SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 20-F
(Mark One)
¨ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
or
x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year endedyear-ended December 31, 20052008
or
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period to
or
¨ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Date of event requiring this shell report
Commission file number 1-15154
ALLIANZ AKTIENGESELLSCHAFTSE
(Exact name of registrant as specified in its charter)
Federal Republic of Germany
(Jurisdiction of incorporation or organization)
KöniginstrasseKoeniginstrasse 28, 80802 Munich, Germany
(Address of principal executive offices)
Burkhard Keese
ALLIANZ SE
Königinstrasse 28, 80802 Munich, Germany
Telephone: +49 89 3800-16596
Facsimile: +49 89 3800-16598
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of Each Class | Name of Each Exchange on Which Registered | |
Ordinary Shares (without par value)* | The New York Stock Exchange, Inc. | |
8.375% Undated Subordinated Callable Bonds | The New York Stock Exchange, Inc. |
* | Not for trading, but only in connection with the listing of American Depositary Shares, pursuant to the requirements of the New York Stock Exchange. |
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock at December 31, 2005:
2008:
Ordinary shares, without par value |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
YES x NO ¨
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
YES ¨ NO x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES x NO ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x | Accelerated filer ¨ | Non-accelerated filer ¨ |
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
IndicateU.S. GAAP ¨
International Financial Reporting Standards as issued by the International Accounting Standards Board x
Other ¨
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
Item 17 ¨ Item 18 x¨
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES ¨ NO x
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Investment Portfolio Impairments, Depreciation and Unrealized Losses | |||||
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ITEM 11. | Quantitative and Qualitative Disclosures | |||
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ITEM 12. | ||||
ITEM 13. |
Item | Page | |||
ITEM 14. | Material Modifications to the Rights of Security Holders and Use of Proceeds | |||
ITEM 15. | ||||
ITEM 16A. | ||||
ITEM 16B. | ||||
ITEM 16C. | ||||
ITEM 16D. | ||||
ITEM 16E. | Purchases of Equity Securities by the Issuer and Affiliated Purchasers | |||
ITEM 16G. | Disclosure about Differences in Corporate Governance Practices | 180 | ||
ITEM 17. | ||||
ITEM 18. | ||||
ITEM 19. | ||||
Index to the Consolidated Financial Statements and Schedules |
ii
PRESENTATION OF FINANCIAL AND OTHER INFORMATION
In this Annual Report, the terms “we,” “us” and “our” refer to Allianz AktiengesellschaftSocietas Europaea (or Allianz AG,SE, and together with its consolidated subsidiaries, the Allianz Group), unless the context requires otherwise.
Unless otherwise indicated, when we use the term “consolidated financial statements,” we are referring to the consolidated financial statements (including the related notes) of Allianz AGSE as of December 31, 20052008 and 20042007 and for each of the years in the three-year period ended December 31, 2005,2008, which have been audited by KPMG Deutsche Treuhand-Gesellschaft AG Wirtschaftsprüfungsgesellschaft. The consolidated financial statements of the Allianz Group have been prepared in accordanceconformity with the new and revised International Financial Reporting Standards effective January 1, 2005,(IFRS), as adopted under European Union (EU) regulations in accordance with clausesection 315a of the German Commercial Code which we refer to herein(HGB). The consolidated financial statements of the Allianz Group have also been prepared in accordance with IFRS as “IFRS” or “2005 IFRS.” IFRS differsissued by the International Accounting Standard Board (IASB). The Allianz Group’s application of IFRSs results in certain respects from accounting principles generally accepted in the United States of America (U.S. GAAP). For a discussion of significantno differences between IFRS as adopted by the EU and U.S. GAAP and a reconciliation of net income and shareholders’ equity under IFRS and U.S. GAAP, you should read Note 47 toas issued by the consolidated financial statements. In addition, theIASB. The amounts set forth in some of the tables may not add up to the total amounts given in those tables due to rounding.
References herein to “$”, “U.S.$” and “U.S. dollars”Dollar” are to United States dollarsDollars and references to “€” and “Euro” are to the Euro, the single currency established for participants in the third stage of the European Economic and Monetary Union (or EMU), commencing January 1, 1999. We refer to the countries participating in the third stage of the EMU as the “Euro zone.”
For convenience only (except where noted otherwise), some of the Euro figures have been translated into U.S. dollarsDollars at the rate of $1.2139 =€1.00,$1.3566 = €1.00, the noon buying rate in New York for cable
transfers in Euros certified by the Federal Reserve Bank of New York for customs purposes on March 31, 2006.20, 2009. These translations do not mean that the Euro amounts actually represent those U.S. dollarDollar amounts or could be converted into U.S. dollarsDollars at those rates. SeeRefer to “Key Information—Exchange Rate Information” for information concerning the noon buying rates for the Euro from January 1, 20012004 through March31, 2006.March 20, 2009.
Unless otherwise indicated, when we use the terms “gross premiums,” “gross premiums written” and “gross written premiums,” we are referring to premiums (whether or not earned) for insurance policies written during a specific period, without deduction for premiums ceded to reinsurers, and when we use the terms “net premiums,” “net premiums written” and “net written premiums,” we are referring to premiums (whether or not earned) for insurance policies written during a specified period, after deduction for premiums ceded to reinsurers. When we use the term “statutory premiums,” we are referring to gross premiums written from sales of life insurance policies as well as gross receipts from sales of unit-linked and other investment-oriented products, in accordance with the statutory accounting practices applicable in the relevant insurer’s home jurisdiction.
Unless otherwise indicated, we have obtained data regarding the relative size of various national insurance markets from annual reports prepared by SIGMA, an independent organization whichthat publishes market research data on the insurance industry. In addition, unless otherwise indicated, insurance market share data are based on gross premiums written and statutory premiums for our Property-Casualty and Life/Health segments, respectively. Data on position and market share within particular countries are based on various third partythird-party and/or internal sources as indicated herein.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This annual report includes “forward-looking statements” within the meaning of the safe harbor provisions of The Private Securities Litigation Reform Act of 1995. These include statements under “Information on the Company,” “Operating and Financial Review and Prospects,” “Quantitative and Qualitative Disclosures About Market Risk” and elsewhere in this annual report relating to, among other things, our future financial performance, plans and expectations regarding developments in our business, growth and profitability, and general industry and business conditions applicable to the Allianz Group. These forward-looking statements can generally be identified by terminology such as “may,” “will,” “should,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or other similar terminology. We have based these forward-looking statements on our current expectations, assumptions, estimates and projections about future events. These forward-looking statements are subject to a number of risks, uncertainties, assumptions and other factors that may cause our actual results, performance or achievements or those of our industry to be materially different from or worse than those expressed or implied by these forward-looking statements. These factors include, without limitation:
general economic conditions, including in particular economic conditions in our core business areas and core markets;
function and performance of global financial markets, including emerging markets;markets and events related to market volatility, liquidity and credit;
frequency and severity of insured loss events, including from natural catastrophes, terror attacks, environmental and asbestos claims;claims and the development of loss expenses;
mortality and morbidity levels and trends;
persistency levels;
interest rate levels;
currency exchange rate developments, including the Euro/U.S. dollarDollar exchange rate;
levels of additional loan loss provisions;
further impairments of investments;
general competitive factors, in each case on a local, regional, national and global level;
changes in laws and regulations, including in the United States and in the European Union;
changes in the policies of central banks and/or foreign governments;
the impact of acquisitions, including related integration and restructuring issues; and
terror attacks, events of war, and their respective consequences.
PART I
ITEM 1. | Identity of Directors, Senior Management and Advisors |
Not applicable.
ITEM 2. Offer Statistics and Expected Timetable
ITEM 2. | Offer Statistics and Expected Timetable |
Not applicable.
ITEM 3. | Key Information |
Selected Consolidated Financial Data
We present below our selected financial data as of and for each of the years in the five-year period ended December 31, 2005.2008. We derived the selected financial data for each of the years in the five-year period ended December 31, 20052008 from our audited annual consolidated financial statements, including the notes to those financial statements. All the data should be read in conjunction with our consolidated financial statements and the notes thereto.
We prepare our annual audited consolidated financial statements in accordance with 2005 IFRS, which introduced a numberIFRS.
On August 31, 2008 Allianz SE (“Allianz”) and Commerzbank AG (“Commerzbank”) agreed on the sale of newalmost all of Dresdner Bank AG (“Dresdner Bank”) to Commerzbank. Following the announcement, Dresdner Bank qualified as held-for-sale and revised IFRS effective January 1, 2005. Some ofdiscontinued operations. Therefore, results from these new and revised IFRS required retrospective application to all years of a company’s financial statements. As a result, the financial statements for the Allianz Group previously issued in connection with our AnnualReport on Form 20-F for the year ended December 31, 2004operations have been revised to retrospectively apply 2005 IFRS,eliminated from our results of Banking operations and are included herein. Retrospective application hasnow
presented in a separate line item “net income from discontinued operations, net of income taxes and minority interests in earnings”. In addition to our continuing banking business, our Banking operations also reflect the effectresults from those parts of applying 2005 IFRSDresdner Bank that were not sold to prior periods as if those accounting principles had always been used. This Annual Report on Form 20-F forCommerzbank: Oldenburgische Landesbank (OLB) and the year ended December 31, 2005 is prepared in accordance with 2005 IFRS. Our selected financial data as ofbanking clients that were introduced through our tied agent’s channel. Furthermore, all assets and for eachliabilities that are part of the years ended December 31, 2004, 2003disposal group have been reclassified and 2002 isalso presented below in accordance with 2005 IFRS. The selected financial dataseparate line items “Non-current assets and assets from disposal groups classified as held-for-sale” and “Liabilities of and fordisposal groups classified as held-for-sale”, respectively, on the year ended December 31, 2001 is, however, presented below in accordance with IFRS effectiveface of the consolidated balance sheet as of December 31, 2004 (or “pre-2005 IFRS”) and accordingly does not reflect the retrospective application of 2005 IFRS, due2008. Certain prior period amounts have been reclassified to conform to the unreasonable effort or expense requiredcurrent period presentation. For further information please refer to prepare such information, in particular resulting from the implementation for such year of the new impairment criteria of IAS 39 revised,Financial Instruments: Recognition and Measurement.Note 3 to our consolidated financial statements.
IFRS differ inEffective January 1, 2006, we implemented certain significant respects from U.S. generally accepted accounting principles, which in this Annual Report on Form 20-F we referrevisions to as “U.S. GAAP.” For a description of the significant differences between IFRS and U.S. GAAP as they relate to us and a reconciliation of our net income and shareholders’ equity under IFRS to U.S. GAAP, see Note 47 to our audited annual consolidated financial statements included herein.to enhance the reader’s understanding of our financial results and to use a more consistent presentation with that of our peers. These revisions reflect certain reclassifications in our consolidated balance sheet and consolidated income statement, changes to our segment reporting, changes to operating profit methodology and changes to our consolidated cash flow statement.
Income statement Total revenues(3) Property-Casualty Life/Health Banking Asset Management Consolidation Total Group Operating profit Property-Casualty Life/Health Banking Asset Management Total Group Earnings from ordinary activities before taxes(5) Net income (loss)(5) Balance sheet Investments Loans and advances to banks and customers Total assets Shareholders’ equity before minority interests Minority interests in shareholders’ equity Reserves for insurance and investment contracts Liabilities to banks and customers Returns Return on equity after taxes(7) Return on equity after taxes and before goodwill amortization(7) Share information Basic earnings per share(5) Diluted earnings per share(5) Weighted average number of shares outstanding Basic Diluted Shareholders’ equity per share Dividend per share Dividend payment Share price(8) Market capitalization Other data Employees Third-party assets under management U.S. GAAP consolidated data Net income (loss) Basic earnings per share Diluted earnings per share Shareholders’ equity Shareholders’ equity per shareAt or For the Years ended December 31, 2005 2005 Change
from prev.
year 2004 2003 2002 2001(2) $(1) € % € € € € (in millions, except per share data) 53,486 44,061 0.6 43,780 43,420 58,424 48,129 6.5 45,177 42,319 7,569 6,235 (3.3 ) 6,446 6,704 3,318 2,733 18.4 2,308 2,226 (317 ) (261 ) (836 ) (929 ) 122,480 100,897 4.2 96,875 93,740 (4) (4) 5,052 4,162 4.6 3,979 2,397 1,946 1,603 13.0 1,418 1,265 1,026 845 44.2 586 (396 ) 1,375 1,133 32.4 856 716 9,399 7,743 13.2 6,839 3,982 (4) (4) 9,566 7,880 54.6 5,096 3,866 (3,991 ) 1,768 5,317 4,380 93.3 2,266 2,691 (3,243 ) 1,585 343,437 282,920 13.9 248,327 231,397 228,111 345,302 408,851 336,808 (10.7 ) 377,223 378,295 329,195 300,967 1,211,328 997,881 0.8 990,318 933,213 848,752 942,986 47,933 39,487 31.6 29,995 27,993 21,046 31,613 9,244 7,615 (1.1 ) 7,696 7,266 7,965 17,349 435,956 359,137 10.0 326,380 309,460 303,258 299,512 (6) 376,693 310,316 (11.0 ) 348,484 332,906 284,598 312,725 12.6 % 12.6 % 4.8 pts 7.8 % 11.0 % (12.5 )% 4.7 % 12.6 % 12.6 % 1.0 pts 11.6 % 16.5 % (8.3 )% 6.9 % 13.64 11.24 81.6 6.19 7.96 (11.71 ) 6.51 13.52 11.14 80.8 6.16 7.93 (11.71 ) 6.51 389.8 389.8 6.5 365.9 338.2 276.9 277.8 393.3 393.3 6.8 368.1 339.8 276.9 277.8 147 121 17.5 103 104 105 176 2.43 2.00 14.3 1.75 1.50 1.50 1.50 984 811 20.3 674 551 374 364 155.31 127.94 31.1 97.60 100.08 80.80 237.10 63,061 51,949 44.6 35,936 (9) 36,743 (9) 22.039 (9) 64,156 (9) 177,625 177,625 0.6 176,501 173,750 181,651 179,946 901,851 742,937 27.0 584,624 564,714 560,588 620,458 4,483 3,693 28.2 2,881 2,245 (1,260 ) 4,246 11.33 9.33 18.6 7.87 6.71 (4.79 ) 16.30 11.24 9.26 18.3 7.83 6.70 (4.79 ) 16.30 53,877 44,383 33.0 33,380 30,825 22,836 31,655 138 114 25.3 91 91 83 114
As of or For the Years ended December 31, | 2008 | 2008 | Change from previous year | 2007 | 2006 | 2005 | 2004 | |||||||||||||||||
$(1) | € | % | € | € | € | € | ||||||||||||||||||
(in millions, except per share data) | ||||||||||||||||||||||||
Income Statement | ||||||||||||||||||||||||
Total revenues(2) | ||||||||||||||||||||||||
Property-Casualty | € | mn | 58,859 | 43,387 | (2.0 | ) | 44,289 | 43,674 | 43,699 | 42,942 | ||||||||||||||
Life/Health | € | mn | 61,881 | 45,615 | (7.6 | ) | 49,367 | 47,421 | 48,272 | 45,233 | ||||||||||||||
Banking | € | mn | 738 | 544 | (12.5 | ) | 622 | 604 | 6,318 | (3) | 6,576 | (3) | ||||||||||||
Asset Management | € | mn | 3,917 | 2,887 | (11.4 | ) | 3,259 | 3,044 | 2,722 | 2,245 | ||||||||||||||
Consolidation | € | mn | 156 | 115 | not meaningful | 144 | 130 | (44 | )(3) | (47 | )(3) | |||||||||||||
Total Group | € | mn | 125,551 | 92,548 | (5.3 | ) | 97,681 | 94,873 | 100,967 | (3) | 96,949 | (3) | ||||||||||||
Operating profit(4) | ||||||||||||||||||||||||
Property-Casualty | € | mn | 7,663 | 5,649 | (10.3 | ) | 6,299 | 6,269 | 5,142 | 4,825 | ||||||||||||||
Life/Health | € | mn | 1,636 | 1,206 | (59.7 | ) | 2,995 | 2,565 | 2,094 | 1,788 | ||||||||||||||
Banking | € | mn | (42 | ) | (31 | ) | not meaningful | 32 | 63 | 704 | (3) | 447 | (3) | |||||||||||
Asset Management | € | mn | 1,256 | 926 | (31.9 | ) | 1,359 | 1,290 | 1,132 | 839 | ||||||||||||||
Corporate | € | mn | (255 | ) | (188 | ) | 42.2 | (325 | ) | (831 | ) | (881 | ) | (870 | ) | |||||||||
Income (loss) from continuing operations before income taxes and minority interests in earnings | € | mn | 7,425 | 5,473 | (48.2 | ) | 10,563 | 9,563 | 7,829 | (3) | 5,044 | (3) | ||||||||||||
Net income (loss) from continuing operations(5) | € | mn | 5,382 | 3,967 | (45.8 | ) | 7,316 | 6,640 | — | — | ||||||||||||||
Net income (loss) from discontinued operations, net of income taxes and minority interests in earnings(5) | € | mn | (8,697 | ) | (6,411 | ) | not meaningful | 650 | 381 | — | — | |||||||||||||
Net income (loss)(6) | € | mn | (3,315 | ) | (2,444 | ) | not meaningful | 7,966 | 7,021 | 4,380 | 2,266 | |||||||||||||
Balance Sheet | ||||||||||||||||||||||||
Investments | € | mn | 352,915 | 260,147 | (9.3 | ) | 286,952 | 298,134 | 285,015 | 254,085 | ||||||||||||||
Loans and advances to banks and customers | € | mn | 156,898 | 115,655 | (70.8 | ) | 396,702 | 423,765 | 359,610 | 406,218 | ||||||||||||||
Total assets | € | mn | 1,296,334 | 955,576 | (9.9 | ) | 1,061,149 | 1,110,081 | 1,054,656 | 1,058,612 | ||||||||||||||
Liabilities to banks and customers | € | mn | 25,031 | 18,451 | (94.5 | ) | 336,494 | 376,565 | 333,118 | 377,480 | ||||||||||||||
Reserves for loss and loss adjustment expenses | € | mn | 86,719 | 63,924 | 0.3 | 63,706 | 65,464 | 67,005 | 62,331 | |||||||||||||||
Reserves for insurance and investment contracts | € | mn | 402,309 | 296,557 | 1.5 | 292,244 | 287,032 | 277,647 | 251,497 | |||||||||||||||
Shareholders’ equity | € | mn | 45,696 | 33,684 | (29.5 | ) | 47,753 | 49,650 | 38,656 | 29,995 | ||||||||||||||
Minority interests | € | mn | 4,835 | 3,564 | (1.8 | ) | 3,628 | 7,180 | 8,386 | 7,696 | ||||||||||||||
Returns | ||||||||||||||||||||||||
Return on equity after income taxes(7) | % | 9.7 | 9.7 | (8) | (5.3 | ) pts | 15.0 | (8) | 15.0 | (8) | 12.9 | 7.8 | ||||||||||||
Return on equity after income taxes and before goodwill amortization(7) | % | 9.7 | 9.7 | (8) | 6.7 | pts | 15.0 | (8) | 15.0 | (8) | 12.9 | 11.6 | ||||||||||||
Share Information | ||||||||||||||||||||||||
Basic earnings per share(6) | € | (7.37 | ) | (5.43 | ) | not meaningful | 18.00 | 17.09 | 11.24 | 6.19 | ||||||||||||||
Diluted earnings per share(6) | € | (7.42 | ) | (5.47 | ) | not meaningful | 17.71 | 16.78 | 11.14 | 6.16 | ||||||||||||||
Weighted average number of shares outstanding | ||||||||||||||||||||||||
Basic | mn | 450.2 | 450.2 | 1.7 | 442.5 | 410.9 | 389.8 | 365.9 | ||||||||||||||||
Diluted | mn | 456.0 | 456.0 | 1.4 | 449.6 | 418.3 | 393.3 | 368.1 | ||||||||||||||||
Shareholders’ equity per share | € | 102 | 75 | (30.6 | ) | 108 | 121 | 99 | 82 | |||||||||||||||
Dividend per share | € | 4.75 | 3.50 | (9) | (36.4 | ) | 5.50 | 3.80 | 2.00 | 1.75 | ||||||||||||||
Total dividend | € | mn | 2,152 | 1,586 | (9) | (35.9 | ) | 2,476 | 1,642 | 811 | 674 | |||||||||||||
Share price as of December 31 | € | 101.75 | 75.00 | (49.3 | ) | 147.95 | 154.76 | 127.94 | 97.60 | |||||||||||||||
Market capitalization as of December 31(10) | € | mn | 46,096 | 33,979 | (49.0 | ) | 66,600 | 66,880 | 51,949 | 35,936 | (11) | |||||||||||||
Other data | ||||||||||||||||||||||||
Employees | 182,865 | 182,865 | 0.9 | 181,207 | 166,505 | 177,625 | 176,501 | |||||||||||||||||
Third-party assets under management as of December 31 | € | mn | 954,338 | 703,478 | (8.0 | ) | 764,621 | 763,855 | 742,937 | 584,624 |
(1) | Amounts given in Euros have been translated for convenience only into U.S. |
The following table sets forth the annual dividends paid per ordinary share and American Depositary Share (or “ADS”) equivalent for 2001 through 2005. The table does not reflect the related tax credits available to German taxpayers. See “Additional Information—Taxation—German Taxation—Taxation of Dividends.”
Dividend per ordinary share | Dividend paid per ADS equivalent | |||||||
€ | $ | € | $ | |||||
2001 | 1.50 | 1.42 | 0.150 | 0.142 | ||||
2002 | 1.50 | 1.76 | 0.150 | 0.176 | ||||
2003 | 1.50 | 1.82 | 0.150 | 0.182 | ||||
2004 | 1.75 | 2.27 | 0.175 | 0.227 | ||||
2005(1) | 2.00 | 2.43 | 0.200 | 0.243 |
(2) | Total revenues comprise Property-Casualty segment’s gross premiums written, Life/Health segment’s statutory premiums, Banking segment’s operating revenues and Asset Management segment’s operating revenues. Please refer to “Operating and Financial Review and Prospects—Introduction” for a reconciliation of total revenues to premiums written for the Allianz Group. |
(3) | Figures for the years ended December 31, |
(4) | The Allianz Group uses operating profit to evaluate the performance of its business segments. For further information on operating profit, as well as the particular reconciling items between operating profit and net income, refer to Note 6 to our consolidated financial statements. |
(5) | Following the announcement of the sale on August 31, 2008, Dresdner Bank qualified as held-for-sale and discontinued operations. Therefore, all revenue and profit figures presented for our continuing business do not include the parts of Dresdner Bank that we sold to Commerzbank on January 12, 2009. Starting as of 2006 the results from these operations are presented in a separate net income line “net income from discontinued operations, net of income taxes and minority interests in earnings”. |
(6) | Effective January 1, 2005, under IFRS, and on a prospective basis, goodwill is no longer amortized. |
(7) | Based on average shareholders’ equity. Average shareholders’ equity has been calculated based upon the average of the current and preceding year’s shareholders’ equity. |
(8) | Based on net income from continuing operations. |
(9) | Subject to final approval at Annual General Meeting. |
(10) | Source: Thomson Reuters Datastream. |
(11) | Excluding treasury shares. |
The following table sets forth the annual dividends declared in 2008 and paid in prior years per ordinary share and American Depositary Share (or “ADS”) equivalent for 2004 through 2008. The table does not reflect the related tax credits available to German taxpayers. Refer to “Additional Information—German Taxation—Taxation of Dividends.”
Dividend per ordinary share | Dividend paid per ADS equivalent | |||||||
€ | $ | € | $ | |||||
2004 | 1.75 | 2.27 | 0.175 | 0.227 | ||||
2005 | 2.00 | �� | 2.43 | 0.200 | 0.243 | |||
2006 | 3.80 | 5.13 | 0.380 | 0.513 | ||||
2007 | 5.50 | 8.45 | 0.550 | 0.845 | ||||
2008(1)(2) | 3.50 | 4.75 | 0.350 | 0.475 |
(1) | Dividend amounts given in Euros have been translated for convenience only into U.S. Dollars at the rate of $1.3566 = €1.00, the noon buying rate in New York for cable transfers in Euros certified by the Federal Reserve Bank of New York for customs purposes on March 20, 2009. Refer to “Presentation of Financial and Other Information.” |
(2) | Subject to final approval at the Annual General Meeting. |
Although theThe ability to pay future dividends will depend upon our future earnings, financial condition (including our cash needs), prospects and other factors, we do not presently anticipate any changes to our current dividend policy. However, youfactors. You should not assume that any dividends will actually be paid or make any assumptions about the amount of dividends which will be paid in any given year. SeeRefer to “Financial Information—Dividend Policy.”
The table below sets forth, for the periods indicated, information concerning the noon buying rates for the Euro expressed in U.S. dollarsDollars per €1.00. No representation is made that the Euro or U.S. dollarDollar amounts referred to herein could be or could have been converted into U.S. dollarsDollars or Euros, as the case may be, at any particular rate or at all.
High | Low | Period average(1) | Period end | |||||
($ per €1.00) | ||||||||
2001 | 0.9535 | 0.8370 | 0.8952 | 0.8901 | ||||
2002 | 1.0485 | 0.8594 | 0.9454 | 1.0485 | ||||
2003 | 1.2597 | 1.0361 | 1.1321 | 1.2597 | ||||
2004 | 1.3625 | 1.1801 | 1.2478 | 1.3538 | ||||
2005 | 1.3476 | 1.1667 | 1.2400 | 1.1842 | ||||
October | 1.2148 | 1.1914 | 1.1955 | 1.1995 | ||||
November | 1.2067 | 1.1667 | 1.1894 | 1.1790 | ||||
December | 1.2041 | 1.1699 | 1.1772 | 1.1842 | ||||
2006 | ||||||||
January | 1.2287 | 1.1980 | 1.2069 | 1.2158 | ||||
February | 1.2100 | 1.1860 | 1.2009 | 1.1925 | ||||
March | 1.2197 | 1.1886 | 1.2028 | 1.2139 |
High | Low | Period average(1) | Period end | |||||
($ per €1.00) | ||||||||
2004 | 1.3625 | 1.1801 | 1.2478 | 1.3538 | ||||
2005 | 1.3476 | 1.1667 | 1.2400 | 1.1842 | ||||
2006 | 1.3327 | 1.1860 | 1.2661 | 1.3197 | ||||
2007 | 1.4862 | 1.2904 | 1.3797 | 1.4603 | ||||
2008 | 1.6010 | 1.2446 | 1.4695 | 1.3919 | ||||
September | 1.4737 | 1.3939 | 1.4302 | 1.4081 | ||||
October | 1.4058 | 1.2446 | 1.3370 | 1.2682 | ||||
November | 1.3039 | 1.2525 | 1.2706 | 1.2694 | ||||
December | 1.4358 | 1.2634 | 1.3276 | 1.3919 | ||||
2009 | ||||||||
January | 1.3718 | 1.2804 | 1.3190 | 1.2804 | ||||
February | 1.3064 | 1.2547 | 1.2735 | 1.2662 | ||||
March (until March 20, 2009) | 1.3730 | 1.2549 | 1.2880 | 1.3566 |
(1) | Computed using the average of the noon buying rates for Euros on the last business day of each month during the relevant annual period or on the first and last business days of each month during the relevant monthly period. Noon buying rates are as published on a weekly basis by the Federal Reserve Bank of New York. On January 1, 2009, the Federal Reserve Bank discontinued daily publication of noon buying rates. |
On March 31, 2006,20, 2009, the noon buying rate for the Euro was $1.2139.$1.3566.
You should carefully review the following risk factors together with the other information contained in this annual report before making an investment decision. Our financial position and results of operations may be materially adversely affected by each of these risks. The market price of our ADSs may decline as a result of each of these risks and investors may lose the value of their investment in whole or in part. Additional risks not currently known to us or that we now deem immaterial may also adversely affect our business and your investment.
Risks arising from the financial markets
The share price of Allianz SE has been and may continue to be volatile.
The share price of Allianz SE has been volatile in the past, in particular over the last year. The share price and trading volume of our common stock may continue to be subject to significant fluctuations due in part to the high volatility in the securities markets generally, and in financial institutions’ shares in particular, as well as developments which impact our financial results. Factors other than our financial results that may affect our share price include but are not limited to: market expectations of the performance and capital adequacy of financial institutions generally; investor perception of and the actual performance of other financial institutions; investor perception of the success and impact of our strategy; a downgrade or rumored downgrade of our credit ratings; potential litigation or regulatory action involving the Allianz Group or any of the industries we have exposure to through our insurance, banking and asset management activities; announcements concerning the bankruptcy or other similar reorganization proceedings involving, or any investigations into the accounting practices of, other insurance or reinsurance companies, banks or asset management companies; and general market volatility and liquidity conditions.
Allianz Group’s financial condition, liquidity needs, access to capital and cost of capital may be significantly affected by adverse developments in the capital and credit markets.
The capital and credit markets have been experiencing extreme volatility and disruption for
more than eighteen months. In the second half of 2008, the volatility and disruption reached unprecedented levels. In some cases, the markets have exerted downward pressure on availability of liquidity and credit capacity for certain issuers. The ability of Allianz Group to meet its financing needs in this environment depends on the availability of funds in the international capital markets. The financing of Allianz Group’s activities includes, among other means, funding through commercial paper facilities and medium- and long-term debt issuances. A sustained break-down of such markets could have a materially adverse impact on the availability and cost of funding as well as on the refinancing structure of Allianz Group. The availability of financing will depend on a variety of factors such as market conditions, the general availability of credit, the volume of trading activities, the overall availability of credit to the financial services industry, our credit ratings and credit capacity, as well as the possibility that customers or lenders could develop a negative perception of our long- or short-term financial prospects if we incur large investment losses or if the level of our business activity decreased due to a market downturn. Similarly, our access to funds may be impaired if regulatory authorities or rating agencies take negative actions against us. Our internal sources of liquidity may prove to be insufficient, and in such case, we may not be able to successfully obtain additional financing on favorable terms, or at all.
In addition, the ability of Allianz Group to meet its financial needs also depends on the availability of funds across the Group (e.g., in the form of intra-Group loans or an international cash pooling infrastructure). A worldwide persistent collapse of financial markets and downturn affecting many of the Group’s operating entities, however, may reduce the Group’s flexibility in internally transferring funds.
Disruptions, uncertainty or volatility in the capital and credit markets may also limit our access to capital required to operate our business, most significantly our insurance operations. Such market conditions may limit our ability to: replace, in a timely manner, maturing liabilities; satisfy regulatory capital requirements; generate fee income and market-related revenue to meet liquidity needs; and access the capital necessary to grow our business. As
such, we may be forced to delay raising capital, issue shorter duration securities than we prefer, or bear an unattractive cost of capital which could decrease our profitability and significantly reduce our financial flexibility. Our results of operations, financial condition and regulatory capital position could be materially adversely affected by disruptions in the financial markets.
Furthermore, a limited amount of Allianz Group’s funds is invested in private equity or other alternative assets classes. The value of these investments may be impacted by the current turbulence in the financial markets. Therefore, it may be difficult to renew the debt structure of leveraged investments.
The Allianz Group has been and may continue to be adversely affected by ongoing turbulence and volatility in the world’s financial markets and the economy generally, and we do not expect these conditions to improve in the near future.
Our results of operations are materially affected by conditions in the global capital markets and the economy generally, both in Germany and elsewhere around the world. The stress experienced in the global capital markets that started in the second half of 2007 continued and substantially increased throughout 2008 and continues in 2009. The crisis in the mortgage market in the United States, triggered by a serious deterioration of credit quality, led to a revaluation of credit risks. These conditions have resulted in greater volatility, widening of credit spreads and overall shortage of liquidity and tightening of financial markets throughout the world. In addition, the prices for many types of asset-backed securities (ABS) and other structured products have significantly deteriorated. Some of those markets are not working any longer or have ceased to exist entirely. These concerns have since expanded to include a broad range of fixed-income securities, including those rated investment grade, the international credit and interbank money markets generally, and a wide range of financial institutions and markets, asset classes and sectors. As a result, the market for fixed-income instruments has experienced decreased liquidity, increased price volatility, credit downgrade events, and increased probability of default. Securities that are less liquid are more difficult to value and may be hard to dispose of. International equity markets have also been
experiencing heightened volatility and turmoil, with issuers, including ourselves, that have exposure to the real estate, mortgage and credit markets particularly affected. These events and the continuing market upheavals have had and may continue to have an adverse effect on us, in part, because our large investment portfolio and our former banking subsidiary, Dresdner Bank, had exposure to U.S. mortgage-related structured investment products, including subprime, midprime and prime residential mortgage-backed securities (RMBS), collateralized debt obligations (CDOs), monoline insurer guarantees, structured investment vehicles (SIVs) and other investments. As a result, we recorded significant negative revaluations in 2007 and 2008 on the investment portfolio of Dresdner Bank, and in connection with our sale of Dresdner Bank to Commerzbank, we have retained exposure to certain of these types of assets, including Dresdner Bank-related CDOs with a face value of €2 billion, which we acquired for approximately €1.1 billion. Accordingly, there can be no assurance that we will not incur further impairments of these assets. For details regarding the impact of the financial market crisis on the Allianz Group’s 2008 results and its ongoing exposure, please refer to “Operating and Financial Review and Prospects—Executive Summary—Impact of the financial markets turbulence.”
In addition, concerns over inflation, energy costs, geopolitical issues, the availability and cost of credit, the U.S. mortgage market and a declining real estate market in the United States and other regions have contributed to increased volatility and diminished expectations for the economy in general and the markets going forward. These factors, combined with volatile oil prices, declining business and consumer confidence and increased unemployment, have precipitated a substantial economic slowdown and fears of a potential global recession. Factors such as consumer spending, business investment, government spending, the volatility and strength of the capital markets, and inflation all affect the business and economic environment and, ultimately, the amount and profitability of our business. In an economic downturn characterized by higher unemployment, lower family income, lower corporate earnings, lower business investment and lower consumer spending, the demand for our financial and insurance products could be adversely affected. In addition, we may
experience an elevated incidence of claims and lapses or surrenders of policies. Our policyholders may choose to defer paying insurance premiums or stop paying insurance premiums altogether. Moreover, we are a significant writer of unit-linked and other investment-oriented products, for which sales have decreased due to customer concerns regarding their exposure to the financial markets. Adverse changes in the economy could affect our earnings negatively and could have a material adverse effect on our business, results of operations, financial condition and shareholders’ equity.
Interest rate volatility may adversely affect ourAllianz Group’s results of operations.
Changes in prevailing interest rates (including changes in the difference between the levels of prevailing short- and long-term rates) canmay adversely affect ourAllianz Group’s insurance, asset management, banking and bankingcorporate results.
Over the past several years and in particular during the recent global credit crisis, movements in both short- and long-term interest rates have affected the level and timing of recognition of gains and losses on securities held in ourAllianz Group’s various investment portfolios. An increase in interest rates could substantially decrease the value of our fixed incomeAllianz Group’s fixed-income portfolio, and any unexpected change in interest rates could materially adversely affect ourAllianz Group’s bond and interest rate derivative positions. Results of ourAllianz Group’s asset management business may also be affected by movements in interest rates, sinceas management fees are generally based on the value of assets under management, which fluctuate with changes in the level of interest rates.
The short-term impact of interest rate fluctuations on ourAllianz Group’s life/health insurance business may be reduced in part by products designed to partly or entirely transfer ourAllianz Group’s exposure to interest rate movements to the policyholder. While product design reduces ourAllianz Group’s exposure to interest rate volatility, changes in interest rates will impact this business to the extent they result in changes to current interest income, impact the value of our fixed incomeAllianz Group’s fixed-income portfolio, and affect the levels of new product sales or surrenders of business in force. In addition, reductions in the investment income below the rates assumed in product pricing,
prevailing at the issue date of the policy, or below the regulatory minimum required rates in countries such asGermanyas Germany and Switzerland, would reduce or eliminate the profit margins on the life/health insurance business written by ourAllianz Group’s life/health subsidiaries.
In addition,subsidiaries to the extent the maturity composition of our bankingthe assets and liabilities, and any mismatches resulting from thatdoes not match the maturity composition causeof the net income of our banking operations to vary with changes in interest rates. Weinsurance obligations they are particularly impacted by changes in interest rates as they relate to different maturities of contracts and the different currencies in which we hold interest rate positions. A mismatch with respect to maturity of interest-earning assets and interest-bearing liabilities in any given period can have a material adverse effect on the financial position or results of operations of our banking business.backing.
MarketWe are exposed to significant market risks that could impair the value of ourAllianz Group’s portfolio and adversely impact ourAllianz Group’s financial position and results of operations.
We holdAllianz Group holds a significant equity portfolio, which represented approximately 16%9.1% of ourAllianz Group’s own investmentsfinancial assets at December 31, 2005,2008, excluding trading portfolios. Fluctuationsfinancial assets and liabilities carried at fair value through income. Volatility in equity markets, which have reached unprecedented levels in recent months, affect the market value and liquidity of these holdings. WeAllianz Group also havehas real estate holdings in ourits investment portfolio, the value of which is likewise exposed to changes in real estate market prices and volatility.
Most of ourAllianz Group’s financial assets and liabilities are recorded at fair value, including trading assets and liabilities, financial assets and liabilities designated at fair value through income, and securities available-for-sale. Changes in the value of securities held for trading purposes and financial assets designated at fair value through income are recorded through ourAllianz Group’s consolidated income statement. Changes in the market value of securities available-for-sale are recorded directly in ourAllianz Group’s consolidated shareholders’ equity. Available-for-sale equity and fixed incomefixed-income securities, as well as securities classified as held-to-maturity, are reviewed regularly for impairment, with write-downs to fair value charged to income if there is objective evidence that the cost may not be recovered. SeeRefer to “Operating and Financial Review and Prospects—Review—Critical Accounting Policies and Estimates” and Note 2 to ourthe consolidated financial statements for further information concerning ourAllianz Group’s significant accounting and valuation policies. As a result of the world financial crisis, which has been characterized by significant declines of market prices of securities and other financial assets, we have recorded substantial impairments,
which have adversely affected our results of operations, shareholders’ equity and financial position. We also hold interests in a number of financial institutions as part of our portfolio, which have been particularly exposed to the uncertain current market conditions affecting the financial services sector generally. Until the global economic environment improves, there can be no assurance that we will not continue to incur similar significant impairments on the value of the securities and other financial assets that we hold.
Market and other factorsWe have significant counterparty risk exposure, which could adversely affect goodwill, deferred policy acquisition costs and deferred tax assets; our deferred tax assets are also potentially impacted by changes in tax legislation.Allianz Group.
BusinessWe are subject to a variety of counterparty risks, including:
General Credit Risks. Third-parties that owe us money, securities or other assets may not pay or perform under their obligations. These parties include the issuers whose securities we hold, borrowers under loans made, customers, trading counterparties, counterparties under swaps, credit default and other derivative contracts, clearing agents, exchanges, clearing houses and other financial intermediaries. As a result, defaults by one or more of these parties on their obligations to us due to bankruptcy, lack of liquidity, downturns in the economy or real estate values, operational failure or other reasons, or even rumors about potential defaults by one or more of these parties or regarding the financial services industry generally, could lead to losses or defaults by us or by other institutions. In addition, with respect to secured transactions, our credit risk may be exacerbated when the collateral held by us cannot be realized or is liquidated at prices not sufficient to recover the full amount of the loan or derivative exposure. We also have exposure to a number of financial institutions in the form of unsecured debt instruments, derivative transactions and equity investments. There is no assurance that losses on, or impairments to the carrying value of, these assets would not materially and adversely affect our business or results of operations.
Reinsurers. We transfer our exposure to certain risks in our property-casualty and life/health insurance business to others through reinsurance arrangements. Under these arrangements, other insurers assume a portion of Allianz Group’s losses and expenses associated with reported and unreported
losses in exchange for a portion of policy premiums. The availability, amount and cost of reinsurance depend on general market conditions and may impactvary significantly from time to time. Any decrease in the amount of goodwillAllianz Group’s reinsurance will increase its risk of loss. When we carryobtain reinsurance, we are still liable for those transferred risks if the reinsurer cannot meet its obligations. Accordingly, we bear credit risk with respect to our reinsurers. Therefore, the inability or unwillingness of Allianz Group’s reinsurers to meet their financial obligations, or the insolvency of Allianz Group reinsurers, could materially affect Allianz Group’s results of operations. Although Allianz Group conducts periodic reviews of the financial statements and reputations of its reinsurers, including, and as appropriate, requiring letters of credit, deposits or other financial collaterals to further minimize its exposure to credit risk, reinsurers may become financially unsound by the time they are called upon to pay amounts due.
Changes in value relative to the Euro of non-Euro zone currencies in which we generate revenues and incur expenses could adversely affect our reported earnings and cash flow.
We prepare our consolidated financial statements. Asstatements in Euro. However, a significant portion of the revenues and expenses from our subsidiaries outside the Euro zone, including in the United States, Switzerland and the United Kingdom, originates in currencies other than the Euro. We expect this trend to continue as we expand our business into growing non-Euro zone markets. For the year ended December 31, 2008, approximately 38.6% of our gross premiums written in our property-casualty segment and 26.8% of our statutory premiums in our life/health segment originated in currencies other than the Euro. Furthermore, as of December 31, 2005, we have recorded goodwill2008, 59.0% of the third-party assets under management in an aggregate amount of €12,023 million, of which €1,625 million relates to our banking business, €6,604 million to our asset management business and €3,794 million relates to our insurance business.the Asset Management segment are in the United States.
As a result, although our non-Euro zone subsidiaries generally record their revenues and expenses in the value of certain parts of our businesses, includingsame currency, changes in particular our banking and asset management businesses, are significantly impacted by such factors as the state of financial markets and ongoing operating performance, significant declines in financial markets or operating performance could also result in impairment of other goodwill carried by us and result in significant write-downs, which could be material. No impairments were recorded for goodwill in 2005.
The assumptions we made with respectexchange rates used to recoverability of deferred policy acquisition costs (or “DAC”) are also affected by such factors as operating performance and market conditions. DAC is incurred in connection with the production of new and renewal insurance business and is deferred and amortized generally in proportion to profits or to premium income expected to be generated over the life of the underlying policies, depending on the classification of the product. If the assumptions on which expected profits are based prove to be incorrect, ittranslate foreign currencies into Euro may be necessary to accelerate amortization of DAC, even to the extent of writing down DAC through impairments, which could materially adversely affect results of operations. No impairments were recorded for DAC in 2005.
As of December 31, 2005, we had a total of €14,596 million in net deferred tax assets and €14,621 million in deferred tax liabilities. The calculation of the respective tax assets and liabilities is based on current tax laws and IFRS and depends on the performance of the Allianz Group as a whole and certain business units in particular. At December 31, 2005, €5,018 million (2004: €5,337 million) of deferred tax assets depended on the ability to use existing tax-loss carry forwards.
Changes in German or other tax legislation or regulations or an operating performance below currently anticipated levels may lead to a significant impairment of deferred tax assets, in which case we could be obligated to write-off certain tax assets. Tax assets may also need to be written-down if certain assumptions of profitability prove to be incorrect, as losses incurred for longer than expected will make the usability of tax assets more unlikely. Any such development may have a material adverse impact on our results of operations.
Risks arising from the nature of our business
Loss reserves for ourAllianz Group’s property-casualty insurance and reinsurance policies are based on estimates as to future claims liabilities. Adverse developments relating to claims could lead to further reserve additions and materially adversely impact ourAllianz Group’s results of operations.
In accordance with industry practice and accounting and regulatory requirements, we establishAllianz Group establishes reserves for losslosses and loss adjustment expenses related to ourits property-casualty insurance and reinsurance businesses, including property-casualty business in run-off. Reserves are based on estimates of future payments that will be made in respect of claims, including expenses relating to such claims. Such estimates are made both on a case-by-case basis, based on the facts and circumstances available at the time the reserves are established, as well as in respect of losses that have been incurred but not reported (or “IBNR”)(IBNR) to the Allianz Group. These reserves represent the estimated ultimate cost necessary to bring all pending reported and IBNR claims to final settlement.
Reserves, including IBNR reserves, are subject to change due to a number of variables whichthat affect the ultimate cost of claims, such as changes in the legal environment, results of litigation, changes in medical costs, costs of repairs and other factors such as inflation and exchange rates, and ourAllianz Group’s reserves for asbestos and environmental and other latent claims are particularly subject to such variables. OurAllianz Group’s results of operations depend significantly upon the extent to which ourAllianz Group’s actual claims experience is consistent with the assumptions we useAllianz Group uses in setting the prices for products and establishing the liabilities for obligations for technical provisions and claims. To the extent that ourAllianz Group’s actual claims experience is less favorable than the underlying assumptions used in establishing such liabilities, weAllianz Group may be required to
increase ourits reserves, which may materially adversely affect ourits results of operations.
Established loss reserves estimates are periodically adjusted in the ordinary course of settlement, using the most current information available to management, and any adjustments resulting from changes in reserve estimates are reflected in current results of operations. WeAllianz
Group also conductconducts reviews of various lines of business to consider the adequacy of reserve levels. Based on current information available to us and on the basis of ourAllianz Group’s internal procedures, ourAllianz Group’s management considers that theseAllianz Group’s reserves are adequate at December 31, 2005.2008. However, because the establishment of reserves for loss and loss adjustment expenses is an inherently uncertain process, there can be no assurance that ultimate losses will not materially exceed the established reserves for loss and loss adjustment expenses and have a material adverse effect on ourAllianz Group’s results of operations. See “Information on the Company—Property-Casualty Insurance Reserves.”
Actuarial experience and other factors could differ from that assumed in the calculation of life/health actuarial reserves and pension liabilities.
The assumptions we makeAllianz Group makes in assessing ourits life/health insurance reserves may differ from what we experience in the future. We derive ourAllianz Group derives its life/health insurance reserves using “best estimate” actuarial practices and assumptions. These assumptions include the assessment of the long-term development of interest rates, investment returns, the allocation of investments between equity, fixed incomefixed-income and other categories, policyholder bonus rates (some of which are guaranteed), mortality and morbidity rates, policyholder lapses and future expense levels. We monitor ourAllianz Group monitors its actual experience of these assumptions and to the extent that we considerit considers that this experience will continue in the longer term we refine ourit refines its long-term assumptions. Similarly, estimates of ourAllianz Group’s own pension obligations necessarily depend on assumptions concerning future actuarial, demographic, macroeconomic and financial markets developments. Changes in any such assumptions may lead to changes in the estimates of life/health insurance reserves or pension obligations.
We have a significant portfolio of contracts with guaranteed investment returns, including endowmentandendowment and annuity products for the German market as well as certain guaranteed contracts in other markets. The amounts payable by us at maturity of an endowment policy in Germany and in certain other markets include a “guaranteed benefit,” an amount that, in practice, is equal to a legally mandated maximum rate of return on actuarial reserves. If interest rates should remain at currentdecline to historically low levels for a long period, we could be required to provide additional funds to our
Allianz Group’s life/health subsidiaries to support their obligations in respect of products with higher guaranteed returns, or increase reserves in respect of such products, which could in turn have a material adverse effect on ourAllianz Group’s results of operations.
In the United States, in particular in our variable and fixed-indexed annuity products, and to a lesser extent in Europe and Asia we have a significant portfolio of contracts with guaranteed investment returns indexedtied to equity markets. We enter into derivative contracts as a means of mitigating the risk of investment returns underperforming guaranteed returns. However, there can be no assurance that the hedging arrangements will satisfy the returns guaranteed to policyholders, which could in turn have a material adverse effect on ourAllianz Group’s results of operations.
Our financial results may be materially adversely affected by the occurrence For example, in 2008, our US variable annuity business experienced a negative impact of catastrophes.
Portionshigher guarantee reserves, net of our property-casualty insurance may cover losses from unpredictable events such as hurricanes, windstorms, hailstorms, earthquakes, fires, industrial explosions, freezes, riots, floodshedging and other man-made or natural disasters, including actsDAC amortization, of terrorism. The incidence and severity of these catastrophes in any given period are inherently unpredictable.
Although we monitor our overall exposure to catastrophes and other unpredictable events in each geographic region, each of our subsidiaries independently determines its own underwriting limits related to insurance coverage for losses from catastrophic events. We generally seek to reduce our exposure to these events through the purchase of reinsurance, selective underwriting practices and by monitoring risk accumulation. However, such efforts to reduce exposure may not be successful and claims relating to catastrophes may result in unusually high levels of losses and could have a material adverse effect on our financial position or results of operations.
We have significant counterparty risk exposure.
We are subject to a variety of counterparty risks, including:
General Credit Risks. Third-parties that owe us money, securities or other assets may not pay or perform under their obligations. These parties include the issuers whose securities we hold, borrowers under loans made, customers, trading counterparties, counterparties under swaps, credit default and other derivative contracts, clearing agents, exchanges, clearing houses and other financial intermediaries. These parties may default on their obligations to us due to bankruptcy, lack of liquidity, downturns in the economy or real estate values, operational failure or other reasons.
Reinsurers. We transfer our exposure to certain risks in our property-casualty and life/health insurance business to others through reinsurance arrangements. Under these arrangements, other insurers assume a portion of our losses and expenses associated with reported and unreported losses in exchange for a portion of policy premiums. The availability, amount and cost of reinsurance depend on general market conditions and may vary significantly. Any decrease in the amount of our reinsurance will increase our risk of loss. When we obtain reinsurance, we are still liable for those transferred risks if the reinsurer cannot meet its obligations. Therefore, the inability of our reinsurers to meet their financial obligations could materially affect our results of operations. Although we conduct periodic reviews of the financial statements and reputations of our reinsurers, including, and as appropriate, requiring letters of credit, deposits or other financial measures to further minimize our exposure to credit risk, reinsurers may become financially unsound by the time they are called upon to pay amounts due.
Many of our businesses are dependent on the financial strength and credit ratings assigned to us and our businesses by various rating agencies. Therefore, a downgrade in our ratings may materially adversely affect relationships with customers and intermediaries, negatively impact sales of our products and increase our cost of borrowing.
Claims paying ability and financial strength ratings are a factor in establishing the competitiveposition of insurers. Our financial strength rating has a significant impact on the individual ratings of key subsidiaries. If a rating of certain subsidiaries falls below a certain threshold, the respective operating business may be significantly impacted. A ratings downgrade, or the potential for such a downgrade, of the Allianz Group or any of our insurance subsidiaries could, among other things, adversely affect relationships with agents, brokers and other distributors of our products and services, thereby negatively impacting new sales, adversely affect our ability to compete in our markets and increase our cost of borrowing. In particular, in those countries where primary distribution of our products is done through independent agents, such as the United States, future ratings downgrades could adversely impact sales of our life insurance products. Any future ratings downgrades could also materially adversely affect our cost of raising capital, and could, in addition, give rise to additional financial obligations or accelerate existing financial obligations which are dependent on maintaining specified rating levels.
Rating agencies can be expected to continue to monitor our financial strength and claims paying ability, and no assurances can be given that future ratings downgrades will not occur, whether due to changes in our performance, changes in rating agencies’ industry views or ratings methodologies, or a combination of such factors.approximately USD -238mn.
If our asset management business underperforms, it may experience a decline in assets under management and related fee income.
While the assets under management in our asset management segment include a significant amount of funds related to our insurance operations, third-party assets under management particularly following the acquisitions of PIMCO in May 2000, Nicholas-Applegate in January 2001 and Dresdner Bank in July 2001, represent the majority. Results of our asset management activities are affected by share prices, share valuation, interest rates and market volatility. In addition, third-party funds are subject to withdrawal in the event our investment performance is not competitive with other asset management firms. Accordingly, fee income from the asset management business might decline if the level of our third-party assets under management were to decline due to investment performance or otherwise.
Risks arising from the environment and the geopolitical situation
Allianz Group’s financial results may be materially adversely affected by the occurrence of catastrophes.
Portions of Allianz Group’s property-casualty insurance may cover losses from unpredictable events such as hurricanes, windstorms, hailstorms, earthquakes, fires, industrial explosions, freezes, riots, floods and other man-made or natural disasters,
including acts of terrorism. The individual or combined impactincidence and severity of these catastrophes in any given period are inherently unpredictable.
Although the Allianz Group monitors its overall exposure to catastrophes and other unpredictable events in each geographic region, each of Allianz Group’s subsidiaries independently determines, within the Allianz Group’s limit framework, its own underwriting limits related to insurance coverage for losses from catastrophic events. We generally seek to reduce Allianz Group’s potential losses from these events mentioned above could also cause an impairmentthrough the purchase of goodwillreinsurance, selective underwriting practices and by monitoring risk accumulation. However, such efforts to reduce exposure may not be successful and claims relating to catastrophes may result in significant write-downs, whichunusually high levels of losses and could be material.have a material adverse effect on Allianz Group’s financial position or results of operations.
Increased geopolitical risks following the terrorist attack of September 11, 2001, and any future terrorist attacks, could have a continuing negative impact on our businesses.
After September 11, 2001, several terror insurance pools have been set up and reinsurers generally either put terrorism exclusions into their policies or drastically increased the price for such coverage. Although we have attempted to exclude terrorist coverage from policies we write, this has not been possible in all cases, including as a result of legislative developments such as the Terrorism Risk Insurance Act (or “TRIA”) in the United States. Furthermore, even if terrorism exclusions are permitted in our primary insurance policies, we may still have liability for fires and other consequential damage claims that follow an act of terrorism itself. As a result we may have liability under primary insurance policies for acts of terrorism and may not be able to recover a portion or any of our losses from our reinsurers.
At this time, we cannot assess the future effects of terrorist attacks, potential ensuing military and other responsive actions, and the possibility of further terrorist attacks, on our businesses. Such matters have significantly adversely affected general economic, market and political conditions, increasing many of the risks in our businesses noted in the previous risk factors. This may have a material negative effect on our businesses and results of
operations over time.time, in particular the value of our investments may be negatively affected by any market downturn after a terrorist attack.
Risks arising from legal and regulatory conditions
Changes in existing, or new, government laws and regulations, or enforcement initiatives in respect thereof, in the countries in which we operate may materially impact us and could adversely affect our business.
Our insurance, bankingasset management and asset managementbanking businesses are subject to detailed, comprehensive laws and regulationregulations as well as supervision in all the countries in which we do business. Changes in existing laws and regulations may affect the way in which we conduct our business and the products we may offer. Changes in regulations relating to pensions and employment, social security, financial services including reinsurance business, taxation,securities products and transactions may materially adversely affect our insurance, bankingasset management and asset managementbanking businesses by restructuring our activities, imposing increased costs or otherwise.
Regulatory agencies have broad administrative power over many aspects of the financial services business, which may include liquidity, capital adequacy and permitted investments, ethical issues, money laundering, “know your customer” rules, privacy, record keeping, and marketing and selling practices. Banking, insurance and other financial services laws, regulations and policies currently governing us and our subsidiaries may change at any time in ways which have an adverse effect on our business, and we cannot predict the timing or form of any future regulatory or enforcement initiatives in respect thereof. Also, bank regulators and other supervisory authorities in the EU, the United States and elsewhere continue to scrutinize payment processing and other transactions under regulations governing such matters as money-laundering, prohibited transactions with countries subject to sanctions, and bribery or other anti-corruption measures. If we fail to address, or appear to fail to address, appropriately any of these changes or initiatives, our reputation could be harmed and we could be subject to additional legal risk, including to enforcement actions, fines and penalties. Despite our best efforts to comply with applicable regulations, there are a number of risks in areas where applicable
regulations may be unclear or where regulators revise their previous guidance or courts overturn previous rulings. Regulators and other authorities have the power to bring administrative or judicial proceedings against us, which could result, among other things, in significant adverse publicity and reputational harm, suspension or revocation of our licenses, cease-and-desist orders, fines, civil penalties, criminal penalties or other disciplinary action whichthat could materially harm our results of operations and financial condition.
Furthermore, in reaction to the crisis in the global financial markets, many countries’ governments and regulators have introduced various rescue schemes for the financial sector. As described further under “Item 4. Regulation and Supervision—Measures to Stabilize Financial Markets”, the impact of certain of these schemes may negatively affect the value of the securities of companies participating in these programs and thus have an adverse affect on Allianz as a holder of certain of these securities in its investment portfolio.
Effective January 2005, reinsurance companies in Germany such as Allianz AGSE are subject to specific legal requirements regarding the assets covering their technical reserves. These assets are required to be appropriately diversified to prevent a reinsurer from relying excessively on any particular asset. The introduction of these requirements had anticipated the implementation of EU Reinsurance Directive (2005/68/EC) which was adopted in November 2005. The implementationAll of the directive’s provisions that have not yet been
were implemented in Germany effective January 2006 is expected to occur by the end of 2006.June 2, 2007. Although Allianz AG expects to meetSE currently meets the new requirements, of the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, or “BaFin”) once fully implemented, there can be no assurances as to the impact on Allianz AGSE of any future amendments to or changes in the interpretation of the laws and regulations regarding assets covering technical reserves of reinsurance companies, which could require Allianz AGSE to change the composition of its asset portfolio covering its technical reserves or take other appropriate measures.
In addition, currently discussions on a new solvency regime for insurance companies in the EU (Solvency II) are ongoing. As those discussions are in a preliminary stage,not yet finalized, its potential future impact for capital requirements can not currently be assessed. For more information, see “Information on the Company—Regulationrefer to “Item 11. Quantitative and Supervision.”Qualitative Disclosures about Market Risk—Outlook”.
In addition, changes to tax laws may affect the attractiveness of certain of our products that currently receive favorable tax treatment. Governments in jurisdictions in which we do business may consider changes to tax laws whichthat could adversely affect such existing tax advantages, and if enacted, could result in a significant reduction in the sale of such products.
Our business may be negatively affected by adverse publicity, regulatory actions or litigation with respect to the Allianz Group, other well-known companies and the financial services industry generally.
Adverse publicity and damage to our reputation arising from failure or perceived failure to comply with legal and regulatory requirements, financial reporting irregularities involving other large and well-known companies, increasing regulatory and law enforcement scrutiny of “know your customer”, anti-money laundering and anti-terrorist-financing procedures and their effectiveness, regulatory investigations of the mutual fund, banking and insurance industries, and litigation that arises from the failure or perceived failure by the Allianz Group companies to comply with legal, regulatory and regulatorycompliance requirements, could result in adverse publicity and reputational harm, lead to increased regulatory supervision, affect our ability to attract and retain customers, maintain access to the capital markets, result in law suits, enforcement actions, fines and penalties or have other adverse effects on us in ways that are not predictable.
Changes in value relative to the Euro of non-Euro zone currencies in which we generate revenues and incur expenses could adversely affect our reported earnings and cash flow.Other risks
We prepare our consolidated financial statements in Euro. However, a significant portion of the revenues and expenses from our subsidiaries outside the Euro zone, including in the United States, Switzerland and the United Kingdom, originates in currencies other than the Euro. We expect this trend to continue as we expand our business into growing non-Euro zone markets. For the year ended December 31, 2005, approximately 35.8%Many of our gross premiums writtenbusinesses are dependent on the financial strength and credit ratings assigned to us and our businesses by various rating agencies. Therefore, a downgrade in our property-casualty segmentratings may materially adversely affect relationships with customers and 34.2%intermediaries, negatively impact sales of our statutory premiums inproducts and increase our life/health segment originated in currencies other than the Euro.
As a result, although our non-Euro zone subsidiaries generally record their revenues and expenses in the same currency, changes in the exchange rates used to translate foreign currencies into Euro may adversely affect our resultscost of operations.
While our non-Euro assets and liabilities, and revenues and related expenses, are generally denominated in the same currencies, we do not generally engage in hedging transactions with respect to dividends or cash flows in respect of our non-Euro subsidiaries.
The share price of Allianz AG has been and may continue to be volatile.borrowing.
The share priceClaims paying ability and financial strength ratings are each a factor in establishing the competitive position of Allianz AGinsurers. Our financial strength rating has been volatile ina significant impact on the past andindividual ratings of key subsidiaries. If a rating of certain subsidiaries falls below a certain threshold,
the respective operating business may continue to be volatile due in part tosignificantly impacted. A ratings downgrade, or the high volatility in the securities markets generally, and in financial institutions’ shares in particular, as well as developments which impact our financial results. Factors other than our financial results that may affect our share price include but are not limited to: market expectations of the performance and capital adequacy of financial institutions generally; investor perception of as well as the actual performance of other financial institutions; investor perception of the success and impact of our strategy;potential for such a downgrade, or rumored downgrade of our credit ratings; potential litigation or regulatory action involving the Allianz Group or any of our insurance subsidiaries could, among other things, adversely affect relationships with agents, brokers and other distributors of our products and services, thereby negatively impacting new sales, adversely affect our ability to compete in our markets and increase our cost of borrowing. In particular, in those countries where primary distribution of our products is done through independent agents, such as the industries we have exposureUnited States, future ratings downgrades could adversely impact sales of our life insurance and annuity products. Any future ratings downgrades could also materially adversely affect our cost of raising capital, and could, in addition, give rise to throughadditional financial obligations or accelerate existing financial obligations which are dependent on maintaining specified rating levels.
Rating agencies can be expected to continue to monitor our
insurance, banking financial strength and asset management activities; announcements concerning the bankruptcyclaims paying ability, and no assurances can be given that future ratings downgrades will not occur, whether due to changes in our performance, changes in rating agencies’ industry views or other similar reorganization proceedings involving,ratings methodologies, or any investigations into the accounting practicesa combination of other insurance or reinsurance companies, banks or asset management companies; and general market volatility.such factors.
The benefits thatMarket and other factors could adversely affect goodwill, deferred policy acquisition costs and deferred tax assets; Allianz AG may realize from the contemplated merger with RAS S.p.A. and from Allianz AG’s conversion into a European Company (Societas Europaea)Group’s deferred tax assets are also potentially impacted by changes in connection therewith could be materially different from our current expectations.tax legislation.
Business and market conditions may impact the amount of goodwill Allianz Group carries in its consolidated financial statements. As of December 31, 2008, Allianz Group has recorded goodwill in an aggregate amount of €11,221 million, of which €6,325 million relates to its asset management business, €4,554 million relates to its insurance business, €199 million relates to its banking business, and €143 million relates to its corporate segment.
As the value of certain parts of Allianz Group’s businesses, including in particular Allianz Group’s asset management business, are significantly impacted by such factors as the state of financial markets and ongoing operating performance, significant declines in financial markets or operating performance could also result in impairment of other
goodwill carried by us and result in significant write-downs, which could be material. No impairments were recorded for goodwill in 2008.
The benefits thatassumptions Allianz AG may realize from the mergerGroup made with its Italian subsidiary, RAS S.p.A.,respect to recoverability of deferred policy acquisition costs (DAC) are also affected by such factors as operating performance and from Allianz AG’s conversion into a European Company (Societas Europaea, or “SE”)market conditions. DAC is incurred in connection therewithwith the production of new and renewal insurance business and is deferred and amortized generally in proportion to profits or to premium income expected to be generated over the life of the underlying policies, depending on the classification of the product. If the assumptions on which expected profits are based prove to be incorrect, it may be necessary to accelerate amortization of DAC, even to the extent of writing down DAC through impairments, which could materially adversely affect results of operations. No material impairments were recorded for DAC in 2008.
As of December 31, 2008, Allianz Group had a total of €3,996 million in net deferred tax assets and €3,833 million in net deferred tax liabilities. The calculation of the respective tax assets and liabilities is based on current tax laws and IFRS and depends on the performance of the Allianz Group as a whole and certain business units in particular. At December 31, 2008, €1,863 million of deferred tax assets depended on the ability to use existing tax-loss carry forwards.
Changes in German or other tax legislation or regulations or an operating performance below currently anticipated levels or any circumstances which result in an expiration of tax losses may lead to a significant impairment of deferred tax assets, in which case Allianz Group could be materially different from our current expectations. For more information about this transaction, see “Information on the Company – Allianz-RAS Merger / European Company (SE).” However, our estimates of the benefits that weobligated to write-off certain tax assets. Tax assets may realize as a result of the merger and conversion to an SE involve subjective judgments that are subject to uncertainties. A variety of factors that are partially or entirely beyond our control could cause actual resultsalso need to be materially different from what we currently expect, and any synergies that we realize fromwritten- down if certain assumptions of profitability prove to be incorrect, as losses incurred for longer than expected will make the merger and conversionusability of tax assets more unlikely. Any such development may have a material adverse impact on Allianz Group’s net income.
Following the sale of Dresdner Bank in January 2009, Allianz SE retains the contingent obligation to anindemnify, under certain circumstances, the Federal Association of German Banks in connection with Dresdner Bank for the period Allianz SE therefore could as a result be materially different from our current expectations.owned Dresdner Bank.
ITEMIn accordance with the Articles of Association of the Joint Fund for Securing Customer Deposits (“Einlagensicherungsfonds”), Allianz SE has undertaken to indemnify the Federal Association of German Banks (“Bundesverband deutscher Banken e.V.”), the deposit protection association of privately-held German banks, for any losses it may incur by reason of supporting measures taken in favor of Oldenburgische Landesbank AG (OLB), Münsterländische Bank Thie & Co.KG and Bankhaus W. Fortmann & Söhner KG, which remain part of the Allianz Group following the sale of Dresdner Bank. For more general information on this deposit guarantee scheme, refer to “Item 4. InformationRegulation and Supervision—Banking, Asset Management and Other Investment Services—Germany.”
With the sale of Dresdner Bank becoming effective on January 12, 2009, Allianz terminated its indemnification undertaking issued in 2001 in favour of the CompanyFederal Association of German Banks with respect to Dresdner Bank since the date of sale. As a result, Allianz’s on-going indemnification obligation relates to supporting measures in favour of Dresdner Bank that are based on facts that were already existing at the time of the termination.
ITEM 4. | Information on the Company |
We are among the world’s largest financial services providers.
ranging from private individuals to large multinational corporations.
Allianz AG,SE (formerly Allianz Aktiengesellschaft, or Allianz AG) is a stock corporation organizedEuropean Company (Societas Europaea, or SE) incorporated in the Federal Republic of Germany and organized under the German Stock Corporation Act,laws of the Federal Republic of Germany and the European Union. Allianz SE is the ultimate parent company of the Allianz Group. It was incorporated as Allianz Versicherungs-AktiengesellschaftVersicherungs- Aktiengesellschaft in Berlin, Germany on February 5, 1890.1890 and converted to a European Company on October 13, 2006. Our registered office is located at KöniginstrasseKoeniginstrasse 28, 80802 Munich, Germany, telephone (49)(89)+49 (0) 89 3800-0. See “– Allianz-RAS Merger / European Company (SE)” for information on the conversion of Allianz AG into a European Company (SE) upon completion of the contemplated merger with Riunione Adriatica di Sicurtà S.p.A. (or “RAS”) to become Allianz SE.
Insurance OperationsThe Allianz Group’s Business Model
As an integrated and globally operating financial services provider we seek to offer our clients value by providing a wide range of insurance and financial products as well as an extensive advisory capacity through our subsidiaries under strong and well-known brands. We operate and manage our activities primarily through four operating segments: Property-Casualty, Life/Health, Banking and Asset Management. We consider ourselves well-positioned to anticipate and successfully respond to competitive forces affecting our various operations.
Insurance operations
We are one of the more than 70 countriesleading insurance groups in which we operate, wethe world and rank number one in the German property-casualty and life insurance markets based on gross premiums written and statutory premiums, respectively.(1) We are also among the largest insurance companies in a number of them, including France, Italy, Spain, Switzerland and the United Kingdom.
In our Property-Casualty segment,other countries in which we provideoperate. Our product portfolio includes a wide array of property-casualty and life/health insurance products including, among others, motor, homeowners, travelfor both private and other personal lines products. Furthermore, we are a leading provider of commercial and industrial coverage to enterprises of all sizes, including manycorporate customers.
Product range of the world’s largest companies. Throughinsurance business
We conduct business in almost every European country, with Germany, Italy and France being our specialty lines of business, we offer credit insurance, marine, aviationmost important markets. We also run operations in the United States and industrial transport insurance, international industrial risks reinsurance,in Central and Eastern Europe as well as travel insurancein Asia-Pacific. Our operations continue to be expanded worldwide. In 2008, for example, we developed our business operations in the Middle East, in Turkey and assistance services, which we manage on a worldwide basis.in South America with Brazil being one of the key markets(2).
Our insurance products are distributed via a broad network of self-employed agents, brokers, banks and other channels. Increasingly, we distribute our insurance products in cooperation with car
(1) | Source: |
(2) | For a more detailed description of the global diversification of our insurance business, please refer to“—Global Diversification of our Insurance Business”. |
Our Life/Health segment provides, among others, traditional life, endowment, annuity, including equity-indexed annuities,manufacturers and term insurance products. Additionally, we serve individuals with a wide range of health, disabilitydealers in Europe and related coverageAsia-Pacific and provide group life, group healthalso have direct distribution operations in Central Europe, India and pension products to employers.
Within our home market of Europe, France, Germany, Italy, Spain, Switzerland and the United Kingdom comprise our primary insurance markets, with Germany as our most important single market, although we operate in almost every European country. We also consider the United States as one of our primary markets. Please see “– International Presence” for a breakdown of selected operating entities within our primary markets and others.
We distribute our property-casualty and life/health insurance products through a broad network of self-employed full-time tied agents, part-time tied agents, brokers, banks and other channels.Australia. The particular distribution channels we use vary based onby product and geographic market. Within
Our more mature insurance markets (e.g. Germany, France, Italy and the United States) are highly competitive. In recent years, we have also experienced increasing competition in emerging markets, as large insurance companies and other financial service providers from more developed countries have entered these markets to participate in their high growth potential. In addition, local institutions have become more experienced and have established strategic relationships, alliances or mergers with our primary marketcompetitors.
The investments of Germany, we rely predominantly on full-time tied agents. Ourmost Allianz insurance productscompanies are marketed in Germany primarily under the “Allianz” brand name. In other countries, we operatemanaged internally through our subsidiary insurers’ brand names, which are identified as part ofspecialists within the Allianz Group.Group (Allianz Investment Management).
Allianz AG, the parent company of the Allianz Group, acts asSE, the Allianz Group’s parent company, acts on an arm’s length basis as reinsurer for almost allmost of our insurance operations other than international industrial risks reinsurance. Forand assumed 25.2%, 26.9% and 33.3% of all reinsurance business ceded by Allianz Group companies for the years ended December 31, 2005, 20042008, 2007 and 2003,2006, respectively. Allianz AG assumed 39.6%, 37.6% and 39.1%, respectively, of all reinsurance ceded by Allianz Group companies, while Munich Re is our primary third-party reinsurer. Allianz AG also provides centralized advice to subsidiaries on structuring their own reinsurance programs and establishing lists of permitted reinsurers. In addition, the Allianz Group, through Allianz AG, has a pooling concept in place whereby natural catastrophe reinsurance cover is offered to Allianz Group’s subsidiaries allowing the Allianz Group to benefit from internal diversification effects. Allianz AGSE also assumes a relatively small amount of reinsurance from external cedents.cedents and cedes risk to third-party reinsurers. The Allianz Group has established a pooling arrangement that offers reinsurance coverage to the Group’s subsidiaries against natural catastrophes, which provides the benefit of internal Group diversification.
Please seeBanking operations
In the respective sections of “Operating and Financial Review and Prospects”past, our banking activities were primarily conducted through the Dresdner Bank Group which accounted for breakdownsalmost all of our insuranceBanking segment’s results of operations. Following the sale of Dresdner Bank AG (Dresdner Bank) to Commerzbank AG (Commerzbank)(1), we reduced our banking operations by geographic region,including gross premiums written, statutory premiums, earnings and various key performance indicators,which now comprise Allianz Banking Germany as well as our existing banking operations in Italy, France and New Europe. Allianz Banking Germany is a descriptiondivision under the roof of our largest property-casualtyAllianz Deutschland AG (ADAG) and life/health markets and companies.
(1) | For detailed information on the sale of Dresdner Bank, please refer to “—Major Transactions—Major Disposals”. |
Oldenburgische Landesbank AG (Oldenburgische Landesbank) and the largest banks in Germany, based on total assets at December 31, 2005.
Our banking operations consist primarily of those ofcustomers originally introduced to Dresdner Bank through which we offerthe tied agents network. Oldenburgische Landesbank will become Allianz’s main banking product and service provider in Germany. The bank offers a wide range of private, commercial and investment banking products and services for corporate governmental and individual customers, primarily inretail clients with its main focus on the European market. Please see “– International Presence” for a breakdown of selected operating entities within our primary markets and others.
While Dresdner Bank focuses on selected geographic regions worldwide, Germany is its primary market, which contains 66.1% of its loan portfolio. The largest credit exposureslatter. In addition to borrowers in Germany are loans to private individuals (including self-employed professionals) at 58.2%; this category represented 38.5% of Dresdner Bank’s total loans outstanding at December 31, 2005. Dresdner Bank operates and distributes its products primarily through 959 branch offices, of which 927 are located in Germany and 32 outside of Germany. In 2005, we conducted our Dresdner Bank operations through six divisions:
In November 2005, we announced that, effective 1Q 2006, we will reorganize our banking business. Our newly-formed Private & Business Clients division will combine all banking activities, formerly provided by the Personal Banking and Private & Business Banking divisions. Additionally, our Corporate Banking and DrKW divisions will be combined within a single organizational unit, Corporate & Investment Banking, to further improve the leverage of the market potential in our corporate client and capital markets business. In the future, we expect to increase the partdistribution of banking products sold through our German insurance agents.agents network is important and the banking agencies distribution network will be expanded to approximately 300 in 2009 (129 as of December 31, 2008).
Please see “Operating and Financial Review and Prospects—Banking Operations” for a breakdown of our banking operations by division and geographic region, respectively.
Asset Management Operationsoperations
We are one of the four largest asset managers in the world, based on total assets under management.
world.(3)Our asset management operations act as a global providerbusiness activities in this segment consist of institutional and retail asset management products and services toboth for third-party investors andprovide investmentand for the Allianz Group’s insurance operations.
We serve a comprehensive range of retail and institutional asset management clients. Our institutional customers include corporate and public pension funds, insurance and other financial services to our insurance operations. We managed approximately € 743 billion of third-party assets on a worldwide basis at December 31, 2005, which includes fixed income, equity, money marketcompanies, governments and sector products,charities as well as alternative investments.financial advisors.
We conduct ourOur retail asset management business is primarily through our operating companies worldwideconducted under the brand name Allianz Global Investors (or “AGI”).(AGI) through our operating companies worldwide. In our institutional asset management business, we operate under the brand names of our investment management entities;entities, with AGI servesserving as an endorsement brand. Please see “– International Presence” forWith € 673 billion of third-party assets as of December 31, 2008, AGI managed 95.7% (2007: 94.8%) of our total third-party assets on a breakdown of selected operating entities withinworldwide basis. The United
(2) | Including the banking customers introduced to Dresdner Bank through the tied agent network. |
(3) | Based on total assets under management as of December 31, 2008. |
States and Germany as well as France, Italy and the Asia-Pacific region represent our primary markets and others.asset management markets. We have recently expanded our engagement in China by increasing the participation in our joint venture, Guotai Allianz Finanz Management. Furthermore, effective January 12, 2009, we acquired cominvest, the former asset management division of Commerzbank AG, which will add approximately € 60 billion assets under management, predominantly domiciled in Germany, to our third-party assets under management.
We serve a comprehensiveAGI’s selected product range offor retail and institutional asset management clients. Our institutional clients include corporate and public pension funds, insurance and other financial services companies, governments and charities, financial advisors and private individuals.customers
The particular
Our distribution channels we use vary by product and geographic market. In Europe and in the United States, AGI markets and services its institutional products through specialized personnel located primarilyoperations and personnel. Retail products in its Frankfurt, London, Munich, Paris and Milan, as well as San Francisco, San Diego and Newport Beach (California) offices. European retail distribution is provided primarilyEurope are mostly distributed through the proprietary channels of the Allianz Group including branch bank advisors, full-time agents employed by affiliated insurance companies and other Allianz Group financial planners and advisors.channels. In the United States, AGIAGI’s local asset managersmanagement operating entities also offer a wide range of retail products. AGI hasIn addition we have committed substantial resources to the expansion of the third-party asset management business in the Asia-Pacific region with offices in Tokyo, Hong Kong, Shanghai, Singapore, Taipei, Seoul and Sydney.region.
ForIn the asset management business, competition comes from all major international financial
institutions and peer insurance companies that also offer asset management products and services, competing for retail and institutional clients.
Corporate segment
Our Corporate segment’s activities include the management and support of Allianz Group’s businesses through its strategy, risk, corporate finance, treasury, financial control, communication, legal, human resources and technology functions. The Corporate segment also includes the Group’s alternative investment activities coordinated by Allianz Alternative Assets Holding GmbH.
Structure of the Board of Management
Each member of the Board of Management of Allianz SE is responsible for a discussionparticular division within the Allianz Group. There are four corporate functions: the Chairman’s division, the Controlling/Reporting/Risk division, the Finance division and the Chief Operating Officer’s division.
The other divisions reflect business responsibilities, which are either regionally- or operationally-oriented: Europe I, Europe II, German Speaking Countries, Growth Markets, Anglo NAFTA Markets & Global Lines and Asset Management.
Main initiatives
Allianz continues to develop its business via a number of investment portfoliosmajor initiatives. These are energetically pursued with the goal of establishing “Best of Allianz” as a trusted provider of insurance, asset management and other financial services.
We have in place a Sustainability Program for our insurance segments as well as for distribution. This program is designed to identify and redefine best practices for products, processes and services to make them common practice throughout the Group’s insurance operations. In an effort to optimize the management of our client segments and sales channels, we analyze the development of proprietary sales channels, brokers and market management. This includes a continuous focus on customers and on innovation.
The Allianz Group is modernizing its entire organization following a shared Target Operating
Model (TOM). In order to drive these change processes and to take best practice experience into account, an Operational Transformation Program has been established.
The objective of our Global Talent Management initiative is to systematically optimize global recruiting, development and reward processes to maximize talent quality and performance in the Group.
Global Diversification of our Insurance Business(1)
As an integrated financial services provider we offer insurance, banking and asset management operations, which we referproducts and services to as “group’s own investments”, see “Operatingapproximately 75 million customers in about 70 countries. With respect to our insurance business, Allianz is the market leader in Germany and Financial Review and Prospects – Executive Summary – Allianz Group’s Consolidated Assets, Liabilities and Shareholders’ Equity – Group Asset Allocation.”has a strong international presence.
CompetitionAllianz 2008 changes at a glance:
January
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Société Nationale d’Assurances s.a.l. (SNA) Lebanon rebranded Allianz SNA
The following table sets forth selected Allianz Group companies by geographic region at December 31, 2005, including our ownership percentage. It does not contain all subsidiaries of the Allianz Group, nor does it indicate whether an interest is held directly or indirectly by the Allianz AG. Further, the ownership percentage presented in the following table includes equity participations held by dependent enterprises of the Allianz Group in full, even if the Allianz Group’s ownership in the dependent enterprise is below 100%. Please see Note 48 to our consolidated financial statements for a more extensive list of Allianz Group operating subsidiaries.
Business segments
Property-Casualty
Life/Health
Banking
Asset ManagementMarch
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– | Euler Hermes started operations in Qatar, Oman and Kuwait through fronting agreements with local insurers. |
July
– | Euler Hermes and Rosno extended cooperative venture in Russia |
– | Allianz starts expanding agribusiness in Brazil |
– | Allianz launched variable annuities in Europe and introduced the latest innovation “Invest4Life” |
August
– | Direct sales channel Allianz24.ch launched in Switzerland |
Announcement of merging marine insurance business from Allianz Global Corporate & Speciality (AGCS) and Fireman’s Fund Insurance Company | |||||
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November
– | Allianz Life Sri Lanka started operations |
– | Allianz China Life has been granted a preliminary license to set up a branch in Shandong province. |
December
– | Mondial Assistance announced two new contracts for Europe and Asia with the car manufacturer Volvo. |
Further information on regions, countries and operations is available at www.allianz.com. (The information found at this website is not incorporated by reference into this document.)
(1) | Please refer to “Item 18. Financial Statements—Notes to the Allianz Group’s Consolidated Financial Statements—Selected subsidiaries and other holding” for a breakdown of selected operating entities. |
German Speaking Countries
Germany
We operate in the German insurance market mainly through our insurance companies Allianz Versicherungs-AG (Allianz Sach), Allianz Lebensversicherungs-AG (Allianz Leben) and Allianz Private Krankenversicherungs-AG (Allianz Private Kranken). In addition, Allianz Beratungs- und Vertriebs-AG serves as a distribution company. All entities are organized under the umbrella of the holding company Allianz Deutschland AG. At the end of 2008, Allianz Deutschland AG had a total of 19.3 million customers. The results of our German operations also include property-casualty assumed reinsurance business, which is primarily attributable to Allianz SE.
As the market leader in Germany based on gross premiums written in 2008(2), Allianz Sach develops and provides property-casualty. We offer a wide variety of insurance products for private and business clients. Our main lines of business are motor liability and own damage, accident, general liability and property insurance. In addition we introduced a new pet health insurance product in 2008. For property-casualty business, we see Germany being a rather mature market with a high degree of competition. One of the key challenges is achieving growth while also maintaining an appropriate level of profitability. To deliver all-encompassing service in emergency cases we will further develop our assistance-services for individuals and corporate customers.
For life insurance, Allianz Leben is market leader based on statutory premiums in 2008(2). In addition to Allianz Leben, we operate through a variety of smaller operating entities in the German market. We are active
(1) | Banking activites are related to Dresdner Bank and will not be continued due to the |
(2) | Source: Based on preliminary data provided by |
both in the private and commercial markets and offer a comprehensive range of life insurance and related products on both an individual and a group basis. The main classes of coverage offered include annuity, endowment and term insurance. In our commercial lines, we offer group life insurance and provide companies with services and solutions in connection with pension arrangements and defined contribution plans. In 2008 we introduced a new variable annuities product. For our life business, we anticipate strong growth opportunities as we see an increasing demand for private retirement products and retirement provisions in general.
Allianz-RAS Merger / European Company (SE)Through Allianz Private Kranken, we are the third-largest private health insurer in Germany based on statutory premiums in 2008(2). We provide a wide range of products, including full private health care coverage for salaried employees and the self-employed, supplementary insurance for individuals insured under statutory health insurance plans, supplementary care insurance and foreign travel medical insurance. Our health insurance business with its two basic products – full health care coverage and supplementary insurance – will be impacted by the German health care reform in the coming years. We believe that the demand for full health care coverage will grow only slightly. On the other hand, we believe that supplementary insurance will further increase, despite ongoing competition from statutory health insurers which have been allowed to offer special supplementary insurance (so called “Wahltarif”) from 2007 onwards.
We offer products not only for all three insurance lines but also with a clear focus on products combining coverage from life, health and increasing profitabilityproperty-casualty insurance to better serve customer needs. Sales of these combined products grew in 2008. In order to strengthen our market position, we intend to further develop our customer-focused organization and customer service.
Our products are distributed mainly through a network of full-time tied agents, while distribution through our new bankagencies and brokers is increasing. From 2010 onwards, Commerzbank will be a further sales channel for Allianz products.
On September 11, 2005,Switzerland
We serve the Swiss property-casualty market through Allianz AG announced its intention to merge Riunione Adriatica di Sicurtà S.p.A. (or “RAS”, and taken together with its subsidiaries, the “RAS Group”) with and intoSuisse. Based on gross premiums
written in 2007, Allianz AG. This merger is part of a comprehensive transaction, resultingSuisse ranks fourth in the full acquisition of RAS by Allianz AG. In connection with this transaction Allianz AG will convert into a European Company (Societas Europaea or “SE”) and subsequently adopt the corporate name Allianz SESwitzerland(1). As a preparatory step, Allianz AG placed a voluntary tender offer to purchase all RAS ordinary shares and RAS savings shares it did not already own. The offer period began on October 20 andIn the acceptance period closed on November 23, 2005. Through this voluntary tender offer, Allianz AG purchased 139,719,262 RAS ordinary shares at a priceproperty-casualty business, the most important line of €19 per share and 328,867 RAS savings shares at a pricebusiness is motor, contributing almost 50% of €55 per share. As another preparative step ofgross premiums written in 2008. In 2008 we expanded our product portfolio for assistance products. In the merger, RAS will, prior to the effectiveness of the merger, contribute itsvery competitive property-casualty business with the exception of the participation in certain foreign subsidiaries to a newly incorporated (in October 2005), wholly-owned Italian subsidiary that, subsequently to the merger,Switzerland, we will continue the corporate name “RAS S.p.A.”.to focus on profitable growth. In order to further improve our efficiency and effectiveness, we are currently revising our processes and structure for claims handling and management.
By fully integrating RAS,We conduct our life/health operations in this region primarily through Allianz AG expectsSuisse Lebensversicherungs-Gesellschaft and Phénix Vie. In aggregate, these operating entities represent the sixth largest life insurance provider in Switzerland based on statutory premiums in 2007(1). In the life/health market, we provide a wide range of individual and group life insurance products, including retirement, death and disability products. We believe there is potential for growth in our life/health business through enhancement of agent, broker networks and, given our relatively high market share in property-casualty, through cross-selling between our segments.
In addition to increase profitabilitythe traditional sales channels in 2008, we started to distribute our products through the new direct sales channel allianz24.ch and customer serviceentered into a new retail cooperation with Migros.
Austria
We operate in the Austrian insurance market mainly through our insurance companies Allianz Elementar Versicherungs-AG and Allianz Elementar Lebensversicherungs-AG. Via these companies we offer a broad range of property-casualty and life/health products to take a significant step forwardindividual and group customers primarily through salaried sales forces, tied agents and brokers.
Based on gross premiums written in reducing complexity2008, Allianz Elementar Versicherungs-AG, ranks fourth in the Austrian market in the property-casualty business(2). With approximately 45% of the entireportfolio, motor business is the most important line of business. In the very competitive property-casualty market, we
(1) | Source: Statistics of the Swiss Federal Office of Private Insurance (FOPI) |
(2) | Source: Based on preliminary data provided by Austrian Insurance Association (VVO) as of February 2009 |
continue our actuarial approach in tariffication in order to act against the expected ongoing weak price-cycle in motor business.
In the life/health business, Allianz Group. In 2005,Elementar Lebensversicherungs-AG represents the sixth largest life insurance provider in Austria based on statutory premiums in 2008(2). Besides the traditional life insurance business, we also offer government subsidized products as well as unit-linked products. For the life business, we anticipate potential for growth due to an increasing demand for retirement provisions.
Europe I
Italy
Since October 2007, Allianz Group generated €5.4 billion inserves the Italian market as a single company. Allianz S.p.A. (previously RAS S.p.A., Lloyd Adriatico S.p.A., Allianz Subalpina S.p.A.) is the second largest Italian insurance group based on gross premiums written and €9.3 billion in statutory premiums written in 2007(4). In addition, we distribute through Genialloyd (a leading company in “direct” via phone and web), Allianz Bank, with its associated Financial Advisors network (one of the top 3 in the market) and bancassurance channel (Unicredit plus others).
(3) | Banking activites are related to Dresdner Bank and will not be continued due to the sale of Dresdner Bank to Commerzbank. Please refer to “—Major transactions—Major disposals—Sale of Dresdner Bank AG” for further information. |
(4) | Source: Italian Insurers Association, ANIA. |
The most important line of business in property-casualty is motor. We also have a strong presence in fire, general liability and personal accident insurance. In 2008, pricing in the motor market was under heavy pressure while distribution costs have increased considerably on account of recent regulatory changes (the so-called Bersani law). The negative impact of market developments has been mitigated by the savings, generated by the integration of the previously independent legal entities.
The life market has been declining since 2006, particularly in the bancassurance by far the predominant channel. While Allianz in the past had enjoyed robust growth, it suffered in 2008 primarily due to:
– | the heavy contraction of the bancassurance business channelled through Unicredit; |
– | the decline of the Antonveneta premiums in connection with the new shareholding of the bank, now part of the Monte dei Paschi Group; and |
– | the steep drop in unit and index-linked premiums due to the developments in the financial markets. |
We expect the Italian market to remain very challenging. However, we also expect to benefit from its Italian property-casualtyour technical knowhow, IT infrastructure and strong brand. We continue to focus on customer service, efficiency enhancement and adherence to profitable underwriting in property-casualty. In life/health as well as in property-casualty, we will seek to deliver further product innovations to our customers.
Spain and Portugal
We serve the Spanish property-casualty market through our operating entities Allianz Compañía de Seguros y Reaseguros S.A. and Fénix Directo S.A. Life products are provided through Allianz Compania de Seguros y Reaseguros S.A. and Eurovida, our joint venture with Banco Popular. Our Portugese company is Allianz Companhia de Seguros.
Our Spanish company sets internal standards for efficiency and customer service. We have initiated a project to achieve synergies and economics of scale between the Spanish and Portugese operations.
Sales in motor insurance, operations, respectively. Additionally, Italyour largest line of business both in Spain and Portugal, remained fairly stable despite a significant drop in new vehicle registration. Besides motor, we offer products for
property and liability protection, life and health coverage, as well as workers compensation in Portugal.
We distribute our products through more than 11,000 agents and brokers in Spain, and more than 5,000 in Portugal. In both countries, we also rely on bank distribution partners such as Banco Popular in Spain and BPI in Portugal.
Economic forecasts for Spain and Portugal are in line with other European countries affected by the economic downturn. We expect market growth to be rather limited. In Spain, we expect life risk products to be affected by the real estate crisis in the short term. Development of life investment products will depend to a significant degree on capital market developments.
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.
In all three markets, Allianz is focused on property-casualty with motor generally being the largest individual line of business.
In Brazil, we are also one of the leading health insurers and in Columbia, we also offer life insurance. Our distribution is primarily based on the broker channel.
We believe that the markets in which we are present in South America offer the potential for future growth. We expect an increase in insurance demand.
Turkey
Since July 2008, we serve our Turkish customer base by our majority-owned entities Allianz Group’s second most important EuropeanSigorta A.S. and Allianz Hayat ve Emeklilik A.S. Both entities have benefited from intensified ties with Allianz Group while maintaining our strong partnership with Koç Group.
We offer a wide variety of property and casualty products, both in retail markets (distributed mainly
via agents) and in commercial markets (distributed mainly via brokers). We also provide life and pension solutions to our customers.
We expect the Turkish insurance market after Germany. The Allianz Group is represented in Italy by RAS and Lloyd Adriatico. Taken together, RAS and Lloyd Adriatico are the third-largest property-casualty and second-largest life insurerto return to its growth path in the Italiannear future. We will seek to increase our distribution base and to provide innovative insurance solutions to our customers.
Europe II
France
In France, we operate through the Assurances Générales de France (AGF) Group, a major participant in insurance and financial services. AGF is ranked fourth in the French property-casualty market and eighth in the life/health insurance market, based on gross premiums written and statutory premiums, respectively, in 20042007(2). AGF’s activities encompass several areas, including property-casualty insurance, life/health insurance, asset management and banking.
Following completion of the tender offer and further purchases of RAS shares outside the tender offer, the Allianz Group increased its ownership to 76.3% of the total ordinary and savings shares of RAS at December 31, 2005 from 55.4% at December 31, 2004. The total cost to the Allianz Group of the tender offer and the additional purchases of RAS shares outside the tender offer, including transaction-related costs, amounted to approximately €2.7 billion. Thereof, €2.2 billion, in aggregate, was secured in 3Q 2005 from equity-based financing and the issuance of an equity-linked loan. In this context, approximately €1.1 billion was placed out of authorized capital without pre-emptive rights and a €1.1 billion equity-linked loan was executed with a variable redemption amount linked to the share price of Allianz AG, which can be settled, at the Allianz Group’s option, in cash or 10.7 million Allianz AG shares. The remaining amount was financed through internal funds.
On December 15 and 16, 2005, the Board of Management of Allianz AG and the Board of Directors of RAS accomplished the merger plan for the merger of RAS with and into Allianz AG. This merger plan was notarially certified on December 16, 2005. On February 3, 2006, the extraordinary shareholders’ meetings of holders of RAS ordinary shares and holders of RAS savings shares and on February 8, 2006, the extraordinary shareholders’ meeting of Allianz AG agreed to the merger plan. Against the resolution of the shareholders’ meeting of Allianz AG regarding the agreements to the merger plan and the capital increase to implement the merger, contestation suits have been filed. The entry of the merger in the commercial register of Allianz AG may only take place once the competent court rejects the lawsuits, or if such lawsuits are withdrawn or if the competent court rules finally and conclusively that the lawsuits do not prevent the entry of the merger in the commercial register (so-called “Freigabeverfahren”). We are confident that we will achieve the entry of the merger in the course of such release ruling. As a further prerequisite for the effectiveness of the merger and the accompanying conversion of Allianz AG into an SE,
(1) | Banking activites are related to Dresdner Bank and |
(2) | Source: |
In 2008, we introduced a procedure forplan in order to reduce costs by rationalizing the employee involvement in decisionsstructure of the Allianz SE must be conducted. We expect the merger to become effective in September 2006 at the earliest.company by 2011.
The exchange ratiobroad range of AGF-branded property-casulty and life/ health products for the remaining RAS shares is 3 Allianz AG shares for 19 RAS ordinary shares or 19 RASboth individuals and corporate customers, including property, injury and liability insurance as well as short-term investment and savings shares. To implement the merger, the remaining RAS shares will be exchanged for Allianz AG sharesproducts, are distributed primarily through an increasea network of Allianz AG’s issued capital by uptied agents, brokers, partnership channels and a salaried salesforce. We also market our products through AGF Banque. We plan to €64.3 million, which was approved by the extraordinary shareholders’ meetingstart our direct insurance business in France in 2009.
Operating in a property-casualty market that has seen limited growth in recent years, we seek to focus on February 8, 2006. The capital increase will be accomplished by the issuance of up to 25,123,259 new registered no-par value Allianz AG shares. Allianz AG expects the cost of the entire transaction, including the voluntary tender offer,maintaining operating profitability while simultaneously implementing selective initiatives aimed at generating growth.
We consider AGF’s life business to be approximately €5.9 billion. However, this amount may vary, depending upon the market price of Allianz AG shares at the time of the share exchange.a growth area.
Reorganization of German Insurance Operations
As part of our repositioning plan, in September 2005, we announced our decision to reorganize our major German operating entities which are active in our insurance operations. The new structure is designed to further develop our leading position in the German insurance market by a joint presence, thus allowing us to provide an enhanced customer orientation and improved service, while at the same time cutting costs in the long-term through reduced complexity.
In Germany, and through the end of 2005, our property-casualty and our life/health insurance operations were essentially conducted through five different corporations, each with its own sales organization. This structure had grown historically and had become complex. Consequently, and effective November 2005, the German insurance operations have been consolidated under a new holding company, Allianz Deutschland AG. This new holding company is a wholly-owned subsidiary of Allianz AG, the future Allianz SE. Allianz Versicherungs-AG (property-casualty insurance), Allianz Lebensversicherungs-AG (life insurance) and Allianz Private Krankenversicherungs-AG (healthinsurance) are subsidiaries of Allianz Deutschland AG since November 2005. In connection with this reorganization, on January 30, 2006, and effective October 1, 2005, two property-casualty subsidiaries, Frankfurter Versicherungs-AG and Bayerische Versicherungsbank AG, were merged into Allianz Versicherungs-AG. Prior to this, Allianz Versicherungs-AG had increased its interest in Bayerische Versicherungsbank AG in November 2005 from 90 % to 100 %. In addition, the sales activities of the said German property-casualty and life/health insurance companies are to be consolidated into a separate sales company as the fourth subsidiary of Allianz Deutschland AG.
Effective January 1, 2006, the previous regional structure of the property-casualty operations in Germany as well as of the branch offices of Allianz Lebensversicherungs-AG and Allianz Private Krankenversicherungs-AG has been replaced by the establishment of four sales and service regions, which include the “northwest” (Schleswig-Holstein, Hamburg, Bremen, Lower Saxony, North Rhine-Westphalia), the “northeast” (Mecklenburg-Western Pommerania, Brandenburg, Berlin, Saxony-Anhalt, Saxony, Thuringia), the “southwest” (Hesse, Rhineland-Palatine, Baden-Wuerttemberg, Saarland) and the “southeast” (Bavaria).
Property-Casualty Insurance Reserves
GeneralNetherlands
The Allianz Group establishesmost important lines of property-casualty loss reserves for the payment of losses and loss adjustment expenses (or “LAE”) on claims which have occurred but are not yet settled. Loss and LAE reserves fall into two categories: individual case reserves for reported claims and reserves for incurred but not reported (or “IBNR”) claims.
Case reserves for reported claims are based on estimates of future payments that will be made in respect of claims, including LAE relating to such claims. Such estimates are made on a case-by-case basis, based on the facts and circumstances available at the time the reserves are established. The estimates reflect the informed judgment of claims personnel based on general insurance reserving practices and knowledge of the nature and value of a specific type of claim. These case reserves are regularly re-
evaluatedbusiness in the ordinary courseNetherlands are motor and fire insurance. Our Dutch subsidiary distributes its products through brokers and a direct sales channel. We launched our new direct insurance business in 2008. In the Netherlands, we also offer a broad range of the settlement process and adjustments are made as new information becomes available.
IBNR reserves are established to recognize the estimated cost of losses that have occurred but where the Allianz Group has not yet been notified. IBNR reserves, similar to case reserves for reported claims, are established to recognize the estimated costs, including expenses, necessary to bring claims to final settlement. Since nothing is known about the occurrence, the Allianz Group relies on its past experience, adjusted for current trends and any other relevant factors.
IBNR reserves are estimates based on actuarial and statistical projections of the expected cost of the ultimate settlement and administration of claims. The analyses are based on facts and circumstances known at the time, predictions of future events, estimates of future inflation and other societal and economic factors. Trends on claim frequency, severity and time-lag in reporting are examples of factors used in projecting the IBNR reserves. IBNR reserves are reviewed and revised periodically as additional information becomes available and actual claims are reported.life insurance products.
The process of estimating loss and LAE reservesDutch insurance market is characterized by nature uncertain due tointense competition. Here we expect continuing pressure on the large number of variables affecting the ultimate amount of claims. Some of these variables are internal, such as changes in claims handling procedures, introduction of new IT systems or company acquisitions and divestitures. Others are external, such as inflation, judicial trends and legislative changes. The Allianz Group attempts to reduce the uncertainty in reserve estimates through the use of multiple actuarial and reserving techniques and analysis of the assumptions underlying each technique.
Within the Allianz Group, loss and LAE reserves are estimated by local operating entity, andwithin each entity by line of business. In addition, actuaries at Allianz AG use a variety of methods to oversee and monitor reserve levels set by the local companies. These methods include independent reserve reviews, peer reviews of local reserve analyses, monitoring of quarterly loss data and assessments of local actuarial reserving processes. Meetings are held quarterly of the Group Reserve Committee, consisting of the Group CEO, Group CFO, Head of Group Financial Reporting, Head of Group Accounting and the Group Chief Actuary to oversee this control process. This central control process serves not only to ensure that the total loss and LAE reserves for the Allianz Group are reasonable, but also to improve the consistency and quality of reserve analyses across the Allianz Group.
During 2005, there were no significant changes in the mix of business written. Moreover, there were no material changes to the amount and type of reinsurance placed in respect of the Allianz Group’s business.
On the basis of currently available information, management believes that the Allianz Group’s property-casualty loss and LAE reserves are adequate. However, the establishment of loss reserves is an inherently uncertain process, and accordingly, there can be no assurance that ultimate losses will not differ from these estimates.motor tariffs.
Loss and LAE Composition by Region and Line of BusinessBelgium
In Belgium, we market a wide range of life and property-casualty insurance products, which have won several awards. The time required to learn of and settle claimsproducts are mainly distributed through brokers.
Africa
In Africa we serve the market through AGF Afrique which is an important consideration in establishing reserves. Short-tail claims, such as automobile property damage claims, are typically reported within a few days or weeks and are generally settled within two to three years. Medium-tail claims such as personal and commercial motor liability claims generally take four to six years to settle, while long-tail claims, such as general liability, workers compensation, construction and professional liability claims take longer to settle.
The following table breaks down the loss and LAE reservesspecialist of the Allianz Group gross of reinsurance ceded,in sub-Saharan French-speaking Africa.
We offer property-casualty products in all countries within Africa where we are conducting business.
Life/health products are offered by region and line of business for the year ended December 31, 2005, on an IFRS basis. The credit, travel and marine & aviation lines are written on a world-wide basis through multiple legalour operating entities in severalBurkina Faso, Ivory Coast, Cameroon and Senegal.
We serve the African market through thirteen local subsidiaries in nine sub-Saharan countries, including 400 collaborators and partners in bordering countries. With this capacity, we provide insurance and reinsurance coverage.
We sell contracts adapted to all kinds of risks in fire, auto, miscellaneous insurance, hull and cargo, as a result, are not includedwell as life.
We intend to consider business opportunities in the regional totals.Africa when appropriate.
Loss and LAE Reserves by Region and Line of BusinessCredit Insurance(1)
as of December 31, 2005
Gross of Reinsurance | ||||||||||||||
Automobile Insurance | General Liability | Property | Other Short-Tail Lines(2) | Other Medium-Tail Lines(3) | Other Long-Tail Lines(4) | Total | ||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | € mn | ||||||||
Germany(5) | 4,558 | 2,185 | 726 | — | 4,216 | 1,280 | 12,965 | |||||||
France(5) | 2,176 | 1,897 | 1,158 | 298 | 3,197 | — | 8,726 | |||||||
Italy | 4,163 | 1,574 | 448 | 158 | 409 | 15 | 6,767 | |||||||
United Kingdom | 1,035 | 420 | 618 | 55 | 214 | 932 | 3,274 | |||||||
Switzerland(5) | 823 | 236 | 146 | 73 | 1,235 | 764 | 3,277 | |||||||
Spain | 1,036 | 264 | 135 | 2 | 258 | — | 1,695 | |||||||
Rest of Europe | 2,750 | 1,036 | 486 | 182 | 430 | 471 | 5,355 | |||||||
NAFTA Region(6) | 469 | 5,059 | 3,001 | 14 | 996 | 1,533 | 11,072 | |||||||
Asia-Pacific Region | 1,384 | 379 | 219 | 3 | 146 | 671 | 2,802 | |||||||
South America, Africa and Rest of World | 165 | 56 | 111 | 2 | 75 | — | 409 | |||||||
Subtotal of regions | 18,559 | 13,106 | 7,048 | 787 | 11,176 | 5,666 | 56,342 | |||||||
Credit insurance | — | — | — | 1,012 | 93 | — | 1,105 | |||||||
Travel insurance and assistance services | — | — | — | 128 | — | — | 128 | |||||||
Marine & aviation | — | — | — | — | 1,804 | 867 | 2,671 | |||||||
Subtotal of specific business (global) | — | — | — | 1,140 | 1,897 | 867 | 3,904 | |||||||
Allianz Group Total | 18,559 | 13,106 | 7,048 | 1,927 | 13,073 | 6,533 | 60,246 | |||||||
Through our subsidiary Euler Hermes, the global leader in credit insurance, we underwrite credit insurance in major markets around the world.(2)
Euler Hermes provides enterprises with protection against the risk of non-payment of receivables and insolvency. Additionally, Euler Hermes has developed a comprehensive range of services for the management of companies’ accounts receivables.
For credit insurance, we see growth potential in Europe, North America and the emerging markets. By providing high quality services, maintaining a comprehensive information database, and high financial strength rating, Euler Hermes aims to consolidate its leadership.
Travel Insurance and Assistance Services(1)
Through Mondial Assistance Group, we are among the world’s largest providers of travel insurance and assistance services based on gross premiums written in 2007(3).
At Mondial Assistance Group, we seek to enter new markets and develop new products.
(1) | In contrast to our other geographically-focused insurance businesses, we manage and offer the services of |
(2) | Source: Own estimate based on information from International Credit Insurance and |
(3) | Source: Own estimate based on published annual reports. |
Anglo, NAFTA Markets and Global Lines
United States
Our property-casualty insurance business in the United States is conducted through Fireman’s Fund Insurance Company (Fireman’s Fund) as well as Allianz Global Corporate & Specialty (AGCS). Our life and annuity business is run through Allianz Life Insurance Company of North America (Allianz Life U.S.).
We announced the merger of the respective complementary marine operations of Fireman’s Fund and AGCS to form a comprehensive world leader in this line of business. At the same time, we brought our commercial and specialty operations under one umbrella in order to increase efficiency. With this reorganization we continued to support our U.S. companies to leverage all of their available resources and assets and to enable them to anticipate more effectively and deliver on customer needs.
Through Fireman’s Fund, we underwrite personal, commercial and specialty lines, selling these products primarily through independent agents and brokers. Our personal business unit focuses on affluent and high net worth individuals, while our commercial business unit offers specialized property and casualty coverage for small and medium-sized businesses. Our crop unit offers multiperil crop and hail insurance.
Enhancing customer solutions, introducing new products and services, addressing selected adjacent
(4) | Banking activites are |
The Allianz Group estimates that loss
market niches and LAE reserves consist of approximately 20% short-tail, 51% medium-tail and 29% long-tail business.
Reconciliation of Beginning and Ending Loss and LAE Reservesleveraging cross-selling through strengthened distribution management continue to be our initiatives for the coming year in order to enable growth for Fireman’s Fund in its target markets.
Our life and annuity business primarily underwrites fixed, fixed-indexed and variable annuities, which are sold through independent distribution channels, as well as through large financial institutions.
After a year characterized by challenging financial market developments, Allianz Life U.S. will continue to focus on creating and offering products that help our customers address their financial needs, particularly regarding retirement. The following table reconciles the beginningcompany will seek to further grow its annuity products business by expanding distribution with broker-dealers, banks and ending reserveswire-houses, designing channel-specific products and also reinforcing development of the Allianz Group, including the effect of reinsurance ceded, for the property-casualty insurance segment for each of the years in the three-year period ended December 31, 2005 on an IFRS basis.fixed-indexed and variable products.
Reconciliation of Loss and LAE Reserves
Year Ended December 31, | |||||||||
2005 | 2004 | 2003 | |||||||
€ mn | € mn | € mn | |||||||
Balance as of January 1 | 55,536 | 56,644 | 60,054 | ||||||
Less reinsurance recoverable | (10,029 | ) | (12,049 | ) | (14,588 | ) | |||
Net | 45,507 | 44,595 | 45,466 | ||||||
Plus incurred related to: | |||||||||
Current year | 26,418 | 25,643 | 25,712 | ||||||
Prior years | (1,166 | )(1) | (446 | ) | 279 | ||||
Total incurred | 25,252 | 25,197 | 25,991 | ||||||
Less paid related to: | |||||||||
Current year | (11,762 | ) | (11,374 | ) | (11,860 | ) | |||
Prior years | (10,787 | ) | (11,818 | ) | (13,155 | ) | |||
Total paid | (22,549 | ) | (23,192 | ) | (25,015 | ) | |||
Effect of foreign exchange and other | 1,467 | (469 | ) | (1,822 | ) | ||||
Effect of (divestitures)/acquisitions(2) | 1 | (624 | ) | (25 | ) | ||||
Net balance at end of year | 49,678 | 45,507 | 44,595 | ||||||
Plus reinsurance recoverable | 10,568 | 10,029 | 12,049 | ||||||
Balance as of December 31 | 60,246 | 55,536 | 56,644 | ||||||
Changes in Loss and LAE Reserves During 2005
As noted above, loss and LAE reserves of the Allianz Group at December 31, 2005 included €1,166 million reduction in incurred loss and LAE relating to prior years, representing 2.6% of net loss and LAE reserves at January 1, 2005. The following table provides a breakdown of this amount by region.
Changes in Loss and LAE Reserves During 2005
Net Reserves as of December 31, 2004 | Net Development in 2005 related to Prior Years | in%(1) | ||||||
€ mn | € mn | |||||||
Germany | 8,601 | (216 | ) | (2.5 | ) | |||
France | 7,256 | 5 | 0.1 | |||||
Italy | 6,105 | (212 | ) | (3.5 | ) | |||
United Kingdom | 2,463 | (251 | ) | (10.2 | ) | |||
Switzerland | 2,799 | (57 | ) | (2.0 | ) | |||
Spain | 1,266 | (46 | ) | (3.6 | ) | |||
Rest of Europe | 6,745 | (252 | ) | (3.7 | ) | |||
NAFTA Region | 5,833 | 85 | 1.5 | |||||
Asia-Pacific Region | 2,255 | (71 | ) | (3.2 | ) | |||
South America, Africa and Rest of World | 224 | (9 | ) | (4.0 | ) | |||
Subtotal of regions | 43,548 | (1,024 | ) | (2.4 | ) | |||
Credit insurance | 811 | (213 | ) | (26.3 | ) | |||
Travel insurance and assistance services | 120 | (15 | ) | (12.2 | ) | |||
Marine & aviation | 1,029 | 85 | 8.3 | |||||
Allianz Group Total | 45,507 | (1,166 | ) | (2.6 | ) | |||
Within each region, these reserve developments represent the sum of amounts for individual companies and lines of business. Because of the multitude of these reviewed segments, it is not feasible, or meaningful, to provide detailed information regarding each segment (e.g., claim frequencies, severities and settlement rates). We discuss below the major highlights of the reserve developments during the past year as they are recognized at the operating entities. Most of these companies analyze loss and LAE reserves on a gross basis. Therefore, the discussion is based on gross loss and LAE reserves in the local currency of the company before consolidation and converted to Euro for uniform presentation. Consequently, individual amounts in the following discussion, which are based on significant developments of our major operating entities, do not fully reconcile to those in the above table, which are based on net loss and LAE reserves and net developments during 2005.
Germany
In Germany, gross loss and LAE reserves developed favorably during 2005 by approximately €216 million, or 2.0% of reserves at January 1, 2005.
At Sachgruppe Deutschland (or “SGD”), the property-casualty insurance group of the Allianz Group in Germany, gross loss and LAE reserves developed favorably by €11 million. This development was the result of multiple effects.
Favorable developments included:
€51 million in aggregate as a result of minor movements of less than €10 million each in legal protection, personal accident with
|
Offsetting unfavorable developments include:
Also during 2005, Allianz AG, the Allianz Group company underwriting primarily intra-Allianz Group reinsurance, experienced €48 million of favorable reserve development. This amount was the result of favorable developments, and partially offseting unfavorable developments. In many cases, these developments were the direct result of corresponding developments in reserves on the underlying business of the Allianz Group companies that were ceded to Allianz AG.
Favorable developments included:
Offsetting adverse developments included:
Allianz Global Risks Re,which provides reinsurance for the international corporate business of the Allianz Group companies worldwide, experienced a favorable development of €157 million during 2005, arising from a range of factors. Similar to Allianz AG, reserve developments for Allianz Global Risks Re are often attributable to developments in the underlying business of the Allianz Group companies underwriting the international corporate business.
Favorable developments at Allianz Global Risks Re included:
These have been partially offset by strengthening liability reserves by € 21 million due to a general increase in reported losses and, in particular, for two individual large claims as well as an adverse foreign currency exchange effect of €23 million.
France
In France, gross loss and LAE reserves developed favorably by €180 million, or 2.1% of the reserves at January 1, 2005.
At AGF IART, favorable reserve developments of €202 million were partially offset by €99 million unfavorable developments.
Favorable developments at AGF IART included:
Offsetting unfavorable developments at AGF IART included:
Italy
As a result of a combination of reserve developments at four operating entities, the gross loss and LAE reserves developed favorably in Italy by €242 million, or 3.8% of the reserves at January 1, 2005.
At RAS S.p.A., favorable developments of €46 million were attributable to the following factors:
These favorable developments were partially offset by adverse development of €21 million for general liability.
Allianz Subalpina, a consolidated subsidiary of RAS S.p.A., exhibited favorable development of €25 million during 2005, mainly consisting of €8 million for property, €6 million for personal accident and an additional €8 million for general liability, motor third party liability and credit.
Genialloyd, a consolidated subsidiary of RAS S.p.A. specializing in motor business, exhibited a favorable development of €13 million during 2005, due to an accelerated settlement of smaller claims.
Lloyd Adriatico experienced favorable development of €165 million mainly driven by a favorable development of €135 million in motor third party liability due to a significant decrease in volatility. Furthermore, Lloyd Adriatico experienced favorable development of €25 million in its personal accident, property, general liability and other motor lines.
United Kingdom
We serve the market in the United Kingdom primarily through our subsidiary Allianz Insurance plc. In 2008, we focused on building up the new retail division for personal and specialty products in order to better serve our customers.
We offer a broad range of property-casualty products, including a number of specialty products, which we sell to retail and commercial customers through a range of distribution channels, including affinity groups.
Operating in a highly competitive market, Allianz Insurance plc continues to concentrate on active “cycle management” in order to support operating profitability. We seek to capitalize on growth opportunities that offer a profitable correlation between premium rates and risks and forego premium growth in areas with increasing pricing pressure.
Australia
The large majority of our property-casualty business in Asia-Pacific is generated by Allianz Australia, which serves the Australian and New Zealand markets. Since 2006, Allianz has sold life insurance products in Australia under the company name Allianz Australia Life Insurance Ltd.
Our Australian insurance operations include a variety of products and services, with strong positions in the workers’ compensation market, as well as in rehabilitation and occupational health, safety and environment services. We also operate in certain niche markets, including premium financing and pleasure craft insurance. Allianz Australia markets products through brokers and non-tied agents, as well as directly to customers. In 2008, we began offering term life directly over the internet. Further, we expanded our premium financing business to include receivables financing.
In Australia, market conditions remain competitive as insurance margins have declined in recent years. 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 2009.
Ireland
Throughout Ireland we offer a wide variety of property-casualty products, for both commercial and private customers. The products are distributed predominantly through brokers and banks as well as telephone and internet-based direct sales channels. In 2008, two new direct products were introduced, equine insurance and taxi insurance.
In Ireland, we expect private motor and home rates, and to a lesser extent commercial lines, to slowly become more favorable in 2009. Risk volumes in the market, however, could be under pressure if the Irish economic downward movement is severe.
Allianz Global Corporate and Specialty(1)
Allianz Global Corporate & Specialty delivers solutions for corporate and specialty clients in many industries.
Through Allianz Global Corporate & Specialty, we offer property, liability and engineering solutions to large corporate clients as well as specialty coverage, like marine, aviation and directors & officers insurance.
(1) | In contrast to our other geographically-focused insurance businesses, we manage and offer these services of Allianz Global Corporate & Specialty on a worldwide basis. |
Through the combination of our international corporate and specialty business within Allianz Global Corporate & Specialty, managing a diversified portfolio of risk management solutions and services, we expect to realize synergies and increase efficiency.
Allianz Worldwide Care(1)
Allianz Worldwide Care is located in Ireland and offers expatriate health insurance products.
(1) | In contrast to our other geographically-focused insurance businesses, we manage and offer these services of Allianz Worldwide Care on a worldwide basis. Allianz Worldwide Care does not sell policies in the U.S.A. |
Growth Markets
Asia-Pacific
We consider Asia-Pacific to be one of our major growth regions. Allianz has been present in the region since 1917, when we began providing fire and marine insurance in the coastal cities of China.
(2) | Banking activites are related to Dresdner Bank and will not be continued due to the sale of Dresdner Bank to Commerzbank. Please refer to “—Major transactions—Major disposals—Sale of Dresdner Bank AG” for further information. |
Today, Allianz is active in all key markets of the region, offering its core businesses of property and casualty insurance, life and health insurance and asset management. With more than 13,000 staff, Allianz serves over 7.2 million customers in the region.
We offer a full suite of products through our distribution network of approximately 70,000 agents in the region. In most countries we operate through multiple distribution channels.
In the Asia-Pacific region we maintain property-casualty operations in Malaysia, Indonesia and other Asia-Pacific countries and key markets, including China, Thailand, Japan, Hong Kong, Singapore, Laos and India.
The majority of our life/health business in this region is conducted in South Korea through Allianz Life Insurance Co. Ltd. (Allianz Life Korea) and in Taiwan through Allianz Taiwan Life Insurance Company. Allianz Life Korea was the sixth-largest life insurance company in South Korea based on statutory premiums in 2007(1). We also maintain operations in Malaysia, Indonesia, as well as in China, Thailand and since this year also in Japan.
Our South Korean operation markets a wide range of life and health insurance products—and in recent years developed a leading position in equity-indexed products. Allianz Taiwan Life sells investment-oriented products especially through banks.
We are seeking to expand in all of our selected markets in the region through further organic growth and selected acquisitions. We will further strengthen our distribution capabilities and use the hub-and-spoke approach in order to increase operational effectiveness. We view especially China as a strategic growth market for Allianz. Our partnership with Industrial and Commercial Bank of China Ltd. emphasizes our long-term commitment to the market and also offers a platform for our strategic expansion.
New Europe
Our presence in New Europe dates back to the acquisition of the Hungarian state-run insurance company Hungaria Biztosito in 1989. Today, we operate our business in this region through more than
(1) | Source: South Korean Life Insurance Association. |
25 companies in 10 countries, and we are the largest foreign insurer based on both statutory premiums and gross premiums written in 2007(2). We offer life, health, property and casualty insurance, as well as pension fund products and banking services.
For property-casualty we are the leading international insurance company in New Europe based on gross premiums written in 2007(2) and serve the market through our operating subsidiaries in Bulgaria, Croatia, the Czech Republic, Hungary, Kazakhstan, Poland, Russia, Romania, Slovakia and Ukraine.
The primary products sold in these countries are compulsory motor third-party liability, motor own damage coverage as well as industrial, commercial and private property lines. Motor business and, increasingly, other personal lines continue to be the primary source of our growth. Further expansion in the market and development of our sales network will be in focus for the coming year. We believe we are well-positioned to capture the opportunities of the property-casualty market.
We are present in all key life and health markets in this region and are the fourth-ranked life insurance provider, based on statutory premiums in 2007(2). New Europe represents the third biggest health portfolio within the Allianz Group.
We continued to expand our life/health product range and sales capacity throughout New Europe by following a multi-channel distribution approach. We also continued to expand offerings of investment-oriented products in life business. In 2008, we also started to offer pension fund products in Romania. New Europe represents one of the fastest growing life insurance markets in the world, primarily resulting from the current low penetration levels. We see a trend in the rising ages of population, which we expect to serve with a strong position in pension fund business. Following the capital market crisis, we expect a shift from investment-oriented to traditional life products.
Middle East and North Africa
To elevate our presence in the Middle East region and to set the course for further internal and
(2) | Source: Own estimate based on published statistics from regulatory bodies and insurance associations. |
external growth, we established the Middle East / North Africa (MENA) as our third major growth region. The regional unit comprises Allianz’s entities in Bahrain, Egypt, India, Lebanon, Pakistan, Saudi Arabia and Sri Lanka, and is directed from a central office in Bahrain.
Our Indian joint-ventures contribute more than 90% to the region’s total gross premiums written. We also sell property-casualty products in this region mainly through Allianz Egypt and Allianz SNA (Lebanon). Both entities also offer life/health products. Allianz Life Egypt has experienced strong growth for some time and is ranked fourth in the period 2007/2008, based on statutory premiums(1). Allianz SNA is among the top four companies in Lebanon in both Life and property-casualty business based on gross premiums written and statutory premiums, respectively, in 2007(1).
In Bahrain, we started to sell life and property-casualty products through our new entity Allianz Takaful. Bahrain will serve as a hub for future operations in other countries of the Middle East.
Throughout the region, more than 250,000 agents distribute our products. Furthermore, we sell products via banks. In property-casualty we also distribute via brokers and dealers, who are a vital part of our distribution force. In India we see the direct channel growing in importance. We intend to further strengthen our distribution capabilities and use the hub-and-spoke approach in order to increase operational effectiveness.
We see the Middle Eastern region as a growth market and are seeking to expand in all of our selected markets in the region through further organic growth and selected acquisitions. We are also targeting additional growth in India through our joint venture with Bajaj Allianz Financial Distributors Ltd.
Legal Structure and Significant Changes
Allianz SE is a European Company (Societas Europaea, or SE) incorporated in the Federal Republic of Germany and organized under the laws
(1) | Source: Own estimate based on published statistics from regulatory bodies and insurance associations. |
of the Federal Republic of Germany and the European Union. Allianz SE is the ultimative parent of the Allianz Group.
Squeeze-out of Allianz Lebensversicherungs-AG
The sqeeze-out procedure of Allianz Lebensversicherungs-AG, which we announced on January 18, 2008, was completed in December 2008.
Major Disposals
Sale of Dresdner Bank AG
On August 31, 2008, Allianz SE (Allianz) and Commerzbank AG (Commerzbank) agreed on the sale of Dresdner Bank AG (Dresdner Bank) to Commerzbank, which was completed on January 12, 2009.
The consideration received by Allianz comprised a cash component of € 3,215 million, 163.5 million Commerzbank shares, the asset manager cominvest and a 15-year exclusive sales partnership, whereby Commerzbank will distribute in Germany Allianz’s insurance and banking products (bancassurance and assurbanking) and asset management products. On January 8, 2009, Allianz announced to subscribe to a silent participation of € 750 million in Dresdner Bank after closing alongside a new equity tranche granted to Commerzbank by the German government’s Special Fund Financial Market Stabilization program (SoFFin). Like SoFFin, Allianz will receive a 9% coupon on this investment. In addition, Allianz acquired from Dresdner Bank Collateralized Debt Obligations (CDOs) with a face value of € 2 billion for a consideration of approximately € 1.1 billion. With SoFFin’s capital support to Commerzbank, Allianz’ stake in Commerzbank will be approximately 14%. Major financial impacts of the transaction are described in “—Executive Summary”.
Major Acquisitions
Acquisition of further stakes in Koç Allianz Sigorta AŞ and Koç Allianz Hayat ve Emeklilik AŞ
In April 2008, the Allianz Group signed a share purchase agreement to acquire 47.1% of shares in the non-life insurer Koç Allianz Sigorta AŞ, Istanbul, and 51.0% of the shares in the life-insurance and pension company Koç Allianz Hayat ve Emeklilik AŞ, Istanbul, for a total consideration of € 373 million. The transaction became effective on July 21, 2008 so that the Allianz Group now controls 84.2% and 89.0% of these companies, respectively.
Since October 7, 2008, the companies operate under the name Allianz Sigorta AŞ and Allianz Hayat ve Emeklilik AŞ.
Capital investment in The Hartford
On October 6, 2008, Allianz SE announced a binding agreement providing for a capital investment of U.S. $ 2.5 billion in The Hartford, one of the largest insurance companies in the United Kingdom,States. We have purchased, for a consideration of U.S. $ 2.5 billion, 6 million preferred shares convertible into 24 million shares of common stock after receipt of applicable approvals, warrants for 69 million Hartford shares and junior subordinated debentures with a nominal value of U.S. $ 1.75 billion and a 10% interest coupon. Effective January 9, 2009, the preferred stock has been converted into common stock.
Reorganization
Reorganization of the German Insurance Operations
The reorganization of our German insurance operations was successfully completed by year-end 2008 . This process was part of our ongoing effort to simplify structures and reduce complexity within the Allianz Group with the aim to concentrate stronger on our clients’ needs as well as enabling us to react to changes in our markets with greater speed, focus and flexibility. Our goal was to create one joint presence of our insurance operations, with customers perceiving Allianz as one unit with comprehensive high quality services. The reorganization was part of our strategy to further develop our leading position in the German insurance market.
We believe that the reorganization program leads to reduced complexity and will allow us to reduce costs in the long-term.
In the framework of the reorganization, back office functions were lined up based on a shared services approach. This process was already started in 2006 and was implemented in autumn 2008 according to schedule. In the course of 2007, the Allianz north-east service region tested the functionality of the new business model in a pilot phase. In 2008, the remaining three areas were also successfully reorganized.
With effect from January 1, 2009, the newly created Banking division was grouped under the roof of Allianz Deutschland AG. It is headed by a former member of the Board of Managing Directors of Dresdner Bank. The Banking division comprises the Oldenburgische Landesbank and the banking customers introduced by the Allianz sales force within the last couple of years.
Allianz Deutschland AG is now organized according to the following business structure.
Business model of Allianz Deutschland AG
Property-Casualty Insurance Reserves
General
The Allianz Group establishes property-casualty loss reserves for the payment of losses and loss adjustment expenses (or “LAE”) on claims which have occurred but are not yet fully settled. Loss and LAE reserves fall into two categories: individual case reserves for reported claims and reserves for incurred but not reported (or “IBNR”) claims.
Case reserves are based on estimates of future loss and LAE payments on claims already reported. Such estimates are made on a case-by-case basis, based on the facts and circumstances available at the time the reserves are established. The estimates reflect the informed judgment of claims personnel based on general insurance reserving practices and knowledge of the nature and value of a specific type of claim. These case reserves are regularly re- evaluated in the ordinary course of the settlement process and adjustments are made as new information becomes available.
IBNR reserves are established to recognize the estimated cost of losses that have occurred but where the Allianz Group has not yet been notified (incurred but not yet reported, “IBNYR”) as well as additional development on case reserves (incurred but not enough reported, “IBNER”). IBNR reserves, similar to case reserves for reported claims, are established to recognize the estimated costs, including LAE, necessary to bring claims to final settlement. The Allianz Group relies on its past experience, adjusted for current trends and any other relevant factors, to estimate IBNR reserves.
IBNR reserves are estimates based on actuarial projections of the expected cost of the ultimate settlement and administration of claims. The analyses are based on facts and circumstances known at the time, predictions of future events, estimates of future inflation and other societal and economic factors. Trends in claim frequency, severity and time-lag in reporting are examples of factors used in projecting the IBNR reserves. IBNR reserves are reviewed and revised periodically as additional information becomes available.
The process of estimating loss and LAE reserves is by nature uncertain due to the large number of variables affecting the ultimate amount of claims.
Some of these variables are internal to the Allianz Group, such as changes in claims handling procedures, introduction of new IT systems or company acquisitions and divestitures. Others are external, such as inflation, judicial trends and legislative and regulatory changes. The Allianz Group attempts to reduce the uncertainty in reserve estimates through the use of multiple actuarial reserving techniques and analysis of the assumptions underlying each technique.
During 2008, there were no significant changes in the mix of business written across Allianz Group. Moreover, there were no material changes to the amount and type of reinsurance placed in respect of the Group’s business.
On the basis of currently available information, management believes that the Allianz Group’s property-casualty loss and LAE reserves are adequate. However, the establishment of loss reserves is an inherently uncertain process, and accordingly, there can be no assurance that ultimate losses will not differ from these estimates. For more information, refer to “Risk Factors—Risks arising from the nature of our business—Loss Reserves for Allianz Group’s property-casualty insurance and reinsurance policies are based on estimates as to future claims liabilities. Adverse developments relating to claims could lead to further reserve additions and materially adversely impact Allianz Group’s results of operations.”
Overview of Loss Reserving Process
Within the Allianz Group, loss and LAE reserves are set locally by reserving actuaries, subject to central monitoring and oversight by the Allianz SE actuarial department (“Group Actuarial”). This two stage reserving process is designed so that reserves are set by those individuals most familiar with the underlying business, but in accordance with central standards and oversight. Our central standards are designed to ensure that consistent reserving methodologies and assumptions are employed across the Allianz Group.
Local Reserving Processes
In each jurisdiction, reserves are calculated for individual lines of business, taking into consideration
a wide range of local factors. This local reserving process begins with local reserving actuaries gathering data, with our companies typically dividing reserving data into the smallest possible homogeneous segments, while maintaining sufficient volume to form the basis for stable projections. For longer-tailed lines of business such as motor liability, development data going back for up to twenty years or more is used, while for shorter-tailed lines such as property, data going back five to ten years is typically considered sufficient. Once data is collected, we derive patterns of loss payment and emergence of claims based on historical data organized into development triangles arrayed by accident year versus development year. Loss payment and reporting patterns are selected based on observed historical development factors and also on the judgment of the reserving actuary using an understanding of the underlying business, claims processes, data and systems as well as the market, economic, societal and legal environment. We then develop expected loss ratios, which are derived from the analysis of historical observed loss ratios, adjusted for a range of factors such as loss development, claims inflation, changes in premium rates, changes in portfolio mix and change in policy terms and conditions.
Using the development patterns and expected loss ratios described above, local reserving actuaries produce estimates of ultimate loss and allocated loss adjustment expense (LAE) using several methods. The most commonly used local reserving methods are:
Loss Development (Chain-Ladder) Method, which estimates ultimate loss and LAE by applying loss development patterns directly to observed paid and reported losses.
Bornhuetter-Ferguson Method, which estimates loss and LAE using development patterns, observed losses and prior expected loss estimates.
Frequency-Severity Methods, which produce separate estimates of the ultimate number and average size of claims. In addition, individual companies use a variety of other methods for certain lines of business.
Using the above estimate of ultimate loss and LAE, we directly estimate total loss and LAE
reserves by subtracting cumulative payments for claims and LAE through the relevant balance sheet date. Finally, local reserving actuaries calculate the relevant entities’ IBNR reserves as the difference between (i) the total loss and LAE reserves and (ii) the case reserves as established by claims adjusters on a case-by-case basis.
Because loss reserves represent estimates of uncertain future events, our local reserving actuaries determine a range of reasonably possible outcomes. To analyze the variability of loss reserve estimates, actuaries employ a range of methods and approaches, including simple sensitivity testing using alternative assumptions, as well as more sophisticated stochastic techniques. Group reserving standards require that each company’s local reserve committee meet quarterly to discuss and document reserving decisions and to select the best estimate of the ultimate amount of reserves within a range of possible outcomes and the rationale for that selection for the particular entity.
Central Reserve Oversight Process
Building on the local reserving process described above, Group Actuarial conducts a central process of reserve oversight. This process ensures that reserves are set at the local level in accordance with Group-wide standards of actuarial practice regarding methods, assumptions and data. The key components of this central oversight process are:
Minimum standards for actuarial loss reserving;
Regular central independent reviews by Group Actuarial of reserves of local operating entities; and
Regular quantitative and qualitative reserve monitoring.
Each of these components is described further below.
Minimum standards for actuarial loss reserving:Group-wide minimum standards of actuarial reserving define the reserving practices which must be conducted by each operating entity. These standards provide guidance regarding all relevant aspects of loss reserving, including organization and structure, data, methods, and
reporting. Group Actuarial monitors compliance with these minimum standards through a combination of diagnostic reviews—i.e. standardized qualitative assessment of the required components in the reserving process—and local site visits. Group Actuarial informs the local operating entity of areas requiring immediate remediation as well as areas for potential improvement, and coordinates with the local operating entities to address the relevant issues and implement improvements.
Regular central independent reviews by Group Actuarial of reserves of local operating entities: Group Actuarial performs independent reviews of loss and LAE reserves for key local operating entities on a regular basis. This process is designed such that the largest entities are reviewed once a year. Such a review typically starts with site visits to ensure that Group Actuarial updates their knowledge of the underlying business as well as the issues related to data and organization. Group Actuarial then conducts an analysis of reserves using data provided by the operating entity. Preliminary conclusions are then discussed with the local operating entity prior to being finalized. Any material differences between Group Actuarial’s reserve estimates and those of the local operating entity are then discussed, and evaluated to determine if changes in assumptions are needed.
Regular quantitative and qualitative reserve monitoring: On a quarterly basis, Group Actuarial monitors reserve levels, movements and trends across the Allianz Group. This monitoring is conducted on the basis of quarterly loss data submitted by local operating entities as well as through participation in local reserve committees and frequent dialogue with local actuaries of each operating entity. This quarterly loss data provides information about quarterly reserve movements, as the information is presented by accident year and line of business, as defined by the local operating entity.
The oversight and monitoring of the Group’s loss reserves culminate in quarterly meetings of the Group Reserve Committee, which monitors key developments across the Group affecting the adequacy of loss reserves.
Loss and LAE Composition by Line of Business
The time required to learn of and settle claims is an important consideration in establishing reserves.
Short-tail claims, such as motor property damage claims, are typically reported within a few days or weeks and are generally settled within two to three years. Medium-tail claims such as personal and commercial motor liability claims generally take four to six years to settle, while long-tail claims, such as general liability, workers compensation, construction and professional liability claims take longer.
The following table breaks down the loss and LAE reserves of the Allianz Group, in total and separately by IBNR and case reserves, gross of reinsurance, by line of business for the years ending December 31, 2006, 2007 and 2008, on an IFRS basis.
The Allianz Group estimates that loss and LAE reserves consist of approximately 10% short-tail, 60% medium-tail and 30% long-tail business.
Allianz Group
Loss and LAE Reserves by Year and Line of Business, Gross of Reinsurance
IFRS Basis
Euro in millions
2008 | 2007 | 2006 | |||||
Motor | 18,686 | 19,264 | 18,924 | ||||
Case Reserves | 15,196 | 15,943 | 15,401 | ||||
IBNR Reserves | 3,490 | 3,321 | 3,524 | ||||
General Liability | 11,286 | 11,306 | 11,578 | ||||
Case Reserves | 6,797 | 6,734 | 6,854 | ||||
IBNR Reserves | 4,488 | 4,571 | 4,724 | ||||
Workers Compensation / Employers Liability | 4,545 | 4,602 | 4,876 | ||||
Case Reserves | 2,150 | 2,103 | 2,262 | ||||
IBNR Reserves | 2,395 | 2,499 | 2,614 | ||||
Property | 3,893 | 3,989 | 3,910 | ||||
Case Reserves | 3,447 | 3,389 | 3,191 | ||||
IBNR Reserves | 445 | 600 | 720 | ||||
Inwards Reinsurance | 2,330 | 2,493 | 2,728 | ||||
Case Reserves | 1,388 | 1,364 | 1,755 | ||||
IBNR Reserves | 942 | 1,129 | 972 | ||||
Personal Accident | 1,264 | 1,297 | 1,289 | ||||
Case Reserves | 1,167 | 1,138 | 1,137 | ||||
IBNR Reserves | 98 | 159 | 152 | ||||
Construction Damage and Liability | 1,872 | 1,732 | 1,572 | ||||
Case Reserves | 534 | 533 | 557 | ||||
IBNR Reserves | 1,338 | 1,199 | 1,015 | ||||
Credit Insurance | 1,407 | 1,042 | 1,042 | ||||
Case Reserves | 1,315 | 1,045 | 1,038 | ||||
IBNR Reserves | 92 | (3 | ) | 4 | |||
AGCS(1) | 6,124 | 6,142 | 7,435 | ||||
Case Reserves | 3,629 | 3,591 | 4,293 | ||||
IBNR Reserves | 2,495 | 2,551 | 3,142 | ||||
Other(2) | 4,209 | 3,595 | 3,689 | ||||
Case Reserves | 2,066 | 1,897 | 2,027 | ||||
IBNR Reserves | 2,142 | 1,698 | 1,662 | ||||
Allianz Group Total(3) | 55,616 | 55,462 | 57,043 | ||||
Case Reserves | 37,690 | 37,737 | 38,516 | ||||
IBNR | 17,926 | 17,724 | 18,528 |
(1) | Allianz Global Corporate & Specialty was established in 2006 and combines reserves formerly presented as Marine & Aviation and as part of reserves for Germany, NAFTA Region and Allianz Risk Transfer (ART). |
(2) | Other comprises primarily Package / Multiple Perils, Legal Protection, Aviation and Travel Insurance lines of business. |
(3) | In 2008, the accident and health unit of Allianz’s subsidiary, AGF IART and the health unit of Allianz’s subsidiary, AZ Belgium, were transferred for reporting purposes from the Property & Casualty segment to the Life/Health segment. Accordingly, data relating to these unit is not included in the 2008 information in the table above and has also been excluded on a retrospective basis from the 2007 and 2006 information. The total reserves amounted to €1.621 billion and €1.481 billion for the years 2006 and 2007, respectively. An additional reclassification deemed immaterial and thus not reflected in the table above, amounting to €23 million, leads to a total reclassification amount of €1.458 billion for 2007. |
When reviewing the foregoing tables, caution should be used in comparing the split between case and IBNR reserves across line of business. The portion of IBNR on total loss reserves varies by line of business due to different reporting and settlement patterns. For short-tail lines of business, such as property, claims are generally reported immediately
after occurrence and settled in a period of only a few years. For long-tail lines of business, such as product liability, it is not unusual that a claim is reported years after its occurrence and settlement can also take a significant length of time, in particular for bodily injury claims.
Reconciliation of Beginning and Ending Loss and LAE Reserves
The following table reconciles the beginning and ending reserves of the Allianz Group, including the effect of reinsurance ceded, for the property-casualty insurance segment for each of the years in the three-year period ended December 31, 2008 on an IFRS basis.
Changes in the reserves for Loss and loss adjustment expenses for the Property-Casualty segment
2008 | 2007 | 2006 | |||||||||||||||||||||||||
Gross | Ceded | Net | Gross | Ceded | Net | Gross | Ceded | Net | |||||||||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | |||||||||||||||||||
Balance as of January 1 | 56,943 | (8,266 | ) | 48,677 | 58,664 | (9,333 | ) | 49,331 | 60,259 | (10,604 | ) | 49,655 | |||||||||||||||
Plus incurred related to: | |||||||||||||||||||||||||||
Current year | 30,398 | (2,969 | ) | 27,429 | 29,839 | (2,994 | ) | 26,845 | 28,214 | (2,572 | ) | 25,642 | |||||||||||||||
Prior years(1) | (2,241 | ) | 798 | (1,443 | ) | (1,708 | ) | 348 | (1,360 | ) | (1,186 | ) | 217 | (969 | ) | ||||||||||||
Total incurred | 28,157 | (2,171 | ) | 25,986 | 28,131 | (2,646 | ) | 25,485 | 27,028 | (2,355 | ) | 24,673 | |||||||||||||||
Less paid related to: | |||||||||||||||||||||||||||
Current year | (14,049 | ) | 919 | (13,130 | ) | (13,749 | ) | 1,118 | (12,631 | ) | (12,436 | ) | 675 | (11,761 | ) | ||||||||||||
Prior years | (13,607 | ) | 1,602 | (12,005 | ) | (14,206 | ) | 1,952 | (12,255 | ) | (14,696 | ) | 2,455 | (12,241 | ) | ||||||||||||
Total paid | (27,655 | ) | 2,521 | (25,134 | ) | (27,955 | ) | 3,070 | (24,885 | ) | (27,132 | ) | 3,130 | (24,002 | ) | ||||||||||||
Effect of foreign exchange and other(2) | (497 | ) | 48 | (449 | ) | (2,022 | ) | 666 | (1,356 | ) | (1,491 | ) | 496 | (995 | ) | ||||||||||||
Effect of (divestitures)/acquisitions | 127 | (39 | ) | 88 | 125 | (23 | ) | 102 | 0 | 0 | 0 | ||||||||||||||||
Reclassifications(3) | (1,458 | ) | 87 | (1,371 | ) | ||||||||||||||||||||||
Balance as of December 31 | 55,616 | (7,820 | ) | 47,796 | 56,943 | (8,266 | ) | 48,677 | 58,664 | (9,333 | ) | 49,331 | |||||||||||||||
(1) | The favorable development during 2008 was the result of many individual developments by region and line of business and is discussed further below. |
(2) | The movement in the foreign exchange effect from year to year is further discussed in the “Changes in Historical Loss and LAE Reserves” section. |
(3) | Since the first quarter of 2008, our health business in Belgium and France is shown within Life/Health segment. Prior year balances have not been adjusted. |
Changes in Loss and LAE Reserves During 2008
As noted above, prior year loss and LAE reserves of the Allianz Group developed favorably during 2008 by €2,241 million gross of reinsurance and €1,443 million net of reinsurance, representing 4.0% of gross reserves and 3.0 % of net reserves as of December 31, 2007. The following table provides a breakdown of these amounts by line of business.
Allianz Group
Changes in Loss and LAE Reserves During 2008 Gross and Net of Reinsurance
IFRS Basis
Euros in millions
Gross Reserves as of December 31, 2007 | Gross Development related to Prior Years | in %(1) | Net Reserves as of December 31, 2007 | Net Development related to Prior Years | in %(2) | |||||||||||
Motor | 19,264 | (530 | ) | (2.8 | )% | 17,096 | (510 | ) | (3.0 | )% | ||||||
General Liability | 11,306 | (337 | ) | (3.0 | )% | 9,021 | (269 | ) | (3.0 | )% | ||||||
Workers Compensation / Employers Liability | 4,602 | 18 | 0.4 | % | 4,500 | 57 | 1.3 | % | ||||||||
Property | 3,989 | (385 | ) | (9.7 | )% | 2,868 | (294 | ) | (10.3 | )% | ||||||
Inwards Reinsurance | 2,493 | (196 | ) | (7.9 | )% | 3,946 | (3 | ) | (0.1 | )% | ||||||
Personal Accident | 1,297 | (56 | ) | (4.3 | )% | 1,006 | (57 | ) | (5.7 | )% | ||||||
Construction Damage and Liability | 1,732 | 52 | 3.0 | % | 1,437 | 50 | 3.5 | % | ||||||||
Credit Insurance | 1,042 | (150 | ) | (14.4 | )% | 807 | (104 | ) | (12.9 | )% | ||||||
AGCS | 6,142 | (509 | ) | (8.3 | )% | 3,769 | (267 | ) | (7.1 | )% | ||||||
Other | 3,595 | (148 | ) | (4.1 | )% | 2,835 | (45 | ) | (1.6 | )% | ||||||
Allianz Group(3) | 55,462 | (2,241 | ) | (4.0 | )% | 47,285 | (1,442 | ) | (3.0 | )% | ||||||
(1) | In percent of gross reserves as of December 31, 2007. |
(2) | In percent of net reserves as of December 31, 2007. |
(3) | In 2008, the accident and health unit of Allianz’s subsidiary, AGF IART and the health unit of Allianz’s subsidiary, AZ Belgium were transferred from the Property & Casualty segment to the Life/Health segment. As a result, the historical data for these units was excluded on a retrospective basis from the 2007 information in the table above. |
We discuss below by line of business the major highlights of the reserve developments in 2008. Because of the multitude of these reviewed segments, it is not feasible, or meaningful, to provide detailed information regarding each segment (e.g., claim frequencies, severities and settlement rates). The discussion is based on net loss and LAE reserves in the local currency of the relevant local operating entity before consolidation and converted into Euro for uniform presentation. Individual explanations of amounts in the following discussion, which includes only significant developments for our major operating entities, do not fully reconcile to the line of business totals in the above table.
Motor
For Motor, net loss and LAE reserves developed favorably during 20052008 by €327approximately €510 million, or 10.7%,3.0% of reserves as of December 31, 2007. This development was the result of the reserves at January 1, 2005.following multiple effects.
At Allianz Cornhill, grossUnfavorable developments included:
€43 million at our U.S. subsidiary, driven mainly by the claims experience in its commercial motor liability line and to a lesser extent, in its personal motor liability line. The increase in the commercial auto
liability line was driven by significantly higher than anticipated claim emergence during late 2007, which was recognized during 2008 as a result of delays in the claims adjusting process. |
Favorable developments included:
€112 million at our Spanish entity, due in particular to the favorable development of bodily injury claims in the motor line. New legislation in Spain led to the revision of compensation amounts and compensation limits in 2008 which had retroactive effects;
€81 million on motor commercial and personal lines at our U.K. entity, due primarily to a favorable development in bodily injury claims. In 2008, we have continued to benefit from changes in motor claims patterns in terms of speed at which claims are notified, the improved manner in which reserves are handled by claims specialists and the savings realized on settlements, thus resulting in a surplus;
€78 million for motor liability at our Italian entity, due to better than expected historical claims emergence and the improvement in actuarial techniques as a result of the availability of higher quality of data;
€71 million at our Slovakian and Hungarian entities, due to an improvement of the actuarial assumptions and better than expected claims emergence;
Approximately €60 million at our Australian subsidiary for motor third-party liability (TPL), primarily as a result of positive development in long-tail classes, where the impact of prior years’ legislative changes continued to be better than assumed in prior reporting years; and
€21 million at our German entity, mainly because of an update of assumptions due to data improvements for LAE.
General Liability
For General Liability, net loss and LAE reserves developed favorably during 20052008 by €344approximately €269 million, due primarily to the following factors:or 3.0% of reserves as of December 31, 2007.
Favorable developments included:
€83115 million at our French entity, mainly driven by changes in the claims settlement process and better than expected experience on commercial propertyolder accident years.
€55 million at our UK entity. As in the case of the motor business, in 2008, we have continued to benefit from changes in claims patterns in terms of speed at which claims are notified, the improved manner in which reserves are handled by claims specialists and €41the savings realized on settlements, resulting in a surplus;
€36 million on industrial propertyat our Australian subsidiary in its general liability business, primarily as a result of positive development in long-tail classes where the releaseimpact of reserves on individual large claims and dueprior years’ legislative changes continues to a reduction of reserves for weather related events from accident year 2004, which were by nature very uncertain atbe better than assumed in the end of 2004;prior reporting years.
At AGF U.K., a company in run-off reserves for loss and loss adjustment expenses, developed unfavorably by €15 million.
SwitzerlandProperty
In Switzerland, gross loss and LAE reserves experienced favorable development of €39 million, or 1.3% of the reserves at January 1, 2005.
At Allianz Suisse Versicherungs-Gesellschaft, grossFor Property, net loss and LAE reserves developed favorably during 2008 by €24 million due to the following factors:
These favorable developments were partly offset by an increase of €7 million for assumed reinsurance.
Loss and LAE reserves of Allianz Risk Transfer, the Allianz Group company selling conventional reinsurance as well as a variety of alternative risk transfer products, developed favorably by €7 million primarily due to the favorable development on a large traditional quota-share reinsurance contract.
Spain
Gross loss and LAE reserves for Allianz Seguros developed favorably by €49 million, or 3.6% of the reserves at January 1, 2005. Favorable development of €58 million attributable to the reduction in frequency and average claim cost in motor business was partly offset by €13 million unfavorable development arising from a court decision affecting one large loss.
Rest of Europe
Loss and LAE reserves in other European Allianz Group companies developed favorably by €287 million, or 4.0% of the reserves at January 1, 2005. This figure represents the net result of unfavorable as well as favorable developments for numerous individual companies. Since the business is written in different currencies, these developments were also affected by foreign exchange rate movements.
Allianz Irish Life Holdings p.l.c. experienced favorable development of €105 million. Favorable court decisions and declining claim frequencies contributed to a €45 million surplus in commercial and personal motor. The case estimate savings in property led to another €15 million surplus. Further favorable developments included €20 million in commercial liability and €10 million in credit insurance.
Gross loss and LAE reserves for Allianz Slovenská experienced favorable development of €82 million in 2005, due primarily to:
Gross loss and LAE reserves for Allianz Nederland Schade experienced favorable development of €59 million in 2005, due primarily to:
NAFTA Region
For the entire NAFTA region, Allianz Group’s gross loss and LAE reserves developed unfavorably
during 2005 by €906approximately €294 million, or 10.3% of the reserves at January 1, 2005. The largest Allianz Group companies in this region are Fireman’s Fund and Allianz Global Risks U.S. Insurance Company (or “AGR U.S.”).as of December 31, 2007.
At Fireman’s Fund, prior period grossFavorable developments included:
€107 million at our French entity on its property business, mainly driven by reductions in the estimated ultimate loss for corporate business for which actual development has been less than expected; and LAE reserve estimates increased by €920
€42 million including an gross increase of €926 millionat our Italian entity as a result of a ground-up reserve study on asbestos and environmenal (or “A&E”) claims. The A&E net increase for Fireman’s Fund was €52 million for uncollectible reinsurance and ULAE, as loss and ALAE reserves after external reinsurance have been ceded to Allianz AG based on a coverage provided in 2002. The details of the A&E study and the transaction with Allianz AG are discussed below at “—Asbestos and Environmental Loss Reserves in the United States”. Unfavorable developments unrelated to A&E included:
These adverse developments were offset by the following favorable developments:
AGR U.S., which underwrites large industrial accounts in the United States and through a newly- established branch office in Canada, experienced favorable developments of €21 million following indications of internal actuarial reserve studies during 2005 relating to property lines. AGR U.S. also experienced a favorable development of €14 million for general liability, which was entirely offset by an adverse development of the same amount in workers’ compensation.
Asia-Pacific
Gross loss and LAE reserves for the Asia-Pacific region developed favorably during 2005 by approximately €130 million or 5.2% of reserves at January 1, 2005. The largest Allianz Group property-casualty insurer in the region is Allianz Australia, representing approximately 93% of the region’s total reserves.
Allianz Australia experienced favorable development of €115 million during 2005. This result arose from partially favorable developments from different lines of business:
years.
Credit Insurance
Credit insurance is underwritten in the Allianz Group by Euler Hermes. During 2005,2008, Euler Hermes experienced favorable development of €324€104 million net of reinsurance, or 26.8%12.9% of the reserves at January 1, 2005.as of December 31, 2007. Of this amount, €134€35 million areis attributable to Euler Hermes Germany, due primarily to further refinement
of thewhich experienced an improvement in actuarial approach and simultaneously experiencing favorable loss trends.methodology. In France, the favorable development of €89 millions€52 million was mainly attributable to aan increase in salvage and subrogation and decrease in IBNRdeclared guaranteed claims for 2004 due tothe underwriting year 2007 in
the first half of 2008. The remainder comprises favorable developments of a better economic environment. Furthermore,lesser magnitude in Italy, a favorable development of €27 million was mainly due to a release in reserves on two large claims, which developed better than expected. Lastly, a favorable development of €27 millionour operations in the United Kingdom, was attributable to a lower-than-expected loss ratio in accident year 2004.Belgium, Italy, Spain, Greece, Hungary, Morocco, Mexico, The Netherlands and Sweden.
Marine & AviationAllianz Global Corporate and Specialty
Allianz Marine & Aviation consistsGlobal Corporate and Specialty (AGCS) is the Allianz Group’s global carrier for corporate and specialty risks and also includes the corporate branch of two legal entities locatedthe German business. Overall, AGCS experienced €267 million of favorable development in Germany2008 net of reinsurance, or 7.1% of the reserves as of December 31, 2007.
The increase was due primarily to improved actuarial analysis in our property line of business where higher quality data became available, resulting in a €154 million surplus. The aviation line of business recorded a release of €31 million across all countries and France,sub-lines of business due to a new assessment of the development pattern based on better than expected claims experience.
Workers Compensation / Employers Liability
The net loss and LAE reserves developed unfavorably during 2008 on Workers Compensation / Employers Liability line of business by approximately €57 million, or 1.3% of reserves as wellof December 31, 2007. This development was the result of multiple effects.
Unfavorable developments included:
€83 million for workers compensation business at our U.S. entity as a branch officeresult of an improvement in actuarial assumptions and methodology.
Favorable developments included:
€50 million for employers liability business at our U.K. entity. As in the United Kingdom. Additional marine & aviation business is underwritten in other entitiescase of the Allianz Group (e.g., Firemans’ Fund)motor and is reportedgeneral liability business, we continued to benefit in these respective entities.2008 from changes in claims patterns in terms of speed at which claims are notified, the improved manner in which reserves are handled by claims specialists and the savings realized on settlements, resulting in a surplus.
Construction Damage and Liability
Allianz Marine & Aviation grossThe net loss and LAE reserves developed unfavorably during 2008 on the Construction and
Liability line of business by approximately €50 million, or 3.5% of reserves as of December 31, 2007. This was mainly driven by the €45 million unfavorable development for construction business at our French entity, mainly due to an underestimation of claims for prior years because of significant portfolio growth;
Personal Accident
The net loss and LAE reserves developed favorably during 2008 on the Personal Accident line of business by €152approximately €57 million, in France and unfavorably by €172 million in Germany resulting in a totalor 5.7% of €20 million unfavorable development, or 1.0%reserves as of the reserves at January 1, 2005.
In Germany, the unfavorable developmentDecember 31, 2007. This was due to a charge of €350 million to reflect the difference between the analysis based on underwriting year and accounting based on accident year. In the United Kingdom, blue water hull developed unfavorably by of €15 million. These effects are partly offsetmainly driven by the favorable development of aviation claims of €150€30 million primarily for underwriting years 2003 and 2004, for business both in Germany and the United Kingdom and a further €20 million due to a favorable development for lossespersonal accident business at our Italian entity, mainly driven by reductions in German marine business.
In France, the favorable development was due primarily to revised estimates ofestimated ultimate losses in aviation and marine. A release of €108 million was attributable to aviation both in the United Kingdom and France, €20 million in marine in France and anadditional €11 million favorablecaused by actual development in marine in the United Kingdom.being less than expected.
Changes in Historical Loss and LAE Reserves
The following table illustrates the development of the Allianz Group’s loss and LAE reserves, on an IFRS basis and gross of reinsurance, over the past nineten years. Since the Allianz Group adopted IFRS in 1997, historical loss development data is available on an IFRS basis of accounting for the nine years 1997 to 2005 only.
Each column of this table shows reserves as of a single balance sheet date withand subsequent development of these reserves. The top row of each column shows gross reserves as initially established at the end of each stated year. The next section, reading down, shows the cumulative amounts paid as of the end of the successive years with respect to the reserve initially established. The next section shows the retroactive re-estimation of the initially established gross reserves for loss and LAE as of the end of each successive year. This re-estimation results primarily from additional facts and circumstances that pertain to open claims.
The bottom section compares the latest re-estimated gross reserves for loss and LAE to the gross reserves, as initially established, and indicates the cumulative development of the initially established gross reserves through December 31, 2005. For instance, the2008. The surplus (deficiency) shown in the table for each year represents the aggregate amount by which the original estimates of reserves at that year-end have changed in subsequent years. Accordingly, the cumulative surplus (deficiency) for a year-end relates only to reserves at that year-end and such amounts are not additive. Caution should be exercised in evaluating the information shown on this table, as each amount includes the effects of all changes in
amounts for prior periods. For example, the portiondevelopment of the development shown for year-end 19991998 reserves that relates to 1997 lossesduring 2001 is included in the cumulative surplus (deficiency) of the 19971998 through 19992000 columns.
ThisThe table below presents calendar year, data, not accident year, data. Conditions and trends that have affected development of liability in the past may or may not necessarily occur in the future, and accordingly, conclusions about future results may not be derived from information presented in this table.
ChangesCompanies acquired or divested during the period shown in Historical Reservesthe table can lead to distortions in the cumulative surplus or deficiency. The table starts with the presentation of gross liabilities for Unpaid Lossunpaid
claims and LAEclaims expenses as accounted, as of the respective date of the balance sheet. Over time, these liabilities are re-estimated. In addition, these liabilities will change if, through either acquisition, sale of a company or reclassification, entire new portfolios of claim payments and reserves are added to or subtracted from the data. In addition, changes in currency exchange rates can lead to distortions in the cumulative surplus or deficiency. At the end of this table, we quantify the effects of the change in the set of consolidated entities and of foreign exchange, and present the cumulative loss development excluding these two effects. Prior year amounts have been reclassified to conform to the current year presentation.
Allianz Group:
Property-Casualty Insurance SegmentIFRS Basis
Gross of ReinsuranceEuro in Millions
December 31,(1) | ||||||||||||||||||||||||||
1997 | 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | ||||||||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | ||||||||||||||||||
Gross liability for unpaid claims and claims expenses | 33,259 | 38,899 | 50,980 | 53,680 | 61,033 | 59,204 | 55,889 | 55,529 | 60,246 | |||||||||||||||||
Paid (cumulative) as of: | ||||||||||||||||||||||||||
One year later | 8,027 | 11,166 | 14,877 | 16,001 | 15,624 | 16,120 | 14,218 | 13,357 | ||||||||||||||||||
Two years later | 12,062 | 17,598 | 22,497 | 22,889 | 24,069 | 23,739 | 20,987 | |||||||||||||||||||
Three years later | 15,120 | 22,097 | 26,926 | 27,755 | 29,394 | 28,687 | ||||||||||||||||||||
Four years later | 17,429 | 25,030 | 30,312 | 31,220 | 33,016 | |||||||||||||||||||||
Five years later | 19,154 | 27,416 | 32,820 | 33,826 | ||||||||||||||||||||||
Six years later | 20,499 | 29,199 | 34,760 | |||||||||||||||||||||||
Seven years later | 21,536 | 30,684 | ||||||||||||||||||||||||
Eight years later | 22,504 | |||||||||||||||||||||||||
Liability re-estimated as of: | ||||||||||||||||||||||||||
One year later | 32,825 | 40,807 | 51,378 | 54,577 | 57,738 | 55,836 | 54,050 | 56,311 | ||||||||||||||||||
Two years later | 29,776 | 44,593 | 52,246 | 53,069 | 55,703 | 55,650 | 55,227 | |||||||||||||||||||
Three years later | 31,558 | 45,325 | 50,819 | 51,495 | 55,820 | 57,119 | ||||||||||||||||||||
Four years later | 32,001 | 44,027 | 49,293 | 52,016 | 57,130 | |||||||||||||||||||||
Five years later | 31,321 | 42,824 | 49,992 | 53,234 | ||||||||||||||||||||||
Six years later | 30,147 | 43,659 | 50,970 | |||||||||||||||||||||||
Seven years later | 31,141 | 44,364 | ||||||||||||||||||||||||
Eight years later | 31,988 | |||||||||||||||||||||||||
Cumulative surplus (deficiency) | 1,271 | (5,465 | ) | 10 | 446 | 3,903 | 2,085 | 662 | (782 | ) | ||||||||||||||||
Cumulative surplus (deficiency) | 1,737 | 1,256 | (977 | ) | (1,996 | ) | (1,415 | ) | 781 | 1,767 | 1,589 | |||||||||||||||
Percent | 5.2 | % | 3.2 | % | (1.9 | )% | (3.7 | )% | (2.3 | )% | 1.3 | % | 3.2 | % | 2.9 | % |
As of December 31,(1) | 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | |||||||||||||||||||||
Gross liability for unpaid claims and claims expense | 45,564 | 51,276 | 54,047 | 61,883 | 60,054 | 56,750 | 55,528 | 60,259 | 58,664 | 56,943 | 55,616 | |||||||||||||||||||||
Cumulative Paid as of | ||||||||||||||||||||||||||||||||
one year | 12,273 | 15,114 | 16,241 | 15,945 | 16,357 | 14,384 | 13,282 | 14,696 | 14,206 | 13,607 | ||||||||||||||||||||||
two years | 18,847 | 22,833 | 23,077 | 24,567 | 24,093 | 21,157 | 20,051 | 21,909 | 20,659 | |||||||||||||||||||||||
three years | 23,407 | 27,242 | 28,059 | 29,984 | 29,007 | 26,149 | 24,801 | 26,583 | ||||||||||||||||||||||||
four years | 26,327 | 30,698 | 31,613 | 33,586 | 32,839 | 29,847 | 28,206 | |||||||||||||||||||||||||
five years | 28,738 | 33,263 | 34,218 | 36,431 | 35,832 | 32,570 | ||||||||||||||||||||||||||
six years | 30,550 | 35,194 | 36,317 | 38,810 | 38,044 | |||||||||||||||||||||||||||
seven years | 32,051 | 36,930 | 38,123 | 40,618 | ||||||||||||||||||||||||||||
eight years | 33,344 | 38,382 | 39,466 | |||||||||||||||||||||||||||||
nine years | 34,544 | 39,463 | ||||||||||||||||||||||||||||||
ten years | 35,434 | |||||||||||||||||||||||||||||||
Gross liability re-estimated as of | ||||||||||||||||||||||||||||||||
one year | 46,005 | 52,034 | 55,200 | 58,571 | 56,550 | 54,103 | 56,238 | 57,932 | 55,266 | 52,931 | ||||||||||||||||||||||
two years | 46,043 | 52,792 | 53,535 | 56,554 | 55,704 | 55,365 | 53,374 | 54,437 | 51,809 | |||||||||||||||||||||||
three years | 46,780 | 51,265 | 52,160 | 56,056 | 57,387 | 53,907 | 51,895 | 52,676 | ||||||||||||||||||||||||
four years | 45,307 | 49,929 | 52,103 | 57,640 | 56,802 | 53,181 | 50,767 | |||||||||||||||||||||||||
five years | 44,196 | 50,058 | 53,675 | 57,006 | 56,148 | 52,356 | ||||||||||||||||||||||||||
six years | 44,524 | 51,432 | 53,204 | 56,527 | 55,553 | |||||||||||||||||||||||||||
seven years | 45,679 | 51,263 | 53,124 | 56,102 | ||||||||||||||||||||||||||||
eight years | 45,478 | 51,063 | 52,566 | |||||||||||||||||||||||||||||
nine years | 45,237 | 50,548 | ||||||||||||||||||||||||||||||
ten years | 45,120 | |||||||||||||||||||||||||||||||
Cumulative surplus (deficiency) | 444 | 728 | 1,481 | 5,781 | 4,501 | 4,394 | 4,761 | 7,583 | 6,855 | 4,012 | ||||||||||||||||||||||
effect of disposed/(acquired) portfolios(2) | (2,147 | ) | 0 | 0 | (93 | ) | 0 | 540 | 0 | 0 | 0 | 1,458 | ||||||||||||||||||||
effect of foreign exchange | (1,339 | ) | 875 | 2,213 | 4,944 | 3,390 | 877 | 18 | 2,391 | 1,474 | 313 | |||||||||||||||||||||
excluding both effects | 3,931 | (148 | ) | (732 | ) | 931 | 1,111 | 2,977 | 4,744 | 5,193 | 5,381 | 2,241 | ||||||||||||||||||||
Percent | 8.6 | % | (0.3 | )% | (1.4 | )% | 1.5 | % | 1.9 | % | 5.2 | % | 8.5 | % | 8.6 | % | 9.2 | % | 3.9 | % |
(1) | Reserves for loss and LAE of subsidiaries sold (or purchased) are excluded (or included) in the above |
(2) | Our major acquisitions over this period are Allianz Australia, Allianz Ireland (consolidated 1999) and Allianz Slovenská (consolidated 2001). Major disposals include Allianz Canada (de-consolidated 2004). Three major reclassifications occurred in 2008 in which the accident and health unit of AGF IART and the health unit from AZ Belgium were transferred from our Property & Casualty segment into our Life/Health segment and the AGF Brazil health unit was transferred from our Life/Health segment into our Property & Casualty segment, accounting for the €1,458 million effect in 2008. The |
In 2005,2008, loss and LAE reserves increaseddecreased by €4,717 million. A primary contributor€1,327 million or 2.3% to this increase was€55,616 million, resulting primarily from the numberimpact of natural catastrophes which occurred during 2005,reclassifications described in particular the U.S. hurricanes Katrina, Rita and Wilma, resulting in total estimated claims from natural catastrophes, net of reinsurance, of €1,090 million for the Allianz Group. Operating entities most affected by natural catastrophes in 2005 included Allianz Marine & Aviation, Allianz Global Risks Re, Allianz AG, Fireman’s Fund, Allianz Versicherungs-AG and Allianz Suisse. An additional factor which contributed to the increase in loss and LAE reservesin 2005 wastable above as well as the weakening of the EuroBritish Pound and Australian Dollar relative to U.S. dollar and Australian dollar, resulting in a total foreign currency exchange rate effect of €2,286 million.the Euro. Reserve developments during 20052008 are described in further detail in the preceding section “—Changes“Changes in Loss and LAE Reserves During 2005”2008”.
The overall reduction in loss and LAE reserves from 2003 to 2004 was attributable to the then ongoing settlement and run-off of various U.S. business lines, and the appreciation of the Euro relative to U.S. dollar during these years.
The overall decrease in loss and LAE reserves between December 31, 2002 and 2003 was attributable primarily to the strengthening of the Euro relative to the U.S. dollar, the British pound sterling and the Swiss franc during 2003. Reserves in these three currencies decreased by €2.8 billion during 2003 due to a stronger Euro and a reduction of reserves in U.S. dollar attributable to the exit from some business lines, including surety at Fireman’s Fund and general liability at AGR U.S.
The significant increase in the gross reserves for 2001 over 2000 was driven by gross incurred losses and loss adjustment expenses related to the terrorist attack of September 11, 2001. On a consolidated Allianz Group basis, the terrorist attack of September 11, 2001 resulted in net claims costs of approximately €1,500 million. Estimated losses are based on a policy-by-policy analysis as well as a variety of actuarial techniques, coverage interpretations and claim estimation methodologies, and include an estimate of incurred but not reported, as well as estimated costs related to the settlement of claims. These loss estimates are subject to considerable uncertainty. In connection with the terrorist attack of September 11, 2001, we recorded net claims expenses of approximately €1,500 million in 2001 for the Allianz Group on the basis of one occurrence.
On December 6, 2004, a New York jury rendered a verdict that the World Trade Center attack constituted two occurrences under the alleged terms of various coverages. At December 31, 2005, thisdecision had no adverse impact on the Allianz Group’s operating results. AGR U.S. has appealed this decision. The final implications of this decision for the Allianz Group will not be determined until the completion of further proceedings.
Discounting of Loss and LAE Reserves
As of December 31, 2005, 20042008, 2007 and 2003,2006, the Allianz GroupGroup’s consolidated property-casualty reserves reflected discounts of €1,326€1,139 million, €1,220€1,100 million and €1,261€1,074 million respectively.
Reserves are discounted to varying degrees in the United States, United Kingdom, Germany, Hungary, Switzerland, Portugal France and Belgium. For the United States, the discount reflected in the reserves is related to annuities for certain long-tailed liabilities, primarily in workers’ compensation. For the other countries, theFrance. The reserve discounts relate to annuity reserves for structured settlements in various classes of business. These classes include personal accident, general liability and motor liability in Germany and Hungary, workers’ compensation in the United States, Switzerland and Portugal individual and group health disability and motor liability in France, health disability in Belgium and claims from employers’ liability in the United Kingdom.France. All of the reserves that have been discounted have payment amounts that are fixed and timing that is reasonably determinable. The following table shows, by country,line of business, the carrying amounts of reserves for claims and claim adjustment expenses that have been discounted, and the interest rates used for discounting for the years ended December 31:
Discounted Reserves in | Amount of the Discount | Interest rate used for Discounting | ||||||||||
2005 | 2004 | 2005 | 2004 | 2005 | 2004 | |||||||
€ mn | € mn | € mn | € mn | |||||||||
France | 1,404 | 1,402 | 357 | 330 | 3.25% | 3.25% | ||||||
Germany | 445 | 407 | 298 | 278 | 2.75% to 4.00% | 2.75% to 4.00% | ||||||
Switzerland | 414 | 392 | 236 | 236 | 3.25% | 3.25% | ||||||
United States | 213 | 190 | 230 | 216 | 6.00% | 6.00% | ||||||
United Kingdom | 116 | 84 | 110 | 65 | 4.00% to 4.25% | 4.25% | ||||||
Belgium | 91 | 83 | 28 | 26 | 4.68% | 4.75% | ||||||
Hungary | 67 | 69 | 22 | 22 | 1.40% | 1.40% | ||||||
Portugal | 57 | 57 | 44 | 47 | 4.00% | 4.25% | ||||||
Total | 2,807 | 2,684 | 1,326 | 1,220 | ||||||||
Discounted Reserves € mn | Amount of Discount € mn | Interest Rate used for discounting(1) | ||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | 2006 | 2008 | 2007 | 2006 | ||||||||||
Motor—TPL | 632 | 589 | 569 | 446 | 414 | 396 | 1.40% - 5.25% | 1.40% - 5.25% | 1.40% - 6.00% | |||||||||
General Liability | 190 | 170 | 178 | 164 | 150 | 162 | 1.40% - 5.25% | 1.40% - 5.25% | 1.40% - 6.00% | |||||||||
Personal Accident | 325 | 293 | 267 | 201 | 182 | 170 | 2.25% - 4.00% | 2.25% - 4.00% | 2.75% - 4.00% | |||||||||
Workers Comp./Employers Liability | 539 | 520 | 537 | 309 | 335 | 333 | 3.00% - 5.25% | 3.00% - 5.25% | 3.25% - 6.00% | |||||||||
Other | 26 | 29 | 19 | 19 | 19 | 13 | 1.40% - 5.25% | 1.40% - 5.25% | 1.40% - 6.00% | |||||||||
Total | 1,712 | 1,601 | 1,570 | 1,139 | 1,100 | 1,074 | ||||||||||||
(1) | The wide range of interest rates is the result of the presentation of the above information by line of business thus each line reflecting interest rates used in various countries. |
Asbestos and Environmental (A&E) Loss Reserves in the United States
There are significant uncertainties in estimating A&Eloss and LAE reserves for loss and loss adjustment expense.A&E. Reserves for asbestos-related illnesses and environmental clean-upclean up losses cannot be estimated using traditional actuarial techniques due to the long latency period and sensitivity tochanges in the legal, socio-economic and regulatory trends.environment. Case reserves are established when sufficient information is available to indicate the involvement of a specific insurance policy. In addition, IBNR reserves are established to cover additional exposures on both known and not yet reported claims. To the extent possible, A&E loss reserve estimates are based not only on claims reported to date, but also on a survey of policies that may be exposed to claims reported in the future (i.e., an exposure analysis).
In establishing liabilities for A&E claims, management considers facts currently known and the current state of the law and coverage litigation. However, given the expansion of coverage and liability by the courts and the legislatures in the past and the possibilities of similar interpretation in the future, there is significant uncertainty regarding the extent of remediation and insurer liability.
The industry-wide loss trends for some of these exposures, especially for asbestos-related losses, have deteriorated recently. Some of As a result, the reasons for this deterioration include the fact that insureds who either produced or installed products containing asbestos have seen more and larger claims brought against them, and some of these companies have declared bankruptcy which has caused plaintiff attorneys to seek larger amounts from solvent defendants and to also include new defendants. Some defendants are also seeking relief under different coverage provisions when the products liability portion of their coverage has been exhausted.
In response to these developments, Fireman’s Fund engaged an external consultant to review its gross asbestos liabilities at December 31, 2004. Based on the results of this external study, Fireman’s Fund estimated its asbestos reserves net of reinsurance, analyzed the company’s environmental reserves gross and net of reinsurance and selected the actuarial best estimate reserves for its A&E exposure. The analyses included a review of the ultimate, gross asbestos and environmental loss and allocated lossadjustment reserves for accident years 1987 and prior. The 1987 and prior year cut-off date for A&E is consistent with the way Fireman’s Fund segregates its data for reporting and reserving purposes; this definition coincides with changes in policy language and the introduction of pollution exclusions which occurred in the mid-1980s. The methodology involved exposure-based modeling of policies with the greatest asbestos exposures, supplemented by aggregate methods for the remaining insureds and environmental loss exposures.
The range of reasonable potential outcomes for A&E liabilities provided in these analyses is particularly large. Given this inherent uncertainty in estimating A&E liabilities, significant deviation from the currently carried A&E reserve position is possible. For more information, refer to “Operating and Financial Review and Prospects—Critical Accounting Policies—Reserves for loss and loss adjustment expenses—Variability of reserve estimates—Asbestos claims reserves.”
The table below shows Fireman’s Fund case count activity for
While the U.S. A&E in 2003claims still represent a majority of the total A&E claims reported to 2005, including the activity forAllianz Group, the insurance industry is exposed to A&E claims on a global basis. We continue to analyze these non-U.S. A&E exposures. The results of Jefferson Insurance Companyour regular analysis of New York for 2004 and 2005:
Year-to-Date Case Counts December 31, | Percent Change | |||||||||||
2005 | 2004 | 2003 | 2005 | 2004 | ||||||||
New | 1,173 | 2,314 | 1,782 | (49.3 | )% | 29.9 | % | |||||
Reopened | 207 | 213 | 326 | (2.8 | )% | (34.7 | )% | |||||
Closed | 4,590 | 1,606 | 1,296 | 185.8 | % | 23.9 | % | |||||
Pending | 3,388 | 6,624 | 5,726 | (48.9 | )% | 15.7 | % |
On September 30, 2002, Fireman’s Fund and Allianz AG entered into a reinsurance contract whereby Fireman’s Fund ceded netnon-U.S. A&E reserves confirm our current level of carried A&E loss and allocated ALAE reserves to Allianz AG, with Allianz AG providing reinsurance cover up to a maximum of USD 2,158 million. Based on the aforementioned A&E study completed during the year ended December 31, 2005, Fireman’s Fund increased the cession to this treaty from USD 1,276 million at December 31, 2004 to USD 2,080 million at December 31, 2005, leaving further coverage of USD 78 million. As a result of already sufficient reserves, there was no net impact on Allianz Group level, absent a USD 65 million loss caused by the increasewithout any need for additional reserve strengthening in provisions for uncollectible reinsurance recoverables and ULAE.2008.
Total net reserves for A&E related liabilities for the U.S. based subsidiaries of the Allianz Group (i.e., Fireman’s Fund and AGR U.S.) at December 31, 2005 and 2004 were €1,390 million and €739 million, respectively, excluding intercompany reinsurance agreements.
The following table summarizes the gross and net loss and loss adjustment expensesLAE reserves for the U.S.- based subsidiaries for A&E claims before intercompany reinsurance agreements.claims.
Year-end December 31, | A&E Net Reserves | A&E Gross Reserves | As percentage of U.S. Property- Casualty Gross Reserves | As percentage of the Allianz Group’s Property-Casualty Gross Reserves | ||||||
€ mn | € mn | |||||||||
2001 | 979 | 1,649 | 10.1 | % | 2.7 | % | ||||
2002 | 1,250 | 1,704 | 11.8 | % | 2.9 | % | ||||
2003 | 906 | 1,263 | 11.9 | % | 2.2 | % | ||||
2004 | 739 | 1,097 | 12.4 | % | 2.0 | % | ||||
2005 | 1,390 | 1,887 | 17.1 | % | 3.1 | % |
As of December 31, | A&E Net Reserves | A&E Gross Reserves | As percentage of the Allianz Group’s Property-Casualty Gross Reserves | ||||
€ mn | € mn | ||||||
2006 | 2,990 | 3,636 | 6.2 | % | |||
2007 | 2,764 | 3,287 | 5.8 | % | |||
2008 | 2,618 | 3,140 | 5.6 | % |
The following table below shows total A&E loss activity for the past five years for Fireman’s Fund and AGR U.S. These numbers are shown gross of reinsurance and on a U.S. statutory basis.
Year Ended December 31, | ||||||||||||
Asbestos: | 2001 | 2002 | 2003 | 2004 | 2005 | |||||||
$ mn | $ mn | $mn | $mn | $mn | ||||||||
Loss + LAE Reserves as of January 1 | 679 | 596 | 1,147 | 1,097 | 1,033 | |||||||
Plus Incurred Loss and LAE | 23 | 688 | 101 | 110 | 1,090 | |||||||
Less Loss and LAE Payments | 106 | 137 | 151 | 173 | 270 | |||||||
Payments for Loss | 79 | 102 | 106 | 121 | 220 | |||||||
Payments for LAE | 27 | 35 | 45 | 52 | 50 | |||||||
Loss + LAE Reserves as of December 31 | 596 | 1,147 | 1,097 | 1,033 | 1,853 | |||||||
Year Ended December 31, | ||||||||||||
Environmental: | 2001 | 2002 | 2003 | 2004 | 2005 | |||||||
$mn | $mn | $mn | $mn | $mn | ||||||||
Loss + LAE Reserves as of January 1 | 975 | 863 | 630 | 482 | 462 | |||||||
Plus Incurred Loss and LAE | (37 | ) | 73 | (89 | ) | 67 | 86 | |||||
Less Loss and LAE Payments | 75 | 306 | 59 | 87 | 88 | |||||||
Payments for Loss | 38 | 259 | 31 | 53 | 52 | |||||||
Payments for LAE | 37 | 47 | 28 | 34 | 36 | |||||||
Loss + LAE Reserves as of December 31 | 863 | 630 | 482 | 462 | 460 | |||||||
Year Ended December 31, | ||||||||||||
Total Asbestos and Environmental: | 2001 | 2002 | 2003 | 2004 | 2005 | |||||||
$ mn | $ mn | $ mn | $ mn | $ mn | ||||||||
Loss + LAE Reserves as of January 1 | 1,654 | 1,459 | 1,776 | 1,579 | 1,495 | |||||||
Plus Incurred Loss and LAE | (14 | ) | 761 | 12 | 177 | 1,176 | ||||||
Less Loss and LAE Payments | 181 | 443 | 210 | 260 | 358 | |||||||
Payments for Loss | 117 | 361 | 137 | 174 | 272 | |||||||
Payments for LAE | 64 | 82 | 73 | 86 | 86 | |||||||
Loss + LAE Reserves as of December 31 | 1,459 | 1,776 | 1,579 | 1,495 | 2,313 |
Non-U.S. Asbestos and Environmental Exposures
Asbestos and environmental exposures also exist outside of the United States and have led to insurance claims in several other countries. The level of claims activity to date, and the potential for future claims varies significantly from country to country due to many factors, including differing social and legal systems, policy terms and conditions and mix of insured business. The Allianz Group is currently conducting a review of its non-U.S. asbestos exposures.
Selected Statistical Information Relating to Our Banking Operations
For the purposes of presenting the following information, our banking operations include Dresdner Bank AG and its subsidiaries (“Dresdner Bank”), including its asset management operations, which are insignificant in size relative to Dresdner Bank’s banking operations, and certain other banking subsidiaries of the Allianz Group. This presentation differs from the presentation in the remainder of “Operating and Financial Review and Prospects”, where the asset management operations of Dresdner Bank are included in our asset management segment and excluded from our banking segment. The following information has been derived from the financial records of our banking operations and has been prepared in accordance with IFRS; it does not reflect certain adjustments and consolidations to convert such information to the Allianz Group’s consolidated financial statements. Particularly, the assets and liabilities of Dresdner Bank do not reflect the purchase accounting adjustments applied for the Allianz Group’s consolidated financial statements with respect to Dresdner Bank’s assets and liabilities at July 23, 2001, the date of the acquisition of Dresdner Bank by the Allianz Group. Further, the following information does not reflect adjustments necessary to convert such information to U.S. GAAP.
As discussed in more detail in “Key Information—Selected Consolidated Financial Data” and Note 3 to our consolidated financial statements, our consolidated financial statements have been prepared in accordance with 2005 IFRS, which introduced a number of new and revised IFRS standards effective January 1, 2005 and which also apply to the financial records of our banking operations. Certain of these standards are required to be applied retrospectively, which has the effect of applying 2005 IFRS to prior periods as if those accounting principles had always been used. These standards include IAS 39 revised,Financial Instruments: Recognition and Measurement, which has an impact on the selected statistical information relating to our banking operations. Accordingly, the information at and for the years ended December 31, 2005, 2004, 2003 and 2002 is presented below in accordance with 2005 IFRS, and where applicable and as indicated, certain information for the years 2004, 2003 and 2002 has been revised to reflect the retrospective application of IAS 39 revised. Theinformation at and for the year ended December 31, 2001 is presented in accordance with pre-2005 IFRS and accordingly does not reflect the retrospective application of 2005 IFRS, due to the unreasonable effort or expense required to prepare such information, in particular resulting from the implementation for such year of the new impairment criteria of IAS 39 revised. For more information on the impact of the retrospective application of 2005 IFRS at and for the years ended December 31, 2004 and 2003, see Note 3 to our consolidated financial statements.
The following information also reflects the closure of Dresdner Bank’s non-strategic IRU effective September 30, 2005, having completed its mandate to free-up risk capital through the reduction of risk-weighted assets. At September 30, 2005, the IRU’s remaining risk assets amounted to €1.4 billion, of which the majority was sold in 4Q 2005, resulting in a further decrease of these risk assets to approximately one-third at December 31, 2005.
Average Balance Sheet and Interest Rate Data
The following table sets forth the average balances of assets and liabilities and related interest earned from interest-earning assets and interest expensed on interest-bearing liabilities, as well as the resulting average interest yields and rates for the years ended December 31, 2005, 2004 and 2003. The average balance sheet and interest rate data is based on consolidated monthly average balances using month-end balances prepared in accordance with IFRS.
In accordance with IAS 39, the fair values of all derivative instruments are included within non-interest-earning assets or non-interest-bearing liabilities. Interest income and interest expense relating to qualifying hedge derivative instruments have been reported within the interest income and interest expense of the hedged item for each period.
The allocation between German and non-German components is based on the location of the office that recorded the transaction. Categories of loans and advances include loans placed on non-accrual status. For a description of our accounting policies on non-accrual loans see “—Risk Elements—Non-accrual Loans” and “Operating and Financial Review and Prospects—Critical Accounting Policies and Estimates.”
Our banking operations do not have a significant balance of tax-exempt investments. Accordingly, interest income on such investments has been included as taxable interest income for purposes of calculating the change in taxable net interest income.
Year Ended December 31, | ||||||||||||||||||||||||
2005 | 2004 | 2003 | ||||||||||||||||||||||
Average Balance | Interest Income/ Expense | Average Yield/ Rate | Average Balance | Interest Income/ Expense | Average Yield/ Rate | Average Balance | Interest Income/ Expense | Average Yield/ Rate | ||||||||||||||||
€ mn | € mn | % | € mn | € mn | % | € mn | € mn | % | ||||||||||||||||
Assets | ||||||||||||||||||||||||
Financial assets carried at fair value through income | ||||||||||||||||||||||||
In German offices | 88,194 | 4,215 | 4.8 | % | 110,316 | 3,972 | 3.6 | % | 84,197 | 1,724 | 2.0 | % | ||||||||||||
In non-German offices | 53,059 | 1,941 | 3.7 | % | 37,643 | 1,131 | 3.0 | % | 29,191 | 809 | 2.8 | % | ||||||||||||
Total | 141,253 | 6,156 | 4.4 | % | 147,959 | 5,103 | 3.4 | % | 113,388 | 2,533 | 2.2 | % | ||||||||||||
Loans and advances to banks | ||||||||||||||||||||||||
In German offices | 19,646 | 424 | 2.2 | % | 21,880 | 455 | 2.1 | % | 20,163 | 517 | 2.6 | % | ||||||||||||
In non-German offices | 14,276 | 564 | 4.0 | % | 8,653 | 210 | 2.4 | % | 7,244 | 325 | 4.5 | % | ||||||||||||
Total | 33,922 | 988 | 2.9 | % | 30,533 | 665 | 2.2 | % | 27,407 | 842 | 3.1 | % | ||||||||||||
Loans and advances to customers | ||||||||||||||||||||||||
In German offices | 77,873 | 4,313 | 5.5 | % | 83,950 | 4,058 | 4.8 | % | 90,720 | 4,452 | 4.9 | % | ||||||||||||
In non-German offices | 34,371 | 1,600 | 4.7 | % | 28,029 | 1,210 | 4.3 | % | 39,246 | 2,137 | 5.4 | % | ||||||||||||
Total | 112,244 | 5,913 | 5.3 | % | 111,979 | 5,268 | 4.7 | % | 129,966 | 6,589 | 5.1 | % | ||||||||||||
Securities purchased under resale agreements | ||||||||||||||||||||||||
In German offices | 83,614 | 2,690 | 3.2 | % | 110,439 | 2,896 | 2.6 | % | 91,306 | 2,602 | 2.8 | % | ||||||||||||
In non-German offices | 59,513 | 2,324 | 3.9 | % | 64,030 | 1,399 | 2.2 | % | 27,492 | 851 | 3.1 | % | ||||||||||||
Total | 143,127 | 5,014 | 3.5 | % | 174,469 | 4,295 | 2.5 | % | 118,798 | 3,453 | 2.9 | % | ||||||||||||
Investment securities(1) | ||||||||||||||||||||||||
In German offices | 7,392 | 237 | 3.2 | % | 5,727 | 206 | 3.6 | % | 5,909 | 254 | 4.3 | % | ||||||||||||
In non-German offices | 5,651 | 237 | 4.2 | % | 7,663 | 241 | 3.1 | % | 7,683 | 263 | 3.4 | % | ||||||||||||
Total | 13,043 | 474 | 3.6 | % | 13,390 | 447 | 3.3 | % | 13,592 | 517 | 3.8 | % | ||||||||||||
Total interest-earning assets | 443,589 | 18,545 | 4.2 | % | 478,330 | 15,778 | 3.3 | % | 403,151 | 13,934 | 3.5 | % | ||||||||||||
Non-interest-earning assets | ||||||||||||||||||||||||
In German offices | 45,974 | — | — | 45,760 | — | — | 38,581 | — | — | |||||||||||||||
In non-German offices | 43,714 | — | — | 38,008 | — | — | 30,868 | — | — | |||||||||||||||
Total non-interest-earning assets | 89,688 | — | — | 83,768 | — | — | 69,449 | — | — | |||||||||||||||
Total assets | 533,277 | — | — | 562,098 | — | — | 472,600 | — | — | |||||||||||||||
Percent of assets attributable to non-German offices | 39.5 | % | — | — | 32.7 | % | — | — | 30.0 | % | — | — |
Liabilities and shareholders’ equity Financial liabilities carried at fair value through income In German offices In non-German offices Total Liabilities to banks In German offices In non-German offices Total Liabilities to customers In German offices In non-German offices Total Securities sold under repurchase agreements In German offices In non-German offices Total Subordinated liabilities In German offices In non-German offices Total Certificated liabilities(2) In German offices In non-German offices Total Profit participation certificates outstanding In German offices Total Total interest-bearing liabilities Non-interest-bearing liabilities In German offices In non-German offices Total non-interest-bearing liabilities Shareholders’ equity Total liabilities and shareholders’ equity Percent of liabilities attributable to non-German offices Year Ended December 31, 2005 2004 2003 Average
Balance Interest
Income/
Expense Average
Yield/
Rate Average
Balance Interest
Income/
Expense Average
Yield/
Rate Average
Balance Interest
Income/
Expense Average
Yield/
Rate € mn € mn % € mn € mn % € mn € mn % 215 16 7.4 % 184 15 8.2 % 163 13 8.0 % 19 1 4.6 % — — — — — — 234 17 7.2 % 184 15 8.2 % 163 13 8.0 % 67,698 1,869 2.8 % 86,796 1,989 2.3 % 86,173 2,000 2.3 % 25,374 1,414 5.6 % 21,784 1,066 4.9 % 13,784 754 5.5 % 93,072 3,283 3.5 % 108,580 3,055 2.8 % 99,957 2,754 2.8 % 60,254 1,720 2.9 % 57,877 1,576 2.7 % 57,322 1,726 3.0 % 39,056 1,139 2.9 % 32,792 1,043 3.2 % 37,211 910 2.4 % 99,310 2,859 2.9 % 90,669 2,619 2.9 % 94,533 2,636 2.8 % 60,471 2,382 3.9 % 75,091 2,019 2.7 % 58,998 1,719 2.9 % 59,113 2,226 3.8 % 52,942 1,105 2.1 % 17,568 638 3.6 % 119,584 4,608 3.9 % 128,033 3,124 2.4 % 76,566 2,357 3.1 % 3,244 163 5.0 % 3,433 164 4.8 % 3,757 174 4.6 % 3,062 181 5.9 % 3,707 220 5.9 % 3,836 267 7.0 % 6,306 344 5.5 % 7,140 384 5.4 % 7,593 441 5.8 % 18,441 758 4.1 % 16,651 604 3.6 % 13,745 536 3.9 % 32,258 1,205 3.7 % 28,392 779 2.7 % 40,093 1,365 3.4 % 50,699 1,963 3.9 % 45,043 1,383 3.1 % 53,838 1,901 3.5 % 1,521 110 7.2 % 1,517 111 7.3 % 1,515 111 7.3 % 1,521 110 7.2 % 1,517 111 7.3 % 1,515 111 7.3 % 370,726 13,184 3.6 % 381,166 10,691 2.8 % 334,165 10,213 3.1 % 94,036 — — 116,286 — — 89,561 — — 56,582 — — 52,892 — — 36,447 — — 150,618 — — 169,178 — — 126,008 — — 11,934 — — 11,754 — — 12,427 — — 533,277 — — 562,098 — — 472,600 — — 41.3 % — — 35.0 % — — 32.4 % — —
Net Interest Margin
The following table sets forth the average total interest-earning assets, net interest earned and the net interest margin of our banking operations.
Year Ended December 31, | |||||||||
2005 | 2004 | 2003 | |||||||
€ mn | € mn | € mn | |||||||
Average total interest-earning assets | 443,589 | 478,330 | 403,151 | ||||||
Net interest earned(1) | 5,361 | 5,087 | 3,721 | ||||||
Net interest margin in %(2) | 1.21 | % | 1.06 | % | 0.92 | % |
The following table sets forth an allocation of changes in interest income, interest expense and net interest income between changes in the average volume and changes in the average interest rates for the two most recent years. Volume and interest rate variances have been calculated based on movements in average balances over the period and changes in interest rates on average interest-earning assets and average interest-bearing liabilities. Changes due to a combination of volume and rate are allocated proportionally to the absolute change in volume and rate.
Year Ended December 31, | ||||||||||||||||||
2005 over 2004 | 2004 over 2003 | |||||||||||||||||
Increase/(Decrease) due to Change in: | Increase/(Decrease) due to Change in: | |||||||||||||||||
Total Change | Average Interest Rate | Average Volume | Total Change | Average Interest Rate | Average Volume | |||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | |||||||||||||
Interest income | ||||||||||||||||||
Financial assets carried at fair value through income | ||||||||||||||||||
In German offices | 243 | 1,139 | (896 | ) | 2,248 | 1,595 | 653 | |||||||||||
In non-German offices | 810 | 281 | 529 | 322 | 72 | 250 | ||||||||||||
Total | 1,053 | 1,420 | (367 | ) | 2,570 | 1,667 | 903 | |||||||||||
Loans and advances to banks | ||||||||||||||||||
In German offices | (31 | ) | 17 | (48 | ) | (62 | ) | (103 | ) | 41 | ||||||||
In non-German offices | 354 | 174 | 180 | (115 | ) | (170 | ) | 55 | ||||||||||
Total | 323 | 191 | 132 | (177 | ) | (273 | ) | 96 | ||||||||||
Loans and advances to customers | ||||||||||||||||||
In German offices | 255 | 563 | (308 | ) | (394 | ) | (66 | ) | (328 | ) | ||||||||
In non-German offices | 390 | 100 | 290 | (927 | ) | (390 | ) | (537 | ) | |||||||||
Total | 645 | 663 | (18 | ) | (1,321 | ) | (456 | ) | (865 | ) | ||||||||
Securities purchased under resale agreements | ||||||||||||||||||
In German offices | (206 | ) | 580 | (786 | ) | 294 | (220 | ) | 514 | |||||||||
In non-German offices | 925 | 1,030 | (105 | ) | 548 | (311 | ) | 859 | ||||||||||
Total | 719 | 1,610 | (891 | ) | 842 | (531 | ) | 1,373 | ||||||||||
Investment securities | ||||||||||||||||||
In German offices | 31 | (24 | ) | 55 | (48 | ) | (40 | ) | (8 | ) | ||||||||
In non-German offices | (5 | ) | 68 | (73 | ) | (22 | ) | (21 | ) | (1 | ) | |||||||
Total | 26 | 44 | (18 | ) | (70 | ) | (61 | ) | (9 | ) | ||||||||
Total interest income | 2,766 | 3,928 | (1,162 | ) | 1,844 | 346 | 1,498 | |||||||||||
Interest expense Financial liabilities carried at fair value through income In German offices In non-German offices Total Liabilities to banks In German offices In non-German offices Total Liabilities to customers In German offices In non-German offices Total Securities sold under repurchase agreements In German offices In non-German offices Total Subordinated liabilities In German offices In non-German offices Total Certificated liabilities In German offices In non-German offices Total Profit participation certificates outstanding In German offices Total Total interest expense Change in taxable net interest income Year Ended December 31, 2005 over 2004 2004 over 2003 Increase/(Decrease)
due to Change in: Increase/(Decrease)
due to Change in: Total
Change Average
Interest Rate Average
Volume Total
Change Average
Interest Rate Average
Volume € mn € mn € mn € mn € mn € mn 1 1 — 2 — 2 1 1 — — — — 2 2 — 2 — 2 (120 ) 364 (484 ) (11 ) (25 ) 14 348 159 189 312 (87 ) 399 228 523 (295 ) 301 (112 ) 413 144 78 66 (150 ) (167 ) 17 96 (92 ) 188 �� 133 250 (117 ) 240 (14 ) 254 (17 ) 83 (100 ) 363 810 (447 ) 300 (141 ) 441 1,121 980 141 467 (367 ) 834 1,484 1,790 (306 ) 767 (508 ) 1,275 (1 ) 8 (9 ) (10 ) 5 (15 ) (39 ) (1 ) (38 ) (47 ) (38 ) (9 ) (40 ) 7 (47 ) (57 ) (33 ) (24 ) 154 85 69 68 (39 ) 107 426 309 117 (586 ) (234 ) (352 ) 580 394 186 (518 ) (273 ) (245 ) (1 ) (1 ) — — — — (1 ) (1 ) — — — — 2,493 2,701 (208 ) 478 (843 ) 1,321 273 1,227 (954 ) 1,366 1,189 177
Return on Equity and Assets
The following table sets forth the net income, average shareholders’ equity and selected financial information and ratios of our banking operations.
Year Ended December 31, | |||||||||
2005 | 2004 | 2003 | |||||||
€ mn | € mn | € mn | |||||||
Net income/(loss) | 1,768 | 343 | (2,242 | ) | |||||
Average shareholders’ equity | 11,934 | 11,754 | 12,427 | ||||||
Return on assets in %(1) | 0.33 | % | 0.06 | % | (0.47 | )% | |||
Return on equity in %(2) | 14.81 | % | 2.92 | % | (18.04 | )% | |||
Equity to assets ratio in %(3) | 2.24 | % | 2.09 | % | 2.63 | % |
Financial Assets Carried At Fair Value Through Income and Investment Securities
The following table sets forth the book value of financial assets carried at fair value through income (including trading securities) and investment securities held by our banking operations by type of issuer. The allocation between German and non-German components is based on the domicile of the issuer.
At December 31, | |||||||
2005 | 2004(2) | 2003(2) | |||||
€ mn | € mn | € mn | |||||
Financial assets carried at fair value through income(1) | |||||||
German: | |||||||
Federal and state government and government agency debt securities | 11,497 | (3) | 33,693 | 19,764 | |||
Local government debt securities | 690 | 1,578 | 4,384 | ||||
Corporate debt securities | 18,972 | 30,157 | 31,319 | ||||
Mortgage-backed securities | 139 | 112 | 315 | ||||
Equity securities | 2,656 | 2,853 | 1,636 | ||||
German total | 33,954 | 68,393 | 57,418 | ||||
At December 31, | |||||||
2005 | 2004(2) | 2003(2) | |||||
€ mn | € mn | € mn | |||||
Non-German: | |||||||
U.S. Treasury and other U.S. government agency debt securities | 915 | 2,083 | 5,107 | ||||
Other government and official institution debt securities | 25,534 | (3) | 51,636 | 28,424 | |||
Corporate debt securities | 39,425 | 26,557 | 20,623 | ||||
Mortgage-backed securities | 13,601 | (4) | 7,059 | 543 | |||
Equity securities | 28,105 | (5) | 16,301 | 13,216 | |||
Non-German total | 107,580 | 103,636 | 67,913 | ||||
Total financial assets carried at fair value through income | 141,534 | 172,029 | 125,331 | ||||
Securities available-for-sale | |||||||
German: | |||||||
Federal and state government and government agency debt securities | 305 | 77 | 1,036 | ||||
Local government debt securities | 1,777 | 2,083 | 1,591 | ||||
Corporate debt securities | 5,195 | 5,865 | 3,424 | ||||
Mortgage-backed and other debt securities | — | — | 14 | ||||
Equity securities | 1,573 | 2,354 | 742 | ||||
German total | 8,850 | 10,379 | 6,807 | ||||
Non-German: | |||||||
U.S. Treasury and other U.S. government agency debt securities | 5 | — | 246 | ||||
Other government and official institution debt securities | 1,245 | 1,430 | 1,792 | ||||
Corporate debt securities | 3,180 | 3,061 | 3,560 | ||||
Mortgage-backed and other debt securities | 721 | 424 | 905 | ||||
Equity securities | 1,649 | 1,552 | 3,546 | ||||
Non-German total | 6,800 | 6,467 | 10,049 | ||||
Total securities available-for-sale | 15,650 | 16,846 | 16,856 | ||||
Securities held-to-maturity | |||||||
Non-German: | |||||||
Other government and official institution debt securities | 41 | 103 | 96 | ||||
Non-German total | 41 | 103 | 96 | ||||
Total securities held-to-maturity | 41 | 103 | 96 | ||||
At December 31, 2005, our banking operations held no ordinary shares with a book value in excessof ten percent of the shareholders’ equity of our banking operations.
Maturity Analysis of Debt Investment Securities
The following table sets forth an analysis of the contractual maturity and weighted average yields of our banking operations’ debt investment securities. Actual maturities may differ from contractual maturity dates because issuers may have the right to call or prepay obligations. The allocation between German and non-German components is based on the domicile of the issuer.
At December 31, 2005 | |||||||||||||||
Due In One Year Or Less | Due After One Year Through Five Years | Due After Five Years Through Ten Years | Due After Ten Years | Total | |||||||||||
€ mn | € mn | € mn | € mn | € mn | |||||||||||
Securities available-for-sale | |||||||||||||||
German: | |||||||||||||||
Federal and state government and government agency debt securities | 11 | 114 | 175 | 5 | 305 | ||||||||||
Local government debt securities | 57 | 1,678 | 42 | — | 1,777 | ||||||||||
Corporate debt securities | 348 | 3,447 | 1,400 | — | 5,195 | ||||||||||
German total | 416 | 5,239 | 1,617 | 5 | 7,277 | ||||||||||
Non-German: | |||||||||||||||
Government and official institution debt securities | 258 | 564 | 362 | 66 | 1,250 | ||||||||||
Corporate debt securities | 326 | 2,042 | 764 | 48 | 3,180 | ||||||||||
Mortgage-backed and other debt securities | 467 | 152 | 101 | 1 | 721 | ||||||||||
Non-German total | 1,051 | 2,758 | 1,227 | 115 | 5,151 | ||||||||||
Total securities available-for-sale | 1,467 | 7,997 | 2,844 | 120 | 12,428 | ||||||||||
Weighted average yield in % | 3.4 | % | 3.4 | % | 3.3 | % | 3.0 | % | 3.3 | % | |||||
Securities held-to-maturity(1) | |||||||||||||||
Non-German: | |||||||||||||||
Other government and official institution debt securities | 41 | — | — | — | 41 | ||||||||||
Non-German total | 41 | — | — | — | 41 | ||||||||||
Total securities held-to-maturity | 41 | — | — | — | 41 | ||||||||||
Weighted average yield in % | 8.7 | % | — | — | — | 8.7 | % |
Loan Portfolio
The following table sets forth an analysis of our loan portfolio, gross of allocated loan loss allowances and net of unearned income, according to the industry sector of borrowers, excluding reverse repurchase agreements and collateral paid for securities borrowing transactions, short-term investments and certificates of deposit, as well as other advances to banks and customers. The allocation between German and non-German components is based on the domicile of the borrower.
At December 31, | ||||||||||||
2005 | 2004(1) | 2003(1) | 2002(1) | 2001 | ||||||||
€ mn | € mn | € mn | € mn | € mn | ||||||||
German: | ||||||||||||
Corporate: | ||||||||||||
Manufacturing | 4,953 | 6,487 | 8,042 | 9,728 | 10,825 | |||||||
Construction | 653 | 811 | 1,062 | 1,226 | 1,813 | |||||||
Wholesale and retail trade | 4,646 | 4,125 | 4,275 | 6,041 | 7,165 | |||||||
Financial institutions (excluding banks) and insurance companies | 3,144 | 2,005 | 2,958 | 2,810 | 4,896 | |||||||
Banks | 1,767 | 1,152 | 276 | 1,499 | 517 | |||||||
Service providers | 10,377 | 11,918 | 12,952 | 13,797 | 22,943 | |||||||
Other | 2,142 | 1,901 | 2,280 | 2,911 | 3,974 | |||||||
Corporate total | 27,682 | 28,399 | 31,845 | 38,011 | 52,133 | |||||||
Public authorities | 286 | 531 | 548 | 572 | 718 | |||||||
Private individuals (including self-employed professionals) | 38,974 | 39,475 | 40,835 | 43,041 | (2) | 63,773 | ||||||
German total | 66,942 | 68,405 | 73,228 | 81,624 | 116,624 | |||||||
Non-German: | ||||||||||||
Corporate: | ||||||||||||
Manufacturing, construction, wholesale and retail trade and service providers(3) | 10,567 | 9,108 | 14,370 | 21,846 | 38,383 | |||||||
Financial institutions (excluding banks) and insurance companies | 10,579 | 8,886 | 6,627 | 6,312 | 10,285 | |||||||
Banks | 5,392 | 5,095 | 3,704 | 3,348 | 5,157 | |||||||
Other | 5,087 | 4,489 | 5,798 | 9,144 | 3,899 | |||||||
Corporate total | 31,625 | 27,578 | 30,499 | 40,650 | 57,724 | |||||||
Public authorities | 803 | 1,819 | 598 | 2,065 | 3,458 | |||||||
Private individuals (including self-employed professionals) | 1,863 | 1,888 | (4) | 11,496 | 11,046 | 10,601 | ||||||
Non-German total | 34,291 | 31,285 | 42,593 | 53,761 | 71,783 | |||||||
Total loans | 101,233 | 99,690 | 115,821 | 135,385 | 188,407 | |||||||
The following table sets forth our banking operations’ mortgage loans and finance leases that are included within the above analysis of loans.
At December 31, | ||||||||||
2005 | 2004(3) | 2003 | 2002(2) | 2001 | ||||||
€ mn | € mn | € mn | € mn | € mn | ||||||
Mortgage loans | 25,877 | 28,193 | 38,191 | 39,683 | 57,315 | |||||
Finance leases | 1,500 | 1,248 | 933 | 1,104 | 2,414 |
Loan Concentrations
Although our loan portfolio is diversified across more than 153 countries, at December 31, 2005 approximately 66.1% of our total loans were to borrowers in Germany. At December 31, 2005, our largest credit exposures to borrowers in Germany were loans to private individuals (including self-employed professionals) at 58.2%; this category represented 38.5% of our total loans outstanding at December 31, 2005. Approximately 54.8% of these loans are residential mortgage loans, which represent approximately 21.1% of our total loans outstanding at December 31, 2005. Our residential mortgage loans include owner-occupied, single- and two-family homes and apartment dwellings and investment properties. Our residential mortgage loans are well diversified across all German states. Our remaining loans to private individuals in Germany primarily include other consumer installment loans and loans to self-employed professionals, which are also geographically diversified across Germany. We have no other concentrations of loans to private individuals (including self-employed professionals) in Germany in excess of ten percent of our total loans.
Our German corporate customers are broadly diversified within the service providers category, however no one sector is individually significant to our domestic loan portfolio and we have no concentrations of loans to borrowers in any services industry in excess of ten percent of our total loans.
At December 31, 2005, approximately 10.3% of our total loans were to German corporate customers in various service industries, including utilities, media, transportation and other.
At December 31, 2005, approximately 15.5% of our total loans were to non-financial corporate borrowers outside Germany. These loans are well diversified across various commercial industries, including:
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We have no concentrations of loans to non-financial corporate borrowers in any industry in excess of ten percent of our total loans.
Maturity Analysis of Loan Portfolio
The following table sets forth an analysis of the contractual maturity of our loans at December 31, 2005. The allocation between German and non-German components is based on the domicile of the borrower.
At December 31, 2005 | ||||||||
Due In One Year Or Less | Due After One Year Through Five Years | Due After Five Years | Total | |||||
€ mn | € mn | € mn | € mn | |||||
German: | ||||||||
Corporate: | ||||||||
Manufacturing | 3,119 | 1,187 | 647 | 4,953 | ||||
Construction | 387 | 188 | 78 | 653 | ||||
Wholesale and retail trade | 2,943 | 1,346 | 357 | 4,646 | ||||
Financial institutions (excluding banks) and insurance companies | 904 | 1,583 | 657 | 3,144 | ||||
Banks | 509 | 572 | 686 | 1,767 | ||||
Service providers: | ||||||||
Telecommunication | 579 | 19 | 1 | 599 | ||||
Transportation | 555 | 371 | 316 | 1,242 | ||||
Other service providers | 2,669 | 3,989 | 1,878 | 8,536 | ||||
Total service providers | 3,803 | 4,379 | 2,195 | 10,377 | ||||
Other | 702 | 708 | 732 | 2,142 | ||||
Corporate total | 12,367 | 9,963 | 5,352 | 27,682 | ||||
Public authorities | 176 | 67 | 43 | 286 | ||||
Private individuals (including self-employed professionals): | ||||||||
Residential mortgage loans | 2,128 | 3,786 | 15,453 | 21,367 | ||||
Consumer installment loans | 2,279 | — | — | 2,279 | ||||
Other | 2,021 | 4,512 | 8,795 | 15,328 | ||||
Total private individuals (including self-employed professionals) | 6,428 | 8,298 | 24,248 | 38,974 | ||||
German total | 18,971 | 18,328 | 29,643 | 66,942 | ||||
Non-German: | ||||||||
Corporate: | ||||||||
Manufacturing industry | 1,277 | 1,110 | 727 | 3,114 | ||||
Construction | 11 | 44 | 175 | 230 | ||||
Wholesale and retail trade | 980 | 391 | 38 | 1,409 | ||||
Service Providers: | ||||||||
Telecommunication | 1,140 | 21 | 1 | 1,162 | ||||
Transportation | 336 | 866 | 535 | 1,737 | ||||
Other service providers | 755 | 1,568 | 592 | 2,915 | ||||
Total service providers | 2,231 | 2,455 | 1,128 | 5,814 | ||||
Total manufacturing industry, construction, wholesale and retail trade and service providers | 4,499 | 4,000 | 2,068 | 10,567 | ||||
Financial institutions (excluding banks) and insurance companies | 4,582 | 4,433 | 1,564 | 10,579 | ||||
Banks | 4,000 | 1,265 | 127 | 5,392 | ||||
Other | 1,262 | 3,591 | 234 | 5,087 | ||||
Corporate total | 14,343 | 13,289 | 3,993 | 31,625 | ||||
Public authorities | 135 | 193 | 475 | 803 | ||||
Private individuals (including self-employed professionals): | ||||||||
Residential mortgage loans | 173 | 253 | 187 | 613 | ||||
Consumer installment loans | 43 | 36 | 2 | 81 | ||||
Other | 533 | 305 | 331 | 1,169 | ||||
Total private individuals | 749 | 594 | 520 | 1,863 | ||||
Non-German total | 15,227 | 14,076 | 4,988 | 34,291 | ||||
Total loans | 34,198 | 32,404 | 34,631 | 101,233 | ||||
The following table sets forth the total amount of loans due after one year with predetermined interest rates and floating or adjustable interest rates at December 31, 2005. Loans with predetermined interest rates are loans for which the interest rate is fixed for the entire term of the loan. All other loans are considered floating or adjustable interest rate loans. The allocation between German and non-German components is based on the domicile of the borrower.
At December 31, 2005 | ||||||
Loans with Predetermined Interest Rates | Loans with Floating or Adjustable Interest Rates | Total | ||||
€ mn | € mn | € mn | ||||
German: | ||||||
Private individuals (including self-employed professionals) | 27,348 | 5,198 | 32,546 | |||
Corporate and public customers | 7,139 | 8,286 | 15,425 | |||
German total | 34,487 | 13,484 | 47,971 | |||
Non-German: | ||||||
Private individuals (including self-employed professionals) | 329 | 785 | 1,114 | |||
Corporate and public customers | 6,879 | 11,071 | 17,950 | |||
Non-German total | 7,208 | 11,856 | 19,064 | |||
Total | 41,695 | 25,340 | 67,035 | |||
Risk Elements
Non-performing Loans
The following table sets forth the outstanding balance of our non-performing loans. The allocation between German and non-German components is based on the domicile of the borrower.
At December 31, | ||||||||||
2005 | 2004 | 2003 | 2002 | 2001 | ||||||
€ mn | € mn | € mn | € mn | € mn | ||||||
Non-accrual loans(1): | ||||||||||
German | 1,855 | 4,774 | 6,459 | 7,355 | 8,751 | |||||
Non-German | 247 | 831 | 2,236 | 3,097 | 2,404 | |||||
Total non-accrual loans | 2,102 | 5,605 | 8,695 | 10,452 | 11,155 | |||||
Loans past due 90 days and still accruing interest(1): | ||||||||||
German | 251 | 390 | 477 | 644 | 1,640 | |||||
Non-German | 293 | 321 | 183 | 151 | 309 | |||||
Total loans past due 90 days and still accruing interest | 544 | 711 | 660 | 795 | 1,949 | |||||
Troubled debt restructurings(1): | ||||||||||
German | 31 | 17 | 26 | 65 | 215 | |||||
Non-German | 1 | 54 | 200 | 313 | 336 | |||||
Total troubled debt restructurings | 32 | 71 | 226 | 378 | 551 | |||||
Non-accrual Loans
Non-accrual loans are loans on which interest income is no longer recognized on an accrual basis or loans for which a specific allowance is recorded for the full amount of accrued interest receivable. We place loans on non-accrual status when we determine, based on management’s judgment, that the payment of interest or principal is doubtful. Management’s judgment is applied based on its credit assessment of the borrower.
When a loan is placed on non-accrual status, any accrued and unpaid interest receivable is reversed and charged against interest income. We restore loans to accrual status only when interest and principal are made current in accordance with the contractual terms and, in management’s judgment, future payments are reasonably assured. When we have doubts about the ultimate collectibility of the principal of a loan placed on non-accrual status, all cash receipts are recorded as reductions in principal. Once the recorded principal amount of the loan is reduced to zero, future cash receipts are recognized as interest income.
Loans Past Due 90 Days and Still Accruing Interest
Loans past due 90 days and still accruing interest are loans that are contractually past due 90 days or more as to principal or interest on which we continue to recognize interest income on an accrual basis.
Troubled Debt Restructurings
Troubled debt restructurings are loans that we have restructured due to a deterioration in the borrower’s financial position and in relation to which, for economic or legal reasons related to the borrower’s deteriorated financial position, we have granted a concession to the borrower that we would not have otherwise granted.
Interest Income on Non-performing Loans
The following table sets forth the gross interest income that would have been recorded during the year ended December 31, 2005 on non-accrual loans and troubled debt restructurings had such loans been current in accordance with their original contractual terms and the interest income on such loans that wasactually included in interest income during the year ended December 31, 2005.
Year Ended December 31, 2005 | ||||||
In German Offices | In non- German Offices | Total | ||||
€ mn | € mn | € mn | ||||
Interest income that would have been recorded in accordance with the original contractual terms | 92 | 11 | 103 | |||
Interest income actually recorded | 17 | 10 | 27 |
Potential Problem Loans
Potential problem loans are loans that are not classified as non-accrual loans, loans past due 90 days and still accruing interest or troubled debt restructurings, but where known information about possible credit problems causes us to have doubts as to the ability of the borrower to comply with the present loan repayment terms and which may result in classifying the loans in one of the three categories of non-performing loans described above. The outstanding balance of our potential problem loans was €333 million at December 31, 2005, a decrease of €700 million, or 67.8% from €1,033 million at December 31, 2004. This decline was primarily attributable to the fact that during 2005, and as a result of enhanced credit policies and processes, loans were categorized earlier as non-performing loans than in 2004. Moreover, no potential problem loans were identified within the homogeneous portfolio during 2005. Further, the faster than planned completion of the wind-down of our non-strategic loan portfolio within our IRU division, which was closed effective September 30, 2005, contributed to this development.
Each of our potential problem loans has been subject to our normal credit monitoring and review procedures. Effective January 1, 2005, in accordance with our policy on loan loss provisioning, no specific loan loss allowance was recorded on potential problem loans. Hence, no potential problem loans were recorded for the homogeneous portfolio at December 31, 2005. For further information on the split between homogeneous and inhomogeneous
loan portfolio see “—Summary of Loan Loss Experience.”
Approximately 14.1% of our potential problem loans are to private individuals in Germany. The remaining loans are to corporate borrowers in manufacturing, construction, wholesale and retail trade, telecommunication, transportation and other services, including media, utilities, natural resources and other services and other industry sectors. Our potential problem loans to corporate borrowers are diversified across the following geographic regions based on the domicile of the borrower:
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Foreign Outstandings
Cross-border outstandings consist of loans, net of allowances for loan losses, accrued interest receivable, acceptances, interest-bearing deposits with other banks, other interest-bearing investmentsand other monetary assets that either are recorded in an office that is not in the same country as the domicile of the borrower, guarantor, issuer or counterparty, or are denominated in a currency that is not the local currency of the borrower, guarantor, issuer or counterparty or are net local country claims. Net local country claims are domestic claims recorded in offices outside Germany that are denominated in local or foreign currency and that are not funded by liabilities in the same currency as the claim and recorded in the same office.
Our cross-border outstandings are allocated by country based on the country of domicile of the borrower, guarantor, issuer or counterparty of the ultimate credit risk. We set limits on and monitor actual cross-border outstandings on a country-by-country basis based on transfer, economic and political risks.
The following table sets forth our cross-border outstandings by geographic location for countries that exceeded 0.75% of the total assets of our banking operations. At December 31, 2005 there were no cross-border outstandings that exceeded 0.50% of the total assets of our banking operations in any country currently facing debt restructurings or liquidity problems that we expect would materially impact the borrowers’ ability to repay their obligations.
At December 31, 2005 | |||||||||||||||
Government and Official Institutions | Banks and Financial Institutions | Other(1) | Net local Country Claims | Total Cross- border Outstandings | Percent of Total Assets(2) | Cross-border Commitments(3) | |||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | ||||||||||
Country | |||||||||||||||
United States | 60 | 1,849 | 16,704 | — | 18,613 | 3.97 | % | 3,325 | |||||||
United Kingdom | — | 2,672 | 6,665 | 84 | 9,421 | 2.01 | % | 9,423 | |||||||
France | 3,443 | 3,082 | 3,611 | 14 | 10,150 | 2.17 | % | 2,765 | |||||||
Italy | 1,826 | 1,682 | 1,665 | 543 | 5,716 | 1.22 | % | 6,428 | |||||||
Netherlands | 1 | 1,452 | 2,255 | — | 3,708 | 0.79 | % | 913 | |||||||
Switzerland | 75 | 2,005 | 1,420 | — | 3,500 | 0.75 | % | 857 | |||||||
Cayman Islands | 9,656 | 87 | 1,114 | — | 10,857 | 2.32 | % | 2,370 | |||||||
Borrowers in all other countries | 158 | 4,151 | 5,086 | 40 | 9,435 | 2.01 | % | 1,759 | |||||||
Total cross-border outstandings | 15,219 | 16,980 | 38,520 | 681 | 71,400 | 15.24 | % | 27,840 | |||||||
Government and Official Institutions Banks and Financial Institutions Net Country Claims Total Cross- border Outstandings Percent of Total Assets(2) Cross-border Commitments(3) Country United States United Kingdom France Italy Netherlands Switzerland Cayman Islands Borrowers in all other countries Total cross-border outstandings At December 31, 2004 Other(1)
local € mn € mn € mn € mn € mn € mn 512 10,619 6,893 — 18,024 3.40 % 542 77 6,593 2,208 58 8,936 1.68 % 4,141 5,361 4,252 2,369 — 11,982 2.26 % 4,051 163 2,154 519 828 3,664 0.69 % 4,849 4 3,193 1,623 — 4,820 0.91 % 1,049 123 1,186 934 13 2,256 0.43 % 1,068 — 2,262 1,146 — 3,408 0.64 % 5,974 5,239 9,436 2,768 100 17,543 3.31 % 1,786 11,479 39,695 18,460 999 70,633 13.32 % 23,460
At December 31, 2003 | |||||||||||||||
Government and Official Institutions | Banks and Financial Institutions | Other(1) | Net local Country Claims | Total Cross- border Outstandings | Percent of Total Assets(2) | Cross-border Commitments(3) | |||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | ||||||||||
Country | |||||||||||||||
United States | 1,776 | 6,332 | 4,266 | — | 12,374 | 2.48 | % | 1,850 | |||||||
United Kingdom | 633 | 4,276 | 2,051 | 98 | 7,058 | 1.42 | % | 3,635 | |||||||
France | 2,950 | 3,437 | 1,282 | 13 | 7,682 | 1.54 | % | 2,604 | |||||||
Italy | 1,445 | 941 | 155 | 748 | 3,289 | 0.66 | % | 2,663 | |||||||
Netherlands | 560 | 4,967 | 763 | — | 6,290 | 1.26 | % | 1,436 | |||||||
Switzerland | 83 | 3,388 | 754 | 174 | 4,399 | 0.88 | % | 722 | |||||||
Cayman Islands | 15 | 5,196 | 474 | — | 5,685 | 1.14 | % | 5,963 | |||||||
Borrowers in all other countries | 3,043 | 4,439 | 1,057 | 148 | 8,687 | 1.74 | % | 630 | |||||||
Total cross-border outstandings | 10,505 | 32,976 | 10,802 | 1,181 | 55,464 | 11.14 | % | 19,503 | |||||||
Total cross-border outstandings disclosed above included €292 million of gross loans outstanding to borrowers in Grand Cayman that are also disclosed within the category of non-performing loans atDecember 31, 2005. At December 31, 2005 and 2004, there were no material cross-border outstandings disclosed above that were also disclosed within the category of potential problem loans.
Summary of Loan Loss Experience
The following discussion of loan loss allowances refers to the banking operations of the Dresdner Bank, which represents substantially all of our banking segment, as our other banking operations have historically not been significant.
We determine an allowance for loan losses in our loan portfolio that represent management’s estimate of probable losses at the balance sheet date. An allowance indicates that it is very likely that the obligor/counterparty/borrower will not be able to partly, or entirely, fulfill the contractually agreed-upon principal and interest terms.
The loan portfolio is divided into a homogenous and an inhomogenous portion. The homogeneous portion includes only loans in the domestic private banking business.
We calculate an allowance for each of the following risks that are allocable to identified loans or groups of loans in our portfolio:
The loan loss allowance for the homogenous portfolio is established on a portfolio basis, while the inhomogenous portfolio is assessed both with respect to loan losses on a single transaction basis and allowances for incurred but not identified risks.
In order to avoid layering or double counting of specific, portfolio, general and country risk loan loss allowances, only those loans that have not been deemed impaired under International Accounting Standards Board’s International Accounting Standard (or “IAS”) 39,Financial Instruments: Recognition and Measurementand the Financial Accounting Standards Board’s Statement of Financial Accounting Standard (or “SFAS”) 114,Accounting by Creditors for Impairment of a Loan, or loans fromcountries for which no country risk allowance exists, are included as part of the portfolio used to establish the general loan loss allowance. We do not maintain any additional reserves.
Specific Loan Loss Allowance
We evaluate our loans based on portfolio segmentation, classified either as homogeneous or inhomogeneous. Loans included within DrKW and Corporate Banking divisions are classified as inhomogeneous, and are therefore evaluated individually. Loans to borrowers within the Personal Banking and Private and Business Banking divisions, which are greater than €1 million, are also classified as inhomogeneous. All remaining loans form the homogeneous portfolio and are reviewed together. Prior to 2003, we evaluated each of our loans individually. Loans for which a specific loan loss allowance had been previously established were evaluated on an individual basis if the existing specific loan loss allowance was €0.5 million or more. Loans for which a specific loan loss allowance of less than €0.5 million had been previously established were aggregated into homogeneous portfolios by collateral types (portfolio approach) for evaluation under IAS 39 and SFAS 114.
A specific loan loss allowance is established to provide for specifically identified counterparty risks within the inhomogeneous loan portfolio. Loans are identified as impaired if it is probable that borrowers are no longer able to make their contractually agreed-upon interest and principal payments. We calculate the specific loan loss allowance based on the guidance provided in IAS 39 and SFAS 114 according to which an impaired loan should be recorded at its estimated recoverable amount either directly, or through use of an allowance account by recording a charge to the income statement. The estimated recoverable amount is the present value of expected future cash flows discounted at the loan’s original effective interest rate, or if the loan is secured by collateral and foreclosure on the loan is probable, the fair value of the collateral, or if there is an observable market for the loan, the market value of the loan. If the amount of the impairment subsequently increases or decreases due to an event occurring after the initial impairment measurement, a change in the allowance is recognized in earnings by a charge or a credit to net loan loss provisions.
We use an internal credit rating system implemented in 2002, to assign ratings from 1 to 16 to each loan within our portfolio, on the basis of specific quantitative and qualitative customer criteria, including financial condition, historical earnings, management quality, and general industry data, among others. Loans that are classified in the rating categories 15 and 16 are loans that are deemed to be impaired under IAS 39 and SFAS 114. In addition, loans that carry ratings of 13 and 14 are reviewed for potential impairment. See “Quantitative and Qualitative Disclosures about Market Risk—Risk Controlling in our Banking Business” for further information.
Portfolio Loan Loss Allowance
Beginning in 2005, we established loan loss allowances for all loans allocated to the homogenous portfolio within our Personal Banking and Private & Business Banking divisions (e.g. for mortgage loans and installment loans) with gross risk below €1 million by using the portfolio approach. This approach is based on historically derived loss rates for the corresponding sub-portfolio and is dependent upon the respective products as well as geared to the individual overdraft status. The continuous consideration of potential losses helps to ensure an ongoing recalibration of the underlying model. The resulting risk allowance embraces incurred but unidentified losses for loans which are performing properly. Prior to 2005, we determined the impairment allowance on the homogeneous portfolios by applying a back-testing approach.
General Loan Loss Allowance
General loan loss allowances are established to provide for incurred but unidentified losses that are inherent in the inhomogeneous loan portfolio as of the relevant balance sheet date. General allowances for loan losses are established for loans that are impaired but not yet identified as impaired due to the time lag between the occurrence of an impairment event and the detection of that event by our credit risk monitoring systems and controls. Such a time lag may occur due to intervals between impairment tests, ratings reviews and/or a borrower’s financial reporting.
The amount of the general loan loss allowance is based on historical loan loss experience, loss ratios aswell as management’s assessment of current events and economic conditions when determing the general loan loss allowance. This approach includes the consideration of the average period for the identification of impaired loans (loss emergence period).
Country Risk Allowance
Country risk allowances are established for transfer risk. Transfer risk is a measure of the likely ability of a borrower in a certain country to repay its foreign currency-denominated debt in light of the economic or political situation prevailing in that country. We establish a country risk allowance for loan exposures if serious doubts exist regarding a counterparty’s ability to comply with the repayment terms due to the economic or political situation prevailing in the country of the domicile of the counterparty. We believe that this risk represents an additional risk above and beyond the normal counterparty risk.
Country risk allowances are based on our country rating system that incorporates current and historical economic, political and other data to categorize countries by risk profile. Using this system, we define country risk ratings from 1 to 16. Country risk allowances are established only for loans to borrowers in countries that are classified in country risk rating categories 10 to 16 and, in certain circumstances, country risk rating categories 8 and 9. See “Quantitative and Qualitative Disclosures about Market Risk—Risk Controlling in our Banking Business” for further information.
Country risk allowances apply to cross-border loan transactions, acceptances and various forms of import and export financing exceeding one year, such as guarantees and commercial letters of credit. Country risk allowances are not calculated for traded products or off-balance sheet products. We deduct the amount of collateral and guarantees provided by parties domiciled in countries for which no country risk allowances are assessed, and loans made in local currency, from the portfolio prior to determining the country risk allowance. In order to avoid layering or double counting of both specific loan loss allowances and country risk allowances, the amount of the specific loan loss allowances are also deducted from the portfolio prior to determining the country risk allowance.
Self-Correcting Mechanisms
The principal self-correcting mechanism used to reduce the difference between estimated and actual observed losses is our practice of basing loss estimates on our historical loss experience. Where actual observed losses differ from estimated losses, information relating to the actual observed losses is incorporated into the historical statistical data on which we base our estimates and is accordingly reflected in our subsequent estimated losses. Similarly, the credit default models that we use in calculating the general loan loss allowance are updated to incorporate newly available statistical evidence on impairment into the default calculations.
In addition, Dresdner Bank reviews its loss estimates on a quarterly basis, and, where such estimates differ from actual observed losses, makes appropriate adjustment to the general loan loss allowance and/or the country risk allowance.
Movements in Loan Loss Allowance
Our total loan portfolio increased by €1,543 million, or 1.5%, to €101,233 million at December 31, 2005 from €99,690 million at December 31, 2004. As a result of the faster than planned completion of the wind-down of our non-strategic loan portfolio within our IRU division, which was closed effective September 30, 2005, the non-performing loans and potential problem loans were significantly reduced during 2005. Our non-performing loans decreased by €3,709 million, or 58.1%, and potential problem loans decreased by €700 million, or 67.8%, from December 31, 2004 to December 31, 2005.
Net releases from allowances of €49 million are predominantly due to the reductions in our non-strategic business within our IRU division andthe significantly improved risk profile of Dresdner Bank’s strategic loan portfolio. Recoveries of €103 million, however, remain relatively consistent with recoveries in prior years.
Total Asbestos and Environmental: € mn Loss + LAE Reserves as of January 1 Less Loss and LAE Payments Plus Change in Loss and LAE Reserves Loss + LAE Reserves as of December 31As previously discussed, when we establish a specific loan loss allowance in relation to a particular loan in the inhomogeneous loan portfolio, that loan is removed from the portfolio of loans that is used as a basis for calculating the general loan loss allowance and the country risk allowance. The establishment of a specific loan loss allowance may therefore result indirectly in a decrease in the general loan loss allowance and the country risk allowance, but no direct reallocation of allowances occurs. Year Ended December 31, 2008 2007 2006 € mn € mn 3,287 3,636 3,873 (199 ) (175 ) (205 ) 52 (175 ) (32 ) 3,140 3,287 3,636
The establishment of the portfolio loan loss allowance for evaluation of the homogeneous portfolio caused a shift to the general loan loss allowance. As a result, our general loan loss allowance increased by €54 million, or 9.6 %, during 2005 to €619 million at December 31, 2005, compared to €565 million at December 31, 2004.
We believe the level of our total loan loss allowance is adequate in comparison to our historical net loan loss experience. The average credit rating of loans in our portfolio based on our internal rating system has constantly improved in recent years. Due to the accelerated reduction of highly provisioned, mainly non-strategic loans, our total loan loss allowance as a percentage of total loans has decreased to 1.6% at December 31, 2005, compared to 4.1% at December 31, 2004, and 4.9% at December 31, 2003.
The following table sets forth an analysis of the loan loss allowances established for our recognized loan volume as of the dates specified. It differentiates by industry sector and geographic category of the borrowers, and the percentage of our total loan portfolio accounted for by those industry and geographic categories. The allocation between German and non-German components is based on the domicile of the borrower.
At December 31, | ||||||||||||||||||||||||||
2005 | 2004 | 2003 | 2002 | 2001 | ||||||||||||||||||||||
Amount | Percent of total loans in each category to total loans | Amount | Percent of total loans in each category to total loans | Amount | Percent of total loans in each category to total loans | Amount | Percent of total loans in each category to total loans | Amount | Percent of total loans in each category to total loans | |||||||||||||||||
€ mn | € mn | € mn | € mn | € mn | ||||||||||||||||||||||
German: | ||||||||||||||||||||||||||
Corporate: | ||||||||||||||||||||||||||
Manufacturing | 105 | 4.9 | % | 447 | 6.5 | % | 687 | 6.9 | % | 884 | 7.2 | % | 884 | 5.7 | % | |||||||||||
Construction | 63 | 0.6 | % | 230 | 0.8 | % | 256 | 0.9 | % | 301 | 0.9 | % | 353 | 1.0 | % | |||||||||||
Wholesale and retail trade | 63 | 4.6 | % | 271 | 4.1 | % | 382 | 3.7 | % | 426 | 4.5 | % | 448 | 3.8 | % | |||||||||||
Financial institutions (excluding banks) and insurance companies | 21 | 3.1 | % | 83 | 2.0 | % | 94 | 2.6 | % | 171 | 2.1 | % | 133 | 2.6 | % | |||||||||||
Banks | 1 | 1.7 | % | 2 | 1.2 | % | 1 | 0.2 | % | 7 | 1.1 | % | 5 | 0.3 | % | |||||||||||
Service providers | 187 | 10.3 | % | 537 | 12.0 | % | 767 | 11.2 | % | 827 | 10.2 | % | 982 | 12.2 | % | |||||||||||
Other | 41 | 2.1 | % | 34 | 1.9 | % | 39 | 2.0 | % | 108 | 2.2 | % | 59 | 2.1 | % | |||||||||||
Corporate total | 481 | 27.3 | % | 1,604 | 28.5 | % | 2,226 | 27.5 | % | 2,724 | 28.1 | % | 2,864 | 27.7 | % | |||||||||||
Public authorities | — | 0.3 | % | — | 0.5 | % | — | 0.5 | % | — | 0.4 | % | — | 0.4 | % | |||||||||||
Private individuals (including self-employed professionals) | 115 | 38.5 | % | 1,211 | 39.6 | % | 1,409 | 35.3 | % | 1,702 | 31.8 | % | 2,090 | 33.8 | % | |||||||||||
German total | 596 | 66.1 | % | 2,815 | 68.6 | % | 3,635 | 63.2 | % | 4,426 | 60.3 | % | 4,954 | 61.9 | % | |||||||||||
Non-German: | ||||||||||||||||||||||||||
Corporate: | ||||||||||||||||||||||||||
Manufacturing, construction, wholesale and retail trade and service providers | 51 | 10.4 | % | 206 | 9.1 | % | 492 | 12.4 | % | 659 | 16.1 | % | 1,201 | 20.4 | % | |||||||||||
Financial institutions (excluding banks) and insurance companies | 12 | 10.4 | % | 133 | 8.9 | % | 262 | 5.7 | % | 33 | 4.7 | % | 96 | 5.5 | % | |||||||||||
Banks | 59 | 5.3 | % | 14 | 5.1 | % | 175 | 3.2 | % | 244 | 2.5 | % | 118 | 2.7 | % | |||||||||||
Other | 8 | 5.0 | % | 77 | 4.5 | % | 157 | 5.0 | % | 321 | 6.8 | % | 247 | 2.1 | % | |||||||||||
Corporate total | 130 | 31.2 | % | 430 | 27.7 | % | 1,086 | 26.3 | % | 1,257 | 30.0 | % | 1,662 | 30.7 | % | |||||||||||
Public authorities | — | 0.8 | % | — | 1.8 | % | 8 | 0.5 | % | 14 | 1.5 | % | 15 | 1.8 | % | |||||||||||
Private individuals (including self-employed professionals) | 26 | 1.8 | % | 47 | 1.9 | % | 143 | 9.9 | % | 182 | 8.2 | % | 211 | 5.6 | % | |||||||||||
Non-German total | 156 | 33.9 | % | 477 | 31.4 | % | 1,237 | 36.8 | % | 1,453 | 39.7 | % | 1,888 | 38.1 | % | |||||||||||
Total specific loan loss allowances | 752 | 100.0 | % | 3,292 | 100.0 | % | 4,872 | 100.0 | % | 5,879 | 100.0 | % | 6,842 | 100.0 | % | |||||||||||
Country risk allowances | 225 | 252 | 259 | 340 | 443 | |||||||||||||||||||||
General loan loss allowances | 619 | (1) | 565 | 589 | 747 | 753 | ||||||||||||||||||||
Total loan loss allowances | 1,596 | 4,109 | 5,720 | 6,966 | 8,038 | |||||||||||||||||||||
The following table sets forth the movements in the loan loss allowance according to the industry sector and geographic categoryof the borrower. The allocation between German and non-German components is based on the domicile of the borrower.
Year Ended December 31, | |||||||||||||||
2005 | 2004 | 2003 | 2002 | 2001 | |||||||||||
€ mn | € mn | € mn | € mn | € mn | |||||||||||
Total allowances for loan losses at beginning of the year | 4,109 | 5,720 | 6,966 | 8,038 | 7,123 | ||||||||||
Gross charge-offs: | |||||||||||||||
German: | |||||||||||||||
Corporate: | |||||||||||||||
Manufacturing | 366 | 217 | 146 | 314 | 66 | ||||||||||
Construction | 193 | 53 | 72 | 138 | 16 | ||||||||||
Wholesale and retail trade | 233 | 169 | 113 | 206 | 54 | ||||||||||
Financial institutions (excluding banks) and insurance companies | 87 | 31 | 28 | 74 | 17 | ||||||||||
Banks | — | — | 7 | 11 | — | ||||||||||
Service providers | 440 | 486 | 234 | 327 | 103 | ||||||||||
Other | 21 | 21 | 53 | 117 | 16 | ||||||||||
Corporate total | 1,340 | 977 | 653 | 1,187 | 272 | ||||||||||
Private individuals (including self-employed professionals) | 1,156 | 404 | 590 | 348 | 211 | ||||||||||
German total | 2,496 | 1,381 | 1,243 | 1,535 | 483 | ||||||||||
Non-German: | |||||||||||||||
Corporate: | |||||||||||||||
Manufacturing, construction, wholesale and retail trade and service providers | 157 | 228 | 232 | 270 | 516 | ||||||||||
Financial institutions (excluding banks) and insurance companies | 28 | 46 | 9 | 12 | 23 | ||||||||||
Banks | 1 | 70 | 52 | 6 | 13 | ||||||||||
Other | 22 | 107 | 391 | 28 | 2 | ||||||||||
Corporate total | 208 | 451 | 684 | 316 | 554 | ||||||||||
Public authorities | — | 4 | 1 | — | — | ||||||||||
Private individuals (including self-employed professionals) | 22 | 14 | 43 | 38 | 49 | ||||||||||
Non-German total | 230 | 469 | 728 | 354 | 603 | ||||||||||
Total gross charge-offs | 2,726 | 1,850 | 1,971 | 1,889 | 1,086 | ||||||||||
Recoveries: | |||||||||||||||
German: | |||||||||||||||
Corporate: | |||||||||||||||
Manufacturing | — | 3 | 1 | — | 1 | ||||||||||
Wholesale and retail trade | — | 2 | — | — | — | ||||||||||
Service providers | 27 | 4 | 4 | — | — | ||||||||||
Other | — | 1 | — | 1 | — | ||||||||||
Corporate total | 27 | 10 | 5 | 1 | 1 | ||||||||||
Private individual (including self-employed professionals) | 61 | 34 | 24 | 28 | 25 | ||||||||||
German total | 88 | 44 | 29 | 29 | 26 | ||||||||||
Non-German: | |||||||||||||||
Corporate: | |||||||||||||||
Manufacturing, construction, wholesale and retail trade and service providers | 2 | 9 | 24 | 57 | 3 | ||||||||||
Financial institutions (excluding banks) and insurance companies | 1 | 1 | — | 1 | 7 | ||||||||||
Banks | — | 7 | — | — | 4 | ||||||||||
Other | 8 | 44 | 20 | 32 | 2 | ||||||||||
Corporate total | 11 | 61 | 44 | 90 | 16 | ||||||||||
Public authorities | — | 5 | — | — | — | ||||||||||
Private individuals (including self-employed professionals) | 4 | 5 | — | 56 | 6 | ||||||||||
Non-German total | 15 | 71 | 44 | 146 | 22 | ||||||||||
Total recoveries | 103 | 115 | 73 | 175 | 48 | ||||||||||
Net charge-offs(1) | 2,623 | 1,735 | 1,898 | 1,714 | 1,038 | ||||||||||
Additions to allowances charged to operations | (49 | ) | 272 | 979 | 1,902 | 1,901 | |||||||||
(Decreases)/Increases in allowances due to (dispositions)/acquisitions of Allianz Group companies and other increases/(decreases) | 122 | (106 | )(2) | (55 | ) | (1,085 | )(3) | 12 | |||||||
Foreign exchange translation adjustments | 37 | (42 | ) | (272 | ) | (175 | ) | 40 | |||||||
Total allowances for loan losses at end of the year(1) | 1,596 | 4,109 | 5,720 | 6,966 | 8,038 | ||||||||||
Ratio of net charge-offs during the year to average loans outstanding during the year | 1.79 | % | 1.23 | % | 1.22 | % | 0.93 | % | 0.46 | % |
When we determine that a loan is uncollectible, the loan is charged off against any existing specific loss allowance or directly recognized as expense in the income statement. Subsequent recoveries, if any, are recognized in the income statement as a credit to the net loan loss provisions. Since 2000, we have charged-off loans when, based on management’s judgment, all economically sensible means of recovery have been exhausted. Our determination considers information such as the age of specific loss allowances and expected proceeds from liquidation of collateral and other repayment sources. Prior to 2000, we charged-off loans only when all legal means of recovery had been exhausted, for example only after completion of bankruptcy proceedings. The change in practice has affected both the timing and amount of charge-offs in the years 2001 to 2003,as well as the level of our non-accrual loans in 2002 and 2003. See “—Risk Elements—Non-performing Loans.”
Deposits
The following table sets forth the average balances and the average interest rates on deposit categories in excess of ten percent of average total deposits of our banking operations. The allocation between German and non-German components is based on the location of the office that recorded the transaction.
Year Ended December 31, | |||||||||||||||
2005 | 2004 | 2003 | |||||||||||||
Average Balance | Average Rate | Average Balance | Average Rate | Average Balance | Average Rate | ||||||||||
€ mn | € mn | € mn | |||||||||||||
German: | |||||||||||||||
Non-interest-bearing demand deposits | 26,805 | 29,979 | 26,796 | ||||||||||||
Interest-bearing demand deposits | 36,274 | 2.7 | % | 21,004 | 4.1 | % | 34,578 | 3.7 | % | ||||||
Savings deposits | 4,768 | 2.5 | % | 4,732 | 2.7 | % | 4,720 | 2.7 | % | ||||||
Time deposits | 86,911 | 2.7 | % | 118,936 | 2.1 | % | 104,197 | 2.1 | % | ||||||
German total | 154,758 | 174,651 | 170,291 | ||||||||||||
Non-German: | |||||||||||||||
Non-interest-bearing demand deposits | 7,310 | 8,334 | 5,355 | ||||||||||||
Interest-bearing demand deposits | 11,769 | 5.0 | % | 7,927 | 4.5 | % | 11,254 | 3.9 | % | ||||||
Savings deposits | 513 | 2.1 | % | 594 | 1.9 | % | 751 | 2.5 | % | ||||||
Time deposits | 52,113 | 3.7 | % | 45,903 | 3.6 | % | 38,102 | 3.0 | % | ||||||
Non-German total | 71,705 | 62,758 | 55,462 | ||||||||||||
Total deposits | 226,463 | 237,409 | 225,753 | ||||||||||||
The aggregate amount of deposits by foreign depositors in our German offices was €48,675 million, €42,272 million and €54,894 million at December 31, 2005, 2004 and 2003 respectively.
Time Deposits
The following table sets forth the balance of time certificates of deposit and other time deposits in the amount of €100,000 or more issued by our German offices by time remaining to maturity at December 31, 2005.
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The amount of time deposits of €100,000 or more issued by our non-German offices was €38,423 million at December 31, 2005.
Short-term Borrowings
Short-term borrowings are borrowings with an original maturity of one year or less. Short-term borrowings are included within liabilities to customers, liabilities to banks and certificated liabilities.
Securities sold under agreements to repurchase and negotiable certificates of deposit are the only significant categories of short-term borrowings within our banking operations.
The following table sets forth certain information relating to the categories of our short-term borrowings.
Year Ended December 31, | |||||||||
2005 | 2004 | 2003 | |||||||
€ mn | € mn | € mn | |||||||
Securities sold under repurchase agreements(1): | |||||||||
Balance at the end of the year | 89,389 | 121,474 | 92,629 | ||||||
Monthly average balance outstanding during the year | 119,584 | 128,032 | 76,565 | ||||||
Maximum balance outstanding at any period end during the year | 148,231 | 157,576 | 92,629 | ||||||
Weighted average interest rate during the year | 3.9 | % | 2.4 | % | 3.1 | % | |||
Weighted average interest rate on balance at the end of the year | 2.4 | % | 1.9 | % | 2.1 | % | |||
Negotiable certificates of deposit: | |||||||||
Balance at the end of the year | 25,353 | 23,037 | 16,196 | ||||||
Monthly average balance outstanding during the year | 25,125 | 21,002 | 17,351 | ||||||
Maximum balance outstanding at any period end during the year | 27,289 | 23,155 | 25,384 | ||||||
Weighted average interest rate during the year | 1.9 | % | 1.9 | % | 2.4 | % | |||
Weighted average interest rate on balance at the end of the year | 3.0 | % | 2.5 | % | 2.1 | % |
General
Our insurance, banking and asset management businesses are subject to detailed, comprehensive regulation and supervision in all countries in which we do business. In addition, certain EU regulations, which are directly applicable in the EU member states and EU directives, that need to be implemented through local legislation, have had and will continue to have a significant impact on the regulation of the insurance, banking and asset management industries in EU member states. The following discussion addresses significant aspects of the regulatory schemes to which our businesses are subject.
Allianz AGSE
Allianz AGSE operates as a reinsurer and holding company for our insurance, banking and asset management operating entities. As such, Allianz AGSE is supervised and regulated by the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, or “BaFin”)BaFin). The BaFin monitors and enforces regulatory standards for banks, financial services institutions and insurance companiesby supervising their activities in the financial markets. The BaFin is also responsible for the supervision of the Allianz Group as a financial conglomerate.
Effective January 2005, reinsurance companies in Germany such as Allianz AGSE are subject to specific legal requirements regarding assets covering their technical reserves. These assets are required to be appropriately diversified to prevent a reinsurer from relying excessively on any particular asset. The introduction ofAlthough Allianz SE currently meets these requirements, anticipates the implementation of the EU Reinsurance Directive (2005/68/EC) which was adopted in November 2005. The implementation of the directive’s provisions that have not yet been implemented in Germany effective January 2006 is expected to occur by the end of 2006. Although Allianz AG expects to meet the new requirements once fully implemented, there can be no assurances as to the impact on Allianz AGSE of any future amendments to or changes in the interpretation of the laws and regulations regarding assets covering technical reserves of reinsurance companies, which could require Allianz AGSE to change the composition of its asset portfolio covering its technical reserves or take other appropriate measures.
Allianz AGSE is required to submit several annual and interim reports, including certain accounting documents, to the BaFin. The BaFin also reviews transactions between Allianz AGSE and its subsidiaries, including reinsurance relationships and cost sharing agreements.
Regulations for Financial Conglomerates
In December 2004, Germany adopted a law implementing the EU Financial Conglomerates Directive (2002/87/EC). The law provides for additional supervision of financial conglomerates in the following five areas: (i) assessment of capital requirements of financial conglomerates on a group level, (ii) supervision of risk concentration, (iii) supervision of intra-group transactions, (iv) assessment of the good repute and professional competence of the management of a financial conglomerate’s holding company and (v) establishment of appropriate internal controls to ensure compliance with the aforementioned components of supervision. The Allianz Group is a financial conglomerate with inwithin the scope of the directive and the related German law.
In the United States, the Gramm-Leach-Bliley Financial Modernization Act of 1999 (or “Gramm-Leach-Bliley Act”) substantially eliminated barriers separating the banking, insurance and securities industries in the United States. The law allows the formation of diversified financial services firms that can provide a broad array of financial products and services to their customers. In addition, the law permits insurers and other financial services companies to acquire banks. On June 30, 2004, Allianz AG acquired “financial holding company” status pursuant to the Gramm-Leach-Bliley Act.
Regulation by Sector
Financial services providers operating in the insurance, banking or asset management sectors are subject to supplementary supervision specific to their respective sectors. The regulatory framework is established by local law which is in part harmonized as a result of EU directives regulating specific areas.
Insurance
European Union
The EU has adopted a series of insurance directives on life insurance and direct insurance otherthanother than life insurance, which have resulted in significant deregulation of the EU insurance markets. Under the directives, the regulation of insurance companies, including insurance operations outside their respective home countries (whether direct or through branches), is the responsibility of the home country insurance regulatory authority. As a result of theThis home country control principle the EU insurance directives generally permitpermits an insurance company licensed in any jurisdiction of the EU to conduct insurance business, directly or through branches, in all other jurisdictions of the EU, without being subject to additional licensing requirements in these countries.
In EU member states, insurance contracts will beare subject to laws and regulations implementing the so-called anti-discrimination EU directives. In the insurance industry,According to a newly proposed directive, differences in premiums and benefits of polices willshall not be permitted unless they are based on relevant and accurate actuarial or statistical data. TheSuch requirement could have a relevant impact ofon the directives
whole industry. Consultations on Allianz Group companies in EU member states depends on how the directives will be implemented by member statesnew proposal are not yet finished and how courts will interpret the provisions. Consequently, at this stage,consequently, we cannot assess the potentialfinal impact of the directives.new directive on our business.
Germany
German insurance companies are subject to a comprehensive system of regulation under the German Insurance Supervision Act.Act (Versicherungsaufsichtsgesetz). The BaFin monitors and enforces compliance with German insurance laws, applicable accounting standards, technical administrative regulations, and investment and solvency provisions. Under the Insurance Supervision Act, German insurance companies are subject to detailed requirements with respect to the administration of their assets and liabilities. In general, the actuarial and claims reserves of each insurer must be adequate to allow the insurer to fulfill its contractual commitments to pay upon receipt of claims. To that end, insurers must maintain a certain solvency margin (own funds). This solvency margin is monitored by the BaFin, which has the authority to order the company to take certain action if it considers the available solvency margin inadequate to assure the company’s sound financial position.
On January 15, 2003, the EU Insurance Mediation Directive (2002/92/EC) became effective. The directive introduces obligations regarding information of the customers and the documentation of sales of insurance policies. Oncepolicies and was implemented in
Germany thein May 2007. The regulations may lead to higher costs of administration and may increase the risk of litigation concerning selling practices. The local implementation of this directive in Germany will start soon.
Furthermore, insurance companies that form part of an insurance group, as defined by the German law implementing the EU Financial ConglomeratesInsurance Groups Directive (1998/78/EC), are subject to regulatory requirements, including the following three components: (i) the supervision of intra-group transactions, (ii) the monitoring of solvency on a consolidated basis and (iii) the establishment of appropriate internal controls for providing the BaFin with information as part of its monitoring of the first two components.
In addition, in the healthlife and lifehealth sectors, German insurance companies are required to disclose to the BaFin the principles they use to set premium rates and establish actuarial provisions and are
required to appoint a chief actuary responsible for reviewing and ensuring the appropriateness of actuarial calculation methods. In addition, restrictions apply to the investment of German life and health insurance companies’ assets. The BaFin closely monitors the calculation of actuarial reserves and the allocation of assets covering actuarial reserves. German law also requires
As part of the health care reform of 2008, each private health insurer must from January 1st 2009 on, provide a new tariff that covers a basic medical treatment equal to the statutory health insurance (so called “basic tariff”). The access to this tariff must not be restricted by a medical risk assessment. The premiums may not exceed the premiums paid for the statutory health insurance. To meet these specifications the new basic tariff must be subsidized by the private health insurers. This has led to a rise in premiums for traditional private health insurance companies offer certain kinds of health insurance, including private compulsory long-term care insurance, to policyholders with substitutive health insurance.products.
