized cost or equity, depending upon, among other factors, our ownership percentage. For further information please refer to Note 2 to the consolidated financial statements.
2) Do not include affiliates of � 2.5 bn and � 2.7 bn as of December 31, 2008 and 2007, respectively.
Life/Health reserves for insurance and investment contracts were up 1.7 % to � 287.9 billion including an increase of
United States, Germany and France. These were partly offset by major reductions in provisions for premium refunds in
Germany and France which were down by � 9.2 billion due to negative market impacts. Foreign currency effects increased liabilities by � 1.4 billion including � 2.1 billion and
� 0.7 billion from the rising U.S. Dollar and Swiss Franc respectively, counteracted by � (1.6) billion from the declining Korean Won.
5) Includes loan loss allowance of � (0.1) bn as of December 31, 2008.
In the discontinued operations of Dresdner Bank, loans and advances to banks and customers amounted to � 169.6 billion.
Liabilities to banks and customers amounted to � 195.7 billion. Thereof, liabilities payable on demand accounted for
The Allianz Group is engaged in a variety of SPEs including asset securitization entities, investment funds and investment conduits. In providing these services, the Allianz
The Allianz Group also engages in establishing and managing investment fund SPEs with a goal of developing, marketing and managing these funds. During the establishment phase of these funds, Allianz Group may provide initial capital for the SPEs to acquire securities until either sufficient third-party investors purchase participations in the funds or the SPEs are terminated. Certain of these SPE’s funds’ obligations may include capital maintenance and/or performance guarantees given to the investors. The guarantees Allianz Group provides differ both in terms of amount and duration according to the relevant arrangements. Allianz
SPE when the substance of the relationship between Allianz and the SPE indicates that the SPE is controlled by Allianz.
In addition to the Allianz Group’s engagement in a variety of SPEs including asset securitization entities, investment
an ag em en t R ep or t funds and investment conduits, the Allianz Group through its subsidiary Dresdner Bank was involved in asset securitization entities through arranging, facilitating, and in certain cases, managing investment conduits for banking customers. The consolidated SPEs that formed part of the disposal group classified as held-for-sale as of December 31, 2008, included asset-backed securities transactions, structured finance transactions, derivatives transactions and investment funds. The ABS transactions comprise mainly commercial paper conduits, securitizations and CDO structures. Structured finance transactions are primarily related to tax efficient structures for different kind of transactions.
Commerzbank with a continuing Allianz interest of 40 % in subordinated loans. This SPE was consolidated as of December 31, 2008, because an Allianz Group entity and Dresdner
Bank held interests in this SPE and, thus, Allianz Group retained the majority of risks at such time. Total assets of this
SPE amounted to � 40 million as of December 31, 2008.
In the ordinary course of business, the Allianz Group enters into arrangements that, under IFRS, are not recognized on the consolidated balance sheet and do not affect the consolidated income statement. Such arrangements remain off-balance sheet as long as the Allianz Group does not incur an obligation from them or becomes entitled to an asset itself. As soon as an obligation is incurred, it is recognized on Allianz Group’s consolidated balance sheet, with the corresponding loss recorded in the consolidated income statement. However, in such cases, the amount recognized on the consolidated balance sheet may or may not, in many instances, represent the full loss potential inherent in such off-balance sheet arrangements. The Allianz Group does not rely on off-balance sheet arrangements as a significant source of revenue. In order to provide a comprehensive analysis of Allianz Group’s off-balance sheet arrangements and to enable an assessment of our risk exposure arising from such arrangements going-forward we discuss below the types of off-balance sheet arrangements that Allianz is involved in, distinguishing between continuing and discontinued operations.
In the normal course of business, we enter into various irrevocable loan commitments, leasing commitments, purchase obligations and various other commitments. We also extend market value guarantees to customers, as well as execute indemnification contracts under existing service, lease or acquisition transactions. Fee income from issuing guarantees is not a significant part of our total income, and losses incurred under guarantees and income from the release of related provisions were insignificant for each of the last three years. 1)
As described above, Allianz Group is engaged in a variety of
SPEs was mainly based on the fact that Allianz Group does not have to bear the majority of the risks. Compared to the prior year, the conclusion to not consolidate has not changed for the continuing operations. In 2008, Allianz
The following table sets forth the total assets of non-consolidated SPEs in which the Allianz Group has a significant beneficial interest and that form part of the continuing operations, associated liabilities reported in the consolidated balance sheet, the Allianz Group’s maximum exposure to loss associated with these SPEs and further information regarding the Allianz Group’s involvement as of
Allianz Group’s maximum exposure to loss � mn � mn � mn
� 1 million with a maturity of one to three or more than five years. The difference between the liabilities recorded and
Allianz Group’s maximum exposure to loss is due to the fact that only in extremely rare cases, the redemption price might be lower than the guaranteed price at the balance sheet date. Only in this case would a provision be recognized in the consolidated financial statements.
Commerzbank, Allianz Group no longer has exposure to these SPEs except for certain CDOs held in vehicles used for the issuance of CDOs, securitization and credit derivative transactions that Allianz Group has repurchased from
Dresdner Bank after the completion of the sale to Commerzbank. The fair value of these assets repurchased by Allianz was � 1,115 million with a notional amount of approximately � 2 billion, and is presented in assets of a disposal group classified as held-for-sale as of December 31, 2008. The source of maximum exposure to loss is the investment in the issued notes. Due to the fact that these are investments in SPEs with a static funding structure, consolidation would only be necessary if the structure is changed. For these SPEs, no financial support was provided in 2008 and there are no further obligations for additional liquidity support.
Liquidity planning is an integral part of the overall financial planning and capital allocation process and is based on strategic decisions which include solvency planning, our dividend target, and expected merger and acquisition activities. The Board of Management of Allianz SE, the holding and ultimate parent company of the Allianz Group, decides after consultation with local management of the Allianz
In order to fund liquidity needs, Allianz Group’s financial management is centrally operated by Allianz SE, coordinating and executing external debt financing, for instance through securities issues and other capital raising transactions.
1) For further information regarding the management of our liquidity risk please refer to our Risk Report on page 87.
As of December 31, 2008, the majority of Allianz SE’s external debt financing was made up of bonds and money market securities. Thereof, approximately one half was applicable to certificated liabilities, and the other half was made up of participation certificates and subordinated liabilities.
As of December 31, 2008, Allianz SE had money market securities outstanding with a carrying value of � 4,103 million, representing an increase in the use of commercial paper as a short-term financing instrument of � 1,174 million compared with 2007. Interest expense on commercial paper rose to � 125.0 million (2007: � 87.0 million) due to increasing interest rates on such financing in 2008, and higher annual average usage. In 2008 there were no difficulties with the roll-over of commercial papers. The average maturity of commercial papers is three months.
On March 6, 2008, Allianz Finance II B.V. issued � 1.5 billion of senior bonds, guaranteed by Allianz SE, with a coupon rate of 5.0 %. The maturity of this bond is March 6, 2013.
nominal value in � bn 1) Excludes � 85.1 mn of participation certificates at each December 31, 2008 und 2007, with interest expense of � 9.9 mn and � 16.2 mn, respectively.
Interest expense � 51.2 mn 5.0 % bond issued by Allianz Finance II B.V., Amsterdam Volume � 1.5 bn Year of issue 2008 Maturity date 3/6/2013 ISIN DE 000 A0T R7K 7 Interest expense � 63.1 mn 4.00 % bond issued by Allianz Finance II B.V., Amsterdam Volume � 1.5 bn Year of issue 2006 Maturity date 11/23/2016
6.125 % bond issued by Allianz Finance II B. V., Amsterdam Volume � 2.0 bn Year of issue 2002 Maturity date 5/31/2022
Interest expense � 114.3 mn 6.5 % bond issued by Allianz Finance II B. V., Amsterdam Volume � 1.0 bn Year of issue 2002 Maturity date 1/13/2025
Interest expense in 5.5 % bond issued by Allianz SE Volume � 1.5 bn Year of issue 2004 Maturity date Perpetual Bond
Interest expense � 63.0 mn 5.375 % bond issued by Allianz Finance II B. V., Amsterdam Volume � 0.8 bn Year of issue 2006 Maturity date Perpetual Bond ISIN DE000A0GNPZ3 Interest expense � 46.2 mn 8.375 % bond issued by Allianz SE Volume USD 2.0 bn Year of issue 2008 Maturity date Perpetual Bond
Interest expense � 9.9 mn Total interest expense for participation certificates � 9.9 mn 4. Issues that matured in 2008 5.0 % bond issued by Allianz Finance B.V., Amsterdam Volume � 1.6 bn Year of issue 1998 Maturity date 3/25/2008
Interest expense � 0.3 mn Total interest expense for matured issues � 20.2 mn Total interest expense � 686.3 mn 1) Senior bonds and commercial papers provide for early termination rights in case of nonpayment of amounts due under the bond (interest and principal) as well as in case of insolvency of the relevant issuer or, if applicable, the relevant guarantor (Allianz SE). The same applies to two subordinated bonds issued in 2002.
� 25.3 billion in 2008, up � 13.8 billion compared to the prior year. This increase resulted primarily from a higher net inflow from both collateralized refinancing activities mainly in the context of Dresdner Bank and from financial assets and liabilities designated at fair value through income of
� 3.9 billion to � 6.2 billion in 2008 compared to an outflow of � 2.4 billion in the prior year, which was mainly attributable to a net cash outflow from available-for-sale investments (Special funds Life/Health, Allianz Life U.S., Dresdner
Bank, AGF Vie) driven by and higher net outflows from loans and advances to banks and customers, particularly at Dresdner Bank. These effects were partially compensated by net cash inflows during the fourth quarter 2008 from assets and liabilities of disposal groups classified as held-for-sale.
1) Includes effect of exchange rate changes on cash and cash equivalents of � 102 mn, � (115) mn and � (78) mn in 2008, 2007 and 2006, respectively.
Net cash outflow provided by financing activities increased by � 0.5 billion to � 11.3 billion in 2008. The main contributing factors were net cash outflows from liabilities to banks and customers, mainly attributable to the redemption of a bridge loan at Allianz France Holding, offset by lower net cash outflows from certificated liabilities, participation certificates and subordinated liabilities mainly due to Dresdner
Overall, cash and cash equivalents increased by � 7.9 billion to � 39.2 billion as of December 31, 2008.
Dresdner Bank’s cash and cash equivalents increased significantly compared to last year. However, as Dresdner Bank was reclassified to assets of disposal groups held-for-sale we recorded a decline in the cash position of our continuing operations as well as an increase in the cash position of our discontinuing operations. The overall increase in cash and cash equivalents was partially offset by our German entities scaling back securities lendings.
As of December 31, 2008, compulsory deposits on accounts with national central banks under restrictions due to required reserves from the European Central Bank totaled 2) See Note 7 to our consolidated financial statements for additional information on the Allianz Group’s cash and cash equivalents.
– Integration of risk considerations and capital needs into management and decision-making processes through the attribution of risk and allocation of capital to the various segments.
Allianz risk management is designed to add value by focusing on both risk and return.
