Allianz Group’s insurance operations. We conduct our retail asset management business primarily under the brand name “Allianz
3) Our banking activities in France recorded � (0.3) million operating revenues in 2008.
Turbulence. We witnessed a financial and economic crisis of a severity and breadth not seen since the end of World War II. In my last shareholder letter, I told you that 2008 would be no less challenging than 2007. It was much worse than expected. To give you a grasp of the extent of the worldwide upheavals, here is a single global figure: Between January 1 and December 31, 2008,
creation of competitive market share in Germany for private banking institutions and the sharp swings in investment banking. I based this statement on the fact that the German banking market has been dominated by public institutions. You, as shareholders, agreed and demanded that
Unfortunately, this financial year has also left its mark on the share price of Allianz. This is clearly a great disappointment. I understand that you, as an owner, may find this unsatisfactory. Although our operating business remained solid, we were unable to avoid the effects of the trend on the stock market for financial service providers. The share price fell by 49.3 percent – about the same amount as at other financial institutions – to close the year at � 75.00. With our dividend proposal of � 1,586 million or � 3.50 per share we are endeavoring to take into account both our earnings performance and the need for an appropriate capital base as well as your justified interest in an attractive dividend.
In every Supervisory Board meeting throughout financial year 2008 (except the extraordinary meeting in August), the
Board of Management’s remuneration system, including the main elements of the contract, at the December meeting of the Supervisory Board and the adoption of resolutions regarding the remuneration system.
Good Corporate Governance and transparency are key elements for gaining the trust of our shareholders, business partners and employees.
Act (Aktiengesetz, AktG) as well as for the periodic review of the Company’s Corporate Governance. It submits proposals for examining the efficiency of the Supervisory Board’s activities to the Supervisory Board plenary session.
Personnel Committee’s duty to prepare such resolutions and reviews and to determine the details of the remuneration.
In compliance with special provisions applying to insurance companies (§ 341 k (2) of the German Commercial
� thou � thou � thou � thou � thou � thou � thou � thou � thou 2007 — — — — — — — — —
Interest is accrued on the contributions with a minimum guaranteed rate of 2.75 % per annum. Should the net annual return from the invested contribution exceed 2.75 % the full increase in value is credited to the members the same year.
§ 11 of the Statutes of Allianz SE. In line with § 113 of the
Supervisory Board Total remuneration (fixed, performance based and committee) (after cap)
1) Total calculated remuneration of � 287,350, which is capped at � 246,300 (for Chairman, the limit is three times the 2007 regular remuneration). 2) Total calculated remuneration of � 209,200, which is capped at � 164,200 (limit of two times the 2007 regular remuneration). 3) Total calculated remuneration of � 175,000, which is capped at � 150,000 (for Chairperson, the limit is three times the 2008 regular remuneration). 4) Total calculated remuneration of � 111,250, which is capped at � 100,000 (limit of two times the 2008 regular remuneration).
Please visit www.allianz.com/sustainability for more information on the topic of sustainability.
Detailed Index 40 Executive Summary and Outlook 40 2008 at a Glance 41 Allianz Group’s Consolidated Results of Operations 47 Impact of the Financial Markets Turbulence 48 Recently Adopted and Issued Accounting Pronouncements and
Income tax expenses were reduced to � 1,287 million due to lower taxable income as well as tax-exempted capital gains and dividends that were only partly offset by trade tax and similar taxes.
Net income (loss) from continuing operations 4,746 1,643 69 404 (179) (43) 6,640
Net income (loss) from discontinued operations, net of income taxes and minority interests in earnings — — 849 — — (468) 381 1) Total revenues comprise Property-Casualty segment‘s gross premiums written, Life/Health segment‘s statutory premiums, Banking segment‘s operating revenues and Asset Management segment‘s operating revenues.
With the sale of Dresdner Bank in January 2009, Allianz’s exposure to these structured products was largely transferred to
The unappropriated retained earnings result from the individual financial statements set up according to the German commercial code (HGB) of Allianz SE.
