During the entire reporting year, the Supervisory Board observed the duties incumbent upon it in accordance with the law and the Statutes. We advised the Management Board in the running of the business and supervised themanagement of the company. The Supervisory Board was directly involved in decisions of fundamental importance.
The Risk Committee, recently established by the Supervisory Board, monitors the risk strategy and the appropriateness of the company’s riskmanagement organization as well as the related group-wide guidelines. The Risk Committee also has the responsibility for information on the general risk situation and on specific risk developments within the Allianz Group. The Risk Committee and the Audit Committee have a common responsibility to ensure that appropriate riskmanagement and risk control mechanisms are in place and to review the specific risk related statements within Allianz SE’s and Allianz Group’s annual reports (including themanagement reports).
Accounting standards and audit of annual accounts Allianz group accounts follow International Financial Reporting Standards (IFRS). As the Allianz share is quoted on the New York Stock Exchange (NYSE), we are obliged to file an annual report on Form 20-F with the US stock exchange supervisory authority, the Securities and Exchange Commission (SEC), in accordance with the rules applicable to foreign issuers. This report is based on the IFRS group accounts and additionally contains a reconciliation statement in line with US Generally Accepted Accounting Principles (US GAAP). In compliance with special provisions applying to insurance companies (section 341k paragraph 2 of the Commercial Code) our auditors are appointed by the supervisory board and not by the general meeting. The audit of the annual accounts relates to the individual financial statements of Allianz SE as well as the consolidated financial statements under German and US law.
In Germany the Code is ever-increasingly taken as the benchmark of good corporate governance and control. Analyses show that acceptance of the German Corporate Governance Code is rising continuously. At 2006 year end, the DAX-30 companies met an average of 97 percent of all recommendations whereas in the M-DAX around 92 percent and in the S-DAX about 89 percent of the recommendations had been followed by the companies.
In compliance with provisions contained in the SOA, Allianz SE has drawn up, in addition to the Code of Conduct applying to all employees, a special “Code of Ethics” that applies to themembers of the board of management and to senior employees in certain divisions, mainly in finance.
For other cases of an early termination of appointment to the Board of Management, the service contracts do not contain any particular regulations.
Development of the Allianz share price versus Dow Jones EURO STOXX 50 and Dow Jones EURO STOXX Insurance indexed on the Allianz share price in €
An Extraordinary General Meeting of Allianz was held on February 8, 2006. With a 99.90% majority it resolved to merge the Italian subsidiary RAS into Allianz AG and to convert Allianz AG into a Societas Europaea (SE). The
Net expenses from financial assets and liabilities held for trading was down significantly, as, in the prior year, heavy negative impacts stemmed from derivatives from 3) Please see “Allianz Group Success Factors” and Note 49 to our consolidated financial statements for further information on our restructuring plans.
Realized gains/losses (net) from investments, not shared with policyholders, amounted to € 1,746million, € 598million higher than last year. The transactions contributingmost to this increase were the sale of Allianz Sach’s participation in Schering AG and the disposal of our real estate portfolio in Austria in June 2006, as well as the sale of Lloyd Adriatico’s shareholding in Banca Antoniana Popolare Veneta S.p.A. in April 2006, which together accounted for € 726million of the increase.
Income before income taxes and minority interests in earnings 7,560 6,166 5,300
3) The total of these items equals realized gains/losses (net) in the segment income statement included in Note 5 to the consolidated financial statements. 4) The total of these items equals impairments of investments (net) in the segment income statement included in Note 5 to the consolidated financial statements.
• PIMCOwas named “Investor of the Year” in the 2006 Securitization News survey.
At € 2,989 million, operating revenues reflect a solid growth of 11.7% at stable revenuemargins, primarily attributable to strict pricing discipline and a further improved responsiveness to our clients’ needs. Net fee and commission income was up € 277 million to € 2,874 million, predominantly due to highermanagement fees as a result of the growing third-party asset under management base, as previously discussed. Internal operating revenue growth of 13.2% was even stronger, as nominal operating revenue growth was impacted by the weaker U.S. Dollar compared to the Euro.
The growth of unrealized gains/losses (net) was brought about by significantly increased unrealized gains from available-for-sale equity investments, largely as a result of the general upward trends in equity capital markets worldwide. In contrast, higher market interest rates and, as a result, downward trends in fixed income indices, had a partially offsetting negative effect on the values of our fixed income securities and their corresponding unrealized gain or loss.
