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, 20072008
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 SE
(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, 2007:2008:
| | |
Ordinary shares, without par value | | 452,350,000453,050,000 shares |
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:
U.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 ¨
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
TABLE OF CONTENTS
i
TABLE OF CONTENTS
ii
PRESENTATION OF FINANCIAL AND OTHER INFORMATION
In this Annual Report, the terms “we,” “us” and “our” refer to Allianz Societas Europaea (or Allianz 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 SE as of December 31, 20072008 and 20062007 and for each of the years in the three-year period ended December 31, 2007,2008, which have been audited by KPMG Deutsche Treuhand-Gesellschaft AG Wirtschaftsprüfungsgesellschaft. 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”)(EU) regulations in accordance with section 315a of the German Commercial Code (“HGB”)(HGB). The consolidated financial statements of the Allianz Group have also been prepared in accordance with IFRS as issued by the International Accounting Standard Board (“IASB”)(IASB). The Allianz Group’s application of IFRSs results in no differences between IFRS as adopted by the EU and IFRS as issued by the IASB. 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. Dollar” are to United States Dollars 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. Dollars at the rate of $1.5369$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 10, 2008.20, 2009. These translations do not mean
that the Euro amounts actually represent those U.S. Dollar amounts or could be converted into U.S. Dollars at those rates. SeeRefer to “Key Information—Exchange Rate Information” for information concerning the noon buying rates for the Euro from January 1, 20032004 through March 10, 2008.20, 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 that 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;
currency exchange rate developments, including the Euro/U.S. Dollar 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 |
Not applicable.
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, 2007.2008. We derived the selected financial data for each of the years in the five-year period ended December 31, 20072008 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 IFRS.
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 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 agent’s channel. Furthermore, 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 3 to our consolidated financial statements.
Effective January 1, 2006, we implemented certain revisions to our consolidated financial statements 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. Our selected financial data as of and for the years ended December 31, 2005, 2004 and 2003 presented below also reflect these revisions, with the exception of total revenues and operating profit for the year ended December 31, 2003. Total revenues and operating profit for the year ended December 31, 2003 are presented in accordance with our pre-2006 segment reporting structure and operating profit methodology, and accordingly do not reflect the retrospective application of our revised segment reporting structure and operating profit methodology, due to the unreasonable effort or expense required to prepare such information, in particular resulting from the implementation of our new Corporate segment.
| | As of or For the Years ended December 31, | | | | 2007 | | 2007 | | Change from
previous year | | 2006 | | 2005 | | 2004 | | 2003 | | | | | 2008 | | 2008 | | Change from
previous year | | 2007 | | 2006 | | 2005 | | 2004 | |
| | | | | $(1) | | € | | % | | € | | € | | € | | € | | | | | $(1) | | € | | % | | € | | € | | € | | € | |
| | | | | (in millions, except per share data) | | | | | (in millions, except per share data) | |
Income Statement | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total revenues(2) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Property-Casualty | | € | mn | | 68,068 | | | 44,289 | | | 1.4 | | | 43,674 | | | 43,699 | | | 42,942 | | | 43,420 | (3) | | € | mn | | 58,859 | | | 43,387 | | | (2.0 | ) | | 44,289 | | | 43,674 | | | 43,699 | | | 42,942 | |
Life/Health | | € | mn | | 75,872 | | | 49,367 | | | 4.1 | | | 47,421 | | | 48,272 | | | 45,233 | | | 42,319 | (3) | | € | mn | | 61,881 | | | 45,615 | | | (7.6 | ) | | 49,367 | | | 47,421 | | | 48,272 | | | 45,233 | |
Banking | | € | mn | | 8,793 | | | 5,721 | | | (19.3 | ) | | 7,088 | | | 6,318 | | | 6,576 | | | 6,704 | (3) | | € | mn | | 738 | | | 544 | | | (12.5 | ) | | 622 | | | 604 | | | 6,318 | (3) | | 6,576 | (3) |
Asset Management | | € | mn | | 5,009 | | | 3,259 | | | 7.1 | | | 3,044 | | | 2,722 | | | 2,245 | | | 2,226 | (3) | | € | mn | | 3,917 | | | 2,887 | | | (11.4 | ) | | 3,259 | | | 3,044 | | | 2,722 | | | 2,245 | |
Consolidation | | € | mn | | (58 | ) | | (38 | ) | | not meaningful | | | (98 | ) | | (44 | ) | | (47 | ) | | (929 | )(3) | | € | mn | | 156 | | | 115 | | | not meaningful | | | 144 | | | 130 | | | (44 | )(3) | | (47 | )(3) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total Group | | € | mn | | 157,683 | | | 102,598 | | | 1.5 | | | 101,129 | | | 100,967 | | | 96,949 | | | 93,740 | (3) | | € | mn | | 125,551 | | | 92,548 | | | (5.3 | ) | | 97,681 | | | 94,873 | | | 100,967 | (3) | | 96,949 | (3) |
Operating profit(4) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Property-Casualty | | € | mn | | 9,681 | | | 6,299 | | | 0.5 | | | 6,269 | | | 5,142 | | | 4,825 | | | 2,397 | (3) | | € | mn | | 7,663 | | | 5,649 | | | (10.3 | ) | | 6,299 | | | 6,269 | | | 5,142 | | | 4,825 | |
Life/Health | | € | mn | | 4,603 | | | 2,995 | | | 16.8 | | | 2,565 | | | 2,094 | | | 1,788 | | | 1,265 | (3) | | € | mn | | 1,636 | | | 1,206 | | | (59.7 | ) | | 2,995 | | | 2,565 | | | 2,094 | | | 1,788 | |
Banking | | € | mn | | 1,188 | | | 773 | | | (45.6 | ) | | 1,422 | | | 704 | | | 447 | | | (396 | )(3) | | € | mn | | (42 | ) | | (31 | ) | | not meaningful | | | 32 | | | 63 | | | 704 | (3) | | 447 | (3) |
Asset Management | | € | mn | | 2,089 | | | 1,359 | | | 5.3 | | | 1,290 | | | 1,132 | | | 839 | | | 716 | (3) | | € | mn | | 1,256 | | | 926 | | | (31.9 | ) | | 1,359 | | | 1,290 | | | 1,132 | | | 839 | |
Corporate | | € | mn | | (499 | ) | | (325 | ) | | not
meaningful |
| | (831 | ) | | (881 | ) | | (870 | ) | | — | (3) | | € | mn | | (255 | ) | | (188 | ) | | 42.2 | | | (325 | ) | | (831 | ) | | (881 | ) | | (870 | ) |
Income (loss) before income taxes and minority interests in earnings | | € | mn | | 17,779 | | | 11,568 | | | 12.1 | | | 10,323 | | | 7,829 | | | 5,044 | | | 3,812 | | |
Net income (loss)(5) | | € | mn | | 12,243 | | | 7,966 | | | 13.5 | | | 7,021 | | | 4,380 | | | 2,266 | | | 2,691 | | |
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 | | 441,017 | | | 286,952 | | | (3.8 | ) | | 298,134 | | | 285,015 | | | 254,085 | | | 237,682 | | | € | mn | | 352,915 | | | 260,147 | | | (9.3 | ) | | 286,952 | | | 298,134 | | | 285,015 | | | 254,085 | |
Loans and advances to banks and customers(6) | | € | mn | | 609,691 | | | 396,702 | | | (6.4 | ) | | 423,765 | | | 359,610 | | | 406,218 | | | 382,590 | | |
Total assets(6) | | € | mn | | 1,630,880 | | | 1,061,149 | | | (4.4 | ) | | 1,110,081 | | | 1,054,656 | | | 1,058,612 | | | 971,076 | | |
Liabilities to banks and customers(6) | | € | mn | | 517,158 | | | 336,494 | | | (10.6 | ) | | 376,565 | | | 333,118 | | | 377,480 | | | 337,201 | | |
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 | | 97,910 | | | 63,706 | | | (2.7 | ) | | 65,464 | | | 67,005 | | | 62,331 | | | 62,782 | | | € | mn | | 86,719 | | | 63,924 | | | 0.3 | | | 63,706 | | | 65,464 | | | 67,005 | | | 62,331 | |
Reserves for insurance and investment contracts(6) | | € | mn | | 449,150 | | | 292,244 | | | 1.8 | | | 287,032 | | | 277,647 | | | 251,497 | | | 233,896 | | |
Shareholders’ equity(6) | | € | mn | | 73,392 | | | 47,753 | | | (3.8 | ) | | 49,650 | | | 38,656 | | | 29,995 | | | 27,993 | | |
Minority interests(6) | | € | mn | | 5,576 | | | 3,628 | | | (49.5 | ) | | 7,180 | | | 8,386 | | | 7,696 | | | 7,266 | | |
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(6)(7) | | | % | | 16.4 | | | 16.4 | | | 0.5pts | | | 15.9 | | | 12.9 | | | 7.8 | | | 11.0 | | |
Return on equity after income taxes and before goodwill amortization(6)(7) | | | % | | 16.4 | | | 16.4 | | | 0.5pts | | | 15.9 | | | 12.9 | | | 11.6 | | | 16.5 | | |
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 | | € | | | 27.66 | | | 18.00 | | | 5.3 | | | 17.09 | | | 11.24 | | | 6.19 | | | 7.96 | | |
Diluted earnings per share | | € | | | 27.22 | | | 17.71 | | | 5.5 | | | 16.78 | | | 11.14 | | | 6.16 | | | 7.93 | | |
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 | | 442.5 | | | 442.5 | | | 7.7 | | | 410.9 | | | 389.8 | | | 365.9 | | | 338.2 | | | | mn | | 450.2 | | | 450.2 | | | 1.7 | | | 442.5 | | | 410.9 | | | 389.8 | | | 365.9 | |
Diluted | | | mn | | 449.6 | | | 449.6 | | | 7.5 | | | 418.3 | | | 393.3 | | | 368.1 | | | 339.8 | | | | mn | | 456.0 | | | 456.0 | | | 1.4 | | | 449.6 | | | 418.3 | | | 393.3 | | | 368.1 | |
Shareholders’ equity per share(6) | | € | | | 166 | | | 108 | | | (10.7 | ) | | 121 | | | 99 | | | 82 | | | 83 | | |
Shareholders’ equity per share | | | € | | | 102 | | | 75 | | | (30.6 | ) | | 108 | | | 121 | | | 99 | | | 82 | |
Dividend per share | | € | | | 8.45 | | | 5.50 | | | 44.7 | | | 3.80 | | | 2.00 | | | 1.75 | | | 1.50 | | | € | | | 4.75 | | | 3.50 | (9) | | (36.4 | ) | | 5.50 | | | 3.80 | | | 2.00 | | | 1.75 | |
Dividend payment | | € | mn | | 3,805 | | | 2,476 | | | 50.8 | | | 1,642 | | | 811 | | | 674 | | | 551 | | |
Share price as of December 31(8) | | € | | | 227.38 | | | 147.95 | | | (4.4 | ) | | 154.76 | | | 127.94 | | | 97.60 | | | 100.08 | | |
Market capitalization as of December 31 | | € | mn | | 102,358 | | | 66,600 | | | (0.4 | ) | | 66,880 | | | 51,949 | | | 35,936 | (9) | | 36,743 | (9) | |
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 | | | | 181,207 | | | 181,207 | | | 8.8 | | | 166,505 | | | 177,625 | | | 176,501 | | | 173,750 | | | | | 182,865 | | | 182,865 | | | 0.9 | | | 181,207 | | | 166,505 | | | 177,625 | | | 176,501 | |
Third-party assets under management as of December 31 | | € | mn | | 1,175,146 | | | 764,621 | | | 0.1 | | | 763,855 | | | 742,937 | | | 584,624 | | | 564,714 | | | € | 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. Dollars at the rate of $1.5369$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 10, 2008.20, 2009. |
(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) | Total revenues and operating profitFigures for the yearyears ended December 31, 20032005 and 2004 do not reflect changes in the reporting changes effective January 1, 2006.presentation relating to the discontinued operations of Dresdner Bank.
|
(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, seerefer to Note 56 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. |
(6)
| The Allianz Group identified prior period errors through an analysis of various balance sheet accounts (the “Errors”). The Errors resulted primarily from the accounting for the purchase of Dresdner Bank in 2001 and 2002, consolidation of special funds in 2001 and other errors related to minority interest and policyholder participation occurred in combination with mergers. The Errors had the effect of reducing net income by €78 mn in 2006, €42 mn in 2005, and €157 mn for the 4 years from 2001 through 2004. As the majority of the Errors related to the years 2001 through 2004, the Errors from these periods have been accounted for in 2007 by adjusting the opening balance sheet as of January 1, 2005. The Errors for 2005 and 2006 have been corrected through an out-of-period adjustment to net income in 2007. Certain financial instruments that were previously presented on a net presentation are now presented on a gross basis, due to contractual limitations to the right of offset. Partially offsetting these reclassifications from net to gross presentation is a change in the presentation of Collateral paid for securities borrowing transactions and Collateral received for securities lending transactions from gross to net presentation. The net effect is an increase in total assets and total liabilities of €57,610 mn, €66,123 mn, €67,654 mn and €37,274 mn in 2006, 2005, 2004 and 2003, respectively. For further information, see Note 3 to the consolidated financial statements.
|
(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 FinancialReuters Datastream. |
(9)(11)
| Excluding treasury shares. |
Dividends
The following table sets forth the annual dividends declared in 20072008 and paid in prior years per ordinary share and American Depositary Share (or “ADS”) equivalent for 20032004 through 2007.2008. The table does not reflect the related tax credits available to German taxpayers. SeeRefer to “Additional Information—German Taxation—Taxation of Dividends.”
| | | | Dividend per
ordinary share | | Dividend paid per
ADS equivalent | | Dividend per
ordinary share | | Dividend paid per
ADS equivalent |
| | | € | | $ | | € | | $ | | € | | $ | | € | | $ |
2003 | | 1.50 | | 1.82 | | 0.150 | | 0.182 | |
2004 | | 1.75 | | 2.27 | | 0.175 | | 0.227 | | 1.75 | | 2.27 | | 0.175 | | 0.227 |
2005 | | 2.00 | | 2.43 | | 0.200 | | 0.243 | | 2.00 | �� | 2.43 | | 0.200 | | 0.243 |
2006 | | 3.80 | | 5.13 | | 0.380 | | 0.513 | | 3.80 | | 5.13 | | 0.380 | | 0.513 |
2007(1) | | 5.50 | | 8.45 | | 0.550 | | 0.845 | |
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 $1.5369$1.3566 = €1.00, the noon buying rate in New York for cable transfers in Euros certified by the Federal Reserve Bank of New York for customs purposes on March 10, 2008. See20, 2009. Refer to “Presentation of Financial and Other Information.” |
(2) | Subject to final approval at the Annual General Meeting. |
The ability to pay future dividends will depend upon our future earnings, financial condition (including our cash needs), prospects and other factors. You should not assume that any dividends will actually be paid or make any assumptions about the amount of dividends which will be paid in any given year. SeeRefer to “Financial Information—Dividend Policy.”
Exchange Rate Information
The table below sets forth, for the periods indicated, information concerning the noon buying rates for the Euro expressed in U.S. Dollars per €1.00. No representation is made that the Euro or U.S. Dollar amounts referred to herein could be or could have been converted into U.S. Dollars or Euros, as the case may be, at any particular rate or at all.
| | | | High | | Low | | Period
average(1) | | Period
end | | High | | Low | | Period
average(1) | | Period
end |
| | | ($ per €1.00) | | ($ per €1.00) |
2003 | | 1.2597 | | 1.0361 | | 1.1321 | | 1.2597 | |
2004 | | 1.3625 | | 1.1801 | | 1.2478 | | 1.3538 | | 1.3625 | | 1.1801 | | 1.2478 | | 1.3538 |
2005 | | 1.3476 | | 1.1667 | | 1.2400 | | 1.1842 | | 1.3476 | | 1.1667 | | 1.2400 | | 1.1842 |
2006 | | 1.3327 | | 1.1860 | | 1.2481 | | 1.3197 | | 1.3327 | | 1.1860 | | 1.2661 | | 1.3197 |
2007 | | 1.4862 | | 1.2904 | | 1.3797 | | 1.4603 | | 1.4862 | | 1.2904 | | 1.3797 | | 1.4603 |
2008 | | | 1.6010 | | 1.2446 | | 1.4695 | | 1.3919 |
September | | 1.4219 | | 1.3606 | | 1.3913 | | 1.4219 | | 1.4737 | | 1.3939 | | 1.4302 | | 1.4081 |
October | | 1.4468 | | 1.4092 | | 1.4349 | | 1.4468 | | 1.4058 | | 1.2446 | | 1.3370 | | 1.2682 |
November | | 1.4862 | | 1.4435 | | 1.4562 | | 1.4688 | | 1.3039 | | 1.2525 | | 1.2706 | | 1.2694 |
December | | 1.4759 | | 1.4344 | | 1.4630 | | 1.4603 | | 1.4358 | | 1.2634 | | 1.3276 | | 1.3919 |
2008 | | | | | | | | | |
2009 | | | | | | | | | |
January | | 1.4877 | | 1.4574 | | 1.4790 | | 1.4841 | | 1.3718 | | 1.2804 | | 1.3190 | | 1.2804 |
February | | 1.5187 | | 1.4495 | | 1.5019 | | 1.5187 | | 1.3064 | | 1.2547 | | 1.2735 | | 1.2662 |
March (until March 10, 2008) | | 1.5369 | | 1.5195 | | 1.5282 | | 1.5369 | |
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 10, 2008,20, 2009, the noon buying rate for the Euro was $1.5369.$1.3566.
Risk Factors
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 Allianz Group’s results of operations.
Changes in prevailing interest rates (including changes in the difference between the levels of prevailing short-andshort- and long-term rates) canmay adversely affect Allianz Group’s insurance, asset management, banking and corporate 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 Allianz Group’s various investment portfolios. An increase in interest rates could substantially decrease the value of Allianz Group’s fixed incomefixed-income portfolio, and any unexpected change in interest rates could materially adversely affect Allianz Group’s bond and interest rate derivative positions. Results of Allianz Group’s asset management business may also be affected by movements in interest rates, as 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 Allianz Group’s life/health insurance business may be reduced in part by products designed to partly or entirely transfer Allianz Group’s exposure to interest rate movements to the policyholder. While product design reduces Allianz 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 Allianz Group’s fixed incomefixed-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
prevailing at the issue date of the policy, or below the regulatory minimum required rates in countries such as Germany and Switzerland, would reduce or eliminate the profit margins on the life/health insurance business written by Allianz Group’s life/health subsidiaries to the extent the maturity composition of the assets does not match the maturity composition of the insurance obligations they are backing.
In addition, the composition of Allianz Group’s banking assets and liabilities, and any mismatches resulting fromWe are exposed to significant market risks that composition, cause the net income of Allianz Group’s banking operations to vary with changes in interest rates. Allianz Group is particularly impacted by changes in interest rates as they relate to different maturities of contracts and the different currencies in which Allianz Group holds 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 Allianz Group’s banking business.
Market risks could impair the value of Allianz Group’s portfolio and adversely impact Allianz Group’s financial position and results of operations.
Allianz Group holds a significant equity portfolio, which represented approximately 15%9.1% of Allianz Group’s financial assets at December 31, 2007,2008, excluding financial assets and liabilities carried at fair value through income. FluctuationsVolatility in equity markets, which have reached unprecedented levels in recent months, affect the market value and liquidity of these holdings. Allianz Group also has real estate holdings in its investment portfolio, the value of which is likewise exposed to changes in real estate market prices and volatility.
Most of Allianz 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 Allianz Group’s consolidated
income statement. Changes in the market value of securities available-for-sale are recorded directly in Allianz 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—Critical Accounting Policies and Estimates” and Note 2 to the consolidated financial statements for further information concerning Allianz Group’s significant accounting and valuation policies.
Allianz Group’s As a result of the world financial condition may be affectedcrisis, which has been characterized by adverse developments in the financial markets
The abilitysignificant declines of Allianz Group to meet its financing needs depends on the availabilitymarket prices of funds in the international capital markets. The financing of Allianz Group’s activity includes funding through commercial papers and medium term notes. A sustained break-down of such markets could have a materially adverse impact on the cost of funding as well as on the refinancing structure of Allianz Group. Furthermore, the illiquidity or sustained volatility of certain market segments may affect the mark-to-market valuation of certain assets and may lead to valuation losses and an increased risk of counterparty defaults.
Marketsecurities and other factors could adversely affect goodwill, deferred policy acquisition costs and deferred tax assets; Allianz Group’s deferred taxfinancial assets, are also potentially impacted by changes in tax legislation.
Business and market conditions may impact the amount of goodwill Allianz Group carries in its consolidated financial statements. As of December 31, 2007, Allianz Group haswe have recorded goodwill in an aggregate amount of €12,453 million, of which €6,165 million relates to its asset management business, €4,433 million relates to its insurance business, €1,714 million relates to its banking business, and €141 million relates to its corporate segment.
As the value of certain parts of Allianz Group’s businesses, including in particular Allianz Group’s
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. Nosubstantial impairments, were recorded for goodwill in 2007.
The assumptions Allianz Group made with respect to recoverability of deferred policy acquisition costs (“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, 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 impairments were recorded for DAC in 2007.
As of December 31, 2007, Allianz Group had a total of €4,771 million in net deferred tax assets and €3,973 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, 2007, €3,227 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 Allianz Group 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 Allianz Group’s results of operations.
Loss reserves for Allianz Group’s property-casualty insurance and reinsurance policies are based on estimates as to future claims payments. Adverse developments relating to claims could lead to further reserve additions and materiallywhich have adversely impact Allianz Group’saffected our results of operations.
In accordance with industry practiceoperations, shareholders’ equity and accounting and regulatory requirements, Allianz Group established reserves for losses and loss adjustment expenses related to its property-casualty insurance and reinsurance businesses, including property-casualty businessfinancial position. We also hold interests 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 (“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 that affectfinancial institutions as part of our portfolio, which have been particularly exposed to the ultimate cost of claims, such as changes inuncertain current market conditions affecting the legalfinancial services sector generally. Until the global economic environment results of litigation, changes in medical costs, costs of repairs and other factors such as inflation and exchange rates, and Allianz Group’s reserves for asbestos and environmental and other latent claims are particularly subject to such variables. Allianz Group’s results of operations depend significantly upon the extent to which Allianz Group’s actual claims experience is consistent with the assumptions Allianz Group uses in setting the prices for products and establishing the liabilities for obligations for technical provisions and claims. To the extent that Allianz Group’s actual claims experience is less favorable than the underlying assumptions used in establishing such liabilities, Allianz Group may be required to increase its reserves, which may materially adversely affect its 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. Allianz Group also conducts 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 Allianz Group’s internal procedures, Allianz Group’s management considers that Allianz Group’s reserves are adequate at December 31, 2007. However, because the establishment of reserves for loss and loss adjustment expenses is an inherently uncertain process,improves, there can be no assurance that ultimate losseswe will not materially exceedcontinue to incur similar significant impairments on the established reserves for loss and loss adjustment expenses and have a material adverse effect on Allianz Group’s resultsvalue of operations.
Actuarial experiencethe securities and other factors could differ fromfinancial assets that assumed in the calculation of life/health actuarial reserves and pension liabilities.
The assumptions Allianz Group makes in assessing its life/health insurance reserves may differ from what we experience in the future. Allianz Group derive 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 income and other categories, policyholder bonus rates (some of which are guaranteed), mortality and morbidity rates, policyholder lapses and future expense levels. Allianz Group monitors its actual experience of these assumptions and to the extent that it considers that this experience will continue in the longer term it refines its long-term assumptions. Similarly, estimates of Allianz 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 endowment 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 decline to historically low levels for a long period, we could be required to provide additional funds to 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 Allianz Group’s results of operations.
In the United States, and to a lesser extent in Europe and Asia we have a portfolio of contracts with guaranteed investment returns indexed 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 Allianz Group’s results of operations.
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 incidence 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 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 Allianz Group’s financial position or results of operations.hold.
We have significant counterparty risk exposure.exposure, which could adversely affect Allianz Group.
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. TheseAs a result, defaults by one or more of 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.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 vary significantly.significantly from time to time. Any decrease in the amount of Allianz Group’s reinsurance will increase its risk of loss. When we obtain 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 measurescollaterals 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 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, 2008, 59.0% of the third-party assets under management in 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 same currency, changes in the exchange rates used to translate foreign currencies into Euro may adversely affect our results of operations.
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.
In accordance with industry practice and accounting and regulatory requirements, Allianz Group establishes reserves for losses and loss adjustment expenses related to its 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 (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 that 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 Allianz Group’s reserves for asbestos and environmental and other latent claims are particularly subject to such variables. Allianz Group’s results of operations depend significantly upon the extent to which Allianz Group’s actual claims experience is consistent with the assumptions Allianz Group uses in setting the prices for products and establishing the liabilities for obligations for technical provisions and claims. To the extent that Allianz Group’s actual claims experience is less favorable than the underlying assumptions used in establishing such liabilities, Allianz Group may be required to increase its reserves, which may materially adversely affect its 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. Allianz
Group also conducts 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 Allianz Group’s internal procedures, Allianz Group’s management considers that Allianz Group’s reserves are adequate at December 31, 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 Allianz Group’s results of operations.
Actuarial experience and other factors could differ from that assumed in the calculation of life/health actuarial reserves and pension liabilities.
The assumptions Allianz Group makes in assessing its life/health insurance reserves may differ from what we experience in the future. Allianz 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-income and other categories, policyholder bonus rates (some of which are guaranteed), mortality and morbidity rates, policyholder lapses and future expense levels. Allianz Group monitors its actual experience of these assumptions and to the extent that it considers that this experience will continue in the longer term it refines its long-term assumptions. Similarly, estimates of Allianz 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 endowment 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 decline to historically low levels for a long period, we could be required to provide additional funds to
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 Allianz 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 portfolio of contracts with guaranteed investment returns tied 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 Allianz Group’s results of operations. For example, in 2008, our US variable annuity business experienced a negative impact of higher guarantee reserves, net of hedging and DAC amortization, of 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 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 incidence 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 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 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 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, 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, asset management and banking businesses are subject to detailed, comprehensive laws and regulations 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, asset management and banking 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 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 that 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 SE 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. All of the directive’s provisions were implemented in Germany effective June 2, 2007. Although Allianz SE currently meets the requirements, there can be no assurances as to the impact on Allianz SE 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 SE to change the composition of its asset portfolio covering its technical reserves or take other appropriate measures.
In addition, discussions on a new solvency regime for insurance companies in the EU (Solvency II) are ongoing. As those discussions are not yet finalized, its potential future impact for capital requirements can not currently be assessed. For more information, refer to “Item 11. Quantitative and 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 that 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 compliance 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.
Other risks
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 each a factor in establishing the competitive position 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 and annuity 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.
If our asset management business underperforms, it may experience a declineMarket and other factors could adversely affect goodwill, deferred policy acquisition costs and deferred tax assets; Allianz Group’s deferred tax assets are also potentially impacted by changes in assets under management and related fee income.tax legislation.
WhileBusiness and market conditions may impact the assets under management in our asset management segment include a significant amount of funds relatedgoodwill 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 our insurance operations, third-party assets under management, 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 theits asset management business, might decline€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 assumptions Allianz Group made with respect to recoverability of deferred policy acquisition costs (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, 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 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 levelusability of our third-partytax assets under management were to decline due to investment performance or otherwise.more unlikely. Any such development may have a material adverse impact on Allianz Group’s net income.
Increased geopolitical risks followingFollowing the terrorist attacksale of September 11, 2001, and any future terrorist attacks, could have a continuing negative impact on our businesses.Dresdner Bank in January 2009, Allianz SE retains the contingent obligation to indemnify, under certain circumstances, the Federal Association of German Banks in connection with Dresdner Bank for the period Allianz SE owned Dresdner Bank.
After September 11,In 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. Regulation 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 reinsurers generally either put terrorism exclusions into their policies or drastically increasedin favour of the price for such coverage.
Although we have attemptedFederal Association of German Banks with respect to exclude terrorist coverage from policies we write, this has not been possible in all cases, including as a resultDresdner Bank since the date of legislative developments such as the Terrorism Risk Insurance Act 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.sale. As a result, we may have liability under primary insurance policies for actsAllianz’s on-going indemnification obligation relates to supporting measures in favour of terrorism and may not be able to recover a portion or any of our losses from our reinsurers.
At thisDresdner Bank that are based on facts that were already existing at the 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.termination.
| ITEM 4. | Information on the Company |
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, banking and asset management businesses are subject to detailed, comprehensive laws and regulation 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, banking and asset management 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 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 that could materially harm our results of operations and financial condition.
Effective January 2005, reinsurance companies in Germany such as Allianz SE 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 anticipated the implementation of EU Reinsurance Directive (2005/68/EC) which was adopted in November 2005. All of the directive’s provisions were implemented in Germany effective June 2, 2007. Although Allianz SE expects to continue to meet the new requirements, there can be no assurances as to the impact on Allianz SE 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 SE to change the composition of its asset portfolio covering its technical reserves or take other appropriate measures.
In addition, discussions on a new solvency regime for insurance companies in the EU (Solvency II) are ongoing. As those discussions are not yet finalized, its potential future impact for capital requirements can not currently be assessed. For more information, see “Item 11. Quantitative and 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 that 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 compliance 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.
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, 2007, approximately 34.2% of our gross premiums written in our property-casualty segment and 27.9% of our statutory premiums in our life/health segment originated in currencies other than the Euro. Furthermore, as of December 31, 2007, 56.1% of the third-party assets under management at the Asset Management segment are in the United States, and 44.2% of the assets in our Banking Operations are located outside of Germany.
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 results 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 SE has been and may continue to be volatile.
The share price of Allianz SE has been volatile in the past and may continue to be volatile 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 as well as the actual performance of other financial institutions; investor perception of the success and impact of our strategy, including the acquisition of Assurances Générales de France S.A. (or “AGF”, and together with its subsidiaries, the “AGF Group”), 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.
The benefits that Allianz SE may realize from Allianz AG’s conversion into a European Company (Societas Europaea) and from the completed mergers with RAS S.p.A. and AGF could be materially different from our current expectations.
The benefits that Allianz SE may realize from Allianz AG’s conversion into a European Company (Societas Europaea, SE) and the subsequent reorganization of its European operations, including the acquisition of minority interests in the Italian subsidiary, RAS S.p.A. and its French subsidiary AGF could be materially different from our current expectations. For more information about these transactions and reorganization, see “Information on the Company—Legal Structure—AGF minorities buy-out procedure completed” and “Information on the Company—Important Group Organizational Changes—Reorganization in Italy.” We took these measures to implement a business plan creating strategic synergies and organizational efficiencies, however, our estimates of the benefits that we may realize as a result of these measures involve subjective judgments that are subject to uncertainties. A variety of factors that are partially or entirely beyond our control could cause actual results to be materially different from what we currently expect, and any synergies that we realize from a conversion to an SE and full ownership of these subsidiaries could be materially different from our current expectations.
The Allianz Group has been and may continue to be adversely affected by ongoing turbulence and volatility in the world’s financial markets.
Starting in the second half of 2007, 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, less liquidity, widening of credit spreads and overall tightening of financial markets throughout the world. In addition, the prices for many types of asset-backed securities (ABS) and other structured products have deteriorated. Although most of Allianz’s insurance operations have not been significantly affected by this crisis, Allianz has been materially impacted as a result of our investment banking operations’ exposures 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, in late 2007, we recorded significant negative revaluations on the investment portfolio of our subsidiary, Dresdner Bank. For details regarding the impact of the financial market crisis on the Allianz Group’s 2007 results, please see “Operating and Financial Review and Prospects—Executive Summary—Impact of the financial markets turbulence.”
The valuation of ABS and other affected instruments is a complex process, involving the
consideration of market transactions, pricing models, management judgment and other factors, and is also impacted by external factors such as underlying mortgage default rates, interest rates, rating agency actions and property valuations. While we continue to monitor our exposures in this area, in light of the ongoing market environment and the resulting uncertainties concerning valuations, it is difficult to predict how long these volatile conditions will exist and how the Allianz Group’s markets, business and operations will be affected. Continuation or worsening of the turbulence in the world’s financial markets could have a material adverse effect on the Allianz Group’s financial position, shareholders’ equity and results of operations in future periods.
ITEM 4. Information on the Company
The Allianz Group
Founded in 1890 and with 117over 100 years of experience in the financial services industry, the Allianz Group is committed to providing financial security to a broad base of customers ranging from private individuals to large multinational corporations.
Allianz SE (formerly Allianz Aktiengesellschaft, or Allianz AG) is a European Company (Societas Europaea, or SE) incorporated in the Federal Republic of Germany and organized under the laws of the Federal Republic of Germany and the European Union. Allianz SE is the ultimate parent of the Allianz Group. It was incorporated as Allianz Versicherungs- Aktiengesellschaft in Berlin, Germany on February 5, 1890 and converted to a European Company on October 13, 2006. Our registered office is located at Koeniginstrasse 28, 80802 Munich, Germany, telephone +49 (0) 89 3800-0.
The Allianz Group’s Business Model
As an integrated and globally operating financial services provider we seek to offer our clients considerable 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.
Property-Casualty & Life/Health insuranceInsurance operations
We are one of the leading insurance groups in the 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 the other countries in which we operate. Our product portfolio
(1)
| Source: As published by Gesamtverband der deutschen Versicherungswirtschaft e.V. (or “GDV“) in 2007. The GDV is a private association representing the German insurance industry.
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includes a wide array of property-casualty and life/health insurance products for both private and corporate customers.
Product portfoliorange of the insurance segmentsbusiness
We conduct business in almost every European country, with Germany, Italy and France being our most important markets. We also run operations in the United States and in Central and Eastern Europe as well as in 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 in South America with Brazil being one of the key markets(2).
We distribute ourOur 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: As published by Gesamtverband der deutschen Versicherungswirtschaft e.V. (or GDV) in 2008. The GDV is a private association representing the German insurance industry. |
| (2) | For a more detailed description of the global diversification of our insurance business, please refer to“—Global Diversification of our Insurance Business”. |
manufacturers and dealers in Europe and Asia-Pacific and also have direct distribution operations in Central Europe, India and Australia. The particular distribution channels vary by product and geographic market.
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 competitors.
(2)
| For a more detailed discription of our geographic diversification, please refer to “Global Diversification of our Insurance Business”.
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The investments of most Allianz insurance companies’companies are managed internally through specialists within the Allianz Group (Allianz Investment Management).
Allianz SE, the Allianz Group’s parent company, acts on an arm’s length basis as reinsurer for most of our insurance operations and assumed 26.9%25.2%, 33.3%26.9% and 35.6%33.3% of all reinsurance business ceded by Allianz Group companies for the years ended December 31, 2008, 2007 2006 and 2005,2006, respectively. Allianz SE also assumes a relatively small amount of reinsurance from external 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.
Banking operations
OurIn the past, our banking activities arewere primarily conducted through the Dresdner Bank Group (or “Dresdner Bank”), onewhich accounted for almost all of our Banking segment’s results of operations. Following the leading commercial banks in Germanysale of Dresdner Bank AG (Dresdner Bank) to Commerzbank AG (Commerzbank)(1), accounting for 94.8% of we reduced our totalbanking operations which now comprise Allianz Banking segment’s operating revenues in fiscal year 2007 (2006: 96.0%). While Dresdner Bank focuses on selected geographic regions worldwide, Germany is its primary market. Dresdner Bank is present in the world’s major financial centers and operates its banking business mainly through 1,074 (as of December 31, 2007) branch offices, of which 1,019 are located in Germany and 55 outside of Germany.
Dresdner Bank’s focus is on serving the financial needs of private and corporate, as well as multinationalour existing banking operations in Italy, France and institutional clients according toNew Europe. Allianz Banking Germany is a division under the following business model.
Business modelroof of Dresdner BankAllianz Deutschland AG (ADAG) and contains
(1) | BasedFor detailed information on total assets asthe sale of December 31, 2007.Dresdner Bank, please refer to “—Major Transactions—Major Disposals”.
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Oldenburgische Landesbank AG (Oldenburgische Landesbank) and the banking customers originally introduced to Dresdner Bank through the tied agents network. Oldenburgische Landesbank will become Allianz’s main banking product and service provider in Germany. The Private & Corporate Clients divisionbank offers integrated financial solutionsa wide range of products for privatecorporate and corporate clients. These solutions are provided by dedicated sales and product units.
The Investment Banking division, known as Dresdner Kleinwort, focusesretail clients with its main focus on German and multinational groups, financial investors and institutions requiring access to the capital markets and to global banking services.
latter. In addition to our bankassurancebanking activities, the distribution of Dresdner Bankbanking products through our German insurance agents network is of increasing importance. By offering both insuranceimportant and the banking servicesagencies distribution network will be expanded to approximately 300 in 120 (as2009 (129 as of December 31, 2007) selected agencies, an innovative and successful distribution channel is evolving.2008).
We are subject to competition from both bank and non-bank institutions that provide financial services and, in some of our activities, also from government agencies. Substantial competition exists among a large number of commercial banks, saving banks, other public sector banks, brokers and dealers, investment banking firms, insurance companies investment advisors, mutual funds and hedge funds that provide the types of banking products and services that our banking operations offer.
Asset Management operations
We are one of the fivefour largest asset managers in the world.(2)(3)
Our business activities in this segment consist of asset management products and services both for third-party investors and 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 companies, governments and charities andas well as financial advisors.
(2)
| Based on total assets under management as of December 31, 2007, own source.
|
AGI’s customer and selected product range
Our retail asset management business is primarily conducted under the brand name Allianz Global Investors (“AGI”)(AGI) through our operating companies worldwide. In our institutional asset management business, we operate under the brand names of our investment management entities, with AGI serving as an endorsement brand. With €725€ 673 billion of third-party assets as of December 31, 2007,2008, AGI managed 95.7% (2007: 94.8% (2006: 94.6%) of our total third-party assets on a worldwide basis, which includes fixed income, equity, money market and sector products, as well as alternative investments.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. |
The United
States and Germany as well as France, Italy and the Asia-Pacific region represent our primary 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.
AGI’s selected product range for retail and institutional customers
Our distribution channels vary by product and geographic market. In Europe and in the United States, AGI markets and services its institutional products through specialized operations and personnel. Retail products in Europe are mostly distributed through proprietary Allianz Group channels. In the United States, AGI’s local asset management operating entities also offer a wide range of retail products. In addition we have committed substantial resources to the expansion of the third-party asset management business in the Asia-Pacific region.
In 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 investmentsinvestment activities coordinated by Allianz Alternative Assets Holding GmbH.
Legal Structure of the Board of Management
Each member of the Board of Management of Allianz SE is responsible for a particular 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.
AGF minorities buy-out procedure completedMain initiatives
AsAllianz continues to develop its business via a number of December 31, 2006major 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 SE owned 57.5% of the share capital and 60.2% of the voting rights ofGroup is modernizing its French-based subsidiary, Assurances Générales de France S.A. (“AGF”)entire organization following a shared Target Operating
Model (TOM). In order to achieve full ownership of AGF, Allianz announced a tender offer for the outstanding AGF shares on January 18, 2007.drive these change processes and to take best practice experience into account, an Operational Transformation Program has been established.
The acceptance period for the tender offer started on March 23, 2007objective of our Global Talent Management initiative is to systematically optimize global recruiting, development and ended on April 20, 2007. The consideration for one AGF share providedreward processes to maximize talent quality and performance in the offer was 0.25 of an Allianz SE share and €87.50 in cash, which was increased to €88.45 to reflect the dividend per Allianz SE share for 2006 multiplied by 0.25, as Allianz SE shares issued due to the tender offer did not carry the rights to dividends for 2006.
On April 27, 2007 the French stock market authority, the Autorité des Marchés Financiers (“AMF”) announced, that following the closing of the tender offer for the outstanding shares of AGF, Allianz SE (directly and indirectly through its subsidiary Allianz Holding France SAS) held 178,030,698 AGF shares representing 92.18% of AGF’s share capital and voting rights. Taking into account the 6,199,392 treasury shares held by AGF representing 3.21% of the share capital, minority shareholders held 8,895,695 shares representing 4.61% of AGF, less than 5%, the threshold for a subsequent squeeze-out procedure of the AGF share capital and voting rights.Group.
In order to achieve 100% ownership of AGF, Allianz SE and its subsidiary Allianz Holding France SAS subsequently launched a mandatory squeeze-out procedure of the AGF shares still held by minority shareholders. In accordance with the General Regulations of the AMF, and subject to review and prior authorization by the AMF, the squeeze-out was implemented on the basis of a price of €125.00 in cash per AGF share. Additionally, AGF’s minority shareholders also received the 2006 AGF dividend of €4.25 per share.
On July 10, 2007, the Allianz Group completed the squeeze-out procedure for AGF and now holds 100% of the shares of AGF. As a result, the AGF shares are no longer listed on the Paris stock exchange Euronext.
Concurrent with the AGF transaction, and in order to provide the share component of the consideration to AGF shareholders, Allianz completed a capital increase involving the issuance of approximately 16.97 million new Allianz SE shares. The total cash component of the consideration for the acquisition of the outstanding AGF shares amounted to approximately €7.1 billion.
Acquisition in 2007
On February 21, 2007 Sistema and Allianz signed a share purchase agreement, whereby Allianz became a major shareholder of ROSNO Group, one of the four leading insurance companies in Russia. Allianz now holds approximately 97% in ROSNO, which is active in the Property-Casualty, Life/Health and Asset Management business. With this acquisition, we improved our strategic position in Central and Eastern Europe and expect to become by far the most important foreign majority owner of an insurance company in our strategic market Russia.
Squeeze-out of Allianz Lebensversicherungs-AG announced
On January 18, 2008 we announced the start of the squeeze-out process for the remaining shares in Allianz Lebensversicherungs-AG, having reached the required threshold of 95%.
Important Group Organizational ChangesGlobal Diversification of our Insurance Business(1)
As an integrated financial services provider we offer insurance, banking and asset management products and services to approximately 75 million customers in about 70 countries. With respect to our insurance business, Allianz is the market leader in Germany and has a strong international presence.
Allianz 2008 changes at a glance:
January
| – | Société Nationale d’Assurances s.a.l. (SNA) Lebanon rebranded Allianz SNA |
March
| – | Allianz Takaful started operations in Bahrain |
| – | AGF Brazil Seguros S.A. rebranded Allianz Seguros S.A. |
April
| – | Allianz Life Japan commenced sales operations |
| – | Euler Hermes World Agency created with the purpose of serving multinational companies |
| – | Allianz becomes the major shareholder of Koç Allianz Sigorta AŞ and Koç Allianz Hayat ve Emeklilik AŞ in Turkey; effective October 2008 the companies operate under the names Allianz Sigorta AŞ and Allianz Hayat ve Emeklilik AŞ. |
May
| – | Allianz announced strategic partnership with HSBC at the Annual General Meeting |
| – | ATF-Polis renamed Allianz Kazakhstan |
June
| – | Allianz China Life commenced business in Beijing |
| – | 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 under the umbrella of AGCS to form the largest marine insurer in the world based on gross premiums. |
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 orderaddition, 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 realizeAllianz SE.
As the potentialmarket 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 operationalprivate and strategic synergies,business clients. Our main lines of business are motor liability and own damage, accident, general liability and property insurance. In addition we continuedintroduced 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 pursueAllianz 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 sale of Dresdner Bank to Commerzbank. Please see Note 4refer to our consolidated financial statements“—Major transactions—Major disposals—Sale of Dresdner Bank AG” for informationfurther information. |
(2) | Source: Based on changes in the scope of consolidation in the years ended December 31, 2007, 2006 and 2005.preliminary data provided by German Insurance Association, GDV |
reorganization projectsboth 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.
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 property-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 aim to provide our clients with more integrated products for every stage of their lives.
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.
Switzerland
We serve the Swiss property-casualty market through Allianz Suisse. Based on gross premiums
written in 2007, Allianz Suisse ranks fourth in Switzerland(1). In the property-casualty business, the most important line of business is motor, contributing almost 50% of gross premiums written in 2008. In 2008 we expanded our product portfolio for assistance products. In the very competitive property-casualty business in Switzerland, we will continue 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.
We conduct our life/health operations in this region primarily through Allianz Suisse 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 the traditional sales channels in 2008, we started to distribute our products through the new direct sales channel allianz24.ch and entered 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 individual and group customers primarily through salaried sales forces, tied agents and brokers.
Based on gross premiums written in 2008, Allianz Elementar Versicherungs-AG, ranks fourth in the Austrian market in the property-casualty business(2). With approximately 45% of the portfolio, 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 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 serves 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 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 our 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, our 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 Sigorta 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 to return to its growth path in the near future. We will seek to increase our distribution base and to provide innovative insurance solutions to our customers.
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 2007(2). AGF’s activities encompass several areas, including property-casualty insurance, life/health insurance, asset management and banking.
| (1) | 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. |
| (2) | Source: French Insurers Association, FFSA. |
In 2008, we introduced a plan in order to reduce costs by rationalizing the structure of the company by 2011.
The broad range of AGF-branded property-casulty and life/ health products for both individuals and corporate customers, including property, injury and liability insurance as well as short-term investment and savings products, are distributed primarily through a network of tied agents, brokers, partnership channels and a salaried salesforce. We also market our products through AGF Banque. We plan to start our direct insurance business in France in 2009.
Operating in a property-casualty market that has seen limited growth in recent years, and complemented these with additional new activities:we seek to focus on maintaining operating profitability while simultaneously implementing selective initiatives aimed at generating growth.
We consider AGF’s life business to be a growth area.
ReorganizationNetherlands
The most important lines of Germanproperty-casualty business in the Netherlands 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 life insurance products.
The Dutch insurance market is characterized by intense competition. Here we expect continuing pressure on the motor tariffs.
Belgium
In Belgium, we market a wide range of life and property-casualty insurance products, which have won several awards. The products are mainly distributed through brokers.
Africa
In Africa we serve the market through AGF Afrique which is the specialist of the Allianz Group 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 our operating entities in Burkina 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 well as life.
We intend to consider business opportunities in Africa when appropriate.
Credit Insurance Operations(1)
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 Euler Hermes and Mondial Assistance Group on a worldwide basis. |
| (2) | Source: Own estimate based on information from International Credit Insurance and Surety Association, ICISA. |
| (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 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. |
market niches and leveraging 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 company will seek to further grow its annuity products business by expanding distribution with broker-dealers, banks and wire-houses, designing channel-specific products and also reinforcing development of fixed-indexed and variable products.
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.
Major Transactions
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 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 which was announced in 2005,successfully completed by consolidating our major insurance subsidiaries under the Allianz SE wholly-owned holding company Allianz Deutschland AG and revising our regional sales and service structure.year-end 2008 . This process iswas 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 iswas to create one joint presence of our insurance operations, with customers perceiving Allianz as one unit with comprehensive high quality services geared toward the customer’s needs.services. The reorganization iswas part of our strategy to further develop our leading position in the German insurance market.
AtWe believe that the beginningreorganization 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, we completed negotiations with the works councils, such negotiations being an important prerequisite forAllianz north-east service region tested the implementationfunctionality of the new operating model.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.
The German insurance operations areAllianz Deutschland AG is now organized according to the following business structure.
Business model of Allianz Deutschland AGSouth America
We are continuing this reorganization program and expectIn all three markets, Allianz is focused on property-casualty with motor generally being the reduced complexity to allow us to reduce costs in the long-term.
In the frameworklargest individual line of the reorganization back-office functions were lined up based on a shared services approach. This process was already started in 2006 and was further implemented in 2007 according to schedule. In the course of the year 2007 the Allianz north-east service region tested the functionality of the new business model in a pilot phase. In the financial year 2008 the remaining three regions will also be reorganized.business.
Reorganization in Italy
On October 1, 2007 the integration of Riunione Adriatica di Sicurtà (“RAS”), Lloyd Adriatico and Allianz Subalpina, which are–as a group–the
second largest composite insurer in Italy(1), was completed successfully. The newly formed Allianz S.p.A. is now able to realize the chance to exploit new opportunities for growth. To support this, the brands of the sales networks were reinforced with the Allianz brand, so e.g. the former RAS brand is now called “Allianz RAS”.
(1)
| Based on gross premiums written and statutory premiums written; source Italian Insurers Association, ANIA.
|
Global Diversification of our Insurance Business1)
As an integrated financial services providerIn Brazil, we offer insurance, banking and asset management products and services to more than 80 million customers in over 70 countries. We are also one of the leading global services providers of insurance, bankinghealth insurers and asset management. Basedin Columbia, we also offer life insurance. Our distribution is primarily based on our market capitalization2),the broker channel.
We believe that the markets in which we are present in South America offer the largest financial institutionpotential for future growth. We expect an increase in Germany.
Germany
In Germany, we have more than 100 years of experience in the insurance business. Today, together with Dresdner Bank and Allianz Global Investors we offer a complete spectrum of financial services.demand.
OperationsTurkey
We operate in the German market mainly throughSince July 2008, we serve our insurance companiesTurkish customer base by our majority-owned entities Allianz Versicherungs-Aktiengesellschaft (“Allianz Sach”), Allianz Lebensversicherungs-Aktiengesellschaft (“Allianz Leben”)Sigorta A.S. and Allianz Private Krankenversicherungs-Aktiengesell-schaft (“Allianz Private Kranken”). In addition, Allianz Beratungs- und Vertriebs-AG serves as a distribution company. AllHayat ve Emeklilik A.S. Both entities are organized under the umbrella of the holding company Allianz Deutschland AG.3) At the end
of 2007, Allianz Deutschland AG had a total of 19.8 million customers.
As the market leader in Germany based on gross premiums written in 20074), Allianz Sach develops and providesproperty-casualty.
Forlife insurance,have benefited from intensified ties with Allianz Leben we are also market leader based on statutory premiums in 2007.4) In addition to Allianz Leben, we operate through a variety of smaller operating entities in the German market.
Through Allianz Private Kranken, we are the third-largest privatehealth insurer in Germany based on statutory premiums in 2007.4)
Our German results of operations also includeGroup while maintaining our property-casualty assumed reinsurance business, which is primarily attributable to Allianz SE.
(1)
| Please see “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.
|
(2)
| As of March 1, 2008. Source: Deutsche Börsestrong partnership with Koç Group.
|
(3)
| Please see “Information on the Company—Important Group Organizational Changes—Reorganization of German Insurance Operations” for further information.
|
(4)
| Source: Based on data provided by German Insurance Association, GDV.
|
Products & Distributions
We offer products not only for all three insurance lines but also with a clear focus on products combining coverage from life, health and property-casualty insurance designed to better respond to customer needs. In addition we distribute products from Dresdner Bank and Allianz Global Investors Germany.
Our products are distributed mainly through a network of full-time tied agents, while distribution through our new bankagencies and brokers is increasing.
Inproperty-casualty, 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 products for financial coverage for risksmarket to privatereturn to its growth path in the near future. We will seek to increase our distribution base and business clients. Our main lines of business are motor liability and own damage, accident, general liability and property insurance.to provide innovative insurance solutions to our customers.
Europe II
In thelife business, we are active both in the private and commercial markets and offer a comprehensive range of life insurance and related products on both an individual and 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 thehealth insurance business, 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.
Outlook
In order to strengthen our market position, we intend to further develop our customer-focused organization and aim to provide our clients with more integrated products for every stage of their lives.
For theproperty-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 ourlife business, we expect strong growth opportunities as we see an increasing demand for private retirement products and retirement provisions in general.
Ourhealth insurance business with its two basic products – full health care coverage and supplementary insurance – is expected to be impacted by the German health care reform during the upcoming years. As a result of the reforms, we expect demand for full health care coverage to grow only slightly. On the other side, we believe that supplementary insurance will further increase, though we will also face competition arising from statutory health insurers which have been allowed to offer special supplementary insurance (so called “Wahltarif”) from 2007 onwards.
Europe
Europe is our home region. We consider property-casualty insurance in this region to be rather saturated. In life/health insurance, we view aging societies and their rising need for private retirement products and additional health insurance coverage as a growth opportunity.
2007 in review:
– | April 30: Allianz Cornhill Insurance plc in the UK was renamed Allianz Insurance plc |
– | July 10: AGF minorities buy-out procedure completed |
– | October 1: Integration of all Allianz operations in Italy into Allianz S.p.A. completed (RAS, Lloyd Adriatico and Subalpina) |
– | December 3: AGF Belgium changed its name to Allianz Belgium S.A. |
– | November 21: Announcement of AGF Asset Management name change to Allianz Global Investors (France) SA effective January 1, 2008. |
France
Operations
In France, we operate through the AssecurancesAssurances Générales de France (or “AGF”)(AGF) Group, a major participant in insurance and financial services. We areAGF is ranked thirdfourth in the Frenchproperty-casualty market and eighth in thelife/health insurance market, based on gross premiums written and statutory premiums, respectively, in 2006.2007(2)1). AGF’s activities encompass several areas, including: property-
casualtyincluding property-casualty insurance, life/health insurance, asset management and banking.
The acquisition of the minority interest in AGF carried out in 2007 is designed to reduce the complexity of our organization and to allow us to further implement Allianz Group-wide programs and initiatives, as well as to strengthen our market position in France.2)
| (1) | 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. |
| (2) | Source: French Insurers Association, FFSA. |
Products & Distributions
In 2008, we introduced a plan in order to reduce costs by rationalizing the structure of the company by 2011.
The broad range of AGF-branded property-casulty and life/ health products for both individuals and corporate customers, including property, injury and liability insurance as well as short-term investment and savings products, are distributed primarily through a network of tied agents, brokers, partnership channels and partnership channels. Furthermore, wea salaried salesforce. We also market our products through AGF Banque. An important portion ofWe plan to start our life statutory premiumsdirect insurance business in France is generated through the sale of unit-linked policies.
Outlookin 2009.
Operating in a property-casualty market that has seen limited growth in recent years, we seek to focus on maintaining operating profitability while simultaneously implementing selective initiatives aimed at generating growth. For example, we introduced a new motor tariff at the end of 2006 together with special marketing operations in 2007.
We consider AGF’s life business to be a growth area.
Netherlands
The most important lines of property-casualty business in the Netherlands 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 life insurance products.
The Dutch insurance market is characterized by intense competition. Here we expect continuing pressure on the motor tariffs.
Belgium
In Belgium, we market a wide range of life and property-casualty insurance products, which have won several awards. The products are mainly distributed through brokers.
Africa
In Africa we serve the market through AGF Afrique which is the specialist of the Allianz Group 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 our operating entities in Burkina 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 well as life.
We intend to consider business opportunities in Africa when appropriate.
Credit Insurance(1)
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) | Source : French Insurers Association, FFSAIn contrast to our other geographically-focused insurance businesses, we manage and offer the services of Euler Hermes and Mondial Assistance Group on a worldwide basis.
|
(2) | Source: Own estimate based on information from International Credit Insurance and Surety Association, ICISA. |
| (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 related to Dresdner Bank and will not be continued due to the sale of Dresdner Bank to Commerzbank. Please see “Information on the Company – Legal structure – AGF minorities buy-out procedure completed”refer to “—Major transactions—Major disposals—Sale of Dresdner Bank AG” for further information. |
Italymarket niches and leveraging 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.
Operations
In October 2007, the former operations of the RAS S.p.A., Lloyd Adriatico S.p.A.Our life and Allianz Subalpina S.p.A were integrated into one single company, Allianz S.p.A., in an effort to better serve the Italian market with a broad range of insuranceannuity business primarily underwrites fixed, fixed-indexed and financial products, more effective customer service and best practice solutions. Allianz S.p.A. is the second1) largest Italian insurance group based on gross premiums written and statutory premiums written, respectively.
Products & Distributions
We operate in most major personal and commercial property-casualty lines in Italy. The most important one is motor. Other important business linesvariable annuities, which are fire, general liability and personal accident insurance. We sell our productssold through traditional and direct salesindependent distribution channels, as well as via our joint-venture Credit RAS.through large financial institutions.
In the life/health business, we offer individual life policies, primarily in the form of endowment policies. Additionally, we offerAfter 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 company will seek to further grow its annuity products business by expanding distribution with broker-dealers, banks and an increasing numberwire-houses, designing channel-specific products and also reinforcing development of unit/index-linked policies, in which policyholders participate directly in the performance of policy-related investments. In 2007, these products contributed three-fourths of our combined statutory premiums in Italy. A large percentage of our contracts are marketed through our bancassurance channel.fixed-indexed and variable products.
Outlook
We view the Italian market, having a lower penetration rate for non-motor insurance products compared to other European markets, as a potential growth market. The currently weak economic environment in Italy, however has led to slower market growth compared to past trends. Additionally, several regulatory reforms, such as the so-called “Bersani Law”, aimed at increasing competition and reducing market prices might challenge insurers’ profitability. Nevertheless, we seek to grow via a multi-channel distribution strategy that comprises of agents, bancassurance and financial advisors.
United Kindom
OperationsKingdom
We serve the market in the United Kingdom primarily through our subsidiary Allianz Insurance plc. (formerly Allianz Cornhill 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.
Products & Distributions
We offer a broad range ofproperty-casualty products, including a number of specialty products, which we sell through ourto retail and commercial lines andcustomers through a range of distribution channels, including affinity groups.
Outlook
Operating in a highly competitive market, Allianz Insurance plc continues to concentrate on active “cycle management”, whereby we 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 pressures, as a measure to support operating profitability.
Switzerlandpressure.
Operations
We serve the Swissproperty-casualty market through Allianz Suisse and Allianz Risk Transfer AG. Allianz Suisse acts as the umbrella brand for our four general legal entities in Switzerland. Based on gross premiums written in 2006, Allianz Suisse ranks fourth in Switzerland.2)
We conduct ourlife/health operations in this region primarily through Allianz Suisse Lebensversicherungs-Gesellschaft and Phénix Vie. In aggregate, these operating entities represent the sixth largest life insurance provider in Switzerland based on statutory premiums in 2006.2)
Products & Distributions
Allianz Risk Transfer AG offers conventional reinsurance and a variety of alternative risk transfer products. In the generalproperty-casualty market in Switzerland served through Allianz Suisse, the most important line of business for Allianz Suisse is motor, contributing nearly 40% of its gross premiums written in 2007.
In thelife/health market, we provide a wide range of individual and group life insurance products, including retirement, death and disability products.
(1)
| Source : Italian Insurers Association, ANIA
|
(2)
| Source : Statistics of the Swiss Federal Bureau of Private Insurers
|
Outlook
In the very competitiveproperty-casualty business in Switzerland, we will continue to focus on profitability, while simultaneously attempting to achieve attractive growth.
We believe there is potential for growth in ourlife/health business through enhancement of agent and broker networks and, given our relatively high market share in property-casualty, through cross-selling between our segments.
Spain
Operations
We serve the Spanishproperty-casualty market through our operating entities Allianz Compañía de Seguros y Reaseguros S.A. and Fénix Directo S.A. We rank third in the Spanish market, based on gross premiums written in 2007.1)
We conduct ourlife/health operations in Spain through Allianz Compañía de Seguros y Reaseguros S.A. and through Eurovida, our joint venture with Banco Popular.
Products & Distributions
In Spain, we offer a wide variety of personal and commercialproperty-casualty insurance products, with an emphasis on motor business, comprising approximately two-thirds of our gross premiums written in Spain in 2007.
Additionally, we provide a broadlife/health insurance product portfolio, consisting primarily of traditional life insurance, annuities, pension and unit-linked products, which are mainly distributed by agents and through our bank channel.
Outlook
Market conditions in Spain are characterized by intense price competition especially in the motor business. Nevertheless, we expect further above market growth in theproperty-casualty segment, also supported by our direct sales channel.
Inlife/health insurance business we experience profitable growth. Despite recent tax reforms resulting in many life products losing their tax privileges, we expect to sustain our competitive position.
Western and Southern Europe
Operations
We conductproperty-casualty operations in most of the other Western and Southern European countries, of which, based on gross premiums written in 2007, the largest are our operations in the Netherlands, Austria and Ireland.
We also providelife/health insurance in most of the other Western and Southern European countries, of which, based on statutory premiums 2007, the largest are in Belgium and the Netherlands.
Products & Distributions
The most important lines of business in the Netherlands are motor and fire insurance. Our Dutch subsidiary distributes its products through independent agents and brokers. In Austria, we offer a broad range ofproperty-casualty products to individual and group customers primarily through salaried sales forces, tied agents and brokers. Our Irish subsidiary offers a wide variety of products, mainly motor and property insurance for commercial and private customers, distributing predominantly through brokers and banks as well as telephone- and internet-based direct sales channels. In Belgium, we market a wide range oflife insurance products, which won awards several times, mainly through brokers. In the Netherlands, we also offer a broad range of life insurance products and have a strong position in the unit-linked market.
OutlookAustralia
The Dutch insurance market is characterized by intense competition. Here we expect further price decreases in the motor business, whereas in Ireland, we expect the market to become more favorable in 2008, both in commercial and in personal lines.
The largerlife insurance markets in our Western and Southern European region are mature and provide only limited growth opportunities.
(1)
| Source : Research and Statistics Bureau of Spanish Insurers and Pension Funds, ICEA
|
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 25 companies in 10 countries, and we are the largest foreign insurer based on statutory premiums and gross premiums written in 20061), respectively. We offer life, health, property and casualty insurance, as well as pension fund products.
2007 in review:
– | February 21: Allianz acquires 49.2% of the shares of the ROSNO Group |
– | May 21: Allianz acquires Russian insurer Progress-Garant |
– | September 20: Market entry in Kazakhstan through the acquisition of 100% of the shares of ATF-Polis from ATF Bank |
Operations
Based on gross premiums written in 20061), we are the leadingproperty-casualty international insurance company in New Europe, which we believe is one of the fastest growing insurance markets in the world. We serve the market through our operating subsidiaries in Hungary, the Czech Republic, Slovakia, Poland, Bulgaria, Romania, Croatia, Ukraine and Russia. Further expansion in the region has begun with the acquisition of ATF Polis insurance company in Kazakhstan.
In thelife/health segment, we are present in all key markets in this region and are one of the top four life insurance providers, based on statutory premiums in 20061).
Products & Distributions
The primaryproperty-casualty products sold in these countries are mandatory motor third-party liability and motor own damage coverage as well as industrial, commercial and private property lines. In 2007, we continued to expand ourlife/health product range and sales capacity throughout New Europe by following a multi-channel distribution approach, and sell both unit-linked and traditional life insurance products. Following the 2006 launch of a limited-edition index-linked life insurance product, we have continued expanding offerings of investment-oriented products. Our Hungarian insurer, Allianz Hungária Biztositó Rt., is transforming into an integrated financial services provider operating under an “assurbanking” model.
Outlook
Motor business products and, increasingly, other personal lines continue to be the primary source of our growth. We also expect to expand and further develop our sales network. We believe we are well-positioned to capture the opportunities from the growing demand that we expect forproperty-casualty insurance products.
New Europe represents one of the fastest growinglife insurance markets in the world, primarily resulting from low penetration levels. In anticipation of the expected growth, we continue to strengthen our sales capacity and product range.
(1)
| Source: Own estimate based on published statistics from regulatory bodies and insurance associations.
|
Asia-Pacific and Africa
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.
Today, Allianz is active in all key markets of the region, offering its core businesses of property and casualty insurance, life and health insurance, asset management and banking. With more than 13,000 staff, Allianz serves over 18.5 million customers in the region.
To elevate our presence in the Middle East region to a new level and to set the course for further internal and external growth, we established the Middle East as our third major growth region from October 1 onwards. The regional unit assembles Allianz’s entities in Bahrain, Egypt, India, Jordan, Lebanon, Pakistan, Saudi Arabia and Sri Lanka and is directed from a central office in Bahrain.
Allianz also operates in several countries in Africa.
2007 in review:
– | January 15: Acquisition of Commerce Assurance Berhad in Malaysia |
– | January 18: Majority take over in Taiwan at Allianz President Life and re-branding as Allianz Taiwan Life on July 7 |
– | March 12: New joint venture “Bajaj Allianz Financial Distributors Ltd.” for distribution of financial products, such as mutual funds, credit cards and loans, throughout India |
– | July 30: Licence to expand into Jiangsu province granted to Allianz China Life |
– | November 20: Licence to enter Beijing life markets to Allianz China Life |
Asia-Pacific
Operations
In the Asia-Pacific region we maintainproperty-casualty operations in Malaysia (recently expanded through the acquisition of Commerce Assurance Berhad), Indonesia and other Asia-Pacific countries, including China, Thailand, Japan, Hong Kong, Singapore, Laos and India.
The majority of ourlife/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, Pakistan and India.
Products & Distributions
We offer a full suite of products through our distribution network of approximately 320,000 agents in the region. Another important distribution channel is via our bank partners.
Our South Korean operations market a wide range oflife insurance products. Due to the interest rate risk and a favorable equity market in South Korea, Allianz Life Korea has increasingly shifted its focus to variable and equity-indexed products. Allianz Taiwan Life primarily sells investment-oriented products through its bank channels.
(1)
| Source: South Korean Life Insurance Association.
|
Outlook
We are seeking to expand in all of our selected markets in the region through internal growth and selected acquisitions.
China and India, in particular, are strategic growth markets for Allianz.
In China, 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.
We are also targeting additional growth in India through our joint venture with Bajaj Allianz Financial Distributors Ltd.
Australia
Operations
The large majority of ourproperty-casualty business in Asia-Pacific is generated by Allianz Australia, which serves the Australian and New Zealand markets.
Since 2006, Allianz has soldlife insurance products in Australia under the company name Allianz Australia Life Insurance Ltd.
Products & Distributions
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.
OutlookIreland
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.
Major Transactions
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 Australia, we expectApril 2008, the Allianz Group signed a share purchase agreement to continue to employ market segmentation techniques, which include diversifyingacquire 47.1% of shares in the portfolio outsidenon-life insurer Koç Allianz Sigorta AŞ, Istanbul, and 51.0% of the traditionally cyclical areas.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.
The Americas
Since October 7, 2008, the companies operate under the name Allianz first established its presence in the Americas in 1974 when an office was opened in Brazil. In 1976, we commenced our property-casualty insurance business in the US. Today, we are active in NorthSigorta AŞ and South America, with companies based in the US, Canada, Mexico, Argentina, Brazil and Colombia.Allianz Hayat ve Emeklilik AŞ.
2007Capital investment in review1):The Hartford
– | July 2: Sale of our business in Venezuela |
– | September 17: AGF Allianz Argentina renamed Allianz Argentina |
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 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.
United StatesReorganization
Reorganization of the German Insurance Operations
Ourproperty-casualtyThe reorganization of our German insurance businessoperations 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 United States is operated through Fireman’s Fund Insurance Company (Fireman’s Fund). OurLife and annuity business is operated through Allianz Life Insurance Company of North America (Allianz Life US).German insurance market.
We reorganized our business linesbelieve that the reorganization program leads to reduced complexity and will allow us to reduce costs in the United States by organizing our operating entities underlong-term.
In the umbrellaframework 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 America Inc. This reorganization is designed to allow our U.S. companies to leverage all of their available resources and assets and to enable them more effectively anticipate and deliver on customer needs.the new business model in a pilot phase. In 2008, the remaining three areas were also successfully reorganized.
Products & DistributionsWith 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.
Through Fireman’s Fund we underwrite personal, commercial and specialty lines, selling these products primarily through independent agents. Our commercial business unit offers specializedproperty and casualty coverage for businesses, while our Personal business unit focuses on high net worth individuals and the Specialty business unit provides marine and casualty products as well as multiperil crop/hail insurance.
Ourlife and annuity business primarily underwrites fixed, fixed- indexed and variable annuities, which are sold through independent distribution channels.
Outlook
Fireman’s Fund expects to continue to grow in its target markets by enhancing customer solutions introducing new products and services, and leveraging cross selling through strengthened distribution management.
After a slowdown in business in 2006 and 2007, Allianz Life U.S. is taking measures to grow its annuity products business by expanding distribution with broker-dealers, banks and wire-houses, designing channel-specific products and also reinforcing development of fixed-indexed and variable products.
South America
Operations
We conduct ourproperty-casualty operations in Brazil through our subsidiary AGF Brasil Seguros S.A. Based on gross premiums written in 2007,In South America, we are the eighth-largest property-casualty insurance providerpresent in Brazil.1)We also sell property-casualty productsthree countries: In Brazil with Allianz Brazil Seguros S.A., in Colombia with Aseguradora Colseguros S.A. and Argentina.in Argentina with Allianz Argentina Compania de Seguros S.A.
OurIn all three markets, Allianz is focused on property-casualty with motor generally being the largestlife operation in this region is in Colombia. We also operate a health and a small life portfolio in Brazil.
Products & Distributions individual line of business.
In Brazil, we writeare 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 Sigorta 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 motor
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 furthermore,market to return to its growth path in the near future. We will seek to increase our distribution base and to provide innovative insurance solutions to our customers.
Europe II
France
In France, we sell fire, transportationoperate through the Assurances Générales de France (AGF) Group, a major participant in insurance and otherfinancial services. AGF is ranked fourth in the French property-casualty market and eighth in the life/health insurance coverage. Distribution is organizedmarket, based on gross premiums written and statutory premiums, respectively, in 2007(2). AGF’s activities encompass several areas, including property-casualty insurance, life/health insurance, asset management and banking.
| (1) | 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. |
| (2) | Source: French Insurers Association, FFSA. |
In 2008, we introduced a plan in order to reduce costs by rationalizing the structure of the company by 2011.
The broad range of AGF-branded property-casulty and life/ health products for both individuals and corporate customers, including property, injury and liability insurance as well as short-term investment and savings products, are distributed primarily through independenta network of tied agents, brokers, partnership channels and brokers.a salaried salesforce. We also market our products through AGF Banque. We plan to start 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 maintaining operating profitability while simultaneously implementing selective initiatives aimed at generating growth.
We consider AGF’s life business to be a growth area.
Netherlands
The most important lines of property-casualty business in the Netherlands 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 Colombia and Argentina,the Netherlands, we also offer a broad range of life insurance products.
Ourlifeinsurance activities in Colombia include traditional group lifeThe Dutch insurance as well as investment-oriented products such as savings, pension and annuity products.market is characterized by intense competition. Here we expect continuing pressure on the motor tariffs.
OutlookBelgium
We expect growth in theproperty-casualty business to continue, primarily in BrazilIn Belgium, we market a wide range of life and Argentina,property-casualty insurance products, which have won several awards. The products are mainly driven by the motor market.
We expect that growth rates in the South Americanlife insurance market will remain attractive over the coming years.
Worldwide Speciality Linesdistributed through brokers.
OperationsAfrica
In Africa we serve the market through AGF Afrique which is the specialist of the Allianz Group 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 our operating entities in Burkina 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 well as life.
We intend to consider business opportunities in Africa when appropriate.
Credit Insurance(1)
Through our subsidiary Euler Hermes, athe global leader incredit insurance,, we underwrite credit insurance in major markets around the world.2)(2)
Allianz Global Corporate & Specialty primarily serves as the Allianz Group’sinternational corporate insurance business.
Through Mondial Assistance Group, we are among the world’s largest providers oftravelinsurance and assistance services based on gross premiums written in 2006.3)
In contrast to our other geographically-focused insurance businesses, we manage and offer these services on a worldwide basis.
Products & Distributions
Euler Hermes provides enterprises with protection against the risk of non-payment of receivables and customer insolvency. Additionally, Euler Hermes has developed a comprehensive range of services for the management of companies’ accounts receivables.
Through Allianz Global Corporate & Specialty, we offer a variety of other specialty lines of business, namely marine, aviation and industrial transport insurance and international industrial risks reinsurance.
Our Mondial Assistance Group offers travel insurance and assistance services.
Outlook
For credit insurance, we see growth potential in Europe, North America and the emerging markets. By providing high quality services, maintaining ana 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 Euler Hermes and Mondial Assistance Group on a worldwide basis. |
| (2) | Source: Own estimate based on information from International Credit Insurance and Surety Association, ICISA. |
| (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 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. |
market niches and leveraging 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 company will seek to further grow its annuity products business by expanding distribution with broker-dealers, banks and wire-houses, designing channel-specific products and also reinforcing development of fixed-indexed and variable products.
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.
At Mondial Assistance Group, we seek to enter new marketsAllianz Worldwide Care(1)
Allianz Worldwide Care is located in Ireland and develop newoffers 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: Based on data provided by National Association for PrivateSouth Korean Life Insurance Companies, FENASEG.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 information from International Credit Insurance and Surety Association, ICISA.
|
(3)
| Source: Own estimate based on published annual reports.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.
Major Transactions
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 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 onin 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, to the Allianz Group, 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 2007,2008, 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, seerefer 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 provideensure that consistent reserving methodologies and assumptions to beare 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, to estimate reserves, 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;
Regular peer reviews by Group Actuarial of reserve reports provided by 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 all significantthe largest entities are reviewed once every three years.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 peer reviews by Group Actuarial or reserves reports provided by local operating entities:Local operating entities are required to provide Group Actuarial an annual reserve report, documenting the entity’s analysis of its loss and LAE reserves. The Allianz Group standard for these reports is that an independent actuary, by analyzing this report and discussing it with the entity, must be capable of forming an opinion regarding the appropriateness of the entity’s held reserves. In years when Group Actuarial does not perform a complete
reserve review of an Allianz Group company, it will perform a peer review of the entity’s own analysis.
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 Region and Line of Business
The time required to learn of and settle claims is an important consideration in establishing reserves.
Short-tail claims, such as automobilemotor 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 region and major line of business for the years ending December 31, 2005, 2006, 2007 and 2007,2008, on an IFRS basis. The credit, travel and global corporate lines are written on a world-wide basis through multiple legal entities in several countries, and as a result, are not included in the regional totals.
The Allianz Group estimates that loss and LAE reserves consist of approximately 10% short-tail, 62%60% medium-tail and 28%30% long-tail business.
Allianz Group
Loss and LAE Reserves by Year Region and Line of Business, Gross of Reinsurance(1)
IFRS Basis
Euro in millionsUnited Kingdom
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Automobile
Insurance | | General Liability | | Property | | | Other Short-Tail
Lines(2) | | Other Medium-Tail
Lines(2) | | | Other Long-Tail
Lines(2) | | Total | |
as of December 31, 2007 | | 2005 | | 2006 | | 2007 | | 2005 | | 2006 | | 2007 | | 2005 | | 2006 | | 2007 | | | 2005 | | 2006 | | 2007 | | 2005 | | | 2006 | | | 2007 | | | 2005 | | 2006 | | 2007 | | 2005 | | 2006 | | 2007 | |
Germany(3) | | 4,696 | | 4,681 | | 4,778 | | 1,826 | | 1,875 | | 1,879 | | 748 | | 556 | | 570 | | | — | | — | | — | | 2,731 | | | 2,454 | | | 2,276 | | | 2,051 | | 2,017 | | 1,940 | | 12,053 | | 11,583 | | 11,442 | |
Case Reserves(1) | | 4,579 | | 4,555 | | 4,650 | | 1,251 | | 1,300 | | 1,309 | | 592 | | 452 | | 455 | | | — | | — | | — | | 1,984 | | | 1,631 | | | 1,279 | | | 679 | | 695 | | 719 | | 9,085 | | 8,632 | | 8,412 | |
IBNR | | 117 | | 126 | | 128 | | 574 | | 575 | | 570 | | 156 | | 104 | | 115 | | | — | | — | | — | | 748 | | | 824 | | | 997 | | | 1,373 | | 1,322 | | 1,221 | | 2,968 | | 2,951 | | 3,030 | |
France | | 2,180 | | 2,224 | | 2,240 | | 1,901 | | 1,924 | | 1,884 | | 1,161 | | 1,103 | | 1,117 | | | 306 | | 316 | | 509 | | 2,144 | | | 2,182 | | | 1,433 | | | 1,052 | | 997 | | 1,589 | | 8,744 | | 8,746 | | 8,772 | |
Case Reserves(1) | | 1,610 | | 1,511 | | 1,490 | | 1,541 | | 1,534 | | 1,480 | | 963 | | 921 | | 932 | | | 95 | | 114 | | 156 | | 785 | | | 763 | | | 157 | | | 54 | | 66 | | 460 | | 5,049 | | 4,910 | | 4,674 | |
IBNR | | 571 | | 713 | | 750 | | 359 | | 390 | | 404 | | 197 | | 182 | | 186 | | | 211 | | 202 | | 353 | | 1,359 | | | 1,419 | | | 1,276 | | | 997 | | 931 | | 1,130 | | 3,695 | | 3,836 | | 4,098 | |
Italy | | 4,175 | | 4,192 | | 4,360 | | 1,579 | | 1,716 | | 1,833 | | 449 | | 521 | | 464 | | | 142 | | 134 | | 168 | | 430 | | | 459 | | | 419 | | | 12 | | 14 | | 19 | | 6,786 | | 7,035 | | 7,262 | |
Case Reserves(1) | | 2,927 | | 3,091 | | 3,401 | | 1,023 | | 1,067 | | 1,182 | | 422 | | 510 | | 470 | | | 119 | | 110 | | 132 | | 385 | | | 407 | | | 376 | | | 11 | | 13 | | 18 | | 4,886 | | 5,197 | | 5,578 | |
IBNR | | 1,249 | | 1,101 | | 959 | | 556 | | 649 | | 651 | | 27 | | 10 | | (6 | ) | | 23 | | 24 | | 36 | | 45 | | | 53 | | | 43 | | | 1 | | 1 | | 1 | | 1,900 | | 1,838 | | 1,684 | |
United Kingdom | | 1,029 | | 1,005 | | 883 | | 418 | | 503 | | 520 | | 615 | | 485 | | 384 | | | 73 | | 77 | | 77 | | 194 | | | 259 | | | 245 | | | 927 | | 935 | | 789 | | 3,257 | | 3,265 | | 2,897 | |
Case Reserves(1) | | 836 | | 847 | | 809 | | 306 | | 356 | | 403 | | 456 | | 356 | | 342 | | | 30 | | 29 | | 25 | | 116 | | | 179 | | | 176 | | | 607 | | 577 | | 500 | | 2,350 | | 2,344 | | 2,255 | |
IBNR | | 193 | | 157 | | 74 | | 112 | | 147 | | 117 | | 159 | | 129 | | 42 | | | 44 | | 48 | | 52 | | 79 | | | 80 | | | 69 | | | 320 | | 359 | | 288 | | 907 | | 921 | | 641 | |
Switzerland | | 824 | | 842 | | 873 | | 236 | | 233 | | 228 | | 146 | | 104 | | 98 | | | 82 | | 74 | | 74 | | 872 | | | 836 | | | 692 | | | 1,119 | | 1,080 | | 1,070 | | 3,278 | | 3,169 | | 3,036 | |
Case Reserves(1) | | 718 | | 683 | | 679 | | 189 | | 191 | | 186 | | 126 | | 74 | | 72 | | | 59 | | 53 | | 50 | | 675 | | | 725 | | | 597 | | | 791 | | 764 | | 742 | | 2,557 | | 2,490 | | 2,326 | |
IBNR | | 106 | | 159 | | 193 | | 47 | | 42 | | 42 | | 20 | | 29 | | 26 | | | 24 | | 22 | | 24 | | 197 | | | 111 | | | 95 | | | 328 | | 315 | | 329 | | 721 | | 679 | | 710 | |
Spain | | 1,036 | | 1,134 | | 1,217 | | 264 | | 280 | | 298 | | 135 | | 142 | | 147 | | | 2 | | 3 | | 3 | | 69 | | | 82 | | | 136 | | | 189 | | 183 | | 207 | | 1,695 | | 1,824 | | 2,007 | |
Case Reserves(1) | | 992 | | 1,072 | | 1,163 | | 219 | | 208 | | 226 | | 117 | | 117 | | 121 | | | 2 | | 2 | | 3 | | 51 | | | 64 | | | 115 | | | 168 | | 151 | | 179 | | 1,550 | | 1,614 | | 1,806 | |
IBNR | | 44 | | 62 | | 54 | | 44 | | 72 | | 72 | | 17 | | 25 | | 26 | | | 0 | | 0 | | 0 | | 19 | | | 19 | | | 20 | | | 21 | | 32 | | 28 | | 145 | | 210 | | 201 | |
Other Europe | | 2,742 | | 2,864 | | 2,927 | | 1,033 | | 1,051 | | 1,117 | | 485 | | 538 | | 630 | | | 302 | | 197 | | 210 | | 174 | | | 146 | | | 82 | | | 604 | | 592 | | 653 | | 5,340 | | 5,388 | | 5,618 | |
Case Reserves(1) | | 2,379 | | 2,378 | | 2,445 | | 781 | | 786 | | 838 | | 441 | | 433 | | 535 | | | 247 | | 132 | | 141 | | 133 | | | 121 | | | 71 | | | 432 | | 436 | | 485 | | 4,414 | | 4,287 | | 4,516 | |
IBNR | | 363 | | 486 | | 482 | | 252 | | 265 | | 279 | | 44 | | 104 | | 95 | | | 54 | | 65 | | 69 | | 41 | | | 25 | | | 11 | | | 172 | | 157 | | 168 | | 926 | | 1,102 | | 1,103 | |
NAFTA Region(3), (4) | | 533 | | 419 | | 294 | | 4,001 | | 3,575 | | 3,079 | | 148 | | 145 | | 175 | | | 414 | | 270 | | 177 | | 1,080 | | | 1,103 | | | 1,048 | | | 1,345 | | 1,077 | | 954 | | 7,519 | | 6,589 | | 5,728 | |
Case Reserves(1) | | 311 | | 230 | | 164 | | 1,261 | | 1,250 | | 918 | | 28 | | 89 | | 115 | | | 257 | | 47 | | 95 | | 571 | | | 270 | | | 129 | | | 1,057 | | 846 | | 693 | | 3,485 | | 2,730 | | 2,114 | |
IBNR | | 221 | | 189 | | 130 | | 2,740 | | 2,325 | | 2,161 | | 120 | | 57 | | 60 | | | 156 | | 224 | | 82 | | 509 | | | 833 | | | 920 | | | 288 | | 231 | | 261 | | 4,034 | | 3,859 | | 3,614 | |
Asia - Pacific Region | | 1,384 | | 1,381 | | 1,508 | | 379 | | 379 | | 403 | | 219 | | 184 | | 221 | | | 39 | | 40 | | 1 | | 110 | | | 119 | | | 182 | | | 671 | | 665 | | 694 | | 2,802 | | 2,768 | | 3,010 | |
Case Reserves(1) | | 782 | | 899 | | 998 | | 110 | | 113 | | 128 | | 147 | | 114 | | 168 | | | 3 | | 2 | | 0 | | 49 | | | 49 | | | 55 | | | 217 | | 221 | | 229 | | 1,307 | | 1,398 | | 1,579 | |
IBNR | | 602 | | 483 | | 509 | | 270 | | 266 | | 275 | | 72 | | 70 | | 53 | | | 36 | | 38 | | 0 | | 61 | | | 70 | | | 127 | | | 454 | | 444 | | 466 | | 1,495 | | 1,371 | | 1,431 | |
South America & other | | 165 | | 176 | | 167 | | 56 | | 59 | | 63 | | 110 | | 149 | | 187 | | | — | | — | | — | | 77 | | | 68 | | | 72 | | | — | | — | | — | | 407 | | 452 | | 490 | |
Case Reserves(1) | | 130 | | 127 | | 129 | | 55 | | 57 | | 59 | | 91 | | 136 | | 182 | | | — | | — | | — | | 52 | | | 46 | | | 39 | | | — | | — | | — | | 328 | | 366 | | 408 | |
IBNR | | 34 | | 48 | | 38 | | 1 | | 2 | | 4 | | 19 | | 13 | | 5 | | | — | | — | | — | | 25 | | | 22 | | | 34 | | | — | | — | | — | | 80 | | 86 | | 81 | |
Subtotal of countries / regions | | 18,764 | | 18,919 | | 19,247 | | 11,691 | | 11,595 | | 11,303 | | 4,216 | | 3,926 | | 3,992 | | | 1,361 | | 1,111 | | 1,218 | | 7,882 | | | 7,709 | | | 6,586 | | | 7,969 | | 7,560 | | 7,916 | | 51,882 | | 50,818 | | 50,262 | |
Case Reserves(1) | | 15,264 | | 15,393 | | 15,929 | | 6,736 | | 6,862 | | 6,728 | | 3,384 | | 3,203 | | 3,391 | | | 813 | | 488 | | 603 | | 4,800 | | | 4,254 | | | 2,994 | | | 4,015 | | 3,767 | | 4,024 | | 35,010 | | 33,968 | | 33,669 | |
IBNR | | 3,500 | | 3,525 | | 3,318 | | 4,956 | | 4,732 | | 4,575 | | 832 | | 723 | | 601 | | | 548 | | 622 | | 615 | | 3,082 | | | 3,455 | | | 3,591 | | | 3,954 | | 3,793 | | 3,892 | | 16,872 | | 16,850 | | 16,592 | |
Credit Insurance | | — | | — | | — | | — | | — | | — | | — | | — | | — | | | 688 | | 691 | | 656 | | 424 | | | 351 | | | 387 | | | — | | — | | — | | 1,112 | | 1,042 | | 1,042 | |
Case Reserves(1) | | — | | — | | — | | — | | — | | — | | — | | — | | — | | | 445 | | 452 | | 424 | | 663 | | | 586 | | | 622 | | | — | | — | | — | | 1,108 | | 1,038 | | 1,045 | |
IBNR | | — | | — | | — | | — | | — | | — | | — | | — | | — | | | 243 | | 239 | | 232 | | (239 | ) | | (235 | ) | | (235 | ) | | — | | — | | — | | 4 | | 4 | | (3 | ) |
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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Automobile
Insurance | | General Liability | | Property | | Other Short-Tail
Lines(2) | | Other Medium-Tail
Lines(2) | | Other Long-Tail
Lines(2) | | Total |
as of December 31, 2007 | | 2005 | | 2006 | | 2007 | | 2005 | | 2006 | | 2007 | | 2005 | | 2006 | | 2007 | | 2005 | | 2006 | | 2007 | | 2005 | | 2006 | | 2007 | | 2005 | | 2006 | | 2007 | | 2005 | | 2006 | | 2007 |
Allianz Global Corporate & Specialty(3) | | — | | — | | — | | 1,632 | | 1,399 | | 1,229 | | 1,930 | | 1,594 | | 1,165 | | 72 | | 131 | | 152 | | 2,819 | | 2,921 | | 2,870 | | 685 | | 616 | | 54 | | 7,137 | | 6,662 | | 5,470 |
Case Reserves(1) | | — | | — | | — | | 713 | | 719 | | 483 | | 1,305 | | 966 | | 828 | | 33 | | 78 | | 75 | | 1,622 | | 1,463 | | 1,617 | | 441 | | 408 | | 27 | | 4,114 | | 3,633 | | 3,029 |
IBNR | | — | | — | | — | | 919 | | 681 | | 746 | | 625 | | 629 | | 337 | | 39 | | 53 | | 77 | | 1,197 | | 1,458 | | 1,253 | | 244 | | 208 | | 27 | | 3,023 | | 3,028 | | 2,440 |
Travel Insurance and Assistance Services | | — | | — | | — | | — | | — | | — | | — | | — | | — | | 128 | | 143 | | 169 | | — | | — | | — | | — | | — | | — | | 128 | | 143 | | 169 |
Case Reserves(1) | | — | | — | | — | | — | | — | | — | | — | | — | | — | | 108 | | 117 | | 140 | | — | | — | | — | | — | | — | | — | | 108 | | 117 | | 140 |
IBNR | | — | | — | | — | | — | | — | | — | | — | | — | | — | | 20 | | 26 | | 28 | | — | | — | | — | | — | | — | | — | | 20 | | 26 | | 28 |
Subtotal of specific business (global) | | — | | — | | — | | 1,632 | | 1,399 | | 1,229 | | 1,930 | | 1,594 | | 1,165 | | 888 | | 964 | | 976 | | 3,243 | | 3,272 | | 3,257 | | 685 | | 616 | | 54 | | 8,377 | | 7,846 | | 6,681 |
Case Reserves(1) | | — | | — | | — | | 713 | | 719 | | 483 | | 1,305 | | 966 | | 828 | | 586 | | 647 | | 639 | | 2,285 | | 2,049 | | 2,239 | | 441 | | 408 | | 27 | | 5,330 | | 4,789 | | 4,215 |
IBNR | | — | | — | | — | | 919 | | 681 | | 746 | | 625 | | 629 | | 337 | | 302 | | 317 | | 337 | | 958 | | 1,223 | | 1,018 | | 244 | | 208 | | 27 | | 3,047 | | 3,057 | | 2,466 |
Allianz Group Total | | 18,764 | | 18,919 | | 19,247 | | 13,323 | | 12,994 | | 12,532 | | 6,146 | | 5,520 | | 5,157 | | 2,248 | | 2,075 | | 2,194 | | 11,125 | | 10,981 | | 9,842 | | 8,654 | | 8,176 | | 7,970 | | 60,259 | | 58,664 | | 56,943 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Case Reserves(1) | | 15,264 | | 15,393 | | 15,929 | | 7,448 | | 7,581 | | 7,211 | | 4,689 | | 4,169 | | 4,219 | | 1,399 | | 1,136 | | 1,242 | | 7,085 | | 6,303 | | 5,233 | | 4,456 | | 4,175 | | 4,051 | | 40,340 | | 38,757 | | 37,885 |
IBNR | | 3,500 | | 3,525 | | 3,318 | | 5,875 | | 5,413 | | 5,321 | | 1,457 | | 1,352 | | 938 | | 850 | | 939 | | 952 | | 4,040 | | 4,678 | | 4,609 | | 4,198 | | 4,001 | | 3,920 | | 19,919 | | 19,908 | | 19,058 |
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) | By jurisdictionIn contrast to our other geographically-focused insurance businesses, we manage and offer these services of individual Allianz Group subsidiary companies.
|
(2)
| For 2007 lines of business are allocated to Other Short-, Medium- and Long-Tail Lines based on more detailed information depending on duration by jurisdiction.
|
Prior year balances have been adjusted to reflect these reclassifications and allow for comparability across periods.
(3)
| Allianz Global Corporate & Specialty was establishedon 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 2006 and combines reserves formerly presented as Marine & Aviation and as part of reserves for Germany and NAFTA Region.the U.S.A. |
Prior year balances have
Growth Markets
Asia-Pacific
We consider Asia-Pacific to be one of our major growth regions. Allianz has been adjusted to reflect these reclassificationspresent in the region since 1917, when we began providing fire and allow for comparability across periods.marine insurance in the coastal cities of China.
(4)(2)
| For NAFTA linesBanking activites are related to Dresdner Bank and will not be continued due to the sale of business are allocated following an updated definition.Dresdner Bank to Commerzbank. Please refer to “—Major transactions—Major disposals—Sale of Dresdner Bank AG” for further information.
|
Prior year balances have been adjusted to reflect these reclassifications and allow for comparability across periods.
When reviewingToday, Allianz is active in all key markets of the foregoing tables, caution shouldregion, 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.
Major Transactions
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 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 comparingprojecting the split between case andIBNR 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 countryAllianz Group. Moreover, there were no material changes to the amount and linetype of business. The portionreinsurance placed in respect of IBNR on totalthe 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 variesis 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 linereserving 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, duetaking 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 different reporting and settlement patterns.form the basis for stable projections. For short-taillonger-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 generallyselected 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 immediately after occurrencelosses.
Bornhuetter-Ferguson Method, which estimates loss and settled inLAE 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 periodvariety of only a few years. For long-tailother methods for certain 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.business.
In addition,Using the portionabove estimate of IBNR as a percentage ofultimate loss and LAE, we directly estimate total loss and LAE
reserves varies considerably across regions.by subtracting cumulative payments for claims and LAE through the relevant balance sheet date. Finally, local reserving actuaries calculate the relevant entities’ IBNR reserves represent the amount which, together with reported case reserves, is needed to
fully provide for indemnity and claims cost until final settlement. As such, IBNR reserves are typically calculated as the difference between (i) the total loss and LAE reserves and known case reserves. The relative level of(ii) the case reserves however, differs significantlyas established by countryclaims 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 company basedapproaches, 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 regulatory environment and company practices and procedures on setting case reserves. In some jurisdictions, such as Germany, caselocal reserving process described above, Group Actuarial conducts a central process of reserve oversight. This process ensures that reserves are set onat 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 prudent basis accordingcombination 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 regulatory requirements, leading to relatively low (or negative) IBNR. While total reserves foroperating entities: Group Actuarial performs independent reviews of loss and LAE are setreserves for key local operating entities on a best estimate levelregular 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 requiredwell as the issues related to data and organization. Group Actuarial then conducts an analysis of reserves using data provided by IFRS, the split by caseoperating 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 IBNRthose 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 strongly dependentconducted on the jurisdictionbasis 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. In particular, a low (or negative) levelbusiness, as defined by the local operating entity.
The oversight and monitoring of IBNRthe Group’s loss reserves culminate in a certain country does not indicate weak overall reserve levels.quarterly meetings of the Group Reserve Committee, which monitors key developments across the Group affecting the adequacy of loss reserves.
Reconciliation of Beginning and Ending Loss and LAE ReservesComposition 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 reconcilesbreaks down 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, 2007 on an IFRS basis.
Changes in the reserves for Loss and loss adjustment expenses for the Property-Casualty segment
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2007 | | | 2006 | | | 2005 | |
| | | Gross | | | Ceded | | | Net | | | Gross | | | Ceded | | | Net | | | Gross | | | Ceded | | | Net | |
| | | € mn | | | € mn | | | € mn | | | € mn | | | € mn | | | € mn | | | € mn | | | € mn | | | € mn | |
Balance as of January 1 | | 58,664 | | | (9,333 | ) | | 49,331 | | | 60,259 | | | (10,604 | ) | | 49,655 | | | 55,528 | | | (10,049 | ) | | 45,479 | |
Plus incurred related to: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Current year | | 29,839 | | | (2,994 | ) | | 26,845 | | | 28,214 | | | (2,572 | ) | | 25,642 | | | 30,111 | | | (3,580 | ) | | 26,531 | |
Prior years(1) | | (1,708 | ) | | 348 | | | (1,360 | ) | | (1,186 | ) | | 217 | | | (969 | ) | | (1,632 | ) | | 433 | | | (1,199 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total incurred | | 28,131 | | | (2,646 | ) | | 25,485 | | | 27,028 | | | (2,355 | ) | | 24,673 | | | 28,479 | | | (3,147 | ) | | 25,332 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Less paid related to: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Current year | | (13,749 | ) | | 1,118 | | | (12,631 | ) | | (12,436 | ) | | 675 | | | (11,761 | ) | | (12,742 | ) | | 861 | | | (11,881 | ) |
Prior years | | (14,206 | ) | | 1,952 | | | (12,255 | ) | | (14,696 | ) | | 2,455 | | | (12,241 | ) | | (13,284 | ) | | 2,568 | | | (10,716 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total paid | | (27,955 | ) | | 3,070 | | | (24,885 | ) | | (27,132 | ) | | 3,130 | | | (24,002 | ) | | (26,026 | ) | | 3,429 | | | (22,597 | ) |
Effect of foreign exchange and other | | (2,022 | ) | | 666 | | | (1,356 | ) | | (1,491 | ) | | 496 | | | (995 | ) | | 2,277 | | | (837 | ) | | 1,440 | |
Effect of (divestitures)/acquisitions | | 125 | | | (23 | ) | | 102 | | | 0 | | | 0 | | | 0 | | | 1 | | | 0 | | | 1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of December 31 | | 56,943 | | | (8,266 | ) | | 48,677 | | | 58,664 | | | (9,333 | ) | | 49,331 | | | 60,259 | | | (10,604 | ) | | 49,655 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
(1)
| The €1,360 million of favorable development during 2007 was the result of many individual developments by region and line of business. See “—Changes in Loss and LAE Reserves During 2007.”
|
Changes in Loss and LAE Reserves During 2007
As noted above, net loss and LAE reserves of the Allianz Group, atin total and separately by IBNR and case reserves, gross of reinsurance, by line of business for the years ending December 31, 2006, 2007 included a €1,360 million reduction in incurred loss and LAE relating to favorable development2008, on prior years, representing 2.8 % of netan IFRS basis.
The Allianz Group estimates that loss and LAE reserves at December 31, 2006. The following table provides a breakdownconsist of this amount by region.approximately 10% short-tail, 60% medium-tail and 30% long-tail business.