– Enhances risk dialogue between Group and operating entities – Implements internal risk capital model – Reports and communicates Group-relevant risks
Group, with the objective of balancing return on investment and risk. The Supervisory Board Risk Committee of Allianz SE
meets on a regular and ad-hoc basis to monitor the risk profile of the Allianz Group based on risk reports presented by the Chief Financial Officer and Chairman of the Group
Allianz Group based on systematic qualitative and quantitative analysis and regularly informs management concerning the Allianz Group’s risk profile. Group Risk develops the
adherence to the framework. The core elements of the risk framework are set forth in the Group Risk Policy, which has been approved by the Board of Management of Allianz SE
and which defines the minimum requirements for all operating entities within the Allianz Group. Additional risk standards, such as standards related to specific segments or risk categories, are in place for our operating entities worldwide. Group Risk is also responsible for monitoring the accumulation of specific types of risks across business lines, in particular with respect to natural disasters and exposures to counterparties.
Local operating entities assume responsibility for their own risk management, with risk functions and committees that are similar to the Group structure. Independent risk oversight is a fundamental principle of our risk governance structure, with a clear separation between business functions that actively take decisions and assume risk responsibility, on the one hand, and independent risk oversight functions, on the other hand. Risk oversight consists of independent risk identification, assessment, reporting and monitoring and also includes analyzing alternatives and proposing recommendations to the Risk Committees and local management or to the Board of Management of Allianz SE. The local risk departments performing the oversight role in our major operating entities are headed by a local Chief Risk Officer.
Group Risk is represented on the local Risk Committees to enhance the risk dialogue between the Group and the operating entities.
On a periodic basis, Group Audit independently reviews the risk governance implementation, performs quality reviews of risk processes and tests adherence to business standards.
Allianz Group’s risk landscape is continually evolving due to changes in our environment. In order to adapt, the Trend
Asset Management and Corporate), providing a common standard for measuring and comparing risks across the wide range of different activities that we undertake as an integrated financial service provider.
Risk (“VaR”) approach, determining a maximum loss in the value of our portfolio of businesses covered within the scope of the model (the “covered business”) due to adverse market, credit, insurance and other business events, within a specified timeframe (“holding period”) and probability
Group level, in order to reflect that not all of our potential losses are likely to be realized at the same time. This effect is known as diversification. Managing diversification forms a central element of our risk management framework. The
The degree to which diversification can be realized depends in part on the level of relative concentration of those risks.
– Substantially all of our assets (including bonds, mortgages, investment funds, loans, floating rate notes, equities and real estate) and liabilities (including the cash flow profile of all technical reserves as well as deposits and issued securities). For the Life/Health segment, the model reflects the interaction between assets and liabilities and local management decisions such as investment strategies and policyholder participation rules.
Company of North America) or if they have a significant impact on the resulting internal risk capital (e.g., hedges of Allianz SE or in the Life/Health segment, if material obligations to policyholders are hedged through financial derivatives). Typically, embedded derivatives contained in a host contract are also included.
Market risk: – interest rate – equity – real estate – currency 1)
Possible losses caused by changes in interest rates, equity prices, real estate values, commodity prices and foreign exchange rates
Possible losses caused by the failure of our debtors, bond issuers, reinsurance partners or counter- parties to meet payment obligations or by changes in their creditworthiness
Risk category Insurance Banking Asset Management Corporate Description 1) Foreign currency risks are mainly allocated to the Corporate segment (please see below for further information).
2) As commodity risk is not significant on the Group level, it is covered in our internal risk capital model within currency risk. 3) Although the internal risk capital requirements for the Asset Management segment only reflect business risk (please see below for further information), the evaluation of market risk and credit risk on the account of third parties is an integral part of the risk management process of our local operating entities. 4) The premium risk which our credit insurance entity Euler Hermes is exposed to due to its business model is also covered here, as this type of risk is a special form of credit risk. 5) In the Banking segment, credit risks include default and migration risks arising from the lending and securities business and our derivatives trading activities; for the latter, settlement risk is additionally taken into account. Furthermore, credit risks include country (and transfer) risk.
For smaller insurance operating entities that have an immaterial impact on the Group risk profile, and for the Asset Management segment, we assign internal risk capital requirements based on an approach similar to Standard & Poor’s standard model. This uses the same risk categories as our internal risk capital model, thereby allowing us to consistently aggregate internal risk capital for all segments at the
Group level. More specifically, approximately 99 % of the investments managed by the Asset Management segment are held for the benefit of either third parties or Allianz
The Allianz Group’s policy is to require each operating entity to match the currency of their material assets and liabilities or to otherwise hedge foreign currency risk. As a result, our residual foreign currency risk results primarily from the fair value of the net asset value of our non-Euro operating entities and certain exposures to non-Euro denominated assets and liabilities held at the Group level. This currency risk is monitored and managed centrally at the Allianz Group level by Group Corporate Finance & Treasury and is, therefore, mostly allocated to the Corporate segment.
Following the announcement of the sale of Dresdner Bank to Commerzbank in August 2008, Dresdner Bank qualified as held-for-sale and discontinued operations. For the purpose of this discussion on risk management, we refer to
“discontinued operations” to mean the assets and liabilities held by Dresdner Bank upon its sale by Allianz to Commerzbank on January 12, 2009. Certain former assets and liabilities of Dresdner Bank, which Allianz retained and which were not transferred to Commerzbank, were not classified as discontinued operations. We generally present figures as of December 31, 2008 excluding discontinued operations, although we also provide certain information regarding the total Group including discontinued operations for the purpose of comparison. When excluding discontinued operations from internal risk capital calculations, we also take into account, that the discontinuation of certain banking operations results in a smaller diversification effect.
We assume that model parameters derived from historical data can be used to characterize future possible risk events; if future market conditions differ substantially from the past, as in the case of the 2008 financial crisis for which there was no precedent, then our VaR approach may be too conservative or too liberal in ways that can not be predicted.
The Allianz internal risk capital model plays a significant role in solvency management and capital allocation. Our aim is to ensure that the Allianz Group is adequately capitalized at all times, even following a significant adverse event, and that all operating entities meet their respective capital requirements. In addition, we employ a value-based approach (Economic Value Added or “EVA”®), among other approaches, to measure and manage our business activities as well as to optimize capital allocation across the Allianz
In managing our capital position, we also consider additional external requirements of regulators and rating agencies.
Group’s shareholders’ equity as adjusted to reflect the full economic capital base available to absorb any unexpected volatility in results of operations. For example, the present value of future profits in the Life/Health segment and hybrid capital are added to shareholders’ equity, whereas goodwill and other intangible assets are subtracted.
Based on pro-forma calculations assuming the completion of the Dresdner Bank transaction prior to year end of 20081), our available capital at December 31, 2008 amounted to
� 30.3 billion (2007: � 33.4 billion), resulting in a capital ratio of 140 % at December 31, 2008, compared to 191 % at December 31, 20071). The decrease of 33 % in available capital was primarily driven by a decrease in shareholders’ equity and a decline in the present value of future profits in the Life/
(total portfolio before minority interest) in � mn 1) Including discontinued operations, our available capital at December 31, 2008 amounted to � 48.8 billion, while our corresponding internal risk capital at December 31, 2008 amounted to � 32.9 billion, resulting in a capital ratio of 148 % at December 31, 2008.
Under the EU Financial Conglomerates Directive, a supplementary European Union directive, a financial conglomerate is defined as any financial parent holding company that, together with its subsidiaries, has significant cross-border and cross-sector activities. The Allianz Group is a financial conglomerate within the scope of the Directive and related
2) 2008 figures exclude discontinued operations, while 2007 figures include them.
December 31, 2008, the financial strength of Allianz SE was rated by Standard & Poor’s as “AA” (stable outlook), by
Allianz SE will experience major losses outside its risk tolerance ”. Standard & Poor’s stated that the assessment is based on the Allianz Group’s strong risk management culture, strong controls for the majority of key risks and strong strategic risk management.
In addition to our internal risk capital analysis, we perform regular stress tests that act as early-warning indicators in monitoring the Allianz Group’s regulatory solvency capital ratios and its capital position required by rating agencies.
Casualty net asset value. Traditional reinsurance coverage and dedicated financial transactions on Group level are examples of two instruments to mitigate the peak risks and to limit the impact of adverse conditions on our financial results and shareholders’ equity.
“Internal Risk Capital Framework – Scope” for further information). 4) The internal risk capital requirements for the Asset Management segment only reflect business risk (please refer to “Internal Risk Capital Framework – Scope” for further information).
Health contracts in Germany, France, Switzerland and Austria comprise a significant level of policyholder participation, limiting all sources of risk, including market, credit, actuarial and cost risks, which would otherwise be borne by
Allianz. On the other hand, in accordance with the guarantees related to these arrangements, we must credit mini-
� mn � mn � mn � mn � mn � mn ments experienced in 2008, supported by the sale of some strategic participations which were offset in part by the transfer of strategic participations from Dresdner Bank to the Corporate segment.
As previously discussed, we determine internal risk capital figures on a quarterly basis. The table below presents the average internal risk capital for market risk calculated over the four quarters of 2008 and 2007, as well as the high and low quarterly internal risk capital amounts calculated in both years. All figures include discontinued operations.
Asset Management segment only reflect business risk, the evaluation of market risk and credit risk on the account of third parties is an integral part of the risk management process of our local operating entities. Our Asset Management operating entities monitor market risks using VaR
On the level of the Corporate segment we are exposed to foreign currency risk because some of our subsidiaries’
Credit risk is defined as the potential loss in portfolio value over a given time horizon due to changes in the credit quality of exposures in the portfolio. Credit risk arises from claims against various obligors such as borrowers, counterparties, issuers, guarantors and insurers, including all relevant product classes such as fixed income investments, lending, credit insurance and reinsurance recoverables.
Credit losses may arise from the following events: – Deterioration in creditworthiness of an obligor, including ultimately its failure to meet payment obligations (default and migration risk); and
Allianz Group’s credit risk profile. In response to the financial crisis, we have initiated a number of actions, for example, weekly review and adjustment of limit settings for the major financial institutions as a temporary measure to assess systemic risks of the financial industry and to recommend short-term actions to our operating entities in light of this severe market volatility.
As previously discussed, we determine internal risk capital figures on a quarterly basis. The table below presents the average internal risk capital for credit risk calculated over the four quarters of 2008 and 2007, as well as the high and low quarterly internal risk capital amounts calculated in both years. All figures include discontinued operations.
We take steps to limit our liability from insurance business by ceding part of the risks we assume to the international reinsurance market. A dedicated team selects our reinsurance partners and considers only companies with strong credit profiles. We may also require letters of credit, cash deposits or other financial measures to further mitigate our exposure to credit risk. To manage the related credit risk, we compile Allianz Group-wide data on potential and actual recoverables in respect of reinsurance losses. At December 31, 2008, 74 % of the Allianz Group’s reinsurance recoverables were distributed among reinsurers that had been assigned at least an “A” rating by Standard & Poor’s. Non-rated reinsurance recoverables represented 24 % of the total reinsurance recoverables at December 31, 2008. Reinsurance recoverables without Standard & Poor’s rating include exposures to brokers, companies in run-off and pools, where no rating is available, and companies rated by A.M. Best.
