Minority interest in earnings ¤mn 688 – 34.1 1,044 – 1,277 – 974 – 814 – 469 116
The Group’s banking business experienced an extremely difficult year. The downturn in the capital markets and a weak, in some countries crisis -prone economy, put a severe strain on our operating business. Loan loss allowances had to be substantially increased, which tangibly depressed earnings. These influences were so acute that the progress achieved in cost management did not yet produce the expected results. Administrative expenses at Dresdner Bank were cut by 12.3 percent. The banking business reported a loss of 1.4 billion euros.
Premium income from property and casualty insurance was up 2.7 percent to 43.3 billion euros. This represented 51.5 percent of total revenues. The combined ratio decreased 3.1 percentage points to 105.7 percent. Net income came to 7.2 billion euros. After restatement to eliminate intercompany transactions, net income amounted to 3.4 billion euros.
Total life and health insurance revenues increased 18.9 percent to 40.1 billion euros. Almost half of these premiums derived from investment-oriented products, mainly unit-linked life insurance. Despite the state of the capital markets, we were able to increase revenues from these products by 43.3 percent to 19.4 billion euros. We also improved our expense ratio, but investment income declined sharply to 7.4 billion euros, which in turn reduced net income to 19 (229) million euros.
Allianz is one of the leading global service providers in insurance, banking and asset management. We serve our customers in more than 70 countries. The solidity, service and competence of our Group are backed by the commitment of our approximately 182,000 employees worldwide.
Assets under management¤bn989– 12.11,12670038234324468 1997 without IAS SIC 12 and SEC adjustment
In my last letter to you, a little less than a year ago, I made a simple observation: the year 2002 will be, above all, a year of consolidation. I anticipated a year of great uncertainty, but I was still confident that my colleagues on the Board of Management and I would be able to deliver significantly better results than in 2001.
Have the risks in a highly integrated and complex world become so overwhelming that they threaten to undermine our business? Are forces of nature and market fluctuations hurting our ability to make decisions? As justified as such questions may appear in the face of turbulent forces of this magnitude and their mutually reinforcing effects, my answer is an unequivocal no. Let me remind you of the words of the British philosopher Isaiah Berlin, who cautioned against looking at history as “a highway with no exits”. He wrote, “Our margin of decision is not very big. Let’s say, one percent. But it is this one percent that matters.”
In other words, we would have a satisfactory answer if you as the shareholder were to ask, “What is going to happen to Allianz if the economy and the capital markets also fail to recover in 2003?”. We are prepared for all market situations and expect better results, even if markets continue to be weak and the economy remains flat. For you, the shareholders, that is important to know in these uncertain times.
That is our program, which we announced in the fall of 2002 as “Back to basics”. This principle also applies in another, broader sense. The end of the “everything is do-able” era has fostered a return to traditional values such as integrity, sense of responsibility and fairness. Basic notions of corporate ethics have now achieved the breakthrough that I would have expected much earlier. Concepts such as sustainability, corporate citizenship and corporate governance have turned from slogans into reality. They will – I hope – also withstand the next upswing in the economy and become permanent underpinnings of corporate behavior. That is why we have decided to distribute, together with this Annual Report, the corporate responsibility magazine of the Allianz Group. We thereby affirm our conviction that business responsibility cannot be separated from community and social considerations and ecological concerns.
This is my last letter to you, dear shareholders, in my capacity as Chairman of the Board of Management. By the time you read it, you will already know that after the end of our Annual General Meeting 2003 my colleague Michael Diekmann will lead your company as the ninth Chairman in the 112-year history of Allianz. Quite apart from my personals plans, I consider this to be the right moment for a change of generations at the helm of Allianz. By virtue of age, experience and capabilities, Mr. Diekmann is predestined to shape the fate of the company for many years to come. In meeting this challenge, he can count on the support of a Board with a solid track record of efficient team work in a climate of mutual trust.
How eventful these last eleven and half years have been! And how quickly they have passed. In my first letter to you, which I wrote in 1992, I said that we were about to return to sober reality. It almost seems as if every ten years a new force reshapes the destiny of your company. It is good to know that the new Chairman will tackle the challenges ahead of him with an open mind and new energy. If you wish, I will be pleased to serve on the Supervisory Board of your company. But my time as the helmsman of Allianz is over. Mr. Diekmann is free to set the course that he deems best.
Your company, Allianz, has rarely experienced a year as challenging as 2002. Given the difficult environment, it may take some time to regain our former strength. But I am confident that we will succeed. Your company will emerge from the consolidation of the financial services sector with renewed vigor and strategically in an even stronger position. And once again it will create the lasting value that you, as an investor, have every right to expect.
Other topics of discussion At our meetings, the Board of Management informed us on the development of Group revenues and earnings, the performance of the business segments and the overall financial situation. Positive performance in the insurance area, especially with respect to life and healthcare insurance, was overshadowed by substantial charges. In particular, the dramatic deterioration of prices on the equity markets and major sources of claims such as the severe flooding in central Europe had a negative impact on the business. We dealt in depth with cases of insolvency on the part of non-affiliated companies that affect the Group’s credit and investment portfolios or the credit and surety insurance activities.
The Supervisory Board received a general presentation on the subject of changes in company retirement plans, which, among other things, included the introduction of pension funds as a new insurance model in this area. This opens up very interesting business potential for Allianz.
We received an overview of the Mondial Assistance Group, which handles the travel insurance and assistance services activities of the Allianz Group. In addition, we approved the Board of Management’s decision to relaunch the stock purchase plan for employees of the Allianz Group in 2002. This plan was made available to employees in 24 countries.
The Audit Committee was created in September 2002. This committee provides the Supervisory Board with the information required to adopt the annual accounts, approve the consolidated financial statements and appoint the independent auditors. In addition, this committee audits the quarterly interim reports and the independence of the auditors. And, finally, it will in the future commission the independent auditors and determine the priorities of the audit. The newly created Audit Committee met once in the course of 2002. At this meeting, the committee adopted its procedural rules and dealt primarily with the interim report for thirdquarter 2002. Following the end of fiscal 2002, the committee worked on the documents for the annual financial statements of the parent company and the group, examined the risk monitoring system and discussed the auditors’ report with the auditors.
C H A I R M A N O F T H E S U P E R V I S O R Y B O A R D
S T A N D I N G C O M M I T T E E
M E D I A T I O N C O M M I T T E E
management reports and issued their certification without any reservations. The financial statements were prepared in accordance with the International Financial Reporting Standards (IFRS). The independent auditors have confirmed that the consolidated financial statements and the management report meet the conditions required to exempt the company from its obligation to prepare consolidated financial statements in accordance with German law.
The financial statements and the auditor’s reports submitted by KPMG were made available to all members of the Supervisory Board in due time. These documents were discussed in depth by the Audit Committee on March 17, 2003, as well as by the Supervisory Board at a meeting held for this purpose on March 19, 2003. The independent auditors participated in these discussions. They presented the results of the audits and were available to provide supplementary information.
Members of the Supervisory Board and the Board of Management The Annual General Meeting of June 12, 2002, appointed Dr. Gerhard Cromme and Dr. Bernd W. Voss to the Supervisory Board as representatives of the shareholders. Dr. Cromme had already been appointed by the courts to succeed Dr. Karl-Hermann Baumann on the Supervisory Board. Dr. Voss succeeded Dr. Alfons Titzrath, who resigned from the Supervisory Board before the end of his term, as did Dr. Albrecht Schmidt. Dr. Uwe Haasen, who was appointed as replacement member, has become a full member of the Supervisory Board.
We have expressed our appreciation to the former members of the Supervisory Board members for their valuable contribution to our work.
We appointed Michael Diekmann to succeed Dr. Schulte-Noelle as Chairman of the Board of Management with effect as of the end of the Annual General Meeting of April 29, 2003. Mr. Diekmann has been a member of the Board of Management since 1998 and was last in charge of “Americas/Group Human Resources”. Mr. Diekmann has in the past distinguished himself through outstanding performance in all positions he has held. We are convinced that under the chairmanship of Mr. Diekmann the Board of Management will continue to function as a well-coordinated, effective team after the departure of Dr. Schulte-Noelle and will in every way be capable of mastering present and future challenges.
In our capacity as members of the Supervisory Board, we would like to take this opportunity to thank all employees of our Group companies for their contribution in the course of the year under review.
J A N R . C A R E N D I
D R . B E R N D F A H R H O L Z
D R . R E I N E R H A G E M A N N
D R . G E R H A R D C R O M M E Chairman of the Supervisory Board ThyssenKrupp AG
D R . U W E H A A S E N Former member of the Board of Management Allianz AG
P E T E R H A I M E R L Employee, Dresdner Bank AG
U W E P L U C I N S K I Employee, Dresdner Bank AG
D R . A L B R E C H T S C H M I D T Chairman of the Supervisory Board Bayerische Hypo- und Vereinsbank AG
D R . M A N F R E D S C H N E I D E R Chairman of the Supervisory Board Bayer AG
J Ö R G T H A U Employee, Allianz Private Krankenversicherungs-AG
D R . A L F O N S T I T Z R A T H Former member of the Supervisory Board Dresdner Bank AG
In 2002, there were several initiatives aimed at improving the rules of corporate governance. In Germany, the German Corporate Governance Code and the Transparency and Disclosure Law came into force. In addition, the Federal Government announced a ten-point program for further measures to improve corporate governance. In the United States, the Sarbanes-Oxley Act took effect. At the EU level, a commission of experts triggered another initiative with the Winter-Report.
Many of the new rules have been part of our corporate principles for some time. Since November 2000, our share is listed at the New York Stock Exchange. We therefore also fulfill the stringent requirement of the Securities and Exchange Commission (SEC) concerning the presentation of our Annual Financial Statements and other questions of disclosure.
German Corporate Governance Code and Declaration of Compliance The Board of Management and the Supervisory Board of Allianz AG have welcomed the new Corporate Governance Code as an opportunity to critically examine our existing corporate practices and to adapt them to the new standards. We focused our efforts on the procedural rules of the Supervisory Board and its committees, the cooperation between the Supervisory Board and the Board of Management as well as questions relating to the audit of our Annual Financial Statements and the dissemination of information. In its meeting of September 18, 2002, the Supervisory Board adopted its revised procedural rules and the principles for reporting by the Board of Management to the Supervisory Board.
At the same time, the Supervisory Board declared that it recognized the rules of the German Corporate Governance Code as binding. A corresponding declaration had earlier been issued by the Board of Management. A single reservation was pronounced with respect to the recommendation of the German Corporate Governance Code concerning the number of supervisory board mandates.
This declaration is available on our website at www.allianzgroup.com/corporate-governance. In addition, we posted a detailed explanation as to how we applied those suggestions of the Code that are not subject to the declaration required by law.
Transparent and efficient Corporate Governance structures are an essential foundation for trust and entrepreneurial success. Of primary importance is the relationship between our shareholders, the Board of Management and the Supervisory Board. We also place great emphasis on the timely publication of any information relevant to our company.
On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002, which is aimed at restoring the trust of investors in the capital markets. For this purpose, the law expands the disclosure obligations of corporations and formalizes the processes that precede corporate reporting. Companies are obliged to establish internal control systems that must be maintained and reexamined on a regular basis. By way of certification, certain corporate officers must personally attest to the exactitude and completeness of reporting. Management must also certify that certain requirements concerning the internal control systems have been met. In addition, the law raises the requirements for the independence of auditors and contains detailed rules concerning the Audit Committee. Part of the law became effective immediately. However, most of its provisions require promulgation by the SEC, a process that has advanced considerably but is not yet completed. The SEC has meanwhile indicated that it is willing to allow exceptions for those provisions of the Sarbanes-Oxley Act that are in conflict with the national laws of a non-American company.
Following the recommendation of the Codex, Dr. Schulte-Noelle resigned from his seat on the Supervisory Board of Munich Re; in return, Dr. Schinzler, Chairman of the Board of Munich Re, resigned from his seat on the Supervisory Board of Allianz AG.
An essential part of the work of the Supervisory Board is performed by its committees. Up to the present, the Supervisory Board had already constituted among its members the Standing Committee, the Personnel Committee and the Mediation Committee according to § 27 (3) of the German Codetermination Act. In accordance with the recommendations of the German Corporate Government Codex, an Audit Committee was also set up.
_ In its meeting of September 18, 2002, the Supervisory Board set up an Audit Committee. Three of its five members are elected upon suggestion by the shareholders, an additional two upon recommendation of the employee representatives. The Audit Committee meets at least four times a year. Its main task is the preliminary examination of the Group’s Annual Financial Statements and Consolidated Financial Statements as well as the Management Report and the Recommendation for Appropriation of Profit. For this purpose, these documents are discussed with the Auditor. In addition, it examines the quarterly reports and the 20-F filing required in the U.S. The Audit Committee also prepares the appointment of the Auditor by the plenary Meeting of the Supervisory Board. In particular, it ascertains the required independence of the Auditor, assigns the mandate to the Auditor and sets priorities for the Audit. Its tasks also include the examination of the risk control system.
Compensation of the Board of Management and the Supervisory Board In fiscal 2002, the compensation of the Board of Management and the Supervisory Board was composed of fixed and variable components.
The compensation of the Board of Management consists of a fixed and a variable salary component. Information on the overall compensation of the Board of Management, broken down into fixed and variable components, as well as the number of stock appreciation rights granted under the Long Term Incentive Plan is provided on page 143 and 144 of this Annual Report.
Outlook In various media analyses on the subject of corporate governance, Allianz received one of the top rankings among DAX 30 companies. We take this as an incentive to pursue our quest for efficient corporate governance at all levels, including collaboration in external bodies. From the outset, we participated in the government commission “German Corporate Governance Code”. But above all, we are committed to the continual reexamination and further development of the efficiency and transparency of the corporate governance of Allianz, in the interest of our shareholders and other stakeholders, i.e. our employees, our customers and our society.
R E I N E R H A G E M A N N Allianz AG, Munich
W E R N E R Z E D E L I U S Allianz AG, Munich
G E R D - U W E B A D E N Allianz Suisse, Zurich
H E N N I N G S C H U LT E - N O E L L E Allianz AG, Munich
Chaired by Dr. Henning Schulte-Noelle, this body discusses overall strategic issues at Group level.
J E F F R E Y H . P O S T Fireman’s Fund, Novato
W O L F R A M L I T T I C H Allianz Elementar, Vienna
■ ADAM International GmbH ■ Allianz Capital Partners GmbH ■ Allianz Dresdner Asset Management GmbH ■ Allianz Dresdner Bauspar AG ■ Allianz Dresdner Pension Consult GmbH ■ Allianz Global Risks Rückversicherungs-AG ■ Allianz Lebensversicherungs-AG ■ Allianz Marine & Aviation Versicherungs-AG ■ Allianz Private Krankenversicherungs-AG ■ Allianz Versicherungs-AG ■ Bayerische Versicherungsbank AG ■ DEGI Deutsche Gesellschaft für
Gesellschaft für Wertpapieranlagen mbH ■ Dresdner Bank AG ■ Dresdner Bank Lateinamerika AG ■ Eurohypo AG ■ Frankfurter Versicherungs-AG ■ Hermes Kreditversicherungs-AG ■ Oldenburgische Landesbank AG ■ Reuschel & Co.
■ Allianz Hedge Fund Partners, LP ■ Allianz Insurance Company ■ Allianz Life Insurance Company of North America ■ Cadence Capital Management ■ Dresdner Kleinwort Wasserstein
Securities LLC ■ Dresdner RCM Global Investors LLC ■ Fireman’s Fund Insurance Company ■ Nicholas-Applegate ■ PIMCO (Pacific Investment Management
Allianz is one of the leading global service providers in insurance, banking and asset management. We serve our customers in more than 70 countries. The solidity, service and competence of our
Company Ltd. Croatia ■ Allianz Zagreb d.d. Czech Republic ■ Allianz pojiš t’ovna, a.s. France ■ AGF Asset Management ■ Assurances Générales de France ■ Assurances Générales de France Iart ■ Assurances Générales de France Vie ■ Banque AGF ■ EULER & HERMES S. A. Great Britain ■ Allianz Cornhill Insurance PLC ■ Dresdner Kleinwort Wasserstein Ltd. ■ Dresdner RCM Global Investors
Holdings (UK) Ltd. Greece ■ Allianz General Insurance Company S. A. ■ Allianz Life Insurance Company S. A. Hungary ■ Allianz Hungária Biztosító Rt. ■ Dresdner Bank (Hungária) Rt. Ireland ■ Allianz Irish Life Holdings p.l.c. ■ Allianz Re Dublin Ltd. ■ Allianz Worldwide Care Ltd. ■ Dresdner Bank (Ireland) plc Italy ■ Allianz Subalpina Società di Assicurazioni e
Portugal S. A. Romania ■ Allianz Ţiriac Insurance S. A. Russian Federation ■ Dresdner Bank ZAO ■ Ost-West Allianz Insurance Company ■ Russian People’s Insurance Society „Rosno“ Slovakia ■ Allianz poistòvňa, a. s. ■ Slovenská poist’ovna a. s. Spain ■ Allianz Compañía de Seguros y Reaseguros, S. A.