Allianz Group
Changes in Loss and LAE Reserves During 2007by Year and Line of Business, Gross and Net of Reinsurance
IFRS Basis
Euros in millions
| | | | | | | | | | | | | | | | |
| | | Gross Reserves as of
December 31,
2006 | | Gross Development
related to
Prior Years | | | in%(1) | | | Net Reserves as of
December 31,
2006 | | Net Development
related to
Prior Years | | | in%(2) | |
Germany | | 11,583 | | (194 | ) | | (1.7 | )% | | 9,719 | | (220 | ) | | (2.3 | )% |
France | | 8,746 | | (277 | ) | | (3.2 | )% | | 7,659 | | (139 | ) | | (1.8 | )% |
Italy | | 7,035 | | (113 | ) | | (1.6 | )% | | 6,709 | | (91 | ) | | (1.4 | )% |
United Kingdom | | 3,265 | | (257 | ) | | (7.9 | )% | | 2,721 | | (162 | ) | | (5.9 | )% |
Switzerland | | 3,169 | | 60 | | | 1.9 | % | | 3,015 | | 54 | | | 1.8 | % |
Spain | | 1,824 | | (137 | ) | | (7.5 | )% | | 1,641 | | (86 | ) | | (5.2 | )% |
Other Europe | | 5,388 | | (255 | ) | | (4.7 | )% | | 5,045 | | (211 | ) | | (4.2 | )% |
NAFTA Region | | 6,589 | | (4 | ) | | (0.1 | )% | | 5,473 | | 113 | | | 2.1 | % |
Asia Pacific | | 2,768 | | (175 | ) | | (6.3 | )% | | 2,509 | | (116 | ) | | (4.6 | )% |
South America & Other | | 452 | | 10 | | | 2.2 | % | | 316 | | (8 | ) | | (2.7 | )% |
| | | | | | | | | | | | | | | | |
Subtotal of countries /regions | | 50,818 | | (1,340 | ) | | (2.6 | )% | | 44,808 | | (866 | ) | | (1.9 | )% |
Credit Insurance | | 1,042 | | (165 | ) | | (15.8 | )% | | 800 | | (132 | ) | | (16.5 | )% |
AGCS | | 6,662 | | (184 | ) | | (2.8 | )% | | 3,583 | | (341 | ) | | (9.5 | )% |
Travel Insurance | | 143 | | (20 | ) | | (13.7 | )% | | 140 | | (21 | ) | | (15.2 | )% |
| | | | | | | | | | | | | | | | |
Allianz Group | | 58,664 | | (1,708 | ) | | (2.9 | )% | | 49,331 | | (1,360 | ) | | (2.8 | )% |
| | | | | | | | | | | | | | | | |
(1)
| In percent of gross reserves as of December 31, 2006
|
(2)
| In percent of net reserves as of December 31, 2006
|
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 in each jurisdiction. Most of the 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. Individual explanations of amounts in the following discussion, which are based only on significant developments of our major operating entities, do not fully reconcile to those in the above table.
Germany
In Germany, gross loss and LAE reserves developed favorably during 2007 by approximately €194 million, or 1.7% of reserves as of December 31, 2006.
At our German entity that writes direct insurance, gross loss and LAE reserves developed favorably by €62 million. This development was the result of multiple effects.
Unfavorable developments included:
€23 million for motor own damage due to an improvement in the methodology to allocate unallocated loss adjustment expenses (“ULAE”) to accident years and higher than expected payments; and
€27 million for legal protection, due to an improvement in the methodology to allocate ULAE to accident years and because of an increase in VAT in 2007.
Favorable developments included:
€40 million for motor third party liability (“TPL”), mainly because of an update of assumptions due to data improvements for LAE;
€21 million for property, because of a change in data segmentation which led to a change in actuarial assumptions resulting in a favorable change in selected ultimate losses; and
€24 million for general TPL, because of the lower number of late reported claims.
Also during 2007, our reinsurance entity experienced €127 million of favorable reserve development. The main drivers for the favorable development were:
€105 million for non-US asbestos exposures based on our on-going reserve analysis for these types of claims;
€35 million on non-proportional business mainly due to better than expected historical loss experience; and
€38 million for motor, liability and other proportional business from external German cedants because of favorable historical loss development.
These developments were partially offset by an increase of €51 million for German property and certain non-German external cedants because of actuarial assumptions being adjusted because of worse than expected historical loss emergence.
France
In France, gross loss and LAE reserves developed favorably by €277 million, or 3.2% of the reserves as at December 31, 2006.
Favorable developments in France included:
€86 million on its property and satellite business, mainly driven by reductions in the
| estimated ultimate loss for corporate business for which actual development has been less than expected;
|
€78 million on its general liability business mainly driven by the international corporate business due to reductions in the estimated ultimate loss for which actual development has been less than expected;
€72 million on its health and group business mainly driven by accident claims on group contracts as a result of a detailed review of disability claims; and
€68 million in aggregate for smaller developments in eight lines of business.
Unfavorable developments in France included:
€74 million for construction business mainly due to an underestimation for prior years because of significant portfolio growth;
€24 million as a result of aggregating smaller developments in several lines of business.
Italy
In Italy, gross loss and LAE reserves developed favorably by €113 million, or 1.6% of the reserves at December 31, 2006.
Favorable developments in Italy included:
€99 million on motor liability due to better than expected historical claims emergence and subsequent adjustment of actuarial assumptions; and
€82 million on short-tail lines because of positive case reserve run-off.
Unfavorable developments included €29 million on general liability due to worse than expected historical claims emergence and subsequent adjustment of actuarial assumptions.
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.
Major Transactions
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 20072008 by €257approximately €510 million, or 7.9%3.0% of reserves as of December 31, 2007. This development was the result of the reserves at December 31, 2006.
following multiple effects.In the United Kingdom, gross loss and LAE reserves developed favorably primarily due to the following factors:Unfavorable developments included:
€5343 million onat our U.S. subsidiary, driven mainly by the claims experience in its commercial motor liability line and to a lesser extent, in its personal lines,motor liability line. The increase in the majority of which arose from the motor account and,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 the motor account,2008, we have benefited in 2007continued to benefit from changes in motor claims patternpatterns in terms of the speed at which claims are notified, the improved manner in which reserves are handled by claims specialists and the savings realized on settlements;settlements, thus resulting in a surplus;
€18378 million on commercial lines,for motor liability at our Italian entity, due to better than expected historical claims emergence and the improvement in actuarial techniques as a third of which arose from the motor account for the same reasons as listed above. A further third came from property-based accounts as weather-related reserves for December 2006 were released and favorable development was experienced on a number of individual losses. The final thirdresult of the release derived fromavailability 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 accounts. As with(TPL), primarily as a result of positive development in long-tail classes, where the motor account, we have benefitedimpact of prior years’ legislative changes continued to be better than assumed in 2007 fromprior 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 2008 by approximately €269 million, or 3.0% of reserves as of December 31, 2007.
Favorable developments included:
€115 million at our French entity, mainly driven by changes in the liabilityclaims settlement process and better than expected experience on older 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 the speed at which claims are notified, the improved manner in which reserves are handled by claims specialists and the savings realized on settlements. The various claims initiatives are also continuing to deliver benefits faster than anticipated in the reserving last year,settlements, resulting in run-offa surplus;
€42 million on corporate property business, primarily due to the unexpectedly favorable development on a few large claims and the release of related reserves.
Unfavorable developments included €29 million on run-off business due to a higher number of mesothelioma claims received in 2007 than expected, and this being reflected in revised future expectations.
Switzerland
In Switzerland, gross loss and LAE reserves experienced unfavorable development of €60 million, or 1.9% of the reserves at December 31, 2006, primarily due to the settlement of an old aviation claim.
Spain
Gross loss and LAE reserves for Allianz Seguros developed favorably by €137 million, or 7.5% of the reserves at December 31, 2006. This favorable development is mainly due to a refinement of methodology. Due to a limited history of data, in the past, estimates have been based on incurred loss development in prior reserve reviews. In 2007, more history was available to rely on paid loss development, allowing for a more stable analysis.
Rest of Europe
Loss and LAE reserves in other European Allianz Group companies developed favorably by €255 million, or 4.7% of reserves at December 31, 2006. This figure includes the result of favorable and unfavorable developments for numerous individual companies. As the business is written in different currencies, these developments were also affected by foreign exchange rate movements.
Our Irish subsidiary experienced favorable development of €68 million for several reasons:
€34 million for motor and liability business due to savings on injury claims, primarily as a result of better than anticipated levels of savings following the introduction of the Personal Injury Assessment Board (the “PIAB”); and
€36 million in aggregate on other business lines.
Gross loss and LAE reserves for our Dutch subsidiary, Allianz Nederland Schade, experienced favorable development of €65 million in 2007, primarily due to:
€34 million for motor business as a result of improved practices in the claims settlement process implemented as part of a group-wide knowledge sharing initiative. Small bodily injury claims are settled quicker than in the past and at lower costs; and
€20 million from property caused by less than expected large claims for accident year 2006 and positive development of incurred amounts for accident years 2004 and 2005.
Gross loss and LAE reserves for our Hungarian subsidiary experienced favorable development of €17 million in 2007, including:
€20 million unfavorable development on motor third party liability due to the implementation of a new IT system that generates more precise development data, resulting in higher actuarial reserve estimates; and
€37 million favorable development on other lines of business due to lower than expected claims emergence and to the settlement of certain large industrial claims.
Gross loss and LAE reserves for our Slovakian subsidiary, Allianz Slovenská, experienced favorable development of €53 million in 2007, due primarily to an update of actuarial assumptions based on better than expected claims emergence mainly on motor third party liability.
NAFTA Region
For the entire NAFTA region, Allianz Group’s gross loss and LAE reserves developed unfavorably during 2007 by €4 million, or 0.1% of the reserves at December 31, 2006. The largest Allianz Group company in this region is Fireman’s Fund Insurance Company (“Fireman’s Fund”).
At Fireman’s Fund, gross loss and LAE reserves estimates increased by €5 million primarily driven by the following factors:
€24 million unfavorable development on workers compensation because of an increase in actuarial reserve estimates in 2007 due primarily to changes to “tail” development (e.g., development after 10 years) assumptions reviewed in the fourth quarter of 2007. The tail development change contributed €17 million of the total increase;
€20 million unfavorable development on extra-contractual business because of an increase in actuarial reserve estimates in 2007, due primarily to the recognition of a higher extra-contractual payment run-rate, as well as to the recognition of a greater than previously recognized lag time between occurrence and the payment of an extra-contractual claim; and
€27 million unfavorable development on catastrophe reserves due to changes in estimates on accident year 2005 hurricanes.
These adverse developments were offset by a favorable development of €75 million resulting from a Fifth Circuit Court of Appeal’s decision in 2007 that overturned a lower court ruling in 2006 regarding flood versus wind coverage in connection with Hurricane Katrina.
Asia-Pacific
Gross loss and LAE reserves for the Asia-Pacific region developed favorably during 2007 by approximately €175 million or 6.3% of reserves as at December 31, 2006. The largest Allianz Group property-casualty insurer in the region is our Australian operating entity, representing approximately 93% of the region’s total reserves.
In Australia we experienced favorable development of €162 million during 2007. This result arose from partially favorable developments from different lines of business:
€61 million for motor TPLsubsidiary in its general liability business, primarily as a result of positive development in long-tail classes where the impact of prior years’ legislative changes continues to be better than assumed in the prior reporting years;years.
Property
For Property, net loss and LAE reserves developed favorably during 2008 by approximately €294 million, or 10.3% of reserves as of December 31, 2007.
Favorable developments included:
€40107 million at our French entity on its property business, mainly driven by reductions in the estimated ultimate loss for property and other short tailcorporate business partly due to the positive movement in a single large claim, but also to betterfor which actual development has been less than expected historical claims experience;
€25 million on general liability primarily due to the same reasons as for motor TPL;expected; and
€2342 million from workers compensation, mainly due to legislative changes havingat our Italian entity as a favorable impactresult of better than expected claims emergence on reserves, which was offset in part by an increase in the workers compensation run-off portfolio where an increase in the assumed number of asbestos-related claims was made.prior years.
Credit Insurance
Credit insurance is underwritten in the Allianz Group by Euler Hermes. During 2007,2008, Euler Hermes experienced favorable development of €165€104 million net of reinsurance, or 15.8%12.9% of the reserves as atof December 31, 2006.2007. Of
this amount, €46€35 million is attributable to Euler Hermes Germany, which experienced favorable loss trends and unexpected salvage and subrogation recoveryan improvement in commercial credit.actuarial methodology. In France, the favorable development of €74€52 million was mainly attributable to an increase in salvage and subrogation and decrease in declared guaranteed claims for the underwriting year 2007 in
the first half of average claim cost.2008. The remainder comprises favorable developments of a lesser magnitude in our operations in the United Kingdom, Belgium, Italy, Spain, Greece, Hungary, Morocco, Mexico, The Netherlands and Sweden.
Allianz Global Corporate and Specialty
Allianz Global Corporate and Specialty (AGCS) is the Allianz Group’s global carrier for corporate and specialty risks and also includes the corporate branch of the German business.
Overall, AGCS experienced €184€267 million of favorable development in 2007. This was mainly caused by2008 net of reinsurance, or 7.1% of the following partly offsetting effects: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 € 107€31 million across all countries and sub-lines of business due to a new assessment of the development pattern based on better than expected claims experienceexperience.
Workers Compensation / Employers Liability
The net loss and a release of € 6 million in caseLAE reserves developed unfavorably during 2008 on two large claims. Our marine linedWorkers Compensation / Employers Liability line of business recorded a releaseby approximately €57 million, or 1.3% of € 23 million due to better than expectedreserves as of December 31, 2007. This development including a releasewas the result of € 3.5 million from two large claims and a release of € 2 million related to hurricane Katrina and a certain fleet account.multiple effects.
These releases were offset by a €98 million increase in ultimate losses from two claims affecting the liability and D&O accounts. Both of these losses are now paid and settled.Unfavorable developments included:
In€83 million for workers compensation business at our U.S. property lines, €120 million in reserves were releasedentity as a result of internal reserve studies performedan improvement in 2007actuarial assumptions and methodology.
Favorable developments included:
€50 million for employers liability business at our U.K. entity. As in the case of the motor and general liability business, we continued to benefit in 2008 from changes in claims patterns in terms of speed at which indicated moreclaims 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
The 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 approximately €57 million, or 5.7% of reserves as of December 31, 2007. This was mainly driven by the €30 million favorable development than had been assumed in prior estimates. The estimates of this run-off included a release of €27 million of loss and allocated loss adjustment expenses (“ALAE”) for hurricanes Katrina, Rita and Wilma, as more claims are settling and more information becomes known about the expected outcomes of the individual remaining open cases. This favorable development also included a release of €20 million from discontinued property lines.
In 2007, AGCS North America assumed the net liabilities of Jefferson and Monticello insurance companies, which were then sold. As a function of these assumptions, prior year losses and ALAE developed adverselypersonal accident business at our Italian entity, mainly driven by €23 million.
AGCS experienced a €25 million favorable technical runoffreductions in the assumed business of their corporate book because of a reporting lag between AGCS AG and other Allianz operating entities. AGCS estimates IBNR for theestimated ultimate losses which is then adjusted when the operating entities report case reserves.caused by actual development 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 eleventen years. As the Allianz Group adopted IFRS in 1997, historical loss development data is available on an IFRS basis for the ten years 1997 to 2007 only.
Each column of this table shows reserves as of a single balance sheet date and 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, 2007.2008. 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 development of 19971998 reserves during 20002001 is included in the cumulative surplus (deficiency) of the 19971998 through 19992000 columns.
The table below presents calendar year, 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.
Companies acquired or divested during the period shown in the table can lead to distortions in the cumulative surplus or deficiency. The table starts with the presentation of gross liabilities for unpaid
claims and claims 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, or 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 GroupGroup:
IFRS Basis
Euro in Millions
| As of December 31,(1) | | 1997 | | 1998 | | 1999 | | 2000 | | 2001 | | 2002 | | 2003 | | 2004 | | 2005 | | 2006 | | 2007 | | 1998 | | 1999 | | 2000 | | 2001 | | 2002 | | 2003 | | 2004 | | 2005 | | 2006 | | 2007 | | 2008 |
Gross liability for unpaid claims and claims expense | | 34,323 | | | 45,564 | | | 51,276 | | | 54,047 | | | 61,883 | | | 60,054 | | | 56,750 | | | 55,528 | | | 60,259 | | | 58,664 | | | 56,943 | | 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 | | 9,010 | | | 12,273 | | | 15,114 | | | 16,241 | | | 15,945 | | | 16,357 | | | 14,384 | | | 13,282 | | | 14,696 | | | 14,206 | | | | | 12,273 | | | 15,114 | | | 16,241 | | | 15,945 | | | 16,357 | | | 14,384 | | | 13,282 | | | 14,696 | | | 14,206 | | | 13,607 | | | |
two years | | 14,113 | | | 18,847 | | | 22,833 | | | 23,077 | | | 24,567 | | | 24,093 | | | 21,157 | | | 20,051 | | | 21,918 | | | | | | | 18,847 | | | 22,833 | | | 23,077 | | | 24,567 | | | 24,093 | | | 21,157 | | | 20,051 | | | 21,909 | | | 20,659 | | | | | |
three years | | 17,812 | | | 23,407 | | | 27,242 | | | 28,059 | | | 29,984 | | | 29,007 | | | 26,149 | | | 24,812 | | | | | | | | | 23,407 | | | 27,242 | | | 28,059 | | | 29,984 | | | 29,007 | | | 26,149 | | | 24,801 | | | 26,583 | | | | | | | |
four years | | 20,591 | | | 26,327 | | | 30,698 | | | 31,613 | | | 33,586 | | | 32,839 | | | 29,859 | | | | | | | | | | | 26,327 | | | 30,698 | | | 31,613 | | | 33,586 | | | 32,839 | | | 29,847 | | | 28,206 | | | | | | | | | |
five years | | 22,522 | | | 28,738 | | | 33,263 | | | 34,218 | | | 36,431 | | | 35,845 | | | | | | | | | | | | | 28,738 | | | 33,263 | | | 34,218 | | | 36,431 | | | 35,832 | | | 32,570 | | | | | | | | | | | |
six years | | 24,233 | | | 30,550 | | | 35,194 | | | 36,317 | | | 38,823 | | | | | | | | | | | | | | | 30,550 | | | 35,194 | | | 36,317 | | | 38,810 | | | 38,044 | | | | | | | | | | | | | |
seven years | | 25,536 | | | 32,051 | | | 36,930 | | | 38,129 | | | | | | | | | | | | | | | | | 32,051 | | | 36,930 | | | 38,123 | | | 40,618 | | | | | | | | | | | | | | | |
eight years | | 26,699 | | | 33,344 | | | 38,387 | | | | | | | | | | | | | | | | | | | 33,344 | | | 38,382 | | | 39,466 | | | | | | | | | | | | | | | | | |
nine years | | 27,670 | | | 34,463 | | | | | | | | | | | | | | | | | | | | | 34,544 | | | 39,463 | | | | | | | | | | | | | | | | | | | |
ten years | | 28,408 | | | | | | | | | | | | | | | | | | | | | | | 35,434 | | | | | | | | | | | | | | | | | | | | | |
| Gross Liability re-estimated as of | | | | | | | | | | | | | | | | | | | | | | | |
Gross liability re-estimated as of | | | | | | | | | | | | | | | | | | | | | | | |
one year | | 40,651 | | | 46,005 | | | 52,034 | | | 55,200 | | | 58,571 | | | 56,550 | | | 54,103 | | | 56,238 | | | 57,932 | | | 55,266 | | | | | 46,005 | | | 52,034 | | | 55,200 | | | 58,571 | | | 56,550 | | | 54,103 | | | 56,238 | | | 57,932 | | | 55,266 | | | 52,931 | | | |
two years | | 38,058 | | | 46,043 | | | 52,792 | | | 53,535 | | | 56,554 | | | 55,704 | | | 55,365 | | | 53,374 | | | 54,270 | | | | | | | 46,043 | | | 52,792 | | | 53,535 | | | 56,554 | | | 55,704 | | | 55,365 | | | 53,374 | | | 54,437 | | | 51,809 | | | | | |
three years | | 37,909 | | | 46,780 | | | 51,265 | | | 52,160 | | | 56,056 | | | 57,387 | | | 53,907 | | | 51,760 | | | | | | | | | 46,780 | | | 51,265 | | | 52,160 | | | 56,056 | | | 57,387 | | | 53,907 | | | 51,895 | | | 52,676 | | | | | | | |
four years | | 38,530 | | | 45,307 | | | 49,929 | | | 52,103 | | | 57,640 | | | 56,802 | | | 53,068 | | | | | | | | | | | 45,307 | | | 49,929 | | | 52,103 | | | 57,640 | | | 56,802 | | | 53,181 | | | 50,767 | | | | | | | | | |
five years | | 37,342 | | | 44,196 | | | 50,058 | | | 53,675 | | | 57,006 | | | 56,053 | | | | | | | | | | | | | 44,196 | | | 50,058 | | | 53,675 | | | 57,006 | | | 56,148 | | | 52,356 | | | | | | | | | | | |
six years | | 36,346 | | | 44,524 | | | 51,432 | | | 53,204 | | | 56,447 | | | | | | | | | | | | | | | 44,524 | | | 51,432 | | | 53,204 | | | 56,527 | | | 55,553 | | | | | | | | | | | | | |
seven years | | 36,648 | | | 45,679 | | | 51,263 | | | 53,051 | | | | | | | | | | | | | | | | | 45,679 | | | 51,263 | | | 53,124 | | | 56,102 | | | | | | | | | | | | | | | |
eight years | | 37,696 | | | 45,478 | | | 51,002 | | | | | | | | | | | | | | | | | | | 45,478 | | | 51,063 | | | 52,566 | | | | | | | | | | | | | | | | | |
nine years | | 37,647 | | | 45,102 | | | | | | | | | | | | | | | | | | | | | 45,237 | | | 50,548 | | | | | | | | | | | | | | | | | | | |
ten years | | 37,125 | | | | | | | | | | | | | | | | | | | | | | | 45,120 | | | | | | | | | | | | | | | | | | | | | |
| Cumulative surplus (deficiency) | | (2,802 | ) | | 462 | | | 274 | | | 996 | | | 5,436 | | | 4,001 | | | 3,682 | | | 3,768 | | | 5,989 | | | 3,398 | | | | | 444 | | | 728 | | | 1,481 | | | 5,781 | | | 4,501 | | | 4,394 | | | 4,761 | | | 7,583 | | | 6,855 | | | 4,012 | | | |
effect of disposed/(acquired) portfolios(2) | | (5,514 | ) | | (2,147 | ) | | 0 | | | 0 | | | (93 | ) | | 0 | | | 540 | | | 0 | | | 0 | | | 0 | | | | | (2,147 | ) | | 0 | | | 0 | | | (93 | ) | | 0 | | | 540 | | | 0 | | | 0 | | | 0 | | | 1,458 | | | |
effect of foreign exchange | | 794 | | | (3,307 | ) | | 282 | | | 936 | | | 2,466 | | | 1,520 | | | (916 | ) | | 235 | | | 2,340 | | | 1,690 | | | | | (1,339 | ) | | 875 | | | 2,213 | | | 4,944 | | | 3,390 | | | 877 | | | 18 | | | 2,391 | | | 1,474 | | | 313 | | | |
excluding both effects | | 1,918 | | | 5,916 | | | (8 | ) | | 60 | | | 3,063 | | | 2,481 | | | 4,058 | | | 3,533 | | | 3,649 | | | 1,708 | | | | | 3,931 | | | (148 | ) | | (732 | ) | | 931 | | | 1,111 | | | 2,977 | | | 4,744 | | | 5,193 | | | 5,381 | | | 2,241 | | | |
Percent | | 5.6 | % | | 13.0 | % | | 0.0 | % | | 0.1 | % | | 4.9 | % | | 4.1 | % | | 7.2 | % | | 6.4 | % | | 6.1 | % | | 2.9 | % | | | | 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 table as of the date of the disposal (or acquisition). |
(2) | MajorOur major acquisitions have been AGF (consolidated 1998),over this period are Allianz Australia, and Allianz Ireland (consolidated 1999) and Allianz Slovenská (consolidated 2001). A major disposal wasMajor 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 effect on the liability re-estimated consists of effects on paid and unpaid losses for prior years in the year of the transaction, while the effect of (divestitures)/acquisitions presented in the table “Reconciliation of Loss and LAE Reserves”, states the total amount of loss reserves being deconsolidated or consolidated for the first time.
|
In 2007,2008, loss and LAE reserves decreased by €1,722€1,327 million or 2.9%2.3% to €56,943 million. Important contributors to this decline were€55,616 million, resulting primarily from the positive development on prior years’ loss reserves primarilyimpact of reclassifications described in Italy, France, the United Kingdom, Germany and within the credit insurance business,table above as well as the weakening of the U.S. Dollar and British Pound and Australian Dollar relative to the Euro, which were offset in part by claims related to the windstorm Kyrill and floods in the United Kingdom.Euro. Reserve developments during 20072008 are described in further detail in the preceding section “Changes in Loss and LAE Reserves During 2007”2008”.
The overall increase in loss and LAE reserves from 2004 to 2005 was caused in part by the unusually high frequency and severity of natural catastrophes in 2005, including an estimated net reserve of €1,090 million for the hurricanes Katrina, Rita and Wilma. An additional causative factor was the weakening of the Euro relative to U.S. Dollar and Australian Dollar during 2005. The relatively low reserve in 2006 as compared to 2005 was due to the relative absence of natural catastrophe claims in 2006.
Discounting of Loss and LAE Reserves
As of December 31, 2008, 2007 2006 and 2005,2006, the Allianz GroupGroup’s consolidated property-casualty reserves reflected discounts of €1,466€1,139 million, €1,377€1,100 million and €1,325€1,074 million respectively.
Reserves are discounted to varying degrees in the United States, the United Kingdom, Germany, Hungary, Switzerland, Portugal France and Belgium.France. The reserve discounts relate to 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
€ mn | | Amount of Discount
€ mn | | Interest Rate used for discounting |
| | | 2007 | | 2006 | | 2005 | | 2007 | | 2006 | | 2005 | | 2007 | | 2006 | | 2005 |
France | | 1,321 | | 1,325 | | 1,404 | | 400 | | 349 | | 357 | | 3.25% | | 3.25% | | 3.25% |
Germany | | 559 | | 504 | | 445 | | 372 | | 346 | | 298 | | 2.25% to 4.00% | | 2.75% to 4.00% | | 2.75% to 4.00% |
Switzerland | | 430 | | 427 | | 414 | | 258 | | 253 | | 236 | | 3.00% | | 3.25% | | 3.25% |
United States | | 155 | | 181 | | 213 | | 170 | | 200 | | 230 | | 5.25% | | 6.00% | | 6.00% |
United Kingdom | | 160 | | 139 | | 116 | | 163 | | 133 | | 110 | | 4% to 4.75% | | 4.00% to 4.25% | | 4.00% to 4.25% |
Belgium | | 94 | | 91 | | 91 | | 28 | | 26 | | 28 | | 4.50% | | 3.20% to 4.68% | | 4.68% |
Portugal | | 64 | | 79 | | 57 | | 49 | | 47 | | 44 | | 4.00% | | 4.00% | | 4.00% |
Hungary | | 79 | | 74 | | 67 | | 26 | | 23 | | 22 | | 1.40% | | 1.40% | | 1.40% |
| | | | | | | | | | | | | | | | | | |
Total | | 2,862 | | 2,820 | | 2,807 | | 1,466 | | 1,377 | | 1,325 | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | 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”)(A&E) Loss Reserves
There are significant uncertainties in estimating A&Eloss and LAE reserves for loss and LAE.A&E. Reserves for asbestos-related illnesses and environmental clean up losses cannot be estimated using traditional actuarial techniques due to the long latency period and changes in the legal, socio-economic and regulatory 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. As a result, 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.”
While the U.S. A&E claims still represent a majority of the total A&E claims reported to the Allianz Group, the insurance industry is facing an increased prominence in exposuresexposed to A&E claims on a global basis. We have, as a result, increased our analysis ofcontinue to analyze these non-U.S. A&E exposures during 2006 and 2007.exposures. The results of our ongoing non-U.S. A&E reserveregular analysis resulted in a decrease of non-U.S. A&E reserves confirm our current level of €105 millioncarried A&E reserves without any need for additional reserve strengthening in 2007.2008.
The following table summarizes the gross and net loss and LAE reserves for A&E claims.
| As of
December 31, | | A&E Net
Reserves | | A&E Gross
Reserves | | As percentage of
the Allianz Group’s
Property-Casualty
Gross Reserves | | | A&E Net
Reserves | | A&E Gross
Reserves | | As percentage of
the Allianz Group’s
Property-Casualty
Gross Reserves | |
| | | € mn | | € mn | | | | € mn | | € mn | | |
2005 | | 3,147 | | 3,873 | | 6.4 | % | |
2006 | | 2,990 | | 3,636 | | 6.2 | % | | 2,990 | | 3,636 | | 6.2 | % |
2007 | | 2,764 | | 3,287 | | 5.8 | % | | 2,764 | | 3,287 | | 5.8 | % |
2008 | | | 2,618 | | 3,140 | | 5.6 | % |
The following table shows total A&E loss activity for the past three years.
| | | | | | | | | |
Total Asbestos and
Environmental: | | Year Ended December 31, | |
| | 2005 | | | 2006 | | | 2007 | |
| | | € mn | | | € mn | | | € mn | |
Loss + LAE Reserves as of January 1 | | 3,638 | | | 3,873 | | | 3,636 | |
Less Loss and LAE Payments | | (312 | ) | | (205 | ) | | (175 | ) |
Plus Change in Loss and LAE Reserves | | 546 | | | (32 | ) | | (175 | ) |
| | | | | | | | | |
Loss + LAE Reserves as of December 31 | | 3,873 | | | 3,636 | | | 3,287 | |
| | | | | | | | | |
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”) and certain other banking subsidiaries of the Allianz Group. 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. In particular, 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.
In accordance with the Allianz Group policy, certain financial instruments are presented on a net basis when there is a legally enforceable right to offset with the same counter-party, and the Allianz Group intends to settle on a net basis. At Dresdner Bank, certain master netting agreements give Dresdner Bank the legal right of offset, but only under certain conditions. The financial instruments related to these agreements, consisting of derivatives, repurchase agreements and reverse repurchase agreements, have previously been reported on a net basis. These agreements have been evaluated and it has been determined that due to the limits to the right of offset, the relevant financial assets and liabilities should be reported on a gross basis.
Partially offsetting these reclassifications from net to gross presentation is a change in the presentation of Collateral paid for securities borrowing transactions and Collateral received for securities lending transactions from gross to net presentation. In this case, the logic in the relevant system did not distinguish between open trades and offsetting borrowing/lending activities with the same counterparty.
We have retrospectively applied these revisions to prior years. The data presented herein reflects those adjustments and resulted in adjustments to the line items “Loans and advances to banks,” “Loans and advances to customers,” “Securities purchased under resale agreements,” “Liabilities to banks,”
| | | | | | | | | |
Total Asbestos and Environmental: | | Year Ended December 31, | |
| | 2008 | | | 2007 | | | 2006 | |
| | | € mn | | | € mn | | | € mn | |
Loss + LAE Reserves as of January 1 | | 3,287 | | | 3,636 | | | 3,873 | |
Less Loss and LAE Payments | | (199 | ) | | (175 | ) | | (205 | ) |
Plus Change in Loss and LAE Reserves | | 52 | | | (175 | ) | | (32 | ) |
| | | | | | | | | |
Loss + LAE Reserves as of December 31 | | 3,140 | | | 3,287 | | | 3,636 | |
| | | | | | | | | |
“Liabilities to customers” and “Securities sold under repurchase agreements” on the Average Balance Sheet previously published for the years ended December 31, 2006 and 2005, as well as to figures derived therefrom. These revisions had no impact on our net income or shareholders’ equity reported for those years.
The information presented herein for the years ended December 2004 and 2003 was revised in 2005 to reflect the required retrospective application of IAS 39 revised, which became effective January 1, 2005, as if IAS 39 revised had always been used.
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, 2007, 2006 and 2005. The average balance sheet and interest rate data is based
on consolidated monthly average balances using month-end balances prepared in accordance with IFRS. For further information, see Note 3 to the consolidated financial statements.
In accordance with IAS 39 revised, 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.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Years Ended December 31, | |
| | | 2007 | | | 2006 | | | 2005 | |
| | | 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(1) | | | | | | | | | | | | | | | | | | | | | | | | |
Financial assets carried at fair value through income | | | | | | | | | | | | | | | | | | | | | | | | |
In German offices(2) | | 23,461 | | | 1,002 | | 4.3 | % | | 37,181 | | | 1,228 | | 3.3 | % | | 88,194 | | | 2,626 | | 3.0 | % |
In non-German offices | | 48,664 | | | 1,894 | | 3.9 | % | | 55,947 | | | 2,364 | | 4.2 | % | | 53,059 | | | 1,941 | | 3.7 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total(3) | | 72,125 | | | 2,896 | | 4.0 | % | | 93,128 | | | 3,592 | | 3.9 | % | | 141,253 | | | 4,567 | | 3.2 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Loans and advances to banks | | | | | | | | | | | | | | | | | | | | | | | | |
In German offices | | 26,178 | | | 962 | | 3.7 | % | | 23,205 | | | 768 | | 3.3 | % | | 19,646 | | | 424 | | 2.2 | % |
In non-German offices | | 24,537 | | | 1,418 | | 5.8 | % | | 18,417 | | | 668 | | 3.6 | % | | 13,322 | | | 564 | | 4.2 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | 50,715 | | | 2,380 | | 4.7 | % | | 41,622 | | | 1,436 | | 3.5 | % | | 32,968 | | | 988 | | 3.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Loans and advances to customers | | | | | | | | | | | | | | | | | | | | | | | | |
In German offices | | 81,343 | | | 4,004 | | 4.9 | % | | 76,642 | | | 3,834 | | 5.0 | % | | 77,873 | | | 4,313 | | 5.5 | % |
In non-German offices | | 49,921 | | | 2,903 | | 5.8 | % | | 45,993 | | | 3,165 | | 6.9 | % | | 32,261 | | | 1,600 | | 5.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | 131,264 | | | 6,907 | | 5.3 | % | | 122,635 | | | 6,999 | | 5.7 | % | | 110,134 | | | 5,913 | | 5.4 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Securities purchased under resale agreements | | | | | | | | | | | | | | | | | | | | | | | | |
In German offices | | 89,847 | | | 4,635 | | 5.2 | % | | 91,242 | | | 3,622 | | 4.0 | % | | 83,614 | | | 2,690 | | 3.2 | % |
In non-German offices | | 78,623 | | | 3,685 | | 4.7 | % | | 68,300 | | | 2,361 | | 3.5 | % | | 85,379 | | | 2,324 | | 2.7 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | 168,470 | | | 8,320 | | 4.9 | % | | 159,542 | | | 5,983 | | 3.8 | % | | 168,993 | | | 5,014 | | 3.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Investment securities(4) | | | | | | | | | | | | | | | | | | | | | | | | |
In German offices | | 8,108 | | | 331 | | 4.1 | % | | 8,585 | | | 307 | | 3.6 | % | | 7,304 | | | 237 | | 3.2 | % |
In non-German offices | | 4,436 | | | 182 | | 4.1 | % | | 4,394 | | | 161 | | 3.7 | % | | 5,739 | | | 237 | | 4.1 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | 12,544 | | | 513 | | 4.1 | % | | 12,979 | | | 468 | | 3.6 | % | | 13,043 | | | 474 | | 3.6 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total interest-earning assets | | 435,118 | | | 21,016 | | 4.8 | % | | 429,906 | | | 18,478 | | 4.3 | % | | 466,391 | | | 16,956 | | 3.6 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Non-interest-earning assets | | | | | | | | | | | | | | | | | | | | | | | | |
In German offices | | 97,118 | | | — | | — | | | 92,435 | | | — | | — | | | 89,295 | | | — | | — | |
In non-German offices | | 51,780 | | | — | | — | | | 46,644 | | | — | | — | | | 43,714 | | | — | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total non-interest -earning assets | | 148,898 | | | — | | — | | | 139,079 | | | — | | — | | | 133,009 | | | — | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total assets | | 584,016 | | | — | | — | | | 568,985 | | | — | | — | | | 599,400 | | | — | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Percent of assets attributable to non-German offices | | 44.2 | % | | — | | — | | | 42.1 | % | | — | | — | | | 39.0 | % | | — | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Years Ended December 31, | |
| | | 2007 | | | 2006 | | | 2005 | |
| | | 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 | | % | |
Liabilities and shareholders’ equity(1) | | | | | | | | | | | | | | | | | | | | | | | | |
Financial liabilities carried at fair value through income | | | | | | | | | | | | | | | | | | | | | | | | |
In German offices | | 569 | | | 26 | | 4.6 | % | | 387 | | | 22 | | 5.7 | % | | 215 | | | 16 | | 7.4 | % |
In non-German offices | | 304 | | | 13 | | 4.3 | % | | — | | | — | | — | | | 19 | | | 1 | | 5.3 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | 873 | | | 39 | | 4.5 | % | | 387 | | | 22 | | 5.7 | % | | 234 | | | 17 | | 7.3 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Liabilities to banks(5) | | | | | | | | | | | | | | | | | | | | | | | | |
In German offices | | 54,722 | | | 2,262 | | 4.1 | % | | 60,759 | | | 2,096 | | 3.5 | % | | 67,698 | | | 1,869 | | 2.8 | % |
In non-German offices | | 21,160 | | | 1,431 | | 6.8 | % | | 26,017 | | | 1,804 | | 6.9 | % | | 24,420 | | | 1,414 | | 5.8 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | 75,882 | | | 3,693 | | 4.9 | % | | 86,776 | | | 3,900 | | 4.5 | % | | 92,118 | | | 3,283 | | 3.6 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Liabilities to customers(5) | | | | | | | | | | | | | | | | | | | | | | | | |
In German offices(6) | | 67,446 | | | 2,997 | | 4.4 | % | | 57,860 | | | 2,028 | | 3.5 | % | | 60,254 | | | 1,720 | | 2.9 | % |
In non-German offices | | 40,947 | | | 2,031 | | 5.0 | % | | 34,833 | | | 2,002 | | 5.7 | % | | 36,947 | | | 1,139 | | 3.1 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | 108,393 | | | 5,028 | | 4.6 | % | | 92,693 | | | 4,030 | | 4.3 | % | | 97,201 | | | 2,859 | | 2.9 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Securities sold under repurchase agreements | | | | | | | | | | | | | | | | | | | | | | | | |
In German offices | | 58,019 | | | 3,202 | | 5.5 | % | | 60,895 | | | 2,629 | | 4.3 | % | | 60,471 | | | 2,382 | | 3.9 | % |
In non-German offices | | 89,373 | | | 3,575 | | 4.0 | % | | 83,111 | | | 2,359 | | 2.8 | % | | 84,979 | | | 2,226 | | 2.6 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | 147,392 | | | 6,777 | | 4.6 | % | | 144,006 | | | 4,988 | | 3.5 | % | | 145,450 | | | 4,608 | | 3.2 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Subordinated liabilities | | | | | | | | | | | | | | | | | | | | | | | | |
In German offices | | 3,503 | | | 200 | | 5.7 | % | | 3,343 | | | 180 | | 5.4 | % | | 3,244 | | | 163 | | 5.0 | % |
In non-German offices | | 2,478 | | | 162 | | 6.5 | % | | 2,734 | | | 174 | | 6.4 | % | | 3,062 | | | 181 | | 5.9 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | 5,981 | | | 362 | | 6.1 | % | | 6,077 | | | 354 | | 5.8 | % | | 6,306 | | | 344 | | 5.5 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Certificated liabilities(5) | | | | | | | | | | | | | | | | | | | | | | | | |
In German offices | | 15,167 | | | 658 | | 4.3 | % | | 16,539 | | | 814 | | 4.9 | % | | 18,441 | | | 758 | | 4.1 | % |
In non-German offices | | 29,636 | | | 1,521 | | 5.1 | % | | 31,959 | | | 1,436 | | 4.5 | % | | 32,258 | | | 1,205 | | 3.7 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | 44,803 | | | 2,179 | | 4.9 | % | | 48,498 | | | 2,250 | | 4.6 | % | | 50,699 | | | 1,963 | | 3.9 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Profit participation certificates outstanding | | | | | | | | | | | | | | | | | | | | | | | | |
In German offices | | 1,924 | | | 128 | | 6.7 | % | | 1,892 | | | 128 | | 6.8 | % | | 1,520 | | | 110 | | 7.2 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | 1,924 | | | 128 | | 6.7 | % | | 1,892 | | | 128 | | 6.8 | % | | 1,520 | | | 110 | | 7.2 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total interest-bearing liabilities | | 385,248 | | | 18,206 | | 4.7 | % | | 380,329 | | | 15,672 | | 4.1 | % | | 393,528 | | | 13,184 | | 3.4 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Non-interest-bearing liabilities | | | | | | | | | | | | | | | | | | | | | | | | |
In German offices | | 118,246 | | | — | | — | | | 119,394 | | | — | | — | | | 137,356 | | | — | | — | |
In non-German offices | | 68,238 | | | — | | — | | | 56,913 | | | — | | — | | | 56,582 | | | — | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total non-interest-bearing liabilities | | 186,484 | | | — | | — | | | 176,307 | | | — | | — | | | 193,938 | | | — | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Shareholders’ equity | | 12,284 | | | — | | — | | | 12,349 | | | — | | — | | | 11,934 | | | — | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total liabilities and shareholders’ equity | | 584,016 | | | — | | — | | | 568,985 | | | — | | — | | | 599,400 | | | — | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Percent of liabilities attributable to non-German offices | | 44.1 | % | | — | | — | | | 42.3 | % | | — | | — | | | 40.6 | % | | — | | — | |
(1)
| Certain prior year figures have been revised to conform to current year presentation.
|
(2)
| The decrease in German financial assets carried at fair value through income from 2005 to 2006 is primarily attributable to the reduction of our debt securities portfolio.
|
(3)
| The decrease in German and non- German financial assets carried at fair value from 2006 to 2007 is mainly attributable to decreases in the value of our bond portfolio driven by the impact of the current worldwide financial market crisis.
|
(4)
| The average yields for investment securities available-for-sale have been calculated using the fair value balances and are not materially different compared to the results from using the amortized cost balances.
|
(5)
| Interest-bearing deposits are presented within liabilities to banks and liabilities to customers; certificates of deposit are presented within certificated liabilities.
|
(6)
| The increase in liabilities to customers in German offices is attributable to the increase in our deposit business.
|
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.
| | | | | | | | | |
| | | Years Ended December 31, | |
| | | 2007 | | | 2006(3) | | | 2005(3) | |
| | | € mn | | | € mn | | | € mn | |
Average total interest-earning assets | | 435,118 | | | 429,906 | | | 466,391 | |
Net interest earned(1) | | 2,810 | | | 2,806 | | | 3,772 | |
Net interest margin in %(2) | | 0.65 | % | | 0.65 | % | | 0.81 | % |
(1)
| Net interest earned is defined as total interest income less total interest expense.
|
(2)
| Net interest margin is defined as net interest earned divided by average total interest-earning assets.
|
(3)
| Certain prior year figures have been revised to conform to current year presentation.
|
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 those caused by 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. Interest income includes loan fees amounting to €154 million in 2007 (2006: €181 million; 2005: €97 million).
| | | | | | | | | | | | | | | | | | |
| | | Years Ended December 31, | |
| | | 2007 over 2006 | | | 2006 over 2005 | |
| | | 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(1) | | | | | | | | | | | | | | | | | | |
Financial assets carried at fair value through income | | | | | | | | | | | | | | | | | | |
In German offices | | (226 | ) | | 301 | | | (527 | ) | | (1,398 | ) | | 260 | | | (1,658 | ) |
In non-German offices | | (469 | ) | | (177 | ) | | (292 | ) | | 423 | | | 313 | | | 110 | |
| | | | | | | | | | | | | | | | | | |
Total | | (695 | ) | | 124 | | | (819 | ) | | (975 | ) | | 573 | | | (1,548 | ) |
| | | | | | | | | | | | | | | | | | |
Loans and advances to banks | | | | | | | | | | | | | | | | | | |
In German offices | | 194 | | | 90 | | | 104 | | | 344 | | | 257 | | | 87 | |
In non-German offices | | 750 | | | 480 | | | 270 | | | 103 | | | (90 | ) | | 193 | |
| | | | | | | | | | | | | | | | | | |
Total | | 944 | | | 570 | | | 374 | | | 447 | | | 167 | | | 280 | |
| | | | | | | | | | | | | | | | | | |
Loans and advances to customers | | | | | | | | | | | | | | | | | | |
In German offices | | 170 | | | (63 | ) | | 233 | | | (479 | ) | | (412 | ) | | (67 | ) |
In non-German offices | | (262 | ) | | (517 | ) | | 255 | | | 1,565 | | | 746 | | | 819 | |
| | | | | | | | | | | | | | | | | | |
Total | | (92 | ) | | (580 | ) | | 488 | | | 1,086 | | | 334 | | | 752 | |
| | | | | | | | | | | | | | | | | | |
Securities purchased under resale agreements | | | | | | | | | | | | | | | | | | |
In German offices | | 1,013 | | | 1,069 | | | (56 | ) | | 932 | | | 670 | | | 262 | |
In non-German offices | | 1,324 | | | 929 | | | 395 | | | 37 | | | 555 | | | (518 | ) |
| | | | | | | | | | | | | | | | | | |
Total | | 2,337 | | | 1,998 | | | 339 | | | 969 | | | 1,225 | | | (256 | ) |
| | | | | | | | | | | | | | | | | | |
Investment securities | | | | | | | | | | | | | | | | | | |
In German offices | | 23 | | | 41 | | | (18 | ) | | 70 | | | 26 | | | 44 | |
In non-German offices | | 22 | | | 20 | | | 2 | | | (76 | ) | | (25 | ) | | (51 | ) |
| | | | | | | | | | | | | | | | | | |
Total | | 45 | | | 61 | | | (16 | ) | | (6 | ) | | 1 | | | (7 | ) |
| | | | | | | | | | | | | | | | | | |
Total interest income | | 2,539 | | | 2,173 | | | 366 | | | 1,521 | | | 2,300 | | | (779 | ) |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | Years Ended December 31, | |
| | | 2007 over 2006 | | | 2006 over 2005 | |
| | | 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 expense(1) | | | | | | | | | | | | | | | | | | |
Financial liabilities carried at fair value through income | | | | | | | | | | | | | | | | | | |
In German offices | | 4 | | | (5 | ) | | 9 | | | 6 | | | (4 | ) | | 10 | |
In non-German offices | | 13 | | | 6 | | | 7 | | | (1 | ) | | (1 | ) | | — | |
| | | | | | | | | | | | | | | | | | |
Total | | 17 | | | 1 | | | 16 | | | 5 | | | (5 | ) | | 10 | |
| | | | | | | | | | | | | | | | | | |
Liabilities to banks | | | | | | | | | | | | | | | | | | |
In German offices | | 165 | | | 387 | | | (222 | ) | | 228 | | | 433 | | | (205 | ) |
In non-German offices | | (372 | ) | | (43 | ) | | (329 | ) | | 390 | | | 293 | | | 97 | |
| | | | | | | | | | | | | | | | | | |
Total | | (207 | ) | | 344 | | | (551 | ) | | 618 | | | 726 | | | (108 | ) |
| | | | | | | | | | | | | | | | | | |
Liabilities to customers | | | | | | | | | | | | | | | | | | |
In German offices | | 969 | | | 599 | | | 370 | | | 308 | | | 379 | | | (71 | ) |
In non-German offices | | 29 | | | (296 | ) | | 325 | | | 863 | | | 932 | | | (69 | ) |
| | | | | | | | | | | | | | | | | | |
Total | | 998 | | | 303 | | | 695 | | | 1,171 | | | 1,311 | | | (140 | ) |
| | | | | | | | | | | | | | | | | | |
Securities sold under repurchase agreements | | | | | | | | | | | | | | | | | | |
In German offices | | 574 | | | 703 | | | (129 | ) | | 247 | | | 230 | | | 17 | |
In non-German offices | | 1,216 | | | 1,027 | | | 189 | | | 133 | | | 183 | | | (50 | ) |
| | | | | | | | | | | | | | | | | | |
Total | | 1,790 | | | 1,730 | | | 60 | | | 380 | | | 413 | | | (33 | ) |
| | | | | | | | | | | | | | | | | | |
Subordinated liabilities | | | | | | | | | | | | | | | | | | |
In German offices | | 20 | | | 11 | | | 9 | | | 17 | | | 12 | | | 5 | |
In non-German offices | | (11 | ) | | 6 | | | (17 | ) | | (7 | ) | | 13 | | | (20 | ) |
| | | | | | | | | | | | | | | | | | |
Total | | 9 | | | 17 | | | (8 | ) | | 10 | | | 25 | | | (15 | ) |
| | | | | | | | | | | | | | | | | | |
Certificated liabilities | | | | | | | | | | | | | | | | | | |
In German offices | | (156 | ) | | (92 | ) | | (64 | ) | | 56 | | | 140 | | | (84 | ) |
In non-German offices | | 86 | | | 195 | | | (109 | ) | | 231 | | | 242 | | | (11 | ) |
| | | | | | | | | | | | | | | | | | |
Total | | (70 | ) | | 103 | | | (173 | ) | | 287 | | | 382 | | | (95 | ) |
| | | | | | | | | | | | | | | | | | |
Profit participation certificates outstanding | | | | | | | | | | | | | | | | | | |
In German offices | | — | | | (2 | ) | | 2 | | | 18 | | | (7 | ) | | 25 | |
Total | | — | | | (2 | ) | | 2 | | | 18 | | | (7 | ) | | 25 | |
| | | | | | | | | | | | | | | | | | |
Total interest expense | | 2,537 | | | 2,496 | | | 41 | | | 2,489 | | | 2,845 | | | (356 | ) |
| | | | | | | | | | | | | | | | | | |
Change in taxable net interest income | | 2 | | | (323 | ) | | 325 | | | (968 | ) | | (545 | ) | | (423 | ) |
| | | | | | | | | | | | | | | | | | |
(1)
| Certain prior year figures have been revised to conform to current year presentation.
|
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.
| | | | | | | | | |
| | | Years Ended December 31, | |
| | | 2007 | | | 2006(4) | | | 2005(4) | |
| | | € mn | | | € mn | | | € mn | |
Net income/(loss) | | 443 | | | 909 | | | 1,768 | |
Average shareholders’ equity | | 12,284 | | | 12,349 | | | 11,934 | |
Return on assets in %(1) | | 0.08 | % | | 0.16 | % | | 0.29 | % |
Return on equity in %(2) | | 3.61 | % | | 7.36 | % | | 14.81 | % |
Equity to assets ratio in %(3) | | 2.10 | % | | 2.17 | % | | 1.99 | % |
(1)
| Return on assets is defined as net income/(loss) of our banking operations divided by average total assets of our banking operations.
|
(2)
| Return on equity is defined as net income/(loss) of our banking operations divided by average shareholders’ equity of our banking operations.
|
(3)
| Equity to assets ratio is defined as average shareholders’ equity of our banking operations divided by average total assets of our banking operations.
|
(4)
| Certain prior year figures have been revised to conform to current year presentation.
|
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.
| | | | | | |
| | | As of December 31, |
| | | 2007 | | 2006 | | 2005 |
| | | € mn | | € mn | | € mn |
Financial assets carried at fair value through income | | | | | | |
German: | | | | | | |
Federal and state government and government agency debt securities | | 4,658 | | 4,247 | | 11,497 |
Local government debt securities | | 1,717 | | 1,885 | | 690 |
Corporate debt securities | | 4,342 | | 10,135 | | 18,972 |
Mortgage-backed securities | | 90 | | 162 | | 139 |
Equity securities | | 3,627 | | 2,627 | | 2,656 |
| | | | | | |
German total | | 14,434 | | 19,056 | | 33,954 |
| | | | | | |
| | | | | | |
| | | As of December 31, |
| | | 2007 | | 2006 | | 2005 |
| | | € mn | | € mn | | € mn |
Non-German: | | | | | | |
U.S. Treasury and other U.S. government agency debt securities | | 852 | | 575 | | 915 |
Other government and official institution debt securities | | 9,306 | | 12,163 | | 25,534 |
Corporate debt securities(1) | | 22,187 | | 29,263 | | 39,170 |
Mortgage-backed securities(1) | | 14,442 | | 23,085 | | 13,601 |
Other debt securities(2) | | 118 | | 265 | | 255 |
Equity securities | | 33,298 | | 32,626 | | 28,105 |
| | | | | | |
Non-German total | | 80,203 | | 97,977 | | 107,580 |
| | | | | | |
Total financial assets carried at fair value through income | | 94,637 | | 117,033 | | 141,534 |
| | | | | | |
Securities available-for-sale | | | | | | |
German(3): | | | | | | |
Federal and state government and government agency debt securities | | 280 | | 345 | | 305 |
Local government debt securities | | 547 | | 1,347 | | 1,777 |
Corporate debt securities | | 4,246 | | 4,068 | | 5,195 |
Equity securities | | 1,043 | | 1,261 | | 1,573 |
| | | | | | |
German total | | 6,116 | | 7,021 | | 8,850 |
| | | | | | |
Non-German: | | | | | | |
U.S. Treasury and other U.S. government agency debt securities | | 4 | | 79 | | 5 |
Other government and official institution debt securities | | 1,315 | | 1,401 | | 1,245 |
Corporate debt securities | | 5,490 | | 5,536 | | 3,180 |
Mortgage-backed securities | | 13 | | 11 | | 266 |
Other debt securities | | — | | 100 | | 455 |
Equity securities | | 2,234 | | 1,931 | | 1,649 |
| | | | | | |
Non-German total | | 9,056 | | 9,058 | | 6,800 |
| | | | | | |
Total securities available-for-sale | | 15,172 | | 16,079 | | 15,650 |
| | | | | | |
Securities held-to-maturity | | | | | | |
Non-German: | | | | | | |
Other government and official institution debt securities | | — | | — | | 41 |
| | | | | | |
Non-German total | | — | | — | | 41 |
| | | | | | |
Total securities held-to-maturity | | — | | — | | 41 |
| | | | | | |
(1)
| The change in non-German fair value corporate debt securities and mortgage-backed securities in 2006 is attributable to a reclassification of such securities to provide a more accurate disclosure.
|
(2)
| The change in non-German fair value other debt securities in 2006 and 2005 is attributable to RAS Bank’s reclassification of such securities from the non-German corporate fair value debt securities category to provide a more accurate disclosure.
|
(3)
| We did not hold any German mortgage-backed securities available-for-sale from 2005 to 2007.
|
Financial assets carried at fair value through income as shown above exclude derivative financial instruments held for trading, as well as loans.
The decreases in the 2007 and 2006 fair values for non-German corporate debt securities, mortgage-backed securities, other debt securities, as well as in the German corporate debt securities are mainly driven by the impact of the current worldwide financial market crisis.
The decrease in German federal and state government, local government debt and government agency debt securities as well as non-German other government and official institution debt securities is primarily driven by the reduction of government and agency bonds and other fixed-income securities during 2006 and 2005 due to reduced earnings prospects in this sector.
The increase in non-German mortgage-backed-securities carried at fair value through income from 2005 to 2006 was driven largely by an increase of the volume of super senior trades and intermediation trades during the years which have both required
increases in the levels of ABS holdings. The decrease of such securities during 2007 is mainly attributable to the developments in connection with the general financial market crisis.
The increase in non-German equity securities reflects the positive developments within the stock markets and indices from 2006 to 2005.
At December 31, 2007, our banking operations held no ordinary shares with a book value in excess of 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 operation’s 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. We did not hold any securities held-to-maturity in 2007.
| | | | | | | | | | | | | | | |
| | | As of December 31, 2007 | |
| | | 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 | | 8 | | | 101 | | | 167 | | | 4 | | | 280 | |
Local government debt securities | | 138 | | | 341 | | | 68 | | | 0 | | | 547 | |
Corporate debt securities | | 480 | | | 3,016 | | | 730 | | | 20 | | | 4,246 | |
| | | | | | | | | | | | | | | |
German total | | 626 | | | 3,458 | | | 965 | | | 24 | | | 5,073 | |
| | | | | | | | | | | | | | | |
Non-German: | | | | | | | | | | | | | | | |
U.S. Treasury and other U.S. government agency debt securities | | 4 | | | — | | | — | | | — | | | 4 | |
Other government and official institution debt securities | | 221 | | | 469 | | | 523 | | | 102 | | | 1,315 | |
Corporate debt securities | | 507 | | | 2,841 | | | 1,961 | | | 181 | | | 5,490 | |
Mortgage-backed and other debt securities | | — | | | 2 | | | 8 | | | 3 | | | 13 | |
| | | | | | | | | | | | | | | |
Non-German total | | 732 | | | 3,312 | | | 2,492 | | | 286 | | | 6,822 | |
| | | | | | | | | | | | | | | |
Total securities available-for-sale | | 1,358 | | | 6,770 | | | 3,457 | | | 310 | | | 11,895 | |
| | | | | | | | | | | | | | | |
Weighted average yield in % | | 4.4 | % | | 4.6 | % | | 4.1 | % | | 4.5 | % | | 4.4 | % |
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, loans carried at fair value through income, 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.
| | | | | | | | | | | |
| | | As of December 31, |
| | | 2007 | | 2006 | | 2005 | | 2004 | | | 2003 |
| | | € mn | | € mn | | € mn | | € mn | | | € mn |
German: | | | | | | | | | | | |
Corporate: | | | | | | | | | | | |
Manufacturing | | 6,726 | | 6,024 | | 4,953 | | 6,487 | | | 8,042 |
Construction | | 1,108 | | 744 | | 653 | | 811 | | | 1,062 |
Wholesale and retail trade | | 4,935 | | 4,282 | | 4,646 | | 4,125 | | | 4,275 |
Financial institutions (excluding banks) and insurance companies | | 4,955 | | 4,675 | | 3,144 | | 2,005 | | | 2,958 |
Banks | | 2,102 | | 1,706 | | 1,767 | | 1,152 | | | 276 |
Service providers: | | | | | | | | | | | |
Telecommunication | | 89 | | 471 | | 599 | | 362 | | | 58 |
Transportation | | 1,762 | | 1,339 | | 1,242 | | 1,068 | | | 877 |
Other Service Providers | | 7,295 | | 7,872 | | 8,536 | | 10,488 | | | 12,017 |
Total Service providers | | 9,146 | | 9,682 | | 10,377 | | 11,918 | | | 12,952 |
Other | | 4,148 | | 2,902 | | 2,142 | | 1,901 | | | 2,280 |
| | | | | | | | | | | |
Corporate total | | 33,120 | | 30,015 | | 27,682 | | 28,399 | | | 31,845 |
| | | | | | | | | | | |
Public authorities | | 182 | | 292 | | 286 | | 531 | | | 548 |
Private individuals (including self-employed professionals) | | | | | | | | | | | |
Residential mortgage loans | | 20,331 | | 20,978 | | 21,367 | | 22,361 | | | 22,526 |
Consumer installment loans | | 1,299 | | 1,505 | | 2,279 | | 2,474 | | | 2,818 |
Other | | 14,854 | | 15,305 | | 15,328 | | 14,640 | | | 15,491 |
Total Private individuals (including self-employed professionals) | | 36,484 | | 37,788 | | 38,974 | | 39,475 | | | 40,835 |
| | | | | | | | | | | |
German total | | 69,786 | | 68,095 | | 66,942 | | 68,405 | | | 73,228 |
| | | | | | | | | | | |
Non-German: | | | | | | | | | | | |
Corporate: | | | | | | | | | | | |
Manufacturing(1) | | 3,615 | | 4,135 | | 3,114 | | 3,951 | | | 4,748 |
Construction(1) | | 354 | | 409 | | 230 | | 413 | | | 2,460 |
Wholesale and retail trade | | 992 | | 1,301 | | 1,409 | | 1,307 | | | 1,067 |
Financial institutions (excluding banks) and insurance companies | | 14,639 | | 17,822 | | 10,579 | | 8,886 | | | 6,627 |
Banks | | 9,883 | | 6,000 | | 5,392 | | 5,095 | | | 3,704 |
Service providers: | | | | | | | | | | | |
Telecommunication | | 173 | | 125 | | 1,162 | | 622 | | | 694 |
Transportation | | 2,769 | | 2,192 | | 1,737 | | 976 | | | 2,024 |
Other Service Providers | | 4,573 | | 4,617 | | 2,915 | | 1,839 | | | 3,377 |
Total Service Providers | | 7,515 | | 6,934 | | 5,814 | | 3,437 | | | 6,095 |
Other | | 4,664 | | 5,550 | | 5,087 | | 4,489 | | | 5,798 |
| | | | | | | | | | | |
Corporate total | | 41,662 | | 42,151 | | 31,625 | | 27,578 | | | 30,499 |
| | | | | | | | | | | |
Public authorities | | 335 | | 1,520 | | 803 | | 1,819 | | | 598 |
Private individuals (including self-employed professionals) | | | | | | | | | | | |
Residential mortgage loans | | 714 | | 699 | | 613 | | 662 | (2) | | 9,145 |
Consumer installment loans | | 116 | | 92 | | 81 | | 499 | | | 448 |
Other | | 1,360 | | 1,257 | | 1,169 | | 727 | | | 1,903 |
Total Private individuals (including self-employed professionals) | | 2,190 | | 2,048 | | 1,863 | | 1,888 | (2) | | 11,496 |
| | | | | | | | | | | |
Non-German total | | 44,187 | | 45,719 | | 34,291 | | 31,285 | | | 42,593 |
| | | | | | | | | | | |
Total loans | | 113,973 | | 113,814 | | 101,233 | | 99,690 | | | 115,821 |
| | | | | | | | | | | |
(1)
| The decrease in the non-German Corporate Construction and Manufacturing loan category from 2003 to 2004 is primarily attributable to the reduction of our foreign non-strategic loan business.
|
(2)
| The decrease in the residential mortgage loans balance and the non-German private individuals loans balance from 2003 to 2004 is primarily attributable to the sale of our banking subsidiary Entenial in January 2004.
|
The following table sets forth our banking operations’ mortgage loans and finance leases that are included within the above analysis of loans.
| | | | | | | | | | |
| | | As of December 31, |
| | | 2007 | | 2006 | | 2005 | | 2004 | | 2003 |
| | | € mn | | € mn | | € mn | | € mn | | € mn |
Mortgage loans | | 24,145 | | 25,184 | | 25,877 | | 28,193 | | 38,191 |
Finance leases | | 1,218 | | 2,081 | | 1,500 | | 1,248 | | 933 |
Loan Concentrations
Although our loan portfolio is diversified across more than 138 countries, at December 31, 2007 approximately 61.2% of our total loans were to borrowers in Germany. At December 31, 2007, our largest credit exposures to borrowers in Germany were loans to private individuals (including self-employed professionals) constituting 52.3% of German loans; this category represented 32.0% of our total loans outstanding at December 31, 2007. Approximately 55.7% of these loans are residential mortgage loans, which represent approximately 17.8% of our total loans outstanding at December 31, 2007. 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, and no one sector is individually significant to our domestic loan portfolio. We have no concentrations of loans to borrowers in any services industry in excess of ten percent of our total loans.
At December 31, 2007, approximately 8.0% of our total loans were to German corporate customers in various service industries, including utilities, media, transportation and other.
At December 31, 2007, approximately 15.0% of our total loans were to non-financial corporate borrowers outside Germany. These loans are well- diversified across various commercial industries, including:
| | | |
| | As of
December 31,
2007 | |
| | Percent of
Total Loans | |
Manufacturing
| | 3.2 | % |
Construction
| | 0.3 | % |
Wholesale and retail trade
| | 0.9 | % |
Telecommunications
| | 0.2 | % |
Transportation
| | 2.4 | % |
Other service providers(1)
| | 4.0 | % |
Other(2)
| | 4.1 | % |
(1)
| Other services providers include media, utilities, natural resources and other services.
|
(2)
| There are no significant concentrations of loans in any industry included in other non-financial corporate borrowers outside Germany.
|
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, 2007. The allocation between German and non-German components is based on the domicile of the borrower.
| | | | | | | | |
| | | As of December 31, 2007 |
| | | 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 | | 3,433 | | 1,946 | | 1,347 | | 6,726 |
Construction | | 416 | | 604 | | 88 | | 1,108 |
Wholesale and retail trade | | 3,042 | | 1,275 | | 618 | | 4,935 |
Financial institutions (excluding banks) and insurance companies | | 2,149 | | 2,511 | | 295 | | 4,955 |
Banks | | 558 | | 819 | | 725 | | 2,102 |
Service providers: | | | | | | | | |
Telecommunication | | 40 | | 23 | | 26 | | 89 |
Transportation | | 710 | | 558 | | 494 | | 1,762 |
Other service providers | | 2,148 | | 2,980 | | 2,167 | | 7,295 |
Total service providers | | 2,898 | | 3,561 | | 2,687 | | 9,146 |
Other | | 1,988 | | 1,433 | | 727 | | 4,148 |
| | | | | | | | |
Corporate total | | 14,484 | | 12,149 | | 6,487 | | 33,120 |
| | | | | | | | |
Public authorities | | 91 | | 58 | | 33 | | 182 |
Private individuals (including self-employed professionals): | | | | | | | | |
Residential mortgage loans | | 1,982 | | 3,483 | | 14,866 | | 20,331 |
Consumer installment loans | | 1,299 | | — | | — | | 1,299 |
Other | | 2,357 | | 4,052 | | 8,445 | | 14,854 |
Total private individuals (including self-employed professionals) | | 5,638 | | 7,535 | | 23,311 | | 36,484 |
| | | | | | | | |
German total | | 20,213 | | 19,742 | | 29,831 | | 69,786 |
| | | | | | | | |
Non-German: | | | | | | | | |
Corporate: | | | | | | | | |
Manufacturing industry | | 1,144 | | 1,656 | | 815 | | 3,615 |
Construction | | 21 | | 186 | | 147 | | 354 |
Wholesale and retail trade | | 258 | | 214 | | 520 | | 992 |
Service Providers: | | | | | | | | |
Telecommunication | | 65 | | 18 | | 90 | | 173 |
Transportation | | 497 | | 977 | | 1,295 | | 2,769 |
Other service providers | | 1,908 | | 1,833 | | 832 | | 4,573 |
Total service providers | | 2,470 | | 2,828 | | 2,217 | | 7,515 |
Total manufacturing industry, construction, wholesale and retail trade and service providers | | 3,893 | | 4,884 | | 3,699 | | 12,476 |
Financial institutions (excluding banks) and insurance companies | | 7,484 | | 5,191 | | 1,964 | | 14,639 |
Banks | | 7,613 | | 2,114 | | 156 | | 9,883 |
Other | | 1,369 | | 2,214 | | 1,081 | | 4,664 |
| | | | | | | | |
Corporate total | | 20,359 | | 14,403 | | 6,900 | | 41,662 |
| | | | | | | | |
Public authorities | | 214 | | 61 | | 60 | | 335 |
Private individuals (including self-employed professionals): | | | | | | | | |
Residential mortgage loans | | 73 | | 444 | | 197 | | 714 |
Consumer installment loans | | 48 | | 65 | | 3 | | 116 |
Other | | 600 | | 324 | | 436 | | 1,360 |
Total private individuals | | 721 | | 833 | | 636 | | 2,190 |
| | | | | | | | |
Non-German total | | 21,294 | | 15,297 | | 7,596 | | 44,187 |
| | | | | | | | |
Total loans | | 41,507 | | 35,039 | | 37,427 | | 113,973 |
| | | | | | | | |
The following table sets forth the total amount of loans with predetermined interest rates and floating or adjustable interest rates that, at December 31, 2007, are due after one year. 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.
| | | | | | |
| | | As of December 31, 2007 |
| | | Loans with
Predetermined
Interest Rates | | Loans with
Floating or
Adjustable
Interest Rates | | Total |
| | | € mn | | € mn | | € mn |
German: | | | | | | |
Private individuals (including self-employed professionals) | | 27,503 | | 3,343 | | 30,846 |
Corporate and public customers | | 13,156 | | 5,571 | | 18,727 |
| | | | | | |
German total | | 40,659 | | 8,914 | | 49,573 |
| | | | | | |
Non-German: | | | | | | |
Private individuals (including self-employed professionals) | | 568 | | 901 | | 1,469 |
Corporate and public customers | | 9,225 | | 12,199 | | 21,424 |
| | | | | | |
Non-German total | | 9,793 | | 13,100 | | 22,893 |
| | | | | | |
Total | | 50,452 | | 22,014 | | 72,466 |
| | | | | | |
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.
| | | | | | | | | | |
| | | As of December 31, |
| | | 2007 | | 2006 | | 2005 | | 2004 | | 2003 |
| | | € mn | | € mn | | € mn | | € mn | | € mn |
Non-accrual loans(1): | | | | | | | | | | |
German | | 1,231 | | 1,570 | | 1,855 | | 4,774 | | 6,459 |
Non-German(2) | | 324 | | 231 | | 247 | | 831 | | 2,236 |
| | | | | | | | | | |
Total non-accrual loans | | 1,555 | | 1,801 | | 2,102 | | 5,605 | | 8,695 |
| | | | | | | | | | |
Loans past due 90 days and still accruing interest(1): | | | | | | | | | | |
German | | 176 | | 176 | | 251 | | 390 | | 477 |
Non-German | | 23 | | 14 | | 293 | | 321 | | 183 |
| | | | | | | | | | |
Total loans past due 90 days and still accruing interest | | 199 | | 190 | | 544 | | 711 | | 660 |
| | | | | | | | | | |
Troubled debt restructurings(1): | | | | | | | | | | |
German | | 24 | | 27 | | 31 | | 17 | | 26 |
Non-German | | 1 | | 1 | | 1 | | 54 | | 200 |
| | | | | | | | | | |
Total troubled debt restructurings | | 25 | | 28 | | 32 | | 71 | | 226 |
| | | | | | | | | | |
(1)
| The overall decline in the risk elements is predominantly driven by the disposal of non-strategic assets and the streamlining of the retail portfolio.
|
(2)
| The increase in non-German non-accrual loans from 2006 to 2007 is primarily attributable to impairments in connection with the failure of two major credit exposures.
|
Non-accrual Loans
Non-accrual loans are those for which interest or other income are no longer recognized on an accrual basis. Loans are placed 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 interest or other income received is recorded to the allowance for impairment of such loan and does not impact income while the loan remains impaired.
Loans Past Due 90 Days and Still Accruing Interest
Loans past due 90 days and still accruing interest are loans that are contractually 90 days or more past due 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 that, 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, 2007 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 was actually included in interest income during the year ended December 31, 2007.
| | | | | | |
| | | Years Ended
December 31, 2007 |
| | | 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 | | 65 | | 13 | | 78 |
Interest income actually recorded | | 11 | | 3 | | 14 |
Potential Problem Loans
Potential problem loans are loans that are not classified as non-performing loans, but for which known information about possible credit problems causes us to have serious 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.
Each of our potential problem loans has been subject to our regular credit-monitoring and review procedures.
The outstanding balance of our potential problem loans was €37 million at December 31, 2007, a decrease of €12 million, or 24.5% from €49 million at December 31, 2006. As a result of enhanced credit policies and processes adopted during the course of 2005, loans are now being categorized as non-performing loans earlier than in periods prior to 2005 which has contributed to the decline in potential problem loans. Moreover, we do not record potential problem loans within the homogeneous portfolio. The decline in the 2007 potential problem loans is mainly attributable to a reclassification of such loans at Banque AGF into the non-performing loans category.
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, 2007. For further information on the split between homogeneous and non-homogeneous loan portfolio see “—Summary of Loan Loss Experience.”
Approximately 5.5% 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 concentrated in the following geographic regions based on the domicile of the borrower:
| | | |
| | As of December 31, 2007 | |
| | Percent of Total
Potential Problem Loans | |
Asia / Pacific
| | 67 | % |
Latin America
| | 16 | % |
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-earning investments and 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, 2007, 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.
| | | | | | | | | | | | | | | |
| | | As of December 31, 2007 |
| | | Government
and Official
Institutions | | Banks and
Financial
Institutions | | Other(1) | | Net local
Country
Claims | | Total Cross-
border
Outstandings | | Percent
of Total
Assets(2), (3) | | | Cross-border
Commitments(4) |
| | | € mn | | € mn | | € mn | | € mn | | € mn | | | | | € mn |
Country | | | | | | | | | | | | | | | |
United States | | 7 | | 7,614 | | 7,480 | | 7,185 | | 22,286 | | 4.40 | % | | 4,332 |
United Kingdom | | 891 | | 17,882 | | 9,320 | | 314 | | 28,407 | | 5.61 | % | | 10,691 |
France | | 376 | | 5,302 | | 2,886 | | — | | 8,564 | | 1.69 | % | | 2,137 |
Italy | | 1,516 | | 1,499 | | 3,027 | | 134 | | 6,176 | | 1.22 | % | | 5,648 |
Netherlands | | 3 | | 1,929 | | 2,093 | | — | | 4,025 | | 0.80 | % | | 592 |
Switzerland | | 67 | | 2,239 | | 1,682 | | — | | 3,988 | | 0.79 | % | | 706 |
Cayman Islands | | — | | 136 | | 9,746 | | — | | 9,882 | | 1.95 | % | | 3,286 |
Ireland | | — | | 1,151 | | 7,110 | | — | | 8,261 | | 1.63 | % | | 531 |
Luxemburg | | — | | 2,533 | | 2,347 | | 29 | | 4,909 | | 0.97 | % | | 568 |
| | | | | | | | | | | | | | | |
| | | As of December 31, 2006 |
| | | Government
and Official
Institutions | | Banks and
Financial
Institutions | | Other(1) | | Net local
Country
Claims | | Total Cross-
border
Outstandings | | Percent
of Total
Assets(2), (3) | | | Cross-border
Commitments(4) |
| | | € mn | | € mn | | € mn | | € mn | | € mn | | | | | € mn |
Country | | | | | | | | | | | | | | | |
United States | | 45 | | 3,194 | | 13,320 | | — | | 16,559 | | 2.96 | % | | 22,751 |
United Kingdom | | — | | 4,512 | | 7,178 | | 55 | | 11,745 | | 2.1 | % | | 22,104 |
France | | 1,465 | | 5,071 | | 3,798 | | — | | 10,334 | | 1.85 | % | | 11,714 |
Italy | | 1,257 | | 1,413 | | 1,510 | | — | | 4,180 | | 0.75 | % | | 9,965 |
Netherlands | | — | | 1,779 | | 3,388 | | — | | 5,167 | | 0.92 | % | | 5,774 |
Switzerland | | 23 | | 4,046 | | 1,790 | | — | | 5,859 | | 1.05 | % | | 6,463 |
Cayman Islands | | — | | 8 | | 11,349 | | 3 | | 11,360 | | 2.03 | % | | 14,698 |
Ireland | | 2 | | 1,577 | | 5,094 | | — | | 6,673 | | 1.19 | % | | 7,289 |
| | | | | | | | | | | | | | | |
| | | As of 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), (3) | | | Cross-border
Commitments(4) |
| | | € mn | | € mn | | € mn | | € mn | | € mn | | | | | € mn |
Country | | | | | | | | | | | | | | | |
United States | | 60 | | 1,849 | | 16,704 | | — | | 18,613 | | 3.49 | % | | 3,325 |
United Kingdom | | — | | 2,672 | | 6,665 | | 84 | | 9,421 | | 1.76 | % | | 9,423 |
France | | 3,443 | | 3,082 | | 3,611 | | 14 | | 10,150 | | 1.90 | % | | 2,765 |
Italy | | 1,826 | | 1,682 | | 1,665 | | 543 | | 5,716 | | 1.07 | % | | 6,428 |
Cayman Islands | | 9,656 | | 87 | | 1,114 | | — | | 10,857 | | 2.03 | % | | 2,370 |
(1)
| “Other” includes insurance, commercial, industrial, service providers and other corporate counterparties.
|
(2)
| Percent of total assets is defined as total cross-border outstandings divided by total assets of our banking operations. The total assets of our banking operations were €506 billion, €560 billion and €534 billion at December 31, 2007, 2006 and 2005, respectively.
|
(3)
| Prior year figures for total assets have been revised to conform to current year presentation.
|
(4)
| Cross-border commitments have been presented separately as they are not included as cross-border outstandings unless utilized.
|
At December 31, 2007 and 2006, there were no material cross-border outstandings disclosed above that were also disclosed within the category of non-performing and potential problem loans.
Summary of Loan Loss Experience
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 is recorded when there is objective evidence of a loss event, and it is probable that, due to that loss event, 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 non-homogeneous portion. The homogeneous portion includes only loans in the domestic private banking business with gross risk less than €1 million.
We calculate an allowance for each of the following risks that are allocable to identified loans or groups of loans in our portfolio:
A specific loan loss allowance for impaired loans within the non-homogeneous portfolio,
A portfolio loan loss allowance for loans within our homogeneous portfolio,
A general loan loss allowance for impairments that have been incurred but not yet identified within the non-homogeneous portfolio; and
An allowance for transfer risk, or country risk allowances.
The loan loss allowance for the homogeneous portfolio is established on a portfolio basis, while the non-homogeneous portfolio is assessed both, on a single transaction and on a portfolio basis.
In order to avoid layering or double counting of specific, portfolio and general loan loss allowances, only those loans that have not been deemed impaired under International Accounting Standards Board’s International Accounting Standard (or “IAS”) 39Financial Instruments: Recognition and Measurementare 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 non-homogeneous. Loans included within our Investment Banking division, as well as loans to borrowers within the Private & Corporate Clients division with gross risk equal to or greater than €1 million are classified as non-homogeneous, and are therefore evaluated individually. All remaining loans, i.e. loans to borrowers within the Private & Corporate Clients division with gross risk less than €1 million, form the homogeneous portfolio. These loans are evaluated on a portfolio-based approach. Prior to 2005, 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.
A specific loan loss allowance is established to provide for specifically identified counterparty risks within the non-homogeneous loan portfolio. Loans are identified as impaired if there are serious doubts that borrowers will be able to make their contractually agreed-upon interest and principal payments. We calculate the specific loan loss allowance for impaired loans by using the “present value” method based on the guidance provided in IAS 39 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.
Based on IAS 39 (AG 93) interest income on individually impaired loans that have been called in only results from unwinding the discount of the cash flows expected to be received on those loans. The interest rate that has been used to determine the impairment, i.e. the historical effective interest rate, is applied to determine interest income. Income from unwinding is recorded as interest income, reducing the impairment amount only, and consequently the gross loan amount remains unchanged.
We use an internal credit rating system 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 lowest rating categories 15 and 16 are impaired loans under IAS 39. Our internal rating system is subject to continuous improvement to reflect current market conditions.
Portfolio Loan Loss Allowance
As commenced in 2005, we determine loan loss allowances for all loans allocated to the homogeneous portfolio within our Private and Corporate Clients division (e.g. for mortgage loans and installment loans) with gross risk below €1 million by using a 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 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. Portfolio allowances are presented within the respective risk category.
General Loan Loss Allowance
General loan loss allowances are established to provide for incurred but unidentified losses that are inherent in the non-homogeneous loan portfolio as well as in the total (homogeneous and non-homogeneous) transfer risk portfolio as of the relevant balance sheet date. The general loan loss allowance includes 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, rating 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 as well as management’s assessment of current events and economic conditions when determining 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
We establish country risk allowances for convertibility and transfer risk. Convertibility and transfer risk is a measure of the likely ability of a borrower in a certain country to repay its cross-border obligations. A cross-border transaction exists if the country of cash flow of the lender is not identical with the country of cash flow of the borrower. Country risk allowances are presented within the specific or general risk category, as appropriate.
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 regularly updated to reflect current market conditions.
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.
Movements in Loan Loss Allowance
We record increases to our allowance for loan losses as an expense. Releases have a positive impact on income , whereas write-offs of loan balances do not affect income. We write-off loan balances only if all economically sensible means of recovery have been exhausted or, depending on the type of collateral, internal write off takes place within a clearly defined period. Charge-offs directly deduct the total loan amount and reduce income immediately. Recoveries are collections of amounts previously written off, and have direct impact on income.
Our total loan portfolio increased by €159 million, or 0.1%, to €113,973 million at December 31, 2007 from €113,814 million at
December 31, 2006. As a result of the wind-down of our non-strategic loan portfolio, non-performing loans and potential problem loans have been significantly reduced since 2004. Our non-performing loans decreased by €238 million, or 11.8%, while our potential problem loans were reduced by €12 million, or 23.8%, from December 31, 2006 to December 31, 2007. Our specific loan loss provisions slightly increased by €17 million, or 3.9% from €431 million to €448 million at December 31, 2007, related to provisions in connection with a single major credit exposure.
Our general loan loss allowance diminished by €142 million, or 29.2%, during 2007 to €345 million at December 31, 2007, compared to €487 million at December 31, 2006.
Furthermore, following the approval of new internal models for expected losses which we also use for Basel II, our assumptions regarding the provisioning for the general loan loss provision turned out to be more cautious than necessary and were revised accordingly.
The average credit rating of loans in our portfolio based on our internal rating system has shown steady improvement in recent years. Our total loan loss allowance as a percentage of total loans has decreased to 0.7% at December 31, 2007, compared to 0.9% at December 31, 2006, and 1.6% at December 31, 2005.
We believe the level of our total loan loss allowance is adequate in comparison to our historical net loan loss experience.
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.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | As of December 31, | |
| | | 2007 | | | 2006 | | | 2005 | | | 2004 | | | 2003 | |
| | | 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 | | 39 | | 5.9 | % | | 70 | | 5.3 | % | | 105 | | 4.9 | % | | 447 | | 6.5 | % | | 687 | | 6.9 | % |
Construction | | 32 | | 1.0 | % | | 39 | | 0.7 | % | | 63 | | 0.6 | % | | 230 | | 0.8 | % | | 256 | | 0.9 | % |
Wholesale and retail trade | | 26 | | 4.3 | % | | 29 | | 3.8 | % | | 63 | | 4.6 | % | | 271 | | 4.1 | % | | 382 | | 3.7 | % |
Financial institutions (excluding banks) and insurance companies | | 17 | | 4.3 | % | | 9 | | 4.1 | % | | 21 | | 3.1 | % | | 83 | | 2.0 | % | | 94 | | 2.6 | % |
Banks | | — | | 1.8 | % | | — | | 1.5 | % | | 1 | | 1.7 | % | | 2 | | 1.2 | % | | 1 | | 0.2 | % |
Service providers | | | | | | | | | | | | | | | | | | | | | | | | | |
Telecommuni- cation | | — | | 0.1 | % | | — | | 0.4 | % | | — | | 0.6 | % | | 4 | | 0.4 | % | | 7 | | 0.1 | % |
Transportation | | 1 | | 1.5 | % | | 2 | | 1.2 | % | | 4 | | 1.2 | % | | 30 | | 1.1 | % | | 34 | | 0.8 | % |
Other Service Providers | | 24 | | 6.4 | % | | 67 | | 6.9 | % | | 183 | | 8.4 | % | | 503 | | 10.5 | % | | 726 | | 10.4 | % |
Total Service Providers | | 25 | | | | | 69 | | 8.5 | % | | 187 | | 10.3 | % | | 537 | | 12.0 | % | | 767 | | 11.2 | % |
Other | | 16 | | 3.6 | % | | 14 | | 2.5 | % | | 41 | | 2.1 | % | | 34 | | 1.9 | % | | 39 | | 2.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Corporate total | | 155 | | 29.1 | % | | 230 | | 26.4 | % | | 481 | | 27.3 | % | | 1,604 | | 28.5 | % | | 2,226 | | 27.5 | % |
Public authorities | | — | | 0.2 | % | | — | | 0.3 | % | | — | | 0.3 | % | | — | | 0.5 | % | | — | | 0.5 | % |
Private individuals (including self-employed professionals) | | 59 | | 32.0 | % | | 76 | | 33.2 | % | | 115 | | 38.5 | % | | 1,211 | | 39.6 | % | | 1,409 | | 35.3 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
German total | | 214 | | 61.2 | % | | 306 | | 59.8 | % | | 596 | | 66.1 | % | | 2,815 | | 68.6 | % | | 3,635 | | 63.2 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | As of December 31, | |
| | | 2007 | | | 2006 | | | 2005 | | | 2004 | | | 2003 | |
| | | 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 | | | |
Non-German: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Corporate: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Manufacturing, service providers | | 14 | | | 3.2 | % | | 13 | | | 3.6 | % | | 9 | | | 3.1 | % | | 53 | | 4.0 | % | | 105 | | 4.1 | % |
Construction | | 15 | | | 0.3 | % | | 15 | | | 0.4 | % | | 16 | | | 0.2 | % | | 19 | | 0.4 | % | | 67 | | 2.1 | % |
Wholesale and retail trade | | 3 | | | 0.9 | % | | 9 | | | 1.1 | % | | 3 | | | 1.4 | % | | 93 | | 1.3 | % | | 98 | | 0.9 | % |
Financial institutions (excluding banks) and insurance companies | | 116 | | | 12.8 | % | | 11 | | | 15.7 | % | | 12 | | | 10.5 | % | | 133 | | 8.9 | % | | 262 | | 5.7 | % |
Banks | | 3 | | | 8.7 | % | | 3 | | | 5.3 | % | | 59 | | | 5.3 | % | | 14 | | 5.1 | % | | 175 | | 3.2 | % |
Service providers | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Telecommuni- cation | | — | | | 0.2 | % | | — | | | 0.1 | % | | — | | | 1.1 | % | | 19 | | 0.6 | % | | 61 | | 0.6 | % |
Transportation | | 30 | | | 2.4 | % | | 5 | | | 1.9 | % | | 10 | | | 1.7 | % | | 16 | | 1.0 | % | | 81 | | 1.7 | % |
Other Service Providers | | 35 | | | 4.0 | % | | 11 | | | 4.1 | % | | 13 | | | 2.9 | % | | 6 | | 1.8 | % | | 80 | | 2.9 | % |
Total Service Providers | | 65 | | | 6.6 | % | | 16 | | | 6.1 | % | | 23 | | | 5.7 | % | | 41 | | 3.4 | % | | 222 | | 5.3 | % |
Other | | 9 | | | 4.1 | % | | 44 | | | 4.9 | % | | 8 | | | 5.0 | % | | 77 | | 4.5 | % | | 157 | | 5.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Corporate total | | 225 | | | 36.6 | % | | 111 | | | 37.0 | % | | 130 | | | 31.2 | % | | 430 | | 27.7 | % | | 1,086 | | 26.3 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Public authorities | | — | | | 0.3 | % | | — | | | 1.3 | % | | — | | | 0.8 | % | | — | | 1.8 | % | | 8 | | 0.5 | % |
Private individuals (including self-employed professionals) | | 9 | | | 1.9 | % | | 14 | | | 1.8 | % | | 26 | | | 1.8 | % | | 47 | | 1.9 | % | | 143 | | 9.9 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Non-German total | | 234 | | | 38.8 | % | | 125 | | | 40.2 | % | | 156 | | | 33.9 | % | | 477 | | 31.4 | % | | 1,237 | | 36.8 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total specific loan loss allowances | | 448 | | | 100 | % | | 431 | | | 100.0 | % | | 752 | | | 100.0 | % | | 3,292 | | 100.0 | % | | 4,872 | | 100.0 | % |
General loan loss allowances(2) | | 345 | (1) | | | | | 582 | (1) | | | | | 844 | (1) | | | | | 817 | | | | | 848 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total loan loss allowances | | 793 | | | | | | 1,013 | | | | | | 1,596 | | | | | | 4,109 | | | | | 5,720 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(1)
| The general loan loss allowances for the years 2007, 2006 and 2005 include the portfolio loan loss allowance.
|
(2)
| For reasons of simplicity and materiality and to reflect our current reserving process, the category Country Risk Allowance, disclosed separately in previous years´ financial statements, will be from now on allocated to the categories of specific and general allowances, using objective criteria. The amounts of €95 mn, €225 mn, €252 mn and €259 mn as of December 31, 2006, 2005, 2004 and 2003 have been re-allocated to general allowance.
|
The following table sets forth the movements in the loan loss allowance according to the industry sector and geographic category of the borrower. The allocation between German and non-German components is based on the domicile of the borrower.
| | | | | | | | | | |
| | | Years Ended December 31, |
| | | 2007 | | 2006 | | 2005 | | 2004 | | 2003 |
| | | € mn | | € mn | | € mn | | € mn | | € mn |
Total allowances for loan losses at beginning of the year | | 1,012 | | 1,596 | | 4,109 | | 5,720 | | 6,966 |
Gross charge-offs: | | | | | | | | | | |
German: | | | | | | | | | | |
Corporate: | | | | | | | | | | |
Manufacturing | | 43 | | 69 | | 366 | | 217 | | 146 |
Construction | | 15 | | 33 | | 193 | | 53 | | 72 |
Wholesale and retail trade | | 21 | | 53 | | 233 | | 169 | | 113 |
Financial institutions (excluding banks) and insurance companies | | 3 | | 22 | | 87 | | 31 | | 28 |
Banks | | — | | — | | — | | — | | 7 |
Service providers | | | | | | | | | | |
Telecommunication | | — | | — | | 2 | | — | | 41 |
Transportation | | 3 | | 6 | | 24 | | 11 | | 13 |
Other Service Providers | | 41 | | 84 | | 414 | | 475 | | 180 |
Total Service Providers | | 44 | | 90 | | 440 | | 486 | | 234 |
Other | | 6 | | 5 | | 21 | | 21 | | 53 |
| | | | | | | | | | |
Corporate total | | 132 | | 272 | | 1,340 | | 977 | | 653 |
Private individuals (including self-employed professionals) | | 200 | | 229 | | 1,156 | | 404 | | 590 |
| | | | | | | | | | |
German total | | 332 | | 501 | | 2,496 | | 1,381 | | 1,243 |
| | | | | | | | | | |
Non-German: | | | | | | | | | | |
Corporate: | | | | | | | | | | |
Manufacturing | | 3 | | — | | 51 | | 51 | | 41 |
Construction | | — | | 4 | | 2 | | 3 | | 13 |
Wholesale and retail trade | | 5 | | 1 | | 31 | | 21 | | 80 |
Financial institutions (excluding banks) and insurance companies | | — | | 51 | | 28 | | 46 | | 9 |
Banks | | — | | 43 | | 1 | | 70 | | 52 |
Service providers | | | | | | | | | | |
Telecommunication | | — | | — | | 24 | | 29 | | 44 |
Transportation | | — | | 1 | | 23 | | 26 | | 9 |
Other Service Providers | | — | | — | | 26 | | 98 | | 45 |
Total Service Providers | | — | | 1 | | 73 | | 153 | | 98 |
Other | | — | | 8 | | 22 | | 107 | | 391 |
| | | | | | | | | | |
Corporate total | | 8 | | 108 | | 208 | | 451 | | 684 |
Public authorities | | — | | — | | — | | 4 | | 1 |
Private individuals (including self-employed professionals) | | 4 | | 5 | | 22 | | 14 | | 43 |
| | | | | | | | | | |
Non-German total | | 12 | | 113 | | 230 | | 469 | | 728 |
| | | | | | | | | | |
Total gross charge-offs | | 344 | | 614 | | 2,726 | | 1,850 | | 1,971 |
| | | | | | | | | | |
Recoveries: | | | | | | | | | | |
German: | | | | | | | | | | |
Corporate: | | | | | | | | | | |
Manufacturing | | 18 | | 11 | | — | | 3 | | 1 |
Construction | | 7 | | 4 | | — | | — | | — |
Wholesale and retail trade | | 9 | | 6 | | — | | 2 | | — |
Financial institutions (excluding banks) and insurance companies | | 1 | | 2 | | — | | — | | — |
Service providers | | | | | | | | | | |
Transportation | | 1 | | — | | 1 | | — | | 1 |
Other Service providers | | 12 | | 15 | | 26 | | 4 | | 3 |
Total Service providers | | 13 | | 15 | | 27 | | 4 | | 4 |
Other | | 1 | | — | | — | | 1 | | — |
| | | | | | | | | | |
Corporate total | | 49 | | 38 | | 27 | | 10 | | 5 |
Private individual (including self-employed professionals) | | 120 | | 109 | | 61 | | 34 | | 24 |
| | | | | | | | | | |
German total | | 169 | | 147 | | 88 | | 44 | | 29 |
| | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | Years Ended December 31, | |
| | | 2007 | | | 2006 | | | 2005 | | | 2004 | | | 2003 | |
| | | € mn | | | € mn | | | € mn | | | € mn | | | € mn | |
Non-German: | | | | | | | | | | | | | | | |
Corporate: | | | | | | | | | | | | | | | |
Manufacturing | | 1 | | | — | | | — | | | 1 | | | 15 | |
Construction | | — | | | — | | | — | | | — | | | 2 | |
Wholesale and retail trade | | — | | | — | | | 2 | | | — | | | 4 | |
Financial institutions (excluding banks) and insurance companies | | 12 | | | — | | | 1 | | | 1 | | | — | |
Banks | | — | | | 2 | | | — | | | 7 | | | — | |
Service providers | | | | | | | | | | | | | | | |
Telecommunication | | — | | | 1 | | | — | | | 1 | | | 3 | |
Transportation | | — | | | — | | | — | | | 4 | | | — | |
Other Service Providers | | — | | | — | | | — | | | 3 | | | — | |
Total Service Providers | | — | | | 1 | | | — | | | 8 | | | 3 | |
Other | | 15 | | | 19 | | | 8 | | | 44 | | | 20 | |
| | | | | | | | | | | | | | | |
Corporate total | | 28 | | | 22 | | | 11 | | | 61 | | | 44 | |
Public authorities | | — | | | 9 | | | — | | | 5 | | | — | |
Private individuals (including self-employed professionals) | | (1 | ) | | 2 | | | 4 | | | 5 | | | — | |
| | | | | | | | | | | | | | | |
Non-German total | | 27 | | | 33 | | | 15 | | | 71 | | | 44 | |
| | | | | | | | | | | | | | | |
Total recoveries | | 196 | | | 180 | | | 103 | | | 115 | | | 73 | |
| | | | | | | | | | | | | | | |
Net charge-offs(1) | | 148 | | | 434 | | | 2,623 | | | 1,735 | | | 1,898 | |
| | | | | | | | | | | | | | | |
Additions to allowances charged to operations | | (77 | ) | | (2 | ) | | (49 | ) | | 272 | | | 979 | |
(Decreases)/Increases in allowances due to (dispositions)/acquisitions of Allianz Group companies and other increases/(decreases) | | 20 | | | (134 | ) | | 122 | | | (106 | )(2) | | (55 | ) |
Foreign exchange translation adjustments | | (14 | ) | | (14 | ) | | 37 | | | (42 | ) | | (272 | ) |
| | | | | | | | | | | | | | | |
Total allowances for loan losses at end of the year(3) | | 793 | | | 1,012 | | | 1,596 | | | 4,109 | | | 5,720 | |
| | | | | | | | | | | | | | | |
Ratio of net charge-offs during the year to average loans outstanding during the year(4) | | 0.08 | % | | 0.26 | % | | 1.83 | % | | 1.23 | % | | 1.22 | % |
(1)
| The decrease of net charge-offs since 2005 is attributable to the improved quality of the loan portfolio due to the prior year’s reduction of the portfolio within our non-strategic business. The increase in net charge-offs and the decline of the total allowances for loan losses at year-end 2005 is primarily attributable to the reduction of the portfolio within our non-strategic business.
|
(2)
| In 2004, the impact of dispositions on our allowances was primarily attributable to the sale of our banking subsidiary Entenial in January 2004.
|
(3)
| The decline of allowances since 2005 is related to the change in charge-off methodology implemented in 2005 as further discussed in “—Summary of Loan Loss Experience—Portfolio Loan Loss Analysis”.
|
(4)
| Certain prior year figures have been revised to conform to current year presentation.
|
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.
| | | | | | | | | | | | | | | |
| | | Years Ended December 31, | |
| | | 2007 | | | 2006 | | | 2005 | |
| | | Average
Balance | | Average
Rate | | | Average
Balance | | Average
Rate | | | Average
Balance | | Average
Rate | |
| | | € mn | | | | | € mn | | | | | € mn | | | |
German: | | | | | | | | | | | | | | | |
Non-interest-bearing demand deposits | | 29,961 | | | | | 27,389 | | | | | 26,805 | | | |
Interest-bearing demand deposits | | 38,579 | | 3.7 | % | | 35,789 | | 3.5 | % | | 36,274 | | 2.7 | % |
Savings deposits | | 4,560 | | 2.5 | % | | 4,726 | | 2.5 | % | | 4,768 | | 2.5 | % |
Time deposits | | 79,029 | | 4.5 | % | | 78,104 | | 3.3 | % | | 86,911 | | 2.7 | % |
| | | | | | | | | | | | | | | |
German total | | 152,129 | | | | | 146,008 | | | | | 154,758 | | | |
| | | | | | | | | | | | | | | |
Non-German: | | | | | | | | | | | | | | | |
Non-interest-bearing demand deposits | | 7,933 | | | | | 7,529 | | | | | 7,310 | | | |
Interest-bearing demand deposits | | 12,561 | | 5.5 | % | | 14,657 | | 4.5 | % | | 11,769 | | 5.0 | % |
Savings deposits | | 487 | | 2.7 | % | | 490 | | 2.3 | % | | 513 | | 2.2 | % |
Time deposits(1) | | 49,053 | | 5.2 | % | | 45,698 | | 6.0 | % | | 49,049 | | 3.9 | % |
| | | | | | | | | | | | | | | |
Non-German total | | 70,034 | | | | | 68,374 | | | | | 68,641 | | | |
| | | | | | | | | | | | | | | |
Total deposits | | 222,163 | | | | | 214,382 | | | | | 223,399 | | | |
| | | | | | | | | | | | | | | |
(1)
| Certain prior year figures have been revised to conform to current year presentation.
|
The aggregate amount of deposits by foreign depositors in our German offices was €43,437 million, €49,190 million and €48,675 million at December 31, 2007, 2006 and 2005, 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, 2007.
| | |
| | As of December 31, 2007 |
| | Time Deposits of
€100,000 or more |
| | € mn |
Maturing in three months or less
| | 66,345 |
Maturing in over three months through six months
| | 6,798 |
Maturing in over six months through twelve months
| | 3,628 |
Maturing in over twelve months
| | 2,795 |
| | |
Total
| | 79,566 |
| | |
The amount of time deposits of €100,000 or more issued by our non-German offices was €29,998 million at December 31, 2007.