Total assets and total liabilities increased by € 63.9 billion and € 54.2 billion, respectively. In the following sections we analyze important developments within the balance sheets of our Life/Health, Property-Casualty and Banking segments. Relative to the Allianz Group’s total assets and total liabilities, we consider the total assets and total liabilities from our Asset Management segment as immaterial and have, accordingly, excluded these assets and liabilities from the following discussion. Our Asset Management segment’s results of operations stem primarily from its business with third-pary assets. See “Asset Management Operations - Third-Party Assets Under Management of the Allianz Group” for a discussion of our Asset Management segment’s thirdparty assets. See “Liquidity and Capital Resources” for information on the development of Allianz SE’s issued debt, and our consolidated cash and cash equivalents.
1) Loans and advances to banks and customers, held-to-maturity investments, and real estate held for investment are stated at amortized cost. Investments in associates and joint ventures are stated at either amortized cost or equity, depending upon, among other factors, our ownership percentage. For further information see Note 2 to the consolidated financial statements.
The Allianz Group holds cash and cash equivalents in more than 30 different currencies, although such cash and cash equivalents are held primarily in Euros, U.S. Dollars and Swiss Francs. See Note 6 to our consolidated financial statements for additional information on the Allianz Group’s cash and cash equivalents.
A 10% price decline in our available-for-sale equity securities as of December 31, 2006 would have resulted in a € 3.1 billion decline in shareholders’ equity before minority interests. If the interest rate had increased by 100 basis points, shareholders’ equity before minority interests would have decreased by € 3.9 billion, if we take into account the available-for-sale fixed income securities as of December 31, 2006. A 10% devaluation of the U.S. Dollar against the Euro as of December 31, 2006 would have decreased shareholders’ equity before minority interests by € 1.0 billion. These calculations do not take into account derivatives.
Our internal risk capital model quantifies the following risk categories: • Market risks Possible losses caused by changes in interest rates, exchange rates, share prices, real estate values and other relevantmarket prices (such as commodities); • Credit risks Possible losses caused by the inability to pay or a downgrade in the credit rating of debtors or counterparties; • Actuarial risks Unexpected financial losses from the sale of insurance protection; and
The value-at-risk model, which is used to evaluate capital adequacy for regulatory purposes and which forms the basis for our internal risk capital model, must take into account market fluctuations that can occur at a confidence level of 99% and a 10-day holding period. The value-at-risk model is supplemented by stress tests that estimate the potential loss under extrememarket conditions.
Actuarial risks in property-casualty insurance have led to fluctuations of the loss ratio in our Property-Casualty segment over time, as shown below.
Strategic risk is the risk of an unexpected negative change in the company value, arising from the adverse effect of management decisions on both business strategies and their implementation. This risk is a function of the compatibility between strategic goals, the business strategies developed to achieve those goals and the resources deployed to achieve those goals. Strategic risk also includes the ability of management to effectively analyze and react to external factors, which could impact the future direction of the relevant operating unit.
Our Life/Health segment’s portfolio includes, among others, traditional life, endowment, annuity and term insurance products as well as unit-linked and investment-oriented products. Additionally we serve private customers with health, disability and related coverage and provide group life and pension products for employers.
We distribute our insurance products via a broad network of self-employed full-time agents, part-time tied agents, brokers, banks and other channels. The particular distribution channels vary by product and geographic market.
Our Banking activities are primarily executed by Dresdner Bank Group (or “Dresdner Bank”), through which we serve individual, corporate and governmental 1) For further information please see “Important Group Organizational Changes”.
Plus” Reorganization Program” on page 93, which includes a description of Dresdner Bank’s operating divisions effective starting in the first quarter of 2007.
All Allianz Group companies are thus responsible for generating a return on their risk capital that covers at least their cost of capital. Profits exceeding the cost of capital can be retained by the operating entities to finance their internal growth. As a result our most profitable entities have direct access to considerable funds. If these funds are not required to finance their profitable growth, they will be distributed to the holding company.
The results of our surveys as well as other important HR parameters are included in a “Human Resource Scorecard”, which we have developed in 2006 as a standard to be applied worldwide. It is a work tool for local management teams and provides support in realizing our strategy, since it reveals the extent to which the change process in a given company has progressed, while highlighting any remaining need for action. The Human Resource Scorecard will be introduced into the local units in 2007.
on the Board of Management’s remuneration is provided on pages 15 to 20.
