In spite of the global economic crisis, Allianz is in excellent form. We are now focused on making the most of the opportunities provided by this favorable position.
• In property and casualty insurance, we will continue to manage the business via the operating margin. Gains in operating efficiency and customer service through our new operating model will give us a major advantage to overcome ongoing price competition.
The Board of Management reports on the business situation and presentations on particular issues were accompanied by written presentations and documents that were sent before each meeting to each Supervisory Board member for the purposes of preparation. This was also the case with all financial statements and auditor’s reports. Resolutions were adopted regarding all management actions described in detail in this report which required the approval of the Supervisory Board or one of its committees. The Supervisory Board did not establish any additional approval requirements beyond those set out in the Statutes or the Rules of Procedure.
Within our work on the Supervisory Board we put special emphasis on the crisis on the global financial and capital markets which arose in the aftermath of the turbulence on the U.S. real estate and mortgage market. The Board of Management provided regular reports on the impact of this crisis on the Allianz Group. We paid particular attention to the possible effects on the risk situation and on liquidity. We also discussed with the Board of Management valuation issues and the further course of action required in the wake of these market disruptions.
In an Executive Session at the meeting on September 10, 2009, we dealt in detail with the legal changes brought about by the German Act on Appropriateness of Management Remuneration (VorstAG). As a result of these changes and the public discussion of compensation in connection with the financial crisis, we discussed the adaptation of the remuneration system of the Board of Management of Allianz SE to the current situation, in particular with a view to strengthening long-term variable remuneration components. After extensive consultation, the Supervisory Board approved the key points of a new compensation system, subject to the resolution’s final adoption at the December 2009 meeting. We also studied in detail the current changes in stock corporation law brought about by the German Accounting Law Modernisation Act (BilMoG) and the German Corporate Governance Code and adopted corresponding amendments to the Supervisory Board’s rules of procedure.
As a European Company, Allianz SE is, in addition to German stock corporation law, also subject to special European SE regulations and the German law implementing the Euro­ pean Company. This gives rise to some differences with the structure of an Aktiengesellschaft (stock corporation), primarily in relation to the Supervisory Board. The main features of the Company’s existing corporate constitution, in particular the two­tier board system (Board of Manage­ ment and Supervisory Board), as well as the principle of equal employee representation on the Supervisory Board, have been maintained in Allianz SE. For further details on the differences between a German stock corporation and a European Company with registered office in Germany, please refer to our website under www.allianz.com/se.
7) Dr. Herbert Walter resigned from the Board of Management of Allianz SE on January 12, 2009, upon the change of control at Dresdner Bank AG (i.e. sale to Commerzbank AG). Further, Dr. Walter resigned from the Board of Management of Dresdner Bank AG on January 19, 2009. He was paid a pro-rata fixed salary of € 36,945 for January 2009 and a pro-rata three-year bonus for 2007 to 2009. In line with the terms of his service contract with Dresdner Bank, Dr. Walter further received a transition payment for a period of six months after termination of his service (please refer to section “Termination of service” ) totaling €1,025,000. Dr. Walter waived his rights to a termination payment of € 3,595,100 agreed in the separation agreement of December 23, 2008 as well as his 2008 annual bonus and the 2008 tranche of his three-year bonus.
Dr. Herbert Walter — — 69,325 83.47 – 160.13 — — —
Basis at the level of the Business Division: 2010 - 2012 average growth 2012 return on capital (based on operating profit)
2) € 60 for each tenth percentage point by which the Group’s earnings-per-share increased over the past three years.
The Group’s earnings­per­share amounted to € 9.53 in 2009. Compared to the year 2008, it increased by 90.6 % above the minimum threshold of € 5. There was no increase related to the year 2006. Therefore, the basic remuneration for the year 2009 consists of the following remuneration components: Basic remuneration component 2009 2008
Jean-Philippe Thierry until December 31, 2009 Insurance Europe II (France & Benelux)
Barcelona. Just a click away from Lisbon. We have made the Iberian peninsula into a plain. A digital plain, not a natural one. Our Spanish company, Allianz Seguros, has shared an IT platform with Allianz Portugal since October 2009. This has improved service and lowered costs. ¡Buenos Días, España! Bom Dia, Portugal!
• In 70 % of all our monitored markets, respondents rank Allianz among the top 3 “most trusted brands”. In 40 % of all markets we are the most trusted brand.
