Photo Story Allianz SE – Group Management Reporting and Allianz Center for Corporate History
◾ net income of € 2,804 mn heavily impacted by financial market turmoil.
t o o u r i n v e s t o r s6 i. supervisory Board report ladies and gentlemen,
in the executive session of its meeting on March 16, 2011, the supervisory Board adopted a resolution to extend the appointment of Mr. Diekmann to the Board of Management until December 31, 2014. the mandate of Mr. Cucchiani was extended to December 31, 2012, in view of his reaching the age of 61. Afterwards, we reviewed the extent to which individual members of the Board of Management had achieved their targets, and set their variable remuneration accordingly. During the rest of the meeting, we dealt primarily with the annual Allianz se and consolidated financial statements and the Board of Management’s recommendation for the appropriation of profits for the 2010 fiscal year. the commissioned audit firm, KpMg, reported on the results of their audit procedures. the supervisory Board approved the profit transfer agreement between Allianz se and Allianz global investors Ag and the spin-off and transfer agreement between Allianz se and Allianz Deutschland Ag based on the written and verbal explanations from the Board of Management. in addition, it dealt with the agenda for the 2011 Annual general Meeting of Allianz se and approved the supervisory Board’s proposals to be submitted to it for resolution. A written and verbal report provided by the Board of Management also gave us a detailed picture of the developments and perspectives for the asset management firm piMCo.
C h A i r A n D C o M M i t t e e s o F t h e s u p e r v i s o r y B o A r D | as of D e cemb er 31, 2011
J e A n -J ACq u e s C e t t e secretary of the group Works Council, Allianz France s.A.
Corporate governance report good corporate governance is essential for sustainable business performance. this is why existing corporate governance structures need to be constantly reviewed and, whenever necessary, developed further. the Board of Management and the Supervisory Board both discussed in detail the conformity with the german Corporate governance Code (Code). Allianz Se complies with all recommendations and suggestions with one exception respectively. the Declaration of Conformity issued by the Board of Management and Supervisory Board on December 14, 2011 and the company’s position regarding the Code’s suggestions can be found in the Statement on Corporate Management starting on page 30.
the members of the Board of Management are jointly responsible for overall management. notwithstanding the overall responsibility of all members of the Board of Management, the individual members of the Board head the departments they have been assigned independently and on their own responsibility. there are divisional responsibilities for business segments as well as functional responsibilities. the functions include the Chairman’s division, finance and investment, operations, risk Management, human resources as well as legal and Compliance. Business division responsibilities focus on geographic regions or operating segments, such as Asset Management. rules of procedure specify in more detail the work of the Board of Management. Such rules provide for the specific responsibilities of board members, matters reserved for the whole Board and other procedures necessary to pass resolutions.
S t A n D i n g C o M M i t t e e | 5 members ◾ C h A i r : Chair of the Supervisory Board (Dr. henning Schulte-noelle) ◾ t W o ot h e r S h A r e h o l D e r r e p r e S e n tAt i v e S
◾ t W o e M p loy e e r e p r e S e n tAt i v e S (Jean-Jacques Cette, Jörg reinbrecht)
◼ S u p e r v i S o r y B o A r D t A r g e t S r e g A r D i n g i t S C o M p o S i t i o n in order to implement a recommendation by the Code, the Supervisory Board specified the following objectives for its composition at its meeting on December 15, 2010: “the aim of Allianz Se’s Supervisory Board is to have members who are equipped with the necessary skills and competence to properly supervise and advise Allianz Se’s management. Supervisory Board candidates should possess the professional expertise and experience, integrity, motivation and commitment, independence and personality required to successfully carry out the responsibilities of a Supervisory Board member in a financial-services institution with international operations. to promote additional cooperation among the Supervisory Board members, care should be taken in selecting the candidates to ensure that adequate attention is paid to ensuring diversity in occupational backgrounds, professional expertise and experience.
the total holdings of members of the Board of Management and the Supervisory Board of Allianz Se amounted to less than 1 % of the Company’s issued shares as of December 31, 2011.
Controls and procedures furthermore, we comply with all the non-binding suggestions contained in the Code, with one exception. Since changing the remuneration system for the Supervisory Board to a solely fixed remuneration, Allianz Se cannot comply with no. 5.4.6 para. 2 sentence 2 of the Code, according to which a performance-related remuneration of Supervisory Board members should also comprise components linked to the long-term performance of the company.
in addition to the Code of Conduct, Allianz Se has adopted a special Code of ethics, which is aimed at members of the Board of Management and senior management of certain departments, primarily in the financial area. its rules govern ethical and proper conduct in both the private and professional spheres, particularly relating to the handling of conflicts of interest and compliance with high standards of corporate disclosure. the Code of ethics can be found on our website at W W W . A L L I A N Z . C O M / C O r p O r A t E - g O v E r N A N C E .