As of December 31, 2008, our operating entities in the U.S.
and Germany accounted for 40 % of the non-diversified internal risk capital allocated to our Property-Casualty, Life/
We limit the credit risk of our fixed income investments by setting high requirements on the creditworthiness of our issuers, by diversifying our investments and by setting limits for credit concentrations. We track the limit utilization by consolidating and monitoring our exposure across individual debtors and across all investment categories and business segments on a monthly basis. At December 31, 2008, approximately 94 % of the fixed income investments of the insurance companies of the Allianz Group had an investment grade rating and approximately 88 % of the fixed income investments were distributed among obligors that had been assigned at least an “A” rating by Standard & Poor’s.
In addition to these fixed income investments, Allianz Group also has non-tradable mortgage loan portfolios in Germany and the U.S. As of December 31, 2008, 97 % of the German mortgage portfolio obligors were assigned a Standard & Poor’s equivalent investment grade rating based on an internal scoring. The U.S. commercial mortgage loan investments are subject to thorough credit assessment and conservative underwriting by the responsible credit managers. There have been no delinquent or foreclosed non-tradable commercial mortgage loans since 1994, and we thus regard the portfolio as investment grade based on additional stress test analysis. The North American Allianz insurance companies have a residential mortgage portfolio exposure of less than
Following the sale of Dresdner Bank, we do not consider credit risk related to our continuing Banking operations to be significant at the Group level.
Management segment’s entities assess credit risk affecting their customers’ portfolios. Though our Asset Management companies do not engage in any lending transactions, counterparty risks can arise in certain circumstances, such as with broker-related over-the-counter transactions. The
Asset Management operating entities analyze the credit worthiness of their counterparties and set limits per counterparty based on objective criteria.
Allocated internal actuarial risk capital by business segment and source of risk 1) (total portfolio before minority interests)
Fireman’s Fund Insurance Co. In particular, Allianz SE is required to make these payments in case of future negative developments relating to the reserves of Fireman’s Fund for the year 2003 and before.
In general, Group-diversified internal actuarial risk capital increased, as the discontinuation of certain banking operations results in less diversified insurance operations and a smaller diversification effect. Before Group diversification, internal premium CAT risk capital remained relatively stable compared to 2007, while it increased after Group diversification additionally driven by a shift in contributions from other risk categories, mainly due to the decline in internal market risk capital.
Average, high and low allocated internal actuarial risk capital by source of risk (total portfolio before minority interests, after
Over quarterly results Over quarterly results Average High Low Average High Low
(e.g., flood risk in Italy), we use scenario-based methods to estimate probable losses.
More than a third (36 % as of December 31, 2008) of the non-diversified internal premium risk capital allocated to natural catastrophe risk was borne by our operating entities in Germany and the U.S. Our exposure to losses from windstorms over Europe (including hail) is our largest exposure to natural catastrophe, followed by U.S. hurricanes and Californian earthquakes. Our loss potential net of reinsurance for European windstorms is approximately
� 1.3 billion, measured at a probability level of once in 250
Such risk is subdivided into catastrophe risk (CAT risk) and non-catastrophe risk (non-CAT risk). We primarily quantify and manage premium risk based on actuarial models that are used to derive loss distributions for each risk.
Natural disasters such as earthquakes, storms and floods represent a special challenge for risk management due to their accumulation potential and occurrence volatility. In order to measure such risks and better estimate the potential effects of natural disasters, we use special modeling techniques in which we combine data about our portfolio
Asset Management segment is primarily driven by an update of the risk factor incorporated within the model used to derive business risk capital for these operations. The factor was reviewed, and as a result, a level of conservatism within this factor has been reduced to better reflect the risk capital needs of this segment.
Allianz has developed a Group-wide operational risk management framework that focuses on early recognition and pro-active management of operational risks. The framework defines roles and responsibilities, risk processes and methods and has been implemented at the major Allianz
Group companies. Local risk managers ensure this framework is implemented in the respective operating entities.
Due to the offsetting effects of mortality risk and longevity risk inherent in the combined portfolios of life insurance and annuity products, as well as due to a geographically diverse portfolio, our Life/Health segment does not have significant concentrations of biometric risk.
Basel II. Cost risks consist of unexpected changes in business assumptions and unanticipated fluctuations in earnings arising from a decline in income without a corresponding decrease in expenses. They also include the risk of budget deficits resulting from lower revenues or higher costs than budgeted.
Liquidity risk in our insurance segments is a secondary risk following external events, such as natural disasters, that are generally reflected in our internal risk capital model. Therefore, limiting and monitoring of the associated primary risks
Reputational risk is the risk of direct loss or loss in future business caused by a decline in the reputation of the Allianz
Group or one or more of its specific operating entities from the perspective of its stakeholders – shareholders, customers, staff, business partners or the general public. First, every action, existing or new transaction or product can lead to losses in the value of our reputation, either directly or indirectly, and can also result in losses in other risk categories.
Second, every loss in other risk categories, irrespective of its size, can pose reputational risk to the Allianz Group. Therefore, reputational risk can both cause and result from losses in all risk categories such as market or credit risks.
Group Risk creates an overview of local and global risks which also includes reputational risks, analyses the risk profile of the Allianz Group and regularly informs management about the current situation.
Strategic risk is the risk of an unexpected negative change in the company value, arising from the adverse effect of management decisions on both business strategies and their implementation. This risk is a function of the compatibility between strategic goals, the business strategies and the resources deployed to achieve those goals. Strategic risk also includes the ability of management to effectively analyze and react to external factors, which could impact the future direction of the relevant operating entity.
We plan to continue to strengthen our risk management framework and systems in 2009. In particular, we are striving to constantly improve our accumulation monitoring systems, particularly those related to natural and man-made catastrophes, and are continuing to develop and extend our modeling capabilities for catastrophe risk. In addition, we plan to establish an internal expert network dedicated to emerging insurance risks such as nanotechnology and food additives.
Allianz has launched a Solvency II umbrella project which consists of quantitative and qualitative workstreams. In particular, these workstreams cover activities to (i) improve data quality, (ii) enhance analysis capabilities, (iii)
As a key initiative of the Solvency II umbrella project, we are strengthening our efforts to consolidate our risk analysis infrastructure and to establish a best practice technical platform. The key objectives of this initiative are to (i) improve methodology and increase the scope and (ii) extend the functionality and enhance user benefits within an efficient risk capital process. We are planning to thoroughly test the new model and reconcile its results with the existing model, and aiming to introduce the new internal model framework for our internal risk based performance measurement. This platform will help us establish a framework that fulfills the quantitative Pillar I requirements under the Solvency II project after internal model approval for regulatory purposes.
– Motor (liability / own damage) – Liability – Homeowner – Accident – Travel and assistance
– Property – Motor fleets – Directors’ and Officers’ liability – Credit – Marine, aviation and transport
Middle East, in Turkey and in South America with Brazil being one of the key markets2).
2) For a more detailed description of the global diversification of our insurance business, please refer to page 116.
Central Europe, India and Australia. The particular distribution channels vary by product and geographic market.
The investments of most Allianz insurance companies are managed internally through specialists within the Allianz
Allianz SE, the Allianz Group’s parent company, acts on an arm’s length basis as reinsurer for most of our insurance operations and assumed 25.2 %, 26.9 % and 33.3 % of all reinsurance business ceded by Allianz Group companies for the years ended December 31, 2008, 2007 and 2006, respectively. Allianz SE also assumes a relatively small amount of reinsurance from external cedents and cedes risk to thirdparty reinsurers.The Allianz Group has established a pooling arrangement that offers reinsurance coverage to the
In the past, our banking activities were primarily conducted through the Dresdner Bank Group which accounted for almost all of our Banking segment’s results of operations.
France and New Europe. Allianz Banking Germany is a division under the roof of Allianz Deutschland AG (ADAG) and contains Oldenburgische Landesbank AG (Oldenburgische 1) For detailed information on the sale of Dresdner Bank, please refer to page 126
Landesbank) and the banking customers originally introduced to Dresdner Bank through the tied agents network.
Oldenburgische Landesbank will become Allianz’s main banking product and service provider in Germany. The bank offers a wide range of products for corporate and retail clients with its main focus on the latter. In addition to our banking activities, the distribution of banking products through our German insurance agents network is important and the banking agencies distribtion network will be expanded to approximately 300 in 2009 (129 as of Decem-
We are one of the four largest asset managers in the world.3)
Our retail asset management business is primarily conducted under the brand name Allianz Global Investors
We have recently expanded our engagement in China by increasing the participation in our joint venture, Guotai
Each member of the Board of Management of Allianz SE is responsible for a particular division within the Allianz Group.
There are four corporate functions: the Chairman’s division, the Controlling/Reporting/Risk division, the Finance division and the Chief Operating Officer’s division.
For capital charges an important component is the determination of the capital required to cover the financial risks involved in our business activities.1)
– are able to generate distributable earnings in an amount that is at least equal to their cost of capital.
The second component of capital charges is the cost of capital, which in our Group is based on the return from a risk-free alternative investment plus a market risk premium and taking into account the specific risk of Allianz Group in relation to the overall market.
All Allianz Group companies are responsible for generating a return on their risk capital that covers at least their cost of capital. Profits exceeding the cost of capital can be retained by the operating entities to finance further organic growth.
That means, that our most profitable entities have direct access to considerable funds. If these funds are not required to finance their organic growth, they will be upstreamed to the holding company.
Based on the net income our EVA®, after minority interests, reached � 842 million in 2008 (2007: � 3,928 million). Due to the sale of Dresdner Bank AG (Dresdner Bank) to Commerzbank AG, the income from Dresdner Bank is included in this figure with the result generated until the change in ownership. From September onwards until year-end the result from our continuing banking operations is included. The return on risk adjusted capital2) in 2008 was 11.9 % (2007: 2) Return on risk adjusted capital represents normalized profit divided by average risk adjusted capital.
Our objective to accomplish a positive EVA® not only benefits our shareholders, but our customers, employees and the communities in which we operate benefit as well. We can only succeed by offering high quality products at attractive prices that satisfy our customers, generate sales to secure jobs and produce profits that allow us to further increase our contribution to society.
Allianz continues to develop its business via a number of major initiatives. These are energetically pursued with the goal of establishing “Best of Allianz” as a trusted provider of insurance, asset management and other financial services.
and reward processes to maximize talent quality and performance in the Group.
– We aim to support and develop our employees in the most effective way.
listings, Allianz improved its ranking in 2008 by 24 places in the Top Employer Web Benchmark (Potentialpark) and by 20 places in the European Student Barometer (Trendence).
To further improve our standing, we have embarked on a new global employer value proposition “Opportunities from A – Z”. The key channel for this initiative is our global careers webpage to be re-launched in 2009. In addition,
This is a change of 1 % to the previous year. Average tenure of our workforce is at 9.5 % 1) years, down from 11.2 % in 2007.