Brand positioning The customer value proposition defines what our brand stands for. Allianz is the reliable partner, always there when needed and in those key moments delivers superior value. The different facets of the Allianz brand personality are the means by which Allianz earns the trust of its key stakeholders. We are a committed, competent and competitive partner. This holds true across different customer groups, business fields and markets.
• refining our Allianz Talent Management Concept (see Annual Report 2008, page 111) and implementing all respective tools and processes
• adjusting our executive performance and reward programs to the new regulatory environment
• preparing for future HR demands, addressing global demographic and socio-economic trends
• programs such as “We Speak your Language” to address our Turkish customers in Germany
1) The total AMI network numbers incl. 1,510 participants from the AMI OPEX Academy.
In 2009, a number of prestigious awards were given to Allianz HR projects and initiatives.
For capital charges an important component is the determination of the capital required to cover the financial risks involved in our business activities. 2)
More than ever, customers want to know that their insurance provider will be there when they are needed. Our ability to weather the storms on the financial markets, helped by our strong capital base and rigorous risk management, demonstrated once again that Allianz embodies precisely what customers want – a reliable and highly trusted partner.
In order to assure our progress we are constantly measuring our customers’ satisfaction and their willingness to recommend our services. Moreover, we are regularly measuring the strength of our brand from awareness down to actual purchasing behavior.
No enterprise can survive without the support of society. At Allianz, Corporate Social Responsibility (CSR) is not a slogan. For many years we have been on the forefront of the climate debate and driving the development of sustainable investment practices. The results are speaking for themselves: We have been ranked the leading insurer in the Dow Jones Sustainability Index in 2006 and 2007, remaining under the top two positions in 2008 and 2009. Allianz Group has also been included in the FTSE4Good Index since 2001. Going forward, we will further drive our CSR agenda to reflect even higher public attention to carbon emission control, financial literacy and especially better financial advice.
While efficient operations are indeed a necessity for future competitiveness, we win or lose in the market place through our ability to price, underwrite and manage risks better than others. Through our sustainability programs we have laid the foundation for excellence in global underwriting and claims management.
Continuing softness in a number of our core propertycasualty markets reinforces the need to carefully trade off customer retention and margin protection. And the experience of 2009 has shown clearly that the combination of global GDP contraction and falling short term interest rates can significantly impair our value creation in propertycasualty. Going forward, we are committed to attain our target combined ratio of 96 % over the cycle and further strengthen our solid reserve position.
Local Presence and Global Diversification Group Management Report Allianz Group Annual Report 2009
We expect the Turkish insurance market to return to its growth path in the near future. We will seek to increase our distribution base and to provide innovative insurance solutions to our customers. In 2009 we successfully built-up our distribution capacity with new partners, such as HSBC.
South America In South America, we are present in three countries: In Brazil with Allianz Brazil Seguros S.A., in Colombia with Aseguradora Colseguros S.A. and in Argentina with Allianz Argentina Compania de Seguros S.A.
However, we expect market conditions to remain challenging in 2010. The soft-market has persisted longer than many expected, with revenues further pressured by economic conditions and lower exposures. Whilst pricing has declined at a slower rate, claims inflation will continue to exert pressure on underwriting results. On the other hand, as economic conditions improved in 2009, there is less pressure on the contribution from investments to our results.
In Australia, market conditions remain competitive. All insurers have begun reacting to lower profitability and decreasing investment returns, resulting in increasing insurance rates across all classes of business. This pattern is expected to continue into 2010.
We sell products via agents, banks and in property-casualty we also distribute via brokers and dealers, who are a vital part of our distribution force. In 2010, premium growth will be a challenge in many markets following the setbacks they suffered in 2008/2009. However, the focus will remain sustainable and we expect to see solid profit growth. We are continuously seeking to expand in selected markets in the region through further organic growth and selected acquisitions.
Since goodwill is not amortized, when circumstances dictate, or at least on an annual basis, we must evaluate whether the carrying value – which includes the allocated goodwill and any specific intangible assets – of the various business units is deemed recoverable. The unit’s carrying value is deemed recoverable as long as it is not in excess of the unit’s estimated value in use (present value of expected cash flows). If the carrying value is not deemed recoverable, the excess goodwill will need to be written off.