the members of the Board of management of allianz Se are appointed by the Supervisory Board for a maximum term of five years (article 9 (1), article 39 (2) and article 46 Se regulation, §§ 84, 85 German Stock Corporation act, § 5 (3) of the Statutes). reappointments, in each case for a maximum of five years, are permitted. a simple majority of the votes cast in the Supervisory Board is required to appoint members of the Board of management. in the case of a tie vote, the Chairperson of the Supervisory Board, who pursuant to article 42 sentence 2 Se regulation must be a shareholder representative, shall have the casting vote (§ 8 (3) of the Statutes). if the Chairperson does not participate in the vote, the deputy Chairperson shall have the casting vote, provided that the deputy Chairperson is a shareholder representative. a deputy Chairperson who is an employee representative has no casting vote (§ 8 (3) of the Statutes). if a required member of the Board of management is missing, in urgent cases the courts must appoint such member upon the application of an interested party (§ 85 of the German Stock Corporation act). members of the Board of management may be dismissed by the Super visory Board if there is an important reason (§ 84 (3) German Stock Corporation act).
Total remuneration | in € thou approximate split | in %
members of the Board of management also receive certain perquisites. These mainly consist of contributions to accident and liability insurances and the provision of a company car. Where applicable, there are expenses for maintenance of two households and in some cases security measures are provided. perquisites are not linked to performance. each member of the Board of management is responsible for the income tax on these perquisites. The Supervisory Board reviews the level of perquisites at regular intervals.
Board members number of rSu granted on 3/8/2012 3 number of rSu held at 12/31/2011 number of Sar held at 12/31/2011
Board of management contracts are set for a maximum period of five years. The term of contract is reduced accordingly if a Board member reaches 60 before then. in compliance with the German Corporate Governance Code, for new appointments the maximum service period of five years is not the rule.
3 | The relevant share price used to determine the final number of rSu granted is only available after sign-off by the external auditors, thus numbers are based on a best estimate. 4 | Sar are released to plan participants upon expiry of the vesting period, assuming all other exercise hurdles are met. For Sar granted until and including 2008, the vesting period was two years. For Sar granted from 2009, the vesting period is four years. Sar can be exercised on condition that the price of allianz Se stock is at least 20 % above their strike price at time they are granted. additionally, the price of the allianz Se stock must have exceeded the dow Jones euro SToxx price index (600) over a period of five consecutive trading days at least once during the plan period.
C o r p o r a T e G o v e r n a n C e5 0 may include profit sharing, co-investment and other cash-based incentive plans. These businesses use appropriate risk control measures. oversight is performed by their respective Compensation Committees.
Co rp or at e Go ve rn an ce remuneration of the Supervisory Board
55 Content 56 Your allianz 85 Management Discussion and analysis 149 risk report and Financial Control 1956: allianz developed a special “air passenger accident insurance” for 3 million airline passengers in Germany. 2011: over 2.5 billion air passengers around the world can choose their own individual accident insurance cover with allianz.
Allianz serves the Spanish market through its operating entities Allianz Compañía de Seguros y reaseguros S.A. (p r o p E r T y - C A S u A L T y and L I F E ), fénix directo S.A. (p r o p E r T y - C A S u A L T y ) and our joint venture with Banco popular (“Allianz popular”). our portuguese company is Allianz Companhia de Seguros.
We serve the u.K. market primarily through our subsidiary Allianz insurance plc. We offer a broad range of p r o p E r T y -
in Asia we maintain p r o p E r T y - C A S u A L T y operations in Brunei, China, Hong Kong, india, indonesia, Japan, laos, malaysia, Singapore, Sri lanka and thailand. the majority of our L I F E / h E A L T h business in this region is written in South Korea through Allianz life insurance Co. ltd (Allianz life Korea) and in taiwan through Allianz taiwan life insurance Company (Allianz life taiwan). in recent years, our South Korean operation has developed a leading position in equityindexed products. Allianz taiwan life is the leading provider of unit-linked insurance products in taiwan, a position we have attained by concentrating on product innovations and customer service. We also operate life/Health business in China, india, indonesia, malaysia and thailand.
2011 was a turbulent year, not just for us but for the whole insurance sector. after 2008, the world was hit by yet another financial crisis, and this time the epicenter has been in our core continent: the european sovereign debt crisis required impairments on financial assets and increased economic uncertainty and volatility. We also saw a further decline in global interest rates. Moreover, natural catastrophes and subsequent claims were above expected levels and the regulatory environment continued to challenge us and all our peers. in addition, many of the insurance markets we operate in remained weak, price levels did not surge, and competitive pressures did anything but soften.
◾ saM: allianz awarded saM Gold Class again based on allianz’s superior ranking in the Dow Jones sustainability index. ◾ Carbon Disclosure Project: allianz is leading the financial services sector in Germany and is included in the Global Carbon Disclosure leadership index.
