Return on equity after taxes % 7.4 (0.1) % pt 7.5
However, it may also be the case that the development of the Allianz share price suffered as a result of our evident failure to resolve certain critical issues. One criticism leveled at us was that our equity allocation is still too high, and that our earnings are consequently still too dependent on equity market fluctuations. The question of whether or not we should also consider selling large operating units in the foreseeable future also became the object of lively public discussion, as did the future of our investment bank Dresdner Kleinwort Wasserstein. And the media and analysts called for us to have an even more focused strategic business direction.
During the course of last year, I was also questioned about our strategic objectives. Is there, in reality, such a lack of visibility surrounding these – as has been criticized? Just in case I have not expressed myself clearly enough in the past, I would like to reiterate what our team stands for. Our objective is to be the international financial services provider that is trusted because we deliver on, or surpass, all of our promises. From the outset, our aim has been to put all our energy into pursuing this objective and self-assigned undertaking, and into making it a reality.
The first program on the agenda is our sustainability program. For this, our best specialists seek out outstanding successes within your company worldwide from our range of products, services and operating implementation for the property and casualty and life insurance business. Best solutions featuring a number of components are then drawn up as compulsory catalogues for those companies not yet working at the same pitch. In this way we achieve the sustainability that is enshrined in our “+One” concept.
The Personnel Committee also convened three times. It dealt with personnel matters of the members of the Board of Management, the structure and amount of the remuneration of the Board of
The Audit Committee held five meetings in the course of 2004.
Board in due time. These documents were discussed in depth by the Audit Committee on March 7, 2005, as well as by the Supervisory Board at a meeting held for that purpose on March 16, 2005.
Supervisory Board. Further information on the Board of Management can be found on page 11 of this report.
Codetermination Act is composed equally of representatives of the shareholders and of the employees. The shareholder representatives are elected by the General Meeting, the employee representatives by the employees of the German Allianz companies. Three of the employee representatives are trade union representatives.
The last election to the Supervisory Board took place in 2003, for a period of office of five years.
Board by presenting a detailed remuneration report, with reference to individuals for the first time.
International Financial Reporting Standards (IFRS). As a company quoted on the New York Stock Exchange (NYSE), we are also bound to submit to the American supervisory body, the Securities and Exchange Commission (SEC), a filing complying with the U.S. rules for foreign bond issuers. This is based on the IFRS
The Sarbanes-Oxley Act (SOA) of 2002 in particular has a significant effect on our corporate governance. We have worked intensively in the past year on the implementation of Section 404 of the SOA. This rule compels companies to document fully their financial reporting internal control system and to check its effectiveness annually. We intend to report on the efficacy of our system of internal controls for financial reporting in the SEC filing
The members of the Board of Management are either not receiving remuneration from mandates at Group companies or the remuneration paid to members of the Board of Management from such mandates is turned over to the company in full. Of the remuneration received from mandates in companies outside the Group, 50 % is turned over to the company and, in the year under review, this amounted to € 0.5 million (2003: € 0.5 million). This remuneration is shown in the annual reports of the companies concerned.
The individual members of the Supervisory Board each received the following remuneration: At the Annual General Meeting on May 4, 2005, the Board of
Profits that exceed capital costs can be retained by our operating entities to finance their internal growth. That means: Our most profitable entities have direct access to considerable funds to finance their growth. This dividend model, which has been in use since 2004, provides for two exceptions: _ When an operating entity must be restructured, it can temporarily be exempted from the dividend rule in order to be able to build equity.
_ Certain operating entities that are currently building up business in strategically important future markets are, for the time being, not required to pay dividends – such as our operating entities in China and India.
“Economic Value Added” (EVA®) as the key indicator for controlling our business. This indicator also determines the stock-related compensation of our senior management. For more information on this subject, see pages 16 to 19 or pages 24 to 25 of this Annual
2) Revenue reserves include currency translation effects (2004: ¤(2,680) mn; 2003: ¤(1,916) mn).
We issued a € 1.4 billion subordinated bond to partially refinance € 2.7 billion worth of bonds that mature in 2005. This bond has an unlimited maturity period, but we are entitled to redeem the bond at the nominal amount after twelve years. Our capital base was also strengthened by Dresdner Bank placing its stock of 17.2 million Allianz AG shares on the open market at a market capitalization of approximately € 1.5 billion.