The financial markets will remain uncertain in 2009 because of heavy losses, particularly in the banking sector.
or � 480 million on an internal basis. In the face of continued pricing pressure, we observed declining revenues in many lines of business. We estimate the negative price effect on premiums written in 2008 to be 3.2 %. Excluding the contribution from crop insurance business, internal premiums were down by 5.2 %. A negative foreign currency translation effect also impacted growth by � 366 million.
Minority interests in earnings of � 112 mil lion showed a decline on the prior year following the minority buy-out at
Higher interest income on debt securities due to an increase in investment volume was offset by the decline in dividend income due to an equity reduction program. Our net outflows from equity investments amounted to � 5.0 billion in 2008.
A premium decline was also recorded in Asia-Pacific amounting to 15.3 % or � 711 million. In Taiwan, the market situation and new regulations with regards to unit-linked products suppressed growth. In South Korea, sales of equity -related products, especially single premium products, suffered. The long-lasting strike that only ended in September contributed to this development.
� 22 bn and � 22 bn as of December 31, 2008 and December 31, 2007, respectively) and Dresdner Bank (approximately � 9 bn and � 18 bn as of December 31, 2008 and December, 31 2007 respectively).
Net fee and commission income 2,812 3,060 2,874 2) The results of operations of our Asset Management segment are almost exclusively represented by AGI, accounting for 97.4 % (2007: 97.5 % , 2006: 98.2 %) of our total Asset Management segment’s operating revenues and 97.6 % (2007: 97.2 %, 2006: 98.9 %) of our total Asset Management segment’s operating profit for the year ended December 31, 2008. Accordingly, the discussion of our Asset Management segment’s results of operations relates solely to the operations of AGI.
2) Represents interest and similar income less interest expenses and investment expenses. 3) For the Asset Management segment, total revenues are measured based upon operating revenues. 4) The total of these items equals acquisition and administrative expenses (net) in the segment income statement included in Note 6 to the consolidated financial statements. 5) Represents operating expenses divided by operating revenues.
1) Following the announcement of the sale of Dresdner Bank to Commerzbank in the third quarter, 2008, Dresdner Bank qualified as held-for-sale and discontinued operations since the third quarter 2008. Therefore, Dresdner Bank’s financial results have been eliminated from our Banking operation’s results and are now presented as “Discontinued Operations of Dresdner Bank”. Please see Note 4 to the consolidated financial statements for further information. All numbers are stated on a consolidated basis.
Reserves for insurance and investment contracts 296,557 292,244 thereof attributable to the Life/Health segment � 287,932 mn (2007: � 283,139 mn) 4)
1) Loans and advances to banks and customers, held-to-maturity investments, and real estate held for investment are stated at amortized cost. Investments in associates and joint ventures are stated at either amortized cost or equity, depending upon, among other factors, our ownership percentage. For further information please refer to Note 2 to the consolidated financial statements.
3) Financial assets for unit-linked contracts represent assets owned by, and managed on the behalf of, policyholders of the Allianz Group, with all appreciation and depreciation in these assets accruing to the benefit of policyholders. As a result, the value of financial assets for unit-linked contracts in our balance sheet corresponds to the value of financial liabilities for unit-linked contracts.
Liabilities to banks and customers amounted to � 16.3 billion. Thereof, term deposits and certificates of deposit accounted for � 4.5 bil lion, liabilities payable on demand for
Bank was classified as a disposal group held-for-sale and discontinued operations. Following this classification, SPEs consolidated by Dresdner Bank (including a former SPE
Group has no control over the SPEs and, thus, has not to consolidate the SPEs were those according to the IFRS interpretation SIC-12. The conclusion not to consolidate certain
Asset Management segments, as well as from capital raising activities. Commercial paper, medium-term notes and other credit facilities serve as additional sources of liquidity. As of December 31, 2008, we had access to unused, committed and long-term credit lines as a source of further liquidity with different banks. As a financial services company, our working capital is largely representative of our liquidity. We believe our working capital is sufficient for our present requirements.1)
under adverse conditions defined by scenarios for each risk category. The required internal risk capital per risk category is defined as the difference between the value of the portfolio under the best estimate scenario and under the adverse scenario. Internal risk capital is determined on a quarterly basis and results per category are aggregated in a manner that takes into account the diversification effect across risk categories and regions.