Within the Group, German employees still have the longest tenure with 14.3 years. Last year we hired a total of 26,173 people group wide, whilst 24,641 employees left the organization.
As an employer of choice we are keen to further promote workplace diversity within our organization, starting with addressing gender issues and career management. Women make up 52 % of our total workforce (56 % in 2007). While the ratio of women in management positions in general has 1) These and the following figures exclude Dresdner Bank. 2) Includes Dresdner Bank.
increased to 32 %, women in management are still underrepresented with considerable variation across geographic boundaries. We have thoroughly analyzed the reasons behind this apparent imbalance and are strengthening further our efforts to offer attractive career perspectives for all employees, regardless of gender. Flexible working, mentoring and coaching programs, and a close monitoring of talent trends in recruitment as well as talent development activities are among the most important measures taken.
In 2008 we also started an internal diversity awareness campaign, beginning at corporate headquarters, and supported a number of events that received very positive feedback from our employees. For example, we entered into a partnership with the UK-based Jubilee Sailing Trust, sponsoring activities involving both Allianz employees and people with physical disabilities.
Allianz companies were invited to participate in 2008. The high response rate of 85 % demonstrates the significance of our leadership values for our managers.
Regarding the personal and professional development of our managers and high potentials, we have implemented a new talent management approach in all our major units
We have continued to implement OPEX, the Allianz version of ‘Six Sigma’, that functions as a core tool for our transformation efforts via projects to increase process efficiency and customer service. By the end of 2008, we had 3,106 staff trained as OPEX Blue Belts (first level). 250 staff were trained as OPEX Black Belts (advanced level) in 2008, bringing our total Black Belts within the workforce to 690, exceeding our target of 500 by the end of 2008.
– Simplifying structures in order to yield even greater efficiency benefits.
Purchase Plan in 2008, which subject to certain conditions, provides eligible employees with an opportunity to acquire
share, helps to focus executives’ attention on driving performance and to align their interests with those of our shareholders. They also reward participants with a share of the long-term value they help create. Approximately 800 top managers and future leaders worldwide participated in the program in 2008. For more detail, including the report on the remuneration of the members of the Board of Management, please see pages 16 to 21.
The SE Works Council represents the interests of employees of Allianz SE and its subsidiaries with registered offices in the EU member states, the European Economic Area and
Switzerland in cross border matters. The Works Council was informed and consulted on several items in its two regular 1) Figures include Dresdner Bank.
Committee was also informed and consulted on an ad hoc basis, e.g. with regard to the sale of Dresdner Bank to
In summary, all of these HR activities reflect Allianz Group’s firm intention to establish itself as an Employer of Choice, both at the global, but even more importantly at local and business unit levels. These efforts have been honored with prestigious awards by external institutions, reflecting the successful implementation of our HR strategies and best practices around the globe. Examples of such accolades are: – Winning a top 2 position for the insurance sector in the
– Allianz Polska (Poland)’ CEO, Mr Pawel Dangel, was awarded the ‘Eagles of Management’ prize as ‘best manager of the country over the past 20 years’.
– Nicholas Applegate Capital Management was recognized as ‘One of the Best Places to Work in California’ by the
As an insurer and investor with a global reach, multi-local presence and robust financial strength, our operations contribute to growth and innovation. We use our crosssector expertise to put our customers and other stakeholders in a better position to manage risk, protect assets and participate in gains.
Our range of solutions is intended to meet today’s greatest challenges: aging societies, overburdened social security systems, climate change and economic change in both the wealthy and poorer regions of the world. People expect us to find sustainable and effective answers to these issues, which will only be growing in significance. This was confirmed once again in a recent survey of economic experts, politicians, corporate representatives and non-governmental organizations. This survey revealed that the public wants
We created the Group Social Opportunities unit during the year under review in order to strategically combine our social and economic commitments. This unit promotes innovative pilot projects and develops group-wide standards.
For example, we currently invest more than � 5 billion of our customers’ money in companies that meet the most demanding social and environmental criteria. We are working with the United Nations to develop a standard that takes account of these criteria in the area of underwriting in the insurance business.
In Germany, involvement in a social project is now a basic prerequisite for assuming a leadership role at Allianz.
Initiatives of this type that fulfill certain criteria are given the Allianz4Good seal of approval and employees in other units worldwide are encouraged to emulate these projects.
In this way, we seek to provide the greatest possible benefit to society and to create greater awareness of environmental and social issues among our employees and to encourage them to make their own commitments in these areas.
(UNDP and UNEP/FI ), with the World Wide Fund For Nature
But we do not stop at studies. In 2007, we founded Allianz
Climate Solutions, a subsidiary that invests in renewable energies for our units around the world and for external customers. More than � 400 million has been invested in 10
Carbon Disclosure Project for seven years, providing our shareholders a high level of transparency regarding the impact of their financial investments on the climate. In 2008, we were honored for our efforts in innovative climate solutions by our inclusion in the Climate Disclosure Leadership Index. Our internal environmental management system now includes 37 companies and more than 100,000 employees. We are committed to reducing the CO
Life, which provides pension services internationally, to meet the dynamic demand for these solutions. During the year under review, this unit developed an integrated product, Invest4Life, a product that provides customers a combination of a guaranteed life-long pension and a fund investment. This makes Invest4Life an annuity in which the client remains invested in funds in the pay-out phase, but receives a guaranteed annuity which may increase depending on fund performance.
Allianz has opened up this enormous market for microinsurance. New products and distribution channels were developed in cooperation with potential customers and aid organizations. Together with our Indian business partner
Africa (Egypt and sub-Saharan countries), where the business was just launched in 2008, there are already 100,000 customers.
Award” and the “American/International Business Award for the Best Corporate Responsibility Program” for the social commitment of Fireman’s Fund as well as international awards, such as our inclusion in the list of the “World’s Most
Ethical Companies” put out by the Ethisphere Institute. We received a Ruban d’Honneur at the European Business
– Euler Hermes World Agency created with the purpose of serving multinational companies
– Allianz becomes the major shareholder of Koç Allianz Sigorta AŞ and Koç Allianz Hayat ve Emeklilik AŞ in Turkey; effective
– Announcement of merging marine insurance business from Allianz Global Corporate & Speciality (AGCS) and Fireman’s
– Mondial Assistance announced two new contracts for Europe and Asia with the car manufacturer Volvo.
1) Please refer to page 258 for a breakdown of selected operating entities.
As the market leader in Germany based on gross premiums written in 2008 2) , Allianz Sach develops and provides property -casualty. We offer a wide variety of insurance products for private and business clients. Our main lines of business are motor liability and own damage, accident, general liability and property insurance. In addition we introduced a new pet health insurance product in 2008. For propertycasualty business, we see Germany being a rather mature market with a high degree of competition. One of the key challenges is achieving growth while also maintaining an appropriate level of profitability. To deliver all-encompassing service in emergency cases we will further develop our assistance-services for individuals and corporate customers.
Through Allianz Private Kranken, we are the third-largest private health insurer in Germany based on statutory premiums in 2008 2). We provide a wide range of products, including full private health care coverage for salaried employees and the self-employed, supplementary insurance for individuals insured under statutory health insurance plans, supplementary care insurance and foreign travel medical insurance. Our health insurance business with its two basic products – full health care coverage and supplementary insurance – will be impacted by the German health care reform in the coming years. We believe that the demand for full health care coverage will grow only slightly.
Our products are distributed mainly through a network of full-time tied agents, while distribution through our new bankagencies and brokers is increasing. From 2010 onwards, Commerzbank will be a further sales channel for
health market, we provide a wide range of individual and group life insurance products, including retirement, death and disability products. We believe there is potential for growth in our life/health business through enhancement of agent, broker networks and, given our relatively high market share in property-casualty, through cross-selling between our segments.
Based on gross premiums written in 2008, Allianz Elementar Versicherungs-AG, ranks fourth in the Austrian market in the property-casualty business 2). With approximately 45 % of the portfolio, motor business is the most important line of business. In the very competitive property-casualty market, we continue our actuarial approach in tariffication in order to act against the expected ongoing weak pricecycle in motor business.
Besides the traditional life insurance business, we also offer government subsidized products as well as unit-linked products. For the life business, we anticipate potential for growth due to an increasing demand for retirement provisions.
2) Source: Based on preliminary data provided by Austrian Insurance Association (VVO) as of February 2009.
Since October 2007, Allianz serves the Italian market as a single company. Allianz S.p.A. (previously RAS S.p.A., Lloyd
However, we also expect to benefit from our technical knowhow, IT infrastructure and strong brand. We continue to focus on customer service, efficiency enhancement and adherence to profitable underwriting in property-casualty.
We serve the Spanish property-casualty market through our operating entities Allianz Compañía de Seguros y Reaseguros S.A. and Fénix Directo S.A. Life products are provided through Allianz Compania de Seguros y Reaseguros S.A. and
Our Spanish company sets internal standards for efficiency and customer service. We have initiated a project to achieve synergies and economics of scale between the Spanish and
Spain and Portugal, remained fairly stable despite a significant drop in new vehicle registration. Besides motor, we offer products for property and liability protection, life and health coverage, as well as workers compensation in Portugal.
We distribute our products through more than 11,000 agents and brokers in Spain, and more than 5,000 in Portugal.
In both countries, we also rely on bank distribution partners such as Banco Popular in Spain and BPI in Portugal.
Economic forecasts for Spain and Portugal are in line with other European countries affected by the economic downturn. We expect market growth to be rather limited. In
Spain, we expect life risk products to be affected by the real estate crisis in the short term. Development of life investment products will depend to a significant degree on capital market developments.
In Brazil, we are also one of the leading health insurers and in Columbia, we also offer life insurance. Our distribution is primarily based on the broker channel.
We believe that the markets in which we are present in
South America offer the potential for future growth. We expect an increase in insurance demand.
Hayat ve Emeklilik A.S. Both entities have benefited from intensified ties with Allianz Group while maintaining our strong partnership with Koç Group.
France (AGF) Group, a major participant in insurance and financial services. AGF is ranked fourth in the French property -casualty market and eighth in the life/health insurance market, based on gross premiums written and statutory premiums, respectively, in 2007 2). AGF’s activities encompass several areas, including property-casualty insurance, life/health insurance, asset management and banking.
We sell contracts adapted to all kinds of risks in fire, auto, miscellaneous insurance, hull and cargo, as well as life.
Through our subsidiary Euler Hermes, the global leader in credit insurance, we underwrite credit insurance in major markets around the world.2)
Additionally, Euler Hermes has developed a comprehensive range of services for the management of companies’
North America and the emerging markets. By providing high quality services, maintaining a comprehensive information database, and high financial strength rating, Euler Hermes aims to consolidate its leadership.
Through Mondial Assistance Group, we are among the world’s largest providers of travel insurance and assistance services based on gross premiums written in 20073).
At Mondial Assistance Group, we seek to enter new markets and develop new products.
Operating in a property-casualty market that has seen limited growth in recent years, we seek to focus on maintaining operating profitability while simultaneously implementing selective initiatives aimed at generating growth.