Other European Countries
In other European jurisdictions where our insurance operations are located, insurance companies are subject to laws and regulations relating to, among other things, statutory accounting principles, asset management, the adequacy of actuarial and claims reserves, solvency margins, minimum capital requirements, internal governance and periodic reporting requirements. The compliance with these laws and regulations, which are in part based on EU directives providing a certain level of harmonization, is enforced by the relevant regulatory and supervisory authority in each jurisdiction in which we operate, including, among others, theAutorité de Contrôle des Assurances et des Mutuelles in France, the Institute for the Supervision of Private and Collective Interest Insurance in Italy, the Swiss Federal Office of Private Insurance in Switzerland and the Financial Services Authority in the UnitedKingdom. These regulators have supervisory as well as disciplinary authority over our insurance operations in these jurisdictions.
United States
Our insurance subsidiaries in the United States are subject to comprehensive and detailed regulation of their activities under U.S. state and federal laws.
In addition, U.S. property-casualty and life insurance companies are subject to insurance regulation and supervision in the individual states in which they
transact business. Supervisory agencies in each state have broad powers to grant or revoke licenses to transact business, regulate trade practices, license agents, approve insurance policy terms and certain premium rates, set standards of solvency and reserve requirements, determine the form and content of required financial reports, examineperform insurance companiescompany market conduct examinations and prescribe the type, concentration, and amount of investments permitted. Insurance companies are subject to a mandatory financial audit every three to five years by state regulatory authorities, depending on the state of domicile, and every year by independent auditors. In addition, state Attorneys General have broad authority to investigate business practices within their respective states and to initiate legal action as they deem appropriate.
Although the federal government generally does not directly regulate the insurance business, many federal laws affect the insurance business in a variety of ways, including the Federal Fair Credit Reporting Act relating to the privacy of information used in consumer reports, the “Do Not Call” laws and the USAU.S.A. PATRIOT Act of 2001 relating to, among other things, the establishment of anti-money laundering programs. In addition, our property-casualty operations are subject to the requirements of the Terrorism Risk Insurance Act of 2002 (commonly referred to as TRIA), which is administered by the U.S. Department of Treasury and provides for reinsurance from the U.S. government for major acts of terrorism.
Variable annuity insurance is subject to the jurisdiction of the U.S. Securities and Exchange Commission (SEC), including SEC requirements pertaining to registration and marketing of products. Variable annuity contracts are registered with the SEC as securities, and the issuing insurance companies are registered with the SEC as investment companies. Variable annuities are also subject to the jurisdiction of the Financial Industry Regulatory Authority (FINRA), a self-regulatory organization that is under oversight of the SEC. FINRA regulates the sales practices associated with variable annuities and is currently seeking comments on a variety of proposed new rules, which would impose specific sales practice standards and supervisory requirements on FINRA members for transactions in deferred variable annuities.
In December 2008, the SEC adopted Rule 151A, which will have the effect of causing most fixed index annuities (FIAs) to be categorized as “securities” subject to SEC jurisdiction, and also to be subject to the jurisdiction of FINRA. The Rule has been structured to become effective in January 2011. Several insurance companies issuing FIAs have filed a lawsuit challenging the validity of Rule 151A. As a result, there is not complete certainty as to whether, when, or in what form Rule 151A will finally become effective.
Federal and state regulators are investigating various selling practices in the annuity industry, including suitability reviews, product exchanges, and sales to seniors. Such investigations can lead to regulatory enforcement proceedings. Furthermore, Allianz Life is subject to ongoing market conduct examinations by several state insurance regulators that may lead to enforcement proceedings which could result in modifications to Allianz Life’s business processes, remediation, and/or penalties. State regulatory changes will likely continue to be focused around suitability and sales practices, but these proposals are still in the discussion stage and the potential impact on our operations, if any, is presently unknown.
There are a number of proposals for regulation whichthat may significantly affect the U.S. market, such as proposals relating to the establishment of an optional federal charter for insurance and reinsurance companies; proposals to create a systemic risk regulator that would bring insurance regulation under the supervision of either the Department of Treasury or the Federal Reserve, employee benefits regulations; changes to pension and retirement savings laws; asbestos litigation; class action litigations; taxation; disclosure requirements; establishment of a federal reinsurance mechanism for natural catastrophes, legislation allowing bankruptcy judges to recalculate the terms and condition of residential mortgages, and a proposal allowing the creationautomatic enrollment of private accounts withinemployees for Income Retirement Accounts for small employers. While we anticipate the Federal social security system. All offederal government to undertake significant regulatory reforms, the proposals related to these matters are very much in a preliminary stage and the impact upon our operations in the United States remains unknown. In addition, the impact of two other new federal laws, the Class Action Fairness Act of 2005 and the Pension Protection Act of 2006, upon our
PursuantU.S. operations will become clearer with time. However, positive results appear to industry-wide investigations, severalhave been realized as a result of our U.S. subsidiaries have received requests for information fromthe adoption of the Class Action Fairness Act of 2005. At the state insurance regulatory authoritieslevel, asbestos litigation reform efforts continue, while legislation and attorneys general relatingcourt decisions continue to contingent commissionsexpand property casualty tort liability and other industry practices. These activities have led to joint actions and inquiries by these governmental agencies, in the course of which carriers and intermediaries have entered into settlements that may signal a shift in the industry towards more transparency with respect to intermediary compensation. Our U.S. subsidiaries are cooperating fully in these inquiries.bad faith exposure.
Other Countries
Our insurance operations in countries other than those discussed above are also subject to detailed regulation and supervision by authorities in the relevant jurisdictions, including but not limited to such matters as corporate governance, solvency, minimum capital, policy forms and rates, reserving, investment and financial practices, andas well as marketing, distribution and sales activities.
Banking, Asset Management and otherOther Investment Services
European Union
The supervision of banking, asset management and other investment services in the EU member states is primarily the exclusive responsibility of national authorities within the individual member states. However, the rules governing the regulation and supervision of these financial services have been harmonized by a number of EU directives, which have been or will be implemented in the member states. These directives mostly focusMost importantly, the national implementation of the EU Markets in Financial Instruments Directive (2004/39/EC) (MiFID) increased the level of harmonization for the operational structures and code of conduct rules for European investment firms. The EU Capital Requirements Directive (2006/48/EC and 2006/49/EC) primarily focuses on establishing harmonized minimum capital requirements for financial institutions and the freedomEU Undertakings for Collective Investments in Securities Directive (1985/611/EEC), as amended from time to provide services within the member states on the basis of harmonized minimum requirementstime, provides a European standard for the organization and conduct of business.core asset management product in Europe. As a result of this harmonization, banking, asset management or investment service licenses granted in one EU member state are to be recognized in all other member states. Further, the directive on payment services in the internal market (2007/64/EC) represents the legal framework for the realization of the Single Euro Payments Area (SEPA).
Under the EU MarketsMiFID, investment firms can operate branches in Financial Instruments Directive (2004/39/EC),all EU member states have toensureand also engage in cross-border services based on their existing home country license. For cross-border business without local presence, the MiFID introduces the relevance of home country code of conduct rules only. Moreover, EU member states must ensure that financial institutions that are members of a securities exchange in one member state are eligible for admission to trading on the exchanges of all other member states. Another field of harmonization is the offering and the trading of securities. The EU Prospectus Directive (2003/71/EC), which came into force on December 31, 2003, provides for harmonized rules with respect to the contents and filing of prospectuses for publicly traded securities. In addition, the EU Transparency Directive (2004/109/EC) harmonizes the rules for disclosure of financial and other information that publicly traded companies have to provide. The EU Market Abuse Directive (2003/6/EC) sets forth certain rules against market manipulation and insider dealing. The EU Anti Money Laundering Directive (2005/60/EC) introduces new rules on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing to be implemented by the EU member states. There are also EU directives harmonizing rules governing investment fund management and investor protection.
There are currently various proposals for regulatory reforms and initiatives, in particular regarding the EU Capital Requirements Directive, the Deposit Guarantee Scheme, credit rating agencies and hedge funds. It is difficult to predict at this time whether changes resulting from new regulations in these areas will affect the asset management industry, our investment management businesses, or our banking businesses, and, if so, to what degree.
Germany
Our banking and other financial services activities in Germany are extensively supervised and regulated by the BaFin and the German Central Bank (Deutsche Bundesbank or, “Bundesbank”) in accordance with the German Banking Act (Kreditwesengesetz). The BaFin monitors compliance with, among other things, capital adequacy and liquidity requirements, leadinglending limits, restrictions on certain activities imposed by the German Banking Act and coverage by adequate capital of market risk and counterparty risk associated with securities and foreign exchange transactions of banks. The BaFin
has the authority to request information and documentation on business matters from the banks and requires banks to file periodic reports. If the BaFin discovers irregularities, it has a wide range of enforcement powers.
With respect to capital adequacy requirements under German banking regulation, each bank’s ratio of Liable Capital to risk-weighted assets and certain off-balance sheet items must be at least 8% at the end of each business day in order to cover credit risks. This ratio is known as the Solvency Ratio. Capital adequacy rules must also be met on a consolidated basis by entire banking groups.
In June 2004, the Basle Committee released the “Revised Framework” (“Basle II”) to replace the 1988 capital accord with a new capital accord. The
two principal objectives of Basle II for measuring risk are (i) to align capital requirements more closely with the underlying risks; and (ii) to introduce a capital charge for operational risk (comprising,(including, among other things, risks related to certain external factors, as well as to technical errors and errors of employees). Basle II is to be implemented by the creditCredit institutions in the various countries whichthat participate in the Basle Committee bybegan implementing Basle II in the beginning of 2007 at2007. In Germany, the earliest.Solvability Regulation (Solvabilitätsverordnung) implemented Basle II and included the new capital requirements. A bank must report its large credits to the Bundesbank and must notify the BaFin and the Bundesbank if it exceeds certain ceilings. Credits exceeding these ceilings may only be granted with the approval of the BaFin, and the amount exceeding these ceilings must be covered by capital of the bank.
In accordance with the German Deposit Guarantee Act (Einlagensicherungs- und Anlegerentschädigungsgesetz), the Bundesverband deutscher Banken, the association of the German private sector commercial banks, established a company known as the Compensation Institution (Ent-schäEntschädigungseinrichtung deutscher Banken GmbH) to carry out and ensure the deposit guarantee scheme of the German private sector commercial banks. The Deposit Guarantee Act provides certain guarantees for depositors and for claims resulting from securities transactions by customers. In addition, the banking industry has voluntarily set up various protection funds for the protection of depositors such as theEinlagensicherungsfonds,, a deposit protection association with a fund which covers most liabilities to the majority of creditors up to a certain amount, as describesdescribed by the funds articlesfund’s Articles of association.Association.
Other European Countries
In other European countries, our banking, asset management and other investment services
operations are subject to laws and regulations relating to, among other things, listed financial instruments, capital adequacy requirements, shareholdings in other companies, rules of conduct and limitation of risk. Our operations are also subject to ongoing disclosure obligations and may be subject to regulatory audits.
United States
Allianz Investment Company, LLC.,Global Investors Fund Management LLC, Allianz Global Investors of America L.P.,Solutions LLC, Allianz Global Investors Management Partners LLC, Allianz Global Investors Managed Accounts LLC, Allianz Alternative Asset Management U.S. LLC, Pacific Investment Management Company LLC, Oppenheimer Capital LLC, NFJ Investment Group LLC, Nicholas-Applegate Capital Management LLC, RCM Capital Management LLC and other financial services subsidiaries of Allianz AGSE in the United States are registered as investment advisers under the Investment Advisers Act of 1940. Many of the investments managed by these financial services subsidiaries, including a variety of mutual funds and other pooled investment vehicles, are registered with the SEC under the Investment Company Act of 1940. The investment advisory activities of these financial services subsidiaries are subject to various U.S. federal and state laws and regulations. These laws and regulations relate to, among other things, limitations on the ability of investment advisers to charge performance-based or non-refundable fees to clients, requirements to adopt Codes of Ethics governing personal securities transactions and other activities of employees, custody and safekeeping of clients assets, record-keeping and reporting requirements, disclosure requirements, limitations on principal transactions between an adviser or its affiliates and advisory clients, as well as general anti-fraud provisions.
Federal and state regulators have focusedcontinue to focus on the mutual fund and variable insurance product industries. As a result of publicity relating to widespread perceptions of industry abuses and the “subprime” crisis in 2007 and 2008, there have been numerous proposals for legislative and regulatory reforms, including, without limitation, mutual fund governance, new disclosure requirements, concerning mutual fund share classes, compensation arrangements, commission breakpoints, revenue sharing, advisory fees, market timing, late trading, portfolio pricing, annuity products, hedge funds, regulation and distribution of equity index products, and other
issues. It is difficult to predict at this time whether changes resulting from new laws and regulations will affect the industriesU.S. asset management industry, or our investment management businesses, and, if so, to what degree.
Some U.S. financial serviceservices subsidiaries of Allianz AGSE are also registered with the SEC as broker-dealers under the Securities Exchange Act of 1934 and are subject to extensive regulation. In addition, some of these subsidiaries are members of, and subject to regulation by, self-regulatory organizations such as the National Association of Securities Dealers and, in the case of Dresdner Kleinwort Wasserstein Securities LLC, also the New York Stock Exchange.FINRA. The scope of broker-dealer regulation covers matters such as capital requirements, the use and safekeeping of customers’ funds and securities, advertising and other communications with the public, sales practices, record-keeping and reporting requirements, supervisory and
organizational procedures intended to assure compliance with securities laws and rules of the self- regulatoryself-regulatory organizations and to prevent improper trading on material non-public information, employee-related matters, limitations on extensions of credit in securities transactions, and clearance and settlement procedures.
Dresdner Bank provides commercial banking services in the Unites States through its New York and Grand Cayman Branches. Dresdner Bank’s U.S. banking activities are accordingly subject to regulation, supervision and examination by the Federal Reserve Board under the U.S. Bank Holding Company Act of 1956, as amended (or “BHCA”), and the International Banking Act of 1978, as amended (or “IBA”). The New York branch of Dresdner Bank is licensed, supervised and examined by the New York State Banking Department and is also supervised and examined by the Federal Reserve Bank of New York.
The Gramm-Leach-Bliley Act substantially eliminated barriers separating the banking, insurance and securities industries in the United States. According to this law, a bank holding company that has effectively elected to become a financial holding company under the applicable regulation may conduct business activities either directly or through it subsidiaries that were previously prohibited for bank holding companies. Dresdner Bank became a financial holding company under the Gramm-Leach-Bliley Act in 2000. To qualify as a financial holding company, a bank is required to meet the criteria of being well-managed and well-capitalized. See “Operating and Financial Review and Prospects—Liquidity and Capital Resources—Capital Resources.” As a result of its ownership of Dresdner Bank, Allianz AGSE is also subject to the supervision of the Federal Reserve Board under the BHCA and the IBA and since June 30, 2004, Allianz SE has elected to be treated asthe status of a financial holding company. Allianz AG’s status as a financial holding company became effective on June 30, 2004.
Other Countries
Our financial services businesses in countries other than those discussed above are also subject to detailed regulation and supervision by authorities in the relevant jurisdictions, including, but not limited to such matters as corporate governance, anti-corruption, capital adequacy, investment advisory and securities tradingactivities,trading activities, and mutual fund management and distribution activities.
ITEM 4A. Unresolved Staff CommentsMeasures to Stabilize Financial Markets
None.In reaction to the crisis in the global financial markets, many countries have introduced rescue schemes for the financial sector. These schemes may include the granting of subsidies in form of guarantees facilitating the refinancing of the respective business, the infusion of liquidity (in form of voting or non-voting equity interests, senior or subordinated loans) or the acquisition of so-called “toxic” assets. Companies participating in these
schemes are typically subject to various restrictions, e.g. with respect to dividend payments and executive remuneration. Details vary from country to country.
ITEM 5. Operating and Financial Review and ProspectsAlthough no member of Allianz Group has applied for such subsidies, there may be an impact on Allianz’ business results, e.g. as a result of depreciation in the value of instruments issued by companies participating in rescue programs. Limitation on their ability to pay dividends may reduce the return of those Allianz portfolios which invested into such companies. Further, certain jurisdictions, such as the United Kingdom have recently introduced draft legislation pursuant to which the terms of certain capital market instruments may be amended (Banking Bill 2009). National legislation may also provide for the nationalization of financial services providers.
ITEM 4A. | Unresolved Staff Comments |
None
ITEM 5. | Operating and Financial Review and Prospects |
You should read the following discussion in conjunction with our consolidated financial statements including the notes thereto. We prepare ourThe consolidated financial statements of the Allianz Group have been prepared in conformity with International Financial Reporting Standards (IFRS), as adopted under European Union (EU) regulations in accordance with section 315a of the German Commercial Code (HGB). The consolidated financial statements of the Allianz Group have also been prepared in accordance with IFRS which differas issued by the International Accounting Standard Board (IASB). The Allianz Group’s application of IFRSs results in certain significant respects from U.S. GAAP. For a description of the significantno differences between IFRS as adopted by the EU and U.S. GAAP and a reconciliation of net income and shareholders’ equity under IFRS to U.S. GAAP, you should read Note 47 toas issued by the consolidated financial statements. Unless otherwise indicated, the financial information we have included in this annual report is presented on a consolidated basis under IFRS.IASB. Unless otherwise indicated, we have obtained data regarding the relative size of various national insurance markets from annual reports prepared by SIGMA, an independent organization which publishes market research data on the insurance industry. In addition, unless otherwise indicated, insurance market share data are based on gross premiums written and statutory premiums for our Property-Casualty and Life/Health segments, respectively. Data on position and market share within particular countries are based on various third partythird-party and/or internal sources as indicated herein.
Critical Accounting Policies and Estimates
Principles of consolidation
The consolidated financial statements of the Allianz Group include those of Allianz AG, its subsidiaries and certain investment funds and special purpose entities (“SPEs”). Subsidiaries, investment funds and SPEs, hereafter “subsidiaries”, which are directly or indirectly controlled by the Allianz Group are consolidated. Subsidiaries are consolidated from the date control is obtained by the Allianz Group. Subsidiaries are consolidated until the date that the Allianz Group no longer maintains control. The Allianz Group has used interim financial statements for certain subsidiaries whose fiscal year is other than
December 31, but not exceeding a lag of three months. The effects of intra-Allianz Group transactions have been eliminated.
A business combination occurs when the Allianz Group obtains control over a business. Business combinations are accounted for by applying the purchase method. The purchase method requires that the Allianz Group allocate the cost of a business combination on the date of acquisition by recognizing the acquiree’s identifiable assets, liabilities and certain contingent liabilities at their fair values. The cost of a business combination represents the fair value of the consideration given and any costs directly attributable to the business combination. If the acquisition cost of the business combination exceeds the Allianz Group’s proportionate share of the fair value of the net assets of the acquiree, the difference is recorded as goodwill. Any minority interest is recorded at the minority’s proportion of the fair value of the net assets of the acquiree.
For business combinations with an agreement date before March 31, 2004, minority interests are recorded at the minority’s proportion of the pre-aquisition carrying amounts of the identifiable assets and liabilities.
Acquisitions and disposals of minority interests are treated as transactions between equity holders. Therefore, any difference between the acquisition cost of the minority interest and the carrying amount of the minority interest is recognized as an increase or decrease in equity.
Intangible assetsGoodwill
Goodwill resulting from business combinations represents the difference between the acquisition cost of the business combination and the Allianz Group’s proportionate share of the net fair value of identifiable assets, liabilities and certain contingent liabilities. Goodwill resulting from business combinations is not subject to amortizationamortization. It is initially recorded at cost and is recordedsubsequently measured at cost less accumulated impairments. For impairment testing purposes, goodwill is allocated to the cash generating units that are expected to benefit from the synergies of the business combination as of the acquisition date. Significant judgment is involved in this estimate, and the actual resulting synergies of the business combination may not reflect the original estimate. During 2008, the Allianz Group has allocated goodwill to nine cash generating units in the Property-Casualty segment, six cash generating units in the Life/Health segment, one cash generating unit in the Banking segment, one cash generating unit in the Asset Management segment and one cash generating unit in the Corporate segment.
The Allianz Group conducts an annual impairment test of goodwill on October 1, in addition to wheneveror more frequently if there is an indication that goodwill is not recoverable. The impairment test includes comparing the recoverable amount to the carrying amount, including goodwill, forof all relevant cash generating units. AcashA cash generating unit is not impaired if the recoverable amount is greater than the carrying amount. A cash generating unit is impaired if the carrying amount is greater than the recoverable amount. Judgment is involved in applying valuation techniques when estimating the recoverable amount. The impairmentrecoverable amounts of a cash generating unit is equal to the difference between the carrying amount and recoverable amount and is allocated to reduce any goodwill, followed by allocation to the carrying amount of any remaining assets. Impairments of goodwillunits generally are not reversed. Gains or losses realizeddetermined on the disposalbasis of subsidiaries include any related goodwill.value in use calculations.
PresentThe Allianz Group utilizes the capitalized earnings method to derive the value of future profits (“PVFP”) is the present value of netin use for all cash flows anticipatedgenerating units in the future from insurance and investment contracts in force at the date of acquisition and is amortized over the life of the related contracts. PVFP was determined using discount rates ranging from 12% to 15%. Interest accrues on the PVFP balance based upon the policy liability rate or contract rate. Interest accrues on PVFP at rates between 3.5% and 8.5%.
Software includes software purchased from third parties or developed internally, which are amortized on a straight-line basis over their useful service lives or contractual terms, generally over 3 to 5 years. Costs for repairs and maintenance are expensed, while improvements, if they extend the useful life of the asset, are capitalized. For the Allianz Group’s Property-Casualty, and Life/Health segments amortization of software is allocated amongst several line items according to cost allocation. Amortization of software related to the Allianz Group’s Banking and Asset Management segments, as well as for the Germany Health and Private Equity cash generating units. Generally, the basis for the determination of the capitalized earnings value is the business plan (“detailed planning period”) as well as the estimate of the sustainable returns which can be assumed to be realistic on a long term basis (“terminal value”) of the companies included in administrative expenses.the
cash generating units. The capitalized earnings value is calculated by discounting the future earnings using an appropriate discount rate.
The brand names “Dresdner Bank”business plans applied in the value in use comprise a planning horizon of three years. The terminal values are largely based on the expected profits of the final year of the detailed planning period. Where necessary, the planned profits are adjusted so that long term sustainable earnings are reflected. The financing of the assumed growth in the terminal values is accounted for by appropriate profit retention.
The discount rate is based on the capital asset pricing model and “dit��� (Deutscher Investment-Trust) haveappropriate eternal growth rates. The assumptions, including the risk free interest rate, market risk premium, segment beta and leverage ratio, used to calculate the discount rates are consistent with the parameters used in the Allianz Group’s planning and controlling process.
For all cash generating units in the Life/Health segment, with the exception of U.S. the fair value is based on an indefinite life; therefore,Appraisal Value which is derived from the Market Consistent Embedded Value and a multiple of the Market Consistent Value of New Business to reflect the companies ability to continue to write new business. The Market Consistent Embedded Value is an industry-specific valuation method and is in compliance with the general principles of the discounted earnings methods. The Market Consistent Embedded Value approach utilized is based on the Allianz Group’s Market Consistent Embedded Value guidelines.
The value in use calculations are sensitive to the assumptions used in selecting the appropriate discount rates, as well as the key value drivers of the business plans. For example, the capitalized earnings values of Property-Casualty cash generating units depend on the application of long term sustainable combined ratios, and Banking and Asset Management cash generating units are sensitive to changes in assumptions regarding cost income ratios. Moreover, a severe or prolonged period of global or regional economic weakness could adversely affect our business plans and result in the need for the impairment of goodwill at one or more cash generating units. Should an impairment occur, the resulting impairment loss could be material to the Allianz Group’s results of operations.
During 2008, the Allianz Group’s annual impairment tests did not subjectindicate a need to amortizationreduce the carrying value of goodwill. Sensitivity analyses with regards to discount rates and / or key value drivers of the business plans were performed.
Fair Value of Financial Instruments
The Allianz Group holds a number of financial instruments that are recordedrequired to be measured at cost less accumulated impairments. fair value under IFRS. These include trading assets and liabilities, financial assets and liabilities designated as carried at fair value through income, available-for-sale debt and equity securities, derivative instruments, financial assets and liabilities for unit-linked contracts and financial liabilities for puttable equity instruments. For most of these financial instruments, changes in fair value are included in net income. For others, such as available-for-sale investments and certain derivatives under hedge accounting rules, the changes in fair value are included in equity.
The fair values of financial instruments that are traded in active markets are based on quoted market prices or dealer price quotations on the last exchange trading day prior to and including the balance sheet date. The quoted market price used for a financial asset held by the brand names, registered as trade names, were determined using a royalty savings approach.Group is the current bid price; the quoted market price used for financial liabilities is the current ask price.
Similar to goodwill, an intangible asset is subject to an annual impairment test, in addition to whenever there is an indication that it is not recoverable. The impairment test includes comparing the recoverable amount to the carrying amount. An intangible asset is not impaired if the recoverable amount is greater than the carrying amount. An intangible asset is impaired if the carrying amount is
greater than the recoverable amount. The impairmentfair values of an intangible asset is equal to the difference between the carrying amount and recoverable amount. Impairments of intangible assets are not reversed.
Available-for-sale Investments
Securities available-for-sale are securitiesfinancial instruments that are not classifiedtraded in an active market are determined by
using valuation techniques. Valuation techniques are used which are based on market observable inputs when available. Such market inputs include references to recently quoted prices for identical instruments from an active market, quoted prices for identical instruments from an inactive market, quoted prices for similar instruments from active markets, quoted prices for similar instruments from inactive markets. Market observable inputs also include interest rate yield curves, option volatilities and foreign currency exchange rates. Where observable market prices are not available, fair value is based on appropriate valuation techniques using non-market observable inputs. 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. Depending on the method used, different adjustments may be required for market, liquidity, credit or other risks in order to estimate the price at which an orderly transaction would take place between market participants at the measurement date.
The fair value of a financial instrument is determined using quoted prices for an identical instrument in active markets (Level I). If quoted prices for an identical instrument in active markets are not available, the fair value is determined using valuation-techniques based on observable market data (Level II). Otherwise valuation-techniques are used, for which any significant input is not based on observable market data (Level III).
The following table presents the fair value hierarchy for financial instruments carried at fair value in the consolidated balance sheet as held-to-maturity, loansof December 31, 2008.
As of December 31, | 2008 | 2007 | ||||||||
Level I Quoted prices in active markets | Level II Valuation technique- market observable inputs | Level III Valuation technique- non market observable inputs | Total fair value | Total fair value(1) | ||||||
€ mn | € mn | € mn | € mn | € mn | ||||||
Financial assets | ||||||||||
Financial assets held for trading | 1,020 | 1,550 | 54 | 2,624 | 163,541 | |||||
Financial assets designated at fair value through income | 7,295 | 4,129 | 192 | 11,616 | 21,920 | |||||
Available-for-sale investments | 190,820 | 46,710 | 4,569 | 242,099 | 268,001 | |||||
Financial assets for unit-linked contracts | 47,171 | 3,279 | — | 50,450 | 66,060 | |||||
Derivative financial instruments used for hedging that meet the criteria for hedge accounting and firm commitments | 365 | 736 | — | 1,101 | 344 | |||||
Total financial assets | 246,671 | 56,404 | 4,815 | 307,890 | 519,866 | |||||
Financial liabilities | ||||||||||
Financial liabilities held for trading | 63 | 1,018 | 5,163 | 6,244 | 124,083 | |||||
Financial liabilities designated at fair value through income | — | — | — | — | 1,970 | |||||
Investment contracts with policyholders(2) | 35,117 | 1,037 | 174 | 36,328 | 35,841 | |||||
Financial liabilities for unit-linked contracts | 47,171 | 3,279 | — | 50,450 | 66,060 | |||||
Derivative financial instruments used for hedging that meet the criteria for hedge accounting and firm commitments | 19 | 189 | — | 208 | 2,210 | |||||
Financial liabilities for puttable equity instruments | 2,718 | — | — | 2,718 | 4,162 | |||||
Total financial liabilities | 85,088 | 5,523 | 5,337 | 95,948 | 234,326 | |||||
(1) | Includes as of December 31, 2007 financial assets with a fair value of €201.8 bn and financial liabilities with a fair value of €140.6 bn related to the disposal group Dresdner Bank. |
(2) | Excludes Universal Life-Type contracts under US GAAP SFAS 97. |
For the vast majority of Allianz Group’s financial instruments carried at fair value in the consolidated balance sheet as of December 31, 2008, the fair value is determined using quoted prices in active markets for the identical instrument (Level I).
Available-for-sale investments assigned to Level II included corporate bonds of €23 bn and advances to banks or customers,ABS-related instruments of €16 bn as of December 31, 2008 for which valuation techniques with observable market inputs are used.
The fair value of certain financial assets held for trading, orinstruments is determined using valuation techniques with non market observable input parameters (Level III). Within financial assets designated at fair value through income. Securitiesincome these instruments comprise
investments in private equity of €184 mn. Within available-for-sale investments these instruments relate to investments in private equity of €2.1 bn, investments in corporate bonds of €1.7 bn and corporate asset-backed-securities of €133 mn. Financial liabilities held for trading include €5.2 bn of embedded derivative financial instruments relating to annuity products.
Due to the sale of Dresdner Bank to Commerzbank on January 12, 2009 the table above does not include certain CDOs that Allianz Group has repurchased from Dresdner Bank after the completion of the sale to Commerzbank. The amount of these assets as of December 31, 2008 was €1.1 bn and is presented in non-current assets and assets from disposal groups classified as held for sale.
Due to the worldwide financial market crisis, some markets faced a significant shortage of liquidity, which affected the valuation techniques used by the Allianz Group to measure fair value. For certain financial instruments, the market has been completely illiquid and market prices were no longer available. In addition, the market prices of certain ABS-based products declined significantly.
For ABS-based products, the availability of price quotations from a functioning market was limited during 2008 and as of December 31, 2008. Therefore, the valuation of these financial instruments is mainly based on quoted market prices or current market values of substantially the same financial instruments. The market values used were taken from other market participants that management believes are representative of the market. In all other cases, Allianz used model-based valuation techniques. Regardless of the valuation technique used, such techniques reflect current market conditions and appropriate risk adjustments that management believes market participants would make. For more information on Allianz Group’s ABS exposure, please refer to “—Executive Summary—Impact of the Financial Markets Turbulence—Asset-backed securities exposure”.
The Allianz Group currently cannot provide a sensitivity analysis of the assumptions used in the fair value measurement of financial instruments. To the extent that financial instruments for which fair market values are determined using valuation techniques that are not based on observable market data are considered significant to Allianz’s consolidated financial statements in the future, Allianz intends to provide such a sensitivity analysis in future annual reports on Form 20-F to the extent applicable.
Impairments of Investments
Investments include held-to-maturity investments, available-for-sale debt and equity investments, investments in associates and joint ventures, and real estate held for investment.
Held-to-maturity securities are recorded at amortized cost using the effective interest method over the life of the security, less any impairment losses (“incurred loss model”). Available-for-sale securities are recorded at fair value. Unrealized gainsvalue, and losses, which are the difference betweenchanges in fair value and cost or amortized cost, are included asrecorded within a separate component of shareholders’ equity, net of deferred taxes andequity; impairment losses are recorded in the latent reserve for premium refunds to the extent that policyholders will participate in such gains and losses on the basis of statutory or contractual regulations when they are realized. Realized gains and losses on securities are generally determined by applying the average cost method at the subsidiary level.income statement.
A held-to-maturity or available-for-sale debt security is impaired if there is objective evidence that a loss event has occurred, which has impaired the cost may not be recovered. Ifexpected cash flows, i.e. all amounts due according to the contractual terms of the security are not considered collectible, typicallycollectible. Typically the impairment is due to deterioration in the creditworthiness of the issuer. Factors considered include industry risk factors, financial condition, liquidity position and near-term prospects of the issuer, credit rating declines from a recognized credit rating agency and a breach of contract. A decline in fair value below amortized cost due to changes in risk free interest rates does not necessarily represent objective evidence of a loss event. Allianz Group’s policy considers for available-for-sale debt investments a significant decline to be one in which the securityfair value is 20% below the amortized cost for more than six months. This is applied individually by all subsidiaries.
An available-for-sale equity investment is considered to be impaired. An impairment is not recorded as a result of declines in fair value resulting from general market interest or exchange rate movements unless the Allianz Group intends to dispose of the security.
Ifimpaired if there is objective evidence that the cost may not be recovered, an available-for-sale equity security is considered to be impaired.recovered. Objective evidence that the cost may not be recovered, in addition to qualitative impairment criteria, includes a significant or prolonged decline in the fair value below cost. The Allianz Group establishedGroup’s policy considers a policy that an available-for-sale equity security is considered impaired ifsignificant decline to be one in which the fair value is below the weighted-average cost by more than 20% or if theand a prolonged decline to be one in which fair value is below the weighted-average cost for greater than nine months, to define the significant criteria and the prolonged criteria, respectively.months. This policy is applied individually by all subsidiaries.
If an available-for-sale equity securityinvestment is impaired based upon the Allianz Group’s qualitativeorqualitative or quantitative impairment criteria, any further declines in the fair value at subsequent reporting dates are recognized as impairments. Therefore, at each reporting period, for an equity security that is determined to be impaired based upon the Allianz Group’s impairment criteria, an impairment is recognized for the difference between the fair value and the original cost basis, less any previously recognized impairments.
In a subsequent period, if the amount of the impairment previously recorded on a debt security decreasesdecrease and the decrease can be objectively related to an event occurring after the impairment, such as an improvement in the debtor’s credit rating, the impairment is reversed through other income from
investments. These reversals do not result in a carrying amount of a debt security that exceeds what would have been, had the impairment not been recorded, at the date of the impairment is reversed. Reversals of impairments of available-for-sale equity securities are not recorded.
Available-for-sale equity securitiesThere are several risks and uncertainties related to the monitoring of investments to determine whether an impairment exists. These risks include investments in limited partnerships. Thethe risk that the Allianz Group recordsidentifies loss events in a timely manner, that Allianz’s assessment of an issuer’s ability to meet its contractual obligation will change based on the issuer’s credit worthiness, and that the issuer’s economic outlook will be worse than expected.
Total unrealized losses on available-for-sale debt investments in limited partnerships at cost, where the ownership interest is less than 20%,and held-to-maturity investments were €9,898 million and €4,264 million as the limited partnerships do no have a quoted market priceof December 31, 2008 and fair value cannot be reliably measured. The Allianz Group accounts for its investment in limited partnerships with ownership interests2007, respectively. Total unrealized losses on available-for-sale equity investments were €851 million and €467 million as of 20% or greater using the equity method.December 31, 2008 and 2007, respectively.
LoansImpairments on investments in associates and advancesjoint ventures amounted to banks€72 million and customers
Loans€2 million as of 31 December, 2008 and advances to banks and customers are financial assets with fixed and determinable payments, not quoted in an active market, that are not classified as securities available-for-sale or held-to-maturity, financial assets2007, respectively. Impairments on real estate held for trading, or financial assets designated at fair value through income. Loansinvestment, amounted to banks€128 million and customers are recorded at amortized cost, or generally their outstanding unpaid principal balance, net€23 million as of the loan loss allowance, deferred fees31 December, 2008 and costs on origination, and unamortized premiums or discounts. Interest income is accrued on the unpaid principal balance, net of charge-offs. Using the effective interest method, net deferred fees and premiums or discounts are recorded as an adjustment of interest income yield over the lives of the related loans.
Loans are placed on non-accrual status when the payment of principal or interest is doubtful based on the credit assessment of the borrower. Non-accrual loans consist of loans on which interest income is no longer recognized on an accrued basis, and loans for which a specific provision is recorded for the entire amount of accrued interest receivable. When a loan is placed on non-accrual status, any accrued interest receivable is reversed against interest and similar income. Loans can only be restored to accrual status when interest and principal payments are made current (in accordance with the contractual terms), and future payments in accordance with those terms are reasonably assured. When there is a doubt regarding the ultimate collectibility of the principal of a loan placed in non-accrual status, all cash receipts are applied as reductions of principal. Once the recorded principal amount of the loan is reduced to zero, future cash receipts are recognized as interest income.2007, respectively.(1)
Loan impairmentsImpairments and provisionsProvisions
Impaired loans represent loans for which, based upon current information and events, it is probable that the Allianz Group will not be able to collect all interest and principal amounts due in accordance with the contractual terms of the loan agreements.
The loan loss allowance represents themanagement’s estimate of probable losses that have occurred infrom impaired loans within the loan portfolio and other lending-relatedlending related commitments. The loan loss allowance is reported in the Allianz Group balance sheet as a reduction of loans“Loans and advances to banks and customerscustomers”, and the provisions for contingent liabilities such as guarantees, loan commitments and other obligations are reported as other liabilities.
To determine the appropriate level of“Other liabilities”. Changes in the loan loss allowance all significant counterparty relationships are periodically reviewed. reported in the Allianz Group income statement under the caption “Loan loss provisions”.
A specificloan is considered to be impaired when there is objective evidence of impairment as a result of one or more loss events that occurred after the initial recognition of the loan, and that loss event has an impact on the estimated future cash flows of the loan that can be reasonably estimated (“incurred loss
(1) | These expenses are excluding the discontinued operations of Dresdner Bank that have been reclassified and presented in a separate line item “Net income (loss) from discontinued operations, net of income taxes and minority interests in earnings”. |
model”). If there is objective evidence that a loan is impaired, a loan loss allowance is established to provide for specifically identified counterparty risks. Specific allowances are established for impaired loans. Therecognized as the difference between the loan’s carrying amount of the impairment is based onand the present value of expected future cash flows, or based onwhich includes all contractual interest and principal payments, discounted at the fair value of the collateral if the loan is collateralizedloan’s original effective interest rate and foreclosure is probable. If the amount of thea corresponding impairment subsequently increases or decreases due to an event occurring after the initial measurement of impairment, a change in the allowancecharge is recognized in earningsthe income statement.
Deferred Policy Acquisition Costs
DAC and PVFP amortization schedules are determined on a decentralized basis by our local operating entities. The assumptions used (e.g., investment yields, lapses, expenses and demographics) vary not only by geographical market and operating entity but also by line of business and sometimes even generation of business.
With respect to our major life business units, which comprise approximately 95% of reserves, DAC and PVFP, a central control process has been established at the Allianz Group-level in order to ensure that assumptions and calculations used to determine DAC and PVFP are reasonable, and to monitor potential loss recognition issues.
One method used to monitor trends and sensitivities to changes in assumptions is to compare the recoverability ratio over time using different levels of inputs. The recoverability ratio provides information regarding the percentage of future profits from the current portfolio that is needed to support the amortization of policy acquisition costs previously capitalized. The recoverability ratio is defined as DAC and PVFP, net of unearned revenue liabilities, divided by a chargebest estimate of present value of future profits. Using best estimate operating assumptions, the recoverability ratio for the Allianz Group amounted to 51.5% as of December 31, 2007 and increased to 88.8% as of December 31, 2008 driven by the crisis in the financial markets, especially in the United States. Please note that these ratios are derived using risk-free interest rates; the corresponding figures with best estimate interest rates used in accordance with Allianz Group’s current accounting policy for insurance contracts, which is U.S. GAAP, are 48.4% as of December 31, 2007 and 51.4% as of December 31, 2008. As the recoverability ratio approaches 100%, it indicates that there is an increased risk of loss. A recoverability ratio of 100% or greater would result in a creditcharge to the loan loss provisions.Allianz Group’s net income, as the deferred acquisition costs would not be recoverable.
A country risk allowanceThe recoverability ratio is established for transfer risk. Transfer risk is a measure of the likely ability of a borrower in a countrymost sensitive to repay its foreign currency-denominated debt in light of the economic or political situation prevailingchanges in the country. Country risk allowances are basedinvestment yield, which is the rate of return earned on a country risk rating system that incorporates currentthe investment of net cash inflows. The investment yield is generally estimated in determining the recoverability of DAC and historical economic, political and other data to categorize countriesPVFP by risk profile.
A particular allowance is established for all loans with an outstanding balance of €1 mn or less for incurred but unidentified lossesincreasing the relevant yield curves by the Dresdner Bank Group.expected credit spread net of default risk. The particular allowance methodology categorizes loans into homogeneous portfolios and establishesrelevant yield curves represent the particular allowancerisk free rate of return expected to be earned based upon historical lossthe risk free interest rate in the country where the insurance contracts were issued (generally referenced by government issued debt instruments). This sensitivity is more pronounced for our local operating entities with significant older portfolios with relatively higher guaranteed interest rates which are continuously updated.
A general allowance is established to provide for incurred but unidentified losses for loans with an outstanding balance greater than €1 mn for the Dresdner Bank Group(e.g., Switzerland, Belgium, South Korea and for all other loans held by subsidiaries of the Banking segment. General allowances are established for loans not specifically identified as impaired. The amount of the allowance is based on historical loss experience and the evaluation of the loan portfolio under current events and economic conditions.
Loans are charged-off when all economically sensible means of recovery have been exhausted. At the point of charge-off, the loan as well as any specific allowance associated with the loan is removed from the consolidated balance sheet or a charge may be recorded to directly charge-off the loan. A charge-off may be full or partial. Subsequent to a charge-off, recoveries, if any, are recognized as a credit to the loan loss provisions.Taiwan).
The loan loss provisions arefollowing table shows a sensitivity analysis of the amount necessary to adjustimpact in Euro that reasonably likely changes of 1% in the loan loss allowance to a level determined through the process described above.
Financial assets carried at fair value through income
Financial assets carried at fair value through income include financial assets held for trading, financial assets for unit linked contracts and financial assets designated at fair value through income.
Financial assets held for trading consists of debt and equity securities, promissory notes and precious
metal holdings, whichrelevant yield curve would have been acquired principally for the purpose of generating a profit from short-term fluctuations in price and derivative financial instruments that do not meet the criteria for hedge accounting with positive fair values. Financial assets held for trading are reported at fair value. Changes in fair value are recognized directly in net income. Exchange-traded financial instruments are valued at the exchange prices prevailing on the last exchange trading dayDAC and PVFP amounts in the major geographical markets of the year. To determineAllianz Group, which could have a material effect on the fair valuesAllianz Group’s results of unlisted financial instruments, quotationsoperations. The impact of similar instruments or other valuation models (in particular present value models or option pricing models) are used. In the process, appropriate adjustments are made for credit and measurement risks.
Financial assets for unit linked contracts and financial assets designated at fair value through income arethese changes would be recorded at fair value with changes recorded together with the changes in the corresponding financial liabilities for unit linked contracts inAllianz Group’s net income.
Country | Carrying amount of DAC/PVFP, net of unearned revenue liabilities | Effect of +1% change in the yield curve | Effect of -1% change in the yield curve | ||||
€ mn | € mn | € mn | |||||
Germany | 6,802 | — | — | ||||
France | 508 | 7 | (11 | ) | |||
Italy | 578 | — | — | ||||
U.S. | 4,416 | 63 | (76 | ) | |||
South Korea | 544 | — | 1 | ||||
Belgium | 97 | — | (1 | ) | |||
Switzerland | 227 | 16 | (35 | ) | |||
Austria | 233 | 55 | (21 | ) |
Derivative financial instruments used for hedging purposes
Movements in equity values would mainly have an impact on our variable annuity business in the United States. In all other major local operating units, such movements would not trigger any material loss recognition.
Sensitivities to persistency, expense levels and demographic assumptions are also monitored, but deviations within reasonable limits would not trigger a material loss recognition event for any of the operating entities due to the offsetting effects of changes to policyholder participation rates.
For derivative financial instruments used for hedging purposes that meetmany of Allianz’s Life/Health operating entities within Europe, a large part of such adverse developments can be offset by adjustments to the criteria for hedge accounting,policyholder participation rates. Therefore, the Allianz Group designates the derivative financial instrumentrelevant estimates and as a fair value hedge, cash flow hedge, or hedgeconsequence, the results of a net investment in a foreign entity. The Allianz Group documentsoperations of operating entities within Europe are relatively insensitive to the hedge relationship, as well as its risk management objective and strategy for entering into various hedge transactions. The Allianz Group also assesses, both at the hedge’s inception and on an ongoing basis, whether the derivative financial instruments that are used for hedging transactions are highly effective in offsettingeffects of changes in fair values or cash flows of the hedged items.
Derivative financial instruments used in hedge transactions that meet the criteria for hedge accounting are recognized as follows:assumptions.
Fair value hedgesReserves for Insurance and Investment Contracts and Financial Liabilities for Unit-Linked Contracts
The risk of changes of a specific risk in the fair value of assets or liabilities is hedged by a fair value hedge. Changes in the fair value of a derivative financial instrument together with the pro rata shareof the change in fair value of the hedged item are recognized in net income.
Cash flow hedges
Cash flow hedges reduce the exposure to variability in cash flows that is attributable to a particular risk associated with a recognized asset or liability or attributable to future cash flows from a firm commitment or a forecasted transaction. Changes in the fair value of derivative financial instruments that represent an effective hedge are recorded in unrealized gains and losses (net) in shareholders’ equity, and recognized in net income when the offsetting gain or loss associated with the hedged item is recognized. The ineffective part of the cash flow hedge is recognized directly in net income.
Hedges of a net investment in a foreign entity
Hedge accounting may be applied to hedge a net investment in a foreign entity. Derivative financial instruments are used to hedge currency risk. The proportion of gains or losses arising from valuation of the derivative financial instrument, which is classified as an effective hedge, is recognized in unrealized gains and losses (net) in shareholders’ equity, while the ineffective part is recognized in net income.
For all fair value hedges, cash flow hedges, and hedges of a net investment in a foreign entity, the derivative financial instruments are included in other assets or other liabilities.
The Allianz Group discontinues hedge accounting prospectively when it is determined that the derivative financial instrument is no longer highly effective, the derivative financial instrument or the hedged item expires, or is sold, terminated or exercised, or when the Allianz Group determines that designation of the derivative financial instrument as a hedging instrument is no longer appropriate. When a fair value hedge is discontinued, the Allianz Group continues to report the derivative financial instrument at its fair value, and no longer recognizes changes in fair value of the hedged item in net income. When hedge accounting for a cash flow hedge is discontinued, the Allianz Group continues to record the derivative financial instrument at its fair value and any net unrealized gains and losses accumulated in shareholders’ equity are recognized when the planned transaction occurs. When a hedge of a net
investment in a foreign entity is discontinued, the Allianz Group continues to report the derivative financial instrument at its fair value and any net unrealized gains or losses accumulated in shareholders’ equity remain in shareholders’ equity until the disposal of the foreign entity.
Derivative financial instruments are netted when there is a legally enforceable right to offset and when the Allianz Group intends to settle on a net basis.
Other assets
Deferred policy acquisition costs generally consist of commissions, underwriting expenses and policy issuance costs, which vary with and are directly related to the acquisition and renewal of insurance contracts. These acquisition costs are deferred, to the extent they are recoverable, and amortized over the life of the related contracts.
For investment contracts, acquisition costs are only deferred if the costs are incremental. Acquisition costs are incremental if the costs would not have been incurred if the related contracts would not have been issued.
Sales inducements on insurance contracts that meet the following criteria are deferred and amortized using the same methodology and assumptions used to amortize deferred policy acquisition costs:
Reserves for insurance and investment contracts
Reserves for insurance and investment contracts include unearned premiums, are aggregate policy reserves and reserves for losspremium refunds. Financial liabilities for unit-linked contracts include unit-linked insurance contracts and loss adjustment expenses, the reserve for premium refunds, premium deficiency reserves and other insurance reserves.unit-linked investment contracts.
Contracts issued by insurance subsidiaries of the Allianz Group are classified according to IFRS 4 as insurance or investment contracts. Contracts underwhichunder which the Allianz Group accepts significant insurance risk from a policyholder are classified as insurance contracts. Contracts under which the Allianz Group does not accept significant insurance risk are classified as investment contracts. Certain insurance and investment contracts include discretionary participation features. All insurance contracts and investment contracts with discretionary participating features are accounted for under the provisions of US GAAP, including SFAS 60, SFAS 97 and SFAS 120.
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 insurance coverage provided. Unearned premiums for reinsurance business assumed are generally based on the calculations of the cedent. Deferred policy acquisition costs for short-duration insurance contracts are amortized over the periods in which the related premiums are earned.
The aggregate policy reserves for long-duration insurance contracts, such as traditional life and health products, are computed in accordance with SFAS 60 using the net level premium method, which represents the present value of estimated future policy benefits to be paid less the present value of estimated future net premiums to be collected from policyholders. The method uses best estimate assumptions adjusted for a provision for adverse deviation for mortality, morbidity, expected investment yields, surrenders and expenses at the policy inception date, which remain locked-in thereafter. Deferred policy acquisition costsDAC and PVFP for traditional life and health products are amortized over the premium paying period of the related policies in proportion to the earned premium using assumptions consistent with those used in computing the aggregate policy reserves.
The aggregate policy reserves for traditional participating insurance contracts are computed in accordance with SFAS 120 using the net level premium method. The method uses assumptions for
mortality, morbidity and interest rates that are guaranteed in the contract or are used in determining the policyholder dividends. Deferred policy acquisition costs and PVFP for traditional participating products are amortized over the expected life of the contracts in proportion to
estimated gross margins (“EGMs”)(EGMs) based upon historical and anticipated future experience, which is determined on a best estimate basis and evaluated regularly. The present value of EGMs is computed using the expected investment yield. EGMs include premiums, investment income including realized gains and losses, insurance benefits, administration costs, changes in the aggregate reserves and policyholder dividends. The effect of changes in EGMs are recognized in net income in the period revised.
The aggregate policy reserves for universal life-type insurance contracts and unit linkedunit-linked insurance contracts in accordance with SFAS 97 is equal to the account balance, which represents premiums received and investment return credited to the policy less deductions for mortality costs and expense charges. Deferred policy acquisition costs and PVFP for universal life-type and investment contracts are amortized over the expected life of the contracts in proportion to estimated gross profits (“EGPs”)(EGPs) based upon historical and anticipated future experience, which is determined on a best estimate basis and evaluated regularly. The present value of EGPs is computed using the interest rate that accrues to the policyholders, or the credited rate. EGPs include margins from mortality, administration, investment income including realized gains and losses and surrender charges. The effecteffects of changes in EGPs are recognized in net income in the period revised.
Current and historical client data, as well as industry data, are used to determine the assumptions. Assumptions for interest reflect expected earnings on assets, which back the future policyholder benefits. The information used by the Allianz Group’s qualified actuaries in setting such assumptions includes, but is not limited to, pricing assumptions, available experience studies, and profitability analyses.
The interest rate assumptions used in the calculation of aggregate policy reserves and the deferred acquisition costs were as follows:
Long- duration (SFAS 60) | Traditional participating insurance (SFAS 120) | |||||
Aggregate policy reserves | 2.5– | % | % | |||
Deferred acquisition costs | % | % |
In connection with the adoption of SOP 03-1 effective January 1, 2004, insuranceAggregate policy reserves include liabilities for guaranteed minimum death and similar mortality and morbidity benefits related to non-traditional contracts, annuitization options, and sales inducements. These liabilities are calculated based on contractual obligations using actuarial assumptions. Contractually agreed sales inducements to contract holders include persistency bonuses and are accrued over the period in which the insurance contract must remain in force to qualify for the inducement.
The aggregate policy reserves for unit linkedunit-linked investment contracts is equal to the account balance, which represents premiums received and investment return credited to the policy less deductions for mortality costs and expense charges. The aggregate policy reserves for non unit linkedunit-linked investment contracts is equal to amortized cost, or account balance less deferred policy acquisition costs. Deferred policy acquisition costs and PVFP for unit linkedunit-linked and non unit linkedunit-linked investment contracts are amortized over the expected life of the contracts in proportion to revenues.
ReservesAggregate policy reserves for insurance contracts are computed based on relevant U.S. GAAP standards, except for contracts under which the Allianz Group does not accept significant insurance risk, which are classified as investment contracts. All insurance policies are classified appropriately under U.S. GAAP, and the corresponding valuation methodology is applied accordingly. Aggregate policy reserves are determined based on policyholder data and by applying various projections and reserving systems, either on a policy-by-policy basis or on a model point basis whereby policies are grouped by generation and similar risk and benefit profiles. These systems are also used to DAC, unearned revenue liabilities (URL) and PVFP in a consistent manner.
Local actuaries of each Allianz Group operating entity are responsible for setting aggregate policy reserves and carrying out recoverability and loss
recognition tests. The Allianz Group reviews the locally-derived policy reserves, DAC, URL, PVFP and loss adjustment expenses are established forrecognition tests.
The table below provide a breakdown of the paymentAllianz Group’s aggregate policy reserves by country of losses and loss adjustment expenses (“LAE”) on claims which have occurred but are not yet settled. Reserves for loss and loss adjustment expenses fall into two categories: case reserves for reported claims and reserves for incurred but not reported reserves (“IBNR”).our major Life/Health local operating entities as of December 31, 2008 (in millions of euros):
Aggregate Policy Reserves | Other Reserves | Total | % of Allianz Group | |||||||||||||||
Country | Long- duration insurance contracts | Universal- Life type insurance contracts | Traditional participating insurance contracts | Non-Unit-Linked Reserves | Unit- Linked Reserves | Market Value of Liability Options(1) | ||||||||||||
(€ mn) | ||||||||||||||||||
German Life | 24 | 6,436 | 114,645 | — | 1,660 | 1 | 122,765 | 36.7 | % | |||||||||
German Health | 14,160 | — | — | — | — | — | 14,160 | 4.2 | % | |||||||||
France | 7,138 | 38,283 | — | — | 11,021 | — | 56,442 | 16.9 | % | |||||||||
Italy | 7,359 | 11,456 | — | 139 | 20,340 | — | 39,294 | 11.8 | % | |||||||||
United States | 1,583 | 36,891 | — | 153 | 8,473 | 5,104 | 52,204 | 15.6 | % | |||||||||
Switzerland | 127 | 2,666 | 3,842 | — | 512 | — | 7,147 | 2.1 | % | |||||||||
Spain | 3,991 | 815 | — | 260 | 47 | — | 5,112 | 1.5 | % | |||||||||
Netherlands | 883 | 81 | — | — | 2,771 | — | 3,735 | 1.1 | % | |||||||||
Austria | — | — | 3,232 | — | 347 | — | 3,579 | 1.1 | % | |||||||||
Belgium | 4,200 | 1,432 | — | — | 235 | — | 5,866 | 1.8 | % | |||||||||
South Korea | 3,338 | 1,443 | — | — | 499 | 8 | 5,288 | 1.6 | % | |||||||||
Taiwan | 646 | 963 | — | 8 | 2,419 | — | 4,036 | 1.2 | % | |||||||||
Other countries | 3,330 | 620 | 549 | 278 | 2,125 | 50 | 6,954 | 2.1 | % | |||||||||
Life/Health Total | 46,779 | 101,085 | 122,268 | 839 | 50,450 | 5,163 | 326,583 | 97.7 | % | |||||||||
Other Segment/Consolidation | 165 | (25 | ) | 7,590 | — | — | — | 7,730 | 2.3 | % | ||||||||
Allianz Group Total | 46,943 | 101,059 | 129,858 | 839 | 50,450 | 5,163 | 334,313 | 100.0 | % | |||||||||
Case
(1) | “Market Value of Liability Options” represents mainly the value of the derivatives embedded in the equity-indexed annuity products of Allianz Life. |
Assumptions made at the local operating entity level regarding variables affecting aggregate policy reserves for reported claimssuch as expense, lapse and mortality are based on best estimates ofderived from annually performed experience studies based on company data and are regularly validated by the Allianz Group.
The most significant assumption for deriving Life/Health reserves is the expected investment yields (i.e., the expected return on assets purchased with net cash inflows), as investment rates determine both the expected cash flow as well as the reserve discount factors. This is particularly true for our operations in Belgium, South Korea and Switzerland because certain policies previously sold in these countries included guaranteed interest rates on existing and future payments that will be made in respect of claims, including LAE relating to such claims. Such estimatespremiums. Investment rates are made on a case-by-case basis, based on the factsavailable capital market information, the asset mix and circumstances available at the timelong term expected yields as set by the reserves are established. The estimates reflect the informed judgment of claims personnel based on general insurance reserving practices and knowledgemanagement of the nature and value of a specific type of claim. These case reserves are regularly re-evaluated in the ordinary course of the settlement process and adjustments are made as new information becomes available.local operating entity.
IBNR reserves are established to recognize the estimated cost of losses that have occurred but where the Allianz Group has not yet been notified. IBNR reserves, similar to case reserves for reported claims,
are established to recognize the estimated costs, including expenses, necessary to bring claims to final settlement. Since nothing is known about the occurrence, the Allianz Group relies on its past experience, adjusted for current trends and any other relevant factors. IBNR reserves are estimates based on actuarial and statistical projections of the expected cost of the ultimate settlement and administration of claims. The analyses are based on facts and circumstances known at the time, predictions of future events, estimates of future inflation and other societal and economic factors. Trends on claim frequency, severity and time lag in reporting are examples of factors used in projecting the IBNR reserves. IBNR reserves are reviewed and revised periodically as additional information becomes available and actual claims are reported.
The process of estimating loss and LAE reserves is by nature uncertain due to the large number of variables affecting the ultimate amount of claims. Some of these variables are internal, such as changes in claims handling procedures, introduction of new IT systems or company acquisitions and divestitures. Others are external, such as inflation, judicial trends, and legislative changes. The Allianz Group attempts to reduce the uncertainty in reserve estimates through the use of multiple actuarial and reserving techniques and analysis of the assumptions underlying each technique.
There is no adequate statistical data available for some risk exposures in liability insurance, such as environmental and asbestos claims and large-scale individual claims, because some aspects of these types of claims are becoming generally known very slowly and are still evolving. Appropriate provisions have been made for such cases based on the Allianz Group’s judgment and an analysis of the portfolios in which such risks occur. These provisions represent the Allianz Group’s best estimate. The current reserves for loss and loss adjustment expenses for asbestos claims in the United States reflect loss developments since the most recent external independent actuarial report which was completed during the year ended December 31, 2005.
The reserves for premium refunds include the amounts allocated under the relevant local statutory or contractual regulations to the accounts of the policyholders and the amounts resulting from the differences between these IFRS based financialstatementsfinancial statements and the local financial statements (“latent reserve for deferred premium refunds”), which will reverse and enter into future profit participation calculations. Unrealized gains and losses recognized in connection with the valuation of securities available-for-sale are recognized in the latent reserve for deferred premium refunds to the extent that policyholders will participate in such gains and losses on the basis of statutory or contractual regulations when they are realized. The profit participation allocated to participating policyholders or disbursed to them reduces the reserve. Any dividends allocated or disbursed over and above the reserve are recorded in other expenses.
Methods and corresponding percentages for participation in profits by the policyholders are set out below for the most significant countries for latent reserves:
Country | Base | Percentage | ||
Germany | ||||
Life | Investments(1) | 90% | ||
Health | All sources of Profit | 80% | ||
France | ||||
Life | All sources of Profit | |||
| 80% | |||
| ||||
Life | Investments | |||
| ||||
| 85% | |||
Switzerland | ||||
Group Life | All sources of Profit | 90% | ||
Individual Life | All sources of Profit | 100% |
(1) | Additionally, 75% of risk result and 50% of all other results. |
Liability adequacy tests are performed for each insurance portfolio on the basis of estimates of future claims, costs, premiums earned and proportionate investment income. For short duration contracts, a premium deficiency is recognized if the sum of expected claim costs and claim adjustment expenses, expected dividends to policyholders, unamortized acquisition costs, and maintenance expenses exceeds related unearned premiums while considering anticipated investment income. For long duration contracts, if actual experience regarding investment yields, mortality, morbidity, terminations or expense indicate that existing contract liabilities, along with the present value of future gross premiums, will not be sufficient to cover the present value of future benefits and to recover deferred policy acquisition costs, then a premium deficiency is recognized.
Other insuranceAggregate policy reserves include experience-ratedtotaled €278,700 million and other€264,243 million as of December 31, 2008 and 2007, respectively. Reserves for premium refunds in favortotaled €17,195 million and €27,225 million as of policyholders.December 31, 2008 and 2007, respectively. For further information regarding reserves for insurance and investment contracts, refer to Note 18 to our consolidated financial statements.
Financial liabilities carried at fair value through incomeReserves for Loss and Loss Adjustment Expenses
Financial liabilities carried at fair value through income include financial liabilities held for trading, financial liabilities for unit linked contracts, liabilities for puttable equity instruments and financial liabilities designated at fair value through income.
Financial liabilities held for trading primarily include derivative financial instruments that do not meet the criteria for hedge accounting with negative fair values and obligations to deliver assets arising from short sales of securities, which are carried out in order to benefit from short-term price fluctuations. The securities required to close out short sales are obtained through securities borrowing or reverse repurchase agreements. These liabilities are valued the same as financial assets held for trading.
Financial liabilities for unit linked contracts and financial liabilities designated at fair value through income are recorded at fair value with changes recorded together with the changes in the corresponding financial assets in net income.
Liabilities for puttable financial instruments include the minority interests in shareholders’ equity of certain consolidated investment funds. These minority interests qualify as a financial liability ofWithin the Allianz Group, as they giveloss and LAE reserves are set locally by qualified individuals close to the holderbusiness, subject to central monitoring and
oversight by the right to putactuarial department in Allianz SE (“Group Actuarial”). For a detailed description of the instrument back tomethods and approaches commonly used within the Allianz Group to determine reserves for cash loss and loss adjustment expenses, please refer to “Overview of Loss Reserving Process” within the “Property and Casualty Reserves” section of the business description within this document. This central oversight process ensures that reserves are set at the local level in accordance with Group-wide standards of actuarial practice regarding methods, assumptions and data. The key components of this central oversight process are:
Minimum standards for actuarial loss reserving;
Regular central independent reviews by Group Actuarial of reserves of local operating entities; and
Quarterly quantitative and qualitative reserve monitoring.
Each of these components is described further below.
Group-wide minimum standards of actuarial reserving define the reserving practices which must be conducted by each operating entity. These standards provide guidance regarding all relevant aspects of loss reserving, including organization and structure, data, methods, and reporting. Group Actuarial monitors compliance with these minimum standards through a combination of diagnostic review – i.e. formal qualitative assessment of the required components in the reserving process – and local site visits. Group Actuarial then communicates the results of this quality review to the local operating entity.
In addition, Group Actuarial performs independent reviews of loss and LAE reserves for key local operating entities on a regular basis. This process is designed such that all significant entities are reviewed once every year. Such a review typically starts with site visits to ensure that Group Actuarial updates their knowledge of the underlying business as well as the issues related to data and organization. Group Actuarial then conducts an analysis of reserves using data provided by the operating entity. Preliminary conclusions are then discussed with the local operating entity prior to being finalized. Any material differences between
Group Actuarial’s reserve estimates and those of the local operating entity are then discussed, and evaluated to determine if changes in assumptions are needed.
In addition, on a quarterly basis, Group Actuarial monitors reserve levels, movements and trends across the Allianz Group. This monitoring is conducted on the basis of quarterly loss data submitted by local operating entities as well as through participation in local reserve committees and frequent dialogue with local actuaries of each operating entity. This quarterly loss data provides information about quarterly reserve movements, as the information is presented by accident year and line of business, as defined by the local operating entity.
The oversight and monitoring of the Group’s loss reserves culminate in quarterly meetings of the Group Reserve Committee. This committee, which consists of the Group Chief Executive Officer, Group Chief Financial Officer, Head of Group Financial Reporting, Group Chief Accountant and the Group Chief Actuary, monitors key developments across the Group affecting the adequacy of loss reserves.
Appropriate provisions have been made for environmental and asbestos claims and large-scale individual liability claims based on the Allianz Group’s judgment and an analysis of the portfolios in which such risks occur. These provisions represent the Allianz Group’s best estimate. The current reserves for loss and loss adjustment expenses for asbestos claims in the United States reflect the best estimate of local actuaries based on their assessment of current developments and trends in these claims.
Variability of Reserve Estimates
Loss reserves are estimates and are based on the expected outcome of future events (e.g., court decisions, medical rehabilitation and property damage repair). As such, reserve estimates are subject to uncertainty, particularly for longer-tail lines of business. Our reserving actuaries estimate loss reserves separately by line of business based on many detailed assumptions. Given the small segments of business for which reserve estimates are calculated, and that material accumulations across classes will tend to be offset by those in other independent classes, deviations from assumptions are generally not expected to have a material effect on the loss reserves of the Group.
There are, however, two reserving segments for which changes in assumptions could have a material impact on the Group due to their volume and/or anotheruncertainty:
German motor liability and
Asbestos claims reserves.
German Motor Liability
As a longstanding market leader in German motor insurance, Allianz holds a significant balance of motor liability reserves (€4,533 million gross as of December 31, 2008). Moreover, German motor liability claims are particularly long-tailed in nature. We estimate that approximately 62% of claims are paid after one year and 90% after eight years from the occurrence of the claim. Actuaries must rely on long data histories, but data from older accident years may be less predictive for current developments. Furthermore, sufficient data for extremely long development of bodily injury claims for 40 and more years are not available and, therefore, we extrapolate the ultimate loss amounts. As a result, changes in assumptions such as loss development patterns have a significant effect on estimated reserves.
In order to gauge the sensitivity of German motor liability loss reserve estimates to alternative assumptions, we applied statistical methods that allow for both the natural variability in the reserving process (i.e., process volatility) as well as the potential variability in estimating reserving assumptions (i.e., parameter volatility) and provide quantitative insights into reserve volatility. This analysis provides that it is reasonably likely that future German motor liability loss payments will be €300 million higher or lower than carried reserves.
Asbestos Claims Reserves
Loss reserves for asbestos claims worldwide are subject to greater than usual uncertainty. Asbestos claims have a long latency period, sometimes emerging several decades after the underlying policy was written. Claim emergence is subject to a broad range of legal, epidemiological and socio-economic factors such as court decisions, corporate bankruptcy proceedings and medical advances. Asbestos claim reserves are not amenable to traditional actuarial analysis and are instead based upon an extensive analysis of exposure.
In order to quantify the potential variability of asbestos claim reserves, we calculate a point best estimate reserve and a range of reasonable estimates of asbestos loss reserves for U.S. and non-U.S. asbestos in aggregate. This range is calculated by testing the sensitivity of reserve estimates to alternative assumptions. We would consider any estimate within the range to be reasonable. The range does not represent lower and upper bounds, and does not contain all of the possible loss results. Our best estimate represents the expected unpaid loss resulting from assumptions that we consider neither optimistic nor pessimistic. The lower and upper ends of the range represent unpaid losses that would result from optimistic and pessimistic, but reasonable, assumptions. It should be noted that there is a reasonable possibility that the actual loss amounts will fall outside that range. As of December 31, 2008, the high end of this range is €820 million higher than the best estimate; the low end of the range is €550 million lower than the best estimate.
The following alternative assumptions lead to the high end of the range of the reserve estimate:
The projected level of future claims filings increase compared to the level as predicted by the epidemiological-based models;
Future values of claims settlements by disease type increase compared to the inflation-adjusted projections;
The proportion of claims filings leading to claims payments increases compared to the projections;
The legal interpretation of insurance policies and the outcome of coverage litigation is on the whole adverse to our expectations;
Claims from coverages not yet affected by asbestos claims and not reflected in our projections emerge;
The projected level of new policyholders being brought into asbestos litigation increases compared to our estimates in addition to an increase over our estimate of the average cost to settle all future asbestos claims for these policyholders.
The following alternative assumptions lead to the low end of the range of the reserve estimate at:
The projected level of future claims filings for each policyholder decrease compared to the level as predicted by the epidemiological-based models;
Future values of claims settlements by disease type are lower than the inflation adjusted projections;
The proportion of claims filings leading to claims payments decrease compared the projections;
The legal interpretation of insurance policies and the outcome of coverage litigation is on the whole favorable to our expectations;
The projected level of new policyholders being brought into asbestos litigation is lower than our estimates in addition to a decrease in our estimate of the average cost to settle all future asbestos claims for these policyholders.
Total Loss Reserves
Total reserves for loss and loss adjustment expenses amounted to €63,924 million and €63,706 million as of December 31, 2008 and 2007, respectively. For further information regarding reserves for loss and loss adjustment expenses, refer to Note 19 to our consolidated financial statements.
Deferred Taxes
Deferred taxes are recognized on temporary differences between the tax bases and the carrying amounts of assets and liabilities in the Allianz Group’s IFRS consolidated balance sheet and tax losses carried forward as of the balance sheet date. Deferred taxes are calculated based on the current income tax rates enacted in the respective country. Changes in tax rates that have already been substantially adopted prior to or as of the date of the consolidated balance sheet are taken into consideration.
Deferred tax assets are recognized if sufficient future taxable income, including income from the reversal of existing taxable temporary differences and available tax planning strategies, are available for realization. The realization of deferred tax assets on temporary differences depends on the generation of
sufficient taxable profits in the period in which the underlying asset (a “puttable instrument”). These liabilitiesor liability is recovered or settled. The realization of deferred tax assets on tax losses carried forward requires that sufficient taxable profits are available prior to the expiration of such tax losses carried forward. As of each balance sheet date, management evaluates the recoverability of deferred tax assets, whereby projected future taxable profits and tax planning strategies are considered. If management considers it is more likely than not that all or portion of a deferred tax asset will not be realized, a corresponding valuation allowance is taken.
The accounting estimates related to the valuation allowance are based on management’s judgements and currently available information, primarily with regards to projected taxable profits. Assumptions about matters which are uncertain and partly beyond management’s control are taken into account. Furthermore, these assumptions may change from period to period.
Pension and Similar Obligations
The Allianz Group has a number of defined benefit pension plans covering a significant number of its domestic and international employees, and in Germany, agents, too. The calculation of the expense and liability associated with these plans requires the extensive use of assumptions, which include the discount rate, expected rate of return on plan assets, rate of long-term compensation increase, post-retirement pension increase and mortality tables as determined by the Allianz Group. Management determines these assumptions based upon currently available market and industry data and historical performance of the plans and their assets. The actuarial assumptions used by the Allianz Group may differ materially from actual experience, due to changing market and economic conditions, higher or lower withdrawal rates or longer or shorter life spans of the participants. Any such differences could have a significant impact on the amount of pension expense recorded in future years.
We are required to beestimate the expected rate of return on plan assets, which is then used to compute pension cost recorded at redemption amount with changes recognized in netthe consolidated statements of income. AsEstimating future returns on plan assets is particularly subjective as the redemption amountestimate requires an assessment of these liabilities is their fair value, these liabilities are includedpossible future market returns based on
the plan asset mix and observed historical returns. In 2008, we adjusted the weighted average expected rate of return on plan assets from 5.3% to 5.5%; in financial liabilities carried at fair value through income as liabilities for puttable equity instruments.2007, the weighted average expected return on plan assets was 5.3%.
Changes to Accounting and Valuation Policies
SeeRefer to Note 3 to our consolidated financial statements.
The following analysis is based on our consolidated financial statements and should be read in conjunction with those statements. We evaluate theresultsthe results of our Property-Casualty, insurance, Life/Health, insurance, Banking, and Asset Management and Corporate segments using a financial performance measure we refer to herein as “operating profit”. We define our segment operating profit as earningsincome from ordinary activitiescontinuing operations before income taxes and minority interests in earnings, excluding, as applicable for each respective segment, all or some of the following items: net capital gainsincome from financial assets and liabilities held for trading (net), realized gains/losses (net), impairments onof investments net trading income, intra-Allianz Group dividends and profit transfer,(net), interest expense onfrom external debt, restructuring charges, other non-operating income/(expenses),amortization of intangible assets, acquisition-related expenses and amortization of goodwill.restructuring charges.
While these excluded items are significant components in understanding and assessing our consolidated financial performance, we believe that the presentation of operating results enhances the understanding and comparability of the performance of our operating segments by highlighting net income attributable to ongoing segment operations and the underlying profitability of our businesses. For example, we believe that trends in the underlying profitability of our segments can be more clearly identified without the fluctuating effects of the realized capital gains and gains/losses or impairments on investment securities,of investments, 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. Further, the timing of sales that would result in such gains or losses is largely at our discretion. Operating profit is not a substitute for earningsincome from ordinary activitiescontinuing operations before income taxes and minority interests in earnings or net income
(loss) as determined in accordance with International Financial Reporting Standards as adopted by the EU and as issued by the IASB (or “IFRS”). Our definition of operating profit may differ from similar measures used by other companies, and may change over time. For further information on operating profit, as well as the particular reconciling items between operating profit and net income see(loss), refer to Note 56 to theour consolidated financial statements.
In the followingOperating profit should be viewed as complementary to, and not a substitute for, income from continuing operations before income taxes and minority interests in earnings or net income (loss) as determined in accordance with IFRS.
The Allianz Group uses total revenues in its analysis we analyzeand discussion of the Allianz Group’s consolidated results of operations. Total revenues is a “non-GAAP financial measure” as defined by the rules of the SEC, which management uses to assess and measure the top line results of the core businesses within the Allianz Group. Total revenues comprise Property-Casualty segment’s gross premiums written, Life/Health segment’s statutory premiums, Banking segment’s operating revenues and Asset Management segment’s operating revenues. With the classification of Dresdner Bank as discontinued operations, for the year ended December 31, 2005 as comparedBanking segment’s operating revenues consist of continuing banking activities in Germany, France, Italy and Central and Eastern Europe. By providing a top line measure of sales revenues from the insurance products and financial services provided by all of the various core businesses of the Allianz Group, total revenues provide useful information to December 31, 2004 and for the year ended December 31, 2004 as comparedinvestor. The following table reconciles total revenues to December 31, 2003, using operating profit and net income aspremiums written, the relevant performance measures, as permitted under IFRS.most comparable IFRS measure.
PC | LH | Banking | AM | Cons | Group | |||||||||||
2008 | ||||||||||||||||
Premiums written | 43,387 | 22,809 | — | — | (25 | ) | 66,171 | |||||||||
Add: Deposit premium for FAS 97 products | — | 22,806 | — | — | 140 | 22,946 | ||||||||||
Total revenues P-C and L/H | 43,387 | 45,615 | — | — | 115 | 89,117 | ||||||||||
Add: Interest and similar income | — | — | 989 | 98 | — | 1,087 | ||||||||||
Less: Interest expense | — | — | (677 | ) | (36 | ) | — | (713 | ) | |||||||
Add: Fee and commission income | — | — | 430 | 4,032 | — | 4,462 | ||||||||||
Less: Fee and commission expense | — | — | (193 | ) | (1,158 | ) | — | (1,351 | ) | |||||||
Income from financial assets and liabilities designated at fair value through income (net) | — | — | (5 | ) | (77 | ) | — | (82 | ) | |||||||
Other income | — | — | — | 28 | — | 28 | ||||||||||
Total revenues Banking and Asset Management | — | — | 544 | 2,887 | — | 3,431 | ||||||||||
Total revenues | 43,387 | 45,615 | 544 | 2,887 | 115 | 92,548 | ||||||||||
PC | LH | Banking | AM | Cons | Group | |||||||||||
2007 | ||||||||||||||||
Premiums written | 44,289 | 21,522 | — | — | (23 | ) | 65,788 | |||||||||
Add: Deposit premium for FAS 97 products | — | 27,845 | — | — | 167 | 28,012 | ||||||||||
Total revenues P-C and L/H | 44,289 | 49,367 | — | — | 144 | 93,800 | ||||||||||
Add: Interest and similar income | — | — | 883 | 135 | — | 1,018 | ||||||||||
Less: Interest expense | — | — | (558 | ) | (54 | ) | — | (612 | ) | |||||||
Add: Fee and commission income | — | — | 528 | 4,403 | — | 4,931 | ||||||||||
Less: Fee and commission expense | — | — | (233 | ) | (1,270 | ) | — | (1,503 | ) | |||||||
Income from financial assets and liabilities designated at fair value through income (net) | — | — | 2 | 31 | — | 33 | ||||||||||
Other income | — | — | — | 14 | — | 14 | ||||||||||
Total revenues Banking and Asset Management | — | — | 622 | 3,259 | — | 3,881 | ||||||||||
Total revenues | 44,289 | 49,367 | 622 | 3,259 | 144 | 97,681 | ||||||||||
PC | LH | Banking | AM | Cons | Group | |||||||||||
2006 | ||||||||||||||||
Premiums written | 43,674 | 21,614 | — | — | (13 | ) | 65,275 | |||||||||
Add: Deposit premium for FAS 97 products | — | 25,807 | — | — | 143 | 25,950 | ||||||||||
Total revenues P-C and L/H | 43,674 | 47,421 | — | — | 130 | 91,225 | ||||||||||
Add: Interest and similar income | — | — | 734 | 112 | — | 846 | ||||||||||
Less: Interest expense | — | — | (443 | ) | (41 | ) | — | (484 | ) | |||||||
Add: Fee and commission income | — | — | 503 | 4,186 | — | 4,689 | ||||||||||
Less: Fee and commission expense | — | — | (235 | ) | (1,262 | ) | — | (1,497 | ) | |||||||
Income from financial assets and liabilities designated at fair value through income (net) | — | — | 45 | 38 | — | 83 | ||||||||||
Other income | — | — | 0 | 11 | — | 11 | ||||||||||
Total revenues Banking and Asset Management | — | — | 604 | 3,044 | — | 3,648 | ||||||||||
Total revenues | 43,674 | 47,421 | 604 | 3,044 | 130 | 94,873 | ||||||||||
We further believe that an understanding of our total revenue(1) performance is enhanced when the effects fromof foreign currency translation as well as
acquisitions and disposals (or “changes in scope of consolidation”) are excluded. Accordingly, in addition to presenting “nominal growth”, we also present “internal growth,”growth”, which excludes the effects fromof foreign currency translation and changes in scope ofconsolidation, is also provided. of consolidation.
The following table sets forth the reconciliation of nominal total revenue growth to internal total revenue growth for each of our segments(2) and the Allianz Group as a whole for the yearyears ended December 31, 2005.
Composition of total revenue growth for the year ended December 31, 20052008 and 2007.
Segment(1) | Nominal growth | Changes in scope of consolidation | Foreign currency translation | Internal growth | ||||||||
% | % | % | % | |||||||||
Property-Casualty | 0.6 | (2.5 | ) | 0.4 | 2.7 | |||||||
Life/Health | 6.5 | — | 0.5 | 6.0 | ||||||||
Banking | (3.3 | ) | — | (0.1 | ) | (3.2 | ) | |||||
thereof: Dresdner Bank | (4.4 | ) | — | (0.1 | ) | (4.3 | ) | |||||
Asset Management | 18.4 | 1.9 | 0.2 | 16.3 | ||||||||
thereof: Allianz Global Investors | 17.3 | (0.4 | ) | 0.2 | 17.5 | |||||||
Total Group | 4.2 | (0.5 | ) | 0.4 | 4.3 | |||||||
Nominal total revenue growth | Changes in scope of consolidation | Foreign currency translation | Internal total revenue growth | |||||||||
% | % | % | % | |||||||||
2008 | ||||||||||||
Property-Casualty | (2.0 | ) | (1.8 | ) | (1.9 | ) | 1.7 | |||||
Life/Health | (7.6 | ) | 2.1 | (1.4 | ) | (8.3 | ) | |||||
Banking | (12.5 | ) | 0.5 | — | (13.0 | ) | ||||||
Asset Management | (11.4 | ) | (0.5 | ) | (5.2 | ) | (5.7 | ) | ||||
thereof: Allianz Global Investors | (11.5 | ) | 0.1 | (5.6 | ) | (6.0 | ) | |||||
Allianz Group | (5.3 | ) | 0.3 | (1.7 | ) | (3.9 | ) | |||||
2007 | ||||||||||||
Property-Casualty | 1.4 | 1.3 | (1.0 | ) | 1.1 | |||||||
Life/Health | 4.1 | 0.1 | (2.3 | ) | 6.3 | |||||||
Banking | 2.6 | — | — | 2.6 | ||||||||
Asset Management | 7.1 | 0.8 | (7.0 | ) | 13.3 | |||||||
thereof: Allianz Global Investors | 6.3 | — | (7.5 | ) | 13.8 | |||||||
Allianz Group | 3.0 | 0.7 | (1.8 | ) | 4.1 |
(1) | Total revenues comprise Property-Casualty segment’s gross premiums written, Life/Health segment’s statutory premiums, continuing Banking segment’s operating revenues and Asset Management segment’s operating revenues. |
(2) | Segment growth rates are presented before the elimination of transactions between Allianz Group |
Year Endedended December 31, 2005 Compared2008 compared to Year Endedyear ended December 31, 20042007
We exceeded our targets for 2005 and net income increased by 31% to €4.4 billion.Underlying fundamentals remained strong despite difficult market environment.
Revenues fell by 33.2% to €775 million.€5,133 million as sales in investment-oriented products were seriously impacted by the financial markets crisis.
Net income from continuing operations of €3,967 million in spite of net capital losses.
Dresdner Bank completed.
Year Endedended December 31, 2004 Compared2007 compared to Year Endedyear ended December 31, 20032006
Strong earnings with net income from continuing operations of €7.3 billion.
Our continuing operations maintained their sustainable underlying profitability.
The turbulences in the financial markets hit our discontinued banking operations.
High quality asset base and a strong capitalization with shareholders’ equity of €47.8 billion.
2008 at a Glance
Difficult economic environment
The year under review was marked by the global financial and economic crisis that started in mid-2007 with the collapse of the housing market in the United States. The crisis that was initially observed within the banking sector accelerated in 2008 and spilled- over to various other sectors of the financial industry.
Serious disruptions in the global financial system led to deteriorating economic conditions and investors became much more risk averse. In September, the global financial system almost collapsed: large financial institutions faltered, leading to changes in business models, failures, mergers and nationalizations. Some economies were even on the verge of national bancruptcy. In consequence, the weak situation in the financial markets that was observable from falling stock markets and volatile credit spreads became even more intense in the fourth quarter of the year.
Equity markets extremely volatile
in %
(1) | The Allianz Group operates and manages its activities primarily through four operating segments: Property-Casualty, Life/Health, Banking and Asset Management. Effective January 1, 2006, in addition to our four operating segments and with retrospective application, we introduced a fifth business segment named Corporate. On August 31, 2008 the Allianz Group and Commerzbank AG agreed on the sale of Dresdner Bank AG (“Dresdner Bank”) to Commerzbank AG. Following the announcement of the sale, Dresdner Bank qualified as disposal group held-for-sale and discontinued operations. Therefore, results from these operations have been eliminated from our results of Banking operations and are now presented in a separate line item “net income from discontinued operations, net of income taxes and minority interests in earnings”. In addition to our continuing banking business, our Banking operations also reflect the results from those parts of Dresdner Bank that were not sold to Commerzbank: Oldenburgische Landesbank (OLB) and the banking clients that were introduced through our tied agents channel. Prior year figures have been restated respectively. For detailed information on the Allianz Group, our activities and structures, as well as the environment in which we operate please refer to “Information on the Company”. |
In 2004, we increased our operating profit by 71.7%.Credit spreads at all time high
in bps
Total Revenues
in € bn
Operating ProfitInterest rates at historic low levels
in € mn%
Unprecedented levels of volatility
in %
Net IncomeSale of Dresdner Bank completed
in € mn
Shareholders’ Equity Before Minority Interests
On August 31, 2008, Allianz SE (“Allianz”) and Commerzbank AG (“Commerzbank”) agreed on the sale of almost all of Dresdner Bank AG (“Dresdner Bank”) to Commerzbank. Following the announcement, Dresdner Bank qualified as held-for-sale and discontinued operations. Therefore, results from these operations have been eliminated from our results of Banking operations and are now presented in € mna separate line item “net income from discontinued operations, net of income taxes and minority interests in earnings”. In addition to our continuing banking business, our Banking operations also reflect the results from those parts of Dresdner Bank that were not sold to Commerzbank: Oldenburgische Landesbank (OLB) and the banking clients that were introduced through our tied agents channel.(1)
Overall, the loss from operations and the sale of Dresdner Bank for 2008 amounts to €6.4 billion. In addition, our results for the first quarter of 2009 will be burdened by another €0.4 billion stemming from unrealized gains and losses and foreign exchange movements which, according to IFRS 5, can only be taken after the completion of the transaction.(2)
(1) | For further information on the |
(2) | For further information on the impact of the sale of Dresdner Bank on Allianz Group’s results, please refer to “—Net income |
Allianz Group’s Consolidated Results of Operations
Total Revenues
Year Endedended December 31, 2005 Compared2008 compared to Year Endedended December 31, 20042007
LedIn common with the industry, Allianz was affected by the difficult economic environment, which impacted both results and asset values to varying degrees across our business segments. Initially, the effects were only seen within our banking segment’s results with the major impact stemming from the investment banking activities of Dresdner Bank. In contrast, our other business segments proved to be resilient in the early part of the year. However, the worsening of the crisis progressively affected other segments. Sales of investment-oriented products slowed significantly, depressing results from our Life/Health and Asset Management businesses and we recorded a decline in our asset base driven by lower asset values. Furthermore, soaring impairments and decreased harvesting led to a decline in net income from continuing operations our total revenues increased by 4.2%of 45.8% to €100.9 billion. Internal growth was 4.3%.€3,967 million. The situation in the financial markets had a strong impact on the results and the sale of Dresdner Bank.
Property-Casualty WhileYear ended December 31, 2007 compared to year ended December 31, 2006
The turbulences in the financial markets also impacted our business development. However, the impact varied depending on the different business segments. Most of our insurance operations were not affected by these developments. Similarly, the impact on our Asset Management segment and continuing banking operations were marginal. In contrast, we continuedhad to put profitability first, we succeeded in growing gross premiums written by €281 million to €44.1 billion, and achieved internal growthrecord a significant impact of 2.7%. Particularly strong increases were experiencedthis crisis within the United States, Switzerland, Allianz Marine & Aviation and Australia.discontinued banking operations of Dresdner Bank, with the substantial portion being attributable to some business units of Dresdner Bank’s investment banking activities.
Total revenues(1)
Life/Health Statutory premiums increased by 6.5%Total revenues
in € mn
Year ended December 31, 2008 compared to €48.1 billion, originating principally from investment-oriented and single-premium products. Strong growth rates were achieved in our core European life markets, particularly in Germany, France and Italy, with growth rates in Germany and France well above 10%. In the United States, statutory premiums remained strong. Internal growth was 6.0%.year ended December 31, 2007
Banking Operating revenues from our banking operations declined by 3.3% to €6.2 billion primarily due to the faster than planned close of Dresdner Bank’s IRU and negative accounting impacts from IAS 39. In contrast, operating revenues from Dresdner Bank’s strategic businessOn an internal basis(1)(3), excludingtotal revenues decreased by 3.9%. Whereas we recorded slight growth within our Property-Casualty operations, sales of investment-oriented products within our Life/Health and Asset Management businesses suffered materially from the negative impacts from IAS 39, increaseddifficult market conditions. Foreign currency exchange effects were also a significant feature, lowering revenues by 4.1% to €6.1 billion.
Asset Management We achieved record net inflows€1,690 million whereas deconsolidation effects only accounted for €325 million of third-party assets of €64 billion, particularly from our fixed income institutional fundsbusiness within the United States and Germany. Market-related appreciation of third-party assets amounted to €33 billion. Overall, third-party assets increasedreduction. At €92,548 million, revenues were down by 27.0% to €743 billion at December 31, 2005. These positive developments led to significant operating revenue growth of 18.4% to €2.7 billion. Internal growth was 16.3%.5.3% on a nominal basis.
Year Endedended December 31, 2004 Compared2007 compared to Year Endedyear ended December 31, 2003
2004 was a year of carefully managed growth, increasing our total revenues by €3.1 billion, or 3.3%, to €96.9 billion. Excluding the effects from foreign currency translation as well as changes in scope of consolidation, growth was 6.0%.
Property-Casualty Gross premiums written remained fairly constant with growth of 0.8%, as we sought opportunities that offered a profitable correlation between premium rates and risks and were willing to forego premium growth in certain markets where this objective could not be achieved.
Life/Health and Asset Management Our two segments focusing on the promising pension and wealth accumulation market experienced increases in statutory premiums and operating revenues of 6.8% and 3.7%, respectively.
Banking Excluding the effects from foreign currency translation as well as changes in scope of consolidation, operating revenues slightly increased by 0.5%. Overall, operating revenues experienced only a 3.8% decline despite a reduced portfolio of interest-bearing assets. However, net fee and commission income increased by 5.8%.
Operating Profit
Operating Profit – Segments
in € mn
Year Ended December 31, 2005 Compared to Year Ended December 31, 20042006
In 2005, our operating profit increasedOur total revenues were up 3.0% to €97.7 billion. Foreign currency translation effects were a significant feature of fiscal year 2007, depressing total revenues by 13.2%€1.7 billion. Total internal revenue growth(3) amounted to €7.7 billion, thereby demonstrating our commitment tocontinued operational discipline4.1%. All segments contributed to this development.While Life/Health and Asset
Property-Casualty We achieved a new low combined ratio of 92.3%, 2.7 percentage points better than our target. We continued to adhere to our disciplined underwriting and pricing practices worldwide, thereby successfully improving our combined ratio by 60 basis points compared to 2004. These positive developments were achieved despite the negative impacts of various natural catastrophes, including one of the worst hurricane seasons on record. The combined effects of losses from natural catastrophes produced estimated claims of €1.1 billion, net of reinsurance. Offsetting these losses were decreases in loss estimates for previous underwriting years that resulted in an increase in operating profit of 4.6% to €4.2 billion.
Life/Health Operating profit strengthened by 13.0% and reached €1.6 billion, exceeding our 2005 target by approximately €100 million. Strongmargins on new business and the increased business volume from the strong growth rates in recent years were the most important factors in this development. Our statutory expense ratio(1)declined by 1.0 percentage point to 8.1%, resulting from statutory premium growth, while net acquisition costs and administrative expenses decreased.
Banking In 2005, Dresdner Bank was successful in increasing its operating profit by 33.2% to €775 million. This growth was principally due to a favorable development within Dresdner Bank’s net loan loss provisions, resulting in a net release of €113 million (2004: net charge of €337 million), driven predominantly by the reductions in our portfolios within our non-strategic IRU and the improved risk profile of Dresdner Bank’s strategic loan portfolio.
Asset Management Operating profit grew by 32.4% to €1.1 billion, thereby significantly
(1) |
surpassing our 2005 target. Commensurate with this development, we succeeded in consistently reducing our cost-income ratio(1) during the course of 2005 to 58.5%, a marked improvement of 4.4 percentage points. These achievements demonstrate our strong market position and attest to our superior performance as the overwhelming majority of the third-party assets we manage outperformed their respective benchmarks in 2005.
Year Ended December 31, 2004 Compared to Year Ended December 31, 2003
2004 was also a year of continued operational discipline, which resulted in a significant improvement of operating profit by €2.9 billion to €6.8 billion.
Property-Casualty We managed to reduce our combined ratio by 4.1 percentage points to 92.9% as a result of our disciplined underwriting and pricing practices, as well as stringent expense control. This positive development increased operating profit to €4.0 billion in 2004.
Life/Health Notwithstanding the 6.8% increase of our statutory premiums to €45.2 billion, our administrative expenses were reduced by 2.8% to €1.3 billion. These developments helped in large part to increase our operating profit by 12.1% to €1.4 billion.
Banking Administrative expenses and net loan loss provisions were reduced significantly by 9.4% and 66.1%, respectively. As a consequence, our Banking segment reported operating profit of €586 million.
Asset Management We succeeded in reducing our cost-income ratio by a further 4.9 percentage points to 62.9%, primarily as a result of increased operating revenues and a reduction in operating expenses. These positive developments led to an operating profit of €856 million.
Net Income
Year Ended December 31, 2005 Compared to Year Ended December 31, 2004
Net income increased significantly to €4.4 billion from €2.3 billion.
Our operating profit of €7.7 billion drove thecontinued strengthening of our earnings power with earnings from ordinary activities reaching €7.9 billion. Non-operating items, in aggregate, amounted to €137 million, benefiting from the discontinuance of goodwill amortization due to a change in accounting under IFRS (2004: charge of €1.2 billion).
The impact of net capital gains and impairments, including non-operating net trading income, remained relatively stable at €1.8 billion. Other non-operating items, in aggregate, improved by more than €300 million to a net charge of €1.7 billion, with restructuring charges declining by 71.2% to €100 million, due primarily to the absence of significant charges at Dresdner Bank.
Our tax expenses increased by 27.2% to 2.1 billion, representing an overall effective tax rate of 26.3% (2004: 31.9%). In 2005, our effective tax rate benefited from preferable tax treatment on dividend income and realized capital gains at various operating entities, as well as the discontinuation of non-tax deductible goodwill amortization. Minority interests in earnings increased by 18.7% to 1.4 billion, primarily due to increased earnings at our Italian and French Life/Health operating entities.
Year Ended December 31, 2004 Compared to Year Ended December 31, 2003
Net income amounted to €2.3 billion. Overall,quality of earnings strongly improved in 2004.
Notwithstanding the €2.9 billion and €1.2 billion increase in operating profit and earnings from ordinary activities before taxes, respectively, from our continued operational discipline, our consolidated net income declined by €425 million to €2.3 billion. This development was primarily driven by the addition of €801 million of net income in 2003 as a result of the retrospective application of new and revised IFRS effective January 1, 2005, in particular due to the adoption of IAS 39 revised. See “—Effects of Recently Adopted Accounting Pronouncements”
and Note 3 to our consolidated financial statements for further information on the impacts of retrospectively applied new and revised IFRS. This development was partially offset by a decrease in restructuring charges of 63.2% to €347 million, primarily driven by lower restructuring charges at Dresdner Bank, which fell by 65.5% to €290 million.
Our consolidated tax expense increased by €1.4 billion to €1.7 billion, largely as a consequence of the significantly reduced level of tax-exempt capital gains, representing an overall effective income tax rate of 31.9% (2003: 5.1%). Minority interests in earnings also increased to €1.2 billion.
The following table sets forth our basic and diluted earnings per share for the years ended December 2005, 2004 and 2003.
Earnings per Share
in €
The following table sets forth the total revenues, operating profit and net income for each of our business segments for the years ended December 2005, 2004 and 2003, as well as consolidated net income of the Allianz Group.(1)
Property- Casualty | Life/Health | Banking | Asset Management | Consolidation adjustments | Total Group | |||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | |||||||||||||
Year ended December 31, 2005 | ||||||||||||||||||
Total revenues(2) | 44,061 | 48,129 | 6,235 | 2,733 | (261 | ) | 100,897 | |||||||||||
Operating profit | 4,162 | 1,603 | 845 | 1,133 | — | 7,743 | ||||||||||||
Earnings from ordinary activities before taxes | 5,672 | 2,274 | 1,537 | 420 | (2,023 | ) | 7,880 | |||||||||||
Taxes | (1,126 | ) | (463 | ) | (396 | ) | (132 | ) | 3 | (2,114 | ) | |||||||
Minority interests in earnings | (997 | ) | (462 | ) | (102 | ) | (51 | ) | 226 | (1,386 | ) | |||||||
Net income | 3,549 | 1,349 | 1,039 | 237 | (1,794 | ) | 4,380 | |||||||||||
Year ended December 31, 2004 | ||||||||||||||||||
Total revenues(2) | 43,780 | 45,177 | 6,446 | 2,308 | (836 | ) | 96,875 | |||||||||||
Operating profit | 3,979 | 1,418 | 586 | 856 | — | 6,839 | ||||||||||||
Earnings from ordinary activities before taxes | 6,137 | 1,704 | (67 | ) | (275 | ) | (2,403 | ) | 5,096 | |||||||||
Taxes | (1,520 | ) | (469 | ) | 294 | 52 | (19 | ) | (1,662 | ) | ||||||||
Minority interests in earnings | (1,151 | ) | (368 | ) | (101 | ) | (52 | ) | 504 | (1,168 | ) | |||||||
Net income (loss) | 3,466 | 867 | 126 | (275 | ) | (1,918 | ) | 2,266 | ||||||||||
Year ended December 31, 2003 | ||||||||||||||||||
Total revenues(2) | 43,420 | 42,319 | 6,704 | 2,226 | (929 | ) | 93,740 | |||||||||||
Operating profit | 2,397 | 1,265 | (396 | ) | 716 | — | 3,982 | |||||||||||
Earnings from ordinary activities before taxes | 6,418 | 1,244 | (1,936 | ) | (385 | ) | (1,475 | ) | 3,866 | |||||||||
Taxes | (756 | ) | (639 | ) | 1,025 | 80 | 41 | (249 | ) | |||||||||
Minority interests in earnings | (451 | ) | (386 | ) | (104 | ) | (92 | ) | 107 | (926 | ) | |||||||
Net income (loss) | 5,211 | 219 | (1,015 | ) | (397 | ) | (1,327 | ) | 2,691 | |||||||||
Total revenues comprise Property-Casualty segment’s gross premiums written, Life/Health segment’s statutory premiums Banking segment’s operating revenues and Asset Management segment’s operating revenues. Please refer to “—Introduction” for a reconciliation of total revenues to premiums written of the Allianz Group. |
(2) | Compound annual growth rate (CAGR) is the year-over-year growth rate over a multiple-year period. |
(3) | Internal total revenue growth excludes the effects of foreign currency translation as well as acquisitions and disposals. Please refer to “—Introduction” for a reconciliation of nominal total revenue growth to internal total revenue growth for each of our segments and the Allianz Group as a whole. |
Management grew strongly, with revenues increasing by 6.3% and 13.3% respectively, on an internal basis, Property-Casualty and Banking grew modestly.
Allianz Group’s Consolidated Assets, Liabilities and Shareholders’ EquityTotal revenues – Segments
in € mn
Year ended December 31, 2008 compared to year ended December 31, 2007
At €43,728 million, gross premiums written fromProperty-Casualty operations were up 1.7% on an internal basis, as we achieved selective growth in mixed pricing environments. Premium growth was largely driven by increased revenues from the United States. Activities in the emerging markets(2) also contributed to growth. On a nominal basis, gross premiums written decreased by 2.0% to €43,387 million. Gross premiums written for 2007 include €1,134 million of premiums relating to AGF’s health business. In 2005,2008, this business was transferred to the Life/Health segment (comparatives not restated).
Statutory premiums fromLife/Health insurance amounted to €46,297 million on an internal basis representing an 8.3% decline. Whereas sales
remained solid in countries where traditional life business is strong, we recorded significantly lower revenues from unit-linked products and from bancassurance sales channels. On a nominal basis, revenues dropped by 7.6% to €45,615 million. This premium figure contains €1,199 million relating to AGF health business in 2008 (comparatives not restated).
Operating revenues fromBanking(3) operations decreased by 12.5% to €544 million with all revenue components contributing to this development.
Despite the negative impact the crisis had on the fair value of our shareholders’ equityassets under management, we still generated positive net inflows in the first nine months of 2008. In contrast, we saw large outflows in the fourth quarter as a consequence of increased investment risk aversion of customers. Net inflows for the year as a whole were nil. Due to significant market-related depreciation, third-party assets under management declined by 8.0% to €703 billion at year end 2008. With this lower asset base, fee and commission income fromAsset Management was down by 8.4% to €4,032 million. Other revenue components also contributed to the decline.
Year ended December 31, 2007 compared to year ended December 31, 2006
Property-Casualty Gross premiums written of €44.3 billion were up 1.4% on a nominal basis and 1.1% on an internal basis. With €635 million, our acquisitions in Russia and Kazakhstan contributed significantly to revenue growth. Foreign currency translation effects had a negative impact of €448 million.
We maintained our selective underwriting policy, focusing on diligent risk selection and profitable growth. In several of our core European markets, pricing trends were flat or negative, limiting the growth opportunities. Conversely, we were able to take advantage of strong profitable growth opportunities in emerging markets(2) which now make up more than 9% of total gross premiums written.
(1) | Total revenues include €115 mn, €144 mn and €130 mn from consolidation for 2008, 2007 and 2006, respectively. |
(2) | New Europe, Asia-Pacific, South America, Mexico, Middle East, Africa. |
(3) | Following the sale of almost all of Dresdner Bank to Commerzbank, our Banking segment reflects our existing banking operations as well as the Oldenburgische Landesbank and the banking clients from Dresdner Bank introduced through our tied agents channel. |
Life/Health At €49.4 billion, statutory premiums were up by 4.1%, ahead of expectations. Based on internal growth, revenues were up 6.3%. We achieved double-digit growth rates in most of our markets worldwide, with substantial contributions from emerging markets in New Europe and Asia-Pacific. While the situation in the United States remained challenging, other established markets such as France and Italy also experienced dynamic growth, while Germany, though at lower growth rates, outperformed the market.
The considerable growth in statutory premiums added to our asset base, which increased by 25.0%€8.7 billion to €47.1€350.0 billion, at December 31, 2005, furtherstrengthening our capital base. Our shareholders’s equity before minority interests grew by 31.6% to €39.5 billion. This increase resulted primarilydespite negative impacts from our strong net income for 2005, growth in unrealized gains on investments due to favorable equity market conditions and lowerforeign currency translation, higher interest rates and the weakening stock market towards year-end.
Banking(1) Operating revenues in Europe, as well as reducedour Banking segment were up by 3.0% to €622 million. Net interest income and net fee and commission income grew strongly by 11.7% and 10.1%, respectively. The development of net trading income was significantly impacted by the turbulences in the financial markets resulting in a gain of €2 million compared to €45 million in the previous year.
Asset Management In asset management we again outperformed the vast majority of our performance benchmarks. Operating revenues were up 7.1%, before negative foreign currency translation effects fromof €0.2 billion.
At €765 billion, third-party assets under management recorded net inflows and positive market effects totalling €62 billion. Offsetting this was €59 billion of negative foreign currency translation effects. As a result, the strengtheningasset base remained flat, though it experienced internal growth of the U.S. dollar against the Euro. Additionally, the reduction in treasury shares (net €352 million) and the issuance of warrants on Allianz AG shares, of which 9 million were exercised in 3Q 2005 raising capital of €828 million, increased our shareholders’ equity before minority interests. In connection with the purchase of the minority interest of Riunione Adriatica di Sicurta S.p.A. (or “RAS”), our shareholders’ equity before minority interests also increased by €1.1 billion through the issuance of shares out of authorized capital without pre-emptive rights, offset by €1.3 billion related to the acquisition cost for additional interest in RAS. See “Information on the Company – Allianz-RAS Merger/European Company (SE)” for further information on the contemplated merger of RAS with and into Allianz AG.8.1%.
Operating Profit
Shareholders’ Equity Before Minority InterestsYear ended December 31, 2008 compared to year ended December 31, 2007
At €5,649 million, theProperty-Casualty segment continued to deliver solid returns in
operating profit although 10.3% lower than in the previous year. This decline was mainly attributable to a lower underwriting result. Our combined ratio increased to 95.1%.
Operating profit from theLife/Health business amounted to €1,206 million. The 59.7% decline was mainly due to weak equity markets and widening credit spreads which strongly impacted our net investment result.
In our continuingBanking(1) business, we recorded an operating loss of €31 million, after a profit of €32 million in 2007. Lower operating revenues and higher loan loss provisions were only partially outweighed by reduced operating expenses. The cost-income ratio increased by 6.3 percentage points to 100.4 %.
At €926 million, the operating profit from ourAsset Management segment declined by 31.9% after a strong year in 2007. This development was mainly driven by reduced revenues following lower third-party assets and higher expenses.
The operating loss fromCorporate Activities decreased by 42.2% to €188 million mainly as result of lower administrative and investment expenses in the Holding Function.
Year ended December 31, 2007 compared to year ended December 31, 2006
Property-Casualty At €6.3 billion, operating profit growth was relatively flat compared to the prior year period. Claims from natural catastrophes were €0.6 billion higher than in 2006, a year that was marked by exceptionally low claims from natural catastrophes. Higher current investment income compensated for the high losses incurred in connection with windstorm Kyrill, the floods in the United Kingdom and severe storms in several parts of the world.
Life/Health Operating profit grew by 16.8% to almost €3.0 billion with most operations contributing to this growth. The key drivers behind this improvement were strong revenue growth, especially
(1) | Following the sale of almost all of Dresdner Bank to Commerzbank, our Banking segment reflects our existing banking operations as well as the Oldenburgische Landesbank and the banking clients from Dresdner Bank introduced through our tied agents channel. |
in the second half of the year. Our investment result also contributed significantly based on a higher asset base that led to higher dividend and investment payments. Furthermore the expense result and the technical result improved as well.
Banking(1) Operating profit nearly halved to €32 million, after €63 million in the prior year. Mainly higher administrative expenses at €589 million (2006: €550 million) driven by an increase in our non-personnel expenses led to this result. Our cost-income ratio was 94.1% (2006: 90.1%).
Asset Management Operating profit increased by 5.3% to €1.4 billion as we continued to benefit from a growing asset base and tight cost control. Investments in business expansion and infrastructure projects to secure future growth resulted in operating expenses increasing at a slightly higher rate than operating revenues. This is reflected in a 0.7 percentage point increase in our cost-income ratio, which is still at a very competitive level of 58.3%.
Corporate Segment Due to higher investment income and lower expenses, the operating loss was significantly reduced to €0.3 billion.
Net income from continuing operations
Net income from continuing operations
in € mn
Year ended December 31, 2008 compared to year ended December 31, 2007
Income from continuing operations before income taxes and minority interests in earnings was
(1) |
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(2) | Compound annual growth rate (CAGR) is the |
almost halved to €5,473 million. Tax expenses were also reduced by 50.0% to €1,287 million. Against this background the effective tax rate was almost stable, down 0.8 percentage points to 23.5%. Consequently, net income from continuing operations was down by 45.8% to €3,967 million.
In 2005, total assets increased by €7.6 billion (0.8%), while total liabilities decreased by €1.8 billion (0.2%). Increases within our total assetsIncome tax expenses were primarily experienced within cash and cash equivalentsreduced to €1,287 million due to our strong operating cash flow,lower taxable income as well as investments, where balances rose by €16.0 billion (102.5%)tax-exempted capital gains and €34.6 billion (13.9%), respectively. These increasesdividends that were offset in part by declines predominantly in loans and advances to banks of €30.2 billion (16.6%). Additionally, investments in associated enterprises and joint ventures declined by €3.7 billion (63.6%). Increases within our total liabilities, primarily our reserves for insurance and investment contracts, which rose by €32.8 billion (10.0%), were more thanonly partly offset by the €39.4 billion (20.6%) decrease within liabilities to banks.trade tax and similar taxes.
See “– Group Asset Allocation”Due to the lower pre-tax income and “– Liquiditythe AGF minority buy-out in 2007, minority interests in earnings decreased by 67.6% to €219 million.
Year ended December 31, 2007 compared to year ended December 31, 2006
Net income from continuing operations increased by 10.2% to €7.3 billion.
Compared to 2006, the balance of non-operating net realized gains and Capital Resources” for detailed informationimpairments was lower, and interest expense from external debt was higher. These negative impacts were partially compensated by lower restructuring charges.
Realized gains (net) which are not shared with policyholders, were €434 million lower than last year, albeit still at a high level of €2,379 million. This was mainly driven by large harvesting transactions in the first quarter of 2007, when we took advantage of market conditions. With write-downs amounting to €294 million, impairments on our investments and investments in associated enterprises and joint ventures, as well as the developmentwere €148 million higher compared to 2006.
The remaining balance of our cash and cash equivalents, respectively. Decreases in loans and advancesunrealized gains on equity securities amounted to banks and in liabilities to banks primarily reflect reduced volumes of repurchase and reverse repurchase operations at Dresdner Bank. The growth in reserves for insurance and investment contracts was driven predominantly by aggregate policy reserves at €19.7€11.0 billion (8.6%) and reserves for premium refunds at €7.3 billion (34.2%). Our aggregate policy reserves increased primarily due to strong sales of unit- and indexed-linked life insurance contracts (see “—Life/Health Insurance Operations” for further discussion). The growth within our reserves for premium refunds principally resulted from changes due to fluctuations in fair value associated with group’s own investments.
The following table presents the Allianz Group’s consolidated balance sheets as of December 31, 2005,2007, net of tax and 2004,policyholder participation.
Interest expense from external debt increased by €276 million to €1,051 million, mainly in connection with bridge financing for the acquisition of the outstanding minority interests in AGF.
Restructuring charges amounted to €166 million, €236 million less than last year. In 2006, restructuring charges stemmed primarily from our restructuring plan for the Allianz Group’s insurance operations in Germany. The charges in
2007 related mainly to the restructuring of our local subsidiaries in Italy, and the respective changes.set-up of a shared IT services infrastructure in Europe.(1)
As of December 31, | 2005 | 2004 | Change | ||||
€ mn | € mn | % | |||||
ASSETS | |||||||
Intangible assets | 15,385 | 15,147 | 1.6 | ||||
Investments in associated enterprises and joint ventures | 2,095 | 5,757 | (63.6 | ) | |||
Investments | 282,920 | 248,327 | 13.9 | ||||
Loans and advances to banks | 151,384 | 181,543 | (16.6 | ) | |||
Loans and advances to customers | 185,424 | 195,680 | (5.2 | ) | |||
Financial assets carried at fair value through income | 235,007 | 240,574 | (2.3 | ) | |||
Cash and cash equivalents | 31,647 | 15,628 | 102.5 | ||||
Amounts ceded to reinsurers from reserves for insurance and investment contracts | 22,120 | 22,310 | (0.9 | ) | |||
Deferred tax assets | 14,596 | 14,139 | 3.2 | ||||
Other assets | 57,303 | 51,213 | 11.9 | ||||
Total assets | 997,881 | 990,318 | 0.8 | ||||
As of December 31, | 2005 | 2004 | Change | ||||
€ mn | € mn | % | |||||
SHAREHOLDERS’ EQUITY AND LIABILITIES | |||||||
Shareholders’ equity before minority interests | 39,487 | 29,995 | 31.6 | ||||
Minority interests in shareholders’ equity | 7,615 | 7,696 | (1.1 | ) | |||
Shareholders’ equity | 47,102 | 37,691 | 25.0 | ||||
Participation certificates and subordinated liabilities | 14,684 | 13,230 | 11.0 | ||||
Reserves for insurance and investment contracts | 359,137 | 326,380 | 10.0 | ||||
Liabilities to banks | 151,957 | 191,347 | (20.6 | ) | |||
Liabilities to customers | 158,359 | 157,137 | 0.8 | ||||
Certificated liabilities | 59,203 | 57,752 | 2.5 | ||||
Financial liabilities carried at fair value through income | 144,640 | 145,137 | (0.3 | ) | |||
Other accrued liabilities | 14,302 | 13,984 | 2.3 | ||||
Other liabilities | 31,383 | 31,271 | 0.4 | ||||
Deferred tax liabilities | 14,621 | 14,350 | 1.9 | ||||
Deferred income | 2,493 | 2,039 | 22.3 | ||||
Total shareholders’ equity and liabilities | 997,881 | 990,318 | 0.8 | ||||
The tax charge of €429 million in 2006 was related to reclassification of policyholder participation in tax benefits arising in connection with tax-exempt income in the Life/Health segment. In the segment reporting, this effect is represented within operating items.
Our effective tax rate of 24.3% and income tax expense of €2,572 million were significantly higher than in 2006, where the one-off benefit of €521 million from capitalization of corporate tax credits in Germany significantly reduced the effective tax rate. Furthermore, a higher income before income taxes and minority interests in earnings of €10,563 million (2006: €9,563 million) contributed to this development. The German corporate tax reform 2008 (“Unternehmensteuergesetz 2008”) led to a reduction of income tax rates for German corporations from fiscal year 2008. The resulting revaluation of deferred tax positions resulted in a positive effect on net income in 2007 of €291 million.
Minority interests were €528 million lower, primarily due to the RAS minority buy-out completed in 2006 and the AGF minority buy-out in 2007.
Group Asset AllocationNet income (loss) from discontinued operations
Of the total group’s own investments, the majority are invested in fixed income securities and, to a lesser extent, equities. AtYear ended December 31, 2005, group’s own investments amounted to €467.5 billion, an increase of 6.0%2008 compared to year ended December 31, 2004. This increase was mainly due2007
Due to higher balancesthe structure of fixed income and equity available-for-sale securities, resulting predominantly from favorable capital market conditions, lower interest rates in Europe, and strong growth in sales of our life operations. See “– Life/Health Insurance Operations” for further discussion of our Life/Health segment’s results of operations. Growth in our group’s own investments was partially offset by decreased financial assets held for trading, net. Additionally, investments in associated enterprises and joint ventures, which are classified as equity investments within group’s own investments, decreased principally as a result of sales of our shareholdings in MAN AG and Gecina S.A. in 1Q 2005, Bilfinger Berger AG in 2Q 2005, as well as the sale of 7.35%Dresdner Bank, Allianz ceased to be exposed to changes in the results of our 28.48% shareholding in Eurohypo AG to Commerzbank AG in 4Q 2005. During 4Q 2005, Eurohypo AG was reclassified as held-for-sale and presented within “Other assets”. The saleDresdner Bank Group from the signing date of the remaining 21.13% participationtransaction. Instead Allianz is exposed to changes in Eurohypo AG to Commerzbank AGthe fair value of its stake in Commerzbank. Therefore, the loss from discontinued operations is scheduled for 1Q 2006,mainly subject to changes in the fulfilmentfair value of customary conditions.the consideration received.
The following table and graphs set forthAs disclosed in our assets under management, excluding third-party assets.interim report for the third quarter of 2008, the loss from discontinued operations amounted to €3.5 billion, stemming from
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Allocation of Group’s Own Investments
in € bn
Dresdner Bank’s net loss of €2.1 billion until the change in ownership and an impairment charge of €1.4 billion, reflecting the difference between the fair value of considerations agreed (€7.8 billion) and the historical carrying value of Dresdner Bank of €9.2 billion. Between October 1, 2008 and the date of completion of the transaction on January 12, 2009, the fair value of the agreed consideration declined by €2.7 billion.
Insurance Operations-Investments We limit our fixed income investment risk by establishing high thresholds on the creditworthiness of our debtorsChanges in consideration and by spreading our risk accordingly. The credit quality of our insurance operations’ fixed income securities portfolio has been, and continues to be, strong. At December 31, 2005, approximately 91% of the fixed income investments of the insurance companies of the Allianz Group had an investment grade rating. Approximately 87% were distributed over obligors that had been assigned at least an “A” rating by Standard & Poor’s. Additionally, of the not rated fixed income investments, which amounted to approximately 8% at December 31, 2005, the majority were invested fair value
in instruments of high credit quality, consisting of asset and mortgage-backed securities (e.g. Pfandbriefe), as well as loans to banks and customers. See “Quantitative and Qualitative Disclosures About Market Risk” for further information on risk management within our insurance business.€ bn
Group’s Own Investments – Insurance Operations
Fixed Income Investments by Rating Classes
in %
Group’s Own Investments – Property-Casualty Segment Asset Allocation
in € bn
Group’s Own Investments – Life/Health Segment Asset Allocation
in € bn
Banking Operations-Investments The majorityIncluding other charges of our group’s own investments within our Banking segment are invested in financial assets and financial liabilities held€0.2 billion the overall result from discontinued operations for trading. At December 31, 2005, financial assets held for trading, net,2008 amounted to approximately 81% (2004: approximately 81%) of group’s own investments, net, within our Banking segment. See “Quantitative and Qualitative Disclosures About Market Risk” for a discussion of risk management in connection with our trading activities within our banking business.
Group’s Own Investments – Banking Segment
Trading Portfolio Asset Allocation
in € bn
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Significant Allianz Group Equity Investments For a list of significant associated enterprises and other selected holdings in listed companies, including our ownership percentage, please see Note 48 to our consolidated financial statements.
Off-Balance Sheet Arrangements In the ordinary course of business, the Allianz Group enters into arrangements that, under IFRS, are not recognized on the consolidated balance sheet and do not affect the consolidated income statement. Such arrangements remain off-balance sheet as long as the Allianz Group does not incur an obligation from them or become entitled to an asset itself. As soon as an obligation is incurred, it is recognized on the Allianz Group’s consolidated balance sheet, with the corresponding loss recorded in the consolidated income statement. However, in such cases, the amount recognized on the consolidated balance sheet may or may not, in many instances, represent the full loss potential inherent in such off-balance sheet arrangements. The importance of such arrangements to the Allianz Group as it concerns liquidity, capital resources or market and credit risk support, is not significant. Additionally, the Allianz Group does not rely on off-balance sheet arrangements as a significant source of revenue. Similarly, the Allianz Group has not incurred significant expenses from such arrangements and does not reasonably expect to do so in the future.
Distinct areas the Allianz Group is involved in off-balance sheet arrangements as of December 31, 2005, which are all conducted through the normal course of our business, include various irrevocable loan commitments, leasing commitments, purchase obligations and various other commitments. Additionally, we extend market value guarantees to customers, as well as execute indemnification contracts under existing service, lease or acquisition transactions. See Notes 42 and 47 to our consolidated financial statements for further information.
Furthermore, through Dresdner Bank, and in order to seek a Tier I capital release, we conducted a synthetic securitization to place credit risk€6,411 million coming from a designated loan portfolio on the open market. Asgain of December 31, 2005, credit risks in the amount of €1.0 billion had been transferred to third-parties using a special purpose vehicle, which is not consolidated within our IFRS consolidated financial statements or our U.S. GAAP condensed financial statements in Note 47.
Effects of Recently Adopted Accounting Pronouncements
Our Annual Report on Form 20-F for the year ended December 31, 2004 was prepared in conformitywith IFRS effective as of December 31, 2004 as adopted under EU regulations in accordance with clause 292a of the German Commercial Code (or “HGB”), which we refer to below as “pre-2005 IFRS.” Effective January 1, 2005, a number of new and revised IFRS were introduced, some of which required retrospective application to all years presented within our consolidated financial statements. As discussed above, this Annual Report on Form 20-F for the year ended December 31, 2005 is prepared in accordance with 2005 IFRS. Retrospective application has the effect of applying the new and revised IFRS to prior periods as if those accounting principles had always been used. We present below a brief overview of the major impacts from the retrospective application of 2005 IFRS. For more detailed information regarding the quantitative impacts of new and revised standards under 2005 IFRS at the Allianz Group consolidated level, as well as a description of each 2005 IFRS compared to pre-2005 IFRS please refer to Note 3 of our consolidated financial statements.
The following table sets forth the impacts of 2005 IFRS on the Allianz Group’s consolidated total revenues, operating profit and net income for the years ended December 31, 2004 and 2003.
Years ended December 31, | 2004 | 2003 | ||||
€ mn | € mn | |||||
Total revenues under pre-2005 IFRS(1) | 96,892 | 93,779 | ||||
IAS 39 revised | (17 | ) | (39 | ) | ||
Total impact of 2005 IFRS | (17 | ) | (39 | ) | ||
Total revenues under 2005 IFRS | 96,875 | 93,740 | ||||
Operating profit under pre-2005 IFRS | 6,856 | 4,066 | ||||
IAS 39 revised | (17 | ) | (84 | ) | ||
Total impact of 2005 IFRS | (17 | ) | (84 | ) | ||
Operating profit under 2005 IFRS | 6,839 | 3,982 | ||||
Net income under pre-2005 IFRS | 2,199 | 1,890 | ||||
IAS 39 revised | 209 | 915 | ||||
IFRS 4 | (19 | ) | 6 | |||
IFRS 2 | (123 | ) | (120 | ) | ||
Total impact of 2005 IFRS | 67 | 801 | ||||
Net income under 2005 IFRS | 2,266 | 2,691 | ||||
The following table sets forth the impacts of 2005 IFRS on the Allianz Group’s consolidated assets, liabilities and shareholders’ equity as of December 31, 2004.€650 million.
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(2) | €0.25 bn cash received in exchange for cancellation of trust fund valued at €0.1 bn. |
(3) | €1.4 bn cash received as compensation for reduction in number of Commerzbank shares by 152 mn valued at €2.4 bn. |
(4) | Marked-to-market as of January 12, 2009. |
IAS 1 revisedYear ended December 31, 2007 compared to year ended December 31, 2006
Net income from discontinued operations increased by 70.6% to €650 million.
Operating revenues from discontinued operations of Dresdner Bank amounted to €4,918 million, down 21.4% compared to the previous year. This development resulted mainly from the effects of the financial markets turbulence which heavily impacted net trading income. Operating expenses, at €4,447 million, were 12.1% lower and loan loss provisions showed net releases of €131 million in 2007, after net additions of €31 million last year. The positive impacts from lower operating expenses and the development of loan loss provisions, however, could not compensate for the drop in operating revenues. As a result, operating profit nearly halved to €602 million. Higher net realized gains, and lower net impairments as well as restructuring charges led to a gain from non-operating items of €403 million in 2007, compared to a loss of €407 million in the previous year. As the favorable change of non-operating items of €810 million more than offset the drop in operating profit of €565 million, the result from discontinued operations before income taxes and minority interests in earnings was up by €245 million to €1,005 million. Income tax expenses and minority interests in earnings remained stable.
Net income (loss)
Year ended December 31, 2008 compared to year ended December 31, 2007
The adoptionnet loss for 2008 amounted to €2,444 million compared to a net income of IAS 1 revised required€7,966 million a year ago.
Year ended December 31, 2007 compared to year ended December 31, 2006
Net income grew by 13.5% to almost €8.0 billion.
Earnings per share
The following graph presents our basic and diluted earnings per share for the inclusionyears ended December 31, 2008, 2007 and 2006.
Earnings per share(1)
in €
Year ended December 31, 2008 compared to year ended December 31, 2007
The net loss translates into negative basic earnings per share of €5.43 (diluted: €(5.47)). Taking only net income from continuing operations into account, basic earnings per share were €8.81 (diluted: €8.59).
Year ended December 31, 2007 compared to year ended December 31, 2006
The net income translates into basic earnings per share of €18.00 (diluted: €17.71). Taking only net income from continuing operations into account, basic earnings per share were €16.53 (diluted: €16.26).
(1) | Refer to Note 50 to our consolidated financial statements for further details. |
Shareholders’ equity
The following graph presents our shareholders’ equity as of December 31, 2008, 2007 and 2006.
Shareholders’ equity(1)
in € mn
Year ended December 31, 2008 compared to year ended December 31, 2007
As of December 31, 2008, shareholders’ equity amounted to €33,684 million, down €14,069 million from previous year. Main drivers for the decline were net unrealized losses from investments of €8,459 million, the dividend payment of €2,472 million and the net loss amounting to €2,444 million.
(1) | Does not include minority interests. |
(2) | Compound annual growth rate (CAGR) is the year-over-year growth rate over a multiple-year period. |
Year ended December 31, 2007 compared to year ended December 31, 2006
As of December 31, 2007, shareholders’ equity amounted to €47,753 million, down €1,897 million from the previous year. Additions to the shareholders’ equity were primarily the 2007 net income of €7,966 million and a capital increase of €2,765 million for the execution and financing of the AGF minority interestsbuy-out. The goodwill related to the minority buy-outs of AGF and Allianz Leben amounting to €6,966 million was recorded as a reduction of shareholders’ equity. Together with the transfer on disposal of unrealized gains and losses to realized of €2,484 million were these the largest downward movements. Furthermore, foreign currency translation effects of €1,446 million and the dividend payment of €1,642 million contributed to the overall reduction in shareholders’ equity. Hence, shareholders’ equity increased, while
The following table summarizes the total liabilities decreased byrevenues, operating profit and net income for each of our segments for the same amount.years ended December 31, 2008, 2007 and 2006, as well as the IFRS consolidated net income of the Allianz Group.
Property- Casualty | Life/ Health | Banking | Asset Management | Corporate | Consolidation | Group | |||||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | € mn | |||||||||||||||
2008 | |||||||||||||||||||||
Total revenues | 43,387 | 45,615 | 544 | 2,887 | — | 115 | 92,548 | ||||||||||||||
Operating profit (loss) | 5,649 | 1,206 | (31 | ) | 926 | (188 | ) | — | — | ||||||||||||
Non-operating items | 287 | (533 | ) | (130 | ) | (293 | ) | (1,156 | ) | — | — | ||||||||||
Income (loss) from continuing operations before income taxes and minority interests in earnings | 5,936 | 673 | (161 | ) | 633 | (1,344 | ) | (264 | ) | 5,473 | |||||||||||
Income taxes | (1,489 | ) | (260 | ) | 54 | (249 | ) | 631 | 26 | (1,287 | ) | ||||||||||
Minority interests in earnings | (112 | ) | (86 | ) | (7 | ) | (5 | ) | (12 | ) | 3 | (219 | ) | ||||||||
Net income (loss) from continuing operations | 4,335 | 327 | (114 | ) | 379 | (725 | ) | (235 | ) | 3,967 | |||||||||||
Net income (loss) from discontinued operations, net of income taxes and minority interests in earnings | — | — | (6,304 | ) | — | — | (107 | ) | (6,411 | ) | |||||||||||
Net income (loss) | 4,335 | 327 | (6,418 | ) | 379 | (725 | ) | (342 | ) | (2,444 | ) | ||||||||||
2007 | |||||||||||||||||||||
Total revenues | 44,289 | 49,367 | 622 | 3,259 | — | 144 | 97,681 | ||||||||||||||
Operating profit (loss) | 6,299 | 2,995 | 32 | 1,359 | (325 | ) | — | — | |||||||||||||
Non-operating items | 962 | 107 | 13 | (494 | ) | (29 | ) | — | — | ||||||||||||
Income (loss) from continuing operations before income taxes and minority interests in earnings | 7,261 | 3,102 | 45 | 865 | (354 | ) | (356 | ) | 10,563 | ||||||||||||
Income taxes | (1,656 | ) | (897 | ) | 10 | (342 | ) | 217 | 96 | (2,572 | ) | ||||||||||
Minority interests in earnings | (431 | ) | (214 | ) | — | (25 | ) | (21 | ) | 16 | (675 | ) | |||||||||
Net income (loss) from continuing operations | 5,174 | 1,991 | 55 | 498 | (158 | ) | (244 | ) | 7,316 | ||||||||||||
Net income (loss) from discontinued operations, net of income taxes and minority interests in earnings | — | — | 322 | — | — | 328 | 650 | ||||||||||||||
Net income (loss) | 5,174 | 1,991 | 377 | 498 | (158 | ) | 84 | 7,966 | |||||||||||||
2006 | |||||||||||||||||||||
Total revenues | 43,674 | 47,421 | 604 | 3,044 | — | 130 | 94,873 | ||||||||||||||
Operating profit (loss) | 6,269 | 2,565 | 63 | 1,290 | (831 | ) | — | — | |||||||||||||
Non-operating items | 1,291 | 135 | 13 | (555 | ) | (156 | ) | — | — | ||||||||||||
Income (loss) from continuing operations before income taxes and minority interests in earnings | 7,560 | 2,700 | 76 | 735 | (987 | ) | (521 | ) | 9,563 | ||||||||||||
Income taxes | (2,075 | ) | (641 | ) | (1 | ) | (278 | ) | 824 | 451 | (1,720 | ) | |||||||||
Minority interests in earnings | (739 | ) | (416 | ) | (6 | ) | (53 | ) | (16 | ) | 27 | (1,203 | ) | ||||||||
Net income (loss) from continuing operations | 4,746 | 1,643 | 69 | 404 | (179 | ) | (43 | ) | 6,640 | ||||||||||||
Net income (loss) from discontinued operations, net of income taxes and minority interests in earnings | — | — | 849 | — | — | (468 | ) | 381 | |||||||||||||
Net income (loss) | 4,746 | 1,643 | 918 | 404 | (179 | ) | (511 | ) | 7,021 | ||||||||||||
Total revenues comprise Property-Casualty segment’s gross premiums written, Life/Health segment’s statutory premiums, Banking segment’s operating revenues and Asset Management segment’s operating revenues. Please refer to “—Introduction” for a reconciliation of total revenues to premiums written of the Allianz Group.
IAS 39 revisedImpact of the Financial Markets Turbulence
IAS 39 revised required several changesThe financial markets crisis had its root cause in the subprime crisis, when rising defaults on subprime mortgages in the United States resulted in significant deterioration of prices for securitized assets. Primarily, this affected collateralized debt obligations (CDOs) and residential mortgage-backed securities especially those originating in the United States (U.S. RMBS). The revaluation of these assets resulted in massive write-downs in the industry. Subsequently, uncertainty about the extent and distribution of losses arose and the interbank market started to freeze. This prompted central banks to take concerted action and provide the Allianz Group’s accounting policies. Onecapital markets with additional liquidity.
In 2008, the crisis that started as a subprime mortgage crisis, broadly spilled over to other sectors of the most significant of these changes relates tofinancial industry and ultimately also hit the recognition of impairments of available-for-sale equity securities. In particular, the changes in the Allianz Group’s impairment policy led to the following effects on our consolidated financial statements:
In common with the industry, Allianz was affected by the turbulence in 2003the financial markets, which impacted both results and 2004, resulting in increased net income in 2003 and 2004, withasset values. However, the impact varied across our Property-Casualty, Life/Health and Banking segments most heavily impacted. The increase in net realized gains in 2003 and 2004 was offset in partbusiness segments.
Our operations were significantly impacted by a decrease in reversals of impairments on available-for-sale equity and fixed-income securities since such reversals are no longer permitted under IAS 39 revised, and an increase inas well as lower sales of investment-oriented life insurance and investment contract benefits due to policyholder participation inasset management products. In addition, credit spread widening, higher volatility and lower interest rates impacted our trading and fair value option (FVO) result significantly.
Impact on the increased net realized gains.assets of our continuing operations
2008 | 2007 | |||||
€ mn | € mn | |||||
Operating | ||||||
Equities | (5,924 | ) | (882 | ) | ||
Fixed-income | (261 | ) | (1 | ) | ||
Real estate | (14 | ) | (8 | ) | ||
Impairments | (6,199 | ) | (891 | ) | ||
Fair value option / Trading | (733 | ) | (782 | ) | ||
Non-operating | ||||||
Equities | (2,882 | ) | (276 | ) | ||
Fixed-income | (354 | ) | (11 | ) | ||
Real estate | (60 | ) | (7 | ) | ||
Impairments | (3,296 | ) | (294 | ) | ||
Fair value option / Trading | 47 | (35 | ) |
IFRS 2Asset-backed securities exposure
Of our Property-Casualty asset base, asset-backed securities (ABS) made up €4.4 billion as of December 31, 2008, which is around 5% of our asset-base. CDOs accounted for €0.1 billion of this amount.
Within our Life/Health asset base, ABS amounted to €15.3 billion as of December 31, 2008, which is less than 5% of total Life/Health assets. Of these, €0.3 billion are CDOs. Unrealized losses on CDOs of €10 million were recorded in our shareholders’ equity.
Subprime exposures within CDOs of the insurance portfolio were negligible.
As part of the transaction with Commerzbank on January 12, 2009, Allianz committed to purchase certain CDOs with a notional value of approximately €2 billion for consideration of €1.1 billion. The CDOs were purchased at fair value and the transaction was executed in February 2009.
Monoline Exposure
As a result of the adoption of IFRS 2, the PIMCO LLC Class B Unit Purchase Plan (or “Class B Plan”) is considered a cash settled plan as the equity instruments issued are puttable at the holder’s option, resulting in changes in the fair value of the shares issuedDecember 31, 2008, Allianz’s monoline exposure amounted to be recognized as expense. The adoption of IFRS 2 led€547 million (December 31, 2007: €405 million), which mainly relate to additional charges in 2003 and 2004, shown as additional acquisition-related expenses and administrative expenses in our Asset Management segment.bond insurance on U.S. municipal bonds.
Breakdown of exposure by rating class
in %
Bond insurer exposure as of December 31, 2008 (in € mn)
Monoliner 1 | Monoliner 2 | Monoliner 3 | Monoliner 4 | Other | Total | |||||||
Underlying Rating/Insurer Rating | BAA | CAA | AA | BAA | ||||||||
AAA | 2 | 0 | 0 | 35 | 0 | 37 | ||||||
AA | 60 | 2 | 93 | 239 | 0 | 394 | ||||||
A | 10 | 0 | 33 | 55 | 3 | 101 | ||||||
BAA | 14 | 1 | 1 | 1 | 0 | 16 | ||||||
Total | 85 | 3 | 126 | 330 | 3 | 547 | ||||||
Bond insurer exposure as of December 31, 2007 (in € mn)
Monoliner 1 | Monoliner 2 | Monoliner 3 | Monoliner 4 | Other | Total | |||||||
Underlying Rating/Insurer Rating | AAA | AAA | AAA | AAA | ||||||||
AAA | 1 | 0 | 0 | 0 | 0 | 1 | ||||||
AA | 39 | 85 | 67 | 95 | 0 | 286 | ||||||
A | 9 | 12 | 30 | 36 | 0 | 86 | ||||||
BAA | 19 | 0 | 1 | 11 | 0 | 32 | ||||||
Total | 68 | 97 | 98 | 142 | 0 | 405 | ||||||
Impact on discontinued operations of Dresdner Bank
Dresdner Bank was engaged in various business activities involving structured products. As presented in the table below, these comprise ABS, credit enhancements, conduits, leveraged buy-out commitments (LBO) and structured investment vehicles (SIV). Furthermore, Dresdner Bank has sold credit protection for third-party ABS and has re-insured these positions with monoliners. With the
sale of Dresdner Bank in January 2009, Allianz’s exposure to these structured products was transferred to Commerzbank, with the exception of the aforementioned CDOs repurchased by Allianz in February 2009, as well as a continuing minority interest in a Dresdner Bank-sponsored SPE with assets of €40 million as of December 31, 2008, as further described under “Balance Sheet Review—Consolidated Special Purpose Entities” and “Balance Sheet Review—Off-Balance Sheet Arrangements”.
Area of focus | Exposure definition | Exposure | Negative impact on operating profit | |||||||
12/31/2007 | 12/31/2008 | 4Q 2008 | 2008 | |||||||
€ bn | € bn | € mn | € mn | |||||||
1. LBO commitments | Gross exposure | 4.5 | 3.4 | 572 | 662 | |||||
2. Conduits business | Drawn and funded amounts | 4.0 | 4.6 | — | — | |||||
3. ABS | ||||||||||
a. CDOs(1) | Net exposure(2) | 1.5 | 2.3 | 511 | 1,510 | |||||
b. U.S. RMBS | Net exposure(2) | 1.4 | 0.6 | 134 | 714 | |||||
c. Other ABS | Net exposure(2) | 6.3 | 2.2 | 232 | 356 | |||||
4. Credit enhancements | Gap risk/second loss | 2.9 | 1.6 | 24 | 61 | |||||
5. Monolines | Net counterparty risk(3) | 0.8 | 2.4 | 694 | 1,007 | |||||
6. K2 | Gross exposure | 16.4 | 4.7 | 542 | 693 |
(1) | In January 2009, Allianz repurchased certain CDOs from Dresdner Bank. For further information please refer to “—Impact on Balance Sheet Review—Off-Balance Sheet Arrangements”. |
(2) | After markdowns |
(3) | Gross counterparty risk after counterparty default adjustments (CDA) |
Recently Adopted and Issued Accounting Pronouncements and Changes in the Presentation of the Consolidated Financial Statements
See NotesFor information on recently adopted and issued accounting pronouncements please refer to Note 3 and 47 to our consolidated financial statements for recently issued IFRS accounting pronouncements and recently issued U.S. GAAP accounting pronouncements, respectively, effective on or after January 1, 2006.statements.
Events After the Balance Sheet Date
SeeRefer to “—Recent and Expected Developments—Economic Outlook” and Note 4652 to ourthe consolidated financial statements.
Property-Casualty Insurance Operations
Year Endedended December 31, 2005 Compared2008 compared to Year Endedyear ended December 31, 20042007
Combined ratio further improved to 92.3%.
Selective growth achieved a record low combinedin mixed pricing environments.
Combined ratio of 92.3%–2.7 percentage points better than95.1% close to our target—despite the effects of natural catastrophes.
target.
Year Endedended December 31, 2004 Compared2007 compared to Year Endedyear ended December 31, 20032006
We continuedEmerging markets contributed more than €4 billion to focus on profitable growth and reduced our combined ratio to 92.9 %.steadily growing premiums.
Profitability sustained throughout the cycle.
Combined ratio of investments.93.6%.
Earnings Summary
Gross Premiums Written by Regionpremiums written
Gross premiums written-Internal growth rates(1)
in € bn%
(1) | Before elimination of transactions between Allianz Group companies in different geographic regions and different segments. |
Year ended December 31, 2008 compared to year ended December 31, 2007
Gross premiums written(2)
At €43,728 million, gross premiums written were 1.7% ahead of the previous year on an internal basis. Despite a slightly negative pricing impact of approximately 0.5% for the segment, which stemmed from ongoing soft markets in many countries, we achieved selective growth. Premiums increased in the United States and organic growth was evident in South America, France, Poland and our Travel Insurance and Assistance Services business, among others. On a nominal basis, premium growth was impacted by the transfer of AGF’s health business to the Life/Health segment in 2008 (respective premiums in 2007: €1,134 million). Furthermore, negative currency translation effects amounted to €821 million. Overall, gross premiums written were down by 2.0% to €43,387 million.
Gross premiums written at Allianz Sach in Germany decreased—both on an internal and on a nominal basis—by 0.9% or €81 million, in particular due to the soft pricing conditions in the motor insurance market.
In the United States, gross premiums written grew by 11.1% or €480 million on an internal basis. In the face of continued pricing pressure, we observed declining revenues in many lines of business. We estimate the negative price effect on premiums written in 2008 to be 3.2%. Excluding the contribution from crop insurance business, internal premiums were down by 5.2%. A negative foreign currency translation effect also impacted growth by €366 million. Nominal growth in the United States was 2.6%.
In Italy, premiums declined by €471 million or 9.0% on an internal basis. This shortfall was mainly due to a significant decrease in motor insurance business, driven by a lower number of new car registrations and our rigorous underwriting approach.
(2) | We comment on the development of our gross premiums written on an internal basis; meaning adjusted for foreign currency translation and (de-)consolidation effects in order to provide more comparable information. Please refer to “—Introduction” for a reconciliation of nominal total revenue growth to internal total revenue growth for each of our segments and the Allianz Group as a whole. |
Furthermore, prices were impacted by the Bersani law, which resulted in a market-wide price reduction. The negative pricing impact on our Italian business is estimated to be 2.8%. On a nominal basis, premiums declined by 9.3%.
On an internal basis, revenues in France were up by 1.2% or €48 million, supported by a positive price effect of approximately 1.9%. On a nominal basis, the €1,156 million decrease in revenues was mainly due to the transfer of AGF’s health business to the Life/Health segment.
In South America, premiums increased by €181 million or 20.6%, mainly driven by Brazil where all lines of business experienced growth, motor insurance in particular. On a nominal basis, premiums were up by 14.3%.
Adjusted for the consolidation of ROSNO and Progress Garant in Russia as well as ATF-Polis in Kazakhstan, internal revenue growth in New Europe amounted to €99 million or 3.6%. The main driver of this development was motor insurance business in Poland and increased property business in Slovakia. On a nominal basis, revenues in New Europe grew by 11.6%.
Nominal growth in the emerging markets(1) in total amounted to 12.8%. Together, these markets contributed €4,835 million (2007: €4,286 million) or 11.1% (2007: 9.7%) to total gross premiums written.
Travel Insurance and Assistance Services recorded an increase in gross premiums written of €89 million or 7.8%, on both an internal and nominal basis.
Year ended December 31, 2007 compared to year ended December 31, 2006
Gross premiums written were 1.4% ahead of previous year at €44,289 million. Our acquisitions in Russia and Kazakhstan contributed significantly to premium volume, while large foreign currency translation effects of €448 million almost offset this increase. Therefore, on an internal basis, premiums grew by 1.1%. Furthermore, in 2007, our strategy of selective underwriting proved to be again successful as we were able to limit pricing impacts while at the same time achieving slight organic growth.
(1) | New Europe, Asia-Pacific, South America, Mexico, Middle East, Africa. |
The revenue development remained mixed across our different regions. We recorded strong premium growth of €962 million in our emerging markets which compensated for flat or even negative revenue trends in the more mature markets. This shows that our strategy of expansion into emerging markets is paying off. Together, these markets contributed €4,286 million (2006: €3,324 million) or 9.7% (2006: 7.6%) to total gross premiums written.
Increases in gross premiums written were primarily achieved in New Europe and Spain as well as in the global travel and assistance business at Mondial and credit insurance at Euler Hermes. In contrast, as we intentionally forewent premium growth in order to protect our underwriting profitability, revenues were down in the United States and in Italy.
With €838 million additional premium volume, New Europe contributed the highest portion to revenue growth. The first time consolidation of ROSNO and Progress Garant in Russia and ATF-Polis in Kazakhstan were the main drivers for this development. Additionally, motor insurance business in Poland and Romania added to the increase in gross premiums.
In Spain, revenues increased by €123 million. Here, our operations outperformed the market in all lines of business despite the weak situation in the motor market. Main contributions came from industrial and personal lines.
Increase in gross premiums written in our Travel and Assistance business by €95 million was driven by growth in most regions coming mainly from e-commerce partnerships in travel insurance.
Premium growth within the credit insurance business was due to higher business volume. Despite the weak U.S. Dollar compared to the Euro and price declines which are due to high competition and very low claims ratios in the market, total revenues were up by €90 million.
At Allianz Sach within Germany, we closely monitored pricing developments in order to maintain profitability. Due to a weak market environment and higher no claims bonuses in motor insurance, revenues declined by €114 million. Furthermore, internal reinsurance business at Allianz SE, which we
also show within Germany, was significantly reduced as we optimized internal reinsurance arrangements in the year under review. Overall premiums in Germany were down by €681 million.
In the United States we recorded revenues of €4,306 million. At Fireman’s Fund Insurance Company (Fireman’s Fund) we saw a decline of €206 million from the prior year, primarily reflecting the decline in the U.S. Dollar compared to the Euro. On a U.S. Dollar basis, growth amounted to 3.8% and we saw a satisfying business performance, coming predominantly from crop insurance business and personal lines.
Our operations in Italy showed a decline in gross premiums written of €167 million mainly due to stagnation in the motor market and the impact from a new regulation, the so-called Bersani law, which resulted in an overall price reduction.
In the United Kingdom the decrease of €160 million in revenues was due to the internal transfer of large risk business to Allianz Global Corporate & Specialty (AGCS). Otherwise, premium volume increased by €185 million mainly coming from personal motor and commercial lines.
Gross premiums written by region as of December 31, 2008 (December 31, 2007)(1)
in %
(1) | After elimination of transactions between Allianz Group companies in different geographic regions and different segments. |
Gross Premiums Written – Growth Rates(1)Operating profit
in € mn
Gross premiums writtenYear ended December 31, 2008 compared to year ended December 31, 2007
Despite the challenging market conditions, the segment delivered another solid operating profit of €5,649 million, albeit 10.3% below previous year’s value. This is the result of our disciplined underwriting approach, cost control and a stable investment income. The decline was mainly attributable to a lower underwriting result, the majority of which related to credit insurance and the U.S. crop insurance business. The overall higher claims level was partly compensated by a reduction in expenses.
The combined ratio of 95.1% was close to our target level albeit 1.5 percentage points above 2007, mainly impacted by a 2.2 percentage points increase in the accident year loss ratio, to 71.8%. In our Credit Insurance business at Euler Hermes, we observed an increase in payment delays, which are the industry’s lead indicator for future defaults. In addition, the number of insolvencies—such as the large retailer Woolworths—started to increase. As a result, the accident year loss ratio for credit insurance was 85.0%, after 57.1% in 2007. Following a slump in commodity prices in the United States at the end of September, we experienced a lower underwriting result from crop insurance amounting to €(7) million, down from €79 million in 2007.
In 2008, an increase in overall claims severity was partly compensated by a slightly lower claims
frequency. We benefited from a lower level of natural catastrophe claims, which accounted for €667 million compared to €774 million in 2007. Major claims in 2008 were the windstorm Emma and the hailstorm Hilal as well as hurricane Ike with €168 million, €135 million and €159 million net impact on the Group, respectively. In contrast to natural catastrophe claims, the impact of other large claims was higher compared to the prior year. There was a favourable net development in prior years’ loss reserves was of 3.8%. Overall, the calendar year loss ratio increased by 1.9 percentage points to 68.0%.
Acquisition and administrative expenses decreased by 2.4% to €10,356 million. This was due to a significant reduction in adminstrative expenses, partly driven by further efficiency improvements contributing savings of €120 million. As a result, our expense ratio improved by 0.4 percentage points to 27.1%.
Interest and similar income was stable at €4,477 million. Higher interest income on debt securities due to an increase in investment volume was offset by the decline in dividend income due to an equity reduction program. Our net outflows from equity investments amounted to €5.0 billion in 2008.
Net investment income decreased by €562 million. While interest and similar income was stable, we recorded shortfalls in other investment income, such as the negative market performance of special funds (fair value option, FVO) mainly at AGF, amounting to approximately €(0.2) billion. Additionally, expenses from foreign exchange hedges contributed to the decrease.
Year ended December 31, 2007 compared to year ended December 31, 2006
At €6,299 million operating profit was above the targeted level. Compared to 2006, a year that was characterized by exceptionally low losses from natural catastrophes, operating profit growth was relatively flat at 0.5%.
Claims and insurance benefits incurred were up by 3.3% to €25,485 million and the calendar year loss ratio was up by 1.1 percentage points to 66.1%. Of the total claims €774 million (2006: €211 million), or 2.0 percentage points of the loss ratio, were attributable to severe losses from natural
catastrophes such as windstorm Kyrill, the floods in the United Kingdom and storms in several parts of the world. Also contributing to the increase were higher large claims incurred at AGCS as well as our newly consolidated entities in Russia and Kazakhstan.
The accident year loss ratio increased by 2.0 percentage points to 69.6%. Furthermore, previous year’s loss ratio was on a generally lower level.
Acquisition and administrative expenses were almost stable, up 0.2% to €10,616 million. These expenses also contain significant investments in group initiatives. Our administrative costs came down, showing that our tight cost control and efficiency measures have started to pay-off. Slightly higher acquisition costs stem from an increase in profitable, higher-commission business and the acquisition of our Russian subsidiaries. In total, our expense ratio of 27.5% was down 0.4% on the previous year.
Our combined ratio increased by 0.7 percentage points to 93.6%.
Interest and similar income was up by 9.2% to €4,473 million, as the higher asset base resulted in a rise in dividends received and increased interest income.
Non-operating result
Year Endedended December 31, 2005 Compared2008 compared to Year Endedyear ended December 31, 20042007
Capitalizing on growth opportunities in markets that offered a profitable correlation between premium rates and risks and our willingness to forego premium growth in markets with increasing pricing pressures, we were successful in slightly growing gross premiums written from €43,780The non-operating result decreased by €675 million to €44,061€287 million, despite the disposal of our Taiwanese, Chilean and Canadian operations in the second half of 2004. Based on internal growth, gross premiums written increased by 2.7%.
Growth varied considerably across different markets. Positive developments were primarily experienced by our operations in the United States, our Swiss operations, Allianz Marine & Aviation within our specialty lines, and Allianz Australia with additional gross premiums written of €355 million (7.7%), €196 million (10.8%), €185 million (19.5%) and €145 million (11.0%), respectively. At Fireman’s Fund Insurance Company (or “Fireman’s Fund”) in the United States, increases across all lines of business were achieved, namely in our personal, commercial and specialty lines with a constant focus on disciplined underwriting and increased sales effectiveness in our chosen markets. In Switzerland, growth was driven primarily by Allianz Risk Transfer (or “ART”). At Allianz Marine & Aviation, the positive development was driven by our marine and aviation business in the United Kingdom, largely as a result of additional business generatedhigher impairments of investments. These impairments more than offset higher net realized gains.
Net realized gains from a fairly new branch office, as well as the strengthening of the British Pound against the Euro. The increase at Allianz Australia resulted from its broker and agency channels as well as its financial institutions and direct divisionsinvestments increased by €916 million to €2,349 million mainly due to intensified customer relationship managementforward sales of participations in RWE, Linde and positive exchange rate effects.Siemens which were already locked-in in 2007.
Further increases, albeitNon-operating impairments on investments increased by €1,736 million to a lesser degree, were also experienced€2,012 million, reflecting the overall weakness in South America, Spain and Italy with gross premiums written increasing by 19.5% (€117 million), 6.2% (€110 million) and 1.9% (€98 million), respectively. The growth in South America, specifically from AGF Seguros in Brazil, stemmed from, among other factors, our motor business as a result of increased sales of new cars. The beneficial development in Spain at Allianz Seguros was driven by all lines of business, namely our motor, personal and industrial lines. In Italy, the increase in grosspremiums written at RAS was mainly driven by the development of our non-motor business, and in particular by the significant growth of personal lines and business with small and medium enterprises. Furthermore, motor business at RAS increased marginally, in line with the market growth in Italy, partially compensated by the development of the direct channel, Genialloyd. Within our specialty lines, growth within credit insurance at Euler Hermes of €71 million (4.4%) resulted from significant growth at our French, Italian and United States operations, as our customers in these regions increased their sales, producing increased receivables. Similarly, within travel insurance and assistance services, Mondial Assistance Group saw an increase of €92 million (10.2%), primarily driven by increased sales through the Internet as well as stronger sales through airline partners.financial markets.
These increases were offset by decreased gross premiums written primarily in Germany, the United Kingdom, France, as well as at Allianz Global Risks Re, where gross premiums written decreased by €373 million (2.9%), €166 million (6.3%), €178 million (3.4%) and €35 million (2.6%), respectively.
The decline in Germany resulted largely from the commutation of an intra-Allianz Group reinsurance agreement between Allianz AG and Allianz Lebensversicherungs-AG (or “Allianz Leben”) in 1Q 2005. Furthermore, at Sachgruppe Deutschland (or “SGD”), we remained committedYear ended December 31, 2007 compared to our policy of focusing on profitability and not volume. Additionally, SGD undertook a range of portfolio measures in our motor business resulting in higher “no claims bonuses”, which reduced gross premiums written on these contracts. As a consequence, gross premiums written at SGD declined by 1.3% to €10,035 million.year ended December 31, 2006
In the United Kingdom at Allianz Cornhill, this decline was primarily relatedtotal, non-operating items decreased by 25.5% to €962 million mainly coming from lower premiums in our motornet realized gains, a negative trading result and household lines, a development that washigher impairments of investments. These effects could not be balanced by lower restructuring charges.
Net realized gains from investments decreased significantly driven by our cycle management efforts, through which we endeavor17.9% to balance volume and margin criteria. Our French subsidiary, AGF, as result of a more competitive environment, experienced decreases in gross premiums written especially through its brokerage business with large accounts. The decline in gross premiums written at Allianz Global Risks Re resulted€1,433 million from a more competitive environment in the global property market, leading primarily to a decrease of new business volume.
Year Ended December 31, 2004 Compared to Year Ended December 31, 2003
Our gross premiums written increased by €360 million, or 0.8%, to €43,780 million from €43,420 million. Excluding the effects from foreign currency translation as well as changes in scope of consolidation, gross premiums written increased by 2.1%. This increase was specifically due to rate increases, particularly in Italy, Switzerland, the United Kingdom and Germany and to growth in new business, particularly in Central and Eastern Europe, Australia and Spain. The increase was offset in part by the effects of a more selective underwriting policy and portfolio review measures, particularly in France, and a decrease in gross premiums written at Allianz Marine & Aviation within our specialty lines and at our operations in The Netherlands. These achievements reflect our strategy of selective growth which we pursued. While we continue to strive for profitable growth, we are willing to forego sales growth.
Growth varied considerably across different markets in 2004. Positive developments were primarily experienced by our operations in Italy, Switzerland, the United Kingdom, Germany and Allianz Australia with additional gross premiums written of €154 million (3.0%), €74 million (4.2%), €94 million (3.7%), €151 million (1.2%) and €71 million (5.7%). In Italy, this increase was due to growth in almost all lines of business, particularly in our automobile, general liability, fire and personal property lines. Automobile premiums increased by €85 million, or 2.5%, reflecting an increase in the number of vehicles insured, while general liability premiums increased by €32 million, or 8.4%, reflecting primarily new business and rate increases resulting from a review of our portfolio.
In Switzerland, growth was driven by Allianz Risk Transfer, reflecting primarily the sale of a large alternative risk contract, offset in part by the negative effect of exchange rate movements. In the United Kingdom, gross premiums written grew due primarily to increased business in our commercial lines and specialty insurance, reflecting strong growth in our engineering business and pet insurance lines, offset in part by decreased gross premiums written in our personal lines business, attributableyear earlier largely to the withdrawal from a major motor affinity relationship following a decision to rate for profit rather than volume.
In Germany, gross premiums written increased, reflecting growth in almost all lines of business, in particular personal accident insurance resulting mainly from increases in new business. This increase was offset in part by a decrease in automobile insurance, due primarily to substantial competition where clients were highly sensitive to rate changes, as well as to a more stringent underwriting practice and our continuous portfolio monitoring and re-underwriting measures.
Our operations in Asia-Pacific increased gross premiums written, driven by strong growth in our Australian operations, offset in part by decreased gross premiums written in Taiwan as a result of the sale of our property-casualty operationsparticipation in TaiwanSchering AG and the disposal of a real estate portfolio in the second half of 2004. Further increasesAustria at that time. Conversely, no major single sales transactions were also experiencedrecorded in Spain and Central and Eastern Europe with gross premiums written increasing by €82 million (4.9%) and €97 million (6.4%), respectively.2007.
These increases were offset by decreased gross premiums written primarily in France, the Netherlands, as well as at Allianz Marine & Aviation, where gross premiums written decreased by €85Non-operating net impairments of investments increased to €276 million, (1.6%), €112 million (10.2%) and €124 million (11.6%).reflecting impairments of available-for-sale equity securities.
InRestructuring charges were down by two thirds to €122 million as the NAFTA region, gross premiums written deceased slightly to €5,351 million (2003: €5,380 million), primarily as a result of a negative currency translation effect. Excludingprior year’s figure reflected the currency translation effect, gross premiums written inimpact from the NAFTA zone increased reflecting growth in the United States due primarily to increases in direct and assumed premiums in our crop insurance line at Fireman’s Fund, offset in part by a decline in Canada where we sold our private clients business as we did not have the critical business volume necessary in this competitive market.
Operating Profit
in € mn
Operating profit
Year Ended December 31, 2005 Compared to Year Ended December 31, 2004
Driven by further improvement of ourcombined ratio(1) to a new low of 92.3%, our operating profit grew by 4.6% to €4,162 million, a growth rate stronger than thatreorganization of our gross premiums written. The strongest improvements occurred at Fireman’s FundGerman insurance operations that was not repeated in the United States (€154 million), Allianz Australia (€101 million), Credit Insurance through Euler Hermes (€73 million), SGD (€67 million), as well as RAS in Italy (€42 million).
In a year that saw a large number of global catastrophes and one of the worst hurricane seasons on record, the insurance and reinsurance markets as a whole incurred multi-billion Euros in damages. Our operating entities most affected by the natural catastrophes included Allianz Marine & Aviation, Allianz Global Risks Re, Allianz AG, Fireman’s Fund, SGD and Allianz Suisse. Total estimated claims from natural catastrophes, net of reinsurance, were €1.1 billion in 2005, increasing our accident yearloss ratio(2) to 70.2% (2004: 69.0%). These natural catastrophe losses were mitigated by positive net development on prior years’ loss reserves largely in the United Kingdom, Italy, Slovakia, and in our specialty lines, comprising 2.6% of our total carried net loss reserves at January 1, 2005; our calendar year loss ratio(3) decreased to 67.1% (67.7%). However, our net loss reserve position remains sound. Moreover, our ratio of loss reserves expressed as a percentage of net premiums earned has increasedfrom 119.2% to 130.7% over the prior year. In the United States, the planned external review of the A&E liability reserves at Fireman’s Fund had no net impact at the Allianz Group level as a result of already sufficient reserves, absent a USD 65 million loss caused by the increase in provisions for uncollectible reinsurance recoverables and unallocated loss adjustment expenses.
Ourexpense ratio(4) remained stable at 25.2% (2004: 25.2%), although our administrative expenses declined by €55 million.Net acquisition costs andadministrative expenses rose slightly by 4.6% to €10,840 million, due to increased expenses for service agreements from the consolidation of a non-insurance entity acquired in the latter part of 3Q 2004, which are not included in the calculation of our expense ratio.2007.
CurrentNet income from investments remained relatively unchanged at €3,901 million. Investment management and interest expenses decreased significantly to €488 million, which was due to a reclassification of interest expenses attributable to investments financed by borrowed funds, which is now classified in otheroperating income/expenses (net).
Year Endedended December 31, 2004 Compared2008 compared to Year Endedyear ended December 31, 20032007
OurThe lower operating profit improved significantly with an increaseand the decrease in non-operating items were the main drivers of 66.0%the 16.2% reduction in net income to €3,979 million€4,335 million.
Income tax expenses decreased to €1,489 million. The effective tax rate increased from €2,397 million,22.8% to 25.1%. The low tax rate in 2007 was mainly reflecting an improved underwriting result.driven by tax benefits due to the tax reform in Germany and tax rate changes in Italy and France.
Ourloss ratio, which decreased forMinority interests in earnings of €112 million showed a decline on the third consecutiveprior year declined by 3.8 percentage points to 67.7%, driven primarily by our disciplined underwriting and pricing practices. We believe this improvement was positive in light of losses arising from natural catastrophe claims in 2004. As a result of our risk management system, we recorded only € €216 million of net losses in connection with claims arising fromfollowing the hurricanes which struck the South-Eastern United States in August and September 2004, which was low in comparison to our market share in the United States. Net losses in connection with the tsunamis which struck South Asia in late December 2004 amounted to €22 million.
Ourexpense ratio also decreased from 25.5 % to 25.2 %. Overall, ourcombined ratio improved by 4.1 percentage points to 92.9% from 97.0%.
Net incomeminority buy-out at AGF.
Year Endedended December 31, 2005 Compared2007 compared to Year Endedyear ended December 31, 20042006
Net income increased by 2.4%9.0% to €3,549 million, driven by our robust operating profitability, despite a decline in non-operating results of more than €600€5,174 million.
Net capital gains and impairments on investments were relatively unchanged, as our strong operating profitability allowed us to reduce the realization of net capital gains by €538 million, while net impairments were €519 million lower due to strong capital markets and the absence of a large real estate impairment recorded in 2004.
Net trading income declined to a loss of €426 million, driven by negative changes in fair values of €220 million from certain derivatives in connection with our “All-in-One” capital market transactions. However, economically, these negative fair value changes were offset by the increased market prices of shares of DAX companies we own, although the development of these available-for-sale securities is reflected in unrealized gains and losses within shareholders’ equity, and not net income. Additionally, the effects of embedded derivatives from an equity-linked loan, which was issued in connection with the Allianz-RAS merger, contributed €243 million to the significant decline in our net trading income.
Intra-group dividends and profit transfer was €432 million lower than in 2004, due primarily to our French operating entity, AGF Holding, receiving in 2004 a one-off dividend from our life/health operating entity, AGF Vie. The intra-group dividends and profit transfer were eliminated at the Allianz Group level.
Interest expense on external debt decreased slightly by 3.4% resulting primarily from the maturation of two bond issues during 1Q and 3Q 2005.
Conversely,restructuring charges of €67 million were incurred during 2005, of which €52million are attributable to the AGF Group as a result of an early retirement program.
Other non-operating income/(expenses) (net) declined by €163 million due to the sale of real estate used for own use in the prior year by SGD. Net income was positively impacted by the elimination of goodwill amortization brought about by a change in accounting under IFRS (2004: €381 million).
Tax expenses decreased by 25.9% to €1,126 million, leading to an Our effective tax rate of 19.4% (2004: 24.3%), largely driven by the discontinuation of non-tax deductible goodwill amortization.
Minority interests in earnings decreased by 13.4%further declined from 27.4% to €997 million, primarily as a result of reduced earnings at our French operating entities.
Year Ended December 31, 2004 Compared to Year Ended December 31, 2003
Net capital gains and impairments on investments decreased by €4,724 million to €1,325 million from €6,049 million, primarily as a result of significant realized gains in connection with the sale of certain shareholdings in 2003, including, most notably, interests in Beiersdorf AG and Munich Re.
Net trading income improved22.8%. Income tax expenses were down significantly to a loss of €49 million€1,656 million. This development benefited particularly from a loss of €1,490 million, which reflected losses in the first half of 2003 relating to the use of certain derivative financial instruments to hedge our equity exposure.
Intra-group dividends and profit transfer and interest expense on external debt were ��1,963 million and €863 million as compared to €676 million and €831 million, respectively. The increase in intra-group dividends and profit transfer reflected higher dividend payouts by our subsidiaries, particularly in France and the United States, attributable to significantly improved operating profitability in 2004. The intra-group dividends and profit transfer were eliminated at the Allianz Group level.
Due to improved operating profitability,German tax expenses increased by €764 million to €1,520 million. Similarly,reform. Additionally lower minority interests in earnings increased by €700contributed €308 million to €1,151 million.income growth. This resulted primarily from the minority buy-out at RAS in Italy and at AGF in France.
Overall,net income declined by €1,745 million to €3,466 million.
The following table sets forth our Property-Casualty insurance segment’s income statement, loss ratio, expense ratio and key operating ratioscombined ratio for the years ended December 31, 2005, 20042008, 2007 and 2003.2006.
Years ended December 31, | 2005 | 2004 | 2003 | ||||||
€ mn | € mn | € mn | |||||||
Gross premiums written | 44,061 | 43,780 | 43,420 | ||||||
Premiums earned (net)(1) | 38,017 | 38,193 | 37,277 | ||||||
Current income from investments | 3,901 | 3,935 | 3,854 | ||||||
Investment management and interest expenses | (488 | ) | (834 | ) | (1,295 | ) | |||
Insurance benefits (net)(2) | (26,076 | ) | (26,650 | ) | (27,261 | ) | |||
Net acquisition costs and administrative expenses(3) | (10,840 | ) | (10,360 | ) | (9,814 | ) | |||
Other operating income/ (expenses)(net) | (352 | ) | (305 | ) | (364 | ) | |||
Operating profit | 4,162 | 3,979 | 2,397 | ||||||
Net capital gains and impairments on investments(4) | 1,306 | 1,325 | 6,049 | (5) | |||||
Net trading income/(expenses)(6) | (426 | ) | (49 | ) | (1,490 | ) | |||
Intra-group dividends and profit transfer | 1,531 | 1,963 | 676 | ||||||
Interest expense on external debt | (834 | ) | (863 | ) | (831 | ) | |||
Amortization of goodwill(7) | — | (381 | ) | (383 | ) | ||||
Restructuring charges | (67 | ) | — | — | |||||
Other non-operating income/ (expenses)(net) | — | 163 | — | ||||||
Earnings from ordinary activities before taxes | 5,672 | 6,137 | 6,418 | ||||||
Taxes | (1,126 | ) | (1,520 | ) | (756 | ) | |||
Minority interests in earnings | (997 | ) | (1,151 | ) | (451 | ) | |||
Net income | 3,549 | 3,466 | 5,211 | ||||||
Loss ratio(8) in% | 67.1 | 67.7 | 71.5 | ||||||
Expense ratio(9) in% | 25.2 | 25.2 | 25.5 | ||||||
Combined ratio(10) in% | 92.3 | 92.9 | 97.0 | ||||||
Property-Casualty segment information(1)
2008 | 2007 | 2006 | |||||||
€ mn | € mn | € mn | |||||||
Gross premiums written(2) | 43,387 | 44,289 | 43,674 | ||||||
Ceded premiums written | (4,972 | ) | (5,320 | ) | (5,415 | ) | |||
Change in unearned premiums | (202 | ) | (416 | ) | (309 | ) | |||
Premiums earned (net) | 38,213 | 38,553 | 37,950 | ||||||
Interest and similar income | 4,477 | 4,473 | 4,096 | ||||||
Operating income from financial assets and liabilities carried at fair value through income (net)(3) | (158 | ) | 144 | 106 | |||||
Operating realized gains/losses (net)(4) | 37 | 46 | 46 | ||||||
Fee and commission income | 1,247 | 1,178 | 1,014 | ||||||
Other income | 271 | 122 | 69 | ||||||
Income from fully consolidated private equity investments | 3 | — | — | ||||||
Operating revenues | 44,090 | 44,516 | 43,281 | ||||||
Claims and insurance benefits incurred (net) | (25,986 | ) | (25,485 | ) | (24,672 | ) | |||
Changes in reserves for insurance and investment contracts (net) | 3 | (339 | ) | (425 | ) | ||||
Interest expenses | (295 | ) | (402 | ) | (273 | ) | |||
Loan loss provisions | (17 | ) | (6 | ) | (2 | ) | |||
Operating impairments of investments (net)(5) | (437 | ) | (67 | ) | (25 | ) | |||
Investment expenses | (207 | ) | (322 | ) | (300 | ) | |||
Acquisition and administrative expenses (net) | (10,356 | ) | (10,616 | ) | (10,590 | ) | |||
Fee and commission expenses | (1,141 | ) | (967 | ) | (721 | ) | |||
Other expenses | (2 | ) | (13 | ) | (4 | ) | |||
Expenses from fully consolidated private equity investments | (3 | ) | — | — | |||||
Operating expenses | (38,441 | ) | (38,217 | ) | (37,012 | ) | |||
Operating profit | 5,649 | 6,299 | 6,269 | ||||||
Non-operating income from financial assets and liabilities carried at fair value through income (net)(3) | 42 | (59 | ) | 83 | |||||
Non-operating realized gains/losses (net)(4) | 2,349 | 1,433 | 1,746 | ||||||
Non-operating impairments of investments (net)(5) | (2,012 | ) | (276 | ) | (175 | ) | |||
Amortization of intangible assets | (17 | ) | (14 | ) | (1 | ) | |||
Restructuring charges | (75 | ) | (122 | ) | (362 | ) | |||
Non-operating items | 287 | 962 | 1,291 | ||||||
Income before income taxes and minority interests in earnings | 5,936 | 7,261 | 7,560 | ||||||
Income taxes | (1,489 | ) | (1,656 | ) | (2,075 | ) | |||
Minority interests in earnings | (112 | ) | (431 | ) | (739 | ) | |||
Net income | 4,335 | 5,174 | 4,746 | ||||||
Loss ratio(6) in % | 68.0 | 66.1 | 65.0 | ||||||
Expense ratio(7) in % | 27.1 | 27.5 | 27.9 | ||||||
Combined ratio(8) in % | 95.1 | 93.6 | 92.9 |
(1) | Since 2008, health business in Belgium and France is shown within Life/Health segment. Prior year balances have not been adjusted. |
(2) | For the |
(3) | The total of |
(4) | The total of these items equals realized |
(5) | The total of |
(6) | Represents claims and insurance benefits incurred (net) divided by premiums earned (net). |
(7) | Represents acquisition and |
(8) | Represents |
Property-Casualty Operations by Geographic RegionBusiness Division
The following table sets forth our property-casualtyProperty-Casualty gross premiums written, premiums earned (net), combined ratio, loss ratio, expense ratio as well as earnings after taxes and before minority interests in earnings, which we refer to herein as “earnings after taxesoperating profit by business division for the years ended December 31, 2008, 2007 and before minority interests”, by geographic region. Applicable only for 2004 and 2003, earnings after taxes and before minority interests excludes amortization of goodwill.2006. Consistent with our general practice, gross premiums written, combined ratio, loss ratio, expense ratio as well as earnings after taxes and before minority interests by geographic regionthese figures are presented before consolidation adjustments, representing the elimination of transactions between Allianz Group companies in different geographic regions and different segments.
Combined ratio Years ended December 31, Germany France Italy United Kingdom Switzerland Spain Other Europe, thereof Netherlands(1) Austria Ireland Belgium Portugal Luxembourg(2) Greece Western and Southern Europe Hungary Slovakia Czech Republic Poland Romania Bulgaria Croatia Russia Central and Eastern Europe NAFTA, thereof United States Canada Mexico Asia-Pacific, thereof Australia Other South America Other Specialty Lines Credit Insurance Allianz Global Risks Re Allianz Marine & Aviation Travel Insurance and Assistance Services Subtotal Consolidation adjustments(4) Subtotal Amortization of goodwill(5) Minority interests Total Gross premiums written
€ mn
% 2005 2004 2003 2005 2004 2003 12,424 12,797 12,646 89.5 93.6 97.4 5,104 5,282 5,367 99.0 98.4 104.2 5,369 5,271 5,117 90.5 90.5 93.8 2,466 2,632 2,538 94.0 93.4 96.1 2,012 1,816 1,742 96.4 92.6 96.3 1,873 1,763 1,681 90.8 90.9 95.5 5,125 5,154 5,262 87.4 91.9 96.5 930 981 1,093 89.9 97.4 99.6 935 926 906 94.9 96.4 98.6 742 792 856 77.1 77.2 85.6 352 351 374 102.8 103.7 105.1 304 315 305 91.5 94.0 100.6 3 108 142 125.9 79.1 135.6 71 73 75 80.8 116.4 106.3 3,337 3,546 3,751 89.6 84.4 98.1 599 533 546 94.9 96.2 92.0 301 326 324 51.6 94.9 97.7 248 234 227 84.1 82.1 88.1 246 196 158 91.4 95.3 100.1 220 169 131 90.2 88.9 76.3 89 78 64 52.6 32.3 46.3 60 48 40 93.8 91.0 99.5 25 24 21 23.4 42.5 20.1 1,788 1,608 1,511 82.5 91.2 91.4 5,157 5,351 5,380 94.7 92.7 98.2 4,982 4,627 4,597 94.5 96.0 99.2 — 464 568 — 87.0 100.0 175 260 215 104.6 32.1 51.7 1,749 1,672 1,654 92.1 96.5 95.5 1,469 1,324 1,253 91.9 97.1 95.6 280 348 401 93.5 92.6 94.7 716 599 614 96.8 98.0 103.9 61 63 61 — (3) — (3) — (3) 1,701 1,630 1,564 66.5 69.0 82.0 1,310 1,345 1,346 99.9 97.7 98.8 1,134 949 1,073 148.5 93.6 87.3 992 900 818 91.5 91.6 91.9 47,193 47,224 46,863 92.3 92.9 97.0 (3,132 ) (3,444 ) (3,443 ) — — — 44,061 43,780 43,420 92.3 92.9 97.0 — — — — — — — — — — — — 44,061 43,780 43,420 92.3 92.9 97.0
Gross premiums written | Premiums earned (net) | Operating profit | |||||||||||||||||||||||||||||||
2008 | 2007 | 2006 | 2008 internal(1) | 2007 internal(1) | 2008 | 2007 | 2006 | 2008 | 2007 | 2006 | |||||||||||||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | |||||||||||||||||||||||
Germany(2) | 9,358 | 9,446 | 9,558 | 9,358 | 9,446 | 7,367 | 7,223 | 7,258 | 1,365 | 1,411 | 1,233 | ||||||||||||||||||||||
Switzerland(2) | 1,241 | 1,804 | 1,805 | 1,210 | 1,188 | 1,190 | 1,595 | 1,706 | 145 | 218 | 228 | ||||||||||||||||||||||
Austria | 900 | 915 | 922 | 900 | 896 | 734 | 748 | 782 | 79 | 86 | 82 | ||||||||||||||||||||||
German Speaking Countries | 11,499 | 12,165 | 12,285 | 11,468 | 11,530 | 9,291 | 9,566 | 9,746 | 1,589 | 1,715 | 1,543 | ||||||||||||||||||||||
Italy | 4,741 | 5,229 | 5,396 | 4,741 | 5,212 | 4,647 | 4,902 | 4,935 | 690 | 719 | 816 | ||||||||||||||||||||||
Spain | 2,156 | 2,136 | 2,013 | 2,156 | 2,136 | 1,863 | 1,820 | 1,675 | 286 | 253 | 252 | ||||||||||||||||||||||
South America | 1,049 | 918 | 869 | 1,061 | 880 | 764 | 692 | 623 | 82 | 55 | 47 | ||||||||||||||||||||||
Portugal | 298 | 283 | 287 | 298 | 283 | 247 | 246 | 258 | 36 | 38 | 36 | ||||||||||||||||||||||
Turkey(3) | 180 | — | — | — | — | 128 | — | — | 9 | — | — | ||||||||||||||||||||||
Greece | 83 | 79 | 74 | 83 | 79 | 55 | 50 | 46 | 10 | 9 | 10 | ||||||||||||||||||||||
Europe I incl. South America | 8,507 | 8,645 | 8,639 | 8,339 | 8,590 | 7,704 | 7,710 | 7,537 | 1,113 | 1,074 | 1,161 | ||||||||||||||||||||||
France(4) | 3,930 | 5,086 | 5,110 | 3,930 | 3,882 | 3,281 | 4,422 | 4,429 | 280 | 486 | 420 | ||||||||||||||||||||||
Credit Insurance | 1,804 | 1,762 | 1,672 | 1,804 | 1,762 | 1,360 | 1,268 | 1,113 | 144 | 496 | 442 | ||||||||||||||||||||||
Travel Insurance and Assistance Services | 1,228 | 1,139 | 1,044 | 1,228 | 1,139 | 1,196 | 1,093 | 1,008 | 106 | 97 | 90 | ||||||||||||||||||||||
Netherlands | 913 | 927 | 926 | 913 | 927 | 800 | 809 | 813 | 72 | 108 | 150 | ||||||||||||||||||||||
Belgium(4) | 335 | 374 | 356 | 335 | 325 | 261 | 301 | 298 | 40 | 40 | 30 | ||||||||||||||||||||||
Africa | 62 | 55 | 47 | 62 | 55 | 37 | 32 | 27 | 9 | 8 | 7 | ||||||||||||||||||||||
Europe II incl. Africa | 8,272 | 9,343 | 9,155 | 8,272 | 8,090 | 6,935 | 7,925 | 7,688 | 677 | (5) | 1,257 | (5) | 1,151 | (5) | |||||||||||||||||||
United States | 4,420 | 4,306 | 4,510 | 4,786 | 4,306 | 3,297 | 3,341 | 3,523 | 273 | 651 | 810 | ||||||||||||||||||||||
Mexico(6) | 205 | 201 | 192 | 222 | 201 | 83 | 86 | 100 | �� | 20 | 12 | 15 | |||||||||||||||||||||
NAFTA | 4,625 | 4,507 | 4,702 | 5,008 | 4,507 | 3,380 | 3,427 | 3,623 | 293 | 663 | 825 | ||||||||||||||||||||||
Reinsurance PC | 3,470 | 3,191 | 4,035 | 3,493 | 3,548 | 2,824 | 2,022 | 2,585 | 500 | 217 | 245 | ||||||||||||||||||||||
Allianz Global Corporate & Specialty | 2,859 | 2,811 | 2,802 | 2,859 | 2,896 | 1,813 | 1,800 | 1,545 | 431 | 414 | 404 | ||||||||||||||||||||||
AZ Insurance plc | 1,925 | 2,236 | 2,396 | 2,237 | 2,236 | 1,769 | 1,989 | 1,874 | 243 | 206 | 288 | ||||||||||||||||||||||
Australia | 1,484 | 1,543 | 1,452 | 1,575 | 1,543 | 1,171 | 1,245 | 1,195 | 265 | 296 | 225 | ||||||||||||||||||||||
Ireland | 672 | 691 | 704 | 672 | 691 | 597 | 614 | 622 | 114 | 180 | 222 | ||||||||||||||||||||||
ART | 350 | — | — | 271 | 208 | 168 | — | — | 55 | — | — | ||||||||||||||||||||||
Anglo Broker Markets/Global Lines | 15,385 | 14,979 | 16,091 | 16,115 | 15,629 | 11,722 | 11,097 | 11,444 | 1,901 | 1,976 | 2,209 | ||||||||||||||||||||||
Russia(7) | 857 | 678 | 30 | 688 | 678 | 705 | 574 | 4 | 41 | 7 | 1 | ||||||||||||||||||||||
Hungary | 546 | 580 | 575 | 547 | 580 | 471 | 502 | 499 | 80 | 73 | 68 | ||||||||||||||||||||||
Poland | 460 | 367 | 283 | 426 | 367 | 337 | 246 | 200 | 38 | 24 | 20 | ||||||||||||||||||||||
Romania | 346 | 341 | 291 | 383 | 341 | 135 | 155 | 132 | 10 | 11 | 11 | ||||||||||||||||||||||
Slovakia | 348 | 319 | 288 | 323 | 319 | 296 | 273 | 251 | 90 | 112 | 52 | ||||||||||||||||||||||
Czech Republic | 278 | 249 | 253 | 251 | 249 | 208 | 183 | 179 | 44 | 41 | 29 | ||||||||||||||||||||||
Bulgaria | 110 | 103 | 95 | 110 | 103 | 81 | 70 | 70 | 19 | 16 | 16 | ||||||||||||||||||||||
Croatia | 95 | 86 | 70 | 94 | 86 | 78 | 63 | 53 | 6 | 2 | 4 | ||||||||||||||||||||||
New Europe(8) | 3,040 | 2,723 | 1,885 | 2,822 | 2,723 | 2,312 | 2,067 | 1,388 | 300 | 256 | 184 | ||||||||||||||||||||||
Asia-Pacific (excl. Australia) | 425 | 349 | 310 | 413 | 349 | 226 | 170 | 141 | 23 | 16 | 19 | ||||||||||||||||||||||
Middle East | 54 | 40 | 20 | 57 | 40 | 25 | 21 | 8 | 3 | 2 | 2 | ||||||||||||||||||||||
Growth Markets | 3,519 | 3,112 | 2,215 | 3,292 | 3,112 | 2,563 | 2,258 | 1,537 | 326 | 274 | 205 | ||||||||||||||||||||||
Consolidation(9) | (3,795 | ) | (3,955 | ) | (4,712 | ) | (3,758 | ) | (3,953 | ) | (2 | ) | (3 | ) | (2 | ) | 43 | 3 | — | ||||||||||||||
Total | 43,387 | 44,289 | 43,674 | 43,728 | 42,998 | 38,213 | 38,553 | 37,950 | 5,649 | 6,299 | 6,269 | ||||||||||||||||||||||
(1) | Reflect gross premiums written on an internal basis (adjusted for foreign currency translation and |
(2) | Reinsurance business of Allianz Suisse was transferred to Allianz SE. Effective 1Q 2008, renewal business is shown in |
(3) | Effective July 21, 2008, Koç Allianz Sigorta AS was consolidated following the acquisition of approximately 47.1% of the shares in Koç Allianz Sigorta AS by the Allianz Group, increasing our holding to approximately 84.2%. |
(4) | Effective 1Q 2008, health business in France and Belgium is shown within Life/Health segment. Prior year balances have not been adjusted. |
(5) | Contains €16 mn, €21 mn and €20 mn for 2008, 2007 and 2006, respectively, from a former operating entity located in Luxembourg and also €10 mn, €1 mn and €(8) mn for 2008, 2007 and 2006, respectively, from AGF UK. |
To be continued on page 81.
Germany(2) Switzerland(2) Austria German Speaking Countries Italy Spain South America Portugal Turkey(3) Greece Europe I incl. South America France(4) Credit Insurance Travel Insurance and Assistance Services Netherlands Belgium(4) Africa Europe II incl. Africa United States Mexico(6) NAFTA Reinsurance PC Allianz Global Corporate & Specialty AZ Insurance plc Australia Ireland ART Anglo Broker Markets/Global Lines Russia(7) Hungary Poland Romania Slovakia Czech Republic Bulgaria Croatia New Europe(8) Asia-Pacific (excl. Australia) Middle East Growth Markets Consolidation(9) Total Combined ratio Loss ratio Expense ratio 2008 2007 2006 2008 2007 2006 2008 2007 2006 % % % % % % % % % 95.0 91.0 92.0 69.5 64.9 64.9 25.5 26.1 27.1 92.8 95.1 92.8 70.2 69.5 69.3 22.6 25.6 23.5 93.7 95.8 98.4 70.1 73.1 73.1 23.6 22.7 25.3 94.6 92.0 92.7 69.6 66.3 66.4 25.0 25.7 26.3 96.7 94.8 91.8 73.1 71.2 68.8 23.6 23.6 23.0 90.4 91.4 90.3 69.9 71.6 71.0 20.5 19.8 19.3 98.5 99.0 101.2 65.1 62.9 64.8 33.4 36.1 36.4 92.5 91.6 91.2 65.0 65.9 64.4 27.5 25.7 26.8 109.5 — — 85.6 — — 23.9 — — 90.4 88.7 92.4 59.9 58.2 57.7 30.5 30.5 34.7 95.4 94.2 92.2 71.4 70.3 68.7 24.0 23.9 23.5 97.2 97.3 99.2 69.3 70.9 71.0 27.9 26.4 28.2 104.3 76.5 77.6 77.6 47.9 49.7 26.7 28.6 27.9 93.3 93.7 101.8 57.6 58.1 58.7 35.7 35.6 43.1 97.7 94.1 88.7 67.4 62.0 57.1 30.3 32.1 31.6 96.7 102.3 104.5 60.2 65.7 66.9 36.5 36.6 37.6 91.7 92.7 89.1 48.8 53.2 39.8 42.9 39.5 49.3 98.0 93.5 95.8 68.3 64.5 64.8 29.7 29.0 31.0 101.2 91.1 88.6 74.4 61.3 57.9 26.8 29.8 30.7 94.4 95.0 102.5 70.0 71.6 78.8 24.4 23.4 23.7 101.0 91.2 88.9 74.3 61.6 58.4 26.7 29.6 30.5 87.9 94.1 95.6 62.0 64.6 65.8 25.9 29.5 29.8 89.5 96.0 92.2 62.3 67.9 62.5 27.2 28.1 29.7 94.7 98.7 94.3 60.4 65.4 63.0 34.3 33.3 31.3 97.1 95.7 96.2 72.7 70.8 70.3 24.4 24.9 25.9 91.9 95.1 74.4 67.0 69.6 50.2 24.9 25.5 24.2 81.3 — — 31.3 — — 50.0 — — 94.0 94.6 91.7 66.3 65.3 62.1 27.7 29.3 29.6 101.1 104.2 88.5 59.7 64.7 34.7 41.4 39.5 53.8 93.3 96.7 97.0 61.2 67.1 64.8 32.1 29.6 32.2 93.3 94.4 92.8 60.7 58.6 57.4 32.6 35.8 35.4 102.0 101.2 92.0 73.1 79.7 72.4 28.9 21.5 19.6 77.5 66.8 86.4 46.1 38.2 55.4 31.4 28.6 31.0 80.8 79.5 82.6 60.5 56.7 61.4 20.3 22.8 21.2 77.8 85.5 80.2 48.0 43.6 41.7 29.8 41.9 38.5 97.7 100.1 95.6 64.8 65.1 63.8 32.9 35.0 31.8 92.7 94.3 92.0 59.0 60.8 61.1 33.7 33.5 30.9 96.9 98.6 93.8 63.0 60.2 55.7 33.9 38.4 38.1 127.2 105.3 101.9 66.0 60.2 33.0 61.2 45.1 68.9 93.4 94.7 92.1 59.4 60.7 60.4 34.0 34.0 31.7 — — — — — — — — — 95.1 93.6 92.9 68.0 66.1 65.0 27.1 27.5 27.9
Continuing footnotes from page 80.
(6) | Effective 1Q 2007, life business in Mexico is shown within the Life/Health segment. Prior year balances have not been adjusted. |
(7) | Effective February 21, 2007, Russian People’s Insurance Society “Rosno” was consolidated following the acquisition of approximately 49.2% of the shares in ROSNO by the Allianz Group, increasing our holding to approximately 97%. Effective May 21, 2007, we consolidated Progress Garant for the first time. |
(8) | Contains income and expense items from a management holding. |
(9) | Represents |
Loss Ratio % Expense Ratio % Earnings after taxes € mn Years ended December 31, Germany France Italy United Kingdom Switzerland Spain Other Europe, thereof Netherlands(1) Austria Ireland Belgium Portugal Luxembourg(2) Greece Western and Southern Europe Hungary Slovakia Czech Republic Poland Romania Bulgaria Croatia Russia Central and Eastern Europe NAFTA, thereof United States Canada Mexico Asia-Pacific, thereof Australia Other South America Other Specialty Lines Credit Insurance Allianz Global Risks Re Allianz Marine & Aviation Travel Insurance and Assistance Services Subtotal Consolidation adjustments(4) Subtotal Amortization of goodwill(5) Minority interests Total
and before minority interests 2005 2004 2003 2005 2004 2003 2005 2004 2003 64.2 68.5 71.7 25.3 25.1 25.7 1,398 1,850 4,612 74.0 73.5 79.8 25.0 24.9 24.4 975 1,540 358 68.0 68.1 70.9 22.5 22.4 22.9 892 703 513 64.1 63.6 67.1 29.9 29.8 29.0 283 228 198 74.9 72.9 71.0 21.5 19.7 25.3 153 156 97 71.4 72.2 75.9 19.4 18.7 19.6 170 180 101 61.7 67.1 72.6 25.7 24.8 23.9 1,138 921 632 60.5 68.4 74.7 29.4 29.0 24.9 441 382 479 72.4 72.2 75.4 22.5 24.2 23.2 157 109 48 54.9 55.9 64.9 22.2 21.3 20.7 175 185 105 66.1 68.9 68.0 36.7 34.8 37.1 115 80 44 66.9 70.2 76.3 24.6 23.8 24.3 28 16 8 1.3 76.6 133.7 124.6 2.5 1.9 24 43 (146 ) 49.7 87.9 69.0 31.1 28.5 37.3 4 (15 ) (2 ) 63.4 59.3 74.3 26.2 25.1 23.8 944 800 536 69.9 71.2 67.1 25.0 25.0 24.9 59 46 53 25.1 72.6 76.8 26.5 22.3 20.9 64 10 5 63.6 63.3 69.2 20.5 18.8 18.9 20 20 5 60.0 61.2 59.5 31.4 34.1 40.6 19 12 7 75.7 71.1 61.6 14.5 17.8 14.7 9 10 14 27.0 12.4 31.2 25.6 19.9 15.1 19 19 10 63.0 58.7 61.9 30.8 32.3 37.6 3 3 0 5.8 14.0 (0.2 ) 17.6 28.5 20.3 1 1 2 57.9 67.3 67.5 24.6 23.9 23.9 194 121 96 68.3 64.7 70.0 26.4 28.0 28.2 826 538 (57 ) 68.0 67.0 70.2 26.5 29.0 29.0 813 486 (82 ) — 62.6 76.7 — 24.4 23.3 — 41 14 81.2 19.3 33.4 23.4 12.8 18.3 13 11 11 68.0 72.8 71.7 24.1 23.7 23.8 173 139 109 69.1 75.1 73.9 22.8 22.0 21.7 167 98 91 57.2 57.1 58.5 36.3 35.5 36.2 6 41 18 64.5 64.7 71.3 32.3 33.3 32.6 57 50 13 — (3) — (3) — (3) — (3) — (3) — (3) 6 7 9 41.2 40.8 49.3 25.3 28.2 32.7 290 214 125 71.3 68.9 70.9 28.6 28.8 27.9 38 52 73 123.5 64.4 65.5 25.0 29.2 21.8 (186 ) 88 68 60.3 59.8 60.6 31.2 31.8 31.3 51 23 20 67.1 67.7 71.5 25.2 25.2 25.5 6,264 6,689 6,871 — — — — — — (1,718 ) (1,691 ) (826 ) 67.1 67.7 71.5 25.2 25.2 25.5 4,546 4,998 6,045 — — — — — — — (381 ) (383 ) — — — — — — (997 ) (1,151 ) (451 ) 67.1 67.7 71.5 25.2 25.2 25.5 3,549 3,466 5,211
Our Largest Markets & Companies(1)
Germany
Within our most important market, we market our “Allianz” brand through various operating entities combined under SGD. SGD is the market leader in Germany based on gross written premiums in 2005(2), accounting for €10.0 billion, or 21%, of our gross premiums written. SGD offers a wide variety of insurance products, of which our main lines of business include motor—liability and own damage—general liability, homeowner and accident. SGD distributes our products mainly through a network of full-time tied agents. However, distribution through Dresdner Bank branches and the Internet is increasing in relative importance. With Germany being a rather mature market with a high degree of competition, one of the key challenges is successfully managing the trade-off between achieving growth while maintaining profitability. Please refer to “Reorganization of German Insurance Operations” for a description of initiatives we have undertaken to further strengthen our position in the German market going forward.
France
In France, we are represented through our “AGF” brand. AGF comprised 11% of our gross premiums written in 2005, with a volume of €5.1 billion. AGF offers a broad range of products for both individuals and corporate customers including property, injury and liability insurance. AGF distributes primarily through a network of generalagents, brokers and other direct sales channels. AGF is ranked third in France, based on gross premiums written in 2004(3). Operating in a market which has seen only limited growth in recent years, AGF has focused intensively on maintaining operating profitability while simultaneously implementing selective growth initiatives.
Italy
We operate in the Italian market through our “RAS” and “Lloyd Adriatico” brands. The Italian non-motor market, which has a lower penetration rate for insurance products in comparison to other European markets, provides us with great growth potential. With a combined €5.4 billion gross premiums written, RAS and Lloyd Adriatico contributed more than 11% to our gross premiums written. RAS operates in most major personal and commercial property and casualty lines in Italy, while Lloyd Adriatico underwrites mainly personal lines. RAS’s most important business line is motor, which contributes heavily to its results of operations. Other important business lines include fire, general liability and personal accident. Among other channels, distribution through direct telephone and the Internet exhibit signs of healthy growth and profitability. On a combined basis, RAS and Lloyd Adriatico continued to rank third in Italy based on gross written premiums in 2004(4). Although operating in a highly competitive market, our Italian operating entities have recorded strong operating profits and combined ratios below the average of our property-casualty segment.
United Kingdom
We serve the U.K. market primarily through our subsidiary Allianz Cornhill which generated gross premiums written of €2.5 billion, or 5%, of our gross written premiums. Allianz Cornhill offers a broad range of property-casualty products, including a number of specialty products, which we offer through our personal, commercial and specialty lines. Allianz Cornhill distributes our products through a range of distribution channels, including affinity groups. Operating in a highly competitive market,
Allianz Cornhill has concentrated on active cycle management as a measure to maintain its operating profitability, even if, at times, it requires forgoing business volume. Allianz Cornhill ranks seventh in the United Kingdom based on gross premiums written in 2003(1).
Switzerland
In the Swiss market we are represented by Allianz Suisse and ART. Jointly, these two operating entities generated premiums of €2.0 billion in 2005. While Allianz Suisse operates in the general property-casualty market, ART offers conventional reinsurance as well as a variety of alternative risk transfer products. The most important line of business for Allianz Suisse is motor, comprising approximately 40% of its gross premiums written. Allianz Suisse ranks fourth in Switzerland based on gross premiums written in 2004(2). Though operating in a very competitive market, Allianz Suisse has recently been able to increase gross premiums written in motor primarily through a rise in the number of contracts sold and, to a lesser degree, higher pricing.
Spain
We serve the Spanish market through our operating entities Allianz Compania de Seguros and Fénix Directo, which are united under the name “Allianz Spain”, with gross premiums written of €1.9 billion. Allianz Spain offers a wide variety of traditional personal and commercial property-casualty insurance products, with an emphasis on automobile insurance, comprising approximately two thirds of our gross premiums written in Spain. In 2005, Allianz Spain continued to hold its second rank in the market, based on gross premiums written in 2004(3). The market conditions have been characterized, however, by intense price competition in motor insurance business, including decreasing average premiums.
Central and Eastern Europe
We have very strong positions in key property-casualty markets in Central and Eastern Europe, one of the fastest growing insurance markets in the world. Based on gross premiums written in 2004, we are one of the five leading insurers in the following markets: Hungary, Czech Republic, Slovakia, Poland,Bulgaria, Romania and Croatia(4). We also market property-casualty insurance in Russia. In the Central and Eastern European region, we recorded premiums of €1.8 billion, a growth rate of 11.2% over 2004. Motor insurance business and increasingly other personal lines products continue to be the main drivers for profitable growth.
United States
Our operations in the United States are organized under the umbrella of Allianz of America, Inc. (or “Allianz of America”), which contributed approximately 11%,or €5.0 billion, of our gross premiums written. Allianz of America comprises a group of operating entities underwriting a wide, but focused, variety of lines of business. Through Fireman’s Fund, we underwrite personal, commercial and specialty lines. Fireman’s Fund has increasingly implemented a focused business strategy, targeting a segment of the market that addresses the needs of high net worth customers. Through Allianz Global Risks US Insurance Company, we operate in the international industrial insurance market.
Asia-Pacific
In Asia-Pacific, the large majority of our operations are conducted through Allianz Australia, which contributed €1.5 billion, or 3%, of our gross premiums written. Allianz Australia serves the markets of Australia, New Zealand and Papua New Guinea and its insurance operations include a variety of products and services. Allianz Australia has strong positions in the workers compensation market and in rehabilitation and occupational health, safety and environment services, as well as operates in certain niche markets, including premium financing and pleasure craft insurance. Allianz Australia markets our products through brokers, the major distribution channel for commercial business in Australia, as well as non-tied agents, including automobile dealers, accountants, banks and directly to customers. Allianz Australia is driving further its successful market segmentation technique, which includes diversifying its portfolio outside of the traditionally cyclical areas. We also maintain operations in Malaysia, Indonesia, as well as other Asia-Pacific countries, including China, Thailand and India.
Specialty lines
We offer a variety of specialty lines of business, namely credit/trade insurance, marine, aviation and industrial transport insurance, international industrial risks reinsurance, as well as travel insurance and assistance service. In contrast to our other insurance businesses, we offer these services on a worldwide basis. Through Euler Hermes, the largest credit insurer in the world based upon gross premiums written in 2004(1), we underwrite credit insurance in major markets around the world. In 2005, Euler Hermes contributed €1.7 billion to our gross premiums written. Allianz Global Risks Re acts as our industrial reinsurance clearing house, assumingindustrial insurance from Allianz Group operating entities and centralizing the placement of outgoing reinsurance with third-party carriers in the reinsurance market. Allianz Global Risks Re achieved gross premiums written of €1.3 billion in 2005. Our marine, aviation and industrial transport business in Germany, France and the United Kingdom is bundled under our Allianz Marine & Aviation operating entity, which recorded gross premiums written of €1.1 billion in 2005. Through Mondial Assistance Group, we are among the world’s largest providers of travel insurance and assistance services based on gross premiums written in 2005 of €1.0 billion.
Life/Health Insurance Operations
Year Endedended December 31, 2005 Compared2008 compared to Year Endedyear ended December 31, 20042007
Strong profitable growth.
Traditional business held firm.
Operating profit of strong operating profitability, increased net capital gains and the elimination of goodwill amortization.€1,206 million despite financial markets turmoil.
Year Endedended December 31, 2004 Compared2007 compared to Year Endedyear ended December 31, 20032006
We achieved strongStrong statutory premium development showed double-digit growth rates in both ourmany countries.
Strong operating profit and net income.
Operating profitasset base increased significantly by 12.1% to €1.4 billion, primarily reflecting an increase in business volume, pricing of new business and further efficiency gains.
€350.0 billion.
Earnings Summary
The global financial and economic crisis accelerated in the fourth quarter of the year leading to further equity market downturns, unprecedented volatility, widening credit spreads and declining interest rates. As a result, we recorded significantly higher impairments, losses in the fair value option stemming from credit spread widening, trading losses from derivatives, and lower results from harvesting. The impact on operating investment income was a decline of €6,403 million.
As customers became increasingly cautious about bearing investment risk, we recorded significantly lower sales in investment-oriented products. In consequence, internal revenues were down by €4,204 million. Overall, operating profit decreased by €1,789 million, and net income was €1,664 million lower.
The turbulences in the fourth quarter seriously affected most of Life/Health businesses, of which the biggest impact was recorded in the United States.
Statutory Premiums by Regionspremiums(1)
in € bn
Statutory premiums – Internal growth rates(2)
in %
Year ended December 31, 2008 compared to year ended December 31, 2007
At €46,297 million, statutory premiums were down 8.3 % on an internal basis mainly driven by the significant slowdown in sales of unit-linked and other investment-oriented products. In addition, bancassurance partners promoted deposit products rather than unit-linked contracts driven by their own liquidity concerns. On a nominal basis, statutory premiums were down 7.6% to €45,615 million, notwithstanding €1,199 million of premiums in 2008 relating to the AGF health business transferred from the Property-Casualty segment (comparatives not restated).
(1) | A reconciliation of |
(2) |
Statutory Premiums – Growth Rates(1)
Before elimination of transactions between Allianz Group companies in different geographic regions and different segments. |
Statutory premiums
Premium growth deteriorated significantly in Italy, Asia-Pacific and the United States. In contrast, sales remained solid in countries where traditional life business is strong such as France, Switzerland and Spain.
In Italy, revenues dropped by 39.0% or €3,813 million. A continuing weak bancassurance market and lower sales of unit-linked products were the main reasons for this downturn. In addition, sales were impacted as one of our local bancassurance partners withdrew from cooperation following a change in ownership.
The financial market conditions left its mark on our operations in the United States, where we recorded lower sales of both fixed index and variable annuity products, which resulted in a statutory premium decline of 8.5% or €590 million.
A premium decline was also recorded in Asia-Pacific amounting to 15.3% or €711 million. In Taiwan, the market situation and new regulations with regards to unit-linked products suppressed growth. In South Korea, sales of equity-related products, especially single premium products, suffered. The long-lasting strike that only ended in September contributed to this development.
We recorded premium growth in France of 4.8% or €367 million, primarily benefiting from two major group life contracts. However, due to the current market environment, sales from unit-linked contracts decreased. On a nominal basis, that includes the effect from the already mentioned reclassification of AGF’s health business, revenue growth amounted to 22.0%.
In Switzerland, we recorded an 18.3% or €182 million revenue increase stemming mainly from single premium products, especially in group business.
Our business in Spain grew by 14.2% or €105 million. Here we benefited from higher tax free transfers of pension products from banks to insurance companies. Furthermore, short-term investment products and group life business contributed to the increase.
Year Endedended December 31, 2005 Compared2007 compared to Year Endedyear ended December 31, 20042006
Our statutory premiums rose by 6.5% to €48.1 billion, with particularly strong growth in our key European markets resulting from our solid market positions, our ability to reach our customers through a variety of distribution channels and increasing demand for retirement products. Based on internal growth, ourAt €49,367 million statutory premiums increased by 6.0%. The strongest growth rates were achieved within Germany Life at 11.8% (€1,293 million), France at 12.0% (€567 million), Italy at 6.6% (€575 million) and4.1% over the Asia-Pacific region at 29.7% (€758 million). In Switzerland,prior year, despite impacts from unfavorable foreign currency movements of €1,062 million. On an internal basis, statutory premiums remained relatively unchangedwere up by 6.3%.
Most of our operating entities worldwide, especially our emerging markets(1) but also some of the more mature markets, showed high double-digit growth rates. For the emerging markets growth came to 22.6%. Asia-Pacific and New Europe contributed €5,677 million or 11.4% to total statutory premiums.
The highest absolute growth was achieved in Italy, where revenues increased from €8,555 million to €9,765 million in spite of poor market conditions. This resulted mainly from a sound sales performance of our bancassurance channel at €1,058CreditRAS. Additionally, we successfully launched new products during 2007.
In Asia-Pacific, premiums increased by €905 million or 24.2%. We recorded dynamic growth all over the region. In Taiwan, which, with €476 million, contributed the most to premium growth in this region, we recorded dynamic sales of unit-linked products. Furthermore, our local bancassurance channel continued to perform well. Within South Korea, we saw a further strong increase in single premium business, adding to the rise of €134 million. Likewise,In China, revenue increase amounted to €168 million. Furthermore, we expanded our sales network in China, benefiting from our strategic partnership with Industrial and Commercial Bank of China Limited (ICBC).
Total revenues in France were up 13.1% or €758 million mostly driven by group insurance business and increased sales of individual life insurance policies. Unlike in the United States, statutory premiums remained strong at €11,115 million. Conversely,past, the highest share of new business came from proprietary sales channels in Spain, statutory premiums at Allianz Seguros declined2007.
Statutory premium volume in our German life insurance business grew by 19.1% to €5473.9% or €503 million primarilymainly coming from a significant increase in single premium business. While growth during the first quarters of 2007 was weak due to a large pension contract we acquired in 1Q 2004.difficult market
(1) | New Europe, Asia-Pacific, South America, Mexico, Middle East, Africa. |
Through Allianz Leben, Germany Life’s 11.8% growth reflected the success it had achieved in thecontext of last year’s German “Retirement Revenue Act” (“Alterseinkünftegesetz”), resulting in
environment, we experienced a considerable increasevery strong fourth quarter growing by more than 20% through a pick-up in recurring premiums which began in 4Q 2004 and continued over the course of 2005. Additionally, and equally as important, growth from single premium products, namely our corporate pension solutions business and short-term renewals, were contributing factors to the underlying growth at Allianz Leben.
In France, at AGF Vie, the increase was driven by strong sales of unit-linked products through our well-performing partnership and broker as well as our agent channels. Additionally, the acquisition of AVIP and Martin Maurel Vie on December 31, 2004 from Dresdner Bank was a contributing factor to France’s growth in 2005.
Our Italian operating entities, RAS and Lloyd Adriatico, experienced considerable growth of 6.6% from the sale of unit-linked and index-linked products through all distribution channels, particularly through representative agencies and financial planners. In addition, statutory premiums from the RAS’s bancassurance channel grew, reflecting increased sales at CreditRas Vita. Within Italy, 69% of our total statutory premiums were comprised of investment oriented products in 2005 (2004: 65%).
Our Asian-Pacific markets excelled by 29.7% to €3,309 million, mainly in South Korea and Taiwan, thus highlighting the strategic importance of this region. The growth at Allianz Life Insurance Korea Co. Ltd., Seoul (or “Allianz Life Korea”) was the result of strong sales of variable life products, a product line which had been launched in 2004.business.
In the United States, statutory premium development still reflected the legal and regulatory environment limiting our sale of America, at Allianz Lifeindexed annuity products. However, during the last months of North America (or “Allianz Life”)2007 we experiencedmade progress in closing pending litigations. Year over year, revenues declined by 20.9% or €1,827 million. In addition, business was affected by the weakening of the U.S. Dollar compared to the Euro. On a 4.6% increase in statutory premiums relatedlocal currency basis, the decline amounted to core business lines, led by strong fixed annuity sales. The overall 1.1% decline in statutory premiums, however, was due to a novation (sale) of a non-core block of reinsurance business in 2005.13.2% or USD 1,445 million.
Year EndedStatutory premiums by regions as of December 31, 2004 Compared to Year Ended December2008 (December 31, 20032007)(1)
in %
Despite a negative exchange rate effect, our statutory premiums increased by €2,858 million from €42,319 million to €45,177 million. Excluding the
effects from foreign currency translation as well as changes in scope of consolidation, statutory premiums increased by 10.0%. However, growth varied noticeably across different markets.
The strongest growth rates were achieved with the United States at 31.1 % (€2,668 million), France at 6.3 % (€281 million) and Germany Life at 4.7 % (€492 million). In the United States, statutory premiums increased significantly, and excluding the negative effect of exchange rate movements of €1,071 million, statutory premiums in the United States grew by 43.6 %. This increase was primarily due to higher sales of both fixed and variable annuity products, driven in particular by an expanding distribution network, the launch of new and innovative products and a relatively stable capital markets environment.
In France, the increase in statutory premiums was due primarily to sales momentum brought about by new products in individual life insurance through our re-organized distribution networks.
At Germany Life, the increase was mainly attributable to strong new business growth in the second half of 2004, due primarily to the enactment of the German Retirement Income Revenue Act. As a result, Allianz Leben sold a record high of approximately 1.3 million insurance policies in 2004, representing an increase of 38.6 % as compared to the number of policies sold in 2003.
This growth in statutory premiums was offset primarily by declines in Italy of 5.0 % (€459 million), Switzerland of 11.9 % (€143 million) and South Korea of 14.9 % (€239 million). In Italy, the decrease in statutory premiums was primarily attributable to a reduction in sales of life insurance products through our bancassurance channel, reflecting mainly decreased sales at CreditRas Vita. This decrease was offset in part by growth in new business in our life insurance products through our representative agencies and financial planners.
In Switzerland, the decline in statutory premiums was attributable primarily to a reduction in group life insurance business resulting from the spin-off of our “Pensionskasse”, as well as a more stringent underwriting practice. Furthermore, there was a reduction in our individual life insurancebusiness, which was in line with the general market trend, mainly attributable to the reductions in interest rates.
In the Asia-Pacific region, our South Korean operations saw statutory premiums decline, where in 2004 we continued our efforts to reorganize our insurance portfolio and focus on more profitable products with a longer maturity. This decline was offset in part by a growth in new business in Taiwan over the course of 2004.
Operating Profit
in € mn
Operating Profitprofit
Year Endedended December 31, 2005 Compared2008 compared to Year Endedyear ended December 31, 20042007
OurOperating profit
in € mn
(1) | After elimination of transactions between Allianz Group companies in different geographic regions and different segments. |
We achieved an operating profit of €1,206 million. The sharp drop of 59.7% compared to previous year’s figure reflects the impacts from the financial market crisis as already described. The large negative effects recorded in the fourth quarter led to a decline in operating profit for the full year. The highest negative impacts on operating profit were recorded in our operations in the United States, France, South Korea, Italy and Germany.
Net impairments on investments increased significantly by 13.0%€4,923 million to €1,603€5,747 million surpassingmainly due to weak equity markets. These impairments were almost entirely attributable to our targetavailable-for-sale equity portfolio. The highest impairments were recorded in Germany (€3,012 million) and France (€1,096 million).
At €874 million, net realized gains dropped by 75.6% mainly owing to lower realizations compared to 2007 when higher levels of €1.5realized gains from equity and real estate were harvested. Furthermore, higher realized losses triggered by the weak capital markets contributed to this development.
Net loss from financial assets and liabilities carried at fair value through income stood at €235 million compared to €945 million a year earlier. This stemmed primarily from higher write-ups and lower write-downs on derivatives in the German life business, which were partly compensated by unfavorable changes in fair value driven by the financial market trends in France and the United States.
Interest and similar income remained stable and on a high level, at €13,772 million.
As of December 31, 2008, our asset base amounted to €331.2 billion. Despite net inflows to debt securities of €17.1 billion, the reduction of €18.8 billion compared to year-end 2007 was to a large extent attributable to poor equity markets.
Asset base(1)
fair values(2) in € bn
Net claims and insurance benefits incurred were up 11.5%, amounting to €19,673 million including the reclassification of AGF’s health business from the Property-Casualty segment. In 2007 we benefited from an extraordinary reserve release in South Korea amounting to €170 million.
Net changes in reserves for 2005.insurance and investment contracts halved, amounting to €5,122 million. This was mainly driven by lower provisions for premium refunds due to negative market impacts.
Our statutory expense ratio increased by 0.3 percentage points to 9.7%.
Year ended December 31, 2007 compared to year ended December 31, 2006
Year over year, operating profit increased by 16.8% to €2,995 million benefiting from top-line growth and improvements in all sources of profit. Most of our life insurance companies, with the notable exception of the U.S. business, worldwide contributed to this development.
Our income from investments again provided the largest absolute contributor to operating profit growth. It improved based on a higher asset base resulting from inflows of funds. These inflows more than compensated the impact from unfavorable foreign currency movements, higher interest rates
(1) | For further information on the composition of our Life/Health asset base please refer to “—Balance Sheet Review—Assets and liabilities of the Life/Health segment”. |
(2) | 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 refer to Note 2 to the consolidated financial statements. |
and a stock market that weakened towards the end of 2007. Thus, interest and similar income increased by 3.4% due to higher interest payments on debt securities as well as higher dividend payments on equity securities.
Net realized gains on investments improved by €492 million coming from an already high level in the year 2006 that was marked by a major single transaction namely the disposal of our participation in Schering AG. In 2007, gains stemmed from several transactions that mostly generated higher realized gains on equities and real estate. However, these gains were offset by net impairments on investments due to write-downs on public stock shares. The strongest improvements occurredconsiderably increased net loss from financial assets and liabilities carried at fair value through income of €584 million stemmed largely from freestanding derivatives in connection with our German life insurance business.
Furthermore, we benefited from an extraordinary reserve release of €170 million in South Korea. In the past we had formed a reserve due to uncertainty in respect of data accuracy in our old actuarial systems. The introduction of a new system did not reveal any issues. Hence, the reserve had to be released.
Acquisition and Italianadministrative expenses increased by 3.4% or €151 million and thus slightly less than growth of statutory premiums. Administrative expense included integration costs in Italy and further investments in operations specifically Allianz Leben (€75 million), Allianz Private Krankenversicherung (€33 million)in Asia-Pacific (China and RAS (€39 million)Japan). Improved margins on new business brought aboutOur statutory expense ratio improved slightly by enhanced risk management providing a better basis for pricing and the increased business volume from the strong growth rates in recent years, were important factors in this development.0.2 percentage points to 9.4%.
Current income from investmentsNon-operating resultdeveloped favorably with an increase of 4.3% to €11,826 million, despite lower interest rates in the Euro zone. Main contributors were Allianz Life (€334 million) and Allianz Leben (€84 million), driven predominantly by an increased investment base resulting primarily from significant inflows of funds from new business underwritten. Higher dividend
yields on equity investments also had a beneficial impact.Investment management and interestexpenses remained relatively unchanged at €478 million.
Insurance benefits (net)increased by 4.9% to €25,023 million. This increase was largely attributable to additional aggregate policy reserves mirroring the development in net premiums earned and an overall increase in expenses for premium refunds, attributable to policyholders, due to improved results of operations at Allianz Leben. This effect overcompensated for a slight reduction in the policyholder participation rate, which itself had a positive effect on operating profit.
Net acquisition costs and administrative expensesdecreased by 2.9% to €3,921 million, despite a €95 million increase at Allianz Life resulting from increased wages and fees. Major drivers of this decline included reduced acquisition costs compared to the 2004 level which was impacted by the German Retirement Revenue Act in 4Q 2004 and the regular unlocking of assumptions within our deferred policy acquisition cost assets in 2005. As a result of the strong growth of our statutory premiums and the decline in net acquisition costs and administrative expenses, ourstatutoryexpense ratio(1) declined by 1.0 percentage point to 8.1%.
Net trading income, which is almost exclusively attributable to policyholders, decreased significantly to a loss of €326 million, primarily from changes in fair values from freestanding derivatives at Allianz Leben, as well as embedded and freestanding derivatives at Allianz Life in connection with equity-indexed annuities it sold.
Year Endedended December 31, 2004 Compared2008 compared to Year Endedyear ended December 31, 20032007
The non-operating loss amounted to €533 million coming from a gain of €107 million a year earlier. Similar to the development within operating profit, the major drivers for this development were higher impairments and higher net realized losses.
Year ended December 31, 2007 compared to year ended December 31, 2006
Operating profit increased significantlyIn aggregate non-operating items were down by 12.1% to €1,418 million. This was due primarily to€28 million driven by lower net other operating income/(expenses), reduced net insurance benefits and increased net current income from investments, offsetrealized gains not to be shared with policyholders in part by increased net acquisition costs and a decline in our net trading income. Important drivers for these beneficial developments were an increase in business volume, more favorable pricing of new business and further efficiency gains.the United States.
Administrative expenses decreased by €37 million to €1,270 million, primarily as a result of efficiency gains.
Net acquisition costsincome increased by €750 million, or 39.8%, to €2,635 million, primarily reflecting the strong growth in our statutory premiums. In addition, in 2003, net acquisition costs included a significant benefit from a change in calculation assumptions related to deferred policy acquisition costs. Accordingly, ourstatutory expense ratio1) increased to 9.1% in 2004 from 7.9% in 2003.
Net Income
Year Endedended December 31, 2005 Compared2008 compared to Year Ended December 31, 2004
Driven by strong operating profitability and increased net capital gains net income grew significantly by 55.6% to €1,349 million.
Net capital gains and impairments on investments attributable to shareholders increased to €608 million. This was primarily the result of favorable capital markets conditions, which we sought to leverage to yield increased realizations, with our sale of Gecina S.A. (France) in 1Q 2005 as the most significant. At the same time, net impairments remained low at €63 million.
Net income was also positively affected by the elimination of the amortization of goodwill resulting from a change in accounting under IFRS (2004: €159 million).Restructuring chargesof €19 million resulted from an early retirement program at AGF Vie in France.
Ourtax expenses remained stable at €463 million. However, our effective tax rate declined considerably to 20.1% from 27.3%, largely due to tax-exempt income at various operating entities, including tax-exempt income from securities at Allianz Leben, a beneficial tax settlement at Allianz Life, the discontinuation of non-tax deductible goodwill amortization, as well as through the write-down of deferred tax assets at Allianz Life Korea in 2004.
Minority interests in earnings increased to €462 million, primarily due to improved earnings at our Italian and French Life entities.
Year Ended December 31, 2004 Compared to Year Ended December 31, 2003
Net capital gains and impairments on investments increased slightly by 2.9 % to €282 million in 2004.
Intra-group dividends and profit transfer increased by €60 million to €163 million in 2004. The intra-group dividends and profit transfer were eliminated at the Allianz Group level.
Amortization of goodwill, which was still applicable under IFRS for the year ended December 31, 2004, decreased by €239 million to €159 million in 2004 as compared to €398 million in 2003, which reflected an impairment on goodwill of €224 million attributable to South Korea.2007
TaxWe recorded net income of €327 million, a large decline of €1,664 million. Income tax expenses decreased significantlyby €637 million to €469€260 million from €639 million in 2003, which reflected a chargewith an effective tax rate of €409 million relating primarily to a change in38.6% (2007: 28.9%). The relatively high effective tax law in Germany.rate is mainly driven by non-tax-deductible impairments.
Minority interests in earnings remained relatively unchanged at €368 million. declined by 59.8% to €86 million, mainly reflecting the lower income.
Year ended December 31, 2007 compared to year ended December 31, 2006
Overall,netNet income increased significantly by €64821.2% to €1,991 million driven by the higher operating profit. Income tax expenses of €897 million, were up €256 million year on year. The higher tax expense in 2007 is a result of the higher pre-tax income. Additionally, the benefit from tax-exempt income was lower than in 2006, leading to €867 million.a higher effective tax rate of 28.9% (2006: 23.7%).
Minority interests in earnings were almost halved to €214 million reflecting the minority buy outs at RAS in Italy and at AGF in France.
Life/Health segment information(1)
The following table sets forth our Life/Health insurance segment’s income statement and key operating ratio for the years ended December 2005, 2004 and 2003.
2008 | 2007 | 2006 | |||||||
€ mn | € mn | € mn | |||||||
Statutory premiums(2) | 45,615 | 49,367 | 47,421 | ||||||
Ceded premiums written | (588 | ) | (644 | ) | (840 | ) | |||
Change in unearned premiums | (54 | ) | (61 | ) | (221 | ) | |||
Statutory premiums (net) | 44,973 | 48,662 | 46,360 | ||||||
Deposits from SFAS 97 insurance and investment contracts | (22,742 | ) | (27,853 | ) | (25,786 | ) | |||
Premiums earned (net) | 22,231 | 20,809 | 20,574 | ||||||
Interest and similar income | 13,772 | 13,417 | 12,972 | ||||||
Operating income from financial assets and liabilities carried at fair value through income (net)(3) | (235 | ) | (945 | ) | (361 | ) | |||
Operating realized gains/losses (net)(4) | 874 | 3,579 | 3,087 | ||||||
Fee and commission income | 571 | 701 | 630 | ||||||
Other income | 140 | 182 | 43 | ||||||
Income from fully consolidated private equity investments | 18 | — | — | ||||||
Operating revenues | 37,371 | 37,743 | 36,945 | ||||||
Claims and insurance benefits incurred (net) | (19,673 | ) | (17,637 | ) | (17,625 | ) | |||
Changes in reserves for insurance and investment contracts (net) | (5,122 | ) | (10,268 | ) | (10,525 | ) | |||
Interest expenses | (283 | ) | (374 | ) | (280 | ) | |||
Loan loss provisions | (13 | ) | 3 | (1 | ) | ||||
Operating impairments of investments (net)(5) | (5,747 | ) | (824 | ) | (390 | ) | |||
Investment expenses | (673 | ) | (833 | ) | (750 | ) | |||
Acquisition and administrative expenses (net) | (4,375 | ) | (4,588 | ) | (4,437 | ) | |||
Fee and commission expenses | (253 | ) | (209 | ) | (223 | ) | |||
Operating restructuring charges(6) | 1 | (16 | ) | (140 | ) | ||||
Other expenses | (7 | ) | (2 | ) | (9 | ) | |||
Expenses from fully consolidated private equity investments | (20 | ) | — | — | |||||
Operating expenses | (36,165 | ) | (34,748 | ) | (34,380 | ) | |||
Operating profit | 1,206 | 2,995 | 2,565 | ||||||
Non-operating income from financial assets and liabilities carried at fair value through income (net)(3) | (26 | ) | 5 | — | |||||
Non-operating realized gains/losses (net)(4) | (39 | ) | 137 | 195 | |||||
Non-operating impairments of investments (net)(5) | (414 | ) | (3 | ) | — | ||||
Amortization of intangible assets | (3 | ) | (3 | ) | (26 | ) | |||
Non-operating restructuring charges(6) | (51 | ) | (29 | ) | (34 | ) | |||
Non-operating items | (533 | ) | 107 | 135 | |||||
Income before income taxes and minority interests in earnings | 673 | 3,102 | 2,700 | ||||||
Income taxes | (260 | ) | (897 | ) | (641 | ) | |||
Minority interests in earnings | (86 | ) | (214 | ) | (416 | ) | |||
Net income (loss) | 327 | 1,991 | 1,643 | ||||||
Statutory expense ratio(7) in % | 9.7 | 9.4 | 9.6 | ||||||
Years ended December 31, | 2005 | 2004 | 2003 | ||||||
€ mn | € mn | € mn | |||||||
Statutory premiums(1) | 48,129 | 45,177 | 42,319 | ||||||
Gross premiums written | 20,950 | 20,716 | 20,689 | ||||||
Premiums earned (net)(2) | 19,730 | 18,596 | 18,701 | ||||||
Current income from investments | 11,826 | 11,335 | 11,260 | ||||||
Investment management and interest expenses | (478 | ) | (483 | ) | (516 | ) | |||
Insurance benefits (net)(3) | (25,023 | ) | (23,845 | ) | (24,189 | ) | |||
Net acquisition costs and administrative expenses(4) | (3,921 | ) | (4,039 | ) | (3,416 | ) | |||
Net trading income/(expenses) | (326 | ) | 117 | 218 | |||||
Other operating income/(expenses)(net) | (205 | ) | (263 | ) | (793 | ) | |||
Operating profit | 1,603 | 1,418 | 1,265 | ||||||
Net capital gains and impairments on investments(5) | 608 | 282 | 274 | (6) | |||||
Intra-group dividends and profit transfer | 82 | 163 | 103 | ||||||
Amortization of goodwill(7) | — | (159 | ) | (398 | ) | ||||
Restructuring charges | (19 | ) | — | — | |||||
Earnings from ordinary activities before taxes | 2,274 | 1,704 | 1,244 | |||||||
Taxes | (463 | ) | (469 | ) | (639 | ) | ||||
Minority interests in earnings | (462 | ) | (368 | ) | (386 | ) | ||||
Net income | 1,349 | 867 | 219 | |||||||
Statutory expense ratio(8) in % | 8.1 | 9.1 | 7.9 |
(1) | Since 2008, our health business in Belgium and France is shown within Life/Health segment. Prior year balances have not been adjusted. |
(2) | For the |
(3) | The total of these items equals income |
| The total of these items equals realized |
| The total of |
| The total of these items equals restructuring charges in the segment income statement included in Note 6 to the consolidated financial statements. |
| Represents |
Life/Health Operations by Geographic RegionBusiness Division
Statutory premiums(1) | Premiums earned (net) | ||||||||||||||||||||
2008 | 2007 | 2006 | 2008 internal(2) | 2007 internal(2) | 2008 | 2007 | 2006 | ||||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | ||||||||||||||
Germany Life | 13,487 | 13,512 | 13,009 | 13,503 | 13,512 | 10,313 | 10,381 | 10,543 | |||||||||||||
Germany Health(3) | 3,119 | 3,123 | 3,091 | 3,119 | 3,123 | 3,119 | 3,123 | 3,091 | |||||||||||||
Switzerland | 1,205 | 992 | 1,005 | 1,174 | 992 | 478 | 432 | 455 | |||||||||||||
Austria | 461 | 396 | 380 | 461 | 396 | 277 | 288 | 283 | |||||||||||||
German Speaking Countries | 18,272 | 18,023 | 17,485 | 18,257 | 18,023 | 14,187 | 14,224 | 14,372 | |||||||||||||
Italy | 5,996 | 9,765 | 8,555 | 5,952 | 9,765 | 930 | 1,006 | 1,098 | |||||||||||||
Spain | 843 | 738 | 629 | 843 | 738 | 394 | 399 | 400 | |||||||||||||
Portugal | 130 | 115 | 98 | 130 | 115 | 80 | 73 | 66 | |||||||||||||
Greece | 109 | 105 | 98 | 109 | 105 | 72 | 65 | 62 | |||||||||||||
South America | 190 | 78 | 147 | 199 | 61 | 183 | 40 | 42 | |||||||||||||
Turkey(4) | 18 | — | — | — | — | 17 | — | — | |||||||||||||
Europe I incl. South America | 7,286 | 10,801 | 9,527 | 7,233 | 10,784 | 1,676 | 1,583 | 1,668 | |||||||||||||
France(5) | 7,991 | 6,550 | 5,792 | 8,019 | 7,652 | 2,887 | 1,760 | 1,436 | |||||||||||||
Belgium(5) | 681 | 664 | 597 | 681 | 713 | 345 | 310 | 302 | |||||||||||||
Netherlands | 371 | 399 | 424 | 371 | 399 | 133 | 137 | 146 | |||||||||||||
Luxembourg | 82 | 83 | 58 | 82 | 83 | 26 | 26 | 30 | |||||||||||||
Africa | 40 | 35 | 32 | 40 | 35 | 17 | 15 | 16 | |||||||||||||
Europe II incl. Africa | 9,165 | 7,731 | 6,903 | 9,193 | 8,882 | 3,408 | 2,248 | 1,930 | |||||||||||||
United States | 6,036 | 6,931 | 8,758 | 6,341 | 6,931 | 771 | 636 | 533 | |||||||||||||
Mexico(6) | 75 | 37 | — | 82 | 37 | 31 | 36 | — | |||||||||||||
NAFTA | 6,111 | 6,968 | 8,758 | 6,423 | 6,968 | 802 | 672 | 533 | |||||||||||||
AZ Reinsurance LH | 294 | 313 | 339 | 294 | 313 | 291 | 293 | 317 | |||||||||||||
United Kingdom | — | — | — | — | — | — | — | — | |||||||||||||
Anglo Broker Markets/Global Lines | 6,405 | 7,281 | 9,097 | 6,717 | 7,281 | 1,093 | 965 | 850 | |||||||||||||
South Korea | 1,580 | 2,188 | 2,054 | 1,971 | 2,188 | 709 | 975 | 986 | |||||||||||||
Taiwan | 997 | 1,812 | 1,336 | 1,035 | 1,812 | 148 | 72 | 107 | |||||||||||||
Malaysia | 142 | 126 | 107 | 147 | 126 | 121 | 104 | 88 | |||||||||||||
Indonesia | 214 | 224 | 115 | 243 | 224 | 75 | 49 | 38 | |||||||||||||
Other | 532 | 288 | 121 | 531 | 288 | 125 | 18 | 37 | |||||||||||||
Asia-Pacific | 3,465 | 4,638 | 3,733 | 3,927 | 4,638 | 1,178 | 1,218 | 1,256 | |||||||||||||
Hungary | 181 | 141 | 96 | 181 | 141 | 79 | 80 | 75 | |||||||||||||
Slovakia | 290 | 235 | 183 | 269 | 235 | 175 | 157 | 135 | |||||||||||||
Czech Republic | 101 | 96 | 76 | 91 | 96 | 60 | 56 | 54 | |||||||||||||
Poland | 428 | 431 | 367 | 401 | 431 | 192 | 121 | 96 | |||||||||||||
Romania | 32 | 30 | 25 | 34 | 30 | 15 | 12 | 12 | |||||||||||||
Bulgaria | 33 | 35 | 25 | 33 | 35 | 29 | 28 | 23 | |||||||||||||
Croatia | 59 | 58 | 48 | 58 | 58 | 42 | 40 | 36 | |||||||||||||
Russia | 17 | 13 | 8 | 18 | 13 | 16 | 12 | 7 | |||||||||||||
New Europe | 1,141 | 1,039 | 828 | 1,085 | 1,039 | 608 | 506 | 438 | |||||||||||||
Middle East | 88 | 70 | 68 | 92 | 70 | 81 | 65 | 60 | |||||||||||||
Growth Markets | 4,694 | 5,747 | 4,629 | 5,104 | 5,747 | 1,867 | 1,789 | 1,754 | |||||||||||||
Consolidation(8) | (207 | ) | (216 | ) | (220 | ) | (207 | ) | (216 | ) | — | — | — | ||||||||
Total | 45,615 | 49,367 | 47,421 | 46,297 | 50,501 | 22,231 | 20,809 | 20,574 | |||||||||||||
The following table sets forth our life/health statutory premiums, gross premiums written, statutory expense ratio, as well as earnings after taxes and before minority interests in earnings, which we refer to herein as “earnings after taxes and before minority interests”, by geographic region. Applicable only for 2004 and 2003, earnings after taxes and
before minority interests excludes amortization of goodwill. Consistent with our general practice, statutory premiums, gross premiums written, statutory expense ratio as well as earnings after taxes and before minority interests by geographic regionare presented before consolidation adjustments representing the elimination of transactions between Allianz Group companies in different geographic regions and different segments.
Years ended December 31, Germany Life Germany Health(2) France(3) Italy Switzerland Spain Other Europe, thereof Netherlands Austria Belgium Portugal Luxembourg Greece United Kingdom Western and Southern Europe Hungary Slovakia Czech Republic Poland Romania Bulgaria Croatia Cyprus Central and Eastern Europe United States Asia-Pacific, thereof South Korea Taiwan Malaysia Indonesia Other South America Other Subtotal Consolidation adjustments(5) Subtotal Amortization of goodwill(6) Minority interests Total Statutory premiums(1)
Gross premiums written € mn € mn 2005 2004 2003 2005 2004 2003 12,231 10,938 10,446 10,825 10,182 9,924 3,042 3,020 2,960 3,042 3,020 2,960 5,286 4,719 4,438 1,583 1,629 1,572 9,313 8,738 9,197 1,167 1,142 1,239 1,058 1,054 1,197 475 516 557 547 676 611 361 588 540 2,026 2,140 2,133 1,324 1,453 1,355 356 371 396 140 156 137 343 335 316 298 311 305 601 532 453 328 345 324 83 85 90 63 61 59 72 146 166 42 36 40 91 82 82 79 82 70 — 198 297 — 149 143 1,546 1,749 1,800 950 1,140 1,078 89 77 66 74 62 53 149 134 126 132 125 121 64 53 45 52 44 43 99 75 66 54 38 30 18 11 3 8 3 3 19 14 8 19 14 8 41 25 19 34 25 19 1 2 — 1 2 — 480 391 333 374 313 277 11,115 11,234 8,566 746 889 1,078 3,309 2,551 2,603 1,343 1,228 1,372 1,752 1,370 1,609 993 980 1,135 1,347 988 827 216 126 122 106 111 72 80 66 51 69 59 74 39 34 43 35 23 21 15 22 21 141 64 129 42 33 58 83 67 61 63 61 57 48,151 45,201 42,341 20,971 20,741 20,712 (22 ) (24 ) (22 ) (21 ) (25 ) (23 ) 48,129 45,177 42,319 20,950 20,716 20,689 — — — — — — — — — — — — 48,129 45,177 42,319 20,950 20,716 20,689
(1) | Statutory premiums are gross premiums written from sales of life insurance policies as well as gross receipts from sales of unit-linked and other investment-oriented products, in accordance with the statutory accounting practices applicable in the insurer’s home jurisdiction. |
(2) | Reflect statutory premiums on an internal basis (adjusted for foreign currency translation and (de-) consolidation effects). |
(3) | Loss ratios were |
| Effective July 21, 2008, Koç Allianz Hayat ve Emeklilik AS was consolidated following the acquisition of approximately 51% of the shares in Koç Allianz Hayat ve Emeklilik AS by the Allianz Group, increasing our holding to approximately 89%. |
To be continued on page 89 |
€ mn € mn € mn % % Germany Life Germany Health(3) Switzerland Austria German Speaking Countries Italy Spain Portugal Greece South America Turkey(4) Europe I incl. South America France(5) Belgium(5) Netherlands Luxembourg Africa Europe II incl. Africa United States Mexico(6) NAFTA AZ Reinsurance LH United Kingdom(7) Anglo Broker Markets/Global Lines South Korea Taiwan Malaysia Indonesia Other Asia-Pacific Hungary Slovakia Czech Republic Poland Romania Bulgaria Croatia Russia New Europe Middle East Growth Markets Consolidation(8) Total Operating profit Statutory expense ratio 2008 2007 2006 2008 2007 2006 % 620 695 521 8.5 5.8 9.1 112 164 184 9.0 9.8 9.3 71 66 50 9.9 10.6 9.9 17 40 29 8.8 11.8 12.1 820 965 784 8.7 6.9 9.2 206 372 339 8.9 5.8 6.4 103 104 92 8.8 9.2 9.3 1 25 25 24.6 26.5 15.1 2 6 13 22.9 20.7 22.6 10 — 1 10.3 32.6 16.9 5 — — 38.5 — — 327 507 470 9.4 6.6 7.0 128 632 582 14.9 15.4 12.6 53 68 62 9.9 10.1 12.5 (1 ) 44 50 24.1 9.8 18.4 3 4 5 10.3 10.8 12.2 3 2 2 13.4 16.5 19.6 186 750 701 14.9 14.6 13.0 (232 ) 380 418 (0.2 ) 11.9 8.0 4 5 — 9.8 13.8 — (228 ) 385 418 (0.1 ) 11.9 8.0 9 29 41 19.6 21.0 27.8 (2 ) (3 ) (2 ) — — — (221 ) 411 457 0.8 12.3 8.7 96 286 64 13.6 14.4 13.9 11 26 14 11.8 2.9 5.0 9 12 10 15.8 17.2 19.9 12 6 3 15.7 12.7 19.3 (87 ) (30 ) (10 ) 17.2 17.0 18.4 41 300 81 13.8 10.1 11.2 16 13 12 15.9 20.4 25.7 29 29 16 15.5 16.8 18.2 4 10 9 14.2 18.0 20.1 6 10 6 32.6 19.7 17.6 2 — — 31.9 33.8 39.3 2 4 3 17.7 15.0 14.2 4 2 4 22.5 17.1 20.4 (15 ) (7 ) — 132.2 99.5 28.1 48 61 50 24.4 20.0 19.6 11 6 5 27.5 24.6 30.4 100 367 136 16.6 12.1 13.0 (6 ) (5 ) 17 — — — 1,206 2,995 2,565 9.7 9.4 9.6
Continuing footnotes from page 88. |
(5) | Effective 1Q 2008, our health business in France and |
(6) | Effective 2007, life business in Mexico is shown within the Life/Health |
| Contains run-off of €(2) mn, €(3) mn and €(2) mn for 2008, 2007 and 2006, respectively, from our former life insurance business in the United Kingdom which we sold in December 2004. |
| Represents elimination of transactions between Allianz Group companies in different geographic regions. |
Years ended December 31, Germany Life Germany Health(2) France(3) Italy Switzerland Spain Other Europe, thereof Netherlands Austria Belgium Portugal Luxembourg Greece United Kingdom Western and Southern Europe Hungary Slovakia Czech Republic Poland Romania Bulgaria Croatia Cyprus Central and Eastern Europe United States Asia-Pacific, thereof South Korea Taiwan Malaysia Indonesia Other South America Other Subtotal Consolidation adjustments(5) Subtotal Amortization of goodwill(6) Minority interests Total Statutory expense ratio Earnings after taxes and
before minority interests % € mn 2005 2004 2003 2005 2004 2003 7.0 10.4 6.8 329 223 84 8.8 9.3 10.4 96 80 26 15.4 17.3 16.5 384 265 336 5.1 4.4 3.5 400 298 230 8.5 9.8 8.6 44 30 21 7.2 5.8 6.3 48 45 33 17.1 19.2 19.6 160 174 95 16.4 19.7 23.3 52 26 17 11.3 15.0 12.5 11 15 8 11.8 14.0 15.0 62 95 (18 ) 18.8 17.6 20.5 9 9 8 29.2 15.1 14.0 7 8 (8 ) 23.5 19.8 28.2 4 (2 ) 1 — 35.8 26.6 (10 ) 3 67 14.6 17.7 18.6 135 154 75 25.4 23.9 22.9 8 5 5 23.5 26.3 22.5 6 3 6 21.2 24.2 23.4 4 3 2 34.0 29.0 25.6 3 2 1 25.7 11.2 135.0 — — — 9.1 (1.3 ) 28.9 2 3 1 21.6 30.4 28.2 2 4 5 46.1 15.7 — — — — 25.1 25.2 24.6 25 20 20 5.4 5.2 4.6 295 274 152 10.5 13.2 10.8 55 7 34 14.5 18.7 13.1 53 — (34 ) 3.8 4.3 2.9 8 6 72 12.5 5.0 19.7 1 7 5 22.1 34.8 35.2 — (2 ) (5 ) 34.2 36.1 33.9 (7 ) (4 ) (4 ) 17.4 23.2 24.3 1 2 4 — (4) — (4) — (4) 2 3 (2 ) 8.1 9.1 7.9 1,814 1,401 1,013 — — — (3 ) (7 ) (10 ) 8.1 9.1 7.9 1,811 1,394 1,003 — — — — (159 ) (398 ) — — — (462 ) (368 ) (386 ) 8.1 9.1 7.9 1,349 867 219
Our Largest Markets & Companies(1)
Germany Life
In Germany, Allianz Leben is the market leader for life insurance based on statutory premiums in 2005(2). Besides Allianz Leben, we operate through a variety of smaller operating entities in the German market. Together, our German life operating entities contributed €12.2 billion, or 25%, of our statutory premiums. We are active both in the private and commercial markets and offer a comprehensive range of life insurance and life insurance-related products on both an individual and group basis. The main classes of coverage offered include endowment, annuity and term insurance, which are provided as riders to other policies and on a stand-alone basis. Our private lines have enjoyed favorable development, especially though retirement savings products, also driven by recent changes in legislation. In particular, the German “Retirement Revenue Act” (“Alterseinkünftegesetz”) led to a strong increase of recurring premiums in 2005. In our commercial lines, we are offering group life insurance and are providing companies with services and solutions in connection with pension schemes and defined contribution plans.
Germany Health
Through Allianz Private Krankenversicherungs-AG (or “Allianz Private Health”), we are the third-largest private health insurer in Germany based on statutory premiums in 2004(2) with more than 2 million customers. In 2005, Allianz Private Health contributed €3.0 billion, or 6%, of our statutory premiums. Allianz Private Healthprovides a wide range of health insurance products, including full private healthcare coverage for the self-employed, supplementary insurance for individuals insured under statutory health insurance plans, supplementary care insurance as well as foreign travel medical insurance.
France
In France, we operate through the companies of AGF. AGF is the eighth-largest life insurance provider in France based on statutory premiums in 2004(3) and experienced significant growth of 12% in 2005, also driven by the acquisition of AVIP and Martin Maurel Vie in 4Q 2004. AGF contributed €5.3 billion, or 11%, to our statutory premiums in 2005. AGF provides a broad line of life insurance and other financial products, including short-term investment and savings products. An important portion of AGF’s life statutory premiums is generated through the sale of unit-linked policies. Life statutory premiums growth was strong in January 2006 and we expect this positive trend to continue in 2006.
Italy
Through RAS and Lloyd Adriatico, we maintain a strong position in Italy, where the life market is increasingly focusing on investment-related products. RAS and Lloyd Adriatico contributed 15% and 4% of our statutory premiums in 2005, respectively. Together, these two operating entities generated a statutory premium volume of €9.3 billion in 2005. Products offered through these operating entities include individual life policies, primarily endowment policies, but also annuities and unit-linked products. Consistent with general trends in the Italian market, our business includes an increasing amount of unit-linked policies, where policyholders participate directly in the performance of policy-related investments. At December 31, 2005, two-thirds of our combined statutory premiums at RAS and Lloyd Adriatico comprise unit-linked products. Jointly, and on the basis of statutory premiums, RAS and Lloyd Adriatico ranked second in Italy(4) in 2004. A large percentage of our contracts is marketed through our bancassurance channel.
Switzerland
We conduct our life/health operations in Switzerland primarily through the Allianz Suisse Lebensversicherungs-Gesellschaft and Phénix Vie. Together, these operating entities contributed €1.1 billion, or 2%, to our statutory premiums in 2005 and, in aggregate, represent the sixth largest life insurance provider in Switzerland based on statutory premiums in 2004(1). Through these operating entities, we market a wide range of individual and group life insurance products, including retirement, death and disability products. Despite a challenging political and regulatory environment, coupled with low interest rates, our Swiss operations have experienced a positive trend in their results of operation through cost and pricing discipline.
United States
In the United States, we are represented by Allianz Life, which contributed €11.1 billion, or 23%, to our total statutory premiums in 2005 and is the market leader in equity-indexed annuities, with approximately one-third of the market share based on statutory premiums in 2005(2). Allianz Life holds a 12% share of the overall fixed annuity market and also maintains a 3% market share of the large variable annuity market based on statutory premiums in 2005(2). Its smaller but growing lines of business include individual life, long-term care, and health excess of loss insurance. We believe Allianz Life is well positioned for the expected growth in demand for retirement income & longevity protection.
Asia-Pacific
In Asia-Pacific, the majority of our operations are conducted through Allianz Life Korea and Hana Life, our bancassurance joint venture with Hana Financial Group, Seoul. Overall, our South Korean operations contributed €1.8 billion, or 4%, of our statutory premiums in 2005. Allianz Life Korea is the fifth-largest life insurance company in South Korea based on statutory premiums in 2005(3). Allianz Life Korea is faced with the challenge of identifying growth opportunities within a mature marketplace. Our South Korean operations market a wide range of life insurance products, including unit-linked products, variable life, individual whole life insurance polices, annuities and endowments. Due to the very low interest rate environment in South Korea since 2000, Allianz Life Korea has increasingly shifted its focus to variable life products. As a result, we have achieved a strong increase in statutory premiums and, more importantly, new business in 2005 has been more profitable than in recent years. Additionally, due to strict expense management, improved commission schemes and cutbacks in agency costs, Allianz Life Korea posted strong results of operation in 2005.
We are also represented in Taiwan by Allianz President Life Insurance, Taipeh (or “Allianz President Life”), which contributed €1.3 billion, or 3%,of our statutory premiums in 2005. Allianz President Life markets term life, whole life and endowment products. In addition, Allianz President Life increasingly offers investment-linked products. We also maintain operations in Malaysia, Indonesia, as well as other Asia-Pacific countries, including China, Thailand and India.
Year Ended December 31, 2005 ComparedDue to Year Ended December 31, 2004
the sale of Dresdner Bank increased its operating profit by 33.2%the commentary on the banking segment only refers to €775 million.
Oldenburgische Landesbank and high net capital gains resulted in net income of €1.0 billion.
Year Ended December 31, 2004 Compared to Year Ended December 31, 2003
We stabilized operating revenues, significantly increased efficiency and markedly decreased risks.
Continuing banking operations recorded an operating loss of €396€31 million in 2003, we successfully achieved an(2007: operating profit of €586 million in 2004, of which Dresdner Bank contributed €582 million. This positive development resulted from the impact of previous years’ cost reduction plans and the significant reduction of our net loan loss provisions through the further reduction in our non-strategic loan business within the IRU of Dresdner Bank.
€32 million).
Earnings Summary
The results of operations of our Banking segment are almost exclusively represented by Dresdner Bank, accounting for 95.5% of our total Banking segment’s operatingOperating revenues for the year ended December 31, 2005 (2004: 96.6%, 2003: 93.2%). Accordingly, the discussion of our Bankingsegment’s results of operations relates solely to the operations of Dresdner Bank.
Operating Revenues
Year Endedended December 31, 2005 Compared2008 compared to Year Endedyear ended December 31, 20042007
Strategic Business(1)Operating revenues improved in our four operating divisions (Personal Banking, Private & Business Banking, Corporate Banking and DrKW). In aggregate, operating revenues from our strategic business increaseddecreased by 4.1%12.5% to €6,098 million, excluding the aggregate negative accounting effects from IAS 39 of €214 million (2004: income of €7 million).
In our Personal Banking division, operating revenues increased by 2.0% to €1,883 million. Our Business Models 2 and 3, which comprise the sale of banking products through insurance agents, were successfully implemented with an improvement in revenues and growing client base. In 2005, we acquired approximately 360,000 new bank clients through this sales channel, which was well above our target of 300,000.
Additionally, our Personal Banking division benefited from the improved securities business, specifically from closed-end funds, as did our Private & Business Banking division, which experienced an increase in operating revenues of 3.0% to €1,179 million.
While operating revenues in our Corporate Banking division increased slightly by 1.3% to €1,027 million, at DrKW, operating revenues rose by 2.8% to €2,102 million. The increase at DrKW resulted primarily from favorable developments within our client business, with an improvement in our capital markets and mergers & acquisitions business more than offsetting the substantial decrease in net trading income, largely due to the difficult capital market conditions in April and May. In the second half of 2005, DrKW’s net trading income increased significantly, driven primarily by strong client and customer business.
Operating Revenues by Type of Revenues Net interest income remained relatively stable at €2,228 million. Excluding the negative effects from the reduction of our non-strategic IRU portfolio and from IAS 39, net interest income increased by 11.0%, in particular driven by our structured finance business. At September 30, 2005, the IRU’s remaining risk assets amounted to €1.4 billion, of which the majority was sold in 4Q 2005, resulting in a further decrease of these risk assets to approximately one-third at December 31, 2005.
Net fee and commission income grew by 6.1% to €2,610 million, principally driven by the securities business in our Personal Banking and Private & Business Banking divisions. At DrKW, client business also contributed to our increased net fee and commission income.
Net trading income declined by 25.6% to €1,116 million, largely due to the difficult capital market conditions in April and May, as well as the negative impacts from IAS 39.
In summary, despite the revenue growth experienced by our strategic business, the faster than planned completion of the wind-down of our non-strategic IRU, which was closed effective September 30, 2005, as well as the negative impacts from IAS 39 of €214 million, resulted in a decrease in operating revenues by 4.4% to €5,954 million at Dresdner Bank.
Year Ended December 31, 2004 Compared to Year Ended December 31, 2003
Operating revenues remained fairly constant at €6,226€544 million with only a 0.3% decrease.
Thisall revenue components contributing to this development. The biggest downward movement was driven primarily by a 2.5% decline in net interest income to €2,267 million, primarily resulting from the reduction of our interest-bearing assets within our IRU, reflecting predominantly the accelerated exit from our non-strategic loan business with disposals aggregating €8.8 billion in loan exposure.
Partially offsetting the decline in net interest income was an increase of 3.1% to €2,460 millionrecorded in net fee and commission income principally resulting from our Personal Banking and Private & Business Banking divisions. In our Personal Banking division, increased activities(down €58 million to €237 million) mainly due to lower third-party assets in Italy caused by market-related effects. Net interest income decreased by 4.0% to €312 million, as lower at-equity results of investments at Banque AGF(2) outweighed the positive performance in our securitiesother banking entities.
Year ended December 31, 2007 compared to year ended December 31, 2006
The operating revenues for our Banking segment amounted to €622 million (2006: €604 million). The increase of €18 million was driven by the positive development in net interest income and insurancebusiness helped to excel net fee and commission income. Primarily successful sales activities, product innovations in our securities business, as well as an increased efficiency in our distribution channels contributed to the rise in net fee and commission income, withinwhich could outweigh the sharp decrease in our Private & Business Banking division. Overall, the commission income generated from the sales of insurance products of approximately €136 million (2003: €84 million) also contributed significantly to the increase in net fee and commissiontrading income.
Net tradinginterest income declined by 2.2%developed favorably, up 11.7% to €1,499 million, predominantly resulting from lower€325 million. Oldenburgische Landesbank’s net tradinginterest income at DrKW, mainly reflecting significantly reduced risk capital.was steady.
Operating revenues from our Private & Business Banking division rose by 4.1% to €1,145 million, primarily reflecting increasedOur net fee and commission income as previously discussed.also showed good performance with an increase of €27 million to €295 million mainly driven by the results of Banque AGF(2) and the banking clients introduced through the tied agents channel.
Conversely, operating revenues from our Personal Banking, Corporate Banking and DrKW divisions decreased by 0.5%, 2.6% and 4.5%, respectively. At Personal Banking and Corporate Banking, the decline resulted primarily from lower net interest income. The declinedevelopment in our Personal Banking’s net interest income more than offset the division’s increased net fee and commission income, as previously discussed, and resulted primarily from the deposit business, which was negatively affected by lower market interest rates in 2004 as compared to 2003. Corporate Banking’s net interest income declined due to significantly decreased risk-weighted assets, partially offset by improved interest margins. At DrKW, the decrease in operating revenues resulted predominantly from lower net trading income duewas significantly impacted by the turbulence in financial markets and led to significantly reduced risk capital.a result of €2 million, coming from €45 million in the previous year.
Operating Profitprofit (loss)
Year Endedended December 31, 2005 Compared2008 compared to Year Endedyear ended December 31, 20042007
Dresdner Bank’sWe recorded an operating loss of €31 million coming from a profit significantly improved by 33.2% to €775 million. However, given lower in 2007 of almost the same magnitude. Lower operating revenues and an almost unchanged expense base,higher loan loss provisions (net additions of €29 million in 2008 compared to net additions of €5 million in the previous year) were only partially offset by reduced operating expenses. Operating expenses decreased by 6.7% to €546 million whereas ourcost-income ratio(1) increased from
85.2%by 6.3 percentage points to 88.9%, substantially burdened by the negative impact from the application of the IAS 39 hedge accounting rules on derivative financial instruments.100.4%.