◾ our one-brand vision, however, leaves room for renowned specialty brands such as PiMCo 1, one of the largest fixed income asset managers and euler hermes 1, the world’s number one credit insurer.
in order to maximize brand value and optimize our brand investments, we use a structured brand management process with most local markets covered by globally standardized brand research. as part of our brand monitoring activities we regularly conduct market research to benchmark the performance of our brand against local competitors. the market research covers over 30,000 consumers in 25 countries. the insights we collect allow us to identify key strengths we can build on globally and learn which brand building initiatives have the greatest impact.
G R o u P M a n a G e M e n t R e P o R t8 2
Germany a G e s t R u C t u R e 2 e M P l o y M e n t R e l a t i o n s h i P 2
over the past two years allianz has implemented a Group-wide corporate giving framework. 2011 is the first year allianz has published figures on its corporate giving activities. Robust processes have been set up and data collection has been integrated into our financial accounting system, with the aim of systematically increasing the transparency of corporate giving and improving its management. the total corporate giving sum of € 22.2 mn comprises donations, charitable memberships, as well as grants made by our affiliated corporate foundations. in addition to corporate giving activities, allianz offers its employees the possibility to donate in the event of natural catastrophes, and we also have a global platform to involve all our employees in donation campaigns. in light of the several severe natural catastrophes in 2011 – including those in australia, Japan, thailand and turkey – the allianz Group, employees and subsidiaries donated to different projects for immediate disaster response and rebuilding activities.
Price increases gathered momentum in Western europe, the united states and australia – regions where allianz has a significant market presence. For the most part, personal lines have experienced price increases. During 2011 we also started to see early signs of improvement on some commercial lines. nevertheless, more significant price increases are required to restore technical pricing to adequate levels. overall, non-life market profitability was adversely affected by the high amount of catastrophe-related losses and constrained by lower investment returns. However, adjusting for these factors, we believe that there was an underlying improvement in margins where price increases were achieved, and an improvement in attritional claims experience, albeit limited.
◼ e a R n i n G s s u M M a R y 2011 was an extraordinarily difficult year for allianz and our peers.
G R o u P M a n a G e M e n t R e P o R t8 8 in addition, interest rates declined further to historical lows, across all markets, assets and risk classes. that trend, resembling almost a “new normal”, weakened the demand for investment related life insurance products, and also put a strain on our existing book of life business.
in spite of all of these factors, however, the discussion of our results that follow should consistently echo the fundamental strength of our businesses. lastly, since the european sovereign debt crisis has not yet resolved itself, we will continue to mitigate the choppy waters expected in 2012. for further information on our preparations, please refer to the Risk Report on page 149.
c o r p o r a T e a n d o T H e r operating result improved by 4.8 % to € (897) mn, continuing a positive trend.
◾ the premium to acquire 13,586 B-units in the first and third quarter of 2011 resulted in overall expenses of € 66 mn, compared to € 89 mn for the purchase of 25,854 B-units in the previous year. the premium of € 66 mn in 2011 also reflects the increased value of outstanding B-units in 2011 compared to 2010.
net income n e t i n c o M e | in � mn 1 2 n e T i n c o m e was severely impacted by market-related losses – which are reflected in the investment result – primarily related to the escalating european sovereign debt crisis in 2011. overall, our net income fell by € 2,405 mn to € 2,804 mn. of this, n e T i n c o m e a T T r i b u T a b l e T o s H a r e H o l d e r s and n o n - c o n T r o l l i n g i n T e r e s T s was € 2,545 mn (2010: € 5,053 mn) and € 259 mn (2010: € 156 mn), respectively. the net income attributable to non-controlling interests of € 259 mn, of which the largest amount relates to euler Hermes, increased over 2010 primarily due to significantly lower losses from private equity investments in the current year.
fee and commission income 8,406 7,920 6,239 claims and insurance benefits incurred (net) (48,867) (46,096) (45,646) change in reserves for insurance and investment contracts (net) 2 (10,993) (13,871) (9,760) loan loss provisions (121) (50) (141) acquisition and administrative expenses (net), excluding acquisition-related expenses (20,553) (20,433) (19,712) fee and commission expenses (2,564) (2,561) (2,212) operating restructuring charges (1) (8) (15)
our u n d e r w r i t i n G r e s u l t declined by € 298 mn to € 701 mn, mainly due to significantly higher losses from natural catastrophes. positive price movements and a further recovery of our business in italy and france partially compensated for this.
our a c c i d e n t y e a r l o s s r a t i o was 74.1 %. the impact from natural catastrophes was 4.4 percentage points. net losses from natural catastrophes amounted to € 1,764 mn, our highest ever, largely driven by the earthquakes in Japan and new zealand as well as the recent floods in thailand. by comparison, in 2010 natural catastrophes had represented 3.2 percentage points of the accident year loss ratio of 73.0 %.
Acquisition and administrative expenses (net) (11,115) (11,044) (10,540) fee and commission expenses (1,070) (1,024) (995) other expenses (14) (10) —
O P e R A T i n g P R O f i T decreased by € 448 mn to € 2,420 mn, largely as a consequence of a € 1,096 mn lower operating investment result and, to a much lesser extent, costs associated with our decision to discontinue writing new business in Japan.