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.
| | | | | | | | | |
| | | Years Ended December 31, | |
| | | 2007 | | | 2006 | | | 2005 | |
| | | € mn | | | € mn | | | € mn | |
Securities sold under repurchase agreements(1), (2): | | | | | | | | | |
Balance at the end of the year | | 93,070 | | | 139,794 | | | 115,255 | |
Monthly average balance outstanding during the year | | 147,392 | | | 144,007 | | | 145,450 | |
Maximum balance outstanding at any period end during the year | | 167,132 | | | 156,833 | | | 174,097 | |
Weighted average interest rate during the year | | 4.6 | % | | 3.3 | % | | 3.2 | % |
Weighted average interest rate on balance at the end of the year | | 4.5 | % | | 4.0 | % | | 2.7 | % |
Negotiable certificates of deposit: | | | | | | | | | |
Balance at the end of the year | | 17,751 | | | 23,733 | | | 25,353 | |
Monthly average balance outstanding during the year | | 24,112 | | | 23,686 | | | 25,125 | |
Maximum balance outstanding at any period end during the year | | 27,926 | | | 25,689 | | | 27,289 | |
Weighted average interest rate during the year | | 5.1 | % | | 4.9 | % | | 1.9 | % |
Weighted average interest rate on balance at the end of the year | | 4.6 | % | | 4.6 | % | | 3.0 | % |
(1)
| Excludes collateral received for securities lending transactions.
|
(2)
| Certain prior year figures have been revised to conform to current year presentation.
|
Regulation and Supervision
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 SE
Allianz SE operates as a reinsurer and holding company for our insurance, banking and asset management operating entities. As such, Allianz SE is supervised and regulated by the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, defined above as BaFin). The BaFin monitors and enforces regulatory standards for banks, financial services institutions and insurance companies by 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 SE 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 of these requirements anticipated the implementation of the EU Reinsurance Directive (2005/68/EC) which was adopted in November 2005. All of the directive’s provisions have finally been implemented in Germany effective June 2, 2007. Although Allianz SE expects to meet the newcurrently meets these requirements, there can be no assurances as to the impact on Allianz SE 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 SE to change the composition of its asset portfolio covering its technical reserves or take other appropriate measures.
Allianz SE is required to submit annual and interim reports, including certain accounting documents, to the BaFin. The BaFin also reviews transactions between Allianz SE 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 within the scope of the directive and the related German law.
In the United States, the Gramm-Leach-Bliley Financial Modernization Act of 1999 (“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 SE 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 other 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. This home country control principle permits 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 (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 and was implemented in Germany onin May 22, 2007. The regulations lead to higher costs of administration and may increase the risk of litigation concerning selling practices.
Furthermore, insurance companies that form part of an insurance group, as defined by the German law implementing the EU Insurance 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 life and health 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, the Autorité 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 United Kingdom. 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.
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 ReinsuranceRisk 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 comes underis 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 U.S. Securities and Exchange Commission (“SEC”).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. Recently, FINRA
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 its predecessor organization,also to be subject to the National Associationjurisdiction of Securities Dealers, soughtFINRA. The Rule has been structured to expand itsbecome 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 authorityenforcement proceedings. Furthermore, Allianz Life is subject to include fixed indexed annuities, a major product line ofongoing market conduct examinations by several state insurance regulators that may lead to enforcement proceedings which could result in modifications to Allianz Life. These effortsLife’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 ongoing,in the discussion stage and itthe potential impact on our operations, if any, is unclear whether or not such authority will be granted by the SEC.
presently unknown.There are a number of proposals for regulation that 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; 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 automatic enrollment of employees for Income Retirement Accounts for small employers. All ofWhile we anticipate the federal 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 recentother new federal laws, the Class Action Fairness Act of 2005 and the Pension Protection Act of 2006, upon our
U.S. operations will become clearer with time.
Pursuant However, positive results appear to industry-wide investigations, several of our U.S. subsidiaries have received requests for information from state insurance regulatory authorities and attorneys general relating to contingent commissions. The last of these requests was received by Allianz entities in mid-2006. Other carriers and intermediaries have entered into settlements that required more transparency with respect to intermediary compensation and in many cases required discontinuance of the use of contingent commissions. See Note 46 of the consolidated financial statements for more information regarding contingent commission related litigation pending against several insurers and intermediaries, including some Allianz entities.
Asbeen realized as a result of one market conduct examination, the California Departmentadoption of Insurance (DOI) imposed an Orderthe Class Action Fairness Act of 2005. At the state level, asbestos litigation reform efforts continue, while legislation and court decisions continue to Show Cause against Allianz Life Insurance Company of North America (Allianz Life) with respect to certain marketingexpand property casualty tort liability and sales practices of deferred annuity products. The potential outcome and exposure in this matter is currently uncertain. In February 2007, Allianz Life reached a settlement with the DOI regarding the issues raised in the Order to Show Cause. See Note 46 to the consolidated financial statements for information regarding certain class action lawsuits and some settlements in California and Minnesota related to the marketing and sale of deferred annuity products.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, as well as marketing, distribution and sales activities.
Banking, Asset Management and Other Investment Services
European Union
The supervision of banking, asset management and other investment services in the EU member states is primarily the 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. Most importantly, the national implementation of the EU Markets in Financial Instruments Directive (2004/39/EC) (“MiFID”)(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 EU Undertakings for Collective Investments in Securities Directive (1985/611/EEC), as amended from time to time, provides a European standard for the 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 MiFID, investment firms can operate branches in all EU member states and 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 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, “Bundesbank”) in accordance with the German Banking Act (Kreditwesengesetz). The BaFin monitors compliance with, among other things, capital adequacy and liquidity requirements, lending 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.
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 (including, among other things, risks related to certain external factors, as well as to technical errors and errors of employees). Credit institutions in the various countries that participate in the Basle Committee began implementing Basle II in the beginning of 2007. In Germany, the 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- undAnlegerentschädigungsgesetz), the Bundesverband deutscher Banken, the association of the German private sector commercial banks, established a company known as the Compensation Institution (Entschädigungseinrichtung 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 the Einlagensicherungsfonds, a deposit protection association with a fund which covers most liabilities to the majority of creditors up to a certain amount, as described by the fund’s Articles of 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 Global Investors of AmericaFund 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 SE 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 continue 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 recent “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, compensation arrangements, advisory fees, 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 U.S. asset management industry, or our investment management businesses, and, if so, to what degree.
Some U.S. financial services subsidiaries of Allianz SE 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 FINRA and, in the case of Dresdner Kleinwort 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-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 and investment 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 (“BHCA”), and the International Banking Act of 1978, as amended (“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.
As a result of its ownership of Dresdner Bank, Allianz SE 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 the status of a financial holding company. See Note 23 to the consolidated financial statements for further information with respect to capital requirements Dresdner Bank must meet to enable Allianz SE to keep the status of a financial holding company.
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 trading activities, and mutual fund management and distribution activities.
Measures to Stabilize Financial Markets
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.
Although 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
| 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. 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”)(EU) regulations in accordance with section 315a of the German Commercial Code (“HGB”)(HGB). The consolidated financial statements of the Allianz Group have also been prepared in accordance with IFRS as issued by the International Accounting Standard Board (“IASB”)(IASB). The Allianz Group’s application of IFRSs results in no differences between IFRS as adopted by the EU and IFRS as issued by the 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
Goodwill
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 amortization. It is initially recorded at cost and subsequently 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 2007, the Allianz Group realigned its cash generating units in the Property-Casualty and
Life/Health segments to ensure consistency with the management responsibilities of the Board of Management. As a result,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, threeone cash generating unitsunit 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, or 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, of all relevant 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. Judgment is involved in applying valuation techniques when estimating the recoverable amount. The recoverable amounts of cash generating units generally are determined on the basis of value in use calculations.
The Allianz Group utilizes the capitalized earnings method to derive the value in use for all cash generating units in the Property-Casualty, 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 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 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.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 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 Insurance Germany Health,U.S. the fair value is based on an Appraisal Value which is derived from the Market Consistent Embedded Value specifically Appraisaland a multiple of the Market Consistent Value approach is utilizedof New Business to determinereflect the value in use.companies ability to continue to write new business. The Market Consistent Embedded valueValue 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 2007,2008, the Allianz Group’s annual impairment tests did not indicate a need to reduce the carrying value of goodwill. Sensitivity analyses with regards to discount rates and / or key value drivers of the business plans were performed. For all cash generating units, respective capitalized earnings value sensitivities in combination with fair value analysis still exceeded respective carrying values.
Fair Value of Financial Instruments
The Allianz Group holds a number of financial instruments that are required to be measured at 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
derivative 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 securitiesinvestments 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 Group is the current bid price; the quoted market price used for financial liabilities is the current ask price.
The fair values of financial instruments that are not traded 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. MarketsMarket 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. InDepending on the process, appropriatemethod used, different adjustments are mademay be required for market, liquidity, credit andor other risks in order to estimate the price at which an orderly transaction would take place between market participants at the measurement risks.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 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
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 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 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 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 the portfolio of ABS-based products, primarily consisting of RMBS and CDOs that were affected by the financial market crisis, the availability of price quotations from a functioning
market was limited during the second half of 20072008 and as of December 31, 2007.2008. Therefore, the valuations forvaluation of these financial instruments were derivedis mainly based on thequoted market prices or current market values of similarsubstantially the same financial instruments. The market quotationsvalues used were taken from other market participants and competitors, whichthat management believes are representative of the market. If this was not possible due to a lack of price quotations, the vintage and rating-specific valuationsIn all other cases, Allianz used model-based valuation techniques. Regardless of the ABX.HE (Home Equity) index were used.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.losses (“incurred loss model”). Available-for-sale securities are recorded at fair value, and changes in fair value are recorded within a separate component of equity; impairment losses are recorded in the 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 expected cash flows, i.e. all amounts due according to the contractual terms of the security are not considered collectible. 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 fair value is 20% below the amortized cost for more than six months. This is applied individually by all subsidiaries.
An available-for-sale equity securityinvestment is considered to be impaired if there is objective evidence that the cost may not be 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’s policy considers a significant decline to be one in which the fair value is below the weighted-average cost by more than 20% and 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 individually by all subsidiaries.
If an available-for-sale equity securityinvestment 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 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. Reversals of impairments of available-for-sale equity securities are not recorded.
There are several risks and uncertainties related to the monitoring of investments to determine whether an impairment exists. These risks include the risk that the Allianz Group identifies 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 securitiesinvestments and held-to-maturity investments were €4,264€9,898 million and €1,959€4,264 million as of December 31, 20072008 and 2006,2007, respectively. Total unrealized losses on available-for-sale equity securitiesinvestments were €467€851 million and €159€467 million as of December 31, 20072008 and 2006,2007, respectively.
Impairments on investments in associates and joint ventures amounted to €72 million and €2 million as of 31 December, 2008 and 2007, respectively. Impairments on real estate held for investment, amounted to €128 million and €23 million as of 31 December, 2008 and 2007, respectively.(1)
Loan impairmentsImpairments and provisionsProvisions
The loan loss allowance represents management’s estimate of losses from impaired loans within the loan portfolio and other lending related commitments. The loan loss allowance is reported in the Allianz Group balance sheet as a reduction of “Loans and advances to banks and customers”, and the provisions for contingent liabilities such as
guarantees, loan commitments and other obligations are reported as “Other liabilities”. Changes in the loan loss allowance are reported in the Allianz Group income statement under the caption “Loan loss provisions”.
A loan 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.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 recognized as the difference between the loan’s carrying amount and the present value of future cash flows, which includes all contractual interest and principal payments, discounted at the loan’s original effective interest rate and a corresponding impairment charge is recognized in the income statement.
Loans with an outstanding balance greater than €1 million are considered to be individually significant, and they are assessed individually to determine whether an impairment exists. Individually significant loans that are not impaired are grouped with loans evidencing similar credit characteristics and are collectively assessed for impairment.
At our banking subsidiary, Dresdner Bank, and its subsidiaries (the “Dresdner Bank Group”), the loan portfolio for which loan loss allowances are to be established is separated into a homogeneous and a non-homogeneous portfolio. The homogeneous portfolio consists of loans made by the Dresdner Bank’s Private & Business Clients division with a gross exposure of up to €1 million, for which the degree of risk has been calculated at the portfolio-level resulting in collectively evaluated loan loss provisions. All other loans are allocated to the non-homogeneous portfolio, with a distinction made with respect to loan loss allowances between the measurement of individual loans in default (specific loan loss allowances) and allowances for impairments that have incurred but have not been identified (general loan loss allowances / country risk allowance).
The loan loss allowance comprises the following four categories:
Specific allowances
For all individually significant loans, counterparty relationships are periodically reviewed
on a case-by-case basis. We consider various factors in this review including, but not limited to, the borrower’s financial strength, resources and payment record, the present value of the expected future cash flows, including any net realizable value that may result from the foreclosure of collateral and the likelihood of support from any guarantors.
General allowances
Individually significant loans that do not have specific allowances are segmented into groups of loans with similar risk characteristics, and loan loss allowances for incurred but not identified impairments are calculated using statistical methods of credit risk measurement. Factors that are used in these methods include our internal credit rating results, historical loss experience and a “loss emergence period”, which adjusts for the time lag between the occurrence of a loss and its identification by a lender. Other qualitative factors considered by management include: levels and trends in delinquencies, levels and trends in recoveries of prior charge-offs, trends in volumes and terms of loans, effects of changes in lending policies and procedures, current national and local economic trends and conditions, and credit concentrations.
Country risk allowances
A country risk allowance is calculated to estimate losses due to 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 country risk allowances based on historical loss experience and a country risk rating system that incorporates current and historical economic, political and other data to categorize countries by risk profile.
In order to avoid duplication, specific allowances are excluded from general and country risk allowance calculations. Moreover, countries for which a country risk allowance is maintained are excluded from the determination of the transfer risk component of the general allowances.
Portfolio allowances
Loans that are not considered individually significant are not individually assessed but are
instead segmented into portfolios of homogeneous loans to assess for impairment. Portfolio loan loss allowances are calculated using the delinquency flow model, which involves separating the homogeneous loan portfolios into distinct groups of loans evidencing similar loss behavior. We consider various factors in defining such portfolio groups, including consistency of underwriting practices, transaction terms and conditions, customer segmentation, product type, existence and types of collateral, similarity in size and number of loans, and loss behavior.
The delinquency flow model provides an estimate of the loss inherent in the portfolio by measuring the historical loss experience of the actual portfolio or a portfolio with similar risk characteristics. The delinquency flow model produces this estimate based on historical loan/commitment volume and loss data. The model also estimates the balance of loans with a delinquency status and the average loss experienced for loans in each delinquency grouping within a given portfolio.
Once an individual loan within a portfolio is identified as impaired, a specific loan loss allowance is recorded, and the loan is removed from the relevant portfolio.
The process for evaluating each of the foregoing categories comprising the total loan loss allowance involves significant judgment and estimates. In our evaluation process, we consider the additional following factors for each applicable allowance category, including the frequency of default, risk ratings, loss recovery rates, the forecasted financial strength of individual large accounts, and the ability of borrowers with foreign currency obligations to obtain the foreign currency necessary for orderly debt servicing. If actual results differ from our estimates or if economic changes occur after the date of our estimation, we may need to adjust our estimates. Significant changes in estimates could materially affect our loan loss provision and could result in a change in the loan loss allowance.
Changes in the loan loss provision on an Allianz Group level totaled €(113) million, €36 million and €(109) million for the years ended December 31, 2007, 2006 and 2005, respectively. The total loan loss allowance as of December 31, 2007 and 2006 amounted to €1,031 and €1,315 million, respectively.
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 90%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 and 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 best 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 52.8 %increased to 88.8% as of December 31, 2006, both including updated2008 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 the German health business.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 charge to the Allianz Group’s net income, as the deferred acquisition costs would not be recoverable.
The recoverability ratio is most sensitive to changes in the investment yield, which is the rate of return earned on the investment of net cash inflows. The investment yield is generally estimated in determining the recoverability of DAC and PVFP by increasing the relevant yield curves by the expected credit spread net of default risk. The relevant yield curves represent the risk free rate of return expected to be earned based upon the 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 (e.g., Switzerland, Belgium, South Korea and Taiwan).
The following table shows a sensitivity analysis of the impact in Euro that reasonably likely changes of 1% in the relevant yield curve would have on the DAC and PVFP amounts in the major geographical markets of the Allianz Group, which could have a material effect on the Allianz Group’s results of operations. The impact of these changes would be recorded in the Allianz 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 | | | 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 | | | € mn | | € mn | | € mn | |
Germany | | 6,716 | | — | | — | | | 6,802 | | — | | — | |
France | | 395 | | — | | — | | | 508 | | 7 | | (11 | ) |
Italy | | 628 | | — | | — | | | 578 | | — | | — | |
US | | 3,820 | | 16 | | (56 | ) | |
U.S. | | | 4,416 | | 63 | | (76 | ) |
South Korea | | 688 | | 11 | | (19 | ) | | 544 | | — | | 1 | |
Belgium | | 100 | | — | | (1 | ) | | 97 | | — | | (1 | ) |
Switzerland | | 229 | | 45 | | (89 | ) | | 227 | | 16 | | (35 | ) |
Austria | | 221 | | 14 | | (20 | ) | | 233 | | 55 | | (21 | ) |
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 many of Allianz’s Life/Health operating entities within Europe, a large part of such adverse developments can be offset by adjustments to the policyholder participation rates. Therefore, the relevant estimates and as a consequence, the results of operations of operating entities within Europe are relatively insensitive to the effects of changes in assumptions.
Reserves for insuranceInsurance and investment contractsInvestment Contracts and Financial liabilitiesLiabilities for unit linked contractsUnit-Linked Contracts
The major components of reserves for insurance and investment contracts are aggregate policy reserves and reserves for premium refunds. Financial liabilities for unit linkedunit-linked contracts includes unit linkedinclude unit-linked insurance contracts and unit linkedunit-linked investment contracts.
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.
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. DAC and present value of future profits (“PVFP”)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 effects 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
Insurance
Contracts
(SFAS 60) | | | Traditional
participating
insurance
Contracts
(SFAS 120) | |
Aggregate policy reserves | | 2.5–6 | % | | 2.8–2.0–4.3 | % |
Deferred acquisition costs | | 2.5–6 | % | | 5–63.1–5.2 | % |
Aggregate 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.
Aggregate 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 recognition tests.
The table below provide a breakdown of the Allianz Group’s aggregate policy reserves by country of our major Life/Health local operating entities as of December 31, 20072008 (in millions of euros):
| | | | Aggregate Policy Reserves | | Other Reserves | | Total | | % of
Allianz
Group | | | 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
Options1 | | | 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) | | | (€ mn) | |
German Life | | 18 | | 4,526 | | | 112,765 | | — | | 1,831 | | — | | 119,140 | | 35.6 | % | | 24 | | 6,436 | | | 114,645 | | — | | 1,660 | | 1 | | 122,765 | | 36.7 | % |
German Health | | 13,339 | | — | | | — | | — | | — | | — | | 13,339 | | 4.0 | % | | 14,160 | | — | | | — | | — | | — | | — | | 14,160 | | 4.2 | % |
France | | 6,924 | | 35,907 | | | — | | — | | 14,285 | | — | | 57,116 | | 17.0 | % | | 7,138 | | 38,283 | | | — | | — | | 11,021 | | — | | 56,442 | | 16.9 | % |
Italy | | 7,737 | | 11,271 | | | — | | 112 | | 25,682 | | — | | 44,802 | | 13.4 | % | | 7,359 | | 11,456 | | | — | | 139 | | 20,340 | | — | | 39,294 | | 11.8 | % |
United States | | 1,201 | | 31,079 | | | — | | 94 | | 13,954 | | 4,312 | | 50,640 | | 15.1 | % | | 1,583 | | 36,891 | | | — | | 153 | | 8,473 | | 5,104 | | 52,204 | | 15.6 | % |
Switzerland | | 166 | | 2,031 | | | 3,486 | | 11 | | 583 | | — | | 6,277 | | 1.9 | % | | 127 | | 2,666 | | | 3,842 | | — | | 512 | | — | | 7,147 | | 2.1 | % |
Spain | | 4,068 | | 574 | | | — | | 216 | | 92 | | — | | 4,950 | | 1.5 | % | | 3,991 | | 815 | | | — | | 260 | | 47 | | — | | 5,112 | | 1.5 | % |
Netherlands | | 969 | | 28 | | | — | | — | | 3,356 | | — | | 4,353 | | 1.3 | % | | 883 | | 81 | | | — | | — | | 2,771 | | — | | 3,735 | | 1.1 | % |
Austria | | — | | — | | | 3,194 | | — | | 277 | | — | | 3,471 | | 1.0 | % | | — | | — | | | 3,232 | | — | | 347 | | — | | 3,579 | | 1.1 | % |
Belgium | | 4,152 | | 1,175 | | | — | | — | | 302 | | — | | 5,629 | | 1.7 | % | | 4,200 | | 1,432 | | | — | | — | | 235 | | — | | 5,866 | | 1.8 | % |
South Korea | | 4,340 | | 1,639 | | | — | | — | | 904 | | 14 | | 6,897 | | 2.1 | % | | 3,338 | | 1,443 | | | — | | — | | 499 | | 8 | | 5,288 | | 1.6 | % |
Taiwan | | 776 | | 1,063 | | | — | | 2 | | 2,710 | | — | | 4,551 | | 1.4 | % | | 646 | | 963 | | | — | | 8 | | 2,419 | | — | | 4,036 | | 1.2 | % |
Other countries | | 2,472 | | 570 | | | 643 | | 130 | | 2,085 | | — | | 5,900 | | 1.8 | % | | 3,330 | | 620 | | | 549 | | 278 | | 2,125 | | 50 | | 6,954 | | 2.1 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Life/Health Total | | 46,162 | | 89,864 | | | 120,088 | | 564 | | 66,060 | | 4,326 | | 327,064 | | 97.8 | % | | 46,779 | | 101,085 | | | 122,268 | | 839 | | 50,450 | | 5,163 | | 326,583 | | 97.7 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other Segment/Consolidation | | 175 | | (24 | ) | | 7,413 | | — | | — | | — | | 7,564 | | 2,2.3 | | | 165 | | (25 | ) | | 7,590 | | — | | — | | — | | 7,730 | | 2.3 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Allianz Group Total | | 46,337 | | 89,840 | | | 127,502 | | 564 | | 66,060 | | 4,326 | | 334,628 | | 100.0 | % | | 46,943 | | 101,059 | | | 129,858 | | 839 | | 50,450 | | 5,163 | | 334,313 | | 100.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(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 such as expense, lapse and mortality are based on best estimates derived from annually performed experience studies based on company data and are regularly validated by the Allianz Group.
The most significant assumption for deriving Life/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 premiums. Investment rates are based on the available capital market information, the asset mix and the long term expected yields as set by the management of the local operating entity.
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 financial 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 | | 90 | % |
Health
| | All sources of Profit | | 80 | % |
France
| | | | | |
Life
| | All sources of Profit | | 80 | % 80% |
Italy | | | | | |
Life | | Investments | | 85 | % 85% |
Switzerland | | | | | |
Group Life | | All sources of Profit | | 90 | % 90% |
Individual Life | | All sources of Profit | | 100100% |
(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.
Aggregate policy reserves totaled €264,243€278,700 million and €256,333€264,243 million as of December 31, 20072008 and 2006,2007, respectively. Reserves for premium refunds totaled €27,225€17,195 million and €30,689€27,225 million as of December 31, 20072008 and 2006,2007, respectively. For further information regarding reserves for insurance and investment contracts, seerefer to Note 18 to our consolidated financial statements.
Reserves for lossLoss and loss adjustment expensesLoss Adjustment Expenses
Within the Allianz Group, loss and LAE reserves are set locally by qualified individuals close to the business, subject to central monitoring and
oversight by the actuarial department in Allianz SE (“Group Actuarial”). For a detailed description of the methods and approaches commonly used within the
Allianz Group to determine reserves for loss and loss adjustment expenses, please seerefer 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;
Regular peer reviews by Group Actuarial of reserve reports provided by 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—review – i.e. formal qualitative assessment of the required components in the reserving process—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 three years.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.
Local operating entities are required to provide Group Actuarial an annual reserve report, documenting the entity’s analysis of its loss and LAE reserves. The Allianz Group standard for these reports is that an independent actuary, by analyzing this report and discussing it with the entity, must be capable of forming a similar opinion regarding the appropriateness of the entity’s held reserves. In years when Group Actuarial does not perform a complete reserve review of an Allianz Group company, it will perform a process that constitutes a “peer review” of the entity’s own analysis.
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 which, due to their volume and/or uncertainty, for which changes in assumptions could have a material impact on the Group:Group due to their volume and/or uncertainty:
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 (€4,5264,533 million gross as of December 31, 2007)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 reservesClaims 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: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, 2007,2008, the high end of this range is €880€820 million higher than the best estimate; the low end of the range is €700€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 €63,706€63,924 million and €65,464€63,706 million as of December 31, 20072008 and 2006,2007, respectively. For further information regarding reserves for loss and loss adjustment expenses, seerefer to Note 1719 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 or 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 estimate the expected rate of return on plan assets, which is then used to compute pension cost recorded in the consolidated statements of income. Estimating future returns on plan assets is particularly subjective as the estimate requires an assessment of possible future market returns based on
the plan asset mix and observed historical returns. In 2007,2008, we adjusted the weighted average expected rate of return on plan assets wasfrom 5.3% to 5.5%; in 2006, we adjusted2007, the rate from 5.8% toweighted average expected return on plan assets was 5.3%.
Changes to Accounting and Valuation Policies
SeeRefer to Note 3 to our consolidated financial statements.
Introduction
The following analysis is based on our consolidated financial statements and should be read in conjunction with those statements. We evaluate the results of our Property-Casualty, Life/Health, Banking, Asset Management and Corporate segments using a financial performance measure we refer to herein as “operating profit”. We define our segment operating profit as income from continuing operations before income taxes and minority interests in earnings, excluding, as applicable for each respective segment, all or some of the following items: income from financial assets and liabilities held for trading (net), realized gains/losses (net), impairments of investments (net), interest expense from external debt, amortization of intangible assets, acquisition-related expenses and 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 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 gains/losses or impairments 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 income from continuing 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” “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 our consolidated financial statements.
Operating 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 and discussion of the 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, the Banking 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 the investor. The following table reconciles total revenues to premiums written, the 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 | | | PC | | LH | | Banking | | AM | | Cons | | Group | |
2007 | | | | | | | | | | | | | | | | | | | | | | | | |
Premiums written | | 44,289 | | 21,522 | | — | | | — | | | (23 | ) | | 65,788 | | | 44,289 | | 21,522 | | — | | | — | | | (23 | ) | | 65,788 | |
Add: Deposit premium for FAS 97 products | | — | | 27,845 | | — | | | — | | | (15 | ) | | 27,830 | | | — | | 27,845 | | — | | | — | | | 167 | | | 28,012 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total revenues P-C and L/H | | 44,289 | | 49,367 | | — | | | — | | | (38 | ) | | 93,618 | | | 44,289 | | 49,367 | | — | | | — | | | 144 | | | 93,800 | |
Add: Interest and similar income | | — | | — | | 8,370 | | | 135 | | | — | | | 8,505 | | | — | | — | | 883 | | | 135 | | | — | | | 1,018 | |
Less: Interest expense | | — | | — | | (5,266 | ) | | (54 | ) | | — | | | (5,320 | ) | | — | | — | | (558 | ) | | (54 | ) | | — | | | (612 | ) |
Add: Fee and commission income | | — | | — | | 3,651 | | | 4,403 | | | — | | | 8,054 | | | — | | — | | 528 | | | 4,403 | | | — | | | 4,931 | |
Less: Fee and commission expense | | — | | — | | (603 | ) | | (1,270 | ) | | — | | | (1,873 | ) | | — | | — | | (233 | ) | | (1,270 | ) | | — | | | (1,503 | ) |
Income from financial assets and liabilities designated at fair value through income (net) | | — | | — | | (431 | ) | | 31 | | | — | | | (400 | ) | | — | | — | | 2 | | | 31 | | | — | | | 33 | |
Other income | | — | | — | | — | | | 14 | | | — | | | 14 | | | — | | — | | — | | | 14 | | | — | | | 14 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total revenues Banking and Asset Management | | — | | — | | 5,721 | | | 3,259 | | | — | | | 8,980 | | | — | | — | | 622 | | | 3,259 | | | — | | | 3,881 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total revenues | | 44,289 | | 49,367 | | 5,721 | | | 3,259 | | | — | | | 102,598 | | | 44,289 | | 49,367 | | 622 | | | 3,259 | | | 144 | | | 97,681 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | PC | | LH | | Banking | | AM | | Cons | | Group | | | PC | | LH | | Banking | | AM | | Cons | | Group | |
2006 | | | | | | | | | | | | | | | | | | | | | | | | |
Premiums written | | 43,674 | | 21,614 | | — | | | — | | | (13 | ) | | 65,275 | | | 43,674 | | 21,614 | | — | | | — | | | (13 | ) | | 65,275 | |
Add: Deposit premium for FAS 97 products | | — | | 25,807 | | — | | | — | | | (85 | ) | | 25,722 | | | — | | 25,807 | | — | | | — | | | 143 | | | 25,950 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total revenues P-C and L/H | | 43,674 | | 47,421 | | — | | | — | | | (98 | ) | | 90,997 | | | 43,674 | | 47,421 | | — | | | — | | | 130 | | | 91,225 | |
Add: Interest and similar income | | — | | — | | 7,312 | | | 112 | | | — | | | 7,424 | | | — | | — | | 734 | | | 112 | | | — | | | 846 | |
Less: Interest expense | | — | | — | | (4,592 | ) | | (41 | ) | | — | | | (4,633 | ) | | — | | — | | (443 | ) | | (41 | ) | | — | | | (484 | ) |
Add: Fee and commission income | | — | | — | | 3,598 | | | 4,186 | | | — | | | 7,784 | | | — | | — | | 503 | | | 4,186 | | | — | | | 4,689 | |
Less: Fee and commission expense | | — | | — | | (590 | ) | | (1,262 | ) | | — | | | (1,852 | ) | | — | | — | | (235 | ) | | (1,262 | ) | | — | | | (1,497 | ) |
Income from financial assets and liabilities designated at fair value through income (net) | | — | | — | | 1,335 | | | 38 | | | — | | | 1,373 | | | — | | — | | 45 | | | 38 | | | — | | | 83 | |
Other income | | — | | — | | 25 | | | 11 | | | — | | | 36 | | | — | | — | | 0 | | | 11 | | | — | | | 11 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total revenues Banking and Asset Management | | — | | — | | 7,088 | | | 3,044 | | | — | | | 10,132 | | | — | | — | | 604 | | | 3,044 | | | — | | | 3,648 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total revenues | | 43,674 | | 47,421 | | 7,088 | | | 3,044 | | | — | | | 101,129 | | | 43,674 | | 47,421 | | 604 | | | 3,044 | | | 130 | | | 94,873 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | PC | | LH | | Banking | | AM | | Cons | | Group | | |
2005 | | | | | | | | | | | | | |
Premiums written | | 43,699 | | 21,093 | | — | | | — | | | (26 | ) | | 64,766 | | |
Add: Deposit premium for FAS 97 products | | — | | 27,179 | | — | | | — | | | (18 | ) | | 27,161 | | |
| | | | | | | | | | | | | | | | | |
Total revenues P-C and L/H | | 43,699 | | 48,272 | | — | | | — | | | (44 | ) | | 91,927 | | |
Add: Interest and similar income | | — | | — | | 7,321 | | | 90 | | | — | | | 7,411 | | |
Less: Interest expense | | — | | — | | (5,027 | ) | | (34 | ) | | — | | | (5,061 | ) | |
Add: Fee and commission income | | — | | — | | 3,397 | | | 3,746 | | | — | | | 7,143 | | |
Less: Fee and commission expense | | — | | — | | (547 | ) | | (1,110 | ) | | — | | | (1,657 | ) | |
Income from financial assets and liabilities designated at fair value through income (net) | | — | | — | | 1,163 | | | 19 | | | — | | | 1,182 | | |
Other income | | — | | — | | 11 | | | 11 | | | — | | | 22 | | |
| | | | | | | | | | | | | | | | | |
Total revenues Banking and Asset Management | | — | | — | | 6,318 | | | 2,722 | | | — | | | 9,040 | | |
| | | | | | | | | | | | | | | | | |
Total revenues | | 43,699 | | 48,272 | | 6,318 | | | 2,722 | | | — | | | 100,967 | | |
| | | | | | | | | | | | | | | | | |
We further believe that an understanding of our total revenue(1) performance is enhanced when the effects of 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”, which excludes the effects of foreign currency translation and changes in scope 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 years ended December 31, 20072008 and 2006.2007.
| | | | Nominal total
revenue growth | | Changes in scope
of consolidation | | Foreign currency
translation | | Internal total
revenue growth | | | 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 | | | 1.4 | | | 1.3 | | | (1.0 | ) | | 1.1 | |
Life/Health | | 4.1 | | | 0.1 | | | (2.3 | ) | | 6.3 | | | 4.1 | | | 0.1 | | | (2.3 | ) | | 6.3 | |
Banking | | (19.3 | ) | | — | | | (1.0 | ) | | (18.3 | ) | | 2.6 | | | — | | | — | | | 2.6 | |
thereof: Dresdner Bank | | (20.3 | ) | | — | | | (1.1 | ) | | (19.2 | ) | |
Asset Management | | 7.1 | | | 0.8 | | | (7.0 | ) | | 13.3 | | | 7.1 | | | 0.8 | | | (7.0 | ) | | 13.3 | |
thereof: Allianz Global Investors | | 6.3 | | | — | | | (7.5 | ) | | 13.8 | | | 6.3 | | | — | | | (7.5 | ) | | 13.8 | |
Allianz Group | | 1.5 | | | 0.6 | | | (1.7 | ) | | 2.6 | | | 3.0 | | | 0.7 | | | (1.8 | ) | | 4.1 | |
| 2006 | | | | | | | | | |
Property-Casualty | | (0.1 | ) | | (0.2 | ) | | (0.2 | ) | | 0.3 | | |
Life/Health | | (1.8 | ) | | — | | | (0.2 | ) | | (1.6 | ) | |
Banking | | 12.2 | | | — | | | (0.1 | ) | | 12.3 | | |
thereof: Dresdner Bank | | 12.8 | | | — | | | (0.1 | ) | | 12.9 | | |
Asset Management | | 11.8 | | | (0.7 | ) | | (0.9 | ) | | 13.4 | | |
thereof: Allianz Global Investors | | 11.7 | | | (0.7 | ) | | (0.9 | ) | | 13.3 | | |
Allianz Group | | 0.2 | | | (0.1 | ) | | (0.2 | ) | | 0.5 | | |
(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 subsidiaries in different segments. |
Executive Summary1)(1)
Year ended December 31, 2008 compared to year ended December 31, 2007
Underlying fundamentals remained strong despite difficult market environment.
Revenues fell by €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.
Sale of Dresdner Bank completed.
Year ended December 31, 2007 compared to year ended December 31, 2006
Strong earnings with net income from continuing operations of €8.0€7.3 billion.
Our continuing operations maintained their sustainable underlying profitability helped to compensate for the impact fromprofitability.
The turbulences in the financial markets turbulence.hit our discontinued banking operations.
High quality asset base and a strong capitalization with shareholders’ equity of €47.8 billion.
Year ended December 31, 2006 compared to year ended December 31, 20052008 at a Glance
2006 was a year of success.Difficult economic environment
Property-Casualty underwriting profitability stood outThe year under review was marked by the global financial and economic crisis that started in mid-2007 with a combined ratiothe collapse of 92.9%.
Operating profitthe housing market in Life/Health grew by 23%.
Milestone achieved for cost-income ratiothe United States. The crisis that was initially observed within the banking sector accelerated in 2008 and spilled- over to various other sectors of below 80% in Banking.
Asset Management performed strongly again, further improving operating profit to €1.3 billion.
Net income grew by 60% to €7.0 billion.
Shareholders’ equity stood at €49.7 billion, up almost 28%.
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.
Total revenuesEquity markets extremely volatile
in € bn%
Net income
in € mn
Shareholders’ equity3)
in € mn
(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 seerefer to “Information on the Company”. |
Credit spreads at all time high
in bps
Interest rates at historic low levels
in %
Unprecedented levels of volatility
in %
Sale of Dresdner Bank completed
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 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.(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 sale of Dresdner Bank, please refer to “—Information on the Company—Major Transactions”. |
(2) | Compound annual growth rate (“CAGR”) isFor further information on the year-over-year growth rate over a multiple-year period.impact of the sale of Dresdner Bank on Allianz Group’s results, please refer to “—Net income (loss) from discontinued operations”.
|
(3)
| Does not include minority interests.
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Allianz Group’s Consolidated Results of Operations
Year ended December 31, 2008 compared to Year ended December 31, 2007
In 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 of 45.8% to €3,967 million. The situation in the financial markets had a strong impact on the results and the sale of Dresdner Bank.
Year 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 had to record a significant impact of this crisis within the 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)
Total revenues – Segments
in € mn
On an internal basis(3), total 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 difficult market conditions. Foreign currency exchange effects were also a significant feature, lowering revenues by €1,690 million whereas deconsolidation effects only accounted for €325 million of the reduction. At €92,548 million, revenues were down by 5.3% on a nominal basis.
Year ended December 31, 2007 compared to year ended December 31, 2006
Our total revenues were up 1.5%3.0% to €102.6€97.7 billion. Foreign currency translation effects were a significant feature of fiscal year 2007, depressing total revenues by €1.8€1.7 billion. Total internal revenue growth(2)(3) amounted to 2.6%4.1%. While Life/Health and Asset Management grew strongly, with revenues increasing by 6.3% and 13.3% respectively, on an internal basis, Property-Casualty premiums grew modestly. In contrast, the Banking segment was heavily impacted by the turbulence in financial markets, which led to a significant shortfall in net trading income.
(1) | 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.
Total 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 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 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 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(3)(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 €8.7 billion to €350.0 billion, despite negative impacts from foreign currency translation, higher interest rates and the weakening stock market towards year-end.
Banking(1) Operating revenues in our Banking segment were downup by 19.3%3.0% to €5.7 billion. Core product lines not impacted by the credit crisis performed in line with expectations.€622 million. Net interest income grew by 14.1%, whileand net fee and commission income increased modestly.grew strongly by 11.7% and 10.1%, respectively. The financial markets turbulence resulted in markdownsdevelopment of €1.3 billion on asset backed securities relating only to a limited number of business lines in the Investment Bank, driving Dresdner Bank’s net trading income to a loss of €0.5 billion. The remaining shortfall in these business lines was indirectly related tosignificantly impacted by the credit crisis. This decline outweighed the growthturbulences in the other revenue components.financial markets resulting in a gain of €2 million compared to €45 million in the previous year.
(3)
| New Europe, Asia-Pacific, South America, Mexico and Middle East & Northern Africa.
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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 of €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 asset base remained flat, though it experienced internal growth of 8.1%.
Operating Profit
Year ended December 31, 20062008 compared to year ended December 31, 20052007
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 total revenues remained stable at €101.1 billion. This result reflected the net effect of substantial operating revenue growth in our Banking and Asset Management segments, flat Property- Casualty gross premiums written, combined with a decline in Life/Health statutory premiums. Total internal revenue growth amountedratio increased to 0.5%95.1%.
Operating profit from theProperty-CasualtyLife/Health Gross premiums written were flat at €43.7 billion reflecting average constant pricesbusiness amounted to €1,206 million. The 59.7% decline was mainly due to weak equity markets and a slightly increased sales volume. On an internal growth basis, premium volume was up marginally by 0.3%. We continued to manage local market cycles and to write profitable business, while market conditions varied considerably around the world. Our operations in South America, Spain, New Europe and the United States recorded increases in gross premiums written.widening credit spreads which strongly impacted our net investment result.
In our continuingLife/HealthBanking(1) Most business, we recorded an operating loss of our operations worldwide continued€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 record statutory premium growth, such as in Germany, France, Asia-Pacific, New Europe and Spain. In 2006, our growth markets of Asia-Pacific and New Europe, in aggregate, contributed 9.6% of our total Life/Health statutory premium volume. However, due to considerable decreases in the United States and Italy, total Life/Health statutory premiums were down slightly by 1.8% to €47.4 billion. We believe we will regain growth momentum in these markets. Based on internal growth, statutory premiums decreased by 1.6%.100.4 %.
Banking Operating revenues were up substantially by 12.2% to €7.1 billion in 2006. All income categories contributed to this strong
development, with double-digit growth rates in Dresdner Bank’s net interest income and net trading income. BothAt €926 million, the operating divisions at Dresdner Bank recorded considerably higher revenues than a year ago.
profit from ourAsset Management Based on the consistentsegment declined by 31.9% after a strong investment performance we achieved, we again rankedyear in the top quartile based on net inflows in 2006 compared to our peer companies. With net inflows of €36 billion and market-related appreciation of €43 billion, we achieved our growth target for2007. This development was mainly driven by reduced revenues following lower third-party assets of above 10%, excluding currency conversion effects. Overall, our third-party assets amounted to €764 billion as of December 31, 2006, up 2.8% from a year earlier, after unfavorable exchange rate effects of €57 billion. Our strong asset base was a key factor in repeating double-digit operating revenue growth while facing a challenging market environment.and higher expenses.
The operating loss fromOperating profitCorporate 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 Our Banking segment’s operating(1) Operating profit was down 45.6%nearly halved to €0.8 billion due to the major impact of the credit crisis. Although most lines of business€32 million, after €63 million in the Investment Bank were not impactedprior year. Mainly higher administrative expenses at €589 million (2006: €550 million) driven by the financial markets turbulence, a number of business
lines experienced a markdown of €1.3 billion duean increase in our non-personnel expenses led to the credit crisis. The remaining shortfall in these business linesthis result. Our cost-income ratio was also related to the credit crisis. In lines of business which were not impacted by the credit crisis, operating profit increased by €0.3 billion, or 57.8%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, 20062008 compared to year ended December 31, 20052007
Property-Casualty Operating profit increasedIncome from continuing operations before income taxes and minority interests in earnings was
(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. |
(2) | Compound annual growth rate (CAGR) is the year-over-year growth rate over a multiple-year period. |
almost halved to €6.3 billion, reflecting our strong underwriting profitability. Our combined ratio improved again from an already very competitive level€5,473 million. Tax expenses were also reduced by 50.0% to 92.9% in 2006, 1.4€1,287 million. Against this background the effective tax rate was almost stable, down 0.8 percentage points better than a year ago. Both lower severity and frequency of claims contributed to this development. In particular, the exceptionally heavy damages in 200523.5%. Consequently, net income from major natural catastrophes in the United States, Central Europe and Asia were not repeated in 2006. In addition, our Sustainability Program has helped us improve the effectiveness and efficiency of workstreams.continuing operations was down by 45.8% to €3,967 million.
Life/Health WeIncome tax expenses were again successful in growing our operating profit which increased in 2006reduced to €1,287 million due to lower taxable income as well as tax-exempted capital gains and dividends that were only partly offset by 22.5% to €2.6 billion. While continuing to grow our asset base, we further improved our investment, expensetrade tax and technical margins. Our policyholders also benefited from profit growth as, in 2006, we were able to credit them with a higher participation amount than last year. Our Sustainability Program was also an important contributing factor to operating profit growth in Life/Health.similar taxes.
Banking Our Banking segment’s operating profit more than doubledDue to €1.4 billionthe lower pre-tax income and the AGF minority buy-out in 2006.
Operating revenue growth was achieved at the same time as accomplishing improvements2007, minority interests in productivity and efficiency, reflected inearnings decreased operating expenses. Thereby, we achieved our milestone for a cost-income ratio of below 80%.
Asset Management We continuedby 67.6% to deliver double-digit operating profit growth and improved our cost-income ratio to 57.6% from an already competitive level in 2005. While at the same time making substantial investments in our distribution network and human resources development, key drivers for these developments were our strong and further growing asset base, and effective cost management.
Corporate Segment At €831 million, down €50 million from a year ago, operating loss remained relatively stable.
Net income€219 million.
Year ended December 31, 2007 compared to year ended December 31, 2006
Net income grewfrom continuing operations increased by 13.5%10.2% to almost €8.0€7.3 billion.
Compared to 2006, the balance of non-operating net capitalrealized gains were slightlyand impairments was lower, and interest expense from external debt was higher. These negative impacts were more thanpartially compensated by lower restructuring charges.
Realized gains (net) which are not shared with policyholders, were €144€434 million lower than last year, albeit still at a high level of €2,538€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 €381€294 million, impairments on investments are at the same level as inwere €148 million higher compared to 2006.
The remaining netbalance of unrealized gains on equity securities amountsamounted to €11.0 billion as of December 31, 2007, net of tax and 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 €216€166 million, €608€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
Germany. The charges in 2007 related mainly to the restructuring of our local subsidiaries in Italy, and the set-up of a shared IT services infrastructure in Europe.(1)
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 24.7%24.3% and income tax expense of €2,854€2,572 million were significantly higher than a year ago,in 2006, where the one-off benefit of €571€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 €11,568€10,563 million (2006: €10,323€9,563 million) contributed to this development. The German corporate tax reform 2008 (“Unternehmensteuergesetz 2008”) leadsled 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 €152€291 million.
Minority interests were €541€528 million lower, primarily due to the RAS minority buy-out completed in 2006 and the AGF minority buy-out in 2007.
Net income (loss) from discontinued operations
Year ended December 31, 20062008 compared to year ended December 31, 20052007
We grew net income by 60.3%Due to €7.0 billion. This development was primarily driven by our segments’ operating profit growth, reflecting the high qualitystructure of our earnings. In addition, increased restructuring charges were offset by higher realized gains.
The most significant capital gains resulted from the sale of our shareholdings in Schering AG and in Eurohypo AGDresdner Bank, Allianz ceased to be exposed to changes in the first halfresults of 2006, as well asDresdner Bank Group from the disposalsigning date of Four Seasons Health Care Ltd.the transaction. Instead Allianz is exposed to changes in the second half.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.
Restructuring chargesAs disclosed in our interim report for the third quarter of 2008, the loss from discontinued operations amounted to €964 million, €864 million more than 2005. This increase primarily€3.5 billion, stemming from
(1) | Please seerefer to Note 49 to our consolidated financial statements for further information on our restructuring plans. |
reflectsDresdner Bank’s net loss of €2.1 billion until the reorganizationchange in ownership and an impairment charge of our German insurance operations€1.4 billion, reflecting the difference between the fair value of considerations agreed (€7.8 billion) and the “Newhistorical carrying value of Dresdner Plus” reorganization program.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.
Changes in consideration and fair value
in € bn
Including other charges of €0.2 billion the overall result from discontinued operations for 2008 amounted to €6,411 million coming from a gain of €650 million.
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| | € bn | |
Dresdner Bank’s net loss until the change in ownership | | (2.1 | ) |
Impairment charge | | (1.4 | ) |
Net loss from discontinued operations 1/1/2008 – 9/30/2008 | | (3.5 | ) |
Change in fair value of the agreed consideration | | (2.7 | ) |
Other | | (0.2 | ) |
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Net loss from discontinued operations 1/1/2008 – 12/31/2008 | | (6.4 | ) |
First quarter 2009 | | (0.4 | ) |
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Total | | (6.8 | ) |
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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. |
Year 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 financial assetslower operating expenses and liabilities held for trading was down significantly, as, in 2005, heavy negative impacts stemmed from derivatives from an equity-linkedthe development of loan which was issued as a component of financing the cash tender offerloss provisions, however, could not compensate for the outstanding RAS shares.
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 of €2.0 billion benefited from the tax-exemption of the significant capital gains and the capitalization of the Allianz Group’s total corporate tax credits as a consequence of the new German Reorganization Tax Act (SEStEG) which entered into force in December 2006. Following this tax law change, current income tax expenses were reduced by €571 million. Please see Note 41 to our consolidated financial statements for further information. As a result of the above, our effective tax rate declined to 19.5% from 26.3%.
Minorityminority interests in earnings were down €97 million to €1.3 billion. This was primarily a result of the acquisition of the minority interest in RAS.remained stable.
Net income (loss)
Year ended December 31, 2008 compared to year ended December 31, 2007
The net loss for 2008 amounted to €2,444 million compared to a net income of €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
Our net income growth translates into continuously increasing earnings per share. The following graph presents our basic and diluted earnings per share for the years ended December 31, 2008, 2007 2006 and 2005.2006.
Earnings per share(1)
in €
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) | SeeRefer to Note 50 to our consolidated financial statements for further details.
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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) | Please see Note 49 to our consolidated financial statements for further information on our restructuring plans.Compound annual growth rate (CAGR) is the year-over-year growth rate over a multiple-year period.
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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 buy-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.
The following table summarizes the total revenues, operating profit and net income for each of our segments for the years ended December 31, 2008, 2007 2006 and 2005,2006, as well as the IFRS consolidated net income of the Allianz Group.
| | | | Property-
Casualty | | Life/
Health | | Banking | | Asset
Management | | Corporate | | Consolidation | | Group | | | Property-
Casualty | | Life/
Health | | Banking | | Asset
Management | | Corporate | | Consolidation | | Group | |
| | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | |
2007 | | | | | | | | | | | | | | | |
Total revenues(1) | | 44,289 | | | 49,367 | | | 5,721 | | | 3,259 | | | — | | | (38 | ) | | 102,598 | | |
2008 | | | | | | | | | | | | | | | |
Total revenues | | | 43,387 | | | 45,615 | | | 544 | | | 2,887 | | | — | | | 115 | | | 92,548 | |
Operating profit (loss) | | 6,299 | | | 2,995 | | | 773 | | | 1,359 | | | (325 | ) | | — | | | — | | | 5,649 | | | 1,206 | | | (31 | ) | | 926 | | | (188 | ) | | — | | | — | |
Non-operating items | | 962 | | | 107 | | | (59 | ) | | (494 | ) | | (29 | ) | | — | | | — | | | 287 | | | (533 | ) | | (130 | ) | | (293 | ) | | (1,156 | ) | | — | | | — | |
Income (loss) before income taxes and minority interests in earnings | | 7,261 | | | 3,102 | | | 714 | | | 865 | | | (354 | ) | | (20 | ) | | 11,568 | | |
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 | | (1,656 | ) | | (897 | ) | | (266 | ) | | (342 | ) | | 217 | | | 90 | | | (2,854 | ) | | (1,489 | ) | | (260 | ) | | 54 | | | (249 | ) | | 631 | | | 26 | | | (1,287 | ) |
Minority interests in earnings | | (431 | ) | | (214 | ) | | (71 | ) | | (25 | ) | | (21 | ) | | 14 | | | (748 | ) | | (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) | | 5,174 | | | 1,991 | | | 377 | | | 498 | | | (158 | ) | | 84 | | | 7,966 | | | 4,335 | | | 327 | | | (6,418 | ) | | 379 | | | (725 | ) | | (342 | ) | | (2,444 | ) |
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2006 | | | | | | | | | | | | | | | |
Total revenues(1) | | 43,674 | | | 47,421 | | | 7,088 | | | 3,044 | | | — | | | (98 | ) | | 101,129 | | |
2007 | | | | | | | | | | | | | | | |
Total revenues | | | 44,289 | | | 49,367 | | | 622 | | | 3,259 | | | — | | | 144 | | | 97,681 | |
Operating profit (loss) | | 6,269 | | | 2,565 | | | 1,422 | | | 1,290 | | | (831 | ) | | — | | | — | | | 6,299 | | | 2,995 | | | 32 | | | 1,359 | | | (325 | ) | | — | | | — | |
Non-operating items | | 1,291 | | | 135 | | | (147 | ) | | (555 | ) | | (156 | ) | | — | | | — | | | 962 | | | 107 | | | 13 | | | (494 | ) | | (29 | ) | | — | | | — | |
Income (loss) before income taxes and minority interests in earnings | | 7,560 | | | 2,700 | | | 1,275 | | | 735 | | | (987 | ) | | (960 | ) | | 10,323 | | |
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 | | (2,075 | ) | | (641 | ) | | (263 | ) | | (278 | ) | | 824 | | | 420 | | | (2,013 | ) | | (1,656 | ) | | (897 | ) | | 10 | | | (342 | ) | | 217 | | | 96 | | | (2,572 | ) |
Minority interests in earnings | | (739 | ) | | (416 | ) | | (94 | ) | | (53 | ) | | (16 | ) | | 29 | | | (1,289 | ) | | (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) | | 4,746 | | | 1,643 | | | 918 | | | 404 | | | (179 | ) | | (511 | ) | | 7,021 | | | 5,174 | | | 1,991 | | | 377 | | | 498 | | | (158 | ) | | 84 | | | 7,966 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2005 | | | | | | | | | | | | | | | |
Total revenues(1) | | 43,699 | | | 48,272 | | | 6,318 | | | 2,722 | | | — | | | (44 | ) | | 100,967 | | |
2006 | | | | | | | | | | | | | | | |
Total revenues | | | 43,674 | | | 47,421 | | | 604 | | | 3,044 | | | — | | | 130 | | | 94,873 | |
Operating profit (loss) | | 5,142 | | | 2,094 | | | 704 | | | 1,132 | | | (881 | ) | | — | | | — | | | 6,269 | | | 2,565 | | | 63 | | | 1,290 | | | (831 | ) | | — | | | — | |
Non-operating items | | 1,024 | | | 177 | | | 822 | | | (707 | ) | | (1,118 | ) | | — | | | — | | | 1,291 | | | 135 | | | 13 | | | (555 | ) | | (156 | ) | | — | | | — | |
Income (loss) before income taxes and minority interests in earnings | | 6,166 | | | 2,271 | | | 1,526 | | | 425 | | | (1,999 | ) | | (560 | ) | | 7,829 | | |
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 | | (1,804 | ) | | (488 | ) | | (387 | ) | | (129 | ) | | 741 | | | 4 | | | (2,063 | ) | | (2,075 | ) | | (641 | ) | | (1 | ) | | (278 | ) | | 824 | | | 451 | | | (1,720 | ) |
Minority interests in earnings | | (827 | ) | | (425 | ) | | (102 | ) | | (52 | ) | | (10 | ) | | 30 | | | (1,386 | ) | | (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) | | 3,535 | | | 1,358 | | | 1,037 | | | 244 | | | (1,268 | ) | | (526 | ) | | 4,380 | | | 4,746 | | | 1,643 | | | 918 | | | 404 | | | (179 | ) | | (511 | ) | | 7,021 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(1)
| 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. |
Impact of the financial markets turbulenceFinancial Markets Turbulence
In the second half of 2007, theThe financial markets crisis had its root cause in the mortgage marketsubprime crisis, when rising defaults on subprime mortgages in the United States triggered by serious disruptionresulted in significant deterioration of credit quality, led to a revaluation of credit risks. As a result, prices for various asset-backed securities (“ABS”), even for those with a high rating, were devalued significantly.securitized assets. Primarily, this affected collateralized debt obligations (“CDO”),(CDOs) and residential mortgage-backed securities especially those originating in the United States (“U.S. RMBS”)(U.S. RMBS). Furthermore, this turbulenceThe revaluation of these assets resulted in massive write-downs in the financial markets resulted in illiquidity inindustry. Subsequently, uncertainty about the primary markets whereextent and distribution of losses arose and the placement of structured products e.g. asset-backed commercial papers (“ABCP”) almost cameinterbank market started to a near stop. The liquidity shortagefreeze. This prompted central banks to take concerted action and provide the capital markets with additional liquidity.
In 2008, the crisis that started as a subprime mortgage crisis, broadly spilled over to other sectors of the financial industry and ultimately also hit the real economy. The turbulencesyear has been characterized by weak equity markets, volatile credit spreads and further declines in U.S. house and mortgage prices. The downgrading of monoline insurers (“monoliners”) led to further writedowns on derivatives contracts banks held with the insurers. Investors faced further downgrades and market losses on insured bonds. In September, the global financial system almost collapsed: large financial institutions faltered, leading to changes in business models, failures, mergers and nationalization. Furthermore, some economies were on the verge of national bancruptcy. These developments led to continuously deteriorating market sentiments and falling stock markets worldwide. Ultimately, governments took coordinated actions and announced rescue plans and guarantees for distressed institutions.
In common with the industry, Allianz was affected by the turbulence in the financial markets, alsowhich impacted our business development.both results and asset values. However, the impact varied depending on the differentacross our business segments.
Most of our insuranceOur operations were not affectedsignificantly impacted by these developments. The investment activitiesimpairments on equity and fixed-income securities as well as lower sales of theinvestment-oriented life insurance segments were onlyand asset management products. In addition, credit spread widening, higher volatility and lower interest rates impacted to a very limited extent, reflecting the high quality of the asset bases with no material CDOour trading and subprime exposure. Similarly, the impact on our Asset Management segment was marginal. In contrast, we had to record a significant impact of this crisis within the Banking segment, with the substantial portion being attributable to some business units of Dresdner Bank’s investment banking activities.fair value option (FVO) result significantly.
Impact on insurancethe 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 | ) |
Asset-backed securities exposure
Of our average Property-Casualty asset base, ABSasset-backed securities (ABS) made up €4.9€4.4 billion as of December 31, 2007,2008, which is around 5%. of our asset-base. CDOs accounted for €0.2€0.1 billion of this amount, of which €8 million are subprime-related. Losses on CDOs of €2 million were recorded in our equity. Realized losses of €12 million were reflected in the segment’s income.amount.
Within our Life/Health asset base, ABS amounted to €13.8€15.3 billion as of December 31, 2007,2008, which is less than 4%5% of total average Life/Health assets. Of these, €0.3 billion are CDOs of which none are subprime-related. No unrealizedCDOs. Unrealized losses on CDOs of €10 million were recorded in our shareholders’ equity. Realized losses of €7 million were reflected in the segment’s income.
Impact on investment banking activities of Dresdner Bank
Dresdner Bank is engaged in various business activities involving structured products. These comprise asset-backed securitiesSubprime exposures within CDOs of the trading book, credit enhancements, conduits, leveraged buy-out commitmentsinsurance 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 structured investment vehicles. Furthermore, Dresdner Bank has sold credit protection for third party ABS and has re-insured these positions with monoline insurers (“monoliners”).the transaction was executed in February 2009.
Asset-backed securities of the trading bookMonoline Exposure
The underlying collateral of asset-backed securities is a pool of assets.
As of December 31, 2007, Dresdner Bank carried ABS within trading assets2008, Allianz’s monoline exposure amounted to €547 million (December 31, 2007: €405 million), which mainly relate to bond insurance on the balance sheet of €15.1 billion and was, due to short derivative positions, economically exposed by €10.5 billion (comprising only drawn liquidity facilities) as of December 31, 2007. The majority of these ABS is of a high quality, as 89% of them were rated A or better. Only €1.6 billion of the net exposure is subprime.U.S. municipal bonds.
Breakdown of exposure by rating class
in %
After write-downs of €1.3 billion the netBond insurer exposure amounts to €9.2 billion as of December 31, 2007. It contains €1.5 billion CDOs, €1.4 billion U.S. RMBS and €6.3 billion other ABS. Because the financial markets turbulence mainly affected CDOs and U.S. RMBS, these net exposures are classified as “critical ABS”. We took substantial write-downs on CDOs and U.S. RMBS, recognizing the different quality and characteristics of the assets. The following table summarizes the write-downs on CDOs and U.S. RMBS.2008 (in € mn)
| | | | | | | |
Exposure type | | Exposure
as of
31/12/2007 | | Write-
downs
2007 | | in % of
exposure | |
| | | € mn | | € mn | | | |
U.S. RMBS | | | | | | | |
Prime | | 713 | | 71 | | 10 | % |
Midprime | | 336 | | 50 | | 15 | % |
Subprime | | 617 | | 206 | | 33 | % |
| | | | | | | |
Total U.S. RMBS | | 1,666 | | 327 | | 20 | % |
| | | | | | | |
CDO | | | | | | | |
High grade | | 1,615 | | 225 | | 14 | % |
Mezzanine | | 667 | | 534 | | 80 | % |
CDO-squared1) | | — | | — | | — | |
| | | | | | | |
Total CDO | | 2,282 | | 759 | | 33 | % |
| | | | | | | |
1)
| CDO-squared: CDO that is predominantly composed of other CDOs
|
| | | | | | | | | | | | |
| | | 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 |
| | | | | | | | | | | | |
Credit enhancements
Credit enhancements are one or more initiatives taken by the originator in a securitization structure to enhance the security, credit or the rating of the securitized instrument. In this context, Dresdner Bank offers protection against the risk of sharp and sudden decline of ratings of assets (so called risk gap protection) for conduit asset financing entities (“CAFE”) and second loss protection for credit investment related conduits (“CIRC”). Both structures primarily contain ABS.
The CAFE structures, primarily contain certain assets for which the Bank provides protection. Furthermore, the Bank is entitled to take assets that run the risk of being downgraded out of the portfolio. Thus, the Bank can only be drawn on if significant rating deteriorations occur. During the second half of 2007, theBond insurer exposure was reduced significantly to €0.1 billion.
Under the CIRC structures, Dresdner Bank provides second loss protection, whereas the first loss stays with the client. Additionally, the Bank is entitled to sell the portfolio to the market, if the value of this portfolio falls below a pre-defined threshold. Here as well, the exposure was reduced and, at December 31, 2007 was a notional amount of €2.8 billion.
Conduits
A conduit is a special purpose entity that securitizes its financial assets, e.g. receivables, by means of commercial papers.
Since the late nineties, Dresdner Bank arranges the securitization of third party and own asset portfolios through asset-backed commercial paper programmes (“ABCP”) via several conduits. The underlying pool of assets exhibits a good quality, with 74% having at least an A rating. Furthermore, none of the underlying assets are CDOs or subprime-related. Dresdner Bank has provided liquidity back-up lines of €12.4 billion of which €8.4 billion were undrawn at December 31, 2007.
Leveraged buy-out
A leveraged buy-out is a financing transaction involving a significant amount of debt.
Dresdner Bank provides credit lines for these transactions, the bulk of which are typically syndicated. As of December 31, 2007 Dresdner Bank has reduced its LBO exposure to €4.5 billion containing drawn and undrawn amounts, which includes €1.1 billion of loans held within Dresdner Bank’s loan portfolio. In 2007, provisions were recorded for this business of €30 million.(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 |
| | | | | | | | | | | | |
MonolinerImpact on discontinued operations of Dresdner Bank
Dresdner Bank has entered intowas engaged in various business relations with monoliners—companies that guarantee the repayment of a security and the corresponding interestactivities involving structured products. As presented in the event that the issuer defaults—in order to hedge the exposure fromtable below, these comprise ABS, credit protection sold for third party ABS.
enhancements, conduits, leveraged buy-out commitments (LBO) and structured investment vehicles (SIV). Furthermore, Dresdner Bank has provided credit protection via Credit Default Swaps (“CDS”) for ABS exposures. According to our risk policies, these CDS positions are re-insured with monoliners; only in case of a default of payment from the underlying assets and a breach of contractual duties of the monoliners will an ultimate loss occur. This loss amounts to the difference between the guaranteed amount from the monoliner and the value of the underlying assets. Dresdner Bank boughtsold credit protection for counterparty risks on monolinersthird-party ABS and has re-insured these positions with monoliners. With the
sale of notional €0.4 billion, reducingDresdner Bank in January 2009, Allianz’s exposure to these structured products was transferred to Commerzbank, with the net counterparty risk to €0.8 billionexception 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, 2007. Considering both, the quality of the underlying assets2008, as well as the credit risk of the monoline coverage bought, we believe our monoline–related critical assets amount to approximately €1.1 billion.further described under “Balance Sheet Review—Consolidated Special Purpose Entities” and “Balance Sheet Review—Off-Balance Sheet Arrangements”.
Structured Investment Vehicles (“SIV”)
A structured investment vehicle is an entity that primarily invests in long-term, high quality securities. The investments are refinanced by medium term notes (“MTN”) or commercial papers (“CP”).
| | | | | | | | | | |
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 |
For the structured, not consolidated SIV “K2”, in which Dresdner Bank holds a share of 3.5%, the Bank serves as an asset manager and provides liquidity back-up lines and repurchase agreements on an arms-length basis. This SIV is refinanced by CPs, MTNs, repos and capital notes. Since September 2007, the volume of K2 has been reduced by almost 30% to €16.4 billion.
(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”. |
(3) | Gross counterparty risk after counterparty default adjustments (CDA) |
On March 18, 2008, Dresdner Bank and K2 Corporation entered into an agreement through which Dresdner Bank will provide a support facility to the Structured Investment Vehicle, K2. The agreement, which consists of a U.S.$1,500,000,000 committed revolving mezzanine credit facility and a ‘backstop’ facility, follows the announcement by Dresdner Bank onFebruary 21, 2008 that it intended to offer support to K2.
The mezzanine credit facility provides K2 with immediate additional liquidity, allowing K2 to draw-down funds for terms up to the maturity date of its longest dated senior debt obligations. Under the terms of the backstop facility, Dresdner Bank has undertaken to provide to K2 firm prices at which it will purchase assets from K2 in the event that K2 is unable to obtain better prices for such assets on the open market. The aggregate of such prices provided by Dresdner Bank will at all times equate to an amount that ensures K2 has sufficient funds to repay its senior debt in full.
Valuation methods
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 other ABS-based products declined significantly. Although the steep decline of certain market prices might not always have been rational from an economic perspective (e.g. due to forced sales), the Allianz Group has adhered to strict principles in measuring the affected financial instruments at fair value.
Whenever possible the fair value is determined using the market prices available in active markets. If there is no quoted market price available, valuation techniques are used which are based on market prices of comparable instruments or parameters from comparable active markets (market observable inputs). If no observable market inputs are available valuation models are used (non-market observable inputs).
As a benchmark for the ABS of the trading book, the ABX index was applied. Because the ABX.HE (Home Equity) index represents a standardized basket of Home Equity ABS reference obligations, the Allianz Group believes that it provides an adequate valuation standard. The ABS portfolio was divided into sub-portfolios based on certain criteria, such as the underlying product category, the rating or the vintage. The valuation was based on the respective ABX-prices. For a large part of the RMBS portfolio, market quotes were available and used for valuation purposes. For the so-called “prime” assets (only certain RMBS), the Allianz Group has not used the ABX index, because the index only represents the subprime market. In this case, the Allianz Group took the midpoint of prices provided by other market participants for prime assets and used them as a valuation input.
Because there are no generally valid market standards existing in these areas, the valuation methods are naturally limited, so that alternative assumptions and input parameters would generate different results.
Recently Adopted and Issued Accounting Pronouncements and Changes in the Presentation of the Consolidated Financial Statements
For information on recently adopted and issued accounting pronouncements please seerefer to Note 3 to our consolidated financial statements.
Events After the Balance Sheet Date
SeeRefer to “—Recent and Expected Developments—Economic Outlook” and Note 52 to the consolidated financial statements.
Property-Casualty Insurance Operations
Year ended December 31, 2008 compared to year ended December 31, 2007
Strong operating profit of €5,649 million largely unaffected by financial market crisis.
Selective growth achieved in mixed pricing environments.
Combined ratio of 95.1% close to our target.
Year ended December 31, 2007 compared to year ended December 31, 2006
Emerging markets contributed more than €4 billion to steadily growing premiums.
Profitability sustained throughout the cycle.
Year ended December 31, 2006 compared to year ended December 31, 2005
Underwriting performance drove operating profitability.
Very competitive combined ratio of 92.9%.
Further operating profit growth of 22% to €6.3 billion after an already strong year in 2005.
We sustained our successful strategy of selective use of market opportunities.
Net income increased 34.3% to €4.7 billion.
Earnings Summary
Gross premiums written
Gross premiums written by regionwritten-Internal growth rates(1)
in %
(1) | After elimination of transactions between Allianz Group companies indifferent geographic regions and different segments. Gross premiums written from our specialty lines have been allocated to the respective geographic regions.
|
Gross premiums written—Growth rates(1)
in %
(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) | Together withWe comment on the development of our property-casualty assumed reinsurance business, primarily attributablegross 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 SE, the decline within Germany was (6.0)% (2006: (1.9)%).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(1)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 9.2%9.7% (2006: 7.2%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 weaknessweak situation in the motor market. Main contributions came from industrial and personal lines.
(1)
| New Europe, Asia-Pacific, South America, Mexico, Middle East and Northern Africa.
|
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 developmentdevelopments 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”)(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”)(AGCS). Otherwise, premium volume increased by €185 million mainly coming from personal motor and commercial lines.
Year endedGross premiums written by region as of December 31, 2006 compared to year ended December2008 (December 31, 20052007)(1)
in %
In 2006, our underwriting strategy of putting profitability ahead of volume was again successful. Gross premiums written were flat at €43,674 million
reflecting average constant prices and a slightly increased sales volume, with considerably varying developments across our different markets. Increases in gross premiums written were primarily achieved within Spain (+ €140 million) and the United States (+ €115 million), as well as our emerging markets of New Europe (+ €117 million) and South America (+ €153 million). Lower gross premiums written were recorded within Germany, in Switzerland at Allianz Risk Transfer (or “ART”) and within our specialty lines at Allianz Global Corporate & Specialty. On an internal growth basis, gross premiums written grew marginally by 0.3%.
We continued to benefit from our global diversification and the measures implemented as part of our Sustainability Program which allow us to take selective advantage of market opportunities and to perform local market cycle management.
| (1) | After elimination of transactions between Allianz Group companies in different geographic regions and different segments. Gross premiums written from our specialty lines have been allocated to the respective geographic regions. |
At Allianz Sach within Germany, we closely monitored pricing development in order to maintain profitability. Premiums in our motor business were down, reflecting largely lower prices. The development in our casualty lines primarily due to increased sales of accident insurance products with premium refunds, however, compensated partially for the decline in motor. An additional factor contributing to the lower premiums within Germany was that the Allianz Group’s Property-Casualty subsidiaries outside of Germany reduced their internal reinsurance cessions to Allianz SE.
In some markets, such as the United States and Spain, we recorded increasing volumes while being able to maintain stable, profitable prices. Two lines of business contributing to the increased business volume at Fireman’s Fund in the United States were the crop insurance business and specialty casualty lines. The positive development in Spain was attributable to higher sales across all lines of business.
The decrease of €207 million in Switzerland reflected an increase in gross premiums written at Allianz Suisse due to a favorable development in our motor business and lower premium volume at ART. At ART, in 2005, we benefited from a large single premium multi-year contract.
Within New Europe, the increase in gross premiums written took place in a well-performing
economy. Our distribution network captured a significant part of the growing market potential. The expanded sales capacity in Poland was the key driver for the growth of our property-casualty portfolio. In contrast, in Hungary, we were willing to forego volume for better prices and thereby protected our profitability.
In South America, our operations benefited predominantly from growth in our Brazilian motor business driven by a continued good performance of the fleet business and an increase of new car sales.
At AGCS gross premiums written were down €142 million to €2,802 million. This development was to a large extent brought about by foregoing business volume as a result of declining prices mainly in Europe.
Operating profit
Operating profit
in € mn
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 ended December 31, 20062008 compared to year ended December 31, 20052007
Operating profit showed a strong increase of 21.9%The non-operating result decreased by €675 million to €6,269 million. The top three contributing operations to our operating profit growth were AGCS at €658€287 million, the United States at €328 million and France at €193 million. In Italy and Switzerland we also experienced strong increases of €75 million each. The decrease within Germany by €286 million stemmed from declines of a similar magnitude at both Allianz Sach and Allianz SE. Lower gross premiums written, previously described, were the primary factor for the decline in operating profit at Allianz Sach. At Allianz SE, operating profit was down mainly due to lower premium incomeprimarily as a result of decreased internal cessionshigher impairments of investments. These impairments more than offset higher net realized gains.
Net realized gains from Allianz Group companies outsideinvestments increased by €916 million to €2,349 million mainly due to forward sales of Germany, as well asparticipations in RWE, Linde and Siemens which were already locked-in in 2007.
Non-operating impairments on investments increased loss estimates for Hurricane Katrinaby €1,736 million to €2,012 million, reflecting the overall weakness in the United States in 2005.
Our significantly improved underwriting profitability was the main driver behind these strong developments, with excellent combined ratios across
allfinancial markets. Driven by the improvement of our loss ratio, our combined ratio was down to 92.9%, 1.4 percentage points better than in 2005. Thereby, we surpassed our target of 95% and further solidified our competitive position within the property-casualty market.
In 2006, we recorded both lower severity and frequency of claims. The exceptionally high losses from natural catastrophes in the prior year were not repeated. In addition, our motor business experienced severity increases which were clearly lower than inflation. Accordingly, our accident year loss ratio improved by 2.8 percentage points to 67.6%.
Overall, claims and insurance benefits incurred (net), at €24,672 million in 2006, were down 2.6% from a year ago. As a result, our calendar year loss ratio improved by 2.2 percentage points to 65.0%. The difference between the improvement of our loss ratio based on accident year compared to that based on calendar year is due to lower run-offs in 2006 compared to 2005. We continued to deliver positive net development on prior years’ loss reserves primarily in Italy, France, the United Kingdom and within our credit insurance business. Partially, we attribute this positive development to the measures we undertook in the context of our Sustainability Program, such as improved claims management processes in many companies.
Acquisition and administrative expenses (net), at €10,590 million in 2006, were €374 million higher than last year. This drove our expense ratio up by 80 basis points to 27.9%.
However, in the amount of €109 million, these developments resulted from the inclusion of additional net expenses in acquisition and administrative expenses, previously not included in this item. Further important factors were strategic project-related expenses associated with our initiatives for future profit growth, such as our Sustainability Program, as well as increased accruals for retirements in Germany and additional pension accruals. Increased accruals for retirements arose, among other factors, from the facilitation of the use of early retirement schemes due to pension law changes in Germany, of which many employees at Allianz Sach took advantage.
Interest and similar income rose by €349 million to €4,096 million, reflecting higher dividends received, improved yields from debt securities due to slightly higher coupon payments, and our growing asset base. Realized gains/losses (net) from investments, shared with policyholders, declined by €227 million to €46 million. In 2005, realizations from available-for-sale equity investments in connection with accident insurance products with premium refunds in Germany were exceptionally high due to a strategy change at the fund managing these assets. This had an impact of a similar, but opposite, magnitude on changes in reserves for insurance and investment contracts (net), which amounted to a net expense of €425 million in 2006 compared to a net expense of €707 million a year earlier.
Non-operating result
Year ended December 31, 2007 compared to year ended December 31, 2006
In total, non-operating items decreased by 25.5% to €962 million mainly coming from lower net realized gains, a negative trading result and higher impairments of investments. These effects could not be balanced by lower restructuring charges.
Net realized gains from investments decreased significantly by 17.9% to €1,433 million from a year earlier largely as a result of the sale of our participation in Schering AG and the disposal of a real estate portfolio in Austria at that time. Conversely, no major single sales transactions were recorded in 2007.
Non-operating net impairments of investments increased to €276 million, reflecting impairments of available-for-sale equity securities.
Restructuring charges were down by two thirds to €122 million as the prior year’s figure reflected the impact from the reorganization of our German insurance operations that was not repeated in 2007.
Net income
Year ended December 31, 20062008 compared to year ended December 31, 20052007
Non-operatingThe lower operating profit and the decrease in non-operating items were the main drivers of the 16.2% reduction in aggregate, resulted in a gain of €1,291 million, up €267 million from a year ago. This improvement is principally the result of increased realized gains which were only partially offset by higher impacts from impairments of investments and restructuring charges.net income to €4,335 million.
Realized gains/losses (net)Income tax expenses decreased to €1,489 million. The effective tax rate increased from investments, not shared with policyholders, amounted22.8% to €1,746 million, €598 million higher than last year.25.1%. The transactions contributing mostlow tax rate in 2007 was mainly driven by tax benefits due to this increase were the sale of Allianz Sach’s participationtax reform in Schering AGGermany and the disposal of our real estate portfoliotax rate changes in Austria in June 2006, as well as the sale of Lloyd Adriatico’s shareholding in Banca Antoniana Popolare Veneta S.p.A. in April 2006, which together accounted for €726 million of the increase.Italy and France.
Non-operating impairmentsMinority interests in earnings of investments (net) rose by €98€112 million to €175 million, toshowed a large extent brought about by impairments of available-for-sale equity securities indecline on the second quarter of 2006prior year following the minority buy-out at Allianz Sach following at that time the downward trend in the equity capital markets.
Restructuring charges were up €294 million to €362 million, stemming primarily from the reorganization of our German insurance operations.
Net incomeAGF.
Year ended December 31, 2007 compared to year ended December 31, 2006
Net income increased by 9.0% to €5,174 million. Our effective tax rate further declined from 27.4% to 22.8%. Income tax expenses were down significantly to €1,656 million. This development benefited particularly from the German tax reform. Additionally lower minority interests in earnings contributed €308 million to income growth. This resulted primarily from the minority buy-out at RAS in Italy and at AGF in France.
Year ended December 31, 2006 compared to year ended December 31, 2005
Net income increased 34.3% to €4,746 million, driven both by our significantly improved operating profitability and the higher gain from non-operating items.
Income tax expenses rose by 15.0% and amounted to €2,075 million. Our effective tax rate declined from 29.3% to 27.4%, largely due to the capitalization of corporate tax credits in Germany.
Minority interests in earnings decreased by 10.6% to €739 million primarily as a result of the minority buyout at RAS in Italy.
The following table sets forth our Property-Casualty insurance segment’s income statement, loss ratio, expense ratio and combined ratio for the years ended December 31, 2008, 2007 2006 and 2005.2006.
| | | | | | | | | |
as of and for the years ended December 31, | | 2007 | | | 2006 | | | 2005 | |
| | | € mn | | | € mn | | | € mn | |
Gross premiums written(1) | | 44,289 | | | 43,674 | | | 43,699 | |
Ceded premiums written | | (5,320 | ) | | (5,415 | ) | | (5,529 | ) |
Change in unearned premiums | | (416 | ) | | (309 | ) | | (485 | ) |
| | | | | | | | | |
Premiums earned (net) | | 38,553 | | | 37,950 | | | 37,685 | |
| | | | | | | | | |
Interest and similar income | | 4,473 | | | 4,096 | | | 3,747 | |
Income from financial assets and liabilities designated at fair value through income (net)(2) | | 136 | | | 106 | | | 132 | |
Income from financial assets and liabilities held for trading (net), shared with policyholder(2) | | 8 | | | — | | | — | |
Realized gains/losses (net) from investments, shared with policyholders(3) | | 46 | | | 46 | | | 273 | |
Fee and commission income | | 1,178 | | | 1,014 | | | 989 | |
Other income | | 122 | | | 69 | | | 53 | |
| | | | | | | | | |
Operating revenues | | 44,516 | | | 43,281 | | | 42,879 | |
| | | | | | | | | |
Claims and insurance benefits incurred (net) | | (25,485 | ) | | (24,672 | ) | | (25,331 | ) |
Changes in reserves for insurance and investment contracts (net) | | (339 | ) | | (425 | ) | | (707 | ) |
Interest expense | | (402 | ) | | (273 | ) | | (339 | ) |
Loan loss provisions | | (6 | ) | | (2 | ) | | (1 | ) |
Impairments of investments (net), shared with policyholders(4) | | (67 | ) | | (25 | ) | | (18 | ) |
Investment expenses | | (322 | ) | | (300 | ) | | (333 | ) |
Acquisition and administrative expenses (net) | | (10,616 | ) | | (10,590 | ) | | (10,216 | ) |
Fee and commission expenses | | (967 | ) | | (721 | ) | | (775 | ) |
Other expenses | | (13 | ) | | (4 | ) | | (17 | ) |
| | | | | | | | | |
Operating expenses | | (38,217 | ) | | (37,012 | ) | | (37,737 | ) |
| | | | | | | | | |
Operating profit | | 6,299 | | | 6,269 | | | 5,142 | |
| | | | | | | | | |
Income from financial assets and liabilities held for trading (net), not shared with policyholders(2) | | (59 | ) | | 83 | | | 32 | |
Realized gains/losses (net) from investments, not shared with policyholders(3) | | 1,433 | | | 1,746 | | | 1,148 | |
Impairments of investments (net), not shared with policyholders(4) | | (276 | ) | | (175 | ) | | (77 | ) |
Amortization of intangible assets | | (14 | ) | | (1 | ) | | (11 | ) |
Restructuring charges | | (122 | ) | | (362 | ) | | (68 | ) |
| | | | | | | | | |
Non-operating items | | 962 | | | 1,291 | | | 1,024 | |
| | | | | | | | | |
Income before income taxes and minority interests in earnings | | 7,261 | | | 7,560 | | | 6,166 | |
Income taxes | | (1,656 | ) | | (2,075 | ) | | (1,804 | ) |
Minority interests in earnings | | (431 | ) | | (739 | ) | | (827 | ) |
| | | | | | | | | |
Net income | | 5,174 | | | 4,746 | | | 3,535 | |
| | | | | | | | | |
Loss ratio(5) in % | | 66.1 | | | 65.0 | | | 67.2 | |
Expense ratio(6) in % | | 27.5 | | | 27.9 | | | 27.1 | |
Combined ratio(7) in % | | 93.6 | | | 92.9 | | | 94.3 | |
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 Property-Casualty segment, total revenues are measured based upon gross premiums written. |
(2)(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 included in Note 56 to the consolidated financial statements. |
(3)(4)
| The total of these items equals realized gains/losses (net) in the segment income statement included in Note 56 to the consolidated financial statements. |
(4)(5)
| The total of these items equals impairments of investments (net) in the segment income statement included in Note 56 to the consolidated financial statements. |
(5)(6)
| Represents claims and insurance benefits incurred (net) divided by premiums earned (net). |
(6)(7)
| Represents acquisition and administrative expenses (net) divided by premiums earned (net). |
(7)(8)
| Represents the total of acquisition and administrative expenses (net) and claims and insurance benefits incurred (net) divided by premiums earned (net). |
Property-Casualty Operations by Geographic RegionBusiness Division
The following table sets forth our Property-Casualty gross premiums written, premiums earned (net), combined ratio, loss ratio, expense ratio and operating profit by geographic regionbusiness division for the years ended December 31, 2008, 2007 2006 and 2005.2006. Consistent with our general practice, these figures are presented before consolidation adjustments, representing the elimination of transactions between Allianz Group companies in different geographic regions and different segments.
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Gross premiums written
€ mn | | | Premiums earned (net)
€ mn | | Operating profit
€ mn | |
| | | 2007 | | | 2006 | | | 2005 | | | 2007 | | 2006 | | 2005 | | 2007 | | 2006 | | | 2005 | |
Germany | | 10,746 | | | 11,427 | | | 11,647 | | | 9,245 | | 9,844 | | 10,048 | | 1,628 | | 1,479 | | | 1,765 | |
Italy | | 5,229 | | | 5,396 | | | 5,369 | | | 4,902 | | 4,935 | | 4,964 | | 719 | | 816 | | | 741 | |
France | | 5,086 | | | 5,110 | | | 5,104 | | | 4,422 | | 4,429 | | 4,375 | | 486 | | 420 | | | 227 | |
United Kingdom | | 2,236 | | | 2,396 | | | 2,449 | | | 1,989 | | 1,874 | | 1,913 | | 208 | | 281 | | | 268 | |
Spain | | 2,136 | | | 2,013 | | | 1,873 | | | 1,820 | | 1,675 | | 1,551 | | 253 | | 252 | | | 217 | |
Switzerland | | 1,804 | | | 1,805 | | | 2,012 | | | 1,595 | | 1,706 | | 1,708 | | 218 | | 228 | | | 153 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Netherlands | | 927 | | | 926 | | | 930 | | | 809 | | 813 | | 823 | | 108 | | 150 | | | 135 | |
Austria | | 915 | | | 922 | | | 935 | | | 748 | | 782 | | 773 | | 86 | | 82 | | | 92 | |
Ireland | | 691 | | | 704 | | | 733 | | | 614 | | 622 | | 653 | | 180 | | 222 | | | 204 | |
Belgium | | 374 | | | 356 | | | 352 | | | 301 | | 298 | | 293 | | 40 | | 30 | | | 24 | |
Portugal | | 283 | | | 287 | | | 304 | | | 246 | | 258 | | 275 | | 38 | | 36 | | | 32 | |
Greece | | 79 | | | 74 | | | 71 | | | 50 | | 46 | | 46 | | 9 | | 10 | | | 11 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Western and Southern Europe1) | | 3,269 | | | 3,269 | | | 3,325 | | | 2,768 | | 2,819 | | 2,863 | | 482 | | 550 | | | 494 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Russia2) | | 678 | | | 30 | | | 24 | | | 574 | | 4 | | 12 | | 7 | | 1 | | | 2 | |
Hungary | | 580 | | | 575 | | | 598 | | | 502 | | 499 | | 523 | | 73 | | 68 | | | 63 | |
Poland | | 367 | | | 283 | | | 235 | | | 246 | | 200 | | 160 | | 24 | | 20 | | | 12 | |
Romania | | 341 | | | 291 | | | 219 | | | 155 | | 132 | | 125 | | 11 | | 11 | | | 11 | |
Slovakia | | 319 | | | 288 | | | 300 | | | 273 | | 251 | | 251 | | 112 | | 52 | | | 82 | |
Czech Republic | | 249 | | | 253 | | | 242 | | | 183 | | 179 | | 160 | | 41 | | 29 | | | 27 | |
Bulgaria | | 103 | | | 95 | | | 91 | | | 70 | | 70 | | 37 | | 16 | | 16 | | | 14 | |
Croatia | | 86 | | | 70 | | | 60 | | | 63 | | 53 | | 45 | | 2 | | 4 | | | 2 | |
| | | | | | | | | | | | | | | | | | | | | | | |
New Europe3) | | 2,723 | | | 1,885 | | | 1,769 | | | 2,067 | | 1,388 | | 1,313 | | 256 | | 184 | | | 213 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Other Europe | | 5,992 | | | 5,154 | | | 5,094 | | | 4,835 | | 4,207 | | 4,176 | | 738 | | 734 | | | 709 | |
| | | | | | | | | | | | | | | | | | | | | | | |
United States | | 4,306 | | | 4,510 | | | 4,395 | | | 3,341 | | 3,523 | | 3,478 | | 651 | | 810 | | | 482 | |
Mexico4) | | 201 | | | 192 | | | 175 | | | 86 | | 100 | | 88 | | 12 | | 15 | | | 13 | |
| | | | | | | | | | | | | | | | | | | | | | | |
NAFTA | | 4,507 | | | 4,702 | | | 4,570 | | | 3,427 | | 3,623 | | 3,566 | | 663 | | 825 | | | 495 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Australia | | 1,543 | | | 1,452 | | | 1,469 | | | 1,245 | | 1,195 | | 1,159 | | 296 | | 225 | | | 235 | |
Other | | 349 | | | 310 | | | 280 | | | 170 | | 141 | | 121 | | 16 | | 19 | | | 17 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Asia-Pacific | | 1,892 | | | 1,762 | | | 1,749 | | | 1,415 | | 1,336 | | 1,280 | | 312 | | 244 | | | 252 | |
| | | | | | | | | | | | | | | | | | | | | | | |
South America | | 918 | | | 869 | | | 716 | | | 692 | | 623 | | 510 | | 55 | | 47 | | | 61 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Other | | 95 | | | 68 | | | 58 | | | 50 | | 32 | | 30 | | 9 | | 9 | | | 7 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Specialty lines | | | | | | | | | | | | | | | | | | | | | | | |
Allianz Global Corporate & Specialty | | 2,811 | | | 2,802 | | | 2,944 | | | 1,800 | | 1,545 | | 1,633 | | 414 | | 404 | | | (254 | ) |
Credit Insurance | | 1,762 | | | 1,672 | | | 1,725 | | | 1,268 | | 1,113 | | 997 | | 496 | | 442 | | | 420 | |
Travel Insurance and Assistance Services | | 1,139 | | | 1,044 | | | 991 | | | 1,093 | | 1,008 | | 934 | | 97 | | 90 | | | 77 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Subtotal | | 46,353 | | | 46,220 | | | 46,301 | | | 38,553 | | 37,950 | | 37,685 | | 6,296 | | 6,271 | | | 5,138 | |
Consolidation6) | | (2,064 | ) | | (2,546 | ) | | (2,602 | ) | | — | | — | | — | | 3 | | (2 | ) | | 6 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Total | | 44,289 | | | 43,674 | | | 43,699 | | | 38,553 | | 37,950 | | 37,685 | | 6,299 | | 6,269 | | | 5,142 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Property-Casualty Operations by Business Division
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 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)(1)
| Reflect gross premiums written on an internal basis (adjusted for foreign currency translation and (de-)consolidation effects). |
(2) | Reinsurance business of Allianz Suisse was transferred to Allianz SE. Effective 1Q 2008, renewal business is shown in Germany, and run-off business is shown in Switzerland. |
(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 run-off of€16 mn, €21 mn and €20 mn for 2008, 2007 and €(4) mn in 2007, 2006, and 2005 respectively, from a former operating entity located in Luxembourg.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.
| | | | | | | | | | | | | | | | | | |
| | | Combined ratio | | Loss ratio | | Expense ratio |
| | | 2008 | | 2007 | | 2006 | | 2008 | | 2007 | | 2006 | | 2008 | | 2007 | | 2006 |
| | | % | | % | | % | | % | | % | | % | | % | | % | | % |
Germany(2) | | 95.0 | | 91.0 | | 92.0 | | 69.5 | | 64.9 | | 64.9 | | 25.5 | | 26.1 | | 27.1 |
Switzerland(2) | | 92.8 | | 95.1 | | 92.8 | | 70.2 | | 69.5 | | 69.3 | | 22.6 | | 25.6 | | 23.5 |
Austria | | 93.7 | | 95.8 | | 98.4 | | 70.1 | | 73.1 | | 73.1 | | 23.6 | | 22.7 | | 25.3 |
| | | | | | | | | | | | | | | | | | |
German Speaking Countries | | 94.6 | | 92.0 | | 92.7 | | 69.6 | | 66.3 | | 66.4 | | 25.0 | | 25.7 | | 26.3 |
| | | | | | | | | | | | | | | | | | |
Italy | | 96.7 | | 94.8 | | 91.8 | | 73.1 | | 71.2 | | 68.8 | | 23.6 | | 23.6 | | 23.0 |
Spain | | 90.4 | | 91.4 | | 90.3 | | 69.9 | | 71.6 | | 71.0 | | 20.5 | | 19.8 | | 19.3 |
South America | | 98.5 | | 99.0 | | 101.2 | | 65.1 | | 62.9 | | 64.8 | | 33.4 | | 36.1 | | 36.4 |
Portugal | | 92.5 | | 91.6 | | 91.2 | | 65.0 | | 65.9 | | 64.4 | | 27.5 | | 25.7 | | 26.8 |
Turkey(3) | | 109.5 | | — | | — | | 85.6 | | — | | — | | 23.9 | | — | | — |
Greece | | 90.4 | | 88.7 | | 92.4 | | 59.9 | | 58.2 | | 57.7 | | 30.5 | | 30.5 | | 34.7 |
| | | | | | | | | | | | | | | | | | |
Europe I incl. South America | | 95.4 | | 94.2 | | 92.2 | | 71.4 | | 70.3 | | 68.7 | | 24.0 | | 23.9 | | 23.5 |
| | | | | | | | | | | | | | | | | | |
France(4) | | 97.2 | | 97.3 | | 99.2 | | 69.3 | | 70.9 | | 71.0 | | 27.9 | | 26.4 | | 28.2 |
Credit Insurance | | 104.3 | | 76.5 | | 77.6 | | 77.6 | | 47.9 | | 49.7 | | 26.7 | | 28.6 | | 27.9 |
Travel Insurance and Assistance Services | | 93.3 | | 93.7 | | 101.8 | | 57.6 | | 58.1 | | 58.7 | | 35.7 | | 35.6 | | 43.1 |
Netherlands | | 97.7 | | 94.1 | | 88.7 | | 67.4 | | 62.0 | | 57.1 | | 30.3 | | 32.1 | | 31.6 |
Belgium(4) | | 96.7 | | 102.3 | | 104.5 | | 60.2 | | 65.7 | | 66.9 | | 36.5 | | 36.6 | | 37.6 |
Africa | | 91.7 | | 92.7 | | 89.1 | | 48.8 | | 53.2 | | 39.8 | | 42.9 | | 39.5 | | 49.3 |
| | | | | | | | | | | | | | | | | | |
Europe II incl. Africa | | 98.0 | | 93.5 | | 95.8 | | 68.3 | | 64.5 | | 64.8 | | 29.7 | | 29.0 | | 31.0 |
| | | | | | | | | | | | | | | | | | |
United States | | 101.2 | | 91.1 | | 88.6 | | 74.4 | | 61.3 | | 57.9 | | 26.8 | | 29.8 | | 30.7 |
Mexico(6) | | 94.4 | | 95.0 | | 102.5 | | 70.0 | | 71.6 | | 78.8 | | 24.4 | | 23.4 | | 23.7 |
NAFTA | | 101.0 | | 91.2 | | 88.9 | | 74.3 | | 61.6 | | 58.4 | | 26.7 | | 29.6 | | 30.5 |
Reinsurance PC | | 87.9 | | 94.1 | | 95.6 | | 62.0 | | 64.6 | | 65.8 | | 25.9 | | 29.5 | | 29.8 |
Allianz Global Corporate & Specialty | | 89.5 | | 96.0 | | 92.2 | | 62.3 | | 67.9 | | 62.5 | | 27.2 | | 28.1 | | 29.7 |
AZ Insurance plc | | 94.7 | | 98.7 | | 94.3 | | 60.4 | | 65.4 | | 63.0 | | 34.3 | | 33.3 | | 31.3 |
Australia | | 97.1 | | 95.7 | | 96.2 | | 72.7 | | 70.8 | | 70.3 | | 24.4 | | 24.9 | | 25.9 |
Ireland | | 91.9 | | 95.1 | | 74.4 | | 67.0 | | 69.6 | | 50.2 | | 24.9 | | 25.5 | | 24.2 |
ART | | 81.3 | | — | | — | | 31.3 | | — | | — | | 50.0 | | — | | — |
| | | | | | | | | | | | | | | | | | |
Anglo Broker Markets/Global Lines | | 94.0 | | 94.6 | | 91.7 | | 66.3 | | 65.3 | | 62.1 | | 27.7 | | 29.3 | | 29.6 |
| | | | | | | | | | | | | | | | | | |
Russia(7) | | 101.1 | | 104.2 | | 88.5 | | 59.7 | | 64.7 | | 34.7 | | 41.4 | | 39.5 | | 53.8 |
Hungary | | 93.3 | | 96.7 | | 97.0 | | 61.2 | | 67.1 | | 64.8 | | 32.1 | | 29.6 | | 32.2 |
Poland | | 93.3 | | 94.4 | | 92.8 | | 60.7 | | 58.6 | | 57.4 | | 32.6 | | 35.8 | | 35.4 |
Romania | | 102.0 | | 101.2 | | 92.0 | | 73.1 | | 79.7 | | 72.4 | | 28.9 | | 21.5 | | 19.6 |
Slovakia | | 77.5 | | 66.8 | | 86.4 | | 46.1 | | 38.2 | | 55.4 | | 31.4 | | 28.6 | | 31.0 |
Czech Republic | | 80.8 | | 79.5 | | 82.6 | | 60.5 | | 56.7 | | 61.4 | | 20.3 | | 22.8 | | 21.2 |
Bulgaria | | 77.8 | | 85.5 | | 80.2 | | 48.0 | | 43.6 | | 41.7 | | 29.8 | | 41.9 | | 38.5 |
Croatia | | 97.7 | | 100.1 | | 95.6 | | 64.8 | | 65.1 | | 63.8 | | 32.9 | | 35.0 | | 31.8 |
New Europe(8) | | 92.7 | | 94.3 | | 92.0 | | 59.0 | | 60.8 | | 61.1 | | 33.7 | | 33.5 | | 30.9 |
Asia-Pacific (excl. Australia) | | 96.9 | | 98.6 | | 93.8 | | 63.0 | | 60.2 | | 55.7 | | 33.9 | | 38.4 | | 38.1 |
Middle East | | 127.2 | | 105.3 | | 101.9 | | 66.0 | | 60.2 | | 33.0 | | 61.2 | | 45.1 | | 68.9 |
| | | | | | | | | | | | | | | | | | |
Growth Markets | | 93.4 | | 94.7 | | 92.1 | | 59.4 | | 60.7 | | 60.4 | | 34.0 | | 34.0 | | 31.7 |
Consolidation(9) | | — | | — | | — | | — | | — | | — | | — | | — | | — |
| | | | | | | | | | | | | | | | | | |
Total | | 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. |
2)(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. |
3)(8)
| Contains income and expense items from a management holding in both 2007 and 2006.holding. |
4)
| Effective 1Q 2007, life business in Mexico is shown within the Life/Health segment.
|
5)
| Presentation not meaningful.
|
6)
| Represents elimination of transactions between Allianz Group companies in different geographic regions.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Combined ratio
% | | | Loss ratio
% | | | Expense ratio
% | |
| | | 2007 | | | 2006 | | | 2005 | | | 2007 | | | 2006 | | | 2005 | | | 2007 | | | 2006 | | | 2005 | |
Germany | | 91.6 | | | 92.9 | | | 89.4 | | | 64.8 | | | 65.1 | | | 63.0 | | | 26.8 | | | 27.8 | | | 26.4 | |
Italy | | 94.8 | | | 91.8 | | | 93.6 | | | 71.2 | | | 68.8 | | | 69.3 | | | 23.6 | | | 23.0 | | | 24.3 | |
France | | 97.3 | | | 99.2 | | | 102.0 | | | 70.9 | | | 71.0 | | | 74.0 | | | 26.4 | | | 28.2 | | | 28.0 | |
United Kingdom | | 99.6 | | | 95.7 | | | 96.2 | | | 66.3 | | | 64.1 | | | 65.4 | | | 33.3 | | | 31.6 | | | 30.8 | |
Spain | | 91.4 | | | 90.3 | | | 91.4 | | | 71.6 | | | 71.0 | | | 71.4 | | | 19.8 | | | 19.3 | | | 20.0 | |
Switzerland | | 95.1 | | | 92.8 | | | 97.8 | | | 69.5 | | | 69.3 | | | 74.9 | | | 25.6 | | | 23.5 | | | 22.9 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Netherlands | | 94.1 | | | 88.7 | | | 91.3 | | | 62.0 | | | 57.1 | | | 60.5 | | | 32.1 | | | 31.6 | | | 30.8 | |
Austria | | 95.8 | | | 98.4 | | | 98.3 | | | 73.1 | | | 73.1 | | | 72.4 | | | 22.7 | | | 25.3 | | | 25.9 | |
Ireland | | 95.1 | | | 74.4 | | | 76.9 | | | 69.6 | | | 50.2 | | | 53.8 | | | 25.5 | | | 24.2 | | | 23.1 | |
Belgium | | 102.3 | | | 104.5 | | | 104.1 | | | 65.7 | | | 66.9 | | | 66.1 | | | 36.6 | | | 37.6 | | | 38.0 | |
Portugal | | 91.6 | | | 91.2 | | | 92.8 | | | 65.9 | | | 64.4 | | | 67.0 | | | 25.7 | | | 26.8 | | | 25.8 | |
Greece | | 88.7 | | | 92.4 | | | 82.0 | | | 58.2 | | | 57.7 | | | 49.7 | | | 30.5 | | | 34.7 | | | 32.3 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Western and Southern Europe(1) | | 95.4 | | | 90.2 | | | 91.2 | | | 67.4 | | | 61.7 | | | 63.2 | | | 28.0 | | | 28.5 | | | 28.0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Russia2) | | 104.2 | | | 88.5 | | | 22.9 | | | 64.7 | | | 34.7 | | | 5.8 | | | 39.5 | | | 53.8 | | | 17.1 | |
Hungary | | 96.7 | | | 97.0 | | | 101.6 | | | 67.1 | | | 64.8 | | | 70.7 | | | 29.6 | | | 32.2 | | | 30.9 | |
Poland | | 94.4 | | | 92.8 | | | 93.3 | | | 58.6 | | | 57.4 | | | 59.7 | | | 35.8 | | | 35.4 | | | 33.6 | |
Romania | | 101.2 | | | 92.0 | | | 94.8 | | | 79.7 | | | 72.4 | | | 75.8 | | | 21.5 | | | 19.6 | | | 19.0 | |
Slovakia | | 66.8 | | | 86.4 | | | 74.5 | | | 38.2 | | | 55.4 | | | 43.2 | | | 28.6 | | | 31.0 | | | 31.3 | |
Czech Republic | | 79.5 | | | 82.6 | | | 85.7 | | | 56.7 | | | 61.4 | | | 63.8 | | | 22.8 | | | 21.2 | | | 21.9 | |
Bulgaria | | 85.5 | | | 80.2 | | | 66.6 | | | 43.6 | | | 41.7 | | | 27.0 | | | 41.9 | | | 38.5 | | | 39.6 | |
Croatia | | 100.1 | | | 95.6 | | | 97.7 | | | 65.1 | | | 63.8 | | | 63.0 | | | 35.0 | | | 31.8 | | | 34.7 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
New Europe(3) | | 94.3 | | | 92.0 | | | 91.0 | | | 60.8 | | | 61.1 | | | 61.7 | | | 33.5 | | | 30.9 | | | 29.3 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other Europe | | 94.4 | | | 90.5 | | | 91.1 | | | 64.5 | | | 61.5 | | | 62.7 | | | 29.9 | | | 29.0 | | | 28.4 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
United States | | 91.1 | | | 88.6 | | | 96.0 | | | 61.3 | | | 57.9 | | | 66.8 | | | 29.8 | | | 30.7 | | | 29.2 | |
Mexico(4) | | 95.0 | | | 102.5 | | | 104.8 | | | 71.6 | | | 78.8 | | | 81.2 | | | 23.4 | | | 23.7 | | | 23.6 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
NAFTA | | 91.2 | | | 88.9 | | | 96.2 | | | 61.6 | | | 58.4 | | | 67.1 | | | 29.6 | | | 30.5 | | | 29.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Australia | | 95.7 | | | 96.2 | | | 95.2 | | | 70.8 | | | 70.3 | | | 69.1 | | | 24.9 | | | 25.9 | | | 26.1 | |
Other | | 98.6 | | | 93.8 | | | 94.5 | | | 60.2 | | | 55.7 | | | 57.2 | | | 38.4 | | | 38.1 | | | 37.3 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Asia-Pacific | | 96.0 | | | 95.9 | | | 95.2 | | | 69.5 | | | 68.7 | | | 68.0 | | | 26.5 | | | 27.2 | | | 27.2 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
South America | | 99.0 | | | 101.2 | | | 100.8 | | | 62.9 | | | 64.8 | | | 64.5 | | | 36.1 | | | 36.4 | | | 36.3 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other | | — | (5) | | —
|
(5) | | —
|
(5) | | — | (5) | | — | (5) | | — | (5) | | — | (5) | | — | (5) | | — | (5) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Specialty lines | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Allianz Global Corporate & Specialty | | 96.0 | | | 92.2 | | | 122.4 | | | 67.9 | | | 62.5 | | | 91.1 | | | 28.1 | | | 29.7 | | | 31.3 | |
Credit Insurance | | 76.5 | | | 77.6 | | | 67.0 | | | 47.9 | | | 49.7 | | | 41.3 | | | 28.6 | | | 27.9 | | | 25.7 | |
Travel Insurance and Assistance Services | | 93.7 | | | 101.8 | | | 93.3 | | | 58.1 | | | 58.7 | | | 60.3 | | | 35.6 | | | 43.1 | | | 33.0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Subtotal | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Consolidation(6) | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | 93.6 | | | 92.9 | | | 94.3 | | | 66.1 | | | 65.0 | | | 67.2 | | | 27.5 | | | 27.9 | | | 27.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
(1)
| Contains run-off of €21 mn, €20 mn and €(4) mn in 2007, 2006 and 2005 respectively from a former operating entity located in Luxemburg.
|
(2)
| 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.
|
(3)
| Contains income and expense items from a management holding in both 2007 and 2006.
|
(4)
| Effective 1Q 2007, life business in Mexico is shown within the Life/Health segment.
|
(5)
| Presentation not meaningful.
|
(6)(9)
| Represents elimination of transactions between Allianz Group companies in different geographic regions. |
Life/Health Insurance Operations
Year ended December 31, 2008 compared to year ended December 31, 2007
Difficult market environment heavily impacted sales of investment-oriented products especially through the bancassurance channel.