Operating Profit – Dresdner BankYear ended December 31, 2007 compared to year ended December 31, 2006
in € mn
Operating profit nearly halved to €32 million (2006: €63 million). Our cost-income ratio was 94.1% (2006: 90.1%).
The increase in operating profit was drivenOperating expenses, increased by the positive developments within ournetloan7.5% to €585 million. Administrative expenses amounted to €589 million, of which personnel expenses made up for €252 million, down 0.8%, and non-personnel expenses amounted to €337 million, up 13.9%.
(1) | Following the sale of almost all of Dresdner Bank AG (Dresdner Bank) to Commerzbank AG (Commerzbank), our continuing banking operations consist of Oldenburgische Landesbank AG (OLB) and the clients introduced through the tied agents channel to Dresdner Bank, together with our non-Dresdner Bank existing banking operations. Therefore, all revenue and profit figures presented for our continuing business exclude the parts of Dresdner Bank sold to Commerzbank. Since the third quarter 2008, following the announcement of the sale, Dresdner Bank qualified as held-for-sale and discontinued operations and is presented as “—Discontinued Operations of Dresdner Bank”. The results from these operations are presented in a separate net income line “net income from discontinued operations, net of income taxes and minority interests in earnings”. For further information please refer to Note 4 in our consolidated financial statements. |
(2) | On January 1, 2009 Banque AGF was re-branded in Allianz Banque. |
Loan loss provisions, resulting in showed gross releases and recoveries of €84 million and gross additions of €89 million, leading to net additions of €5 million coming from a net release of €113 million (2004: net charge of €337 million). While gross releases and recoveries decreased, the decline in gross new additions was even stronger. Gross releases and recoveries reached €850 million (2004: €1,061 million), stemming principally from exits from large debtors, mainly within our IRU. Gross new additions to allowances of €737 million were significantly lower compared to €1,398€3 million in 2004, predominantly due to the reductions in our non-strategic business within our IRU and the significantly improved risk profile of Dresdner Bank’s strategic loan portfolio. The net release in loan loss provisions, together with the reduction of our non-performing loan portfolio by approximately 58%, led to a coverage ratio(1) at December 31, 2005 of 56.8% (2004: 60.4%). Both personnel and non-personnel expenses remained stable at €3,246 million (2004: €3,247 million) and €2,046 million (2004: €2,060 million) despite focused investments in certain growth areas, such as infrastructure established for our Business Models 2 and 3.
Our Personal Banking division experienced a strong improvement in 2005. Operating revenues increased by 2.0% to €1,883 million and operating profit was more than three times higher compared to 2004, reaching €210 million. These positive developments reflect primarily strict cost controlwhile loan loss provisions reached normalized levels. Our cost-income ratio strengthened by 5.0 percentage points to 84.2%.
Private & Business Banking and Corporate Banking also increased operating revenues and further improved their operating profitability, with cost-income ratios decreasing by 6.5 and 2.3 percentage points, respectively. These positive developments led to increases in operating profit by 35.4% to €440 million and by 14.8% to €551 million, respectively.
Conversely, DrKW’s cost-income ratio rose to a disappointing 91.7% from 89.4%, primarily reflecting decreased net trading income and increased expenses. Accordingly, operating profit declined by 6.4% to €204 million.
These developments underline the need for a better re-alignment between our corporate banking and investment banking activities, a decision recently undertaken at Dresdner Bank. See “Information on the Company—Banking Operations.”previous year.
Year Ended December 31, 2004 Compared to Year Ended December 31, 2003Non-operating result
Dresdner Bank’soperating profit increased significantly to €582 million, compared to an operating loss of €509 million in the prior year. This positive development was brought about by reductions in our administrative expenses and net loan loss provisions across all segments.
Ouradministrative expenses were reduced by 7.5% to €5,307 million. This was largely due to our cost-cutting and restructuring measures, including further reduction in headcount, which resulted in savings in both personnel and non-personnel operating expenses. Personnel expenses decreased by €202 million, or 5.9%, to €3,247 million. As a result of lower expenses related to information technology and other equipment, non-personnel operating expenses also declined by 10.0% to €2,060 million. Ournet loan loss provisions declined by 66.8% to €337 million, primarily as a result of further improved risk management processes, absence of large defaults and the reduction in our non-strategic loan business within the IRU, thereby reducing our risk-weighted assets. Overall, our coverage ratio increased to 60.4% at December 31, 2004 (2003: 55.9%).
Personal Banking’s operating profit grew significantly to €61 million, compared to an operating loss of €85 million in 2003, due primarily to strict cost management and further reduction in headcount, mainly in the back office function. As a result, our cost-income ratio improved from 93.5% to 89.2%.
Private & Business Banking and Corporate Banking were also successful in improving their operating profitability, with cost-income ratios decreasing by 3.2 and 0.9 percentage points, respectively. These positive developments led to increases in operating profit by 18.6% to €325 million and 13.5% to €480 million, respectively.
Conversely, DrKW’s cost-income ratio rose to 89.4%, compared to 87.6% in the prior year, primarily reflecting decreased net trading income due to significantly reduced risk capital. Accordingly, operating profit decreased by 29.7% to €218 million.
Net Income
Year Endedended December 31, 2005 Compared2008 compared to Year Endedyear ended December 31, 20042007
Net income increasedThe non-operating result was negative at €130 million compared to a positive result of €13 million in 2007. This is primarily due to significantly higher net impairments of investments, up €117 million to €1,003€120 million, including a tax-exempt gainwhich were mainly caused by write-downs on structured products in France. In addition, net realized losses of €343€6 million (2007: gains of €18 million), largely from the transfersale of 5%investments in France contributed to this development.
Year ended December 31, 2007 compared to year ended December 31, 2006
The non-operating result amounted to €13 million in both periods. Higher net realized gains of Dresdner Bank’s 7.3% shareholding€18 million in Munich Re2007 (2006: €15 million) were partly offset by net impairments of investments amounting to Allianz AG in 1Q 2005 as part of the Allianz Group’s “All-in-One” capital market transactions.€3 million (2006: no impairments were incurred). In addition, to the positive operating profit development, the growthwe recorded restructuring charges of €2 million in net income was attributable to our improved non-operating results.2007 and 2006, respectively.
Net capital gains and impairments on investments of Dresdner Bank rose by €547 million. This increase resulted principallyincome (loss) from the aforementioned Munich Re transfer, the complete sale of our shareholding in Bilfinger Berger in 2Q 2005, as well as the sale of 7.35% of our 28.48% shareholding in Eurohypo AG to Commerzbank AG and of the majority of our real estate portfolio in 4Q 2005, largely of which was subsequently leased back. Further, net impairments on investments decreased heavily, primarily from improved capital market conditions. The sales of various assets in 2005 was in line with Dresdner Bank’s focus on its core business. The sale of the remaining 21.13% participation in Eurohypo AG to Commerzbank AG is subject to thefulfilment of customary conditions, in particular the approval by the German and various European antitrust authorities and the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsichtcontinuing operations, or “BaFin”).
The absence of significantrestructuring charges and the elimination of goodwill amortization (2004: charge of €244 million) also benefited our net income.Other non-operating income/expenses (net) in 2005 improved significantly to an expense of €9 million (2004: expense of €278 million), resulting from, among other factors, impairments on certain non-strategic assets in 2004. The increase in operating profit and non-operating results led totax expenses of €382 million in 2005, compared to a tax credit of €288 million in the previous year, including a one-off tax benefit. Accordingly, our effective tax rate was 25.6% in 2005.
Year Endedended December 31, 2004 Compared2008 compared to Year Endedyear ended December 31, 20032007
NetThe net loss from our continuing operations before income taxes and minority interests in earnings amounted to €161 million (2007: income of Dresdner Bank improved significantly€45 million). Due to €164the loss, we recorded an income tax credit of €54 million in 2004which led to an effective tax rate of 33.5% and therefore was comparable to the expected tax rate of 33%. The effective tax rate last year was (22.2)% due to a positive effect from the German tax reform.
After tax and minority interests, we recorded a net loss from continuing operations of €114 million, coming from a lossgain of €1,042€55 million in 2003.a year earlier.
Year ended December 31, 2007 compared to year ended December 31, 2006
In addition to the positive developments in our operating profit, Dresdner Bank’sThe net income from our continuing banking operations amounted to €55 million and therefore was strengthened by€14 million lower than the same period a significant reductionyear ago.
Although we recorded €45 million income from continuing operations before income taxes and minority interests inrestructuring charges, earnings we received an income tax credit of €10 million. This was a result of the German tax rate reform in 2007, which declined to €290 million from €840 million, as well as an improvement innet other non-operating income/(expenses), which increased by €335 millionled to a losstax benefit from revaluation of €278deferred taxes. The effective tax rate was (22.2)%. In 2006 income from continuing operations before income taxes and minority interests in earnings amounted to €76 million. The income tax charge was €1 million from a lossleading to an effective tax rate of €613 million.1.3%.
Banking segment information
During 2004, restructuring charges of €96 million resulted from our “New Dresdner” program, with a further €55 million stemming from other existing programs. Restructuring provisions of €139 million were also recorded for measures taken in optimizing our internal business processes in our Personal Banking and DrKW divisions, as well as the reorganization of our business in Latin America.
2008 | 2007 | 2006 | |||||||
€ mn | € mn | € mn | |||||||
Net interest income(1) | 312 | 325 | 291 | ||||||
Net fee and commission income(2) | 237 | 295 | 268 | ||||||
Trading income (net)(3) | (5 | ) | 2 | 45 | |||||
Income from financial assets and liabilities designated at fair value through income (net)(3) | — | — | — | ||||||
Operating revenues(4) | 544 | 622 | 604 | ||||||
Administrative expenses | (552 | ) | (589 | ) | (550 | ) | |||
Investment expenses | 9 | 6 | 6 | ||||||
Other expenses | (3 | ) | (2 | ) | — | ||||
Operating expenses | (546 | ) | (585 | ) | (544 | ) | |||
Loan loss provisions | (29 | ) | (5 | ) | 3 | ||||
Operating profit (loss) | (31 | ) | 32 | 63 | |||||
Realized gains/losses (net) | (6 | ) | 18 | 15 | |||||
Impairments of investments (net) | (120 | ) | (3 | ) | — | ||||
Amortization of intangible assets | (2 | ) | — | — | |||||
Restructuring charges | (2 | ) | (2 | ) | (2 | ) | |||
Non-operating items | (130 | ) | 13 | 13 | |||||
Income (loss) from continuing operations before income taxes and minority interests in earnings | (161 | ) | 45 | 76 | |||||
Income taxes | 54 | 10 | (1 | ) | |||||
Minority interests in earnings | (7 | ) | — | (6 | ) | ||||
Net income (loss) from continuing operations | (114 | ) | 55 | 69 | |||||
Cost-income ratio(5) in % | 100.4 | 94.1 | 90.1 |
Additionally, the sale of non-strategic investments contributed to ournet capital gains and impairments on investments, which increased to €166 million from €120 million.
The following table sets forth the income statements and key operating ratio for both our Banking segment as a whole and Dresdner Bank on a stand-alone basis for the years ended December 2005, 2004 and 2003.
Years ended December 31, | 2005 | 2004 | 2003 | |||||||||||||||
Banking Segment | Dresdner Bank | Banking Segment | Dresdner Bank | Banking Segment | Dresdner Bank | |||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | |||||||||||||
Net interest income | 2,305 | 2,228 | 2,359 | 2,267 | 2,728 | 2,325 | ||||||||||||
Net fee and commission income | 2,767 | 2,610 | 2,593 | 2,460 | 2,452 | 2,387 | ||||||||||||
Net trading income | 1,163 | 1,116 | 1,494 | 1,499 | 1,524 | 1,533 | ||||||||||||
Operating revenues(1) | 6,235 | 5,954 | 6,446 | 6,226 | 6,704 | 6,245 | ||||||||||||
Administrative expenses | (5,500 | ) | (5,292 | ) | (5,516 | ) | (5,307 | ) | (6,086 | ) | (5,739 | ) | ||||||
Net loan loss provisions | 110 | 113 | (344 | ) | (337 | ) | (1,014 | ) | (1,015 | ) | ||||||||
Operating profit | 845 | 775 | 586 | 582 | (396 | ) | (509 | ) | ||||||||||
Net capital gains and impairments on investments | 7102 | ) | 713 | 172 | (2) | 166 | 166 | (2) | 120 | |||||||||
Restructuring charges | (13 | ) | (12 | ) | (292 | ) | (290 | ) | (892 | ) | (840 | ) | ||||||
Other non-operating income/(expenses)(net) | (5 | ) | (9 | ) | (289 | ) | (278 | ) | (551 | ) | (613 | ) | ||||||
Amortization of goodwill(3) | — | — | (244 | ) | (244 | ) | (263 | ) | (270 | ) | ||||||||
Earnings from ordinary activities before taxes | 1,537 | 1,467 | (67 | ) | (64 | ) | (1,936 | ) | (2,112 | ) | ||||||||
Taxes | (396 | ) | (382 | ) | 294 | 288 | 1,025 | 1,075 | ||||||||||
Minority interests in earnings | (102 | ) | (82 | ) | (101 | ) | (60 | ) | (104 | ) | (5 | ) | ||||||
Net income | 1,039 | 1,003 | 126 | 164 | (1,015 | ) | (1,042 | ) | ||||||||||
Cost-income ratio4) in % | 88.2 | 88.9 | 85.6 | 85.2 | 90.8 | 91.9 |
Banking Operations by DivisionGeographic Region
The following table sets forth our banking operating revenues, operating profit and cost-income ratio as well as earnings after taxesby geographic region for the years ended December 31, 2008, 2007 and before minority interests in earnings, which we refer to herein as “earnings after taxes and before minority interests”, by division. Applicable only for 2004 and 2003, earnings after taxes and before minority interests by divisionexcludes amortization of goodwill.2006. Consistent with our general practice, operating revenues, cost-income ratio and earnings after taxes and before minority interests by divisionthese figures are presented before consolidation adjustments, representing the elimination of transactions between Allianz Group companies in different segments.
Years ended December 31, | 2005 | 2004 | 2003 | ||||||||||||||||||||||||
Operating revenues(1) | Cost- income ratio | Earnings after taxes and before minority interests | Operating revenues(1) | Cost- income ratio | Earnings after taxes and before minority interests | Operating revenues(1) | Cost- income ratio | Earnings after taxes and before minority interests | |||||||||||||||||||
€ mn | % | € mn | € mn | % | € mn | € mn | % | € mn | |||||||||||||||||||
Personal Banking | 1,883 | 84.2 | 136 | 1,846 | 89.2 | (6 | ) | 1,856 | 93.5 | (130 | ) | ||||||||||||||||
Private & Business Banking | 1,179 | 58.5 | 293 | 1,145 | 65.0 | 188 | 1,100 | 68.2 | 146 | ||||||||||||||||||
Corporate Banking | 1,027 | 44.9 | 335 | 1,014 | 47.2 | 282 | 1,041 | 48.1 | 197 | ||||||||||||||||||
DrKW | 2,102 | 91.7 | 132 | 2,045 | 89.4 | 152 | 2,141 | 87.6 | 209 | ||||||||||||||||||
IRU | 70 | 232.6 | 91 | 362 | 79.1 | 5 | 598 | 77.6 | (896 | ) | |||||||||||||||||
Corporate Other(2) | (307 | ) | — | (3) | 98 | (186 | ) | — | (3) | (153 | ) | (491 | ) | — | (3) | (293 | ) | ||||||||||
Dresdner Bank | 5,954 | 88.9 | 1,085 | 6,226 | 85.2 | 468 | 6,245 | 91.9 | (767 | ) | |||||||||||||||||
Other Banks(4) | 281 | 73.9 | 56 | 220 | 94.9 | 3 | 459 | 75.7 | 119 | ||||||||||||||||||
Subtotal | 6,235 | — | 1,141 | 6,446 | — | 471 | 6,704 | — | (648 | ) | |||||||||||||||||
Amortization of goodwill(5) | — | — | — | — | — | (244 | ) | — | — | (263 | ) | ||||||||||||||||
Minority interests in earnings | — | — | (102 | ) | — | — | (101 | ) | — | — | (104 | ) | |||||||||||||||
Total | 6,235 | 88.2 | 1,039 | 6,446 | 85.6 | 126 | 6,704 | 90.8 | (1,015 | ) | |||||||||||||||||
Operating revenues | Operating profit (loss) | Cost-income ratio | ||||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | 2006 | 2008 | 2007 | 2006 | ||||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | % | % | % | ||||||||||||||
Germany | 325 | 326 | 320 | 4 | (12 | ) | (4 | ) | 92.8 | 104.1 | 102.6 | |||||||||||
Italy | 176 | 219 | 201 | 55 | 76 | 47 | 66.7 | 64.0 | 75.1 | |||||||||||||
France | — | 46 | 64 | (58 | ) | (21 | ) | 18 | — | (6) | 145.2 | 74.1 | ||||||||||
New Europe | 43 | 31 | 19 | (32 | ) | (11 | ) | 2 | 164.8 | 126.4 | 86.2 | |||||||||||
Total | 544 | 622 | 604 | (31 | ) | 32 | 63 | 100.4 | 94.1 | 90.1 | ||||||||||||
(1) | Represents interest and similar income |
(2) | Represents fee and commission income less fee and |
| The |
| For the Banking segment, total revenues are measured based upon operating revenues. |
(5) | Represents operating expenses divided by operating revenues. |
(6) | Presentation not meaningful. |
Banking Operations by Geographic Region
The following table sets forth our banking operating revenues and earnings after taxes and before minority interests in earnings, which we refer to herein as “earnings after taxes and before minority interests”, by geographic region. Applicable only for 2004 and 2003, earnings after taxes and before minority interests by geographic region excludesamortization of goodwill. Consistent with our general practice, operating revenues and earnings after taxes and before minority interests by geographic region are presented before consolidation adjustments, representing the elimination of transactions between Allianz Group companies in different geographic regions and different segments.
Operating revenues(1) € mn | Earnings after taxes and before € mn | |||||||||||||||||
Years ended December 31, | 2005 | 2004 | 2003 | 2005 | 2004 | 2003 | ||||||||||||
Germany | 4,084 | 4,238 | 3,377 | 1,553 | 724 | (32 | ) | |||||||||||
Rest of Europe | 1,662 | 1,698 | 2,394 | (28 | ) | (138 | ) | 39 | ||||||||||
NAFTA | 347 | 359 | 385 | 184 | 143 | (351 | ) | |||||||||||
Rest of world | 184 | 151 | 548 | 67 | 89 | 198 | ||||||||||||
Subtotal | 6,277 | 6,446 | 6,704 | 1,776 | 818 | (146 | ) | |||||||||||
Consolidation adjustments(3) | (42 | ) | — | — | (635 | ) | (347 | ) | (502 | ) | ||||||||
Total | 6,235 | 6,446 | 6,704 | 1,141 | 471 | (648 | ) | |||||||||||
Year Endedended December 31, 2005 Compared2008 compared to Year Endedyear ended December 31, 20042007
Record net inflows to third-party assetsSolid asset base ensures profitability even under management of €64 billion.extreme conditions.
Operating profit of our cost-income ratio, which reached 58.5%, our operating profit grew by 32.4% to €1.1 billion.€926 million.
Fixed-income business continued to deliver robust results, while equity business suffered from the difficult market environment.
Year Endedended December 31, 2004 Compared2007 compared to Year Endedyear ended December 31, 20032006
We continued to significantly increase our operating profit.
Strong profitability based on growing asset base and tight cost control.
Cost-income ratio at a net loss of €275 million in 2004 from a net loss of €397 million in 2003.very competitive 58.3%.
Third-Party Assets Under Management of the Allianz Group
Year Endedended December 31, 2005 Compared2008 compared to Year Endedyear ended December 31, 20042007
The growthsevere turbulences in the financial markets influenced the development of our third-party assets under management. At €703 billion, these were €62 billion below the level of year-end 2007.
Development of third-party assets under management
in € bn
Despite the negative impact the crisis had on the fair value of our assets under management, we still generated positive net inflows in the first nine months of 2008. In contrast, we saw large outflows in the fourth quarter as a consequence of increased risk aversion of investors. The twelve month net inflow figure was zero, as full year inflows of €11 billion from fixed-income products was entirely offset by outflows from equity products. Following a sharp decline in market values, market-related depreciation amounted to €86 billion; thereof €58 billion and €27 billion related to equity and fixed-income products, respectively. Deconsolidation effects of €5 billion were to a large extent due to the disposal of our former real estate fund company, DEGI. The strengthening U.S. Dollar versus the Euro resulted in a positive currency translation effect of €29 billion.
Third-party assets under management by geographic region as of December 31, 2008 (December 31, 2007)(1)
in %
The regional allocation of assets under management moved slightly towards investments originated in the United States, driven by the appreciation of the U.S. Dollar. Strong outflows from the equity business combined with this foreign exchange impact led to a shift from equity to fixed-income products, which made up 15% and 85% of the total assets under management, respectively, at year-end 2008. The proportion of institutional (74%)
(1) | Based on the origination of assets. |
(2) | Consists of third-party assets managed by other Allianz Group companies (approximately €22 bn and €22 bn as of December 31, 2008 and December 31, 2007, respectively) and Dresdner Bank (approximately €9 bn and €18 bn as of December 31, 2008 and December, 31 2007 respectively). |
to retail customers (26%) increased following stronger outflows from retail products and a shift in investments towards the United States, which has a strong institutional customer base.
Rolling investment performance of Allianz Global Investors(1)
in %
For equity products, 62% of our assets under management outperformed their respective benchmarks. Fixed-income markets were severely hit by unprecedented and unforeseeable market disruptions in the second half of the year, which had a negative impact on our performance track record, driving outperformance down to 48%.
(1) | AGI account-based, asset-weighted 3-year investment performance of 3rd party assets vs. benchmark including all accounts managed on a discretionary basis by equity and fixed-income managers of AGI (including direct accounts, Spezialfonds and CPMs of Allianz with AGI Germany). For some retail funds the net of fee performance is compared to the median performance of an appropriate peer group (Micropal or Lipper; 1st and 2nd quartile mean out-performance). For all other retail funds and for all institutional accounts performance is calculated gross of fees using closing prices (revaluated) where appropriate and compared to the benchmark of each individual fund or account. Other than under GIPS, the performance of closed funds/accounts is not included in the analysis. Also not included: AGI Taiwan, AGI Singapore, GTJA Allianz China, AGI Korea, AGI France, AGI Netherlands and AGI Italy. |
Major awards received during the year in the asset management business in 2008 include:
Allianz RCM Global EcoTrends Fund was announced joint winner of “Best Climate Change Fund 2008”, awarded by Holden & Partners Incisive Media.
Allianz RCM-managed Charter European Trust was awarded “Best European Trust 2008” at Investment Weeks’s Investment Trust of the Year awards.
Nicholas Applegate Capital Management was named “130/30 Manager of the Year” at Professional Pensions’ Specialist and Alternative Investment Manager Awards 2008.
A total of 24 Lipper Awards have been awarded to group funds across Asia and Europe.
Year ended December 31, 2007 compared to year ended December 31, 2006
The majority of our third-party assets under management includes recordoutperformed their respective benchmarks. Operating profit grew 5.3% to €1,359 million. Excluding negative foreign currency translation effects of €96 million operating profit grew 12.8% at constant exchange rates.
In the fixed-income business, especially in the second half of 2007, we again generated a very strong overall investment performance, showing that our long-term approach pays off. We also further improved our investment performance in the equity business.
Third-party assets under management increased by 8.1% on an internal basis. This growth was driven by net inflows and positive market effects, which in aggregate contributed €62 billion. However, the continuing decline of €64the U. S. Dollar outweighed most of that asset growth.
Of the net inflows, €12.4 billion (2004: €31 billion). Net inflowsare attributable to fixed-income investments, whereas there were particularly strongoutflows of €2.4 billion from equity investments.
There were no major movements in our fixed incomethe geographic origination of third-party assets under management in the year. The allocation between retail and institutional business withinclients also remained almost
unchanged. Roughly two thirds were made up by institutional clients with a majority thereof coming from the United States. The same applied to retail clients. With regards to investment categories, the proportion between fixed-income and equity did not reflect any major movements either. The majority were fixed-income investments mainly from the United States. On the equity side the allocation between the United States, at PIMCOGermany and within Germany at AGI Germany. Ofother countries was fairly balanced.
Major awards received during the total increaseyear reflect our success in our third-party assets, market-relatedappreciation amounted to €33 billion, primarily attributable to favorable equity capital marketsthe asset management business in 2007:
Morningstar has named PIMCO’s Bill Gross and to a lesser extent, bond capital markets. These achievements continue to strengthen our position as oneteam the “2007 Fixed-Income Fund Manager of the world’s largestyear”. Bill Gross is the first fund manager ever to receive three Morningstar Fund Manager of the year awards.
PIMCO was awarded “Best Third-Party Provider of Fixed-Income Portfolio Management Services in Asia” from Euromoney Private Banking Survey 2007.
Allianz Global Investors Germany was awarded with five stars again according to “Capital” magazine ranking.
Earnings Summary(1)
Operating revenues
Year ended December 31, 2008 compared to year ended December 31, 2007
Operating revenues decreased by 6.0% to €2,813 million on an internal basis. The decline in the asset managers, based on totalbase resulted in lower net fee and commission income. In addition, we recorded a net loss from financial assets under management. A major success factor has been our competitive performance,and liabilities carried at fair value through income. On a nominal basis, operating revenues were 11.5% lower.
(1) | The results of operations of our Asset Management segment are almost exclusively represented by AGI, accounting for 97.4% (2007: 97.5%, 2006: 98.2%) of our total Asset Management segment’s operating revenues and 97.6% (2007: 97.2%, 2006: 98.9%) of our total Asset Management segment’s operating profit for the year ended December 31, 2008. Accordingly, the discussion of our Asset Management segment’s results of operations relates solely to the operations of AGI. |
Net fee and commission income declined by 8.1% as the overwhelming majoritylower level of the third-party assets we manage outperformed their respective benchmarks in 2005. Further, positive effects of €66 billion from exchange rate movements were incurred, resulting primarily from the strengthening of the U.S. dollar compared to the Euro.
Overall, third-party assets accounted for approximately 59% and 55% of total assets under management led to decreasing management fees. The unprecedented market disruptions were reflected in the volatility of the Allianz Groupperformance fees, which more than halved.
2008 | 2007 | 2006 | |||||||
€ mn | € mn | € mn | |||||||
Management fees | 3,244 | 3,496 | 3,368 | ||||||
Loading and exit fees | 250 | 307 | 334 | ||||||
Performance fees | 82 | 202 | 107 | ||||||
Other income | 364 | 292 | 309 | ||||||
Fee and commission income | 3,940 | 4,297 | 4,118 | ||||||
Commissions(2) | (770 | ) | (931 | ) | (949 | ) | |||
Other expenses(2) | (358 | ) | (306 | ) | (295 | ) | |||
Fee and commission expenses | (1,128 | ) | (1,237 | ) | (1,244 | ) | |||
Net fee and commission income | 2,812 | 3,060 | 2,874 | ||||||
Net loss from financial assets and liabilities carried at fair value through income amounted to €80 million coming from a gain of €29 million in 2007. The swing stemmed to a large extent from €74 million negative mark-to-market valuations of seed money investments.
Year ended December 31, 2005 and 2004, respectively. We operate our third-party asset management business primarily through AGI. At2007 compared to year ended December 31, 2005, AGI managed approximately 95.2% (December 31, 2004: 94.0%) of2006
Operating revenues amounted to €3,178 million, up 6.3% from a year ago. Operating revenue grew 13.5% on an internal basis.
Net fee and commission income was up €186 million to €3,060 million driven by higher management fees resulting from our third-party assets. The remaining assets are managedgrowing asset base, as well as by Dresdner Bank (approximately 2.3%increased performance fees. In contrast, loading and 3.2% at December 31, 2005 and 2004, respectively) and other Allianz Group companies (approximately 2.5% and 2.8% at December 31, 2005 and 2004, respectively).exit fees decreased reflecting the development in mutual fund sales.
(2) | €54 million have been reclassified from other expenses to commission expenses each for the years ended December 31, 2007 and 2006. |
Operating profit
Operating profit
in € mn
Year Ended December 31, 20042008 Compared to Year Ended December 31, 20032007
The valueIn a difficult market environment, operating profit was down 27.9% on an internal basis. At €904 million, it was 31.6% lower than the previous year’s result. This was mainly driven by lower net fee and commission income, negative mark-to-market valuation of our third-party assets increased by €20 billion, including net inflows of €31 billion and market-related increases of €32 billion. With net inflows of €37.0 billion, our fixed income fund business achieved significant growth. These increases of our third-party assets more than compensated the negative effects from exchange rate movements of €31 billion, resulting primarily from the weakness of the U.S. dollar as compared to the Euro. Our third-party assets were also negatively affected by the withdrawal from our joint ventureseed money investments together with Meiji Lifea slight increase in Japan, which resulted in a €12 billion decline in our third-party assets.operating expenses.
TheAdministrative expenses of €1,909 million, were 2.8% higher than the prior year level mainly as non-personnel expenses showed a double-digit increase driven by business expansions in the fixed-income business and in U.S. distribution units. In addition, expenses increased following graphs present the third-party assets managedhigher costs for further improvements of compliance and risk management infrastructures. Personnel expenses declined due to lower bonus costs, partly offset by the Allianz Group by geographic region, investment category and investor class at December 31 for the years indicated.
Third-party assets under management— Fair values by geographic region(1)
associated non-bonus related staff costs due to an increase in € bnheadcount.
Third-party assets under management— Fair values by investment category
in € bn
Third-party assets under management— Fair values by investor class
in € bn
United States
Third-party assets under management—Composition of fair value development forAt 67.9%, the years ended December 31, 2005, 2004 and 2003
in € bn
Year Ended December 31, 2005 Compared to Year Ended December 31, 2004
Our major achievements in 2005 included:
Year Ended December 31, 2004 Compared to Year Ended December 31, 2003
Our major achievements in 2004 included:
Germany
Third-party assets under management—Composition of fair value development for the years ended December 31, 2005, 2004 and 2003
in € bn
cost-income ratio was up 9.5 percentage points.
Year Ended December 31, 20052007 Compared to Year Ended December 31, 20042006
Our major achievements in 2005 included:
Year Ended December 31, 2004 Compared to Year Ended December 31, 2003€1,321 million.
Our major achievements in 2004 included:Administrative expenses, excluding acquisition-related expenses were up 8.4% to €1,857 million as a result of our business expansion and structured investments to secure future growth. In line with new business generation, compensation-related expenses were also up. At 58.4%, our cost-income remained at a very competitive level.
Earnings Summary
Our Asset Management segment’s results of operations are almost exclusively represented by AGI, which accounted for 98.7% and 98.3% of our total Asset Management segment’s operating revenues and net income, respectively, for the year ended December 31, 2005. Accordingly, the discussion of our Asset Management segment’s results of operations relates solely to the operations of AGI.
Operating RevenuesNon-operating result
Year Ended December 31, 20052008 Compared to Year Ended December 31, 20042007
Our operating revenues increased by 17.3%Acquisition-related expenses declined significantly to €2,698 million. Internal growth€278 million (2007: €491 million). This was comparable at 17.5%almost exclusively due to a lower number of outstanding PIMCO LLC Class B Units (B Units). As previously noted, these positive developments reflect favorable business developments worldwide, namely resulting in significant increases of management and loading fees as well as performance fees. Management and loading fees, netDecember 31, 2008, the Allianz Group had acquired 71,743 of commission, and performance fees rose by 16.5% to €2,423 million and 117.0% to€122 million, respectively. Overall, fees, net of commission, improved by 19.2% to €2,597 million, whereas other income remained relatively stable.the 150,000 units originally outstanding.
Year Ended December 31, 20042007 Compared to Year Ended December 31, 20032006
Operating revenues increasedThe aggregate net loss from non-operating items declined to €492 million, down €64 million compared to the prior year period. Acquisition related expenses declined by €75 million, or 3.4%,7.7% to €2,301€491 million. This was mainly driven by a positive foreign exchange effect of €48 million. Excluding the negative effects fromforeign exchange rate movements, operating revenues increased by €226 million, representing a growth rate of 10.1%. This growth reflected positive business developments worldwide, resulting primarily from higher average assets under management driven by significant net inflows and favorable capital markets in 2004. We recorded the strongest growth rate in our Asia-Pacific business, which was alsoimpacts, acquisition related expenses grew 1.2%, mainly due to valuation effects of PIMCO LLC Class B Units (B Units) as a muchresult of increased operating performance at PIMCO. This outweighed the lower base (assets under management)number of outstanding Class B Units in 2007 as compared to 2006. As of December 31, 2007, the Allianz Group had acquired 43,917 of the 150,000 Class B Units originally outstanding. Going forward, we expect acquisition-related expenses to be mainly driven by the number of Class B Units outstanding and our businessesoperating profit development at PIMCO.
There was no charge in 2007 for amortization of intangible assets compared to a charge in the United States and Europe.prior year of €23 million that was related to the impairment of a brand name.
Operating ProfitNet income
Year Endedended December 31, 2005 Compared2008 compared to Year Endedyear ended December 31, 20042007
We recorded net income of €369 million, a 21.5% decline compared to a year ago.
Tax charges were reduced by 27.0% amounting to €246 million. The effective tax rate was 39.9% and remained almost unchanged compared to the prior year level of 40.7%.
Year ended December 31, 2007 compared to year ended December 31, 2006
Income before income taxes and minority interests increased by €109 million, giving rise to a higher tax charge. Our effective tax rate increased by 2.4 percentage points to 40.7%, primarily due to a highter taxable income in the United States.
Due to the minority buy-outs of AGF and RAS, minority interests in earnings reduced by €27 million to €22 million.
Net income therefore grew by 19.0% to €470 million in 2007.
Asset Management segment information and AGI
2008 | 2007 | 2006 | ||||||||||||||||
Asset Management Segment | Allianz Global Investors | Asset Management Segment | Allianz Global Investors | Asset Management Segment | Allianz Global Investors | |||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | |||||||||||||
Net fee and commission income(1) | 2,874 | 2,812 | 3,133 | 3,060 | 2,924 | 2,874 | ||||||||||||
Net interest income(2) | 62 | 54 | 81 | 75 | 71 | 66 | ||||||||||||
Income from financial assets and liabilities carried at fair value through income (net) | (77 | ) | (80 | ) | 31 | 29 | 38 | 37 | ||||||||||
Other income | 28 | 27 | 14 | 14 | 11 | 12 | ||||||||||||
Operating revenues(3) | 2,887 | 2,813 | 3,259 | 3,178 | 3,044 | 2,989 | ||||||||||||
Administrative expenses, excluding acquisition-related expenses(4) | (1,961 | ) | (1,909 | ) | (1,900 | ) | (1,857 | ) | (1,754 | ) | (1,713 | ) | ||||||
Operating expenses | (1,961 | ) | (1,909 | ) | (1,900 | ) | (1,857 | ) | (1,754 | ) | (1,713 | ) | ||||||
Operating profit | 926 | 904 | 1,359 | 1,321 | 1,290 | 1,276 | ||||||||||||
Realized gains/losses (net) | 5 | 5 | 2 | 4 | 7 | 5 | ||||||||||||
Impairments of investments (net) | (19 | ) | (13 | ) | (1 | ) | (1 | ) | (2 | ) | (2 | ) | ||||||
Acquisition-related expenses(4), thereof: | ||||||||||||||||||
Deferred purchases of interests in PIMCO | (278 | ) | (278 | ) | (488 | ) | (488 | ) | (523 | ) | (523 | ) | ||||||
Other acquisition-related expenses | — | — | (3 | ) | (3 | ) | (9 | ) | (9 | ) | ||||||||
Subtotal | (278 | ) | (278 | ) | (491 | ) | (491 | ) | (532 | ) | (532 | ) | ||||||
Amortization of intangible assets | (1 | ) | (1 | ) | — | — | (24 | ) | (23 | ) | ||||||||
Restructuring charges | — | — | (4 | ) | (4 | ) | (4 | ) | (4 | ) | ||||||||
Non-operating items | (293 | ) | (287 | ) | (494 | ) | (492 | ) | (555 | ) | (556 | ) | ||||||
Income before income taxes and minority interests in earnings | 633 | 617 | 865 | 829 | 735 | 720 | ||||||||||||
Income taxes | (249 | ) | (246 | ) | (342 | ) | (337 | ) | (278 | ) | (276 | ) | ||||||
Minority interests in earnings | (5 | ) | (2 | ) | (25 | ) | (22 | ) | (53 | ) | (49 | ) | ||||||
Net income | 379 | 369 | 498 | 470 | 404 | 395 | ||||||||||||
Cost-income ratio(5) in % | 67.9 | 67.9 | 58.3 | 58.4 | 57.6 | 57.3 |
(1) | Represents fee and commission income less fee and commission expenses. |
(2) | Represents interest and similar income less interest expenses and investment expenses. |
(3) | For the Asset Management segment, total revenues are measured based upon operating revenues. |
(4) | The total of these items equals acquisition and administrative expenses (net) in the segment income statement included in Note 6 to the consolidated financial statements. |
(5) | Represents operating expenses divided by operating revenues. |
Operating loss declined by €137 million mainly driven by foreign currency gains.
Net loss heavily affected by increased impairments and lower realized gains.
Earnings Summary
Year ended December 31, 2008 compared to year ended December 31, 2007
The aggregate operating loss decreased by 42.2% to €188 million due to lower administrative and investment expenses in the Holding Function.
At €725 million, the net loss was €567 million higher than in the prior year reflecting higher impairments and significantly lower realized gains in the Holding Function.
Year ended December 31, 2007 compared to year ended December 31, 2006
The operating loss declined significantly due to higher current investment income and lower expenses. This improvement along with a positive trading result and a further increased level of realized gains led to a much lower loss before taxes, whereas the negative tax effects almost off-set these positive developments. Net income thus slightly improved by €21 million to a net loss of €158 million.
Holding Function
Year ended December 31, 2008 compared to year ended December 31, 2007
Operating profit (loss) At €318 million the operating loss in the holding function was 28.7% lower than in 2007 largely due to a decline in administrative and investment expenses. The latter benefited from increased foreign currency gains of €111 million. Revenues declined slightly, as higher interest income was more than offset by a decrease in all other revenue positions.
Non-operating resultThe non-operating loss amounted to €1,154 million coming from a gain of €37 million in the prior year. Due to the weak market conditions impairments increased significantly by 32.1%€638 million and capital gains were €838 million
lower compared to €1,124the prior year. Trading income improved and expenses for external debt decreased mostly driven by the redemption of the bridge loan for the minority buy-out at AGF.
Net income (loss)We recorded a net loss of €812 million, primarily resultingor a €644 million larger loss compared to the prior year’s level. The lower non-operating result described above was partially compensated by higher tax income of €662 million. In 2007 tax income was lower due to tax expense from the aforementioned growth in ouroperating revenues.Operating profit development was particularly strong in the United States and Germany. Due in large part to strict cost management, the increase of our operating expenses was proportionally smaller compared to that of our operating revenues. As a result, ourcost-income ratio(2)improved considerably to 58.3% (2004: 63.0%). The 8.6% rise in operating expenses to €1,574 million was due largely to increased performance-related compensation in the United States and Germany as a result of our strong business developments.German tax reform.
Year Endedended December 31, 2004 Compared2007 compared to Year Endedyear ended December 31, 20032006
Operating profit increased significantlyAt €446 million, the operating loss was nearly halved, a considerable improvement as compared to a year earlier. On the revenue side, in line with a higher asset base and an increase in yields, the main driver was interest and similar income which was up 74.5%, reaching €745 million, driven by €135 million, or 18.9%,a high liquidity accumulated to €851 million. Excluding the effects of exchange rate movements,pay back liabilities. Additionally, operating profit would have improvedexpenses declined by €182 million, or 24.8%6.9%, primarily dueattributing to growth in ouroperating revenues. While operating revenues increased,
operatinglower investment expenses decreased by €60 million, or 4.0%, to €1,450 million. Excluding the effects of exchange rate movements, operating expenses increased by 2.9% to €1,549 million. On a constant currency basis, personnel expenses remained stable at €908 million (2003: €907 million), while non-personnel expenses increased by €42 million, or 7.0%, to €641 million.
In all regions, the increase in operating expenses was below the growth we experienced in our operating revenues. This development was due primarily to strict cost management in all entitieswhich reflect declined banking and restructuring measures initiated in 2002 and 2003, especially concerning our equity investment managers and our operations in Germany. These restructuring measures, which include consolidating our product offerings, streamlining and automation of our backoffice operations, and reduction of our headcount, led to a decrease in our cost base and improved operational efficiency.
As a result of the above-mentioned developments, ourcost-income ratio improved from 67.8% to 63.0%.transaction costs.
Operating Profit – Allianz Global Investors
Non-operating result The non-operating result turned into an aggregate profit of €37 million compared to an aggregate loss of €455 million in € mn
Net Income
Year Ended December 31, 2005 Comparedthe prior year. The non-operating trading result driven by the BITES exchangeable bond, which was partially repaid in 2007, and higher net capital gains contributed to Year Ended December 31, 2004this development and therefore more than compensated for the higher interest expense from external debt in connection with the minority buy-out at AGF.
Net income reached €233 million, a €512 million improvementDue to high negative tax impacts stemming primarily from prior year’sthe German tax reform our net loss of €279came to €168 million.Acquisition-related expenses declined by 5.1% to €713 million. Thereof, €676 million was due to the deferred purchases of interests in PIMCO related to the Class B Plan, which increased by34.9%. The rise was commensurate with the strong profit development at PIMCO in 2005 and the increased number of vested units according to the vesting schedule of the purchase plan. The Class B Plan was agreed upon at the time this company was acquired. Of the total acquisition-related expenses, a further €12 million was incurred due to retention payments for the management and employees of PIMCO and Nicholas Applegate, and €25 million resulted from amortization charges relating to capitalized loyalty bonuses for PIMCO management. These expenses, in aggregate, decreased by €213 million as they largely expired in 2005. Our net income also benefited from the elimination of goodwill amortization under IFRS, effective January 1, 2005 (2004: charge of €380 million).Tax expensesamounted to €130 million, resulting in an effective tax rate of 31.2%, compared to a tax credit of €53 million in 2004. Taxes increased due predominantly to improved operating profitability, inclusive of higher taxable income in the United States, partially offset by a one-off deferred tax credit of €37 million related to tax deductible goodwill amortization.
During 2005, a subsidiary of Allianz AG purchased a total of approximately USD 250 million of the remaining minority interest in Allianz Global Investors of America L.P. (or “AGI L.P.”), with payment therefore made in April 2005. Following this transaction, the remaining ownership interest that is held by AGI L.P.’s former parent company, Pacific Life, was reduced to approximately 2% at December 31, 2005 (December 31, 2004: 6%). Further, and also during 2005, a subsidiary of Allianz AG called 5,427 Class B equity units from former and current members of the management of PIMCO under the Class B Plan. The total amount paid related to the call of the Class B equity units was €71 million. Under the plan, participants acquired Class B equity units annually through 2004 for a total of 150,000 units. Please see Note 43 to our consolidated financial statements for further information.Private Equity
Year Endedended December 31, 2004 Compared2008 compared to Year Endedyear ended December 31, 20032007
Operating profitOperating profit increased by 7.4% to €130 million. This development was driven
by a higher margin from fully consolidated private equity investments and a rise in net fee and commission income, whereas interest and similar income declined due to higher profits from private equity fund investments in the prior year when the market environment was friendlier than in 2008.
Non-operating result The non-operating loss declined from €66 million to €2 million, stemming from higher net capital gains.
Net income (loss) Net income increased by €77 million to €87 million most as a consequence of the reduced non-operating loss. Income tax expenses amounted to €31 million compared to €25 million in 2007.
Year ended December 31, 2007 compared to year ended December 31, 2006
Operating profit At €121 million, the operating result turned positive after an operating loss of €7
million in the previous year reflecting profit participation of €65 million.
Non-operating result Non-operating result turned negative and amounted to an aggregate loss of €66 million, following a gain of €299 million in the previous year, as the high level of realized gains from disposals in the prior year period—mainly in connection with the sale of Four Seasons Health Care Limited—was not repeated.
Net income Net income decreased to €10 million. This development was mainly attributable to the non-operating loss. Furthermore, net income was impacted by higher taxes and increased minority interests in earnings.
Holding Function | Private Equity | Total | |||||||||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | 2006 | 2008 | 2007 | 2006 | |||||||||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | |||||||||||||||||||
Operating profit (loss) | (318 | ) | (446 | ) | (824 | ) | 130 | 121 | (7 | ) | (188 | ) | (325 | ) | (831 | ) | |||||||||||
Non-operating items | (1,154 | ) | 37 | (455 | ) | (2 | ) | (66 | ) | 299 | (1,156 | ) | (29 | ) | (156 | ) | |||||||||||
Income (loss) before income taxes and minorities | (1,472 | ) | (409 | ) | (1,279 | ) | 128 | 55 | 292 | (1,344 | ) | (354 | ) | (987 | ) | ||||||||||||
Income taxes | 662 | 242 | 827 | (31 | ) | (25 | ) | (3 | ) | 631 | 217 | 824 | |||||||||||||||
Minority interests in earnings | (2 | ) | (1 | ) | (8 | ) | (10 | ) | (20 | ) | (8 | ) | (12 | ) | (21 | ) | (16 | ) | |||||||||
Net income (loss) | (812 | ) | (168 | ) | (460 | ) | 87 | 10 | 281 | (725 | ) | (158 | ) | (179 | ) | ||||||||||||
Discontinued Operations of Dresdner Bank(1)
Year ended December 31, 2008
Discontinued operations of Dresdner Bank continued to suffer from weak markets.
Net loss from discontinued operations amounted to €6,411 million.
Year ended December 31, 2007
Operating profit at €602 million despite financial markets turbulence.
Net trading loss of €463 million.
In the full year results of 2008, we show results from operating activities only until September 30, 2008. In the discussion below, we do not present operating revenues and operating profit for the period between October 1, 2008 and December 31, 2008 because the value of the Dresdner Bank activities is not measured by their operating performance during this period but rather by the value of Dresdner Bank reflected in the agreements to sell this entity to Commerzbank, as discussed below under “Net income (loss) from discontinued operations for the year ended December 31, 2008”. Accordingly, operating revenues and operating profit for 2008 and 2007 are not comparable because the figures are based on a nine month period for 2008 and on a full year calendar period for 2007.
Earnings Summary
Operating revenues
Nine months ended September 30, 2008
Operating revenues decreased significantly and amounted to €1,910 million with all revenue components contributing to this development. The net dealing loss, which comprises net trading loss and net income (loss) from financial assets and liabilities designated at fair value through income, at €1,439 million, had the biggest impact on revenues. This income category was heavily affected by the credit crisis. Additionally, we recognized declines in net interest income and net fee and commission income.
Year ended December 31, 2007 compared to year ended December 31, 2006
Dresdner Bank’s operating revenues were down by 21.4% to €4,918 million compared to the previous
year. This development resulted mainly from the effects of the financial markets turbulence which heavily impacted our net trading income ending up in a negative result of €463 million (2006: income of €1,257 million). However, the net interest income grew by 17.5% to €2,821 million and the net fee and commission income improved slightly by 0.3% to €2,527 million.
Operating profit (loss)
Nine months ended September 30, 2008
As the massive decline in operating revenues could not be outweighed by reductions in operating expenses, we recorded an operating loss of €1,797 million, which included loan loss provisions of €(327) million.
Year ended December 31, 2007 compared to year ended December 31, 2006
At €602 million, operating profit was down 48.4%, mainly caused by the above mentioned weak revenue situation. Expense savings of €610 million partly compensated this development. Operating expenses, at €4,447 million, were down 12.1%. Administrative expenses were down by 11.7% to €4,430 million. Loan loss provisions showed gross releases and recoveries of €593 million and at the same time new provisions of €462 million leading to net releases of €131 million in 2007 (2006: net additions of €31 million). As the savings could not outweigh the decline in revenues, our cost-income ratio increased by 9.6 percentage points to 90.4%.
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(1) | Following the announcement of the sale of Dresdner Bank to Commerzbank in the third quarter 2008, Dresdner Bank qualified as held-for-sale and discontinued operations since the third quarter 2008. Therefore, Dresdner Bank’s financial results have been eliminated from our Banking operation’s results and are now presented as “Discontinued Operations of Dresdner Bank”. Please refer to Note 4 to the consolidated financial statements for further information. All numbers are stated on a consolidated basis. |
Result from operating activities of discontinued operations
Nine months ended September 30, 2008
We recorded non-operating items of €164 million. Despite the negative pre-tax income of €1,633 million, we recorded an income tax charge of €398 million. Therefore, we recorded a result from operating activities of discontinued operations of € (2,074) million.
Year ended December 31, 2007 compared to year ended December 31, 2006
The non-operating result amounted to €403 million in 2007 and was therefore €810 million above the prior year. This resulted mainly from significantly lower restructuring charges of €50 million (down 88.2%), as in 2006, higher charges were incurred in connection with the “New Dresdner Plus” reorganization programme, and higher realized gains of €540 million compared to €230 million in 2006. In addition, impairments of investments amounted to €87 million which was a lower-than-expecteddecrease of 59.5%. The prior year’s figure included higher write-downs on real estate properties used by third-parties.
We recorded a tax charge of €282 million (2006: €293 million). This led to a result from operating activities of discontinued operations of €650 million in 2007 (2006: €381 million).
Net income (loss) from discontinued operations
Year ended December 31, 2008
The net loss from discontinued operations amounted to €6,411 million. This comprised the negative result from operating activities of €279€2,074 million, plus an impairment loss recognized as of September 30, 2008 of €1,409 million representing a significant improvementthe remeasurement of assets of disposal group to fair value less costs to sell—together with the result of transaction between September 30, 2008 and December 31, 2008 of €(2,928) million mainly reflecting the change in fair value of the considerations agreed.
Year ended December 31, 2007 compared to year ended December 31, 2006
The net income from discontinued operations amounted to €650 million, up 70.1%.
Information on discontinued operations of Dresdner Bank
2008(1) | 2007 | 2006 | |||||||
€ mn | € mn | € mn | |||||||
Net interest income(2) | 1,856 | 2,821 | 2,400 | ||||||
Net fee and commission income(3) | 1,493 | 2,527 | 2,520 | ||||||
Trading income (net)(4) | (1,362 | ) | (463 | ) | 1,257 | ||||
Income from financial assets and liabilities designated at fair value through income (net)(4) | (77 | ) | 33 | 53 | |||||
Other income | — | — | 25 | ||||||
Operating revenues(5) | 1,910 | 4,918 | 6,255 | ||||||
Administrative expenses | (3,326 | ) | (4,430 | ) | (5,018 | ) | |||
Investment expenses | (2 | ) | (20 | ) | (53 | ) | |||
Other expenses | (52 | ) | 3 | 14 | |||||
Operating expenses | (3,380 | ) | (4,447 | ) | (5,057 | ) | |||
Loan loss provisions | (327 | ) | 131 | (31 | ) | ||||
Operating profit (loss) | (1,797 | ) | 602 | 1,167 | |||||
Realized gains/losses (net) | 285 | 540 | 230 | ||||||
Impairments of investments (net) | (102 | ) | (87 | ) | (215 | ) | |||
Amortization of intangible assets | (2 | ) | — | — | |||||
Restructuring charges | (17 | ) | (50 | ) | (422 | ) | |||
Non-operating items | 164 | 403 | (407 | ) | |||||
Result from discontinued operations before income taxes and minority interests in earnings | (1,633 | ) | 1,005 | 760 | |||||
Income taxes | (398 | ) | (282 | ) | (293 | ) | |||
Minority interests in earnings | (43 | ) | (73 | ) | (86 | ) | |||
Result from operating activities of discontinued operations | (2,074 | ) | 650 | 381 | |||||
Impairment loss recognized on remeasurement of assets of disposal group to fair value less costs to sell as of September 30, 2008(6) | (1,409 | ) | — | — | |||||
Result of transaction between September 30, 2008 and December 31, 2008(6) | (2,928 | ) | — | — | |||||
After-tax loss on remeasurement of assets of disposal group to fair value less costs to sell | (4,337 | ) | — | — | |||||
Net income (loss) from discontinued operations | (6,411 | ) | 650 | 381 | |||||
Cost-income ratio(7) in % | 177.0 | 90.4 | 80.8 |
(1) | For the year ended December 31, 2008, the result from operating activities of discontinued operations represents the nine months ended September 30, 2008. Previous year figures represent 12 months ended December 31 of the relevant year. |
(2) | Represents interest and similar income less interest expenses. |
(3) | Represents fee and commission income less fee and commission expenses. |
(4) | The total of these items equals income from financial assets and liabilities carried at fair value through income (net) included in Note 4 to the consolidated financial statements. |
(5) | For the discontinued operations of Dresdner Bank, total revenues are measured based upon operating revenues. |
(6) | No income taxes were related to the impairment loss of September 30, 2008 and to the result from transaction between September 30, 2008 and December 31, 2008. |
(7) | Represents operating expenses divided by operating revenues. |
Shareholders’ equity of €33.7 billion.
Asset allocation of Allianz is well diversified and of high quality.
Consolidated Balance Sheets
As of December 31, | 2008 | 2007 | ||
€ mn | € mn | |||
ASSETS | ||||
Cash and cash equivalents | 8,958 | 31,337 | ||
Financial assets carried at fair value through income(2) | 14,240 | 185,461 | ||
Investments(3) | 260,147 | 286,952 | ||
Loans and advances to banks and customers | 115,655 | 396,702 | ||
Financial assets for unit-linked contracts | 50,450 | 66,060 | ||
Reinsurance assets | 14,599 | 15,312 | ||
Deferred acquisition costs | 22,563 | 19,613 | ||
Deferred tax assets | 3,996 | 4,771 | ||
Other assets | 34,004 | 38,025 | ||
Non-current assets and assets of disposal groups classified as held-for-sale | 419,513 | 3,503 | ||
Intangible assets | 11,451 | 13,413 | ||
Total assets | 955,576 | 1,061,149 | ||
As of December 31, | 2008 | 2007 | ||
€ mn | € mn | |||
LIABILITIES AND EQUITY | ||||
Financial liabilities carried at fair value through income | 6,244 | 126,053 | ||
Liabilities to banks and customers | 18,451 | 336,494 | ||
Unearned premiums | 15,233 | 15,020 | ||
Reserves for loss and loss adjustment expenses | 63,924 | 63,706 | ||
Reserves for insurance and investment contracts | 296,557 | 292,244 | ||
Financial liabilities for unit-linked contracts | 50,450 | 66,060 | ||
Deferred tax liabilities | 3,833 | 3,973 | ||
Other liabilities | 32,930 | 48,031 | ||
Liabilities of disposal groups classified as held-for-sale | 411,816 | 1,293 | ||
Certificated liabilities | 9,544 | 42,070 | ||
Participation certificates and subordinated liabilities | 9,346 | 14,824 | ||
Total liabilities | 918,328 | 1,009,768 | ||
Shareholders’ equity | 33,684 | 47,753 | ||
Minority interests | 3,564 | 3,628 | ||
Total equity | 37,248 | 51,381 | ||
Total liabilities and equity | 955,576 | 1,061,149 | ||
(1) | Due to the disposal of almost all of Dresdner Bank AG to Commerzbank AG, all assets and liabilities that are part of the disposal group have been reclassified and presented in separate line items “Non-current assets and assets from disposal groups classified as held-for-sale” and “Liabilities of disposal groups classified as held-for-sale”, respectively, on the face of the consolidated balance sheet as of December 31, 2008. Certain prior period amounts have been reclassified to conform to the current period presentation. For further information please refer to Note 4 to our consolidated financial statements. |
(2) | As of December 31, 2008, €101 mn are pledged to creditors and can be sold or repledged (2007: €23,163 mn). |
(3) | As of December 31, 2008, €826 mn are pledged to creditors and can be sold or repledged (2007: €7,384 mn). |
(4) | For further information on our segment reporting please refer to Note 6 to our consolidated financial statements. |
Shareholders’ Equity(1)
Shareholders’ equity
in € mn
Shareholders’ equity
Shareholders’ equity | |||
€ mn | |||
Balance as of December 31, 2007 | 47,753 | ||
Foreign currency translation adjustments | (388 | ) | |
Available-for-sale investments | |||
Unrealized gains and losses (net) arising during the year(3) | (9,170 | ) | |
Transferred to net income on disposal or impairment(4) | 697 | ||
Cash flow hedges | 30 | ||
Miscellaneous | (65 | ) | |
Total income and expense recognized directly in shareholders’ equity | (8,896 | ) | |
Net loss | (2,444 | ) | |
Total recognized income and expense for the year | (11,340 | ) | |
Paid-in capital | 248 | ||
Treasury shares | 25 | ||
Transactions between equity holders | (530 | ) | |
Dividends paid | (2,472 | ) | |
Balance as of December 31, 2008 | 33,684 | ||
(1) | Does not include minority interests of €3.6 bn, of €3.6 bn and of €7.2 bn as of December 31, 2008, 2007 and 2006, respectively. Please refer to Note 25 to the consolidated financial statements for further information. |
(2) | Including foreign currency translation adjustments. |
(3) | During the year ended December 31, 2008 unrealized gains and losses (net) arising during the year included in shareholders’ equity are net of deferred tax benefit of €1,690 mn (2007: €720 mn; 2006: €478 mn). |
(4) | During the year ended December 31, 2008, realized gains/losses (net) transferred to net income on disposal or impairment are net of income tax benefit of €755 mn (2007: income tax charge of €206 mn; 2006: income tax charge of €308 mn). |
Regulatory Capital Adequacy
For information on the conglomerate solvency of Allianz Group as of December 31, 2008, please refer to “Item 11. Quantitative and Qualitative Disclosures about Market Risk—Capital Management— Regulatory capital adequacy”.
Total Assets and Total Liabilities
Total assets and liabilities decreased by €105.6 billion and €91.4 billion, respectively.
For detailed information on Allianz SE issued debt outstanding as of December 31, 2008, please refer to the section “—Liquidity and Capital Resources” and Note 23 and 24 to our consolidated financial statements.
In the following sections, we analyze important developments within the balance sheets of our Property-Casualty, Life/Health and Banking segments as presentedunder “Notes to the Allianz Group’s Consolidated Financial Statements—Business Segment Information—Consolidated Balance Sheets”. Relative to 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 management of third-party assets.(1)
Due to timing differences between premium payments and the claim or contractual fulfillment, insurers need to invest the money they collected from their clients. Therefore, insurance assets, including financial assets and liabilities carried at fair value through income, investments, loans and advances to banks and customers, and for the Life/Health segment financial assets for unit-linked contracts, account for the most part of the assets in our consolidated balance sheet.
Asset allocation
Investment assets from our Property-Casualty, Life/Health and Corporate segments amounted to €358.2 billion as of December 31, 2008. Thereof, the fixed-income portfolio which comprised bonds and
(1) | For further information on the development of these third-party assets please refer to“—Asset Management Operations—Third-Party Assets Under Management of the Allianz Group”. |
loans(2) accounted for €315.8 billion, equities for €33.8 billion and other investment categories for €8.6 billion.(3)
Fixed-income portfolio of €315.8 billion by investment country
in %
From a regional perspective our portfolio of debt securities is well diversified.
Fixed-income portfolio of €315.8 billion by type of issuer
in %
We consider our fixed-income portfolio to be both of high quality and well diversified. A share of more than 60% relate to governments and covered bonds that help mitigate against possible future deteriorations in the credit markets.
(2) | Excluding internal loans. |
(3) | As part of the transaction with Commerzbank Allianz committed to purchase certain CDOs. For further information please refer to “—Executive Summary—Impact of the Financial Markets Turbulence”. |
(4) | 5%-p are mainly seasoned self-originated German Private Retail Mortgage Loans and 3%-p are short-term loans. |
(5) | Includes €7 bn U.S. Agency MBS. |
(6) | Type of covered bond issued in Germany. |
Government exposures of €110.4 billion
in %
Nearly 80% of our government exposure was attributable to the Eurozone.
Pfandbrief and covered bond portfolio of €85.2 billion
in %
69%of covered bonds are German Pfandbriefe backed by either public sector loans or mortgage loans. On these as well as on all other covered bond exposures, minimum required security buffers as well as voluntary over-collateralization offer a substantial cushion for house price deterioration and payment defaults.
Assets and liabilities of the Property-Casualty segment
Property-Casualty assets
Property-Casualty asset base
fair values(1) in € bn
Our Property-Casualty asset base decreased by €13.2 billion, which was almost entirely attributable to the decline in equity investments. These were down by €4.9 billion due to reduced equity values following the weak capital markets and by €5.0 billion due to net divestments stemming from equity realizations. Furthermore, €2.7 billion stemmed from capital upstreaming from Allianz Sach in Germany to Allianz SE.
(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 please refer to Note 2 to the consolidated financial statements. |
Composition of the Property-Casualty asset base
fair values(1)
As of December 31 | 2008 | 2007 | ||
€ bn | € bn | |||
Financial assets and liabilities carried at fair value through income | ||||
Equity | 0.2 | 0.4 | ||
Debt | 1.5 | 2.7 | ||
Other | 0.2 | 0.1 | ||
Subtotal | 1.9 | 3.2 | ||
Investments(2) | ||||
Equities | 6.4 | 16.5 | ||
Debt securities | 51.6 | 50.3 | ||
Other | 6.9 | 6.9 | ||
Subtotal | 64.9 | 73.7 | ||
Loans and advances to banks and customers | 17.6 | 20.7 | ||
Property-Casualty asset base | 84.4 | 97.6 | ||
Of our Property-Casualty asset base, ABS made up €4.4 billion as of December 31, 2008, which is around 5% of our asset-base. CDOs accounted for €0.1 billion of this amount. Subprime exposures within CDOs were negligible.
Rating structure of the Property-Casualty fixed-income portfolio(3)
in %
(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 please refer to Note 2 to the consolidated financial statements. |
(2) | Do not include affiliates of €10.7 bn and €10.0 bn as of December 31, 2008 and 2007, respectively. |
(3) | Includes loans and debt securities. |
Property-Casualty liabilities
Development of reserves for loss and loss adjustment expenses(1)
in € bn
In 2008, the segment’s gross reserves for loss and loss adjustment expenses decreased by 2.3 % to €55.6 billion. Main contributors for this development were the reclassification of €397AGF’s health insurance business from the Property-Casualty segment to the Life/Health segment and foreign currency translation effects.
(1) | After group consolidation. For further information about changes in the reserves for loss and loss adjustment expenses for the Property-Casualty segment please refer to Note 19 to the consolidated financial statements. |
(2) | Includes approximately €1.4 bn reclassification of AGF Group’s health insurance business from the Property-Casualty segment to the Life/Health segment. |
Assets and liabilities of the Life/Health segment
Life/Health assets
Life/Health asset base
fair values(3) in € bn
Our Life/Health asset base declined by 5.4% to €331.2 billion. Equity investments were reduced by €19.0 billion as the weak market environment led to market-related effects of €14.4 billion and €4.5 billion of equity securities were disposed of. Furthermore, assets for unit-linked contracts declined by €15.6 billion of which €15.3 billion were attributable to market effects.
(3) | 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 please refer to Note 2 to the consolidated financial statements. |
Composition of the Life/Health asset base
fair values(1)
As of December 31 | 2008 | 2007 | ||||
€ bn | € bn | |||||
Financial assets and liabilities carried at fair value through income | ||||||
Equity | 2.5 | 3.3 | ||||
Debt | 7.7 | 9.3 | ||||
Other | (4.3 | ) | (4.5 | ) | ||
Subtotal | 5.9 | 8.1 | ||||
Investments(2) | ||||||
Equities | 22.2 | 41.2 | ||||
Debt securities | 154.4 | 137.6 | ||||
Other | 7.7 | 5.8 | ||||
Subtotal | 184.3 | 184.6 | ||||
Loans and advances to banks and customers | 90.6 | 91.2 | ||||
Financial assets for unit-linked contracts(3) | 50.4 | 66.1 | ||||
Life/Health asset base | 331.2 | 350.0 | ||||
Within our Life/Health asset base, ABS amounted to €15.3 billion as of December 31, 2008, which is less than 5% of total Life/Health assets. Of these, €0.3 billion are CDOs. Unrealized losses on CDOs of €10 million were recorded in 2003.Acquisition-related expensesour shareholders’ equity. Subprime exposures within CDOs were negligible.
Rating structure of the Life/Health fixed-income portfolio(4)
in %
Life/Health liabilities
Life/Health reserves for insurance and amortizationinvestment contracts were up 1.7 % to €287.9 billion including an increase of goodwill,€14.2 billion in aggregate policy reserves mainly from the United States, Germany and France. These were partly offset by major reductions in provisions for premium refunds in Germany and France which were down by €9.2 billion due to negative market impacts. Foreign currency effects increased liabilities by €1.4 billion including €2.1 billion and €0.7 billion from the rising U.S. Dollar and Swiss Franc respectively, counteracted by €(1.6) billion from the declining Korean Won.
(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 please refer to Note 2 to the consolidated financial statements. |
(2) | Do not include affiliates of €2.5 bn and €2.7 bn as of December 31, 2008 and 2007, respectively. |
(3) | Financial assets for unit-linked contracts represent assets owned by, and managed on the behalf of, policyholders of the Allianz Group, with all appreciation and depreciation in these assets accruing to the benefit of policyholders. As a result, the value of financial assets for unit-linked contracts in our balance sheet corresponds to the value of financial liabilities for unit-linked contracts. |
(4) | Includes loans and debt securities. |
Assets and liabilities of the Banking segment
Banking loans and advances to banks and customers
Banking loans and advances to banks and customers
in € bn
In our continuing Banking operations, loans and advances to banks and customers amounted to €1,131 million as compared€13.9 billion.
Banking liabilities to banks and customers
Liabilities to €1,101 million.banks and customers amounted to €16.3 billion. Thereof, amortizationterm deposits and certificates of goodwilldeposit accounted for €4.5 billion, liabilities payable on demand for €4.2 billion, savings deposits for €1.6 billion and amortization relatedrepurchase agreements for €1.3 billion.
(1) | Includes loan loss allowance of €(0.1) bn as of December 31, 2008. |
Assets and liabilities of discontinued operations
Dresdner Bank’s loans and advances to capitalized loyalty bonusesbanks and customers
Dresdner Bank’s loans and advances to banks and customers
in € bn
In the discontinued operations of Dresdner Bank, loans and advances to banks and customers amounted to €169.6 billion.
Dresdner Bank’s liabilities to banks and customers
Liabilities to banks and customers amounted to €195.7 billion. Thereof, liabilities payable on demand accounted for PIMCO management was €380 million€78.5 billion, repurchase agreements for €24.3 billion, term deposits and €125 million, respectively,certificates of deposit for €45.9 billion, collaterals received from securities lending transactions for €5.9 billion and savings deposits for €3.4 billion.
(2) | Includes loan loss allowance of €(1.9) bn as of December 31, 2008. |
Consolidated Special Purpose Entities (SPEs)
The Allianz Group is engaged in 2004. These loyalty bonuses expirea variety of SPEs including asset securitization entities, investment funds and investment conduits. In providing these services, the Allianz Group may in 2005. Ofsome instances have a financial interest in such financing structures. However, the total acquisition-related expenses, €125 million was relatedrisk of financial loss may be mitigated through participations in such losses by other third-party investors.
The Allianz Group also engages in establishing and managing investment fund SPEs with a goal of developing, marketing and managing these funds. During the establishment phase of these funds, Allianz Group may provide initial capital for the SPEs to retention paymentsacquire securities until either sufficient third-party investors purchase participations in the funds or the SPEs are terminated. Certain of these SPE’s funds’ obligations may include capital maintenance and/or performance guarantees given to the investors. The guarantees Allianz Group provides differ both in terms of amount and duration according to the relevant arrangements. Allianz Group receives fee and commission income from investors for the management of these SPEs.
As required under IFRS, the Allianz Group consolidates an SPE when the substance of the relationship between Allianz and employeesthe SPE indicates that the SPE is controlled by Allianz. The following information focuses on SPEs that are controlled by Allianz by means other than a majority voting interest. It excludes consolidated SPEs where Allianz Group consolidates the SPEs under IFRS and holds the majority of PIMCOthe voting rights.
With the announcement of the sale of Dresdner Bank from Allianz to Commerzbank as of August 31, 2008, Dresdner Bank was classified as a disposal group held-for-sale and Nicholas Applegatediscontinued operations. Following this classification, SPEs consolidated by Dresdner Bank (including a former SPE named “K2” which was consolidated on March 18, 2008) are presented as part of the disposal group held-for-sale and €501 milliondiscontinued operations.
The consolidated SPE of continuing operations of Allianz Group relate to asset-backed securities (ABS) transactions. The conclusion to consolidate was dueprimarily based on the fact that the Allianz Group has the majority of the benefits and retains the majority of the risks. Compared to the deferred purchasesprior year, the
set-up of an SPE led to consolidation. Total assets of the consolidated SPE as of December 31, 2008, for continuing operations of the Allianz Group amounted to €734 million. The amount of consolidated assets which represent collateral for the SPE’s obligations are €734 million, and the creditor’s recourse to the Allianz Group assets is €0. Consolidated assets include loans to corporate customers and cash.
In addition to the Allianz Group’s engagement in a variety of SPEs including asset securitization entities, investment funds and investment conduits, the Allianz Group through its subsidiary Dresdner Bank was involved in asset securitization entities through arranging, facilitating, and in certain cases, managing investment conduits for banking customers. The consolidated SPEs that formed part of the disposal group classified as held-for-sale as of December 31, 2008, included asset-backed securities transactions, structured finance transactions, derivatives transactions and investment funds. The ABS transactions comprise mainly commercial paper conduits, securitizations and CDO structures. Structured finance transactions are primarily related to tax efficient structures for different kind of transactions. Total assets of consolidated SPEs that formed part of the disposal group classified as held-for-sale and discontinued operations amounted to €33,306 million as of December 31, 2008. These SPEs were transferred to Commerzbank in connection with the sale of Dresdner Bank and accordingly have been deconsolidated from Allianz Group’s consolidated financial statements. Allianz Group will only continue to be involved with one SPE that was transferred to Commerzbank with a continuing Allianz interest of 40% in subordinated loans. This SPE was consolidated as of December 31, 2008, because an Allianz Group entity and Dresdner Bank held interests in PIMCO. These retention paymentsthis SPE and, deferred purchasesthus, Allianz Group retained the majority of interests in PIMCO were agreed uponrisks at the time these investment companies were acquired.such time. Total assets of this SPE amounted to €40 million as of December 31, 2008.
During 2004,Off-Balance Sheet Arrangements
In the ordinary course of business, the Allianz Group enters into arrangements that, under IFRS, are not recognized on the consolidated balance sheet and do not affect the consolidated income statement. Such arrangements remain off-balance sheet as long as the Allianz Group does not incur an obligation
from them or becomes entitled to an asset itself. As soon as an obligation is incurred, it is recognized on Allianz Group’s consolidated balance sheet, with the corresponding loss recorded in the consolidated income statement. However, in such cases, the amount recognized on the consolidated balance sheet may or may not, in many instances, represent the full loss potential inherent in such off-balance sheet arrangements. The Allianz Group does not rely on off-balance sheet arrangements as a subsidiarysignificant source of revenue. In order to provide a comprehensive analysis of Allianz AG purchasedGroup’s off-balance sheet arrangements and to enable an assessment of our risk exposure arising from such arrangements going-forward we discuss below the types of off-balance sheet arrangements that Allianz is involved in, distinguishing between continuing and discontinued operations.
Types of off-balance sheet arrangements
Commitments and Guarantees
In the normal course of business, we enter into various irrevocable loan commitments, leasing commitments, purchase obligations and various other commitments. We also extend market value guarantees to customers, as well as execute indemnification contracts under existing service, lease or acquisition transactions. Fee income from issuing guarantees is not a significant part of our total income, and losses incurred under guarantees and income from the release of approximately USD 500 millionrelated provisions were insignificant for each of the remaining ownership interestlast three years.(1)
Non-consolidated SPEs
As described above, Allianz Group is engaged in a variety of SPEs. The methodologies used for determining that is held byAllianz Group has no control over the former parent companySPEs and, thus, has not to consolidate the SPEs were those according to the IFRS interpretation SIC-12. The conclusion not to consolidate certain SPEs was mainly based on the fact that Allianz Group does not have to bear the majority of AGI L.P., with payment therefore made in April and November 2004. Following these transactions, the remaining ownership interestrisks. Compared to the prior year, the conclusion to not consolidate has not changed for the continuing operations. In 2008, Allianz Group did not provide any financial or other support to the SPEs forming part of continuing operations that is held by the former parent company of AGI L.P.Allianz Group was reducednot previously required to approximately 6% at December 31, 2004.provide.
The following table sets forth the income statementstotal assets of non-consolidated SPEs in which the Allianz Group has a significant beneficial interest and key operating ratiothat form part of the continuing operations, associated liabilities reported in the consolidated balance sheet, the Allianz Group’s maximum exposure to loss associated with these SPEs and further information regarding the Allianz Group’s involvement as of December 31, 2008. A significant beneficial interest is considered to be either an investment greater than €100 million in an SPE, or a smaller investment in an SPE that leads to expected losses greater than €5 million. The non-consolidated SPEs are aggregated based on principal business activity, as reflected in the first column. The nature of the Allianz Group’s interest in these SPEs can take different forms, as described in the second column.
As of December 31, 2008 | ||||||||
Type of SPE | Nature of Allianz Group’s | Total assets | Liabilities reported in the consolidated balance sheet | Allianz Group’s maximum exposure to loss | ||||
€ mn | € mn | € mn | ||||||
Investment funds | Guarantee obligations | 1,202 | — | 1,160 | ||||
Investment funds | Investment manager and/or equity holder | 196 | 55 | 55 | ||||
Other | Client financing transaction | 651 | 1 | 13 | ||||
Total | 2,049 | 56 | 1,228 | |||||
(1) | For further information please refer to Note 46 to our consolidated financial statements. |
Allianz Group has various types of interests in certain non-consolidated SPEs including equity interests, fund investment interests and loans. For certain mutual funds, Allianz Group has guaranteed a portion of the investors’ principal.
Allianz Group’s maximum exposure to loss comprises the total amount of investment, including note positions, or guarantee notionals. It describes a worst case scenario without considering the asset rating, available collateral, other types of protection or hedging activities that can and do significantly reduce the economic exposure of these SPEs to the Allianz Group. The maximum exposure to loss for both our Asset Management segmentinvestment funds related to guarantee obligations includes capital maintenance guarantees that are summarized with a maturity of less than one year. The maximum exposure to loss for investment funds related to investment manager and/or equity holder comprise loans with a maturity of more than five years. For all other SPEs, the maximum exposure to loss consists of equity of €12 million and loans of €1 million with a maturity of one to three or more than five years. The difference between the liabilities recorded and Allianz Group’s maximum exposure to loss is due to the fact that only in extremely rare cases, the redemption price might be lower than the guaranteed price at the balance sheet date. Only in this case would a provision be recognized in the consolidated financial statements.
In addition to the SPEs that are part of continuing operations, Allianz Group through its subsidiary Dresdner Bank held significant beneficial interests in SPEs. These non-consolidated SPEs that formed part of discontinued operations included ABS transactions, special investment vehicles, investment and hedge funds. Total assets of these non-consolidated SPEs that formed part of discontinued operations amounted to €11,871 million as a whole and AGI on a stand-alone basisof December 31, 2008. With the completion of the sale of Dresdner Bank to Commerzbank, Allianz Group no longer has exposure to these SPEs, except for certain CDOs held in vehicles used for the years ended issuance of CDOs, securitization and credit derivative transactions that Allianz Group has repurchased from Dresdner Bank after the completion of the sale to Commerzbank. The fair value of these assets repurchased by Allianz was €1,115 million with a notional amount of approximately €2 billion, and is presented in assets of a disposal group classified as held-for-sale as of
December 2005, 200431, 2008. The source of maximum exposure to loss is the investment in the issued notes. Due to the fact that these are investments in SPEs with a static funding structure, consolidation would only be necessary if the structure is changed. For these SPEs, no financial support was provided in 2008 and 2003.there are no further obligations for additional liquidity support.
Years ended December 31, | 2005 | 2004 | 2003 | |||||||||||||||
Asset Management Segment | Allianz Global Investors | Asset Management Segment | Allianz Global Investors | Asset Management Segment | Allianz Global Investors | |||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | |||||||||||||
Operating revenues | 2,733 | 2,698 | 2,308 | 2,301 | 2,226 | 2,226 | ||||||||||||
Operating expenses | (1,600 | ) | (1,574 | ) | (1,452 | ) | (1,450 | ) | (1,510 | ) | (1,510 | ) | ||||||
Operating profit | 1,133 | 1,124 | 856 | 851 | 716 | 716 | ||||||||||||
Acquisition-related expenses thereof: | (713 | ) | (713 | ) | (751 | ) | (751 | ) | (732 | ) | (732 | ) | ||||||
Deferred purchases of interests in PIMCO(1) | (676 | ) | (676 | ) | (501 | ) | (501 | ) | (448 | ) | (448 | ) | ||||||
Retention payments for the management and employees of PIMCO and Nicholas Applegate | (12 | ) | (12 | ) | (125 | ) | (125 | ) | (147 | ) | (147 | ) | ||||||
Amortization charges relating to capitalized bonuses for PIMCO management | (25 | ) | (25 | ) | (125 | ) | (125 | ) | (137 | ) | (137 | ) | ||||||
Amortization of goodwill(2) | — | — | (380 | ) | (380 | ) | (369 | ) | (369 | ) | ||||||||
Earnings from ordinary activities before taxes | 420 | 411 | (275 | ) | (280 | ) | (385 | ) | (385 | ) | ||||||||
Taxes | (132 | ) | (130 | ) | 52 | 53 | 80 | 80 | ||||||||||
Minority interests in earnings | (51 | ) | (48 | ) | (52 | ) | (52 | ) | (92 | ) | (92 | ) | ||||||
Net income (loss) | 237 | 233 | (275 | ) | (279 | ) | (397 | ) | (397 | ) | ||||||||
Cost-income ratio(3) in % | 58.5 | 58.3 | 62.9 | 63.0 | 67.8 | 67.8 |
Liquidity and Capital Resources
Organization, Capital Allocation and Liquidity PlanningAllianz Group well capitalized.
Net cash flow provided by operating activities amounted to €25.3 billion in 2008.
Allianz AG operates as both a holding company for the Allianz Group’s insurance, banking and other subsidiaries and as a reinsurance company, primarily for other Allianz Group companies. As such, Allianz AG not only has to cover the funding needs of its own reinsurance operations but also acts as the central coordinating function for the liquidity and capital allocation of Allianz Group companies.
Our operating entities require capital to run their businesses. The amount of necessary capital depends on, among other factors, local capital and regulatory requirements, rating agency capital requirements and our own internal risk capital standards. As our operating entities grow, local requirements change or other factors intervene, the need for additional capital can arise. To the extent that these requirements cannot be financed by results from operations from the respective operating entities, in excess of dividends, Allianz AG can and does allocate additional capital. Decisions as to which operating entities should receive additional capital, including the amount thereof, or whether capital should rather be withdrawn, are taken by the Board of Management of Allianz AG during our annual management dialogues.
In order to finance capital provisioning to our operating entities, Allianz AG uses the intra-Allianz Group dividend funding it receives from operating entities. Furthermore, Allianz AG will also from time to time raise funds on the capital markets through the issue of debt or other financial instruments in order to finance any capital or liquidity requirement in excess of the Allianz Group-internal financing capacity.Organization
Liquidity planning is an important process at bothintegral part of the operating entity and Allianz AG levels, and is integrated into theoverall financial planning and capital allocation process of the Allianz Group. The financial planning processand is based on strategic decisions and includes, for example,which include solvency planning, our dividend targetstarget, and expected merger &and acquisition expenditures. activities. The Board of Management of Allianz SE, the holding and ultimate parent company of the Allianz Group, decides after consultation with local management of the Allianz Group companies, on how to allocate capital in the Group.
Liquidity risks canResources
In order to fund liquidity needs, Allianz Group’s financial management is centrally operated by Allianz SE, coordinating and executing external debt financing, for instance through securities issues and other capital raising transactions.
Our liquidity resources result predominantly from operational risks, planning risks, system risks, adverse developments in solvency levelsthe operations of operating entities, contingent liabilitiesour Property-Casualty, Life/Health, Banking and Asset Management segments, as well as requirements caused by natural catastrophes,financial markets, political crises or anyfrom capital raising activities. Commercial paper, medium-term notes and other significant adverse developments. Strategic liquidity risks and resources are monitored on a regular basis. Liquidity risks are managed continuously through a varietycredit facilities serve as additional sources of instrumentsliquidity. As of December 31, 2008, we had access to ensure short-unused, committed and long-term financial flexibility for the Allianz Group. In the contextcredit lines as a source of further liquidity with different banks. As a financial services company, where our working capital is largely representative of our liquidity, weliquidity. We believe our working capital is sufficient for our present requirements.(1)
(1) | For further information regarding the management of our liquidity risk and our ratings, please refer to“Item 11. Quantitative and Qualitative Disclosures about Market Risk”. |
Allianz executes external debt financing and other corporate financing purposes primarily through two finance companies: Allianz Finance B.V. and Allianz Finance II B.V., both incorporated in the Netherlands.
Insurance Operations The principal sources of liquidity for our operating activities within our insurance operations include primary and reinsurance premiums collected (primarily from our operating entities), collected reinsurance receivables, as well as investment income and proceeds generated from the sale of investments. Our major uses of funds within our insurance operations include paying property-casualty claims and related claims expenses, providing life policy benefits, paying surrenders and cancellations, as well as other operating costs.
We generate substantial cash flow from our insurance operations as a result of most premiums being received in advance of the time when claim payments or policy benefits are required, thereby allowing us to invest these funds in the interim to generate investment income and realized gains.
However, the liquidity of our insurance operations is impacted by, among other factors, the duration of our investments, development of equity capital markets, interest rate environment and our ability to realize the carrying value of our investment portfolio to meet insurance claims and policyholder benefits as they become due.
Additionally, the liquidity of our property-casualty insurance operations is affected by the frequency and severity of losses under its policies, as well as by policy renewal rates.
The liquidity needs of our life operations are generally affected by trends in actual mortality experience compared to the related assumptions included in the pricing of our life insurance policies, by the extent to which minimum returns or crediting rates are provided in connection with our life insurance products, as well as by the level of surrenders and withdrawals.
Banking and Asset Management Operations For our banking operations, our primary sources of liquidity include customer deposits and interest and similar income from our lending transactions, while our major uses of funds are for the issuance of new
loans and advances to banks and customers, and the payment of interest on deposits and other operating costs.
The liquidity of our banking operations is largely subject to the ability of individual customers and enterprises to which we extend credit, to make payments to us based on their outstanding commitments as well as the ability of our banking operations to retain the individual customers’ and enterprises’ deposits. Therefore liquidity could be negatively affected by unforeseeable losses due to problem loans.
Within our asset management operations, our primary sources of liquidity include fees generated from asset management activities, while the principal use of these funds is for the payment of operating costs.
As outlined in more detail in the financial statements of Allianz SE Group companies contribute to the financing of the holding activity.
Debt and Capital Funding
As of December 31, 2008, the majority of Allianz SE’s external debt financing was made up of bonds and money market securities. Thereof, approximately one half was applicable to certificated liabilities, and the other half was made up of participation certificates and subordinated liabilities.
As of December 31, | 2008 | 2007 | ||
€ mn | € mn | |||
Total certificated liabilities outstanding | 9,544 | 42,070 | ||
thereof: due within one year(1) | 5,191 | 28,523 | ||
Total participation certificates and subordinated liabilities outstanding | 9,346 | 14,824 | ||
thereof: due within one year(2) | — | 1,476 |
In December 2003, Allianz SE (then Allianz AG) implemented a Medium Term Note (or “MTN”) program which was established for the
(1) | Please refer to Note 23 to our consolidated financial statements for further information. |
(2) | Please refer to Note 24 to our consolidated financial statements for further information. Additionally, refer to Note 43 to our consolidated financial statements for information regarding how we use certain derivatives to hedge our exposure to interest rate and foreign currency risk related to certificated and subordinated liabilities. |
purposes of external and internal debt issuance. The aggregate volume of debt issued by Allianz Finance B.V. and Allianz Finance II B.V. for the years ended December 31, 2008 and 2007 was €1.5 billion and €0.3 billion, respectively.
Short-term financingAs of December 31, 2008, Allianz SE had money market securities outstanding with a carrying value of €4,103 million, representing an increase in the use of commercial paper as a short-term financing instrument of €1,174 million compared with 2007. Interest expense on commercial paper rose to €125.0 million (€87.0 million) due to increasing interest rates on such financing in 2008, and higher annual average usage. In 2008 there were no difficulties with the roll-over
of commercial papers. The average maturity of commercial papers is three months.
Middle and long-term financing At the final maturity date of February 18, 2008, the Allianz Group redeemed the remaining 35.65% of the BITES index-linked bond with Munich Re shares.
On March 6, 2008, Allianz Finance II B.V. issued €1.5 billion of senior bonds, guaranteed by Allianz SE, with a coupon rate of 5.0%. The maturity of this bond is March 6, 2013.
On June 10, 2008, Allianz SE issued USD 2.0 billion of subordinated perpetual bonds with a coupon rate of 8.375%.
Allianz SE’s issued debt(1)
2008 | 2007 | |||||||||||
as of December 31, | Nominal value | Carrying value | Interest expense | Nominal value | Carrying value | Interest expense | ||||||
€ mn | € mn | € mn | € mn | € mn | € mn | |||||||
Senior bonds | 4,186 | 4,135 | 185.7 | 4,306 | 4,279 | 209.3 | ||||||
Subordinated bonds | 8,489 | 8,197 | 470.5 | 7,043 | 6,853 | 407.1 | ||||||
Exchangeable bonds | — | — | — | 450 | 450 | 8.3 | ||||||
Total | 12,675 | 12,332 | 656.2 | 11,799 | 11,582 | 624.7 | ||||||
(1) | Excludes €85.1 million of participation certificates at each December 31, 2008 and 2007, with interest expense of €9.9 million and €16.2 million, respectively. |
Allianz SE’s outstanding bonds as of December 31,(2)
nominal value in € bn
Maturity structure of Allianz SE’s certificated liabilities and subordinated bonds as of December 31, 2008(2)
nominal value in € bn
(2) | Excludes €85.1 mn of participation certificates. |
Allianz SE issued debt outstanding as of December 31, 2008(1)
The following table describes Allianz SE’s issued debt outstanding as of December 31, 2008 at nominal values. For further information refer to Notes 23 and 24 to our consolidated financial statements.
Interest expense in 2008 | ||||
1. Senior bonds(2) | ||||
Floating coupon rate bond issued by Allianz Finance II B.V., Amsterdam | ||||
Volume | USD 0.4 bn | |||
Year of issue | 2007 | |||
Maturity date | 4/2/2009 | |||
ISIN | XS 029 027 005 6 | |||
Interest expense | €9.8 mn | |||
5.625% bond issued by Allianz Finance II B.V., Amsterdam | ||||
Volume | €0.9 bn | |||
Year of issue | 2002 | |||
Maturity date | 11/29/2012 | |||
ISIN | XS 015 879 238 1 | |||
Interest expense | €51.2 mn | |||
5.0% bond issued by Allianz Finance II B.V., Amsterdam | ||||
Volume | €1.5 bn | |||
Year of issue | 2008 | |||
Maturity date | 3/6/2013 | |||
ISIN | DE 000 A0T R7K 7 | |||
Interest expense | €63.1mn | |||
4.00% bond issued by Allianz Finance II B.V., Amsterdam | ||||
Volume | €1.5 bn | |||
Year of issue | 2006 | |||
Maturity date | 11/23/2016 | |||
ISIN | XS 027 588 026 7 | |||
Interest expense | €61.6 mn | |||
Total interest expense for senior bonds | €185.7 mn | |||
2. Subordinated bonds(3) | ||||
6.125% bond issued by Allianz Finance II B. V., Amsterdam | ||||
Volume | €2.0 bn | |||
Year of issue | 2002 | |||
Maturity date | 5/31/2022 | |||
ISIN | XS 014 888 756 4 | |||
Interest expense | €114.3 mn | |||
6.5% bond issued by Allianz Finance II B. V., Amsterdam | ||||
Volume | €1.0 bn | |||
Year of issue | 2002 | |||
Maturity date | 1/13/2025 | |||
ISIN | XS 015 952 750 5 | |||
Interest expense | €66.0 mn |
7.25% bond issued by Allianz Finance II B. V., Amsterdam | |||||
Volume | USD 0.5 bn | ||||
Year of issue | 2002 | ||||
Maturity date | Perpetual Bond | ||||
ISIN | XS 015 915 072 0 | ||||
Interest expense | €25.6 mn | ||||
5.5% bond issued by Allianz SE | |||||
Volume | €1.5 bn | ||||
Year of issue | 2004 | ||||
Maturity date | Perpetual Bond | ||||
ISIN | XS 018 716 232 5 | ||||
Interest expense | €84.3 mn | ||||
4.375% bond issued by Allianz Finance II B. V., Amsterdam | |||||
Volume | €1.4 bn | ||||
Year of issue | 2005 | ||||
Maturity date | Perpetual Bond | ||||
ISIN | XS 021 163 783 9 | ||||
Interest expense | €63.0 mn | ||||
5.375% bond issued by Allianz Finance II B. V., Amsterdam | |||||
Volume | €0.8 bn | ||||
Year of issue | 2006 | ||||
Maturity date | Perpetual Bond | ||||
ISIN | DE000A0GNPZ3 | ||||
Interest expense | €46.2 mn | ||||
8.375% bond issued by Allianz SE | |||||
Volume | USD 2.0 bn | ||||
Year of issue | 2008 | ||||
Maturity date | Perpetual Bond | ||||
ISIN | US 018 805 200 7 | ||||
Interest expense | €71.1 mn | ||||
Total interest expense for subordinated bonds | €470.5 mn | ||||
3. Participation certificates | |||||
Allianz SE participation certificate | |||||
Volume | €85.1 mn | ||||
ISIN | DE 000 840 405 4 | ||||
Interest expense | €9.9 mn | ||||
Total interest expense for participation certificates | €9.9 mn | ||||
4. Issues that matured in 2008 | |||||
5.0% bond issued by Allianz Finance B.V., Amsterdam | |||||
Volume | €1.6 bn | ||||
Year of issue | 1998 | ||||
Maturity date | 3/25/2008 | ||||
ISIN | DE 000 230 600 8 | ||||
Interest expense | €19.9 mn | ||||
0.75% Basket Index Tracking Equity Linked Securities (BITES) issued by Allianz Finance II B.V., Amsterdam | |||||
Underlying | DAX | ® | |||
Volume | €0.5 bn | ||||
Year of issue | 2005 | ||||
Maturity date | 2/18/2008 | ||||
ISIN | XS 021 157 635 9 | ||||
Interest expense | €0.3 mn | ||||
Total interest expense for matured issues | €20.2 mn | ||||
Total interest expense | €686.3 mn |
(1) | Bonds and exchangeable bonds issued or guaranteed by Allianz SE in the capital market. |
(2) | Senior bonds and commercial papers provide for early termination rights in case of non-payment of amounts due under the bond (interest and principal) as well as in case of insolvency of the relevant issuer or, if applicable, the relevant garantor (Allianz SE). The same applies to two subordinated bonds issued in 2002. |
(3) | The terms of the subordinated bonds (except for the two subordinated bonds mentioned in footnote 1 above) do not provide for early termination rights in favor of the bond holder. Interest payments are subject to certain conditions which are linked, inter alia, to our net income, and may have to be deferred. Nevertheless, the terms of the relevant bonds provide for alternative settlement mechanisms which allow us to avoid an interest deferral using cash raised from the issuance of specific newly issued instruments. |
Debt and Capital RequirementsFunding
Our capital requirements are primarily dependent on our growthAs of December 31, 2008, the majority of Allianz SE’s external debt financing was made up of bonds and money market securities. Thereof, approximately one half was applicable to certificated liabilities, and the typeother half was made up of business that we underwrite,participation certificates and subordinated liabilities.
As of December 31, | 2008 | 2007 | ||
€ mn | € mn | |||
Total certificated liabilities outstanding | 9,544 | 42,070 | ||
thereof: due within one year(1) | 5,191 | 28,523 | ||
Total participation certificates and subordinated liabilities outstanding | 9,346 | 14,824 | ||
thereof: due within one year(2) | — | 1,476 |
In December 2003, Allianz SE (then Allianz AG) implemented a Medium Term Note (or “MTN”) program which was established for the
(1) | Please refer to Note 23 to our consolidated financial statements for further information. |
(2) | Please refer to Note 24 to our consolidated financial statements for further information. Additionally, refer to Note 43 to our consolidated financial statements for information regarding how we use certain derivatives to hedge our exposure to interest rate and foreign currency risk related to certificated and subordinated liabilities. |
purposes of external and internal debt issuance. The aggregate volume of debt issued by Allianz Finance B.V. and Allianz Finance II B.V. for the years ended December 31, 2008 and 2007 was €1.5 billion and €0.3 billion, respectively.
Short-term financingAs of December 31, 2008, Allianz SE had money market securities outstanding with a carrying value of €4,103 million, representing an increase in the use of commercial paper as well asa short-term financing instrument of €1,174 million compared with 2007. Interest expense on commercial paper rose to €125.0 million (€87.0 million) due to increasing interest rates on such financing in 2008, and higher annual average usage. In 2008 there were no difficulties with the industryroll-over
of commercial papers. The average maturity of commercial papers is three months.
Middle and geographic locations in which we operate. In addition,long-term financing At the allocationfinal maturity date of our investments plays an important role. During our annual management planning dialogues with our operating entities, capital requirements are forecasted through business plans regarding the levels and timing of capital expenditures and investments. Regulators impose minimum capital rules on the level of both our operating entities andFebruary 18, 2008, the Allianz Group as a whole.
At December 31, 2005, our eligible capital forredeemed the solvency margin, required for insurance groups under German law, was €43.6 billion (2004: €29.1 billion), surpassingremaining 35.65% of the minimum legally stipulated level by €29.4 billion. This margin resulted in a cover ratio(1) of 307% (2004: 217%). In 2005, this solvency margin requirement applied only to our insurance segments and did not contain any capital requirements for our banking business.BITES index-linked bond with Munich Re shares.
On January 1, 2005, the Financial Conglomerates Directive,March 6, 2008, Allianz Finance II B.V. issued €1.5 billion of senior bonds, guaranteed by Allianz SE, with a supplementary EU directive, became effective in Germany. Undercoupon rate of 5.0%. The maturity of this directive, a financial conglomeratebond is defined as any financial parent holding company that, together with its subsidiaries, has significant cross-border and cross-sector activities. The Allianz Group is a financial conglomerate within the scope of the directive and the related German law. The law requires that the financial conglomerate calculates the capital needed to meet the respective solvency requirements on a consolidated basis. The calculation methodology for the financial conglomerates solvency margin is still subject to uncertainties.March 6, 2013.
On June 10, 2008, Allianz SE issued USD 2.0 billion of subordinated perpetual bonds with a coupon rate of 8.375%.
Allianz SE’s issued debt(1)
2008 | 2007 | |||||||||||
as of December 31, | Nominal value | Carrying value | Interest expense | Nominal value | Carrying value | Interest expense | ||||||
€ mn | € mn | € mn | € mn | € mn | € mn | |||||||
Senior bonds | 4,186 | 4,135 | 185.7 | 4,306 | 4,279 | 209.3 | ||||||
Subordinated bonds | 8,489 | 8,197 | 470.5 | 7,043 | 6,853 | 407.1 | ||||||
Exchangeable bonds | — | — | — | 450 | 450 | 8.3 | ||||||
Total | 12,675 | 12,332 | 656.2 | 11,799 | 11,582 | 624.7 | ||||||
(1) | Excludes €85.1 million of |
AtAllianz SE’s outstanding bonds as of December 31, 2005, based on the current status of discussion, our eligible capital for the solvency margin, required for our insurance segments and our banking and asset management business, was €40.0 billion including off-balance sheet reserves(1)(2)
, surpassing the minimum legally stipulated level by €16.3 billion. This margin resultednominal value in a cover ratio of 169% in 2005. In 2005, all Allianz Group companies also have met their local solvency requirements.€ bn
Dresdner Bank is subject to the risk-adjusted capital guidelines (or “Basle Accord”) promulgated by the Basle Committee on Banking Supervision (or “BIS-rules”)Maturity structure of Allianz SE’s certificated liabilities and therefore calculates and reports under such guidelines to the German Federal Financial Supervisory Authority (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,subordinated bonds 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 AG to maintain its status as a “financial holding company” under the U.S. Gramm-Leach-Bliley Financial Modernization Act of 1999, Dresdner Bank must 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 Bank must have a Tier I Capital Ratio of a least 6% and a combined Tier I and Tier II Capital Ratio of at least 10%December 31, 2008(2)
,and not be subject to a directive, order or written agreement to meet and maintain specific capital levels. As shownnominal value in the table below, Dresdner Bank maintained a “well capitalized” position during both 2005 and 2004.€ bn
| Excludes €85.1 mn of |
Allianz SE issued debt outstanding as of December 31, 2008(1)
The following table sets forth Dresdner Bank’s BIS capital ratios:
As of December 31, | 2005(1) | 2004 | ||
€ mn | € mn | |||
Tier I capital (core capital) | 11,126 | 6,867 | ||
Tier I & Tier II capital (supplementary capital) | 18,211 | 13,734 | ||
Tier III capital | — | 226 | ||
Total capital | 18,211 | 13,960 | ||
Risk-weighted assets-banking book | 108,659 | 100,814 | ||
Risk-weighted assets-trading book | 2,875 | 3,963 | ||
Total risk-weighted assets | 111,534 | 104,777 | ||
Tier I capital ratio (core capital) in % | 9.98 | 6.55 | ||
Tier I & Tier II capital ratio in % | 16.33 | 13.11 | ||
Total capital ratio in % | 16.33 | 13.32 | ||
The distinction between “core capital” and “supplementary capital” in the table above reflects the ability of the capital components to cover losses. Core capital, with the highest ability to cover losses, corresponds to Tier I capital, while supplementary capital corresponds to Tier II capital as such terms are defined in applicable U.S. capital adequacy rules.
In addition to regulatory capital requirements,describes Allianz AG also uses an internal risk capital model to determine how much capital is required to absorb any unexpected volatility in results of operations. For further information regarding our internal risk capital model, see “Quantitative and Qualitative Disclosures About Market Risk—Risk Management Tools.”
In addition to regulatory requirements and our internal risk capital model, rating agencies use distinct methodologies to determine if our capital base is adequate. During the course of 2005, the rating agencies “Standard & Poor’s” and “A.M. Best” have recognized the considerable strengthening of our capital base and updated the outlooks for our ratings during 2005 accordingly. At December 31, 2005, we had the following ratings with the major rating agencies:
Allianz AG RatingsSE’s issued debt outstanding as of December 31, 20052008 at nominal values. For further information refer to Notes 23 and 24 to our consolidated financial statements.
Interest expense in 2008 | ||||
1. Senior bonds(2) | ||||
Floating coupon rate bond issued by Allianz Finance II B.V., Amsterdam | ||||
Volume | USD 0.4 bn | |||
Year of issue | 2007 | |||
Maturity date | 4/2/2009 | |||
ISIN | XS 029 027 005 6 | |||
Interest expense | €9.8 mn | |||
5.625% bond issued by Allianz Finance II B.V., Amsterdam | ||||
Volume | €0.9 bn | |||
Year of issue | 2002 | |||
Maturity date | 11/29/2012 | |||
ISIN | XS 015 879 238 1 | |||
Interest expense | €51.2 mn | |||
5.0% bond issued by Allianz Finance II B.V., Amsterdam | ||||
Volume | €1.5 bn | |||
Year of issue | 2008 | |||
Maturity date | 3/6/2013 | |||
ISIN | DE 000 A0T R7K 7 | |||
Interest expense | €63.1mn | |||
4.00% bond issued by Allianz Finance II B.V., Amsterdam | ||||
Volume | €1.5 bn | |||
Year of issue | 2006 | |||
Maturity date | 11/23/2016 | |||
ISIN | XS 027 588 026 7 | |||
Interest expense | €61.6 mn | |||
Total interest expense for senior bonds | €185.7 mn | |||
2. Subordinated bonds(3) | ||||
6.125% bond issued by Allianz Finance II B. V., Amsterdam | ||||
Volume | €2.0 bn | |||
Year of issue | 2002 | |||
Maturity date | 5/31/2022 | |||
ISIN | XS 014 888 756 4 | |||
Interest expense | €114.3 mn | |||
6.5% bond issued by Allianz Finance II B. V., Amsterdam | ||||
Volume | €1.0 bn | |||
Year of issue | 2002 | |||
Maturity date | 1/13/2025 | |||
ISIN | XS 015 952 750 5 | |||
Interest expense | €66.0 mn |
7.25% bond issued by Allianz Finance II B. V., Amsterdam | ||||||||||
Volume | USD 0.5 bn | |||||||||
| ||||||||||
| ||||||||||
| ||||||||||
Maturity date | ||||||||||
| XS 015 915 072 0 | |||||||||
Interest expense | €25.6 mn | |||||||||
5.5% bond issued by Allianz SE | ||||||||||
Volume | €1.5 bn | |||||||||
Year of issue | 2004 | |||||||||
Maturity date | Perpetual Bond | |||||||||
ISIN | XS 018 716 232 5 | |||||||||
Interest expense | €84.3 mn | |||||||||
4.375% bond issued by Allianz Finance II B. V., Amsterdam | ||||||||||
Volume | €1.4 bn | |||||||||
Year of issue | 2005 | |||||||||
Maturity date | Perpetual Bond | |||||||||
ISIN | XS 021 163 783 9 | |||||||||
Interest expense | €63.0 mn | |||||||||
5.375% bond issued by Allianz Finance II B. V., Amsterdam | ||||||||||
Volume | €0.8 bn | |||||||||
Year of issue | 2006 | |||||||||
Maturity date | Perpetual Bond | |||||||||
ISIN | DE000A0GNPZ3 | |||||||||
Interest expense | €46.2 mn | |||||||||
8.375% bond issued by Allianz SE | ||||||||||
Volume | USD 2.0 bn | |||||||||
Year of issue | 2008 | |||||||||
Maturity date | Perpetual Bond | |||||||||
ISIN | US 018 805 200 7 | |||||||||
Interest expense | ||||||||||
| ||||||||||
| ||||||||||
Allianz SE participation certificate | ||||||||||
Volume | €85.1 mn | |||||||||
ISIN | ||||||||||
| ||||||||||
Total interest expense for participation certificates | €9.9 mn | |||||||||
4. Issues that matured in 2008 | ||||||||||
5.0% bond issued by Allianz Finance B.V., Amsterdam | ||||||||||
Volume | €1.6 bn | |||||||||
Year of issue | 1998 | |||||||||
Maturity date | 3/25/2008 | |||||||||
ISIN | DE 000 230 600 8 | |||||||||
Interest expense | €19.9 mn | |||||||||
0.75% Basket Index Tracking Equity Linked Securities (BITES) issued by Allianz Finance II B.V., Amsterdam | ||||||||||
Underlying | DAX | ® | ||||||||
Volume | €0.5 bn | |||||||||
Year of issue | 2005 | |||||||||
Maturity date | 2/18/2008 | |||||||||
ISIN | XS 021 157 635 9 | |||||||||
Interest expense | €0.3 mn | |||||||||
Total interest expense for matured issues | €20.2 mn | |||||||||
Total interest expense | €686.3 mn |
(1) | Bonds and exchangeable bonds issued or guaranteed by Allianz SE in the |
(2) | Senior bonds and commercial papers provide for early termination rights in case of non-payment of amounts due under the bond (interest and principal) as well as in case of insolvency of the relevant issuer or, if applicable, the relevant garantor (Allianz SE). The same applies to two subordinated bonds issued in 2002. |
(3) | The terms of the subordinated bonds (except for the two subordinated bonds mentioned in footnote 1 above) do not provide for early termination rights in favor of the bond holder. Interest payments are subject to certain conditions which are linked, inter alia, to our net income, and may have to be deferred. Nevertheless, the terms of the relevant bonds provide for alternative settlement mechanisms which allow us to avoid an interest deferral using cash raised from the issuance of specific newly issued instruments. |
Liquidity
Our liquidity results from the operating activities generated by our property-casualty, life/health, banking and asset management operations, as well as the financing activities from Allianz AG, the holding company for the Allianz Group.
Insurance Operations
The principal sources of liquidity for our operating activities within our insurance operations include primary and reinsurance premiums collected (primarily from our operating entities), collected reinsurance receivables, as well as investment income and proceeds generated from the sale of investments. Our major uses of funds within our insurance operations include paying property-casualty claims and related claims expenses, providing life policy benefits, paying surrenders and cancellations, as well as other operating costs.
We generate substantial cash flow from our insurance operations as a result of most premiums being received in advance of the time when claim payments or policy benefits are required, therebyallowing us to invest these funds in the interim to generate future investment income and realized gains. However, the liquidity of our insurance operations is impacted by, among other factors, the duration of our investments, development of equity markets, the interest rate environment and our ability to realize the carrying value of our investment portfolio to meet insurance claims and policyholder benefits as they become due.
Additionally, the liquidity of our property-casualty insurance operations is affected by the frequency and severity of losses under its policies, as well as by the persistency of its products. Future catastrophic events, the timing and effect of which are inherently unpredictable, may also create increased liquidity requirements for our property-casualty operations. The liquidity needs of our life operations are generally affected by trends in actual mortality experience relative to the assumptions with respect thereto included in the pricing of our life insurance policies, by the extent to which minimum returns or crediting rates are provided in connection with our life insurance products, as well as by the level of surrenders and withdrawals.
Banking and Asset Management Operations
For our banking operations, our primary sources of liquidity include customer deposits and interest and similar income from our lending transactions, while our major uses of funds are for the issuance of new loans and advances to banks and customers, and the payment of interest on deposits and other operating costs. The liquidity of our banking operations is largely subject to the ability of individual customers, and various other enterprises to which we extend credit, to make payments to us based on their outstanding commitments and could, therefore, be negatively affected by unforeseeable losses due to problem loans.
Within our asset management operations, our primary sources of liquidity include fees generated from asset management activities, while the principal use of these funds is for the payment of operating costs.
Financing
From time to time, the Allianz Group, through Allianz AG, will raise funds on the capital markets
through the issue of debt or other financial instruments in order to fund any liquidity need which cannot fully be covered by our operating or investment cash flows. See “Debt and Capital Funding” below for further information. We also have access to commercial paper, medium-term notes and other credit facilities as additional sources of liquidity. At December 31, 2005, we had access to unused credit lines as a source of further liquidity.
While Allianz AG receives internal funding from Allianz Group operating entities through the payment of dividends, it also paid dividends of €674 million and €551 million to our shareholders in 2005 and 2004 with respect to the fiscal years 2004 and 2003, respectively. The Board of Management and the Supervisory Board propose to pay a dividend of €2.00 per eligible share in 2006 for fiscal year 2005, which will approximate €811 million of dividend payments in 2006.
Certain of the operating entities within the Allianz Group are subject to legal restrictions on the amount of dividends they can pay to their shareholders. In addition to the restrictions in respect of minimum capital and solvency requirements that are imposed by insurance and other regulators in the countries in which these companies operate, other limitations exist in certain countries. For example, the operations of our insurance company subsidiaries located in the United States are subject to limitations on the payment of dividends to their parent company under applicable state insurance laws. Dividends paid in excess of these limitations generally require prior approval of the insurance commissioner of the state of domicile.
Debt and Capital Funding
Allianz AG coordinates and executes external debt financing, securities issues and other capital raising transactions for the Allianz Group. AtAs of December 31, 2005,2008, the majority of Allianz AG’sSE’s external debt financing was in the formmade up of debenturesbonds and money market securities. Our totalThereof, approximately one half was applicable to certificated liabilities, outstanding at December 31, 2005 and 2004 were €59,203 million and €57,752 million, respectively. Of the certificated liabilities outstanding at December 31, 2005, €33,097 million are due within one year. See Note 19 to our consolidated financial statements for further information. Our totalother half was made up of participation certificates and subordinated liabilitiesoutstanding at December 31, 2005 and 2004 were €14,684 million and €13,230 million, respectively. Of the participation certificates and subordinated liabilities at December 31, 2005, €1,077 million are due within one year. See Note 15 to our consolidated financial statements for further information. Additionally, see Note 39 to our consolidated financial statements for information regarding how we use certain derivatives to hedge our exposure to interest rate and foreign currency risk related to certificated and subordinated liabilities.
As of December 31, | 2008 | 2007 | ||
€ mn | € mn | |||
Total certificated liabilities outstanding | 9,544 | 42,070 | ||
thereof: due within one year(1) | 5,191 | 28,523 | ||
Total participation certificates and subordinated liabilities outstanding | 9,346 | 14,824 | ||
thereof: due within one year(2) | — | 1,476 |
Allianz AG owns several finance companies. Among those, primarily Allianz Finance B.V. and Allianz Finance II B.V., both incorporated in The Netherlands, are used from time to time for external debt financing and other corporate financing purposes.
In addition, in December 2003, Allianz AG establishedSE (then Allianz AG) implemented a Medium Term Note (or “MTN”) program which is used from time to timewas established for the
(1) | Please refer to Note 23 to our consolidated financial statements for further information. |
(2) | Please refer to Note 24 to our consolidated financial statements for further information. Additionally, refer to Note 43 to our consolidated financial statements for information regarding how we use certain derivatives to hedge our exposure to interest rate and foreign currency risk related to certificated and subordinated liabilities. |
purposes of external and internal debt issuance. The aggregate volume of debt issued by Allianz Finance B.V. and Allianz Finance II B.V. for the years ended December 31, 20052008 and 20042007 was €2.7€1.5 billion and zero,€0.3 billion, respectively. At
Short-term financingAs of December 31, 2005,2008, Allianz AGSE had money market securities outstanding with a carrying value of €1,131 million.
In January 2005, we successfully completed our “All-in-One” capital market transactions. The All-in-One capital market transactions (1) reduced the Allianz Group’s equity gearing, (2) included the issuance of a subordinated bond, and (3) helped Dresdner Bank to further reduce its non-strategic asset portfolio.
In connection with financing the merger of RAS with and into Allianz AG, approximately €2.2 billion, in aggregate, was secured in 3Q 2005 from equity-based financing and the issuance of an equity-linked loan. In this context, approximately €1.1 billion was placed out of authorized capital without pre-emptive rights and a €1.1 billion equity-linked loan was issued with a variable redemption amount linked to the share price of Allianz AG, which can be settled, at our option, in cash or Allianz AG shares.
On March 23, 2005, we repaid the Siemens exchangeable bond issued in 2000. The issue amount of the exchangeable bond of €1.7 billion was repaid in cash as the share price of Siemens AG was below the exercise price. Additionally, on August 26, 2005, we repaid the CHF 1.5 billion senior bond issued in 1999 and 2000. Our use of commercial paper as a short-term financing instrument was reduced by 21.4% to €1.1 billion in 2005 from €1.4 billion in 2004.of €1,174 million compared with 2007. Interest expense on commercial paper declined marginallyrose to €31.3€125.0 million (2004: €31.6(€87.0 million) due to increasing interest rates on such financing in 2005.2008, and higher annual average usage. In 2008 there were no difficulties with the roll-over
of commercial papers. The average maturity of commercial papers is three months.
InMiddle and long-term financing At the final maturity date of February 18, 2008, the Allianz Group redeemed the remaining 35.65% of the BITES index-linked bond with Munich Re shares.
On March 2006,6, 2008, Allianz Finance II B.V. issued €800 million€1.5 billion of subordinated perpetualsenior bonds, guaranteed by Allianz AG,SE, with a coupon rate of 5.375%5.0%. The maturity of this bond is March 6, 2013.
On June 10, 2008, Allianz Finance II B.V. has the right to call theSE issued USD 2.0 billion of subordinated perpetual bonds after five years.with a coupon rate of 8.375%.
Outstanding Allianz AGSE’s issued debt(1) — Overview as of December 31, 2005
Volume | Carrying value | Interest expense in 2005 | ||||
€ mn | € mn | € mn | ||||
Senior bonds(2) | 4,732 | 4,696 | 250.3 | |||
Subordinated bonds | 6,324 | 6,220 | 355.7 | |||
Exchangeable bonds | 2,337 | 2,326 | 103.1 | |||
Bonds total | 13,393 | 13,242 | 709.1 | |||
2008 | 2007 | |||||||||||
as of December 31, | Nominal value | Carrying value | Interest expense | Nominal value | Carrying value | Interest expense | ||||||
€ mn | € mn | € mn | € mn | € mn | € mn | |||||||
Senior bonds | 4,186 | 4,135 | 185.7 | 4,306 | 4,279 | 209.3 | ||||||
Subordinated bonds | 8,489 | 8,197 | 470.5 | 7,043 | 6,853 | 407.1 | ||||||
Exchangeable bonds | — | — | — | 450 | 450 | 8.3 | ||||||
Total | 12,675 | 12,332 | 656.2 | 11,799 | 11,582 | 624.7 | ||||||
(1) | Excludes €85.1 million of participation certificates at each December 31, 2008 and 2007, with interest expense of |
CertificatedAllianz SE’s outstanding bonds as of December 31,(2)
nominal value in € bn
Maturity structure of Allianz SE’s certificated liabilities and subordinated bonds(1) by maturity—Overview as of December 31, 20052008(2)
nominal value in € mnbn
| Excludes €85.1 |
Allianz SE issued debt outstanding as of December 31, 2008(1)
The following table describes the Allianz AGSE’s issued debt outstanding atas of December 31, 20052008 at nominal values. For further information seerefer to Notes 15, 1923 and 3224 to our consolidated financial statements.
Allianz AG Issued Debt(1)
Interest expense in 2008 | ||||||
1. Senior bonds(2) | ||||||
| ||||||
Volume | ||||||
Year of issue | ||||||
Maturity date | ||||||
| ||||||
ISIN | ||||||
Interest expense | € | |||||
Volume | € | |||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
Year of issue | 2002 | |||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
Maturity date | 11/29/2012 | |||||
| ||||||
ISIN | XS 015 879 238 1 | |||||
Interest expense | €51.2 mn | |||||
5.0% bond issued by Allianz Finance II B.V., Amsterdam | ||||||
Volume | €1.5 bn | |||||
Year of issue | 2008 | |||||
Maturity date | 3/6/2013 | |||||
ISIN | DE 000 A0T R7K 7 | |||||
Interest expense | €63.1mn | |||||
4.00% bond issued by Allianz Finance II B.V., Amsterdam | ||||||
Volume | €1.5 bn | |||||
Year of issue | 2006 | |||||
Maturity date | 11/23/2016 | |||||
ISIN | XS 027 588 026 7 | |||||
Interest expense | € | |||||
Total interest expense for senior bonds | € | |||||
2. Subordinated bonds(3) | ||||||
6.125% bond issued by Allianz Finance II B. V., Amsterdam | ||||||
Volume | € | |||||
Year of issue | 2002 | |||||
Maturity date | 5/31/2022 | |||||
| ||||||
ISIN | XS 014 888 756 4 | |||||
Interest expense | € | |||||
6.5% bond issued by Allianz Finance II B. V., Amsterdam | ||||||
Volume | €1.0 bn | |||||
Year of issue | 2002 | |||||
Maturity date | 1/13/2025 | |||||
ISIN | XS 015 952 750 5 | |||||
Interest expense | €66.0 mn |
7.25% bond issued by Allianz Finance II B. V., Amsterdam | |||||
Volume | USD 0.5 bn | ||||
Year of issue | 2002 | ||||
Maturity date | Perpetual Bond | ||||
| |||||
ISIN | XS 015 915 072 0 | ||||
Interest expense | € | ||||
| |||||
Volume | € | ||||
| |||||
| |||||
| |||||
| |||||
|
|
| |||||||
| ||||||||
Year of issue | 2004 | |||||||
Maturity date | Perpetual Bond | |||||||
| ||||||||
ISIN | XS 018 716 232 5 | |||||||
Interest expense | € | |||||||
4.375% bond issued by Allianz Finance II B. V., Amsterdam | ||||||||
Volume | €1.4 bn | |||||||
Year of issue | 2005 | |||||||
Maturity date | Perpetual Bond | |||||||
| ||||||||
ISIN | XS 021 163 783 9 | |||||||
Interest expense | €63.0 mn | |||||||
5.375% bond issued by Allianz Finance II B. V., Amsterdam | ||||||||
Volume | €0.8 bn | |||||||
Year of issue | 2006 | |||||||
Maturity date | Perpetual Bond | |||||||
ISIN | DE000A0GNPZ3 | |||||||
Interest expense | €46.2 mn | |||||||
8.375% bond issued by Allianz SE | ||||||||
Volume | USD 2.0 bn | |||||||
Year of issue | 2008 | |||||||
Maturity date | Perpetual Bond | |||||||
ISIN | US 018 805 200 7 | |||||||
Interest expense | € | |||||||
Total interest expense for subordinated bonds |
| € | ||||||
3. | ||||||||
Allianz SE participation certificate |
| |||||||
| ||||||||
| ||||||||
Volume | € | |||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
ISIN | ||||||||
Interest expense | € | |||||||
Total interest expense for participation certificates | €9.9 mn | |||||||
| ||||||||
5.0% bond issued by Allianz Finance B.V., Amsterdam | ||||||||
Volume | €1.6 bn | |||||||
Year of issue | ||||||||
Maturity date | 3/25/2008 | |||||||
ISIN | DE 000 230 600 8 | |||||||
Interest expense | €19.9 mn | |||||||
0.75% Basket Index Tracking Equity Linked Securities (BITES) issued by Allianz Finance II | ||||||||
Underlying | DAX | ® | ||||||
Volume | € | |||||||
Year of issue | 2005 | |||||||
Maturity date | 2/18/2008 | |||||||
| ||||||||
ISIN | XS 021 157 635 9 | |||||||
Interest expense | € | |||||||
Total interest expense for |
| € | ||||||
| ||||||||
€ | ||||||||
(1) | Bonds and exchangeable bonds issued or guaranteed by Allianz |
(2) | Senior bonds and commercial papers provide for early termination rights in case of non-payment of amounts due under the bond (interest and principal) as well as in case of insolvency of the relevant issuer or, if applicable, the relevant garantor (Allianz SE). The same applies to |
(3) | The terms of the subordinated bonds (except for the two subordinated bonds mentioned in footnote 1 above) do not provide for early termination rights in favor of the bond holder. Interest payments are subject to certain conditions which are linked, inter alia, to our net income, and |
Capital Requirements
Certain of the operating entities within the Allianz Group are subject to legal restrictions on the amount of dividends they can pay to their shareholders. Furthermore, regulators impose minimum capital rules on the level of both the Allianz Group’s operating entities and the Allianz Group as a whole. Refer to Note 25 to our consolidated financial statements for more information on our capital requirements.
Allianz Group Consolidated Cash Flows
Change in cash and cash equivalents for the years ended December 31,
in € mn€mn
Net cash flow provided by operating activitiesamounted €25.3 billion in 2008, up €13.8 billion compared to the prior year. This increase resulted primarily from a higher net inflow from both collateralized refinancing activities mainly in the context of Dresdner Bank and from financial assets and liabilities designated at fair value through income of Dresdner Bank. Additionally, we recorded lower net inflows from financial assets and liabilities held for trading also driven by Dresdner Bank.
Net cash outflow used in investing activities, increased by €3.9 billion to €6.2 billion in 2008
compared to an outflow of €2.4 billion in the prior year, which was mainly attributable to a net cash outflow from available-for-sale investments driven by (Special funds Life/Health, Allianz Life U.S., Dresdner Bank, AGF Vie) and higher net outflows from loans and advances to banks and customers, particularly at Dresdner Bank. These effects were partially compensated by net cash inflows during the fourth quarter 2008 from assets and liabilities of disposal groups classified as held-for-sale.
Net cash outflow provided by financing activities increased by €0.5 billion to €11.3 billion in 2008. The main contributing factors were net cash outflows from liabilities to banks and customers, mainly attributable to the redemption of a bridge loan at Allianz France Holding, offset by lower net cash outflows from certificated liabilities, participation certificates and subordinated liabilities mainly due to Dresdner Bank as well as lower outflows from transactions bet-ween equityholders (in 2008 mainly Allianz Leben).
Overall,cash and cash equivalents increased by €7.9 billion to €39.2 billion as of December 31, 2008.
Cash and cash equivalents
As of December 31, | 2008 | 2007 | ||
€ mn | € mn | |||
Balances with banks payable on demand | 7,760 | 23,848 | ||
Balances with central banks | 456 | 6,301 | ||
Cash on hand | 169 | 918 | ||
Treasury bills, discounted treasury notes, similar treasury securities, bills of exchange and checks | 573 | 270 | ||
Cash and cash equivalents of continuing operations | 8,958 | 31,337 | ||
Cash and cash equivalents reclassified to assets of disposal groups held-for-sale | 30,238 | — | ||
Total | 39,196 | 31,337 | ||
Dresdner Bank’s cash and cash equivalents increased significantly compared to last year. However, as Dresdner Bank was reclassified to assets of disposal groups held-for-sale we recorded a decline in the cash position of our continuing operations as well as an increase in the cash position
(1) | Includes effect of exchange rate changes on cash and cash equivalents of |
Net cash flow provided by operating activities increased by €28,975 million to €32,171 million (2004: €3,196 million) in 2005. Of which, the decrease in financial assets and liabilities held for trading contributed €11,885 million (2004: reduction
of €30,209 million), mainly resulting from a decline in the trading business and the reduction in trading liabilities. In addition, assets from reverse repurchase agreements and collateral paid for securities borrowing transactions contributed €43,656 million (2004: reduction of €10,136 million), largely as a result of reduced business volume. Conversely, the reduction of liabilities from repurchase agreements and collateral received from securities lending transactions reduced operating cash flow by €18,692 million (2004: increase of €35,255 million). This development was primarily caused by declining business volume, which lead to a reduction in the respective liabilities.
Net cash flow used in investing activities amounted to €22,452 million (2004: €15,378 million), primarily due to anour discontinuing operations. The overall increase in investments held at fair value by €28,983 million (2004: €12,661 million), resulting from a significant inflow of funds from business underwritten.
Net cash flow provided by financing activities increased by €3,922 million to €6,228 million (2004: €2,306 million). Cash inflow from capital increasesamounted to €2,183 million (2004: €86 million). Further, the issuance of subordinated debt and the sale of treasury shares contributed to the increased cash flow provided by financing activities.
In total, cash and cash equivalents increasedwas partially offset by €16,019 million (2004: decrease of €9,900 million).our German entities scaling back securities lendings.
Cash and cash equivalents asAs of December 31, 2005
in2008, compulsory deposits on accounts with national central banks under restrictions due to required reserves from the European Central Bank totaled € mn (Total: €31,647 mn)
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, followed by U.S. Dollars, Swiss Francs and British Pounds. At December 31, 2005, 2004 and 2003, the Allianz Group held €31,647363 million €15,628 million and €25,528 million, respectively, of cash and cash equivalents. See Note 11 to our consolidated financial statements for additional information on the Allianz Group’s cash and cash equivalents.(2007: €5,473 million).(1)
Investment Portfolio Impairments, Depreciation and Unrealized Losses
For information concerning the valuation of available-for-sale securities, and held-to-maturity securities, seerefer to “—Critical Accounting Policies and Estimates—Fair Values of Financial Assets and Liabilities.”
Impairment Charges and Depreciation
For the year ended December 31, 2005, other expenses for investments2008, net realized gains, totaled €1,679€3,603 million, of which €921€3,530 million related to realized losses, €505 million related to impairments on securities and real estate used by third parties and €253 million related to depreciation recorded on real estate used by third parties.losses. Of the total amount of realized losses in 2005, €8982008, €3,397 million related to available-for-sale
securities, €7 million related to investments in joint ventures, €28 million related to loans to banks and €23customers, and €98 million to real estate used by third parties, while thereheld for investment. Net impairments totaled €9,495 million, of which €139 million were no realized losses on held-to-maturity securities.reversal of net impairments. Of the €505total amount of impairments €9,434 million related to impairments, €263 million was attributable to impairments recorded on available-for-sale securities, €2€72 million related to impairments recorded on held-to-maturity securitiesinvestments in associates and €240joint ventures and €128 million related to impairments on real estate used by third-parties.held for investments. Of the available-for-sale impairments we recorded in 2005, €2452008, €8,736 million related to equity securities €10and €698 million to debt securities and €8 million to other available-for-sale securities.
For the year ended December 31, 2004, other expenses for investments2007, net realized gains, totaled €2,672€6,008 million, of which €943€1,885 million related to realized losses and €1,471 million related to impairments on securities and real estate used by third parties and €258 million related to depreciation recorded on real estate used by third parties.losses. Of the total amount of realized losses in 2004, €8902007, €1,697 million related to available-for-sale securities, available-for-sale, €1€84 million related to securities held-to-maturityinvestments in associates and €52joint ventures, €58 million related to loans to banks and customers, and €46 million to real estate used by third parties.held for investment. Net impairments totaled €1,185 million, of which €19 million were reversal of impairments. Of the total amount of impairments €1,179 million related to impairments, €814available-for-sale securities, €2 million was attributablerelated to impairments recorded on securities available-for-sale, €4investments in associates and joint ventures and €23 million related to impairments on securities held-to-maturity and €653 million to impairments on real estate used by third parties.held for
investments. Of the available-for-sale impairments we recorded in 2004, €7642007, €1,153 million related to equity securities €29and €26 million to debt securities and €21 million to other available-for-sale securities.
Unrealized Losses
As of December 31, 2005,2008, unrealized losses from available-for-sale securities totaled €999€10,721 million, of which €188€851 million were attributable to equity securities, €267€8,830 million to corporate bonds, €542€1,022 million to government bonds and €2€18 million to other securities.
As of December 31, 2004,2007, unrealized losses from available-for-sale securities totaled €728€4,711 million, of which €393€467 million were attributable to equity securities, €95€2,549 million to corporate bonds, €236€1,591 million to government bonds and €4€104 million to other securities.
The following tables set forth further details regarding the duration and amount below amortized cost of the Allianz Group’s unrealized loss positions for equity securities and debt securities as of December 31, 20052008 and 2004,2007, respectively. The length of time criterion reflects the period of time over which a security had continually been in the actual percentage decline category it was in on December 31, 20052008 and December 31, 2004,2007, respectively. We believe the following tables provide meaningful disclosure, as they capture the actual percentage decline category and related time period applicable at December 31, 20052008 and December 31, 2004,2007, respectively.
As described in more detail in Note 3 to our consolidated financial statements, effective January 1, 2005, the Allianz Group adopted IAS 39 revised, which required a change to our impairment criteria for available-for-sale equity securities. An equity security is considered to be impaired if there is objective evidence that the cost of the equity security may not be recovered. IAS 39 revised requires that a significant or prolonged decline in the fair value of an equity security below cost is considered to be objective evidence of impairment. In addition to the existing qualitative criteria, the Allianz Group established new quantitative impairment criteria for equity securities to define significant or prolonged decline. To satisfy the “significant” criterion, the Allianz Group has established a policy that an equity security is considered impaired if the fair value is below the weighted-average cost by more than 20%. To satisfy the “prolonged” criterion, the Allianz Group established a policy that an equity security is considered impaired if the fair value is below the weighted-average cost for greater than nine months. Each of these policies is applied independently at the subsidiary level. Accordingly, the use of a nine month period is reflected in the table below relating to equity securities as of December 31, 2005, while the table relating to equity securities as of December 31, 2004 is presented in accordance with the 0-6 month period as implemented by the Allianz Group in prior years. However, the unrealized losses within the equity securities aging table as of December 31, 2004 have been revised to reflect the Allianz Group’s impairment policy effective January 1, 2005.
Equity Securities Aging Table: Duration and Amount of Unrealized Losses as of December 31, 2005
0-6 months | 6-9 months | >9 months | Total | |||||||||
€ mn | € mn | € mn | € mn | |||||||||
Less than 20% | ||||||||||||
Market Value | 3,499 | 24 | 86 | 3,609 | ||||||||
Amortized Cost | 3,650 | 26 | 89 | 3,765 | ||||||||
Unrealized Loss | (151 | ) | (2 | ) | (3 | ) | (156 | ) | ||||
20% to 50% | ||||||||||||
Market Value | 49 | — | 2 | 51 | ||||||||
Amortized Cost | 71 | — | 3 | 74 | ||||||||
Unrealized Loss | (22 | ) | — | (1 | ) | (23 | ) | |||||
Greater than 50% | ||||||||||||
Market Value | 7 | — | — | 7 | ||||||||
Amortized Cost | 15 | — | 1 | 16 | ||||||||
Unrealized Loss | (8 | ) | — | (1 | ) | (9 | ) | |||||
Total | ||||||||||||
Market Value | 3,555 | 24 | 88 | 3,667 | ||||||||
Amortized Cost | 3,736 | 26 | 93 | 3,855 | ||||||||
Unrealized Loss | (181 | ) | (2 | ) | (5 | ) | (188 | ) |
(1) | Refer to Note 7 to our consolidated financial statements for additional information on the Allianz Group’s cash and cash equivalents. |
Once an investment is classified as being impaired a further reduction in market value will be charged immediately as an additional impairment charged to the profit and loss account (“once
impaired always impaired”). Subsequent increases of market values of impaired securities are credited to other comprehensive income (OCI).
Equity Securities Aging Table: Duration and Amount of Unrealized Losses as of December 31, 20042008
0-6 months | 6-12 months | >12 months | Total | 0-6 months | 6-9 months | >9 months | Total | |||||||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | |||||||||||||||||
Less than 20% | ||||||||||||||||||||||||
Market Value | 1,140 | 38 | 278 | 1,456 | 7,718 | 342 | 145 | 8,205 | ||||||||||||||||
Amortized Cost | 1,347 | 42 | 304 | 1,693 | 8,454 | 402 | 159 | 9,015 | ||||||||||||||||
Unrealized Loss | (207 | ) | (4 | ) | (26 | ) | (237 | ) | (736 | ) | (60 | ) | (14 | ) | (810 | ) | ||||||||
20% to 50% | ||||||||||||||||||||||||
Market Value | 103 | 24 | 203 | 330 | 49 | — | 23 | 72 | ||||||||||||||||
Amortized Cost | 142 | 33 | 296 | 471 | 74 | — | 31 | 105 | ||||||||||||||||
Unrealized Loss | (39 | ) | (9 | ) | (93 | ) | (141 | ) | (25 | ) | — | (8 | ) | (33 | ) | |||||||||
Greater than 50% | ||||||||||||||||||||||||
Market Value | 4 | — | 14 | 18 | 3 | — | — | 3 | ||||||||||||||||
Amortized Cost | 10 | — | 23 | 33 | 10 | 1 | — | 11 | ||||||||||||||||
Unrealized Loss | (6 | ) | — | (9 | ) | (15 | ) | (7 | ) | (1 | ) | — | (8 | ) | ||||||||||
Total | ||||||||||||||||||||||||
Market Value | 1,247 | 62 | 495 | 1,804 | 7,770 | 342 | 168 | 8,280 | ||||||||||||||||
Amortized Cost | 1,499 | 75 | 623 | 2,197 | 8,538 | 403 | 190 | 9,131 | ||||||||||||||||
Unrealized Loss | (252 | ) | (13 | ) | (128 | ) | (393 | ) | (768 | ) | (61 | ) | (22 | ) | (851 | ) |
Debt Securities Aging Table: Duration and Amount of Unrealized Losses as of December 31, 20052008
0-6 months | 6-12 months | >12 months | Total | 0-6 months | 6-12 months | >12 months | Total | |||||||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | |||||||||||||||||
Less than 20% | ||||||||||||||||||||||||
Market Value | 40,838 | 4,566 | 4,404 | 49,808 | 15,808 | 18,247 | 32,471 | 66,526 | ||||||||||||||||
Amortized Cost | 41,425 | 4,659 | 4,530 | 50,614 | 16,598 | 19,597 | 34,931 | 71,126 | ||||||||||||||||
Unrealized Loss | (587 | ) | (93 | ) | (126 | ) | (806 | ) | (790 | ) | (1,350 | ) | (2,460 | ) | (4,600 | ) | ||||||||
20% to 50% | ||||||||||||||||||||||||
Market Value | 8 | 6 | 1 | 15 | 1,111 | 2,801 | 5,864 | 9,776 | ||||||||||||||||
Amortized Cost | 10 | 8 | 2 | 20 | 1,540 | 3,872 | 8,566 | 13,978 | ||||||||||||||||
Unrealized Loss | (2 | ) | (2 | ) | (1 | ) | (5 | ) | (429 | ) | (1,071 | ) | (2,702 | ) | (4,202 | ) | ||||||||
Greater than 50% | ||||||||||||||||||||||||
Market Value | — | — | — | — | 36 | 132 | 565 | 733 | ||||||||||||||||
Amortized Cost | — | — | — | — | 94 | 323 | 1,384 | 1801 | ||||||||||||||||
Unrealized Loss | — | — | — | — | (58 | ) | (191 | ) | (819 | ) | (1,068 | ) | ||||||||||||
Total | ||||||||||||||||||||||||
Market Value | 40,846 | 4,572 | 4,405 | 49,823 | 16,955 | 21,180 | 38,900 | 77,035 | ||||||||||||||||
Amortized Cost | 41,435 | 4,667 | 4,532 | 50,634 | 18,232 | 23,792 | 44,881 | 86,905 | ||||||||||||||||
Unrealized Loss | (589 | ) | (95 | ) | (127 | ) | (811 | ) | (1,277 | ) | (2,612 | ) | (5,981 | ) | (9,870 | ) |
DebtEquity Securities Aging Tables:Table: Duration and Amount of Unrealized Losses as of December 31, 20042007
0-6 months | 6-12 months | >12 months | Total | 0-6 months | 6-9 months | >9 months | Total | |||||||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | |||||||||||||||||
Less than 20% | ||||||||||||||||||||||||
Market Value | 15,878 | 2,632 | 2,042 | 20,552 | 7,150 | 52 | 82 | 7,284 | ||||||||||||||||
Amortized Cost | 16,106 | 2,655 | 2,099 | 20,860 | 7,549 | 61 | 91 | 7,701 | ||||||||||||||||
Unrealized Loss | (228 | ) | (23 | ) | (57 | ) | (308 | ) | (399 | ) | (9 | ) | (9 | ) | (417 | ) | ||||||||
20% to 50% | ||||||||||||||||||||||||
Market Value | 13 | 7 | 25 | 45 | 159 | — | — | 159 | ||||||||||||||||
Amortized Cost | 18 | 15 | 35 | 68 | 207 | — | — | 207 | ||||||||||||||||
Unrealized Loss | (5 | ) | (8 | ) | (10 | ) | (23 | ) | (48 | ) | — | — | (48 | ) | ||||||||||
Greater than 50% | ||||||||||||||||||||||||
Market Value | — | — | 1 | 1 | 37 | — | — | 37 | ||||||||||||||||
Amortized Cost | 1 | — | 4 | 5 | 39 | — | — | 39 | ||||||||||||||||
Unrealized Loss | (1 | ) | — | (3 | ) | (4 | ) | (2 | ) | — | — | (2 | ) | |||||||||||
Total | ||||||||||||||||||||||||
Market Value | 15,891 | 2,639 | 2,068 | 20,598 | 7,346 | 52 | 82 | 7,480 | ||||||||||||||||
Amortized Cost | 16,125 | 2,670 | 2,138 | 20,933 | 7,795 | 61 | 91 | 7,947 | ||||||||||||||||
Unrealized Loss | (234 | ) | (31 | ) | (70 | ) | (335 | ) | (449 | ) | (9 | ) | (9 | ) | (467 | ) |
Debt Securities Aging Table: Duration and Amount of Unrealized Losses as of December 31, 2007
0-6 months | 6-12 months | >12 months | Total | |||||||||
€ mn | € mn | € mn | € mn | |||||||||
Less than 20% | ||||||||||||
Market Value | 41,695 | 33,829 | 46,137 | 121,661 | ||||||||
Amortized Cost | 42,257 | 35,141 | 48,453 | 125,851 | ||||||||
Unrealized Loss | (562 | ) | (1,321 | ) | (2,316 | ) | (4,190 | ) | ||||
20% to 50% | ||||||||||||
Market Value | 14 | 70 | — | 84 | ||||||||
Amortized Cost | 20 | 99 | — | 119 | ||||||||
Unrealized Loss | (6 | ) | (29 | ) | —�� | (35 | ) | |||||
Greater than 50% | ||||||||||||
Market Value | 11 | — | — | 11 | ||||||||
Amortized Cost | 30 | — | — | 30 | ||||||||
Unrealized Loss | (19 | ) | — | — | (19 | ) | ||||||
Total | ||||||||||||
Market Value | 41,720 | 33,899 | 46,137 | 121,756 | ||||||||
Amortized Cost | 42,307 | 35,240 | 48,453 | 126,000 | ||||||||
Unrealized Loss | (587 | ) | (1,341 | ) | (2,316 | ) | (4,244 | ) |
Reversals of Impairment
Pursuant to IAS 39 revised, we no longer record reversals of impairment in our consolidated income statement for available-for-sale equity securities.
For fixed incomefixed-income securities, if, in a subsequent period, the amount of the impairment previously recorded on a security decreases and the decrease can
be objectively related to an event occurring after the impairment, such as an improvement in the debtor’s credit rating, the impairment is reversed through other income for investments in the Allianz Group’sconsolidatedGroup’s consolidated income statement. Such reversals do not result in a carrying amount of a security that exceeds what would have been, had the impairment not been recorded, at the date of the impairment is reversed.
For the years ended December 31, 2005, 20042008, 2007 and 2003,2006 we recorded reversals of impairments of €20€85 million (available-for-sale securities: €17€85 million; held-to-maturity securities: €3€0 million), €73€13 million (available-for-sale securities: €73€13 million; held-to-maturity securities: €0 million) and €68€2 million (available-for-sale securities: €65€1 million; held-to-maturity securities: €3€1 million), respectively.
Tabular Disclosure of Contractual Obligations
Payments Due By Period at December 31, 2005(1) | ||||||||||
Total | Less than 1 Year | 1-3 Years | 3-5 Years | More than 5 Years | ||||||
€ mn | € mn | € mn | € mn | € mn | ||||||
Long-term debt obligations(2) | 73,887 | 34,174 | 18,009 | 5,629 | 16,075 | |||||
Operating lease obligations(3) | 2,883 | 463 | 620 | 543 | 1,257 | |||||
Purchase obligations(4) | 2,783 | 533 | 701 | 486 | 1,063 | |||||
Liabilities to banks and customers(5) | 284,968 | 284,968 | — | — | — | |||||
Aggregate policy reserves(6) | 35,462 | 1,642 | 3,248 | 3,027 | 27,545 | |||||
Reserves for loss and loss adjustment expenses(7) | 60,246 | 19,418 | 15,817 | 7,941 | 17,070 | |||||
Other long-term liabilities(8) | 6,876 | 576 | 1,212 | 1,338 | 3,750 | |||||
Total contractual obligations | 467,105 | 341,774 | 39,607 | 18,964 | 66,760 | |||||
The table sets forth the Allianz Group’s contractual obligations as of December 31, 2008. Contractual obligations do not include contingent liabilities or commitments. Only transactions with parties outside the Allianz Group are considered. With the announcement of the sale of Dresdner Bank from Allianz to Commerzbank as of August 31, 2008, Dresdner Bank was classified as a disposal group held for sale and discontinued operations. Following this classification, contractual obligations of Dresdner Bank are presented as part of the disposal group held for sale and discontinued operations. The following table includes only continuing operations.
The table includes only liabilities that represent fixed and determinable amounts. The table excludes interest on floating rate long-term debt obligations and interest on money market securities, as the contractual interest rate on floating rate interest is not fixed and determinable. The amount and timing of interest on money market securities is not fixed and determinable since these instruments have a daily maturity. For further information, refer to Notes 23 and 24 to the consolidated financial statements.
Furthermore, reserves for insurance and investment contracts presented in the table include contracts where the timing and amount of payments are considered fixed and determinable and contracts which have no specified maturity dates and may result in a payment to the contract holder depending on mortality and morbidity experience and the incidence of surrenders, lapses, or maturities. 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. For further information, refer to 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 premiums and fees expected to be received, investment income earned, expenses incurred to parties other than the policyholders such as agents, or administrative expenses. In addition, these amounts are presented net of reinsurance expected to be received as a result of these cash flows. The amounts presented in this table are undiscounted and therefore exceed the reserves for insurance and investment contracts presented in the consolidated balance sheet. For further information on reserves for insurance and investment contracts, refer to Note 20 to the consolidated financial statements.
As of December 31, 2008, the income tax obligations amounted to €1,446 million. Thereof €1,106 million the Allianz Group expects to pay within the twelve months after the balance sheet date. For the remaining amount of €340 million an estimate of the timing of cash outflows is not reasonably possible. The income tax obligations are not included in the table below.
Payments due by period as of December 31, 2008 | ||||||||||
Less than 1 year | 1-3 years | 3-5 years | More than 5 years | Total | ||||||
€ mn | € mn | € mn | € mn | € mn | ||||||
Long-term debt obligations(1) | 5,191 | 329 | 2,479 | 10,891 | 18,890 | |||||
Interest on long-term debt obligations(2) | 21 | 9 | 129 | 285 | 444 | |||||
Operating lease obligations(3) | 261 | 470 | 371 | 1,108 | 2,210 | |||||
Purchase obligations(4) | 166 | 258 | 116 | 203 | 743 | |||||
Liabilities to banks and customers(5) | 15,480 | 1,020 | 760 | 1,191 | 18,451 | |||||
Future policy benefits | 34,376 | 99,114 | 63,172 | 642,805 | 839,467 | |||||
Reserves for loss and loss adjustment expenses(6) | 17,271 | 14,455 | 7,212 | 16,678 | 55,616 | |||||
Total contractual obligations | 72,766 | 115,655 | 74,239 | 673,161 | 935,821 | |||||
(1) | For further information, refer to Notes 23 and 24 to the consolidated financial statements. Total obligations of €56,894 at December 31, 2007 included obligations of Dresdner Bank, which are no longer obligations of the Allianz |
(2) |
|
(3) | The amount of |
(4) | Purchase obligations only include transactions related to goods and services; purchase obligations for financial instruments are excluded. |
(5) | Liabilities to banks and customers include €311 mn and |
(6) |
Comprise reserves for loss and loss adjustment expenses from |
Reconciliation of future policy benefits
The following table presents a reconciliation of future policy benefits to the total balance sheet positions, which include reserves for insurance and investment contracts and financial liabilities for unit-linked contracts, as presented in the consolidated balance sheet:
| 2008 | ||
Future policy benefits | 839,467 | ||
Effect of discounting and differences between locked-in and best estimate assumptions | (363,279 | ) | |
Expected future | (147,731 | ) | |
Total consolidated balance sheet positions | 328,457 | ||
Thereof: | |||
Reserves for insurance and investment contracts | 296,557 | ||
Financial liabilities for unit-linked contracts | 50,450 | ||
Market value liability options | 5,163 | ||
Less: | |||
Deferred acquisition costs | 18,695 | ||
Ceded reserves to | 5,018 | ||
Total consolidated | 328,457 |
Reconciling items related to the effect of discounting and differences between locked-in and best estimate assumptions occur because future policy benefits are presented on an undiscounted basis, while reserves for insurance and investment contracts in the consolidated balance sheet reflect the time value of money. Furthermore, future policy benefits are based on current best estimate assumptions such as mortality, morbidity, interest rates, policyholder participation in profits and future lapse rates. For certain contracts (SFAS 60 and SFAS 97), current best estimate assumptions may differ from the locked-in estimates required to be used to establish the reserves for insurance and investment contracts in the consolidated balance sheet, which also include provisions for adverse deviations as required by the Allianz Group’s established accounting policy.
Reconciling items related to expected future premiums and expenses occur because future policy benefits take into account best estimates of future premiums expected to be received and future expenditures expected to be incurred.
Future policy benefits implicitly include embedded derivatives or market value liability options (“MVLO”) of our equity indexed annuity business that are accounted for as derivatives and are presented within financial liabilities carried at fair value through income in our consolidated balance sheet.
Deferred acquisition costs comprise deferred acquisition costs for our Life/Health segment, present value of future profits and deferred sales inducements. Refer to Note 12 to our consolidated financial statements for more information.
Ceded reserves to reinsurers are presented within reinsurance assets in our consolidated balance sheet.
Recent and Expected Developments(1)
Economic Outlook
Continuing uncertainty
For 2006,In the year under review, the global economy entered the deepest recession it has seen in decades. The situation is not expected to stabilize until sometime later in 2009, not least because of the time lag for the massive global expansion of monetary and fiscal policy to have an effect. Nevertheless despite these policy actions, gross national product in the industrialized countries is expected to fall for the year as a whole. In contrast, we expect the emerging economies to grow overall. The financial markets will not be calm in 2009. The distortions from the boom years have not yet fully worked through, particularly in the banking sector. The process of adjustment and consolidation that is required will continue to create an atmosphere of great uncertainty in the markets. Central banks and governments remain obligated to avert the risk of a systemic crisis. Taken together, these developments create a very challenging environment for financial services providers in 2009.
Stabilization
We believe that, following an expansion of a good 2% last year, the global economy to maintain a rate of growth consistent withwill not grow in 2009 (even including the previous year, but with decreasing differences betweenemerging markets). We expect the industrialized countries. countries to shrink by about 1.5%, while growth will slow down to around 2.5% (2008: 6%) in the emerging markets.
The performance in the emerging markets, however, will be very uneven. Asia remains the most dynamic region, with gains of 3%. China leads the way here, although it is expected to turn in its lowest growth rate since 1990. We estimate growth in Eastern Europe at 1%, primarily because recent growth in many Eastern European countries has been financed by the rapid expansion of credit, partly in foreign currencies. These countries have been hit so hard by the financial crisis that some of them have already turned to the International Monetary Fund and the European Union for support. Latin America (with the exception of Mexico) seems to be handling the crisis somewhat better; we expect growth of 2% there in 2009.
The gross national product in all the industrialized countries will shrink in 2009. We estimate the drop in Japan at 2%. Although the Japanese economy itself has been relatively untouched by the financial crisis, its dependence on export demand will have a noticeable impact on the economy’s performance, given the current trade deficit inenvironment. The same will hold true for Germany, where we expect economic activity to decline by 1.5%. Also the economy of the United States andwill shrink in 2009. We forecast a drop of about 1.5% there. However, the effect it will have on future exchangenegative figures for the entire year obscure the fact that a gradual stabilization is expected to take place in the course of the year. It is possible that the industrialized countries may return to the path to growth in the second half of the year. There are three reasons—all of them valid globally—that such a recovery is possible: extensive public economic programs designed to stimulate demand, low interest rates against the U.S. dollar remain uncertain. While the more restrictiveresulting from an extremely expansionary monetary policy and a major gain in consumer purchasing power due to the significant drop in commodity prices.
The financial markets will remain uncertain in 2009 because of heavy losses, particularly in the banking sector. Additional public measures may be required to stabilize the financial sector. In any case,
a rapid normalization of the various central banks aroundmarkets is not foreseen, but we expect investor confidence to return if the world are workingeconomy picks up during the year. Given the rapid increase in government indebtedness, the focus will likely shift to thwart off the risk of inflation it is also restrictingand rising interest rates. An economic growth. Overall this isrecovery should have a positive businessimpact on the equity markets.
Challenging environment for financial service providers.services providers
Our economists forecast world economic growth in 2006 at 3.2 % (2005: 3.2 %). This should allow world trade to maintain its current dynamic and increase by approximately 8 %. We consider the emerging markets, with growth of 5.5 %, to have particular potential. Industrialized countries should see expansion of approximately 2.6 %, consistent with the previous year.
Growth in Asia of 6.7 %Financial services providers will continue to drive the global economy. We assume that the expansionface major challenges in South Korea in 2006 will accelerate further. In contrast, economic growth in India will decline slightly to 7.0 % (2005: 7.5 %), and in China to 8.5 % (2005: 9.9 %); this will reduce the risk of the economies in these countries from expanding at an over-accelerated pace. In Japan, the largest economy in Asia, we predict continued stable growth of 2.5 % (2005: 2.6 %).
While economic growth in the United States is predicted to slow to 3.2 % (2005: 3.7 %), primarily2009 as a result of the restrictive interest rate policyglobal economic crisis. The most obvious of these are gloomy economic prospects, possible impairments on all types of securities and the loss of consumer
confidence. It is imperative that providers restore their customers’ faith in a reliable long-term partnership.
Property-Casualty will likely see new business slowing because of the Federal Reserve Bank, it shouldweak economy; individual sectors such as credit insurance are being directly affected by the crisis. The difficulties on the capital markets and, in particular, the low interest rates could increase slightly in Europe. We believe that mostpricing discipline among providers.
The aging of society continues. Sustainable retirement and healthcare cannot be built solely on a pay-as-you-go basis (inter-generational contract)—capital markets are required. The long-term fundamentals of the EU countriesLife/Health insurance operations remain intact, but they will slightly exceed the growth of the previous year, except in Spain, where we expect the pace of growth to slow. We expect the German economy to perform positively in 2006. We expect increased investment and increases in consumer spending as a response to the changes in tax policybe affected by the German federal government, largely as a result of the increase in value added tax in 2007. We estimate economicgrowth in Germany will reach approximately 2 %, doubling that of the previous year. With minor deviations, EU countries and the Euro zone should also see a comparable level of growth.how effectively mandatory health insurance systems are complemented by privately funded health insurance.
OnAsset Management operations once again have a solid long-term growth and profit outlook, too. First, however, the financial markets, we expect higher interest rates on short maturities as a resultfund industry will need to provide convincing arguments to customers wary of a restrictive monetary policy by the various central banks across the globe. There is great uncertainty as to the strength of the U.S. dollar, as well as, among others, the effects of the substantial trade deficit of the U.S. economy, which may also slow growth. Initial signs seem to indicate that the profitability of U.S. companies will weaken in the second half of 2006, which would negatively affect the performance of the U.S. stockhighly volatile markets.
Industry Outlook
These macroeconomic conditions improvebanks. After the business outlook for financial service providers.
Following a year plagued with a large number of natural catastrophes, including onedirect impact of the worst hurricane seasons on record, we expectfinancial crisis, additional impairments are now threatening theproperty-casualty insurancesector traditional lending business, where more defaults are expected during the economic downturn. In 2009, banks will attempt to experience an improved year in 2006, further major natural catastrophes notwithstanding. However, as competitionshore up liquidity and capital, though it is far from clear how long it will take for market share is everincreasing, there exists an inherent risk that insurance companies will adopt a less than disciplined approach in underwriting new business in orderthe changed regulations to gain market share. The rapid growth in the economy, income levelsprovide relief and the valuedegree of property in Asia make the market in this region increasingly interesting for the property-casualty insurance business.impact these changes will have.
We expect thelife insurancebusiness to continue to benefit from the continued necessity of individuals and companies making provisions for retirement. This need will be predominantly covered by life insurance and related retirement products. Demand for products of this type should continue to rise, as in many countries reforms of state retirement systems have not yet been completed, consequently additional cuts in anticipated retirement income promised by these government-sponsored plans are expected. Equally significant are the effects of the aging society on the state healthcare systems, but there appears to be little sign of political will for effective reforms in this area. With this in mind, it appears evident that sooner or later it will be unavoidable that citizens themselves will have to
bear a portion of their healthcare costs, thereby creating attractive business opportunities for privatehealth insuranceproviders.
The need for people to make provisions for their retirement and the virtually worldwide increase in the standard of living are also leading to a rise in theasset managementbusiness. The total assets that must be managed for personal or corporate retirement schemes is steadily increasing. The U.S. and European markets present particular opportunities, where “baby boomers” are nearing retirement age. While this transition will occur in the United States in five to ten years, Europeans still have fifteen to twenty years to make their own provisions for retirement. Another growth area is Asia, whose middle class is increasingly gaining importance with its economic upturn.
Banking, even in Germany, should present encouraging figures because of the solid growth outlook, as this is a more cyclical industry than, for example, insurance. We expect that a higher corporate propensity to invest will noticeably increase demand for credit.
Reporting Changes for the Allianz Group Effective January 1, 2006
Through the implementation of the following reporting changes effective January 1, 2006, and applied retrospectively, we will further improve transparency.
ITEM 6. Directors, Senior Management and Employees
General
Allianz AGSE is a Germany–based stock corporation in the form of a European Company (Societas Europaea or SE). Allianz SE is subject to specific provisions regarding the SE (such as the Council Regulation (EC) 2157/2001 (“SE-Regulation”) and the German Act on the SE-Implementation (SE-Ausführungsgesetz, SEAG)). However, to a large extent Allianz SE is treated as a German stock corporation(Aktiengesellschaft, or “AG”) and therefore governed by the general provisions of German corporate law (in particular the German Stock Corporation Act, Aktiengesetz). The corporate bodies of Allianz AGSE are the Board of Management (Vorstand)(Vorstand), the Supervisory Board (Aufsichtsrat)(Aufsichtsrat) and the General Meeting (Hauptversammlung)(Hauptversammlung). The Board of Management and the Supervisory Board are separate and no individual may serve simultaneously as a member of both boards. This dual board system is required for a German stock corporation by German law.
The Board of Management is responsible for managing the day-to-day business of Allianz AGSE in accordance with the European SE-Regulation, the German Stock Corporation Act, (Aktiengesetz,or “AktG”) and the articles of associationStatutes (Satzung) of Allianz AG. The Board of Management is bound by applicable German law, the articles of association of Allianz AGSE as well as its internal rules of procedure (Geschäftsordnung)(Geschäftsordnung). The Board of Management represents Allianz AGSE in its dealings with third parties. The Supervisory Board
oversees the management. It is also responsible for appointing and removing the members of the Board of Management and representing Allianz AGSE in its transactions with members of the Board of Management. The Supervisory Board is not permitted to make management decisions, but as established by the Statutes or determined by the Supervisory Board, or the articles of association must determine that certain types of transactions may require the Supervisory Board’s prior consent.
In carrying out their duties, the members of the Board of Management and the Supervisory Board must exercise the standard of care of a diligent and prudent business person. In complying with this standard of care, the members of both boards must take into account a broad range of considerations in their decisions, including the interests of Allianz AG,SE, its shareholders, employees and creditors. Additionally, the Board of Management is required to
respect the rights of shareholders to equal treatment and equal information.
Members of either board who violate their duties may be personally liable for damages to Allianz AG.SE. The company may only waive these damages or settle these claims if at least three years have passed from the date of their origination and if the general meetingGeneral Meeting approves the waiver or settlement with a simple majority. No approval of a waiver or settlement by the general meetingGeneral Meeting will be effective if opposing shareholders who hold, in the aggregate, one-tenth or more of the share capital of Allianz AGSE have their opposition formally noted in the minutes recorded by a German notary. As a general rule under German law, a shareholder has no direct recourse against the members of the Board of Management or the Supervisory Board in the event that they are believed to have breached a duty to Allianz AG.SE.
The Supervisory Board has comprehensive monitoring functions. To ensure that these functions are carried out properly, the Board of Management must regularly report to the Supervisory Board with regard to current business operations and future business planning (including financial, investment and personnel planning). The Supervisory Board is also entitled to request at any time special reports regarding the affairs of Allianz AG,SE, the legal or business relations of Allianz AGSE to its subsidiaries and the affairs of any of its subsidiaries to the extent these may have a significant impact on Allianz AG.SE.
The Board of Management is required to ensure that adequate risk management and internal monitoring systems exist within Allianz AGSE to detect risks relating to the Allianz Group’s business activities at the earliest possible stage.
Upon the transformation of Allianz into an SE in 2006, Allianz SE was required to establish an SE works council that represents the European Allianz employees. The Allianz SE works council currently consists of employee representatives from 26 European countries. The SE works council, in basic terms, is a company-wide representative body for the European Allianz employees with special responsibility for cross–border matters within Europe. In particular, the SE works council has the right to be informed and heard with regard to all cross-border matters. In addition, it has the right to
initiate cross-border measures in the areas of equal opportunity, worker safety and health protection, data protection and basic and further training. Details of the SE works council are contained in the Agreement concerning the Participation of Employees in Allianz SE (“Employee Involvement Agreement”) discussed below.
Applicable Corporate Governance Rules
Principal sources of enacted corporate governance standards for a European Company with its registered seat in Germany are the SE-Regulation, the German Act on the SE-Implementation (SE-Ausführungsgesetz, SEAG), the German Act on Employee Participation in a SE (SE-Beteiligungsgesetz, SEBG) and the German Stock Corporation Act (Aktiengesetz). The German Co-determination Act (Mitbestimmungsgesetz), however, does not apply to Allianz SE. Instead, the participation of employees of Allianz on the Supervisory Board of Allianz SE is governed by the Employee Involvement Agreement of September 20, 2006. This agreement was concluded between the Special Negotiating Body of the employees and the managements of Allianz SE and RAS within the employee involvement procedures initiated in connection with the formation of Allianz SE. The Employee Involvement Agreement to a large extent follows the statutory default provisions provided for in the German Act on Employee Participation in a SE (SE-Beteiligungsgesetz, SEBG).
In addition, the German Corporate Governance Code (Deutscher Corporate Governance Kodex, “Code”), originally published by the German Ministry of Justice (Bundesministerium der Justiz) in 2002, as amended in its June 2008 version, presents essential statutory regulations for the corporate governance of German listed companies. The aim of the Code is to make the German corporate governance rules related to German listed stock corporations transparent for national and international investors. As an SE with a registered office and listed in Germany, Allianz SE is subject to the Code.
The Code comprises a set of best-practice guidelines. In addition to restating various corporate governance-related provisions of German law, the Code contains “recommendations”, which reflect widely recognized standards of corporate
governance. Listed companies can deviate from the recommendations, but are then required to disclose this annually. Furthermore, the Code contains “suggestions”, which incorporate additional standards for the sound and responsible management and supervision of a company. Companies can deviate from the Code’s suggestions without disclosure. Topics covered by the German Corporate Governance Code include:
The composition and responsibilities of the Board of Management, the compensation of Board of Management members, and rules for avoiding and resolving conflicts of interest;
The composition and responsibilities of the Supervisory Board and committees of the Supervisory Board, the compensation of Supervisory Board members, and rules for avoiding and resolving conflicts of interest;
The relationship between the Board of Management and the Supervisory Board;
Transparency and disclosure in periodic reports; and
Reporting on, and auditing of, the company’s annual financial statements.
Although the Code does not have the force of law, it has a legal basis through the declaration of compliance required by Section 161 of the German Stock Corporation Act, which entered into force in 2002 and requires that the Board of Management and the Supervisory Board of a listed company declare annually either;
(i) that the company has complied, and will comply, with the recommendations set forth in the German Corporate Governance Code, or, alternatively,
(ii) which recommendations the company has not complied, and / or will not comply, with (so-called “comply or explain” system).
On December 18, 2008, the Board of Management and the Supervisory Board of Allianz SE issued the following Declaration of Compliance:
“1. Allianz SE will comply with all recommendations made by the Government Commission on the German Corporate Governance Code (Code version as of June 6, 2008).
2. Since the last Declaration of Compliance as of December 20, 2007, which referred to the German Corporate Governance Code in its version as of June 14, 2007, Allianz SE has complied with all recommendations made by the Government Commission on the German Corporate Governance Code then in force.”
The Declaration of Compliance is also available on Allianz Group’s website at www.allianz.com/ corporate-governance. (Reference to this “uniform resource locator” or “URL” is made as an inactive textual reference for informational purposes only. The information found at this website is not incorporated by reference into this document.)
General Meeting
General Meetings of the shareholders are called by the Board of Management. In exceptional cases, the Supervisory Board can call a General Meeting. Shareholders holding an aggregate of at least 5% of Allianz SE’s issued share capital may request that a General Meeting be called. The right to participate in and vote at a General Meeting is only given to those shareholders who have timely notified Allianz SE of their attendance at the General Meeting and whose respective shares are registered in the share register.
The Board of Management (Vorstand) of Allianz SE currently consists of ten members, and is multinationally staffed, in keeping with Allianz Group’s international orientation. It is responsible for the management of Allianz SE and the Group. The managerial tasks of the Board of Management are primarily to determine the strategic direction of and to manage the Group, and the planning, establishment and monitoring of a risk management system. The chairman of the Board of Management coordinates its work; he has a casting vote in case of a tie and a veto right against resolutions of the Board of Management.
Under the Statutes of Allianz SE, the Supervisory Board determines the size of the Board of Management, although it must have at least two members. The Statutes furthermore provide that Allianz SE may be legally represented by two members of the Board of Management or by one member of the Board of Management together with one person vested with a general power of attorney
under German law (Prokurist). In addition, pursuant to a filing with the commercial register in Munich, Allianz SE may also be represented by two holders of a general power of attorney (Prokura). The Supervisory Board represents Allianz SE in connection with transactions between a member of the Board of Management and Allianz SE. To the extent that a Supervisory Board committee is entitled to decide on a specific matter in lieu of the Supervisory Board, the right of representing Allianz SE vis-à-vis the Board of Management in that matter can be transferred to the relevant Supervisory Board committee.
The Supervisory Board appoints the members of the Board of Management. The initial term of the members of the Board of Management is generally between three and five years. Under the Statutes of Allianz SE, the term of the members of the Board of Management is limited to a maximum of five years. Each member may be reappointed or have his term extended by the Supervisory Board for one or more terms of up to five years each. As a general rule, the Supervisory Board limits the initial appointment or the reappointment of members of the Board of Management attaining the age of 60 to terms of one year. Members of the Board of Management must further resign from office at the end of the fiscal year in which they attain the age of 65. There is no share ownership requirement to qualify for or to remain a member of the Board of Management. The Supervisory Board may remove a member of the Board of Management prior to the expiration of his term for good cause, for example in the case of a serious breach of duty or a bona fide vote of no confidence by the General Meeting. A member of the Board of Management may not deal with, or vote on, matters relating to proposals, arrangements or contractual agreements between himself and Allianz SE and may be liable to Allianz SE if he has a material interest in any contractual agreement between Allianz SE and a third-party which was not disclosed to, and approved by, the Supervisory Board. The Board of Management has adopted its own internal rules of procedure.
The Board of Management regularly reports to the Supervisory Board on the business of Allianz SE. According to the German Stock Corporation Act, the Board of Management requires the consent of the Supervisory Board to engage in certain transactions, primarily, certain share capital measures.
Further, the Statutes of Allianz SE contain a catalogue of transactions requiring consent of the Supervisory Board, namely (i) acquisition of companies, participation in companies and parts of companies (except for financial investments), if in the individual case the market value, or in case of a lack of a market value, the book value reaches or exceeds 10% of the equity of the last consolidated balance sheet; or (ii) disposal of participations (except for financial investments) in a group company, to the extent that it leaves the circle of group companies by virtue of the disposal and if in
the individual case the market value, or in case of lack of market value, the book value of the participation disposed of reaches or exceeds 10% of the equity of the last consolidated balance sheet; or (iii) entering into intercompany agreements (Unternehmensverträge); or (iv) development of new and abandonment of existing business segments, to the extent such action is of material importance to the group. The Supervisory Board of Allianz SE may make further types of transactions contingent upon its approval.
The current members of the Board of Management of Allianz SE, their age as of December 31, 2008, their areas of responsibility, the year in which each member was first appointed, the year in which the term of each member expires, and their principal board memberships outside the Allianz Group, respectively, are listed below.
Name | Age | Area of Responsibility | Year First Appointed | Year Current Term Expires | Principal Outside Board Memberships | |||||
Michael Diekmann | 54 | Chairman of the Board of Management | 1998 | 2011 | Member of the Supervisory Boards of BASF SE, Linde AG (deputy chairman) and Siemens AG | |||||
Dr. Paul Achleitner | 52 | Finance | 2000 | 2014 | Member of the Supervisory Boards of Bayer AG and RWE AG | |||||
Oliver Bäte | 43 | Chief Operating Officer | 2008 | 2012 | None | |||||
Clement B. Booth | 54 | Insurance Anglo, NAFTA Markets/Global Lines | 2006 | 2010 | None | |||||
Enrico Cucchiani | 58 | Insurance Europe I | 2006 | 2010 | Member of the board of directors of Pirelli & Co. S.p.A. and Unicredit S.p.A. | |||||
Dr. Joachim Faber | 58 | Asset Management Worldwide | 2000 | 2010 | Member of the Supervisory Board of Bayerische Börse AG | |||||
Dr. Helmut Perlet | 61 | Controlling, Reporting, Risk | 1997 | 2009 | Member of the Supervisory Board of GEA Group AG | |||||
Dr. Gerhard Rupprecht | 60 | Insurance German Speaking Countries | 1991 | 2010 | Member of the Supervisory Boards of Fresenius SE and Heidelberger Druckmaschinen AG | |||||
Jean-Philippe Thierry | 60 | Insurance Europe II | 2006 | 2009 | Member of the boards of directors of Société Financière et Foncière de participation, Baron Philippe de Rothschild, Compagnie Financière Saint-Honoré, Eurazeo, Paris Orléans and Pinault Printemps Redoute | |||||
Dr. Werner Zedelius | 51 | Insurance Growth Markets | 2002 | 2014 | Member of the boards of directors of Bajaj Allianz General Insurance Company Limited; Bajaj Allianz Life Insurance Company Limited |
The following is a summary of the business experience of the current members of the Board of Management:
Michael Diekmann: Joined the Allianz Group in 1988. From 1996 to 1998 he was chief executive officer of Allianz Insurance Management Asia- Pacific Pte. Ltd., Singapore. He became a deputy member in October 1998 and a full member of the Board of Management of Allianz AG in March 2000. He was appointed as chairman of the Board of Management in April 2003.
Dr. Paul Achleitner: Joined the Board of Management in January 2000. He was previously chairman of Goldman, Sachs & Co. oHG, Frankfurt/Main, Germany and a partner of Goldman Sachs Group from 1994 to 1999.
Oliver Bäte: Joined the Board of Management of Allianz SE on January 1, 2008. He worked with McKinsey&Company from 1993 on. At McKinsey&Company, he was head of the German Insurance Sector from 1998-2003, and director and head of the European Insurance and Asset Management Sector from 2003 to 2007.
Clement B. Booth: Joined the Board of Management on January 1, 2006. From 1999 to 2003, he was a member of the Board of Management of Munich Re and from 2003 to 2005 he was chairman and CEO of Aon Re International, London.
Enrico Cucchiani: Joined the Board of Management on January 1, 2006. From 1996, he has held several leading management positions within Lloyd Adriatico S.p.A., Trieste. He became CEO in 1998 and from 2001 to 2007 he was chairman of the board of directors of Lloyd Adriatico.
Dr. Joachim Faber: Joined the Allianz Group in 1997 after holding various positions at Citibank AG, Frankfurt/Main, Germany (1984-1992), including chairman of the Board of Management, and Citibank International PLC, London (1992-1997), including head of capital markets. He was a member of the Board of Management of Allianz Versicherung from 1997 to 1999 and became a member of the Board of Management in January 2000.
Dr. Helmut Perlet: Joined the Allianz Group in 1973. He has been head of the foreign tax department since 1981, head of corporate finance since 1990 and
head of accounting and controlling since 1992. He became a deputy member in July 1997 and a full member of the Board of Management in January 2000.
Dr. Gerhard Rupprecht: Joined the Allianz Group in 1979. In January 1989, he became a deputy member, and in January 1991 a full member, and in October 1991 was appointed chairman, of the Board of Management of Allianz Leben. He became a member of the Board of Management in October 1991.
Jean-Philippe Thierry: Joined the Board of Management on January 1, 2006. Previously, he was Chairman and CEO of Athena Insurance (1985-1997) and CEO of Generali France (1998-2001). Since June 2001, he is Chairman and Chief Executive Officer of Assurances Générales de France.
Dr. Werner Zedelius: Joined the Allianz Group in 1987. After various positions in branch offices and in the headquarters of Allianz AG, he was General Manager Finance and member of the board of directors of Cornhill Insurance PLC in London from 1996 until 1999. Dr. Zedelius became a member of the Board of Management on January 1, 2002.
The members of the Board of Management may be contacted at the business address of Allianz SE.
In accordance with the Statutes of Allianz SE, the Supervisory Board (Aufsichtsrat) of Allianz SE consists of twelve members, six of whom are shareholder representatives and six of whom are employee representatives. According to applicable law and the Statutes of Allianz SE the members of the Supervisory Board are appointed by the General Meeting, however, as to the appointment of the employee representatives, the General Meeting is bound to the proposals of the employees. There is no share ownership requirement to qualify for or remain a member of the Supervisory Board.
With the exception of Karl Grimm, the current members of the Supervisory Board of Allianz SE were elected by the General Meeting of Allianz SE on May 2, 2007. After the completion of the sale of Dresdner Bank to Commerzbank on January 12, 2009, Claudia Eggert–Lehmann resigned from her position as an employee representative for Dresdner Bank on the Supervisory Board. On January 29, 2009, Karl Grimm was appointed by the local district
court of Munich as a substitute member and employee representative to replace Claudia Eggert-Lehmann until the next General Meeting of Allianz SE, which is scheduled to take place on April 29, 2009. The employee representatives are no longer representatives of the German employees only, but also representatives of employees of Allianz Group in certain other European countries. Among the employee representatives, there may also be representatives of the trade unions represented in the Allianz Group in Europe. The term of office of the members of the Supervisory Board of Allianz SE runs until the close of the General Meeting which resolves on the ratification of actions in respect of the fourth financial year following the beginning of the term of office not counting the financial year in which the term of office begins, but in no case longer than six years. Repeated appointments are permitted.
As stipulated in the Employee Involvement Agreement concluded with the representatives of Allianz employees in September 2006, four of the six employees’ representatives on the Supervisory Board are from Germany (including one union representative), one is from France and one is from the UK. For all forthcoming Supervisory Boards of Allianz SE (from 2012 onward), the country distribution of the employee representatives will depend on the country distribution of the employees of the Allianz Group within the EU, the European Economic Area and Switzerland. The appointment of the employee representatives of the Supervisory Board will follow the respective national legal provisions of the countries of origin of such representatives. In case no such provisions exist, the appointment will be made by the SE Works Council which was established pursuant to the Employee Involvement Agreement.
The General Meeting may remove any Supervisory Board member it has elected without having been bound by a proposal for the election by a simple majority of the votes cast. As regards the removal of members of the Supervisory Board that have been elected in accordance with a proposal by the employees, the Employee Involvement Agreement provides for the application of the respective statutory framework for the removal enacted in the respective member states. In the event no such provisions exist, Section 37 of the German Act on Employee Participation in a SE (SE-Beteiligungsgesetz, SEBG) shall apply
accordingly. Under such provision, the employee representatives from Germany may be removed by the General Meeting upon a respective request by (i) the works councils (Arbeitnehmervertretungen) that have formed the electoral college (Wahlgremium), i.e., in the present case, Allianz SE’s Group Works Council (Konzernbetriebsrat), with a 75% majority of the votes cast, or (ii), with respect to the Supervisory Board members proposed by a trade union, only such trade union. The General Meeting is bound by such request. In addition, any member of the Supervisory Board may resign by giving written notice to the Board of Management.
The Supervisory Board of Allianz SE has elected a chairman, who must be a shareholder representative, and two deputy chairpersons. The Supervisory Board of Allianz SE constitutes a quorum if all members are invited or requested to adopt a resolution and if either at least six members, among them the chairman, or at least nine members, participate in the resolution.
Except where a different majority is required by law or the Statutes of Allianz SE, the Supervisory Board acts by simple majority of the votes cast. In the case of a tie, the vote of the chairman or if he does not participate in the voting, the vote of the deputy chairperson (provided that the deputy chairperson is a shareholder representative) shall be decisive (casting vote). The Supervisory Board meets at least twice each half-year. During the financial year 2008, the Supervisory Board met in total five times. Its main functions are:
to monitor the management of Allianz SE;
to appoint the members of the Board of Management; and
to approve matters in areas where such approval is required by German law or by the Statutes or Rules of Procedure or which the Supervisory Board has made generally or in the individual case subject to its approval. Refer to “—Board of Management”.
In addition, Supervisory Boards of German insurance companies are tasked with the appointment of the external auditor.
In order to exercise its functions efficiently, the Supervisory Board has established a Standing Committee, an Audit Committee, a Personnel
Committee a Risk Committee, and a Nomination Committee. The committees prepare the discussion and adoption of resolutions in the plenary session. Furthermore, in appropriate cases, authority to take decisions has been delegated to committees themselves. The establishment of a Mediation Committee is not required because the German Employee Co-determination Act, which provides for such a committee, does not apply to Allianz SE.
Standing Committee. The Standing Committee, which comprises the chairman of the Supervisory Board, and four additional members elected by the Supervisory Board (two members upon proposal of the shareholders representatives and two upon proposal of the employee representatives), may approve or disapprove certain transactions of Allianz SE to the extent that such transactions do not fall under the competency of any other committee or are not required to be decided by plenary meeting of the Supervisory Board. In particular, the Standing Committee is responsible for approving several loans in accordance with the German Stock Corporation Act, Board of Management resolutions on capital measures and on acquisition or disposal of treasury shares and certain acquisitions of companies or participations in companies. Furthermore, the Standing Committee examines the corporate governance of Allianz SE, drafts the declaration of compliance and examines the efficiency of the work of the Supervisory Board. In addition, it is responsible for amendments to the Statutes that only affect the wording, not the content. The Standing Committee held five meetings in 2008. The members of the Standing Committee are Dr. Henning Schulte-Noelle as chairman, Dr. Gerhard Cromme, Karl Grimm, Dr. Franz B. Humer and Rolf Zimmermann.
Audit Committee. The Audit Committee comprises five members elected by the Supervisory Board (three members upon proposal of the shareholders representatives and two upon proposal of the employee representatives). The Audit Committee prepares the decisions of the Supervisory Board about the Allianz Group’s annual financial statements, the consolidated financial statements and the appointment of the auditors and ascertains the independence of the auditors. Furthermore, the Audit Committee assigns the mandate to the auditors, sets priorities for the audit and determines the compensation of the auditors. In addition, it examines the quarterly reports. After the end of the fiscal year,
the Audit Committee examines the Allianz Group’s annual financial statements and the consolidated financial statements, examines the risk monitoring system, discusses the auditor’s report with the auditors and deals with compliance topics. The Audit Committee held five meetings in 2008. The members of the Audit Committee are Dr. Franz B. Humer as chairman, Dr. Wulf H. Bernotat, Igor Landau, Jean-Jaques Cette and Jörg Reinbrecht.
Personnel Committee. The Personnel Committee consists of the chairman of the Supervisory Board and two other members elected by the Supervisory Board (one member upon proposal of the shareholders representatives and one upon proposal of the employee representatives). It prepares the appointment of members of the Board of Management and it represents the company before the members of the Management Board pursuant to § 112 of the German Stock Corporation Act. In addition, it attends to on-going personnel matters of the members of the Board of Management including their membership on boards of other companies and the payments they receive. The Personnel Committee held three meetings in 2008. The members of the Personnel Committee are Dr. Henning Schulte-Noelle as chairman, Dr. Gerhard Cromme and Rolf Zimmermann.
Risk Committee. The Risk Committee consists of five members elected by the Supervisory Board (three members upon proposal of the shareholders representatives and two upon proposal of the employee representatives). The Risk Committee was established in December 2006 by the newly constituted Supervisory Board of Allianz SE. The Risk Committee monitors the establishment and maintenance of an appropriate risk management and risk monitoring system as well as its organizational structure and ongoing development. The Risk Committee monitors whether the risk strategy is aligned with general business strategy, keeping itself informed about the general risk situation and special risk developments. The Committee also conducts a preliminary examination of special risk-related statements as part of the audit of annual financial statements and management reports, informing the Audit Committee about its findings. The Risk Committee held three meetings in 2008. The members of the Risk Committee are Dr. Henning Schulte-Noelle as chairman, Dr. Wulf H. Bernotat, Prof. Dr. Renate Köcher, Godfrey Robert Hayward and Peter Kossubek.
Nomination Committee. The Nomination Committee was established in December 2007 and consists of the chairman of the Supervisory Board and two further shareholder representatives (elected by the shareholder representatives of the Supervisory Board). With the establishment of the Nomination Committee, Allianz SE is following a new recommendation of the German Corporate Governance Code to establish this type of committee. The Nomination Committee is responsible for drawing up selection criteria for shareholder
representatives on the Supervisory Board, seeking suitable candidates for the election of shareholder representatives to the Supervisory Board and proposing suitable candidates to the Supervisory Board for its election proposal to the General Meeting. The Nomination Committee held no meetings in 2008. The members of the Nomination Committee are Dr. Henning Schulte-Noelle as chairman, Dr. Gerhard Cromme and Dr. Franz B. Humer.
The current members of the Supervisory Board of Allianz SE, their age as of December 31, 2008, their principal occupations, the year in which each member first served on the Supervisory Board, and their principal board memberships outside the Allianz Group, respectively, are as follows:
Name | Age | Principal Occupation | Year First Appointed | Principal Outside Board Memberships | ||||
Dr. Henning Schulte-Noelle, Chairman(1) | 66 | Former chairman of the Board of Management of Allianz AG | 2003 | Member of the Supervisory Boards of E.ON AG and ThyssenKrupp AG | ||||
Dr. Wulf H. Bernotat(1) | 60 | Chairman of the Board of Management of E.ON AG | 2003 | Member of the Supervisory Boards of Metro AG and Bertelsmann AG | ||||
Jean-Jacques Cette(2) | 52 | Member of the AGF board of directors | 2006 | None | ||||
Dr. Gerhard Cromme(1) | 65 | Chairman of the Supervisory Board of ThyssenKrupp AG | 2001 | Member of the Supervisory Boards of ThyssenKrupp AG (chairman), Axel Springer AG, Siemens AG (chairman), and member of Board of Directors of Compagnie de Saint-Gobain S.A. | ||||
Karl Grimm(2) | 60 | Employee Allianz Deutschland AG | 2009 | None | ||||
Godfrey Robert Hayward(2) | 48 | Employee, Allianz Cornhill, UK | 2006 | None | ||||
Dr. Franz B. Humer(1) | 62 | Chairman of the board of directors of F. Hoffmann-La Roche AG | 2005 | Member of the board of directors of DIAGEO plc. | ||||
Prof. Dr. Renate Köcher(1) | 56 | Chairperson Institut für Demoskopie, Allensbach | 2003 | Member of the Supervisory Boards of MAN AG and Infineon Technologies AG | ||||
Peter Kossubek(2) | 54 | Employee, Allianz Versicherungs-AG | 2007 | None | ||||
Igor Landau(1) | 64 | Member of the board of directors of Sanofi-Aventis S.A. | 2005 | Member of the Supervisory Boards of adidas AG (deputy chairman) and member of the boards of directors of HSBC France and Sanofi-Aventis S.A. | ||||
Jörg Reinbrecht(2) | 51 | Trade Union Secretary, ver.di, Germany | 2006 | Member of the Supervisory Board of SEB AG | ||||
Rolf Zimmermann(2) | 55 | Employee, Allianz Versicherungs-AG | 2006 | None |
(1) | Shareholder Representative |
(2) | Employee Representative |
The members of the Supervisory Board may be contacted at the business address of Allianz SE.
Compensation of Directors and Officers
Board of Management remuneration
The remuneration of the Board of Management is set by the Supervisory Board. The structure of the remuneration is regularly reviewed and discussed by the Supervisory Board. The last review was carried out in December 2008.
The remuneration of the Board of Management is designed to be competitive given the nature and global scope of activities of the Allianz Group, the environment in which the Group operates and its performance and prospects relative to peers. Its aim is to provide a suitable mix and weight of remuneration components, optimally balance risk and opportunity to achieve an appropriate level of remuneration in different performance scenarios and business circumstances. It is designed to support sustained value-oriented management performance.
The key principles of the remuneration strategy are:
Total remuneration is set at a level appropriate to attract and retain highly qualified executives.
Incentive plans are structured to operate effectively throughout the business cycle.
Incentive awards are earned through the achievement of the financial and strategic goals of the Allianz Group and are consistent with shareholder interests.
An appropriate balance is maintained between short-term and long-term remuneration components.
The overall remuneration for individual Board Members is dependent upon their designated role, accountability and performance.
To achieve these objectives, a significant portion of the overall remuneration of the members of the Board of Management is variable. It comprises a three-tier incentive system which includes short- and mid-term cash bonus plans and equity-related long-term incentives.
The remuneration components of the Board of Management are described below:
Fixed salary
Base salary is a fixed amount, paid in twelve monthly installments. It is normally reviewed every 3 years by the Supervisory Board and reflects the
individual’s role as well as the market context. The 2008 base pay levels of the Board of Management are shown on page 135.
Performance-based remuneration
The aim of the three-tier incentive system is to achieve an appropriate balance between components linked to short-term financial performance and those linked to long-term success and sustained shareholder value creation. The Supervisory Board reviews the goals regularly to ensure they remain appropriate in the context of the strategic priorities of the Group. An overview is set out below:
Three-tier incentive system
Annual bonus (short-term) | Three-year bonus (mid-term) | Equity-related (long-term) | ||
Goal category | Goal category | Goal category | ||
Allianz Group financial goals | EVA-objectives over three-year performance period | Sustained increase in share price | ||
Business division financial goals | Allianz Group financial goals and strategic objectives | |||
Individual objectives | Business division financial goals and strategic objectives | |||
Individual strategic objectives |
Short-term and mid-term bonus plans
All members of the Board of Management are eligible to participate in the annual (short-term) and three-year (mid-term) bonus plans.
Annual bonus
The annual bonus is a variable pay component that is dependent on the achievement of annual goals, as set out in the table above. The goals are specified at the beginning of the performance period. Performance against these goals is then assessed at the end of the period, with the amount of bonus payable in the beginning of the following year and
dependent on the extent to which targets and objectives have been met. The Supervisory Board sets the target bonus level for members of the Board of Management. For 2008, the target bonus amounts to 150.0% of base salary. The maximum achievement is set at 165.0% of target performance.
Details of the annual bonus amounts to be paid in March 2009 to each member of the Board of Management in respect of the performance year 2008 are shown in the remuneration table on page 135.
Three-year bonus
The three-year or mid-term bonus plan was purposely designed to make the value of the company a priority concern of executive management across the Group. Plan participants include the Board of Management and approximately 100 top managers globally. Bonus payouts under the plan depend on the attainment of financial and strategic goals over the defined three-year performance period, as set out in the table above. The mid-term bonus is paid after completion of the defined three-year performance period, with the amount based on the extent to which goals have been achieved. Certain exceptions apply, for example in the event of retirement. Although an interim assessment of the objectives occurs once a year, these projections are only provisional and informative in nature. Mid-term bonus target levels for members of the Board of Management are set by the Supervisory Board. For the 2007 – 2009 plan, the target bonus amounts to approximately 128.0% of the 2007 base salary over the three-year performance period. The maximum achievement is set at 140.0% of target performance. Details of the mid-term bonus amounts accrued for each member of the Board of Management are shown on page 135.
In exceptional circumstances, the Supervisory Board can decide to award bonuses moderately above maximum level. It can also decide to reduce bonuses where warranted and, in exceptional circumstances, could reduce them to zero. Any material exercise of discretion outside the maximum range will be explained in the Remuneration Report.
Equity-related remuneration
The Board of Management and approximately 800 top managers and high performing prospective future leaders worldwide participate in the Group Equity Incentives (GEI) program. This consists of
“virtual stock options”, known as Stock Appreciation Rights (SAR) and “virtual stock” awards, known as Restricted Stock Units (RSU).
The number of SAR and RSU awarded to the members of the Board of Management is dependent upon the discretionary decision of the Supervisory Board based on their designated role as well as the performance of the Group and their respective business division. The value of the GEI program granted in any year cannot exceed the sum of base salary and the annual target bonus.
The SAR have a vesting period of two years and subject to the performance conditions mentioned below, they may be exercised during the following five years, as set out in the plan conditions. They lapse unconditionally at the end of the seven-year term. To align the interests of management with those of shareholders the Supervisory Board has established two performance conditions for the exercise of the SAR, applicable to all plan participants. These are directly linked to the performance of Allianz SE stock. The conditions consist of a relative measure linked to the Dow Jones EURO STOXX Price Index (600) and an absolute measure requiring a set increase in the price of Allianz SE stock over the period between grant and exercise. Also, the program has a cap of 150.0% of the grant price on the potential payout from SAR exercises in recognition of the leverage profile. To encourage long-term value creation the RSU normally have a vesting period of five years, at the end of which they are automatically released as set out in the plan conditions.
Miscellaneous
The members of the Board of Management also receive certain perquisites. These mainly consist of contributions to accident and liability insurances and the provision of a company car. Each member of the Board of Management is responsible for income tax on these perquisites. Where applicable, a travel allowance for non-resident Board Members is provided. For 2008, the total value of the perquisites amounted to €0.7 million (2007: €0.5 million).
The following table sets out the total remuneration for the Board of Management of Allianz SE for 2008, including the fair value of the SAR and RSU awards, with previous year figures shown in italics. The proportional bonus accrued for each member for 2008 of the three-year bonus plan has been included.
Board of Management | Fixed salary | Perquisites(1) | Total non-performance- based remuneration | Annual bonus(2) | Three-year bonus(3) | Total | Fair value of SAR award at date of grant(4) | Fair value of RSU award at date of grant(5) | Overall total | |||||||||||||||||
€ thou | € thou | € thou | € thou | € thou | € thou | € thou | € thou | € thou | ||||||||||||||||||
Michael Diekmann (Chairman) | 2008 | 1,200 | 26 | 1,226 | 1,112 | 311 | 2,649 | 430 | 720 | 3,799 | ||||||||||||||||
2007 | 1,050 | 24 | 1,074 | 2,046 | 472 | 3,592 | 588 | 1,020 | 5,200 | |||||||||||||||||
Dr. Paul Achleitner | 2008 | 800 | 44 | 844 | 704 | 205 | 1,753 | 287 | 480 | 2,520 | ||||||||||||||||
2007 | 700 | 13 | 713 | 1,416 | 310 | 2,439 | 392 | 680 | 3,511 | |||||||||||||||||
Oliver Bäte(6) | 2008 | 700 | 48 | 748 | 701 | 209 | 1,658 | 251 | 420 | 2,329 | ||||||||||||||||
2007 | — | — | — | — | — | — | — | — | — | |||||||||||||||||
Clement B. Booth | 2008 | 700 | 93 | 793 | 624 | 205 | 1,622 | 251 | 420 | 2,293 | ||||||||||||||||
2007 | 700 | 78 | 778 | 1,218 | 318 | 2,314 | 392 | 680 | 3,386 | |||||||||||||||||
Enrico Cucchiani | 2008 | 700 | 88 | 788 | 707 | 263 | 1,758 | 260 | 435 | 2,453 | ||||||||||||||||
2007 | 700 | 118 | 818 | 1,261 | 346 | 2,425 | 392 | 680 | 3,497 | |||||||||||||||||
Dr. Joachim Faber | 2008 | 700 | 19 | 719 | 526 | 211 | 1,456 | 261 | 437 | 2,154 | ||||||||||||||||
2007 | 700 | 20 | 720 | 1,245 | 312 | 2,277 | 392 | 680 | 3,349 | |||||||||||||||||
Dr. Helmut Perlet | 2008 | 700 | 206 | 906 | 653 | 214 | 1,773 | 251 | 420 | 2,444 | ||||||||||||||||
2007 | 700 | 20 | 720 | 1,469 | 311 | 2,500 | 392 | 680 | 3,572 | |||||||||||||||||
Dr. Gerhard Rupprecht | 2008 | 700 | 24 | 724 | 713 | 246 | 1,683 | 238 | 399 | 2,320 | ||||||||||||||||
2007 | 700 | 34 | 734 | 1,217 | 322 | 2,273 | 392 | 680 | 3,345 | |||||||||||||||||
Jean-Philippe Thierry | 2008 | 700 | 68 | 768 | 620 | 209 | 1,597 | 237 | 397 | 2,231 | ||||||||||||||||
2007 | 700 | 77 | 777 | 1,245 | 312 | 2,334 | 392 | 680 | 3,406 | |||||||||||||||||
Dr. Herbert Walter(7) | 2008 | 700 | 48 | 748 | 0 | 0 | 748 | 116 | 195 | 1,059 | ||||||||||||||||
2007 | 700 | 45 | 745 | 923 | 175 | 1,843 | 392 | 680 | 2,915 | |||||||||||||||||
Dr. Werner Zedelius | 2008 | 700 | 9 | 709 | 825 | 300 | 1,834 | 314 | 525 | 2,673 | ||||||||||||||||
2007 | 700 | 14 | 714 | 1,363 | 348 | 2,425 | 392 | 680 | 3,497 | |||||||||||||||||
Total(8) | 2008 | 8,300 | 673 | 8,973 | 7,185 | 2,373 | 18,531 | 2,896 | 4,848 | 26,275 | ||||||||||||||||
2007 | 8,050 | 459 | 8,509 | 14,505 | 3,481 | 26,495 | 4,508 | 7,820 | 38,823 | |||||||||||||||||
Change from previous year in %(8) | 3.1 | 46.6 | 5.5 | (50.5 | ) | (31.8 | ) | (30.1 | ) | (35.8 | ) | (38.0 | ) | (32.3 | ) |
(1) | Broad range reflects travel allowances for non-German resident Board Members and a long-term service award for Dr. Perlet. |
(2) | Actual bonus paid in 2009 for fiscal year 2008. |
(3) | Estimated amount for 2008 following interim assessment—the actual performance assessment can only take place at the end of the three-year period. |
(4) | Fair value of SAR granted in 2008. |
(5) | Fair value of RSU granted in 2008. |
(6) | Mr. Oliver Bäte joined the Board of Management on January 1, 2008. His mid-term bonus is pro rated to reflect his length of service during the three-year performance period. All other terms are the same as those of the other members. |
(7) | Dr. Herbert Walter resigned from the Board of Management of Allianz SE on January 12, 2009 upon the change of control of Dresdner Bank (sale to Commerzbank). Further, Dr. Walter resigned from the Board of Management of Dresdner Bank AG, upon appointment of Dr. Blessing as Chairman of the Board of Management of Dresdner Bank AG on January 19, 2009. In a separation agreement of December 23, 2008 and in accordance with the terms of his service contract it was agreed that upon his resignation Dr. Walter will receive a gross termination payment amounting to €3,595,100 as compensation for the termination of his service contract running until December 31, 2012. Pursuant to the terms of his service contract, Dr. Walter will further receive a transition payment for a period of six months after termination of his service (refer to “Termination of service” below). Dr. Walter has waived his entitlement to his 2008 annual bonus and to his 2008 three-year bonus (pro-rated). His three-year bonus for 2007 (pro-rated) has been calculated according to the terms of his service contract and will be paid out in 2009. With respect to the outstanding Stock Appreciation Rights (SAR) granted to Dr. Walter during his term of service it was agreed that such rights will remain in force. They can be exercised by Dr. Walter subject to the current plan terms and conditions and subject to the applicable exercise hurdles and vesting periods. |
(8) | Mr. Jan Carendi retired from the Board of Management on December 31, 2007. The total remuneration for 2007 and the percentage change between 2007 and 2008 reflects the remuneration of the full Board of Management active in the respective years. |
The total remuneration of the Board of Management for fiscal year 2008, excluding the interim assessment value for the three-year bonus plan, was € 24 million (2007: € 35 million).
The following table sets out the details of the awards made to the Board of Management under the GEI program of equity–related remuneration in 2008 and their outstanding holdings at the end of the fiscal year.
Board of Management | Number of SAR granted 2008 | Number of SAR held at 31 December 2008 | Strike Price Range | Number of RSU granted 2008 | Number of RSU held at 31 December 2008 | |||||
€ | ||||||||||
Michael Diekmann (Chairman) | 17,930 | 107,196 | 83.47 - 239.80 | 8,701 | 50,799 | |||||
Dr. Paul Achleitner | 11,953 | 80,895 | 83.47 - 239.80 | 5,801 | 37,144 | |||||
Oliver Bäte | 10,459 | 10,459 | 117.38 | 5,076 | 5,076 | |||||
Clement B. Booth | 10,459 | 29,882 | 117.38 - 160.13 | 5,076 | 14,904 | |||||
Enrico Cucchiani | 10,825 | 69,894 | 83.47 - 239.80 | 5,253 | 34,547 | |||||
Dr. Joachim Faber | 10,878 | 70,297 | 83.47 - 239.80 | 5,279 | 32,896 | |||||
Dr. Helmut Perlet | 10,459 | 71,391 | 83.47 - 239.80 | 5,076 | 33,043 | |||||
Dr. Gerhard Rupprecht | 9,936 | 68,368 | 83.47 - 239.80 | 4,822 | 32,105 | |||||
Jean-Philippe Thierry | 9,884 | 69,364 | 83.47 - 239.80 | 4,797 | 14,596 | |||||
Dr. Herbert Walter | 4,850 | 69,325 | 83.47 - 160.13 | 2,354 | 74,698 | |||||
Dr. Werner Zedelius | 13,074 | 65,525 | 83.47 - 239.80 | 6,345 | 31,064 |
The GEI awards are accounted for as cash-settled plans and the fair value of the awards is accrued as compensation expense over the relevant vesting period. Upon vesting, any changes in the fair value of the outstanding SAR are recognized as compensation expense. The fair value at the end of fiscal year 2008 was below prior year. Therefore, no additional compensation expense was recognized.
SAR can be exercised once the two-year vesting period has expired on the condition that the Allianz SE stock price is at least 20.0% above the price at which the SAR were granted (strike price). Also, the share price of the Allianz SE stock must have exceeded the Dow Jones EURO STOXX Price Index (600) over a period of five consecutive trading days at least once during the plan period. The RSU are released on the first trading day after the end of a five-year vesting period.
Remuneration for Allianz Group mandates and for mandates from outside the Allianz Group
If a member of the Board of Management holds a mandate in another company the full compensation amount is transferred to Allianz SE if the company is owned by Allianz. If the mandate is from a company outside the Allianz Group, 50.0% of the compensation received is normally paid to Allianz SE. The compensation paid by companies outside the Allianz Group is shown in the Annual Reports of the companies concerned.
Pensions and similar benefits
The pension agreements for members of the Board of Management up to 2004 provided for retirement benefits of a fixed amount that were not linked to the increases in salary or variable pay. With effect from 2005, Allianz SE changed from this
defined benefit arrangement to a contribution-based system. The respective pension rights that existed at that point in time were frozen. As a result of the change, since 2005, annual contributions have been made by the Company instead of the former increase amendments. Interest is accrued on the contributions with a minimum guaranteed rate of 2.75% per annum. Should the net annual return from the invested contribution exceed 2.75% the full increase in value is credited to the members the same year. The company reviews the level of contributions annually. The contribution payments are guaranteed only as required for further regular financing of accrued pension rights resulting from defined benefit promises existing on December 31, 2004. In the case of an insured event, the accumulated capital is converted to equivalent annuity payments which are then paid out for the rest of the member’s life or, where applicable, to dependents. The increase in
reserves for pensions (current service cost) includes the required expenditures for further financing of accrued pension rights as well as the contribution payments for the new contribution-based system.
When a mandate of a member of the Board of Management ends, a pension may become payable at the earliest upon reaching the age of 60, except for cases of occupational or general disability for medical reasons, or in case of death, when a pension may become payable to the dependents. If the mandate is terminated for other reasons before retirement age has been reached, a pension promise is maintained if non-forfeitable. This does not include, however, a right to pension payments beginning immediately.
Allianz Group paid €4 million (2007: €4 million) to increase pension reserves and reserves for similar benefits for active members of the Board of Management. On December 31, 2008, pension reserves and reserves for similar benefits to members of the Board of Management who were active at that date, amounted to €29 million (2007: €26 million).
The following table sets out the current service cost and contributions arising in relation to the current pension plans for each individual member of the Board of Management of Allianz SE in 2008. The table below separates the current service cost for the defined benefit plan (redeemed as of December 31, 2004) from the current pension plans.
Board of Management | Defined Benefit Pension Plan (frozen) 2008 | Current Pension Plans 2008 | Total 2008 | |||
€ thou | € thou | € thou | ||||
Michael Diekmann (Chairman) | 157 | 396 | 553 | |||
Dr. Paul Achleitner | 237 | 237 | 474 | |||
Oliver Bäte | — | 267 | 267 | |||
Clement B. Booth | — | 261 | 261 | |||
Enrico Cucchiani | — | 293 | 293 | |||
Dr. Joachim Faber | 133 | 213 | 346 | |||
Dr. Helmut Perlet(1) | 0 | 220 | 220 | |||
Dr. Gerhard Rupprecht | 176 | 196 | 372 | |||
Jean-Philippe Thierry | — | 35 | 35 | |||
Dr. Herbert Walter | 315 | 209 | 524 | |||
Dr. Werner Zedelius | 81 | 209 | 290 |
Termination of service
Members of the Board of Management who leave the Board after serving a term of at least five years are entitled to a transition payment for a period of six months. The amount payable is calculated on fixed salary and a proportion of the annual target bonus and is paid in monthly instalments.
If service is terminated as a result of a so-called “change of control”, the following separate regulation applies:
A change of control requires that a shareholder of Allianz SE acting alone or together with other shareholders holds more than 50.0% of voting rights in Allianz SE. If the appointment of a member of the Board of Management is unilaterally revoked by the
Supervisory Board as a result of such a change of control within a period of twelve months after the event, or if the member terminates service by resignation due to a substantial decrease in managerial responsibilities and, without giving cause for termination, all contracted benefits will be payable in the form of a lump-sum for the duration of the employment contract. The amount to be paid is based on the fixed salary at the time of the change of control, the annual and current three-year bonus, in each case discounted according to market conditions at the time of payment. A target achievement of 100.0% is the basis for the annual and three-year bonus. If the remaining duration of the service contract is not at least three years at the time of change of control, the lump-sum payment in respect of fixed salary and annual bonus is increased to
(1) | No current service cost for the defined benefit pension plan of Dr. Perlet, as above age 60. |
correspond to a term of three years. If the member reaches the age of 60 before the three years have elapsed, the lump-sum payment decreases correspondingly. For the equity-based remuneration the member is treated as having retired. These regulations are also effective if the Board of Management mandate is not extended within two years after the change of control.
For other cases of early termination of appointment to the Board of Management, service contracts do not contain any special rules.
Since their introduction in June 2007, Allianz SE complies with the provisions of rule 4.2.3 sections 4 and 5 of the German Corporate Governance Code setting out suggestions and – later on – recommendations on severance payment caps in case of premature termination of Board of Management contracts without serious cause. Thus, for the appointment of new Board of Management members or for extensions of the existing mandates, the service contract provides that payments for early termination shall neither exceed the value of two times annual compensation (severance payment cap) nor the payments due for the remaining term of the contract. In case of early termination due to a change of control payments shall not exceed 150.0% of the severance payment cap.
Benefits to retired Members of the Board of Management
In 2008, remuneration and other benefits in the amount of €7 million (2007: €5 million) were paid to retired members of the Board of Management and dependents. Additionally, reserves for current pensions and accrued pension rights totaled €47 million (2007: €49 million).
Remuneration of the Supervisory Board
Remuneration system
The remuneration of the Supervisory Board is governed by §11 of the Statutes of Allianz SE. In line with §113 of the German Stock Corporation Act, the General Meeting is responsible for establishing the Supervisory Board’s remuneration. Accordingly, the provisions on the amount and structure of the Supervisory Board remuneration in §11 of the Statutes were ratified by the Annual General Meeting in 2005. Upon the conversion of Allianz AG into Allianz SE in 2006, these provisions were adopted by shareholders without changes.
The key principles of the Supervisory Board remuneration are:
Total remuneration is set at an appropriate level based on the scale and scope of the Supervisory Board members’ duties and responsibilities as well as the Company’s activities, business and financial situation.
An appropriate balance is maintained between fixed remuneration and short-term and long-term performance based components in order to adhere to the principles of neutrality and independence of the Supervisory Board members, while at the same time providing adequate performance incentives.
The remuneration conforms to the individual functions and responsibilities of the Supervisory Board members, such as chair or vice-chair or committee mandates.
Three components make up the regular remuneration of a member of the Supervisory Board of Allianz SE, i.e. the remuneration without taking into account additional remuneration for the Chairperson, Deputy Chairpersons and/or members and Chairpersons of committees:
The fixed remuneration amounts to €50,000 per fiscal year.
The first performance-based component of remuneration has a short-term focus. It depends on the increase of the consolidated earnings-per-share compared to the previous fiscal year. It amounts to €150 for each tenth percentage point by which the Group’s earnings-per-share increased in comparison to the preceding year and is set at a maximum limit per member of €24,000.
The second performance-based component of remuneration depends on the increase of the consolidated earnings-per-share compared to this figure three years ago and therefore seeks to reflect long-term performance. It amounts to €60 for each tenth percentage point by which the Group’s earnings-per-share increased over the past three years. It is also set at a maximum limit of €24,000.
Maximum regular remuneration
With the two variable remuneration components being capped at a maximum limit of €24,000 and a fixed sum of €50,000, the maximum total regular compensation for a Supervisory Board member amounts to €98,000 per fiscal year. This maximum amount is reached when the previous year’s earnings-per-share have risen by 16.0% and when this indicator has further improved by a total of 40.0% or more over the last three years. If there has been no improvement in the Allianz Group’s earnings-per-share during the relevant period (i.e. the past fiscal year or the past three years), no performance-based remuneration will be awarded.
Compliance with German Corporate Governance Code
The structure of the Supervisory Board’s remuneration complies with the recommendation and the suggestion of the German Corporate Governance Code under which members of the Supervisory Board shall receive fixed as well as performance-based compensation that should contain components based on the long-term performance of the business. We believe that this form of the Supervisory Board’s remuneration has proven to be effective, and that the earnings-per-share performance measure is appropriate for the calculation of the performance-based remuneration of the Supervisory Board.
Chair and committees, limits and attendance fees
The Chairperson and Deputy Chairpersons of the Supervisory Board as well as the Chairperson and members of Supervisory Board committees receive additional remuneration as follows: The Chairperson of the Supervisory Board receives double, and the Deputy Chairpersons receive one-and-a-half times, the regular remuneration of a member of the Supervisory Board. Members of the Personnel Committee, Standing Committee and Risk Committee receive an additional 25.0% above the regular remuneration, and the Chairpersons of each of these committees receive 50.0% over the regular
remuneration. Members of the Audit Committee are entitled to a fixed sum of €30,000 per year and the Audit Committee Chairperson receives €45,000. No additional remuneration is granted to the members of the Nomination Committee.
There is a maximum limit on the total remuneration of each member of the Supervisory Board. It is reached when the Chairperson of the Supervisory Board has been awarded triple, and the other members of the Supervisory Board double, the regular remuneration of a member of the Supervisory Board.
The members of the Supervisory Board receive a €500 attendance fee for each Supervisory Board or committee meeting that they attend in person. This sum remains unchanged if several meetings occur on one day or when various meetings are held on consecutive days.
Figures for 2008 fiscal year
The Group’s earnings-per-share were negative in 2008. The performance-based remuneration of the Supervisory Board being based on the increase of the Group’ earnings-per-share, no short-term or long-term performance-based remuneration will be awarded to the Supervisory Board for 2008. For 2008 the regular remuneration for a member of the Supervisory Board thus amounted to a total of €50,000, being the fixed remuneration. The maximum limit of remuneration applicable to the Chairman of the Supervisory Board, being three times the regular remuneration, amounted to €150,000, the maximum limit of remuneration applicable to the other Supervisory Board members amounted to €100,000.
The total remuneration for the Supervisory Board members including attendance fees amounted to €1,080,000 in 2008, compared to €1,598,305 in 2007. Accordingly, the average annual remuneration for the Supervisory Board members decreased to €90,000 (2007: €132,274). The reason for this is that no performance-based remuneration was awarded.
Remuneration of the Supervisory Board of Allianz SE
Supervisory Board | Fixed remuneration | Long-term performance based remuneration | Short-term performance based remuneration | Committee remuneration | ||||||||||||
2008 | 2007 | 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | |||||||||
€ | € | € | € | € | € | € | € | |||||||||
Dr. Henning Schulte-Noelle (Chairman) | 100,000 | 100,000 | 0 | 48,000 | 0 | 16,200 | 75,000 | 123,150 | ||||||||
Dr. Gerhard Cromme (Deputy Chairman) | 75,000 | 75,000 | 0 | 36,000 | 0 | 12,150 | 36,250 | 86,050 | ||||||||
Claudia Eggert-Lehmann (Deputy Chairwoman) (until January 12, 2009) | 75,000 | 75,000 | 0 | 36,000 | 0 | 12,150 | 25,000 | 41,050 | ||||||||
Dr. Wulf H. Bernotat | 50,000 | 50,000 | 0 | 24,000 | 0 | 8,100 | 42,500 | 50,525 | ||||||||
Jean-Jacques Cette | 50,000 | 50,000 | 0 | 24,000 | 0 | 8,100 | 30,000 | 30,000 | ||||||||
Godfrey Robert Hayward | 50,000 | 50,000 | 0 | 24,000 | 0 | 8,100 | 12,500 | 20,525 | ||||||||
Dr. Franz B. Humer | 50,000 | 50,000 | 0 | 24,000 | 0 | 8,100 | 50,000 | 20,525 | ||||||||
Prof. Dr. Renate Köcher | 50,000 | 50,000 | 0 | 24,000 | 0 | 8,100 | 12,500 | 20,525 | ||||||||
Peter Kossubek (since May 2, 2007) | 50,000 | 33,334 | 0 | 16,000 | 0 | 5,400 | 12,500 | 13,684 | ||||||||
Igor Landau | 50,000 | 50,000 | 0 | 24,000 | 0 | 8,100 | 30,000 | 30,000 | ||||||||
Jörg Reinbrecht | 50,000 | 50,000 | 0 | 24,000 | 0 | 8,100 | 30,000 | 30,000 | ||||||||
Margit Schoffer (until May 2, 2007) | — | 20,834 | — | 10,000 | — | 3,375 | — | 8,553 | ||||||||
Rolf Zimmermann | 50,000 | 50,000 | 0 | 24,000 | 0 | 8,100 | 12,500 | 20,525 | ||||||||
Total | 700,000 | 704,168 | 0 | 338,000 | 0 | 114,075 | 368,750 | 495,112 |
Total remuneration including attendance fees
Total remuneration (fixed, performance based and committee) (after cap) | Attendance fees | Total amount (total remuneration and attendance fees) | ||||||||||||
Supervisory Board | 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | ||||||||
€ | € | € | € | € | € | |||||||||
Dr. Henning Schulte-Noelle (Chairman) | 150,000 | (3) | 246,300 | (1) | 4,000 | 2,500 | 154,000 | 248,800 | ||||||
Dr. Gerhard Cromme (Deputy Chairman) | 100,000 | (4) | 164,200 | (2) | 4,000 | 3,500 | 104,000 | 167,700 | ||||||
Claudia Eggert-Lehmann (Deputy Chairwoman) (until January 12, 2009) | 100,000 | 164,200 | 3,500 | 2,500 | 103,500 | 166,700 | ||||||||
Dr. Wulf H. Bernotat | 92,500 | 132,625 | 4,000 | 3,000 | 96,500 | 135,625 | ||||||||
Jean-Jacques Cette | 80,000 | 112,100 | 4,000 | 3,000 | 84,000 | 115,100 | ||||||||
Godfrey Robert Hayward | 62,500 | 102,625 | 3,500 | 2,000 | 66,000 | 104,625 | ||||||||
Dr. Franz B. Humer | 100,000 | 102,625 | 4,500 | 2,000 | 104,500 | 104,625 | ||||||||
Prof. Dr. Renate Köcher | 62,500 | 102,625 | 3,500 | 2,000 | 66,000 | 104,625 | ||||||||
Peter Kossubek (since May 2, 2007) | 62,500 | 68,418 | 3,500 | 1,000 | 66,000 | 69,418 | ||||||||
Igor Landau | 80,000 | 112,100 | 4,500 | 3,500 | 84,500 | 115,600 | ||||||||
Jörg Reinbrecht | 80,000 | 112,100 | 4,500 | 3,500 | 84,500 | 115,600 | ||||||||
Margit Schoffer (until May 2, 2007) | — | 42,762 | — | 2,000 | — | 44,762 | ||||||||
Rolf Zimmermann | 62,500 | 102,625 | 4,000 | 2,500 | 66,500 | 105,125 | ||||||||
Total | 1,032,500 | 1,565,305 | 47,500 | 33,000 | 1,080,000 | 1,598,305 |
(1) | Total calculated remuneration of €287,350, which is capped at €246,300 (for Chairman, the limit is three times the 2007 regular remuneration). |
(2) | Total calculated remuneration of €209,200, which is capped at €164,200 (limit of two times the 2007 regular remuneration). |
(3) | Total calculated remuneration of €175,000, which is capped at €150,000 (for Chairperson, the limit is three times the 2008 regular remuneration). |
(4) | Total calculated remuneration of €111,250, which is capped at €100,000 (limit of two times the 2008 regular remuneration). |
Remuneration for mandates in other Allianz Group subsidiaries, agent commissions
As member of the Supervisory Board of Dresdner Bank AG Claudia Eggert-Lehmann received €45,000. Peter Kossubek received €13,333.33 as member of the Supervisory Board of Allianz Versicherungs-AG. One member of the Supervisory Board received certain small commission payment for ancillary agent activities.
Loans to Members of the Board of Management and Supervisory Board
Loans granted by Dresdner Bank AG and other Allianz Group companies to members of the Board of Management and Supervisory Board totaled €85,000 on the date of balance (December 31, 2008). Loan amounts repaid in 2008 totaled €50,876. Loans are provided at standard market conditions or at the conditions as applied to employees. Moreover, overdraft facilities were granted to members of the Board of Management and Supervisory Board as part of existing account relationships, likewise corresponding to conditions according to market standard or those applied to employees. The loans and overdrafts mentioned above (1) were made in the ordinary course of business, (2) were granted on conditions that are comparable to those of loans and overdrafts granted to people in peer groups and (3) did not involve more than the normal risk of collectability or present other unfavorable features. For members of the Board of Management, this means that the conditions have been set according to the prevailing conditions for Allianz employees.
Allianz SE has entered into service contracts with members of the Board of Management providing for a limited benefit upon termination of service prior to the stated expiration date of a member’s contract. In such circumstances, the member of the Board of Management would receive monthly fixed payments for a further six months as well aspro ratabonus payments if the conditions for the bonus payments are fulfilled. If regular pension benefits were to become due during this time period, they would be credited against these payments. Allianz SE has not entered into such contracts with members of the Supervisory Board.
As of March 9, 2009, the members of the Board of Management and the Supervisory Board held less than 1% of our ordinary shares issued and outstanding. As of such date, the members of the Board of Management and the Supervisory Board held in the aggregate approximately 130.200 ordinary shares of Allianz SE.
As of December 31, 2008, the Allianz Group employed a total of 182,865 people worldwide, of whom 71,267 or 39.0%, were employed in Germany. A large number of our German employees are covered by collective bargaining agreements or similar arrangements. In the past three years, there have been no work stoppages or strikes at our various sites that have arisen from collective bargaining disputes or for other reasons which had a material adverse effect on the Allianz Group’s results of operations. We believe that our employee relations are good.
The following table shows the number of employees of the Allianz Group by region as of December 31, 2008, 2007 and 2006.
2008 | 2007 | 2006 | ||||
Employees by countries | ||||||
Germany | 71,267 | 72,063 | 76,790 | |||
France | 18,915 | 19,120 | 17,096 | |||
United States | 10,627 | 10,706 | 10,691 | |||
United Kingdom | 10,207 | 10,865 | 9,945 | |||
Russia | 9,106 | 11,744 | 280 | |||
Italy | 7,211 | 7,445 | 7,661 | |||
Switzerland | 4,286 | 4,117 | 2,874 | |||
Australia | 3,719 | 3,608 | 3,474 | |||
Spain | 3,440 | 3,299 | 3,139 | |||
Hungary | 3,427 | 3,235 | 3,159 | |||
Austria | 3,272 | 3,096 | 3,106 | |||
Brazil | 2,941 | 2,971 | 2,334 | |||
Slovakia | 2,682 | 2,627 | 2,564 | |||
Poland | 2,458 | 1,358 | 1,290 | |||
Romania | 2,331 | 2,292 | 2,061 | |||
China (incl. Hong Kong) | 2,501 | 2,137 | 1,374 | |||
Other | 24,475 | 20,524 | 18,667 | |||
Total | 182,865 | 181,207 | 166,505 |
Stock-based Compensation Plans
Group Equity Incentives (GEI)
The Allianz Group Equity Incentives (GEI) support the orientation of senior management, and in particular the Board of Management, to create sustainable value for shareholders. The GEI plan, as a
key component of performance related pay, supports this goal through its direct link to the performance of the Allianz SE stock. The GEI consist of two vehicles, Stock Appreciation Rights (SAR), which were introduced in 1999, and Restricted Stock Units (RSU), which were introduced in 2003. The SAR have a vesting period of two years and an exercise period of five years, the RSU have a 5-year vesting period.
Participation in these plans is limited to Allianz top managers and certain designated future leaders worldwide.
Awards were granted by the respective companies in accordance with uniform group-wide conditions. The grant price for SAR and RSU is calculated on the basis of the arithmetic average of the closing prices of the Allianz SE stock in Xetra trading over the ten trading days following the Financial Press Conference of Allianz SE until and including the grant date in the year of issue of the relevant plan. The grant price for the GEI 2008 is €117.38.
The number of SAR and RSU offered is set individually for each participant and is determined on the basis of the grant price, the economic performance of the Allianz Group and the respective employing company, and other factors such as participants’ remuneration and performance.
For additional information on the Group Equity Incentive Plans refer to Note 48 to our consolidated financial statements.
The purpose of the Allianz Employee Stock Purchase Plan (ESPP) is to promote share ownership among employees as well as to increase their financial awareness and interest in the company’s performance. The ESPP gives employees the opportunity to acquire shares of Allianz SE at preferential terms, subject to certain conditions. To purchase Allianz SE shares there is a set maximum investment as to the amount annual base pay plus target bonus. The timing of participation and the purchase of the shares differs by country. The specific features of the plan offer are decided annually. In 2008, around 125,000 employees in 24 countries were eligible to participate in the plan, and approximately 22,000 employees accepted the offer.
For additional information on our Employee Stock Purchase Plans, refer to Note 48 to our consolidated financial statements.
ITEM 7. | Major Shareholders and Related Party Transactions |
The outstanding capital stock of Allianz SE consists of ordinary shares without par value that are issued in registered form. Under our Statutes, each outstanding ordinary share represents one vote. Major shareholders do not have different voting rights. Based on our share register, as of March 9, 2009, we had approximately 490,160 registered shareholders, of which approximately 560 were U.S. holders. Based on our share register, approximately 16.7% of our ordinary shares issued were held by such U.S. holders. Although our shareholders are generally required when registering to indicate their respective names, addresses and, in the case of legal entities, whether they hold on behalf of a third-party, many of our ordinary shares may be held of record by brokers, trustees or other nominal holders who are not required to provide such information with regard to beneficial shareholders. As a result, the number of holders of record or registered U.S. holders may not be representative of the actual number of beneficial U.S. holders. For information regarding the share ownership of the members of our Board of Management and our Supervisory Board, refer to “Directors, Senior Management and Employees-Share Ownership.”
Under the German Securities Trading Act, holders of voting securities of a listed German company are required to notify the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, or BaFin) and the company of the level of their holding whenever it reaches, exceeds or falls below specified thresholds. These thresholds are 3%, 5%, 10%, 15%, 20%, 25%, 30%, 50% and 75% of a company’s shares. The provisions of the German Securities Trading Act provide several criteria for attribution of shares.
As of March 9, 2009, no shareholder holding 5% or more of the share capital was reported to Allianz SE.
As of March 16, 2009, 453,050,000 ordinary shares were issued, of which 451,505,783 were outstanding and 1,544,217 were held by the Allianz Group in treasury.
For a description of related party transactions, refer to Note 45 to the consolidated financial statements.
ITEM 8. | Financial Information |
Consolidated Statements and Other Financial Information
Refer to pages F-1 and following for the consolidated financial statements required by this item.
For a description of legal proceedings, refer to Note 46 to the consolidated financial statements.
Allianz SE normally declares dividends at the annual general meeting and pays these dividends once a year. Under applicable German law, dividends may be declared and paid only from available unappropriated earnings as shown in the German statutory annual financial statements of Allianz SE. For each fiscal year, the Board of Management
approves the annual financial statements and submits them to the Supervisory Board with its proposal as to the appropriation of the annual profit. This proposal will set forth what amounts of the annual profit should be paid out as dividends, transferred to capital reserves, or carried forward to the next fiscal year. Upon approval by the Supervisory Board, the Board of Management and the Supervisory Board submit their combined proposal to the shareholders at the annual general meeting. The general meeting ultimately determines the appropriation of the annual profits, including the amount of the annual dividends. Shareholders generally participate in distributions of any dividends in proportion to the number of their ordinary shares. Any dividends declared by Allianz SE will be paid in Euro.
For information regarding annual dividends declared in 2008 and paid from 2004 through 2007, refer to “Key Information—Dividends.”
For a description of significant developments since the date of the annual financial statements included in this annual report, refer to Note 52 to the consolidated financial statements.
ITEM 9. | The Offer and Listing |
The principal trading market for the ordinary shares is the Frankfurt Stock Exchange. The ordinary shares also trade on the following other German stock exchanges: Berlin-Bremen, Düsseldorf, Hamburg, Hanover, Munich and Stuttgart, as well as the stock exchanges in London, Paris, Milan and Zurich. The ADSs of Allianz SE, each representing one-tenth of an ordinary share, trade on the New York Stock Exchange under the symbol “AZ.” Refer also to “Major Shareholders and Related Party Transactions—Major Shareholders.”
The table below sets forth, for the periods indicated, the high and low closing sales prices on the Frankfurt Stock Exchange for the ordinary shares of Allianz SE as reported by XETRA. The table also shows, for the periods indicated, the highs and lows of the DAX. Refer to the discussion under “Key Information—Exchange Rate Information” for information with respect to rates of exchange between the U.S. Dollar and the Euro applicable during the periods set forth below.
Price per ordinary share | DAX | |||||||
High | Low | High | Low | |||||
€ | € | |||||||
Annual highs and lows | ||||||||
2004 | 111.2 | 73.9 | 4,261.8 | 3,647.0 | ||||
2005 | 129.7 | 89.7 | 5,458.6 | 4,178.1 | ||||
2006 | 156.8 | 111.2 | 6,611.8 | 5,292.1 | ||||
2007 | 178.6 | 133.9 | 8,105.7 | 6,447.7 | ||||
2008 | 145.9 | 46.6 | 7,949.1 | 4,127.4 | ||||
2009 (through March 20, 2009) | 77.2 | 48.7 | 5,026.3 | 3,666.4 | ||||
Quarterly highs and lows | ||||||||
2007 | ||||||||
First quarter | 169.0 | 147.8 | 7,027.6 | 6,447.7 | ||||
Second quarter | 178.6 | 155.0 | 8,090.5 | 6,937.2 | ||||
Third quarter | 174.6 | 148.7 | 8,105.7 | 7,270.1 | ||||
Fourth quarter | 165.4 | 133.9 | 8,076.1 | 7,512.0 | ||||
2008 | ||||||||
First quarter | 145.9 | 106.2 | 7,949.1 | 6,182.3 | ||||
Second quarter | 134.5 | 111.0 | 7,225.9 | 6,418.3 |
Price per ordinary share | DAX | |||||||
High | Low | High | Low | |||||
€ | € | |||||||
Third quarter | 116.3 | 89.4 | 6.609,6 | 5,807.1 | ||||
Fourth quarter | 99.1 | 46.6 | 5,806.3 | 4,127.4 | ||||
2009 (through March 20, 2009) | 77.2 | 48.7 | 5,026.3 | 3,666.4 | ||||
Monthly highs and lows | ||||||||
2008 | ||||||||
September | 116.1 | 89.4 | 6,518,5 | 5,807.1 | ||||
October | 99.1 | 48.2 | 5.806,3 | 4.295,7 | ||||
November | 68.9 | 46.6 | 5,278.0 | 4,127.4 | ||||
December | 76.2 | 60.8 | 4,810.2 | 4,381,5 | ||||
2009 | ||||||||
January | 77.2 | 60.1 | 5,026.3 | 4,179.0 | ||||
February | 71.8 | 49.2 | 4,666.8 | 3,843.7 | ||||
March 20 | 64.8 | 48.7 | 4,068.7 | 3,666.4 |
On March 20, 2009, the closing sale price per Allianz SE ordinary share on XETRA was 63.99, which was equivalent to $86.81 per ordinary share, translated at the closing noon buying rate for Euros on that date.
Based on turnover statistics supplied by Bloomberg, the average daily volume of the ordinary shares of Allianz SE traded on the Frankfurt Stock Exchange (XETRA) between January 2, 2009 and March 20, 2009 was 3,824,451.
Trading on the New York Stock Exchange
Official trading of Allianz SE ADSs on the New York Stock Exchange commenced on November 3, 2000. Allianz SE ADSs trade under the symbol “AZ.”
The following table sets forth, for the periods indicated, the high and low closing sales prices per Allianz SE ADS as reported on the New York Stock Exchange Composite Tape:
Price per ADS | ||||
High | Low | |||
$ | $ | |||
Annual highs and lows | ||||
2004 | 14.0 | 9.0 | ||
2005 | 15.4 | 11.4 | ||
2006 | 20.6 | 13.9 | ||
2007 | 24.0 | 19.2 | ||
2008 | 21.4 | 5.7 | ||
2009 (through March 20, 2009) | 10.8 | 6.0 | ||
Quarterly highs and lows | ||||
2007 | ||||
First quarter | 22.2 | 19.2 | ||
Second quarter | 23.8 | 20.7 | ||
Third quarter | 24.0 | 20.3 | ||
Fourth quarter | 23.5 | 19.6 | ||
2008 | ||||
First quarter | 21.4 | 16.4 | ||
Second quarter | 21.0 | 17.2 | ||
Third quarter | 18.3 | 13.3 | ||
Fourth quarter | 13.6 | 5.7 | ||
2009 | ||||
(through March 20) | 10.8 | 6.0 | ||
Monthly highs and lows | ||||
2008 | ||||
September | 16.8 | 13.3 | ||
October | 13.6 | 6.4 | ||
November | 9.0 | 5.7 | ||
December | 10.8 | 7.3 | ||
2009 | ||||
January | 10.8 | 7.5 | ||
February | 9.3 | 6.3 | ||
March (through March 20) | 8.7 | 6.0 |
On March 20, 2009, the closing sales price per Allianz SE ADS on the New York Stock Exchange as reported on the New York Stock Exchange Composite Tape was $8.45.
ITEM 10. | Additional Information |
Articles of Association (Statutes)
Allianz SE’s current statutes are filed as an exhibit to this annual report. Refer also to “Directors, Senior Management and Employees” for a description of our corporate governance structure.
Organization and Share Capital
Allianz SE is a Stock Corporation in the form of a European Company (Societas Europaea or SE) and is organized under the laws of the Federal Republic of Germany and the European Union. It is registered in the Commercial Register in Munich, Germany, under the entry number HRB 164232.
The share capital of Allianz SE consists of ordinary shares without par value. As of March 16, 2009, the capital stock of Allianz SE amounts to €1,159,808,000. It is sub-divided into 453,050,000 shares with no par value, of which 451,505,783 shares were outstanding. The shares are registered and can only be transferred with the approval of the Company. The Company will withhold a duly applied approval only if it deems this to be necessary in the interest of the Company on exceptional grounds. The applicant will be informed about the reasons.
Objects and Purposes
Pursuant to article 1, paragraph 2 of our statutes the corporate purpose of the Company is the direction of an international group of companies, which is active in the areas of insurance, banking, asset management and other financial, consulting and similar services. The Company holds interests in insurance companies, banks, industrial companies, investment companies and other enterprises. As a reinsurer, the Company primarily assumes insurance business from its Group companies and other companies in which Allianz SE holds direct or indirect interests.
Copies of the statutes are publicly available from the Commercial Register in Munich. German- and English-language versions are available at our headquarter and on our website.
Conditions Governing Changes in Capital
Allianz SE has several categories of authorized capital, which are set forth in its statutes.
At the Extraordinary General Meeting on February 8, 2006, the shareholders approved the following authorized capital for issuance of new registered shares by the Board of Management, upon the approval of the Supervisory Board:
Up to €450,000,000 in the aggregate on one or more occasions on or before February 7, 2011 by issuing new registered no-par value shares against contributions in cash and/or in kind (Authorized Capital 2006/I), of which an amount of €406,545,646 remains as of March 16, 2009. If the capital stock is increased against contributions in cash, the shareholders are to be granted a subscription right. However, the Board of Management is authorized, upon the approval of the Supervisory Board, to exclude such shareholders’ subscription right:
(i) for fractional amounts;
(ii) to the extent necessary to grant subscription rights on new shares to holders of bonds issued by Allianz SE or Allianz AG or its Group companies that carry conversion or option rights or conversion obligations to such an extent as such holders would be entitled after having exercised their conversion or option rights after any conversion obligations have been fulfilled; and
(iii) if the issue price is not substantially lower than the market price, subject to certain additional limitations in accordance with the German Stock Corporation Act.
Furthermore, the Board of Management is authorized, upon the approval of the Supervisory Board, to exclude shareholders’ subscription rights in the case of a capital increase against contributions in kind. The Board of Management is also authorized, upon the approval of the Supervisory Board, to determine the additional rights of the shares and the conditions of the share issuance.
Up to €15,000,000 in the aggregate on one or more occasions on or before February 7,
2011 by issuing new registered no-par shares against contributions in cash (Authorized Capital 2006/II), of which an amount of €8,056,297 remains as of March 16, 2008. The Board of Management is authorized, upon the approval of the Supervisory Board: |
(i) to exclude shareholders’ subscription rights in order to issue the new shares to the employees of Allianz SE and Allianz Group companies;
(ii) to exclude fractional amounts from the shareholders’ subscription right; and
(iii) to determine the additional rights of the shares and the conditions of the share issuance.
Furthermore, the shareholders have conditionally increased the share capital by an aggregate amount of up to €250,000,000.00 through issuance of up to 97,656,250 new registered no-par value shares with entitlement to share in profits from the beginning of the financial year of their issuance (Conditional Capital 2006). The conditional capital increase shall be carried out only to the extent that conversion or option rights are exercised by holders of conversion or option rights attached to bonds which Allianz SE or Allianz AG or their Group companies have issued against cash payments in accordance with the resolution of the General Meeting as of February 8, 2006, or that conversion obligations under such bonds are fulfilled, and only in so far as no other methods of performance are used in serving these rights. The Board of Management is authorized to determine further details of the conditional share capital increase.
With respect to purchases of our own ordinary shares, refer to Note 25 to our consolidated financial statements.
For information regarding capital increases, refer to Note 25 to our consolidated financial statements.
In connection with the sale of Dresdner Bank to Commerzbank, Allianz and Commerzbank entered into a transaction agreement dated August 31, 2008, as supplemented by an amended agreement dated November 27, 2008, which are attached hereto as exhibits 4.1 and 4.2, respectively. For more information on this transaction, refer to “Item 4. Information on the Company—Major Disposals—Sale of Dresdner Bank AG.”
Germany does not generally restrict capital movements between Germany and other countries, institutions or persons.
For statistical purposes, subject to certain exceptions, each company or person domiciled in Germany is required to report to the German Bundesbank each payment received from or made to a company or person not domiciled in Germany in excess of €12,500 (or an equivalent amount in a foreign currency). Moreover, all claims and liabilities of a company or person domiciled in Germany against or towards a company or person not domiciled in Germany in excess of €5 million (or an equivalent amount in a foreign currency) are required to be reported monthly to the German Bundesbank.
Other than as described above, there is no limitation on the right of non-resident or foreign owners to receive dividends or other payments relating to the ordinary shares or the ADSs permitted or granted by German law. Various national, state and other laws relating to the acquisition of “control” of Allianz SE’s insurance and banking subsidiaries may impose limitations on the ability to acquire ordinary shares or ADSs beyond specified thresholds. In addition, some national laws may authorize investigation of certain money transfers.
The following discussion is a summary of the material German tax regulations which might be of interest for legal or beneficial owners of shares or ADSs, particularly for “Non-German-Holders”. Throughout this section we refer to owners as “Non-German Holders if they are (i) not German residents for German income tax purposes (i.e., persons whose residence, habitual abode, statutory seat or place of
effective management and control is not located in Germany) and (ii) whose shares do not form part of the business property of a permanent establishment or fixed base in Germany.
The comments are of a general nature and included herein solely for information purposes. These comments cannot replace legal or tax advice and does not purport to be a comprehensive discussion of all German tax consequences. The owner should consult their tax advisor regarding the German federal, state and local tax consequences of the purchase, ownership and disposition of shares or ADSs, the procedures to follow for the refund of German taxes withheld from dividends and the possible effects of changes in the tax laws of the Federal Republic of Germany.
This summary is based on the relevant German tax laws in 2008 and 2009 respectively in force and typical tax treaties to which Germany is a party, as they are applied on the date hereof and are subject to changes in German tax laws or respective treaties.
Taxation of the Company in Germany
German corporations, including Allianz SE, were subject to a corporate income tax rate of 25% in 2007. In addition a solidarity surcharge of 5.5% on the net assessed corporate income tax has to be paid, so that the corporate income tax and the solidarity surcharge, in the aggregate, amount to approximately 26.375%.
In the course of the reform of business taxation, implemented by the Business Tax Reform Act 2008, the income tax rate for corporations has been reduced to 15% as of the fiscal year 2008; including the solidarity surcharge, the aggregate rate amounts to 15.825%.
In addition, German corporations are subject to profit-related trade tax on income, which is a municipal tax levied at an effective tax rate of between approximately 12% and 20%, depending on the applicable trade tax factor of the relevant municipality and is a deductible item in computing the corporation’s tax base for corporate income and trade tax purposes. Due to the Business Tax Reform Act 2008 from 2008 onwards the trade tax is no longer deductible for corporate income tax and trade tax purposes.
Tax losses carried forward can be used to offset against taxable profits of a period for an amount not exceeding €1 million. Taxable profits exceeding €1 million may only be set off by 60% with tax losses brought forward from prior periods. Unutilized tax losses can be carried forward without any time limitation.
Taxation of Dividends
Germany has a classic corporate tax system.
If the Shares or ADS’s are held as private assets (Privatvermögen) by an individual German resident private investor, dividends are taxed as investment income (Einkünfte aus Kapitalvermögen). Till 2008, only 50% of the dividends received were included in the tax basis. However, income related expenses (e.g. custody fees or interest for a debt financed portfolio) were also deductible by only 50% (half-income system). The amount of such payments after deduction of related expenses was subject to progressive income tax plus solidarity surcharge thereon. Since 2007, a personal annual exemption (Sparer-Freibetrag) of €750 (€1,500 for married couples filing their tax return jointly) was available for the aggregate amount of the investment income, including the dividends. In addition, an individual was entitled to a standard deduction of €51 (€102 for married couples filing their tax return jointly) in computing his overall investment income unless the expenses involved are demonstrated to have actually exceeded that amount.
If the shares are held as business assets (Betriebsvermögen) by a German resident corporate investor, the dividends are generally subject to corporate income tax plus solidarity surcharge thereon and trade tax. Under the current corporate income tax system dividends received by a German resident corporate investor are basically 100% tax-exempt (participation exemption). However, 5% of the gross dividend is considered non tax deductible expense (on each level of a corporate chain for corporate tax as well as for trade tax purposes). Dividends received from non-qualifying participations, which are participations of less than 10% (15% as from fiscal year 2008), are subject to trade tax on income for the full amount.
If the shares were held as business assets (Betriebsvermögen) by a natural person (via a
German partnership or an individual enterprises), only 50% of the dividends received are included in the tax basis till to 2008. For trade tax purposes the same rules apply as for corporate investors.
In the course of the reform of business taxation the taxation of dividends has been changed for individuals private investors and for business assets by a natural persons. From January 1, 2009 onwards a final flat-rate tax (Abgeltungsteuer) amounting to 25% (plus a 5.5% solidarity surcharge) on all types of investment income (including dividends) has been established. This withholding tax levied on the income from capital investment is generally final for private investors and will only be included in the relevant tax assessment for individuals upon application, especially if the personal income tax rate falls below 25%.
In addition, from January 1, 2009, the half-income system for dividends received by private investors has been abolished. For dividends received from shareholdings held as business assets by a natural person, the half-income system has changed to a partial-income system. Under this system, 60% of the dividends will be taxable and only 40% will be exempt. Income related expenses are also deductible by only 60%. The personal annual exemption (Sparer-Freibetrag for private Investors) and the standard deduction has been replaced by a unitary flat sum (Sparer-Pauschbetrag) for the overall investment income of € 801 (€ 1,602 for married couples filing their tax return jointly). The deduction of related expenses is not possible any more.
For German non-residents (individuals and corporate investors) the dividends received are basically subject to income taxes and therefore to withholding tax (see next section).
Imposition of Withholding Tax
Till 2008, dividend distributions were subject to a 20% withholding tax. In addition, a solidarity surcharge at a rate of 5.5% on the withholding tax was levied, resulting in an aggregate rate of withholding tax of 21.1% of the declared dividend. The withholding tax is generally withheld irrespective of whether and to what extent the dividend distribution is exempt at the level of the holder.
As part of the reform of business taxation, from January 2009 1, onwards the withholding tax amounts to 25% (plus a 5.5% solidarity surcharge) on all types of investment income, including dividends.
For a Non-German Holder, the withholding tax rate may be reduced in accordance with an applicable income tax treaty. Under most income tax treaties to which Germany is a party, including the U.S.-German income tax treaty, the rate of dividend withholding tax for individual holders and corporate holders of a non-qualifying participation is reduced to 15%. In that case, the Non-German Holder eligible for the reduced treaty rate may apply for a refund of 6.1% of the declared dividend for dividend distributions paid on or after January 1, 2002 by Allianz SE. The application for refund must be filed with the German Federal Tax Office (Bundeszentralamt für Steuern, Dienstsitz Bonn, An der Kueppe 1, D-53225 Bonn, Germany). The relevant forms can be obtained from the German Federal Tax Office or from German embassies and consulates.
From January 1, 2009 onwards two-fifths of the withholding tax can in some circumstances be refunded to Non-German corporate investors upon application at the German Federal Tax Office, which finally results in a withholding tax of 15% (plus solidarity surcharge), leaving the entitlement for further reductions under an applicable income tax treaty unaffected.
Refund Procedure for U.S. Shareholders
For shares and ADSs kept in custody with The Depository Trust Company in New York or one of its participating banks, the German tax authorities have introduced a collective procedure for the refund of German dividend withholding tax and the solidarity surcharge thereon on a trial basis. Under this procedure, The Depository Trust Company may submit claims for refunds payable to eligible U.S. holders (as defined below) under the income tax convention between Germany and the United States, as currently in effect (the “Treaty”) collectively to the German tax authorities on behalf of these eligible U.S. holders. The German Federal Tax Office will pay the refund amounts on a preliminary basis to The Depository Trust Company, which will redistribute these amounts to the eligible U.S. holders according to the regulations governing the procedure. The
German Federal Tax Office may review whether the refund was made in accordance with the law within four years after making the payment to The Depository Trust Company. Details of this collective procedure are available from The Depository Trust Company.
You are an “eligible U.S. holder” if you are a U.S. holder (as defined below under “—United States Taxation”) that:
is a resident of the United States for purposes of the Treaty;
does not maintain a permanent establishment or fixed base in Germany to which the ordinary shares or ADSs are attributable and through which you carry on or have carried on business (or, in the case of an individual, perform or have performed independent personal services); and
is otherwise eligible for benefits under the Treaty with respect to income and gain from the ordinary shares or ADSs.
Individual claims for refunds may be made on a special German form which must be filed with the German Federal Tax Office at the address noted above. Copies of such form may be obtained from the German Federal Tax Office at the same address or from the Embassy of the Federal Republic of Germany, 4645 Reservoir Road, N.W., Washington, D.C. 20007-1998. Claims must be filed within a four-year period from the end of the calendar year in which the dividend was received.
As part of the individual refund claim, an eligible U.S. holder must submit to the German tax authorities the original bank voucher (or a certified copy thereof) issued by the paying agent documenting the tax withheld, and an official certification on IRS Form 6166 of its last United States federal income tax return. IRS Form 6166 may be obtained by filing a request, via IRS form 8802, with the Internal Revenue Service Center in Philadelphia, Pennsylvania, P.O. Box 42530, Philadelphia, PA 19101-2530. Requests for certification must include the eligible U.S. holder’s name, Social Security or Employer Identification Number, tax return form number, and tax period for which the certification is requested. Requests for certifications can include a request to the Internal Revenue Service to send the certification directly to
the German tax authorities. If no such request is made, the Internal Revenue Service will send a certification on IRS Form 6166 to the eligible U.S. holder, who then must submit this document with his refund claim.
Taxation of Capital Gains
If the shares are held as business assets (Betriebsvermögen) by a corporate investor or by a natural person (via a German partnership or an individual enterprises), the capital gains are treated as the dividends.
Till 2008, for private investors, a 50% tax exemption on realized gains on the disposal of shares arised only if they sold shares of a corporation of which they hold at least 1% of the outstanding shares of the company at any time within the five years prior to the sale. Shares with less than 1% of the outstanding shares of the company were only subject to taxation within the 12 month speculative period. Due to the Business Tax Reform Act 2008 capital gains from private investors are subject to taxation irrespective of any holding period with a 25% withholding tax plus a 5.5% solidarity surcharge. There are some transition rules regarding the change in the taxation of capital gains.
Under German domestic tax law, capital gains derived by a Non-German Holder from the sale or other disposition of shares or ADSs are subject to tax in Germany only if such Non-German Holder has held, directly or indirectly, shares or ADSs representing 1% or more of the registered share capital of the company at any time during the five-year period immediately preceding the disposition.
U.S. holders that qualify for benefits under the Treaty are exempt in Germany under the Treaty on capital gains derived from the sale or disposition of shares or ADSs.
Inheritance and Gift Tax
Under German law, German gift or inheritance tax will be imposed on transfers of shares or ADSs by a Non-German Holder at death or by way of gift, if
(i) the decedent or donor, or the heir, donee or other transferee has his residence in Germany
at the time of the transfer or with respect to German citizens who are not resident in Germany, if the decedent or donor, or the heir, donee or other transferee has not been continuously outside of Germany for a period of more than five years; or
(ii) the shares or ADSs subject to such transfer form part of a portfolio which represents 10% or more of the registered share capital of the company and has been held, directly or indirectly, by the decedent or donor, respectively, himself or together with related parties.
The right of the German government to impose inheritance or gift tax on a Non-German Holder may be further limited by an applicable estate tax treaty (such as the U.S.-German Inheritances and Gifts Tax Treaty of December 14, 1998).
Other Taxes
No German transfer, stamp or similar taxes apply to the purchase, sale or other disposition of shares or ADSs by a Non-German Holder. Currently, net worth tax is not levied in Germany.
This section describes the principal United States federal income tax consequences of owning ordinary shares or ADSs. It applies to you only if you hold your ordinary shares or ADSs as capital assets for tax purposes. This section does not address all material tax consequences of owning ordinary shares or ADSs. It does not address special classes of holders, some of whom may be subject to other rules, including:
dealers in securities or currencies;
tax-exempt entities;
life insurance companies;
broker-dealers;
traders in securities that elect to use a mark-to-market method of accounting for their securities holdings;
investors liable for alternative minimum tax;
investors that actually or constructively own 10% or more of the voting stock of Allianz SE;
investors that hold ordinary shares or ADSs as part of a straddle or a hedging or conversion transaction; or
investors whose functional currency is not the U.S. Dollar.
This section is based on the Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed regulations, and published rulings and court decisions, all as currently in effect, as well as on the Treaty. These laws are subject to change, possibly on a retroactive basis.
In addition, this section is based in part upon the representations of the depositary and the assumption that each obligation in the deposit agreement and any related agreement will be performed in accordance with its terms. In general, for United States federal income tax purposes, if you hold ADRs evidencing ADSs, you will be treated as the owner of the ordinary shares represented by those ADSs. Exchanges of ordinary shares for ADRs, and ADRs for ordinary shares, generally will not be subject to United States federal income tax.
You are a “U.S. holder” if you are a beneficial owner of ordinary shares or ADSs and you are, for United States federal income tax purposes:
a citizen or resident of the United States;
a domestic corporation;
an estate whose income is subject to United States federal income tax regardless of its source; or
a trust if a United States court can exercise primary supervision over the trust’s administration and one or more United States persons are authorized to control all substantial decisions of the trust.
If a partnership holds our ordinary shares, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and the tax treatment of the partnership. If you hold our ordinary shares as a partner in a partnership, you should consult your tax advisor with regard to the U.S. federal income tax treatment of an investment in our ordinary shares.
You should consult your own tax advisor regarding the United States federal, state, local,
foreign and other tax consequences of owning and disposing of ordinary shares or ADSs in your particular circumstances. In particular, you should confirm whether you qualify for the benefits of the Treaty and the consequences of failing to do so.
Taxation of Dividends
Subject to the passive foreign investment company rules discussed below, if you are a U.S. holder, the gross amount of any dividend we pay out of our current or accumulated earnings and profits (as determined for United States federal income tax purposes) is subject to United States federal income taxation. If you are a non-corporate U.S. holder, dividends paid to you in taxable years beginning before January 1, 2011 that constitute qualified dividend income will be taxable to you at a maximum tax rate of 15% provided that you hold the ordinary shares or ADSs for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date and meet other holding period requirements. Dividends we pay with respect to the ordinary shares or ADSs generally will be qualified dividend income if you meet the holding period requirement. You must include any German tax withheld from the dividend payment in this gross amount even though you do not in fact receive it. The dividend is taxable to you when you, in the case of ordinary shares, or the depositary, in the case of ADSs, receive the dividend, actually or constructively. The dividend will not be eligible for the dividends-received deduction generally allowed to United States corporations in respect of dividends received from other United States corporations. The amount of the dividend distribution that you must include in your income as a U.S. holder will be the U.S. Dollar value of the gross dividend amount, determined at the spot Euro/U.S. Dollar rate on the date the dividend distribution is includible in your income, regardless of whether the payment is in fact converted into U.S. Dollars. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date you include the dividend payment in income to the date you convert the payment into U.S. Dollars will be treated as ordinary income or loss and will not be eligible for the special tax rate applicable to qualified dividend income. The currency gain or loss generally will be income or loss from sources within the United States for foreign tax credit limitation purposes. Distributions in excess of current and accumulated
earnings and profits, as determined for United States federal income tax purposes, will be treated as a return of capital to the extent of your basis in the ordinary shares or ADSs and thereafter as capital gain.
Subject to certain limitations, the German tax withheld in accordance with German law or the Treaty and paid over to Germany will be creditable against your United States federal income tax liability. To the extent a refund of the tax withheld is available to you under German law or under the Treaty, the amount of tax withheld that is refundable will not be eligible for credit against your United States federal income tax liability. Refer to “—German Taxation—Refund Procedure for U.S. Shareholders,” above, for the procedures for obtaining a tax refund. Special rules apply in determining the foreign tax credit limitation with respect to dividends that are subject to the maximum 15% tax rate.
For foreign tax credit purposes, dividends will generally be income from sources outside the United States and will, depending on your circumstances, be either “passive” or “general” income for purposes of computing the foreign tax credit allowable to you.
Taxation of Capital Gains
Subject to the passive foreign investment company rules discussed below, if you are a U.S. holder and sell or otherwise dispose of your ordinary shares or ADSs, you will recognize capital gain or loss for United States federal income tax purposes equal to the difference between the U.S. Dollar value of the amount that you realize and your tax basis, determined in U.S. Dollars, in your ordinary shares or ADSs. Capital gain of a non-corporate U.S. holder that is recognized in taxable years beginning before January 1, 2011 is generally taxed at a maximum rate of 15% where the holder has a holding period greater than one year. Gain or loss generally will be treated as arising from sources within the United States for foreign tax credit limitation purposes.
Passive Foreign Investment Company Status
We believe that our ordinary shares and ADSs should not be treated as stock of a passive foreign investment company (PFIC), for United States federal income tax purposes, but this conclusion is a factual determination that is made annually and thus may be subject to change. If we were to become a PFIC, the tax treatment of distributions on our ordinary shares or ADSs and of any gains realized upon the disposition of our ordinary shares or ADSs may be less favorable than as described herein. You should consult your own tax advisors regarding the PFIC rules and their effect on you if you hold ordinary shares or ADSs.
Allianz SE is subject to the informational requirements of the Securities Exchange Act of 1934, as amended. In accordance with these requirements, Allianz SE files reports and other information with the Securities and Exchange Commission. These materials, including this annual report and the exhibits thereto, may be inspected and copied at the Commission’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Copies of the materials may be obtained from the Commission’s Public Reference Room at prescribed rates. The public may obtain information on the operation of the Commission’s Public Reference Room by calling the Commission in the United States at 1-800-SEC-0330. The Commission also maintains a web site at http://www.sec.gov that contains reports, proxy statements and other information regarding registrants that file electronically with the Commission. Allianz SE’s annual reports and some of the other information submitted by Allianz SE to the Commission may be accessed through this web site. In addition, material filed by Allianz SE can be inspected at the offices of the New York Stock Exchange at 11 Wall Street, New York, New York 10005.
ITEM 11. | Quantitative and Qualitative Disclosures about Market Risk |
Allianz risk management is designed to add value by focusing on both risk and return.
As a provider of financial services, we consider risk management to be one of our core competencies. It is therefore an integrated part of our business processes. The key elements of our risk management framework are:
Promotion of a strong risk management culture supported by a robust risk governance structure.
Integrated risk capital framework consistently applied across the Group to protect our capital base and to support effective capital management.
Integration of risk considerations and capital needs into management and decision-making processes through the attribution of risk and allocation of capital to the various segments.