■ Eurovida, S. A. Compañía de Seguros y Reaseguros ■ Euler Credito y Caution Switzerland ■ Allianz Risk Transfer AG ■ Allianz Suisse Lebensversicherungs-Gesellschaft ■ Allianz Suisse Versicherungs-Gesellschaft ■ Dresdner Bank (Schweiz) AG ■ ELMONDA AG ■ ELVIA Reiseversicherungs-Gesellschaft AG Turkey ■ Koç Allianz Hayat Sigorta A. S. ■ Koç Allianz Sigorta T. A. S.
In 2002, we focused our efforts on improving our operating results. Allianz must become less dependent on economic trends and the development of the capital markets. More efficient workflows and thus lower costs, an improved claims ratio in the insurance business and the sustained improvement of our performance in the banking business are the foremost priorities of our operating units.
5. We aim to rank among the top five competitors in the markets in which we choose to participate.
Our five strategic priorities are: _ optimizing the Economic Value Added of our Group, based on risk-adequate capital requirements and sustainable growth targets.
_ strengthening our leading position in life and health insurance and in asset management, especially in private and corporate retirement insurance plans.
The cost of capital represents the return an investor can expect from an alternative investment with comparable risk. An EVA greater than zero indicates that an added value for the shareholder has been created. If, on the other hand, the EVA becomes negative, that means a shareholder would have received a greater return from another risk adequate investment than from Allianz shares. In this case, his investment has destroyed value instead of increasing it.
After the extraordinary deterioration of our share price during the last two years, performance in the ten-year comparison stands at – 0.1 percent. If we extend the observation period and look at the development of the Allianz share price over the last twenty years, an average increase of 9.7 percent per year is revealed.
With a market capitalization of 22 billion euros, Allianz remains one of the most highly valued financial services providers in Europe. Our share is listed in all the major indices: Germany’s DAX, Dow Jones EURO STOXX 50 and MSCI Europe. It is also used in calculating the FTSE Eurotop 100 and the MSCI World Index.
Exceptional charges determine earnings per share Extremely weak capital markets, the severe flooding in central and eastern Europe, persistently high risk provisions at Dresdner Bank and the need to increase our reserves for asbestos-related claims in the U.S. depressed our earnings performance in 2002 to an unusual extent. The Group reported a loss of 1.2 billion euros. Based on an average of 242.8 million shares (not including treasury shares), earnings per share amount to – 4.81 euros.
Public offer to holders of profit participation certificates In a voluntary public offer, we invited the holders of Allianz profit participation certificates to exchange their certificates for Allianz shares. This offer was designed to restructure our capital. The exchange was completed in January 2003 and ended with a satisfactory acceptance ratio of 86 percent. We issued a total of 6.1 million shares from treasury stock to holders of profit participation certificates. Additional information on the exchange of profit participation certificates is provided on page 116 of this Annual Report. Following this offer, the terms for the certificates still outstanding remain in force. We do not intend to issue a call for their redemption as of December 31, 2006.
The higher free float also increases the number of shareholders, from 440,000 to over 510,000. Trading volumes went up as well. On an average day, approximately 1.7 million Allianz shares are bought and sold through the electronic trading system Xetra – an increase of 65 percent over the previous year.
Year-end price Market capitalization *) Market capitalization calculated without treasury shares
Sources: Publications of shareholders (long-term investments), Allianz AG share register (free float)
Performance-based remuneration As an additional incentive for increasing Allianz market capitalization, our “Long-Term Incentive Plan” provides top-level management with a variable remuneration plan based on the allocation of stock appreciation rights. Through this plan, management participates in the development of the Allianz share price. The number of shares allocated to each recipient depends on the EVA achieved. In addition, we consider the extent to which individual targets have been reached.
In 2002, approximately 570 senior managers were participating in the long-term incentive plan. Due to the poor performance of our share price, management received no payments from the stock appreciation rights granted in previous years. Additional information is provided on page 142 to 143 of this Annual Report.
Average number of shares traded per day on Xetra 1,664,555 1,008,085 610,611
Comprehensive service Our goal is to keep you up to date and to provide you with a comprehensive information service. Simply call us or submit your questions by mail. Our Investor Line +49 1802 2554269 is available around the clock, seven days a week. Our Investor Relations Team will be delighted to answer your questions.
Additional information concerning Allianz and the Allianz share is available on our website at www.allianzgroup.com/investorrelations. You can also download our Annual Report from that site.
We will be pleased to send you our interim reports as well as any other Allianz Group publications.
At December 31, 2002, Allianz Group calculated the capital elements eligible for the legally required solvency margin of insurance groups to have a total value of 21.7 billion euros. Included in this amount are the shareholders’ equity, reserves for real estate holdings and participations consolidated at equity, as well as subordinated liabilities and reserves for premium refunds that are eligible for the solvency margin. However, this total must be reduced by certain elements carried as intangible assets, in particular goodwill from insurance companies, as well as claims equalization reserves recognized in local financial statements. At the end of 2002, the solvency margin required by law is expected to be at least 14.2 billion euros, which corresponds to a cover ratio of 152.8 percent. However, the solvency margin directive applies only to the insurance segment and contains no capital requirements for the banking business. Until the Financial Conglomerates Directive takes effect in fiscal 2005, multiple gearing of regulatory capital is still possible in part.
Demand for our high-volume bonds by far exceeded expectations. A clear demonstration of the high esteem in which investors hold the solidity and reliability of Allianz.
In November 2002, we very successfully floated a euro-denominated bond in two tranches. This issue, which was rated AA by Standard & Poor’s and Aa2 by Moody’s, was oversubscribed eight times.
In December 2002, after the successful completion of this transaction, we issued a perpetual subordinated bond specifically conceived for the Asian market. It has a volume of 500 million U.S. dollars. Considering the fact that this was our first venture in the Asian bond market, the demand of about 740 million U.S. dollars was exceptionally high. That enabled us to fix the coupon of this bond at 7.25 percent – the lower end of the price range originally envisioned.
The Allianz Group still has recourse to short-term financing instruments, predominantly commercial papers. At the end of the year, these liabilities added up to approximately 3 billion euros.
The exchangeable bond backed by shares of Deutsche Bank reached maturity in February 2003. Since the share price of Deutsche Bank had fallen far below the striking price, the 1-billion euro bond was repaid in cash, in accordance with the terms of this issue. Another 767-million euro bond issue, which comes to maturity in May 2003, will also be redeemed in cash.
Index-linked exchangeable bond (Miles) issued by Allianz Finance II B. V., Amsterdam At the issuer’s discretion, exchangeable for/repayable by E.ON AG, BASF AG,
Volume ¤2.0 billion Year of issue 2001 Maturity date 2/20/2004 Exchange ratio Relevant DAX reference price divided by the relevant reference price of the shares selected
28 Economic environment 28 Paralyzing uncertainty 28 Rough going for financial services providers 30 Capital markets 32 Overall Business Development 37 Recommendation for appropriation of profit 38 Property and casualty insurance 38 Overview: Property and casualty insurance 41 Germany 43 France 44 Italy 45 Great Britain 45 Switzerland 46 Spain 47 Rest of Europe 48 NAFTA Region 49 Asia-Pacific Region 50 South America 51 Allianz Global Risks Rückversicherungs-AG 51 Credit insurance 52 Travel insurance and assistance services 53 Allianz Marine & Aviation 54 Life and health insurance 54 Overview: Life and health insurance 57 Germany 59 Italy 60 France 61 Switzerland 61 Spain 62 Rest of Europe 63 U.S.A.
A L L I A N Z G R O U P 27
Paralyzing uncertainty Impetus for sustainable growth failed to materialize from the industrial countries in 2002. The momentum witnessed at the beginning of the year, which was fueled by optimistic forecasts, had already dissipated by the end of the second quarter. In many major countries, consumer spending was more restrained than had been expected. Many European and U.S. companies also postponed capital expenditure and investment in expansion. The threat of war in Iraq and the enormous losses on the capital markets contributed to this reluctance. As a result, investment declined, which was fatal for the job market, and unemployment did in fact start to rise again in many countries. The gross domestic product of the euro region increased by a modest 0.8 percent. On the other hand, the U.S. economy expanded by 2.3 percent. At the same time, however, the Japanese economy, the second largest in the world, did not manage to break out of the cycle of weak growth that is now in its tenth year, and economic output contracted by 0.2 percent.
Economic performance in regions with emerging markets varied considerably. The Latin American economies were down from the previous year, primarily due to the deep-rooted crisis in Argentina and its impact on neighboring countries. On the other hand, the situation in Asia, with the exception of Japan, turned out to be surprisingly positive. This region for the most part lived up to expectations, and the gross domestic product of these countries rose by an average of approximately 5.5 percent. Economic expansion in eastern Europe slowed down, dropping roughly one percentage point to approximately 3 percent.
Property & casualty insurance This area of business, and especially industrial insurance, continued to suffer from the effects of September 11, 2001, in the
course of the reporting period. Terrorism risks have been reassessed and claims estimates adjusted to take into account the new situation. Premium income from industrial clients continued to increase. In the U.S.A., the world’s largest insurance market, this trend persisted throughout the entire year 2002. In preceding years, excess capacity had combined with intense competition to make it essentially impossible to generate risk-adequate premium income. The return to reality with respect to pricing resulted from the financial difficulties of various reinsurers following the terrorist attack in 2001. More than a few found themselves compelled to limit the underwriting capacity made available to primary insurers. This was reflected in a decrease in the availability of insurance for industrial clients. In addition, the disappointing development on the capital market forced property and casualty insurers to calculate more conservatively. Claims ratios showed improvement over the previous year, which was overshadowed by the largest insurance claim ever, the suicide attack on the World Trade Center.
Life and health insurance The unsolved problems confronting many governmental retirement systems continue to lend fresh impetus to the insurance business. Demographic aberrations in the U.S.A. and Europe and the resultant burden on pay-as-you-go retirement systems have enhanced the image of private retirement insurance. Germany’s so-called “Riester” pension plan is a good example. It combines private insurance with governmental support. However, sales of Riester products fell considerably short of industry expectations in their first year on the market. Nevertheless, premium growth in the German life insurance sector did double to approximately 4.5 percent for the year although consumer spending slackened off. This shows that people are concerned about retirement security and are tending to opt for private life and retirement insurance. Life insurance sales in other EU countries were also generally up, but there were exceptions. Although premium income in France rose 2 percent, income from the sale of insurance declined significantly in Spain. In the countries of central and eastern Europe as well as in Asia, newfound prosperity is also fueling the life insurance business, which is of course driven by the demand for private retirement security. The world’s life insurance companies were faced with a special challenge in 2002 since they have to maintain the guaranteed returns of their products despite weak stock markets and persistently low interest rates.
From early 2000 to the end of last year, the yield on ten-year bonds in the euro region dropped by more than one percentage point and ended the reporting period at 4.2 percent. The corresponding decrease was even more pronounced in the U.S.A., where the rate dropped from 6.5 to 3.8 percent during that time. This pushed down yields on new issues. Declining interest rates did cause the prices of fixed-interest securities to rise, but the rise of the bond market did not by any means compensate for the losses incurred on the stock markets during the same period. In the course of this three-year period, the German DAX stock index lost 57 percent of its value, and the U.S. Standard & Poor’s 500 Index recorded a loss of just under 40 percent. The Dow Jones dropped 27 percent, the Dow Jones EURO STOXX 50 a hefty 50 percent, and Japan’s Nikkei Index no less than 55 percent. Capital market developments presented most life insurance companies with serious problems.
The problems experienced by the public health insurance system in Germany caused large numbers of people who participated in the system voluntarily to switch to private health insurance. As a result, the industry was once again able to generate premium income in excess of the 5 percent increase recorded a year earlier. The question as to how to handle the uncontrolled cost spiral, notably in the U.S.A., Switzerland and Germany, remains unresolved. Not only governmental health insurers but also private providers are confronted with problems. Allianz Private Health Insurance uses a system to manage its healthcare business and services that has already resulted in substantial savings by eliminating unnecessary outlays. As a result, Allianz has staked out a position of leadership in the German market.
Asset management This area of business, which parallels and complements life insurance, is also benefiting from the fact that retirement systems are being restructured. For example, the “Riester” pension plan has kindled new interest in company retirement plans in Germany, which has opened up additional growth potential in the area of asset management for corporate clients. The situation is similar in virtually all other EU countries. Asset management is also becoming increasingly important as a vehicle for asset accumulation and retirement benefits in central and eastern Europe as well as in Asia. In the Far East, a steadily growing middle class is stimulating demand for asset-building products, especially in South Korea, Malaysia and Singapore as well as in the major metropolitan centers of China.
All this reduced earnings and many financial institutions intensified their cost cutting efforts. Newspapers were full of reports of layoffs and branch office closures in many countries. Germany was especially hard hit by this situation.
Capital markets Developments on the capital markets had a strong impact on the activities of Allianz in the areas of insurance, asset management and banking. Since the financial markets failed to calm down in 2002, the effects on sales performance and earnings were significant. This was the third year in a row that fixed-interest securities yielded a higher return than stocks. Clients reacted accordingly and exhibited a preference for low-risk investments that cut across the entire market. This trend boosted the new business of our life insurers, particularly Allianz Leben in Germany and our U.S. subsidiary Allianz Life of North America. Our U.S. fund manager, PIMCO, which specializes in bonds and whose PIMCO Total Return product became the largest fund in the United States in 2002, also benefited from this development.
Stock markets In the early months of 2002, most stock market indices were still pointing upward. But when the accounting scandals assumed an unprecedented dimension in the spring, investor confidence was shattered. Germany also witnessed numerous cases of illegal manipulation of figures and falsified income statements. An economic environment that repeatedly gave rise to unsettling questions, the threat of war in Iraq and the possibility of a further despicable attack by terrorists smothered all hope of a positive year for the world’s stock markets. In fact, the low for the year in October was well below the level following the terrorist attack of September 11, 2001. At year-end 2002, the German DAX index had dropped approximately 44 percent. The losses suffered by the broad-based U.S. Standard & Poor‘s 500 index in the U.S.A. pointed in the same direction: this barometer was down 20 percent for the year.
SSB World Governmental Bond Lehmann US Aggregate Bond Lehmann Pan European Aggregate Bond
Currencies In the course of the reporting period, the euro rebounded against the U.S. dollar after having suffered considerable erosion since its introduction. The euro started its climb in April 2002, when it was at 0.88 U.S. dollars, and caught up with the dollar in the early summer. From July, the euro hovered between 0.96 and 1.02 and ended the year at 1.05 U.S. dollars. In the course of the year, the euro also firmed up against sterling but remained essentially unchanged again the Swiss franc.
Insurance reserves for life insurance where the investment risk is carried by policyholders 25.7 24.7
Fee and commission income, and income resulting from service activities 6.1 4.8
_ This unsatisfactory result was essentially determined by the difficult economic climate and the weakness in the capital markets, the loss at Dresdner Bank and by a number of special influences, in particular claims from the flood disaster, which totaled 710 million euros. We also decided to increase the reserves for asbestos and environmental (A&E) exposure in the U.S. by 762 million euros.
_ The abrupt deterioration of our earnings in the third quarter, which was as devastating as it was unexpected, overshadows major improvements in our operating business. Premium income increased substantially in many areas. At the same time, we achieved a substantial reduction of the combined ratio in property and casualty insurance.
_ We propose to pay our shareholders a dividend of 1.50 euros, the same amount as distributed in the previous year.
Our business performance in 2002 was marred by a combination of negative influences. The downturn in the capital markets forced us to make write-downs on our equity portfolio in the amount of 5.6 billion euros. At the same time, it depressed the trading and commission income of our banking segment. Relatively high fixed costs, particularly in the Corporates & Markets unit, also took their toll. At the same time, loan loss allowances had to be raised substantially because the weak economy increases the probability that borrowers will default. Severe natural catastrophes heavily impacted earnings; the severe flooding in central and eastern Europe alone caused claims of 710 million euros. And finally we had to increase risk provisions for asbestos and environmental (A&E) exposure in the U.S.A. by 762 million euros.