70 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
In the life sector in 2009, assets under management recovered by a high single digit percentage. This was mainly due to the recovery of capital markets rather than net inflows, which remained subdued. In mature markets, sales growth remained lackluster during the year with policyholders continuing to be risk averse and prefering traditional guaranteed products over unit-linked products. More generally, consumer trends and preferences are changing. Consumers seek more value for money, which does not only mean they are more price sensitive but also they are carefully assessing the value of the product and service. This goes hand-inhand with calls for greater openness, clarity and honesty. Consumers are increasingly supported in demands for greater transparency by regulators and consumer protection agencies.
Allianz Group Annual Report 2009 Group Management Report Executive Summary of 2009 Results
Our Life/Health insurance operations benefited from continuing strong demand for products with minimum guarantees and participating components. Statutory premiums amounted to € 50,773 million. On an internal basis premiums increased by 10.4 %.
Non-operating income from financial assets and liabilities carried at fair value through income (net) 148 72 (94) Non-operating realized gains/losses (net) 1,617 2,656 2,379 Income from fully consolidated private equity investments (net) (232) 79 50 Interest expenses from external debt (905) (945) (1,051) Non-operating impairments of investments (net) (994) (3,296) (294) Acquisition-related expenses (406) (245) (504) Amortization of intangible assets (125) (23) (17) Non-operating restructuring charges (183) (130) (166) Reclassification of tax benefits (774)2) (24) (60) Non-operating items (1,854) (1,856) 243
Gross premiums written in Asia-Pacific amounted to € 472 million. Growth was 8.0 % mainly driven by higher volume which stemmed mostly from our Malaysian operations driven by motor, property and marine business.
Anglo Broker Markets/ Global Lines 15,707 15,384 15,514 15,792 15,352 12,201 11,720 11,456 1,796 1,914 2,033
Our premiums in France decreased by 8.7 % to € 7,299 million. This decline was mainly due to the effect of exceptionally high group pension contracts in 2008. Excluding these, we recorded an increase in our sales of traditional life as well as investment-oriented products. Consumers remained risk averse keeping demand for pure unit-linked products at a low level.
Investment expenses increased by € 39 million to € 622 million.
Allianz Group Annual Report 2009 Group Management Report Life/Health Insurance Operations
The weighting of retail and institutional clients shifted towards retail customers who accounted for 32 % of our third-party assets as of December 31, 2009. This was the result of the first time consolidation of cominvest, high net inflows and increased market return.
Interest and similar income declined by € 460 million to € 359 million mainly because of lower short-term interest rates. In addition, dividend income declined by € 76 million as a result of our program to reduce our exposure on equities.
€ mn € mn € mn € mn € mn € mn € mn € mn € mn
Berlin. Hoş geldiniz. Wherever Allianz is located, we adapt to local conditions. We speak French in France, Spanish in Spain and, since 2008, Turkish in Germany. Why is that? We meet our customers where they live. In Germany, there are 2.4 million native Turkish speakers who are pleased to hear us greet them with “Hoş geldiniz”.
Shanghai. Upwards and onwards! The Chinese insurance supervisory authority has given Allianz China Life permission to establish its eighth provincial branch, opening for business in the northern province of Shandong. Only a local market? It all depends on your point of view. The province has 93 million inhabitants – more than Germany and Austria put together.
• realized capital gains and losses (net) or impairments of investments (net), as these are largely dependent on market cycles or issuer-specific events over which we have little or no control, and can and do vary, sometimes materially, across periods (except for Life/Health insurance operations where the expenses for premium refunds in the operating profit are correlating with realized gains and losses and impairments of investments). Furthermore, the timing of sales that would result in such gains or losses is largely at our discretion.
has significant cross­border and cross­sector activities. The law requires that a financial conglomerate calculates the capital needed to meet the respective solvency requirements on a consolidated basis.
As of December 31, 2009 total assets amounted to € 584.0 billion and total liabilities amounted to € 541.8 billion. When compared to the year­end 2008 total assets and total liabilities decreased by € 371.6 billion and € 376.5 billion, respectively. This decrease was attributable to the decon­ solidation of Dresdner Bank, which reduced assets and liabilities by € 417.9 billion and € 410.5 billion, respectively
As of December 31, 2009 2008 Delta € mn € mn € mn
6) For further information on Allianz SE issued debt outstanding as of December 31, 2009, please refer to note 23 of our consolidated financial statements.