The most important lines of property-casualty business in the Netherlands are motor and fire insurance. Our Dutch subsidiary distributes its products through brokers and a direct sales channel. We launched our new direct insurance business in 2008. In the Netherlands, we also offer a broad range of life insurance products.
The Dutch insurance market is characterized by intense competition. Here we expect continuing pressure on the motor tariffs.
In Belgium, we market a wide range of life and propertycasualty insurance products, which have won several awards. The products are mainly distributed through brokers.
In Africa we serve the market through AGF Afrique which is the specialist of the Allianz Group in sub-Saharan Frenchspeaking Africa.
Enhancing customer solutions, introducing new products and services, addressing selected adjacent market niches and leveraging cross-selling through strengthened distribution management continue to be our initiatives for the coming year in order to enable growth for Fireman’s Fund in its target markets.
We serve the market in the United Kingdom primarily through our subsidiary Allianz Insurance plc. In 2008, we focused on building up the new retail division for personal and specialty products in order to better serve our customers.
We offer a broad range of property-casualty products, including a number of specialty products, which we sell to retail and commercial customers through a range of distribution channels, including affinity groups.
Operating in a highly competitive market, Allianz Insurance plc continues to concentrate on active “cycle management”
Company (Fireman’s Fund) as well as Allianz Global Corporate & Specialty (AGCS). Our life and annuity business is run through Allianz Life Insurance Company of North
companies to leverage all of their available resources and assets and to enable them to anticipate more effectively and deliver on customer needs.
Our Australian insurance operations include a variety of products and services, with strong positions in the workers’
Through Allianz Global Corporate & Specialty, we offer property, liability and engineering solutions to large corporate clients as well as specialty coverage, like marine, aviation and directors & officers insurance.
Allianz Worldwide Care is located in Ireland and offers expatriate health insurance products.
1) In contrast to our other geographically-focused insurance businesses, we manage and offer these services of Allianz Global Corporate & Specialty and Allianz Worldwide Care on a worldwide basis. Allianz Worldwide Care does not sell policies in the U.S.A.
We offer a full suite of products through our distribution network of approximately 70,000 agents in the region. In most countries we operate through multiple distribution channels.
In the Asia-Pacific region we maintain property-casualty operations in Malaysia, Indonesia and other Asia-Pacific countries and key markets, including China, Thailand, Japan,
Taiwan Life Insurance Company. Allianz Life Korea was the sixth-largest life insurance company in South Korea based on statutory premiums in 2007 2). We also maintain operations in Malaysia, Indonesia, as well as in China, Thailand and since this year also in Japan.
Our South Korean operation markets a wide range of life and health insurance products – and in recent years developed a leading position in equity-indexed products. Allianz
China as a strategic growth market for Allianz. Our partnership with Industrial and Commercial Bank of China Ltd.
emphasizes our long-term commitment to the market and also offers a platform for our strategic expansion.
Motor business and, increasingly, other personal lines continue to be the primary source of our growth. Further expansion in the market and development of our sales network will be in focus for the coming year. We believe we are well-positioned to capture the opportunities of the propertycasualty market.
1) Source: Own estimate based on published statistics from regulatory bodies and insurance associations.
Life and property-casualty business based on gross premiums written and statutory premiums, respectively, in 2007 1).
We see the Middle Eastern region as a growth market and are seeking to expand in all of our selected markets in the region through further organic growth and selected acquisitions. We are also targeting additional growth in India through our joint venture with Bajaj Allianz Financial Distributors Ltd.
incorporated in the Federal Republic of Germany and organized under the laws of the Federal Republic of Germany and the European Union. Allianz SE is the ultimative parent of the Allianz Group.
The sqeeze-out procedure of Allianz Lebensversicherungs-AG, which we announced on January 18, 2008, was completed in
Acquisition of further stakes in Koç Allianz Sigorta AŞ and Koç Allianz Hayat ve Emeklilik AŞ
On October 6, 2008, Allianz SE announced a binding agreement providing for a capital investment of U.S. Dollar 2.5 billion in The Hartford, one of the largest insurance companies in the United States. We have purchased, for a consideration of U.S. Dollar 2.5 billion, 6 million preferred shares convertible into 24 million shares of common stock after receipt of applicable approvals, warrants for 69 million
an ag em en t R ep or t services. The reorganization was part of our strategy to further develop our leading position in the German insurance market.
Allianz Deutschland AG is now organized according to the following business structure.
and its subsidiaries or services the are normally provided in connection with statutory and regulatory filings or engagements; (ii) Audit-related fees, which comprise fees billed for assurance and related services that are reasonably related to the performance of the audit or review of the financial statements and which are not reported under (i); (iii) Tax fees, which comprise fees billed for professional services rendered for tax advice and tax compliance; and (iv) All other fees, which comprise fees billed for all other products and services provided other than the services reported under
(2007: � 49.0 million) in connection with professional services rendered for the audit of our annual consolidated financial statements and services normally provided by
(2007: � 4.2 million) for professional services, primarily for tax advice.
The share capital of Allianz SE was � 1,159,808,000 as of
Pursuant to § 3 (1) of the Statutes of Allianz SE, shareholders shall not have the right to receive share certificates, unless it is necessary pursuant to the rules applicable at a stock exchange where the shares are listed. The shareholders’
German Stock Corporation Act, in particular by §§ 12, 53a et seq., 118 et seq. and 186 of the German Stock Corporation Act.
Company. Pursuant to § 2 (2) of the Statutes, the Company will withhold a duly applied approval only, if it deems this to be necessary in the interest of the Company on exceptional grounds. The applicant will be informed about the reasons.
The restriction on share transferability goes right back to the creation of Allianz in 1890. This practice is widespread in the insurance industry in Germany. In accordance with the Statutes, the Company will only withhold the approval necessary for transfer of shares when this is for extraordinary reasons and is considered to be in the interest of the
Shares acquired by employees of the Allianz Group as part of the employee share purchase program are in principle subject to a one-year lock-up period; outside Germany, the lock-up period may in some cases be up to five years for tax reasons. In some countries the employee shares are held throughout the lock-up period by a bank or other natural person or legal entity as trustee, in order to ensure that the lock-up period is observed. Nevertheless, employees may instruct the trustee on exercising voting rights, or have power-of-attorney granted to them to exercise such voting rights. Providing lock-up periods contributes to the employee share purchase programs’ purpose to commit employees to the Company and let them participate in the performance of the stock price.
Direct or indirect interests in the share capital of Allianz SE
Group Management Report Allianz Group Annual Report 2008 five years (Article 9 (1), Article 39 (2) and Article 46 SE Regulation, §§ 84, 85 German Stock Corporation Act, § 5 (3) of the
Statutes). Re-appointments, in each case for a maximum of five years, are permitted. A simple majority of the votes cast in the Supervisory Board is required to appoint members of the Board of Management. In the case of a tie, the vote of the
Act (Versicherungsaufsichtsgesetz, VAG)). The intention of appointing a member to the Board of Management must be notified to the Federal Financial Services Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht)
Statutes of Allianz SE stipulates that, unless this conflicts with mandatory legal provision, changes of the Statutes require a majority of two thirds of the votes cast, or, as the case may be, if at least half of the share capital is represented, a simple majority of the votes cast. The Supervisory Board may alter the wording of the Statutes (§ 179 (1) sentence 2
The Board of Management has the following authority to issue shares: – The Board of Management is authorized to increase the
Company’s share capital on or before February 7, 2011, upon approval of the Supervisory Board, by issuing new registered no-par value shares against contributions in cash and/or in kind, on one or more occasions, up to a total of � 406,545,646.08 (Authorized Capital 2006/I). The
– The Board of Management is also authorized to increase the Company’s share capital on or before February 7, 2011, upon approval of the Supervisory Board, by issuing new registered no-par value shares against contributions in cash, on one or more occasions, up to a total of
Management may exclude the shareholders’ subscription rights, upon the approval of the Supervisory Board, in
– The Company has a conditional capital in the amount of
– The Board of Management has the authority to buy back and use Allianz shares for other purposes on the basis of the authorization of the General Meeting of May 21, 2008
German Stock Corporation Act, such shares may not exceed 10 % of the share capital at any time. The shares acquired according to this authorization may be used, under exclusion of subscription rights, for any legally admissible purposes and in particular those specified in the authorization. According to the authorization of the
General Meeting of May 21, 2008, in connection with the acquisition of treasury shares (§ 71 (1) no. 8 German Stock
Board of Management to raise capital swiftly and flexibly taking advantage of attractive financing opportunities as and when they arise on the markets and, for example, offer
Essential agreements of the Company which are subject to the condition of a change of control following a takeover bid; compensation agreements of the Company with members of the Board of Management or employees in the event of a takeover bid
Under the terms and conditions of the participation certificates issued by Allianz SE, the participation certificate holders are entitled to call for redemption of the participation certificates and to demand payment of a redemption amount per participation certificate of 122.9 % of the average official price (Einheitskurs) of the Allianz share on the
Our reinsurance contracts in principle include a provision under which both parties to the contract have an extraordinary termination right in case that the other party to the contract merges or its ownership or control situation materially changes. Agreements with brokers regarding services in connection with the purchase of re-insurance coverage also provide for termination rights in case of a change of control. Such clauses are market standard.
Bilateral credit agreements in some cases provide for termination rights in case of an acquisition of control of at least 30 % of the voting rights within the meaning of § 29 (2)
German Takeover Act (Wertpapiererwerbs- und Übernahmegesetz, WpÜG). In case such termination rights are being exercised the respective credit lines would have to be replaced by new credit lines at conditions then applicable.
Board Member through resigning his or her office because the responsibilities as a Board Member are significantly reduced without the Board Member’s fault, the Member of the Board of Management shall receive his or her contractual remuneration for the remaining term of the service contract in the form of a one-off payment. To the extent the remaining term of the service contract is less than three years, the one-off payment is generally increased with regard to fixed remuneration and the annual bonus in line with a term of 3 years. This applies accordingly if a mandate in the Board of Management that is coming to an end and is not extended within two years of a change of control. In case of new appointments and mandate prolongations the service contracts provide that the severance payment may not exceed three times the fixed remuneration, annual bonus and pro rata mid-term-bonus paid for the preceding fiscal year (severance payment cap).
For further details please refer to the Remuneration Report on pages 16 to 24.
Stock Units (RSU) are granted as a stock-based remuneration component worldwide to senior management of the
Allianz Group. SARs are virtual options on Allianz shares; they obligate the Allianz Group to pay in cash the excess of the market price of the Allianz share over the reference price on the exercise date. They vest after a two years’ blocking period and can afterwards be exercised during a five years’ exercise period. If a majority of the voting share capital in Allianz SE is acquired, directly or indirectly, by one or more third parties who do not belong to the Allianz Group, in derogation of the above, however, the SARs shall be exercised, pursuant to the general conditions for the SAR, on the day of the change of control by the Company for the relevant plan participants without observing any vesting period.
RSUs, on the day of the change of control by the Company for the relevant plan participants without observing any vesting period. In providing for the non application, in the event of a change of control, of the blocking period, account is taken of the fact that the conditions under which the share price moves are very different when there is a change in control.