Unfortunate as they may be, these negative influences reflect only one side of the reality of our business. On the other side, there are significant improvements of our operating performance. Total premium income from the insurance business increased 9.9 percent to 82.6 billion euros. Adjusted for the special effects of the flood disaster and asbestos exposure, the combined ratio fell to 101.7 percent. Administrative expenses at Dresdner Bank were cut by 12.3 percent. And despite the adverse conditions in the capital markets, asset management was able to boost net inflows to 43 billion euros, based on the exchange rates at the end of 2001.
Earnings Total earnings before taxes and amortization of goodwill amounted to a loss of 52 million euros, following a profit of 2.6 billion euros in the previous year. Amortization of goodwill increased to 1,162 (808) million euros, mainly for two reasons: _ The Dresdner Bank Group was for the first time consolidated for the full fiscal year.
_ We increased our interests in the Group companies Allianz Lebensversicherungs-AG, Bayerische Versicherungsbank AG and Frankfurter Versicherungs-AG.
Fiscal 2002 produced tax income of 735 million euros. The taxes actually paid by our companies amounted to 844 million euros. But since we were able to capitalize deferred taxes in the amount of 1,653 million euros, which resulted from temporary differences between the figures stated in the balance sheet and their tax basis, we recognized the tax income mentioned above.
Our free float now extends to more than 500,000 shareholders. Even in difficult times, we want to maintain the continuity of our dividend policy and will therefore propose to the Annual General Meeting to distribute a dividend of 1.50 euros per share for 2002, unchanged from last year.
In IFRS accounts, which only recognize the cost and risk components of investment-oriented life insurance as premium income, revenue increased 2.5 percent to 63.2 billion euros.
Asset management Assets under management in the Allianz Group decreased to 1.0 (1.1) trillion euros. Investments for third-party investors, which account for 57 percent of the overall portfolio, decreased 9.5 percent to 561 (620) billion euros. Of this decline, 25 billion euros are attributable to falling prices on the international stock markets, another 77 billion euros to the depreciation of the U.S. dollar against the euro. Net revenues came to 2.3 billion euros.
Banking Net revenues from banking amounted to 7.6 billion euros. This figure includes interest and commission income as well as trading income. The 100 percent increase over the previous year (3.9 billion euros) is due to a special effect: the figures of Dresdner Bank, which almost exclusively determines the development of our banking business, were for the first time included in our annual statements on a full-year basis. In the previous year, the bank was not consolidated until July, 23. On a comparable basis, operating income of Dresdner Bank dropped 18.6 percent, mainly as a result of the weaknesses in the economy and the capital markets. In addition, loan loss provisions in the amount of 2.2 billion euros undermined the earnings performance of the banking segment. To counteract this trend, the comprehensive Turnaround 2003 program was launched in the fall of 2002, which is designed to intensify the initiatives to upgrade efficiency already under way.
Shareholders’ equity At the end of 2002, the shareholders’ equity of the Allianz Group came to 21.8 billion euros. This figure takes into account 23,588,411 treasury shares, which reduce shareholders' equity and were acquired at a cost of 6.0 billion euros. Overall, shareholders ’ equity was down 9.9 billion euros compared with the end of 2001. This is primarily due to the substantially lower balance of unrealized gains and losses, which dropped from 7.2 to 1.0 billion euros, mainly as a result of lower stock market prices.
The Board of Management and the Supervisory Board propose that the available unappropriated earnings of Allianz AG in the amount of 1,164,997,000.00 euros be appropriated as follows: _ Distribution of a dividend of 1.50 euros per eligible share
The recommendation for appropriation of earnings takes into account own shares held directly or indirectly by the company, which in accordance with the German Stock Corporation Act (clause § 71 b AktG) are not entitled to receive a dividend. Further purchases or sales of own shares during the period prior to the Annual General Meeting may increase or decrease the number of shares eligible for dividends. In this case, an amended proposal for the appropriation of profit based upon an unchanged dividend in the amount of 1.50 euros per eligible share will be submitted to the Annual General Meeting for ratification.
Dr. Schulte-Noelle Diekmann Dr. Achleitner Bremkamp Dr. Faber Dr. Fahrholz Dr. Hagemann Dr. Müller Dr. Perlet Dr. Rupprecht Dr. Zedelius
G R O U P M A N A G E M E N T R E P O R T Overview: Property and Casualty Insurance 39
_ Premium income from property and casualty insurance was up 2.7 percent to 43.3 billion euros.
_ Net investment income improved 60 percent to 11.7 billion euros, primarily due to intercompany transactions. Net income came to 7.2 billion euros. After restatement to eliminate intercompany transactions, net income amounted to 3.4 billion euros.
Allianz Marine & Aviation 1,163 3) Excluding real estate held for own use as of 2001
The claims ratio improved to 78.2 (81.1) percent. This figure would have been significantly better, namely 74.2 percent, if we had been spared the catastrophic floods in central and eastern Europe and did not have to increase reserves for asbestos-related and environment claims in the U.S.. Comparison of this figure with the 2001 claims ratio, which came to 76.7 percent without taking into account the extraordinary impact of the attack on the World Trade Center, also shows significant operational improvement. This improvement resulted from premium adjustments, especially in the area of automobile insurance, and the fact that the claims frequency (average number of claims per policy) remains favorable in many markets.
The expense ratio showed virtually no change from the previous year and came to 27.5 (27.7) percent. The cost involved in building up the insurance marketing activities of Dresdner Bank was offset by increased efficiency on the part of many Group companies.
As of the 2002 fiscal year, Allianz Marine & Aviation is no longer part of SGD. We include European Marine & Aviation activities in a business unit that we now report on separately. Excluding the results of Allianz Marine & Aviation, SGD premium income increased 1.1 percent to 9.8 billion euros. As a result, despite a difficult market situation we succeeded in achieving a slight increase in revenues, primarily through higher automobile insurance rates. This insurance segment grew 1.6 percent. Accident insurance increased 2.9 percent.
Property and casualty insurance in Germany 9,235 3,772 2,303 *) Excluding Allianz Marine & Aviation from 2002 on.
Earnings after taxes2) ¤ mn 1,883.5 1,659.9 835.2 1) Excluding Allianz Marine & Aviation from 2002 on. 2) Before profit transfer
Premium income from the reinsurance activities of Allianz AG decreased to 5.6 (5.7) billion euros, primarily for two reasons: _ On the one hand, as of January 1, 2002, new risks from business with international corporate clients, i.e., from the portfolio of major international clients, was not reinsured by Allianz AG but rather by Allianz Global Risks RückversicherungsAG (AGR). This resulted in a decrease in premium volume (gross) by approximately 450 million euros. This measure primarily affected the reinsurance of industrial risks, i.e., fire, liability, transportation, technology and business interruption; _ On the other hand, other contracts were switched from proportional to non-proportional coverage. This decision did indeed lower premium income for 2002 but should have a noticeably positive effect on earnings in the years to come.
The claims ratio dropped to 75.3 (86.3) percent. This improvement would have been considerably greater if it were not for a series of extremely severe natural catastrophes in the year 2002: storms and hail in Germany in the spring, the severe flooding in central Europe in the summer, Hurricane Isidore over Mexico in September and in October Windstorm Jeanett in western Europe. Insured losses caused by the severe flooding, Isidore and Jeanett alone totaled approximately 227 million euros. A reinsurance contract with Fireman’s Fund Insurance Company calls for this company to cede reserves for asbestos-related and environmental risks in return for a portfolio entry in the amount of 1.2 billion euros. In exchange, Allianz AG extends reinsurance cover of up to a maximum 2.16 billion U.S. dollars. The reserves are determined on the basis of two external reports. Both confirmed a survival ratio of 13 years, which means that sufficient funds have been allocated to cover claims arising from these risks over this period. The survival ratio was based on payouts that have already been made, but extraordinary effects in the area of environmental liability have been eliminated.
Transactions made at the beginning of the year in connection with the acquisition of Dresdner Bank as well as the sale of other shares resulted in high capital gains, which drove net investment income to 9.5 (3.1) billion euros.
Earnings after taxes improved to 9.5 (2.5) billion euros. After restatement to eliminate intercompany transactions, earnings come to 5.6 billion euros.
We assume that SGD revenues will in the course of the current fiscal year keep pace with the market and that the claims ratio will decrease further, especially since claims arising from natural disasters are likely to decline. We also hope to push the combined ratio below 100 percent again. The elimination of further unprofitable business from our portfolios and ongoing cost-reduction measures
_ This Allianz company ranks third among French property and casualty insurers.
Cooperation with Crédit Lyonnais remains good. Premium income from our joint subsidiary, Assurances Fédérales, rose 16.4 percent to 81.7 million euros. The introduction of a new accident insurance product for private customers was a big success, and nearly 50,000 policies were sold in the course of the reporting period.
The expense ratio decreased 2.9 percentage points to 26.4 percent. This reflected the successful conclusion of the consolidation of IT systems.
Earnings after taxes benefited from tax income and increased to 383 million euros, up from 31 million euros a year earlier.
_ These companies generated total premium income of 4.9 billion euros.
Premium income of the RAS Group rose 7.9 percent to 3.7 billion euros. Lloyd Adriatico, which is primarily involved in automobile insurance, recorded premium growth of 7.2 percent to 1.3 (1.2) billion euros. This gain was driven by automobile insurance, which contributed 230 million euros of the total increase of 353 million euros. Although our companies have adopted a selective underwriting policy, they were nevertheless able to increase the number of vehicles insured.
The premium growth of our Italian direct insurer, Genialloyd (formerly Lloyd 1885), remains very encouraging. The company increased revenues by 60 percent to 111 million euros. Of this amount, 44 million euros was generated through the Internet; which makes Genialloyd Italy’s undisputed leader in online insurance.
The overall claims ratio of our Italian companies continued to improve. As a result, the risk-based underwriting policy they have been applying for years is paying off. The application of stringent criteria to the sale of automotive policies and the use of quality controls to manage insurance portfolios have once again resulted in a reduction in the claims frequency. Whereas Lloyd Adriatico’s claims ratio neared last year’s good performance of 69.3 (68.5), the claims ratio of the RAS Group decreased to 76.8 (79.7) percent.
At 23.9 (23.7) percent, the expense ratio of the RAS Group showed virtually no change over the previous year although the company had invested in measures to revamp its brand image. Lloyd Adriatico was once again able to improve its expense ratio, which came to 18.9 (19.2) percent, primarily due to an increase in revenues.
Earnings after taxes of our Italian operations increased to 842 (395) million euros, which reflects the significant effect of the sale of real estate. The RAS Group generated 742 (285) million euros in earnings and Lloyd Adriatico 101 (110) million euros.
In local currency, we achieved revenue growth of 10.5 percent. Although almost all segments contributed to this success, the improvement in the commercial and industrial areas was especially striking. For the most part, rate adjustments provided the upward momentum, including higher rates for automobile insurance.
Net investment income came to 248 (184) million euros. This increase resulted from high capital gains.
As a result of the successful performance of our insurance and investment activities, earnings after taxes tripled to 237 (69) million euros.
For the current fiscal year, we expect moderate premium growth and further improvement in the combined ratio.
_ Allianz Suisse Versicherungs-Gesellschaft is our property and casualty insurer in Switzerland.
A lower claims frequency and the restructuring of our group health insurance business, which had to absorb high payouts last year, reduced the claims ratio to 76.3 (79.8) percent.
The expense ratio improved to 24.3 (27.2) percent, primarily due to lower commissions.
Net investment income was down. Substantial write-offs on portfolio holdings, namely, equities, and realized capital losses completely offset income from investments.
As a result, earnings after taxes dropped to 31 (121) million euros.
The claims ratio showed considerable improvement – due in part to positive performance in the area of claim adjustment and settlement – and dropped dramatically to 55.5 (77.5) percent.
However, we expect alternative risk solutions to produce double-digit growth for the current fiscal year, while revenues from our traditional reinsurance activities essentially stagnate.
_ Premium income of Allianz Companía de Seguros y Reaseguros, our property and casualty insurer, and our direct insurer, Fenix Directo, increased 16.6 percent to 1.5 billion euros.
Tighter work processes lowered the expense ratio further to 20.6 (21.2) percent.
We increased premium income in central and eastern Europe by nearly 30 percent to 1.2 billion euros. This figure includes the premium income of Slovenská poist’ovna on a pro rata temporis basis, which came to 72 million euros. The accounts of this company were consolidated as of July 22, 2002. Slovenská reported revenues of 158 million euros for the entire 2002 fiscal year. This company is the leader in its market and was acquired from the Slovakian government.
Claim payouts were very negatively impacted by the severe flooding, which primarily affected our companies in Austria and the Czech Republic. However, earnings after taxes rose to 119 (112) million euros due to high capital gains on investments of our companies in Ireland.
We continue to expect our companies in the major markets of central and eastern Europe to achieve doubledigit premium growth. Measures taken to improve cost efficiency can be expected to produce the desired results in the short term and contribute to earnings improvement for the current fiscal year.
_ The Allianz Insurance Company (AIC), which serves major international clients, ranks among the largest insurance companies in this region. It has been integrated into Allianz Global Risks.
The decrease in revenues can be primarily attributed to the fact that FFIC has severed business relationships that showed no prospect of profitability. The reorganization of FFIC’s client portfolio, which was started back in 2001, has produced significant improvement in the operating results of FFIC’s core activities. These activities include insurance for commercial clients and high-networth individuals, transportation and crop insurance and insurance of special risks.
Setting aside the influence of stop-loss reinsurance, the combined ratio in these areas of business improved significantly from 119 to 105 percent, primarily as a result of a selective underwriting policy and rate increases. On the basis of the expertise commissioned by us, we doubled our reserves for asbestos-related and environmental risks (A&E reserves) to 1.2 billion euros. In terms of
FFIC reduced the percentage of equities in its investment portfolio from approximately 20 to 8 percent in the spring of 2002 in order to limit trading losses. However, write-offs and realized capital losses totaled 496 million euros.
Allianz Insurance Company of Canada generated premium income in the amount 549 (539) million euros. Mexican revenues came to 132 million euros.
Poor investment performance, high reserves for asbestos -related and environmental risks and the fact that our restructuring measures are only now starting to bite meant that our activities in the NAFTA region once again recorded a loss for the year. This loss came to 933 million euros. In the current fiscal year, we will continue to pursue a selective underwriting policy. Premium income will increase only slightly. We expect our core activities to generate a profit.
Earnings after taxes ¤ mn – 933.1 – 1,029.9 – 86.1
Premium income showed a substantial increase in nearly all markets in which we are active. Allianz Australia is our largest company by far in this region. Despite a difficult market, this company was able to increase premium income by 11 percent to an impressive 1.2 billion euros. At the same time, the company’s combined ratio improved by 3.6 percentage points to 104.2 percent.
In the course of the current fiscal year, we will continue to expand our presence in the Asia-Pacific region. We have started to market property insurance in the province of Canton in southern China. On the whole, we anticipate very satisfactory revenue growth.
Why did we found this company? We want to use centralized controls and uniform, mandatory underwriting guidelines to achieve sustainable profitability in this difficult business segment.
The claims ratio came to 100.8 percent. Claims in connection with the severe flooding in central and eastern Europe and reserves for potential risks from the year 2002 depressed this ratio. In addition, high reinsurance expenses had a negative effect on the first year of operation. At 77.9 percent, on the other hand, the gross claims ratio was significantly better.
The expense ratio, which also reflects the effects of significant one-time expense incurred to build up business, came to 41.7 percent.
Net investment income in the first year of operation was low, as was to be expected. Allianz Global Risks Rückversicherungs-AG recorded an after-tax loss in the amount of 257 million euros.
We plan to achieve dynamic growth in premium income for the current fiscal year, to some extent through higher rates, and expect to move into the profit zone.
_ With a 37 percent share of the world market, we are the world’s leading credit insurer.
HERMES is the Group company that handles credit insurance in Germany, Switzerland, Austria, Scandinavia, central and eastern Europe, Portugal and the Asia-Pacific region.
Premium income was down 0.6 percent to 1.6 billion euros. This was primarily due to the weak economy, which reduced the income of our clients worldwide. In addition, we took a more selective approach towards underwriting credit insurance risks than had previously been the case. We also severed business relationships with no prospects for profitability.
The abrupt drop of 9.8 percentage points in the expense ratio to 34.2 percent can be explained primarily through the introduction of consistent cost assignment in the context of the integration of EULER and HERMES. Our cost-reduction measures also contributed to this improvement.
Net investment income dropped 60 million euros to 56 million euros.
Bundling our activities gives us in-depth information and data that help us improve decision-making in the area of credit insurance. Provided the economy picks up, we expect this to provide the basis for a lower claims ratio in the current fiscal year. The expense ratio is also expected to continue to decline. The reason for this is that all synergistic effects from the merger of EULER and HERMES have not yet been taken advantage of, especially in the IT area. As a result, we expect an improvement in earnings for 2003 as a whole.