In the year 2009, our Corporate and Other asset base was up by 9.8 % to € 40.4 billion. Investments in debt securities increased by € 5.1 billion due to net inflows. Our equity investments declined by € 0.4 billion as net outflows were higher than positive market effects.
Allianz Group loss and LAE reserves by year and line of business, gross of reinsurance, IFRS Basis € mn € mn € mn
Favorable developments included: • € 33 million at our Australian entity, mainly as a result of favorable impacts from several legislative changes in the past, but also better than expected return to work out­ comes as a result of Australia’s unemployment rate con­ tinuing to decline.
The entity entered into this settlement to avoid the substan­ tial financial uncertainty and friction costs associated with a likely protracted legal proceeding. Another driver for the adverse development in this line of business was the sharp increase in the loss cost trends caused in part by shifts in mix of business to higher hazard classes.
Allianz Group Asbestos and Environmental Loss and loss adjustment expenses IFRS Basis € mn € mn € mn
As of December 31, 2009, Allianz SE held 2,584,367 (2008: 545,807) own shares. The increase of 2,038,560 shares is attributable to the purchase of 1,910,300 shares which are held in connection with the hedging of our obligations under the Group Equity Incentive program. The remaining increase of 128,260 shares will be used in 2010 for employee stock purchase plan of our subsidiaries in the NAFTA region.
The strategic activities of the Group are funded by equity and long-term debt issued or guaranteed by Allianz SE. The long-term debt issued or guaranteed by Allianz SE is used to optimize the Group’s capital and funding structure. Short-term funding needs are covered by a Commercial Paper Programme and a Medium Term Note Programme.
Allianz Group Annual Report 2009 Group Management Report Liquidity and Funding Resources
4) On October 23, 2009 the 8.375 % subordinated bond was traded on the New York Stock Exchange for the last time. The bond is now traded in the U.S. OTC market and information on traded prices can be obtained from the website of FINRA (U.S. Financial Industry Regulatory Authority, Inc.). Pursuant to the terms and conditions of two hybrid bonds issued by Allianz (ISIN US0188052007 and DE000A0GNPZ3 respectively), the triggers with respect to a potential mandatory coupon deferral have been breached as of September 30, 2009. In accordance with the respective terms and conditions Allianz has paid the interest due on December 15, 2009, and intends to timely make also further relevant coupon payments by making use of certain mechanisms as provided for therein.
Communication and Transparency 1) For additional information regarding opportunities, please refer to page 63.
The Board of Management of Allianz SE formulates business objectives as well as the risk strategy. It allocates capital resources and limits across the Allianz Group, with the objective of balancing return and risk, for example by redefining the Group’s natural catastrophe limits in 2009.2) The Supervisory Board Risk and Audit Committees of Allianz SE meet on a regular and ad-hoc basis to monitor the risk strategy and profile of the Allianz Group based on risk reports presented by the Chief Financial Officer and Chairman of the Group Risk Committee.
The Board of Management of Allianz SE is responsible overall for risk management. However, it has delegated some authorities to various committees. We redesigned the committee structure in 2009 to reduce overlaps in responsibilities and to strengthen the effectiveness of our risk- and capital-related decision framework: three Board of Management level committees now focus on the Group’s risk exposure.
Allianz Group Annual Report 2009 Group Management Report Risk Report requirements based on an approach similar to Standard & Poor’s standard model. This uses the same risk categories as our internal risk capital model, thereby allowing us to consistently aggregate internal risk capital for all segments at the Group level. Regarding our Asset Management segment, approximately 99 % of the investments managed by the Asset Management operating entities are held for the benefit of either third parties or Allianz Group insurance entities and, therefore, do not result in significant market and credit risk for the segment. As a result, the internal risk capital requirements for the Asset Management segment only reflect business risk. However, the evaluation of market risk and credit risk on the account of third parties is an integral part of the risk management process of our local operating entities.