Allianz Group strives to diversify the risks to which it is exposed in order to limit the impact of any single source of risk and to help ensure that the positive developments of some businesses operate in such a manner as to neutralize the possible negative developments of others.
Bank, to Commerzbank, our continuing banking operations in Germany, Italy, France and New Europe represent only an insignificant amount of approximately 1.3 % of total nondiversified internal risk capital. Therefore, risk management with respect to banking operations is not discussed below in detail.
Our ability to back-test the model’s accuracy is limited because of the high confidence level of 99.97 % and one-year holding period. Furthermore, as historical data is used to calibrate the model, it cannot be used for validation. Instead, we validate the model and parameters through external reviews by independent consulting firms focusing on methods for selecting parameters and control processes.
3) Represents the ratio of available funds to required capital. 4) As of December 31, 2008, our available funds for the solvency margin including discontinued operations, required for our insurance segments and our banking and asset management business, is � 39.5 billion including off-balance sheet reserves , surpassing the minimum legally stipulated level by � 9.9 billion. Conglomerate solvency is computed according to the adjusted FinanzkonglomerateSolvabilitäts -Verordnung (FkSolV) published by the German regulator, BaFin, which revised the treatment of unrealized gains and losses in the bond portfolio. As of December 31, 2007, reported under the old method, the solvency ratio was 157 % and available funds were � 45.5 billion.
– Default on local government debt or temporary suspension of payment obligations (“moratorium”), deterioration of economic or political conditions, expropriation of assets, inability to transfer assets abroad due to sovereign intervention, freezing of converted and unconverted sums of money, etc. (country risk including transfer and conversion risk).
Group Risk’s obligor credit risk management framework is comparable to those widely used in the industry and is based on internal ratings, estimates of exposure at default
We monitor and manage credit risks and concentrations within the portfolio based on a counterparty limit system that is applied across the entire Allianz Group. Counterparty limits are calculated taking into account the main risk drivers of credit risk and aim to cut off peak concentrations by industry and counterparty name in the portfolio. For monitoring the credit risk profile of our operating entities’
portfolios and the whole Allianz Group portfolio, credit reports for portfolio analysis are provided within a webbased limit system application.
Average, high and low allocated internal credit risk capital by source of risk (total portfolio before minority interests, after
The operating entities identify and evaluate relevant operational risks and control weaknesses via a structured self 1) 2008 figures exclude discontinued operations. On a total Group basis, internal business risk capital would amount to � 16,362 million on a non-diversified basis and � 5,635 million on a Group diversified basis, if discontinued operations were taken into account.
Management. We consider ourselves well-positioned to anticipate and successfully respond to competitive forces affecting our various operations.
The United States and Germany as well as France, Italy and the Asia-Pacific region represent our primary asset management markets.
The other divisions reflect business responsibilities, which are either regionally- or operationally-oriented: Europe I,
To create value, the capital used by a company must yield a higher return than a comparable alternative investment. In order to accomplish this objective and to measure our success, we apply the EVA® 1) (Economic Value Added) concept, adapted to our specific needs, across the Allianz Group.
EVA® is an all-encompassing tool for coordination and steering which connects our internal management approach with a capital market orientation. To compute the EVA® we take normalized profit minus capital charges, where capital charges are defined as our capital multiplied with our cost of capital.
Because EVA® is an important factor in managing our business, senior management compensation is based on this measurement to a significant extent.1) Our incentive-based management compensation system helps to make the continuous increase in the value of the Allianz Group a priority across our entire organization.
The objective of our Global Talent Management initiative is to systematically optimize global recruiting, development 1) For detailed information on the remuneration of the board of management and of the supervisory board see our remuneration report on pages 16 to 24.