A c q U i S i T i O n A n d A d m i n i S T R A T i v e e x P e n S e S ( n e T ) decreased by € 148 mn to € 5,027 mn in large part related to lower amortization of deferred acquisition costs in the united states.
m A R g i n O n R e S e R v e S decreased by 15 basis points to 58 basis points from the previous year, largely driven by a lower investment result in the current challenging market environment.
m A n A g e m e n t D i s c u s s i o n A n D A n A l y s i s iii. corporate and other operating loss decreased by € 45 mn to € 897 mn, mainly driven by Holding & treasury.
Holding & treasury’s O p e r a t i n g r e s u l t improved by € 39 mn and amounted to € (824) mn. this was primarily due to better investment results.
O p e r a t i n g i n c O m e f r O m f i n a n c i a l a s s e t s a n d l i a b i l i t i e s c a r r i e d a t f a i r v a l u e t h r O u g h i n c O m e improved by € 32 mn to record a loss of € 9 mn. this was attributable to a better foreign currency result.
◾ Allianz group operating profit for 2012 expected to be in the range of € 8.2 bn, plus or minus € 0.5 bn, and is expected to improve in 2013.
strengthen our drive for profitable growth. operating profit 4.6 % below previous year result mainly due to external events, in particular natural catastrophes and market conditions.
p ro p e r t yc A s uA lt y slight growth of gross premiums written in 2011 after two years without positive growth effects (based on internal growth).
Accident year loss ratio excluding claims from natural catastrophes decreased slightly from 69.8 % to 69.7 %. our expense ratio improved from 28.1 % to 27.9 % in 2011.
gr ou p m an ag em en t r ep or t overall, we expect 2012 operating profit to be in the range of € 4.0 bn to € 5.0 bn. for 2013, we target a further strengthening of our result.
A s s e t m A n A g e m e n t the success story of our Asset management business continued in 2011. net inflows and market effects remained strong due to fixed income assets, though on a lower level than in the exceptional year 2010.
s o c i A l c H A n g e s
the Group’s investment portfolio grew by € 16.2 bn – or 3.6 % – to € 461.1 bn. this increase was mainly driven by the investment performance of our underlying operating businesses, primarily from the life/health segment. the asset allocation remained stable.
our s o v e r e i g n e x p o s u r e accounted for 36 % of our investments in debt. as of December 31, 2011, our sovereign bond exposure in spain (1.2 %), Greece (0.1 %), ireland (0.1 %), portugal (0.1 %) and italy (6.3 %) comprised approximately 7.8 % of our fixed income portfolio. as described in our Risk Report on page 150, among several other measures, we selectively reduced our exposure to sovereign borrowers potentially affected by uncertainties surrounding the european sovereign debt crisis. Furthermore, the gross impairments on Greek sovereign bonds in 2011 totaled € 1,023 mn, resulting in a carrying value of 24.7 % of their nominal value.
Debt securities 63.2 60.4 cash and cash pool assets 4 4.2 5.3 loans and advances to banks and customers 17.8 17.7 property-casualty asset base 98.3 97.3 aBs made up € 3.9 bn of our property-casualty asset base, as of December 31, 2011. this was approximately 4.0 % of its asset base.
4 | including cash and cash equivalents, as stated in our segment balance sheet, of € 5.3 bn and € 4.4 bn and receivables from cash pooling amounting to € 2.5 bn and € 3.3 bn net of liabilities from securities lending and derivatives of € (1.8) bn and € (0.3) bn as of December 31, 2011 and December 31, 2010, respectively. 5 | 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.
l i q u i D i t y r e s o u r c e s A n D u s e s
Authorized capital 2010/ii € 11,416,000 (4,459,375 shares) may 4, 2015 Authorization to issue bonds carrying conversion and/or option rights € 9,500,000,000 (nominal bond value) may 4, 2015 (issuance of bonds)
◾ the allianz risk management approach is designed to add value by focusing on both risk and return.
as a consequence of our effective capital management, the allianz Group is well capitalized and meets its internal and regulatory solvency targets as of December 31, 2011.
senior unsecured debt rating aa negative outlook (outlook changed Jan 27, 2012)
By using a Monte carlo simulation based on 30,000 scenarios we consider market, credit, insurance and other business events (“sources of risk”) and calculate the portfolio value based on the net fair value of assets and liabilities under potential adverse conditions to determine the portfolio value distribution taking the holding period into account.
G R o u p - D i v e R s i F i e D
C a s u a l t y segment and based on a variety of different risk measures including Financial vaR, equity sensitivities and duration mismatch as well as investment limits around the benchmark portfolio approved by the Board of Management.
the following table displays the sensitivities of credit risk capital to certain scenarios: deterioration of credit quality measured by issuer rating 1 downgrades and the decline of recovery rates in the event of the default (loss-GivenDefault, lGD). the sensitivities are calculated by applying each scenario to all exposures individually but keeping all other parameters constant. 2 the sensitivity results replace the average, high and low internal credit risk capital disclosure provided in prior years.