Allocated internal market risk capital by business segment and source of risk (total portfolio before minority interests)
The interest rate risk to which the Property-Casualty and Life/Health segments are exposed arises from the net position between our insurance liabilities and the investments in fixed income instruments, in particular bonds, loans and mortgages, that are different in terms of maturity and size. Our internal risk capital model provides management with information regarding the cash flow profiles of the segments’
Credit risk is defined as the potential loss in portfolio value over a given time horizon due to changes in the credit quality of exposures in the portfolio. Credit risk arises from claims against various obligors such as borrowers, counterparties, issuers, guarantors and insurers, including all relevant product classes such as fixed income investments, lending, credit insurance and reinsurance recoverables. Credit losses may arise from the following events: • Failure of an obligor to meet payment obligations for various reasons; and
The following table presents the average internal risk capital for credit risk calculated over the four quarters of 2009 and 2008, as well as the high and low quarterly internal risk capital amounts calculated in both years.
Internal credit investment risk capital increased, because we acquired collateralized debt obligations from Dresdner Bank in 2009, which were classified as discontinued operations as of December 31, 2008. In general, the fixed income exposure in the Life/Health segment rose due to investments in credit spread products which benefited from tightening spreads.5)
Average, high and low allocated internal credit risk capital by source of risk (total portfolio before minority interests and after Group diversification)
Credit risk – investment As of December 31, 2009, our operating entities in the U.S. and Germany accounted for 35 % of the non-diversified internal risk capital allocated to our Property-Casualty, Life/ Health as well as Corporate and Other segments for investment credit risk.
In addition to these fixed income investments, Allianz Group also has non-tradable self-originated mortgage loan portfolios in Germany and the U.S. As of December 31, 2009, 98 % of the German mortgage portfolio is considered to be equivalent to a Standard & Poor’s investment grade rating based on an internal scoring. The U.S. commercial mortgage loan investments are subject to thorough credit assessment and conservative underwriting by the responsible credit manager. Therefore, we have not yet experienced any losses, even though there were three cases of delinquent or foreclosed non-tradable commercial mortgage loans in 2009 due to the financial crisis. Taking into account that there have been no other delinquent or foreclosed loans since 1994 and based on additional stress test analysis, we still regard the portfolio as investment grade. The North American Allianz insurance companies have a residential mortgage portfolio exposure of less than € 1.0 million.
Dedicated minimum security standards are in place for the IT systems across the Group to ensure the proper use and protection of the Group’s information assets. With respect to financial statements, our system of internal control is designed to mitigate operational risks.2) In general, we aim 1) Internal risk capital for guarantees in our Asset Management segment are not significant. 2) For additional information regarding our internal control over financial reporting, please refer to the section “Controls and Procedures – Financial Reporting Framework – Internal Control over Financial Reporting”.
With respect to risk management, our general objectives for 2010 include three priorities. First and foremost, to successfully meet the risk management and reporting challenges as we did in 2009. Although potential 2010 market developments remain uncertain, our general consensus is for a more benign market environment. Second, to continue to further develop and strengthen our risk management framework and network globally. Our third priority is to do what is necessary to meet Solvency II internal model requirements by the end of 2012 – which is one of the Allianz Group’s top ten priorities set by the Board of Management of Allianz SE during 2009.
The Allianz Group has used an internal model for several years for the management of its risk and solvency position. In 2008, we launched an internal multi-year Solvency II Umbrella Project to meet Solvency II internal model requirements by the end of 2012. The high-level objectives of this project are to (i) improve data quality, (ii) enhance analysis capabilities, (iii) strengthen model robustness and process governance and (iv) ensure that all future qualitative Solvency II requirements will be met. As a key Solvency II Umbrella Project initiative, we have strengthened our risk analysis infrastructure by implementing a best practice technical platform with the goal to improve methodology, increase coverage and extend the functionality and user benefits within an efficient risk reporting process. This new framework has been successfully implemented and run in parallel with our existing model, leading to an internal approval by the Board of Management of Allianz SE for a full switch over to the new model framework for 2010 reporting purposes.
Diekmann Dr. Achleitner Bäte Booth Cucchiani Dr. Faber Dr. Mascher Ralph Dr. Rupprecht Dr. Zedelius
Acquisition and administrative expenses (net) 39 (20,325) (18,299) (18,936) Fee and commission expenses 40 (2,212) (2,344) (2,197) Amortization of intangible assets 15 (125) (23) (17)
Total comprehensive income attributable to: For further details concerning income taxes relating to components of the other comprehensive income please see Note 42.
Allianz SE is a stock corporation in the form of a European Company (Societas Europaea). Allianz SE shares are listed on all German stock exchanges and Allianz SE American Depositary Receipts (“ADRs”) are traded in the US over the counter on OTCQX.