The claims ratio in the area of travel insurance decreased to 62.0 (64.4) percent. Due to more efficient workflows, the expense ratio also improved 0.9 percentage points to 32.5 percent.
Allianz Marine & Aviation handles activities in Germany, France and Great Britain that were previously managed separately. This company now includes Allianz Marine & Aviation Versicherungs-AG (formerly Allianz Globus MAT Versicherungs-AG) and Allianz Marine & Aviation (France), which was previously called AGF MAT.
_ Net investment income fell 13.1 percent to 7.4 billion euros.
_ Reported net income dropped to 19 (229) million euros despite considerable improvement in the operating activities.
Asia-Pacific Region 4,675 3,945 3,241 3) Excluding real estate held for own use as of 2001
In many countries, in particular in the U.S.A., Italy and France, premiums from investment-oriented products exceed the sale of traditional life insurance products. This is surprising because it is generally assumed that in times of economic difficulty consumers become more skeptical with respect to investment products. And, indeed, they are more cautious, but instead of rejecting investment -oriented products, they are showing a growing interest in solutions with guaranteed capital components.
Investment income, which was depressed by the extremely weak capital markets, dropped by 1.1 to 7.4 billion euros. For that reason, profit sharing was considerably lower than last year. Payments made to our customers declined from 22.0 billion euros to 21.3 billion euros despite the fact that in many countries higher payments were due for maturities, surrenders and pensions. Because of this development, lower investment income had less effect on net income.
Total statutory life and health insurance premiums increased 18.9 percent to 40.1 billion euros. Almost half of these premiums derived from investment-oriented products, mainly unit-linked life insurance. Despite the state of the capital markets, we were able to increase revenues from these products by 43.3 percent to 19.4 billion euros. We also improved our expense ratio, but investment income declined sharply to 7.4 billion euros, which in turn reduced net income to 19 (229) million euros.
Total premium income breaks down as follows: life insurance business accounted for 9.7 billion euros or 77.2 percent and the sale of health insurance products contributed 2.9 billion euros or 22.8 percent. Total segmental revenues increased 893 million euros or 7.7 percent to 12.6 billion euros.
Since January 1, 2002, certain retirement provision contracts have been subsidized by the government, partially through support payments and partially through tax deductions (“Riester contracts“). To a great extent, the growth expected of this market has not yet materialized. Nonetheless, our life insurers were able to capture their share of the market. As of year-end 2002, they had sold about 600,000 Riester contracts, which gave them a market share of 20 percent.
Our business in corporate retirement provision registered dynamic growth. In 2002, we were the first insurer to offer customers all available options for corporate retirement provision. The Allianz pension fund got off to a particularly successful start: more than 2,000 employers as customers and more than 150,000 individual contracts signal solid growth for the coming years. Some 10,000 employees signed a retirement provision general contract with us. One year after the reform of private and corporate retirement provision took effect, three-quarters of all DAX 30 companies were offering their employees an Allianz retirement provision scheme.
Given the persistent weakness of the capital markets, we decided to lower the profit participation of our life insurance customers for the year 2002 by 1.5 percentage points to 5.3 percent. This step did not affect our competitive position since all other market participants also had to do the same.
Our investments amounted to 107,9 (106,4) billion euros. Investment income fell 11.0 percent or 0.5 billion euros to 4.0 billion euros.
As the deficits of the statutory retirement insurance become increasingly obvious, consumers are realizing that they need to make private or company -based arrangements for old-age provisions. We therefore expect a further increase in premium income for the current fiscal year. Due to our inherent strength and our position of market leadership, we should be able to outperform the market. The business potential of corporate retirement provision products is especially strong.
Health insurance Premium income of Vereinte Krankenversicherung AG increased 6.5 percent to 2.9 billion euros. The growth in premium income from the core health insurance business resulted from new business, the legal premium supplement and premium adjustments reflecting higher health care costs.
Earnings after taxes ¤ mn 80.0 64.7 466.6 *) Merged with Allianz Lebensversicherungs-AG in 2002
This growth was mainly attributable to bank-based sales of unit-linked life insurance products. A strong contributor to this success was our bancassurance partner, the Unicredito group, which sold contracts representing 4.4 billion euros across its counters. Antoniana Veneta Popolare Vita, a fully consolidated joint venture of Lloyd Adriatico, once again boosted its revenues by 49 percent to 808 million euros.
The expense ratio increased to 31.3 (22.5) percent. This was mainly due to the strong performance of our companies in acquiring new business. In IFRS accounts, acquisition costs are fully recognized while premiums are barely taken into account. At the same time, efforts made by RAS to reposition its brand are feeding through to the expense ratio.
In addition, premium income from group business fell 26 percent because a major group contract with an industrial company had generated a non-recurring premium of 416 million euros (after 800 million euros in 2000) in 2001. No such contract was acquired in 2002. Disregarding this special effect, revenues from group insurance contracts rose 8 percent.
The decline in income from the entire segment raised the expense ratio 0.5 percentage points to 52.5 percent. This relatively high expense ratio can be explained by the fact that it is not calculated on the basis of total revenues but rather on the basis of substantially lower premium income according to IFRS.
Due to high write-offs and realized capital losses, investment income declined to 0.7 (1.3) billion euros.
Together with strong competition, this resulted in an after-tax loss, which amounted to 223 million euros after net income of 97 million euros in the previous year.
For the current fiscal year, we are anticipating a stagnating life insurance market. In health insurance, further rate adjustments and rising health care costs can to be expected. This should lead to a slight increase in revenues across the entire segment. More efficient IT systems and lower administrative costs will bring down the expense ratio.
_ That puts this company at sixth place in the Swiss market.
Investment income dropped to 31 (220) million euros, primarily due to write-offs and realized capital losses, mainly on stocks.
Our Swiss life insurer reported an after-tax loss of 80 (17) million euros for 2002. This is the result of the 4 percent interest rate for group life insurance, which is legally guaranteed in Switzerland. This rate has been excessive for years and cannot be generated under the conditions currently prevailing in the capital markets. By way of comparison, in 2002 the interest rate on Swiss bonds was around 2.75 percent.
The problem of excessive guaranteed interest continues to smolder despite the fact that the guaranteed interest rate in the group insurance business has been reduced to 3.25 percent. We intend to overcome these difficulties in the current fiscal year with a uniform and modernized product portfolio. All in all, we expect to improve our earnings performance in 2003, despite the difficult market situation.
For the current fiscal year, no stimulus for marketwide growth is expected. Forthcoming legal changes, which will provide tax incentives not only for pension plans and fund investment but also for traditional life insurance, are a welcome sign of relief. Our attractive products in this area and the new legal situation should help to reinvigorate this activity and bring new growth to an area that has been neglected by the entire market. We therefore expect to be able to report improved earnings performance in 2003.
R E S T O F E U R O P E
After taxes, we reported a loss of 77 million euros in other European markets, following earnings of 12 million euros in the preceding year.
In local currency, the increase came to 103.9 percent. The main contributor was the retirement insurance business, a traditional domain of Allianz Life. In this dynamic market, our companies achieved above-average growth rates. On the one hand, this was due to the swift expansion of our sales network. On the other hand, the current situation on the financial markets considerably strengthened demand for retirement insurance, where most capital is invested in fixed-income securities.
Financing of the substantial new business depressed income. After taxes, a loss of 18 (24) million euros was reported, which represents a slight improvement.
_ Total premium income from this region amounted to 2.3 billion euros.
We also expanded our sales organization in other Asian countries, particularly in China and India. At present, 9,000 representatives of our local joint venture sell our products on the Indian subcontinent.
Total revenues in the Asia-Pacific region grew 26.5 percent to 2.3 billion euros.
After taxes, the Asia-Pacific region reported a loss of 9 million euros, after 5 million a year earlier.
Effective as of January 14 of this year, we sold our 50 percent interest in Pioneer Allianz Life Assurance Company (PALAC) to our joint venture partner, Pioneer, who will from now on operate the company as sole owner. As a result, we have completely withdrawn from the Philippine insurance market, a market in which we have been active since 1997 but which today offers insufficient potential.
S O U T H A M E R I C A
The operating income from this segment, which is essentially determined by the business performance of Dresdner Bank, amounted to 7.6 billion euros und thus failed to meet our expectations. However, our efforts to reduce the administrative expenses of Dresdner Bank produced first results. At 7.1 billion euros, they were 12.3 percent or 985 million euros lower than in the previous year. We are well aware of the fact that this is insufficient to rid our banking business of its persistent ills.
The interest-earning business was determined by intensive competition over conditions, persistently low interest levels and the deconsolidation of Deutsche Hyp. Total net interest income amounted to 3.8 (2.4) billion euros. In August 2002, Deutsche Hyp was merged with Euro Hyp AG, a company in which Commerzbank, Deutsche Bank and Dresdner Bank have merged their mortgage lending subsidiaries.
Commission income suffered from the reluctant attitude of customers in the securities and issuing areas. Net commission income amounted to 2.7 (1.3) billion euros.
Earnings in the trading business were determined by two opposing trends: in the bond, currency and precious metal business, we generated positive results. Stock trading, however, produced a loss. Total trading income amounted to 1.1 (0.2) billion euros.
The downturn in the capital markets and a weak, in some countries crisis-prone economy, put a severe strain on our operating business. Loan loss allowances had to be substantially increased, which tangibly depressed earnings. These influences were so acute that the progress achieved in cost management did not yet produce the expected results.
Cost income ratio % 92 96 *) When comparing the figures for fiscal 2002 with those for 2001, it should be noted that Dresdner
Bank was consolidated as of July 23, 2001. Changes in the divisional structure and improvements in income classification have been taken into account in the prior-year figures stated.
Cost income ratio % 101 125 *) When comparing the figures for fiscal 2002 with those for 2001, it should be noted that Dresdner
Assets under management comprise both assets managed for third party investors and investments used to cover insurance provisions, equity capital and borrowed funds.
Allianz is one of the five leading asset managers in the world. Net inflow to assets under management for third-party investors reached 43 billion euros. Nonetheless, assets managed for third parties decreased by 59 billion euros or 9.5 percent to 561 billion euros. This was due to falling stock prices and the depreciation of the U.S. dollar against the euro. The operating result amounted to 495 million euros. After deduction of acquisition-related expenses as well as taxes and minority interests, the segment reported a loss as expected of 405 million euros.
Asset management for third party investors Following the acquisition of Dresdner Bank, we combined all operative asset management units in Allianz Dresdner Asset Management (ADAM). We now have production and distribution capacities in all essential markets, reaching 60 million private customers and institutional investors.
Approximately 70 percent of our third-party investments come from the U.S.A. and approximately 19 percent from Germany. As a result, we have a very strong position in both markets. In terms of total volume, institutional customers account for 72 percent. We are thus operating in a market environment with very high demands on the quality of our products and services. This constellation also benefits our private customers.
_ Its European equivalent, dit Euro Bond Total Return Fund “powered by PIMCO”, was able to attract 1.5 billion euros in net inflows between its launch in May 2002 and the end of the year. That makes it Germany´s best-selling fixed-interest fund. This performance was recognized by the “Financial News”, which honored PIMCO as the best European fixed-income fund manager.
Total assets under management 989 1,126 *) For the first time, this statement of Group investments also includes trading liabilities. In 2001, assets under management did not include trading liabilities amounting to – 45 billion euros.
Minority interests in earnings amounted to 230 million euros. PacLife, which still holds a 30 percent interest in PIMCO, accounts for 162 million euros of this amount.
After tax income in the amount of 59 million euros, the segment reported a loss of 405 million euros.
Investments The current value of Group investments was 403.0 billion euros on De-
Funds held by others under reinsurance contracts assumed 2.1 0.5 0.7
Real estate used by others was valued at 14.8 billion euros in fiscal 2002, and funds held by others under reinsurance contracts assumed amounted to 2.1 billion euros.
Investment income came to 16.6 billion euros in 2002, down 1.0 billion euros from the previous year. Current income increased from 17.1 billion euros to 17.8 billion euros. Realized profits and losses amounted to a total of 4.1
(2.3) billion euros, write-ups came to 0.8 (0.4) billion euros. Due to the weakness of the capital markets, write-downs on securities increased to 5.6 (1.5) billion euros. Additional write-downs, in particular on real estate used by third parties, came to 0.3 (0.7) billion euros. Income from trading activities including the income contribution of trading liabilities amounted to 1.5 (1.6) billion euros. Other expenses, in particular for investment management and interest on financial liabilities, came to 1.7 (1.6) billion euros.
Funds held by others under reinsurance contracts assumed 2.0 0.1 – –
Credit and counterparty risks These risks involve potential losses that may result from the default of a business partner. “Default” means the inability or refusal of a counterparty, an issuer or another contracting party to meet contractual obligations. Credit risk also includes the risk of a deterioration of a business partner’s creditworthiness. It thus includes: _ credit risks from the lending business and credit insurance
_ country risks in connection with cross-border transactions and the local business of foreign units.
In the banking business, the volatility risk especially concerns trading activities, which are shown in the institution’s trading portfolio. Unlike the latter, the non-trading portfolio, which contains customer business and strategic investments, is exposed to longterm factors. In this case, the market risk is essentially the interest rate risk resulting from granting long-term fixed-rate loans, which are funded in part by short-term deposits. In addition, loans and deposits in foreign currencies are exposed to currency risks.
Investment risks in the insurance business primarily include all counterparty and market risks. There is a direct link between investments and obligations to our customers. Certain insurance lines are exposed to an interest guarantee risk. Life insurance, for example, must generate the guaranteed interest payment agreed upon.
_ if refinancing capital can only be raised at higher rates (refinancing risk) in the case of a liquidity crisis or if assets can only be liquidated below current market prices (market liquidity risk).
Management of the Allianz Group through risk capital We control our activities through our respective local companies. Economic Value Added (EVA) and risk capital are the most important parameters used in the context of our risk-based controlling process.
Risk capital is required to cover unexpected losses. The amount of risk capital is calculated by using internal models. These models are based on generally accepted quantification methods, which are used for purposes of group-internal risk management as well.
_ investment risks, which include market and counterparty risks. The market risks are subdivided according to dividendbearing instruments, interest-bearing instruments and real estate. The credit and counterparty risk as part of investment risks is assessed on the basis of the debtor’s creditworthiness or rating class.
_ credit and counterparty risks in connection with receivables in the insurance business. This risk is mainly assessed on the basis of the financial strength or the rating class of our reinsurance partners.
In 2002, we launched a comprehensive project which substantially improved internal risk analysis in the insurance business. Our new tools enable us to systematically evaluate internal data by means of models based on the theory of probability. This process takes into account the special characteristics of our local units as well as the specific nature of their risks. It also takes into account portfolio effects. In the current year, we intend to further stabilize the results of this large-scale project. By 2004, we expect to be able to convert our value-oriented controlling to risk capital that was calculated with the help of this model. At present, we are using risk capital models provided by the Standard & Poor’s rating agency.
Risk management also includes participation in scientific and technical loss prevention. We regularly carry out technical studies for the manufacturing and automobile industries, for example. The sole purpose of these studies is to reduce the probability of claims and keep losses to a minimum.
Credit and counterparty risks To limit its liability from insurance business the Group cedes part of the risks it assumes to the international reinsurance market when necessary. When selecting our reinsurance partners, we consider only companies that offer excellent security. Our Group companies use comprehensive rating information for the active management of credit risks. This information is either in the public domain or gathered through internal investigations.
We limit credit risks by setting high requirements on the creditworthiness of our debtors and by spreading the risk. We consolidate our exposure according to debtors and across all investment categories, and we use limit lists to monitor exposure.
Risk capital At the end of fiscal 2002, risk capital before minority interests was composed as follows: In property and casualty insurance, 16.1 billion euros were allocated for actuarial risks, 0.8 billion euros for credit and counterparty risks and 3.9 billion euros for investment risks. Risk capital in life insurance came to a total of 11.1 billion euros as of December 31, 2002.
As a minimum, the capital we allocate to our local units meets the requirements for an A rating from Standard & Poor’s.
Market risks Dresdner Bank uses a proprietary value-at-risk model that takes into account all aspects of general and specific risks. Value-at-risk is defined as the potential loss which may occur during a specific period of time and with a given confidence level. In 1998, the German Federal Supervisory Authority for Financial Service Providers (BAFin) first approved Dresdner Bank’s value-at-risk model for purposes of reporting in accordance with Principle I of the German Banking Act. It also approved the improvements made in 2001 and 2002. The value-at-risk data used to calculate capital adequacy requirements for regulatory purposes must take into account potential market movements within a confidence level of 99 percent, based on an assumed holding period of 10 trading days.