To complement the leaders’ view with that of the workforce at large, we have conducted a centrally organized employee engagement survey in 24 business units, covering over 16,000 employees (respondents). These results largely mirrored the Leaders’ survey and demonstrate a high degree of commonly shared perceptions of our business situation and corporate culture.
(56 companies), covering almost 3,600 senior leaders and potentials. Local and regional career panels systematically assess the leadership and potential situation (quality, quantity, diversity etc.) in each location, and determine the proper development activities to be taken.
As an ambitious organization the motivation of our people plays a key role in the attainment of the challenges we set out to achieve. Everyone’s contribution is needed to help us achieve our goals, ensure we remain competitive, leverage our scale and scope and do all of that in a long-term sustainable way that also reflects our role in society.
Further information on regions, countries and operations is available at www.allianz.com.
We operate in the German insurance market mainly through our insurance companies Allianz Versicherungs-
Deutschland AG had a total of 19.3 million customers. The results of our German operations also include propertycasualty assumed reinsurance business, which is primarily attributable to Allianz SE.
While Allianz in the past had enjoyed robust growth, it suffered in 2008 primarily due to: – the heavy contraction of the bancassurance business channelled through Unicredit; – the decline of the Antonveneta premiums in connection with the new shareholding of the bank, now part of the
– the steep drop in unit and index-linked premiums due to the developments in the financial markets.
Sales in motor insurance, our largest line of business both in
We are present in all key life and health markets in this region and are the fourth-ranked life insurance provider, based on statutory premiums in 2007 1). New Europe represents the third biggest health portfolio within the Allianz
These services consisted primarily of advisory and consulting services related to accounting and financial reporting standards and financial due diligence services.
KPMG billed the Allianz Group an aggregate of � 3.3 million
General Meeting. In the case of an SE, the resolution amending the Statutes must be passed with a majority of at least two thirds of the votes cast, unless the laws and regulations in the SE’s country of domicile provide for or permit a greater majority (Article 59 (1) SE Regulation). Any member state may stipulate, however, that a simple majority of votes is sufficient, provided at least half of the share capital is represented (Article 59 (2) SE Regulation). German legislation has made use of this in § 51 sentence 1 SE Implementation
an ag em en t R ep or t order to issue the new shares to employees of Allianz SE
Corporation Act) also derivatives may be used provided that such derivatives do not exceed 5 % of the share capital at the time the resolution was passed.
Reconciliation of nominal total revenue growth to internal total revenue growth
Income Statements 220 26 Premiums earned (net) 221 27 Interest and similar income 222 28 Income from financial assets and liabilities carried at fair value through income (net) 223 29 Realized gains/losses (net) 224 30 Fee and commission income 224 31 Other income 225 32 Income and expenses from fully consolidated private equity investments 226 33 Claims and insurance benefits incurred (net) 227 34 Change in reserves for insurance and investment contracts (net) 228 35 Interest expenses 228 36 Loan loss provisions 228 37 Impairments of investments (net) 228 38 Investment expenses 229 39 Acquisition and administrative expenses (net) 230 40 Fee and commission expenses 230 41 Other expenses 231 42 Income taxes
Diluted earnings per share 50 (5.47) 17.71 16.78 from continuing operations 8.59 16.26 15.87 from discontinued operations (14.06) 1.45 0.91
Significant non-cash transactions: Settlement of exchangeable bonds issued by Allianz Finance II B.V. with shares: Available-for-sale investments (450) (812) (1,074)
Novation of quota share reinsurance agreement: Deferred acquisition costs 1 145 76 Payables from reinsurance contracts (28) (2,324) (1,035)
March 31, 2004, minority interests are recorded at the minority ’s proportion of the pre-acquisition carrying amounts of the identifiable assets and liabilities.
Due to the worldwide financial market crisis, some markets faced a significant shortage of liquidity, which affected the valuation techniques used by the Allianz Group to measure fair value. For certain financial instruments, the market has been completely illiquid and market prices were no longer available. In addition, the market prices of certain assetbacked securities (“ABS”)-based products declined significantly.