The previous analysis is based on our consolidated financial statements and should be read in conjunction with them.
We believe that trends in the underlying profitability of our business can be more clearly identified without the fluctuating effects of the realized capital gains and losses or impairments of investment securities, as these are largely dependent on market cycles or issuer-specific events over which we have little or no control, and can and do vary, sometimes materially, across periods. Furthermore, the timing of sales that would result in such gains or losses is largely at our discretion.
This differentiation is not made if the profit sources are shared with the policyholder.
Operating profit should be viewed as complementary to, and not a substitute for income before income taxes and minority interests in earnings or net income as determined in accordance with IFRS.
We also believe that an understanding of our total revenue performance is enhanced when the effects of foreign currency translation as well as acquisitions and disposals (or “changes in scope of consolidation”) are excluded. Accordingly, in addition to presenting “nominal growth”, we also present
“internal growth”, which excludes the effects of foreign currency translation and changes in scope of consolidation.
Other Information 233 43 Derivative financial instruments 237 44 Fair value of financial instruments 239 45 Related party transactions 239 46 Contingent liabilities, commitments, guarantees, and assets pledged and collateral 244 47 Pensions and similar obligations 246 48 Share-based compensation plans 252 49 Restructuring plans 255 50 Earnings per share 256 51 Other information 256 52 Subsequent events 258 Selected subsidiaries and other holdings 264 Responsibility statement 265 Auditor’s report 271 Glossary 276 Index 136 Consolidated Balance Sheets 137 Consolidated Income Statements 138 Consolidated Statements of Changes in Equity 139 Consolidated Statements of Cash Flows
Balance Sheets 191 7 Cash and cash equivalents 191 8 Financial assets carried at fair value through income 195 10 Loans and advances to banks and customers 198 11 Reinsurance assets 199 12 Deferred acquisition costs 200 13 Other assets 201 14 Non-current assets and assets and liabilities of disposal groups classified as held for sale 201 15 Intangible assets 205 16 Financial liabilities carried at fair value through income 205 17 Liabilities to banks and customers 206 18 Unearned premiums 206 19 Reserves for loss and loss adjustment expenses 208 20 Reserves for insurance and investment contracts 212 21 Financial liabilities for unit-linked contracts 214 22 Other liabilities 215 23 Certificated liabilities 216 24 Participation certificates and subordinated liabilities
Cash and cash equivalents 7 8,958 31,337 Financial assets carried at fair value through income 1) 8 14,240 185,461
Loans and advances to banks and customers 10 115,655 396,702 Financial assets for unit-linked contracts 50,450 66,060
Deferred acquisition costs 12 22,563 19,613 Deferred tax assets 42 3,996 4,771
Reserves for loss and loss adjustment expenses 19 63,924 63,706 Reserves for insurance and investment contracts 20 296,557 292,244 Financial liabilities for unit-linked contracts 21 50,450 66,060 Deferred tax liabilities 42 3,833 3,973
Liabilities of disposal groups classified as held for sale 4, 14 411,816 1,293
Participation certificates and subordinated liabilities 24 9,346 14,824 Total liabilities 918,328 1,009,768
Total liabilities and equity 955,576 1,061,149 1) As of December 31, 2008, � 101 mn are pledged to creditors and can be sold or repledged (2007: � 23,163 mn). 2) As of December 31, 2008, � 826 mn are pledged to creditors and can be sold or repledged (2007: � 7,384 mn).
Acquisition and administrative expenses (net) 39 (17,922) (18,788) (18,468) Fee and commission expenses 40 (2,502) (2,313) (2,040) Amortization of intangible assets (23) (17) (51)
Expenses from fully consolidated private equity investments 32 (2,470) (2,317) (1,381)
Minority interests in earnings (219) (675) (1,203) Net income from continuing operations 3,967 7,316 6,640
Net income (loss) from discontinued operations, net of income taxes and minority interests in earnings 4 (6,411) 650 381
Basic earnings per share 50 (5.43) 18.00 17.09 from continuing operations 8.81 16.53 16.16 from discontinued operations (14.24) 1.47 0.93
Total recognized income and expense for the year — 7,889 (1,378) (3,574) 2,937 508 3,445
Total income and expense recognized directly in shareholders’ equity — (65) (340) (8,491) (8,896) 101 (8,795)
Paid-in capital 248 — — — 248 — 248 1) During the year ended December 31, 2008 unrealized gains and losses (net) arising during the year included in shareholders’ equity are net of deferred tax benefit of � 1,690 mn (2007: � 720 mn; 2006: � 478 mn).
2) During the year ended December 31, 2008, realized gains/losses (net) transferred to net income on disposal or impairment are net of income tax benefit of � 755 mn (2007: income tax charge of � 206 mn; 2006: income tax charge of � 308 mn).
Summary: Net cash flow provided by operating activities 25,278 11,524 20,099 Net cash flow used in investing activities (6,236) (2,357) (33,951) Net cash flow provided by (used in) financing activities (11,285) (10,746) 15,314 Effect of exchange rate changes on cash and cash equivalents 102 (115) (78) Change in cash and cash equivalents 7,859 (1,694) 1,384
Cash and cash equivalents reclassified to assets of disposal groups held for sale 30,238 — — Cash and cash equivalents at end of period of continuing operations 8,958 31,337 33,031
Adjustments to reconcile net income (loss) to net cash flow provided by operating activities
Reserves for losses and loss adjustment expenses 527 (389) (188) Reserves for insurance and investment contracts 390 6,675 7,025 Deferred tax assets/liabilities 351 55 292 Financial assets designated at fair value through income (only banking segment) 3,204 (2,286) (915) Financial liabilities designated at fair value through income (only banking segment) 2,925 1,104 333
Business combinations (Note 5): Proceeds from sale, net of cash disposed 103 372 — Acquisition, net of cash acquired (152) (670) (344)
Net cash flows arising during the fourth quarter from assets and liabilities of disposal groups classified as held for sale 9,327 — —
Cash flow from financing activities: Policyholders’ account deposits 13,205 12,810 13,234 Policyholders’ account withdrawals (10,985) (9,365) (8,432) Net change in liabilities to banks and customers (4,920) 9,007 13,524 Proceeds from the issuance of certificated liabilities, participation certificates and subordinated liabilities 40,672 58,087 103,096 Repayments of certificated liabilities, participation certificates and subordinated liabilities (45,868) (71,627) (103,946) Cash inflow from capital increases 239 115 98 Transactions between equity holders (666) (7,326) (70) Dividends paid to shareholders (2,759) (1,995) (1,463) Net cash from sale or purchase of treasury shares 40 (34) (458)
Net cash flow provided by (used in) financing activities (11,285) (10,746) 15,314
The net cash flows provided by (used in) discontinued operations for the first nine months of 2008 contribute to the net cash flows of the operating, investing, and financing activities. Only the net cash flows of discontinued operations of the fourth quarter 2008 are shown on a net basis in one single line within the investing activities.
Effects from the merger of RAS with and into Allianz AG (Note 5): Revenue reserves — — (2,362) Minority interests — — (1,659) Paid-in capital — — 3,653 Unrealized gains and losses (net) — — 368
Proceeds from sales of available-for-sale investments: Allianz Group Consolidated Statements of Cash Flows – continued
Net cash flow provided by operating activities from discontinued operations 24,367 369 3,187 Net cash flow provided by (used in) investing activities from discontinued operations (1,888) 7,415 (13,496) Net cash flow provided by (used in) financing activities from discontinued operations (8,520) (12,552) 10,003 Net cash flow provided by (used in) discontinued operations 13,959 (4,768) (306)
Allianz SE and its subsidiaries (“the Allianz Group”) have global Property-Casualty insurance, Life/Health insurance,
Allianz Group’s headquarters are located in Munich, Germany. The parent company of the Allianz Group is Allianz
Company (Societas Europaea) and is listed on all German stock exchanges and the stock exchanges in London, Paris,
The consolidated financial statements of the Allianz Group for the year ended December 31, 2008 were authorized for issue by the Board of Management on February 23, 2009.
Allianz Group’s application of IFRS results in no differences between IFRS as adopted by the EU and IFRS as issued by the
International Financial Reporting Standards (“IFRS”), International Accounting Standards (“IAS”), and interpretations developed by the International Financial Reporting Interpretations Committee (“IFRIC”) or the former Standing
The consolidated financial statements of the Allianz Group include those of Allianz SE, its subsidiaries and certain investment funds and special purpose entities (“SPEs”).
The Allianz Group transfers financial assets to certain SPEs in revolving securitizations of commercial mortgage or other loan portfolios. The Allianz Group consolidates these
Estimates and Errors, the provisions embodied under accounting principles generally accepted in the United States of America (“US GAAP”) have been applied to those aspects where specific guidance is not provided by IFRS 4, Insurance
The accounting policies adopted are consistent with those of the previous financial year except for recently adopted
The consolidated financial statements are prepared as of and for the year ended December 31, and presented in millions of Euro (�), unless otherwise stated.
Allianz Group Annual Report 2008 Notes to the Consolidated Financial Statements
Group can exercise significant influence and which are not joint ventures. Significant influence is the power to participate in, but not to control, the financial and operating policies within an enterprise. Significant influence is presumed to exist where the Allianz Group has at least 20 % but not more than 50 % of the voting rights unless it can be clearly demonstrated that this is not the case. If the investor holds less than 20 % of the voting power of the investee, it is presumed that the investor does not have significant influence unless such influence can be clearly demonstrated. Joint ventures are entities over which the Allianz Group and one or more other parties have joint control.
Accounting policies of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Allianz Group. The effects of intra-
A business combination occurs when the Allianz Group obtains control over a business. Business combinations are accounted for using the purchase method. The purchase method requires that the Allianz Group allocates the cost of a business combination on the date of acquisition by recognizing the acquiree’s identifiable assets, liabilities and certain contingent liabilities at their fair values. The cost of a business combination represents the fair value of the assets given, equity instruments issued and liabilities incurred or assumed in exchange for control at the acquisition date, plus any costs directly attributable to the acquisition. If the acquisition cost of the business combination exceeds the
Allianz Group’s proportionate share of the fair value of the net assets of the acquiree, the difference is recorded as goodwill. Any minority interest is recorded at the minority’s proportion of the fair value of the net assets of the acquiree.
If the initial accounting for a business combination can only be determinded provisionally, Allianz Group accounts for the combination using those provisional values. Any adjustments to those provisional amounts as a result of completing the initial accounting are recognized within twelve months of the acquisition date and from the acquisition date. If Allianz Group’s proportionate share of the fair value of the net assets exceeds the acquisition cost, Allianz
Foreign currency gains and losses arising from foreign currency transactions are reported in investment expenses.
The preparation of consolidated financial statements requires the Allianz Group to make estimates and assumptions that affect items reported in the consolidated balance sheets and consolidated income statements, and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates. The most significant accounting estimates are associated with the reserves for loss and loss adjustment expenses, reserves for insurance and investment contracts, loan loss allowance, fair value and impairments of financial instruments, goodwill, deferred acquisition costs, deferred taxes and reserves for pensions and similar obligations.