IFRS does not provide specific guidance concerning all aspects of the recognition and measurement of insurance contracts, reinsurance contracts and investment contracts with discretionary participation features. Therefore, as envisioned in IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, the provisions embodied under accounting principles generally accepted in the United States of America (“US GAAP”) have been applied to those aspects where specific guidance is not provided by IFRS 4, Insurance Contracts.
Use of estimates and assumptions The preparation of consolidated financial statements requires the Allianz Group to make estimates and assumptions that affect items reported in the consolidated balance sheets and consolidated income statements, and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates. The most significant accounting estimates are associated with the reserves for loss and loss adjustment expenses, reserves for insurance and investment contracts, fair value and impairments of financial instruments, goodwill, deferred acquisition costs, deferred taxes and reserves for pensions and similar obligations.
Real estate held for own use (e.g. real estate and buildings, including buildings on leased land) is carried at cost less accumulated depreciation and impairments. The capitalized cost of buildings is calculated on the basis of acquisition cost and depreciated on a straight-line basis over a maximum of 50 years in accordance with their useful lives. Costs for repairs and maintenance are expensed as incurred, while improvements if they extend the useful life or increase the value of the asset are capitalized. An impairment is recognized when the recoverable amount of these assets is less than their carrying amount. Where it is not possible to identify separate cash flows for estimating the recoverable cost of an individual asset, an estimate of the recoverable amount of the cash generating unit to which the asset belongs is used.
The Allianz Group adopted the revisions, amendments and interpretations as of January 1, 2009, with no material impact on its financial result or financial position.
IFRS 9, Financial Instruments: Classification and Measurement In November 2009, the IASB issued IFRS 9, Financial Instruments: Classification and Measurement. The publication of the IFRS represents the first part of a three-part project to replace IAS 39, Financial Instruments: Recognition and Measurement, with a new standard – IFRS 9. Proposals addressing the second part, the impairment methodology for financial assets, were published for public comment at the beginning of November, while proposals on the third part, hedge accounting, continue to be developed.
IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value, replacing the many different rules in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial instruments (its business model) and the contractual cash flow characteristics of the financial assets. The new standard also requires a single impairment method to be used, replacing the many different impairment methods in IAS 39.
Other reclassifications Certain prior period amounts have been reclassified to conform to the current period presentation.
The impact of cominvest on the Allianz Group’s net income for the year ended December 31, 2009 was € (23) mn.
Available-for-sale debt securities Due in 1 year or less 17,558 18,521 Due after 1 year and up to 5 years 82,536 83,998 Due after 5 years and up to 10 years 66,480 69,480 Due after 10 years 79,080 79,322
The allocated goodwill of the cash generating unit Banking was impaired as a result of the annual impairment test.
Cash generating units of the Life/Health segment are: • German Speaking Countries, • Health Germany, • Europe I & II, including France, Netherlands, Belgium, Luxembourg, Italy, Spain, Portugal, Greece, Turkey and Africa, • Asia-Pacific & Middle East, • Global Insurance Lines & Anglo Markets, • NAFTA Markets.
Deposits retained for reinsurance ceded 2,547 2,852 Derivative financial instruments used for hedging that meet the criteria for hedge accounting and firm commitments 310 208 Financial liabilities for puttable equity instruments 3,451 2,718 Other liabilities 5,724 6,076
Issued capital Issued capital at December 31, 2009, amounted to € 1,161,984,000 divided into 453,900,000 registered shares. The shares have no par value but a mathematical per share value of € 2.56 each as a proportion of the issued capital.
As of December 31, 2009, Allianz SE had € 5,880,297 (2,296,991 shares) of authorized unissued capital (Authorized Capital 2006/II) which can be issued at any time up to February 7, 2011. The Board of Management, with approval of the Supervisory Board, is authorized to exclude the preemptive rights of shareholders if the shares are issued to employees of the Allianz Group. Further, as of December 31, 2009, Allianz SE had an unissued conditional capital in the amount of € 250,000,000 (97,656,250 shares), authorized in 2006.
