There is still a lot of work ahead of us, if we wish to make use of all the possibilities. But I believe in the ability of our people to develop business opportunities and execute them, and I feel the strong change in attitude since the outbreak of the crisis. Your company has become “hungrier” and more enterprising.
U.S. Sarbanes-Oxley Act on the Allianz Group. In December 2003, the Board of Management and the Supervisory Board signed the annual Declaration of Compliance with the German
D R . G E R H A R D C R O M M E
3-year-bonus Achievement of a In the 4th year after the grant 0 – 120 % 12 % 3-year-objective (annual share)
Annual General Meeting and is defined in article 9 of the Articles of Association.
Personnel Committee and of the Standing Committee is increased by 25 percent, that of the chairmen of these committees by 50 percent. To prevent a conflict of interest on the part of the members of the Audit Committee with respect to the dividend proposal of the Supervisory Board, these members merely receive a fixed annual remuneration of 30,000 euros for their work in this committee, while the chairman receives a fixed amount of 45,000 euros.
W O L F R A M L I T T I C H
What stands behind this program and what progress has already been achieved?
Jones EURO STOXX Insurance Index. Above all, we take this increase in value as a recognition of our decisive improvements in the operating business and we are pleased that after the very bad year of 2002, investors’
MSCI Europe, and it is used in calculating the FTSE Eurotop 100 and the MSCI World Index. The Allianz share is also included in the Dow Jones Sustainability Index. This index only lists the top 10 percent of companies in a given industry that have obtained the best rankings in a sustainability rating. The ranking is based on economic, ecological and social criteria.
This makes Allianz one of the largest publicly held corporations in Europe. A higher free float percentage raises the liquidity of our share and upgrades its weighting in most major indexes.
Average number of shares in the fiscal year2) 338,201,031 276,854,382 277,763,292
Annual Report, they can download the most important Allianz publications, and now they can also subscribe to the Allianz
April 2003. While ratings across the insurance industry were generally declining, our ratings stabilized. Standard & Poor’s, for example, attests to our “very strong” financial status and continues to maintain its “AA–” rating. A. M. Best assigns Allianz
3. Exchangeable Bonds Interest 2.0 % exchangeable bond issued by Allianz Finance B. V., paid Amsterdam in 2003 Exchangeable for Siemens AG shares Volume ¤ 1.7 bn Year of issue 2000 Maturity date 3/23/2005 Current exchange price ¤ 149.64
Asset Management The fund management industry felt the turbulence in the capital markets in 2003 as well. Investor confidence only returned in the second half of the year. The unsteady price development in the stock and fixed-interest markets made money market funds as popular as they had been in the previous year. Total fund assets were up after having suffered a decline in each of the two previous years. That rekindled the hope of a return to the growth rates of the past, a hope that is born out by the fundamentals of this business segment, which are quite good.
Life and Health insurance In most industrialized countries, citizens are becoming increasingly aware of the problems of an aging population and the strains that it puts on state pension systems. Additional private and corporate retirement insurance has finally become a widely discussed topic, and frequently, life insurance plays a predominant role in this discussion. So it is not surprising that this business segment continues to attract strong demand, as is the case in Germany, for example. But this demand is concentrated on the major, financially strong providers.
For the business of Allianz – insurance, asset management and banking – the development of the capital markets plays a preponderant role. It is reflected in its turnover as much as in its earnings positions, but also influences shareholders’ equity because the valuation reserves fluctuate along with market performance. In view of the uncertainties in the first half of 2003, customers remained cautious and preferred low-risk investments.
This trend was supported by the central banks’ cheap money policy: The U.S. Federal Reserve lowered its funds rate to 1 percent, while the European Central Bank cut its prime rate to 2 percent. Fears of deflation helped to accelerate the decline in yield of fixed-interest paper. When these fears had vanished and the word “inflation” once again made the rounds in the second half of the year, fixed-interest securities came under heavy pressure. In only six weeks, yields climbed 130 basis points in the
_ Of equal importance to us was a speedy return to sustained profitability in the operating business.
In 2003, the Allianz Group succeeded in strengthening its equity base with 6.9 billion euros and raising its net income to 1.6 (– 1.2) billion euros. In addition, we began to reduce the complexity of our business portfolio.
Distribution costs and administrative expenses came to 22.1 billion euros in 2003 and were thus 2.4 billion euros or 9.7 percent lower than in the previous year, despite higher revenues.
The claims ratio clearly improved to 68.1 (73.5) percent. In the previous year, the high claims expenses caused by the flooding disasters had pushed up this indicator by 5.1 percentage points.
SGD’s investments totaled 22.3 (21.3) billion euros at the end of the year. The corresponding income of 565 million euros remained clearly below the year 2002 figure of 2.4 billion euros.
In the current fiscal year, we expect SGD to be able to sustain its improvement of the combined ratio, even while it is pursuing its risk and earnings-oriented rate and underwriting policy.