The Allianz risk governance approach is designed to enable us to manage our local and global risks equally and to reduce the likelihood that our overall risk increases in an undetected manner. The following diagram provides an overview regarding risk-related decision-making responsibility within our risk governance structure.
The Board of Management of Allianz SE formulates business objectives and allocates capital resources across the Allianz Group, with the objective of balancing return on investment and risk. The Supervisory Board Risk Committee of Allianz SE meets on a regular and ad-hoc basis to monitor the risk profile of the Allianz Group based on risk reports presented by the Chief Financial Officer and Chairman of the Group Risk Committee.
Two additional Board of Management level committees focus on the Group’s risk exposure. The
Group Risk Committee monitors the Allianz Group’s risk profile and availability of capital in an effort to maintain an adequate relationship between return on investment and risk. Its role is to provide for comprehensive risk awareness within the Allianz Group and to continually improve risk control. It also defines risk standards and establishes risk limits. Furthermore, it is responsible for recommending and coordinating measures to mitigate risk. The Group Finance Committee makes decisions about investments and market risks, while complying with the Allianz Group’s risk framework.
The Group Risk department (“Group Risk”), which reports to the Chief Financial Officer, develops methods and processes for identifying, assessing and monitoring risks across the Allianz Group based on systematic qualitative and quantitative analysis and regularly informs management concerning the Allianz Group’s risk profile. Group Risk develops the Allianz risk framework and oversees the operating entities’ adherence to the framework. The core elements of the risk framework are set forth in the Group Risk Policy, which has been approved by the Board of Management of Allianz SE and which defines the minimum requirements for all operating entities within the Allianz Group. Additional risk standards, such as standards related to specific segments or risk categories, are in place for our operating entities worldwide. Group Risk is also responsible for monitoring the accumulation of specific types of risks across business lines, in particular with respect to natural disasters and exposures to counterparties.
Local operating entities assume responsibility for their own risk management, with risk functions and committees that are similar to the Group structure. Independent risk oversight is a fundamental principle of our risk governance structure, with a clear separation between business functions that actively take decisions and assume risk responsibility, on the one hand, and independent risk oversight functions, on the other hand. Risk oversight consists of independent risk identification, assessment, reporting and monitoring and also includes analyzing alternatives and proposing recommendations to the Risk Committees and local management or to the Board of Management of Allianz SE. The local risk departments performing the oversight role in our major operating entities are headed by a local Chief Risk Officer. Group Risk is represented on the local Risk Committees to enhance the risk dialogue between the Group and the operating entities.
The risk governance structure is further complemented by Group Audit, Group Compliance and Group Legal Services. On a periodic basis, Group Audit independently reviews the risk governance implementation, performs quality reviews of risk processes and tests adherence to business standards. Group Legal Services seek to mitigate legal risks with support from other departments. Legal risks include legislative changes,
major litigation and disputes, regulatory proceedings and contractual clauses that are unclear or construed differently by the courts. The Allianz Group’s objective is to ensure that developments in laws and regulations are observed, to react appropriately to all impending legislative changes or new court rulings, to attend to legal disputes and litigation, and to provide legally appropriate solutions for transactions and business processes.
Allianz Group’s risk landscape is continually evolving due to changes in our environment. In order to adapt, the Trend Assessment Committee is responsible for early recognition of new risks and opportunities and evaluating long-term trends that may have a significant impact on the Allianz Group’s risk profile. Furthermore, Allianz is an active member of the CRO Forum Emerging Risk Initiative that continuously monitors the industry-wide risk landscape and raises awareness of major risks which are relevant for the insurance industry. This initiative promotes stakeholder dialogue and also proposes best practice monitoring and management approaches via regular publications on specific topics.
The Allianz Climate Core Group is a panel of internal experts that specifically examines the possible effects of climate change on our business, developing risk management strategies and identifying potential opportunities resulting from climate change.
Internal Risk Capital Framework
We define internal risk capital as the capital required to protect against unexpected, extreme economic losses. We aggregate internal risk capital consistently across all business segments (Property-Casualty, Life/Health, Banking, Asset Management and Corporate), providing a common standard for measuring and comparing risks across the wide range of different activities that we undertake as an integrated financial service provider.
Value-at-Risk approach
We use an internal risk capital model based on a Value-at-Risk (VaR) approach, determining a maximum loss in the value of our portfolio of businesses covered within the scope of the model (the “covered business”) due to adverse market, credit,
insurance and other business events, within a specified timeframe (“holding period”) and probability (“confidence level”). More specifically, we calculate the net fair asset value of each of our covered businesses based on values (i) under current best estimate conditions and (ii) under adverse conditions defined by scenarios for each risk category. The required internal risk capital per risk category is defined as the difference between the value of the portfolio under the best estimate scenario and under the adverse scenario. Internal risk capital is determined on a quarterly basis and results per category are aggregated in a manner that takes into account the diversification effect across risk categories and regions.
To calculate internal risk capital using the VaR approach at the Allianz Group level, we assume a confidence level of 99.97% and a holding period of one year, which is assumed to be equivalent to an “AA” rating of Standard & Poor’s. We apply a holding period of one year because it is generally assumed that it may take up to one year to identify a counterparty to whom to transfer the liabilities in our portfolio. This capital requirement is sufficient to cover a loss in any one year equivalent to a 3-in-10,000 year event. Although our internal risk capital is based on extreme events, it nonetheless aims to provide adequate indications to manage the risks resulting from reasonably possible smaller adverse events that we might identify in the near-term, because the results allow us to analyze separately and in aggregate our exposure to each source of risk.
Diversification and correlation assumptions
Our internal risk capital model considers both concentration and correlation when aggregating results on the Allianz Group level, in order to reflect that not all of our potential losses are likely to be realized at the same time. This effect is known as diversification. Managing diversification forms a central element of our risk management framework. The Allianz Group strives to diversify the risks to which it is exposed in order to limit the impact of any single source of risk and to help ensure that the positive developments of some businesses operate in such a manner as to neutralize the possible negative developments of others.
The degree to which diversification can be realized depends in part on the level of relative concentration of those risks. For example, the greatest diversification is in general obtained in a balanced portfolio without any disproportionately large exposures to any one or more risks. In addition, the diversification effect depends upon the relationship between sources of risks. The degree of relationship between two sources of risk is referred to as correlation, characterized by a value between “-1” and “+1”. Where possible, we develop correlation parameters for each pair of risks through statistical analysis of historical data. If only insufficient historical data is available, we use conservative professional judgment, ruling out negative correlations, and, in general, we set the correlation parameters to represent the level of interdependency of risks under adverse conditions.
Scope
Our internal risk capital model takes into account the following sources of risk, classified as risk categories per segment:
(1) | Foreign currency risks are mainly allocated to the Corporate segment (please see below for further information). |
(2) | As commodity risk is not significant on the Group level, it is covered in our internal risk capital model within currency risk. |
(3) | Although the internal risk capital requirements for the Asset Management segment only reflect business risk (please see below for further information), 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. |
(4) | The premium risk which our credit insurance entity Euler Hermes is exposed to due to its business model is also covered here, as this type of risk is a special form of credit risk. |
(5) | In the Banking segment, credit risks include default and migration risks arising from the lending and securities business and our derivatives trading activities; for the latter, settlement risk is additionally taken into account. Furthermore, credit risks include country (and transfer) risk. |
Our internal risk capital model covers:
Substantially all of our major insurance and banking operations.
Substantially all of our assets (including bonds, mortgages, investment funds, loans, floating rate notes, equities and real estate) and liabilities (including the cash flow profile of all technical reserves as well as deposits and issued securities). For the Life/
Health segment, the model reflects the interaction between assets and liabilities and local management decisions such as investment strategies and policyholder participation rules. |
Substantially all of our derivatives (options, swaps and futures), in particular if they form part of the operating entity’s regular business model (e.g., at Allianz Life
Insurance Company of North America) or if they have a significant impact on the resulting internal risk capital (e.g., hedges of Allianz SE or in the Life/Health segment, if material obligations to policyholders are hedged through financial derivatives). Typically, embedded derivatives contained in a host contract are also included. |
For smaller insurance operating entities that have an immaterial impact on the Group risk profile, and for the Asset Management segment, we assign internal risk capital 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. More specifically, approximately 99% of the investments managed by the Asset Management segment 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 Asset Management 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.
Applying an approach based on risk weighted assets, and following the sale of our former banking subsidiary, Dresdner Bank, to Commerzbank, our continuing banking operations in Germany, Italy, France and New Europe represent only an insignificant amount of approximately 1.3% of total non-diversified internal risk capital. Therefore, risk management with respect to banking operations is not discussed below in detail.
The Allianz Group’s policy is to require each operating entity to match the currency of their material assets and liabilities or to otherwise hedge foreign currency risk. As a result, our residual foreign currency risk results primarily from the fair value of the net asset value of our non-Euro operating entities and certain exposures to non-Euro denominated assets and liabilities held at the Group level. This currency risk is monitored and managed centrally at the Allianz Group level by Group Corporate Finance & Treasury and is, therefore, mostly allocated to the Corporate segment.
Following the announcement of the sale of Dresdner Bank to Commerzbank in August 2008, Dresdner Bank qualified as held-for-sale and discontinued operations. For the purpose of this discussion on risk management, we refer to “discontinued operations” to mean the assets and liabilities held by Dresdner Bank upon its sale by Allianz to Commerzbank on January 12, 2009. Certain former assets and liabilities of Dresdner Bank, which Allianz retained and which were not transferred to Commerzbank, were not classified as discontinued operations. We generally present figures as of December 31, 2008 excluding discontinued operations, although we also provide certain information regarding the total Group including discontinued operations for the purpose of comparison. When excluding discontinued operations from internal risk capital calculations, we also take into account, that the discontinuation of certain banking operations results in a smaller diversification effect.
Limitations
Our internal risk capital model expresses the potential “worst case” amount in economic value that we might lose at a certain level of confidence. However, there is a statistically low probability of 0.03% that actual losses could exceed this threshold.
We assume that model parameters derived from historical data can be used to characterize future possible risk events; if future market conditions differ substantially from the past, as in the case of the 2008 financial crisis for which there was no precedent, then our VaR approach may be too conservative or too liberal in ways that can not be predicted. Our ability to back-test the model’s accuracy is limited because of the high confidence level of 99.97% and one-year holding period. Furthermore, as historical data is used to calibrate the model, it cannot be used for validation. Instead, we validate the model and parameters through external reviews by independent consulting firms focusing on methods for selecting parameters and control processes. Overall, we believe that our model adequately assesses the risks to which we are exposed.
As our internal risk capital model considers the change in economic fair value of our assets and liabilities, it is crucial to accurately estimate the fair market value of each item. For some assets and
liabilities, it has become increasingly difficult in today’s financial markets, if not impossible, to obtain either a current market price or to apply a mark-to-market approach. For certain assets and liabilities, where a current market price for that instrument or similar instruments is not available, we apply a mark-to-model approach. For some of our liabilities, the accuracy of fair values depends on the quality of the actuarial cash flow estimates. Despite these limitations, we believe the estimated fair values are appropriately assessed.
We apply customized derivative valuation tools which are suitable to our business to reflect substantially all of our derivatives in internal risk capital. Our integrated internal risk capital model for insurance operations currently only allows for the modeling of common derivatives such as equity calls, puts, forwards and interest rate swaps. For internal risk capital calculations, non-standardized instruments, such as derivatives embedded in structured financial products, are represented by the most comparable standard derivative types. The volume of non-standard instruments is not material on either the local or the Allianz Group level, but a more precise modeling of these instruments might impact the fair value and resulting internal risk capital for these derivatives. However, we believe that any such change would not be material.
The Allianz internal risk capital model plays a significant role in solvency management and capital allocation. Our aim is to ensure that the Allianz Group is adequately capitalized at all times, even following a significant adverse event, and that all operating entities meet their respective capital requirements. In addition, we employ a value-based approach (Economic Value Added or “EVA”®), among other approaches, to measure and manage our business activities as well as to optimize capital allocation across the Allianz Group. Internal risk capital is a key parameter of our EVA®-approach.
In managing our capital position, we also consider additional external requirements of regulators and rating agencies. While meeting rating agencies’ capital requirements forms a strategic business objective of the Allianz Group, capital requirements imposed by regulators constitute a
binding constraint. Regulators and rating agencies impose minimum capital rules on the level of both the Allianz Group’s operating entities and on the Allianz Group as a whole.
Internal capital adequacy
Our objective is to maintain available capital at the Group level in excess of the minimum requirements that are determined by our internal risk capital model according to a solvency probability of 99.97% over a holding period of one year. In support of this objective, we require each of our local operating entities to hold available capital resources allowing them to remain solvent at a lower confidence level of 99.93% over the same one-year holding period. This approach is designed to ensure a consistent capital standard across the Group that helps mitigate potential constraints of capital fungibility—i.e., by requiring our local operating entities to hold such levels of capital resources, the Group is less likely to be required to allocate capital to a local operating entity that may have incurred a loss, and accordingly the Group is less likely to encounter constraints inherent in moving capital across the many different jurisdictions in which the Group conducts business. In addition, we take into account the benefits of a single operating entity being part of a larger, diversified Group.
The Allianz Group’s available capital is based on the Group’s shareholders’ equity as adjusted to reflect the full economic capital base available to absorb any unexpected volatility in results of operations. For example, the present value of future profits in the Life/Health segment and hybrid capital are added to shareholders’ equity, whereas goodwill and other intangible assets are subtracted.
Available capital and internal risk capital
in € bn
Based on pro-forma calculations assuming the completion of the Dresdner Bank transaction prior to year-end of 2008(1), our available capital at December 31, 2008 amounted to €42.5 billion (2007: €63.8 billion), while our corresponding internal risk capital at December 31, 2008 amounted to €30.3 billion (2007: €33.4 billion), resulting in a capital ratio of 140% at December 31, 2008, compared to 191% at December 31, 2007(2). The decrease of 33% in available capital was primarily driven by a decrease in shareholders’ equity and a decline in the present value of future profits in the Life/Health segment.
Including discontinued operations, the Allianz Group-wide internal risk capital after Group diversification and before minority interests of €32.9 billion at December 31, 2008 reflects a realized diversification benefit on the Group level of approximately 56%. Non-diversified and Group diversified internal risk capital are broken down as follows:
(1) | Available capital and internal risk capital as of December 31, 2008 including discontinued operations were adjusted to reflect the pro-forma view. For example, we removed hybrid capital and the pension deficit related to Dresdner Bank from available capital, deleted internal risk capital requirements of our discontinued operations and included those related to the shares and the silent participation in Commerzbank. |
(2) | Including discontinued operations, our available capital at December 31, 2008 amounted to €48.8 billion, while our corresponding internal risk capital at December 31, 2008 amounted to €32.9 billion, resulting in a capital ratio of 148% at December 31, 2008. |
Allocated internal risk capital by risk category (total portfolio before minority interest)
in € mn
Allocated internal risk capital by segment(3) (total portfolio before minority interest)
in € mn
(3) | 2008 figures exclude discontinued operations, while 2007 figures include them. |
Taking into account discontinued operations as of December 31, 2008, total internal risk capital is still at a comparable level as at December 31, 2007 due to offsetting effects across the different risk categories (e.g., interest rate risk increased while equity risk decreased). The discontinued operations contributed 12% to total internal risk capital as of December 31, 2008. More detailed discussions of movements are provided in the sections specifically related to the risk categories.
Regulatory capital adequacy
Under the EU Financial Conglomerates Directive, a supplementary European Union directive, a financial conglomerate is defined as any financial parent holding company that, together with its subsidiaries, has significant cross-border and cross-sector activities. The Allianz Group is a financial conglomerate within the scope of the Directive and related German law. The law requires that a financial conglomerate calculates the capital needed to meet its solvency requirements on a consolidated basis, which we refer to below as “available funds”.
Financial conglomerate solvency
in € bn
Based on pro-forma calculations assuming the completion of the Dresdner Bank transaction prior to year-end of 2008(1), our available funds for the solvency margin, required for our insurance segments and our banking and asset management business, is €32.7 billion (2007: €46.5 billion) at December 31, 2008 including off-balance sheet reserves(2), surpassing the minimum legally stipulated level by €12.4 billion (2007: €17.6 billion). This margin results in a preliminary pro-forma cover ratio(3) of 161% at December 31, 2008 (2007: 161%)(4). The decrease of 30% in available funds was primarily driven by a decrease in shareholders’ equity.
Rating agency capital adequacy
Rating agencies apply their own models to evaluate the relationship between the required risk capital of a company and its available capital resources. Assessing capital adequacy is usually an integral part of the rating process. At December 31, 2008, the financial strength of Allianz SE was rated by Standard & Poor’s as “AA” (stable outlook), by A. M. Best as “A+” (stable outlook), and by Moody’s as “Aa3” (stable outlook).
(1) | Available funds and requirement as of December 31, 2008 including discontinued operations were adjusted to reflect the pro-forma view. For example, we removed hybrid capital related to Dresdner Bank from available funds and adjusted the deduction of goodwill and other intangible assets. Furthermore, we deleted the requirement of our discontinued operations. |
(2) | Off-balance sheet reserves represent the difference between fair value and amortized cost of real estate held for investment and investments in associates and joint ventures, net of deferred taxes, policyholders’ participation and minority interests. |
(3) | Represents the ratio of available funds to required capital. |
(4) | As of December 31, 2008, our available funds for the solvency margin including discontinued operations, required for our insurance segments and our banking and asset management business, is €39.5 billion including off-balance sheet reserves, surpassing the minimum legally stipulated level by €9.9 billion. |
Conglomerate solvency is computed according to the adjusted Finanzkonglomerate-Solvabilitäts-Verordnung (FkSolV) published by the German regulator, BaFin, which revised the treatment of unrealized gains and losses in the bond portfolio. As of December 31, 2007, reported under the old method, the solvency ratio was 157% and available funds were €45.5 billion. |
In addition to its long-term financial strength rating, Standard & Poor’s determines a separate rating for “Enterprise Risk Management” (ERM). As of September 2008, Standard & Poor’s has assigned Allianz a “Strong” rating for the ERM capabilities of our insurance operations. This rating indicates that Standard & Poor’s regards it “unlikely that Allianz SE will experience major losses outside its risk tolerance”. Standard & Poor’s stated that the assessment is based on the Allianz Group’s strong risk management culture, strong controls for the majority of key risks and strong strategic risk management.
Supplementary stress test analysis
In addition to our internal risk capital analysis, we perform regular stress tests that act as early-warning indicators in monitoring the Allianz Group’s regulatory solvency capital ratios and its capital position required by rating agencies. We also apply regular stress tests on a local operating entity level in order to monitor capital requirements imposed by local regulators and rating agencies.
For example, stress test results on a Group level indicated that a 10% price decline in our available-for-sale equity securities as of December 31, 2008 would have resulted in a €1.7 billion decline in shareholders’ equity before minority interests. An increase in the interest rate by 100 basis points would have decreased shareholders’ equity before minority interests by €3.5 billion, if available-for-sale fixed-income securities are taken into account as of December 31, 2008.
As we are an integrated financial service provider offering a variety of products across different business segments and geographic regions, diversification is key to our business model. Diversification helps us to manage our risks efficiently by limiting the economic impact of any single event and by contributing to relatively stable results and risk profile in general. As discussed above, the degree to which the diversification effect can be realized depends not only on the correlation
between risks but also on the level of relative concentration of those risks. Therefore, our aim is to maintain a balanced risk profile without any one or more disproportionately large risks.
Disproportionately large risks that might accumulate and have the potential to produce substantial losses (e.g., natural catastrophes or credit events) are closely monitored on a standalone basis (i.e., before the diversification effect) and are subject to a global limit framework. For example, the Management Board of Allianz SE has implemented a framework of natural catastrophe limits at both the operating entity and Group levels in an effort to reduce potential earnings volatility and restrict potential losses from events having an occurrence probability of once in 250 years. Group limits are linked to the planned operating profit and the limits on operating entity level are based on the Property-Casualty net asset value. Traditional reinsurance coverage and dedicated financial transactions on Group level are examples of two instruments to mitigate the peak risks and to limit the impact of adverse conditions on our financial results and shareholders’ equity.
Similarly, the Group monitors and limits credit exposures to single obligors and groups using its overall limit-setting framework to ensure that Allianz Group’s credit and counterparty risk profile is appropriately controlled. As a fundamental principle underlying the limit system, several risk criteria of a counterparty have to be taken into account: financial statements, creditworthiness, country and industry assignment, the current Allianz Group’s portfolio composition and the concentration a particular counterparty introduces within the portfolio. Counterparty limits serve not only to restrict the exposure, but also to identify open investment opportunities for the operating entities while at the same time taking into consideration the current portfolio structure at the Group level.
In general, we identify and measure risk concentrations in terms of non-diversified internal risk capital in line with the risk categories covered in our internal risk capital model. In the subsequent sections all risks are presented before and after diversification and concentrations of single sources of risk are discussed accordingly.
In the following table, we present our Group-wide internal risk capital related to market risks.
Allocated Internal Market Risk Capital by Business Segment and Source of Risk
(Total Portfolio Before Minority Interests)
Non-diversified | Group diversified | |||||||||||
As of December 31, | 2008(1) | 2007(2) | 2008(1) | 2007(2) | ||||||||
€ mn | € mn | € mn | € mn | |||||||||
Total Group | 24,173 | 22,738 | 13,128 | 13,913 | ||||||||
Percentage of total Group internal risk capital | 36 | % | 32 | % | 45 | % | 42 | % | ||||
Interest rate | 12,124 | 6,691 | 3,784 | 655 | ||||||||
Equity | 9,454 | 13,508 | 6,774 | 10,885 | ||||||||
Real estate | 2,516 | 2,238 | 1,300 | 1,088 | ||||||||
Currency(3) | 79 | 301 | 1,270 | 1,285 | ||||||||
Property-Casualty | 9,062 | 11,066 | 4,774 | 6,477 | ||||||||
Interest rate | 3,550 | 2,758 | 1,108 | 270 | ||||||||
Equity | 4,183 | 6,835 | 2,997 | 5,508 | ||||||||
Real estate | 1,250 | 1,385 | 646 | 673 | ||||||||
Currency(3) | 79 | 88 | 23 | 26 | ||||||||
Life/Health | 11,320 | 5,533 | 5,396 | 2,836 | ||||||||
Interest rate | 6,163 | 2,100 | 1,924 | 206 | ||||||||
Equity | 4,039 | 3,006 | 2,894 | 2,422 | ||||||||
Real estate | 1,118 | 427 | 578 | 208 | ||||||||
Currency(3) | — | — | — | — | ||||||||
Banking | 263 | 2,814 | 175 | 1,962 | ||||||||
Asset Management(4) | — | — | — | — | ||||||||
Corporate | 3,528 | 3,325 | 2,783 | 2,638 | ||||||||
Interest rate | 2,378 | 1,628 | 742 | 159 | ||||||||
Equity | 1,002 | 1,428 | 718 | 1,151 | ||||||||
Real estate | 148 | 269 | 76 | 131 | ||||||||
Currency(3) | — | — | 1,247 | 1,197 |
(1) | 2008 figures exclude discontinued operations. On a total Group basis, internal market risk capital would amount to €26,043 million on a non-diversified basis and €14,009 million on a Group diversified basis, if discontinued operations were taken into account. |
(2) | 2007 figures include discontinued operations. |
(3) | Foreign currency risks are mainly allocated to the Corporate segment (please refer to “Internal Risk Capital Framework—Scope” for further information). |
(4) | The internal risk capital requirements for the Asset Management segment only reflect business risk (please refer to “Internal Risk Capital Framework—Scope” for further information). |
Internal equity risk capital decreased in the aggregate mainly driven by the worldwide market drop in 2008 and an active reduction of exposure throughout the year. In our insurance segments, parts of the equity exposure were re-invested in fixed-income resulting in an increase in internal interest rate risk capital. Furthermore, the drop in interest rates across the world raised internal interest rate risk capital as well, in particular in our Life/Health segment which suffered from diminishing “buffers” (e.g., a decrease in unrealized gains in equity investments) that would otherwise help mitigate the
impact of adverse developments. In this segment, internal risk capital additionally increased significantly due to the model change for which more details are provided in the following section.
The decline in internal equity risk capital allocated to the Corporate segment was also due to the market developments experienced in 2008, supported by the sale of some strategic participations which were offset in part by the transfer of strategic participations from Dresdner Bank to the Corporate segment.
As previously discussed, we determine internal risk capital figures on a quarterly basis. The table below presents the average internal risk capital for market risk calculated over the four quarters of 2008
and 2007, as well as the high and low quarterly internal risk capital amounts calculated in both years. All figures include discontinued operations.
Average, High and Low Allocated Internal Market Risk Capital by Business Segment and Source of Risk
(Total Portfolio Before Minority Interests, After Group Diversification and Including Discontinued Operations)
As of December 31, | 2008 | 2007 | ||||||||||
Over quarterly results | Over quarterly results | |||||||||||
Average | High | Low | Average | High | Low | |||||||
€ mn | € mn | € mn | € mn | € mn | € mn | |||||||
Total Group | 13,857 | 14,196 | 13,466 | 15,559 | 16,800 | 13,913 | ||||||
Interest rate | 1,983 | 3,292 | 1,138 | 713 | 764 | 655 | ||||||
Equity | 9,214 | 10,539 | 7,838 | 12,424 | 13,662 | 10,885 | ||||||
Real estate | 1,286 | 1,425 | 1,218 | 1,072 | 1,103 | 1,038 | ||||||
Currency(1) | 1,374 | 1,454 | 1,301 | 1,350 | 1,409 | 1,285 | ||||||
Property-Casualty | 5,145 | 5,727 | 4,813 | 7,299 | 7,948 | 6,476 | ||||||
Interest rate | 599 | 930 | 392 | 301 | 330 | 270 | ||||||
Equity | 3,883 | 4,706 | 3,185 | 6,331 | 7,020 | 5,508 | ||||||
Real estate | 634 | 673 | 598 | 636 | 673 | 593 | ||||||
Currency(1) | 30 | 33 | 25 | 31 | 33 | 26 | ||||||
Life/Health | 4,693 | 5,292 | 4,296 | 3,074 | 3,215 | 2,835 | ||||||
Interest rate | 907 | 1,615 | 488 | 210 | 226 | 195 | ||||||
Equity | 3,288 | 3,580 | 3,075 | 2,650 | 2,781 | 2,422 | ||||||
Real estate | 498 | 602 | 460 | 214 | 223 | 208 | ||||||
Currency(1) | 0 | 0 | 0 | 0 | 0 | 0 | ||||||
Banking | 1,788 | 2,380 | 1,154 | 2,116 | 2,326 | 1,962 | ||||||
Interest rate | 81 | 124 | 51 | 25 | 33 | 20 | ||||||
Equity | 1,520 | 2,132 | 815 | 1,933 | 2,136 | 1,804 | ||||||
Real estate | 75 | 78 | 70 | 113 | 159 | 76 | ||||||
Currency(1) | 113 | 145 | 90 | 45 | 62 | 28 | ||||||
Asset Management(2) | 0 | 0 | 0 | 0 | 0 | 0 | ||||||
Corporate | 2,230 | 2,750 | 1,977 | 3,071 | 3,521 | 2,639 | ||||||
Interest rate | 397 | 623 | 207 | 177 | 185 | 159 | ||||||
Equity | 522 | 763 | 291 | 1,510 | 1,988 | 1,151 | ||||||
Real estate | 79 | 80 | 78 | 109 | 131 | 63 | ||||||
Currency(1) | 1,232 | 1,289 | 1,173 | 1,275 | 1,339 | 1,197 |
(1) | Foreign currency risks are mainly allocated to the Corporate segment (please refer to “Internal Risk Capital Framework—Scope” for further information). |
(2) | The internal risk capital requirements for the Asset Management segment only reflect business risk (please refer to “Internal Risk Capital Framework—Scope” for further information). |
In addition to the information given in the following paragraphs, the quantitative contributions of the non-trading and trading positions to the overall internal risk capital for market risk is presented at the end of this section.
Non-trading portfolios
The Allianz Group’s non-trading portfolios contain the financial assets and liabilities of the Property-Casualty, Life/Health and Corporate
segments as well as all non-trading activities of the Banking segment. The Allianz Group holds and uses many different financial instruments in managing its businesses. Grouped according to our internal risk capital model categories, the following are the most significant market risks in terms of market values: equity price risk (including risks arising from common shares and preferred shares) and interest rate risk (arising from bonds, loans and mortgages).
Property-Casualty and Life/Health segments
The Allianz Group’s insurance operating entities hold equity investments usually to diversify their portfolios. 66% of the non-diversified internal risk capital allocated to the Property-Casualty and Life/Health segments for equity risk is assigned to our operating entities in Germany, Italy, France and the U.S.
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, backing policyholder obligations 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’ liabilities, which allows for active monitoring and management of our assets and liabilities. While the potential payments related to our liabilities in the Property-Casualty segment are typically shorter in maturity than the financial assets backing them, the opposite usually holds true for our Life/Health segment, which provides us with a natural hedge at the Allianz Group level.
We have allocated a significant part of the Life/Health segment’s non-diversified internal risk capital for interest rate risk to Western Europe (74% as of December 31, 2008), mainly to cover traditional life insurance products. Traditional products sold in Western Europe generally feature policyholder participation in the profits (or losses) of the insurance company issuing the contract, subject to a minimum guaranteed crediting rate. In particular, our Life/ Health contracts in Germany, France, Switzerland and Austria comprise a significant level of policyholder participation, limiting all sources of risk, including market, credit, actuarial and cost risks, which would otherwise be borne by Allianz. On the other hand, in accordance with the guarantees related
to these arrangements, we must credit minimum rates for individual contracts (e.g., in Germany, France, U.S., Italy and South Korea). As interest rates may fall below the guaranteed crediting rates in those markets, we are exposed to interest rate risk. The valuation of these guarantees, which takes into account the interaction of investment strategy and obligations to policyholders, forms an integral part of our internal risk capital model.
In 2008, we enhanced our internal risk capital model for the purpose of quarterly risk reporting and risk related-performance measurement (EVA®) in the Life/Health segment. The enhanced model is part of an integrated approach and is more closely linked to the calculation of Market Consistent Embedded Value (MCEV), which, on an economic basis, is considered the shareholders’ future profit embedded in the issued Life/Health business. This model, applied from January 1, 2008, increased 2007 Group diversified internal risk capital for the Life/Health segment by approximately a third.
Banking and Asset Management segments
Following the sale of Dresdner Bank, we do not consider market risk related to our continuing Banking operations to be significant at the Group level.
Although the internal risk capital requirements for the Asset Management segment only reflect business risk, 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. Our Asset Management operating entities monitor market risks using VaR models, sensitivity analyses and stress tests that estimate the potential loss under extreme market conditions. All underlying models are regularly reviewed by the risk departments of the respective local operating entities.
Corporate segment
The primary Corporate risks are interest rate, equity and foreign currency risks. The Corporate segment manages the equity investments of Allianz SE and its finance subsidiary holding companies, as well as securities issued to fund the capital requirements of the Allianz Group. The issued securities include structured products that might be partly repaid with equity participation securities held
in our asset portfolio. Some of the securities issued qualify as eligible capital for existing regulatory solvency requirements to the extent they constitute subordinated debt or are perpetual in nature.
On the level of the Corporate segment we are exposed to foreign currency risk because some of our subsidiaries’ local currencies are different from the Euro. If non-Euro foreign exchange rates decline against the Euro, from a Group perspective, the Euro equivalent net asset values also decline. Our primary exposures to foreign currency risk are related to the U.S. Dollar, Swiss Franc, British Pound and South Korean Won.
Trading portfolios
The trading portfolios of the Allianz Group consist of all assets and liabilities classified as “held for trading” positions, the majority of which were held in the Banking segment before the sale of Dresdner Bank. Activities in the Property-Casualty, Life/Health and Corporate segments designated as “trading” for accounting purposes relate mainly to hedging instruments for our insurance liabilities; in general, we do not actively trade structural hedge positions and they are not internally classified as trading.
For accounting purposes and from a management perspective, financial instruments are typically classified as held-for-trading if they are financial assets or financial liabilities that are acquired or incurred for the purpose of selling or repurchasing them in the near term. For accounting purposes, however, all derivative instruments must be classified as trading regardless of their specific use within the business or of whether management intends to sell or repurchase them in the near term,
and as such, their accounting classification may differ from Allianz Group’s management view. The market risk data for the trading portfolios of the Property-Casualty, Life/Health and Corporate segments reflects risks related to such derivatives that are required to be treated as “trading” for accounting purposes. However, derivatives used in the Allianz Group’s insurance operations and in the Corporate segment are principally used for hedging and not for trading purposes, and, as such, from a management perspective, we do not view them as “trading”.
Trading activities in the Asset Management segment and those related to our continuing Banking operations are immaterial to the Allianz Group as a whole. In our worldwide hedging and trading activities, the Allianz Group uses financial derivatives for the management of market risks and as a component of structured financial transactions. In terms of volume, the primary derivative products entered into by the Allianz Group are interest rate swaps, futures and options as well as foreign exchange forwards and equity derivatives.
Contributions of trading and non-trading portfolios
The following tables show the contribution of non-trading and trading positions to the overall internal risk capital for market risks of the Allianz Group. The figures take into account the diversification effect for all the main sources of risk addressed in our internal risk capital model. Certain financial instruments are included in more than one risk category because they may be affected by changes in more than one parameter. For example, equities denominated in non-Euro currencies are affected by fluctuation in both stock prices and exchange rates.
Allocated Internal Market Risk Capital By Business Segment and Source of Risk
(Non-Trading Portfolio Before Minority Interests and After Group Diversification)
As of December 31, | 2008(1) | 2007(2) | ||
€ mn | € mn | |||
Total Group | 12,152 | 13,352 | ||
Property-Casualty | 4,707 | 6,360 | ||
Interest rate | 1,105 | 265 | ||
Equity | 2,933 | 5,396 | ||
Real estate(3) | 646 | 673 | ||
Currency(4) | 23 | 26 | ||
Life/Health | 5,017 | 2,625 | ||
Interest rate | 1,920 | 205 | ||
Equity | 2,519 | 2,212 | ||
Real estate(3) | 578 | 208 | ||
Currency(4) | 0 | 0 | ||
Banking | 109 | 1,885 | ||
Interest rate | 5 | 11 | ||
Equity | 104 | 1,743 | ||
Real estate(3) | 0 | 76 | ||
Currency(4) | 0 | 55 | ||
Asset Management(5) | 0 | 0 | ||
Corporate | 2,319 | 2,482 | ||
Interest rate | 742 | 159 | ||
Equity | 684 | 1,029 | ||
Real estate(3) | 76 | 131 | ||
Currency(4) | 817 | 1,163 |
(1) | 2008 figures exclude discontinued operations. On a total Group basis, internal market risk capital related to our non-trading portfolio would amount to €12,546 million on a Group diversified basis, if discontinued operations were taken into account. |
(2) | 2007 figures include discontinued operations. |
(3) | All real estate assets are non-trading. |
(4) | Foreign currency risks are mainly allocated to the Corporate segment (please refer to “Internal Risk Capital Framework—Scope” for further information). |
(5) | The internal risk capital requirements for the Asset Management segment only reflect business risk (please refer to “Internal Risk Capital Framework—Scope” for further information). |
Allocated Internal Market Risk Capital By Business Segment and Source of Risk
(Trading Portfolio Before Minority Interests and After Group Diversification)
As of December 31, | 2008(1) | 2007(2) | ||
€ mn | € mn | |||
Total Group | 976 | 561 | ||
Property-Casualty | 67 | 117 | ||
Interest rate | 3 | 5 | ||
Equity | 64 | 112 | ||
Real estate(3) | 0 | 0 | ||
Currency(4) | 0 | 0 | ||
Life/Health | 379 | 211 | ||
Interest rate | 4 | 1 | ||
Equity | 375 | 210 | ||
Real estate(3) | 0 | 0 | ||
Currency(4) | 0 | 0 | ||
Banking | 66 | 77 | ||
Interest rate | 5 | 9 | ||
Equity | 61 | 61 | ||
Real estate(3) | 0 | 0 | ||
Currency(4) | 0 | 7 | ||
Asset Management(5) | 0 | 0 | ||
Corporate | 464 | 156 | ||
Interest rate | 0 | 0 | ||
Equity | 34 | 122 | ||
Real estate(3) | 0 | 0 | ||
Currency(4) | 430 | 34 |
(1) | 2008 figures exclude discontinued operations. On a total Group basis, internal market risk capital related to our trading portfolio would amount to €1,463 million on a Group diversified basis, if discontinued operations were taken into account. |
(2) | 2007 figures include discontinued operations. |
(3) | All real estate assets are non-trading. |
(4) | Foreign currency risks are mainly allocated to the Corporate segment (please refer to “Internal Risk Capital Framework—Scope” for further information). |
(5) | The internal risk capital requirements for the Asset Management segment only reflect business risk (please refer to “Internal Risk Capital Framework—Scope” for further information). |
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, counter-parties, 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:
Deterioration in creditworthiness of an obligor, including ultimately its failure to meet payment obligations (default and migration risk); and
Default on local government debt or temporary suspension of payment obligations (“moratorium”), deterioration of economic or political conditions, expropriation of assets, inability to transfer assets abroad due to sovereign intervention, freezing of converted and unconverted sums of money, etc. (country risk including transfer and conversion risk).
Group Risk’s obligor credit risk management framework is comparable to those widely used in the industry and is based on internal ratings, estimates of exposure at default (EAD) and loss given default (LGD). These measurements are all estimated using statistical analysis and professional judgment. Our aggregation methodology is comparable to approaches widely used in the industry known as “structural model”. In a structural model, a counterparty is deemed to have defaulted when the value of its total assets is lower than its total liabilities. Since changes in the asset value of a
company determine whether it defaults or migrates from one credit class to another, the correlation between different firms’ asset values determines the correlation between the firms’ defaults and migrations. Estimating these parameters allows us to aggregate credit risk across individual obligors using Monte-Carlo simulations to obtain the loss profile of a given portfolio—i.e., its loss probability distribution. The loss profile is the basis of our internal credit risk capital model.
We monitor and manage credit risks and concentrations within the portfolio based on a counterparty limit system that is applied across the entire Allianz Group. Counter-party limits are calculated taking into account the main risk drivers of credit risk and aim to cut off peak concentrations by industry and counterparty name in the portfolio. For monitoring the credit risk profile of our operating entities’ portfolios and the whole Allianz Group portfolio, credit reports for portfolio analysis are provided within a web-based limit system application.
Our internal credit risk capital increased in 2008 mainly due to rating downgrades of some of our counterparties following the financial turmoil throughout 2008. The high credit quality of our investment and reinsurance portfolio mitigated the impact that the broad credit deterioration had on Allianz Group’s credit risk profile. In response to the financial crisis, we have initiated a number of actions, for example, weekly review and adjustment of limit settings for the major financial institutions as a temporary measure to assess systemic risks of the financial industry and to recommend short-term actions to our operating entities in light of this severe market volatility.
Allocated Internal Credit Risk Capital by Business Segment and Source of Risk
(Total Portfolio Before Minority Interests)
Non-diversified | Group diversified | |||||||||||
As of December 31, | 2008(1) | 2007(2) | 2008(1) | 2007(2) | ||||||||
€ mn | € mn | € mn | € mn | |||||||||
Total Group | 5,019 | 7,983 | 3,372 | 5,701 | ||||||||
Percentage of total Group internal risk capital | 8 | % | 11 | % | 12 | % | 17 | % | ||||
Investment | 2,533 | 5,839 | 1,435 | 4,128 | ||||||||
(Re)insurance(3) | 2,486 | 2,144 | 1,937 | 1,573 | ||||||||
Property-Casualty | 3,196 | 2,779 | 2,305 | 2,016 | ||||||||
Investment | 872 | 832 | 494 | 588 | ||||||||
(Re)insurance(3) | 2,324 | 1,947 | 1,811 | 1,428 | ||||||||
Life/Health | 1,321 | 936 | 783 | 668 | ||||||||
Investment | 1,159 | 739 | 657 | 523 | ||||||||
(Re)insurance(3) | 162 | 197 | 126 | 145 | ||||||||
Banking | 428 | 4,216 | 242 | 2,981 | ||||||||
Asset Management(4) | — | — | — | — | ||||||||
Corporate | 74 | 52 | 42 | 36 |
As previously discussed, we determine internal risk capital figures on a quarterly basis. The table below presents the average internal risk capital for credit risk calculated over the four quarters of 2008
and 2007, as well as the high and low quarterly internal risk capital amounts calculated in both years. All figures include discontinued operations.
Average, High and Low Allocated Internal Credit Risk Capital by Source of Risk
(Total Portfolio Before Minority Interests, After Group Diversification and Including Discontinued Operations)
2008 | 2007 | |||||||||||
Over quarterly results | Over quarterly results | |||||||||||
Average | High | Low | Average | High | Low | |||||||
€mn | € mn | € mn | €mn | € mn | € mn | |||||||
Total Group | 6,127 | 6,614 | 5,837 | 5,385 | 5,701 | 5,247 | ||||||
Investment | 4,358 | 4,771 | 4,181 | 3,966 | 4,128 | 3,862 | ||||||
(Re)insurance(3) | 1,770 | 1,871 | 1,656 | 1,419 | 1,573 | 1,356 |
Property-Casualty, Life/Health and Corporate segments
In the Property-Casualty and Life/Health segments, credit risks arising from reinsurance counterparties are considered separately from issuer and counterparty risks arising from our investment activities, though the same methodology is applied. For the Corporate segment, our internal risk capital model covers only investment credit risk, as reinsurance activities are generally allocated to the Property-Casualty segment.
Credit risk—reinsurance and credit insurance
This risk category also covers the premium risk which our credit insurance entity Euler Hermes is exposed to due to its business model, as this type of risk is a special form of credit risk. As of December 31, 2008, it represented 64% of our total Group non-diversified internal risk capital allocated to credit reinsurance risk.
(1) | 2008 figures exclude discontinued operations. On a total Group basis, internal credit risk capital would amount to €9,353 million on a non-diversified basis and €6,614 million on a Group diversified basis, if discontinued operations were taken into account. |
(2) | 2007 figures include discontinued operations. |
(3) | The premium risk which our credit insurance entity Euler Hermes is exposed to due to its business model is also covered here, as this type of risk is a special form of credit risk. |
(4) | The internal risk capital requirements for the Asset Management segment only reflect business risk (please refer to “Internal Risk Capital Framework—Scope” for further information). |
We take steps to limit our liability from insurance business by ceding part of the risks we assume to the international reinsurance market. A dedicated team selects our reinsurance partners and considers only companies with strong credit profiles. We may also require letters of credit, cash deposits or other financial measures to further mitigate our exposure to credit risk. To manage the related credit risk, we compile Allianz Group-wide data on potential and actual recoverables in respect of reinsurance losses. At December 31, 2008, 74% of the Allianz Group’s reinsurance recoverables were distributed among reinsurers that had been assigned at least an “A” rating by Standard & Poor’s. Non-rated reinsurance recoverables represented 24% of the total reinsurance recoverables at December 31, 2008. Reinsurance recoverables without Standard & Poor’s rating include exposures to brokers, companies in run-off and pools, where no rating is available, and companies rated by A.M. Best.
As of December 31, 2008, 9% of our total Group non-diversified internal risk capital allocated to credit reinsurance risk was assigned to our operating entities in the U.S.
Reinsurance recoverables by rating class(1) as of December 31, 2008
in € bn
(1) | Represents gross exposure broken down by reinsurer. |
Credit risk—investment
As of December 31, 2008, our operating entities in the U.S. and Germany accounted for 40% of the non-diversified internal risk capital allocated to our Property-Casualty, Life/ Health and Corporate segments for investment credit risk.
We limit the credit risk of our fixed-income investments by setting high requirements on the creditworthiness of our issuers, by diversifying our investments and by setting limits for credit concentrations. We track the limit utilization by consolidating and monitoring our exposure across individual debtors and across all investment categories and business segments on a monthly basis. At December 31, 2008, approximately 94% of the fixed-income investments of the insurance companies of the Allianz Group had an investment grade rating and approximately 88% of the fixed-income investments were distributed among obligors that had been assigned at least an “A” rating by Standard & Poor’s.
Fixed-income investments by rating class as of December 31, 2008
fair values in € bn
In addition to these fixed-income investments, Allianz Group also has non-tradable mortgage loan portfolios in Germany and the U.S. As of December 31, 2008, 97% of the German mortgage portfolio obligors were assigned a Standard & Poor’s equivalent 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 managers. There have been no delinquent or foreclosed non-tradable commercial mortgage loans since 1994, and we thus regard the portfolio as investment grade based on additional stress test analysis. The North American Allianz insurance companies have a residential mortgage portfolio exposure of less than $2 million.
Banking and Asset Management segments
Following the sale of Dresdner Bank, we do not consider credit risk related to our continuing Banking operations to be significant at the Group level.
As part of the investment management process, the Asset Management segment’s entities assess credit risk affecting their customers’ portfolios. Though our Asset Management companies do not engage in any lending transactions, counterparty risks can arise in certain circumstances, such as with broker-related over-the-counter transactions. The Asset Management operating entities analyze the credit-worthiness of their counterparties and set limits per counterparty based on objective criteria.
Actuarial risks consist of premium and reserve risks in the Property-Casualty segment as well as biometric risks in our Life/Health segment. In the Banking and Asset Management segments, actuarial risks are not relevant. Although the Corporate segment provides some guarantees that transfer small parts of the actuarial risk away from local entities, such risk is primarily transferred by internal reinsurance and allocated to the Property-Casualty segment.
Allocated Internal Actuarial Risk Capital by Business Segment and Source of Risk(1)
(Total Portfolio Before Minority Interests)
Non-diversified | Group diversified | |||||||||||
As of December 31, | 2008(2) | 2007(3) | 2008(2) | 2007(3) | ||||||||
€ mn | € mn | € mn | € mn | |||||||||
Total Group | 22,533 | 23,038 | 7,265 | 6,521 | ||||||||
Percentage of total Group internal risk capital | 34 | % | 32 | % | 25 | % | 20 | % | ||||
Premium CAT | 5,913 | 5,780 | 1,390 | 1,077 | ||||||||
Premium non-CAT | 8,083 | 8,284 | 3,517 | 3,249 | ||||||||
Reserve | 7,307 | 8,037 | 2,308 | 2,170 | ||||||||
Biometric | 1,230 | 937 | 50 | 25 | ||||||||
Property-Casualty | 20,851 | 21,705 | 7,072 | 6,389 | ||||||||
Life/Health | 1,244 | 950 | 55 | 29 | ||||||||
Corporate(4) | 438 | 383 | 138 | 103 |
(1) | As risks are measured by an integrated approach on an economic basis, internal risk capital takes reinsurance effects into account. |
(2) | 2008 figures exclude discontinued operations. On a total Group basis, internal actuarial risk capital would amount to €22,533 million on a non-diversified basis and €6,614 million on a Group diversified basis, if discontinued operations were taken into account. Although our discontinued operations are not exposed to actuarial risks, they have an impact on Group diversified internal risk capital due to diversification effects. The discontinuation of certain banking operations results in less diversified insurance operations. |
(3) | 2007 figures include discontinued operations. |
(4) | Allianz SE has a conditional commitment to make capital payments to its U.S. subsidiary, Fireman’s Fund Insurance Co. In particular, Allianz SE is required to make these payments in case of future negative developments relating to the reserves of Fireman’s Fund for the year 2003 and before. |
In general, Group-diversified internal actuarial risk capital increased, as the discontinuation of certain banking operations results in less diversified insurance operations and a smaller diversification effect. Before Group diversification, internal premium CAT risk capital remained relatively stable compared to 2007, while it increased after Group diversification additionally driven by a shift in contributions from other risk categories, mainly due to the decline in internal market risk capital.
As previously discussed, we determine internal risk capital figures on a quarterly basis. The table below presents the average internal risk capital calculated for actuarial risks over the four quarters of 2008 and 2007, as well as the high and low quarterly internal risk capital amounts calculated in both years. All figures include discontinued operations.
Average, High and Low Allocated Internal Actuarial Risk Capital by Source of Risk
(Total Portfolio Before Minority Interests, After Group Diversification and Including Discontinued Operations)
2008 | 2007 | |||||||||||
Over quarterly results | Over quarterly results | |||||||||||
Average | High | Low | Average | High | Low | |||||||
€ mn | € mn | €mn | € mn | € mn | € mn | |||||||
Total Group | 6,597 | 6,796 | 6,421 | 6,311 | 6,521 | 6,111 | ||||||
Premium CAT | 1,245 | 1,258 | 1,218 | 1,007 | 1,077 | 953 | ||||||
Premium non-CAT | 3,333 | 3,399 | 3,264 | 3,210 | 3,249 | 3,143 | ||||||
Reserve | 1,979 | 2,098 | 1,872 | 2,071 | 2,170 | 1,984 | ||||||
Biometric | 41 | 45 | 35 | 23 | 25 | 21 |
Property-Casualty segment
A substantial portion of the Property-Casualty segment’s non-diversified internal actuarial risk capital is assigned to our operating entities in Germany, Italy, France and the U.S. (49% as of December 31, 2008).
Premium risk
Premium risk represents risk that, during a one-year time horizon, underwriting profitability is less than expected. Such risk is subdivided into catastrophe risk (CAT risk) and non-catastrophe risk (non-CAT risk). We primarily quantify and manage premium risk based on actuarial models that are used to derive loss distributions for each risk.
Natural disasters such as earthquakes, storms and floods represent a special challenge for risk management due to their accumulation potential and occurrence volatility. In order to measure such risks and better estimate the potential effects of natural disasters, we use special modeling techniques in which we combine data about our portfolio (such as the geographic distribution and characteristics of insured objects and their values), with simulated natural disaster scenarios to estimate the magnitude and frequency of potential losses. Where such models do not exist (e.g., flood risk in Italy), we use scenario-based methods to estimate probable losses.
More than a third (36% as of December 31, 2008) of the non-diversified internal premium risk capital allocated to natural catastrophe risk was borne by our operating entities in Germany and the U.S. Our exposure to losses from wind-storms over Europe (including hail) is our largest exposure to natural catastrophe, followed by U.S. hurricanes and
Californian earthquakes. Our loss potential net of reinsurance for European windstorms is approximately €1.3 billion, measured at a probability level of once in 250 years (i.e., 0.4%).
Reserve risk
Reserve risk represents the risk of losses emerging on claims provisions over a one-year time horizon. We measure and manage reserve risks by constantly monitoring the development of the provisions for insurance claims and change the provision for reserves in line with actuarial standards if necessary. We use approaches that are similar to the methods used for setting the reserves.
Life/Health segment
Biometric risk
We consider mortality and longevity risks which can cause variability in policyholder benefits resulting from the unpredictability of the (non-) incidence of death and the timing of its occurrence. For modeling these risks within our internal risk capital model, we distinguish level, trend and calamity risk. Biometric assumptions, such as life expectancy, play a significant role. To the extent available, we use assumptions approved by supervisory authorities and actuarial associations to enhance our models.
Due to the offsetting effects of mortality risk and longevity risk inherent in the combined portfolios of life insurance and annuity products, as well as due to a geographically diverse portfolio, our Life/Health segment does not have significant concentrations of biometric risk.
Business risks consist of operational risks and cost risks. Operational risks represent the loss resulting from inadequate or failed internal processes, or from personnel and systems, or from external events, such as interruption of business operations due to a break-down of electricity or a flood, damage caused by employee fraud or the losses caused by court cases. Operational risks include legal risk,
whereas strategic risk and reputational risks are excluded in accordance with the requirements of Solvency II and Basel II. Cost risks consist of unexpected changes in business assumptions and unanticipated fluctuations in earnings arising from a decline in income without a corresponding decrease in expenses. They also include the risk of budget deficits resulting from lower revenues or higher costs than budgeted.
Allocated Internal Business Risk Capital by Business Segment
(Total Portfolio Before Minority Interests)
Non-diversified | Group diversified | |||||||||||
As of December 31, | 2008(1) | 2007(2) | 2008(1) | 2007(2) | ||||||||
€ mn | € mn | € mn | € mn | |||||||||
Total Group | 15,013 | 18,365 | 5,155 | 7,233 | ||||||||
Percentage of total Group internal risk capital | 22 | % | 25 | % | 18 | % | 22 | % | ||||
Property-Casualty | 5,898 | 6,425 | 1,707 | 2,064 | ||||||||
Life/Health | 5,163 | 4,288 | 1,864 | 1,840 | ||||||||
Banking | 145 | 1,630 | 59 | 634 | ||||||||
Asset Management(3) | 3,304 | 5,576 | 1,453 | 2,621 | ||||||||
Corporate | 503 | 446 | 72 | 74 |
The decrease in internal business risk capital related to the Asset Management segment is primarily driven by an update of the risk factor incorporated within the model used to derive business risk capital for these operations. The factor was reviewed, and as a result, a level of conservatism within this factor has been reduced to better reflect the risk capital needs of this segment.
As discussed, because substantially all of the investments managed by the Asset Management segment are held for the benefit of either third parties or Allianz insurance entities, we are not exposed to significant market and credit risk in the Asset Management segment. As a result, the internal risk capital requirements for the Asset Management segment only reflect business risk.(4)
Allianz has developed a Group-wide operational risk management framework that focuses on early recognition and pro-active management of operational risks. The framework defines roles and
responsibilities, risk processes and methods and has been implemented at the major Allianz Group companies. Local risk managers ensure this framework is implemented in the respective operating entities. The operating entities identify and evaluate relevant operational risks and control weaknesses via a structured self assessment. Furthermore, operational losses are collected in a central loss database. From the middle of 2008, the data collection has been extended to all our operating entities. An analysis of the causes for significant losses is used to enable the operating entities to implement measures to avoid or reduce future losses. The measures adopted may include revising processes, improving failed or inappropriate controls, installing comprehensive security systems and strengthening emergency plans. This structured reporting is designed to provide comprehensive and timely information to senior management of the Allianz Group and the relevant local operating entities.
(1) | 2008 figures exclude discontinued operations. On a total Group basis, internal business risk capital would amount to €16,362 million on a non-diversified basis and €5,635 million on a Group diversified basis, if discontinued operations were taken into account. |
(2) | 2007 figures include discontinued operations. |
(3) | The internal risk capital requirements for the Asset Management segment only reflect business risk (please refer to “Internal Risk Capital Framework—Scope” for further information). |
(4) | Internal risk capital for guarantees in the Asset Management segment is not significant. |
There are certain risks that cannot be fully quantified across the Group using our internal risk capital model. For these risks, we also pursue a systematic approach with respect to identification, analysis, assessment and monitoring. In general, the risk assessment is based on qualitative criteria or scenario analyses. The most important of these other risks include liquidity, reputational and strategic risk.
Liquidity risk
Liquidity risk is the risk that short-term current or future payment obligations cannot be met or can only be met on the basis of altered conditions, along with the risk that in the event of a company liquidity crisis, refinancing is only possible at higher interest rates or that assets may have to be liquidated at a discount. This risk can arise primarily if there are mismatches in the timing of cash payments and funding obligations. Liquidity risk does not include the risk of a change in market prices due to a worsening of the market liquidity of assets, as this is a component of market risk analyzed through our internal risk capital model (e.g., the assumed volatility of real estate investments takes into account historical observations). Funding risk, a particular form of liquidity risk, arises when the necessary liquidity to fund illiquid asset positions cannot be obtained at the expected terms and when required. For more information, refer to “Item 3. Risk Factors—Risks arising from the financial markets—Allianz Group’s financial condition, liquidity needs, access to capital and cost of capital may be significantly affected by adverse developments in the capital and credit markets”.
Corporate segment
On the Group level, liquidity risks arise mainly from capital requirements of subsidiaries and necessary refinancing of expiring strategic financial liabilities. The liquidity position of Allianz SE is monitored on a daily basis and reported to the Board of Management regularly. The main tools to limit unforeseen liquidity requirements are committed credit lines from banks, commercial paper facilities, medium-term debt issuance programs, access to the market of sale and repurchase agreements (the so-called “Repo market”) as well as internal resources in the form of intra-Group loans and an international cash pooling infrastructure.
Property-Casualty and Life/Health segments
Our insurance operating entities manage liquidity risk locally, using local asset-liability management systems designed to ensure that assets and liabilities are adequately matched. To the extent available, the approaches used to project the liability cash flows for the Property-Casualty segment are similar to the methods used for setting reserves.
Liquidity risk in our insurance segments is a secondary risk following external events, such as natural disasters, that are generally reflected in our internal risk capital model. Therefore, limiting and monitoring of the associated primary risks (such as through the use of reinsurance) also helps limit our liquidity risk related to such events. Extreme adverse changes in business assumptions such as lapse or renewal rates or costs may cause liquidity risk as well. However, these effects are covered by our internal risk capital model.
The quality of our investments also provides comfort that we can meet high liquidity requirements in unlikely events. Furthermore, in the case of an extraordinary event, a portion of the applicable payments may usually be made with a certain time lag, which reduces the risk that short-term current payment obligations cannot be met. We employ actuarial methods for estimating our liabilities arising from insurance contracts. In the course of standard liquidity planning we reconcile the cash flows from our investment portfolio with the estimated liability cash flows. These analyses are performed on the operating entity level and aggregated at the Group level. Excess liquidity is centrally pooled on the Group level and can be transferred to single operating entities if necessary.
Banking and Asset Management segments
Due to the small size of risk weighted assets and total assets (as of December 31, 2008, €7.4 billion and €19.8 billion, respectively), liquidity risk related to our continuing Banking operations is not significant at the Group level.
In the Asset Management segment, we limit liquidity risk by continually reconciling the cash flows from our operating business with our commitments to pay liabilities. Forecasting and managing liquidity is a regular process, designed to meet both regulatory requirements and Allianz Group standards.
Reputational risk
Reputational risk is the risk of direct loss or loss in future business caused by a decline in the reputation of the Allianz Group or one or more of its specific operating entities from the perspective of its stakeholders—shareholders, customers, staff, business partners or the general public. First, every action, existing or new transaction or product can lead to losses in the value of our reputation, either directly or indirectly, and can also result in losses in other risk categories. Second, every loss in other risk categories, irrespective of its size, can pose reputational risk to the Allianz Group. Therefore, reputational risk can both cause and result from losses in all risk categories such as market or credit risks.
Our operating entities identify and assess reputational risks within their business processes. In addition, Group Risk identifies and assesses reputational risk qualitatively as part of a quarterly evaluation. On the basis of this evaluation, Group Risk creates an overview of local and global risks which also includes reputational risks, analyses the risk profile of the Allianz Group and regularly informs management about the current situation.
Strategic risk
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 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 entity.
These risks are evaluated and analyzed quarterly in the same way as reputational risk.
We plan to continue to strengthen our risk management framework and systems in 2009. In particular, we are striving to constantly improve our accumulation monitoring systems, particularly those related to natural and man-made catastrophes, and are continuing to develop and extend our modeling capabilities for catastrophe risk. In addition, we plan to establish an internal expert network dedicated to emerging insurance risks such as nanotechnology and food additives.
Solvency II is a major European project and is expected to lead to significant changes to the European insurance solvency requirements in the coming years; the Allianz Group is actively participating in the process. We are continuously providing feedback on the proposals and analyses of the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) and the EU Commission. Furthermore, we participate in the Quantitative Impact Studies and give technical advice, for instance, through the Chief Risk Officer Forum, which is comprised of the Chief Risk Officers of the major European insurance companies and financial conglomerates. It is our aim to have our internal risk capital model and our risk management practices comply with the forthcoming internal model supervisory requirements at an early stage. Accordingly, we are constantly reviewing them on the basis of the evolving standards. In order to fulfill future Solvency II requirements, Allianz has launched a Solvency II umbrella project which consists of quantitative and qualitative workstreams. In particular, these workstreams cover activities 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 initiative of the Solvency II umbrella project, we are strengthening our efforts to consolidate our risk analysis infrastructure and to establish a best practice technical platform. The key objectives of this initiative are to (i) improve methodology and increase the scope and (ii) extend the functionality and enhance user benefits within an efficient risk capital process. We are planning to thoroughly test the new model and reconcile its results with the existing model, and aiming to introduce the new internal model framework for our
internal risk based performance measurement. This platform will help us establish a framework that fulfills the quantitative Pillar I requirements under the Solvency II project after internal model approval for regulatory purposes.
In addition to the key objectives defined by the Solvency II umbrella project for all risk types, the credit risk implementation project aims to streamline the existing credit risk data submission process and to develop a new web-based Credit Risk Reporting Platform for comprehensive and flexible portfolio analyses as well as for a more powerful limit-setting framework including monitoring and management processes. This reporting tool will support all operating entities and the Group in their decisions regarding asset management and strategic portfolio optimization.
As part of the Solvency II umbrella project, a subproject has been launched to roll-out a new operational risk management platform to all operating entities which will automate the operational risk management process, complemented by a refined risk and control self-assessment based on scenarios.
ITEM 12. | Description of Securities other than Equity Securities |
Not applicable.
ITEM 13. | Defaults, Dividend Arrearages and Delinquencies |
None.
ITEM 14. | Material Modifications to the Rights of Security Holders and Use of Proceeds |
None.
ITEM 15. | Controls and Procedures |
For its fiscal year ending December 31, 2008, Allianz performed an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures. In doing so, we recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable, and not absolute, assurance of achieving the desired control objectives. Allianz’s management is required to apply judgment in evaluating the risks facing
Allianz in achieving its objectives, in determining the risks that are considered acceptable to bear, in assessing the likelihood of the risks concerned materializing, in identifying its ability to reduce the incidence and impact of the risks that do materialize and in ensuring the costs of operating particular controls are proportionate to the benefit.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated Allianz’s disclosure controls and procedures, as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, in light of the judgments noted above as of the end of the period covered by this report. Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that these disclosure controls and procedures provided reasonable assurance as to effectiveness as of December 31, 2008.
Management’s Annual Report on Internal Control Over Financial Reporting
The management of Allianz is responsible for establishing and maintaining adequate internal control over financial reporting. Allianz’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with International Financial Reporting Standards (IFRS)(1).
Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of Allianz; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS, that our receipts and expenditures are being made only in accordance with the authorizations of the management and the directors of Allianz; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
(1) | As issued by the IASB and adopted by the European Union. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of Allianz’s internal control over financial reporting as of December 31, 2008. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in “Internal Control—Integrated Framework.” Based on this assessment, Allianz’s management has concluded that Allianz maintained effective internal control over financial reporting as of December 31, 2008.
Report of Independent Registered Public Accounting Firm
To the Board of Management and Supervisory Boardof Allianz SE:
We have audited Allianz SE’s and its subsidiaries’ (collectively, “the Allianz Group”) internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Allianz Group’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Allianz Group’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Allianz Group maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Allianz Group as of December 31, 2008 and 2007, and the related
consolidated income statements, consolidated statements of changes in equity and consolidated statements of cash flows for each of the years in the three-year period ended December 31, 2008 including the disclosures provided in the Qualitative and Quantitative Disclosures about Market Risk on pages 153 to 175, and our report dated March 31, 2009, expressed an unqualified opinion on those consolidated financial statements.
March 31, 2009
KPMG AG
Wirtschaftsprüfungsgesellschaft
Munich, Germany
(formerly
KPMG Deutsche Treuhand-Gesellschaft
Aktiengesellschaft
Wirtschaftsprüfungsgesellschaft)
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting that occurred during fiscal year 2008, which have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.
ITEM 16A. | Audit Committee Financial Expert |
Our Supervisory Board has determined that Dr. Franz B. Humer, Dr. Wulf H. Bernotat and Igor Landau meet the criteria of an audit committee financial expert, as that term is defined in Item 16A(b) of Form 20-F. Dr. Franz B. Humer, Dr. Wulf H. Bernotat and Igor Landau are “independent” members of the Supervisory Board in accordance with NYSE listing standards applicable to Allianz SE.
ITEM 16B. | Code of Ethics |
In response to Section 406 of the Sarbanes-Oxley Act of 2002, we have adopted a specific Code of Ethics in addition to our general Code of Conduct that applies to all members of our Board of Management, including persons performing the functions of a principal executive officer, principal financial officer, principal accounting officer and controller and senior employees performing similar functions. A copy of this code of ethics is available on our Internet website www.allianz.com/corporate-governance. (Reference to this “uniform resource locator” or “URL” is made as an inactive textual reference for informational purposes only. The information found at this website is not incorporated by reference into this document). There have been no amendments or waivers to this code of ethics since its adoption. Information regarding any future amendments or waivers will be published on the aforementioned website.
ITEM 16C. | Principal Accountant Fees and Services |
KPMG AG Wirtschaftsprüfungsgesellschaft (or “KPMG AG”) serves as the external auditing firm for the Allianz Group.
The table set forth below contains aggregate fees billed for each of the last two fiscal years by KPMG AG or KPMG AG and the world wide member firms of KPMG International (or “KPMG”) in the following categories: (i) Audit fees, which comprise fees billed for services rendered for the audit of the Allianz Group’s consolidated financial statements, the statutory audits of the financial statements of Allianz SE and its subsidiaries or services the are normally provided in connection with statutory and regulatory filings or engagements; (ii) Audit-related fees, which comprise fees billed for assurance and related services that are reasonably related to the performance of the audit or review of the financial statements and which are not reported under (i); (iii) Tax fees, which comprise fees billed for professional services rendered for tax advice and tax compliance; and (iv) All other fees, which comprise fees billed for all other products and services provided other than the services reported under (i) through (iii).
Fees billed
KPMG worldwide | KPMG AG and affiliated entities(1) | |||||||
2008 | 2007 | 2008 | 2007 | |||||
€ mn | € mn | € mn | € mn | |||||
Audit fees | 50.5 | 49.0 | 27.6 | 27.7 | ||||
Audit-related fees | 6.1 | 9.8 | 4.4 | 8.6 | ||||
Tax fees | 3.3 | 4.2 | 2.0 | 2.8 | ||||
All other fees | 7.5 | 4.1 | 6.8 | 2.8 | ||||
Total | 67.4 | 67.1 | 40.8 | 42.0 | ||||
(1) | KPMG AG and affiliated entities comprises KPMG operations in Germany, the United Kingdom, Spain and Switzerland. Effective October 1, 2007, KPMG operations in Germany and the United Kingdom became affiliated entities; effective October 1, 2008 and retroactively effective October 1, 2007 operations in Spain and Switzerland joined. Fee amounts pertaining to the year 2007 have been adjusted accordingly. |
Audit fees
KPMG billed the Allianz Group an aggregate of €50.5 million (2007: €49.0 million) in connection with professional services rendered for the audit of our annual consolidated financial statements and services normally provided by KPMG in connection with statutory and regulatory filings or engagements. These services consisted mainly of periodic review engagements and the annual audit.
Audit-related fees
KPMG billed the Allianz Group an aggregate of €6.1 million (2007: €9.8 million) for assurance and related services. These services consisted primarily of advisory and consulting services related to accounting and financial reporting standards and financial due diligence services.
Tax fees
KPMG billed the Allianz Group an aggregate of €3.3 million (2007: €4.2 million) for professional services, primarily for tax advice.
All other fees
KPMG billed the Allianz Group an aggregate of €7.5 million (2007: €4.1 million) for other services, which consisted primarily of services under the guidance of Allianz Group management and general consulting services.
All services provided by KPMG to Allianz Group companies must be approved by the Audit Committee of the Allianz SE Supervisory Board. Services other than audit services must be pre-approved by the Audit Committee. The Audit Committee pre-approval process is based on the use of a “Positive List” of activities decided by the Audit Committee and, in addition, a “Guiding Principles and User Test” is applied. Group Compliance and KPMG report to the Audit Committee periodically with respect to services performed. In 2008, the percentage of the total amount of revenue we paid to our principal accountants represented by non-audit services subject to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X was less than 5%.
ITEM 16D. | Exemptions from the Listing Standards for Audit Committees |
Our Audit Committee consists of three shareholder representatives and two employee representatives, one of whom is employed by the Allianz Group. With respect to the employee representative employed by the Allianz Group, Allianz SE relies on the exemption afforded by Rule 10A-3(b)(1)(iv)(C) under the Securities Exchange Act of 1934. We believe that such reliance does not materially adversely affect the ability of the Audit Committee to act independently or to satisfy the other requirements of Rule 10A-3.
ITEM 16E. | Purchases of Equity Securities by the Issuer and Affiliated Purchasers |
The table below sets forth the information with respect to purchases made by or on behalf of Allianz SE or any “affiliated purchaser”, as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, of Allianz SE shares for the year ended December 31, 2008.
Period | Total Number of Shares Purchased(1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs | ||||||
January 1/1/08-1/31/08 | — | — | N/A | N/A | ||||||
February 2/1/08-2/28/08 | — | — | ||||||||
March 3/1/08-3/31/08 | — | — | ||||||||
April 4/1/08-4/30/08 | — | — | ||||||||
May 5/1/08-5/31/08 | — | — | ||||||||
June 6/1/08-6/30/08 | — | — | ||||||||
July 7/1/08-7/31/08 | — | — | ||||||||
August 8/1/08-8/31/08 | — | — | ||||||||
September 9/1/08-9/30/08 | — | — | ||||||||
October 10/1/08-10/31/08 | — | — | ||||||||
November 11/1/08-11/30/08 | 700,000 | (2) | 64,30 | (2) | ||||||
December 12/1/08-12/31/08 | — | — | ||||||||
Total | 700,000 | 64,30 | ||||||||
(1) | This table excludes market-making and related hedging purchases by Dresdner Bank and certain other Allianz Group entities. The table also excludes Allianz SE shares purchased by investment funds managed by Allianz Group entities for clients in accordance with investment strategies that are established by fund managers acting independently of Allianz SE. |
(2) | Allianz SE purchased these newly issued shares in connection with the Allianz Group’s Employee Stock Purchase Plan. |
ITEM 16G. | Disclosure about Differences in Corporate Governance Practices |
The following summarizes the significant differences between the corporate governance standards set forth by the New York Stock Exchange (NYSE) for U.S. companies listed on the NYSE and German and European corporate governance practices as Allianz SE has implemented them.
General
Allianz SE is a European Company, incorporated in the Federal Republic of Germany (“Germany”) and organized under the laws of Germany and the European Union. It has a dual board system, consisting of the Board of Management (Vorstand) and the Supervisory Board (Aufsichtsrat). The two boards are separate and no individual may serve simultaneously on both boards. The Board of Management is responsible for managing the day-to day business of the Company and the Supervisory Board advises and oversees the Board of Management. This dual board system of Allianz SE contrasts with the unitary board system of U.S. companies and therefore also with some of the corporate governance standards set forth by the NYSE, which refer to the unitary board of directors of U.S. companies.
German Corporate Governance RulesRemuneration of the Supervisory Board
Principal sourcesRemuneration system
The remuneration of enacted corporate governance standards for German stock corporations arethe Supervisory Board is governed by §11 of the Statutes of Allianz SE. In line with §113 of the German Stock Corporation Act, the General Meeting is responsible for establishing the Supervisory Board’s remuneration. Accordingly, the provisions on the amount and structure of the German Co-determination Act (Mitbestimmungsgesetz). In addition,Supervisory Board remuneration in §11 of the German Corporate Governance Code (the “Code”), publishedStatutes were ratified by the German MinistryAnnual General Meeting in 2005. Upon the conversion of Justice (Bundesministerium der Justiz) for the first timeAllianz AG into Allianz SE in 2002 and now effective in its version as of June 2, 2005, presents essential statutory regulations for the corporate governance of German listed companies. 2006, these provisions were adopted by shareholders without changes.
The aimkey principles of the CodeSupervisory Board remuneration are:
Total remuneration is set at an appropriate level based on the scale and scope of the Supervisory Board members’ duties and responsibilities as well as the Company’s activities, business and financial situation.
An appropriate balance is maintained between fixed remuneration and short-term and long-term performance based components in order to make the German corporate governance rules related to German listed stock corporations transparent for national and international investors. As a German listed stock corporation, Allianz AG is subjectadhere to the Code.
The Code comprises a setprinciples of best-practice guidelines. In addition to restating various corporate governance-related provisions of German law, the Code contains “recommendations”, which reflect widely recognized standards of corporate governance. Listed companies can deviate from the recommendations, but are then required to disclose this annually. Furthermore, the Code contains “suggestions”, which incorporate additional standards for the soundneutrality and responsible management and supervision of a company. Companies can deviate from the Code’s suggestions without disclosure. Topics covered by the Code include:
The compositionremuneration conforms to the individual functions and responsibilities of the Supervisory Board and committeesmembers, such as chair or vice-chair or committee mandates.
Three components make up the regular remuneration of a member of the Supervisory Board of Allianz SE, i.e. the remuneration without taking into account additional remuneration for the Chairperson, Deputy Chairpersons and/or members and Chairpersons of committees:
The fixed remuneration amounts to €50,000 per fiscal year.
The first performance-based component of remuneration has a short-term focus. It depends on the increase of the consolidated earnings-per-share compared to the previous fiscal year. It amounts to €150 for each tenth percentage point by which the Group’s earnings-per-share increased in comparison to the preceding year and is set at a maximum limit per member of €24,000.
The second performance-based component of remuneration depends on the increase of the consolidated earnings-per-share compared to this figure three years ago and therefore seeks to reflect long-term performance. It amounts to €60 for each tenth percentage point by which the Group’s earnings-per-share increased over the past three years. It is also set at a maximum limit of €24,000.
Maximum regular remuneration
With the two variable remuneration components being capped at a maximum limit of €24,000 and a fixed sum of €50,000, the maximum total regular compensation for a Supervisory Board member amounts to €98,000 per fiscal year. This maximum amount is reached when the previous year’s earnings-per-share have risen by 16.0% and when this indicator has further improved by a total of 40.0% or more over the last three years. If there has been no improvement in the Allianz Group’s earnings-per-share during the relevant period (i.e. the past fiscal year or the past three years), no performance-based remuneration will be awarded.
Compliance with German Corporate Governance Code
The structure of the Supervisory Board’s remuneration complies with the recommendation and the suggestion of the German Corporate Governance Code under which members of the Supervisory Board shall receive fixed as well as performance-based compensation that should contain components based on the long-term performance of the business. We believe that this form of the Supervisory Board’s remuneration has proven to be effective, and that the earnings-per-share performance measure is appropriate for the calculation of the performance-based remuneration of the Supervisory Board.
Chair and committees, limits and attendance fees
The Chairperson and Deputy Chairpersons of the Supervisory Board as well as the Chairperson and members of Supervisory Board committees receive additional remuneration as follows: The Chairperson of the Supervisory Board receives double, and the Deputy Chairpersons receive one-and-a-half times, the regular remuneration of a member of the Supervisory Board. Members of the Personnel Committee, Standing Committee and Risk Committee receive an additional 25.0% above the regular remuneration, and the Chairpersons of each of these committees receive 50.0% over the regular
remuneration. Members of the Audit Committee are entitled to a fixed sum of €30,000 per year and the Audit Committee Chairperson receives €45,000. No additional remuneration is granted to the members and rules for avoiding and resolving conflicts of interest;
There is a maximum limit on the total remuneration of each member of the Supervisory Board. It is reached when the Chairperson of the Supervisory Board has been awarded triple, and the other members of the Supervisory Board double, the regular remuneration of a member of the Supervisory Board.
The relationship betweenmembers of the Supervisory Board receive a €500 attendance fee for each Supervisory Board or committee meeting that they attend in person. This sum remains unchanged if several meetings occur on one day or when various meetings are held on consecutive days.
Figures for 2008 fiscal year
The Group’s earnings-per-share were negative in 2008. The performance-based remuneration of the Supervisory Board being based on the increase of the Group’ earnings-per-share, no short-term or long-term performance-based remuneration will be awarded to the Supervisory Board for 2008. For 2008 the regular remuneration for a member of the Supervisory Board thus amounted to a total of €50,000, being the fixed remuneration. The maximum limit of remuneration applicable to the Chairman of the Supervisory Board, being three times the regular remuneration, amounted to €150,000, the maximum limit of remuneration applicable to the other Supervisory Board members amounted to €100,000.
The total remuneration for the Supervisory Board members including attendance fees amounted to €1,080,000 in 2008, compared to €1,598,305 in 2007. Accordingly, the average annual remuneration for the Supervisory Board members decreased to €90,000 (2007: €132,274). The reason for this is that no performance-based remuneration was awarded.
Remuneration of the Supervisory Board of Allianz SE
Supervisory Board | Fixed remuneration | Long-term performance based remuneration | Short-term performance based remuneration | Committee remuneration | ||||||||||||
2008 | 2007 | 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | |||||||||
€ | € | € | € | € | € | € | € | |||||||||
Dr. Henning Schulte-Noelle (Chairman) | 100,000 | 100,000 | 0 | 48,000 | 0 | 16,200 | 75,000 | 123,150 | ||||||||
Dr. Gerhard Cromme (Deputy Chairman) | 75,000 | 75,000 | 0 | 36,000 | 0 | 12,150 | 36,250 | 86,050 | ||||||||
Claudia Eggert-Lehmann (Deputy Chairwoman) (until January 12, 2009) | 75,000 | 75,000 | 0 | 36,000 | 0 | 12,150 | 25,000 | 41,050 | ||||||||
Dr. Wulf H. Bernotat | 50,000 | 50,000 | 0 | 24,000 | 0 | 8,100 | 42,500 | 50,525 | ||||||||
Jean-Jacques Cette | 50,000 | 50,000 | 0 | 24,000 | 0 | 8,100 | 30,000 | 30,000 | ||||||||
Godfrey Robert Hayward | 50,000 | 50,000 | 0 | 24,000 | 0 | 8,100 | 12,500 | 20,525 | ||||||||
Dr. Franz B. Humer | 50,000 | 50,000 | 0 | 24,000 | 0 | 8,100 | 50,000 | 20,525 | ||||||||
Prof. Dr. Renate Köcher | 50,000 | 50,000 | 0 | 24,000 | 0 | 8,100 | 12,500 | 20,525 | ||||||||
Peter Kossubek (since May 2, 2007) | 50,000 | 33,334 | 0 | 16,000 | 0 | 5,400 | 12,500 | 13,684 | ||||||||
Igor Landau | 50,000 | 50,000 | 0 | 24,000 | 0 | 8,100 | 30,000 | 30,000 | ||||||||
Jörg Reinbrecht | 50,000 | 50,000 | 0 | 24,000 | 0 | 8,100 | 30,000 | 30,000 | ||||||||
Margit Schoffer (until May 2, 2007) | — | 20,834 | — | 10,000 | — | 3,375 | — | 8,553 | ||||||||
Rolf Zimmermann | 50,000 | 50,000 | 0 | 24,000 | 0 | 8,100 | 12,500 | 20,525 | ||||||||
Total | 700,000 | 704,168 | 0 | 338,000 | 0 | 114,075 | 368,750 | 495,112 |
Total remuneration including attendance fees
Total remuneration (fixed, performance based and committee) (after cap) | Attendance fees | Total amount (total remuneration and attendance fees) | ||||||||||||
Supervisory Board | 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | ||||||||
€ | € | € | € | € | € | |||||||||
Dr. Henning Schulte-Noelle (Chairman) | 150,000 | (3) | 246,300 | (1) | 4,000 | 2,500 | 154,000 | 248,800 | ||||||
Dr. Gerhard Cromme (Deputy Chairman) | 100,000 | (4) | 164,200 | (2) | 4,000 | 3,500 | 104,000 | 167,700 | ||||||
Claudia Eggert-Lehmann (Deputy Chairwoman) (until January 12, 2009) | 100,000 | 164,200 | 3,500 | 2,500 | 103,500 | 166,700 | ||||||||
Dr. Wulf H. Bernotat | 92,500 | 132,625 | 4,000 | 3,000 | 96,500 | 135,625 | ||||||||
Jean-Jacques Cette | 80,000 | 112,100 | 4,000 | 3,000 | 84,000 | 115,100 | ||||||||
Godfrey Robert Hayward | 62,500 | 102,625 | 3,500 | 2,000 | 66,000 | 104,625 | ||||||||
Dr. Franz B. Humer | 100,000 | 102,625 | 4,500 | 2,000 | 104,500 | 104,625 | ||||||||
Prof. Dr. Renate Köcher | 62,500 | 102,625 | 3,500 | 2,000 | 66,000 | 104,625 | ||||||||
Peter Kossubek (since May 2, 2007) | 62,500 | 68,418 | 3,500 | 1,000 | 66,000 | 69,418 | ||||||||
Igor Landau | 80,000 | 112,100 | 4,500 | 3,500 | 84,500 | 115,600 | ||||||||
Jörg Reinbrecht | 80,000 | 112,100 | 4,500 | 3,500 | 84,500 | 115,600 | ||||||||
Margit Schoffer (until May 2, 2007) | — | 42,762 | — | 2,000 | — | 44,762 | ||||||||
Rolf Zimmermann | 62,500 | 102,625 | 4,000 | 2,500 | 66,500 | 105,125 | ||||||||
Total | 1,032,500 | 1,565,305 | 47,500 | 33,000 | 1,080,000 | 1,598,305 |
(1) | Total calculated remuneration of €287,350, which is capped at €246,300 (for Chairman, the limit is three times the 2007 regular remuneration). |
(2) | Total calculated remuneration of €209,200, which is capped at €164,200 (limit of two times the 2007 regular remuneration). |
(3) | Total calculated remuneration of €175,000, which is capped at €150,000 (for Chairperson, the limit is three times the 2008 regular remuneration). |
(4) | Total calculated remuneration of €111,250, which is capped at €100,000 (limit of two times the 2008 regular remuneration). |
Remuneration for mandates in other Allianz Group subsidiaries, agent commissions
As member of the Supervisory Board of Dresdner Bank AG Claudia Eggert-Lehmann received €45,000. Peter Kossubek received €13,333.33 as member of the Supervisory Board of Allianz Versicherungs-AG. One member of the Supervisory Board received certain small commission payment for ancillary agent activities.
Loans to Members of the Board of Management and Supervisory Board
Loans granted by Dresdner Bank AG and other Allianz Group companies to members of the Board of Management and Supervisory Board totaled €85,000 on the date of balance (December 31, 2008). Loan amounts repaid in 2008 totaled €50,876. Loans are provided at standard market conditions or at the conditions as applied to employees. Moreover, overdraft facilities were granted to members of the Board of Management and Supervisory Board as part of existing account relationships, likewise corresponding to conditions according to market standard or those applied to employees. The loans and overdrafts mentioned above (1) were made in the ordinary course of business, (2) were granted on conditions that are comparable to those of loans and overdrafts granted to people in peer groups and (3) did not involve more than the normal risk of collectability or present other unfavorable features. For members of the Board of Management, this means that the conditions have been set according to the prevailing conditions for Allianz employees.
Allianz SE has entered into service contracts with members of the Board of Management providing for a limited benefit upon termination of service prior to the stated expiration date of a member’s contract. In such circumstances, the member of the Board of Management would receive monthly fixed payments for a further six months as well aspro ratabonus payments if the conditions for the bonus payments are fulfilled. If regular pension benefits were to become due during this time period, they would be credited against these payments. Allianz SE has not entered into such contracts with members of the Supervisory Board;
AlthoughAs of March 9, 2009, the Code does not have the forcemembers of law, it has a legal basis through the declaration of compliance required by Section 161 of the German Stock Corporation Act, which entered into force in 2002 and requires that the Board of Management and the Supervisory Board held less than 1% of a listed company declare annually either:
(i) thatour ordinary shares issued and outstanding. As of such date, the company has complied, and does comply, with the recommendations set forth in the Code, or, alternatively,
(ii) which recommendations the company has not complied, or does not comply, with (so-called “comply or explain” principle).
On December 15, 2005,members of the Board of Management and the Supervisory Board held in the aggregate approximately 130.200 ordinary shares of Allianz AG issued the current declaration of compliance stating in its English convenience translation the following:SE.
As of December 31, 2008, the Allianz AG will comply with all recommendations madeGroup employed a total of 182,865 people worldwide, of whom 71,267 or 39.0%, were employed in Germany. A large number of our German employees are covered by collective bargaining agreements or similar arrangements. In the Government Commissionpast three years, there have been no work stoppages or strikes at our various sites that have arisen from collective bargaining disputes or for other reasons which had a material adverse effect on the German Corporate Governance Code (Code version asAllianz Group’s results of June 2, 2005).operations. We believe that our employee relations are good.
2. SinceThe following table shows the last Declarationnumber of Complianceemployees of the Allianz Group by region as of December 15,31, 2008, 2007 and 2006.
2008 | 2007 | 2006 | ||||
Employees by countries | ||||||
Germany | 71,267 | 72,063 | 76,790 | |||
France | 18,915 | 19,120 | 17,096 | |||
United States | 10,627 | 10,706 | 10,691 | |||
United Kingdom | 10,207 | 10,865 | 9,945 | |||
Russia | 9,106 | 11,744 | 280 | |||
Italy | 7,211 | 7,445 | 7,661 | |||
Switzerland | 4,286 | 4,117 | 2,874 | |||
Australia | 3,719 | 3,608 | 3,474 | |||
Spain | 3,440 | 3,299 | 3,139 | |||
Hungary | 3,427 | 3,235 | 3,159 | |||
Austria | 3,272 | 3,096 | 3,106 | |||
Brazil | 2,941 | 2,971 | 2,334 | |||
Slovakia | 2,682 | 2,627 | 2,564 | |||
Poland | 2,458 | 1,358 | 1,290 | |||
Romania | 2,331 | 2,292 | 2,061 | |||
China (incl. Hong Kong) | 2,501 | 2,137 | 1,374 | |||
Other | 24,475 | 20,524 | 18,667 | |||
Total | 182,865 | 181,207 | 166,505 |
Stock-based Compensation Plans
Group Equity Incentives (GEI)
The Allianz Group Equity Incentives (GEI) support the orientation of senior management, and in particular the Board of Management, to create sustainable value for shareholders. The GEI plan, as a
key component of performance related pay, supports this goal through its direct link to the performance of the Allianz SE stock. The GEI consist of two vehicles, Stock Appreciation Rights (SAR), which were introduced in 1999, and Restricted Stock Units (RSU), which were introduced in 2003. The SAR have a vesting period of two years and an exercise period of five years, the RSU have a 5-year vesting period.
Participation in these plans is limited to Allianz top managers and certain designated future leaders worldwide.
Awards were granted by the respective companies in accordance with uniform group-wide conditions. The grant price for SAR and RSU is calculated on the basis of the arithmetic average of the closing prices of the Allianz SE stock in Xetra trading over the ten trading days following the Financial Press Conference of Allianz SE until and including the grant date in the year of issue of the relevant plan. The grant price for the GEI 2008 is €117.38.
The number of SAR and RSU offered is set individually for each participant and is determined on the basis of the grant price, the economic performance of the Allianz Group and the respective employing company, and other factors such as participants’ remuneration and performance.
For additional information on the Group Equity Incentive Plans refer to Note 48 to our consolidated financial statements.
The purpose of the Allianz Employee Stock Purchase Plan (ESPP) is to promote share ownership among employees as well as to increase their financial awareness and interest in the company’s performance. The ESPP gives employees the opportunity to acquire shares of Allianz SE at preferential terms, subject to certain conditions. To purchase Allianz SE shares there is a set maximum investment as to the amount annual base pay plus target bonus. The timing of participation and the purchase of the shares differs by country. The specific features of the plan offer are decided annually. In 2008, around 125,000 employees in 24 countries were eligible to participate in the plan, and approximately 22,000 employees accepted the offer.
For additional information on our Employee Stock Purchase Plans, refer to Note 48 to our consolidated financial statements.
ITEM 7. | Major Shareholders and Related Party Transactions |
The outstanding capital stock of Allianz SE consists of ordinary shares without par value that are issued in registered form. Under our Statutes, each outstanding ordinary share represents one vote. Major shareholders do not have different voting rights. Based on our share register, as of March 9, 2009, we had approximately 490,160 registered shareholders, of which approximately 560 were U.S. holders. Based on our share register, approximately 16.7% of our ordinary shares issued were held by such U.S. holders. Although our shareholders are generally required when registering to indicate their respective names, addresses and, in the case of legal entities, whether they hold on behalf of a third-party, many of our ordinary shares may be held of record by brokers, trustees or other nominal holders who are not required to provide such information with regard to beneficial shareholders. As a result, the number of holders of record or registered U.S. holders may not be representative of the actual number of beneficial U.S. holders. For information regarding the share ownership of the members of our Board of Management and our Supervisory Board, refer to “Directors, Senior Management and Employees-Share Ownership.”
Under the German Securities Trading Act, holders of voting securities of a listed German company are required to notify the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, or BaFin) and the company of the level of their holding whenever it reaches, exceeds or falls below specified thresholds. These thresholds are 3%, 5%, 10%, 15%, 20%, 25%, 30%, 50% and 75% of a company’s shares. The provisions of the German Securities Trading Act provide several criteria for attribution of shares.
As of March 9, 2009, no shareholder holding 5% or more of the share capital was reported to Allianz SE.
As of March 16, 2009, 453,050,000 ordinary shares were issued, of which 451,505,783 were outstanding and 1,544,217 were held by the Allianz Group in treasury.
For a description of related party transactions, refer to Note 45 to the consolidated financial statements.
ITEM 8. | Financial Information |
Consolidated Statements and Other Financial Information
Refer to pages F-1 and following for the consolidated financial statements required by this item.
For a description of legal proceedings, refer to Note 46 to the consolidated financial statements.
Allianz SE normally declares dividends at the annual general meeting and pays these dividends once a year. Under applicable German law, dividends may be declared and paid only from available unappropriated earnings as shown in the German statutory annual financial statements of Allianz SE. For each fiscal year, the Board of Management
approves the annual financial statements and submits them to the Supervisory Board with its proposal as to the appropriation of the annual profit. This proposal will set forth what amounts of the annual profit should be paid out as dividends, transferred to capital reserves, or carried forward to the next fiscal year. Upon approval by the Supervisory Board, the Board of Management and the Supervisory Board submit their combined proposal to the shareholders at the annual general meeting. The general meeting ultimately determines the appropriation of the annual profits, including the amount of the annual dividends. Shareholders generally participate in distributions of any dividends in proportion to the number of their ordinary shares. Any dividends declared by Allianz SE will be paid in Euro.
For information regarding annual dividends declared in 2008 and paid from 2004 through 2007, refer to “Key Information—Dividends.”
For a description of significant developments since the date of the annual financial statements included in this annual report, refer to Note 52 to the consolidated financial statements.
ITEM 9. | The Offer and Listing |
The principal trading market for the ordinary shares is the Frankfurt Stock Exchange. The ordinary shares also trade on the following other German stock exchanges: Berlin-Bremen, Düsseldorf, Hamburg, Hanover, Munich and Stuttgart, as well as the stock exchanges in London, Paris, Milan and Zurich. The ADSs of Allianz SE, each representing one-tenth of an ordinary share, trade on the New York Stock Exchange under the symbol “AZ.” Refer also to “Major Shareholders and Related Party Transactions—Major Shareholders.”
The table below sets forth, for the periods indicated, the high and low closing sales prices on the Frankfurt Stock Exchange for the ordinary shares of Allianz SE as reported by XETRA. The table also shows, for the periods indicated, the highs and lows of the DAX. Refer to the discussion under “Key Information—Exchange Rate Information” for information with respect to rates of exchange between the U.S. Dollar and the Euro applicable during the periods set forth below.
Price per ordinary share | DAX | |||||||
High | Low | High | Low | |||||
€ | € | |||||||
Annual highs and lows | ||||||||
2004 | 111.2 | 73.9 | 4,261.8 | 3,647.0 | ||||
2005 | 129.7 | 89.7 | 5,458.6 | 4,178.1 | ||||
2006 | 156.8 | 111.2 | 6,611.8 | 5,292.1 | ||||
2007 | 178.6 | 133.9 | 8,105.7 | 6,447.7 | ||||
2008 | 145.9 | 46.6 | 7,949.1 | 4,127.4 | ||||
2009 (through March 20, 2009) | 77.2 | 48.7 | 5,026.3 | 3,666.4 | ||||
Quarterly highs and lows | ||||||||
2007 | ||||||||
First quarter | 169.0 | 147.8 | 7,027.6 | 6,447.7 | ||||
Second quarter | 178.6 | 155.0 | 8,090.5 | 6,937.2 | ||||
Third quarter | 174.6 | 148.7 | 8,105.7 | 7,270.1 | ||||
Fourth quarter | 165.4 | 133.9 | 8,076.1 | 7,512.0 | ||||
2008 | ||||||||
First quarter | 145.9 | 106.2 | 7,949.1 | 6,182.3 | ||||
Second quarter | 134.5 | 111.0 | 7,225.9 | 6,418.3 |
Price per ordinary share | DAX | |||||||
High | Low | High | Low | |||||
€ | € | |||||||
Third quarter | 116.3 | 89.4 | 6.609,6 | 5,807.1 | ||||
Fourth quarter | 99.1 | 46.6 | 5,806.3 | 4,127.4 | ||||
2009 (through March 20, 2009) | 77.2 | 48.7 | 5,026.3 | 3,666.4 | ||||
Monthly highs and lows | ||||||||
2008 | ||||||||
September | 116.1 | 89.4 | 6,518,5 | 5,807.1 | ||||
October | 99.1 | 48.2 | 5.806,3 | 4.295,7 | ||||
November | 68.9 | 46.6 | 5,278.0 | 4,127.4 | ||||
December | 76.2 | 60.8 | 4,810.2 | 4,381,5 | ||||
2009 | ||||||||
January | 77.2 | 60.1 | 5,026.3 | 4,179.0 | ||||
February | 71.8 | 49.2 | 4,666.8 | 3,843.7 | ||||
March 20 | 64.8 | 48.7 | 4,068.7 | 3,666.4 |
On March 20, 2009, the closing sale price per Allianz SE ordinary share on XETRA was 63.99, which referredwas equivalent to $86.81 per ordinary share, translated at the closing noon buying rate for Euros on that date.
Based on turnover statistics supplied by Bloomberg, the average daily volume of the ordinary shares of Allianz SE traded on the Frankfurt Stock Exchange (XETRA) between January 2, 2009 and March 20, 2009 was 3,824,451.
Trading on the New York Stock Exchange
Official trading of Allianz SE ADSs on the New York Stock Exchange commenced on November 3, 2000. Allianz SE ADSs trade under the symbol “AZ.”
The following table sets forth, for the periods indicated, the high and low closing sales prices per Allianz SE ADS as reported on the New York Stock Exchange Composite Tape:
Price per ADS | ||||
High | Low | |||
$ | $ | |||
Annual highs and lows | ||||
2004 | 14.0 | 9.0 | ||
2005 | 15.4 | 11.4 | ||
2006 | 20.6 | 13.9 | ||
2007 | 24.0 | 19.2 | ||
2008 | 21.4 | 5.7 | ||
2009 (through March 20, 2009) | 10.8 | 6.0 | ||
Quarterly highs and lows | ||||
2007 | ||||
First quarter | 22.2 | 19.2 | ||
Second quarter | 23.8 | 20.7 | ||
Third quarter | 24.0 | 20.3 | ||
Fourth quarter | 23.5 | 19.6 | ||
2008 | ||||
First quarter | 21.4 | 16.4 | ||
Second quarter | 21.0 | 17.2 | ||
Third quarter | 18.3 | 13.3 | ||
Fourth quarter | 13.6 | 5.7 | ||
2009 | ||||
(through March 20) | 10.8 | 6.0 | ||
Monthly highs and lows | ||||
2008 | ||||
September | 16.8 | 13.3 | ||
October | 13.6 | 6.4 | ||
November | 9.0 | 5.7 | ||
December | 10.8 | 7.3 | ||
2009 | ||||
January | 10.8 | 7.5 | ||
February | 9.3 | 6.3 | ||
March (through March 20) | 8.7 | 6.0 |
On March 20, 2009, the closing sales price per Allianz SE ADS on the New York Stock Exchange as reported on the New York Stock Exchange Composite Tape was $8.45.
ITEM 10. | Additional Information |
Articles of Association (Statutes)
Allianz SE’s current statutes are filed as an exhibit to this annual report. Refer also to “Directors, Senior Management and Employees” for a description of our corporate governance structure.
Organization and Share Capital
Allianz SE is a Stock Corporation in the form of a European Company (Societas Europaea or SE) and is organized under the laws of the Federal Republic of Germany and the European Union. It is registered in the Commercial Register in Munich, Germany, under the entry number HRB 164232.
The share capital of Allianz SE consists of ordinary shares without par value. As of March 16, 2009, the capital stock of Allianz SE amounts to €1,159,808,000. It is sub-divided into 453,050,000 shares with no par value, of which 451,505,783 shares were outstanding. The shares are registered and can only be transferred with the approval of the Company. The Company will withhold a duly applied approval only if it deems this to be necessary in the interest of the Company on exceptional grounds. The applicant will be informed about the reasons.
Objects and Purposes
Pursuant to article 1, paragraph 2 of our statutes the corporate purpose of the Company is the direction of an international group of companies, which is active in the areas of insurance, banking, asset management and other financial, consulting and similar services. The Company holds interests in insurance companies, banks, industrial companies, investment companies and other enterprises. As a reinsurer, the Company primarily assumes insurance business from its Group companies and other companies in which Allianz SE holds direct or indirect interests.
Copies of the statutes are publicly available from the Commercial Register in Munich. German- and English-language versions are available at our headquarter and on our website.
Conditions Governing Changes in Capital
Allianz SE has several categories of authorized capital, which are set forth in its statutes.
At the Extraordinary General Meeting on February 8, 2006, the shareholders approved the following authorized capital for issuance of new registered shares by the Board of Management, upon the approval of the Supervisory Board:
Up to €450,000,000 in the aggregate on one or more occasions on or before February 7, 2011 by issuing new registered no-par value shares against contributions in cash and/or in kind (Authorized Capital 2006/I), of which an amount of €406,545,646 remains as of March 16, 2009. If the capital stock is increased against contributions in cash, the shareholders are to be granted a subscription right. However, the Board of Management is authorized, upon the approval of the Supervisory Board, to exclude such shareholders’ subscription right:
(i) for fractional amounts;
(ii) to the extent necessary to grant subscription rights on new shares to holders of bonds issued by Allianz SE or Allianz AG or its Group companies that carry conversion or option rights or conversion obligations to such an extent as such holders would be entitled after having exercised their conversion or option rights after any conversion obligations have been fulfilled; and
(iii) if the issue price is not substantially lower than the market price, subject to certain additional limitations in accordance with the German Stock Corporation Act.
Furthermore, the Board of Management is authorized, upon the approval of the Supervisory Board, to exclude shareholders’ subscription rights in the case of a capital increase against contributions in kind. The Board of Management is also authorized, upon the approval of the Supervisory Board, to determine the additional rights of the shares and the conditions of the share issuance.
Up to €15,000,000 in the aggregate on one or more occasions on or before February 7,
2011 by issuing new registered no-par shares against contributions in cash (Authorized Capital 2006/II), of which an amount of €8,056,297 remains as of March 16, 2008. The Board of Management is authorized, upon the approval of the Supervisory Board: |
(i) to exclude shareholders’ subscription rights in order to issue the new shares to the employees of Allianz SE and Allianz Group companies;
(ii) to exclude fractional amounts from the shareholders’ subscription right; and
(iii) to determine the additional rights of the shares and the conditions of the share issuance.
Furthermore, the shareholders have conditionally increased the share capital by an aggregate amount of up to €250,000,000.00 through issuance of up to 97,656,250 new registered no-par value shares with entitlement to share in profits from the beginning of the financial year of their issuance (Conditional Capital 2006). The conditional capital increase shall be carried out only to the extent that conversion or option rights are exercised by holders of conversion or option rights attached to bonds which Allianz SE or Allianz AG or their Group companies have issued against cash payments in accordance with the resolution of the General Meeting as of February 8, 2006, or that conversion obligations under such bonds are fulfilled, and only in so far as no other methods of performance are used in serving these rights. The Board of Management is authorized to determine further details of the conditional share capital increase.
With respect to purchases of our own ordinary shares, refer to Note 25 to our consolidated financial statements.
For information regarding capital increases, refer to Note 25 to our consolidated financial statements.
In connection with the sale of Dresdner Bank to Commerzbank, Allianz and Commerzbank entered into a transaction agreement dated August 31, 2008, as supplemented by an amended agreement dated November 27, 2008, which are attached hereto as exhibits 4.1 and 4.2, respectively. For more information on this transaction, refer to “Item 4. Information on the Company—Major Disposals—Sale of Dresdner Bank AG.”
Germany does not generally restrict capital movements between Germany and other countries, institutions or persons.
For statistical purposes, subject to certain exceptions, each company or person domiciled in Germany is required to report to the German Corporate Governance CodeBundesbank each payment received from or made to a company or person not domiciled in its May 21, 2003 version, Allianz AG has complied withGermany in excess of €12,500 (or an equivalent amount in a foreign currency). Moreover, all claims and liabilities of a company or person domiciled in Germany against or towards a company or person not domiciled in Germany in excess of €5 million (or an equivalent amount in a foreign currency) are required to be reported monthly to the recommendations made by the Government CommissionGerman Bundesbank.
Other than as described above, there is no limitation on the right of non-resident or foreign owners to receive dividends or other payments relating to the ordinary shares or the ADSs permitted or granted by German Corporate Governance Code thenlaw. Various national, state and other laws relating to the acquisition of “control” of Allianz SE’s insurance and banking subsidiaries may impose limitations on the ability to acquire ordinary shares or ADSs beyond specified thresholds. In addition, some national laws may authorize investigation of certain money transfers.
The following discussion is a summary of the material German tax regulations which might be of interest for legal or beneficial owners of shares or ADSs, particularly for “Non-German-Holders”. Throughout this section we refer to owners as “Non-German Holders if they are (i) not German residents for German income tax purposes (i.e., persons whose residence, habitual abode, statutory seat or place of
effective management and control is not located in force.”Germany) and (ii) whose shares do not form part of the business property of a permanent establishment or fixed base in Germany.
The comments are of a general nature and included herein solely for information purposes. These comments cannot replace legal or tax advice and does not purport to be a comprehensive discussion of all German tax consequences. The owner should consult their tax advisor regarding the German federal, state and local tax consequences of the purchase, ownership and disposition of shares or ADSs, the procedures to follow for the refund of German taxes withheld from dividends and the possible effects of changes in the tax laws of the Federal Republic of Germany.
This declarationsummary is based on the relevant German tax laws in 2008 and 2009 respectively in force and typical tax treaties to which Germany is a party, as they are applied on the date hereof and are subject to changes in German tax laws or respective treaties.
Taxation of the Company in Germany
German corporations, including Allianz SE, were subject to a corporate income tax rate of 25% in 2007. In addition a solidarity surcharge of 5.5% on the net assessed corporate income tax has to be paid, so that the corporate income tax and the solidarity surcharge, in the aggregate, amount to approximately 26.375%.
In the course of the reform of business taxation, implemented by the Business Tax Reform Act 2008, the income tax rate for corporations has been reduced to 15% as of the fiscal year 2008; including the solidarity surcharge, the aggregate rate amounts to 15.825%.
In addition, German corporations are subject to profit-related trade tax on income, which is a municipal tax levied at an effective tax rate of between approximately 12% and 20%, depending on the applicable trade tax factor of the relevant municipality and is a deductible item in computing the corporation’s tax base for corporate income and trade tax purposes. Due to the Business Tax Reform Act 2008 from 2008 onwards the trade tax is no longer deductible for corporate income tax and trade tax purposes.
Tax losses carried forward can be used to offset against taxable profits of a period for an amount not exceeding €1 million. Taxable profits exceeding €1 million may only be set off by 60% with tax losses brought forward from prior periods. Unutilized tax losses can be carried forward without any time limitation.
Taxation of Dividends
Germany has a classic corporate tax system.
If the Shares or ADS’s are held as private assets (Privatvermögen) by an individual German resident private investor, dividends are taxed as investment income (Einkünfte aus Kapitalvermögen). Till 2008, only 50% of the dividends received were included in the tax basis. However, income related expenses (e.g. custody fees or interest for a debt financed portfolio) were also deductible by only 50% (half-income system). The amount of such payments after deduction of related expenses was subject to progressive income tax plus solidarity surcharge thereon. Since 2007, a personal annual exemption (Sparer-Freibetrag) of €750 (€1,500 for married couples filing their tax return jointly) was available for the aggregate amount of the investment income, including the dividends. In addition, an individual was entitled to a standard deduction of €51 (€102 for married couples filing their tax return jointly) in computing his overall investment income unless the expenses involved are demonstrated to have actually exceeded that amount.
If the shares are held as business assets (Betriebsvermögen) by a German resident corporate investor, the dividends are generally subject to corporate income tax plus solidarity surcharge thereon and trade tax. Under the current corporate income tax system dividends received by a German resident corporate investor are basically 100% tax-exempt (participation exemption). However, 5% of the gross dividend is considered non tax deductible expense (on each level of a corporate chain for corporate tax as well as for trade tax purposes). Dividends received from non-qualifying participations, which are participations of less than 10% (15% as from fiscal year 2008), are subject to trade tax on income for the full amount.
If the shares were held as business assets (Betriebsvermögen) by a natural person (via a
German partnership or an individual enterprises), only 50% of the dividends received are included in the tax basis till to 2008. For trade tax purposes the same rules apply as for corporate investors.
In the course of the reform of business taxation the taxation of dividends has been changed for individuals private investors and for business assets by a natural persons. From January 1, 2009 onwards a final flat-rate tax (Abgeltungsteuer) amounting to 25% (plus a 5.5% solidarity surcharge) on all types of investment income (including dividends) has been established. This withholding tax levied on the income from capital investment is generally final for private investors and will only be included in the relevant tax assessment for individuals upon application, especially if the personal income tax rate falls below 25%.
In addition, from January 1, 2009, the half-income system for dividends received by private investors has been abolished. For dividends received from shareholdings held as business assets by a natural person, the half-income system has changed to a partial-income system. Under this system, 60% of the dividends will be taxable and only 40% will be exempt. Income related expenses are also deductible by only 60%. The personal annual exemption (Sparer-Freibetrag for private Investors) and the standard deduction has been replaced by a unitary flat sum (Sparer-Pauschbetrag) for the overall investment income of € 801 (€ 1,602 for married couples filing their tax return jointly). The deduction of related expenses is not possible any more.
For German non-residents (individuals and corporate investors) the dividends received are basically subject to income taxes and therefore to withholding tax (see next section).
Imposition of Withholding Tax
Till 2008, dividend distributions were subject to a 20% withholding tax. In addition, a solidarity surcharge at a rate of 5.5% on the withholding tax was levied, resulting in an aggregate rate of withholding tax of 21.1% of the declared dividend. The withholding tax is generally withheld irrespective of whether and to what extent the dividend distribution is exempt at the level of the holder.
As part of the reform of business taxation, from January 2009 1, onwards the withholding tax amounts to 25% (plus a 5.5% solidarity surcharge) on all types of investment income, including dividends.
For a Non-German Holder, the withholding tax rate may be reduced in accordance with an applicable income tax treaty. Under most income tax treaties to which Germany is a party, including the U.S.-German income tax treaty, the rate of dividend withholding tax for individual holders and corporate holders of a non-qualifying participation is reduced to 15%. In that case, the Non-German Holder eligible for the reduced treaty rate may apply for a refund of 6.1% of the declared dividend for dividend distributions paid on or after January 1, 2002 by Allianz SE. The application for refund must be filed with the German Federal Tax Office (Bundeszentralamt für Steuern, Dienstsitz Bonn, An der Kueppe 1, D-53225 Bonn, Germany). The relevant forms can be obtained from the German Federal Tax Office or from German embassies and consulates.
From January 1, 2009 onwards two-fifths of the withholding tax can in some circumstances be refunded to Non-German corporate investors upon application at the German Federal Tax Office, which finally results in a withholding tax of 15% (plus solidarity surcharge), leaving the entitlement for further reductions under an applicable income tax treaty unaffected.
Refund Procedure for U.S. Shareholders
For shares and ADSs kept in custody with The Depository Trust Company in New York or one of its participating banks, the German tax authorities have introduced a collective procedure for the refund of German dividend withholding tax and the solidarity surcharge thereon on a trial basis. Under this procedure, The Depository Trust Company may submit claims for refunds payable to eligible U.S. holders (as defined below) under the income tax convention between Germany and the United States, as currently in effect (the “Treaty”) collectively to the German tax authorities on behalf of these eligible U.S. holders. The German Federal Tax Office will pay the refund amounts on a preliminary basis to The Depository Trust Company, which will redistribute these amounts to the eligible U.S. holders according to the regulations governing the procedure. The
German Federal Tax Office may review whether the refund was made in accordance with the law within four years after making the payment to The Depository Trust Company. Details of this collective procedure are available from The Depository Trust Company.
You are an “eligible U.S. holder” if you are a U.S. holder (as defined below under “—United States Taxation”) that:
is a resident of the United States for purposes of the Treaty;
does not maintain a permanent establishment or fixed base in Germany to which the ordinary shares or ADSs are attributable and through which you carry on or have carried on business (or, in the case of an individual, perform or have performed independent personal services); and
is otherwise eligible for benefits under the Treaty with respect to income and gain from the ordinary shares or ADSs.
Individual claims for refunds may be made on a special German form which must be filed with the German Federal Tax Office at the address noted above. Copies of such form may be obtained from the German Federal Tax Office at the same address or from the Embassy of the Federal Republic of Germany, 4645 Reservoir Road, N.W., Washington, D.C. 20007-1998. Claims must be filed within a four-year period from the end of the calendar year in which the dividend was received.
As part of the individual refund claim, an eligible U.S. holder must submit to the German tax authorities the original bank voucher (or a certified copy thereof) issued by the paying agent documenting the tax withheld, and an official certification on IRS Form 6166 of its last United States federal income tax return. IRS Form 6166 may be obtained by filing a request, via IRS form 8802, with the Internal Revenue Service Center in Philadelphia, Pennsylvania, P.O. Box 42530, Philadelphia, PA 19101-2530. Requests for certification must include the eligible U.S. holder’s name, Social Security or Employer Identification Number, tax return form number, and tax period for which the certification is requested. Requests for certifications can include a request to the Internal Revenue Service to send the certification directly to
the German tax authorities. If no such request is made, the Internal Revenue Service will send a certification on IRS Form 6166 to the eligible U.S. holder, who then must submit this document with his refund claim.
Taxation of Capital Gains
If the shares are held as business assets (Betriebsvermögen) by a corporate investor or by a natural person (via a German partnership or an individual enterprises), the capital gains are treated as the dividends.
Till 2008, for private investors, a 50% tax exemption on realized gains on the disposal of shares arised only if they sold shares of a corporation of which they hold at least 1% of the outstanding shares of the company at any time within the five years prior to the sale. Shares with less than 1% of the outstanding shares of the company were only subject to taxation within the 12 month speculative period. Due to the Business Tax Reform Act 2008 capital gains from private investors are subject to taxation irrespective of any holding period with a 25% withholding tax plus a 5.5% solidarity surcharge. There are some transition rules regarding the change in the taxation of capital gains.
Under German domestic tax law, capital gains derived by a Non-German Holder from the sale or other disposition of shares or ADSs are subject to tax in Germany only if such Non-German Holder has held, directly or indirectly, shares or ADSs representing 1% or more of the registered share capital of the company at any time during the five-year period immediately preceding the disposition.
U.S. holders that qualify for benefits under the Treaty are exempt in Germany under the Treaty on capital gains derived from the sale or disposition of shares or ADSs.
Inheritance and Gift Tax
Under German law, German gift or inheritance tax will be imposed on transfers of shares or ADSs by a Non-German Holder at death or by way of gift, if
(i) the decedent or donor, or the heir, donee or other transferee has his residence in Germany
at the time of the transfer or with respect to German citizens who are not resident in Germany, if the decedent or donor, or the heir, donee or other transferee has not been continuously outside of Germany for a period of more than five years; or
(ii) the shares or ADSs subject to such transfer form part of a portfolio which represents 10% or more of the registered share capital of the company and has been held, directly or indirectly, by the decedent or donor, respectively, himself or together with related parties.
The right of the German government to impose inheritance or gift tax on a Non-German Holder may be further limited by an applicable estate tax treaty (such as the U.S.-German Inheritances and Gifts Tax Treaty of December 14, 1998).
Other Taxes
No German transfer, stamp or similar taxes apply to the purchase, sale or other disposition of shares or ADSs by a Non-German Holder. Currently, net worth tax is not levied in Germany.
This section describes the principal United States federal income tax consequences of owning ordinary shares or ADSs. It applies to you only if you hold your ordinary shares or ADSs as capital assets for tax purposes. This section does not address all material tax consequences of owning ordinary shares or ADSs. It does not address special classes of holders, some of whom may be subject to other rules, including:
dealers in securities or currencies;
tax-exempt entities;
life insurance companies;
broker-dealers;
traders in securities that elect to use a mark-to-market method of accounting for their securities holdings;
investors liable for alternative minimum tax;
investors that actually or constructively own 10% or more of the voting stock of Allianz SE;
investors that hold ordinary shares or ADSs as part of a straddle or a hedging or conversion transaction; or
investors whose functional currency is not the U.S. Dollar.
This section is based on the Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed regulations, and published rulings and court decisions, all as currently in effect, as well as on the Treaty. These laws are subject to change, possibly on a retroactive basis.
In addition, this section is based in part upon the representations of the depositary and the assumption that each obligation in the deposit agreement and any related agreement will be performed in accordance with its terms. In general, for United States federal income tax purposes, if you hold ADRs evidencing ADSs, you will be treated as the owner of the ordinary shares represented by those ADSs. Exchanges of ordinary shares for ADRs, and ADRs for ordinary shares, generally will not be subject to United States federal income tax.
You are a “U.S. holder” if you are a beneficial owner of ordinary shares or ADSs and you are, for United States federal income tax purposes:
a citizen or resident of the United States;
a domestic corporation;
an estate whose income is subject to United States federal income tax regardless of its source; or
a trust if a United States court can exercise primary supervision over the trust’s administration and one or more United States persons are authorized to control all substantial decisions of the trust.
If a partnership holds our ordinary shares, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and the tax treatment of the partnership. If you hold our ordinary shares as a partner in a partnership, you should consult your tax advisor with regard to the U.S. federal income tax treatment of an investment in our ordinary shares.
You should consult your own tax advisor regarding the United States federal, state, local,
foreign and other tax consequences of owning and disposing of ordinary shares or ADSs in your particular circumstances. In particular, you should confirm whether you qualify for the benefits of the Treaty and the consequences of failing to do so.
Taxation of Dividends
Subject to the passive foreign investment company rules discussed below, if you are a U.S. holder, the gross amount of any dividend we pay out of our current or accumulated earnings and profits (as determined for United States federal income tax purposes) is subject to United States federal income taxation. If you are a non-corporate U.S. holder, dividends paid to you in taxable years beginning before January 1, 2011 that constitute qualified dividend income will be taxable to you at a maximum tax rate of 15% provided that you hold the ordinary shares or ADSs for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date and meet other holding period requirements. Dividends we pay with respect to the ordinary shares or ADSs generally will be qualified dividend income if you meet the holding period requirement. You must include any German tax withheld from the dividend payment in this gross amount even though you do not in fact receive it. The dividend is taxable to you when you, in the case of ordinary shares, or the depositary, in the case of ADSs, receive the dividend, actually or constructively. The dividend will not be eligible for the dividends-received deduction generally allowed to United States corporations in respect of dividends received from other United States corporations. The amount of the dividend distribution that you must include in your income as a U.S. holder will be the U.S. Dollar value of the gross dividend amount, determined at the spot Euro/U.S. Dollar rate on the date the dividend distribution is includible in your income, regardless of whether the payment is in fact converted into U.S. Dollars. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date you include the dividend payment in income to the date you convert the payment into U.S. Dollars will be treated as ordinary income or loss and will not be eligible for the special tax rate applicable to qualified dividend income. The currency gain or loss generally will be income or loss from sources within the United States for foreign tax credit limitation purposes. Distributions in excess of current and accumulated
earnings and profits, as determined for United States federal income tax purposes, will be treated as a return of capital to the extent of your basis in the ordinary shares or ADSs and thereafter as capital gain.
Subject to certain limitations, the German tax withheld in accordance with German law or the Treaty and paid over to Germany will be creditable against your United States federal income tax liability. To the extent a refund of the tax withheld is available to you under German law or under the Treaty, the amount of tax withheld that is refundable will not be eligible for credit against your United States federal income tax liability. Refer to “—German Taxation—Refund Procedure for U.S. Shareholders,” above, for the procedures for obtaining a tax refund. Special rules apply in determining the foreign tax credit limitation with respect to dividends that are subject to the maximum 15% tax rate.
For foreign tax credit purposes, dividends will generally be income from sources outside the United States and will, depending on your circumstances, be either “passive” or “general” income for purposes of computing the foreign tax credit allowable to you.
Taxation of Capital Gains
Subject to the passive foreign investment company rules discussed below, if you are a U.S. holder and sell or otherwise dispose of your ordinary shares or ADSs, you will recognize capital gain or loss for United States federal income tax purposes equal to the difference between the U.S. Dollar value of the amount that you realize and your tax basis, determined in U.S. Dollars, in your ordinary shares or ADSs. Capital gain of a non-corporate U.S. holder that is recognized in taxable years beginning before January 1, 2011 is generally taxed at a maximum rate of 15% where the holder has a holding period greater than one year. Gain or loss generally will be treated as arising from sources within the United States for foreign tax credit limitation purposes.
Passive Foreign Investment Company Status
We believe that our ordinary shares and ADSs should not be treated as stock of a passive foreign investment company (PFIC), for United States federal income tax purposes, but this conclusion is a factual determination that is made annually and thus may be subject to change. If we were to become a PFIC, the tax treatment of distributions on our ordinary shares or ADSs and of any gains realized upon the disposition of our ordinary shares or ADSs may be less favorable than as described herein. You should consult your own tax advisors regarding the PFIC rules and their effect on you if you hold ordinary shares or ADSs.
Allianz SE is subject to the informational requirements of the Securities Exchange Act of 1934, as amended. In accordance with these requirements, Allianz SE files reports and other information with the Securities and Exchange Commission. These materials, including this annual report and the exhibits thereto, may be inspected and copied at the Commission’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Copies of the materials may be obtained from the Commission’s Public Reference Room at prescribed rates. The public may obtain information on the operation of the Commission’s Public Reference Room by calling the Commission in the United States at 1-800-SEC-0330. The Commission also maintains a web site at http://www.sec.gov that contains reports, proxy statements and other information regarding registrants that file electronically with the Commission. Allianz SE’s annual reports and some of the other information submitted by Allianz SE to the Commission may be accessed through this web site. In addition, material filed by Allianz SE can be inspected at the offices of the New York Stock Exchange at 11 Wall Street, New York, New York 10005.
ITEM 11. | Quantitative and Qualitative Disclosures about Market Risk |
Allianz risk management is designed to add value by focusing on both risk and return.
As a provider of financial services, we consider risk management to be one of our core competencies. It is therefore an integrated part of our business processes. The key elements of our risk management framework are:
Promotion of a strong risk management culture supported by a robust risk governance structure.
Integrated risk capital framework consistently applied across the Group to protect our capital base and to support effective capital management.
Integration of risk considerations and capital needs into management and decision-making processes through the attribution of risk and allocation of capital to the various segments.
The Allianz risk governance approach is designed to enable us to manage our local and global risks equally and to reduce the likelihood that our overall risk increases in an undetected manner. The following diagram provides an overview regarding risk-related decision-making responsibility within our risk governance structure.
The Board of Management of Allianz SE formulates business objectives and allocates capital resources across the Allianz Group, with the objective of balancing return on investment and risk. The Supervisory Board Risk Committee of Allianz SE meets on a regular and ad-hoc basis to monitor the risk profile of the Allianz Group based on risk reports presented by the Chief Financial Officer and Chairman of the Group Risk Committee.
Two additional Board of Management level committees focus on the Group’s risk exposure. The
Group Risk Committee monitors the Allianz Group’s risk profile and availability of capital in an effort to maintain an adequate relationship between return on investment and risk. Its role is to provide for comprehensive risk awareness within the Allianz Group and to continually improve risk control. It also defines risk standards and establishes risk limits. Furthermore, it is responsible for recommending and coordinating measures to mitigate risk. The Group Finance Committee makes decisions about investments and market risks, while complying with the Allianz Group’s risk framework.
The Group Risk department (“Group Risk”), which reports to the Chief Financial Officer, develops methods and processes for identifying, assessing and monitoring risks across the Allianz Group based on systematic qualitative and quantitative analysis and regularly informs management concerning the Allianz Group’s risk profile. Group Risk develops the Allianz risk framework and oversees the operating entities’ adherence to the framework. The core elements of the risk framework are set forth in the Group Risk Policy, which has been approved by the Board of Management of Allianz SE and which defines the minimum requirements for all operating entities within the Allianz Group. Additional risk standards, such as standards related to specific segments or risk categories, are in place for our operating entities worldwide. Group Risk is also responsible for monitoring the accumulation of specific types of risks across business lines, in particular with respect to natural disasters and exposures to counterparties.
Local operating entities assume responsibility for their own risk management, with risk functions and committees that are similar to the Group structure. Independent risk oversight is a fundamental principle of our risk governance structure, with a clear separation between business functions that actively take decisions and assume risk responsibility, on the one hand, and independent risk oversight functions, on the other hand. Risk oversight consists of independent risk identification, assessment, reporting and monitoring and also includes analyzing alternatives and proposing recommendations to the Risk Committees and local management or to the Board of Management of Allianz SE. The local risk departments performing the oversight role in our major operating entities are headed by a local Chief Risk Officer. Group Risk is represented on the local Risk Committees to enhance the risk dialogue between the Group and the operating entities.
The risk governance structure is further complemented by Group Audit, Group Compliance and Group Legal Services. On a periodic basis, Group Audit independently reviews the risk governance implementation, performs quality reviews of risk processes and tests adherence to business standards. Group Legal Services seek to mitigate legal risks with support from other departments. Legal risks include legislative changes,
major litigation and disputes, regulatory proceedings and contractual clauses that are unclear or construed differently by the courts. The Allianz Group’s objective is to ensure that developments in laws and regulations are observed, to react appropriately to all impending legislative changes or new court rulings, to attend to legal disputes and litigation, and to provide legally appropriate solutions for transactions and business processes.
Allianz Group’s risk landscape is continually evolving due to changes in our environment. In order to adapt, the Trend Assessment Committee is responsible for early recognition of new risks and opportunities and evaluating long-term trends that may have a significant impact on the Allianz Group’s risk profile. Furthermore, Allianz is an active member of the CRO Forum Emerging Risk Initiative that continuously monitors the industry-wide risk landscape and raises awareness of major risks which are relevant for the insurance industry. This initiative promotes stakeholder dialogue and also proposes best practice monitoring and management approaches via regular publications on specific topics.
The Allianz Climate Core Group is a panel of internal experts that specifically examines the possible effects of climate change on our business, developing risk management strategies and identifying potential opportunities resulting from climate change.
Internal Risk Capital Framework
We define internal risk capital as the capital required to protect against unexpected, extreme economic losses. We aggregate internal risk capital consistently across all business segments (Property-Casualty, Life/Health, Banking, Asset Management and Corporate), providing a common standard for measuring and comparing risks across the wide range of different activities that we undertake as an integrated financial service provider.
Value-at-Risk approach
We use an internal risk capital model based on a Value-at-Risk (VaR) approach, determining a maximum loss in the value of our portfolio of businesses covered within the scope of the model (the “covered business”) due to adverse market, credit,
insurance and other business events, within a specified timeframe (“holding period”) and probability (“confidence level”). More specifically, we calculate the net fair asset value of each of our covered businesses based on values (i) under current best estimate conditions and (ii) under adverse conditions defined by scenarios for each risk category. The required internal risk capital per risk category is defined as the difference between the value of the portfolio under the best estimate scenario and under the adverse scenario. Internal risk capital is determined on a quarterly basis and results per category are aggregated in a manner that takes into account the diversification effect across risk categories and regions.
To calculate internal risk capital using the VaR approach at the Allianz Group level, we assume a confidence level of 99.97% and a holding period of one year, which is assumed to be equivalent to an “AA” rating of Standard & Poor’s. We apply a holding period of one year because it is generally assumed that it may take up to one year to identify a counterparty to whom to transfer the liabilities in our portfolio. This capital requirement is sufficient to cover a loss in any one year equivalent to a 3-in-10,000 year event. Although our internal risk capital is based on extreme events, it nonetheless aims to provide adequate indications to manage the risks resulting from reasonably possible smaller adverse events that we might identify in the near-term, because the results allow us to analyze separately and in aggregate our exposure to each source of risk.
Diversification and correlation assumptions
Our internal risk capital model considers both concentration and correlation when aggregating results on the Allianz Group level, in order to reflect that not all of our potential losses are likely to be realized at the same time. This effect is known as diversification. Managing diversification forms a central element of our risk management framework. The Allianz Group strives to diversify the risks to which it is exposed in order to limit the impact of any single source of risk and to help ensure that the positive developments of some businesses operate in such a manner as to neutralize the possible negative developments of others.
The degree to which diversification can be realized depends in part on the level of relative concentration of those risks. For example, the greatest diversification is in general obtained in a balanced portfolio without any disproportionately large exposures to any one or more risks. In addition, the diversification effect depends upon the relationship between sources of risks. The degree of relationship between two sources of risk is referred to as correlation, characterized by a value between “-1” and “+1”. Where possible, we develop correlation parameters for each pair of risks through statistical analysis of historical data. If only insufficient historical data is available, we use conservative professional judgment, ruling out negative correlations, and, in general, we set the correlation parameters to represent the level of interdependency of risks under adverse conditions.
Scope
Our internal risk capital model takes into account the following sources of risk, classified as risk categories per segment:
(1) | Foreign currency risks are mainly allocated to the Corporate segment (please see below for further information). |
(2) | As commodity risk is not significant on the Group level, it is covered in our internal risk capital model within currency risk. |
(3) | Although the internal risk capital requirements for the Asset Management segment only reflect business risk (please see below for further information), 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. |
(4) | The premium risk which our credit insurance entity Euler Hermes is exposed to due to its business model is also covered here, as this type of risk is a special form of credit risk. |
(5) | In the Banking segment, credit risks include default and migration risks arising from the lending and securities business and our derivatives trading activities; for the latter, settlement risk is additionally taken into account. Furthermore, credit risks include country (and transfer) risk. |
Our internal risk capital model covers:
Substantially all of our major insurance and banking operations.
Substantially all of our assets (including bonds, mortgages, investment funds, loans, floating rate notes, equities and real estate) and liabilities (including the cash flow profile of all technical reserves as well as deposits and issued securities). For the Life/
Health segment, the model reflects the interaction between assets and liabilities and local management decisions such as investment strategies and policyholder participation rules. |
Substantially all of our derivatives (options, swaps and futures), in particular if they form part of the operating entity’s regular business model (e.g., at Allianz Life
Insurance Company of North America) or if they have a significant impact on the resulting internal risk capital (e.g., hedges of Allianz SE or in the Life/Health segment, if material obligations to policyholders are hedged through financial derivatives). Typically, embedded derivatives contained in a host contract are also included. |
For smaller insurance operating entities that have an immaterial impact on the Group risk profile, and for the Asset Management segment, we assign internal risk capital 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. More specifically, approximately 99% of the investments managed by the Asset Management segment 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 Asset Management 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.
Applying an approach based on risk weighted assets, and following the sale of our former banking subsidiary, Dresdner Bank, to Commerzbank, our continuing banking operations in Germany, Italy, France and New Europe represent only an insignificant amount of approximately 1.3% of total non-diversified internal risk capital. Therefore, risk management with respect to banking operations is not discussed below in detail.
The Allianz Group’s policy is to require each operating entity to match the currency of their material assets and liabilities or to otherwise hedge foreign currency risk. As a result, our residual foreign currency risk results primarily from the fair value of the net asset value of our non-Euro operating entities and certain exposures to non-Euro denominated assets and liabilities held at the Group level. This currency risk is monitored and managed centrally at the Allianz Group level by Group Corporate Finance & Treasury and is, therefore, mostly allocated to the Corporate segment.
Following the announcement of the sale of Dresdner Bank to Commerzbank in August 2008, Dresdner Bank qualified as held-for-sale and discontinued operations. For the purpose of this discussion on risk management, we refer to “discontinued operations” to mean the assets and liabilities held by Dresdner Bank upon its sale by Allianz to Commerzbank on January 12, 2009. Certain former assets and liabilities of Dresdner Bank, which Allianz retained and which were not transferred to Commerzbank, were not classified as discontinued operations. We generally present figures as of December 31, 2008 excluding discontinued operations, although we also provide certain information regarding the total Group including discontinued operations for the purpose of comparison. When excluding discontinued operations from internal risk capital calculations, we also take into account, that the discontinuation of certain banking operations results in a smaller diversification effect.
Limitations
Our internal risk capital model expresses the potential “worst case” amount in economic value that we might lose at a certain level of confidence. However, there is a statistically low probability of 0.03% that actual losses could exceed this threshold.
We assume that model parameters derived from historical data can be used to characterize future possible risk events; if future market conditions differ substantially from the past, as in the case of the 2008 financial crisis for which there was no precedent, then our VaR approach may be too conservative or too liberal in ways that can not be predicted. Our ability to back-test the model’s accuracy is limited because of the high confidence level of 99.97% and one-year holding period. Furthermore, as historical data is used to calibrate the model, it cannot be used for validation. Instead, we validate the model and parameters through external reviews by independent consulting firms focusing on methods for selecting parameters and control processes. Overall, we believe that our model adequately assesses the risks to which we are exposed.
As our internal risk capital model considers the change in economic fair value of our assets and liabilities, it is crucial to accurately estimate the fair market value of each item. For some assets and
liabilities, it has become increasingly difficult in today’s financial markets, if not impossible, to obtain either a current market price or to apply a mark-to-market approach. For certain assets and liabilities, where a current market price for that instrument or similar instruments is not available, we apply a mark-to-model approach. For some of our liabilities, the accuracy of fair values depends on the quality of the actuarial cash flow estimates. Despite these limitations, we believe the estimated fair values are appropriately assessed.
We apply customized derivative valuation tools which are suitable to our business to reflect substantially all of our derivatives in internal risk capital. Our integrated internal risk capital model for insurance operations currently only allows for the modeling of common derivatives such as equity calls, puts, forwards and interest rate swaps. For internal risk capital calculations, non-standardized instruments, such as derivatives embedded in structured financial products, are represented by the most comparable standard derivative types. The volume of non-standard instruments is not material on either the local or the Allianz Group level, but a more precise modeling of these instruments might impact the fair value and resulting internal risk capital for these derivatives. However, we believe that any such change would not be material.
The Allianz internal risk capital model plays a significant role in solvency management and capital allocation. Our aim is to ensure that the Allianz Group is adequately capitalized at all times, even following a significant adverse event, and that all operating entities meet their respective capital requirements. In addition, we employ a value-based approach (Economic Value Added or “EVA”®), among other approaches, to measure and manage our business activities as well as to optimize capital allocation across the Allianz Group. Internal risk capital is a key parameter of our EVA®-approach.
In managing our capital position, we also consider additional external requirements of regulators and rating agencies. While meeting rating agencies’ capital requirements forms a strategic business objective of the Allianz Group, capital requirements imposed by regulators constitute a
binding constraint. Regulators and rating agencies impose minimum capital rules on the level of both the Allianz Group’s operating entities and on the Allianz Group as a whole.
Internal capital adequacy
Our objective is to maintain available capital at the Group level in excess of the minimum requirements that are determined by our internal risk capital model according to a solvency probability of 99.97% over a holding period of one year. In support of this objective, we require each of our local operating entities to hold available capital resources allowing them to remain solvent at a lower confidence level of 99.93% over the same one-year holding period. This approach is designed to ensure a consistent capital standard across the Group that helps mitigate potential constraints of capital fungibility—i.e., by requiring our local operating entities to hold such levels of capital resources, the Group is less likely to be required to allocate capital to a local operating entity that may have incurred a loss, and accordingly the Group is less likely to encounter constraints inherent in moving capital across the many different jurisdictions in which the Group conducts business. In addition, we take into account the benefits of a single operating entity being part of a larger, diversified Group.
The Allianz Group’s available capital is based on the Group’s shareholders’ equity as adjusted to reflect the full economic capital base available to absorb any unexpected volatility in results of operations. For example, the present value of future profits in the Life/Health segment and hybrid capital are added to shareholders’ equity, whereas goodwill and other intangible assets are subtracted.
Available capital and internal risk capital
in € bn
Based on pro-forma calculations assuming the completion of the Dresdner Bank transaction prior to year-end of 2008(1), our available capital at December 31, 2008 amounted to €42.5 billion (2007: €63.8 billion), while our corresponding internal risk capital at December 31, 2008 amounted to €30.3 billion (2007: €33.4 billion), resulting in a capital ratio of 140% at December 31, 2008, compared to 191% at December 31, 2007(2). The decrease of 33% in available capital was primarily driven by a decrease in shareholders’ equity and a decline in the present value of future profits in the Life/Health segment.
Including discontinued operations, the Allianz Group-wide internal risk capital after Group diversification and before minority interests of €32.9 billion at December 31, 2008 reflects a realized diversification benefit on the Group level of approximately 56%. Non-diversified and Group diversified internal risk capital are broken down as follows:
(1) | Available capital and internal risk capital as of December 31, 2008 including discontinued operations were adjusted to reflect the pro-forma view. For example, we removed hybrid capital and the pension deficit related to Dresdner Bank from available capital, deleted internal risk capital requirements of our discontinued operations and included those related to the shares and the silent participation in Commerzbank. |
(2) | Including discontinued operations, our available capital at December 31, 2008 amounted to €48.8 billion, while our corresponding internal risk capital at December 31, 2008 amounted to €32.9 billion, resulting in a capital ratio of 148% at December 31, 2008. |
Allocated internal risk capital by risk category (total portfolio before minority interest)
in € mn
Allocated internal risk capital by segment(3) (total portfolio before minority interest)
in € mn
(3) | 2008 figures exclude discontinued operations, while 2007 figures include them. |
Taking into account discontinued operations as of December 31, 2008, total internal risk capital is still at a comparable level as at December 31, 2007 due to offsetting effects across the different risk categories (e.g., interest rate risk increased while equity risk decreased). The discontinued operations contributed 12% to total internal risk capital as of December 31, 2008. More detailed discussions of movements are provided in the sections specifically related to the risk categories.
Regulatory capital adequacy
Under the EU Financial Conglomerates Directive, a supplementary European Union directive, a financial conglomerate is defined as any financial parent holding company that, together with its subsidiaries, has significant cross-border and cross-sector activities. The Allianz Group is a financial conglomerate within the scope of the Directive and related German law. The law requires that a financial conglomerate calculates the capital needed to meet its solvency requirements on a consolidated basis, which we refer to below as “available funds”.
Financial conglomerate solvency
in € bn
Based on pro-forma calculations assuming the completion of the Dresdner Bank transaction prior to year-end of 2008(1), our available funds for the solvency margin, required for our insurance segments and our banking and asset management business, is €32.7 billion (2007: €46.5 billion) at December 31, 2008 including off-balance sheet reserves(2), surpassing the minimum legally stipulated level by €12.4 billion (2007: €17.6 billion). This margin results in a preliminary pro-forma cover ratio(3) of 161% at December 31, 2008 (2007: 161%)(4). The decrease of 30% in available funds was primarily driven by a decrease in shareholders’ equity.
Rating agency capital adequacy
Rating agencies apply their own models to evaluate the relationship between the required risk capital of a company and its available capital resources. Assessing capital adequacy is usually an integral part of the rating process. At December 31, 2008, the financial strength of Allianz SE was rated by Standard & Poor’s as “AA” (stable outlook), by A. M. Best as “A+” (stable outlook), and by Moody’s as “Aa3” (stable outlook).
(1) | Available funds and requirement as of December 31, 2008 including discontinued operations were adjusted to reflect the pro-forma view. For example, we removed hybrid capital related to Dresdner Bank from available funds and adjusted the deduction of goodwill and other intangible assets. Furthermore, we deleted the requirement of our discontinued operations. |
(2) | Off-balance sheet reserves represent the difference between fair value and amortized cost of real estate held for investment and investments in associates and joint ventures, net of deferred taxes, policyholders’ participation and minority interests. |
(3) | Represents the ratio of available funds to required capital. |
(4) | As of December 31, 2008, our available funds for the solvency margin including discontinued operations, required for our insurance segments and our banking and asset management business, is €39.5 billion including off-balance sheet reserves, surpassing the minimum legally stipulated level by €9.9 billion. |
Conglomerate solvency is computed according to the adjusted Finanzkonglomerate-Solvabilitäts-Verordnung (FkSolV) published by the German regulator, BaFin, which revised the treatment of unrealized gains and losses in the bond portfolio. As of December 31, 2007, reported under the old method, the solvency ratio was 157% and available funds were €45.5 billion. |
In addition to its long-term financial strength rating, Standard & Poor’s determines a separate rating for “Enterprise Risk Management” (ERM). As of September 2008, Standard & Poor’s has assigned Allianz a “Strong” rating for the ERM capabilities of our insurance operations. This rating indicates that Standard & Poor’s regards it “unlikely that Allianz SE will experience major losses outside its risk tolerance”. Standard & Poor’s stated that the assessment is based on the Allianz Group’s strong risk management culture, strong controls for the majority of key risks and strong strategic risk management.
Supplementary stress test analysis
In addition to our internal risk capital analysis, we perform regular stress tests that act as early-warning indicators in monitoring the Allianz Group’s regulatory solvency capital ratios and its capital position required by rating agencies. We also apply regular stress tests on a local operating entity level in order to monitor capital requirements imposed by local regulators and rating agencies.
For example, stress test results on a Group level indicated that a 10% price decline in our available-for-sale equity securities as of December 31, 2008 would have resulted in a €1.7 billion decline in shareholders’ equity before minority interests. An increase in the interest rate by 100 basis points would have decreased shareholders’ equity before minority interests by €3.5 billion, if available-for-sale fixed-income securities are taken into account as of December 31, 2008.
As we are an integrated financial service provider offering a variety of products across different business segments and geographic regions, diversification is key to our business model. Diversification helps us to manage our risks efficiently by limiting the economic impact of any single event and by contributing to relatively stable results and risk profile in general. As discussed above, the degree to which the diversification effect can be realized depends not only on the correlation
between risks but also on the level of relative concentration of those risks. Therefore, our aim is to maintain a balanced risk profile without any one or more disproportionately large risks.
Disproportionately large risks that might accumulate and have the potential to produce substantial losses (e.g., natural catastrophes or credit events) are closely monitored on a standalone basis (i.e., before the diversification effect) and are subject to a global limit framework. For example, the Management Board of Allianz SE has implemented a framework of natural catastrophe limits at both the operating entity and Group levels in an effort to reduce potential earnings volatility and restrict potential losses from events having an occurrence probability of once in 250 years. Group limits are linked to the planned operating profit and the limits on operating entity level are based on the Property-Casualty net asset value. Traditional reinsurance coverage and dedicated financial transactions on Group level are examples of two instruments to mitigate the peak risks and to limit the impact of adverse conditions on our financial results and shareholders’ equity.
Similarly, the Group monitors and limits credit exposures to single obligors and groups using its overall limit-setting framework to ensure that Allianz Group’s credit and counterparty risk profile is appropriately controlled. As a fundamental principle underlying the limit system, several risk criteria of a counterparty have to be taken into account: financial statements, creditworthiness, country and industry assignment, the current Allianz Group’s portfolio composition and the concentration a particular counterparty introduces within the portfolio. Counterparty limits serve not only to restrict the exposure, but also to identify open investment opportunities for the operating entities while at the same time taking into consideration the current portfolio structure at the Group level.
In general, we identify and measure risk concentrations in terms of non-diversified internal risk capital in line with the risk categories covered in our internal risk capital model. In the subsequent sections all risks are presented before and after diversification and concentrations of single sources of risk are discussed accordingly.
In the following table, we present our Group-wide internal risk capital related to market risks.
Allocated Internal Market Risk Capital by Business Segment and Source of Risk
(Total Portfolio Before Minority Interests)
Non-diversified | Group diversified | |||||||||||
As of December 31, | 2008(1) | 2007(2) | 2008(1) | 2007(2) | ||||||||
€ mn | € mn | € mn | € mn | |||||||||
Total Group | 24,173 | 22,738 | 13,128 | 13,913 | ||||||||
Percentage of total Group internal risk capital | 36 | % | 32 | % | 45 | % | 42 | % | ||||
Interest rate | 12,124 | 6,691 | 3,784 | 655 | ||||||||
Equity | 9,454 | 13,508 | 6,774 | 10,885 | ||||||||
Real estate | 2,516 | 2,238 | 1,300 | 1,088 | ||||||||
Currency(3) | 79 | 301 | 1,270 | 1,285 | ||||||||
Property-Casualty | 9,062 | 11,066 | 4,774 | 6,477 | ||||||||
Interest rate | 3,550 | 2,758 | 1,108 | 270 | ||||||||
Equity | 4,183 | 6,835 | 2,997 | 5,508 | ||||||||
Real estate | 1,250 | 1,385 | 646 | 673 | ||||||||
Currency(3) | 79 | 88 | 23 | 26 | ||||||||
Life/Health | 11,320 | 5,533 | 5,396 | 2,836 | ||||||||
Interest rate | 6,163 | 2,100 | 1,924 | 206 | ||||||||
Equity | 4,039 | 3,006 | 2,894 | 2,422 | ||||||||
Real estate | 1,118 | 427 | 578 | 208 | ||||||||
Currency(3) | — | — | — | — | ||||||||
Banking | 263 | 2,814 | 175 | 1,962 | ||||||||
Asset Management(4) | — | — | — | — | ||||||||
Corporate | 3,528 | 3,325 | 2,783 | 2,638 | ||||||||
Interest rate | 2,378 | 1,628 | 742 | 159 | ||||||||
Equity | 1,002 | 1,428 | 718 | 1,151 | ||||||||
Real estate | 148 | 269 | 76 | 131 | ||||||||
Currency(3) | — | — | 1,247 | 1,197 |
(1) | 2008 figures exclude discontinued operations. On a total Group basis, internal market risk capital would amount to €26,043 million on a non-diversified basis and €14,009 million on a Group diversified basis, if discontinued operations were taken into account. |
(2) | 2007 figures include discontinued operations. |
(3) | Foreign currency risks are mainly allocated to the Corporate segment (please refer to “Internal Risk Capital Framework—Scope” for further information). |
(4) | The internal risk capital requirements for the Asset Management segment only reflect business risk (please refer to “Internal Risk Capital Framework—Scope” for further information). |
Internal equity risk capital decreased in the aggregate mainly driven by the worldwide market drop in 2008 and an active reduction of exposure throughout the year. In our insurance segments, parts of the equity exposure were re-invested in fixed-income resulting in an increase in internal interest rate risk capital. Furthermore, the drop in interest rates across the world raised internal interest rate risk capital as well, in particular in our Life/Health segment which suffered from diminishing “buffers” (e.g., a decrease in unrealized gains in equity investments) that would otherwise help mitigate the
impact of adverse developments. In this segment, internal risk capital additionally increased significantly due to the model change for which more details are provided in the following section.
The decline in internal equity risk capital allocated to the Corporate segment was also due to the market developments experienced in 2008, supported by the sale of some strategic participations which were offset in part by the transfer of strategic participations from Dresdner Bank to the Corporate segment.
As previously discussed, we determine internal risk capital figures on a quarterly basis. The table below presents the average internal risk capital for market risk calculated over the four quarters of 2008
and 2007, as well as the high and low quarterly internal risk capital amounts calculated in both years. All figures include discontinued operations.
Average, High and Low Allocated Internal Market Risk Capital by Business Segment and Source of Risk
(Total Portfolio Before Minority Interests, After Group Diversification and Including Discontinued Operations)
As of December 31, | 2008 | 2007 | ||||||||||
Over quarterly results | Over quarterly results | |||||||||||
Average | High | Low | Average | High | Low | |||||||
€ mn | € mn | € mn | € mn | € mn | € mn | |||||||
Total Group | 13,857 | 14,196 | 13,466 | 15,559 | 16,800 | 13,913 | ||||||
Interest rate | 1,983 | 3,292 | 1,138 | 713 | 764 | 655 | ||||||
Equity | 9,214 | 10,539 | 7,838 | 12,424 | 13,662 | 10,885 | ||||||
Real estate | 1,286 | 1,425 | 1,218 | 1,072 | 1,103 | 1,038 | ||||||
Currency(1) | 1,374 | 1,454 | 1,301 | 1,350 | 1,409 | 1,285 | ||||||
Property-Casualty | 5,145 | 5,727 | 4,813 | 7,299 | 7,948 | 6,476 | ||||||
Interest rate | 599 | 930 | 392 | 301 | 330 | 270 | ||||||
Equity | 3,883 | 4,706 | 3,185 | 6,331 | 7,020 | 5,508 | ||||||
Real estate | 634 | 673 | 598 | 636 | 673 | 593 | ||||||
Currency(1) | 30 | 33 | 25 | 31 | 33 | 26 | ||||||
Life/Health | 4,693 | 5,292 | 4,296 | 3,074 | 3,215 | 2,835 | ||||||
Interest rate | 907 | 1,615 | 488 | 210 | 226 | 195 | ||||||
Equity | 3,288 | 3,580 | 3,075 | 2,650 | 2,781 | 2,422 | ||||||
Real estate | 498 | 602 | 460 | 214 | 223 | 208 | ||||||
Currency(1) | 0 | 0 | 0 | 0 | 0 | 0 | ||||||
Banking | 1,788 | 2,380 | 1,154 | 2,116 | 2,326 | 1,962 | ||||||
Interest rate | 81 | 124 | 51 | 25 | 33 | 20 | ||||||
Equity | 1,520 | 2,132 | 815 | 1,933 | 2,136 | 1,804 | ||||||
Real estate | 75 | 78 | 70 | 113 | 159 | 76 | ||||||
Currency(1) | 113 | 145 | 90 | 45 | 62 | 28 | ||||||
Asset Management(2) | 0 | 0 | 0 | 0 | 0 | 0 | ||||||
Corporate | 2,230 | 2,750 | 1,977 | 3,071 | 3,521 | 2,639 | ||||||
Interest rate | 397 | 623 | 207 | 177 | 185 | 159 | ||||||
Equity | 522 | 763 | 291 | 1,510 | 1,988 | 1,151 | ||||||
Real estate | 79 | 80 | 78 | 109 | 131 | 63 | ||||||
Currency(1) | 1,232 | 1,289 | 1,173 | 1,275 | 1,339 | 1,197 |
(1) | Foreign currency risks are mainly allocated to the Corporate segment (please refer to “Internal Risk Capital Framework—Scope” for further information). |
(2) | The internal risk capital requirements for the Asset Management segment only reflect business risk (please refer to “Internal Risk Capital Framework—Scope” for further information). |
In addition to the information given in the following paragraphs, the quantitative contributions of the non-trading and trading positions to the overall internal risk capital for market risk is presented at the end of this section.
Non-trading portfolios
The Allianz Group’s non-trading portfolios contain the financial assets and liabilities of the Property-Casualty, Life/Health and Corporate
segments as well as all non-trading activities of the Banking segment. The Allianz Group holds and uses many different financial instruments in managing its businesses. Grouped according to our internal risk capital model categories, the following are the most significant market risks in terms of market values: equity price risk (including risks arising from common shares and preferred shares) and interest rate risk (arising from bonds, loans and mortgages).
Property-Casualty and Life/Health segments
The Allianz Group’s insurance operating entities hold equity investments usually to diversify their portfolios. 66% of the non-diversified internal risk capital allocated to the Property-Casualty and Life/Health segments for equity risk is assigned to our operating entities in Germany, Italy, France and the U.S.
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, backing policyholder obligations 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’ liabilities, which allows for active monitoring and management of our assets and liabilities. While the potential payments related to our liabilities in the Property-Casualty segment are typically shorter in maturity than the financial assets backing them, the opposite usually holds true for our Life/Health segment, which provides us with a natural hedge at the Allianz Group level.
We have allocated a significant part of the Life/Health segment’s non-diversified internal risk capital for interest rate risk to Western Europe (74% as of December 31, 2008), mainly to cover traditional life insurance products. Traditional products sold in Western Europe generally feature policyholder participation in the profits (or losses) of the insurance company issuing the contract, subject to a minimum guaranteed crediting rate. In particular, our Life/ Health contracts in Germany, France, Switzerland and Austria comprise a significant level of policyholder participation, limiting all sources of risk, including market, credit, actuarial and cost risks, which would otherwise be borne by Allianz. On the other hand, in accordance with the guarantees related
to these arrangements, we must credit minimum rates for individual contracts (e.g., in Germany, France, U.S., Italy and South Korea). As interest rates may fall below the guaranteed crediting rates in those markets, we are exposed to interest rate risk. The valuation of these guarantees, which takes into account the interaction of investment strategy and obligations to policyholders, forms an integral part of our internal risk capital model.
In 2008, we enhanced our internal risk capital model for the purpose of quarterly risk reporting and risk related-performance measurement (EVA®) in the Life/Health segment. The enhanced model is part of an integrated approach and is more closely linked to the calculation of Market Consistent Embedded Value (MCEV), which, on an economic basis, is considered the shareholders’ future profit embedded in the issued Life/Health business. This model, applied from January 1, 2008, increased 2007 Group diversified internal risk capital for the Life/Health segment by approximately a third.
Banking and Asset Management segments
Following the sale of Dresdner Bank, we do not consider market risk related to our continuing Banking operations to be significant at the Group level.
Although the internal risk capital requirements for the Asset Management segment only reflect business risk, 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. Our Asset Management operating entities monitor market risks using VaR models, sensitivity analyses and stress tests that estimate the potential loss under extreme market conditions. All underlying models are regularly reviewed by the risk departments of the respective local operating entities.
Corporate segment
The primary Corporate risks are interest rate, equity and foreign currency risks. The Corporate segment manages the equity investments of Allianz SE and its finance subsidiary holding companies, as well as securities issued to fund the capital requirements of the Allianz Group. The issued securities include structured products that might be partly repaid with equity participation securities held
in our asset portfolio. Some of the securities issued qualify as eligible capital for existing regulatory solvency requirements to the extent they constitute subordinated debt or are perpetual in nature.
On the level of the Corporate segment we are exposed to foreign currency risk because some of our subsidiaries’ local currencies are different from the Euro. If non-Euro foreign exchange rates decline against the Euro, from a Group perspective, the Euro equivalent net asset values also decline. Our primary exposures to foreign currency risk are related to the U.S. Dollar, Swiss Franc, British Pound and South Korean Won.
Trading portfolios
The trading portfolios of the Allianz Group consist of all assets and liabilities classified as “held for trading” positions, the majority of which were held in the Banking segment before the sale of Dresdner Bank. Activities in the Property-Casualty, Life/Health and Corporate segments designated as “trading” for accounting purposes relate mainly to hedging instruments for our insurance liabilities; in general, we do not actively trade structural hedge positions and they are not internally classified as trading.
For accounting purposes and from a management perspective, financial instruments are typically classified as held-for-trading if they are financial assets or financial liabilities that are acquired or incurred for the purpose of selling or repurchasing them in the near term. For accounting purposes, however, all derivative instruments must be classified as trading regardless of their specific use within the business or of whether management intends to sell or repurchase them in the near term,
and as such, their accounting classification may differ from Allianz Group’s management view. The market risk data for the trading portfolios of the Property-Casualty, Life/Health and Corporate segments reflects risks related to such derivatives that are required to be treated as “trading” for accounting purposes. However, derivatives used in the Allianz Group’s insurance operations and in the Corporate segment are principally used for hedging and not for trading purposes, and, as such, from a management perspective, we do not view them as “trading”.
Trading activities in the Asset Management segment and those related to our continuing Banking operations are immaterial to the Allianz Group as a whole. In our worldwide hedging and trading activities, the Allianz Group uses financial derivatives for the management of market risks and as a component of structured financial transactions. In terms of volume, the primary derivative products entered into by the Allianz Group are interest rate swaps, futures and options as well as foreign exchange forwards and equity derivatives.
Contributions of trading and non-trading portfolios
The following tables show the contribution of non-trading and trading positions to the overall internal risk capital for market risks of the Allianz Group. The figures take into account the diversification effect for all the main sources of risk addressed in our internal risk capital model. Certain financial instruments are included in more than one risk category because they may be affected by changes in more than one parameter. For example, equities denominated in non-Euro currencies are affected by fluctuation in both stock prices and exchange rates.
Allocated Internal Market Risk Capital By Business Segment and Source of Risk
(Non-Trading Portfolio Before Minority Interests and After Group Diversification)
As of December 31, | 2008(1) | 2007(2) | ||
€ mn | € mn | |||
Total Group | 12,152 | 13,352 | ||
Property-Casualty | 4,707 | 6,360 | ||
Interest rate | 1,105 | 265 | ||
Equity | 2,933 | 5,396 | ||
Real estate(3) | 646 | 673 | ||
Currency(4) | 23 | 26 | ||
Life/Health | 5,017 | 2,625 | ||
Interest rate | 1,920 | 205 | ||
Equity | 2,519 | 2,212 | ||
Real estate(3) | 578 | 208 | ||
Currency(4) | 0 | 0 | ||
Banking | 109 | 1,885 | ||
Interest rate | 5 | 11 | ||
Equity | 104 | 1,743 | ||
Real estate(3) | 0 | 76 | ||
Currency(4) | 0 | 55 | ||
Asset Management(5) | 0 | 0 | ||
Corporate | 2,319 | 2,482 | ||
Interest rate | 742 | 159 | ||
Equity | 684 | 1,029 | ||
Real estate(3) | 76 | 131 | ||
Currency(4) | 817 | 1,163 |
(1) | 2008 figures exclude discontinued operations. On a total Group basis, internal market risk capital related to our non-trading portfolio would amount to €12,546 million on a Group diversified basis, if discontinued operations were taken into account. |
(2) | 2007 figures include discontinued operations. |
(3) | All real estate assets are non-trading. |
(4) | Foreign currency risks are mainly allocated to the Corporate segment (please refer to “Internal Risk Capital Framework—Scope” for further information). |
(5) | The internal risk capital requirements for the Asset Management segment only reflect business risk (please refer to “Internal Risk Capital Framework—Scope” for further information). |
Allocated Internal Market Risk Capital By Business Segment and Source of Risk
(Trading Portfolio Before Minority Interests and After Group Diversification)
As of December 31, | 2008(1) | 2007(2) | ||
€ mn | € mn | |||
Total Group | 976 | 561 | ||
Property-Casualty | 67 | 117 | ||
Interest rate | 3 | 5 | ||
Equity | 64 | 112 | ||
Real estate(3) | 0 | 0 | ||
Currency(4) | 0 | 0 | ||
Life/Health | 379 | 211 | ||
Interest rate | 4 | 1 | ||
Equity | 375 | 210 | ||
Real estate(3) | 0 | 0 | ||
Currency(4) | 0 | 0 | ||
Banking | 66 | 77 | ||
Interest rate | 5 | 9 | ||
Equity | 61 | 61 | ||
Real estate(3) | 0 | 0 | ||
Currency(4) | 0 | 7 | ||
Asset Management(5) | 0 | 0 | ||
Corporate | 464 | 156 | ||
Interest rate | 0 | 0 | ||
Equity | 34 | 122 | ||
Real estate(3) | 0 | 0 | ||
Currency(4) | 430 | 34 |
(1) | 2008 figures exclude discontinued operations. On a total Group basis, internal market risk capital related to our trading portfolio would amount to €1,463 million on a Group diversified basis, if discontinued operations were taken into account. |
(2) | 2007 figures include discontinued operations. |
(3) | All real estate assets are non-trading. |
(4) | Foreign currency risks are mainly allocated to the Corporate segment (please refer to “Internal Risk Capital Framework—Scope” for further information). |
(5) | The internal risk capital requirements for the Asset Management segment only reflect business risk (please refer to “Internal Risk Capital Framework—Scope” for further information). |
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, counter-parties, 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:
Deterioration in creditworthiness of an obligor, including ultimately its failure to meet payment obligations (default and migration risk); and
Default on local government debt or temporary suspension of payment obligations (“moratorium”), deterioration of economic or political conditions, expropriation of assets, inability to transfer assets abroad due to sovereign intervention, freezing of converted and unconverted sums of money, etc. (country risk including transfer and conversion risk).
Group Risk’s obligor credit risk management framework is comparable to those widely used in the industry and is based on internal ratings, estimates of exposure at default (EAD) and loss given default (LGD). These measurements are all estimated using statistical analysis and professional judgment. Our aggregation methodology is comparable to approaches widely used in the industry known as “structural model”. In a structural model, a counterparty is deemed to have defaulted when the value of its total assets is lower than its total liabilities. Since changes in the asset value of a
company determine whether it defaults or migrates from one credit class to another, the correlation between different firms’ asset values determines the correlation between the firms’ defaults and migrations. Estimating these parameters allows us to aggregate credit risk across individual obligors using Monte-Carlo simulations to obtain the loss profile of a given portfolio—i.e., its loss probability distribution. The loss profile is the basis of our internal credit risk capital model.
We monitor and manage credit risks and concentrations within the portfolio based on a counterparty limit system that is applied across the entire Allianz Group. Counter-party limits are calculated taking into account the main risk drivers of credit risk and aim to cut off peak concentrations by industry and counterparty name in the portfolio. For monitoring the credit risk profile of our operating entities’ portfolios and the whole Allianz Group portfolio, credit reports for portfolio analysis are provided within a web-based limit system application.
Our internal credit risk capital increased in 2008 mainly due to rating downgrades of some of our counterparties following the financial turmoil throughout 2008. The high credit quality of our investment and reinsurance portfolio mitigated the impact that the broad credit deterioration had on Allianz Group’s credit risk profile. In response to the financial crisis, we have initiated a number of actions, for example, weekly review and adjustment of limit settings for the major financial institutions as a temporary measure to assess systemic risks of the financial industry and to recommend short-term actions to our operating entities in light of this severe market volatility.
Allocated Internal Credit Risk Capital by Business Segment and Source of Risk
(Total Portfolio Before Minority Interests)
Non-diversified | Group diversified | |||||||||||
As of December 31, | 2008(1) | 2007(2) | 2008(1) | 2007(2) | ||||||||
€ mn | € mn | € mn | € mn | |||||||||
Total Group | 5,019 | 7,983 | 3,372 | 5,701 | ||||||||
Percentage of total Group internal risk capital | 8 | % | 11 | % | 12 | % | 17 | % | ||||
Investment | 2,533 | 5,839 | 1,435 | 4,128 | ||||||||
(Re)insurance(3) | 2,486 | 2,144 | 1,937 | 1,573 | ||||||||
Property-Casualty | 3,196 | 2,779 | 2,305 | 2,016 | ||||||||
Investment | 872 | 832 | 494 | 588 | ||||||||
(Re)insurance(3) | 2,324 | 1,947 | 1,811 | 1,428 | ||||||||
Life/Health | 1,321 | 936 | 783 | 668 | ||||||||
Investment | 1,159 | 739 | 657 | 523 | ||||||||
(Re)insurance(3) | 162 | 197 | 126 | 145 | ||||||||
Banking | 428 | 4,216 | 242 | 2,981 | ||||||||
Asset Management(4) | — | — | — | — | ||||||||
Corporate | 74 | 52 | 42 | 36 |
As previously discussed, we determine internal risk capital figures on a quarterly basis. The table below presents the average internal risk capital for credit risk calculated over the four quarters of 2008
and 2007, as well as the high and low quarterly internal risk capital amounts calculated in both years. All figures include discontinued operations.
Average, High and Low Allocated Internal Credit Risk Capital by Source of Risk
(Total Portfolio Before Minority Interests, After Group Diversification and Including Discontinued Operations)
2008 | 2007 | |||||||||||
Over quarterly results | Over quarterly results | |||||||||||
Average | High | Low | Average | High | Low | |||||||
€mn | € mn | € mn | €mn | € mn | € mn | |||||||
Total Group | 6,127 | 6,614 | 5,837 | 5,385 | 5,701 | 5,247 | ||||||
Investment | 4,358 | 4,771 | 4,181 | 3,966 | 4,128 | 3,862 | ||||||
(Re)insurance(3) | 1,770 | 1,871 | 1,656 | 1,419 | 1,573 | 1,356 |
Property-Casualty, Life/Health and Corporate segments
In the Property-Casualty and Life/Health segments, credit risks arising from reinsurance counterparties are considered separately from issuer and counterparty risks arising from our investment activities, though the same methodology is applied. For the Corporate segment, our internal risk capital model covers only investment credit risk, as reinsurance activities are generally allocated to the Property-Casualty segment.
Credit risk—reinsurance and credit insurance
This risk category also covers the premium risk which our credit insurance entity Euler Hermes is exposed to due to its business model, as this type of risk is a special form of credit risk. As of December 31, 2008, it represented 64% of our total Group non-diversified internal risk capital allocated to credit reinsurance risk.
(1) | 2008 figures exclude discontinued operations. On a total Group basis, internal credit risk capital would amount to €9,353 million on a non-diversified basis and €6,614 million on a Group diversified basis, if discontinued operations were taken into account. |
(2) | 2007 figures include discontinued operations. |
(3) | The premium risk which our credit insurance entity Euler Hermes is exposed to due to its business model is also covered here, as this type of risk is a special form of credit risk. |
(4) | The internal risk capital requirements for the Asset Management segment only reflect business risk (please refer to “Internal Risk Capital Framework—Scope” for further information). |
We take steps to limit our liability from insurance business by ceding part of the risks we assume to the international reinsurance market. A dedicated team selects our reinsurance partners and considers only companies with strong credit profiles. We may also require letters of credit, cash deposits or other financial measures to further mitigate our exposure to credit risk. To manage the related credit risk, we compile Allianz Group-wide data on potential and actual recoverables in respect of reinsurance losses. At December 31, 2008, 74% of the Allianz Group’s reinsurance recoverables were distributed among reinsurers that had been assigned at least an “A” rating by Standard & Poor’s. Non-rated reinsurance recoverables represented 24% of the total reinsurance recoverables at December 31, 2008. Reinsurance recoverables without Standard & Poor’s rating include exposures to brokers, companies in run-off and pools, where no rating is available, and companies rated by A.M. Best.
As of December 31, 2008, 9% of our total Group non-diversified internal risk capital allocated to credit reinsurance risk was assigned to our operating entities in the U.S.
Reinsurance recoverables by rating class(1) as of December 31, 2008
in € bn
(1) | Represents gross exposure broken down by reinsurer. |
Credit risk—investment
As of December 31, 2008, our operating entities in the U.S. and Germany accounted for 40% of the non-diversified internal risk capital allocated to our Property-Casualty, Life/ Health and Corporate segments for investment credit risk.
We limit the credit risk of our fixed-income investments by setting high requirements on the creditworthiness of our issuers, by diversifying our investments and by setting limits for credit concentrations. We track the limit utilization by consolidating and monitoring our exposure across individual debtors and across all investment categories and business segments on a monthly basis. At December 31, 2008, approximately 94% of the fixed-income investments of the insurance companies of the Allianz Group had an investment grade rating and approximately 88% of the fixed-income investments were distributed among obligors that had been assigned at least an “A” rating by Standard & Poor’s.
Fixed-income investments by rating class as of December 31, 2008
fair values in € bn
In addition to these fixed-income investments, Allianz Group also has non-tradable mortgage loan portfolios in Germany and the U.S. As of December 31, 2008, 97% of the German mortgage portfolio obligors were assigned a Standard & Poor’s equivalent 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 managers. There have been no delinquent or foreclosed non-tradable commercial mortgage loans since 1994, and we thus regard the portfolio as investment grade based on additional stress test analysis. The North American Allianz insurance companies have a residential mortgage portfolio exposure of less than $2 million.
Banking and Asset Management segments
Following the sale of Dresdner Bank, we do not consider credit risk related to our continuing Banking operations to be significant at the Group level.
As part of the investment management process, the Asset Management segment’s entities assess credit risk affecting their customers’ portfolios. Though our Asset Management companies do not engage in any lending transactions, counterparty risks can arise in certain circumstances, such as with broker-related over-the-counter transactions. The Asset Management operating entities analyze the credit-worthiness of their counterparties and set limits per counterparty based on objective criteria.
Actuarial risks consist of premium and reserve risks in the Property-Casualty segment as well as biometric risks in our Life/Health segment. In the Banking and Asset Management segments, actuarial risks are not relevant. Although the Corporate segment provides some guarantees that transfer small parts of the actuarial risk away from local entities, such risk is primarily transferred by internal reinsurance and allocated to the Property-Casualty segment.
Allocated Internal Actuarial Risk Capital by Business Segment and Source of Risk(1)
(Total Portfolio Before Minority Interests)
Non-diversified | Group diversified | |||||||||||
As of December 31, | 2008(2) | 2007(3) | 2008(2) | 2007(3) | ||||||||
€ mn | € mn | € mn | € mn | |||||||||
Total Group | 22,533 | 23,038 | 7,265 | 6,521 | ||||||||
Percentage of total Group internal risk capital | 34 | % | 32 | % | 25 | % | 20 | % | ||||
Premium CAT | 5,913 | 5,780 | 1,390 | 1,077 | ||||||||
Premium non-CAT | 8,083 | 8,284 | 3,517 | 3,249 | ||||||||
Reserve | 7,307 | 8,037 | 2,308 | 2,170 | ||||||||
Biometric | 1,230 | 937 | 50 | 25 | ||||||||
Property-Casualty | 20,851 | 21,705 | 7,072 | 6,389 | ||||||||
Life/Health | 1,244 | 950 | 55 | 29 | ||||||||
Corporate(4) | 438 | 383 | 138 | 103 |
(1) | As risks are measured by an integrated approach on an economic basis, internal risk capital takes reinsurance effects into account. |
(2) | 2008 figures exclude discontinued operations. On a total Group basis, internal actuarial risk capital would amount to €22,533 million on a non-diversified basis and €6,614 million on a Group diversified basis, if discontinued operations were taken into account. Although our discontinued operations are not exposed to actuarial risks, they have an impact on Group diversified internal risk capital due to diversification effects. The discontinuation of certain banking operations results in less diversified insurance operations. |
(3) | 2007 figures include discontinued operations. |
(4) | Allianz SE has a conditional commitment to make capital payments to its U.S. subsidiary, Fireman’s Fund Insurance Co. In particular, Allianz SE is required to make these payments in case of future negative developments relating to the reserves of Fireman’s Fund for the year 2003 and before. |
In general, Group-diversified internal actuarial risk capital increased, as the discontinuation of certain banking operations results in less diversified insurance operations and a smaller diversification effect. Before Group diversification, internal premium CAT risk capital remained relatively stable compared to 2007, while it increased after Group diversification additionally driven by a shift in contributions from other risk categories, mainly due to the decline in internal market risk capital.
As previously discussed, we determine internal risk capital figures on a quarterly basis. The table below presents the average internal risk capital calculated for actuarial risks over the four quarters of 2008 and 2007, as well as the high and low quarterly internal risk capital amounts calculated in both years. All figures include discontinued operations.
Average, High and Low Allocated Internal Actuarial Risk Capital by Source of Risk
(Total Portfolio Before Minority Interests, After Group Diversification and Including Discontinued Operations)
2008 | 2007 | |||||||||||
Over quarterly results | Over quarterly results | |||||||||||
Average | High | Low | Average | High | Low | |||||||
€ mn | € mn | €mn | € mn | € mn | € mn | |||||||
Total Group | 6,597 | 6,796 | 6,421 | 6,311 | 6,521 | 6,111 | ||||||
Premium CAT | 1,245 | 1,258 | 1,218 | 1,007 | 1,077 | 953 | ||||||
Premium non-CAT | 3,333 | 3,399 | 3,264 | 3,210 | 3,249 | 3,143 | ||||||
Reserve | 1,979 | 2,098 | 1,872 | 2,071 | 2,170 | 1,984 | ||||||
Biometric | 41 | 45 | 35 | 23 | 25 | 21 |
Property-Casualty segment
A substantial portion of the Property-Casualty segment’s non-diversified internal actuarial risk capital is assigned to our operating entities in Germany, Italy, France and the U.S. (49% as of December 31, 2008).
Premium risk
Premium risk represents risk that, during a one-year time horizon, underwriting profitability is less than expected. Such risk is subdivided into catastrophe risk (CAT risk) and non-catastrophe risk (non-CAT risk). We primarily quantify and manage premium risk based on actuarial models that are used to derive loss distributions for each risk.
Natural disasters such as earthquakes, storms and floods represent a special challenge for risk management due to their accumulation potential and occurrence volatility. In order to measure such risks and better estimate the potential effects of natural disasters, we use special modeling techniques in which we combine data about our portfolio (such as the geographic distribution and characteristics of insured objects and their values), with simulated natural disaster scenarios to estimate the magnitude and frequency of potential losses. Where such models do not exist (e.g., flood risk in Italy), we use scenario-based methods to estimate probable losses.
More than a third (36% as of December 31, 2008) of the non-diversified internal premium risk capital allocated to natural catastrophe risk was borne by our operating entities in Germany and the U.S. Our exposure to losses from wind-storms over Europe (including hail) is our largest exposure to natural catastrophe, followed by U.S. hurricanes and
Californian earthquakes. Our loss potential net of reinsurance for European windstorms is approximately €1.3 billion, measured at a probability level of once in 250 years (i.e., 0.4%).
Reserve risk
Reserve risk represents the risk of losses emerging on claims provisions over a one-year time horizon. We measure and manage reserve risks by constantly monitoring the development of the provisions for insurance claims and change the provision for reserves in line with actuarial standards if necessary. We use approaches that are similar to the methods used for setting the reserves.
Life/Health segment
Biometric risk
We consider mortality and longevity risks which can cause variability in policyholder benefits resulting from the unpredictability of the (non-) incidence of death and the timing of its occurrence. For modeling these risks within our internal risk capital model, we distinguish level, trend and calamity risk. Biometric assumptions, such as life expectancy, play a significant role. To the extent available, we use assumptions approved by supervisory authorities and actuarial associations to enhance our models.
Due to the offsetting effects of mortality risk and longevity risk inherent in the combined portfolios of life insurance and annuity products, as well as due to a geographically diverse portfolio, our Life/Health segment does not have significant concentrations of biometric risk.
Business risks consist of operational risks and cost risks. Operational risks represent the loss resulting from inadequate or failed internal processes, or from personnel and systems, or from external events, such as interruption of business operations due to a break-down of electricity or a flood, damage caused by employee fraud or the losses caused by court cases. Operational risks include legal risk,
whereas strategic risk and reputational risks are excluded in accordance with the requirements of Solvency II and Basel II. Cost risks consist of unexpected changes in business assumptions and unanticipated fluctuations in earnings arising from a decline in income without a corresponding decrease in expenses. They also include the risk of budget deficits resulting from lower revenues or higher costs than budgeted.
Allocated Internal Business Risk Capital by Business Segment
(Total Portfolio Before Minority Interests)
Non-diversified | Group diversified | |||||||||||
As of December 31, | 2008(1) | 2007(2) | 2008(1) | 2007(2) | ||||||||
€ mn | € mn | € mn | € mn | |||||||||
Total Group | 15,013 | 18,365 | 5,155 | 7,233 | ||||||||
Percentage of total Group internal risk capital | 22 | % | 25 | % | 18 | % | 22 | % | ||||
Property-Casualty | 5,898 | 6,425 | 1,707 | 2,064 | ||||||||
Life/Health | 5,163 | 4,288 | 1,864 | 1,840 | ||||||||
Banking | 145 | 1,630 | 59 | 634 | ||||||||
Asset Management(3) | 3,304 | 5,576 | 1,453 | 2,621 | ||||||||
Corporate | 503 | 446 | 72 | 74 |
The decrease in internal business risk capital related to the Asset Management segment is primarily driven by an update of the risk factor incorporated within the model used to derive business risk capital for these operations. The factor was reviewed, and as a result, a level of conservatism within this factor has been reduced to better reflect the risk capital needs of this segment.
As discussed, because substantially all of the investments managed by the Asset Management segment are held for the benefit of either third parties or Allianz insurance entities, we are not exposed to significant market and credit risk in the Asset Management segment. As a result, the internal risk capital requirements for the Asset Management segment only reflect business risk.(4)
Allianz has developed a Group-wide operational risk management framework that focuses on early recognition and pro-active management of operational risks. The framework defines roles and
responsibilities, risk processes and methods and has been implemented at the major Allianz Group companies. Local risk managers ensure this framework is implemented in the respective operating entities. The operating entities identify and evaluate relevant operational risks and control weaknesses via a structured self assessment. Furthermore, operational losses are collected in a central loss database. From the middle of 2008, the data collection has been extended to all our operating entities. An analysis of the causes for significant losses is used to enable the operating entities to implement measures to avoid or reduce future losses. The measures adopted may include revising processes, improving failed or inappropriate controls, installing comprehensive security systems and strengthening emergency plans. This structured reporting is designed to provide comprehensive and timely information to senior management of the Allianz Group and the relevant local operating entities.
(1) | 2008 figures exclude discontinued operations. On a total Group basis, internal business risk capital would amount to €16,362 million on a non-diversified basis and €5,635 million on a Group diversified basis, if discontinued operations were taken into account. |
(2) | 2007 figures include discontinued operations. |
(3) | The internal risk capital requirements for the Asset Management segment only reflect business risk (please refer to “Internal Risk Capital Framework—Scope” for further information). |
(4) | Internal risk capital for guarantees in the Asset Management segment is not significant. |
There are certain risks that cannot be fully quantified across the Group using our internal risk capital model. For these risks, we also pursue a systematic approach with respect to identification, analysis, assessment and monitoring. In general, the risk assessment is based on qualitative criteria or scenario analyses. The most important of these other risks include liquidity, reputational and strategic risk.
Liquidity risk
Liquidity risk is the risk that short-term current or future payment obligations cannot be met or can only be met on the basis of altered conditions, along with the risk that in the event of a company liquidity crisis, refinancing is only possible at higher interest rates or that assets may have to be liquidated at a discount. This risk can arise primarily if there are mismatches in the timing of cash payments and funding obligations. Liquidity risk does not include the risk of a change in market prices due to a worsening of the market liquidity of assets, as this is a component of market risk analyzed through our internal risk capital model (e.g., the assumed volatility of real estate investments takes into account historical observations). Funding risk, a particular form of liquidity risk, arises when the necessary liquidity to fund illiquid asset positions cannot be obtained at the expected terms and when required. For more information, refer to “Item 3. Risk Factors—Risks arising from the financial markets—Allianz Group’s financial condition, liquidity needs, access to capital and cost of capital may be significantly affected by adverse developments in the capital and credit markets”.
Corporate segment
On the Group level, liquidity risks arise mainly from capital requirements of subsidiaries and necessary refinancing of expiring strategic financial liabilities. The liquidity position of Allianz SE is monitored on a daily basis and reported to the Board of Management regularly. The main tools to limit unforeseen liquidity requirements are committed credit lines from banks, commercial paper facilities, medium-term debt issuance programs, access to the market of sale and repurchase agreements (the so-called “Repo market”) as well as internal resources in the form of intra-Group loans and an international cash pooling infrastructure.
Property-Casualty and Life/Health segments
Our insurance operating entities manage liquidity risk locally, using local asset-liability management systems designed to ensure that assets and liabilities are adequately matched. To the extent available, the approaches used to project the liability cash flows for the Property-Casualty segment are similar to the methods used for setting reserves.
Liquidity risk in our insurance segments is a secondary risk following external events, such as natural disasters, that are generally reflected in our internal risk capital model. Therefore, limiting and monitoring of the associated primary risks (such as through the use of reinsurance) also helps limit our liquidity risk related to such events. Extreme adverse changes in business assumptions such as lapse or renewal rates or costs may cause liquidity risk as well. However, these effects are covered by our internal risk capital model.
The quality of our investments also provides comfort that we can meet high liquidity requirements in unlikely events. Furthermore, in the case of an extraordinary event, a portion of the applicable payments may usually be made with a certain time lag, which reduces the risk that short-term current payment obligations cannot be met. We employ actuarial methods for estimating our liabilities arising from insurance contracts. In the course of standard liquidity planning we reconcile the cash flows from our investment portfolio with the estimated liability cash flows. These analyses are performed on the operating entity level and aggregated at the Group level. Excess liquidity is centrally pooled on the Group level and can be transferred to single operating entities if necessary.
Banking and Asset Management segments
Due to the small size of risk weighted assets and total assets (as of December 31, 2008, €7.4 billion and €19.8 billion, respectively), liquidity risk related to our continuing Banking operations is not significant at the Group level.
In the Asset Management segment, we limit liquidity risk by continually reconciling the cash flows from our operating business with our commitments to pay liabilities. Forecasting and managing liquidity is a regular process, designed to meet both regulatory requirements and Allianz Group standards.
Reputational risk
Reputational risk is the risk of direct loss or loss in future business caused by a decline in the reputation of the Allianz Group or one or more of its specific operating entities from the perspective of its stakeholders—shareholders, customers, staff, business partners or the general public. First, every action, existing or new transaction or product can lead to losses in the value of our reputation, either directly or indirectly, and can also result in losses in other risk categories. Second, every loss in other risk categories, irrespective of its size, can pose reputational risk to the Allianz Group. Therefore, reputational risk can both cause and result from losses in all risk categories such as market or credit risks.
Our operating entities identify and assess reputational risks within their business processes. In addition, Group Risk identifies and assesses reputational risk qualitatively as part of a quarterly evaluation. On the basis of this evaluation, Group Risk creates an overview of local and global risks which also includes reputational risks, analyses the risk profile of the Allianz Group and regularly informs management about the current situation.
Strategic risk
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 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 entity.
These risks are evaluated and analyzed quarterly in the same way as reputational risk.
We plan to continue to strengthen our risk management framework and systems in 2009. In particular, we are striving to constantly improve our accumulation monitoring systems, particularly those related to natural and man-made catastrophes, and are continuing to develop and extend our modeling capabilities for catastrophe risk. In addition, we plan to establish an internal expert network dedicated to emerging insurance risks such as nanotechnology and food additives.
Solvency II is a major European project and is expected to lead to significant changes to the European insurance solvency requirements in the coming years; the Allianz Group is actively participating in the process. We are continuously providing feedback on the proposals and analyses of the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) and the EU Commission. Furthermore, we participate in the Quantitative Impact Studies and give technical advice, for instance, through the Chief Risk Officer Forum, which is comprised of the Chief Risk Officers of the major European insurance companies and financial conglomerates. It is our aim to have our internal risk capital model and our risk management practices comply with the forthcoming internal model supervisory requirements at an early stage. Accordingly, we are constantly reviewing them on the basis of the evolving standards. In order to fulfill future Solvency II requirements, Allianz has launched a Solvency II umbrella project which consists of quantitative and qualitative workstreams. In particular, these workstreams cover activities 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 initiative of the Solvency II umbrella project, we are strengthening our efforts to consolidate our risk analysis infrastructure and to establish a best practice technical platform. The key objectives of this initiative are to (i) improve methodology and increase the scope and (ii) extend the functionality and enhance user benefits within an efficient risk capital process. We are planning to thoroughly test the new model and reconcile its results with the existing model, and aiming to introduce the new internal model framework for our
internal risk based performance measurement. This platform will help us establish a framework that fulfills the quantitative Pillar I requirements under the Solvency II project after internal model approval for regulatory purposes.
In addition to the key objectives defined by the Solvency II umbrella project for all risk types, the credit risk implementation project aims to streamline the existing credit risk data submission process and to develop a new web-based Credit Risk Reporting Platform for comprehensive and flexible portfolio analyses as well as for a more powerful limit-setting framework including monitoring and management processes. This reporting tool will support all operating entities and the Group in their decisions regarding asset management and strategic portfolio optimization.
As part of the Solvency II umbrella project, a subproject has been launched to roll-out a new operational risk management platform to all operating entities which will automate the operational risk management process, complemented by a refined risk and control self-assessment based on scenarios.
ITEM 12. | Description of Securities other than Equity Securities |
Not applicable.
ITEM 13. | Defaults, Dividend Arrearages and Delinquencies |
None.
ITEM 14. | Material Modifications to the Rights of Security Holders and Use of Proceeds |
None.
ITEM 15. | Controls and Procedures |
For its fiscal year ending December 31, 2008, Allianz performed an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures. In doing so, we recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable, and not absolute, assurance of achieving the desired control objectives. Allianz’s management is required to apply judgment in evaluating the risks facing
Allianz in achieving its objectives, in determining the risks that are considered acceptable to bear, in assessing the likelihood of the risks concerned materializing, in identifying its ability to reduce the incidence and impact of the risks that do materialize and in ensuring the costs of operating particular controls are proportionate to the benefit.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated Allianz’s disclosure controls and procedures, as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, in light of the judgments noted above as of the end of the period covered by this report. Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that these disclosure controls and procedures provided reasonable assurance as to effectiveness as of December 31, 2008.
Management’s Annual Report on Internal Control Over Financial Reporting
The management of Allianz is responsible for establishing and maintaining adequate internal control over financial reporting. Allianz’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with International Financial Reporting Standards (IFRS)(1).
Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of Allianz; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS, that our receipts and expenditures are being made only in accordance with the authorizations of the management and the directors of Allianz; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
(1) | As issued by the IASB and adopted by the European Union. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of Allianz’s internal control over financial reporting as of December 31, 2008. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in “Internal Control—Integrated Framework.” Based on this assessment, Allianz’s management has concluded that Allianz maintained effective internal control over financial reporting as of December 31, 2008.
Report of Independent Registered Public Accounting Firm
To the Board of Management and Supervisory Boardof Allianz SE:
We have audited Allianz SE’s and its subsidiaries’ (collectively, “the Allianz Group”) internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Allianz Group’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Allianz Group’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Allianz Group maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Allianz Group as of December 31, 2008 and 2007, and the related
consolidated income statements, consolidated statements of changes in equity and consolidated statements of cash flows for each of the years in the three-year period ended December 31, 2008 including the disclosures provided in the Qualitative and Quantitative Disclosures about Market Risk on pages 153 to 175, and our report dated March 31, 2009, expressed an unqualified opinion on those consolidated financial statements.
March 31, 2009
KPMG AG
Wirtschaftsprüfungsgesellschaft
Munich, Germany
(formerly
KPMG Deutsche Treuhand-Gesellschaft
Aktiengesellschaft
Wirtschaftsprüfungsgesellschaft)
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting that occurred during fiscal year 2008, which have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.
ITEM 16A. | Audit Committee Financial Expert |
Our Supervisory Board has determined that Dr. Franz B. Humer, Dr. Wulf H. Bernotat and Igor Landau meet the criteria of an audit committee financial expert, as that term is defined in Item 16A(b) of Form 20-F. Dr. Franz B. Humer, Dr. Wulf H. Bernotat and Igor Landau are “independent” members of the Supervisory Board in accordance with NYSE listing standards applicable to Allianz SE.
ITEM 16B. | Code of Ethics |
In response to Section 406 of the Sarbanes-Oxley Act of 2002, we have adopted a specific Code of Ethics in addition to our general Code of Conduct that applies to all members of our Board of Management, including persons performing the functions of a principal executive officer, principal financial officer, principal accounting officer and controller and senior employees performing similar functions. A copy of this code of ethics is available on a permanent basis to the shareholders on the company’sour Internet website under www.allianz.com/corporate-governance. (Reference to this “uniform resource locator” or “URL” is made as an inactive textual reference for informational purposes only. The information found at this website is not incorporated by reference into this document.document). There have been no amendments or waivers to this code of ethics since its adoption. Information regarding any future amendments or waivers will be published on the aforementioned website.
ITEM 16C. | Principal Accountant Fees and Services |
KPMG AG Wirtschaftsprüfungsgesellschaft (or “KPMG AG”) serves as the external auditing firm for the Allianz Group.
Furthermore, you will find a summaryThe table set forth below contains aggregate fees billed for each of significant waysthe last two fiscal years by KPMG AG or KPMG AG and the world wide member firms of KPMG International (or “KPMG”) in the following categories: (i) Audit fees, which comprise fees billed for services rendered for the audit of the Allianz Group’s consolidated financial statements, the statutory audits of the financial statements of Allianz SE and its subsidiaries or services the are normally provided in connection with statutory and regulatory filings or engagements; (ii) Audit-related fees, which comprise fees billed for assurance and related services that are reasonably related to the performance of the audit or review of the financial statements and which are not reported under (i); (iii) Tax fees, which comprise fees billed for professional services rendered for tax advice and tax compliance; and (iv) All other fees, which comprise fees billed for all other products and services provided other than the services reported under (i) through (iii).
Fees billed
KPMG worldwide | KPMG AG and affiliated entities(1) | |||||||
2008 | 2007 | 2008 | 2007 | |||||
€ mn | € mn | € mn | € mn | |||||
Audit fees | 50.5 | 49.0 | 27.6 | 27.7 | ||||
Audit-related fees | 6.1 | 9.8 | 4.4 | 8.6 | ||||
Tax fees | 3.3 | 4.2 | 2.0 | 2.8 | ||||
All other fees | 7.5 | 4.1 | 6.8 | 2.8 | ||||
Total | 67.4 | 67.1 | 40.8 | 42.0 | ||||
(1) | KPMG AG and affiliated entities comprises KPMG operations in Germany, the United Kingdom, Spain and Switzerland. Effective October 1, 2007, KPMG operations in Germany and the United Kingdom became affiliated entities; effective October 1, 2008 and retroactively effective October 1, 2007 operations in Spain and Switzerland joined. Fee amounts pertaining to the year 2007 have been adjusted accordingly. |
Audit fees
KPMG billed the Allianz Group an aggregate of €50.5 million (2007: €49.0 million) in connection with professional services rendered for the audit of our corporate governance differs from those requiredannual consolidated financial statements and services normally provided by KPMG in connection with statutory and regulatory filings or engagements. These services consisted mainly of domestic companiesperiodic review engagements and the annual audit.
Audit-related fees
KPMG billed the Allianz Group an aggregate of €6.1 million (2007: €9.8 million) for assurance and related services. These services consisted primarily of advisory and consulting services related to accounting and financial reporting standards and financial due diligence services.
Tax fees
KPMG billed the Allianz Group an aggregate of €3.3 million (2007: €4.2 million) for professional services, primarily for tax advice.
All other fees
KPMG billed the Allianz Group an aggregate of €7.5 million (2007: €4.1 million) for other services, which consisted primarily of services under the NYSEguidance of Allianz Group management and general consulting services.
All services provided by KPMG to Allianz Group companies must be approved by the Audit Committee of the Allianz SE Supervisory Board. Services other than audit services must be pre-approved by the Audit Committee. The Audit Committee pre-approval process is based on the use of a “Positive List” of activities decided by the Audit Committee and, in addition, a “Guiding Principles and User Test” is applied. Group Compliance and KPMG report to the Audit Committee periodically with respect to services performed. In 2008, the percentage of the total amount of revenue we paid to our principal accountants represented by non-audit services subject to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X was less than 5%.
ITEM 16D. | Exemptions from the Listing Standards for Audit Committees |
Our Audit Committee consists of three shareholder representatives and two employee representatives, one of whom is employed by the Allianz Group. With respect to the employee representative employed by the Allianz Group, Allianz SE relies on the exemption afforded by Rule 10A-3(b)(1)(iv)(C) under the Securities Exchange Act of 1934. We believe that such reliance does not materially adversely affect the ability of the Audit Committee to act independently or to satisfy the other requirements of Rule 10A-3.
ITEM 16E. | Purchases of Equity Securities by the Issuer and Affiliated Purchasers |
The table below sets forth the information with respect to purchases made by or on behalf of Allianz SE or any “affiliated purchaser”, as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, of Allianz SE shares for the year ended December 31, 2008.
Period | Total Number of Shares Purchased(1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs | ||||||
January 1/1/08-1/31/08 | — | — | N/A | N/A | ||||||
February 2/1/08-2/28/08 | — | — | ||||||||
March 3/1/08-3/31/08 | — | — | ||||||||
April 4/1/08-4/30/08 | — | — | ||||||||
May 5/1/08-5/31/08 | — | — | ||||||||
June 6/1/08-6/30/08 | — | — | ||||||||
July 7/1/08-7/31/08 | — | — | ||||||||
August 8/1/08-8/31/08 | — | — | ||||||||
September 9/1/08-9/30/08 | — | — | ||||||||
October 10/1/08-10/31/08 | — | — | ||||||||
November 11/1/08-11/30/08 | 700,000 | (2) | 64,30 | (2) | ||||||
December 12/1/08-12/31/08 | — | — | ||||||||
Total | 700,000 | 64,30 | ||||||||
(1) | This table excludes market-making and related hedging purchases by Dresdner Bank and certain other Allianz Group entities. The table also excludes Allianz SE shares purchased by investment funds managed by Allianz Group entities for clients in accordance with investment strategies that are established by fund managers acting independently of Allianz SE. |
(2) | Allianz SE purchased these newly issued shares in connection with the Allianz Group’s Employee Stock Purchase Plan. |
ITEM 16G. | Disclosure about Differences in Corporate Governance Practices |
The following summarizes the significant differences between the corporate governance standards set forth by the New York Stock Exchange (NYSE) for U.S. companies listed on our website under www.allianz.com/corporate-governance. (Reference to this URL is madethe NYSE and German and European corporate governance practices as an inactive textual reference for informational purposes only. The information found at this website is not incorporated by reference into this document.)Allianz SE has implemented them.
The BoardAllianz SE is a European Company, incorporated in the Federal Republic of ManagementGermany (“Germany”) and organized under the laws of Allianz AG consists of eleven members. UnderGermany and the articles of association of Allianz AG, the Supervisory Board determines the sizeEuropean Union. It has a dual board system, consisting of the Board of Management although it must have at least(Vorstand) and the Supervisory Board (Aufsichtsrat). The two members.boards are separate and no individual may serve simultaneously on both boards. The articles of association furthermore provide that Allianz AG may be legally represented by two members of the Board of Management or by one memberis responsible for managing the day-to day business of the Board of Management together with one holder of a general commercial power of attorney (Prokura), which entitles its holder to carry out legal actsCompany and transactions on behalf of Allianz AG. In addition, pursuant to a filing with the commercial register in Munich, Allianz AG may also be represented by two holders of a general commercial power of attorneyProkura. The Supervisory Board represents Allianz AG in connection with transactions between a member of the Board of
Management and Allianz AG. To the extent that a Supervisory Board committee is entitled to decide on a specific matter in lieu of the Supervisory Board the right of representing Allianz AG vis-à-vis the Board of Management in that matter can be transferred to the relevant Supervisory Board committee.
The Supervisory Board appoints the members ofadvises and oversees the Board of Management. The initial termThis dual board system of Allianz SE contrasts with the unitary board system of U.S. companies and therefore also with some of the members of the Board of Management is generally between three and five years. Each member may be reappointed or have his term extendedcorporate governance standards set forth by the Supervisory Board for one or more terms of up to five years each. According to Allianz AG’s practice, the initial appointment or the reappointment of members of the Board of Management attaining the age of 60 is generally limited to terms of one year with the option of further extension if neither the member of the Board of Management nor the Supervisory Board objects. Members of the Board of Management must under Allianz AG’s practice resign from office at the end of the fiscal year inNYSE, which they attain the age of 65. The SupervisoryBoard may remove a member of the Board of Management priorrefer to the expiration of his term for good cause, for example in the case of a serious breach of duty or a bona fide vote of no confidence by the general meeting. A member of the Board of Management may not deal with, or vote on, matters relating to proposals, arrangements or contractual agreements between himself and Allianz AG and may be liable to Allianz AG if he has a material interest in any contractual agreement between Allianz AG and a third party which was not disclosed to, and approved by, the Supervisory Board. The Board of Management has adopted its own internal rules of procedure.
The Board of Management regularly reports to the Supervisory Board on the business of Allianz AG. According to the internal rules of procedure of the Supervisory Board, the Board of Management requires the consent of the Supervisory Board for certain transactions, primarily, share capital measures and acquisitions or divestitures of companies or shareholdings in companies of a significant volume.
The current members of the Board of Management, their age as of December 31, 2005, their areas of responsibility, the year in which each member was first appointed, the year in which the term of each member expires, and the principal board memberships outside the Allianz Group, respectively, are as follows:
Name | Age | Area of Responsibility | Year First Appointed | Year Current Term Expires(1) | Principal Outside Board Memberships | |||||
Michael Diekmann | 51 | Chairman of the Board of Management | 1998 | 2011 | Member of the Supervisory Boards of BASF AG, Linde AG (deputy chairman) and Lufthansa AG | |||||
Dr. Paul Achleitner | 49 | Group Finance | 2000 | 2009 | Member of the Supervisory Boards of Bayer AG, MAN AG and RWE AG | |||||
Clement Booth | 51 | Insurance Anglo Broker Markets, Global Lines | 2006 | 2010 | None | |||||
Jan R. Carendi | 60 | Insurance NAFTA | 2003 | 2007 | None | |||||
Enrico Tomaso Cucchiani | 55 | Insurance Europe I | 2006 | 2010 | Member of the board of directors of ACEGAS-APS S.p.A. and Banca Antonveneta S.p.A. | |||||
Dr. Joachim Faber | 55 | Asset Management | 2000 | 2009 | Member of the Supervisory Boards of Bayerische Börse AG and Infineon Technologies AG | |||||
Dr. Helmut Perlet | 58 | Group Controlling, Financial Risk Management, Accounting, Taxes, Compliance | 1997 | 2007 | None | |||||
Dr. Gerhard Rupprecht | 57 | Insurance Germany | 1991 | 2008 | Member of the Supervisory Boards of Fresenius AG, Heidelberger Druckmaschinen AG, Quelle AG and ThyssenKrupp Automotive AG | |||||
Jean-Philippe Thierry | 57 | Insurance Europe II | 2006 | 2008 | Member of the board of directors of Société Financière et Foncière de participation | |||||
Dr. Herbert Walter | 52 | Allianz Dresdner Banking | 2003 | 2007 | Member of the Supervisory Boards of Deutsche Börse AG and TSV München von 1860 GmbH & Co.KG aA | |||||
Dr. Werner Zedelius | 48 | Insurance Growth Markets | 2002 | 2009 | Member of the board of directors of Rosno |
The following is a summary of the business experience of the current members of the Board of Management, including their experience within the Allianz Group:
Michael Diekmann: Joined the Allianz Group in 1988. From 1996 to 1998 he was chief executive officer of Allianz Insurance Management Asia-Pacific Pte. Ltd., Singapore. He became a deputy member of the Board of Management of Allianz AG in October 1998 and a full member in March 2000. He was appointed as chairman of the Board of Management on April 29, 2003.
Dr. Paul Achleitner: Joined the Board of Management of Allianz AG in January 2000. He was previously chairman of Goldman, Sachs & Co. oHG, Frankfurt, Germany and a partner of Goldman Sachs Group from 1994 to 1999.
Clement Booth: Joined the Board of Management of Allianz AG on January 1, 2006. From 1999 to 2003, he was a member of the Board of Management of Munich Re and from 2003 to 2005 he was chairman and CEO of Aon Re International, London.
Jan R. Carendi: Became a member of the Board of Management of Allianz AG in May 2003. He previously held a variety of positions at Skandia Insurance Company Ltd. and other companies of the Skandia Group, including chief executive officer of Skandia Insurance Company Ltd. and Skandia New Markets Inc. and chief executive officer of American Skandia Inc.
Enrico Tomaso Cucchiani: Joined the Board of Management of Allianz AG on January 1, 2006. From 1996, he has held several leading management positions within Lloyd Adriatico S.p.A., Trieste. He became CEO in 1998 and since 2001, he is chairman of theunitary board of directors of Lloyd Adriatico.U.S. companies.
Dr. Joachim Faber: Joined the Allianz Group in 1997 after holding various positions at Citibank AG, Frankfurt, Germany (1984-1992), including chairman of the Board of Management, and Citibank International PLC, London (1992-1997), including head of capital markets. He was a member of the Board of Management of Allianz Versicherung from 1997 to 1999 and became a member of the Board of Management of Allianz AG in January 2000.
Dr. Helmut Perlet: Joined the Allianz Group in 1973. He has been head of the foreign tax department since 1981, head of corporate finance since 1990 and head of accounting and controlling since 1992. He became a deputy member in July 1997 and a full member of the Board of Management of Allianz AG in January 2000.
Dr. Gerhard Rupprecht: Joined the Allianz Group in 1979. In January 1989, he became a deputy member, and in January 1991 a full member, and in October 1991 was appointed chairman, of the Board of Management of Allianz Leben. He became a member of the Board of Management of Allianz AG in October 1991.
Jean-Philippe Thierry:Joined the Board of Management of Allianz AG on January 1, 2006. Previously, he was Chairman and CEO of Athena Insurance (1985-1997) and CEO of Generali France (1998-2001). Since June 2001, he is Chairman and Chief Executive Officer of Assurances Générales de France.
Dr. Herbert Walter: Held various positions at Deutsche Bank AG since 1983, including chairman of the business segment Private & Business Clients and speaker of the Board of Management of Deutsche Bank 24. Since 2002, he was a member of the Group Executive Committee of Deutsche Bank group as well as Global Head of Private & Business Clients. He became a member of the Board of Management of Allianz AG on March 19, 2003, and became the Chairman of the Board of Management of Dresdner Bank AG effective March 25, 2003.
Dr. Werner Zedelius: Joined the Allianz Group in 1987. After various positions in branch offices and in the headquarters of Allianz AG, he was General Manager Finance and member of the board of directors of Cornhill Insurance PLC in London from 1996 until 1999. Dr. Zedelius became a member of the Board of Management of Allianz AG on January 1, 2002.
The members of the Board of Management may be contacted at the business address of Allianz AG.
In accordance with the articles of association of Allianz AG and the German Co-determination Act (Mitbestimmungsgesetz), the Supervisory Board of Allianz AG consists of 20 members, ten of whom are
elected by the shareholders (shareholder representatives) and ten of whom are elected by the employees of the German companies of the Allianz Group (employee representatives). Three of the employee representatives are representatives of the trade unions represented in the Allianz Group in Germany. The general meeting may remove any Supervisory Board member it has elected by a simple majority of the votes cast. The employee representatives may be removed with a majority of three-quarters of the votes cast by those employees who elected them. In addition, any member of the Supervisory Board may resign by written notice to the Board of Management.
The Supervisory Board has a quorum when all members of the Supervisory Board were invited or requested to participate in a decision and either (i) ten or more members, including the chairman of the Supervisory Board, or (ii) if the chairman of the Supervisory Board does not participate in the voting, fifteen or more members participate in the voting. Except where a different majority is required by law or the articles of association of Allianz AG, the Supervisory Board acts by simple majority of the votes cast. In the case of any deadlock, the chairman has the deciding vote. The Supervisory Board meets at least twice each half-year. Its main functions are:
In addition, Supervisory Boards of German insurance companies are tasked with the appointment of the external auditor.
The Supervisory Board has established a Standing Committee, an Audit Committee, a Personnel Committee and a Mediation Committee.
Standing Committee. The Standing Committee, which comprises the chairman of the Supervisory Board, his deputy and three additional members elected by the Supervisory Board, may approve or disapprove certain transactions of Allianz AG to theextent that such transactions do not fall under the competency of any other committee or are required to be decided by plenary meeting of the Supervisory Board. The Standing Committee examines the corporate governance of Allianz AG, drafts the declaration of compliance and examines the efficiency of the work of the Supervisory Board. In addition, it determines the guest status of non-members who wish to attend Supervisory Board meetings as well as changes in form to the articles of association. The Standing Committee held three meetings in 2005. The members of the Standing Committee are Dr. Henning Schulte-Noelle as chairman, Norbert Blix, Dr. Gerhard Cromme, Peter Haimerl and Dr. Manfred Schneider.
Audit Committee. The Audit Committee comprises five members elected by the Supervisory Board. The Audit Committee prepares the decisions of the Supervisory Board about the Allianz Group’s annual financial statements, the consolidated financial statements and the appointment of the auditors and ascertains the independence of the auditors. Furthermore, the Audit Committee assigns the mandate to the auditors, sets priorities for the audit and determines the compensation of the auditors. In addition, it examines the quarterly reports. After the end of the fiscal year, the Audit Committee examines the Allianz Group’s annual financial statements and the consolidated financial statements, examines the risk monitoring system and discusses the auditor’s report with the auditors. The Audit Committee held five meetings in 2005. The members of the Audit Committee are Dr. Manfred Schneider as chairman, Dr. Gerhard Cromme, Claudia Eggert-Lehmann, Prof. Dr. Rudolf Hickel and Dr. Henning Schulte-Noelle.
Personnel Committee. The Personnel Committee consists of the chairman of the Supervisory Board and two other members elected by the Supervisory Board. It prepares the appointment of members of the Board of Management. In addition, it tends to on-going personnel matters of the members of the Board of Management including their membership on boards of other companies, the payments they receive and the structure of Group Equity Incentives. See “—Stock-based Compensation Plans—Group Equity Incentive (GEI) Plans.” The Personnel Committee held four meetings in 2005. The members of the Personnel Committee are Dr. Henning Schulte-Noelle as chairman, Norbert Blix and Dr. Gerhard Cromme.
Mediation Committee. The Mediation Committee consists of the chairman of the Supervisory Board and his representative elected according to the rules of the German Co-determination Act of 1976, one member elected by the employees and one member elected by the shareholders. Under Sec. 27(3) of the German Co-determination Act, the Mediation Committee is charged with the solution of conflicts in the appointment of members of the Board of Management. If the Supervisory Board in a vote on the appointment or recall of a member of the Board of Management fails to obtain the required majority, the Mediation Committee has to convene in order to present a proposal to the Supervisory Board. There arose no need for the Mediation Committee to meet in 2005. The members of the Mediation Committee are Dr. Henning Schulte-Noelle as chairman, Wulf Bernotat, Norbert Blix and Hinrich Feddersen.
Each member of the Supervisory Board is generally elected for a fixed term, which expires at the end of the general meeting at which the shareholders discharge the members of the Supervisory Board in respect of the fourth fiscal year after the beginning of the term. The fiscal year in which the members of the Supervisory Board are first elected is not considered. The current term of office of all current members of the Supervisory Board of Allianz AG will expire at the end of the annual general meeting of Allianz AG in 2008. Nevertheless, the term of office of the current members of the Supervisory Board will expire upon the effectiveness of the planned merger of Riunione Adriatica di Sicurta S.p.A. (RAS) with and into Allianz AG and the change of the legal form of Allianz AG into an SE. For further information on the planned merger, see “Information on the Company—Allianz-RAS Merger/European Company (SE)” and “—RAS Merger and the Future Allianz SE—Anticipated Changes in the Corporate Constitution.”
The current members of the Supervisory Board of Allianz AG, their age as of December 31, 2005, their principal occupations, the year in which each member first served on the Supervisory Board and their principal memberships in boards outside the Allianz Group, respectively, are as follows:
Name | Age | Principal Occupation | Year First Appointed | Principal Outside Board | ||||
Dr. Henning Schulte-Noelle, Chairman(1) | 63 | Former chairman of the Board of Management of Allianz AG | 2003 | Member of the Supervisory Boards of E.ON AG, Siemens AG and ThyssenKrupp AG | ||||
Norbert Blix, Deputy Chairman(2) | 56 | Employee, Allianz Versicherungs-AG | 1997 | None | ||||
Dr. Wulf H. Bernotat(1) | 57 | Chairman of the Board of Management of E.ON AG | 2003 | Member of the Board of Managements of E.ON AG (chairman), Metro AG and RAG AG | ||||
Dr. Diethart Breipohl(1) | 66 | Former member of the Board of Management of Allianz AG | 2000 | Member of the Supervisory Boards of Continental AG, KarstadtQuelle AG, KM Europa Metal AG (chairman) and member of the board of directors of Atos Origin S.A. and Credit Lyonnais | ||||
Dr. Gerhard Cromme(1) | 52 | Chairman of the Supervisory Board of ThyssenKrupp AG | 2001 | Member of the Supervisory Boards of ThyssenKrupp AG (chairman), Axel Springer AG, Siemens AG, Hochtief AG, Deutsche Lufthansa AG, E.ON AG, Volkswagen AG, Suez S.A., BNP Paribas and Compagnie de Saint-Gobain S.A. | ||||
Claudia Eggert-Lehmann(2) | 38 | Employee, Dresdner Bank AG | 2003 | None | ||||
Hinrich Feddersen(2) | 61 | Member of the federal steering committee of ver.di (Vereinte Dienstleistungsgewerkschaft) | 2001 | None |
Name Principal Occupation Principal Outside Board Franz Fehrenbach(1) Peter Haimerl(2) Prof. Dr. Rudolf Hickel(2) Dr. Franz B. Humer(1) Prof. Dr. Renate Köcher(1) Igor Landau(1) Dr. Max Link(2) Iris Mischlau-Meyrahn(2) Karl Neumeier(2) Sultan Salam(2) Dr. Manfred Schneider(1) Margit Schoffer(2) Prof. Dr. Dennis Snower(1) Age Year First
Appointed
Memberships 56 Chairman of the Board of Management of Robert Bosch GmbH 2005 Member of the Board of Management of Robert Bosch GmbH (Chairman) and member of the Supervisory Board of Robert Bosch Corporation 56 Employee, Dresdner Bank AG; Chairman of the works council of Dresdner Bank 2001 None 63 Professor of Finance, University of Bremen 1999 Member of the Supervisory Boards of Salzgitter AG Stahl und Technologie, Howaldtswerke Deutsche Werft AG and Gewoba AG Wohnen und Bauen in Bremen 59 Chairman of the board of directors and Chief Executive Officer of F. Hoffmann-La Roche AG 2005 Member of the Supervisory Board of F. Hoffmann-La Roche AG (Chairman) and member of the board of directors of DIAGEO plc 53 Chairperson Institut für Demoskopie, Allensbach 2003 Member of the Supervisory Boards of MAN AG, Infineon Technologies AG and BASF AG 61 Member of the board of directors of Sanofi-Aventis S.A. 2005 Member of the Supervisory Boards of adidas-Salomon AG and member of the boards od directors of HSBC France, Essilior S.A. and Sanofi-Aventis S.A. 51 Employee, Allianz Versicherungs-AG 2004 None 47 Employee, Allianz Lebensversicherungs-AG 2005 None 58 Employee, Allianz Versicherungs-AG 2003 None 64 Employee, Dresdner Bank AG 2003 None 67 Chairman of the Supervisory Board of Bayer AG 1998 Member of the Supervisory Boards of Bayer AG (chairman), DaimlerChrysler AG, Linde AG (chairman), METRO AG, RWE AG and TUI AG 49 Employee, Dresdner Bank AG 2003 None 55 President of the Kiel Institute for World Economics 2004 None
The members of the Supervisory Board may be contacted at the business address of Allianz AG.
RAS Merger and the Future Allianz SE—Anticipated Changes in the Corporate Constitution
In the course of the contemplated merger of Riunione Adriatica di Sicurtà S.p.A. (RAS) with and into Allianz AG, and the change of the legal form of Allianz AG into a European Company (Societas Europaea,or SE), as described further in “Information on the Company—Allianz-RAS Merger/European Company (SE)”, some changes in the corporate constitution will occur.
According to the Articles of Association (Statutes) of the future Allianz SE, which were approved together with the merger plan by the extraordinary General Meeting of Allianz AG on February 8, 2006, Allianz SE will retain its two-tier board system of a Board of Management and a Supervisory Board. Upon the effectiveness of the merger, the mandates of the current members of the Board of Management and the Supervisory Board of Allianz AG will expire.
The Statutes of the future Allianz SE provide for reducing the size of the Supervisory Board from 20 members to 12, with six members representing the employees to maintain parity. The shareholder representatives on the first Allianz SE Supervisory Board are determined in the Statutes. In the future, the employee representatives on the Supervisory Board will no longer exclusively be representatives of the German employees, but also representatives of the employees of other European countries. They will be named according to the rules effective in their respective countries and will later be elected by the first General Meeting of Allianz SE. For the period prior to the first General Meeting, the employee representatives will be court-appointed.
The German Co-Determination Act will not apply to the future Allianz SE. A special negotiating body will negotiate the scope of employee involvement on the Supervisory Board with the management bodies of Allianz AG and RAS. If no agreement is reached by the established deadline, a statutorily-imposed solution provided for in the German Act on Employee Involvement in a European Company (Gesetz über die Beteiligung der Arbeitnehmer in einer Europäischen Gesellschaft) will apply. This statutorily-imposed solution can alsobe agreed upon in full or in part by the negotiating parties as a result of the negotiations.
Compensation of Directors and Officers
Remuneration of the Board of Management
The remuneration of the Board of Management of Allianz AG supports sustainable value-oriented management. In the last several years, it has been enhanced in order to arrive at a balanced structure, whose level is appropriate and competitive, and achieves the intended management purpose.
The remuneration of the Board of Management is determined by the Personnel Committee of the Supervisory Board. The remuneration structure is regularly discussed and examined in the plenary meetings of the Supervisory Board. See Note 45 to our consolidated financial statements for more information.
The individual remuneration components for the Board of Management include:
Fixed remuneration
The amount of the fixed remuneration is, on the one hand, determined by the delegated function or responsibility. On the other hand, it is influenced by external market conditions.
Variable remuneration
This component consists of an annual and a mid-term three-year bonus, each of which is performance- and success-related and limited to a maximum amount.
Group Equity Incentive
This consists of stock appreciation rights (SAR) and restricted stock units (RSU). More detailed information on the stock-based remuneration components can be found at Note 43 to our consolidated financial statements or on the Internet at www.allianz.com/cg.
The valuation of the stock-based remuneration is merely a mathematically calculated reference value. If and when the stock-based remuneration actually leads to payment depends on the future development of the share price, the strike price and the date of exercise. Exercise of SARs is possible, at the earliest, two years after their granting, and of RSUs after five
years. The exercise, the number of rights issued and the development of the value of stock-based remuneration are shown in the income statement.
Variable remuneration and stock-based remuneration together form a three-tier incentive system.
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EVA® is a registered trademark of Stern Stewart & Co.
Miscellaneous
Income-equivalent ancillary benefits vary with the function and position of the recipient and are subject to personal income tax. They essentially include insurance coverage generally granted in the industry and the use of a company car. In 2005, income-equivalent ancillary benefits amounted to €0.2 million (2004: €0.3 million).
The members of the Board of Management either receive no remuneration from mandates at Allianz Group companies or the remunerationpaid to them from such mandates is turned over to the company in full. Of the remuneration received from positions in companies outside the Allianz Group, 50 % is turned over to the company and, in the year under review, this amounted to €0.5 million (2004: €0.5 million). This remuneration is shown in the annual reports of the companies concerned. For a list of supervisory mandates in companies outside the Allianz Group, see “ —Board of Management”.
The individual members of the Board of Management each received the following remuneration:
Fixed remuneration | Annual bonus(1) | Cash remuneration(2) | Reserves 3-year-bonus(3) | Group Equity- Incentive | |||||||||||||||||
Board of Management | 2005 | Change from previous year | 2005 | Change from previous year | 2005 | Change from previous year | 2005 | Change from previous year | 2005 SARs/ RSUs granted | ||||||||||||
€ thou | % | € thou | % | € thou | % | € thou | % | ||||||||||||||
Michael Diekmann (Chairman) | 900 | — | 1,494 | (10 | ) | 2,394 | (6 | ) | 540 | — | 45,343 | ||||||||||
Dr. Paul Achleitner | 700 | — | 1,065 | (14 | ) | 1,765 | (9 | ) | 360 | — | 34,497 | ||||||||||
Detlev Bremkamp | 600 | — | 886 | (19 | ) | 1,486 | (12 | ) | 300 | (17 | ) | 29,987 | |||||||||
Jan R. Carendi | 600 | — | 867 | (24 | ) | 1,467 | (16 | ) | 300 | (17 | ) | 30,896 | |||||||||
Dr. Joachim Faber | 600 | — | 916 | (17 | ) | 1,516 | (11 | ) | 330 | (8 | ) | 30,172 | |||||||||
Dr. Reiner Hagemann(4) | 700 | — | 1,079 | (28 | ) | 1,779 | (19 | ) | 270 | (25 | ) | 38,859 | |||||||||
Dr. Helmut Perlet | 600 | — | 920 | (15 | ) | 1,520 | (10 | ) | 360 | — | 29,874 | ||||||||||
Dr. Gerhard Rupprecht(5) | 600 | — | 910 | (13 | ) | 1,510 | (8 | ) | 360 | — | 29,235 | ||||||||||
Dr. Herbert Walter6) | 700 | — | 1,051 | (34 | ) | 1,751 | (24 | ) | 310 | (14 | ) | 54,998 | |||||||||
Dr. Werner Zedelius | 600 | 25 | 975 | 17 | 1,575 | 20 | 270 | (25 | ) | 25,471 |
The individual members of the Board of Management each received the following stock-related remuneration:
Number of rights granted | Mathematical value of GEI at the date of grant | |||||||||
SAR(1) | RSU(2) | SAR(1) | RSU(2) | Total | ||||||
€ thou | € thou | € thou | ||||||||
Michael Diekmann (Chairman) | 30,048 | 15,295 | 802 | 1,304 | 2,106 | |||||
Dr. Paul Achleitner | 22,860 | 11,637 | 610 | 992 | 1,603 | |||||
Detlev Bremkamp | 19,872 | 10,115 | 530 | 863 | 1,393 | |||||
Jan R. Carendi | 20,474 | 10,422 | 546 | 889 | 1,435 | |||||
Dr. Joachim Faber | 19,994 | 10,178 | 534 | 868 | 1,402 | |||||
Dr. Reiner Hagemann(3) | 25,751 | 13,108 | 687 | 1,118 | 1,805 | |||||
Dr. Helmut Perlet | 19,797 | 10,077 | 528 | 859 | 1,388 | |||||
Dr. Gerhard Rupprecht(4) | 19,373 | 9,862 | 517 | 841 | 1,358 | |||||
Dr. Herbert Walter(5) | 27,077 | 27,921 | 723 | 2,381 | 3,104 | |||||
Dr. Werner Zedelius | 16,879 | 8,592 | 451 | 733 | 1,183 |
Pensions and similar benefits
The pension agreements for members of the Board of Management stipulate retirement benefits of a fixed amount that is not linked to the development of the fixed or variable remuneration components. The agreements are examined and revised at irregular intervals. In 2005, we changed to a contribution-oriented system. This involves savings contributions and a fixed interest rate of 2.75 % per year, which is also the actuarial interest rate for life insurance companies in Germany. In the case of an insured event, the accumulated capital is converted to equal annuity payments that are then paid out for the rest of the member’s life. If the net return on investment exceeds the actuarial interest rate, a corresponding profit share will be credited in the following year.
When a member of the Board of Management retires from the Board at the end of his mandate, old age pension is paid no earlier than upon completion of the 60th year of age, except for cases of professional disability or general disability for medical reasons, or payments to a beneficiary in the case of death. If the mandate is terminated for other reasons before the retirement age has been reached, a non-expiring pension claim is maintained. This does not mean, however, claim to pension payments must begin immediately.
The Allianz Group paid €1.4 million (2004: €2.3 million) to increase pension reserves and reserves for similar benefits for active members of the Board of Management in the past financial year. On December 31, 2005, the corresponding provisions amounted to €26.1 million (2004: €25.8 million).
Remuneration of the Supervisory Board
Remuneration system
The remuneration of the Supervisory Board is governed by §11 of the Statutes of Allianz SE. In line with §113 of the German Stock Corporation Act, the General Meeting is responsible for establishing the Supervisory Board’s remuneration. Accordingly, the provisions on the amount and structure of the Supervisory Board remuneration in §11 of the Statutes were ratified by the Annual General Meeting in 2005. Upon the conversion of Allianz AG into Allianz SE in 2006, these provisions were adopted by shareholders without changes.
The key principles of the Supervisory Board remuneration are:
Total remuneration is set at an appropriate level based on the sizescale and scope of the company,Supervisory Board members’ duties and responsibilities as well as the Company’s activities, business and financial situation.
An appropriate balance is maintained between fixed remuneration and short-term and long-term performance based components in order to adhere to the principles of neutrality and independence of the Supervisory Board members, while at the same time providing adequate performance incentives.
The remuneration conforms to the individual functions and responsibilities of the members of the Supervisory Board and the financial situation of the company. On May 4, 2005, they were rearranged by resolution of the Annual General Meeting. The relevant provisions are contained in clause 9 of the Articles of Association.members, such as chair or vice-chair or committee mandates.
The relationship between the fixed and variable remuneration components is now more balanced. In addition, merit-based remuneration is no longer determined by the dividend, but by corporate earnings per share.
Three components make up the regular remuneration of a member of the Supervisory Board’s remuneration:Board of Allianz SE, i.e. the remuneration without taking into account additional remuneration for the Chairperson, Deputy Chairpersons and/or members and Chairpersons of committees:
The fixed remuneration amounts to €50,000 per fiscal year.
The first performance-based component of remuneration has a short-term focus. It depends on the increase of the consolidated earnings-per-share compared to the previous fiscal year. It amounts to €150 for each tenth percentage point by which the Group’s earnings-per-share increased in comparison to the preceding year and is set at a maximum limit per member of €24,000.
The second performance-based component of remuneration depends on the increase of the consolidated earnings-per-share compared to this figure three years ago and therefore seeks to reflect long-term performance. It amounts to €60 for each tenth percentage point by which the Group’s earnings-per-share increased over the past three years. It is also set at a maximum limit of €24,000.
Maximum regular remuneration
With the two variable remuneration components being capped at a maximum limit of €24,000 and a fixed sum of €50,000, and two merit-based components. One has a short-term orientation and depends on corporate earnings per share in the previous fiscal year. The other is
long-term and focuses on the cumulative trend in this indicator over the past three years.
The maximum sum for each of the two variable remuneration components is limited to €24,000. This means that the maximum total regular compensation for a Supervisory Board member is €98,000.amounts to €98,000 per fiscal year. This maximum limit would take effectamount is reached when the previous year’s earnings per shareearnings-per-share have risen by more than 16 %, or16.0% and when this indicator has further improved by a total of 40 %40.0% or more over the pastlast three years. If there has been no improvement in corporate profits per sharethe Allianz Group’s earnings-per-share during the applicable reviewrelevant period (i.e., the previouspast fiscal year or the past three years), no merit-basedperformance-based remuneration will be awarded.
For the reporting year, both merit-based remuneration components reached €24,000, because corporate earnings per share rose by more than 16 % in 2005, and by more than 40 % between 2002 and 2005.Compliance with German Corporate Governance Code
The chairmanstructure of the Supervisory Board’s remuneration complies with the recommendation and the deputy chairmansuggestion of the German Corporate Governance Code under which members of the Supervisory Board shall receive fixed as well as performance-based compensation that should contain components based on the long-term performance of the business. We believe that this form of the Supervisory Board’s remuneration has proven to be effective, and that the earnings-per-share performance measure is appropriate for the calculation of the performance-based remuneration of the Supervisory Board.
Chair and committees, limits and attendance fees
The Chairperson and Deputy Chairpersons of the Supervisory Board as well as the chairmenChairperson and members of itsSupervisory Board committees receive additional remuneration as follows: The chairmanChairperson of theSupervisorythe Supervisory Board receives double, and his deputy one and a halfthe Deputy Chairpersons receive one-and-a-half times, the regular remuneration of an ordinarya member of the Supervisory Board. Members of the Personnel Committee, Standing Committee and StandingRisk Committee receive an additional 25 %,25.0% above the regular remuneration, and their respective chairmen 50 %.the Chairpersons of each of these committees receive 50.0% over the regular
remuneration. Members of the Audit Committee are entitled to a fixed sum of €30,000 per year and the committee’s chairmanAudit Committee Chairperson receives €45,000. No additional remuneration is granted to the members of the Nomination Committee.
The additionalThere is a maximum limit on the total remuneration of each member of the committee membersSupervisory Board. It is capped by an upper limit. This limit takes effectreached when the remuneration of the chairmanChairperson of the Supervisory Board has reachedbeen awarded triple, and that of the other members of the Supervisory Board double, the basic remuneration.regular remuneration of a member of the Supervisory Board.
The members of the Supervisory Board receive a €500 attendance fee for each Supervisory Board or committee meeting that they personally attend.attend in person. This sum remains unchanged if several meetings occur on one day or when various meetings are held on consecutive days. The total expenditure
Figures for attendance fees in the reporting2008 fiscal year amounted to €38,500.
The individual membersGroup’s earnings-per-share were negative in 2008. The performance-based remuneration of the Supervisory Board each receivedbeing based on the following remuneration:increase of the Group’ earnings-per-share, no short-term or long-term performance-based remuneration will be awarded to the Supervisory Board for 2008. For 2008 the regular remuneration for a member of the Supervisory Board thus amounted to a total of €50,000, being the fixed remuneration. The maximum limit of remuneration applicable to the Chairman of the Supervisory Board, being three times the regular remuneration, amounted to €150,000, the maximum limit of remuneration applicable to the other Supervisory Board members amounted to €100,000.
Fixed remuneration | Variable remuneration | Committee remuneration | Total remuneration | |||||||
short-term | long-term | |||||||||
€ | € | € | € | € | ||||||
Dr. Henning Schulte-Noelle (Chairman) | 100,000 | 48,000 | 48,000 | 98,000 | 294,000 | |||||
Norbert Blix (Deputy Chairman) | 75,000 | 36,000 | 36,000 | 49,000 | 196,000 | |||||
Dr. Wulf H. Bernotat | 50,000 | 24,000 | 24,000 | — | 98,000 | |||||
Dr. Diethart Breipohl | 50,000 | 24,000 | 24,000 | — | 98,000 | |||||
Dr. Gerhard Cromme | 50,000 | 24,000 | 24,000 | 79,000 | 177,000 | |||||
Claudia Eggert-Lehmann | 50,000 | 24,000 | 24,000 | 20,000 | 118,000 | |||||
Hinrich Feddersen | 50,000 | 24,000 | 24,000 | — | 98,000 | |||||
Franz Fehrenbach (since May 4, 2005) | 33,333 | 16,000 | 16,000 | — | 65,333 | |||||
Peter Haimerl | 50,000 | 24,000 | 24,000 | 24,500 | 122,500 | |||||
Prof. Dr. Rudolf Hickel | 50,000 | 24,000 | 24,000 | 30,000 | 128,000 | |||||
Dr. B. Humer (since May 4, 2005) | 33,333 | 16,000 | 16,000 | — | 65,333 | |||||
Prof. Dr. Renate Kocher | 50,000 | 24,000 | 24,000 | — | 98,000 | |||||
Igor Landau (since January 1, 2005) | 50,000 | 24,000 | 24,000 | — | 98,000 | |||||
Frank Ley (until May 4, 2005) | 20,833 | 10,000 | 10,000 | 12,500 | 53,333 | |||||
Dr. Max Link | 50,000 | 24,000 | 24,000 | — | 98,000 | |||||
Iris Mischlau-Meyrahn (since May 4, 2005) | 33,333 | 16,000 | 16,000 | — | 65,333 | |||||
Karl Neumeier | 50,000 | 24,000 | 24,000 | — | 98,000 | |||||
Sultan Salam | 50,000 | 24,000 | 24,000 | — | 98,000 | |||||
Dr. Albrecht Schafer (until May 4, 2005) | 20,833 | 10,000 | 10,000 | — | 40,833 | |||||
Dr. Manfred Schneider | 50,000 | 24,000 | 24,000 | 69,500 | 167,500 | |||||
Margit Schoffer | 50,000 | 24,000 | 24,000 | — | 98,000 | |||||
Dr. Hermann Scholl (until May 4, 2005) | 20,833 | 10,000 | 10,000 | — | 40,833 | |||||
Prof. Dr. Dennis J. Snower | 50,000 | 24,000 | 24,000 | — | 98,000 | |||||
Total | 1,087,500 | 522,000 | 522,000 | 382,500 | 2,514,000 | |||||
The total remuneration for the Supervisory Board members including attendance fees amounted to €1,080,000 in 2008, compared to €1,598,305 in 2007. Accordingly, the average annual remuneration for the Supervisory Board members decreased to €90,000 (2007: €132,274). The reason for this is that no performance-based remuneration was awarded.
Remuneration of the Supervisory Board of Allianz SE
Supervisory Board | Fixed remuneration | Long-term performance based remuneration | Short-term performance based remuneration | Committee remuneration | ||||||||||||
2008 | 2007 | 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | |||||||||
€ | € | € | € | € | € | € | € | |||||||||
Dr. Henning Schulte-Noelle (Chairman) | 100,000 | 100,000 | 0 | 48,000 | 0 | 16,200 | 75,000 | 123,150 | ||||||||
Dr. Gerhard Cromme (Deputy Chairman) | 75,000 | 75,000 | 0 | 36,000 | 0 | 12,150 | 36,250 | 86,050 | ||||||||
Claudia Eggert-Lehmann (Deputy Chairwoman) (until January 12, 2009) | 75,000 | 75,000 | 0 | 36,000 | 0 | 12,150 | 25,000 | 41,050 | ||||||||
Dr. Wulf H. Bernotat | 50,000 | 50,000 | 0 | 24,000 | 0 | 8,100 | 42,500 | 50,525 | ||||||||
Jean-Jacques Cette | 50,000 | 50,000 | 0 | 24,000 | 0 | 8,100 | 30,000 | 30,000 | ||||||||
Godfrey Robert Hayward | 50,000 | 50,000 | 0 | 24,000 | 0 | 8,100 | 12,500 | 20,525 | ||||||||
Dr. Franz B. Humer | 50,000 | 50,000 | 0 | 24,000 | 0 | 8,100 | 50,000 | 20,525 | ||||||||
Prof. Dr. Renate Köcher | 50,000 | 50,000 | 0 | 24,000 | 0 | 8,100 | 12,500 | 20,525 | ||||||||
Peter Kossubek (since May 2, 2007) | 50,000 | 33,334 | 0 | 16,000 | 0 | 5,400 | 12,500 | 13,684 | ||||||||
Igor Landau | 50,000 | 50,000 | 0 | 24,000 | 0 | 8,100 | 30,000 | 30,000 | ||||||||
Jörg Reinbrecht | 50,000 | 50,000 | 0 | 24,000 | 0 | 8,100 | 30,000 | 30,000 | ||||||||
Margit Schoffer (until May 2, 2007) | — | 20,834 | — | 10,000 | — | 3,375 | — | 8,553 | ||||||||
Rolf Zimmermann | 50,000 | 50,000 | 0 | 24,000 | 0 | 8,100 | 12,500 | 20,525 | ||||||||
Total | 700,000 | 704,168 | 0 | 338,000 | 0 | 114,075 | 368,750 | 495,112 |
Total remuneration including attendance fees
Total remuneration (fixed, performance based and committee) (after cap) | Attendance fees | Total amount (total remuneration and attendance fees) | ||||||||||||
Supervisory Board | 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | ||||||||
€ | € | € | € | € | € | |||||||||
Dr. Henning Schulte-Noelle (Chairman) | 150,000 | (3) | 246,300 | (1) | 4,000 | 2,500 | 154,000 | 248,800 | ||||||
Dr. Gerhard Cromme (Deputy Chairman) | 100,000 | (4) | 164,200 | (2) | 4,000 | 3,500 | 104,000 | 167,700 | ||||||
Claudia Eggert-Lehmann (Deputy Chairwoman) (until January 12, 2009) | 100,000 | 164,200 | 3,500 | 2,500 | 103,500 | 166,700 | ||||||||
Dr. Wulf H. Bernotat | 92,500 | 132,625 | 4,000 | 3,000 | 96,500 | 135,625 | ||||||||
Jean-Jacques Cette | 80,000 | 112,100 | 4,000 | 3,000 | 84,000 | 115,100 | ||||||||
Godfrey Robert Hayward | 62,500 | 102,625 | 3,500 | 2,000 | 66,000 | 104,625 | ||||||||
Dr. Franz B. Humer | 100,000 | 102,625 | 4,500 | 2,000 | 104,500 | 104,625 | ||||||||
Prof. Dr. Renate Köcher | 62,500 | 102,625 | 3,500 | 2,000 | 66,000 | 104,625 | ||||||||
Peter Kossubek (since May 2, 2007) | 62,500 | 68,418 | 3,500 | 1,000 | 66,000 | 69,418 | ||||||||
Igor Landau | 80,000 | 112,100 | 4,500 | 3,500 | 84,500 | 115,600 | ||||||||
Jörg Reinbrecht | 80,000 | 112,100 | 4,500 | 3,500 | 84,500 | 115,600 | ||||||||
Margit Schoffer (until May 2, 2007) | — | 42,762 | — | 2,000 | — | 44,762 | ||||||||
Rolf Zimmermann | 62,500 | 102,625 | 4,000 | 2,500 | 66,500 | 105,125 | ||||||||
Total | 1,032,500 | 1,565,305 | 47,500 | 33,000 | 1,080,000 | 1,598,305 |
(1) | Total calculated remuneration of €287,350, which is capped at €246,300 (for Chairman, the limit is three times the 2007 regular remuneration). |
(2) | Total calculated remuneration of €209,200, which is capped at €164,200 (limit of two times the 2007 regular remuneration). |
(3) | Total calculated remuneration of €175,000, which is capped at €150,000 (for Chairperson, the limit is three times the 2008 regular remuneration). |
(4) | Total calculated remuneration of €111,250, which is capped at €100,000 (limit of two times the 2008 regular remuneration). |
Remuneration for mandates in other Allianz Group subsidiaries, agent commissions
As member of the Supervisory Board of Dresdner Bank AG Claudia Eggert-Lehmann received €45,000. Peter Kossubek received €13,333.33 as member of the Supervisory Board of Allianz Versicherungs-AG. One member of the Supervisory Board received certain small commission payment for ancillary agent activities.
Loans to Members of the Board of Management and Supervisory Board
Loans granted by Dresdner Bank AG and other Allianz Group companies to members of the Board of Management and Supervisory Board totaled €85,000 on the date of balance (December 31, 2008). Loan amounts repaid in 2008 totaled €50,876. Loans are provided at standard market conditions or at the conditions as applied to employees. Moreover, overdraft facilities were granted to members of the Board of Management and Supervisory Board as part of existing account relationships, likewise corresponding to conditions according to market standard or those applied to employees. The loans and overdrafts mentioned above (1) were made in the ordinary course of business, (2) were granted on conditions that are comparable to those of loans and overdrafts granted to people in peer groups and (3) did not involve more than the normal risk of collectability or present other unfavorable features. For members of the Board of Management, this means that the conditions have been set according to the prevailing conditions for Allianz employees.
Allianz AGSE has entered into service contracts with management board members of the Board of Management providing for a limited benefit upon termination of service prior to the stated expiration date of a management board member’s contract. In such circumstances, the management board member of the Board of Management would receive monthly fixed payments for a further six months as well aspro ratabonus payments if the conditions for the bonus payments are fulfilled. If regular pension benefits were to become due during this time period, they would be credited against these payments. Allianz AGSE has not entered into such contracts with supervisory board members.members of the Supervisory Board.
As of March 15, 2006,9, 2009, the members of the management boardBoard of Management and the supervisory boardSupervisory Board held less than 1% of our ordinary shares issued and outstanding. As of such date, based on our share register, the members of the management boardBoard of Management and the supervisory boardSupervisory Board held in the aggregate approximately 2.726130.200 ordinary shares of Allianz AG.SE.
As of December 31, 2005,2008, the Allianz Group employed a total of 177,625182,865 people worldwide, of whom 72,195,71,267 or 40,6%39.0%, were employed in Germany. A large number of our German employees are covered by collective bargaining agreements or similar arrangements. In the past three years, there have been no work stoppages or strikes at our various sites that have arisen from collective bargaining disputes or for other reasons which had a material adverse effect on the Allianz Group’s results of operations. We believe that our employee relations are good.
The following table shows the number of employees of the Allianz Group by region for the years endedas of December 31, 2005, 20042008, 2007 and 2003.2006.
At December 31, | 2008 | 2007 | 2006 | |||||||||
2005 | 2004 | 2003 | ||||||||||
Employees by countries | ||||||||||||
Germany | 72,195 | 75,667 | 82,245 | 71,267 | 72,063 | 76,790 | ||||||
United Kingdom | 27,661 | 23,817 | 9,801 | |||||||||
France | 17,246 | 17,129 | 19,639 | 18,915 | 19,120 | 17,096 | ||||||
United States | 10,840 | 10,313 | 11,058 | 10,627 | 10,706 | 10,691 | ||||||
United Kingdom | 10,207 | 10,865 | 9,945 | |||||||||
Russia | 9,106 | 11,744 | 280 | |||||||||
Italy | 7,706 | 7,715 | 7,467 | 7,211 | 7,445 | 7,661 | ||||||
Switzerland | 4,286 | 4,117 | 2,874 | |||||||||
Australia | 3,673 | 3,283 | 3,187 | 3,719 | 3,608 | 3,474 | ||||||
Spain | 3,440 | 3,299 | 3,139 | |||||||||
Hungary | 3,427 | 3,235 | 3,159 | |||||||||
Austria | 3,024 | 3,006 | 3,246 | 3,272 | 3,096 | 3,106 | ||||||
Hungary | 2,839 | 2,941 | 3,056 | |||||||||
Switzerland | 2,823 | 2,930 | 3,117 | |||||||||
Spain | 2,762 | 2,664 | 2,735 | |||||||||
Brazil | 2,941 | 2,971 | 2,334 | |||||||||
Slovakia | 2,645 | 2,858 | 3,039 | 2,682 | 2,627 | 2,564 | ||||||
Brazil | 2,345 | 2,259 | 2,304 | |||||||||
Poland | 2,458 | 1,358 | 1,290 | |||||||||
Romania | 1,749 | 1,598 | 1,332 | 2,331 | 2,292 | 2,061 | ||||||
South Korea | 1,711 | 1,785 | 1,735 | |||||||||
China (incl. Hong Kong) | 2,501 | 2,137 | 1,374 | |||||||||
Other | 18,406 | 18,536 | 19,789 | 24,475 | 20,524 | 18,667 | ||||||
Total | 177,625 | 176,501 | 173,750 | 182,865 | 181,207 | 166,505 | ||||||
Stock-based Compensation Plans
Group Equity IncentiveIncentives (GEI) plans
The Allianz Group Equity Incentives (GEI) support the orientation of senior management, and in particular the management board, towardBoard of Management, to create sustainable value for shareholders. The GEI plan, as a
key component of performance related pay, supports this goal through its direct link to the long-term increaseperformance of the valueAllianz SE stock. The GEI consist of the company. In 1999, we introducedtwo vehicles, Stock Appreciation Rights (SAR) through, which part of the total remuneration is directly tied to the development of the Allianz share price. In 2003,were introduced in 1999, and Restricted Stock Units (RSU) with, which were introduced in 2003. The SAR have a vesting period of two years and an exercise period of five years, the RSU have a 5-year vesting period were issued for the first time. Allianz senior management worldwide is entitled to participateperiod.
Participation in these Group Equity Incentives.plans is limited to Allianz top managers and certain designated future leaders worldwide.
Awards were granted by the respective companies in accordance with uniform group-wide conditions. The grant price for SAR and RSU applicable for the award is calculated on the basis of the arithmetic average dailyof the closing priceprices of the Allianz shareSE stock in Xetra trading onover the 10ten trading days following the Annual General MeetingFinancial Press Conference of Allianz AG.SE until and including the grant date in the year of issue of the relevant plan. The grant price for the GEI plan 20052008 is 92.87.€117.38.
The number of SAR and RSU offered is set individually for each participant and is determined on the basis of the grant price, the economic
development performance of the value of Allianz AGGroup and the respective responsibleemploying company, and individual elementsother factors such as fixedparticipants’ remuneration and performance. The volume of rights granted and thus the potential gain for the participant depends essentially on the economic performance.
For additional information on ourthe Group Equity Incentive Plans seerefer to Note 4348 to our consolidated financial statements.
The purpose of the Allianz AG offers itsEmployee Stock Purchase Plan (ESPP) is to promote share ownership among employees as well as to increase their financial awareness and interest in the company’s performance. The ESPP gives employees the opportunity to acquire shares to qualified employees in Germany and abroadof Allianz SE at favorable conditions within pre-defined timeframes. To be eligible, employees must have been employed for a minimum period of six continuous months prior to the share offering and no notice of termination of employment must have been served. Employees are alsopreferential terms, subject to certain restrictions onconditions. To purchase Allianz SE shares there is a set maximum investment as to the amount that may be invested toannual base pay plus target bonus. The timing of participation and the purchase the shares. Allianz AG and each participating Allianz Group subsidiary establishes a restricted period of at least one and maximum five years during which employees may not transfer the shares after purchasing them. After this period, the shares are not subject to vesting or other restrictions.differs by country. The eligible employeesspecific features of the Allianz Group acquired a total of 1,144,196 ordinary shares under such arrangementsplan offer are decided annually. In 2008, around 125,000 employees in 2005.24 countries were eligible to participate in the plan, and approximately 22,000 employees accepted the offer.
For additional information on our Employee Stock Purchase Plans, seerefer to Note 4348 to our consolidated financial statements.
ITEM 7. Major Shareholders and Related Party Transactions
ITEM 7. | Major Shareholders and Related Party Transactions |
The outstanding capital stock of Allianz AGSE consists of ordinary shares without par value that are issued in registered form. Under our articles of association,Statutes, each outstanding ordinary share represents one vote. Major shareholders do not have different voting rights. Based on our share register, as of March 15, 2006,9, 2009, we had approximately 484,600490,160 registered shareholders, of which approximately 870560 were U.S. holders. Based on our share register, approximately 12.1%16.7% of our ordinary shares issued were held by such U.S. holders. Although ourshareholdersour shareholders are generally required when registering to indicate their respective names, addresses and, in the case of legal entities, whether they hold on behalf of a third party,third-party, many of our ordinary shares may be held of record by brokers, trustees or other nominal holders who are not required to provide such information with regard to beneficial holders.shareholders. As a result, the number of holders of record or registered U.S. holders may not be representative of the actual number of beneficial U.S. holders. For information regarding the share ownership of the members of our Board of Management and our Supervisory Board, seerefer to “Directors, Senior Management and Employees—ShareEmployees-Share Ownership.”
Under the German Securities Trading Act, holders of voting securities of a listed German company mustare required to notify the German Federal Financial Supervisory Authority (Bundesanstalt(Bundesanstalt für Finanzdienstleistungsaufsicht,or BaFin) and the company of the level of their holding whenever it reaches, exceeds or falls below specified thresholds. These thresholds are 3%, 5%, 10%, 15%, 20%, 25%, 30%, 50% and 75% of a company’s shares. The provisions of the German Securities Trading Act provide several criteria for attribution of shares.
As of March 15, 2006, we do not have any major9, 2009, no shareholder holding 5% or more of ourthe share capital. Münchener Rückversicherungs-Gesellschaft Aktiengesellschaft in München (Munich Re) informed us pursuantcapital was reported to the rules of the German Securities Trading Act that it has reduced its ownership in Allianz AG to below 5% effective July 14, 2005 and held 4.9% of the voting rights as of that date.SE.
As of March 15, 2006, 406,040,00016, 2009, 453,050,000 ordinary shares were issued, of which 404,310,879451,505,783 were outstanding and 1,729,1211,544,217 were held by the Allianz Group in treasury (including 1,305,086 shares held by Dresdner Bank in trading positions). The number of treasury shares held by the Allianz Group has decreased significantly as a result of the reduction of non-strategic assets by Dresdner Bank in the course of the “All-in-One” capital market transactions which were completed on January 28, 2005. For further information regarding such transactions, see “Operating and Financial Review and Prospects—Liquidity and Capital Resources—Debt and Capital Funding.”
Significant changes in the percentage ownership held of record by any of our major shareholders in the last three years were as follows:treasury.
For a description of related party transactions, seerefer to Note 4145 to the consolidated financial statements.
ITEM 8. | Financial Information |
Consolidated Statements and Other Financial Information
SeeRefer to pages F-1 and following for the consolidated financial statements required by this item.
For a description of legal proceedings, seerefer to Note 4246 to the consolidated financial statements.
Allianz AGSE normally declares dividends at the annual general meeting and pays these dividends once a year. Under applicable German law, dividends may be declared and paid only from balance sheet profitsavailable unappropriated earnings as shown in the German statutory annual financial statements of Allianz AG.SE. For each fiscalyear,fiscal year, the Board of Management
approves the annual financial statements and submits them to the Supervisory Board with its proposal as to the appropriation of the annual profit. This proposal will set forth what amounts of the annual profit should be paid out as dividends, transferred to capital reserves, or carried forward to the next fiscal year. Upon approval by the Supervisory Board, the Board of Management and the Supervisory Board submit their combined proposal to the shareholders at the annual general meeting. The general meeting ultimately determines the appropriation of the annual profits, including the amount of the annual dividends. Shareholders generally participate in distributions of any dividends in proportion to the number of their ordinary shares. Any dividends declared by Allianz AGSE will be paid in Euro.
For information regarding annual dividends declared in 2008 and paid from 20012004 through 2005, see2007, refer to “Key Information—Dividends.”
For a description of significant developments since the date of the annual financial statements included in this annual report, seerefer to Note 4652 to the consolidated financial statements.
ITEM 9. | The Offer and Listing |
The principal trading market for the ordinary shares is the Frankfurt Stock Exchange. The ordinary shares also trade on the following other German stock exchanges: Berlin-Bremen, Düsseldorf, Hamburg, Hanover, Munich and Stuttgart, as well as the stock exchanges in London, Paris, Milan and Zürich.Zurich. The ADSs of Allianz AG,SE, each representing one-tenth of an ordinary share, trade on the New York Stock Exchange under the symbol “AZ.” SeeRefer also to “Major Shareholders and Related Party Transactions—Major Shareholders.”
The table below sets forth, for the periods indicated, the high and low closing sales prices on the Frankfurt Stock Exchange for the ordinary shares of Allianz AGSE as reported by XETRA. The table also shows, for the periods indicated, the highs and lows of the DAX. SeeRefer to the discussion under “Key Information—Exchange Rate Information” for information with respect to rates of exchange between the U.S. dollarDollar and the Euro applicable during the periods set forth below.
Price per ordinary share(1) | DAX | |||||||
High | Low | High | Low | |||||
€ | € | |||||||
Annual highs and lows | ||||||||
2001 | 358.3 | 185.8 | 6,795.1 | 3,787.2 | ||||
2002 | 259.5 | 69.4 | 5,462.6 | 2,597.9 | ||||
2003 | 101.5 | 41.1 | 3,965.2 | 2,203.0 | ||||
2004 | 111.2 | 73.9 | 4,261.8 | 3,647.0 | ||||
2005 | 129.7 | 89.7 | 5,458.6 | 4,178.1 | ||||
2006 (through March 31, 2006) | 139.5 | 124.1 | 5,984.2 | 5,334.3 | ||||
Quarterly highs and lows | ||||||||
2004 | ||||||||
First quarter | 111.2 | 86.2 | 4,151.8 | 3,726.1 | ||||
Second quarter | 94.4 | 80.7 | 4,134.1 | 3,754.4 | ||||
Third quarter | 89.3 | 73.9 | 4,035.0 | 3,647.0 | ||||
Fourth quarter | 97.9 | 78.5 | 4,261.8 | 3,854.4 | ||||
2005 | ||||||||
First quarter | 101.0 | 89.7 | 4,428.1 | 4,201.8 | ||||
Second quarter | 98.4 | 90.1 | 4,627.5 | 4,178.1 | ||||
Third quarter | 112.3 | 95.2 | 5,048.7 | 4,530.2 | ||||
Fourth quarter | 129.7 | 110.6 | 5,458.6 | 4,806.1 | ||||
2006 | ||||||||
First quarter | 139.5 | 124.1 | 5,984.2 | 5,334.3 | ||||
Monthly highs and lows | ||||||||
2005 | ||||||||
October | 117.8 | 110.6 | 5,138.0 | 4,806.1 | ||||
November | 123.9 | 118.6 | 5,199.5 | 4,922.6 | ||||
December | 129.7 | 125.0 | 5,458.6 | 5,266.6 | ||||
2006 | ||||||||
January | 135.6 | 124.1 | 5,674.2 | 5,334.3 | ||||
February | 137.4 | 128.3 | 5,915.2 | 5,649.6 | ||||
March | 139.5 | 128.6 | 5,984.2 | 5,673.4 |
Price per ordinary share | DAX | |||||||
High | Low | High | Low | |||||
€ | € | |||||||
Annual highs and lows | ||||||||
2004 | 111.2 | 73.9 | 4,261.8 | 3,647.0 | ||||
2005 | 129.7 | 89.7 | 5,458.6 | 4,178.1 | ||||
2006 | 156.8 | 111.2 | 6,611.8 | 5,292.1 | ||||
2007 | 178.6 | 133.9 | 8,105.7 | 6,447.7 | ||||
2008 | 145.9 | 46.6 | 7,949.1 | 4,127.4 | ||||
2009 (through March 20, 2009) | 77.2 | 48.7 | 5,026.3 | 3,666.4 | ||||
Quarterly highs and lows | ||||||||
2007 | ||||||||
First quarter | 169.0 | 147.8 | 7,027.6 | 6,447.7 | ||||
Second quarter | 178.6 | 155.0 | 8,090.5 | 6,937.2 | ||||
Third quarter | 174.6 | 148.7 | 8,105.7 | 7,270.1 | ||||
Fourth quarter | 165.4 | 133.9 | 8,076.1 | 7,512.0 | ||||
2008 | ||||||||
First quarter | 145.9 | 106.2 | 7,949.1 | 6,182.3 | ||||
Second quarter | 134.5 | 111.0 | 7,225.9 | 6,418.3 |
Price per ordinary share | DAX | |||||||
High | Low | High | Low | |||||
€ | € | |||||||
Third quarter | 116.3 | 89.4 | 6.609,6 | 5,807.1 | ||||
Fourth quarter | 99.1 | 46.6 | 5,806.3 | 4,127.4 | ||||
2009 (through March 20, 2009) | 77.2 | 48.7 | 5,026.3 | 3,666.4 | ||||
Monthly highs and lows | ||||||||
2008 | ||||||||
September | 116.1 | 89.4 | 6,518,5 | 5,807.1 | ||||
October | 99.1 | 48.2 | 5.806,3 | 4.295,7 | ||||
November | 68.9 | 46.6 | 5,278.0 | 4,127.4 | ||||
December | 76.2 | 60.8 | 4,810.2 | 4,381,5 | ||||
2009 | ||||||||
January | 77.2 | 60.1 | 5,026.3 | 4,179.0 | ||||
February | 71.8 | 49.2 | 4,666.8 | 3,843.7 | ||||
March 20 | 64.8 | 48.7 | 4,068.7 | 3,666.4 |
On March 31, 2006,20, 2009, the closing sale price per Allianz AGSE ordinary share on XETRA was €137.8,63.99, which was equivalent to $167.28$86.81 per ordinary share, translated at the closing noon buying rate for Euros on suchthat date.