Europe is our home market. We consider propertycasualty insurance in the region to be rather saturated. In life/health insurance, we see the characteristics of aging societies and their rising need for private retirement provision products and additional health insurance coverage as a growth opportunity.
3) Please see pages 225 to 228 for the Allianz Group’s ownership percentages in the consolidated operating subsidiaries mentioned.
Outlook We are seeking to expand in all of our selected Asia-Pacific markets, through internal growth and selected acquisitions. For example, in January 2007, we agreed with our long-term joint venture partner in Taiwan, the Uni-President Group, to acquire Uni-President’s shareholding in our joint venture Allianz Life Taiwan.
KPMG billed the Allianz Group an aggregate of € 6.0 million in 2006 and € 4.0 million in 2005 for professional services, primarily for tax advice and tax compliance.
Under German stock corporation law in case of registered shares only those persons who appear in the share register are deemed by the company to be shareholders. This is particularly important for such things as taking part in general meetings andmaking use of voting rights. Appearing in the share register also facilitates direct communications with the shareholders. In this way, for instance, all shareholders can be personally invited to attend general meetings. The restriction on share transferability goes right back to the creation of Allianz in 1890. This practice is widespread in the insurance industry in Germany. In accordance with the Statutes, the company will only withhold the approval necessary for transfer of shares when this is for extraordinary reasons and is considered to be in the interest of the company. For several decades no such case has occurred. With the standardization of share transfer processes, the restriction on share transferability does not cause any delay in the registration in the share register and does not impede in any way the quotation of the shares on stock exchanges.
‰ The Management Board is also authorized to increase the Company’s share capital on or before February 7, 2011, upon approval of the Supervisory Board, by issuing new registered no-par value shares against contributions in cash, on one or more occasions, up to a total of € 12,473,943.04 (Authorized Capital 2006/II). The Board of Management may exclude the shareholders’ subscription rights, upon the approval of the
The section below describes the agreements entered into by Allianz SE which contain provisions or conditions for the event of a change of control.
Acquisition-related expenses (532) (687) (621) Amortization of intangible assets1) (51) (50) (1,362) Reclassification of policyholder participation in tax benefits arising in connection with tax-exempt income
Supplementary Information to the Consolidated Income Statements 184 24 Premiums earned (net) 185 25 Interest and similar income 186 26 Income from financial assets and liabilities carried at fair value through income (net) 187 27 Realized gains/losses (net) 188 28 Fee and commission income 189 29 Other income 189 30 Income from fully consolidated private equity investments 190 31 Claims and insurance benefits incurred (net) 191 32 Change in reserves for insurance and investment contracts (net) 192 33 Interest expense 192 34 Loan loss provisions 192 35 Impairments of investments (net) 192 36 Investment expenses 193 37 Acquisition and administrative expenses (net) 194 38 Fee and commission expenses 195 39 Other expenses 195 40 Expenses from fully consolidated private equity investments 195 41 Income taxes
Interest and similar income 25 23,956 22,644 21,196 Income from financial assets and liabilities carried at fair value through income (net) 26 940 1,163 1,677 Realized gains/losses (net) 27 6,151 4,978 4,568 Fee and commission income 28 8,856 8,162 6,813
Claims and insurance benefits incurred (net) 31 (42,297) (42,770) (42,806) Change in reserves for insurance and investment contracts (net) 32 (11,375) (11,176) (9,556)
Repayments of certificated liabilities, participation certificates and subordinated liabilities (103,946) (111,737) (100,698) Cash inflow from capital increases 98 2,159 69 Transactions between equity holders (70) (2,932) (598) Dividends paid to shareholders (1,463) (1,403) (1,069) Net cash from sale or purchase of treasury shares (458) 2,061 (53)
The fair values of financial instruments that are not traded in an active market are determined by using valuation techniques. Valuation techniques include net present value techniques, the discounted cash flow method, comparison to similar instruments for which observable market prices exist and other valuation models. The Allianz Group uses a variety of methods and makes assumptions that are based onmarket conditions existing at each balance sheet date. In the process, appropriate adjustments are made for credit and measurement risks.