Traditional business held firm.
Operating profit of €1,206 million despite financial markets turmoil.
Year ended December 31, 2007 compared to year ended December 31, 2006
Strong statutory premium development showingshowed double-digit growth rates in many countries.
Strong operating profit growth continued resulting in almost €3 billion.
Operating asset base increased to €350.0 billion.
Year ended December 31, 2006 compared to year ended December 31, 2005
Strong operating profit growth sustained, while revenues were nearly flat.
Statutory premium growth held back by Italy and the United States.
Dynamic operating profit growth continued.
Higher investment, expense and technical margins drive operating profit.
Driven by the higher operating profit, net income rose by 21.0% to €1.6 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(1)
Statutory premiums by region– Internal growth rates(1)(2)
in %
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) | After elimination of transactions between Allianz Group companies in different geographic regions and different segments.
|
(1)
| A reconciliation of premiums written to statutory premiums for the years ended December 31, 2008, 2007 2006 and 20052006 can be found within the total revenues table on page 82.60. |
Statutory premiums – Growth rates(1)
in %
(1)(2)
| Before elimination of transactions between Allianz Group companies in different geographic regions and different segments. |
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 ended December 31, 2007 compared to year ended December 31, 2006
At €49,367 million statutory premiums increased by 4.1% over the prior year, despite impacts from unfavorable foreign currency movements of €1,062 million. On an internal basis, statutory premiums were up by 6.3%.
Most of our operating entities worldwide, especially our emerging markets(2)(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.
(2)
| New Europe, Asia-Pacific, South America, Mexico, Middle East and Northern Africa.
|
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 CreditRAS. Additionally, we successfully launched new products during the year.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. 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”)(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 past, the highest share of new business now comescame from proprietary sales channels.channels in 2007.
Statutory premium volume in our German life insurance business grew by 3.9% or €503 million mainly coming from a significant increase in single premium business. While growth during the first quarters of 2007 was weak due to a difficult market
| (1) | New Europe, Asia-Pacific, South America, Mexico, Middle East, Africa. |
environment, we experienced a very strong fourth quarter growing by more than 20% through a pick-up in single premium business.
In the United States, statutory premium development still reflected the legal and regulatory environment limiting our sale of indexed annuity products. However, during the last months of 2007 we made 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 local currency basis, the decline amounted to 13.2% or USD 1,445 million.
Year endedStatutory premiums by regions as of December 31, 2006 compared to year ended December2008 (December 31, 20052007)(1)
in %
Many of our operating entities worldwide, especially in the growth markets of Asia-Pacific and
New Europe, increased their statutory premiums with high double-digit growth rates. In 2006, these two markets, in aggregate, contributed 9.6% of our total statutory premiums, compared to 7.8% in 2005. But also most of our established markets continued to grow dynamically, such as Germany Life at 6.4% and France at 9.6%. However, these increases were offset by marked declines particularly in the United States and Italy of 21.2% and 8.1%, respectively. Overall, our statutory premiums, at €47,421 million in 2006, were slightly down 1.8% on a nominal basis and 1.6% on an internal basis compared to 2005. Our new business mix showed an increase in recurring premium products and a decrease in single premium business compared to last year. Given that in the year of sale, a recurring premium contract only contributes a fraction of a single premium contract to annual premiums, this change in new business mix had a negative impact on statutory premium growth year-on-year in 2006. The new recurring premium contracts will however increase premiums in subsequent years.
Within Germany Life, statutory premiums excelled to €13,009 million, primarily a result of strong new business production in both our individual and group life business.
At our life operating entities of AGF Group in France, we generated statutory premium growth to €5,792 million. This positive development was brought about by strong sales of unit-linked contracts, particularly related to several newly-launched products. Growth was achieved both through our proprietary financial advisors network and partnerships with independent advisors.
Within Asia-Pacific, statutory premiums in South Korea increased to €2,054 million as we recorded strong sales of equity-indexed annuity products and in our variable annuity business. In China, growth was also significant, albeit starting from a low base. Here, we began to benefit from our strategic partnership with Industrial and Commercial Bank of China Ltd. We have received further sales licenses and expanded our branch network.
Within New Europe our Polish operations recorded a strong increase in statutory premiums from a very successful sales campaign for unit-linked contracts with a bank partner. In addition, in
Slovakia, we generated considerable new business production through our tied agents network. In the fourth quarter of 2006, our companies in the region launched a limited-edition index-linked life insurance product across six markets. Overall, our operations within New Europe recorded statutory premiums of €828 million in 2006, 72.9% up from a year earlier.
Conversely, in the United States, statutory premiums declined significantly by 21.2% to €8,758 million. This development is primarily attributable to challenges faced by our sales channels in response to the NASD’s notice in late 2005 to members regarding the sale of equity-indexed annuities. However, despite the decrease in statutory premiums, our Life/Health asset base in the United States grew. In Italy, statutory premiums were down considerably by 8.1% to €8,555 million, principally negatively influenced by a difficult market environment which was characterized by, among other factors, decreased overall private demand for life insurance products in the bancassurance channel. In addition, at RAS Group, our share in the total life production of our joint venture partner UniCredit Group decreased.
Operating profit
Year ended December 31, 2008 compared to year ended December 31, 2007
Operating 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 by €4,923 million to €5,747 million mainly due to weak equity markets. These impairments were almost entirely attributable to our available-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 realized 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 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.
Operating profit
in € mn
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 and a stock market that weakened towards the end of the year. 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.
Asset base(1)
fair values(2) in € bn
1)(1)
| For further information on the composition of our Life/Health asset base please refer to “—Balance Sheet Review—Assets and Liabilitiesliabilities of the Life/Health Segment”segment”. |
2)(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 see noterefer 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 prior year 2006 that was marked by a major single transaction namely the disposal of our participation in Schering AG. In the current year,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 considerably 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 administrative 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 in Asia-Pacific (China and Japan). Our statutory expense ratio improved slightly by 0.2 percentage points to 9.4%.
Non-operating result
Year ended December 31, 20062008 compared to year ended December 31, 20052007
We again delivered growth inThe non-operating loss amounted to €533 million coming from a gain of €107 million a year earlier. Similar to the development within operating profit, which increased to €2,565 million, up 22.5% from a year ago. Key factors inthe major drivers for this strong development were the growth of our Life/Health asset base, our improved margins both from our newhigher impairments and in-force business, as well as efficiency gains in many operating entities following the implementation of our Sustainability Program and other initiatives. Furthermore, in 2006, we increased the shareholders’ share in our gross earnings while at the same time we credited a higher amount to our policyholders.
Most of our life operating companies exhibited operating profit growth, with the highest absolute increases at our operations in Germany, the United States, South Korea, France and Spain. In addition, we experienced a solid increase in aggregate operating profit within New Europe.
Our improved investment margin was brought about by significantly higher interest and similar income, and the growth in aggregatenet realized gains/losses and impairments of investments (net). Interest and similar income increased primarily due to higher dividends received from available-for-sale equity investments in Germany and France. In addition, our U.S. operations benefited from higher yields on bonds and growth in asset base. Significant realized gains resulted from the sale of our shareholdings in Schering AG and the disposal of Four Seasons Health Care Ltd. Partially offsetting was the unfavorable net development in our income from financial assets and liabilities carried at fair value through income mainly as Germany Life exhibited significant negative effects from the accounting treatment for certain derivative instruments. In the United States, an increase in market interest rates had an additional
negative impact. Furthermore, increased investment expenses stemmed predominantly from the weaker U.S. Dollar compared to the Euro.
Acquisition and administrative expenses (net) rose by €464 million to €4,437 million, partly triggered by adjustments recorded for the unlocking of deferred acquisition costs at various operating entities after the regular review of assumptions for the calculation of our deferred acquisition costs asset. In addition, higher commissions due to the strong new business production within Germany Life, previously mentioned, also contributed to increased acquisition and administrative expenses (net).
Consequently, together with the decline in statutory premiums (net), our statutory expense ratio increased to 9.6% from 8.4% a year ago. Excluding the adjustments described above, our statutory expense ratio would only have increased 70 basis points from 8.7% in 2005 to 9.4% in 2006.
Claims and insurance benefits incurred (net), and changes in reserves for insurance and investment contracts (net), in aggregate, resulted in charges of €28,150 million, up 1.0% over 2005. While premiums were lower than in 2005, this development in particular reflects the investment income on our assets which benefits our policyholders.
Overall charges of €140 million were recorded for operating restructuring charges in 2006. These charges were incurred in connection with the reorganization of our German insurance operations.(1)
Non-operating resultlosses.
Year ended December 31, 2007 compared to year ended December 31, 2006
In aggregate non-operating items were down by €28 million driven by lower net realized gains not to be shared with policyholders in the United States.
Net income
Year ended December 31, 20062008 compared to year ended December 31, 20052007
Non-operating items, in aggregate, resulted inWe recorded net income of €327 million, a gainlarge decline of €135€1,664 million. Income tax expenses decreased by €637 million after a gainto €260 million with an effective tax rate of €177 million in 2005. This development largely mirrors higher
(1)
| Please see “Information on the Company—Important Group Organizational Changes—Reorganization of German Insurance Operations” and Note 49 to our consolidated financial statements for further information.
|
non-operating restructuring charges, at €34 million in 2006,38.6% (2007: 28.9%). The relatively high effective tax rate is mainly in connection with the reorganization of our German insurance operations.(1)driven by non-tax-deductible impairments.
Net incomeMinority interests in earnings declined by 59.8% to €86 million, mainly reflecting the lower income.
Year ended December 31, 2007 compared to year ended December 31, 2006
Net income increased by 21.2% 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 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.
(1) | Please see “Information on the Company—Important Group Organizational Changes—Reorganization of German Insurance Operations” and Note 49 to our consolidated financial statements for further information. |
Year ended December 31, 2006 compared to year ended December 31, 2005Life/Health segment information(1)
Driven by the higher operating profit, net income rose by 21.0% to €1,643 million.
With income tax expenses of €641 million in 2006, up €153 million from a year ago, our effective tax rate increased to 23.7% (2005: 21.5%). Both in 2006 and 2005, our effective tax rate benefited from significant tax-exempt income. However, based on a higher income before income taxes, the tax-exempt income in 2006 had a lower impact on our effective tax rate than in 2005. Additional significant one-time factors contributing to the relatively low effective tax rates in both years were the capitalization of corporate tax credits in Germany in 2006 and a beneficial tax settlement in the United States in 2005.
Minority interests in earnings remained stable at €416 million. Higher minority interests in earnings at AGF Group in France, reflecting its increased earnings after income taxes, were offset by lower minority interests in earnings at RAS Group in Italy, stemming from its decreased earnings after income taxes and the acquisition of the minority interest in RAS.
The following table sets forth our Life/Health insurance segment’s income statements and statutory expense ratios for the years ended December 31, 2007, 2006 and 2005.
| | | | 2007 | | 2006 | | 2005 | | | 2008 | | 2007 | | 2006 | |
| | | € mn | | € mn | | € mn | | | € mn | | € mn | | € mn | |
Statutory premiums(1)(2) | | 49,367 | | | 47,421 | | | 48,272 | | | 45,615 | | | 49,367 | | | 47,421 | |
| | | | | | | | | | |
Ceded premiums written | | (644 | ) | | (840 | ) | | (942 | ) | | (588 | ) | | (644 | ) | | (840 | ) |
Change in unearned premiums | | (61 | ) | | (221 | ) | | (168 | ) | | (54 | ) | | (61 | ) | | (221 | ) |
| | | | | | | | | | | | | | | | | | |
Statutory premiums (net) | | 48,662 | | | 46,360 | | | 47,162 | | | 44,973 | | | 48,662 | | | 46,360 | |
Deposits from SFAS 97 insurance and investment contracts | | (27,853 | ) | | (25,786 | ) | | (27,165 | ) | | (22,742 | ) | | (27,853 | ) | | (25,786 | ) |
| | | | | | | | | | | | | | | | | | |
Premiums earned (net) | | 20,809 | | | 20,574 | | | 19,997 | | | 22,231 | | | 20,809 | | | 20,574 | |
| | | | | | | | | | | | | | | | | | |
Interest and similar income | | 13,417 | | | 12,972 | | | 12,057 | | | 13,772 | | | 13,417 | | | 12,972 | |
Income from financial assets and liabilities carried at fair value through income (net), shared with policyholders(2) | | (945 | ) | | (361 | ) | | 258 | | |
Realized gains/losses (net) from investments, shared with policyholders(3) | | 3,579 | | | 3,087 | | | 2,523 | | |
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 | | 701 | | | 630 | | | 507 | | | 571 | | | 701 | | | 630 | |
Other income | | 182 | | | 43 | | | 45 | | | 140 | | | 182 | | | 43 | |
Income from fully consolidated private equity investments | | | 18 | | | — | | | — | |
| | | | | | | | | | | | | | | | | | |
Operating revenues | | 37,743 | | | 36,945 | | | 35,387 | | | 37,371 | | | 37,743 | | | 36,945 | |
| | | | | | | | | | | | | | | | | | |
Claims and insurance benefits incurred (net) | | (17,637 | ) | | (17,625 | ) | | (17,439 | ) | | (19,673 | ) | | (17,637 | ) | | (17,625 | ) |
Changes in reserves for insurance and investment contracts (net) | | (10,268 | ) | | (10,525 | ) | | (10,443 | ) | | (5,122 | ) | | (10,268 | ) | | (10,525 | ) |
Interest expense | | (374 | ) | | (280 | ) | | (452 | ) | |
Interest expenses | | | (283 | ) | | (374 | ) | | (280 | ) |
Loan loss provisions | | 3 | | | (1 | ) | | — | | | (13 | ) | | 3 | | | (1 | ) |
Impairments of investments (net), shared with policyholders(4) | | (824 | ) | | (390 | ) | | (199 | ) | |
Operating impairments of investments (net)(5) | | | (5,747 | ) | | (824 | ) | | (390 | ) |
Investment expenses | | (833 | ) | | (750 | ) | | (567 | ) | | (673 | ) | | (833 | ) | | (750 | ) |
Acquisition and administrative expenses (net) | | (4,588 | ) | | (4,437 | ) | | (3,973 | ) | | (4,375 | ) | | (4,588 | ) | | (4,437 | ) |
Fee and commission expenses | | (209 | ) | | (223 | ) | | (219 | ) | | (253 | ) | | (209 | ) | | (223 | ) |
Operating restructuring charges(5) | | (16 | ) | | (140 | ) | | — | | |
Operating restructuring charges(6) | | | 1 | | | (16 | ) | | (140 | ) |
Other expenses | | (2 | ) | | (9 | ) | | (1 | ) | | (7 | ) | | (2 | ) | | (9 | ) |
Expenses from fully consolidated private equity investments | | | (20 | ) | | — | | | — | |
| | | | | | | | | | | | | | | | | | |
Operating expenses | | (34,748 | ) | | (34,380 | ) | | (33,293 | ) | | (36,165 | ) | | (34,748 | ) | | (34,380 | ) |
| | | | | | | | | | | | | | | | | | |
Operating profit | | 2,995 | | | 2,565 | | | 2,094 | | | 1,206 | | | 2,995 | | | 2,565 | |
| | | | | | | | | | | | | | | | | | |
Income from financial assets and liabilities carried at fair value through income (net), not shared with policyholders(2) | | 5 | | | — | | | — | | |
Realized gains/losses (net) from investments, not shared with policyholders(3) | | 137 | | | 195 | | | 208 | | |
Impairments of investments (net), not shared with policyholders(4) | | (3 | ) | | — | | | — | | |
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 | ) | | (26 | ) | | (13 | ) | | (3 | ) | | (3 | ) | | (26 | ) |
Non-operating restructuring charges(5) | | (29 | ) | | (34 | ) | | (18 | ) | |
Non-operating restructuring charges(6) | | | (51 | ) | | (29 | ) | | (34 | ) |
| | | | | | | | | | | | | | | | | | |
Non-operating items | | 107 | | | 135 | | | 177 | | | (533 | ) | | 107 | | | 135 | |
| | | | | | | | | | | | | | | | | | |
Income before income taxes and minority interests in earnings | | 3,102 | | | 2,700 | | | 2,271 | | | 673 | | | 3,102 | | | 2,700 | |
| | | | | | | | | | | | | | | | | | |
Income taxes | | (897 | ) | | (641 | ) | | (488 | ) | | (260 | ) | | (897 | ) | | (641 | ) |
Minority interests in earnings | | (214 | ) | | (416 | ) | | (425 | ) | | (86 | ) | | (214 | ) | | (416 | ) |
| | | | | | | | | | | | | | | | | | |
Net income | | 1,991 | | | 1,643 | | | 1,358 | | |
Net income (loss) | | | 327 | | | 1,991 | | | 1,643 | |
| | | | | | | | | | | | | | | | | | |
Statutory expense ratio(6) in % | | 9.4 | | | 9.6 | | | 8.4 | | |
Statutory expense ratio(7) in % | | | 9.7 | | | 9.4 | | | 9.6 | |
| | | | | | | | | | | | | | | | | | |
(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 Life/Health segment, total revenues are measured based upon statutory premiums. Statutory premiums are gross premiums written from sales of life insurance policies, as well as gross receipts from sales of unit linkedunit-linked and other investment-oriented products, in accordance with the statutory accounting practices applicable in the insurer’s home jurisdiction. |
(2)(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 included in Note 56 to the consolidated financial statements. |
(3)(4)
| The total of these items equals realized gains/losses (net) in the segment income statement included in Note 56 to the consolidated financial statements. |
(4)(5)
| The total of these items equals impairments of investments (net) in the segment income statement included in Note 56 to the consolidated financial statements. |
(5)(6)
| The total of these items equals restructuring charges in the segment income statement included in Note 56 to the consolidated financial statements. |
(6)(7)
| Represents acquisition and administrative expenses (net) divided by statutory premiums (net). |
Life/Health Operations by Geographic RegionBusiness Division
The following table sets forth our Life/Health statutory premiums, premiums earned (net), operating profit and statutory expense ratio by geographic region for the years ended December 31, 2007, 2006 and 2005. Consistent with our general practice, these figures are presented before consolidation adjustments, representing the elimination of transactions between Allianz Group companies in different geographic regions and different segments.
| | | | | | | | | | | | | | | Statutory premiums(1) | | Premiums earned (net) |
| | | Statutory premiums(1)
€ mn | | Premiums earned (net)
€ mn | | 2008 | | 2007 | | 2006 | | 2008
internal(2) | | 2007
internal(2) | | 2008 | | 2007 | | 2006 |
| | | 2007 | | 2006 | | 2005 | | 2007 | | 2006 | | 2005 | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn |
Germany Life | | 13,512 | | | 13,009 | | | 12,231 | | | 10,381 | | 10,543 | | 10,205 | | 13,487 | | | 13,512 | | | 13,009 | | | 13,503 | | | 13,512 | | | 10,313 | | 10,381 | | 10,543 |
Germany Health(2) | | 3,123 | | | 3,091 | | | 3,042 | | | 3,123 | | 3,091 | | 3,042 | |
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 | | 9,765 | | | 8,555 | | | 9,313 | | | 1,006 | | 1,098 | | 1,104 | | 5,996 | | | 9,765 | | | 8,555 | | | 5,952 | | | 9,765 | | | 930 | | 1,006 | | 1,098 |
France | | 6,550 | | | 5,792 | | | 5,286 | | | 1,760 | | 1,436 | | 1,420 | |
Switzerland | | 992 | | | 1,005 | | | 1,058 | | | 432 | | 455 | | 470 | |
Spain | | 738 | | | 629 | | | 547 | | | 399 | | 400 | | 350 | | 843 | | | 738 | | | 629 | | | 843 | | | 738 | | | 394 | | 399 | | 400 |
| | | | | | | | | | | | | | | | |
Belgium | | 664 | | | 597 | | | 601 | | | 310 | | 302 | | 327 | |
Netherlands | | 399 | | | 424 | | | 381 | | | 137 | | 146 | | 144 | |
Austria | | 396 | | | 380 | | | 343 | | | 288 | | 283 | | 262 | |
Portugal | | 115 | | | 98 | | | 83 | | | 73 | | 66 | | 60 | | 130 | | | 115 | | | 98 | | | 130 | | | 115 | | | 80 | | 73 | | 66 |
Greece | | 105 | | | 98 | | | 91 | | | 65 | | 62 | | 54 | | 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 | | 83 | | | 58 | | | 47 | | | 26 | | 30 | | 25 | | 82 | | | 83 | | | 58 | | | 82 | | | 83 | | | 26 | | 26 | | 30 |
Africa | | | 40 | | | 35 | | | 32 | | | 40 | | | 35 | | | 17 | | 15 | | 16 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Western and Southern Europe(3) | | 1,762 | | | 1,655 | | | 1,546 | | | 899 | | 889 | | 872 | |
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 | | 431 | | | 367 | | | 99 | | | 121 | | 96 | | 53 | | 428 | | | 431 | | | 367 | | | 401 | | | 431 | | | 192 | | 121 | | 96 |
Slovakia | | 235 | | | 183 | | | 149 | | | 157 | | 135 | | 129 | |
Hungary | | 141 | | | 96 | | | 89 | | | 80 | | 75 | | 73 | |
Czech Republic | | 96 | | | 76 | | | 64 | | | 56 | | 54 | | 50 | |
Romania | | | 32 | | | 30 | | | 25 | | | 34 | | | 30 | | | 15 | | 12 | | 12 |
Bulgaria | | | 33 | | | 35 | | | 25 | | | 33 | | | 35 | | | 29 | | 28 | | 23 |
Croatia | | 58 | | | 48 | | | 41 | | | 40 | | 36 | | 33 | | 59 | | | 58 | | | 48 | | | 58 | | | 58 | | | 42 | | 40 | | 36 |
Bulgaria | | 35 | | | 25 | | | 19 | | | 28 | | 23 | | 19 | |
Romania | | 30 | | | 25 | | | 18 | | | 12 | | 12 | | 7 | |
Russia | | 13 | | | 8 | | | — | | | 12 | | 7 | | — | | 17 | | | 13 | | | 8 | | | 18 | | | 13 | | | 16 | | 12 | | 7 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
New Europe | | 1,039 | | | 828 | | | 479 | | | 506 | | 438 | | 364 | | 1,141 | | | 1,039 | | | 828 | | | 1,085 | | | 1,039 | | | 608 | | 506 | | 438 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other Europe | | 2,801 | | | 2,483 | | | 2,025 | | | 1,405 | | 1,327 | | 1,236 | |
Middle East | | | 88 | | | 70 | | | 68 | | | 92 | | | 70 | | | 81 | | 65 | | 60 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Mexico(4) | | 37 | | | — | | | — | | | 36 | | — | | — | |
United States | | 6,931 | | | 8,758 | | | 11,115 | | | 636 | | 533 | | 522 | |
| | | | | | | | | | | | | | | | |
NAFTA | | 6,968 | | | 8,758 | | | 11,115 | | | 672 | | 533 | | 522 | |
| | | | | | | | | | | | | | | | |
South Korea | | 2,188 | | | 2,054 | | | 1,752 | | | 975 | | 986 | | 972 | |
Taiwan | | 1,812 | | | 1,336 | | | 1,347 | | | 72 | | 107 | | 136 | |
Indonesia | | 224 | | | 115 | | | 69 | | | 49 | | 38 | | 31 | |
Malaysia | | 126 | | | 107 | | | 106 | | | 104 | | 88 | | 73 | |
Other | | 288 | | | 121 | | | 35 | | | 18 | | 37 | | 10 | |
| | | | | | | | | | | | | | | | |
Asia-Pacific | | 4,638 | | | 3,733 | | | 3,309 | | | 1,218 | | 1,256 | | 1,222 | |
| | | | | | | | | | | | | | | | |
South America | | 78 | | | 147 | | | 141 | | | 40 | | 42 | | 36 | |
| | | | | | | | | | | | | | | | |
Other(5) | | 418 | | | 439 | | | 455 | | | 373 | | 393 | | 390 | |
| | | | | | | | | | | | | | | | |
Subtotal | | 49,583 | | | 47,641 | | | 48,522 | | | 20,809 | | 20,574 | | 19,997 | |
Consolidation(7) | | (216 | ) | | (220 | ) | | (250 | ) | | — | | — | | — | |
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 | | 49,367 | | | 47,421 | | | 48,272 | | | 20,809 | | 20,574 | | 19,997 | | 45,615 | | | 49,367 | | | 47,421 | | | 46,297 | | | 50,501 | | | 22,231 | | 20,809 | | 20,574 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(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) | Loss ratios were 71.6%, 68.4%Reflect statutory premiums on an internal basis (adjusted for foreign currency translation and 69.7% for 2007, 2006 and 2005, respectively.(de-) consolidation effects).
|
(3) | Loss ratios were 74.7%, 71.6% and 68.4% for 2008, 2007 and 2006, respectively. |
(4) | 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 |
| | | | | | | | | | | | | | | | |
| | | Operating profit | | | Statutory expense ratio |
| | | 2008 | | | 2007 | | | 2006 | | | 2008 | | | 2007 | | 2006 |
| | | € mn | | | € mn | | | € mn | | | % | | | % | | % |
Germany Life | | 620 | | | 695 | | | 521 | | | 8.5 | | | 5.8 | | 9.1 |
Germany Health(3) | | 112 | | | 164 | | | 184 | | | 9.0 | | | 9.8 | | 9.3 |
Switzerland | | 71 | | | 66 | | | 50 | | | 9.9 | | | 10.6 | | 9.9 |
Austria | | 17 | | | 40 | | | 29 | | | 8.8 | | | 11.8 | | 12.1 |
| | | | | | | | | | | | | | | | |
German Speaking Countries | | 820 | | | 965 | | | 784 | | | 8.7 | | | 6.9 | | 9.2 |
| | | | | | | | | | | | | | | | |
Italy | | 206 | | | 372 | | | 339 | | | 8.9 | | | 5.8 | | 6.4 |
Spain | | 103 | | | 104 | | | 92 | | | 8.8 | | | 9.2 | | 9.3 |
Portugal | | 1 | | | 25 | | | 25 | | | 24.6 | | | 26.5 | | 15.1 |
Greece | | 2 | | | 6 | | | 13 | | | 22.9 | | | 20.7 | | 22.6 |
South America | | 10 | | | — | | | 1 | | | 10.3 | | | 32.6 | | 16.9 |
Turkey(4) | | 5 | | | — | | | — | | | 38.5 | | | — | | — |
| | | | | | | | | | | | | | | | |
Europe I incl. South America | | 327 | | | 507 | | | 470 | | | 9.4 | | | 6.6 | | 7.0 |
| | | | | | | | | | | | | | | | |
France(5) | | 128 | | | 632 | | | 582 | | | 14.9 | | | 15.4 | | 12.6 |
Belgium(5) | | 53 | | | 68 | | | 62 | | | 9.9 | | | 10.1 | | 12.5 |
Netherlands | | (1 | ) | | 44 | | | 50 | | | 24.1 | | | 9.8 | | 18.4 |
Luxembourg | | 3 | | | 4 | | | 5 | | | 10.3 | | | 10.8 | | 12.2 |
Africa | | 3 | | | 2 | | | 2 | | | 13.4 | | | 16.5 | | 19.6 |
| | | | | | | | | | | | | | | | |
Europe II incl. Africa | | 186 | | | 750 | | | 701 | | | 14.9 | | | 14.6 | | 13.0 |
| | | | | | | | | | | | | | | | |
United States | | (232 | ) | | 380 | | | 418 | | | (0.2 | ) | | 11.9 | | 8.0 |
Mexico(6) | | 4 | | | 5 | | | — | | | 9.8 | | | 13.8 | | — |
| | | | | | | | | | | | | | | | |
NAFTA | | (228 | ) | | 385 | | | 418 | | | (0.1 | ) | | 11.9 | | 8.0 |
| | | | | | | | | | | | | | | | |
AZ Reinsurance LH | | 9 | | | 29 | | | 41 | | | 19.6 | | | 21.0 | | 27.8 |
United Kingdom(7) | | (2 | ) | | (3 | ) | | (2 | ) | | — | | | — | | — |
| | | | | | | | | | | | | | | | |
Anglo Broker Markets/Global Lines | | (221 | ) | | 411 | | | 457 | | | 0.8 | | | 12.3 | | 8.7 |
| | | | | | | | | | | | | | | | |
South Korea | | 96 | | | 286 | | | 64 | | | 13.6 | | | 14.4 | | 13.9 |
Taiwan | | 11 | | | 26 | | | 14 | | | 11.8 | | | 2.9 | | 5.0 |
Malaysia | | 9 | | | 12 | | | 10 | | | 15.8 | | | 17.2 | | 19.9 |
Indonesia | | 12 | | | 6 | | | 3 | | | 15.7 | | | 12.7 | | 19.3 |
Other | | (87 | ) | | (30 | ) | | (10 | ) | | 17.2 | | | 17.0 | | 18.4 |
| | | | | | | | | | | | | | | | |
Asia-Pacific | | 41 | | | 300 | | | 81 | | | 13.8 | | | 10.1 | | 11.2 |
| | | | | | | | | | | | | | | | |
Hungary | | 16 | | | 13 | | | 12 | | | 15.9 | | | 20.4 | | 25.7 |
Slovakia | | 29 | | | 29 | | | 16 | | | 15.5 | | | 16.8 | | 18.2 |
Czech Republic | | 4 | | | 10 | | | 9 | | | 14.2 | | | 18.0 | | 20.1 |
Poland | | 6 | | | 10 | | | 6 | | | 32.6 | | | 19.7 | | 17.6 |
Romania | | 2 | | | — | | | — | | | 31.9 | | | 33.8 | | 39.3 |
Bulgaria | | 2 | | | 4 | | | 3 | | | 17.7 | | | 15.0 | | 14.2 |
Croatia | | 4 | | | 2 | | | 4 | | | 22.5 | | | 17.1 | | 20.4 |
Russia | | (15 | ) | | (7 | ) | | — | | | 132.2 | | | 99.5 | | 28.1 |
New Europe | | 48 | | | 61 | | | 50 | | | 24.4 | | | 20.0 | | 19.6 |
Middle East | | 11 | | | 6 | | | 5 | | | 27.5 | | | 24.6 | | 30.4 |
| | | | | | | | | | | | | | | | |
Growth Markets | | 100 | | | 367 | | | 136 | | | 16.6 | | | 12.1 | | 13.0 |
Consolidation(8) | | (6 | ) | | (5 | ) | | 17 | | | — | | | — | | — |
| | | | | | | | | | | | | | | | |
Total | | 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 Belgium is shown within Life/Health segment. Prior year balances have not been adjusted. |
(6) | Effective 2007, life business in Mexico is shown within the Life/Health segment. Prior year balances have not been adjusted. |
(7) | Contains run-off of €(2) mn, €(3) mn and €(2) mn for 2008, 2007 and €(11) mn in 2007, 2006, and 2005 respectively, from our former life insurance business in the United Kingdom which we sold in December 2004. |
(4)(8)
| Effective 2007, life business in Mexico is shown within the Life/Health segment.
|
(5)
| Contains, among others, the Life/Health business assumed by Allianz SE, which was previously reported under Germany in the Property-Casualty segment. Prior year balances have been adjusted to reflect this reclassification and allow for comparability across periods.
|
(6)
| Presentation not meaningful.
|
(7)
| Represents elimination of transactions between Allianz Group companies in different geographic regions. |
| | | | | | | | | | | | | | | | | | |
| | | Operating profit
€ mn | | | Statutory expense ratio
% | |
| | | 2007 | | | 2006 | | | 2005 | | | 2007 | | | 2006 | | | 2005 | |
Germany Life | | 695 | | | 521 | | | 347 | | | 5.8 | | | 9.1 | | | 8.1 | |
Germany Health(2) | | 164 | | | 184 | | | 159 | | | 9.8 | | | 9.3 | | | 9.1 | |
Italy | | 372 | | | 339 | | | 334 | | | 5.8 | | | 6.4 | | | 5.4 | |
France | | 632 | | | 582 | | | 558 | | | 15.4 | | | 12.6 | | | 15.1 | |
Switzerland | | 66 | | | 50 | | | 55 | | | 10.6 | | | 9.9 | | | 8.7 | |
Spain | | 104 | | | 92 | | | 71 | | | 9.2 | | | 9.3 | | | 7.4 | |
| | | | | | | | | | | | | | | | | | |
Belgium | | 68 | | | 62 | | | 76 | | | 10.1 | | | 12.5 | | | 12.1 | |
Netherlands | | 44 | | | 50 | | | 41 | | | 9.8 | | | 18.4 | | | 13.5 | |
Austria | | 40 | | | 29 | | | 35 | | | 11.8 | | | 12.1 | | | 9.4 | |
Portugal | | 25 | | | 25 | | | 13 | | | 26.5 | | | 15.1 | | | 19.1 | |
Greece | | 6 | | | 13 | | | 7 | | | 20.7 | | | 22.6 | | | 25.9 | |
Luxembourg | | 4 | | | 5 | | | 5 | | | 10.8 | | | 12.2 | | | 14.4 | |
| | | | | | | | | | | | | | | | | | |
Western and Southern Europe(3) | | 184 | | | 182 | | | 166 | | | 12.1 | | | 14.8 | | | 13.3 | |
| | | | | | | | | | | | | | | | | | |
Poland | | 10 | | | 6 | | | 3 | | | 19.7 | | | 17.6 | | | 33.3 | |
Slovakia | | 29 | | | 16 | | | 8 | | | 16.8 | | | 18.2 | | | 24.4 | |
Hungary | | 13 | | | 12 | | | 10 | | | 20.4 | | | 25.7 | | | 26.9 | |
Czech Republic | | 10 | | | 9 | | | 6 | | | 18.0 | | | 20.1 | | | 21.5 | |
Croatia | | 2 | | | 4 | | | 3 | | | 17.1 | | | 20.4 | | | 22.7 | |
Bulgaria | | 4 | | | 3 | | | 3 | | | 15.0 | | | 14.2 | | | 10.5 | |
Romania | | — | | | — | | | 1 | | | 33.8 | | | 39.3 | | | 28.0 | |
Russia | | (7 | ) | | — | | | — | | | 99.5 | | | 28.1 | | | — | |
| | | | | | | | | | | | | | | | | | |
New Europe | | 61 | | | 50 | | | 34 | | | 20.0 | | | 19.6 | | | 25.7 | |
| | | | | | | | | | | | | | | | | | |
Other Europe | | 245 | | | 232 | | | 200 | | | 15.1 | | | 16.4 | | | 16.3 | |
| | | | | | | | | | | | | | | | | | |
Mexico(4) | | 5 | | | — | | | — | | | 13.8 | | | — | | | — | |
United States | | 380 | | | 418 | | | 257 | | | 11.9 | | | 8.0 | | | 4.8 | |
| | | | | | | | | | | | | | | | | | |
NAFTA | | 385 | | | 418 | | | 257 | | | 11.9 | | | 8.0 | | | 4.8 | |
| | | | | | | | | | | | | | | | | | |
South Korea | | 286 | | | 64 | | | 20 | | | 14.4 | | | 13.9 | | | 16.6 | |
Taiwan | | 26 | | | 14 | | | 11 | | | 2.9 | | | 5.0 | | | 4.3 | |
Indonesia | | 6 | | | 3 | | | 1 | | | 12.7 | | | 19.3 | | | 25.0 | |
Malaysia | | 12 | | | 10 | | | 2 | | | 17.2 | | | 19.9 | | | 14.0 | |
Other | | (30 | ) | | (10 | ) | | (7 | ) | | 17.0 | | | 18.4 | | | 37.7 | |
| | | | | | | | | | | | | | | | | | |
Asia-Pacific | | 300 | | | 81 | | | 27 | | | 10.2 | | | 11.2 | | | 12.0 | |
| | | | | | | | | | | | | | | | | | |
South America | | — | | | 1 | | | 2 | | | 32.6 | | | 16.9 | | | 17.7 | |
| | | | | | | | | | | | | | | | | | |
Other(5) | | 30 | | | 74 | | | 92 | | | — | (6) | | — | (6) | | — | (6) |
| | | | | | | | | | | | | | | | | | |
Subtotal | | 2,993 | | | 2,574 | | | 2,102 | | | — | | | — | | | — | |
Consolidation(7) | | 2 | | | (9 | ) | | (8 | ) | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | |
Total | | 2,995 | | | 2,565 | | | 2,094 | | | 9.4 | | | 9.6 | | | 8.4 | |
| | | | | | | | | | | | | | | | | | |
(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)
| Loss ratios were 71.6%, 68.4% and 69.7% for 2007, 2006 and 2005, respectively.
|
(3)
| Contains run-off of €(3) mn, €(2) mn and €(11) mn in 2007, 2006 and 2005 respectively, from our former life insurance business in the United Kingdom which we sold in December 2004.
|
(4)
| Effective 2007, life business in Mexico is shown within the Life/Health segment.
|
(5)
| Contains, among others, the Life/Health business assumed by Allianz SE, which was previously reported under Germany in the Property-Casualty segment. Prior year balances have been adjusted to reflect this reclassification and allow for comparability across periods.
|
(6)
| Presentation not meaningful.
|
(7)
| Represents elimination of transactions between Allianz Group companies in different geographic regions.
|
Banking Operations(1)
Year ended December 31, 2007 comparedDue to year ended December 31, 2006
Operating profit at €730 million despite financial markets turbulence.the sale of Dresdner Bank the commentary on the banking segment only refers to the continuing banking operations of the Group.
Net trading loss of €461 million causedOldenburgische Landesbank and banking customers introduced by markdowns on asset-backed securities.Allianz tied agents are included.
ProfitabilityContinuing banking operations recorded an operating loss of Private & Corporate Clients division further improved
Year ended December 31, 2006 compared to year ended December 31, 2005
Ambitious 2006 targets surpassed.
Strong growth of operating revenues and€31 million (2007: operating profit outperforming our expectations.
Milestone for cost-income ratio of below 80% achieved.
Both operating divisions improved strongly.
Net income amounted to €891 million.€32 million).
Earnings Summary
Operating revenues
Year ended December 31, 20072008 compared to year ended December 31, 20062007
Dresdner Bank’s operatingOperating revenues were downdecreased by 20.3%12.5% to €5,424€544 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. However, the net interest income grew.
Net interest income grew by 12.9% to €2,987 million. Private & Corporate Clients (“PCC”) as well as the Investment Bank (“IB”) contributed positivelywith all revenue components contributing to this improvement with €61 million and €142 million, respectively. In the PCC division we saw higher income from the deposit business due to higher volumes and margins. Thisdevelopment. The biggest downward movement was partially offset by lower income from the loan business. The IB improved its result from the loan business and leveraged finance activities.
Net fee and comission income improved slightly by 0.9% to €2,866 million. This resulted from an increased fee volume in the advisory business of our Investment Bank and higher transaction-driven fees in Corporate Other. Lower income from the securities business in PCC, where we saw less client activity due to the market turbulence, partially offset this development.
The development in our net trading income was significantly impacted by the financial markets turbulence leading to a negative result of €461 million (2006: income of €1,242 million). This decline was almost entirely attributable to the markdowns of €1,275 million in only a limited number of business lines of our Investment Bank. The remaining shortfall in these business lines was indirectly related to the credit crisis, resulting from constrained activities in the capital markets. Unaffected business units in aggregate recorded revenue growth of 6.1%. This growth was largely driven by higher client revenues, particularly in leveraged finance, loans and interest derivatives.
Year ended December 31, 2006 compared to year ended December 31, 2005
Dresdner Bank’s operating revenues strongly increased to €6,804 million, up 12.7% from the prior year. All income categories contributed to this development, with double-digit growth rates in net interest income and net trading income. Both operating divisions, Private & Corporate Clients (or “PCC”) and Investment Banking (or “IB”) recorded higher operating revenues compared to 2005.
Net interest income was €2,645 million, an increase of 19.3%, with significant growth from IB, largely driven by its increased loan book from structured finance and syndicated loan transactions. PCC recorded stable net interest income, as higher revenues in the deposit business were offset by lower net interest income from the loan business. The increase in our net interest income was aided by the development of the impact from the accounting treatment for derivative financial instruments which do not qualify for hedge accounting, amounting to a positive effect of €66 million in 2006 compared to a negative effect of €346 million in 2005.
(1)
| The results of operations of our Banking segment are almost exclusively represented by Dresdner Bank, accounting for 94.8% of our total Banking segment’s operating revenues for the year ended December 31, 2007 (2006: 96.0%, 2005: 95.6%). Accordingly, the discussion of our Banking segment’s results of operations relates solely to the operations of Dresdner Bank.
|
At €2,841 million, we grew net fee and commission income by 5.5% over the 2005 level. This development was mainly a result of our growing securities business in PCC which benefited from both higher turnover-related commissions and increased assets under management. In addition, PCC’s positively developing life and pension insurance business contributed, with particularly strong sales of “Riester” pension products. Net fee and commission income from IB also improved. Here, our advisory business benefited from increased merger and acquisition activities. In contrast, our Corporate Other division experienced a decline in net fee and commission income principally impacted(down €58 million to €237 million) mainly due to lower third-party assets in Italy caused by the closure of our Institutional Restructuring Unit (or “IRU”) in September 2005.
Trading income (net), at €1,242 million in 2006 and up 10.6% compared to the prior year, benefited from a growth momentum across all product groups, particularly within the derivatives and the foreign exchange business. Contrary to the development of netmarket-related effects. Net interest income net trading income was negatively affecteddecreased by 4.0% to €312 million, as lower at-equity results of investments at Banque AGF(2) outweighed the impact from the accounting treatment for derivative instruments which do not qualify for hedge accounting, amounting to a negative effect of €113 millionpositive performance in 2006, after a positive effect of €132 million in 2005.
Operating profit
Operating profit – Dresdner Bank
in € mn
Year ended December 31, 2007 compared to year ended December 31, 2006
At €730The operating revenues for our Banking segment amounted to €622 million operating profit(2006: €604 million). The increase of €18 million was down 46.1%, includingdriven by the above mentioned markdowns on asset-backed securitiespositive development in net interest income and net fee and commission income, which could outweigh the sharp decrease in our net trading income.
Net interest income developed favorably, up 11.7% to €325 million. Oldenburgische Landesbank’s net interest income was steady.
Our net fee and commission income also showed good performance with an increase of €1.3 billion experienced€27 million to €295 million mainly driven by the results of Banque AGF(2) and the banking clients introduced through the tied agents channel.
The development in a number of business lines ofnet trading income was significantly impacted by the Investment Bank due to theturbulence in financial markets turbulence. The remaining shortfalland led to a result of €2 million, coming from €45 million in these business lines was also relatedthe previous year.
Operating profit (loss)
Year ended December 31, 2008 compared to year ended December 31, 2007
We recorded an operating loss of €31 million coming from a profit in 2007 of almost the credit crisis. Expense savingssame magnitude. Lower operating revenues and higher loan loss provisions (net additions of €597€29 million partly
compensated this development. As these savings could not outweighin 2008 compared to net additions of €5 million in the decline in revenues,previous year) were only partially offset by reduced operating expenses. Operating expenses decreased by 6.7% to €546 million whereas our cost-income ratio increased by 9.36.3 percentage points to 89.0%100.4%.
Year ended December 31, 2007 compared to year ended December 31, 2006
Operating profit nearly halved to €32 million (2006: €63 million). Our cost-income ratio was 94.1% (2006: 90.1%).
Operating expenses, at €4,826 million, were down 11.0%. We saw reductions in all expense categories.increased by 7.5% to €585 million. Administrative expenses were down by 10.7%amounted to €4,809 million. Thereof,€589 million, of which personnel expenses declined by 14.9%made up for €252 million, down 0.8%, and non-personnel expenses amounted to €2,894€337 million, driven by significantly lower performance-related expenses at the Investment Bank, reflecting the development in operating revenues. Further staff reductions and efficiency gains, achieved under the “New Dresdner Plus” programme, also contributed to this development. Non-personnel expenses also decreased by 3.4% to €1,915 million. This decline resulted predominantly from lower office costs and reduced consulting fees, partly offset by additional expenses for focused growth initiatives.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 showed gross releases and recoveries of €645€84 million and at the same time new provisonsgross additions of €513€89 million, leading to net releasesadditions of €132€5 million coming from a net release of €3 million in 2007 (2006: net additions of €27 million). We recorded releases and recoveries on a high level reflecting our conservative risk approach in the past. Following the approval of new internal models for expected losses which we also use for Basel II, our assumptions regarding the provisioning for the general loan loss provision turned out to be more cautious than necessary and were revised accordingly.previous year.
Non-operating result
Year ended December 31, 20062008 compared to year ended December 31, 20052007
We more than doubled our operating profit, up 114.9% to €1,354 million in 2006, primarily resulting from the positive revenue development previously described. With our higher operating revenues and lower operating expenses, our cost-income ratio improved significantly to 79.7% in 2006, down 11.7 percentage points compared to 2005.
Operating expenses,The non-operating result was negative at €5,423 million, were down 1.8% from a year earlier due to decreased administrative expenses. Administrative expenses amounted to €5,384 million, of which personnel expenses were €3,400 million, up 3.8%, and non-personnel expenses were €1,984 million, down 8.9%.
Higher personnel expenses were entirely driven by increased performance-related bonuses, reflecting the strong growth of our operating revenues. On the other hand, further staff reductions and efficiency
gains, helped to decrease both non-performance-related personnel expenses and non-personnel expenses. The decline in non-personnel expenses stemmed from materially lower office space expenses.
Within our loan loss provisions we continued to benefit from the improved quality of our loan portfolio. In aggregate, loan loss provisions experienced moderate net additions of €27€130 million compared to net releasesa positive result of €113€13 million in 2005. Net releases2007. This is primarily due to significantly higher net impairments of investments, up €117 million to €120 million, which were mainly caused by write-downs on structured products in France. In addition, net realized losses of €6 million (2007: gains of €18 million), largely from the prior year were driven by recoveries and substantial releasessale of investments in connection with the wind-down of the IRU. Our coverage ratio(1) improvedFrance contributed to 61.5% as of December 31, 2006 from 56.8% in 2005.
Non-operating resultsthis development.
Year ended December 31, 2007 compared to year ended December 31, 2006
The non-operating result more than halvedamounted to a loss of €70€13 million in 2007. The main drivers were significantly reduced restructuring charges and lowerboth periods. Higher net impairments on investments.
Net realized gains decreasedof €18 million in 2007 (2006: €15 million) were partly offset by €422 million to €70 million. In the previous year, we recorded large gains from the sale of Dresdner Bank’s remaining shareholding in Munich Re as well as from the disposal of Eurohypo AG.
Netnet impairments of investments declined by 58.6%amounting to €89€3 million as the prior year’s figure included higher write-downs on real estate properties used by third-parties.(2006: no impairments were incurred). In addition, we recorded restructuring charges of €2 million in 2007 and 2006, respectively.
Restructuring charges declinedNet income (loss) from €422 million to €51 million. In 2006, higher charges were incurred in connection with the “New Dresdner Plus” reorganization programme.(2)continuing operations
Year ended December 31, 20062008 compared to year ended December 31, 20052007
In aggregate,The net loss from our continuing operations before income taxes and minority interests in earnings amounted to €161 million (2007: income of €45 million). Due to the impact from non-operating items declined from €825loss, we recorded an income tax credit of €54 million profitwhich 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 loss of €145 million, as expected.
Realized gains/losses (net) decreased by €528 million to €492 million, primarily due to a
(1)positive effect from the German tax reform.
| Represents total loan loss allowance as a percentage of total non-performing loans and potential problem loans.
|
(2)
| Please see Note 49 to our consolidated financial statements for further information on our restructuring plans.
|
reduced numberAfter tax and minority interests, we recorded a net loss from continuing operations of significant sale transactions compared to€114 million, coming from a gain of €55 million a year ago. Realized gains in 2006 included a tax-exempt gain from the sale of Dresdner Bank’s remaining 2.3% shareholdings in Munich Re to Allianz SE (formerly Allianz AG) as well as a gain from the disposal of our remaining participation in Eurohypo AG.
Impairments of investments (net) was up 17.5% to €215 million, largely attributable to write-downs on real estate properties used by third-parties.
Restructuring charges increased by €410 million to €422 million, mainly reflecting the “New Dresdner Plus” reorganization program.(2)
Net incomeearlier.
Year ended December 31, 2007 compared to year ended December 31, 2006
The decline in net income by 58.9%from our continuing banking operations amounted to €366€55 million resulted mainly fromand therefore was €14 million lower operating profit as previously described.than the same period a year ago.
Although we recorded lower€45 million income from continuing operations before income taxes and minority interests in earnings ourwe received an income tax credit of €10 million. This was a result of the German tax rate reform in 2007, which led to a tax benefit from revaluation of deferred taxes. The effective tax rate was (22.2)%. In 2006 income from continuing operations before income taxes decreased by only 1.7%and minority interests in earnings amounted to €232€76 million. The income tax charge was €1 million leading to an effective tax rate of 35.2% (2006: 19.5%)1.3%. The especially low effective tax rate in 2006 was caused mainly by the capitalization of corporate tax credits. In 2007 the German tax reform led to a negative one-off effect of €137 million due to the revaluation of the net deferred tax assets. In addition, no deferred tax assets were recognized for losses from markdowns on asset backed securities.
Banking segment information
| | | | | | | | | |
| | | 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 | |
Year ended December 31, 2006 compared to year ended December 31, 2005Banking Operations by Geographic Region
Net income amounted to a strong €891 million, evidencing the high quality of our earnings. Our significantly improved operating profit almost compensated for the expected decline in non-operating items.
With income tax expenses down 36.7%, our effective tax rate decreased from 25.6% to 19.5%. This development was mainly attributable to higher tax exempt income and the capitalization of corporate tax credits in Germany, while income before income taxes was lower in 2006.
The following table sets forth the income statementsour banking operating revenues, operating profit and cost-income ratios for both our Banking segment as a whole and Dresdner Bankratio by geographic region for the years ended December 31, 2008, 2007 2006 and 2005.2006. Consistent with our general practice, these figures are presented before consolidation adjustments, representing the elimination of transactions between Allianz Group companies in different segments.
| | | | | | | | | | | | | | | | | | |
| | | 2007 | | | 2006 | | | 2005 | |
| | | Banking
Segment | | | Dresdner
Bank | | | Banking
Segment | | | Dresdner
Bank(1) | | | Banking
Segment | | | Dresdner
Bank | |
| | | € mn | | | € mn | | | € mn | | | € mn | | | € mn | | | € mn | |
Net interest income(2) | | 3,104 | | | 2,987 | | | 2,720 | | | 2,645 | | | 2,294 | | | 2,218 | |
Net fee and commission income(3) | | 3,048 | | | 2,866 | | | 3,008 | | | 2,841 | | | 2,850 | | | 2,693 | |
Trading income (net)(4) | | (464 | ) | | (461 | ) | | 1,282 | | | 1,242 | | | 1,170 | | | 1,123 | |
Income from financial assets and liabilities designated at fair value through income (net)(4) | | 33 | | | 33 | | | 53 | | | 53 | | | (7 | ) | | (6 | ) |
Other income | | — | | | (1 | ) | | 25 | | | 23 | | | 11 | | | 11 | |
| | | | | | | | | | | | | | | | | | |
Operating revenues(5) | | 5,721 | | | 5,424 | | | 7,088 | | | 6,804 | | | 6,318 | | | 6,039 | |
| | | | | | | | | | | | | | | | | | |
Administrative expenses | | (5,061 | ) | | (4,809 | ) | | (5,605 | ) | | (5,384 | ) | | (5,661 | ) | | (5,452 | ) |
Investment expenses | | (14 | ) | | (20 | ) | | (47 | ) | | (53 | ) | | (30 | ) | | (37 | ) |
Other expenses | | 1 | | | 3 | | | 14 | | | 14 | | | (33 | ) | | (33 | ) |
| | | | | | | | | | | | | | | | | | |
Operating expenses | | (5,074 | ) | | (4,826 | ) | | (5,638 | ) | | (5,423 | ) | | (5,724 | ) | | (5,522 | ) |
Loan loss provisions | | 126 | | | 132 | | | (28 | ) | | (27 | ) | | 110 | | | 113 | |
| | | | | | | | | | | | | | | | | | |
Operating profit | | 773 | | | 730 | | | 1,422 | | | 1,354 | | | 704 | | | 630 | |
| | | | | | | | | | | | | | | | | | |
Realized gains/losses (net) | | 83 | | | 70 | | | 492 | | | 492 | | | 1,020 | | | 1,020 | |
Impairments of investments (net) | | (90 | ) | | (89 | ) | | (215 | ) | | (215 | ) | | (184 | ) | | (183 | ) |
Amortization of intangible assets | | — | | | — | | | — | | | — | | | (1 | ) | | — | |
Restructuring charges | | (52 | ) | | (51 | ) | | (424 | ) | | (422 | ) | | (13 | ) | | (12 | ) |
| | | | | | | | | | | | | | | | | | |
Non-operating items | | (59 | ) | | (70 | ) | | (147 | ) | | (145 | ) | | 822 | | | 825 | |
| | | | | | | | | | | | | | | | | | |
Income before income taxes and minority interests in earnings | | 714 | | | 660 | | | 1,275 | | | 1,209 | | | 1,526 | | | 1,455 | |
Income taxes | | (266 | ) | | (232 | ) | | (263 | ) | | (236 | ) | | (387 | ) | | (373 | ) |
Minority interests in earnings | | (71 | ) | | (62 | ) | | (94 | ) | | (82 | ) | | (102 | ) | | (82 | ) |
| | | | | | | | | | | | | | | | | | |
Net income | | 377 | | | 366 | | | 918 | | | 891 | | | 1,037 | | | 1,000 | |
| | | | | | | | | | | | | | | | | | |
Cost-income ratio(6) in % | | 88.7 | | | 89.0 | | | 79.5 | | | 79.7 | | | 90.6 | | | 91.4 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | 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) | We have enhanced the presentation of revenuesRepresents interest and operating profit stemming from trades in shares of Allianz SE and its affiliates. From 2007 onwards, these results are eliminated on Dresdner Bank level, whereas in 2006 they were adjusted on segment level only. At Dresdner Bank this led to reduced operating revenues and reduced operating profit of €6 mn and €6 mn, respectively, compared to the figures as stated in 2006. As a resultsimilar income taxes decreased by €3 mn. All other changes are related to rounding.less interest expenses.
|
(2) | Represents interest and similar income less interest expense.
|
(3)
| Represents fee and commission income less fee and commission expenses. |
(4)(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 included in Note 56 to the consolidated financial statements. |
(5)(4)
| For the Banking segment, total revenues are measured based upon operating revenues. |
(5) | Represents operating expenses divided by operating revenues. |
(6) | Represents operating expenses divided by operating revenues.
|
Banking Operations by Division
The following table sets forth our banking operating revenues, operating profit and cost-income ratio by division. Consistent with our general practice, these figures are presented before consolidation adjustments, representing the elimination of transactions between Allianz Group companies in different segments.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Operating revenues | | | Operating profit (loss) | | | Cost-income ratio | |
| | | 2007 | | 2006 | | 2005 | | | 2007 | | | 2006 | | 2005 | | | 2007 | | | 2006 | | | 2005 | |
| | | € mn | | € mn | | € mn | | | € mn | | | € mn | | € mn | | | € mn | | | € mn | | | € mn | |
Private & Corporate Clients(1) | | 3,625 | | 3,624 | | 3,464 | | | 884 | | | 783 | | 626 | | | 74.0 | | | 74.9 | | | 77.2 | |
Investment Banking(1) | | 1,628 | | 3,111 | | 2,613 | | | (659 | ) | | 548 | | 351 | | | 137.0 | | | 82.9 | | | 88.1 | |
Corporate Other(2) | | 171 | | 69 | | (38 | ) | | 505 | | | 23 | | (347 | ) | | — | (3) | | — | (3) | | — | (3) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Dresdner Bank | | 5,424 | | 6,804 | | 6,039 | | | 730 | | | 1,354 | | 630 | | | 89.0 | | | 79.7 | | | 91.4 | |
Other Banks(4) | | 297 | | 284 | | 279 | | | 43 | | | 68 | | 74 | | | 83.5 | | | 75.7 | | | 72.4 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | 5,721 | | 7,088 | | 6,318 | | | 773 | | | 1,422 | | 704 | | | 88.7 | | | 79.5 | | | 90.6 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
(1)
| Our reporting by division reflects the organizational changes within Dresdner Bank effective starting with 1Q 2007, resulting in two operating divisions, Private & Corporate Clients (“PCC”) and Investment Banking (“IB”). PCC combines all banking activities formerly provided by the Personal Banking and Private & Business Banking (including Private Wealth Management) divisions as well as our activities with medium-sized business clients from our former Corporate Banking division. IB, with Global Banking and Capital Markets, unites the activities formerly provided by the Dresdner Kleinwort Wasserstein division and the remaining activities of the former Corporate Banking division. Prior year balances have been adjusted accordingly to reflect these reorganization measures and allow for comparability across periods.
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(2)
| The Corporate Other division contains income and expense items that are not assigned to Dresdner Bank’s operating divisions. These items include, in particular, impacts from the accounting treatment for derivative financial instruments which do not qualify for hedge accounting as well as provisioning requirements for country and general risks. For the years ended December 31, 2007, 2006 and 2005 the impact from the accounting treatment for derivative financial instruments which do not qualify for hedge accounting on Corporate Other’s operating revenues amounted to €(54) mn, €(47) mn and €(214) mn, respectively.
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(3)
| Presentation not meaningful. |
(4)
| Consists of non-Dresdner Bank banking operations within our Banking segment.
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Banking Operations by Geographic Region
The following table sets forth our banking operating revenues and operating profit by geographic region for the years ended December 31, 2007, 2006 and 2005. Consistent with our general practice, these figures are presented before consolidation adjustments, representing the elimination of transactions between Allianz Group companies in different segments.
| | | | | | | | | | | | | | |
| | | Operating revenues | | Operating profit (loss) | |
| | | 2007 | | 2006 | | 2005 | | 2007 | | | 2006 | | 2005 | |
| | | € mn | | € mn | | € mn | | € mn | | | € mn | | € mn | |
Germany | | 4,321 | | 4,312 | | 4,340 | | 1,488 | | | 853 | | 814 | |
The Americas | | 433 | | 560 | | 176 | | 77 | | | 251 | | (78 | ) |
Europe | | 664 | | 1,944 | | 1,571 | | (907 | ) | | 234 | | (110 | ) |
New Europe | | 72 | | 60 | | 47 | | 8 | | | 2 | | 3 | |
Asia-Pacific | | 231 | | 212 | | 184 | | 107 | | | 82 | | 75 | |
| | | | | | | | | | | | | | |
Total | | 5,721 | | 7,088 | | 6,318 | | 773 | | | 1,422 | | 704 | |
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Asset Management Operations
Year ended December 31, 2008 compared to year ended December 31, 2007
Solid asset base ensures profitability even under extreme conditions.
Operating profit of €926 million.
Fixed-income business continued to deliver robust results, while equity business suffered from the difficult market environment.
Year ended December 31, 2007 compared to year ended December 31, 2006
Internal growth of 8.1% in third-party assets under management.
Strong profitability based on growing asset base and tight cost control.
Cost-income ratio at a very competitive 58.3%.
Year ended December 31, 2006 compared to year ended December 31, 2005
Another year of substantial improvement across all key performance indicators.
Strong net inflows of €36 billion despite challenging capital market environment.
Further double-digit operating profit growth to €1.3 billion.
Very competitive cost-income ratio at 57.6%.
Net income reached €404 million, up 65.6%.
Third-Party Assets Under Management of the Allianz Group
Year ended December 31, 20072008 compared to year ended December 31, 20062007
The majoritysevere turbulences in the financial markets influenced the development of our third-party assets under management outperformed their respective benchmarks. Operating profit grew 5.3% to €1,359 million. Excluding negative foreign currency translation effectsmanagement. At €703 billion, these were €62 billion below the level of €96 million operating profit grew 12.8% at constant exchange rates.year-end 2007.
In the fixed income business, especially Development of third-party assets under management
in the second half of the year, 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.€ bn
Third party
Despite the negative impact the crisis had on the fair value of our assets under management, increased by 8.1% on an internal basis. This growth was driven bywe still generated positive net inflows and positive market effects, which in aggregate contributed €62 billion. However, the continuing declinefirst nine months of 2008. In contrast, we saw large outflows in the U. S. Dollar outweighed mostfourth quarter as a consequence of that asset growth.
Of theincreased risk aversion of investors. The twelve month net inflow figure was zero, as full year inflows €12.4 billion are attributable to fixed income investments, whereas there were outflows of €2.4€11 billion from fixed-income products was entirely offset by outflows from equity investments.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.
There were no major movements in the geographic origination of third partyThird-party assets under management in the year. The allocation between retail and institutional clients 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 does 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, Germany and other countries was fairly balanced.
geographic region as of December 31, 2008 (December 31, 2007)(1)
Year ended December 31, 2006 compared to year ended December 31, 2005in %
In 2006, we faced a volatile and challenging capital market environment. Whereas in the first, third and fourth quarter, equity capital markets developed favorably worldwide, the second quarter showed substantial declines in market values. In the fixed income capital markets, substantial decreases in fixed income indices occurred throughout the first half of the year, following the increases in market interest rates, and values only recovered slowly during the second half of the year.
This capital market environment led to mixed developments in the assetThe regional allocation of assets under management industry. For example, net flows in the fixed income mutual fund marketmoved slightly towards investments originated in the United States, turned negative duringdriven by the second quarterappreciation of 2006. In Germany,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 fixed income mutual fund markets recorded net outflows in 2006, whereas balanced and money market products saw net inflows of a similar magnitude.
Despite this challenging environment and also dampened private demand for third-party asset management products and services, we achieved net inflows to third-party assets of €36 billion, primarily stemming from the United States and Europe, compared to €65 billion in 2005. Both fixed income and equity products contributed to net inflows in
2006, which again affirmed our strong position as one85% of the largest asset managers worldwide, based on total assets under management.(1)
A key success factor continued to be our competitive investment performance.management, respectively, at year-end 2008. The overwhelming majorityproportion of the third-party assets we manage again outperformed their respective benchmarks in 2006. Market-related appreciation was €43 billion. Net inflows and positive market effects were partly offset by negative currency conversion effects of €57 billion, resulting primarily from a weaker U.S. Dollar versus the Euro. Overall, on a Euro-basis, our third-party assets increased by €21 billion(2) to €764 billion as of December 31, 2006, compared to €743 billion as of December 31, 2005.institutional (74%)
(1) | Source: Own internal analysis and estimates.Based on the origination of assets.
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(2) | Including a negative deconsolidation effectConsists of €1 bn.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).
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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 equity and fixed income accounts managed on a discretionary basis by equity and fixed incomefixed-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: WRAP accounts and accounts of Caywood Scholl, AGI Taiwan, AGI Singapore, GTJA Allianz China, AGI Korea, AGF AMAGI France, AGI Netherlands and RAS AM.AGI Italy. |
Development of third-party assets underMajor awards received during the year in the asset management
business in € bn
Third-party assets under management – By geographic region asAllianz RCM Global EcoTrends Fund was announced joint winner of December 31, 2007 (2006)(1)“Best Climate Change Fund 2008”, awarded by Holden & Partners Incisive Media.
in %
(1)
| Based on the origination of assets.
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(2)
| Consists of third-party assets managed by Dresdner Bank (approximately €18 bn and €21 bn as of December 31, 2007 and 2006, respectively) and by other Allianz Group companies (approximately €22 bn and €20 bn as of December 31, 2007 and 2006, respectively).
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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 outperformed 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 the U. S. Dollar outweighed most of that asset growth.
Of the net inflows, €12.4 billion are attributable to fixed-income investments, whereas there were outflows of €2.4 billion from equity investments.
There were no major movements in the geographic origination of third-party assets under management in the year. The allocation between retail and institutional clients 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, Germany and other countries was fairly balanced.
Major awards received during the year reflect our success in the asset management business in 2007:
Morningstar has named PIMCO´sPIMCO’s Bill Gross and team the “2007 Fixed-Income Fund Manager of the year”. 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 IncomeFixed-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, 20062008 compared to year ended December 31, 20052007
Our major achievements in 2006 included:
Allianz/PIMCO Funds were named “Best Mutual Fund Family”Operating revenues decreased by 6.0% to €2,813 million on an internal basis. The decline in the 2006 Lipper/Barron’s Fund Families Survey.
Particularly strongasset base resulted in lower net inflows of approximately €7 billionfee and commission income. In addition, we recorded a net loss from financial assets and liabilities carried at our equity fund manager NFJ Investment Group.
PIMCO CommodityRealReturn Funds began trading on June 29, 2006 and already successfully raised USD 773 million in assets to December 31, 2006.
PIMCO was named “Investor of the Year” in the 2006 Securitization News survey.
| •
| | Allianz Global Investors Germany is market leader in the innovative segment of certificate funds.(1)
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Deutscher Investment-Trust Gesellschaft für Wertpapieranlagen mbH (or “dit”) ranked first in the “Most Improved Group” of Standard & Poor’s German Fund Awards 2006.
dit was awarded five stars by the German financial magazine “Capital”, the highest possible score.
Effective January 1, 2007, our German retail fund company dit and our German special fund company dresdnerbank investment management Kapitalanlagegesellschaft mbH (or “dbi”)fair value through income. On a nominal basis, operating revenues were merged to form Allianz Global Investors Kapitalanlagegesellschaft mbH.11.5% lower.
(1) | Source: Bundesverband Investment undThe results of operations of our Asset Management (or “BVI”)segment are almost exclusively represented by AGI, accounting for 97.4% (2007: 97.5%, an association representing2006: 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 German investment fund industry.year ended December 31, 2008. Accordingly, the discussion of our Asset Management segment’s results of operations relates solely to the operations of AGI.
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Earnings Summary(2)Net fee and commission income declined by 8.1% as the lower level of third-party assets under management led to decreasing management fees. The unprecedented market disruptions were reflected in the volatility of performance 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 | |
| | | | | | | | | |
Operating revenues
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, 2007 compared to year ended December 31, 2006
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 growing asset base, as well as by increased performance fees. In contrast, loading and exit fees decreased reflecting the development in mutual fund sales.
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| | | 2007 | | | 2006 | | | 2005 | |
| | | € mn | | | € mn | | | € mn | |
Management fees | | 3,496 | | | 3,368 | | | 2,941 | |
Loading and exit fees | | 307 | | | 334 | | | 333 | |
Performance fees | | 202 | | | 107 | | | 122 | |
Other income | | 292 | | | 309 | | | 294 | |
| | | | | | | | | |
Fee and commission income | | 4,297 | | | 4,118 | | | 3,690 | |
| | | | | | | | | |
Commissions | | (877 | ) | | (895 | ) | | (812 | ) |
Other expenses | | (360 | ) | | (349 | ) | | (281 | ) |
Fee and commission expenses | | (1,237 | ) | | (1,244 | ) | | (1,093 | ) |
| | | | | | | | | |
Net fee and commission income | | 3,060 | | | 2,874 | | | 2,597 | |
| | | | | | | | | |
Year ended December 31, 2006 compared to year ended December 31, 2005
At €2,989 million, operating revenues reflect a solid growth of 11.7% at stable revenue margins, primarily attributable to strict pricing discipline and a further improved responsiveness to our clients’ needs. Net fee and commission income was up €277 million to €2,874 million, predominantly due to higher management fees as a result of the growing third-party asset under management base, as previously discussed. Internal operating revenue growth of 13.3% was even stronger, as nominal operating revenue growth was impacted by the weaker U.S. Dollar compared to the Euro.
(2) | The results of operations of our Asset Management segment are almost exclusively represented by AGI, accounting for 97.5% of our total Asset Management segment’s operating revenues€54 million have been reclassified from other expenses to commission expenses each for the yearyears ended December 31, 2007 (2006: 98.2%, 2005: 98.3%). Accordingly, the discussion of our Asset Management segment’s results of operations relates solely to the operations of AGI.and 2006.
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Operating profit
Operating profit–Allianz Global Investorsprofit
in € mn
In 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 seed money investments together with a slight increase in operating expenses.
Administrative 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 higher costs for further improvements of compliance and risk management infrastructures. Personnel expenses declined due to lower bonus costs, partly offset by associated non-bonus related staff costs due to an increase in headcount.
At 67.9%, the cost-income ratio was up 9.5 percentage points.
Year Ended December 31, 2007 Compared to Year Ended December 31, 2006
Operating profit increased by 3.5% to €1,321 million.
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 remainsremained at a very competitive level.
Non-operating result
Year Ended December 31, 20062008 Compared to Year Ended December 31, 20052007
Operating profit grew by 14.2%Acquisition-related expenses declined significantly to €1,276 million.
Administrative expenses, excluding acquisition-related expenses, at €1,713€278 million in 2006, were up 9.8%, representing a considerably less than proportionate increase compared to that in our operating revenues(2007: €491 million). This was almost exclusively due to effective cost control.a lower number of outstanding PIMCO LLC Class B Units (B Units). As a result, our cost-income ratio decreased by 1.0 percentage point to 57.3%.
This success was achieved despite substantial investments in our distribution network and human resources development.
Non-operating resultof December 31, 2008, the Allianz Group had acquired 71,743 of the 150,000 units originally outstanding.
Year Ended December 31, 2007 Compared to Year Ended December 31, 2006
The 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 7.7%. to €491 million. This was mainly driven by a positive foreign exchange effect of €48 million. Excluding foreign exchange impacts, acquisition related expenses grew 1.2%, mainly due to valuation effects of PIMCO LLC Class B Units (or “Class B Units”)(B Units) as a result of increased operating performance at PIMCO. This outweighed the lower 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(1) originally outstanding. Going forward, we expect acquisition-related expenses to be mainly driven by the number of Class B Units outstanding and our operating profit development at PIMCO.
There was no charge in 2007 for amortization of intangible assets compared to a charge in the prior year of €23 million that was related to the impairment of a brand name.
(1)
| Please see Note 48 to our consolidated financial statements for further information on the Class B Units.
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Year ended December 31, 2006 Compared to Year ended December 31, 2005
In aggregate, the net loss from non-operating items decreased significantly from €708 million to €556 million. Thereof, at €532 million, acquisition related expenses declined 22.6%. This decrease was mainly driven by a lower number of outstanding PIMCO LLC Class B Units (or “Class B Units”) in 2006 as compared to 2005. As of December 31, 2006, the Allianz Group had acquired 21,762 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 operating profit development at PIMCO. Amortization of intangible assets of €23 million in 2006 was related to the merger of dit and dbi to Allianz Global Investors Kapitalanlagegesellschaft mbH, previously mentioned. Thereby, our dit brand was fully written off in 2006.
Net income
Year ended December 31, 2008 compared to year ended December 31, 2007
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.
Year ended December 31, 2006 compared to year ended December 31, 2005
Net income reached €395 million, exceeding previous year’s level by 68.8%. Primarily as a result of higher taxable income in the United States income tax expenses increased 117.3% to €276 million, representing a rise of our effective tax rate from 31.1% to 38.3%.
The following table sets forth the income statements and cost-income ratios for both our Asset Management segment as a wholeinformation and AGI for the years ended December 31, 2007, 2006 and 2005.
| | | | 2007 | | 2006 | | 2005 | | | 2008 | | 2007 | | 2006 | |
| | | Asset
Management
Segment | | Allianz
Global
Investors | | Asset
Management
Segment | | Allianz
Global
Investors | | Asset
Management
Segment | | Allianz
Global
Investors | | | Asset
Management
Segment | | Allianz
Global
Investors | | Asset
Management
Segment | | Allianz
Global
Investors | | Asset
Management
Segment | | Allianz
Global
Investors | |
| | | ��� mn | | € mn | | € mn | | € mn | | € mn | | € mn | | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | |
Net fee and commission income(1) | | 3,133 | | | 3,060 | | | 2,924 | | | 2,874 | | | 2,636 | | | 2,597 | | | 2,874 | | | 2,812 | | | 3,133 | | | 3,060 | | | 2,924 | | | 2,874 | |
Net interest income(2) | | 81 | | | 75 | | | 71 | | | 66 | | | 56 | | | 51 | | | 62 | | | 54 | | | 81 | | | 75 | | | 71 | | | 66 | |
Income from financial assets and liabilities carried at fair value through income (net) | | 31 | | | 29 | | | 38 | | | 37 | | | 19 | | | 18 | | | (77 | ) | | (80 | ) | | 31 | | | 29 | | | 38 | | | 37 | |
Other income | | 14 | | | 14 | | | 11 | | | 12 | | | 11 | | | 11 | | | 28 | | | 27 | | | 14 | | | 14 | | | 11 | | | 12 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Operating revenues(3) | | 3,259 | | | 3,178 | | | 3,044 | | | 2,989 | | | 2,722 | | | 2,677 | | | 2,887 | | | 2,813 | | | 3,259 | | | 3,178 | | | 3,044 | | | 2,989 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Administrative expenses, excluding acquisition-related expenses(4) | | (1,900 | ) | | (1,857 | ) | | (1,754 | ) | | (1,713 | ) | | (1,590 | ) | | (1,560 | ) | | (1,961 | ) | | (1,909 | ) | | (1,900 | ) | | (1,857 | ) | | (1,754 | ) | | (1,713 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Operating expenses | | (1,900 | ) | | (1,857 | ) | | (1,754 | ) | | (1,713 | ) | | (1,590 | ) | | (1,560 | ) | | (1,961 | ) | | (1,909 | ) | | (1,900 | ) | | (1,857 | ) | | (1,754 | ) | | (1,713 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Operating profit | | 1,359 | | | 1,321 | | | 1,290 | | | 1,276 | | | 1,132 | | | 1,117 | | | 926 | | | 904 | | | 1,359 | | | 1,321 | | | 1,290 | | | 1,276 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Realized gains/losses (net) | | 2 | | | 4 | | | 7 | | | 5 | | | 6 | | | 5 | | | 5 | | | 5 | | | 2 | | | 4 | | | 7 | | | 5 | |
Impairments of investments (net) | | (1 | ) | | (1 | ) | | (2 | ) | | (2 | ) | | — | | | — | | | (19 | ) | | (13 | ) | | (1 | ) | | (1 | ) | | (2 | ) | | (2 | ) |
Acquisition-related expenses(4), thereof | | | | | | | | | | | | | |
Acquisition-related expenses(4), thereof: | | | | | | | | | | | | | |
Deferred purchases of interests in PIMCO | | (488 | ) | | (488 | ) | | (523 | ) | | (523 | ) | | (677 | ) | | (677 | ) | | (278 | ) | | (278 | ) | | (488 | ) | | (488 | ) | | (523 | ) | | (523 | ) |
Other acquisition-related expenses(5) | | (3 | ) | | (3 | ) | | (9 | ) | | (9 | ) | | (10 | ) | | (10 | ) | | — | | | — | | | (3 | ) | | (3 | ) | | (9 | ) | | (9 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Subtotal | | (491 | ) | | (491 | ) | | (532 | ) | | (532 | ) | | (687 | ) | | (687 | ) | | (278 | ) | | (278 | ) | | (491 | ) | | (491 | ) | | (532 | ) | | (532 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Amortization of intangible assets | | — | | | — | | | (24 | ) | | (23 | ) | | (25 | ) | | (25 | ) | | (1 | ) | | (1 | ) | | — | | | — | | | (24 | ) | | (23 | ) |
Restructuring charges | | (4 | ) | | (4 | ) | | (4 | ) | | (4 | ) | | (1 | ) | | (1 | ) | | — | | | — | | | (4 | ) | | (4 | ) | | (4 | ) | | (4 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Non-operating items | | (494 | ) | | (492 | ) | | (555 | ) | | (556 | ) | | (707 | ) | | (708 | ) | | (293 | ) | | (287 | ) | | (494 | ) | | (492 | ) | | (555 | ) | | (556 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Income before income taxes and minority interests in earnings | | 865 | | | 829 | | | 735 | | | 720 | | | 425 | | | 409 | | | 633 | | | 617 | | | 865 | | | 829 | | | 735 | | | 720 | |
| | | | | | | | | | | | | | | | | | | |
Income taxes | | (342 | ) | | (337 | ) | | (278 | ) | | (276 | ) | | (129 | ) | | (127 | ) | | (249 | ) | | (246 | ) | | (342 | ) | | (337 | ) | | (278 | ) | | (276 | ) |
Minority interests in earnings | | (25 | ) | | (22 | ) | | (53 | ) | | (49 | ) | | (52 | ) | | (48 | ) | | (5 | ) | | (2 | ) | | (25 | ) | | (22 | ) | | (53 | ) | | (49 | ) |
| | | | | | | | | | | | | | | | | | | |
Net income | | 498 | | | 470 | | | 404 | | | 395 | | | 244 | | | 234 | | | 379 | | | 369 | | | 498 | | | 470 | | | 404 | | | 395 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cost-income ratio(6) in % | | 58.3 | | | 58.4 | | | 57.6 | | | 57.3 | | | 58.4 | | | 58.3 | | |
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 expense.expenses. |
(2) | Represents interest and similar income less interest expenseexpenses 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 administrationadministrative expenses (net) in the segment income statement included in Note 56 to the consolidated financial statements. |
(5) | Consists of retention payments for the management and employees of PIMCO and Nicholas Applegate.
|
(6)
| Represents operating expenses divided by operating revenues. |
Corporate Activities
Operating loss declined by €506€137 million mainly driven by higher investment resultforeign 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, 20062008 compared to year ended December 31, 20052007
WhileOperating profit (loss) At €318 million the operating loss down €50in 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 to €831coming from a gain of €37 million in 2006, remained relatively stable, net expenses from non-operating items declinedthe prior year. Due to the weak market conditions impairments increased significantly by €962 million. As a result, loss before€638 million and capital gains were €838 million
lower compared to the prior year. Trading income taxesimproved and expenses for external debt decreased mostly driven by the redemption of the bridge loan for the minority interests in earnings was down €1,012 million to €987 million. Consequently, netbuy-out at AGF.
Net income was down to(loss)We recorded a net loss of €179€812 million, or 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 a net loss of €1,268 million in 2005.
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Holding Function | | | Private Equity | | | Total | |
| | | 2007 | | | 2006 | | | 2005 | | | 2007 | | | 2006 | | | 2005 | | | 2007 | | | 2006 | | | 2005 | |
| | | € mn | | | € mn | | | € mn | | | € mn | | | € mn | | | € mn | | | € mn | | | € mn | | | € mn | |
Operating profit (loss) | | (446 | ) | | (824 | ) | | (932 | ) | | 121 | | | (7 | ) | | 51 | | | (325 | ) | | (831 | ) | | (881 | ) |
Non-operating items | | 37 | | | (455 | ) | | (1,109 | ) | | (66 | ) | | 299 | | | (9 | ) | | (29 | ) | | (156 | ) | | (1,118 | ) |
Income (loss) before income taxes and minorities | | (409 | ) | | (1,279 | ) | | (2,041 | ) | | 55 | | | 292 | | | 42 | | | (354 | ) | | (987 | ) | | (1,999 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | (168 | ) | | (460 | ) | | (1,286 | ) | | 10 | | | 281 | | | 18 | | | (158 | ) | | (179 | ) | | (1,268 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Holding Functionthe German tax reform.
Year ended December 31, 2007 compared to year ended December 31, 2006
Operating profit At €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 a high liquidity accumulated to pay back liabilities. Additionally, operating expenses declined by 6.9%, primarily attributing to lower investment expenses which reflect declined banking and investment transaction costs.
Non-operating result The non-operating result turned into an aggregate profit of €37 million compared to an aggregate loss of €455 million in the 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 this 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 Due to high negative tax impacts stemming primarily from the German tax reform our net loss came to €168 million.
Year ended December 31, 2006 compared to year ended December 31, 2005
Operating profit The considerable decrease in operating loss stemmed primarily from higher interest and similar income due to higher dividends received from equity investments. Further key operating items included within Holding Function are administrative expenses to run our Group Center, expenses associated with our pension plans, and expenses for certain Allianz Group-wide growth initiatives.
Non-operating items Net expenses from non-operating items decreased by €654 million, predominantly from higher realized gains brought about by various sales transactions. With net realized gains of €434 million the sale of our shareholding in Schering AG in June 2006 contributed most. In addition, non-operating items benefited from a lower net loss from financial assets and liabilities held for trading in comparison to 2005 when the effects of
derivatives from an equity-linked loan issued in connection with financing the cash tender offer for the outstanding RAS shares made a significant negative impact. Interest expense from external debt, at €775 million in 2006, remained relatively constant.
Net income Net loss of the Holding Function was down to €460 million and more than halved compared to the prior year. This was almost exclusively due to an almost similar development in non-operating items as previously described.
Private Equity
Year ended December 31, 2008 compared to year ended December 31, 2007
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 ain the previous year ago 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 ain the previous year, ago, 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 incomeNet 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, 20062007
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, 20052006
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 profitOperating profit turned negative and decreased €58 million from the 2005 level. In August 2006, the Allianz Group acquired 100.0% of MAN Roland Druckmaschinen AG. The full consolidation of this private equity investment had impacts of a similar magnitude both on operating revenues and operating expenses, namely income and expenses from fully consolidated private equity investments.(loss)
Non-operating items Non-operating items improved from aNine 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 €9€1,797 million, which included loan loss provisions of €(327) million.
Year ended December 31, 2007 compared to a gainyear 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 €299 million. The disposal of Four Seasons Health Care Ltd. (or “Four Seasons”) in August 2006 contributed €287€610 million topartly 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%.
��
(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 decrease 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 incomeNet income was €281(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 €2,074 million, plus an impairment loss recognized as of September 30, 2008 of €1,409 million representing the 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 €18 in 2005. Non-operating items turned positive; this by far outweighed the negative operating profit development.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. |
Balance Sheet Review(1)
Shareholders’ equity of €47.8€33.7 billion.
Strong net incomeAsset allocation of €8.0 billion partially offset by various impacts following minority buy-outs.Allianz is well diversified and of high quality.
Consolidated Balance Sheets(1)
The following table sets forth the Allianz Group’s consolidated balance sheets as of December 31, 2007 and 2006.
| As of December 31, | | 2007 | | 2006 | | 2008 | | 2007 |
| | | € mn | | € mn | | € mn | | € mn |
ASSETS | | | | | | | | |
Cash and cash equivalents | | 31,337 | | 33,031 | | 8,958 | | 31,337 |
Financial assets carried at fair value through income(2) | | 185,461 | | 198,992 | | 14,240 | | 185,461 |
Investments(3) | | 286,952 | | 298,134 | | 260,147 | | 286,952 |
Loans and advances to banks and customers | | 396,702 | | 423,765 | | 115,655 | | 396,702 |
Financial assets for unit linked contracts | | 66,060 | | 61,864 | |
Financial assets for unit-linked contracts | | | 50,450 | | 66,060 |
Reinsurance assets | | 15,312 | | 19,360 | | 14,599 | | 15,312 |
Deferred acquisition costs | | 19,613 | | 19,135 | | 22,563 | | 19,613 |
Deferred tax assets | | 4,771 | | 4,727 | | 3,996 | | 4,771 |
Other assets | | 41,528 | | 38,001 | | 34,004 | | 38,025 |
Non-current assets and assets of disposal groups classified as held-for-sale | | | 419,513 | | 3,503 |
Intangible assets | | 13,413 | | 13,072 | | 11,451 | | 13,413 |
| | | | | | | | |
Total assets | | 1,061,149 | | 1,110,081 | | 955,576 | | 1,061,149 |
| | | | | | | | |
| As of December 31, | | 2007 | | 2006 | | 2008 | | 2007 |
| | | € mn | | € mn | | € mn | | € mn |
LIABILITIES AND EQUITY | | | | | | | | |
Financial liabilities carried at fair value through income | | 126,053 | | 121,822 | | 6,244 | | 126,053 |
Liabilities to banks and customers | | 336,494 | | 376,565 | | 18,451 | | 336,494 |
Unearned premiums | | 15,020 | | 14,868 | | 15,233 | | 15,020 |
Reserves for loss and loss adjustment expenses | | 63,706 | | 65,464 | |
Reserves for insurance and investment contracts | | 292,244 | | 287,032 | |
Financial liabilities for unit linked contracts | | 66,060 | | 61,864 | |
Reserves for loss and loss adjustment expenses
thereof attributable to the Property-Casualty segment €55,616 mn (2007: €56,943 mn)(4) | | | 63,924 | | 63,706 |
Reserves for insurance and investment contracts
thereof attributable to the Life/Health segment €287,932 mn (2007: €283,139 mn)(4) | | | 296,557 | | 292,244 |
Financial liabilities for unit-linked contracts | | | 50,450 | | 66,060 |
Deferred tax liabilities | | 3,973 | | 4,588 | | 3,833 | | 3,973 |
Other liabilities | | 49,324 | | 49,764 | | 32,930 | | 48,031 |
Liabilities of disposal groups classified as held-for-sale | | | 411,816 | | 1,293 |
Certificated liabilities | | 42,070 | | 54,922 | | 9,544 | | 42,070 |
Participation certificates and subordinated liabilities | | 14,824 | | 16,362 | | 9,346 | | 14,824 |
| | | | | | | | |
Total liabilities | | 1,009,768 | | 1,053,251 | | 918,328 | | 1,009,768 |
| | | | | | | | |
Shareholders’ equity | | 47,753 | | 49,650 | | 33,684 | | 47,753 |
Minority interests | | 3,628 | | 7,180 | | 3,564 | | 3,628 |
| | | | | | | | |
Total equity | | 51,381 | | 56,830 | | 37,248 | | 51,381 |
| | | | | | | | |
Total liabilities and equity | | 1,061,149 | | 1,110,081 | | 955,576 | | 1,061,149 |
| | | | | | | | |
(1) | The Allianz Group identified prior period errors through an analysisDue to the disposal of various balance sheet accounts (the “Errors”). The Errors resulted primarily from the accounting for the purchasealmost all of Dresdner Bank in 2001AG to Commerzbank AG, all assets and 2002, consolidation of special funds in 2001 and other errors related to minority interest and policyholder participation occurred in combination with mergers. The Errors had the effect of reducing net income by €78 mn in 2006, €42 mn in 2005, and €157 mn for the 4 years from 2001 through 2004. As the majorityliabilities that are part of the Errors related to the years 2001 through 2004, the Errors from these periodsdisposal group have been accounted forreclassified and presented in 2007 by adjustingseparate 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 openingface of the consolidated balance sheet as of January 1, 2005. The Errors for 2005 and 2006December 31, 2008. Certain prior period amounts have been corrected through an out-of-period adjustmentreclassified to net income in 2007. Certain financial instruments that were previously presented on a net presentation are now presented on a gross basis, due to contractual limitationsconform to the right of offset. Partially offsetting these reclassifications from net to gross presentation is a change in the presentation of Collateral paid for securities borrowing transactions and Collateral received for securities lending transactions from gross to netcurrent period presentation. The net effect is an increase in total assets and total liabilities of €57,610 mn for the year ended December 31, 2006. For further information seeplease refer to Note 34 to theour consolidated financial statements.
|
(2) | As of December 31, 2007, €23,1632008, €101 mn are pledged to creditors and can be sold or repledged (2006: €90,211(2007: €23,163 mn). |
(3) | As of December 31, 2007, €7,3842008, €826 mn are pledged to creditors and can be sold or repledged (2006: €3,156(2007: €7,384 mn). |
(4) | For further information on our segment reporting please refer to Note 6 to our consolidated financial statements. |
TotalShareholders’ Equity(1)
Shareholders’ equity(1)
in € mn
| | | |
| | 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 €7.2€3.6 bn and of €8.4€7.2 bn as of December 31, 2008, 2007 2006 and 2005,2006, respectively. Please see note 23refer to Note 25 to the consolidated financial statements for further information. Includes retrospective correction as of January 1, 2005 of €0.8 bn. Please see note 3 to the consolidated financial statements for further information. |
(2) | IncludesIncluding 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
In 2007, our shareholders’ equity decreased 3.8%For information on the conglomerate solvency of Allianz Group as of December 31, 2008, please refer to €47.8 billion. Additions to the shareholders’ equity were primarily the 2007 net income of €8.0 billion“Item 11. Quantitative and aQualitative Disclosures about Market Risk—Capital Management— Regulatory capital increase of €2.8 billion raised as part of financing the AGF minority buy-out. The goodwill related to the minority buy-outs of AGF and Allianz Leben amounting to €7.0 billion was recorded as a reduction of shareholders’ equity. Together with the transfer on disposal of unrealized gains and losses to realized of €2.5 billion were these the largest downward movements. Furthermore foreign currency translation effects of €1.4 billion and the dividend payment of €1.6 billion contributed to the overall reduction in our shareholders’ equity.adequacy”.
Total Assets and Total Liabilities
Total assets and liabilities decreased by €48.9€105.6 billion and €43.5€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 Property-Casualty and Banking segments as presentedunder “Notes to the Allianz Group’s Consolidated Financial Statements – Statements—Business Segment Information – Information—Consolidated Balance Sheets”. Relative to the Allianz Group’s total assets and total liabilities, we consider the total assets and total liabilities from our Asset Management segment as immaterial and have, accordingly, excluded these assets and liabilities from the following discussion. Our Asset Management segment’s results of operations stem primarily from its business withmanagement of third-party assets. Please see “– Asset Management Operations – Third-Party Assets under Management(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 Allianz Group” for further information on the development ofassets in our third-party assets.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 Liabilitiesliabilities 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.
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 see noteplease refer to Note 2 to the consolidated financial statements. |
(2) | DoesDo not include affiliates of €10.0€10.7 bn and €9.5€10.0 bn as of December 31, 20072008 and 2006,2007, respectively.
|
(3) | Includes debt securities of €2.7 bn and €3.2 bn as of December 31, 2007 and 2006, respectively, equity securities of €0.4 bn and €0.4 bn as of December 31, 2007 and 2006, respectively, and derivative financial instruments of €0.1 bn and €0.1 bn as of December 31, 2007 and 2006, respectively. |
Property-Casualty assets
Our property-casualty asset base decreased by €2.2 billion to €97.6 billion. In the segment’s investments, excluding affiliates, we recorded a decline of €5.6 billion to €73.7 billion. Thereof, debt securities decreased by €2.0 billion to €50.3 billion as a result of higher interest rates which had direct negative impact on the fair value. Equity investments were down €2.6 billion to €16.5 billion mainly caused by a strategic decision to actively decrease our equity exposure in order to reduce equity gearing.(1)
Of our average Property-Casualty asset base, ABS made up €4.9 billion, as of December 31, 2007, which is around 5%. CDOs accounted for €0.2 billion of this amount, of which €8 million are subprime-related. Unrealized losses on CDOs of €2 million were recorded in our equity. Realized losses of €12 million were reflected in the segment’s income.