1 | credit risk capital calculations are based on issuer (borrower) ratings as opposed to issue (instrument) ratings. the difference between issue and issuer ratings is primarily due to collateralization and seniority and is reflected in loss-given-default (lGD).
Reserve Biometric total group 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn q u a R t e R l y R e s u l t s
We estimate and hold reserves for past claims that have not yet been settled. if the reserves were not sufficient to cover the claims to be settled in the future due to unexpected changes, we would experience losses. the volatility of past claims development measured over a one-year time horizon defines our reserve risk. an indicator for this coverage is the amount of net surplus 2 compared to the initial reserves. 3 the future uncertainty regarding potential loss developments is significantly driven by the risks under written. in general, our operating entities constantly monitor the development of reserves for insurance claims on a line of business level. 4 Results are discussed by local reserve committees at least on a quarterly basis. if necessary, we re-estimate reserves in line with actuarial standards. in addition, the operating entities generally conduct annual reserve uncertainty analyses. the approaches applied are similar to the methods used for reserve risk calculations. the allianz Group performs regular independent reviews of these analyses and Group representatives participate in the local reserve committee meetings. similar to premium risk, reserve risk at the Group level is positively affected by the diversification effect between different lines of business at the local level and different markets at the Group level.
3 | this figure is provided on a calendar year basis over the past five years in note 19 of our consolidated financial statements. 4 | For further information please refer to note 19 of our consolidated financial statements.
as described under Risk Governance structure, the department Group legal services seeks to mitigate legal risks with support from other departments.
the main objective of planning and managing the liquidity position of allianz se is to ensure that allianz se is always able to meet payment obligations. to comply with this objective, the liquidity position of allianz se is monitored and forecasted on a daily basis. strategic liquidity planning over a time horizon of 12 months and 3 years is reported to the Board of Management regularly. the main tools to meet unforeseen liquidity requirements are committed credit lines from banks, commercial paper facilities, medium-term debt issuance programs, a centrally managed, highly liquid bond portfolio with direct access to the market of sale and repurchase agreements (the so-called “Repo market”), as well as internal resources in the form of intra-group loans and an international cash pooling infrastructure.
all business line management functions with a direct profit and loss responsibility (i.e. first line of defense, or “risk taking units”) are in charge of active risk-return management through adherence to delegated limits and the oe policy framework. they also support, where applicable, the risk assessment and management activities carried out by the second and third lines of defense.
C o n S o l I d a t e d S t a t e m e n t S o F C a S h F l o w S 186 n o t e S t o t h e C o n S o l I d a t e d F I n a n C I a l S t a t e m e n t S 189
expenses from fully consolidated private equity investments 32 (1,653) (1,803) (2,142)
Significant non-cash transactions Effects from liquidation of Palmer Square 2 CDO Tranche loans and advances to banks and customers (314) — — financial assets held for trading (5) — — Available-for-sale investments 294 — — other assets 2 — — foreign currency translation adjustment 1 — — realized loss from loans and advances to banks and customers 22 — —
legally evidenced otherwise because of an agreement with other investors or of a specific corporate charter. in order to determine whether control exists, potential voting rights that are currently exercisable or convertible have to be taken into consideration. if no control exists from a legal perspective, it has to be assessed whether control exists from an economic perspective, as in the case of Spes.
Furthermore financial assets include funds held by others under reinsurance contracts assumed and financial assets for unit-linked contracts.
◾ financial liabilities carried at fair value through income, ◾ liabilities to banks and customers, ◾ investment contracts with policyholders, ◾ derivative financial instruments used for hedging, ◾ financial liabilities for puttable equity instruments, ◾ certificated liabilities, or ◾ participation certificates and subordinated liabilities.
a financial asset is derecognized when the contractual rights to the cash flows from the financial asset expire or the allianz Group transfers the asset and substantially all of the risks and rewards of ownership. a financial liability is derecognized when it is extinguished.
Cash flow hedges offset the exposure to variability in expected future cash flows that is attributable to a particular risk associated with a recognized asset or liability or a forecasted transaction. Changes in the fair value of a derivative financial instrument that represent an effective hedge are recorded in unrealized gains and losses (net) in other comprehensive income, and are transferred to the consolidated income statement when the offsetting gain or loss associated with the hedged item is recognized. any ineffectiveness of the cash flow hedge is recognized directly in income from financial assets and liabilities carried at fair value through income (net).
� h e d G e S o F a n e t i n v e S t m e n t i n a F o r e i G n e n t i t y hedge accounting may be applied to derivative financial instruments used to hedge the foreign currency risk associated with a net investment in a foreign entity. the proportion of gains or losses arising from valuation of the derivative financial instrument, which is determined to be an effective hedge, is recognized in foreign currency translation adjustments in other comprehensive income, while any ineffectiveness is recognized directly in income from financial assets and liabilities carried at fair value through income (net).