Cash and cash equivalents include balances with banks payable on demand, balances with central banks, cash on hand, treasury bills to the extent they are not included in financial assets held for trading, checks and bills of exchange which are eligible for refinancing at central banks, subject to a maximum term of three months from the date of acquisition.
Real estate held for investment (i.e., real estate and rights equivalent to real property and buildings, including buildings on leased land) is carried at cost less accumulated depreciation and impairments. Real estate held for investment 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 held for investment is determined by the discounted cash flow method. Im-
Financial liabilities within the scope of IAS 39 are either classified as financial liabilities carried at fair value through income, liabilities to banks and customers, investment contracts with policyholders, derivative financial instruments used for hedging, financial liabilities for puttable equity instruments, certificated liabilities or participation certificates and subordinated liabilities. Furthermore financial liabilities comprise financial liabilities for unit-linked contracts.
Financial assets consist of debt and equity securities, promissory notes and derivative financial instruments with positive fair values that do not meet the criteria for hedge accounting.
cash flows at a rate which incorporates the Allianz Group´s observable credit spread.
If the market for a financial instrument is not active, the fair value is determined by using valuation techniques. The valuation techniques used are based on market observable inputs when available. Such market inputs include references to recently quoted prices for identical instruments from an active market, quoted prices for identical instruments from an inactive market, quoted prices for similar instruments from active markets, quoted prices for similar instruments from inactive markets. Market observable inputs also include interest rate yield curves, option volatilities and foreign currency exchange rates. Where observable market prices are not available, fair value is based on appropriate valuation techniques using non-market observable inputs. Valuation techniques include net present value techniques, the discounted cash flow method, comparison to similar instruments for which observable market prices exist and other valuation models. In the process, appropriate adjustments are made for credit and measurement risks.
For ABS-based products the availability of price quotations from a functioning market was limited during 2008 and as of December 31, 2008. Therefore the valuation of these financial instruments is mainly based on quoted market prices or current market values of very similar financial instruments. The market values used were taken from other market participants that are representative of the market.
If the fair value cannot be measured reliably, unquoted equity instruments and derivatives linked to such instruments are stated at cost until a fair value can be measured reliably.
Financial assets and liabilities designated at fair value through income are measured at fair value with changes in fair value recorded in the consolidated income statement.
Available-for-sale investments comprise debt and equity securities that are designated as available-for-sale or are not classified as held-to-maturity, loans and advances to banks and customers, or financial assets carried at fair value through income. Available-for-sale investments are recorded at fair value. Unrealized gains and losses, which are the difference between fair value and cost or amortized cost, are included as a separate component of shareholders’
Available-for-sale equity securities include investments in limited partnerships. The Allianz Group records its investments in limited partnerships at cost, where the ownership interest is less than 20 %, as the limited partnerships do not have a quoted market price and fair value cannot be reliably measured. The Allianz Group accounts for its investments in limited partnerships with ownership interests of 20 % or greater using the equity method due to the rebuttable presumption that the limited partner has no control over the limited partnership.
Gains and losses from derecognition and impairment of held-to-maturity investments are recognized in the consolidated income statement.
Using the effective interest method, net deferred fees and premiums or discounts are recorded as an adjustment of interest income yield over the lives of the related loans.
(in accordance with the contractual terms), and future payments in accordance with those terms are reasonably assured. When there is a doubt regarding the ultimate collectibility of the principal of a loan placed in non-accrual status, all cash receipts are applied as reductions of principal. Once the recorded principal amount of the loan is reduced to zero, future cash receipts are recognized as interest income.
Group from a counterparty, subject to a simultaneous obligation to sell these securities at a certain later date, at an agreed upon price. If control of the securities remains with
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 with respect to finance leases.
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 at face value, less any impairments for balances that are deemed to be not recoverable.
Fair value for investment and annuity contracts are determined using the cash surrender values of policyholders` and contract holders’ accounts.
The fair value of financial liabilities for unit-linked contracts is equal to the fair value of the financial assets for unit-linked contracts.
all amounts due according to the contractual terms of the security are not considered collectible. Typically this is due to deterioration in the creditworthiness of the issuer. A decline in fair value below amortized cost due to changes in risk free interest rates does not by itself represent objective evidence of a loss event.
If there is objective evidence that the cost may not be recovered, an available-for-sale equity security is considered to be impaired. Objective evidence that the cost may not be recovered, in addition to qualitative impairment criteria, includes a significant or prolonged decline in the fair value below cost. The Allianz Group’s policy considers a significant decline to be one in which the fair value is below the weighted average cost by more than 20 % or a prolonged decline to be one in which fair value is below the weighted average cost for greater than nine months. This policy is applied by all subsidiaries at the individual security level.
Provisions for contingent liabilities, such as guarantees, loan commitments and other obligations are reported as other liabilities.
Specific allowances are established to provide for specifically identified counterparty risks. Specific allowances are established for impaired loans. The amount of the impairment is based on the present value of expected future cash flows or based on the fair value of the collateral if the loan is collateralized and foreclosure is probable. If the amount of the impairment subsequently increases or decreases due to an event occurring after the initial measurement of impairment, a change in the allowance is recognized in earnings by a charge or a credit to the loan loss provisions.
Transfer risk is a measure of the likely ability of a borrower
ot es in a country to repay its foreign currency-denominated debt in light of the economic or political situation prevailing in the country. Country risk allowances are based on a country risk rating system that incorporates current and historical economic, political and other data to categorize countries by risk profile. Loans with specific allowances are excluded from the country risk rating system, and countries provided for within the country risk allowance are excluded from the determination of the transfer risk component of the general allowance. Country risk allowances are presented within the specific or general risk category, as appropriate.
Loans are charged-off when all economically sensible means of recovery have been exhausted. At the point of charge-off, the loan, as well as any specific allowance associated with the loan, is removed from the consolidated balance sheet or a charge may be recorded to directly charge-off the loan. A
charge-off may be full or partial. Subsequent to a charge-off, recoveries, if any, are recognized as a credit to the loan loss provisions.
Financial assets and liabilities are offset and the net amount reported in the balance sheet only when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or to realise the asset and settle the liability simultaneously.
The Allianz Group’s Property-Casualty and Life/Health segments use derivative financial instruments such as swaps, options and futures to hedge against changes in market prices or interest rates in their investment portfolios.
Gains or losses from these derivative financial instruments arising from valuation at fair value are included in income from financial assets and liabilities held for trading. This treatment is also applicable for bifurcated embedded derivatives of hybrid financial instruments.
Cash flow hedges offset the exposure to variability in expected future cash flows that is attributable to a particular risk associated with a recognized asset or liability or a forecasted transaction. Changes in the fair value of a derivative financial instrument that represent an effective hedge are recorded in unrealized gains and losses (net) in shareholders ’ equity, and are recognized in net income when the
Notes to the Consolidated Financial Statements Allianz Group Annual Report 2008 offsetting gain or loss associated with the hedged item is recognized. Any ineffectiveness of the cash flow hedge is recognized directly in net income.
IFRS 7 requires to group financial instruments into classes that are appropriate to the nature of the information disclosed and that take into account the characteristics of those financial instruments. The scope of IFRS 7 includes recognized and unrecognized financial instruments. Recognized financial instruments are those financial assets and financial liabilities within the scope of IAS 39. Unrecognized financial instruments are financial instruments that are outside of the scope of IAS 39 but within the scope of IFRS 7.
This risk report, with the exception of the “Outlook” section, is an integral part of the audited consolidated financial statements.
Financial liabilities carried at fair value through income – Financial liabilities held for trading Fair value Held for trading – Financial liabilities designated at fair value through income Fair value Designated at fair value through income
Liabilities to banks and customers Amortized cost Other liabilities - at amortized cost Reserves for insurance and investment contracts
– Investment contracts with policyholders Fair value — Financial liabilities for unit-linked contracts Fair value — Other Liabilities
– Derivative financial instruments used for hedging purposes that meet the criteria for hedge accounting and firm commitments Fair value —
Group are classified according to IFRS 4 as insurance or investment contracts. Contracts under which the Allianz
SFAS 60, SFAS 97 and SFAS 120. Investment contracts without discretionary participation features are accounted for as financial instruments in accordance with IAS 39.
Assumed reinsurance refers to the acceptance of certain insurance risks by Allianz that other companies have underwritten. Ceded reinsurance refers to the transfer of insurance risk, along with the respective premiums, to one or more reinsurers who will share in the risks. When the reinsurance contracts do not transfer significant insurance risk according to SFAS 113, deposit accounting is applied as required under
Assumed reinsurance premiums, commissions and claim settlements, as well as the reinsurance element of technical provisions are accounted for in accordance with the conditions of the reinsurance contracts and with consideration of the original contracts for which the reinsurance was concluded.
Shadow accounting is applied to insurance and investment contracts with discretionary participating features, and SFAS
97 universal life type insurance contracts and SFAS 97 investment contracts. Shadow accounting is applied to DAC, PVFP, deferred sales inducements, unearned premium liabilities and the reserves for insurance and investment contracts to take into account the effect of unrealized gains or losses on insurance liabilities or assets in the same way as it is done for a realized gain or loss. These assets or liabilities are adjusted with corresponding charges or credits recognized directly to shareholders’ equity as a component of the related unrealized gains and losses.
For short-duration insurance contracts, such as propertycasualty contracts, in accordance with SFAS 60, premiums written to be earned in future years are recorded as unearned premiums. These premiums are earned in subsequent years in relation to the insurance coverage provided.
The deposit component of an insurance contract is unbundled when both of the following conditions are met: 1. the deposit component (including any embedded surrender option) can be measured separately (i.e., without taking into account the insurance component); and 2. the Allianz Group’s accounting policies do not otherwise require the recognition of all obligations and rights arising from the deposit component.
To the extent that the assuming reinsurers are unable to meet their obligations, the Group remains liable to its policyholders for the portion reinsured. Consequently, allowances are made for receivables on reinsurance contracts which are deemed uncollectible.
Deferred acquisition costs (“DAC”), present value of future profits (“PVFP”) and deferred sales inducements comprise the deferred acquisition costs in the balance sheet.
DAC 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.
or estimated gross margin (“EGM”), as appropriate, based on historical and anticipated future experience, which is evaluated regularly.
Currently, the Allianz Group has no in-force insurance contracts for which all of the rights and obligations related to such contracts have not been recognized. As a result, the
Allianz Group has not recognized an unbundled deposit component in respect of any of its insurance contracts, and accordingly the Allianz Group has not recorded any related provisions in its consolidated financial statements.
Certain of the Allianz Group’s universal life-type insurance contracts include options to replicate a market index (market value liability options or “MVLO”). These options are bifurcated from the insurance contracts and accounted for as derivatives.
Reserves are established for the payment of losses and loss adjustment expenses (“LAE”) on claims which have occurred but are not yet settled. Reserves for loss and loss adjustment expenses fall into two categories: case reserves for reported claims and incurred but not reported reserves (“IBNR”).
Case reserves for reported claims are based on estimates of future payments that will be made with respect to 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 reevaluated in the ordinary course of the settlement process and adjustments are made as new information becomes available.