Latin America Central and Eastern Europe Asia-Pacific Region Africa Near and Middle East
Market risks in the non-trading portfolio: this risk mainly comprises the risk of interest changes and is analyzed on the basis of sensitivity and value-at-risk indicators (99 percent confidence level, ten-day holding period). As in the case of trading, the bank controls this risk by setting value-at-risk limits. The value-at-risk for interest rate risk in the banking portfolio of Dresdner Bank Group decreased 67 percent to 31.9 million euros at the end of the year. This indicator also takes into account portfolio effects. The reduction is mainly due to the deconsolidation of Deutsche Hyp.
Legal risks result from contractual agreements or legal frameworks. They include risks from the adoption of new statutory regulations, disadvantageous amendments to existing legislation or regulations or prejudicial changes in their interpretation. Legal risks also take into account the possibility that contractual agreements may not be enforceable through legal action or court proceedings. The limitation of legal risks is an important task of the Group’s Legal Department. This is done, for example, by using internationally recognized standard documentation and, if necessary, by obtaining legal opinions. Contracts for established products are continuously reviewed to include any amendments required by changes in legislation or jurisdiction. In addition, the Group’s Legal Department assists Group companies in matters pertaining to business transactions and contractual negotiations to ensure compliance with minimum standards. It also supports the management and supervisory bodies of Allianz in meeting their statutory obligations.
Outlook At the beginning of 2003, we set up a Risk Committee for the Allianz Group. It is composed of members of the Board of Management of Allianz AG and chaired by our Chief Risk Officer. The purpose of this committee is to make early warning indicators from our risk analyses available to the entire Group even more quickly than has been the case in the past. This will establish closer ties between local responsibilities and central risk controlling.
Additional improvements will result from the closer implication of local risk management in the group-wide transfer of knowhow, another project for the current fiscal year. In this context, we will concentrate our efforts on Asset-Liabilities Management and Natural Catastrophes.
In their evaluation of capital resources, the rating agencies include equity shown in the balance sheet, minority interests and other items representing additional securities in times of crisis. At the end of the year, this total was slightly below the level that corresponds to our current ratings. But the evaluation of creditworthiness and the corresponding assignment of rating classes is not determined by this assessment alone. In addition to capital resources, the rating process also takes into account elements such as, mainly, the strategic position of the company in individual business areas and markets as well as its medium-term business prospects.
At December 31, 2002, we had 181,651 (179,946) employees in over 70 countries. The radical restructuring of Dresdner Bank necessitated massive job cuts. Nonetheless, the overall number of employees increased, mainly due to the new consolidation of the Slovakian insurer Slovenská poist’ovna at July 22, 2002. At the same time, we also substantially increased the number of field representatives in our German insurance network, which all but compensated the staff reductions at the bank. Approximately half of our employees work outside Germany. A detailed overview is provided by the table and the chart on the right.
International personnel marketing To further strengthen our position as a leading financial service provider we are constantly searching for highly qualified young professionals with management potential who, together with us, will take on this challenging task. In this process, we are looking at recent university graduates as well as junior managers with first professional experience.
Cross-border training programs While the Group coordinates and provides support, the individual Allianz companies know best which needs their qualifying programs must meet. In other words, no two programs are alike. The resulting diversity limits us to citing some particularly successful examples: one of them is the Allianz Development Program, which primarily addresses employees from central and eastern Europe. In China, Allianz Dazhong Life Insurance in cooperation with the Hanns-Seidel-Stiftung and the Shanghai Electronic Industrial School offers a two-year training program which equals the high standards of a German apprenticeship in the insurance industry. In France, the “pépinière” program of our subsidiary AGF is open to university graduates. And our U.S. company Fireman’s Fund operates a program for employees holding an MBA, which we support from Munich with international deployment opportunities.
Thank you! We would like to thank the employees and representatives of our Group companies for their dedication and loyalty in 2002, a year that demanded all their strength. Our thanks also go to the members of the employees’ representative bodies.
The possibility of a war in the Gulf region weighs heavily over the prospects for economic improvement in the year 2003. Even if the world economy should regain momentum in the second half of the year, only modest growth can be expected for the year as a whole. Since the risks remain considerable, the overall situation for financial services providers is not likely to improve.
Many question marks The world economy will get back on track only if consumers, companies and investors become more optimistic about the future. For that, the current uncertainties about the conflict with Iraq must be abated, and that will not happen before the second half of the year. Another prerequisite for the return of optimism and solid economic growth is confidence in capital markets, accounting practices and regulatory authorities – a healing process that takes time.
But there has also been a series of positive influences on the economic climate. The low fund rate and low interest rates on the capital markets as well as an expansive fiscal policy in the U.S.A. can be expected to support the forces of growth. In Europe, however, structural problems and household deficits hamper recovery. We expect the European economy to grow by close to 1.5 percent in 2003. Due to the weak domestic economy, the expansion in Germany will once again lag behind the European average, while growth in the U.S.A. is likely to reach 2 percent. The Japanese economy, which is supported by the economic upswing in Asia, will also expand slightly. Leading economic research institutes forecast similarly low growth rates. The job market situation remains difficult on both sides of the Atlantic, which severely limits the prospects for economic impetus from private consumption.
In Asia, financial services providers like Allianz are benefiting from a dynamic economy and liberalization of the Chinese and Indian financial services markets with their impressive potential for new business. On the other hand, prospects for growth in Latin America are rather dim. The economic situation in that part of the world can be expected to improve, but the effects of the preceding crisis will continue to be felt for some time in many countries and especially in problem-ridden Argentina. Against this backdrop, it will hardly be possible to achieve a significant increase in sales of asset management products and life insurance.
Cautionary Note Regarding Forward-Looking Statements: Certain of the statements contained herein may be statements of future expectations and other forward-looking statements that are based on management's current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. In addition to statements which are forward-looking by reason of context, the words ‘may, will, should, expects, plans, intends, anticipates, believes, estimates, predicts, potential, or continue’ and similar expressions identify forward-looking statements. Actual results, performance or events may differ materially from those in such statements due to, without limitation, (i) general economic conditions, including in particular economic conditions in the Allianz Group's core business and core markets, (ii) performance of financial markets, including emerging markets, (iii) the frequency and severity of insured loss events, (iv) mortality and morbidity levels and trends, (v) persistency levels, (vi) the extent of credit defaults (vii) interest rate levels, (viii) currency exchange rates including the Euro-U.S. Dollar exchange rate, (ix) changing levels of competition, (x) changes in laws and regulations, including monetary convergence and the European Monetary Union, (xi) changes in the policies of central banks and/or foreign governments, (xii) the impact of acquisitions, including related integration issues, (xiii) reorganization measures and (xiv) general competitive factors, in each case on a local, regional, national and/or global basis.
Governance Code according to § 161 AktG 93 3 Scope of Consolidation 94 4 Accounting and valuation policies
Supplementary Information on Group Assets 106 5 Intangible assets 107 6 Investments in affiliated enterprises, joint ventures, and associated enterprises 110 8 Loans and advances to banks and customers 112 9 Trading assets 112 10 Cash and cash equivalents 112 11 Amounts ceded to reinsurers from the insurance reserves 113 12 Other assets
Supplementary Information on Group Liabilities and Equity 114 13 Shareholders’ equity 116 14 Minority interests in shareholders’ equity/earnings 116 15 Participation certificates and subordinated liabilities 117 16 Insurance reserves 119 17 Liabilities to banks 120 18 Liabilities to customers 120 19 Certificated liabilities 121 20 Trading liabilities 121 21 Other accrued liabilities 123 22 Other liabilities 123 23 Deferred income
Supplementary Information on Insurance and Banking Business 132 38 Supplementary information on insurance business 132 39 Supplementary information on banking business 134 40 Use, treatment and reporting of derivative financial instruments 137 41 Fair value 138 42 Related party disclosures 140 43 Contingent liabilities and other commitments
Selected Participations and Equity Investments 145 Operating subsidiaries 148 Associated enterprises 149 Other selected holdings in listed companies 151 Independent Auditors’ Report 158 Glossary
A L L I A N Z G R O U P 83
D. Investments held on account and at risk of life insurance policyholders 25,657 24,692
I. Amounts ceded to reinsurers from insurance reserves 11 28,420 30,999
E. Insurance reserves for life insurance where the investment risk is carried by policyholders 25,687 24,726
1) Without aggregate policy reserves for life insurance products in accordance with SFAS 97 2) Without change in the reserves for latent premium refunds from unrealized investment gains and losses 3) Including trading liabilities 4) Without change in deferred tax assets/liabilities from unrealized investment gains and losses 5) Without change in revenue reserves from unrealized investment gains and losses
Change in funds held under reinsurance business ceded – 192 – 278
Change in loans and advances to banks and customers – 5,846 3,442
Change in investments held on account and at risk of life insurance policyholders – 2,154 – 1,465
Net cash flow provided by (used in) investing activities – 15,934 9,930
Dividend payouts – 682 – 673 Other from shareholders’ equity and minority interests5) 3,555 937
Consolidated Balance Sheet by Business Segments for the Year Ended December 31
C. Insurance reserves for life insurance where the investment risk is carried by policyholders – – 25,687 24,726
Consolidated Income Statement by Business Segments for the Year Ended December 31
¤ mn ¤ mn ¤ mn ¤ mn 3. Income (net) from investments in affiliated enterprises, joint ventures, and associated enterprises 8,494 889 445 525 6. Fee and commission income, and income from service activities 521 1,425 200 268 12. Acquisition costs and administrative expenses – 10,545 – 10,042 – 4,263 – 4,259 15. Earnings from ordinary activities before taxes 7,554 2,409 – 91 412
P R O P E R T Y / C A S U A LT Y * ) Premiums Net Net Net Investments earned (net) claims ratio expense ratio income
¤ mn ¤ mn % % % % ¤ mn ¤ mn ¤ mn ¤ mn 1. Europe 2. America *) Excluding Specialty lines
BANKING Total Loan loss Total Earnings revenues provisions expenses after taxes
In accordance with § 292 a of the German Commercial Code (HGB), the consolidated financial statements have been prepared in conformity with International Financial Reporting Standards (IFRS). All standards currently in force for the years under review have been adopted in the presentation of the consolidated financial statements.
Since 2002, the designation IFRS applies to the overall framework of all standards approved by the International Accounting Standards Board. Already approved standards continue to be cited as International Accounting Standards (IAS).
IFRS do not provide specific guidance concerning the reporting of insurance transactions in annual financial statements. In such cases as envisioned in the IFRS Framework, the provisions embodied under accounting principles generally accepted in the United States of America (U.S. GAAP) have been applied.
For reasons of comparability with the reporting year, some prior-year figures were adjusted in the balance sheet and the income statement through reclassifications that do not affect net income or shareholders’ equity.
2 Declaration of Compliance with the German Corporate Governance Code according to § 161 AktG
The Declaration of Compliance of the two publicly traded group companies Allianz Lebensversicherungs-AG und Oldenburgische Landesbank AG were issued on December 11 and December 17, 2002, respectively, and were made available to the shareholders.
198 (146) associated enterprises have been accounted for using the equity method.
Certain enterprises have not been included in the consolidation or accounted for using the equity method in cases where their value is not material to the presentation of the financial statements as a whole.
The effects of including Slovenská poist’ovna in the Consolidated Financial Statements are shown in the following table: In the course of the year, we also acquired the following additional ownership interests in already consolidated subsidiaries: _ On January 15, 2002, we increased our interest in Allianz Lebensversicherungs-AG, Stuttgart, by 40.5 % to 91.0 % (acquisition cost for additional shares: ¤2,586.6 mn). This transaction produced additional goodwill amounting to ¤633 mn.
Date of Net Goodwill2) Amortization first-time income of goodwill consolidation Principal acquisitions 2001 ¤ mn ¤ mn ¤ mn
Nicholas Applegate, San Diego 1/31/2001 – 29 1,042 – 47 1) Consolidated in the business segments 2) On the date of first-time consolidation
Principles of consolidation The consolidated financial statements include the annual financial statements of Allianz AG and all principal subsidiaries. All the financial statements included are uniformly prepared in conformity with IFRS accounting and valuation standards as of December 31, 2002. We have used interim financial statements for those entities whose fiscal year ends are other than December 31, 2002.
Intra-Group receivables and payables, income and expenses, and profits have been eliminated.
Use of estimates and assumptions The preparation of consolidated financial statements requires the Group to make estimates and assumptions that affect items reported in the consolidated balance sheet and income statement, and under contingent liabilities. The actual values may differ from those reported. The most important of such items are the reserve for loss and loss adjustment expenses, the aggregate policy reserves and the loan loss allowance. In addition, management makes certain assumptions in connection with the impairment reviews of investments, goodwill and deferred tax assets.
Other intangible assets include software purchased from third parties or developed internally and real property rights, which are amortized over their useful service lives or contractual terms. Software is amortized on a straight-line basis over a maximum of 5 years. This caption also includes the capitalized value of life/health insurance portfolios where enterprises have been acquired. The capitalized value is the present value of cash flows anticipated in the future from insurance policies written at the point in time of first-time consolidation.
Goodwill and other intangible assets are subject to an impairment review at least once a year. If there are indications that goodwill and other intangible assets are impaired, their recoverable amounts are determined. If the recoverable amounts of goodwill and other intangible assets are less than their carrying amount, an impairment charge is recognized.
Investments Investments include securities held to maturity, securities available for sale, real estate used by third parties, and funds held by others under reinsurance contracts assumed. Derivatives used for hedge transactions are included with the classification of the item hedged.
As of the closing date for each quarter and year end, the Group identifies on a group-basis all shares whose market values are other than temporarily below the group’s acquisition cost. Stock portfolios to be written down are determined on the basis of these data. This determination also takes into account developments after the closing date as well as the volatility and the intended holding period of the equity instrument.
In the event that the justification for write-downs in previous periods is no longer applicable, impairments are reversed through the income statement. The maximum amount up to which such write-ups may occur is the acquisition cost or armortized cost, as applicable.
Funds held by others under reinsurance contracts assumed are accounted for at face value.
Derivatives The Group’s insurance companies use derivative financial instruments in the course of their investment activities. In particular, they are used for the efficient management of price, interest rate and currency risks. In the Group’s banking business, derivatives are used both for trading purposes and to hedge against movements in interest rates, currency and other price risks of investments, loans, deposit liabilities and other interest sensitive assets and liabilities.
Loans and advances to banks and customers Loans and advances to banks and customers originated by the Group are generally carried at their outstanding unpaid principal balance net of the allowance for loan losses, deferred fees and costs on origination, and unamortized premiums or discounts. Interest revenues are accrued on the unpaid principal balance. Net deferred fees and premiums or discounts are recognized as interest income/interest expense over the lives of the related loans.
Impaired loans represent loans, for which, based upon current information and events, it is probable that the Group will not be able to collect all interest and principal amounts due in accordance with the contractual terms of the loan agreements. Impaired loans are generally placed on non-accrual status.
with the contractual terms, and future payments in accordance with those terms are reasonably assured based on management’s judgement. When there is a doubt, regarding the ultimate collectability of the principal of a loan placed on 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.
Allowance for loan losses The allowance for loan losses represents management’s estimate of probable losses that have occured in the loan portfolio and other lending-related commitments as of the date of the consolidated financial statements. The allowance for loan losses is reported as a reduction of assets and the provisions for contingent liabilities, such as guarantees, loan commitments and other obligations are carried as liabilities.
To allow management to determine the appropriate level of the allowance for loan losses, all significant counterparty relationships are periodically reviewed. Specific allowances are established for impaired loans. The amount of specific allowances is determined as the excess of the recorded investments in the loan, including accrued interest, over either the present value of the expected future cash flows, the fair value of the underlying collateral or the observable market price of the loan. The country risk allowance is for loan exposures in countries where there are serious doubts about the debtor’s abilities to comply with the repayment terms due to the economic or political situations prevailing in their respective countries of domicile, that is, for transfer and currency conversion risks. General loss allowances are established to provide for incurred but unidentified losses that are inherent to the loan portfolio. The amount of these allowances is determined based upon historical loss experience and management’s evaluation of the loan portfolio under current events and economic conditions.
Management believes that the specific and country risk allowances as well as allowances for incurred but unidentified losses are adequate to cover the credit risks identifiable at the balance sheet date.
Amounts determined to be uncollectible are charged to the allowance or written off directly against the loan balance. Subsequent recoveries, if any, are credited to the allowance. The provision for loan loss, which is charged to income, is the amount necessary to adjust the allowance to a level determined through the process described above.