Income (expenses) from financial assets and liabilities held for trading (net) (36) (1,334) — 19 3 (1,348) Income (expenses) from financial assets and liabilities designated at fair value through income (net) 153 356 64 7 (8) 572 Income (expenses) from financial liabilities for puttable equity instruments (net) (17) 41 (33) — — (9) Foreign currency gains and losses (net) (22) (193) 1 51 — (163)
Investments in associates and joint ventures 2) (8) (6) (84) Real estate held for investment (12) (99) (46) Loans to banks and customers (102) (28) (58)
Investment advisory and Banking activities 512 (200) 312 596 (216) 380 637 (214) 423
Other insurance reserves — (89) — (89) Expenses for premium refunds (253) (3,444) (907) (4,604)
The recognized income tax expense for the year ended December 31, 2009, is € 1,007 mn (2008: € 312 mn; 2007: € 557 mn) lower than the expected income tax expense. The following table shows the reconciliation from the expected income tax expense of the Allianz Group to the effectively recognized tax expense. The Allianz Group’s reconciliation is a summary of the individual company-related reconciliations, which are based on the respective country-specific tax rates after taking into consideration consolidation effects with impact on the group result. The expected tax rate for domestic Allianz Group companies applied in the reconciliation includes corporate tax, trade tax and the solidarity surcharge and amounts to 31.00 % (2008: 31.00 %; 2007: 26.38 %, including corporate tax and solidarity surcharge in 2007). The German corporate tax reform in 2007 led to a decrease of corporate tax rate and an increase of trade tax rate. Due to the increased relative weight of trade tax and because trade tax ceased to be deductible for corporate tax purposes, trade tax has been included into the expected income tax rate in reconciliations of the German Allianz companies from 2008 onwards.
Deferred acquisition costs 561 473 Other assets 891 833 Intangible assets 140 156 Tax losses carried forward 2,560 2,060 Insurance reserves 3,824 3,845 Pensions and similar obligations 189 177 Other liabilities 637 712 Total deferred tax assets 11,324 12,561 Non-recognition or valuation allowance for deferred tax assets on tax losses carried forward (484) (197) Effect of netting (8,121) (8,368) Net deferred tax assets 2,719 3,996 Deferred tax liabilities Financial assets carried at fair value through income 61 50
For the year ended December 31, 2009, the Allianz Group recognized for fair value hedges a net loss of € 412 mn (2008: net gain of € 2,115 mn; 2007: net loss of € 462 mn) on the hedging instrument and a net gain of € 390 mn (2008: net loss of € 2,027 mn; 2007: net gain of € 494 mn) on the hedged item attributable to the hedged risk.
Determination of fair value for financial instruments carried at fair value For the following financial instruments, carried at fair value in the consolidated balance sheets, the fair value is determined as described in Note 2 “Summary of significant accounting policies”: • Financial assets and liabilities held for trading
Financial liabilities for unit-linked contracts 54,798 2,152 13 56,963 Derivative financial instruments and firm commitments included in other liabilities — 310 — 310 Financial liabilities for puttable equity instruments 3,388 2 61 3,451 Liabilities held in trust 265 — — 265 1) Excludes universal life-type contracts.
During the year ended December 31, 2009, the Allianz Group transferred certain corporate bonds from Level 3 into Level 2. This was due to the fact that the valuation techniques of these securities were modified and are no longer based on significant non-observable inputs.
For contracts which do not have payments that are fixed and determinable, the Allianz Group has made assumptions to estimate the undiscounted cash flows of contractual policy benefits including mortality, morbidity, interest crediting rates, policyholder participation in profits and future lapse rates. These assumptions represent current best estimates and may differ from the estimates originally used to establish the reserves for insurance and investment contracts as a result of the lock-in of assumptions on the issue dates of the contracts as required by the Allianz Group’s established accounting policy. The effect of discounting and differences between locked-in and best estimate assumptions is € 460,500 mn. For further information, see Note 2 to the consolidated financial statements. Due to the uncertainty of the assumptions used, the amount presented could be materially different from the actual incurred payments in future periods.
Furthermore, these amounts do not include € 154,489 mn of premiums and fees expected to be received, expenses incurred to parties other than the policyholders such as agents and administrative expenses; nor do they include investment income earned. In addition, these amounts are presented net of reinsurance expected to be received as a result of these cash flows. For further information on reserves for insurance and investment contracts, see Note 20 to the consolidated financial statements.