Based on turnover statistics supplied by Bloomberg, the average daily volume of the ordinary shares of Allianz AGSE traded on the Frankfurt StockExchangeStock Exchange (XETRA) between January 2, 20062009 and March 31, 200620, 2009 was 3,220,870.3,824,451.
Trading on the New York Stock Exchange
Official trading of Allianz AGSE ADSs on the New York Stock Exchange commenced on November 3, 2000. Allianz AGSE ADSs trade under the symbol “AZ.”
The following table sets forth, for the periods indicated, the high and low closing sales prices per Allianz AGSE ADS as reported on the New York Stock Exchange Composite Tape:
Price per ADS | Price per ADS | |||||||
High | Low | High | Low | |||||
$ | $ | $ | $ | |||||
Annual highs and lows | ||||||||
2001 | 37.6 | 18.7 | ||||||
2002 | 25.2 | 7.5 | ||||||
2003 | 12.7 | 5.0 | ||||||
2004 | 14.0 | 9.0 | 14.0 | 9.0 | ||||
2005 | 15.4 | 11.4 | 15.4 | 11.4 | ||||
2006 (through March 31, 2006) | 17.0 | 15.1 | ||||||
2006 | 20.6 | 13.9 | ||||||
2007 | 24.0 | 19.2 | ||||||
2008 | 21.4 | 5.7 | ||||||
2009 (through March 20, 2009) | 10.8 | 6.0 | ||||||
Quarterly highs and lows 2004 | ||||||||
Quarterly highs and lows | ||||||||
2007 | ||||||||
First quarter | 14.0 | 10.6 | 22.2 | 19.2 | ||||
Second quarter | 11.4 | 9.6 | 23.8 | 20.7 | ||||
Third quarter | 10.9 | 9.0 | 24.0 | 20.3 | ||||
Fourth quarter | 13.3 | 10.0 | 23.5 | 19.6 | ||||
2005 | ||||||||
2008 | ||||||||
First quarter | 13.4 | 11.7 | 21.4 | 16.4 | ||||
Second quarter | 12.6 | 11.5 | 21.0 | 17.2 | ||||
Third quarter | 13.8 | 11.4 | 18.3 | 13.3 | ||||
Fourth quarter | 15.4 | 13.3 | 13.6 | 5.7 | ||||
2006 | ||||||||
First quarter | 17.0 | 15.1 | ||||||
2009 | ||||||||
(through March 20) | 10.8 | 6.0 | ||||||
Monthly highs and lows 2005 | ||||||||
Monthly highs and lows | ||||||||
2008 | ||||||||
September | 16.8 | 13.3 | ||||||
October | 14.1 | 13.3 | 13.6 | 6.4 | ||||
November | 14.6 | 14.0 | 9.0 | 5.7 | ||||
December | 15.4 | 14.8 | 10.8 | 7.3 | ||||
2006 | ||||||||
2009 | ||||||||
January | 16.5 | 15.1 | 10.8 | 7.5 | ||||
February | 16.3 | 15.5 | 9.3 | 6.3 | ||||
March | 17.0 | 15.4 | ||||||
March (through March 20) | 8.7 | 6.0 |
On March 31, 2006,20, 2009, the closing sales price per Allianz AGSE ADS on the New York Stock Exchange as reported on the New York Stock Exchange Composite Tape was $16.7.$8.45.
ITEM 10. | Additional Information |
Articles of Association (Statutes)
Information relating to Allianz AG’s articles of association is incorporated in this annual report by reference to Allianz AG’s Registration Statement on Form 20-F (File No. 1-15154) as filed with the SECon October 31, 2000. Allianz AG’sSE’s current articles of associationstatutes are filed as an exhibit to this annual report. Refer also to “Directors, Senior Management and Employees” for a description of our corporate governance structure.
Organization and Share Capital
Allianz AGSE is a stock corporationStock Corporation in the form of a European Company (Societas Europaea or SE) and is organized inunder the laws of the Federal Republic of Germany underand the German Stock Corporation Act.European Union. It is registered in the Commercial Register in Munich, Germany, under the entry number HRB 7158.164232.
The share capital of Allianz AGSE consists of ordinary shares without par value. As of March 15, 2006,16, 2009, the capital stock of Allianz AGSE amounts to €1,039,462,400.€1,159,808,000. It is sub-divided into 406,040,000 no-par453,050,000 shares with no par value, of which 404,310,879451,505,783 shares were outstanding. See also “Major ShareholdersThe shares are registered and Related Party Transactions—Major Shareholders.”can only be transferred with the approval of the Company. The Company will withhold a duly applied approval only if it deems this to be necessary in the interest of the Company on exceptional grounds. The applicant will be informed about the reasons.
Objects and Purposes
Pursuant to article 1, paragraph 2 of our articles of associationstatutes the corporate purpose of the Company is the direction of an international group of companies, that arewhich is active in the areas of insurance, banking, asset management and other financial, consulting and similar services. The Company holds interests in insurance companies, banks, industrial companies, investment companies and other enterprises. As a reinsurer, the Company primarily assumes insurance business from its Group companies and other companies in which Allianz AGSE holds direct or indirect ownership interests.
Copies of the articles of associationstatutes are publicly available from the Commercial Register in Munich. German- and English-language versions are available at our headquartersheadquarter and on our website.
Conditions Governing Changes in Capital
Allianz AGSE has several categories of authorized capital, which are set forth in its articles of association. statutes.
At the AnnualExtraordinary General Meeting on May 5, 2004,February 8, 2006, the shareholders approved the following authorized capital for issuance of new registered shares by the Board of Management, upon the approval of the Supervisory Board:
Up to €450,000,000 in the aggregate on one or more occasions on or before May 4, 2009February 7, 2011 by issuing new registered no-par value shares against contributions in cash and/or in kind (Authorized Capital 2004/1)2006/I), of which an amount of €424,100,864 remain€406,545,646 remains as of March 15, 2006.16, 2009. If the capital stock is increased against contributions in cash, the shareholders are to be granted a subscription right. However, the Board of Management is authorized, upon the approval of the Supervisory Board, to exclude such shareholders’ subscription right:
|
(i) for fractional amounts;
(ii) ifto the extent necessary to grant preemptivesubscription rights on new shares to holders of bonds issued by Allianz SE or Allianz AG or its Group companies that carry conversationconversion or option rights or conversationconversion obligations to such an extent as such holders would be entitled after having exercised their conversationconversion or option rights after any conversationconversion obligations have been fulfilled; and
(iii) if the issue price is not substantially lower than the market price, subject to certain additional limitations in accordance with the German Stock Corporation Act.
Furthermore, the Board of Management is authorized, upon the approval of the Supervisory Board, to exclude shareholders’ preemptivesubscription rights in the case of a capital increase against contributions in kind. The Board of Management is also authorized, upon the approval of the Supervisory Board, to determine the additional rights of the shares and the conditions of theirthe share issuance.
Up to €10,000,000€15,000,000 in the aggregate on one or more occasions on or before May 4, 2009 by issuing new registered no-par shares against contributions in cash (Authorized Capital 2004/II), of which amount €4,356,736 remain as of March 15, 2006. The Board of Management is authorized, upon the approval of the Supervisory Board:February 7,
2011 by issuing new registered no-par shares against contributions in cash (Authorized Capital 2006/II), of which an amount of €8,056,297 remains as of March 16, 2008. The Board of Management is authorized, upon the approval of the Supervisory Board: |
(i) to exclude shareholders’ preemptivesubscription rights in order to issue the new shares to the employees of Allianz AGSE and Allianz Group companies;
(ii) to exclude preemptive rights with respect to fractional amounts;amounts from the shareholders’ subscription right; and
(iii) to determine the additional rights of thesethe shares and the conditions of theirthe share issuance.
TheFurthermore, the shareholders have conditionally increased the share capital by an aggregate amount of up to €250,000,000.00 through issuance of up to 97,656,250 new registered no-par value shares with entitlement to share in profits from the beginning of the financial year of their issuance (Conditional Capital 2004)2006). The conditional capital increase shallbeshall be carried out only to the extent that conversationconversion or option rights are exercised by holders of conversion or option rights attached to bonds thatwhich Allianz SE or Allianz AG or itstheir Group companies have issued against paymentcash payments in cash pursuant toaccordance with the authorization approved byresolution of the Annual General Meeting on May 5, 2004,as of February 8, 2006, or to the extent that mandatory conversion obligations under such bonds are fulfilled, and insofaronly in so far as no other methods of servicingperformance are used in serving these rights are used. Of thisrights. The Board of Management is authorized to determine further details of the conditional share capital an amount of up to €226,960,000 through issuance of up to 88,656,250 new registered no-par shares remains as of March 15, 2006.increase.
With respect to purchases of our own ordinary shares, seerefer to Note 1425 to our consolidated financial statements.
In April 2003, by way of a rights offering, we raised approximately €4.4 billion, based on a subscription price of €38.00 per share, resulting in net proceeds of approximately €4.3 billion after deduction of the commission payable to the underwriters. We increased our issued share capital by €300,000,000 to €982,408,000 by issuing 117,187,500 new no-par value shares with full dividend entitlement for the 2003 fiscal year. For further information regarding capital increases, see alsorefer to Note 1425 to our consolidated financial statements.
In connection with the sale of Dresdner Bank to Commerzbank, Allianz and Commerzbank entered into a transaction agreement dated August 31, 2008, as supplemented by an amended agreement dated November 27, 2008, which are attached hereto as exhibits 4.1 and 4.2, respectively. For more information on material contractsthis transaction, refer to which Allianz AG or any of its subsidiaries was a party in the preceding two years, see Note 41 to our consolidated financial statements and “Information“Item 4. Information on the Company—Allianz-RAS Merger/European Company (SE).Major Disposals—Sale of Dresdner Bank AG.”
Germany does not generally restrict capital movements between Germany and other countries, institutions or persons.
For statistical purposes, subject to certain exceptions, each company or person domiciled in Germany is required to report to the German Bundesbank each payment received from or made to a company or person not domiciled in Germany in excess of €12,500 (or an equivalent amount in a foreign currency). Moreover, all claims and liabilities of a company or person domiciled in Germany
against or towards a company or person not domiciled in Germany in excess of €5 million (or an equivalent amount in a foreign currency) are required to be reported monthly to the German Bundesbank.
Other than as described above, there is no limitation on the right of non-resident or foreign owners to receive dividends or other payments relating to the ordinary shares or the ADSs permitted or granted by German law. Various national, state and other laws relating to the acquisition of “control” of Allianz AG’sSE’s insurance and banking subsidiaries may impose limitations on the ability to acquire ordinary shares or ADSs beyond specified thresholds. In addition, some national laws may authorize investigation of certain money transfers.
The following discussion is a summary of the material German tax consequencesregulations which might be of interest for legal or beneficial owners of shares or ADSs, whoparticularly for “Non-German-Holders”. Throughout this section we refer to owners as “Non-German Holders if they are (i) not German residents for German income tax purposes (i.e., persons whose residence, habitual abode, statutory seat or place of
effective management and control is not located in Germany) and (ii) whose shares do not form part of the business property of a permanent establishment or fixed base in Germany. Throughout this section we refer to these owners as “Non-German Holders.”
This summary is based on German tax laws and typical tax treaties to which Germany is a party as they are in effect on the date hereof and is subject to changes in German tax laws or such treaties.
The following discussioncomments are of a general nature and included herein solely for information purposes. These comments cannot replace legal or tax advice and does not purport to be a comprehensive discussion of all German tax consequences which may be relevant for Non-German Holders. Youconsequences. The owner should consult yourtheir tax advisor regarding the German federal, state and local tax consequences of the purchase, ownership and disposition of shares or ADSs, and the procedures to follow for the refund of German taxes withheld from dividends.dividends and the possible effects of changes in the tax laws of the Federal Republic of Germany.
This summary is based on the relevant German tax laws in 2008 and 2009 respectively in force and typical tax treaties to which Germany is a party, as they are applied on the date hereof and are subject to changes in German tax laws or respective treaties.
Taxation of the Company in Germany
German corporations, with a fiscal year that equals the calendar year, including Allianz AG, have beenSE, were subject to a corporate income tax rate of 25% in 2005. The2007. In addition a solidarity surcharge of 5.5% on the netassessednet assessed corporate income tax has been retained in 2005,to be paid, so that the corporate income tax and the solidarity surcharge, in the aggregate, amount to approximately 26.38%26.375%.
In the course of the reform of business taxation, implemented by the Business Tax Reform Act 2008, the income tax rate for corporations has been reduced to 15% as of the fiscal year 2008; including the solidarity surcharge, the aggregate rate amounts to 15.825%.
In addition, German corporations are subject to profit-related trade tax on income, the exact amountwhich is a municipal tax levied at an effective tax rate of which dependsbetween approximately 12% and 20%, depending on the applicable trade tax factor of the relevant municipality in which the corporation maintains its business establishment(s). Trade tax on incomeand is a deductible item in computing the corporation’s tax base for corporate income and trade tax purposes. Due to the Business Tax Reform Act 2008 from 2008 onwards the trade tax is no longer deductible for corporate income tax and trade tax purposes.
From 2004 onwards, tax
Tax losses carried forward can be used to offset against taxable profits of a period for an amount not exceeding €1 million. Taxable profits exceeding €1 million may only be set off by 60% againstwith tax losses brought forward from prior periods. Unutilized tax losses can be carried forward without any time limitation.
Taxation of Dividends
Germany has a classic corporate tax system, which appliedsystem.
If the Shares or ADS’s are held as private assets (Privatvermögen) by an individual German resident private investor, dividends are taxed as investment income (Einkünfte aus Kapitalvermögen). Till 2008, only 50% of the dividends received were included in the tax basis. However, income related expenses (e.g. custody fees or interest for a debt financed portfolio) were also deductible by only 50% (half-income system). The amount of such payments after deduction of related expenses was subject to progressive income tax plus solidarity surcharge thereon. Since 2007, a personal annual exemption (Sparer-Freibetrag) of €750 (€1,500 for married couples filing their tax return jointly) was available for the first timeaggregate amount of the investment income, including the dividends. In addition, an individual was entitled to dividend distributions paida standard deduction of €51 (€102 for married couples filing their tax return jointly) in computing his overall investment income unless the expenses involved are demonstrated to have actually exceeded that amount.
If the shares are held as business assets (Betriebsvermögen) by Allianz AG in 2002 fora German resident corporate investor, the financial year 2001. The formerdividends are generally subject to corporate income tax credit system has been abolished. Certain transition rules apply in connection withplus solidarity surcharge thereon and trade tax. Under the change from thecurrent corporate income tax credit system to the classic corporate tax system.
Under the current system, a tax credit is no longer attached to the dividends. To avoid multiple levels of taxation in a corporate chain, the law provides for an exemption comparable to a full dividenddividends received deduction for inter-corporate dividends at the level ofby a German resident corporate shareholder.investor are basically 100% tax-exempt (participation exemption). However, from 2004 onwards, 5% of the gross dividend is considered non tax deductible expense on(on each level of a corporate chain for corporate tax as well as for trade tax purposes.purposes). Dividends received from non-qualifying participations, which are participations of less than 10% (15% as from fiscal year 2008), are subject to trade tax on income infor the full amount.
If the shares were held as business assets (Betriebsvermögen) by a natural person (via a
German resident individuals are required to recognizepartnership or an individual enterprises), only 50% of the dividends received are included in the tax basis till to 2008. For trade tax purposes the same rules apply as taxable income.for corporate investors.
In the course of the reform of business taxation the taxation of dividends has been changed for individuals private investors and for business assets by a natural persons. From January 1, 2009 onwards a final flat-rate tax (Abgeltungsteuer) amounting to 25% (plus a 5.5% solidarity surcharge) on all types of investment income (including dividends) has been established. This withholding tax levied on the income from capital investment is generally final for private investors and will only be included in the relevant tax assessment for individuals upon application, especially if the personal income tax rate falls below 25%.
In addition, from January 1, 2009, the half-income system for dividends received by private investors has been abolished. For dividends received from shareholdings held as business assets by a natural person, the half-income system has changed to a partial-income system. Under this system, 60% of the dividends will be taxable and only 40% will be exempt. Income related expenses are also deductible by only 60%. The personal annual exemption (Sparer-Freibetrag for private Investors) and the standard deduction has been replaced by a unitary flat sum (Sparer-Pauschbetrag) for the overall investment income of € 801 (€ 1,602 for married couples filing their tax return jointly). The deduction of related expenses is not possible any more.
For German non-residents (individuals and corporate investors) the dividends received are basically subject to income taxes and therefore to withholding tax (see next section).
Imposition of Withholding Tax
DividendTill 2008, dividend distributions on or after January 1, 2002 by a German corporation with a calendar year that equals fiscal year arewere subject to a 20% withholding
tax. In addition, a solidarity surcharge at a rate of 5.5% on the withholding tax iswas levied, resulting in an aggregate rate of withholding tax of 21.1% of the declared dividend. The withholding tax is generally withheld irrespective of whether and to what extent the dividend distribution is exempt at the level of the holder.
As part of the reform of business taxation, from January 2009 1, onwards the withholding tax amounts to 25% (plus a 5.5% solidarity surcharge) on all types of investment income, including dividends.
If you areFor a Non-German Holder, the withholding tax rate may be reduced in accordance with an applicable income tax treaty. Under most income tax treaties to which Germany is a party, including the U.S.-German income tax treaty, the rate of dividend withholding tax for individual holders and corporate holders of a non-qualifying participation is reduced to 15%. In that case, the Non-German Holder eligible for the reduced treaty rate may apply for a refund of 6.1% of the declared dividend for dividend distributions paid on or after January 1, 2002 by Allianz AG.SE. The application for refund must be filed with the German Federal Tax Office (Bundeszentralamt für Steuern, Dienstsitz Bonn, An der KuppeKueppe 1, D-53225 Bonn, Germany). The relevant forms can be obtained from the German Federal Tax Office or from German embassies and consulates.
From January 1, 2009 onwards two-fifths of the withholding tax can in some circumstances be refunded to Non-German corporate investors upon application at the German Federal Tax Office, which finally results in a withholding tax of 15% (plus solidarity surcharge), leaving the entitlement for further reductions under an applicable income tax treaty unaffected.
Refund Procedure for U.S. Shareholders
For shares and ADSs kept in custody with The Depository Trust Company in New York or one of its participating banks, the German tax authorities have introduced a collective procedure for the refund of German dividend withholding tax and the solidarity surcharge thereon on a trial basis. Under this procedure, The Depository Trust Company may submit claims for refunds payable to eligible U.S. holders (as defined below) under the income tax convention between Germany and the United States, as currently in effect (the “Treaty”) collectively to the German tax authorities on behalf of these eligible U.S. holders. The German Federal Tax Office will pay the refund amounts on a preliminary basis to The Depository Trust Company, which will redistribute these amounts to the eligible U.S. holders according to the regulations governing the procedure. The
German Federal Tax Office may review whether the refund was made in accordance with the law within four years after making the payment to The Depository Trust Company. Details of this collective procedure are available from The Depository Trust Company.
You are an “eligible U.S. holder” if you are a U.S. holder (as defined below under “—United States Taxation”) that:
is a resident of the United States for purposes of the Treaty;
does not maintain a permanent establishment or fixed base in Germany to which the ordinary shares or ADSs are attributable and through which you carry on or have carried on business (or, in the case of an individual, perform or have performed independent personal services); and
is otherwise eligible for benefits under the Treaty with respect to income and gain from the ordinary shares or ADSs.
Individual claims for refunds may be made on a special German form which must be filed with the German Federal Tax Office at the address noted above. Copies of such form may be obtained from the German Federal Tax Office at the same address or from the Embassy of the Federal Republic of Germany, 4645 Reservoir Road, N.W., Washington, D.C. 20007-1998. Claims must be filed within a four-year period from the end of the calendar year in which the dividend was received. Holders who are entitled to a refund in excess of €150 for the calendar year generally must file their refund claims on an individual basis. However, the custodian bank may be in a position to make refund claims on behalf of such holders.
As part of the individual refund claim, an eligible U.S. holder must submit to the German tax authorities the original bank voucher (or a certified copy thereof) issued by the paying agent documenting the tax withheld, and an official certification on IRS Form 6166 of its last United States federal income tax return. IRS Form 6166 may be obtained by filing a request, via IRS form 8802, with the Internal Revenue Service Center in Philadelphia, Pennsylvania, Foreign Certification Request, P.O. Box 16347,42530, Philadelphia, PA 19114-0447.19101-2530. Requests for certification must include the eligible U.S. holder’s name, Social Security or Employer Identification Number, tax return form number, and tax period for which the certification is requested. Requests for certifications can include a request to the Internal Revenue Service to send the certification directly to
the German tax authorities. If no such request is made, the Internal Revenue Service will
send a certification on IRS Form 6166 to the eligible U.S. holder, who then must submit this document with his refund claim.
Taxation of Capital Gains
If the shares are held as business assets (Betriebsvermögen) by a corporate investor or by a natural person (via a German partnership or an individual enterprises), the capital gains are treated as the dividends.
Till 2008, for private investors, a 50% tax exemption on realized gains on the disposal of shares arised only if they sold shares of a corporation of which they hold at least 1% of the outstanding shares of the company at any time within the five years prior to the sale. Shares with less than 1% of the outstanding shares of the company were only subject to taxation within the 12 month speculative period. Due to the Business Tax Reform Act 2008 capital gains from private investors are subject to taxation irrespective of any holding period with a 25% withholding tax plus a 5.5% solidarity surcharge. There are some transition rules regarding the change in the taxation of capital gains.
Under German domestic tax law, capital gains derived on or after January 1, 2002 by a Non-German Holder from the sale or other disposition of shares or ADSs are subject to tax in Germany only if such Non-German Holder has held, directly or indirectly, shares or ADSs representing 1% or more of the registered share capital of the company at any time during the five-year period immediately preceding the disposition. In computing the relevant size of a Non-German Holder’s shareholding, shareholdings already existing prior to the effective date of the German Tax Reduction Act (approved by the German legislature in July 2000) are also taken into account. Corporate Non-German Holders are exempt from German tax on capital gains derived on or after January 1, 2002 from the sale or other disposition of shares or ADSs in a German corporation with a fiscal year that equals the calendar year. However, from 2004 onwards, 5% of the net capital gain are considered as non tax deductible expense for purposes of corporate income tax as well as trade tax on income. Half of the capital gains realized by the individual Non-German Holders are subject to German individual income tax plus a 5.5% solidarity surcharge.
U.S. holders that qualify for benefits under the Treaty are exempt in Germany under the Treaty on capital gains derived from the sale or disposition of shares or ADSs.
Inheritance and Gift Tax
Under German law, German gift or inheritance tax will be imposed on transfers of shares or ADSs by a Non-German Holder at death or by way of gift, if
(i) the decedent or donor, or the heir, donee or other transferee has his residence in Germany
at the time of the transfer or with respect to German citizens who are not resident in Germany, if the decedent or donor, or the heir, donee or other transferee has not been continuously outside of Germany for a period of more than five years; or
(ii) the shares or ADSs subject to such transfer form part of a portfolio which represents 10% or more of the registered share capital of the company and has been held, directly or indirectly, by the decedent or donor, respectively, himself or together with related parties.
The right of the German government to impose inheritance or gift tax on a Non-German Holder may be further limited by an applicable estate tax treaty (such as the U.S.-German Inheritances and Gifts Tax Treaty of December 3, 1980)14, 1998).
Other Taxes
No German transfer, stamp or similar taxes apply to the purchase, sale or other disposition of shares or ADSs by a Non-German Holder. Currently, net worth tax is not levied in Germany.
This section describes the principal United States federal income tax consequences of owning ordinary shares or ADSs. It applies to you only if you hold your ordinary shares or ADSs as capital assets for tax purposes. This section does not address all material tax consequences of owning ordinary shares or ADSs. It does not address special classes of holders, some of whom may be subject to other rules, including:
dealers in securities or currencies;
tax-exempt entities;
life insurance companies;
broker-dealers;
traders in securities that elect to use a mark-to-market method of accounting for their securities holdings;
investors liable for alternative minimum tax;
investors that actually or constructively own 10% or more of the voting stock of Allianz AG;SE;
investors that hold ordinary shares or ADSs as part of a straddle or a hedging or conversion transaction; or
investors whose functional currency is not the U.S. dollar.Dollar.
This section is based on the Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed regulations, and published rulings and court decisions, all as currently in effect, as well as on the Treaty. These laws are subject to change, possibly on a retroactive basis.
In addition, this section is based in part upon the representations of the depositary and the assumption that each obligation in the deposit agreement and any related agreement will be performed in accordance with its terms. In general, for United States federal income tax purposes, if you hold ADRs evidencing ADSs, you will be treated as the owner of the ordinary shares represented by those ADSs. Exchanges of ordinary shares for ADRs, and ADRs for ordinary shares, generally will not be subject to United States federal income tax.
You are a “U.S. holder” if you are a beneficial owner of ordinary shares or ADSs and you are, for United States federal income tax purposes:
a citizen or resident of the United States;
a domestic corporation;
an estate whose income is subject to United States federal income tax regardless of its source; or
a trust if a United States court can exercise primary supervision over the trust’s administration and one or more United States persons are authorized to control all substantial decisions of the trust.
If a partnership holds our ordinary shares, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and the tax treatment of the partnership. If you hold our ordinary shares as a partner in a partnership, you should consult your tax advisor with regard to the U.S. federal income tax treatment of an investment in our ordinary shares.
You should consult your own tax advisor regarding the United States federal, state, local,
foreign and other tax consequences of owning and disposing of ordinary shares or ADSs in your particular circumstances. In particular, you should confirm whether you qualify for the benefits of the Treaty and the consequences of failing to do so.
Taxation of Dividends
IfSubject to the passive foreign investment company rules discussed below, if you are a U.S. holder, the gross amount of any dividend we pay out of our current or accumulated earnings and profits (as determined for United States federal income tax purposes) is subject to United States federal income taxation. If you are a noncorporatenon-corporate U.S. holder, dividends paid to you in taxable years beginning before January 1, 20092011 that constitute qualified dividend income will be taxabletotaxable to you at a maximum tax rate of 15% provided that you hold the ordinary shares or ADSs for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date and meet other holding period requirements. Dividends we pay with respect to the ordinary shares or ADSs generally will be qualified dividend income if you meet the holding period requirement. You must include any German tax withheld from the dividend payment in this gross amount even though you do not in fact receive it. The dividend is taxable to you when you, in the case of ordinary shares, or the depositary, in the case of ADSs, receive the dividend, actually or constructively. The dividend will not be eligible for the dividends-received deduction generally allowed to United States corporations in respect of dividends received from other United States corporations. The amount of the dividend distribution that you must include in your income as a U.S. holder will be the U.S. dollarDollar value of the gross dividend amount, determined at the spot Euro/U.S. dollarDollar rate on the date the dividend distribution is includible in your income, regardless of whether the payment is in fact converted into U.S. dollars.Dollars. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date you include the dividend payment in income to the date you convert the payment into U.S. dollarsDollars will be treated as ordinary income or loss and will not be eligible for the special tax rate applicable to qualified dividend income. The currency gain or loss generally will be income or loss from sources within the United States for foreign tax credit limitation purposes. Distributions in excess of current and accumulated
earnings and profits, as determined for United States federal income tax purposes, will be treated as a return of capital to the extent of your basis in the ordinary shares or ADSs and thereafter as capital gain.
Subject to certain limitations, the German tax withheld in accordance with German law or the Treaty and paid over to Germany will be creditable against your United States federal income tax liability. To the extent a refund of the tax withheld is available to you under German law or under the Treaty, the amount of tax withheld that is refundable will not be eligible for credit against your United States federal income tax liability. See “GermanRefer to “—German Taxation—Refund Procedure for U.S. Shareholders,” above, for the procedures for obtaining a tax refund. Special rules apply in determining the foreign tax
credit limitation with respect to dividends that are subject to the maximum 15% tax rate.
Dividends constituteFor foreign tax credit purposes, dividends will generally be income from sources outside the United States but dividends paid in taxable years beginning before January 1, 2007 generally will be “passive” or “financial services” income, and dividends paid in taxable years beginning after December 31, 2006 will, depending on your circumstances, be either “passive” or “general” income which, in either case, is treated separately from other types of income for purposes of computing the foreign tax credit allowable to you.
Taxation of Capital Gains
IfSubject to the passive foreign investment company rules discussed below, if you are a U.S. holder and sell or otherwise dispose of your ordinary shares or ADSs, you will recognize capital gain or loss for United States federal income tax purposes equal to the difference between the U.S. dollarDollar value of the amount that you realize and your tax basis, determined in U.S. dollars,Dollars, in your ordinary shares or ADSs. Capital gain of a non-corporate U.S. holder that is recognized in taxable years beginning before January 1, 20092011 is generally taxed at a maximum rate of 15% where the holder has a holding period greater than one year. Gain or loss generally will be treated as arising from sources within the United States for foreign tax credit limitation purposes.
Passive Foreign Investment Company Status
We believe that our ordinary shares and ADSs should not be treated as stock of a passive foreign investment company (PFIC), for United States federal income tax purposes, but this conclusion is a factual determination that is made annually and thus may be subject to change. If we were to become a PFIC, the tax treatment of distributions on our ordinary shares or ADSs and of any gains realized upon the disposition of our ordinary shares or ADSs may be less favorable than as described herein. You should consult your own tax advisors regarding the PFIC rules and their effect on you if you hold ordinary shares or ADSs.
Allianz AGSE is subject to the informational requirements of the Securities Exchange Act of 1934, as amended. In accordance with these requirements, Allianz AGSE files reports and other information with the Securities and Exchange Commission. These materials, including this annual report and the exhibits thereto, may be inspected and copied at the Commission’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Copies of the materials may be obtained from the Commission’s Public Reference Room at prescribed rates. The public may obtain information on the operation of the Commission’s Public Reference Room by calling the Commission in the United States at 1-800-SEC-0330. The Commission also maintains a web site at http://www.sec.gov that contains reports, proxy statements and other information regarding registrants that file electronically with the Commission. Allianz AG’sSE’s annual reports and some of the other informationsubmittedinformation submitted by Allianz AGSE to the Commission may be accessed through this web site. In addition, material filed by Allianz AGSE can be inspected at the offices of the New York Stock Exchange at 20 Broad11 Wall Street, New York, New York 10005.
ITEM 11. | Quantitative and Qualitative Disclosures about Market Risk |
ITEM 11. QuantitativeAllianz risk management is designed to add value by focusing on both risk and Qualitative Disclosures About Market Riskreturn.
The risk management is targeted at protecting our capital base and supporting our value based management.
Promotion of a strong risk management culture supported by a robust risk governance structure.
Integrated risk capital framework consistently applied across the Group to insufficient information concerning possible adverse developments affectingprotect our business targets or plans.capital base and to support effective capital management.
Integration of risk considerations and measure, aggregatecapital needs into management and manage risks. The resultdecision-making processes through the attribution of this process determines, among other things, how muchrisk and allocation of capital is allocated to the Allianz Group’s various segments.
InThe Allianz risk governance approach is designed to enable us to manage our business, successfullocal and global risks equally and to reduce the likelihood that our overall risk management means controlling risksincreases in order to protect the financial strength of the Allianz Group and increase its value on a sustainable basis. Therefore, thean undetected manner. The following diagram provides an overview regarding risk-related decision-making responsibility within our risk governance structure.
The Board of Management of Allianz AGSE formulates the business objectives and allocates the capital resources ofacross the Allianz Group, according towith the objective of balancing return on investment and risk criteria.
risk. The GroupSupervisory Board Risk Committee monitorsof Allianz SE meets on a regular and ad-hoc basis to monitor the capitalization and risk profile of the Allianz Group based on risk reports presented by the Chief Financial Officer and Chairman of the Group Risk Committee.
Two additional Board of Management level committees focus on the Group’s risk exposure. The
Group Risk Committee monitors the Allianz Group’s risk profile and availability of capital in an effort to ensure a reasonable ratiomaintain an adequate relationship between these two criteria.return on investment and risk. Its role is to ensureprovide for comprehensive risk awareness within the Allianz Group and to furthercontinually improve risk control. It also provides timely information to the Board of Management of Allianz AG aboutdefines risk relevant developments, setsstandards and establishes risk limits, andlimits. Furthermore, it is responsible for recommending and coordinating risk-containment measures. In 2005, we established ameasures to mitigate risk. The Group Insurance RiskFinance Committee to supportmakes decisions about investments and market risks, while complying with the Allianz Group’s risk framework.
The Group Risk Committee in matters concerning property-casualty insurance. This committee is responsible for updating our underwriting guidelines and monitoring the development of our property-casualty insurance portfolio.
department (“Group Risk Control,Risk”), which reports to the Chief Financial Officer, develops methods and processes for risk assessmentidentifying, assessing and controlmonitoring risks across the Allianz Group based on an Allianz Group-wide basis. An important instrument to assesssystematic qualitative and quantitative analysis and regularly informs management concerning the Allianz Group’s risk profile is our internalprofile. Group Risk develops the Allianz risk capital model. In 2005, we also introduced a system for systematic qualitative risk evaluation. On this basis, it forms an overviewframework and oversees the operating entities’ adherence to the framework. The core elements of local and global risks, derives the risk situationframework are set forth in the Group Risk Policy, which has been approved by the Board of Management of Allianz SE and which defines the minimum requirements for all operating entities within the Allianz Group, and regularly informs management about the current situation. In addition,Group. Additional risk standards, such as standards related to specific segments or risk categories, are in place for our operating entities worldwide. Group Risk Control ensures that the risk governance principles of the Allianz Group are fully adhered to and further develops these principles. Group Risk Control is also responsible for monitoring the centralized monitoringaccumulation of accumulation risk over allspecific types of risks across business lines, in particular with respect to natural disasters market and credit risks. This structure ensures that we control our local and global risks equally and are not exposedexposures to the danger of overall risk increasing unnoticed.counterparties.
Within our risk governance policy, local unitsLocal operating entities assume independent responsibility for their own risk control, as ultimately, itmanagement, with risk functions and committees that are similar to the Group structure. Independent risk oversight is they who havea fundamental principle of our risk governance structure, with a clear separation between business functions that actively take decisions and assume risk responsibility, on the one hand, and independent risk oversight functions, on the other hand. Risk oversight consists of independent risk identification, assessment, reporting and monitoring and also includes analyzing alternatives and proposing recommendations to respond quicklythe Risk Committees and local management or to risk changes in a market-oriented manner. At the same time, this independent responsibility enables operating units to meet the applicable legal requirements at their respective locations. In 2005, local risk monitoring was further accelerated. Our large operating entities have established local risk committees and risk control units managed by the Chief Risk Officer of the respective business unit and monitor local risks.
Investment risk management is implemented jointly with local units as part of a structured investment process. The Allianz Group Finance Committee, which is comprised of the members of the Board of Management of Allianz AG, delegates broad decision-making authority toSE. The local risk departments performing the regional Finance Committees, which monitor the activitiesoversight role in their respective regions or countries. These regional Finance Committees compileour major operating entities are headed by a local investment guidelines for their particular locations. Operational responsibility for investment portfolios lies withinChief Risk Officer. Group Risk is represented on the local units.Risk Committees to enhance the risk dialogue between the Group and the operating entities.
Insurance, bankingThe risk governance structure is further complemented by Group Audit, Group Compliance and asset management are all heavily influenced byGroup Legal Services. On a periodic basis, Group Audit independently reviews the risk governance implementation, performs quality reviews of risk processes and tests adherence to business standards. Group Legal Services seek to mitigate legal factors; legislative changes in particular have a primary influence on our activities.risks with support from other departments. Legal risks also include legislative changes,
major litigation and disputes, regulatory proceedings and contractual clauses that are unclear or construed differently bytheby the courts. Limitation of such legal risks is a major task of our Legal Department, carried out with support from other departments. The Allianz Group’s objective is to ensure that developments in laws and regulations are observed, to react appropriately to all impending legislative changes or new court rulings, to attend to legal disputes and litigation, and to provide legally appropriate solutions for transactions and business processes.
TheAllianz Group’s risk landscape is continually evolving due to changes in our environment. In order to adapt, the Trend Assessment Committee is responsible for the early recognition of new risks. Their role is to studyrisks and evaluate changesopportunities and evaluating long-term trends that may have a significant impact on the Allianz Group’s risk situation. In 2005, we establishedprofile. Furthermore, Allianz is an active member of the CRO Forum Emerging Risk Initiative that continuously monitors the industry-wide risk landscape and raises awareness of major risks which are relevant for the insurance industry. This initiative promotes stakeholder dialogue and also proposes best practice monitoring and management approaches via regular publications on specific topics.
The Allianz Climate Core Group is a panel of internal experts consisting of representatives from our insurance, banking and asset management segments, which is examiningthat specifically examines the possible effects of climate change on our business. Its task is to developbusiness, developing risk management strategies and identifyidentifying potential opportunities resulting from climate change. We also belong to the Emerging Risk Initiative of the CRO Forum’s task force, which examines methods to identify, analyze and manage potential risks. The task force is comprised of representatives from ten international insurance and reinsurance companies.
Independent risk oversightInternal Risk Capital Framework
The principleWe define internal risk capital as the capital required to protect against unexpected, extreme economic losses. We aggregate internal risk capital consistently across all business segments (Property-Casualty, Life/Health, Banking, Asset Management and Corporate), providing a common standard for measuring and comparing risks across the wide range of independent risk oversight is well-established within the Allianz Group. There is a clear distinction between risk assumption (i.e. the responsibility for the business including associated risk management) and independent risk monitoring. The latter also analyzes alternative courses of action and proposes recommendations to the Risk Committee and the board of directors or Board of Management of the local operating entity or Allianz AG, respectively.different activities that we undertake as an integrated financial service provider.
Risk policiesValue-at-Risk approach
The Group Risk Policy establishes the minimum requirements that are binding for all operating units. Specific minimumWe use an internal risk standards for our insurance, banking and asset management segments translate these requirements into action. In 2005, we supplemented our risk guidelines with standards for addressing natural disaster risks. Such standards are implemented by the operating entities worldwide and are monitoredcapital model based on a regularValue-at-Risk (VaR) approach, determining a maximum loss in the value of our portfolio of businesses covered within the scope of the model (the “covered business”) due to adverse market, credit,
insurance and other business events, within a specified timeframe (“holding period”) and probability (“confidence level”). More specifically, we calculate the net fair asset value of each of our covered businesses based on values (i) under current best estimate conditions and (ii) under adverse conditions defined by scenarios for each risk category. The required internal risk capital per risk category is defined as the difference between the value of the portfolio under the best estimate scenario and under the adverse scenario. Internal risk capital is determined on a quarterly basis by Group Risk Control throughand results per category are aggregated in a structured process.
Risk Management Toolsmanner that takes into account the diversification effect across risk categories and regions.
RiskTo calculate internal risk capital
using the VaR approach at the Allianz Group level, we assume a confidence level of 99.97% and a holding period of one year, which is assumed to be equivalent to an “AA” rating of Standard & Poor’s. We manage our business activities through our respective local entities. The most important parameters usedapply a holding period of one year because it is generally assumed that it may take up to one year to identify a counterparty to whom to transfer the liabilities in our risk-oriented controlling process are Economic Value Added (or “EVA”®) and risk capital. Riskportfolio. This capital requirement is usedsufficient to hedge against unexpected economic losses. In 2005, we usedcover a loss in any one year equivalent to a 3-in-10,000 year event. Although our internal risk capital model as input for the value-oriented management framework of our insurance companies and Dresdner Bank. For asset management, we used a modelis based on a concept developed byextreme events, it nonetheless aims to provide adequate indications to manage the Standard & Poor’s rating agency.risks resulting from reasonably possible smaller adverse events that we might identify in the near-term, because the results allow us to analyze separately and in aggregate our exposure to each source of risk.
Diversification and correlation assumptions
Our internal risk capital model evaluates quantifiable risks within a set timeframeconsiders both concentration and calculates a potential loss. This model allows us to systematically evaluate internal data using methods basedcorrelation when aggregating results on the theoryAllianz Group level, in order to reflect that not all of probability.our potential losses are likely to be realized at the same time. This processeffect is known as diversification. Managing diversification forms a central element of our risk management framework. The Allianz Group strives to diversify the risks to which it is exposed in order to limit the impact of any single source of risk and to help ensure that the positive developments of some businesses operate in such a manner as to neutralize the possible negative developments of others.
The degree to which diversification can be realized depends in part on the level of relative concentration of those risks. For example, the greatest diversification is in general obtained in a balanced portfolio without any disproportionately large exposures to any one or more risks. In addition, the diversification effect depends upon the relationship between sources of risks. The degree of relationship between two sources of risk is referred to as correlation, characterized by a value between “-1” and “+1”. Where possible, we develop correlation parameters for each pair of risks through statistical analysis of historical data. If only insufficient historical data is available, we use conservative professional judgment, ruling out negative correlations, and, in general, we set the correlation parameters to represent the level of interdependency of risks under adverse conditions.
Scope
Our internal risk capital model takes into account the special characteristicsfollowing sources of risk, classified as risk categories per segment:
(1) | Foreign currency risks are mainly allocated to the Corporate segment (please see below for further information). |
(2) | As commodity risk is not significant on the Group level, it is covered in our internal risk capital model within currency risk. |
(3) | Although the internal risk capital requirements for the Asset Management segment only reflect business risk (please see below for further information), 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. |
(4) | The premium risk which our credit insurance entity Euler Hermes is exposed to due to its business model is also covered here, as this type of risk is a special form of credit risk. |
(5) | In the Banking segment, credit risks include default and migration risks arising from the lending and securities business and our derivatives trading activities; for the latter, settlement risk is additionally taken into account. Furthermore, credit risks include country (and transfer) risk. |
Our internal risk capital model covers:
Substantially all of our operating entitiesmajor insurance and banking operations.
Substantially all of our assets (including bonds, mortgages, investment funds, loans, floating rate notes, equities and real estate) and liabilities (including the cash flow profile of all technical reserves as well as deposits and issued securities). For the specific natureLife/
Health segment, the model reflects the interaction between assets and liabilities and local management decisions such as investment strategies and policyholder participation rules. |
Substantially all of their risks. Theour derivatives (options, swaps and futures), in particular if they form part of the operating entity’s regular business model is(e.g., at Allianz Life
Insurance Company of North America) or if they have a significant impact on the resulting internal risk capital (e.g., hedges of Allianz SE or in the Life/Health segment, if material obligations to policyholders are hedged through financial derivatives). Typically, embedded derivatives contained in a host contract are also included. |
For smaller insurance operating entities that have an immaterial impact on the Group risk profile, and for the Asset Management segment, we assign internal risk capital requirements based on an approach similar to Standard & Poor’s standard model. This uses the value-at-risk approach. Value-at-risk estimates the maximum loss which cannot be exceeded with a certain probability at a specified confidence level within a set holding period. The capital we allocate to our operating entities in accordance withsame risk categories as our internal risk capital model, meetsthereby allowing us to consistently aggregate internal risk capital for all segments at the requirementsGroup level. More specifically, approximately 99% of the investments managed by the Asset Management segment are held for the one-year target shortfallbenefit of an “A” rating from Standard & Poor’s. Diversification effects from balancing portfolio riskseither third parties or Allianz Group insurance entities and, therefore, do not result in significant market and credit risk for the Asset Management segment. As a capitalization of the Allianz Group equivalent to an “AA” rating from Standard & Poor’s. Risk balancing effects result, from the fact that not all potential losses are realized at the same time. With the internal risk capital model, we are able to evaluate risks more precisely and optimize allocation of capital within the Allianz Group.
Our risk capital model quantifies the following risk categories:
The risk capital after Group diversification effects and before minority interests amounted to €37.5 billion at December 31, 2005.
Risk capital (after Group diversification) by risk category
As of December 31, | 2005 | 2004 | ||
€ bn | € bn | |||
Market risks | 18.5 | 15.2 | ||
Credit risks | 5.7 | 5.9 | ||
Actuarial risks | 7.4 | 8.0 | ||
Business risks | 5.9 | 5.2 | ||
Total | 37.5 | 34.3 | ||
Risk capital (after Group diversification) by segment
As of December 31, | 2005 | 2004 | ||
€ bn | € bn | |||
Property-Casualty | 19.0 | 17.7 | ||
Life/Heath | 5.4 | 4.5 | ||
Banking | 6.1 | 6.8 | ||
Asset Management | 2.5 | 2.0 | ||
Holding | 4.5 | 3.3 | ||
Total | 37.5 | 34.3 | ||
Risk capital before and after Group diversification
in € bn
The risk profile of the Allianz Group is managed actively. Under the “3+One program”, we reduced risk capital from €43.5 billion at December 31, 2002 to €37.5 billion at December 31, 2005, thereby
significantly strengthening the Allianz Group’s capitalization.
Risk capital development as of December 31, (after Group diversification)
in € bn
There are certain risks that cannot be quantified in our risk capital model. For these risks, we pursue a systematic approach with regard to identification, analysis, assessment and monitoring. The assessment is based on qualitative criteria or using scenario analyses. For example, these risks include:
Limit System
We monitor and manage credit risks with a limit system that is applicablerequirements for the entire Allianz Group. The limit system aggregates major risksAsset Management segment only reflect business risk. However, the evaluation of Allianz Group-wide significance frommarket risk and credit insurance, lending and our capital investments and serves as the basis for controlling the risk on an Allianz Group-wide basis in detecting credit risks at an early stage. In 2005, this system assisted in identifying criticaldevelopments at an early stage and making adjustments accordingly. The numberthe account of counterparties monitored by the limit system was significantly increased in 2005, and we also reinforced the automation of our internal reporting on credit risk and improved our procedures (for example, in relation to reducing risks in a crisis situation).
Stress tests
In addition to risk capital analyses, we also carry out stress tests, which act as early-warning indicators to secure external capital requirements. This affects capital requirements from the viewpoint of our supervisory authorities and rating agencies.
A 10% price decline in our available-for-sale equity securities at December 31, 2005 would have resulted in a €2.4 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 €3.6 billion, if we take into account the available-for-sale fixed income securities at December 31, 2005. A 10% devaluation of the U.S. dollar against the Euro at December 31, 2005 would have decreased shareholders’ equity before minority interests by €1.1 billion. These model calculations do not take into account derivatives.
Risk Controlling – Insurance Business
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, with funds of the same currency.
In certain insurance lines, there is a direct link between investments and obligations to our customers. For example, life insurance is subject to the guaranteed interest risk in that we must credit interest to our customers pursuant to the underlying contracts. The close relationship between insurance obligations and investment of the capital related to these obligations is monitored by using specific models for asset-liability management which involves integrated management of investment and insurance liabilities. We are continuously developing our asset-liability management. In 2005, we revised our internal model for life insurance with the objective of creating an integrated system to assess our portfolio, calculate risk capital and conduct
sensitivity analyses. Once completed, this model will provide significant support to the management of our life insurance business.
In individual cases, we use derivative financial instruments to hedge against price risks, credit risks and risks associated with interest rate changes. We include derivative risks within our investment and monitoring guidelines, which, in our insurance segments, are based on the stricter regulations imposed by supervisory authorities for banks.
We limit liquidity risk by continually reconciling the cash flow from our investment portfolio with our commitment to pay liabilities. We employ actuarial methods for estimating our liabilities arising from insurance contracts. The quality of our investments also guarantees that we can also meet high liquidity requirements, for example, in the event of a natural disaster.
Credit risks
We limit our liability from insurance business by ceding part of the risks we assume to the international reinsurance market. When selecting our reinsurance partners, we consider only companies that offer excellent security. To control this credit risk, we compile Allianz Group-wide data on receivables from insurance losses. At December 31, 2005, approximately 78% of the Allianz Group’s reinsurance recoverables were distributed over reinsurers with an investment grade rating. Additionally, more than 77% were distributed over reinsurers who have been assigned at least an “A” rating by Standard & Poor’s. We may also require letters of credit, deposits, or other financial measures to further minimize our exposure to credit risk. See Note 12 to our consolidated financial statements for further information.
Ceded reserves by rating classesas of December 31, 2005(1)
in € bn
We limit our fixed income investment credit risk by setting high requirements on the creditworthiness of our debtors and by spreading the risk. Through our central credit risk management, we consolidate our exposure according to debtors and across all investment categories and business segments, and monitor the exposure of the Allianz Group on a monthly basis. At December 31, 2005, approximately 91% of the fixed income investments of the insurance companies of the Allianz Group had an investment grade rating. More than 87% were distributed over obligors that had been assigned at least an “A” rating by Standard & Poor’s.
Fixed income investments by rating classes as of December 31, 2005
in € bn
Actuarial risks
Premium risks are controlled primarily with the assistance of actuarial models used to calculate premiums and monitor claim patterns. In addition, we issue guidelines for underwriting insurance contracts and assuming insurance risks. Natural disasters such as earthquakes, storms and floods represent a special challenge for risk management. In order to manage such risks and better estimate the potential effects of natural disasters, we use special modelling techniques in which we combine data about our portfolio (e.g., the geographic distribution of insurance amounts), with simulated natural disaster scenarios in order to estimate the magnitude of potential damage. Where such models do not exist (e.g., flood risk in Germany), we utilize a scenario-based methodology.
2005 was characterized by a large number of violent hurricanes in the Gulf of Mexico. The three
largest hurricanes, Katrina, Rita and Wilma, caused record losses to the insurance industry, in particular Hurricane Katrina with its disastrous impact on New Orleans. The total loss for the Allianz Group was lower than the total risk capital budget of our operating entities for natural disasters, yet the disasters in 2005 and its results must be examined closely so that our simulation systems used to estimate the possible effects of natural disasters can be continually improved.
In 2005, for the first time, we aggregated risk peaks from natural disasters in our portfolio and reinsured such risks. By doing so, we implemented the conclusions suggested by our internal risk capital model. We also continued to develop a limit system arising from natural disaster and terrorism risks, which we plan to further improve in 2006.
Reserve risks We control reserve risks by constantly monitoring the development of the provisions for insurance claims that have been submitted but not yet settled in all companies, and amend the provisions as necessary. For calculating insurance provisions in life insurance, the biometric assumptions, such as life expectancy, disability and illness, play a major role. If available, we use assumptions approved by supervisory authorities and actuarial associations.
Actuarial risks in property-casualty insurance have led to fluctuations of the loss ratio in our Property-Casualty segment over time, as shown below.
Loss ratios years ended December 31,
in %
Business risks
Our operational risks are limited by a wide range of technical and organizational measures. We attempt to reduce any such risks by installing acomprehensive system of internal controls and security systems within each operational entity. In 2005, we introduced a self-assessment system to establish a uniform procedure to detect potential errors and identify internal control weaknesses. Each operating entity evaluates its key processes and existing controls at least once annually. Another instrument to identify weaknesses is through the systemic collection and recording of realized operational losses. An analysis of the causes of such losses assists the operating entity in adopting appropriate measures in order to avoid or limit such losses in the future. The measures to prevent and limit such operational risks are varied, including developing emergency plans, designing appropriate insurance policies, revising processes and adopting additional controls and responsibility assignments.
We understand thelapse risk in our life insurance business to mean the unexpected economic losses due to early cancellation of contracts by our customers. We assess this risk by calculating technical reserves using probability data based on historic rates of cancellation in our respective local markets.
Risk capital
At December 31, 2005, the risk capital of our insurance companies, based on local solvency requirements and before Allianz Group diversification and minority interests, was €23.1 billion for property-casualty insurance (2004: €21.9 billion) and €9.5 billion for life/health insurance (2004: €8.7 billion).
Risk Controlling – Banking Business
Market Risks
The market risks in our banking business are broken down into risks arising in our trading portfolio, banking book and equity holdings (i.e., shareholder risks).
In 1998, the German Federal Financial Supervisory Authority (or “BaFin”) approved Dresdner Bank’s value-at-risk model for purposes of reportingmarket risks within the trading portfolioin accordance with Principle I of the German Banking Act. The BaFin also approved the improvements made to this model in 2001, 2002 and 2004. This value-at-risk model, which is used to evaluate capital adequacy for regulatory purposes, must take into account market fluctuations which can occur at a confidence level of 99% and a 10-day holding period. The value-at-risk model is supplemented by stress tests which estimate the potential loss under extreme market conditions.
For the purpose of setting internal limits and risk management, we calculate a value-at-risk with a confidence level of 95% and a one-day holding period. Unlike the value-at-risk calculation required by the supervisory authority, which is based on historical market data, we thus assign greater weightto the most recent market fluctuations. By doing so, we ensure that the current market trends are reflected in the value-at-risk calculation on a timely basis.
Value-at-risk is only one of the instruments used to characterize and control the risk profile of Dresdner Bank. In addition, Dresdner Bank also uses operational risk indicators and limits, which are specifically adapted to the risk situation of the trading units. Trading is controlled by setting value-at-risk and operational market risk limits. Current limit utilization is determined and monitored by Group Risk Controlling on a daily basis. Limit breaches are immediately indicated to management so that corrective action can be taken.
Market risks within Dresdner Bank’s trading portfolio had a value-at-risk, with a 99% confidence level and a 10-day holding period, of €66 million at December 31, 2005, compared to €50 million at December 31, 2004.
Value-at-risk statistics (Dresdner Bank)
(99% confidence level, 10-day holding period)
As of December 31, | Years ended December 31, | |||||||||||||||||||||||
Average | Maximum | Minimum | ||||||||||||||||||||||
2005 | 2004 | 2005 | 2004 | 2005 | 2004 | 2005 | 2004 | |||||||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | |||||||||||||||||
Aggregate risk | 66 | 50 | 49 | 95 | 105 | 155 | 26 | 46 | ||||||||||||||||
Interest-rate risk | 71 | 57 | 52 | 99 | 121 | 159 | 25 | 49 | ||||||||||||||||
Equity risk | 12 | 15 | 19 | 20 | 36 | 36 | 10 | 12 | ||||||||||||||||
Currency risk | 9 | 9 | 7 | 11 | 21 | 37 | 1 | 2 | ||||||||||||||||
Commodity risk | 1 | — | 3 | — | 10 | — | 0 | — | ||||||||||||||||
Diversification effect | (27 | ) | (31 | ) | (32 | ) | (35 | ) | — | (1) | — | (1) | — | (1) | — | (1) |
Market risks within Dresdner Bank’s banking book These risks mainly comprise the risk of interest changes and is analyzed on the basis of sensitivity and value-at-risk indicators. As in the case for Dresdner Bank’s trading portfolio, Dresdner Bank manages this risk by setting value-at-risk limits. At December 31, 2005, the value-at-risk, with a 99% confidence level and 10-day holding period, for interest rate risks at Dresdner Bank amounted to €10.0 million, compared to €8.6 million at December 31, 2004.
Currency risks in the banking book of Dresdner Bank are limited by applying the principle that all loans and deposits in foreign currencies arerefinanced or reinvested in the same currency with matching maturities.
Market risks within Dresdner Bank’s equity investments These risks comprise unanticipated economic losses which can arise from providing equity capital to third parties. Following the reduction of substantially all of the equity investments held by the Institutional Restructuring Unit (or “IRU”), our risk exposure was significantly reduced compared to 2004. The IRU was closed on September 30, 2005.
Liquidity risks
Liquidity control and liquidity risk management are the responsibility of Treasury and Risk Controlling within Dresdner Bank, which establish principles for liquidity management within the framework of the Allianz Group’s liquidity policy. This liquidity policy meets both regulatory requirements and Allianz Group standards. The liquidity risk limits set include a reporting process for limit breaches and provisions for emergency planning. Liquidity risk measurement is based on Dresdner Bank’s liquidity management system. This system models the maturities of all cash flows and compiles a scenario-based liquidity balance sheet, taking into account available prime-rated securities. Limits on liquidity gaps are established to manage short-term liquidity risk.
Credit risks
Credit risks include credit and counterparty risks in the lending business, issuer risks from our securities business, counterparty risks from trading activities and country risks.
The central element of approval, monitoring and control process is the rating of our customers. In this process, the various creditworthiness characteristics of our customers are presented in the form of rating classes. To categorize the default probability of a borrower, a system with 16 different rating classes is used. The first six classes correspond to “investment grade”, classes VII to XIV signify “non-investment grade”. Rating classes XV and XVI are default classes according to the Basle II definition. The rating procedures utilized are assessed and improved on an ongoing basis. In 2005, Dresdner Bank further optimized this procedure in light of the Basle II requirements and aims at utilizing the Advanced Internal Ratings-Based (or “IRB”) Approach for the calculation of future regulatory capital requirements.
At December 31, 2005, approximately 87% of overall limits in the trading and banking portfolios of Dresdner Bank were included in rating classes I to VI, compared to 86% at December 31, 2004. Furthermore, approximately 13% were included inrating classes VII to XVI (2004: 14%). Dresdner Bank’s trading business represented 70% of the overall limits and approximately 86% (2004: 91%) of Dresdner Bank’s trading business involved primarily transactions with counterparties from rating classes I to VI, i.e., with state and local agencies and financial services providers at December 31, 2005.
Overall portfolio view by rating class as of December 31, 2005 (Dresdner Bank)
in %
Credit and counterparty risks from loans and advances Of the total credit and counterparty risks from loans and advances of Dresdner Bank’s lending activities at December 31, 2005, 33% was accounted for by the Personal Banking division, 13% by the Private & Business Banking division, 35% by the Corporate Banking division, and 19% by the Dresdner Kleinwort Wasserstein division.
In 2005, credit risk management worked towards systematically reducing our non-strategic loan portfolio, lowering concentration risks and focusing the loan portfolio on certain regions and industries. At December 31, 2005, approximately 64% of the loan portfolio of Dresdner Bank were included in ratings classes I through VI (investment grade). In our loan business, the probability of average default was below the probability of default of the loan portfolio. The overall quality of our loan portfolio has improved significantly in recent years, as shown in the graph below.
Development of Dresdner Bank’s loan portfolio by
ratings classes
Index 12/2003 = 100%
Dresdner Bank’s IRU, which was responsible for reducing our non-strategic loan portfolio, completed its task faster than planned and was closed on September 30, 2005. The IRU’s remaining risk assets were re-transferred primarily to Dresdner Bank’s Corporate Other division on October 1, 2005. Streamlining the loan portfolio has resulted in a significant improvement in portfolio quality. Our total non-performing loans and potential problem loans, which are two measurements utilized to assess the quality of the loan portfolio, decreased from €7.4 billion at December 31, 2004 to €3.0 billion at December 31, 2005.
Country risks These risks comprise exchange rate and transfer risks relating to cross-border transactions. We manage country risks using internal country ratings. These ratings are based upon macroeconomic data and key qualitative indicators. The latter takes into account the economic, social and political environment. The country rating system comprises 16 ratings classes. The country rating system divides countries into those without any discernible risk and those with increased or high risk potential. The country risk management at Dresdner Bank is intended to limit transfer and local risks on the basis of a comprehensive country limit system.
Counterparty risk from trading activitiesCounterparty risks from the derivative trading business arise mainly from over-the-counter (or “OTC”) transactions. The resulting risk exposure cannot be directly traced to the nominal values of the transactions. In assessing current counterparty risk, positive replacement values from Dresdner Bank’sposition is the determining factor. These correspond to the additional expense or lower yield that would result from restoring an equivalent position in the event of a trading partner defaulting. The banking sector, other financial services provider sectors, insurance companies and governments accounted for a large proportion (96.7%) of the positive replacement values at December 31, 2005.
In order to reduce the counterparty risk from trading activities, we entered into inter-product framework netting agreements with our business partners. Netting makes it possible to balance all outstanding receivables and payables with a counterparty if the counterparty defaults. In addition to these framework agreements, exposure from counterparty risk (positive replacement values after netting) is secured using so-called collateral management.
Counterparties – Positive replacement values by market segment (Dresdner Bank)
As of December 31, | ||||
2005 | 2004 | |||
€ mn | € mn | |||
Credit institutions | 49,701 | 46,014 | ||
Other financial services providers | 33,968 | 19,752 | ||
Insurance companies | 274 | 115 | ||
Small business | 717 | 669 | ||
Telecommunications, media, technology | 236 | 3,159 | ||
Transportation | 294 | 492 | ||
Raw materials | 30 | 19 | ||
Real estate | 60 | 126 | ||
Government | 926 | 59 | ||
Other | 1,601 | 2,925 | ||
Total—before netting | 87,807 | 73,330 | ||
Total—after netting and security | 16,260 | 13,926 | ||
Issuer risks Issuer risks arise from Dresdner Bank’s own holdings in securities such as fixed income and equity securities, as well as from synthetic positions assumed through purchasing credit derivatives. Such risks reflect the maximum possible loss in the event of an unexpected loss of a particular issuer. Issuer risks are managed comprehensively, in particular risks arising from credit-sensitive issuers. In 2005, the share of issuer risks of the total loss risk for Dresdner Bank’s trading
activities decreased 7 percentage points to 57% at December 31,2005.
Business risks
Dresdner Bank has a process for the systematic identification, measuring and controlling ofoperational risks. The essential risk factors are evaluated in the framework of a structured self-assessment. A loss database is employed to record and analyze losses that actually occur. An internal risk model was developed for calculating the risk capital requirement using the criteria of the Advanced Measurement Approach (or “AMA”), which shall also be used in the future to determine capital adequacy pursuant to Basle II.
Cost risks
Cost risks comprise unanticipated fluctuations in earnings that arise due to a decline in income without a corresponding decrease in expenses. Cost-cutting measures implemented in the past have significantly reduced risks associated with fixed costs.
Risk capital
At December 31, 2005, the risk capital of Dresdner Bank before Allianz Group diversification was €7.0 billion, compared to €7.9 billion at December 31, 2004.
Risk Controlling – Asset Management
Risk control in asset managementparties is an integral part of the processesrisk management process of our local operating entities.
Applying an approach based on risk weighted assets, and following the sale of our former banking subsidiary, Dresdner Bank, to Commerzbank, our continuing banking operations in Germany, Italy, France and New Europe represent only an insignificant amount of approximately 1.3% of total non-diversified internal risk capital. Therefore, risk management with respect to banking operations is not discussed below in detail.
The Allianz Group’s policy is to require each operating entity to match the currency of their material assets and liabilities or to otherwise hedge foreign currency risk. As a result, our residual foreign currency risk results primarily from the fair value of the net asset value of our non-Euro operating entities and investment platform. The Allianz Global Investor Corporate Center is responsible for ensuring that Allianz Group-wide standards for asset management are appliedcertain exposures to non-Euro denominated assets and liabilities held at the localGroup level. The individual asset management companies continually monitor the portfolio risks of the customer assets they manage by using analytical tools specifically adapted to theThis currency risk profile of the product concerned. At the same time, the performance of the various product lines is periodically monitored and analyzedmanaged centrally at the Allianz Group level. Atlevel by Group Corporate Finance & Treasury and is, therefore, mostly allocated to the Corporate segment.
Following the announcement of the sale of Dresdner Bank to Commerzbank in August 2008, Dresdner Bank qualified as held-for-sale and discontinued operations. For the purpose of this discussion on risk management, we refer to “discontinued operations” to mean the assets and liabilities held by Dresdner Bank upon its sale by Allianz to Commerzbank on January 12, 2009. Certain former assets and liabilities of Dresdner Bank, which Allianz retained and which were not transferred to Commerzbank, were not classified as discontinued operations. We generally present figures as of December 31, 2005,2008 excluding discontinued operations, although we also provide certain information regarding the total Group including discontinued operations for the purpose of comparison. When excluding discontinued operations from internal risk capital calculations, we also take into account, that the discontinuation of certain banking operations results in a smaller diversification effect.
Limitations
Our internal risk capital model expresses the potential “worst case” amount in economic value that we might lose at a certain level of confidence. However, there is a statistically low probability of 0.03% that actual losses could exceed this threshold.
We assume that model parameters derived from historical data can be used to characterize future possible risk events; if future market conditions differ substantially from the past, as in the case of the 2008 financial crisis for which there was no precedent, then our assetVaR approach may be too conservative or too liberal in ways that can not be predicted. Our ability to back-test the model’s accuracy is limited because of the high confidence level of 99.97% and one-year holding period. Furthermore, as historical data is used to calibrate the model, it cannot be used for validation. Instead, we validate the model and parameters through external reviews by independent consulting firms focusing on methods for selecting parameters and control processes. Overall, we believe that our model adequately assesses the risks to which we are exposed.
As our internal risk capital model considers the change in economic fair value of our assets and liabilities, it is crucial to accurately estimate the fair market value of each item. For some assets and
liabilities, it has become increasingly difficult in today’s financial markets, if not impossible, to obtain either a current market price or to apply a mark-to-market approach. For certain assets and liabilities, where a current market price for that instrument or similar instruments is not available, we apply a mark-to-model approach. For some of our liabilities, the accuracy of fair values depends on the quality of the actuarial cash flow estimates. Despite these limitations, we believe the estimated fair values are appropriately assessed.
We apply customized derivative valuation tools which are suitable to our business to reflect substantially all of our derivatives in internal risk capital. Our integrated internal risk capital model for insurance operations currently only allows for the modeling of common derivatives such as equity calls, puts, forwards and interest rate swaps. For internal risk capital calculations, non-standardized instruments, such as derivatives embedded in structured financial products, are represented by the most comparable standard derivative types. The volume of non-standard instruments is not material on either the local or the Allianz Group level, but a more precise modeling of these instruments might impact the fair value and resulting internal risk capital for these derivatives. However, we believe that any such change would not be material.
The Allianz internal risk capital model plays a significant role in solvency management segment, calculatedand capital allocation. Our aim is to ensure that the Allianz Group is adequately capitalized at all times, even following a significant adverse event, and that all operating entities meet their respective capital requirements. In addition, we employ a value-based approach (Economic Value Added or “EVA”®), among other approaches, to measure and manage our business activities as well as to optimize capital allocation across the Allianz Group. Internal risk capital is a key parameter of our EVA®-approach.
In managing our capital position, we also consider additional external requirements of regulators and rating agencies. While meeting rating agencies’ capital requirements forms a strategic business objective of the Allianz Group, capital requirements imposed by regulators constitute a
binding constraint. Regulators and rating agencies impose minimum capital rules on the level of both the Allianz Group’s operating entities and on the Allianz Group as a whole.
Internal capital adequacy
Our objective is to maintain available capital at the Group level in excess of the minimum requirements that are determined by our internal risk capital model according to a solvency probability of 99.97% over a holding period of one year. In support of this objective, we require each of our local operating entities to hold available capital resources allowing them to remain solvent at a lower confidence level of 99.93% over the Standard & Poor’s modelsame one-year holding period. This approach is designed to ensure a consistent capital standard across the Group that helps mitigate potential constraints of capital fungibility—i.e., by requiring our local operating entities to hold such levels of capital resources, the Group is less likely to be required to allocate capital to a local operating entity that may have incurred a loss, and accordingly the Group is less likely to encounter constraints inherent in moving capital across the many different jurisdictions in which the Group conducts business. In addition, we take into account the benefits of a single operating entity being part of a larger, diversified Group.
The Allianz Group’s available capital is based on the Group’s shareholders’ equity as adjusted to reflect the full economic capital base available to absorb any unexpected volatility in results of operations. For example, the present value of future profits in the Life/Health segment and hybrid capital are added to shareholders’ equity, whereas goodwill and other intangible assets are subtracted.
Available capital and internal risk capital
in € bn
Based on pro-forma calculations assuming the completion of the Dresdner Bank transaction prior to year-end of 2008(1), our available capital at December 31, 2008 amounted to €42.5 billion (2007: €63.8 billion), while our corresponding internal risk capital at December 31, 2008 amounted to €30.3 billion (2007: €33.4 billion), resulting in a capital ratio of 140% at December 31, 2008, compared to 191% at December 31, 2007(2). The decrease of 33% in available capital was primarily driven by a decrease in shareholders’ equity and a decline in the present value of future profits in the Life/Health segment.
Including discontinued operations, the Allianz Group-wide internal risk capital after Group diversification and before minority interests was €2.5 billion compared to €2.0of €32.9 billion at December 31, 2004.2008 reflects a realized diversification benefit on the Group level of approximately 56%. Non-diversified and Group diversified internal risk capital are broken down as follows:
(1) | Available capital and internal risk capital as of December 31, 2008 including discontinued operations were adjusted to reflect the pro-forma view. For example, we removed hybrid capital and the pension deficit related to Dresdner Bank from available capital, deleted internal risk capital requirements of our discontinued operations and included those related to the shares and the silent participation in Commerzbank. |
(2) | Including discontinued operations, our available capital at December 31, 2008 amounted to €48.8 billion, while our corresponding internal risk capital at December 31, 2008 amounted to €32.9 billion, resulting in a capital ratio of 148% at December 31, 2008. |
Allocated internal risk capital by risk category (total portfolio before minority interest)
in € mn
Risk MonitoringAllocated internal risk capital by Third Partiessegment(3) (total portfolio before minority interest)
in € mn
Supervisory authorities
(3) | 2008 figures exclude discontinued operations, while 2007 figures include them. |
Taking into account discontinued operations as of December 31, 2008, total internal risk capital is still at a comparable level as at December 31, 2007 due to offsetting effects across the different risk categories (e.g., interest rate risk increased while equity risk decreased). The discontinued operations contributed 12% to total internal risk capital as of December 31, 2008. More detailed discussions of movements are provided in the sections specifically related to the risk categories.
Regulatory capital adequacy
Under the EU Financial Conglomerates Directive, a supplementary European Union directive, a financial conglomerate is defined as any financial parent holding company that, together with its subsidiaries, has significant cross-border and rating agencies are additional risk monitoring bodies. Supervisory authorities stipulatecross-sector activities. The Allianz Group is a financial conglomerate within the scope of the Directive and related German law. The law requires that a financial conglomerate calculates the capital needed to meet its solvency requirements on a consolidated basis, which we refer to below as “available funds”.
Financial conglomerate solvency
in € bn
Based on pro-forma calculations assuming the completion of the Dresdner Bank transaction prior to year-end of 2008(1), our available funds for the solvency margin, required for our insurance segments and our banking and asset management business, is €32.7 billion (2007: €46.5 billion) at December 31, 2008 including off-balance sheet reserves(2), surpassing the minimum precautions andlegally stipulated level by €12.4 billion (2007: €17.6 billion). This margin results in a preliminary pro-forma cover ratio(3) of 161% at December 31, 2008 (2007: 161%)(4). The decrease of 30% in available funds was primarily driven by a decrease in shareholders’ equity.
Rating agency capital requirements that must be accounted for in individual countries and on an international level. adequacy
Rating agencies determineapply their own models to evaluate the relationship between the required risk capital of a company and theits available safeguards. In their evaluationcapital resources. Assessing capital adequacy is usually an integral part 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.process. At December 31, 2005, this total was at a level that corresponds to our current ratings. At December 31, 2005,2008, the financial strength of the Allianz GroupSE was rated by Standard & Poor’s as “AA-” (outlook stable)“AA” (stable outlook), by A. M. Best as “A+” (outlook stable)(stable outlook), and by Moody’s as “Aa3” (outlook stable)(stable outlook).
Outlook
(1) | Available funds and requirement as of December 31, 2008 including discontinued operations were adjusted to reflect the pro-forma view. For example, we removed hybrid capital related to Dresdner Bank from available funds and adjusted the deduction of goodwill and other intangible assets. Furthermore, we deleted the requirement of our discontinued operations. |
(2) | Off-balance sheet reserves represent the difference between fair value and amortized cost of real estate held for investment and investments in associates and joint ventures, net of deferred taxes, policyholders’ participation and minority interests. |
(3) | Represents the ratio of available funds to required capital. |
(4) | As of December 31, 2008, our available funds for the solvency margin including discontinued operations, required for our insurance segments and our banking and asset management business, is €39.5 billion including off-balance sheet reserves, surpassing the minimum legally stipulated level by €9.9 billion. |
Conglomerate solvency is computed according to the adjusted Finanzkonglomerate-Solvabilitäts-Verordnung (FkSolV) published by the German regulator, BaFin, which revised the treatment of unrealized gains and losses in the bond portfolio. As of December 31, 2007, reported under the old method, the solvency ratio was 157% and available funds were €45.5 billion. |
In addition to its long-term financial strength rating, Standard & Poor’s determines a separate rating for “Enterprise Risk Management” (ERM). As of September 2008, Standard & Poor’s has assigned Allianz a “Strong” rating for the ERM capabilities of our insurance operations. This rating indicates that Standard & Poor’s regards it “unlikely that Allianz SE will experience major losses outside its risk tolerance”. Standard & Poor’s stated that the assessment is based on the Allianz Group’s strong risk management culture, strong controls for the majority of key risks and strong strategic risk management.
We will continue to strengthen our risk management system in 2006. For example, we will introduce standards for underwriting large insurance risks and for developing and marketing new products. We will complete the analytical model for our life insurance business and introduce the limit system for natural disaster risks.Supplementary stress test analysis
In addition we will continue to make progress in our project to evaluate derivatives on the basis of an Allianz Group-wide uniform IT system. We will also strengthen and clarify our guidelines for handling derivatives.
We are monitoring the Solvency II Project to prepare for the anticipated changes to the European insurance solvency requirements. In particular, we are continuously improving the methodology of our internal risk modelcapital analysis, we perform regular stress tests that act as early-warning indicators in monitoring the Allianz Group’s regulatory solvency capital ratios and its capital position required by rating agencies. We also apply regular stress tests on a local operating entity level in order to meet futuremonitor capital requirements on internal models (Solvency II).imposed by local regulators and rating agencies.
In order forFor example, stress test results on a Group level indicated that a 10% price decline in our available-for-sale equity securities as of December 31, 2008 would have resulted in a €1.7 billion decline in shareholders’ equity before minority interests. An increase in the risk management at Dresdner Bank to continue to meet the highest standards, weinterest rate by 100 basis points would have decreased shareholders’ equity before minority interests by €3.5 billion, if available-for-sale fixed-income securities are continually refining and optimizing our internal bank risk assessment procedures, including data entry and associated processes (Basle II). Dresdner Bank is implementing, on schedule, the supervisory requirementstaken into account as of the Capital Accord of Basle II and the related German implementing regulation, the
Solvency Regulation (Solvency Order/SolvV). Dresdner Bank is targeting to implement advanced approaches by applying the Advanced IRB Approach for credit risks and the AMA for operational risks. Dresdner Bank already uses a comparable process for its internal risk management.
Finally, Dresdner Bank will introduce in 2006 a new validation process for its rating process, which will meet growing internal and external demands.December 31, 2008.
Market Risk MeasurementConcentration of Risks
As we are an integrated financial service provider offering a variety of products across different business segments and geographic regions, diversification is key to our business model. Diversification helps us to manage our risks efficiently by limiting the economic impact of any single event and by contributing to relatively stable results and risk profile in general. As discussed above, the degree to which the diversification effect can be realized depends not only on the correlation
between risks but also on the level of relative concentration of those risks. Therefore, our aim is to maintain a balanced risk profile without any one or more disproportionately large risks.
Disproportionately large risks that might accumulate and have the potential to produce substantial losses (e.g., natural catastrophes or credit events) are closely monitored on a standalone basis (i.e., before the diversification effect) and are subject to a global limit framework. For example, the Management Board of Allianz SE has implemented a framework of natural catastrophe limits at both the operating entity and Group levels in an effort to reduce potential earnings volatility and restrict potential losses from events having an occurrence probability of once in 250 years. Group limits are linked to the planned operating profit and the limits on operating entity level are based on the Property-Casualty net asset value. Traditional reinsurance coverage and dedicated financial transactions on Group level are examples of two instruments to mitigate the peak risks and to limit the impact of adverse conditions on our financial results and shareholders’ equity.
Similarly, the Group monitors and limits credit exposures to single obligors and groups using its overall limit-setting framework to ensure that Allianz Group’s credit and counterparty risk profile is appropriately controlled. As a fundamental principle underlying the limit system, several risk criteria of a counterparty have to be taken into account: financial statements, creditworthiness, country and industry assignment, the current Allianz Group’s portfolio composition and the concentration a particular counterparty introduces within the portfolio. Counterparty limits serve not only to restrict the exposure, but also to identify open investment opportunities for the operating entities while at the same time taking into consideration the current portfolio structure at the Group level.
In general, we identify and measure risk concentrations in terms of non-diversified internal risk capital in line with the risk categories covered in our internal risk capital model. In the subsequent sections all risks are presented before and after diversification and concentrations of single sources of risk are discussed accordingly.
Sensitivity AnalysisMarket Risk
In the following table, we present our Group-wide internal risk capital related to market risks.
Allocated Internal Market Risk Capital by Business Segment and Source of Risk
(Total Portfolio Before Minority Interests)
Non-diversified | Group diversified | |||||||||||
As of December 31, | 2008(1) | 2007(2) | 2008(1) | 2007(2) | ||||||||
€ mn | € mn | € mn | € mn | |||||||||
Total Group | 24,173 | 22,738 | 13,128 | 13,913 | ||||||||
Percentage of total Group internal risk capital | 36 | % | 32 | % | 45 | % | 42 | % | ||||
Interest rate | 12,124 | 6,691 | 3,784 | 655 | ||||||||
Equity | 9,454 | 13,508 | 6,774 | 10,885 | ||||||||
Real estate | 2,516 | 2,238 | 1,300 | 1,088 | ||||||||
Currency(3) | 79 | 301 | 1,270 | 1,285 | ||||||||
Property-Casualty | 9,062 | 11,066 | 4,774 | 6,477 | ||||||||
Interest rate | 3,550 | 2,758 | 1,108 | 270 | ||||||||
Equity | 4,183 | 6,835 | 2,997 | 5,508 | ||||||||
Real estate | 1,250 | 1,385 | 646 | 673 | ||||||||
Currency(3) | 79 | 88 | 23 | 26 | ||||||||
Life/Health | 11,320 | 5,533 | 5,396 | 2,836 | ||||||||
Interest rate | 6,163 | 2,100 | 1,924 | 206 | ||||||||
Equity | 4,039 | 3,006 | 2,894 | 2,422 | ||||||||
Real estate | 1,118 | 427 | 578 | 208 | ||||||||
Currency(3) | — | — | — | — | ||||||||
Banking | 263 | 2,814 | 175 | 1,962 | ||||||||
Asset Management(4) | — | — | — | — | ||||||||
Corporate | 3,528 | 3,325 | 2,783 | 2,638 | ||||||||
Interest rate | 2,378 | 1,628 | 742 | 159 | ||||||||
Equity | 1,002 | 1,428 | 718 | 1,151 | ||||||||
Real estate | 148 | 269 | 76 | 131 | ||||||||
Currency(3) | — | — | 1,247 | 1,197 |
(1) | 2008 figures exclude discontinued operations. On a total Group basis, internal market risk capital would amount to €26,043 million on a non-diversified basis and €14,009 million on a Group diversified basis, if discontinued operations were taken into account. |
(2) | 2007 figures include discontinued operations. |
(3) | Foreign currency risks are mainly allocated to the Corporate segment (please refer to “Internal Risk Capital Framework—Scope” for further information). |
(4) | The internal risk capital requirements for the Asset Management segment only reflect business risk (please refer to “Internal Risk Capital Framework—Scope” for further information). |
Internal equity risk capital decreased in the aggregate mainly driven by the worldwide market drop in 2008 and an active reduction of exposure throughout the year. In our insurance segments, parts of the equity exposure were re-invested in fixed-income resulting in an increase in internal interest rate risk capital. Furthermore, the drop in interest rates across the world raised internal interest rate risk capital as well, in particular in our Life/Health segment which suffered from diminishing “buffers” (e.g., a decrease in unrealized gains in equity investments) that would otherwise help mitigate the
impact of adverse developments. In this segment, internal risk capital additionally increased significantly due to the model change for which more details are provided in the following section.
The decline in internal equity risk capital allocated to the Corporate segment was also due to the market developments experienced in 2008, supported by the sale of some strategic participations which were offset in part by the transfer of strategic participations from Dresdner Bank to the Corporate segment.
As previously discussed, we determine internal risk capital figures on a quarterly basis. The table below presents the average internal risk capital for market risk calculated over the four quarters of 2008
and 2007, as well as the high and low quarterly internal risk capital amounts calculated in both years. All figures include discontinued operations.
Average, High and Low Allocated Internal Market Risk Capital by Business Segment and Source of Risk
(Total Portfolio Before Minority Interests, After Group Diversification and Including Discontinued Operations)
As of December 31, | 2008 | 2007 | ||||||||||
Over quarterly results | Over quarterly results | |||||||||||
Average | High | Low | Average | High | Low | |||||||
€ mn | € mn | € mn | € mn | € mn | € mn | |||||||
Total Group | 13,857 | 14,196 | 13,466 | 15,559 | 16,800 | 13,913 | ||||||
Interest rate | 1,983 | 3,292 | 1,138 | 713 | 764 | 655 | ||||||
Equity | 9,214 | 10,539 | 7,838 | 12,424 | 13,662 | 10,885 | ||||||
Real estate | 1,286 | 1,425 | 1,218 | 1,072 | 1,103 | 1,038 | ||||||
Currency(1) | 1,374 | 1,454 | 1,301 | 1,350 | 1,409 | 1,285 | ||||||
Property-Casualty | 5,145 | 5,727 | 4,813 | 7,299 | 7,948 | 6,476 | ||||||
Interest rate | 599 | 930 | 392 | 301 | 330 | 270 | ||||||
Equity | 3,883 | 4,706 | 3,185 | 6,331 | 7,020 | 5,508 | ||||||
Real estate | 634 | 673 | 598 | 636 | 673 | 593 | ||||||
Currency(1) | 30 | 33 | 25 | 31 | 33 | 26 | ||||||
Life/Health | 4,693 | 5,292 | 4,296 | 3,074 | 3,215 | 2,835 | ||||||
Interest rate | 907 | 1,615 | 488 | 210 | 226 | 195 | ||||||
Equity | 3,288 | 3,580 | 3,075 | 2,650 | 2,781 | 2,422 | ||||||
Real estate | 498 | 602 | 460 | 214 | 223 | 208 | ||||||
Currency(1) | 0 | 0 | 0 | 0 | 0 | 0 | ||||||
Banking | 1,788 | 2,380 | 1,154 | 2,116 | 2,326 | 1,962 | ||||||
Interest rate | 81 | 124 | 51 | 25 | 33 | 20 | ||||||
Equity | 1,520 | 2,132 | 815 | 1,933 | 2,136 | 1,804 | ||||||
Real estate | 75 | 78 | 70 | 113 | 159 | 76 | ||||||
Currency(1) | 113 | 145 | 90 | 45 | 62 | 28 | ||||||
Asset Management(2) | 0 | 0 | 0 | 0 | 0 | 0 | ||||||
Corporate | 2,230 | 2,750 | 1,977 | 3,071 | 3,521 | 2,639 | ||||||
Interest rate | 397 | 623 | 207 | 177 | 185 | 159 | ||||||
Equity | 522 | 763 | 291 | 1,510 | 1,988 | 1,151 | ||||||
Real estate | 79 | 80 | 78 | 109 | 131 | 63 | ||||||
Currency(1) | 1,232 | 1,289 | 1,173 | 1,275 | 1,339 | 1,197 |
(1) | Foreign currency risks are mainly allocated to the Corporate segment (please refer to “Internal Risk Capital Framework—Scope” for further information). |
(2) | The internal risk capital requirements for the Asset Management segment only reflect business risk (please refer to “Internal Risk Capital Framework—Scope” for further information). |
In addition to the information given in the following paragraphs, the quantitative contributions of the non-trading and trading positions to the overall internal risk capital for market risk is presented at the end of this section.
Non-trading portfolios
The Allianz Group uses a risk modeling technique known as “sensitivity analysis” to show the implications of changes in market conditions onGroup’s non-trading portfolios contain the financial instruments it holds in its tradingassets and liabilities of the Property-Casualty, Life/Health and Corporate
segments as well as all non-trading portfolios. This enablesactivities of the Banking segment. The Allianz Group holds and uses many different financial instruments in managing its businesses. Grouped according to make comparisons across its business segments. Sensitivity analysis measuresour internal risk capital model categories, the potential loss due to changesfollowing are the most significant market risks in fair values resultingterms of market values: equity price risk (including risks arising from hypothetical changes in equity prices,common shares and preferred shares) and interest ratesrate risk (arising from bonds, loans and foreign currency rates at a given point in time. Sensitivity analysis generates values representing the risk inherent in each position under given market conditions. Due to the standardization of the sensitivity analysis in this risk assessment, diversification effects are not considered.mortgages).
AssumptionsProperty-Casualty and Life/Health segments
In calculatingThe Allianz Group’s insurance operating entities hold equity price sensitivity,investments usually to diversify their portfolios. 66% of the Allianz Group assumes a 20% decreasenon-diversified internal risk capital allocated to the Property-Casualty and Life/Health segments for equity risk is assigned to our operating entities in stock prices. This scenario has been chosen in conformity with German risk reporting standards. Estimates ofGermany, Italy, France and the U.S.
The interest rate risk sensitivity assume a 100 basis point parallel increaseto which the Property-Casualty and Life/Health segments are exposed arises from the net position between our insurance liabilities and the investments in interest rates. If interest rates rise, the fair values of interest-sensitivefixed-income instruments, such asin particular bonds, loans and mortgages, backing policyholder obligations 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’ liabilities, which allows for active monitoring and management of our assets and liabilities. While the potential payments related to our liabilities in the Property-Casualty segment are typically shorter in maturity than the financial assets backing them, the opposite usually holds true for our Life/Health segment, which provides us with a natural hedge at the Allianz Group level.
We have allocated a significant part of the Life/Health segment’s non-diversified internal risk capital for interest rate risk to Western Europe (74% as of December 31, 2008), mainly to cover traditional life insurance products. Traditional products sold in Western Europe generally feature policyholder participation in the profits (or losses) of the insurance company issuing the contract, subject to a minimum guaranteed crediting rate. In particular, our Life/ Health contracts in Germany, France, Switzerland and Austria comprise a significant level of policyholder participation, limiting all sources of risk, including market, credit, actuarial and cost risks, which would otherwise be borne by Allianz. On the other hand, in accordance with the guarantees related
to these arrangements, we must credit minimum rates for individual contracts (e.g., in Germany, France, U.S., Italy and South Korea). As interest rates may fall;fall below the magnitudeguaranteed crediting rates in those markets, we are exposed to interest rate risk. The valuation of this decrease dependsthese guarantees, which takes into account the interaction of investment strategy and obligations to policyholders, forms an integral part of our internal risk capital model.
In 2008, we enhanced our internal risk capital model for the purpose of quarterly risk reporting and risk related-performance measurement (EVA®) in the Life/Health segment. The enhanced model is part of an integrated approach and is more closely linked to the calculation of Market Consistent Embedded Value (MCEV), which, on an economic basis, is considered the shareholders’ future profit embedded in the issued Life/Health business. This model, applied from January 1, 2008, increased 2007 Group diversified internal risk capital for the Life/Health segment by approximately a third.
Banking and Asset Management segments
Following the sale of Dresdner Bank, we do not consider market risk related to our continuing Banking operations to be significant at the Group level.
Although the internal risk capital requirements for the Asset Management segment only reflect business risk, the evaluation of market risk and credit risk on the maturity, couponaccount of third parties is an integral part of the risk management process of our local operating entities. Our Asset Management operating entities monitor market risks using VaR models, sensitivity analyses and other characteristicsstress tests that estimate the potential loss under extreme market conditions. All underlying models are regularly reviewed by the risk departments of a particular instrument. the respective local operating entities.
Corporate segment
The sensitivity analysis tables below showprimary Corporate risks are interest rate, equity and foreign currency risks. The Corporate segment manages the aggregate effect onequity investments of Allianz SE and its finance subsidiary holding companies, as well as securities issued to fund the fair value of allcapital requirements of the Allianz Group’s interest-sensitive assets and liabilities, assuming a 100 basis point parallel shiftGroup. The issued securities include structured products that occurs simultaneously and instantaneously across all countries, markets and maturities. This scenario has also been chosen might be partly repaid with equity participation securities held
in conformity with German risk reporting standards.our asset portfolio. Some of the securities issued qualify as eligible capital for existing regulatory solvency requirements to the extent they constitute subordinated debt or are perpetual in nature.
Foreign exchangeOn the level of the Corporate segment we are exposed to foreign currency risk is calculated in a manner similar to equity price sensitivity, by assuming a 10% decrease in all non-euro currencybecause some of our subsidiaries’ local currencies are different from the Euro. If non-Euro foreign exchange rates decline against the euro. Consequently,Euro, from a Group perspective, the aggregate fair value sensitivity shown in the sensitivity analysis tables below illustrates the effect on fairEuro equivalent net asset values if, simultaneously and uniformly, all non-Euro currencies lose 10% of their value relativealso decline. Our primary exposures to foreign currency risk are related to the Euro.
The Allianz Group believes that the scenarios used in sensitivity analysis represent reasonable assumptions based on past observations of market conditions. Although market fluctuations exceeding 20% or 100 basis points are possible, the Allianz Group believes that estimates based on these assumptions offer a fair view on the risk inherent in its positions. Although these assumptions are intentionally simplified (e.g., they assume static portfoliosU.S. Dollar, Swiss Franc, British Pound and do not take into account that market prices under normal conditions change simultaneously or by a different magnitude), the Allianz Group believes they provide a useful framework for its risk management analysis and support the Allianz Group’s strategic decisions.
Limitations
While the Allianz Group believes that sensitivity analysis provides its managers with a valid estimation of market risk exposures, it recognizes that there are certain limitations to the use of this method.
Price changes in a diversified portfolio have offsetting effects, since various assets revalue in directions or in magnitudes different to overall marketplace changes. This is known as the “diversification effect” of holding a portfolio consisting of different assets. Because sensitivity analysis uses a generalized methodology, the Allianz Group’s risk estimates do not take this diversification effect into account. Actual changes in the fair value of the Allianz Group’s assets could be different to those shown in the table below.
Additionally, routine daily business activity entails a certain amount of change in the portfolios’ composition as bonds mature or as portfolio managers buy or sell investments. As a result, the actual sensitivity of the Allianz Group’s portfolio will vary at any particular moment in time, and the risk of loss from equity, interest rate, foreign
exchange or other risks cannot be eliminated, although it can be quantified and monitored.
Finally, the Allianz Group’s sensitivity analyses are estimates based on a fixed point in the past. Nearly all of the Allianz Group’s assets and liabilities are subject to market risk from fluctuating equity, interest and foreign exchange markets. These fluctuations cannot be foreseen and can occur suddenly. The quantitative risk measurements provided by the model and reflected in the table below are a snapshot, describing the potential losses to investments under a particular set of assumptions and parameters. Although these measurements reflect reasonable possibility, they may differ considerably from actual losses that may be experienced in the future.
Allianz Group Market Risk Exposure EstimatesSouth Korean Won.
Trading Portfoliosportfolios
Although theThe trading portfolios of the Allianz Group in termsconsist of activityall assets and absolute volumes relate primarily toliabilities classified as “held for trading” positions, the banking segment, this does not hold true for the resulting market risk. Whilemajority of which were held in the Banking segment before the whole portfolio comprisingsale of Dresdner Bank. Activities in the Property-Casualty, Life/Health and Corporate segments designated as “trading” for accounting purposes relate mainly to hedging instruments for our insurance liabilities; in general, we do not actively trade structural hedge positions and they are not internally classified as trading.
For accounting purposes and from a management perspective, financial instruments are typically classified as held-for-trading if they are financial assets andor financial liabilities that are acquired or incurred for the purpose of selling or repurchasing them in the near term. For accounting purposes, however, all derivative instruments must be classified as trading regardless of their specific use within the resulting market risksbusiness or of whether management intends to sell or repurchase them in the near term,
and as such, their accounting classification may differ from Allianz Group’s management view. The market risk data for the trading portfolios of the Property-Casualty, Life/Health and Corporate segments reflects risks related to such derivatives that are required to be treated as “trading” for accounting purposes. However, derivatives used in the Allianz Group’s insurance operations and in the Corporate segment relate mainlyare principally used for hedging and not for trading purposes, and, as such, from a management perspective, we do not view them as “trading”.
Trading activities in the Asset Management segment and those related to our continuing Banking operations are immaterial to the Allianz Group as a whole. In our worldwide hedging of insurance liabilities not classified as trading. In its worldwideand trading activities, the Allianz Group uses financial derivatives both as non-standardized financial instruments for the individual management of market risks and as a component of structured financial transactions. The Allianz Group uses derivatives to manage its proprietary trading portfolio. The Allianz Group’s derivative trading activities focus on interest bearing financial instruments, predominately interest rate swaps. The Allianz Group also uses currency and credit derivatives as well as equity/index derivatives.
Insurance Operations. The Allianz Group’s insurance business does not generally engage in trading activities. With the adoption of IAS 39, however, derivative instruments that do not meet IAS hedge accounting standards are treated as trading derivatives. As a result of this accounting rule, the trading portfolio tables below show significant impact from trading not only for the Allianz Group’s banking business but also for its insurance business. Derivatives used in the Allianz Group’s insurance operations, however, are principally used for portfolio hedging and not for trading purposes. For instance, the significant change of the interest rate sensitivity for the life/health segment is due to the fact that we designated fixed income bonds to trading for Allianz Life so as to more appropriately match the changes in the fair values of these assets with the corresponding changes in fair value of the liabilities. The increase of equity price risk sensitivity in the property-casualty segment as compared with the prior year is mainly driven by a short DAX forward maturing in 2008. This position forms part of the convertible bond “BITES”, which has been issued by Allianz AG in January 2005 in order to further reduce its overall long equity exposure.
Banking Operations. The Banking segment is active in trading equities, interest rate instruments and foreign exchange and commodities. The Banking segment uses derivatives in its trading portfolios primarily to meet customer demands as well as to hedge market and credit risk. Derivatives are also used to take advantage of market opportunities. In terms of volume, the primary derivative products entered into by the Allianz Group uses are interest rate swaps, futures and options as well as foreign exchange forwards and equity related options. In comparisonderivatives.
Contributions of trading and non-trading portfolios
The following tables show the contribution of non-trading and trading positions to the prior year, credit derivatives were used more extensively (+85%) in 2005, while still at a comparably low absolute level (i.e., notional of credit derivatives amount to 15% of the outstanding notional of interest rate derivatives). The primary exposures in foreign currencies are U.S. Dollars and British Pounds.
The following table shows the sensitivity analysis of theoverall internal risk capital for market risk in the material trading portfoliorisks of the Allianz Group. The figures take into account the diversification effect for all the main sources of risk addressed in our internal risk capital model. Certain financial instruments are included in more than one riskcategoryrisk category because they may be affected by changes in more than one parameter. For example, equities denominated in non-Euro currencies are affected by fluctuation in both stock prices and exchange rates.
Allocated Internal Market Risk Capital By Business Segment and Source of Risk
(Non-Trading Portfolio Before Minority Interests and After Group Diversification)
As of December 31, | 2008(1) | 2007(2) | ||
€ mn | € mn | |||
Total Group | 12,152 | 13,352 | ||
Property-Casualty | 4,707 | 6,360 | ||
Interest rate | 1,105 | 265 | ||
Equity | 2,933 | 5,396 | ||
Real estate(3) | 646 | 673 | ||
Currency(4) | 23 | 26 | ||
Life/Health | 5,017 | 2,625 | ||
Interest rate | 1,920 | 205 | ||
Equity | 2,519 | 2,212 | ||
Real estate(3) | 578 | 208 | ||
Currency(4) | 0 | 0 | ||
Banking | 109 | 1,885 | ||
Interest rate | 5 | 11 | ||
Equity | 104 | 1,743 | ||
Real estate(3) | 0 | 76 | ||
Currency(4) | 0 | 55 | ||
Asset Management(5) | 0 | 0 | ||
Corporate | 2,319 | 2,482 | ||
Interest rate | 742 | 159 | ||
Equity | 684 | 1,029 | ||
Real estate(3) | 76 | 131 | ||
Currency(4) | 817 | 1,163 |
(1) | 2008 figures exclude discontinued operations. On a total Group basis, internal market risk capital related to our non-trading portfolio would amount to €12,546 million on a Group diversified basis, if discontinued operations were taken into account. |
(2) | 2007 figures include discontinued operations. |
(3) | All real estate assets are non-trading. |
(4) | Foreign currency risks are mainly allocated to the Corporate segment (please refer to “Internal Risk Capital Framework—Scope” for further information). |
(5) | The internal risk capital requirements for the Asset Management segment only reflect business risk (please refer to “Internal Risk Capital Framework—Scope” for further information). |
Allocated Internal Market Risk Capital By Business Segment and Source of Risk
(Trading Portfolio Before Minority Interests and After Group Diversification)
As of December 31, | 2008(1) | 2007(2) | ||
€ mn | € mn | |||
Total Group | 976 | 561 | ||
Property-Casualty | 67 | 117 | ||
Interest rate | 3 | 5 | ||
Equity | 64 | 112 | ||
Real estate(3) | 0 | 0 | ||
Currency(4) | 0 | 0 | ||
Life/Health | 379 | 211 | ||
Interest rate | 4 | 1 | ||
Equity | 375 | 210 | ||
Real estate(3) | 0 | 0 | ||
Currency(4) | 0 | 0 | ||
Banking | 66 | 77 | ||
Interest rate | 5 | 9 | ||
Equity | 61 | 61 | ||
Real estate(3) | 0 | 0 | ||
Currency(4) | 0 | 7 | ||
Asset Management(5) | 0 | 0 | ||
Corporate | 464 | 156 | ||
Interest rate | 0 | 0 | ||
Equity | 34 | 122 | ||
Real estate(3) | 0 | 0 | ||
Currency(4) | 430 | 34 |
(1) | 2008 figures exclude discontinued operations. On a total Group basis, internal market risk capital related to our trading portfolio would amount to €1,463 million on a Group diversified basis, if discontinued operations were taken into account. |
(2) | 2007 figures include discontinued operations. |
(3) | All real estate assets are non-trading. |
(4) | Foreign currency risks are mainly allocated to the Corporate segment (please refer to “Internal Risk Capital Framework—Scope” for further information). |
(5) | The internal risk capital requirements for the Asset Management segment only reflect business risk (please refer to “Internal Risk Capital Framework—Scope” for further information). |
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, counter-parties, 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:
Deterioration in creditworthiness of an obligor, including ultimately its failure to meet payment obligations (default and migration risk); and
Default on local government debt or temporary suspension of payment obligations (“moratorium”), deterioration of economic or political conditions, expropriation of assets, inability to transfer assets abroad due to sovereign intervention, freezing of converted and unconverted sums of money, etc. (country risk including transfer and conversion risk).
Group Risk’s obligor credit risk management framework is comparable to those widely used in the industry and is based on internal ratings, estimates of exposure at default (EAD) and loss given default (LGD). These measurements are all estimated using statistical analysis and professional judgment. Our aggregation methodology is comparable to approaches widely used in the industry known as “structural model”. In a structural model, a counterparty is deemed to have defaulted when the value of its total assets is lower than its total liabilities. Since changes in the asset value of a
company determine whether it defaults or migrates from one credit class to another, the correlation between different firms’ asset values determines the correlation between the firms’ defaults and migrations. Estimating these parameters allows us to aggregate credit risk across individual obligors using Monte-Carlo simulations to obtain the loss profile of a given portfolio—i.e., its loss probability distribution. The loss profile is the basis of our internal credit risk capital model.
We monitor and manage credit risks and concentrations within the portfolio based on a counterparty limit system that is applied across the entire Allianz Group. Counter-party limits are calculated taking into account the main risk drivers of credit risk and aim to cut off peak concentrations by industry and counterparty name in the portfolio. For monitoring the credit risk profile of our operating entities’ portfolios and the whole Allianz Group portfolio, credit reports for portfolio analysis are provided within a web-based limit system application.
Our internal credit risk capital increased in 2008 mainly due to rating downgrades of some of our counterparties following the financial turmoil throughout 2008. The high credit quality of our investment and reinsurance portfolio mitigated the impact that the broad credit deterioration had on Allianz Group’s credit risk profile. In response to the financial crisis, we have initiated a number of actions, for example, weekly review and adjustment of limit settings for the major financial institutions as a temporary measure to assess systemic risks of the financial industry and to recommend short-term actions to our operating entities in light of this severe market volatility.
Sensitivity AnalysisAllocated Internal Credit Risk Capital by Business Segment and Source of Risk Category: Trading Portfolios
(Total Portfolio Before Minority Interests)
At December 31, 2005 | |||||||||||||||
Property- Casualty | Life/Health | Asset Management | Banking | Total | |||||||||||
€ mn | € mn | € mn | € mn | € mn | |||||||||||
Equity price risk(1) | 291 | 15 | (21 | ) | (216 | ) | 69 | ||||||||
Interest rate risk | 19 | (22 | ) | 4 | 33 | 34 | |||||||||
Foreign exchange risk(2) | (38 | ) | (191 | ) | (21 | ) | (13 | ) | (263 | ) |
Non-diversified | Group diversified | |||||||||||
As of December 31, | 2008(1) | 2007(2) | 2008(1) | 2007(2) | ||||||||
€ mn | € mn | € mn | € mn | |||||||||
Total Group | 5,019 | 7,983 | 3,372 | 5,701 | ||||||||
Percentage of total Group internal risk capital | 8 | % | 11 | % | 12 | % | 17 | % | ||||
Investment | 2,533 | 5,839 | 1,435 | 4,128 | ||||||||
(Re)insurance(3) | 2,486 | 2,144 | 1,937 | 1,573 | ||||||||
Property-Casualty | 3,196 | 2,779 | 2,305 | 2,016 | ||||||||
Investment | 872 | 832 | 494 | 588 | ||||||||
(Re)insurance(3) | 2,324 | 1,947 | 1,811 | 1,428 | ||||||||
Life/Health | 1,321 | 936 | 783 | 668 | ||||||||
Investment | 1,159 | 739 | 657 | 523 | ||||||||
(Re)insurance(3) | 162 | 197 | 126 | 145 | ||||||||
Banking | 428 | 4,216 | 242 | 2,981 | ||||||||
Asset Management(4) | — | — | — | — | ||||||||
Corporate | 74 | 52 | 42 | 36 |
At December 31, 2004 | |||||||||||||||
Property- Casualty | Life/Health | Asset Management | Banking | Total | |||||||||||
€ mn | € mn | € mn | € mn | € mn | |||||||||||
Equity price risk(1) | — | (57 | ) | (25 | ) | (105 | ) | (187 | ) | ||||||
Interest rate risk | 56 | 288 | 2 | 6 | 353 | ||||||||||
Foreign exchange risk(2) | (83 | ) | (124 | ) | (9 | ) | (38 | ) | (254 | ) |
As previously discussed, we determine internal risk capital figures on a quarterly basis. The table below presents the average internal risk capital for credit risk calculated over the four quarters of 2008
and 2007, as well as the high and low quarterly internal risk capital amounts calculated in both years. All figures include discontinued operations.
Average, High and Low Allocated Internal Credit Risk Capital by Source of Risk
(Total Portfolio Before Minority Interests, After Group Diversification and Including Discontinued Operations)
2008 | 2007 | |||||||||||
Over quarterly results | Over quarterly results | |||||||||||
Average | High | Low | Average | High | Low | |||||||
€mn | € mn | € mn | €mn | € mn | € mn | |||||||
Total Group | 6,127 | 6,614 | 5,837 | 5,385 | 5,701 | 5,247 | ||||||
Investment | 4,358 | 4,771 | 4,181 | 3,966 | 4,128 | 3,862 | ||||||
(Re)insurance(3) | 1,770 | 1,871 | 1,656 | 1,419 | 1,573 | 1,356 |
Property-Casualty, Life/Health and Corporate segments
In the Property-Casualty and Life/Health segments, credit risks arising from reinsurance counterparties are considered separately from issuer and counterparty risks arising from our investment activities, though the same methodology is applied. For the Corporate segment, our internal risk capital model covers only investment credit risk, as reinsurance activities are generally allocated to the Property-Casualty segment.
Credit risk—reinsurance and credit insurance
This risk category also covers the premium risk which our credit insurance entity Euler Hermes is exposed to due to its business model, as this type of risk is a special form of credit risk. As of December 31, 2008, it represented 64% of our total Group non-diversified internal risk capital allocated to credit reinsurance risk.
(1) | 2008 figures exclude discontinued operations. On a total Group basis, internal credit risk capital would amount to €9,353 million on a non-diversified basis and €6,614 million on a Group diversified basis, if discontinued operations were taken into |
(2) | 2007 figures include discontinued operations. |
(3) | The premium risk which our credit insurance entity Euler Hermes is exposed to due to its business model is also covered here, as this type of risk is a special form of credit risk. |
(4) | The internal risk capital requirements for the Asset Management segment only reflect business risk (please refer to “Internal Risk Capital Framework—Scope” for further information). |
We take steps to limit our liability from insurance business by ceding part of the risks we assume to the international reinsurance market. A dedicated team selects our reinsurance partners and considers only companies with strong credit profiles. We may also require letters of credit, cash deposits or other financial measures to further mitigate our exposure to credit risk. To manage the related credit risk, we compile Allianz Group-wide data on potential and actual recoverables in respect of reinsurance losses. At December 31, 2008, 74% of the Allianz Group’s reinsurance recoverables were distributed among reinsurers that had been assigned at least an “A” rating by Standard & Poor’s. Non-rated reinsurance recoverables represented 24% of the total reinsurance recoverables at December 31, 2008. Reinsurance recoverables without Standard & Poor’s rating include exposures to brokers, companies in run-off and pools, where no rating is available, and companies rated by A.M. Best.
As of December 31, 2008, 9% of our total Group non-diversified internal risk capital allocated to credit reinsurance risk was assigned to our operating entities in the U.S.
Reinsurance recoverables by rating class(1) as of December 31, 2008
in € bn
(1) | Represents gross exposure broken down by reinsurer. |
Credit risk—investment
As of December 31, 2008, our operating entities in the U.S. and Germany accounted for 40% of the non-diversified internal risk capital allocated to our Property-Casualty, Life/ Health and Corporate segments for investment credit risk.
We limit the credit risk of our fixed-income investments by setting high requirements on the creditworthiness of our issuers, by diversifying our investments and by setting limits for credit concentrations. We track the limit utilization by consolidating and monitoring our exposure across individual debtors and across all investment categories and business segments on a monthly basis. At December 31, 2008, approximately 94% of the fixed-income investments of the insurance companies of the Allianz Group had an investment grade rating and approximately 88% of the fixed-income investments were distributed among obligors that had been assigned at least an “A” rating by Standard & Poor’s.
Fixed-income investments by rating class as of December 31, 2008
fair values in € bn
In addition to these fixed-income investments, Allianz Group also has non-tradable mortgage loan portfolios in Germany and the U.S. As of December 31, 2008, 97% of the German mortgage portfolio obligors were assigned a Standard & Poor’s equivalent 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 managers. There have been no delinquent or foreclosed non-tradable commercial mortgage loans since 1994, and we thus regard the portfolio as investment grade based on additional stress test analysis. The North American Allianz insurance companies have a residential mortgage portfolio exposure of less than $2 million.
Banking and Asset Management segments
Following the sale of Dresdner Bank, we do not consider credit risk related to our continuing Banking operations to be significant at the Group level.
As part of the investment management process, the Asset Management segment’s entities assess credit risk affecting their customers’ portfolios. Though our Asset Management companies do not engage in any lending transactions, counterparty risks can arise in certain circumstances, such as with broker-related over-the-counter transactions. The Asset Management operating entities analyze the credit-worthiness of their counterparties and set limits per counterparty based on objective criteria.
Actuarial risks consist of premium and reserve risks in the Property-Casualty segment as well as biometric risks in our Life/Health segment. In the Banking and Asset Management segments, actuarial risks are not relevant. Although the Corporate segment provides some guarantees that transfer small parts of the actuarial risk away from local entities, such risk is primarily transferred by internal reinsurance and allocated to the Property-Casualty segment.
Allocated Internal Actuarial Risk Capital by Business Segment and Source of Risk(1)
(Total Portfolio Before Minority Interests)
Non-diversified | Group diversified | |||||||||||
As of December 31, | 2008(2) | 2007(3) | 2008(2) | 2007(3) | ||||||||
€ mn | € mn | € mn | € mn | |||||||||
Total Group | 22,533 | 23,038 | 7,265 | 6,521 | ||||||||
Percentage of total Group internal risk capital | 34 | % | 32 | % | 25 | % | 20 | % | ||||
Premium CAT | 5,913 | 5,780 | 1,390 | 1,077 | ||||||||
Premium non-CAT | 8,083 | 8,284 | 3,517 | 3,249 | ||||||||
Reserve | 7,307 | 8,037 | 2,308 | 2,170 | ||||||||
Biometric | 1,230 | 937 | 50 | 25 | ||||||||
Property-Casualty | 20,851 | 21,705 | 7,072 | 6,389 | ||||||||
Life/Health | 1,244 | 950 | 55 | 29 | ||||||||
Corporate(4) | 438 | 383 | 138 | 103 |
(1) | As risks are measured by an integrated approach on an economic basis, internal risk capital takes reinsurance effects into account. |
(2) | 2008 figures exclude discontinued operations. On a total Group basis, internal actuarial risk capital would amount to €22,533 million on a non-diversified basis and €6,614 million on a Group diversified basis, if discontinued operations were taken into account. Although our discontinued operations are not exposed to actuarial risks, they have an impact on Group diversified internal risk capital due to diversification effects. The discontinuation of certain banking operations results in less diversified insurance operations. |
(3) | 2007 figures include discontinued operations. |
(4) | Allianz SE has a conditional commitment to make capital payments to its U.S. subsidiary, Fireman’s Fund Insurance Co. In particular, Allianz SE is required to make these payments in case of future negative developments relating to the reserves of Fireman’s Fund for the year 2003 and before. |
In general, Group-diversified internal actuarial risk capital increased, as the discontinuation of certain banking operations results in less diversified insurance operations and a smaller diversification effect. Before Group diversification, internal premium CAT risk capital remained relatively stable compared to 2007, while it increased after Group diversification additionally driven by a shift in contributions from other risk categories, mainly due to the decline in internal market risk capital.
As previously discussed, we determine internal risk capital figures on a quarterly basis. The table below presents the average internal risk capital calculated for actuarial risks over the four quarters of 2008 and 2007, as well as the high and low quarterly internal risk capital amounts calculated in both years. All figures include discontinued operations.
Average, High and Low Allocated Internal Actuarial Risk Capital by Source of Risk
(Total Portfolio Before Minority Interests, After Group Diversification and Including Discontinued Operations)
2008 | 2007 | |||||||||||
Over quarterly results | Over quarterly results | |||||||||||
Average | High | Low | Average | High | Low | |||||||
€ mn | € mn | €mn | € mn | € mn | € mn | |||||||
Total Group | 6,597 | 6,796 | 6,421 | 6,311 | 6,521 | 6,111 | ||||||
Premium CAT | 1,245 | 1,258 | 1,218 | 1,007 | 1,077 | 953 | ||||||
Premium non-CAT | 3,333 | 3,399 | 3,264 | 3,210 | 3,249 | 3,143 | ||||||
Reserve | 1,979 | 2,098 | 1,872 | 2,071 | 2,170 | 1,984 | ||||||
Biometric | 41 | 45 | 35 | 23 | 25 | 21 |
Property-Casualty segment
A substantial portion of the Property-Casualty segment’s non-diversified internal actuarial risk capital is assigned to our operating entities in Germany, Italy, France and the U.S. (49% as of December 31, 2008).
Premium risk
Premium risk represents risk that, during a one-year time horizon, underwriting profitability is less than expected. Such risk is subdivided into catastrophe risk (CAT risk) and non-catastrophe risk (non-CAT risk). We primarily quantify and manage premium risk based on actuarial models that are used to derive loss distributions for each risk.
Natural disasters such as earthquakes, storms and floods represent a special challenge for risk management due to their accumulation potential and occurrence volatility. In order to measure such risks and better estimate the potential effects of natural disasters, we use special modeling techniques in which we combine data about our portfolio (such as the geographic distribution and characteristics of insured objects and their values), with simulated natural disaster scenarios to estimate the magnitude and frequency of potential losses. Where such models do not exist (e.g., flood risk in Italy), we use scenario-based methods to estimate probable losses.
More than a third (36% as of December 31, 2008) of the non-diversified internal premium risk capital allocated to natural catastrophe risk was borne by our operating entities in Germany and the U.S. Our exposure to losses from wind-storms over Europe (including hail) is our largest exposure to natural catastrophe, followed by U.S. hurricanes and
Californian earthquakes. Our loss potential net of reinsurance for European windstorms is approximately €1.3 billion, measured at a probability level of once in 250 years (i.e., 0.4%).
Reserve risk
Reserve risk represents the risk of losses emerging on claims provisions over a one-year time horizon. We measure and manage reserve risks by constantly monitoring the development of the provisions for insurance claims and change the provision for reserves in line with actuarial standards if necessary. We use approaches that are similar to the methods used for setting the reserves.
Life/Health segment
Biometric risk
We consider mortality and longevity risks which can cause variability in policyholder benefits resulting from the unpredictability of the (non-) incidence of death and the timing of its occurrence. For modeling these risks within our internal risk capital model, we distinguish level, trend and calamity risk. Biometric assumptions, such as life expectancy, play a significant role. To the extent available, we use assumptions approved by supervisory authorities and actuarial associations to enhance our models.
Due to the offsetting effects of mortality risk and longevity risk inherent in the combined portfolios of life insurance and annuity products, as well as due to a geographically diverse portfolio, our Life/Health segment does not have significant concentrations of biometric risk.
Business risks consist of operational risks and cost risks. Operational risks represent the loss resulting from inadequate or failed internal processes, or from personnel and systems, or from external events, such as interruption of business operations due to a break-down of electricity or a flood, damage caused by employee fraud or the losses caused by court cases. Operational risks include legal risk,
whereas strategic risk and reputational risks are excluded in accordance with the requirements of Solvency II and Basel II. Cost risks consist of unexpected changes in business assumptions and unanticipated fluctuations in earnings arising from a decline in income without a corresponding decrease in expenses. They also include the risk of budget deficits resulting from lower revenues or higher costs than budgeted.
Allocated Internal Business Risk Capital by Business Segment
(Total Portfolio Before Minority Interests)
Non-diversified | Group diversified | |||||||||||
As of December 31, | 2008(1) | 2007(2) | 2008(1) | 2007(2) | ||||||||
€ mn | € mn | € mn | € mn | |||||||||
Total Group | 15,013 | 18,365 | 5,155 | 7,233 | ||||||||
Percentage of total Group internal risk capital | 22 | % | 25 | % | 18 | % | 22 | % | ||||
Property-Casualty | 5,898 | 6,425 | 1,707 | 2,064 | ||||||||
Life/Health | 5,163 | 4,288 | 1,864 | 1,840 | ||||||||
Banking | 145 | 1,630 | 59 | 634 | ||||||||
Asset Management(3) | 3,304 | 5,576 | 1,453 | 2,621 | ||||||||
Corporate | 503 | 446 | 72 | 74 |
The decrease in internal business risk capital related to the Asset Management segment is primarily driven by an update of the risk factor incorporated within the model used to derive business risk capital for these operations. The factor was reviewed, and as a result, a level of conservatism within this factor has been reduced to better reflect the risk capital needs of this segment.
As discussed, because substantially all of the investments managed by the Asset Management segment are held for the benefit of either third parties or Allianz insurance entities, we are not exposed to significant market and credit risk in the Asset Management segment. As a result, the internal risk capital requirements for the Asset Management segment only reflect business risk.(4)
Allianz has developed a Group-wide operational risk management framework that focuses on early recognition and pro-active management of operational risks. The framework defines roles and
responsibilities, risk processes and methods and has been implemented at the major Allianz Group companies. Local risk managers ensure this framework is implemented in the respective operating entities. The operating entities identify and evaluate relevant operational risks and control weaknesses via a structured self assessment. Furthermore, operational losses are collected in a central loss database. From the middle of 2008, the data collection has been extended to all our operating entities. An analysis of the causes for significant losses is used to enable the operating entities to implement measures to avoid or reduce future losses. The measures adopted may include revising processes, improving failed or inappropriate controls, installing comprehensive security systems and strengthening emergency plans. This structured reporting is designed to provide comprehensive and timely information to senior management of the Allianz Group and the relevant local operating entities.
(1) | 2008 figures exclude discontinued operations. On a total Group basis, internal business risk capital would amount to €16,362 million on a non-diversified basis and €5,635 million on a Group diversified basis, if discontinued operations were taken into account. |
(2) | 2007 figures include discontinued operations. |
(3) | The internal risk capital requirements for the Asset Management segment only reflect business risk (please refer to “Internal Risk Capital Framework—Scope” for further information). |
(4) | Internal risk capital for guarantees in the Asset Management segment is not significant. |
There are certain risks that cannot be fully quantified across the Group using our internal risk capital model. For these risks, we also pursue a systematic approach with respect to identification, analysis, assessment and monitoring. In general, the risk assessment is based on qualitative criteria or scenario analyses. The most important of these other risks include liquidity, reputational and strategic risk.
Liquidity risk
Liquidity risk is the risk that short-term current or future payment obligations cannot be met or can only be met on the basis of altered conditions, along with the risk that in the event of a company liquidity crisis, refinancing is only possible at higher interest rates or that assets may have to be liquidated at a discount. This risk can arise primarily if there are mismatches in the timing of cash payments and funding obligations. Liquidity risk does not include the risk of a change in market prices due to a worsening of the market liquidity of assets, as this is a component of market risk analyzed through our internal risk capital model (e.g., the assumed volatility of real estate investments takes into account historical observations). Funding risk, a particular form of liquidity risk, arises when the necessary liquidity to fund illiquid asset positions cannot be obtained at the expected terms and when required. For more information, refer to “Item 3. Risk Factors—Risks arising from the financial markets—Allianz Group’s financial condition, liquidity needs, access to capital and cost of capital may be significantly affected by adverse developments in the capital and credit markets”.
Corporate segment
On the Group level, liquidity risks arise mainly from capital requirements of subsidiaries and necessary refinancing of expiring strategic financial liabilities. The liquidity position of Allianz SE is monitored on a daily basis and reported to the Board of Management regularly. The main tools to limit unforeseen liquidity requirements are committed credit lines from banks, commercial paper facilities, medium-term debt issuance programs, access to the market of sale and repurchase agreements (the so-called “Repo market”) as well as internal resources in the form of intra-Group loans and an international cash pooling infrastructure.
Property-Casualty and Life/Health segments
Our insurance operating entities manage liquidity risk locally, using local asset-liability management systems designed to ensure that assets and liabilities are adequately matched. To the extent available, the approaches used to project the liability cash flows for the Property-Casualty segment are similar to the methods used for setting reserves.
Liquidity risk in our insurance segments is a secondary risk following external events, such as natural disasters, that are generally reflected in our internal risk capital model. Therefore, limiting and monitoring of the associated primary risks (such as through the use of reinsurance) also helps limit our liquidity risk related to such events. Extreme adverse changes in business assumptions such as lapse or renewal rates or costs may cause liquidity risk as well. However, these effects are covered by our internal risk capital model.
The quality of our investments also provides comfort that we can meet high liquidity requirements in unlikely events. Furthermore, in the case of an extraordinary event, a portion of the applicable payments may usually be made with a certain time lag, which reduces the risk that short-term current payment obligations cannot be met. We employ actuarial methods for estimating our liabilities arising from insurance contracts. In the course of standard liquidity planning we reconcile the cash flows from our investment portfolio with the estimated liability cash flows. These analyses are performed on the operating entity level and aggregated at the Group level. Excess liquidity is centrally pooled on the Group level and can be transferred to single operating entities if necessary.
Banking and Asset Management segments
Due to the small size of risk weighted assets and total assets (as of December 31, 2008, €7.4 billion and €19.8 billion, respectively), liquidity risk related to our continuing Banking operations is not significant at the Group level.
In the Asset Management segment, we limit liquidity risk by continually reconciling the cash flows from our operating business with our commitments to pay liabilities. Forecasting and managing liquidity is a regular process, designed to meet both regulatory requirements and Allianz Group standards.
Reputational risk
Reputational risk is the risk of direct loss or loss in future business caused by a decline in the reputation of the Allianz Group or one or more of its specific operating entities from the perspective of its stakeholders—shareholders, customers, staff, business partners or the general public. First, every action, existing or new transaction or product can lead to losses in the value of our reputation, either directly or indirectly, and can also result in losses in other risk categories. Second, every loss in other risk categories, irrespective of its size, can pose reputational risk to the Allianz Group. Therefore, reputational risk can both cause and result from losses in all risk categories such as market or credit risks.
Our operating entities identify and assess reputational risks within their business processes. In addition, Group Risk identifies and assesses reputational risk qualitatively as part of a quarterly evaluation. On the basis of this evaluation, Group Risk creates an overview of local and global risks which also includes reputational risks, analyses the risk profile of the Allianz Group and regularly informs management about the current situation.
Strategic risk
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 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 entity.
These risks are evaluated and analyzed quarterly in the same way as reputational risk.
We plan to continue to strengthen our risk management framework and systems in 2009. In particular, we are striving to constantly improve our accumulation monitoring systems, particularly those related to natural and man-made catastrophes, and are continuing to develop and extend our modeling capabilities for catastrophe risk. In addition, we plan to establish an internal expert network dedicated to emerging insurance risks such as nanotechnology and food additives.
Solvency II is a major European project and is expected to lead to significant changes to the European insurance solvency requirements in the coming years; the Allianz Group is actively participating in the process. We are continuously providing feedback on the proposals and analyses of the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) and the EU Commission. Furthermore, we participate in the Quantitative Impact Studies and give technical advice, for instance, through the Chief Risk Officer Forum, which is comprised of the Chief Risk Officers of the major European insurance companies and financial conglomerates. It is our aim to have our internal risk capital model and our risk management practices comply with the forthcoming internal model supervisory requirements at an early stage. Accordingly, we are constantly reviewing them on the basis of the evolving standards. In order to fulfill future Solvency II requirements, Allianz has launched a Solvency II umbrella project which consists of quantitative and qualitative workstreams. In particular, these workstreams cover activities 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 initiative of the Solvency II umbrella project, we are strengthening our efforts to consolidate our risk analysis infrastructure and to establish a best practice technical platform. The key objectives of this initiative are to (i) improve methodology and increase the scope and (ii) extend the functionality and enhance user benefits within an efficient risk capital process. We are planning to thoroughly test the new model and reconcile its results with the existing model, and aiming to introduce the new internal model framework for our
internal risk based performance measurement. This platform will help us establish a framework that fulfills the quantitative Pillar I requirements under the Solvency II project after internal model approval for regulatory purposes.
In addition to the key objectives defined by the Solvency II umbrella project for all risk types, the credit risk implementation project aims to streamline the existing credit risk data submission process and to develop a new web-based Credit Risk Reporting Platform for comprehensive and flexible portfolio analyses as well as for a more powerful limit-setting framework including monitoring and management processes. This reporting tool will support all operating entities and the Group in their decisions regarding asset management and strategic portfolio optimization.
As part of the Solvency II umbrella project, a subproject has been launched to roll-out a new operational risk management platform to all operating entities which will automate the operational risk management process, complemented by a refined risk and control self-assessment based on scenarios.
ITEM 12. |
Non-Trading PortfoliosNot applicable.
The Allianz Group’s remaining portfolios contain all non-trading activities of the banking segment as well as the financial investments of the insurance segment. The Allianz Group holds and uses many different financial instruments in managing its businesses. Grouped according to risk category, the following are the most significant assets according to their fair values:
Insurance Segment. The insurance segment’s non-trading portfolio is exposed to foreign exchange risk because some of its assets are denominated in currencies other than the Euro. If non-Euro foreign exchange rates decline against the Euro, the fair values of the corresponding assets would also decline. The insurance segment’s primary exposures for foreign exchange risk are for the U.S. Dollar,Swiss Franc and Korean Won. Local laws generally require that the insurance policy obligations of the Allianz Group’s subsidiaries and the investments covering them must be in the same currency. As a result, currency fluctuations in connection with foreign subsidiaries have only a minor impact on the insurance segment’s risk management strategies.
Most of the Allianz Group’s insurance-related equity investments are intended to be held for the long term. The equity holdings are primarily in the Euro zone equity markets of Germany, France and Italy, with significant additional exposures in the Swiss and U.K. markets.
The insurance segment is exposed to interest rate risk due to its investments in fixed income instruments, in particular bonds, loans and mortgages. The primary exposures for interest rate sensitivity securities are for bonds, loans and mortgages held by the Allianz Group’s German, French, U.S. and Italian subsidiaries.
Banking Segment. The Allianz Group’s banking operations are subject to currency risk on all non-Euro loans and deposits. For non-trading activities, it is the Allianz Group’s policy that all
loans and deposits in foreign currencies be funded and reinvested in the same currency and with matching maturities. Any residual risk in non-trading portfolios results primarily from operating profits of affiliated companies abroad during 2005.
The non-trading portfolio of the Banking segment with respect to interest rate risk includes all loans and deposits, issued securities, interest rate-related investment securities as well as corresponding hedges of Dresdner Bank as well as the other banks belonging to the Allianz Group. Market risk associated with these positions is primarily interest rate risk resulting from long-term fixed rate loans, which are funded in part by short-term deposits. On Dresdner Bank’s non-trading books, interest rate derivatives are used to hedge risk associated with fixed rate loans. For this purpose, Dresdner Bankprimarily uses interest rate swaps. Futures and options are also used for asset and liability management in the non-trading activities, albeit to a significantly lesser degree. The Allianz Group also used swaptions to hedge risk arising from a borrower’s prepayment options under some loan agreements. A small volume of equity derivatives is held due to investments in shares from affiliated and non-affiliated companies.
Equity holdings in the banking segment are primarily in the German market. The following table shows a sensitivity analysis of the market risk in the Allianz Group’s material non-trading portfolios. Certain financial instruments are included in more than one risk category because they may be affected by changes in more than one parameter.
Sensitivity Analysis by Business Segment and Risk Category: Non-Trading Portfolios
At December 31, 2005 | |||||||||||||||
Property- Casualty | Life/Health | Asset Management | Banking | Total | |||||||||||
€ mn | € mn | € mn | € mn | € mn | |||||||||||
Equity price risk(1) | (4,952 | ) | (7,185 | ) | 71 | (864 | ) | (12,930 | ) | ||||||
Interest rate risk | (1,355 | ) | (13,003 | ) | (7 | ) | (37 | ) | (14,402 | ) | |||||
Foreign exchange risk(2) | (2,805 | ) | (4,725 | ) | (14 | ) | (53 | ) | (7,597 | ) |
At December 31, 2004 | |||||||||||||||
Property- Casualty | Life/Health | Asset Management | Banking | Total | |||||||||||
€ mn | € mn | € mn | € mn | € mn | |||||||||||
Equity price risk(1) | (3,653 | ) | (5,568 | ) | (8 | ) | (781 | ) | (10,011 | ) | |||||
Interest rate risk | (1,136 | ) | (10,353 | ) | — | (44 | ) | (11,532 | ) | ||||||
Foreign exchange risk(2) | (1,693 | ) | (3,714 | ) | (28 | ) | 85 | (5,350 | ) |
The significant increase of equity risk is related to the overall appreciation of equity markets in 2005, while the increase in foreign exchange risk and interest risk is mainly driven by the business growth in the United States as well as the strong appreciation of the U.S. Dollar against the Euro in 2005.
ITEM 12. Description of Securities Other than Equity SecuritiesNone.
Not applicable.
ITEM 13. Defaults, Dividend Arrearages and Delinquencies
ITEM 14. | Material Modifications to the Rights of Security Holders and Use of Proceeds |
None.
ITEM 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
None.
ITEM 15: CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
ITEM 15. | Controls and Procedures |
For its fiscal year 2005, theending December 31, 2008, Allianz Group performed an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures in accordance with Section 302 of the Sarbanes-Oxley Act (or “SOA”).procedures. In doing so, we recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable, and not absolute, assurance of achieving the desired control objectives. The Allianz Group’sAllianz’s management is required to apply judgment in evaluating the risks facing the
Allianz Group in achieving its objectives, in determining the risks that are considered acceptable to bear, in assessing the likelihood of the risks concerned materializing, in identifying its ability to reduce the incidence and impact onof the business of risks that do materialize and in ensuring the costs of operating particular controls are proportionate to the benefit.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of the design and operation of the Allianz Group’sAllianz’s disclosure controls and procedures, as such term is defined in RulesRule 13a-15(e) under the Securities Exchange Act of 1934, as amended, in light of the judgments noted above as of the end of the period covered by this report. Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, have concluded that these disclosure controls and procedures provided reasonable assurance as to effectiveness as of December 31, 2005.2008.
Management’s Annual Report on Internal Control Over Financial Reporting
The management of Allianz is responsible for establishing and maintaining adequate internal control over financial reporting. Allianz’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with International Financial Reporting Standards (IFRS)(1).
Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of Allianz; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS, that our receipts and expenditures are being made only in accordance with the authorizations of the management and the directors of Allianz; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
(1) | As issued by the IASB and adopted by the European Union. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of Allianz’s internal control over financial reporting as of December 31, 2008. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in “Internal Control—Integrated Framework.” Based on this assessment, Allianz’s management has concluded that Allianz maintained effective internal control over financial reporting as of December 31, 2008.
Report of Independent Registered Public Accounting Firm
To the Board of Management and Supervisory Boardof Allianz SE:
We have audited Allianz SE’s and its subsidiaries’ (collectively, “the Allianz Group”) internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Allianz Group’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Allianz Group’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Allianz Group maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Allianz Group as of December 31, 2008 and 2007, and the related
consolidated income statements, consolidated statements of changes in equity and consolidated statements of cash flows for each of the years in the three-year period ended December 31, 2008 including the disclosures provided in the Qualitative and Quantitative Disclosures about Market Risk on pages 153 to 175, and our report dated March 31, 2009, expressed an unqualified opinion on those consolidated financial statements.
March 31, 2009
KPMG AG
Wirtschaftsprüfungsgesellschaft
Munich, Germany
(formerly
KPMG Deutsche Treuhand-Gesellschaft
Aktiengesellschaft
Wirtschaftsprüfungsgesellschaft)
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during fiscal year 2005, which have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
ITEM 16A. Audit Committee Financial Expert
Our Supervisory Board has determined that Dr. Manfred Schneider, chairman of the audit committee, meets the criteria of an audit committee financial expert, as that term is defined in Item 16A(b) ofForm 20-F. Dr. Schneider is an “independent” member of the Supervisory Board in accordance with NYSE listing standards applicable to Allianz AG.
In response to Section 406 of the Sarbanes-Oxley Act of 2002, we have adopted a specific Code of Ethics in addition to our general Code of Conduct that applies to all members of our Board of Management, including persons performing the functions of a principal executive officer, principal financial officer, principal accounting officer and controller and senior employees performing similar functions. A copy of this code of ethics is available on our Internet websitewww.allianz.com/corporate-governance. (Reference to this “uniform resource locator” or “URL” is made as an inactive textual reference for informational purposes only. The information found at this website is not incorporated by reference into this document). There have been no amendments or waivers to this code of ethics since its adoption. Information regarding any future amendments or waivers will be published on the aforementioned website.
ITEM 16C. Principal Accountant Fees and Services
KPMG Deutsche Treuhand-Gesellschaft
Aktiengesellschaft
Wirtschaftsprüfungsgesellschaft (or “KPMG DTG”) serves as the external auditing firm for the Allianz Group.fungsgesellschaft)
The table set forth below contains the aggregate fees billed for each of the last two fiscal years by KPMG DTG or KPMG DTG and the worldwide member firms of KPMG International (or “KPMG”) in each of the following categories: (i) Audit Fees, which comprise fees billed for services rendered for the audit of the Allianz Group’s consolidated financial statements, the statutory audits of the financial statements of Allianz AG and its subsidiaries or services that are normally provided in connection with statutory and regulatory filings or engagements; (ii) Audit-Related Fees, which comprise fees billed for assurance and related services that are reasonably related to the performance of the audit or review of the financial statements and which are not reported under (i); (iii) Tax Fees, which comprise fees billed for professional services rendered for tax compliance,
tax advice and tax planning; and (iv) All Other Fees, which comprise fees billed for all other products and services provided other than the services reported under (i) through (iii).
Fees of KPMG worldwide
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Audit Fees KPMG billed the Allianz Group an aggregate of €60.1 million in 2005 and €38.6 million in 2004 in connection with professional services rendered for the audit of our annual consolidated financial statements and services normally provided by KPMG in connection with statutory and regulatory filings or engagements. These services consisted mainly of periodic review engagements and the annual audit.
Audit-Related Fees KPMG billed the Allianz Group an aggregate of €11.0 million in 2005 and €16.1 million in 2004 for assurance and related services. These services consisted primarily of advisory and consulting services related to accounting and financial reporting standards, financial due diligence services, and review procedures associated with SOX 404 implementation.
Tax Fees KPMG billed the Allianz Group an aggregate of €4.0 million in 2005 and €3.2 million in 2004 for professional services, primarily for tax advice and tax compliance.
All Other Fees KPMG billed the Allianz Group an aggregate of €12.1 million in 2005 and €12.1 million in 2004 for other services, which consisted primarily of general consulting services and other services such as assistance in documenting internal control policies and procedures under the guidance of Allianz Group management.
All services provided by KPMG to Allianz Group companies, other than audit services, must be pre-approved separately by the Audit Committee of the Allianz AG Supervisory Board. The Audit Committee pre-approval process is based on the use of a “Positive List” of activities decided by the Audit Committee and, in addition, a “Guiding Principles and User Test” is applied. All internal control-related services are specifically pre-approved by the Audit Committee. Group Compliance and KPMG report to the Audit Committee periodically with respect to services performed. In 2005, the percentage of the total amount of revenue we paid to our principal accountants represented by non-audit services subject to paragraph (c)(7)(1)(G) of Rule 2-01 of Regulation S-X was less than 5%.
ITEM 16D. Exemptions from the Listing Standards for Audit Committees
Our Audit Committee consists of three shareholder representatives and two employee representatives, one of whom is employed by the Allianz Group. With respect to the employee representative employed by the Allianz Group, Allianz AG relies on the exemption afforded by Rule 10A-3(b)(1)(iv)(C) under the Securities Exchange Act of 1934. We believe that such reliance does not materially adversely affect the ability of the Audit Committee to act independently or to satisfy the other requirements of Rule 10A-3.
ITEM 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The table below sets forth the information with respect to purchases made by or on behalf of AllianzAG or any “affiliated purchaser”, as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, of Allianz AG shares for the year ended December 31, 2005.
Period | Total Number of Shares Purchased(1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs | ||||||||
January | 1/1/05-1/31/05 | — | — | N/A | N/A | |||||||
February | 2/1/05-2/28/05 | — | — | |||||||||
March | 3/1/05-3/31/05 | — | — | |||||||||
April | 4/1/05-4/30/05 | — | — | |||||||||
May | 5/1/05-5/31/05 | |||||||||||
June | 6/1/05-6/30/05 | — | — | |||||||||
July | 7/1/05-7/31/05 | — | — | |||||||||
August | 8/1/05-8/31/05 | — | — | |||||||||
September | 9/1/05-9/30/05 | — | — | |||||||||
October | 10/1/05-10/31/05 | 18,221 | (2) | 118.26 | (2) | |||||||
November | 11/1/05-11/30/05 | 1,148,150 | (3) | 103.50 | (3) | |||||||
December | 12/1/05-12/31/05 | 199 | (4) | 125.55 | (4) | |||||||
Total | 1,166,570 | 103.73 |
PART III
Not applicable.
See pages F-1 forward for the consolidated financial statements required by this item.
The following exhibits are filed as part of this annual report:
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INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
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Report of Independent Registered Public Accounting Firm
To the Board of Management and Supervisory Board of Allianz Aktiengesellschaft:
We have audited the accompanying consolidated balance sheets of Allianz Aktiengesellschaft and subsidiaries (collectively, “the Allianz Group”) as of December 31, 2005 and 2004, and the related consolidated income statements, consolidated statements of changes in shareholders’ equity and consolidated cash flow statements for each of the years in the three-year period ended December 31, 2005. In connection with our audits of the consolidated financial statements we have also audited the accompanying financial statement schedules. These consolidated financial statements and financial statement schedules are the responsibility of Allianz Group’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Allianz Group as of December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2005, in conformity with International Financial Reporting Standards. Also in our opinion, the related financial statement schedules referred to above, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
As described in Note 3 to the financial statements, in connection with adoption of the new and revised International Financial Reporting Standards which became effective January 1, 2005, the Allianz Group has revised the 2004 financial statements to reflect retrospective application of select accounting principles.
International Financial Reporting Standards vary in certain significant respects from accounting principles generally accepted in the United States. Information relating to the nature and effect of such differences is presented in Note 47 to the consolidated financial statements.
KPMG Deutsche Treuhand-Gesellschaft
Aktiengesellschaft
Wirtschaftsprüfungsgesellschaft)
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting that occurred during fiscal year 2008, which have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.
ITEM 16A. | Audit Committee Financial Expert |
Our Supervisory Board has determined that Dr. Franz B. Humer, Dr. Wulf H. Bernotat and Igor Landau meet the criteria of an audit committee financial expert, as that term is defined in Item 16A(b) of Form 20-F. Dr. Franz B. Humer, Dr. Wulf H. Bernotat and Igor Landau are “independent” members of the Supervisory Board in accordance with NYSE listing standards applicable to Allianz SE.
ITEM 16B. | Code of Ethics |
In response to Section 406 of the Sarbanes-Oxley Act of 2002, we have adopted a specific Code of Ethics in addition to our general Code of Conduct that applies to all members of our Board of Management, including persons performing the functions of a principal executive officer, principal financial officer, principal accounting officer and controller and senior employees performing similar functions. A copy of this code of ethics is available on our Internet website www.allianz.com/corporate-governance. (Reference to this “uniform resource locator” or “URL” is made as an inactive textual reference for informational purposes only. The information found at this website is not incorporated by reference into this document). There have been no amendments or waivers to this code of ethics since its adoption. Information regarding any future amendments or waivers will be published on the aforementioned website.
ITEM 16C. | Principal Accountant Fees and Services |
KPMG AG Wirtschaftsprüfungsgesellschaft (or “KPMG AG”) serves as the external auditing firm for the Allianz Group.
The table set forth below contains aggregate fees billed for each of the last two fiscal years by KPMG AG or KPMG AG and the world wide member firms of KPMG International (or “KPMG”) in the following categories: (i) Audit fees, which comprise fees billed for services rendered for the audit of the Allianz Group’s consolidated financial statements, the statutory audits of the financial statements of Allianz SE and its subsidiaries or services the are normally provided in connection with statutory and regulatory filings or engagements; (ii) Audit-related fees, which comprise fees billed for assurance and related services that are reasonably related to the performance of the audit or review of the financial statements and which are not reported under (i); (iii) Tax fees, which comprise fees billed for professional services rendered for tax advice and tax compliance; and (iv) All other fees, which comprise fees billed for all other products and services provided other than the services reported under (i) through (iii).
Fees billed
KPMG worldwide | KPMG AG and affiliated entities(1) | |||||||
2008 | 2007 | 2008 | 2007 | |||||
€ mn | € mn | € mn | € mn | |||||
Audit fees | 50.5 | 49.0 | 27.6 | 27.7 | ||||
Audit-related fees | 6.1 | 9.8 | 4.4 | 8.6 | ||||
Tax fees | 3.3 | 4.2 | 2.0 | 2.8 | ||||
All other fees | 7.5 | 4.1 | 6.8 | 2.8 | ||||
Total | 67.4 | 67.1 | 40.8 | 42.0 | ||||
(1) | KPMG AG and affiliated entities comprises KPMG operations in Germany, the United Kingdom, Spain and Switzerland. Effective October 1, 2007, KPMG operations in Germany and the United Kingdom became affiliated entities; effective October 1, 2008 and retroactively effective October 1, 2007 operations in Spain and Switzerland joined. Fee amounts pertaining to the year 2007 have been adjusted accordingly. |
Audit fees
KPMG billed the Allianz Group an aggregate of €50.5 million (2007: €49.0 million) in connection with professional services rendered for the audit of our annual consolidated financial statements and services normally provided by KPMG in connection with statutory and regulatory filings or engagements. These services consisted mainly of periodic review engagements and the annual audit.
Audit-related fees
KPMG billed the Allianz Group an aggregate of €6.1 million (2007: €9.8 million) for assurance and related services. These services consisted primarily of advisory and consulting services related to accounting and financial reporting standards and financial due diligence services.
Tax fees
KPMG billed the Allianz Group an aggregate of €3.3 million (2007: €4.2 million) for professional services, primarily for tax advice.
All other fees
KPMG billed the Allianz Group an aggregate of €7.5 million (2007: €4.1 million) for other services, which consisted primarily of services under the guidance of Allianz Group management and general consulting services.
All services provided by KPMG to Allianz Group companies must be approved by the Audit Committee of the Allianz SE Supervisory Board. Services other than audit services must be pre-approved by the Audit Committee. The Audit Committee pre-approval process is based on the use of a “Positive List” of activities decided by the Audit Committee and, in addition, a “Guiding Principles and User Test” is applied. Group Compliance and KPMG report to the Audit Committee periodically with respect to services performed. In 2008, the percentage of the total amount of revenue we paid to our principal accountants represented by non-audit services subject to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X was less than 5%.
ITEM 16D. | Exemptions from the Listing Standards for Audit Committees |
Our Audit Committee consists of three shareholder representatives and two employee representatives, one of whom is employed by the Allianz Group. With respect to the employee representative employed by the Allianz Group, Allianz SE relies on the exemption afforded by Rule 10A-3(b)(1)(iv)(C) under the Securities Exchange Act of 1934. We believe that such reliance does not materially adversely affect the ability of the Audit Committee to act independently or to satisfy the other requirements of Rule 10A-3.
ITEM 16E. | Purchases of Equity Securities by the Issuer and Affiliated Purchasers |
The table below sets forth the information with respect to purchases made by or on behalf of Allianz SE or any “affiliated purchaser”, as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, of Allianz SE shares for the year ended December 31, 2008.
Period | Total Number of Shares Purchased(1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs | ||||||
January 1/1/08-1/31/08 | — | — | N/A | N/A | ||||||
February 2/1/08-2/28/08 | — | — | ||||||||
March 3/1/08-3/31/08 | — | — | ||||||||
April 4/1/08-4/30/08 | — | — | ||||||||
May 5/1/08-5/31/08 | — | — | ||||||||
June 6/1/08-6/30/08 | — | — | ||||||||
July 7/1/08-7/31/08 | — | — | ||||||||
August 8/1/08-8/31/08 | — | — | ||||||||
September 9/1/08-9/30/08 | — | — | ||||||||
October 10/1/08-10/31/08 | — | — | ||||||||
November 11/1/08-11/30/08 | 700,000 | (2) | 64,30 | (2) | ||||||
December 12/1/08-12/31/08 | — | — | ||||||||
Total | 700,000 | 64,30 | ||||||||
(1) | This table excludes market-making and related hedging purchases by Dresdner Bank and certain other Allianz Group entities. The table also excludes Allianz SE shares purchased by investment funds managed by Allianz Group entities for clients in accordance with investment strategies that are established by fund managers acting independently of Allianz SE. |
(2) | Allianz SE purchased these newly issued shares in connection with the Allianz Group’s Employee Stock Purchase Plan. |
ITEM 16G. | Disclosure about Differences in Corporate Governance Practices |
The following summarizes the significant differences between the corporate governance standards set forth by the New York Stock Exchange (NYSE) for U.S. companies listed on the NYSE and German and European corporate governance practices as Allianz SE has implemented them.
General
Allianz SE is a European Company, incorporated in the Federal Republic of Germany (“Germany”) and organized under the laws of Germany and the European Union. It has a dual board system, consisting of the Board of Management (Vorstand) and the Supervisory Board (Aufsichtsrat). The two boards are separate and no individual may serve simultaneously on both boards. The Board of Management is responsible for managing the day-to day business of the Company and the Supervisory Board advises and oversees the Board of Management. This dual board system of Allianz SE contrasts with the unitary board system of U.S. companies and therefore also with some of the corporate governance standards set forth by the NYSE, which refer to the unitary board of directors of U.S. companies.
German Corporate Governance Rules
The primary source for the corporate governance of German listed companies, such as Allianz SE, is the German Stock Corporation Act (Aktiengesetz), a Federal Act of Parliament which is in effect since 1965 and was amended several times. In addition, Allianz as a European Company is subject to specific provisions regarding the SE (such as the Council Regulation (EC) 2157/2001 (“SE-Regulation”), the German Act on the SE-Implementation (SE-Ausführungsgesetz, SEAG), the German Act on the SE-Employee Involvement (SE-Beteiligungsgesetz, SEBG) as well as the Agreement concerning the Participation of Employees in Allianz SE of September 20, 2006 (Vereinbarung über die Beteiligung der Arbeitnehmer in der Allianz SE)). Additional best practice rules are provided by the German Corporate Governance Code (the “Code”), that was enacted on February 26, 2002 by a Government Commission appointed by the German Justice Minister, and which is widely acknowledged by all German listed companies which are subject to it. The Code was amended several times and the current version is available in several languages on the internet at www.corporate-governance-code.de. It describes
essential statutory regulations for the management and supervision of German listed companies and contains standards for good and responsible governance. The Code aims at making the corporate governance practices of German listed companies more transparent and understandable and to promote the trust of international and national investors as well as the general public in the management and supervision of German listed companies. It contains requirements which are also covered by the German Stock Corporation Act and in addition addresses new corporate governance rules in terms of recommendations and suggestions.
The Code has an extensive area of application which covers substantially the same topics as the NYSE corporate governance rules. Main topics are the annual general meeting, the cooperation between the Board of Management and the Supervisory Board, special rules concerning tasks, responsibilities, composition and compensation of both boards as well as rules regarding conflicts of interest of board members. With respect to the Supervisory Board, the Code also establishes certain rules regarding the composition of board committees, in particular the audit committee. Another important area covered by the Code is the audit of the Annual Financial Statements and related reporting requirements.
In consideration of the extensive area of corporate governance which is covered by the Code, Allianz SE is broadly regulated in the area of corporate governance. To ensure that German listed companies comply with the Code to the broadest extent, the Code is linked with the German Stock Corporation Act. Pursuant to Section 161 of the German Stock Corporation Act, German listed Companies have to declare annually their compliance with the recommendations contained in the Code or to disclose any exception. This declaration is to be made permanently available for all investors. Thus, the Code has a legal basis and each German listed company’s compliance with the Code is transparent for all investors. Allianz SE´s declaration of compliance is available at our website www.allianz.com/corporate-covernance. (Reference to this “uniform resource locator” or “URL” is made as an inactive textual reference for informational purposes only. The information found at this website is not incorporated by reference into this document).
Independence Requirements
NYSE corporate governance standards contain specific independence requirements for members of the board of directors and certain committees. These requirements are, in part, a consequence of the potential risks which result from the composition of the board of directors as the single executive body of U.S. companies. Therefore, they may only apply in a limited way to Supervisory Boards of German stock corporations, because the dual board system and the consequential task sharing between the Board of Management as decision-making body and the Supervisory Board as advisory and supervisory body, creates a unique system of “checks and balances” which are not directly comparable with a unified board system.
The Supervisory Board of German stock corporations is a separate board beside the Board of Management and no person may concurrently serve on the Board of Management and the Supervisory Board of the same company. Consequently, the Supervisory Board members are not involved in the day-to-day business decisions, which are taken by the Board of Management. This assures a certain degree of independence of Supervisory Board members from the management of the company. In addition, the Code recommends that proposals for the election of Supervisory Board members ensure that, at any time, the Supervisory Board as a whole is composed of members who are “sufficiently independent”. Furthermore, German law and the Code establish a number of principles that are designed to strengthen the independence of board members and to avoid conflicts of interests. For example, the Code recommends that not more than two former members of the Board of Management shall be members of the Supervisory Board, that Supervisory Board members shall not exercise directorships or similar positions or advisory tasks for important competitors of the company and that candidates for the election for the Supervisory Board shall be-among others-sufficiently independent. Additionally, the Code contains special recommendations with respect to the handling of conflicts of interest. Allianz SE complies with all of these recommendations.
Committees
The Supervisory Board of Allianz SE has-among others-established an audit committee, a personnel committee and a nominating committee. These committees are comparable to the audit committee, the compensation committee and the nominating/corporate governance committee as required by the NYSE corporate governance standards. Differing from the NYSE corporate governance standards, Allianz SE’s committees do not consist solely of independent directors, which is a consequence of the fact that employee representatives are members of the Supervisory Board. German companies were granted an exemption by the SEC from the independence requirements for audit committee members as established by the SEC pursuant to section 301 of the Sarbanes-Oxley Act of 2002. Furthermore, former members of the Board of Management may serve on the Supervisory Board of the company as well as on Supervisory Board committees without passing through a “black out period” as required to some extent by the NYSE rules. However, the Code requires that the chairman of the audit committee should not be a former member of the Board of Management of the company. Allianz SE complies with this requirement.
Allianz SE’s audit committee was created in accordance with the audit committee rules established by the German Corporate Governance Code, which contains to some extent similar topics as the respective NYSE standards. Allianz SE’s audit
committee has a written charter which addresses the goals and purposes required by the Code. These are similar to the NYSE requirements. According to German Law, the Supervisory Board of German insurance companies is responsible for electing and dismissing the auditor. In preparing this decision, a proposal is submitted to it by the audit committee. The audit committee, in turn, is responsible for engaging the auditor, setting the terms of the engagement and reviewing reports by the auditor according to IFRS rules and regulations.
Disclosure of Corporate Governance Guidelines
Allianz SE discloses a substantial amount of information with respect to its corporate governance on its website. In particular, information about the German Corporate Governance Code, Allianz SE’s current declaration of compliance with the Code, the composition of the Supervisory Board and the Board of Management of Allianz SE, the functions of both boards, the curriculum vitae of the board members, information with respect to the general meeting, the statutes of Allianz SE and information about Allianz SE’s external auditor and director’s dealings, are disclosed at our website www.allianz.com/corporate- covernance. (Reference to this “uniform resource locator” or “URL” is made as an inactive textual reference for informational purposes only. The information found at this website is not incorporated by reference into this document).
PART III
ITEM 17. | Financial Statements |
Not applicable.
ITEM 18. | Financial Statements |
Refer to page F-1 forward for the consolidated financial statements required by this item.
ITEM 19. | Exhibits |
The following exhibits are filed as part of this annual report:
Exhibit | Document | |
1.1 | Statutes of Allianz SE, dated November 2008 | |
4.1 | Transaction Agreement between Allianz SE and Commerzbank Aktiengesellschaft dated August 31, 2008 (Convenience English Translation) | |
4.2 | New Version of Transaction Agreement between Allianz SE and Commerzbank Aktiengesellschaft dated November 27, 2008 (Convenience English Translation) | |
7.1 | Statement regarding ratio of earnings to fixed charges | |
8.1 | List of subsidiaries | |
12.1 | Certification of the Chief Executive Officer required by Section 302 of the Sarbanes-Oxley Act of 2002 | |
12.2 | Certification of the Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act of 2002 | |
13.1 | Certification of the Chief Executive Officer required by Section 906 of the Sarbanes-Oxley Act of 2002 | |
13.2 | Certification of the Chief Financial Officer required by Section 906 of the Sarbanes-Oxley Act of 2002 | |
14.1 | Consent of KPMG Deutsche Treuhand-Gesellschaft AG Wirtschaftsprufungsgesellschaft |
Consolidated Financial Statements | ||||||
F-1 | ||||||
F-2 | ||||||
F-3 | ||||||
F-4 | ||||||
Notes to the Consolidated Financial Statements | ||||||
1 | F-7 | |||||
2 | F-7 | |||||
3 | F-27 | |||||
4 | Assets and liabilities of disposal groups classified as held-for-sale and discontinued operations | F-38 | ||||
5 | F-41 | |||||
6 | F-48 | |||||
Supplementary Information to the Consolidated Balance Sheets | ||||||
7 | F-65 | |||||
8 | F-65 | |||||
9 | F-65 | |||||
10 | F-70 | |||||
11 | F-73 | |||||
12 | F-74 | |||||
13 | F-75 | |||||
14 | Non-current assets and assets and liabilities of disposal groups classified as held-for-sale | F-76 | ||||
15 | F-76 | |||||
16 | F-80 | |||||
17 | F-80 | |||||
18 | F-81 | |||||
19 | F-81 | |||||
20 | F-83 | |||||
21 | F-87 | |||||
22 | F-91 | |||||
23 | F-92 | |||||
24 | F-93 | |||||
25 | F-94 | |||||
Supplementary Information to the Consolidated Income Statements | ||||||
26 | F-97 | |||||
27 | F-98 | |||||
28 | Income from financial assets and liabilities carried at fair value through income (net) | F-99 | ||||
29 | F-100 | |||||
30 | F-101 | |||||
31 | F-101 | |||||
32 | Income and expenses from fully consolidated private equity investments | F-102 | ||||
33 | F-103 | |||||
34 | Change in reserves for insurance and investment contracts (net) | F-104 | ||||
35 | F-105 | |||||
36 | F-105 | |||||
37 | F-105 | |||||
38 | F-105 | |||||
39 | F-106 | |||||
40 | F-107 | |||||
41 | F-107 | |||||
42 | F-107 |
Other Information | ||||||
43 | F-110 | |||||
44 | F-114 | |||||
45 | F-117 | |||||
46 | Contingent liabilities, commitments, guarantees, and assets pledged and collateral | F-117 | ||||
47 | F-122 | |||||
48 | F-124 | |||||
49 | F-130 | |||||
50 | F-134 | |||||
51 | F-135 | |||||
52 | F-136 | |||||
53 | F-137 | |||||
G-1 |
Report of Independent Registered Public Accounting Firm
To the Board of Management and Supervisory Board
of Allianz SE:
We have audited the accompanying consolidated balance sheets of Allianz SE and subsidiaries (collectively, “the Allianz Group”) as of December 31, 2008 and 2007, and the related consolidated income statements, consolidated statements of changes in equity and consolidated statements of cash flows for each of the years in the three-year period ended December 31, 2008 including the disclosures provided in the Qualitative and Quantitative Disclosures about Market Risk on pages 153 to 175. In connection with our audits of the consolidated financial statements we have also audited the accompanying financial statement schedules I to IV. These consolidated financial statements and financial statement schedules are the responsibility of the Allianz Group’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Allianz Group as of December 31, 2008 and 2007, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2008, in conformity with International Financial Reporting Standards, as issued by the IASB and as adopted by the EU. Also in our opinion, the related financial statement schedules referred to above, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Allianz Group’s internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 31, 2009, expressed an unqualified opinion on the effectiveness of the Allianz Group’s internal control over financial reporting.
March 31, 2009
KPMG AG
Wirtschaftsprüfungsgesellschaft
Munich, Germany
April 6, 2006(formerly
KPMG Deutsche Treuhand-Gesellschaft
Aktiengesellschaft
Wirtschaftsprüfungsgesellschaft)
Consolidated Balance Sheets
as of December 31, 2005 and 2004
2005 | 2004 | |||||
Note | € mn | € mn | ||||
ASSETS | ||||||
Intangible assets | 6 | 15,385 | 15,147 | |||
Investments in associated enterprises and joint ventures | 7 | 2,095 | 5,757 | |||
Investments(1) | 8 | 282,920 | 248,327 | |||
Loans and advances to banks | 9 | 151,384 | 181,543 | |||
Loans and advances to customers | 9 | 185,424 | 195,680 | |||
Financial assets carried at fair value through income(2) | 10 | 235,007 | 240,574 | |||
Cash and cash equivalents | 11 | 31,647 | 15,628 | |||
Amounts ceded to reinsurers from reserves for insurance and investment contracts | 12 | 22,120 | 22,310 | |||
Deferred tax assets | 37 | 14,596 | 14,139 | |||
Other assets | 13 | 57,303 | 51,213 | |||
Total assets | 997,881 | 990,318 | ||||
2005 | 2004 | |||||
Note | € mn | € mn | ||||
SHAREHOLDERS’ EQUITY AND LIABILITIES | ||||||
Shareholders’ equity before minority interests | 39,487 | 29,995 | ||||
Minority interests in shareholders’ equity | 7,615 | 7,696 | ||||
Shareholders’ equity | 14 | 47,102 | 37,691 | |||
Participation certificates and subordinated liabilities | 15 | 14,684 | 13,230 | |||
Reserves for insurance and investment contracts | 16 | 359,137 | 326,380 | |||
Liabilities to banks | 17 | 151,957 | 191,347 | |||
Liabilities to customers | 18 | 158,359 | 157,137 | |||
Certificated liabilities | 19 | 59,203 | 57,752 | |||
Financial liabilities carried at fair value through income | 20 | 144,640 | 145,137 | |||
Other accrued liabilities | 21 | 14,302 | 13,984 | |||
Other liabilities | 22 | 31,383 | 31,271 | |||
Deferred tax liabilities | 37 | 14,621 | 14,350 | |||
Deferred income | 23 | 2,493 | 2,039 | |||
Total shareholders’ equity and liabilities | 997,881 | 990,318 | ||||
As of December 31, | 2008 | 2007 | ||||
Note | € mn | € mn | ||||
ASSETS | ||||||
Cash and cash equivalents | 7 | 8,958 | 31,337 | |||
Financial assets carried at fair value through income1) | 8 | 14,240 | 185,461 | |||
Investments2) | 9 | 260,147 | 286,952 | |||
Loans and advances to banks and customers | 10 | 115,655 | 396,702 | |||
Financial assets for unit-linked contracts | 50,450 | 66,060 | ||||
Reinsurance assets | 11 | 14,599 | 15,312 | |||
Deferred acquisition costs | 12 | 22,563 | 19,613 | |||
Deferred tax assets | 42 | 3,996 | 4,771 | |||
Other assets | 13 | 34,004 | 38,025 | |||
Non-current assets and assets of disposal groups classified as held-for-sale | 4, 14 | 419,513 | 3,503 | |||
Intangible assets | 15 | 11,451 | 13,413 | |||
Total assets | 955,576 | 1,061,149 | ||||
As of December 31, | 2008 | 2007 | ||||
Note | € mn | € mn | ||||
LIABILITIES AND EQUITY | ||||||
Financial liabilities carried at fair value through income | 16 | 6,244 | 126,053 | |||
Liabilities to banks and customers | 17 | 18,451 | 336,494 | |||
Unearned premiums | 18 | 15,233 | 15,020 | |||
Reserves for loss and loss adjustment expenses | 19 | 63,924 | 63,706 | |||
Reserves for insurance and investment contracts | 20 | 296,557 | 292,244 | |||
Financial liabilities for unit-linked contracts | 21 | 50,450 | 66,060 | |||
Deferred tax liabilities | 42 | 3,833 | 3,973 | |||
Other liabilities | 22 | 32,930 | 48,031 | |||
Liabilities of disposal groups classified as held-for-sale | 4, 14 | 411,816 | 1,293 | |||
Certificated liabilities | 23 | 9,544 | 42,070 | |||
Participation certificates and subordinated liabilities | 24 | 9,346 | 14,824 | |||
Total liabilities | 918,328 | 1,009,768 | ||||
Shareholders’ equity | 33,684 | 47,753 | ||||
Minority interests | 3,564 | 3,628 | ||||
Total equity | 25 | 37,248 | 51,381 | |||
Total liabilities and equity | 955,576 | 1,061,149 | ||||
| As of |
| As of |
Consolidated Income Statements
for the Years ended December 31, 2005, 2004 and 2003
2005 | 2004 | 2003 | 2008 | 2007 | 2006 | |||||||||||||||||
Note | € mn | € mn | € mn | Note | € mn | € mn | € mn | |||||||||||||||
Premiums written | 66,171 | 65,788 | 65,275 | |||||||||||||||||||
Ceded premiums written | (5,474 | ) | (5,934 | ) | (6,218 | ) | ||||||||||||||||
Change in unearned premiums | (253 | ) | (492 | ) | (533 | ) | ||||||||||||||||
Premiums earned (net) | 24 | 57,747 | 56,789 | 55,978 | 26 | 60,444 | 59,362 | 58,524 | ||||||||||||||
Interest and similar income | 25 | 22,341 | 20,956 | 22,510 | 27 | 19,072 | 18,624 | 17,430 | ||||||||||||||
Income from investments in associated enterprises and joint ventures (net) | 26 | 1,257 | 777 | 3,014 | ||||||||||||||||||
Other income from investments | 27 | 4,710 | 5,179 | 10,490 | ||||||||||||||||||
Income from financial assets and liabilities carried at fair value through income (net) | 28 | 1,159 | 1,658 | 519 | 28 | (686 | ) | (817 | ) | (370 | ) | |||||||||||
Fee and commission income, and income from service activities | 29 | 8,310 | 6,823 | 6,060 | ||||||||||||||||||
Realized gains/losses (net) | 29 | 3,603 | 6,008 | 5,921 | ||||||||||||||||||
Fee and commission income | 30 | 6,032 | 6,553 | 6,025 | ||||||||||||||||||
Other income | 30 | 2,182 | 2,533 | 3,803 | 31 | 408 | 217 | 61 | ||||||||||||||
Income from fully consolidated private equity investments | 32 | 2,549 | 2,367 | 1,392 | ||||||||||||||||||
Total income | 97,706 | 94,715 | 102,374 | 91,422 | 92,314 | 88,983 | ||||||||||||||||
Insurance and investment contract benefits (net) | 31 | (53,797 | ) | (52,255 | ) | (52,240 | ) | |||||||||||||||
Interest and similar expenses | 32 | (6,370 | ) | (5,703 | ) | (6,871 | ) | |||||||||||||||
Other expenses from investments | 33 | (1,679 | ) | (2,672 | ) | (7,452 | ) | |||||||||||||||
Claims and insurance benefits incurred (gross) | (48,287 | ) | (46,409 | ) | (45,523 | ) | ||||||||||||||||
Claims and insurance benefits incurred (ceded) | 2,628 | 3,287 | 3,226 | |||||||||||||||||||
Claims and insurance benefits incurred (net) | 33 | (45,659 | ) | (43,122 | ) | (42,297 | ) | |||||||||||||||
Change in reserves for insurance and investment contracts (net) | 34 | (5,140 | ) | (10,685 | ) | (11,375 | ) | |||||||||||||||
Interest expenses | 35 | (1,893 | ) | (2,070 | ) | (1,633 | ) | |||||||||||||||
Loan loss provisions | 34 | 109 | (354 | ) | (1,027 | ) | 36 | (59 | ) | (18 | ) | (5 | ) | |||||||||
Acquisition costs and administrative expenses | 35 | (24,447 | ) | (23,380 | ) | (22,917 | ) | |||||||||||||||
Amortization of goodwill | 6 | — | (1,164 | ) | (1,413 | ) | ||||||||||||||||
Impairments of investments (net) | 37 | (9,495 | ) | (1,185 | ) | (560 | ) | |||||||||||||||
Investment expenses | 38 | (645 | ) | (1,037 | ) | (1,055 | ) | |||||||||||||||
Acquisition and administrative expenses (net) | 39 | (17,922 | ) | (18,788 | ) | (18,468 | ) | |||||||||||||||
Fee and commission expenses | 40 | (2,502 | ) | (2,313 | ) | (2,040 | ) | |||||||||||||||
Amortization of intangible assets | (23 | ) | (17 | ) | (51 | ) | ||||||||||||||||
Restructuring charges | (129 | ) | (182 | ) | (542 | ) | ||||||||||||||||
Other expenses | 36 | (3,642 | ) | (4,091 | ) | (6,588 | ) | 41 | (12 | ) | (17 | ) | (13 | ) | ||||||||
Expenses from fully consolidated private equity investments | 32 | (2,470 | ) | (2,317 | ) | (1,381 | ) | |||||||||||||||
Total expenses | (89,826 | ) | (89,619 | ) | (98,508 | ) | (85,949 | ) | (81,751 | ) | (79,420 | ) | ||||||||||
Earnings from ordinary activities before taxes | 7,880 | 5,096 | 3,866 | |||||||||||||||||||
Taxes | 37 | (2,114 | ) | (1,662 | ) | (249 | ) | |||||||||||||||
Income from continuing operations before income taxes and minority interests in earnings | 5,473 | 10,563 | 9,563 | |||||||||||||||||||
Income taxes | 42 | (1,287 | ) | (2,572 | ) | (1,720 | ) | |||||||||||||||
Minority interests in earnings | 14 | (1,386 | ) | (1,168 | ) | (926 | ) | (219 | ) | (675 | ) | (1,203 | ) | |||||||||
Net income | 4,380 | 2,266 | 2,691 | |||||||||||||||||||
Net income from continuing operations | 3,967 | 7,316 | 6,640 | |||||||||||||||||||
Net income (loss) from discontinued operations, net of income taxes and minority interests in earnings | 4 | (6,411 | ) | 650 | 381 | |||||||||||||||||
Net income (loss) | (2,444 | ) | 7,966 | 7,021 | ||||||||||||||||||
€ | € | € | € | € | € | |||||||||||||||||
Basic earnings per share | 44 | 11.24 | 6.19 | 7.96 | 50 | (5.43 | ) | 18.00 | 17.09 | |||||||||||||
from continuing operations | 8.81 | 16.53 | 16.16 | |||||||||||||||||||
from discontinued operations | (14.24 | ) | 1.47 | 0.93 | ||||||||||||||||||
Diluted earnings per share | 44 | 11.14 | 6.16 | 7.93 | 50 | (5.47 | ) | 17.71 | 16.78 | |||||||||||||
from continuing operations | 8.59 | 16.26 | 15.87 | |||||||||||||||||||
from discontinued operations | (14.06 | ) | 1.45 | 0.91 |
Consolidated Statements of Changes in Shareholders’ Equity
Paid-in capital | Revenue reserves | Foreign currency translation adjustments | Unrealized gains and losses (net) | Share-holders’ equity | Minority interests | Total equity | ||||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | € mn | ||||||||||||||
Balance as of January 1, 2006 | 21,616 | 8,020 | (1,032 | ) | 10,052 | 38,656 | 8,386 | 47,042 | ||||||||||||
Foreign currency translation adjustments | — | — | (1,175 | ) | (4 | ) | (1,179 | ) | (276 | ) | (1,455 | ) | ||||||||
Available-for-sale investments | ||||||||||||||||||||
Unrealized gains and losses (net) arising during the year1) | — | — | — | 4,731 | 4,731 | 20 | 4,751 | |||||||||||||
Transferred to net income on disposal or impairment2) | — | — | — | (1,744 | ) | (1,744 | ) | (146 | ) | (1,890 | ) | |||||||||
Cash flow hedges | — | — | — | 1 | 1 | — | 1 | |||||||||||||
Miscellaneous | — | 246 | — | — | 246 | 111 | 357 | |||||||||||||
Total income and expense recognized directly in shareholders’ equity | — | 246 | (1,175 | ) | 2,984 | 2,055 | (291 | ) | 1,764 | |||||||||||
Net income | — | 7,021 | — | — | 7,021 | 1,289 | 8,310 | |||||||||||||
Total recognized income and expense for the year | — | 7,267 | (1,175 | ) | 2,984 | 9,076 | 998 | 10,074 | ||||||||||||
Paid-in capital | 129 | — | — | — | 129 | — | 129 | |||||||||||||
Treasury shares | — | 910 | — | — | 910 | — | 910 | |||||||||||||
Transactions between equity holders | 3,653 | (2,316 | ) | (3 | ) | 356 | 1,690 | (1,552 | ) | 138 | ||||||||||
Dividends paid | — | (811 | ) | — | — | (811 | ) | (652 | ) | (1,463 | ) | |||||||||
Balance as of December 31, 2006 | 25,398 | 13,070 | (2,210 | ) | 13,392 | 49,650 | 7,180 | 56,830 | ||||||||||||
Foreign currency translation adjustments | — | — | (1,378 | ) | (2 | ) | (1,380 | ) | (214 | ) | (1,594 | ) | ||||||||
Available-for-sale investments | ||||||||||||||||||||
Unrealized gains and losses (net) arising during the year1) | — | — | — | (1,123 | ) | (1,123 | ) | (41 | ) | (1,164 | ) | |||||||||
Transferred to net income on disposal or impairment2) | — | — | — | (2,484 | ) | (2,484 | ) | (101 | ) | (2,585 | ) | |||||||||
Cash flow hedges | — | — | — | 35 | 35 | — | 35 | |||||||||||||
Miscellaneous | — | (77 | ) | — | — | (77 | ) | 116 | 39 | |||||||||||
Total income and expense recognized directly in shareholders’ equity | — | (77 | ) | (1,378 | ) | (3,574 | ) | (5,029 | ) | (240 | ) | (5,269 | ) | |||||||
Net income | — | 7,966 | — | — | 7,966 | 748 | 8,714 | |||||||||||||
Total recognized income and expense for the year | — | 7,889 | (1,378 | ) | (3,574 | ) | 2,937 | 508 | 3,445 | |||||||||||
Paid-in capital | 158 | — | — | — | 158 | — | 158 | |||||||||||||
Treasury shares | — | 269 | — | — | 269 | — | 269 | |||||||||||||
Transactions between equity holders | 2,765 | (6,968 | ) | (68 | ) | 652 | (3,619 | ) | (3,707 | ) | (7,326 | ) | ||||||||
Dividends paid | — | (1,642 | ) | — | — | (1,642 | ) | (353 | ) | (1,995 | ) | |||||||||
Balance as of December 31, 2007 | 28,321 | 12,618 | (3,656 | ) | 10,470 | 47,753 | 3,628 | 51,381 | ||||||||||||
Foreign currency translation adjustments | — | — | (340 | ) | (48 | ) | (388 | ) | 71 | (317 | ) | |||||||||
Available-for-sale investments | ||||||||||||||||||||
Unrealized gains and losses (net) arising during the year1) | — | — | — | (9,170 | ) | (9,170 | ) | (78 | ) | (9,248 | ) | |||||||||
Transferred to net income on disposal or impairment2) | — | — | — | 697 | 697 | 34 | 731 | |||||||||||||
Cash flow hedges | — | — | — | 30 | 30 | — | 30 | |||||||||||||
Miscellaneous | — | (65 | ) | — | — | (65 | ) | 74 | 9 | |||||||||||
Total income and expense recognized directly in shareholders’ equity | — | (65 | ) | (340 | ) | (8,491 | ) | (8,896 | ) | 101 | (8,795 | ) | ||||||||
Net loss | — | (2,444 | ) | — | — | (2,444 | ) | 258 | (2,186 | ) | ||||||||||
Total recognized income and expense for the year | — | (2,509 | ) | (340 | ) | (8,491 | ) | (11,340 | ) | 359 | (10,981 | ) | ||||||||
Paid-in capital | 248 | — | — | — | 248 | — | 248 | |||||||||||||
Treasury shares | — | 25 | — | — | 25 | — | 25 | |||||||||||||
Transactions between equity holders | — | (552 | ) | (10 | ) | 32 | (530 | ) | (136 | ) | (666 | ) | ||||||||
Dividends paid | — | (2,472 | ) | — | — | (2,472 | ) | (287 | ) | (2,759 | ) | |||||||||
Balance as of December 31, 2008 | 28,569 | 7,110 | (4,006 | ) | 2,011 | 33,684 | 3,564 | 37,248 | ||||||||||||
1) | During the year ended December 31, 2008 unrealized gains and losses (net) arising during the year included in shareholders’ equity are net of deferred tax benefit of €1,690 mn (2007: €720 mn; 2006: €478 mn). |
2) | During the year ended December 31, 2008, realized gains/losses (net) transferred to net income on disposal or impairment are net of income tax benefit of €755 mn (2007: income tax charge of €206 mn; 2006: income tax charge of €308 mn). |
Consolidated Statements of Cash Flows
2008 | 2007 | 2006 | |||||||
€ mn | € mn | € mn | |||||||
Summary: | |||||||||
Net cash flow provided by operating activities | 25,278 | 11,524 | 20,099 | ||||||
Net cash flow used in investing activities | (6,236 | ) | (2,357 | ) | (33,951 | ) | |||
Net cash flow provided by (used in) financing activities | (11,285 | ) | (10,746 | ) | 15,314 | ||||
Effect of exchange rate changes on cash and cash equivalents | 102 | (115 | ) | (78 | ) | ||||
Change in cash and cash equivalents | 7,859 | (1,694 | ) | 1,384 | |||||
Cash and cash equivalents at beginning of period | 31,337 | 33,031 | 31,647 | ||||||
Cash and cash equivalents at end of period | 39,196 | 31,337 | 33,031 | ||||||
Cash and cash equivalents reclassified to assets of disposal groups held-for-sale | 30,238 | — | — | ||||||
Cash and cash equivalents at end of period of continuing operations | 8,958 | 31,337 | 33,031 | ||||||
Cash flow from operating activities: | |||||||||
Net income (loss) | (2,444 | ) | 7,966 | 7,021 | |||||
Adjustments to reconcile net income (loss) to net cash flow provided by operating activities | |||||||||
Minority interests in earnings | 262 | 748 | 1,289 | ||||||
Share of earnings from investments in associates and joint ventures | (12 | ) | (521 | ) | (287 | ) | |||
Realized gains/losses (net) and impairments of investments (net) of: | |||||||||
Impairment loss recognized on remeasurement of assets of disposal group to fair value less costs to sell as of September 30, 2008 | 1,409 | — | — | ||||||
Available-for-sale and held-to-maturity investments, investments in associates and joint ventures, real estate held for investment, loans to banks and customers | 5,710 | (5,276 | ) | (5,376 | ) | ||||
Other investments, mainly financial assets held for trading and designated at fair value through income | 3,497 | 681 | (938 | ) | |||||
Result of transaction of Dresdner Bank between September 30 and December 31, 2008 | 2,928 | — | — | ||||||
Depreciation and amortization | 640 | 891 | 983 | ||||||
Loan loss provisions | 385 | (113 | ) | 36 | |||||
Interest credited to policyholder accounts | 4,008 | 3,225 | 3,126 | ||||||
Net change in: | |||||||||
Financial assets and liabilities held for trading | 6,443 | 18,948 | 19,265 | ||||||
Reverse repurchase agreements and collateral paid for securities borrowing transactions | 32,463 | 30,215 | (27,294 | ) | |||||
Repurchase agreements and collateral received from securities lending transactions | (30,763 | ) | (48,143 | ) | 14,188 | ||||
Reinsurance assets | 818 | 716 | 663 | ||||||
Deferred acquisition costs | (1,353 | ) | (932 | ) | (1,434 | ) | |||
Unearned premiums | 345 | 341 | 593 | ||||||
Reserves for losses and loss adjustment expenses | 527 | (389 | ) | (188 | ) | ||||
Reserves for insurance and investment contracts | 390 | 6,675 | 7,025 | ||||||
Deferred tax assets/liabilities | 351 | 55 | 292 | ||||||
Financial assets designated at fair value through income (only banking segment) | 3,204 | (2,286 | ) | (915 | ) | ||||
Financial liabilities designated at fair value through income (only banking segment) | 2,925 | 1,104 | 333 | ||||||
Other (net) | (6,455 | ) | (2,381 | ) | 1,717 | ||||
Subtotal | 27,722 | 3,558 | 13,078 | ||||||
Net cash flow provided by operating activities | 25,278 | 11,524 | 20,099 | ||||||
Allianz Group
Consolidated Statements of Cash Flows—(Continued)
2008 | 2007 | 2006 | |||||||
€ mn | € mn | € mn | |||||||
Cash flow from investing activities: | |||||||||
Proceeds from the sale, maturity or repayment of: | |||||||||
Financial assets designated at fair value through income | 4,105 | 5,678 | 5,001 | ||||||
Available-for-sale investments | 106,665 | 130,421 | 118,747 | ||||||
Held-to-maturity investments | 497 | 317 | 336 | ||||||
Investments in associates and joint ventures | 1,285 | 1,902 | 730 | ||||||
Non-current assets and assets of disposal groups classified as held-for-sale | 2,199 | 4 | 2,253 | ||||||
Real estate held for investment | 491 | 889 | 1,376 | ||||||
Loans and advances to banks and customers (purchased loans) | 8,557 | 8,689 | 8,365 | ||||||
Property and equipment | 431 | 607 | 453 | ||||||
Subtotal | 124,230 | 148,507 | 137,261 | ||||||
Payments for the purchase or origination of: | |||||||||
Financial assets designated at fair value through income | (4,107 | ) | (6,393 | ) | (6,559 | ) | |||
Available-for-sale investments | (114,041 | ) | (129,060 | ) | (131,290 | ) | |||
Held-to-maturity investments | (720 | ) | (301 | ) | (280 | ) | |||
Investments in associates and joint ventures | (610 | ) | (1,509 | ) | (491 | ) | |||
Non-current assets and assets of disposal groups classified as held-for-sale | (97 | ) | (1,073 | ) | — | ||||
Real estate held for investment | (395 | ) | (430 | ) | (860 | ) | |||
Loans and advances to banks and customers (purchased loans) | (9,631 | ) | (12,286 | ) | (10,598 | ) | |||
Property and equipment | (953 | ) | (832 | ) | (1,588 | ) | |||
Subtotal | (130,554 | ) | (151,884 | ) | (151,666 | ) | |||
Business combinations (Note 5): | |||||||||
Proceeds from sale, net of cash disposed | 103 | 372 | — | ||||||
Acquisition, net of cash acquired | (152 | ) | (670 | ) | (344 | ) | |||
Net cash flows arising during the fourth quarter from assets and liabilities of disposal groups classified as held-for-sale | 9,327 | — | — | ||||||
Change in other loans and advances to banks and customers (originated loans) | (8,673 | ) | 43 | (19,224 | ) | ||||
Other (net) | (517 | ) | 1,275 | 22 | |||||
Net cash flow used in investing activities | (6,236 | ) | (2,357 | ) | (33,951 | ) | |||
Cash flow from financing activities: | |||||||||
Policyholders’ account deposits | 13,205 | 12,810 | 13,234 | ||||||
Policyholders’ account withdrawals | (10,985 | ) | (9,365 | ) | (8,432 | ) | |||
Net change in liabilities to banks and customers | (4,920 | ) | 9,007 | 13,524 | |||||
Proceeds from the issuance of certificated liabilities, participation certificates and subordinated liabilities | 40,672 | 58,087 | 103,096 | ||||||
Repayments of certificated liabilities, participation certificates and subordinated liabilities | (45,868 | ) | (71,627 | ) | (103,946 | ) | |||
Cash inflow from capital increases | 239 | 115 | 98 | ||||||
Transactions between equity holders | (666 | ) | (7,326 | ) | (70 | ) | |||
Dividends paid to shareholders | (2,759 | ) | (1,995 | ) | (1,463 | ) | |||
Net cash from sale or purchase of treasury shares | 40 | (34 | ) | (458 | ) | ||||
Other (net) | (243 | ) | (418 | ) | (269 | ) | |||
Net cash flow provided by (used in) financing activities | (11,285 | ) | (10,746 | ) | 15,314 | ||||
The net cash flows provided by (used in) discontinued operations for the Yearsfirst nine months of 2008 contribute to the net cash flows of the operating, investing, and financing activities. Only the net cash flows of discontinued operations of the fourth quarter 2008 are shown on a net basis in one single line within the investing activities.
Allianz Group
Consolidated Statements of Cash Flows—(Continued)
The following table shows the net cash flows provided by (used in) discontinued operations for the year ended December 31, 2005, 20042008, 2007 and 20032006 that are included in the consolidated statement of cash flows above.
Paid-in capital | Revenue reserves | Foreign currency translation adjustments | Unrealized gains and losses (net) | Shareholders’ equity before minority interests | Minority interests in shareholders’ equity | Shareholders’ equity | ||||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | € mn | ||||||||||||||
Balance as of 12/31/2002, as previously reported | 14,785 | 5,914 | (342 | ) | 1,317 | 21,674 | 8,314 | 29,988 | ||||||||||||
Effect of implementation of new accounting standards (Note 3) | — | (3,306 | ) | 27 | 2,651 | (628 | ) | (349 | ) | (977 | ) | |||||||||
Balance as of 12/31/2002 | 14,785 | 2,608 | (315 | ) | 3,968 | 21,046 | 7,965 | 29,011 | ||||||||||||
Foreign currency translation adjustments | — | — | (1,578 | ) | (125 | ) | (1,703 | ) | (25 | ) | (1,728 | ) | ||||||||
Changes in the consolidated subsidiaries of the Allianz Group | — | (1,117 | ) | — | 876 | (241 | ) | — | (241 | ) | ||||||||||
Capital paid in | 4,562 | — | — | — | 4,562 | — | 4,562 | |||||||||||||
Treasury shares | — | 1,413 | — | — | 1,413 | — | 1,413 | |||||||||||||
Unrealized gains and losses (net) | — | — | — | 1,727 | 1,727 | 623 | 2,350 | |||||||||||||
Net income | — | 2,691 | — | — | 2,691 | 926 | 3,617 | |||||||||||||
Dividends paid | — | (374 | ) | — | — | (374 | ) | (302 | ) | (676 | ) | |||||||||
Miscellaneous | — | (1,128 | ) | — | — | (1,128 | ) | (1,921 | ) | (3,049 | ) | |||||||||
Balance as of 12/31/2003 | 19,347 | 4,093 | (1,893 | ) | 6,446 | 27,993 | 7,266 | 35,259 | ||||||||||||
Foreign currency translation adjustments | — | — | (805 | ) | (12 | ) | (817 | ) | (2 | ) | (819 | ) | ||||||||
Changes in the consolidated subsidiaries of the Allianz Group | — | (73 | ) | 64 | (27 | ) | (36 | ) | — | (36 | ) | |||||||||
Capital paid in | 86 | — | — | — | 86 | — | 86 | |||||||||||||
Treasury shares | — | (59 | ) | — | — | (59 | ) | — | (59 | ) | ||||||||||
Unrealized gains and losses (net) | — | — | — | 1,156 | 1,156 | 315 | 1,471 | |||||||||||||
Net income | — | 2,266 | — | — | 2,266 | 1,168 | 3,434 | |||||||||||||
Dividends paid | — | (551 | ) | — | — | (551 | ) | (518 | ) | (1,069 | ) | |||||||||
Miscellaneous | — | 217 | — | (260 | ) | (43 | ) | (533 | ) | (576 | ) | |||||||||
Balance as of 12/31/2004 | 19,433 | 5,893 | (2,634 | ) | 7,303 | 29,995 | 7,696 | 37,691 | ||||||||||||
Foreign currency translation adjustments | — | — | 1,601 | 50 | 1,651 | 33 | 1,684 | |||||||||||||
Changes in the consolidated subsidiaries of the Allianz Group | — | (1,742 | ) | 1 | 277 | (1,464 | ) | (1,328 | ) | (2,792 | ) | |||||||||
Capital paid in | 2,183 | — | — | — | 2,183 | — | 2,183 | |||||||||||||
Treasury shares | — | 352 | — | — | 352 | — | 352 | |||||||||||||
Unrealized gains and losses (net) | — | — | — | 2,694 | 2,694 | 416 | 3,110 | |||||||||||||
Net income | — | 4,380 | — | — | 4,380 | 1,386 | 5,766 | |||||||||||||
Dividends paid | — | (674 | ) | — | — | (674 | ) | (729 | ) | (1,403 | ) | |||||||||
Miscellaneous | — | 370 | — | — | 370 | 141 | 511 | |||||||||||||
Balance as of 12/31/2005 | 21,616 | 8,579 | (1,032 | ) | 10,324 | 39,487 | 7,615 | 47,102 | ||||||||||||
Consolidated Cash Flow Statements
for the Years ended December 31, 2005, 2004 and 2003
2005 | 2004 | 2003 | |||||||
€ mn | € mn | € mn | |||||||
Operating activities | |||||||||
Net income | 4,380 | 2,266 | 2,691 | ||||||
Change in unearned premiums | 671 | 234 | 596 | ||||||
Change in aggregate policy reserves (without unit linked contracts)(*) | 17,475 | 13,570 | 12,042 | ||||||
Change in reserve for loss and loss adjustment expenses | 3,288 | 2,476 | 1,016 | ||||||
Change in other insurance reserves (without unit linked liabilities) | 3,146 | 1,806 | (446 | ) | |||||
Change in deferred acquisition costs | (2,093 | ) | (1,174 | ) | (2,460 | ) | |||
Change in funds held by others under reinsurance business assumed | 31 | 412 | 32 | ||||||
Change in funds held under reinsurance business ceded | (1,690 | ) | 175 | 234 | |||||
Change in accounts receivable/payable on reinsurance business | (386 | ) | 194 | 219 | |||||
Change in financial assets and liabilities held for trading | 11,885 | (30,209 | ) | 8,156 | |||||
Change in loans and advances to banks and customers | (2,451 | ) | (726 | ) | 14,768 | ||||
Change in liabilities to banks and customers | (18,418 | ) | (16,926 | ) | 19,842 | ||||
Change in assets from reverse repurchase agreements and collateral paid for securities borrowing transactions | 43,656 | (10,136 | ) | (65,122 | ) | ||||
Change in liabilities from repurchase agreements and collateral received from securities lending transactions | (18,692 | ) | 35,255 | 28,824 | |||||
Change in certificated liabilities | 1,569 | 5,786 | (14,393 | ) | |||||
Change in other receivables and liabilities | (3,772 | ) | 5,291 | (4,554 | ) | ||||
Change in deferred tax assets/liabilities (without change in deferred tax assets/liabilities from unrealized investment gains and losses) | (99 | ) | 446 | (648 | ) | ||||
Adjustment for investment income/expenses not involving movements of cash | (5,402 | ) | (4,400 | ) | (5,125 | ) | |||
Amortization of goodwill | — | 1,164 | 1,413 | ||||||
Other | (927 | ) | (2,308 | ) | 1,574 | ||||
Net cash flow provided by (used in) operating activities | 32,171 | 3,196 | (1,341 | ) | |||||
Investing activities | |||||||||
Change in investments held at fair value | (28,983 | ) | (12,661 | ) | (5,520 | ) | |||
Change in investments held-to-maturity | 373 | (493 | ) | 1,754 | |||||
Change in real estate | 989 | (772 | ) | 157 | |||||
Change in investments in associated enterprises and joint ventures | 5,576 | 1,379 | 7,668 | ||||||
Change in cash and cash equivalents from the acquisition of subsidiaries | (2,932 | ) | (1,302 | ) | — | ||||
Other | 2,525 | (1,529 | ) | 532 | |||||
Net cash flow provided by (used in) investing activities | (22,452 | ) | (15,378 | ) | 4,591 | ||||
Financing activities | |||||||||
Change in participation certificates and subordinated liabilities | 1,449 | 999 | (1,943 | ) | |||||
Cash inflow from capital increases | 2,183 | 86 | 4,562 | ||||||
Dividends | (1,403 | ) | (1,069 | ) | (676 | ) | |||
Other from shareholders’ capital and minority interests (without change in revenue reserve from unrealized investment gains and losses) | 3,999 | 2,290 | (553 | ) | |||||
Net cash flow provided by financing activities | 6,228 | 2,306 | 1,390 | ||||||
Effect of exchange rate changes on cash and cash equivalents | 72 | (24 | ) | (120 | ) | ||||
Change in cash and cash equivalents | 16,019 | (9,900 | ) | 4,520 | |||||
Cash and cash equivalents at beginning of period | 15,628 | 25,528 | 21,008 | ||||||
Cash and cash equivalents at end of period | 31,647 | 15,628 | 25,528 | ||||||
Supplementary information: | |||||||||
Income taxes (paid) received | (1,369 | ) | (1,785 | ) | 596 | ||||
2008 | 2007 | 2006 | |||||||
€ mn | € mn | € mn | |||||||
Net cash flow provided by operating activities from discontinued operations | 24,367 | 369 | 3,187 | ||||||
Net cash flow provided by (used in) investing activities from discontinued operations | (1,888 | ) | 7,415 | (13,496 | ) | ||||
Net cash flow provided by (used in) financing activities from discontinued operations | (8,520 | ) | (12,552 | ) | 10,003 | ||||
Net cash flow provided by (used in) discontinued operations | 13,959 | (4,768 | ) | (306 | ) | ||||
Supplementary information on the consolidated statement of cash flows: | |||||||||
Income taxes paid | (2,846 | ) | (2,856 | ) | (2,241 | ) | |||
Dividends received | 1,845 | 2,526 | 1,946 | ||||||
Interest received | 21,361 | 22,256 | 20,552 | ||||||
Interest paid | (5,931 | ) | (6,697 | ) | (5,556 | ) | |||
Significant non-cash transactions: | |||||||||
Settlement of exchangeable bonds issued by Allianz Finance II B.V. with shares: | |||||||||
Available-for-sale investments | (450 | ) | (812 | ) | (1,074 | ) | |||
Certificated liabilities | (450 | ) | (812 | ) | (1,074 | ) | |||
Novation of quota share reinsurance agreement: | |||||||||
Reinsurance assets | (29 | ) | (2,469 | ) | (1,111 | ) | |||
Deferred acquisition costs | 1 | 145 | 76 | ||||||
Payables from reinsurance contracts | (28 | ) | (2,324 | ) | (1,035 | ) | |||
Effects from the merger of RAS with and into Allianz AG (Note 5): | |||||||||
Revenue reserves | — | — | (2,362 | ) | |||||
Minority interests | — | — | (1,659 | ) | |||||
Paid-in capital | — | — | 3,653 | ||||||
Unrealized gains and losses (net) | — | — | 368 | ||||||
Effects from buy-out of AGF minorities (Note 5): | |||||||||
Revenue reserves | — | (1,843 | ) | — | |||||
Unrealized gains and losses (net) | — | 146 | — | ||||||
Minority interests | — | (1,068 | ) | — | |||||
Paid-in capital | — | 2,765 | — | ||||||
Effects from first consolidation of K2: | |||||||||
Financial assets held for trading | 107 | — | — | ||||||
Financial assets designated at fair value through income | 8,665 | — | — | ||||||
Loans and advances to banks and customers | 1,714 | — | — | ||||||
Other assets | 51 | — | — | ||||||
Financial liabilities held for trading | 497 | — | — | ||||||
Financial liabilities designated at fair value through income | 8,889 | — | — | ||||||
Liabilities to banks and customers | 1,076 | — | — | ||||||
Other liabilities | 75 | — | — | ||||||
Proceeds from sales of available-for-sale investments: | |||||||||
Debt securities | 60,265 | 89,355 | 89,813 | ||||||
Equity securities | 26,645 | 27,485 | 21,696 | ||||||
Total | 86,910 | 116,840 | 111,509 | ||||||
Notes to the Allianz Group’s Consolidated Financial Statements
1 Issuance of the Declaration of Compliance with the German Corporate Governance Code according to clause 161 AktG, natureNature of operations and basis of presentation
Issuance of the Declaration of Compliance with the German Corporate Governance Code according to clause 161 AktG
On December 15, 2005, the Board of Management and the Supervisory Board of Allianz AG issued the Declaration of Compliance according to clause 161 AktG and made it available on a permanent basis to the shareholders on the company’s website. The text of the Declaration of Compliance is also reproduced in the section Corporate Governance of Item 6 beginning on page 126 of this Annual Report.
The Declaration of Compliance of the two publicly traded group companies Allianz Lebensversicherungs-Aktiengesellschaft and Oldenburgische Landesbank AG were issued in December 2005, respectively, and were made permanently available to the shareholders.
Nature of operations
Allianz Aktiengesellschaft (“Allianz AG”)SE and its subsidiaries (“the Allianz Group”) have global Property- CasualtyProperty-Casualty insurance, Life/Health insurance, Banking and Asset Management operations in more than 70 countries, with the largest of its operations in Europe. The Allianz Group’s headquarters are located in Munich, Germany. The parent company of the Allianz Group is Allianz AG,SE, Munich. Allianz AG is a public stock corporation (“Aktiengesellschaft”) incorporated in Germany. It is recorded in the Commercial Register of the municipal court Munich under its registered address at KöniginstraßKoeniginstraße 28, 80802 München.Munich.
Allianz SE is a stock corporation in the form of a European Company (Societas Europaea) and is listed on all German stock exchanges and the stock exchanges in London, Paris, Zurich, Milan and New York.
The consolidated financial statements of the Allianz Group for the year ended December 31, 2008 were authorized for issue by the Board of Management on February 23, 2009.
Basis of presentation
The consolidated financial statements of the Allianz Group have been prepared in conformity with International Financial Reporting Standards (“IFRS”)(IFRS), as adopted under European Union (EU) regulations in accordance with section 315a of the German Commercial Code (“HGB”)(HGB). Since 2002,The consolidated financial statements of the designationAllianz Group have also been prepared in accordance with IFRS applies to the overall framework of all standards approvedas issued by the InternationalAccountingInternational Accounting Standard Board (IASB). The Allianz Group’s application of IFRS results in no differences between IFRS as adopted by the EU and IFRS as issued by the IASB. Within these consolidated financial statements, the Allianz Group has applied all IFRS issued by the IASB that are compulsory as of December 31, 2008. IFRS comprise International Financial Reporting Standards Board (“IASB”). Already approved standards continue to be cited as(IFRS), International Accounting Standards (“IAS”)(IAS), and interpretations developed by the International Financial Reporting Interpretations Committee (IFRIC) or the former Standing Interpretations Committee (SIC). For years through 2004,
IFRS diddoes not provide specific guidance concerning all aspects of the reportingrecognition and measurement of insurance contracts, reinsurance contracts and reinsurance contracts.investment contracts with discretionary participation features. Therefore, as envisioned in the IFRS Framework,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”)(U.S. GAAP) have been applied. See Note 3 regarding changesapplied to those aspects where specific guidance is not provided by IFRS 4, Insurance Contracts.
The accounting policies adopted are consistent with those of the previous financial year except for recently adopted IFRSs effective January 1, 2005. 2008 as described in Note 3.
The consolidated financial statements are prepared as of and for the year ended December 31, and presented in Eurosmillions of Euro (€)., unless otherwise stated.
2 Summary of significant accounting policies
Principles of consolidation
Scope of consolidation
The consolidated financial statements of the Allianz Group include those of Allianz AG,SE, its subsidiaries and certain investment funds and special purpose entities (“SPEs”)(SPEs). Subsidiaries, investment funds and SPEs, hereafter “subsidiaries”, which are directly or indirectly controlled by the Allianz Group, are consolidated. Control exists when the Allianz Group has the power to govern the financial and operating policies of the subsidiary generally either when the Allianz Group owns directly or indirectly more than half of the voting rights of the subsidiary or when control can be legally evidenced otherwise because of an agreement with other investors or of a specific corporate charter. In order to determine whether control exists, potential voting rights that are currently exercisable or convertible have to be taken into consideration. If no control exists from a legal perspective, it has to be assessed whether control exists from an economic perspective, as in the case of SPEs. Subsidiaries are consolidated from the date control is obtained by the Allianz Group. Subsidiaries are consolidated until the date that the Allianz Group no longer maintains control. The Allianz Group has used interim financial statements for certain
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
subsidiaries whose fiscal year is other than December 31, but not exceeding a lag of three months. Adjustments are then made for the effects of significant transactions or events that occur between that date and the date of the Allianz Group’s financial statements.
The Allianz Group transfers financial assets to certain SPEs in revolving securitization of commercial mortgage or other loan portfolios. The Allianz Group consolidates these SPEs as the Allianz Group continues to control the financial assets transferred and retains the servicing of such loans.
Third-party assets held in an agency or fiduciary capacity are not assets of the Allianz Group and are not presented in these consolidated financial statements.
Accounting policies of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Allianz Group. The effects of intra-Allianz Group transactions have been eliminated.
Business combinations including acquisitions and disposals of minority interests
A business combination occurs when the Allianz Group obtains control over a business. Business combinations are accounted for by applyingusing the purchase method. The purchase method requires that the Allianz Group allocateallocates the cost of a business combination on the date of acquisition by recognizing the acquiree’s identifiable assets, liabilities and certain contingent liabilities at their fair values. The cost of a business combination represents the fair value of the considerationassets given, equity instruments issued and liabilities incurred or assumed in exchange for control at the acquisition date, plus any costs directly attributable to the business combination.acquisition. If the acquisition cost of the business combination exceeds the Allianz Group’s proportionate share of the fair value of the net assets of the acquiree, the difference is recorded as goodwill. Any minority interest is recorded at the minority’s proportion of the fair value of the net assets of the acquiree. If the initial accounting for a business combination can only be determinded provisionally, Allianz Group accounts for the combination using those provisional values.
NotesAny adjustments to those provisional amounts as a result of completing the initial accounting are recognized within twelve months of the acquisition date and from the acquisition date. If Allianz Group’s Consolidated Financial Statements—(Continued)proportionate share of the fair value of the net assets exceeds the acquisition cost, Allianz Group reassesses the identification and measurement of the identifiable assets, liabilities and contingent liabilities as well as the measurement of the cost of the combination and recognises immediately in profit or loss any excess remaining after that assessment. Acquisitions and disposals of minority interests are treated as transactions between equity holders. Therefore, any difference between the acquisition cost or sale price of the minority interest and the carrying amount of the minority interest is recognized as an increase or decrease of equity.
For business combinations with an agreement date before March 31, 2004, minority interests are recorded at the minority’s proportion of the pre-aquisitionpre-acquisition carrying amounts of the identifiable assets and liabilities.
AcquisitionsAssociated enterprises and disposals of minority interestsjoint ventures
Associated enterprises are treated as transactions between equity holders. Therefore, any difference betweenentities over which the acquisition costAllianz Group can exercise significant influence and which are not joint ventures. Significant influence is the power to participate in, but not to control, the financial and operating policies within an enterprise. Significant influence is presumed to exist where the Allianz Group has at least 20% but not more than 50% of the minority interestvoting rights unless it can be clearly demonstrated that this is not the case. If the investor holds less than 20% of the voting power of the investee, it is presumed that the investor does not have significant influence unless such influence can be clearly demonstrated. Joint ventures are entities over which the Allianz Group and one or more other parties have joint control.
Investments in associated enterprises and joint ventures are generally accounted for using the equity method of accounting, in which the results and the carrying amount of the minorityinvestment represent the Allianz Group’s proportionate share of the entity’s net income and net assets, respectively. The Allianz Group accounts for all material investments in associates on a time lag of no more than three
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
months. Income from investments in associated enterprises and joint ventures is included in interest and similar income. The positive difference between the cost of the investment and the Allianz Group’s share of the net fair value of the associate’s identifiable assets and liabilities is accounted for as goodwill and included in the carrying amount of the investment. Profits and losses resulting from upstream and downstream transactions between the Allianz Group and an associated enterprise are recognized as an increase or decrease in equity.Allianz Group’s financial statements only to the extent of unrelated interests in the associate. Allianz Group’s share in the associate’s profits and losses resulting from these transactions is eliminated. Accounting policies of associated enterprises and joint ventures have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Allianz Group.
Foreign currency translation
ForeignTranslation from any foreign currency is translated by theinto functional currency method.
The functional currencies forindividual financial statements of each of the Allianz Group’s subsidiaries are usually the local currency of the relevant company, e.g.,prepared in the prevailing currency in the environment where the subsidiary conducts its ordinary activities. In accordance withactivities (its functional currency). Transactions recorded in currencies other than the functional currency method,(foreign currencies) are recorded at the exchange rate prevailing on the date of the transaction. At the balance sheet date, monetary assets and liabilities recorded in foreign currencies are translated into the functional currency using the closing exchange rate and non-monetary assets and liabilities are translated at historical rates.
Foreign currency gains and losses arising from foreign currency transactions are reported in investment expenses.
Translation to the presentation currency
For purposes of the consolidated financial statements, the results and financial position of each of the Allianz Group’s subsidiaries are expressed in Euro, the functional currency of the Allianz Group. Assets and liabilities of subsidiaries not reporting in Euro are translated at the closing rate on the balance sheet date
and income and expenses are translated at the quarterly average rate in all financial statements of subsidiaries not reporting in Euro.exchange rate. Any foreign currency translation differences, including those arising from the equity method, are recorded directly in shareholders’ equity, as foreign currency translation adjustments.
Currency gains and losses arising from foreign currency transactions, transactions in a currency other than the functional currency of the entity, are reported in other income and other expenses, respectively.
Use of estimates and assumptions
The preparation of consolidated financial statements requires that the Allianz Group makesto make estimates and assumptions that affect items reported in the consolidated balance sheets and consolidated income statements, in addition toand the disclosure of contingent assets and liabilities. The actual values mayActual results could differ from those reported.estimates. The most important of such itemssignificant accounting estimates are associated with the reservereserves for loss and loss adjustment expenses, the aggregate policy reserves thefor insurance and investment contracts, loan loss allowance, fair value and impairments of investments,financial instruments, goodwill, brand names, deferred policy acquisition costs, deferred taxes and reserves for pensions and similar obligations.
Supplementary informationCash and cash equivalents
Cash and cash equivalents include balances with banks payable on demand, balances with central banks, cash on hand, treasury bills to the Allianz Group’sextent they are not included in financial assets held for trading, checks and bills of exchange which are eligible for refinancing at central banks, subject to a maximum term of three months from the date of acquisition.
Intangible assetsReal estate held for investment
Goodwill resulting from business combinations represents the difference between the acquisition cost of the business combinationReal estate held for investment (i.e., real estate and the Allianz Group’s proportionate share of the net fair value of identifiable assets, liabilitiesrights equivalent to real property and certain contingent liabilities. Goodwill resulting from business combinationsbuildings, including buildings on leased land) is not subject to amortization and is recordedcarried at cost less accumulated depreciation and impairments.
The Allianz Group conducts an annual Real estate held for investment is depreciated on a straight-line basis over its estimated life, with a maximum of 50 years. When testing for impairment, test of goodwill on October 1, in addition to whenever there is an indication that goodwill is not recoverable. The impairment test includes comparing the recoverable amount to the carrying amount, including goodwill, for all cash generating units. A cash generating unit is not impaired if the recoverable amount is greater than the carrying amount. A cash generating unit is impaired if the carrying amount is greater than the recoverable amount. The impairment of a cash generating unit is equal to the difference between the carrying amount and recoverable amount and is allocated to reduce any goodwill, followed by allocation to the carrying amount of any remaining assets. Impairments of goodwill are not reversed. Gains or losses realized on the disposal of subsidiaries include any related goodwill.
Intangible assets acquired in business combinations are recorded at fair value onof real estate held for investment is determined by the acquisition datediscounted cash flow method. Improvement costs are capitalized if they extend the intangible asset is separable or arises from contractual or other legal rights. Intangible assets with an indefinite useful life are not subject to amortization and are recorded at cost less accumulated impairments. Intangible assets with a definite useful life are amortized over their useful lives and are recorded at cost less accumulated amortization and impairments.
Presentor increase the value of future profits (“PVFP”) is the present value of net cash flows anticipated in the future from insurance and investment contracts in force at the date of acquisition and is amortized over the life of the related contracts. PVFP was determined using discount rates ranging from 12% to 15%. Interest accrues on the PVFP balance based upon the policy liability rate or contract rate. Interest accrues on PVFP at rates between 3.5% and 8.5%.asset; otherwise they are recognized as an expense as incurred.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Software includes software purchased from third parties or developed internally, which are amortized on a straight-line basis over their useful service lives or contractual terms, generally over 3 to 5 years. Costs for repairs and maintenance are expensed, while improvements, if they extend the useful life of the asset, are capitalized. For the Allianz Group’s Property-Casualty and Life/Health segments amortization of software is allocated amongst several line items according to cost allocation. Amortization of software related to the Allianz Group’s Banking and Asset Management segments is included in administrative expenses.
Thebrand names “Dresdner Bank” and “dit” (Deutscher Investment-Trust) have an indefinite life; therefore, are not subject to amortization and are recorded at cost less accumulated impairments. The fair values for the brand names, registered as trade names, were determined using a royalty savings approach.
Similar to goodwill, an intangible asset is subject to an annual impairment test, in addition to whenever there is an indication that it is not recoverable. The impairment test includes comparing the recoverable amount to the carrying amount. An intangible asset is not impaired if the recoverable amount is greater than the carrying amount. An intangible asset is impaired if the carrying amount is greater than the recoverable amount. The impairment of an intangible asset is equal to the difference between the carrying amount and recoverable amount. Impairments of intangible assets are not reversed.
Investments in associated enterprises and joint venturesFinancial instruments
Associated enterprises are enterprises over which the Allianz Group can exercise a significant influenceClassification, recognition and which are not joint ventures. A significant influence is presumed to exist where the Allianz Group directly or indirectly has at least 20% but no more than 50% of the voting rights.Joint ventures are enterprises over which the Allianz Group and one or more other parties have joint control.initial measurement
Investments in associated enterprisesFinancial assets within the scope of IAS 39 are either classified as financial assets carried at fair value through income, available-for-sale investments, held-to-maturity investments, loans and joint ventures are generally accountedadvances to banks and customers or as derivative financial instruments used for using the equitymethod, such that the carrying amount of the investment represents the Allianz Group’s proportionate share of the entity’s net assets. The Allianz Group accounts for all material investments in associates on a time lag of no more than three months.
Income from investments in associated enterprises and joint ventures is included as a separate component of total income.
Investments
Investments include securities held-to-maturity, securities available-for-sale, real estate used by third parties andhedging. Furthermore financial assets comprise funds held by others under reinsurance contracts assumed.assumed and financial assets for unit-linked contracts.
Securities held-to-maturityFinancial liabilities within the scope of IAS 39 are comprisedeither classified as financial liabilities carried at fair value through income, liabilities to banks and customers, investment contracts with policyholders, derivative financial instruments used for hedging, financial liabilities for puttable equity instruments, certificated liabilities or participation certificates and subordinated liabilities. Furthermore financial liabilities comprise financial liabilities for unit-linked contracts.
The classification depends on the nature and purpose of debt securities, whichthe financial instrument and is determined at initial recognition.
Financial instruments are initially recognized at fair value plus, in the case of financial instruments not carried at fair value through income, directly attributable transaction costs.
Financial instruments are generally recognized and derecognized on trade date, when the Allianz Group has entered into contractual arrangements with counterparties to purchase or sell securities or incur a liability.
Fair value of financial instruments
The Allianz Group applies the positive intentIAS 39 fair value hierarchy to determine the fair value of financial instruments.
Active markets—quoted market price
The fair values of financial instruments that are traded in active markets are based on quoted market prices or dealer price quotations on the last exchange trading day prior to and abilityincluding the balance sheet
date. The quoted market price used for a financial asset held by the Allianz Group is the current bid price; the quoted market price used for financial liabilities is the current ask price. The impact of the Allianz Group´s own credit spread on financial liabilities carried at fair value is calculated by discounting future cash flows at a rate which incorporates the Allianz Group´s observable credit spread.
No active markets—valuation techniques
If the market for a financial instrument is not active, the fair value is determined by using valuation techniques. The valuation techniques used are based on market observable inputs when available. Such market inputs include references to holdrecently quoted prices for identical instruments from an active market, quoted prices for identical instruments from an inactive market, quoted prices for similar instruments from active markets, quoted prices for similar instruments from inactive markets. Market observable inputs also include interest rate yield curves, option volatilities and foreign currency exchange rates. Where observable market prices are not available, fair value is based on appropriate valuation techniques using non-market observable inputs. Valuation techniques include net present value techniques, the discounted cash flow method, comparison to maturity.similar instruments for which observable market prices exist and other valuation models. In the process, appropriate adjustments are made for credit and measurement risks.
Due to the worldwide financial market crisis, some markets faced a significant shortage of liquidity, which affected the valuation techniques used by the Allianz Group to measure fair value. For certain financial instruments, the market has been completely illiquid and market prices were no longer available. In addition, the market prices of certain asset-backed securities (ABS)-based products declined significantly.
For ABS-based products the availability of price quotations from a functioning market was limited during 2008 and as of December 31, 2008. Therefore the valuation of these financial instruments is mainly based on quoted market prices or current market values of very similar same financial instruments. The market values used were taken from other
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
market participants that are representative of the market. In all other cases Allianz Group used model-based valuation techniques. Regardless of the valuation technique used, that technique reflects current market conditions and appropriate risk adjustments that market participants would make.
No active market—equity instruments
If the fair value cannot be measured reliably, unquoted equity instruments and derivatives linked to such instruments are stated at cost until a fair value can be measured reliably. These securitiesfinancial instruments are recorded atsubject to the normal impairment procedures.
Amortized cost of financial instruments
The amortized cost and any premiumof a financial instrument is the amount at which the financial instrument is measured at initial recognition minus principal repayments, plus or discount is amortizedminus the cumulative amortization using the effective interest rate method overof any difference between that initial amount and the lifematurity amount, and minus any reduction for impairment or uncollectability.
Recognition of a day one profit or loss
If the fair value of a financial instrument differs from its initial transaction price (i.e. by comparing it to other observable current market transactions or by using a technical valuation model incorporating only observable market data), it is required that the recognition of a “day one profit or loss” is consistent with the subsequent measurement of the security. Amortizationfinancial instrument with all the other requirements regarding the calculation of premiumfair value. A profit or discount is includedloss should be recognized after initial recognition only to the extent that it arises from a change in interest income and similar income.a factor that market participants would consider in setting a price.
Securities available-for-saleSubsequent measurement of financial instruments
The subsequent measurement of financial instruments depends on their classification as follows:
Financial assets and liabilities carried at fair value through income
Financial assets and liabilities carried at fair value through income include financial assets and
liabilities held for trading and financial assets and liabilities designated at fair value through income.
Financial assets and liabilities are classified as held for trading if they have been principally acquired for the purpose of generating a profit from short-term fluctuations in price or for the purpose of selling in the near future.
Financial assets consist of debt and equity securities, promissory notes and derivative financial instruments with positive fair values that do not meet the criteria for hedge accounting.
Financial liabilities held for trading primarily consist of derivative financial instruments with negative fair values that do not meet the criteria for hedge accounting and obligations to deliver assets arising from short sales of securities, which are carried out in order to benefit from short-term price fluctuations. The securities required to close out short sales are obtained through securities borrowing or reverse repurchase agreements.
This treatment is also applicable for bifurcated embedded derivatives of hybrid financial instruments.
Financial assets and liabilities held for trading are measured at fair value. Changes in fair value are recognized directly in the consolidated income statement. The recognized net gains and losses include dividends and interest of the underlying financial instruments.
Financial assets and liabilities designated at fair value through income are measured at fair value with changes in fair value recorded in the consolidated income statement. The recognized net gains and losses include dividends and interest of the underlying financial instruments. A financial instrument may only be designated at inception as held at fair value through income and cannot be subsequently changed.
Available-for-sale investments
Available-for-sale investments comprise debt and equity securities that are designated as available-for-sale or are not classified as held-to-maturity, loans and advances to banks or and
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
customers, financial assets held for trading, or financial assets designatedcarried at fair value through income. Securities available-for-saleAvailable-for-sale investments are recorded at fair value. Unrealized gains and losses, which are the difference between fair value and cost or amortized cost, are included as a separate component of shareholders’ equity, net of deferred taxes and the latent reserve for premium refunds to the extent that policyholders will participate in such gains and losses on the basis of statutory or contractual regulations when they are realized. When an available-for-sale investment is derecognized or determined to be impaired, the cumulative gain or loss previously recorded in shareholders’ equity is transferred and recognized in the consolidated income statement. Realized gains and losses on securities are generally determined by applying the average cost method at the subsidiary level.
A held-to-maturity or available-for-sale debt security is impaired if there is objective evidence that the cost may not be recovered. If all amounts due according to the contractual terms of the security are not considered collectible, typically due to deterioration in the creditworthiness of the issuer, the
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
security is considered to be impaired. An impairment is not recorded as a result of declines in fair value resulting from general market interest or exchange rate movements unless the Allianz Group intends to dispose of the security.
If there is objective evidence that the cost may not be recovered, an available-for-sale equity security is considered to be impaired. Objective evidence that the cost may not be recovered, in addition to qualitative impairment criteria, includes a significant or prolonged decline in the fair value below cost. The Allianz Group established a policy that an available-for-sale equity security is considered impaired if the fair value is below the weighted-average cost by more than 20% or if the fair value is below the weighted-average cost for greater than nine months, to define the significant criteria and the prolonged criteria, respectively. This policy is applied individually by all subsidiaries.
If an available-for-sale equity security is impaired based upon the Allianz Group’s qualitative or quantitative impairment criteria, any further declines in the fair value at subsequent reporting dates are recognized as impairments. Therefore, at each reporting period, for an equity security that is determined to be impaired based upon the Allianz Group’s impairment criteria, an impairment is recognized for the difference between the fair value and the original cost basis, less any previously recognized impairments.
In a subsequent period, if the amount of the impairment previously recorded on a debt security decreases and the decrease can be objectively related to an event occurring after the impairment, such as an improvement in the debtor’s credit rating, the impairment is reversed through other income from investments. These reversals do not result in a carrying amount of a debt security that exceeds what would have been, had the impairment not been recorded, at the date of the impairment is reversed. Reversals of impairments of available-for-sale equity securities are not recorded.
Available-for-sale equity securities include investments in limited partnerships. The Allianz Group records its investments in limited partnerships at cost, where the ownership interest is less than 20%, as the limited partnerships do nonot have a quotedmarketquoted market price and fair value cannot be reliably measured. The Allianz Group accounts for its investmentinvestments in limited partnerships with ownership interests of 20% or greater using the equity method.method due to the rebuttable presumption that the limited partner has no control over the limited partnership.
Real estate used by third-parties (i.e., real property and equivalent rights and buildings, including buildings on leased land) is carried at cost less accumulated depreciation and impairments. Real estate used by third parties is depreciated on a straight-line basis over its estimated life, with a maximum of 50 years. When testing for impairment, the fair value of real estate used by third parties is determined by the discounted cash flow method. Improvement costs are capitalized if they extend the useful life or increase the value of the asset, otherwise they are recognized as an expense.Held-to-maturity investments
Funds held by others under reinsurance contracts assumed relate to cash deposits toHeld-to-maturity investments are debt securities with fixed or determinable payments and fixed maturities for which the Allianz Group is entitled, but whichhas the ceding insurer retains as collateral for future obligations of the Allianz Group. The cash depositspositive intent and ability to hold to maturity. These securities are recorded at face value,amortized cost using the effective interest method over the life of the security, less any impairments for balances thatimpairment losses. Amortization of premium or discount is included in interest and similar income. Gains and losses from derecognition and impairment of held-to-maturity investments are deemed to not be fully recoverable.recognized in the consolidated income statement.
Loans and advances to banks and customers
Loans and advances to banks and customers are non-derivative financial assets with fixed andor determinable payments, that are not quoted in an active market, that are not classified as securities available-for-sale
investments or held-to-maturity investments, financial assets held for trading, or financial assets designated at fair value through income. Loans to banks and customers are initially recorded at fair value plus transaction costs, and subsequently recorded at amortized cost or generally their outstanding unpaid principal balance, net ofusing the loan loss allowance, deferred fees and costs on origination, and unamortized premiums or discounts.effective interest rate method. Interest income is accrued on the unpaid principal balance, net of charge-offs. Using the effective interest method, net deferred fees and premiums or discounts are recorded as an adjustment of interest income yield over the lives of the related loans.
Loans are placed on non-accrual status when the payment of principal or interest is doubtful based on the credit assessment of the borrower. Non-accrual loans consist of loans on which interest income is no longer recognized on an accrued basis, and loans for which a specific provision is recorded for the entire
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
amount of accrued interest receivable. When a loan is placed on non-accrual status, any accrued interest receivable is reversed against interest and similar income. Loans can only be restored to accrual status when interest and principal payments are made current (in accordance with the contractual terms), and future payments in accordance with those terms are reasonably assured. When there is a doubt regarding the ultimate collectibility of the principal of a loan placed in non-accrual status, all cash receipts are applied as reductions of principal. Once the recorded principal amount of the loan is reduced to zero, future cash receipts are recognized as interest income.
Loans and advances to banks and customers include reverse repurchase (“reverse repo”) transactionsagreements and collateral paid for securities borrowing transactions. Reverse reposrepo 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, as appropriate.customers. Interest income on reverse repo agreements is accrued over the duration of the agreements and is reported in interest and similar income.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Securities borrowing transactions generally require the Allianz Group to deposit cash with the security’s lender. Fees paid are reported as interest expense.
Loans and advances to customers include the Allianz Group’s gross investment in leases, less unearned finance income, related to lease financing transactions for which the Allianz Group is the lessor. The gross investment in leases is the aggregate of the minimum lease payments and any unguaranteed residual value accruing to the Allianz Group. Lease financing transactions include direct financing leases and leveraged leases. The unearned finance income is amortized over the period of the lease in order to produce a constant periodic rate of return on the net investment outstanding inwith respect ofto finance leases.
Loan impairments and provisionsFunds held by others under reinsurance contracts
Impaired loans represent loans forFunds held by others under reinsurance contracts assumed relate to cash deposits to which based upon current information and events, it is probable that the Allianz Group willis entitled, but which the ceding insurer retains as collateral for future obligations of the Allianz Group. The cash deposits are recorded at face value, less any impairments for balances that are deemed to be not be ablerecoverable.
Financial assets for unit-linked contracts
Financial assets for unit-linked contracts are recorded at fair value with changes in fair value recorded in net income together with the offsetting changes in fair value of the corresponding financial liabilities for unit-linked contracts.
Liabilities to collect allbanks and customers
Liabilities to banks and customers are subsequently measured at amortized cost. Herein included are repurchase (“repo”) agreements and securities lending transactions. Repo transactions involve the sale of securities by the Allianz Group to a counterparty, subject to the simultaneous agreement to repurchase these securities at a certain later date, at an agreed price. If control of the securities remains with the Allianz Group over the entire lifetime of the transaction, the securities concerned are not derecognized by the Allianz Group. The proceeds of the sale are reported under liabilities to banks or
customers. Interest expense from repo transactions is accrued over the duration of the agreements and reported in interest and principal amountssimilar expenses.
In securities lending transactions the Allianz Group generally receives cash collateral which is recorded as liabilities to banks or customers. Fees received are recognized as interest income.
Investment contracts with policyholders
Fair value for investment and annuity contracts are determined using the cash surrender values of policyholders’ and contract holders’ accounts.
Financial liabilities for unit-linked contracts
The fair value of financial liabilities for unit-linked contracts is equal to the fair value of the financial assets for unit-linked contracts.
Financial liabilities for puttable equity instruments
Financial liabilities for puttable equity instruments include the minority interests in shareholders’ equity of certain consolidated investment funds. These minority interests qualify as a financial liability of the Allianz Group, as they give the holder the right to put the instrument back to the Allianz Group for cash or another financial asset (“puttable instrument”). These liabilities are required to be recorded at redemption amount with changes recognized in income.
Certified liabilities, participation certificates and subordinated liabilities
Certified liabilities, participation certificates and subordinated liabilities are subsequently measured at amortized cost, using the effective interest method to amortize the premium or discount to the redemption value over the life of the liability.
Financial guarantee contracts
Financial guarantee contracts issued by the Allianz Group are those contracts that require a payment to be made to reimburse the holder for a loss it incurs because the specified debtor fails to make a payment when due in accordance with the terms of a debt instrument. Financial guarantee contracts which
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
are not accounted for as insurance contracts are recognized initially at fair value. Subsequently, unless the financial guarantee contract was designated at inception as at fair value through income, the issuer measures it at the higher of the best estimate of the expenditure required to settle the present obligation and the amount initially recognized less cumulative amortization when appropriate.
Impairment of financial assets
Impairment of available-for-sale and held-to-maturity investments
A held-to-maturity or available-for-sale debt security is impaired if there is objective evidence that a loss event has occurred, which has impaired the expected cash flows, i.e. all amounts due according to the contractual terms of the loan agreements.security are not considered collectible. Typically this is due to deterioration in the creditworthiness of the issuer. A decline in fair value below amortized cost due to changes in risk free interest rates does not by itself represent objective evidence of a loss event.
If there is objective evidence that the cost may not be recovered, an available-for-sale equity security is considered to be impaired. Objective evidence that the cost may not be recovered, in addition to qualitative impairment criteria, includes a significant or prolonged decline in the fair value below cost. The Allianz Group’s policy considers a significant decline to be one in which the fair value is below the weighted average cost by more than 20% or a prolonged decline to be one in which fair value is below the weighted average cost for greater than nine months. This policy is applied by all subsidiaries at the individual security level.
If an available-for-sale equity security is impaired based upon the Allianz Group’s qualitative or quantitative impairment criteria, any further declines in the fair value at subsequent reporting dates are recognized as impairments. Therefore, at each reporting period, for an equity security that is determined to be impaired based upon the Allianz Group’s impairment criteria, an impairment is recognized for the difference between the fair value and the original cost basis, less any previously recognized impairments.
In a subsequent period, if the fair value of an available-for sale debt security instrument increases and the increase can be objectively related to an event occurring after the recognition of an impairment loss, such as an improvement in the debtor’s credit rating, the impairment is reversed through impairments of investments (net). Reversals of impairments of available-for-sale equity securities are not recorded through the income statement.
Impairment of loans
Loan loss allowance is recognized for loans for which there is objective evidence of impairment as a result of one or more loss events that occurred after the initial recognition of the loan, and that loss event has an impact on the estimated future cash flows of the loan that can be reasonably estimated. If there is objective evidence that a loan is impaired, a loan loss allowance representsis recognized as the estimatedifference between the loan’s carrying amount and the present value of probable losses that have occurred infuture cash flows, which includes all contractual interest and principal payments, discounted at the loan portfolio and other lending-related commitments.loan’s original effective interest rate. The loan loss allowance is reported as a reduction of loans and advances to banks and customers and the provisionscustomers. Provisions for contingent liabilities, such as guarantees, loan commitments and other obligations are reported as other liabilities.
ToLoans with an outstanding balance greater than €1 mn are considered to be individually significant, and they are assessed individually to determine whether an impairment exists. Individually significant loans that are not impaired, as well as loans that are not individually significant, are grouped with loans evidencing similar credit characteristics and are collectively assessed for impairment. Loans impaired individually or collectively are eliminated from further testing to ensure that there is no duplication of impairment. The following allowances comprise the appropriate level of thetotal loan loss allowance, all significant counterparty relationshipsallowance.
Specific allowances are periodically reviewed. A specific allowance is established to provide for specifically identified counterparty risks. Specific allowances are established for impaired loans. The amount of the impairment is based on the present value of expected future cash flows or based on the fair value of the collateral if the loan is collateralized
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
and foreclosure is probable. If the amount of the impairment subsequently increases or decreases due to an event occurring after the initial measurement of impairment, a change in the allowance is recognized in earnings by a charge or a credit to the loan loss provisions.
A countryGeneral allowances are established to provide for incurred but unidentified losses for individually significant loans that do not have a specific allowance. Loans are segmented into groups of loans with similar risk characteristics and general allowances are calculated using statistical methods of credit risk measurement based on historical loss experience and the evaluation of the loan portfolio under current events and economic conditions.
Portfolio allowances are established for all loans that are not considered individually significant and have not been individually assessed. These loans are segmented into portfolios of homogeneous loans exhibiting similar loss characteristics, and allowances are calculated using statistical methods based upon historical loss rates which are regularly updated. Portfolio allowances are presented within the specific allowance iscategory.
Country risk allowances are established for transfer risk. Transfer risk is a measure of the likely ability of a borrower in a country to repay its foreign currency-denominated debt in light of the economic or political situation prevailing in the country. Country risk allowances are based on a country risk rating system that incorporates current and historical economic, political and other data to categorize countries by risk profile.
A particular Loans with specific allowances are excluded from the country risk rating system, and countries provided for within the country risk allowance is established for all loans with an outstanding balance of €1 mn or less for incurred but unidentified losses byare excluded from the Dresdner Bank Group. The particular allowance methodology categorizes loans into homogeneous portfolios and establishes the particular allowance based upon historical loss rates which are continuously updated.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
A general allowance is established to provide for incurred but unidentified losses for loans with an outstanding balance greater than €1 mn for the Dresdner Bank Group and for all other loans held by subsidiariesdetermination of the Banking segment. Generaltransfer risk component of the general allowance. Country risk allowances are established for loans not specifically identifiedpresented within the specific or general risk category, as impaired. The amount of the allowance is based on historical loss experience and the evaluation of the loan portfolio under current events and economic conditions.appropriate.
Loans are charged-off when all economically sensible means of recovery have been exhausted. At the point of charge-off, the loan, as well as any specific allowance associated with the loan, is removed from the consolidated balance sheet or a charge may be recorded to directly charge-off the
loan. A charge-off may be full or partial. Subsequent to a charge-off, recoveries, if any, are recognized as a credit to the loan loss provisions.
The loan loss provisions are the amount necessary to adjust the loan loss allowance to a level determined through the process described above.
Financial assets carriedReclassification of financial instruments
Once a financial instrument has been classified into a particular category at fair value through incomeinitial recognition, transfers into or out of that category from or to another category are impossible for some categories and are rarely done in all other circumstances. Please refer to Note 3 for amendments to IAS 39 with regard to reclassifications.
Offsetting of financial instruments
Financial assets carried at fair value through income include financial assets held for trading, financial assets for unit linked contracts and financial assets designated at fair value through income.liabilities are offset and the net amount reported in the balance sheet only when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or to realise the asset and settle the liability simultaneously.
Financial assets held for trading consistsDerecognition of debt and equity securities, promissory notes and precious metal holdings, which have been acquired principally for the purpose of generating a profit from short-term fluctuations in price and derivative financial instruments that do not meet the criteria for hedge accounting with positive fair values. Financial assets held for trading are reported at fair value. Changes in fair value are recognized directly in net income. Exchange-traded financial instruments are valued at the exchange prices prevailing on the last exchange trading day of the year. To determine the fair values of unlisted financial instruments, quotations of similar instruments or other valuation models (in particular present value models or option pricing models) are used. In the process, appropriate adjustments are made for credit and measurement risks.
Financial assets for unit linked contractsA financial asset is derecognized when the contractual rights to the cash flows from the financial asset expire or the Allianz Group transfers the asset and substantially all of the risks and rewards of ownership or transfers the asset and loses control of the asset. A financial assets designated at fair value throughincome are recorded at fair value with changes recorded together with the changes in the corresponding financial liabilities for unit linked contracts in net income.liability is derecognized when it is extinguished.
Derivative financial instruments
The Allianz Group’s Property-Casualty and Life/Health segments use derivative financial instruments such as swaps, options and futures to hedge against changes in market prices or interest rates in their investment portfolios.
In the Allianz Group’s Banking segment, derivative financial instruments are used both for trading purposes and to hedge against movements in interest rates, currency exchange rates and other price risks of investments, loans, deposit liabilities and other interest sensitive assets and liabilities.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Derivative financial instruments that do not meet the criteria for hedge accounting are reported at fair value as financial assets held for trading or financial liabilities held for trading. Gains or losses from these derivative financial instruments arising from valuation at fair value are included in income from financial assets and liabilities held for trading. This treatment is also applicable for bifurcated embedded derivatives of a hybrid financial instrument.instruments.
For derivative financial instruments used for hedging purposesin hedge transactions that meet the criteria for hedge accounting (“accounting hedges”), the Allianz Group designates the derivative financial instrument as a fair value hedge, cash flow hedge, or hedge of a net investment in a foreign entity. The Allianz Group documents the hedge relationship, as well as its risk management objective and strategy for entering into various hedge transactions. The Allianz Group also assesses, both at the hedge’s inception and on an ongoing basis, whether the derivative financial instruments that are used for hedging transactions are highly effective in offsetting changes in fair values or cash flows of the hedged items.
Derivative financial instruments used in hedge transactions that meet the criteria for hedge accounting hedges are recognized as follows:
Fair value hedges
The risk of changesFair value hedges are hedges of a specific riskchange in the fair value of assetsa recognized financial asset or liabilities is hedged byliability or a fair value
Notesfirm commitment due to the Allianz Group’s Consolidated Financial Statements—(Continued)
hedge.a specified risk. Changes in the fair value of a derivative financial instrument, together with the pro rata share of the change in fair value of the hedged item attributable to the hedged risk are recognized in net income.
Cash flow hedges
Cash flow hedges reduceoffset the exposure to variability in expected future cash flows that is attributable to a particular risk associated with a recognized asset or liability or attributable to future cash flows from a firm commitment or a forecasted transaction. Changes in the fair value of a derivative financial instrumentsinstrument that represent an effective hedge are recorded in unrealized gains and losses (net) in shareholders’ equity, and are recognized in net income when the offsetting gain or loss associated with the hedged item is recognized. The ineffective partAny ineffectiveness of the cash flow hedge is recognized directly in net income.
Hedges of a net investment in a foreign entity
Hedge accounting may be applied to derivative financial instruments used to hedge the foreign currency risk associated with a net investment in a foreign entity. Derivative financial instruments are used to hedge currency risk. The proportion of gains or losses arising from valuation of the derivative financial instrument, which is classified asdetermined to be an effective hedge, is recognized in unrealized gains and losses (net) in shareholders’ equity, while the ineffective partany ineffectiveness is recognized directly in net income.
For all fair value hedges, cash flow hedges, and hedges of a net investment in a foreign entity, the derivative financial instruments are included in other assets or other liabilities.
The Allianz Group discontinues hedge accounting prospectively when it is determined that the derivative financial instrument is no longer highly effective, when the derivative financial instrument or the hedged item expires, or is sold, terminated or exercised, or when the Allianz Group determines that designation of the derivative financial instrument as a hedging instrument is no longer appropriate. WhenAfter a fair value hedge is discontinued, the Allianz Group continues to report the derivative financial instrument at its fair value and no longer recognizeswith changes in fair value recognized in net income, but changes in the fair value of the hedged item are no longer recognized in net income. WhenAfter hedge accounting for a cash flow hedge is discontinued, the Allianz Group continues to recordtherecord the derivative financial instrument at its fair value andvalue; any net unrealized gains and losses accumulated in shareholders’ equity are recognized when the planned transaction occurs. WhenAfter a hedge of a net investment in a foreign entity is discontinued, the Allianz Group continues to report the derivative financial instrument at its fair value and any net unrealized gains or losses accumulated in shareholders’ equity remain in shareholders’ equity until the disposal of the foreign entity.
Derivative financial instruments are netted when there is a legally enforceable right to offset with the same counter-party and when the Allianz Group intends to settle on a net basis.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Cash and cash equivalentsDisclosures relating to financial instruments
Cash and cash equivalents include balances with banks payable on demand, balances with central banks, checks and cash on hand, treasury billsIFRS 7 requires to group financial instruments into classes that are appropriate to the extent theynature of the information disclosed and that take into account the characteristics of those financial instruments. The scope of IFRS 7 includes recognized and unrecognized financial instruments. Recognized financial instruments are not included inthose financial assets held for trading, and billsfinancial liabilities within the scope of exchange whichIAS 39. Unrecognized financial instruments are eligible for refinancing at central banks, subjectfinancial instruments that are outside of the scope of IAS 39 but within the scope of IFRS 7. The classes of financial instruments within Allianz Group are mainly in line with the categories according to a maximum term of six months from the date of acquisition.IAS 39.
Reinsurance
Premiums ceded for reinsuranceThe enlarged risk disclosure requirements of IFRS 7 are reflected in the Quantitative and reinsurance recoveriesQualitative Disclosures about Market Risk (ITEM 11) on benefits and claims incurred are deducted from premiums earned and insurance and investment contract benefits. Assets and liabilities relatedpages 153 to reinsurance are reported on a gross basis. Amounts ceded to reinsurers from reserves for insurance and investment contracts are estimated175 in a manner consistent with the claim liability associated with the reinsured risks. Accordingly, revenues and expenses related to reinsurance agreements are recognized consistent with the underlying risk of the business reinsured.
Income taxes
Income tax expense consists of the taxes actually charged to the individual Allianz Group subsidiaries and changes in deferred tax assets and liabilities.this 20-F.
The calculationrequirements of deferred taxIAS 1 with regard to capital disclosures are also incorporated in ITEM 11.
ITEM 11, with the exception of the “Outlook” section on page 176, is based on temporary differences betweenan integral part of the Allianz Group’saudited
consolidated financial statements.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
carrying amounts of assets or liabilities in its consolidatedThe following table summarizes the relations between balance sheet positions, classes according to IFRS 7 and their tax bases. The tax rates used for the calculation of deferred taxes are the local rates applicable in the countries concerned; changescategories according 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.IAS 39.
IAS 39 category Balance sheet line item and IFRS 7 classes of financial assets Financial assets Cash and cash equivalents Financial assets carried at fair value through income – Financial assets held for trading – Financial assets designated at fair value through income Investments – Available-for-sale investments – Held-to-maturity investments Loans and advances to banks and customers Financial assets for unit-linked contracts Other Assets – Derivative financial instruments used for hedging that meet the criteria for hedge accounting and firm commitments Balance sheet line item and IFRS 7 classes of financial liabilities Financial liabilities Financial liabilities carried at fair value through income – Financial liabilities held for trading – Financial liabilities designated at fair value through income Liabilities to banks and customers Reserves for insurance and investment contracts – Investment contracts with policyholders Financial liabilities for unit-linked contracts Other Liabilities – Derivative financial instruments used for hedging purposes that meet the criteria for hedge accounting and firm commitments – Financial liabilities for puttable equity instruments Certificated liabilities Participation certificates and subordinated liabilities Off-balance sheet Financial guarantees Irrevocable loan commitmentsOther assetsMeasurement basis Other assets, amongst others, consist of real estate owned by the Allianz Group and used for its own activities, equipment, accounts receivable, deferred policy acquisition costs, deferred sales inducements, prepaid expenses and miscellaneous assets.Real estate owned by the Allianz Group used for its own activities (e.g., real property 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, 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.Real estate used by the Allianz Group is to be accounted for as corporate assets within a cash-generating unit (CGU). An impairment loss is recognized if the recoverable amount of the CGU is less than the carrying amount of the CGU.Equipment is carried at cost less accumulated depreciation and impairments. Depreciation is generally computed using the straight-line method over the estimated useful lives of the assets. The estimated useful life of equipment ranges from 2 to 10 years, except for purchased information technology equipment, which is 2 to 8 years.Receivables are recorded at face value less any payments received, net of appropriate valuation allowances.Deferred policy acquisition costs generally consist of commissions, underwriting expenses and policy issuance costs, which vary with and are directly related to the acquisition and renewal of insurance contracts. These acquisition costs are deferred, to the extent they are recoverable, and amortized over the life of the related contracts.For investment contracts, acquisition costs are only deferred if the costs are incremental. Acquisition costs are incremental if the costs would not have been incurred if the related contracts would not have been issued.Sales inducements on insurance contracts that meet the following criteria are deferred and amortized using the same methodology and assumptions used to amortize deferred policy acquisition costs:recognized as part of reserves for insurance and investment contracts,explicitly identified in the contract at inception,incremental to amounts the Allianz Group credits on similar contracts without sales inducements, andhigher than the contract’s expected ongoing crediting rates for periods after the inducement.Asset securitizationsThe Allianz Group transfers financial assets to certain SPEs in revolving securitizations of commercial mortgage or other loan portfolios. The Allianz Group consolidates these SPEs as the Allianz Group continues to control the financial assets transferred and retains the servicing of such loans.LeasesPayments made under operating leases to the lessor are charged to administrative expenses using the straight-line method over the period of the lease. When an operating lease is terminated before the lease period has expired, any penalty is recognized in full as an expense at the time when such termination takes place.Nominal value — Fair value Held for trading Fair value Designated at fair value through income Fair value Available-for-sale investments Amortized cost Held-to-maturity investments Amortized cost Loans and receivables Fair value — Fair value — Fair value Held for trading Fair value Designated at fair value through income Amortized cost Other liabilities - at amortized cost Fair value — Fair value — Fair value — Redemption amount — Amortized cost Other liabilities - at amortized cost Amortized cost Other liabilities - at amortized cost Nominal value — Nominal value —
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Supplementary information on the Allianz Group’s shareholders’ equity and liabilities
Shareholders’ equityInsurance, investment and reinsurance contracts
Paid-in capital includes issued capital and capital reserves. Issued capital represents the mathematical per share value received from the issuance of shares. Capital reserves represent the premium, or additional paid in capital, received from the issuance of shares.
Revenue reserves include the retained earnings of the Allianz Group and treasury shares. Treasury shares are deducted from shareholders’ equity at cost. Upon disposal any difference between proceeds and costs is recorded in revenue reserves, net of any applicable taxes.
Any translation differences, including those arising in the application of the equity method of accounting, are recorded asforeign currency translation adjustments directly in shareholders’ equity without affecting earnings.
Unrealized gains and losses include unrealized gains and losses from securities available-for-sale and derivative financial instruments used for hedge purposes that meet the criteria for hedge accounting, including cash flow hedges and hedges of a net investment in a foreign entity.
Minority interests in shareholders’ equity represent the proportion of shareholders’ equity that is attributable to minority shareholders.
Comprehensive income is defined as the change in shareholders’ equity of the Allianz Group excluding transactions with shareholders such as the issuance of common or preferred shares, payment of dividends and purchase of treasury shares. Comprehensive income has two major components: net income and other comprehensive income. Other comprehensive income includes such items as unrealized gains and losses on foreign currency translation, securities available-for-sale, and gains and losses on derivatives involved in cash flow hedges and hedges of a net investment in a foreign entity, net of applicable deferred income taxes. It also includes, where applicable, adjustments to insurance policyholder liabilities, PVFP and deferred policy acquisition costs.
Certificated liabilities, participation certificates and subordinated liabilities
Certificated liabilities, participation certificates and subordinated liabilities are initially recorded at cost, which is the fair value of the consideration received, net of transaction costs incurred. Subsequent measurement is at amortized cost, using the effective interest method to amortize the premium or discount to the redemption value over the life of the liability.
Reserves for insuranceInsurance and investment contracts
Reserves for insurance and investment contracts include unearned premiums, aggregate policy reserves, reserves for loss and loss adjustment expenses, the reserve for premium refunds, premium deficiency reserves and other insurance reserves.
Contracts issued by insurance subsidiaries of the Allianz Group are classified according to IFRS 4 as insurance or investment contracts. Contracts under which the Allianz Group accepts significant insurance risk from a policyholder are classified as insurance contracts. Contracts under which the Allianz Group does not accept significant insurance risk are classified as investment contracts. Certain insurance and investment contracts include discretionary participation features. All insurance contracts and investment contracts with discretionary participating features are accounted for under the provisions of USU.S. GAAP, including SFAS 60, SFAS 97 and SFAS 120. Investment contracts without discretionary participation features are accounted for as financial instruments in accordance with IAS 39.
Reinsurance contracts
The Allianz Group’s consolidated financial statements reflect the effects of ceded and assumed reinsurance contracts. Assumed reinsurance refers to the acceptance of certain insurance risks by Allianz that other companies have underwritten. Ceded reinsurance refers to the transfer of insurance risk, along with the respective premiums, to one or more reinsurers who will share in the risks. When the reinsurance contracts do not transfer significant insurance risk according to SFAS 113, deposit accounting is applied as required under SOP 98-7.
Assumed reinsurance premiums, commissions and claim settlements, as well as the reinsurance element of technical provisions are accounted for in accordance with the conditions of the reinsurance contracts and with consideration of the original contracts for which the reinsurance was concluded.
Premiums ceded for reinsurance and reinsurance recoveries on benefits and claims incurred are deducted from premiums earned and insurance and investment contract benefits. Assets and liabilities related to reinsurance are reported on a gross basis. Amounts ceded to reinsurers from reserves for insurance and investment contracts are estimated in a manner consistent with the claim liability associated
with the reinsured risks. Revenues and expenses related to reinsurance agreements are recognized in a manner consistent with the underlying risk of the business reinsured.
To the extent that the assuming reinsurers are unable to meet their obligations, the Group remains liable to its policy-holders for the portion reinsured. Consequently, allowances are made for receivables on reinsurance contracts which are deemed uncollectible.
Deferred acquisition costs
Deferred acquisition costs (DAC), present value of future profits (PVFP) and deferred sales inducements comprise the deferred acquisition costs in the balance sheet.
DAC generally consist of commissions, underwriting expenses and policy issuance costs, which vary with and are directly related to the acquisition and renewal of insurance contracts. These acquisition costs are deferred, to the extent they are recoverable, and are subject to recoverability testing at the end of each accounting period.
For short and long duration traditional products (SFAS 60) and limited payment products (SFAS 97), DAC is amortized in proportion to premium revenue recognized. For universal life, participating life, and investment-type products (SFAS 97 and SFAS 120), DAC is amortized over the contract life of a book of contracts based on estimated gross profit (EGP) or estimated gross margin (EGM), as appropriate, based on historical and anticipated future experience, which is evaluated regularly.
For investment contracts, acquisition costs are only deferred if the costs are incremental. Acquisition costs are incremental if the costs would not have been incurred if the related contracts would not have been issued.
PVFP is the present value of net cash flows anticipated in the future from insurance contracts in force at the date of acquisition and is amortized over the life of the related contracts. PVFP was determined using discount rates ranging from 12.0% to 16.9%. Interest accrues on the PVFP balance based upon the
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
policy liability rate or contract rate. Interest accrues on PVFP at rates between 2.0% and 18.7%.
Deferred sales inducements on insurance contracts that meet the following criteria are deferred and amortized using the same methodology and assumptions used for amortized deferred acquisition costs:
recognized as part of reserves for insurance and investment contracts,
explicitly identified in the contract at inception,
incremental to amounts the Allianz Group credits on similar contracts without sales inducements, and
higher than the contract’s expected ongoing crediting rates for periods after the inducement.
Shadow accounting
Shadow accounting is applied to insurance and investment contracts with discretionary participating features, and SFAS 97 universal life type insurance contracts and SFAS 97 investment contracts. Shadow accounting is applied to DAC, PVFP, deferred sales inducements, unearned premium liabilities and the reserves for insurance and investment contracts to take into account the effect of unrealized gains or losses on insurance liabilities or assets in the same way as it is done for a realized gain or loss. These assets or liabilities are adjusted with corresponding charges or credits recognized directly to shareholders’ equity as a component of the related unrealized gains and losses.
Unearned premiums
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 asunearned premiums.premiums. These premiums are earned in subsequent years in relation to the insurance coverage provided. Unearned premiums
For long-duration insurance contracts, in accordance with SFAS 97, amounts charged as consideration for reinsurance business assumedorigination of the contract
(i.e. initiation or front-end fees) are generallyreported as unearned premium. These fees are recognized using the same methodology as DAC amortization.
Unbundling
The deposit component of an insurance contract is unbundled when both of the following conditions are met:
1. | the deposit component (including any embedded surrender option) can be measured separately (i.e., without taking into account the insurance component); and |
2. | the Allianz Group’s accounting policies do not otherwise require the recognition of all obligations and rights arising from the deposit component. |
Currently, the Allianz Group has no in-force insurance contracts for which all of the rights and obligations related to such contracts have not been recognized. As a result, the Allianz Group has not recognized an unbundled deposit component in respect of any of its insurance contracts, and accordingly the Allianz Group has not recorded any related provisions in its consolidated financial statements.
Bifurcation
Certain of the Allianz Group’s universal life-type insurance contracts include options to replicate a market index (market value liability options or “MVLO”). These options are bifurcated from the insurance contracts and accounted for as derivatives.
Reserves for loss and loss adjustment expenses
Reserves are established for the payment of losses and loss adjustment expenses (LAE) on claims which have occurred but are not yet settled. Reserves for loss and loss adjustment expenses fall into two categories: case reserves for reported claims and incurred but not reported reserves (IBNR).
Case reserves for reported claims are based on estimates of future payments that will be made with respect to claims, including LAE relating to such claims. Such estimates are made on a case-by-case
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
basis, based on the calculationsfacts and circumstances available at the time the reserves are established. The estimates reflect the informed judgment of claims personnel based on general insurance reserving practices and knowledge of the cedent. Deferred policy acquisitionnature and value of a specific type of claim. These case reserves are regularly reevaluated in the ordinary course of the settlement process and adjustments are made as new information becomes available.
IBNR reserves are established to recognize the estimated cost of losses that have occurred but where the Allianz Group has not yet been notified. IBNR reserves, similar to case reserves for reported claims, are established to recognize the estimated costs, including expenses, necessary to bring claims to final settlement. The Allianz Group relies on its past experience, adjusted for short-durationcurrent trends and any other relevant factors to estimate IBNR reserves. IBNR reserves are estimates based on actuarial and statistical projections of the expected cost of the ultimate settlement and administration of claims. The analyses are based on facts and circumstances known at the time, predictions of future events, estimates of future inflation and other societal and economic factors. Trends in claim frequency, severity and time lag in reporting are examples of factors used in projecting the IBNR reserves. IBNR reserves are reviewed and revised periodically as additional information becomes available and actual claims are reported.
The process of estimating loss and LAE reserves is by nature uncertain due to the large number of variables affecting the ultimate amount of claims. Some of these variables are internal, such as changes in claims handling procedures, introduction of new IT systems or company acquisitions and divestitures. Others are external, such as inflation, judicial trends, and legislative changes. The Allianz Group reduces the uncertainty in reserve estimates through the use of multiple actuarial and reserving techniques and analysis of the assumptions underlying each technique.
There is no adequate statistical data available for some risk exposures in liability insurance, contracts are amortized oversuch as environmental and asbestos claims and large-scale individual claims, because some aspects of these types of claims become known very slowly and continue to evolve. Appropriate provisions have been made for such cases based on the periodsAllianz Group’s judgment and an analysis of the portfolios in which
such risks occur. These provisions represent the related premiums are earned.Allianz Group’s best estimate. The reserves for loss and loss adjustment expenses for asbestos claims in the United States were reviewed by independent actuaries during the year-end of 2005; current reserves reflect subsequent loss developments and reestimation of initial reserves.
Reserves for insurance and investment contracts and financial liabilities for unit-linked contracts
TheReserves for insurance and investment contracts include aggregate policy reserves, reserves for premium refunds and other insurance reserves.
Aggregate policy reserves for long-duration insurance contracts, such as traditional life and health products, are computed in accordance with SFAS 60 using the net level premium method, which
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
represents the present value of estimated future policy benefits to be paid less the present value of estimated future net premiums to be collected from policyholders. The method uses best estimate assumptions adjusted for a provision for adverse deviation for mortality, morbidity, expected investment yields, surrenders and expenses at the policy inception date, which remain locked-in thereafter. Deferred policy acquisition costslocked in thereafter unless a premium deficiency occurs. DAC and PVFP for traditional life and health products are amortized over the premium paying period of the related policies in proportion to the earned premium using assumptions consistent with those used in computing the aggregate policy reserves.