Lease transactions Loans and advances to banks and customers include the Group’s gross investment in leases, less unearned finance income relating to lease financing transactions for which the 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 Group. Lease financing transactions include direct financing leases and leveraged leases. The unearned finance income is amortized over the period of the lease so as to produce a constant periodic rate of return on the net investment outstanding in respect of the finance lease.
Trading assets These consist of debt and equity securities, derivatives with positive market values, promissory note loans and precious metal holdings that have been acquired solely for sale in the near term. They are classified as “Held for trading” on account of their purpose and are reported at fair value. Changes in fair value are recognized directly in the income statement. Exchange-traded financial instruments are valued at the exchange prices prevailing on the last exchange trading day of the year. To determine the market values of unlisted financial instruments, quotations of similar instruments or acknowledged valuation models (in particular present value models or option pricing models) are used. Creditworthiness, settlement costs and market liquidity are also taken into account as integral components of the valuation process.
Other assets Other assets include real estate owned by Allianz and used for its own activities, equipment, inventories, accounts receivable on direct insurance business, accounts receivable on reinsurance business, and other receivables. This caption also includes deferred acquisition costs and prepaid expenses.
Receivables are recorded at face value less any payments made, net of appropriate valuation allowances. Deferred acquisition costs include commissions paid in the life/health and property/casualty business and other costs which vary with and are incurred in connection with the acquisition or renewal of insurance policies. Deferred acquisition costs are amortized to the extent that the underlying gross profits are realized or the corresponding premiums are earned.
Shareholders’ equity Treasury stock held by the Group are treated like unissued shares and are deducted from shareholders’ equity at average cost. Gains and losses arising from trading in treasury stock held by the company are added to revenue reserves after income tax has been deducted.
Insurance reserves These include unearned premiums, the aggregate policy reserves, reserves for loss and loss adjustment expenses, and other insurance reserves. Premiums written attributable to income of future years are accrued in unearned premiums. These premiums are distributed to the current fiscal year and subsequent years in relation to the exact risk coverage period. However, if there is no temporal proportionality between risk and premium, account must be taken of the varying development of risk over time.
Unearned premiums for reinsurance business assumed are generally based on the calculations of the cedant. Aggregate policy reserves, including the reserve for advancing age in health insurance, is calculated on actuarial principles using the present value of future benefits less the present value of premiums still to be received.
The calculation of aggregate policy reserves depends on the extent to which policyholders benefit from any surpluses earned on insurance policies. A distinction is drawn between the following situations: _ policyholders participate in surpluses in the same proportion as their policies have contributed to these surpluses. Policyholders do not participate in losses. This is referred to as the contribution principle.
_ policyholders carry not only the investment risk and corresponding opportunities for benefit, but also any losses (e. g. unitlinked insurance policies). The aggregate reserve for these policies is shown under a separate liability heading “Insurance reserves for life insurance where the investment risk is carried by policyholders”.
The calculation of aggregate policy reserves is done in compliance with various U.S. Financial Accounting Standards (FAS); in the first case above FAS 120, in the second and third cases FAS 60, and in the fourth and fifth cases FAS 97. The assumptions on which the calculation is based vary, particularly with regard to mortality, morbidity, interest rates and the treatment of acquisition costs.
Acquisition costs are deferred over the term of the policies in the same proportion as the surpluses in individual years contribute to the surplus on the portfolio concerned.
The reserve for loss and loss adjustment expenses is for future payment obligations under insurance claims, where normally the amount of benefits to be paid and/or the date when payments must be made are not yet fixed. The reserve for loss and loss adjustment expenses is calculated at the estimated amount considered necessary to settle future claims in full. It is calculated using recognized actuarial methods. Unusual cases are calculated on an individual basis. Past experience is taken into account as well as current and future anticipated social and economic factors. With the exception of annuity reserves, claims reserves are not discounted. The necessary estimates may mean that the payment obligations calculated may differ from the ultimate cost.
The reserve for loss and loss adjustment expenses includes: _ claims reported at the balance sheet date
There is, as of yet, no adequate statistical data available for some risk exposures in liability insurance, such as environmental and asbestos claims and large-scale individual claims, because some aspects of these types of claims are still evolving. Appropriate provision has been made for such cases following an analysis of the portfolio in which such risks occur.
Other insurance reserves include the reserve for premium refunds. This item includes experience-rated and other premium refunds in favor of policyholders.
The reserve for premium refunds includes the amounts allocated under the relevant local statutory or contractual regulations to the accounts of the policyholders and the amounts resulting from differences between these IFRS-based financial statements and the local financial statements (latent reserve for premium refunds), which will be reversed in the future and which affect future calculations of profit participation.
The profit participation credited to policyholders or paid out to them reduces the reserve. Any profit participation credited or paid out over and above the reserve is charged to operating expenses.
The methods and corresponding percentages for participation in profits by the policyholders are set out below for the most significant countries: The premium deficiency reserve is calculated individually for each insurance portfolio on the basis of estimates of future claims, costs, premiums earned and proportionate investment income. The reserve includes in particular the unearned premium sums to cover risks arising from natural catastrophes such as earthquakes and storms.
Reinsurance Reinsurance premiums ceded and reinsurance recoveries on benefits and claims incurred are deducted from the respective income and expense accounts. Assets and liabilities related to reinsurance ceded are reported on a gross basis. Prepaid reinsurance represents the ceded portion of unearned premiums. Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured risks. Accordingly, revenues and expenses related to reinsurance agreements are recognized consistently with the underlying risk of the business reinsured.
Liabilities to banks and customers, and certificated liabilities Interest-bearing liabilities are accounted for at their nominal value, i.e. at the amount to be repaid. Where liabilities are entered into subject to a discount, such discounts are reported as prepaid expenses and amortized over the life of the respective liabilities, using the effective yield method. Non-interest-bearing liabilities such as zero-coupon bonds are valued at their present value on initial recognition and written up in accordance with the effective yield method at the contracted interest rate. Costs relating to the issuance of debt securities, such as fees relating to placement, underwriting commitments, subscription, management or syndication are recognized in the year that they are incurred, and are reported in “Other expenses”.
Trading liabilities This item primarily includes derivatives with negative market values and obligations to deliver assets arising from short sales of securities, which are carried out in order to benefit from short-term price fluctuations. The securities required to close out short sales are obtained through securities borrowing or repurchase agreements. The valuation of trading liabilities is analogous to that of trading assets.
Deferred tax liabilities The calculation of deferred taxes is based on temporary differences between the carrying amounts of assets or liabilities in the published balance sheet and their tax basis, and on differences arising from the application of uniform valuation policies for consolidation purposes as well as consolidation in the income statement. The tax rates used for the calculation of deferred taxes are the local rates applicable in the countries concerned; changes to tax rates already adopted as of the balance sheet date are taken into account.
Life-insurance premiums from traditional life insurance policies are reported as earned when due. Reserves are established for benefits and expense.
Interest and similar income/expenses Interest income and interest expenses are recognized on an accrual basis. Interest income from lending business is recognized using the effective yield method. This item also includes dividends from available for sale equity securities and interest recognized on finance leases. Dividends are recognized in income when declared. Interest on finance leases is recognized in interest income over the term of the respective lease so that a constant yield based on the net investment is attained.
Trading income Trading income comprises all realized and unrealized gains and losses from trading assets and trading liabilities. In addition, commissions and all interest and all dividend income attributable to trading operations and related refinancing costs are included in trading income.
Net interest margin/Net fee and commission income These indicators are calculated for the banking business in the Group.
Trustee business Assets and liabilities held by the Group in its own name, but for the account of third parties, are not reported in the balance sheet. Fees received from such business are shown as “Fee and commission income” in the income statement.
Consolidated cash flow statement The consolidated statement of cash flows shows the structure of and changes in cash and cash equivalents of Allianz Group during the financial year from the cash flows arising from operating activities, investing activities and financing activities. The cash flows from investing activities primarily comprise changes in investment securities (such as securities available for sale or held to maturity). Financing activities include all cash flows from transactions involving the issuing of own shares, participation certificates and subordinated liabilities. Cash flows from operating activities contain all other activities, which belong to the principal revenue-generating activities.
Segment reporting Information on segments is reported separately in the Annual Report. Segment reporting has been prepared on the basis of the accounting regulations used to prepare the consolidated financial statements as a whole. The business segments of the Group are organized as a matrix based on products, divisions, and geographical regions. The business segments are structured as Property/Casualty, Life/Health, Banking and Asset Management.
Repurchase and reverse repurchase agreements A repurchase (“repo”) transaction involves the sale of securities by the Group to a counterparty, subject to the simultaneous agreement to repurchase these securities at a certain later date, at an agreed price. If control of the securities remains in the Group over the entire lifetime of the transactions, the securities concerned are retained in the Group’s balance sheet and are valued in accordance with the accounting principles for trading assets or investments. The proceeds of the sale are reported under “Liabilities to banks” or “Liabilities to customers”, as appropriate.
Asset securitizations The Group transfers financial assets to certain special purpose entities in revolving securitizations of commercial mortgage or other loan portfolios. The Group consolidates these special purpose entities as the Group continues to control the financial assets transferred and retains the servicing of such loans.
Equity remuneration plans (Long Term Incentive Plans) The Group has elected to account for its share awards (stock appreciation rights) under the intrinsic value-based method of accounting prescribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25) as permitted by SFAS 123, “Accounting for Stock-Based Compensation.” According to the intrinsic value-based method, the compensation expense results from the amount by which the share price at balance sheet date exceeds a reference amount set in advance in the plan awarded to the employee. Compensation expense is recorded over a period in which employees perform services to which the awards relate. An increase or decrease in market price of the underlying shares results in a corresponding change in compensation expense. Compensation expense is reversed in the period an award is forfeited.
Explanation of the accounting and valuation policies differing from German law The most important differences are summarized below.
Special funds Under IAS-SIC 12 all investment funds in which the Group has shareholdings in excess of 50.0 % are included within the scope of consolidation. Under the German Commercial Code (HGB) the units of special funds held are recognized in the balance sheet.
Shareholders’ equity Shareholders’ equity increases overall because: _ trading assets and large proportions of the investments are shown in the balance sheet at market value, and
Calculation of profit There are substantial differences between accounting treatment under IFRS rules and the German Commercial Law in the case of investments, trading activities and reserves. The following summary explains the most important aspects of IFRS which differ from HGB.
Claims reserves Claims reserves tend to be somewhat lower under IFRS because they are not calculated in accordance with the prudence concept but at the best estimate of the ultimate cost.
Goodwill Goodwill is amortized against income over its useful life under IFRS as follows: _ over 10 years for property and casualty insurance companies
S U P P L E M E N TA R Y I N F O R M AT I O N O N G R O U P A S S E T S
Major additions include: _ ¤138 mn from the acquisition of a 99.1 % interest in Slovenská poist’ovna a. s.,
The capitalized value of life/health insurance portfolios is amortized over the lives of the policies concerned as surpluses are realized or as premiums are earned. Scheduled amortization of the capitalized value is included under acquisition costs and administrative expenses.
Other intangible assets also include capitalized loyalty bonuses for senior management of the PIMCO Group, Delaware, amounting to ¤329 (574) mn that were recognized as assets in the annual statement 2000 in the amount of ¤713 mn and are amortized on a straight-line basis over five years. During 2001, assets of ¤659 mn were recognized for the value of the brand names “Dresdner Bank” and “dit” (Deutscher Investment-Trust) and these are amortized on a straight-line basis over 20 years. The purchase of additional shares of Dresdner Bank AG in 2002 increased the carrying amount of the brand names. After write-offs of ¤39 (15) mn in the fiscal year, the brand names are recognized at balance sheet date for an amount of ¤829 (644) mn.
Gross amount capitalized 12/31/2002 2,692 6 Investments in affiliated enterprises, joint ventures, and associated enterprises
Write-downs (impairments) on securities held to maturity totaled ¤31 (35) mn.
Real estate used by third parties The capitalized cost of buildings is calculated on the basis of acquisition cost and depreciated over a maximum of 50 years in accordance with the useful life. The gross capitalized values totaled ¤14,545 mn at the beginning of the year and ¤13,621 mn at the end of the year. Accumulated depreciation amounted to ¤2,541 mn at the beginning of the year and ¤2,874 mn at the end of the year. Assets pledged as security and other restrictions on title amount to ¤61 mn.
Changes in the total carrying value of real estate used by third parties during the year
Amortized cost Market values 12/31/2002 12/31/2001 12/31/2002 12/31/2001 ¤ mn ¤ mn ¤ mn ¤ mn
Due after 1 year and in less than 5 years 86,646 98,301 79,500 105,619
Loans and advances due within one year total ¤106,603 (109,693) mn, those due after more than one year total ¤88,040 (137,810) mn.
Loans and advances to customers include amounts receivable under finance leases at their net investment value totaling ¤1,104 (2,250) mn. The corresponding gross investment value of these leases amounts to ¤1,224 (2,393) mn, the associated unrealized finance income is ¤120 (241) mn. The residual values of the entire leasing portfolio were fully insured, both in the reporting year and in the preceding year. Lease payments received have been recognized as income in the amount of ¤141 mn. The allowance for uncollectable lease payments amounted to ¤4 (10) mn at the balance sheet date. The total amounts receivable under leasing arrangements include ¤122 (967) mn due within one year, ¤714 (881) mn due within one to five years, and ¤388 (545) mn due after more than five years.
Allowance for loan losses The overall volume of risk provisions includes allowances for loan losses deducted from loans and advances to banks and customers in the amount of ¤6,967 (8,064) mn and provisions for contingent liabilities included in other accrued liabilities in the amount of ¤633 (497) mn.
The effects of the deconsolidation of Deutsche Hyp Deutsche Hypothekenbank AG are shown in the line „Changes in the group of consolidated companies”.
The amount of interest collected and recorded on non-accrual loans was approximately ¤66 (45) mn. At December 31, 2002 the Group had ¤12,221 (13,986) mn of impaired loans. Impaired loans of which ¤10,742 (6,842) mn as of
Lending volume after loan loss allowance 146,776 197,320 *) Including bills of exchange amounting to ¤277 mn.
Balances with central banks include balances held with the Deutsche Bundesbank of ¤1,205 (4,922) mn, which also have the function of meeting minimum reserve requirements.
The accounts receivable on direct insurance business stated under other assets and accounts receivable on reinsurance business are due within one year. Other receivables stated under other assets due within one year amount to ¤4,881 (6,474) mn, those due after more than one year total ¤6,211 (8,139) mn.
Equipment and inventories Equipment and inventories are depreciated over 2 to 10 years according to their useful lives. The gross capitalized values totaled ¤6,453 mn at the beginning of the year and ¤6,658 mn at the end of the year. Accumulated depreciation amounted to ¤4,150 mn at the beginning of the year and ¤4,706 mn at the end of the year. Expenditures to restore the future economic benefits of the assets are capitalized if they extend the useful life of the asset, otherwise they are recognized as an expense.
At the balance sheet date, commitments outstanding to purchase items of equipment and inventories amounted to ¤22 mn. Depreciation is apportioned between the relevant cost headings in the income statement for insurance companies. Write-ups are credited to “Other income”.
Other receivables These include tax refunds amounting to ¤2,484 (3,310) mn, interest and rental receivables amounting to ¤3,496 (3,765) mn, and accounts receivable on banking and asset management business amounting to ¤327 (2,518) mn.
Value stated as of 12/31/2002 5,432 12/31/2002 12/31/2001 ¤ mn ¤ mn
Real estate used by Allianz for its own activities 5,432 5,097
Deferred acquisition costs In the case of property and casualty insurance enterprises, the amortization period is calculated for each insurance portfolio, based on the average term of the relevant policies, and varies between one and five years.
In life insurance business, deferred acquisition costs are expensed according to the categorization of the underlying life insurance products (see note 16). The change in deferred acquisition cost is presented in note 35.
S U P P L E M E N TA R Y I N F O R M AT I O N O N G R O U P L I A B I L I T I E S A N D E Q U I T Y
The issued capital at December 31, 2002 amounted to ¤682,408,000, divided into 266,565,625 registered shares. The shares have no par value but a mathematical value of ¤2.56 each as a proportion of the issued capital.
The company had conditionally authorized capital 2001 amounting to ¤50,000,000 (19,531,250 shares) on which subscription or conversion rights, with pre-emptive rights for shares, can be issued up to July 10, 2006.
The losses from these transactions in the amount of ¤– 23 mn were allocated to revenue reserves. The Annual General Meetings on July 11, 2001 authorized Allianz AG to acquire own shares for miscellaneous purposes pursuant to clause § 71 (1) no. 8 of the Corporation Law (Aktiengesetz). On the basis of this authorization, Allianz AG purchased 5,500,000 shares from Dresdner Bank at a price of ¤256,15 per share in February 2002.