Rigorous cost management kept the expense ratio of RAS Group at previous year’s level of 23.9 (23.9) percent, despite weaker growth and continued investments aimed at strengthening brand awareness. Higher IT expenses pushed the expense ratio of Lloyd Adriatico to 19.8 (18.9) percent. However, even with this figure, cost management at RAS Group is still one of the best in the Italian insurance industry.
This brought down the claims ratio to 75.9 (77.0) percent. At the same time, claims expenses in our industrial and commercial lines were substantially lower. The expense ratio declined to 19.6 (20.6) percent. The fact that our expenses increased more slowly than our revenues demonstrates our ability to achieve economies of scale and to further optimize our workflows.
_ The operating business in China was launched in the reporting year.
The countries of Latin America have repeatedly suffered from economic crises and currency problems in the recent past. This difficult market context is also reflected in the combined ratio of our insurance portfolio in the region, despite an improvement of the expense ratio, which increased to 103.9 (101.8) percent.
The claims ratio in the travel insurance business improved to 60.6 (62.0) percent. The expense ratio also declined 1.2 percentage points to 31.3 percent – a result of the continuing streamlining of processes and structures as well as targeted cost management.
_ Total premium income from this region amounted to 2.6 billion euros.
This increase in the value of investments managed for third party investors overcompensated the negative exchange rate effect of 68 billion euros which stemmed in particular from the weakness of the U.S. dollar.
Approximately 70 percent of our third-party investments come from the U.S.A. and roughly 18 percent from Germany.
_ Our PIMCO Total Return Fund increased its investment volume to 74 billion U.S. dollars by the end of the year and has established itself as the largest actively-managed investment fund in the world.
Risk capital At the end of fiscal 2003, the risk capital of Dresdner
of the Allianz Group, the EVA® of the respective Group companies. Objectives reached are measured the cost of capital. The
Asia should grow even faster than Central and Eastern Europe, by about 6 percent. In this region, the pace and extent of the liberalization in China is a key factor for the business opportunities of financial services providers. In Latin America, economic fundamentals will also improve. We expect an expansion of just under 4 percent in this region.
Principle 9 encourage the development and diffusion of environmentally friendly technologies.
148 25 Interest and similar income 149 26 Income (net) from investments in affiliated enterprises, joint ventures, and associated enterprises 149 27 Other income from investments 149 28 Trading income 150 29 Fee and commission income, and income from service activities 150 30 Other income 151 31 Insurance benefits 151 32 Interest and similar expenses 152 33 Other expenses for investments 152 34 Loan loss provisions 153 35 Acquisition costs and administrative expenses 154 36 Other expenses
Change in other insurance reserves2) – 951 – 4,241 – 4,007
¤ mn ¤ mn ¤ mn ¤ mn ¤ mn ¤ mn 1) Excluding Specialty lines 2) The net claims ratio represents net claims and claim adjustment expenses as a percentage of net premiums earned 3) The net expense ratio represents net underwriting costs as a percentage of net premiums earned 4) The net expense ratio represents net underwriting costs as a percentage of net premiums earned (statutory) 5) Before amortization of goodwill and minority interests
IFRS do not provide specific guidance concerning the reporting of insurance transactions in annual financial statements. In such cases as envisioned in the IFRS Framework, the provisions embodied under accounting principles generally accepted in the United States of
When acquiring PIMCO in 2000, it was agreed that PIMCO management would acquire PIMCO equity annually through 2004 subject to a vesting arrangement, and, following a blackout period, PIMCO management and Allianz would hold reciprocal rights to put or call such equity, enabling Allianz to increase its economic interest in the earnings of PIMCO in future periods.
13 (2002: 12; 2001: 13) joint ventures have been accounted for using the equity method; each of these enterprises is managed by
In the course of the year, no major subsidiaries were acquired or consolidated for the first time.
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 115
_ Disappearance of an active market for the financial assets due to financial difficulties.
Treasury shares held for account of Group companies are treated like unissued shares and are deducted from shareholders’ equity at average cost. Gains and losses arising from trading in treasury shares held by the company are added to revenue reserves after income tax has been deducted.
Premiums for property and casualty insurance are reported proportionately as income over the term of the insurance contract in relation to the exact risk coverage period. Unearned premiums are calculated separately for each policy, in order to determine the portion of premium income that has not yet been earned.
Based on various legal, regulatory and other operational issues associated with operating entities in jurisdictions worldwide, the insurance segments of the Allianz Group are also further analyzed by geographical areas or regions in a matrix that comprises a number of profit and service-center segments. This geographic analysis is performed to provide further understanding of trends and results underlying the segment data.
The definition of an asset is broader under IFRS rules than under the
The reclassification in 2002 concerns the goodwill of associated enterprises, which have been included under investments in associated enterprises since the beginning of fiscal 2002.
Amortization of software is included in the income statement. For the insurance companies, it is allocated to the various functional areas. The companies of the banking segment report amortization of software under administrative expenses.