Financial assets held for trading consist of debt and equity securities, promissory notes and preciousmetal holdings, which have been acquired principally for the purpose of generating a profit from short-term fluctuations in price, and derivative financial instruments with positive fair values that do not meet the criteria for hedge accounting. Financial assets held for trading are reported at fair value. Changes in fair value are recognized directly in net income for the period.
Loans and advances to banks and customers include reverse repurchase (“reverse repo”) agreements and collateral paid for securities borrowing transactions. Reverse repo transactions involve the purchase of securities by the Allianz Group from a counterparty, subject to a simultaneous obligation to sell these securities at a certain later date, at an agreed upon price. If control of the securities remains with the counterparty over the entire lifetime of the agreement of the transaction, the securities concerned are not recognized as assets. The amounts of cash disbursed are recorded under loans and advances to banks and customers. Interest income on reverse repo agreements is accrued over the duration of the agreements and is reported in interest and similar income.
Deferred sales inducements on insurance contracts that meet the following criteria are deferred and amortized using the samemethodology and assumptions used to amortize deferred acquisition costs: • recognized as part of reserves for insurance and investment contracts,
Costs for repairs andmaintenance are expensed as incurred, while improvements, if they extend the useful life of the asset or provide additional functionality, are capitalized.
Financial liabilities carried at fair value through income Financial liabilities carried at fair value through income include financial liabilities held for trading and financial liabilities designated at fair value through income.
For long-duration insurance contracts, in accordance with SFAS 97, amounts charged as consideration for origination of the contract, (i.e. initiation or front-end fees) are reported as unearned premium. These fees are recognized using the samemethodology as DAC amortization.
The aggregate policy reserves for unit linked investment contracts are equal to the account balance, which represents premiums received and investment returns credited to the policy less deductions for mortality costs and expense charges. The aggregate policy reserves for non unit linked investment contracts are equal to amortized cost, or account balance less DAC. DAC for unit linked and non unit linked investment contracts are amortized over the expected life of the contracts in proportion to revenues.
Health insurance premiums for long-duration contracts such as non-cancelable and guaranteed renewable contracts that are expected to remain in force over an extended period of time are recognized as earned when due. Premiums for short-duration health insurance 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.
Hedges of a net investment in a foreign entity Hedge accountingmay 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 unrealized gains and losses (net) in shareholders’ equity, while any ineffectiveness is recognized in net income.
The key changes to the previous presentation in the Allianz Group’s consolidated balance sheets are: • Financial assets and liabilities for unit linked contracts are presented as separate line items.
Summary of the impact of the reclassifications on the consolidated balance sheet as of December 31, 2005: As of December 31, 2005, as previously reported € mn
• The policyholder participation in tax income/tax expenses on premium refunds arising in connection with tax exempted income/expenses is, similar to the recognition of premium refunds included in the operating profit of the Life/Health segment.
Riunione Adriatica di Sicurtà S.p.A., Milan (“RAS”) On November 30, 2005, the Allianz Group increased its interest in RAS, by 20.7% to 76.3%. The acquisition cost for the additional interest was € 2,701 mn. This transaction was accounted for as a transaction between equity holders; therefore, the Allianz Group recorded a decrease in shareholders’ equity of € 1,339 mn and a decrease of minority interests of € 1,362 mn.
in France, primarily offering automobile, property, injury and liability insurance for both individual and corporate customers; Italy, operating in all personal and commercial property-casualty lines in particular personal automobile insurance; the United Kingdom, offering products generally similar to those offered by the Allianz Group’s German property-casualty operations as well as a number of specialty products, including extended warranty and pet insurance; Switzerland, offering property-casualty insurance, travel and assistance insurance, conventional reinsurance as well as a variety of alternative risk transfer products for corporate customers worldwide; and Spain, offering a wide variety of traditional personal and commercial property-casualty insurance products, with an emphasis on automobile insurance.