(of which Dresdner Bank Group)*) (4,448) (17,302,311) (6.49) (5,554) (24,452,365) (9.18)
*) In addition, Dresdner Bank holds 1,168,702 own shares (0.4 % of the issued capital) from borrowing transactions at balance sheet date.
Other equity components 7,553 13,191 15 Participation certificates and subordinated liabilities
Participation certificates include ¤ 450 (450) mn in respect of those issued by Allianz AG. The balance of “Participation certificates ” represents the guaranteed total redemption price that Allianz AG has to pay upon redemption, by the holders of the 5,723,154 “profit participation certificates” issued by the company, which are still outstanding. The distributions payable on the profit participation certificates for the last fiscal year are included in “Other liabilities”.
Between October 1986 and 1995, Allianz AG issued a total of 5,559,983 profit participation certificates. The company issued an additional 163,529 profit participation certificates in March 1998. There were no further issuances of profit participation certificates in 1999 to 2002.
The company may call the profit participation certificates for redemption, upon six months’ prior notice, beginning December 31, 2006, and each year thereafter. Upon redemption by the company, the cash redemption price per certificate would be equal to 122.9 % of the then current price of one Allianz ordinary share. In lieu of redemption for cash, the company may offer 10 Allianz ordinary shares per eight profit participation certificates. Allianz AG has consistently stated at its Annual General Meeting that the company is not legally required to call the profit participation certificates for redemption on December 31, 2006 or at another date.
Details of the two largest participation certificate issues are provided below: Subordinated liabilities include ¤3,445 mn from subordinated liabilities, which Allianz Finance II B.V. issued in 2002 and which have been guaranteed by Allianz AG on a subordinated basis. The amount of ¤3,445 mn (taking into account the ¤33 mn discount) is composed of subordinated debt issued in May 2002 in the amount of ¤2,000 mn (due in 2022) as well as subordinated debt in the amounts of USD 500 mn (unlimited maturity) and ¤1,000 mn (due in 2025) issued in December 2002. The guarantee provided by Allianz for the redemption of these three subordinated debt issues is also subordinated, which means that in case of the insolvency or liquidation of Allianz AG, subordinated creditors will be paid back only after all claims by holders of non-subordinated debt have been settled. In the case of the USD 500 mn debt issue, there is an additional subordination of guarantee claims with respect to all other limited-maturity subordinated liabilities of Allianz AG.
In the event of bankruptcy proceedings or liquidation, the subordinated liabilities of Dresdner Bank Group may not be redeemed until all non-subordinated creditors have been satisfied. There is no obligation to redeem such liabilities prior to maturity.
The non-voting interests were issued for the first time in May 1999, in the amount of approximately ¤1.5 bn by Dresdner Bank. These non-voting interests include two issues of Dresdner Bank AG in 1999 in the nominal amount of ¤500 mn and USD 1,000 mn with interest rates of 5.79 % and 8.15 % respectively, which are due in 2011 and in 2031 respectively. Additionally Dresdner Bank AG issued two nonvoting interests in the nominal amount of ¤159 mn and JPY 15,000 mn in 2001, with interest rates of 7.00 % and 3.50 % respectively, which are due in 2013 and in 2033 respectively. Interest paid on non-voting interests amounted to ¤118 (128) mn for the year.
Fixed-rate subordinated liabilities of Dresdner Bank Group have coupons between 4.0 % and 8.4 %; in addition, there are variablerate issues linked to a reference interest rate and zero-coupon bonds. The average interest rate comes to 5.9 %. Interest paid on these subordinated liabilities amounted to ¤463 (473) mn in the reporting year.
Year of issue Nominal amount*) Issuer Inerest rate Maturity 1996 ¤511 mn Dresdner Bank AG 8.0 % 2007 1997 ¤767 mn Dresdner Bank AG 7.0 % 2008 *) Nominal amount minus amounts held by Dresdner Bank Group.
Subordinated liabilities 12,219 9,699 16 Insurance reserves 12/31/2002 12/31/2001 ¤ mn ¤ mn
The discount rate for such cases varies between 3.5 % and 6.5 %.
Our U.S. property and casualty subsidiary commissioned a new report in the light of the sharp increase in notifications of asbestos claims experienced in the U.S.A. in recent years. The results of the report presented to us in the third quarter of 2002 prompted us to more than double our asbestos and environmental (A&E) reserves by ¤767 mn to ¤1,225 mn. On September 30, 2002, our subsidiary FFIC ceded all net A&E Reserves to Allianz AG.
The reserve for premium refunds has changed as follows: In addition to the amounts allocated under a), amounts totaling ¤6,386 mn were directly credited to policyholders from the surplus.
¤ mn ¤ mn a) Amounts already allocated under local regulations As of January 1 10,088 10,583 Translation differences – 14 8 Changes in the group of consolidated companies 81 – Change – 3,024 – 503
As of December 31 7,131 10,088 b) Latent reserves As of January 1 11,501 17,555 Translation differences 4 2 Change due to fluctuations in market value – 928 – 3,120 Changes in the group of consolidated companies 233 – 66 Changes due to valuation differences charged or credited to income – 1,751 – 2,870
Liabilities to customers 147,266 177,323 12/31/2002 12/31/2001 ¤ mn ¤ mn
The negative market values of derivative financial instruments are shown on a net basis, i.e. taking into account existing netting agreements.
The Allianz Group maintains various defined benefit and defined contribution pension plans covering its employees worldwide. Allianz Group companies normally have pension plans covering their employees, and in Germany, their agents. In Germany, these plans are primarily based on fixed benefits (defined benefit pension plans), while in other countries there are both defined-benefit and defined-contribution pension plans.
The pension fund assets are invested mainly in equity securities, investment fund units, fixed income securities and registered bonds. The need to recognize actuarial gains or losses is reviewed using the corridor approach for each individual pension plan.
Miscellaneous accrued liabilities 5,579 6,010 12/31/2002 12/31/2001 ¤ mn ¤ mn
Funded status of the main defined benefit pension plans 12/31/2002 12/31/2001 ¤ mn ¤ mn
The reserve for defined benefit pension plans changed in the year under review as follows: The net periodic benefit cost (expenses minus income) include the following components: Most of the amounts expensed are charged to the income statement as acquisition and administrative expenses, and loss and loss adjustment expenses (claims settlement expenses). The actual losses from the pension funds amounted to ¤256 (198) mn.
The assumptions for actuarial computation of the obligations depend on the circumstances in the particular country where a plan has been established.
The actuarial assumptions for the main pension plans are as follows: The calculations are based on current actuarially determined mortality estimates. Projected fluctuations depending on age and length of service have also been used, as well as internal Group retirement projections.
Miscellaneous accrued liabilities Miscellaneous accrued liabilities primarily include reserves of ¤404 (478) mn for restructuring in connection with company mergers, reserves for the lending business in the amount ¤633 (497) mn and reserves for employee expenses amounting to ¤2,259 (3,039) mn.
Other liabilities include liabilities arising from tax charges on income totaling ¤1,099 (1,055) mn, interest and rental liabilities amounting to ¤178 (204) mn, social security liabilities of ¤229 (274) mn, derivative liabilities of ¤827 (868) mn, and unprocessed sales totaling ¤616 (876) mn.
This item includes miscellaneous deferred income positions amounting to ¤3,010 (5,283) mn.
In the case of life insurance products where the policyholder carries the investment risk (e.g. variable annuities), only those parts of the premiums used to cover the risks insured and costs involved are treated as premium income.
Associated enterpr ises account for ¤3,432 (1,388) mn of the income (net) from investments in affil iated enterprises, joint ventures, and associated companies.
Realized gains from investments in affiliated enterprises, joint ventures, and associated companies 4,381 1,319
Trading income includes contributions to earnings amounting to ¤412 (1,385) mn from derivative financial instruments used by insurance companies for which hedge accounting is not applied. These include gains on derivative financial instruments embedded in exchangeable bonds issued amounting to ¤387 (880) mn. Also included are gains totaling ¤25 (– 461) mn arising from the use of other derivative financial instruments by insurance companies.
Trading income amounting to ¤1,507 (1,592) mn includes income from trading activities of banking business*) totaling ¤1,081 (244) mn. This is comprised as follows: ¤ mn ¤ mn
Fee and commission expenses – 245 – 162 *) After eliminating intra-Group transactions between segments
Other income is comprised of the following items: ¤ mn ¤ mn
Other interest expenses – 2,638 – 2,730 33 Other expenses for investments
Acquisition costs and administrative expenses in the insurance business include the personnel and operating expenses of the insurance business allocated to the functional areas “Acquisition of insurance policies”, “Administration of insurance policies” and “Asset management ”. Other personnel and operating expenses are reported under insurance benefits (claims settlement expenses) and other expenses.
Expenses for management of investments – 510 – 484 – 553 – 457
Fee and commission expenses – 245 – 162 – 465 – 478
Total acquisition costs and administrative expenses – 7,562 – 3,405 – 2,182 – 1,721 *) After eliminating intra-Group transactions between segments
Other expenses are comprised of the following: ¤ mn ¤ mn
Expenses for the enterprise as a whole – 1,279 – 1,214
Deferred taxes are based on the temporary differences between the carrying amount of assets or liabilities in the balance sheet and their tax base, and on differences arising from uniform valuation and consolidation.
Unused tax losses carried forward at the balance sheet date of ¤18,322 mn have been recognized as deferred tax assets where there is sufficient certainty that the unused tax losses will be utilized. ¤10,376 mn of the tax losses carried forward can be utilized indefinitely.
Losses carried forward can be utilized subject to restrictions and are scheduled in subsequent years as follows: It remains to be seen if, when and how the tax reform plans of the Federal Government with respect to loss equalization and consolidated tax groups will be carried out. At present, it cannot be ruled out that this may necessitate considerable unscheduled write-downs on deferred tax assets.
– municipal trade tax and similar taxes – 138 – 276
Trading assets 1,826 388 Deferred acquisition costs 1,798 1,493 Other assets 738 – 101 Insurance reserves 1,610 1,593 Pensions and similar reserves 12 5 Deferred income 2,057 1,218
Volume of foreign currency exposure from banking business The amounts reported constitute aggregate euro equivalents of a wide variety of currencies outside the EMU. Any differences between the amounts of assets and liabilities result from differing valuation principles. Loans and advances and liabilities are reported at amortized cost, while all derivative transactions are accounted for at fair value.
(including real estate owned by Allianz and used for its own activities) (1,953) (1,872) (1,102) (1,058) (3,055) (2,930)
Investment management, interest charges and other investment expenses – 1,131 – 1,061 – 550 – 526 – 1,681 – 1,587 *) Investments in conformity with EU insurance accounting guideline and after eliminating intra-Group transactions between segments
The Dresdner Bank Group securitizes certain loan portfolios and sells them in the capital market. The transferred assets are securitized by special-purpose entities in the form of debt securities and sold to third parties. The Dresdner Bank Group carries out these transactions through the fully-consolidated special-purpose entities Silver Lux Inc., Grand Cayman and Silver Tower 125 Inc., Grand Cayman. The maximum transaction volume for each entity is ¤5 bn. At December 31, 2002, total utilization of both programs came to ¤5.16 bn.
Total collateralized liabilities 133,425 44,767 12/31/2002 12/31/2001 ¤ mn ¤ mn
Total Up to 3 months > 3 months > 1 year More than to 1 year to 5 years 5 years
A S S E T S Term loans and advances to banks 77,157 56,247 17,331 2,670 909
_ Loans and advances (after loan loss allowance) to banks and customers include reverse repos totaling ¤98,063 (82,945) mn. Liabilities to banks and customers include repo transactions amounting to ¤63,573 (59,946) mn.
_ At the balance-sheet date there were commitments to repurchase assets sold under repurchase agreements with a net book value of ¤61,068 (63,505) mn.
The use of derivatives by individual enterprises in the Allianz Group is in compliance with the relevant supervisory regulations and the Group’s own internal guidelines. In addition to local management supervision, comprehensive financial and risk management systems are in force across the Group. Further information on the risks hedged and the Group’s risk management systems is included in the Management Report under “Risk Management”.
Positive and negative market values are shown on a gross basis, i.e. not taking into account netting effects.
Notional principal amounts and market values of open derivative positions as of December 31
The main derivative financial instruments used are interest rate derivatives, in particular interest rate swaps that are primarily entered into in the course of trading activities.
Pursuant to IAS 39, derivative financial instruments are reported under financial assets or liabilities held-for-trading. Gains or losses arising from valuation at fair value are included under trading income.
This applies to free standing derivatives and for separated embedded derivatives of hybrid financial instruments that are not used for hedge transactions recognized in the balance sheet. In contrast, derivatives used in hedge transactions are in principle recognized in accordance with the classification of the hedged item.
The Allianz Group principally uses fair value hedging. Important hedging instruments are interest rate swaps. Hedging instruments may be implemented for individual transactions (micro hedge) or for a portfolio of similar assets or liabilities (portfolio hedge). The derivative financial instruments used for fair value hedges had a fair value of ¤33 (1,925) mn. Ineffectiveness in hedge transactions led to a loss of ¤10 mn (gain of ¤66 mn).
Hedge accounting may also be applied to hedge a net investment in a foreign entity. Financial instruments are used here to hedge the currency risk. The proportion of gains or losses arising from valuation of the hedging instrument, which is classified as an effective hedge, is recognized as shareholders’ equity, while the ineffective part flows directly into the income statement.
The fair value of derivatives is derived from the value of the underlying assets and other market parameters. Exchange-traded derivative financial instruments are valued based on publicly quoted market prices. Valuation models established in financial markets (such as present value models or option pricing models) are used to value OTC-traded derivatives. In addition to interest rate curves and volatilities, these models also take into account market and counterparty risks. Fair value represents the capital required to settle in full all the future rights and obligations arising from the financial contract.
Loans and advances to banks and customers The fair value of loans is calculated using the discounted cash flow method. This method uses the effective yield of similar debt instruments. Where there is doubt regarding the repayment of the loan, the anticipated cash flows are discounted using a reasonable discount rate and includes a charge for an element of uncertainty in cash flows.
The following table presents the carrying amount and estimated fair value of the Group’s financial instruments as of December 31: The tax treatment of the related unrealized gains and losses can have a significant effect on the fair value estimates and has not been considered in the estimates.
Loans and advances to banks and customers 274,906 276,263 300,967 302,201
Dresdner Bank After a successful takeover offer for the acquisition of Dresdner Bank shares in March 2001 und the conclusion of forward purchases on January 15 and 16, 2002 as well as some additional purchases, the Allianz Group in February, 2002, held 95.6 % of the shares of Dresdner Bank and announced its intention to purchase all shares of Dresdner Bank still in the possession of minority shareholders. The cash compensation for the transfer of these shares was established on the basis of an expert opinion by Ernst & Young and its adequacy was confirmed by a court-appointed auditor. On May 24, 2002, the Annual General Meeting of Dresdner Bank approved the squeeze-out of minority shareholders. On July 11, 2002, this decision was entered into the Register of Commerce. By squeezing out minority shareholders, Allianz AG acquired 15,982,988 shares of Dresdner Bank for which, based on a valuation of ¤51,50 per share, it paid a compensation of ¤823,123,882 to the departing minority shareholders. In accordance with German Company Law, some of the squeezed-out minority shareholders asked for a review of the adequacy of the cash compensation by the Regional Court (in a so-called Spruchstellenverfahren). The outcome of these proceedings remains uncertain at this time. Should the findings of these proceedings be to the detriment of Allianz AG, the ordered increase of the cash compensation will be applicable to the cash compensation of all former minority shareholders squeezed out by the decision of the General Meeting of May 24, 2002. On December 31, 2002, the Allianz Group held an ownership interest of 100 % in Dresdner Bank.
As a result, Dresdner Bank is no longer a related company of Allianz AG but a Group company. The Allianz Group and Dresdner Bank had a wide range of business relationships already prior to the acquisition of Dresdner Bank, for example in banking, distribution of insurance products and asset management. These transactions were concluded on ordinary market terms and conditions.
Material business relationships also exist with the following related parties: Münchener Rückversicherungs-Gesellschaft AG in Munich (Munich Re) Munich Re is an associated company of the Allianz Group. The relationship between Allianz AG and Munich Re is set forth in the so called Principles of Cooperation of May 2000, which mainly govern the reinsurance relationships between the two companies. Among other things, the Principles of Cooperation determine that Munich Re shall provide reinsurance for 14 % of the gross self-retention of the insurance business of the companies of Allianz’s German Property-Casualty Group via Allianz AG. Under the terms of the Principles of Cooperation, Munich Re is the principal reinsurer of Allianz AG and Allianz AG cedes the majority of its externally ceded reinsurance to Munich Re. Notwithstanding its right to freely chose its reinsurer, Allianz AG will give Munich Re the first opportunity to submit bids. The Principles of Cooperation were amended in December 2001 by a supplementary agreement, under the terms of which the mutually ceded reinsurance volume is to be adjusted on a step-by-step basis by 2008. The supplementary agreement is effective through December 31, 2010. Due to the merger of Vereinte Versicherung AG with Allianz Versicherungs-AG, the share of the reinsurance business of Allianz Sachgruppe Deutschland to be assumed by Munich Re was reduced from 14 % to 10.5 % in an agreement of August 2, 2002, effective retroactively as of January 1, 2002.