Rating structure of Property-Casualty fixed income portfolio(1)
in %
(1)
| including loans and debt securitiessecurities.
|
(1)
| The equity gearing is an indicator for the sensitivity of our shareholders’ equity due to changes in the value of all our equity investments.
|
Property-Casualty liabilities
Development of reserves for loss and loss adjustment expenses(1)
in € bn
In 2007,2008, the segment’s gross reserves for loss and loss adjustment expenses decreased by €1.8 billion2.3 % to €56.9€55.6 billion. ImportantMain contributors tofor this declinedevelopment were the positive development on prior years’ loss reserves primarily in Italy, France, the United Kingdom, Australia and within the creditreclassification of AGF’s health insurance business as well asfrom 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 Liabilitiesliabilities of the Life/Health segment
Life/Health assets
Life/Health asset base
fair values(1)(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 our shareholders’ equity. Subprime exposures within CDOs were negligible.
in %
Life/Health liabilities
Life/Health reserves for insurance and investment contracts were up 1.7 % to €287.9 billion including an increase of €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 see noteplease refer to Note 2 to the consolidated finacialfinancial 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 withto the value of financial liabilities for unit-linked contracts. |
(3)
| Does not include affiliates of €2.7 bn and €2.8 bn as of December 31, 2007 and 2006, respectively.
|
(4) | Includes debt securities of €9.3 bn and €7.3 bn as of December 31, 2007 and 2006, respectively, equity securities of €3.3 bn and €2.9 bn as of December 31, 2007 and 2006, respectively, and derivative financial instruments of €(4.5) bn and €(4.4) bn as of December 31, 2007 and 2006, respectively. |
Life/Health assets
Our Life/Health asset base grew by 2.5% to €350.0 billion. This development stemmed primarily from increased loans and advances to banks and customers, up 6.3% to €91.2 billion. Investments decreased slightly by 1.7% to €184.6 billion, excluding affiliates. Thereof, equity investments amounted to €41.2 billion, €1.0 billion lower than the last year as the upward market trend was reduced by higher realized gains. Debt securities were down by €1.2 billion to €137.6 billion principally due to increased market interest rates and, as a result, downward trends in fixed income indices. Financial assets for unit-linked contracts increased by €4.2 billion to €66.1 billion reflecting our sales success with unit-linked insurance and investment contracts. In aggregate, statutory premiums collected for unit-linked insurance and investment contracts amounted to €17.3 billion.
Within our Life/Health asset base, ABS amounted to €13.8 billion, as of December 31, 2007, less than 4 % of total average Life/Health assets. Of these, €0.3 billion are CDOs of which none are subprime-related. No unrealized losses on CDOs were recorded in our equity. Realized losses of €7 million were reflected in the segment’s income.
Rating structure of Life/Health fixed income portfolio(1)
in %
(1)
| including loans and debt securitiessecurities.
|
Life/Health liabilities
Life/Health reserves for insurance and investment contracts were up 1.8% to €283.1 billion
including an increase of 3.0% or €7.6 billion in aggregate policy reserves mainly from domestic business partly offset by a decrease in provisions for premium refunds of 9.2% or €2.6 billion, triggered for the most part by subsidiaries in France, Germany and Italy.
Assets and Liabilitiesliabilities of the Banking segment
Banking loans and advances to banks and customers
in € bn
(1)
| Includes loan loss allowance of €(0.8) bn and €(1.0) bn as of December 31, 2007 and 2006, respectively.
|
(2)
| Due to changes in the presentation of financial instruments we retrospectively adjusted figures for 2006. For further information see Note 3 to our consolidated financial statements.
|
Banking loans and advances to banks and customers
LoansBanking loans and advances to banks and customers
in € bn
In our banking segment decreased by 10.2%continuing Banking operations, loans and advances to €295.5 billion as of December 31, 2007. The decrease was particularly driven by a reduced volume in reverse repurchase agreements of Dresdner Bank. This development was a result of the financial market turbulence which ledbanks and customers amounted to distortions in the money market business and therefore to reduced business activities between banks.
€13.9 billion.Banking liabilities to banks and customers
DueLiabilities to banks and customers amounted to €16.3 billion. Thereof, term deposits and certificates of deposit accounted for €4.5 billion, liabilities payable on demand for €4.2 billion, savings deposits for €1.6 billion and repurchase 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 banks and customers
Dresdner Bank’s loans and advances to banks and customers
in € bn
In the reasons mentioned,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 €78.5 billion, repurchase agreements for €24.3 billion, term deposits and 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 a variety of SPEs including asset securitization entities, investment funds and investment conduits. 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 through participations in such losses by other third-party investors.
The Allianz Group also experiencedengages in establishing and managing investment fund SPEs with a decreasegoal of 12.4%developing, marketing and managing these funds. During the establishment phase of these funds, Allianz Group may provide initial capital for the SPEs to €320.4 billion namelyacquire securities until either sufficient third-party investors purchase participations in the formfunds or the SPEs are terminated. Certain of repurchase agreements.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 the 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 the 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 discontinued 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 discontinued operations.
The consolidated SPE of continuing operations of Allianz Group relate to asset-backed securities (ABS) transactions. The conclusion to consolidate was primarily based on the fact that the Allianz Group has the majority of the benefits and retains the majority of the risks. Compared to the prior 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 this SPE and, thus, Allianz Group retained the majority of risks at such time. Total assets of this SPE amounted to €40 million as of December 31, 2008.
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 becomebecomes 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 Allianz Group does not rely on off-balance sheet arrangements as a significant source of revenue. TheIn order to provide a comprehensive analysis of Allianz Group’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, are described below.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 related provisions were insignificant for each of the last three years. For further information, see Note 46 to our consolidated(1)
financial statements. For additional information regarding parent company guarantees, please see the parent only condensed financial statements of Allianz Societas Europea in Schedule II.
Special purpose entities (SPEs)Non-consolidated SPEs
TheAs described above, Allianz Group is involved withengaged in a variety of SPEs including asset securitization entities, investment funds and investment conduits.SPEs. The methodologies used for determining that 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 wherehas no control over the SPEs receive the underlying assets, such as trade or finance receivables from the Allianz Group’s banking customers and, securitizes such assetsthus, has not 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 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, the Allianz Group may provide initial capital forconsolidate the SPEs to acquire 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 we provide differ both in terms of amount and durationwere those according to the relevant arrangements.IFRS interpretation SIC-12. The conclusion not to consolidate certain SPEs was mainly based on the fact that Allianz Group receives fee and commission income from investorsdoes not have to bear the majority of the risks. Compared to the prior year, the conclusion to not consolidate has not changed for the management of these SPEs.
As required under IFRS, thecontinuing operations. In 2008, Allianz Group consolidates an SPE whendid not provide any financial or other support to the substanceSPEs forming part of the relationship between Allianz and the SPE indicatescontinuing operations that the SPE is controlled by Allianz. The following table presents the assets held by all SPEs for which the Allianz Group controls the SPE by means other than a majority voting interest. Therefore, these SPEs are consolidated in the Allianz Group’s consolidated financial statements as of December 31, 2007.was not previously required to provide.
| | | | | | | | |
| | | As of December 31, 2007 |
Type of SPE | | Total assets | | Consolidated assets
which are collateral
for SPE’s obligations | | Amount of
consolidated
assets which are
collateral for
SPE’s obligations | | Creditor’s
recourse to
Allianz Group
assets |
| | | € mn | | | | € mn | | € mn |
Asset-backed securities transactions | | 22,643 | | Various receivables, corporate notes, index certificates and derivatives | | 22,643 | | — |
Structured finance transactions | | 12,413 | | Corporate notes, German bund securities, lease receivables, cash funds | | 12,413 | | — |
Derivatives transactions | | 3,861 | | Derivatives, equity, leases and cash balances | | 3,861 | | — |
Investment funds | | 1,739 | | Hedge fund units, bonds, investment funds and derivatives | | 1,739 | | — |
Other | | 469 | | Real estate, equity instruments and cash and cash equivalents | | 469 | | — |
| | | | | | | | |
Total | | 41,125 | | | | 41,125 | | — |
| | | | | | | | |
The following tables settable sets forth the total assets of non-consolidated SPEs in which the Allianz Group has a significant beneficial interest and that 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, 2007.2008. 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
involvement with SPEs | | 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, committed liquidity facilities (whether drawn or not), 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 non-consolidatedmaximum exposure to loss for investment 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, are aggregated based on principal business activity, as reflected in the first column.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 nature ofdifference between the Allianz Group’s interest in these SPEs can take different forms, as described in the second column.
| | | | | | |
| | | As of December 31, 2007 |
Type of SPE | | Nature of Allianz Group’s involvement with SPEs | | Total assets | | Allianz
Group’s
maximum
exposure
to loss |
| | | | | € mn | | € mn |
Investment funds | | Guarantee obligations | | 2,039 | | 1,852 |
Investment funds | | Investment manager and/or equity holder | | 970 | | 32 |
Vehicles used for CDOs, securitization and credit derivative transactions | | Arranger, establisher, servicer, liquidity provider and/or investment counterparty | | 13,818 | | 11,397 |
Hedge funds | | Hedge funds, Master funds, Equity holder | | 33,723 | | 1,028 |
Securitization conduit | | Commercial paper | | 8,654 | | 1,658 |
SIV—K2 | | Capital notes, liquidity, repo facilities and investment manager | | 16,344 | | 3,546 |
Vehicles used for CBO and CDO transactions | | Investment manager and/or equity holder | | 6,518 | | 1 |
Other | | Client financing transaction | | 1,684 | | 1,390 |
| | | | | | |
Total | | | | 83,750 | | 20,904 |
| | | | | | |
The following table summarizes theliabilities recorded and Allianz Group’s maximum exposure to loss byis due to the type of exposure and by type of SPE:
| | | | | | | | | | | | | | |
Without any mitigation of risks | | Equity/Fund
Investment | | Notes(1) | | Liquidity
Facilities(2) | | Guarantees | | CDS | | Other | | Total |
| | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn |
Investment funds—guarantee obligations | | — | | — | | — | | 1,852 | | — | | — | | 1,852 |
Investment funds | | 12 | | 20 | | — | | — | | — | | — | | 32 |
Vehicles used for CDOs, securitization and credit derivative transactions | | 6 | | 9,450 | | 1,531 | | — | | — | | 410 | | 11,397 |
Hedge funds | | 604 | | — | | 424 | | — | | — | | — | | 1,028 |
Securitization conduit | | — | | 1,490 | | — | | — | | 135 | | 33 | | 1,658 |
SIV—K2 | | — | | 47 | | 102 | | — | | — | | 3,397 | | 3,546 |
Vehicles used for CBO and CDO transactions | | — | | 1 | | — | | — | | — | | — | | 1 |
Other | | 31 | | 1,359 | | — | | — | | — | | — | | 1,390 |
| | | | | | | | | | | | | | |
Total | | 653 | | 12,367 | | 2,057 | | 1,852 | | 135 | | 3,840 | | 20,904 |
| | | | | | | | | | | | | | |
(1)
| The notes category primarily consists of CDOs and CLOs.
|
(2)
| Maximum amount of liquidity facility which could but must not be drawn.
|
The following table providesfact that only in extremely rare cases, the years to maturity ofredemption price might be lower than the Allianz Group’s maximum exposure to lossguaranteed price at the balance sheet date. Only in this case would a provision be recognized in the non-consolidated SPEs.
| | | | | | | | | | | | |
Years to maturity | | Less than 1 | | 1-3 | | 3-5 | | Over 5 | | Equity | | Total |
| | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn |
Investment funds—guarantee obligations | | 1,852 | | — | | — | | — | | — | | 1,852 |
Investment funds | | — | | — | | 12 | | 8 | | 12 | | 32 |
Vehicles used for CDOs, securitization and credit derivative transactions | | 2,934 | | 68 | | 888 | | 7,501 | | 6 | | 11,397 |
Hedge funds | | 424 | | — | | — | | — | | 604 | | 1,028 |
Securitization conduit | | 1,523 | | — | | — | | 135 | | — | | 1,658 |
SIV—K2 | | 3,499 | | — | | — | | 47 | | — | | 3,546 |
Vehicles used for CBO and CDO transactions | | 1 | | — | | — | | — | | — | | 1 |
Other | | 1 | | 1,358 | | — | | — | | 31 | | 1,390 |
| | | | | | | | | | | | |
Total | | 10,234 | | 1,426 | | 900 | | 7,691 | | 653 | | 20,904 |
| | | | | | | | | | | | |
The Group’s liquidity facilities and capital maintenance guarantees as of December 31, 2007 are summarized above as with a “maturity less than 1 year”.consolidated financial statements.
In addition to an equity interest or fund investment interest, the SPEs that are part of continuing operations, Allianz Group has various other types ofthrough its subsidiary Dresdner Bank held significant beneficial interests in certain non-consolidated SPEs. These interests include direct loans, as well as liquidity facilities, which the SPE can draw upon if necessary. For certain mutual funds, primarily those sponsored by Allianz Global Investors in the normal coursenon-consolidated SPEs that formed part of business, the Allianz Group has guaranteed a portiondiscontinued operations included ABS transactions, special investment vehicles, investment and hedge funds. Total assets of the investors’ principal. Other agreements include securities lending and a foreign currency hedge transaction.
On March 18, 2008, Dresdner Bank and K2 Corporation entered into an agreement through which
Dresdner Bank will provide a support facilitythese non-consolidated SPEs that formed part of discontinued operations amounted to the Structured Investment Vehicle, K2. The agreement, which consists of a U.S.$1,500,000,000 committed revolving mezzanine credit facility and a ‘backstop’ facility, follows the announcement by Dresdner Bank on February 21, 2008 that it intended to offer support to K2.
The mezzanine credit facility provides K2 with immediate additional liquidity, allowing K2 to draw-down funds for terms up to the maturity date of its longest dated senior debt obligations. Under the terms of the backstop facility, Dresdner Bank has undertaken to provide to K2 firm prices at which it will purchase assets from K2 in the event that K2 is unable to obtain better prices for such assets on the open market. The aggregate of such prices provided by Dresdner Bank will at all times equate to an
amount that ensures K2 has sufficient funds to repay its senior debt in full.
K2 is a SIV incorporated in Grand Cayman on October 17, 1997. K2 has invested in a diversified portfolio of assets. Dresdner Bank acts as the asset manager of K2.
In regard to credit risk, the rating of K2 assets€11,871 million as of December 31, 20072008. 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 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 follows:held-for-sale as of
| | | | |
Rating Category | | Moodys
% of Portfolio | | S&P
% of Portfolio |
Aaa/AAA including Super Senior(1) | | 57.67 | | 55.85 |
Aa/AA | | 37.84 | | 31.94 |
A/A | | 3.83 | | 11.55 |
Baa/BBB | | 0.66 | | 0.66 |
(1)
| Super senior bonds, a subset of the ‘AAA’ class, are senior to all other classes with respect to both repayment and loss, including subordinate ‘AAA’ classes.
|
As of December 31, 2007,2008. The source of maximum exposure to loss is the weighted average life of K2 cash assets is 3.34 years, and the weighted average life of K2 credit derivative assets is 3.89 years.
K2 raised its funding by issuing shares, subordinated capital notes (“CN”), commercial paper (“CP”) and mid-term notes (“MTN”). K2’s senior funding is broken downinvestment in the following categories: European commercial paper (“E-CP”), European mid-term notes (“E-MTN”), U.S. commercial paper (“US-CP”) and U.S. mid-term notes (“US-MTN”). The weighted average life of K2’s senior liabilities is 0.56 years as of December 31, 2007.issued notes. Due to the extraordinary disruption of CP/MTN marketsfact that startedthese are investments in 2007, liquidity has temporarily been provided by Dresdner Bank through buy/sell-back financing on arms-length conditions.
The maximum limit of the losses to be borne by capital note holders currently amounts to €1.3 billion. Dresdner Bank currently holds €47 million or 3.5% of the capital notes. The variable interests that Dresdner Bank holds in K2 consist of capital note coupons and investment management fees.
In addition, Dresdner Bank provides K2SPEs with a committedstatic funding structure, consolidation would only be necessary if the structure is changed. For these SPEs, no financial support was provided in 2008 and there are no further obligations for additional liquidity facility amounting to €102 million. The obligation to fund K2 under the committed liquidity facility is at the request of K2 and is subject to certain conditions precedent being met. Terms that would limit Dresdner Bank’s obligation to provide K2 funding include the standard conditions regarding enforceability (e.g., that the
facility does not contravene applicable law and that no liquidity event of K2’s default is outstanding or would result from the making of the liquidity advance). There are several other liquidity providers, each of whose facility ranks pari passu with Dresdner Bank’s facility and the terms and conditions of the facilities are similar in all material respects.support.
Liquidity and Capital Resources
Allianz Group and its subsidiaries are well-capitalized.well capitalized.
Ratings upgradedNet cash flow provided by both Standard & Poor’s and A.M. Best.operating activities amounted to €25.3 billion in 2008.
Organization
Liquidity planning is an integral part of the overall financial planning and capital allocation process and is based on strategic decisions which include solvency planning, our dividend target, and expected merger and acquisition activities. The Board of Management of Allianz SE, the holding and ultimate parent company of the Allianz Group, decides after consultation with local management forof the Allianz Group companies, on how to allocate capital amongin the Group.
Liquidity Resources
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 resultedresult predominantly from the operations of our Property-Casualty, Life/Health, Banking and Asset Management segments, as well as from capital raising activities. In the contextCommercial paper, medium-term notes and other credit facilities serve as additional sources of liquidity. As of December 31, 2008, we had access to unused, committed and long-term credit 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 owns several finance companies. We execute ourexecutes external debt financing and other corporate financing purposes primarily through two of thesefinance 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
(1) | For further information regarding the management of our liquidity risk please refer to “Item 11. Quantitative and Qualitative Disclosures about Market Risk”. |
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.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.
Capital Raising ActivitiesAs outlined in more detail in the financial statements of Allianz SE coordinates and executes external debtGroup companies contribute to the financing for instance through securities issues and other capital raising transactions forof the Allianz Group in order to fund any liquidity need. We have access to commercial paper, medium-term notes and other credit facilities as additional sources of liquidity. As of December 31, 2007, we had access to unused, committed and long-term credit lines as a source of further liquidity with different banks.holding activity.
Debt and Capital Funding
As of December 31, 2007,2008, the majority of Allianz SE’s external debt financing was made up of bonds and money market securities.
Our total Thereof, approximately one half was applicable to certificated liabilities, outstanding asand the other half was made up of December 31, 2007 was €42,070 million (December 31, 2006: €54,922 million). Of these, €28,523 million are due within one year.(1) Our total participation certificates and subordinated liabilities outstanding as of December 31, 2007 were €14,824 million (December 31, 2006: €16,362 million). Thereof, €1,476 million are due within one year.liabilities.(2)
| | | | |
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) establishedimplemented a Medium Term Note (or “MTN”) program which was established for the 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, 2007 and 2006 was €0.3 billion and €2.3 billion, respectively. As of December 31, 2007, Allianz SE had money market securities outstanding with a carrying value of €2,929 million.
On March 9, 2007 we redeemed 64.35% of the Basket Index Tracking Equity Linked Securities
(1)(1)
| SeePlease refer to Note 2123 to our consolidated financial statements for further information.
|
(2) | SeePlease refer to Note 2224 to our consolidated financial statements for further information. Additionally, seerefer 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.
|
(“BITES”) exchangeable bond, representing €0.8purposes 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 notional, issued in February 2005, with Munich Re shares.and €0.3 billion, respectively.
OurShort-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 was increased by €2.0 billion to €2.9 billion in 2007 from €0.9 billion in 2006.of €1,174 million compared with 2007. Interest expense on commercial paper increased by 85.1%rose to €87.0€125.0 million (€47.087.0 million) due to increasing interest rates on such financing in 20072008, 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 April 2, 2007,March 6, 2008, Allianz Finance II B.V. issued USD 400 million€1.5 billion of senior bonds, guaranteed by Allianz SE, with a floating coupon rate.rate of 5.0%. The maturity of this bond is April 2, 2009.March 6, 2013.
On JulyJune 10, 2007, the Allianz Group completed the squeeze-out procedure for the outstanding AGF shares. In connection with this transaction, we completed a capital increase involving the issuance of 16.97 million new2008, Allianz SE shares. The total cash componentissued USD 2.0 billion of the consideration for the acquisitionsubordinated perpetual bonds with a coupon rate of the outstanding AGF shares amounted to approximately €6.0 billion.8.375%.
On January 14, 2008, the Allianz Group announced its intention to redeem the remaining 35.65% of the BITES index-linked bond at the final maturity date with Munich Re shares.(1)
Allianz SE’s issued debt as of December 31, 2007 and 2006(1)
| | | | 2007 | | 2006 | | 2008 | | 2007 |
| | | Nominal
value | | Carrying
value | | Interest
expense | | Nominal
value | | Carrying
value | | Interest
expense | |
as of December 31, | | | Nominal
value | | Carrying
value | | Interest
expense | | Nominal
value | | Carrying
value | | Interest
expense |
| | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn |
Senior bonds | | 4,306 | | 4,279 | | 209.3 | | 6,232 | | 6,195 | | 258.9 | | 4,186 | | 4,135 | | 185.7 | | 4,306 | | 4,279 | | 209.3 |
Subordinated bonds | | 7,043 | | 6,853 | | 407.1 | | 7,079 | | 6,883 | | 404.6 | | 8,489 | | 8,197 | | 470.5 | | 7,043 | | 6,853 | | 407.1 |
Exchangeable bonds | | 450 | | 450 | | 8.3 | | 1,262 | | 1,262 | | 14.8 | | — | | — | | — | | 450 | | 450 | | 8.3 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | 11,799 | | 11,582 | | 624.7 | | 14,573 | | 14,340 | | 678.3 | | 12,675 | | 12,332 | | 656.2 | | 11,799 | | 11,582 | | 624.7 |
| | | | | | | | | | | | | | | | | | | | | | | | |
(1) | Bonds and exchangeable bonds issued or guaranteed by Allianz SE in the capital market, presented at nominal and carrying values. Excludes €85.1 mnmillion of participation certificates at each December 31, 20072008 and 2006,2007, with interest expense of €9.9 million and €16.2 mn and €6.2 mn,million, respectively.
|
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 as of December 31, 2008(1)(2)
by maturity – Overview as of December 31, 2007
nominal value in€ mn bn
(1)(2)
| Bonds and exchangeable bonds issued or guaranteed by
|
Allianz | SE in the capital market, presented at |
carrying | values. Excludes€85.1 €85.1 mn of participation certificates. |
132
(1)
| See Note 52 to our consolidated financial statements for further information on this early redemption.
|
Allianz SE Issued Debt Outstandingissued debt outstanding as of December 31, 20072008(1)
The following table describes Allianz SE’s issued debt outstanding as of December 31, 20072008 at nominal values. For further information seerefer to Notes 2123 and 2224 to our consolidated financial statements.
| | | | |
| | | | Interest
expense
in 20072008 |
1. Senior bonds(2) | | | | |
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
| | | | €85.0 mn |
| 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 | | |
SIN
| | — | | |
ISIN | | — XS 029 027 005 6 | | |
Interest expense | | | | €11.59.8 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 | | €209.3185.7 mn |
2. Subordinated bonds(3) | | | | |
6.125% bond issued by Allianz Finance II B. V., Amsterdam |
Volume | | €22.0 bn | | |
Year of issue | | 2002 | | |
Maturity date | | 5/31/2022 | | |
ISIN | | XS 014 888 756 4 | | |
Interest expense | | | | €120.5114.3 mn |
6.5% bond issued by Allianz Finance II B. V., Amsterdam |
Volume | | €11.0 bn | | |
Year of issue | | 2002 | | |
Maturity date | | 1/13/2025 | | |
SIN
| | 377 799 | | |
ISIN | | XS 015 952 750 5 | | |
Interest expense | | | | €65.966.0 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 | | | | €27.8 mn |
| | | | |
| | | | Interest
expense
in 2007€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 | | | | | €84.084.3 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 | | | | | €62.963.0 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 | | | | | €46.046.2 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 | | | €407.1470.5 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 | | | |
3. Exchangeable bonds5.0% 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
| | | | €8.3 mn |
Total interest expense for exchangeable bonds
| | €8.3 mn |
|
4. Participation certificates
|
Allianz SE participation certificate
|
Volume
| | €85.1 mn | | |
ISIN
| | DE 000 840 405 4 | | |
Interest expense | | | | €16.2 mn |
Total interest expense for participation certificates | | €16.2 mn |
| |
5. Issues that matured in 2007
| | |
5.75% bond issued by Allianz Finance B.V., Amsterdam
|
Volume
| | €1.1 bn | | |
Year of issue
| | 1997/2000 | | |
Maturity date
| | 7/30/2007 | | |
ISIN
| | DE 000 194 000 5 | | |
Interest expense
| | | | €37.0 mn |
|
4.625% bond issued by Allianz Finance II B.V., Amsterdam
|
Volume
| | €1.1 bn | | |
Year of issue
| | 2002 | | |
Maturity date
| | 11/29/2007 | | |
ISIN
| | XS 015 878 835 5 | | |
Interest expense
| | | | €47.90.3 mn |
Total interest expense for matured issues | | | €84.920.2 mn |
Total interest expense | | | €725.8686.3 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. |
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. SeeRefer to Note 2325 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.
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€(115) €102 mn,€(78) €(115) mn and€72 €(78) mn in 2008, 2007 2006 and 2005,2006, respectively. |
Positive net cash flow provided by operating activities was €12.7 billion in 2007, down €8.0 billion from a year ago. This decline resulted primarily from higher net outflows for collateralized refinancing activities in the banking segment.
Lower net cash outflow used in investing activities, at €4.6 billion in 2007 compared to €34.9 billion in the prior year, was mainly attributable to anof our discontinuing operations. The overall increase in both available-for-sale investments and change in other loans and advances to banks and customers.
Net cash outflow provided by financing activities was down by €25.3 billion to €9.6 billion in 2007. The main contributing factors were lower net inflows from liabilities to banks and customers, as well as higher net outflows from certificated liabilities, participation certificates and subordinated liabilities. Additionally the cash flow for financing activities was affected by higher outflows from transactions between equityholders (mainly AGF).
Overall, cash and cash equivalents decreasedwas partially offset by €1.7 billion to €31.3 billion asour German entities scaling back securities lendings.
As of December 31, 2007.
Cash and cash equivalents
| | | | |
As of December 31, | | 2007 | | 2006 |
| | | € mn | | € mn |
Balances with banks payable on demand | | 23,848 | | 26,915 |
Balances with central banks | | 6,301 | | 4,945 |
Cash on hand | | 918 | | 919 |
Treasury bills, discounted treasury notes, similar treasury securities and checks | | 264 | | 224 |
Bills of exchange | | 6 | | 28 |
| | | | |
Total | | 31,337 | | 33,031 |
| | | | |
The Allianz Group holds cash and cash equivalents in more than 30 different currencies, although such cash and cash equivalents are held primarily in Euros, U.S. Dollars and Swiss Francs.2008, compulsory deposits on accounts with national central banks under restrictions due to required reserves from the European Central Bank totaled € 363 million (2007: €5,473 million).(1)
(1)
| See Note 6 to our consolidated financial statements for additional information on the Allianz Group’s cash and cash equivalents.
|
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, 2008, net realized gains, totaled €3,603 million, of which €3,530 million related to realized losses. Of the total amount of realized losses in 2008, €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 customers, and €98 million to real estate held for investment. Net impairments totaled €9,495 million, of which €139 million were reversal of net impairments. Of the total amount of impairments €9,434 million related to available-for-sale securities, €72 million related to investments in associates and joint ventures and €128 million related to real estate held for investments. Of the available-for-sale impairments we recorded in 2008, €8,736 million related to equity securities and €698 million to debt securities.
For the year ended December 31, 2007, net realized gains, losses totaled € 6,548€6,008 million, of which € 2,290€1,885 million related to realized losses. Of the total amount of realized losses in 2007, € 2,031€1,697 million related to available-for-sale securities, € 93€84 million related to investments in associates and joint ventures, € 120€58 million related to loans to banks and customers, and € 46€46 million to real estate held for investment. Net impairments totaled € 1,272€1,185 million, of which € 19€19 million were reversal of net impairments. Of the total amount of net impairments € 1,230€1,179 million related to available-for-sale securities, € 10€2 million related to investments in associates and joint ventures and € 51€23 million related to real estate held for
investments. Of the available-for-sale net impairments we recorded in 2007, € 1,155€1,153 million related to equity securities and € 75 million to debt securities.
For the year ended December 31, 2006, net realized gains, losses totaled € 6,151 million, of which € 1,344 million related to realized losses. Of the total amount of realized losses in 2006, € 1,137 million related to available-for-sale securities, € 15 million related to investments in joint ventures, € 57 million related to loans to banks and customers and € 135 million to real estate held for investment. Net impairments totaled € 775 million, of which € 82 million were reversal of net impairments. Of the total amount of net impairments € 586 million related to available-for-sale securities, € 7 million related to held to maturity investments, € 12 million related to investments in associates and joint ventures and € 172 million related to real estate held for investments. Of the available-for-sale net impairments we recorded in 2006, € 479 million related to equity securities and € 105€26 million to debt securities.
Unrealized Losses
As of December 31, 2007,2008, unrealized losses from available-for-sale securities totaled € 4,711€10,721 million, of which € 467€851 million were attributable to
equity securities, € 2,549€8,830 million to corporate bonds, € 1,591€1,022 million to government bonds and € 104€18 million to other securities.
As of December 31, 2006,2007, unrealized losses from available-for-sale securities totaled € 2,114€4,711 million, of which € 159€467 million were attributable to equity securities, € 862€2,549 million to corporate bonds, € 1,075€1,591 million to government bonds and € 18€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, 20072008 and 2006,2007, 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, 20072008 and December 31, 2006,2007, 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, 20072008 and December 31, 2006,2007, respectively.
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.
(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, 2008
| | | | | | | | | | | | |
| | | 0-6 months | | | 6-9 months | | | >9 months | | | Total | |
| | | € mn | | | € mn | | | € mn | | | € mn | |
Less than 20% | | | | | | | | | | | | |
Market Value | | 7,718 | | | 342 | | | 145 | | | 8,205 | |
Amortized Cost | | 8,454 | | | 402 | | | 159 | | | 9,015 | |
Unrealized Loss | | (736 | ) | | (60 | ) | | (14 | ) | | (810 | ) |
| | | | | | | | | | | | |
20% to 50% | | | | | | | | | | | | |
Market Value | | 49 | | | — | | | 23 | | | 72 | |
Amortized Cost | | 74 | | | — | | | 31 | | | 105 | |
Unrealized Loss | | (25 | ) | | — | | | (8 | ) | | (33 | ) |
| | | | | | | | | | | | |
Greater than 50% | | | | | | | | | | | | |
Market Value | | 3 | | | — | | | — | | | 3 | |
Amortized Cost | | 10 | | | 1 | | | — | | | 11 | |
Unrealized Loss | | (7 | ) | | (1 | ) | | — | | | (8 | ) |
| | | | | | | | | | | | |
Total | | | | | | | | | | | | |
Market Value | | 7,770 | | | 342 | | | 168 | | | 8,280 | |
Amortized Cost | | 8,538 | | | 403 | | | 190 | | | 9,131 | |
Unrealized Loss | | (768 | ) | | (61 | ) | | (22 | ) | | (851 | ) |
Debt Securities Aging Table: Duration and Amount of Unrealized Losses as of December 31, 2008
| | | | | | | | | | | | |
| | | 0-6 months | | | 6-12 months | | | >12 months | | | Total | |
| | | € mn | | | € mn | | | € mn | | | € mn | |
Less than 20% | | | | | | | | | | | | |
Market Value | | 15,808 | | | 18,247 | | | 32,471 | | | 66,526 | |
Amortized Cost | | 16,598 | | | 19,597 | | | 34,931 | | | 71,126 | |
Unrealized Loss | | (790 | ) | | (1,350 | ) | | (2,460 | ) | | (4,600 | ) |
| | | | | | | | | | | | |
20% to 50% | | | | | | | | | | | | |
Market Value | | 1,111 | | | 2,801 | | | 5,864 | | | 9,776 | |
Amortized Cost | | 1,540 | | | 3,872 | | | 8,566 | | | 13,978 | |
Unrealized Loss | | (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 | | 16,955 | | | 21,180 | | | 38,900 | | | 77,035 | |
Amortized Cost | | 18,232 | | | 23,792 | | | 44,881 | | | 86,905 | |
Unrealized Loss | | (1,277 | ) | | (2,612 | ) | | (5,981 | ) | | (9,870 | ) |
Equity Securities Aging Table: Duration and Amount of Unrealized Losses as of December 31, 2007
| | | | | | | | | | | | |
| | | 0-6 months | | | 6-9 months | | | >9 months | | | Total | |
| | | € mn | | | € mn | | | € mn | | | € mn | |
Less than 20% | | | | | | | | | | | | |
Market Value | | 7,150 | | | 52 | | | 82 | | | 7,284 | |
Amortized Cost | | 7,549 | | | 61 | | | 91 | | | 7,701 | |
Unrealized Loss | | (399 | ) | | (9 | ) | | (9 | ) | | (417 | ) |
| | | | | | | | | | | | |
20% to 50% | | | | | | | | | | | | |
Market Value | | 159 | | | — | | | — | | | 159 | |
Amortized Cost | | 207 | | | — | | | — | | | 207 | |
Unrealized Loss | | (48 | ) | | — | | | — | | | (48 | ) |
| | | | | | | | | | | | |
Greater than 50% | | | | | | | | | | | | |
Market Value | | 37 | | | — | | | — | | | 37 | |
Amortized Cost | | 39 | | | — | | | — | | | 39 | |
Unrealized Loss | | (2 | ) | | — | | | — | | | (2 | ) |
| | | | | | | | | | | | |
Total | | | | | | | | | | | | |
Market Value | | 7,346 | | | 52 | | | 82 | | | 7,480 | |
Amortized Cost | | 7,795 | | | 61 | | | 91 | | | 7,947 | |
Unrealized Loss | | (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 | ) |
Equity Securities Aging Table: Duration and Amount of Unrealized Losses as of December 31, 2006
| | | | | | | | | | | | |
| | | 0-6 months | | | 6-9 months | | | >9 months | | | Total | |
| | | € mn | | | € mn | | | € mn | | | € mn | |
Less than 20% | | | | | | | | | | | | |
Market Value | | 3,327 | | | 66 | | | 79 | | | 3,472 | |
Amortized Cost | | 3,416 | | | 76 | | | 84 | | | 3,576 | |
Unrealized Loss | | (89 | ) | | (10 | ) | | (5 | ) | | (104 | ) |
| | | | | | | | | | | | |
20% to 50% | | | | | | | | | | | | |
Market Value | | 135 | | | — | | | — | | | 135 | |
Amortized Cost | | 190 | | | — | | | — | | | 190 | |
Unrealized Loss | | (55 | ) | | — | | | — | | | (55 | ) |
| | | | | | | | | | | | |
Greater than 50% | | | | | | | | | | | | |
Market Value | | — | | | — | | | — | | | — | |
Amortized Cost | | — | | | — | | | — | | | — | |
Unrealized Loss | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | |
Total | | | | | | | | | | | | |
Market Value | | 3,462 | | | 66 | | | 79 | | | 3,607 | |
Amortized Cost | | 3,606 | | | 76 | | | 84 | | | 3,766 | |
Unrealized Loss | | (144 | ) | | (10 | ) | | (5 | ) | | (159 | ) |
Debt Securities Aging Table: Duration and Amount of Unrealized Losses as of December 31, 2006
| | | | | | | | | | | | |
| | | 0-6 months | | | 6-12 months | | | >12 months | | | Total | |
| | | € mn | | | € mn | | | € mn | | | € mn | |
Less than 20% | | | | | | | | | | | | |
Market Value | | 50,459 | | | 25,509 | | | 22,927 | | | 98,895 | |
Amortized Cost | | 50,995 | | | 26,144 | | | 23,704 | | | 100,843 | |
Unrealized Loss | | (536 | ) | | (635 | ) | | (777 | ) | | (1,948 | ) |
| | | | | | | | | | | | |
20% to 50% | | | | | | | | | | | | |
Market Value | | — | | | — | | | 24 | | | 24 | |
Amortized Cost | | — | | | — | | | 31 | | | 31 | |
Unrealized Loss | | — | | | — | | | (7 | ) | | (7 | ) |
| | | | | | | | | | | | |
Greater than 50% | | | | | | | | | | | | |
Market Value | | — | | | — | | | — | | | — | |
Amortized Cost | | — | | | — | | | — | | | — | |
Unrealized Loss | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | |
Total | | | | | | | | | | | | |
Market Value | | 50,459 | | | 25,509 | | | 22,951 | | | 98,919 | |
Amortized Cost | | 50,995 | | | 26,144 | | | 23,735 | | | 100,784 | |
Unrealized Loss | | (536 | ) | | (635 | ) | | (784 | ) | | (1,955 | ) |
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’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, 2008, 2007 2006 and 20052006 we recorded reversals of impairments of €85 million (available-for-sale securities: €85 million; held-to-maturity securities: €0 million), €13 million (available-for-sale securities: €13 million; held-to-maturity securities: €0 million), and €2 million (available-for-sale securities: €1 million; held-to-maturity securities: €1 million) and €6 million (available-for-sale securities: €3 million; held-to-maturity securities: €3 million), respectively.
Tabular Disclosure of Contractual Obligations
The table sets forth the Allianz Group’s contractual obligations as of December 31, 2007.2008. Contractual obligations do not include contingent liabilities or commitments and onlycommitments. 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, seerefer to Notes 2123 and 2224 to ourthe 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 or may not 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, seerefer to Note 2 to ourthe 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 policyholderpolicyholders 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, seerefer to Note 1820 to ourthe consolidated financial statements.
As of December 31, 2007, our2008, the income tax obligations amounted to €2,563€1,446 million. Thereof €1,925€1,106 million we expectthe Allianz Group expects to pay within the twelve months after the balance sheet date. For the remaining amount of €638€340 million an estimate of the timing of cash outflows is not reasonably possible. OurThe income tax obligations are not included in the below table.table below.
| | | | Payments Due By Period at December 31, 2007 | | Payments due by period as of December 31, 2008 |
| | | Total | | Less than 1 Year | | 1-3 Years | | 3-5 Years | | More than 5 Years | | Less than
1 year | | 1-3 years | | 3-5 years | | More than
5 years | | Total |
| | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn |
Long-term debt obligations(1) | | 56,894 | | 29,999 | | 7,803 | | 4,387 | | 14,705 | | 5,191 | | 329 | | 2,479 | | 10,891 | | 18,890 |
Interest on long-term debt obligations(2) | | 1,339 | | 519 | | 260 | | 120 | | 440 | | 21 | | 9 | | 129 | | 285 | | 444 |
Operating lease obligations(3) | | 3,652 | | 567 | | 807 | | 647 | | 1,631 | | 261 | | 470 | | 371 | | 1,108 | | 2,210 |
Purchase obligations(4) | | 855 | | 292 | | 185 | | 109 | | 269 | | 166 | | 258 | | 116 | | 203 | | 743 |
Liabilities to banks and customers(5) | | 336,494 | | 321,464 | | 8,044 | | 2,553 | | 4,433 | | 15,480 | | 1,020 | | 760 | | 1,191 | | 18,451 |
Reserves for insurance and investment contracts | | 848,180 | | 33,207 | | 62,686 | | 61,275 | | 691,012 | |
Future policy benefits | | | 34,376 | | 99,114 | | 63,172 | | 642,805 | | 839,467 |
Reserves for loss and loss adjustment expenses(6) | | 56,943 | | 16,967 | | 15,145 | | 8,040 | | 16,791 | | 17,271 | | 14,455 | | 7,212 | | 16,678 | | 55,616 |
| | | | | | | | | | | | | | | | | | | | |
Total contractual obligations | | 1,304,357 | | 403,015 | | 94,930 | | 77,131 | | 729,281 | | 72,766 | | 115,655 | | 74,239 | | 673,161 | | 935,821 |
| | | | | | | | | | | | | | | | | | | | |
(1) | For further information, seerefer to Notes 2123 and 2224 to ourthe 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 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 €3,652 million€2,210 mn is gross of €120 million€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 €11,204 million€311 mn and €60,443 million€4,096 mn of payables on demand, respectively. For further information, seerefer to Note 1517 to ourthe 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 our property-casualtythe Property-Casualty insurance operations. These assumptions represent current best estimates and may differ from estimates utilized to establish the reserves. 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 table are gross of reinsurance ceded. The corresponding amounts, net of reinsurance ceded, are €14,533 million, €12,769 million, €7,164 million€14,621 mn, €12,339 mn, €6,215 mn and €14,211 million€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 “Information onrefer to Note 19 to the Company—Property-Casualty Insurance Reserves” and Note 17 to our consolidated financial statements. |
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, 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
Economic Outlook
IncreasedContinuing uncertainty
Global economic growthIn 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 be less buoyant in 2008 than in previous years.fall for the year as a whole. In contrast, we expect the emerging economies to grow overall. The industrialized countries in particular are likely to see growth down by around half a percentage point on 2007. However, growth in emerging market economies should decline to a lesser extent. Financialfinancial markets will not return to calmer waters until uncertainty is dispelled about the nature of the economic risks originatingbe calm in 2009. The distortions from the U.S. housing crisis. Monetary policyboom years have not yet fully worked through, particularly in Europethe banking sector. The process of adjustment and consolidation that is required will continue to create an atmosphere of great uncertainty in the U.S. will then also needmarkets. Central banks and governments remain obligated to confrontavert the looming risk of inflation.a systemic crisis. Taken together, these developments create a very challenging environment for financial services providers in 2009.
Weaker economic growthStabilization
Our economists forecastWe believe that, following an expansion of a good 2% last year, the global economic growth of more than 3%economy will not grow in 2008. Although around half a percentage point less than in 2007, this is still robust growth.2009 (even including the emerging markets). We expect this pacethe industrialized countries to be setshrink 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, which we estimatehowever, will grow at
6.5%, only slightly less than 2007 (2006: 7%). We expect expansion in industrialized countries to be much more subdued than in 2007, at 2% (2006: 2.4%).
very uneven. Asia will again beremains the most dynamic region, with forecast growthgains of 8%3%. We expect that China will leadleads the way with growth of just over 10% (2006: 11.5%), with a modest slowdown welcome here, in order to prevent the economy from overheating. India is estimated to take second place with growth of 8%, approximately half a percentage point below 2007. The other emerging markets in Asia are not expected to grow quite as strongly this year as in 2007. Expansion in Latin America and Eastern Europe in 2008although 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 roughly a percentage point belowhandling the corresponding figure for 2007.crisis somewhat better; we expect growth of 2% there in 2009.
Overall, economic momentumThe gross national product in all the industrialized countries will shrink in 2009. We estimate the drop in Japan at almost 2%. Although the Japanese economy itself has been relatively untouched by the financial crisis, its dependence on export demand will likely be more subdued than in 2007. Our forecast for Japan is 1.5% (2006: 2.1%),have a noticeable impact on the economy’s performance, given the current environment. The same will hold true for Germany, andwhere we expect economic activity to decline by 1.5%. Also the euro zone about 1.8%. In the case of Germany this is a significant slowdown compared to 2.5% growth in 2007. In the
U.S. we also expect rather modest growth of almost 2% in the shadoweconomy of the housing crisis. U.S. growth began to slowUnited States will shrink in 2007, coming in at 2.2%. The weak U.S. Dollar2009. We forecast a drop of about 1.5% there. However, the negative figures for the entire year obscure the fact that a gradual stabilization is expected to boost U.S. exportstake place in 2008 and, together with the expansive monetary and fiscal policy,course of the year. It is possible that the industrialized countries may return to bolster the economy. At the same time, falling house prices are likelypath to dampen consumer spending, eliminating any significant boost from the consumption side.
The many uncertainties will also cast a shadow over the financial markets. However, we expect the economy to pick up againgrowth in the second half of the year, buoying equityyear. 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 resulting from an extremely expansionary monetary policy and a major gain in consumer purchasing power due to the significant drop in commodity prices. Interest rates
The financial markets will probably rise only moderately, especially as inflation should fall againremain uncertain in 2009 because of heavy losses, particularly in the second halfbanking sector. Additional public measures may be required to stabilize the financial sector. In any case,
a rapid normalization of 2008. The U.S. Dollarthe markets is not foreseen, but we expect investor confidence to return if the economy picks up during the year. Given the rapid increase in government indebtedness, the focus will likely recover from its record lows againstshift to inflation and rising interest rates. An economic recovery should have a positive impact on the euro during the year.equity markets.
Not an easyChallenging environment for financial services providers
Financial services providers will continue to face major challenges in 2009 as a result of the global 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 weak 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 pricing discipline among providers.
The aging of society is happening regardless of the economic uncertainties.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 Life/Health segmentinsurance operations remain intact. Private pension schemes remain importantintact, but they will be affected by how effectively mandatory health insurance systems are complemented by privately funded health insurance.
Asset Management operations once again have a solid long-term growth and profit outlook, too. First, however, the fund industry will need to provide convincing arguments to customers wary of highly volatile markets.
2009 will clearly be an extremely difficult year for banks. After the direct impact of the financial crisis, additional impairments are becoming evernow threatening the traditional lending business, where more vitaldefaults are expected during the economic downturn. In 2009, banks will attempt to shore up liquidity and capital, though it is far from clear how long it will take for the general public. In contrastchanged regulations to many pension insurance systems, most health insurance schemes are still faced with fundamental reform. Rising healthcare costs, which
can scarcely be financed through the common pay-as-you-go-based systems, will increasingly have to be paid privately. This gives rise to challenges and opportunities for private healthcare insurers.
Pensions should be based on more than one pillar, both now and in the future. Many countries are reorganizing their systems accordingly while building up capital for future pensions. This form of private financing is also increasingly being adopted in booming Asia, providing excellent business opportunities for asset managers. In the ageing societies of Europeprovide relief and the U.S. the prospects for growth in the fund management sector remain intact.
In the Property-Casualty segment there are opportunities for expansion due to rises in income and assets in emerging markets. However, in established markets competition for market share is intense, and our demand for profitability limits growth.
Banksdegree of impact these changes will feel the consequences of the U.S. housing crisis in 2008 as well. However, the improved economic outlook for the second half of the year should give a renewed impetus to business. On the other hand a flat interest-rate curve and the generally rather modest prospects for growth indicate only a slight upwards trend.have.
ITEM 6. Directors, Senior Management and Employees
| ITEM 6. | Directors, Senior Management and Employees |
Corporate Governance
General
Allianz SE is a Germany—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 and therefore governed by the general provisions of German corporate law (in particular the German Stock Corporation Act, Aktiengesetz). The corporate bodies of Allianz SE are the Board of Management (Vorstand), the Supervisory Board (Aufsichtsrat) and the General Meeting (Hauptversammlung). The Board of Management and the Supervisory Board are separate and no individual may serve simultaneously as a member of both boards.
The Board of Management is responsible for managing the day-to-day business of Allianz SE in accordance with the European SE-Regulation, the German Stock Corporation Act, the Statutes (Satzung) of Allianz SE as well as its internal rules of procedure (Geschäftsordnung). The Board of Management represents Allianz SE 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 SE 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, 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 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 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 Meeting approves the waiver or settlement with a simple majority. No approval of a waiver or settlement by the General Meeting will be effective if opposing shareholders who hold, in the aggregate, one-tenth or more of the share capital of Allianz SE 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 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 SE, the legal or business relations of Allianz SE to its subsidiaries and the affairs of any of its subsidiaries to the extent these may have a significant impact on Allianz SE.
The Board of Management is required to ensure that adequate risk management and internal monitoring systems exist within Allianz SE to detect risks relating to 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 up to 26 European countries. The SE works council, in simplebasic terms, is a company-wide representative body for the European Allianz employees with special responsibility for cross—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 (Mitbestimmungsgesetz)(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, which2006. 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;
| 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 eithereither;
(i) that the company has complied, and doeswill comply, with the recommendations set forth in the German Corporate Governance Code, or, alternatively,
(ii) which recommendations the company has not complied, and / or doeswill not comply, with (so-called “comply or explain” system).
On December 20, 2007,18, 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 14 June 2007)6, 2008).
2. Since the last Declaration of Compliance as of 18 December 2006,20, 2007, which referred to the German Corporate Governance Code in its 12version as of June 2006 version,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.)
Furthermore, you will find a summary of significant ways in which our corporate governance practices differ from those required from domestic companies under the NYSE corporate governance
standards on our 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.)
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.
Board of Management
The Board of Management (Vorstand) of Allianz SE currently consists of eleventen 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 partythird-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, 2007,2008, 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 | | Age | | Area of Responsibility | | Year First
Appointed | | Year Current
Term Expires | | Principal Outside Board Memberships |
Michael Diekmann | | 53 | | Chairman of the Board of Management | | 1998 | | 2011 | | Member of the Supervisory Boards of BASF SE, Linde AG (deputy chairman), Deutsche Lufthansa AG and Siemens AG (since January 24, 2008) | | 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 | | 51 | | Finance | | 2000 | | 2009 | | Member of the Supervisory Boards of Bayer AG and RWE AG | | 52 | | Finance | | 2000 | | 2014 | | Member of the Supervisory Boards of Bayer AG and RWE AG |
Oliver Bäte | | 42 | | Chief Operating Officer | | 2008 | | 2012 | | None | | 43 | | Chief Operating Officer | | 2008 | | 2012 | | None |
Clement B. Booth | | 53 | | Insurance Anglo, NAFTA Markets/Global Lines | | 2006 | | 2010 | | None | | 54 | | Insurance Anglo, NAFTA Markets/Global Lines | | 2006 | | 2010 | | None |
Enrico Cucchiani | | 57 | | Insurance Europe I | | 2006 | | 2010 | | Member of the board of directors of Pirelli & Co. S.p.A. and Unicredit S.p.A. | | 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 | | 57 | | Asset Management Worldwide | | 2000 | | 2009 | | Member of the Supervisory Board of Bayerische Börse AG | | 58 | | Asset Management Worldwide | | 2000 | | 2010 | | Member of the Supervisory Board of Bayerische Börse AG |
Dr. Helmut Perlet | | 60 | | Controlling, Reporting, Risk | | 1997 | | 2008 | | Member of the Supervisory Board of GEA-Group AG | | 61 | | Controlling, Reporting, Risk | | 1997 | | 2009 | | Member of the Supervisory Board of GEA Group AG |
Dr. Gerhard Rupprecht | | 59 | | Insurance German Speaking Countries | | 1991 | | 2008 | | Member of the Supervisory Boards of Fresenius SE and Heidelberger Druckmaschinen AG | | 60 | | Insurance German Speaking Countries | | 1991 | | 2010 | | Member of the Supervisory Boards of Fresenius SE and Heidelberger Druckmaschinen AG |
Jean-Philippe Thierry | | 59 | | Insurance Europe II | | 2006 | | 2008 | | 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 | | 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. Herbert Walter | | 54 | | Banking Worldwide | | 2003 | | 2012 | | Member of the Supervisory Board of Deutsche Börse AG, E.ON Ruhrgas AG and the board of directors of Banco Popular Español S.A. and Banco BPI S.A. | |
Dr. Werner Zedelius | | 50 | | Insurance Growth Markets | | 2002 | | 2009 | | Bajaj Allianz General Insurance Company Limited; Bajaj Allianz Life Insurance Company Limited | | 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. 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 has been 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 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 on January 1, 2002.
The members of the Board of Management may be contacted at the business address of Allianz SE.
Supervisory Board
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.
The firstWith the exception of Karl Grimm, the current members of the Supervisory Board of Allianz SE was appointed whenwere elected by the company became a European Company in October 2006. Its term ended at the close of the first ordinary General Meeting of Allianz SE on May 2, 2007. AtAfter the first ordinarycompletion 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, shareholders re-elected all members of the Supervisory Board who stood for reelection and appointed Peter Kossubek as an
employee representative.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 forthfourth 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, and the European Economic Area.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 2007,2008, the Supervisory Board met in total sixfive 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. SeeRefer 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 in December 2007, 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 no longernot 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 fourfive meetings and three telephone conference calls in 2007.2008. The members of the Standing Committee are Dr. Henning Schulte-Noelle as chairman, Dr. Gerhard Cromme, Karl Grimm, Dr. Franz B. Humer Claudia Eggert-Lehmann 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 and one telephone conference call in 2007.2008. 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 fourthree meetings in 2007.2008. The members of the Personnel Committee are Dr. Henning Schulte-Noelle as chairman, Dr. Gerhard Cromme and Claudia Eggert-Lehmann.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 twothree meetings in 2007.2008. 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
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 newly established Nomination Committee held no meetings in 2007.2008. 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, 2007,2008, their principal occupations, the year in which each member first served on the Supervisory Board, the year in which the current term of each member expires and their principal board memberships outside the Allianz Group, respectively, are as follows:
| Name | | Age | | Principal Occupation | | Year First
Appointed | | Principal Outside Board Memberships | | Age | | Principal Occupation | | Year First
Appointed | | Principal Outside Board Memberships |
Dr. Henning Schulte-Noelle, Chairman(1) | | 65 | | Former chairman of the Board of Management of Allianz AG | | 2003 | | Member of the Supervisory Boards of E.ON AG, Siemens AG (until January 24, 2008) and ThyssenKrupp AG | | 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) | | 59 | | Chairman of the Board of Management of E.ON AG | | 2003 | | Member of the Supervisory Boards of Metro AG and Bertelsmann AG | | 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) | | 51 | | Member of the AGF board of directors | | 2006 | | None | | 52 | | Member of the AGF board of directors | | 2006 | | None |
Dr. Gerhard Cromme(1) | | 64 | | 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. | | 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. |
Claudia Eggert-Lehmann(2) | | 40 | | Employee, Dresdner Bank AG | | 2003 | | None | |
Karl Grimm(2) | | | 60 | | Employee Allianz Deutschland AG | | 2009 | | None |
Godfrey Robert Hayward(2) | | 47 | | Employee, Allianz Cornhill, UK | | 2006 | | None | | 48 | | Employee, Allianz Cornhill, UK | | 2006 | | None |
Dr. Franz B. Humer(1) | | 61 | | Chairman of the board of directors of F. Hoffmann-La Roche AG | | 2005 | | Member of the board of directors of DIAGEO plc. | | 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) | | 55 | | Chairperson Institut für Demoskopie, Allensbach | | 2003 | | Member of the Supervisory Boards of MAN AG, Infineon Technologies AG and BASF AG (until January 14, 2008) | | 56 | | Chairperson Institut für Demoskopie, Allensbach | | 2003 | | Member of the Supervisory Boards of MAN AG and Infineon Technologies AG |
Peter Kossubek(2) | | 53 | | Employee, Allianz Versicherungs-AG | | 2007 | | None | | 54 | | Employee, Allianz Versicherungs-AG | | 2007 | | None |
Igor Landau(1) | | 63 | | 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. | | 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) | | 50 | | Trade Union Secretary, ver.di, Germany | | 2006 | | Member of the Supervisory Board of SEB AG | | 51 | | Trade Union Secretary, ver.di, Germany | | 2006 | | Member of the Supervisory Board of SEB AG |
Rolf Zimmermann(2) | | 54 | | Employee, Allianz Versicherungs-AG | | 2006 | | None | | 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 consistsis set by the Supervisory Board. The structure of fixedthe remuneration is regularly reviewed and variable paydiscussed 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 itopportunity to achieve an appropriate level of remuneration in different performance scenarios and business circumstances. It is designed to support sustained value-oriented management performance. To achieve this objective a significant portion
The key principles of overallthe remuneration strategy are:
Total remuneration is variable. Itset 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 a three tier incentive system which includesmaintained between short-term and mid-term cash bonus plans and equity related long-term incentives. remuneration components.
The overall remuneration offor individual Board Members is dependent upon their delegateddesignated role, accountability and accountability, individual performance, achievementperformance.
To achieve these objectives, a significant portion of the financial goalsoverall remuneration of the Allianz Group and of the respective business unit, as well as the evolution of the Allianz SE share price. The remunerationmembers of the Board of Management is set by the Personnel Committee of the Supervisory Board. The Personnel Committee is committed tovariable. It comprises a remuneration policy that is aligned to the interests of shareholders taking into consideration the competitive environmentthree-tier incentive system which includes short- and the global market place in which the company operates. The structure of remuneration is regularly reviewedmid-term cash bonus plans and discussed at the Supervisory Board.equity-related long-term incentives.
The remuneration components of the Board of Management are described below:
Fixed salary
Base salary is a fixed amount, whichpaid 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 salary is paid in twelve monthly installments. The 20072008 base pay levels of the Board of Management are shown on page 150.135.
Performance-based remuneration
ToThe aim of the three-tier incentive system is to achieve an appropriate balance ofbetween components linked to short termshort-term financial performance and those linked to long-term success and sustained shareholder value creation a three-tier incentive system has been putcreation. The Supervisory Board reviews the goals regularly to ensure they remain appropriate in place.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
remuneration |
(short-term) | | (mid-term) | | (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-TermShort-term and Mid-Termmid-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. These include financial targetsgoals, as set out in the table above. The goals are specified at Group or business division level as well as personal objectives.the beginning of the performance period. Performance against these goals is then assessed at the end of the annual performance period, with the amount of bonus payable dependingin the beginning of the following year and
dependent on the extent to which the targets and objectives have been met. The Personnel CommitteeSupervisory Board sets the target bonus level for members of the Board of Management. For 20072008, 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 Remunerationremuneration table on page 150.135.
Three-year bonus
The three-year or mid-term bonus plan was purposely designed to make the continuous increase in value of
the company a priority concern of executive management across the Group. Plan participants areinclude 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.period, as set out in the table above. The mid-term bonus is granted at the endpaid after completion of the defined three yearthree-year performance period, andwith the amount is based on the overall achievement for the three years.extent to which goals have been achieved. Certain exceptions apply, for example in the event of retirement. Although an interim assessment of the objectives takes placeoccurs 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 Personnel Committee.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 150.135.
In exceptional circumstances, the Personnel CommitteeSupervisory 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,options”, known as Stock Appreciation Rights (SAR) and virtual stock“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 is based on their designated role andas 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 rules of the plan.plan conditions. They lapse unconditionally at the end of the seven yearseven-year term. To align the interests of management with those of shareholders the Personnel CommitteeSupervisory Board has setestablished two performance conditions for the exercise of the SAR.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 termlong-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 rules of the plan.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 and, where applicable, a travel allowance for non-resident Board Members.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 20072008, the total value of the perquisites amounted to €0.7 million (2007: €0.5 million.million).
The following table sets out the total fixed remuneration perquisites and annual bonus. For reasons of transparency, the proportional bonus accrued for each member of the Board of Management of Allianz SE for 2008, including the firstfair 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 2007 – 2009 is shown in the remuneration table:has been included.
| | Board of Management | | Fixed salary | | Perquisites(1) | | Total non-performance
based remuneration | | Annual bonus(2) | | Three-year
bonus(3) | | | 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 | |
| | | 2007 | | Change
from
previous
year | | 2007 | | 2007 | | Change
from
previous
year | | 2007 | | Change
from
previous
year | | 2007 | | Change
from
previous
year | | | € 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 | |
| | | € thou | | % | | € thou | | € thou | | % | | € thou | | % | | € thou | | % | | | |
Michael Diekmann | | | | | | | | | | | | | | | | | | | |
(Chairman) | | 1,050 | | – | | 24 | | 1,074 | | (1.5 | ) | | 2,046 | | (8.0 | ) | | 472 | | 3.1 | | |
Dr. Paul Achleitner | | 700 | | – | | 13 | | 713 | | (1.7 | ) | | 1,416 | | (10.1 | ) | | 310 | | 0.6 | | | 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 | | 700 | | – | | 78 | | 778 | | 4.6 | | | 1,218 | | (17.5 | ) | | 318 | | (7.8 | ) | | 2008 | | 700 | | 93 | | 793 | | 624 | | | 205 | | | 1,622 | | | 251 | | | 420 | | | 2,293 | |
Jan R. Carendi(4) | | 700 | | – | | 16 | | 716 | | 0.1 | | | 1,102 | | (15.7 | ) | | 255 | | (10.5 | ) | |
| | | 2007 | | 700 | | 78 | | 778 | | 1,218 | | | 318 | | | 2,314 | | | 392 | | | 680 | | | 3,386 | |
| Enrico Cucchiani | | 700 | | – | | 118 | | 818 | | 14.7 | | | 1,261 | | (15.3 | ) | | 346 | | (3.4 | ) | | 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 | | 700 | | – | | 20 | | 720 | | 0.6 | | | 1,245 | | (11.0 | ) | | 312 | | 5.4 | | | 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 | | 700 | | – | | 20 | | 720 | | (1.5 | ) | | 1,469 | | (2.6 | ) | | 311 | | (1.3 | ) | | 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 | | 700 | | – | | 34 | | 734 | | 2.7 | | | 1,217 | | (18.9 | ) | | 322 | | (2.4 | ) | | 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 | | 700 | | – | | 77 | | 777 | | 7.8 | | | 1,245 | | (13.4 | ) | | 312 | | (11.6 | ) | | 2008 | | 700 | | 68 | | 768 | | 620 | | | 209 | | | 1,597 | | | 237 | | | 397 | | | 2,231 | |
Dr. Herbert Walter | | 700 | | – | | 45 | | 745 | | 1.6 | | | 923 | | (32.3 | ) | | 175 | | (51.8 | ) | |
| | | 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 | | 700 | | – | | 14 | | 714 | | 0.0 | | | 1,363 | | (13.2 | ) | | 348 | | 18.4 | | | 2008 | | 700 | | 9 | | 709 | | 825 | | | 300 | | | 1,834 | | | 314 | | | 525 | | | 2,673 | |
Total | | 8,050 | | – | | 459 | | 8,509 | | 2.3 | | | 14,505 | | (13.9 | ) | | 3,481 | | (6.0 | ) | |
| | | 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)(1)
| Broad range reflects travel allowances for nonnon-German resident Board Members.Members and a long-term service award for Dr. Perlet. |
(2) | Actual bonus paid in 20082009 for fiscal year 2007.2008. |
(3) | Estimated amount for 20072008 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)Retired | 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. For three-year bonus actual proportional amount paidThe total remuneration for 2007 and the percentage change between 2007 and 2008 reflects the remuneration of the full Board of Management active in 2008.the respective years. |
For the 2004 – 2006 three-year bonus plan theThe total amount paid toremuneration of the Board of Management in 2007 was €9.7 million. The amounts paid to each member were accrued overfor fiscal year 2008, excluding the interim assessment value for the three-year performance period and disclosed in the relevant remuneration tables in the 2004, 2005 and 2006 annual reports.bonus plan, was € 24 million (2007: € 35 million).
The following table sets out the details of allthe awards made to the Board of Management under the GEI program of equity–related remuneration in 2007 for each member2008 and their outstanding holdings at the end of the Board of Management.fiscal year.
| | Board of Management | | Number
of SAR
granted | | Number
of RSU
granted | | Fair
value
of SAR
awards at
date
of grant | | Fair
value
of RSU
awards at
date
of grant | | Total | | | 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 |
| | | 2007 | | 2007 | | 2007 | | 2007 | | 2007 | | Change from previous year | | | | | | | € | | | | |
| | | | | | | € thou | | € thou | | € thou | | % | | |
Michael Diekmann (Chairman) | | 15,065 | | 7,582 | | 588 | | 1,020 | | 1,608 | | 5.2 | | | 17,930 | | 107,196 | | 83.47 - 239.80 | | 8,701 | | 50,799 |
Dr. Paul Achleitner | | 10,044 | | 5,054 | | 392 | | 680 | | 1,072 | | 2.0 | | | 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 | | 10,044 | | 5,054 | | 392 | | 680 | | 1,072 | | 13.9 | | | 10,459 | | 29,882 | | 117.38 - 160.13 | | 5,076 | | 14,904 |
Jan R. Carendi | | 10,044 | | 5,054 | | 392 | | 680 | | 1,072 | | 13.9 | | |
Enrico Cucchiani | | 10,044 | | 5,054 | | 392 | | 680 | | 1,072 | | 11.3 | | | 10,825 | | 69,894 | | 83.47 - 239.80 | | 5,253 | | 34,547 |
Dr. Joachim Faber | | 10,044 | | 5,054 | | 392 | | 680 | | 1,072 | | 10.4 | | | 10,878 | | 70,297 | | 83.47 - 239.80 | | 5,279 | | 32,896 |
Dr. Helmut Perlet | | 10,044 | | 5,054 | | 392 | | 680 | | 1,072 | | 10.2 | | | 10,459 | | 71,391 | | 83.47 - 239.80 | | 5,076 | | 33,043 |
Dr. Gerhard Rupprecht | | 10,044 | | 5,054 | | 392 | | 680 | | 1,072 | | 10.9 | | | 9,936 | | 68,368 | | 83.47 - 239.80 | | 4,822 | | 32,105 |
Jean-Philippe Thierry | | 10,044 | | 5,054 | | 392 | | 680 | | 1,072 | | 14.7 | | | 9,884 | | 69,364 | | 83.47 - 239.80 | | 4,797 | | 14,596 |
Dr. Herbert Walter | | 10,044 | | 5,054 | | 392 | | 680 | | 1,072 | | (47.6 | ) | | 4,850 | | 69,325 | | 83.47 - 160.13 | | 2,354 | | 74,698 |
Dr. Werner Zedelius | | 10,044 | | 5,054 | | 392 | | 680 | | 1,072 | | 6.6 | | | 13,074 | | 65,525 | | 83.47 - 239.80 | | 6,345 | | 31,064 |
The GEI awards are accounted for as cash settledcash-settled plans by the Allianz Group. Therefore, the Allianz Group accruesand the fair value of the GEI awards is accrued as compensation expense over the relevant vesting period. Upon vesting, any changes in the fair value of the unexercised SARsoutstanding SAR are recognized as compensation expense. The GEIfair value at the end of fiscal year 2008 was below prior year. Therefore, no additional compensation expense in 2007 amounted to, in € thousand, for Mr. Diekmann 1,626, for Dr. Achleitner 1,212, for Mr. Booth 660, for Mr. Carendi 966, for Mr. Cucchiani 981, for Dr. Faber 1,128, for Dr. Perlet 1,136, for Dr. Rupprecht 1,112, for Mr. Thierry 456, for Dr. Walter 2,864 and for Dr. Zedelius 1,039.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.
The total remuneration of the Board of Management for fiscal year 2007 amounted to €39 million (2006: €41 million).
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, if
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, wherebywhen a pension becomesmay 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.
The Allianz Group paid €4 million (2006:(2007: €4 million) to increase pension reserves and reserves for similar benefits for active members of the Board of Management. On December 31, 2007,2008, pension reserves and reserves for similar benefits to members of the Board of Management who were active at that date, amounted to €25€29 million (2006: €23(2007: €26 million).
The following table sets out the current service cost and contributions arising in relation to the current pension plans according to IAS 19, excluding the current service cost for the old pension plan redeemed as of December 31, 2004 for each individual member of the Board of Management of Allianz SE in 2007.
| | | | | | |
Board of
Management | | € thou | | Board of
Management | | € thou |
| Michael Diekmann (Chairman) | | 299 | | Dr. Helmut Perlet | | 208 |
Dr. Paul Achleitner | | 183 | | Dr. Gerhard Rupprecht | | 182 |
Clement B. Booth | | 259 | | Jean-Philippe Thierry | | 477 |
Jan R. Carendi | | 0 | | Dr. Herbert Walter | | 198 |
Enrico Cucchiani | | 310 | | Dr. Werner Zedelius | | 210 |
Dr. Joachim Faber | | 214 | | | | |
2008. The additionaltable below separates the current service cost in 2007 according to IAS 19 for the frozendefined benefit plan (redeemed as of December 31, 2004) from the current pension plan amounted to, in thousand, for Mr. Diekmann 162, for Dr. Achleitner 246, for Dr. Faber 134, for Dr. Perlet 0, for Dr. Rupprecht 175, for Dr. Walter 326 and for Dr. Zedelius 85.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
The Supervisory Board decided to amend the service contract for members of the Board of Management for future appointments and prolongations to comply with a new suggestion of the German Corporate Governance Code regarding a severance payment cap. According to this amendment, payments made to members of the Board of Management in case of premature termination of the service contract without serious cause will be limited to a maximum of the value of two years cash compensation including benefits.
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 it is paid in monthly installments.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 2007,2008, remuneration and other benefits in the amount of €5€7 million (2006: €4(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 €49€47 million (2006: €52(2007: €49 million).
Remuneration of the Supervisory Board remuneration
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 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. The relevant provisions are contained in §11 of the Statutes of Allianz SE. The remuneration was decided at the General Meeting.members, such as chair or vice-chair or committee mandates.
Three components make up the Supervisory Board’s remuneration:regular remuneration of a fixed sum of €50,000 and two performance-based components. Onemember 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 componentscomponent of remuneration has a short-term focus andfocus. It depends on the increase of the consolidated earnings-per-share incompared to the previous fiscal year;year. It amounts to €150 for each tenth percentage point by which the other is long-term and correspondsGroup’s earnings-per-share increased in comparison to the cumulativepreceding 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
The maximum sum for each ofWith the two variable remuneration components is €24,000. This means that with thebeing 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.€98,000 per fiscal year. This maximum amount is achievedreached when the previous year’s earnings-per-share hashave 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 Corporatethe 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 was ratified by the Annual General Meeting in 2005; on the conversion of Allianz AG into Allianz SE in 2006 it was adopted without changes. It complies with the recommendation orand 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 itsSupervisory Board committees receive additional remuneration as follows: The Chairperson of the Supervisory Board receives double, and the deputiesDeputy 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.
Remuneration of the Supervisory Board of Allianz SE
There is a capmaximum 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. The total expenditure for attendance fees in 2007 amounted to €33,000.
Performance-based remunerationFigures for 2008 fiscal year
The Group’s earnings-per-share increased by 5.34% compared to 2006 and by 96.45%were negative in relation2008. 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 financial year 2004. This meant thatSupervisory Board for 2008. For 2008 the regular remuneration for the short-term performance-based component for eacha member of the Supervisory Board thus amounted to €8,100 anda total of €50,000, being the long-termfixed 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 component to €24,000.remuneration was awarded.
Remuneration of the Supervisory Board of Allianz SE
| Supervisory Board | | Fixed
renumeration | | Performance-
based remuneration | | Committee
remuneration | | Total
remuneration | | Fixed
remuneration | | Long-term
performance
based
remuneration | | Short-term
performance
based
remuneration | | Committee
remuneration |
| | | short-
term | | long-
term | | (may
be capped) | | (may
be capped) | |
Supervisory Board | | | 2008 | | 2007 | | 2008 | | 2007 | | 2008 | | 2007 | | 2008 | | 2007 |
| | € | | € | | € | | € | | € | | € | | € | | € | | € | | € | | € | | € | | € |
Dr. Henning Schulte-Noelle (Chairman) | | 100,000 | | 16,200 | | 48,000 | | 82,100 | | 246,300 | | 100,000 | | 100,000 | | 0 | | 48,000 | | 0 | | 16,200 | | 75,000 | | 123,150 |
Dr. Gerhard Cromme (Deputy Chairman) | | 75,000 | | 12,150 | | 36,000 | | 41,050 | | 164,200 | | 75,000 | | 75,000 | | 0 | | 36,000 | | 0 | | 12,150 | | 36,250 | | 86,050 |
Claudia Eggert-Lehmann (Deputy Chairwoman) | | 75,000 | | 12,150 | | 36,000 | | 41,050 | | 164,200 | |
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 | | 8,100 | | 24,000 | | 50,525 | | 132,625 | | 50,000 | | 50,000 | | 0 | | 24,000 | | 0 | | 8,100 | | 42,500 | | 50,525 |
Jean-Jacques Cette | | 50,000 | | 8,100 | | 24,000 | | 30,000 | | 112,100 | | 50,000 | | 50,000 | | 0 | | 24,000 | | 0 | | 8,100 | | 30,000 | | 30,000 |
Godfrey Robert Hayward | | 50,000 | | 8,100 | | 24,000 | | 20,525 | | 102,625 | | 50,000 | | 50,000 | | 0 | | 24,000 | | 0 | | 8,100 | | 12,500 | | 20,525 |
Dr. Franz B. Humer | | 50,000 | | 8,100 | | 24,000 | | 20,525 | | 102,625 | | 50,000 | | 50,000 | | 0 | | 24,000 | | 0 | | 8,100 | | 50,000 | | 20,525 |
Prof. Dr.Renate Köcher | | 50,000 | | 8,100 | | 24,000 | | 20,525 | | 102,625 | |
Prof. Dr. Renate Köcher | | | 50,000 | | 50,000 | | 0 | | 24,000 | | 0 | | 8,100 | | 12,500 | | 20,525 |
Peter Kossubek (since May 2, 2007) | | 33,334 | | 5,400 | | 16,000 | | 13,684 | | 68,418 | | 50,000 | | 33,334 | | 0 | | 16,000 | | 0 | | 5,400 | | 12,500 | | 13,684 |
Igor Landau | | 50,000 | | 8,100 | | 24,000 | | 30,000 | | 112,100 | | 50,000 | | 50,000 | | 0 | | 24,000 | | 0 | | 8,100 | | 30,000 | | 30,000 |
Jörg Reinbrecht | | 50,000 | | 8,100 | | 24,000 | | 30,000 | | 112,100 | | 50,000 | | 50,000 | | 0 | | 24,000 | | 0 | | 8,100 | | 30,000 | | 30,000 |
Margit Schoffer (until May 2, 2007) | | 20,834 | | 3,375 | | 10,000 | | 8,553 | | 42,762 | | — | | 20,834 | | — | | 10,000 | | — | | 3,375 | | — | | 8,553 |
Rolf Zimmermann | | 50,000 | | 8,100 | | 24,000 | | 20,525 | | 102,625 | | 50,000 | | 50,000 | | 0 | | 24,000 | | 0 | | 8,100 | | 12,500 | | 20,525 |
Total | | 704,168 | | 114,075 | | 338,000 | | 409,062 | | 1,565,305 | | 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 membersmember of the Supervisory Board of Dresdner Bank AG Claudia Eggert-Lehmann received €45,000 and Margit Schoffer €45,000. Peter Kossubek received €40,000€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 the Dresdner Bank AG and other Allianz Group companies to members of the Board of Management and Supervisory Board totalled €71,451totaled €85,000 on the date of balance (December 31, 2007)2008). Loan amounts repaid in 2008 totaled €50,876. Loans are provided at standard market conditions or at the conditions as applied to employees. The repaid amounts of loans amounted to €27,361 in 2007. 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 collectibilitycollectability or present other unfavourableunfavorable features. For members of the Board of Management, this means that the conditions have been set according to the prevailing conditions for Allianz employees.
Board Practices
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.
Share Ownership
As of March 10, 2008,9, 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 84,300130.200 ordinary shares of Allianz SE.
Employees
As of December 31, 2007,2008, the Allianz Group employed a total of 181,207182,865 people worldwide, of whom 72,06371,267 or 39.8%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 2006 and 2005.2006.
Employees by countries
| Country | | 2007 | | 2006 | | 2005 | |
| | | | 2008 | | 2007 | | 2006 |
Employees by countries | | | | | | | |
Germany | | 72,063 | | 76,790 | | 72,195 | | 71,267 | | 72,063 | | 76,790 |
France | | 19,120 | | 17,096 | | 17,246 | | 18,915 | | 19,120 | | 17,096 |
United States | | | 10,627 | | 10,706 | | 10,691 |
United Kingdom | | | 10,207 | | 10,865 | | 9,945 |
Russia | | 11,744 | | 280 | | 235 | | 9,106 | | 11,744 | | 280 |
United Kingdom | | 10,865 | | 9,945 | | 27,661 | |
United States | | 10,706 | | 10,691 | | 10,840 | |
Italy | | 7,445 | | 7,661 | | 7,706 | | 7,211 | | 7,445 | | 7,661 |
Switzerland | | 4,117 | | 2,874 | | 2,823 | | 4,286 | | 4,117 | | 2,874 |
Australia | | 3,608 | | 3,474 | | 3,673 | | 3,719 | | 3,608 | | 3,474 |
Spain | | 3,299 | | 3,139 | | 2,762 | | 3,440 | | 3,299 | | 3,139 |
Hungary | | 3,235 | | 3,159 | | 2,839 | | 3,427 | | 3,235 | | 3,159 |
Austria | | 3,096 | | 3,106 | | 3,024 | | 3,272 | | 3,096 | | 3,106 |
Brazil | | 2,971 | | 2,334 | | 2,345 | | 2,941 | | 2,971 | | 2,334 |
Slovakia | | 2,627 | | 2,564 | | 2,645 | | 2,682 | | 2,627 | | 2,564 |
Poland | | | 2,458 | | 1,358 | | 1,290 |
Romania | | 2,292 | | 2,061 | | 1,749 | | 2,331 | | 2,292 | | 2,061 |
Netherlands | | 2,130 | | 1,988 | | 1,851 | |
Belgium | | 1,807 | | 1,633 | | 1,563 | |
China (incl. Hong Kong) | | | 2,501 | | 2,137 | | 1,374 |
Other | | 20,082 | | 17,710 | | 16,468 | | 24,475 | | 20,524 | | 18,667 |
| | | | | | | |
Total | | 181,207 | | 166,505 | | 177,625 | | 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 Board of Management, towardto 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, Allianz 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 Financial Press Conference of Allianz SE.SE until and including the grant date in the year of issue of the relevant plan. The grant price for the GEI plan 20072008 is €160.13.€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 developmentperformance of the value of Allianz SEGroup 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 the Group Equity Incentive Plans seerefer to Note 48 to our consolidated financial statements.
Employee Stock Purchase Plans
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 offers its shares to qualified employees in Germany and abroad at favorable conditions within pre-defined timeframes. To be eligible, employees must have been employed for a minimum period of time 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 Allianz shares. Allianz SE and each participating Allianz Group subsidiary establishes a restricted period of at least one and maximum five years during which employees may not transfer these Allianz shares after purchasing them. After this period, these Allianz shares are not subject to vesting or other restrictions. The eligible employees of the Allianz Group acquired a totalshares differs by country. The specific features of 939,303 Allianz shares under such arrangementsthe plan offer are decided annually. In 2008, around 125,000 employees in 2007 (2006: 929,509; 2005: 1,144,196).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 48 to our consolidated financial statements.
| ITEM 7. | Major Shareholders and Related Party Transactions |
Major Shareholders
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 10, 2008,9, 2009, we had approximately 419,800490,160 registered shareholders, of which approximately 520560 were
U.S. holders. Based on our share register, approximately 16.4%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,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, seerefer 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 10, 2008,9, 2009, no shareholder holding 5% or more of the share capital was reported to Allianz SE.
As of February 29, 2008, 452,350,000March 16, 2009, 453,050,000 ordinary shares were issued, of which 450,755,801451,505,783 were outstanding and 1,594,1991,544,217 were held by the Allianz Group in treasury (including 1,042,621 shares held by Dresdner Bank in trading positions).treasury.
Significant changes in the percentage ownership held of record by any of our major shareholders in the last three years were as follows:
the share ownership of Munich Re as reported to the SEC decreased from 12.8% as of December 31, 2003 to approximately 4.9% of our outstanding ordinary shares on July 12, 2005.
the voting rights of Munich Re as reported under the German Securities Trading Act on September 25, 2007, decreased below 3% and amounted to 2.67% as of this day.
Related Party Transactions
For a description of related party transactions, seerefer to Note 45 to the consolidated financial statements.
ITEM 8. Financial Information
| 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.
Legal Proceedings
For a description of legal proceedings, seerefer to Note 46 to the consolidated financial statements.
Dividend Policy
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 balance sheet profitsavailable 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 20072008 and paid from 20032004 through 2006, see2007, refer to “Key Information—Dividends.”
Significant Changes
For a description of significant developments since the date of the annual financial statements included in this annual report, seerefer to Note 52 to the consolidated financial statements.
ITEM 9. The Offer and Listing
| ITEM 9. | The Offer and Listing |
Trading Markets
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.” SeeRefer also to “Major Shareholders and Related Party Transactions—Major Shareholders.”
Market Price Information
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. SeeRefer 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(1) | | DAX | | Price per
ordinary share | | DAX |
| | | High | | Low | | High | | Low | | High | | Low | | High | | Low |
| | | € | | € | | | | | | € | | € | | | | |
Annual highs and lows | Annual highs and lows | | | | | | | Annual highs and lows | | | | | | |
2003 | | 101.5 | | 41.1 | | 3,965.2 | | 2,203.0 | |
2004 | | 111.2 | | 73.9 | | 4,261.8 | | 3,647.0 | | 111.2 | | 73.9 | | 4,261.8 | | 3,647.0 |
2005 | | 129.7 | | 89.7 | | 5,458.6 | | 4,178.1 | | 129.7 | | 89.7 | | 5,458.6 | | 4,178.1 |
2006 | | 156.8 | | 111.2 | | 6,611.8 | | 5,292.1 | | 156.8 | | 111.2 | | 6,611.8 | | 5,292.1 |
2007 | | 178.6 | | 133.9 | | 8,105.7 | | 6,447.7 | | 178.6 | | 133.9 | | 8,105.7 | | 6,447.7 |
2008 (through March 10, 2008). | | 145.9 | | 108.7 | | 7,949.1 | | 6,439.2 | |
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 | Quarterly highs and lows | | | | | Quarterly highs and lows | | | | |
2006 | | | | | | | | | |
2007 | | | | | | | | | |
First quarter | | 139.5 | | 124.1 | | 5,984.2 | | 5,334.3 | | 169.0 | | 147.8 | | 7,027.6 | | 6,447.7 |
Second quarter | | 139.0 | | 111.2 | | 6,140.7 | | 5,292.1 | | 178.6 | | 155.0 | | 8,090.5 | | 6,937.2 |
Third quarter | | 137.4 | | 115.5 | | 6,004.3 | | 5,396.9 | | 174.6 | | 148.7 | | 8,105.7 | | 7,270.1 |
Fourth quarter | | 156.8 | | 136.1 | | 6,611.8 | | 5,992.2 | | 165.4 | | 133.9 | | 8,076.1 | | 7,512.0 |
| 2007 | | | | | | | | | |
2008 | | | | | | | | | |
First quarter | | 169.0 | | 147.8 | | 7,027.6 | | 6,447.7 | | 145.9 | | 106.2 | | 7,949.1 | | 6,182.3 |
Second quarter | | 178.6 | | 155.0 | | 8,090.5 | | 6,937.2 | | 134.5 | | 111.0 | | 7,225.9 | | 6,418.3 |
| | | | | | | | |
| | | Price per
ordinary share(1) | | DAX |
| | | High | | Low | | High | | Low |
| | | € | | € | | | | |
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 | | | | | | | | |
(through March 10, 2008) | | 145.9 | | 108.7 | | 7,949.1 | | 6,439.2 |
| | | |
Monthly highs and lows | | | | | | |
2007 | | | | | | | | |
September | | 163.9 | | 148.7 | | 7,861.5 | | 7,375.4 |
October | | 165.4 | | 150.5 | | 8,041.3 | | 7,794.9 |
November | | 151.8 | | 133.9 | | 7,880.9 | | 7,512.0 |
December | | 148.0 | | 137.6 | | 8,076.1 | | 7,808.9 |
| | | | |
2008 | | | | | | | | |
January | | 145.9 | | 111.3 | | 7,949.1 | | 6,439.2 |
February | | 121.7 | | 113.1 | | 7,002.3 | | 6,733.7 |
March 10 | | 116.0 | | 108.7 | | 6,690.0 | | 6,448.1 |
(1)
| Adjusted to reflect the capital increase in April 2003.
|
| | | | | | | | |
| | | 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 10, 2008,20, 2009, the closing sale price per Allianz SE ordinary share on XETRA was 108.70,63.99, which was equivalent to $167.06$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 SE traded on the Frankfurt Stock Exchange (XETRA) between January 2, 20082009 and March 10, 200820, 2009 was 5,859,449.3,824,451.
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 | | Price per
ADS |
| | | High | | Low | | High | | Low |
| | | $ | | $ | | $ | | $ |
Annual highs and lows | | | | | | | | |
2003 | | 12.7 | | 5.0 | |
2004 | | 14.0 | | 9.0 | | 14.0 | | 9.0 |
2005 | | 15.4 | | 11.4 | | 15.4 | | 11.4 |
2006 | | 20.6 | | 13.9 | | 20.6 | | 13.9 |
2007 | | 24.0 | | 19.2 | | 24.0 | | 19.2 |
2008 (through March 10, 2008) | | 21.4 | | 16.4 | |
2008 | | | 21.4 | | 5.7 |
2009 (through March 20, 2009) | | | 10.8 | | 6.0 |
| Quarterly highs and lows | | | | | | | | |
2006 | | | | | |
First quarter | | 17.0 | | 15.1 | |
Second quarter | | 17.5 | | 13.9 | |
Third quarter | | 17.5 | | 14.6 | |
Fourth quarter | | 20.6 | | 17.3 | |
| 2007 | | | | | | | | |
First quarter | | 22.2 | | 19.2 | | 22.2 | | 19.2 |
Second quarter | | 23.8 | | 20.7 | | 23.8 | | 20.7 |
Third quarter | | 24.0 | | 20.3 | | 24.0 | | 20.3 |
Fourth quarter | | 23.5 | | 19.6 | | 23.5 | | 19.6 |
| 2008 | | | | | | | | |
(through March 10) | | 21.4 | | 16.4 | |
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 | | | | | | | | |
2007 | | | | | |
2008 | | | | | |
September | | 23.3 | | 20.7 | | 16.8 | | 13.3 |
October | | 23.5 | | 21.5 | | 13.6 | | 6.4 |
November | | 22.0 | | 19.6 | | 9.0 | | 5.7 |
December | | 21.5 | | 20.2 | | 10.8 | | 7.3 |
| 2008 | | | | | |
2009 | | | | | |
January | | 21.4 | | 16.9 | | 10.8 | | 7.5 |
February | | 18.5 | | 16.4 | | 9.3 | | 6.3 |
March (through March 10) | | 17.6 | | 16.6 | |
March (through March 20) | | | 8.7 | | 6.0 |
On March 10, 2008,20, 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 $16.62.$8.45.
ITEM 10. Additional Information
| ITEM 10. | Additional Information |
Articles of Association (Statutes)
Allianz SE’s current statutes are filed as an exhibit to this annual report. SeeRefer 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 February 29, 2008,March 16, 2009, the capital stock of Allianz SE amounts to €1,158,016,000.€1,159,808,000. It is sub-divided into 452,350,000453,050,000 shares with no par value, of which 450,755,801451,505,783 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:
| no-par value shares against contributions in cash and/or in kind (Authorized Capital 2006/1), of which an amount of €406,545,646 remains as of February 29, 2008. 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 €9,848,297 remains as of February 29, 2008. The Board of Management is authorized, upon the approval of the Supervisory Board:
| 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 AGSE or Allianz SEAG 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.
At the Annual General Meeting on May 5, 2004, 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). Of this conditional capital, an amount of up to €5,632,000 through issuance of up to 2,200,000 new registered no-par shares remained December 31, 2007. 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 that Allianz AG or Allianz SE or their Group companies have issued against cash payments in accordance with the resolution of the General Meeting of Allianz AG of May 5, 2004, or that conversion obligations under such bonds are fulfilled, and only insofar 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. All option rights resulting from bonds which Allianz SE or its subsidiaries have issued on the basis of this authority have been exercised until
February 15, 2008, so that this contingent capital has been fully carried out.
With respect to purchases of our own ordinary shares, seerefer to Note 2325 to our consolidated financial statements.
Capital Increase
For information regarding capital increases, seerefer to Note 2325 to our consolidated financial statements.
Material Contracts
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 Allianz SE or any“Item 4. Information on the Company—Major Disposals—Sale of its subsidiaries was a party in the preceding two years, see Note 45 to our consolidated financial statements.Dresdner Bank AG.”
Exchange Controls
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.
German Taxation
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 includeincluded 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 currentlyin 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, have beenwere 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 between 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 willis no longer be 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 anindividual German resident private investor, dividends will beare taxed as investment income (Einkunfte(Einkünfte aus Kapitalvermögen)gen). TheseTill 2008, only 50% of the dividends received arewere included in the tax basis by 50% only.basis. However, income related expenses (e.g. custody fees or interest for a debt financed portfolio)
are were also deductible by only 50% only.(half-income system). The amount of such payments after deduction of related expenses will bewas subject to progressive income tax plus solidarity surcharge thereon. Since 2007, a personal annual exemption (Sparer-Freibetrag) of 750 Euro (1,500 Euro€750 (€1,500 for married couples filing their tax return jointly) iswas available for the aggregate amount of the investment income, including the dividends. In addition, an individual iswas 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 aGerman 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 arewere 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 by 50% only.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 partnerships.for business assets by a natural persons. From January 1, January 2009 onwards a final flat-rate tax (AbgeltungssteuerAbgeltungsteuer) amounting to 25% (plus a 5.5% solidarity surcharge) on all types of investment income (including dividends) will behas been established. This withholding tax levied on the income from capital investment shallis generally be 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 will behas 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 willis not be possible any more.
For German nonresidentsnon-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 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 1 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. 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, January 2009 onwards two-fifthtwo-fifths of the withholding tax willcan 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 partnerships,by a natural person (via a German partnership or an individual enterprises), the capital gains are treated as the dividends.
For non-corporateTill 2008, for private investors, a 50% tax exemption on realized gains on the disposal of shares arisearised only if they sellsold 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;sale. Shares with less than 1% of the outstanding shares of the company were only subject to taxation within the 12 month speculative period or which were held as business assets in a partnership.period. Due to the Business Tax Reform Act 2008 capital gains from individualsprivate 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.
United States Taxation
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;
life insurance companies;
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.
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;
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 Shares,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 Shares.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 noncorporatenon-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. SeeRefer 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
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.
Documents on Display
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 20 Broad11 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 makingdecision-making processes through the attribution of risk and allocation of capital to the various segments.
Risk Governance Structure
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 businessexposures 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 butand 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 functions.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. In addition,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”)(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)(“holding period”) and probability (confidence level)(“confidence level”). More specifically, we calculate the net fair asset value of each of our covered businessbusinesses 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 providesaims 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 sufficientonly insufficient historical data is unavailable,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:
| | | | | | | | | | | | | | | | | |
Risk category
| | Insurance | | | Banking | | | Asset
Management | | | Corporate | | Description
|
Market risk:
| | | | | | | | | | ü | (3 | ) | | | | | Possible losses caused by changes in interest rates, equity prices, real estate values, commodity prices and exchange rates |
—interest rate
| | ü | | | | ü | | | | | | | | ü | | |
—equity
| | ü | | | | ü | | | | | | | | ü | | |
—real estate
| | ü | | | | ü | | | | | | | | ü | | |
—currency(1)
| | ü | | | | ü | (2 | ) | | | | | | ü | | | |
| | | | | |
Credit risk:
| | | | | | | | | | ü(3) | | ü(3) | | | | | Possible losses caused by the failure of our debtors, bond issuers, reinsurance partners or counter parties to meet payment obligations or by changes in their creditworthiness |
—investment
| | ü | | | | ü | (5 | ) | | | | | | ü | | |
—reinsurance
| | ü | (4 | ) | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | |
Actuarial risk:
| | | | | | | | | | | | | | | | | Unexpected financial losses due to the inadequacy of premiums for catastrophe and non-catastrophe risks, due to the inadequacy of reserves or due to the unpredictability of mortality or longevity |
—premium CAT
| | ü | | | | | | | | | | | | | | |
—premium non-CAT
| | ü | | | | | | | | | | | | | | |
—reserve
| | ü | | | | | | | | | | | | | | |
—biometric
| | ü | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | |
Business risk:
| | | | | | | | | | | | | | | | | Cost risks, as well as operational risks which is the risk of a loss resulting from inadequate or failed internal processes, or from personnel and systems, or from external events |
—operational
| | ü | | | | ü | | | | ü | | | | ü | | |
—cost
| | ü | | | | ü | | | | ü | | | | ü | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
(1) | Foreign currency risks are mainly allocated to the Corporate segment.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) | Reinsurance credit risk also covers theThe 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.
| 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 Dresdner Bank or Allianz Life United States) 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.
| 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, usingmodel. This uses the same risk categories as for our internal risk capital model, thereby allowing us to consistently aggregate internal risk capital for all segments toat the Group level. More specifically, approximately 99 %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. Furthermore,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, represents substantially allto Commerzbank, our continuing banking operations in Germany, Italy, France and New Europe represent only an insignificant amount of the internal risk capitalapproximately 1.3% of our Banking segment accounting for 96% of our total Banking segment’snon-diversified internal risk capital. Therefore, the detailed risk discussionmanagement with respect to banking operations is not discussed below in the Banking segment below relates to Dresdner Bank only.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 in currencies different to Euro.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 2007 credit2008 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, we apply a mark-to-model approach without having availablewhere a current market price for that instrument or similar instruments.instruments is not available, we apply a mark-to-model approach. For some of our liabilities, the accuracy of fair values also depends on the quality of the actuarial cash flow estimates. Despite these limitations, we believe the estimated fair values are appropriately assessed in the aggregate.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.
Capital Management
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.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 doing so,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 publishedthe 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 therefrom.subtracted.
Available capital(1) and internal risk capital
in € bn
OurBased 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, 20072008 amounted to €42.5 billion (2007: €63.8 billion (2006: €70.2 billion(1))billion), while our corresponding internal risk capital requirements at December 31, 20072008 amounted to €33.4€30.3 billion (2006: €35.8(2007: €33.4 billion), resulting in a capital adequacy ratio of 191.0%140% at December 31, 2007,2008, compared to 196.1%191% at December 31, 2006.2007(2). The decrease of 9.1%33% in available capital was primarily driven by a decrease ofin shareholders’ equity due toand a decline in the buy-out by Allianzpresent value of future profits in the minority interests in AGF.Life/Health segment.
TheIncluding discontinued operations, the Allianz Group-wide internal risk capital after Group diversification and before minority interests of €33.4€32.9 billion at December 31, 20072008 reflects a realized diversification benefit on the Group level of approximately 54%56%. Non-diversified and Group diversified internal risk capital are broken down as follows:
(1) | The figure forAvailable 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 2006 has been adjusted. See Note 3 to our consolidated financial statements for further information.Commerzbank.
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(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. |
The overall decreaseTaking into account discontinued operations as of 6.8% inDecember 31, 2008, total internal risk capital inis still at a comparable level as at December 31, 2007 was due to a decline in marketoffsetting effects across the different risk which is discussed in more detailcategories (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 respective section.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.basis, which we refer to below as “available funds”.
At December 31, 2007, basedFinancial conglomerate solvency
in € bn
Based on pro-forma calculations assuming the current statuscompletion of discussion,the Dresdner Bank transaction prior to year-end of 2008(1), our eligible capitalavailable funds for the solvency margin, required for our insurance segments and our banking and asset management business, is €45.5€32.7 billion (2006: €49.5 billion(1))(2007: €46.5 billion) at December 31, 2008 including off-balance sheet reserves(2), surpassing the minimum legally stipulated level by €16.6 (2006: €23.4€12.4 billion (2007: €17.6 billion). This margin results in a preliminary pro-forma cover ratio(3) of 157%161% at December 31, 2007 (2006: 190%2008 (2007: 161%)(4). The decrease of 8.1%30% in eligible capitalavailable funds was primarily driven by a decrease ofin shareholders’ equity due to the buy-out by Allianz of the minority interests in AGF. See Note 23 to our consolidated financial statements for further information with respect to capital requirements.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, 2007,2008, the financial strength of Allianz SE was rated
(1)
| The figure for available capital in 2006 has been adjusted. See Note 3 to our consolidated financial statements for further information.
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(2)
| Off-balance sheet reserves represent the difference between the fair value and the amortized cost of real estate used by third parties and investments in associates and joint ventures, net of deferred taxes, policyholders’ participation and minority interests.
|
(3)
| Represents the ratio of eligible capital to required capital.
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by Standard & Poor’s as “AA” (stable outlook), by A. M. Best as “A+” (stable outlook), and by Moody’s as “Aa3” (stable outlook). Subsequently to December 31, 2007, Standard & Poor’s changed the outlook on its rating of Dresdner Bank (“A+”) from stable to negative.
(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 has introduceddetermines a newseparate rating category for “Enterprise Risk Management” (ERM) which is rated separately. Standard & Poor’s commenced its analysis. As of the Allianz risk management approach in 2006 and continued the review in 2007. CurrentlySeptember 2008, Standard & Poor’s has assigned Allianz a “Strong” rating for the ERM capabilities forof 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, 20072008 would have resulted in a €2.7€1.7 billion decline in shareholders’ equity before minority interests. IfAn increase in the interest rate had increased by 100 basis points would have decreased shareholders’ equity before minority interests would have decreased by €3.6€3.5 billion, if available-for-sale fixed incomefixed-income securities are taken into account as of December 31, 2007.2008.
Concentration 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. Wegroups 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.