The aggregate policy reserves for traditional participating insurance contracts are computed in accordance with SFAS 120 using the net level premium method. The method uses assumptions for mortality, morbidity and interest rates that are guaranteed in the contract or used in determining the policyholder dividends. Deferred policy acquisition costsdividends (or “premium refunds”). DAC and PVFP for traditional participating insurance products are amortized over the expected life of the contracts in proportion to estimated gross margins (“EGMs”)EGMs based upon historical and anticipated future experience, which is determined on a best estimate basis and evaluated regularly. The present value of EGMs is computed using the expected investment yield. EGMs include premiums, investment income including realized gains and losses, insurance benefits, administration costs, changes in the
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
aggregate reserves and policyholder dividends. The effect of changes in EGMs are recognized in net income in the period revised.
The aggregate policy reserves for universal life-type insurance contracts and unit linkedunit-linked insurance contracts in accordance with SFAS 97 isare equal to the account balance, which represents premiums received and investment return credited to the policy less deductions for mortality costs and expense charges. Deferred policy acquisition costsDAC and PVFP for universal life-type and investment contracts are amortized over the expected life of the contracts in proportion to estimated gross profits (“EGPs”)EGPs based upon historical and anticipated future experience, which is determined on a best estimate basis and evaluated regularly. The present value of EGPs is computed using the interest rate that accrues to thepolicyholders,the policyholders, or the credited rate. EGPs include margins from mortality, administration, investment income including realized gains and losses and surrender charges. The effect of changes in EGPs are recognized in net income in the period revised.
Current and historical client data, as well as industry data, are used to determine the assumptions.
Assumptions for interest reflect expected earnings on assets, which back the future policyholder benefits. The information used by the Allianz Group’s qualified actuaries in setting such assumptions includes, but is not limited to, pricing assumptions, available experience studies, and profitability analyses.
The interest rate assumptions used in the calculation of deferred acquisition costs and aggregate policy reserves were as follows:
Long-
| Traditional participating insurance contracts (SFAS 120) | |||||
Deferred acquisition costs | 2.5 – 6.0 | % | 3.1 – 5.2 | % | ||
Aggregate policy reserves | 2.5 – | % | ||||
| % |
In connection with the adoption of SOP 03-1 effective January 1, 2004, insuranceAggregate policy reserves also include liabilities for guaranteed minimum death, and similar mortality and morbidity benefits related to non-traditional contracts, annuitization options, and sales inducements. These liabilities are calculated based on contractual obligations using actuarial assumptions.
Contractually agreed sales inducements to contract holders include persistency bonuses, and are accrued over the period in which the insurance contract must remain in force to qualify for the inducement.
The aggregate policy reserves for unit linkedunit-linked investment contracts isare equal to the account balance, which represents premiums received and investment returnreturns credited to the policy less deductions for mortality costs and expense charges. The aggregate policy reserves for non unit linkedunit-linked investment contracts isare equal to amortized cost, or account balance less deferred policy acquisition costs. Deferred policy acquisition costs and PVFPDAC. DAC for unit linkedunit-linked and non unit linkedunit-linked investment contracts are amortized over the expected life of the contracts in proportion to revenues.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Reserves for loss and loss adjustment expenses are established for the payment of losses and loss adjustment expenses (“LAE”) on claims which have occurred but are not yet settled. Reserves for loss and loss adjustment expenses fall into two categories: case reserves for reported claims and reserves for incurred but not reported reserves (“IBNR”).
Case reserves for reported claims are based on estimates of future payments that will be made in respect of claims, including LAE relating to such claims. Such estimates are made on a case-by-case basis, based on the facts and circumstances available at the time the reserves are established. The estimates reflect the informed judgment of claims personnel based on general insurance reserving practices and knowledge of the nature and value of a specific type of claim. These case reserves are regularly re-evaluated in the ordinary course of the settlement process and adjustments are made as new information becomes available.
IBNR reserves are established to recognize the estimated cost of losses that have occurred but where the Allianz Group has not yet been notified. IBNR reserves, similar to case reserves for reported claims, are established to recognize the estimated costs, including expenses, necessary to bring claims to final settlement. Since nothing is known about the occurrence, the Allianz Group relies on its past experience, adjusted for current trends and any other relevant factors. IBNR reserves are estimates based on actuarial and statistical projections of the expected cost of the ultimate settlement and administration of claims. The analyses are based on facts and circumstances known at the time, predictions of future events, estimates of future inflation and other societal and economic factors. Trends on claim frequency, severity and time lag in reporting are examples of factors used in projecting the IBNR reserves. IBNR reserves are reviewed and revised periodically as additional information becomes available and actual claims are reported.
The process of estimating loss and LAE reserves is by nature uncertain due to the large number ofvariables affecting the ultimate amount of claims. Some of these variables are internal, such as changes in claims handling procedures, introduction of new IT systems or company acquisitions and divestitures. Others are external, such as inflation, judicial trends, and legislative changes. The Allianz Group attempts to reduce the uncertainty in reserve estimates through the use of multiple actuarial and reserving techniques and analysis of the assumptions underlying each technique.
There is no adequate statistical data available for some risk exposures in liability insurance, such as environmental and asbestos claims and large-scale individual claims, because some aspects of these types of claims are becoming generally known very slowly and are still evolving. Appropriate provisions have been made for such cases based on the Allianz Group’s judgment and an analysis of the portfolios in which such risks occur. These provisions represent the Allianz Group’s best estimate. The current reserves for loss and loss adjustment expenses for asbestos claims in the United States reflect loss developments since the most recent external independent actuarial report which was completed during the year ended December 31, 2005.
Thereserves for premium refunds include the amounts allocated under the relevant local statutory or contractual regulations to the accounts of the policyholders and the amounts resulting from the differences between these IFRSIFRSs based financial statements and the local financial statements (“latent reserve for premium refunds”), which will reverse and enter into future profit participation calculations. Unrealized gains and losses recognized in connection with the valuation of securitiesfor available-for-sale investments are recognized in the latent reserve for premium refunds to the extent that policyholders will participate in such gains and losses on the basis of statutory or contractual regulations when they are realized. The profit participation allocated to participating policyholders or disbursed to them reduces the reserve. Any dividends allocated or disbursed over and above the reserve are recorded in other expenses.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)for premium refunds.
Methods and corresponding percentages for participation in profits by the policyholders are set out below for the most significant countries for latent reserves:
Country | Base | Percentage | |||
Germany | |||||
Life1) | 90 | % | |||
Health | all sources of | 80 | % | ||
France | |||||
Life | 80 | % | |||
Italy | |||||
Life | investments | 85 | % | ||
Switzerland | |||||
Group Life | all sources of | 90 | % | ||
Individual Life | all sources of | 100 | % |
1) | additionally 75% of risk result and 50% of all other results. |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Liability adequacy tests are performed for each insurance portfolio on the basis of estimates of future claims, costs, premiums earned and proportionate investment income. For short duration contracts, a premium deficiency is recognized if the sum of expected claim costs and claim adjustment expenses, expected dividends to policyholders, unamortizedun-amortized acquisition costs, and maintenance expenses exceeds related unearned premiums while considering anticipated investment income. For long duration contracts, if actual experience regarding investment yields, mortality, morbidity, terminations or expense indicate that existing contract liabilities, along with the present value of future gross premiums, will not be sufficient to cover the present value of future benefits and to recover deferred policy acquisition costs, then a premium deficiency is recognized.
Other insurance reserves include experience-rated and other premium refunds in favor of policyholders.
Liabilities to banks and customersOther assets
Liabilities to banks and customers include repurchase (“repo”) transactions and securities lending transactions. Repo transactions involve the saleOther assets primarily consist of securities by the Allianz Group to a counter-party, subject to the simultaneous agreement to repurchase these securities at a certain later date, at an agreed price. If control of the securities remains with the Allianz Group over the entire lifetime of the transaction, the securities concerned are recognizedas assets and are recorded in accordance with the accounting principles for financial assets held for trading or investments. The proceeds of the sale are reported under liabilities to banks or liabilities to customers. Interestreceivables, prepaid expenses, from repo transactions are accrued over the durations of the agreements and reported in interest and similar expenses.
In securities lending transactions the Allianz Group generally receives cash collateral which is recorded as liabilities to banks or liabilities to customers. Fees received are recognized as interest income.
Financial liabilities carried at fair value through income
Financial liabilities carried at fair value through income include financial liabilities held for trading, financial liabilities for unit linked contracts, liabilities for puttable equity instruments and financial liabilities designated at fair value through income.
Financial liabilities held for trading primarily include derivative financial instruments used for hedging that do not meet the criteria for hedge accounting, with negative fair values and obligations to deliver assets arising from short salesfirm commitments, property and equipment and other assets. Receivables are generally recorded at face value less any payments received, net of securities, which are carried out in order to benefit from short-term price fluctuations. The securities required to close out short sales are obtained through securities borrowing or reverse repurchase agreements. These liabilities are valued the same as financial assetsvaluation allowances.
Property and equipment includes real estate held for trading.own use, equipment and software.
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.
Equipment is carried at cost less accumulated depreciation and impairments. Depreciation is
generally computed using the straight-line method over the estimated useful lives of the assets. The estimated useful life of equipment ranges from 2 to 10 years, except for purchased information technology equipment, which is 2 to 8 years.
Software, which includes software purchased from third parties or developed internally, is initially recorded at cost and is amortized on a straight-line basis over the estimated useful service lives or contractual terms, generally over 3 to 5 years.
Costs for repairs and maintenance are expensed as incurred, while improvements, if they extend the useful life of the asset or provide additional functionality, are capitalized.
Financial liabilities for unit linked contracts andfinancial liabilities designated at fair value through incomeare recorded at fair value with changes recorded together with the changes in the corresponding financialNon-current assets in net income.and disposal groups classified as held-for-sale and discontinued operations
LiabilitiesNon-current assets or disposal groups are classified as held-for-sale if their carrying amounts will be principally recovered through a sale transaction rather than through continuing use. This requires that the asset or disposal group must be available for puttable financial instruments includeimmediate sale in its present condition and its sale must be highly probable. The appropriate level of management must be committed to a plan to sell the minority interests in shareholders’ equity of certain consolidated investment funds. These minority interestsasset or disposal group and the sale should be expected to qualify for recognition as a financial liabilitycompleted sale within one year from the date of classification.
Non-current assets or disposal groups classified as held-for-sale are measured at the lower of carrying amount and fair value less costs to sell. Any subsequent increases in fair value less costs shall be recognized as a gain but not in excess of the Allianz Group,cumulative impairment loss that has been recognized either in accordance with IFRS 5 or IAS 36. A non-current asset shall not be depreciated while classified as they giveheld-for-sale. A gain or loss not previously recognized by the holderdate of the right to putsale shall be recognized at the instrument back to the Allianz Group for cashdate of derecognition.
A discontinued operation is defined as a component of an entity that either has been disposed of or another financial asset (a “puttable instrument”). These liabilities are required to be recorded at redemption amount with changes recognized in net income. As the redemption amountis classified as held-for-sale and
represents a major line of these liabilitiesbusiness or geographical area of operations,
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
is their fair value, these liabilitiespart of a single coordinated plan to dispose of a separate major line of business or geographical area of operations or
is a subsidiary acquired exclusively with a view to resale.
In the consolidated income statement of the reporting period and the comparable period of the previous years, income and expenses from discontinued operations are included in financial liabilities carried at fair value throughreported separately from income as liabilities for puttable equity instruments.and expenses from continuing operations.
Other accrued liabilitiesIntangible assets
Intangible assets include goodwill, brand names and other intangible assets.
Goodwill resulting from business combinations represents the difference between the acquisition cost of the business combination and the Allianz Group’s proportionate share of the net fair value of identifiable assets acquired and liabilities and certain contingent liabilities assumed. Goodwill resulting from business combinations is not subject to amortization. It is initially recorded at cost and subsequently measured at cost less accumulated impairments.
The Allianz Group usesconducts an annual impairment test of goodwill during the projected4th quarter or more frequently if there is an indication that goodwill is not recoverable. For the purpose of impairment testing, goodwill is allocated to each of the Allianz Group’s cash generating units that is expected to benefit from the business combination. The impairment test includes comparing the recoverable amount to the carrying amount, including goodwill, of all relevant cash generating units. A cash generating unit credit actuarial methodis impaired if the carrying amount is greater than the recoverable amount. The impairment of a cash generating unit is equal to determine the presentdifference between the carrying amount and recoverable amount and is allocated to reduce any goodwill, followed by allocation to the carrying amount of any remaining assets. Impairments of goodwill are not reversed. Gains or losses realized on the disposal of subsidiaries include any related goodwill.
Intangible assets acquired in business combinations are initially recorded at fair value on
the acquisition date if the intangible asset is separable or arises from contractual or other legal rights. Intangible assets with indefinite useful lives are not subject to amortization and are subsequently recorded at cost less accumulated impairments. Intangible assets with finite useful lives are amortized over their useful lives and are subsequently recorded at cost less accumulated amortization and impairments.
Similar to goodwill, an intangible asset with an indefinite useful life is subject to an annual impairment test, or more frequently if there is an indication that it is not recoverable. The impairment test includes comparing the recoverable amount to the carrying amount. Where it is not possible to identify separate cash flows for estimating the recoverable amount of its defined benefit plans and the related service cost and, where applicable, past service cost. The principal assumptions used byan individual asset, the Allianz Group are included in Note 21. The census date forestimates the primary pension plansrecoverable amount of the cash generating unit to which the intangible asset belongs. An intangible asset is October or November, with any significant changes through December 31, taken into account.
For each individual defined benefit pension plan, the Allianz Group recognizes a portion of its actuarial gains and losses in income or expenseimpaired if the unrecognized actuarial net gain or loss atcarrying amount is greater than the endrecoverable amount. The impairment of an intangible asset is equal to the previous reporting period exceedsdifference between the greater of: a) 10 % of the projected benefit obligation at that date; or b) 10 % of the fair value of any plan assets at that date. Any unrecognized actuarial net gain or loss exceeding the greater of these two values is generally recognized in net periodic benefit cost in the consolidated income statement over the expected average remaining working lives of the employees participating in the plans.
Accrued taxes are calculated in accordance with relevant local tax regulations.
Miscellaneous accrued liabilities primarily include provisions for restructuring, anticipated losses arising from non-insurance business, litigation, employees (e.g., early retirement, phased retirement, employee awards for long service, vacationcarrying amount and cash settled share compensation plans) and agents (e.g., unpaid commissions).
Provisions for restructuring are recognized when the Allianz Group has a detailed formal plan for the restructuring and has started to implement the plan or has communicated its main features. The detailed formal plan includes the business concerned, approximate number of employees who will be compensated for terminating their services, the expenses to be incurred and the time period over which the plan will be implemented. The detailed plan must be communicated such that those affected have an expectation that the plan will be implemented.recoverable amount.
Other liabilities
Other liabilities include funds held underpayables, unearned income, provisions, deposits retained for reinsurance business ceded, accounts payable on direct insurance business, accounts payable on reinsurance business,derivative financial instruments for hedge accounting purposes that meet the criteria for hedge accounting and miscellaneousfirm commitments, financial liabilities for puttable equity instruments and other liabilities. These liabilities are reported at redemption value.
Tax payables are calculated in accordance with relevant local tax regulations.
Supplementary information onEquity
Issued capital represents the mathematical per share value received from the issuance of shares.
Capital reserves represent the premium, or additional paid in capital, received from the issuance of shares.
Revenue reserves include the retained earnings of the Allianz Group and treasury shares. Treasury
Notes to the Allianz Group’s income statementConsolidated Financial Statements—(Continued)
shares are deducted from shareholders’ equity. No gain or loss is recognized on the sale, issuance, acquisition or cancellation of these shares. Any consideration paid or received is recorded directly in shareholders’ equity.
Foreign currency translation differences, including those arising in the application of the equity method of accounting, are recorded as foreign currency translation adjustments directly in shareholders’ equity without affecting earnings.
Unrealized gains and losses (net) include unrealized gains and losses from available-for-sale investments and derivative financial instruments used for hedge purposes that meet the criteria for hedge accounting, including cash flow hedges and hedges of a net investment in a foreign entity.
Minority interests represent the proportion of equity that is attributable to minority shareholders.
Premiums earned and claims and insurance benefits paid
Property-casualty insurance premiums 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.
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.
Life insurance premiums from traditional life insurance policies are recognized as earned when due. Premiums from short-duration life insurance policies are recognized as revenues over the period of the contract in proportion to the amount of insurance protection provided. Benefits are recognized when incurred.
Unearned premiums for Property-Casualty and Life/Health contracts are calculated separately for each individual policy to cover the unexpired portion of written premiums. Benefits are recognized when incurred.
Revenues for universal life-type and investment contracts, such as universal life and variable annuity contracts, represent charges assessed against the policyholders’ account balances for the front-end loads, net of the change in unearned revenue liability, cost of insurance, surrenders and policy administration and are included within premiums earned (net). Benefits charged to expense include benefit claims incurred during the period in excess of policy account balances and interest credited to policy account balances.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Interest and similar income/expense
Interest income and interest expense are recognized on an accrual basis. Interest income from lending business is recognized using the effective interest method. This line item also includes dividends from available-for-sale equity securities, and interest recognized on finance leases.leases and income from investments in associated entities and joint ventures. Dividends are recognized in income when declared. Interest on finance leases is recognized in income over the term of the respective lease so that a constant period yield based on the net investment is attained.
Income from investments in associated entities and joint ventures (net) represents the share of net income from entities accounted for using the equity method.
Income from financial assets and liabilities carried at fair value through income (net)
Income from financial assets and liabilities carried at fair value through income principally comprisesincludes all investment income, and realized and unrealized gains and losses from financial assets and liabilities carried at fair value through income. In addition, commissions attributable to trading operations and related interest expense and transaction costs are included in this line item.
Income from investments in associated enterprises and joint ventures (net)
Income from investments in associated enterprises and joint ventures includes dividends from equity securities and the share of net income from enterprises accounted for using the equity method. Dividends are recognized in income when received. Further, realized gains and losses from the disposal of subsidiaries are included in income from investments in associated enterprises and joint ventures. Income from investments in associated enterprises and joint ventures is presented net of related expenses.
Fee and commission income and expenses
In addition to traditional commission income received on security transactions, fee and commission income in the securities business also includes commissions received in relation to private placements, syndicated loans and financial advisory services. Other fees reflect fees from underwriting
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
business (new issues), commissions received for trust and custody services, for the brokerage of insurance policies, and fees related to credit cards, home loans, savingscontractssavings contracts and real estate. Fee and commission income is recognized in Allianz Group’s Banking segment when the corresponding service is provided.
Assets and liabilities held in trust by the Allianz Group in its own name, but for the account of third parties, are not reported in its consolidated balance sheet. Commissions received from such business are shown in fee and commission income.
Investment advisory fees are recognized as the services are performed. Such fees are primarily based on percentages of the market value of the assets under management. Investment advisory fees receivable for private accounts consist primarily of accounts billed on a quarterly basis. Private accounts may also generate a fee based on investment performance, which areis recognized at the end of the respective contract period if the prescribed performance hurdles have been achieved.
Distribution and servicing fees are recognized as the services are performed. Such fees are primarilygenerally based on percentages of the market value of assets under management.
Administration fees are recognized as the services are performed. Such fees are primarilygenerally based on percentages of the market value of assets under management.
Other supplementary informationIncome and expenses from fully consolidated private equity investments
All of the income from fully consolidated private equity investments and all of the expenses from fully consolidated private equity investments are presented in separate income and expense line items. Revenue from fully consolidated private equity investments is recognized upon customer acceptance of goods delivered and when services have been rendered.
Income taxes
Income tax expense consists of the current taxes on profits actually charged to the individual Allianz Group subsidiaries and changes in deferred tax assets and liabilities.
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 only to the extent it is probable that sufficient future taxable income will be available for realization.
Leases
Payments made under operating leases to the lessor are charged to administrative expenses using the straight-line method over the period of the lease. When an operating lease is terminated before the lease period has expired, any penalty is recognized in full as an expense at the time when such termination takes place.
Pensions and similar obligations
The Allianz Group uses the projected unit credit actuarial method to determine the present value of its defined benefit plans and the related service cost and, where applicable, past service cost. The principal assumptions used by the Allianz Group are included in Note 47. The census date for the primary pension plans is October or November, with any significant changes through December 31, taken into account.
For each individual defined benefit pension plan, the Allianz Group recognizes a portion of its actuarial gains and losses in income or expense if the unrecognized actuarial net gain or loss at the end of the previous reporting period exceeds the greater of: a) 10% of the projected benefit obligation at that date; or b) 10% of the fair value of any plan assets at that date. Any unrecognized actuarial net gain or loss exceeding the greater of these two values is generally recognized in net periodic benefit cost in the consolidated income statement over the expected average remaining working lives of the employees participating in the plans.
Share compensation plans
The share basedshare-based compensation plans of the Allianz Group are required to be classified as equity
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
settled or cash settled plans. Equity settled plans are measured at fair value on the grant date and recognized as an expense, with an increase in shareholders’ equity, over the vesting period. Further, equityEquity settled plans include a best estimate of the number of equity instruments that are expected to vest in determining the amount of expense to be recognized. For cash settled plans, the Allianz Group accrues the fair value of the award as compensation expense over the vesting period. Upon vesting, any change in the fair value of any unexercised awards is recognized as compensation expense. If
Restructuring plans
Provisions for restructuring are recognized when the sharesAllianz Group has a detailed formal plan for the restructuring and has started to implement the plan or has communicated its main features. The detailed formal plan includes the business concerned, approximate number of employees who will be compensated for terminating their services, the expenses to be incurred and the time period over which the plan will be implemented. The detailed plan must be communicated such that those affected have an expectation that the plan will be implemented. The income statement line item, restructuring charges, includes additional restructuring related expenditures that are necessarily entailed by the restructuring and not associated with the ongoing activities of the entity but which are not included in the restructuring provisions.
3 Recently adopted and issued accounting pronouncements and changes in the presentation of the consolidated financial statements
Recently adopted accounting pronouncements (effective January 1 and July 1, 2008 and early adoption)
Amendments to IAS 39, Financial Instruments: Recognition and Measurement, and IFRS 7, Financial Instruments: Disclosures
In October 2008, the IASB issued amendments to IAS 39, Financial Instruments: Recognition and Measurement, and IFRS 7, Financial Instruments: Disclosures, titled “Reclassification of financial assets”. The amendments to IAS 39 permit an entity
to reclassify certain non-derivative financial assets out of the “held for trading” (“at fair value through income”) category and out of the “available-for-sale” category if the following specific conditions are redeemable, either mandatorilymet.
Debt instruments, classified as “held for trading” (“at fair value through income”) or “available-for-sale” may be reclassified to the “loans and receivable” category, if they meet the definition of loans and receivables at the reclassification date and where the Allianz Group has now the intent and ability to hold the assets for the foreseeable future or until maturity.
Any other debt instrument and any other equity instrument, classified as “held for trading” (“at fair value through income”) may be reclassified to the “held-to-maturity” category (debt instruments) or to the “available-for-sale” category in rare circumstances and where the Allianz Group has no longer the intention to sell or trade the assets in the short term. The IASB acknowledged, that the deterioration of the world’s financial markets, that has occurred during the third quarter of 2008 is a possible example of a “rare circumstance”.
The amendments to IAS 39 and IFRS 7 are effective July 1, 2008 and should be accounted for on a prospective basis from the date of reclassification. For reclassifications made before November 1, 2008, the amended IAS 39 permits an entity to use fair values as of July 1, 2008 instead of the prevailing fair value at the date of reclassification.
At the reclassification date non-derivative financial assets have to be reclassified at their fair value, which becomes the new cost or amortized cost of the financial asset, as applicable. Previously recognized gains and losses cannot be reversed. After the reclassification date the existing requirements of IAS 39 for measuring financial assets at cost or at amortized cost apply. Any reclassifications under the counter-party’s option,new requirements of the share based compensationamended IAS 39 trigger additional extensive disclosure requirements specified in the amendments to IFRS 7.
Allianz Group adopted the amended IAS 39 and IFRS 7 in the third quarter 2008. The adoption of
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
plan is required to be classified as a cash settled plan by the Allianz Group. In this respect, IFRS 2 has incorporated the “puttable instrument” concept of IAS 32 revised, which requires such instruments to be classified as liabilities rather than equity instruments.
Reclassifications
For reasons of comparability with the current reporting year, some prior-year amounts were adjusted in the consolidated balance sheet and the consolidated income statements through reclassifications that do not affect net income or shareholders’ equity.
3 Recently adopted and issued accounting pronouncements
Recently adopted accounting pronouncements with retrospective application (effective January 1, 2005)
IAS 1 revised
Effective January 1, 2005, the Allianz Group adopted IAS 1 revised, Presentation of Financial Statements (“IAS 1 revised”). The adoption of IAS 1 required that the Allianz Group reclassify minority interests in shareholders’ equity as equity. Therefore, minority interests in shareholders’ equity were reclassified from liabilities into shareholders’ equity in the consolidated balance sheet and consolidated statement of changes in shareholders’ equity.
IAS 1 revised required retrospective application of this change to the Allianz Group’s accounting policy; therefore, the Allianz Group’s consolidated financial statements for the years ended December 31, 2004 and 2003 were adjusted to include the effect of this change.
IAS 32 revised andamended IAS 39 revised
Effective January 1, 2005,and IFRS 7 had no impact on the Allianz Group adopted IAS 32 revised, Financial Instruments: Disclosure and Presentation (“IAS 32 revised”) and IAS 39 revised, Financial Instruments: Recognition and Measurement (“IAS 39 revised”).
Impairments
The adoption of IAS 39 revised required several changes to the Allianz Group’s accounting policiesfor the recognition of impairments of available-for-sale equity securities. In accordance with IAS 39 revised, if there is objective evidence that the cost may not be recovered, an available-for sale equity security is considered to be impaired. Objective evidence that the cost may not be recovered, in addition to qualitative impairment criteria, includes a significant or prolonged decline in the fair value below cost. Previously under IFRS, objective evidence that the cost may not be recovered included a significant and prolonged decline in the fair value below cost. As a result, the Allianz Group established new quantitative impairment criteria to define a significant or prolonged decline. The Allianz Group established a policy that an available-for-sale equity security is considered impaired if the fair value is below the weighted-average cost by more than 20% or if the fair value is below the weighted-average cost for greater than nine months, to define the significant criteria and the prolonged criteria, respectively. This policy is applied individually by all subsidiaries.
In addition, IAS 39 revised does not allow an adjusted cost basis to be established upon impairment of an available-for-sale equity security. Therefore, if an available-for-sale equity security is impaired based upon the Allianz Group’s qualitative or quantitative impairment criteria, any further declines in fair values at subsequent reporting dates are recognized as impairments. Previously, IFRS allowed an adjusted cost basis to be established upon the recognition of an impairment of an available-for-sale equity. Therefore, at each reporting period, if the fair value was less than the adjusted cost basis, the available-for-sale equity security was analyzed for impairment based upon the Allianz Group’s qualitative or quantitative impairment criteria.
Finally, IAS 39 revised does not allow reversals of an impairment of available-for-sale equity securities. Previously, IFRS required that if an impairment of an available-for-sale equity security decreases, the impairment was reversed.
IAS 39 required retrospective application of these changes to the Allianz Group’s accounting policies; therefore, the Allianz Group’s consolidated financial statements for the years ended December 31, 2004 and 2003 were adjusted to include the effects of these changes.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Loans and receivables
The adoption of IAS 39 revised allowed a change to the Allianz Group’s accounting policy for non-quoted financial assets to qualify for accounting as “loans and receivables”. For non-quoted financial assets to qualify for accounting as “loans and receivables”, IAS 39 revised does not require that the financial asset is originated by the Allianz Group. Previously, IFRS required that a financial asset is originated by the Allianz Group to qualify for similar accounting. Non-quoted financial assets which qualify for this accounting, and are classified by the Allianz Group, as “loans and receivables”, are measured at amortized cost using the effective interest method. In addition, IAS 39 revised does not include prohibitions for disposing of “loans and receivables”, dissimilar to financial assets classified as held-to-maturity debt securities.
As a result of the adoption of IAS 39 revised, the Allianz Group reclassified certain available-for-sale debt securities to loans and advances to banks and loans and advances to customers. IAS 39 revised required retrospective application of this change to the Allianz Group’s accounting policies; therefore, the Allianz Group’s consolidated financial statements for the years ended December 31, 2004 and 2003 were adjusted to include the effect of this change.
Financial assets and liabilities designated at fair value throughnet income
IAS 39 revised created a new category, “designated at fair value through income”, for financial assets and liabilities. Financial assets and liabilities designated at fair value through income are measured at fair value with changes recognized in net income. In June 2005, the IASB issued an amendment to IAS 39 revised, which adjusted the qualifications for classification as “designated at fair value through income” as a result of concerns of the EU. The EU endorsed this amendment in November 2005. The Allianz Group has adopted the amendment to IAS 39 revised related to financial assets and liabilities designated at fair value through income.
As a result of the adoption of IAS 39 revised, the Allianz Group reclassified certain available-for-sale securities to financial assets designated at fair valuethrough income as a result of the change as described in the following paragraph regarding adoption of IAS 32 revised. In addition, the Allianz Group reclassified the financial assets and liabilities related to its unit linked insurance and investment contracts to financial assets designated at fair value through income and financial liabilities designated at fair value through income, respectively.
As a result of the adoption IAS 32 revised, a financial instrument qualifies as a financial liability of the Allianz Group if it givesfor the holderyear ended December 31, 2008.
IFRIC 11, Group and Treasury Share Transactions
In November 2006, the rightIFRIC issued IFRIC 11, Group and Treasury Share Transactions. IFRIC 11 addresses the application of IFRS 2 to put the instrument back to the Allianz Group for cashshare-based payment arrangements in three cases. When an entity chooses or another financial asset (a “puttable instrument”). The classification as a financial liability is independent of considerations such as when the right is exercisable, how the amount payable or receivable upon exercise of the right is determined, and whether the puttable instrument has a fixed maturity. As a result of the adoption of IAS 32 revised, the Allianz Group was required to reclassifybuy its own equity instruments to settle the minority interestsshare-based payment obligation, the arrangement should be accounted for as equity-settled share-based payment transaction. When a parent grants employees of a subsidiary rights to its equity instruments, assuming the transaction is recorded as an equity-settled transaction in shareholders’ equity of certain consolidated investment funds to liabilities. These liabilities are required to be recorded at redemption amounts with changes recognized in net income. As the redemption amount of these liabilities is their fair value, these liabilities are included in financial liabilities carried at fair value through income as liabilities for puttable equity instruments.
IAS 39 revised and IAS 32 revised required retrospective application of these changes to the Allianz Group’s accounting policies; therefore, the Allianz Group’s consolidated financial statements, for the years ended December 31, 2004 and 2003 were adjusted to includesubsidiary would also record the effects of these changes.
IFRS 4
Effective January 1, 2005, the Allianz Group adopted IFRS 4, Insurance Contracts (“IFRS 4”). IFRS 4 represents the completion of phase I and is a transitional standard until the IASB has more fully addressed the recognition and measurement of insurance contracts. IFRS 4 requires that all contracts issued by insurance companies be classified as either insurance contracts or investment contracts. Contracts with significant insurance risk are considered insurance contracts. IFRS 4 permits a company to continue with its previously adopted
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
accounting policies with regard to recognition and measurement of insurance contracts. Only in the case of presentation of more reliable figures should a change in accounting policy be carried out. As a result, the Allianz Group principally continues to apply the provisions of US GAAP for the recognition and measurement of insurance contracts. Contracts issued by insurance companies without significant insurance risk are considered investment contracts. Investment contracts are accounted for in accordance with IAS 39 revised. As a result of the adoption of IFRS 4, certain contracts were reclassified as investment contracts.
In addition, IFRS 4 contains specific guidance for contracts with discretionary participation features. As a result of this guidance, the Allianz Group recorded additional liabilities for its individual life insurance business in Switzerland.
IFRS 4 required retrospective application of these changes to the Allianz Group’s accounting policies; therefore, the Allianz Group’s consolidated financial statements for the years ended December 31, 2004 and 2003 were adjusted to include the effects of these changes.
IFRS 2
Effective January 1, 2005, the Allianz Group adopted IFRS 2, Share Based Payments (“IFRS 2”). In accordance with IFRS 2, the share based compensation plans of the Allianz Group are required to be classified as equity settled or cash settled plans. Equity settled plans are measured at fair value on the grant date and recognizedtransaction as an expense, with an increaseequity-settled transaction in shareholders’its financial statements. When a subsidiary grants its employees rights to equity overinstruments of its parent, the vestingperiod. For cash settled planssubsidiary should record the Allianz Group accrues the fair value of the award as compensation expense over the vesting period. Upon vesting, any change in the fair value of any unexercised awards is recognized as compensation expense. If the shares issued are redeemable, either mandatorily or at the counter-party’s option, the share based compensation plan is required to be classifiedtransaction as a cash settled plan by the Allianz Group. In this respect, IFRS 2 has incorporated the “puttable instrument” concept of IAS 32 revised, which requires such instruments to be classified as liabilities rather than equity instruments. Ascash-settled share-based payment transaction. IFRIC 11 is effective for annual periods beginning on or after March 1, 2007. The interpretation did not have a result of the adoption of IFRS 2, the PIMCO LLC Class B Unit Purchase Plan (“Class B Plan”) is considered a cash settled plan as the equity instruments issued are puttable at the holder’s option. Before IFRS 2 was introduced by the IASB, no IFRS covered the accounting for share-based compensation plans. Therefore the Allianz Group applied previously appropriate US GAAP standards, which required, that the Class B Plan be classified as an equity settled plan.
Further, IFRS 2 requires that equity settled plans include a best estimate of the number of equity instruments that are expected to vest in determining the amount of expense to be recognized. Previously, the Allianz Group’s accounting policy required that forfeitures of equity instruments be recognized when incurred.
IFRS 2 revised required retrospective application of these changes to the Allianz Group’s accounting policies; therefore, the Allianz Group’s consolidated financial statements for the years ended December 31, 2004 and 2003 were adjusted to include the effects of these changes.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Impactmaterial impact on the Allianz Group’s consolidated financial statementsstatements.
IFRIC 12, Service Concession Arrangements
In November 2006, the IFRIC issued IFRIC 12, Service Concession Arrangements. IFRIC 12 addresses how service concession operators should apply existing IFRSs to account for the obligations they undertake and rights they receive in service concession arrangements. Service concession arrangements are arrangements whereby a government or other body grants contracts for the supply of public services, such as roads, energy distribution, prisons or hospitals, to private operators. The impactgrantor controls or regulates what services the operator must provide using the assets, to whom, and at what price, and also controls any significant residual interest in the assets at the end of these recently adopted accounting principlesthe term of the arrangement. An operator recognises a financial asset and/or an intangible asset in respect of the consideration received or receivable by it, measured at the fair value of the construction or upgrade services it provides. IFRIC 12 is effective for annual
periods beginning on or after January 1, 2008. The interpretation has not yet been endorsed by the EU but does not have an impact on the Allianz Group’s consolidated financial statements is presented on the following pages.
Impact of recently adopted accounting standards on the consolidated
balance sheet as of December 31, 2004:
IAS 32 revised and IAS 39 revised | |||||||||||||||||||
Balance as of 12/31/2004 as previously reported | Impairments | Loans and receivables | Financial assets and liabilities designated at fair value | IFRS 4 | IFRS 2 | Balance as of | |||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | € mn | |||||||||||||
ASSETS | |||||||||||||||||||
Intangible assets | 15,147 | — | — | — | — | — | 15,147 | ||||||||||||
Investments in associated enterprises and joint ventures | 5,832 | — | (75 | ) | — | — | — | 5,757 | |||||||||||
Investments | 319,552 | — | (66,504 | ) | (4,721 | ) | — | — | 248,327 | ||||||||||
Separate account assets | 15,851 | — | — | (15,851 | ) | — | — | — | |||||||||||
Loans and advances to banks | 126,618 | — | 54,925 | — | — | — | 181,543 | ||||||||||||
Loans and advances to customers | 188,168 | — | 7,512 | — | — | — | 195,680 | ||||||||||||
Financial assets carried at fair value through income | 220,001 | — | — | 20,573 | — | — | 240,574 | ||||||||||||
Cash and cash equivalents | 15,628 | — | — | — | — | — | 15,628 | ||||||||||||
Amounts ceded to reinsurers from insurance reserves | 22,310 | — | — | — | — | — | 22,310 | ||||||||||||
Deferred tax assets | 13,809 | 151 | (4 | ) | 29 | — | 154 | 14,139 | |||||||||||
Other assets | 51,782 | (19 | ) | — | — | — | (550 | ) | 51,213 | ||||||||||
Total assets | 994,698 | 132 | (4,146 | ) | 30 | — | (396 | ) | 990,318 | ||||||||||
SHAREHOLDERS’ EQUITY AND LIABILITIES | |||||||||||||||||||
Shareholders’ equity before minority interests | 30,828 | — | (543 | ) | (33 | ) | (8 | ) | (249 | ) | 29,995 | ||||||||
Minority interests in shareholders’ equity | 9,531 | — | (30 | ) | (1,389 | ) | (6 | ) | (410 | ) | 7,696 | ||||||||
Shareholders’ equity | 40,359 | — | (573 | ) | (1,422 | ) | (14 | ) | (659 | ) | 37,691 | ||||||||
Participation certificates and subordinated liabilities | 13,230 | — | — | — | — | — | 13,230 | ||||||||||||
Reserves for insurance and investment contracts | 355,195 | — | (3,290 | ) | (25,560 | ) | 35 | — | 326,380 | ||||||||||
Separate account liabilities | 15,848 | — | — | (15,848 | ) | — | — | — | |||||||||||
Liabilities to banks | 191,354 | — | — | (7 | ) | — | — | 191,347 | |||||||||||
Liabilities to customers | 157,274 | — | — | (137 | ) | — | — | 157,137 | |||||||||||
Certificated liabilities | 57,771 | — | — | (19 | ) | — | — | 57,752 | |||||||||||
Financial liabilities carried at fair value through income | 102,141 | — | — | 42,996 | — | — | 145,137 | ||||||||||||
Other accrued liabilities | 13,168 | — | — | — | — | 816 | 13,984 | ||||||||||||
Other liabilities | 31,833 | (10 | ) | — | 1 | — | (553 | ) | 31,271 | ||||||||||
Deferred tax liabilities | 14,486 | 142 | (283 | ) | 26 | (21 | ) | — | 14,350 | ||||||||||
Deferred income | 2,039 | — | — | — | — | — | 2,039 | ||||||||||||
Total shareholders’ equity and liabilities | 994,698 | 132 | (4,146 | ) | 30 | — | (396 | ) | 990,318 | ||||||||||
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Impact of recently adopted accounting standards and reclassifications on the
consolidated income statement for the year ended December 31, 2004:
IAS 32 revised and IAS 39 revised | ||||||||||||||||||||||||
Balance as of 12/31/2004 as previously reported | Impairments | Loans and receivables | Financial assets and liabilities designated at fair value | IFRS 4 | IFRS 2 | Reclassifications | Balance as of | |||||||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | |||||||||||||||||
Premiums earned (net) | 56,789 | — | — | — | — | — | — | 56,789 | ||||||||||||||||
Interest and similar income | 21,053 | — | — | (97 | ) | — | — | — | 20,956 | |||||||||||||||
Income from investments in associated enterprises and joint ventures (net) | 777 | — | — | — | — | — | — | 777 | ||||||||||||||||
Other income from investments | 4,816 | 519 | 6 | (162 | ) | — | — | — | 5,179 | |||||||||||||||
Income from financial assets and liabilities carried at fair value through income (net) | 2,813 | — | — | (1,155 | ) | — | — | — | 1,658 | |||||||||||||||
Fee and commission income, and income from service activities | 6,823 | — | — | — | — | — | — | 6,823 | ||||||||||||||||
Other income | 2,556 | — | (5 | ) | — | — | (18 | ) | — | 2,533 | ||||||||||||||
Total income | 95,627 | 519 | 1 | (1,414 | ) | — | (18 | ) | — | 94,715 | ||||||||||||||
Insurance and investment contract benefits (net) | (53,326 | ) | (105 | ) | — | 1,213 | (37 | ) | — | — | (52,255 | ) | ||||||||||||
Interest and similar expenses | (5,437 | ) | — | — | 44 | — | — | (310 | ) | (5,703 | ) | |||||||||||||
Other expenses from investments | (2,745 | ) | (77 | ) | 51 | 99 | — | — | — | (2,672 | ) | |||||||||||||
Loan loss provisions | (354 | ) | — | — | — | — | — | — | (354 | ) | ||||||||||||||
Acquisition costs and administrative expenses (net) | (22,240 | ) | — | — | — | — | (311 | ) | (829 | ) | (23,380 | ) | ||||||||||||
Amortization of goodwill | (1,164 | ) | — | — | — | — | — | — | (1,164 | ) | ||||||||||||||
Other expenses | (5,178 | ) | — | (52 | ) | — | — | — | 1,139 | (4,091 | ) | |||||||||||||
Total expenses | (90,444 | ) | (182 | ) | (1 | ) | 1,356 | (37 | ) | (311 | ) | — | (89,619 | ) | ||||||||||
Earnings from ordinary activities before taxes | 5,183 | 337 | — | (58 | ) | (37 | ) | (329 | ) | — | 5,096 | |||||||||||||
Taxes | (1,727 | ) | (55 | ) | — | 22 | 11 | 87 | — | (1,662 | ) | |||||||||||||
Minority interests in earnings | (1,257 | ) | (67 | ) | — | 30 | 7 | 119 | — | (1,168 | ) | |||||||||||||
Net income | 2,199 | 215 | — | (6 | ) | (19 | ) | (123 | ) | — | 2,266 | |||||||||||||
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Impact of recently adopted accounting standards and reclassifications on the
consolidated income statement for the year ended December 31, 2003:
IAS 32 revised and IAS 39 revised | ||||||||||||||||||||||||
Balance as of 12/31/2003 as previously reported | Impairments | Loans and receivables | Financial assets and liabilities designated at fair value | IFRS 4 | IFRS 2 | Reclassifications | Balance as of | |||||||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | |||||||||||||||||
Premiums earned (net) | 55,978 | — | — | — | — | — | — | 55,978 | ||||||||||||||||
Interest and similar income | 22,592 | — | — | (82 | ) | — | — | — | 22,510 | |||||||||||||||
Income from investments in associated enterprises and joint ventures (net) | 3,030 | (16 | ) | — | — | — | — | — | 3,014 | |||||||||||||||
Other income from investments | 10,002 | 790 | (53 | ) | (249 | ) | — | — | — | 10,490 | ||||||||||||||
Income from financial assets and liabilities carried at fair value through income (net) | 243 | — | — | 276 | — | — | — | 519 | ||||||||||||||||
Fee and commission income, and income from service activities | 6,060 | — | — | — | — | — | — | 6,060 | ||||||||||||||||
Other income | 3,750 | — | 53 | — | — | — | — | 3,803 | ||||||||||||||||
Total income | 101,655 | 774 | — | (55 | ) | — | — | — | 102,374 | |||||||||||||||
Insurance and investment contract benefits (net) | (50,432 | ) | (1,677 | ) | — | (141 | ) | 10 | — | — | (52,240 | ) | ||||||||||||
Interest and similar expenses | (6,561 | ) | — | — | — | — | — | (310 | ) | (6,871 | ) | |||||||||||||
Other expenses from investments | (9,848 | ) | 2,012 | 26 | 358 | — | — | — | (7,452 | ) | ||||||||||||||
Loan loss provisions | (1,027 | ) | — | — | — | — | — | — | (1,027 | ) | ||||||||||||||
Acquisition costs and administrative expenses (net) | (22,117 | ) | — | — | — | — | (276 | ) | (524 | ) | (22,917 | ) | ||||||||||||
Amortization of goodwill | (1,413 | ) | — | — | — | — | — | — | (1,413 | ) | ||||||||||||||
Other expenses | (7,396 | ) | — | (26 | ) | — | — | — | 834 | (6,588 | ) | |||||||||||||
Total expenses | (98,794 | ) | 335 | — | 217 | 10 | (276 | ) | — | (98,508 | ) | |||||||||||||
Earnings from ordinary activities before taxes | 2,861 | 1,109 | — | 162 | 10 | (276 | ) | — | 3,866 | |||||||||||||||
Taxes | (146 | ) | (109 | ) | — | (58 | ) | (1 | ) | 65 | — | (249 | ) | |||||||||||
Minority interests in earnings | (825 | ) | (98 | ) | — | (91 | ) | (3 | ) | 91 | — | (926 | ) | |||||||||||
Net income | 1,890 | 902 | — | 13 | 6 | (120 | ) | — | 2,691 | |||||||||||||||
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Impact of recently adopted accounting standards on shareholders’ equity
as of December 31, 2002:
Balance as of 12/31/2002, as previously reported | Impairments | Loans and receivables | IFRS 4 | IFRS 2 | Balance as of | |||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | |||||||||||||
Paid-in capital | 14,785 | — | — | — | — | 14,785 | ||||||||||||
Revenue reserves | 5,914 | (3,270 | ) | — | 16 | (52 | ) | 2,608 | ||||||||||
Foreign currency translation adjustments | (342 | ) | — | — | — | 27 | (315 | ) | ||||||||||
Unrealized gains and losses (net) | 1,317 | 3,270 | (609 | ) | (10 | ) | — | 3,968 | ||||||||||
Shareholders’ equity before minority interests | 21,674 | — | (609 | ) | 6 | (25 | ) | 21,046 | ||||||||||
Minority interests in share-holders’ equity | 8,314 | — | (26 | ) | 2 | (325 | ) | 7,965 | ||||||||||
Total | 29,988 | — | (635 | ) | 8 | (350 | ) | 29,011 | ||||||||||
Recently adopted accounting pronouncements with prospective application (effective January 1, 2005)statements.
IFRS 3IFRIC 14, IAS 19—The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction
Effective January 1, 2005,In July 2007, IFRIC issued IFRIC 14, IAS 19—The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction. IFRIC 14 addresses how entities should determine the Allianz Group adopted IFRS 3, Business Combinations (“IFRS 3”). In accordance with IFRS 3,limit placed by IAS 19, Employee Benefits, on the Allianz Group is no longer required to amortizeamount of goodwilla surplus in a pension plan they can recognize as an asset, how a minimum funding requirement affects that limit and intangible assets withwhen a minimum funding requirement creates an indefinite life. Instead, the Allianz Group is required to perform impairment tests on an annual basisonerous obligation that should be recognized as a liability in addition to whenever therethat otherwise recognized under IAS 19. The interpretation is an indication that the carrying amount is not recoverable. As a result of the adoption on IFRS 3 on January 1, 2005, the Allianz Group ceased amortization of goodwill and brand names.
Further, the Allianz Group revised its accounting policymandatory for accounting for the acquisition of a minority interest in shareholders’ equity for subsidiaries, companies under control, of the Allianz Group. IFRS 3 does not specifically address these transactions, as the scope of IFRS 3 is limited to accounting for acquisitions in which the Allianz Group obtains control over a company. Therefore, as a result of the adoption of IAS 1 as noted above, the Allianz Group has adopted an accounting policy to treat these acquisitions as transactions between equity holders. Therefore, the acquisition of a minority interest in shareholders’ equity does not result in an allocation of the acquisition cost to the respective fair value of the assets and liabilities acquired. Rather, the excess of the acquisition cost over the Allianz Group’s carrying amount of the minority interest inshareholders’ equity is recognized as a reduction of equity. Similarly, the excess of the Allianz Group’s carrying amount of the minority interest in shareholders’ equity over acquisition cost is recognized as an increase of equity. The Allianz Group has applied this accounting policy to any acquisition of a minority interest in shareholders’ equityannual periods beginning on or after January 1, 2005.
IFRS 5
Effective January 1, 2005,2008. Earlier application is permitted. The interpretation has not yet been endorsed by the Allianz Group adopted IFRS 5, Non-current Assets Held for Sale and Discontinued Operations (“IFRS 5”). In accordance with IFRS 5, a non-current asset or a disposal group is classified as held for sale if its carrying amount will be recovered principally through sale rather than through continuing use. On the date a non-current asset or disposal group meet the criteria as held for sale, it is measured at the lower of its carrying amount and fair value less costs to sell. If the carrying amount is greater than the fair value less costs to sell, a loss is recognized. If the fair value less costs to sell is greater than carrying amount, the gain is recognized upon derecognition of the non-current asset or disposal group.
In addition, IFRS 5 requires that income from discontinued operations be presented separately from income from continuing operations. A discontinued operation is a component ofEU, but does not have an entity that either has or will be disposed of or is classified as held for sale
Notes toimpact on the Allianz Group’s Consolidated Financial Statements—(Continued)
and: represents a separate major line of business or geographical area of operations, is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations, or is a subsidiary acquired exclusively with a view to resale.
A component of an entity comprises operations and cash flows that can be clearly distinguished, operationally and forconsolidated financial reporting purposes, from the rest of the entity.
If a component of an entity qualifies as a discontinued operation, the Allianz Group will present a single amount on its consolidated statements of income for the net income of the discontinued operation, including any gain or loss from the disposal of a non-current asset or a disposal group, for all periods presented.
Recently adopted accounting pronouncement (effective before January 1, 2005)
SOP 03-1
Effective January 1, 2004, the Allianz Group adopted American Institute of Certified Public Accountants (“AICPA”) Statement of Position 03-1,Accounting and Reporting by Insurance Enterprises for certain Nontraditional Long-Duration Contracts and for Separate Accounts (“SOP 03-1”). The most significant accounting implications of SOP 03-1 for the Allianz Group are as follows:
The effect of initially adopting SOP 03-1 was reported in the consolidated statements of changes in shareholders’ equity in the amount of €10 mn, net of taxes.statements.
Recently issued accounting pronouncements (effective on or after January 1, 2006)2009)
IFRS 8, Operating Segments
In December 2004,November 2006, the IASB issued IFRS 8, Operating Segments. IFRS 8 requires the identification of operating segments on the basis of internal reports that are regularly reviewed by the entity’s chief operating decision maker in order to allocate resources to the segment and assess its performance (i. e., the “management approach”). IFRS 8 requires explanations of how the segment information is prepared as well as reconciliations of total reportable segment revenues, total profits or losses, total assets, total liabilities, and other amounts disclosed for reportable segments to corresponding amounts recognized in the entity’s financial statements. IFRS 8 applies to annual financial statements for periods beginning on or after January 1, 2009. IFRS 8 will have no impact on the Allianz Group’s financial results or financial position. The Allianz Group is currently evaluating the potential impact, if any, that the adoption of IFRS 8 will have on the Group’s segment reporting.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
IAS 23, Borrowing Costs—amended
In March 2007, the IASB issued amendments to IAS 23, Borrowing Costs. The main change from the previous version is the removal of the option of immediately recognizing as an expense borrowing costs that relate to assets that take a substantial period of time to get ready for use or sale. The cost of an asset will in future include all costs incurred in getting it ready for use or sale. The revised standard applies to borrowing costs relating to qualifying assets for which the commencement date for capitalization is on or after January 1, 2009. The amendment is expected to have no impact on the Allianz Group’s consolidated financial statements.
IAS 1, Presentation of Financial Statements—revised
In September 2007, the IASB issued the revised IAS 1, Presentation of Financial Statements. The revised standard requires information in financial statements to be aggregated on the basis of shared characteristics and introduces a statement of comprehensive income. The revised standard gives preparers of financial statements the option of presenting items of income and expense and components of other comprehensive income either in a single statement of comprehensive income with subtotals, or in two separate statements. The revisions also include changes in the titles of some of the financial statements to reflect their function more clearly. The new titles will be used in accounting standards, but are not mandatory for use in financial statements. Revised IAS 1 applies to annual financial statements for periods beginning on or after January 1, 2009. The Allianz Group is currently evaluating the potential impact, if any, that the adoption of revised IAS 1 will have on the presentation of the Group’s financial statements.
IFRS 3, Business Combinations—revised and IAS 27, Consolidated and Separate Financial Statements—revised
In January 2008, the IASB issued a revised version of IFRS 3, Business Combinations, and an amended version of IAS 27, Consolidated and Separate Financial Statements. The revised version of
IFRS 3 and the amended version of IAS 27 include the following changes:
The scope of IFRS 3 has been extended and applies now also to combinations of mutual entities and to combinations achieved by contract alone.
In partial acquisitions, non-controlling interests are measured as their proportionate interest in the net identifiable assets or at fair value of the interests.
Under the current IFRS 3, if control is achieved in stages, it is required to measure at fair value every asset and liability at each step for the purpose of calculating a portion of goodwill. The revised version requires that goodwill is measured as the difference at acquisition date between the fair value of any investment in the business held before the acquisition, the consideration transferred and the net assets acquired.
Acquisition-related costs are generally recognized as expenses and are not included in goodwill.
Contingent consideration must be recognized and measured at fair value at the acquisition date. Subsequent changes in fair value are recognized in accordance with other IFRSs, usually in profit and loss. Goodwill is no longer adjusted for those changes.
Transactions with non-controlling interests, i.e., changes in a parent’s ownership interest in a subsidiary that do not result in a loss of control, are accounted for as equity transactions.
The revised standards apply to annual financial statements for periods beginning on or after July 1, 2009. The carrying amounts of any assets and liabilities that arose under business combinations prior to the application of the revised IFRS 3 are not adjusted. The amendments to IAS 27 need to be applied retrospectively with certain exceptions. Earlier application is permitted under certain conditions. The Allianz Group is currently evaluating
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
the potential impact that the adoption of the standards will have on the Group’s financial statements.
IFRS 2, Share-based Payment—amended
In January 2008, the IASB issued an amendment to IFRS 2, Share-based Payment. The amendment clarifies that vesting conditions are service conditions and performance conditions only. Other features of a share-based payment are not vesting conditions. It also specifies that all cancellations, whether by the entity or by other parties, should receive the same accounting treatment. The amendment applies to annual financial statements for periods beginning on or after January 1, 2009. Earlier application is permitted. The Allianz Group is currently evaluating the potential impact, if any, that the adoption of the amendment of IFRS 2 will have on the Group’s financial statements.
IAS 19, Employee Benefits,32, Financial Instruments: Presentation, and IAS 1, Presentation of Financial Statements—amended
In February 2008, the IASB issued amendments to IAS 32, Financial Instruments: Presentation, and IAS 1, Presentation of Financial Statements. IAS 32 requires a financial instrument to be classified as a liability if the holder of that instrument can require the issuer to redeem it for cash. The consequence is that some financial instruments that would usually be considered equity allow the holder to “put” the instrument and are, therefore, considered liabilities rather than equity. The amendments to IAS 32 address this issue and require entities to classify the
following types of financial instruments as equity provided they have particular features and meet specific conditions:
puttable financial instruments (e.g., some shares issued by cooperative entities)
instruments, or components of instruments, that impose on the entity an obligation to deliver to another party a pro rata share of the net assets of the entity only on liquidation (e.g., some partnership interests and some shares issued by limited life entities).
The amendments apply to annual financial statements for periods beginning on or after January 1, 2009. Earlier application is permitted. The amendments are expected to have no material impact on the Allianz Group’s consolidated financial statements.
Improvements to IFRSs
In May 2008, the IASB issued Improvements to IFRSs. The improvements to IFRS project is an annual process that the IASB has adopted to deal with non-urgent but necessary amendments to IFRS (the ‘annual improvements process’). The amendments are divided in two parts and include 34 amendments. Part I deals with changes the IASB identified resulting in accounting changes. Part II deals with terminology and editorial amendments that have a minimal impact.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
The following table summarizes the changes relating to Part I that are applicable to Allianz Group.
Standard | Description of the change | Effective dates and impact | ||
IFRS 5 | If an entity plans to sell the controlling interest in a subsidiary, all of the subsidiary’s assets and liabilities will be classified as held-for-sale under IFRS 5 even when the entity retains a non-controlling interest in the subsidiary after the sale. | Annual periods beginning on or after 1 July 2009; no material impact expected on Allianz Group’s consolidated financial statements | ||
IAS 1 | Assets and liabilities classified as held for trading in accordance with IAS 39 are not automatically classified as current in the balance sheet. | Annual periods beginning on or after 1 January 2009; no material impact expected on Allianz Group’s consolidated financial statements | ||
IAS 16 | Net selling price is replaced by fair value less costs to sell. Property, plant and equipment held for rental that are routinely sold in the course of business after rental are transferred to inventory when rental ceases and they are held-for-sale. Proceeds of the sale are shown as revenue. Cash payments on initial recognition of such items, cash receipts from rents and subsequent sales are shown as cash flows from operating activities. | Annual periods beginning on or after 1 January 2009; no material impact expected on Allianz Group’s consolidated financial statements | ||
IAS 19 | The definition of past service cost is revised to include reductions in benefits related to past services and to exclude reductions in benefits related to future services that arise from plan amendments. Amendments to plans that result in a reduction in benefits related to future services are accounted for as a curtailment. The definition of return on plan assets now excludes plan administration costs if they have already been included in the actuarial assumptions used to measure the defined benefit obligation. The definition of “short-term” and “other long- term” employee benefits is revised to focus on the point in time at which the liability is due to be settled. The reference to the recognition of contingent liabilities is deleted to ensure consistency with IAS 37. | Annual periods beginning on or after 1 January 2009; no material impact expected on Allianz Group’s consolidated financial statements | ||
IAS 23 | The definition of borrowing costs is revised , i.e., components of interest expense calculated using the effective interest rate method calculated in accordance with IAS 39. | Annual periods beginning on or after 1 January 2009; no material impact expected on Allianz Group’s consolidated financial statements | ||
IAS 27 | When an entity accounts for a subsidiary at fair value in its separate financial statements, this treatment continues when the subsidiary is subsequently classified as held-for-sale | Annual periods beginning on or after 1 January 2009; no material impact expected on Allianz Group’s consolidated financial statements | ||
IAS 28 | Certain disclosures are required when investments in associates are accounted for at fair value through profit or loss. For the purpose of testing an investment in an associate for impairment, the investment is considered a single asset. Therefore, any impairment is not separately allocated to goodwill included in the investment. | Annual periods beginning on or after 1 January 2009; no material impact expected on Allianz Group’s consolidated financial statements |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Standard | Description of the change | Effective dates and impact | ||
IAS 31 | Disclosures are required when interests in jointly controlled entities are accounted for at fair value through profit or loss | Annual periods beginning on or after 1 January 2009; no material impact expected on Allianz Group’s consolidated financial statements | ||
IAS 36 | Additional disclosure are required with regard to estimates used to determine recoverable amount | Annual periods beginning on or after 1 January 2009; no material impact expected on Allianz Group’s consolidated financial statements | ||
IAS 38 | Expenditures relating to advertising and promotional activities are recognized as expense when the entity has the right to access the goods or has received the services. These activities now also specifically include mail order catalogues. Amendment deletes references to there being rarely, if ever, persuasive evidence to support an amortisation method for intangible assets with finite useful lives that results in a lower amount of accumulated amortisation than under the straight-line method, thereby effectively allowing the use of the unit of production method. | Annual periods beginning on or after 1 January 2009; no material impact expected on Allianz Group’s consolidated financial statements | ||
IAS 39 | Changes in circumstances relating to derivatives are not reclassifications. When financial assets are reclassified as a result of an insurance company changing its accounting policy in accordance with IFRS 4, this is a change in circumstance, not a reclassification. The reference to “segment” is removed when determining whether an instrument qualifies as a hedge. The use of the revised effective interest rate rather than the original effective interest rate is required when remeasuring a debt instrument on the cessation of fair value hedge accounting. | Annual periods beginning on or after 1 July 2009; impact on Allianz Group’s consolidated financial statements currently being evaluated | ||
IAS 40 | The scope is being revised now including property that is being constructed or developed for future use as an investment property. Where an entity is unable to determine the fair value of an investment property under construction but expects to be able to determine its fair value on completion, the investment under construction shall be measured at cost until the fair value can be determined or the construction is complete. | Annual periods beginning on or after 1 January 2009; no material impact expected on Allianz Group’s consolidated financial statements |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Voluntary presentation of improved disclosure requirements for IFRS 7
In October 2008, the IASB released an exposure draft: Improving Disclosures about Financial Instruments, proposed amendments to IFRS 7. This exposure draft proposes in particular amendments to disclosure requirements that are based on a three-level fair value hierarchy (similar to that used in SFAS 157). The amendments apply to financial instruments and require disclosures about:
the level of the fair value hierarchy into which fair value measurements are categorized in their entirety. This requirement would apply both for fair values included in the consolidated balance sheet and for other fair values that are disclosed but not included in that statement.
the fair value measurements resulting from the use of significant unobservable inputs to valuation techniques. For these measurements, the disclosures include a reconciliation from the beginning balances to the ending balances.
the movements between different levels of the fair value hierarchy, and the reasons for those movements.
According to the exposure draft an entity shall apply the amendments for annual periods beginning on or after 1 July 2009. Earlier application is permitted.
An earlier adoption is allowed. In anticipation of the new standard the Allianz Group disclosed voluntarily amendments regarding the fair value hierarchy in the Annual Report 2008. Please refer to Note 44 for details.
IFRIC 13, Customer Loyalty Programmes
In June 2007, the IFRIC issued IFRIC 13, Customer Loyalty Programmes. IFRIC 13 addresses how companies, that grant their customers loyalty award credits (often called “points”) when buying goods or services, should account for their obligation to provide free or discounted goods or services if and when the customers redeem the points. Customers are
implicitly paying for the points they receive when they buy other goods or services. Some revenue should be allocated to the points. Therefore, IFRIC 13 requires companies to estimate the value of the points to the customer and defer this amount of revenue as a liability until they have fulfilled their obligations to supply awards. IFRIC 13 is mandatory for annual periods beginning on or after July 1, 2008. Earlier application is permitted. The interpretation is expected to have no material impact the Allianz Group’s consolidated financial statements.
IFRIC 15, Agreements for the Construction of Real Estate
In July 2008, the IFRIC issued IFRIC 15, Agreements for the Construction of Real Estate. IFRIC 15 clarifies the definition of a construction contract and the articulation between IAS 11 and IAS 18 and provides guidance on how to account for revenue when the agreement for the construction of real estate falls within the scope of IAS 18. The main expected change is a shift from recognition of revenue using the percentage of completion method to recognition of revenue at a single time (eg at completion, upon or after delivery). Affected agreements will be mainly those accounted for in accordance with IAS 11 that do not meet the definition of a construction contract as interpreted by the IFRIC and do not result in a “continuous transfer” (i.e. agreements in which the entity transfers to the buyer control and the significant risks and rewards of ownership of the work in progress in its current state as construction progresses). IFRIC 15 is effective for annual periods beginning on or after 1 January 2009 and must be applied retrospectively. Earlier application is permitted. The interpretation is expected to have no material impact the Allianz Group’s consolidated financial statements.
IFRIC 16, Hedges of a Net Investment in a Foreign Operation
In July 2008, the IFRIC issued IFRIC 16, Hedges of a Net Investment in a Foreign Operation. IFRIC 16 provides guidance on:
identifying the foreign currency risks that qualify as a hedged risk in the hedge of a net investment in a foreign operation;
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
where, within a group, hedging instruments that are hedges of a net investment in a foreign operation can be held to qualify for hedge accounting; and
how an entity should determine the amounts to be reclassified from equity to profit or loss for both the hedging instrument and the hedged item.
IFRIC 16 concludes that the presentation currency does not create an exposure to which an entity may apply hedge accounting. Consequently, a parent entity may designate as a hedged risk only the foreign exchange differences arising from a difference between its own functional currency and that of its foreign operation. In addition, the hedging instrument(s) may be held by any entity or entities within the group. While IAS 39 must be applied to determine the amount that needs to be reclassified to profit or loss from the foreign currency translation reserve in respect of the hedging instrument, IAS 21 must be applied in respect of the hedged item. IFRIC 16 is effective for annual periods beginning on or after 1 October 2008 and is to be applied prospectively. The amendments are expected to have no material impact on Allianz Group’s consolidated financial statements.
IFRIC 17, Distributions of Non-cash Assets to Owners
In November 2008, the IFRIC issued IFRIC 17, Distributions of Non-cash Assets to Owners. IFRIC 17 clarifies that:
a dividend payable should be recognized when the dividend is appropriately authorized and is no longer at the discretion of the entity.
an entity should measure the dividend payable at the fair value of the net assets to be distributed.
an entity should recognize the difference between the dividend paid and the carrying amount of the net assets distributed in profit or loss.
The Interpretation also requires an entity to provide additional disclosures if the net assets being
held for distribution to owners meet the definition of a discontinued operation. IFRIC 17 applies to pro rata distributions of non-cash assets except for common control transactions. IFRIC 17 is effective for annual periods beginning on or after 1 July 2009 and is to be applied prospectively. Earlier application is permitted. The Allianz Group is currently evaluating the potential impact, if any, that the adoption of IFRIC 17 will have on the Group’s consolidated financial statements.
IFRIC 18, Transfers of Assets from Customers
In January 2009, the IFRIC issues IFRIC 18, Transfers of Assets from Customers. IFRIC 18 is particularly relevant for the utility sector. It clarifies the requirements of IFRS for agreements in which an entity receives from a customer an item of property, plant and equipment that the entity must then use either to connect the customer to a network or to provide the customer with ongoing access to a supply of goods and services. The entity might in certain cases receive cash from a customer which must be used only to acquire or construct the item of property, plant and equipment in order to connect the customer to a network or provide the customer with ongoing access to a supply of goods or services or both. IFRIC 18 includes a clarification with regard to
the circumstances in which the definition of an asset is met,
the recognition of the asset and measurement of its cost on initial recognition,
the identification of the separately identifiable services,
the recognition of revenue,
the accounting for transfers of cash from customers.
IFRIC 18 is effective for annual periods beginning on or after 1 July 2009 and applies prospectively. Limited retrospective application is permitted. IFRIC 18 is expected to have no material impact on Allianz Group’s consolidated financial statements.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Changes in the presentation of the consolidated financial statements
Reclassification of Dresdner Bank Group as disposal group held-for-sale and discontinued operation
On August 31, 2008, Allianz SE and Commerzbank AG agreed on the sale of Dresdner Bank AG (“Dresdner Bank”) to Commerzbank AG. Following the announcement of the sale, Dresdner Bank qualifies as disposal group held-for-sale and discontinued operation according to the requirements of IFRS 5, Non-current Assets Held-for-sale and Discontinued Operations.
Thus, almost all assets and liabilities of Dresdner Bank have been reclassified and presented
as separate line items “Non-current assets and assets of disposal groups classified as held-for-sale” and “Liabilities of disposal groups classified as held-for-sale”, respectively, on the face of the consolidated balance sheet as of December 31, 2008. Comparative information has not been adjusted in accordance with IFRS 5.
All income and expenses relating to the recognitiondiscontinued operations of actuarial gainsDresdner Bank have been reclassified and lossespresented in a separate line item “Net income (loss) from discontinued operations, net of income taxes and disclosure requirementsminority interests in earnings” in the consolidated income statements for detailed benefits plans. The amendment allowsall years presented in accordance with IFRS 5.
Notes to the Allianz GroupGroup’s Consolidated Financial Statements—(Continued)
The following table summarizes the election to adopt an accounting policy to recognize actuarial gains and losses inimpact on the period which they occur outside of net income. As a result, the Allianz Group would no longer be required to amortize actuarial gains and losses in excess of the corridor over the expected average remaining working lives of the employees participating in the plans in net income. However, if the Allianz Group elects to adopt this accounting policy, it must present the recognized actuarial gains and losses, along with any other items required to be recognized directly in equity, in a statement of recognizedconsolidated income and expenses. This option may be used for reporting periods ending on or after December 16, 2004. The Allianz Group did not elect to utilize this option for the reporting periods ending during the year ended December 31, 2005; however, it is considering the option for reporting period ending during the year ended December 31, 2006. In addition, this amendment incorporates additional disclosure requirements with regards to defined benefit plans that are effectivestatements for the year ended December 31, 2006.2007 and 2006, respectively:
2007 | 2006 | |||||||||||||||||
As previously reported | Classified as discontinued operations | Reported as income and expense from continuing operations | As previously reported | Classified as discontinued operations | Reported as income and expense from continuing operations | |||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | |||||||||||||
Premiums written | 65,788 | — | 65,788 | 65,275 | — | 65,275 | ||||||||||||
Ceded premiums written | (5,934 | ) | — | (5,934 | ) | (6,218 | ) | — | (6,218 | ) | ||||||||
Change in unearned premiums | (492 | ) | — | (492 | ) | (533 | ) | — | (533 | ) | ||||||||
Premiums earned (net) | 59,362 | — | 59,362 | 58,524 | — | 58,524 | ||||||||||||
Interest and similar income | 26,047 | (7,423 | ) | 18,624 | 23,956 | (6,526 | ) | 17,430 | ||||||||||
Income from financial assets and liabilities carried at fair value through income (net) | (1,247 | ) | 430 | (817 | ) | 940 | (1,310 | ) | (370 | ) | ||||||||
Realized gains/losses (net) | 6,548 | (540 | ) | 6,008 | 6,151 | (230 | ) | 5,921 | ||||||||||
Fee and commission income | 9,440 | (2,887 | ) | 6,553 | 8,856 | (2,831 | ) | 6,025 | ||||||||||
Other income | 217 | — | 217 | 86 | (25 | ) | 61 | |||||||||||
Income from fully consolidated private equity investments | 2,367 | — | 2,367 | 1,392 | — | 1,392 | ||||||||||||
Total income | 102,734 | (10,420 | ) | 92,314 | 99,905 | (10,922 | ) | 88,983 | ||||||||||
Claims and insurance benefits incurred (gross) | (46,409 | ) | — | (46,409 | ) | (45,523 | ) | — | (45,523 | ) | ||||||||
Claims and Insurance benefits incurred (ceded) | 3,287 | — | 3,287 | 3,226 | — | 3,226 | ||||||||||||
Claims and insurance benefits incurred (net) | (43,122 | ) | — | (43,122 | ) | (42,297 | ) | — | (42,297 | ) | ||||||||
Change in reserves for insurance and investment contracts (net) | (10,685 | ) | — | (10,685 | ) | (11,375 | ) | — | (11,375 | ) | ||||||||
Interest expenses | (6,672 | ) | 4,602 | (2,070 | ) | (5,759 | ) | 4,126 | (1,633 | ) | ||||||||
Loan loss provisions | 113 | (131 | ) | (18 | ) | (36 | ) | 31 | (5 | ) | ||||||||
Impairments of investments (net) | (1,272 | ) | 87 | (1,185 | ) | (775 | ) | 215 | (560 | ) | ||||||||
Investment expenses | (1,057 | ) | 20 | (1,037 | ) | (1,108 | ) | 53 | (1,055 | ) | ||||||||
Acquisition and administrative expenses (net) | (23,218 | ) | 4,430 | (18,788 | ) | (23,486 | ) | 5,018 | (18,468 | ) | ||||||||
Fee and commission expenses | (2,673 | ) | 360 | (2,313 | ) | (2,351 | ) | 311 | (2,040 | ) | ||||||||
Amortization of intangible assets | (17 | ) | — | (17 | ) | (51 | ) | — | (51 | ) | ||||||||
Restructuring charges | (232 | ) | 50 | (182 | ) | (964 | ) | 422 | (542 | ) | ||||||||
Other expenses | (14 | ) | (3 | ) | (17 | ) | 1 | (14 | ) | (13 | ) | |||||||
Expenses from fully consolidated private equity investments | (2,317 | ) | — | (2,317 | ) | (1,381 | ) | — | (1,381 | ) | ||||||||
Total expenses | (91,166 | ) | 9,415 | (81,751 | ) | (89,582 | ) | 10,162 | (79,420 | ) | ||||||||
Income before income taxes and minority interests in earnings | 11,568 | (1,005 | ) | 10,563 | 10,323 | (760 | ) | 9,563 | ||||||||||
Income taxes | (2,854 | ) | 282 | (2,572 | ) | (2,013 | ) | 293 | (1,720 | ) | ||||||||
Minority interests in earnings | (748 | ) | 73 | (675 | ) | (1,289 | ) | 86 | (1,203 | ) | ||||||||
Net income | 7,966 | (650 | ) | 7,316 | 7,021 | (381 | ) | 6,640 | ||||||||||
In April 2005,
For a detailed description of the IASB issued an amendment to IAS 39 related to the cash flow hedge accounting of intragroup transactions. The amendment istransaction agreement see Note 4.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
effective for the Allianz Group’s reporting periods ending on or after January 1, 2006. The adoption is not expected to have a material impact on the Allianz Group’s financial results or financial position.
In August 2005, the IASB issued amendments to IAS 39 and IFRS 4 relating to the recognition and measurement of financial guarantee contracts. The amendments require that financial guarantee contracts be initially measured at fair value. After initial recognition, the financial guarantee contracts are measured at the higher of the amount determined in accordance with IAS 37, Provisions, Contingent Liabilities and Contingent Assets, and the amount initially recognized less cumulative amortization recognized in accordance with IAS 18, Revenues. The amendment is effective for the Allianz Group’s reporting periods ending on or after January 1, 2006; however, the Allianz Group will be required to retrospectively apply the provisions of the amendments to reporting periods prior to January 1, 2006. As the Allianz Group previously applied US GAAP to its credit insurance contracts, the amendments will not impact the insurance segments. Therefore, the new rule mainly impacts the banking segment. These adoptions are not expected to have a material impact on the Allianz Group’s financial results or financial position.
In August 2005, the IASB issued an amendment to IAS 1, PresentationChange in the Financial Statements. The amendment requires additional disclosures relatingpresentation from administrative expenses to the Allianz Group’s capital. In addition, in August 2005, the IASB issued IFRS 7, Financial Instruments: Disclosures. This standard requires additional disclosures relating to the Allianz Group’s financial instruments and insurance contracts. The amendment to IAS 1 and IFRS 7 are effective for the year ended December 31, 2007. The adoptions are expected to have no impact on the Allianz Group’s financial results or financial position.
4 Consolidationacquisition costs
ScopeAllianz Group discloses the acquisition costs and administrative expenses (net) in the consolidated income statement. Acquisition costs and administrative expenses are disaggregated according to segment and type of costs in Note 39. Acquisition costs relate to the acquisition and administration of insurance policies and include commissions and other acquisition costs paid, commissions and profit received on reinsurance ceded, deferrals of acquisition costs and amortizations of deferred acquisition costs.
Administrative expenses include personnel expenses, operating expenses, and other administrative expenses.
Few of Allianz Group’s subsidiaries have incorrectly allocated some of the consolidation
As of December 31, 2005,costs into acquisition costs and administrative expenses in addition to Allianz AG, 169 (2004: 156; 2003: 193) German and 840 (2004: 907; 2003: 972) foreign subsidiariesthe past. These incorrect allocations have been consolidated. As of December 31, 2005, 67(2004: 68; 2003: 61) German and 26 (2004: 29; 2003: 39) foreign investment funds and 35 (2004: 24) SPEs were also consolidated.
As of December 31, 2005, of the entities that have been consolidated, 9 (2004: 9; 2003: 10) subsidiaries have been consolidated where the Allianz Group 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”). The Allianz Group controls these entities on the basis of shareholder agreements between the Allianz Group subsidiary owning 50% of each such entity and the other shareholder. Pursuant to these shareholder agreements, the Allianz Group has the power to govern the financial and operating policies of these subsidiaries and the right to appoint the general manager,corrected in the case of CreditRas, and the CEO, in the case of Antoniana, who have been given unilateral authority over all aspects of the financial and operating policies of these entities, including the hiring and termination of staff and the purchase and sale of assets. In addition, all management functions of these subsidiaries are performed by the employees of the Allianz Group and all operations are undertaken in Allianz Group’s facilities. The Allianz Group also develops all insurance products written through these subsidiaries. Although the Allianz Group and the other shareholder each have the right to appoint half of the directors of each subsidiary, the rights of the other shareholders are limited to matters specifically reservednotes to the board of directors and shareholders under Italian law, such as decisions concerning capital increases, amendments to articles and similar matters. In addition, in the case of Antoniana, the Allianz Group has the right to appoint the Chairman, who has double board voting rights, thereby giving the Allianz Group a majority of board votes. The shareholder agreements for CreditRas and Antoniana are subject to automatic renewal and are not terminable prior to their stated terms.
As of December 31, 2005, there were 10 (2004: 11; 2003: 13) joint ventures that were accounted for using the equity method; each of these entities is managed by the Allianz Group together with a third party not consolidated in the Allianz Group’s consolidated financial statements. As of December 31, 2005, there were 150 (2004: 181; 2003: 170) associated enterprises accounted for usingThis reclassification from administrative expenses to acquisition costs affects only the equity method.Property-Casualty segment.
The change in presentation has had no effect on consolidation, reported earnings or equity.
The following table summarizes the impact that this reclassification has had on the previously reported financial statements:
Segment | Group | |||||||||||||||||
As previously reported | Adjustment | As adjusted | As previously reported | Adjustment | As adjusted | |||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | |||||||||||||
2007 | ||||||||||||||||||
Property Casualty | ||||||||||||||||||
Acquisition costs | ||||||||||||||||||
Incurred | (7,310 | ) | (380 | ) | (7,690 | ) | (7,310 | ) | (380 | ) | (7,690 | ) | ||||||
Commissions and profit received on reinsurance business ceded | 691 | (20 | ) | 671 | 689 | (20 | ) | 669 | ||||||||||
Deferrals of acquisition costs | 4,511 | — | 4,511 | 4,511 | — | 4,511 | ||||||||||||
Amortization of deferred acquisition costs | (4,384 | ) | — | (4,384 | ) | (4,384 | ) | — | (4,384 | ) | ||||||||
Subtotal | (6,492 | ) | (400 | ) | (6,892 | ) | (6,494 | ) | (400 | ) | (6,894 | ) | ||||||
Administrative expenses | (4,124 | ) | 400 | (3,724 | ) | (4,060 | ) | 400 | (3,660 | ) | ||||||||
Subtotal | (10,616 | ) | — | (10,616 | ) | (10,554 | ) | — | (10,554 | ) | ||||||||
2006 | ||||||||||||||||||
Property Casualty | ||||||||||||||||||
Acquisition costs | ||||||||||||||||||
Incurred | (7,131 | ) | (384 | ) | (7,515 | ) | (7,131 | ) | (384 | ) | (7,515 | ) | ||||||
Commissions and profit received on reinsurance business ceded | 722 | (5 | ) | 717 | 721 | (5 | ) | 716 | ||||||||||
Deferrals of acquisition costs | 3,983 | — | 3,983 | 3,983 | — | 3,983 | ||||||||||||
Amortization of deferred acquisition costs | (3,843 | ) | — | (3,843 | ) | (3,843 | ) | — | (3,843 | ) | ||||||||
Subtotal | (6,269 | ) | (389 | ) | (6,658 | ) | (6,270 | ) | (389 | ) | (6,659 | ) | ||||||
Administrative expenses | (4,321 | ) | 389 | (3,932 | ) | (4,240 | ) | 389 | (3,851 | ) | ||||||||
Subtotal | (10,590 | ) | — | (10,590 | ) | (10,510 | ) | — | (10,510 | ) | ||||||||
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation.
4 Assets and liabilities of disposal groups classified as held-for-sale and discontinued operations
Impact of the sale of Dresdner Bank AG to Commerzbank AG
On August 31, 2008, Allianz SE (“Allianz”) and Commerzbank AG (“Commerzbank”) agreed on the sale of Dresdner Bank AG (“Dresdner Bank”) to Commerzbank. The transaction was planned to take place in two steps. In the first step, Commerzbank would acquire 60.2% of the shares in Dresdner Bank from Allianz. In exchange Allianz would receive cash, the Asset Manager cominvest, a long-term distribution agreement and 163.5 mn new shares in Commerzbank generated from a capital increase against contribution in kind which was equivalent to a share of 18.4% of the increased share capital of Commerzbank. Of the total cash payment of €2.54 bn, €975 mn would be provided to a trust account to cover ultimate losses for specific ABS assets. In the second step, which was subject to the approval by the General Meetings of both entities, Dresdner Bank would be merged with Commerzbank and Allianz would receive shares in Commerzbank. The expected stake that Allianz would have held in Commerzbank would have amounted to nearly 30%. The fair value of these considerations amounted to €7.8 bn as of September 30, 2008. Lastly, it was agreed that Oldenburgische Landesbank AG (OLB) and the banking clients that were introduced through our tied agent’s channel as well as some other bank participations would remain within the Allianz Group.
On November 27, 2008, Allianz and Commerzbank agreed to accelerate the change in ownership of Dresdner Bank. According to the new agreement, Commerzbank will also immediately take ownership of the 39.8% share, which was originally contemplated in the second step, in exchange for an additional cash payment of €1.4 bn at the beginning of 2009. The trust fund agreed upon in the original transaction agreement will be foregone. In exchange,
Allianz will receive a compensation payment of €250 mn in cash. Other agreements remain unchanged. According to the agreement in November 2008, Allianz will receive a total of €3.215 bn in cash and 163.5 mn Commerzbank shares equal to an 18.4% stake in Commerzbank’s share capital as well as the Asset Manager cominvest and a long-term distribution agreement in exchange for Dresdner Bank. With this new agreement, Dresdner Bank and Commerzbank should be able to merge approximately six to nine months earlier than originally planned.
Additionally, the Special Fund Financial Market Stabilization (SoFFin), Allianz and Commerzbank agreed on January 9, 2009, to strengthen the new Commerzbank’s core capital ratio with a silent participation of €750 mn from Allianz in Dresdner Bank and the acquisition of Collaterized Debt Obligations (CDOs) by Allianz for a consideration of €1.1 bn. SoFFin will receive a 25% plus one share participation in Commerzbank shareholders’ equity. The investment of SoFFin in Commerzbank will dilute the newly acquired stake of Allianz in Commerzbank to about 13.8%. The fair value of these considerations amounts to €5.1 bn as of December 31, 2008.
The transfer of ownership of Dresdner Bank to Commerzbank was completed on January 12, 2009 as scheduled.
With the agreement of the sale transaction Dresdner Bank qualifies as disposal group held-for-sale and discontinued operation according to the requirements of IFRS 5, “Non-current Assets Held-for-sale and Discontinued Operations”. Thus, almost all assets and liabilities of Dresdner Bank have been reclassified and presented as separate line items “Non-current assets and assets of disposal groups classified as held-for-sale” and “Liabilities of disposal groups classified as held-for-sale”, respectively, on the face of the consolidated balance sheet as of December 31, 2008. Comparative information has not been adjusted in accordance with IFRS 5.
All income and expenses relating to the discontinued operations of Dresdner Bank have been reclassified and presented in a separate line item “Net
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
income (loss) from discontinued operations, net of income taxes and minority interests in earnings” in the consolidated income statements for all years presented in accordance with IFRS 5.
The following tables shows the assets and liabilities of disposal groups classified as held-for-sale.
As of December 31, | 2008 | |
€ mn | ||
Cash and cash equivalents | 30,238 | |
Financial assets carried at fair value through income | 201,911 | |
Investments | 11,113 | |
Loans and advances to banks and customers | 166,718 | |
Deferred tax assets | 37 | |
Other assets | 7,056 | |
Intangible assets | 801 | |
Total assets of disposal groups classified as held-for-sale | 417,874 | |
As of December 31, | 2008 | |
€ mn | ||
Financial liabilities carried at fair value through income | 180,249 | |
Liabilities to banks and customers | 193,315 | |
Deferred tax liabilities | 214 | |
Other liabilities | 7,983 | |
Certificated liabilities | 22,419 | |
Participation certificates and subordinated liabilities | 6,289 | |
Total liabilities of disposal groups classified as held-for-sale | 410,469 | |
The following table shows the accumulated other comprehensive income and expenses, net of tax
As of December 31, | 2008 | ||
€ mn | |||
Gains on cash flow hedges, net of tax | 60 | ||
Cumulative foreign currency translation adjustment, net of tax | (516 | ) | |
Unrealized gains on securities, net of tax | 95 | ||
Total accumulated other comprehensive loss, net of tax related to disposal groups classified as held-for-sale | (361 | ) | |
Net income (loss) from discontinued operations
Due to the structure of the transaction, Allianz ceased to be exposed to changes in the results of Dresdner Bank from the signing date. Instead Allianz is exposed to changes in the fair value of its stake in Commerzbank. Therefore, the loss from discontinued operations is mainly subject to changes in the fair value of the consideration received.
As disclosed in our interim report for the third quarter of 2008, the loss from discontinued operations amounted to €3.5 bn, stemming from Dresdner Bank’s net loss of €2.1 bn until the change in ownership and an impairment charge of €1.4 bn, reflecting the difference between the fair value of considerations agreed (€7.8 bn) and the carrying value of €9.2 bn. Between October 1, 2008 and the date of completion of the transaction on January 12, 2009, the fair value of the agreed consideration declined by €2.7 bn.
In addition, the results for the first quarter of 2009 will be burdened by another €0.4 bn stemming from unrealized gains and losses and foreign exchange movements which, according to IFRS 5, can only be taken after the completion of the transaction.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Net income (loss) from discontinued operations for the years ended December 31, 2008, 2007 and 2006, respectively is comprised of:
20081)3) | 20073) | 20063) | |||||||
€ mn | € mn | € mn | |||||||
Interest and similar income | 5,257 | 7,423 | 6,526 | ||||||
Income from financial assets and liabilities carried at fair value through income (net) | (1,439 | ) | (430 | ) | 1,310 | ||||
Realized gains/losses (net) | 285 | 540 | 230 | ||||||
Fee and commission income | 1,760 | 2,887 | 2,831 | ||||||
Other income | — | — | 25 | ||||||
Total income from discontinued operations | 5,863 | 10,420 | 10,922 | ||||||
Interest expenses | (3,401 | ) | (4,602 | ) | (4,126 | ) | |||
Loan loss provisions | (327 | ) | 131 | (31 | ) | ||||
Impairments of investments (net) | (102 | ) | (87 | ) | (215 | ) | |||
Investment expenses | (2 | ) | (20 | ) | (53 | ) | |||
Acquisition and administrative expenses (net) | (3,326 | ) | (4,430 | ) | (5,018 | ) | |||
Fee and commission expenses | (267 | ) | (360 | ) | (311 | ) | |||
Amortization of intangible assets | (2 | ) | — | — | |||||
Restructuring charges | (17 | ) | (50 | ) | (422 | ) | |||
Other expenses | (52 | ) | 3 | 14 | |||||
Total expenses from discontinued operations | (7,496 | ) | (9,415 | ) | (10,162 | ) | |||
Result from discontinued operations before income taxes and minority interests in earnings | (1,633 | ) | 1,005 | 760 | |||||
Income taxes | (398 | ) | (282 | ) | (293 | ) | |||
Minority interests in earnings | (43 | ) | (73 | ) | (86 | ) | |||
Result from operating activities of discontinued operations | (2,074 | ) | 650 | 381 | |||||
Impairment loss recognized on remeasurement of assets of disposal group to fair value less costs to sell as of September 30, 20082) | (1,409 | ) | — | — | |||||
Result from transaction between September 30, 2008 and December 31, 20082) | (2,928 | ) | — | — | |||||
After-tax loss on remeasurement of assets of disposal group to fair value less costs to sell | (4,337 | ) | — | — | |||||
Net income (loss) from discontinued operations | (6,411 | ) | 650 | 381 | |||||
1) | For the year ended 2008 the result from operating activities of discontinued operations represents the nine months ended September 30, 2008. Previous year figures represent 12 months ended December 31. |
2) | No income taxes were related to the impairment loss of September 30, 2008 and to the result from transaction between September 30, 2008 and December 31, 2008. |
3) | All numbers are stated on a consolidated basis. |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Scope of consolidation
In addition to Allianz SE, the consolidated financial statements for the period ended December 31, 2008, generally include all German and foreign operating companies in which Allianz SE directly or indirectly holds a majority of voting rights, or whose activities it can in some other way control. The companies are consolidated from the date on which Allianz SE is able to exercise control.
The companies listed in the table below are consolidated in addition to the parent company Allianz SE.
Consolidated group | 2008 | 2007 | 2006 | |||
Number of fully consolidated companies (subsidiaries) | ||||||
Germany | 152 | 172 | 143 | |||
Other countries1) | 935 | 1,003 | 824 | |||
Total | 1,087 | 1,175 | 967 | |||
Number of fully consolidated investment funds | ||||||
Germany | 49 | 47 | 51 | |||
Other countries | 9 | 12 | 21 | |||
Total | 58 | 59 | 72 | |||
Number of fully consolidated Special Purpose Entities (“SPE”) | 59 | 55 | 46 | |||
Total of fully consolidated entities | 1,204 | 1,289 | 1,085 | |||
thereof: Related to the discontinued operation of Dresdner Bank | 365 | — | — | |||
Number of joint ventures valued at equity | 10 | 4 | 9 | |||
thereof: Related to the discontinued operation of Dresdner Bank | 1 | — | — | |||
Number of associated entities valued at equity | 167 | 218 | 177 | |||
thereof: Related to the discontinued operation of Dresdner Bank | 15 | — | — | |||
1) | Includes 10 (2007: 8; 2006: 9) subsidiaries where the Allianz Group 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”). The Allianz Group controls these entities on the basis of shareholder agreements between the Allianz Group subsidiary owning 50% of each such entity and the other shareholders. Pursuant to these shareholder agreements, the Allianz Group has the power to govern the financial and operating policies of these subsidiaries and the right to appoint the general manager, in the case of CreditRas, and the CEO, in the case of |
Antoniana, who have been given unilateral authority over all aspects of the financial and operating policies of these entities, including the hiring and termination of staff and the purchase and sale of assets. Furthermore, all management functions of these subsidiaries are performed by the employees of the Allianz Group and all operations are undertaken in Allianz Group’s facilities. The Allianz Group also develops all insurance products written through these subsidiaries. Although the Allianz Group and the other shareholders each have the right to appoint half of the directors of each subsidiary, the rights of the other shareholders are limited to matters specifically reserved to the board of directors and shareholders under Italian law, such as decisions concerning capital increases, amendments to articles and similar matters. In addition, in the case of Antoniana, the Allianz Group has the right to appoint the Chairman, who has double board voting rights, thereby giving the Allianz Group a majority of board votes. The shareholder agreements for CreditRas and Antoniana are subject to automatic renewal and are not terminable prior to their stated terms. |
All subsidiaries, joint ventures and associated enterprises are individually listed in the disclosure of equity investments filedthat will be published together with the Commercial Registerconsolidated financial statements in Munich. All private companies are also listed and identified separately in thisthe German Electronic Federal Gazette as well as on the Company’s Website. The disclosure of equity investments forincludes individually listed commercial partnerships which the consolidatedfinancial statements and the Allianz Group management report are exempt from preparing single financial statements in accordance with the application of clausesection 264b of the German Commercial Code (“HGB”).(HGB) as they are included in the consolidated financial statements of the Allianz Group. Selected subsidiaries and associated enterprisesentities are listed in the selected subsidiaries and other holdings section.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
AcquisitionsSignificant acquisitions
Effects on the Consolidated Financial Statements in the Year of Acquisition(1) | |||||||||||
For the years ended 12/31/ | Date of First-time Consolidation | Turnovers | Net Income | Goodwill(2) | Amortization of Goodwill | ||||||
€ mn | € mn | € mn | € mn | ||||||||
2004 | |||||||||||
Four Seasons Health Care Ltd., Wilmslow | 8/31/2004 | 163 | (3) | 2 | 141 | — |
Equity interest | Date of first-time consolidation | Segment | Goodwill2) | Transaction | |||||||
% | € mn | ||||||||||
2008 | |||||||||||
Allianz Hayat ve Emeklilik AŞ , Istanbul | 89.0 | 07/21/2008 | Life/ Health | 81 | Increase in equity interest | ||||||
Allianz Sigorta AŞ , Istanbul | 84.2 | 07/21/2008 | Property- Casualty | 166 | Increase in equity interest | ||||||
2007 | |||||||||||
Russian People’s Insurance Society “ROSNO”, Moscow | 97.2 |
| 02/21/2007 | Property- | 514 | Increase | |||||
Selecta AG, Muntelier1) | 100.0 | 07/03/2007 | Corporate | 472 | Purchase | ||||||
Insurance Company “Progress Garant”, Moscow | 100.0 | 05/31/2007 | Property- Casualty | 70 | Purchase | ||||||
Commerce Assurance Bhd., Kuala Lumpur | 100.0 | 09/30/2007 | Property- Casualty | 49 | Purchase | ||||||
JSC Insurance Company “ATF POLICY”, Almaty | 100.0 | 09/30/2007 | Property- Casualty | 8 | Purchase | ||||||
2006 | |||||||||||
manroland AG, Offenbach | 100.0 | 3) | 7/18/2006 | Corporate | 144 | Purchase | |||||
Home & Legacy Limited, London | 100.0 | 6/15/2006 | Property- Casualty | 68 | Purchase | ||||||
Premier Line Direct Limited, Lancaster | 100.0 | 10/01/2006 | Property- Casualty | 36 | Purchase |
| Classified as “held-for-sale” |
| At the date of first-time |
| Group share through indirect holder Roland Holding GmbH, Munich at the date of first-time consolidation: 65.0% |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
2008 Significant acquisitions
Allianz Sigorta AŞ, Istanbul and Allianz Hayat ve Emeklilik AŞ, Istanbul
In April 2008, the Allianz Group signed a share purchase agreement to acquire 47.1% of shares in the non-life insurer Allianz Sigorta AŞ, Istanbul, and 51.0% of the shares in the life-insurance and pension company Allianz Hayat ve Emeklilik AŞ, Istanbul, for a total consideration of €373 mn. The transaction has been approved by the relevant regulatory and competition board on July 21, 2008 so that Allianz Group now holds 84.2% and 89.0% of shares, respectively.
The impact of the acquisition, net of cash acquired, on the consolidated statement of cash flows for the year ended December 31, 2008 was:
€ mn | |||
Intangible assets | (247 | ) | |
Other assets | (914 | ) | |
Other liabilities | 870 | ||
Minority interests | 38 | ||
Less: previous investment in | 101 | ||
Acquisition of | (152 | ) | |
2004 AcquisitionsComponents of costs
€ mn | ||
Purchase price Allianz Sigorta AŞ (47.1%) | 248 | |
Purchase price Allianz Hayat ve Emeklilik AŞ (51.0%) | 125 | |
Transaction costs | — | |
Total purchase price | 373 | |
The impact of Allianz Sigorta AŞ and Allianz Hayat ve Emeklilik AŞ on the Allianz Group’s net income for the year ended December 31, 2008 was €8.3 mn.
The amounts recognized for major classes of assets and liabilities are as follows:
Fair value | Carrying amount | |||
€ mn | € mn | |||
Cash and cash equivalents | 221 | 221 | ||
Investments | 386 | 374 | ||
Financial assets for unit-linked contracts | 150 | 150 | ||
Reinsurance assets | 136 | 136 | ||
Deferred acquisition costs | 51 | 6 | ||
Other assets | 201 | 183 | ||
Total assets | 1,145 | 1,070 | ||
Unearned premiums | 249 | 249 | ||
Reserves for loss and loss adjustments | 117 | 117 | ||
Reserves for insurance and investment contracts | 269 | 263 | ||
Financial liabilities for unit-linked contracts | 150 | 150 | ||
Other liabilities | 90 | 85 | ||
Total equity | 270 | 206 | ||
Total liabilities and equity | 1,145 | 1,070 | ||
At the date of acquisition the goodwill reflects mainly the market position and growth potential of the turkish insurance market.
The premiums written and premiums earned (net) of the combined entity (Allianz Group including Allianz Hayat and Allianz Sigorta) for the year ended December 31, 2008 would have been €66,417 mn and €60,660 mn, respectively, if the acquisition date had been on January 1, 2008. The net loss of the combined entity for the year ended December 31, 2008 would have been €2,415 mn if the acquisition date had been on January 1, 2008.
2007 Significant acquisitions
Four Seasons Russian People’s Insurance Society “ROSNO”, Moscow
On February 21, 2007, the Allianz Group acquired additional 49.8% of Russian People´s Insurance Society “ROSNO”, Moscow (“ROSNO”) at a purchase price of €572 mn. ROSNO is the second largest insurance company in Russia which offers products in the business segments Property-Casualty, Life/Health Care Ltd., Wilmslowand Asset Management.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
The impact of the acquisition of ROSNO net of cash acquired, on the consolidated statement of cash flows for the year ended December 31, 2007 was:
€ mn | |||
Intangible assets | (530 | ) | |
Other assets | (798 | ) | |
Other liabilities | 717 | ||
Deferred tax liabilities | 15 | ||
Minority interests | 10 | ||
Less: previous investment in Rosno | 78 | ||
Acquisition of subsidiary, net of cash acquired | (508 | ) | |
Components of costs
€ mn | ||
Purchase price (49.8 % interest) | 571 | |
Subsequent acquisition costs | 1 | |
Total purchase price | 572 | |
The impact on the Allianz Group’s net income for the year ended December 31, 2007 was €(11) mn.
The amounts recognized for major classes of assets and liabilities are as follows:
Fair value | Carrying amount | |||
€ mn | € mn | |||
Cash and cash equivalents | 64 | 64 | ||
Investments | 408 | 408 | ||
Reinsurance assets | 55 | 55 | ||
Deferred acquisition costs | 73 | 71 | ||
Other assets | 303 | 279 | ||
Intangible assets | 16 | — | ||
Total assets | 919 | 877 | ||
Unearned premiums | 350 | 350 | ||
Reserves for loss and loss adjustments | 122 | 120 | ||
Other liabilities | 258 | 252 | ||
Total equity | 189 | 155 | ||
Total liabilities and equity | 919 | 877 | ||
At the date of acquisition the goodwill reflects mainly the market position and growth potential of the Russian insurance market.
The revenues of the combined entity (Allianz Group including ROSNO) for the year ended December 31, 2007 would have been €102,785 mn, if the acquisition date had been on January 1, 2007. The net income of the combined entity for the year ended December 31, 2007 would have been €7,969 mn if the acquisition date had been on January 1, 2007.
Selecta AG, Muntelier
On August 16, 2004,July 3, 2007, the Allianz Group acquired 100.0% of Four Seasons Health Care Ltd., WilmslowSelecta AG, Muntelier at apurchase price of €1,167€1,126 mn. Four Seasons Health Care Ltd., Wilmslow operates care homesSelecta AG, Muntelier is the leading vending operator in Europe.
The impact of the acquisition of Selecta AG, Muntelier, net of cash acquired, on the consolidated statement of cash flows for the year ended December 31, 2007 was:
€ mn | |||
Intangible assets | (1,113 | ) | |
Loans and advances to banks and customers | (107 | ) | |
Other assets | (301 | ) | |
Other liabilities | 258 | ||
Deferred tax liabilities | 190 | ||
Acquisition of subsidiary, net of cash acquired | (1,073 | ) | |
Components of costs
€ mn | ||
Purchase price (100.0 % interest) | 1,126 | |
Transaction costs | — | |
Total purchase price | 1,126 | |
The impact on the Allianz Group’s net income for the year ended December 31, 2007 was €(11) mn.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
The amounts recognized for major classes of assets and specialist centres in England, Scotland and Northern Ireland.liabilities are as follows:
Fair value | Carrying amount | |||
€ mn | € mn | |||
Cash and cash equivalents | 53 | 53 | ||
Other assets | 404 | 360 | ||
Intangible assets | 683 | 46 | ||
Total assets | 1,140 | 459 | ||
Other liabilities | 448 | 230 | ||
Total equity | 692 | 229 | ||
Total liabilities and equity | 1,140 | 459 | ||
The revenues of the combined entity (Allianz Group including Selecta AG) for the year ended December 31, 2007 would have been €102,978 mn if the acquisition date had been on January 1, 2007. The net income of the combined entity for the year ended December 31, 2007 would have been €8,013 mn if the acquisition date had been on January 1, 2007.
During the fourth quarter ended December 31, 2007, Selecta AG, Muntelier was reclassified to disposal groups held-for-sale.
2006 Significant acquisitions
Disposalsmanroland AG, Offenbach
On July 18, 2006, the Allianz Group acquired 100.0% (Group share through indirect holder Roland Holding GmbH, Munich at the date of first-time consolidation: 65,0% ) of manroland AG, Offenbach, at a purchase price of €554 mn. Manroland AG is the world’s second largest manufacturer of printing systems.
The principal subsidiaries deconsolidated in the courseimpact of the acquisition of manroland AG, Offenbach, net of cash acquired, on the consolidated statement of cash flows for the year are presented in the following table:ended December 31, 2006 was:
Effects on the Consolidated Financial Statements in the Year of Disposal(1) | ||||||||||
For the years ended 12/31/ | Date of Deconsolidation | Gross Premiums | Net Income | Disposed Goodwill charged to Income(2) | ||||||
€ mn | € mn | € mn | ||||||||
2005 | ||||||||||
Cadence Capital Management Inc., Delaware | 8/31/2005 | 17 | 5 | 39 | ||||||
DresdnerGrund-Fonds, Frankfurt am Main | 12/22/2005 | — | 85 | — | ||||||
2004 | ||||||||||
Allianz of Canada, Inc., Toronto | 9/12/2004 | 458 | 105 | 31 | ||||||
Allianz President General Insurance Co. Ltd., Taipeh | 9/27/2004 | 69 | 10 | 4 | ||||||
ENTENIAL, Guyancourt | 4/2/2004 | — | — | (5 | ) | |||||
2003 | ||||||||||
AFORE Allianz Dresdner S. A. de C. V., Mexico City | 11/11/2003 | — | 10 | 117 | ||||||
AGF AZ Chile Vida, Santiago de Chile | 4/29/2003 | — | — | — | ||||||
AGF Belgium Bank S. A., Brussels | 12/15/2003 | — | (5 | ) | — | |||||
Allianz Parkway Integrated Care Pte Ltd., Singapore | 9/30/2003 | 7 | — | — | ||||||
Merchant Investors Assurance Company Ltd., Bristol | 3/10/2003 | 3 | — | — | ||||||
Pioneer Allianz Life Assurance Corporation, Metro Manila | 1/14/2003 | — | — | — |
Intangible assets | 268 | ||
Loans and advances to banks and customers | 386 | ||
Other assets | 931 | ||
Liabilities to banks and customers | (491 | ) | |
Other liabilities | (625 | ) | |
Deferred tax liabilities | (125 | ) | |
Acquisition of subsidiary, net of cash acquired | 344 | ||
Components of costs
€mn | ||
Purchase price (100.0 % interest) | 553 | |
Transaction costs | 1 | |
Total purchase price | 554 | |
The impact on the Group’s net income for the year ended December 31, 2006 was €3 mn.
The amounts recognized for major classes of assets and liabilities are as follows:
Fair value | Carrying amount | |||
€ mn | € mn | |||
Cash and cash equivalents | 210 | 210 | ||
Investments | 10 | 7 | ||
Other assets | 1,316 | 1,131 | ||
Intangible assets | 125 | 78 | ||
Total assets | 1,661 | 1,426 | ||
Other liabilities | 1,230 | 1,115 | ||
Total equity | 431 | 311 | ||
Total liabilities and equity | 1,661 | 1,426 | ||
The revenues of the combined entity (Allianz Group including manroland AG) for the year ended December 31, 2006 would have been €102,137 mn if the acquisition date had been on January 1, 2006. The net income of the combined entity for the year ended December 31, 2006 would have been €7,024 mn if the acquisition date had been on January 1, 2006.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Significant disposals
Equity interest | Date of deconsoli- dation | Proceeds from sale | Segment | Goodwill | Transaction | |||||||
% | € mn | € mn | ||||||||||
2008 | ||||||||||||
DEGI Deutsche Gesellschaft für Immobilienfonds m.b.H, Frankfurt am Main | 94.0 | 01/01/2008 | 103 | Banking | — | Sale to third-party | ||||||
2007 | ||||||||||||
Grundstücksgesellschaft der Vereinten Versicherungen mbH & Co. Besitz- und Betriebs KG, Munich | 93.7
| 12/14/2007
| 194
| Property- | —
| Sale to third-party | ||||||
Les Assurances Fédérales IARD, Strasbourg | 60.0
| 09/30/2007
| 86
| Property- Casualty | —
| Sale to third-party | ||||||
Allianz PFI (UK) Ltd., London | 100.0 | 08/17/2007 | 52 | Corporate | — | Sale to third-party | ||||||
Adriática de Seguros C.A., Caracas | 98.3 | 08/31/2007 | 26 | Property- Casualty/ Life/Health | — | Sale to third-party | ||||||
2006 | ||||||||||||
Four Seasons Health Care Ltd., Wilmslow | 100.0 | 8/31/2006 | 863 | Corporate | 158 | Sale to third-party |
Acquisitions and disposals of significant minority interests
Date of acquisition/ disposal | Equity interest change | Costs of acquisition | Increase (decrease) in share holders’ equity | Increase (decrease) of minority interests | ||||||||
% | € mn | € mn | € mn | |||||||||
2008 | ||||||||||||
Allianz Lebensversicherungs-Aktiengesellschaft, Stuttgart | during 2008 | 5.2 | 425 | (352 | ) | (73 | ) | |||||
Allianz Global Investors of America L.P., Dover/Delaware | 02/28/2008 | 2.5 | 122 | (122 | ) | — | ||||||
Russian People’s Insurance Society “ROSNO”, Moscow | 10/27/2008 | 2.6 | 34 | (30 | ) | (4 | ) | |||||
Allianz Mena Holding Bermuda, Beirut | 08/25/2008 | 30.3 | 26 | (16 | ) | (10 | ) | |||||
2007 | ||||||||||||
Assurances Générales de France, Paris1) | during 2007 | 39.8 | 10,052 | (3,419 | ) | (3,868 | ) | |||||
Allianz Lebensversicherungs-Aktiengesellschaft, Stuttgart | during 2007 | 3.8 | 303 | (211 | ) | (92 | ) | |||||
Allianz Taiwan Life Insurance Co. Ltd., Taipei | 04/19/2007 | 49.6 | 40 | (39 | ) | (1 | ) | |||||
2006 | ||||||||||||
Riunione Adriatica di Sicurtà S.p.A., Milan (RAS)1) | 10/13/2006 | 23.7 | 3,653 | 1,659 | (1,659 | ) | ||||||
Allianz Global Investors of America L.P., Delaware | during 2006 | 0.3 | 70 | (70 | ) | — |
1) | Impact on shareholders’ equity includes increase in equity due to financing of AGF minority buy-out in the |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
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2005 DisposalsNotes to the Allianz Group’s Consolidated Financial Statements—(Continued)
DresdnerGrund-Fonds, Frankfurt am Main On December 22, 2005, the Allianz Group sold its shares in DresdnerGrund-Fonds, Frankfurt am Main, which is described further in Note 42. The proceeds from the sale of these shares amounted to €2,029 mn.
Acquisitions and disposals of minority interests6 Segment reporting
2005
Riunione Adriatica di Sicurtà S.p.A., Milan On November 30, 2005, the Allianz Group increased its interest in Riunione Adriatica di Sicurtà S.p.A., Milan, 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 before minority interests of €1,339 mn and a decrease of minority interest in shareholders’ equity of €1,362 mn.
Allianz Global Investors of America L.P., Delaware On May 9, 2005, the Allianz Group increased its interest in Allianz Global Investors of America L.P., Delaware, by 3.4% to 97.0%. The acquisition cost for the additional interest was €209 mn. This transaction was accounted for as a transaction between equity holders; therefore, the Allianz Group recorded a decrease in shareholders’ equity before minority interests of €209 mn.
Bayerische Versicherungsbank AG, Munich (was merged in January 2006 retroactively effective October 1, 2005 into Allianz Versicherungs-Aktiengesellschaft, Munich) On November 15, 2005, the Allianz Group increased its interest in Bayerische Versicherungsbank AG, Munich, by 10.0% to 100.0%. The acquisition cost for the additional interest was €22 mn. This transaction was accounted for as a transaction between equity holders; therefore, the Allianz Group recorded an increase in shareholders’ equity before minority interests of €82 mn and a decrease of minority interest in shareholders’ equity of €104 mn.
Assurances Générales de France, Paris During the year ended December 31, 2005, Assurances Générales de France, Paris issued sharesto plan participants as a result of exercises of share options. These issuances resulted in a decrease in the Allianz Group’s ownership interest in Assurances Générales de France, Paris from 62% at December 31, 2004 to 61% at December 31, 2005. These transactions were accounted for as transactions between equity holders; therefore, the Allianz Group recorded an increase in shareholders’ equity before minority interests of €19 mn and an increase in minority interests in shareholders’ equity of €127 mn.
2004
Allianz Global Investors of America L.P., Delaware In January, April and November 2004, the Allianz Group increased its interest in Allianz Global Investors of America L.P., Delaware, by a total of 9.7 % to 93.6 %, resulting in additional goodwill of €583 mn. The acquisition cost for the additional interest was €598 mn.
2003
Riunione Adriatica di Sicurtà S.p.A., Milan On February 17, 2003, the Allianz Group increased its interest in Riunione Adriatica di Sicurtà S.p.A., Milan, by 4.4% to 55.5%, resulting in additional goodwill of €146 mn. The acquisition cost for the additional interest was €810 mn.
Münchener und Magdeburger Agrarversicherung AG, München On December 2, 2003, the Allianz Group increased its interest in Münchener und Magdeburger Agrarversicherung AG, Munich, by 6.1% to 58.5%. The acquisition cost for the additional interest was €0.2 mn.
Allianz Global Investors of America L.P., Delaware In April 2003, July 2003 and October 2003, the Allianz Group increased its interest in PIMCO Advisors L.P., Delaware, by a total of 14.4% to 83.9%, resulting in additional goodwill of €624 mn. The acquisition cost for the additional interest was €640 mn.
As a result of the Allianz Group’s worldwide organization, the business activities of the Allianz Group are first segregated by product and type of
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
service: insurance activities, banking activities, and asset management activities and corporate activities. Due to differences in the nature of products, risks and capital allocation, insurance activities are further divided between property-casualty and life/health categories. Thus, the Allianz Group’s segments are structured as Property- Casualty,Property-Casualty, Life/Health, Banking, Asset Management and Asset Management. Based on various legal, regulatory and other operational issues associated with operating entities in jurisdictions worldwide, theCorporate. The insurance segments of the Allianz Group are also further analyzed by geographical areas or regionsregions.
Transfer prices between business segments are set on an arm’s length basis in matrixes that comprise a number of profit and service-centermanner similar to transactions with third parties. Transfers between business segments (see following pages). This geographic analysis is performed to provide further understanding of trends and results underlyingare eliminated in the segment data.consolidation.
Property-Casualty
The Allianz GroupIn the Property-Casualty segment, a wide variety of insurance products is the largest German property-casualty insurance company based on gross premiums written during the year ended December 31, 2005. Principal product lines offered primarily within Germany include automobileto both private and corporate customers, including motor liability and other automobile insurance,own damage, accident, general liability, fire and property, insurance, personal accident insurance, liability insurance and legal expense, credit and travel insurance. The Allianz Group is also amongcore markets for the largest property-casualty insurance companies inProperty-Casualty business are Germany, France, Italy and other European countries, including France, Italy,like the United Kingdom, Switzerland and Spain. The Allianz Group conducts its property-casualty insuranceFurther operations in these countries through five main groups of operating entities in France, primarily offering automobile, property, injury and liability for both individual and corporate customers; Italy, operating in all personal and commercial property-casualty linesare run in particular personal automobile insurance;in 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 warrantyStates, Central and pet insurance; Switzerland, offering property-casualty insurance, travelEastern Europe 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.Asia-Pacific.
Life/Health
The Allianz Group isIn the largest provider of life insurance and the third-largest provider of health insurance in Germany as measured by gross premiums written during the year ended December 31, 2005. Germany is the Allianz Group’s most important market for life/health insurance. The Allianz Group’s German life insurance companies offerLife/Health segment a comprehensive and unified range of life insurance and life insurance-relatedhealth insurance products on both an individual and group basis. The main classes of coveragebasis is offered, includeincluding annuity, endowment lifeand term insurance, annuity policies, term life insurance, unit linked annuities, and other life insurance-related forms of cover, which are provided as riders to other policies and on a stand-alone basis. The Allianz Group’s German health insurance companies provide a wide range of health insurance products, including full private healthcare coverage for the self-employed, salaried employees and civil servants, supplementary insurance for people insured under statutory health insurance plans, daily sickness allowance for the self-employed and salaried employees, hospital daily allowance, supplementary care insurance and foreign travel medical expenses insurance. The Allianz Group also maintains significant life/health operations in the United States, offering a wide variety of life insurance, fixed and variable annuity contracts, including equity-indexed annuities to individuals, and long-term care insurance to individual and corporate customers. Italy and France are also markets where the Allianz Group maintains a significant presence offering products such as unit linkedunit-linked and investment-oriented products as well as full private health insurance and individualsupplemental health and group lifecare insurance. The core markets are Germany, France, Italy and the United States.
Banking
The Allianz Group’sAfter the classification of Dresdner Bank as discontinued operation, the banking operations primarily comprise the operations segment consists
of the Dresdner Bank AG and subsidiaries, hereafter “Dresdner Bank Group”, whose principal banking products and services include traditional commercial banking activities such as deposit taking, lending (including residential mortgage lending) and cash management, as well as corporate finance advisory services, mergers and acquisitions advisory services, capital and money market services, securities underwriting and securities trading and derivatives business on its own account and for its customers. The Allianz Group operates
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
through the domestic and international branch network of the Dresdner Bank Group and through various subsidiaries both in Germany, France, Italy and abroad, someCentral and Eastern Europe. The banks offer a wide range of which also have branch networks.products for corporate and retail clients with its main focus on the latter.
Asset Management
The Allianz Group’s Asset Management segment operates as a global provider of institutional and retail asset management products and services to third-party investors and provides investment management services to the Allianz Group’s insurance operations. The Allianz Group managedapproximately €743 bn of third-party assets, Allianz Group’s own investmentsproducts for retail and separate account assets on a worldwide basisinstitutional customers include equity and fixed-income funds as of December 31, 2005, with key management centers in Munich, Frankfurt, London, Paris, Singapore, Hong Kong, Milan, Westport (Connecticut) and San Francisco, San Diego and Newport Beach (California). As measured by total assets under management at December 31, 2005, the Allianz Group is one of the five largest asset managers in the world.well as alternative products. The United States isand Germany as well as France, Italy and the Asia-Pacific region represent the primary asset management markets.
Corporate
The Corporate segment activities include the management and support of Allianz Group’s businesses through its strategy, risk, corporate finance, treasury, financial control, communication, legal, human resources and technology functions. The Corporate segment also includes the Group’s alternative investment activities.
Operating Profit
The Allianz Group uses operating profit to evaluate the performance of its business segments and the Group as a whole. The Allianz Group considers the presentation of operating profit to be useful and meaningful to investors because it enhances the understanding of the Allianz Group’s largest geographic region for third-partyunderlying operating performance and the comparability of its operating performance over time. Operating profit highlights the portion of income before income taxes and minority interests in earnings attributable to the ongoing core operations of the Allianz Group. To better understand the on-going operations of the business, we exclude the effects of acquisition-related expenses and the amortization of intangible assets, under management comprising approximately 73% (2004: 70%as these relate to business combinations; and 2003: 69%).we exclude interest expense from external debt and non-operating income from financial assets and liabilities carried at fair value through income (net) as these relate to our capital structure.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Business Segment Information—Consolidated Balance Sheets
as of December 31, 2005 and 2004
Property-Casualty | Life/Health | |||||||
2005 | 2004 | 2005 | 2004 | |||||
€ mn | € mn | € mn | € mn | |||||
ASSETS | ||||||||
Intangible assets | 2,117 | 2,185 | 3,975 | 4,075 | ||||
Investments in associated enterprises and joint ventures | 47,766 | 48,359 | 3,845 | 5,532 | ||||
Investments | 88,408 | 81,245 | 178,821 | 154,920 | ||||
Loans and advances to banks | 11,181 | 7,424 | 56,285 | 56,699 | ||||
Loans and advances to customers | 2,031 | 6,224 | 27,788 | 28,808 | ||||
Financial assets carried at fair value through income | 2,977 | 1,137 | 66,029 | 46,668 | ||||
Cash and cash equivalents | 3,961 | 1,665 | 5,872 | 968 | ||||
Amounts ceded to reinsurers from reserves for insurance and investment contracts | 13,030 | 12,337 | 10,944 | 16,382 | ||||
Deferred tax assets | 7,470 | 6,816 | 3,969 | 3,451 | ||||
Other assets | 22,417 | 20,045 | 24,633 | 20,362 | ||||
Total segment assets | 201,358 | 187,437 | 382,161 | 337,865 | ||||
Property-Casualty | Life/Health | |||||||
2005 | 2004 | 2005 | 2004 | |||||
€ mn | € mn | € mn | € mn | |||||
SHAREHOLDERS’ EQUITY AND LIABILITIES | ||||||||
Participation certificates and subordinated liabilities | 7,338 | 5,497 | 141 | 141 | ||||
Reserves for insurance and investment contracts | 85,051 | 83,095 | 276,105 | 249,854 | ||||
Liabilities to banks | 5,411 | 1,358 | 5,405 | 1,241 | ||||
Liabilities to customers | 5,017 | 5,336 | 75 | 165 | ||||
Certificated liabilities | 9,215 | 11,405 | 4 | 68 | ||||
Financial liabilities carried at fair value through income | 1,680 | 530 | 61,031 | 44,776 | ||||
Other accrued liabilities | 6,270 | 5,960 | 938 | 1,016 | ||||
Other liabilities | 14,310 | 12,352 | 16,976 | 21,280 | ||||
Deferred tax liabilities | 8,034 | 7,894 | 5,199 | 4,539 | ||||
Deferred income | 94 | 161 | 121 | 139 | ||||
Total segment liabilities | 142,420 | 133,588 | 365,995 | 323,219 | ||||
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Banking | Asset Management | Consolidation Adjustments | Group | |||||||||||||||
2005 | 2004 | 2005 | 2004 | 2005 | 2004 | 2005 | 2004 | |||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | |||||||||||
2,545 | 2,526 | 6,748 | 6,362 | — | (1 | ) | 15,385 | 15,147 | ||||||||||
677 | 3,037 | 2 | 3 | (50,195 | ) | (51,174 | ) | 2,095 | 5,757 | |||||||||
16,646 | 17,736 | 831 | 529 | (1,786 | ) | (6,103 | ) | 282,920 | 248,327 | |||||||||
85,730 | 119,025 | 431 | 144 | (2,243 | ) | (1,749 | ) | 151,384 | 181,543 | |||||||||
163,482 | 168,346 | 46 | 29 | (7,923 | ) | (7,727 | ) | 185,424 | 195,680 | |||||||||
165,928 | 192,746 | 227 | 131 | (154 | ) | (108 | ) | 235,007 | 240,574 | |||||||||
21,848 | 13,097 | 476 | 431 | (510 | ) | (533 | ) | 31,647 | 15,628 | |||||||||
— | — | — | — | (1,854 | ) | (6,409 | ) | 22,120 | 22,310 | |||||||||
2,925 | 3,679 | 232 | 187 | — | 6 | 14,596 | 14,139 | |||||||||||
12,011 | 15,341 | 3,535 | 2,942 | (5,293 | ) | (7,477 | ) | 57,303 | 51,213 | |||||||||
471,792 | 535,533 | 12,528 | 10,758 | (69,958 | ) | (81,275 | ) | 997,881 | 990,318 | |||||||||
Banking | Asset Management | Consolidation Adjustments | Group | |||||||||||||||
2005 | 2004 | 2005 | 2004 | 2005 | 2004 | 2005 | 2004 | |||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | |||||||||||
7,428 | 7,815 | — | — | (223 | ) | (223 | ) | 14,684 | 13,230 | |||||||||
2 | 4 | — | — | (2,021 | ) | (6,573 | ) | 359,137 | 326,380 | |||||||||
141,914 | 189,187 | 205 | 7 | (978 | ) | (446 | ) | 151,957 | 191,347 | |||||||||
159,672 | 158,127 | 461 | 294 | (6,866 | ) | (6,785 | ) | 158,359 | 157,137 | |||||||||
50,719 | 47,041 | 4 | 4 | (739 | ) | (766 | ) | 59,203 | 57,752 | |||||||||
82,080 | 99,934 | — | — | (151 | ) | (103 | ) | 144,640 | 145,137 | |||||||||
5,163 | 5,783 | 1,931 | 1,225 | — | — | 14,302 | 13,984 | |||||||||||
5,137 | 8,859 | 1,120 | 709 | (6,160 | ) | (11,929 | ) | 31,383 | 31,271 | |||||||||
1,314 | 1,860 | 74 | 57 | — | — | 14,621 | 14,350 | |||||||||||
2,257 | 1,737 | 21 | 2 | — | — | 2,493 | 2,039 | |||||||||||
455,686 | 520,347 | 3,816 | 2,298 | (17,138 | ) | (26,825 | ) | 950,779 | 952,627 | |||||||||
Shareholders’ equity | 47,102 | 37,691 | ||||||||||||||||
Total equity and liabilities | 997,881 | 990,318 | ||||||||||||||||
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Business Segment Information—Consolidated Income Statements
for the Years ended December 31, 2005, 2004 and 2003
Property-Casualty | Life/Health | |||||||||||||||||
2005 | 2004 | 2003 | 2005 | 2004 | 2003 | |||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | |||||||||||||
Premiums earned (net) | 38,017 | 38,193 | 37,277 | 19,730 | 18,596 | 18,701 | ||||||||||||
Interest and similar income | 4,021 | 4,051 | 4,187 | 11,731 | 11,196 | 11,065 | ||||||||||||
Income from associated enterprises and joint ventures (net) | 1,582 | 2,438 | 3,619 | 809 | 438 | 712 | ||||||||||||
Other income from investments | 1,745 | 2,145 | 5,026 | 2,683 | 2,423 | 4,605 | ||||||||||||
Income from financial assets and liabilities carried at fair value through income (net) | (289 | ) | (41 | ) | (1,481 | ) | 256 | 198 | 447 | |||||||||
Fee and commission income, and income from service activities | 1,711 | 1,038 | 522 | 198 | 224 | 234 | ||||||||||||
Other income | 992 | 1,064 | 1,770 | 916 | 1,226 | 1,484 | ||||||||||||
Total income | 47,779 | 48,888 | 50,920 | 36,323 | 34,301 | 37,248 | ||||||||||||
Insurance and investment contract benefits (net) | (26,208 | ) | (26,871 | ) | (27,180 | ) | (27,563 | ) | (25,390 | ) | (25,206 | ) | ||||||
Interest and similar expenses | (1,476 | ) | (1,562 | ) | (1,667 | ) | (471 | ) | (749 | ) | (732 | ) | ||||||
Other expenses from investments | (539 | ) | (1,127 | ) | (2,340 | ) | (858 | ) | (867 | ) | (4,087 | ) | ||||||
Loan loss provisions | (1 | ) | (7 | ) | (10 | ) | — | (3 | ) | (3 | ) | |||||||
Acquisition costs and administrative expenses | (11,325 | ) | (10,734 | ) | (10,276 | ) | (4,432 | ) | (4,533 | ) | (3,938 | ) | ||||||
Amortization of goodwill | — | (381 | ) | (383 | ) | — | (159 | ) | (398 | ) | ||||||||
Other expenses | (2,558 | ) | (2,069 | ) | (2,646 | ) | (725 | ) | (896 | ) | (1,640 | ) | ||||||
Total expenses | (42,107 | ) | (42,751 | ) | (44,502 | ) | (34,049 | ) | (32,597 | ) | (36,004 | ) | ||||||
Earnings from ordinary activities before taxes | 5,672 | 6,137 | 6,418 | 2,274 | 1,704 | 1,244 | ||||||||||||
Taxes | (1,126 | ) | (1,520 | ) | (756 | ) | (463 | ) | (469 | ) | (639 | ) | ||||||
Minority interests in earnings | (997 | ) | (1,151 | ) | (451 | ) | (462 | ) | (368 | ) | (386 | ) | ||||||
Net income (loss) | 3,549 | 3,466 | 5,211 | 1,349 | 867 | 219 | ||||||||||||
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Banking | Asset Management | Consolidation Adjustments | Group | ||||||||||||||||||||||||||||||||
2005 | 2004 | 2003 | 2005 | 2004 | 2003 | 2005 | 2004 | 2003 | 2005 | 2004 | 2003 | ||||||||||||||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | ||||||||||||||||||||||||
— | — | — | — | — | — | — | — | — | 57,747 | 56,789 | 55,978 | ||||||||||||||||||||||||
7,064 | 6,471 | 8,047 | 90 | 62 | 78 | (565 | ) | (824 | ) | (867 | ) | 22,341 | 20,956 | 22,510 | |||||||||||||||||||||
532 | 84 | 3 | — | — | 10 | (1,666 | ) | (2,183 | ) | (1,330 | ) | 1,257 | 777 | 3,014 | |||||||||||||||||||||
619 | 635 | 809 | 8 | 21 | 16 | (345 | ) | (45 | ) | 34 | 4,710 | 5,179 | 10,490 | ||||||||||||||||||||||
1,164 | 1,493 | 1,524 | 19 | 11 | 30 | 9 | (3 | ) | (1 | ) | 1,159 | 1,658 | 519 | ||||||||||||||||||||||
3,278 | 3,085 | 2,956 | 3,757 | 3,110 | 2,892 | (634 | ) | (634 | ) | (544 | ) | 8,310 | 6,823 | 6,060 | |||||||||||||||||||||
317 | 293 | 521 | 24 | 48 | 33 | (67 | ) | (98 | ) | (5 | ) | 2,182 | 2,533 | 3,803 | |||||||||||||||||||||
12,974 | 12,061 | 13,860 | 3,898 | 3,252 | 3,059 | (3,268 | ) | (3,787 | ) | (2,713 | ) | 97,706 | 94,715 | 102,374 | |||||||||||||||||||||
— | — | — | — | — | — | (26 | ) | 6 | 146 | (53,797 | ) | (52,255 | ) | (52,240 | ) | ||||||||||||||||||||
(4,942) | (4,179 | ) | (5,284 | ) | (33 | ) | (13 | ) | (29 | ) | 552 | 800 | 841 | (6,370 | ) | (5,703 | ) | (6,871 | ) | ||||||||||||||||
(259) | (480 | ) | (678 | ) | (2 | ) | (3 | ) | (13 | ) | (21 | ) | (195 | ) | (334 | ) | (1,679 | ) | (2,672 | ) | (7,452 | ) | |||||||||||||
110 | (344 | ) | (1,014 | ) | — | — | — | — | — | — | 109 | (354 | ) | (1,027 | ) | ||||||||||||||||||||
(6,012) | (6,008 | ) | (6,592 | ) | (3,335 | ) | (2,730 | ) | (2,632 | ) | 657 | 625 | 521 | (24,447 | ) | (23,380 | ) | (22,917 | ) | ||||||||||||||||
— | (244 | ) | (263 | ) | — | (380 | ) | (369 | ) | — | — | — | — | (1,164 | ) | (1,413 | ) | ||||||||||||||||||
(334) | (873 | ) | (1,965 | ) | (108 | ) | (401 | ) | (401 | ) | 83 | 148 | 64 | (3,642 | ) | (4,091 | ) | (6,588 | ) | ||||||||||||||||
(11,437) | (12,128 | ) | (15,796 | ) | (3,478 | ) | (3,527 | ) | (3,444 | ) | 1,245 | 1,384 | 1,238 | (89,826 | ) | (89,619 | ) | (98,508 | ) | ||||||||||||||||
1,537 | (67 | ) | (1,936 | ) | 420 | (275 | ) | (385 | ) | (2,023 | ) | (2,403 | ) | (1,475 | ) | 7,880 | 5,096 | 3,866 | |||||||||||||||||
(396) | 294 | 1,025 | (132 | ) | 52 | 80 | 3 | (19 | ) | 41 | (2,114 | ) | (1,662 | ) | (249 | ) | |||||||||||||||||||
(102) | (101 | ) | (104 | ) | (51 | ) | (52 | ) | (92 | ) | 226 | 504 | 107 | (1,386 | ) | (1,168 | ) | (926 | ) | ||||||||||||||||
1,039 | 126 | (1,015 | ) | 237 | (275 | ) | (397 | ) | (1,794 | ) | (1,918 | ) | (1,327 | ) | 4,380 | 2,266 | 2,691 | ||||||||||||||||||
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Business Segment Information—Insurance
as of and for the Years ended December 31, 2005, 2004 and 2003
PROPERTY-CASUALTY | Premiums earned (net) | Loss ratio(1) | ||||||||||
2005 | 2004 | 2003 | 2005 | 2004 | 2003 | |||||||
€ mn | € mn | € mn | % | % | % | |||||||
1. Europe | ||||||||||||
Germany | 10,474 | 10,712 | 10,478 | 64.2 | 68.5 | 71.7 | ||||||
Italy | 4,964 | 4,840 | 4,645 | 68.0 | 68.1 | 70.9 | ||||||
France | 4,375 | 4,484 | 4,453 | 74.0 | 73.5 | 79.8 | ||||||
Great Britain | 1,913 | 2,012 | 1,827 | 64.1 | 63.6 | 67.1 | ||||||
Switzerland | 1,708 | 1,659 | 1,599 | 74.9 | 72.9 | 71.0 | ||||||
Spain | 1,551 | 1,454 | 1,337 | 71.4 | 72.2 | 75.9 | ||||||
2. America | ||||||||||||
NAFTA Region | 3,590 | 3,932 | 4,037 | 68.3 | 64.7 | 70.0 | ||||||
South America | 510 | 378 | 408 | 64.5 | 64.7 | 71.3 | ||||||
3. Asia-Pacific | 1,280 | 1,243 | 1,171 | 68.0 | 72.8 | 71.7 | ||||||
4. Specialty Lines | ||||||||||||
Allianz Global Risks Rückversicherungs-AG | 959 | 1,072 | 1,038 | 71.3 | 68.9 | 70.9 | ||||||
Credit Insurance | 995 | 901 | 845 | 41.2 | 40.8 | 49.3 | ||||||
Travel Insurance and Assistance Services | 934 | 863 | 784 | 60.3 | 59.8 | 60.6 | ||||||
Allianz Marine & Aviation | 541 | 475 | 417 | 123.5 | 64.4 | 65.5 | ||||||
5. Other | 4,223 | 4,168 | 4,238 | 61.4 | 76.9 | 73.2 | ||||||
6. Consolidation adjustments(2) | — | — | — | |||||||||
Total | 38,017 | 38,193 | 37,277 | 67.1 | 67.7 | 71.5 | ||||||
LIFE/HEALTH | Premiums earned (net) | |||||||||||
2005 | 2004 | 2003 | ||||||||||
€ mn | € mn | € mn | ||||||||||
1. Europe | ||||||||||||
Germany Life | 10,205 | 8,936 | 8,788 | |||||||||
Germany Health | 3,042 | 3,019 | 2,959 | |||||||||
France | 1,484 | 1,545 | 1,509 | |||||||||
Italy | 1,104 | 1,088 | 1,169 | |||||||||
Switzerland | 470 | 504 | 542 | |||||||||
Spain | 350 | 576 | 530 | |||||||||
2. USA | 522 | 428 | 598 | |||||||||
3. Asia-Pacific | 1,223 | 1,131 | 1,303 | |||||||||
4. Other | 1,330 | 1,369 | 1,303 | |||||||||
5. Consolidation adjustments(2) | — | — | — | |||||||||
Total | 19,730 | 18,596 | 18,701 | |||||||||
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Expense ratio(3) | Net income (loss) | Group’s own investments(5) | |||||||||||||||||||
2005 | 2004 | 2003 | 2005 | 2004 | 2003 | 2005 | 2004 | ||||||||||||||
�� | % | % | % | € mn | € mn | € mn | € mn | € mn | |||||||||||||
25.3 | 25.1 | 25.7 | 1,378 | 1,744 | 4,519 | 110,505 | 101,844 | ||||||||||||||
22.5 | 22.4 | 22.9 | 671 | 494 | 347 | 11,841 | 12,772 | ||||||||||||||
25.0 | 24.9 | 24.4 | 593 | 843 | 109 | 24,896 | 23,219 | ||||||||||||||
29.9 | 29.8 | 29.0 | 269 | 208 | 179 | 4,369 | 4,411 | ||||||||||||||
21.5 | 19.7 | 25.3 | 122 | 96 | 53 | 4,706 | 4,433 | ||||||||||||||
19.4 | 18.7 | 19.6 | 106 | 108 | 59 | 2,504 | 2,165 | ||||||||||||||
26.4 | 28.0 | 28.2 | 825 | 489 | (85 | ) | 17,407 | 16,729 | |||||||||||||
32.3 | 33.3 | 32.6 | 31 | 23 | 3 | 667 | 499 | ||||||||||||||
24.1 | 23.7 | 23.8 | 172 | 88 | 64 | 3,539 | 2,902 | ||||||||||||||
28.6 | 28.8 | 27.9 | 38 | 52 | 73 | 2,843 | 2,325 | ||||||||||||||
25.3 | 28.2 | 32.7 | 126 | 99 | 62 | 2,912 | 2,634 | ||||||||||||||
31.2 | 31.8 | 31.3 | 30 | 6 | 3 | 656 | 574 | ||||||||||||||
25.0 | 29.2 | 21.8 | (186 | ) | 88 | 68 | 1,409 | 1,216 | |||||||||||||
25.9 | 25.0 | 24.0 | 39 | 357 | 463 | 28,149 | 27,820 | ||||||||||||||
(665 | ) | (1,229 | ) | (706 | ) | (65,863 | ) | (60,306 | ) | ||||||||||||
25.2 | 25.2 | 25.5 | 3,549 | 3,466 | 5,211 | 150,540 | 143,237 | ||||||||||||||
Statutory expense ratio(4) | Net income (loss) | Group’s own investments(5) | |||||||||||||||||||
2005 | 2004 | 2003 | 2005 | 2004 | 2003 | 2005 | 2004 | ||||||||||||||
% | % | % | € mn | € mn | € mn | € mn | € mn | ||||||||||||||
7.0 | 10.4 | 6.8 | 297 | 159 | 17 | 122,148 | 115,960 | ||||||||||||||
8.8 | 9.3 | 10.4 | 96 | 53 | (1 | ) | 15,301 | 14,297 | |||||||||||||
15.4 | 17.3 | 16.5 | 237 | 127 | 124 | 51,485 | 48,145 | ||||||||||||||
5.1 | 4.4 | 3.5 | 214 | 151 | 112 | 22,611 | 21,763 | ||||||||||||||
8.5 | 9.8 | 8.6 | 32 | 13 | 6 | 7,923 | 7,860 | ||||||||||||||
7.2 | 5.8 | 6.3 | 24 | 22 | 16 | 5,383 | 5,067 | ||||||||||||||
5.4 | 5.2 | 4.6 | 295 | 256 | 132 | 27,789 | 19,515 | ||||||||||||||
10.5 | 13.2 | 10.8 | 55 | (16 | ) | (261 | ) | 7,247 | 5,332 | ||||||||||||
17.5 | 19.5 | 20.0 | 102 | 109 | 83 | 13,118 | 11,711 | ||||||||||||||
(3 | ) | (7 | ) | (9 | ) | (675 | ) | (632 | ) | ||||||||||||
8.1 | 9.1 | 7.9 | 1,349 | 867 | 219 | 272,330 | 249,018 | ||||||||||||||
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Business Segment Information—Banking
for the Years ended December 31, 2005, 2004 and 2003
BANKING SEGMENT—DIVISIONS
2005 | 2004 | 2003 | |||||||||||||||||||||||||
For the years ended | Operating revenues(1) | Cost-income ratio | Earnings after taxes and before minority interests | Operating revenues(1) | Cost-income ratio | Earnings after taxes and before minority interests | Operating revenues(1) | Cost-income ratio | Earnings after taxes and before minority interests | ||||||||||||||||||
€ mn | % | € mn | € mn | % | € mn | € mn | % | € mn | |||||||||||||||||||
Personal Banking | 1,883 | 84.2 | 136 | 1,846 | 89.2 | (6 | ) | 1,856 | 93.5 | (130 | ) | ||||||||||||||||
Private & Business Banking | 1,179 | 58.5 | 293 | 1,145 | 65.0 | 188 | 1,100 | 68.2 | 146 | ||||||||||||||||||
Corporate Banking | 1,027 | 44.9 | 335 | 1,014 | 47.2 | 282 | 1,041 | 48.1 | 197 | ||||||||||||||||||
DrKW | 2,102 | 91.7 | 132 | 2,045 | 89.4 | 152 | 2,141 | 87.6 | 209 | ||||||||||||||||||
IRU | 70 | 232.6 | 91 | 362 | 79.1 | 5 | 598 | 77.6 | (896 | ) | |||||||||||||||||
Corporate Other(2) | (307 | ) | — | (3) | 98 | (186 | ) | — | (3) | (153 | ) | (491 | ) | — | (3) | (293 | ) | ||||||||||
Dresdner Bank | 5,954 | 88.9 | 1,085 | 6,226 | 85.2 | 468 | 6,245 | 91.9 | (767 | ) | |||||||||||||||||
Other Banks(4) | 281 | 73.9 | 56 | 220 | 94.9 | 3 | 459 | 75.7 | 119 | ||||||||||||||||||
Subtotal | 6,235 | — | 1,141 | 6,446 | — | 471 | 6,704 | — | (648 | ) | |||||||||||||||||
Amortization of goodwill(5) | — | — | — | — | — | (244 | ) | — | — | (263 | ) | ||||||||||||||||
Minority interests in earnings | — | — | (102 | ) | — | — | (101 | ) | — | — | (104 | ) | |||||||||||||||
Total | 6,235 | 88.2 | 1,039 | 6,446 | 85.6 | 126 | 6,704 | 90.8 | (1,015 | ) | |||||||||||||||||
BANKING SEGMENT—GEOGRAPHICAL
Operating revenues(1) | Earnings after taxes and before goodwill amortization and minority interests in earnings(2) | |||||||||||||||
For the years ended 12/31/ | 2005 | 2004 | 2003 | 2005 | 2004 | 2003 | ||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | |||||||||||
Germany | 4,084 | 4,238 | 3,377 | 1,553 | 724 | (32 | ) | |||||||||
Rest of Europe | 1,662 | 1,698 | 2,394 | (28 | ) | (138 | ) | 39 | ||||||||
NAFTA | 347 | 359 | 385 | 184 | 143 | (351 | ) | |||||||||
Rest of world | 184 | 151 | 548 | 67 | 89 | 198 | ||||||||||
Subtotal | 6,277 | 6,446 | 6,704 | 1,776 | 818 | (146 | ) | |||||||||
Consolidation adjustments(3) | (42 | ) | — | — | (635 | ) | (347 | ) | (502 | ) | ||||||
Total | 6,235 | 6,446 | 6,704 | 1,141 | 471 | (648 | ) | |||||||||
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Business Segment Information—Operating Profit for the years ended December 31, 2005, 2004 and 2003
The Allianz Group evaluates the results of its Property-Casualty, Life/Health, Banking and Asset Management segments using a financial performance measure referred to herein as “operating profit”. The Allianz Group defines segment operating profit as earnings from ordinary activities before taxes, excluding, as applicable for each respective segment, all or some of the following items: net capital gains and impairments on investments, net trading income, intra-Allianz Group dividends and profit transfer, interest expense on external debt, restructuring charges, other non-operating income/(expenses), acquisition-related expenses and amortization of goodwill.
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 ofoperating 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 segmentsbusiness can be more clearly identified without the fluctuating effects of the realized capital gains and losses or impairments onof investment securities, as these are largely dependent on market cycles or issuer specificissuer-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 discretion of the Allianz Group’s discretion. Group. Similarly, restructuring charges
are excluded because the timing of the restructuring charges are largely within the control of the Allianz Group, and accordingly their exclusion provides additional insight into the operating trends of the underlying business. This differentiation is not made if the profit sources are shared with policyholders.
Operating profit isshould be viewed as complementary to, and not a substitute for, earnings from ordinary activitiesincome before income taxes and minority interests in earnings or net income as determined in accordance with IFRS. The Allianz Group’s definition of operating profit may differ from similar measures used by other companies, and may change over time.
The following table sets forth the total revenues, operating profit and net income for each of our business segments for the years ended December 31, 2005, 2004 and 2003, as well as consolidated net income of the Allianz Group.
Property- Casualty | Life/ Health | Banking | Asset Management | Consolidation adjustments | Group | |||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | |||||||||||||
For the year ended 12/31/2005 | ||||||||||||||||||
Total revenues(*) | 44,061 | 48,129 | 6,235 | 2,733 | (261 | ) | 100,897 | |||||||||||
Operating profit | 4,162 | 1,603 | 845 | 1,133 | — | 7,743 | ||||||||||||
Earnings from ordinary activities before taxes | 5,672 | 2,274 | 1,537 | 420 | (2,023 | ) | 7,880 | |||||||||||
Taxes | (1,126 | ) | (463 | ) | (396 | ) | (132 | ) | 3 | (2,114 | ) | |||||||
Minority interests in earnings | (997 | ) | (462 | ) | (102 | ) | (51 | ) | 226 | (1,386 | ) | |||||||
Net income/(loss) | 3,549 | 1,349 | 1,039 | 237 | (1,794 | ) | �� | 4,380 | ||||||||||
For the year ended 12/31/2004 | ||||||||||||||||||
Total revenues(*) | 43,780 | 45,177 | 6,446 | 2,308 | (836 | ) | 96,875 | |||||||||||
Operating profit | 3,979 | 1,418 | 586 | 856 | — | 6,839 | ||||||||||||
Earnings from ordinary activities before taxes | 6,137 | 1,704 | (67 | ) | (275 | ) | (2,403 | ) | 5,096 | |||||||||
Taxes | (1,520 | ) | (469 | ) | 294 | 52 | (19 | ) | (1,662 | ) | ||||||||
Minority interests in earnings | (1,151 | ) | (368 | ) | (101 | ) | (52 | ) | 504 | (1,168 | ) | |||||||
Net income/(loss) | 3,466 | 867 | 126 | (275 | ) | (1,918 | ) | 2,266 | ||||||||||
For the year ended 12/31/2003 | ||||||||||||||||||
Total revenues(*) | 43,420 | 42,319 | 6,704 | 2,226 | (929 | ) | 93,740 | |||||||||||
Operating profit/(loss) | 2,397 | 1,265 | (396 | ) | 716 | — | 3,982 | |||||||||||
Earnings from ordinary activities before taxes | 6,418 | 1,244 | (1,936 | ) | (385 | ) | (1,475 | ) | 3,866 | |||||||||
Taxes | (756 | ) | (639 | ) | 1,025 | 80 | 41 | (249 | ) | |||||||||
Minority interests in earnings | (451 | ) | (386 | ) | (104 | ) | (92 | ) | 107 | (926 | ) | |||||||
Net income(loss) | 5,211 | 219 | (1,015 | ) | (397 | ) | (1,327 | ) | 2,691 | |||||||||
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Property-Casualty InsuranceAllianz Group
Business Segment Information—Consolidated Balance Sheets
For the years ended 12/31/ | 2005 | 2004 | 2003 | ||||||
€ mn | € mn | € mn | |||||||
Gross premiums written | 44,061 | 43,780 | 43,420 | ||||||
Premiums earned (net)(1) | 38,017 | 38,193 | 37,277 | ||||||
Current income from investments | 3,901 | 3,935 | 3,854 | ||||||
Investment management and interest expenses | (488 | ) | (834 | ) | (1,295 | ) | |||
Insurance benefits (net)(2) | (26,076 | ) | (26,650 | ) | (27,261 | ) | |||
Net acquisition costs and administrative expenses(3) | (10,840 | ) | (10,360 | ) | (9,814 | ) | |||
Other operating income/(expenses) (net) | (352 | ) | (305 | ) | (364 | ) | |||
Operating profit | 4,162 | 3,979 | 2,397 | ||||||
Net capital gains and impairments on investments(4) | 1,306 | 1,325 | 6,049 | (5) | |||||
Net trading income/(expense)(6) | (426 | ) | (49 | ) | (1,490 | ) | |||
Intra-group dividends and profit transfer | 1,531 | 1,963 | 676 | ||||||
Interest expense on external debt | (834 | ) | (863 | ) | (831 | ) | |||
Amortization of goodwill(7) | — | (381 | ) | (383 | ) | ||||
Restructuring charges | (67 | ) | — | — | |||||
Other non-operating income/(expenses) (net) | — | 163 | — | ||||||
Earnings from ordinary activities before taxes | 5,672 | 6,137 | 6,418 | ||||||
Taxes | (1,126 | ) | (1,520 | ) | (756 | ) | |||
Minority interests in earnings | (997 | ) | (1,151 | ) | (451 | ) | |||
Net income | 3,549 | 3,466 | 5,211 | ||||||
Loss ratio(8) in % | 67.1 | 67.7 | 71.5 | ||||||
Expense ratio(9) in % | 25.2 | 25.2 | 25.5 | ||||||
Combined ratio in % | 92.3 | 92.9 | 97.0 | ||||||
Property-Casualty | Life/Health | |||||||
As of December 31, | 2008 | 2007 | 2008 | 2007 | ||||
€ mn | € mn | € mn | € mn | |||||
ASSETS | ||||||||
Cash and cash equivalents | 2,669 | 4,985 | 4,827 | 8,779 | ||||
Financial assets carried at fair value through income | 1,998 | 3,302 | 11,739 | 13,216 | ||||
Investments | 75,563 | 83,741 | 186,794 | 187,289 | ||||
Loans and advances to banks and customers | 17,648 | 20,712 | 90,619 | 91,188 | ||||
Financial assets for unit-linked contracts | — | — | 50,450 | 66,060 | ||||
Reinsurance assets | 9,442 | 10,317 | 5,178 | 5,043 | ||||
Deferred acquisition costs | 3,723 | 3,681 | 18,693 | 15,838 | ||||
Deferred tax assets | 1,579 | 1,442 | 737 | 316 | ||||
Other assets | 23,876 | 21,409 | 18,085 | 13,294 | ||||
Non-current assets and assets of disposal groups classified as held-for-sale | — | 455 | — | 777 | ||||
Intangible assets | 2,384 | 2,332 | 2,300 | 2,218 | ||||
Total assets | 138,882 | 152,376 | 389,422 | 404,018 | ||||
Property-Casualty | Life/Health | |||||||
As of December 31, | 2008 | 2007 | 2008 | 2007 | ||||
€ mn | € mn | € mn | € mn | |||||
LIABILITIES AND EQUITY | ||||||||
Financial liabilities carried at fair value through income | 103 | 96 | 5,833 | 5,147 | ||||
Liabilities to banks and customers | 530 | 6,865 | 1,274 | 6,078 | ||||
Unearned premiums | 12,984 | 13,163 | 2,258 | 1,858 | ||||
Reserves for loss and loss adjustment expenses | 55,616 | 56,943 | 8,320 | 6,773 | ||||
Reserves for insurance and investment contracts | 8,595 | 8,976 | 287,932 | 283,139 | ||||
Financial liabilities for unit-linked contracts | — | — | 50,450 | 66,060 | ||||
Deferred tax liabilities | 2,580 | 2,606 | 833 | 946 | ||||
Other liabilities | 20,523 | 22,989 | 16,625 | 17,741 | ||||
Liabilities of disposal groups classified as held-for-sale | — | — | — | — | ||||
Certificated liabilities | 167 | 158 | 2 | 3 | ||||
Participation certificates and subordinated liabilities | 846 | 905 | 65 | 60 | ||||
Total liabilities | 101,944 | 112,701 | 373,592 | 387,805 | ||||
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Banking | Asset Management | Corporate | Consolidation | Group | ||||||||||||||||
2008 | 2007 | 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | |||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | |||||||||||
892 | 17,307 | 860 | 770 | 515 | 445 | (805 | ) | (949 | ) | 8,958 | 31,337 | |||||||||
112 | 168,339 | 639 | 980 | 631 | 887 | (879 | ) | (1,263 | ) | 14,240 | 185,461 | |||||||||
2,670 | 16,284 | 818 | 879 | 101,455 | 102,894 | (107,153 | ) | (104,135 | ) | 260,147 | 286,952 | |||||||||
13,931 | 295,506 | 382 | 469 | 5,958 | 4,754 | (12,883 | ) | (15,927 | ) | 115,655 | 396,702 | |||||||||
— | — | — | — | — | — | — | — | 50,450 | 66,060 | |||||||||||
— | — | — | — | — | — | (21 | ) | (48 | ) | 14,599 | 15,312 | |||||||||
— | — | 147 | 94 | — | — | — | — | 22,563 | 19,613 | |||||||||||
95 | 1,733 | 173 | 161 | 1,457 | 935 | (45 | ) | 184 | 3,996 | 4,771 | ||||||||||
1,947 | 8,199 | 3,388 | 3,452 | 7,684 | 8,519 | (20,976 | ) | (16,848 | ) | 34,004 | 38,025 | |||||||||
420,695 | 4 | — | — | 1,639 | 2,267 | (2,821 | ) | — | 419,513 | 3,503 | ||||||||||
200 | 2,379 | 6,327 | 6,227 | 240 | 257 | — | — | 11,451 | 13,413 | |||||||||||
440,542 | 509,751 | 12,734 | 13,032 | 119,579 | 120,958 | (145,583 | ) | (138,986 | ) | 955,576 | 1,061,149 | |||||||||
Banking | Asset Management | Corporate | Consolidation | Group | ||||||||||||||||
2008 | 2007 | 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | |||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | |||||||||||
50 | 120,383 | — | — | 873 | 1,376 | (615 | ) | (949 | ) | 6,244 | 126,053 | |||||||||
16,260 | 320,388 | 702 | 807 | 5,970 | 13,023 | (6,285 | ) | (10,667 | ) | 18,451 | 336,494 | |||||||||
— | — | — | — | — | — | (9 | ) | (1 | ) | 15,233 | 15,020 | |||||||||
— | — | — | — | — | — | (12 | ) | (10 | ) | 63,924 | 63,706 | |||||||||
— | — | — | — | 227 | 358 | (197 | ) | (229 | ) | 296,557 | 292,244 | |||||||||
— | — | — | — | — | — | — | — | 50,450 | 66,060 | |||||||||||
2 | 102 | 28 | 35 | 433 | 88 | (43 | ) | 196 | 3,833 | 3,973 | ||||||||||
879 | 11,010 | 3,307 | 3,647 | 16,329 | 13,333 | (24,733 | ) | (20,689 | ) | 32,930 | 48,031 | |||||||||
414,360 | 1 | — | — | 1,347 | 1,292 | (3,891 | ) | — | 411,816 | 1,293 | ||||||||||
1,279 | 34,778 | — | — | 13,497 | 9,567 | (5,401 | ) | (2,436 | ) | 9,544 | 42,070 | |||||||||
185 | 7,966 | 14 | 14 | 8,493 | 7,069 | (257 | ) | (1,190 | ) | 9,346 | 14,824 | |||||||||
433,015 | 494,628 | 4,051 | 4,503 | 47,169 | 46,106 | (41,443 | ) | (35,975 | ) | 918,328 | 1,009,768 | |||||||||
Total equity | 37,248 | 51,381 | ||||||||||||||||||
Total liabilities and equity | 955,576 | 1,061,149 | ||||||||||||||||||
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Life/Health InsuranceAllianz Group
Business Segment Information—Consolidated Income Statements
For the years ended 12/31/ | 2005 | 2004 | 2003 | ||||||
€ mn | € mn | € mn | |||||||
Statutory premiums(1) | 48,129 | 45,177 | 42,319 | ||||||
Gross premiums written | 20,950 | 20,716 | 20,689 | ||||||
Premiums earned (net)(2) | 19,730 | 18,596 | 18,701 | ||||||
Current income from investments | 11,826 | 11,335 | 11,260 | ||||||
Investment management and interest expenses | (478 | ) | (483 | ) | (516 | ) | |||
Insurance benefits (net)(3) | (25,023 | ) | (23,845 | ) | (24,189 | ) | |||
Net acquisition costs and administrative expenses(4) | (3,921 | ) | (4,039 | ) | (3,416 | ) | |||
Net trading income | (326 | ) | 117 | 218 | |||||
Other operating income/(expenses) (net) | (205 | ) | (263 | ) | (793 | ) | |||
Operating profit | 1,603 | 1,418 | 1,265 | ||||||
Net capital gains and impairments on investments(5) | 608 | 282 | 274 | (6) | |||||
Intra-group dividends and profit transfer | 82 | 163 | 103 | ||||||
Amortization of goodwill(7) | — | (159 | ) | (398 | ) | ||||
Restructuring charges | (19 | ) | — | — | |||||
Earnings from ordinary activities before taxes | 2,274 | 1,704 | 1,244 | ||||||
Taxes | (463 | ) | (469 | ) | (639 | ) | |||
Minority interests in earnings | (462 | ) | (368 | ) | (386 | ) | |||
Net income | 1,349 | 867 | 219 | ||||||
Statutory expense ratio(8) in % | 8.1 | 9.1 | 7.9 | ||||||
Property-Casualty | Life/Health | Banking | |||||||||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | 2006 | 2008 | 2007 | 2006 | |||||||||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | |||||||||||||||||||
Premiums written | 43,387 | 44,289 | 43,674 | 22,809 | 21,522 | 21,614 | — | — | — | ||||||||||||||||||
Ceded premiums written | (4,972 | ) | (5,320 | ) | (5,415 | ) | (527 | ) | (637 | ) | (816 | ) | — | — | — | ||||||||||||
Change in unearned premiums | (202 | ) | (416 | ) | (309 | ) | (51 | ) | (76 | ) | (224 | ) | — | — | — | ||||||||||||
Premiums earned (net) | 38,213 | 38,553 | 37,950 | 22,231 | 20,809 | 20,574 | — | — | — | ||||||||||||||||||
Interest and similar income | 4,477 | 4,473 | 4,096 | 13,772 | 13,417 | 12,972 | 989 | 883 | 734 | ||||||||||||||||||
Income from financial assets and liabilities carried at fair value through income (net) | (116 | ) | 85 | 189 | (261 | ) | (940 | ) | (361 | ) | (5 | ) | 2 | 45 | |||||||||||||
Realized gains/losses (net) | 2,386 | 1,479 | 1,792 | 835 | 3,716 | 3,282 | (6 | ) | 18 | 15 | |||||||||||||||||
Fee and commission income | 1,247 | 1,178 | 1,014 | 571 | 701 | 630 | 430 | 528 | 503 | ||||||||||||||||||
Other income | 271 | 122 | 69 | 140 | 182 | 43 | — | — | — | ||||||||||||||||||
Income from fully consolidated private equity investments | 3 | — | — | 18 | — | — | — | — | — | ||||||||||||||||||
Total income | 46,481 | 45,890 | 45,110 | 37,306 | 37,885 | 37,140 | 1,408 | 1,431 | 1,297 | ||||||||||||||||||
Claims and insurance benefits incurred (gross) | (28,157 | ) | (28,131 | ) | (27,028 | ) | (20,146 | ) | (18,292 | ) | (18,520 | ) | — | — | — | ||||||||||||
Claims and insurance benefits incurred (ceded) | 2,171 | 2,646 | 2,356 | 473 | 655 | 895 | — | — | — | ||||||||||||||||||
Claims and insurance benefits incurred (net) | (25,986 | ) | (25,485 | ) | (24,672 | ) | (19,673 | ) | (17,637 | ) | (17,625 | ) | — | — | — | ||||||||||||
Change in reserves for insurance and investment contracts (net) | 3 | (339 | ) | (425 | ) | (5,122 | ) | (10,268 | ) | (10,525 | ) | — | — | — | |||||||||||||
Interest expense | (295 | ) | (402 | ) | (273 | ) | (283 | ) | (374 | ) | (280 | ) | (677 | ) | (558 | ) | (443 | ) | |||||||||
Loan loss provisions | (17 | ) | (6 | ) | (2 | ) | (13 | ) | 3 | (1 | ) | (29 | ) | (5 | ) | 3 | |||||||||||
Impairments of investments (net) | (2,449 | ) | (343 | ) | (200 | ) | (6,161 | ) | (827 | ) | (390 | ) | (120 | ) | (3 | ) | — | ||||||||||
Investment expenses | (207 | ) | (322 | ) | (300 | ) | (673 | ) | (833 | ) | (750 | ) | 9 | 6 | 6 | ||||||||||||
Acquisition and administrative expenses (net) | (10,356 | ) | (10,616 | ) | (10,590 | ) | (4,375 | ) | (4,588 | ) | (4,437 | ) | (552 | ) | (589 | ) | (550 | ) | |||||||||
Fee and commission expenses | (1,141 | ) | (967 | ) | (721 | ) | (253 | ) | (209 | ) | (223 | ) | (193 | ) | (233 | ) | (235 | ) | |||||||||
Amortization of intangible assets | (17 | ) | (14 | ) | (1 | ) | (3 | ) | (3 | ) | (26 | ) | (2 | ) | — | — | |||||||||||
Restructuring charges | (75 | ) | (122 | ) | (362 | ) | (50 | ) | (45 | ) | (174 | ) | (2 | ) | (2 | ) | (2 | ) | |||||||||
Other expenses | (2 | ) | (13 | ) | (4 | ) | (7 | ) | (2 | ) | (9 | ) | (3 | ) | (2 | ) | — | ||||||||||
Expenses from fully consolidated private equity investments | (3 | ) | — | — | (20 | ) | — | — | — | — | — | ||||||||||||||||
Total expenses | (40,545 | ) | (38,629 | ) | (37,550 | ) | (36,633 | ) | (34,783 | ) | (34,440 | ) | (1,569 | ) | (1,386 | ) | (1,221 | ) | |||||||||
Income (loss) from continuing operations before income taxes and minority interests in earnings | 5,936 | 7,261 | 7,560 | 673 | 3,102 | 2,700 | (161 | ) | 45 | 76 | |||||||||||||||||
Income taxes | (1,489 | ) | (1,656 | ) | (2,075 | ) | (260 | ) | (897 | ) | (641 | ) | 54 | 10 | (1 | ) | |||||||||||
Minority interests in earnings | (112 | ) | (431 | ) | (739 | ) | (86 | ) | (214 | ) | (416 | ) | (7 | ) | — | (6 | ) | ||||||||||
Net income (loss) from continuing operations | 4,335 | 5,174 | 4,746 | 327 | 1,991 | 1,643 | (114 | ) | 55 | 69 | |||||||||||||||||
Net income (loss) from discontinued operations, net of income taxes and minority interests in earnings | — | — | — | — | — | — | (6,304 | ) | 322 | 849 | |||||||||||||||||
Net income (loss) | 4,335 | 5,174 | 4,746 | 327 | 1,991 | 1,643 | (6,418 | ) | 377 | 918 | |||||||||||||||||
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Asset Management | Corporate | Consolidation | Group | |||||||||||||||||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | 2006 | 2008 | 2007 | 2006 | 2008 | 2007 | 2006 | |||||||||||||||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | |||||||||||||||||||||||||
— | — | — | — | — | — | (25 | ) | (23 | ) | (13 | ) | 66,171 | 65,788 | 65,275 | ||||||||||||||||||||||
— | — | — | — | — | — | 25 | 23 | 13 | (5,474 | ) | (5,934 | ) | (6,218 | ) | ||||||||||||||||||||||
— | — | — | — | — | — | — | — | — | (253 | ) | (492 | ) | (533 | ) | ||||||||||||||||||||||
— | — | — | — | — | — | — | — | — | 60,444 | 59,362 | 58,524 | |||||||||||||||||||||||||
98 | 135 | 112 | 883 | 855 | 509 | (1,147 | ) | (1,139 | ) | (993 | ) | 19,072 | 18,624 | 17,430 | ||||||||||||||||||||||
(77 | ) | 31 | 38 | 112 | 51 | (334 | ) | (339 | ) | (46 | ) | 53 | (686 | ) | (817 | ) | (370 | ) | ||||||||||||||||||
5 | 2 | 7 | 245 | 980 | 861 | 138 | (187 | ) | (36 | ) | 3,603 | 6,008 | 5,921 | |||||||||||||||||||||||
4,032 | 4,403 | 4,186 | 221 | 198 | 190 | (469 | ) | (455 | ) | (498 | ) | 6,032 | 6,553 | 6,025 | ||||||||||||||||||||||
28 | 14 | 11 | 1 | 15 | 28 | (32 | ) | (116 | ) | (90 | ) | 408 | 217 | 61 | ||||||||||||||||||||||
— | — | — | 2,528 | 2,367 | 1,392 | — | — | — | 2,549 | 2,367 | 1,392 | |||||||||||||||||||||||||
4,086 | 4,585 | 4,354 | 3,990 | 4,466 | 2,646 | (1,849 | ) | (1,943 | ) | (1,564 | ) | 91,422 | 92,314 | 88,983 | ||||||||||||||||||||||
— | — | — | — | — | — | 16 | 14 | 25 | (48,287 | ) | (46,409 | ) | (45,523 | ) | ||||||||||||||||||||||
— | — | — | — | — | — | (16 | ) | (14 | ) | (25 | ) | 2,628 | 3,287 | 3,226 | ||||||||||||||||||||||
— | — | — | — | — | — | — | — | — | (45,659 | ) | (43,122 | ) | (42,297 | ) | ||||||||||||||||||||||
— | — | — | — | — | — | (21 | ) | (78 | ) | (425 | ) | (5,140 | ) | (10,685 | ) | (11,375 | ) | |||||||||||||||||||
(35 | ) | (55 | ) | (41 | ) | (1,580 | ) | (1,586 | ) | (1,282 | ) | 977 | 905 | 686 | (1,893 | ) | (2,070 | ) | (1,633 | ) | ||||||||||||||||
— | — | — | — | (10 | ) | (5 | ) | — | — | — | (59 | ) | (18 | ) | (5 | ) | ||||||||||||||||||||
(19 | ) | (1 | ) | (2 | ) | (697 | ) | (11 | ) | 32 | (49 | ) | — | — | (9,495 | ) | (1,185 | ) | (560 | ) | ||||||||||||||||
(1 | ) | 1 | — | 11 | (115 | ) | (215 | ) | 216 | 226 | 204 | (645 | ) | (1,037 | ) | (1,055 | ) | |||||||||||||||||||
(2,239 | ) | (2,391 | ) | (2,286 | ) | (444 | ) | (642 | ) | (655 | ) | 44 | 38 | 50 | (17,922 | ) | (18,788 | ) | (18,468 | ) | ||||||||||||||||
(1,158 | ) | (1,270 | ) | (1,262 | ) | (170 | ) | (130 | ) | (127 | ) | 413 | 496 | 528 | (2,502 | ) | (2,313 | ) | (2,040 | ) | ||||||||||||||||
(1 | ) | — | (24 | ) | — | — | — | — | — | — | (23 | ) | (17 | ) | (51 | ) | ||||||||||||||||||||
— | (4 | ) | (4 | ) | (2 | ) | (9 | ) | — | — | — | — | (129 | ) | (182 | ) | (542 | ) | ||||||||||||||||||
— | — | — | — | — | — | — | — | — | (12 | ) | (17 | ) | (13 | ) | ||||||||||||||||||||||
— | — | — | (2,452 | ) | (2,317 | ) | (1,381 | ) | 5 | — | — | (2,470 | ) | (2,317 | ) | (1,381 | ) | |||||||||||||||||||
(3,453 | ) | (3,720 | ) | (3,619 | ) | (5,334 | ) | (4,820 | ) | (3,633 | ) | 1,585 | 1,587 | 1,043 | (85,949 | ) | (81,751 | ) | (79,420 | ) | ||||||||||||||||
633 | 865 | 735 | (1,344 | ) | (354 | ) | (987 | ) | (264 | ) | (356 | ) | (521 | ) | 5,473 | 10,563 | 9,563 | |||||||||||||||||||
(249 | ) | (342 | ) | (278 | ) | 631 | 217 | 824 | 26 | 96 | 451 | (1,287 | ) | (2,572 | ) | (1,720 | ) | |||||||||||||||||||
(5 | ) | (25 | ) | (53 | ) | (12 | ) | (21 | ) | (16 | ) | 3 | 16 | 27 | (219 | ) | (675 | ) | (1,203 | ) | ||||||||||||||||
379 | 498 | 404 | (725 | ) | (158 | ) | (179 | ) | (235 | ) | (244 | ) | (43 | ) | 3,967 | 7,316 | 6,640 | |||||||||||||||||||
— | — | — | — | — | — | (107 | ) | 328 | (468 | ) | (6,411 | ) | 650 | 381 | ||||||||||||||||||||||
379 | 498 | 404 | (725 | ) | (158 | ) | (179 | ) | (342 | ) | 84 | (511 | ) | (2,444 | ) | 7,966 | 7,021 | |||||||||||||||||||
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Allianz Group
Business Segment Information—Insurance
PROPERTY-CASUALTY | Premiums earned (net) | Loss ratio1) | ||||||||||||||||
As of and for the years ended December 31, | 2008 | 2007 | 2006 | 2008 | 2007 | 2006 | ||||||||||||
€ mn | € mn | € mn | % | % | % | |||||||||||||
Europe | ||||||||||||||||||
Germany | 10,191 | 9,245 | 9,843 | 67.3 | 64.8 | 65.1 | ||||||||||||
Italy | 4,647 | 4,902 | 4,935 | 73.1 | 71.2 | 68.8 | ||||||||||||
France | 3,281 | 4,422 | 4,429 | 69.3 | 70.9 | 71.0 | ||||||||||||
United Kingdom | 1,769 | 1,989 | 1,874 | 60.7 | 66.3 | 64.1 | ||||||||||||
Spain | 1,863 | 1,820 | 1,675 | 69.9 | 71.6 | 71.0 | ||||||||||||
Switzerland | 1,190 | 1,595 | 1,706 | 70.2 | 69.5 | 69.3 | ||||||||||||
Western and Southern Europe | 2,822 | 2,768 | 2,819 | 63.9 | 67.4 | 61.7 | ||||||||||||
New Europe | 2,312 | 2,067 | 1,388 | 59.0 | 60.8 | 61.1 | ||||||||||||
Subtotal | 28,075 | 28,808 | 28,669 | — | — | — | ||||||||||||
NAFTA | 3,380 | 3,426 | 3,622 | 74.3 | 61.6 | 58.4 | ||||||||||||
Asia-Pacific | 1,397 | 1,415 | 1,336 | 71.1 | 69.5 | 68.7 | ||||||||||||
South America | 764 | 692 | 623 | 65.1 | 62.9 | 64.8 | ||||||||||||
Other | 62 | 53 | 35 | — | 2) | — | 2) | — | 2) | |||||||||
Specialty Lines | ||||||||||||||||||
Allianz Global Corporate and Specialty | 1,981 | 1,800 | 1,545 | 59.7 | 67.9 | 62.5 | ||||||||||||
Credit Insurance | 1,360 | 1,268 | 1,113 | 77.6 | 47.9 | 49.7 | ||||||||||||
Travel Insurance and Assistance Services | 1,196 | 1,093 | 1,008 | 57.6 | 58.1 | 58.7 | ||||||||||||
Subtotal | 4,537 | 4,161 | 3,666 | — | — | — | ||||||||||||
Subtotal | 38,215 | 38,555 | 37,951 | — | — | — | ||||||||||||
Consolidation3) | (2 | ) | (2 | ) | (1 | ) | — | — | — | |||||||||
Total | 38,213 | 38,553 | 37,950 | 68.0 | 66.1 | 65.0 | ||||||||||||
LIFE/HEALTH | Statutory premiums4) | Statutory expense ratio5) | ||||||||||||||||
As of and for the years ended December 31, | 2008 | 2007 | 2006 | 2008 | 2007 | 2006 | ||||||||||||
€ mn | € mn | € mn | % | % | % | |||||||||||||
Europe | ||||||||||||||||||
Germany Life | 13,487 | 13,512 | 13,009 | 8.5 | 5.8 | 9.1 | ||||||||||||
Germany Health | 3,119 | 3,123 | 3,091 | 9.0 | 9.8 | 9.3 | ||||||||||||
Italy | 5,996 | 9,765 | 8,555 | 8.9 | 5.8 | 6.4 | ||||||||||||
France | 7,991 | 6,550 | 5,792 | 14.9 | 15.4 | 12.6 | ||||||||||||
Switzerland | 1,205 | 992 | 1,005 | 9.9 | 10.6 | 9.9 | ||||||||||||
Spain | 843 | 738 | 629 | 8.8 | 9.2 | 9.3 | ||||||||||||
Western and Southern Europe | 1,852 | 1,762 | 1,655 | 14.5 | 12.1 | 14.8 | ||||||||||||
New Europe | 1,141 | 1,039 | 828 | 24.4 | 20.0 | 19.6 | ||||||||||||
Subtotal | 35,634 | 37,481 | 34,564 | — | — | — | ||||||||||||
NAFTA | 6,111 | 6,968 | 8,758 | (0.1 | ) | 11.9 | 8.0 | |||||||||||
Asia-Pacific | 3,465 | 4,638 | 3,733 | 13.8 | 10.2 | 11.2 | ||||||||||||
South America | 190 | 78 | 147 | 10.3 | 32.6 | 16.9 | ||||||||||||
Other | 422 | 418 | 439 | — | 2) | — | 2) | — | 2) | |||||||||
Subtotal | 45,822 | 49,583 | 47,641 | — | — | — | ||||||||||||
Consolidation3) | (207 | ) | (216 | ) | (220 | ) | — | — | — | |||||||||
Total | 45,615 | 49,367 | 47,421 | 9.7 | 9.4 | 9.6 | ||||||||||||
| Represents claims and insurance |
2) | Presentation not meaningful. |
3) | Represents elimination of intercompany transactions between Allianz Group |
4) | Statutory premiums are gross premiums written from sales of life insurance policies, as well as gross receipts from sales of |
| Represents acquisition and administrative expenses (net) divided by statutory premiums (net). |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Expense ratio6) | Operating profit (loss) | Total assets | |||||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
% | % | % | € mn | € mn | € mn | € mn | € mn | ||||||||||||||||
25.7 | 26.8 | 27.8 | 1,865 | 1,628 | 1,478 | 42,112 | 52,034 | ||||||||||||||||
23.6 | 23.6 | 23.0 | 690 | 719 | 816 | 13,480 | 14,307 | ||||||||||||||||
27.9 | 26.4 | 28.2 | 280 | 486 | 420 | 26,648 | 25,748 | ||||||||||||||||
34.3 | 33.3 | 31.6 | 253 | 207 | 280 | 4,841 | 6,434 | ||||||||||||||||
20.5 | 19.8 | 19.3 | 286 | 253 | 252 | 4,028 | 4,185 | ||||||||||||||||
22.6 | 25.6 | 23.5 | 145 | 218 | 228 | 4,128 | 5,678 | ||||||||||||||||
26.4 | 28.0 | 28.5 | 376 | 482 | 550 | 9,819 | 7,952 | ||||||||||||||||
33.7 | 33.5 | 30.9 | 300 | 256 | 184 | 5,744 | 5,773 | ||||||||||||||||
— | — | — | 4,195 | 4,249 | 4,208 | 110,800 | 122,111 | ||||||||||||||||
26.7 | 29.6 | 30.5 | 293 | 663 | 825 | 11,535 | 10,818 | ||||||||||||||||
25.9 | 26.5 | 27.2 | 288 | 312 | 244 | 4,841 | 6,073 | ||||||||||||||||
33.4 | 36.1 | 36.4 | 82 | 55 | 47 | 1,363 | 1,340 | ||||||||||||||||
— 2) | — | 2) | — | 2) | 12 | 10 | 9 | 990 | 236 | ||||||||||||||
29.1 | 28.1 | 29.7 | 486 | 414 | 404 | 15,878 | 16,362 | ||||||||||||||||
26.7 | 28.6 | 27.9 | 144 | 496 | 442 | 4,991 | 4,814 | ||||||||||||||||
35.7 | 35.6 | 43.1 | 106 | 97 | 90 | 1,437 | 1,376 | ||||||||||||||||
— | — | — | 736 | 1,007 | 936 | 22,306 | 22,552 | ||||||||||||||||
— | — | — | 5,606 | 6,296 | 6,269 | 151,835 | 163,130 | ||||||||||||||||
— | — | — | 43 | 3 | — | (12,953 | ) | (10,754 | ) | ||||||||||||||
27.1 | 27.5 | 27.9 | 5,649 | 6,299 | 6,269 | 138,882 | 152,376 | ||||||||||||||||
Operating profit | Total assets | ||||||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | |||||||||||||||||||
€ mn | € mn | € mn | € mn | € mn | |||||||||||||||||||
620 | 695 | 521 | 146,920 | 154,903 | |||||||||||||||||||
112 | 164 | 184 | 20,041 | 20,637 | |||||||||||||||||||
206 | 372 | 339 | 43,794 | 50,294 | |||||||||||||||||||
128 | 632 | 582 | 73,172 | 74,321 | |||||||||||||||||||
71 | 66 | 50 | 9,967 | 8,930 | |||||||||||||||||||
103 | 104 | 92 | 6,089 | 5,818 | |||||||||||||||||||
78 | 184 | 182 | 17,513 | 17,316 | |||||||||||||||||||
48 | 61 | 50 | 3,391 | 3,165 | |||||||||||||||||||
1,366 | 2,278 | 2,000 | 320,887 | 335,384 | |||||||||||||||||||
(228 | ) | 385 | 418 | 56,192 | 54,728 | ||||||||||||||||||
41 | 300 | 81 | 12,534 | 14,260 | |||||||||||||||||||
10 | — | 1 | 291 | 234 | |||||||||||||||||||
23 | 37 | 48 | 4,677 | 327 | |||||||||||||||||||
1,212 | 3,000 | 2,548 | 394,581 | 404,933 | |||||||||||||||||||
(6 | ) | (5 | ) | 17 | (5,159 | ) | (915 | ) | |||||||||||||||
1,206 | 2,995 | 2,565 | 389,422 | 404,018 | |||||||||||||||||||
6) | Represents acquisition and administrative expenses (net) divided by premiums earned (net). |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Allianz Group
Business Segment Information—Banking
As of and for the years ended | Operating revenues | Operating profit (loss) | Cost-income ratio | Total assets | |||||||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | 2006 | 2008 | 2007 | 2006 | 2008 | 2007 | |||||||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | % | % | % | € mn | € mn | |||||||||||||||||
Germany | 325 | 326 | 320 | 4 | (12 | ) | (4 | ) | 92.8 | 104.1 | 102.6 | 11,165 | 1) | 501,797 | |||||||||||||
Italy | 176 | 219 | 201 | 55 | 76 | 47 | 66.7 | 64.0 | 75.1 | 4,143 | 3,711 | ||||||||||||||||
France | — | 46 | 64 | (58 | ) | (21 | ) | 18 | — | 2) | 145.2 | 74.1 | 3,298 | 3,392 | |||||||||||||
New Europe | 43 | 31 | 19 | (32 | ) | (11 | ) | 2 | 164.8 | 126.4 | 86.2 | 1,241 | 851 | ||||||||||||||
Total | 544 | 622 | 604 | (31 | ) | 32 | 63 | 100.4 | 94.1 | 90.1 | 19,847 | 509,751 | |||||||||||||||
1) | Does not include €420,695 mn assets of |
| Presentation not meaningful. |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
[THIS PAGE INTENTIONALLY LEFT BLANK]
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Allianz Group
Business Segment Information—Total revenues and reconciliation of
Operating profit (loss) to Net income (loss)
Property-Casualty1) | Life/Health1) | Banking | |||||||||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | 2006 | 2008 | 2007 | 2006 | |||||||||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | |||||||||||||||||||
Total revenues2) | 43,387 | 44,289 | 43,674 | 45,615 | 49,367 | 47,421 | 544 | 622 | 604 | ||||||||||||||||||
Premiums earned (net) | 38,213 | 38,553 | 37,950 | 22,231 | 20,809 | 20,574 | — | — | — | ||||||||||||||||||
Interest and similar income | 4,477 | 4,473 | 4,096 | 13,772 | 13,417 | 12,972 | 989 | 883 | 734 | ||||||||||||||||||
Operating income from financial assets and liabilities carried at fair value through income (net) | (158 | ) | 144 | 106 | (235 | ) | (945 | ) | (361 | ) | (5 | ) | 2 | 45 | |||||||||||||
Operating realized gains/losses (net) | 37 | 46 | 46 | 874 | 3,579 | 3,087 | — | — | — | ||||||||||||||||||
Fee and commission income | 1,247 | 1,178 | 1,014 | 571 | 701 | 630 | 430 | 528 | 503 | ||||||||||||||||||
Other income | 271 | 122 | 69 | 140 | 182 | 43 | — | — | — | ||||||||||||||||||
Income from fully consolidated private equity investments | 3 | — | — | 18 | — | — | — | — | — | ||||||||||||||||||
Claims and insurance benefits incurred (net) | (25,986 | ) | (25,485 | ) | (24,672 | ) | (19,673 | ) | (17,637 | ) | (17,625 | ) | — | — | — | ||||||||||||
Change in reserves for insurance and investment contracts (net) | 3 | (339 | ) | (425 | ) | (5,122 | ) | (10,268 | ) | (10,525 | ) | — | — | — | |||||||||||||
Interest expenses, excluding interest expenses from external debt | (295 | ) | (402 | ) | (273 | ) | (283 | ) | (374 | ) | (280 | ) | (677 | ) | (558 | ) | (443 | ) | |||||||||
Loan loss provisions | (17 | ) | (6 | ) | (2 | ) | (13 | ) | 3 | (1 | ) | (29 | ) | (5 | ) | 3 | |||||||||||
Operating impairments of investments (net) | (437 | ) | (67 | ) | (25 | ) | (5,747 | ) | (824 | ) | (390 | ) | — | — | — | ||||||||||||
Investment expenses | (207 | ) | (322 | ) | (300 | ) | (673 | ) | (833 | ) | (750 | ) | 9 | 6 | 6 | ||||||||||||
Acquisition and administrative expenses (net), excluding acquisition-related expenses | (10,356 | ) | (10,616 | ) | (10,590 | ) | (4,375 | ) | (4,588 | ) | (4,437 | ) | (552 | ) | (589 | ) | (550 | ) | |||||||||
Fee and commission expenses | (1,141 | ) | (967 | ) | (721 | ) | (253 | ) | (209 | ) | (223 | ) | (193 | ) | (233 | ) | (235 | ) | |||||||||
Operating restructuring charges | — | — | — | 1 | (16 | ) | (140 | ) | — | — | — | ||||||||||||||||
Other expenses | (2 | ) | (13 | ) | (4 | ) | (7 | ) | (2 | ) | (9 | ) | (3 | ) | (2 | ) | — | ||||||||||
Expenses from fully consolidated private equity investments | (3 | ) | — | — | (20 | ) | — | — | — | — | — | ||||||||||||||||
Reclassification of tax benefits | — | — | — | — | — | — | — | — | — | ||||||||||||||||||
Operating profit (loss) | 5,649 | 6,299 | 6,269 | 1,206 | 2,995 | 2,565 | (31 | ) | 32 | 63 | |||||||||||||||||
Non-operating income from financial assets and liabilities carried at fair value through income (net) | 42 | (59 | ) | 83 | (26 | ) | 5 | — | — | — | — | ||||||||||||||||
Non-operating realized gains/losses (net) | 2,349 | 1,433 | 1,746 | (39 | ) | 137 | 195 | (6 | ) | 18 | 15 | ||||||||||||||||
Non-operating impairments of investments (net) | (2,012 | ) | (276 | ) | (175 | ) | (414 | ) | (3 | ) | — | (120 | ) | (3 | ) | — | |||||||||||
Interest expenses from external debt | — | — | — | — | — | — | — | — | — | ||||||||||||||||||
Acquisition-related expenses | — | — | — | — | — | — | — | — | — | ||||||||||||||||||
Amortization of intangible assets | (17 | ) | (14 | ) | (1 | ) | (3 | ) | (3 | ) | (26 | ) | (2 | ) | — | — | |||||||||||
Non-operating restructuring charges | (75 | ) | (122 | ) | (362 | ) | (51 | ) | (29 | ) | (34 | ) | (2 | ) | (2 | ) | (2 | ) | |||||||||
Reclassification of tax benefits | — | — | — | — | — | — | — | — | — | ||||||||||||||||||
Non-operating items | 287 | 962 | 1,291 | (533 | ) | 107 | 135 | (130 | ) | 13 | 13 | ||||||||||||||||
Income (loss) from continuing operations before income taxes and minority interests in earnings | 5,936 | 7,261 | 7,560 | 673 | 3,102 | 2,700 | (161 | ) | 45 | 76 | |||||||||||||||||
Income taxes | (1,489 | ) | (1,656 | ) | (2,075 | ) | (260 | ) | (897 | ) | (641 | ) | 54 | 10 | (1 | ) | |||||||||||
Minority interests in earnings | (112 | ) | (431 | ) | (739 | ) | (86 | ) | (214 | ) | (416 | ) | (7 | ) | — | (6 | ) | ||||||||||
Net income (loss) from continuing operations | 4,335 | 5,174 | 4,746 | 327 | 1,991 | 1,643 | (114 | ) | 55 | 69 | |||||||||||||||||
Net income (loss) from discontinued operations, net of income taxes and minority interests in earnings | — | — | — | — | — | — | (6,304 | ) | 322 | 849 | |||||||||||||||||
Net income (loss) | 4,335 | 5,174 | 4,746 | 327 | 1,991 | 1,643 | (6,418 | ) | 377 | 918 | |||||||||||||||||
1) | Since the first quarter 2008, health business in Belgium and |
| Total revenues comprise Property-Casualty segment’s gross premiums written, Life/Health segment’s statutory premiums (including unit-linked and other investment-oriented products), Banking segment’s operating revenues and Asset Management segment’s operating revenues. |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Asset Management | Corporate | Consolidation | Group | |||||||||||||||||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | 2006 | 2008 | 2007 | 2006 | 2008 | 2007 | 2006 | |||||||||||||||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | |||||||||||||||||||||||||
2,887 | 3,259 | 3,044 | — | — | — | 115 | 144 | 130 | 92,548 | 97,681 | 94,873 | |||||||||||||||||||||||||
— | — | — | — | — | — | — | — | — | 60,444 | 59,362 | 58,524 | |||||||||||||||||||||||||
98 | 135 | 112 | 883 | 855 | 509 | (1,147 | ) | (1,139 | ) | (993 | ) | 19,072 | 18,624 | 17,430 | ||||||||||||||||||||||
(77 | ) | 31 | 38 | (98 | ) | (26 | ) | (60 | ) | (160 | ) | 12 | (4 | ) | (733 | ) | (782 | ) | (236 | ) | ||||||||||||||||
— | — | — | — | — | — | 36 | 4 | (25 | ) | 947 | 3,629 | 3,108 | ||||||||||||||||||||||||
4,032 | 4,403 | 4,186 | 221 | 198 | 190 | (469 | ) | (455 | ) | (498 | ) | 6,032 | 6,553 | 6,025 | ||||||||||||||||||||||
28 | 14 | 11 | 1 | 15 | 28 | (32 | ) | (116 | ) | (90 | ) | 408 | 217 | 61 | ||||||||||||||||||||||
— | — | — | 2,528 | 2,367 | 1,392 | — | — | — | 2,549 | 2,367 | 1,392 | |||||||||||||||||||||||||
— | — | — | — | — | — | — | — | — | (45,659 | ) | (43,122 | ) | (42,297 | ) | ||||||||||||||||||||||
— | — | — | — | — | — | (21 | ) | (78 | ) | (425 | ) | (5,140 | ) | (10,685 | ) | (11,375 | ) | |||||||||||||||||||
| (35) | (55 | ) | (41 | ) | (635 | ) | (535 | ) | (507 | ) | 977 | 905 | 686 | (948 | ) | (1,019 | ) | (858 | ) | ||||||||||||||||
— | — | — | — | (10 | ) | (5 | ) | — | — | — | (59 | ) | (18 | ) | (5 | ) | ||||||||||||||||||||
— | — | — | — | — | — | (15 | ) | — | 1 | (6,199 | ) | (891 | ) | (414 | ) | |||||||||||||||||||||
(1 | ) | 1 | — | 11 | (115 | ) | (215 | ) | 216 | 226 | 204 | (645 | ) | (1,037 | ) | (1,055 | ) | |||||||||||||||||||
(1,961 | ) | (1,900 | ) | (1,754 | ) | (477 | ) | (627 | ) | (655 | ) | 44 | 38 | 50 | (17,677 | ) | (18,282 | ) | (17,936 | ) | ||||||||||||||||
(1,158 | ) | (1,270 | ) | (1,262 | ) | (170 | ) | (130 | ) | (127 | ) | 413 | 496 | 528 | (2,502 | ) | (2,313 | ) | (2,040 | ) | ||||||||||||||||
— | — | — | — | — | — | — | — | — | 1 | (16 | ) | (140 | ) | |||||||||||||||||||||||
— | — | — | — | — | — | — | — | — | (12 | ) | (17 | ) | (13 | ) | ||||||||||||||||||||||
— | — | — | (2,452 | ) | (2,317 | ) | (1,381 | ) | 5 | — | — | (2,470 | ) | (2,317 | ) | (1,381 | ) | |||||||||||||||||||
— | — | — | — | — | — | 24 | 60 | 429 | 24 | 60 | 429 | |||||||||||||||||||||||||
926 | 1,359 | 1,290 | (188 | ) | (325 | ) | (831 | ) | (129 | ) | (47 | ) | (137 | ) | 7,433 | 10,313 | 9,219 | |||||||||||||||||||
— | — | — | 210 | 77 | (274 | ) | (179 | ) | (58 | ) | 57 | 47 | (35 | ) | (134 | ) | ||||||||||||||||||||
5 | 2 | 7 | 245 | 980 | 861 | 102 | (191 | ) | (11 | ) | 2,656 | 2,379 | 2,813 | |||||||||||||||||||||||
(19 | ) | (1 | ) | (2 | ) | (697 | ) | (11 | ) | 32 | (34 | ) | — | (1 | ) | (3,296 | ) | (294 | ) | (146 | ) | |||||||||||||||
— | — | — | (945 | ) | (1,051 | ) | (775 | ) | — | — | — | (945 | ) | (1,051 | ) | (775 | ) | |||||||||||||||||||
(278 | ) | (491 | ) | (532 | ) | 33 | (15 | ) | — | — | — | — | (245 | ) | (506 | ) | (532 | ) | ||||||||||||||||||
(1 | ) | — | (24 | ) | — | — | — | — | — | — | (23 | ) | (17 | ) | (51 | ) | ||||||||||||||||||||
— | (4 | ) | (4 | ) | (2 | ) | (9 | ) | — | — | — | — | (130 | ) | (166 | ) | (402 | ) | ||||||||||||||||||
— | — | — | — | — | — | (24 | ) | (60 | ) | (429 | ) | (24 | ) | (60 | ) | (429 | ) | |||||||||||||||||||
(293 | ) | (494 | ) | (555 | ) | (1,156 | ) | (29 | ) | (156 | ) | (135 | ) | (309 | ) | (384 | ) | (1,960 | ) | 250 | 344 | |||||||||||||||
633 | 865 | 735 | (1,344 | ) | (354 | ) | (987 | ) | (264 | ) | (356 | ) | (521 | ) | 5,473 | 10,563 | 9,563 | |||||||||||||||||||
(249 | ) | (342 | ) | (278 | ) | 631 | 217 | 824 | 26 | 96 | 451 | (1,287 | ) | (2,572 | ) | (1,720 | ) | |||||||||||||||||||
(5 | ) | (25 | ) | (53 | ) | (12 | ) | (21 | ) | (16 | ) | 3 | 16 | 27 | (219 | ) | (675 | ) | (1,203 | ) | ||||||||||||||||
379 | 498 | 404 | (725 | ) | (158 | ) | (179 | ) | (235 | ) | (244 | ) | (43 | ) | 3,967 | 7,316 | 6,640 | |||||||||||||||||||
— | — | — | — | — | — | (107 | ) | 328 | (468 | ) | (6,411 | ) | 650 | 381 | ||||||||||||||||||||||
379 | 498 | 404 | (725 | ) | (158 | ) | (179 | ) | (342 | ) | 84 | (511 | ) | (2,444 | ) | 7,966 | 7,021 | |||||||||||||||||||
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Property-Casualty Segment1)
2008 | 2007 | 2006 | |||||||
€ mn | € mn | € mn | |||||||
Gross premiums written2) | 43,387 | 44,289 | 43,674 | ||||||
Ceded premiums written | (4,972 | ) | (5,320 | ) | (5,415 | ) | |||
Change in unearned premiums | (202 | ) | (416 | ) | (309 | ) | |||
Premiums earned (net) | 38,213 | 38,553 | 37,950 | ||||||
Interest and similar income | 4,477 | 4,473 | 4,096 | ||||||
Operating income from financial assets and liabilities carried at fair value through income (net)3) | (158 | ) | 144 | 106 | |||||
Operating realized gains/losses (net)4) | 37 | 46 | 46 | ||||||
Fee and commission income | 1,247 | 1,178 | 1,014 | ||||||
Other income | 271 | 122 | 69 | ||||||
Income from fully consolidated private equity investments | 3 | — | — | ||||||
Operating revenues | 44,090 | 44,516 | 43,281 | ||||||
Claims and insurance benefits incurred (net) | (25,986 | ) | (25,485 | ) | (24,672 | ) | |||
Changes in reserves for insurance and investment contracts (net) | 3 | (339 | ) | (425 | ) | ||||
Interest expenses | (295 | ) | (402 | ) | (273 | ) | |||
Loan loss provisions | (17 | ) | (6 | ) | (2 | ) | |||
Operating impairments of investments (net)5) | (437 | ) | (67 | ) | (25 | ) | |||
Investment expenses | (207 | ) | (322 | ) | (300 | ) | |||
Acquisition and administrative expenses (net) | (10,356 | ) | (10,616 | ) | (10,590 | ) | |||
Fee and commission expenses | (1,141 | ) | (967 | ) | (721 | ) | |||
Other expenses | (2 | ) | (13 | ) | (4 | ) | |||
Expenses from fully consolidated private equity investments | (3 | ) | — | — | |||||
Operating expenses | (38,441 | ) | (38,217 | ) | (37,012 | ) | |||
Operating profit | 5,649 | 6,299 | 6,269 | ||||||
Non-operating income from financial assets and liabilities carried at fair value through income (net)3) | 42 | (59 | ) | 83 | |||||
Non-operating realized gains/losses (net)4) | 2,349 | 1,433 | 1,746 | ||||||
Non-operating impairments of investments (net)5) | (2,012 | ) | (276 | ) | (175 | ) | |||
Amortization of intangible assets | (17 | ) | (14 | ) | (1 | ) | |||
Restructuring charges | (75 | ) | (122 | ) | (362 | ) | |||
Non-operating items | 287 | 962 | 1,291 | ||||||
Income before income taxes and minority interests in earnings | 5,936 | 7,261 | 7,560 | ||||||
Income taxes | (1,489 | ) | (1,656 | ) | (2,075 | ) | |||
Minority interests in earnings | (112 | ) | (431 | ) | (739 | ) | |||
Net income | 4,335 | 5,174 | 4,746 | ||||||
Loss ratio6)in % | 68.0 | 66.1 | 65.0 | ||||||
Expense ratio7)in % | 27.1 | 27.5 | 27.9 | ||||||
Combined ratio8)in % | 95.1 | 93.6 | 92.9 | ||||||
1) | Since 2008, health business in Belgium and France is shown within Life/Health segment. Prior year balances have not been adjusted. |
2) | For the Property-Casualty segment, total revenues are measured based upon gross premiums written. |
3) | The total of these items equals income from financial assets and liabilities carried at fair value through income (net) in the segment income statement. |
4) | The total of these items equals realized gains/losses (net) in the segment income statement. |
5) | The total of these items equals impairments of investments (net) in the segment income statement. |
6) | Represents claims and insurance benefits incurred (net) divided by premiums earned (net). |
7) | Represents acquisition |
| Represents the total of |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Life/Health Segment1)
2008 | 2007 | 2006 | |||||||
€ mn | € mn | € mn | |||||||
Statutory premiums2) | 45,615 | 49,367 | 47,421 | ||||||
Ceded premiums written | (588 | ) | (644 | ) | (840 | ) | |||
Change in unearned premiums | (54 | ) | (61 | ) | (221 | ) | |||
Statutory premiums (net) | 44,973 | 48,662 | 46,360 | ||||||
Deposits from SFAS 97 insurance and investment contracts | (22,742 | ) | (27,853 | ) | (25,786 | ) | |||
Premiums earned (net) | 22,231 | 20,809 | 20,574 | ||||||
Interest and similar income | 13,772 | 13,417 | 12,972 | ||||||
Operating income from financial assets and liabilities carried at fair value through income (net)3) | (235 | ) | (945 | ) | (361 | ) | |||
Operating realized gains/losses (net)4) | 874 | 3,579 | 3,087 | ||||||
Fee and commission income | 571 | 701 | 630 | ||||||
Other income | 140 | 182 | 43 | ||||||
Income from fully consolidated private equity investments | 18 | — | — | ||||||
Operating revenues | 37,371 | 37,743 | 36,945 | ||||||
Claims and insurance benefits incurred (net) | (19,673 | ) | (17,637 | ) | (17,625 | ) | |||
Changes in reserves for insurance and investment contracts (net) | (5,122 | ) | (10,268 | ) | (10,525 | ) | |||
Interest expenses | (283 | ) | (374 | ) | (280 | ) | |||
Loan loss provisions | (13 | ) | 3 | (1 | ) | ||||
Operating impairments of investments (net)5) | (5,747 | ) | (824 | ) | (390 | ) | |||
Investment expenses | (673 | ) | (833 | ) | (750 | ) | |||
Acquisition and administrative expenses (net) | (4,375 | ) | (4,588 | ) | (4,437 | ) | |||
Fee and commission expenses | (253 | ) | (209 | ) | (223 | ) | |||
Operating restructuring charges6) | 1 | (16 | ) | (140 | ) | ||||
Other expenses | (7 | ) | (2 | ) | (9 | ) | |||
Expenses from fully consolidated private equity investments | (20 | ) | — | — | |||||
Operating expenses | (36,165 | ) | (34,748 | ) | (34,380 | ) | |||
Operating profit | 1,206 | 2,995 | 2,565 | ||||||
Non-operating income from financial assets and liabilities carried at fair value through income (net)3) | (26 | ) | 5 | — | |||||
Non-operating realized gains/losses (net)4) | (39 | ) | 137 | 195 | |||||
Non-operating impairments of investments (net)5) | (414 | ) | (3 | ) | — | ||||
Amortization of intangible assets | (3 | ) | (3 | ) | (26 | ) | |||
Non-operating restructuring charges6) | (51 | ) | (29 | ) | (34 | ) | |||
Non-operating items | (533 | ) | 107 | 135 | |||||
Income before income taxes and minority interests in earnings | 673 | 3,102 | 2,700 | ||||||
Income taxes | (260 | ) | (897 | ) | (641 | ) | |||
Minority interests in earnings | (86 | ) | (214 | ) | (416 | ) | |||
Net income | 327 | 1,991 | 1,643 | ||||||
Statutory expense ratio7)in % | 9.7 | 9.4 | 9.6 | ||||||
1) | Since 2008, health business in Belgium and France is shown within Life/Health segment. Prior year balances have not been adjusted. |
For the Life/Health segment, total revenues are measured based upon statutory premiums. Statutory premiums are gross premiums written from sales of |
The total of these items equals income from financial assets and |
The total of these items equals realized gains/losses (net) in the segment income statement. |
5) | The total of these items equals impairments of investments (net) in the segment income statement. |
6) | The total of these items equals restructuring charges in the segment income statement. |
7) | Represents |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Banking Segment
2005 | 2004 | 2003 | ||||||||||||||||
For the years ended 12/31/ | Banking Segment | Dresdner Bank | Banking Segment | Dresdner Bank | Banking Segment | Dresdner Bank | ||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | |||||||||||||
Net interest income | 2,305 | 2,228 | 2,359 | 2,267 | 2,728 | 2,325 | ||||||||||||
Net fee and commission income | 2,767 | 2,610 | 2,593 | 2,460 | 2,452 | 2,387 | ||||||||||||
Net trading income | 1,163 | 1,116 | 1,494 | 1,499 | 1,524 | 1,533 | ||||||||||||
Operating revenues(1) | 6,235 | 5,954 | 6,446 | 6,226 | 6,704 | 6,245 | ||||||||||||
Administrative expenses | (5,500 | ) | (5,292 | ) | (5,516 | ) | (5,307 | ) | (6,086 | ) | (5,739 | ) | ||||||
Net loan loss provisions | 110 | 113 | (344 | ) | (337 | ) | (1,014 | ) | (1,015 | ) | ||||||||
Operating profit/(loss) | 845 | 775 | 586 | 582 | (396 | ) | (509 | ) | ||||||||||
Net capital gains and impairments on investments | 710 | (2) | 713 | 172 | (2) | 166 | 166 | (2) | 120 | |||||||||
Restructuring charges | (13 | ) | (12 | ) | (292 | ) | (290 | ) | (892 | ) | (840 | ) | ||||||
Other non-operating income/(expenses) (net) | (5 | ) | (9 | ) | (289 | ) | (278 | ) | (551 | ) | (613 | ) | ||||||
Amortization of goodwill(3) | — | — | (244 | ) | (244 | ) | (263 | ) | (270 | ) | ||||||||
Earnings from ordinary activities before taxes | 1,537 | 1,467 | (67 | ) | (64 | ) | (1,936 | ) | (2,112 | ) | ||||||||
Taxes | (396 | ) | (382 | ) | 294 | 288 | 1,025 | 1,075 | ||||||||||
Minority interests in earnings | (102 | ) | (82 | ) | (101 | ) | (60 | ) | (104 | ) | (5 | ) | ||||||
Net income/(loss) | 1,039 | 1,003 | 126 | 164 | (1,015 | ) | (1,042 | ) | ||||||||||
Cost-income ratio(4) in % | 88.2 | 88.9 | 85.6 | 85.2 | 90.8 | 91.9 | ||||||||||||
2008 | 2007 | 2006 | |||||||
€ mn | € mn | € mn | |||||||
Net interest income1) | 312 | 325 | 291 | ||||||
Net fee and commission income2) | 237 | 295 | 268 | ||||||
Trading income (net)3) | (5 | ) | 2 | 45 | |||||
Income from financial assets and liabilities designated at fair value through income | — | — | — | ||||||
Operating revenues4) | 544 | 622 | 604 | ||||||
Administrative expenses | (552 | ) | (589 | ) | (550 | ) | |||
Investment expenses | 9 | 6 | 6 | ||||||
Other expenses | (3 | ) | (2 | ) | — | ||||
Operating expenses | (546 | ) | (585 | ) | (544 | ) | |||
Loan loss provisions | (29 | ) | (5 | ) | 3 | ||||
Operating profit (loss) | (31 | ) | 32 | 63 | |||||
Realized gains/losses (net) | (6 | ) | 18 | 15 | |||||
Impairments of investments (net) | (120 | ) | (3 | ) | — | ||||
Amortization of intangible assets | (2 | ) | — | — | |||||
Restructuring charges | (2 | ) | (2 | ) | (2 | ) | |||
Non-operating items | (130 | ) | 13 | 13 | |||||
Income (loss) from continuing operations before income taxes and minority interests in earnings | (161 | ) | 45 | 76 | |||||
Income taxes | 54 | 10 | (1 | ) | |||||
Minority interests in earnings | (7 | ) | — | (6 | ) | ||||
Net income (loss) from continuing operations | (114 | ) | 55 | 69 | |||||
Net income (loss) from discontinued operations, net of income taxes and minority interests in earnings | (6,304 | ) | 322 | 849 | |||||
Net income (loss) | (6,418 | ) | 377 | 918 | |||||
Cost-income ratio5)in % | 100.4 | 94.1 | 90.1 | ||||||
| Represents interest and |
| Represents fee and |
| The total of these items equals income from financial assets and |
| For the Banking segment, total revenues are measured based upon operating revenues. |
5) | Represents operating expenses divided by operating revenues. |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Asset Management Segment
2005 | 2004 | 2003 | ||||||||||||||||
For the years ended 12/31/ | Asset Management Segment | Allianz Global Investors | Asset Management Segment | Allianz Global Investors | Asset Management Segment | Allianz Global Investors | ||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | |||||||||||||
Operating revenues | 2,733 | 2,698 | 2,308 | 2,301 | 2,226 | 2,226 | ||||||||||||
Operating expenses | (1,600 | ) | (1,574 | ) | (1,452 | ) | (1,450 | ) | (1,510 | ) | (1,510 | ) | ||||||
Operating profit | 1,133 | 1,124 | 856 | 851 | 716 | 716 | ||||||||||||
Acquisition-related expenses | (713 | ) | (713 | ) | (751 | ) | (751 | ) | (732 | ) | (732 | ) | ||||||
thereof: | ||||||||||||||||||
Deferred purchases of interests in PIMCO(1) | (676 | ) | (676 | ) | (501 | ) | (501 | ) | (448 | ) | (448 | ) | ||||||
Retention payments for management and employees of PIMCO and Nicholas Applegate | (12 | ) | (12 | ) | (125 | ) | (125 | ) | (147 | ) | (147 | ) | ||||||
Amortization charges relating to capitalized bonuses for PIMCO management | (25 | ) | (25 | ) | (125 | ) | (125 | ) | (137 | ) | (137 | ) | ||||||
Amortization of goodwill(2) | — | — | (380 | ) | (380 | ) | (369 | ) | (369 | ) | ||||||||
Earnings from ordinary activities before taxes | 420 | 411 | (275 | ) | (280 | ) | (385 | ) | (385 | ) | ||||||||
Taxes | (132 | ) | (130 | ) | 52 | 53 | 80 | 80 | ||||||||||
Minority interests in earnings | (51 | ) | (48 | ) | (52 | ) | (52 | ) | (92 | ) | (92 | ) | ||||||
Net income/(loss) | 237 | 233 | (275 | ) | (279 | ) | (397 | ) | (397 | ) | ||||||||
Cost-income ratio(3) in % | 58.5 | 58.3 | 62.9 | 63.0 | 67.8 | 67.8 | ||||||||||||
2008 | 2007 | 2006 | ||||||||||||||||
Asset Management | Allianz Global Investors | Asset Management | Allianz Global Investors | Asset Management | Allianz Global Investors | |||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | |||||||||||||
Net fee and commission income1) | 2,874 | 2,812 | 3,133 | 3,060 | 2,924 | 2,874 | ||||||||||||
Net interest income2) | 62 | 54 | 81 | 75 | 71 | 66 | ||||||||||||
Income from financial assets and liabilities carried at fair value through income (net) | (77 | ) | (80 | ) | 31 | 29 | 38 | 37 | ||||||||||
Other income | 28 | 27 | 14 | 14 | 11 | 12 | ||||||||||||
Operating revenues3) | 2,887 | 2,813 | 3,259 | 3,178 | 3,044 | 2,989 | ||||||||||||
Administrative expenses, excluding acquisition-related expenses4) | (1,961 | ) | (1,909 | ) | (1,900 | ) | (1,857 | ) | (1,754 | ) | (1,713 | ) | ||||||
Operating expenses | (1,961 | ) | (1,909 | ) | (1,900 | ) | (1,857 | ) | (1,754 | ) | (1,713 | ) | ||||||
Operating profit | 926 | 904 | 1,359 | 1,321 | 1,290 | 1,276 | ||||||||||||
Realized gains/losses (net) | 5 | 5 | 2 | 4 | 7 | 5 | ||||||||||||
Impairments of investments (net) | (19 | ) | (13 | ) | (1 | ) | (1 | ) | (2 | ) | (2 | ) | ||||||
Acquisition-related expenses4), thereof: | ||||||||||||||||||
Deferred purchases of interests in PIMCO | (278 | ) | (278 | ) | (488 | ) | (488 | ) | (523 | ) | (523 | ) | ||||||
Other acquisition-related expenses | — | — | (3 | ) | (3 | ) | (9 | ) | (9 | ) | ||||||||
Subtotal | (278 | ) | (278 | ) | (491 | ) | (491 | ) | (532 | ) | (532 | ) | ||||||
Amortization of intangible assets | (1 | ) | (1 | ) | — | — | (24 | ) | (23 | ) | ||||||||
Restructuring charges | — | — | (4 | ) | (4 | ) | (4 | ) | (4 | ) | ||||||||
Non-operating items | (293 | ) | (287 | ) | (494 | ) | (492 | ) | (555 | ) | (556 | ) | ||||||
Income before income taxes and minority interests in earnings | 633 | 617 | 865 | 829 | 735 | 720 | ||||||||||||
Income taxes | (249 | ) | (246 | ) | (342 | ) | (337 | ) | (278 | ) | (276 | ) | ||||||
Minority interests in earnings | (5 | ) | (2 | ) | (25 | ) | (22 | ) | (53 | ) | (49 | ) | ||||||
Net income | 379 | 369 | 498 | 470 | 404 | 395 | ||||||||||||
Cost-income ratio5)in % | 67.9 | 67.9 | 58.3 | �� | 58.4 | 57.6 | 57.3 | |||||||||||
| Represents fee and |
| Represents interest and |
| For the Asset Management segment, total revenues are measured based upon operating revenues. |
4) | The total of these items equals acquisition and administrative expenses (net) in the segment income statement. |
5) | Represents |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Corporate Segment
2008 | 2007 | 2006 | |||||||
€ mn | € mn | € mn | |||||||
Interest and similar income | 883 | 855 | 509 | ||||||
Operating income from financial assets and liabilities carried at fair value through income (net)1) | (98 | ) | (26 | ) | (60 | ) | |||
Fee and commission income | 221 | 198 | 190 | ||||||
Other income | 1 | 15 | 28 | ||||||
Income from fully consolidated private equity investments | 2,528 | 2,367 | 1,392 | ||||||
Operating revenues | 3,535 | 3,409 | 2,059 | ||||||
Interest expenses, excluding interest expenses from external debt2) | (635 | ) | (535 | ) | (507 | ) | |||
Loan loss provision | — | (10 | ) | (5 | ) | ||||
Investment expenses | 11 | (115 | ) | (215 | ) | ||||
Acquisition and administrative expenses (net), excluding acquisition-related expenses3) | (477 | ) | (627 | ) | (655 | ) | |||
Fee and commission expenses | (170 | ) | (130 | ) | (127 | ) | |||
Expenses from fully consolidated private equity investments | (2,452 | ) | (2,317 | ) | (1,381 | ) | |||
Operating expenses | (3,723 | ) | (3,734 | ) | (2,890 | ) | |||
Operating loss | (188 | ) | (325 | ) | (831 | ) | |||
Non-operating income from financial assets and liabilities carried at fair value through income (net)1) | 210 | 77 | (274 | ) | |||||
Realized gains/losses (net) | 245 | 980 | 861 | ||||||
Interest expenses from external debt2) | (945 | ) | (1,051 | ) | (775 | ) | |||
Impairments of investments (net) | (697 | ) | (11 | ) | 32 | ||||
Acquisition-related expenses3) | 33 | (15 | ) | — | |||||
Restructuring charges | (2 | ) | (9 | ) | — | ||||
Non-operating items | (1,156 | ) | (29 | ) | (156 | ) | |||
Loss before income taxes and minority interests in earnings | (1,344 | ) | (354 | ) | (987 | ) | |||
Income taxes | 631 | 217 | 824 | ||||||
Minority interests in earnings | (12 | ) | (21 | ) | (16 | ) | |||
Net loss | (725 | ) | (158 | ) | (179 | ) | |||
1) | The total of these items equals income from financial assets and liabilities carried at fair value through income (net) in the segment income statement. |
2) | The total of these items equals interest expenses in the segment income statement. |
3) | The total of these items equals acquisition and administrative expenses (net) in the segment income statement. |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Supplementary Information onto the Allianz Group’s AssetsConsolidated Balance Sheets
6 Intangible assets7 Cash and cash equivalents
As of 12/31/ | 2005 | 2004 | ||
€ mn | € mn | |||
Goodwill | 12,023 | 11,677 | ||
PVFP | 1,336 | 1,522 | ||
Software | 1,091 | 972 | ||
Brand names | 740 | 740 | ||
Loyalty bonuses(*) | — | 33 | ||
Other | 195 | 203 | ||
Total | 15,385 | 15,147 | ||
As of December 31, | 20081) | 2007 | ||
€ mn | € mn | |||
Balances with banks payable on demand | 7,760 | 23,848 | ||
Balances with central banks | 456 | 6,301 | ||
Cash on hand | 169 | 918 | ||
Treasury bills, discounted treasury notes, similar treasury securities, bills of exchange and checks | 573 | 270 | ||
Total | 8,958 | 31,337 | ||
1) | Does not include cash and cash equivalents of |
As of December 31, 2008, compulsory deposits on accounts with national central banks under restrictions due to required reserves from the European Central Bank totaled €363 mn (2007: €5,473mn).
8 Financial assets carried at fair value through income
As of December 31, | 20081) | 2007 | ||
€ mn | € mn | |||
Financial assets held for trading | ||||
Debt securities | 547 | 59,715 | ||
Equity securities | 99 | 30,596 | ||
Derivative financial instruments | 1,978 | 73,230 | ||
Subtotal | 2,624 | 163,541 | ||
Financial assets designated at fair value through income | ||||
Debt securities2) | 8,589 | 15,924 | ||
Equity securities | 3,027 | 4,232 | ||
Loans to banks and customers | — | 1,764 | ||
Subtotal | 11,616 | 21,920 | ||
Total | 14,240 | 185,461 | ||
1) | Does not include financial assets carried at fair value through income of |
2) | Debt securities designated at fair value through income include €0.2 bn of asset-backed securities of the Life/Health segment as of December 31, |
Amortization expenseDebt and equity securities included in financial assets held for trading
Equity and debt securities included in financial assets held for trading are primarily marketable and listed securities. As of intangible assets is estimated to be €428December 31, 2008, the debt securities include €55 mn in 2006, €419(2007: €17,281 mn) from public sector issuers and €492 mn in 2007, €406 mn in 2008, €390 mn in 2009 and €377 mn in 2010.(2007: €42,434 mn) from other issuers.
GoodwillCredit risk exposure of loans to banks and customers designated at fair value through income
2005 | 2004 | 2003 | |||||||
€ mn | € mn | € mn | |||||||
Cost as of 1/1/ | 11,901 | 12,594 | 13,786 | ||||||
Accumulated impairments as of 1/1/ | (224 | ) | (224 | ) | — | ||||
Carrying amount as of 1/1/ | 11,677 | 12,370 | 13,786 | ||||||
Additions | 70 | 803 | 782 | ||||||
Disposals | (45 | ) | (62 | ) | (225 | ) | |||
Impairment | — | — | (224 | ) | |||||
Foreign currency translation adjustments | 479 | (270 | ) | (560 | ) | ||||
Reclassifications to disposal groups held for sale | (158 | ) | — | — | |||||
Amortization | — | (1,164 | ) | (1,189 | ) | ||||
Carrying amount as of 12/31/ | 12,023 | 11,677 | 12,370 | ||||||
Accumulated impairments as of 12/31/ | 224 | 224 | 224 | ||||||
Cost as of 12/31/ | 12,247 | 11,901 | 12,594 | ||||||
Additions include goodwill from
Disposals include goodwill from
The impairment charge of €224 mn during the year ended December 31, 2003 concerns Allianz Life Insurance Company Ltd., Seoul. In the course2008 all of the annual goodwill impairment reviewloans to banks and customers designated at fair value through income related to the amountdiscontinued operations of the impairment was determined on the basis of an evaluation of future cash flowsDresdner Bank and thus have been reclassified and presented as “Non-current assets and assets from the existing contract portfolio and new business. This amount reflects the effects of persistently lower interest ratesdisposal groups held-for-sale” in the capital markets and the overall unsatisfactory earnings performance of the company.accordance with IFRS 5.
The reclassifications affect9 Investments
As of December 31, | 20081) | 2007 | ||
€ mn | € mn | |||
Available-for-sale investments | 242,099 | 268,001 | ||
Held-to-maturity investments | 4,934 | 4,659 | ||
Funds held by others under reinsurance contracts assumed | 1,039 | 1,063 | ||
Investments in associates and joint ventures | 4,524 | 5,471 | ||
Real estate held for investment | 7,551 | 7,758 | ||
Total | 260,147 | 286,952 | ||
1) | Does not include investments of Dresdner Bank which were classified as held-for-sale. See Note 4. |
Notes to the goodwill of Four Seasons Health Care Ltd., Wilmslow and BetterCare Group Limited, Kingston upon Thames as these subsidiaries were reclassified to disposal groups held for sale.Allianz Group’s Consolidated Financial Statements—(Continued)
PVFPAvailable-for-sale investments
2005 | 2004 | 2003 | |||||||
€ mn | € mn | € mn | |||||||
Cost as of 1/1/ | 2,737 | 2,699 | 2,619 | ||||||
Accumulated amortization as of 1/1/ | (1,215 | ) | (1,041 | ) | (851 | ) | |||
Carrying amount of 1/1/ | 1,522 | 1,658 | 1,768 | ||||||
Additions | — | 47 | — | ||||||
Changes in the consolidated subsidiaries of the Allianz Group | — | (4 | ) | (5 | ) | ||||
Change in assumptions | — | — | 118 | ||||||
Foreign currency translation adjustments | 7 | (5 | ) | (33 | ) | ||||
Amortization(*) | (193 | ) | (174 | ) | (190 | ) | |||
Carrying amount as of 12/31/ | 1,336 | 1,522 | 1,658 | ||||||
Accumulated amortization as of 12/31/ | 1,408 | 1,215 | 1,041 | ||||||
Cost as of 12/31/ | 2,744 | 2,737 | 2,699 | ||||||
As of December 31, | 2008 | 2007 | ||||||||||||||||
Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | |||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | |||||||||||
Debt securities | ||||||||||||||||||
Government and agency mortgage-backed securities (residential and commercial)1) | 7,814 | 177 | (2 | ) | 7,989 | 7,628 | 30 | (112 | ) | 7,546 | ||||||||
Corporate mortgage-backed securities (residential and commercial)1) | 8,714 | 14 | (1,417 | ) | 7,311 | 6,663 | 39 | (101 | ) | 6,601 | ||||||||
Other asset-backed securities1) | 4,858 | 16 | (385 | ) | 4,489 | 5,384 | 34 | (92 | ) | 5,326 | ||||||||
Government and government agency bonds | ||||||||||||||||||
Germany | 10,786 | 748 | (11 | ) | 11,523 | 12,987 | 127 | (187 | ) | 12,927 | ||||||||
Italy | 22,101 | 428 | (353 | ) | 22,176 | 23,090 | 232 | (259 | ) | 23,063 | ||||||||
France | 13,628 | 1,240 | (42 | ) | 14,826 | 13,452 | 596 | (255 | ) | 13,793 | ||||||||
United States | 3,996 | 343 | (22 | ) | 4,317 | 4,544 | 114 | (20 | ) | 4,638 | ||||||||
Spain | 5,414 | 299 | (16 | ) | 5,697 | 6,717 | 150 | (79 | ) | 6,788 | ||||||||
Belgium | 4,571 | 217 | (2 | ) | 4,786 | 5,050 | 38 | (114 | ) | 4,974 | ||||||||
All other countries | 34,246 | 1,298 | (574 | ) | 34,970 | 32,445 | 77 | (565 | ) | 31,957 | ||||||||
Subtotal | 94,742 | 4,573 | (1,020 | ) | 98,295 | 98,285 | 1,334 | (1,479 | ) | 98,140 | ||||||||
Corporate bonds | 98,864 | 1,367 | (7,028 | ) | 93,203 | 86,095 | 660 | (2,356 | ) | 84,399 | ||||||||
Other | 1,283 | 58 | (18 | ) | 1,323 | 2,933 | 99 | (104 | ) | 2,928 | ||||||||
Subtotal | 216,275 | 6,205 | (9,870 | ) | 212,610 | 206,988 | 2,196 | (4,244 | ) | 204,940 | ||||||||
Equity securities | 23,802 | 6,538 | (851 | ) | 29,489 | 40,794 | 22,734 | (467 | ) | 63,061 | ||||||||
Total | 240,077 | 12,743 | (10,721 | ) | 242,099 | 247,782 | 24,930 | (4,711 | ) | 268,001 | ||||||||
1) | Includes asset-backed-securities of the |
Held-to-maturity investments
As of December 31, | 2008 | 2007 | ||||||||||||||||
Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | |||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | |||||||||||
Government and government agency bonds | ||||||||||||||||||
Germany | 15 | 3 | — | 18 | 130 | — | — | 130 | ||||||||||
Italy | 374 | 9 | (1 | ) | 382 | 447 | 9 | — | 456 | |||||||||
All other countries | 1,575 | 64 | (6 | ) | 1,633 | 1,555 | 26 | (17 | ) | 1,564 | ||||||||
Subtotal | 1,964 | 76 | (7 | ) | 2,033 | 2,132 | 35 | (17 | ) | 2,150 | ||||||||
Corporate bonds1) | 2,957 | 84 | (21 | ) | 3,020 | 2,500 | 31 | (3 | ) | 2,528 | ||||||||
Other | 13 | — | — | 13 | 27 | — | — | 27 | ||||||||||
Total | 4,934 | 160 | (28 | ) | 5,066 | 4,659 | 66 | (20 | ) | 4,705 | ||||||||
1) | Includes also corporate mortgage-backed securities. |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
As of December 31, 2005, the percentage of PVFP that is expected to be amortized in 2006 is 12.78% (12.11% in 2007, 11.16% in 2008, 9.94% in 2009Unrealized losses on available-for-sale investments and 9.02% in 2010).
Softwareheld-to-maturity investments
2005 | 2004 | 2003 | |||||||
€ mn | € mn | € mn | |||||||
Cost as of 1/1/ | 3,532 | 3,083 | 2,692 | ||||||
Accumulated amortization as of 1/1/ | (2,560 | ) | (2,019 | ) | (1,411 | ) | |||
Carrying amount as of 1/1/ | 972 | 1,064 | 1,281 | ||||||
Additions | 577 | 757 | 713 | ||||||
Changes in the consolidated subsidiaries of the Allianz Group | (2 | ) | (70 | ) | (69 | ) | |||
Disposals | (290 | ) | (232 | ) | (233 | ) | |||
Foreign currency translation adjustments | 14 | (6 | ) | (20 | ) | ||||
Amortization | (180 | ) | (541 | ) | (608 | ) | |||
Carrying amount as of 12/31/(*) | 1,091 | 972 | 1,064 | ||||||
Accumulated amortization as of 12/31/ | 2,740 | 2,560 | 2,019 | ||||||
Cost as of 12/31/ | 3,831 | 3,532 | 3,083 | ||||||
Impairment Tests for Goodwill and Intangible Assets with Indefinite Lives
The Allianz Group has allocated goodwill for impairment testing purposes to seven cash generating units in the Property-Casualty segment, five cash generating units in the Life/Health segment, three cash generating units in the Banking segment and one cash generating unit in the Asset Management segment. These cash generating units represent the lowest level at which the goodwill is monitored for internal management purposes. In addition, the Allianz Group’s brand names have been allocated to two cash generating units in the Banking segment and one cash generating unit in the Asset Management segment.
The groups of cash generating units of the Property-Casualty segment are: Europe I, includingGermany, Switzerland and Austria; Europe II, including France, Italy and Spain; NAFTA, including the United States and Mexico; South America; Asia Pacific; Eastern Europe and Specialty Lines. The groups of cash generating units of the Life/Health segment are: Europe I Life, including Germany Life, Switzerland and Austria; Europe I Health, comprising Germany Health; Europe II, including France, Italy and Spain; NAFTA, including the United States; and Asia Pacific. The cash generating units of the Banking segment are Personal Banking and Private & Business Banking; Corporate Banking and DrKW; and Other Banking. The Asset Management segment is considered a cash generating unit.
The recoverable amounts of all cash generating units are determined on the basis of value in use calculations.
The Allianz Group applies generally acknowledged valuation principles to determine the value in use. In this regard, the Allianz Group utilizes the capitalized earnings method to derive the value in use for all cash generating units in the Property-Casualty and Banking segments and for the Asset Management and Europe I Health cash generating units. Generally, the basis for the determination of the capitalized earnings value is the business plan (“detailed planning period”) as well as the estimate of the sustainable returns which can be assumed to be realistic on a long term basis (“terminal value”) of the companies included in the cash generating units. The capitalized earnings value is calculated by discounting the future earnings using an appropriate discount rate.
The business plans applied in the value in use are the results of the structured management dialogues between the Board of Management of the Allianz Group and the companies in connection with a reporting process integrated into these dialogues. Generally, the business plans comprise a planning horizon of three years.
The terminal values are largely based on the expected profits of the final year of the detailed planning period. Where necessary, the planned profits are adjusted so that long term sustainable earnings are reflected. The financing of the assumed growth in the terminal values is accounted for by appropriate profit retention.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
The discount rate is based on the capital asset pricing model. The assumptions, including the risk free interest rate, market risk premium, segment beta and leverage ratio, used to calculate the discount rates are consistent with the parameters used in the Allianz Group’s planning and controlling process, specifically those utilized in the calculation of Economic Value Added.
For all cash generating units in the Life/Health segment, with the exception of Europe I Health, the Embedded Value, specifically Appraisal Value, approach is utilized to determine the value in use. Embedded value is an industry-specific valuation method and is in compliance with the general principles of the discounted earnings methods. The Embedded Value approach utilized is based on the Allianz Group’s Embedded Value guidelines.
The carrying amounts of goodwill and brand names allocated to Allianz Group’s cash generating units as of December 31, 2005 are as follows:
As of 12/31/ | 2005 | |||
Cash Generating Units | Goodwill | Brand names | ||
€ mn | € mn | |||
Property-Casualty | ||||
Europe I | 293 | — | ||
Europe II | 701 | — | ||
NAFTA | 120 | — | ||
South America | 21 | — | ||
Asia Pacific | 214 | — | ||
Eastern Europe | 71 | — | ||
Specialty Lines | 20 | — | ||
Subtotal | 1,440 | — | ||
Life/Health | ||||
Europe I—Life | 723 | — | ||
Europe I—Health | 325 | — | ||
Europe II | 580 | — | ||
NAFTA | 406 | — | ||
Asia Pacific | 320 | — | ||
Subtotal | 2,354 | — | ||
Banking | ||||
Personal Banking and Private & Business Banking | 1,390 | 377 | ||
Corporate Banking and DrKW | 183 | 279 | ||
Other Banking | 52 | — | ||
Subtotal | 1,625 | 656 | ||
Asset Management | 6,604 | 84 | ||
Total | 12,023 | 740 | ||
7 Investments in associated enterprises and joint ventures
As of 12/31/ | 2005 | 2004 | ||
€ mn | € mn | |||
Investments in associated enterprises | 1,984 | 5,675 | ||
Investments in joint ventures | 111 | 82 | ||
Total | 2,095 | 5,757 | ||
As of December 31, 2005, loans to associated enterprises and joint ventures and debt securities available-for-sale issued by associated enterprises and joint ventures held by the Allianz Group amounted to €12,618 mn (2004: €19,011 mn).
As of 12/31/ | 2005 | 2004 | ||
€ mn | € mn | |||
Securities held-to-maturity | 4,826 | 5,179 | ||
Securities available-for-sale | 266,953 | 230,919 | ||
Real estate used by third parties | 9,569 | 10,628 | ||
Funds held by others under reinsurance contracts assumed | 1,572 | 1,601 | ||
Total | 282,920 | 248,327 | ||
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Securities held-to-maturity
As of 12/31/2005 | |||||||||
Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | ||||||
€ mn | € mn | € mn | € mn | ||||||
Government and government agency bonds | |||||||||
Germany | 140 | 8 | — | 148 | |||||
Italy | 427 | 42 | — | 469 | |||||
Austria | 364 | 2 | — | 366 | |||||
All other countries | 1,240 | 70 | — | 1,310 | |||||
Subtotal | 2,171 | 122 | — | 2,293 | |||||
Corporate bonds | 2,619 | 154 | — | 2,773 | |||||
Other | 36 | — | — | 36 | |||||
Total | 4,826 | 276 | — | 5,102 | |||||
As of 12/31/2004 | |||||||||
Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | ||||||
€ mn | € mn | € mn | € mn | ||||||
Government and government agency bonds | |||||||||
Germany | 157 | 3 | — | 160 | |||||
Italy | 407 | 10 | — | 417 | |||||
Austria | 367 | 9 | — | 376 | |||||
All other countries | 1,255 | 27 | (1 | ) | 1,281 | ||||
Subtotal | 2,186 | 49 | (1 | ) | 2,234 | ||||
Corporate bonds | 2,951 | 143 | — | 3,094 | |||||
Other | 42 | 17 | — | 59 | |||||
Total | 5,179 | 209 | (1 | ) | 5,387 | ||||
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Securities available-for-sale
As of 12/31/ | 2005 | 2004 | ||||||||||||||||
Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | |||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | |||||||||||
Debt Securities | ||||||||||||||||||
Government and agency mortgage-backed securities (residential and commercial) | 9,894 | 10 | (253 | ) | 9,651 | 9,376 | 38 | (58 | ) | 9,356 | ||||||||
Corporate mortgage-backed securities (residential and commercial) | 3,265 | 37 | (31 | ) | 3,271 | 909 | 42 | (1 | ) | 950 | ||||||||
Other asset-backed securities | 3,381 | 56 | (22 | ) | 3,415 | 2,926 | 84 | (4 | ) | 3,006 | ||||||||
Government and government agency bonds | ||||||||||||||||||
Germany | 15,801 | 825 | (32 | ) | 16,594 | 13,887 | 559 | — | 14,446 | |||||||||
Italy | 23,479 | 1,339 | (39 | ) | 24,779 | 23,403 | 1,160 | (7 | ) | 24,556 | ||||||||
France | 16,250 | 1,656 | (13 | ) | 17,893 | 14,031 | 1,218 | (2 | ) | 15,247 | ||||||||
United States | 9,527 | 202 | (85 | ) | 9,644 | 4,430 | 127 | (110 | ) | 4,447 | ||||||||
Spain | 8,484 | 823 | (3 | ) | 9,304 | 7,371 | 646 | (1 | ) | 8,016 | ||||||||
Belgium | 4,438 | 302 | (4 | ) | 4,736 | 4,362 | 249 | (19 | ) | 4,592 | ||||||||
Austria | 3,730 | 220 | (3 | ) | 3,947 | 3,509 | 190 | (3 | ) | 3,696 | ||||||||
All other countries | 27,656 | 1,082 | (110 | ) | 28,628 | 25,616 | 1,176 | (36 | ) | 26,756 | ||||||||
Subtotal | 109,365 | 6,449 | (289 | ) | 115,525 | 96,609 | 5,325 | (178 | ) | 101,756 | ||||||||
Corporate bonds | 73,136 | 3,331 | (214 | ) | 76,253 | 65,417 | 3,510 | (90 | ) | 68,837 | ||||||||
Other | 1,556 | 154 | (2 | ) | 1,708 | 2,727 | 90 | (4 | ) | 2,813 | ||||||||
Subtotal | 200,597 | 10,037 | (811 | ) | 209,823 | 177,964 | 9,089 | (335 | ) | 186,718 | ||||||||
Equity Securities | 38,157 | 19,161 | (188 | ) | 57,130 | 32,106 | 12,488 | (393 | ) | 44,201 | ||||||||
Total | 238,754 | 29,198 | (999 | ) | 266,953 | 210,070 | 21,577 | (728 | ) | 230,919 | ||||||||
The following table presents proceeds from sales, gross realized gains, and gross realized losses from securities available-for-sale:
For the years ended 12/31/ | 2005 | 2004 | 2003 | |||
€ mn | € mn | € mn | ||||
Proceeds from Sales | ||||||
Debt securities | 107,929 | 101,239 | 99,568 | |||
Equity securities | 24,800 | 17,462 | 34,930 | |||
Total | 132,729 | 118,701 | 134,498 | |||
Gross Realized Gains | ||||||
Debt securities | 968 | 1,109 | 1,763 | |||
Equity securities | 3,348 | 3,579 | 8,151 | |||
Total | 4,316 | 4,688 | 9,914 | |||
Gross Realized Losses | ||||||
Debt securities | 331 | 373 | 508 | |||
Equity securities | 567 | 517 | 2,390 | |||
Total | 898 | 890 | 2,898 | |||
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
The following table sets forth gross unrealized losses on securitiesavailable-for-sale investments and held-to-maturity and securities available-for-saleinvestments and the related fair value, segregated by investment category and length of time such investments have been in a continuous unrealized loss position as of December 31, 2005. For a general discussion of2008 and 2007.
Less than 12 months | Greater than 12 months | Total | |||||||||||||
As of December 31, | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | |||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | ||||||||||
2008 | |||||||||||||||
Debt securities | |||||||||||||||
Government and agency mortgage-backed securities (residential and commercial) | 29 | (1 | ) | 133 | (1 | ) | 162 | (2 | ) | ||||||
Corporate mortgage-backed securities (residential and commercial) | 3,749 | (763 | ) | 3,196 | (655 | ) | 6,945 | (1,418 | ) | ||||||
Other asset-backed securities | 2,014 | (193 | ) | 1,673 | (192 | ) | 3,687 | (385 | ) | ||||||
Government and government agency bonds | 7,964 | (416 | ) | 8,300 | (611 | ) | 16,264 | (1,027 | ) | ||||||
Corporate bonds | 24,370 | (2,509 | ) | 25,911 | (4,539 | ) | 50,281 | (7,048 | ) | ||||||
Other | 406 | (18 | ) | — | — | 406 | (18 | ) | |||||||
Subtotal | 38,532 | (3,900 | ) | 39,213 | (5,998 | ) | 77,745 | (9,898 | ) | ||||||
Equity securities | 8,184 | (838 | ) | 96 | (13 | ) | 8,280 | (851 | ) | ||||||
Total | 46,716 | (4,738 | ) | 39,309 | (6,011 | ) | 86,025 | (10,749 | ) | ||||||
2007 | |||||||||||||||
Debt securities | |||||||||||||||
Government and agency mortgage-backed securities (residential and commercial) | 1,371 | (22 | ) | 4,115 | (90 | ) | 5,486 | (112 | ) | ||||||
Corporate mortgage-backed securities (residential and commercial) | 2,720 | (50 | ) | 1,902 | (51 | ) | 4,622 | (101 | ) | ||||||
Other asset-backed securities | 1,527 | (50 | ) | 979 | (42 | ) | 2,506 | (92 | ) | ||||||
Government and government agency bonds | 36,587 | (699 | ) | 18,522 | (797 | ) | 55,109 | (1,496 | ) | ||||||
Corporate bonds | 33,724 | (1,075 | ) | 20,183 | (1,284 | ) | 53,907 | (2,359 | ) | ||||||
Other | 1,062 | (50 | ) | 487 | (54 | ) | 1,549 | (104 | ) | ||||||
Subtotal | 76,991 | (1,946 | ) | 46,188 | (2,318 | ) | 123,179 | (4,264 | ) | ||||||
Equity securities | 7,480 | (467 | ) | — | — | 7,480 | (467 | ) | |||||||
Total | 84,471 | (2,413 | ) | 46,188 | (2,318 | ) | 130,659 | (4,731 | ) | ||||||
Notes to the Allianz Group’s impairment policy see Note 2.Consolidated Financial Statements—(Continued)
Less than 12 months | Greater than 12 months | Total | |||||||||||||
Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | ||||||||||
Debt Securities | |||||||||||||||
Government and agency mortgage-backed securities (residential and commercial) | 6,465 | (185 | ) | 2,443 | (68 | ) | 8,908 | (253 | ) | ||||||
Corporate mortgage-backed securities (residential and commercial) | 1,474 | (31 | ) | — | — | 1,474 | (31 | ) | |||||||
Other asset-backed securities | 1,190 | (19 | ) | 113 | (3 | ) | 1,303 | (22 | ) | ||||||
Government and government agency bonds | 23,006 | (260 | ) | 1,154 | (29 | ) | 24,160 | (289 | ) | ||||||
Corporate bonds | 13,073 | (187 | ) | 695 | (27 | ) | 13,768 | (214 | ) | ||||||
Other | 210 | (2 | ) | — | — | 210 | (2 | ) | |||||||
Subtotal | 45,418 | (684 | ) | 4,405 | (127 | ) | 49,823 | (811 | ) | ||||||
Equity Securities | 3,667 | (188 | ) | — | — | 3,667 | (188 | ) | |||||||
Total | 49,085 | (872 | ) | 4,405 | (127 | ) | 53,490 | (999 | ) | ||||||
Government and agency mortgage-backed securities (residential and commercial)
Total unrealized losses amounted to €253€2 mn atas of December 31, 2005.2008. The unrealized loss positions concern mostly issues of United States government agencies, which are primarily held by Allianz Group’s North American entities. These pay-through/pass-through securities are serviced by cash flows from pools of underlying loans to mostly private debtors. The unrealized losses of these mortgage-backed securities were partly caused by interest rate increases between purchase date of the individual securities and the balance sheet date. Also in various instances, price decreases were caused by increased prepayment risk for individual loan pools that were originated in a significantly higher interest rate environment. Because the decline in fair value is attributable to changes in interest rates and, to a lesser extent, instances of insignificant deterioration of credit quality and as anwithout immediate disposal is not intended,intent to sell the securities, the Allianz Group does not consider these investments to be impaired at December 31, 2005.2008.
Corporate mortgage-backed securities (residential and commercial)
Total unrealized losses amounted to €1,418 mn as of December 31, 2008. The unrealized loss positions primarily stem from issues in the US-American security market, which are mostly held be Allianz Group’s North American entities. The largest part of these issues is backed by mortgages on commercial rather than residential real estate. The unrealized losses of these mortgage-backed securities were mostly caused by the increased volatility in credit spreads. This effect is characterized by a general market trend and does not allow direct conclusions on the quality of these securities. Based on a detailed analysis of the underlying securities and collaterals the Allianz Group does not consider these investments to be impaired at December 31, 2008.
Government and government agency bonds
Total unrealized losses amounted to €289€1,027 mn at December 31, 2005.2008. The Allianz Group holds a large variety of government bonds, mostly of OECDcountries (Organization of Economic Cooperation
and Development). Given the fact that the issuers of these bonds are backed by the fiscal capacity of the issuers and the issuers typically hold an “investment grade” country- and/or issue-rating, credit risk is not a significant factor. Hence, the unrealized losses on Allianz Group’s investment in government bonds were mainly caused by interest rate increases between the purchase date of the individual securities compared toand the balance sheet date. In 2008, interest rates decreased and thereby induced a positive effect on unrealized losses on government and government agency bonds by €469 mn. Because the decline in fair valueafter these positive effects still existing unrealized loss is attributable to changes in interest rates in prior years and, to a lesser extent, to instances of insignificant deterioration of credit quality, and as an immediate disposal is not intended, the Allianz Group does not consider these investments to be impaired at December 31, 2005.2008.
Corporate bonds
Corporate bondsTotal unrealized losses amounted to €214€7,048 mn atas of December 31, 2005.2008. The Allianz Group holds a large variety of bonds issued by corporations mostly domiciled in OECD countries. For the vast majority of the Allianz Group’s corporate bonds, issuers and/or issues are of “investment grade”. Therefore, the unrealized losses on Allianz Group’s investment in corporate debt securities were primarily caused by interest rate increases betweeneffects from credit spread widening in 2008. This effect is characterized by a general market trend and does not allow direct conclusions on the purchase datequality of these securities. Based on a detailed analysis of the individual
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
underlying securities compared to balance sheet date. As the decline in fair value is primarily attributable to changes in interest rates and as an immediate disposal is not intended, the Allianz Group does not consider these investments to be impaired at December 31, 2005.2008.
Equity securities
As of December 31, 2005,2008, unrealized losses from equity securities amounted to€188 €851 mn. These unrealized losses concern equity securities that did not meet the criteria of Allianz Group’s impairment policy for equity securities as described in Note 2. Substantially all of the unrealized losses have been in a continuous loss position for less than 6 months. In addition, only 2 securities have an aggregated unrealized loss greater than €10 mn.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Contractual maturitiesterm to maturity
The amortized cost and estimated fair value of available-for-sale debt securities and held-to-maturity and debt securities available-for-sale as of December 31, 2005,2008, by contractual term to maturity, are as follows:
As of December 31, 2008 | Amortized Cost | Fair Value | ||||||
Amortized Cost | Fair Value | € mn | € mn | |||||
€ mn | € mn | |||||||
Held-to-maturity | ||||||||
Contractual term to maturity | ||||||||
Available-for-sale investments | ||||||||
Due in 1 year or less | 350 | 362 | 16,400 | 16,444 | ||||
Due after 1 year and in less than 5 years | 1,502 | 1,566 | 68,640 | 69,013 | ||||
Due after 5 years and in less than 10 years | 2,059 | 2,161 | 60,462 | 58,910 | ||||
Due after 10 years | 915 | 1,013 | 70,773 | 68,243 | ||||
Total | 4,826 | 5,102 | 216,275 | 212,610 | ||||
Available-for-sale | ||||||||
Contractual term to maturity | ||||||||
Held-to-maturity investments | ||||||||
Due in 1 year or less | 13,847 | 13,916 | 600 | 601 | ||||
Due after 1 year and in less than 5 years | 67,599 | 69,171 | 1,343 | 1,364 | ||||
Due after 5 years and in less than 10 years | 60,504 | 63,207 | 1,560 | 1,591 | ||||
Due after 10 years | 58,647 | 63,529 | 1,431 | 1,510 | ||||
Total | 200,597 | 209,823 | 4,934 | 5,066 | ||||
Actual maturities may deviate from the contractually defined maturities, because certain security issuers have the right to call or repay certain obligations ahead of schedule, with or without redemption or early repayment penalties. Investments that are not due at a single maturity date are, in general, not allocated over various maturity buckets, but are shown within their final contractual maturity dates.
Equity investments carried at cost
As of December 31, 2005,2008, fair values could not be reliably measured for equity investments with carrying amounts totaling €935€473 mn (2004: €167(2007: €1,742 mn). These investments are primarily investments in privately held corporations and partnerships. During the year ended December 31, 2005,2008, such investments with carrying amounts of €2€18 mn (2004: €20(2007: €27 mn) were sold leading to gains of €2€1 mn (2004: €2(2007: €42 mn) and losses of €0 €—mn (2004:(2007: €6 mn).
Investments in associates and joint ventures
As of December 31, 2008, loans to associated enterprises and joint ventures and debt securities available-for-sale issued by associated enterprises and joint ventures held by the Allianz Group amounted to €73 mn (2007: €1,232 mn). As of December 31, 2008, the fair value of investments in associates and joint ventures was €4,560 mn (2007: €5,654 mn).
Real estate held for investment
2008 | 2007 | 2006 | |||||||
€ mn | € mn | € mn | |||||||
Cost as of January 1, | 10,114 | 13,039 | 13,090 | ||||||
Accumulated depreciation as of January 1, | (2,356 | ) | (3,484 | ) | (3,521 | ) | |||
Carrying amount as of January 1, | 7,758 | 9,555 | 9,569 | ||||||
Additions | 385 | 406 | 792 | ||||||
Changes in the consolidated subsidiaries of the Allianz Group | 14 | 3 | 68 | ||||||
Disposals | (296 | ) | (564 | ) | (746 | ) | |||
Reclassifications | (102 | ) | 69 | 345 | |||||
Reclassification into non-current assets and assets of disposal groups classified as held-for-sale | (62 | ) | (1,382 | ) | — | ||||
Foreign currency translation adjustments | 93 | (92 | ) | (71 | ) | ||||
Depreciation | (165 | ) | (192 | ) | (230 | ) | |||
Impairments | (128 | ) | (51 | ) | (252 | ) | |||
Reversals of impairments | 54 | 6 | 80 | ||||||
Carrying amount as of December 31, | 7,551 | 7,758 | 9,555 | ||||||
Accumulated depreciation as of December 31, | 2,588 | 2,356 | 3,484 | ||||||
Cost as of December 31, | 10,139 | 10,114 | 13,039 |
As of December 31, 2008, the fair value of real estate held for investment was €11,995 mn (2007: €12,031 mn). As of December 31, 2008, real estate held for investment pledged as security, and other restrictions on title, were €143 mn (2007: €146 mn).
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Real estate used by third-parties
2005 | 2004 | 2003 | |||||||
€ mn | € mn | € mn | |||||||
Cost as of 1/1/ | 14,710 | 13,672 | 13,621 | ||||||
Accumulated depreciation as of 1/1/ | (4,082 | ) | (3,171 | ) | (2,874 | ) | |||
Carrying amount as of 1/1/ | 10,628 | 10,501 | 10,747 | ||||||
Additions | 608 | 1,669 | 712 | ||||||
Changes in the consolidated subsidiaries of the Allianz Group | 240 | 83 | (228 | ) | |||||
Disposals | (740 | ) | (709 | ) | (594 | ) | |||
Reclassifications | (745 | ) | — | 345 | |||||
Foreign currency translation adjustments | 71 | (5 | ) | (184 | ) | ||||
Depreciation and impairments(*) | (493 | ) | (911 | ) | (297 | ) | |||
Carrying amount as of 12/31/ | 9,569 | 10,628 | 10,501 | ||||||
Accumulated depreciation as of 12/31/ | 4,575 | 4,082 | 3,171 | ||||||
Cost as of 12/31/ | 14,144 | 14,710 | 13,672 | ||||||
As of December 31, 2005, the fair value of real estate used by third parties was €12,901 mn (2004: €14,181 mn). As of December 31, 2005, real estate used by third parties pledged as security, and other restrictions on title, were €55 mn (2004: €61 mn).
910 Loans and advances to banks and customers
As of December 31, | 20081) | 2007 | |||||||||||||||
Banks | Customers | Total | Banks | Customers | Total | ||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | ||||||||||||
Short-term investments and certificates of deposit | 9,622 | — | 9,622 | 10,316 | — | 10,316 | |||||||||||
Reverse repurchase agreements | 1,612 | 5 | 1,617 | 68,340 | 56,991 | 125,331 | |||||||||||
Collateral paid for securities borrowing transactions | — | — | — | 16,664 | 23,714 | 40,378 | |||||||||||
Loans | 63,734 | 37,501 | 101,235 | 74,944 | 125,403 | 200,347 | |||||||||||
Other | 3,223 | 77 | 3,300 | 14,012 | 7,148 | 21,160 | |||||||||||
Subtotal | 78,191 | 37,583 | 115,774 | 184,276 | 213,256 | 397,532 | |||||||||||
Loan loss allowance | — | (119 | ) | (119 | ) | (3 | ) | (827 | ) | (830 | ) | ||||||
Total | 78,191 | 37,464 | 115,655 | 184,273 | 212,429 | 396,702 | |||||||||||
1) | Does not include loans and advances to banks and customers of Dresdner Bank which were classified as held-for-sale. See Note 4. |
Loans and advances to banks and customers by contractual maturity
2005 | 2004 | |||||||||||||||||
As of 12/31/ | Germany | Other countries | Total | Germany | Other countries | Total | ||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | |||||||||||||
Loans | 61,149 | 4,339 | 65,488 | 54,332 | 5,211 | 59,543 | ||||||||||||
Reverse repurchase agreements and collateral paid for securities borrowing transactions | 24,055 | 45,323 | 69,378 | 18,520 | 84,886 | 103,406 | ||||||||||||
Short-term investments and certificates of deposit | 1,590 | 3,702 | 5,292 | 1,578 | 6,151 | 7,729 | ||||||||||||
Other | 1,787 | 9,640 | 11,427 | 4,344 | 6,752 | 11,096 | ||||||||||||
Subtotal | 88,581 | 63,004 | 151,585 | 78,774 | 103,000 | 181,774 | ||||||||||||
Loan loss allowance | (11 | ) | (190 | ) | (201 | ) | (2 | ) | (229 | ) | (231 | ) | ||||||
Total | 88,570 | 62,814 | 151,384 | 78,772 | 102,771 | 181,543 | ||||||||||||
Due within one year | 93,762 | 132,200 | ||||||||||||||||
Due after more than one year | 57,823 | 49,574 | ||||||||||||||||
Total | 151,585 | 181,774 | ||||||||||||||||
As of December 31, 2008 | Up to 3 months | > 3 months up to 1 year | > 1 year up to 3 years | > 3 years up to 5 years | Greater than 5 years | Total | ||||||
€ mn | € mn | € mn | € mn | € mn | € mn | |||||||
Loans and advances to banks | 12,258 | 7,180 | 13,907 | 9,164 | 35,682 | 78,191 | ||||||
Loans and advances to customers | 2,706 | 3,598 | 4,603 | 4,689 | 21,987 | 37,583 | ||||||
Total | 14,964 | 10,778 | 18,510 | 13,853 | 57,669 | 115,774 | ||||||
Loans and advances to banks and customers by geographic region
As of December 31, | 2008 | 2007 | ||||||||||||||||
Germany | Other countries | Total | Germany | Other countries | Total | |||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | |||||||||||||
Short-term investments and certificates of deposit | 2,957 | 6,665 | 9,622 | 3,188 | 7,128 | 10,316 | ||||||||||||
Reverse repurchase agreements | — | 1,617 | 1,617 | 23,980 | 101,351 | 125,331 | ||||||||||||
Collateral paid for securities borrowing transactions | — | — | — | 6,415 | 33,963 | 40,378 | ||||||||||||
Loans | 86,211 | 15,024 | 101,235 | 148,063 | 52,284 | 200,347 | ||||||||||||
Other | 287 | 3,013 | 3,300 | 3,409 | 17,751 | 21,160 | ||||||||||||
Subtotal | 89,455 | 26,319 | 115,774 | 185,055 | 212,477 | 397,532 | ||||||||||||
Loan loss allowance | (62 | ) | (57 | ) | (119 | ) | (534 | ) | (296 | ) | (830 | ) | ||||||
Total | 89,393 | 26,262 | 115,655 | 184,521 | 212,181 | 396,702 | ||||||||||||
Loans and advances to customers by type of customer
As of December 31, | 2008 | 2007 | ||
€ mn | € mn | |||
Corporate customers | 10,448 | 148,848 | ||
Private customers | 23,309 | 55,761 | ||
Public authorities | 3,826 | 8,647 | ||
Total | 37,583 | 213,256 | ||
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Loans and advances to customers (prior to loan loss allowances) by economic sector
As of December 31, | 2008 | 2007 | ||
€ mn | € mn | |||
Germany | ||||
Corporate Customers | ||||
Manufacturing industry | 792 | 7,023 | ||
Construction | 271 | 1,128 | ||
Wholesale and retail trade | 425 | 4,999 | ||
Financial institutions (excluding banks) and insurance companies | 148 | 9,626 | ||
Service providers | 1,126 | 7,701 | ||
Other | 1,169 | 4,469 | ||
Subtotal | 3,931 | 34,946 | ||
Public authorities | 3,665 | 3,766 | ||
Private customers | 18,387 | 49,580 | ||
Subtotal | 25,983 | 88,292 | ||
Other countries | ||||
Corporate Customers | ||||
Industry, wholesale and retail trade and service providers | 4,129 | 11,748 | ||
Financial institutions (excluding banks) and insurance companies | 614 | 91,369 | ||
Other | 1,774 | 10,785 | ||
Subtotal | 6,517 | 113,902 | ||
Public authorities | 161 | 4,881 | ||
Private customers | 4,922 | 6,181 | ||
Subtotal | 11,600 | 124,964 | ||
Total | 37,583 | 213,256 | ||
Finance lease receivables
As of December 31, 2008 all finance lease receivables included in loans to banks and customers related to the discontinued operations of Dresdner Bank and thus have been reclassified and presented as “Non-current assets and assets from disposal groups held-for-sale” in accordance with IFRS 5.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Loans and advances to customers
2005 | 2004 | |||||||||||||||||
As of 12/31/ | Germany | Other countries | Total | Germany | Other countries | Total | ||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | |||||||||||||
Corporate customers | 30,933 | 92,082 | 123,015 | 38,148 | 95,816 | 133,964 | ||||||||||||
Public authorities | 2,739 | 1,800 | 4,539 | 4,014 | 2,898 | 6,912 | ||||||||||||
Private customers | 57,218 | 2,098 | 59,316 | 52,203 | 6,505 | 58,708 | ||||||||||||
Subtotal | 90,890 | 95,980 | 186,870 | 94,365 | 105,219 | 199,584 | ||||||||||||
Loan loss allowance | (1,143 | ) | (303 | ) | (1,446 | ) | (3,365 | ) | (539 | ) | (3,904 | ) | ||||||
Total | 89,747 | 95,677 | 185,424 | 91,000 | 104,680 | 195,680 | ||||||||||||
Due within one year | 103,425 | 98,922 | ||||||||||||||||
Due after more than one year | 83,445 | 100,662 | ||||||||||||||||
Total | 186,870 | 199,584 | ||||||||||||||||
Loans and advances to customersReconciliation of allowances for credit losses by typeclass of loan, are comprised of the following:
As of 12/31/ | 2005 | 2004 | ||
€ mn | € mn | |||
Loans | 114,933 | 119,832 | ||
Reverse repurchase agreements and collateral paid for securities borrowing transactions | 60,981 | 70,459 | ||
Other | 10,956 | 9,293 | ||
Total | 186,870 | 199,584 | ||
The table shown below provides a breakdown of loans and advances to customers, by economic sector:
As of 12/31/ | 2005 | 2004 | ||
€ mn | € mn | |||
Germany | ||||
Manufacturing industry | 5,425 | 6,459 | ||
Construction | 721 | 812 | ||
Wholesale and retail trade | 5,023 | 3,979 | ||
Financial institutions (excluding banks) and insurance companies | 5,988 | 8,849 | ||
Service providers | 10,425 | 12,060 | ||
Other | 3,351 | 5,989 | ||
Corporate customers | 30,933 | 38,148 | ||
Public authorities | 2,739 | 4,014 | ||
Private customers | 57,218 | 52,203 | ||
Subtotal | 90,890 | 94,365 | ||
Other countries | ||||
Industry, wholesale and retail trade and service providers | 10,732 | 11,419 | ||
Financial institutions (excluding banks) and insurance companies | 75,957 | 78,001 | ||
Other | 5,393 | 6,396 | ||
Corporate customers | 92,082 | 95,816 | ||
Public authorities | 1,800 | 2,898 | ||
Private customers | 2,098 | 6,505 | ||
Subtotal | 95,980 | 105,219 | ||
Total | 186,870 | 199,584 | ||
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
As of December 31, 2005, unearned income related to discounts deducted from loan balances was €85 mn (2004: €103 mn).