Interest cost2) ¤49.6 mn Received option premium at issue ¤178.1 mn
Overall, life insurance showed brisk development. In Germany the new fiscal treatment of life insurance benefits as from January 1, 2005, triggered an exceptional surge in business in the last quarter of the reporting year. A large number of customers wanted to take advantage of the tax-free payment by taking out a contract before the end of the year, thus generating a veritable boom in our business in this quarter for the numerous providers, whose premiums rose by a good 12 %. Life insurance also flourished in countries with out any such exceptional conditions, for example in
Bond markets The oil price development, the change in direction in U.S. interest rates and persistent general worries about the economic climate determined the government bond markets in 2004. Between
Overall, quality of earnings strongly improved in 2004. Operating profit increased significantly by € 2.8 billion to € 6.9 billion. Hence, despite a decrease in our non-operating result by € 467 million and an increase of taxes and minority interests in earnings of € 2.0 billion, our net income increased by 16.4 % to € 2.2 billion in 2004.
_ Allianz Cornhill ranks sixth in the British property-casualty insurance market based on market share.
_ In addition, our wholly-owned subsidiary Allianz Risk Transfer (or “ART”) sells conventional reinsurance as well as a variety of alternative risk transfer products for corporate customers worldwide.
Excluding the negative effect of exchange rate movements of € 25 million, gross premiums written increased by 22.3 %, reflecting primarily the sale of a large alternative risk transfer contract.
_ In August 2004, we disposed of our Chilean property-casualty operations.
Gross premiums written Gross premiums written increased by 10.0 % to € 900 million in 2004, reflecting the moderate recovery of the tourism industry, which resulted in higher premium income for our travel insurance business, especially in Italy, Austria, Australia, France and Poland, as well as growth in our assistance business, particularly in the
United Kingdom, Brazil and France. Whereas Europe still is the major growth driver, overseas markets, such as Australia and North
_ Net income rose significantly by ¤770 million to ¤808 million in 2004.
Earnings after taxes and before goodwill amortization Earnings after taxes and before goodwill amortization from our health insurance operations increased significantly by € 70 million to € 76 million in 2004 from € 6 million in 2003, due primarily to lower tax charges as compared to 2003, which reflected the effect of the changes in German tax law in 2003. In addition, our investment result improved, largely attributable to a significant decrease in realized losses and impairments. Additionally, the reduction in administrative costs also contributed to the increase in earnings after taxes and before goodwill amortization. Our statutory expense ratio decreased to 9.3 % in 2004 from 10.4 % in 2003.
We stabilized operating revenues, significantly increased efficiency and markedly decreased risks.
Operating revenues Operating revenues were € 1,039 million in 2004, a slight decrease of 2.4 %, as com pared to € 1,065 million in 2003, reflecting mainly a decrease in net interest income and current income.
These items include, in particular, expenses for central functions and projects affecting Dresdner Bank as a whole which are not allocated to the operating divisions, as well as provisioning requirements for country and general risks, and realized gains and losses from Dresdner Bank’s non-strategic investment portfolio.
The tabular presentation reflects the definition of the group’s own investments as used by management for its controlling purposes.
Group Finance Committee, which is likewise made up of members of the Board of Management of Allianz AG, delegates far-reaching, decision-making authority to the regional Finance Committees, which monitor activities in their respective regions or countries.
Market risks We monitor market risks by means of sensitivity analyses and stress testing. As protection against exchange rate fluctuations, we back our insurance commitments to a very large extent by funds in the same currency. If the average share prices of our stock portfolio carried as available for sale had dropped 10 % at the end of 2004, the shareholders’ equity of the Allianz Group would have decreased by € 1.4 billion.
Country risks We control these risks by using internal country ratings. These ratings are based upon macroeconomic data and key qualitative indicators. The latter take into account the economic, social and political environment. The country rating system was expanded from eight to 16 classes in fiscal 2004, similar to the individual credit-worthiness ratings of our customers. These divide countries into those without any discernible risk, and those with an increased or high risk potential. The country risk management at the Dresdner Bank is intended to limit transfer and local risks on the basis of a comprehensive country limit system.
0I II III IV V VI VII VIII IX X XI XII XIII XIV XV XVI
Supervisory authorities and rating agencies are additional risk monitoring bodies. Supervisory authorities stipulate the minimum precautions and capital requirements that must be taken in individual countries and on an international level. Rating agencies determine the relationship between the required risk capital of a company and the available safeguards. In their evaluation of capital resources, the rating agencies include equity shown in the balance sheet, minority interests and other items representing additional securities in times of crisis. At the end of the year, this total was at a level that corresponds to our current ratings. At the end of fiscal 2004, the financial strength of the Allianz Group was rated by Standard & Poor’s as “AA–” (outlook negative), by
In 2004, we once again launched an employee stock purchase plan, which offered Allianz shares at preferential conditions to over 123,000 employees in 20 countries.