Market 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 –Interests)
| | | | Non-diversified | | Group diversified | | | Non-diversified | | Group diversified | |
As of December 31, | | 2007 | | 2006 | | 2007 | | 2006 | | | 2008(1) | | 2007(2) | | 2008(1) | | 2007(2) | |
| | | € mn | | € mn | | € mn | | € mn | | | € mn | | € mn | | € mn | | € mn | |
Total Group | | 22,738 | | | 27,297 | | | 13,913 | | | 17,457 | | | 24,173 | | | 22,738 | | | 13,128 | | | 13,913 | |
Percentage of total Group internal risk capital | | 32 | % | | 36 | % | | 42 | % | | 49 | % | | 36 | % | | 32 | % | | 45 | % | | 42 | % |
Interest rate | | 6,691 | | | 8,590 | | | 655 | | | 1,259 | | | 12,124 | | | 6,691 | | | 3,784 | | | 655 | |
Equity | | 13,508 | | | 16,307 | | | 10,885 | | | 13,790 | | | 9,454 | | | 13,508 | | | 6,774 | | | 10,885 | |
Real estate | | 2,238 | | | 2,265 | | | 1,088 | | | 1,083 | | | 2,516 | | | 2,238 | | | 1,300 | | | 1,088 | |
Currency(1) | | 301 | | | 135 | | | 1,285 | | | 1,325 | | |
Currency(3) | | | 79 | | | 301 | | | 1,270 | | | 1,285 | |
Property-Casualty | | 11,066 | | | 12,958 | | | 6,477 | | | 8,379 | | | 9,062 | | | 11,066 | | | 4,774 | | | 6,477 | |
Interest rate | | 2,758 | | | 2,916 | | | 270 | | | 427 | | | 3,550 | | | 2,758 | | | 1,108 | | | 270 | |
Equity | | 6,835 | | | 8,633 | | | 5,508 | | | 7,300 | | | 4,183 | | | 6,835 | | | 2,997 | | | 5,508 | |
Real estate | | 1,385 | | | 1,290 | | | 673 | | | 617 | | | 1,250 | | | 1,385 | | | 646 | | | 673 | |
Currency(1) | | 88 | | | 119 | | | 26 | | | 35 | | |
Currency(3) | | | 79 | | | 88 | | | 23 | | | 26 | |
Life/Health | | 5,533 | | | 6,219 | | | 2,836 | | | 3,244 | | | 11,320 | | | 5,533 | | | 5,396 | | | 2,836 | |
Interest rate | | 2,100 | | | 2,613 | | | 206 | | | 383 | | | 6,163 | | | 2,100 | | | 1,924 | | | 206 | |
Equity | | 3,006 | | | 3,092 | | | 2,422 | | | 2,615 | | | 4,039 | | | 3,006 | | | 2,894 | | | 2,422 | |
Real estate | | 427 | | | 514 | | | 208 | | | 246 | | | 1,118 | | | 427 | | | 578 | | | 208 | |
Currency(1) | | 0 | | | 0 | | | 0 | | | 0 | | |
Currency(3) | | | — | | | — | | | — | | | — | |
Banking | | 2,814 | | | 2,940 | | | 1,962 | | | 2,090 | | | 263 | | | 2,814 | | | 175 | | | 1,962 | |
Interest rate | | 205 | | | 374 | | | 20 | | | 55 | | |
Equity | | 2,239 | | | 2,205 | | | 1,804 | | | 1,865 | | |
Real estate | | 157 | | | 345 | | | 76 | | | 165 | | |
Currency(2) | | 213 | | | 16 | | | 62 | | | 5 | | |
Asset Management(3) | | 0 | | | 0 | | | 0 | | | 0 | | |
Asset Management(4) | | | — | | | — | | | — | | | — | |
Corporate | | 3,325 | | | 5,180 | | | 2,638 | | | 3,744 | | | 3,528 | | | 3,325 | | | 2,783 | | | 2,638 | |
Interest rate | | 1,628 | | | 2,687 | | | 159 | | | 394 | | | 2,378 | | | 1,628 | | | 742 | | | 159 | |
Equity | | 1,428 | | | 2,377 | | | 1,151 | | | 2,010 | | | 1,002 | | | 1,428 | | | 718 | | | 1,151 | |
Real estate | | 269 | | | 116 | | | 131 | | | 55 | | | 148 | | | 269 | | | 76 | | | 131 | |
Currency(1) | | 0 | | | 0 | | | 1,197 | | | 1,285 | | |
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 seerefer to “Internal Risk Capital Framework—Scope” for further information). |
(2)
| As commodity exposure is limited to the Banking segment only and not significant on the Group level, it is covered in our internal risk capital model within currency risk.
|
(3)(4)
| The internal risk capital requirements for the Asset Management segment only reflect business risk (please seerefer to “Internal Risk Capital Framework—Scope” for further information). |
TheInternal 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 risk mainly results fromdevelopments experienced in 2008, supported by the sale of a significant portionsome strategic participations which were offset in part by the transfer of our strategic equity participations in particular onfrom Dresdner Bank to the Corporate level and in the Property-Casualty segment. Furthermore, an increase in interest rates in Europe reduced our exposure to risk in connection with the minimum guaranteed crediting rate that we must provide to policyholders for certain of our Life/Health products.
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 2007 2008
and 2006,2007, 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 Byby Business Segment and
Source of Risk
– (Total Portfolio Before Minority Interests, and After Group Diversification –and Including Discontinued Operations)
| As of December 31, | | 2007 | | 2006 | | | 2008 | | 2007 |
| | Over quarterly results | | Over quarterly results | | | Over quarterly results | | Over quarterly results |
| | | Average | | High | | Low | | Average | | High | | Low | | | Average | | High | | Low | | Average | | High | | Low |
| | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn |
Total Group | | 15,559 | | 16,800 | | 13,913 | | 17,438 | | | 18,565 | | | 16,738 | | | 13,857 | | 14,196 | | 13,466 | | 15,559 | | 16,800 | | 13,913 |
Interest rate | | 713 | | 764 | | 655 | | 1,403 | | | 1,492 | | | 1,259 | | | 1,983 | | 3,292 | | 1,138 | | 713 | | 764 | | 655 |
Equity | | 12,424 | | 13,662 | | 10,885 | | 13,713 | | | 14,908 | | | 12,913 | | | 9,214 | | 10,539 | | 7,838 | | 12,424 | | 13,662 | | 10,885 |
Real estate | | 1,072 | | 1,103 | | 1,038 | | 967 | | | 1,083 | | | 910 | | | 1,286 | | 1,425 | | 1,218 | | 1,072 | | 1,103 | | 1,038 |
Currency(1) | | 1,350 | | 1,409 | | 1,285 | | 1,355 | | | 1,433 | | | 1,317 | | | 1,374 | | 1,454 | | 1,301 | | 1,350 | | 1,409 | | 1,285 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Property-Casualty | | 7,299 | | 7,948 | | 6,476 | | 8,595 | | | 9,458 | | | 8,243 | | | 5,145 | | 5,727 | | 4,813 | | 7,299 | | 7,948 | | 6,476 |
Interest rate | | 301 | | 330 | | 270 | | 456 | | | 478 | | | 427 | | | 599 | | 930 | | 392 | | 301 | | 330 | | 270 |
Equity | | 6,331 | | 7,020 | | 5,508 | | 7,481 | | | 8,291 | | | 7,137 | | | 3,883 | | 4,706 | | 3,185 | | 6,331 | | 7,020 | | 5,508 |
Real estate | | 636 | | 673 | | 593 | | 624 | | | 672 | | | 599 | | | 634 | | 673 | | 598 | | 636 | | 673 | | 593 |
Currency(1) | | 31 | | 33 | | 26 | | 34 | | | 35 | | | 33 | | | 30 | | 33 | | 25 | | 31 | | 33 | | 26 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Life/Health | | 3,074 | | 3,215 | | 2,835 | | 3,177 | | | 3,247 | | | 3,094 | | | 4,693 | | 5,292 | | 4,296 | | 3,074 | | 3,215 | | 2,835 |
Interest rate | | 210 | | 226 | | 195 | | 468 | | | 517 | | | 383 | | | 907 | | 1,615 | | 488 | | 210 | | 226 | | 195 |
Equity | | 2,650 | | 2,781 | | 2,422 | | 2,478 | | | 2,615 | | | 2,369 | | | 3,288 | | 3,580 | | 3,075 | | 2,650 | | 2,781 | | 2,422 |
Real estate | | 214 | | 223 | | 208 | | 238 | | | 246 | | | 233 | | | 498 | | 602 | | 460 | | 214 | | 223 | | 208 |
Currency(1) | | 0 | | 0 | | 0 | | 0 | | | 0 | | | 0 | | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Banking | | 2,116 | | 2,326 | | 1,962 | | 2,103 | | | 2,198 | | | 1,929 | | | 1,788 | | 2,380 | | 1,154 | | 2,116 | | 2,326 | | 1,962 |
Interest rate | | 25 | | 33 | | 20 | | 60 | | | 68 | | | 55 | | | 81 | | 124 | | 51 | | 25 | | 33 | | 20 |
Equity | | 1,933 | | 2,136 | | 1,804 | | 2,000 | | | 2,137 | | | 1,865 | | | 1,520 | | 2,132 | | 815 | | 1,933 | | 2,136 | | 1,804 |
Real estate | | 113 | | 159 | | 76 | | – | (4) | | – | (4) | | – | (4) | | 75 | | 78 | | 70 | | 113 | | 159 | | 76 |
Currency(2) | | 45 | | 62 | | 28 | | – | (4) | | – | (4) | | – | (4) | |
Currency(1) | | | 113 | | 145 | | 90 | | 45 | | 62 | | 28 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Asset Management(3)(2) | | 0 | | 0 | | 0 | | 0 | | | 0 | | | 0 | | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Corporate | | 3,071 | | 3,521 | | 2,639 | | 3,562 | | | 3,931 | | | 3,202 | | | 2,230 | | 2,750 | | 1,977 | | 3,071 | | 3,521 | | 2,639 |
Interest rate | | 177 | | 185 | | 159 | | 422 | | | 448 | | | 394 | | | 397 | | 623 | | 207 | | 177 | | 185 | | 159 |
Equity | | 1,510 | | 1,988 | | 1,151 | | 1,757 | | | 2,192 | | | 1,285 | | | 522 | | 763 | | 291 | | 1,510 | | 1,988 | | 1,151 |
Real estate | | 109 | | 131 | | 63 | | 65 | | | 75 | | | 55 | | | 79 | | 80 | | 78 | | 109 | | 131 | | 63 |
Currency(1) | | 1,275 | | 1,339 | | 1,197 | | 1,319 | | | 1,400 | | | 1,283 | | | 1,232 | | 1,289 | | 1,173 | | 1,275 | | 1,339 | | 1,197 |
(1) | Foreign currency risks are mainly allocated to the Corporate segment (please seerefer to “Internal Risk Capital Framework – Framework—Scope” for further information). |
(2) | As commodity exposure is limited to the Banking segment only and not significant on the Group level, it is covered in our internal risk capital model within currency risk.
|
(3)
| The internal risk capital requirements for the Asset Management segment only reflect business risk (please seerefer to “Internal Risk Capital Framework – Framework—Scope” for further information). |
(4)
| Only year-end results available for 2006.
|
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 all non-trading activities of the Banking segment as well as the financial assets and liabilities of the Property-Casualty, Life/Health and Corporate segments.
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 (from(arising from bonds, loans and mortgages) and currency risk (especially the impact of foreign exchange rate movements on the net asset value of our non-Euro denominated operating entities).
Property-Casualty and Life/Health segments
As of December 31, 2007, most of theThe Allianz Group’s insurance-relatedinsurance operating entities hold equity investments are intendedusually to be held long-term. 63%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 incomefixed-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 (47%(74% as of December 31, 2007)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 taketakes 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 Segmentand Asset Management segments
TheFollowing the sale of Dresdner Bank, we do not consider market risk inrelated to our continuing Banking operations to be significant at the non-trading portfolio of the Banking segment comprises interest rate risk and equity risk. The interest rate risk in the non-trading portfolio arises from loans and deposits, issued securities, interest rate related investment securities as well as corresponding hedges and also from long-term fixed rate loans funded in part by short-term deposits. The equity risk arises from available-for-sale securities with equity characteristics. Dresdner Bank manages this risk by setting VaR limits. At December 31, 2007, the Dresdner Bank diversified VaR, with a 99% confidence level and 10-day holding period, for market risks in the non-trading portfolio amounted to €15.8 million, compared to €15.5 million at December 31, 2006.
Asset Management segmentGroup 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, mostthe majority of which are to be foundwere held in the Banking segment.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. Trading activities in the Asset Management segment are immaterial. 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.
Property-Casualty, Life/Health and Corporate segments
The Property-Casualty, Life/Health and Corporate segments generally do not engage in trading activities. In general, forFor 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, thetheir accounting classification may differ from Allianz Group’s management view. The market risk data for the trading portfolios of thesethe 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 segment
The Banking segment is active inoperations are immaterial to the Allianz Group as a whole. In our worldwide hedging and trading equities,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 instruments, foreign exchange, commoditiesswaps, futures and derivatives. The Banking segment
uses derivatives in its trading portfolios primarily to meet customer demandsoptions as well as to hedge market and credit risks. Derivatives are also used to take advantage of market opportunities. Dresdner Bank has expanded its use of credit and foreign exchange derivatives in order to meet client demands in this product field.forwards and equity derivatives.
Although our internal risk capital model generally uses a one-year holding period and a confidence level of 99.93% for local operating entities, Dresdner Bank calculates market VaR figures based on different confidence level and holding period assumptions for its regulatory reporting as well as for the purposes of internal limit setting and risk management. These assumptions take into account that Dresdner Bank’s trading portfolio can be transferred significantly faster than insurance liabilities.
Dresdner Bank’s VaR model, which is used to evaluate capital adequacy for regulatory purposes and which produces the input for the Group’s internal risk capital model, applies a confidence level of 99% and a 10-day holding period. This model has been approved by the German regulator, BaFin. For the purpose of risk management and internal limit setting, Dresdner Bank calculates its VaR with a confidence level of 95% and a one-day holding period. Unlike the VaR calculation required by the BaFin, this model assigns greater weight to the most recent market fluctuations. In doing so, Dresdner Bank endeavors to reflect current market trends on a timely basis.
VaR is only one of the instruments used to characterize and control the market risk profile of Dresdner Bank. In addition, Dresdner Bank uses operational risk indicators and limits that are specifically adapted to the risk situation of the trading units. Current limit utilization is determined and monitored on a daily basis. Limit breaches, if any, are immediately communicated to management so that corrective action can be taken.
The VaR for market risks within Dresdner Bank’s trading portfolio is calculated based on the industry-standard and Basel II compliant confidence level of 99% and holding period of 10 days. The Dresdner Bank diversified VaR amounted to €44 million at December 31, 2007, compared to €57 million at December 31, 2006. This decrease was mainly caused by lower interest rate risks due to an adjusted risk exposure.
VaR Statistics for Market Risks within Dresdner Bank’s Trading Portfolio (99% Confidence Level, 10-day Holding Period)
| | | | | | | | | | | | | | | | | | | | |
| | | 2007 | | 2006 | | 2007 | | | 2006 | |
| | As of December 31, | | Over daily results | | | Over daily results | |
| | | Average | | High | | | Low | | | Average | | High | | | Low | |
| | | € mn | | € mn | | € mn | | € mn | | | € mn | | | € mn | | € mn | | | € mn | |
Non-diversified | | 85 | | 100 | | 83 | | — | (1) | | — | (1) | | 87 | | — | (1) | | — | (1) |
Interest rate | | 30 | | 43 | | 35 | | 55 | | | 22 | | | 51 | | 77 | | | 32 | |
Equity | | 41 | | 44 | | 32 | | 63 | | | 15 | | | 23 | | 85 | | | 8 | |
Commodity | | 5 | | 4 | | 5 | | 34 | | | 3 | | | 3 | | 17 | | | 1 | |
Currency | | 9 | | 9 | | 11 | | 22 | | | 3 | | | 10 | | 25 | | | 1 | |
Dresdner Bank diversified | | 44 | | 57 | | 42 | | 67 | | | 26 | | | 46 | | 89 | | | 26 | |
(1)
| The high and low values for non-diversified VaR can not be reasonably calculated as a sum, since the single values are measured on different dates.
|
These market risks are integrated into the Allianz Group-wide internal risk capital model. To this end, Dresdner Bank converts its VaR calculated using a 99% confidence interval and 10-day holding period to match Allianz’s Group-wide internal risk capital standards for time horizon (one year) and confidence level (99.93%). The conversion is based on the methodology used by industry regulators to convert VaR into regulatory capital requirements. Through this conversion, we achieve the comparability and integration of Dresdner Bank results into the Group-wide analysis.
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 –Diversification)
| As of December 31, | | 2007 | | 2006 | | 2008(1) | | 2007(2) |
| | | €mn | | €mn | | € mn | | € mn |
Total Group | | | 12,152 | | 13,352 |
Property-Casualty | | 6,360 | | 8,307 | | 4,707 | | 6,360 |
Interest rate | | 265 | | 418 | | 1,105 | | 265 |
Equity | | 5,396 | | 7,237 | | 2,933 | | 5,396 |
Real estate(1) | | 673 | | 617 | |
Currency(2) | | 26 | | 35 | |
Real estate(3) | | | 646 | | 673 |
Currency(4) | | | 23 | | 26 |
| | | | | | | | |
Life/Health | | 2,625 | | 3,014 | | 5,017 | | 2,625 |
Interest rate | | 205 | | 383 | | 1,920 | | 205 |
Equity | | 2,212 | | 2,385 | | 2,519 | | 2,212 |
Real estate(1) | | 208 | | 246 | |
Currency(2) | | 0 | | 0 | |
Real estate(3) | | | 578 | | 208 |
Currency(4) | | | 0 | | 0 |
| | | | | | | | |
Banking | | 1,885 | | 2,030 | | 109 | | 1,885 |
Interest rate | | 11 | | 47 | | 5 | | 11 |
Equity | | 1,743 | | 1,818 | | 104 | | 1,743 |
Real estate(1) | | 76 | | 165 | |
Currency(3) | | 55 | | 0 | |
Real estate(3) | | | 0 | | 76 |
Currency(4) | | | 0 | | 55 |
| | | | | | | | |
Asset Management(4) | | 0 | | 0 | |
Asset Management(5) | | | 0 | | 0 |
| | | | | | | | |
Corporate | | 2,482 | | 3,604 | | 2,319 | | 2,482 |
Interest rate | | 159 | | 394 | | 742 | | 159 |
Equity | | 1,029 | | 1,872 | | 684 | | 1,029 |
Real estate(1) | | 131 | | 55 | |
Currency(2) | | 1,163 | | 1,283 | |
| | | | | |
Total | | 13,352 | | 16,955 | |
| | | | | |
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. |
(2)(4)
| Foreign currency risks are mainly allocated to the Corporate segment (please seerefer to “Internal Risk Capital Framework—Scope” for further information). |
(3)(5)
| As commodity risk is not significant on the Group level, it is covered in our internal risk capital model within currency risk.
|
(4)
| The internal risk capital requirements for the Asset Management segment only reflect business risk (please seerefer to “Internal Risk Capital Framework – 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 –Diversification)
| As of December 31, | | 2007 | | 2006 | | 2008(1) | | 2007(2) |
| | | €mn | | €mn | | € mn | | € mn |
Total Group | | | 976 | | 561 |
Property-Casualty | | 117 | | 72 | | 67 | | 117 |
Interest rate | | 5 | | 9 | | 3 | | 5 |
Equity | | 112 | | 63 | | 64 | | 112 |
Real estate(1) | | 0 | | 0 | |
Currency(2) | | 0 | | 0 | |
Real estate(3) | | | 0 | | 0 |
Currency(4) | | | 0 | | 0 |
| | | | | | | | |
Life/Health | | 211 | | 230 | | 379 | | 211 |
Interest rate | | 1 | | 0 | | 4 | | 1 |
Equity | | 210 | | 230 | | 375 | | 210 |
Real estate(1) | | 0 | | 0 | |
Currency(2) | | 0 | | 0 | |
Real estate(3) | | | 0 | | 0 |
Currency(4) | | | 0 | | 0 |
| | | | | | | | |
Banking | | 77 | | 60 | | 66 | | 77 |
Interest rate | | 9 | | 8 | | 5 | | 9 |
Equity | | 61 | | 47 | | 61 | | 61 |
Real estate(1) | | 0 | | 0 | |
Currency(3) | | 7 | | 5 | |
Real estate(3) | | | 0 | | 0 |
Currency(4) | | | 0 | | 7 |
| | | | | | | | |
Asset Management(4) | | 0 | | 0 | |
Asset Management(5) | | | 0 | | 0 |
| | | | | | | | |
Corporate | | 156 | | 140 | | 464 | | 156 |
Interest rate | | 0 | | 0 | | 0 | | 0 |
Equity | | 122 | | 138 | | 34 | | 122 |
Real estate(1) | | 0 | | 0 | |
Currency(2) | | 34 | | 2 | |
| | | | | |
Total | | 561 | | 502 | |
| | | | | |
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. |
(2)(4)
| Foreign currency risks are mainly allocated to the Corporate segment (please seerefer to “Internal Risk Capital Framework—Scope” for further information). |
(3)(5)
| As commodity risk is not significant on the Group level, it is covered in our internal risk capital model within currency risk.
|
(4)
| The internal risk capital requirements for the Asset Management segment only reflect business risk (please seerefer to “Internal Risk Capital Framework—Scope” for further information). |
Credit Risk
Credit risk is defined as the potential loss in portfolio value over a given time horizon due to changes in the credit quality of exposures in the portfolio. Credit risk arises from claims against various obligors such as borrowers, counterparties,counter-parties, issuers, guarantors and insurers. Lossesinsurers, including all relevant product classes such as fixed-income investments, lending, credit insurance and reinsurance recoverables. Credit losses may resultarise from the following events:
ChangesDeterioration 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 risk); and
Failure in the settlement of transactions (settlement 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”)(EAD) and loss given default
(“LGD”) (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 pursuant toand concentrations within the portfolio based on a counterparty limit system applicable tothat is applied across the entire Allianz Group. TheCounter-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 aggregatesapplication.
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 having Group-wide significance such as credit insurance, lending, reinsurance recoverablesof the financial industry and to recommend short-term actions to our fixed income investments and serves as the basis for controlling the risk on an Allianz Group-wide basis.operating entities in light of this severe market volatility.
Allocated Internal Credit Risk Capital Byby 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)
| | | | | | | | | | | | |
As of December 31, | | Non-diversified | | | Group diversified | |
| | 2007 | | | 2006 | | | 2007 | | | 2006 | |
| | | € mn | | | € mn | | | € mn | | | € mn | |
Total Group | | 7,983 | | | 8,005 | | | 5,701 | | | 5,767 | |
Percentage of total Group internal risk capital | | 11 | % | | 11 | % | | 17 | % | | 16 | % |
Investment | | 5,839 | | | 5,949 | | | 4,128 | | | 4,307 | |
Reinsurance | | 2,144 | | | 2,056 | | | 1,573 | | | 1,460 | |
Property-Casualty | | 2,779 | | | 2,583 | | | 2,016 | | | 1,844 | |
Investment | | 832 | | | 719 | | | 588 | | | 521 | |
Reinsurance | | 1,947 | | | 1,864 | | | 1,428 | | | 1,323 | |
Life/Health | | 936 | | | 949 | | | 668 | | | 685 | |
Investment | | 739 | | | 757 | | | 523 | | | 548 | |
Reinsurance | | 197 | | | 192 | | | 145 | | | 137 | |
Banking | | 4,216 | | | 4,470 | | | 2,981 | | | 3,236 | |
Asset Management(1) | | 0 | | | 0 | | | 0 | | | 0 | |
Corporate | | 52 | | | 3 | | | 36 | | | 2 | |
| | | | | | | | | | | | |
| | | 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 |
(1)
| The internal risk capital requirements for the Asset Management segment only reflect business risk (please see “Internal Risk Capital Framework—Scope” for further information).
|
In spite of the overall difficult credit market worldwide in the second half of 2007, our internal credit risk capital remained rather stable in 2007 in comparison with 2006, mainly due to risk mitigating measures such as the closing of a non-investment grade commercial paper portfolio at Dresdner Bank early in 2007.
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.
ReinsuranceCredit risk—reinsurance and credit riskinsurance
Reinsurance creditThis 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, 2007,2008, it represented 61%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. When selectingA dedicated team selects our reinsurance partners we considerand 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, 2007, 77%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 23%24% of the total reinsurance recoverables at December 31, 2007, which is a reduction of 8% in non-rated exposure from December 31, 2006.2008. Reinsurance recoverables
without Standard & Poor’s rating include exposures to brokers, companies in run offrun-off and pools, where no rating is available, and companies rated by A.M. Best.
As of December 31, 2007, 13%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, 20072008
in € bn
(1) | Represents gross exposure broken down by reinsurer. |
Investment credit riskCredit risk—investment
As of December 31, 2007,2008, our operating entities in the U.S. and Germany accounted for 20%40% of the non-diversified internal risk capital allocated to our Property-Casualty, Life/Health and Corporate segments for investment credit investment risk.
We limit the credit risk of our fixed incomefixed-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+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, 2007,2008, approximately 95%94% of the fixed incomefixed-income investments of the insurance companies of the Allianz Group had an investment grade rating and approximately 90%88% of thesethe fixed-income investments were distributed among obligors that had been assigned at least an “A” rating by Standard & Poor’s.
Fixed incomeFixed-income investments by rating class as of
December 31, 20072008
fair values in € bn
In addition to these fixed incomefixed-income investments, Allianz Group also has also non-tradable mortgage loan portfolios in Germany and the U.S. AtAs of December 31, 2007, 98%2008, 97% of the German mortgage portfolio obligors were assigned a Standard & Poor’s equivalent investment grade rating of at least “A” 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-tradeablenon-tradable commercial mortgage loans since 1994, and we thus regard the portfolio as investment grade.grade based on additional stress test analysis. The North American Allianz insurance companies have a residential mortgage portfolio exposure of less than $2,000,000.$2 million.
Banking segmentand Asset Management segments
As of December 31, 2007, approximately half (51%) of total Group non-diversified internal credit risk capital was represented by Dresdner Bank. InFollowing 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.
We use our customers’ credit ratings as the central element for our approval, monitoring and control process. In this process, the creditworthiness of our customers is represented in the form of rating classes with each class representing a different average probability of default. We use a system with 16 distinct rating classes: 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 Basel II definition. We assess and improve our rating procedures on an ongoing basis.
The total credit risk exposuresale of Dresdner Bank, of €299 billion includes loan limits from lending business and market values of trading positions, which for derivatives is the positive replacement value plus risk-based add-ons to reflect possible future changes in market prices. At December 31, 2007, approximately 74.6% of totalwe do not consider credit risk exposure of Dresdner Bank was included inrelated to our continuing Banking operations to be significant at the rating classes I to VI, compared to 77.1% at December 31, 2006.
Credit profile of Dresdner Bank’s rated portfolio as of
December 31, 2007
in %
Despite the difficult market conditions in certain business segments—especially in the second half of the year—loan volumes and quality remained stable. The implementation of a value-oriented growth strategy as well as further enhancements in loan processes contributed to this stable development. At December 31, 2007, approximately 68% (2006: 68%) of Dresdner Bank’s loans (measured by limits) were with investment grade obligors.
In line with the observed portfolio quality, our total volume of problem loans and potential problem loans (measured by usage), which are two additional indicators for the quality of the loan portfolio, decreased from approximately €2.0 billion at December 31, 2006 to €1.8 billion at December 31, 2007.
Asset Management segmentGroup level.
As part of the investment management process, the Asset Management segment’s entities assess credit risk affecting their customers’ portfolios.
Though our asset managementAsset 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. Our asset management companiesThe Asset Management operating entities analyze the creditworthinesscredit-worthiness of their counterparties and set limits per counterparty based on objective criteria.
Actuarial Risk
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 –Interests)
| As of December 31, | | Non-diversified | | Group diversified | | |
| | Non-diversified | | Group diversified | |
As of December 31, | | 2007 | | 2006 | | 2007 | | 2006 | | | 2008(2) | | 2007(3) | | 2008(2) | | 2007(3) | |
| | € mn | | € mn | | € mn | | € mn | | | € mn | | € mn | | € mn | | € mn | |
Total Group | | 23,038 | | | 21,928 | | | 6,521 | | | 5,846 | | | 22,533 | | | 23,038 | | | 7,265 | | | 6,521 | |
Percentage of total Group internal risk capital | | 32 | % | | 29 | % | | 20 | % | | 16 | % | | 34 | % | | 32 | % | | 25 | % | | 20 | % |
Premium CAT | | 5,780 | | | 5,261 | | | 1,077 | | | 831 | | | 5,913 | | | 5,780 | | | 1,390 | | | 1,077 | |
Premium non-CAT | | 8,284 | | | 8,315 | | | 3,249 | | | 3,172 | | | 8,083 | | | 8,284 | | | 3,517 | | | 3,249 | |
Reserve | | 8,037 | | | 7,485 | | | 2,170 | | | 1,823 | | | 7,307 | | | 8,037 | | | 2,308 | | | 2,170 | |
Biometric | | 937 | | | 867 | | | 25 | | | 20 | | | 1,230 | | | 937 | | | 50 | | | 25 | |
Property-Casualty | | 21,705 | | | 20,981 | | | 6,389 | | | 5,807 | | | 20,851 | | | 21,705 | | | 7,072 | | | 6,389 | |
Life/Health | | 950 | | | 947 | | | 29 | | | 39 | | | 1,244 | | | 950 | | | 55 | | | 29 | |
Corporate(2)(4) | | 383 | | | 0 | | | 103 | | | 0 | | | 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 ofrelating to the reserves of Fireman’s Fund for the year 2003 and before. They are limited to US Dollar 1.1 billion. |
Internal reserveIn 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 changed the reinsurance structure and further improved ourdetermine internal risk capital model. The rise of the internal premium catastrophe risk capital was mainly due to an enhancement of the respective simulation models and their coverage.
figures on a quarterly basis. The table below presents the average internal risk capital calculated for actuarial risks over the four quarters of 20072008 and 2006,2007, 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, and After Group Diversification –and Including Discontinued Operations)
| | | | 2007 | | 2006 | | 2008 | | 2007 |
| | Over quarterly results | | Over quarterly results | | Over quarterly results | | Over quarterly results |
| | Average | | High | | Low | | Average | | High | | Low | | Average | | High | | Low | | Average | | High | | Low |
| | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | €mn | | € mn | | € mn | | € mn |
Total Group | | 6,311 | | 6,521 | | 6,111 | | 6,166 | | 6,752 | | 5,846 | | 6,597 | | 6,796 | | 6,421 | | 6,311 | | 6,521 | | 6,111 |
Premium CAT | | 1,007 | | 1,077 | | 953 | | 887 | | 993 | | 828 | | 1,245 | | 1,258 | | 1,218 | | 1,007 | | 1,077 | | 953 |
Premium non-CAT | | 3,210 | | 3,249 | | 3,143 | | 3,334 | | 3,677 | | 3,172 | | 3,333 | | 3,399 | | 3,264 | | 3,210 | | 3,249 | | 3,143 |
Reserve | | 2,071 | | 2,170 | | 1,984 | | 1,926 | | 2,063 | | 1,823 | | 1,979 | | 2,098 | | 1,872 | | 2,071 | | 2,170 | | 1,984 |
Biometric | | 23 | | 25 | | 21 | | 20 | | 20 | | 18 | | 41 | | 45 | | 35 | | 23 | | 25 | | 21 |
Property-Casualty segment
A substantial portion of the Property-Casualty segment’s non-diversified internal actuarial risk capital wasis assigned to our operating entities in Germany, Italy, France and the U.S. (47%(49% as of December 31, 2007)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 (for example, hail(e.g., flood risk in Germany)Italy), we use a scenario-based methodology.methods to estimate probable losses.
NearlyMore than a third (31%(36% as of December 31, 2007)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 European windstormwind-storms over Europe (including hail) is our largest exposure to natural catastrophe, followed by U.S. hurricanehurricanes and California earthquake.
Californian earthquakes. Our loss potential net of reinsurance for European wind-stormwindstorms is approximately €900 million,€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 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, (suchsuch as interruption of business operations due to a break-down of electricity or a flood),flood, damage caused by employee fraud or the losses caused by court cases. Operational risks do not include legal risk,
whereas strategic risk and reputational risks which 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 andexpenses. 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 –Interests)
| | | | | | | | | | | | |
As of December 31, | | Non-diversified | | | Group
diversified | |
| | 2007 | | | 2006 | | | 2007 | | | 2006 | |
| | | € mn | | | € mn | | | € mn | | | € mn | |
Total Group | | 18,365 | | | 18,145 | | | 7,233 | | | 6,716 | |
Percentage of total Group internal risk capital | | 25 | % | | 24 | % | | 22 | % | | 19 | % |
Property-Casualty | | 6,425 | | | 6,480 | | | 2,064 | | | 1,941 | |
Life/Health | | 4,288 | | | 3,896 | | | 1,840 | | | 1,509 | |
Banking | | 1,630 | | | 1,497 | | | 634 | | | 570 | |
Asset Management(1) | | 5,576 | | | 5,662 | | | 2,621 | | | 2,605 | |
Corporate | | 446 | | | 610 | | | 74 | | | 91 | |
(1)
| The internal risk capital requirements for the Asset Management segment only reflect business risk (please see “Internal Risk Capital Framework—Scope” for further information).
|
| | | | | | | | | | | | |
| | | 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 increase ofdecrease in internal business risk capital for the Life/ Health segment is mainly duerelated to expanding the scope of our internal risk capital model by systematically taking into account the unit-linked business in our operating entities. In addition, the regular update of assumptions (e.g., lapse and mortality rates) at the beginning of the year contributed to the overall increase, as we take into account the experience of the previous year when determining the adverse scenarios.
Internal business risk capital for the Asset Management segment remained to beis primarily driven by an update of the highest Group-diversified figure compared with other segments. This is due to the high volume of third party assets under management coupled with the inherent conservative risk factor incorporated within the aforementioned approach similarmodel used to Standard & Poor’s standard model. 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 through a bottom-up approach via a structured self assessment. Complementing our pro-active local management approach,Furthermore, operational losses are collected in a central loss database and andatabase. 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. |
Other Risks
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 segmentand Asset Management segments
In this segment,Due to the treasury function is responsible for liquidity managementsmall size of risk weighted assets and the risk function is responsible for monitoringtotal assets (as of December 31, 2008, €7.4 billion and €19.8 billion, respectively), liquidity risk for regulatory as well as internal purposes. Liquidity risk monitoring includes a reporting process for limit breaches and provisions for emergency planning. Liquidity risk measurementrelated to our continuing Banking operations is based on Dresdner Bank’s liquidity management system, which modelsnot significant at the maturities of all cash flows under different scenario assumptions and compiles a maturity mismatch profile (i.e., net cash flow for different maturities) taking into account available prime-rated securities as additional source of liquidity. Limits on liquidity gaps are established to manage short-term liquidity risk. Funding ratio limits are established for managing medium- and long-term structural liquidity risk for maturities of more than one year.Group level.
In the Asset Management segment,
We 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 thisreputational 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 developed to achieve those goals and the resources deployed to achieve those goals. Strategic risk also includes the ability of management to effectively analyze and react to external factors, which could impact the future direction of the relevant operating entity.
These risks are evaluated and analyzed quarterly in the same way as reputational risk.
Outlook
We plan to continue to strengthen our risk management framework and systems in 2008.2009. 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 2007, a key initiative started to consolidate infrastructure andaddition, we plan to establish a best practice technical platform. Once fully operational, this platform will allow for efficientan internal expert network dedicated to emerging insurance risks such as nanotechnology and auditable processes and enhanced capabilities to analyze, aggregate and manage risks across the Group.
In early 2008, we introduced our enhanced 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 addressing also 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 change, applied per January 1, 2008, is expected to result in an increase of Group diversified internal risk capital for the Life/Health segment by approximately €2.2 billion.
In 2007, we reviewed the risk factor incorporated within the model used to derive business risk capital for the Asset Management segment. As a result, a level of conservatism within this factor will be reduced starting in 2008 to better reflect the risk capital needs of this segment.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; therefore, 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 as well asand our risk management practices comply with the forthcoming internal andmodel supervisory requirements at an early stage, and accordingly,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 |
NoneNone.
| ITEM 15. | Controls and Procedures |
For its fiscal year ending December 31, 2007,2008, 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, 2007.
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”)(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, 2007.2008. 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, 2007.2008.
Report of Independent Registered Public Accounting Firm
To the Board of Management and Supervisory Board ofBoardof Allianz SE:
We have audited Allianz SESE’s and its subsidiariessubsidiaries’ (collectively, “the Allianz Group”) internal control over financial reporting as of December 31, 2007,2008, 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
191
(1)
| as issued by the IASB and adopted by the European Union
|
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, 2007,2008, 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, 20072008 and 2006,2007, 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, 20072008 including the disclosures provided in the Qualitative and Quantitative Disclosures about Market Risk on pages 167153 to 189,175, and our report dated March 19, 2008,31, 2009, expressed an unqualified opinion on those consolidated financial statements.
March 31, 2009
KPMG Deutsche Treuhand-Gesellschaft
AktiengesellschaftAG
Wirtschaftsprüfungsgesellschaft
Munich, Germany
March 19, 2008(formerly
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 2007, 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.
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.
The table set forth below contains aggregate fees billed for each of the last two fiscal years by KPMG DTG or KPMG DTG 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 of KPMG worldwide
| | | | |
| | | 2007 | | 2006 |
| | | € mn | | € mn |
Audit fees | | 49.0 | | 57.8 |
Audit-related fees | | 9.8 | | 8.1 |
Tax fees | | 4.2 | | 6.0 |
All other fees | | 4.1 | | 7.0 |
| | | | |
Total(1) | | 67.1 | | 78.9 |
| | | | |
(1)
| Fees attributable to KPMG DTG and affiliated entities for audit fees were € 24.3 mn (2006: € 24.7), audit-related fees € 7.9 mn (2006: € 3.6 mn), tax fees € 2.7 mn (2006: € 2.7 mn) and all other fees € 2.5 mn (2006: € 3.6 mn) for the year ended December 31, 2007. Effective October 1, 2007, KPMG operations in Germany and the United Kingdom became affiliated entities. Fee amounts pertaining to the year 2007 therefore include both entities.
|
Audit Fees KPMG billed the Allianz Group an aggregate of € 49.0 million in 2007 and € 57.8 million in 2006 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-relatedfees KPMG billed the Allianz Group an aggregate of € 9.8 million in 2007 and € 8.1 million in 2006 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 € 4.2 million in 2007 and € 6.0 million in 2006 for professional services, primarily for tax advice.
All other fees KPMG billed the Allianz Group an aggregate of € 4.1 million in 2007 and € 7.0 million in 2006 for other services, which consisted primarily of general consulting services and other services under the guidance of Allianz Group management.
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. 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 2007, 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, 2007.
| | | | | | | | | | | | |
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 1/1/07-1/31/07 | | — | | | — | | | N/A | | N/A |
February 2/1/07-2/28/07 | | — | | | — | | | | | |
March 3/1/07-3/31/07 | | — | | | — | | | | | |
April 4/1/07-4/30/07 | | — | | | — | | | | | |
May 5/1/07-5/31/07 | | — | | | — | | | | | |
June 6/1/07-6/30/07 | | — | | | — | | | | | |
July 7/1/07-7/31/07 | | — | | | — | | | | | |
August 8/1/07-8/31/07 | | — | | | — | | | | | |
September 9/1/07-9/30/07 | | — | | | — | | | | | |
October 10/1/07-10/31/07 | | — | | | — | | | | | |
November 11/1/07-11/30/07 | | 1,025,643 | (2) | | 154,07 | (2) | | | | |
December 12/1/07-12/31/07 | | — | | | — | | | | | |
| | | | | | | | | | | | |
Total | | 1,025,643 | | | 154,07 | | | | | |
| | | | | | | | | | | | |
(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.
|
PART III
ITEM 17. | Financial Statements |
Not applicable.
ITEM 18. | Financial Statements |
See page F-1 forward for the consolidated financial statements required by this item.
The following exhibits are filed as part of this annual report:
| | |
Exhibit
Number
| | Document
|
1.1
| | Statutes of Allianz SE, dated November 2007 |
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 |
ALLIANZ GROUP
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, 2007 and 2006, 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, 2007 including the disclosures provided in the Qualitative and Quantitative Disclosures about Market Risk on pages 167 to 189. 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, 2007 and 2006, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2007, 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), the Allianz Group’s internal control over financial reporting as of December 31, 2007, 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 19, 2008, expressed an unqualified opinion on the effectiveness of the Allianz Group’s internal control over financial reporting.
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.
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.
The following exhibits are filed as part of this annual report:
| | |
Exhibit
Number | | 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 |
ALLIANZ GROUP
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
March 19, 2008(formerly
KPMG Deutsche Treuhand-Gesellschaft
Aktiengesellschaft
Wirtschaftsprüfungsgesellschaft)
Allianz Group
Consolidated Balance Sheets
| As of December 31, | | | | 2007 | | 2006 | | | | 2008 | | 2007 |
| | | Note | | € mn | | € mn | | Note | | € mn | | € mn |
ASSETS | | | | | | | | | | | | |
Cash and cash equivalents | | 6 | | 31,337 | | 33,031 | | 7 | | 8,958 | | 31,337 |
Financial assets carried at fair value through income1) | | 7 | | 185,461 | | 198,992 | | 8 | | 14,240 | | 185,461 |
Investments2) | | 8 | | 286,952 | | 298,134 | | 9 | | 260,147 | | 286,952 |
Loans and advances to banks and customers | | 9 | | 396,702 | | 423,765 | | 10 | | 115,655 | | 396,702 |
Financial assets for unit linked contracts | | | | 66,060 | | 61,864 | |
Financial assets for unit-linked contracts | | | | | 50,450 | | 66,060 |
Reinsurance assets | | 10 | | 15,312 | | 19,360 | | 11 | | 14,599 | | 15,312 |
Deferred acquisition costs | | 11 | | 19,613 | | 19,135 | | 12 | | 22,563 | | 19,613 |
Deferred tax assets | | 41 | | 4,771 | | 4,727 | | 42 | | 3,996 | | 4,771 |
Other assets | | 12 | | 41,528 | | 38,001 | | 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 | | 13 | | 13,413 | | 13,072 | | 15 | | 11,451 | | 13,413 |
| | | | | | | | | | | | |
Total assets | | | | 1,061,149 | | 1,110,081 | | | | 955,576 | | 1,061,149 |
| | | | | | | | | | | | |
| As of December 31, | | | | 2007 | | 2006 | | | | 2008 | | 2007 |
| | | Note | | € mn | | € mn | | Note | | € mn | | € mn |
LIABILITIES AND EQUITY | | | | | | | | | | | | |
Financial liabilities carried at fair value through income | | 14 | | 126,053 | | 121,822 | | 16 | | 6,244 | | 126,053 |
Liabilities to banks and customers | | 15 | | 336,494 | | 376,565 | | 17 | | 18,451 | | 336,494 |
Unearned premiums | | 16 | | 15,020 | | 14,868 | | 18 | | 15,233 | | 15,020 |
Reserves for loss and loss adjustment expenses | | 17 | | 63,706 | | 65,464 | | 19 | | 63,924 | | 63,706 |
Reserves for insurance and investment contracts | | 18 | | 292,244 | | 287,032 | | 20 | | 296,557 | | 292,244 |
Financial liabilities for unit linked contracts | | 19 | | 66,060 | | 61,864 | |
Financial liabilities for unit-linked contracts | | | 21 | | 50,450 | | 66,060 |
Deferred tax liabilities | | 41 | | 3,973 | | 4,588 | | 42 | | 3,833 | | 3,973 |
Other liabilities | | 20 | | 49,324 | | 49,764 | | 22 | | 32,930 | | 48,031 |
Liabilities of disposal groups classified as held-for-sale | | | 4, 14 | | 411,816 | | 1,293 |
Certificated liabilities | | 21 | | 42,070 | | 54,922 | | 23 | | 9,544 | | 42,070 |
Participation certificates and subordinated liabilities | | 22 | | 14,824 | | 16,362 | | 24 | | 9,346 | | 14,824 |
| | | | | | | | | | | | |
Total liabilities | | | | 1,009,768 | | 1,053,251 | | | | 918,328 | | 1,009,768 |
| | | | | | | | | | | | |
Shareholders’ equity | | | | | 33,684 | | 47,753 |
| | | | | | | |
Shareholders’ equity | | 23 | | 47,753 | | 49,650 | |
Minority interests | | 23 | | 3,628 | | 7,180 | | | | 3,564 | | 3,628 |
| | | | | | | | | | | | |
Total equity | | | | 51,381 | | 56,830 | | 25 | | 37,248 | | 51,381 |
| | | | | | | | | | | | |
Total liabilities and equity | | | | 1,061,149 | | 1,110,081 | | | | 955,576 | | 1,061,149 |
| | | | | | | | | | | | |
1) | As of December 31, 2007, €23,1632008, €101 mn are pledged to creditors and can be sold or repledged (2006: €90,211(2007: €23,163 mn). |
2) | As of December 31, 2007, €7,3842008, €826 mn are pledged to creditors and can be sold or repledged (2006: €3,156(2007: €7,384 mn). |
Allianz Group
Consolidated Income Statements
| | | | | | 2007 | | 2006 | | 2005 | | | | | 2008 | | 2007 | | 2006 | |
| | | Note | | € mn | | € mn | | € mn | | | Note | | € mn | | € mn | | € mn | |
Premiums written | | | | 65,788 | | | 65,275 | | | 64,766 | | | | | 66,171 | | | 65,788 | | | 65,275 | |
Ceded premiums written | | | | (5,934 | ) | | (6,218 | ) | | (6,429 | ) | | | | (5,474 | ) | | (5,934 | ) | | (6,218 | ) |
Change in unearned premiums | | | | (492 | ) | | (533 | ) | | (655 | ) | | | | (253 | ) | | (492 | ) | | (533 | ) |
Premiums earned (net) | | 24 | | 59,362 | | | 58,524 | | | 57,682 | | | 26 | | 60,444 | | | 59,362 | | | 58,524 | |
Interest and similar income | | 25 | | 26,047 | | | 23,956 | | | 22,644 | | | 27 | | 19,072 | | | 18,624 | | | 17,430 | |
Income from financial assets and liabilities carried at fair value through income (net) | | 26 | | (1,247 | ) | | 940 | | | 1,163 | | | 28 | | (686 | ) | | (817 | ) | | (370 | ) |
Realized gains/losses (net) | | 27 | | 6,548 | | | 6,151 | | | 4,978 | | | 29 | | 3,603 | | | 6,008 | | | 5,921 | |
Fee and commission income | | 28 | | 9,440 | | | 8,856 | | | 8,162 | | | 30 | | 6,032 | | | 6,553 | | | 6,025 | |
Other income | | 29 | | 217 | | | 86 | | | 92 | | | 31 | | 408 | | | 217 | | | 61 | |
Income from fully consolidated private equity investments | | 30 | | 2,367 | | | 1,392 | | | 598 | | | 32 | | 2,549 | | | 2,367 | | | 1,392 | |
| | | | | | | | | | | | | | | | | | | | | | |
Total income | | | | 102,734 | | | 99,905 | | | 95,319 | | | | | 91,422 | | | 92,314 | | | 88,983 | |
| | | | | | | | | | | | | | | | | | | | | | |
Claims and insurance benefits incurred (gross) | | | | (46,409 | ) | | (45,523 | ) | | (46,802 | ) | | | | (48,287 | ) | | (46,409 | ) | | (45,523 | ) |
Claims and Insurance benefits incurred (ceded) | | | | 3,287 | | | 3,226 | | | 4,032 | | |
Claims and insurance benefits incurred (ceded) | | | | | 2,628 | | | 3,287 | | | 3,226 | |
Claims and insurance benefits incurred (net) | | 31 | | (43,122 | ) | | (42,297 | ) | | (42,770 | ) | | 33 | | (45,659 | ) | | (43,122 | ) | | (42,297 | ) |
Change in reserves for insurance and investment contracts (net) | | 32 | | (10,685 | ) | | (11,375 | ) | | (11,176 | ) | | 34 | | (5,140 | ) | | (10,685 | ) | | (11,375 | ) |
Interest expense | | 33 | | (6,672 | ) | | (5,759 | ) | | (6,377 | ) | |
Interest expenses | | | 35 | | (1,893 | ) | | (2,070 | ) | | (1,633 | ) |
Loan loss provisions | | 34 | | 113 | | | (36 | ) | | 109 | | | 36 | | (59 | ) | | (18 | ) | | (5 | ) |
Impairments of investments (net) | | 35 | | (1,272 | ) | | (775 | ) | | (540 | ) | | 37 | | (9,495 | ) | | (1,185 | ) | | (560 | ) |
Investment expenses | | 36 | | (1,057 | ) | | (1,108 | ) | | (1,092 | ) | | 38 | | (645 | ) | | (1,037 | ) | | (1,055 | ) |
Acquisition and administrative expenses (net) | | 37 | | (23,218 | ) | | (23,486 | ) | | (22,559 | ) | | 39 | | (17,922 | ) | | (18,788 | ) | | (18,468 | ) |
Fee and commission expenses | | 38 | | (2,673 | ) | | (2,351 | ) | | (2,312 | ) | | 40 | | (2,502 | ) | | (2,313 | ) | | (2,040 | ) |
Amortization of intangible assets | | | | (17 | ) | | (51 | ) | | (50 | ) | | | | (23 | ) | | (17 | ) | | (51 | ) |
Restructuring charges | | 49 | | (232 | ) | | (964 | ) | | (100 | ) | | | | (129 | ) | | (182 | ) | | (542 | ) |
Other expenses | | 39 | | (14 | ) | | 1 | | | (51 | ) | | 41 | | (12 | ) | | (17 | ) | | (13 | ) |
Expenses from fully consolidated private equity investments | | 40 | | (2,317 | ) | | (1,381 | ) | | (572 | ) | | 32 | | (2,470 | ) | | (2,317 | ) | | (1,381 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
Total expenses | | | | (91,166 | ) | | (89,582 | ) | | (87,490 | ) | | | | (85,949 | ) | | (81,751 | ) | | (79,420 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
Income before income taxes and minority interests in earnings | | | | 11,568 | | | 10,323 | | | 7,829 | | |
Income from continuing operations before income taxes and minority interests in earnings | | | | | 5,473 | | | 10,563 | | | 9,563 | |
Income taxes | | 41 | | (2,854 | ) | | (2,013 | ) | | (2,063 | ) | | 42 | | (1,287 | ) | | (2,572 | ) | | (1,720 | ) |
Minority interests in earnings | | | | (748 | ) | | (1,289 | ) | | (1,386 | ) | | | | (219 | ) | | (675 | ) | | (1,203 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
Net income | | | | 7,966 | | | 7,021 | | | 4,380 | | |
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 | | 50 | | 18.00 | | | 17.09 | | | 11.24 | | | 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 | | 50 | | 17.71 | | | 16.78 | | | 11.14 | | | 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 | |
Allianz Group
Consolidated Statements of Changes in Equity
| | | | Paid-in
capital | | Revenue
reserves | | Foreign
currency
translation
adjustments | | Unrealized
gains and
losses (net) | | Shareholders’
equity | | Minority
interests | | Total
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 | | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | |
Balance as of January 1, 2005, as previously reported | | 19,433 | | 5,893 | | | (2,634 | ) | | 7,303 | | | 29,995 | | | 7,696 | | | 37,691 | | |
Adjustments (Note 3) | | — | | (559 | ) | | — | | | (272 | ) | | (831 | ) | | 771 | | | (60 | ) | |
| | | | | | | | | | | | | | | | | | | | | |
Balance as of January 1, 2005 | | 19,433 | | 5,334 | | | (2,634 | ) | | 7,031 | | | 29,164 | | | 8,467 | | | 37,631 | | |
Balance as of January 1, 2006 | | | 21,616 | | 8,020 | | | (1,032 | ) | | 10,052 | | | 38,656 | | | 8,386 | | | 47,042 | |
Foreign currency translation adjustments | | — | | — | | | 1,601 | | | 50 | | | 1,651 | | | 33 | | | 1,684 | | | — | | — | | | (1,175 | ) | | (4 | ) | | (1,179 | ) | | (276 | ) | | (1,455 | ) |
Available-for-sale investments | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Unrealized gains and losses (net) arising during the year1) | | — | | — | | | — | | | 3,805 | | | 3,805 | | | 549 | | | 4,354 | | | — | | — | | | — | | | 4,731 | | | 4,731 | | | 20 | | | 4,751 | |
Transferred to net income on disposal2) | | — | | — | | | — | | | (1,114 | ) | | (1,114 | ) | | (133 | ) | | (1,247 | ) | |
Transferred to net income on disposal or impairment2) | | | — | | — | | | — | | | (1,744 | ) | | (1,744 | ) | | (146 | ) | | (1,890 | ) |
Cash flow hedges | | — | | — | | | — | | | 3 | | | 3 | | | — | | | 3 | | | — | | — | | | — | | | 1 | | | 1 | | | — | | | 1 | |
Miscellaneous | | — | | 370 | | | — | | | — | | | 370 | | | 141 | | | 511 | | | — | | 246 | | | — | | | — | | | 246 | | | 111 | | | 357 | |
| | | | | | | | | | | | | | | | | | | | | |
Total income and expense recognized directly in shareholders’ equity | | — | | 370 | | | 1,601 | | | 2,744 | | | 4,715 | | | 590 | | | 5,305 | | | — | | 246 | | | (1,175 | ) | | 2,984 | | | 2,055 | | | (291 | ) | | 1,764 | |
Net income | | — | | 4,380 | | | — | | | — | | | 4,380 | | | 1,386 | | | 5,766 | | | — | | 7,021 | | | — | | | — | | | 7,021 | | | 1,289 | | | 8,310 | |
Total recognized income and expense for the year | | — | | 4,750 | | | 1,601 | | | 2,744 | | | 9,095 | | | 1,976 | | | 11,071 | | |
Paid-in capital | | 2,183 | | — | | | — | | | — | | | 2,183 | | | — | | | 2,183 | | |
Treasury shares | | — | | 352 | | | — | | | — | | | 352 | | | — | | | 352 | | |
Transactions between equity holders | | — | | (1,742 | ) | | 1 | | | 277 | | | (1,464 | ) | | (1,328 | ) | | (2,792 | ) | |
Dividends paid | | — | | (674 | ) | | — | | | — | | | (674 | ) | | (729 | ) | | (1,403 | ) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of December 31, 2005 | | 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 disposal2) | | — | | — | | | — | | | (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 | | | — | | 7,267 | | | (1,175 | ) | | 2,984 | | | 9,076 | | | 998 | | | 10,074 | |
Paid-in capital | | 129 | | — | | | — | | | — | | | 129 | | | — | | | 129 | | | 129 | | — | | | — | | | — | | | 129 | | | — | | | 129 | |
Treasury shares | | — | | 910 | | | — | | | — | | | 910 | | | — | | | 910 | | | — | | 910 | | | — | | | — | | | 910 | | | — | | | 910 | |
Transactions between equity holders | | 3,653 | | (2,316 | ) | | (3 | ) | | 356 | | | 1,690 | | | (1,552 | ) | | 138 | | | 3,653 | | (2,316 | ) | | (3 | ) | | 356 | | | 1,690 | | | (1,552 | ) | | 138 | |
Dividends paid | | — | | (811 | ) | | — | | | — | | | (811 | ) | | (652 | ) | | (1,463 | ) | | — | | (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 | | | 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 | ) | | — | | — | | | (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 | ) | | — | | — | | | — | | | (1,123 | ) | | (1,123 | ) | | (41 | ) | | (1,164 | ) |
Transferred to net income on disposal2) | | — | | — | | | — | | | (2,484 | ) | | (2,484 | ) | | (101 | ) | | (2,585 | ) | |
Transferred to net income on disposal or impairment2) | | | — | | — | | | — | | | (2,484 | ) | | (2,484 | ) | | (101 | ) | | (2,585 | ) |
Cash flow hedges | | — | | — | | | — | | | 35 | | | 35 | | | — | | | 35 | | | — | | — | | | — | | | 35 | | | 35 | | | — | | | 35 | |
Miscellaneous | | — | | (77 | ) | | — | | | — | | | (77 | ) | | 116 | | | 39 | | | — | | (77 | ) | | — | | | — | | | (77 | ) | | 116 | | | 39 | |
| | | | | | | | | | | | | | | | | | | | | |
Total income and expense recognized directly in shareholders’ equity | | — | | (77 | ) | | (1,378 | ) | | (3,574 | ) | | (5,029 | ) | | (240 | ) | | (5,269 | ) | | — | | (77 | ) | | (1,378 | ) | | (3,574 | ) | | (5,029 | ) | | (240 | ) | | (5,269 | ) |
Net income | | — | | 7,966 | | | — | | | — | | | 7,966 | | | 748 | | | 8,714 | | | — | | 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 | | | — | | 7,889 | | | (1,378 | ) | | (3,574 | ) | | 2,937 | | | 508 | | | 3,445 | |
Paid-in capital | | 158 | | — | | | — | | | — | | | 158 | | | — | | | 158 | | | 158 | | — | | | — | | | — | | | 158 | | | — | | | 158 | |
Treasury shares | | — | | 269 | | | — | | | — | | | 269 | | | — | | | 269 | | | — | | 269 | | | — | | | — | | | 269 | | | — | | | 269 | |
Transactions between equity holders | | 2,765 | | (6,968 | ) | | (68 | ) | | 652 | | | (3,619 | ) | | (3,707 | ) | | (7,326 | ) | | 2,765 | | (6,968 | ) | | (68 | ) | | 652 | | | (3,619 | ) | | (3,707 | ) | | (7,326 | ) |
Dividends paid | | — | | (1,642 | ) | | — | | | — | | | (1,642 | ) | | (353 | ) | | (1,995 | ) | | — | | (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 | | | 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, 20072008 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: deferred tax benefit ofmn; 2006: €478 mn; 2005: deferred tax charge of €568 mn). |
2) | During the year ended December 31, 2007,2008, 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:mn; 2006: income tax charge of €308 mn; 2005: €303 mn). |
Allianz Group
Consolidated Statements of Cash Flows
| | | | 2007 | | 2006 | | 2005 | | | 2008 | | 2007 | | 2006 | |
| | | € mn | | € mn | | € mn | | | € mn | | € mn | | € mn | |
Summary: | | | | | | | | | | | | |
Net cash flow provided by operating activities | | 12,706 | | | 20,681 | | | 47,200 | | | 25,278 | | | 11,524 | | | 20,099 | |
Net cash flow provided by (used in) investing activities | | (4,643 | ) | | (34,866 | ) | | (22,811 | ) | |
Net cash flow used in investing activities | | | (6,236 | ) | | (2,357 | ) | | (33,951 | ) |
Net cash flow provided by (used in) financing activities | | (9,642 | ) | | 15,647 | | | (8,442 | ) | | (11,285 | ) | | (10,746 | ) | | 15,314 | |
Effect of exchange rate changes on cash and cash equivalents | | (115 | ) | | (78 | ) | | 72 | | | 102 | | | (115 | ) | | (78 | ) |
| | | | | | | | | | |
Change in cash and cash equivalents | | (1,694 | ) | | 1,384 | | | 16,019 | | | 7,859 | | | (1,694 | ) | | 1,384 | |
Cash and cash equivalents at beginning of period | | 33,031 | | | 31,647 | | | 15,628 | | | 31,337 | | | 33,031 | | | 31,647 | |
| | | | | | | | | | |
Cash and cash equivalents at end of period | | 31,337 | | | 33,031 | | | 31,647 | | | 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 | | 7,966 | | | 7,021 | | | 4,380 | | |
Adjustments to reconcile net income to net cash flow provided by 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 | | 748 | | | 1,289 | | | 1,386 | | | 262 | | | 748 | | | 1,289 | |
Share of earnings from investments in associates and joint ventures | | (521 | ) | | (287 | ) | | (253 | ) | | (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 | | (5,276 | ) | | (5,376 | ) | | (4,438 | ) | | 5,710 | | | (5,276 | ) | | (5,376 | ) |
Other investments, mainly financial assets held for trading and designated at fair value through in-come | | 681 | | | (938 | ) | | (1,546 | ) | |
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 | | 891 | | | 983 | | | 787 | | | 640 | | | 891 | | | 983 | |
Loan loss provision | | (113 | ) | | 36 | | | (109 | ) | |
Loan loss provisions | | | 385 | | | (113 | ) | | 36 | |
Interest credited to policyholder accounts | | 3,225 | | | 3,126 | | | 2,748 | | | 4,008 | | | 3,225 | | | 3,126 | |
Net change in: | | | | | | | | | | | | |
Financial assets and liabilities held for trading | | 18,948 | | | 19,265 | | | 10,371 | | | 6,443 | | | 18,948 | | | 19,265 | |
Reverse repurchase agreements and collateral paid for securities borrowing transactions | | 30,215 | | | (27,294 | ) | | 72,504 | | | 32,463 | | | 30,215 | | | (27,294 | ) |
Repurchase agreements and collateral received from securities lending transactions | | (48,143 | ) | | 14,188 | | | (47,688 | ) | | (30,763 | ) | | (48,143 | ) | | 14,188 | |
Reinsurance assets | | 716 | | | 663 | | | 428 | | | 818 | | | 716 | | | 663 | |
Deferred acquisition costs | | (932 | ) | | (1,434 | ) | | (1,753 | ) | | (1,353 | ) | | (932 | ) | | (1,434 | ) |
Unearned premiums | | 341 | | | 593 | | | 876 | | | 345 | | | 341 | | | 593 | |
Reserves for losses and loss adjustment expenses | | (389 | ) | | (188 | ) | | 2,621 | | | 527 | | | (389 | ) | | (188 | ) |
Reserves for insurance and investment contracts | | 6,675 | | | 7,025 | | | 7,634 | | | 390 | | | 6,675 | | | 7,025 | |
Deferred tax assets/liabilities | | 55 | | | 292 | | | (39 | ) | | 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) | | (2,381 | ) | | 1,717 | | | (709 | ) | | (6,455 | ) | | (2,381 | ) | | 1,717 | |
Subtotal | | 4,740 | | | 13,662 | | | 42,820 | | | 27,722 | | | 3,558 | | | 13,078 | |
| | | | | | | | | | | | | | | | | | |
Net cash flow provided by operating activities | | 12,706 | | | 20,681 | | | 47,200 | | | 25,278 | | | 11,524 | | | 20,099 | |
| | | | | | | | | | | | | | | | | | |
Cash flow from investing activities | | | | | | | |
Proceeds from the sale, maturity or repayment of: | | | | | | | |
Financial assets designated at fair value through income | | 8,219 | | | 7,207 | | | 9,981 | | |
Available-for-sale investments | | 130,421 | | | 118,747 | | | 137,915 | | |
Held-to-maturity investments | | 317 | | | 336 | | | 534 | | |
Investments in associates and joint ventures | | 1,902 | | | 730 | | | 3,938 | | |
Non-current assets and disposal groups held for sale | | 4 | | | 2,253 | | | 792 | | |
Real estate held for investment | | 889 | | | 1,376 | | | 1,091 | | |
Loans and advances to banks and customers (purchased loans) | | 8,689 | | | 8,365 | | | 5,195 | | |
Property and equipment | | 607 | | | 453 | | | 113 | | |
| | | | | | | | | | |
Subtotal | | 151,048 | | | 139,467 | | | 159,559 | | |
| | | | | | | | | | |
Allianz Group
Consolidated Statements of Cash Flows—(Continued)
| | | | | | | | | |
| | | 2007 | | | 2006 | | | 2005 | |
| | | € mn | | | € mn | | | € mn | |
Payments for the purchase or origination of: | | | | | | | | | |
Financial assets designated at fair value through income | | (11,220 | ) | | (9,680 | ) | | (11,278 | ) |
Available-for-sale investments | | (129,060 | ) | | (131,290 | ) | | (161,418 | ) |
Held-to-maturity investments | | (301 | ) | | (280 | ) | | (255 | ) |
Investments in associates and joint ventures | | (1,509 | ) | | (491 | ) | | (934 | ) |
Non-current assets and disposal groups held for sale | | (1,073 | ) | | — | | | (178 | ) |
Real estate held for investment | | (430 | ) | | (860 | ) | | (1,064 | ) |
Loans and advances to banks and customers (purchased loans) | | (12,286 | ) | | (10,598 | ) | | (5,493 | ) |
Property and equipment | | (832 | ) | | (1,588 | ) | | (1,126 | ) |
Subtotal | | (156,711 | ) | | (154,787 | ) | | (181,746 | ) |
Business combinations (Note 4): | | | | | | | | | |
Proceeds from sale, net of cash disposed | | 372 | | | — | | | 2,029 | |
Acquisition, net of cash acquired | | (670 | ) | | (344 | ) | | — | |
Change in other loans and advances to banks and customers (originated loans) | | 43 | | | (19,224 | ) | | (1,877 | ) |
Other (net) | | 1,275 | | | 22 | | | (776 | ) |
| | | | | | | | | |
Net cash flow used in investing activities | | (4,643 | ) | | (34,866 | ) | | (22,811 | ) |
| | | | | | | | | |
Cash flow from financing activities | | | | | | | | | |
Policyholders’ account deposits | | 12,810 | | | 13,234 | | | 14,118 | |
Policyholders’ account withdrawals | | (9,365 | ) | | (8,432 | ) | | (5,560 | ) |
Net change in liabilities to banks and customers | | 9,007 | | | 13,524 | | | (19,167 | ) |
Proceeds from the issuance of certificated liabilities, participation certificates and subordinated liabilities | | 59,191 | | | 103,429 | | | 115,422 | |
Repayments of certificated liabilities, participation certificates and subordinated liabilities | | (71,627 | ) | | (103,946 | ) | | (111,737 | ) |
Cash inflow from capital increases | | 115 | | | 98 | | | 2,159 | |
Transactions between equity holders | | (7,326 | ) | | (70 | ) | | (2,932 | ) |
Dividends paid to shareholders | | (1,995 | ) | | (1,463 | ) | | (1,403 | ) |
Net cash from sale or purchase of treasury shares | | (34 | ) | | (458 | ) | | 2,061 | |
Other (net) | | (418 | ) | | (269 | ) | | (1,403 | ) |
| | | | | | | | | |
Net cash flow provided by (used in) financing activities | | (9,642 | ) | | 15,647 | | | (8,442 | ) |
| | | | | | | | | |
Supplementary information on the consolidated statement of cash flows | | | | | | | | | |
Income taxes paid | | (2,856 | ) | | (2,241 | ) | | (1,644 | ) |
Dividends received | | 2,526 | | | 1,946 | | | 1,476 | |
Interest received | | 22,256 | | | 20,552 | | | 19,770 | |
Interest paid | | (6,697 | ) | | (5,556 | ) | | (6,332 | ) |
| | | |
Significant non-cash transactions: | | | | | | | | | |
Settlement of exchangeable bonds issued by Allianz Finance II B.V. with shares: | | | | | | | | | |
Available-for-sale investments | | (812 | ) | | (1,074 | ) | | — | |
Certificated liabilities | | (812 | ) | | (1,074 | ) | | — | |
Novation of quota share reinsurance agreement: | | | | | | | | | |
Reinsurance assets | | (2,469 | ) | | (1,111 | ) | | (1,117 | ) |
Deferred acquisition costs | | 145 | | | 76 | | | 76 | |
Payables from reinsurance contracts | | (2,324 | ) | | (1,035 | ) | | (1,041 | ) |
Effects from the merger of RAS with and into Allianz AG (Note 4): | | | | | | | | | |
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 4): | | | | | | | | | |
Revenue reserves | | (1,843 | ) | | — | | | — | |
Unrealized gains and losses (net) | | 146 | | | — | | | — | |
Minority interests | | (1,068 | ) | | — | | | — | |
Paid-in capital | | 2,765 | | | — | | | — | |
Proceeds from sales of available-for-sale investments: | | | | | | | | | |
Debt securities | | 89,355 | | | 89,813 | | | 107,929 | |
Equity securities | | 27,485 | | | 21,696 | | | 24,800 | |
| | | | | | | | | |
Total | | 116,840 | | | 111,509 | | | 132,729 | |
| | | | | | | | | |
| | | | | | | | | |
| | | 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 first 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, 2008, 2007 and 2006 that are included in the consolidated statement of cash flows above.
| | | | | | | | | |
| | | 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 Nature of operations and basis of presentation
Nature of operations
Allianz SE and its subsidiaries (“the Allianz Group”) have global Property-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, Ger-many.Germany. The parent company of the Allianz Group is Allianz SE, Munich. It is recorded in the Commercial Register of the municipal court Munich under its registered address at KöniginstraßKoeniginstraße 28, 80802 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”)(EU) regulations in accordance with section 315a of the German Commercial Code (“HGB”)(HGB). The consolidated financial statements of the Allianz Group have also been prepared in accordance with IFRS as issued by the International Accounting Standard Board (“IASB”)(IASB). The Allianz Group’s application of IFRSsIFRS 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 standards and interpretationsIFRS issued by the IASB that are compulsory as of December 31, 2007.2008. IFRS comprise International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), and interpretations developed by the International Financial Reporting Interpretations Committee (IFRIC) or the former Standing Interpretations Committee (SIC).
IFRS does not provide specific guidance concerning all aspects of the recognition and measurement of insurance contracts, reinsurance contracts and reinsurance contracts.investment contracts with discretionary participation features. Therefore, as envisioned in IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, the provisions embodied under accounting principles generally accepted in the United States of America (“US GAAP”)(U.S. GAAP) have been applied to those aspects where specific guidance is not provided by IFRS 4, Insurance Contracts. See
The accounting policies adopted are consistent with those of the previous financial year except for recently adopted IFRSs effective January 1, 2008 as described in Note 3 regarding changes to IFRS effective Janu-ary 1, 2007. 3.
The consolidated financial statements are prepared as of and for the year ended December 31, and presented in millions 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 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.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 allocates 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.
Any 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 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
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
recorded at the minority’s proportion of the pre-acquisition carrying amounts of the identifiable assets and liabilities.
The 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.
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.
Associated enterprises and joint ventures
Associated enterprises are entities over which the Allianz 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 %50% of the voting rights.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 investment 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 in 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
Translation from any foreign currency into functional currency
The individual financial statements of each of the Allianz Group’s subsidiaries are prepared in the prevailing currency in the environment where the subsidiary conducts its ordinary activities (its functional currency). Transactions recorded in currencies other than the functional currency (foreigncurrencies)(foreign currencies) are recorded at the exchange rate of exchangeprevailing 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.
CurrencyForeign 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 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.
Use of estimates and assumptions
The preparation of consolidated financial statements requires the Allianz Group to make estimates and assumptions that affect items reported in the consolidated balance sheets and consolidated income statements, and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates. The most significant accounting estimates are associated with the reserves for loss and loss adjustment expenses, reserves for insurance and investment contracts, loan loss allowance, fair value and impairments of financial instruments, goodwill, deferred acquisition costs, deferred taxes and reserves for pensions and similar obligations.
Cash 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 extent 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.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Real estate held for investment
Real estate held for investment (i.e., real propertyestate and rights equivalent rightsto real property and buildings, including buildings on leased land) is carried at cost less accumulated depreciation and impairments. 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, the fair value of real estate held for investment 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 as incurred.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Financial assets and liabilitiesinstruments
RecognitionClassification, recognition and classificationinitial measurement
Financial 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 advances to banks and customers or as derivative financial instruments used for hedging. Furthermore financial assets comprise funds held by others under reinsurance contracts assumed and financial assets for unit-linked contracts.
Financial liabilities within the scope of IAS 39 are either 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 the 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.
Financial assets are either carried at fair value through income, or they are categorized into available-for-sale investments, held-to-maturity investments, loans and advances to banks and customers, financial assets for unit-linked assets or funds held by others under reinsurance contracts assumed.
Fair value of financial assets and liabilitiesinstruments
The Allianz Group applies the IAS 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 including 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’sGroup´s own credit spread on financial liabilities carried at fair value is calculated by discounting future cash flows at a rate which incorporates the group’sAllianz Group´s observable credit spreads.spread.
TheNo active markets—valuation techniques
If the market for a financial instrument is not active, the fair values of financial instruments that are not traded in an active market arevalue is determined by using valuation techniques. The valuation techniques used 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 identicalinstrumentsidentical 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. 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”)(ABS)-based products declined significantly.
For the portfolio of ABS-based products primarily consisting of residential mortgage backed securities (“RMBS”) and collateralized debt obligations (“CDOs”) that were affected by the financial market crisis, the availability of price quotations from a functioning market werewas limited during the second half of 20072008 and as of December 31, 2007.2008. Therefore the valuations forvaluation of these financial instruments were derivedis mainly based on thequoted market prices or current market values of very similar same financial instruments. The market quotationsvalues used were taken from other
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
market participants and competitors, which management believesthat are representative of the market. If this were not possible due to a lack of price quotations, the vintage and rating-specific valuationsIn all other cases Allianz Group used model-based valuation techniques. Regardless of the ABX.HE (Home Equity) index were used. 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 financial instruments are subject to the normal impairment procedures.
Amortized cost of financial instruments
The Allianz Group strictly adheredamortized cost of a financial instrument is the amount at which the financial instrument is measured at initial recognition minus principal repayments, plus or minus the cumulative amortization using the effective interest rate method of any difference between that initial amount and the maturity 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 these ABX.HE valuations.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 financial instrument with all the other requirements regarding the calculation of fair value. A profit or loss should be recognized after initial recognition only to the extent that it arises from a change in a factor that market participants would consider in setting a price.
Subsequent 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.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Financial assets and liabilities are classified as held for trading consist of debt and equity securities, promissory notes and precious metal holdings, whichif they have been principally acquired principally 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 assets held for trading are reported at fair value. Changes in fair value are recognized directly in net income for the period.
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 recordedmeasured at fair value with changes in fair value recorded in the consolidated income statement. The recognized net income forgains and losses include dividends and interest of the period.underlying financial instruments. A financial instrument may only be designated at inception as held at fair value through income and cannot be subsequently be changed.
Available-for-sale investments
Available-for-sale investments arecomprise debt and equity securities that are designated as available-for-sale or are not classified as held-to-maturity, loans and advances to banks and
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
customers, or financial assets carried at fair value through income. Available-for-sale securitiesinvestments 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.
Available-for-sale equity securities include investments in limited partnerships. The Allianz Group records its investments in limited partnershipsatpartnerships at cost, where the ownership interest is less than 20%, as the limited partnerships do not have a quoted market price and fair value cannot be reliably measured. The Allianz Group accounts for its investments in limited partnerships with ownership interests of 20% or greater using the equity method due to the rebuttable presumption that the limited partner has no control over the limited partnership.
Held-to-maturity investments
Held-to-maturity investments are debt securities with fixed or determinable payments and fixed maturities for which the Allianz Group has the positive intent and ability to hold to maturity. These securities are recorded at amortized cost using the effective interest method over the life of the security, less any impairment losses. Amortization of premium or discount is included in interest and similar income.
Impairment Gains and losses from derecognition and 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 security are not considered collectible. Typically this is due to deteriorationrecognized in the creditworthiness of the issuer. A decline in fair value below amortized cost due to changes in risk free interest rates does not 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% and 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
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
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 theconsolidated income statement.
Loans and advances to banks and customers
Loans and advances to banks and customers are non-derivative financial assets with fixed or determinable payments, that are not quoted in an active market, are not classified as 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 using the 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 lifeslives 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 termsareterms 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”) agreements and collateral paid for securities borrowing transactions. Reverse repo transactions involve the purchase of securities by the Allianz Group from a counterparty, subject to a simultaneous obligation to sell these securities at a certain later date, at an agreed upon price. If control of the securities remains with the counterparty over the entire lifetime of the agreement of the transaction, the securities concerned are not recognized as assets. The amounts of cash disbursed are recorded under loans and advances to banks and customers. Interest income on reverse repo agreements is accrued over the duration of the agreements and is reported in interest and similar income.
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 with respect to finance leases.
Funds held by others under reinsurance contracts
Funds held by others under reinsurance contracts assumed relate to cash deposits to which the Allianz Group is 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 recoverable.
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 banks 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 similar 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 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
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
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 is recognized as the difference between the loan’s carrying amount and the present value of future cash flows, which includes all contractual interest and principal payments, discounted at the loan’s original effective interest rate. The loan loss allowance is reported as a reduction of loans and advances to banks and customers. Provisions for contingent liabilities, such as guarantees, loan commitments and other obligations are reported as other liabilities.
Loans 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 total loan loss allowance.
Specific allowances are 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.
General 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 category.
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. Loans with specific allowances are excluded from the country risk rating system, and countries provided for within the country risk allowance are excluded from the determination of the transfer risk component of the general allowance. Country risk allowances are presented within the specific or general risk category, as 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 assetsReclassification of financial instruments
Once a financial instrument has been classified into a particular category at initial recognition, transfers into or out of that category from or to another category are impossible for unit linked contractssome 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 for unit linked contractsand liabilities are recorded at fair value with changesoffset and the net amount reported in fair value recorded inthe 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 income together withbasis, or to realise the offsetting changes in fair value ofasset and settle the corresponding financial liabilities for unit linked contracts.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)liability simultaneously.
Funds held by others under reinsurance contractsDerecognition of financial instruments
Funds held by others under reinsurance contracts assumed relateA financial asset is derecognized when the contractual rights to the cash deposits to whichflows from the financial asset expire or the Allianz Group is entitled, but whichtransfers the ceding insurer retains as collateral for future obligationsasset and substantially all of the Allianz Group. The cash deposits are recorded at face value, less any impairments for balances that are deemed to be not recoverable.
Liabilities to banksrisks and customers
Liabilities to banksrewards of ownership or transfers the asset and customers include 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. Ifloses control of the securities remains with the Allianz Group over the entire lifetime of the transaction, the securities concerned are notasset. A financial liability is derecognized by the Allianz Group. The proceeds of the sale are reported under liabilities to banks or customers. Interest expense from repo transactionswhen it is accrued over the duration 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 customers. Fees received are recognized as interest income.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 orfinancialor 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 hybrid financial instruments.
For derivative financial instruments used in 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 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 accounting hedges are recognized as follows:
Fair value hedges
Fair value hedges are hedges of a change in the fair value of a recognized financial asset or liability or a firm commitment due to a specified risk. Changes in the fair value of a derivative financial instrument, together with the 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 offset the exposure to variability in expected future cash flows that is attributable to a particular risk associated with a recognized asset or liability or a forecasted transaction. Changes in the fair value of a derivative financial instrument 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. Any ineffectiveness of the cash flow hedge is recognized directly in net income.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
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. The proportion of gains or losses arising from valuation of the derivative financial instrument, which is determined to be an effective hedge, is recognized in unrealized gains and losses (net) in shareholders’ equity, while any ineffectiveness is recognized 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. After a fair value hedge is discontinued, the Allianz Group continues to report the derivative financial instrument at its fair value with 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. After hedge accounting for a cash flow hedge is discontinued, the Allianz Group continues to record the derivative financial instrument at its fair value; any net unrealized gains and losses accumulated in shareholders’ equity are recognized when the planned transaction occurs. After 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 the Allianz Group intends to settle on a net basis.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Derecognition ofDisclosures relating to financial assets and liabilitiesinstruments
AIFRS 7 requires to group financial asset is derecognized when the contractual rightsinstruments into classes that are appropriate to the cash flows fromnature of the financialasset expire orinformation 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 those financial assets and financial liabilities within the scope of IAS 39. Unrecognized financial instruments are financial 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 IAS 39.
The enlarged risk disclosure requirements of IFRS 7 are reflected in the Quantitative and Qualitative Disclosures about Market Risk (ITEM 11) on pages 153 to 175 in this 20-F.
The requirements of IAS 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 an integral part of the audited
consolidated financial statements.
Notes to 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 liability is derecognized when it is extinguished.Group’s Consolidated Financial Statements—(Continued)
The following table summarizes the relations between balance sheet positions, classes according to IFRS 7 and categories according to IAS 39.
| | | | |
| | Measurement basis | | IAS 39 category |
Balance sheet line item and IFRS 7 classes of financial assets | | | | |
| | |
Financial assets | | | | |
| | |
Cash and cash equivalents | | Nominal value | | — |
| | |
Financial assets carried at fair value through income | | | | |
– Financial assets held for trading | | Fair value | | Held for trading |
– Financial assets designated at fair value through income | | Fair value | | Designated at fair value through income |
| | |
Investments | | | | |
– Available-for-sale investments | | Fair value | | Available-for-sale investments |
– Held-to-maturity investments | | Amortized cost | | Held-to-maturity investments |
| | |
Loans and advances to banks and customers | | Amortized cost | | Loans and receivables |
| | |
Financial assets for unit-linked contracts | | Fair value | | — |
| | |
Other Assets | | | | |
– Derivative financial instruments used for hedging that meet the criteria for hedge accounting and firm commitments | | Fair value | | — |
| | |
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 | | Fair value | | Held for trading |
– Financial liabilities designated at fair value through income | | Fair value | | Designated at fair value through income |
| | |
Liabilities to banks and customers | | Amortized cost | | Other liabilities - at amortized cost |
| | |
Reserves for insurance and investment contracts | | | | |
– Investment contracts with policyholders | | Fair value | | — |
| | |
Financial liabilities for unit-linked contracts | | Fair value | | — |
| | |
Other Liabilities | | | | |
– Derivative financial instruments used for hedging purposes that meet the criteria for hedge accounting and firm commitments | | Fair value | | — |
– Financial liabilities for puttable equity instruments | | Redemption amount | | — |
| | |
Certificated liabilities | | Amortized cost | | Other liabilities - at amortized cost |
| | |
Participation certificates and subordinated liabilities | | Amortized cost | | Other liabilities - at amortized cost |
| | |
Off-balance sheet | | | | |
| | |
Financial guarantees | | Nominal value | | — |
| | |
Irrevocable loan commitments | | Nominal value | | — |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Insurance, investment and reinsurance contracts
Insurance and investment contracts
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
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
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 policyholderspolicy-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”)(DAC), present value of future profits (“PVFP”)(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”)(EGP) or estimated gross margin (“EGM”)(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%12.0% to 15%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 2.4%2.0% and 9.8%18.7%.
Deferred sales inducements on insurance contracts that meet the following criteria are deferred and amortized using the same methodology and assumptions used tofor 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
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
recorded as unearned premiums. These premiums are earned in subsequent years in relation to the insurance coverage provided.
For long-duration insurance contracts, in accordance with SFAS 97, amounts charged as consideration for origination of the contract (i.e.
(i.e. initiation or front-end fees) are reported 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”)(LAE) on claims which have occurred but are not yet settled. Reserves for loss and loss adjustment expenses fallintofall into two categories: case reserves for reported claims and incurred but not reported reserves (“IBNR”)(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 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 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 current 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.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
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 become known very slowly and continue to evolve. 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 reserves for loss and loss adjustment expenses for asbestos claims in the United States were reviewed by independent actuaries during the year endyear-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 linkedunit-linked contracts
Reserves 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 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 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 formortality,for mortality, morbidity and interest rates that are guaranteed in the contract or used in determining the policyholder dividends (or “premium refunds”). DAC and PVFP for traditional participating insurance products are amortized over the expected life of the contracts in proportion to 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 (or “premium refunds”).dividends. The effect of changes in EGMs are recognized in net income in the period revised.
The aggregate policy reserves for universal lifetypelife-type insurance contracts and unit linkedunit-linked insurance contracts in accordance with SFAS 97 are equal to the account balance, which represents premiums received and investment return credited to the policy less deductions for mortality costs and expense charges. DAC and PVFP for universal life-type and investment contracts are amortized over the expected life of the contracts in proportion to 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 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 actuaries in setting such assumptions includes, but is not limited to, pricing assumptions, available experience studies, and profitability analyses.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
The interest rate assumptions used in the calculation of deferred acquisition costs and aggregate policy reserves were as follows:
| | | | | | |
| | | Long-
duration
insurance
contracts
(SFAS 60) | | | Traditional
participating
insurance
contracts
(SFAS 120) | |
Deferred acquisition costs | | 2.5 – 66.0 | % | | 53.1 – 65.2 | % |
Aggregate policy reserves | | 2.5 – 66.0 | % | | 2.82.0 – 4.3 | % |
Aggregate 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 are equal to the account balance, which represents premiums received and investment returns credited to the policy less deductions for mortality costs and expense charges. The aggregate policy reserves for non unit linkedunit-linked investment contracts are equal to amortized cost, or account balance less DAC. 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.
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 IFRSs 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 for 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 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) | | investments | | 90 | % |
Health1) | | investmentsall sources of profit | | 80 | % |
France | | | | | |
Life | | all sources of Profitprofit | | 80 | % |
Italy | | | | | |
Life | | investments | | 85 | % |
Switzerland | | | | | |
Group Life | | all sources of Profitprofit | | 90 | % |
Individual Life | | all sources of Profitprofit | | 100 | % |
1) | additionally an adequate participation in75% of risk result and 50% of all other sources of profit.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 assets
Other assets primarily consist of receivables, prepaid expenses, derivative financial instruments used for hedging that meet the criteria for hedge accounting, and firm commitments, property and equipment assets held for sale and other assets. Receivables are generally recorded at face value less any payments received, net of valuation allowances.
Property and equipment includes real estate held for own use, equipment and software.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Real estate held for own use (e.g., real propertyestate 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.
Non-current assets and disposal groups classified as held-for-sale and discontinued operations
Non-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 immediate 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 asset or disposal group and the sale should be expected to qualify for recognition as a completed 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 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 held-for-sale. A gain or loss not previously recognized by the date of the sale shall be recognized at the date of derecognition.
A discontinued operation is defined as a component of an entity that either has been disposed of or is classified as held-for-sale and
represents a major line of business or geographical area of operations,
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
is part 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 reported separately from income and expenses from continuing operations.
Intangible 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.liabilities assumed. Goodwill resulting from business combinations is not subject to amortization. It isinitiallyis initially recorded at cost and subsequently measured at cost less accumulated impairments.
The Allianz Group conducts an annual impairment test of goodwill during the 4th 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 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 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 an indefinite useful lifelives are not subject to amortization and are subsequently recorded at cost less accumulated impairments. Intangible assets with a definitefinite useful lifelives 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 an individual asset, the Allianz Group estimates the recoverable amount of the cash generating unit to which the intangible asset belongs. 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.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Other liabilities
Other liabilities include payables, unearned income, provisions, deposits retained for reinsurance ceded, derivative financial instruments for hedge accounting purposes that meet the criteria for hedge accounting and firm commitments, financial liabilities for puttable equity instruments disposal groups held for sale, and other liabilities. These liabilities are reported at redemption value.
Tax payables are calculated in accordance with relevant local tax regulations.
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 (a “puttable instrument”). These liabilities are required to be recorded at redemption amount with changes recognized in net income.
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.
Equity
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 Consolidated 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.
Any foreign curencyForeign 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.
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.
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.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
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.
Interest and similar income/expense
Interest income and interest expense are recognized on an accrual basis. Interest income is recognized using the effective interest method. This line item also includes dividends from available-for-sale equity securities, interest recognized on finance 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 includes 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.
Fee and commission income and expenses
In addition to traditional commission income received on security transactions, fee and commission income in the securities business alsoincludesalso 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, savings 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 is 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 generally based on percentages of the market value of assets under management.
Administration fees are recognized as the services are performed. Such fees are generally based on percentages of the market value of assets under management.
Income 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.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
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 expectedaverageexpected average remaining working lives of the employees participating in the plans.
Share compensation plans
The share-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. 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. 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.
Restructuring plans
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. 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 2007)and July 1, 2008 and early adoption)
Amendments to IAS 39, Financial Instruments: Recognition and Measurement, and IFRS 7, Financial Instruments: Disclosures
In August 2005,October 2008, the IASB issued an amendmentamendments 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 met.
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, Presentation2008 and should be accounted for on a prospective basis from the date of Financial Statements.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 new requirements of the amended 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 amendment requires additional disclosures relating toadoption of
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
the Allianz Group’s capital. In addition, in August 2005, the IASB issued IFRS 7, Financial Instruments: Disclosures, relating to disclosure requirements for financial instruments. The Allianz Group adopted the amendments toamended IAS 139 and IFRS 7 ashad no impact on the net income of January 1, 2007. Thethe Allianz Group’s consolidated financial statements have been presented withGroup for the effect of these changes.year ended December 31, 2008.
Impact of IFRS 7 on the Allianz Group’s consolidated financial statementsIFRIC 11, Group and Treasury Share Transactions
IFRS 7 applies to all risks arising from financial instruments. IFRS 7 requires disclosure of:
(a) | the significance of financial instruments for an entity’s financial position and performance |
(b) | qualitative and quantitative information about exposure to risks arising from financial instruments. |
The scopeIn November 2006, the IFRIC issued IFRIC 11, Group and Treasury Share Transactions. IFRIC 11 addresses the application of IFRS 7 includes recognized and unrecognized financial instruments. Recognized financial2 to share-based payment arrangements in three cases. When an entity chooses or is required to buy its own equity instruments are those financial assets and financial liabilities withinto settle the scopeshare-based payment obligation, the arrangement should be accounted for as equity-settled share-based payment transaction. When a parent grants employees of IAS 39. Unrecognized financiala subsidiary rights to its equity instruments, are financial instruments that are outside ofassuming the scope of IAS 39 but within the scope of IFRS 7. IFRS 7 requires to group financial instruments into classes that are appropriate to the nature of the information disclosed and take into account the characteristics of those financial instruments. The classes of financial instruments generated within Allianz Group are mainly in line with those according to IAS 39.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
The following table summarizes the relations between balance sheet positions, classes according to IFRS 7 and categories according to IAS 39:
| | | | |
| | Measurement basis
| | IAS 39 category
|
Balance sheet line item and IFRS 7 classes of financial assets
| | | | |
| | |
Financial assets
| | | | |
| | |
Cash and cash equivalents
| | Nominal value | | — |
| | |
Financial assets carried at fair value through income
| | | | |
– Financial assets held for trading
| | Fair value | | Held for trading |
– Financial assets designated at fair value through income
| | Fair value | | Designated at fair value through income |
| | |
Investments
| | | | |
– Available-for-sale investments
| | Fair value | | Available-for-sale investments |
– Held-to-maturity investments
| | Amortized cost | | Held-to-maturity investments |
| | |
Loans and advances to banks and customers
| | Amortized cost | | Loans and receivables |
| | |
Financial assets for unit linked contracts
| | Fair value | | — |
| | |
Other Assets
| | | | |
– Derivative financial instruments used for hedging that meet the criteria for hedge accounting and firm commitments
| | Fair value | | — |
| | |
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
| | Fair value | | Held for trading |
– Financial liabilities designated at fair value through income
| | Fair value | | Designated at fair value through income |
| | |
Liabilities to banks and customers
| | Amortized cost | | Other liabilities - at amortized cost |
| | |
Reserves for insurance and investment contracts
| | | | |
– Investment contracts with policyholders
| | Fair value | | — |
| | |
Financial liabilities for unit linked contracts
| | Fair value | | — |
| | |
Other Liabilities
| | | | |
– Derivative financial instruments used for hedging purposes that meet the criteria for hedge accounting and firm commitments
| | Fair value | | — |
– Financial liabilities for puttable equity instruments
| | Redemption amount | | — |
| | |
Certificated liabilities
| | Amortized cost | | Other liabilities - at amortized cost |
| | |
Participation certificates and subordinated liabilities
| | Amortized cost | | Other liabilities - at amortized cost |
| | |
Off-balance sheet
| | | | |
| | |
Financial guarantees
| | Nominal value | | — |
| | |
Irrevocable loan commitments
| | Nominal value | | — |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Overall, IFRS 7 leads to enlarged disclosure requirements for financial instruments and associated risks. While some of the disclosures required by IFRS 7 were already includedtransaction is recorded as an equity-settled transaction in the consolidated financial statements, and notesthe subsidiary would also record the transaction as an equity-settled transaction in 2006, disclosures were added mainly in the appropriate notes dealing withits financial instruments and include enlarged and more detailed information on:
Financial assets and financial liabilities designated at fair value through income including information on credit risk exposure
Fair value disclosures including fair values determined if there is non-observable market data, “day 1” profit or loss,statements. When a subsidiary grants its employees rights to equity instruments at amortized costs and derecognition
Credit riskof its parent, the subsidiary should record the transaction as well as collaterals and other credit enhancements
Furthermore, the enlarged risk disclosure requirements of IFRS 7 are reflected in the Quantitative and Qualitative Disclosures about Market Risk (ITEM 11) on pages 167 to 189 in this 20-F.
The requirements of IAS 1 with regard to capital disclosures are also incorporated in ITEM 11.
ITEMa cash-settled share-based payment transaction. IFRIC 11 with the exception of the “Outlook” section on page 190, is an integral part of the audited consolidated financial statements.
In March 2006, the International Financial Reporting Interpretations Committee (“IFRIC”) issued IFRIC 9, Reassessment of Embedded Derivatives. The Interpretation clarifies whether a reassessment should be made regarding whether an embedded derivative needs to be separated from the host contract after the initial hybrid contract has been recognized. IFRIC 9 concludes that reassessment is prohibited unless there is a change in the terms of the contract that significantly modifies the cash flows that otherwise would be required under the contract, in which case reassessment is required. IFRIC 9 is effective for annual periods beginning on or after JuneMarch 1, 2006. As the interpretation is consistent with the Allianz Group’s existing policy, there was no significant impact on the Allianz Group’s financial results or financial position.
In July 2006, the IFRIC issued IFRIC 10, Interim Financial Reporting and Impairment. IFRIC 10 address the potential conflict between requirements of IAS 34 and the requirements for recording impairment losses on goodwill in IAS 36 and certain financial assets in IAS 39.2007. The interpretation prohibits the reversal of an impairment loss recognized indid not have a previous interim period with respect to goodwill or an investment in either an equity instrument or a financial asset carried at cost. IFRIC 10 is effective for annual periods beginning on or after November 1, 2006. As the interpretation is consistent with the Allianz Group’s existing policy, there was no significantmaterial impact on the Allianz Group’s financial results or financial position.
Recently issued accounting pronouncements (effective on or after January 1, 2008)
In 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.
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
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
amendment is expected to have no impact the Allianz Group’s consolidated financial statements.
IFRIC 12, Service Concession Arrangements
In June 2007,November 2006, the IFRIC issued IFRIC 13, Customer Loyalty Programmes.12, Service Concession Arrangements. IFRIC 1312 addresses how companies, that grant their customers loyalty award credits (often called “points”) when buying goods or services,service concession operators should apply existing IFRSs to account for their obligation to provide freethe obligations they undertake and rights they receive in service concession arrangements. Service concession arrangements are arrangements whereby a government or discounted goods or services if and when the customers redeem the points. Customers are implicitly payingother body grants contracts for the points they receive when they buy other goodssupply of public services, such as roads, energy distribution, prisons or services. Some revenue should be allocatedhospitals, to private operators. The grantor controls or regulates what services the points. Therefore, IFRIC 13 requires companiesoperator must provide using the assets, to estimatewhom, and at what price, and also controls any significant residual interest in the assets at the end of the 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 points to the customer and defer this amount of revenue as a liability until they have fulfilled their obligations to supply awards.construction or upgrade services it provides. IFRIC 1312 is mandatoryeffective for annual
periods beginning on or after JulyJanuary 1, 2008. Earlier application is permitted. The interpretation is expected tohas not yet been endorsed by the EU but does not have no materialan impact on the Allianz Group’s consolidated financial statements.
IFRIC 14, IAS 19—The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction
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 limit placed by IAS 19, Employee Benefits, on the amount of a surplus in a pension plan they can recognize as an asset, how a minimum funding requirement affects that limit and when a minimum funding requirement creates an onerous obligation that should be recognized as a liability in addition to that otherwise recognized under IAS 19. The interpretation is mandatory for annual periods beginning on or after January 1, 2008. Earlier application is permitted. The interpretation is expected tohas not yet been endorsed by the EU, but does not have no materialan impact on the Allianz Group’s consolidated financial statements.
Recently issued accounting pronouncements (effective on or after January 1, 2009)
IFRS 8, Operating Segments
In 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 oftheof 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 recognisedrecognized as expenses and are not included in goodwill.
Contingent consideration must be recognisedrecognized and measured at fair value at the acquisition date. Subsequent changes in fair value are recognisedrecognized 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.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
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 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 issueissuer 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 co-operativecooperative 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 Allianz Group is currently evaluating the potentialamendments are expected to have no material impact if any, that the adoption of the amendments of IAS 32 and IAS 1 will have on the Allianz Group’s consolidated financial statements.
Changes in the presentation of the consolidated financial statementsImprovements to IFRSs
In May 2008, the IASB issued Improvements to IFRSs. The Allianz Groupimprovements to IFRS project is an annual process that the IASB has identified certain prior period errors through an analysis of various balance sheet accountsadopted to deal with non-urgent but necessary amendments to IFRS (the “Errors”‘annual improvements process’). The Errors resulted primarily fromamendments are divided in two parts and include 34 amendments. Part I deals with changes the following issues:
Accounting for the purchase of Dresdner BankIASB identified resulting in 2001accounting changes. Part II deals with terminology and 2002, which included realized gains and losses on investments which did not reflect the correct purchase price allocation for the Dresdner Bank opening balance sheet.editorial amendments that have a minimal impact.
Consolidation of dividends for special funds in the year 2001, which resulted in the recognition of amounts for reserves for premium refunds, that did not properly take into account the different financial years of the sponsor and the special funds.
Other errors, related to the accounting for minority interests and reserves for premium refunds, occurred in combination with mergers.
The Errors were included in the Allianz Group’s financial statements for each of the years from 2001 through 2006. The Allianz Group quantified the Errors based on the amount of the error originating in the current year income statement, as well as the effects of correcting the error in the balance sheet at the end of the year (the “rollover” and “iron curtain” method of evaluating errors, respectively). The Allianz Group evaluated the Errors individually and in the aggregate, and concluded that they were immaterial to the financial statements for all years in which they were included.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
The following table summarizes the effectschanges 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 Errors on net income as reportedfair value hierarchy into which fair value measurements are categorized in their entirety. This requirement would apply both for the years 2005 and 2006, and the cumulative effect of the Errors on net income for the years 2001 through 2004.
| | | | | | | | | |
| | | Net income | |
| | | 2006 | | | 2005 | | | 2001-2004 | |
| | | € mn | | | € mn | | | € mn | |
Description of error | | | | | | | | | |
Dresdner Bank purchase accounting | | (78 | ) | | (42 | ) | | (182 | ) |
Special funds consolidation | | — | | | — | | | 29 | |
Other | | — | | | — | | | (4 | ) |
| | | | | | | | | |
Total | | (78 | ) | | (42 | ) | | (157 | ) |
| | | | | | | | | |
As the majority of the Errors related to the years 2001 through 2004, and their correction has been determined to be immaterial, the Errors from these periods have been accounted forfair values included in 2007 by adjusting the opening balance sheet as of January 1, 2005. The Errors for 2005 and 2006 have been corrected through an out-of-period adjustment to net income in 2007.