As of December 31, 2005, loans and advances to customers include amounts receivable under finance leases at their net investment value totaling €1,500 mn (2004: €1,247 mn). As of December 31, 2005, the corresponding gross investment value of these leases amounts to €2,177 mn (2004: €1,517 mn), and the associated unrealized finance income is €677 mn (2004: €270 mn). As of December 31, 2005 and 2004, the residual values of the entire leasing portfolio were fully insured. During the year ended December 31, 2005, lease payments received were recognized as income in the amount of €122 mn (2004: €42 mn; 2003: €80 mn). As of December 31, 2005 and 2004, an allowance for uncollectible leasepayments was not recorded. As of December 31, 2005, the total amounts receivable under leasing arrangements include €155 mn (2004: €371 mn) due within one year, €593 mn (2004: €388 mn) due within one to five years, and €752 mn (2004: €758 mn) due after more than five years, as of December 31, 2005.
Loan loss allowancefinancial assets
As of December 31, 2005,2008, the overall volume of risk provisionsallowance for credit losses includes loan loss allowances deducted from loans and advances to banks and customers in the amount of €1,647€119 mn (2004: €4,135(2007: €830 mn; 2003: €5,7252006: €1,054 mn) and provisions for contingent liabilities, such as guarantees, loan commitments and other obligationscredit losses included in other accrued liabilities in the amount of €117€8 mn (2003: €371(2007: €201 mn; 2003: €5492006: €261 mn).
Changes in the loan loss allowance
Loan loss allowance | Provision for credit losses | Total | |||||||||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | 2006 | 2008 | 2007 | 2006 | |||||||||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | |||||||||||||||||||
As of January 1, | 830 | 1,054 | 1,647 | 201 | 261 | 117 | 1,031 | 1,315 | 1,764 | ||||||||||||||||||
Changes in the consolidated subsidiaries of the Allianz Group | — | — | (1 | ) | — | — | — | — | — | (1 | ) | ||||||||||||||||
Additions charged to the income statement | 76 | 537 | 456 | 3 | 35 | 77 | 79 | 572 | 533 | ||||||||||||||||||
Unwinding-interest income1) | — | (8 | ) | (6 | ) | — | — | — | — | (8 | ) | (6 | ) | ||||||||||||||
Charge-offs | (23 | ) | (376 | ) | (605 | ) | — | — | (10 | ) | (23 | ) | (376 | ) | (615 | ) | |||||||||||
Releases | (39 | ) | (397 | ) | (272 | ) | (4 | ) | (88 | ) | (45 | ) | (43 | ) | (485 | ) | (317 | ) | |||||||||
Other additions (reductions) | (1 | ) | 35 | (152 | ) | — | (6 | ) | 126 | (1 | ) | 29 | (26 | ) | |||||||||||||
Foreign currency translation adjustments | (3 | ) | (15 | ) | (13 | ) | — | (1 | ) | (4 | ) | (3 | ) | (16 | ) | (17 | ) | ||||||||||
Reclassifications to non-current assets and assets of disposal groups classified as held-for-sale | (721 | ) | — | — | (192 | ) | — | — | (913 | ) | — | — | |||||||||||||||
As of December 31, | 119 | 830 | 1,054 | 8 | 201 | 261 | 127 | 1,031 | 1,315 | ||||||||||||||||||
Specific allowances | Country risk allowances | General allowances(*) | Total | |||||||||||||||||||||||||||||||||
2005 | 2004 | 2003 | 2005 | 2004 | 2003 | 2005 | 2004 | 2003 | 2005 | 2004 | 2003 | |||||||||||||||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | |||||||||||||||||||||||||
As of 1/1/ | 3,685 | 5,304 | 6,415 | 261 | 270 | 367 | 560 | 700 | 818 | 4,506 | 6,274 | 7,600 | ||||||||||||||||||||||||
Changes in the consolidated subsidiaries of the Allianz Group | (3 | ) | (251 | ) | (60 | ) | — | — | — | — | (62 | ) | (3 | ) | (3 | ) | (313 | ) | (63 | ) | ||||||||||||||||
Additions charged to the income statement | 604 | 1,313 | 2,154 | 83 | 117 | 42 | 87 | 9 | 4 | 774 | 1,439 | 2,200 | ||||||||||||||||||||||||
Charge-offs | (2,829 | ) | (1,900 | ) | (2,034 | ) | — | — | (7 | ) | — | — | — | (2,829 | ) | (1,900 | ) | (2,041 | ) | |||||||||||||||||
Amounts released | (641 | ) | (756 | ) | (858 | ) | (90 | ) | (119 | ) | (95 | ) | (51 | ) | (98 | ) | (150 | ) | (782 | ) | (973 | ) | (1,103 | ) | ||||||||||||
Other additions/reductions | 40 | 6 | (67 | ) | (48 | ) | 1 | 4 | 63 | 13 | 34 | 55 | 20 | (29 | ) | |||||||||||||||||||||
Foreign currency translation adjustments | 24 | (31 | ) | (246 | ) | 19 | (8 | ) | (41 | ) | — | (2 | ) | (3 | ) | 43 | (41 | ) | (290 | ) | ||||||||||||||||
As of 12/31/ | 880 | 3,685 | 5,304 | 225 | 261 | 270 | 659 | 560 | 700 | 1,764 | 4,506 | 6,274 | ||||||||||||||||||||||||
1) | The unwinding-interest income for the year ended December 31, 2006 relates to loans in the non-homogeneous portfolio belonging to the Allianz Group in Germany that have been called in and for which the process of realising the collateral has started. For the year ended December 31, 2007 the unwinding interest income additionally includes loans in the homogeneous portfolio belonging to the Allianz Group in Germany. |
Reconciliation of allowances for credit losses by specific and general allowance
Specific allowance1) | General allowance1),2) | Total | |||||||||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | 2006 | 2008 | 2007 | 2006 | |||||||||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | |||||||||||||||||||
As of January 1, | 573 | 593 | 880 | 458 | 722 | 884 | 1,031 | 1,315 | 1,764 | ||||||||||||||||||
Changes in the consolidated subsidiaries of the Allianz Group | — | — | (1 | ) | — | — | — | — | — | (1 | ) | ||||||||||||||||
Additions charged to the income statement | 47 | 559 | 511 | 32 | 13 | 22 | 79 | 572 | 533 | ||||||||||||||||||
Unwinding-interest income3) | — | (8 | ) | (6 | ) | — | — | — | — | (8 | ) | (6 | ) | ||||||||||||||
Charge-offs | (23 | ) | (376 | ) | (615 | ) | — | — | — | (23 | ) | (376 | ) | (615 | ) | ||||||||||||
Releases | (16 | ) | (215 | ) | (191 | ) | (27 | ) | (270 | ) | (126 | ) | (43 | ) | (485 | ) | (317 | ) | |||||||||
Other additions (reductions) | 1 | 29 | 19 | (2 | ) | — | (45 | ) | (1 | ) | 29 | (26 | ) | ||||||||||||||
Foreign currency translation adjustments | — | (9 | ) | (4 | ) | (3 | ) | (7 | ) | (13 | ) | (3 | ) | (16 | ) | (17 | ) | ||||||||||
Reclassifications to non-current assets and assets of disposal groups classified as held-for-sale | (517 | ) | — | — | (396 | ) | — | — | (913 | ) | — | — | |||||||||||||||
As of December 31, | 65 | 573 | 593 | 62 | 458 | 722 | 127 | 1,031 | 1,315 | ||||||||||||||||||
1) | The category country risk allowance, disclosed separately in previous years financial statements, has been, due to simplicity and materiality reasons, allocated to the categories of specific and general allowances going forward, using objective criteria. The amount of €95 mn as of December 31, 2006 has been allocated completely to general allowance. |
2) | Includes portfolio allowances. |
3) | The unwinding-interest income for the year ended December 31, 2006 relates to loans in the non-homogeneous portfolio belonging to the Allianz Group in Germany that have been called in and for which the process of realising the collateral has started. For the year ended December 31, 2007 the unwinding interest income additionally includes loans in the homogeneous portfolio belonging to the Allianz Group in Germany. |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
The following tables present information relating to the Allianz Group’s impaired and non-accrual loans:
As of 12/31/ | 2005 | 2004 | ||
€ mn | € mn | |||
Impaired loans | 2,888 | 6,732 | ||
Impaired loans with specific allowances | 1,754 | 6,048 | ||
Impaired loans with particular allowances | 562 | — | ||
Non-accrual loans | 2,102 | 5,605 |
For the years ended 12/31/ | 2005 | 2004 | 2003 | |||
€ mn | € mn | € mn | ||||
Average balance of impaired loans | 4,581 | 8,479 | 11,780 | |||
Interest income recognized on impaired loans | 36 | 104 | 117 | |||
Interest income not recognized from non-accrual loans | 102 | 244 | 367 | |||
Interest collected and recorded on non-accrual loans | 4 | 49 | 49 |
As of December 31, | 2008 | 2007 | ||
€ mn | € mn | |||
Impaired loans | 654 | 2,240 | ||
Impaired loans with specific allowances | 645 | 1,301 | ||
Impaired loans with portfolio allowances | — | 420 | ||
Non-accrual loans | 204 | 1,555 |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
2008 | 2007 | |||
€ mn | € mn | |||
Average balance of impaired loans | 652 | 2,448 | ||
Interest income recognized on impaired loans | 6 | 29 | ||
Interest income not recognized from non- accrual loans | 19 | 77 | ||
Interest collected and recorded on non-accrual loans | — | 3 |
As of December 31, 2005,2008, the Allianz Group had €39€— mn (2004: €48(2007: €40 mn) of commitments to lend additional funds to borrowers whose loans are non-performing or whose terms have been previously restructured.
10 Financial11 Reinsurance assets carried at fair value through income
As of 12/31/ | 2005 | 2004 | ||
€ mn | € mn | |||
Financial assets held for trading | 166,184 | 194,439 | ||
Financial assets for unit linked contracts | 54,661 | 41,409 | ||
Financial assets designated at fair value through income | 14,162 | 4,726 | ||
Total | 235,007 | 240,574 | ||
Financial assets held for trading
As of 12/31/ | 2005 | 2004 | ||
€ mn | € mn | |||
Equity securities | 30,788 | 20,033 | ||
Debt securities | 109,384 | 153,858 | ||
Derivative financial instruments | 26,012 | 20,548 | ||
Total | 166,184 | 194,439 | ||
Equity and debt securities held in financial assets held for trading are primarily marketable and listed securities. As of December 31, 2005, the debt securities include €38,375 mn (2004: €87,509 mn) from public-sector issuers and €71,009 mn (2004: €66,349 mn) from other issuers.
As of December 31, 2005, the portion of trading gains and losses from financial assets held for trading amounted to €1,161 mn (2004: €2,285 mn) and to €2,706 mn (2004: €2,555 mn), respectively.
Financial assets designated at fair value through income
As of 12/31/ | 2005 | 2004 | ||
€ mn | € mn | |||
Equity securities | 3,476 | 1,751 | ||
Debt securities | 10,686 | 2,975 | ||
Total | 14,162 | 4,726 | ||
As of 12/31/ | 2005 | 2004 | ||
€ mn | € mn | |||
Balances with banks payable on demand and checks | 26,640 | 12,621 | ||
Balances with central banks | 3,807 | 1,384 | ||
Cash on hand | 1,045 | 963 | ||
Treasury bills, discounted treasury notes and similar treasury securities | 23 | 465 | ||
Bills of exchange | 132 | 195 | ||
Total | 31,647 | 15,628 | ||
As of December 31, 2005, compulsory deposits on accounts with national central banks under restrictions due to required reserves from the European Central Bank totaled €3,232 mn (2004: €264 mn).
12 Amounts ceded to reinsurers from reserves for insurance and investment contracts
As of 12/31/ | 2005 | 2004 | ||||||
As of December 31, | 2008 | 2007 | ||||||
€ mn | € mn | € mn | € mn | |||||
Unearned premiums | 1,448 | 1,238 | 1,294 | 1,342 | ||||
Reserves for loss and loss adjustment expenses | 8,180 | 8,561 | ||||||
Aggregate policy reserves | 9,770 | 10,276 | 5,018 | 5,319 | ||||
Reserves for loss and loss adjustment expenses | 10,874 | 10,684 | ||||||
Other insurance reserves | 28 | 112 | 107 | 90 | ||||
Total | 22,120 | 22,310 | 14,599 | 15,312 | ||||
Changes in aggregrateaggregate policy reserves ceded to reinsurers are as follows:
2008 | 2007 | 2006 | |||||||
€ mn | € mn | € mn | |||||||
Carrying amount as of January 1, | 5,319 | 8,223 | 9,772 | ||||||
Foreign currency translation adjustments | 150 | (311 | ) | (340 | ) | ||||
Changes recorded in | (47 | ) | 108 | (7 | ) | ||||
Other changes1) | (404 | ) | (2,701 | ) | (1,202 | ) | |||
Carrying amount as of December 31, | 5,018 | 5,319 | 8,223 | ||||||
| |||
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Primarily |
The Allianz Group reinsures a portion of the risks it underwrites in an effort to control its exposure to losses and events and protect capital resources. ForIn general international corporate risks exposures exceeding the
Notes to thebusiness is either underwritten directly or assumed by Allianz Global Corporate & Specialty (AGCS) from other Allianz Group’s Consolidated Financial Statements—(Continued)
relevant retention levels ofsubsidiaries. AGCS buys global reinsurance cover in the Allianz Group’s subsidiariesexternal reinsurance market, other parts are reinsured internally by Allianz Global Risks Rückversicherungs-AG (“AGR”) where the portfolio is pooled and with risks exceeding retention limits ceded by external reinsurance.SE. The Allianz Group maintains a centralized program for natural catastrophe events whichthat pools exposures from a number of subsidiaries by internal reinsurance agreements with Allianz AG.SE. Allianz AGSE limits exposures in this portfolio through external reinsurance. For other risks, the subsidiaries of the Allianz Group maintain individual reinsurance programs. Allianz AGSE participates as a reinsurer on an arms’ length basis in these programs.
Reinsurance involves credit risk and is subject to aggregate loss limits. Reinsurance does not legally discharge the Allianz Group from primary 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 Allianz Group monitors 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 Allianz Group’s evaluation criteria, which includes the credit risk claims-paying and debt ratings, capital and surplus levels, and marketplacemarket-place reputation of its reinsurers, are such that the Allianz Group believes any risks of collectibility to which itthat its reinsurance credit risk is exposed are not significant, and historically the Allianz Group subsidiaries havehas not experienced noteworthy difficulty in collecting from their reinsurers. Additionally, and as appropriate, the Allianz Group may also require letters of credit, deposits, or other financial measures to further minimize its exposure to credit risk. In certain cases, however, the Allianz Group does establish an allowance for doubtful amounts related to reinsurance as appropriate, although this amount was not significant as of December 31, 20052008 and 2004.
Concentrations2007. The relationships with reinsurers of the Allianz Group has with individual reinsurers includefocus on Munich Re SwissReinsurance Company, GE Global Insurance Holding Corporation and SCOR. Swiss Re.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
As of December 31, | 2008 | 2007 | ||
€ mn | € mn | |||
Deferred acquisition costs | ||||
Property-Casualty | 3,721 | 3,675 | ||
Life/Health | 16,709 | 14,118 | ||
Asset Management | 147 | 94 | ||
Subtotal | 20,577 | 17,887 | ||
Present value of future profits | 1,239 | 1,206 | ||
Deferred sales inducements | 747 | 520 | ||
Total | 22,563 | 19,613 | ||
Deferred acquisition costs
2008 | 2007 | 2006 | |||||||
€ mn | € mn | € mn | |||||||
Property-Casualty | |||||||||
Carrying amount as of January 1, | 3,675 | 3,692 | 3,550 | ||||||
Additions | 3,754 | 4,161 | 3,357 | ||||||
Changes in the consolidated subsidiaries of the Allianz Group | (13 | ) | 66 | — | |||||
Foreign currency translation adjustments | (85 | ) | (72 | ) | (35 | ) | |||
Amortization | (3,610 | ) | (4,172 | ) | (3,180 | ) | |||
Carrying amount as of December 31, | 3,721 | 3,675 | 3,692 | ||||||
Life/Health | |||||||||
Carrying amount as of January 1, | 14,118 | 13,619 | 12,712 | ||||||
Additions | 2,400 | 2,649 | 2,783 | ||||||
Changes in the consolidated subsidiaries of the Allianz Group | 18 | — | — | ||||||
Foreign currency translation adjustments | 53 | (555 | ) | (464 | ) | ||||
Amortization1) | 120 | (1,595 | ) | (1,412 | ) | ||||
Carrying amount as of December 31, | 16,709 | 14,118 | 13,619 | ||||||
Asset Management | 147 | 94 | 50 | ||||||
Total | 20,577 | 17,887 | 17,361 | ||||||
1) | For the year ended December 31, 2008, consists of amortization of €(1,240) mn (2007: €(1,577) mn; 2006: €(1,628) mn) and of shadow accounting of €1,360 mn (2007: €(18) mn; 2006: €216 mn). |
Present value of future profits
2008 | 2007 | 2006 | |||||||
€ mn | € mn | € mn | |||||||
Cost as of January 1, | 2,344 | 2,359 | 2,374 | ||||||
Accumulated amortization as of January 1, | (1,138 | ) | (1,132 | ) | (1,038 | ) | |||
Carrying amount as of January 1, | 1,206 | 1,227 | 1,336 | ||||||
Changes in the consolidated subsidiaries of the Allianz Group | 54 | 5 | — | ||||||
Foreign currency translation adjustments | 3 | (6 | ) | (6 | ) | ||||
Amortization1) | (24 | ) | (20 | ) | (103 | ) | |||
Carrying amount as of December 31, | 1,239 | 1,206 | 1,227 | ||||||
Accumulated amortization as of December 31, | 1,176 | 1,138 | 1,132 | ||||||
Cost as of December 31, | 2,415 | 2,344 | 2,359 |
1) | During the year ended December 31, 2008, includes interest accrued on unamortized PVFP of €65 mn (2007: €70 mn; 2006: €62 mn). |
As of December 31, 2005, amounts ceded2008, the percentage of PVFP that is expected to reinsurers for insurancebe amortized in 2009 is 12.03% (11.06% in 2010, 10.43% in 2011, 9.50% in 2012 and investment contracts includes €7,613 mn (2004: € 8,590 mn) related to Munich Re.8.89% in 2013).
Deferred sales inducements
2008 | 2007 | 2006 | ||||||
€ mn | € mn | € mn | ||||||
Carrying amount as of January 1, | 520 | 547 | 515 | |||||
Additions | 91 | 86 | 120 | |||||
Foreign currency translation adjustments | 28 | (59 | ) | (56 | ) | |||
Amortization1) | 108 | (54 | ) | (32 | ) | |||
Carrying amount as of | 747 | 520 | 547 | |||||
1) | For the year ended December 31, 2008, consists of amortization of €10 mn (2007: €(52) mn; 2006: €(39) mn) and of shadow accounting of €98 mn (2007: €(2) mn; 2006: €7 mn). |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
As of 12/31/ | 2005 | 2004 | ||
€ mn | € mn | |||
Real estate used for its own activities | 4,391 | 6,042 | ||
Equipment(1) | 1,385 | 1,470 | ||
Accounts receivable on direct insurance business(2) | 7,691 | 7,579 | ||
Accounts receivable on reinsurance business | 2,469 | 2,137 | ||
Other receivables(3) | 14,338 | 11,617 | ||
Other assets(4) | 8,271 | 4,022 | ||
Deferred sales inducements | 515 | 303 | ||
Deferred policy acquisition costs | 15,586 | 13,474 | ||
Prepaid expenses | 2,657 | 4,569 | ||
Total | 57,303 | 51,213 | ||
As of December 31, | 20081) | 2007 | ||||
€ mn | € mn | |||||
Receivables | ||||||
Policyholders | 4,467 | 4,616 | ||||
Agents | 4,129 | 3,956 | ||||
Reinsurers | 2,989 | 2,676 | ||||
Other | 3,068 | 4,994 | ||||
Less allowance for doubtful accounts | (499 | ) | (389 | ) | ||
Subtotal | 14,154 | 15,853 | ||||
Tax receivables | ||||||
Income tax | 2,467 | 2,536 | ||||
Other tax | 813 | 731 | ||||
Subtotal | 3,280 | 3,267 | ||||
Accrued dividends, interest and rent | 5,918 | 8,782 | ||||
Prepaid expenses | ||||||
Interest and rent | 28 | 29 | ||||
Other prepaid expenses | 313 | 261 | ||||
Subtotal | 341 | 290 | ||||
Derivative financial instruments used for hedging that meet the criteria for hedge accounting and firm commitments | 1,101 | 344 | ||||
Property and equipment | ||||||
Real estate held for own use | 3,122 | 3,708 | ||||
Equipment | 1,242 | 1,666 | ||||
Software | 1,116 | 1,165 | ||||
Subtotal | 5,480 | 6,539 | ||||
Other assets2) | 3,730 | 2,950 | ||||
Total | 34,004 | 38,025 | ||||
| Does not include other assets of |
|
As of December 31, |
The accounts receivable on direct insurance business and accounts receivable on reinsurance business are due within one year. Other receivablesassets due within one year amounted to €13,980€29,490 mn (2004: €10,518(2007: €30,229 mn), and those due after more than one year totaled €358€4,514 mn (2004: €1,099(2007: €7,796 mn).
Property and equipment
Real estate held for own use
2008 | 2007 | 2006 | |||||||
€ mn | € mn | € mn | |||||||
Cost as of January 1, | 4,847 | 6,153 | 5,894 | ||||||
Accumulated depreciation as of January 1, | (1,139 | ) | (1,395 | ) | (1,503 | ) | |||
Carrying amount as of January 1, | 3,708 | 4,758 | 4,391 | ||||||
Additions | 227 | 194 | 284 | ||||||
Changes in the consolidated subsidiaries of the Allianz Group | 27 | (159 | ) | 819 | |||||
Disposals | (61 | ) | (248 | ) | (248 | ) | |||
Reclassifications | 239 | (61 | ) | (345 | ) | ||||
Reclassification into non-current assets and assets of disposal groups classified as held-for-sale | (902 | ) | (574 | ) | — | ||||
Foreign currency translation adjustments | (40 | ) | (47 | ) | (24 | ) | |||
Depreciation | (78 | ) | (139 | ) | (117 | ) | |||
Impairments | (9 | ) | (17 | ) | (3 | ) | |||
Reversals of impairments | 11 | 1 | 1 | ||||||
Carrying amount as of December 31, | 3,122 | 3,708 | 4,758 | ||||||
Accumulated depreciation as of December 31, | 936 | 1,139 | 1,395 | ||||||
Cost as of December 31, | 4,058 | 4,847 | 6,153 |
As of December 31, 2008, the fair value of real estate held for own use was €4,497 mn (2007: €5,070 mn). As of December 31, 2008, assets pledged as security and other restrictions on title were €216 mn (2007: €107 mn).
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Software
2008 | 2007 | 2006 | |||||||
€ mn | € mn | € mn | |||||||
Cost as of January 1, | 3,946 | 3,764 | 3,472 | ||||||
Accumulated amortization as of January 1, | (2,781 | ) | (2,686 | ) | (2,381 | ) | |||
Carrying amount as of January 1, | 1,165 | 1,078 | 1,091 | ||||||
Additions | 540 | 582 | 523 | ||||||
Changes in the consolidated subsidiaries of the Allianz Group | (10 | ) | (9 | ) | 73 | ||||
Disposals | (55 | ) | (58 | ) | (70 | ) | |||
Foreign currency translation adjustments | 1 | (21 | ) | (10 | ) | ||||
Amortization | (288 | ) | (406 | ) | (496 | ) | |||
Impairments | (3 | ) | (1 | ) | (33 | ) | |||
Reclassification into non-current assets and assets of disposal groups classified as held-for-sale | (234 | ) | — | — | |||||
Carrying amount as of | 1,116 | 1,165 | 1,078 | ||||||
Accumulated amortization as of December 31, | 2,284 | 2,781 | 2,686 | ||||||
Cost as of December 31, | 3,400 | 3,946 | 3,764 |
1) | As of December 31, 2008, includes €701 mn (2007: €746 mn; 2006: €683 mn;) for software developed in house and €415 mn (2007: €419 mn; 2006: €395 mn) for software purchased from third parties. |
14 Non-current assets and assets and liabilities of disposal groups classified as held-for-sale
As of December 31, | 2008 | 2007 | ||
€ mn | € mn | |||
Non-current assets and assets of disposal groups classified as held-for-sale | ||||
Dresdner Bank Group | 417,874 | — | ||
Selecta AG | 1,639 | 1,543 | ||
Real estate held for investment and real estate held for own use in Germany | — | 1,950 | ||
Other | — | 10 | ||
Total | 419,513 | 3,503 | ||
Liabilities of disposal groups classified as held-for-sale | ||||
Dresdner Bank Group | 410,469 | — | ||
Selecta AG | 1,347 | 1,292 | ||
Other | — | 1 | ||
Total | 411,816 | 1,293 | ||
Dresdner Bank Group
As described in detail in Note 4, with the announcement of the sale of Dresdner Bank Group as of August 31, 2008, Dresdner Bank Group has been classified in accordance with IFRS 5 prospectively as disposal group held-for-sale in the consolidated balance sheet as of December 31, 2008. As of January 12, 2009 the sale was completed.
As of December 31, | 20081) | 2007 | ||
€ mn | € mn | |||
Goodwill | 11,221 | 12,453 | ||
Brand names | 24 | 737 | ||
Other2) | 206 | 223 | ||
Total | 11,451 | 13,413 | ||
1) | Does not include intangible assets of Dresdner Bank which were classified as held-for-sale. See Note 4. |
2) | Includes primarily research and development costs, renewal rights and bancassurance agreements. |
Amortization expense of intangible assets with finite useful lives is estimated to be €42 mn in 2009, €41 mn in 2010, €40 mn in 2011, €40 mn in 2012 and €40 mn in 2013.
Goodwill
2008 | 2007 | 2006 | |||||||
€ mn | € mn | € mn | |||||||
Cost as of January 1, | 12,677 | 12,368 | 12,384 | ||||||
Accumulated impairments as of January 1, | (224 | ) | (224 | ) | (224 | ) | |||
Carrying amount as of January 1, | 12,453 | 12,144 | 12,160 | ||||||
Additions | 247 | 1,153 | 315 | ||||||
Foreign currency translation adjustments | 32 | (372 | ) | (368 | ) | ||||
Reclassification | — | — | 37 | ||||||
Reclassification into non-current assets and assets of disposal groups classified as held-for-sale | (1,511 | ) | (472 | ) | — | ||||
Carrying amount as of December 31, | 11,221 | 12,453 | 12,144 | ||||||
Accumulated impairments as of December 31, | 224 | 224 | 224 | ||||||
Cost as of December 31, | 11,445 | 12,677 | 12,368 |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Additions include goodwill from
increasing the interest in Allianz Sigorta AŞ, Istanbul, from 37.1% to 84.2%,
increasing the interest in Allianz Hayat ve Emeklilik AŞ, Istanbul, from 38.0% to 89.0%.
2008
The reclassification affects the goodwill of Dresdner Bank AG, Frankfurt am Main, which was reclassified to “Non-current assets and assets of disposal groups classified as held-for-sale”.
2007
The reclassification affects the goodwill of Selecta AG, Muntelier, which was reclassified to “Non-current assets and assets of disposal groups classified as held-for-sale”.
2006
The reclassification affects intangible assets of Allianz-Slovenská poist’ovna a.s., Bratislava, as they were reclassified to goodwill due to a change in the accounting treatment.
Impairment tests for goodwill and intangible assets with indefinite useful lives
For purposes of impairment testing, the Allianz Group has allocated goodwill to cash generating units. These cash generating units represent the lowest level at which goodwill is monitored for internal measurement purposes. The Allianz Group has allocated goodwill to nine cash generating units in the Property-Casualty segment, six cash generating units in the Life/ Health segment, one cash generating unit in the Banking segment, one cash generating unit in the Asset Management segment and one cash generating unit in the Corporate segment. In 2007 the goodwill of Dresdner Bank and the brand name ‘Dresdner Bank’ were allocated to two cash generating units in the Banking segment and to one cash generating unit in the Asset Management segment. In 2008 the goodwill of Dresdner Bank and the brand name ‘Dresdner Bank’ are reclassified to Non-current assets and assets of
disposal groups classified as held-for-sale. The goodwill for Oldenburgische Landesbank AG is allocated to the cash generating unit Banking.
Cash generating units of the Property-Casualty segment are
German Speaking Countries,
Europe I, including Italy, Spain, Portugal, Greece and Turkey,
Europe II, including France, Netherlands, Belgium, Luxembourg and Africa,
South America,
Asia & Middle East,
New Europe including Bulgaria, Croatia, Czech Republic, Hungary, Slovakia, Poland, Romania and Russia,
Anglo Broker Markets & Global Lines
Specialty Lines I, including Allianz Global Corporate & Specialty,
Specialty Lines II, including Credit Insurance, Travel Insurance and Assistance Services.
Cash generating units of the Life/Health segment are
German Speaking Countries,
Health Germany,
Europe I, including Italy, Spain, Portugal, Greece and Turkey,
Europe II, including France, Netherlands, Belgium, Luxembourg and Africa,
Asia & Middle East,
Anglo Broker Markets & Global Lines.
The recoverable amounts of all cash generating units excluding Private Equity are determined on the basis of value in use calculations. The recoverable amount of the cash generating unit Private Equity is determined on the basis of the fair values of the Private Equity investments. The goodwill of Dresdner Bank and the brand name “Dresdner Bank” are separately tested for impairment according to IFRS 5.1)
1) | For further information please refer Note 4. |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
The Allianz Group applies generally acknowledged valuation principles to determine the value in use. In this regard, the Allianz Group utilizes the capitalized earnings method to derive the value in use for all cash generating units in the Property-Casualty segment and Banking segment as well as for the Asset Management and Health Germany cash generating units. Generally, the basis for the determination of the capitalized earnings value is the business plan (“detailed planning period”) as well as the estimate of the sustainable returns and eternal growth rates which can be assumed to be realistic on a long term basis (“terminal value”) of the companies included in the cash generating units. The capitalized earnings value is calculated by discounting the future earnings using an appropriate discount rate.
The business plans applied in the value in use are the results of the structured management dialogues between the Board of Management of the Allianz Group and the companies in connection with a reporting process integrated into these dialogues. Generally, the business plans comprise a planning horizon of three years and are based on current market environment.
The terminal values are largely based on the expected profits of the final year of the detailed planning period. Where necessary, the planned profits are adjusted so that long term sustainable earnings are reflected. The financing of the assumed eternal growth in the terminal values is accounted for by appropriate profit retention.
The discount rate is based on the capital asset pricing model and appropriate eternal growth rates. The assumptions, including the risk free interest rate, market risk premium, segment beta and leverage ratio, used to calculate the discount rates are in general consistent with the parameters used in the Allianz Group’s planning and controlling process, specifically those utilized in the calculation of Economic Value Added®.
The discount rates and eternal growth rates for the significant cash generating units used for the allocation of the fair values are as follows:
Cash generating unit | Discount rate | Eternal growth rate | ||||
Property-Casualty | ||||||
German Speaking Countries | 8.1 | % | 2.0 | % | ||
Europe I | 8.2 | % | 2.0 | % | ||
Europe II | 8.1 | % | 2.0 | % | ||
New Europe | 11.2 | % | 3.0 | % | ||
Anglo Broker Markets & Global Lines | 8.6 | % | 1.0 | % | ||
Life/Health | ||||||
Health Germany | 8.3 | % | 1.5 | % | ||
Anglo Broker Markets & Global Lines | 8.3 | % | n.a. | |||
Asset Management | 8.4 | % | 2.0 | % |
Sensitivity analysis with regards to discount rates and/or key value drivers of the business plans were performed. Changes of capitalized earnings values of Property-Casualty cash generating units due to changes in applied long term sustainable combined ratios and changes of capitalized earnings values of the Asset Management cash generating units due to changes in assumptions regarding cost income ratios were analyzed.
For all cash generating units excluding New Europe, Property-Casualty Asia & Middle East and Banking respective capitalized earnings value sensitivities still exceeded respective carrying values.
For all cash generating units in the Life/ Health segment, with the exception of U.S. the fair value for the goodwill impairment test is based on an Appraisal Value which is derived from the Market Consistent Embedded Value, corresponding sensitivities and a multiple of the Market Consistent Value of new business.
The Market Consistent Embedded Value is an industry-specific valuation method to determine the fair value of the current in force portfolio and is in compliance with the general principles of the discounted earnings methods. The Market Consistent Embedded Value approach utilized is based on the Allianz Group’s Embedded Value guidelines.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Due to the unusual economic circumstances at year-end for Taiwan the calculation was based on sensitivities that reflected the average interest level of the last five years. For the U.S. instead of the Market Consistent Embedded Value the Appraisal Value was derived from a traditional Embedded Value Calculation.
Taiwan is included in the cash generating unit Asia & Middle East, U.S. is included in the cash generating unit Anglo Broker Market & Global Lines.
Sensitivity analysis with regard to considered new business values are performed. For all Life cash generating units excluding Asia & Middle East, respective Appraisal Value sensitivities still exceeded respective carrying values.
The carrying amounts of goodwill and brand names allocated to Allianz Group’s cash generating units as of December 31, 2008 and 2007 are as follows:
As of December 31, | 2008 | 2007 | ||||||
Goodwill | Brand names | Goodwill | Brand names | |||||
Cash generating units | € mn | € mn | € mn | € mn | ||||
Property-Casualty | ||||||||
Germany Speaking Countries | 277 | — | 277 | — | ||||
Europe I | 230 | — | 90 | — | ||||
Europe II | 638 | — | 638 | — | ||||
South America | 21 | — | 21 | — | ||||
Asia & Middle East | 79 | — | 79 | — | ||||
New Europe | 603 | 24 | 679 | 20 | ||||
Anglo, Broker & Global Lines | 388 | — | 410 | — | ||||
Specialty Lines I | 8 | — | 7 | — | ||||
Specialty Lines II | 28 | — | 27 | — | ||||
Subtotal | 2,272 | 24 | 2,228 | 20 | ||||
Life/Health | ||||||||
Germany Speaking Countries | 554 | — | 554 | — | ||||
Health Germany | 325 | — | 325 | — | ||||
Europe I | 110 | — | 43 | — | ||||
Europe II | 538 | — | 538 | — | ||||
Asia & Middle East | 320 | — | 320 | — | ||||
Anglo, Broker & Global Lines | 435 | — | 425 | — | ||||
Subtotal | 2,282 | — | 2,205 | — | ||||
Banking | 199 | — | 1,714 | 656 | ||||
Asset Management | 6,325 | — | 6,165 | 61 | ||||
Corporate | 143 | — | 141 | — | ||||
Total | 11,221 | 24 | 12,453 | 737 | ||||
Brand name
2008
The brand name “Dresdner Bank” is reclassified to held-for-sale and is separately tested for impairment according to IFRS 5.
2007
The brand name “Dresdner Bank” has an indefinite life, as there is no foreseeable end to its economic life; therefore, it is not subject to amortization and it is recorded at cost less accumulated impairments. The fair value of this brand name, registered as a trade name, was determined using a royalty savings approach.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
16 Financial liabilities carried at fair value through income
As of December 31, | 20081) | 2007 | ||
€ mn | € mn | |||
Financial liabilities held for trading | ||||
Obligations to deliver securities | — | 34,795 | ||
Derivative financial instruments | 6,242 | 76,819 | ||
Other trading liabilities | 2 | 12,469 | ||
Subtotal | 6,244 | 124,083 | ||
Financial liabilities designated at fair value through income | — | 1,970 | ||
Total | 6,244 | 126,053 | ||
1) | Does not include financial liabilities carried at fair value through income of Dresdner Bank which were classified as held-for-sale. See Note 4. |
Change in fair value of financial liabilities designated at fair value through income attributable to changes in credit risk
As of December 31, 2008 all of the financial liabilities designated at fair value through income related to the discontinued operations of Dresdner Bank and thus have been reclassified and presented as “Liabilities of disposal groups classified as held-for-sale” in accordance with IFRS 5.
17 Liabilities to banks and customers
20081) | 2007 | |||||||||||
As of December 31, | Banks | Customers | Total | Banks | Customers | Total | ||||||
€ mn | € mn | € mn | € mn | € mn | € mn | |||||||
Payable on demand | 311 | 4,096 | 4,407 | 11,204 | 60,443 | 71,647 | ||||||
Savings deposits | — | 1,790 | 1,790 | — | 5,304 | 5,304 | ||||||
Term deposits and certificates of deposit | 1,296 | 3,035 | 4,331 | 64,129 | 72,938 | 137,067 | ||||||
Repurchase agreements | — | 568 | 568 | 50,444 | 42,145 | 92,589 | ||||||
Collateral received from securities lending transactions | 627 | — | 627 | 16,235 | 4,729 | 20,964 | ||||||
Other | 3,194 | 3,534 | 6,728 | 5,513 | 3,410 | 8,923 | ||||||
Total | 5,428 | 13,023 | 18,451 | 147,525 | 188,969 | 336,494 | ||||||
1) | Does not include liabilities to banks and customers of Dresdner Bank which were classified as held-for-sale. See Note 4. |
Liabilities to banks and customers by contractual maturity
As of December 31, 2008 | Up to 3 months | > 3 months up to 1 year | > 1 year up to 3 years | > 3 years up to 5 years | Greater than 5 years | Total | ||||||
€ mn | € mn | € mn | € mn | € mn | € mn | |||||||
Liabilities to banks | 2,940 | 800 | 410 | 569 | 709 | 5,428 | ||||||
Liabilities to customers | 10,244 | 1,496 | 610 | 191 | 482 | 13,023 | ||||||
Total | 13,184 | 2,296 | 1,020 | 760 | 1,191 | 18,451 | ||||||
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Real estate ownedLiabilities to banks and customers by type of customer and geographic region
As of December 31, | 2008 | 2007 | ||||||||||
Germany | Other countries | Total | Germany | Other countries | Total | |||||||
€ mn | € mn | € mn | € mn | € mn | € mn | |||||||
Liabilities to banks | 2,854 | 2,574 | 5,428 | 46,137 | 101,388 | 147,525 | ||||||
Liabilities to customers | ||||||||||||
Corporate customers | 2,052 | 2,051 | 4,103 | 55,935 | 75,644 | 131,579 | ||||||
Public authorities | 168 | 8 | 176 | 5,593 | 6,894 | 12,487 | ||||||
Private customers | 5,410 | 3,334 | 8,744 | 34,284 | 10,619 | 44,903 | ||||||
Subtotal | 7,630 | 5,393 | 13,023 | 95,812 | 93,157 | 188,969 | ||||||
Total | 10,484 | 7,967 | 18,451 | 141,949 | 194,545 | 336,494 | ||||||
As of December 31, 2008, liabilities to customers include €633 mn (2007: €27,091 mn) of noninterest bearing deposits.
As of December 31, | 2008 | 2007 | ||||
€ mn | € mn | |||||
Property-Casualty | 12,984 | 13,163 | ||||
Life/Health | 2,258 | 1,858 | ||||
Consolidation | (9 | ) | (1 | ) | ||
Total | 15,233 | 15,020 | ||||
19 Reserves for loss and loss adjustment expenses
As of December 31, | 2008 | 2007 | ||||
€ mn | € mn | |||||
Property-Casualty | 55,616 | 56,943 | ||||
Life/Health | 8,320 | 6,773 | ||||
Consolidation | (12 | ) | (10 | ) | ||
Total | 63,924 | 63,706 | ||||
Changes in the reserves for loss and loss adjustment expenses for the Property-Casualty segment
2008 | 2007 | 2006 | |||||||||||||||||||||||||
Gross | Ceded | Net | Gross | Ceded | Net | Gross | Ceded | Net | |||||||||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | |||||||||||||||||||
As of January 1, | 56,943 | (8,266 | ) | 48,677 | 58,664 | (9,333 | ) | 49,331 | 60,259 | (10,604 | ) | 49,655 | |||||||||||||||
Loss and loss adjustment expenses incurred | |||||||||||||||||||||||||||
Current year | 30,398 | (2,969 | ) | 27,429 | 29,839 | (2,994 | ) | 26,845 | 28,214 | (2,573 | ) | 25,641 | |||||||||||||||
Prior years | (2,241 | ) | 798 | (1,443 | ) | (1,708 | ) | 348 | (1,360 | ) | (1,186 | ) | 217 | (969 | ) | ||||||||||||
Subtotal | 28,157 | (2,171 | ) | 25,986 | 28,131 | (2,646 | ) | 25,485 | 27,028 | (2,356 | ) | 24,672 | |||||||||||||||
Loss and loss adjustment expenses paid | |||||||||||||||||||||||||||
Current year | (14,049 | ) | 919 | (13,130 | ) | (13,749 | ) | 1,118 | (12,631 | ) | (12,436 | ) | 675 | (11,761 | ) | ||||||||||||
Prior years | (13,607 | ) | 1,602 | (12,005 | ) | (14,206 | ) | 1,952 | (12,254 | ) | (14,696 | ) | 2,455 | (12,241 | ) | ||||||||||||
Subtotal | (27,656 | ) | 2,521 | (25,135 | ) | (27,955 | ) | 3,070 | (24,885 | ) | (27,132 | ) | 3,130 | (24,002 | ) | ||||||||||||
Foreign currency translation adjustments and other changes1) | (497 | ) | 48 | (449 | ) | (2,022 | ) | 666 | (1,356 | ) | (1,491 | ) | 497 | (994 | ) | ||||||||||||
Changes in the consolidated subsidiaries of the Allianz Group | 127 | (39 | ) | 88 | 125 | (23 | ) | 102 | — | — | — | ||||||||||||||||
Reclassifications2) | (1,458 | ) | 87 | (1,371 | ) | — | — | — | — | — | — | ||||||||||||||||
As of December 31, | 55,616 | (7,820 | ) | 47,796 | 56,943 | (8,266 | ) | 48,677 | 58,664 | (9,333 | ) | 49,331 | |||||||||||||||
1) | Includes effects of foreign currency translation adjustments for loss and loss adjustment expenses for prior years claims of gross €(313) mn (2007: €(1,690) mn; 2006: €(1,141) mn) and net of €(284) mn (2007: €(1,052) mn; 2006: €(962) mn). |
2) | Since the first Quarter of 2008, health business in Belgium and France is shown within Life/Health segment. Prior year balances have not been adjusted |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Prior years’ loss and loss adjustment expenses incurred reflect the changes in estimation charged or credited to the consolidated income statement in each year with respect to the reserves for loss and loss adjustment expenses established as of the beginning of that year. During the year ended December 31, 2008, the Allianz Group usedrecorded additional income
of €1,443 mn (2007: €1,360 mn; 2006: €969 mn) with respect of losses occurring in prior years. During the year ended December 31, 2008, these amounts as percentages of the net balance of the beginning of the year were 3.0% (2007: 2.8%; 2006: 2.0%).
Development of the reserves for its own activitiesloss and loss adjustment expenses for the Property-Casualty segment
2005 | 2004 | 2003 | |||||||
€ mn | € mn | € mn | |||||||
Cost as of 1/1/ | 7,799 | 6,543 | 6,854 | ||||||
Accumulated depreciation as of 1/1/ | (1,757 | ) | (1,523 | ) | (1,422 | ) | |||
Carrying amount as of 1/1/ | 6,042 | 5,020 | 5,432 | ||||||
Additions | 540 | 1,373 | 877 | ||||||
Changes in the consolidated subsidiaries of the Allianz | |||||||||
Group | (2,493 | ) | 691 | (1 | ) | ||||
Disposals | (318 | ) | (789 | ) | (765 | ) | |||
Reclassification | 745 | — | (345 | ) | |||||
Foreign currency translation adjustments | 84 | (19 | ) | (77 | ) | ||||
Depreciation | (209 | ) | (234 | ) | (101 | ) | |||
Carrying amount as of 12/31/ | 4,391 | 6,042 | 5,020 | ||||||
Accumulated depreciation as of 12/31/ | 1,966 | 1,757 | 1,523 | ||||||
Cost as of 12/31/ | 6,357 | 7,799 | 6,543 | ||||||
The following table illustrates the development of the reserves for loss and loss adjustment expenses over the past five years. The table presents calendar year data, not accident year data. In addition, the table includes (excludes) subsidiaries from the date acquired (disposed).
2003 | 2004 | 2005 | 2006 | 2007 | 2008 | ||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | ||||||||||||
Reserves for loss and loss adjustment expenses (net) | 44,683 | 45,480 | 49,655 | 49,331 | 48,677 | 47,796 | |||||||||||
Reserves for loss and loss adjustment expenses (ceded) | 12,067 | 10,049 | 10,604 | 9,333 | 8,266 | 7,820 | |||||||||||
Reserves for loss and loss adjustment expenses (gross) | 56,750 | 55,529 | 60,259 | 58,664 | 56,943 | 55,616 | |||||||||||
Paid (cumulative) as of | |||||||||||||||||
One year later | 14,384 | 13,282 | 14,696 | 14,206 | 13,607 | ||||||||||||
Two years later | 21,157 | 20,051 | 21,909 | 20,659 | |||||||||||||
Three years later | 26,149 | 24,801 | 26,583 | ||||||||||||||
Four years later | 29,847 | 28,206 | |||||||||||||||
Five years later | 32,570 | ||||||||||||||||
Reserves reestimated as of | |||||||||||||||||
One year later | 54,103 | 56,238 | 57,932 | 55,266 | 52,931 | ||||||||||||
Two years later | 55,365 | 53,374 | 54,437 | 51,809 | |||||||||||||
Three years later | 53,907 | 51,895 | 52,676 | ||||||||||||||
Four years later | 53,181 | 50,767 | |||||||||||||||
Five years later | 52,356 | ||||||||||||||||
Cumulative surplus | |||||||||||||||||
Gross surplus1) | 4,394 | 4,761 | 7,583 | 6,855 | 4,012 | ||||||||||||
Gross surplus after changes in the consolidated subsidiaries of the Allianz Group | 3,854 | 4,761 | 7,583 | 6,855 | 2,554 | ||||||||||||
Net surplus1) | 3,046 | 4,191 | 6,037 | 5,347 | 3,098 | ||||||||||||
Net surplus after changes in the consolidated subsidiaries of the Allianz Group | 2,593 | 4,191 | 6,037 | 5,347 | 1,727 | ||||||||||||
Net Surplus as percentage of initial reserves | 5.8 | % | 9.2 | % | 12.2 | % | 10.8 | % | 3.5 | % |
1) | Gross/net surplus represents the cumulative surplus from reestimating the reserves for loss and loss adjustment expenses for prior years claims and includes foreign currency translation adjustments of gross €313 mn (2007: €1,690 mn) and net €284 mn (2007: €1,052 mn). This leads to an effective run off result excluding effects of foreign currency translation of gross €2,241 mn (2007: €1,708 mn) and net €1,443 mn (2007: €1,360 mn) which can be found in the table for changes in the reserves for loss and loss adjustment expenses within this footnote. Please note that the 2007 numbers refer to the surplus presented in the consolidated financial statements 2007 and not the cumulative surplus of the calendar year 2007 presented in the table above. |
Discounted loss and loss adjustment expenses
As of December 31, 2005, the fair value of real estate owned by2008 and 2007, the Allianz Group usedProperty-Casualty reserves for its own activities was €6,227loss and loss adjustment expenses reflected discounts of €1,139 mn (2004: €7,232 mn). As of December 31, 2005, assets pledged as security and other restrictions on title were €25€1,100 mn, (2004: €34 mn).
Deferred sales inducements
Changesrespectively. The discount reflected in the deferred sales inducements were:reserves is related to annuities for
2005 | 2004 | |||||
€ mn | € mn | |||||
Carrying amount as of 1/1/ | 303 | — | ||||
Transfer from insurance reserves | — | 89 | ||||
Cumulative effect adjustment due to implementation of SOP 03-1 | — | 23 | ||||
Additions | 209 | 222 | ||||
Foreign currency translation adjustment | 52 | — | ||||
Amortization | (49 | ) | (31 | ) | ||
Carrying amount as of 12/31/ | 515 | 303 | ||||
Deferred policy acquisition costs
2005 | 2004 | 2003 | |||||||
€ mn | € mn | € mn | |||||||
Property-Casualty | |||||||||
Carrying amount as of 1/1/ | 3,432 | 3,380 | 3,158 | ||||||
Additions | 2,625 | 1,732 | 450 | ||||||
Changes in the consolidated subsidiaries of the Allianz Group | — | (60 | ) | 2 | |||||
Foreign currency translation adjustments | 78 | (51 | ) | (86 | ) | ||||
Amortization | (2,545 | ) | (1,569 | ) | (120 | ) | |||
Impairments | — | — | (24 | ) | |||||
Carrying amount as of 12/31/ | 3,590 | 3,432 | 3,380 | ||||||
Life/Health | |||||||||
Carrying amount as of 1/1/ | 10,042 | 9,117 | 7,370 | ||||||
Additions | 2,765 | (*) | 2,888 | 2,525 | |||||
Changes in the consolidated subsidiaries of the Allianz Group | (21 | ) | (158 | ) | 153 | ||||
Foreign currency translation adjustments | 539 | (712 | ) | (521 | ) | ||||
Amortization | (1,352 | ) | (1,093 | ) | (410 | ) | |||
Carrying amount as of 12/31/ | 11,973 | 10,042 | 9,117 | ||||||
Asset Management | 23 | — | — | ||||||
Total | 15,586 | 13,474 | 12,497 | ||||||
Assetscertain long-tailed liabilities, primarily in workers’ compensation, personal accident, general liability, motor liability, individual and disposal groups held for sale
As a resultgroup health disability and employers’ liability. All of the agreements described in Note 41, the Allianz Group reclassified the carrying amount of its ownership interest in Eurohypo AG to assets held for sale. On the agreement date, as the fair value less costs to sell of the Eurohypo AG ownership interest was greater than the Allianz Group’s carrying amount, a gain or loss was not recognized. Therefore, on December 15, 2005, thereserves that have been discounted have payment amounts that are fixed and timing that is reasonably determinable.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
dateThe following table shows, by line of derecognitionbusiness, the carrying amounts of reserves for loss and loss adjustment expenses that have been discounted, and the interest rates used for discounting:
Discounted reserves for loss and loss adjustment expenses | Amount of the discount | Interest rate used for discounting | ||||||||||
As of December 31, | 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | ||||||
€ mn | € mn | € mn | € mn | % | % | |||||||
Motor—Third-party liability | 632 | 589 | 446 | 414 | 1.40 – 5.25 | 1.40 – 5.25 | ||||||
General liability | 190 | 170 | 164 | 150 | 1.40 – 5.25 | 1.40 – 5.25 | ||||||
Personal accident | 325 | 293 | 201 | 182 | 2.25 – 4.00 | 2.25 – 4.00 | ||||||
Workers compensation / Employers liability | 539 | 520 | 309 | 335 | 3.00 – 5.25 | 3.00 – 5.25 | ||||||
Others | 26 | 29 | 19 | 19 | 1.40 – 5.25 | 1.40 – 5.25 | ||||||
Total | 1,712 | 1,601 | 1,139 | 1,100 | — | — | ||||||
20 Reserves for insurance and investment contracts
As of December 31, | 2008 | 2007 | ||
€ mn | € mn | |||
Aggregate policy reserves | 278,700 | 264,243 | ||
Reserves for premium refunds | 17,195 | 27,225 | ||
Other insurance reserves | 662 | 776 | ||
Total | 296,557 | 292,244 | ||
Aggregate policy reserves
As of December 31, | 2008 | 2007 | ||
€ mn | € mn | |||
Traditional participating insurance contracts | 129,859 | 127,502 | ||
Long-duration insurance contracts (SFAS 60) | 46,943 | 46,337 | ||
Universal life-type insurance contracts (SFAS 97) | 101,059 | 89,840 | ||
Non unit-linked investment contracts | 839 | 564 | ||
Total | 278,700 | 264,243 | ||
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Changes in aggregate policy reserves for traditional participating insurance contracts and long-duration insurance contracts for the years ended December 31, 2008 and 2007 were as follows:
2008 | 2007 | |||||||||||
Traditional participating insurance contracts (SFAS 120) | Long- duration insurance contracts (SFAS 60) | Traditional participating insurance contracts (SFAS 120) | Long- duration insurance contracts (SFAS 60) | |||||||||
€ mn | € mn | € mn | € mn | |||||||||
As of January 1, | 127,502 | 46,337 | 123,835 | 45,390 | ||||||||
Foreign currency translation adjustments | 390 | (929 | ) | (104 | ) | (755 | ) | |||||
Changes in the consolidated subsidiaries of the Allianz Group | — | 266 | — | 10 | ||||||||
Changes recorded in consolidated income statements | 1,187 | 828 | 2,445 | 954 | ||||||||
Dividends allocated to policyholders | 1,153 | 244 | 1,278 | 207 | ||||||||
Additions and disposals | (160 | ) | (34 | ) | — | (2 | ) | |||||
Other changes | (213 | )1) | 231 | 48 | 533 | 2) | ||||||
As of December 31, | 129,859 | 46,943 | 127,502 | 46,337 | ||||||||
1) | For the year ended December 31, 2008, consists of shadow accounting of €(135) mn. |
2) | Mainly relating to a reclassification from reserves for premium refunds and other insurances reserves. |
Changes in aggregate policy reserves for universal life-type insurance contracts and non unit-linked investment contracts for the years ended December 31, 2008 and 2007 were as follows:
2008 | 2007 | |||||||||||
Universal life-type insurance contracts (SFAS 97) | Non unit- linked investment contracts | Universal life-type insurance contracts (SFAS 97) | Non unit- linked investment contracts | |||||||||
€ mn | € mn | € mn | € mn | |||||||||
As of January 1, | 89,840 | 564 | 86,681 | 427 | ||||||||
Foreign currency translation adjustments | 1,655 | (16 | ) | (3,933 | ) | (12 | ) | |||||
Premiums collected | 12,810 | 395 | 12,579 | 231 | ||||||||
Separation of embedded derivatives | (472 | ) | — | (473 | ) | — | ||||||
Interest credited | 3,938 | 70 | 3,178 | 47 | ||||||||
Releases upon death, surrender and withdrawal | (9,770 | ) | (164 | ) | (8,650 | ) | (105 | ) | ||||
Policyholder charges | (1,024 | ) | (13 | ) | (715 | ) | (28 | ) | ||||
Additions | — | — | 81 | — | ||||||||
Portfolio acquisitions and disposals | (14 | ) | — | (37 | ) | — | ||||||
Reclassifications1) | 4,096 | 3 | 1,129 | 4 | ||||||||
As of December 31, | 101,059 | 839 | 89,840 | 564 | ||||||||
1) | The reclassifications mainly relate to insurance contracts when policies transfer from a separate account contract to a universal life-type contract. |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
As of December 31, 2008, participating life business represented approximately 65% (2007: 65%) of the first tranche, the Allianz Group recognized a gain on disposal which is included in income from associated enterprises and joint ventures (net). The assets held for sale related to Eurohypo AG are included in the Banking segment.
Group’s gross insurance inforce. During the year ended December 31, 2005,2008, participating policies represented approximately 64% (2007: 61%) of gross statutory premiums written and 64% (2007: 60%) of life premiums earned. As of December 31, 2008, reserves for conventional participating policies were approximately 54% (2007: 54%) of the Allianz Group’s consolidated aggregate policy reserves.
Reserves for premium refunds
2008 | 2007 | 2006 | |||||||
€ mn | € mn | € mn | |||||||
Amounts already allocated under local statutory or contractual regulations | |||||||||
As of January 1, | 13,438 | 12,764 | 10,915 | ||||||
Foreign currency translation adjustments | 6 | (15 | ) | (9 | ) | ||||
Changes | (986 | ) | 689 | 1,858 | |||||
As of December 31, | 12,458 | 13,438 | 12,764 | ||||||
Latent reserves for premium refunds | |||||||||
As of January 1, | 13,787 | 17,260 | 16,930 | ||||||
Foreign currency translation adjustments | 67 | (19 | ) | (24 | ) | ||||
Changes due to fluctuations in market value | (7,024 | ) | (4,099 | ) | (50 | ) | |||
Changes in the consolidated subsidiaries of the Allianz Group | — | — | (491 | ) | |||||
Changes due to valuation differences charged to income | (2,093 | ) | 645 | 895 | |||||
As of December 31, | 4,737 | 13,787 | 17,260 | ||||||
Total | 17,195 | 27,225 | 30,024 | ||||||
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 policy holder participation, traditional contracts generally incorporate significant investment risk for the Allianz Group. Traditional contracts include life, endowment, annuity, and health contracts. Traditional annuity contracts are issued in both deferred and immediate types. In addition, the Allianz Group’s life insurance 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 certain markets, the Allianz Group reclassifiedissues contracts for group life, group health and group pension products.
Notes to the assets,Allianz Group’s Consolidated Financial Statements—(Continued)
As of December 31, 2008 and 2007, the Allianz Group’s deferred acquisition costs and reserves for insurance and investment contracts for the Life/Health segment are summarized as follows:
As of December 31, | Deferred acquisition costs | Aggregate policy reserves | Reserves for premium refunds | Other insurance reserves | Total non unit- linked reserves | Liabilities for unit- linked contracts | Total | ||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | € mn | |||||||||
2008 | |||||||||||||||
Countries with legal or contractual policyholder participation in insurance, investment and/or expense risk | |||||||||||||||
Germany Life | 6,249 | 121,146 | 10,782 | 3 | 131,931 | 1,660 | 133,591 | ||||||||
Germany Health | 897 | 14,159 | 4,095 | 5 | 18,259 | — | 18,259 | ||||||||
France | 1,378 | 45,420 | 786 | 163 | 46,369 | 11,021 | 57,390 | ||||||||
Italy | 948 | 18,946 | (191 | ) | 36 | 18,791 | 20,307 | 39,098 | |||||||
Switzerland | 237 | 6,635 | 589 | 121 | 7,345 | 512 | 7,857 | ||||||||
Austria | 269 | 3,232 | 124 | 1 | 3,357 | 347 | 3,704 | ||||||||
South Korea | 590 | 4,781 | 34 | — | 4,815 | 499 | 5,314 | ||||||||
Subtotal | 10,568 | 214,319 | 16,219 | 329 | 230,867 | 34,346 | 265,213 | ||||||||
Other Countries | |||||||||||||||
Belgium | 110 | 5,632 | (55 | ) | 38 | 5,615 | 235 | 5,850 | |||||||
Spain | 23 | 5,065 | 308 | — | 5,373 | 47 | 5,420 | ||||||||
Other Western and Southern Europe | 346 | 1,978 | (29 | ) | 13 | 1,962 | 3,365 | 5,327 | |||||||
Eastern Europe | 353 | 1,869 | 9 | 4 | 1,882 | 789 | 2,671 | ||||||||
United States | 6,873 | 38,627 | — | — | 38,627 | 8,473 | 47,100 | ||||||||
Taiwan | 200 | 1,617 | — | — | 1,617 | 2,419 | 4,036 | ||||||||
Other Asia-Pacific | 212 | 810 | 76 | 5 | 891 | 771 | 1,662 | ||||||||
South America | 2 | 226 | — | — | 226 | — | 226 | ||||||||
Other | 6 | 862 | 8 | 2 | 872 | 5 | 877 | ||||||||
Subtotal | 8,125 | 56,686 | 317 | 62 | 57,065 | 16,104 | 73,169 | ||||||||
Total | 18,693 | 271,005 | 16,536 | 391 | 287,932 | 50,450 | 338,382 | ||||||||
2007 | |||||||||||||||
Countries with legal or contractual policyholder participation in insurance, investment and/or expense risk | |||||||||||||||
Germany Life | 5,907 | 117,478 | 17,070 | 3 | 134,551 | 1,831 | 136,382 | ||||||||
Germany Health | 867 | 13,339 | 3,949 | 4 | 17,292 | — | 17,292 | ||||||||
France | 1,189 | 42,830 | 3,603 | 202 | 46,635 | 14,285 | 60,920 | ||||||||
Italy | 1,146 | 19,120 | 14 | — | 19,134 | 25,682 | 44,816 | ||||||||
Switzerland | 238 | 5,695 | 610 | 107 | 6,412 | 583 | 6,995 | ||||||||
Austria | 142 | 3,195 | 273 | 3 | 3,471 | 277 | 3,748 | ||||||||
South Korea | 785 | 5,978 | 47 | — | 6,025 | 904 | 6,929 | ||||||||
Subtotal | 10,274 | 207,635 | 25,566 | 319 | 233,520 | 43,562 | 277,082 | ||||||||
Other Countries | |||||||||||||||
Belgium | 112 | 5,327 | 17 | — | 5,344 | 302 | 5,646 | ||||||||
Spain | 25 | 4,857 | 138 | — | 4,995 | 92 | 5,087 | ||||||||
Other Western and Southern Europe | 318 | 1,865 | 151 | — | 2,016 | 3,819 | 5,835 | ||||||||
Eastern Europe | 291 | 1,596 | 25 | 4 | 1,625 | 1,076 | 2,701 | ||||||||
United States | 4,394 | 32,291 | — | — | 32,291 | 13,954 | 46,245 | ||||||||
Taiwan | 250 | 1,841 | — | — | 1,841 | 2,710 | 4,551 | ||||||||
Other Asia-Pacific | 172 | 565 | 58 | — | 623 | 529 | 1,152 | ||||||||
South America | — | 93 | — | — | 93 | 12 | 105 | ||||||||
Other | 2 | 776 | 10 | 5 | 791 | 4 | 795 | ||||||||
Subtotal | 5,564 | 49,211 | 399 | 9 | 49,619 | 22,498 | 72,117 | ||||||||
Total | 15,838 | 256,846 | 25,965 | 328 | 283,139 | 66,060 | 349,199 | ||||||||
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
A majority of the Allianz Group’s Life/Health segment operations is conducted in Western Europe. Insurance laws and regulations in Western Europe have historically been characterized by legal or contractual minimum participation of contract holders in the profits of the insurance company issuing the contract. In particular, Germany, Switzerland and Austria, which comprise approximately 48% and 47%, of the Allianz Group’s reserves for insurance and investment contracts as of December 31, 2008 and 2007, respectively, include a substantial level of policyholder participation in all sources of profit including goodwill,mortality/morbidity, investment and liabilities relatedexpense. As a result of this policyholder participation, the Allianz Group’s exposure to its ownershipinsurance, investment and expense risk is mitigated.
Furthermore, all of Four Seasons Health Care Ltd., Wilmslow and BetterCarethe Allianz Group’s annuity policies issued in the United States meet the criteria for classification as insurance contracts under IFRS 4, because they include options for contract holders to elect a life-contingent annuity. These contracts currently do not expose the Allianz Group Limited, Kingston upon Thames to disposal groups held for salesignificant longevity risk, nor are they expected to do so in the future, as the classification criteriaprojected and observed annuitization rates are very low. Additionally, many of the Allianz Group’s traditional contracts issued in IFRS 5 were met. OnFrance and Italy do not incorporate significant insurance risk, although they are accounted for as insurance contracts, because of their discretionary participation features. Similarly, a significant portion of the dateAllianz Group’s unit-linked contracts in France and Italy do not incorporate significant insurance risk.
As a result of reclassification,the considerable diversity in types of contracts issued, including the offsetting effects of mortality risk and longevity risk inherent in a combined portfolio of life insurance and annuity products, and the geographic diversity of the Allianz Group’s Life/Health segment, as well as the fair value less costsubstantial level of policyholder participation in mortality/ morbidity risk in certain countries in Western Europe, the Allianz Group does not believe its Life/Health segment has any significant concentrations of insurance risk, nor does it believe its net income or shareholders’ equity is highly sensitive to sell wasinsurance risk.
The Allianz Group’s Life/Health segment is exposed to significant investment risk as a result of guaranteed minimum interest rates included in excessmost of its traditional contracts. The weighted average guaranteed minimum interest rates of the carrying amountAllianz Group’s largest operating entities in the Life/Health segment can be summarized by country as follows:
As of December 31, | 2008 | 2007 | ||
% | % | |||
Country | ||||
Germany Life | 3.38 | 3.46 | ||
France | 1.31 | 1.99 | ||
Italy | 2.87 | 2.49 | ||
Switzerland | 2.89 | 2.87 | ||
Spain | 4.74 | 5.05 | ||
Netherlands | 0.93 | 0.82 | ||
Austria | 3.00 | 3.00 | ||
Belgium | 3.80 | 3.95 | ||
United States | 2.35 | 2.70 | ||
South Korea | 5.43 | 5.29 | ||
Taiwan1) | 6.17 | 5.52 |
1) | Guarantees only on 10.4% of reserves in 2008 and 5.3% in 2007. |
In most of these markets, the effective interest rates being earned on the investment portfolio exceed these guaranteed minimum interest rates. In addition, the operations in these markets may also have significant mortality and expense margins. As a gainresult, as of December 31, 2008 and 2007, the Allianz Group does not believe that it is exposed to a significant risk of premium deficiencies in its Life/Health segment. However, the Allianz Group’s Life/Health operations in Switzerland, Belgium, South Korea and Taiwan, have high guaranteed minimum interest rates on older contracts in their portfolios and, as a result, may be sensitive to declines in investment rates or lossa prolonged low interest rate environment.
21 Financial liabilities for unit-linked contracts
As of December 31, | 2008 | 2007 | ||
€ mn | € mn | |||
Unit-linked insurance contracts | 29,056 | 39,323 | ||
Unit-linked investment contracts | 21,394 | 26,737 | ||
Total | 50,450 | 66,060 | ||
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Changes in financial liabilities for unit-linked insurance contracts and unit-linked investment contracts for the years ended December 31, 2008 and 2007 were as follows:
2008 | 2007 | |||||||||||
Unit-linked insurance contracts | Unit-linked investment contracts | Unit-linked Insurance contracts | Unit-linked investment contracts | |||||||||
€ mn | € mn | € mn | € mn | |||||||||
As of January 1, | 39,323 | 26,737 | 36,296 | 25,568 | ||||||||
Foreign currency translation adjustments | 697 | (15 | ) | (1,954 | ) | (2 | ) | |||||
Changes in the consolidated subsidiaries of the Allianz Group | — | 152 | — | — | ||||||||
Premiums collected | 7,775 | 3,963 | 9,381 | 7,903 | ||||||||
Interest credited | (10,650 | ) | (2,815 | ) | 1,508 | (149 | ) | |||||
Releases upon death, surrender and withdrawal | (3,323 | ) | (6,314 | ) | (3,740 | ) | (6,286 | ) | ||||
Policyholder charges | (838 | ) | (141 | ) | (1,130 | ) | (222 | ) | ||||
Portfolio acquisitions and disposals | (1 | ) | (1 | ) | 20 | — | ||||||
Reclassifications1) | (3,927 | ) | (172 | ) | (1,058 | ) | (75 | ) | ||||
As of December 31, | 29,056 | 21,394 | 39,323 | 26,737 | ||||||||
1) | The reclassifications mainly relate to insurance contracts when policies transfer from a separate account contract to a universal life-type contract. |
Liquidity Risk
Tabular disclosure of contractual obligations
The table sets forth the Allianz Group’s contractual obligations as of December 31, 2008. Contractual obligations do not include contingent liabilities or commitments. Only transactions with parties outside the Allianz Group are considered. With the announcement of the sale of Dresdner Bank from Allianz to Commerzbank as of August 31, 2008, Dresdner Bank was not recognized. Theclassified as a disposal group held-for-sale and discontinued operations. Following this classification, contractual obligations of Four Seasons Health Care Ltd., Wilmslow and BetterCare Group Limited, Kingston upon Thames is expected to occur during the first half of 2006. The assets and liabilitiesDresdner Bank are presented as part of the disposal group heldheld-for-sale and discontinued operations. The following table includes only continuing operations.
The table includes only liabilities that represent fixed and determinable amounts. The table excludes interest on floating rate long-term debt obligations and interest on money market securities, as the contractual interest rate on floating rate interest is not fixed and determinable. The amount and timing of interest on money market securities is not fixed and determinable since these instruments have a daily maturity. For further information, see Notes 23 and 24 to the consolidated financial statements.
Furthermore, reserves for sale relatedinsurance and investment contracts presented in the table include contracts where the timing and amount of payments are considered fixed and determinable and contracts which have no specified maturity dates and may result in a payment to Four Seasons Health Care Ltd., Wilmslowthe contract holder depending on mortality and BetterCaremorbidity experience and the incidence of surrenders, lapses, or maturities. For contracts which do not have payments that are fixed and determinable, the Allianz Group Limited, Kingston upon Thameshas 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. 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 premiums and fees expected to be received, investment income earned, expenses incurred to parties other than the policyholders such
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
as agents, or administrative expenses. In addition, these amounts are presented net of reinsurance expected to be received as a result of these cash flows. The amounts presented in this table are undiscounted and therefore exceed the reserves for
insurance and investment contracts presented in the consolidated balance sheet. For further information on reserves for insurance and investment contracts, see Note 20 to the consolidated financial statements.
As of December 31, 2008, the income tax obligations amounted to €1,446 mn. Thereof €1,106 mn the Allianz Group expects to pay within the twelve months after the balance sheet date. For the remaining amount of €340 mn an estimate of the timing of cash outflows is not reasonably possible. The income tax obligations are not included in the Property-Casualty segment.table below.
Payments due by period as of December 31, 2008 | ||||||||||
Less than 1 year | 1–3 years | 3–5 years | More than 5 years | Total | ||||||
€ mn | € mn | € mn | € mn | € mn | ||||||
Long-term debt obligations1) | 5,191 | 329 | 2,479 | 10,891 | 18,890 | |||||
Interest on long-term debt obligations2) | 21 | 9 | 129 | 285 | 444 | |||||
Operating lease obligations3) | 261 | 470 | 371 | 1,108 | 2,210 | |||||
Purchase obligations4) | 166 | 258 | 116 | 203 | 743 | |||||
Liabilities to banks and customers5) | 15,480 | 1,020 | 760 | 1,191 | 18,451 | |||||
Future policy benefits | 34,376 | 99,114 | 63,172 | 642,805 | 839,467 | |||||
Reserves for loss and loss adjustment expenses6) | 17,271 | 14,455 | 7,212 | 16,678 | 55,616 | |||||
Total contractual obligations | 72,766 | 115,655 | 74,239 | 673,161 | 935,821 | |||||
1) | For further information, see Notes 23 and 24 to the consolidated financial statements. Total obligations of €56,894 mn at December 31, 2007 included obligations of Dresdner Bank, which are no longer obligations of the Allianz Group. |
2) | Amounts included in the table reflect estimates of interest on fixed rate long-term debt obligations to be made to lenders based upon the contractually fixed interest rates. |
3) | The amount of €2,210 mn is gross of €43 mn related to subleases, which represent cash inflow to the Allianz Group. |
4) | Purchase obligations only include transactions related to goods and services; purchase obligations for financial instruments are excluded. |
5) | Liabilities to banks and customers include €311 mn and €4,096 mn of payables on demand, respectively. For further information, see Note 17 to the consolidated financial statements. Total liabilities of €336,494 at December 31, 2007 included liabilities of Dresdner Bank, which are no longer liabilities of the Allianz Group. |
6) | Comprise reserves for loss and loss adjustment expenses from the Property-Casualty insurance operations. Due to the uncertainty of the assumptions used, the amounts presented could be materially different from the actual incurred payments in future periods. The amounts presented in the table above are gross of reinsurance ceded. The corresponding amounts, net of reinsurance ceded, are €14,621 mn, €12,339 mn, €6,215 mn and €14,620 mn for the periods less than 1 year, 1-3 years, 3-5 years and more than 5 years, respectively. For further information on reserves for loss and loss adjustment expenses, see Note 19 to the consolidated financial statements. |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Reconciliation of future policy benefits
The following table presents a reconciliation of future policy benefits to the total balance sheet positions, which include reserves for insurance and investment contracts and financial liabilities for unit-linked contracts, as presented in the consolidated balance sheet:
As of December 31, | 2008 | ||
€ mn | |||
Future policy benefits | 839,467 | ||
Effect of discounting and differences between locked-in and best estimate assumptions | (363,279 | ) | |
Expected future premiums and expenses | (147,731 | ) | |
Total consolidated balance sheet positions | 328,457 | ||
Thereof: | |||
Reserves for insurance and investment contracts | 296,557 | ||
Financial liabilities for unit-linked contracts | 50,450 | ||
Market value liability options | 5,163 | ||
Less: | |||
Deferred acquisition costs | 18,695 | ||
Ceded reserves to reinsurers | 5,018 | ||
Total consolidated balance sheet positions | 328,457 | ||
Reconciling items related to the effect of discounting and differences between locked-in and best estimate assumptions occur because future policy benefits are presented on an undiscounted basis, while reserves for insurance and investment contracts in the consolidated balance sheet reflect the time value of money. Furthermore, future policy benefits are based on current best estimate assumptions such as mortality, morbidity, interest rates, policy-holder participation in profits and future lapse rates. For certain contracts (SFAS 60 and SFAS 97), current best estimate assumptions may differ from the locked-in estimates required to be used to establish the reserves for insurance and investment contracts in the consolidated balance sheet, which also include provisions for adverse deviations as required by the Allianz Group’s established accounting policy.
Reconciling items related to expected future premiums and expenses occur because future policy benefits take into account best estimates of future premiums expected to be received and future expenditures expected to be incurred.
Future policy benefits implicitly include embedded derivatives or market value liability options (MVLO) of our equity-indexed annuity business that are accounted for as derivatives and are presented within financial liabilities carried at fair value through income in our consolidated balance sheet.
Deferred acquisition costs comprise deferred acquisition costs for our Life/Health segment, present value of future profits and deferred sales inducements. See Note 12 to our consolidated financial statements for more information.
Ceded reserves to reinsurers are presented within reinsurance assets in our consolidated balance sheet.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Supplementary Information on22 Other liabilities
As of December 31, | 20081) | 2007 | ||
€ mn | € mn | |||
Payables | ||||
Policyholders | 4,695 | 4,806 | ||
Reinsurance | 2,062 | 1,844 | ||
Agents | 1,485 | 1,743 | ||
Subtotal | 8,242 | 8,393 | ||
Payables for social security | 316 | 196 | ||
Tax payables | ||||
Income tax | 1,446 | 2,563 | ||
Other | 971 | 1,012 | ||
Subtotal | 2,417 | 3,575 | ||
Accrued interest and rent | 723 | 4,226 | ||
Unearned income | ||||
Interest and rent | 10 | 6 | ||
Other | 361 | 351 | ||
Subtotal | 371 | 357 | ||
Provisions | ||||
Pensions and similar obligations | 3,867 | 4,184 | ||
Employee related | 1,904 | 2,956 | ||
Share-based compensation | 1,295 | 1,761 | ||
Restructuring plans | 343 | 541 | ||
Loan commitments | 8 | 201 | ||
Contingent losses from non-insurance business | 109 | 134 | ||
Other provisions | 1,481 | 1,857 | ||
Subtotal | 9,007 | 11,634 | ||
Deposits retained for reinsurance ceded | 2,852 | 3,227 | ||
Derivative financial instruments used for hedging that meet the criteria for hedge accounting and firm commitments | 208 | 2,210 | ||
Financial liabilities for puttable equity instruments | 2,718 | 4,162 | ||
Other liabilities | 6,076 | 10,051 | ||
Total | 32,930 | 48,031 | ||
1) | Does not include other liabilities of Dresdner Bank which were classified as held-for-sale. See Note 4. |
Other liabilities due within one year amounted to 24,766 mn (2007: €38,151 mn) and those due after more than one year totaled €8,164 mn (2007: €9,880 mn).
Notes to the Allianz
Group’s Shareholders’ Equity and LiabilitiesConsolidated Financial Statements—(Continued)
14 Shareholders’ equity23 Certificated liabilities
As of 12/31/ | 2005 | 2004 | ||||
€ mn | € mn | |||||
Issued capital | 1,039 | 988 | ||||
Capital reserve | 20,577 | 18,445 | ||||
Revenue reserves | 9,930 | 10,498 | ||||
Treasury shares | (1,351 | ) | (4,605 | ) | ||
Foreign currency translation adjustments | (1,032 | ) | (2,634 | ) | ||
Unrealized gains and losses (net) | 10,324 | 7,303 | ||||
Shareholders’ equity before minority interests | 39,487 | 29,995 | ||||
Minority interests in shareholders’ equity | 7,615 | 7,696 | ||||
Total | 47,102 | 37,691 | ||||
Contractual Maturity Date | As of December 31, 20081) | As of December 31, 2007 | ||||||||||||||||||||
2009 | 2010 | 2011 | 2012 | 2013 | Thereafter | |||||||||||||||||
€ mn2) | € mn2) | € mn2) | € mn2) | € mn2) | € mn2) | € mn | € mn | |||||||||||||||
Allianz SE3) | ||||||||||||||||||||||
Senior bonds | ||||||||||||||||||||||
Fixed rate | — | — | — | 882 | 1,482 | 1,484 | 3,848 | 4,007 | ||||||||||||||
Contractual interest rate | — | — | — | 5.63 | % | 5.00 | % | 4.00 | % | — | — | |||||||||||
Floating rate | 287 | — | — | — | — | — | 287 | 272 | ||||||||||||||
Current interest rate | 4.05 | % | — | — | — | — | — | — | — | |||||||||||||
Subtotal | 287 | — | — | 882 | 1,482 | 1,484 | 4,135 | 4,279 | ||||||||||||||
Exchangeable bonds | ||||||||||||||||||||||
Fixed rate | — | — | — | — | — | — | — | 450 | ||||||||||||||
Contractual interest rate | — | — | — | — | — | — | — | — | ||||||||||||||
Money market securities | ||||||||||||||||||||||
Fixed rate | 4,103 | — | — | — | — | — | 4,103 | 2,929 | ||||||||||||||
Contractual interest rate | 4.47 | % | — | — | — | — | — | — | — | |||||||||||||
Total Allianz SE3) | 4,390 | — | — | 882 | 1,482 | 1,484 | 8,238 | 7,658 | ||||||||||||||
Banking subsidiaries | ||||||||||||||||||||||
Senior bonds | ||||||||||||||||||||||
Fixed rate | 564 | 172 | 57 | 23 | 22 | 3 | 841 | 11,436 | ||||||||||||||
Contractual interest rate | 3.77 | % | 3.73 | % | 3.75 | % | 3.28 | % | 2.93 | % | 4.48 | % | — | — | ||||||||
Floating rate | 237 | 25 | 30 | — | — | 145 | 437 | 6,675 | ||||||||||||||
Current interest rate | 4.15 | % | 5.35 | % | 4.97 | % | — | — | 2.84 | % | — | — | ||||||||||
Subtotal | 801 | 197 | 87 | 23 | 22 | 148 | 1,278 | 18,111 | ||||||||||||||
Money market securities | ||||||||||||||||||||||
Fixed rate | — | — | — | — | — | — | — | 16,289 | ||||||||||||||
Contractual interest rate | — | — | — | — | — | — | — | — | ||||||||||||||
Floating rate | — | — | — | — | — | — | — | 9 | ||||||||||||||
Current interest rate | — | — | — | — | — | — | — | — | ||||||||||||||
Subtotal | — | — | — | — | — | — | — | 16,298 | ||||||||||||||
Total banking subsidiaries | 801 | 197 | 87 | 23 | 22 | 148 | 1,278 | 34,409 | ||||||||||||||
All other subsidiaries | ||||||||||||||||||||||
Certificated liabilities | ||||||||||||||||||||||
Fixed rate | — | — | — | — | — | 3 | 3 | 3 | ||||||||||||||
Contractual interest rate | — | — | — | — | — | 2.11 | % | — | — | |||||||||||||
Floating rate | — | 25 | — | — | — | — | 25 | — | ||||||||||||||
Current interest rate | — | 4.05 | % | — | — | — | — | — | — | |||||||||||||
Total all other subsidiaries | — | 25 | — | — | — | 3 | 28 | 3 | ||||||||||||||
Total | 5,191 | 222 | 87 | 905 | 1,504 | 1,635 | 9,544 | 42,070 | ||||||||||||||
1) | Does not include certificated liabilities of Dresdner Bank which were classified as held-for-sale. See Note 4. |
2) | Except for the interest rates. The interest rates represent the weighted average. |
3) | Includes senior bonds and exchangeable bonds issued by Allianz Finance B.V. and Allianz Finance II B.V., guaranteed by 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. |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
24 Participation certificates and subordinated liabilities
Contractual Maturity Date | As of December 31, | As of December 31, | |||||||||||||||||
2009 | 2010 | 2011 | 2012 | 2013 | Thereafter | 20081) | 2007 | ||||||||||||
€ mn2) | € mn2) | € mn2) | € mn2) | € mn2) | € mn2) | € mn | € mn | ||||||||||||
Allianz SE3) | |||||||||||||||||||
Subordinated bonds | |||||||||||||||||||
Fixed rate | — | — | — | — | — | 2,548 | 2,548 | 1,129 | |||||||||||
Contractual interest rate | — | — | — | — | — | 7.28 | % | — | — | ||||||||||
Floating rate | — | — | — | — | — | 5.649 | 5,649 | 5,724 | |||||||||||
Current interest rate | — | — | — | — | — | 5.60 | % | — | — | ||||||||||
Subtotal | — | — | — | — | — | 8,197 | 8,197 | 6,853 | |||||||||||
Participation certificates4) | |||||||||||||||||||
Floating rate | — | — | — | — | — | 85 | 85 | 85 | |||||||||||
Total Allianz SE3) | — | — | — | — | — | 8,282 | 8,282 | 6,938 | |||||||||||
Banking subsidiaries | |||||||||||||||||||
Subordinated bonds | |||||||||||||||||||
Fixed rate | — | 20 | — | — | 70 | 83 | 173 | 1,815 | |||||||||||
Contractual interest rate | — | 3.75 | % | — | — | 5.66 | % | 5.14 | % | — | — | ||||||||
Floating rate | — | — | — | — | — | — | — | 1,007 | |||||||||||
Current interest rate | — | — | — | — | — | — | — | — | |||||||||||
Subtotal | — | 20 | — | — | 70 | 83 | 173 | 2,822 | |||||||||||
Hybrid equity | |||||||||||||||||||
Fixed rate | — | — | — | — | — | — | — | 2,429 | |||||||||||
Contractual interest rate | — | — | — | — | — | — | — | — | |||||||||||
Participation certificates | |||||||||||||||||||
Fixed rate | — | — | — | — | — | — | — | 1,686 | |||||||||||
Contractual interest rate | — | — | — | — | — | — | — | — | |||||||||||
Total banking subsidiaries | — | 20 | — | — | 70 | 83 | 173 | 6,937 | |||||||||||
All other subsidiaries | |||||||||||||||||||
Subordinated liabilities | |||||||||||||||||||
Fixed rate | — | — | — | — | — | 621 | 621 | 678 | |||||||||||
Contractual interest rate | — | — | — | — | — | 5.34 | % | — | — | ||||||||||
Floating rate | — | — | — | — | — | 225 | 225 | 226 | |||||||||||
Current interest rate | — | — | — | — | — | 4.45 | % | — | — | ||||||||||
Subtotal | — | — | — | — | — | 846 | 846 | 904 | |||||||||||
Hybrid equity | |||||||||||||||||||
Fixed rate | — | — | — | — | — | 45 | 45 | 45 | |||||||||||
Contractual interest rate | — | — | — | — | — | 6.43 | % | — | — | ||||||||||
Total all other subsidiaries | — | — | — | — | — | 891 | 891 | 949 | |||||||||||
Total | — | 20 | — | — | 70 | 9,256 | 9,346 | 14,824 | |||||||||||
1) | Does not include participation certificated and subordinated liabilities of Dresdner Bank which were classified as held-for-sale. See Note 4. |
2) | Except for interest rates. Interest rates represent the weighted average. |
3) | Includes subordinated bonds issued by Allianz Finance II B.V. and guaranteed by Allianz SE. |
4) | The terms of the profit participation certificates provide for an annual cash distribution of 240% of the dividend paid by Allianz SE per one Allianz SE share. Holders of profit participation certificates do not have voting rights, or any rights to convert the certificates into Allianz SE shares, or rights to liquidation proceeds. Profit participation certificates are unsecured and rank pari passu with the claims of other unsecured creditors. Profit participation certificates can be redeemed by holders upon twelve months prior notice every fifth year. Allianz SE has the right to call the profit participation certificates for redemption, upon six months prior notice every year. The next call date is December 31, 2009. Upon redemption by Allianz SE, the cash redemption price per certificate would be equal to 122.9% of the then current price of one Allianz SE share during the last three months preceding the call of the participation certificate. In lieu of redemption for cash, Allianz SE may offer 10 Allianz SE ordinary shares per 8 profit participation certificates. |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
As of December 31, | 2008 | 2007 | ||||
€ mn | € mn | |||||
Shareholders’ equity | ||||||
Issued capital | 1,160 | 1,152 | ||||
Capital reserve | 27,409 | 27,169 | ||||
Revenue reserves | 7,257 | 12,790 | ||||
Treasury shares | (147 | ) | (172 | ) | ||
Foreign currency translation adjustments | (4,006 | ) | (3,656 | ) | ||
Unrealized gains and losses (net)1) | 2,011 | 10,470 | ||||
Subtotal | 33,684 | 47,753 | ||||
Minority interests | 3,564 | 3,628 | ||||
Total | 37,248 | 51,381 | ||||
1) | As of December 31, 2008 includes €203 mn related to cash flow hedges (2007: €175 mn). |
Issued capital
Issued capital at December 31, 20052008 amounted to €1,039,462,400€1,159,808,000 divided into 406,040,000registered453,050,000 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.
Authorized capital
As of December 31, 2005, the2008, Allianz AGSE had €424,100,864 (165,664,400€406,545,646 (158,806,893 shares) of authorized unissued capital (Authorized Capital 2004/2006/I) which can be issued at any time up to May 4, 2009.February 7, 2011. The Board of Management, with approval of the Supervisory Board, is authorized to exclude the pre-emptivepreemptive 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.
As of December 31, 2005, the2008, Allianz AGSE had €4,356,736 (1,701,850€8,056,297 (3,146,991 shares) of authorized unissued capital (Authorized Capital 2004/2006/II) which can be issued at any time up to May 4, 2009.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, 2008, Allianz SE had an unissued conditional capital in the amount of €250,000,000 (97,656,250 shares),
authorized in 2006. In February 2008 the remaining 2.2 mn warrants were exercised which the Allianz Group had issued in February 2005 as part of the “All-in-One” transaction. In conjunction with the exercise, 2.2 mn new shares of Allianz AG had €226,960,000 (88,656,250 shares)SE resulting from conditional capital were issued leading to proceeds from this increased equity of €202 mn. The new shares are entitled to dividend as of the financial year 2008.
A capital increase out of unissued conditional authorized capital which will be carried out only to the extent that conversion or option rights are exercised by holders of bonds issued by Allianz AGSE or any of its subsidiaries or that mandatory conversion obligations are fulfilled.
Changes toin the number of issued shares outstanding
2005 | 2004 | ||||
As of 1/1/ | 366,859,799 | 366,472,698 | |||
Exercise of warrants | 9,000,000 | — | |||
Capital increase for cash | 10,116,850 | — | |||
Capital increase for employee shares | 1,148,150 | 1,056,250 | |||
Change in treasury shares held for non-trading purposes | 17,165,510 | (2,861 | ) | ||
Change in treasury shares held for trading purposes | 1,008,088 | (666,288 | ) | ||
As of 31/12/ | 405,298,397 | 366,859,799 | |||
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
On February 18, 2005, the Allianz Group issued a subordinated bond with 11.2 mn detachable warrants, which allow the holder to purchase a share of Allianz AG. The warrants are exercisable at any time during their three year term and have an exercise price of €92 per share. The warrants were recorded in capital reserve at the premium received of €174 mn on their issuance date. During the year ended December 31, 2005, as a result of the exercise of 9 mn warrants the Allianz Group received consideration of €828 mn, which increased issued capital by €23 mn and capital reserve by €805 mn.
In September 2005, the Allianz Group issued 10,116,850 shares for proceeds of €1,062 mn, which increased issued capital by €26 mn and capital reserve of €1,036 mn.
2008 | 2007 | 2006 | |||||||
Issued shares outstanding as of January 1, | 448,910,648 | 429,336,291 | 405,298,397 | ||||||
Capital increase for merger with RAS | — | — | 25,123,259 | ||||||
Capital increase for tender offer AGF | — | 16,974,357 | — | ||||||
Exercise of warrants | 2,200,000 | — | — | ||||||
Capital increase for employee shares | 700,000 | 1,025,643 | 986,741 | ||||||
Change in treasury shares held for non-trading purposes | (96,521 | ) | (86,431 | ) | (57,232 | ) | |||
Change in treasury shares held for trading purposes | (223,904 | ) | 1,660,788 | (2,014,874 | ) | ||||
Issued shares | 451,490,223 | 448,910,648 | 429,336,291 | ||||||
Treasury shares | 1,559,777 | 1,239,352 | 2,813,709 | ||||||
Total number of issued shares | 453,050,000 | 450,150,000 | 432,150,000 | ||||||
In November 2005, 1,148,150 (2004: 1,056,250)2008, 700,000 (2007: 1,025,643) shares were issued at a price of €103.50 (2004: €81.61)€64.30 (2007: €154.07) per share, enabling employees of Allianz Group subsidiaries in Germany and abroad to purchase 1,144,196 (2004: 1,051,191)660,700 (2007: 881,980) shares at prices ranging from €72.45 (2004: €57.13)€45.01 (2007: €107.85) to €87.98 (2004: €69.37)€53.58 (2007: €128.39) per share. The remaining 3,954 (2004: 5,059)39,300 (2007:143,663) shares were sold onwarehoused and booked
Notes to the Frankfurt stock exchange at an average priceAllianz Group’s Consolidated Financial Statements—(Continued)
as treasury shares for further subscriptions by employees in the context of €129.23 (2004: €95.74) per share.the employee share purchase plan in 2009. As a result, issued capital increased by €2 mn and capital reserve increased by €117€43 mn.
In April 2007 16,974,357 new Allianz SE shares were issued for the execution of the minority buy-out of AGF shares. The increase in share capital due to the minority buyout of AGF amounts to €43 mn; the additional paid-in capital increased by €2,722 mn.
On October 13, 2006, Allianz AG and RAS merged resulting in the issuance of 25,123,259 shares of Allianz SE to the shareholders of RAS. As a result, share capital increased by €64 mn and capital reserve increased by €3,589 mn.
All shares issued in during the years ended December 31, 2005,2008, 2007 and 20042006 are qualifying shares from the beginning of the year of issue.
Dividends
For the year ended December 31, 2005,2008, the Board of Management will propose to shareholders at the Annual General Meeting the distribution of a dividend of €2.00€3.50 per qualifying share. During the years ended December 31, 20042007 and 2003,2006, Allianz AGSE paid a dividend of €1.75€5.50 and €1.50,€3.80 , respectively, per qualifying share.
Treasury shares
The Annual General Meeting on May 4, 2005 (2004: May 5),21, 2008, authorized Allianz AGSE to acquire its own shares for other purposes pursuant to clause 71 (1)71(1) no. 8 of the German Stock Corporation Law (“Aktiengesetz”). During the yearsyear ended December 31, 2005 and 2004,2008 the authorization was not used to acquire 39,300 (2007: 143,663) shares of Allianz AG.
In 2005, the Dresdner Bank Group placed 17,155,008 shares of Allianz AG in the market.SE.
In order to enable Dresdner Bank Group to trade in shares of Allianz AG,SE, the Annual General Meeting on May 4, 200521, 2008 authorized the Allianz Group’s domestic or foreign credit institutions in which Allianz AGSE has a majority holding to acquire treasury shares for trading purposes pursuant to clause 71 (1)71(1) no. 7 of the Aktiengesetz. During the year ended December 31, 2005,2008, in accordance with this authorization, the credit institutions of the Allianz
Group purchased 83,202,188 (2004: 29,685,678)30,227,150 (2007:24,780,668) of Allianz AG’sSE’s shares or acquired them by way of securities borrowing at an average price of €104.66€106.73 per share (2004: €88.84)(2007: €131.55), which included previously held Allianz AGSE shares. During the year ended December 31, 2005, 87,652,8052008, 30,977,574 shares (2004: 29,092,223)(2007: 25,348,169) were disposed of or ceded from borrowed holdings at an average price of €105.06€100.87 per share (2004: €88.82)(2007: €127.39). During the year ended December 31, 2005,2008, the lossesgains arising from treasury share transactions and in consideration of the holding, were €31€21 mn (2004:(2007: losses of €53€110 mn), which were transferred torecorded directly in revenue reserves.
The resulting short position in own shares is hedged by the use of derivatives and is reflected in the revenue reserves. Due to written put options the Allianz Group is obliged to buy own shares amounting to €1,261 mn, in case the put options are exercised.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Composition of the treasury shares
As of December 31, | Acquisition costs | Number of shares | Issued capital | |||||||||
Acquisition costs | Number of shares | Issued capital | € mn | % | ||||||||
€ mn | % | |||||||||||
As of 12/31/2005 | ||||||||||||
Allianz AG | 50 | 424,035 | 0.10 | |||||||||
Dresdner Bank Group | 40 | 317,568 | 0.08 | |||||||||
Dresdner Bank Group (obligation for written put options on Allianz AG shares) | 1,261 | — | — | |||||||||
Total | 1,351 | 741,603 | 0.18 | |||||||||
As of 12/31/2004 | ||||||||||||
Allianz AG | 50 | 424,035 | 0.11 | |||||||||
2008 | ||||||||||||
Allianz SE | 65 | 545,807 | 0.12 | |||||||||
Dresdner Bank Group | 4,554 | 18,480,664 | 4.79 | 69 | 895,558 | 0.20 | ||||||
Other | 1 | 10,502 | — | 13 | 118,412 | 0.02 | ||||||
Total | 4,605 | 18,915,201 | 4.90 | 147 | 1,559,777 | 0.34 | ||||||
2007 | ||||||||||||
Allianz SE | 72 | 567,698 | 0.13 | |||||||||
Dresdner Bank Group | 100 | 671,654 | 0.15 | |||||||||
Total | 172 | 1,239,352 | 0.28 | |||||||||
Minority interests
As of December 31, | 2008 | 2007 | ||
€ mn | € mn | |||
Unrealized gains and losses (net) | 20 | 95 | ||
Share of earnings | 258 | 748 | ||
Other equity components | 3,286 | 2,785 | ||
Total | 3,564 | 3,628 | ||
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 management planning dialogues with its operating entities, capital requirements are forecasteddetermined through business plans regarding the levels and timing of capital expenditures and
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
investments. Regulators impose minimum capital rules on the level of both the Allianz Group’s operating entities and the Allianz Group as a whole.
At December 31, 2005, the Allianz Group’s eligible capital for the solvency margin, required for insurance groups under German law, was €43.6 billion (2004: €29.1 billion), surpassing the minimum legally stipulated level by €29.4 billion. This margin resulted in a cover ratio(1) of 307% (2004: 217%). In 2005, this solvency margin requirement applied onlyto the Allianz Group’s insurance segments and did not contain any capital requirements for the banking business.
On January 1, 2005, the Financial Conglomerates Directive, a supplementary EUEuropean Union (EU) directive, became effective in Germany. Under this directive, a financial conglomerate is defined as any financial parent holding company that, together with its subsidiaries, has significant cross-border and cross-sector activities. The Allianz Group is a financial conglomerate within the scope of the directive and the related German law. The law requires that the financial conglomerate calculatecalculates the capital needed to meet the respective solvency requirements on a consolidated basis. The calculation methodology for the financial conglomerates solvency margin is still subject to uncertainties.
At December 31, 2005,2008, based on the current status, of discussion, the Allianz Group’sour eligible capital for the solvency margin, required for theour insurance segments and theour banking and asset management business, was €40.0 billion (including€39.5 bn (2007: €46.5 bn) including off-balance sheet reserves(2)1)), surpassing the minimum legally stipulated level by €16.3 billion.€9.9 bn (2007: €17.6 bn). This margin resulted in a preliminary cover ratio(1)2) of 169% in 2005.133% at December 31, 2008 (2007: 161%). In 2008, all Allianz Group companies also have met their local solvency requirements.
Dresdner Bank is subjectStarting with the third quarter 2008, unrealized gains and losses on bonds are excluded from the calculation of our eligible capital. This new methodology, which better reflects economic reality, added around 6 (2007: 4) percentage points 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 AG to maintain its status as a “financial holding company” under the U.S. Gramm-Leach-Bliley Financial Modernization Act of 1999,
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Dresdner Bank must 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 Bank must 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 and maintain specific capital levels. As shown in the table below, Dresdner Bank maintained a “well capitalized” position during both 2005 and 2004.
The following table sets forth Dresdner Bank’s BIS capital ratios:
As of 12/31/ | 2005(1) | 2004 | ||
€ mn | € mn | |||
Tier I capital (core capital) | 11,126 | 6,867 | ||
Tier I & Tier II capital | 18,211 | 13,734 | ||
Tier III capital (supplementary capital) | — | 226 | ||
Total capital | 18,211 | 13,960 | ||
Risk-weighted assets—banking book | 108,659 | 100,814 | ||
Risk-weighted assets—trading book | 2,875 | 3,963 | ||
Total risk-weighted assets | 111,534 | 104,777 | ||
Tier I capital ratio (core capital) in % | 9.98 | 6.55 | ||
Tier I & Tier II capital ratio in % | 16.33 | 13.11 | ||
Total capital ratio in % | 16.33 | 13.32 | ||
The distinction between “core capital” and “supplementary capital” in the table above reflects the ability of the capital components to cover losses. Core capital, with the highest ability to cover losses, corresponds to Tier I capital, while supplementary capital corresponds to Tier II capital as such terms are defined in applicable U.S. capital adequacy rules.Solvency Ratio.
In addition to regulatory capital requirements, Allianz AGSE also uses an internal risk capital model to determine how much capital is required to absorb any unexpected volatility in results of operations.
1) | Represents the difference between fair value and amortized cost of real estate held for investment and investments in associates and joint ventures, net of deferred taxes, policyholders’ participation and minority interests. |
2) | Represents the ratio of eligible capital to required capital. |
Certain of the Allianz Group’s insurance subsidiaries prepare individual financial statements based on local laws and regulations. These laws establish restrictions on the minimum level of capital and surplus an insurance entity must maintain and the amount of dividends that may be paid to shareholders. The minimum capital requirements and dividend restrictions vary by jurisdiction. The minimum capital requirements are based on various criteria including, but not limited to, volume of premiums written or claims paid, amount of insurance reserves, asset risk, mortality risk, credit risk, underwriting risk and off-balance sheet risk.
As of December 31, 2005,2008, the Allianz Group’s insurance subsidiaries were in compliance with all applicable solvency and capital adequacy requirements.
Certain insurance subsidiaries are subjected to regulatory restrictions on the amount of dividends which can be remitted to Allianz AGSE without prior approval by the appropriate regulatory body. Such restrictions provide that a company may only pay dividends up to an amount in excess of certain regulatory capital levels or based on the levels of undistributed earned surplus or current year income or a percentage thereof. By way of example only, the operations of ourAllianz Group’s insurance subsidiaries located in the United States are subject to limitations on the payment of dividends to their parent company under applicable state insurance laws.
Dividends paid in excess of these limitations generally require prior approval of the insurance commissioner of the state of domicile. The Allianz Group believes that these restrictions will not affect the ability of the Allianz AGSE to pay dividends to its shareholders in the future. In addition, Allianz AGSE is not subject to legal restrictions on the amount of dividends it can pay to its shareholders.
Notesshareholders, except the legal reserve in the appropriated retained earnings, which is required according to the Allianz Group’s Consolidated Financial Statements—(Continued)
Comprehensive income
The components of comprehensive income were as follows:
For the years ended 12/31/ | 2005 | 2004 | 2003 | ||||||
€ mn | € mn | € mn | |||||||
Unrealized gains and losses from investments | |||||||||
Unrealized gains and losses arising during the year, net of deferred tax impact of €521 mn (2004: €1,451 mn; 2003: €781 mn) | 5,934 | 2,893 | 5,031 | ||||||
Less: Reclassification adjustment for realized gains and losses included in net income, net of deferred tax impact of €256 mn (2004: €1,021 mn; 2003: €396 mn) | (2,916 | ) | (2,036 | ) | (2,549 | ) | |||
Subtotal | 3,018 | 857 | 2,482 | ||||||
Foreign currency translation adjustments | 1,602 | (741 | ) | (1,578 | ) | ||||
Unrealized gains and losses on derivatives related to hedging cash flows and net investments in foreign entities, net of deferred tax impact of €1 mn (2004: €0 mn; 2003: €2 mn) | 3 | — | (4 | ) | |||||
Other comprehensive income | 4,623 | 116 | 900 | ||||||
Net income | 4,380 | 2,266 | 2,691 | ||||||
Comprehensive income | 9,003 | 2,382 | 3,591 | ||||||
Unrealized investment gains and losses are shown net of policyholder liabilities and minority interests. As of December 31, 2005, unrealized gains, net of unrealized losses, which have been allocated to policyholder liabilities, were €14,299 mn (2004: €10,210 mn; 2003: €6,433 mn). Net amounts which have been allocated to minority interests are presented below.
As of December 31, 2005, ending balances in accumulated other comprehensive income for derivatives related to hedging net investments in foreign entities were €182 mn (2004: €182 mn; 2003: €182 mn).
Minority interests in shareholders’ equity
As of 12/31/ | 2005 | 2004 | ||
€ mn | € mn | |||
Unrealized gains and losses | 1,321 | 1,206 | ||
Share of earnings | 1,386 | 1,168 | ||
Other equity components | 4,908 | 5,322 | ||
Total | 7,615 | 7,696 | ||
The primary subsidiariesclause 150 (1) of the Allianz Group included in minority interests are the AGF Group, Paris and the RAS Group, Milan.Aktiengesetz.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
15 Participation certificates and subordinated liabilities
Contractual Maturity Date | ||||||||||||||||||||||
2006 | 2007 | 2008 | 2009 | 2010 | Thereafter | As of 12/31/2005 | As of 12/31/2004 | |||||||||||||||
€ mn(1) | € mn(1) | € mn(1) | € mn(1) | € mn(1) | € mn(1) | € mn(1) | € mn(1) | |||||||||||||||
Allianz AG(2) | ||||||||||||||||||||||
Subordinated bonds | ||||||||||||||||||||||
Fixed rate | — | — | — | — | — | 1,984 | 1,984 | |||||||||||||||
Contractual interest rate | — | — | — | — | — | 5.87 | % | |||||||||||||||
Floating rate | — | — | — | — | — | 4,236 | 4,236 | |||||||||||||||
Current interest rate | — | — | — | — | — | 5.65 | % | |||||||||||||||
Subtotal | — | — | — | — | — | 6,220 | 6,220 | 4,775 | ||||||||||||||
Participation certificates | ||||||||||||||||||||||
Floating rate(3) | 85 | — | — | — | — | — | 85 | 85 | ||||||||||||||
Total Allianz AG(2) | 85 | — | — | — | — | 6,220 | 6,305 | 4,860 | ||||||||||||||
Banking subsidiaries | ||||||||||||||||||||||
Subordinated bonds | ||||||||||||||||||||||
Fixed rate | 458 | 715 | 401 | 105 | 160 | 1,239 | 3,078 | |||||||||||||||
Contractual interest rate | 3.76 | % | 6.30 | % | 5.94 | % | 4.17 | % | 6.98 | % | 6.25 | % | ||||||||||
Floating rate | 12 | 92 | 54 | 303 | 32 | 702 | 1,195 | |||||||||||||||
Current interest rate | 6.38 | % | 3.35 | % | 2.76 | % | 3.08 | % | 2.82 | % | 4.44 | % | ||||||||||
Subtotal | 470 | 807 | 455 | 408 | 192 | 1,941 | 4,273 | 4,779 | ||||||||||||||
Hybrid equity | ||||||||||||||||||||||
Fixed rate | — | — | — | — | — | 1,614 | 1,614 | 1,500 | ||||||||||||||
Contractual interest rate | — | — | — | — | — | 7.00 | % | |||||||||||||||
Participation certificates(4) | ||||||||||||||||||||||
Fixed rate | 504 | 940 | 51 | — | 4 | — | 1,499 | |||||||||||||||
Contractual interest rate | 8.01 | % | 6.91 | % | 6.13 | % | — | 6.39 | % | — | ||||||||||||
Floating rate | 18 | — | — | — | — | — | 18 | |||||||||||||||
Current interest rate | 3.41 | % | — | — | — | — | — | |||||||||||||||
Subtotal | 522 | 940 | 51 | — | 4 | — | 1,517 | 1,526 | ||||||||||||||
Total banking subsidiaries | 992 | 1,747 | 506 | 408 | 196 | 3,555 | 7,404 | 7,805 | ||||||||||||||
All other subsidiaries | ||||||||||||||||||||||
Subordinated liabilities | ||||||||||||||||||||||
Fixed rate | — | — | 62 | — | — | 643 | 705 | |||||||||||||||
Contractual interest rate | — | — | 6.84 | % | — | — | 5.35 | % | ||||||||||||||
Floating rate | — | — | — | — | — | 225 | 225 | |||||||||||||||
Current interest rate | — | — | — | — | — | 3.23 | % | |||||||||||||||
Subtotal | — | — | 62 | — | — | 868 | 930 | 520 | ||||||||||||||
Hybrid equity | ||||||||||||||||||||||
Fixed rate | — | — | — | — | — | 45 | 45 | 45 | ||||||||||||||
Contractual interest rate | — | — | — | — | — | 3.58 | % | |||||||||||||||
Total all other subsidiaries | — | — | 62 | — | — | 913 | 975 | 565 | ||||||||||||||
Total | 1,077 | 1,747 | 568 | 408 | 196 | 10,688 | 14,684 | 13,230 | ||||||||||||||
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
On February 18, 2005, the Allianz Group issued a subordinated bond with a principal amount of €1,400 mn. The subordinated bond is perpetual; however, the Allianz Group has the right to call the bond after 12 years. The subordinated bond has a coupon rate of 4.375%.
On January 27, 2005, the AGF Group issued a subordinated bond with a principal amount of €400 mn. The subordinated bond is perpetual and has a coupon rate of 4.625%.
16 Reserves for insurance and investment contracts
As of 12/31/ | 2005 | 2004 | ||
€ mn | € mn | |||
Unearned premiums | 13,303 | 12,050 | ||
Aggregate policy reserves | 249,530 | 229,873 | ||
Reserves for loss and loss adjustment expenses | 67,005 | 62,331 | ||
Reserves for premium refunds | 28,510 | 21,237 | ||
Premium deficiency reserves | 153 | 138 | ||
Other insurance reserves | 636 | 751 | ||
Total | 359,137 | 326,380 | ||
Unearned premiums
As of 12/31/ | 2005 | 2004 | ||
€ mn | € mn | |||
Property-Casualty | 12,970 | 11,822 | ||
Life/Health | 333 | 228 | ||
Total | 13,303 | 12,050 | ||
Aggregate policy reserves
As of 12/31/ | 2005 | 2004 | ||
€ mn | € mn | |||
Traditional participating insurance contracts | 120,967 | 117,439 | ||
Long-duration insurance contracts (SFAS 60) | 39,679 | 38,442 | ||
Universal-Life type insurance contracts (SFAS 97) | 88,415 | 73,610 | ||
Non unit linked investment contracts | 469 | 382 | ||
Total | 249,530 | 229,873 | ||
Changes in aggregate policy reserves and financial liabilities for unit linked contracts were as follows:
2005 | ||||||||
SFAS 120 | SFAS 60 | SFAS 97 | ||||||
€ mn | € mn | € mn | ||||||
As of 1/1/ | 117,439 | 38,442 | 115,129 | |||||
Foreign currency translation adjustments | (28 | ) | 280 | 7,378 | ||||
Changes in the consolidated subsidiaries of the Allianz Group | 77 | — | (99 | ) | ||||
Deposits from SFAS 97 contracts | — | — | 27,179 | |||||
Change recorded in premiums (net) | — | — | (2,414 | ) | ||||
Change recorded in insurance and investment contract benefits (net) | 2,698 | 558 | 2,125 | |||||
Change recorded in income from financial assets and liabilities carried at fair value through income | — | — | 3,551 | |||||
Other changes | 781 | 399 | (9,304 | ) | ||||
As of 12/31/ | 120,967 | 39,679 | 143,545 | |||||
Comprised of | ||||||||
Universal life type insurance contracts | 88,415 | |||||||
Non unit linked investment contracts | 469 | |||||||
Unit linked insurance contracts | 30,320 | |||||||
Unit linked investment contracts | 24,341 | |||||||
Total | 143,545 | |||||||
As of December 31, 2005, participating life business represented approximately 67% (2004: 70%) of the Allianz Group’s gross insurance in-force. During the year ended December 31, 2005, participating policies represented approximately 66%
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
(2004: 64%) of the gross premiums written and 63% (2004: 61%) of the life premiums earned. As of December 31, 2005, conventional participating reserves were approximately 53% (2004: 55%) of the Allianz Group’s consolidated aggregate policy reserves.
Reserves for loss and loss adjustment expenses
As of 12/31/ | 2005 | 2004 | ||
€ mn | € mn | |||
Property-Casualty | 60,246 | 55,536 | ||
Life/Health | 6,759 | 6,795 | ||
Total | 67,005 | 62,331 | ||
Changes in the reserves for loss and loss adjustment expenses for the property-casualty segment
2005 | 2004 | 2003 | |||||||||||||||||||||||||
Gross | Ceded | Net | Gross | Ceded | Net | Gross | Ceded | Net | |||||||||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | |||||||||||||||||||
Reserves for loss and loss adjustment expenses as of 1/1/ | 55,536 | (10,029 | ) | 45,507 | 56,644 | (12,049 | ) | 44,595 | 60,054 | (14,588 | ) | 45,466 | |||||||||||||||
Loss and loss adjustment expenses incurred | |||||||||||||||||||||||||||
Current year | 30,038 | (3,620 | ) | 26,418 | 28,650 | (3,007 | ) | 25,643 | 28,990 | (3,278 | ) | 25,712 | |||||||||||||||
Prior year | (1,589 | ) | 423 | (1,166 | ) | (1,281 | ) | 835 | (446 | ) | (371 | ) | 650 | 279 | |||||||||||||
Subtotal | 28,449 | (3,197 | ) | 25,252 | 27,369 | (2,172 | ) | 25,197 | 28,619 | (2,628 | ) | 25,991 | |||||||||||||||
Loss and loss adjustment expenses paid | |||||||||||||||||||||||||||
Current year | (12,667 | ) | 905 | (11,762 | ) | (12,260 | ) | 886 | (11,374 | ) | (12,697 | ) | 837 | (11,860 | ) | ||||||||||||
Prior year | (13,359 | ) | 2,572 | (10,787 | ) | (14,393 | ) | 2,575 | (11,818 | ) | (16,351 | ) | 3,196 | (13,155 | ) | ||||||||||||
Subtotal | (26,026 | ) | 3,477 | (22,549 | ) | (26,653 | ) | 3,461 | (23,192 | ) | (29,048 | ) | 4,033 | (25,015 | ) | ||||||||||||
Foreign currency translation adjustments and other | 2,286 | (819 | ) | 1,467 | (1,020 | ) | 551 | (469 | ) | (2,966 | ) | 1,144 | (1,822 | ) | |||||||||||||
Change in the consolidated subsidiaries of the Allianz Group | 1 | — | 1 | (804 | ) | 180 | (624 | ) | (15 | ) | (10 | ) | (25 | ) | |||||||||||||
Reserves for loss and loss adjustment expenses as of 12/31/ | 60,246 | (10,568 | ) | 49,678 | 55,536 | (10,029 | ) | 45,507 | 56,644 | (12,049 | ) | 45,595 | |||||||||||||||
Prior year’s loss and loss adjustment expenses incurred reflects the changes in estimation charged or credited to the consolidated income statement in each year with respect to the reserves for loss and loss adjustment expenses established as of the beginning of that year. During the year ended December 31, 2005, the Allianz Group recorded additional incomeof €1,166 mn (2004: income of €446 mn and 2003: losses of €279 mn) with respect of losses occurring in prior years. During the year ended December 31, 2005, these amounts as percentages of the net balance of the beginning of the year were 2.6% (2004: 1.0% and 2003:—0.6%).
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Loss and loss adjustment expenses development for the property-casualty segment
The following table illustrates the development of the Allianz Group’s reserves for loss and loss adjustment expenses, over the past five years. The table presents calendar year data, not accident year data. In addition, the table includes subsidiaries from the date acquired and excludes all subsidiaries disposed on a retrospective basis.
For the years ended 12/31/ | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | |||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | ||||||||||||
Loss and loss adjustment expenses | |||||||||||||||||
Net | 41,294 | 45,158 | 44,801 | 43,988 | 45,504 | 49,678 | |||||||||||
Ceded | 12,386 | 15,875 | 14,403 | 11,901 | 10,025 | 10,568 | |||||||||||
Gross | 53,680 | 61,033 | 59,204 | 55,889 | 55,529 | 60,246 | |||||||||||
Paid (cumulative) as of | |||||||||||||||||
One year later | 16,001 | 15,624 | 16,120 | 14,218 | 13,357 | ||||||||||||
Two years later | 22,889 | 24,069 | 23,739 | 20,987 | |||||||||||||
Three years later | 27,755 | 29,394 | 28,687 | ||||||||||||||
Four years later | 31,220 | 33,016 | |||||||||||||||
Five years later | 33,826 | ||||||||||||||||
Liability re-estimated as of | |||||||||||||||||
One year later | 54,577 | 57,738 | 55,836 | 54,050 | 56,311 | ||||||||||||
Two years later | 53,069 | 55,703 | 55,650 | 55,227 | |||||||||||||
Three years later | 51,495 | 55,820 | 57,119 | ||||||||||||||
Four years later | 52,016 | 57,130 | |||||||||||||||
Five years later | 53,234 | ||||||||||||||||
Cumulative surplus (deficiency) | |||||||||||||||||
Gross | 446 | 3,903 | 2,085 | 662 | (782 | ) | |||||||||||
Gross excluding the impact of foreign exchange and other | (1,996 | ) | (1,415 | ) | 781 | 1,767 | 1,589 | ||||||||||
Net | 2,242 | 4,118 | 450 | 162 | (181 | ) | |||||||||||
Percent | 5.4 | % | 9.1 | % | 1.0 | % | 0.4 | % | (0.4 | )% | |||||||
Discounted loss and loss adjustment expenses
As of December 31, 2005 and 2004, the Allianz Group Property-Casualty reserves for loss and loss adjustment expenses reflected discounts of €1,326 mn and €1,220 mn, respectively.
The discount reflected in the reserves is related to annuities for certain long-tailed liabilities, primarily in workers’ compensation, personal accident, general liability, motor liability, individual and group health disability and employers’ liability. All of the reserves that have been discounted have payment amounts that are fixed and timing that is reasonably determinable.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
The following table shows, by country, the carrying amounts of reserves for loss and loss adjustment expenses that have been discounted, and the interest rates used for discounting:
Discounted reserves for loss and loss adjustment expenses | Amount of the discount | Interest rate used for discounting | ||||||||||
As of 12/31/ | 2005 | 2004 | 2005 | 2004 | 2005 | 2004 | ||||||
€ mn | € mn | € mn | € m | % | % | |||||||
France | 1,404 | 1,402 | 357 | 330 | 3.25 | 3.25 | ||||||
Germany | 445 | 407 | 298 | 278 | 2.75 — 4.00 | 2.75 — 4.00 | ||||||
Switzerland | 414 | 392 | 237 | 236 | 3.25 | 3.25 | ||||||
United States | 213 | 190 | 230 | 216 | 6.00 | 6.00 | ||||||
United Kingdom | 116 | 84 | 110 | 65 | 4.00 — 4.25 | 4.25 | ||||||
Belgium | 91 | 83 | 28 | 26 | 4.68 | 4.75 | ||||||
Hungary | 67 | 69 | 22 | 22 | 1.40 | 1.40 | ||||||
Portugal | 57 | 57 | 44 | 47 | 4.00 | 4.25 | ||||||
Total | 2,807 | 2,684 | 1,326 | 1,220 | ||||||||
Asbestos and Environmental (A&E) Reserves
In the United States, the planned external review of the asbestos & environmental (or “A&E”) liability reserves at Fireman’s Fund had no net impact at the Allianz Group level as a result of already sufficient reserves, absent a USD 65 mn loss caused by the increase in provisions for uncollectible reinsurance recoverables and unallocated loss adjustment expenses.
Reserves for premium refunds
2005 | 2004 | 2003 | ||||||
€ mn | € mn | € mn | ||||||
Amounts already allocated under local statutory or contractual regulations | ||||||||
As of 1/1/ | 8,794 | 7,326 | 7,131 | |||||
Foreign currency translation adjustments | 14 | 6 | (35 | ) | ||||
Changes in the consolidated subsidiaries of the Allianz Group | — | 27 | (7 | ) | ||||
Change | 2,107 | 1,435 | 237 | |||||
As of 12/31/ | 10,915 | 8,794 | 7,326 | |||||
Latent reserves for premiums Refunds | ||||||||
As of 1/1/ | 12,443 | 8,001 | 6,554 | |||||
Foreign currency translation Adjustments | (4 | ) | 6 | (25 | ) | |||
Changes due to fluctuations in market value | 4,094 | 3,771 | 1,924 | |||||
Changes in the consolidated subsidiaries of the Allianz Group | 6 | 71 | 1,028 | |||||
Changes due to valuation differences charged (credited) to income | 1,056 | 594 | (1,480 | ) | ||||
As of 12/31/ | 17,595 | 12,443 | 8,001 | |||||
Total | 28,510 | 21,237 | 15,327 | |||||
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
As of 12/31/ | 2005 | 2004 | ||
€ mn | € mn | |||
Payable on demand | 14,534 | 14,003 | ||
Repurchase agreements and collateral received from securities lending transactions | 62,219 | 78,675 | ||
Term deposits and certificates of deposit | 73,189 | 96,736 | ||
Other | 2,015 | 1,933 | ||
Total | 151,957 | 191,347 | ||
Due within one year | 141,682 | 180,716 | ||
Due after more than one year | 10,275 | 10,631 | ||
Total | 151,957 | 191,347 | ||
As of December 31, 2005, liabilities to domestic banks amounted to €61,919 mn (2004: €80,326 mn) and liabilities to foreign banks amounted to €90,038 mn (2004: €111,021 mn).
As of 12/31/ | 2005 | 2004 | ||
€ mn | € mn | |||
Savings deposits | 2,302 | 2,410 | ||
Home loan savings deposits | 3,306 | 3,214 | ||
Payable on demand | 57,624 | 50,946 | ||
Repurchase agreements and collateral received from securities lending transactions | 47,064 | 49,276 | ||
Term deposits and certificates of deposit | 45,968 | 49,124 | ||
Other | 2,095 | 2,167 | ||
Total | 158,359 | 157,137 | ||
Due within one year | 143,286 | 148,320 | ||
Due after more than one year | 15,073 | 8,817 | ||
Total | 158,359 | 157,137 | ||
Liabilities to customers, by type of customer, are comprised of the following:
Germany | Other countries | Total | ||||
€ mn | € mn | € mn | ||||
12/31/2005 | ||||||
Corporate customers | 44,973 | 71,356 | 116,329 | |||
Public authorities | 1,026 | 6,105 | 7,131 | |||
Private customers | 27,762 | 7,137 | 34,899 | |||
Total | 73,761 | 84,598 | 158,359 | |||
12/31/2004 | ||||||
Corporate customers | 40,954 | 75,100 | 116,054 | |||
Public authorities | 1,529 | 6,471 | 8,000 | |||
Private customers | 27,807 | 5,276 | 33,083 | |||
Total | 70,290 | 86,847 | 157,137 | |||
As of December 31, 2005, liabilities to customers include €30,049 mn (2004: €24,989 mn) of noninterest bearing deposits.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Contractual Maturity Date | ||||||||||||||||||||||
2006 | 2007 | 2008 | 2009 | 2010 | Thereafter | As of 12/31/2005 | As of 12/31/2004 | |||||||||||||||
€ mn(1) | € mn(1) | € mn(1) | € mn(1) | € mn(1) | € mn(1) | € mn(1) | € mn(1) | |||||||||||||||
Allianz AG(2) | ||||||||||||||||||||||
Senior bonds | ||||||||||||||||||||||
Fixed rate | 85 | 2,184 | 1,620 | — | — | 892 | 4,781 | 5,741 | ||||||||||||||
Contractual interest rate | 2.93 | % | 2.60 | % | 5.00 | % | — | — | 5.70 | % | ||||||||||||
Exchangeable bonds | ||||||||||||||||||||||
Fixed rate | 1,064 | — | 1,262 | — | — | — | 2,326 | 2,742 | ||||||||||||||
Contractual interest rate | 1.25 | % | — | 0.75 | % | — | — | — | ||||||||||||||
Money market securities | ||||||||||||||||||||||
Fixed rate | 1,131 | — | — | — | — | — | 1,131 | 1,428 | ||||||||||||||
Contractual interest rate | 2.29 | % | — | — | — | — | — | |||||||||||||||
Total Allianz AG(2) | 2,280 | 2,184 | 2,882 | — | — | 892 | 8,238 | 9,911 | ||||||||||||||
Banking subsidiaries | ||||||||||||||||||||||
Senior bonds | ||||||||||||||||||||||
Fixed rate | 3,038 | 4,584 | 3,149 | 2,240 | 402 | 1,847 | 15,260 | |||||||||||||||
Contractual interest rate | 5.20 | % | 5.32 | % | 4.94 | % | 5.38 | % | 4.32 | % | 5.17 | % | ||||||||||
Floating rate | 3,092 | 1,219 | 1,676 | 1,510 | 873 | 2,632 | 11,002 | |||||||||||||||
Current interest rate | 3.47 | % | 3.14 | % | 3.16 | % | 3.19 | % | 2.74 | % | 3.17 | % | ||||||||||
Subtotal | 6,130 | 5,803 | 4,825 | 3,750 | 1,275 | 4,479 | 26,262 | 25,140 | ||||||||||||||
Money market securities | ||||||||||||||||||||||
Fixed rate | 17,306 | — | — | — | — | — | 17,306 | |||||||||||||||
Contractual interest rate | 3.99 | % | — | — | — | — | — | |||||||||||||||
Floating rate | 6,981 | — | — | — | — | — | 6,981 | |||||||||||||||
Current interest rate | 2.26 | % | — | — | — | — | — | |||||||||||||||
Subtotal | 24,287 | — | — | — | — | — | 24,287 | 21,693 | ||||||||||||||
Total banking subsidiaries | 30,417 | 5,803 | 4,825 | 3,750 | 1,275 | 4,479 | 50,549 | 46,833 | ||||||||||||||
All other subsidiaries | ||||||||||||||||||||||
Certificated liabilities | ||||||||||||||||||||||
Fixed rate | — | — | — | — | — | 16 | 16 | 458 | ||||||||||||||
Contractual interest rate | — | — | — | — | — | 6.00 | % | |||||||||||||||
Money market securities | ||||||||||||||||||||||
Fixed rate | 400 | — | — | — | — | — | 400 | 550 | ||||||||||||||
Contractual interest rate | 2.12 | % | — | — | — | — | — | |||||||||||||||
Total all other subsidiaries | 400 | — | — | — | — | 16 | 416 | 1,008 | ||||||||||||||
Total | 33,097 | 7,987 | 7,707 | 3,750 | 1,275 | 5,387 | 59,203 | 57,752 | ||||||||||||||
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
On February 18, 2005, the Allianz Group issued a senior exchangeable bond, Basket Index Tracking Equity Linked Securities (“BITES”), with a principal amount of €1,262 mn. The redemption value of the BITES is linked to the performance of the DAX Index. The BITES were issued at a DAX reference level of 4,205.115. The Allianz Group may redeem the BITES with shares of BMW AG, Munich Re and/or Siemens AG or cash. The BITES have a term of 3 years, however, the Allianz Group has the right to redeem the BITES anytime during their term. The holders of the BITES have the right to exchange the BITES during their term at the redemption value. An outperformance premium is paid annually equal to 0.75% of the average DAX Index during the reference period prior to the payment date. Upon redemption of the BITES by the Allianz Group or at maturity, the holders of the BITES receive a redemption premium of 1.75% of the redemption value. As of December 31, 2005, the Allianz Group has recorded an embedded derivative related to this transaction in financial liabilities carried at fair value through income of €409 mn.
On March 23, 2005, the Allianz Group repaid in cash a senior exchangeable bond with a face amount of €1,700 mn.
On August 26, 2005, The Allianz Group repaid a senior bond with a face amount of CHF 1,500 mn.
20 Financial liabilities carried at fair value through income
As of 12/31/ | 2005 | 2004 | ||
€ mn | € mn | |||
Financial liabilities held for trading | 86,392 | 102,141 | ||
Financial liabilities for unit linked contracts | 54,661 | 41,409 | ||
Financial liabilities for puttable equity instruments | 3,137 | 1,386 | ||
Financial liabilities designated at fair value through income | 450 | 201 | ||
Total | 144,640 | 145,137 | ||
Financial liabilities held for trading
As of 12/31/ | 2005 | 2004 | ||
€ mn | € mn | |||
Obligations to deliver securities | 49,029 | 72,804 | ||
Derivative financial instruments | 28,543 | 23,018 | ||
Other trading liabilities | 8,820 | 6,319 | ||
Total | 86,392 | 102,141 | ||
Financial liabilities for unit linked contracts
As of 12/31/ | 2005 | 2004 | ||
€ mn | € mn | |||
Unit linked insurance contracts | 30,320 | 21,444 | ||
Unit linked investment contracts | 24,341 | 19,965 | ||
Total | 54,661 | 41,409 | ||
As of 12/31/ | 2005 | 2004 | ||
€ mn | € mn | |||
Reserves for pensions and similar obligations | 5,594 | 5,630 | ||
Accrued taxes | 1,802 | 1,408 | ||
Miscellaneous accrued liabilities(*) | 6,906 | 6,946 | ||
Total | 14,302 | 13,984 | ||
Defined benefit and defined contribution plans
Retirement benefits in the Allianz Group are either in the form of defined benefit or defined contribution plans. Employees, including agents in Germany, are granted such retirement benefits by the various legal entities of the Allianz Group. In Germany, these are primarily defined benefit in nature.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
For defined benefit plans, the participant is granted a defined benefit by the employer or via an external entity. In contrast to defined contribution arrangements, the future cost to the employer of a defined benefit plan is not known with certainty in advance.
Defined benefit plans
The following table represents the changes in the net amount recognized for defined benefit plans:
2005 | 2004 | |||||
€ mn | € mn | |||||
Carrying amount as of 1/1/ | 5,630 | 5,572 | ||||
Changes in the consolidated subsidiaries of the Allianz Group | 15 | (27 | ) | |||
Foreign currency translation adjustments | 21 | (6 | ) | |||
Expense | 641 | 672 | ||||
Payments | (713 | ) | (581 | ) | ||
Carrying amount as of 12/31/ | 5,594 | 5,630 | ||||
The following table sets forth the changes in the projected benefit obligations, the changes in fair value of plan assets and the net amount recognized for the various Allianz Group defined benefit plans:
For the years ended 12/31/ | 2005 | 2004 | ||||
€ mn | € mn | |||||
Change in projected benefit obligations | ||||||
Projected benefit obligations as of 1/1/ | 14,279 | 13,310 | ||||
Service cost | 353 | 313 | ||||
Interest cost | 693 | 676 | ||||
Plan participants’ contributions | 66 | 55 | ||||
Amendments | (44 | ) | 7 | |||
Actuarial losses | 2,268 | 646 | ||||
Foreign currency translation adjustments | 125 | (52 | ) | |||
Benefits paid | (655 | ) | (595 | ) | ||
Changes in the consolidated subsidiaries of the Allianz Group | 74 | (81 | ) | |||
Projected benefit obligations as of 12/31/(1) | 17,159 | 14,279 | ||||
Change in fair value of plan assets | ||||||
Fair value of plan assets as of 1/1/ | 7,149 | 6,724 | ||||
Actual return on plan assets | 883 | 431 | ||||
Employer contributions | 374 | 236 | ||||
Plan participants’ contributions | 66 | 55 | ||||
Foreign currency translation adjustments | 81 | (36 | ) | |||
Benefits paid(2) | (293 | ) | (264 | ) | ||
Changes in the consolidated subsidiaries of the Allianz Group | 27 | 3 | ||||
Fair value of plan assets as of 12/31/ | 8,287 | 7,149 | ||||
Funded status as of 12/31/ | 8,872 | 7,130 | ||||
Unrecognized net actuarial losses | (3,283 | ) | (1,504 | ) | ||
Unrecognized prior service costs | 5 | 4 | ||||
Net amount recognized as of 12/31/ | 5,594 | 5,630 | ||||
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Amounts recognized in the Allianz Group’s consolidated balance sheets for defined benefit plans are as follows:
As of 12/31/ | 2005 | 2004 | ||||
€ mn | € mn | |||||
Prepaid benefit cost | (262 | ) | (220 | ) | ||
Accrued benefit cost | 5,856 | 5,850 | ||||
Net amount recognized | 5,594 | 5,630 | ||||
As of December 31, 2005, postretirement health benefits included in the projected benefit obligation and net amount recognized amounted to € 165 mn (2004: €97 mn) and €151 mn (2004: €107 mn), respectively.
As of December 31, 2005, the accumulated benefit obligation for all defined benefit plans was €16,188 mn (2004: €13,395 mn).
Defined benefit plans with an accumulated benefit obligation in excess of plan assets are summarized as follows:
As of 12/31/ | 2005 | 2004 | ||
€ mn | € mn | |||
Projected benefit obligation | 16,069 | 12,254 | ||
Accumulated benefit obligation | 15,242 | 11,446 | ||
Fair value of plan assets | 7,215 | 5,188 |
The net periodic benefit cost related to defined benefit plans consists of the following components:
For the years ended 12/31/ | 2005 | 2004 | 2003 | ||||||
€ mn | € mn | € mn | |||||||
Service cost | 353 | 313 | 314 | ||||||
Interest cost | 693 | 676 | 606 | ||||||
Expected return on plan assets | (411 | ) | (366 | ) | (312 | ) | |||
Amortization of prior service costs recognized | (45 | ) | 5 | 26 | |||||
Amortization of net loss recognized | 57 | 8 | 6 | ||||||
(Income)/expenses of plan curtailments or settlements | (6 | ) | 36 | (19 | ) | ||||
Net periodic benefit cost | 641 | 672 | 621 | ||||||
During the year ended December 31, 2005, net periodic benefit cost includes net periodic benefit cost related to postretirement health benefits of €8 mn (2004: €7 mn).
Most of the amounts expensed are charged in the Allianz Group’s consolidated income statement as acquisition and administrative expenses, and loss and loss adjustment expenses (claims settlement expenses).
The actual return on plan assets amounted to €883 mn, €431 mn and € 379 mn during the years ended December 31, 2005, 2004 and 2003.
Assumptions
The assumptions for the actuarial computation of the projected benefit obligation, accumulated benefit obligation and the net periodic benefit cost depend on the circumstances in the particular country where the plan has been established.
The calculations are based on current actuarially calculated mortality estimates. Projected turnover depending on age and length of service have also been used, as well as internal Allianz Group retirement projections.
The weighted-average assumptions, for the Allianz Group’s defined benefit plans, used to determine projected and accumulated benefit obligation:
As of 12/31/ | 2005 | 2004 | ||
% | % | |||
Discount rate | 4.1 | 4.9 | ||
Rate of compensation increase | 2.7 | 2.7 | ||
Rate of pension increase | 1.4 | 1.6 |
The discount rate assumptions reflect the market yields at the balance sheet date of high-quality fixed income investments corresponding to the currency and duration of the liabilities.
The weighted-average assumptions used to determine net periodic benefit cost:
For the years ended | 2005 | 2004 | 2003 | |||
% | % | % | ||||
Discount rate | 4.9 | 5.5 | 5.7 | |||
Expected long-term return on plan assets | 5.8 | 6.4 | 6.6 | |||
Rate of compensation increase | 2.7 | 2.8 | 2.9 | |||
Rate of pension increase | 1.6 | 1.9 | 1.8 |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
For the year ended December 31, 2005, the weighted expected long-term return on plan assets was derived from the following target allocation and expected long-term rate of return for each asset category:
Asset category | Target allocation | Weighted expected long-term rate of return | ||
% | % | |||
Equity securities | 30.5 | 8.2 | ||
Debt securities | 65.0 | 4.8 | ||
Real estate | 3.8 | 4.4 | ||
Other | 0.7 | 0.5 | ||
Total | 100.0 | 5.8 | ||
The determination of the expected long-term rate of return for the individual asset categories is based on capital market surveys.
Plan assets
The defined benefit plans’ weighted-average asset allocations by asset category are as follows:
For the years ended 12/31/ | 2005 | 2004 | ||
% | % | |||
Equity securities | 28.4 | 26.2 | ||
Debt securities | 66.0 | 69.7 | ||
Real estate | 3.6 | 2.6 | ||
Other | 2.0 | 1.5 | ||
Total | 100.0 | 100.0 | ||
The bulk of the plan assets are held by the Allianz Versorgungskasse VVaG, Munich. This entity insures effectively all employees of the German insurance operations and is not additionally consolidated.
Plan assets do not include equity securities issued by the Allianz Group or real estate used by the Allianz Group.
The Allianz Group plans to gradually increase its actual equity securities allocation for plan assets of defined benefit plans.
Contributions
During the year ending December 31, 2006, the Allianz Group expects to contribute €264 mn to itsdefined benefit plans and pay € 367 mn directly to plan participants of its defined benefit plans, in addition to the contributions noted in Note 46.
Estimated future benefit payments
The following estimated future benefit payments are based on the same assumptions used to measure the Allianz Group’s projected and accumulated benefit obligations as of December 31, 2005, and reflect expected future service, as appropriate.
€ mn | ||
2006 | 576 | |
2007 | 591 | |
2008 | 621 | |
2009 | 646 | |
2010 | 692 | |
Years 2011–2015 | 3,750 |
Defined contribution plans
Defined contribution plans are funded through independent pension funds or similar organizations. Contributions fixed in advance (e.g., based on salary) are paid to these institutions and the beneficiary’s right to benefits exists against the pension fund. The employer has no obligation beyond payment of the contributions. The main pension fund is the Versicherungsverein des Bankgewerbes a.G., Berlin, which covers most of the banking employees in Germany.
During the year ended December 31, 2005, the Allianz Group recognized expense for defined contribution plans of €126 mn (2004: €110 mn; 2003: €105 mn).
Provisions for restructuring
As of December 31, 2005, 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 Group, none of the individual restructuring programs is significant. These provisions for restructuring primarily include personnel costs, which result from severance payments for employee terminations, and contract termination costs, including those relating to the termination of lease contracts, that will arise in connection with the implementation of the respective initiatives. Restructuring charges are included in other expenses.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Changes in the provisions for restructuring were:
2005 | 2004 | 2003 | |||||||||||||||||||||||||
Dresdner Bank Group | Other | Total | Dresdner Bank Group | Other | Total | Dresdner Bank Group | Other | Total | |||||||||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | |||||||||||||||||||
As of 1/1/ | 670 | 69 | 739 | 815 | 30 | 845 | 365 | 39 | 404 | ||||||||||||||||||
New provisions(*) | 22 | 86 | 108 | 132 | 57 | 189 | 389 | 9 | 398 | ||||||||||||||||||
Additions to existing provisions | 29 | 3 | 32 | 143 | 1 | 144 | 324 | 6 | 330 | ||||||||||||||||||
Release of provisions recognized in previous years | (48 | ) | (2 | ) | (50 | ) | (62 | ) | (11 | ) | (73 | ) | (47 | ) | (7 | ) | (54 | ) | |||||||||
Release of provisions via payments | (288 | ) | (68 | ) | (356 | ) | (274 | ) | (8 | ) | (282 | ) | (196 | ) | (16 | ) | (212 | ) | |||||||||
Release of provisions via transfers | (294 | ) | — | (294 | ) | — | — | — | — | — | — | ||||||||||||||||
Changes in the consolidated subsidiaries of the Allianz Group | — | — | — | (55 | ) | — | (55 | ) | (7 | ) | — | (7 | ) | ||||||||||||||
Foreign currency translation adjustments | 12 | — | 12 | (6 | ) | — | (6 | ) | (13 | ) | (1 | ) | (14 | ) | |||||||||||||
Other | (13 | ) | 8 | (5 | ) | (23 | ) | — | (23 | ) | — | — | — | ||||||||||||||
As of 12/31/ | 90 | 96 | 186 | 670 | 69 | 739 | 815 | 30 | 845 | ||||||||||||||||||
Dresdner Bank Group’s provisions for restructuring
Dresdner Bank Group supplemented its existing restructuring programs introduced since 2000 with some further measures. For these combined initiatives, Dresdner Bank Group has announced plans to eliminate an aggregate of approximately 17,050 positions. As of December 31, 2005, an aggregate of approximately 15,490 positions had been eliminated and approximately 760 additional employees had contractually agreed to leave Dresdner Bank Group under these initiatives.
During the year ended December 31, 2005, Dresdner Bank Group recorded restructuring charges for all restructuring programs of €12 mn. This amount includes new provisions, additions to existing provisions, release of provisions recognized in previous years, and restructuring charges directly reflected in other expenses. A summary of the restructuring charges related to Dresdner Bank Group for the year ended December 31, 2005, by restructuring program is as follows:
2005 | ||||||||||||||
2005 Measures | 2004 Measures | New Dresdner | Other Programs | Total | ||||||||||
€ mn | € mn | € mn | € mn | € mn | ||||||||||
New provisions | 22 | — | — | — | 22 | |||||||||
Additions to existing provisions | — | 6 | 18 | 5 | 29 | |||||||||
Release of provisions recognized in previous years | — | (16 | ) | (26 | ) | (6 | ) | (48 | ) | |||||
Restructuring charges directly reflected in the consolidate income statement | 1 | 1 | 4 | 3 | 9 | |||||||||
Total restructuring charges during the year ended 12/31/ | 23 | (9 | ) | (4 | ) | 2 | 12 | |||||||
Total restructuring charges incurred to date | 23 | 130 | 578 | (*) | 816 | 1,547 | ||||||||
Total restructuring charges expected to be incurred | — | — | 3 | — | 3 | |||||||||
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
A summary of the existing provisions for restructuring related to the Dresdner Bank Group is as follows:
2005 Measures
During the year ended December 31, 2005, Dresdner Bank Group recorded restructuring charges of €23 mn for further restructuring initiatives announced in addition to and separately from the “2004 Measures” and from the “New Dresdner” program. Through these 2005 Measures, Dresdner Bank Group plans to eliminate 250 positions mainly within the Corporate Functions Units. Approximately 25 employees had been terminated and approximately 15 additional employees had contractually agreed to leave Dresdner Bank Group pursuant to the 2005 Measures as of December 31, 2005.
2004 Measures
During the year ended December 31, 2004, further restructuring initiatives were announced by Dresdner Bank Group in addition to the ‘New Dresdner’ program. Through these 2004 Measures, Dresdner Bank Group plans to eliminate 1,100 positions mainly within the Personal Banking and Dresdner Kleinwort Wasserstein divisions, as well as within Dresdner Bank Lateinamerika, which is part of the IRU division. Approximately 540 employees (2004: 40 employees) had been terminated and approximately 310 additional employees had contractually agreed to leave Dresdner Bank Group pursuant to the 2004 Measures as of December 31, 2005.
New Dresdner
In August 2003, Dresdner Bank Group announced the “New Dresdner” program as part of itscost-cutting initiatives to eliminate approximately 4,700 positions in the banking operations by December 31, 2005. This initiative focuses on the back-office areas and the support functions, which will primarily affect Dresdner Bank Group’s head office. Approximately 3,830 employees (2004: 2,740 employees) had been terminated and approximately 340 additional employees had contractually agreed to leave Dresdner Bank Group pursuant to the New Dresdner program as of December 31, 2005.
In February 2003, as part of our efforts to focus on the Allianz and Dresdner Bank brands, we announced a plan to integrate the activities of Dresdner Bank Group’s direct banking subsidiary Advance Bank into the Allianz Group during the year ended December 31, 2003. This initiative involved the elimination by mid 2004 of approximately 400 positions, which were also included within the 4,700 positions of the New Dresdner program. All 400 positions had been eliminated as of December 31, 2005.
Other Programs
In addition to the above mentioned programs, there were four further cost-cutting and restructuring programs that were implemented by Dresdner Bank Group from 2000 through 2002. These programs included the Turnaround 2003 program, two restructuring activities announced during the year 2001, and the first restructuring plans established by Dresdner Bank Group in May 2000. Although the last program was announced by Dresdner Bank Group prior to its acquisition by Allianz AG it had been included in the consolidated financial statements of the Allianz Group. These programs involved an aggregated reduction of approximately 11,000 positions and the last remaining measures were completed by December 31, 2005.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
A summary of the changes in the provisions for restructuring of the Dresdner Bank Group during the year ended December 31, 2005 is:
Provisions as of 1/1/2005 | Provisions recorded during 2005 | Release of provisions via cash payments | Release of provisions via transfers | Foreign currency translation adjustments | Other | Provisions as of 12/31/2005 | ||||||||||||||||
New provisions | Additions to existing provisions | Release of provisions recognized in previous years | ||||||||||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | ||||||||||||||
2005 Measures | ||||||||||||||||||||||
Personnel costs | — | 22 | — | — | — | (3 | ) | — | — | 19 | ||||||||||||
Subtotal | — | 22 | — | — | — | (3 | ) | — | — | 19 | ||||||||||||
2004 Measures | ||||||||||||||||||||||
Personnel costs | 123 | — | 6 | (15 | ) | (42 | ) | (58 | ) | 1 | — | 15 | ||||||||||
Contract termination costs | 4 | — | — | (1 | ) | — | — | — | — | 3 | ||||||||||||
Other | 5 | — | — | — | (2 | ) | (2 | ) | — | — | 1 | |||||||||||
Subtotal | 132 | — | 6 | (16 | ) | (44 | ) | (60 | ) | 1 | — | 19 | ||||||||||
New Dresdner | ||||||||||||||||||||||
Personnel costs | 295 | — | 16 | (22 | ) | (117 | ) | (112 | ) | 1 | (9 | ) | 52 | |||||||||
Contract termination costs | 17 | — | 2 | (3 | ) | (5 | ) | (11 | ) | — | — | — | ||||||||||
Other | 1 | — | — | (1 | ) | — | — | — | — | — | ||||||||||||
Subtotal | 313 | — | 18 | (26 | ) | (122 | ) | (123 | ) | 1 | (9 | ) | 52 | |||||||||
Other Programs | ||||||||||||||||||||||
Personnel costs | 120 | — | — | (3 | ) | (56 | ) | (57 | ) | — | (4 | ) | — | |||||||||
Contract termination costs | 28 | — | 2 | (1 | ) | (6 | ) | (24 | ) | 1 | — | — | ||||||||||
Other | 77 | — | 3 | (2 | ) | (60 | ) | (27 | ) | 9 | — | — | ||||||||||
Subtotal | 225 | — | 5 | (6 | ) | (122 | ) | (108 | ) | 10 | (4 | ) | — | |||||||||
Total | 670 | 22 | 29 | (48 | ) | (288 | ) | (294 | ) | 12 | (13 | ) | 90 | |||||||||
The development of the restructuring provisions reflects the implementation status of the restructuring initiatives. Based on the specific IFRS guidance, restructuring provisions are recognized prior to when they qualify to be recognized under the guidance for other types of provisions. In order to reflect the timely implementation of the various restructuring initiatives, restructuring provisions, as far as they are already ‘locked in’, have been transferred to the provision type, which would have been used not having a restructuring initiative in place. This applies for each single contract. For personnel costs, at the time an employee has contractually agreed to leaveDresdner Bank Group by signing either an early retirement, a partial retirement (Altersteilzeit, which is a specific type of an early retirement program in Germany), or a termination agreement the respective part of the restructuring provision has been transferred to provisions for employee expenses. In addition, provisions for vacant office spaces that result from restructuring initiatives have been transferred to ‘other’ provisions after the offices have been completely vacated. In this context, Dresdner Bank Group recorded releases of provisions via transfers to other provision categories of €294 mn.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
As of 12/31/ | 2005 | 2004 | ||
€ mn | € mn | |||
Funds held under reinsurance business ceded | 7,105 | 8,706 | ||
Accounts payable on direct insurance business | 7,843 | 8,199 | ||
Accounts payable on reinsurance business | 1,648 | 1,694 | ||
Other liabilities(*) | 14,787 | 12,672 | ||
Total | 31,383 | 31,271 | ||
Accounts payable on direct insurance business and accounts payable on reinsurance are due within one year. Of the remaining other liabilities, €12,126 mn (2004: €10,389 mn) are due within one year, and €2,661 mn (2004: €2,283 mn) are due after more than one year.
As of December 31, 2005, includes miscellaneous deferred income of €2,493 mn (2004: €2,039 mn), which is primarily comprised of accrued interest of €2,254 mn (2004: €1,737 mn).
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Supplementary Information onto the Allianz Group’s Consolidated Income StatementStatements
Property-Casualty | Life/Health | Total | |||||||||||||||||||
For the years ended 12/31/ | Segment | Consolidation adjustments | Group(*) | Segment adjustments | Consolidation | Group(*) | Group(*) | ||||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | € mn | |||||||||||||||
2005 | |||||||||||||||||||||
Premiums written | |||||||||||||||||||||
Direct | 40,548 | — | 40,548 | 20,707 | — | 20,707 | 61,255 | ||||||||||||||
Assumed | 3,514 | (244 | ) | 3,270 | 243 | (1 | ) | 242 | 3,512 | ||||||||||||
Subtotal | 44,062 | (244 | ) | 43,818 | 20,950 | (1 | ) | 20,949 | 64,767 | ||||||||||||
Ceded | (5,548 | ) | 1 | (5,547 | ) | (1,128 | ) | 244 | (884 | ) | (6,431 | ) | |||||||||
Net | 38,514 | (243 | ) | 38,271 | 19,822 | 243 | 20,065 | 58,336 | |||||||||||||
Premiums earned | |||||||||||||||||||||
Direct | 40,168 | — | 40,168 | 20,612 | — | 20,612 | 60,780 | ||||||||||||||
Assumed | 3,260 | (241 | ) | 3,019 | 243 | (2 | ) | 241 | 3,260 | ||||||||||||
Subtotal | 43,428 | (241 | ) | 43,187 | 20,855 | (2 | ) | 20,853 | 64,040 | ||||||||||||
Ceded | (5,411 | ) | 2 | (5,409 | ) | (1,125 | ) | 241 | (884 | ) | (6,293 | ) | |||||||||
Net | 38,017 | (239 | ) | 37,778 | 19,730 | 239 | 19,969 | 57,747 | |||||||||||||
2004 | |||||||||||||||||||||
Premiums written | |||||||||||||||||||||
Direct | 40,460 | — | 40,460 | 20,246 | — | 20,246 | 60,706 | ||||||||||||||
Assumed | 3,320 | (794 | ) | 2,526 | 470 | (11 | ) | 459 | 2,985 | ||||||||||||
Subtotal | 43,780 | (794 | ) | 42,986 | 20,716 | (11 | ) | 20,705 | 63,691 | ||||||||||||
Ceded | (5,331 | ) | 11 | (5,320 | ) | (2,045 | ) | 794 | (1,251 | ) | (6,571 | ) | |||||||||
Net | 38,449 | (783 | ) | 37,666 | 18,671 | 783 | 19,454 | 57,120 | |||||||||||||
Premiums earned | |||||||||||||||||||||
Direct | 40,156 | — | 40,156 | 20,174 | — | 20,174 | 60,330 | ||||||||||||||
Assumed | 3,335 | (799 | ) | 2,536 | 470 | (13 | ) | 457 | 2,993 | ||||||||||||
Subtotal | 43,491 | (799 | ) | 42,692 | 20,644 | (13 | ) | 20,631 | 63,323 | ||||||||||||
Ceded | (5,298 | ) | 13 | (5,285 | ) | (2,048 | ) | 799 | (1,249 | ) | (6,534 | ) | |||||||||
Net | 38,193 | (786 | ) | 37,407 | 18,596 | 786 | 19,382 | 56,789 | |||||||||||||
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Property-Casualty | Life/Health | Total | |||||||||||||||||||
For the year ended 12/31/ | Segment | Consolidation adjustments | Group(*) | Segment adjustments | Consolidation | Group(*) | Group(*) | ||||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | € mn | |||||||||||||||
2003 | |||||||||||||||||||||
Premiums written | |||||||||||||||||||||
Direct | 40,675 | — | 40,675 | 20,002 | — | 20,002 | 60,677 | ||||||||||||||
Assumed | 2,745 | (711 | ) | 2,034 | 687 | (11 | ) | 676 | 2,710 | ||||||||||||
Subtotal | 43,420 | (711 | ) | 42,709 | 20,689 | (11 | ) | 20,678 | 63,387 | ||||||||||||
Ceded | (5,415 | ) | 11 | (5,404 | ) | (1,951 | ) | 711 | (1,240 | ) | (6,644 | ) | |||||||||
Net | 38,005 | (700 | ) | 37,305 | 18,738 | 700 | 19,438 | 56,743 | |||||||||||||
Premiums earned | |||||||||||||||||||||
Direct | 40,111 | — | 40,111 | 19,967 | 1 | 19,968 | 60,079 | ||||||||||||||
Assumed | 2,705 | (712 | ) | 1,993 | 687 | (11 | ) | 676 | 2,669 | ||||||||||||
Subtotal | 42,816 | (712 | ) | 42,104 | 20,654 | (10 | ) | 20,644 | 62,748 | ||||||||||||
Ceded | (5,539 | ) | 11 | (5,528 | ) | (1,953 | ) | 711 | (1,242 | ) | (6,770 | ) | |||||||||
Net | 37,277 | (701 | ) | 36,576 | 18,701 | 701 | 19,402 | 55,978 | |||||||||||||
25 Interest and similar income
For the years ended 12/31/ | 2005 | 2004 | 2003 | |||
€ mn | € mn | € mn | ||||
Securities held-to-maturity | 253 | 269 | 329 | |||
Securities available-for-sale(*) | 9,986 | 9,010 | 9,288 | |||
Real estate used by third parties | 1,018 | 974 | 986 | |||
Lending, money market transactions and loans | 10,753 | 9,954 | 11,064 | |||
Leasing agreements | 122 | 42 | 80 | |||
Other interest-bearing instruments | 209 | 707 | 763 | |||
Total | 22,341 | 20,956 | 22,510 | |||
Net interest margin from the Banking segment is comprised of the following:
For the years ended | 2005 | 2004 | 20 03 | ||||||||||||||||||||||||
Segment | Consolidation adjustments | Group(*) | Segment | Consolidation adjustments | Group(*) | Segment | Consolidation adjustments | Group(*) | |||||||||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | |||||||||||||||||||
Interest and similar income | 7,064 | (36 | ) | 7,028 | 6,471 | (30 | ) | 6,441 | 8,047 | (46 | ) | 8,001 | |||||||||||||||
Interest expense | (4,942 | ) | 81 | (4,861 | ) | (4,179 | ) | 60 | (4,119 | ) | (5,284 | ) | 59 | (5,225 | ) | ||||||||||||
Net interest margin | 2,122 | 45 | 2,167 | 2,292 | 30 | 2,322 | 2,763 | 13 | 2,776 | ||||||||||||||||||
Loan loss provisions | 110 | — | 110 | (344 | ) | — | (344 | ) | (1,014 | ) | — | (1,014 | ) | ||||||||||||||
Net interest margin after loan loss provisions | 2,232 | 45 | 2,277 | 1,948 | 30 | 1,978 | 1,749 | 13 | 1,762 | ||||||||||||||||||
Property-Casualty | Life/Health | Consolidation | Total | |||||||||
€ mn | € mn | € mn | € mn | |||||||||
2008 | ||||||||||||
Premiums written | ||||||||||||
Direct | 40,116 | 22,442 | — | 62,558 | ||||||||
Assumed | 3,271 | 367 | (25 | ) | 3,613 | |||||||
Subtotal | 43,387 | 22,809 | (25 | ) | 66,171 | |||||||
Ceded | (4,972 | ) | (527 | ) | 25 | (5,474 | ) | |||||
Net | 38,415 | 22,282 | — | 60,697 | ||||||||
Change in unearned premiums | ||||||||||||
Direct | (93 | ) | (49 | ) | — | (142 | ) | |||||
Assumed | (36 | ) | (2 | ) | 1 | (37 | ) | |||||
Subtotal | (129 | ) | (51 | ) | 1 | (179 | ) | |||||
Ceded | (73 | ) | — | (1 | ) | (74 | ) | |||||
Net | (202 | ) | (51 | ) | — | (253 | ) | |||||
Premiums earned | ||||||||||||
Direct | 40,023 | 22,393 | — | 62,416 | ||||||||
Assumed | 3,235 | 365 | (24 | ) | 3,576 | |||||||
Subtotal | 43,258 | 22,758 | (24 | ) | 65,992 | |||||||
Ceded | (5,045 | ) | (527 | ) | 24 | (5,548 | ) | |||||
Net | 38,213 | 22,231 | — | 60,444 | ||||||||
2007 | ||||||||||||
Premiums written | ||||||||||||
Direct | 41,526 | 21,241 | — | 62,767 | ||||||||
Assumed | 2,763 | 281 | (23 | ) | 3,021 | |||||||
Subtotal | 44,289 | 21,522 | (23 | ) | 65,788 | |||||||
Ceded | (5,320 | ) | (637 | ) | 23 | (5,934 | ) | |||||
Net | 38,969 | 20,885 | — | 59,854 | ||||||||
Change in unearned premiums | ||||||||||||
Direct | (352 | ) | (77 | ) | — | (429 | ) | |||||
Assumed | (68 | ) | 2 | 1 | (65 | ) | ||||||
Subtotal | (420 | ) | (75 | ) | 1 | (494 | ) | |||||
Ceded | 4 | (1 | ) | (1 | ) | 2 | ||||||
Net | (416 | ) | (76 | ) | — | (492 | ) | |||||
Premiums earned | ||||||||||||
Direct | 41,174 | 21,164 | — | 62,338 | ||||||||
Assumed | 2,695 | 283 | (22 | ) | 2,956 | |||||||
Subtotal | 43,869 | 21,447 | (22 | ) | 65,294 | |||||||
Ceded | (5,316 | ) | (638 | ) | 22 | (5,932 | ) | |||||
Net | 38,553 | 20,809 | — | 59,362 | ||||||||
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
26 Income from investments in associated enterprises and joint venturesPremiums earned (net)—continued
For the years ended 12/31/ | 2005 | 2004 | 2003 | ||||||
€ mn | € mn | € mn | |||||||
Income | |||||||||
Current income | 253 | 251 | (28 | ) | |||||
Reversal of impairments | — | 9 | 5 | ||||||
Realized gains from investments in associated enterprises and joint ventures(1) | 1,098 | 856 | 4,013 | ||||||
Subtotal | 1,351 | 1,116 | 3,990 | ||||||
Expenses | |||||||||
Impairments | (50 | ) | (59 | ) | (237 | ) | |||
Realized losses from investments in associated enterprises and joint ventures(2) | (32 | ) | (271 | ) | (727 | ) | |||
Miscellaneous expenses | (12 | ) | (9 | ) | (12 | ) | |||
Subtotal | (94 | ) | (339 | ) | (976 | ) | |||
Total | 1,257 | 777 | 3,014 | ||||||
Property-Casualty | Life/Health | Consolidation | Total | |||||||||
€ mn | € mn | € mn | �� | € mn | ||||||||
2006 | ||||||||||||
Premiums written | ||||||||||||
Direct | 40,967 | 21,252 | — | 62,219 | ||||||||
Assumed | 2,707 | 362 | (13 | ) | 3,056 | |||||||
Subtotal | 43,674 | 21,614 | (13 | ) | 65,275 | |||||||
Ceded | (5,415 | ) | (816 | ) | 13 | (6,218 | ) | |||||
Net | 38,259 | 20,798 | — | 59,057 | ||||||||
Change in unearned premiums | ||||||||||||
Direct | (351 | ) | (225 | ) | — | (576 | ) | |||||
Assumed | 156 | 1 | — | 157 | ||||||||
Subtotal | (195 | ) | (224 | ) | — | (419 | ) | |||||
Ceded | (114 | ) | — | — | (114 | ) | ||||||
Net | (309 | ) | (224 | ) | — | (533 | ) | |||||
Premiums earned | ||||||||||||
Direct | 40,616 | 21,027 | — | 61,643 | ||||||||
Assumed | 2,863 | 363 | (13 | ) | 3,213 | |||||||
Subtotal | 43,479 | 21,390 | (13 | ) | 64,856 | |||||||
Ceded | (5,529 | ) | (816 | ) | 13 | (6,332 | ) | |||||
Net | 37,950 | 20,574 | — | 58,524 | ||||||||
27 OtherInterest and similar income from investments
For the years ended 12/31/ | 2005 | 2004 | 2003 | |||
€ mn | € mn | € mn | ||||
Realized gains from investments | ||||||
Securities available-for-sale | 4,316 | 4,688 | 9,914 | |||
Real estate used by third parties | 373 | 361 | 494 | |||
Other investments | — | — | 12 | |||
Subtotal | 4,689 | 5,049 | 10,420 | |||
Reversals of impairments from investments | ||||||
Securities held-to-maturity | 3 | — | 3 | |||
Securities available-for-sale | 17 | 73 | 65 | |||
Real estate used by third parties | 1 | 57 | 2 | |||
Subtotal | 21 | 130 | 70 | |||
Total | 4,710 | 5,179 | 10,490 | |||
2008 | 2007 | 2006 | |||||
€ mn | € mn | € mn | |||||
Interest from held-to-maturity investments | 243 | 223 | 233 | ||||
Dividends from available-for-sale investments | 1,864 | 2,282 | 2,086 | ||||
Interest from available-for-sale investments | 10,164 | 9,164 | 8,741 | ||||
Share of earnings from investments in associates and joint ventures | (37 | ) | 284 | 223 | |||
Rent from real estate held for investment | 703 | 780 | 805 | ||||
Interest from loans to banks and customers | 5,928 | 5,670 | 5,177 | ||||
Other interest | 207 | 221 | 165 | ||||
Total | 19,072 | 18,624 | 17,430 | ||||
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
28 Income from financial assets and liabilities carried at fair value through income (net)
For the years ended 12/31/ | 2005 | 2004 | 2003 | |||||
€ mn | € mn | € mn | ||||||
Income from financial assets and liabilities held for trading | ||||||||
Banking segment(*) | 1,171 | 1,502 | 1,485 | |||||
Property-Casualty and Life/Health segments(*) | (742 | ) | 63 | (1,273 | ) | |||
Asset Management segment(*) | 2 | 15 | 30 | |||||
Subtotal | 431 | 1,580 | 242 | |||||
Income from financial assets and liabilities designated at fair value through income | 728 | 78 | 277 | |||||
Total | 1,159 | 1,658 | 519 | |||||
Income from financial assets and liabilities held for trading of the Banking segment(1) is comprised of the following:
For the years ended 12/31/ | 2005 | 2004 | 2003 | |||
€ mn | € mn | € mn | ||||
Trading in interest products | 473 | 771 | 664 | |||
Trading in equity products | 274 | 219 | 146 | |||
Foreign exchange/precious metals trading | 222 | 149 | 358 | |||
Other trading activities(2) | 202 | 363 | 317 | |||
Total | 1,171 | 1,502 | 1,485 | |||
Income from financial assets and liabilities held for trading during the year ended December 31, 2005, includes expenses of €706 mn (2004: €286 mn; 2003: €1,359 mn) from derivative financial instruments used by the Property-Casualty and Life/Health segments for which hedge accounting is not applied. This includes expenses from derivative financial instruments embedded in exchangeable bonds of
Property- Casualty | Life/ Health | Banking | Asset Management | Corporate | Consolidation | Group | |||||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | € mn | |||||||||||||||
2008 | |||||||||||||||||||||
Income (expenses) from financial assets and liabilities held for trading | (33 | ) | 1,082 | (5 | ) | (7 | ) | 135 | (339 | ) | 833 | ||||||||||
Expense from financial assets designated at fair value through income | (112 | ) | (2,108 | ) | — | (236 | ) | (24 | ) | — | (2,480 | ) | |||||||||
Income from financial liabilities designated at fair value through income | — | — | — | — | — | — | — | ||||||||||||||
Income from financial liabilities for puttable equity instruments (net) | 29 | 765 | — | 166 | 1 | — | 961 | ||||||||||||||
Total | (116 | ) | (261 | ) | (5 | ) | (77 | ) | 112 | (339 | ) | (686 | ) | ||||||||
2007 | |||||||||||||||||||||
Income (expenses) from financial assets and liabilities held for trading | (51 | ) | (1,337 | ) | 2 | — | 44 | (37 | ) | (1,379 | ) | ||||||||||
Income from financial assets designated at fair value through income | 150 | 345 | — | 64 | 7 | (8 | ) | 558 | |||||||||||||
Income from financial liabilities designated at fair value through income | 3 | 11 | — | — | — | (1 | ) | 13 | |||||||||||||
Income (expenses) from financial liabilities for puttable equity instruments (net) | (17 | ) | 41 | — | (33 | ) | — | — | (9 | ) | |||||||||||
Total | 85 | (940 | ) | 2 | 31 | 51 | (46 | ) | (817 | ) | |||||||||||
2006 | |||||||||||||||||||||
Income (expenses) from financial assets and liabilities held for trading | 83 | (808 | ) | 45 | 7 | (274 | ) | 52 | (895 | ) | |||||||||||
Income (expenses) from financial assets designated at fair value through income | 121 | 742 | — | (105 | ) | 5 | — | 763 | |||||||||||||
Expenses from financial liabilities designated at fair value through income | (1 | ) | (2 | ) | — | — | — | 1 | (2 | ) | |||||||||||
Income (expenses) from financial liabilities for puttable equity instruments (net) | (14 | ) | (293 | ) | — | 136 | (65 | ) | — | (236 | ) | ||||||||||
Total | 189 | (361 | ) | 45 | 38 | (334 | ) | 53 | (370 | ) | |||||||||||
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
€605Income from financial assets and liabilities held for trading (net)
Life/Health Segment
Income from financial assets and liabilities held for trading for the year ended December 31, 2008 includes in the Life/ Health segment income of €1,149 mn (2004: €11(2007: expenses of €1,352 mn; 2003: €2492006: expenses of €834 mn), from derivative financial instruments. This includes income of €1,769 mn (2007: expenses of €756 mn; 2006: expenses of €513 mn) from forward sales of equities and the purchase of forward contracts for fixed-income of German entities. Also included are expenses from derivative financial instruments in the U.S.A. amongst others related to equity-indexed annuity contracts and guaranteed benefits under unit-linked contracts of €1,304 mn (2007: €622 mn; 2006: €350 mn) and income from other derivative financial instruments of €684 mn (2007: income of €26 mn; 2006: income of €29 mn).
Corporate Segment
Income from financial assets and liabilities held for trading for the year ended December 31, 2008, includes in the Corporate segment expenses of €186 mn (2007: €15 mn; 2006: €152 mn) from derivative financial instruments. In 2008 thereof expenses of €166 mn (2007: €15 mn; 2006: €152 mn) are related to financial derivative instruments for which economicallyhedge accounting is not applied. This includes income from financial derivative instruments embedded in exchangeable bonds of €133 mn (2007: expenses of €222 mn; 2006: expenses of €570 mn), expenses from derivative financial instruments of €7 mn (2007: income of €164 mn; 2006: income of €290 mn) which partially hedge the exchangeable bonds, however which do not qualify for hedge accounting, of €265 mn (2004: €17 mn; 2003: €251 mn) and expenses from other derivative financial instruments of €366€292 mn (2004: €292(2007: income of €43 mn; 2003: €1,3612006: income of €128 mn).
During the year ended December 31, 2003, equity exposure was substantially reduced through the use of derivatives and direct sales. Futures and put options on indexes were used for hedging purposes that did not meet the criteria for hedge accounting. The change in the fair value of the derivatives of this macro hedge are recognized as Additionally income from financial assets and liabilities held for trading infor the Allianz Group’s consolidated income statement, while the corresponding changes in the fair value of the underlying equities were directly recognized in the Allianz Group’s consolidated shareholders’ equity. The changes in the fair value of the respective underlying equities were recognized in the Allianz Group’s consolidated income statementonly at the time of their realization in the capital market. The use of derivatives for macro hedges that did not meet the criteria for hedge accounting resulted in a loss of €1,351 mn for year endingended December 31, 2003.2008 includes income of €324 mn (2007: €60 mn; 2006: expenses of €122 mn) from the hedges of share based compensation plans granted by restricted stock units.
29 Fee and commission income, and income from service activitiesRealized gains/losses (net)
For the years ended 12/31/ | 2005 | 2004 | 2003 | |||
€ mn | € mn | € mn | ||||
Banking segment(1) | 2,965 | 2,804 | 2,705 | |||
Asset Management segment(1) | 3,650 | 3,015 | 2,815 | |||
Other segments(1), (2) | 1,695 | 1,004 | 540 | |||
Total | 8,310 | 6,823 | 6,060 | |||
2008 | 2007 | 2006 | |||||||
€ mn | € mn | € mn | |||||||
Realized gains | |||||||||
Available-for-sale investments | |||||||||
Equity securities | 5,890 | 6,852 | 5,003 | ||||||
Debt securities | 716 | 421 | 742 | ||||||
Subtotal | 6,606 | 7,273 | 5,745 | ||||||
Investments in associates and joint ventures1) | 158 | 197 | 723 | ||||||
Real estate held for investment | 268 | 371 | 653 | ||||||
Loans to banks and customers | 101 | 52 | 26 | ||||||
Subtotal | 7,133 | 7,893 | 7,147 | ||||||
Realized losses | |||||||||
Available-for-sale investments | |||||||||
Equity securities | (2,608 | ) | (577 | ) | (326 | ) | |||
Debt securities | (789 | ) | (1,120 | ) | (737 | ) | |||
Subtotal | (3,397 | ) | (1,697 | ) | (1,063 | ) | |||
Investments in associates and joint ventures2) | (6 | ) | (84 | ) | (4 | ) | |||
Real estate held for investment | (99 | ) | (46 | ) | (134 | ) | |||
Loans to banks and customers | (28 | ) | (58 | ) | (25 | ) | |||
Subtotal | (3,530 | ) | (1,885 | ) | (1,226 | ) | |||
Total | 3,603 | 6,008 | 5,921 | ||||||
|
During the year ended December 31, |
Net fee and commission income from the Banking segment
2005 | 2004 | 2003 | |||||||||||||||||||||||||
For the years ended | Segment | Consolidation adjustments | Group(*) | Segment | Consolidation adjustments | Group(*) | Segment | Consolidation adjustments | Group(*) | ||||||||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | |||||||||||||||||||
Fee and commission income | 3,278 | (313 | ) | 2,965 | 3,085 | (281 | ) | 2,804 | 2,956 | (251 | ) | 2,705 | |||||||||||||||
Fee and commission expenses | (512 | ) | 24 | (488 | ) | (492 | ) | 27 | (465 | ) | (506 | ) | 43 | (463 | ) | ||||||||||||
Net fee and commission income | 2,766 | (289 | ) | 2,477 | 2,593 | (254 | ) | 2,339 | 2,450 | (208 | ) | 2,242 | |||||||||||||||
2) | During the year ended December 31, 2008, includes realized losses from the disposal of subsidiaries of €1 mn (2007: €83 mn; 2006: €2 mn). |
Net fee and commission income from the Allianz Group’s Banking segment(*), by type of business, is comprised of the following:
For the years ended 12/31/ | 2005 | 2004 | 2003 | |||
€ mn | € mn | € mn | ||||
Securities business | 1,074 | 951 | 1,027 | |||
Payment transactions | 357 | 375 | 372 | |||
Mergers and acquisitions advisory | 219 | 155 | 110 | |||
Underwriting business (new issues) | 101 | 95 | 104 | |||
Foreign commercial business | 62 | 63 | 64 | |||
Other | 664 | 700 | 565 | |||
Net fee and commission income | 2,477 | 2,339 | 2,242 | |||
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Net fee and commission income from the Asset Management segment(*)
For the years ended 12/31/ | 2005 | 2004 | 2003 | ||||||
€ mn | € mn | € mn | |||||||
Fee and commission income | 3,650 | 3,015 | 2,815 | ||||||
Fee and commission expenses | (755 | ) | (614 | ) | (520 | ) | |||
Net fee and commission income | 2,895 | 2,401 | 2,295 | ||||||
Net fee and commission income from the Allianz Group’s Asset Management segment(*), by type of business, is comprised of the following:
For the years ended 12/31/ | 2005 | 2004 | 2003 | |||
€ mn | € mn | € mn | ||||
Management fees | 1,505 | 1,256 | 1,128 | |||
Advisory fees | 1,344 | 1,139 | 1,073 | |||
Other | 46 | 6 | 94 | |||
Net fee and commission income | 2,895 | 2,401 | 2,295 | |||
For the years ended 12/31/ | 2005 | 2004 | 2003 | |||
€ mn | € mn | € mn | ||||
Foreign currency transaction gains | 417 | 481 | 1,010 | |||
Fees | 443 | 540 | 729 | |||
Release of miscellaneous accrued liabilities | 350 | 202 | 433 | |||
Income from reinsurance business | 140 | 214 | 254 | |||
Gains from the disposal of real estate used for own activities and equipment | 46 | 199 | 29 | |||
Income from other assets | 28 | 199 | 73 | |||
Other | 758 | 698 | 1,275 | |||
Total | 2,182 | 2,533 | 3,803 | |||
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
31 Insurance30 Fee and investment contract benefits (net)commission income
2008 | 2007 | 2006 | |||||||||||||||||||
Segment | Consolidation | Group | Segment | Consolidation | Group | Segment | Consolidation | Group | |||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | |||||||||||||
Property-Casualty | |||||||||||||||||||||
Fees from credit and assistance business | 769 | (2 | ) | 767 | 703 | (2 | ) | 701 | 681 | — | 681 | ||||||||||
Service agreements | 470 | (32 | ) | 438 | 475 | (24 | ) | 451 | 318 | (37 | ) | 281 | |||||||||
Investment advisory | 8 | — | 8 | — | — | — | 15 | — | 15 | ||||||||||||
Subtotal | 1,247 | (34 | ) | 1,213 | 1,178 | (26 | ) | 1,152 | 1,014 | (37 | ) | 977 | |||||||||
Life/Health | |||||||||||||||||||||
Service agreements | 102 | (42 | ) | 60 | 174 | (15 | ) | 159 | 191 | (26 | ) | 165 | |||||||||
Investment advisory | 459 | (34 | ) | 425 | 513 | (16 | ) | 497 | 423 | (28 | ) | 395 | |||||||||
Other | 10 | (10 | ) | — | 14 | (14 | ) | — | 16 | (16 | ) | — | |||||||||
Subtotal | 571 | (86 | ) | 485 | 701 | (45 | ) | 656 | 630 | (70 | ) | 560 | |||||||||
Banking | |||||||||||||||||||||
Securities business | 97 | (1 | ) | 96 | 116 | (2 | ) | 114 | 127 | — | 127 | ||||||||||
Investment advisory | 147 | (92 | ) | 55 | 215 | (145 | ) | 70 | 287 | (152 | ) | 135 | |||||||||
Payment transactions | 53 | (1 | ) | 52 | 54 | (1 | ) | 53 | 40 | — | 40 | ||||||||||
Underwriting business | — | — | — | 3 | — | 3 | 3 | — | 3 | ||||||||||||
Other | 133 | (20 | ) | 113 | 140 | (6 | ) | 134 | 46 | (5 | ) | 41 | |||||||||
Subtotal | 430 | (114 | ) | 316 | 528 | (154 | ) | 374 | 503 | (157 | ) | 346 | |||||||||
Asset Management | |||||||||||||||||||||
Management fees | 3,315 | (112 | ) | 3,203 | 3,558 | (126 | ) | 3,432 | 3,420 | (112 | ) | 3,308 | |||||||||
Loading and exit fees | 257 | — | 257 | 313 | — | 313 | 341 | — | 341 | ||||||||||||
Performance fees | 83 | — | 83 | 206 | (1 | ) | 205 | 107 | 1 | 108 | |||||||||||
Other | 377 | (2 | ) | 375 | 326 | (11 | ) | 315 | 318 | (6 | ) | 312 | |||||||||
Subtotal | 4,032 | (114 | ) | 3,918 | 4,403 | (138 | ) | 4,265 | 4,186 | (117 | ) | 4,069 | |||||||||
Corporate | |||||||||||||||||||||
Service agreements | 215 | (115 | ) | 100 | 198 | (92 | ) | 106 | 190 | (117 | ) | 73 | |||||||||
Other | 6 | (6 | ) | — | — | — | — | — | — | — | |||||||||||
Subtotal | 221 | (121 | ) | 100 | 198 | (92 | ) | 106 | 190 | (117 | ) | 73 | |||||||||
Total | 6,501 | (469 | ) | 6,032 | 7,008 | (455 | ) | 6,553 | 6,523 | (498 | ) | 6,025 | |||||||||
PROPERTY-CASUALTY31 Other income
2005 | 2004 | 2003 | |||||||||||||||||||||||||
For the years ended | Segment | Consolidation adjustments | Group(*) | Segment | Consolidation adjustments | Group(*) | Segment | Consolidation adjustments | Group(*) | ||||||||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | |||||||||||||||||||
GROSS | |||||||||||||||||||||||||||
Claims | |||||||||||||||||||||||||||
Claims paid | (26,294 | ) | 268 | (26,026 | ) | (27,321 | ) | 668 | (26,653 | ) | (29,718 | ) | 670 | (29,048 | ) | ||||||||||||
Change in loss reserves | (2,420 | ) | (3 | ) | (2,423 | ) | (722 | ) | 6 | (716 | ) | 423 | 6 | 429 | |||||||||||||
Subtotal | (28,714 | ) | 265 | (28,449 | ) | (28,043 | ) | 674 | (27,369 | ) | (29,295 | ) | 676 | (28,619 | ) | ||||||||||||
Change in other reserves | |||||||||||||||||||||||||||
Aggregate policy reserves | (190 | ) | (45 | ) | (235 | ) | (436 | ) | 169 | (267 | ) | (292 | ) | 53 | (239 | ) | |||||||||||
Other | (13 | ) | (1 | ) | (14 | ) | (52 | ) | 3 | (49 | ) | (76 | ) | 1 | (75 | ) | |||||||||||
Subtotal | (203 | ) | (46 | ) | (249 | ) | (488 | ) | 172 | (316 | ) | (368 | ) | 54 | (314 | ) | |||||||||||
Expenses for premium refunds | (520 | ) | 1 | (519 | ) | (576 | ) | 1 | (575 | ) | (198 | ) | 1 | (197 | ) | ||||||||||||
Total | (29,437 | ) | 220 | (29,217 | ) | (29,107 | ) | 847 | (28,260 | ) | (29,861 | ) | 731 | (29,130 | ) | ||||||||||||
CEDED REINSURANCE | |||||||||||||||||||||||||||
Claims | |||||||||||||||||||||||||||
Claims paid | 3,482 | (5 | ) | 3,477 | 3,467 | (6 | ) | 3,461 | 4,038 | (5 | ) | 4,033 | |||||||||||||||
Change in loss reserves | (287 | ) | 7 | (280 | ) | (1,291 | ) | 2 | (1,289 | ) | (1,402 | ) | (3 | ) | (1,405 | ) | |||||||||||
Subtotal | 3,195 | 2 | 3,197 | 2,176 | (4 | ) | 2,172 | 2,636 | (8 | ) | 2,628 | ||||||||||||||||
Change in other reserves | |||||||||||||||||||||||||||
Aggregate policy reserves | 1 | — | 1 | 17 | — | 17 | 38 | — | 38 | ||||||||||||||||||
Other | (6 | ) | — | (6 | ) | 1 | — | 1 | 4 | — | 4 | ||||||||||||||||
Subtotal | (5 | ) | — | (5 | ) | 18 | — | 18 | 42 | — | 42 | ||||||||||||||||
Expenses for premium refunds | 39 | — | 39 | 42 | — | 42 | 3 | — | 3 | ||||||||||||||||||
Total | 3,229 | 2 | 3,231 | 2,236 | (4 | ) | 2,232 | 2,681 | (8 | ) | 2,673 | ||||||||||||||||
NET | |||||||||||||||||||||||||||
Claims | |||||||||||||||||||||||||||
Claims paid | (22,812 | ) | 263 | (22,549 | ) | (23,854 | ) | 662 | (23,192 | ) | (25,680 | ) | 665 | (25,015 | ) | ||||||||||||
Change in loss reserves | (2,707 | ) | 4 | (2,703 | ) | (2,013 | ) | 8 | (2,005 | ) | (979 | ) | 3 | (976 | ) | ||||||||||||
Subtotal | (25,519 | ) | 267 | (25,252 | ) | (25,867 | ) | 670 | (25,197 | ) | (26,659 | ) | 668 | (25,991 | ) | ||||||||||||
Change in other reserves | |||||||||||||||||||||||||||
Aggregate policy reserves | (189 | ) | (45 | ) | (234 | ) | (419 | ) | 169 | (250 | ) | (254 | ) | 53 | (201 | ) | |||||||||||
Other | (19 | ) | (1 | ) | (20 | ) | (51 | ) | 3 | (48 | ) | (72 | ) | 1 | (71 | ) | |||||||||||
Subtotal | (208 | ) | (46 | ) | (254 | ) | (470 | ) | 172 | (298 | ) | (326 | ) | 54 | (272 | ) | |||||||||||
Expenses for premium refunds | (481 | ) | 1 | (480 | ) | (534 | ) | 1 | (533 | ) | (195 | ) | 1 | (194 | ) | ||||||||||||
Total | (26,208 | ) | 222 | (25,986 | ) | (26,871 | ) | 843 | (26,028 | ) | (27,180 | ) | 723 | (26,457 | ) | ||||||||||||
2008 | 2007 | 2006 | ||||
€ mn | €mn | € mn | ||||
Income from real estate held for own use | ||||||
Realized gains from disposals of real estate held for own use | 374 | 210 | 58 | |||
Other income from real estate held for own use | 11 | 2 | 2 | |||
Subtotal | 385 | 212 | 60 | |||
Income from non-current assets and disposal groups held-for-sale | — | 4 | 1 | |||
Other | 23 | 1 | — | |||
Total | 408 | 217 | 61 | |||
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
LIFE/HEALTH
For the years ended | 2005 | 2004 | 2003 | ||||||||||||||||||||||||
Segment | Consolidation adjustments | Group(*) | Segment | Consolidation adjustments | Group(*) | Segment | Consolidation adjustments | Group(*) | |||||||||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | |||||||||||||||||||
GROSS | |||||||||||||||||||||||||||
Benefits paid | (18,134 | ) | 5 | (18,129 | ) | (18,424 | ) | 6 | (18,418 | ) | (18,358 | ) | 5 | (18,353 | ) | ||||||||||||
Change in reserves | |||||||||||||||||||||||||||
Aggregate policy reserves | (5,146 | ) | — | (5,146 | ) | (4,224 | ) | — | (4,224 | ) | (5,219 | ) | — | (5,219 | ) | ||||||||||||
Other | (84 | ) | (7 | ) | (91 | ) | (144 | ) | (2 | ) | (146 | ) | (379 | ) | 3 | (376 | ) | ||||||||||
Subtotal | (23,364 | ) | (2 | ) | (23,366 | ) | (22,792 | ) | 4 | (22,788 | ) | (23,956 | ) | 8 | (23,948 | ) | |||||||||||
Expenses for premium refunds | (5,410 | ) | (26 | ) | (5,436 | ) | (4,524 | ) | 6 | (4,518 | ) | (3,170 | ) | 146 | (3,024 | ) | |||||||||||
Total | (28,774 | ) | (28 | ) | (28,802 | ) | (27,316 | ) | 10 | (27,306 | ) | (27,126 | ) | 154 | (26,972 | ) | |||||||||||
CEDED REINSURANCE | |||||||||||||||||||||||||||
Benefits paid | 1,086 | (268 | ) | 818 | 1,701 | (668 | ) | 1,033 | 1,938 | (670 | ) | 1,268 | |||||||||||||||
Change in reserves | |||||||||||||||||||||||||||
Aggregate policy reserves | 88 | 45 | 133 | 219 | (169 | ) | 50 | (86 | ) | (54 | ) | (140 | ) | ||||||||||||||
Other | 19 | 4 | 23 | (8 | ) | (9 | ) | (17 | ) | 51 | (6 | ) | 45 | ||||||||||||||
Subtotal | 1,193 | (219 | ) | 974 | 1,912 | (846 | ) | 1,066 | 1,903 | (730 | ) | 1,173 | |||||||||||||||
Expenses for premium refunds | 18 | (1 | ) | 17 | 14 | (1 | ) | 13 | 17 | (1 | ) | 16 | |||||||||||||||
Total | 1,211 | (220 | ) | 991 | 1,926 | (847 | ) | 1,079 | 1,920 | (731 | ) | 1,189 | |||||||||||||||
NET | |||||||||||||||||||||||||||
Benefits paid | (17,048 | ) | (263 | ) | (17,311 | ) | (16,723 | ) | (662 | ) | (17,385 | ) | (16,420 | ) | (665 | ) | (17,085 | ) | |||||||||
Change in reserves | |||||||||||||||||||||||||||
Aggregate policy reserves | (5,058 | ) | 45 | (5,013 | ) | (4,005 | ) | (169 | ) | (4,174 | ) | (5,305 | ) | (54 | ) | (5,359 | ) | ||||||||||
Other | (65 | ) | (3 | ) | (68 | ) | (152 | ) | (11 | ) | (163 | ) | (328 | ) | (3 | ) | (331 | ) | |||||||||
Subtotal | (22,171 | ) | (221 | ) | (22,392 | ) | (20,880 | ) | (842 | ) | (21,722 | ) | (22,053 | ) | (722 | ) | (22,775 | ) | |||||||||
Expenses for premium refunds | (5,392 | ) | (27 | ) | (5,419 | ) | (4,510 | ) | 5 | (4,505 | ) | (3,153 | ) | 145 | (3,008 | ) | |||||||||||
Total | (27,563 | ) | (248 | ) | (27,811 | ) | (25,390 | ) | (837 | ) | (26,227 | ) | (25,206 | ) | (577 | ) | (25,783 | ) | |||||||||
32 InterestIncome and similar expenses from fully consolidated private equity investments
For the years ended 12/31/ | 2005 | 2004 | 2003 | ||||||
€ mn | € mn | € mn | |||||||
Deposits | (2,719 | ) | (2,085 | ) | (2,859 | ) | |||
Certificated liabilities | (1,570 | ) | (1,385 | ) | (1,764 | ) | |||
Subtotal | (4,289 | ) | (3,470 | ) | (4,623 | ) | |||
Other interest expenses | (2,081 | ) | (2,233 | ) | (2,248 | ) | |||
Total | (6,370 | ) | (5,703 | ) | (6,871 | ) | |||
manroland AG | Selecta AG | Four Seasons Health Care Ltd. | Other | Total | |||||||||||
€ mn | € mn | € mn | € mn | € mn | |||||||||||
2008 | |||||||||||||||
Income | |||||||||||||||
Sales and service revenues | 1,727 | 749 | — | 40 | 2,516 | ||||||||||
Other operating revenues | 19 | — | — | 1 | 20 | ||||||||||
Interest income | 12 | — | — | 1 | 13 | ||||||||||
Subtotal | 1,758 | 749 | — | 42 | 2,549 | ||||||||||
Expenses | |||||||||||||||
Cost of goods sold | (1,379 | ) | (238 | ) | — | (27 | ) | (1,644 | ) | ||||||
Commissions | (155 | ) | — | — | — | (155 | ) | ||||||||
General and administrative expenses | (87 | ) | (391 | ) | — | (3 | ) | (481 | ) | ||||||
Other operating expenses | (96 | ) | — | — | — | (96 | ) | ||||||||
Interest expenses | (17 | ) | (73 | ) | — | (4 | ) | (94 | ) | ||||||
Subtotal | (1,734 | ) | (702 | ) | — | (34 | ) | (2,470 | ) | ||||||
Total | 24 | 47 | — | 8 | 79 | ||||||||||
2007 | |||||||||||||||
Income | |||||||||||||||
Sales and service revenues | 1,936 | 375 | — | 22 | 2,333 | ||||||||||
Other operating revenues | 21 | — | — | — | 21 | ||||||||||
Interest income | 13 | — | — | — | 13 | ||||||||||
Subtotal | 1,970 | 375 | — | 22 | 2,367 | ||||||||||
Expenses | |||||||||||||||
Cost of goods sold | (1,526 | ) | (234 | ) | — | (3 | ) | (1,763 | ) | ||||||
Commissions | (164 | ) | — | — | — | (164 | ) | ||||||||
General and administrative expenses | (218 | ) | (106 | ) | — | — | (324 | ) | |||||||
Other operating expenses | — | — | — | — | — | ||||||||||
Interest expenses | (26 | ) | (40 | ) | — | — | (66 | ) | |||||||
Subtotal | (1,934 | ) | (380 | ) | — | (3 | ) | (2,317 | ) | ||||||
Total | 36 | (5 | ) | — | 19 | 50 | |||||||||
2006 | |||||||||||||||
Income | |||||||||||||||
Sales and service revenues | 1,044 | — | 327 | — | 1,371 | ||||||||||
Other operating revenues | 15 | — | — | — | 15 | ||||||||||
Interest income | 5 | — | 1 | — | 6 | ||||||||||
Subtotal | 1,064 | — | 328 | — | 1,392 | ||||||||||
Expenses | |||||||||||||||
Cost of goods sold | (849 | ) | — | — | — | (849 | ) | ||||||||
Commissions | (71 | ) | — | — | — | (71 | ) | ||||||||
General and administrative expenses | (40 | ) | — | (264 | ) | — | (304 | ) | |||||||
Other operating expenses | (93 | ) | — | — | — | (93 | ) | ||||||||
Interest expenses | (14 | ) | — | (50 | ) | — | (64 | ) | |||||||
Subtotal | (1,067 | ) | — | (314 | ) | — | (1,381 | ) | |||||||
Total | (3 | ) | — | 14 | — | 11 | |||||||||
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
33 Other expenses from investmentsClaims and insurance benefits incurred (net)
For the years ended 12/31/ | 2005 | 2004 | 2003 | ||||||
€ mn | € mn | € mn | |||||||
Realized losses from investments | |||||||||
Securities held-to-maturity | — | (1 | ) | (3 | ) | ||||
Securities available-for-sale | (898 | ) | (890 | ) | (2,898 | ) | |||
Real estate used by third parties | (23 | ) | (52 | ) | (102 | ) | |||
Other investment securities | — | — | (2 | ) | |||||
Subtotal | (921 | ) | (943 | ) | (3,005 | ) | |||
Impairments from investments | |||||||||
Securities held-to-maturity | (2 | ) | (4 | ) | (10 | ) | |||
Securities available-for-sale | (263 | ) | (814 | ) | (4,136 | ) | |||
Real estate used by third parties | (240 | ) | (653 | ) | (30 | ) | |||
Other investment securities | — | — | (4 | ) | |||||
Subtotal | (505 | ) | (1,471 | ) | (4,180 | ) | |||
Depreciation on real estate used by third parties | (253 | ) | (258 | ) | (267 | ) | |||
Total | (1,679 | ) | (2,672 | ) | (7,452 | ) | |||
For the years ended 12/31/ | 2005 | 2004 | 2003 | ||||||
€ mn | € mn | € mn | |||||||
Additions to allowances including direct impairments | (774 | ) | (1,439 | ) | (2,200 | ) | |||
Amounts released | 782 | 973 | 1,103 | ||||||
Recoveries on loans previously impaired | 101 | 112 | 70 | ||||||
Total | 109 | (354 | ) | (1,027 | ) | ||||
Property-Casualty | Life/Health | Consolidation | Total | |||||||||
€ mn | € mn | € mn | € mn | |||||||||
2008 | ||||||||||||
Gross | ||||||||||||
Claims and insurance benefits paid | (27,656 | ) | (20,057 | ) | 13 | (47,700 | ) | |||||
Change in loss and loss adjustment expenses | (501 | ) | (89 | ) | 3 | (587 | ) | |||||
Subtotal | (28,157 | ) | (20,146 | ) | 16 | (48,287 | ) | |||||
Ceded | ||||||||||||
Claims and insurance benefits paid | 2,521 | 490 | (13 | ) | 2,998 | |||||||
Change in loss and loss adjustment expenses | (350 | ) | (17 | ) | (3 | ) | (370 | ) | ||||
Subtotal | 2,171 | 473 | (16 | ) | 2,628 | |||||||
Net | ||||||||||||
Claims and insurance benefits paid | (25,135 | ) | (19,567 | ) | — | (44,702 | ) | |||||
Change in loss and loss adjustment expenses | (851 | ) | (106 | ) | — | (957 | ) | |||||
Total | (25,986 | ) | (19,673 | ) | — | (45,659 | ) | |||||
2007 | ||||||||||||
Gross | ||||||||||||
Claims and insurance benefits paid | (27,955 | ) | (18,258 | ) | 9 | (46,204 | ) | |||||
Change in loss and loss adjustment expenses | (176 | ) | (34 | ) | 5 | (205 | ) | |||||
Subtotal | (28,131 | ) | (18,292 | ) | 14 | (46,409 | ) | |||||
Ceded | ||||||||||||
Claims and insurance benefits paid | 3,070 | 711 | (9 | ) | 3,772 | |||||||
Change in loss and loss adjustment expenses | (424 | ) | (56 | ) | (5 | ) | (485 | ) | ||||
Subtotal | 2,646 | 655 | (14 | ) | 3,287 | |||||||
Net | ||||||||||||
Claims and insurance benefits paid | (24,885 | ) | (17,547 | ) | — | (42,432 | ) | |||||
Change in loss and loss adjustment expenses | (600 | ) | (90 | ) | — | (690 | ) | |||||
Total | (25,485 | ) | (17,637 | ) | — | (43,122 | ) | |||||
2006 | ||||||||||||
Gross | ||||||||||||
Claims and insurance benefits paid | (27,132 | ) | (18,485 | ) | 27 | (45,590 | ) | |||||
Change in loss and loss adjustment expenses | 104 | (35 | ) | (2 | ) | 67 | ||||||
Subtotal | (27,028 | ) | (18,520 | ) | 25 | (45,523 | ) | |||||
Ceded | ||||||||||||
Claims and insurance benefits paid | 3,130 | 777 | (27 | ) | 3,880 | |||||||
Change in loss and loss adjustment expenses | (774 | ) | 118 | 2 | (654 | ) | ||||||
Subtotal | 2,356 | 895 | (25 | ) | 3,226 | |||||||
Net | ||||||||||||
Claims and insurance benefits paid | (24,002 | ) | (17,708 | ) | — | (41,710 | ) | |||||
Change in loss and loss adjustment expenses | (670 | ) | 83 | — | (587 | ) | ||||||
Total | (24,672 | ) | (17,625 | ) | — | (42,297 | ) | |||||
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
34 Change in reserves for insurance and investment contracts (net)
Property-Casualty | Life/Health | Consolidation | Total | |||||||||
€ mn | € mn | € mn | € mn | |||||||||
2008 | ||||||||||||
Gross | ||||||||||||
Aggregate policy reserves | (154 | ) | (4,045 | ) | (1 | ) | (4,200 | ) | ||||
Other insurance reserves | 7 | (89 | ) | — | (82 | ) | ||||||
Expenses for premium refunds | 142 | (1,118 | ) | (22 | ) | (998 | ) | |||||
Subtotal | (5 | ) | (5,252 | ) | (23 | ) | (5,280 | ) | ||||
Ceded | ||||||||||||
Aggregate policy reserves | (18 | ) | 110 | 2 | 94 | |||||||
Other insurance reserves | 10 | 9 | — | 19 | ||||||||
Expenses for premium refunds | 16 | 11 | — | 27 | ||||||||
Subtotal | 8 | 130 | 2 | 140 | ||||||||
Net | ||||||||||||
Aggregate policy reserves | (172 | ) | (3,935 | ) | 1 | (4,106 | ) | |||||
Other insurance reserves | 17 | (80 | ) | — | (63 | ) | ||||||
Expenses for premium refunds | 158 | (1,107 | ) | (22 | ) | (971 | ) | |||||
Total | 3 | (5,122 | ) | (21 | ) | (5,140 | ) | |||||
2007 | ||||||||||||
Gross | ||||||||||||
Aggregate policy reserves | (233 | ) | (4,868 | ) | — | (5,101 | ) | |||||
Other insurance reserves | 24 | (260 | ) | — | (236 | ) | ||||||
Expenses for premium refunds | (163 | ) | (5,255 | ) | (78 | ) | (5,496 | ) | ||||
Subtotal | (372 | ) | (10,383 | ) | (78 | ) | (10,833 | ) | ||||
Ceded | ||||||||||||
Aggregate policy reserves | 16 | 92 | — | 108 | ||||||||
Other insurance reserves | 2 | 5 | — | 7 | ||||||||
Expenses for premium refunds | 15 | 18 | — | 33 | ||||||||
Subtotal | 33 | 115 | — | 148 | ||||||||
Net | ||||||||||||
Aggregate policy reserves | (217 | ) | (4,776 | ) | — | (4,993 | ) | |||||
Other insurance reserves | 26 | (255 | ) | — | (229 | ) | ||||||
Expenses for premium refunds | (148 | ) | (5,237 | ) | (78 | ) | (5,463 | ) | ||||
Total | (339 | ) | (10,268 | ) | (78 | ) | (10,685 | ) | ||||
2006 | ||||||||||||
Gross | ||||||||||||
Aggregate policy reserves | (291 | ) | (4,307 | ) | (1 | ) | (4,599 | ) | ||||
Other insurance reserves | 31 | (78 | ) | — | (47 | ) | ||||||
Expenses for premium refunds | (211 | ) | (6,136 | ) | (426 | ) | (6,773 | ) | ||||
Subtotal | (471 | ) | (10,521 | ) | (427 | ) | (11,419 | ) | ||||
Ceded | ||||||||||||
Aggregate policy reserves | 29 | (38 | ) | 2 | (7 | ) | ||||||
Other insurance reserves | 2 | 11 | — | 13 | ||||||||
Expenses for premium refunds | 15 | 23 | — | 38 | ||||||||
Subtotal | 46 | (4 | ) | 2 | 44 | |||||||
Net | ||||||||||||
Aggregate policy reserves | (262 | ) | (4,345 | ) | 1 | (4,606 | ) | |||||
Other insurance reserves | 33 | (67 | ) | — | (34 | ) | ||||||
Expenses for premium refunds | (196 | ) | (6,113 | ) | (426 | ) | (6,735 | ) | ||||
Total | (425 | ) | (10,525 | ) | (425 | ) | (11,375 | ) | ||||
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
35 Acquisition costs and administrativeInterest expenses
2005 | 2004 | 2003 | |||||||||||||||||||||||||
For the years ended 12/31/ | Segment | Consolidation adjustments | Group(1) | Segment | Consolidation adjustments | Group(1) | Segment | Consolidation adjustments | Group(1) | ||||||||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | |||||||||||||||||||
PROPERTY–CASUALTY | |||||||||||||||||||||||||||
Acquisition costs | |||||||||||||||||||||||||||
Payments | (6,805 | ) | — | (6,805 | ) | (6,813 | ) | — | (6,813 | ) | (6,676 | ) | — | (6,676 | ) | ||||||||||||
Commissions and profit received on reinsurance business ceded | 881 | (1 | ) | 880 | 864 | (3 | ) | 861 | 920 | (2 | ) | 918 | |||||||||||||||
Change in deferred acquisition costs | 153 | — | 153 | 168 | 31 | 199 | 247 | (42 | ) | 205 | |||||||||||||||||
Total acquisition costs | (5,771 | ) | (1 | ) | (5,772 | ) | (5,781 | ) | 28 | (5,753 | ) | (5,509 | ) | (44 | ) | (5,553 | ) | ||||||||||
Administrative expenses | (3,794 | ) | 37 | (3,757 | ) | (3,849 | ) | 42 | (3,807 | ) | (4,002 | ) | 95 | (3,907 | ) | ||||||||||||
Underwriting costs (net) | (9,565 | ) | 36 | (9,529 | ) | (9,630 | ) | 70 | (9,560 | ) | (9,511 | ) | 51 | (9,460 | ) | ||||||||||||
Expenses for management of investments | (485 | ) | 27 | (458 | ) | (374 | ) | 27 | (347 | ) | (461 | ) | 28 | (433 | ) | ||||||||||||
Expenses from service agreements(2) | (1,275 | ) | 16 | (1,259 | ) | (730 | ) | 6 | (724 | ) | (304 | ) | 6 | (298 | ) | ||||||||||||
Subtotal | (11,325 | ) | 79 | (11,246 | ) | (10,734 | ) | 103 | (10,631 | ) | (10,276 | ) | 85 | (10,191 | ) | ||||||||||||
LIFE/HEALTH | |||||||||||||||||||||||||||
Acquisition costs | |||||||||||||||||||||||||||
Payments | (3,821 | ) | — | (3,821 | ) | (4,413 | ) | — | (4,413 | ) | (3,900 | ) | — | (3,900 | ) | ||||||||||||
Commissions and profit received on reinsurance business ceded | 146 | (37 | ) | 109 | 241 | (73 | ) | 168 | 247 | (52 | ) | 195 | |||||||||||||||
Change in deferred acquisition costs | 1,317 | — | 1,317 | 1,537 | — | 1,537 | 1,768 | — | 1,768 | ||||||||||||||||||
Total acquisition costs | (2,358 | ) | (37 | ) | (2,395 | ) | (2,635 | ) | (73 | ) | (2,708 | ) | (1,885 | ) | (52 | ) | (1,937 | ) | |||||||||
Administrative expenses | (1,426 | ) | 1 | (1,425 | ) | (1,270 | ) | 3 | (1,267 | ) | (1,307 | ) | 2 | (1,305 | ) | ||||||||||||
Underwriting costs (net) | (3,784 | ) | (36 | ) | (3,820 | ) | (3,905 | ) | (70 | ) | (3,975 | ) | (3,192 | ) | (50 | ) | (3,242 | ) | |||||||||
Expenses for management of investments | (511 | ) | 151 | (360 | ) | (494 | ) | 125 | (369 | ) | (521 | ) | 107 | (414 | ) | ||||||||||||
Expenses from service agreements | (137 | ) | 31 | (106 | ) | (134 | ) | 63 | (71 | ) | (225 | ) | 49 | (176 | ) | ||||||||||||
Subtotal | (4,432 | ) | 146 | (4,286 | ) | (4,533 | ) | 118 | (4,415 | ) | (3,938 | ) | 106 | (3,832 | ) | ||||||||||||
2008 | 2007 | 2006 | |||||||
€ mn | € mn | € mn | |||||||
Liabilities to banks and customers | (753 | ) | (882 | ) | (488 | ) | |||
Deposits retained on reinsurance ceded | (71 | ) | (101 | ) | (120 | ) | |||
Certificated liabilities | (411 | ) | (479 | ) | (400 | ) | |||
Participating certificates and subordinated liabilities | (492 | ) | (438 | ) | (422 | ) | |||
Other | (166 | ) | (170 | ) | (203 | ) | |||
Total | (1,893 | ) | (2,070 | ) | (1,633 | ) | |||
2008 | 2007 | 2006 | |||||||
€ mn | € mn | € mn | |||||||
Additions to allowances including direct impairments | (121 | ) | (110 | ) | (69 | ) | |||
Amounts released | 35 | 58 | 55 | ||||||
Recoveries on loans previously impaired | 27 | 34 | 9 | ||||||
Total | (59 | ) | (18 | ) | (5 | ) | |||
37 Impairments of investments (net)
2008 | 2007 | 2006 | |||||||
€ mn | € mn | € mn | |||||||
Impairments | |||||||||
Available-for-sale investments | |||||||||
Equity securities | (8,736 | ) | (1,154 | ) | (471 | ) | |||
Debt securities1) | (698 | ) | (26 | ) | (83 | ) | |||
Subtotal | (9,434 | ) | (1,180 | ) | (554 | ) | |||
Held-to-maturity investments | — | — | (8 | ) | |||||
Investments in associates and joint ventures | (71 | ) | (2 | ) | (1 | ) | |||
Real estate held for investment | (128 | ) | (23 | ) | (2 | ) | |||
Subtotal | (9,633 | ) | (1,205 | ) | (565 | ) | |||
Reversals of impairments | |||||||||
Available-for-sale investments | |||||||||
Debt securities | 84 | 13 | 1 | ||||||
Held-to-maturity investments | — | — | 1 | ||||||
Real estate held for investment | 54 | 7 | 3 | ||||||
Subtotal | 138 | 20 | 5 | ||||||
Total | (9,495 | ) | (1,185 | ) | (560 | ) | |||
|
Impairments on available-for-sale debt securities include impairments of asset-backed securities of €0.4 mn for the |
2005 | 2004 | 2003 | ||||||||||||||||||||||
For the years ended 12/31/ | Segment | Consolidation adjustments | Group(*) | Segment | Consolidation adjustments | Group(*) | Segment | Consolidation adjustments | Group(*) | |||||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | ||||||||||||||||
BANKING | ||||||||||||||||||||||||
Personnel expenses | (3,323 | ) | — | (3,323 | ) | (3,325 | ) | — | (3,325 | ) | (3,637 | ) | 1 | (3,636 | ) | |||||||||
Operating expenses | (2,177 | ) | 39 | (2,138 | ) | (2,191 | ) | 57 | (2,134 | ) | (2,449 | ) | 33 | (2,416 | ) | |||||||||
Fee and commission expenses | (512 | ) | 24 | (488 | ) | (492 | ) | 27 | (465 | ) | (506 | ) | 43 | (463 | ) | |||||||||
Subtotal | (6,012 | ) | 63 | (5,949 | ) | (6,008 | ) | 84 | (5,924 | ) | (6,592 | ) | 77 | (6,515 | ) | |||||||||
ASSET MANAGEMENT | ||||||||||||||||||||||||
Personnel expenses | (1,679 | ) | — | (1,679 | ) | (1,459 | ) | — | (1,459 | ) | (1,495 | ) | — | (1,495 | ) | |||||||||
Operating expenses | (546 | ) | 14 | (532 | ) | (353 | ) | 16 | (337 | ) | (381 | ) | 17 | (364 | ) | |||||||||
Fee and commission expenses | (1,110 | ) | 355 | (755 | ) | (918 | ) | 304 | (614 | ) | (756 | ) | 236 | (520 | ) | |||||||||
Subtotal | (3,335 | ) | 369 | (2,966 | ) | (2,730 | ) | 320 | (2,410 | ) | (2,632 | ) | 253 | (2,379 | ) | |||||||||
Total | (25,104 | ) | 657 | (24,447 | ) | (24,005 | ) | 625 | (23,380 | ) | (23,438 | ) | 521 | (22,917 | ) | |||||||||
2008 | 2007 | 2006 | |||||||
€ mn | € mn | € mn | |||||||
Investment management expenses | (429 | ) | (432 | ) | (493 | ) | |||
Depreciation from real estate held for investment | (165 | ) | (183 | ) | (210 | ) | |||
Other expenses from real estate held for investment | (177 | ) | (259 | ) | (245 | ) | |||
Foreign currency gains and losses (net) | |||||||||
Foreign currency gains | 1,255 | 687 | 473 | ||||||
Foreign currency losses | (1,129 | ) | (850 | ) | (580 | ) | |||
Subtotal | 126 | (163 | ) | (107 | ) | ||||
Total | (645 | ) | (1,037 | ) | (1,055 | ) | |||
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
39 Acquisition costs and administrative expenses in the insurance segments include the personnel and operating expenses allocated(net)
2008 | 2007 | 2006 | |||||||||||||||||||||||||
Segment | Consolidation | Group | Segment | Consolidation | Group | Segment | Consolidation | Group | |||||||||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | |||||||||||||||||||
Property-Casualty | |||||||||||||||||||||||||||
Acquisition costs | |||||||||||||||||||||||||||
Incurred | (7,731 | ) | — | (7,731 | ) | (7,690 | ) | — | (7,690 | ) | (7,515 | ) | — | (7,515 | ) | ||||||||||||
Commissions and profit received on reinsurance business ceded | 643 | (5 | ) | 638 | 671 | (2 | ) | 669 | 717 | (1 | ) | 716 | |||||||||||||||
Deferrals of acquisition costs | 4,146 | — | 4,146 | 4,511 | — | 4,511 | 3,983 | — | 3,983 | ||||||||||||||||||
Amortization of deferred acquisition costs | (4,089 | ) | — | (4,089 | ) | (4,384 | ) | — | (4,384 | ) | (3,843 | ) | — | (3,843 | ) | ||||||||||||
Subtotal | (7,031 | ) | (5 | ) | (7,036 | ) | (6,892 | ) | (2 | ) | (6,894 | ) | (6,658 | ) | (1 | ) | (6,659 | ) | |||||||||
Administrative expenses | (3,325 | ) | 6 | (3,319 | ) | (3,724 | ) | 64 | (3,660 | ) | (3,932 | ) | 81 | (3,851 | ) | ||||||||||||
Subtotal | (10,356 | ) | 1 | (10,355 | ) | (10,616 | ) | 62 | (10,554 | ) | (10,590 | ) | 80 | (10,510 | ) | ||||||||||||
Life/Health | |||||||||||||||||||||||||||
Acquisition costs | |||||||||||||||||||||||||||
Incurred | (3,829 | ) | 5 | (3,824 | ) | (3,851 | ) | 3 | (3,848 | ) | (3,928 | ) | — | (3,928 | ) | ||||||||||||
Commissions and profit received on reinsurance business ceded | 83 | — | 83 | 146 | — | 146 | 150 | — | 150 | ||||||||||||||||||
Deferrals of acquisition costs | 2,437 | — | 2,437 | 2,526 | — | 2,526 | 2,771 | — | 2,771 | ||||||||||||||||||
Amortization of deferred acquisition costs | (1,392 | ) | — | (1,392 | ) | (1,643 | ) | — | (1,643 | ) | (1,772 | ) | — | (1,772 | ) | ||||||||||||
Subtotal | (2,701 | ) | 5 | (2,696 | ) | (2,822 | ) | 3 | (2,819 | ) | (2,779 | ) | — | (2,779 | ) | ||||||||||||
Administrative expenses | (1,674 | ) | (5 | ) | (1,679 | ) | (1,766 | ) | (72 | ) | (1,838 | ) | (1,658 | ) | (19 | ) | (1,677 | ) | |||||||||
Subtotal | (4,375 | ) | — | (4,375 | ) | (4,588 | ) | (69 | ) | (4,657 | ) | (4,437 | ) | (19 | ) | (4,456 | ) | ||||||||||
Banking | |||||||||||||||||||||||||||
Personnel expenses | (264 | ) | 1 | (263 | ) | (252 | ) | — | (252 | ) | (254 | ) | — | (254 | ) | ||||||||||||
Non-personnel expenses | (288 | ) | 6 | (282 | ) | (337 | ) | 20 | (317 | ) | (296 | ) | 17 | (279 | ) | ||||||||||||
Subtotal | (552 | ) | 7 | (545 | ) | (589 | ) | 20 | (569 | ) | (550 | ) | 17 | (533 | ) | ||||||||||||
Asset Management | |||||||||||||||||||||||||||
Personnel expenses | (1,441 | ) | — | (1,441 | ) | (1,705 | ) | — | (1,705 | ) | (1,657 | ) | — | (1,657 | ) | ||||||||||||
Non-personnel expenses | (798 | ) | 13 | (785 | ) | (686 | ) | 16 | (670 | ) | (629 | ) | 16 | (613 | ) | ||||||||||||
Subtotal | (2,239 | ) | 13 | (2,226 | ) | �� | (2,391 | ) | 16 | (2,375 | ) | (2,286 | ) | 16 | (2,270 | ) | |||||||||||
Corporate | |||||||||||||||||||||||||||
Administrative expenses | (444 | ) | 23 | (421 | ) | (642 | ) | 9 | (633 | ) | (655 | ) | (44 | ) | (699 | ) | |||||||||||
Subtotal | (444 | ) | 23 | (421 | ) | (642 | ) | 9 | (633 | ) | (655 | ) | (44 | ) | (699 | ) | |||||||||||
Total | (17,966 | ) | 44 | (17,922 | ) | (18,826 | ) | 38 | (18,788 | ) | (18,518 | ) | 50 | (18,468 | ) | ||||||||||||
Notes to the functional areas acquisition of insurance policies, administration of insurance policies and management of investments. Other personnel and operating expenses are reported under insurance and investment contract benefits (claims settlement expenses) and other expenses.
All personnel and operating expenses in banking business are reported under acquisition costs and administrative expenses.Allianz Group’s Consolidated Financial Statements—(Continued)
3640 Fee and commission expenses
2008 | 2007 | 2006 | ||||||||||||||||||||||
Segment | Consolidation | Group | Segment | Consolidation | Group | Segment | Consolidation | Group | ||||||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | ||||||||||||||||
Property-Casualty | ||||||||||||||||||||||||
Fees from credit and assistance business | (606 | ) | — | (606 | ) | (615 | ) | 1 | (614 | ) | (487 | ) | 1 | (486 | ) | |||||||||
Service agreements | (535 | ) | 34 | (501 | ) | (352 | ) | 16 | (336 | ) | (231 | ) | 27 | (204 | ) | |||||||||
Investment advisory | — | — | — | — | — | — | (3 | ) | 2 | (1 | ) | |||||||||||||
Subtotal | (1,141 | ) | 34 | (1,107 | ) | (967 | ) | 17 | (950 | ) | (721 | ) | 30 | (691 | ) | |||||||||
Life/Health | ||||||||||||||||||||||||
Service agreements | (66 | ) | 41 | (25 | ) | (45 | ) | 18 | (27 | ) | (88 | ) | 27 | (61 | ) | |||||||||
Investment advisory | (187 | ) | 19 | (168 | ) | (164 | ) | 6 | (158 | ) | (135 | ) | 19 | (116 | ) | |||||||||
Subtotal | (253 | ) | 60 | (193 | ) | (209 | ) | 24 | (185 | ) | (223 | ) | 46 | (177 | ) | |||||||||
Banking | ||||||||||||||||||||||||
Securities business | (7 | ) | — | (7 | ) | (10 | ) | — | (10 | ) | (9 | ) | — | (9 | ) | |||||||||
Investment advisory | (128 | ) | — | (128 | ) | (169 | ) | 3 | (166 | ) | (178 | ) | 3 | (175 | ) | |||||||||
Payment transactions | (8 | ) | — | (8 | ) | (5 | ) | — | (5 | ) | (6 | ) | — | (6 | ) | |||||||||
Other | (50 | ) | 1 | (49 | ) | (49 | ) | 5 | (44 | ) | (42 | ) | 10 | (32 | ) | |||||||||
Subtotal | (193 | ) | 1 | (192 | ) | (233 | ) | 8 | (225 | ) | (235 | ) | 13 | (222 | ) | |||||||||
Asset Management | ||||||||||||||||||||||||
Commissions | (794 | ) | 298 | (496 | ) | (948 | ) | 435 | (513 | ) | (953 | ) | 427 | (526 | ) | |||||||||
Other | (364 | ) | 14 | (350 | ) | (322 | ) | 5 | (317 | ) | (309 | ) | 4 | (305 | ) | |||||||||
Subtotal | (1,158 | ) | 312 | (846 | ) | (1,270 | ) | 440 | (830 | ) | (1,262 | ) | 431 | (831 | ) | |||||||||
Corporate | ||||||||||||||||||||||||
Service agreements | (170 | ) | 6 | (164 | ) | (130 | ) | 7 | (123 | ) | (127 | ) | 8 | (119 | ) | |||||||||
Subtotal | (170 | ) | 6 | (164 | ) | (130 | ) | 7 | (123 | ) | (127 | ) | 8 | (119 | ) | |||||||||
Total | (2,915 | ) | 413 | (2,502 | ) | (2,809 | ) | 496 | (2,313 | ) | (2,568 | ) | 528 | (2,040 | ) | |||||||||
For the years ended 12/31/ | 2005 | 2004 | 2003 | ||||||
€ mn | € mn | € mn | |||||||
Overhead expenses | (837 | ) | (1,027 | ) | (1,129 | ) | |||
Restructuring charges | (100 | ) | (347 | ) | (942 | ) | |||
Foreign currency transaction losses | (618 | ) | (336 | ) | (676 | ) | |||
Expense of transferring or increasing miscellaneous or accrued liabilities | (580 | ) | (390 | ) | (671 | ) | |||
Bad debts | (116 | ) | (123 | ) | — | ||||
Expenses for service activities | — | — | (53 | ) | |||||
Fees | (192 | ) | (219 | ) | (388 | ) | |||
Expenses resulting from reinsurance business | (28 | ) | (33 | ) | (38 | ) | |||
Amortization and impairments of intangible assets | (112 | ) | (141 | ) | (261 | ) | |||
Direct charge to policy reserve | (91 | ) | (95 | ) | (171 | ) | |||
Amortization of capitalized loyalty bonuses to senior management of PIMCO Group | (25 | ) | (125 | ) | (137 | ) | |||
Fire protection tax | (115 | ) | (113 | ) | (118 | ) | |||
Interest on accumulated policy-holder dividends | (95 | ) | (103 | ) | (108 | ) | |||
Expenses for assistance to victims under joint and several liability and road casualties | (100 | ) | (101 | ) | (97 | ) | |||
Other | (633 | ) | (938 | ) | (1,799 | ) | |||
Total | (3,642 | ) | (4,091 | ) | (6,588 | ) | |||
2008 | 2007 | 2006 | |||||||
€ mn | € mn | € mn | |||||||
Expenses from real estate held for own use | |||||||||
Realized losses from disposals of real estate held for own use | (1 | ) | (4 | ) | (9 | ) | |||
Impairments of real estate held for own use | (9 | ) | (10 | ) | (3 | ) | |||
Subtotal | (10 | ) | (14 | ) | (12 | ) | |||
Other | (2 | ) | (3 | ) | (1 | ) | |||
Total | (12 | ) | (17 | ) | (13 | ) | |||
For the years ended 12/31/ | 2005 | 2004 | 2003 | |||||||||||||||
€ mn | € mn | € mn | 2008 | 2007 | 2006 | |||||||||||||
Current taxes | ||||||||||||||||||
€ mn | € mn | € mn | ||||||||||||||||
Current income tax expense | ||||||||||||||||||
Germany | (1,020 | ) | (373 | ) | (660 | ) | (181 | ) | (371 | ) | 434 | |||||||
Other countries | (1,025 | ) | (930 | ) | (850 | ) | (925 | ) | (2,066 | ) | (1,886 | ) | ||||||
Subtotal | (2,045 | ) | (1,303 | ) | (1,510 | ) | (1,106 | ) | (2,437 | ) | (1,452 | ) | ||||||
Deferred taxes | ||||||||||||||||||
Deferred income tax expense | ||||||||||||||||||
Germany | 408 | (32 | ) | 1,260 | (575 | ) | 149 | 155 | ||||||||||
Other countries | (425 | ) | (274 | ) | 56 | 394 | (284 | ) | (423 | ) | ||||||||
Subtotal | (17 | ) | (306 | ) | 1,316 | (181 | ) | (135 | ) | (268 | ) | |||||||
Total income taxes | (2,062 | ) | (1,609 | ) | (194 | ) | ||||||||||||
Other taxes | (52 | ) | (53 | ) | (55 | ) | ||||||||||||
Total | (2,114 | ) | (1,662 | ) | (249 | ) | (1,287 | ) | (2,572 | ) | (1,720 | ) | ||||||
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
During the year ended December, 31, 2008, current income tax expense included a chargean expense of €44€6 mn (2004: €17(2007: an income of €20 mn; 2003: €5312006: an income €82 mn) related to prior periods. The dividend distribution proposed for the year ended December 31, 2005 is expected to reduce corporate taxes for the year ended December 31, 2006 by €33 mn. Due to the “moratorium” introduced by the “bill on the reduction of tax privileges”, the dividend distribution proposed for the years ended December 31, 2004 and 2003 did not lead to a reduction of corporate taxes.years.
Of the deferred tax charge for the year ended December 31, 2005,2008, an expense of €387 mn (2007: expense of €463 mn; 2006: income of €468 mn (2004: €2 mn; 2003: €141€485 mn) areis attributable to the recognition of deferred taxes on temporary differences and an income of €227 mn (2007: an expense of €492 mn (2004: €342€14 mn; 2003: income €1,1372006: an expense €747 mn) areis attributable to tax losses carried forward. The changeAdditionally, changes of applicable tax rates due to changes in tax law produced deferred tax expense of €21 mn (2007 income of €7€341 mn; 2006 expense of €5 mn). In 2007, in this amount is included a tax income of €291 mn (2004: €34 mn; 2003: €28 mn). Deferredresulting from the German corporate tax chargereform. Current and deferred tax benefit included in shareholders’ equity during the year ended December 31, 20052008, amounted to €101€1,084 mn (2004: €578(2007: €870 mn; 2003: €1692006: €740 mn).
The recognized income tax chargeexpense for the year ended December 31, 20052008, is €278€312 mn (2007: €557 mn; 2006: €1,183 mn) lower than the expected income tax charge (2004: higher than expected by €131 mn; 2003: lower than expected by €975 mn).expense. The following table shows the reconciliation offrom the expected income tax chargeexpense of the Allianz Group withto the effectively recognized tax
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
charge. 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 are taken into account.result. The expected tax rate for domestic Allianz Group subsidiariescompanies applied in the reconciliation includes corporate tax, trade tax and the solidarity surcharge and amounts to 26.38% (2004:31.00% (2007: 26.38%; 2003: 27.96%)2006: 26.38%, including corporate tax and solidarity surcharge in both prior periods). 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 tax rate in reconciliations of the German Allianz companies.
The effective tax rate is determined on the basis of the effective income tax charge,expense on earnings from ordinary activities (before income taxbefore income taxes and before minority interests), net of other taxes.interests in earnings.
For the years ended 12/31/ | 2005 | 2004 | 2003 | |||||||||||||||
€ mn | € mn | € mn | 2008 | 2007 | 2006 | |||||||||||||
Earnings from ordinary activities before income taxes | ||||||||||||||||||
€ mn | € mn | € mn | ||||||||||||||||
Income before income taxes and minority interests in earnings | ||||||||||||||||||
Germany | 1,780 | 1,157 | 1,433 | 3,393 | 2,367 | 1,554 | ||||||||||||
Other countries | 6,048 | 3,886 | 2,378 | 2,080 | 8,196 | 8,009 | ||||||||||||
Total | 7,828 | 5,043 | 3,811 | 5,473 | 10,563 | 9,563 | ||||||||||||
Expected income tax rate in % | 29.9 | 29.3 | 30.7 | 29.2 | % | 29.6 | % | 30.4 | % | |||||||||
Expected income tax charge | 2,340 | 1,478 | 1,170 | |||||||||||||||
Expected income tax expense | 1,599 | 3,129 | 2,903 | |||||||||||||||
Municipal trade tax and similar taxes | 280 | 227 | (226 | ) | 166 | 405 | 151 | |||||||||||
Net tax exempt income | (503 | ) | (426 | ) | (1,746 | ) | (469 | ) | (592 | ) | (773 | ) | ||||||
Amortization of goodwill | — | 296 | 437 | |||||||||||||||
Effects of tax losses | (73 | ) | (68 | ) | (222 | ) | 28 | (17 | ) | (29 | ) | |||||||
Effects of German tax law changes | — | — | 758 | — | (291 | ) | (521 | ) | ||||||||||
Other tax settlements | 18 | 102 | 23 | |||||||||||||||
Other | (37 | ) | (62 | ) | (11 | ) | ||||||||||||
Effective income tax charge | 2,062 | 1,609 | 194 | |||||||||||||||
Income taxes | 1,287 | 2,572 | 1,720 | |||||||||||||||
Effective tax rate in % | 26.3 | 31.9 | 5.1 | 23.5 | % | 24.4 | % | 18.0 | % | |||||||||
The effects of German tax law changes stem, in 2007, from decrease in tax rates due to German corporate tax reform and, in 2006, from the capitalization of corporate tax credits due to the German Reorganization Tax Act (“SEStEG”).
During the year ended December 31, 2005,2008, a deferred tax chargeexpense of €4€5 mn (2004: €129(2007: €8 mn; 2003: €0 2006: €—mn) was recognized due to a devaluation of deferred tax assets on tax losses carried forward. Due to the use of tax losses carried forward for which no deferred tax asset was recognized, the current income tax chargeexpense diminished by €64€19 mn (2004: €193(2007: €43 mn; 2003: €332006: €27 mn). The recognition of deferred tax assets on tax losses carried forward from earlier periods, for which no deferred taxes had yet been recognized or which had been devalued resulted in a deferred tax income of €39€4 mn (2004: €87(2007: €4 mn; 2003: €4432006: €12 mn). The non-recognition of deferred taxes on tax losses for the current fiscal year increased the tax chargesexpense by €26€46 mn (2004: €83(2007: €22 mn; 2003: €2542006: €10 mn). The above mentioned effects are shown in the reconciliation statement as “effects of tax losses”.
The effect of changes in German tax law of €758 mn recorded in 2003 was
Notes to the result of a law passed in December 2003 abolishing the tax-exempt status of dividends and gains from the sale of interests in corporations for life and health insurance companies. In addition, the taxation regarding investment funds had been changed.Allianz Group’s Consolidated Financial Statements—(Continued)
The tax rates used in the calculation of the Allianz Group deferred taxes are the applicable national rates, which in 20052008 ranged from 12.5%10.0% to 46.1%42.05%. Changes to tax rates already adopted on December 31, 2005,2008, are taken into account.
Tax deferrals are recognized if a future reversal of the difference is expected. Deferred taxes on losses carried forward are recognized as an asset to the extent sufficient future taxable profits are available for realization.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Deferred tax assets and liabilities
As of 12/31/ | 2005 | 2004 | ||||||||||
As of December 31, | 20081) | 20071) | ||||||||||
€ mn | € mn | € mn | € mn | |||||||||
Deferred tax assets | ||||||||||||
Financial assets carried at fair value through income | 225 | 166 | ||||||||||
Investments | 4,080 | 2,501 | ||||||||||
Deferred acquisition costs | 473 | 546 | ||||||||||
Other assets | 833 | 932 | ||||||||||
Intangible assets | 370 | 308 | 156 | 167 | ||||||||
Investments | 1,555 | 1,673 | ||||||||||
Trading assets | 332 | 186 | ||||||||||
Deferred acquisition costs | 187 | 254 | ||||||||||
Tax losses carried forward | 5,850 | 6,172 | 2,060 | 4,041 | ||||||||
Other assets | 1,308 | 1,637 | ||||||||||
Insurance reserves | 3,929 | 3,128 | 3,845 | 3,610 | ||||||||
Pensions and similar reserves | 351 | 291 | ||||||||||
Pensions and similar obligations | 177 | 357 | ||||||||||
Other liabilities | 1,546 | 1,325 | 712 | 1,325 | ||||||||
Total deferred tax assets | 15,428 | 14,974 | 12,561 | 13,645 | ||||||||
Valuation allowance for deferred tax assets on tax losses carried forward | (832 | ) | (835 | ) | ||||||||
Non recognition or valuation allowance for deferred tax assets on tax losses carried forward | (197 | ) | (814 | ) | ||||||||
Effect of netting | (8,368 | ) | (8,060 | ) | ||||||||
Net deferred tax assets | 14,596 | 14,139 | 3,996 | 4,771 | ||||||||
Deferred tax liabilities | ||||||||||||
Intangible assets | 805 | 630 | ||||||||||
Financial assets carried at fair value through income | 50 | 543 | ||||||||||
Investments | 4,930 | 4,389 | 3,090 | 3,191 | ||||||||
Trading assets | 900 | 990 | ||||||||||
Deferred acquisition costs | 3,207 | 2,622 | 4,531 | 3,746 | ||||||||
Other assets | 440 | 933 | 680 | 751 | ||||||||
Intangible assets | 115 | 349 | ||||||||||
Insurance reserves | 2,402 | 2,539 | 2,465 | 2,389 | ||||||||
Pensions and similar reserves | 146 | 72 | ||||||||||
Pensions and similar obligations | 226 | 231 | ||||||||||
Other liabilities | 1,791 | 2,175 | 1,044 | 833 | ||||||||
Total deferred tax liabilities | 14,621 | 14,350 | 12,201 | 12,033 | ||||||||
Net deferred tax (liabilities)/assets | (25 | ) | (211 | ) | ||||||||
Effect of netting | (8,368 | ) | (8,060 | ) | ||||||||
Net deferred tax liabilities | 3,833 | 3,973 | ||||||||||
Net deferred tax assets/(liabilities) | 163 | 798 | ||||||||||
1) | Compared to the presentation in prior years notes to the financial statements, the presentation of the individual positions in the above table has been changed in order to better refer to the individual underlying balance sheet positions. |
Taxable temporary differences associated with investments in Allianz Group companies, for which no deferred tax liabilities are recognized because Allianz is able to control the timing of their reversal and they will not reverse in the foreseeable future amount to €267 mn (2007: €343 mn). Deductible temporary differences arising from investments in Allianz Group companies, for which no deferred tax assets are recognized because it is not probable that they reverse in the foreseeable future amount to €219 mn (2007: €588 mn).
Tax losses carried forward
Tax losses carried forward at December 31, 20052008, of €15,740€8,856 mn (2004: €16,566(2007: €7,169 mn) result in recognition of deferred tax assets to the extent there is sufficient certainty that the unused tax losses will be utilized. €10,886€8,244 mn (2004: €11,097(2007: €6,618 mn) of the tax losses carried forward can be utilized without time limitation. The Allianz Group believes that it is more likely than not that the results of future operations will generate sufficient taxable income to realize its deferred tax assets.
Tax losses carried forward are scheduled according to their expiry periods as follows:
For the years ending 12/31/ | € mn | |
2006 | 248 | |
2007 | 203 | |
2008 | 140 | |
2009 | 287 | |
2010 | 87 | |
2011 | 73 | |
2012 | 39 | |
2013 | — | |
2014 | — | |
2015 | — | |
>10 years | 3,777 | |
Unrestricted | 10,886 | |
Total | 15,740 | |
Allianz Life of North America Company (ALONA) has been under audit by the Internal Revenue Service (IRS) for the years ended December 31, 1991 through 1997. During the fourth quarter of 2004, ALONA and the IRS agreed on a proposed settlement of all open issues for those years. The agreement has been approved by the Joint Committee on Taxation and resulted in a tax refund.
38 Supplementary information on the Banking segment(*)
Volume of foreign currency exposure from the Banking segment
The amounts reported constitute aggregate Euro equivalents of a wide variety of currencies outside the European Monetary Union (“EMU”). Any differences between assets and liabilities are a result of differing valuation principles. Loans and advances to banks, loans and advances to customers, liabilities to banks and liabilities to customers are reported at amortized cost, while all derivative transactions are accounted for at fair value.
As of 12/31/ | USD | GBP | Other | Total 2005 | Total 2004 | |||||
€ mn | € mn | € mn | € mn | € mn | ||||||
Balance sheet items | ||||||||||
Assets | 141,727 | 43,957 | 34,861 | 220,545 | 181,904 | |||||
Liabilities | 127,035 | 45,494 | 32,664 | 205,193 | 186,528 |
2008 | ||
€ mn | ||
2009 | 13 | |
2010 | 26 | |
2011 | 61 | |
2012 | 39 | |
2013 | 92 | |
2014 | 17 | |
2015 | 134 | |
2016 | 34 | |
2017 | 7 | |
2018 | 55 | |
>10 years | 134 | |
Unlimited | 8,244 | |
Total | 8,856 | |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Structure of residual terms for the Banking segment
The following presents loans and advances and liabilities in the Allianz Group’s Banking segment according to their final maturity or call dates.
Maturity at 12/31/2005 | ||||||||||
Total | Up to 3 months | > 3 months to 1 year | > 1 year to 5 years | More than 5 years | ||||||
€ mn | € mn | € mn | € mn | € mn | ||||||
Assets | ||||||||||
Loans and advances to banks | 85,930 | 73,931 | 8,050 | 2,957 | 992 | |||||
Loans and advances to customers(1) | 163,676 | 85,818 | 14,402 | 29,650 | 33,806 | |||||
Total | 249,606 | 159,749 | 22,452 | 32,607 | 34,798 | |||||
Liabilities | ||||||||||
Participation certificates and subordinated liabilities | 7,404 | 32 | 947 | 2,964 | 3,461 | |||||
Term liabilities to banks(2) | 126,534 | 105,387 | 12,367 | 4,426 | 4,354 | |||||
Liabilities to customers(2) | ||||||||||
Savings deposits and home-loan savings deposits | 5,357 | 1,702 | 3,523 | 109 | 23 | |||||
Other term liabilities to customers | 94,764 | 84,948 | 2,383 | 2,576 | 4,857 | |||||
Certificated liabilities | 50,549 | 18,507 | 11,963 | 15,517 | 4,562 | |||||
Total | 284,608 | 210,576 | 31,183 | 25,592 | 17,257 | |||||
Trustee business in the Banking segment
The following presents trustee business within the Allianz Group’s Banking segment not recorded in the balance sheet as of December 31:
As of 12/31/ | 2005 | 2004 | ||
€ mn | € mn | |||
Loans and advances to banks | 2,997 | 3,920 | ||
Loans and advances to customers | 1,405 | 1,889 | ||
Investments | 855 | 950 | ||
Total assets(*) | 5,257 | 6,759 | ||
Liabilities to banks | 1,035 | 1,044 | ||
Liabilities to customers | 4,222 | 5,715 | ||
Total liabilities | 5,257 | 6,759 | ||
Other banking informationInformation
As of December 31, 2005, the Allianz Group had deposits that have been reclassified as loan balances of €6,131 mn (2004: €8,555 mn) and deposits with related parties of €2,297 mn (2004: €2,441 mn). The Allianz Group received no deposits on terms other than those available in the normal course of banking operations. An amount of €132 mn (2004: €196 mn) eligible for refinancing with the central bank is held in cash funds.
The aggregate amount of certificates of deposit and other time deposits in the amount of €100,000 or more issued by the Allianz Group’s German offices at December 31, 2005 was €67,239 mn, including banks and customers (2004: €77,498 mn).
The aggregate amount of certificates of deposit and other time deposits in the amount of €100,000 or more issued by the Allianz Group’s non-German offices at December 31, 2005 was €24,528 mn, including banks and customers (2004: €26,505 mn).
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
3943 Derivative financial instruments
Use, treatment and reporting of derivative financial instruments
Derivatives derive their fair values from one or more underlying assets or specified reference values.
Examples of derivatives include contracts for future delivery in the form of futures or forwards, options on shares or indices, interest rate options such as caps and floors, and swaps relating to both interest rates and non-interest rate markets. The latter include agreements to exchange previously defined assets or payment series.
Derivatives used by individual subsidiaries in the Allianz Group comply with the relevant supervisory regulations and the Allianz Group’s own internal guidelines. The Allianz Group’s investment and monitoring rules exceed regulations imposed by supervisory authorities. In addition to local management supervision, comprehensive financial and risk management systems are in force across the Allianz Group. Risk management is an integral part of the Allianz Group’s controlling process that includes identifying, measuring, aggregating and managing risks. Risk management objectives are implemented at both the Allianz Group level and by the local operational units. The use of derivatives is one key strategy used by the Allianz Group to manage its market and investment risks.
Insurance subsidiaries in the Allianz Group use derivatives to manage the risk exposures in their investment portfolios based on general thresholds and targets. The most important purpose of these
instruments is hedging against adverse market movements for selected securities or for parts of a portfolio. Specifically, the Allianz Group selectively uses derivative financial instruments such as swaps, options and forwards to hedge against changes in prices or interest rates in their investment portfolio.
Within the Allianz Group’s banking business, derivatives are used both for trading purposes and to hedge against movements in interest rates, currency rates and other price risks of the Allianz Group’s investments, loans, deposit liabilities and other interest-sensitive assets and liabilities.
Market and counterparty risks arising from the use of derivative financial instruments are subject to control procedures. Credit risks related to counterparties are assessed by calculating gross replacement values. Market risks are monitored by means of up-to-date value-at-risk calculations and stress tests and limited by specific stop-loss limits.
The counterparty settlement risk is virtually excluded in the case of exchange-traded products, as these are standardized products. By contrast, over-the-counter (“OTC”)(OTC) products, which are individually traded contracts, carry a theoretical credit risk amounting to the replacement value. The Allianz Group therefore closely monitors the credit rating of counterparties for OTC derivatives. In the derivatives portfolios of the Allianz Group’s banking operations 96% of the positive replacement values, which are essential for assessing counterparty risk, involve counter-parties with “investment grade” ratings. To reduce the counterparty risk from trading activities, so-called cross-product netting master agreements with the business partners are established. In the case of a defaulting counterparty, netting makes it possible to offset claims and liabilities not yet due.
The following tables show the distribution of derivative positions on the Allianz Group’s consolidated balance sheet date between its insurance segments and Banking and Asset Management segments.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Property-Casualty, Life/Health and Life/HealthCorporate Segments
As of December 31, | 2008 | 2007 | ||||||||||||||||||||||||||||||||||||||
Maturity by notional amount | Notional principal amounts | Positive fair values | Negative fair values | Notional principal amounts | Positive fair values | Negative fair values | ||||||||||||||||||||||||||||||||||
Maturity by notional amount | 2005 | 2004 | Up to 1 year | 1–5 years | Over 5 years | |||||||||||||||||||||||||||||||||||
As of 12/31/ | Up to 1 year | 1–5 years | Over 5 years | Notional principal amounts | Positive fair values | Negative fair values | Notional principal amounts | Positive fair values | Negative fair values | |||||||||||||||||||||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | |||||||||||||||||||||||
Interest rate contracts, consisting of | ||||||||||||||||||||||||||||||||||||||||
Interest rate contracts, consisting of: | ||||||||||||||||||||||||||||||||||||||||
OTC | ||||||||||||||||||||||||||||||||||||||||
Forwards | 4,826 | 1,850 | 100 | 6,776 | 110 | (10 | ) | — | — | — | 450 | 575 | 702 | 1,727 | 38 | (47 | ) | 13,061 | 10 | (370 | ) | |||||||||||||||||||
Swaps | 66 | 7,670 | 1,907 | 9,643 | 212 | (95 | ) | 5,467 | 143 | (113 | ) | 541 | 7,084 | 3,988 | 11,613 | 429 | (166 | ) | 31,932 | 160 | (87 | ) | ||||||||||||||||||
Swaptions | — | 56 | 700 | 756 | 12 | (5 | ) | 506 | 18 | (2 | ) | 465 | 200 | — | 665 | 4 | — | 920 | 46 | (17 | ) | |||||||||||||||||||
Caps | — | 7,265 | 7,142 | 14,407 | — | (102 | ) | 14,008 | 1 | (87 | ) | 481 | 7,130 | 11 | 7,622 | — | (29 | ) | 8,155 | — | (50 | ) | ||||||||||||||||||
Futures | — | — | — | — | — | — | 50 | — | — | |||||||||||||||||||||||||||||||
Floors | — | — | 129 | 129 | 1 | — | 106 | — | — | |||||||||||||||||||||||||||||||
Options | — | — | — | — | — | — | 247 | 4 | — | — | 20 | — | 20 | — | (1 | ) | 13 | — | — | |||||||||||||||||||||
Exchange traded | ||||||||||||||||||||||||||||||||||||||||
Futures | 1,357 | 4 | — | 1,361 | 2 | (2 | ) | 16 | 1 | — | 2,297 | — | — | 2,297 | 23 | (1 | ) | 15,720 | 67 | (62 | ) | |||||||||||||||||||
Options | 1,084 | — | — | 1,084 | 2 | — | 20 | — | — | — | — | — | — | — | — | 21 | — | — | ||||||||||||||||||||||
Subtotal | 7,333 | 16,845 | 9,849 | 34,027 | 338 | (214 | ) | 20,314 | 167 | (202 | ) | 4,234 | 15,009 | 4,830 | 24,073 | 495 | (244 | ) | 69,928 | 283 | (586 | ) | ||||||||||||||||||
Equity index contracts, consisting of | ||||||||||||||||||||||||||||||||||||||||
Equity index contracts, consisting of: | ||||||||||||||||||||||||||||||||||||||||
OTC | ||||||||||||||||||||||||||||||||||||||||
Forwards | 4,262 | 55 | — | 4,317 | 200 | (599 | ) | 649 | 30 | (18 | ) | 1,647 | 1,225 | — | 2,872 | 520 | (381 | ) | 5,851 | 39 | (2,151 | ) | ||||||||||||||||||
Swaps | 298 | — | 10 | 308 | 3 | — | 912 | — | (1 | ) | 339 | — | — | 339 | 122 | — | 485 | 12 | (19 | ) | ||||||||||||||||||||
Options | 19,681 | 3,134 | 23,887 | 46,702 | 1,190 | (3,341 | ) | 28,070 | 525 | (2,092 | ) | |||||||||||||||||||||||||||||
Floors | — | — | — | — | — | — | 5 | 5 | — | |||||||||||||||||||||||||||||||
Options1) | 49,494 | 1,055 | 2,245 | 52,794 | 1,227 | (5,567 | ) | 61,382 | 1,029 | (4,493 | ) | |||||||||||||||||||||||||||||
Warrants | — | — | — | — | — | — | 13 | 13 | — | |||||||||||||||||||||||||||||||
Structured Note | 5 | — | — | 5 | 4 | — | — | — | — | |||||||||||||||||||||||||||||||
Exchange traded | ||||||||||||||||||||||||||||||||||||||||
Futures | 4,923 | — | — | 4,923 | 4 | (28 | ) | 475 | 5 | (2 | ) | 2,312 | — | — | 2,312 | 21 | (15 | ) | 8,520 | 24 | (97 | ) | ||||||||||||||||||
Options | 1,942 | — | — | 1,942 | 2 | (248 | ) | 4,469 | 5 | (33 | ) | 48 | — | — | 48 | 14 | — | 3 | — | (1 | ) | |||||||||||||||||||
Forwards | — | 1,262 | — | 1,262 | — | (409 | ) | — | — | — | — | — | — | — | — | — | 450 | — | (428 | ) | ||||||||||||||||||||
Warrants | 1 | 1 | — | 2 | 1 | — | 20 | 48 | — | — | 19 | 1 | 20 | 9 | — | 1 | 3 | — | ||||||||||||||||||||||
Subtotal | 31,107 | 4,452 | 23,897 | 59,456 | 1,400 | (4,625 | ) | 34,595 | 613 | (2,146 | ) | 53,845 | 2,299 | 2,246 | 58,390 | 1,917 | (5,963 | ) | 76,710 | 1,125 | (7,189 | ) | ||||||||||||||||||
Foreign exchange contracts, consisting of | ||||||||||||||||||||||||||||||||||||||||
Foreign exchange contracts, consisting of: | ||||||||||||||||||||||||||||||||||||||||
OTC | ||||||||||||||||||||||||||||||||||||||||
Forwards | 1,048 | — | — | 1,048 | 9 | (8 | ) | 1,565 | 22 | (15 | ) | 11,529 | 109 | 20 | 11,658 | 550 | (48 | ) | 6,026 | 61 | (32 | ) | ||||||||||||||||||
Swaps | 32 | 328 | 52 | 412 | 35 | (2 | ) | 1,110 | 175 | — | 800 | 304 | 417 | 1,521 | 15 | (59 | ) | 272 | 10 | (21 | ) | |||||||||||||||||||
Options | — | — | — | — | — | — | 22 | 1 | — | 11 | — | — | 11 | — | — | 71 | 2 | (10 | ) | |||||||||||||||||||||
Subtotal | 1,080 | 328 | 52 | 1,460 | 44 | (10 | ) | 2,697 | 198 | (15 | ) | 12,340 | 413 | 437 | 13,190 | 565 | (107 | ) | 6,369 | 73 | (63 | ) | ||||||||||||||||||
Credit contracts, consisting of | ||||||||||||||||||||||||||||||||||||||||
Credit contracts, consisting of: | ||||||||||||||||||||||||||||||||||||||||
OTC | ||||||||||||||||||||||||||||||||||||||||
Options | — | — | — | — | — | — | 5 | — | — | |||||||||||||||||||||||||||||||
Swaps | 414 | 1,841 | 524 | 2,779 | 46 | (55 | ) | 1,936 | 6 | (7 | ) | |||||||||||||||||||||||||||||
Exchange traded | ||||||||||||||||||||||||||||||||||||||||
Swaps | 40 | 712 | 244 | 996 | 4 | (3 | ) | 365 | 5 | (1 | ) | — | — | — | — | — | — | 257 | 3 | — | ||||||||||||||||||||
Subtotal | 40 | 712 | 244 | 996 | 4 | (3 | ) | 370 | 5 | (1 | ) | 414 | 1,841 | 524 | 2,779 | 46 | (55 | ) | 2,193 | 9 | (7 | ) | ||||||||||||||||||
Total | 39,560 | 22,337 | 34,042 | 95,939 | 1,786 | (4,852 | ) | 57,976 | 983 | (2,364 | ) | 70,833 | 19,562 | 8,037 | 98,432 | 3,023 | (6,369 | ) | 155,200 | 1,490 | (7,845 | ) | ||||||||||||||||||
As of December 31, 2005, included in equity index option contracts are equity indexed annuities with negative fair values of €2,841 mn (2004: €2,039 mn) and guaranteed minimum income benefits/guaranteed minimum death benefits with a negative fair value of €6 mn (2004: positive fair value of €37 mn).
The major exposures in equity contracts are in the form of options used for hedging the Allianz Group’s insurance portfolio against market fluctuations. In managing interest rate risk, long-term interest income is primarily controlled by the use of interest rate caps. In addition, exchange rate fluctuations are hedged by synthetically transforming financial assets and liabilities in foreign currencies into Euro-denominated financial instruments through foreign exchange deals and currency swaps.