Public attention is still very much focused on the issue of funded retirement plans and therefore life insurers and asset managers can expect healthy business growth in 2005 as well. The mutual fund industry in particular is likely to benefit from the less volatile environment in the capital markets. Because funded retirement plans are obligatory – at least in part – in many central and eastern European countries, continued cash inflows can be expected in this region. Even in Asia, rising prosperity levels are fueling demand for privately financed retirement plans. Life insurers will continue to benefit from these trends in 2005. German companies, on the other hand, have to contend with a special situation. The German Retirement Income Act, which took effect at the beginning of 2005, establishes improved conditions for sales of private retirement insurance policies, but also does away with the tax deduction for endowment insurance. In anticipation of this change, sales of life insurance and retirement insurance products spiked in December 2004. Consequently, it will take some time before the impact of the new provisions of the Retirement
_ make sure that they are not complicit in human rights abuses.
“Gesellschaft für Technische Zusammenarbeit”, we are investigating the market for microinsurance in Asia.
Paid-in Revenue Foreign currency Unrealized Shareholders’ capital reserves translation gains and equity adjustments losses (net)
Change in loans and advances to banks and customers (5,950 ) (47,109 ) (5,846 )
Use of Estimates and Assumptions The preparation of consolidated financial statements requires the Allianz
Loans and advances to banks and customers Loans and advances to banks and customers originated by the Allianz
The calculation of deferred tax is based on temporary differences between the Allianz Group’s carrying amounts of assets or liabilities in its consolidated balance sheet and their tax bases. The tax rates used for the calculation of deferred taxes are the local rates applicable in the countries concerned; changes to tax rates already adopted prior to or as of the consolidated balance sheet date are taken into account. Deferred tax assets are recognized if sufficient future taxable income is available for realization.
For short-duration insurance contracts, such as property-casualty contracts, in accordance with SFAS 60, premiums written to be earned in future years, are recorded as unearned premiums. These premiums are earned in subsequent years in relation to the exact risk coverage period.
IFRS because they are not calculated in accordance with the prudence concept but are based on best-estimate future claims experience.
Goodwill Goodwill is amortized against income over its useful life under
Of the entities that have been consolidated as of December 31, 2004, 9 (2003: 10; 2002: 12) subsidiaries have been consolidated where Allianz AG owns less than majority of the voting power of the subsidiary, including CreditRas Vita S. p. A. (CreditRas) and Antoniana Veneta Popolare Vita S. p. A. (Antoniana), in all periods presented.
Commercial Register in Munich. All private companies are also listed and identified separately in this disclosure of equity investments, for which the consolidated financial statements and the Allianz Group management report are exempt in accordance with the application of clause 264 b of the German Commercial Code (HGB).
1) Consolidated in the business segments. 2) On the date of first-time consolidation. 3) Income from service agreements 2004 Acquisitions
The principal companies deconsolidated in the course of the year are presented in the following table: 2003 Acquisitions
Frankfurter Versicherungs-AG, Frankfurt am Main On June 28, 2002, the Allianz Group increased its interest in Frankfurter Versicherungs-AG
by 45.0 % to 90.0 %, resulting in additional goodwill of ¤94 mn. The acquisition cost for the additional interest was ¤858 mn.
Deutsche Hyp Deutsche Hypothekenbank AG, Frankfurt am Main In August 2002, Deutsche Hyp Deutsche Hypothekenbank AG (Deutsche Hyp)
Fee and commission income, and income from service activities 1,038 522 521 224 234 200
Business Segment Information – Operating Profit for the years ended December 31, 2004 and 2003
While these excluded items are significant components in understanding and assessing the Allianz Group’s consolidated financial performance, the Allianz Group believes that the presentation of operating results enhances the understanding and comparability of the performance of its operating segments by highlighting net income attributable to ongoing segment operations and the underlying profitability of its businesses. For example, the Allianz Group believes that trends in the underlying profitability of its segments can be more clearly identified without the fluctuating effects of the realized capital gains and losses or impairments on investment securities, as these are largely dependent on market cycles or issuer specific events over which the Allianz Group has little or no control, and can and do vary, sometimes materially, across periods. Further, the timing of sales that would result in such gains or losses is largely at the
Gross amount capitalized as of 12/31 previous year 2,699 2,619 1,999
Liabilities to banks and liabilities to customers also includes outstanding repurchase agreements. Securities owned and pledged as collateral under repurchase agreements had a carrying value of ¤117,468 mn and
Loan loss allowance The overall volume of risk provisions includes loan loss allowances deducted from loans and advances to banks and customers in the amount of ¤4,135 mn (2003: ¤5,725 mn; 2003: ¤6,967 mn) and provisions for contingent liabilities, such as guarantees, loan commitments and other obligations included in other accrued liabilities in the amount of ¤371 mn
of commitments to lend additional funds to borrowers whose loans are non-performing or whose terms have been previously restructured.