IBNR reserves. IBNR reserves are reviewed and revised periodically as additional information becomes available and actual claims are reported.
Reserves for insurance and investment contracts and financial liabilities for unit-linked contracts
Aggregate policy reserves for long-duration insurance contracts, such as traditional life and health products, are computed in accordance with SFAS 60 using the net level premium method, which represents the present value of estimated future policy benefits to be paid less the present value of estimated future net premiums to be collected from policyholders.
PVFP for traditional participating insurance products are amortized over the expected life of the contracts in proportion to 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 net income in the period revised.
Assumptions for interest reflect expected earnings on assets, which back the future policyholder benefits. The information used by the Allianz Group’s 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 deferred acquisition costs and aggregate policy reserves were as follows: Longduration
(“latent reserve for premium refunds”), which will reverse and enter into future profit participation calculations. Unrealized gains and losses recognized for available-for-sale investments are recognized in the latent reserve for premium refunds to the extent that policyholders will participate in such gains and losses on the basis of statutory or contractual regulations when they are realized. The profit participation allocated to participating policyholders or disbursed to them reduces the reserve for premium refunds.
Methods and corresponding percentages for participation in profits by the policyholders are set out below for the most significant countries for latent reserves: Country Base Percentage
Liability adequacy tests are performed for each insurance portfolio on the basis of estimates of future claims, costs, premiums earned and proportionate investment income.
Real estate held for own use (e.g., real estate and buildings, including buildings on leased land) is carried at cost less accumulated depreciation and impairments. The capitalized cost of buildings is calculated on the basis of acquisition cost and depreciated on a straight-line basis over a maximum of 50 years in accordance with their useful lives.
Costs for repairs and maintenance are expensed as incurred, while improvements if they extend the useful life or increase the value of the asset are capitalized. An impairment is recognized when the recoverable amount of these assets is less than their carrying amount. Where it is not possible to identify separate cash flows for estimating the recoverable cost of an individual asset, an estimate of the recoverable amount of the cash generating unit to which the asset belongs is used.
Non-current assets or disposal groups classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell. Any subsequent increases in fair value less costs shall be recognized as a gain but not in excess of the cumulative impairment loss that has been recognized either in accordance with IFRS 5 or IAS 36. A non-current asset shall not be depreciated while classified as held for sale. A
gain or loss not previously recognized by the date of the sale shall be recognized at the date of derecognition.
– is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations or
The Allianz Group conducts an annual impairment test of goodwill during the 4th quarter or more frequently if there is an indication that goodwill is not recoverable. For the purpose of impairment testing, goodwill is allocated to each of the Allianz Group’s cash generating units that is expected to benefit from the business combination. The impairment test includes comparing the recoverable amount to the carrying amount, including goodwill, of all relevant cash generating units. A cash generating unit is impaired if the carrying amount is greater than the recoverable amount.
Impairments of goodwill are not reversed. Gains or losses realized on the disposal of subsidiaries include any related goodwill.
The impairment test includes comparing the recoverable amount to the carrying amount. Where it is not possible to identify separate cash flows for estimating the recoverable amount of an individual asset, the Allianz Group estimates the recoverable amount of the cash generating unit to which the intangible asset belongs. An intangible asset is impaired if the carrying amount is greater than the recoverable amount. The impairment of an intangible asset is equal to the difference between the carrying amount and recoverable amount.
Issued capital represents the mathematical per share value received from the issuance of shares.
Group and treasury shares. Treasury shares are deducted from shareholders’ equity. No gain or loss is recognized on the sale, issuance, acquisition or cancellation of these shares.
Any consideration paid or received is recorded directly in shareholders’ equity.
Property-casualty insurance premiums are recognized as revenues over the period of the contract in proportion to the amount of insurance protection provided.
In addition to traditional commission income received on security transactions, fee and commission income in the securities business also includes commissions received in relation to private placements, syndicated loans and financial advisory services. Other fees reflect fees from underwriting business (new issues), commissions received for trust and custody services, for the brokerage of insurance policies, and fees related to credit cards, home loans, savings contracts and real estate. Fee and commission income is recognized in Allianz Group’s Banking segment when the corresponding service is provided.
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.
All of the income from fully consolidated private equity investments and all of the expenses from fully consolidated private equity investments are presented in separate income and expense line items. Revenue from fully consolidated private equity investments is recognized upon customer acceptance of goods delivered and when services have been rendered.
of time are recognized as earned when due. Premiums for short-duration health insurance contracts are recognized as revenues over the period of the contract in proportion to the amount of insurance protection provided.
Life insurance premiums from traditional life insurance policies are recognized as earned when due. Premiums from short-duration life insurance policies are recognized as revenues over the period of the contract in proportion to the amount of insurance protection provided. Benefits are recognized when incurred.
Interest income and interest expense are recognized on an accrual basis. Interest income is recognized using the effective interest method. This line item also includes dividends from available-for-sale equity securities, interest recognized on finance leases and income from investments in associated entities and joint ventures. Dividends are recognized in income when declared. Interest on finance leases is recognized in income over the term of the respective lease so that a constant period yield based on the net investment is attained.
The Allianz Group uses the projected unit credit actuarial method to determine the present value of its defined benefit plans and the related service cost and, where applicable, past service cost. The principal assumptions used by the
Allianz Group are included in Note 47. The census date for the primary pension plans is October or November, with any significant changes through December 31, taken into account.
Group recognizes a portion of its actuarial gains and losses in income or expense if the unrecognized actuarial net gain or loss at the end of the previous reporting period exceeds the greater of: a) 10 % of the projected benefit obligation at that date; or b) 10 % of the fair value of any plan assets at that date. Any unrecognized actuarial net gain or loss exceeding the greater of these two values is generally recognized in net periodic benefit cost in the consolidated income statement over the expected average remaining working lives of the employees participating in the plans.
The share-based compensation plans of the Allianz Group are required to be classified as equity settled or cash settled plans. Equity settled plans are measured at fair value on the grant date and recognized as an expense, with an increase in shareholders’ equity, over the vesting period. Equity settled plans include a best estimate of the number of equity instruments that are expected to vest in determining the amount of expense to be recognized. For cash settled plans, the
Allianz Group accrues the fair value of the award as compensation expense over the vesting period. Upon vesting, any 3 Recently adopted and issued accounting pronouncements and changes in the presentation of the consolidated financial statements
IFRS 7, Financial Instruments: Disclosures, titled “Reclassification of financial assets”. The amendments to IAS 39 permit an entity to reclassify certain non-derivative financial assets out of the “held for trading” (“at fair value through income”) category and out of the “available-for-sale” category if the following specific conditions are met.
– Any other debt instrument and any other equity instrument, classified as “held for trading” (“at fair value through income”) may be reclassified to the “held-to-maturity”
The amendments to IAS 39 and IFRS 7 are effective July 1, 2008 and should be accounted for on a prospective basis from the date of reclassification. For reclassifications made before November 1, 2008, the amended IAS 39 permits an entity to use fair values as of July 1, 2008 instead of the prevailing fair value at the date of reclassification.
At the reclassification date non-derivative financial assets have to be reclassified at their fair value, which becomes the new cost or amortized cost of the financial asset, as applicable. Previously recognized gains and losses cannot be reversed. After the reclassification date the existing requirements of IAS 39 for measuring financial assets at cost or at amortized cost apply. Any reclassifications under the new requirements of the amended IAS 39 trigger additional extensive disclosure requirements specified in the amendments to IFRS 7.
IFRS 7 had no impact on the net income of the Allianz Group for the year ended December 31, 2008.
Treasury Share Transactions. IFRIC 11 addresses the application of IFRS 2 to share-based payment arrangements in three cases. When an entity chooses or is required to buy its own equity instruments to settle the share-based payment obligation, the arrangement should be accounted for as equity-settled share-based payment transaction. When a parent grants employees of a subsidiary rights to its equity instruments, assuming the transaction is recorded as an equity-settled transaction in the consolidated financial statements, the subsidiary would also record the transaction as an equity-settled transaction in its financial statements.
When a subsidiary grants its employees rights to equity instruments of its parent, the subsidiary should record the transaction as a cash-settled share-based payment transaction. IFRIC 11 is effective for annual periods beginning on or after March 1, 2007. The interpretation did not have a material impact on the Allianz Group’s consolidated financial statements.
IFRIC 14, IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction
Recently issued accounting pronouncements (effective on or after January 1, 2009)
IFRS 8 will have no impact on the Allianz Group’s financial results or financial position. The Allianz Group is currently evaluating the potential impact, if any, that the adoption of
In March 2007, the IASB issued amendments to IAS 23, Borrowing Costs. The main change from the previous version is the removal of the option of immediately recognizing as an expense borrowing costs that relate to assets that take a substantial period of time to get ready for use or sale. The cost of an asset will in future include all costs incurred in getting it ready for use or sale. The revised standard applies to borrowing costs relating to qualifying assets for which the commencement date for capitalization is on or after January 1, 2009. The amendment is expected to have no impact on the Allianz Group’s consolidated financial statements.
Revised IAS 1 applies to annual financial statements for periods beginning on or after January 1, 2009. The Allianz
In January 2008, the IASB issued a revised version of IFRS 3,
– Contingent consideration must be recognized and measured at fair value at the acquisition date. Subsequent changes in fair value are recognized in accordance with other IFRSs, usually in profit and loss. Goodwill is no longer adjusted for those changes.
Share-based Payment. The amendment clarifies that vesting conditions are service conditions and performance conditions only. Other features of a share-based payment are not vesting conditions. It also specifies that all cancellations, whether by the entity or by other parties, should receive the same accounting treatment. The amendment applies to annual financial statements for periods beginning on or after January 1, 2009. Earlier application is permitted.
The Allianz Group is currently evaluating the potential impact, if any, that the adoption of the amendment of IFRS 2 will have on the Group’s financial statements.
– instruments, or components of instruments, that impose on the entity an obligation to deliver to another party a pro rata share of the net assets of the entity only on liquidation (e.g., some partnership interests and some shares issued by limited life entities).
The amendments apply to annual financial statements for periods beginning on or after January 1, 2009. Earlier application is permitted. The amendments are expected to have no material impact on the Allianz Group’s consolidated financial statements.
IASB has adopted to deal with non-urgent but necessary amendments to IFRS (the ‘annual improvements process’).
The amendments are divided in two parts and include 34 amendments. Part I deals with changes the IASB identified resulting in accounting changes. Part II deals with terminology and editorial amendments that have a minimal impact.
Annual periods beginning on or after 1 July 2009; no material impact expected on Allianz Group’s consolidated financial statements
IAS 1 Assets and liabilities classified as held for trading in accordance with IAS 39 are not automatically classified as current in the balance sheet.
Annual periods beginning on or after 1 January 2009; no material impact expected on Allianz Group’s consolidated financial statements
IAS 23 The definition of borrowing costs is revised , i.e., components of interest expense calculated using the effective interest rate method calculated in accordance with IAS 39.
IAS 36 Additional disclosure are required with regard to estimates used to determine recoverable amount