– Financial liabilities held for trading Fair value – Financial liabilities designated at fair value through income Fair value liabilities to banks and customers (other liabilities) amortized cost reserves for insurance and investment contracts
– non-unit-linked investment contracts amortized cost Financial liabilities for unit-linked contracts Fair value other liabilities
computed using the expected investment yield. eGms include premiums, investment income including realized gains and losses, insurance benefits, administration costs, changes in the aggregate reserves and policyholder dividends. the effect of changes in eGms are recognized in net income in the period revised.
equipment is carried at cost less accumulated depreciation and impairments. depreciation is generally computed using the straight-line method over the estimated useful lives of the assets. the estimated useful life of equipment ranges from 2 to 10 years, except for purchased information technology equipment, which is 2 to 8 years.
◼ p r e m i u m S e a r n e d a n d C l a i m S a n d i n S u r a n C e B e n e F i t S p a i d premiums for short-duration contracts are recognized as revenues over the period of the contract in proportion to the amount of insurance protection provided. unearned premiums are calculated separately for each individual policy to cover the unexpired portion of written premiums. premiums for short-duration contracts could arise from propertyCasualty, life and health insurance contracts. For those contracts, benefits are recognized when incurred.
revenues for universal life-type and investment contracts, such as universal life and variable annuity contracts, represent charges assessed against the policyholders’ account balances for the front-end loads, net of the change in unearned revenue liability, cost of insurance, surrenders and policy administration and are included within premiums earned (net).
For defined benefit plans, the allianz Group uses the projected unit credit actuarial method to determine the present value of its defined benefit plans and the related service cost and, where applicable, past service cost. the principal assumptions used by the allianz Group are included in note 48. the census date for the primary pension plans is october or november, with any significant changes through december 31 taken into account.
using the above estimate of ultimate loss and lae by accident year – with respect to the origin year of losses – subsidiaries of the allianz Group directly estimate the total loss and lae reserves by subtracting cumulative payments for claims and lae through the relevant balance sheet date. Finally, local reserving actuaries calculate the relevant iBnr reserves as the difference between
as of december 31, 2011, the allianz Group reported financial instruments carried at fair value of: 1
Goodwill represents the excess of the cost of a business over the fair value of net assets acquired. upon acquisition, goodwill is allocated to the cash generating units (CGu) that are expected to benefit from the acquisition. Since goodwill is not amortized, the allianz Group must evaluate at least annually whether the carrying value per CGu is deemed recoverable. this is assumed as long as the carrying value is not in excess of the unit’s estimated value in use (present value of expected cash flows). if it is not deemed recoverable, the excess goodwill will need to be impaired. the determination of a unit’s estimated recoverable value requires significant judgment regarding the selection of appropriate valuation techniques and assumptions. these assumptions include selection of appropriate discount rates, planning horizons, capitalization requirements and the expected future business results. assumptions may need to change as economic, market and business conditions change. as such, the allianz Group continually evaluates external conditions and the operating performances of the CGus.
◼ o t H e r r e C l a S S i F i C a t i o n S
— Sale to third party allianz Kazakhstan zao, almaty 100.0 12/6/2011 — propertyCasualty
� C o p a r C , p a r i S
the impact of the disposal, net of cash disposed, on the consolidated statement of cash flows for the year ended december 31, 2009, was: € mn assets of disposal groups classified as held for sale 417,874 less: cash and cash equivalents (30,238) liabilities of disposal groups classified as held for sale (410,469) non-controlling interests (1,738) treasury shares 69 less non-cash components of the consideration received: Commerzbank shares (746) distribution agreement (480) Cominvest (net of cash acquired) (652)
� A s s e t m A n A g e m e n t the reportable segment Asset management operates as a global provider of institutional and retail asset manage ment products and services to third-party investors and provides investment management services to the Allianz group’s insurance operations. the products for retail and institutional customers include equity and fixed income funds as well as alternative products. the united states and germany as well as france, italy and the Asia-pacific region represent the primary asset management markets.
Acquisition and administrative expenses (net), excluding acquisition-related expenses (11,115) (11,044) (10,540) (5,027) (5,175) (5,591) (3,246) (2,926) (2,288) (1,220) (1,350) (1,348) 55 52 55 (20,553) (20,443) (19,712)
income from fully consolidated private equity investments (net) (3) — — — — — — — — (98) (215) (366) 66 113 134 (35) (102) (232) interest expenses from external debt — — — — — — — — — (973) (889) (905) — — — (973) (889) (905)
Holding & treasury banking Alternative investments Consolidation Corporate and other € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn operating income from financial assets and liabilities carried at fair value through income (net) (9) (41) (122) (2) 1 17 (1) (1) (1) 1 — — (11) (41) (106)
8 financial assets carried at fair value through income As of december 31, 2011 2010 € mn € mn
◼ e q u i t y i n v e s t m e n t s C A r r i e d A t C o s t
As of december 31, 2011, the fair value of real estate held for investment was € 13,168 mn (2010: € 12,929 mn). As of december 31, 2011, real estate held for investment pledged as security and other restrictions on title were € 37 mn (2010: € 73 mn).