Other reinsurance and retrocession agreements with the individual companies of the Allianz Group govern which reinsurance business will be assumed by the Munich Re Group from, or ceded by the Munich Re Group to the Allianz Group.
The Allianz Group premiums that were ceded to or assumed from companies of the Munich Re Group are shown in the following table: The reinsurance agreements between the two Groups are governed by terms and conditions that could also be obtained by third parties.
Group held 22.4 % of the ordinary shares of Munich Re. This interest increased to 23.2 % by February 28, 2003. Munich Re informed us that on December 31, 2002, the Munich Re Group held 21,2 % of the ordinary shares outstanding of Allianz AG (as of December 31, 2002). Taking into account treasury shares held by Allianz Group companies on February 28, 2003, whose number was reduced after fulfilling the exchange offer for participation certificates, the registered ownership interest of the Munich Re Group in Allianz AG amounted to
In connection with the acquisition of Dresdner Bank, Allianz AG pledged to the Commission of the European Communities to limit its voting rights from ordinary shares of Munich Re to 20.5 % of the total ordinary share capital of Munich Re. In addition, Allianz AG agreed to reduce its long-term shareholding in Munich Re to 20.5 %. This commitment includes the ordinary shares of Munich Re held by Dresdner Bank. The commitment of Allianz AG to the European Commission does not affect ordinary shares of Munich Re that are acquired and held by the companies of the Allianz Group as part of their trading portfolio in the ordinary course of business and which do not have voting rights attached. The commitment also does not affect the exercise of voting rights on behalf of clients or voting rights attached to ordinary shares held in the ordinary course of business for the account of third parties.
The Principles of Cooperation between Munich Re and Allianz AG further provide that upon termination of the Principles of Cooperation, a mutual obligation of the parties will continue to exist for a period of two years, in accordance with which both Allianz AG and Munich Re, if they wish to sell their ownership interest they hold in the other, will grant the other a right to designate the buyer of the ownership interest being sold.
HypoVereinsbank AG On January 15, 2002, Allianz Group transferred a 16 % shareholding in HypoVereinsbank to Munich Re for a purchase price of ¤5,133 mn. On December 31, 2002, Allianz Group held 0.3 % of the ordinary shares of HypoVereinsbank. At the same date, HypoVereinsbank held 4.6 % of the ordinary shares of Allianz AG. Taking into account ordinary shares of Allianz AG held by Allianz Group companies, the ownership interest of HypoVereinsbank in Allianz AG on February 28, 2003, was 4.9 %.
Exercise of mandates in related enterprises On December 31, 2002, no member of the Board of Management or the Supervisory Board of Allianz AG still held any seat on the Board of Management or the Supervisory Board of Munich Re or HypoVereinsbank.
Transactions with related enterprises Transactions with the above-mentioned related enterprises are concluded at ordinary market terms.
Other related companies The Allianz Group has a number of additional associated companies in which the Allianz Group hold interests of between 10 % and 20 %. Companies of the Allianz Group have various types of business relations with the companies (particularly in the area of insurance, banking and asset management). These relations are subject to ordinary market conditions. In particular, the business relations with associated companies in the insurance business take on various forms and may also include special service, reinsurance, cost-sharing and asset management agreements whose terms Allianz Group deems to be approriate.
Terror risk insurance companies In the aftermath of the terrorist attacks of September 11, 2001, terror risk insurance companies were founded in Germany and Luxembourg to address the existing shortage of direct insurance and reinsurance coverage for major risks in the international markets. The shareholders of these companies are a number of direct insurers and reinsurers, including companies of the Allianz Group. Allianz Versicherungs-AG holds a 16 % interest in Deutsche EXTREMUS Versicherungs-AG (EXTREMUS), which was registered on October 22, 2002, and has an equity capital of ¤50 mn. Munich Re also holds a 16 % interest in EXTREMUS. On the basis of the ¤10 bn state guarantee granted by the Federal Republic of Germany, EXTREMUS is able to provide excess coverage of up to ¤13 bn for terror risks encountered in Germany. Allianz AG holds an 18.2 % interest in Special Risk Insurance and Reinsurance Luxembourg S. A. (SRIR), which was registered on April 4, 2002, and has an equity capital of ¤300 mn.
reimbursed to the Group later, note issuance facilities and revolving underwriting facilities which allow customers to issue money-market paper or medium-term notes when required without engaging in the normal underwriting process on each occasion. Revenue for guarantees is recognized under “Fee and commission income” and is determined by application of agreed rates on the nominal amount of the guarantees.
Liquiditäts-Konsortialbank GmbH (LIKO) is a bank founded in 1974 in order to provide funding for German banks which experience liquidity problems. The shares in LIKO are owned 30 % by Deutsche Bundesbank, with the rest of the shares being held by other German banks and banking associations. The shareholders have provided capital of ¤200 mn to fund LIKO; Dresdner Bank’s participation is ¤12.1 mn. The Dresdner Bank Group is contingently liable to pay in further assessments to LIKO up to ¤60.5 mn. In addition, under clause § 5 (4) of the Articles of Association of LIKO, Dresdner Bank is committed to a secondary liability which arises if other shareholders do not fulfill their commitments to pay their further assessment. In all cases of secondary liability, the financial status of the other shareholders involved is sound.
The liability arising from Dresdner Bank’s interest in Bankhaus Reuschel & Co. is unlimited due to the legal form in which this enterprise is organized. The financial status of the other partners involved is sound.
Contingent liabilities on endorsed bills of exchange settled with customers 1 1
_ if average income growth is below 10 %, no payments will be made.
Share purchase plans for employees Shares in Allianz AG are offered to qualified employees in Germany and abroad within predefined timeframes at favorable conditions. In order to be qualified, employees must have been employed in continuous service or had a position as an apprentice for a period of six months prior to the share offer and notice must not have been served. Share purchase plans also include restrictions relating to the amount that the employee can invest in purchasing shares. All participating enterprises in Germany and abroad impose restrictions on the disposal of shares, though the length of time varies from a minimum of one year to a maximum of five years, depending on the country involved. The shares are freely disposable after the expiration of the minimum holding period. The number of shares issued under these plans was 136,222 (361,235). The difference between the exercise price and market price of ¤4.6 (26.7) mn was reported as part of personnel expenses.
Under these plans, Stock Appreciation Rights (SARs) are allocated to each senior manager as of April 1. Restrictions are applicable for a period of two years and the rights expire at the end of seven years.
After the periods of restriction have come to an end, SARs may only be exercised if
Under the conditions of the LIP, Group companies are obligated to pay the difference between the stock-market price of Allianz shares on the day the rights are exercised and the reference price in cash.
Share option and shareholding plans of subsidiaries Managers at the AGF Group, Paris were offered share options on AGF shares. These options have an exercise price of at least 95.0 % of the market price on the day of grant. The maximum term for these options is eight years. On December 31, 2002, 4,786,786 (5,034,600) exercisable options remained outstanding under the AGF options plans. These options are independent of the remuneration plans of the Allianz Group.
Managers at the RAS Group, Milan have been offered share options on RAS shares during 2002. These options have an exercise price of ¤12.93 per share. The options can be exercised between August 1, 2003 and July 31, 2008. 793,000 options issued under this scheme were outstanding as of December 31, 2002.
RAS S. p. A., Milan, also offers shareholding plans for employees based on the RAS share, independently of the share purchase plan offered by Allianz. The shares issued under this scheme are subject to restrictions for 3 years in each case from the date of issue. The number of RAS shares issued under these plans that were still subject to restrictions stood at 1,162,346 shares as of December 31, 2002.
The weighted average number of shares does not include 23,658,308 (11,073,783) shares held by the company.
Compensation for the Board of Management and the Supervisory Board The compensation paid by Allianz AG and its affiliated enterprises to the Board of Management for the year under review is ¤17 (16) mn. As of November 1, 2002, the number of members of the Board of Management decreased from 12 to 11. For the first time, the amounts shown include the compensation of members of the Board of Management who also hold seats on the Board of Management of Dresdner Bank for a full-year period (in the previous years as of July 23, 2001).
Number of shares (not including shares held by the company) 242,977,214 241,189,535
¤29 (27) mn was set aside for current and future pension benefits of former members of the Board of Management and their beneficiaries.
The remuneration of members of the Supervisory Board, including fees becoming payable after the 2003 Annual Meeting of shareholders, will be ¤2 (2) mn.
Vereinte Spezial Versicherung AG, Munich 13 100.0 1) Including shares held by dependent subsidiaries
Allianz Cornhill Insurance PLC, London (until January 12, 2003: Cornhill Insurance PLC) 874 98.0 2)
Allianz Subalpina Società di Assicurazioni e Riassicurazioni S. p. A., Turin 186 97.9
1) Including shares held by dependent subsidiaries 2) Interest in the voting capital: 51.73 %
Other selected holdings Market value %2) Group equity Net profit Balance sheet in listed companies1) ¤ mn owned ¤ mn ¤ mn date
Banco Popular Espanol S. A., Madrid 842 9.9 3,1433) 5743) 12/31/2001
Heidelberger Druckmaschinen AG, Heidelberg 227 12.0 2,450 201 3/31/2002 mg technologies ag, Frankfurt/Main 146 12.8 1,984 137 9/30/2001
Total Fina Elf S. A., Paris 767 1.3 35,3973) 7,6583) 12/31/2001
Equity investments Interest of the Allianz Group held by asset management companies in the asset management companies
We have audited the consolidated financial statements, comprising the balance sheet, the income statement and the statements of changes in shareholders’ equity and cash flows as well as the notes to the financial statements prepared by Allianz Aktiengesellschaft, Munich, for the business year from January 1 to December 31, 2002. The preparation and the content of the consolidated financial statements in accordance with International Financial Reporting Standards (IFRS) are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
In our opinion, the consolidated financial statements give a true and fair view of the net assets, financial position, results of operations and cash flows of the Group for the business year in accordance with International Financial Reporting Standards ( IFRS).
D R . J Ü R G E N H A M B R E C H T Member of the Board of Management BASF AG
D R . J Ü R G E N F. K A M M E R Chairman of the Board of Management Süd-Chemie AG
D R . G E O R G O B E R M E I E R Former Chairman of the Board of Management RHI AG
D R . H . C . B E R N D P I S C H E T S R I E D E R Chairman of the Board of Management Volkswagen AG
D R . H . C . W A LT E R S C H E E L Former President of the Federal Repuplic of Germany
P R O F E S S O R D R . E K K E H A R D D . S C H U L Z Chairman of the Board of Management
D R . R O N S O M M E R Former Chairman of the Board of Management Deutsche Telekom AG
H A N S P E T E R S T I H L Former President, Association of German Chambers of Industry and Commerce
B E R N D W R E D E Former Chairman of the Board of Management Hapag-Lloyd AG
D R . U M B E R T O A G N E L L I
P R O F E S S O R D R . R U D O L F H I C K E L
U W E P L U C I N S K I
E.ON AG (Chairman), Ruhrgas AG (Chairman, until February 17, 2003), TUI AG,
Continental AG, Dresdner Bank AG, E.ON AG, KarstadtQuelle AG, Quelle AG,
Assurances Générales de France, Banco Popular Español, BPI Banco Português de Investimento, Crédit Lyonnais, EULER & HERMES
Membership of Supervisory Board members in other corporate management bodies *) We regard foreign memberships as “comparable”, if the foreign company is listed on a stock exchange or has more than 500 employees.
R E I N H O L D P O H L
R O S W I T H A S C H I E M A N N
(Chairman, since January 1, 2003), HVB Real Estate Bank AG (Chairman),
D R . M A N F R E D S C H N E I D E R
Bayer AG (Chairman), DaimlerChrysler AG, Linde AG, METRO AG, RWE AG, TUI AG
Axel Springer Verlag AG, Deutsche Börse AG (Deputy Chairman), Eurex Clearing
Membership in Group bodies Allianz Compañía de Seguros y Reaseguros S. A.
(Chairman), Allianz Investmentbank AG, Allianz Irish Life, Allianz Suisse Lebensversicherungs -AG, Allianz Suisse Versicherungs-AG, EULER & HERMES
Membership in Group bodies Allianz Australia Ltd., Allianz C. P. Life Insurance
General allowances for loan losses have been established, on the basis of historical loss data. Country risk allowances are established for transfer risks. Transfer risk is a reflection of the ability of a certain country to serve its external debt. These country risk allowances are based on an internal country rating system which incorporates economic data as well as other facts to categorize countries.
Associated enterprises All enterprises, other than affiliated enterprises or joint ventures, in which the Group has an interest of between 20 % and 50 %, regardless of whether a significant influence is actually exercised or not.
Current service cost Net expense in connection with a defined benefit pension obligation, less any contributions made by the beneficiary to the independent pension fund.
Defined benefit pension plans Under these retirement plans the enterprise promises the beneficiary a particular level of benefit. The contribution payable is based on the age of the beneficiary and depends on the level of benefit promised.
Equity method Investments in joint ventures and associated companies are accounted for by this method. They are valued at the Group’s proportionate share of the net assets (= shareholders’ equity) of the companies concerned. In the case of investments in companies which prepare consolidated financial statements of their own, the valuation is based on the sub-group’s consolidated net assets. The valuation is subsequently adjusted to reflect the proportionate share of changes in the company’s net assets, a proportionate share of the company’s net earnings for the year being added to the Group’s consolidated income.
Futures Standardized contracts for delivery on a future date, traded on an exchange. Normally, rather than actually delivering the underlying asset on that date, the difference between closing market value and the exercise price is paid.
Minority interests in shareholders’ equity Those parts of the equity of affiliated enterprises which are not owned by companies in the Group.
Pension and similar reserves Current and future post-employment benefits payable to current and former employees under company pension schemes, accrued as a liability.
Repurchase and reverse repurchase agreements A repurchase (“repo”) transaction involves the sale of securities by the Group to a counterparty, subject to the simultaneous agreement to repurchase these securities at a certain later date, at an agreed price. The securities concerned are retained in the Group’s balance sheet for the entire lifetime of the transaction, and are valued in accordance with the accounting principles for trading assets or investment securities, respectively. The proceeds of the sale are reported in liabilities to banks or to customers, as appropriate.
Subordinated assets Assets are recorded as subordinated assets if, in the case of liquidation or bankruptcy, the related claim cannot be realized before the claims of other creditors are realized.
Variable annuities The benefits payable under this type of life insurance depend primarily on the performance of the investments in a mutual fund. The policyholder shares equally in the profits or losses of the underlying investments.
Allianz Australia 49 Allianz Bonds 24-26 Allianz Companía de Seguros y
Compensation of management 10, 19, 21 Cornhill 45 Corporate citizenship 2 Corporate governance Corporate governance 2, 5, 8-11, 23 Corporate Responsibility Magazine “Two”
Cost income ratio 67 Credit insurance 51 Crédit Lyonnais 43 Croatia 47
E Earnings 35 Earnings per share 21 Economic Value Added (EVA) 18-19, 73 Economy, downturn of the 28, 34, 81
Employee stock purchase plan 80 EULER & HERMES S. A. 51, 52 Eurohypo AG 66 Eurovida 61-62 Euroweek 25 EXTREMUS Versicherungs-AG 4
F Factoring 51 Fenix Directo 46 Financial calendar 23 Financial News 68 Fireman’s Fund Insurance Company 42,
Market capitalization 20, 36 Minority interests in earnings 35 Mondial Assistance Group 4, 52 Moody’s 25
P Pakistan 64 Pension funds 4 Personnel marketing 79 Philippines 64
Ratings, Allianz 24-25, 78 Reinsurance business 42, 46 Responsibility, sense of 2
The report provides comprehensive information on all important topics of the last fiscal year. It is interesting to read and well presented.
_ I would additionally like to read more about the following subjects in the Annual Report 2003: We will be glad to keep you informed
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Market capitalization at year-end ¤bn 22.0 – 65.7 64.2 98.0 81.8 77.6 54.8 20
Photography: Cover: Marion Eiber, Allianz Zentrum für Technik Dr. Schulte-Noelle: Andreas Teichmann Dr. Liesen: Claus Uhlendorf IEC: Peter Ginter