¤88,291 mn (2003: ¤67,300 mn) from public-sector issuers and ¤69,721 mn (2003: ¤44,229 mn) from other issuers.
In addition to the amounts allocated to policyholders of the Allianz Group, amounts totaling ¤3,277 mn (2003: ¤3,514 mn; 2002: ¤3,680 mn) were directly credited from surplus.
Reserves for restructuring As of December 31, 2004, the Allianz Group has provisions for restructuring for a number of restructuring programs in various segments. With the exception of those provisions for restructuring related to Dresdner Bank
Changes in the provisions for restructuring for the years ended December 31, were: ¤mn ¤mn ¤mn
Acquisition costs and administrative expenses are comprised of the following: Segment Consolidation Group*) Segment Consolidation Group*) Segment Consolidation Group*)
Of the deferred tax charge for the reporting year, ¤68 mn (2003: income of ¤256 mn) are attributable to the recognition of deferred taxes on temporary differences. The change of applicable tax rates due to changes in tax law produced deferred tax income of ¤39 mn (2003: ¤26 mn).
Due to the use of tax losses carried forward for which no deferred tax asset was recognized, the current income tax charge diminished by ¤193 mn
December 31, 2004 approximately 9.0 % of the share capital of Allianz
In light of the above described material changes in the relationship between Allianz Group and Munich Re, in particular the significant reduction of the mutual shareholdings to below 10 %, the cancellation of the “Principles of Cooperation” agreement and the termination of mutual board interlocks, we no longer consider Munich Re as a related party.
The Allianz Group written premiums that were ceded to or assumed from companies of the Munich Re Group in 2002 and 2003 are shown in the following table: Years ended 12/31 2003 2002
with the maximum being the amount of Dresdner Bank AG’s annual contribution. In 2004, the Joint Fund did not levy a contribution (2003 and 2002: no contribution). Under section 5 (10) of the Statutes of the Joint
In December 2002, Protektor Lebensversicherungs-AG (Protektor) was founded. Protektor is a life insurance company whose role is to protect policyholders of all German life insurers. Protektor intervenes in cases where other attempts to prevent insolvency of a German life insurer have failed. In such cases, Protektor takes over the contract portfolios of the respective company, managing and consolidating them with the goal of subsequently selling these portfolios. All life insurance companies in Germany are obliged to be shareholders of Protektor and thus to finance its capital. This obligation is limited to 1 % of the shareholders’ own capital investments as of December 31, 2001. In addition, no shareholder of
In the context of the Beethoven Funding Corporation, LLC („Beethoven “), an asset-backed commercial paper program administered by the
Numerator for basic earnings per share (net income) ¤ mn 2,199 1,890 (1,496 )
Worms et Cie, Paris 367 14.8 2,012 112 12/31/2003 1) Market value Greater-Equal to ¤100 mn and percentage of shares owned Greater-Equal to 5 %, and market value Greater-Equal to ¤500 mn, without trading portfolio of banking business. 2) Percentage includes equity participations held by dependent enerprises in full, even if the Group‘s share in this dependent enerprise is under 100% (including consolidated investment funds).
Our audit, which also extends to the group management report prepared by the Company’s management for the business year from January 1 to
Dr. Jürgen Hambrecht Chairman of the Board of Management BASF Aktiengesellschaft
income or expenses that arise from events or transactions that are clearly distinct from the ordinary activities of the enterprise and are therefore not expected to recur frequently or regularly.
Goodwill Difference between the purchase price of a subsidiary and the relevant proportion of its net assets valued at the current value of all assets and liabilities at the time of acquisition. Minority interests are always valued at carried-forward historical cost. Goodwill is amortized over its useful life.
Reserves for current and future post-employment benefits formed for the defined benefit plans of active and former employees. These also include reserves for health care benefits and processing payments.
Interest income from reverse repos and interest expenses from repos are accrued evenly over the lifetime of the transactions and reported under interest income/interest expenses and similar income/ expenses.