Banks Customers total Banks Customers total € mn € mn € mn € mn € mn € mn short-term investments and certificates of deposit 6,341 — 6,341 5,216 — 5,216
Collateral paid for securities borrowing transactions and derivatives 46 218 264 25 13 38
Changes in the consolidated subsidiaries of the Allianz group 1 (4) — foreign currency translation adjustments (5) 151 54
◼ p r e s e n t v A l u e o f f u t u r e p r o f i t s € mn € mn € mn
Carrying amount as of December 31, 849 735 803 Accumulated depreciation as of december 31, 2,631 2,562 2,508 Cost as of december 31, 3,480 3,297 3,311
Allianz Bank polska s.A., warsaw 1 i recognized in the consolidated income statement in the fourth quarter of 2010.
C o r p o r A t e A n d o t H e r Banking germany — — 95 — manroland Ag — — 28 —
Foreign currency trans lation adjustments and other changes 1 684 (84) 600 2,188 (344) 1,844 679 (88) 591 Changes in the consolidated subsidiaries of the Allianz Group 20 (8) 12 (242) 26 (216) — — —
As of december 31, 2003 & prior € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn reduction/
the Allianz group estimates that loss and lAe reserves consist of approximately 10 % short-tail, 50 % medium-tail and 40 % long-tail business.
in general, reserves for loss and loss adjustment expenses are not discounted, except when payment amounts are fixed and timing is reasonably determinable. reserves are discounted to varying degrees in the united states, germany, the united kingdom, switzerland, portugal and france. the reserve discounts relate to reserves for structured settlements in various classes of business. these classes include personal accident, general liability and motor liability in germany and france, workers’ compensation, general liability and motor liability in the united kingdom and the united states and workers’ compensation in switzerland and portugal.
Aggregate policy reserves reserves for premium refunds other insurance reserves total non- unit-linked reserves liabilities for unit-linked contracts total
in the fourth quarter of 2011, 800,000 new Allianz shares were issued in the context of a capital increase for the employee stock purchase plan 2011. in 2011, 878,233 shares were sold to employees of Allianz se and its subsidiaries. of these, 226,620 shares originated from the capital increase for the employee stock purchase plan in 2010 and 651,613 shares from the capital increase for the employee stock purchase plan in 2011. the remaining 148,387 shares from the capital increase in 2011 will be used for the employee stock purchase plan of Allianz se and its subsidiaries in 2012. the total change of holdings in own shares for the year ending december 31, 2011, amounted to a decrease of 78,233 (2010 increase of 248,422) shares which corresponds to € 200,276 (2010: € 635,960) or 0.02 % (2010: 0.05 %) of issued capital.
As of december 31, 2011, the Allianz group’s insurance subsidiaries were in compliance with all applicable solvency and capital adequacy requirements.
iv. supplementary information to the Consolidated income statements 26 premiums earned (net) property-Casualty life/Health Consolidation group € mn € mn € mn € mn
� C o r p o r A t e A n d o t H e r s e g m e n t for the year ended december 31, 2011, income (expenses) from financial assets and liabilities held for trading (net) in the Corporate and other segment includes expenses of € 458 mn (2010: income of € 72 mn; 2009: income of € 317 mn) from derivative financial instruments. this includes expenses of € 9 mn (2010: income of € 33 mn; 2009: income of € 84 mn) from financial derivative instruments to protect investments and liabilities against foreign exchange rate fluctuations. in 2011, hedging of strategic equity investments not designated for hedge accounting induced expenses of € 36 mn (2010: € 16 mn; 2009: € 182 mn). financial derivatives related to investment strategies exhibited expenses of € 316 mn (2010: income of € 68 mn; 2009: income of € 370 mn). income of € 32 mn (2010: expenses of € 14 mn; 2009: expenses of € 36 mn) from the hedges of share based compensation plans (restricted stock units) are also included.
Income from real estate held for own use realized gains from disposals of real estate held for own use 10 18 3 other income from real estate held for own use 2 1 5
Co ns ol id at ed fi na nc ia l s ta te m en ts 32 income and expenses from fully consolidated private equity investments € mn € mn € mn
Co ns ol id at ed fi na nc ia l s ta te m en ts the following table provides an overview of the gross and net impact of the impairment losses on operating profit and non-operating result as well as on net income for the year ended december 31, 2011: € mn operating profit (450) non-operating result (573) Total gross impairments (1,023)
C o r p o r A t e A n d o t H e r
during the year ended december 31, 2011, current income taxes included expenses of € 92 mn (2010: income of € 150 mn, 2009: income of € 320 mn) related to prior years.