Asset Management Corporate Consolidation Group € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn
Loan loss provisions (2) (1) (7) Impairments of investments (net), shared with policyholders4) (25) (18) (37)
Claims and insurance benefits incurred (net) (17,625) (17,439) (17,535) Changes in reserves for insurance and investment contracts (net) (10,525) (10,443) (8,746)
Acquisition and administrative expenses (net) (4,437) (3,973) (3,711) Fee and commission expenses (223) (219) (145)
Loans and advances to banks 115,657 16,221 21,979 14,384 27,539 195,780 Loans and advances to customers 103,921 18,974 18,342 20,430 51,885 213,552
Reinsurance involves credit risk and is subject to aggregate loss limits. Reinsurance does not legally discharge the AllianzGroup fromprimary liability under the reinsured policies. Although the reinsurer is liable to the Allianz Group to the extent of the reinsurance ceded, the Allianz Group remains primarily liable as the direct insurer on all risks it underwrites, including the portion that is reinsured. The AllianzGroupmonitors the financial condition of its reinsurers on an ongoing basis and reviews its reinsurance arrangements periodically in order to evaluate the reinsurer’s ability to fulfill its obligations to the Allianz Group under existing and planned reinsurance contracts. The AllianzGroup’s evaluation criteria, which includes the claims-paying and debt ratings, capital and surplus levels, andmarketplace reputation of its reinsurers, are such that the AllianzGroup believes that its reinsurance credit risk is not significant, and historically has not experienced noteworthy difficulty in collecting from their reinsurers. Additionally, and as appropriate, the AllianzGroupmay also require letters of credit, deposits, or other financial measures to furtherminimize its exposure to credit risk. In certain cases, however, the AllianzGroup does establish an allowance for doubtful amounts related to reinsurance as appropriate, although this amountwas not significant as of December 31, 2006 and 2005. Concentrations the Allianz Group haswith individual reinsurers includeMunich Re, Swiss Reinsurance Company and SCOR. As of December 31, 2006, amounts ceded to reinsurers for insurance and investment contracts includes € 6,297mn (2005: € 7,613 mn) related toMunich Re.
Changes in aggregate policy reserves and financial liabilities for unit linked contracts for the year ended December 31, 2005 were as follows: SFAS 120 € mn
Concentration of insurance risk in the Life/Health segment The Allianz Group’s Life/Health segment provides a wide variety of insurance and investment contracts to individuals and groups in approximately 30 countries around the world. Individual contracts include both traditional contracts and unit-linked contracts. Without consideration of policyholder participation, traditional contracts generally incorporate significant investment risk for the Allianz Group. Traditional contracts include life, endowment, annuity, and supplemental health contracts. Traditional annuity contracts are issued in both deferred and immediate types. In addition, the Allianz Group’s Life/Health operations in the United States issue a significant amount of equity indexed deferred annuities. Unit-linked contracts generally result in the contract holder assuming investment risk. In addition, in certainmarkets, the Allianz Group issues group life, health, and pension contracts.
Allianz SE and money market securities issued by Allianz Finance Corporation, a wholly-owned subsidiary of Allianz SE, which are fully and unconditionally guaranteed by Allianz SE.
Subordinated bonds: Hybrid equity: Contractual interest rate — — — — 5.79% 7.23% Participation certificates4)
Authorized capital As of December 31, 2006, Allianz SE had € 450,000,000 (175,781,250 shares) of authorized unissued capital (Authorized Capital 2006/I) 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 pre-emptive rights of shareholders if the shares are issued against a contribution in kind and, in certain cases, if they are issued against a cash contribution.
In 2005, the Dresdner Bank Group placed 17,155,008 shares of Allianz SE in themarket.
Capital Requirements The Allianz Group’s capital requirements are primarily dependent on our growth and the type of business that it underwrites, as well as the industry and geographic locations in which it operates. In addition, the allocation of the Allianz Group’s investments plays an important role. During the Allianz Group’s annual planning dialogues with its operating entities, capital requirements are determined through business plans regarding the levels and timing of capital expenditures and investments. Regulators imposeminimum capital rules on the level of both the Allianz Group’s operating entities and the Allianz Group as a whole.
Dresdner Bank is subject to the risk-adjusted capital guidelines (or “Basle Accord”) promulgated by the Basle Committee on Banking Supervision (or “BIS-rules”) and therefore calculates and reports under such guidelines to the German Federal Financial Supervisory Authority (the Bundesanstalt für Finanzdienstleistungsaufsicht, or “BaFin”) and the Deutsche Bundesbank, the German central bank. These guidelines are used to evaluate capital adequacy based primarily on the perceived credit risk associated with balance sheet assets, as well as certain off-balance sheet exposures such as unfunded loan commitments, letters of credit, and derivative and foreign exchange contracts. In addition, for Allianz SE to maintain its status as a “financial holding company” under the U.S. Gramm-Leach-Bliley Financial Modernization Act of 1999, Dresdner Bankmust be considered “well capitalized” under guidelines issued by the Board of Governors of the Federal Reserve System. To be considered “well capitalized” for these purposes, Dresdner Bankmust have a Tier I Capital Ratio of a least 6% and a combined Tier I and Tier II Capital Ratio of at least 10%, and not be subject to a directive, order or written agreement to meet andmaintain specific capital levels. As shown in the table below, Dresdner Bank maintained a “well capitalized” position during both 1) Representative of the difference between fair value and amortized cost of real estate used by third parties and investments in associates and joint ventures, net of deferred taxes, policyholders’ participation and minority interests.