The following table summarizes the Errors by issue and by their effect on the consolidated opening balance sheet and the consolidated statement of changes in equity as of January 1, 2005 as well as on the subsequent consolidated balance sheets and consolidated statements of changes in equity as of December 31, 2006 and 2007.
| | | | | | | | | | | | |
| | | Dresdner
Bank | | | Special
Funds | | | Other | | | Total | |
| | | € mn | | | € mn | | | € mn | | | € mn | |
Other assets | | (892 | ) | | — | | | — | | | (892 | ) |
Intangible assets (Goodwill) | | 306 | | | (169 | ) | | — | | | 137 | |
| | | | | | | | | | | | |
Total assets | | (586 | ) | | (169 | ) | | — | | | (755 | ) |
| | | | | | | | | | | | |
Reserves for insurance and investment contracts (Reserves for premium refunds) | | — | | | (668 | ) | | 3 | | | (665 | ) |
Deferred tax liabilities | | — | | | (30 | ) | | — | | | (30 | ) |
Shareholders’ equity | | | | | | | | | | | | |
Revenue reserves | | (894 | ) | | 458 | | | (123 | ) | | (559 | ) |
Unrealized gains/losses (net) | | (272 | ) | | — | | | — | | | (272 | ) |
Minority interest | | 580 | | | 71 | | | 120 | | | 771 | |
Total shareholders equity | | (586 | ) | | 529 | | | (3 | ) | | (60 | ) |
| | | | | | | | | | | | |
Total liabilities and equity | | (586 | ) | | (169 | ) | | — | | | (755 | ) |
| | | | | | | | | | | | |
The adjustment impacted certain asset and liability accounts previously reported within the consolidated balance sheet consolidated statementand for other fair values that are disclosed but not included in that statement.
the fair value measurements resulting from the use of changes in equitysignificant 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 segment balance sheetfinancial 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 December 31, 2006.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 following table summarizesinterpretation 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 correctingNon-cash Assets to Owners
In November 2008, the ErrorsIFRIC 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 and consolidated statement of changes in equity as of December 31, 2006:2008. Comparative information has not been adjusted in accordance with IFRS 5.
| | | | | | | |
As of December 31, 2006 | | As
previously
reported | | Adjustment | | | As
adjusted1) |
| | | € mn | | € mn | | | € mn |
Other assets | | 38,893 | | (892 | ) | | 38,001 |
Intangible assets (Goodwill) | | 12,935 | | 137 | | | 13,072 |
| | | | | | | |
Total assets | | 1,053,226 | | (755 | ) | | 1,052,471 |
| | | | | | | |
Reserves for insurance and investment contracts (Reserves for premium refunds) | | 287,697 | | (665 | ) | | 287,032 |
Deferred tax liabilities | | 4,618 | | (30 | ) | | 4,588 |
Shareholders’ equity | | | | | | | |
Revenue reserves | | 13,629 | | (559 | ) | | 13,070 |
Unrealized gains/losses (net) | | 13,664 | | (272 | ) | | 13,392 |
Minority interest | | 6,409 | | 771 | | | 7,180 |
Total shareholders equity | | 56,890 | | (60 | ) | | 56,830 |
| | | | | | | |
Total liabilities and equity | | 1,053,226 | | (755 | ) | | 1,052,471 |
| | | | | | | |
All income and expenses relating to the discontinued operations of Dresdner Bank 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” in the consolidated income statements for all years presented in accordance with IFRS 5.
1)
| Excludes the change in presentation due to the reclassification of certain financial instruments
|
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
The following table summarizes the impact of correcting the Errors on the relevant line itemsconsolidated income statements for the year ended December 31, 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 | |
| | | | | | | | | | | | | | | | | | |
For a detailed description of the face of the business segment information—consolidated balance sheets as of December 31, 2006:transaction agreement see Note 4.
| | | | | | | |
As of December 31, 2006 | | Prior to
adjustment | | Adjustment | | | As
adjusted |
| | | € mn | | € mn | | | € mn |
Property Casualty | | | | | | | |
Other assets | | 17,737 | | — | | | 17,737 |
Intangible assets (Goodwill) | | 1,653 | | — | | | 1,653 |
| | | | | | | |
Total assets | | 150,740 | | — | | | 150,740 |
| | | | | | | |
Reserves for insurance and investment contracts (Reserves for premium refunds) | | 8,956 | | (2 | ) | | 8,954 |
Deferred tax liabilities | | 3,902 | | (8 | ) | | 3,894 |
| | | | | | | |
Total liabilities | | 111,020 | | (10 | ) | | 111,010 |
| | | | | | | |
Life/Health | | | | | | | |
Other assets | | 12,891 | | — | | | 12,891 |
Intangible assets (Goodwill) | | 2,399 | | (169 | ) | | 2,230 |
| | | | | | | |
Total assets | | 395,404 | | (169 | ) | | 395,235 |
| | | | | | | |
Reserves for insurance and investment contracts (Reserves for premium refunds) | | 278,701 | | (663 | ) | | 278,038 |
Deferred tax liabilities | | 1,181 | | (22 | ) | | 1,159 |
| | | | | | | |
Total liabilities | | 379,504 | | (685 | ) | | 378,819 |
| | | | | | | |
Banking | | | | | | | |
Other assets | | 9,571 | | (892 | ) | | 8,679 |
Intangible assets (Goodwill) | | 2,285 | | 92 | | | 2,377 |
| | | | | | | |
Total assets | | 506,080 | | (800 | ) | | 505,280 |
| | | | | | | |
Deferred tax liabilities | | 83 | | — | | | 83 |
| | | | | | | |
Total liabilities | | 489,233 | | — | | | 489,233 |
| | | | | | | |
Asset Management | | | | | | | |
Other assets | | 3,471 | | — | | | 3,471 |
Intangible assets (Goodwill) | | 6,334 | | 214 | | | 6,548 |
| | | | | | | |
Total assets | | 12,944 | | 214 | | | 13,158 |
| | | | | | | |
Deferred tax liabilities | | 46 | | — | | | 46 |
| | | | | | | |
Total liabilities | | 4,340 | | — | | | 4,340 |
| | | | | | | |
Total adjustments | | | | | | | |
Other assets | | | | (892 | ) | | |
Intangible assets (Goodwill) | | | | 137 | | | |
| | | | | | | |
Total assets | | | | (755 | ) | | |
| | | | | | | |
Reserves for insurance and investment contracts (Reserves for premium refunds) | | | | (665 | ) | | |
Deferred tax liabilities | | | | (30 | ) | | |
| | | | | | | |
Total liabilities | | | | (695 | )1) | | |
| | | | | | | |
1)
| Group level equity adjustments of €(60) mn are not included in this table, as equity is not reported in the segment balance sheets.
|
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Change in the presentation of financial instrumentsfrom administrative expenses to acquisition costs
In accordance with the Allianz Group policy, certain financial instrumentsdiscloses the acquisition costs and administrative expenses (net) in the consolidated income statement. Acquisition costs and administrative expenses are presented on a net basis when there is a legally enforceable rightdisaggregated according to offset with the same counter-party,segment and the Allianz Group intends to settle on a net basis. At our Dresdner Bank subsidiary, certain master netting agreements give Dresdner Bank the legal righttype of offset, but only under certain conditions. The financial instruments related to these agreements, consisting of derivatives, repurchase agreements and reverse repurchase agreements, have previously been reported on a net basis. These agreements have been evaluated and it has been determined that due to thelimitscosts in Note 39. Acquisition costs relate to the rightacquisition and administration of offset, the relevant financial assetsinsurance policies and liabilities should be reportedinclude commissions and other acquisition costs paid, commissions and profit received on a gross basis.reinsurance ceded, deferrals of acquisition costs and amortizations of deferred acquisition costs.
Administrative expenses include personnel expenses, operating expenses, and other administrative expenses.
Partially offsetting these reclassificationsFew of Allianz Group’s subsidiaries have incorrectly allocated some of the costs into acquisition costs and administrative expenses in the past. These incorrect allocations have been corrected in the notes to the consolidated financial statements. This reclassification from netadministrative expenses to gross presentation is aacquisition costs affects only the Property-Casualty segment.
The change in the presentation of Collateral paid for securities borrowing transactions and Collateral received for securities lending transactions from gross to net presentation. In this case, the logic in the relevant system did not distinguish between open trades and offsetting borrowing/lending activities with the same counterparty.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:
| | | | | | | |
As of December 31, 2006 | | As previously
reported | | Adjustment | | | As adjusted1) |
| | | € mn | | € mn | | | € mn |
Financial assets carried at fair value through income | | 156,869 | | 42,123 | | | 198,992 |
Collateral paid for securities borrowing transactions | | 41,031 | | (6,719 | ) | | 34,312 |
Reverse repurchase agreements | | 139,413 | | 22,206 | | | 161,619 |
Loans and advances to banks and customers | | 408,278 | | 15,487 | | | 423,765 |
| | | | | | | |
Total assets | | 1,053,226 | | 57,610 | | | 1,110,836 |
| | | | | | | |
Financial liabilities carried at fair value through income | | 79,699 | | 42,123 | | | 121,822 |
Collateral received for securities lending transactions | | 28,617 | | (6,719 | ) | | 21,898 |
Repurchase agreements | | 117,592 | | 22,206 | | | 139,798 |
Liabilities to banks and customers | | 361,078 | | 15,487 | | | 376,565 |
| | | | | | | |
Total liabilities and equity | | 1,053,226 | | 57,610 | | | 1,110,836 |
| | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | 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.
| | |
1)As of December 31,
| | 2008 |
| | € mn |
Excludes the correctionCash 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 errors.comprehensive loss, net of tax related to disposal groups classified as held-for-sale | | (361 | ) |
| | | |
TheNet 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 presentationownership 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 netunrealized gains and losses and foreign exchange movements which, according to gross basis has had no effect on reported earnings or equity.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)
45 Consolidation
Scope of consolidation
In addition to Allianz SE, the consolidated financial statements for the period ended December 31, 2007,2008, generally include all German and foreign operating companies in which Allianz SE directly or indirectly holds a majority of voting rights, or whose activitesactivities 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 | | 2007 | | 2006 | | 2005 | | 2008 | | 2007 | | 2006 |
Number of fully consolidated companies (subsidiaries) | | | | | | | | | | | | |
Germany | | 172 | | 143 | | 169 | | 152 | | 172 | | 143 |
Other countries1) | | 1,003 | | 824 | | 840 | | 935 | | 1,003 | | 824 |
| | | | | | | | | | | | |
Total | | 1,175 | | 967 | | 1,009 | | 1,087 | | 1,175 | | 967 |
| | | | | | | | | | | | |
Number of fully consolidated investment funds | | | | | | | | | | | | |
Germany | | 47 | | 51 | | 67 | | 49 | | 47 | | 51 |
Other countries | | 12 | | 21 | | 26 | | 9 | | 12 | | 21 |
| | | | | | | | | | | | |
Total | | 59 | | 72 | | 93 | | 58 | | 59 | | 72 |
| | | | | | | | | | | | |
Number of fully consolidated Special Purpose Entities (“SPE”) | | 55 | | 46 | | 35 | | 59 | | 55 | | 46 |
Total of fully consolidated entities | | 1,289 | | 1,085 | | 1,137 | | 1,204 | | 1,289 | | 1,085 |
thereof: Related to the discontinued operation of Dresdner Bank | | | 365 | | — | | — |
Number of joint ventures valued at equity | | 4 | | 9 | | 10 | | 10 | | 4 | | 9 |
| | | | | | | |
thereof: Related to the discontinued operation of Dresdner Bank | | | 1 | | — | | — |
Number of associated entities valued at equity | | 218 | | 177 | | 150 | | 167 | | 218 | | 177 |
| | | | | | | | | | | | |
thereof: Related to the discontinued operation of Dresdner Bank | | | 15 | | — | | — |
| | | | | | | |
1) | Includes 8 (2006: 9; 2005:10 (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 %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.Althoughsubsidiaries. 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 that will be published together with the consolidated financial statements in the German Electronic Federal Gazette as well as on the Company’s Website. The disclosure of equity investments includes individually listed commercial partnerships which are exempt from preparing single financial statements in accordance with section 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 entities are listed in the selected subsidiaries and other holdings section.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Significant acquisitions
| | | | Equity
interest | | Date of
first-time
consolidation | | Segment | | Goodwill2) | | Transaction | | Equity
interest | | Date of
first-time
consolidation | | Segment | | Goodwill2) | | Transaction |
| | | % | | € mn | | | % | | € 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, Moscow | | 97.2 | | 02/21/2007 | | Property-
Casualty | | 514 | | Increase in equity interest | |
Russian People’s Insurance Society “ROSNO”, Moscow | | | 97.2 | | | 02/21/2007 | | Property-
Casualty | | 514 | | Increase
in equity
interest |
Selecta AG, Muntelier1) | | 100.0 | | 07/03/2007 | | Corporate | | 472 | | Purchase | | 100.0 | | | 07/03/2007 | | Corporate | | 472 | | Purchase |
Insurance Company “Progress Garant”, Moscow | | 100.0 | | 05/31/2007 | | Property-
Casualty | | 70 | | Purchase | | 100.0 | | | 05/31/2007 | | Property-
Casualty | | 70 | | Purchase |
Commerce Assurance Bhd., Kuala Lumpur | | 100.0 | | 09/30/2007 | | Property-
Casualty | | 49 | | Purchase | | 100.0 | | | 09/30/2007 | | Property-
Casualty | | 49 | | Purchase |
JSC Insurance Company “ATF POLICY”, Almaty | | 100.0 | | 09/30/2007 | | Property-
Casualty | | 8 | | Purchase | | 100.0 | | | 09/30/2007 | | Property-
Casualty | | 8 | | Purchase |
2006 | | | | | | | | | | | | | | | | | | | | |
MAN Roland Druckmaschinen AG, Offenbach | | 100.0 | | 7/18/2006 | | Corporate | | 144 | | Purchase | |
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 | | 100.0 | | | 6/15/2006 | | Property-
Casualty | | 68 | | Purchase |
Premier Line Direct Limited, Lancaster | | 100.0 | | 10/01/2006 | | Property-
Casualty | | 36 | | Purchase | | 100.0 | | | 10/01/2006 | | Property-
Casualty | | 36 | | Purchase |
1) | Classified as “held for sale”“held-for-sale” |
2) | At the date of first-time consolidation |
3) | 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 Allianz Sigorta and Hayat | | 101 | |
| | | |
Acquisition of subsidiary, net of cash acquired | | (152 | ) |
| | | |
Components 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
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. Russian People´s Insurance Society, MoscowROSNO is the second largest insurance company in Russia which offers products in the business segments Property-Casualty, Life/Health and Asset Management.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
The impact of the acquisition of Russian People’s Insurance Society, Moscow,ROSNO net of cash acquired, on the consolidated statement of cash flows for the year ended December 31, 2007 was:
| | | |
| | 2007 | |
| | | € 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
| | |
As of December 31,
| | 2007 |
| | | € mn |
Purchase price (49.8 % interest) | | 571 |
Subsequent acquisition costs | | 1 |
| | |
Total purchase price | | 572 |
| | |
The impact on the Allianz Group’s net income as offor 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 July 3, 2007, the Allianz Group acquired 100.0% of Selecta AG, Muntelier at a purchase price of €1,126 mn. Selecta AG, Muntelier is the leading vending operator in Europe.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
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:
| | | |
| | 2007 | |
| | | € 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
| | |
As of December 31,
| | 2007 |
| | | € mn |
Purchase price (100.0%(100.0 % interest) | | 1,126 |
Transaction costs | | — |
| | |
Total purchase price | | 1,126 |
| | |
The impact on the Allianz Group’s net income as offor 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 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.held-for-sale.
2006 Significant acquisitions
MAN Roland Druckmaschinenmanroland 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 MAN Roland Druckmaschinenfirst-time consolidation: 65,0% ) of manroland AG, Offenbach, at a purchase price of €554 mn. MAN RolandManroland AG is the world’s second largest manufacturer of printing systems.
The impact of the acquisition of MAN Roland Druck-maschinenmanroland AG, Offenbach, net of cash acquired, on the consolidated statement of cash flows for the year ended December 31, 2006 was:
| | | |
| | 2006 | |
| | | € mn | |
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
| | |
As of December 31,
| | 2006 |
| | | €mn |
Purchase price (100.0%(100.0 % interest) | | 553 |
Transaction costs | | 1 |
| | |
Total purchase price | | 554 |
| | |
The impact on the Group’s net income as offor the year ended December 31, 2006 was €26€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 | | 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 |
| | | % | | € mn | | € mn | | |
2007 | | | | | | | | | | | | | | | | | | | | | | | | |
Grundstücksgesellschaft der Vereinten Versicherungen mbH & Co. Besitz- und Betriebs KG, Munich | | 93.7 | | 12/14/2007 | | 194 | |
Property-
Casualty | | — | | Sale to third
party | | 93.7 | | 12/14/2007 | | 194 | | Property-
Casualty | | — | | Sale to third-party |
Les Assurances Fédérales IARD, Strasbourg | | 60.0 | | 09/30/2007 | | 86 | | Property-
Casualty | | — | | Sale to third
party | | 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 | | 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 | | 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 | | 100.0 | | 8/31/2006 | | 863 | | Corporate | | 158 | | Sale to third-party |
| 2005 | | | | | | | | | | | | | |
DresdnerGrund-Fonds, Frankfurt am Main | | 100.0 | | 12/22/2005 | | 2,029 | | Banking | | — | | Sale to third
party | |
Cadence Capital Management Inc., Delaware | | 100.0 | | 8/31/2005 | | — | | Asset
Managment | | 39 | | Liquidation | |
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 | | | 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 | ) |
| | | | | % | | € mn | | € mn | | € mn | | | |
2007 | | | | | | | | | | | | | | | | | | | | |
Assurances Générales de France, Paris1) | | during 2007 | | 39.8 | | | 10,052 | | (3,419 | ) | | (3,868 | ) | | during 2007 | | 39.8 | | 10,052 | | (3,419 | ) | | (3,868 | ) |
Allianz Lebensversicherungs-Aktiengesellschaft, Stuttgart | | during 2007 | | 3.8 | | | 303 | | (211 | ) | | (92 | ) | | during 2007 | | 3.8 | | 303 | | (211 | ) | | (92 | ) |
Allianz Taiwan Life Insurance Co. Ltd., Taipei | | 04/19/2007 | | 49.6 | | | 40 | | (39 | ) | | (1 | ) | | 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 | ) | |
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 | ) | | — | | | during 2006 | | 0.3 | | 70 | | (70 | ) | | — | |
| 2005 | | | | | | | | | | | |
Riunione Adriatica di Sicurtà S.p.A., Milan (“RAS”) | | 11/30/2005 | | 20.7 | | | 2,701 | | (1,339 | ) | | (1,362 | ) | |
Allianz Global Investors of America L.P., Delaware | | during 2005 | | 3.4 | | | 209 | | (209 | ) | | — | | |
Bayerische Versicherungsbank AG, Munich | | 11/15/2005 | | 10.0 | | | 22 | | 82 | | | (104 | ) | |
Assurances Générales de France, Paris | | during 2005 | | (1.0 | ) | | — | | 19 | | | 127 | | |
1) | Impact on shareholders’ equity includes increase in equity due to financing of AGF minority buy-out in the year 2007 of €2,765mn€2,765 mn and RAS minority buy-out in the year 2006 of €3,653mn.€3,653 mn. |
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)
56 Segment reporting
As a result of the Allianz Group’s worldwide organization, theThe business activities of the Allianz Group are first segregated by product and type of service: insurance activities, banking activities, 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, Life/Health, Banking, Asset Management and Corporate. Based on various legal, regulatory and other operational issues associated with operating entities in jurisdictions worldwide, theThe 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-center segments. This geographic analysis is performedmanner similar to provide further understanding of trends and results underlyingtransactions with third parties. Transfers between business segments are 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, 2007. 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 insurance 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 ofalternative 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 based on gross statutory premiums written during the year ended December 31, 2007. Germany is the Allianz Group’s most important market for life/health insurance business. 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 healthca-re 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 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
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
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 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 managed €765 bn of third-party assets on a worldwide basisproducts for retail and institutional customers include equity and fixed-income funds as of December 31, 2007, with key management centersin Munich, Frankfurt, London, Paris, Singapore, Hong Kong, Milan, Westport (Connecticut) and San Francisco, San Diego and Newport Beach (California).well as alternative products. The United States isand Germany as well as France, Italy and the Allianz Group’s largest geographicAsia-Pacific region for third-party assets underrepresent the primary asset management accounting for approximately 56.2% (2006: 57.1%; 2005: 59.6%) of the total third-party assets under management. As measured by total assets under management at December 31, 2007, the Allianz Group is one of the five largest asset managers in the world.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 all group activitiesthe 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 underlying 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, as these relate to business combinations; and 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)
The Allianz Group believes that trends in the underlying profitability of its business can be more clearly identified without the fluctuating effects of the realized capital gains and losses or impairments of investment securities, as these are largely dependent on market cycles or issuer-specific events over which are not allocated to a specific business segment.the Allianz Group has little or no control, and can and do vary, sometimes materially, across periods. Further, the Corporate segment includes group fundingtiming of sales that would result in such gains or losses is largely at the discretion of the Allianz Group. Similarly, restructuring charges
are excluded because the timing of the restructuring charges are largely within the control of the Allianz Group, and risk management activities, suchaccordingly 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 should be viewed as the senior bonds, subordinated bondscomplementary to, and money market securities issuednot a substitute for, income before income taxes and minority interests in earnings or guaranteed by Allianz SE and the related derivative financial instruments held by Allianz SE or one of its subsidiaries.net income as determined in accordance with IFRS.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Allianz Group
Business Segment Information—Consolidated Balance Sheets
| | | | | | | | | | | | |
| | | Property-Casualty | | Life/Health | | Banking |
As of December 31, | | 2007 | | 2006 | | 2007 | | 2006 | | 2007 | | 2006 |
| | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn |
ASSETS | | | | | | | | | | | | |
Cash and cash equivalents | | 4,985 | | 4,100 | | 8,779 | | 6,998 | | 17,307 | | 21,528 |
Financial assets carried at fair value through income | | 3,302 | | 4,814 | | 13,216 | | 11,026 | | 168,339 | | 181,628 |
Investments | | 83,741 | | 88,819 | | 187,289 | | 190,607 | | 16,284 | | 17,803 |
Loans and advances to banks and customers | | 20,712 | | 16,825 | | 91,188 | | 85,769 | | 295,506 | | 329,196 |
Financial assets for unit linked contracts | | — | | — | | 66,060 | | 61,864 | | — | | — |
Reinsurance assets | | 10,317 | | 11,437 | | 5,043 | | 7,966 | | — | | — |
Deferred acquisition costs | | 3,681 | | 3,704 | | 15,838 | | 15,381 | | — | | — |
Deferred tax assets | | 1,442 | | 1,651 | | 316 | | 503 | | 1,733 | | 1,679 |
Other assets | | 21,864 | | 17,737 | | 14,071 | | 12,891 | | 8,203 | | 8,679 |
Intangible assets | | 2,332 | | 1,653 | | 2,218 | | 2,230 | | 2,379 | | 2,377 |
| | | | | | | | | | | | |
Total assets | | 152,376 | | 150,740 | | 404,018 | | 395,235 | | 509,751 | | 562,890 |
| | | | | | | | | | | | |
| | | |
| | | Property-Casualty | | Life/Health | | Banking |
As of December 31, | | 2007 | | 2006 | | 2007 | | 2006 | | 2007 | | 2006 |
| | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn |
LIABILITIES AND EQUITY | | | | | | | | | | | | |
Financial liabilities carried at fair value through income | | 96 | | 1,070 | | 5,147 | | 5,251 | | 120,383 | | 114,338 |
Liabilities to banks and customers | | 6,865 | | 4,473 | | 6,078 | | 7,446 | | 320,388 | | 365,635 |
Unearned premiums | | 13,163 | | 12,994 | | 1,858 | | 1,874 | | — | | — |
Reserves for loss and loss adjustment expenses | | 56,943 | | 58,664 | | 6,773 | | 6,804 | | — | | — |
Reserves for insurance and investment contracts | | 8,976 | | 8,954 | | 283,139 | | 278,038 | | — | | — |
Financial liabilities for unit linked contracts | | — | | — | | 66,060 | | 61,864 | | — | | — |
Deferred tax liabilities | | 2,606 | | 3,894 | | 946 | | 1,159 | | 102 | | 83 |
Other liabilities | | 22,989 | | 18,699 | | 17,741 | | 16,314 | | 11,011 | | 12,140 |
Certificated liabilities | | 158 | | 657 | | 3 | | 3 | | 34,778 | | 46,191 |
Participation certificates and subordinated liabilities | | 905 | | 1,605 | | 60 | | 66 | | 7,966 | | 8,456 |
| | | | | | | | | | | | |
Total liabilities | | 112,701 | | 111,010 | | 387,805 | | 378,819 | | 494,628 | | 546,843 |
| | | | | | | | | | | | |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
| | | | | | | | | | | | | | | | |
| Asset Management | | Corporate | | Consolidation | | | Group |
| 2007 | | 2006 | | 2007 | | 2006 | | 2007 | | | 2006 | | | 2007 | | 2006 |
| € mn | | € mn | | € mn | | € mn | | € mn | | | € mn | | | € mn | | € mn |
| | | | | | | | | | | | | | | | |
| 770 | | 767 | | 445 | | 536 | | (949 | ) | | (898 | ) | | 31,337 | | 33,031 |
| | | | | | | |
| 980 | | 985 | | 887 | | 1,158 | | (1,263 | ) | | (619 | ) | | 185,461 | | 198,992 |
| 879 | | 774 | | 102,894 | | 96,652 | | (104,135 | ) | | (96,521 | ) | | 286,952 | | 298,134 |
| 469 | | 367 | | 4,754 | | 2,963 | | (15,927 | ) | | (11,355 | ) | | 396,702 | | 423,765 |
| — | | — | | — | | — | | — | | | — | | | 66,060 | | 61,864 |
| — | | — | | — | | — | | (48 | ) | | (43 | ) | | 15,312 | | 19,360 |
| 94 | | 50 | | — | | — | | — | | | — | | | 19,613 | | 19,135 |
| 161 | | 196 | | 935 | | 1,473 | | 184 | | | (775 | ) | | 4,771 | | 4,727 |
| 3,452 | | 3,471 | | 10,786 | | 7,020 | | (16,848 | ) | | (11,797 | ) | | 41,528 | | 38,001 |
| 6,227 | | 6,548 | | 257 | | 264 | | — | | | — | | | 13,413 | | 13,072 |
| | | | | | | | | | | | | | | | | |
| 13,032 | | 13,158 | | 120,958 | | 110,066 | | (138,986 | ) | | (122,008 | ) | | 1,061,149 | | 1,110,081 |
| | | | | | | | | | | | | | | | | |
| | | |
| Asset Management | | Corporate | | Consolidation | | | Group |
| 2007 | | 2006 | | 2007 | | 2006 | | 2007 | | | 2006 | | | 2007 | | 2006 |
| € mn | | € mn | | € mn | | € mn | | € mn | | | € mn | | | € mn | | € mn |
| | | | | | | | | | | | | | | | |
| | | | | | | |
| — | | — | | 1,376 | | 1,713 | | (949 | ) | | (550 | ) | | 126,053 | | 121,822 |
| 807 | | 605 | | 13,023 | | 7,293 | | (10,667 | ) | | (8,887 | ) | | 336,494 | | 376,565 |
| — | | — | | — | | — | | (1 | ) | | — | | | 15,020 | | 14,868 |
| | | | | | | |
| — | | — | | — | | — | | (10 | ) | | (4 | ) | | 63,706 | | 65,464 |
| | | | | | | |
| — | | — | | 358 | | 306 | | (229 | ) | | (266 | ) | | 292,244 | | 287,032 |
| — | | — | | — | | — | | — | | | — | | | 66,060 | | 61,864 |
| 35 | | 46 | | 88 | | 171 | | 196 | | | (765 | ) | | 3,973 | | 4,588 |
| 3,647 | | 3,689 | | 14,625 | | 14,149 | | (20,689 | ) | | (15,227 | ) | | 49,324 | | 49,764 |
| — | | — | | 9,567 | | 9,265 | | (2,436 | ) | | (1,194 | ) | | 42,070 | | 54,922 |
| | | | | | | |
| 14 | | — | | 7,069 | | 7,099 | | (1,190 | ) | | (864 | ) | | 14,824 | | 16,362 |
| | | | | | | | | | | | | | | | | |
| 4,503 | | 4,340 | | 46,106 | | 39,996 | | (35,975 | ) | | (27,757 | ) | | 1,009,768 | | 1,053,251 |
| | | | | | | | | | | | | | | | | |
| Total equity | | | 51,381 | | 56,830 |
| | | | | | | | | | | | | | | | |
| Total liabilities and equity | | | 1,061,149 | | 1,110,081 |
| | | | | | | | | | | | | | | | |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Business Segment Information—Consolidated Income Statements
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Property-Casualty | | | Life/Health | | | Banking | |
| | | 2007 | | | 2006 | | | 2005 | | | 2007 | | | 2006 | | | 2005 | | | 2007 | | | 2006 | | | 2005 | |
| | | € mn | | | € mn | | | € mn | | | € mn | | | € mn | | | € mn | | | € mn | | | € mn | | | € mn | |
Premiums written | | 44,289 | | | 43,674 | | | 43,699 | | | 21,522 | | | 21,614 | | | 21,093 | | | — | | | — | | | — | |
Ceded premiums written | | (5,320 | ) | | (5,415 | ) | | (5,529 | ) | | (637 | ) | | (816 | ) | | (926 | ) | | — | | | — | | | — | |
Change in unearned premiums | | (416 | ) | | (309 | ) | | (485 | ) | | (76 | ) | | (224 | ) | | (170 | ) | | — | | | — | | | — | |
Premiums earned (net) | | 38,553 | | | 37,950 | | | 37,685 | | | 20,809 | | | 20,574 | | | 19,997 | | | — | | | — | | | — | |
Interest and similar income | | 4,473 | | | 4,096 | | | 3,747 | | | 13,417 | | | 12,972 | | | 12,057 | | | 8,370 | | | 7,312 | | | 7,321 | |
Income from financial assets and liabilities carried at fair value through income (net) | | 85 | | | 189 | | | 164 | | | (940 | ) | | (361 | ) | | 258 | | | (431 | ) | | 1,335 | | | 1,163 | |
Realized gains/losses (net) | | 1,479 | | | 1,792 | | | 1,421 | | | 3,716 | | | 3,282 | | | 2,731 | | | 83 | | | 492 | | | 1,020 | |
Fee and commission income | | 1,178 | | | 1,014 | | | 989 | | | 701 | | | 630 | | | 507 | | | 3,651 | | | 3,598 | | | 3,397 | |
Other income | | 122 | | | 69 | | | 53 | | | 182 | | | 43 | | | 45 | | | — | | | 25 | | | 11 | |
Income from fully consolidated private equity investments | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total income | | 45,890 | | | 45,110 | | | 44,059 | | | 37,885 | | | 37,140 | | | 35,595 | | | 11,673 | | | 12,762 | | | 12,912 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Claims and insurance benefits incurred (gross) | | (28,131 | ) | | (27,028 | ) | | (28,478 | ) | | (18,292 | ) | | (18,520 | ) | | (18,332 | ) | | — | | | — | | | — | |
Claims and insurance benefits incurred (ceded) | | 2,646 | | | 2,356 | | | 3,147 | | | 655 | | | 895 | | | 893 | | | — | | | — | | | — | |
Claims and insurance benefits incurred (net) | | (25,485 | ) | | (24,672 | ) | | (25,331 | ) | | (17,637 | ) | | (17,625 | ) | | (17,439 | ) | | — | | | — | | | — | |
Change in reserves for insurance and investment contracts (net) | | (339 | ) | | (425 | ) | | (707 | ) | | (10,268 | ) | | (10,525 | ) | | (10,443 | ) | | — | | | — | | | — | |
Interest expense | | (402 | ) | | (273 | ) | | (339 | ) | | (374 | ) | | (280 | ) | | (452 | ) | | (5,266 | ) | | (4,592 | ) | | (5,027 | ) |
Loan loss provisions | | (6 | ) | | (2 | ) | | (1 | ) | | 3 | | | (1 | ) | | — | | | 126 | | | (28 | ) | | 110 | |
Impairments of investments (net) | | (343 | ) | | (200 | ) | | (95 | ) | | (827 | ) | | (390 | ) | | (199 | ) | | (90 | ) | | (215 | ) | | (184 | ) |
Investment expenses | | (322 | ) | | (300 | ) | | (333 | ) | | (833 | ) | | (750 | ) | | (567 | ) | | (14 | ) | | (47 | ) | | (30 | ) |
Acquisition and administrative expenses (net) | | (10,616 | ) | | (10,590 | ) | | (10,216 | ) | | (4,588 | ) | | (4,437 | ) | | (3,973 | ) | | (5,061 | ) | | (5,605 | ) | | (5,661 | ) |
Fee and commission expenses | | (967 | ) | | (721 | ) | | (775 | ) | | (209 | ) | | (223 | ) | | (219 | ) | | (603 | ) | | (590 | ) | | (547 | ) |
Amortization of intangible assets | | (14 | ) | | (1 | ) | | (11 | ) | | (3 | ) | | (26 | ) | | (13 | ) | | — | | | — | | | (1 | ) |
Restructuring charges | | (122 | ) | | (362 | ) | | (68 | ) | | (45 | ) | | (174 | ) | | (18 | ) | | (52 | ) | | (424 | ) | | (13 | ) |
Other expenses | | (13 | ) | | (4 | ) | | (17 | ) | | (2 | ) | | (9 | ) | | (1 | ) | | 1 | | | 14 | | | (33 | ) |
Expenses from fully consolidated private equity investments | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total expenses | | (38,629 | ) | | (37,550 | ) | | (37,893 | ) | | (34,783 | ) | | (34,440 | ) | | (33,324 | ) | | (10,959 | ) | | (11,487 | ) | | (11,386 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Income (loss) before income taxes and minority interests in earnings | | 7,261 | | | 7,560 | | | 6,166 | | | 3,102 | | | 2,700 | | | 2,271 | | | 714 | | | 1,275 | | | 1,526 | |
Income taxes | | (1,656 | ) | | (2,075 | ) | | (1,804 | ) | | (897 | ) | | (641 | ) | | (488 | ) | | (266 | ) | | (263 | ) | | (387 | ) |
Minority interests in earnings | | (431 | ) | | (739 | ) | | (827 | ) | | (214 | ) | | (416 | ) | | (425 | ) | | (71 | ) | | (94 | ) | | (102 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | 5,174 | | | 4,746 | | | 3,535 | | | 1,991 | | | 1,643 | | | 1,358 | | | 377 | | | 918 | | | 1,037 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| | | 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)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Asset Management | | | Corporate | | | Consolidation | | | Group | |
| | | 2007 | | 2006 | | | 2005 | | | 2007 | | | 2006 | | | 2005 | | | 2007 | | | 2006 | | | 2005 | | | 2007 | | | 2006 | | | 2005 | |
| | | € mn | | € mn | | | € mn | | | € mn | | | € mn | | | € mn | | | € mn | | | € mn | | | € mn | | | € mn | | | € mn | | | € mn | |
| | — | | — | | | — | | | — | | | — | | | — | | | (23 | ) | | (13 | ) | | (26 | ) | | 65,788 | | | 65,275 | | | 64,766 | |
| | — | | — | | | — | | | — | | | — | | | — | | | 23 | | | 13 | | | 26 | | | (5,934 | ) | | (6,218 | ) | | (6,429 | ) |
| | — | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (492 | ) | | (533 | ) | | (655 | ) |
| | — | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 59,362 | | | 58,524 | | | 57,682 | |
| | 135 | | 112 | | | 90 | | | 855 | | | 509 | | | 416 | | | (1,203 | ) | | (1,045 | ) | | (987 | ) | | 26,047 | | | 23,956 | | | 22,644 | |
| | | | | | | | | | | | |
| | 31 | | 38 | | | 19 | | | 51 | | | (334 | ) | | (441 | ) | | (43 | ) | | 73 | | | — | | | (1,247 | ) | | 940 | | | 1,163 | |
| | 2 | | 7 | | | 6 | | | 980 | | | 861 | | | 172 | | | 288 | | | (283 | ) | | (372 | ) | | 6,548 | | | 6,151 | | | 4,978 | |
| | 4,403 | | 4,186 | | | 3,746 | | | 198 | | | 190 | | | 164 | | | (691 | ) | | (762 | ) | | (641 | ) | | 9,440 | | | 8,856 | | | 8,162 | |
| | 14 | | 11 | | | 11 | | | 15 | | | 28 | | | — | | | (116 | ) | | (90 | ) | | (28 | ) | | 217 | | | 86 | | | 92 | |
| | | | | | | | | | | | |
| | — | | — | | | — | | | 2,367 | | | 1,392 | | | 598 | | | — | | | — | | | — | | | 2,367 | | | 1,392 | | | 598 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 4,585 | | 4,354 | | | 3,872 | | | 4,466 | | | 2,646 | | | 909 | | | (1,765 | ) | | (2,107 | ) | | (2,028 | ) | | 102,734 | | | 99,905 | | | 95,319 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | — | | — | | | — | | | — | | | — | | | — | | | 14 | | | 25 | | | 8 | | | (46,409 | ) | | (45,523 | ) | | (46,802 | ) |
| | | | | | | | | | | | |
| | — | | — | | | — | | | — | | | — | | | — | | | (14 | ) | | (25 | ) | | (8 | ) | | 3,287 | | | 3,226 | | | 4,032 | |
| | | | | | | | | | | | |
| | — | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (43,122 | ) | | (42,297 | ) | | (42,770 | ) |
| | | | | | | | | | | | |
| | — | | — | | | — | | | — | | | — | | | — | | | (78 | ) | | (425 | ) | | (26 | ) | | (10,685 | ) | | (11,375 | ) | | (11,176 | ) |
| | (55) | | (41 | ) | | (33 | ) | | (1,586 | ) | | (1,282 | ) | | (1,321 | ) | | 1,011 | | | 709 | | | 795 | | | (6,672 | ) | | (5,759 | ) | | (6,377 | ) |
| | — | | — | | | — | | | (10 | ) | | (5 | ) | | — | | | — | | | — | | | — | | | 113 | | | (36 | ) | | 109 | |
| | (1) | | (2 | ) | | — | | | (11 | ) | | 32 | | | (62 | ) | | — | | | — | | | — | | | (1,272 | ) | | (775 | ) | | (540 | ) |
| | 1 | | — | | | (1 | ) | | (115 | ) | | (215 | ) | | (345 | ) | | 226 | | | 204 | | | 184 | | | (1,057 | ) | | (1,108 | ) | | (1,092 | ) |
| | | | | | | | | | | | |
| | (2,391) | | (2,286 | ) | | (2,277 | ) | | (642 | ) | | (655 | ) | | (516 | ) | | 80 | | | 87 | | | 84 | | | (23,218 | ) | | (23,486 | ) | | (22,559 | ) |
| | (1,270) | | (1,262 | ) | | (1,110 | ) | | (130 | ) | | (127 | ) | | (92 | ) | | 506 | | | 572 | | | 431 | | | (2,673 | ) | | (2,351 | ) | | (2,312 | ) |
| | — | | (24 | ) | | (25 | ) | | — | | | — | | | — | | | — | | | — | | | — | | | (17 | ) | | (51 | ) | | (50 | ) |
| | (4) | | (4 | ) | | (1 | ) | | (9 | ) | | — | | | — | | | — | | | — | | | — | | | (232 | ) | | (964 | ) | | (100 | ) |
| | — | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (14 | ) | | 1 | | | (51 | ) |
| | | | | | | | | | | | |
| | — | | — | | | — | | | (2,317 | ) | | (1,381 | ) | | (572 | ) | | — | | | — | | | — | | | (2,317 | ) | | (1,381 | ) | | (572 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | (3,720) | | (3,619 | ) | | (3,447 | ) | | (4,820 | ) | | (3,633 | ) | | (2,908 | ) | | 1,745 | | | 1,147 | | | 1,468 | | | (91,166 | ) | | (89,582 | ) | | (87,490 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | 865 | | 735 | | | 425 | | | (354 | ) | | (987 | ) | | (1,999 | ) | | (20 | ) | | (960 | ) | | (560 | ) | | 11,568 | | | 10,323 | | | 7,829 | |
| | (342) | | (278 | ) | | (129 | ) | | 217 | | | 824 | | | 741 | | | 90 | | | 420 | | | 4 | | | (2,854 | ) | | (2,013 | ) | | (2,063 | ) |
| | (25) | | (53 | ) | | (52 | ) | | (21 | ) | | (16 | ) | | (10 | ) | | 14 | | | 29 | | | 30 | | | (748 | ) | | (1,289 | ) | | (1,386 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 498 | | 404 | | | 244 | | | (158 | ) | | (179 | ) | | (1,268 | ) | | 84 | | | (511 | ) | | (526 | ) | | 7,966 | | | 7,021 | | | 4,380 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| 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)
Allianz Group
Business Segment Information—Consolidated Income Statements
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 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) | | | Premiums earned (net) | | Loss ratio1) | |
As of and for the years ended December 31, | | 2007 | | 2006 | | 2005 | | 2007 | | 2006 | | 2005 | | | 2008 | | 2007 | | 2006 | | 2008 | | 2007 | | 2006 | |
| | | € mn | | € mn | | € mn | | % | | % | | % | | | € mn | | € mn | | € mn | | % | | % | | % | |
Europe | | | | | | | | | | | | | | | | | | | | | | | | |
Germany | | 9,245 | | | 9,844 | | | 10,048 | | | 64.8 | | | 65.1 | | | 63.0 | | | 10,191 | | | 9,245 | | | 9,843 | | | 67.3 | | | 64.8 | | | 65.1 | |
Italy | | 4,902 | | | 4,935 | | | 4,964 | | | 71.2 | | | 68.8 | | | 69.3 | | | 4,647 | | | 4,902 | | | 4,935 | | | 73.1 | | | 71.2 | | | 68.8 | |
France | | 4,422 | | | 4,429 | | | 4,375 | | | 70.9 | | | 71.0 | | | 74.0 | | | 3,281 | | | 4,422 | | | 4,429 | | | 69.3 | | | 70.9 | | | 71.0 | |
United Kingdom | | 1,989 | | | 1,874 | | | 1,913 | | | 66.3 | | | 64.1 | | | 65.4 | | | 1,769 | | | 1,989 | | | 1,874 | | | 60.7 | | | 66.3 | | | 64.1 | |
Spain | | 1,820 | | | 1,675 | | | 1,551 | | | 71.6 | | | 71.0 | | | 71.4 | | | 1,863 | | | 1,820 | | | 1,675 | | | 69.9 | | | 71.6 | | | 71.0 | |
Switzerland | | 1,595 | | | 1,706 | | | 1,708 | | | 69.5 | | | 69.3 | | | 74.9 | | | 1,190 | | | 1,595 | | | 1,706 | | | 70.2 | | | 69.5 | | | 69.3 | |
Western and Southern Europe | | 2,768 | | | 2,819 | | | 2,863 | | | 67.4 | | | 61.7 | | | 63.2 | | | 2,822 | | | 2,768 | | | 2,819 | | | 63.9 | | | 67.4 | | | 61.7 | |
New Europe | | 2,067 | | | 1,388 | | | 1,313 | | | 60.8 | | | 61.1 | | | 61.7 | | | 2,312 | | | 2,067 | | | 1,388 | | | 59.0 | | | 60.8 | | | 61.1 | |
| | | | | | | | | | | | | | | | | | | |
Subtotal | | 28,808 | | | 28,670 | | | 28,735 | | | — | | | — | | | — | | | 28,075 | | | 28,808 | | | 28,669 | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | |
NAFTA | | 3,427 | | | 3,623 | | | 3,566 | | | 61.6 | | | 58.4 | | | 67.1 | | | 3,380 | | | 3,426 | | | 3,622 | | | 74.3 | | | 61.6 | | | 58.4 | |
Asia-Pacific | | 1,415 | | | 1,336 | | | 1,280 | | | 69.5 | | | 68.7 | | | 68.0 | | | 1,397 | | | 1,415 | | | 1,336 | | | 71.1 | | | 69.5 | | | 68.7 | |
South America | | 692 | | | 623 | | | 510 | | | 62.9 | | | 64.8 | | | 64.5 | | | 764 | | | 692 | | | 623 | | | 65.1 | | | 62.9 | | | 64.8 | |
Other | | 50 | | | 32 | | | 30 | | | — | 2) | | — | 2) | | — | 2) | | 62 | | | 53 | | | 35 | | | — | 2) | | — | 2) | | — | 2) |
Specialty Lines | | | | | | | | | | | | | | | | | | | | | | | | |
Allianz Global Corporate and Specialty | | 1,800 | | | 1,545 | | | 1,633 | | | 67.9 | | | 62.5 | | | 91.1 | | | 1,981 | | | 1,800 | | | 1,545 | | | 59.7 | | | 67.9 | | | 62.5 | |
Credit Insurance | | 1,268 | | | 1,113 | | | 997 | | | 47.9 | | | 49.7 | | | 41.3 | | | 1,360 | | | 1,268 | | | 1,113 | | | 77.6 | | | 47.9 | | | 49.7 | |
Travel Insurance and Assistance Services | | 1,093 | | | 1,008 | | | 934 | | | 58.1 | | | 58.7 | | | 60.3 | | | 1,196 | | | 1,093 | | | 1,008 | | | 57.6 | | | 58.1 | | | 58.7 | |
| | | | | | | | | | | | | | | | | | | |
Subtotal | | 4,161 | | | 3,666 | | | 3,564 | | | — | | | — | | | — | | | 4,537 | | | 4,161 | | | 3,666 | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | |
Subtotal | | 38,553 | | | 37,950 | | | 37,685 | | | — | | | — | | | — | | | 38,215 | | | 38,555 | | | 37,951 | | | — | | | — | | | — | |
Consolidation3) | | — | | | — | | | — | | | — | | | — | | | — | | | (2 | ) | | (2 | ) | | (1 | ) | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | 38,553 | | | 37,950 | | | 37,685 | | | 66.1 | | | 65.0 | | | 67.2 | | | 38,213 | | | 38,553 | | | 37,950 | | | 68.0 | | | 66.1 | | | 65.0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| LIFE/HEALTH | | Statutory premiums4) | | Statutory expense ratio5) | | | Statutory premiums4) | | Statutory expense ratio5) | |
As of and for the years ended December 31, | | 2007 | | 2006 | | 2005 | | 2007 | | 2006 | | 2005 | | | 2008 | | 2007 | | 2006 | | 2008 | | 2007 | | 2006 | |
| | | € mn | | € mn | | € mn | | % | | % | | % | | | € mn | | € mn | | € mn | | % | | % | | % | |
Europe | | | | | | | | | | | | | | | | | | | | | | | | |
Germany Life | | 13,512 | | | 13,009 | | | 12,231 | | | 5.8 | | | 9.1 | | | 8.1 | | | 13,487 | | | 13,512 | | | 13,009 | | | 8.5 | | | 5.8 | | | 9.1 | |
Germany Health | | 3,123 | | | 3,091 | | | 3,042 | | | 9.8 | | | 9.3 | | | 9.1 | | | 3,119 | | | 3,123 | | | 3,091 | | | 9.0 | | | 9.8 | | | 9.3 | |
Italy | | 9,765 | | | 8,555 | | | 9,313 | | | 5.8 | | | 6.4 | | | 5.4 | | | 5,996 | | | 9,765 | | | 8,555 | | | 8.9 | | | 5.8 | | | 6.4 | |
France | | 6,550 | | | 5,792 | | | 5,286 | | | 15.4 | | | 12.6 | | | 15.1 | | | 7,991 | | | 6,550 | | | 5,792 | | | 14.9 | | | 15.4 | | | 12.6 | |
Switzerland | | 992 | | | 1,005 | | | 1,058 | | | 10.6 | | | 9.9 | | | 8.7 | | | 1,205 | | | 992 | | | 1,005 | | | 9.9 | | | 10.6 | | | 9.9 | |
Spain | | 738 | | | 629 | | | 547 | | | 9.2 | | | 9.3 | | | 7.4 | | | 843 | | | 738 | | | 629 | | | 8.8 | | | 9.2 | | | 9.3 | |
Western and Southern Europe | | 1,762 | | | 1,655 | | | 1,546 | | | 12.1 | | | 14.8 | | | 13.3 | | | 1,852 | | | 1,762 | | | 1,655 | | | 14.5 | | | 12.1 | | | 14.8 | |
New Europe | | 1,039 | | | 828 | | | 479 | | | 20.0 | | | 19.6 | | | 25.7 | | | 1,141 | | | 1,039 | | | 828 | | | 24.4 | | | 20.0 | | | 19.6 | |
| | | | | | | | | | | | | | | | | | | |
Subtotal | | 37,481 | | | 34,564 | | | 33,502 | | | — | | | — | | | — | | | 35,634 | | | 37,481 | | | 34,564 | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | |
NAFTA | | 6,968 | | | 8,758 | | | 11,115 | | | 11.9 | | | 8.0 | | | 4.8 | | | 6,111 | | | 6,968 | | | 8,758 | | | (0.1 | ) | | 11.9 | | | 8.0 | |
Asia-Pacific | | 4,638 | | | 3,733 | | | 3,309 | | | 10.2 | | | 11.2 | | | 12.0 | | | 3,465 | | | 4,638 | | | 3,733 | | | 13.8 | | | 10.2 | | | 11.2 | |
South America | | 78 | | | 147 | | | 141 | | | 32.6 | | | 16.9 | | | 17.7 | | | 190 | | | 78 | | | 147 | | | 10.3 | | | 32.6 | | | 16.9 | |
Other | | 418 | | | 439 | | | 455 | | | — | 2) | | — | 2) | | — | 2) | | 422 | | | 418 | | | 439 | | | — | 2) | | — | 2) | | — | 2) |
| | | | | | | | | | | | | | | | | | | |
Subtotal | | 49,583 | | | 47,641 | | | 48,522 | | | — | | | — | | | — | | | 45,822 | | | 49,583 | | | 47,641 | | | — | | | — | | | — | |
Consolidation3) | | (216 | ) | | (220 | ) | | (250 | ) | | — | | | — | | | — | | | (207 | ) | | (216 | ) | | (220 | ) | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | 49,367 | | | 47,421 | | | 48,272 | | | 9.4 | | | 9.6 | | | 8.4 | | | 45,615 | | | 49,367 | | | 47,421 | | | 9.7 | | | 9.4 | | | 9.6 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
1) | Represents claims and insurance benefits incurred (net) divided by premiums earned (net). |
2) | Presentation not meaningful. |
3) | Represents elimination of intercompany transactions between Allianz Group subsidiaries in different geographic regions. |
4) | Statutory premiums are gross premiums written from sales of life insurance policies, as well as gross receipts from sales of unit linkedunit-linked and other investment-oriented products, in accordance with the statutory accounting practices applicable in the insurer’s home jurisdiction. |
5) | 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 | |
| | | 2007 | | | 2006 | | | 2005 | | | 2007 | | | 2006 | | | 2005 | | | 2007 | | | 2006 | |
| | | % | | | % | | | % | | | € mn | | | € mn | | | € mn | | | € mn | | | € mn | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 26.8 | | | 27.8 | | | 26.4 | | | 1,628 | | | 1,479 | | | 1,765 | | | 52,034 | | | 49,570 | |
| | 23.6 | | | 23.0 | | | 24.3 | | | 719 | | | 816 | | | 741 | | | 14,307 | | | 14,395 | |
| | 26.4 | | | 28.2 | | | 28.0 | | | 486 | | | 420 | | | 227 | | | 25,748 | | | 30,373 | |
| | 33.3 | | | 31.6 | | | 30.8 | | | 208 | | | 281 | | | 268 | | | 6,434 | | | 7,344 | |
| | 19.8 | | | 19.3 | | | 20.0 | | | 253 | | | 252 | | | 217 | | | 4,185 | | | 3,990 | |
| | 25.6 | | | 23.5 | | | 22.9 | | | 218 | | | 228 | | | 153 | | | 5,678 | | | 5,832 | |
| | 28.0 | | | 28.5 | | | 28.0 | | | 482 | | | 550 | | | 494 | | | 7,952 | | | 7,686 | |
| | 33.5 | | | 30.9 | | | 29.3 | | | 256 | | | 184 | | | 213 | | | 5,773 | | | 3,427 | |
| | — | | | — | | | — | | | 4,250 | | | 4,210 | | | 4,078 | | | 122,111 | | | 122,617 | |
| | 29.6 | | | 30.5 | | | 29.1 | | | 663 | | | 825 | | | 495 | | | 10,818 | | | 12,457 | |
| | 26.5 | | | 27.2 | | | 27.2 | | | 312 | | | 244 | | | 252 | | | 6,073 | | | 6,880 | |
| | 36.1 | | | 36.4 | | | 36.3 | | | 55 | | | 47 | | | 61 | | | 1,340 | | | 1,295 | |
| | — | 2) | | — | 2) | | — | 2) | | 9 | | | 9 | | | 7 | | | 236 | | | 211 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 28.1 | | | 29.7 | | | 31.3 | | | 414 | | | 404 | | | (254 | ) | | 16,362 | | | 17,929 | |
| | 28.6 | | | 27.9 | | | 25.7 | | | 496 | | | 442 | | | 420 | | | 4,814 | | | 4,674 | |
| | 35.6 | | | 43.1 | | | 33.0 | | | 97 | | | 90 | | | 77 | | | 1,376 | | | 1,246 | |
| | — | | | — | | | — | | | 1,007 | | | 936 | | | 243 | | | 22,552 | | | 23,849 | |
| | — | | | — | | | — | | | 6,296 | | | 6,271 | | | 5,136 | | | 163,130 | | | 167,309 | |
| | — | | | — | | | — | | | 3 | | | (2 | ) | | 6 | | | (10,754 | ) | | (16,569 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 27.5 | | | 27.9 | | | 27.1 | | | 6,299 | | | 6,269 | | | 5,142 | | | 152,376 | | | 150,740 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | |
| | | Operating profit | | | Total assets | | | | | | | | | | |
| | | 2007 | | | 2006 | | | 2005 | | | 2007 | | | 2006 | | | | | | | | | | |
| | | € mn | | | € mn | | | € mn | | | € mn | | | € mn | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 695 | | | 521 | | | 347 | | | 154,903 | | | 154,009 | | | | | | | | | | |
| | 164 | | | 184 | | | 159 | | | 20,637 | | | 19,022 | | | | | | | | | | |
| | 372 | | | 339 | | | 334 | | | 50,294 | | | 49,905 | | | | | | | | | | |
| | 632 | | | 582 | | | 558 | | | 74,321 | | | 69,231 | | | | | | | | | | |
| | 66 | | | 50 | | | 55 | | | 8,930 | | | 9,053 | | | | | | | | | | |
| | 104 | | | 92 | | | 71 | | | 5,818 | | | 5,840 | | | | | | | | | | |
| | 184 | | | 182 | | | 166 | | | 17,316 | | | 16,693 | | | | | | | | | | |
| | 61 | | | 50 | | | 34 | | | 3,165 | | | 2,537 | | | | | | | | | | |
| | 2,278 | | | 2,000 | | | 1,724 | | | 335,384 | | | 326,290 | | | | | | | | | | |
| | 385 | | | 418 | | | 257 | | | 54,728 | | | 56,371 | | | | | | | | | | |
| | 300 | | | 81 | | | 27 | | | 14,260 | | | 13,061 | | | | | | | | | | |
| | — | | | 1 | | | 2 | | | 234 | | | 259 | | | | | | | | | | |
| | 30 | | | 74 | | | 92 | | | 327 | | | 286 | | | | | | | | | | |
| | 2,993 | | | 2,574 | | | 2,102 | | | 404,933 | | | 396,267 | | | | | | | | | | |
| | 2 | | | (9 | ) | | (8 | ) | | (915 | ) | | (1,032 | ) | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 2,995 | | | 2,565 | | | 2,094 | | | 404,018 | | | 395,235 | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | 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
BANKING SEGMENT—BY DIVISION
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Operating revenues | | | Operating profit (loss) | | | Cost-income ratio | | | Total Assets |
| | | 2007 | | 2006 | | 2005 | | | 2007 | | | 2006 | | 2005 | | | 2007 | | | 2006 | | | 2005 | | | 2007 | | 2006 |
| | | € mn | | € mn | | € mn | | | € mn | | | € mn | | € mn | | | € mn | | | € mn | | | € mn | | | € mn | | € mn |
Private & Corporate Clients1) | | 3,625 | | 3,624 | | 3,464 | | | 884 | | | 783 | | 626 | | | 74.0 | | | 74.9 | | | 77.2 | | | 61,900 | | 62,700 |
Investment Banking1) | | 1,628 | | 3,111 | | 2,613 | | | (659 | ) | | 548 | | 351 | | | 137.0 | | | 82.9 | | | 88.1 | | | 422,300 | | 475,800 |
Corporate Other2) | | 171 | | 69 | | (38 | ) | | 505 | | | 23 | | (347 | ) | | — | 3) | | — | 3) | | — | 3) | | 17,597 | | 16,323 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Dresdner Bank | | 5,424 | | 6,804 | | 6,039 | | | 730 | | | 1,354 | | 630 | | | 89.0 | | | 79.7 | | | 91.4 | | | 501,797 | | 554,823 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other Banks4) | | 297 | | 284 | | 279 | | | 43 | | | 68 | | 74 | | | 83.5 | | | 75.7 | | | 72.4 | | | 7,954 | | 8,067 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | 5,721 | | 7,088 | | 6,318 | | | 773 | | | 1,422 | | 704 | | | 88.7 | | | 79.5 | | | 90.6 | | | 509,751 | | 562,890 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
As of and for the years ended
December 31, | | 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) | Our reporting by division reflects the organizational changes withinDoes not include €420,695 mn assets of disposal groups classified as held-for-sale of Dresdner Bank effective starting with 1Q 2007, resulting in two operating divisions, Private & Corporate Clients (“PCC”) and Investment Banking (“IB”). PCC combines all banking activities formerly provided by the Personal Banking and Private & Business Banking (including Private Wealth Management) divisions as well as our activities with medium-sized business clients from our former Corporate Banking division. IB, with Global Banking and Capital Markets, unites the activities formerly provided by the Dresdner Kleinwort Wasserstein division and the remaining activities of the former Corporate Banking division. Prior year balances have been adjusted accordingly to reflect these reorganization measures and allow for comparability across periods.December 31, 2008.
|
2) | The Corporate Other division contains income and expense items that are not assigned to Dresdner Bank’s operating divisions. These items include, in particular, impacts from the accounting treatment for derivative financial instruments which do not qualify for hedge accounting as well as provisioning requirements for country and general risks. For the years ended December 31, 2007, 2006 and 2005 the impact from the accounting treatment for derivative financial instruments which do not qualify for hedge accounting on Corporate Other’s operating revenues amounted to €(54) mn, €(47) mn and €(214) mn, respectively.
|
3)
| Presentation not meaningful. |
4)
| Consists of non-Dresdner Bank banking operations within our Banking segment.
|
BANKING SEGMENT—BY GEOGRAPHIC REGION
| | | | | | | | | | | | | | |
| | | Operating revenues | | Operating profit (loss) | |
| | | 2007 | | 2006 | | 2005 | | 2007 | | | 2006 | | 2005 | |
| | | € mn | | € mn | | € mn | | € mn | | | € mn | | € mn | |
Germany | | 4,321 | | 4,312 | | 4,340 | | 1,488 | | | 853 | | 814 | |
The Americas | | 433 | | 560 | | 176 | | 77 | | | 251 | | (78 | ) |
Europe | | 664 | | 1,944 | | 1,571 | | (907 | ) | | 234 | | (110 | ) |
New Europe | | 72 | | 60 | | 47 | | 8 | | | 2 | | 3 | |
Asia-Pacific | | 231 | | 212 | | 184 | | 107 | | | 82 | | 75 | |
| | | | | | | | | | | | | | |
Total | | 5,721 | | 7,088 | | 6,318 | | 773 | | | 1,422 | | 704 | |
| | | | | | | | | | | | | | |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
BUSINESS SEGMENT INFORMATION—OPERATING PROFIT
The Allianz Group evaluates the results of its Property-Casualty, Life/Health, Banking, Asset Management and Corporate 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 intangible assets.
[THIS PAGE INTENTIONALLY LEFT BLANK]
While these excluded items are significant components in understanding and assessing the Allianz Group’s consolidated financial performance, the Allianz Group believes that the presentation of operating results enhances the understanding andcomparability of the performance of its operating segments by highlighting net income attributable to on- going segment operations and the underlying profitability of its businesses. For example, the Allianz Group believes that trends in the underlying profitability of its segments can be more clearly identified without the fluctuating effects of the realized capital gains and losses or impairments on invest- ment securities, as these are largely dependent on market cycles or issuer-specific events over which the Allianz Group has little or no control, and can and do vary, sometimes materially, across periods. Further, the timing of sales that would result in such gains or losses is largely at the Allianz Group’s discretion. Operating profit is not a substitute for earnings from ordinary activities before taxes 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.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Allianz Group
Business Segment Information—Total Revenuesrevenues and reconciliation of
Operating Profitprofit (loss) to Net income (loss)
The following table summarizes total revenues, operating profit and net income for each of the segments and the Allianz Group for the years ended December 31, 2007, 2006 and 2005.
| | | | Property-
Casualty | | Life/
Health | | Banking | | Asset
Management | | Corporate | | Consolidation | | Group | | | Property-Casualty1) | | Life/Health1) | | Banking | |
| | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | | 2008 | | 2007 | | 2006 | | 2008 | | 2007 | | 2006 | | 2008 | | 2007 | | 2006 | |
2007 | | | | | | | | | | | | | | | |
Total revenues1) | | 44,289 | | | 49,367 | | | 5,721 | | | 3,259 | | | — | | | (38 | ) | | 102,598 | | |
| | | | € 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) | | 6,299 | | | 2,995 | | | 773 | | | 1,359 | | | (325 | ) | | (186 | ) | | 10,915 | | | 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 | | 962 | | | 107 | | | (59 | ) | | (494 | ) | | (29 | ) | | 166 | | | 653 | | | 287 | | | 962 | | | 1,291 | | | (533 | ) | | 107 | | | 135 | | | (130 | ) | | 13 | | | 13 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Income (loss) before income taxes and minority interests in earnings | | 7,261 | | | 3,102 | | | 714 | | | 865 | | | (354 | ) | | (20 | ) | | 11,568 | | |
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 | | (1,656 | ) | | (897 | ) | | (266 | ) | | (342 | ) | | 217 | | | 90 | | | (2,854 | ) | | (1,489 | ) | | (1,656 | ) | | (2,075 | ) | | (260 | ) | | (897 | ) | | (641 | ) | | 54 | | | 10 | | | (1 | ) |
Minority interests in earnings | | (431 | ) | | (214 | ) | | (71 | ) | | (25 | ) | | (21 | ) | | 14 | | | (748 | ) | | (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) | | 5,174 | | | 1,991 | | | 377 | | | 498 | | | (158 | ) | | 84 | | | 7,966 | | | 4,335 | | | 5,174 | | | 4,746 | | | 327 | | | 1,991 | | | 1,643 | | | (6,418 | ) | | 377 | | | 918 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2006 | | | | | | | | | | | | | | | |
Total revenues1) | | 43,674 | | | 47,421 | | | 7,088 | | | 3,044 | | | — | | | (98 | ) | | 101,129 | | |
Operating profit (loss) | | 6,269 | | | 2,565 | | | 1,422 | | | 1,290 | | | (831 | ) | | (329 | ) | | 10,386 | | |
Non-operating items | | 1,291 | | | 135 | | | (147 | ) | | (555 | ) | | (156 | ) | | (631 | ) | | (63 | ) | |
| | | | | | | | | | | | | | | | | | | | | | |
Income (loss) before income taxes and minority interests in earnings | | 7,560 | | | 2,700 | | | 1,275 | | | 735 | | | (987 | ) | | (960 | ) | | 10,323 | | |
Income taxes | | (2,075 | ) | | (641 | ) | | (263 | ) | | (278 | ) | | 824 | | | 420 | | | (2,013 | ) | |
Minority interests in earnings | | (739 | ) | | (416 | ) | | (94 | ) | | (53 | ) | | (16 | ) | | 29 | | | (1,289 | ) | |
| | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | 4,746 | | | 1,643 | | | 918 | | | 404 | | | (179 | ) | | (511 | ) | | 7,021 | | |
| | | | | | | | | | | | | | | | | | | | | | |
2005 | | | | | | | | | | | | | | | |
Total revenues1) | | 43,699 | | | 48,272 | | | 6,318 | | | 2,722 | | | — | | | (44 | ) | | 100,967 | | |
Operating profit (loss) | | 5,142 | | | 2,094 | | | 704 | | | 1,132 | | | (881 | ) | | (188 | ) | | 8,003 | | |
Non-operating items | | 1,024 | | | 177 | | | 822 | | | (707 | ) | | (1,118 | ) | | (372 | ) | | (174 | ) | |
| | | | | | | | | | | | | | | | | | | | | | |
Income (loss) before income taxes and minority interests in earnings | | 6,166 | | | 2,271 | | | 1,526 | | | 425 | | | (1,999 | ) | | (560 | ) | | 7,829 | | |
Income taxes | | (1,804 | ) | | (488 | ) | | (387 | ) | | (129 | ) | | 741 | | | 4 | | | (2,063 | ) | |
Minority interests in earnings | | (827 | ) | | (425 | ) | | (102 | ) | | (52 | ) | | (10 | ) | | 30 | | | (1,386 | ) | |
| | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | 3,535 | | | 1,358 | | | 1,037 | | | 244 | | | (1,268 | ) | | (526 | ) | | 4,380 | | |
| | | | | | | | | | | | | | | | | | | | | | |
1) | Since the first quarter 2008, health business in Belgium and France is shown within Life/Health segment. Prior year balances have not been adjusted. |
2) | 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)
| | | | 2007 | | 2006 | | 2005 | | | 2008 | | 2007 | | 2006 | |
| | | € mn | | € mn | | € mn | | | € mn | | € mn | | € mn | |
Gross premiums written1) | | 44,289 | | | 43,674 | | | 43,699 | | |
Gross premiums written2) | | | 43,387 | | | 44,289 | | | 43,674 | |
Ceded premiums written | | (5,320 | ) | | (5,415 | ) | | (5,529 | ) | | (4,972 | ) | | (5,320 | ) | | (5,415 | ) |
Change in unearned premiums | | (416 | ) | | (309 | ) | | (485 | ) | | (202 | ) | | (416 | ) | | (309 | ) |
Premiums earned (net) | | 38,553 | | | 37,950 | | | 37,685 | | | 38,213 | | | 38,553 | | | 37,950 | |
Interest and similar income | | 4,473 | | | 4,096 | | | 3,747 | | | 4,477 | | | 4,473 | | | 4,096 | |
Income from financial assets and liabilities designated at fair value through income (net)2) | | 136 | | | 106 | | | 132 | | |
Income from financial assets and liabilities held for trading (net), shared with policyholders2) | | 8 | | | — | | | — | | |
Realized gains/losses (net) from investments, shared with policyholders3) | | 46 | | | 46 | | | 273 | | |
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 | | 1,178 | | | 1,014 | | | 989 | | | 1,247 | | | 1,178 | | | 1,014 | |
Other income | | 122 | | | 69 | | | 53 | | | 271 | | | 122 | | | 69 | |
Income from fully consolidated private equity investments | | | 3 | | | — | | | — | |
| | | | | | | | | | | | | | | | | | |
Operating revenues | | 44,516 | | | 43,281 | | | 42,879 | | | 44,090 | | | 44,516 | | | 43,281 | |
| | | | | | | | | | | | | | | | | | |
Claims and insurance benefits incurred (net) | | (25,485 | ) | | (24,672 | ) | | (25,331 | ) | | (25,986 | ) | | (25,485 | ) | | (24,672 | ) |
Changes in reserves for insurance and investment contracts (net) | | (339 | ) | | (425 | ) | | (707 | ) | | 3 | | | (339 | ) | | (425 | ) |
Interest expense | | (402 | ) | | (273 | ) | | (339 | ) | |
Interest expenses | | | (295 | ) | | (402 | ) | | (273 | ) |
Loan loss provisions | | (6 | ) | | (2 | ) | | (1 | ) | | (17 | ) | | (6 | ) | | (2 | ) |
Impairments of investments (net), shared with policyholders4) | | (67 | ) | | (25 | ) | | (18 | ) | |
Operating impairments of investments (net)5) | | | (437 | ) | | (67 | ) | | (25 | ) |
Investment expenses | | (322 | ) | | (300 | ) | | (333 | ) | | (207 | ) | | (322 | ) | | (300 | ) |
Acquisition and administrative expenses (net) | | (10,616 | ) | | (10,590 | ) | | (10,216 | ) | | (10,356 | ) | | (10,616 | ) | | (10,590 | ) |
Fee and commission expenses | | (967 | ) | | (721 | ) | | (775 | ) | | (1,141 | ) | | (967 | ) | | (721 | ) |
Other expenses | | (13 | ) | | (4 | ) | | (17 | ) | | (2 | ) | | (13 | ) | | (4 | ) |
Expenses from fully consolidated private equity investments | | | (3 | ) | | — | | | — | |
| | | | | | | | | | | | | | | | | | |
Operating expenses | | (38,217 | ) | | (37,012 | ) | | (37,737 | ) | | (38,441 | ) | | (38,217 | ) | | (37,012 | ) |
| | | | | | | | | | | | | | | | | | |
Operating profit | | 6,299 | | | 6,269 | | | 5,142 | | | 5,649 | | | 6,299 | | | 6,269 | |
| | | | | | | | | | | | | | | | | | |
Income from financial assets and liabilities held for trading (net), not shared with policyholders2) | | (59 | ) | | 83 | | | 32 | | |
Realized gains/losses (net) from investments, not shared with policyholders3) | | 1,433 | | | 1,746 | | | 1,148 | | |
Impairments of investments (net), not shared with policyholders4) | | (276 | ) | | (175 | ) | | (77 | ) | |
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 | | (14 | ) | | (1 | ) | | (11 | ) | | (17 | ) | | (14 | ) | | (1 | ) |
Restructuring charges | | (122 | ) | | (362 | ) | | (68 | ) | | (75 | ) | | (122 | ) | | (362 | ) |
| | | | | | | | | | | | | | | | | | |
Non-operating items | | 962 | | | 1,291 | | | 1,024 | | | 287 | | | 962 | | | 1,291 | |
| | | | | | | | | | | | | | | | | | |
Income before income taxes and minority interests in earnings | | 7,261 | | | 7,560 | | | 6,166 | | | 5,936 | | | 7,261 | | | 7,560 | |
Income taxes | | (1,656 | ) | | (2,075 | ) | | (1,804 | ) | | (1,489 | ) | | (1,656 | ) | | (2,075 | ) |
Minority interests in earnings | | (431 | ) | | (739 | ) | | (827 | ) | | (112 | ) | | (431 | ) | | (739 | ) |
| | | | | | | | | | | | | | | | | | |
Net income | | 5,174 | | | 4,746 | | | 3,535 | | | 4,335 | | | 5,174 | | | 4,746 | |
| | | | | | | | | | | | | | | | | | |
Loss ratio5) in % | | 66.1 | | | 65.0 | | | 67.2 | | |
Expense ratio6) in % | | 27.5 | | | 27.9 | | | 27.1 | | |
Loss ratio6)in % | | | 68.0 | | | 66.1 | | | 65.0 | |
Expense ratio7)in % | | | 27.1 | | | 27.5 | | | 27.9 | |
| | | | | | | | | | | | | | | | | | |
Combined ratio7) in % | | 93.6 | | | 92.9 | | | 94.3 | | |
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. |
2)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. |
3)4)
| The total of these items equals realized gains/losses (net) in the segment income statement. |
4)5)
| The total of these items equals impairments of investments (net) in the segment income statement. |
5)6)
| Represents claims and insurance benefits incurred (net) divided by premiums earned (net). |
6)7)
| Represents acquisition and administrative expenses (net) divided by premiums earned (net). |
7)8)
| Represents the total of acquisition and administrative expenses (net) and claims and insurance benefits incurred (net) divided by premiums earned (net). |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Life/Health Segment1)
| | | | 2007 | | 2006 | | 2005 | | | 2008 | | 2007 | | 2006 | |
| | | € mn | | € mn | | € mn | | | € mn | | € mn | | € mn | |
Statutory premiums1) | | 49,367 | | | 47,421 | | | 48,272 | | |
Statutory premiums2) | | | 45,615 | | | 49,367 | | | 47,421 | |
Ceded premiums written | | (644 | ) | | (840 | ) | | (942 | ) | | (588 | ) | | (644 | ) | | (840 | ) |
Change in unearned premiums | | (61 | ) | | (221 | ) | | (168 | ) | | (54 | ) | | (61 | ) | | (221 | ) |
Statutory premiums (net) | | 48,662 | | | 46,360 | | | 47,162 | | | 44,973 | | | 48,662 | | | 46,360 | |
Deposits from SFAS 97 insurance and investment contracts | | (27,853 | ) | | (25,786 | ) | | (27,165 | ) | | (22,742 | ) | | (27,853 | ) | | (25,786 | ) |
Premiums earned (net) | | 20,809 | | | 20,574 | | | 19,997 | | | 22,231 | | | 20,809 | | | 20,574 | |
Interest and similar income | | 13,417 | | | 12,972 | | | 12,057 | | | 13,772 | | | 13,417 | | | 12,972 | |
Income (loss) from financial assets and liabilities carried at fair value through income (net), shared with policyholders2) | | (945 | ) | | (361 | ) | | 258 | | |
Realized gains/losses (net) from investments, shared with policyholders3) | | 3,579 | | | 3,087 | | | 2,523 | | |
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 | | 701 | | | 630 | | | 507 | | | 571 | | | 701 | | | 630 | |
Other income | | 182 | | | 43 | | | 45 | | | 140 | | | 182 | | | 43 | |
Income from fully consolidated private equity investments | | | 18 | | | — | | | — | |
| | | | | | | | | | | | | | | | | | |
Operating revenues | | 37,743 | | | 36,945 | | | 35,387 | | | 37,371 | | | 37,743 | | | 36,945 | |
| | | | | | | | | | | | | | | | | | |
Claims and insurance benefits incurred (net) | | (17,637 | ) | | (17,625 | ) | | (17,439 | ) | | (19,673 | ) | | (17,637 | ) | | (17,625 | ) |
Changes in reserves for insurance and investment contracts (net) | | (10,268 | ) | | (10,525 | ) | | (10,443 | ) | | (5,122 | ) | | (10,268 | ) | | (10,525 | ) |
Interest expense | | (374 | ) | | (280 | ) | | (452 | ) | |
Interest expenses | | | (283 | ) | | (374 | ) | | (280 | ) |
Loan loss provisions | | 3 | | | (1 | ) | | — | | | (13 | ) | | 3 | | | (1 | ) |
Impairments of investments (net), shared with policyholders4) | | (824 | ) | | (390 | ) | | (199 | ) | |
Operating impairments of investments (net)5) | | | (5,747 | ) | | (824 | ) | | (390 | ) |
Investment expenses | | (833 | ) | | (750 | ) | | (567 | ) | | (673 | ) | | (833 | ) | | (750 | ) |
Acquisition and administrative expenses (net) | | (4,588 | ) | | (4,437 | ) | | (3,973 | ) | | (4,375 | ) | | (4,588 | ) | | (4,437 | ) |
Fee and commission expenses | | (209 | ) | | (223 | ) | | (219 | ) | | (253 | ) | | (209 | ) | | (223 | ) |
Operating restructuring charges5) | | (16 | ) | | (140 | ) | | — | | |
Operating restructuring charges6) | | | 1 | | | (16 | ) | | (140 | ) |
Other expenses | | (2 | ) | | (9 | ) | | (1 | ) | | (7 | ) | | (2 | ) | | (9 | ) |
Expenses from fully consolidated private equity investments | | | (20 | ) | | — | | | — | |
| | | | | | | | | | | | | | | | | | |
Operating expenses | | (34,748 | ) | | (34,380 | ) | | (33,293 | ) | | (36,165 | ) | | (34,748 | ) | | (34,380 | ) |
| | | | | | | | | | | | | | | | | | |
Operating profit | | 2,995 | | | 2,565 | | | 2,094 | | | 1,206 | | | 2,995 | | | 2,565 | |
| | | | | | | | | | | | | | | | | | |
Income from financial assets and liabilities carried at fair value through income (net), not shared with policyholders2) | | 5 | | | — | | | — | | |
Realized gains/losses (net) from investments, not shared with policyholders3) | | 137 | | | 195 | | | 208 | | |
Impairments of investments (net), not shared with policyholders4) | | (3 | ) | | — | | | — | | |
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 | ) | | (26 | ) | | (13 | ) | | (3 | ) | | (3 | ) | | (26 | ) |
Non-operating restructuring charges5) | | (29 | ) | | (34 | ) | | (18 | ) | |
Non-operating restructuring charges6) | | | (51 | ) | | (29 | ) | | (34 | ) |
Non-operating items | | 107 | | | 135 | | | 177 | | | (533 | ) | | 107 | | | 135 | |
| | | | | | | | | | | | | | | | | | |
Income before income taxes and minority interests in earnings | | 3,102 | | | 2,700 | | | 2,271 | | | 673 | | | 3,102 | | | 2,700 | |
Income taxes | | (897 | ) | | (641 | ) | | (488 | ) | | (260 | ) | | (897 | ) | | (641 | ) |
Minority interests in earnings | | (214 | ) | | (416 | ) | | (425 | ) | | (86 | ) | | (214 | ) | | (416 | ) |
| | | | | | | | | | | | | | | | | | |
Net income | | 1,991 | | | 1,643 | | | 1,358 | | | 327 | | | 1,991 | | | 1,643 | |
| | | | | | | | | | | | | | | | | | |
Statutory expense ratio6) in % | | 9.4 | | | 9.6 | | | 8.4 | | |
Statutory expense ratio7)in % | | | 9.7 | | | 9.4 | | | 9.6 | |
| | | | | | | | | | | | | | | | | | |
| 1) | 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 Life/Health segment, total revenues are measured based upon statutory premiums. Statutory premiums are gross premiums written from sales of life insurance policies, as well as gross receipts from sales of unit linkedunit-linked and other investment-oriented products, in accordance with the statutory accounting practices applicable in the insurer’s home jurisdiction. |
2)
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. |
3)
4) | The total of these items equals realized gains/losses (net) in the segment income statement. |
4)
5) | The total of these items equals impairments of investments (net) in the segment income statement. |
5)
6) | The total of these items equals restructuring charges in the segment income statement. |
6)
7) | Represents acquisition and administrative expenses (net) divided by statutory premiums (net). |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Banking Segment
| | | | 2007 | | 2006 | | 2005 | | | 2008 | | 2007 | | 2006 | |
| | | Banking
Segment | | Dresdner
Bank | | Banking
Segment | | Dresdner
Bank1) | | Banking
Segment | | Dresdner
Bank | | | € 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
(net)3) | | | — | | | — | | | — | |
| | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | | | | | | | | | |
Net interest income2) | | 3,104 | | | 2,987 | | | 2,720 | | | 2,645 | | | 2,294 | | | 2,218 | | |
Net fee and commission income3) | | 3,048 | | | 2,866 | | | 3,008 | | | 2,841 | | | 2,850 | | | 2,693 | | |
Trading income (net)4) | | (464 | ) | | (461 | ) | | 1,282 | | | 1,242 | | | 1,170 | | | 1,123 | | |
Income from financial assets and liabilities designated at fair value through income (net)4) | | 33 | | | 33 | | | 53 | | | 53 | | | (7 | ) | | (6 | ) | |
Other income | | — | | | (1 | ) | | 25 | | | 23 | | | 11 | | | 11 | | |
| | | | | | | | | | | | | | | | | | | |
Operating revenues5) | | 5,721 | | | 5,424 | | | 7,088 | | | 6,804 | | | 6,318 | | | 6,039 | | |
Operating revenues4) | | | 544 | | | 622 | | | 604 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Administrative expenses | | (5,061 | ) | | (4,809 | ) | | (5,605 | ) | | (5,384 | ) | | (5,661 | ) | | (5,452 | ) | | (552 | ) | | (589 | ) | | (550 | ) |
Investment expenses | | (14 | ) | | (20 | ) | | (47 | ) | | (53 | ) | | (30 | ) | | (37 | ) | | 9 | | | 6 | | | 6 | |
Other expenses | | 1 | | | 3 | | | 14 | | | 14 | | | (33 | ) | | (33 | ) | | (3 | ) | | (2 | ) | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Operating expenses | | (5,074 | ) | | (4,826 | ) | | (5,638 | ) | | (5,423 | ) | | (5,724 | ) | | (5,522 | ) | | (546 | ) | | (585 | ) | | (544 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Loan loss provisions | | 126 | | | 132 | | | (28 | ) | | (27 | ) | | 110 | | | 113 | | | (29 | ) | | (5 | ) | | 3 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Operating profit | | 773 | | | 730 | | | 1,422 | | | 1,354 | | | 704 | | | 630 | | |
Operating profit (loss) | | | (31 | ) | | 32 | | | 63 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Realized gains/losses (net) | | 83 | | | 70 | | | 492 | | | 492 | | | 1,020 | | | 1,020 | | | (6 | ) | | 18 | | | 15 | |
Impairments of investments (net) | | (90 | ) | | (89 | ) | | (215 | ) | | (215 | ) | | (184 | ) | | (183 | ) | | (120 | ) | | (3 | ) | | — | |
Amortization of intangible assets | | — | | | — | | | — | | | — | | | (1 | ) | | — | | | (2 | ) | | — | | | — | |
Restructuring charges | | (52 | ) | | (51 | ) | | (424 | ) | | (422 | ) | | (13 | ) | | (12 | ) | | (2 | ) | | (2 | ) | | (2 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Non-operating items | | (59 | ) | | (70 | ) | | (147 | ) | | (145 | ) | | 822 | | | 825 | | | (130 | ) | | 13 | | | 13 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Income before income taxes and minority interests in earnings | | 714 | | | 660 | | | 1,275 | | | 1,209 | | | 1,526 | | | 1,455 | | |
Income (loss) from continuing operations before income taxes and minority interests in earnings | | | (161 | ) | | 45 | | | 76 | |
Income taxes | | (266 | ) | | (232 | ) | | (263 | ) | | (236 | ) | | (387 | ) | | (373 | ) | | 54 | | | 10 | | | (1 | ) |
Minority interests in earnings | | (71 | ) | | (62 | ) | | (94 | ) | | (82 | ) | | (102 | ) | | (82 | ) | | (7 | ) | | — | | | (6 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | 377 | | | 366 | | | 918 | | | 891 | | | 1,037 | | | 1,000 | | |
Net income (loss) from continuing operations | | | (114 | ) | | 55 | | | 69 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cost-income ratio6) in % | | 88.7 | | | 89.0 | | | 79.5 | | | 79.7 | | | 90.6 | | | 91.4 | | |
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 | |
| | | | | | | | | | |
1) | We have enhanced the presentation of revenues and operating profit stemming from trades in shares of Allianz SE and its affiliates. From 2007 onwards, these results are eliminated on Dresdner Bank level, whereas in 2006 they were adjusted on segment level only. At Dresdner Bank this led to reduced operating revenues and reduced operating profit of €6 mn and €6 mn, respectively, compared to the figures as stated in 2006. As a result income taxes decreased by €3 mn. All other changes are related to rounding.
|
2)
| Represents interest and similar income less interest expense.expenses. |
3)2)
| Represents fee and commission income less fee and commission expenses. |
4)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. |
5)4)
| For the Banking segment, total revenues are measured based upon operating revenues. |
6)5)
| Represents operating expenses divided by operating revenues. |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Asset Management Segment
| | | | 2007 | | 2006 | | 2005 | | | 2008 | | 2007 | | 2006 | |
| | | Asset
Management
Segment | | Allianz
Global
Investors | | Asset
Management
Segment | | Allianz
Global
Investors | | Asset
Management
Segment | | Allianz
Global
Investors | | | Asset
Management | | Allianz
Global
Investors | | Asset
Management | | Allianz
Global
Investors | | Asset
Management | | Allianz
Global
Investors | |
| | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | |
Net fee and commission income1) | | 3,133 | | | 3,060 | | | 2,924 | | | 2,874 | | | 2,636 | | | 2,597 | | | 2,874 | | | 2,812 | | | 3,133 | | | 3,060 | | | 2,924 | | | 2,874 | |
Net interest income2) | | 81 | | | 75 | | | 71 | | | 66 | | | 56 | | | 51 | | | 62 | | | 54 | | | 81 | | | 75 | | | 71 | | | 66 | |
Income from financial assets and liabilities carried at fair value through income (net) | | 31 | | | 29 | | | 38 | | | 37 | | | 19 | | | 18 | | | (77 | ) | | (80 | ) | | 31 | | | 29 | | | 38 | | | 37 | |
Other income | | 14 | | | 14 | | | 11 | | | 12 | | | 11 | | | 11 | | | 28 | | | 27 | | | 14 | | | 14 | | | 11 | | | 12 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Operating revenues3) | | 3,259 | | | 3,178 | | | 3,044 | | | 2,989 | | | 2,722 | | | 2,677 | | | 2,887 | | | 2,813 | | | 3,259 | | | 3,178 | | | 3,044 | | | 2,989 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Administrative expenses, excluding acquisition-related expenses4) | | (1,900 | ) | | (1,857 | ) | | (1,754 | ) | | (1,713 | ) | | (1,590 | ) | | (1,560 | ) | | (1,961 | ) | | (1,909 | ) | | (1,900 | ) | | (1,857 | ) | | (1,754 | ) | | (1,713 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Operating expenses | | (1,900 | ) | | (1,857 | ) | | (1,754 | ) | | (1,713 | ) | | (1,590 | ) | | (1,560 | ) | | (1,961 | ) | | (1,909 | ) | | (1,900 | ) | | (1,857 | ) | | (1,754 | ) | | (1,713 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Operating profit | | 1,359 | | | 1,321 | | | 1,290 | | | 1,276 | | | 1,132 | | | 1,117 | | | 926 | | | 904 | | | 1,359 | | | 1,321 | | | 1,290 | | | 1,276 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Realized gains/losses (net) | | 2 | | | 4 | | | 7 | | | 5 | | | 6 | | | 5 | | | 5 | | | 5 | | | 2 | | | 4 | | | 7 | | | 5 | |
Impairments of investments (net) | | (1 | ) | | (1 | ) | | (2 | ) | | (2 | ) | | — | | | — | | | (19 | ) | | (13 | ) | | (1 | ) | | (1 | ) | | (2 | ) | | (2 | ) |
Acquisition-related expenses4), thereof: | | | | | | | | | | | | | | | | | | | | | | | | |
Deferred purchases of interests in PIMCO | | (488 | ) | | (488 | ) | | (523 | ) | | (523 | ) | | (677 | ) | | (677 | ) | | (278 | ) | | (278 | ) | | (488 | ) | | (488 | ) | | (523 | ) | | (523 | ) |
Other acquisition-related expenses5) | | (3 | ) | | (3 | ) | | (9 | ) | | (9 | ) | | (10 | ) | | (10 | ) | |
Other acquisition-related expenses | | | — | | | — | | | (3 | ) | | (3 | ) | | (9 | ) | | (9 | ) |
Subtotal | | (491 | ) | �� | (491 | ) | | (532 | ) | | (532 | ) | | (687 | ) | | (687 | ) | | (278 | ) | | (278 | ) | | (491 | ) | | (491 | ) | | (532 | ) | | (532 | ) |
Amortization of intangible assets | | — | | | — | | | (24 | ) | | (23 | ) | | (25 | ) | | (25 | ) | | (1 | ) | | (1 | ) | | — | | | — | | | (24 | ) | | (23 | ) |
Restructuring charges | | (4 | ) | | (4 | ) | | (4 | ) | | (4 | ) | | (1 | ) | | (1 | ) | | — | | | — | | | (4 | ) | | (4 | ) | | (4 | ) | | (4 | ) |
Non-operating items | | (494 | ) | | (492 | ) | | (555 | ) | | (556 | ) | | (707 | ) | | (708 | ) | | (293 | ) | | (287 | ) | | (494 | ) | | (492 | ) | | (555 | ) | | (556 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Income before income taxes and minority interests in earnings | | 865 | | | 829 | | | 735 | | | 720 | | | 425 | | | 409 | | | 633 | | | 617 | | | 865 | | | 829 | | | 735 | | | 720 | |
Income taxes | | (342 | ) | | (337 | ) | | (278 | ) | | (276 | ) | | (129 | ) | | (127 | ) | | (249 | ) | | (246 | ) | | (342 | ) | | (337 | ) | | (278 | ) | | (276 | ) |
Minority interests in earnings | | (25 | ) | | (22 | ) | | (53 | ) | | (49 | ) | | (52 | ) | | (48 | ) | | (5 | ) | | (2 | ) | | (25 | ) | | (22 | ) | | (53 | ) | | (49 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | 498 | | | 470 | | | 404 | | | 395 | | | 244 | | | 234 | | | 379 | | | 369 | | | 498 | | | 470 | | | 404 | | | 395 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cost-income ratio6) in % | | 58.3 | | | 58.4 | | | 57.6 | | | 57.3 | | | 58.4 | | | 58.3 | | |
Cost-income ratio5)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 expenseexpenses 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. |
5) | Consists of retention payments for the management and employees of PIMCO and Nicholas Applegate.
|
6)
| Represents operating expenses divided by operating revenues.revenues |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Corporate Segment
| | | | 2007 | | 2006 | | 2005 | | | 2008 | | 2007 | | 2006 | |
| | | € mn | | € mn | | € mn | | | € mn | | € mn | | € mn | |
Interest and similar income | | 855 | | | 509 | | | 416 | | | 883 | | | 855 | | | 509 | |
Income from financial assets and liabilities designated at fair value through income (net)1) | | 7 | | | (60 | ) | | — | | |
Operating income from financial assets and liabilities held for trading (net)1) | | (33 | ) | | — | | | — | | |
Operating income from financial assets and liabilities carried at fair value through income (net)1) | | | (98 | ) | | (26 | ) | | (60 | ) |
Fee and commission income | | 198 | | | 190 | | | 164 | | | 221 | | | 198 | | | 190 | |
Other income | | 15 | | | 28 | | | — | | | 1 | | | 15 | | | 28 | |
Income from fully consolidated private equity investments | | 2,367 | | | 1,392 | | | 598 | | | 2,528 | | | 2,367 | | | 1,392 | |
| | | | | | | | | | | | | | | | | | |
Operating revenues | | 3,409 | | | 2,059 | | | 1,178 | | | 3,535 | | | 3,409 | | | 2,059 | |
| | | | | | | | | | | | | | | | | | |
Interest expense, excluding interest expense from external debt2) | | (535 | ) | | (507 | ) | | (534 | ) | |
Loan loss provisions | | (10 | ) | | (5 | ) | | — | | |
Interest expenses, excluding interest expenses from external debt2) | | | (635 | ) | | (535 | ) | | (507 | ) |
Loan loss provision | | | — | | | (10 | ) | | (5 | ) |
Investment expenses | | (115 | ) | | (215 | ) | | (345 | ) | | 11 | | | (115 | ) | | (215 | ) |
Acquisition and administrative expenses (net), excluding acquisition-related expenses3) | | (627 | ) | | (655 | ) | | (516 | ) | | (477 | ) | | (627 | ) | | (655 | ) |
Fee and commission expenses | | (130 | ) | | (127 | ) | | (92 | ) | | (170 | ) | | (130 | ) | | (127 | ) |
Expenses from fully consolidated private equity investments | | (2,317 | ) | | (1,381 | ) | | (572 | ) | | (2,452 | ) | | (2,317 | ) | | (1,381 | ) |
Operating expenses | | (3,734 | ) | | (2,890 | ) | | (2,059 | ) | | (3,723 | ) | | (3,734 | ) | | (2,890 | ) |
| | | | | | | | | | | | | | | | | | |
Operating profit (loss) | | (325 | ) | | (831 | ) | | (881 | ) | |
Operating loss | | | (188 | ) | | (325 | ) | | (831 | ) |
| | | | | | | | | | | | | | | | | | |
Non-operating income from financial assets and liabilities held for trading (net)1) | | 77 | | | (274 | ) | | (441 | ) | |
Non-operating income from financial assets and liabilities carried at fair value through income (net)1) | | | 210 | | | 77 | | | (274 | ) |
Realized gains/losses (net) | | 980 | | | 861 | | | 172 | | | 245 | | | 980 | | | 861 | |
Interest expense from external debt2) | | (1,051 | ) | | (775 | ) | | (787 | ) | |
Interest expenses from external debt2) | | | (945 | ) | | (1,051 | ) | | (775 | ) |
Impairments of investments (net) | | (11 | ) | | 32 | | | (62 | ) | | (697 | ) | | (11 | ) | | 32 | |
Acquisition-related expenses3) | | (15 | ) | | — | | | — | | | 33 | | | (15 | ) | | — | |
Restructuring charges | | (9 | ) | | — | | | — | | | (2 | ) | | (9 | ) | | — | |
Non-operating items | | (29 | ) | | (156 | ) | | (1,118 | ) | | (1,156 | ) | | (29 | ) | | (156 | ) |
| | | | | | | | | | | | | | | | | | |
Loss before income taxes and minority interests in earnings | | (354 | ) | | (987 | ) | | (1,999 | ) | | (1,344 | ) | | (354 | ) | | (987 | ) |
Income taxes | | 217 | | | 824 | | | 741 | | | 631 | | | 217 | | | 824 | |
Minority interests in earnings | | (21 | ) | | (16 | ) | | (10 | ) | | (12 | ) | | (21 | ) | | (16 | ) |
| | | | | | | | | | | | | | | | | | |
Net loss | | (158 | ) | | (179 | ) | | (1,268 | ) | | (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 expenseexpenses 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 to the
Consolidated Balance Sheets
67 Cash and cash equivalents
| As of December 31, 2007 | | 2007 | | 2006 | |
As of December 31, | | | 20081) | | 2007 |
| | | € mn | | € mn | | € mn | | € mn |
Balances with banks payable on demand | | 23,848 | | 26,915 | | 7,760 | | 23,848 |
Balances with central banks | | 6,301 | | 4,945 | | 456 | | 6,301 |
Cash on hand | | 918 | | 919 | | 169 | | 918 |
Treasury bills, discounted treasury notes, similar treasury securities and checks | | 264 | | 224 | |
Bills of exchange | | 6 | | 28 | |
Treasury bills, discounted treasury notes, similar treasury securities, bills of exchange and checks | | | 573 | | 270 |
| | | | | | | | |
Total | | 31,337 | | 33,031 | | 8,958 | | 31,337 |
| | | | | | | | |
1) | Does not include cash and cash equivalents of Dresdner Bank which were classified as held-for-sale. See Note 4. |
As of December 31, 2007,2008, compulsory deposits on accounts with national central banks under restrictions due to required reserves from the European Central Bank totaled €5,473€363 mn (2006: €4,176 mn)(2007: €5,473mn).
78 Financial assets carried at fair value through income
| As of December 31, | | 2007 | | 2006 | | 20081) | | 2007 |
| | | € mn | | € mn | | € mn | | € mn |
Financial assets held for trading | | | | | | | | |
Debt securities1) | | 59,715 | | 81,881 | |
Debt securities | | | 547 | | 59,715 |
Equity securities | | 30,596 | | 31,266 | | 99 | | 30,596 |
Derivative financial instruments | | 73,230 | | 66,958 | | 1,978 | | 73,230 |
| | | | | | | | |
Subtotal | | 163,541 | | 180,105 | | 2,624 | | 163,541 |
| | | | | | | | |
Financial assets designated at fair value through income | | | | | | | | |
Debt securities2)3) | | 15,924 | | 14,414 | |
Debt securities2) | | | 8,589 | | 15,924 |
Equity securities | | 4,232 | | 3,834 | | 3,027 | | 4,232 |
Loans to banks and customers | | 1,764 | | 639 | | — | | 1,764 |
| | | | | | | | |
Subtotal | | 21,920 | | 18,887 | | 11,616 | | 21,920 |
| | | | | | | | |
Total | | 185,461 | | 198,992 | | 14,240 | | 185,461 |
| | | | | | | | |
1) | Debt securities held for tradingDoes not include €15.1 bn of asset-backed securitiesfinancial assets carried at fair value through income of Dresdner Bank which were classified as of December 31, 2007.held-for-sale. See Note 4.
|
2) | Debt securities designated at fair value through income include €2.8 bn of credit investment related conduits (“CIRC”) of Dresdner Bank as of December 31, 2007. |
3)
| Debt securities designated at fair value through income include €0.8€0.2 bn of asset-backed securities of the Life/Health segment as of December 31, 2007.2008.
|
Debt 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 December 31, 2007,2008, the debt securities include €17,281€55 mn (2006: €21,924(2007: €17,281 mn) from public sector issuers and €42,434€492 mn (2006: €59,957(2007: €42,434 mn) from other issuers.
Credit risk exposure of loans to banks and customers designated at fair value through income
The maximum credit exposureAs of December 31, 2008 all of the loans to banks and customers designated at fair value through income amountsrelated to €1,779 mn (2006: €630 mn)the discontinued operations of Dresdner Bank and thus have been reclassified and presented as of December 31, 2007. The Allianz Group hedged the credit exposure using credit derivatives“Non-current assets and assets from disposal groups held-for-sale” in accordance with a notional value of €1,468 mn (2006: €379 mn).
The change in fair value of loans to banks and customers attributable to changes in credit risk amounts to a loss of €23 mn (2006: gain of €10 mn) for the year ended December 31, 2007 and cumulatively to a loss of €13 mn (2006: gain of €10 mn).