Fi na nc ia l S ta te m en ts iv. other information 44 derivative financial instruments derivatives derive their fair values from one or more underlying assets or specified reference values.
the counterparty settlement risk is virtually excluded in the case of exchange-traded products, as these are standardized products. By contrast, over-the-counter (otC) products, which are individually traded contracts, carry a theoretical credit risk amounting to the replacement value. the allianz Group therefore closely monitors the credit rating of counterparties for otC derivatives. to reduce the counterparty risk from trading activities, so-called cross-product netting master agreements with the business partners are established. in the case of a defaulting counterparty, netting makes it possible to offset claims and liabilities not yet due.
Exchange traded options — — — — — — 1 — —
the table sets forth the allianz Group’s contractual obligations as of december 31, 2011. Contractual obligations do not include contingent liabilities or commitments. only transactions with parties outside the allianz Group are considered.
the allianz Group engages in various lending commitments to meet the financing needs of its customers. the following table represents the amounts at risk should customers draw fully on all facilities and then default, excluding the effect of any collateral. Since the majority of these commitments may expire without being drawn upon, the amounts shown may not be representative of actual liquidity requirements for such commitments.
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.
the allianz Group has commitments for mortgage loans and to buy multi-tranche loans of € 2,913 mn (2010: € 3,647 mn) as well as to invest in private equity funds and similar financial instruments totaling € 3,536 mn (2010: € 2,517 mn) as of december 31, 2011. as of december 31, 2011, commitments outstanding to invest in real estate used by third parties or used by the allianz Group for its own activities and for infrastructure investments amounted to € 1,565 mn (2010: € 310 mn).
� o t h e r C o m m i t m e N t S
the allianz Group’s Banking operations in France, in the ordinary course of business, issue market value and performance -at-maturity guarantees in connection with mutual funds offered by the allianz Group’s asset management operations in France. the levels of market value and performance-at-maturity guarantees, as well as the maturity dates, differ based on the underlying agreements. in most cases, the same mutual fund offers both a market value guarantee and a performance-at-maturity guarantee. additionally, the performance-at-maturity guarantees are generally linked to the performance of an equity index or group of equity indexes. as of december 31, 2011, the maximum potential amount of future payments of the market value and performance-at-maturity guarantees was € 983 mn (2010: € 1,271 mn), which represents the total value guaranteed under the respective agreements. the fair value of the mutual funds related to the market guarantees as of december 31, 2011, was approximately € 948 mn (2010: € 1,204 mn). Such funds generally have a duration of five to eight years.
� i N d e m N i F i C a t i o N C o N t r a C t S
◼ C r e d i t d e r i v a t i v e S
◼ a S S e t S p l e d G e d a N d C o l l a t e r a l the carrying amounts of the assets pledged as collateral are as follows: as of december 31, 2011 2010 € mn € mn
the defined benefit plans’ weighted average asset allocations by asset category are as follows: As of December 31, 2011 2010 equity securities 11.2 14.4 real estate 4.1 4.8 1 | the asset class for annuity contracts changed. In the year 2010, annuity contracts were included in debt securities, while in the year 2011 they are allocated to asset class other.
During the year ended December 31, 2011, Fireman’s Fund recorded restructuring charges of € 90 mn. As of December 31, 2011, the Fireman’s Fund provision for restructuring was € 63 mn.
◼ p e r S o N N e l e x p e N S e S
Fees billed by kpMg Ag and affiliated entities, and kpMg Ag and the worldwide member firms of kpMg International (kpMg) are disclosed in four categories: kpMg worldwide thereof: kpMg Ag and affiliated entities 1 € mn € mn € mn € mn 1 | As of December 31, 2011, kpMg Ag and affiliated entities comprised kpMg operations in Belgium, germany, kazakhstan, luxembourg, the Netherlands, russia, Spain, Switzerland, turkey, ukraine and the united kingdom.
◼ C o S t A C o N C o r D I A
Allianz Australia Workers Compensation (sA) limited, Adelaide 100.0 Allianz Australia Workers Compensation (victoria) limited, melbourne 100.0
L i S t o F p a r t i C i p a t i o n S , r e S p o n S i b i L i t y S t a t e m e n t iV. responsibility statement to the best of our knowledge, and in accordance with the applicable reporting principles, the consolidated financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group, and the group management report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal opportunities and risks associated with the expected develop­ ment of the Group.
K e i t e l president of BDi-Federation of german industries
J A C q u e S n A S S e r Chairman, Bhp Billiton partner, one equity partners llC Board member, British Sky Broadcasting
c o M b I n e d r a t I o ◾ represents the total of acquisition and administrative expenses
F I n a n c I a l V a r ◾ Financial Value at risk (Var) is the diversified aggregation of market risk and credit risk.
V a r I a b l e a n n u I t I e s ◾ 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.