Investments in associates and joint ventures2) (15) (32) (302) Loans to banks and
Realized gains from disposals of real estate held for use 82 23 191 Other income from real estate held for use 3 33 139
Other insurance reserves 2 11 — — 13 Expenses for premium refunds 15 23 — — 38
Investments in associates and joint ventures — — 9 Real estate held for 36 Investment expenses € mn € mn € mn
Investments (including financial assets and liabilities held for trading and financial assets and liabilities designated at fair value through income) The fair value of debt securities is based onmarket prices, provided these are available. If debt securities are not actively traded, their fair value is determined on the basis of valuations by independent data suppliers. The fair value of equity securities is based on their stockmarket prices. The carrying amount and the fair value for debt securities and equity securities do not include the fair value of derivative contracts used to hedge the related debt and equity securities.
Financial assets and liabilities for unit linked contracts The fair values of financial assets for unit linked contracts were determined using themarket value of the underlying investments. Fair values of financial liabilities for unit linked contracts are equal to the fair value of the financial assets for unit linked contracts.
Eurohypo As of December 31, 2004, the Allianz Group held an ownership interest of 28.48% in Eurohypo and accounted for it using the equity method. In November 2005, agreements for a two-step transfer of the 28.48% participation of Allianz Group in Eurohypo AG to Commerzbank AG were signed. In the first step, on December 15, 2005, Commerzbank AG acquired 7.35% and in a second step on March 31, 2006, Commerzbank acquired the residual 21,13% of the 28.48% participation of Allianz Group in Eurohypo AG. Since March 31, 2006, there have been nomutual board interlocks between Eurohypo and Dresdner Bank AG or other Allianz Group companies. Therefore, as of March 31, 2006, we no longer consider Eurohypo as a related party since March 31, 2006. As of December 31, 2005, the Allianz Group had loans to and held debt securities available-for-sale issued by Eurohypo of € 11,149 mn in the aggregate. All of such loans were made in the ordinary course of business and are subject to arm’s length conditions.
A dispute of Dresdner Bank with the insolvency administrator of KirchMedia GmbH& Co. KGaA (KirchMedia) with respect to a 25% shareholding in the Spanish television group Telecinco, was resolved in 2006. The shareholding had been pledged by subsidiaries of KirchMedia to Dresdner Bank as collateral for a loan and was acquired by Dresdner Bank in a forced auction sale. The insolvency administrator contended that the pledge was created under circumstances that cause it to be invalid or void. At the end of June 2004, the 25% shareholding in Telecinco was placed within Telecinco’s initial public offering. In October 2006, the insolvency administrator agreed to withdraw his claim against a settlement payment by Dresdner Bank AG. The settlement payment had nomaterial impact on the situation or performance, financial or otherwise, of Dresdner Bank AG or the Allianz Group.
Market value guarantees Market value guarantees represent assurances given to customers of certainmutual funds and fund management agreements, under which initial investment values and/or minimummarket performance of such investments are guaranteed at levels as defined under the relevant agreements. The obligation to perform under amarket value guarantee is triggered when themarket value of such investments does not meet the guaranteed targets at pre-defined dates.
The Allianz Group’s Asset Management segment, in the ordinary course of business, issuesmarket value guarantees in connection with investment trust accounts andmutual funds it manages. The levels of market value guarantees, as well as thematurity dates, differ based on the separate governing agreements of the respective investment trust accounts andmutual funds. As of December 31, 2006, themaximumpotential amount of future payments of themarket value guarantees was € 1,874 mn (2005: € 1,113 mn), which represents the total value guaranteed under the respective agreements including the obligation that would have been due had the investmentsmatured on that date. The fair value of the investment trust accounts andmutual funds related to these guarantees as of December 31, 2006, was
Defined benefit plans Amounts recognized in the Allianz Group’s consolidated balance sheets for defined benefit plans are as follows: As of December 31, 2006 € mn € mn
The Allianz Group plans to gradually increase its actual equity securities allocation for plan assets of defined benefit plans.