Financial assets for unit-linked contracts are recorded at fair value with changes in fair value recorded in net income together with the offsetting changes in fair value of the corresponding financial liabilities for unit-linked contracts.
Financial guarantee contracts issued by the Allianz Group are those contracts that require a payment to be made to reimburse the holder for a loss it incurs because the specified debtor fails to make a payment when due in accordance with the terms of a debt instrument. Financial guarantee contracts which are not accounted for as insurance contracts are recognized initially at fair value. Subsequently, unless the financial guarantee contract was designated at inception as at fair value through income, the issuer measures it at the higher of the best estimate of the expenditure required to settle the present obligation and the amount initially recognized less cumulative amortisation when appropriate.
Loan loss allowance is recognized for loans for which there is objective evidence of impairment as a result of one or more loss events that occurred after the initial recognition of the loan, and that loss event has an impact on the estimated future cash flows of the loan that can be reasonably estimated. If there is objective evidence that a loan is impaired, a loan loss allowance is recognized as the difference between the loan’s carrying amount and the present value of future cash flows, which includes all contractual interest and principal payments, discounted at the loan’s original effective interest rate. The loan loss allowance is reported as a reduction of loans and advances to banks and customers.
Investments – Available-for-sale investments Fair value Available-for-sale investments – Held-to-maturity investments Amortized cost Held-to-maturity investments
SFAS 97, amounts charged as consideration for origination of the contract (i.e. initiation or front-end fees) are reported as unearned premium. These fees are recognized using the same methodology as DAC amortization.
Investment advisory fees are recognized as the services are performed. Such fees are primarily based on percentages of the market value of the assets under management. Investment advisory fees receivable for private accounts consist primarily of accounts billed on a quarterly basis. Private accounts may also generate a fee based on investment performance, which is recognized at the end of the respective contract period if the prescribed performance hurdles have been achieved.
Distribution and servicing fees are recognized as the services are performed. Such fees are generally based on percentages of the market value of assets under management.
Amendments to IAS 39, Financial Instruments: Recognition and Measurement, and IFRS 7, Financial
– Transactions with non-controlling interests, i.e., changes in a parent’s ownership interest in a subsidiary that do not result in a loss of control, are accounted for as equity transactions.
IFRS 3 are not adjusted. The amendments to IAS 27 need to be applied retrospectively with certain exceptions. Earlier application is permitted under certain conditions. The
In January 2008, the IASB issued an amendment to IFRS 2,
to Commerzbank AG. Following the announcement of the sale, Dresdner Bank qualifies as disposal group held for sale and discontinued operation according to the requirements of IFRS 5, Non-current Assets Held for Sale and Discontinued
IFRIC 18 is effective for annual periods beginning on or after 1 July 2009 and applies prospectively. Limited retrospective application is permitted. IFRIC 18 is expected to have no material impact on Allianz Group’s consolidated financial statements.
The following table summarizes the impact that this reclassification has had on the previously reported financial statements: Segment Group
Group now holds 84.2 % and 89.0 % of shares, respectively.
Loan loss provisions (13) 3 (1) Operating impairments of investments (net) 5) (5,747) (824) (390)
7) Represents acquisition and administrative expenses (net) divided by statutory premiums (net).
Total unrealized losses amounted to � 1,418 mn as of December 31, 2008. The unrealized loss positions primarily stem from issues in the US-American security market, which are mostly held be Allianz Group’s North American entities.