1) | As of December 31, 2008, includes embedded derivatives related to equity-indexed annuities with negative fair values of €5,163 mn (2007: €4,327 mn). |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Banking and Asset Management Segments
As of December 31, | 2008 | 2007 | ||||||||||||||||||||||||||||||||||||||
Maturity by notional amount | Notional principal amounts | Positive fair values | Negative fair values | Notional principal amounts | Positive fair values | Negative fair values | ||||||||||||||||||||||||||||||||||
Maturity by notional amount | 2005 | 2004 | Up to 1 year | 1–5 years | Over 5 years | |||||||||||||||||||||||||||||||||||
As of 12/31/ | Up to 1 year | 1–5 years | Over 5 years | Notional principal amounts | Positive fair values | Negative fair values | Notional principal amounts | Positive fair values | Negative fair values | |||||||||||||||||||||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | €mn | € mn | € mn | € mn | € mn | |||||||||||||||||||||||
Interest rate contracts, consisting of | ||||||||||||||||||||||||||||||||||||||||
Interest rate contracts, consisting of: | ||||||||||||||||||||||||||||||||||||||||
OTC | ||||||||||||||||||||||||||||||||||||||||
Forwards | 103,503 | 14,262 | — | 117,765 | 40 | (33 | ) | 105,788 | 25 | (31 | ) | — | — | — | — | — | — | 58,151 | 43 | (33 | ) | |||||||||||||||||||
Swaps | 1,064,497 | 1,075,914 | 1,095,548 | 3,235,959 | 58,931 | (56,849 | ) | 2,507,529 | 47,217 | (45,823 | ) | 821 | 359 | 1,164 | 2,344 | 9 | (67 | ) | 3,474,925 | 43,098 | (41,487 | ) | ||||||||||||||||||
Swaptions | 25,821 | 34,080 | 35,452 | 95,353 | 1,094 | (2,768 | ) | 83,238 | 720 | (1,708 | ) | — | — | — | — | — | — | 98,242 | 750 | (1,928 | ) | |||||||||||||||||||
Caps | 8,478 | 38,206 | 11,682 | 58,366 | 141 | (112 | ) | 50,457 | 84 | (73 | ) | 23 | 71 | 12 | 106 | — | — | 56,982 | 200 | (300 | ) | |||||||||||||||||||
Floors | 7,311 | 17,476 | 6,134 | 30,921 | 404 | (264 | ) | 53,141 | 469 | (313 | ) | — | — | — | — | — | — | 27,762 | 147 | (119 | ) | |||||||||||||||||||
Options | 335 | 648 | 598 | 1,581 | 57 | (62 | ) | 998 | 21 | (10 | ) | — | — | — | — | — | — | 1,088 | 35 | (20 | ) | |||||||||||||||||||
Other | 8,817 | 205 | 996 | 10,018 | 64 | (82 | ) | 13,726 | 2 | (89 | ) | — | — | — | — | — | — | 10,170 | 819 | (579 | ) | |||||||||||||||||||
Exchange traded | ||||||||||||||||||||||||||||||||||||||||
Futures | 165,853 | 19,435 | — | 185,288 | 105 | (125 | ) | 120,578 | 64 | (25 | ) | 354 | — | — | 354 | 2 | — | 110,309 | 1 | (1 | ) | |||||||||||||||||||
Options | 42,985 | — | — | 42,985 | 692 | (262 | ) | 28,846 | 2 | (9 | ) | 13 | — | — | 13 | — | — | 459,300 | 1,432 | (1,254 | ) | |||||||||||||||||||
Subtotal | 1,427,600 | 1,200,226 | 1,150,410 | 3,778,236 | 61,528 | (60,557 | ) | 2,964,301 | 48,604 | (48,081 | ) | 1,211 | 430 | 1,176 | 2,817 | 11 | (67 | ) | 4,296,929 | 46,525 | (45,721 | ) | ||||||||||||||||||
Equity index contracts, consisting of | ||||||||||||||||||||||||||||||||||||||||
Equity index contracts, consisting of: | ||||||||||||||||||||||||||||||||||||||||
OTC | ||||||||||||||||||||||||||||||||||||||||
Swaps | 13,995 | 4,139 | 2,371 | 20,505 | 642 | (723 | ) | 10,981 | 543 | (686 | ) | — | — | — | — | — | — | 28,209 | 1,042 | (1,246 | ) | |||||||||||||||||||
Options | 102,012 | 112,561 | 5,713 | 220,286 | 9,061 | (9,429 | ) | 273,872 | 3,647 | (4,220 | ) | 39 | — | — | 39 | 15 | — | 197,255 | 11,080 | (12,033 | ) | |||||||||||||||||||
Forwards | 70 | — | — | 70 | — | (34 | ) | 55 | — | (1 | ) | |||||||||||||||||||||||||||||
Warrants | — | — | — | — | — | — | 20 | 1 | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||
Other | 18 | 1,041 | 18 | 1,077 | 4 | (11 | ) | 66 | 5 | (8 | ) | — | — | — | — | — | — | 25 | 2 | (117 | ) | |||||||||||||||||||
Exchange traded | ||||||||||||||||||||||||||||||||||||||||
Futures | 10,659 | — | — | 10,659 | 1 | (38 | ) | 8,970 | 8 | (33 | ) | — | — | — | — | — | — | 8,706 | — | — | ||||||||||||||||||||
Options | 40,333 | 35,172 | 5,610 | 81,115 | 3,185 | (3,063 | ) | 62,733 | 1,734 | (1,749 | ) | 215 | — | — | 215 | 10 | (6 | ) | 144,162 | 6,197 | (5,948 | ) | ||||||||||||||||||
Subtotal | 167,087 | 152,913 | 13,712 | 333,712 | 12,893 | (13,298 | ) | 356,697 | 5,938 | (6,697 | ) | 254 | — | — | 254 | 25 | (6 | ) | 378,357 | 18,321 | (19,344 | ) | ||||||||||||||||||
Foreign exchange contracts, consisting of | ||||||||||||||||||||||||||||||||||||||||
Foreign exchange contracts, consisting of: | ||||||||||||||||||||||||||||||||||||||||
OTC | ||||||||||||||||||||||||||||||||||||||||
Forwards | 392,823 | 11,966 | 5,777 | 410,566 | 4,805 | (4,976 | ) | 405,858 | 7,312 | (8,047 | ) | 279 | 67 | — | 346 | 21 | (10 | ) | 491,009 | 6,358 | (6,139 | ) | ||||||||||||||||||
Swaps | 14,646 | 49,490 | 18,852 | 82,988 | 2,888 | (2,634 | ) | 74,158 | 5,020 | (4,501 | ) | — | — | — | — | — | — | 93,415 | 4,128 | (3,203 | ) | |||||||||||||||||||
Options | 124,954 | 18,441 | 4,788 | 148,183 | 1,340 | (1,637 | ) | 165,118 | 3,837 | (4,345 | ) | 7 | 22 | — | 29 | — | — | 273,558 | 2,978 | (3,165 | ) | |||||||||||||||||||
Warrants | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||
Other | 590 | — | — | 590 | 1 | — | — | — | — | — | — | — | — | — | — | 39 | — | — | ||||||||||||||||||||||
Exchange traded | ||||||||||||||||||||||||||||||||||||||||
Futures | 2,264 | 123 | — | 2,387 | 4 | (5 | ) | 1,624 | 17 | (10 | ) | — | — | — | — | — | — | 4,305 | 21 | (15 | ) | |||||||||||||||||||
Options | 297 | — | — | 297 | 10 | (2 | ) | — | — | — | — | — | — | — | — | — | 1,200 | 13 | (4 | ) | ||||||||||||||||||||
Subtotal | 535,574 | 80,020 | 29,417 | 645,011 | 9,048 | (9,254 | ) | 646,758 | 16,186 | (16,903 | ) | 286 | 89 | — | 375 | 21 | (10 | ) | 863,526 | 13,498 | (12,526 | ) | ||||||||||||||||||
Credit contracts, consisting of | ||||||||||||||||||||||||||||||||||||||||
Credit contracts, consisting of: | ||||||||||||||||||||||||||||||||||||||||
OTC | ||||||||||||||||||||||||||||||||||||||||
Credit default swaps | 34,905 | 373,993 | 74,450 | 483,348 | 3,108 | (2,711 | ) | 260,063 | 1,690 | (1,523 | ) | — | — | — | — | — | — | 1,140,527 | 11,525 | (10,993 | ) | |||||||||||||||||||
Total return swaps | 6,479 | 3,523 | 3,651 | 13,653 | 769 | (1,249 | ) | 7,686 | 747 | (1,318 | ) | — | — | — | — | — | — | 12,879 | 430 | (857 | ) | |||||||||||||||||||
Subtotal | 41,384 | 377,516 | 78,101 | 497,001 | 3,877 | (3,960 | ) | 267,749 | 2,437 | (2,841 | ) | — | — | — | — | — | — | 1,153,406 | 11,955 | (11,850 | ) | |||||||||||||||||||
Other contracts, consisting of | ||||||||||||||||||||||||||||||||||||||||
Other contracts, consisting of: | ||||||||||||||||||||||||||||||||||||||||
OTC | ||||||||||||||||||||||||||||||||||||||||
Precious metals | 6,151 | 2,695 | 2 | 8,848 | 503 | (338 | ) | 5,594 | 234 | (196 | ) | — | — | — | — | — | — | 15,044 | 736 | (640 | ) | |||||||||||||||||||
Options | — | — | — | — | — | — | 3,932 | 554 | (583 | ) | ||||||||||||||||||||||||||||||
Other | 926 | 1,260 | 20 | 2,206 | 48 | (34 | ) | 3,884 | 26 | (24 | ) | — | — | — | — | — | — | 155 | — | (25 | ) | |||||||||||||||||||
Exchange traded | ||||||||||||||||||||||||||||||||||||||||
Futures | 1,317 | — | — | 1,317 | 8 | — | 639 | — | — | — | — | — | — | — | — | 2,197 | — | — | ||||||||||||||||||||||
Options | 16 | — | — | 16 | 1 | — | 75 | 1 | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||
Subtotal | 8,410 | 3,955 | 22 | 12,387 | 560 | (372 | ) | 10,192 | 261 | (220 | ) | — | — | — | — | — | — | 21,328 | 1,290 | (1,248 | ) | |||||||||||||||||||
Total | 2,180,055 | 1,814,630 | 1,271,662 | 5,266,347 | 87,906 | (87,441 | ) | 4,245,697 | 73,426 | (74,742 | ) | 1,751 | 519 | 1,176 | 3,446 | 57 | (83 | ) | 6,713,546 | 91,589 | (90,689 | ) | ||||||||||||||||||
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
The primary derivativeDerivative financial instruments used include interest rate derivatives, in particular interest rate swaps which are primarily entered into during the course of trading activities by our banking subsidiaries.accounting hedges
The Allianz Group principally uses fair value hedging. Important hedging instruments used by the Banking segment are equity forward contracts, interest rate swaps, andinterest rate forwards, and currency swaps and currency forwards. Hedging instruments may be implemented for individual transactions (micro hedge) or for a portfolio of similar assets or liabilities (portfolio hedge).
Fair value hedges
The interest rate swaps used by the Banking segment inAllianz Group uses fair value hedges ofto hedge its equity portfolio against equity market risk. The financial instruments used in the interest rate risk of certificated and subordinated liabilitiesrelated fair value hedges had a total net fair value of €902 mn (2007: €(2,050) mn) as of December 31, 2005 of €507 mn (2004: €707 mn). Thereof, interest rate swaps with a positive2008.
Additionally the Allianz Group uses fair value of €537 mn (2004: €744 mn) are recordedhedges to protect against the change in the Allianz Group’s consolidated balance sheet in other assets, and interest rate swaps with a negative fair value of €30 mn (2004: €37 mn) are recorded in other liabilities. During the year ended December 31, 2005, the fair value of thefinancial assets due to movements in interest rate swaps increased by €43 mn (2004: decrease €5 mn), whereas the certificated and subordinated liabilities hedged decreased in fair value by €24 mn (2004: increase €13 mn), resulting in a net ineffectiveness of the hedge of €19 mn (2004: €8 mn) that is recognized in the Allianz Group’s consolidated income statement as interest and similar income. For detailed information about certificated and subordinated liabilities, see Note 15 and Note 19, respectively.
rates or exchange rates. The derivative financial instruments used for allthe related fair value hedges of the Allianz Group had a total negative fair value as of December 31, 20052008 of €102€39 mn (2004: €282 mn). Ineffectiveness in(2007: positive fair value hedge transactions led toof €168 mn).
For the year ended December 31, 2008, the Allianz Group recognized for fair value hedges a net realized gain of €2€2,115 mn (2004:(2007: net loss of €10€462 mn; 2006: net loss of €687 mn) on the hedging instrument and was classified consistently witha net loss of €2,027 mn (2007: net gain of €494 mn; 2006: net gain of €698 mn) on the respective hedged item; €1 mn (2004: €1 mn) was excluded fromitem attributable to the assessment of hedge effectiveness.hedged risk.
Cash flow hedges
During the year ended December 31, 2005,2008, cash flow hedges were used to hedge variable cash flows exposed to interest rate and exchange rate fluctuations. As of December 31, 20052008, the interest rate swapsderivative instruments utilized had a positive fair value of €31 mn (2007: negative fair value of €68 mn (2004: €4€2 mn) other. Other reserves in shareholders’ equity increased by €3€27 mn (2004: €0.3(2007: €35 mn). Ineffectiveness
Hedge of the cash flow hedges led to net realized losses of €5 mn (2004: €0.5 mn)investment in 2004.foreign operations
As of December 31, 2002, foreign exchange hedging transactions in the form of foreign currency forwards with a total fair value of €107 mn were outstanding with respect to hedges of currency risks related to a net investment in a foreign entity. This hedging strategy was terminated in the second quarter of 2003. Total unrealized gains of €182 mn related to this hedging strategy remain in other reserves.
Derivative Financial Instruments Indexed to Allianz Group’s shares
The Allianz Group enters into various types of contracts indexed to Allianz Group shares with third-parties, mainly as a hedge of Allianz Group’s future obligations under its share based compensation plans. Further,2008, the Allianz Group issued an equity linked loan indexed to Allianz AG’s share, for which an embedded derivative has been bifurcated. In addition, in connection with various banking products offered by the Dresdner Bank Group, the Dresdner Bank Group has entered into various types of option contracts indexed to Allianz AG shares and AGF shares.
These contracts that are cash settled are accounted for as financial assets and liabilities held for trading. The contracts that are equity settled are accounted for as equity transactions, with the exception of written put options. The Allianz Group records a liability for the present valuehedges part of its obligation to purchaseUSD net investments through the shareissuance of USD denominated liabilities with an offset to shareholders’ equity.a nominal amount of 2.4 bn USD.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
44 Fair value of financial instruments
Fair values and carrying amounts of financial instruments
The following table summarizes these option positions:presents a comparison of the carrying amount and the fair value of the Allianz Group’s classes of financial instruments:
Total | Maturity | Settlement | Fair Value | Weighted | ||||||||||||||||
As of 12/31/2005 | Up to 1 year | 1–5 years | More than | of which settled | of which settled | of which cash settled | of which share settled | |||||||||||||
€ mn | € mn | € | ||||||||||||||||||
Derivatives on Allianz AG shares | ||||||||||||||||||||
Allianz AG activities | ||||||||||||||||||||
Long call options/warrants | 22,518,424 | 217,704 | 21,300,720 | 1,000,000 | 22,518,424 | — | 487 | — | 102 | |||||||||||
Forward purchase contracts | 4,574,891 | 4,574,891 | — | — | 4,574,891 | — | 154 | — | 95 | |||||||||||
Equity linked loan | 10,700,000 | 10,700,000 | — | — | 10,700,000 | — | (243 | ) | — | 105 | ||||||||||
Banking activities | ||||||||||||||||||||
Long call options | 24,357,414 | 12,601,414 | 11,756,000 | — | 6,148,170 | 18,209,244 | 188 | 447 | 112 | |||||||||||
Long put options | 18,495,959 | 10,426,854 | 8,069,105 | — | 4,240,775 | 14,255,184 | 38 | 115 | 114 | |||||||||||
Short call options/warrants | 23,326,959 | 11,970,876 | 11,356,083 | — | 5,506,227 | 17,820,732 | (127 | ) | (335 | ) | 122 | |||||||||
Short put options | 18,307,643 | 10,765,911 | 7,541,732 | — | 4,627,880 | 13,679,763 | (18 | ) | (63 | ) | 97 | |||||||||
Derivatives on AGF shares | ||||||||||||||||||||
Banking activities | ||||||||||||||||||||
Long call options | 540,000 | 40,000 | 500,000 | — | 540,000 | — | 4 | — | 89 | |||||||||||
Long put options | 3,000 | 3,000 | — | — | 3,000 | — | — | — | 83 | |||||||||||
Short call options | 599,154 | 75,000 | 524,154 | — | 524,154 | 75,000 | (16 | ) | (3 | ) | 6 |
As of December 31, | 2008 | 2007 | ||||||
Carrying amount | Fair Value | Carrying amount | Fair Value | |||||
€ mn | € mn | € mn | € mn | |||||
Financial assets | ||||||||
Cash and cash equivalents | 8,958 | 8,958 | 31,337 | 31,337 | ||||
Financial assets held for trading | 2,624 | 2,624 | 163,541 | 163,541 | ||||
Financial assets designated at fair value through income | 11,616 | 11,616 | 21,920 | 21,920 | ||||
Available-for-sale investments | 242,099 | 242,099 | 268,001 | 268,001 | ||||
Held-to-maturity investments | 4,934 | 5,066 | 4,659 | 4,705 | ||||
Loans and advances to banks and customers | 115,655 | 117,944 | 396,702 | 394,741 | ||||
Financial assets for unit-linked contracts | 50,450 | 50,450 | 66,060 | 66,060 | ||||
Derivative financial instruments and firm commitments included in other assets | 1,101 | 1,101 | 344 | 344 | ||||
Financial liabilities | ||||||||
Financial liabilities held for trading | 6,244 | 6,244 | 124,083 | 124,083 | ||||
Financial liabilities designated at fair value through income | — | — | 1,970 | 1,970 | ||||
Liabilities to banks and customers | 18,451 | 18,494 | 336,494 | 335,394 | ||||
Investment contracts with policyholders | 101,898 | 101,898 | 90,404 | 90,404 | ||||
Financial liabilities for unit-linked contracts | 50,450 | 50,450 | 66,060 | 66,060 | ||||
Derivative financial instruments and firm commitments included in other liabilities | 208 | 208 | 2,210 | 2,210 | ||||
Financial liabilities for puttable equity instruments | 2,718 | 2,718 | 4,162 | 4,162 | ||||
Certificated liabilities, participation certificates and subordinated liabilities | 18,890 | 17,643 | 56,894 | 57,961 |
The fair value of a financial instrument is defined as the amount for which a financial instrumentasset could be exchanged, or a financial liability settled, between twoknowledgeable, willing parties in an arm’s length transaction.
For the ordinary course of business. If market prices are not available,following financial instruments, carried at fair value in the consolidated balance sheet, the fair value is based on estimates using the present valuedetermined as described in Note 2 “Summary of future cash flows method or another appropriate valuation method. These methods are significantly influenced by the assumptions made, including the discount rate applied and the estimates of future cash flows. Specific financial instruments are discussed below.significant accounting policies”:
The Allianz Group uses the following methods and assumptions to determine fair values:
Cash and cash equivalents The carrying amount corresponds to the fair value due to its short-term nature.
Investments (including financialFinancial assets and liabilities held for trading and financial
Financial assets and liabilities designated at fair value through income) The fair valueincome
Available-for-sale investments
Financial assets and liabilities for unit-linked contracts
Derivative financial instruments and firm commitments included in other assets and other liabilities
Investment contracts with policyholders
Financial liabilities for puttable equity instruments
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Following is an explanation of debt securities is based on market prices, provided these are available. If debt securities are not actively traded, their fair value is determined on the basisdetermination of valuations by independent data suppliers. The fair value of equity securities is based on their stock-market prices. The carrying amount and the fair value for debt securitiesfinancial instruments that are not carried at fair value in the consolidated balance sheet but for which a fair value has to be disclosed under IFRS 7.
Cash and equitycash equivalentssecurities do not include
Cash and cash equivalents comprises cash and demand deposits with banks together with short-term highly liquid investments that are readily convertible to known amounts of cash and subject to insignificant risk of change in value. They are carried at nominal value, which represents a reasonable estimate of the fair value of derivative contracts used to hedge the related debt and equity securities.for these short term financial instruments.
Held-to-maturity investments
The fair value of derivative financial instrumentsheld-to-maturity investments is derived fromdetermined using the valuequoted market price as of the underlying assets and other market parameters. Exchange-traded derivative financial instruments are valued using the fair-value method and based on publicly quoted market prices. Valuation models established in financial markets (such as present value models or option pricing models) are used to value OTC-traded derivatives. In addition to interest rate curves and volatilities, these models also take into account market and counterparty risks. Fair value represents the capital required to settle in full all the future rights and obligations arising from the financial contract.balance sheet date.
Loans and advances to banks and customers
For loans and advances to banks and customers quoted market prices are not available as there are no active markets where these instruments are traded. The fair value is determined using generally accepted valuation techniques with actual market parameters. For short-term loans the carrying amount represents a reasonable estimate of the fair value. For long-term loans the fair value is estimated by discounting future contractual cash flows using risk-adjusted discount rates. Additionally, the individually assessed component of the allowance for loan losses and the recoverable amounts of collateral are considered in the fair value determination of loans.
Liabilities to banks and customers
For short-term liabilities the carrying amount represents a reasonable estimate of the fair value. For long-term instruments the fair value is determined by discounting future cash flows. The fair value determination reflects current market interest rates and the credit rating of the Allianz Group.
Certificated liabilities, participation certificates and subordinated liabilities
The fair value of loanscertificated liabilities, participation certificates and subordinated liabilities is calculateddetermined using quoted market prices, if available. If quoted prices are not available, for short-term liabilities the discounted cash flow method. This method uses the effective yield of similar debt instruments. Where there is doubt regarding the repaymentcarrying amount represents a reasonable estimate of the loan,fair value. For long-term instruments the anticipatedfair value is determined by discounting the remaining contractual future cash flows are discounted usingat a reasonable discount ratediscount-rate at which Allianz Group could issue debt with similar remaining maturity. The fair value determination reflects current market interest rates and include a charge for an elementthe credit rating of uncertainty in cash flows.the Allianz Group.
Financial assets and liabilities for unit linked contractsFair value hierarchy of financial instruments
The fair valuesvalue of a financial assetsinstrument is determined using quoted prices for unitan identical instrument in active markets (Level I). If quoted prices for an identical instrument in active markets are not available, the fair value is determined using valuation-techniques based on observable market data (Level II). Otherwise valuation-techniques are used, for which any significant input is not based on observable market data (Level III).
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
linked contracts were determined using the market 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.
Investment contracts with policyholders Fair values for investment and annuity contracts weredetermined using the cash surrender values of the policyholders’ and contract holders’ accounts.
Participation certificates, subordinated liabilities, and certificated liabilities The fair value of bonds and loans payable is estimated using discounted cash flow analyses, using interest rates currently offered for similar loans and other borrowings.
The following table presents the carrying amountfair value hierarchy for financial instruments carried at fair value in the consolidated balance sheet as of December 31, 2008.
As of December 31, | 2008 | 2007 | ||||||||
Level I Quoted prices in active markets | Level II Valuation technique -market observable inputs | Level III Valuation technique- non market observable inputs | Total fair value | Total fair value1) | ||||||
€ mn | € mn | € mn | € mn | € mn | ||||||
Financial assets | ||||||||||
Financial assets held for trading | 1,020 | 1,550 | 54 | 2,624 | 163,541 | |||||
Financial assets designated at fair value through income | 7,295 | 4,129 | 192 | 11,616 | 21,920 | |||||
Available-for-sale investments | 190,820 | 46,710 | 4,569 | 242,099 | 268,001 | |||||
Financial assets for unit-linked contracts | 47,171 | 3,279 | — | 50,450 | 66,060 | |||||
Derivative financial instruments used for hedging that meet the criteria for hedge accounting and firm commitments | 365 | 736 | — | 1,101 | 344 | |||||
Total financial assets | 246,671 | 56,404 | 4,815 | 307,890 | 519,866 | |||||
Financial liabilities | ||||||||||
Financial liabilities held for trading | 63 | 1,018 | 5,163 | 6,244 | 124,083 | |||||
Financial liabilities designated at fair value through income | — | — | — | — | 1,970 | |||||
Investment contracts with policyholders2) | 35,117 | 1,037 | 174 | 36,328 | 35,841 | |||||
Financial liabilities for unit-linked contracts | 47,171 | 3,279 | — | 50,450 | 66,060 | |||||
Derivative financial instruments used for hedging that meet the criteria for hedge accounting and firm commitments | 19 | 189 | — | 208 | 2,210 | |||||
Financial liabilities for puttable equity instruments | 2,718 | — | — | 2,718 | 4,162 | |||||
Total financial liabilities | 85,088 | 5,523 | 5,337 | 95,948 | 234,326 | |||||
1) | Includes as of December 31, 2007 financial assets with a fair value of €201.8 bn and financial liabilities with a fair value of €140.6 bn related to the disposal group Dresdner Bank. |
2) | Excludes Universal Life-Type contracts under U.S. GAAP SFAS 97 |
For the vast majority of Allianz Group’s financial instruments carried at fair value in the consolidated balance sheet as of December 31, 2008, the fair value is determined using quoted prices in active markets for the identical instrument (Level I).
Available-for-sale investments assigned to Level II included corporate bonds of €23 bn and estimatedABS-related instruments of €16 bn as of December 31, 2008 for which valuation techniques with observable market inputs are used.
The fair value of certain financial instruments is determined using valuation techniques with non
market observable input parameters (Level III). Within financial assets designated at fair value through income these instruments comprise investments in private equity of €184 mn. Within available-for-sale investments these instruments relate to investments in private equity of €2.1 bn, investments in corporate bonds of €1.7 bn and corporate asset-backed-securities of €133 mn. Financial liabilities held for trading include €5.2 bn of embedded derivative financial instruments relating to annuity products.
Due to the sale of Dresdner Bank to Commerzbank on January 12, 2009 the table above
Notes to the Allianz Group’s financial instruments:Consolidated Financial Statements—(Continued)
2005 | 2004 | |||||||
As of 12/31/ | Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||
€ mn | € mn | € mn | € mn | |||||
Financial assets | ||||||||
Securities held-to-maturity | 4,826 | 5,102 | 5,179 | 5,387 | ||||
Securities available-for-sale | 266,953 | 266,953 | 230,919 | 230,919 | ||||
Cash and cash equivalents | 31,647 | 31,647 | 15,628 | 15,628 | ||||
Loans and advances to banks and customers | 336,808 | 338,407 | 377,223 | 383,244 | ||||
Financial assets held for trading | 166,184 | 166,184 | 194,439 | 194,439 | ||||
Financial assets for unit linked contracts | 54,661 | 54,661 | 41,409 | 41,409 | ||||
Financial assets designated at fair value through income | 14,162 | 14,162 | 4,726 | 4,726 | ||||
Derivative financial instruments included in other assets | 839 | 839 | 969 | 969 | ||||
Financial liabilities | ||||||||
Investment contracts with policyholders | 88,884 | 91,092 | 59,625 | 57,327 | ||||
Liabilities to banks and customers | 310,316 | 310,591 | 348,484 | 348,411 | ||||
Certificated liabilities, participation certificates and subordinated liabilities | 73,887 | 76,454 | 70,982 | 72,885 | ||||
Financial liabilities held for trading | 86,392 | 86,392 | 102,141 | 102,141 | ||||
Financial liabilities for unit linked contracts | 54,661 | 54,661 | 41,409 | 41,409 | ||||
Financial liabilities for puttable equity instruments | 3,137 | 3,137 | 1,386 | 1,386 | ||||
Financial liabilities designated at fair value through income | 450 | 450 | 201 | 201 | ||||
Derivative financial instruments included in other liabilities | 909 | 909 | 1,254 | 1,254 |
does not include certain CDOs that Allianz Group has repurchased from Dresdner Bank after the completion of the sale to Commerzbank. The amount of these assets as of December 31, 2008 was €1.1 bn and is presented in non-current assets and assets from disposal groups classified as held-for-sale.
Day one profit
During the year ended December 31, 2008 the Allianz Group did not recognize day one profits. The day one profits of the previous year all related to Dresdner Bank and were reclassified with the related assets to “Non-current assets and assets of disposal groups classified as held-for-sale”.
4145 Related party transactions
Allianz Group companies maintain various types of ordinary course business relations (particularly in the area of insurance, banking and asset management) with related enterprises. In particular, the business relations with associated companies, which are active in the insurance business, take on various forms and may also include special service, computing, reinsurance, cost-sharingcostsharing and asset management agreements, whose terms are deemed appropriate by management. Similar relationships may exist with pension funds, foundations, joint ventures and companies, which provide services to Allianz Group companies.
Münchener Rückversicherungs-Gesellschaft Aktiengesellschaft in München (“Munich Re”)
As a result of material changes in the relationship between Allianz Group and Munich Re in 2003 and 2004, 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 do not longer consider Munich Re as a related party since fiscal 2004.
As Munich Re is one of the biggest reinsurers in the world, the reinsurance relationship between companies of the Allianz Group and Munich Re will
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
continue. All reinsurance and retrocession agreements are a result of the ordinary course business within which Allianz Group companies purchase reinsurance coverage from, among other reinsurers, Munich Re. These reinsurance contracts cover world-wide business within all areas (life and health, as well as property and casualty) and are subject to arms-length conditions. A major part of the reinsurance premiums relates to a quota share agreement for 10.5% of the gross self-retention of the insurance business of the subsidiaries of the Allianz German Property-Casualty Group via Allianz AG.
In 2003, Allianz Group ceded written premiums of €2,250 mn to Munich Re Group and assumed written premiums of €650 mn from companies of the Munich Re Group.
Of the Allianz Group’s total third-party reinsurance premiums ceded, approximately 33.9% were ceded to the Munich Re Group for the year ending December 31, 2003. This amount represents approximately 3.7% of the Allianz Group’s gross premiums written for the year ending December 31, 2003.
Eurohypo
Following the acquisition of Dresdner Bank AG by the Allianz Group, Dresdner Bank’s mortgage bank Deutsche Hyp, Rheinische Hypothekenbank AG, the mortgage banking subsidiary of Commerzbank, and Eurohypo, the mortgage banking subsidiary of Deutsche Bank, were merged into a single entity, Eurohypo, on August 1, 2002. 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% of the 28.48% participation of Allianz Group in Eurohypo AG. Commerzbank AG’s acquisition of the residual 21.13% participation will be consummated after the fulfilment of the conditions precedent customary for such kind of transactions, in particular, after obtaining approvals from the relevant antitrust authorities and the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht—BaFin).
One member of the Supervisory Board of Eurohypo is a member of the Management Board of Dresdner Bank AG. 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. As of December 31, 2005, the Allianz Group’s carrying value in Eurohypo was €1,410 mn.
Loans to Members of the Board of Management and the Supervisory Board
In the normal course of business, and subject to applicable legal restrictions, members of the Board of Management and the Supervisory Board may be granted loans by Dresdner Bank AG and other Allianz Group companies. Other than such normal course loans, no loans to board members were outstanding in 2005.
4246 Contingent liabilities, commitments, guarantees, and assets pledged and collateral
Contingent liabilities
Litigation
Allianz Group companies are involved in legal, regulatory and arbitration proceedings in Germany and a number of foreign jurisdictions, including the United States, involving claims by and against them, which arise in the ordinary course of their businesses, including in connection with their activities as insurance, banking and asset management subsidiaries,companies, employers, investors and taxpayers. It is not feasible to predict or determine the ultimate outcome of the pending or threatened proceedings. Management does not believe that the outcome of these proceedings, including those discussed below,
will have a material adverse effect on the financial position or results of operations of Allianz Group, after consideration of any applicable reserves.
Dresdner Bank AG was one of the named defendants in a consolidated class action complaint, in re Deutsche Telekom Securities Litigation, filed in the United States District Court for the Southern District of New York in May 2001 by purported purchasers of Deutsche Telekom American Depositary Shares (ADSs) in the June 2000 offering. On June 9, 2005, the competent court delivered an order and final judgment approving the stipulation and agreement by and among Deutsche Telekom and
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
the members of the class to settle all claims against a payment of USD 120 mn. The settlement also provides for a complete release of all claims against the underwriters, including Dresdner Bank.
In July 2002, the German Federal Cartel Office (Bundeskartellamt) commenced an investigation against several property-casualty insurance companies in Germany, in connection with alleged coordinated behavior to achieve premium increases in parts of the commercial and industrial insurance business and imposed administrative fines against these German insurance companies, among them Allianz Versicherungs-AG, which received a notice imposing a fine on March 22, 2005. Allianz Versicherungs-AG has appealed this decision.
On November 5, 2001, a lawsuit, Silverstein v. Swiss Re International Business Insurance Company Ltd., was filed in the United States District Court for the Southern District of New York against certain insurers and reinsurers, including a subsidiary of Allianz AGSE which is now named Allianz Global Risks USU.S. Insurance Company.Company (AGR U.S.). The complaint sought a determination that the terrorist attack of September 11, 2001 on the World Trade Center constituted two separate occurrences under the alleged terms of various coverages. Allianz SE was indirectly concerned by this lawsuit as reinsurer of AGR U.S. In connection with the terrorist attack of September 11, 2001, wethe Allianz Group recorded net claims expense of approximately €1.5 bn in 2001 for the Allianz Group on the basis of one occurrence. On December 6, 2004, aOctober 18, 2006, the United States Court of Appeals for the Second Circuit of New York jury rendered a verdictaffirmed an earlier lower court decision in 2004 that had determined that the World Trade Center attack constituted two occurrences under the alleged terms of various coverages. At December 31, 2005, this decision had no adverse impact onOn May 23, 2007, following a court-ordered mediation, AGR U.S. reached a settlement with Silverstein Properties regarding the Allianz Group’s operating results. Allianz Global Riskdisputed insurance claims. The settlement amount is within our set case reserve and secured by letters of credit from SCOR, which is a reinsurer of AGR U.S. Insurance Co. has appealed this decision. The final implications of this decision for the Allianz Group willrelevant insurance policy. On May 24, 2007, SCOR announced that it considers the settlement agreed between AGR U.S. and Silverstein Properties to not be determined untilrespect the completion of further proceedings.
The insolvency administrator of KirchMedia GmbH & Co. KGaA (KirchMedia) made a formal demand on Dresdner Bank AG to compensate the insolvency assets (Insolvenzmasse) of KirchMedia for the loss of a 25% shareholding in the Spanish television group Telecinco. In June 2005, the insolvency administrator filed an action for a partterms and conditions of the claim.Certificate of Reinsurance between SCOR and AGR U.S. and referred the case to arbitration as contemplated under the Certificate of Reinsurance. The shareholding had been pledged bysubsidiaries of KirchMedia to Dresdner Bank AG as collateralarbitration proceeding commenced in October 2007 and discovery is ongoing. Management does not expect any material negative financial impact for a loan of €500 mnAllianz from Dresdner Bank to KirchMedia’s holding company, TaurusHolding GmbH & Co. KG (or TaurusHolding). Following TaurusHolding’s default on the loan in April 2002 and insolvency in June 2002, Dresdner Bank AG acquired through a subsidiary the Telecinco shareholding in a forced auction sale. The insolvency administrator contends that the pledge was created under circumstances that cause it to be invalid or void. We believe that there is no valid basis for the insolvency administrator’s demand. At the end of June 2004, the 25% shareholding in Telecinco was placed within Telecinco’s initial public offering.
The insolvency administrator and the major limited partner of Heye KG have filed a complaint claiming damages of approximately €200 mn from Dresdner Bank, alleging a failure to execute transfer orders despite a purported line of credit. We believe that such claim is without merit.
In January 2006, a putative class action lawsuit was filed against Dresdner Bank AG and some of its subsidiaries by six employees of Dresdner Kleinwort Wasserstein in the United States District Court for the Southern District of New York. The plaintiffs are claiming an amount of USD 1.4 bn alleging gender-based discrimination. We believe that the claims are without merit.arbitration.
On May 24, 2002, pursuant to a statutory squeeze-out procedure, the general meeting of Dresdner Bank AG resolved to transfer shares from its minority shareholders to Allianz AG as principal shareholder in return for payment of a cash settlement amounting to €51.50 per share. The amount of the cash settlement was established by
Notes to the Allianz AGGroup’s Consolidated Financial Statements—(Continued)
Allianz on the basis of an expert opinion, and its adequacy was confirmed by a court-appointedcourt appointed auditor. Some of the former minority shareholders applied for a court review of the appropriate amount of the cash settlement in a mediation procedure (Spruchverfahren)(“Spruchverfahren”), which is pending with the district court (Landgericht)(“Landgericht”) of Frankfurt. We believeThe Allianz Group believes that a claim to increase the cash settlement does not exist. In the event that the court were to determine a higher amount as an appropriate cash settlement, this would affect all of the approximately 16 mn shares whichthat were transferred to Allianz AG.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)Allianz.
Allianz Global Investors of America L.P. and somecertain of its subsidiaries have been named as defendants in multiple civil USU.S. lawsuits commenced as putative class actions and other proceedings related to matters involving market timing and revenue sharing in the mutual fund industry. These lawsuits have been consolidated into and transferred to a multi-district litigation proceeding in the U.S. District Court for the District of Maryland. The potential outcomes cannot be predicted at this time, but management currently does not expect any material negative financial outcome from these matters for the Allianz Group.
Two nearly identical class action civil complaints were filed against Pacific Investment Management Company LLC (PIMCO), a subsidiary of Allianz Global Investors of America L.P., in August 2005, in the Northern District of Illinois Eastern Division. The complaints alleged that the plaintiffs each purchased and sold a 10-year Treasury note futures contract and suffered damages from an alleged shortage when PIMCO held both physical and futures positions in 10-year Treasury notes for its client accounts. The two actions have been consolidated into one single action and the two separate complaints have been replaced by a consolidated complaint, which claims that PIMCO violated the federal Commodity Exchange Act by engaging in market manipulation. In addition to PIMCO as a named defendant, PIMCO Funds has been added as a defendant to the consolidated action. In July 2007, the court granted class certification of a class consisting of those persons who purchased futures contracts to offset short positions between May 9, 2005 and June 30, 2005. In December 2007, the U.S. Court of Appeals for the Seventh Circuit
granted the petition of PIMCO and PIMCO Funds for leave to appeal the class certification ruling. That appeal is pending. Management currently believes the complaint is without merit but the outcome of these proceedings can notthis action cannot be predicted at this time.
The U.S. Department of Justice 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 U.S. Department of Justice 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 U.S. Department of Justice are continuing and the outcome of this matter cannot be predicted at this stage.
Three members of the Fireman’s Fund group of companies in the United States, all subsidiaries of Allianz AG,SE, are amongstamong the roughly 135 defendants named in a class action filed on August 1, 2005 in the United States District Court District of New Jersey captioned In re Insurance Brokerage Antitrust Litigation, in connection with allegations relating to contingent commissions in the insurance industry. Fireman’s FundNo class has filed a motion to dismiss,been certified for this class action. The court dismissed with prejudice the federal court causes of action and dismissed without prejudice the proceedings are instate law causes of action. The plaintiffs have appealed the preliminary discovery stage.ruling. Unless the Court of Appeal reverses the lower court’s decision, the case will remain dismissed. It is not possible to predict potential outcomes or assess any eventual exposure at this point.time.
In 2005, Allianz Life Insurance Company of North America was(“Allianz Life”) has been named as a defendant in various putative class action lawsuits, mainly in Minnesota and California, in connection with the marketing and sale of cash bonusdeferred annuity products. TheOne lawsuit in Minnesota has beenand three in California are currently pending as certified as a class action.actions. The complaints allege that the defendant engaged in, among other practices, deceptive trade practices and misleading advertising in connection with the sale of such products, including, with the respectproducts. The Minnesota
Notes to the Minnesota Allianz Group’s Consolidated Financial Statements—(Continued)
lawsuit thealleges violation of the Minnesota Consumer Fraud and Deceptive and Unlawful Trade Practices Act. At thisThe pending lawsuits have not yet progressed to a stage of the proceedings, we cannot predict theat which a potential outcome of these lawsuits.
On February 8, 2006, the extraordinary shareholders’ meeting of Allianz AG passed a resolution approving the merger of Riunione Adriatica di Sicurtà S.p.A. (RAS) with and into Allianz AG. The merger will become effective upon its registration in the commercial register at the registered office of Allianz AG, which is planned for September 2006. Upon registration of the merger, Allianz AG will adopt the legal form of a European Company (Societas Europaea, or SE). In March 2006, certain shareholdersof Allianz AG filed contestation suits against the above-mentioned resolution of the shareholders’ meeting. The entry of the merger in the commercial register may only take place once the competent court rejects the lawsuits, or if such lawsuits are withdrawn or if the competent court rules finally and conclusively that the lawsuits do not prevent the entry of the merger in the commercial register (so-called “Freigabeverfahren”). We will initiate such release ruling (Freigabeverfahren) before the competent court.exposure can be determined.
Other contingencies
Liquiditäts-Konsortialbank GmbH (“LIKO”) is a bank founded in 1974 in order to provide funding for German banks which experience liquidity problems. 30% of LIKO shares are held by Deutsche Bundesbank, while the remaining shares are being held by other German banks and banking associations. The shareholders have provided capital of €200 mn to fund LIKO; Dresdner Bank AG’s participation is €12.1 mn. Dresdner Bank AG is contingently liable to pay future assessments to LIKO up to €60.5 mn. In addition, under clause 5(4) of the Articles of Association of LIKO, Dresdner Bank AG is committed to a secondary liability, which arises if other shareholders do not fulfill their commitments to pay their respective future assessments. In all cases of secondary liability, the financial status of the other shareholders involved is sound.
Dresdner Bank AG is a member of the German banks’ Joint Fund for Securing Customer Deposits (Joint Fund), which covers liabilities to each respective creditor up to specified amounts. As a member of the Joint Fund, which is itself a shareholder in LIKO, Dresdner Bank AG is liableaccordance with the other members of the Joint Fund for additional capital contributions, with the maximum being the amount of Dresdner Bank AG’s annual contribution. During the year ended December 31, 2005, the Joint Fund levied a contribution of €21 mn (2004: €28 mn). Under section 5 (10)Section 5(10) of the Statutes of the Joint Fund for Securing Customer Deposits the(“Einlagensicherungsfonds”), Allianz GroupSE has undertaken to indemnify the Federal Association of German Banks (Bundesverband(“Bundesverband deutscher Banken e.V.”) for any losses it may incur by reason of supporting measures taken in favour of Oldenburgische Landesbank AG (OLB), Münsterländische Bank Thie & Co.KG and Bankhaus W. Fortmann & Söhner KG.
With the sale of Dresdner Bank becoming effective on behalfJanuary 12, 2009, Allianz terminated the idemnification undertaking issued in 2001 in favour of any bank in which the Allianz Group ownsFederal Association of German Banks with respect to Dresdner Bank. As a majority interest.
Notes toresult, the Allianz Group’s Consolidated Financial Statements—(Continued)indemnification is only relevant for supporting measures that are based on facts that were already existing at the time of the termination.
Commitments
Loan commitments
The Allianz Group engages in various lending and underwriting related commitments to meet the financing needs of its customers. The following table represents the amounts at risk should customers draw fully on all facilities and then default, excluding the effect of any collateral. Since the majority of these commitments may expire without being drawn upon, the amounts shown may not be representative of actual liquidity requirements for such commitments.
As of 12/31/ | 2005 | 2004 | ||||||
As of December 31, | 2008 | 2007 | ||||||
€ mn | € mn | € mn | € mn | |||||
Underwriting commitments | — | 126 | ||||||
Irrevocable loan commitments | ||||||||
Advances | 26,954 | 31,001 | 160 | 34,065 | ||||
Stand-by facilities | 9,496 | 8,238 | 29 | 1,635 | ||||
Guarantee credits | 1,733 | 1,229 | 3 | 1,604 | ||||
Discount credits | 46 | 65 | — | 64 | ||||
Mortgage loans/public-sector loans | 667 | 282 | 85 | 527 | ||||
Total | 38,896 | 40,941 | 277 | 37,895 | ||||
Leasing commitments
During the year ended December 31, 2005, the Allianz Group completed the sale of a subsidiary that owned 301 properties, primarily branch offices of the Dresdner Bank Group, to an unrelated party. In addition, the Allianz Group has entered into agreements to lease the properties for an average term of nine years with options to renew for two additional five year terms. The lease agreements are accounted for as operating leases. Therefore, the Allianz Group has recognized gains related to the sale of the properties.
In addition, the Allianz Group occupies spaceproperty in many other locations under various long-term operating leases and has entered into various operating leases covering the long-term use of data processing equipment and other office equipment. Rental expense for the year ending December 31, 2005, was €315 mn (2004: €280 mn; 2003: €296 mn).
As of December 31, 2005,2008, the future minimum lease payments under non-cancelable operating leases operating lease were as follows:
Dresdner Bank Group properties | Other | Total | 2008 | ||||||||
€ mn | € mn | € mn | € mn | ||||||||
2006 | 87 | 376 | 463 | ||||||||
2007 | 85 | 236 | 321 | ||||||||
2008 | 85 | 214 | 299 | ||||||||
2009 | 80 | 200 | 280 | 261 | |||||||
2010 | 75 | 188 | 263 | 253 | |||||||
2011 | 217 | ||||||||||
2012 | 196 | ||||||||||
2013 | 175 | ||||||||||
Thereafter | 426 | 831 | 1,257 | 1,108 | |||||||
Subtotal | 838 | 2,045 | 2,883 | 2,210 | |||||||
Subleases | — | (66 | ) | (66 | ) | (43 | ) | ||||
Total | 838 | 1,979 | 2,817 | 2,167 | |||||||
Rental expense net of sublease rental income received of €10 mn, for the year ending December 31, 2008, was €253 mn (2007: €429 mn; 2006: €518 mn).
Purchase obligations
The Allianz Group has commitments for mortgage loans and to buy multi-tranche loans of €5,102 mn (2007: €4,489 mn) as well as to invest in private equity funds totaling €1,476€2,455 mn (2004: €1,378(2007: €2,045 mn) as of December 31, 2005.2008. As of December 31, 2005,2008, commitments outstanding to purchase real estate used by third-parties and owned by the Allianz Group used for its own activities amounted to €145€650 mn (2004: €99(2007: €219 mn). As of December 31, 2005,2008, commitments outstanding to purchase items of equipment amounted to €66€3 mn (2004: €100(2007: €197 mn). In addition, as of December 31, 2005,2008, the Allianz Group has other commitments of €244€224 mn (2004: €1,068(2007: €229 mn) referringrelating to maintenance, real estate development, sponsoring and purchase obligations.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Other commitments
Other principal commitments of the Allianz Group include the following:
For AllianzPursuant to para. 124 ff. of America Inc.the German Insurance Supervision Act (“Versicherungsaufsichtsgesetz-VAG”), Wilmington, Allianz Group posted a surety declarationmandatory insurance guarantee scheme (“Sicherungsfonds”) for life insurers was implemented in Germany. Each member of the scheme is obliged to make to the scheme annual contributions as well as special payments under certain circumstances. The exact amount of obligations in connection withfor each member is calculated according to the acquisitionprovisions of a Federal Regulation (“Sicherungsfonds-Finanzierungs-Verordnung (Leben)—SichLVFinV”). As of December 31, 2008, the future liabilities of Allianz Global Investors of America L.P., Delaware (“AGI L.P.”). The Allianz Group had originally acquired a 69.5% interest in AGI L.P., whereby minority interestholders had the option of putting their shares to Allianz of America, Inc. On December 31, 2005, the remaining interest of Pacific Life (the minority interest holder) in AGI L.P. was 2.24%, resulting in a commitment to Pacific Life amounting to USD 0.4 bn on December 31, 2005.
NotesLebensversicherungs-Aktiengesellschaft and its subsidiaries to the Allianz Group’s Consolidated Financial Statements—(Continued)insurance guarantee scheme amount to annual contributions of €24 mn (2007: €36 mn) and an obligation for special payments of €95 mn (2007: €85 mn).
In December 2002, Protektor Lebensversicherungs-AGLebensversicherungs-Aktien-gesellschaft (“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 attemptsinsurers, was founded. Allianz Lebensversicherungs-Aktiengesell-schaft and some of its subsidiaries are obligated to prevent insolvency of a German life insurer have failed. In such cases, Protektor takes overprovide additional funds either to 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 have to finance a specific amount of the capital needed by Protector in cases of intervention. During the year ended December 31, 2003, Protektor intervened in one case in which Allianz Lebensversicherungs-AG was required to contribute €24 mn. No intervention was necessary during the years ended December 31, 2004 and December 31, 2005. At December 31, 2005, Allianz Lebensversicherungs-AG’s outstanding commitment to Protektor was €495 mn, what is equal to 10% of the total amount of the commitment of all German life insurance companies to Protektor.
Pursuant to a reform of the German Insurance Supervision Act (Versicherungsaufsichtsgesetz, VAG), which became effective in December 2004, a mandatory insurance guarantee scheme (Sicherungsfonds) was implemented and exists independent of Protektor. Each member ofor to Protektor, in the scheme is obliged to make a certain annual contributionevent that the funds provided to the scheme. The exact amountmandatory insurance guarantee scheme are not sufficient to handle an insolvency case. Such obligation amounts to a maximum of costs for each member will be calculated according to the provisions of a Federal Regulation which has not been enacted yet. The annual contribution of all members together equals 0.02%1% of the sum of their technical provisions (net). Thethe net underwriting reserve with deduction of payments already provided to the insurance guarantee scheme. As of December 31, 2008, and under inclusion of the contributions to the mandatory insurance scheme is administered by a public bank, unlessmentioned above, the aggregate outstanding commitment of Allianz Lebensversicherungs-Aktiengesellschaft and its functionssubsidiaries to the insurance guarantee scheme and competences will be conferred on a legal entity under Private Law as a private trustee. It is likely thatto Protektor will become this trustee. The final impact of this new legislation on Protektor is currently unclear and subject to ongoing discussions.was €877 mn (2007: €809 mn).
Guarantees
Maximum potential amountA summary of paymentsguarantees issued by the Allianz Group by maturity and collateralrelated collateral-held is as follows:
Letters of credit and other financial guarantees | Market- value- guarantees | Indemnification contracts | Letters of credit and other financial guarantees | Market value guarantees | Indemni- fication contracts | |||||||
€ mn | € mn | € mn | € mn | € mn | € mn | |||||||
2008 | ||||||||||||
Up to 1 year | 10,680 | — | 167 | 740 | — | 7 | ||||||
1-2 years | 1,989 | 76 | 13 | |||||||||
1-3 years | 99 | 439 | 15 | |||||||||
3-5 years | 1,702 | 154 | 1 | 18 | 478 | — | ||||||
Over 5 years | 1,477 | 1,569 | 228 | 38 | 1,224 | 134 | ||||||
Total | 15,848 | 1,799 | 409 | 895 | 2,141 | 156 | ||||||
Collateral | 7,154 | — | 7 | 25 | — | 10 | ||||||
2007 | ||||||||||||
Up to 1 year | 10,956 | 59 | — | |||||||||
1-3 years | 2,371 | 451 | 16 | |||||||||
3-5 years | 2,042 | 273 | — | |||||||||
Over 5 years | 994 | 2,528 | 244 | |||||||||
Total | 16,363 | 3,311 | 260 | |||||||||
Collateral | 6,023 | — | 10 | |||||||||
The customers of the letters of credit and of the indemnification contracts have the following external credit ranking:
2008 | ||
€ mn | ||
AAA | — | |
AA | 4 | |
A | 444 | |
BBB | 6 | |
BB | — | |
B and lower | — | |
without rating | 597 | |
Total | 1,051 | |
Letters of credit and other financial guarantees
The majority of the Allianz Group’s letters of credit and other financial guarantees are issued to customers through the normal course of business of the Allianz Group’s Banking segment in return for fee and commission income, which is generally determined based on rates subject to the nominal
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
amount of the guarantees and inherent credit risks. Once a guarantee has been drawn upon, any amount paid by the Allianz Group to third-parties is treated as a loan to the customer, and is, therefore, principally subject to collateral pledged by the customer as specified in the agreement.
Market value guarantees
Market value guarantees represent assurances given to customers of certain mutual funds and fund management agreements, under which initial investment values and/or minimum market performance of such investments are guaranteed at levels as defined under the relevant agreements. The obligation to perform under a market value guarantee is triggered when the market value of such investments does not meet the guaranteed targets at pre-definedpredefined dates.
The Allianz Group’s Asset Management segment, in the ordinary course of business, issues market value guarantees in connection with investment trust accounts and mutual funds it manages. The levels of market value guarantees, as well as the maturity dates, differ based on the separate governing agreements of the respective investment trust accounts and mutual funds. As of December 31, 2005,2008, the maximum potential amount of future payments of the market value guarantees was €1,113€785 mn (2007: €1,956 mn), which represents the total value guaranteed under the respective agreements
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
including the obligation that would have been due had the investments matured on that date. The fair value of the investment trust accounts and mutual funds related to these guarantees as of December 31, 2005,2008, was €2,285 mn.€822 mn (2007: €2,151 mn).
The Allianz Group’s banking operations in France, in the ordinary course of business, issue market value and performance-at-maturity guarantees in connection with mutual funds offered by the Allianz Group’s asset management operations in France. The levels of market value and performance-at-maturity guarantees, as well as the maturity dates, differ based on the underlying agreements. In most cases, the same mutual fund offers both a market value guarantee and a performance-at-maturity guarantee. Additionally, the performance-at-maturity guarantees are generally
linked to the performance of an equity index or group of equity indexes. As of December 31, 2005,2008, the maximum potential amount of future payments of the market value and performance-at-maturity guarantees was €686€1,356 mn (2007: €1,355 mn), which represents the total value guaranteed under the respective agreements. The fair value of the mutual funds related to the market guarantees as of December 31, 2005,2008, was approximately €777 mn.€1,260 mn (2007: €1,316 mn). Such funds generally have a duration of five to eight years.
Indemnification contracts
Indemnification contracts are executed by the Allianz Group with various counterparties under existing service, lease or acquisition transactions. Such contracts may also be used to indemnify counterparties under various contingencies, such as changes in laws and regulations or litigation claims.
In connection with the sale of various of the Allianz Group’s former private equity investments, subsidiaries of the Allianz Group provided indemnities to the respective buyers in the event that certain contractual warranties arise. The terms of the indemnity contracts cover ordinary contractual warranties, environmental costs and any potential tax liabilities the entity incurred while owned by the Allianz Group.
Credit derivatives
Credit derivatives consist of written credit default swaps, which require payment by the AllianzGroupAllianz Group in the event of default of debt obligations, as well as written total return swaps, under which the Allianz Group guarantees the performance of the underlying assets. The notional principal amounts and fair values of the Allianz Group’s credit derivative positions as of December 31, 20052008 are provided in Note 39.43.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Assets pledged and collateral
The carrying amount of the assets pledged as collateral where the secured party does not have the right by contract or custom to sell or repledge the assets are as follows:
As of 12/31/ | 2005 | 2004 | ||||||
As of December 31, | 2008 | 2007 | ||||||
€ mn | € mn | € mn | € mn | |||||
Investments | 3,820 | — | 175 | 597 | ||||
Loans and advances to banks | — | 6,599 | ||||||
Loans and advances to customers | 1,161 | 6,380 | ||||||
Loans and advances to banks and customers | — | 1,663 | ||||||
Financial assets carried at fair value through income | 16,189 | 42,500 | — | 4,302 | ||||
Total | 21,170 | 55,479 | 175 | 6,562 | ||||
As of December 31, 2005,2008, the Allianz Group has received collateral, consisting of fixed-income and equity securities, with a fair value of €213,333€1,672 mn (2004: €221,429(2007: €212,894 mn), respectively, which the Allianz Group has the right to sell or repledge. As of December 31, 2005, €137,5592008, €– mn (2004: €182,652(2007: €156,096 mn), respectively, related to collateral that the Allianz Group has received and sold or repledged.
As of December 31, 2008 the Allianz Group took possession of collateral it holds as security with a carrying amount of €– mn. These financial assets will be systematically sold in the market.
43 Share47 Pensions and similar obligations
Retirement benefits in the Allianz Group are either in the form of defined benefit or defined contribution plans. Employees, including agents in Germany, are granted such retirement benefits by the various legal entities of the Allianz Group. In Germany, these are primarily defined benefit plans in nature.
For defined benefit plans, the participant is granted a defined benefit by the employer or via an external entity. In contrast to defined contribution arrangements, the future cost to the employer of a defined benefit plan is not known with certainty in advance.
Defined benefit plans
Amounts recognized in the Allianz Group’s consolidated balance sheets for defined benefit plans are as follows:
As of December 31, | 2008 | 2007 | ||||
€ mn | € mn | |||||
Prepaid benefit costs | (256 | ) | (402 | ) | ||
Accrued benefit costs | 3,867 | 4,184 | ||||
Net amount recognized | 3,611 | 3,782 | ||||
The following table sets forth the changes in the projected benefit obligations, the changes in fair value of plan assets and the net amount recognized for the various Allianz Group defined benefit plans:
2008 | 2007 | |||||
€ mn | € mn | |||||
Change in projected benefit obligations | ||||||
Projected benefit obligations as of January 1, | 16,142 | 17,280 | ||||
Service cost | 321 | 437 | ||||
Interest cost | 672 | 785 | ||||
Plan participants’ contributions | 65 | 67 | ||||
Amendments | 41 | (23 | ) | |||
Actuarial (gains)/losses | (774 | ) | (1,316 | ) | ||
Foreign currency translation adjustments | (182 | ) | (266 | ) | ||
Benefits paid | (570 | ) | (685 | ) | ||
Changes in the consolidated subsidiaries of the Allianz Group | (38 | ) | (137 | ) | ||
Divestitures1) | (3,430 | ) | — | |||
Projected benefit obligations as of December 31,2) | 12,247 | 16,142 | ||||
Change in fair value of plan assets | ||||||
Fair value of plan assets as of January 1, | 10,931 | 10,888 | ||||
Expected return on plan assets | 448 | 577 | ||||
Actuarial gains/(losses) | (781 | ) | (331 | ) | ||
Employer contributions | 500 | 342 | ||||
Plan participants’ contributions | 65 | 67 | ||||
Foreign currency translation adjustments | (150 | ) | (229 | ) | ||
Benefits paid3) | (321 | ) | (315 | ) | ||
Changes in the consolidated subsidiaries of the Allianz Group | (36 | ) | (68 | ) | ||
Divestitures1) | (2,692 | ) | — | |||
Fair value of plan assets as of December 31, | 7,964 | 10,931 | ||||
Funded status as of December 31, | 4,283 | 5,211 | ||||
Unrecognized net actuarial losses | (685 | ) | (1,444 | ) | ||
Unrecognized prior service costs | 13 | 15 | ||||
Net amount recognized as of December 31, | 3,611 | 3,782 | ||||
1) | Relates to the reclassification of Dresdner Bank Group to assets / liabilities of disposal groups classified as held for sale. |
2) | As of December 31, 2008, includes direct commitments of the consolidated subsidiaries of the Allianz Group of €4,429 mn (2007: €4,953 mn) and commitments through plan assets of €7,818 mn (2007: €11,189 mn). |
3) | In addition, the Allianz Group paid €249 mn (2007: €370 mn) directly to plan participants. |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
As of December 31, 2008, post-retirement health benefits included in the projected benefit obligation and in the net amount recognized amounted to €60 mn (2007: €109 mn) and €92 mn (2007: €138 mn), respectively.
The net periodic benefit cost related to defined benefit plans of the Allianz Group consists of the following components:
2008 | 2007 | 2006 | |||||||
€ mn | € mn | € mn | |||||||
Service cost | 321 | 382 | 417 | ||||||
Interest cost | 672 | 617 | 571 | ||||||
Expected return on plan assets | (448 | ) | (432 | ) | (407 | ) | |||
Amortization of prior service cost | 38 | — | (33 | ) | |||||
Amortization of net actuarial loss | 6 | 62 | 84 | ||||||
(Income)/expenses of plan curtailments or settlements | — | (51 | ) | (13 | ) | ||||
Net periodic benefit cost1) | 589 | 578 | 619 | ||||||
1) | 2007 and 2006 adjusted due to the reclassification of net periodic benefit costs of Dresdner Bank Group to net income from discontinued operations |
During the year ended December 31, 2008, net periodic benefit cost includes net periodic benefit cost related to post-retirement health benefits of €(7) mn (2007: €— mn; 2006: €4 mn).
The actual return on plan assets amounted to €(333) mn, €246 mn and €467 mn during the years ended December 31, 2008, 2007 and 2006.
A summary of amounts related to defined benefit plans is as follows:
2008 | 2007 | 2006 | ||||||
€ mn | € mn | € mn | ||||||
Projected benefit obligation | 12,247 | 16,142 | 17,280 | |||||
Fair value of plan assets | 7,964 | 10,931 | 10,888 | |||||
Funded status | 4,283 | 5,211 | 6,392 | |||||
Actuarial (gains)/losses from experience adjustments on: | ||||||||
Plan obligations | (42 | ) | (56 | ) | 8 | |||
Plan assets | 781 | 331 | 90 |
Assumptions
The assumptions for the actuarial computation of the projected benefit obligation and the net periodic benefit cost depend on the circumstances in the particular country where the plan has been established.
The calculations are based on current actuarially calculated mortality estimates. Projected turnover depending on age and length of service have also been used, as well as internal Allianz Group retirement projections.
The weighted average value of the assumptions for the Allianz Group’s defined benefit plans used to determine projected benefit obligation:
As of December 31, | 2008 | 2007 | ||
% | % | |||
Discount rate | 5.8 | 5.5 | ||
Rate of compensation increase | 2.5 | 2.6 | ||
Rate of pension increase | 1.9 | 1.8 |
The discount rate assumptions reflect the market yields at the balance sheet date of high-quality fixed-income investments corresponding to the currency and duration of the liabilities.
The weighted average value of the assumptions used to determine net periodic benefit cost:
2008 | 2007 | 2006 | ||||
% | % | % | ||||
Discount rate | 5.5 | 4.6 | 4.1 | |||
Expected long-term return on plan assets | 5.5 | 5.3 | 5.3 | |||
Rate of compensation increase | 2.6 | 2.6 | 2.7 | |||
Rate of pension increase | 1.8 | 1.5 | 1.4 |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
For the year ended December 31, 2008, the weighted expected long-term return on plan assets was derived from the following target allocation and expected long-term rate of return for each asset category:
Target allocation | Weighted expected long- term rate of return | |||
% | % | |||
Equity securities | 28.7 | 7.6 | ||
Debt securities | 66.4 | 4.6 | ||
Real estate | 4.2 | 4.6 | ||
Other | 0.7 | 3.5 | ||
Total | 100.0 | 5.5 | ||
The determination of the expected long-term rate of return for the individual asset categories is based on capital market surveys.
Plan assets
The defined benefit plans’ weighted average asset allocations by asset category are as follows:
As of December 31, | 2008 | 2007 | ||
% | % | |||
Equity securities | 16.2 | 28.1 | ||
Debt securities | 78.4 | 65.1 | ||
Real estate | 3.6 | 2.8 | ||
Other | 1.8 | 4.0 | ||
Total | 100.0 | 100.0 | ||
The bulk of the plan assets are held by the Allianz Versorgungskasse VVaG, Munich. This entity insures effectively all employees of the German insurance operations and is not part of the Allianz Group.
Plan assets do not include equity securities issued by the Allianz Group or real estate used by the Allianz Group.
The Allianz Group plans to gradually increase in the long term its actual equity securities allocation for plan assets of defined benefit plans.
Contributions
During the year ending December 31, 2009, the Allianz Group expects to contribute €226 mn to its defined benefit plans and pay €240 mn directly to plan participants of its defined benefit plans.
Defined contribution plans
Defined contribution plans are funded through independent pension funds or similar organizations. Contributions fixed in advance (e.g. based on salary) are paid to these institutions and the beneficiary’s right to benefits exists against the pension fund. The employer has no obligation beyond payment of the contributions.
During the year ended December 31, 2008, the Allianz Group recognized expense for defined contribution plans of €212 mn (2007: €192 mn; 2006: €136 mn). Additionally, the Allianz Group paid contributions for state pension schemes of €317 mn (2007: €294 mn; 2006: €277 mn).
48 Share-based compensation plans
Group Equity Incentives Plans
The Group Equity Incentives Plans (“GEI”)(GEI) of the Allianz Group support the orientation of senior management, in particular the Board of Management, toward the long-term increase of the value of the Allianz Group. The GEI include grants of stock appreciation rights (SAR) and restricted stock units.units (RSU).
Stock appreciation rights
The stock appreciation rightsSARs granted to a plan participant obligate the Allianz Group to pay in cash the excess of the market price of an Allianz AGSE share over the reference price on the exercise date for each stock appreciation rightSAR granted. The excess is capped at 150% of the reference price. The reference
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
price represents the market priceaverage of the closing prices of an Allianz AGSE share onfor the grant date.ten trading days following the Financial Press Conference of Allianz SE in the year of issue. The stock appreciation rightsSARs vest after two years and expire after seven years. Upon vesting, the stock appreciation rightsSARs may be exercised by the plan participant if the following market conditions are attained:
during their contractual term, the market price of Allianz AGSE share has outperformed the Dow Jones Europe STOXX Price Index at least once for a period of five consecutive trading days; and
the Allianz AGSE market price is in excess of the reference price by at least 20% on the exercise date.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
In addition, upon death of plan participants, a change inof control of the Allianz Group or notice for operational reason the sale ofSARs vest immediately and will be exercised by the subsidiary that employscompany provided the plan participant, the stock appreciation rights vest immediately.above market conditions have been attained.
Upon the expiration date, any unexercised stock appreciation rights that have not been exercisedSAR will be exercised automatically if the above market conditions have been attained. The stock appreciation rightsSARs are forfeited if the plan participant ceases to be employed by the Allianz Group or if the marketexercise conditions are not attained by the expiration date.
A summary of the number and the weighted-average grant dateThe fair value of the nonvestedSARs at grant date is measured using a Cox-Rubinstein binomial tree option pricing model. Volatility was derived from observed historical market prices. In the absence of historical information regarding employee stock appreciation rightsexercise patterns (all plans issued between 2002 and 2008 are as follows:
Number | Weighted average grant date fair value | ||||
€ | |||||
Nonvested as of 12/31/2002 | 1,075,961 | 111.60 | |||
Granted | 1,503,247 | 27.35 | |||
Vested | (406,631 | ) | 112.62 | ||
Forfeited | (65,507 | ) | 109.01 | ||
Nonvested as of 12/31/2003 | 2,107,070 | 51.38 | |||
Granted | 1,788,458 | 30.71 | |||
Vested | (588,963 | ) | 110.53 | ||
Forfeited | (133,554 | ) | 40.56 | ||
Nonvested as of 12/31/2004 | 3,173,011 | 29.21 | |||
Granted | 2,176,463 | 26.69 | |||
Vested | (1,398,426 | ) | 27.35 | ||
Forfeited | (165,998 | ) | 29.70 | ||
Nonvested as of 12/31/2005 | 3,785,050 | 28.42 | |||
Assignificantly “out of December 31, 2005, there were 1,130,779 stock appreciation rights, with a reference pricethe money”), the expected life has been estimated to equal the term to maturity of €65.91, that were granted during the year ended December 31, 2003, exercisable as the vesting and market conditions were met.
As of December 31, 2005, 1,419,884 stock appreciation rights, with a weighted average reference price of €281.25, that were granted before 2003, were not exercisable as the market conditions were not met.SARs.
The stock appreciation rightsfollowing table provides the assumptions used in estimating the fair value of the SARs at grant date:
2008 | 2007 | 2006 | ||||||||||
Expected volatility | 32.0 | % | 27.9 | % | 28.0 | % | ||||||
Risk-free interest rate | 3.6 | % | 3.9 | % | 4.1 | % | ||||||
Expected dividend rate | 5.3 | % | 3.0 | % | 1.6 | % | ||||||
Share price | € | 112.83 | € | 158.01 | € | 123,67 | ||||||
Expected life (years) | 7 | 7 | 7 |
The SARs are accounted for as cash settled plans by the Allianz Group. Therefore, the Allianz Group accrues the fair value of the stock appreciation rightsSARs as compensation expense over the vesting period. Upon vesting, any changes in the fair value of the unexercised stock appreciation rightsSARs are recognized as compensation expense. During the year ended December 31, 2005,2008, the Allianz Group recognized compensation expense related to the unexercised stock appreciation rightsSARs of €99€(116) mn (2004: €23(2007: €14 mn; 2003: €18 mn). During the year ended December 31, 2005, the Allianz Group recognized a deferred tax benefit related to the unexercised stock appreciation rights of €24 mn (2004: €6 mn; 2003: €5 mn). During the year ended December 31, 2005, the total amount paid related to stock appreciation rights exercised was €11 mn (2004: €0 mn; 2003: €02006: €102 mn).
As of December 31, 2005,2008, the Allianz Group recorded a liability, in other accrued liabilities, for the unexercised stock appreciation rightsSARs of €160€37 mn (2004: €41(2007: €182 mn). Based upon the fair value of the stock appreciation rights as of December 31, 2005, the total compensation expense not yet recognized related to the nonvested stock appreciation rights, due to vesting requirements was €87 mn. The total compensation expense not yet recognized related to the nonvested stock appreciation rights is expected to be recognized over a weighted-average period of 1 year.
Restricted stock units
The restricted stock unitsRSUs granted to a plan participant obligate the Allianz Group to pay in cash the average market price of an Allianz AGSE share in the ten trading days preceding the vesting date or issue one Allianz AGSE share, or other equivalent
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
equity instrument, for each restricted stock unitRSU granted. The restricted stock unitsRSUs vest after five years. The Allianz Group will exercise the restricted stock unitsRSUs on the first stock exchange day after their vesting date. On the exercise date, the Allianz Group can choose the settlement method for each restricted stock unit.RSU.
In addition, upon death of plan participants, a change inof control of the Allianz Group or notice for operational reason the saleRSUs vest immediately and will be exercised by the company.
The RSUs are notional stocks without dividend payments. The fair value is calculated by subtracting the net present value of expected future dividend payments until maturity of the subsidiary that employsRSUs from the plan participant,prevailing share price as of the restricted stock units vest immediately.valuation date.
A summary ofThe following table provides the number andassumptions used in calculating the weighted-average grant date fair value of the nonvested restricted stock units are as follows:RSUs at grant date:
Number | Weighted average grant date fair value | ||||
€ | |||||
Nonvested as of 12/31/2003 | — | — | |||
Granted | 540,057 | 65.91 | |||
Forfeited | (747 | ) | 65.91 | ||
Nonvested as of 12/31/2003 | 539,310 | 65.91 | |||
Granted | 749,030 | 77.02 | |||
Vested | (4,123 | ) | 73.54 | ||
Forfeited | (39,805 | ) | 69.74 | ||
Nonvested as of 12/31/2004 | 1,244,412 | 72.45 | |||
Granted | 1,023,600 | 85.28 | |||
Forfeited | (75,859 | ) | 75.02 | ||
Nonvested as of 12/31/2005 | 2,192,153 | 78.35 | |||
2008 | 2007 | 2006 | |||||||
Average interest rate | 3.4 | % | 3.9 | % | 3.8 | % | |||
Average dividend yield | 5.7 | % | 3.2 | % | 1.5 | % |
The restricted stock unitsRSUs are accounted for as cash settled plans as the Allianz Group intends to settle in cash. Therefore, the Allianz Group accrues the fair value of the restricted stock unitsRSUs as compensation expense over the vesting period. During the year ended December 31, 2005,2008, the Allianz Group recognized compensation expense related to the nonvested restricted stock unitsRSUs of €49€(19) mn (2004: €18(2007: €41 mn; 2003: €6 mn). During the year ended December 31, 2005, the Allianz Group recognized a deferred tax benefit related to thenonvested restricted stock units of €14 mn (2004: €5 mn; 2003: €2 mn). During the year ended December 31, 2005, the total amount paid related to restricted stock units exercised was €0 mn (2004: €0.4 mn; 2003: €02006: €68 mn).
As of December 31, 2005,2008, the Allianz Group recorded a liability, in other accrued liabilities, of €72€87 mn (2004: €24(2007: €209 mn) for the nonvested restricted stock units. Based upon the fair value of the restricted stock units as of December 31, 2005, the total compensation expense not yet recognized relatedRSUs.
Notes to the nonvested restricted stock units, due to vesting requirements, was €193 mn. The total compensation expense not yet recognized related to the nonvested restricted stock units is expected to be recognized over a weighted-average period of 4 years.Allianz Group’s Consolidated Financial Statements—(Continued)
Share basedShare-based compensation plans of subsidiaries of the Allianz Group
PIMCO LLC Class B Unit Purchase Plan
When acquiring AGI L.P. during the year ended December 31, 2000, Allianz AGSE caused Pacific Investment Management Company LLC (“PIMCO LLC”)(PIMCO LLC) to enter into a Class B Purchase Plan (the “Class B Plan”) for the benefit of members of the management of PIMCO LLC. The plan participants of the Class B Plan have rights to a 15% priority claim on the adjusted operating profits of PIMCO LLC.
The Class B equity units issued under the Class B Plan vest over three3 to five5 years and are subject to repurchase by AGI L.P. upon death, disability or termination of the participant prior to vesting. As of January 1, 2005, AGI L.P. has the right to repurchase, and the participants have the right to cause AGI L.P. to repurchase, a portion of the vested Class B equity units each year. The call or put right is exercisable for the first time 6 months after the initial vesting of each grant. On the repurchase date, the repurchase price will be based upon the determined value of the Class B equity units being repurchased. As the Class B equity units are puttable by the plan participants, the Class B Plan is accounted for as a cash settled plan.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
A summary of the number and the weighted-average grant date fair value of the outstanding Class B equity units are as follows:
Number | Weighted average grant date fair value | ||||
€ | |||||
Outstanding as of 12/31/2002 | 84,625 | 5,892 | |||
Granted | 35,375 | 6,755 | |||
Forfeited | — | — | |||
Outstanding as of 12/31/2003 | 120,000 | 5,461 | |||
Granted | 30,000 | 8,480 | |||
Forfeited | (4,695 | ) | 5,169 | ||
Outstanding as of 12/31/2004 | 145,305 | 6,004 | |||
Granted | 4,695 | 9,733 | |||
Called | (5,427 | ) | 3,998 | ||
Forfeited | (480 | ) | 7,823 | ||
Outstanding as of 12/31/2005 | 144,093 | 5,900 | |||
The Class B equity units are accounted for as cash settled plans. Therefore, the Allianz Group accrues the fair value of the Class B equity units as compensation expense over the vesting period. Upon vesting, any changes in the fair value of the Class B equity units are recognized as compensation expense. During the year ended December 31, 2005,2008, the Allianz Group recognized compensation expense related to the Class B equity units of €536€185 mn (2004: €399(2007: €362 mn; 2003: €3572006: €383 mn). In addition, the Allianz Group recognized expense related to the priority claim on the adjusted operating profits of PIMCO LLC of €141€93 mn (2004: €101(2007: €126 mn; 2003: €912006: €140 mn). During the year ended December 31, 2005, the Allianz Group recognized a deferred tax benefit related to the Class B equity units of €219 mn (2004: €163 mn; 2003: €146 mn). During the year ended December 31, 2005,2008, the Allianz Group called 5,42727,826 Class B equity units. The total amount paid related to the call of the Class B equity units was €71€418 mn.
The total recognized compensation expense for Class B equity units that are outstanding is recorded as a liability in other accrued liabilities. As of December 31, 2005,2008, the Allianz Group recorded a liability for the Class B equity units of €1,473€1,151 mn (2004: €816(2007: €1,350 mn). As of December 31, 2005, the total compensation expense not yet recognized related to the nonvested Class B equity units was €1,191 mn (2004: €1,331 mn). The total compensation expensenot yet recognized related to the Class B equity units is expected to be recognized over the remaining vesting period of up to 5 years.
Dresdner Kleinwort WassersteinPIMCO LLC Class M-Unit
The Allianz Group awarded eligible employeesGlobal Investors (AGI) has launched a new management share-based payment incentive plan for certain senior level executives of Dresdner Kleinwort Wasserstein (“DrKW”)PIMCO LLC and certain of its affiliates. Participants in the plan are granted options to acquire a promise to deliver Allianz AG shares on the vesting dates (hereafter “nonvested shares”). In jurisdictions innew class of equity instruments (M-Units), which regulatory restrictions do not allow for delivery of shares where the awards are settled in cash. The awards vest in three installments in eachone-third increments on approximately the third, fourth and fifth anniversary of the option valuation date. Upon vesting, options will be automatically exercised in a cashless transaction. Participants may elect to defer the receipt of M-Units through the M-Unit Deferral Plan. With the M-Unit Plan, participants can directly participate in PIMCO’s performance. Class M-Units are non-voting common equity with limited information rights. They bear quarterly distributions equal to a pro-rata share of PIMCO’s net distributable income. Deferred M-Units have a right to receive quarterly cash compensation equal to and in lieu of quarterly dividend payments.
The maximum of 250,000 M-Units are authorized for issuance under the M-Unit Plan.
The fair value of the underlying M-Options was measured using the Black-Scholes option-pricing model. Volatility was derived in part by considering the average historical and implied volatility of a select group of peers. The expected life was calculated based upon treating the three vesting tranches (one third in years 3, 4, and 5) as three separate awards.
The following table provides the initial award. Each year, immediately prior to vesting,assumptions used in calculating the numberfair value of unvested shares is adjusted higher or lower accordingthe M-Options at grant date:
2008 | ||||
Weighted average fair value of options granted | € | 577.44 | ||
Assumptions: | ||||
Expected term (years) | 3.85 | |||
Expected volatility | 32.5 | % | ||
Expected dividends | 11.1 | % | ||
Risk free rate of return | 2.7 | % |
Notes to the performance adjustment.Allianz Group’s Consolidated Financial Statements—(Continued)
A summary of the number and the weighted-average grant date fair valueweighted average exercise price of the nonvested share unitsM-Options outstanding and exercisable are as follows:
Number | Weighted average grant date fair value | Number of options | Weighted average exercise price | |||||||
€ | € | |||||||||
Nonvested as of 12/31/2003 | — | — | ||||||||
Outstanding as of January 1, 2008 | — | — | ||||||||
Granted | 1,161,614 | 105.62 | 27,674 | 6,230.05 | ||||||
Exercised | — | — | ||||||||
Forfeited | (82,261 | ) | 105.62 | (1,142 | ) | 6,230.86 | ||||
Nonvested as of 12/31/2004 | 1,079,353 | 105.62 | ||||||||
Granted | 1,440,399 | 92.81 | ||||||||
Vested | (333,517 | ) | 105.58 | |||||||
Forfeited | (177,588 | ) | 101.43 | |||||||
Outstanding as of December 31, 2008 | 26,532 | 6,230.01 | ||||||||
Nonvested as of 12/31/2005 | 2,008,647 | 96.81 | ||||||||
Exercisable as of December 31, 2008 | — | — | ||||||||
The aggregate intrinsic value of share options outstanding was €(1) mn for the year ended December 31, 2008.
The M-Units outstanding as of December 31, 2008 have an exercise price between of €6,190.13 and of €6,230.86 and a weighted average remaining contractual life of 4.46 years.
The shares settled by delivery of Allianz AGPIMCO LLC shares are accounted for as equity settled plans by the Allianz Group.PIMCO LLC. Therefore, the Allianz GroupPIMCO LLC measures the total compensation expense to be recognized for the equity settled shares based upon their fair value as of the grant date. The total compensation expense is recognized over the three year vesting period. The shares settled in cash are accounted for as cash settled plans by the Allianz Group. Therefore, the Allianz Group accrues the fair value of the cash settled shares as compensation expense over the vesting period. During the year
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
ended December 31, 2005, the Allianz Group recognized compensation expense related to the nonvested shares of €102 mn (2004: €64 mn). During the year ended December 31, 2005, the Allianz Group did not recognize a deferred tax benefit related to the nonvested shares as the expenses are not tax deductible. During the year ended December 31, 2005, the total amount paid related to cash settled shares vested was €2 mn. During the year ended December 31, 2005, the total fair value of equity settled shares that vested was €33 mn.
As of December 31, 2005,2008, the Allianz Group recorded a liability for the nonvested cash settled shares of €6 mn (2004: €4 mn). As of December 31, 2005, the total compensation expense not yet recognizedof €2 mn related to the nonvested shares was €74 mn (2004: €49 mn). The total compensation expense not yet recognized related to the nonvested shares is expected to be recognized over a weighted-average period of 1 year.these share options.
AGF Group Share Option Planshare option plan
The AGF Group has awarded share options on AGF shares to eligible AGF Group executives andmanagersand 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. These
During the year ended December 31, 2007, Allianz acquired all of the remaining AGF shares from minority shareholders in the context of the Tender Offer and Squeeze-out. Under the terms of an agreement (the “Liquidity Agreement”) between Allianz SE, AGF and the beneficiaries of the AGF share option plans 2003-2006 (AGF employees), Allianz has the right to purchase all AGF shares issued through the exercise of these AGF share option plans after the put period (where the beneficiaries have the right to sell to Allianz). The price payable by Allianz per AGF share is a cash consideration equal to the Allianz 20-day-average share price prior to the date the right to buy or to sell is exercised, multiplied by a ratio representing the consideration proposed in the Tender Offer for each AGF share (€126.43) divided by the Allianz share price on January 16, 2007 (€155.72). This ratio is subject to adjustments in case of transactions impacting Allianz or AGF share capital or net equity. The cash settlement is based upon the initial offer proposed for each AGF share during the Tender Offer. As of December 31, 2007 all shares issued under these plans were fully vested and exercisable.
Due to the change in settlement arising from the Liquidity Agreement, the Allianz Group accounts for the AGF share option plans as cash settled plans, as all AGF employees will receive cash for their AGF shares. Therefore, the Allianz Group recognizes any change in the fair value of the unexercised plans as compensation expense.
The effects of these modifications that increased the total fair value of the AGF share option plan to the AGF employees were expensed at the date of modification and amounted to €15 mn in 2007. The modification of the settlement terms from an equity share to cash for vested options was recorded directly in equity, and amounted to €18 mn during 2007.
Originally, the AGF share options are independent ofplans were granted independently from the remuneration plans of the Allianz Group. ShareAt their original grant dates, the AGF share options granted havehad an exercise price of at least 85% of the then prevailing market price on the day of grant.price. The original maximum term for the AGF share option plans granted iswas eight years.
The following table provides the weighted-average grant date fair value of options and the assumptions used in calculating their fair value by application of the Black-Scholes option pricing model for options granted.
For the years ended 12/31/ | 2005 | 2004 | 2003 | |||||
Weighted-average fair value | € | 5.05 | 14.38 | 12.04 | ||||
Weighted-average assumptions | ||||||||
Risk free interest rate | % | 2.7 | 3.5 | 4.0 | ||||
Expected volatility | % | 15.0 | 30.0 | 30.0 | ||||
Dividend yield | % | 4.0 | 3.5 | 2.5 |
A summary of the number, weighted-average exercise price, weighted-average remaining contractual term and aggregate intrinsic value of the options outstanding and exercisable are as follows:
Number(*) | Weighted average exercise price | Weighted average remaining contractual term | Aggregate intrinsic value | ||||||
€ | € mn | ||||||||
Outstanding as of 12/31/2002 | 4,930,328 | 43.80 | |||||||
Granted | 1,131,788 | 42.12 | |||||||
Exercised | (81,028 | ) | 23.34 | ||||||
Forfeited | (8,687 | ) | 23.39 | ||||||
Outstanding as of 12/31/2003 | 5,972,401 | 43.79 | |||||||
Granted | 1,130,656 | 50.86 | |||||||
Exercised | (584,128 | ) | 36.94 | ||||||
Forfeited | (11,952 | ) | 23.05 | ||||||
Outstanding as of 12/31/2004 | 6,506,977 | 45.67 | |||||||
Granted | 1,398,000 | 78.24 | |||||||
Exercised | (2,131,928 | ) | 46.47 | ||||||
Forfeited | (352,959 | ) | 42.29 | ||||||
Outstanding as of 12/31/2005 | 5,420,090 | 53.97 | 6 | 161 | |||||
Exercisable as of 12/31/2005 | 4,023,590 | 45.55 | 5 | 153 | |||||
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
The fair value of these options at grant date was calculated using a Cox-Rubinstein binomial tree option pricing model. Volatility was derived from observed historical market prices aligned with the expected life of the options. The expected life has been estimated to equal the term to maturity of the options.
The following table provides original fair values at grant date of the AGF share options and the assumptions used in calculating them:
2006 | 2005 | |||||||
Fair value | € | 24.87 | € | 17.40 | ||||
Assumptions: | ||||||||
Share price at grant date | € | 110.20 | € | 77.95 | ||||
Expected life (years) | 5 | 8 | ||||||
Risk free interest rate | 3.9 | % | 2.7 | % | ||||
Expected volatility | 28.0 | % | 27.5 | % | ||||
Dividend yield | 4.5 | % | 4.0 | % |
Due to the Liquidity Agreement which became effective on June 30, 2007, the parameters for the valuation of the AGF share option plans were changed.
The following table provides an overview about the underlying assumptions used for the valuation after taking into account the impact of the Liquidity Agreement:
2006 | 2005 | |||||||
Fair value | € | 48.38 | € | 64.73 | ||||
Assumptions: | ||||||||
Share price at modification date | € | 172.95 | € | 172.95 | ||||
Expected life (years) | 6 | 5 | ||||||
Risk free interest rate | 4.5 | % | 4.5 | % | ||||
Expected volatility | 28.0 | % | 30.0 | % | ||||
Dividend yield | 3.2 | % | 3.1 | % |
During the year ended December 31, 2005,2008, the Allianz Group recognized total intrinsic value of share options exercised was €50 mn (2004: €9 mn; 2003: €2 mn). During the year ended December 31, 2005, the AGF Group recorded compensation expenseexpenses related to the modified AGF share optionsoption plans of €14€(33) mn (2004: €16 mn; 2003:(2007: €15 mn). During the year ended December 31, 2005, the Allianz Group did not recognize a deferred tax benefit related to the share options as the share compensation expense is not tax deductible in France. As of December 31, 2005,2008, the total compensation expense not yet recognized related toAllianz Group recorded a liability for the share options was €5AGF plans of €11 mn (2004: €12(2007: €46 mn). The total compensation expense not yet recognized related to the share options is expected to be recognized over a weighted-average period of 1 year.
RAS Group Allianz SE share option plan (modified RAS Group share option plan 2005)
The RAS Group has awarded eligible members of senior management with share purchase options on RAS ordinary shares. The share options havehad a vesting period of 18 months to 2 years and a term of 6.5 to 7 years.
The share options may be exercisedallow for exercise at any time after the vesting period and before expiration, provided that:
on the date of exercise, the RAS share price is at least 20% higher than the average share price in January of the grant year (for share options granted during the year ended December 31, 2001, the hurdle is 10%), and
the performance of the RAS share in the year of grant exceeds the Milan Insurance Index in the same year.
The fair value of the options at grant date was measured using a trinomial tree option pricing model. Volatility was derived from observed historical market prices aligned with the expected life of the options. The expected life was estimated to be equal to the term to maturity of the options.
The following table provides the weighted-average grant date fair value and the assumptions used in calculating their fair value by application of the Black-Scholes option pricing model for options granted:value:
For the years ended 12/31/ | 2005 | 2004 | 2003 | |||||
Weighted-average fair value | € | 1.91 | 1.51 | 4.68 | ||||
Weighted-average assumptions | ||||||||
Risk free interest rate | % | 3.4 | 3.3 | 3.1 | ||||
Expected volatility | % | 18.0 | 17.0 | 13.5 | ||||
Dividend yield | % | 7.1 | 6.8 | �� | 6.3 |
A summary of the number, weighted-average exercise price, weighted-average remaining contractual term and aggregate intrinsic
2005 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair value
| € | 1.91 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Assumptions: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share price at grant date | € | 17.32 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Expected life (years) | 7 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Risk free interest rate | 3.4 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Expected volatility | 18.0 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividend yield | 7.1 | % |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
A summary of the number and weighted average exercise price of the options outstanding and exercisable are as follows:
Number of options | Weighted average exercise price | ||||
€ | |||||
Outstanding as of January 1, 2005 | 2,261,000 | 13.55 | |||
Granted | 1,200,000 | 17.09 | |||
Exercised | (2,041,000 | ) | 13.47 | ||
Forfeited | (467,000 | ) | 15.78 | ||
Outstanding RAS share options as of December 31, 2005 | 953,000 | 17.09 | |||
Modification | (953,000 | ) | 17.09 | ||
Outstanding as of December 31, 2006 | — | — | |||
Exercisable as of December 31, 2006 | — | — | |||
On the effective date of the merger between Allianz SE and RAS, the RAS share option plan was modified. The outstanding share options, which were granted in 2005, on the date of the merger were replaced with Allianz SE share options on the basis
of 1 Allianz SE option for every 5.501 RAS share options outstanding. The outstanding RAS Group options of 953,000 were replaced by 173,241 Allianz SE options. The Allianz SE share options have the same vesting period of 2 years; however, the market conditions noted above were replaced with a performance condition, which was already achieved on the date of the modification.
During the year ended December 31, 2006, the Allianz Group recorded compensation expense of €1 mn (2005: €1 mn) related to these share options.
After modification the valuation model for the RAS Group Allianz SE share option plan remain unchanged. Nevertheless the underlying assumptions had to be adjusted. The following table provides the grant date fair value and the assumptions used in calculating their fair value:
2006 | ||||
Fair value | € | 66.35 | ||
Assumptions: | ||||
Share price on modification date | € | 145.41 | ||
Expected life (years) | 5 | |||
Risk free interest rate | 3.9 | % | ||
Expected volatility | 30.5 | % | ||
Dividend yield | 1.5 | % |
A summary of the number and weighted average exercise price of the options outstanding and exercisable are as follows:
2008 | 2007 | 2006 | ||||||||||||
Number of options | Weighted average exercise price | Number of options | Weighted average exercise price | Number of options | Weighted average exercise price | |||||||||
€ | € | € | ||||||||||||
Outstanding as of January 1, | 131,249 | 80.74 | 173,241 | 93.99 | — | — | ||||||||
Granted | — | — | — | — | 173,241 | 93.99 | ||||||||
Exercised | (13,424 | ) | 48.96 | — | — | — | — | |||||||
Forfeited | — | — | (41,992 | ) | 84.74 | — | — | |||||||
Outstanding as of December 31, | 117,825 | 48.96 | 131,249 | 80.74 | 173,241 | 93.99 | ||||||||
Exercisable as of December 31, | 117,825 | 48.96 | — | — | — | — | ||||||||
The aggregate intrinsic value of share options outstanding was €6 mn for the year ended December 31, 2008 (2007: €11 mn).
The options outstanding as of December 31, 2008 have an exercise price of €48.96 and a weighted average remaining contractual life of 3 years.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
The shares settled by delivery of Allianz SE shares are accounted for as equity settled plans by the RAS Group. Therefore, the RAS Group measures the total compensation expense to be recognized for the equity settled shares based upon their fair value as of the grant date. The total compensation expense is recognized over the vesting period.
During the year ended December 31, 2008, the Allianz Group recorded compensation expense of €— mn (2007: €4 mn; 2006: €6 mn) related to these share options.
Employee Stock purchase plans
The Allianz Group offers Allianz SE shares in 22 countries to qualified employees at favorable conditions. The shares have a minimum holding period of one year1 to five5 years. During the year ended December 31, 2005,2008, the number of shares sold to employees under these plans was 1,144,196 (2004: 1,051,191; 2003: 944,625)721,830 (2007: 939,303; 2006: 929,509). During the year ended December 31, 2005,2008, the Allianz Group recognized compensation expense, the difference between the market price (lowest quoted price of the Allianz SE stock at the official market in Germany on October 10, 2008) and the offerdiscounted price of the shares purchased by employees, of €24€10 mn (2004: €18(2007: €30 mn; 2003: €162006: €25 mn).
In addition, during the yearsyear ended December 31, 2004 and 2003,2006, the AGF Group offered AGF shares to
qualified employees in France at favorable conditions. The shares have a minimum holding period of five years. During the yearsyear ended December 31, 2004 and 2003,2006 the number of shares sold to employees under this plan was 787,675 and 1,214,304.651,012. During the yearsyear ended December 31, 2004 and 2003,2006 the compensation expense recorded was €8 mn and €11€12 mn. Due to the Tender Offer all AGF shares were purchased by Allianz SE.
Other share option and shareholding plans
The Allianz Group has other local share-based compensation plans, including share option and employee share purchase plans, none of which, individually or in the aggregate, are material to theconsolidatedthe consolidated financial statements. During the year endingended December 31, 2005,2008, the total expense, in the aggregate, recorded for these plans was €4€2 mn (2004: €3(2007: €7 mn; 2003: €52006: €6 mn).
44 Earnings per share49 Restructuring plans
Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding. Diluted earnings per share reflects the effect of potentially dilutive securities. As of December 31, 2005, 1,175,554 (2004: 1,175,554) participation certificates issued by2008, the Allianz AG were outstanding which can potentially be converted to 1,469,443 (2004: 1,469,443) Allianz shares (onGroup has provisions for restructuring resulting from a weighted basis: 1,469,443 (2004: 1,469,443) Allianz AG shares) and therefore have a dilutive effect.
The Allianz Group’s share compensation plans with potentially dilutive securities of 493,229 (2004: 729,596) are included in the calculation of diluted earnings per share for the year ended December 31, 2005.
Furthermore 807,859 common shares from trading in derivatives on own shares have been included in the calculation of diluted earnings per share for the year ended December 31, 2005.
Reconciliation of basic and diluted earnings per share
For the years ended 12/31/ | 2005 | 2004 | 2003 | ||||||
Numerator for basic earnings per share (net income) | € | mn | 4,380 | 2,266 | 2,691 | ||||
Effect of dilutive securities | € | mn | — | 3 | 3 | ||||
Numerator for diluted earnings per share (net income after assumed conversion) | € | mn | 4,380 | 2,269 | 2,694 | ||||
Denominator for basic earnings per share (weighted-average shares)—not including treasury shares held by the Allianz Group | 389,756,350 | 365,930,584 | 338,201,031 | ||||||
Potential dilutive securities | 3,513,710 | 2,199,039 | 1,585,044 | ||||||
Denominator for diluted earnings per share (adjusted weighted-average after assumed conversion) | 393,270,060 | 368,129,623 | 339,786,075 | ||||||
Basic earnings per share | € | 11.24 | 6.19 | 7.96 | |||||
Diluted earnings per share | € | 11.14 | 6.16 | 7.93 | |||||
During the year ended December 31, 2005, the weighted average number of shares does notrestructuring programs in various segments. These provisions for restructuring primarily include 2,389,193 (2004: 18,915,201; 2003: 18,766,949) treasury shares held bypersonnel costs, which result from severance payments for employee terminations, and contract termination costs, including those relating to the Allianz Group. The potential settlementtermination of lease contracts that will arise in connection with the implementation of the equity-linked loan has not been included in the calculation of diluted earnings per share as it is anti-dilutive.respective initiatives.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Changes in the provisions for restructuring were:
Allianz Deutschland AG | Dresdner Bank Group | AGF Group | Other | Total | |||||||||||
€ mn | € mn | € mn | € mn | € mn | |||||||||||
As of January 1, 2006 | — | 90 | — | 96 | 186 | ||||||||||
New provisions | 526 | 328 | — | 41 | 895 | ||||||||||
Additions to existing provisions | — | 9 | — | 1 | 10 | ||||||||||
Release of provisions recognized in previous years | — | (15 | ) | — | (5 | ) | (20 | ) | |||||||
Release of provisions via payments | (2 | ) | (13 | ) | — | (83 | ) | (98 | ) | ||||||
Release of provisions via transfers | (69 | ) | (20 | ) | — | — | (89 | ) | |||||||
Changes in the consolidated subsidiaries of the Allianz Group | — | — | — | 4 | 4 | ||||||||||
Foreign currency translation adjustments | — | — | — | (1 | ) | (1 | ) | ||||||||
As of December 31, 2006 | 455 | 379 | — | 53 | 887 | ||||||||||
As of January 1, 2007 | 455 | 379 | — | 53 | 887 | ||||||||||
New provisions | — | 8 | — | 145 | 153 | ||||||||||
Additions to existing provisions | 22 | 19 | — | 4 | 45 | ||||||||||
Release of provisions recognized in previous years | (65 | ) | (29 | ) | — | (1 | ) | (95 | ) | ||||||
Release of provisions via payments | (27 | ) | (65 | ) | — | (52 | ) | (144 | ) | ||||||
Release of provisions via transfers | (159 | ) | (140 | ) | — | — | (299 | ) | |||||||
Foreign currency translation adjustments | — | (6 | ) | — | — | (6 | ) | ||||||||
As of December 31, 2007 | 226 | 166 | — | 149 | 541 | ||||||||||
As of January 1, 2008 | 226 | 166 | — | 149 | 541 | ||||||||||
New provisions | — | — | 77 | 31 | 108 | ||||||||||
Additions to existing provisions | 3 | — | — | 16 | 19 | ||||||||||
Release of provisions recognized in previous years | (10 | ) | — | — | (1 | ) | (11 | ) | |||||||
Release of provisions via payments | (10 | ) | — | (2 | ) | (70 | ) | (82 | ) | ||||||
Release of provisions via transfers | (61 | ) | — | — | (5 | ) | (66 | ) | |||||||
Reclassification to liabilities of disposal groups classified as held-for-sale | — | (166 | ) | — | — | (166 | ) | ||||||||
As of December 31, 2008 | 148 | — | 75 | 120 | 343 | ||||||||||
The impactdevelopment of the recently adopted principles describedrestructuring provisions reflects the implementation status of the restructuring initiatives. Based on the specific IFRS guidance, restructuring provisions are recognized prior to when they qualify to be recognized under the guidance for other types of provisions. In order to reflect the timely implementation of the various restructuring initiatives, restructuring provisions, as far as they are already “locked in”, have been transferred to the provision type, which would have been used not having a restructuring initiative in Note 3, on basicplace. This applies for each single contract. For personnel costs, at the time an employee has contractually agreed to leave Allianz Group by signing either an early retirement, a partial retirement (Altersteilzeit, which is a specific type of an early retirement program in Germany), or
a termination arrangement the respective part of the restructuring provision has been transferred to provisions for employee expenses. In addition, provisions for vacant office spaces that result from restructuring initiatives have been transferred to “other” provisions after the offices have been completely vacated.
Allianz Deutschland AG´s provisions for restructuring
In 2006, Allianz Deutschland AG announced a restructuring plan for the insurance business in Germany, that is expected to be completed in 2008. In the course of the fiscal year 2008 the restructuring plan has been extended for another year up to 2009.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
The objective of the restructuring program is to make the insurance business more customer focused, operate more efficiently and diluted earnings per shareachieve growth.
During the year ended December 31, 2008, Allianz Deutschland AG recorded restructuring charges of €(9) mn (2007: €(16) mn). This amount includes additions to existing provisions, release of provisions recognized in previous years, and restructuring charges as reflected in the consolidated income statement. The reduction of staff within this program shall occur in consent with the employees. The plan includes a reduction of approximately 5,345 positions. Approximately 4,695 full time equivalent positions have already been terminated, a part of which are related to natural employee turnover and early retirement agreements (Altersteilzeit) that were
agreed upon before the restructuring provision was recorded and are not part of the restructuring provision.
2008 | |||
€ mn | |||
New provisions | — | ||
Additions to existing provisions | 3 | ||
Release of provisions recognized in previous years | (10 | ) | |
Restructuring charges directly reflected in the consolidated income statement | (2 | ) | |
Total restructuring charges during the year ended December 31, 2008 | (9 | ) | |
Total restructuring charges incurred to date | 501 |
A summary of the changes in the provisions for restructuring of the Allianz Deutschland AG during the year ended December 31, 2008 is:
Provisions as of January 1, 2008 | Provisions recorded during 2008 | Release of provisions via transfer | Foreign currency translation adjustments | Other | Provisions as of December 31, 2008 | ||||||||||||||||
New provisions | Additions to existing provisions | Release of provisions recognized in previous years | Release of provisions via cash payments | ||||||||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | |||||||||||||
Program 2006 | |||||||||||||||||||||
Personnel costs | 187 | — | 3 | (10 | ) | — | (61 | ) | — | — | 119 | ||||||||||
Contract termination costs | 39 | — | — | — | (10 | ) | — | — | — | 29 | |||||||||||
Other | — | — | — | — | — | — | — | — | — | ||||||||||||
Total | 226 | — | 3 | (10 | ) | (10 | ) | (61 | ) | — | — | 148 | |||||||||
Allianz Deutschland AG recorded releases of provisions via transfers to other provision categories of €61 mn as of December 31, 2008 (2007: €159 mn).
Assurance Générales de France (AGF Group)’s provisions for restructuring
In 2008, the AGF Group announced a restructuring plan, so called “Comprehensive Adaptation Plan” (“Plan Global d’Adaptation”), for the insurance business in France which is expected to continue through 2011. The objectives of the restructuring program are to regain market shares and increase the quality of service, by
increasing commercial staff and sales effectiveness,
developing employees’ competencies, and
implementing a comprehensive plan of competitiveness.
The restructuring activities of the AGF Group will result in a reduction of locations within France from 14 to 10 and a relocation of workers and activities with critical team size purpose as well as a strong reduction of non-HR costs (especially IT, purchasing, facilities).
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Through the Comprehensive Adaptation Plan, the AGF Group plans to reduce the number of administrative jobs by 688 and increase the number of commercial employees by 506. The reduction of staff within this program includes measures for voluntary termination under restricted conditions and early retirement for the employees affected by the close-down of locations.
During the year ended December 31, 2008, the AGF Group recorded restructuring charges of €81 mn as follows:
2004 | 2003 | |||||||||||
Basic | Diluted | Basic | Diluted | |||||||||
€ | € | € | € | |||||||||
Earnings per share, as previously reported | 6.01 | 5.98 | 5.59 | 5.57 | ||||||||
IAS 32 and IAS 39 revised Impairments | 0.59 | 0.59 | 2.67 | 2.65 | ||||||||
Financial assets and liabilities designated at fair value | (0.05 | ) | (0.05 | ) | 0.04 | 0.04 | ||||||
IFRS 4 | (0.34 | ) | (0.34 | ) | (0.36 | ) | (0.35 | ) | ||||
IFRS 2 | (0.02 | ) | (0.02 | ) | 0.02 | 0.02 | ||||||
Earnings per share | 6.19 | 6.16 | 7.96 | 7.93 | ||||||||
2008 | ||
€ mn | ||
New provisions | 77 | |
Additions to existing provisions | — | |
Release of provisions recognized in previous years | — | |
Restructuring charges directly reflected in the consolidated income statement | 4 | |
Total restructuring charges during the year ended December 31, 2008 | 81 | |
Total restructuring charges incurred to date | 81 |
A summary of the changes in the provisions for restructuring of the AGF Group during the year ended December 31, 2008 is:
Provisions as of January 1, 2008 | Provisions recorded during 2008 | Release of provisions via transfer | Foreign currency translation adjustments | Other | Provisions as of December 31, 2008 | ||||||||||||||
New provisions | Additions to existing provisions | Release of provisions recognized in previous years | Release of provisions via cash payments | ||||||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | € mn | |||||||||||
Comprehensive Adaptation Plan | |||||||||||||||||||
Personnel costs | — | 76 | — | — | (2 | ) | — | — | — | 74 | |||||||||
Contract termination costs | — | — | — | — | — | — | — | — | — | ||||||||||
Other | — | 1 | — | — | — | — | — | — | 1 | ||||||||||
Total | — | 77 | — | — | (2 | ) | — | — | — | 75 | |||||||||
Other restructuring plans
For 2008, amongst others the following restructuring plans were reflected:
Allianz S.p.A., Italy
In 2007, the Boards of RAS, Lloyd Adriatico and AZ Subalpina announced a restructuring program for the integration of these three companies into Allianz S.p.A effective since October 1, 2007.
The objective is to reorganize its strategic and commercial direction by aligning the underwriting
strategies, refocusing some lines of business in the insurance business, as well as in the asset management segment, unifying all the support functions leveraging on best practices. Further some activities will be relocated within Italian sites whereas other operations will be integrated into one single organization.
During the year ended December 31, 2008, Allianz S.p.A. together with its group companies recognized restructuring charges of €2 mn (2007: €73 mn). As of December 31, 2008 Allianz S.p.A. recorded a provision of €36 mn (2007: €52 mn).
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Allianz Shared Infrastructure Service SE (ASIC SE)
During 2007, ASIC SE recorded a provision for restructuring. The reason for the restructuring program are outsourcing activities for the divisions Desktop, Network and Telecommunication Services of ASIC SE (former Allianz Shared Infrastructure Service GmbH), Munich.
During the year ended December 31, 2008, ASIC SE recognized restructuring charges of €— mn (2007: €79 mn) in total. As of December 31, 2008 ASIC SE recorded a provision for restructuring of €15 mn (2007: €42 mn).
Basic earnings per share
Basic earnings per share are calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the period.
2008 | 2007 | 2006 | |||||
€ mn | € mn | € mn | |||||
Net income (loss) used to calculate basic earnings per share | (2,444 | ) | 7,966 | 7,021 | |||
from continuing operations | 3,967 | 7,316 | 6,640 | ||||
from discontinued operations | (6,411 | ) | 650 | 381 | |||
Weighted average number of common shares outstanding | 450,161,145 | 442,544,977 | 410,871,602 | ||||
Basic earnings per share (in €) | (5.43 | ) | 18.00 | 17.09 | |||
from continuing operations (in €) | 8.81 | 16.53 | 16.16 | ||||
from discontinued operations (in €) | (14.24 | ) | 1.47 | 0.93 |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Diluted earnings per share
Diluted earnings per share are calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the period, both adjusted for the effects of potential dilutive common shares. Potential dilutive common shares arise from the assumed conversion of participation certificates issued by Allianz SE, warrants issued by Allianz SE and share-based compensation plans into Allianz shares, as well as from the conversion of derivatives on own shares.
2008 | 2007 | 2006 | |||||||
€ mn | € mn | € mn | |||||||
Net income (loss) | (2,444 | ) | 7,966 | 7,021 | |||||
Effect of potential dilutive common shares | (49 | ) | (4 | ) | (3 | ) | |||
Net income (loss) used to calculate diluted earnings per share | (2,493 | ) | 7,962 | 7,018 | |||||
from continuing operations | 3,918 | 7,312 | 6,637 | ||||||
from discontinued operations | (6,411 | ) | 650 | 381 | |||||
Weighted average number of common shares outstanding | 450,161,145 | 442,544,977 | 410,871,602 | ||||||
Potentially dilutive common shares resulting from assumed conversion of: | |||||||||
Participation certificates | 1,469,443 | 1,469,443 | 1,469,443 | ||||||
Warrants | 36,338 | 962,547 | 737,847 | ||||||
Share-based compensation plans | 3,226,670 | 1,321,100 | 335,346 | ||||||
Derivatives on own shares | 1,139,945 | 3,265,298 | 4,868,560 | ||||||
Subtotal | 5,872,396 | 7,018,388 | 7,411,196 | ||||||
Weighted average number of common shares outstanding after assumed conversion | 456,033,541 | 449,563,365 | 418,282,798 | ||||||
Diluted earnings per share (in €) | (5.47 | ) | 17.71 | 16.78 | |||||
from continuing operations (in €) | 8.59 | 16.26 | 15.87 | ||||||
from discontinued operations (in €) | (14.06 | ) | 1.45 | 0.91 |
During the year ended December 31, 2008, the weighted average number of common shares does not include 2,004,155 (2007: 1,130,838; 2006: 730,391) treasury shares held by the Allianz Group.
51 Other informationInformation
Employee information
As of December 31, | 2008 | 2007 | ||
Germany | 71,267 | 72,063 | ||
Other countries | 111,598 | 109,144 | ||
Total1) | 182,865 | 181,207 | ||
As of December 31, 2005, the Allianz Group employed a total of 177,625 people (2004: 176,501*); 2003: 173,750). Of those people, 72,195 (2004: 75,667; 2003: 82,245) were employed in Germany and 105,430 (2004: 100,834*); 2003: 91,505) abroad. During the year ended December 31, 2005, the number of employees undergoing training decreased by 883 to 4,023.
1) | Includes as of December 31, 2008, 27,597 employees of Dresdner Bank Group. |
The average total number of employees for the year ended December 31, 20052008 was 177,063181,549 people.
Personnel expenses
For the years ended 12/31/ | 2005 | 2004 | 2003 | |||||||||
2008 | 2007 | 2006 | ||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | |||||||
Salaries and wages | 9,582 | 9,277 | 9,108 | 9,153 | 9,741 | 10,230 | ||||||
Social security contributions and employee assistance | 1,628 | 1,466 | 1,548 | 1,298 | 1,666 | 1,731 | ||||||
Expenses for pensions and other post-retirement benefits | 684 | 625 | 634 | 1,223 | 1,028 | 1,005 | ||||||
Total | 11,894 | 11,368 | 11,290 | 11,674 | 12,435 | 12,966 | ||||||
In the table above are included the personnel expenses from the discontinued operations of Dresdner Bank, which amounted to 2,532 mn in 2008.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Issuance of the Declaration of Compliance with the German Corporate Governance Code according to clause 161 AktG
On December 18, 2008, the Board of Management and the Supervisory Board of Allianz SE issued the Declaration of Compliance according to clause 161 AktG and made it available on a permanent basis to the shareholders on the company’s website.
The Declaration of Compliance of the publicly traded group company Oldenburgische Landesbank AG was issued in December 2008 and was made permanently available to the shareholders.
Principal accountant fees and services
For a summary of fees billed by the Allianz Group’s principal auditors, see page 163. Theinformation176. The information provided there is considered part of these consolidated financial statements.
Compensation for the Board of Management
As of December 31, 2005,2008, the Board of Management had 10 (2004: 10)11 (2007: 11) members.
Total compensation of the Board of Management for the year ended December 31, 20052008 amounts to €20.0*)€18.5 mn (2004: €25.6(2007: €26.5 mn). For 2005 an expense was recorded for the group equity incentivesFurthermore 120,707 (2007: 102,950) stock appreciation rights and 58,580 (2007: 51,805) restricted stock units with a total fair value at grant date of €7.7 mn (2007: €12.3 mn) were granted to the Board of Management for 2005 amounting to €19.7 mn (2004: €5.4 mn). the year ended December 31, 2008.
Compensation to former members of the Board of Management and their beneficiaries totaled €4.3€7.0 mn (2004: €4.2(2007: €5.0 mn).
Pension obligations to former members of the Board of Management and their beneficiaries are accrued in the amount of €38.9€47.0 mn (2004: €36.5(2007: €49.0 mn).
Total compensation to the Supervisory Board amounts to €2.6€1.1 mn (2004: €2.2(2007: €1.6 mn).
Board of Management and Supervisory Board compensation by individual is included in Item 6—Directors, Senior Management and Employees—the Corporate Governance section of this Annual Report. The information provided there is considered part of these consolidated financial statements.
Industrial and Commercial BankSale of China Ltd. (ICBC)
On January 27, 2006, Allianz Group signed a contract for the acquisition of about 2.5% interest in Industrial and Commercial Bank of China Ltd. (ICBC) for approximately €825 mn. The acquisition will be executed by Dresdner Bank Luxemburg S.A.
ContributionsAG to defined benefit plans
During January 2006, the Allianz Group contributed €1,876 mn to the defined benefit plans of the Dresdner Bank Group.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Allianz-RAS Merger / European Company (SE)
On February 3, 2006, the extraordinary shareholders’ meetings of holders of RAS ordinary shares and holders of RAS saving shares agreed to the merger plan regarding the merger of RAS S.p.A. into Allianz AG. On February 8, 2006 the extraordinary shareholders’ meeting of Allianz AG agreed also to the merger plan. Against the resolution of the shareholders’ meeting of Allianz AG regarding the agreements to the merger plan and the capital increase to implement the merger, contestation suits have been filed. We are confident that we can achieve the entry of this merger in a release ruling (so called “Freigabeverfahren”). In the course of the merger, Allianz AG will be converted into a European Company (Societas Europaea or “SE”). For further details please see “Item 4—Information on the Company—Allianz-RAS Merger/European Company (SE).”
Sale of 33 Lafayette
On February 28, 2006, the Allianz Group sold 33 Lafayette, the holding company for a real estate property in France, for proceeds of €240 mn.
Restructuring of the German Business
In February 2006, in connection with the reorganization of the insurance business in Germany, the Allianz Group announced to its employees that in the course of tightening the organisational structure a reduction of 700 positions in the area of the sales support and distribution divisions has been identified. The reorganization of the insurance business in Germany is described in more detail on page 19 of this Annual Report.
Disposal of EurohypoCommerzbank AG
On MarchAugust 31, 2006, in connection with agreement described in Note 41,2008, Allianz SE and Commerzbank AG agreed on the Allianz Group completed sale of its remaining 21.13% ownership interest in Eurohypo AG for proceeds of €1,456 mn.
Subordinated Perpetual Bond
In March 2006, Allianz Finance II B.V., a wholly owned subsidiary of the Allianz Group, issued €800 mn of subordinated perpetual bonds, guaranteed by Allianz AG, with a coupon rate of 5.375%. Allianz Finance II B.V. has the right to call the bonds after 5 years.
Sale of Eve Holding N.V.
In March 2006, the Allianz Group entered into an agreement to sell Eve Holding N.V. (including the investment of Eve Holding N.V. in Hansen Transmissions International N.V.) to Suzlon Energy Ltd. of approximately €170 mn. The sale is expected to close in May 2006.
Exchangeable Bonds
During January through April 5, 2006, the holders of 55,226 exchangeable bonds issued by Allianz Finance B.V. II, with a nominal value of €552 mn, exchanged the bonds for 11,009,866 shares of RWE AG in accordance with the terms of the exchangeable bonds. In addition, the holders of 2,759 exchangeable bonds, with a nominal value of €28 mn, redeemed the bonds for a cash settlement of €39 mn.
Disposal of Banca Antoniana Populare S.p.A.
On April 5, 2006, the Allianz Group sold 7,579,337 shares in Banca Antoniana Popolare S.p.A. to ABN Amro Bank N.V. for approximately €200 mn.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
The consolidated financial statements of the Allianz Group are presented in accordance with IFRS. IFRS differs in certain respects from US GAAP. The following table represents the reconciliation of the Allianz Group’s net income and shareholders’ equity between IFRS and US GAAP:
Net Income | Shareholders’ Equity(1) | ||||||||||||||
For the years ended December 31, | As of December 31, | ||||||||||||||
2005 | 2004 | 2003 | 2005 | 2004 | |||||||||||
€ mn | € mn | € mn | € mn | € mn | |||||||||||
Amounts determined in accordance with IFRS, as previously reported | 4,380 | 2,199 | 1,890 | 39,487 | 30,828 | ||||||||||
Effect of implementation of new accounting standards (see Note 3) | — | 67 | 801 | — | (833 | ) | |||||||||
Amounts determined in accordance with IFRS, as adjusted | 4,380 | 2,266 | 2,691 | 39,487 | 29,995 | ||||||||||
Adjustments in respect to: | |||||||||||||||
(a) Goodwill and intangible assets | (265 | ) | 815 | 906 | 4,924 | 3,519 | |||||||||
(b) Employee benefit plans | (63 | ) | (22 | ) | (22 | ) | (2,402 | ) | (509 | ) | |||||
(c) Investments | (918 | ) | (496 | ) | (1,982 | ) | 503 | 852 | |||||||
(d) Real estate | (191 | ) | (198 | ) | (2 | ) | (299 | ) | (226 | ) | |||||
(e) Equity method investees/subsidiaries | 50 | — | 85 | — | — | ||||||||||
(f) Restructuring charges | (20 | ) | 41 | (18 | ) | 13 | 33 | ||||||||
(g) Deferred compensation | (4 | ) | (16 | ) | (42 | ) | 24 | 28 | |||||||
(h) Guarantees | (9 | ) | (22 | ) | — | (31 | ) | (22 | ) | ||||||
(i) Financial assets and liabilities designated at fair value through income | (66 | ) | 58 | (162 | ) | (18 | ) | 38 | |||||||
(j) Derivatives on own shares | 77 | — | — | 1,272 | — | ||||||||||
(k) Insurance liabilities | 8 | 37 | (10 | ) | 301 | 35 | |||||||||
(l) Share based compensation | 435 | 210 | 185 | 842 | 403 | ||||||||||
Total US GAAP adjustments | (966 | ) | 407 | (1,062 | ) | 5,129 | 4,151 | ||||||||
(m) Income taxes | 255 | 168 | 357 | (164 | ) | (730 | ) | ||||||||
(n) Minority interests in earnings | 24 | 40 | 259 | (69 | ) | (36 | ) | ||||||||
Effect of US GAAP adjustments | (687 | ) | 615 | (446 | ) | 4,896 | 3,385 | ||||||||
Amount determined in accordance with US GAAP | 3,693 | 2,881 | 2,245 | 44,383 | 33,380 | ||||||||||
Net income per share in accordance with US GAAP: | |||||||||||||||
Basic | 9.33 | 7.87 | 6.71 | ||||||||||||
Diluted | 9.26 | 7.83 | 6.70 | ||||||||||||
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Valuation and recognition differences
The following describes the valuation and recognition differences presented in the reconciliation of the Allianz Group’s net income and shareholders’ equity between IFRS and US GAAP.
(a) Goodwill and intangible assets
A summary of the reconciliation adjustments relating to goodwill and intangible assets:
Net Income | Shareholders’ Equity(1) | ||||||||||||
For the years ended December 31, | As of December 31, | ||||||||||||
2005 | 2004 | 2003 | 2005 | 2004 | |||||||||
€ mn | € mn | € mn | € mn | € mn | |||||||||
Goodwill | — | 1,137 | 1,123 | 3,661 | 2,143 | ||||||||
Brand names | — | (58 | ) | 47 | 43 | 43 | |||||||
Core deposits | (59 | ) | (59 | ) | (59 | ) | 288 | 347 | |||||
PVFP | (1 | ) | — | — | 135 | — | |||||||
Customer relationships | — | — | — | 16 | — | ||||||||
Customer base intangibles | (205 | ) | (205 | ) | (205 | ) | 781 | 986 | |||||
Total | (265 | ) | 815 | 906 | 4,924 | 3,519 | |||||||
Goodwill
In accordance with US GAAP, goodwill is not subject to amortization; however, it is tested for impairment annually at a reporting unit level, or more frequently based upon facts and circumstances. For years through December 31, 2004, goodwill was amortized over its estimated useful life in accordance with IFRS. As of January 1, 2005, goodwill is not subject to amortization in accordance with IFRS. Therefore, the reconciliation adjustment to net income for the years ended December 31, 2004 and 2003, represents the reversal of goodwill amortization recorded in accordance with IFRS and the effects of a different cost basis for disposals. The reconciliation adjustment to shareholders’ equity represents the effects of the reversal of accumulated amortization related to goodwill, in addition to the following effects. The reconciliation adjustment to shareholders’ equity included the effect of a lower cost basis for goodwill in accordance with US GAAP as a result of the allocation of a portion of the purchase price of Dresdner Bank AG to core depositsCommerzbank AG. The transaction agreement was adjusted on November 27, 2008, and customer base intangibles. Further,January 9, 2009. For details on the Allianz Group’s impairmenttransaction agreement and financial effects please refer to Note 4 of goodwillthe consolidated financial statements. The transaction was closed as scheduled on January 12, 2009. In exchange for Allianz Life Insurance Company Ltd., Seoul during 2003, as discussed in Note 6, resulted in a higher impairmentof €66 mn in accordance with US GAAP due to the difference in the carrying amount of goodwill as a result of amortization recorded in accordance with IFRS. Finally, as further described under “Acquisitions and Disposals of Minority Interests”, the reconciliation adjustment to shareholders’ equity as of December 31, 2005, includes goodwill of €1,344 mn recorded in accordance with US GAAP related to transactions with equity holders.
Brand names
In accordance with US GAAP, intangible assets with an indefinite life are not subject to amortization; however, they are tested for impairment annually, or more frequently based upon facts and circumstances. In connection with the Allianz Group’s acquisition of Dresdner Bank AG, a portion of the purchase price was allocated to the brand names “Dresdner Bank” and “dit”, which in accordance with US GAAP are considered to have an indefinite life. For years through December 31, 2004, these brand names were amortized over a period of 20 years in accordance with IFRS. As of January 1, 2005, in accordance with IFRS, brand names were considered to have an indefinite life and therefore are no longer subject to amortization. Further, in connection with the Allianz
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Group’s annual impairment test in accordance with US GAAP during the year ended December 31, 2004, the Allianz Group recorded an impairment chargereceived a cash payment of €100€3.2 bn, 163.5 mn for brand names. Therefore, the reconciliation adjustment to net income for the years ended December 31, 2004 includes the reversalshares of amortization expense and the recognition of the brand names impairment charge. The reconciliation adjustment to net income for the year ended December 31, 2003 includes the reversal of amortization expense. The reconciliation adjustment to shareholders’ equity represents the effects of reversal of accumulated amortization and the recognition of the impairment charge.
Core deposits
In connection with the Allianz Group’s acquisition of Dresdner BankCommerzbank AG a portion of the purchase price was allocated to core deposits in accordance with US GAAP. In accordance with IFRS, a similar intangible asset was not recorded, resulting in a higher amount of the purchase price being allocated to goodwill. Core deposits are amortized over their expected useful lives, which range from 7.3 to 11.5 years. The weighted average original useful lives for the core deposits are 9.5 years. Amortization of core deposits is estimated to be €59 mn for each of the years 2006 through 2009 and €52 mn in 2010. Therefore, the reconciliation adjustments to net income and shareholders’ equity represent recognition of amortization expense and accumulated amortization, respectively, of core deposits.
PVFP
As further described under “Acquisitions and Disposals of Minority Interests”, the reconciliation adjustment to net income for the year ended December 31, 2005, includes the impact of amortization of PVFP, net of reduction of amortization of deferred acquisition costs, as a result of purchase accounting adjustments recorded in accordance with US GAAP related to transactions with equity holders. The reconciliation adjustment to shareholders’ equity as of December 31, 2005, represents the recognition of PVFP, net of elimination of deferred acquisition costs, net ofaccumulated amortization expense recognized as a result of previously mentioned purchase accounting adjustments. Amortization expense of PVFP, net of elimination of amortization of deferred acquisition costs and recognition of unearned revenue liabilities, is expected to be €12 mn in 2006, €11 mn in 2007, €10 mn in 2008, €9 mn in 2009 and €8 mn in 2010 as a result of this difference.
Customer relationships
As further described under “Acquisitions and Disposals of Minority Interests”, the reconciliation adjustment to net income for the year ended December 31, 2005, includes the impact of amortization of customer relationships for property-casualty insurance contracts as a result of purchase accounting adjustments recorded in accordance with US GAAP related to transactions with equity holders. The reconciliation adjustment to shareholders’ equity as of December 31, 2005, represents the recognition of the customer relationships, net of accumulated amortization expense recognized as a result of previously mentioned purchase accounting adjustments. Amortization expense of the customer relationships, is expected to be approximate €1 mn to €2 mn in each of the years ended December 31, 2006 through 2010 as a result of this difference.
Customer base intangibles
In connection with the Allianz Group’s acquisition of Dresdner Bank AG, a portion of the purchase price was allocated to customer base intangibles in accordance with US GAAP. In accordance with IFRS, a similar intangible asset was not recorded, resulting in a higher amount of the purchase price being allocated to goodwill. Customer base intangibles are amortized over their expected useful lives, which range from 7.5 to 16.6 years. The weighted average original useful lives for the customer base intangibles are 8.9 years. Amortization of customer base intangibles is estimated to be €205 mn for each of the years 2006 through 2008 and €166 mn in 2009. Therefore, the reconciliation adjustment to net income and shareholders’ equity represents the recognition of amortization expense and accumulated amortization, respectively, of customer base intangibles.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
The Allianz Group’s goodwill has been allocated to its reporting segments. The changes in goodwill by reporting segment, in accordance with US GAAP, for the years ended December 31, 2005, 2004 and 2003 are as follows:
Property- Casualty | Life/ Health | Banking | Asset Management | Total | |||||||||||
€ mn | € mn | € mn | € mn | € mn | |||||||||||
Carrying amount as of January 1, 2003 | 2,628 | 3,011 | 1,631 | 6,456 | 13,726 | ||||||||||
Additions | 104 | 54 | — | 624 | 782 | ||||||||||
Disposals | (75 | ) | (8 | ) | (17 | ) | (125 | ) | (225 | ) | |||||
Impairments | — | (290 | ) | — | — | (290 | ) | ||||||||
Effects from exchange rate fluctuations | (18 | ) | (39 | ) | (112 | ) | (391 | ) | (560 | ) | |||||
Carrying amount as of December 31, 2003 | 2,639 | 2,728 | 1,502 | 6,564 | 13,433 | ||||||||||
Additions | 142 | 22 | 52 | 587 | 803 | ||||||||||
Disposals | (72 | ) | (17 | ) | — | — | (89 | ) | |||||||
Effects from exchange rate fluctuations | (1 | ) | (5 | ) | — | (321 | ) | (327 | ) | ||||||
Carrying amount as of December 31, 2004 | 2,708 | 2,728 | 1,554 | 6,830 | 13,820 | ||||||||||
Additions | 967 | 167 | — | 388 | 1,522 | ||||||||||
Disposals | (15 | ) | (9 | ) | (8 | ) | (41 | ) | (73 | ) | |||||
Reclassification to assets held for sale | (158 | ) | — | — | — | (158 | ) | ||||||||
Effects from exchange rate fluctuations | 1 | 12 | — | 560 | 573 | ||||||||||
Carrying amount as of December 31, 2005 | 3,503 | 2,898 | 1,546 | 7,737 | 15,684 | ||||||||||
(b) Employee benefit plans
A summary of the reconciliation adjustments relating to employee benefit plans is as follows:
Net Income | Shareholders’ Equity(1) | ||||||||||||||
For the years ended December 31, | As of December 31, | ||||||||||||||
2005 | 2004 | 2003 | 2005 | 2004 | |||||||||||
€ mn | € mn | € mn | € mn | € mn | |||||||||||
Transition obligation | (15 | ) | (16 | ) | (16 | ) | — | 15 | |||||||
Prior service cost | (48 | ) | (6 | ) | (6 | ) | 57 | 105 | |||||||
Additional minimum pension liability (net of intangible assets of €59 mn and €126 mn) | — | — | — | (2,459 | ) | (629 | ) | ||||||||
Total | (63 | ) | (22 | ) | (22 | ) | (2,402 | ) | (509 | ) | |||||
Transition obligation
In accordance with IFRS, the Allianz Group did not record a transition adjustment upon the adoption of IAS 19,Employee Benefits, as the accrual at the time of adoption was equal to the difference between the projected benefit obligation and the plan assets at the time of adoption.
In accordance with US GAAP, a transition obligation was calculated as the difference between theprojected benefit obligation less the plan assets and the benefit accrual under domestic rules. The transition obligation must be amortized on a straight-line basis over the average remaining service period of plan participants or over 15 years if the average remaining service period is less than 15 years. For US GAAP purposes, the Allianz Group amortized the unrecognized transition obligation over 19 years, ending during the year ended December 31, 2005. The Allianz Group adopted SFAS No. 87,
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Employers’ Accounting for Pensions (“SFAS 87”), effective January 1, 1998. The Allianz Group was unable to adopt SFAS 87 as of its effective date, January 1, 1987, due to the unavailability of actuarial data. The 19 year amortization period was applied retroactively to January 1, 1987 to effectively extinguish the transition obligation at the same date as if SFAS 87 were adopted on the effective date.
Therefore, the reconciliation adjustment to net income and shareholders’ equity represents recognition of amortization expense and unrecognized transition obligation, respectively.
Prior service cost
In accordance with IFRS, the vested portion of past service cost, which is the increase in the present value of the obligation due to changes in the benefit entitlement that is allocated to prior periods’ service, is recognized immediately in full. The unvested portion of past service cost is amortized on a straight-line basis from the point in time when the past service cost arises until the obligation is anticipated to become vested. In accordance with US GAAP, both the vested and unvested portions are amortized on a straight-line basis over the average future service lives of the active participants. Therefore, the reconciliation adjustment to net income and shareholders’ equity represents recognition ofamortization expense and unrecognized prior service cost, respectively.
Additional minimum pension liability
In accordance with US GAAP, if the accumulated benefit obligation exceeds the fair value of plan assets, an additional minimum pension liability (including unfunded accrued pension cost) that is at least equal to the unfunded accumulated benefit obligation is recorded. Recognition of an additional minimum liability is required if an unfunded accumulated benefit obligation exists and (a) an asset has been recognized as prepaid pension cost, (b) the liability already recognized as unfunded accrued pension cost is less than the unfunded accumulated benefit obligation, or (c) no accrued or prepaid pension cost has been recognized. Also, in accordance with US GAAP, an equal amount is capitalized as an intangible asset up to the amount of any unrecognized net transition obligation plus the unrecognized prior service costs, with the remainder charged to shareholders’ equity as a component of other comprehensive income. In accordance with IFRS, there are no such requirements for the recognition of an additional minimum pension liability. Therefore, the reconciliation adjustment to shareholders’ equity represents recognition of an additional minimum pension liability net of the related intangible asset.
(c) Investments
A summary of the reconciliation adjustments relating to investments is as follows:
Net Income | Shareholders’ Equity(1) | |||||||||||||
For the years ended December 31, | As of December 31, | |||||||||||||
2005 | 2004 | 2003 | 2005 | 2004 | ||||||||||
€ mn | € mn | € mn | € mn | € mn | ||||||||||
Impairments of equity securities | (737 | ) | (351 | ) | (1,657 | ) | — | — | ||||||
Reversal of impairments on debt securities | 4 | (4 | ) | (168 | ) | — | — | |||||||
Reversal of realized gains from the disposal of available-for-sale debt and equity securities acquired in transactions between equity holders | (9 | ) | — | — | — | — | ||||||||
Realized gains from equity securities | — | (141 | ) | (157 | ) | — | — | |||||||
Foreign currency exchange differences from debt securities | (176 | ) | — | — | — | — | ||||||||
Valuation of equity securities | — | — | — | (354 | ) | — | ||||||||
Loans and receivables | — | — | — | 857 | 852 | |||||||||
Total | (918 | ) | (496 | ) | (1,982 | ) | 503 | 852 | ||||||
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Impairments of equity securities
As described in Note 3, the adoption of IAS 39 revised required a change to the Allianz Group’s impairment criteria for available-for-sale equity securities. In addition, IAS 39 revised required that the Allianz Group no longer establish an adjusted cost basis upon the recognition of an impairment of an equity security. IAS 39 revised required retrospective application of these changes. As of January 1, 2005, the Allianz Group adopted these changes to its accounting policies for US GAAP. However, under US GAAP, retrospective application of these policies was not allowed; therefore, the Allianz Group was required to apply these changes only prospectively under US GAAP.
Therefore, the reconciliation adjustment to net income for the year end December 31, 2005, represents the differences in impairments and realized gains and losses from equity securities, net of policyholder participation, recognized from the application of these accounting policies with different transition rules. The reconciliation adjustments to net income for the years ended December 31, 2004 and 2003, represent the elimination of impairments of equity securities that result from the retrospective application of these changes to the Allianz Group’s accounting policies under IFRS.
Reversals of impairments of debt securities
In accordance with IFRS, if the amount of the impairment previously recorded on a debt security decreases and the decrease can be objectively related to an event occurring after the impairment, such as an improvement in the debtor’s credit rating, the impairment is reversed through net income. Such reversals cannot result in a carrying amount of a security in excess of the carrying amount prior to the impairment. In accordance with US GAAP, reversals of impairments recorded on debt securities are not permitted. Therefore, the reconciliation adjustment to net income represents the elimination of the reversal of impairments on debt securities, net of policyholder participation.
Reversal of realized gains from the disposal of available-for-sale debt and equity securities acquired in transactions between equity holders
As further described under “Acquisitions and Disposals of Minority Interests”, the reconciliationadjustment to net income for the year ended December 31, 2005, includes the reversal of net realized gains, net of policyholder participation, related to disposals of debt and equity securities recorded under IFRS as a result of purchase accounting adjustments recorded in accordance with US GAAP related to transactions with equity holders. As of December 31, 2005, the amount of the cost basis, net of policyholder participation and minority interests, of the related securities was €274 mn higher under US GAAP than under IFRS.
Realized gains from equity securities
On the date the Allianz Group no longer exercises significant influence over an investee accounted for under the equity method, the investment is transferred to securities available-for-sale and it is recorded at fair value with its previous carrying amount becoming its cost basis. The carrying amount prior to transfer, as determined in accordance with IFRS and US GAAP may be different. Subsequent to the transfer, these differences in cost basis are realized upon disposal of the equity securities. As a result of the sale of certain equity securities, which previously were accounted for as associated companies, a differenceavailable-for-sale equity investments, and cominvest which will be first consolidated in the cost basis resulted in a lower amountfirst quarter of realized gains in accordance with US GAAP than in accordance with IFRS.
Foreign currency exchange differences from debt securities
2009. In accordance with IFRS, foreign currency exchange differences from debt securities are recognized in net income. In accordance with US GAAP, foreign currency exchange differences from debt securities are recognized directly in equity as foreign currency translation adjustments. Therefore, the reconciliation adjustment to net income for the year ended December 31, 2005, represents the elimination of the foreign currency exchange differences from debt securities, net of policyholder participation, under US GAAP. During the year ended December 31, 2005, the Allianz Group significantly increased its average balance of debt securities denominated in a foreign currency. This increase, together with the strengthening of the Euro, resulted in the significant amount of foreign
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
currency exchange gains recognized in net income under IFRS. During the years ended December 31, 2004addition, Commerzbank AG and 2003, foreign currency exchange differences were not material to the Allianz Group’s net income.
Valuation of equity instruments
In accordance with IFRS, investments in equity instruments that do not have a quoted market price in an active market with fair values that can be reliably measured are recorded at fair value. In accordance with US GAAP, investments in equity instruments that do not have a quoted market price in an active market are recorded at cost. The Allianz Group has an investment in equity instruments that do not have a quoted market price in an active market; however, which the Allianz Group can reliably measure. Therefore, for IFRS reporting purposes the Allianz Group records its investment in equity instruments at fair value with changes in fair value recorded through shareholders’ equity. Under US GAAP the AllianzGroup records its investment in these equity instruments at cost. Therefore, the reconciliation adjustment to shareholders’ equity eliminates the unrealized gains recorded under IFRS for these equity instruments.
Loans and receivables
As described in Note 3, as a result of the adoption of IAS 39 revised, the Allianz Group reclassified certain available-for-sale debt securities to loans and advances to banks and loans and advances to customers. IAS 39 revised required retrospective application of this change to the Allianz Group’s accounting policies. In accordance with US GAAP, these securities continue to be classified as available-for-sale debt securities. Therefore, the reconciliation adjustment to shareholders’ equity represents the unrealized gains and losses related to the available-for-sale debt securities, net of policyholder participation, under US GAAP.
(d) Real estate
A summary of the reconciliation adjustments relating to real estate is as follows:
Net Income | Shareholders’ Equity(1) | ||||||||||||||
For the years ended December 31, | As of December 31, | ||||||||||||||
2005 | 2004 | 2003 | 2005 | 2004 | |||||||||||
€ mn | € mn | € mn | € mn | € mn | |||||||||||
Purchase accounting differences resulting from transactions between equity holders | (1 | ) | — | — | 117 | — | |||||||||
Impairments of real estate | 21 | (41 | ) | (2 | ) | (20 | ) | (41 | ) | ||||||
Realized gains from real estate | (211 | ) | (157 | ) | — | (396 | ) | (185 | ) | ||||||
Total | (191 | ) | (198 | ) | (2 | ) | (299 | ) | (226 | ) | |||||
Purchase accounting differences resulting from transactions between equity holders
As further described under “Acquisitions and Disposals of Minority Interests”, the reconciliation adjustment to net income for the year ended December 31, 2005 and shareholders’ equity as of December 31, 2005, includes depreciation expense and a higher cost basis of real estate as a result of purchase accounting adjustments recorded in accordance with US GAAP related to transactions with equity holders.
Impairments of real estate
In accordance with IFRS, if the amount of a previously recognized impairment decreases, the impairment is reversed through net income. However, such reversals do not result in a carrying amount that exceeds what would have been the carrying amount had the impairment not been recorded. In accordance with US GAAP, reversals of impairments recorded on real estate are not permitted. Further, under IFRS to determine if real
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
estate is impaired discounted cash flows are utilized, whereas, under US GAAP undiscounted cash flows are utilized. As a result, certain impairments were recorded under IFRS that were not recorded under US GAAP during the year ended December 31, 2005. Therefore, the reconciliation adjustments to net income and shareholders’ equity represent the elimination of reversals of impairments of real estate less the related accumulated depreciation and differences in impairments recorded during the year ended December 31, 2005.
Realized gains from real estate
The Allianz Group entered into certain sales leaseback transactions that resulted in the Allianz Group recognizinga long-term distribution agreement. According to IFRS 5, OCI components of €(0.4) bn were realized gains from the salewith completion of the real estate and treating the leases as operating leases in accordance with IFRS. In accordance with US GAAP, the Allianz Group is required to defer and amortize over the related lease term these realized gains. Therefore, the reconciliation adjustment to net income and shareholder’s equity represents the reversals of realized gains, net of accumulated amortization.entire transaction.
(e) Equity method investees/subsidiaries
As further described under “Acquisitions and Disposals of Minority Interests”, the reconciliation adjustment to net income for the year ended December 31, 2005, includes €50 mn of realized gains as a result of the sale of shares by a subsidiary under US GAAP. These realized gains were recorded directly in shareholders’ equity under IFRS.
In addition, during the first quarter of the year ended December 31, 2003, the Allianz Group reduced its shareholdings in Munich Re from 22.4% to slightly less than 20%. As a result, as of March 31, 2003, Munich Re was no longer accounted for as an associated company. Additionally, on October 23, 2003, the Allianz Group sold a significant part of its 43.6% ownership in Beiersdorf AG to Tchibo Holding AG, Hamburg, HGV Hamburger Gesellschaft für Vermögens und Beteiligungsverwaltung, Hamburg und Troma Alters-und Hinterbliebenenstiftung, Hamburg. The disposal was effective in December 2003 andresulted in Allianz Group’s ownership in Beiersdorf AG being less than 20%. As a result, Beiersdorf AG was no longer accounted for as an associated company at December 31, 2003. The carrying amounts of these two investments were transferred to securities available for sale upon the discontinuation of equity method accounting.
In accordance with IFRS, associated companies are accounted for under the equity method, in which the Allianz Group records its share of the net income or loss of the associate as reported on an IFRS basis. For US GAAP, adjustments have been made to calculate net income and equity of significant associates on the basis of US GAAP. The reconciliation adjustment to net income for the year ended December 31, 2003, results from this difference.
(f) Restructuring charges
Under IFRS, restructuring provisions include certain partial or early retirement provisions that are recognized in their entirety upon the employee accepting the partial or early retirement offer. Under US GAAP, these partial or early retirement provisions are recognized over the service period. Therefore, the reconciliation adjustment to net income and shareholder’s equity represents the recognition of compensation expense.
(g) Deferred compensation
In accordance with terms of employment contracts, the Allianz Group has deferred the payment of certain amounts of incentive compensation awards to employees. Employees vest in the deferred amounts over three years. In accordance with IFRS, these deferred amounts are recognized as expense in the year of the award, which is when the Allianz Group is constructively obligated to pay the award. In accordance with US GAAP, the deferred amounts are recognized as expense over the period in which the employee provides services to the Allianz Group, which is considered to be the three-year vesting period. Therefore, the reconciliation adjustment to net income and shareholder’s equity represents the recognition of compensation expense.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
(h) Guarantees
Under IFRS, guarantees related to indemnifications are not recorded unless it is probable a loss will occur. In accordance with US GAAP, guarantees related to indemnification contracts are required to be recorded at fair value. RelatedSubsequent to the sale, of certain investments, the Allianz Group recordedrepurchased Colleraterized Debt Obligations (CDOs) for a liability related to guarantees for US GAAP.
(i) Financial assets and liabilities designated at fair value through income
As described in Note 3, a resultconsideration of the adoption of IAS 39 revised, the Allianz Group reclassified certain available-for-sale securities to financial assets designated at fair value through income. Under US GAAP, these financial assets and liabilities will continue to be accounted for as available-for-sale securities. In addition, the Allianz Group reclassified certain financial liabilities to financial liabilities designated at fair value. IAS 39 required retrospective application of these changes. Therefore, the reclassification adjustments to net income andshareholders’ equity represent the elimination of these changes under US GAAP.
(j) Derivatives on own shares
Under IFRS, written put options on own shares which require physical settlement are recorded initially in shareholders’ equity for the option premium received and as a liability, with an offsetting decrease in shareholders’ equity, for the present value of the redemption amount. Until maturity, the liability is accreted to the redemption amount with the change being recorded as interest expense. Under US GAAP, written put options are initially and subsequently recorded as liabilities at fair value with changes recorded in net income. Therefore, the reconciliation adjustment to net income includes the reversal of accretion recorded under IFRS and recording changes in the fair value of the written put options required under US GAAP. The reconciliation adjustment to shareholders’ equity represents the impacts on net income and the reversal of the liability recorded under IFRS for the present value of the redemption amount.
(k) Insurance liabilities
A summary of the reconciliation adjustments relating to insurance liabilities is as follows:
Net Income | Shareholders’ Equity(1) | ||||||||||
For the years ended December 31, | As of December 31, | ||||||||||
2005 | 2004 | 2003 | 2005 | 2004 | |||||||
€ mn | € mn | € mn | € mn | € mn | |||||||
Discretionary participation features | 5 | 37 | (10 | ) | 266 | 35 | |||||
Purchase accounting differences resulting from transactions between equity holders | 3 | — | — | 35 | — | ||||||
Total | 8 | 37 | (10 | ) | 301 | 35 | |||||
Discretionary participation features
As described in Note 3, the adoption of IFRS 4 resulted in the Allianz Group recognizing a liability for certain discretionary participating features. IFRS 4 requires retrospective application of this change. Under US GAAP, these discretionary participating features are not recognized. Therefore, the reconciliation adjustment to net income andshareholders’ equity represents the elimination of these liabilities under US GAAP.
Purchase accounting differences resultingabout €1.1 bn from transactions between equity holders
As further described under “Acquisitions and Disposals of Minority Interests”, the reconciliation adjustment to net income for the year ended
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
December 31, 2005 and shareholders’ equity as of December 31, 2005, includes adjustments to the carrying amount of insurance liabilities, including utilization of different discount rates for aggregate policy reserves and discounting reserves for loss and loss adjustment expenses as a result of purchase accounting adjustments recorded in accordance with US GAAP related to transactions with equity holders.
(l) Share based compensation
As described in Note 3, the adoption of IFRS 2 resulted in a change to the Allianz Group’s accounting policy for the Class B Plan of PIMCO LLC. As a result of the shares issued under the Class B plan being puttable by the holder, the shares issued are required to be classified as a cash settled plan under IFRS. Therefore, the shares issued under the plan are recognized as liabilities and measured at fair value with changes recognized in net income. IFRS 2 requires retrospective application of this change. Under US GAAP, the Class B Plan continues to be classified an equity settled plan. Therefore, the reconciliation adjustment to net income and shareholders’ equity represents the elimination of the additional compensation expense recognized under IFRS for these shares.
(m) Income taxes
In accordance with IFRS, the effect on deferred taxes resulting from a change in tax laws or rates is recognized in the income statement except to the extent the change relates to transactions recognized directly in shareholders’ equity. The effect on deferred taxes for transactions originally recognized directly in shareholders’ equity are allocated directly to shareholders’ equity.
In accordance with US GAAP, the effect on deferred taxes of a change in tax laws or rates is recognized in the income statement including the effect for transactions originally recognized directly in shareholders’ equity.
The following table indicates the amounts recognized in US GAAP net income for changes in tax laws and rates related to transactions recognized directly to shareholders’ equity under IFRS:
For the years ended December 31, | 2005 | 2004 | 2003 | |||||
€ mn | € mn | € mn | ||||||
Before elimination of minority interests | (13 | ) | — | 25 | ||||
After elimination of minority interests | (13 | ) | — | (80 | ) |
The adjustment concerning the change in tax laws and tax rates during the year ended December 31, 2003, primarily relates to a change in tax law in Germany in December 2003 affecting life/health insurance companies through the taxation of capital gains and dividends effective beginning January 1, 2004. Additionally, the net income adjustment for the year ended December 31, 2003 also includes a reduction in the federal tax rates within Italy (effective January 1, 2004), as well as a change in tax law whereby all unrealized gains/losses and impairments/reversals of impairments on participations in strategic investments have become exempt from taxation (effective January 1, 2004).
The tax effect of all other US GAAP adjustments, primarily investments and intangibles, during the years ended December 31, 2005, 2004 and 2003, amounted to tax benefits of €268 mn, €168 mn and €332 mn, respectively.
The Allianz Group has elected to utilize the portfolio method in its US GAAP accounting treatment for the accumulated deferred tax amounts recorded within shareholders’ equity which relate to the net unrealized gains of available-for-sale securities that are no longer taxable. Under the portfolio method, the accumulated deferred tax amounts recorded within stockholders’ equity will not be recognized in the income statement as income tax expense in future periods as long as the Allianz Group maintains an available-for-sale investment portfolio.
(n) Minority interest in earnings
The reconciliation adjustment to net income represents the effect of the US GAAP adjustments on minority interests in earnings. The reconciliation
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
adjustment to shareholders’ equity represents effect of the US GAAP adjustments on minority interests in shareholders’ equity and the reclassification of minority interests in shareholders’ from equity under IFRS to liability under US GAAP and the reclassification of certain puttable instruments to liabilities.
The following table represents the reconciliation of the Allianz Group’s minority interests in shareholders’ equity between IFRS and US GAAP:
Shareholders’ Equity | ||||
As of December 31, | 2005 | 2004 | ||
€ mn | € mn | |||
Amounts determined in accordance with IFRS | 7,615 | 7,696 | ||
Valuation and recognition differences as noted above | 69 | 36 | ||
Reclassification of puttable instruments related to consolidated investment funds from liabilities | 3,137 | 1,389 | ||
Reclassification of puttable instruments related to share based compensation from liabilities | 598 | 410 | ||
Total | 11,419 | 9,531 | ||
Acquisitions and Disposals of Minority Interests
As described in Note 3, the Allianz Group changed its accounting policy for accounting for the acquisition or disposal of a minority interest in shareholders’ equity for subsidiaries, or companies under control, of the Allianz Group. IFRS 3 does not specifically address these transactions, as the scope of IFRS 3 is limited to accounting for transactions in which the Allianz Group obtains control over a company. The Allianz Group has adopted an accounting policy to treat these acquisitions as transactions between equity holders. Therefore, the acquisition of a minority interest does not result in an allocation of the acquisition cost to the respective fair value of the assets acquired and liabilities assumed. Rather, the excess of the acquisition cost over the Allianz Group’s carrying amount is recognized as a reduction of equity. Similarly, the disposal of a minority interest does not result in any realized gain or loss. The Allianz Group has applied thisaccounting policy to all acquisitions of a minority interest in shareholders’ equity on or after January 1, 2005.
As required under US GAAP, the Allianz Group utilizes purchase accounting to allocate the acquisition cost of an acquisition of a minority interest to the fair value of the assets acquired and liabilities assumed. Further, for disposals of minority interests, the Allianz Group recognizes a realized gain or loss for any difference between the carrying amount of the minority interest disposed and the proceeds received. As result, for transactions involving minority interests after January 1, 2005, the IFRS to US GAAP reconciliation includes the effects of these accounting policies.
The primary transactions impacted by this difference during the year ended December 31, 2005, include the acquisition of an additional interest of 20.7% in Riunione Adriactica di Sicurta S.p.A. (“RAS”) and the acquisition of an additional interest of 3.4% in Allianz Global Investors of America L.P. (“AGI LP”). A summary of the preliminary purchase accounting effects, based upon preliminary valuations, recorded on the date of acquisition of these interests under US GAAP is as follows:
RAS | AGI LP and other | ||||
€ mn | € mn | ||||
Goodwill | 1,148 | 196 | |||
PVFP | 334 | — | |||
Deferred acquisition costs | (198 | ) | — | ||
Customer relationships | 16 | — | |||
Real estate | 118 | — | |||
Reserves for loss and loss adjustment expenses | 58 | — | |||
Aggregate policy reserves | (30 | ) | — | ||
Deferred tax liabilities | (107 | ) | — | ||
Total | 1,339 | 196 | |||
The preliminary purchase accounting effects may be adjusted up to one year from the acquisition date upon the finalization of the valuation process. In addition, the Allianz Group continues to evaluate the recognition of separately identifiable intangible assets and the relevant amortization period for recognized intangible assets.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
The goodwill resulting from these transactions has been allocated to the segments expected to benefit from the transactions as follows:
RAS | AGI LP and other | ||||
€ mn | € mn | ||||
Property-Casualty | 949 | (15 | ) | ||
Life/Health | 111 | (6 | ) | ||
Banking | — | — | |||
Asset Management | 88 | 217 | |||
Total | 1,148 | 196 | |||
Presentation Differences
In addition to the valuation and recognition differences, other differences, essentially related to presentation, exist between IFRS and US GAAP. Although there is no impact on IFRS and US GAAP reported net income or shareholders’ equity due to these differences, it may be useful to understand them to interpret the condensed consolidated financial statements presented in accordance with US GAAP in this note. The following is a summary of presentation differences that relate to the Allianz Group’s consolidated financial statements presented in accordance with IFRS and the condensed consolidated financial statements presented in accordance with US GAAP:
Balance sheet:
1. The Allianz Group’s interest in Eurohypo AG, classified as assets held for sale in other assets under IFRS, is classified in investments under US GAAP, as equity method investees do not qualify for assets held for sale under US GAAP.
2. Investments in associated enterprises and joint ventures are presented in investments excluding funds held by others under reinsurance contracts assumed. Fund held by other under reinsurance contracts are presented in other assets.
3. When the Allianz Group is the lender in a lending agreement and receives securities as collateral that can be pledged or sold, it recognizes the securities received and corresponding obligations to return them. These securities are reflected as assets in the US GAAP condensed balance sheet in the line “Securities received as collateral”. The offsettingliability is presented in the line “Obligation to return securities received as collateral”.
4. Assets and liabilities that qualify for separate account treatment under SOP 03-1 are classified separately on the balance sheet for US GAAP. Investment income related to financial assets for unit linked contracts that do not qualify for this treatment is presented gross in trading income with an offset in benefits, claims, and loss expenses incurred.
5. During 2005, Dresdner Bank AG completed the saleAG. Furthermore, Allianz will provide a silent participation of certain portfolios of loans. For IFRS reporting purposes, the loans were derecognized. For US GAAP reporting purposes, the transactions did not meet the criteria to be derecognized. Therefore, the loans are included€750 mn in loans (net) with a corresponding amount included in other liabilities. In addition, Dresdner Bank AG completed a synthetic sale of certain private equity investments. For IFRS reporting purposes the private equity investments were derecognized. For US GAAP reporting purposes, the transactions did not meet the criteriaAG. The terms are identical to be derecognized. Loans to banks and customers are presented as loans (net).
6. Other assets are allocated among interest and fees receivable, premium and insurance balances receivables (net), reinsurance recoverables, deferred policy acquisition costs, and other assets.
7. Deferred tax assets and liabilities are presented net.
8. Unearned premiums includedSoFFin’s silent participation in insurance reserves are disclosed separately.Commerzbank AG.
9. Liabilities to banks and liabilities to customers, less amounts for repurchase agreements and registered bonds, are presented separately as deposits.
10. Certificated liabilities, participation certificates and subordinated liabilities, registered bonds and amounts for repurchase agreements are presented as short-term borrowings and long-term debt.
11. Other accrued liabilities, other liabilities, and deferred income are presented within other liabilities.
12. Minority interests in consolidated subsidiaries are excluded from shareholders’ equity.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Income statement:
13. Other income from investments and other expenses from investments is presented net as realized investment gains and losses.
14. Fee and commission income is presented net of fee and commission expenses by reclassification from acquisition and administrative expenses and other expenses. Other fees are reclassified from other income.
15. Interest and similar expenses are primarily allocated among interest on deposits, interest on short-term borrowings, and interest on long-term debt, as appropriate.
16. Administrative expenses from the Banking and Asset Management segments are presented in other expenses.
17. Reinsurance expenses are reclassified from other expenses to acquisition and administrative expenses.
18. Other taxes are reclassified from taxes to other expenses.
19. Income from investments in associated enterprises and joint ventures is presented outside of revenues.
20. Results from discontinued operations is shown net in the income statement. As described in note 13, the disposal of Four Seasons Health Care Ltd. and BetterCare Group Limited meet the qualifications for discontinued operations under US GAAP.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Condensed consolidated balance sheet information
The following is condensed consolidated balance sheet information of the Allianz Group, reformatted to reflect the impacts of the valuation, recognition and presentation differences between IFRS and US GAAP:
As of December 31, | Reference | US GAAP | IFRS Reformatted | |||||||
2005 | 2004 | 2005 | 2004 | |||||||
€ mn | € mn | € mn | € mn | |||||||
Assets | ||||||||||
Cash and cash equivalents | 31,647 | 15,628 | 31,647 | 15,628 | ||||||
Trading account assets | i | 212,463 | 220,001 | 235,007 | 240,574 | |||||
Investments | c, d, i, 1 , 2 | 356,200 | 323,742 | 283,443 | 252,483 | |||||
Securities received as collateral | 3 | 11,300 | 26,199 | — | — | |||||
Separate account assets | 4 | 20,953 | 15,851 | — | — | |||||
Loans (net) | c, 5 | 271,569 | 313,839 | 336,808 | 377,223 | |||||
Loans held for sale | — | 1,591 | — | — | ||||||
Interest and fees receivable | 6 | 5,474 | 5,286 | 5,474 | 5,286 | |||||
Premium and insurance balances receivables (net) | 6 | 7,691 | 7,579 | 7,691 | 7,579 | |||||
Reinsurance recoverables | 6 | 24,589 | 24,447 | 24,589 | 24,447 | |||||
Deferred policy acquisition costs | a, 6 | 15,389 | 13,474 | 15,586 | 13,474 | |||||
Goodwill and other intangible assets | a, b | 20,565 | 18,786 | 15,385 | 15,147 | |||||
Other assets | d, h, l, 1, 2, 5, 6 | 26,848 | 24,907 | 27,655 | 24,338 | |||||
Total assets | 1,004,688 | 1,011,330 | 983,285 | 976,179 | ||||||
Liabilities and Shareholders’ Equity | ||||||||||
Insurance policy and claims reserves | c, i, k, 4, 8 | 382,522 | 343,145 | 345,834 | 314,330 | |||||
Deposits | i, 9 | 201,211 | 220,677 | 201,033 | 220,533 | |||||
Liabilities held for separate accounts | 20,953 | 15,848 | — | — | ||||||
Unearned premiums | 8 | 13,303 | 12,050 | 13,303 | 12,050 | |||||
Short-term borrowings | 10 | 135,101 | 151,622 | 135,101 | 151,622 | |||||
Long-term debt | 10 | 48,326 | 47,330 | 48,069 | 47,311 | |||||
Trading account liabilities | i, j, 4 | 85,150 | 102,141 | 144,640 | 145,137 | |||||
Obligations to return securities | 3 | 11,300 | 26,199 | — | — | |||||
Net deferred tax liabilities | a, b, c, d, f, g, h, i , j, k, l, 7 | 226 | 948 | 25 | 211 | |||||
Other liabilities | b, d, f, g, h, l, 5, 11 | 50,794 | 48,459 | 48,178 | 47,294 | |||||
Total liabilities | 948,886 | 968,419 | 936,183 | 938,488 | ||||||
Minority interests in consolidated subsidiaries | c, d, h, i , k, l, 12 | 11,419 | 9,531 | 7,615 | 7,696 | |||||
Shareholders’ equity before minority interests | a, b, c, d, f, g, h, i , j, k, l | 44,383 | 33,380 | 39,487 | 29,995 | |||||
Total liabilities and shareholders’ equity | 1,004,688 | 1,011,330 | 983,285 | 976,179 | ||||||
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Condensed consolidated income statement information
The following is condensed consolidated income statement information of the Allianz Group, reformatted to reflect the impacts of the valuation, recording and presentation differences between IFRS and US GAAP:
For the years ended December 31, | Reference | US GAAP | IFRS Reformatted | |||||||||||||||||
2005 | 2004 | 2003 | 2005 | 2004 | 2003 | |||||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | |||||||||||||||
Premiums earned (net) | 57,747 | 56,789 | 55,978 | 57,747 | 56,789 | 55,978 | ||||||||||||||
Interest and similar income | 20 | 22,315 | 21,041 | 22,592 | 22,341 | 20,956 | 22,510 | |||||||||||||
Trading income | i, j, 4, 20 | 3,513 | 2,813 | 243 | 1,159 | 1,658 | 519 | |||||||||||||
Realized investment gains and losses (net) | c, d, 13 | 1,977 | 1,716 | (721 | ) | 3,031 | 2,507 | 3,038 | ||||||||||||
Commissions and fees | 14, 20 | 6,746 | 5,902 | 5,418 | 7,318 | 6,065 | 5,418 | |||||||||||||
Other income | 14, 20 | 1,737 | 2,016 | 3,021 | 1,739 | 1,993 | 3,074 | |||||||||||||
Total income | 94,035 | 90,277 | 86,531 | 93,335 | 89,968 | 90,537 | ||||||||||||||
Interest on deposits | 15, 20 | (2,719 | ) | (1,993 | ) | (2,297 | ) | (2,719 | ) | (1,950 | ) | (2,297 | ) | |||||||
Interest on short-term borrowings | 15, 20 | (793 | ) | (1,380 | ) | (2,096 | ) | (793 | ) | (1,379 | ) | (2,096 | ) | |||||||
Interest on long-term debt | 15, 20 | (2,780 | ) | (2,350 | ) | (2,478 | ) | (2,858 | ) | (2,374 | ) | (2,478 | ) | |||||||
Total interest expense | (6,292 | ) | (5,723 | ) | (6,871 | ) | (6,370 | ) | (5,703 | ) | (6,871 | ) | ||||||||
Total income, net of interest expense | 87,743 | 84,554 | 79,660 | 86,965 | 84,265 | 83,666 | ||||||||||||||
Benefits, claims, and loss expenses incurred | c, k | (56,171 | ) | (53,326 | ) | (50,432 | ) | (53,797 | ) | (52,255 | ) | (52,240 | ) | |||||||
Provision for loan losses | 109 | (354 | ) | (1,027 | ) | 109 | (354 | ) | (1,027 | ) | ||||||||||
Total provisions for losses, loss expenses, and loan losses | (56,062 | ) | (53,680 | ) | (51,459 | ) | (53,688 | ) | (52,609 | ) | (53,267 | ) | ||||||||
Insurance underwriting, acquisition and insurance expenses | a, c, 13, 20 | (15,149 | ) | (14,994 | ) | (13,807 | ) | (15,560 | ) | (15,079 | ) | (14,061 | ) | |||||||
Goodwill and other intangibles amortization | a | (264 | ) | (349 | ) | (507 | ) | — | (1,164 | ) | (1,413 | ) | ||||||||
Other expenses | f, g, l, 14, 16, 17, 18, 20 | (10,749 | ) | (10,718 | ) | (14,162 | ) | (11,146 | ) | (11,147 | ) | (14,128 | ) | |||||||
Total operating expenses | (26,162 | ) | (26,061 | ) | (28,476 | ) | (26,706 | ) | (27,390 | ) | (29,602 | ) | ||||||||
Income before income (net) from investments in associated enterprises and joint ventures, income tax expense, and minority interests | 5,519 | 4,813 | (275 | ) | 6,571 | 4,266 | 797 | |||||||||||||
Income (net) from investments in associated enterprises and joint ventures | d, h, 19, 20 | 1,037 | 768 | 3,115 | 1,257 | 777 | 3,014 | |||||||||||||
Income tax (expense)/benefit | a, b, c, d, e, f, g, h, i, j, k, l, 18, 20 | (1,794 | ) | (1,443 | ) | 163 | (2,062 | ) | (1,609 | ) | (194 | ) | ||||||||
Income before minority interests | 4,762 | 4,138 | 3,003 | 5,766 | 3,434 | 3,617 | ||||||||||||||
Minority interests in income of consolidated subsidiaries | c, d, h, i, k, l, 20 | (1,078 | ) | (1,248 | ) | (758 | ) | (1,386 | ) | (1,168 | ) | (926 | ) | |||||||
Income from continuing operations | 3,684 | 2,890 | 2,245 | 4,380 | 2,266 | 2,691 | ||||||||||||||
Discontinued operations | 19 | 9 | (9 | ) | — | — | — | — | ||||||||||||
Net income | 3,693 | 2,881 | 2,245 | 4,380 | 2,266 | 2,691 | ||||||||||||||
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Cash flows
The cash flow statement has been prepared under the provisions of IAS 7,Cash Flow Statements (“IAS 7”). The presentation requirements of IAS 7 vary in some respects from the presentation requirements of US GAAP. These presentation differences are summarized as follows:
Cash flows from operating activities include the following item that would be included in cash flows from investing activities under US GAAP:
During the year ended | 2005 | 2004 | 2003 | |||||
€ mn | € mn | € mn | ||||||
Change in loans and advances to banks and customers | (2,451 | ) | (726 | ) | 14,768 |
Cash flows from operating activities include the following items that would be included in cash flows from financing activities under US GAAP:
During the year ended | 2005 | 2004 | 2003 | ||||||
€ mn | € mn | € mn | |||||||
Change in liabilities to banks and customers | (18,418 | ) | (16,926 | ) | 19,842 | ||||
Change in certificated liabilities | 1,569 | 5,786 | (14,393 | ) |
Net income per shareclaims from the storms “Klaus” and “Quinten” in Southwest Europe and the bushfires in Australia
Net income per share is calculated excludingUntil end of February 2009 several natural catastrophes took place. Based on the effect of Allianz AG shares held by associated companies. During the years ended December 31, 2005 and 2004, associated companies did not hold any Allianz AG shares (2003: weighted-average of 3,728,666).
Recently issued US accounting pronouncements
In November 2005, the FASB issued FASB Staff Position FAS 115-1 and FAS 124-1,The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments(“FSP 115-1”). FAS 115-1 provides accounting guidance regarding the determination of when an impairment of debt and marketable equity securities and investments accounted for under the cost method should beconsidered other-than-temporary and recognized in income. FSP 115-1 is effective for the year ending December 31, 2006.
In December 2004, the FASB issued SFAS No. 123 (revised 2004),Share-Based Payment (“SFAS 123R”), which replaces SFAS No. 123,Accounting for Stock-Based Compensation, (“SFAS 123”) and supersedes APB Opinion No. 25,Accounting for Stock Issued to Employees. Due to ongoing discussions at the FASB,current information the Allianz Group has elected notexpected net claims to early adopt SFAS 123R. SFAS 123R is effective for the year ending December 31, 2006.an amount of approximately €236 mn before taxes:
In November 2005, the FASB issued FASB Staff Position No. 45-3,Application of FASB Interpretation No. 45 to Minimum Revenue Guarantees Granted to a Business or its Owners (“FSP No. 45-3”), which amended FASB Interpretation No. 45 to require that the recognition and measurement provisions be applied to new or modified minimum revenue guarantees. FSP No. 45-3 is effective for the year ended December 31, 2006.
In September 2005, AcSEC issued SOP 05-1, Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection with Modifications or Exchanges of Insurance Contracts (“SOP 05-1”). SOP 05-1 provides guidance on accounting by insurance enterprises for deferred acquisition costs on internal replacements of insurance and investment contracts other than those specifically described in FASB No. 97. SOP 05-1 defines an internal replacement as a modification in product benefits, features, rights, or coverages that occurs by the exchange of a contract for a new contract, or by amendment, endorsement, or rider to a contract, or by the election of a feature or coverage within a contract. SOP 05-1 is effective for the year ended December 31, 2007.
In February 2006, the FASB issued SFAS 155,Accounting for Certain Hybrid Financial Instruments (“SFAS 155”). SFAS 155 permits fair value measurement for any hybrid financial instrument that contains an embedded derivative that would require bifurcation. SFAS 155 is effective for the year ended December 31, 2007.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
The Allianz Group is currently assessing the impact of the new standards on its condensed consolidated financial statements presented in accordance with US GAAP contained in this footnote.
Recently adopted US accounting pronouncements
In March 2004, the EITF reached consensus on Issue No. 03-6, Participating Securities and the Two-Class Method under FASB Statement No. 128 (“EITF 03-6”). EITF 03-6 provides guidance in determining whether a security should be considered a participating security for purposes of computing earnings per share and how earnings should be allocated to the participating security. EITF 03-6 was effective for the year ended December 31, 2005 and did not have a material effect on the Allianz Group’s condensed consolidated financial statements presented in accordance with US GAAP contained in this footnote.
In March 2004, the EITF reached consensus on Issue No. 03-16,Accounting for Investments in Limited Liability Companies(“EITF 03-16”). EITF 03-16 provides guidance regarding whether a limited liability company should be viewed as similar to a corporation or similar to a partnership for purposes of determining whether a noncontrolling investment should be accounted for using the cost method or the equity method of accounting. EITF 03-16 was effective for the year ended December 31, 2005 and did not have a material effect on the Allianz Group’s condensed consolidated financial statements presented in accordance with US GAAP contained in this footnote.
In June 2004, the EITF reached a consensus on Issue 02-14,Whether the Equity Method of Accounting Applies When an Investor Does Not Have an Investment in Voting Stock of an Investee but Exercises Significant Influence through Other Means (“EITF 02-14”). The consensus reached indicates that in situations where an investor has the ability to exercise significant influence over the investee, an investor should apply the equity method of accounting only when it has either common stock or “in-substance” common stock of a corporation. EITF 02-14 prohibits the application of the equity method in instances where an investment is neithercommon stock nor “in-substance” common stock. EITF 02-14 was effective for the year ended December 31, 2005 and did not have a material effect on the Allianz Group’s condensed consolidated financial statements presented in accordance with US GAAP contained in this footnote.
In December 2003, the Accounting Standards Executive Committee of the AICPA issued Statement of Position 03-3 (“SOP 03-3”),Accounting for Certain Loans or Debt Securities Acquired in a Transfer, which addresses the accounting for certain loans acquired in a transfer when it is probable, at acquisition, that the investor will be unable to collect all contractually required payments receivable. SOP 03-3 requires acquired loans with evidence of credit deterioration to be recorded at fair value and prohibits recording any valuation allowance related to such loans at the time of purchase. This SOP limits the yield that may be accreted on such loans to the excess of the investor’s estimated cash flows over its initial investmentStorm “Klaus” in the loan. The excessSouthwest of contractual cash flows over cash flows expected to be collected is not to be recognized as an adjustmentFrance and parts of yield. Subsequent increasesSpain (€163 mn)
Winterstorm “Quinten” in cash flows expected to be collected are recognized prospectively through adjustment of the loan’s yield over its remaining life. DecreasesFrance (€32 mn)
Bushfires in cash flows expected to be collected are recognized as impairment. Loans carried at fair value, mortgage loans held for sale, and loans to borrowers in good standing under revolving credit agreements are excluded from the scope of SOP 03-3. SOP 03-3 was effective for the year ended December 31, 2005 and did not have a material effect on the Allianz Group’s condensed consolidated financial statements presented in accordance with US GAAP contained in this footnote.Australia (€41 mn).
Variable Interest Entities
In December 2003, the FASB issued FASB Interpretation No. 46(R),Consolidation of Variable Interest Entities (“FIN 46R”), which revised the original FIN 46 guidance issued in January 2003. FIN 46R introduces a new concept of a variable interest entity (VIE) and determining when an entity should include the assets, liabilities, noncontrolling interests and results of activities of a VIE in its consolidated financial statements. A VIE is an entity (1) that has a total equity investment at risk that is not
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
sufficient to finance its activities without additional subordinated financial support from other parties, or (2) where the group of equity owners does not have the ability to make significant decisions about the entity’s activities through voting or similar rights, or the obligation to absorb the entity’s expected losses, or the right to receive the entity’s expected residual returns.
FIN 46R requires that a VIE be consolidated if a party with an ownership, contractual or other financial interest in the VIE is obligated to absorb a majority of the risk of loss from the VIE’s activities, is entitled to receive a majority of the VIE’s residual returns, or both. The holder of a variable interest that consolidates the VIE is the primary beneficiary. Upon consolidation, the primary beneficiary generally must initially record all of the VIE’s assets, liabilities and noncontrolling interests at fair value and subsequently account for the VIE as if it were consolidated based on majority voting interest.
The Allianz Group is involved with a variety of VIEs including asset securitization entities, investment funds and investment conduits. The Allianz Group is involved in asset securitization entities through arranging, facilitating, and in certain cases, managing investment conduits for banking customers in connection with asset-backed security transactions where the VIEs receive the underlying assets, such as trade or finance receivables from the Allianz Group’s banking customers and securitizes such assets to provide customers with cost-efficient financing.
In providing these services, the Allianz Group may in some instances have a financial interest in such financing structures. However, the risk of financial loss may be mitigated throughparticipations in such losses by other third-party investors.
The Allianz Group also engages in establishing and managing investment fund VIEs with the goal of developing, marketing and managing these funds. During the establishment phase of these funds, the Allianz Group may provide initial capital for the VIEs to acquire securities until sufficient third-party investors purchase participations in the funds or the VIEs are terminated. Certain of these VIE’s funds may include capital maintenance and/or performance guarantees given to the investors. These guarantees differ both in terms of amount and duration according to the relevant arrangements. The Allianz Group receives fee and commission income from investors for the management of these VIEs.
The Allianz Group adopted the provisions of FIN 46R on the date the relationship began for all VIEs that the Allianz Group became involved with after January 31, 2003. For all relationships with VIEs that began before February 1, 2003, the Allianz Group adopted the provisions of FIN 46R on January 1, 2004.
On January 1, 2004, the Allianz Group consolidated certain special purpose entities, established prior to February 1, 2003, which are used to conduct asset securitizations of finance receivables that are sold to third-parties. The Allianz Group considers itself to be the primary beneficiary for these special purpose entities through its involvement in the capacity of program administrator, liquidity provider and credit enhancer. As of January 1, 2004, total assets held by these VIEs which had to be consolidated in the Allianz Group’s consolidated financial statements were €6,327 mn.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
The following table reflects all VIEs for which the Allianz Group is the primary beneficiary, however does not hold a majority voting interest. These VIEs are consolidated in the Allianz Group’s consolidated financial statements.
As of December 31, 2005 | ||||||||
Type of VIE | Total assets | Consolidated assets | Amount of consolidated assets which are collateral for VIE’s obligations | Creditor’s recourse to Allianz Group assets | ||||
€ mn | € mn | € mn | ||||||
Asset-backed securities transaction | 23,233 | Various receivables and corporate notes | 23,233 | — | ||||
Derivatives transactions | 4,443 | Derivatives, equity and cash balances | 4,443 | — | ||||
Investment funds | 23 | Fixed income, foreign exchange and derivative instruments | 23 | — | ||||
Other | 335 | Various receivables, equity instruments and cash and cash equivalents | 335 | — | ||||
Total | 28,034 | 28,034 | — | |||||
The following table reflects the VIEs for which the Allianz Group has a significant variable interest but which are not consolidated as the Allianz Group is not the primary beneficiary.
Type of VIE | As of December 31, 2005, | |||||
Nature of Allianz Group’s | Total assets | Allianz Group’s | ||||
€ mn | € mn | |||||
Investment funds | Guarantee obligations | 2,285 | 1,076 | |||
Investment funds | Investment manager and/or equity holder | 281 | 10 | |||
Vehicles primarily used for asset-backed security transactions | Arranger, establisher, servicer, liquidity provider and/or investment counterparty | 24,251 | 672 | |||
Vehicles used for CBO and CDO transactions | Investment manager and/or equity holder | 8,669 | 2 | |||
Other | Equity holder | 784 | 275 | |||
Total | 36,270 | 2,035 | ||||
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
4853 Selected subsidiaries and other holdings
OPERATING SUBSIDIARIES—GERMANY | Equity | % owned(*) | ||
€ mn | ||||
AGIS Allianz Dresdner Informationssysteme GmbH, Munich | 208 | 100.0 | ||
Allianz Capital Partners GmbH, Munich | 550 | 100.0 | ||
Allianz Dresdner Bauspar AG, Bad Vilbel | 6 | 100.0 | ||
Allianz Global Investors Advisory GmbH, Frankfurt am Main | 3 | 100.0 | ||
Allianz Global Investors AG, Munich | 3,036 | 100.0 | ||
Allianz Global Risks Rückversicherungs-AG, Munich | 351 | 100.0 | ||
Allianz Immobilien GmbH, Stuttgart | 5 | 100.0 | ||
Allianz Lebensversicherungs-Aktiengesellschaft, Stuttgart | 1,396 | 91.0 | ||
Allianz Marine & Aviation Versicherungs-AG, Hamburg | 122 | 100.0 | ||
Allianz Pensionskasse AG, Stuttgart | 116 | 100.0 | ||
Allianz Private Equity Partners GmbH, Munich | 0.04 | 100.0 | ||
Allianz Private Krankenversicherungs-Aktiengesellschaft, Munich | 335 | 100.0 | ||
Allianz ProzessFinanz GmbH, Munich | 0.4 | 100.0 | ||
Allianz Versicherungs-Aktiengesellschaft, Munich | 2,386 | 100.0 | ||
Allianz Zentrum für Technik GmbH, Munich | 0.2 | 100.0 | ||
Bayerische Versicherungsbank AG, Munich (was merged in January 2006 retroactively effective October 1, 2005 into Allianz Versicherungs-Aktiengesellschaft, Munich) | 275 | 100.0 | ||
DEGI Deutsche Gesellschaft für Immobilienfonds mbH, Frankfurt am Main | 124 | 94.0 | ||
Deutsche Lebensversicherungs-AG, Berlin | 40 | 100.0 | ||
Deutscher Investment-Trust Gesellschaft für Wertpapieranlagen mbH, Frankfurt am Main | 115 | 100.0 | ||
Dresdner Bank AG, Frankfurt am Main | 7,533 | 100.0 | ||
dresdner bank investment management Kapitalanlagegesellschaft mbH, Frankfurt am Main | 24 | 100.0 | ||
Euler Hermes Kreditversicherungs-AG, Hamburg | 161 | 100.0 | ||
Frankfurter Versicherungs-AG, Frankfurt am Main (was merged in January 2006 retroactively effective October 1, 2005 into Allianz Versicherungs-Aktiengesellschaft, Munich) | 299 | 100.0 | ||
Münchner und Magdeburger Agrarversicherung AG, Munich | 5 | 58.5 | ||
Oldenburgische Landesbank AG, Oldenburg | 94 | 89.4 | ||
Reuschel & Co. Kommanditgesellschaft, Munich | 234 | 97.5 | ||
Vereinte Spezial Krankenversicherung AG, Munich | 4 | 100.0 | ||
Vereinte Spezial Versicherung AG, Munich | 45 | 100.0 |
Operating Subsidiaries | Equity | % owned1) | |||
€ mn | |||||
Germany | |||||
Allianz Capital Partners GmbH, Munich | 0.03 | 100.0 | |||
Allianz Capital Partners Verwaltungs GmbH, Munich | 632 | 100.0 | |||
Allianz Climate Solutions GmbH, Munich | 0.04 | 100.0 | |||
Allianz Dresdner Bauspar AG, Bad Vilbel2) | 99 | 100.0 | |||
Allianz Global Corporate & Specialty AG, Munich | 778 | 100.0 | |||
Allianz Global Investors Advisory GmbH, Frankfurt/Main | 3 | 100.0 | |||
Allianz Global Investors AG, Munich | 2,401 | 100.0 | |||
Allianz Global Investors Europe GmbH, Munich | 17 | 100.0 | |||
Allianz Global Investors Kapitalanlagegesellschaft mbH, Frankfurt/Main | 146 | 100.0 | |||
Allianz Global Investors Product Solutions GmbH, Munich | 0.1 | 100.0 | |||
Allianz Lebensversicherungs-Aktiengesellschaft, Stuttgart | 1,456 | 100.0 | |||
Allianz Pension Partners GmbH, Munich | 0.5 | 100.0 | |||
Allianz Pensionskasse Aktiengesellschaft, Munich | 182 | 100.0 | |||
Allianz Private Equity Partners GmbH, Munich | 0.04 | 100.0 | |||
Allianz Private Krankenversicherungs-Aktiengesellschaft, Munich | 360 | 100.0 | |||
Allianz ProzessFinanz GmbH, Munich | 0.4 | 100.0 | |||
Allianz Real Estate Germany GmbH, Stuttgart | 5 | 100.0 | |||
Allianz Shared Infrastructure Services SE, Munich | 111 | 100.0 | |||
Allianz Treuhand GmbH, Munich | 0.01 | 100.0 | |||
Allianz Versicherungs-Aktiengesellschaft, Munich | 2,566 | 100.0 | |||
AZT Automotive GmbH, Ismaning | 0.2 | 100.0 | |||
Deutsche Lebensversicherungs-Aktiengesellschaft, Berlin | 56 | 100.0 | |||
Dresdner Bank Aktiengesellschaft, Frankfurt/Main2) | 2,496 | 100.0 | |||
Euler Hermes Kreditversicherungs-AG, Hamburg | 220 | 100.0 | |||
manroland AG, Offenbach | 332 | 100.0 | 3) | ||
Münchener und Magdeburger Agraversicherung Aktiengesellschaft, Munich | 7 | 62.5 | |||
Oldenburgische Landesbank Aktiengesellschaft, Oldenburg | 502 | 89.6 | |||
Reuschel & Co. Kommanditgesellschaft, Munich2) | 140 | 97.5 | |||
risklab germany GmbH, Munich | 0.03 | 100.0 | |||
Vereinte Spezial Krankenversicherung Aktiengesellschaft, Munich | 4 | 100.0 | |||
Vereinte Spezial Versicherung AG, Munich | 45 | 100.0 |
1) | Percentage includes equity participations held by dependent enterprises in full, even if the Allianz Group’s share in the dependent enterprise is under |
2) | No subsidiary of the Allianz Group since January 12, 2009 |
3) | Group share through indirect holder Roland Holding GmbH, Munich: 62.0% |
Property-Casualty |
Life/Health |
Banking |
Asset Management |
Corporate |
Operating entity contributes a substantial portion of our total revenues within our primary geographic markets. Total revenues comprise Property-Casualty segment’s gross premiums written, Life/Health segment’s statutory premiums, Banking segment’s operating revenues and Asset Management segment’s operating revenues. |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
OPERATING SUBSIDIARIES—OTHER COUNTRIES | Equity | % owned(1) | |||
€ mn | |||||
Adriática de Seguros C. A., Caracas | 20 | 97.0 | |||
AGF Allianz Argentina Compania de Seguros Generales S. A., Buenos Aires | 23 | 100.0 | |||
AGF Asset Management S. A., Paris | 66 | 99.9 | |||
AGF Belgium Insurance S. A., Brussels | 209 | 100.0 | |||
AGF Brasil Seguros S. A., Sao Paulo | 107 | 72.5 | |||
AGF La Lilloise S. A., Paris | 57 | 100.0 | |||
Alba Allgemeine Versicherungs-Gesellschaft, Basel | 31 | 100.0 | |||
Allianz Australia Limited, Sydney | 992 | 100.0 | |||
Allianz Bulgaria Insurance and Reinsurance Company Ltd., Sofia | 22 | 78.0 | |||
Allianz Bulgaria Life Insurance Company Ltd., Sofia | 9 | 99.0 | |||
Allianz Compañía de Seguros y Reaseguros S. A., Barcelona | 504 | 99.9 | |||
Allianz Cornhill Insurance plc., Guildford | 1,266 | 98.0 | (2) | ||
Allianz Dazhong Life Insurance Company Ltd., Shanghai | 6 | 51.0 | |||
Allianz Egypt Insurance Company S. A. E., Cairo | 12 | 85.0 | |||
Allianz Egypt Life Company S. A. E., Cairo | 10 | 96.0 | |||
Allianz Elementar Lebensversicherungs-Aktiengesellschaft, Vienna | 57 | 100.0 | |||
Allianz Elementar Versicherungs-Aktiengesellschaft, Vienna | 393 | 100.0 | |||
Allianz Europe Ltd., Amsterdam | 451 | 100.0 | |||
Allianz Fire and Marine Insurance Japan Ltd., Tokyo | 7 | 100.0 | |||
Allianz Generales du Laos Ltd., Laos | 4 | 51.0 | |||
Allianz General Insurance Company S. A., Athens | 27 | 100.0 | |||
Allianz General Insurance Malaysia Berhad p.l.c., Kuala Lumpur | 68 | 98.7 | |||
Allianz Global Investors Distributors LLC, Stamford | 36 | 100.0 | |||
Allianz Global Investors Hong Kong Ltd., Hong Kong | �� | 47 | 100.0 | ||
Allianz Global Investors Ireland Ltd., Dublin | 6 | 100.0 | |||
Allianz Global Investors Korea Limited, Seoul | 22 | 100.0 | |||
Allianz Global Investors Luxembourg S. A., Luxembourg | 67 | 100.0 | |||
Allianz Global Investors of America L. P., Delaware | 806 | 97.0 | |||
Allianz Global Investors Taiwan (SITE) Ltd., Taipeh | 10 | 100.0 | |||
Allianz Global Risks US Insurance Company, Burbank | 4,199 | 100.0 | |||
Allianz Hungária Biztosító Rt., Budapest | 150 | 100.0 | |||
Allianz Insurance (Hong Kong) Ltd., Hong Kong | 8 | 100.0 | |||
Allianz Insurance Company of Singapore Pte. Ltd., Singapore | 16 | 100.0 | |||
Allianz Irish Life Holdings p.l.c., Dublin | 362 | 66.4 | |||
Allianz Life Insurance Co. Ltd., Seoul | 422 | 100.0 | |||
Allianz Life Insurance Company of North America, Minneapolis | 2,802 | 100.0 | |||
Allianz Life Insurance Company S. A., Athens | 21 | 100.0 | |||
Allianz Life Insurance Malaysia Berhad p.l.c., Kuala Lumpur | 20 | 100.0 | |||
Allianz Marine & Aviation (France), Paris | 129 | 100.0 | |||
Allianz México S. A. Compañía de Seguros, Mexico-City | 83 | 100.0 | |||
Allianz Nederland Levensverzekering N.V., Utrecht | 263 | 100.0 | |||
Allianz Nederland Schadeverzekering N.V., Rotterdam | 384 | 100.0 | |||
Allianz of America Inc., Wilmington | 9,468 | 100.0 | |||
Allianz poistóvna a.s., Prague | 92 | 100.0 |
Operating Subsidiaries—Other countries | Equity | % owned1) | |||
€ mn | |||||
Argentina | |||||
Allianz Argentina Compania de Seguros Generales S.A., Buenos Aires | 19 | 100.0 | |||
Australia | |||||
Allianz Australia Limited, Sydney | 803 | 100.0 | |||
Austria | |||||
Allianz Elementar Lebensversicherungs-Aktiengesellschaft, Vienna | 73 | 100.0 | |||
Allianz Elementar Versicherungs-Aktiengesellschaft, Vienna | 368 | 100.0 | |||
Privatinvest Bank AG, Salzburg | 7 | 74.0 | |||
Belgium | |||||
Allianz Belgium Insurance S.A., Brussels | 689 | 100.0 | |||
Brazil | |||||
Allianz Seguros S.A., Sao Paulo | 163 | 72.5 | |||
Bulgaria | |||||
Allianz Bank Bulgaria JSC, Sofia | 72 | 99.8 | |||
Allianz Bulgaria Insurance and Reinsurance Company Ltd., Sofia | 22 | 78.0 | |||
Allianz Bulgaria Life Insurance Company Ltd., Sofia | 12 | 99.0 | |||
China | |||||
Allianz China Life Insurance Co. Ltd., Shanghai | 56 | 51.0 | |||
Allianz Global Investors Hong Kong Ltd., Hong Kong | 65 | 100.0 | |||
Allianz Insurance (Hong Kong) Ltd., Hong Kong | 3 | 100.0 | |||
Dresdner Kleinwort (Japan) Limited, Hong Kong2) | 378 | 100.0 | |||
RCM Asia Pacific Ltd., Hong Kong | 14 | 100.0 | |||
Colombia | |||||
Aseguradora Colseguros S.A., Bogota | 39 | 100.0 | |||
Croatia | |||||
Allianz Zagreb d.d., Zagreb | 26 | 83.2 | |||
Czech Republic | |||||
Allianz pojistovna a.s., Prague | 108 | 100.0 | |||
Egypt | |||||
Allianz Egypt Insurance Company S.A.E., Cairo | 2 | 85.0 | |||
Allianz Egypt Life Company S.A.E., Cairo | (1 | ) | 100.0 | ||
France | |||||
AAAM S.A., Paris | 15 | 84.9 | |||
Allianz Global Corporate & Specialty France, Paris | 238 | 100.0 | |||
Allianz Global Investors S.A., Paris | 93 | 99.8 | |||
Assurances Générales de France IART S.A., Paris | 2,719 | 100.0 | |||
Assurances Générales de France Vie S.A., Paris | 2,592 | 100.0 | |||
Assurances Générales de France, Paris | 6,821 | 100.0 | |||
Banque AGF S.A., Paris | 110 | 100.0 | |||
Euler Hermes SFAC S.A., Paris | 337 | 100.0 | |||
Mondial Assistance S.A.S., Paris Cedex | 244 | 100.0 | |||
Greece | |||||
Allianz Hellas Insurance Company S.A., Athen | 65 | 100.0 | |||
Hungary | |||||
Allianz Hungária Biztosító Zrt., Budapest | 206 | 100.0 | |||
Indonesia | |||||
PT Asuransi Allianz Life Indonesia p.l.c., Jakarta | 28 | 99.8 | |||
PT Asuransi Allianz Utama Indonesia Ltd., Jakarta | 14 | 76.0 | |||
Ireland | |||||
Allianz Global Investors Ireland Ltd., Dublin | 9 | 100.0 | |||
Allianz Irish Life Holdings p.l.c., Dublin | 285 | 66.4 | |||
Allianz Re Dublin Limited, Dublin | 93 | 100.0 | |||
Allianz Worldwide Care Ltd., Dublin | 6 | 100.0 |
| Percentage includes equity participations held by dependent enterprises in full, even if the Allianz Group’s share in the dependent enterprise is under |
| No subsidiary of the |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
OPERATING SUBSIDIARIES—OTHER COUNTRIES | Equity | % owned(1) | |||
€ mn | |||||
Allianz President Life Insurance Co. Ltd., Taipeh | 57 | 50.0 | (2) | ||
Allianz Re Dublin Ltd., Dublin | 14 | 100.0 | |||
Allianz Risk Transfer AG, Zurich | 390 | 100.0 | |||
Allianz Slovenská poist’ovna a. s., Bratislava | 267 | 84.6 | |||
ALLIANZ SUBALPINA S. p. A. SOCIETÀ DI ASSICURAZIONI E RIASSICURAZIONI, Turin | 282 | 98.0 | |||
Allianz Suisse Lebensversicherungs-Gesellschaft, Zurich | 377 | 100 | |||
Allianz Suisse Versicherungs-Gesellschaft, Zurich | 612 | 100.0 | |||
Allianz Tiriac Insurance S. A., Bucharest | 45 | 51.6 | |||
Allianz Underwriters Insurance Company, Burbank | 41 | 100.0 | |||
Allianz (UK) Limited, Guildford | 1,406 | 100.0 | |||
Allianz Worldwide Care Ltd., Dublin | 18 | 100.0 | |||
Allianz Zagreb d.d., Zagreb | 14 | 80.1 | |||
Assurances Générales de France, Paris | 7,022 | 61.0 | |||
Assurances Générales de France IART S. A., Paris | 2,291 | 100.0 | |||
Assurances Générales de France Vie S. A., Paris | 2,703 | 100.0 | |||
Assurances Générales du Laos Ltd., Laos | 4 | 51.0 | |||
Banque AGF S. A., Paris | 358 | 100.0 | |||
Colseguros Generales S. A., Bogota | 40 | 100.0 | |||
Commercial Bank Allianz Bulgaria Ltd., Sofia | 21 | 99.6 | |||
Compagnie d’Assurance de Protection Juridique S. A., Zug | 11 | 100.0 | |||
Companhia de Seguros Allianz Portugal S. A., Lissabon | 158 | 64.8 | |||
Dresdner Bank Luxemburg S. A., Luxembourg | 160 | 100.0 | |||
Dresdner Bank (Schweiz) AG, Zurich | 22 | 99.8 | |||
Dresdner Kleinwort Wasserstein (Japan) Limited, Hong Kong | 115 | 100.0 | |||
Dresdner Kleinwort Wasserstein (South East Asia) Ltd., Singapore | 186 | 100.0 | |||
ELVIA Reiseversicherungs-Gesellschaft AG, Zurich | 135 | 100.0 | |||
Euler Hermes Crédito Compañía de Seguros y Reaseguros, S. A., Madrid | 8 | 100.0 | |||
EULER HERMES SFAC. S. A., Paris | 312 | 100.0 | |||
Eurovida, S. A. Compañía de Seguros y Reaseguros, Madrid | 42 | 51.0 | |||
Fireman’s Fund Insurance Company, Novato | 2,994 | 100.0 | |||
Four Seasons (JDM) Ltd., Wilmslow (former: Four Seasons Health Care Ltd., Wilmslow) | 184 | 100.0 | |||
GENIALLOYD S. p. A., Milan | 56 | 100.0 | |||
Insurance Joint Stock Company „Allianz”, Moscow | 7 | 100.0 | |||
Lloyd Adriatico S. p. A., Triest | 935 | 99.7 | |||
Mondial Assistance S. A. S., Paris Cedex | 44 | 100.0 | |||
NFJ Investment Group LP, Dallas | 3 | 100.0 | |||
Nicholas Applegate Capital Management LLC, Delaware | 17 | 100.0 | |||
Oppenheimer Capital LLC, Delaware | 5 | 100.0 | |||
Pacific Investment Management Company LLC, Delaware | 196 | 85.0 | |||
Privatinvest AG, Salzburg | 40 | 74.0 | |||
PT Asuransi Allianz Life Indonesia p.l.c, Jakarta | 13 | 99.8 | |||
PT Asuransi Allianz Utama Indonesia Ltd., Jakarta | 15 | 75.4 | |||
RAS ASSET MANAGEMENT Socièta di gestione del risparmio S. p. A., Milan | 42 | 100.0 | |||
RAS Tutela Giudiziaria S. p. A., Milan | 11 | 100.0 | |||
RB Vita S. p. A., Milan | 236 | 100.0 |
Operating Subsidiaries—Other countries | Equity | % owned1) | ||
€ mn | ||||
Italy | ||||
ALLIANZ SUBALPINA HOLDINGS S.p.A., Torino | 280 | 98.0 | ||
Allianz Global Investors Italia S.p.A, Milan | 48 | 100.0 | ||
Allianz S.p.A., Trieste | 2,924 | 100.0 | ||
Genialloyd S.p.A., Milan | 280 | 100.0 | ||
Investitori SGR S.p.A., Milan | 17 | 98.3 | ||
RB Vita S.p.A., Milano | 209 | 100.0 | ||
Japan | ||||
RCM Japan Co. Ltd. , Tokyo | 0.6 | 100.0 | ||
Laos | ||||
Assurances Générales du Laos Ltd., Vientiane | 2 | 51.0 | ||
Luxembourg | ||||
Allianz Global Investors Luxembourg S.A., Senningerberg | 70 | 100.0 | ||
Dresdner Bank Luxembourg S.A., Luxembourg2) | 796 | 100.0 | ||
Malaysia | ||||
Allianz Life Insurance Malaysia Berhad p.l.c., Kuala Lumpur | 25 | 100.0 | ||
Allianz Malaysia Berhad p.l.c., Kuala Lumpur | 48 | 100.0 | ||
Mexico | ||||
Allianz México S.A. Compañia de Seguros, Mexico City | 61 | 100.0 | ||
Netherlands | ||||
Allianz Europe Ltd., Amsterdam | 27,315 | 100.0 | ||
Allianz Nederland Asset Management B.V., Amsterdam | 33 | 100.0 | ||
Allianz Nederland Levensverzekering N.V., Utrecht | 207 | 100.0 | ||
Allianz Nederland Schadeverzekering N.V., Rotterdam | 260 | 100.0 | ||
Dresdner VPV N.V., Gouda2) | 47 | 100.0 | ||
Poland | ||||
TU Allianz Polska S.A., Warsaw | 154 | 100.0 | ||
TU Allianz Zycie Polska S.A., Warsaw | 38 | 100.0 | ||
Portugal | ||||
Companhia de Seguros Allianz Portugal S.A., Lisboa | 161 | 64.8 | ||
Republic of Korea | ||||
Allianz Global Investors Korea Limited, Seoul | 14 | 100.0 | ||
Allianz Life Insurance Co. Ltd., Seoul | 398 | 100.0 | ||
Romania | ||||
Allianz Tiriac Asigurari SA, Bukarest | 120 | 52.2 | ||
Russia | ||||
Dresdner Bank ZAO, St. Petersburg2) | 89 | 100.0 | ||
Insurance Company “Progress Garant”, Moscow | 28 | 100.0 | ||
Insurance Joint Stock Company „Allianz”, Moscow | 7 | 100.0 | ||
Russian People’s Insurance Society “ROSNO”, Moscow | 107 | 100.0 | ||
Singapore | ||||
Allianz Global Investors Singapore Ltd., Singapore | 2 | 100.0 | ||
Slovakia | ||||
Allianz-Slovenská poist’ovna a.s., Bratislava | 501 | 84.6 | ||
Spain | ||||
Allianz Compañia de Seguros y Reaseguros S.A., Madrid | 458 | 99.9 | ||
Euler Hermes Crédito Compañia de Seguros y Reaseguros, S.A., Madrid | 7 | 100.0 | ||
Eurovida, S.A. Compañia de Seguros y Reaseguros, Madrid | 94 | 51.0 |
| Percentage includes equity participations held by dependent enterprises in full, even if the Allianz Group’s share in the dependent enterprise is under |
| No subsidiary of the Allianz |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
OPERATING SUBSIDIARIES—OTHER COUNTRIES | Equity | % owned(*) | ||
€ mn | ||||
RCM Capital Management LLC, San Francisco | 25 | 100.0 | ||
RCM (UK) Ltd., London | 27 | 100.0 | ||
Riunione Adriatica di Sicurtà S. p. A., Milan | 4,862 | 76.3 | ||
TU Allianz Polska S. A., Warsaw | 56 | 100.0 | ||
TU Allianz Zycie Polska S. A., Warsaw | 13 | 100.0 | ||
Veer Palthe Voûte (VPV) N.V., Gouda | 14 | 100.0 | ||
Wm. H McGee & Co. Inc., New York | 2 | 100.0 |
Operating Subsidiaries—Other countries | Equity | % owned1) | |||
€ mn | |||||
Switzerland | |||||
Alba Allgemeine Versicherungs-Gesellschaft, Basel | 54 | 100.0 | |||
Allianz Risk Transfer AG, Zurich | 285 | 100.0 | |||
Allianz Suisse Lebensversicherungs-Gesellschaft AG, Zurich | 604 | 100.0 | |||
Allianz Suisse Versicherungs-Gesellschaft, Zurich | 450 | 100.0 | |||
CAP Rechtsschutz-Versicherungsgesellschaft AG, Zürich | 4 | 100.0 | |||
Dresdner Bank (Schweiz) AG, Zurich2) | 131 | 99.8 | |||
ELVIA Reiseversicherungs-Gesellschaft AG, Wallisellen | 224 | 100.0 | |||
Selecta AG, Muntelier3) | 113 | 100.0 | |||
Taiwan | |||||
Allianz Global Investors Taiwan Ltd., Taipei | 29 | 100.0 | |||
Allianz Taiwan Life Insurance Co. Ltd., Taipei | 21 | 99.7 | |||
Turkey | |||||
Allianz Hayat ve Emeklilik AS, Istanbul | 87 | 89.0 | |||
Allianz Sigorta AS, Istanbul | 157 | 84.2 | |||
United Kingdom | |||||
Allianz (UK) Limited, Guildford | 418 | 100.0 | |||
Allianz Insurance plc., Guildford | 861 | 98.0 | 4) | ||
Dresdner Kleinwort Group Limited, London2) | 45 | 100.0 | |||
Dresdner Kleinwort Limited, London2) | 258 | 100.0 | |||
Kleinwort Benson Channel Islands Holdings Limited, St. Peter Port2) | 225 | 100.0 | |||
Kleinwort Benson Private Bank Limited, London2) | 65 | 100.0 | |||
RCM (UK) Ltd., London | 18 | 100.0 | |||
United States | |||||
Allianz Global Investors of America L.P., Dover/Delaware | 1,395 | 100.0 | |||
Allianz Global Risks U.S. Insurance Company, Burbank/California | 2,909 | 100.0 | |||
Allianz Life Insurance Company of North America, Minneapolis/Minnesota | 2,201 | 100.0 | |||
Allianz of America Inc., Westport, CT | 8,692 | 100.0 | |||
Allianz Underwriters Insurance Company, Burbank/California | 44 | 100.0 | |||
Dresdner Kleinwort Securities LLC, Wilmington/Delaware2) | 250 | 100.0 | |||
Fireman’s Fund Insurance Company, Novato/California | 2,272 | 100.0 | |||
Nicholas Applegate Capital Management LLC, Dover/Delaware | 11 | 100.0 | |||
Pacific Investment Management Company LLC, Wilmington/Delaware | 205 | 92.1 | |||
RCM Capital Management LLC, Wilmington/Delaware | 9 | 100.0 | |||
Wm. H McGee & Co. Inc., New York/New York | 4 | 100.0 |
1) | Percentage includes equity participations held by dependent enterprises in full, even if the Allianz Group’s share in the dependent enterprise is under |
2) | No subsidiary of the Allianz Group since January 12, 2009 |
3) | Classified as “held-for-sale” |
4) | 99.99% of the voting share capital |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
ASSOCIATED ENTERPRISES(1) | Equity | % owned(2) | |||
€ mn | |||||
Eurohypo AG, Frankfurt am Main(2) | 5,998 | 21.1 | |||
AGF Eurocash | 3,147 | 20.5 | |||
Deutsche Schiffsbank AG, Bremen und Hamburg | 445 | 40.0 | |||
Objective Japon | 251 | 19.9 | (4) | ||
Oddo, Paris | 222 | 27.0 | |||
Oddo Generation C | 173 | 36.3 | |||
Kommanditgesellschaft Allgemeine Leasing GmbH & Co., Grünwald | 155 | 40.5 | |||
Cofitem Cofimur, Paris | 148 | 21.8 | |||
Koç Allianz Sigorta T.A.S., Istanbul | 138 | 37.1 | |||
Captain Holding S.à.r.l., Luxembourg | 128 | 46.0 | |||
Depfa Holding III, Frankfurt | 115 | 22.4 | |||
Oddo Euro Index AC | 110 | 22.0 | |||
Oddo Capital Europe | 101 | 19.7 | (4) | ||
PHRV (Paris Hotels Roissy Vaugirard), Paris | 86 | 24.9 | |||
Russian People’s Insurance Society “Rosno”, Moskow | 78 | 47.4 | |||
Rendite Partner Gesellschaft für Vermögensverwaltung-mbH, Frankfurt am Main | 77 | 33.3 | |||
Koç Allianz Hayat ve Emeklilik A.S. (Koç Allianz Life and Pension Company), Istanbul | 57 | 38.0 | |||
Ayudhya Allianz C.P. Life Public Company Limited, Bangkok | 52 | 25.0 | |||
Allianz Bajaj Life Insurance Company Limited, Pune (Indien) | 43 | 26.0 | |||
EUROPENSIONES S. A.—Entidad Gestora de Fondos de Pensiones, Madrid | 37 | 49.0 | |||
Compania de Seguro de Creditos S. A. (Cosec), Portugal | 34 | 41.4 | |||
Dresdner-Cetelem Bank GmbH, Munich | 22 | 49.9 |
Associated Enterprises1) | Equity | % owned2) | |||
€ mn | |||||
Phenix Alternative Holding, Paris | 2,007 | 41.6 | |||
AGF SECURICASH L, Paris | 1,583 | 27.2 | |||
Allianz Euribor, Paris | 1,162 | 45.8 | |||
AGF Eurocash, Paris | 848 | 43.6 | |||
Allianz Euro Liquid, Paris | 675 | 42.5 | |||
Natinium 2007-1, Dublin | 622 | 48.4 | |||
Oddo, Paris | 285 | 20.0 | |||
Allianz-dit Euro Bond Total Return Fonds, Senningerberg | 254 | 49.9 | |||
Cofitem Cofimur, Paris | 253 | 22.1 | |||
AGF Peh Eur. IV FCPR, Paris | 191 | 43.5 | |||
Citylife Srl., Milano | 191 | 26.7 | |||
PHRV (Paris Hotels Roissy Vaugirard), Paris | 181 | 30.6 | |||
Henderson UK Outlet Mall Partnership LP., Edinburgh | 174 | 19.5 | 3) | ||
Harwanne SA, Genève | 174 | 21.5 | |||
Bajaj Allianz Life Insurance Company Ltd., Pune | 147 | 26.0 | |||
Ayudhya Allianz C.P. Life Public Company Limited, Bangkok | 146 | 25.0 | |||
FONDO IMMOBILIARE DOMUS, Rome | 133 | 25.5 | |||
Allianz PIMCO Euro Bond Total Return, Luxemburg | 112 | 36.8 | |||
Argos, Paris | 102 | 47.4 | |||
OeKB EH Beteiligungss-und Management AG, Vienna, | 92 | 49.0 | |||
Bajaj Allianz General Insurance Company Ltd., Pune | 82 | 26.0 | |||
PGREF V 1301 SIXTH HOLDING LP, Wilmington | 78 | 24.5 | |||
SDU Finco B.V., Amsterdam | 47 | 49.7 |
| Associated enterprises are all those enterprises other than affiliated enterprises or joint ventures, in which the Allianz Group has an interest of between |
| Including shares held by dependent subsidiaries. |
| Significant influence due to Allianz’s role in the |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
OTHER SELECTED HOLDINGS IN LISTED | Market value | owned(2) | Group equity | Net Profit | Balance sheet date | ||||||
€ mn | % | € mn | € mn | ||||||||
Banco Popular Español S. A., Madrid | 1,170 | 9.4 | 4,946 | 888 | 12/31/2004 | ||||||
Banco BPI S. A., Porto | 251 | 8.8 | 1,242 | 251 | 12/31/2005 | ||||||
BASF AG, Ludwigshafen | 862 | 2.6 | 15,766 | 1,883 | 12/31/2004 | ||||||
Bayer AG, Leverkusen | 1,122 | 4.4 | 12,379 | 603 | 12/31/2004 | ||||||
Bayerische Motorenwerke AG, Munich | 1,012 | 4.1 | 17,517 | 2,222 | 12/31/2004 | ||||||
Beiersdorf AG, Hamburg | 642 | 7.3 | 1,033 | 296 | 12/31/2004 | ||||||
BNP Paribas S.A., Paris | 528 | 0.9 | 45,993 | 5,852 | 12/31/2005 | ||||||
E.ON AG, Düsseldorf | 1,925 | 3.2 | 37,704 | 4,339 | 12/31/2004 | ||||||
ENI S.p.A., Roma | 848 | 0.9 | 28,318 | 7,274 | 12/31/2004 | ||||||
GEA Group AG, Bochum | 205 | 10.1 | 1,686 | 62 | 12/31/2004 | ||||||
Heidelberger Druckmaschinen AG, Heidelberg | 340 | 12.2 | 1,230 | 55 | 3/31/2005 | ||||||
KarstadtQuelle AG, Essen | 228 | 8.5 | 620 | (1,631 | ) | 12/31/2004 | |||||
Linde AG, Wiesbaden | 906 | 11.5 | 4,081 | 274 | 12/31/2004 | ||||||
Münchener Rückversicherungs-Gesellschaft Aktiengesellschaft in München, Munich | 2,573 | 9.8 | 20,737 | 1,833 | 12/31/2004 | ||||||
Nestle S.A., Vevey | 619 | 0.6 | 25,899 | 4,319 | 12/31/2004 | ||||||
Rhön-Klinikum AG, Bad Neustadt/Saale | 112 | 6.7 | 569 | 76 | 12/31/2004 | ||||||
RWE AG, Essen | 1,297 | 4.1 | 11,193 | 2,137 | 12/31/2004 | ||||||
Sanofi-Aventis S.A., Paris | 727 | 0.7 | 35,933 | (3,610 | ) | 12/31/2004 | |||||
Schering AG, Berlin | 1,253 | 11.4 | 3,026 | 500 | 12/31/2004 | ||||||
Sequana Capital, Paris | 375 | 14.8 | 1,779 | (64 | ) | 12/31/2004 | |||||
Siemens AG, Munich | 802 | 1.2 | 27,773 | 2,248 | 9/30/2005 | ||||||
Süd Chemie AG, Munich | 104 | 19.0 | 224 | 20 | 12/31/2004 | ||||||
Total S. A., Paris | 1,055 | 1.2 | 31,889 | 9,612 | 12/31/2004 | ||||||
Unicredito Italiano S.p.A., Milan | 1,954 | 3.2 | 15,165 | 2,131 | 12/31/2004 | ||||||
Zagrebacka Banka d.d., Zagreb | 217 | 13.7 | 750 | 90 | 12/31/2004 |
Other selected holdings in listed companies1) | Market value | owned2) | Group equity | Net profit | Balance sheet date | |||||
€ mn | % | € mn | € mn | |||||||
Banco BPI, S.A., Porto | 139 | 8.8 | 1,905 | 372 | 12/31/2007 | |||||
Banco Popular Espanol S.A., Madrid | 706 | 9.6 | 6,641 | 1,337 | 12/31/2007 | |||||
BASF SE, Ludwigshafen | 669 | 2.6 | 20,098 | 4,326 | 12/31/2007 | |||||
Bayer AG, Leverkusen | 827 | 2.6 | 16,821 | 4,716 | 12/31/2007 | |||||
Beiersdorf AG, Hamburg | 622 | 5.9 | 2,070 | 442 | 12/31/2007 | |||||
E.ON AG, Duesseldorf | 1,459 | 2.6 | 55,130 | 7,724 | 12/31/2007 | |||||
GEA Group Aktiengesellschaft, Bochum | 232 | 10.2 | 1,414 | 284 | 12/31/2007 | |||||
The Hartford Financial Services Group, Inc., Hartford | 286 | 8.1 | 13,784 | 2,117 | 12/31/2007 | |||||
Industrial & Commercial Bank of China Limited, Beijing | 2,433 | 1.9 | 56,996 | 8,623 | 12/31/2007 | |||||
Nestlé S.A., Vevey | 634 | 0.6 | 35,114 | 7,369 | 12/31/2007 | |||||
SGS SA, Geneve | 312 | 5.4 | 1,206 | 462 | 12/31/2008 | |||||
UniCredito Italiano S.p.A., Milan | 535 | 2.3 | 62,464 | 6,678 | 12/31/2007 | |||||
Zagrebacka banka d.d., Zagreb | 184 | 11.7 | 1,703 | 178 | 12/31/2007 |
| Market value greater than or equal to €100 mn and percentage of shares owned greater than or equal to |
| Including shares held by dependent subsidiaries (incl. consolidated investment funds). |
Disclosure of equity investments
Information according to clause 313 (2) German Commercial Code is published together with the consolidated financial statements in the German Electronic Federal Gazette as well as on the Company’s website.
The accounting terms explained here are intended to help the reader understand this Annual Report. Most of these terms concern the balance sheet or the income statement. Terminology relating to particular segments of the insurance or banking business has not been included.
Acquisition cost
The amount of cash or cash equivalents paid or the fair value of other consideration given to acquire an asset at the time of its acquisition.
Affiliated enterprises
The parent company of the Group and all consolidated subsidiaries. Subsidiaries are enterprises where the parent company can exercise a dominant influence over their corporate strategy in accordance with the control concept. This is possible, for example, where the parent company holds, directly or indirectly, a majority of the voting rights, has the power to appoint or remove a majority of the members of the Board of Management or equivalent governing body, or where there are contractual rights of control.
Aggregate policy reserves
Policies in force—especially in life, health, and personal accident insurance—give rise to potential liabilities for which funds have to be set aside. The amount required is calculated actuarially.
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 hedge derivatives and other contingencies, such as guarantees, loan commitments or other obligations, which are stated as liabilities.
Identified counterparty risk is covered by specific credit risk allowances. The size of each allowance is determined by the probability of the borrower’s agreed payments regarding interest and installments, with the value of underlying collateral being taken into consideration. General allowances for loan losses have been established on the basis of historical loss data.
Country risk allowances are established for transfer risks. Transfer risk is a reflection of the ability of a certain country to serve its external debt. These country risk allowances are based on an internal country rating system which incorporates economic data as well as other facts to categorize countries.
Where it is determined that a loan cannot be repaid, the uncollectable amount is written off against any existing specific loan loss allowance, or directly recognized as expense in the income statement. Recoveries on loans previously written off are recognized in the income statement under net loan loss provisions.
Assets under management
The total of all investments, valued at current market value, which the Group has under management with responsibility for maintaining and improving their performance. In addition to the Group’s own investments, they include investments held under management for third parties.
Associated enterprises
All enterprises, other than affiliated enterprises or joint ventures, in which the Group has an interest of between 20% and 50%, regardless of whether a significant influence is actually exercised or not.
At amortized cost
Under this accounting principle the difference between the acquisition cost and redemption value (of an investment) is added to or subtracted from the original cost figure over the period from acquisition to maturity and credited or charged to income over the same period.
Available-for-sale investments
Available-for-sale investments are securities which are neither held to maturity nor have been acquired for sale in the near term; available-for-sale investments are shown at fair value on the balance sheet.
Business combination
A business combination is the bringing together of separate entities or businesses into one reporting entity.
Cash flow statement
Statement showing movements of cash and cash equivalents during an accounting period, classified by three types of activity:
operating activities
investing activities
financing activities
Certificated liabilities
Certificated liabilities comprise debentures and other liabilities for which transferable certificates have been issued.
Combined ratio
Represents the total of acquisition and administrative expenses (net) and claims and insurance benefits incurred (net) divided by premiums earned (net).
Consolidated interest (%)
The consolidated interest is the total of all interests held by affiliated enterprises and joint ventures in affiliated enterprises, joint ventures, and associated enterprises.
Contingent liabilities
Financial obligations not shown as liabilities on the balance sheet because the probability of a liability actually being incurred is low. Example: guarantee obligations.
Corridor approach
With defined benefit plans, differences come about between the actuarial gains and losses which, when the corridor approach is applied, are not immediately recognized as income or expenses as they occur. Only when the cumulative actuarial gains or losses fall outside the corridor is redemption made from the following year onwards. The corridor is 10% of the present value of the pension rights accrued or of the market value of the pension fund assets, if this is higher.
Cost-income ratio
Represents operating expenses divided by operating revenues.
Coverage ratio
Represents ratio of total loan loss provisions to total risk elements according to SEC guide 3 (non-performing loans and potential problem loans).
Credit risk
The risk that one party to a contract will fail to discharge its obligations and thereby cause the other party to incur financial loss.
Current employer service cost
Net expense incurred in connection with a defined benefit plan less any contributions made by the beneficiary to a pension fund.
Deferred acquisition costs
Expenses of an insurance company which are incurred in connection with the acquisition of new insurance policies or the renewal of existing policies. They include commissions paid and the costs of processing proposals.
Deferred tax assets/liabilities
The calculation of deferred tax is based on temporary differences between the carrying amounts of assets or liabilities in the published balance sheet and their tax base, and on differences arising from applying uniform valuation policies for consolidation purposes. The tax rates used for the calculation are the local rates applicable in the countries of the enterprises included in the consolidation; changes to tax rates already adopted on the balance sheet date are taken into account.
Defined benefit plans
For defined benefit plans, the participant is granted a defined benefit by the employer or via an external entity. In contrast to defined contribution arrangements, the future cost to the employer of a defined benefit plan is not known with certainty in advance. To determine the expense over the period, accounting regulations require that actuarial calculations are carried out according to a fixed set of rules.
Defined contribution plans
Defined contribution plans are funded through independent pension funds or similar organizations. Contributions fixed in advance (e.g., based on salary) are paid to these institutions and the beneficiary’s right to benefits exists against the pension fund. The employer has no obligation beyond payment of the contributions and is not participating in the investment success of the contributions.
Derivative financial instruments (derivatives)
Financial contracts, the values of which move in relationship to the price of an underlying asset. Derivative financial instruments can be classified in relation to their underlying assets (e.g. interest rates, share prices, exchange rates or prices of goods). Important examples of derivative financial instruments are options, futures, forwards and swaps.
Earnings per share (basic/diluted)
Ratio calculated by dividing the consolidated profit or loss for the year by the average number of shares issued. For calculating diluted earnings per share the number of shares and the profit or loss for the year are adjusted by the dilutive effects of any rights to subscribe for shares which have been or can still be exercised. Subscription rights arise in connection with issues of convertible bonds or share options.
Equity consolidation
The relevant proportion of cost for the investment in a subsidiary is set off against the relevant proportion of the shareholders’ equity of the subsidiary.
Equity method
Investments in joint ventures and associated companies are accounted for by this method. They are valued at the Group’s proportionate share of the net assets of the companies concerned. In the case of investments in companies which prepare consolidated financial statements of their own, the valuation is based on the sub-group’s consolidated net assets. The valuation is subsequently adjusted to reflect the proportionate share of changes in the company’s net assets, a proportionate share of the company’s net earnings for the year being added to the Group’s consolidated income.
Expense ratio
Represents acquisition and administrative expenses (net) divided by premiums earned (net).
Fair value
The amount for which an asset could be exchanged between knowledgeable, willing parties in an arm’s length transaction.
FAS
US Financial Accounting Standards on which the details of US GAAP (Generally Accepted Accounting Principles) are based.
Financial assets carried at fair value through income
Financial assets carried at fair value through income include debt and equity securities as well as other financial instruments (essentially derivatives, loans and precious metal holdings) which have been acquired solely for sale in the near term. They are shown in the balance sheet at fair value.
Financial liabilities carried at fair value through income
Financial liabilities carried at fair value through income include primarily negative market values from derivatives and short selling of securities. Short sales are made to generate income from short-term price changes. Shorts sales of securities are recorded at market value on the balance sheet date. Derivatives shown as financial liabilities carried at fair value through income are valued the same way as financial assets carried at fair value through income.
Forwards
The parties to this type of transaction agree to buy or sell at a specified future date. The price of the underlying assets is fixed when the deal is struck.
Functional currency
The functional currency is the currency of the primary economic environment in which the entity operates i.e. the one in which the entity primarily generates and expends cash.
Funds held by/for others under reinsurance contracts
Funds held by others are funds to which the reinsurer is entitled but which the ceding insurer retains as collateral for future obligations of the reinsurer. The ceding insurer shows these amounts as “funds held under reinsurance business ceded.”
Futures
Standardized contracts for delivery on a future date, traded on an exchange. Normally, rather than actually delivering the underlying asset on that date, the difference between closing market value and the exercise price is paid.
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.
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.
Hedging
The use of special financial contracts, especially derivative financial instruments, to reduce losses which may arise as a result of unfavorable movements in rates or prices.
Held for sale
A non-current asset is classified as held for sale if its carrying amount will be recovered principally through sale rather than though continuing use. On the date a non-current asset meets the criteria as held for sale, it is measured at the lower of its carrying amount and fair value less costs to sell.
Held-to-maturity investments
Held-to-maturity investments comprise debt securities held with the intent and ability that they will be held-to-maturity. They are valued at amortized cost.
IAS
International Accounting Standards.
IFRS
International Financial Reporting Standards. Since 2002, the designation IFRS applies to the overall framework of all standards approved by the International Accounting Standards Board. Already approved standards will continue to be cited as International Accounting Standards (IAS).
IFRS Framework
The framework for International Financial Reporting Standards (IFRS) which sets out the concepts that underlie the preparation and presentation of financial statements for external users.
Income from financial assets and liabilities carried at fair value through income (net)
Income from financial assets and liabilities carried at fair value through income (net) includes all realized and unrealized profits and losses from financial assets carried at fair value through income and financial liabilities carried at fair value through income. In addition, it includes commissions as well as any interest or dividend income from trading activities as well as refinancing costs.
Issued capital and capital reserve
This heading comprises the capital stock, the premium received on the issue of shares, and amounts allocated when option rights are exercised.
Joint venture
An enterprise which is managed jointly by an enterprise in the Group and one or more enterprises not included in the consolidation. The extent of joint management control is more than the significant influence exercised over associated enterprises and less than the control exercised over affiliated enterprises.
Loss frequency
Number of losses in relation to the number of insured risks.
Loss ratio
Represents claims and insurance benefits incurred (net) divided by premiums earned (net).
Market value
The amount obtainable from the sale of an investment in an active market.
Minority interests in earnings
That part of net earnings for the year which is not attributable to the Group but to others outside the Group who hold shares in affiliated enterprises.
Minority interests
Those parts of the equity of affiliated enterprises which are not owned by companies in the Group.
New cost basis
Historical cost adjusted by depreciation to reflect permanent diminution in value.
Options
Derivative financial instruments where the holder is entitled—but not obliged—to buy (call option) or sell (put option) the underlying asset at a predetermined price sometime in the future. The grantor (writer) of the option, on the other hand, is obliged to transfer or buy the asset and receives a premium for granting the option to the purchaser.
OTC derivatives
Derivative financial instruments which are not standardized and not traded on an exchange but are traded directly between two counterparties via over-the-counter (OTC) transactions.
Participating certificates
Amount payable on redemption of participating certificates issued. The participating certificates of Allianz SE carry distribution rights based on the dividends paid, and subscription rights when the capital stock is increased; but they carry no voting rights, no rights to participate in any proceeds of liquidation, and no rights to be converted into shares.
Pension and similar obligations
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.
Premiums written/earned
Premiums written represent all premium revenues in the year under review. Premiums earned represent that part of the premiums written used to provide insurance coverage in that year. In the case of life insurance products where the policyholder carries the investment risk (e.g. variable annuities), only that part of the premiums used to cover the risk insured and costs involved is treated as premium income.
Reinsurance
Where an insurer transfers part of the risk which he has assumed to another insurer.
Repurchase and reverse repurchase agreements
A repurchase (“repo”) transaction involves the sale of securities by the Group to a counterparty, subject to the simultaneous agreement to repurchase these securities at a certain later date, at an agreed price. The securities concerned are retained in the Group’s balance sheet for the entire lifetime of the transaction, and are valued in accordance with the accounting principles for financial assets carried at fair value through income or investment securities, respectively. The proceeds of the sale are reported in liabilities to banks or to customers, as appropriate. A reverse repo transaction involves the purchase of securities with the simultaneous obligation to sell these securities at a future date, at an agreed price. Such transactions are reported in loans and advances to banks, or loans and advances to customers, respectively. Interest income from reverse repos and interest expenses from repos are accrued evenly over the lifetime of the transactions and reported under interest and similar income or interest expenses.
Reserves for loss and loss adjustment expenses
Reserves for the cost of insurance claims incurred by the end of the year under review but not yet settled.
Reserve for premium refunds
That part of the operating surplus which will be distributed to policyholders in the future. This refund of premiums is made on the basis of statutory, contractual, or company by-law obligations, or voluntary undertaking.
Revenue reserves
In addition to the reserve required by law in the financial statements of the Group parent company, this item consists mainly of the undistributed profits of Group enterprises and amounts transferred from consolidated net income.
Segment reporting
Financial information based on the consolidated financial statements, reported by business segments (Property-Casualty, Life/Health, Banking, Asset Management and Corporate) and by regions.
Subordinated liabilities
Liabilities which, in the event of liquidation or bankruptcy, are not settled until after all other liabilities.
Swaps
Agreements between two counterparties to exchange payment streams over a specified period of time. Important examples include currency swaps (in which payment streams and capital in different currencies are exchanged) and interest rate swaps (in which the parties agree to exchange normally fixed interest payments for variable interest payments in the same currency).
Unearned premiums
Premiums written attributable to income of future years. The amount is calculated separately for each policy and for every day that the premium still has to cover.
Unrecognized gains/losses
Amount of actuarial gains or losses, in connection with defined benefit pension plans, which are not yet recognized as income or expenses (see also “corridor approach”).
Unrecognized past service cost
Present value of increases in pension benefits relating to previous years’ service, not yet recognized in the pension reserve.
US GAAP
Generally Accepted Accounting Principles in the United States of America.
Variable annuities
The benefits payable under this type of life insurance depend primarily on the performance of the investments in a mutual fund. The policyholder shares equally in the profits or losses of the underlying investments.
SCHEDULE I
SUMMARY OF INVESTMENTS(1) (2)
As of December 31, 20052008
Amortized cost | Fair Value | Amount shown in balance sheet | ||||
€ mn | € mn | € mn | ||||
Debt securities: | ||||||
Government and agency mortgage-backed securities (residential and commercial) | 9,894 | 9,651 | 9,651 | |||
Corporate mortgage-backed securities (residential and commercial) | 3,265 | 3,271 | 3,271 | |||
Other asset-backed securities | 3,381 | 3,415 | 3,415 | |||
Government Bonds: | ||||||
Germany | 15,941 | 16,742 | 16,734 | |||
Italy | 23,906 | 25,248 | 25,206 | |||
France | 16,250 | 17,893 | 17,893 | |||
United States | 9,527 | 9,644 | 9,644 | |||
Spain | 8,484 | 9,304 | 9,304 | |||
Belgium | 4,438 | 4,736 | 4,736 | |||
Austria | 4,094 | 4,313 | 4,311 | |||
All other countries | 28,896 | 29,938 | 29,868 | |||
Corporate Bonds: | ||||||
Public utilities | 3,283 | 3,435 | 3,433 | |||
All other corporate bonds | 72,472 | 75,591 | 75,439 | |||
Other | 1,592 | 1,744 | 1,744 | |||
Total debt | 205,423 | 214,925 | 214,649 | |||
Equity securities: | ||||||
Common stocks: | ||||||
Public utilities | 4,985 | 7,795 | 7,795 | |||
Banks, insurance companies, funds | 11,591 | 17,398 | 17,398 | |||
Industrial, miscellaneous and all other | 21,432 | 31,769 | 31,769 | |||
Non-redeemable preferred stocks | 149 | 168 | 168 | |||
Total equity securities | 38,157 | 57,130 | 57,130 | |||
Mortgage loans on real estate | 26,753 | 26,753 | 26,753 | |||
Real Estate | 9,569 | 12,901 | 9,569 | |||
Policy loans | 1,810 | 1,810 | 1,810 | |||
Certificates of deposit | 2,120 | 2,120 | 2,120 | |||
Short-term investments | 3,172 | 3,172 | 3,172 | |||
Total investments | 287,004 | 318,811 | 315,203 | |||
Amortized cost | Fair Value | Amount shown in balance sheet | ||||
€ mn | € mn | € mn | ||||
Debt securities: | ||||||
Government and agency mortgage-backed securities (residential and commercial) | 7,814 | 7,989 | 7,989 | |||
Corporate mortgage-backed securities (residential and commercial) | 8,714 | 7,311 | 7,311 | |||
Other asset-backed securities | 4,858 | 4,489 | 4,489 | |||
Government Bonds: | ||||||
Germany | 10,801 | 11,541 | 11,538 | |||
Italy | 22,475 | 22,558 | 22,550 | |||
France | 13,628 | 14,826 | 14,826 | |||
United States | 3,996 | 4,317 | 4,317 | |||
Spain | 5,414 | 5,697 | 5,697 | |||
Belgium | 4,571 | 4,786 | 4,786 | |||
All other countries | 35,821 | 36,603 | 36,545 | |||
Corporate Bonds: | ||||||
Public utilities | 3,872 | 3,850 | 3,813 | |||
All other corporate bonds | 97,949 | 92,373 | 92,347 | |||
Other | 1,296 | 1,336 | 1,336 | |||
Total debt | 221,209 | 217,676 | 217,544 | |||
Equity securities: | ||||||
Common stocks: | ||||||
Public utilities | 2,616 | 4,028 | 4,028 | |||
Banks, insurance companies, funds | 4,508 | 6,249 | 6,249 | |||
Industrial, miscellaneous and all other | 16,228 | 18,694 | 18,694 | |||
Non-redeemable preferred stocks | 450 | 518 | 518 | |||
Total equity securities | 23,802 | 29,489 | 29,489 | |||
Real Estate | 7,551 | 11,995 | 7,551 | |||
Short-term investments and certificates of deposit | 9,622 | 9,622 | 9,622 | |||
Total investments | 262,184 | 268,782 | 264,206 | |||
(1) |
|
(2) | The total of investments |
SCHEDULE II
ALLIANZ AKTIENGESELLSCHAFTSE
PARENT ONLY CONDENSED FINANCIAL STATEMENTS
BALANCE SHEETS (IFRS BASIS)SHEET
As of December 31, | 2005 | 2004 | 2008 | 2007 | ||||
€ mn | € mn | € mn | € mn | |||||
Assets: | ||||||||
Investment in subsidiaries and affiliates | 68,324 | 50,895 | 63,609 | 67,488 | ||||
Other invested assets | 16,048 | 19,887 | 19,903 | 19,236 | ||||
Insurance reserves ceded | 3,310 | 3,479 | 2,058 | 2,896 | ||||
Cash funds and cash equivalents | 59 | 40 | 169 | 81 | ||||
Other assets | 6,506 | 6,174 | 5,656 | 7,804 | ||||
94,247 | 80,475 | 91,395 | 97,505 | |||||
Liabilities and Shareholders’ Equity: | ||||||||
Insurance reserves | 13,540 | 16,039 | 10,319 | 10,404 | ||||
Participation certificates and subordinated liabilities | 6,629 | 5,126 | 6,660 | 7,306 | ||||
Certificated liabilities | 1,912 | 2,191 | 9,801 | 4,829 | ||||
Other liabilities | 32,679 | 27,124 | 30,931 | 27,213 | ||||
54,760 | 50,480 | 57,711 | 49,752 | |||||
Shareholders’ equity | 39,487 | 29,995 | 33,684 | 47,753 | ||||
94,247 | 80,475 | 91,395 | 97,505 | |||||
SCHEDULE II
ALLIANZ AKTIENGESELLSCHAFTSE
PARENT ONLY CONDENSED FINANCIAL STATEMENTS
STATEMENTS OF INCOME (IFRS BASIS)
For the years ended December 31, | 2005 | 2004 | 2003 | 2008 | 2007 | 2006 | |||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | ||||||||||||
Revenues: | |||||||||||||||||
Net premiums earned | 3,291 | 3,627 | 3,608 | 2,770 | 2,294 | 2,887 | |||||||||||
Investment income | 2,736 | 1,165 | 686 | 1,363 | 1,708 | 475 | |||||||||||
Other income | 582 | 114 | 433 | 1 | 15 | 20 | |||||||||||
6,609 | 4,906 | 4,727 | 4,134 | 4,017 | 3,382 | ||||||||||||
Expenses: | |||||||||||||||||
Insurance benefits | 2,195 | 2,601 | 2,855 | 1,863 | 1,622 | 2,013 | |||||||||||
Acquisition costs and administrative expenses | 1,058 | 1,081 | 1,160 | 1,103 | 1,202 | 1,392 | |||||||||||
Investment expense | 1,412 | 1,998 | 1,707 | 1,594 | 1,851 | 1,639 | |||||||||||
Other expense | 1,052 | 478 | 704 | 3 | — | 37 | |||||||||||
5,717 | 6,158 | 6,426 | 4,563 | 4,675 | 5,081 | ||||||||||||
Income before tax | 892 | (1,252 | ) | (1,699 | ) | (429 | ) | (658 | ) | (1,699 | ) | ||||||
Taxes | 571 | 110 | 797 | 109 | 210 | 808 | |||||||||||
Income before equity in undistributed net income of subsidiaries | 1,463 | (1,142 | ) | (902 | ) | (320 | ) | (448 | ) | (891 | ) | ||||||
Equity in undistributed net income of subsidiaries | 2,917 | 3,408 | 3,593 | (2,124 | ) | 8,414 | 7,912 | ||||||||||
Net Income | 4,380 | 2,266 | 2,691 | (2,444 | ) | 7,966 | 7,021 | ||||||||||
SCHEDULE II
ALLIANZ AKTIENGESELLSCHAFTSE
PARENT ONLY CONDENSED FINANCIAL STATEMENTS
STATEMENT OF CASH FLOWS (IFRS BASIS)
For the years ended December 31, | 2005 | 2004 | 2003 | 2008 | 2007 | 2006 | ||||||||||||
€ mn | € mn | € mn | € mn | € mn | € mn | |||||||||||||
Cash flows from operating activities: | ||||||||||||||||||
Net income | 4,380 | 2,266 | 2,691 | (2,444 | ) | 7,966 | 7,021 | |||||||||||
Adjustments to reconcile net income to cash provided by operating activities: | ||||||||||||||||||
Equity in undistributed net income of consolidated subsidiaries | (2,917 | ) | (3,408 | ) | (3,593 | ) | 2,124 | (8,414 | ) | (7,912 | ) | |||||||
Change in insurance reserves—net | (2,330 | ) | (631 | ) | (769 | ) | 753 | (935 | ) | (1,787 | ) | |||||||
Change in other assets | (332 | ) | 2,250 | (1,992 | ) | 2,148 | (1,357 | ) | (1,586 | ) | ||||||||
Change in other liabilities | 5,555 | (14,167 | ) | 2,530 | (4,442 | ) | (6,239 | ) | 2,418 | |||||||||
Net cash (used) provided by operating activities | 4,356 | (13,690 | ) | (1,133 | ) | (1,861 | ) | (8,979 | ) | (1,846 | ) | |||||||
Cash flows from investing activities: | ||||||||||||||||||
Change in investments in subsidiaries | (17,429 | ) | 4,835 | (2,706 | ) | 2340 | (45 | ) | (7,280 | ) | ||||||||
Change in other invested assets | 3,839 | 4,663 | (3,821 | ) | (667 | ) | 151 | (3,340 | ) | |||||||||
Net cash provided (used) in investing activities | (13,590 | ) | 9,498 | (6,527 | ) | 1,673 | 106 | (10,620 | ) | |||||||||
Cash flows from financing activities: | ||||||||||||||||||
Change in certificated liabilities, participation certificates and subordinated liabilities | 1,224 | 1,075 | (218 | ) | 4,326 | 2,999 | 595 | |||||||||||
Net proceeds from issuance of common stocks and additional paid in capital | 2,183 | 86 | 4,562 | 239 | 115 | 98 | ||||||||||||
Dividends paid | (674 | ) | (551 | ) | (374 | ) | (2,472 | ) | (1,642 | ) | (811 | ) | ||||||
Other changes in shareholders’ capital | 6,520 | 3,609 | 3,662 | (1,817 | ) | 7,410 | 12,597 | |||||||||||
Net cash provided (used) by financing activities | 9,253 | 4,219 | 7,632 | 276 | 8,882 | 12,479 | ||||||||||||
Net increase (decrease) in cash | 19 | 27 | (28 | ) | 88 | 9 | 13 | |||||||||||
Cash at January 1 | 40 | 13 | 41 | 81 | 72 | 59 | ||||||||||||
Cash at December 31 | 59 | 40 | 13 | 169 | 81 | 72 | ||||||||||||
Note to Parent Only Condensed Financial Statements
Contingent liabilities and other financial commitments
Guarantees to group companies
The guarantees as described below are provided by Allianz SE to secure liabilities of group companies to third parties:
Bonds issued by Allianz Finance II B.V., Amsterdam, for €9.7 bn, thereof €5.6 bn on a subordinated basis.
Commercial Papers issued by Allianz Finance Corporation, USA. At the end of the year USD 0.4 bn in commercial papers were issued as part of the program.
Letters of Credit issued to various operating Allianz entities totaling €0.8 bn.
Allianz SE is committed to making future capital payments in favor of our North American holding company, Allianz of America, Inc., Wilmington. This will place Allianz of America Inc., Wilmington, in a position to provide sufficient capital to Allianz Global Risks US Insurance Company, Los Angeles, so that this company can meet its payment obligations for claims received in connection with the attack on the World Trade Center. These future capital payments are limited to USD 143 mn and are secured by pledges in securities.
Allianz SE provides a guarantee to Allianz Argos 14 GmbH to secure the payment obligations under the derivative contract entered into with Blue Fin Ltd. in the context of the issuance of a catastrophe bond.
Allianz SE provides a maximum €1.0 bn guarantee for the obligations of AGF Vie, Paris, under a unit linked pension insurance contract. As of December 31, 2008 the guaranteed obligations amounted €537 mn.
With respect to Fireman’s Fund Insurance Co., Novato, there is a conditional commitment to make capital payments which must, in particular, be made in case of future negative developments of the reserves for the year 2003 and before. The remaining guarantee amount as of December 31, 2008 is USD 141 mn.
Guarantee declarations in a total of €1.4 bn have also been given for deferred annuity agreements signed by Allianz-RAS Seguros y Reaseguros S.A., Madrid.
Allianz SE provides guarantees in favor of Marsh, Inc. for coverage of potential liabilities for various Allianz subsidiaries. These guarantees have a yearly maturity and are unlimited.
There is an agreement between Allianz Risk Transfer AG, Zurich, and Allianz SE regarding a target minimum capitalization in the form of a Net Worth Maintenance Agreement.
There are financial commitments in connection with the promise of compensation to holders of rights under stock option programs of Assurances Générales de France.
There are also value asset liabilities of €136 mn for the phased-in retirement liabilities of German group companies.
In connection with the sale of holdings in individual cases, guarantees were given covering the various bases used to determine purchase prices. These can for example relate to tax risks.
In connection with the acquisition of USD 1.75 bn subordinated debentures of The Hartford Financial Services Group Allianz SE provided a guarantee to group companies.
Allianz Bank Zrt., Hungary, received a guarantee from Allianz SE in the amount of CHF 120 mn in connection with a loan granted.
Commitments of Allianz Nederland Schadeverzekering N.V. arising from an insurance contract are guaranteed by Allianz SE with a maximum exposure of €350 mn.
In addition Allianz SE issued guarantees to various group companies totaling €50 mn.
Allianz SE has also provided several subsidiaries and associates with either a standard indemnity guarantee or such guarantee as required by the supervisory authorities, which cannot be quantified in figures. This includes in particular a deed of general release for Dresdner Bank AG in accordance with § 5(10) of the Statute of Deposit Security Arrangement Fund which was withdrawn with effect of January 9, 2009.
Guarantees to third parties
(Dresdner Bank AG as of January 12, 2009)
A guarantee was given to Dresdner Bank AG, Frankfurt, amounting to €50 mn, for the acquisition of receivables from payments for the rights to use a name in connection with Allianz Arena.
In the context of a Securities Lending Agreement, Allianz SE gave a payment guarantee with respect to the obligations of Dresdner Bank AG, Frankfurt.
A contingent indemnity agreement was entered with respect to securities issued by HT1 Funding GmbH in case HT1 Funding GmbH cannot serve the agreed coupon of the bond partly or in total.
As of December 31, 2008 Allianz SE had contingent liabilities under guarantees amounting to €9 mn.
Legal obligations
Legal obligations to assume any losses arise on account of management control agreements and/or transfer-of-profit agreements with the following companies:
ACM-Compagnie Mercur AG
Allianz Alternative Assets Holding GmbH
Allianz Argos 14 GmbH
Allianz Autowelt GmbH
Allianz Deutschland AG
Allianz Finanzbeteiligungs GmbH
Allianz Global Corporate & Specialty AG
Allianz Investment Management SE
AZ-Arges Vermögensverwaltungsgesellschaft mbH
AZ-Argos 3 Vermögensverwaltungsgesellschaft mbH (merged as of December 11, 2008)
AZ-Argos 10 Vermögensverwaltungsgesellschaft mbH (merged as of December 31, 2007/January 1, 2008)
IDS GmbH-Analysis and Reporting Services
META Finanz-Informationssysteme GmbH
Any other control and transfer-of-profit agreements were not concluded by Allianz SE in 2008.
On February 17, 2009 Allianz SE has concluded a control and transfer-of-profit agreement with Allianz Shared Infrastructure Services SE that now requires the consent of the Supervisory Board and the General Meeting of Allianz SE. The contract will come into effect with its registration in the Commercial register of the controlled company.
Financial liabilities of €203 mn arose in 2008 from advertising agreements.
Potential liabilities amounting to €30 mn were outstanding at the balance sheet date for calls on equity stocks not fully paid up with respect to affiliated enterprises.
Security deposits for leasing contracts amount to €0.3 mn financial commitments.
SCHEDULE III
SUPPLEMENTARY INSURANCE INFORMATION(1)
Deferred policy acquisition Costs GROSS | Future policy benefits, losses, claims and loss expense GROSS | Unearned premiums GROSS | Other policy claims and benefits payable GROSS | Premium revenue (earned) NET | ||||||
€ mn | € mn | € mn | € mn | € mn | ||||||
At and for the year ended December 31, 2005: | ||||||||||
Life/Health | 12,735 | 248,510 | 333 | 27,079 | 19,969 | |||||
Property-Casualty | 3,938 | 68,026 | 12,970 | 2,223 | 37,778 | |||||
Total | 16,673 | 316,536 | 13,303 | 29,302 | 57,747 | |||||
At and for the year ended December 31, 2004: | ||||||||||
Life/Health | 10,378 | 229,206 | 228 | 20,264 | 19,382 | |||||
Property-Casualty | 3,998 | 62,998 | 11,822 | 1,858 | 37,407 | |||||
Total | 14,376 | 292,204 | 12,050 | 22,122 | 56,789 | |||||
At and for the year ended December 31, 2003: | ||||||||||
Life/Health | 9,417 | 216,790 | 236 | 14,677 | 19,402 | |||||
Property-Casualty | 3,416 | 63,874 | 11,962 | 1,873 | 36,576 | |||||
Total | 12,833 | 280,664 | 12,198 | 16,550 | 55,978 | |||||
Deferred policy acquisition Costs GROSS | Future policy benefits, losses, claims and loss expense GROSS | Unearned premiums GROSS | Other policy claims and benefits payable GROSS | Premium revenue (earned) NET | ||||||
€ mn | € mn | € mn | € mn | € mn | ||||||
As of and for the year ended December 31, 2008: | ||||||||||
Life/Health | 16,752 | 279,325 | 2,258 | 16,928 | 22,231 | |||||
Property-Casualty | 4,026 | 63,336 | 12,984 | 874 | 38,213 | |||||
Total | 20,778 | 342,661 | 15,242 | 17,802 | 60,444 | |||||
As of and for the year ended December 31, 2007: | ||||||||||
Life/Health | 14,130 | 263,621 | 1,858 | 26,291 | 20,809 | |||||
Property-Casualty | 4,059 | 64,399 | 13,163 | 1,519 | 38,553 | |||||
Total | 18,189 | 328,020 | 13,163 | 27,810 | 59,362 | |||||
As of and for the year ended December 31, 2006: | ||||||||||
Life/Health | 13,779 | 256,051 | 1,874 | 29,454 | 20,574 | |||||
Property-Casualty | 4,127 | 65,813 | 12,994 | 1,807 | 37,950 | |||||
Total | 17,906 | 321,864 | 14,868 | 31,261 | 58,524 | |||||
SCHEDULE III
SUPPLEMENTARY INSURANCE INFORMATION(1)
Investment income NET | Benefits claims, losses and settlement expenses NET | Amortization of deferred policy acquisition costs NET | Other operating expenses NET | Premiums written NET | ||||||
€ mn | € mn | € mn | € mn | € mn | ||||||
At and for the year ended December 31, 2005: | ||||||||||
Life/Health | 14,057 | 27,811 | 1,270 | 2,121 | 20,065 | |||||
Property-Casualty | 6,793 | 25,986 | 2,675 | 6,271 | 38,271 | |||||
Total | 20,850 | 53,797 | 3,945 | 8,392 | 58,336 | |||||
At and for the year ended December 31, 2004: | ||||||||||
Life/Health | 12,448 | 27,464 | 1,093 | 2,305 | 19,454 | |||||
Property-Casualty | 4,552 | 26,028 | 1,569 | 6,127 | 37,666 | |||||
Total | 17,000 | 53,492 | 2,662 | 8,432 | 57,120 | |||||
At and for the year ended December 31, 2003: | ||||||||||
Life/Health | 11,238 | 25,808 | 120 | 3,472 | 19,438 | |||||
Property-Casualty | 6,999 | 26,431 | 410 | 6,766 | 37,305 | |||||
Total | 18,237 | 52,239 | 530 | 10,238 | 56,743 | |||||
Investment income NET | Benefits claims, losses and settlement expenses NET | Amortization of deferred policy acquisition costs NET | Other operating expenses NET | Premiums written NET | ||||||
€ mn | € mn | € mn | € mn | € mn | ||||||
As of and for the year ended December 31, 2008: | ||||||||||
Life/Health | 6,793 | 24,510 | 1,310 | 3,066 | 22,282 | |||||
Property-Casualty | 4,194 | 25,984 | 3,596 | 6,760 | 38,414 | |||||
Total | 10,987 | 50,494 | 4,906 | 9,826 | 60,696 | |||||
As of and for the year ended December 31, 2007: | ||||||||||
Life/Health | 14,675 | 27,905 | 1,555 | 3,033 | 20,885 | |||||
Property-Casualty | 5,364 | 25,824 | 4,042 | 6,574 | 38,969 | |||||
Total | 20,039 | 53,729 | 5,597 | 9,607 | 59,854 | |||||
As of and for the year ended December 31, 2006: | ||||||||||
Life/Health | 15,121 | 28,150 | 1,627 | 2,810 | 20,799 | |||||
Property-Casualty | 5,592 | 25,097 | 3,838 | 6,752 | 38,259 | |||||
Total | 20,713 | 53,247 | 5,465 | 9,562 | 59,058 | |||||
SCHEDULE IV
SUPPLEMENTARY REINSURANCE INFORMATION(3)
Direct gross amount | Ceded to other companies | Assumed from other companies | Net amount | Amount assumed to net | ||||||||
€ mn | € mn | € mn | € mn | |||||||||
2005: | ||||||||||||
Life insurance in force | 724,484 | (70,885 | ) | 23,119 | 676,718 | 3.42 | % | |||||
Premiums earned: | ||||||||||||
Life/Health insurance(1) | 20,612 | (884 | ) | 241 | 19,969 | 1.21 | % | |||||
Property-Casualty insurance, including title insurance(2) | 40,168 | (5,409 | ) | 3,019 | 37,778 | 7.99 | % | |||||
Total premiums | 60,780 | (6,293 | ) | 3,260 | 57,747 | 5.65 | % | |||||
2004: | ||||||||||||
Life insurance in force | 681,816 | (65,730 | ) | 43,949 | 660,035 | 6.66 | % | |||||
Premiums earned: | ||||||||||||
Life/Health insurance(1) | 20,174 | (1,249 | ) | 457 | 19,382 | 2.36 | % | |||||
Property-Casualty insurance, including title insurance(2) | 40,156 | (5,285 | ) | 2,536 | 37,407 | 6.78 | % | |||||
Total premiums | 60,330 | (6,534 | ) | 2,993 | 56,789 | 5.27 | % | |||||
2003: | ||||||||||||
Life insurance in force | 624,901 | (62,231 | ) | 44,096 | 606,766 | 7.27 | % | |||||
Premiums earned: | ||||||||||||
Life/Health insurance(1) | 19,968 | (1,242 | ) | 676 | 19,402 | 3.48 | % | |||||
Property-Casualty insurance, including title insurance(2) | 40,111 | (5,528 | ) | 1,993 | 36,576 | 5.45 | % | |||||
Total premiums | 60,079 | (6,770 | ) | 2,669 | 55,978 | 4.77 | % | |||||
Direct gross amount | Ceded to other companies | Assumed from other companies | Net amount | Amount assumed to net | ||||||||
€ mn | € mn | € mn | € mn | |||||||||
2008: | ||||||||||||
Life insurance in force | 790,365 | (78,792 | ) | 18,425 | 729,998 | 2.52 | % | |||||
Premiums earned: | ||||||||||||
Life/Health insurance(1) | 22,393 | (527 | ) | 365 | 22,231 | 1.64 | % | |||||
Property-Casualty insurance, including title insurance(2) | 40,023 | (5,045 | ) | 3,235 | 38,213 | 8.47 | % | |||||
Total premiums | 62,416 | (5,572 | ) | 3,600 | 60,444 | 5.96 | % | |||||
2007: | ||||||||||||
Life insurance in force | 706,754 | (53,169 | ) | 20,496 | 674,081 | 3.04 | % | |||||
Premiums earned: | ||||||||||||
Life/Health insurance(1) | 21,164 | (638 | ) | 283 | 20,809 | 1.36 | % | |||||
Property-Casualty insurance, including title insurance(2) | 41,174 | (5,316 | ) | 2,695 | 38,553 | 6.99 | % | |||||
Total premiums | 62,338 | (5,954 | ) | 2,978 | 59,362 | 5.02 | % | |||||
2006: | ||||||||||||
Life insurance in force | 699,975 | (83,752 | ) | 20,056 | 636,279 | 3.15 | % | |||||
Premiums earned: | ||||||||||||
Life/Health insurance(1) | 21,027 | (816 | ) | 363 | 20,574 | 1.76 | % | |||||
Property-Casualty insurance, including title insurance(2) | 40,616 | (5,529 | ) | 2,863 | 37,950 | 7.54 | % | |||||
Total premiums | 61,643 | (6,345 | ) | 3,226 | 58,524 | 5.51 | % | |||||
(1) | Life/Health have been combined for this |
(2) | Title insurance has been combined with Property-Casualty |
(3) | After eliminating intra-Allianz Group transactions between |
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
Allianz SE | ||||
/s/ MICHAEL DIEKMANN | ||||
Name: Michael Diekmann | ||||
Title:Chief Executive Officer | ||||
/s/ DR. HELMUT PERLET | ||||
Name: Dr. Helmut Perlet | ||||
Title: Chief Financial Officer |
Date: April 6, 2006March 31, 2009