Contractual term to maturity due in 1 year or less 15,897 20,761 16,231 21,091 due after 1 year and in less than 5 years 79,921 75,092 82,558 79,500 due after 5 years and in less than 10 years 93,040 86,652 96,754 90,113 *) Without treasury shares
The loan portfolio contains non-accrual loans of ¤8,374 (2002: 10,452) mn. The total amount of loans with provisions against the principal include ¤3,068 (2002: 2,556) mn of loans on which the
Additions charged to the income statement 2,154 2,927 1,087 42 111 – 4 90 110 2,200 3,128 1,197
retained ¤50 mn in 2003 and ¤38 mn each in 2001 and 2002. The limits for cat events are ¤75 mn for 2003 and ¤50 mn each for 2002 and 2001.
Depreciation is apportioned between the relevant cost headings in the income statement for insurance companies. Reversals of impairments are credited to “Other income”.
Authorized Unissued Capital 2001/II which can be issued up to July 10, 2006. The pre-emptive rights of shareholders can be excluded in order to offer the new shares to employees of Allianz AG or its Group companies.
Interest paid on non-voting interests amounted to ¤119 (2002: 118; 2001: 128) mn for the year.
The negative market values of derivative financial instruments are shown on a net basis, i. e. taking into account existing netting agreements.
As part of the project control process, the adequacy of the reserves constituted is regularly examined and adjusted if required. The resulting impact on income is taken into account in the additions or releases. The adjustments required are determined, on the one hand, by the concrete application of the personnel instruments used and, on the other hand, by adjusting the expected income from subleases to the development of the real estate market.
Gross premiums written: Premiums earned 1) The figures for 2001 include the Dresdner Bank Group only from the time of its initial consolidation (July 23, 2001 to December 31, 2001) 2) After eliminating intra-Group transactions between segments
*) After eliminating intra-Group transactions between segments 29 Fee and commission income, and income from service activities
Realized losses on securities held-to-maturity – 3 – 4 – 12 securities available-for-sale – 5,251 – 8,063 – 6,888 real estate used by third parties – 102 – 131 – 19
Expenses for management of investments – 433 – 510 – 484 – 414 – 553 – 457
Of the deferred tax income for the reporting year, ¤272 mn
Exchange traded Futures – – – – – – 24 1 –
Additionally, cash flow hedges were used to hedge variable cashflows exposed to interest rate fluctuations. The swaps utilized had a fair value of ¤5 mn; other reserves decreased by ¤41 mn. Ineffectiveness amounted to – ¤4 mn.
Allianz AG’s share capital. Taking into account the treasury shares held by Allianz Group as of this date this corresponds to an ownership percentage of 12.8 %.
In the normal course of business, and subject to applicable legal restrictions, members of the Management Board and the Supervisory
For Allianz of America Inc., Wilmington, Allianz AG posted a surety declaration for obligations in connection with the acquisition of PIMCO Advisers L.P. The Allianz Group had originally acquired a 69.5 % interest in PIMCO, whereby minority partners had the option of offering their share to Allianz of America, Inc. On December 31, 2003, the remaining interest of Pacific Life in PIMCO was 15.0 %, and corresponding commitment to Pacific Life amounted to USD 1.09 bn on De-
With respect to the buyers of one of our former private equity investments there is a guarantee obligation in the amount of ¤302 mn.
Allianz senior management worldwide is entitled to participate in these Group equity incentives. In fiscal 2003, more than 550 senior managers in 28 countries and 74 companies received a corresponding offer.
Awards were granted by the respective companies in accordance with uniform group-wide conditions. The grant price for SAR and RSU
December 31, 2003, the total compensation expense related to the 541,394 outstanding RSUs was ¤55 mn. Taking into account the expired portion of the vesting period, a reserve of ¤ 6 mn was established on December 31, 2003, and reported under the heading
Vereinte Spezial Versicherung AG, Munich 45 100.0 *) Percentage includes equity participations held by dependent enterprises in full, even if the Group’s share in this dependent enterprise is under 100 %
*) Percentage includes equity participations held by dependent enterprises in full, even if the Group’s share in this dependent enterprise is under 100 %
Koç Allianz Hayat ve Emeklikik A. S. (Koç Allianz Life and Pension Company), Istanbul 27 38.0
Sophia, Paris 1,361 28.4 1) Percentage includes equity participations held by dependent enterprises in full, even if the Group’s share in this dependent enterprise is under 100 % 2) Associated enterprises are all those enterprises other than affiliated enterprises or joint ventures, in which the Group has an interest of between 20 % and 50 %
D R . J Ü R G E N H E R A E U S
D R . J Ü R G E N F. K A M M E R
D O N A L D R . A R G U S A O
Company S. A. Griechenland, Allianz Nederland Groep N. V., Allianz Portugal S. A.
This heading comprises the capital stock, the premium received on the issue of shares, and amounts allocated when option rights are exercised.
An enterprise which is managed jointly by an enterprise in the
Securities available-for-sale are securities which are neither held with the intent that they will be held-to-maturity nor have been acquired for sale in the near term; securities available-for-sale are shown at their market value on the balance sheet date.
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