The U.S. Department of Justice (“DOJ”) has alleged False Claims Act violations related to Fireman’s Fund Insurance Company’s (“FFIC”) involvement as a provider of federal crop insurance from 1997 to 2003. The majority of the allegations concern falsified documentation in FFIC’s Lambert, Mississippi and Modesto, California field offices. Two former FFIC claims employees and one contract adjuster have pled guilty to assisting farmers in asserting fraudulent crop claims. In November 2006, the DOJ proposed to FFIC a resolution of all civil, criminal and administrative allegations in the form of an offer to settle. Discussions between FFIC and the DOJ are continuing and the outcome of this matter cannot be predicted at this stage.
Purchase obligations The Allianz Group has commitments for mortgage loans and to buy multi-tranche loans of € 3,937 mn (2008: € 5,102 mn) as well as to invest in private equity funds totaling € 2,556 mn (2008: € 2,455 mn) as of December 31, 2009. As of December 31, 2009, commitments outstanding to purchase real estate used by third-parties and owned by the Allianz Group used for its own activities amounted to € 393 mn (2008: € 650 mn).
Assets distributed on settlement (53) — Fair value of plan assets as of December 31, 8,913 7,964 Funded status as of December 31, 4,814 4,283 Unrecognized net actuarial gains/(losses) (1,375) (685) Unrecognized past service costs 3 13 Amount not recognized due to asset ceiling 101 — Net amount recognized as of December 31, 3,543 3,611 1) Relates in 2008 to the reclassification of Dresdner Bank Group to assets / liabilities of disposal groups classified as held for sale.
The expense recognized in profit and loss is recorded based on the assumptions of the corresponding previous year. For the assumptions regarding the expected long-term return on plan assets the value of the corresponding actual year is relevant.
AGF Group’s share option plan (currently known as Allianz France Group) The AGF Group has awarded share options on AGF shares to eligible AGF Group executives and managers of subsidiaries, as well as to certain employees, whose performance justified grants. The primary objective of the share option plan is to encourage the retention of key personnel of AGF Group and to link their compensation to the performance of AGF Group.
During the year ended December 31, 2009 the manroland Group recorded restructuring charges of € 89 mn. As of December 31, 2009, manroland Group recorded a provision for restructuring of € 87 mn.
AGF Peh Eur. IV FCPR, Paris Cedex 09 139 48.2 SDU Finco B.V., Amsterdam 121 49.7 Ayudhya Insurance Public Company Limited, Bangkok 113 16.8 3)
We conducted our audit of the consolidated financial statements in accordance with § 317 HGB [Handelsgesetzbuch „German Commercial Code“] and German generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer [Institute of Public Auditors in Germany] (IDW). Those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the net assets, financial position and results of operations in the consolidated financial statements in accordance with the applicable financial reporting framework and in the group management report are detected with reasonable assurance. Knowledge of the business activities and the economic and legal environment of the Group and expectations as to possible misstatements are taken into account in the determination of audit procedures. The effectiveness of the accounting-related internal control system and the evidence supporting the disclosures in the consolidated financial statements and the group management report are examined primarily on a test basis within the framework of the audit. The audit includes assessing the annual financial statements of those entities included in consolidation, the determination of entities to be included in consolidation, the accounting and consolidation principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements and group management report. We believe that our audit provides a reasonable basis for our opinion.
Dr. Henning Schulte-Noelle Chairman Chairman of the Supervisory Board, Allianz SE
Peter Kossubek Membership in other statutory supervisory boards and SE administrative boards in Germany Membership in group bodies Allianz Versorgungskasse VVaG
Dr. Helmut Perlet until August 31, 2009 Membership in other statutory supervisory boards and SE administrative boards in Germany Commerzbank AG, GEA Group AG
Membership in Group bodies Allianz Beratungs- und Vertriebs-AG (Chairman), Allianz Lebensversicherungs-AG (Chairman), Allianz Private Krankenversicherungs-AG (Chairman), Allianz Versicherungs-AG (Chairman)
Allowance for loan losses The overall volume of provisions includes allowances for credit losses – deducted from the asset side of the balance sheet – and provisions for risks associated with contingencies, such as guarantees, loan commitments or other obligations, which are stated as liabilities.
Business combination A business combination is a transaction or event in which an acquirer obtains control of one or more businesses. Business combinations are accounted for using the purchase method.
Goodwill Difference between the acquisition cost and the Allianz Group’s proportionate share of the fair value of the net assets of the acquiree.