The brand name “Dresdner Bank” is reclassified to held for sale and is separately tested for impairment according to
Notes to the Consolidated Financial Statements Allianz Group Annual Report 2008 18 Unearned premiums
Reserves for loss and loss adjustment expenses (net) 44,683 45,480 49,655 49,331 48,677 47,796
Reserves for loss and loss adjustment expenses (ceded) 12,067 10,049 10,604 9,333 8,266 7,820 Reserves for loss and loss adjustment expenses (gross) 56,750 55,529 60,259 58,664 56,943 55,616 Paid (cumulative) as of
Traditional participating insurance contracts (SFAS 120) 129,859 127,502 Long-duration insurance contracts (SFAS 60) 46,943 46,337 Universal life-type insurance contracts (SFAS 97) 101,059 89,840 Non unit-linked investment contracts 839 564
Notes to the Consolidated Financial Statements Allianz Group Annual Report 2008 24 Participation certificates and subordinated liabilities
Contractual interest rate — — — — — 5.34 % — —
Contractual interest rate — — — — — 6.43 % — —
The Allianz Group’s capital requirements are primarily dependent on our growth and the type of business that it underwrites, as well as the industry and geographic locations in which it operates. In addition, the allocation of the
Notes to the Consolidated Financial Statements Allianz Group Annual Report 2008 30 Fee and commission income
General and administrative expenses (218) (106) — — (324) Other operating expenses — — — — —
(2007: � 6,618 mn) of the tax losses carried forward can be utilized without time limitation. The Allianz Group believes that it is more likely than not that the results of future operations will generate sufficient taxable income to realize its deferred tax assets.
As of December 31, 2008, the Allianz Group hedges part of its USD net investments through the issuance of USD denominated liabilities with a nominal amount of 2.4 bn USD.
(Level I). If quoted prices for an identical instrument in active markets are not available, the fair value is determined using valuation-techniques based on observable market data (Level II). Otherwise valuation-techniques are used, for which any significant input is not based on observable market data (Level III).
New Jersey in connection with allegations relating to contingent commissions in the insurance industry. No class has been certified for this class action. The court dismissed with prejudice the federal court causes of action and dismissed without prejudice the state law causes of action. The plaintiffs have appealed the ruling. Unless the Court of
The Allianz Group occupies property in many locations under various long-term operating leases and has entered into various operating leases covering the long-term use of data processing equipment and other office equipment.
mandatory insurance scheme mentioned above, the aggregate outstanding commitment of Allianz Lebensversicherungs -Aktiengesellschaft and its subsidiaries to the insurance guarantee scheme and to Protektor was � 877 mn
Loans and advances to banks and customers — 1,663 Financial assets carried at fair value through income — 4,302
The defined benefit plans’ weighted average asset allocations by asset category are as follows: As of December 31, 2008 2007
The Allianz Group plans to gradually increase on the long term its actual equity securities allocation for plan assets of defined benefit plans.
The following table provides the assumptions used in estimating the fair value of the SARs at grant date: Expected life (years) 7 7 7
The RSUs are accounted for as cash settled plans as the
Basic earnings per share are calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the period.
◽ Allianz Argentina Compania de Seguros Generales S.A., Buenos Aires 19 100.0 Australia
◽ Allianz Global Investors Taiwan Ltd., Taipei 29 100.0 ◽ Allianz Taiwan Life Insurance Co. Ltd., Taipei 21 99.7 Turkey
Oddo, Paris 285 20.0 Allianz-dit Euro Bond Total Return Fonds, Senningerberg 254 49.9 Cofitem Cofimur, Paris 253 22.1 AGF Peh Eur. IV FCPR, Paris 191 43.5 Citylife Srl., Milano 191 26.7 PHRV (Paris Hotels Roissy Vaugirard), Paris 181 30.6 Henderson UK Outlet Mall Partnership LP., Edinburgh 174 19.5 3)
IFRS and give a true and fair view of the net assets, financial position and results of operations of the Group in accordance with these requirements. The group management report is consistent with the consolidated financial statements and as a whole provides a suitable view of the
A business combination is the bringing together of separate entities or businesses into one reporting entity.
An enterprise which is managed jointly by an enterprise in the Group and one or more enterprises not included in the consolidation. The extent of joint management control is more than the significant influence exercised over associated enterprises and less than the control exercised over affiliated enterprises.
Premiums written represent all premium revenues in the year under review. Premiums earned represent that part of the premiums written used to provide insurance coverage in that year. In the case of life insurance products where the policyholder carries the investment risk (e.g. variable annuities ), only that part of the premiums used to cover the risk insured and costs involved is treated as premium income.
Liabilities which, in the event of liquidation or bankruptcy, are not settled until after all other liabilities.