Upon the expiration date, any unexercised stock appreciation rights that have not been exercised will be exercised automatically if the above market conditions have been attained. The stock appreciation rights are forfeited if the plan participant ceases to be employed by the Allianz Group or if themarket conditions are not attained by the expiration date.
Dresdner Kleinwort The Allianz Group awarded eligible employees of Dresdner Kleinwort (“DrK”) a promise to deliver Allianz SE shares on the vesting dates (hereafter “nonvested shares”). In jurisdictions in which regulatory restrictions do not allow for delivery of shares, the awards are settled in cash. The awards vest in three instalments in each of the three years following the initial award. A portion of the awards is also subject to performance vesting conditions, which are based on the financial operating results of DrK. If all of the performance targets have not beenmet for the previous year, then immediately prior to vesting, some or all of the performance related shares for that year are forfeited.
As of December 31, 2006, the Allianz Group recorded a liability for the nonvested cash settled shares of € 10 mn (2005: € 6 mn). As of December 31, 2006, the total compensation expense not yet recognized related to the nonvested shares was € 75mn (2005: € 74 mn). The total compensation expense not yet recognized related to the nonvested shares is expected to be recognized over a weighted-average period of 2.5 years.
Share purchase plans The Allianz Group offers Allianz SE shares to qualified employees at favorable conditions. The shares have a minimumholding period of one year to five years. During the year ended December 31, 2006, the number of shares sold to employees under these plans was 929,509 (2005: 1,144,196; 2004: 1,051,191). During the year ended December 31, 2006, the Allianz Group recognized compensation expense, the difference between the market price and the offer price of the shares purchased by employees, of € 25 mn (2005: € 24 mn; 2004: € 18 mn).
Changes in the provisions for restructuring were: Allianz Deutschland AG € mn
During the year ended December 31, 2006, Dresdner Bank Group recorded restructuring charges for all restructuring programs of € 422 mn. This amount includes new provisions, additions to existing provisions, releases of provisions recognized in previous years, and restructuring charges as reflected in the consolidated income statement. Total restructuring charges expected to be incurred include an additional € 40 mn of charges that are part of the restructuring program, but have not yet met the requirements for recording as a provision. A summary of the restructuring charges related to Dresdner Bank Group that are reflected in the Allianz Group’s consolidated income statement for the year ended December 31, 2006, by restructuring program is as follows: New Dresdner
The Declaration of Compliance of the two publicly traded group companies Allianz LebensversicherungsAktiengesellschaft and Oldenburgische Landesbank AG were issued in December 2006, respectively, and were made permanently available to the shareholders.
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 (IDW, Institute of Independent Auditors), and in supplementary compliance with the Standards of the Public Company Accounting Oversight Board (United States). 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 groupmanagement 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 the consolidation, the determination of entities to be included in consolidation, the accounting and consolidation principles used and significant estimates made bymanagement, as well as evaluating the overall presentation of the consolidated financial statements and groupmanagement report. We believe that our audit provides a reasonable basis for our opinion.
Gross/Net In insurance terminology the terms gross and net mean before and after deduction of reinsurance, respectively. In the investment terminology the term “net” is used where the relevant expenses (e.g. depreciations and losses on the disposal of assets) have already been deducted.
Dr. Henning Schulte-Noelle Membership in other statutory supervisory boards in Germany E.ON AG, Siemens AG, ThyssenKrupp AG
Dr. Manfred Schneider until October 13, 2006 Membership in other statutory supervisory boards in Germany Bayer AG (Chairman), DaimlerChrysler AG, Linde AG (Chairman), METRO AG, RWE AG, TUI AG
Dr. Werner Zedelius Membership in Group bodies Allianz Hungária Biztositó Rt. (Chairman), Allianz pojistovna a. s. (Chairman), AllianzSlovenska poistovna a. s. (Chairman), T. U. Allianz Polska S. A. (Chairman), T. U. Allianz Zycie Polska S. A. (Chairman), Rosno (Vice Chairman)
� RAS ASSET MANAGEMENT Società di gestione del risparmio S.p.A. 100.0%