The change in fair value of the credit derivatives attributable to changes in credit risk amounts to a gain of €8 mn for the year ended December 31, 2007 and cumulatively to a gain of €8 mn.
The change in fair value of loans to banks and customers attributable to changes in credit risk has been calculated using a credit spread function. The credit spread function is based on various parameters, primarily on the default probability and recovery rate of the loan holder. In most cases the fair value of the financial assets is determined using quoted marked prices, while in some cases specific valuation models based on the above parameters are used.IFRS 5.
89 Investments
| As of December 31, | | 2007 | | 2006 | | 20081) | | 2007 |
| | | € mn | | € mn | | € mn | | € mn |
Available-for-sale investments | | 268,001 | | 277,898 | | 242,099 | | 268,001 |
Held-to-maturity investments | | 4,659 | | 4,748 | | 4,934 | | 4,659 |
Funds held by others under reinsurance contracts assumed | | 1,063 | | 1,033 | | 1,039 | | 1,063 |
Investments in associates and joint ventures | | 5,471 | | 4,900 | | 4,524 | | 5,471 |
Real estate held for investment | | 7,758 | | 9,555 | | 7,551 | | 7,758 |
| | | | | | | | |
Total | | 286,952 | | 298,134 | | 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 Allianz Group’s Consolidated Financial Statements—(Continued)
Available-for-sale investments
| As of December 31, | | 2007 | | 2006 | | 2008 | | 2007 |
| | | Amortized
Cost | | Unrealized
Gains | | Unrealized
Losses | | Fair
Value | | Amortized
Cost | | Unrealized
Gains | | Unrealized
Losses | | Fair
Value | | Amortized
Cost | | Unrealized
Gains | | Unrealized
Losses | | Fair
Value | | Amortized
Cost | | Unrealized
Gains | | Unrealized
Losses | | Fair
Value |
| | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn |
Debt securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Government and agency mortgage-backed securities (residential and commercial)1) | | 7,628 | | 30 | | (112 | ) | | 7,546 | | 8,757 | | 16 | | (218 | ) | | 8,555 | | 7,814 | | 177 | | (2 | ) | | 7,989 | | 7,628 | | 30 | | (112 | ) | | 7,546 |
Corporate mortgage-backed securities (residential and commercial)1) | | 6,663 | | 39 | | (101 | ) | | 6,601 | | 4,768 | | 38 | | (53 | ) | | 4,753 | | 8,714 | | 14 | | (1,417 | ) | | 7,311 | | 6,663 | | 39 | | (101 | ) | | 6,601 |
Other asset-backed securities1) | | 5,384 | | 34 | | (92 | ) | | 5,326 | | 3,911 | | 25 | | (40 | ) | | 3,896 | | 4,858 | | 16 | | (385 | ) | | 4,489 | | 5,384 | | 34 | | (92 | ) | | 5,326 |
Government and government agency bonds | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Germany | | 12,987 | | 127 | | (187 | ) | | 12,927 | | 14,523 | | 335 | | (139 | ) | | 14,719 | | 10,786 | | 748 | | (11 | ) | | 11,523 | | 12,987 | | 127 | | (187 | ) | | 12,927 |
Italy | | 23,090 | | 232 | | (259 | ) | | 23,063 | | 23,722 | | 560 | | (127 | ) | | 24,155 | | 22,101 | | 428 | | (353 | ) | | 22,176 | | 23,090 | | 232 | | (259 | ) | | 23,063 |
France | | 13,452 | | 596 | | (255 | ) | | 13,793 | | 15,353 | | 798 | | (133 | ) | | 16,018 | | 13,628 | | 1,240 | | (42 | ) | | 14,826 | | 13,452 | | 596 | | (255 | ) | | 13,793 |
United States | | 4,544 | | 114 | | (20 | ) | | 4,638 | | 5,219 | | 28 | | (135 | ) | | 5,112 | | 3,996 | | 343 | | (22 | ) | | 4,317 | | 4,544 | | 114 | | (20 | ) | | 4,638 |
Spain | | 6,717 | | 150 | | (79 | ) | | 6,788 | | 8,322 | | 337 | | (42 | ) | | 8,617 | | 5,414 | | 299 | | (16 | ) | | 5,697 | | 6,717 | | 150 | | (79 | ) | | 6,788 |
Belgium | | 5,050 | | 38 | | (114 | ) | | 4,974 | | 5,210 | | 124 | | (38 | ) | | 5,296 | | 4,571 | | 217 | | (2 | ) | | 4,786 | | 5,050 | | 38 | | (114 | ) | | 4,974 |
All other countries | | 32,445 | | 77 | | (565 | ) | | 31,957 | | 31,655 | | 612 | | (243 | ) | | 32,024 | | 34,246 | | 1,298 | | (574 | ) | | 34,970 | | 32,445 | | 77 | | (565 | ) | | 31,957 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Subtotal | | 98,285 | | 1,334 | | (1,479 | ) | | 98,140 | | 104,004 | | 2,794 | | (857 | ) | | 105,941 | | 94,742 | | 4,573 | | (1,020 | ) | | 98,295 | | 98,285 | | 1,334 | | (1,479 | ) | | 98,140 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Corporate bonds | | 86,095 | | 660 | | (2,356 | ) | | 84,399 | | 82,061 | | 1,367 | | (769 | ) | | 82,659 | | 98,864 | | 1,367 | | (7,028 | ) | | 93,203 | | 86,095 | | 660 | | (2,356 | ) | | 84,399 |
Other | | 2,933 | | 99 | | (104 | ) | | 2,928 | | 2,122 | | 215 | | (18 | ) | | 2,319 | | 1,283 | | 58 | | (18 | ) | | 1,323 | | 2,933 | | 99 | | (104 | ) | | 2,928 |
Subtotal | | 206,988 | | 2,196 | | (4,244 | ) | | 204,940 | | 205,623 | | 4,455 | | (1,955 | ) | | 208,123 | | 216,275 | | 6,205 | | (9,870 | ) | | 212,610 | | 206,988 | | 2,196 | | (4,244 | ) | | 204,940 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Equity securities | | 40,794 | | 22,734 | | (467 | ) | | 63,061 | | 43,248 | | 26,686 | | (159 | ) | | 69,775 | | 23,802 | | 6,538 | | (851 | ) | | 29,489 | | 40,794 | | 22,734 | | (467 | ) | | 63,061 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | 247,782 | | 24,930 | | (4,711 | ) | | 268,001 | | 248,871 | | 31,141 | | (2,114 | ) | | 277,898 | | 240,077 | | 12,743 | | (10,721 | ) | | 242,099 | | 247,782 | | 24,930 | | (4,711 | ) | | 268,001 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
1) | includesIncludes asset-backed-securities of the Property-Casualty segment of €4.9€4.4 bn and of the Life/Health segment of €13.0€14.5 bn as of December 31, 2007.2008.
|
Held-to-maturity investments
| As of December 31, | | 2007 | | 2006 | | 2008 | | 2007 |
| | | Amortized
Cost | | Unrealized
Gains | | Unrealized
Losses | | Fair
Value | | Amortized
Cost | | Unrealized
Gains | | Unrealized
Losses | | Fair
Value | | Amortized
Cost | | Unrealized
Gains | | Unrealized
Losses | | Fair
Value | | Amortized
Cost | | Unrealized
Gains | | Unrealized
Losses | | Fair
Value |
| | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn |
Government and government agency bonds | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Germany | | 130 | | — | | — | | | 130 | | 104 | | 2 | | — | | | 106 | | 15 | | 3 | | — | | | 18 | | 130 | | — | | — | | | 130 |
Italy | | 447 | | 9 | | — | | | 456 | | 437 | | 18 | | — | | | 455 | | 374 | | 9 | | (1 | ) | | 382 | | 447 | | 9 | | — | | | 456 |
All other countries | | 1,555 | | 26 | | (17 | ) | | 1,564 | | 1,561 | | 56 | | (1 | ) | | 1,616 | | 1,575 | | 64 | | (6 | ) | | 1,633 | | 1,555 | | 26 | | (17 | ) | | 1,564 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Subtotal | | 2,132 | | 35 | | (17 | ) | | 2,150 | | 2,102 | | 76 | | (1 | ) | | 2,177 | | 1,964 | | 76 | | (7 | ) | | 2,033 | | 2,132 | | 35 | | (17 | ) | | 2,150 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Corporate bonds | | 2,500 | | 31 | | (3 | ) | | 2,528 | | 2,620 | | 92 | | (3 | ) | | 2,709 | |
Corporate bonds1) | | | 2,957 | | 84 | | (21 | ) | | 3,020 | | 2,500 | | 31 | | (3 | ) | | 2,528 |
Other | | 27 | | — | | — | | | 27 | | 26 | | — | | — | | | 26 | | 13 | | — | | — | | | 13 | | 27 | | — | | — | | | 27 |
Total | | 4,659 | | 66 | | (20 | ) | | 4,705 | | 4,748 | | 168 | | (4 | ) | | 4,912 | | 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)
Unrealized losses on available-for-sale investments and held-to-maturity investments
The following table sets forth gross unrealized losses on available-for-sale investments and held-to-maturity investments 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, 20072008 and 2006.2007.
| | | | Less than 12 months | | Greater than
12 months | | Total | | | 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 | | | 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 | ) |
| | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | | | | | | | | | | | | | | | |
2007 | | | | | | | | | | | | | | | | | | | | | | | | |
Debt securities | | | | | | | | | | | | | | | | | | | | | | | | |
Government and agency mortgage-backed securities (residential and commercial) | | 1,371 | | (22 | ) | | 4,115 | | (90 | ) | | 5,486 | | (112 | ) | | 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 | ) | | 2,720 | | (50 | ) | | 1,902 | | (51 | ) | | 4,622 | | (101 | ) |
Other asset-backed securities | | 1,527 | | (50 | ) | | 979 | | (42 | ) | | 2,506 | | (92 | ) | | 1,527 | | (50 | ) | | 979 | | (42 | ) | | 2,506 | | (92 | ) |
Government and government agency bonds | | 36,587 | | (699 | ) | | 18,522 | | (797 | ) | | 55,109 | | (1,496 | ) | | 36,587 | | (699 | ) | | 18,522 | | (797 | ) | | 55,109 | | (1,496 | ) |
Corporate bonds | | 33,724 | | (1,075 | ) | | 20,183 | | (1,284 | ) | | 53,907 | | (2,359 | ) | | 33,724 | | (1,075 | ) | | 20,183 | | (1,284 | ) | | 53,907 | | (2,359 | ) |
Other | | 1,062 | | (50 | ) | | 487 | | (54 | ) | | 1,549 | | (104 | ) | | 1,062 | | (50 | ) | | 487 | | (54 | ) | | 1,549 | | (104 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Subtotal | | 76,991 | | (1,946 | ) | | 46,188 | | (2,318 | ) | | 123,179 | | (4,264 | ) | | 76,991 | | (1,946 | ) | | 46,188 | | (2,318 | ) | | 123,179 | | (4,264 | ) |
Equity securities | | 7,480 | | (467 | ) | | — | | — | | | 7,480 | | (467 | ) | | 7,480 | | (467 | ) | | — | | — | | | 7,480 | | (467 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | 84,471 | | (2,413 | ) | | 46,188 | | (2,318 | ) | | 130,659 | | (4,731 | ) | | 84,471 | | (2,413 | ) | | 46,188 | | (2,318 | ) | | 130,659 | | (4,731 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2006 | | | | | | | | | | | | | |
Debt securities | | | | | | | | | | | | | |
Government and agency mortgage-backed securities (residential and commercial) | | 2,706 | | (66 | ) | | 4,815 | | (152 | ) | | 7,521 | | (218 | ) | |
Corporate mortgage-backed securities (residential and commercial) | | 1,738 | | (13 | ) | | 1,078 | | (40 | ) | | 2,816 | | (53 | ) | |
Other asset-backed securities | | 1,447 | | (19 | ) | | 728 | | (21 | ) | | 2,175 | | (40 | ) | |
Government and government agency bonds | | 37,923 | | (554 | ) | | 9,833 | | (304 | ) | | 47,756 | | (858 | ) | |
Corporate bonds | | 31,888 | | (516 | ) | | 6,397 | | (256 | ) | | 38,285 | | (772 | ) | |
Other | | 481 | | (7 | ) | | 100 | | (11 | ) | | 581 | | (18 | ) | |
| | | | | | | | | | | | | | | | |
Subtotal | | 76,183 | | (1,175 | ) | | 22,951 | | (784 | ) | | 99,134 | | (1,959 | ) | |
Equity securities | | 3,607 | | (159 | ) | | — | | — | | | 3,607 | | (159 | ) | |
| | | | | | | | | | | | | | | | |
Total | | 79,790 | | (1,334 | ) | | 22,951 | | (784 | ) | | 102,741 | | (2,118 | ) | |
| | | | | | | | | | | | | | | | |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Government and agency mortgage-backed securities (residential and commercial)
Total unrealized losses amounted to €112€2 mn as of December 31, 2007.2008. 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 without immediate intent to sell the securities, the Allianz Group does not consider these investments to be impaired at December 31, 2007.2008.
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 €1,496€1,027 mn at Decem-berDecember 31, 2007.2008. The Allianz Group holds a large variety of government bonds, mostly of OECD countries (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 and 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, the Allianz Group does not consider these investments to be impaired at December 31, 2007.2008.
Corporate bonds
Total unrealized losses amounted to €2,359€7,048 mn as of December 31, 2007.2008. The Allianz Group holds a large variety of bonds issued by corporations mostlydomiciledmostly 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 individualunderlying securities and the balance sheet date. As the decline in fair value is primarily attributable to changes in interest rates, the Allianz Group does not consider these investments to be impaired at December 31, 2007.2008.
Equity securities
As of December 31, 2007,2008, unrealized losses from equity securities amounted to €467€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.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Contractual term to maturity
The amortized cost and estimated fair value of available-for-sale debt securities and held-to-maturity debt securities as of December 31, 2007,2008, by contractual term to maturity, are as follows:
| | | | |
As of December 31, 2007 | | Amortized
Cost | | Fair
Value |
| | | € mn | | € mn |
Available-for-sale investments | | | | |
Due in 1 year or less | | 16,333 | | 16,459 |
Due after 1 year and in less than 5 years | | 64,716 | | 64,612 |
Due after 5 years and in less than 10 years | | 59,781 | | 59,048 |
Due after 10 years | | 66,158 | | 64,821 |
| | | | |
Total | | 206,988 | | 204,940 |
| | | | |
Held-to-maturity investments | | | | |
Due in 1 year or less | | 336 | | 340 |
Due after 1 year and in less than 5 years | | 1,406 | | 1,422 |
Due after 5 years and in less than 10 years | | 1,436 | | 1,437 |
Due after 10 years | | 1,481 | | 1,506 |
| | | | |
Total | | 4,659 | | 4,705 |
| | | | |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
| | | | |
As of December 31, 2008 | | Amortized
Cost | | Fair
Value |
| | | € mn | | € mn |
Available-for-sale investments | | | | |
Due in 1 year or less | | 16,400 | | 16,444 |
Due after 1 year and in less than 5 years | | 68,640 | | 69,013 |
Due after 5 years and in less than 10 years | | 60,462 | | 58,910 |
Due after 10 years | | 70,773 | | 68,243 |
| | | | |
Total | | 216,275 | | 212,610 |
| | | | |
Held-to-maturity investments | | | | |
Due in 1 year or less | | 600 | | 601 |
Due after 1 year and in less than 5 years | | 1,343 | | 1,364 |
Due after 5 years and in less than 10 years | | 1,560 | | 1,591 |
Due after 10 years | | 1,431 | | 1,510 |
| | | | |
Total | | 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, 2007,2008, fair values could not be reliably measured for equity investments with carrying amounts totaling €1,742€473 mn (2006: €1,486(2007: €1,742 mn). These investments are primarily investments in privately held corporations and partnerships. During the year ended December 31, 2007,2008, such investments with carrying amounts of €27€18 mn (2006: €12(2007: €27 mn) were sold leading to gains of €42€1 mn (2006: €32(2007: €42 mn) and losses of €6 €—mn (2006: €1(2007: €6 mn).
Investments in associates and joint ventures
As of December 31, 2007,2008, 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 €1,232€73 mn (2006: €2,236(2007: €1,232 mn). As of December 31, 2007,2008, the fair value of investments in associates and joint ventures was €5,654€4,560 mn (2006: €4,941(2007: €5,654 mn).
Real estate held for investment
| | | | | | | | | |
| | | 2007 | | | 2006 | | | 2005 | |
| | | € mn | | | € mn | | | € mn | |
Cost as of January 1, | | 13,039 | | | 13,090 | | | 13,655 | |
Accumulated depreciation as of January 1, | | (3,484 | ) | | (3,521 | ) | | (3,027 | ) |
Carrying amount as of January 1, | | 9,555 | | | 9,569 | | | 10,628 | |
Additions | | 406 | | | 792 | | | 608 | |
Changes in the consolidated subsidiaries of the Allianz Group | | 3 | | | 68 | | | 240 | |
Disposals | | (564 | ) | | (746 | ) | | (740 | ) |
Reclassifications1) | | (1,313 | ) | | 345 | | | (745 | ) |
Foreign currency translation adjustments | | (92 | ) | | (71 | ) | | 70 | |
Depreciation | | (192 | ) | | (230 | ) | | (253 | ) |
Impairments | | (51 | ) | | (252 | ) | | (240 | ) |
Reversals of impairments | | 6 | | | 80 | | | 1 | |
Carrying amount as of December 31, | | 7,758 | | | 9,555 | | | 9,569 | |
Accumulated depreciation as of December 31, | | 2,356 | | | 3,484 | | | 3,521 | |
Cost as of December 31, | | 10,114 | | | 13,039 | | | 13,090 | |
1)
| The reclassifications for the year ended December 31, 2007 relate mainly to a portfolio of real estaste held for investment, that was classified as disposal group held for sale.
|
| | | | | | | | | |
| | | 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, 2007,2008, the fair value of real estate held for investment was €12,031€11,995 mn (2006: €13,494(2007: €12,031 mn). As of December 31, 2007,2008, real estate held for investment pledged as security, and other restrictions on title, were €146€143 mn (2006: €55(2007: €146 mn).
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
910 Loans and advances to banks and customers
| As of December 31, | | 2007 | | 2006 | | | 20081) | | 2007 | |
| | | Banks | | Customers | | Total | | Banks | | Customers | | Total | | | Banks | | Customers | | Total | | Banks | | Customers | | Total | |
| | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | |
Short-term investments and certificates of deposit | | 10,316 | | | — | | | 10,316 | | | 6,775 | | | — | | | 6,775 | | | 9,622 | | — | | | 9,622 | | | 10,316 | | | — | | | 10,316 | |
Reverse repurchase agreements | | 68,340 | | | 56,991 | | | 125,331 | | | 95,770 | | | 65,849 | | | 161,619 | | | 1,612 | | 5 | | | 1,617 | | | 68,340 | | | 56,991 | | | 125,331 | |
Collateral paid for securities borrowing transactions | | 16,664 | | | 23,714 | | | 40,378 | | | 15,191 | | | 19,121 | | | 34,312 | | | — | | — | | | — | | | 16,664 | | | 23,714 | | | 40,378 | |
Loans | | 74,944 | | | 125,403 | | | 200,347 | | | 69,211 | | | 129,319 | | | 198,530 | | | 63,734 | | 37,501 | | | 101,235 | | | 74,944 | | | 125,403 | | | 200,347 | |
Other | | 14,012 | | | 7,148 | | | 21,160 | | | 15,225 | | | 8,358 | | | 23,583 | | | 3,223 | | 77 | | | 3,300 | | | 14,012 | | | 7,148 | | | 21,160 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Subtotal | | 184,276 | | | 213,256 | | | 397,532 | | | 202,172 | | | 222,647 | | | 424,819 | | | 78,191 | | 37,583 | | | 115,774 | | | 184,276 | | | 213,256 | | | 397,532 | |
Loan loss allowance | | (3 | ) | | (827 | ) | | (830 | ) | | (108 | ) | | (946 | ) | | (1,054 | ) | | — | | (119 | ) | | (119 | ) | | (3 | ) | | (827 | ) | | (830 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | 184,273 | | | 212,429 | | | 396,702 | | | 202,064 | | | 221,701 | | | 423,765 | | | 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
| As of December 31, 2007 | | 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 | |
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 | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn |
Loans and advances to banks | | 95,456 | | 23,124 | | 21,539 | | 9,265 | | 34,892 | | 184,276 | | 12,258 | | 7,180 | | 13,907 | | 9,164 | | 35,682 | | 78,191 |
Loans and advances to customers | | 117,865 | | 14,573 | | 17,988 | | 10,865 | | 51,965 | | 213,256 | | 2,706 | | 3,598 | | 4,603 | | 4,689 | | 21,987 | | 37,583 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | 213,321 | | 37,697 | | 39,527 | | 20,130 | | 86,857 | | 397,532 | | 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, | | 2007 | | 2006 | | | 2008 | | 2007 | |
| | | Germany | | Other
countries | | Total | | Germany | | Other
countries | | Total | | | Germany | | Other
countries | | Total | | Germany | | Other
countries | | Total | |
| | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | |
Short-term investments and certificates of deposit | | 3,188 | | | 7,128 | | | 10,316 | | | 1,124 | | | 5,651 | | | 6,775 | | | 2,957 | | | 6,665 | | | 9,622 | | | 3,188 | | | 7,128 | | | 10,316 | |
Reverse repurchase agreements | | 23,980 | | | 101,351 | | | 125,331 | | | 31,884 | | | 129,735 | | | 161,619 | | | — | | | 1,617 | | | 1,617 | | | 23,980 | | | 101,351 | | | 125,331 | |
Collateral paid for securities borrowing transactions | | 6,415 | | | 33,963 | | | 40,378 | | | 7,087 | | | 27,225 | | | 34,312 | | | — | | | — | | | — | | | 6,415 | | | 33,963 | | | 40,378 | |
Loans | | 148,063 | | | 52,284 | | | 200,347 | | | 146,333 | | | 52,197 | | | 198,530 | | | 86,211 | | | 15,024 | | | 101,235 | | | 148,063 | | | 52,284 | | | 200,347 | |
Other | | 3,409 | | | 17,751 | | | 21,160 | | | 2,875 | | | 20,708 | | | 23,583 | | | 287 | | | 3,013 | | | 3,300 | | | 3,409 | | | 17,751 | | | 21,160 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Subtotal | | 185,055 | | | 212,477 | | | 397,532 | | | 189,303 | | | 235,516 | | | 424,819 | | | 89,455 | | | 26,319 | | | 115,774 | | | 185,055 | | | 212,477 | | | 397,532 | |
Loan loss allowance | | (534 | ) | | (296 | ) | | (830 | ) | | (834 | ) | | (220 | ) | | (1,054 | ) | | (62 | ) | | (57 | ) | | (119 | ) | | (534 | ) | | (296 | ) | | (830 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | 184,521 | | | 212,181 | | | 396,702 | | | 188,469 | | | 235,296 | | | 423,765 | | | 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, | | 2007 | | 2006 | | 2008 | | 2007 |
| | | € mn | | € mn | | € mn | | € mn |
Corporate customers | | 148,848 | | 155,845 | | 10,448 | | 148,848 |
Private customers | | 55,761 | | 59,505 | | 23,309 | | 55,761 |
Public authorities | | 8,647 | | 7,297 | | 3,826 | | 8,647 |
| | | | | | | | |
Total | | 213,256 | | 222,647 | | 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, | | 2007 | | 2006 | | 2008 | | 2007 |
| | | € mn | | € mn | | € mn | | € mn |
Germany | | | | | | | | |
Corporate Customers | | | | | | | | |
Manufacturing industry | | 7,023 | | 6,383 | | 792 | | 7,023 |
Construction | | 1,128 | | 916 | | 271 | | 1,128 |
Wholesale and retail trade | | 4,999 | | 4,306 | | 425 | | 4,999 |
Financial institutions (excluding banks) and insurance companies | | 9,626 | | 7,740 | | 148 | | 9,626 |
Service providers | | 7,701 | | 10,091 | | 1,126 | | 7,701 |
Other | | 4,469 | | 3,615 | | 1,169 | | 4,469 |
| | | | | | | | |
Subtotal | | 34,946 | | 33,051 | | 3,931 | | 34,946 |
| | | | | | | | |
Public authorities | | 3,766 | | 3,578 | | 3,665 | | 3,766 |
Private customers | | 49,580 | | 51,084 | | 18,387 | | 49,580 |
| | | | | |
Subtotal | | 88,292 | | 87,713 | | 25,983 | | 88,292 |
| | | | | |
Other countries | | | | | | | | |
Corporate Customers | | | | | | | | |
Industry, wholesale and retail trade and service providers | | 11,748 | | 13,474 | | 4,129 | | 11,748 |
Financial institutions (excluding banks) and insurance companies | | 91,369 | | 102,250 | | 614 | | 91,369 |
Other | | 10,785 | | 7,070 | | 1,774 | | 10,785 |
| | | | | | | | |
Subtotal | | 113,902 | | 122,794 | | 6,517 | | 113,902 |
| | | | | | | | |
Public authorities | | 4,881 | | 3,719 | | 161 | | 4,881 |
Private customers | | 6,181 | | 8,421 | | 4,922 | | 6,181 |
| | | | | | | | |
Subtotal | | 124,964 | | 134,934 | | 11,600 | | 124,964 |
| | | | | | | | |
Total | | 213,256 | | 222,647 | | 37,583 | | 213,256 |
| | | | | | | | |
As of December 31, 2007, unearned income related to discounts deducted from loan balances was €58 mn (2006: €69 mn).
Finance lease receivables
Loans and advances to customers include amounts receivable under finance leases at their net investment value of €1,256 mn (2006: €2,081 mn).
| | | | | | |
As of December 31, | | 2007 | | | 2006 | |
| | | € mn | | | € mn | |
Gross investment in the lease | | | | | | |
Due in one year or less | | 168 | | | 372 | |
Due after one year and not later than five years | | 900 | | | 1,336 | |
Due after five years | | 947 | | | 1,036 | |
| | | | | | |
Subtotal1) | | 2,015 | | | 2,744 | |
| | | | | | |
Unearned finance income | | | | | | |
Due in one year or less | | (95 | ) | | (98 | ) |
Due after one year and not later than five years | | (367 | ) | | (314 | ) |
Due after five years | | (297 | ) | | (251 | ) |
| | | | | | |
Subtotal | | (759 | ) | | (663 | ) |
| | | | | | |
Net investment in the lease | | | | | | |
Due in one year or less | | 73 | | | 274 | |
Due after one year and not later than five years | | 533 | | | 1,022 | |
Due after five years | | 650 | | | 785 | |
| | | | | | |
Total | | 1,256 | | | 2,081 | |
| | | | | | |
1)
| As of December 31, 2007 and 2006, the residual values of the entire leasing portfolio were fully guaranteed.
|
During the year ended December 31, 2007, lease payments received were recognized as income in the amount of €174 mn (2006: €154 mn; 2005: €122 mn). As of December 31, 20072008 all finance lease receivables included in loans to banks and 2006, an allowance for uncollectible lease payments was not required.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)
Reconciliation of allowances for credit losses by class of financial assets
As of December 31, 2007,2008, the overall volume of allowance for credit losses includes loan loss allowances deducted from loans and advances to banks and customers in the amount of €119 mn (2007: €830 mn (2006:mn; 2006: €1,054 mn; 2005: €1,647 mn) and provisions for credit losses included in other liabilities in the amount of €8 mn (2007: €201 mn (2006:mn; 2006: €261 mn; 2005: €117 mn). The provision for credit losses includes provisions for irrevocable loan commitments in the amount of €67 mn (2006: €126 mn; 2005: €36 mn), provisions for financial guarantees and contingent liabilities in the amount of €74 mn (2006: €65 mn; 2005: €72 mn) and other provisions for credit losses of €60 mn (2006: €70 mn; 2005: €9 mn).
| | | | Loan loss allowance | | Provision for credit
losses | | Total | | | Loan loss allowance | | Provision for credit
losses | | Total | |
| | | 2007 | | 2006 | | 2005 | | 2007 | | 2006 | | 2005 | | 2007 | | 2006 | | 2005 | | | 2008 | | 2007 | | 2006 | | 2008 | | 2007 | | 2006 | | 2008 | | 2007 | | 2006 | |
| | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | |
As of January 1, | | 1,054 | | | 1,647 | | | 4,135 | | | 261 | | | 117 | | | 371 | | | 1,315 | | | 1,764 | | | 4,506 | | | 830 | | | 1,054 | | | 1,647 | | | 201 | | | 261 | | | 117 | | | 1,031 | | | 1,315 | | | 1,764 | |
Changes in the consolidated subsidiaries of the Allianz Group | | — | | | (1 | ) | | (3 | ) | | — | | | — | | | — | | | — | | | (1 | ) | | (3 | ) | | — | | | — | | | (1 | ) | | — | | | — | | | — | | | — | | | — | | | (1 | ) |
Additions charged to the income statement | | 537 | | | 456 | | | 659 | | | 35 | | | 77 | | | 115 | | | 572 | | | 533 | | | 774 | | | 76 | | | 537 | | | 456 | | | 3 | | | 35 | | | 77 | | | 79 | | | 572 | | | 533 | |
Unwinding—interest income1) | | (8 | ) | | (6 | ) | | — | | | — | | | — | | | — | | | (8 | ) | | (6 | ) | | — | | |
Unwinding-interest income1) | | | — | | | (8 | ) | | (6 | ) | | — | | | — | | | — | | | — | | | (8 | ) | | (6 | ) |
Charge-offs | | (376 | ) | | (605 | ) | | (2,571 | ) | | — | | | (10 | ) | | (258 | ) | | (376 | ) | | (615 | ) | | (2,829 | ) | | (23 | ) | | (376 | ) | | (605 | ) | | — | | | — | | | (10 | ) | | (23 | ) | | (376 | ) | | (615 | ) |
Releases | | (397 | ) | | (272 | ) | | (659 | ) | | (88 | ) | | (45 | ) | | (123 | ) | | (485 | ) | | (317 | ) | | (782 | ) | | (39 | ) | | (397 | ) | | (272 | ) | | (4 | ) | | (88 | ) | | (45 | ) | | (43 | ) | | (485 | ) | | (317 | ) |
Other additions (reductions) | | 35 | | | (152 | ) | | 46 | | | (6 | ) | | 126 | | | 9 | | | 29 | | | (26 | ) | | 55 | | | (1 | ) | | 35 | | | (152 | ) | | — | | | (6 | ) | | 126 | | | (1 | ) | | 29 | | | (26 | ) |
Foreign currency translation adjustments | | (15 | ) | | (13 | ) | | 40 | | | (1 | ) | | (4 | ) | | 3 | | | (16 | ) | | (17 | ) | | 43 | | | (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, | | 830 | | | 1,054 | | | 1,647 | | | 201 | | | 261 | | | 117 | | | 1,031 | | | 1,315 | | | 1,764 | | | 119 | | | 830 | | | 1,054 | | | 8 | | | 201 | | | 261 | | | 127 | | | 1,031 | | | 1,315 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
1) | The unwinding interestunwinding-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 | | | Specific allowance1) | | General allowance1),2) | | Total | |
| | | 2007 | | 2006 | | 2005 | | 2007 | | 2006 | | 2005 | | 2007 | | 2006 | | 2005 | | | 2008 | | 2007 | | 2006 | | 2008 | | 2007 | | 2006 | | 2008 | | 2007 | | 2006 | |
| | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | |
As of January 1, | | 593 | | | 880 | | | 3,685 | | | 722 | | | 884 | | | 821 | | | 1,315 | | | 1,764 | | | 4,506 | | | 573 | | | 593 | | | 880 | | | 458 | | | 722 | | | 884 | | | 1,031 | | | 1,315 | | | 1,764 | |
Changes in the consolidated subsidiaries of the Allianz Group | | — | | | (1 | ) | | (3 | ) | | — | | | — | | | — | | | — | | | (1 | ) | | (3 | ) | | — | | | — | | | (1 | ) | | — | | | — | | | — | | | — | | | — | | | (1 | ) |
Additions charged to the income statement | | 559 | | | 511 | | | 604 | | | 13 | | | 22 | | | 170 | | | 572 | | | 533 | | | 774 | | | 47 | | | 559 | | | 511 | | | 32 | | | 13 | | | 22 | | | 79 | | | 572 | | | 533 | |
Unwinding—interest income3) | | (8 | ) | | (6 | ) | | | | — | | | — | | | — | | | (8 | ) | | (6 | ) | | — | | |
Unwinding-interest income3) | | | — | | | (8 | ) | | (6 | ) | | — | | | — | | | — | | | — | | | (8 | ) | | (6 | ) |
Charge-offs | | (376 | ) | | (615 | ) | | (2,829 | ) | | — | | | — | | | — | | | (376 | ) | | (615 | ) | | (2,829 | ) | | (23 | ) | | (376 | ) | | (615 | ) | | — | | | — | | | — | | | (23 | ) | | (376 | ) | | (615 | ) |
Releases | | (215 | ) | | (191 | ) | | (641 | ) | | (270 | ) | | (126 | ) | | (141 | ) | | (485 | ) | | (317 | ) | | (782 | ) | | (16 | ) | | (215 | ) | | (191 | ) | | (27 | ) | | (270 | ) | | (126 | ) | | (43 | ) | | (485 | ) | | (317 | ) |
Other additions (reductions) | | 29 | | | 19 | | | 39 | | | — | | | (45 | ) | | 16 | | | 29 | | | (26 | ) | | 55 | | | 1 | | | 29 | | | 19 | | | (2 | ) | | — | | | (45 | ) | | (1 | ) | | 29 | | | (26 | ) |
Foreign currency translation adjustments | | (9 | ) | | (4 | ) | | 25 | | | (7 | ) | | (13 | ) | | 18 | | | (16 | ) | | (17 | ) | | 43 | | | — | | | (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, | | 573 | | | 593 | | | 880 | | | 458 | | | 722 | | | 884 | | | 1,031 | | | 1,315 | | | 1,764 | | | 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, be due to simplicity and materiality reasons, allocated to the categories of specific and general allowances going forward, using objective criteria. The amountsamount of €95 mn and €225 mn as of December 31, 2006 and 2005 havehas been allocated completely to general allowance. |
2) | Includes portfolio allowances. |
3) | The unwinding interestunwinding-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 December 31, | | 2007 | | 2006 | | 2008 | | 2007 |
| | | € mn | | € mn | | € mn | | € mn |
Impaired loans | | 2,240 | | 2,072 | | 654 | | 2,240 |
Impaired loans with specific allowances | | 1,301 | | 1,428 | | 645 | | 1,301 |
Impaired loans with portfolio allowances | | 420 | | 532 | | — | | 420 |
Non-accrual loans | | 1,555 | | 1,801 | | 204 | | 1,555 |
| | | | 2007 | | 2006 | | 2008 | | 2007 |
| | | € mn | | € mn | | € mn | | € mn |
Average balance of impaired loans | | 2,448 | | 2,390 | | 652 | | 2,448 |
Interest income recognized on impaired loans | | 29 | | 28 | | 6 | | 29 |
Interest income not recognized from non- accrual loans | | 77 | | 86 | | 19 | | 77 |
Interest collected and recorded on non- accrual loans | | 3 | | 7 | |
Interest collected and recorded on non-accrual loans | | | — | | 3 |
As of December 31, 2007,2008, the Allianz Group had €40€— mn (2006: €34(2007: €40 mn) of commitments to lend additional funds to borrowers whose loans are non-performing or whose terms have been previously restructured.
1011 Reinsurance assets
| As of December 31, | | 2007 | | 2006 | | 2008 | | 2007 |
| | | € mn | �� | € mn | | € mn | | € mn |
Unearned premiums | | 1,342 | | 1,317 | | 1,294 | | 1,342 |
Reserves for loss and loss adjustment expenses | | 8,561 | | 9,719 | | 8,180 | | 8,561 |
Aggregate policy reserves | | 5,319 | | 8,223 | | 5,018 | | 5,319 |
Other insurance reserves | | 90 | | 101 | | 107 | | 90 |
| | | | | | | | |
Total | | 15,312 | | 19,360 | | 14,599 | | 15,312 |
| | | | | | | | |
Changes in aggregate policy reserves ceded to reinsurers are as follows:
| | | | 2007 | | 2006 | | 2005 | | | 2008 | | 2007 | | 2006 | |
| | | € mn | | € mn | | € mn | | | € mn | | € mn | | € mn | |
Carrying amount as of January 1, | | 8,223 | | | 9,772 | | | 10,276 | | | 5,319 | | | 8,223 | | | 9,772 | |
Foreign currency translation adjustments | | (311 | ) | | (340 | ) | | 443 | | | 150 | | | (311 | ) | | (340 | ) |
Changes recorded in
consolidated income statements | | 108 | | | (7 | ) | | 135 | | | (47 | ) | | 108 | | | (7 | ) |
Other changes1) | | (2,701 | ) | | (1,202 | ) | | (1,082 | ) | | (404 | ) | | (2,701 | ) | | (1,202 | ) |
Carrying amount as of December 31, | | 5,319 | | | 8,223 | | | 9,772 | | | 5,018 | | | 5,319 | | | 8,223 | |
| | | | | | | | | | | | | | | | | | |
1) | Primarily relating to novationchanges of quota share reinsurance agreement.agreements. |
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. InternationalIn general international corporate risk exposures exceeding the relevant retention levels of the Allianz Group’s subsidiaries are reinsured internallybusiness is either underwritten directly or assumed by Allianz Global Corporate & Specialty AG (“AGCS”) where the portfolio is pooled and risks exceeding the retention limits were retroceded to(AGCS) from other Allianz Group’s subsidiaries. AGCS buys global reinsurance cover in the external reinsurance market.market, other parts are reinsured internally by Allianz SE. The Allianz Group maintains a centralized program for natural catastrophe events that pools exposures from a number of subsidiaries by internal reinsurance agreements with Allianz SE. Allianz SE limits exposures in this portfolio through external reinsurance. For other risks, the subsidiaries of the Allianz Group maintain individual reinsurance programs. Allianz SE 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 that its reinsurance credit risk is not significant, and historically has not experienced noteworthy difficulty in collecting from their reinsurers. Additionally, and as appropriate, the 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, 20072008 and 2006. Concentrations2007. The relationships with reinsurers of the Allianz Group has with individual reinsurers includefocus on Munich Re and Swiss Reinsurance Company and SCOR.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
11 Deferred acquisition costs
| | | | |
As of December 31, | | 2007 | | 2006 |
| | | € mn | | € mn |
Deferred acquisition costs | | | | |
Property-Casualty | | 3,675 | | 3,692 |
Life/Health | | 14,118 | | 13,619 |
Asset Management | | 94 | | 50 |
Subtotal | | 17,887 | | 17,361 |
Present value of future profits | | 1,206 | | 1,227 |
Deferred sales inducements | | 520 | | 547 |
| | | | |
Total | | 19,613 | | 19,135 |
| | | | |
Deferred acquisition costs
| | | | | | | | | |
| | | 2007 | | | 2006 | | | 2005 | |
| | | € mn | | | € mn | | | € mn | |
Property-Casualty | | | | | | | | | |
Carrying amount as of January 1, | | 3,692 | | | 3,550 | | | 3,434 | |
Additions | | 4,161 | | | 3,357 | | | 2,582 | |
Changes in the consolidated subsidiaries of the Allianz Group | | 66 | | | — | | | — | |
Foreign currency translation adjustments | | (72 | ) | | (35 | ) | | 78 | |
Amortization | | (4,172 | ) | | (3,180 | ) | | (2,544 | ) |
Carrying amount as of December 31, | | 3,675 | | | 3,692 | | | 3,550 | |
Life/Health | | | | | | | | | |
Carrying amount as of January 1, | | 13,619 | | | 12,712 | | | 10,681 | |
Additions | | 2,649 | | | 2,783 | | | 2,895 | |
Changes in the consolidated subsidiaries of the Allianz Group | | — | | | — | | | (26 | ) |
Foreign currency translation adjustments | | (555 | ) | | (464 | ) | | 541 | |
Amortization | | (1,595 | ) | | (1,412 | ) | | (1,379 | ) |
Carrying amount as of December 31, | | 14,118 | | | 13,619 | | | 12,712 | |
Asset Management | | 94 | | | 50 | | | 28 | |
| | | | | | | | | |
Total | | 17,887 | | | 17,361 | | | 16,290 | |
| | | | | | | | | |
Present value of future profits
| | | | | | | | | |
| | | 2007 | | | 2006 | | | 2005 | |
| | | € mn | | | € mn | | | € mn | |
Cost as of January 1, | | 2,359 | | | 2,374 | | | 2,361 | |
Accumulated amortization as of January 1, | | (1,132 | ) | | (1,038 | ) | | (839 | ) |
Carrying amount as of January 1, | | 1,227 | | | 1,336 | | | 1,522 | |
Changes in the consolidated subsidiaries of the Allianz Group | | 5 | | | — | | | — | |
Foreign currency translation adjustments | | (6 | ) | | (6 | ) | | 7 | |
Amortization1) | | (20 | ) | | (103 | ) | | (193 | ) |
Carrying amount as of December 31, | | 1,206 | | | 1,227 | | | 1,336 | |
Accumulated amortization as of December 31, | | 1,138 | | | 1,132 | | | 1,038 | |
Cost as of December 31, | | 2,344 | | | 2,359 | | | 2,374 | |
1)
| During the year ended December 31, 2007, includes interest accrued on unamortized PVFP of €70 mn (2006: €62 mn; 2005: €74 mn).
|
As of December 31, 2007, the percentage of PVFP that is expected to be amortized in 2008 is 14.29% (12.84% in 2009, 11.46% in 2010, 10.49% in 2011 and 9.72% in 2012).
Deferred sales inducements
| | | | | | | | | |
| | | 2007 | | | 2006 | | | 2005 | |
| | | € mn | | | € mn | | | € mn | |
Carrying amount as of January 1, | | 547 | | | 515 | | | 303 | |
Additions | | 86 | | | 120 | | | 209 | |
Foreign currency translation adjustments | | (59 | ) | | (56 | ) | | 52 | |
Amortization | | (54 | ) | | (32 | ) | | (49 | ) |
Carrying amount as of December 31, | | 520 | | | 547 | | | 515 | |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
12 Other assets
| | | | | | |
As of December 31, | | 2007 | | | 2006 | |
| | | € mn | | | € mn | |
Receivables | | | | | | |
Policyholders | | 4,616 | | | 4,292 | |
Agents | | 3,956 | | | 3,698 | |
Reinsurers | | 2,676 | | | 2,832 | |
Other | | 4,994 | | | 5,365 | |
Less allowance for doubtful accounts | | (389 | ) | | (330 | ) |
Subtotal | | 15,853 | | | 15,857 | |
Tax receivables | | | | | | |
Income tax | | 2,536 | | | 1,995 | |
Other tax | | 731 | | | 690 | |
Subtotal | | 3,267 | | | 2,685 | |
Accrued dividends, interest and rent | | 5,503 | | | 5,658 | |
Prepaid expenses | | | | | | |
Interest and rent | | 3,308 | | | 2,678 | |
Other prepaid expenses | | 261 | | | 173 | |
Subtotal | | 3,569 | | | 2,851 | |
Derivative financial instruments used for hedging that meet the criteria for hedge accounting and firm commitments | | 344 | | | 463 | |
Property and equipment | | | | | | |
Real estate held for own use | | 3,708 | | | 4,758 | |
Equipment | | 1,666 | | | 1,597 | |
Software | | 1,165 | | | 1,078 | |
Subtotal | | 6,539 | | | 7,433 | |
Non-current assets and disposal groups held for sale | | 3,503 | | | — | |
Other assets1) | | 2,950 | | | 3,054 | |
| | | | | | |
Total | | 41,528 | | | 38,001 | |
| | | | | | |
1)
| As of December 31, 2007, includes prepaid benefit costs for defined benefit plans of €402 mn (2006: €265 mn).
|
Other assets due within one year amounted to €33,732 mn (2006: €29,399 mn), and those due after more than one year totaled €7,796 mn (2006: €8,602 mn).
Property and equipment
Real estate held for own use
| | | | | | | | | |
| | | 2007 | | | 2006 | | | 2005 | |
| | | € mn | | | € mn | | | € mn | |
Cost as of January 1, | | 6,153 | | | 5,894 | | | 7,499 | |
Accumulated depreciation as of January 1, | | (1,395 | ) | | (1,503 | ) | | (1,457 | ) |
Carrying amount as of January 1, | | 4,758 | | | 4,391 | | | 6,042 | |
Additions | | 194 | | | 284 | | | 540 | |
Changes in the consolidated subsidiaries of the Allianz Group | | (159 | ) | | 819 | | | (2,493 | ) |
Disposals | | (248 | ) | | (248 | ) | | (318 | ) |
Reclassifications1) | | (635 | ) | | (345 | ) | | 745 | |
Foreign currency translation adjustments | | (47 | ) | | (24 | ) | | 84 | |
Depreciation | | (139 | ) | | (117 | ) | | (200 | ) |
Impairments | | (17 | ) | | (3 | ) | | (9 | ) |
Reversals of impairments | | 1 | | | 1 | | | — | |
Carrying amount as of December 31, | | 3,708 | | | 4,758 | | | 4,391 | |
Accumulated depreciation as of December 31, | | 1,139 | | | 1,395 | | | 1,503 | |
Cost as of December 31, | | 4,847 | | | 6,153 | | | 5,894 | |
1)
| The reclassifications for the year ended December 31, 2007 relate mainly to a portfolio of real estate held for own use, that was classified as disposal group held for sale.
|
As of December 31, 2007, the fair value of real estate held for own use was €5,070 mn (2006: €6,379 mn). As of December 31, 2007, assets pledged as security and other restrictions on title were €107 mn (2006: €27 mn).
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Software
| | | | | | | | | |
| | | 2007 | | | 2006 | | | 2005 | |
| | | € mn | | | € mn | | | € mn | |
Cost as of January 1, | | 3,764 | | | 3,472 | | | 3,320 | |
Accumulated amortization as of January 1, | | (2,686 | ) | | (2,381 | ) | | (2,348 | ) |
Carrying amount as of January 1, | | 1,078 | | | 1,091 | | | 972 | |
Additions | | 582 | | | 523 | | | 577 | |
Changes in the consolidated subsidiaries of the Allianz Group | | (9 | ) | | 73 | | | (2 | ) |
Disposals | | (58 | ) | | (70 | ) | | (38 | ) |
Foreign currency translation adjustments | | (21 | ) | | (10 | ) | | 14 | |
Amortization | | (406 | ) | | (496 | ) | | (432 | ) |
Impairments | | (1 | ) | | (33 | ) | | — | |
Carrying amount as of December 31,1) | | 1,165 | | | 1,078 | | | 1,091 | |
Accumulated amortization as of December 31, | | 2,781 | | | 2,686 | | | 2,381 | |
Cost as of December 31, | | 3,946 | | | 3,764 | | | 3,472 | |
1)
| As of December 31, 2007, includes €746 mn (2006: €683 mn; 2005: €772 mn) for software developed in house and €419 mn (2006: €395 mn; 2005: €319 mn) for software purchased from third parties.
|
Non-current assets and disposal groups held for sale
| | | | |
As of December 31, | | 2007 | | 2006 |
| | | € mn | | € mn |
Non-current assets and disposal groups held for sale | | | | |
Real estate held for investment and real estate held for own use in Germany | | 1,950 | | — |
Selecta AG | | 1,543 | | — |
Other | | 10 | | — |
| | | | |
Total | | 3,503 | | — |
| | | | |
Liabilities associated with non-current assets and disposal groups held for sale | | | | |
Selecta AG | | 1,292 | | — |
Other | | 1 | | — |
| | | | |
Total | | 1,293 | | — |
| | | | |
During the second quarter ended June 30, 2007 the Allianz Group reclassified two portfolios of real estate held for investment and real estate held for own use in the Property-Casualty, Life/Health and Corporate segment in Germany to disposal groups held for sale as the classification criteria of IFRS 5 were met. The real estate held for own use is expected to be disposed of through sale-leaseback transactions. No gain or loss was recognised on reclassification as fair value less costs to sell exceded the carrying amount. Partly the portfolio of real estate held for own use has already been disposed in 2007.
During the fourth quarter ended December 31, 2007, the Allianz Group reclassified the assets, including goodwill, and liabilities related to its ownership of Selecta AG in the Corporate segment to disposal groups held for sale as the classification criteria of IFRS 5 were met. The Allianz Group is seeking to dispose of Selecta AG in 2008. No gain or loss was recognised on reclassification as fair value less costs to sell exceded the carrying amount.
13 Intangible assets
| | | | |
As of December 31, | | 2007 | | 2006 |
| | | € mn | | € mn |
Goodwill | | 12,453 | | 12,144 |
Brand names | | 737 | | 717 |
Other | | 223 | | 211 |
| | | | |
Total | | 13,413 | | 13,072 |
| | | | |
Amortization expense of definite life intangible assets is estimated to be €36 mn in 2008, €36 mn in 2009, €35 mn in 2010, €17 mn in 2011 and €17 mn in 2012.
Goodwill
| | | | | | | | | |
| | | 2007 | | | 2006 | | | 2005 | |
| | | € mn | | | € mn | | | € mn | |
Cost as of January 1, | | 12,368 | | | 12,384 | | | 12,038 | |
Accumulated impairments as of January 1, | | (224 | ) | | (224 | ) | | (224 | ) |
Carrying amount as of January 1, | | 12,144 | | | 12,160 | | | 11,814 | |
Additions | | 1,153 | | | 315 | | | 70 | |
Disposals | | — | | | — | | | (45 | ) |
Foreign currency translation adjustments | | (372 | ) | | (368 | ) | | 479 | |
Reclassifications | | — | | | 37 | | | — | |
Reclassifications into held for sale | | (472 | ) | | — | | | (158 | ) |
Carrying amount as of December 31, | | 12,453 | | | 12,144 | | | 12,160 | |
Accumulated impairments as of December 31, | | 224 | | | 224 | | | 224 | |
Cost as of December 31, | | 12,677 | | | 12,368 | | | 12,384 | |
Additions include goodwill from
increasing the interest in Russian People’s Insurance Society, Moscow, from 47.4% to 97.2%,Re.
the acquisition of a 100.0% participation in Selecta AG, Muntelier,
the acquisition of a 100.0% participation in Commerce Assurance Bhd., Kuala Lumpur,
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
12 Deferred acquisition costs
| | | | |
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, 2008, the acquisitionpercentage of 100.0% participationPVFP that is expected to be amortized in Insurance Company “Progress Garant”2009 is 12.03% (11.06% in 2010, 10.43% in 2011, 9.50% in 2012 and 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
December 31, | | 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)
13 Other assets
| | | | | | |
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 | |
| | | | | | |
1) | Does not include other assets of Dresdner Bank which were classified as held-for-sale. See Note 4. |
2) | As of December 31, 2008, includes prepaid benefit costs for defined benefit plans of €256 mn (2007: €402 mn). |
Other assets due within one year amounted to €29,490 mn (2007: €30,229 mn), Moscow,and those due after more than one year totaled €4,514 mn (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
December 31,1) | | 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.
15 Intangible assets
| | | | |
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 acquisition of a 100.0% participationinterest in SC Tour Michelet, Paris,Allianz Hayat ve Emeklilik AŞ, Istanbul, from 38.0% to 89.0%.
the acquisition of a 100.0% participation in Insurance Company JTS Insurance Company “ATF POLICY”, Almaty,2008
The reclassification affects the acquisitiongoodwill of 100.0% participation in United Mercantile Agencies, Inc., Kentucky.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 reclassifications affectreclassification affects the goodwill of Selecta AG, Muntelier, as this subsidiarywhich was reclassified to “Non-current assets and assets of disposal groups held for sale.classified as held-for-sale”.
2006
The reclassification affects intangible assets of Allianz SlovenskáAllianz-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. During 2007, the Allianz Group realigned its cash generating units in the Property-Casualty and Life/ Health segments to ensure consistency with the management responsibilities of the Board of Management. As a result, theThe Allianz Group has allocated goodwill to nine cash generating units in the Property-Casualty segment, six cash generating units in the Life/Health segment, threeone cash generating unitsunit in the Banking segment, one cash generating unit in the Asset Management segment and one cash generating unit in the Corporate segment. TheIn 2007 the goodwill of Dresdner Bank and the brand name “Dresdner Bank” have been‘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.
The groups of cashCash generating units of the Property-Casualty segment are: Insurance Germany,Austria & Switzerland; are
German Speaking Countries,
Europe I, including Italy, Spain, Portugal, Greece and Greece; Turkey,
Europe II, including France, Netherlands, Belgium, LuxemburgLuxembourg and Africa; Africa,
Asia Pacific & Middle East; Eastern Europe; Insurance East,
New Europe including Bulgaria, Croatia, Czech Republic, Hungary, Slovakia, Poland, Romania and Russia,
Anglo NAFTABroker Markets & Global Lines including United Kingdom, Ireland, Australia, United States and Mexico;
Specialty Lines I, including Allianz Global Corporate & Specialty, and
Specialty Lines II, including Credit Insurance, Travel Insurance and Assistance Services.
The cashCash generating units of the Life/Health segment are: Insuranceare
German Speaking Countries,
Health Germany, Austria & Switzerland; Insurance Germany Health;
Europe I;I, including Italy, Spain, Portugal, Greece and Greece; Turkey,
Europe II, including France, Netherlands, Belgium, LuxemburgLuxembourg and Africa; Africa,
Asia Pacific & Middle East, and Insurance
Anglo NAFTABroker Markets & Global Lines, including United Kingdom, Ireland, Australia, United States and Mexico.Lines.
The cash generating units of the Banking segment are Private & Corporate Clients; Investment Banking and Corporate Other and Other Banking. The Asset Management segment is considered a cash generating unit. The cash generating unit of the Corporate segment is Private Equity.
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 segmentssegment as well as for the Asset Management Insuranceand Health Germany 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 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
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
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.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 Banking cash generating unit as well ascapitalized earnings values of the Asset Management cash generating units due to changes in assumptions regarding cost income rationsratios were analyzed.
For all cash generating units excluding New Europe, Property-Casualty Asia & Middle East and Banking respective capitalized earnings value sensitivities in combination with fair value analysis still exceeded respective carrying values.
For all cash generating units in the Life/Health segment, with the exception of Insurance Germany Health,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, specifically Appraisalcorresponding sensitivities and a multiple of the Market Consistent Value approach is utilized to determine the value in use. of new business.
The Market Consistent Embedded valueValue 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 guidelines.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.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
The carrying amounts of goodwill and brand names allocated to Allianz Group’s cash generating units as of December 31, 20072008 and 20062007 are as follows:
| As of December 31, | | 2007 | | 2006 | | 2008 | | 2007 |
| | | Goodwill | | Brand names | | Goodwill | | Brand names | | Goodwill | | Brand names | | Goodwill | | Brand names |
| Cash generating units | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn |
Property-Casualty | | | | | | | | | | | | | | | | |
Insurance Germany, Austria & Switzerland | | 277 | | — | | 277 | | — | |
Germany Speaking Countries | | | 277 | | — | | 277 | | — |
Europe I | | 90 | | — | | 90 | | — | | 230 | | — | | 90 | | — |
Europe II | | 638 | | — | | 611 | | — | | 638 | | — | | 638 | | — |
South America | | 21 | | — | | 21 | | — | | 21 | | — | | 21 | | — |
Asia Pacific & Middle East | | 79 | | — | | 31 | | — | |
Eastern Europe | | 679 | | 20 | | 108 | | — | |
Insurance Anglo, NAFTA Markets & Global Lines | | 410 | | — | | 419 | | — | |
Asia & Middle East | | | 79 | | — | | 79 | | — |
New Europe | | | 603 | | 24 | | 679 | | 20 |
Anglo, Broker & Global Lines | | | 388 | | — | | 410 | | — |
Specialty Lines I | | 7 | | — | | 5 | | — | | 8 | | — | | 7 | | — |
Specialty Lines II | | 27 | | — | | 19 | | — | | 28 | | — | | 27 | | — |
| | | | | | | | | |
Subtotal | | 2,228 | | 20 | | 1,581 | | — | | 2,272 | | 24 | | 2,228 | | 20 |
| | | | | | | | | |
Life/Health | | | | | | | | | | | | | | | | |
Insurance Germany, Austria & Switzerland | | 554 | | — | | 554 | | — | |
Insurance Germany Health | | 325 | | — | | 325 | | — | |
Germany Speaking Countries | | | 554 | | — | | 554 | | — |
Health Germany | | | 325 | | — | | 325 | | — |
Europe I | | 43 | | — | | 43 | | — | | 110 | | — | | 43 | | — |
Europe II | | 538 | | — | | 538 | | — | | 538 | | — | | 538 | | — |
Asia Pacific & Middle East | | 320 | | — | | 320 | | — | |
Insurance Anglo, NAFTA Markets & Global Lines | | 425 | | — | | 436 | | — | |
Asia & Middle East | | | 320 | | — | | 320 | | — |
Anglo, Broker & Global Lines | | | 435 | | — | | 425 | | — |
| | | | | | | | | |
Subtotal | | 2,205 | | — | | 2,216 | | — | | 2,282 | | — | | 2,205 | | — |
| | | | | | | | | |
Banking | | | | | | | | | | 199 | | — | | 1,714 | | 656 |
Private & Corporate | | 1,479 | | 656 | | 1,482 | | 656 | |
Investment Banking | | 183 | | — | | 183 | | — | |
Other Banking | | 52 | | — | | 52 | | — | |
Subtotal | | 1,714 | | 656 | | 1,717 | | 656 | |
Asset Management | | 6,165 | | 61 | | 6,486 | | 61 | | 6,325 | | — | | 6,165 | | 61 |
Corporate | | 141 | | — | | 144 | | — | | 143 | | — | | 141 | | — |
| | | | | | | | | | | | | | | | |
Total | | 12,453 | | 737 | | 12,144 | | 717 | | 11,221 | | 24 | | 12,453 | | 737 |
| | | | | | | | | | | | | | | | |
Brand name
Brand2008
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)
1416 Financial liabilities carried at fair value through income
| As of December 31, | | 2007 | | 2006 | | 20081) | | 2007 |
| | | € mn | | € mn | | € mn | | € mn |
Financial liabilities held for trading | | | | | | | | |
Obligations to deliver securities | | 34,795 | | 39,951 | | — | | 34,795 |
Derivative financial instruments | | 76,819 | | 69,946 | | 6,242 | | 76,819 |
Other trading liabilities | | 12,469 | | 10,988 | | 2 | | 12,469 |
| | | | | | | | |
Subtotal | | 124,083 | | 120,885 | | 6,244 | | 124,083 |
Financial liabilities designated at fair value through income | | 1,970 | | 937 | | — | | 1,970 |
| | | | | | | | |
Total | | 126,053 | | 121,822 | | 6,244 | | 126,053 |
| | | | | | | | |
As of December 31, 2007, the carrying amount of financial liabilities designated at fair value through income was €63 mn lower (2006: €14 mn lower) than the contractually required payment at maturity. The amount of the change in fair value attributable to changes in credit risk for the year ended December 31, 2007 was €10 mn (2006: €(4) mn) and €6 mn (2006: €(4) mn) cumulatively.
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. |
The changeChange in fair value of financial liabilities designated at fair value through income attributable to changes in credit risk has been calculated as
As of December 31, 2008 all of the amount of change infinancial liabilities designated at fair value that is not attributable to changes in market conditions, but has been caused by a change in the entities own credit spread.
Notesthrough income related to the Allianz Group’s Consolidated Financial Statements—(Continued)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.
1517 Liabilities to banks and customers
| | | | 2007 | | 2006 | | 20081) | | 2007 |
As of December 31, | | Banks | | Customers | | Total | | Banks | | Customers | | Total | | Banks | | Customers | | Total | | Banks | | Customers | | Total |
| | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn |
Payable on demand | | 11,204 | | 60,443 | | 71,647 | | 18,216 | | 68,677 | | 86,893 | | 311 | | 4,096 | | 4,407 | | 11,204 | | 60,443 | | 71,647 |
Savings deposits | | — | | 5,304 | | 5,304 | | — | | 5,421 | | 5,421 | | — | | 1,790 | | 1,790 | | — | | 5,304 | | 5,304 |
Term deposits and certificates of deposit | | 64,129 | | 72,938 | | 137,067 | | 68,429 | | 50,380 | | 118,809 | | 1,296 | | 3,035 | | 4,331 | | 64,129 | | 72,938 | | 137,067 |
Repurchase agreements | | 50,444 | | 42,145 | | 92,589 | | 77,002 | | 62,796 | | 139,798 | | — | | 568 | | 568 | | 50,444 | | 42,145 | | 92,589 |
Collateral received from securities lending transactions | | 16,235 | | 4,729 | | 20,964 | | 17,493 | | 4,405 | | 21,898 | | 627 | | — | | 627 | | 16,235 | | 4,729 | | 20,964 |
Other | | 5,513 | | 3,410 | | 8,923 | | 876 | | 2,870 | | 3,746 | | 3,194 | | 3,534 | | 6,728 | | 5,513 | | 3,410 | | 8,923 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | 147,525 | | 188,969 | | 336,494 | | 182,016 | | 194,549 | | 376,565 | | 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, 2007 | | 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 | |
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 | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn |
Liabilities to banks | | 108,964 | | 24,153 | | 7,647 | | 2,532 | | 4,229 | | 147,525 | | 2,940 | | 800 | | 410 | | 569 | | 709 | | 5,428 |
Liabilities to customers | | 187,961 | | 386 | | 397 | | 21 | | 204 | | 188,969 | | 10,244 | | 1,496 | | 610 | | 191 | | 482 | | 13,023 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | 296,925 | | 24,539 | | 8,044 | | 2,553 | | 4,433 | | 336,494 | | 13,184 | | 2,296 | | 1,020 | | 760 | | 1,191 | | 18,451 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Liabilities to banks and customers by type of customer and geographic region
| | | | 2007 | | 2006 | |
As of December 31, | | | 2008 | | 2007 |
| | | Germany | | Other
countries | | Total | | Germany | | Other
countries | | Total | | Germany | | Other
countries | | Total | | Germany | | Other
countries | | Total |
| | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn |
Liabilities to banks | | 46,137 | | 101,388 | | 147,525 | | 54,546 | | 127,470 | | 182,016 | | 2,854 | | 2,574 | | 5,428 | | 46,137 | | 101,388 | | 147,525 |
Liabilities to customers | | | | | | | | | | | | | | | | | | | | | | | | |
Corporate customers | | 55,935 | | 75,644 | | 131,579 | | 48,332 | | 101,974 | | 150,306 | | 2,052 | | 2,051 | | 4,103 | | 55,935 | | 75,644 | | 131,579 |
Public authorities | | 5,593 | | 6,894 | | 12,487 | | 1,886 | | 5,994 | | 7,880 | | 168 | | 8 | | 176 | | 5,593 | | 6,894 | | 12,487 |
Private customers | | 34,284 | | 10,619 | | 44,903 | | 28,438 | | 7,925 | | 36,363 | | 5,410 | | 3,334 | | 8,744 | | 34,284 | | 10,619 | | 44,903 |
Subtotal | | 95,812 | | 93,157 | | 188,969 | | 78,656 | | 115,893 | | 194,549 | | 7,630 | | 5,393 | | 13,023 | | 95,812 | | 93,157 | | 188,969 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | 141,949 | | 194,545 | | 336,494 | | 133,202 | | 243,363 | | 376,565 | | 10,484 | | 7,967 | | 18,451 | | 141,949 | | 194,545 | | 336,494 |
| | | | | | | | | | | | | | | | | | | | | | | | |
As of December 31, 2007,2008, liabilities to customers include €27,091€633 mn (2006: €33,302(2007: €27,091 mn) of noninterest bearing deposits.
1618 Unearned premiums
| As of December 31, | | 2007 | | 2006 | | 2008 | | 2007 | |
| | | € mn | | € mn | | € mn | | € mn | |
Property-Casualty | | 13,163 | | | 12,994 | | 12,984 | | | 13,163 | |
Life/Health | | 1,858 | | | 1,874 | | 2,258 | | | 1,858 | |
Consolidation | | (1 | ) | | — | | (9 | ) | | (1 | ) |
| | | | | | | | | | | |
Total | | 15,020 | | | 14,868 | | 15,233 | | | 15,020 | |
| | | | | | | | | | | |
1719 Reserves for loss and loss adjustment expenses
| | | | | | |
As of December 31, | | 2007 | | | 2006 | |
| | | € mn | | | € mn | |
Property-Casualty | | 56,943 | | | 58,664 | |
Life/Health | | 6,773 | | | 6,804 | |
Consolidation | | (10 | ) | | (4 | ) |
| | | | | | |
Total | | 63,706 | | | 65,464 | |
| | | | | | |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
| | | | | | |
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
| | | | 2007 | | 2006 | | 2005 | | | 2008 | | 2007 | | 2006 | |
| | | Gross | | Ceded | | Net | | Gross | | Ceded | | Net | | Gross | | Ceded | | Net | | | Gross | | Ceded | | Net | | Gross | | Ceded | | Net | | Gross | | Ceded | | Net | |
| | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | |
As of January 1, | | 58,664 | | | (9,333 | ) | | 49,331 | | | 60,259 | | | (10,604 | ) | | 49,655 | | | 55,528 | | | (10,049 | ) | | 45,479 | | | 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 | | 29,839 | | | (2,994 | ) | | 26,845 | | | 28,214 | | | (2,573 | ) | | 25,641 | | | 30,111 | | | (3,580 | ) | | 26,531 | | | 30,398 | | | (2,969 | ) | | 27,429 | | | 29,839 | | | (2,994 | ) | | 26,845 | | | 28,214 | | | (2,573 | ) | | 25,641 | |
Prior years | | (1,708 | ) | | 348 | | | (1,360 | ) | | (1,186 | ) | | 217 | | | (969 | ) | | (1,633 | ) | | 433 | | | (1,200 | ) | | (2,241 | ) | | 798 | | | (1,443 | ) | | (1,708 | ) | | 348 | | | (1,360 | ) | | (1,186 | ) | | 217 | | | (969 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Subtotal | | 28,131 | | | (2,646 | ) | | 25,485 | | | 27,028 | | | (2,356 | ) | | 24,672 | | | 28,478 | | | (3,147 | ) | | 25,331 | | | 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 | | (13,749 | ) | | 1,118 | | | (12,631 | ) | | (12,436 | ) | | 675 | | | (11,761 | ) | | (12,742 | ) | | 861 | | | (11,881 | ) | | (14,049 | ) | | 919 | | | (13,130 | ) | | (13,749 | ) | | 1,118 | | | (12,631 | ) | | (12,436 | ) | | 675 | | | (11,761 | ) |
Prior years | | (14,206 | ) | | 1,952 | | | (12,254 | ) | | (14,696 | ) | | 2,455 | | | (12,241 | ) | | (13,284 | ) | | 2,568 | | | (10,716 | ) | | (13,607 | ) | | 1,602 | | | (12,005 | ) | | (14,206 | ) | | 1,952 | | | (12,254 | ) | | (14,696 | ) | | 2,455 | | | (12,241 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Subtotal | | (27,955 | ) | | 3,070 | | | (24,885 | ) | | (27,132 | ) | | 3,130 | | | (24,002 | ) | | (26,026 | ) | | 3,429 | | | (22,597 | ) | | (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) | | (2,022 | ) | | 666 | | | (1,356 | ) | | (1,491 | ) | | 497 | | | (994 | ) | | 2,278 | | | (837 | ) | | 1,441 | | | (497 | ) | | 48 | | | (449 | ) | | (2,022 | ) | | 666 | | | (1,356 | ) | | (1,491 | ) | | 497 | | | (994 | ) |
Changes in the consolidated subsidiaries of the Allianz Group | | 125 | | | (23 | ) | | 102 | | | — | | | — | | | — | | | 1 | | | — | | | 1 | | | 127 | | | (39 | ) | | 88 | | | 125 | | | (23 | ) | | 102 | | | — | | | — | | | — | |
Reclassifications2) | | | (1,458 | ) | | 87 | | | (1,371 | ) | | — | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
As of December 31, | | 56,943 | | | (8,266 | ) | | 48,677 | | | 58,664 | | | (9,333 | ) | | 49,331 | | | 60,259 | | | (10,604 | ) | | 49,655 | | | 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:mn; 2006: €(1,141) mn; 2005: €2,371 mn) and net of €(1,052)€(284) mn (2006:(2007: €(1,052) mn; 2006: €(962) mn; 2005: €1,348 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 reflectsreflect 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, 2007,2008, the Allianz Group recorded additional incomeofincome
of €1,443 mn (2007: €1,360 mn (2006:mn; 2006: €969 mn; 2005: €1,200 mn) with respect of losses occurring in prior years. During the year ended December 31, 2007,2008, these amounts as percentages of the net balance of the beginning of the year were 3.0% (2007: 2.8% (2006: 2.0%; 2005: 2.6%2006: 2.0%).
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Development of the reserves for loss and loss adjustment expenses for the Property-Casualty segment
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).
| | | | 2002 | | 2003 | | 2004 | | 2005 | | 2006 | | 2007 | | 2003 | | 2004 | | 2005 | | 2006 | | 2007 | | 2008 |
| | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn |
Reserves for loss and loss adjustment expenses (net) | | 45,466 | | | 44,683 | | | 45,479 | | | 49,655 | | | 49,331 | | | 48,677 | | 44,683 | | | 45,480 | | | 49,655 | | | 49,331 | | | 48,677 | | | 47,796 |
Reserves for loss and loss adjustment expenses (ceded) | | 14,588 | | | 12,067 | | | 10,049 | | | 10,604 | | | 9,333 | | | 8,266 | | 12,067 | | | 10,049 | | | 10,604 | | | 9,333 | | | 8,266 | | | 7,820 |
Reserves for loss and loss adjustment expenses (gross) | | 60,054 | | | 56,750 | | | 55,528 | | | 60,259 | | | 58,664 | | | 56,943 | | 56,750 | | | 55,529 | | | 60,259 | | | 58,664 | | | 56,943 | | | 55,616 |
Paid (cumulative) as of | | | | | | | | | | | | | | | | | | | | | | | | |
One year later | | 16,357 | | | 14,384 | | | 13,282 | | | 14,696 | | | 14,206 | | | | | 14,384 | | | 13,282 | | | 14,696 | | | 14,206 | | | 13,607 | | | |
Two years later | | 24,093 | | | 21,157 | | | 20,051 | | | 21,918 | | | | | | | 21,157 | | | 20,051 | | | 21,909 | | | 20,659 | | | | | |
Three years later | | 29,007 | | | 26,149 | | | 24,812 | | | | | | | | | 26,149 | | | 24,801 | | | 26,583 | | | | | | | |
Four years later | | 32,839 | | | 29,859 | | | | | | | | | | | 29,847 | | | 28,206 | | | | | | | | | |
Five years later | | 35,845 | | | | | | | | | | | | | 32,570 | | | | | | | | | | | |
Reserves reestimated as of | | | | | | | | | | | | | | | | | | | | | | | | |
One year later | | 56,550 | | | 54,103 | | | 56,238 | | | 57,932 | | | 55,266 | | | | | 54,103 | | | 56,238 | | | 57,932 | | | 55,266 | | | 52,931 | | | |
Two years later | | 55,704 | | | 55,365 | | | 53,374 | | | 54,270 | | | | | | | 55,365 | | | 53,374 | | | 54,437 | | | 51,809 | | | | | |
Three years later | | 57,387 | | | 53,907 | | | 51,760 | | | | | | | | | 53,907 | | | 51,895 | | | 52,676 | | | | | | | |
Four years later | | 56,802 | | | 53,068 | | | | | | | | | | | 53,181 | | | 50,767 | | | | | | | | | |
Five years later | | 56,053 | | | | | | | | | | | | | 52,356 | | | | | | | | | | | |
Cumulative surplus | | | | | | | | | | | | | | | | | | | | | | | | |
Gross surplus before changes in the consolidated subsidiaries of the Allianz Group | | 4,001 | | | 3,682 | | | 3,768 | | | 5,989 | | | 3,398 | | | | |
Gross surplus1) | | 4,001 | | | 3,142 | | | 3,768 | | | 5,989 | | | 3,398 | | | | | 4,394 | | | 4,761 | | | 7,583 | | | 6,855 | | | 4,012 | | | |
Net surplus before changes in the consolidated subsidiaries of the Allianz Group | | 1,365 | | | 2,397 | | | 3,204 | | | 4,582 | | | 2,412 | | | | |
Gross surplus after changes in the consolidated subsidiaries of the Allianz Group | | | 3,854 | | | 4,761 | | | 7,583 | | | 6,855 | | | 2,554 | | | |
Net surplus1) | | 1,365 | | | 1,945 | | | 3,204 | | | 4,582 | | | 2,412 | | | | | 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 | | 3.0 | % | | 4.4 | % | | 7.0 | % | | 9.2 | % | | 4.9 | % | | | | 5.8 | % | | 9.2 | % | | 12.2 | % | | 10.8 | % | | 3.5 | % | | |
1) | Gross/net surplus represents the cumulative surplus from re-estimatingreestimating the reserves for loss and loss adjustment expenses for prior years claims and includes foreign currency translation adjustments of gross €1,690€313 mn (2006: €1,141(2007: €1,690 mn) and net €1,052€284 mn (2006: €962(2007: €1,052 mn). This leads to an effective run off result excluding effects of foreign currency translation of gross €1,708€2,241 mn (2006: €1,186(2007: €1,708 mn) and net €1,360€1,443 mn (2006: €969(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 20062007 numbers refer to the surplus presented in the consolidated financial statements 20062007 and not the cumulative surplus of the calendar year 20062007 presented in the table above. |
Discounted loss and loss adjustment expenses
As of December 31, 20072008 and 2006,2007, the Allianz Group Property-Casualty reserves for loss and loss adjustment expenses reflected discounts of €1,466€1,139 mn and €1,377€1,100 mn, respectively. The discount reflected in the reserves is related to annuities forcertainfor
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,line of business, 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, | | 2007 | | 2006 | | 2007 | | 2006 | | 2007 | | 2006 |
| | | € mn | | € mn | | € mn | | € mn | | % | | % |
France | | 1,321 | | 1,325 | | 400 | | 349 | | 3.25 | | 3.25 |
Germany | | 559 | | 504 | | 372 | | 346 | | 2.25 – 4.00 | | 2.75 – 4.00 |
Switzerland | | 430 | | 427 | | 258 | | 253 | | 3.00 | | 3.25 |
United States | | 155 | | 181 | | 170 | | 200 | | 5.25 | | 6.00 |
United Kingdom | | 160 | | 139 | | 163 | | 133 | | 4.00 – 4.75 | | 4.00 – 4.25 |
Belgium | | 94 | | 91 | | 28 | | 26 | | 4.50 | | 3.20 – 4.68 |
Portugal | | 64 | | 79 | | 49 | | 47 | | 4.00 | | 4.00 |
Hungary | | 79 | | 74 | | 26 | | 23 | | 1.40 | | 1.40 |
| | | | | | | | | | | | |
Total | | 2,862 | | 2,820 | | 1,466 | | 1,377 | | — | | — |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | 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 | | — | | — |
| | | | | | | | | | | | |
1820 Reserves for insurance and investment contracts
| As of December 31, | | 2007 | | 2006 | | 2008 | | 2007 |
| | | € mn | | € mn | | € mn | | € mn |
Aggregate policy reserves | | 264,243 | | 256,333 | | 278,700 | | 264,243 |
Reserves for premium refunds | | 27,225 | | 30,024 | | 17,195 | | 27,225 |
Other insurance reserves | | 776 | | 675 | | 662 | | 776 |
| | | | | | | | |
Total | | 292,244 | | 287,032 | | 296,557 | | 292,244 |
| | | | | | | | |
Aggregate policy reserves
| As of December 31, | | 2007 | | 2006 | | 2008 | | 2007 |
| | | € mn | | € mn | | € mn | | € mn |
Traditional participating insurance contracts (SFAS 120) | | 127,502 | | 123,835 | | 129,859 | | 127,502 |
Long-duration insurance contracts (SFAS 60) | | 46,337 | | 45,390 | | 46,943 | | 46,337 |
Universal life-type insurance contracts (SFAS 97) | | 89,840 | | 86,681 | | 101,059 | | 89,840 |
Non unit linked investment contracts | | 564 | | 427 | |
Non unit-linked investment contracts | | | 839 | | 564 |
| | | | | | | | |
Total | | 264,243 | | 256,333 | | 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, 20072008 and 20062007 were as follows:
| | | | 2007 | | 2006 | | | 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) | | | 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 | | | € mn | | € mn | | € mn | | € mn | |
As of January 1, | | 123,835 | | | 45,390 | | | 120,967 | | | 44,624 | | | 127,502 | | | 46,337 | | | 123,835 | | | 45,390 | |
Foreign currency translation adjustments | | (104 | ) | | (755 | ) | | (119 | ) | | (356 | ) | | 390 | | | (929 | ) | | (104 | ) | | (755 | ) |
Changes in the consolidated subsidiaries of the Allianz Group | | — | | | 10 | | | — | | | — | | | — | | | 266 | | | — | | | 10 | |
Changes recorded in consolidated income statements | | 2,445 | | | 954 | | | 2,393 | | | 927 | | | 1,187 | | | 828 | | | 2,445 | | | 954 | |
Novation of reinsurance agreements | | — | | | — | | | (420 | ) | | — | | |
Dividends allocated to policyholders | | 1,278 | | | 207 | | | 1,029 | | | 198 | | | 1,153 | | | 244 | | | 1,278 | | | 207 | |
Additions and disposals | | — | | | (2 | ) | | — | | | — | | | (160 | ) | | (34 | ) | | — | | | (2 | ) |
Other changes | | 48 | | | 533 | 1) | | (15 | ) | | (3 | ) | | (213 | )1) | | 231 | | | 48 | | | 533 | 2) |
| | | | | | | | | | | | | | | | | | | | | | | | |
As of December 31, | | 127,502 | | | 46,337 | | | 123,835 | | | 45,390 | | | 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 insuranceinsurances reserves. |
Changes in aggregate policy reserves for universal life-type insurance contracts and non unit linkedunit-linked investment contracts for the years ended December 31, 20072008 and 20062007 were as follows:
| | | | 2007 | | 2006 | | | 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 | | | 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 | | | € mn | | € mn | | € mn | | € mn | |
As of January 1, | | 86,681 | | | 427 | | | 83,133 | | | 288 | | | 89,840 | | | 564 | | | 86,681 | | | 427 | |
Foreign currency translation adjustments | | (3,933 | ) | | (12 | ) | | (3,686 | ) | | (12 | ) | | 1,655 | | | (16 | ) | | (3,933 | ) | | (12 | ) |
Premiums collected | | 12,579 | | | 231 | | | 13,092 | | | 142 | | | 12,810 | | | 395 | | | 12,579 | | | 231 | |
Separation of embedded derivatives | | (473 | ) | | — | | | (543 | ) | | — | | | (472 | ) | | — | | | (473 | ) | | — | |
Interest credited | | 3,178 | | | 47 | | | 3,106 | | | 20 | | | 3,938 | | | 70 | | | 3,178 | | | 47 | |
Releases upon death, surrender and withdrawal | | (8,650 | ) | | (105 | ) | | (7,785 | ) | | (104 | ) | | (9,770 | ) | | (164 | ) | | (8,650 | ) | | (105 | ) |
Policyholder charges | | (715 | ) | | (28 | ) | | (541 | ) | | (2 | ) | | (1,024 | ) | | (13 | ) | | (715 | ) | | (28 | ) |
Additions | | 81 | | | — | | | — | | | — | | | — | | | — | | | 81 | | | — | |
Portfolio acquisitions and disposals | | (37 | ) | | — | | | — | | | — | | | (14 | ) | | — | | | (37 | ) | | — | |
Reclassifications1) | | 1,129 | | | 4 | | | (95 | ) | | 95 | | | 4,096 | | | 3 | | | 1,129 | | | 4 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
As of December 31, | | 89,840 | | | 564 | | | 86,681 | | | 427 | | | 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, 2007,2008, participating life business represented approximately 65% (2006: 62%(2007: 65%) of the Allianz Group’s gross insurance inforce. During the year ended December 31, 2007,2008, participating policies represented approximately 64% (2007: 61% (2006: 66%) of gross statutory premiums written and 64% (2007: 60% (2006: 63%) of life premiums earned. As of December 31, 2007,2008, reserves for conventional participating policies were approximately 54% (2006:(2007: 54%) of the Allianz Group’s consolidated aggregate policy reserves.
Reserves for premium refunds
| | | | 2007 | | 2006 | | 2005 | | | 2008 | | 2007 | | 2006 | |
| | | € mn | | € mn | | € mn | | | € mn | | € mn | | € mn | |
Amounts already allocated under local statutory or contractual regulations | | | | | | | | | | | | |
As of January 1, | | 12,764 | | | 10,915 | | | 8,794 | | | 13,438 | | | 12,764 | | | 10,915 | |
Foreign currency translation adjustments | | (15 | ) | | (9 | ) | | 14 | | | 6 | | | (15 | ) | | (9 | ) |
Changes | | 689 | | | 1,858 | | | 2,107 | | | (986 | ) | | 689 | | | 1,858 | |
| | | | | | | | | | | | | | | | | | |
As of December 31, | | 13,438 | | | 12,764 | | | 10,915 | | | 12,458 | | | 13,438 | | | 12,764 | |
| | | | | | | | | | |
Latent reserves for premium refunds | | | | | | | | | | | | |
As of January 1, | | 17,260 | | | 16,930 | | | 11,779 | | | 13,787 | | | 17,260 | | | 16,930 | |
Foreign currency translation adjustments | | (19 | ) | | (24 | ) | | (4 | ) | | 67 | | | (19 | ) | | (24 | ) |
Changes due to fluctuations in market value | | (4,099 | ) | | (50 | ) | | 4,094 | | | (7,024 | ) | | (4,099 | ) | | (50 | ) |
Changes in the consolidated subsidiaries of the Allianz Group | | — | | | (491 | ) | | 6 | | | — | | | — | | | (491 | ) |
Changes due to valuation differences charged to income | | 645 | | | 895 | | | 1,055 | | | (2,093 | ) | | 645 | | | 895 | |
| | | | | | | | | | | | | | | | | | |
As of December 31, | | 13,787 | | | 17,260 | | | 16,930 | | | 4,737 | | | 13,787 | | | 17,260 | |
| | | | | | | | | | | | | | | | | | |
Total | | 27,225 | | | 30,024 | | | 27,845 | | | 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 linkedunit-linked contracts. Without consideration of policyholderpolicy holder participation, traditional contracts generally incorporate significant investment risk for the Allianz Group. Traditional contracts include life, endowment, annuity, and supplemental health contracts. Traditional annuity contracts are issued in both deferred and immediate types. In addition, the Allianz Group’s life insurance operations in the United States issue a significant amount of equity indexedequity-indexed deferred annuities. Unit linkedUnit-linked contracts generally result in the contract holder assuming investment risk. In addition, in certain markets, the Allianz Group issues contracts for group life, group health and group pension contracts.products.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
As of December 31, 20072008 and 2006,2007, 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 | | 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 |
| | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | | | | | | | | | | | | | | |
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 | | 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 | | 867 | | 13,339 | | 3,949 | | | 4 | | 17,292 | | — | | 17,292 |
France | | 1,189 | | 42,830 | | 3,603 | | 202 | | 46,635 | | 14,285 | | 60,920 | | 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 | | 1,146 | | 19,120 | | 14 | | | — | | 19,134 | | 25,682 | | 44,816 |
Switzerland | | 238 | | 5,695 | | 610 | | 107 | | 6,412 | | 583 | | 6,995 | | 238 | | 5,695 | | 610 | | | 107 | | 6,412 | | 583 | | 6,995 |
Austria | | 142 | | 3,195 | | 273 | | 3 | | 3,471 | | 277 | | 3,748 | | 142 | | 3,195 | | 273 | | | 3 | | 3,471 | | 277 | | 3,748 |
South Korea | | 785 | | 5,978 | | 47 | | — | | 6,025 | | 904 | | 6,929 | | 785 | | 5,978 | | 47 | | | — | | 6,025 | | 904 | | 6,929 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Subtotal | | 10,274 | | 207,635 | | 25,566 | | 319 | | 233,520 | | 43,562 | | 277,082 | | 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 | | 112 | | 5,327 | | 17 | | | — | | 5,344 | | 302 | | 5,646 |
Spain | | 25 | | 4,857 | | 138 | | — | | 4,995 | | 92 | | 5,087 | | 25 | | 4,857 | | 138 | | | — | | 4,995 | | 92 | | 5,087 |
Other Western and Southern Europe | | 318 | | 1,865 | | 151 | | — | | 2,016 | | 3,819 | | 5,835 | | 318 | | 1,865 | | 151 | | | — | | 2,016 | | 3,819 | | 5,835 |
Eastern Europe | | 291 | | 1,596 | | 25 | | 4 | | 1,625 | | 1,076 | | 2,701 | | 291 | | 1,596 | | 25 | | | 4 | | 1,625 | | 1,076 | | 2,701 |
United States | | 4,394 | | 32,291 | | — | | — | | 32,291 | | 13,954 | | 46,245 | | 4,394 | | 32,291 | | — | | | — | | 32,291 | | 13,954 | | 46,245 |
Taiwan | | 250 | | 1,841 | | — | | — | | 1,841 | | 2,710 | | 4,551 | | 250 | | 1,841 | | — | | | — | | 1,841 | | 2,710 | | 4,551 |
Other Asia-Pacific | | 172 | | 565 | | 58 | | — | | 623 | | 529 | | 1,152 | | 172 | | 565 | | 58 | | | — | | 623 | | 529 | | 1,152 |
South America | | — | | 93 | | — | | — | | 93 | | 12 | | 105 | | — | | 93 | | — | | | — | | 93 | | 12 | | 105 |
Other | | 2 | | 776 | | 10 | | 5 | | 791 | | 4 | | 795 | | 2 | | 776 | | 10 | | | 5 | | 791 | | 4 | | 795 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Subtotal | | 5,564 | | 49,211 | | 399 | | 9 | | 49,619 | | 22,498 | | 72,117 | | 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 | | 15,838 | | 256,846 | | 25,965 | | | 328 | | 283,139 | | 66,060 | | 349,199 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2006 | | | | | | | | | | | | | | | |
Countries with legal or contractual policyholder participation in insurance, investment and/or expense risk | | | | | | | | | | | | | | | |
Germany Life | | 5,331 | | 112,103 | | 18,235 | | 3 | | 130,341 | | 1,095 | | 131,436 | |
Germany Health | | 857 | | 12,070 | | 3,372 | | 3 | | 15,445 | | — | | 15,445 | |
France | | 1,238 | | 41,622 | | 4,837 | | 59 | | 46,518 | | 12,430 | | 58,948 | |
Italy | | 1,148 | | 19,640 | | 408 | | 2 | | 20,050 | | 24,779 | | 44,829 | |
Switzerland | | 267 | | 5,707 | | 689 | | 117 | | 6,513 | | 558 | | 7,071 | |
Austria | | 126 | | 3,050 | | 308 | | — | | 3,358 | | 194 | | 3,552 | |
South Korea | | 786 | | 5,847 | | 58 | | — | | 5,905 | | 970 | | 6,875 | |
| | | | | | | | | | | | | | | |
Subtotal | | 9,753 | | 200,039 | | 27,907 | | 184 | | 228,130 | | 40,026 | | 268,156 | |
| | | | | | | | | | | | | | | |
Other Countries | | | | | | | | | | | | | | | |
Belgium | | 118 | | 5,035 | | 26 | | — | | 5,061 | | 325 | | 5,386 | |
Spain | | 24 | | 4,637 | | 451 | | 1 | | 5,089 | | 114 | | 5,203 | |
Other Western and Southern Europe | | 305 | | 2,188 | | 126 | | — | | 2,314 | | 3,564 | | 5,878 | |
Eastern Europe | | 236 | | 1,465 | | 27 | | 11 | | 1,503 | | 668 | | 2,171 | |
United States | | 4,601 | | 32,762 | | — | | — | | 32,762 | | 15,063 | | 47,825 | |
Taiwan | | 209 | | 1,883 | | — | | — | | 1,883 | | 1,868 | | 3,751 | |
Other Asia-Pacific | | 131 | | 434 | | 45 | | — | | 479 | | 176 | | 655 | |
South America | | — | | 88 | | — | | — | | 88 | | 58 | | 146 | |
Other | | 4 | | 716 | | 7 | | 6 | | 729 | | 2 | | 731 | |
| | | | | | | | | | | | | | | |
Subtotal | | 5,628 | | 49,208 | | 682 | | 18 | | 49,908 | | 21,838 | | 71,746 | |
| | | | | | | | | | | | | | | |
Total | | 15,381 | | 249,247 | | 28,589 | | 202 | | 278,038 | | 61,864 | | 339,902 | |
| | | | | | | | | | | | | | | |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
A majority part 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, Switzer-landSwitzerland and Austria, which comprise approximately 47%48% and 46%47%, of the Allianz Group’s reserves for insurance and investment contracts as of December 31, 20072008 and 20062007, respectively, include a substantial level of policyholder participation in all sources of profit including mortality/morbidity, investment and expense. As a result of this poli-cyholderpolicyholder participation, the Allianz Group’s exposure to insurance, investment and expense risk is mitigated.
Furthermore, all of the Allianz Group’s annuity policies issued in the United States meet the criteria for classification as insurance contracts under IFRS 4, on an individual contract basis, because they include options for contract holders to elect a life-contingent annuity. These contracts currently do not expose the Allianz Group to significant insurancelongevity risk, nor are they expected to do so in the future, as the projected and observed annuitization rates are very low. Additionally, many of the Allianz Group’s traditional contracts issued in France 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 Allianz Group’s unit linkedunit-linked contracts in France and Italy do not incorporate significant insurance risk.
As a result of 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 substantial 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 insurance risk.
The Allianz Group’s Life/Health segment is exposed to significant investment risk as a result of guaranteed minimum interest rates included in most of its traditional contracts. The weighted average guaranteed minimum interest rates of the Allianz Group’s largest operating entities in the Life/Health segment by country can be summarized by country as follows:
| As of December 31, | | 2007 | | 2006 | | 2008 | | 2007 |
| | | % | | % | | % | | % |
Country1) | | | | | |
Country | | | | | |
Germany Life | | 3.41 | | 3.45 | | 3.38 | | 3.46 |
France | | 1.99 | | 2.44 | | 1.31 | | 1.99 |
Italy | | 2.49 | | 2.50 | | 2.87 | | 2.49 |
Switzerland | | 2.87 | | 2.86 | | 2.89 | | 2.87 |
Spain | | 5.05 | | 5.38 | | 4.74 | | 5.05 |
Netherlands | | | 0.93 | | 0.82 |
Austria | | 3.00 | | 3.11 | | 3.00 | | 3.00 |
Belgium | | 3.95 | | 4.06 | | 3.80 | | 3.95 |
United States | | | 2.35 | | 2.70 |
South Korea | | 5.29 | | 6.06 | | 5.43 | | 5.29 |
Taiwan | | 3.61 | | 3.74 | |
Taiwan1) | | | 6.17 | | 5.52 |
1) | The life operationsGuarantees only on 10.4% of the Allianz Groupreserves in the United States only grant minimum guaranteed interest rates on approximately 15% of their existing business, the weighted average minimum interest rate for these contracts as of December 31, 2007 is 2.7% (2006: 2.7%).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 result, as of December 31, 20072008 and 2006,2007, 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 any declines in investment rates or a prolonged low interest rate environment.
1921 Financial liabilities for unit linkedunit-linked contracts
| As of December 31, | | 2007 | | 2006 | | 2008 | | 2007 |
| | | € mn | | € mn | | € mn | | € mn |
Unit linked insurance contracts | | 39,323 | | 36,296 | |
Unit linked investment contracts | | 26,737 | | 25,568 | |
Unit-linked insurance contracts | | | 29,056 | | 39,323 |
Unit-linked investment contracts | | | 21,394 | | 26,737 |
| | | | | | | | |
Total | | 66,060 | | 61,864 | | 50,450 | | 66,060 |
| | | | | | | | |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Changes in financial liabilities for unit linkedunit-linked insurance contracts and unit linkedunit-linked investment contracts for the years ended December 31, 20072008 and 20062007 were as follows:
| | | | 2007 | | 2006 | | | 2008 | | 2007 | |
| | | Unit linked
insurance
contracts | | Unit linked
investment
contracts | | Unit linked
insurance
contracts | | Unit linked
investment
contracts | | | Unit-linked
insurance
contracts | | Unit-linked
investment
contracts | | Unit-linked
Insurance
contracts | | Unit-linked
investment
contracts | |
| | | € mn | | € mn | | € mn | | € mn | | | € mn | | € mn | | € mn | | € mn | |
As of January 1, | | 36,296 | | | 25,568 | | | 30,320 | | | 24,341 | | | 39,323 | | | 26,737 | | | 36,296 | | | 25,568 | |
Foreign currency translation adjustments | | (1,954 | ) | | (2 | ) | | (1,765 | ) | | (6 | ) | | 697 | | | (15 | ) | | (1,954 | ) | | (2 | ) |
Changes in the consolidated subsidiaries of the Allianz Group | | | — | | | 152 | | | — | | | — | |
Premiums collected | | 9,381 | | | 7,903 | | | 8,313 | | | 5,987 | | | 7,775 | | | 3,963 | | | 9,381 | | | 7,903 | |
Interest credited | | 1,508 | | | (149 | ) | | 3,013 | | | 705 | | | (10,650 | ) | | (2,815 | ) | | 1,508 | | | (149 | ) |
Releases upon death, surrender and withdrawal | | (3,740 | ) | | (6,286 | ) | | (2,584 | ) | | (5,257 | ) | | (3,323 | ) | | (6,314 | ) | | (3,740 | ) | | (6,286 | ) |
Policyholder charges | | (1,130 | ) | | (222 | ) | | (914 | ) | | (289 | ) | | (838 | ) | | (141 | ) | | (1,130 | ) | | (222 | ) |
Portfolio acquisitions and disposals | | 20 | | | — | | | — | | | — | | | (1 | ) | | (1 | ) | | 20 | | | — | |
Reclassifications1) | | (1,058 | ) | | (75 | ) | | (87 | ) | | 87 | | | (3,927 | ) | | (172 | ) | | (1,058 | ) | | (75 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
As of December 31, | | 39,323 | | | 26,737 | | | 36,296 | | | 25,568 | | | 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 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, see 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, 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 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)
2022 Other liabilities
| As of December 31, | | 2007 | | 2006 | | 20081) | | 2007 |
| | | € mn | | € mn | | € mn | | € mn |
Payables | | | | | | | | |
Policyholders | | 4,806 | | 5,322 | | 4,695 | | 4,806 |
Reinsurance | | 1,844 | | 1,868 | | 2,062 | | 1,844 |
Agents | | 1,743 | | 1,494 | | 1,485 | | 1,743 |
| | | | | | | | |
Subtotal | | 8,393 | | 8,684 | | 8,242 | | 8,393 |
| | | | | |
Payables for social security | | 263 | | 219 | | 316 | | 196 |
Tax payables | | | | | | | | |
Income tax | | 2,563 | | 2,076 | | 1,446 | | 2,563 |
Other | | 1,012 | | 968 | | 971 | | 1,012 |
| | | | | | | | |
Subtotal | | 3,575 | | 3,044 | | 2,417 | | 3,575 |
| | | | | |
Accrued interest and rent | | 779 | | 793 | | 723 | | 4,226 |
Unearned income | | | | | | | | |
Interest and rent | | 3,453 | | 2,645 | | 10 | | 6 |
Other | | 351 | | 279 | | 361 | | 351 |
| | | | | | | | |
Subtotal | | 3,804 | | 2,924 | | 371 | | 357 |
| | | | | |
Provisions | | | | | | | | |
Pensions and similar obligations | | 4,184 | | 4,120 | | 3,867 | | 4,184 |
Employee related | | 2,956 | | 3,120 | | 1,904 | | 2,956 |
Share-based compensation | | 1,761 | | 1,898 | | 1,295 | | 1,761 |
Restructuring plans | | 541 | | 887 | | 343 | | 541 |
Loan commitments | | 201 | | 261 | | 8 | | 201 |
Contingent losses from non-insurance business | | | 109 | | 134 |
Other provisions | | 1,991 | | 1,943 | | 1,481 | | 1,857 |
| | | | | | | | |
Subtotal | | 11,634 | | 12,229 | | 9,007 | | 11,634 |
| | | | | |
Deposits retained for reinsurance ceded | | 3,227 | | 5,716 | | 2,852 | | 3,227 |
Derivative financial instruments used for hedging purposes that meet the criteria for hedge accounting and firm commitments | | 2,210 | | 907 | |
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 | | 4,162 | | 3,750 | | 2,718 | | 4,162 |
Disposal groups held for sale | | 1,293 | | — | |
Other liabilities | | 9,984 | | 11,498 | | 6,076 | | 10,051 |
| | | | | | | | |
Total | | 49,324 | | 49,764 | | 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 €39,44424,766 mn (2006: €40,839(2007: €38,151 mn) and those due after more than one year totaled €9,880€8,164 mn (2006: €8,925(2007: €9,880 mn).
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
2123 Certificated liabilities
| | | | Contractual Maturity Date | | As of
December 31,
2007 | | As of
December 31,
2006 | | Contractual Maturity Date | | As of
December 31,
20081) | | As of
December 31,
2007 |
| | | 2008 | | 2009 | | 2010 | | 2011 | | 2012 | | Thereafter | | | | 2009 | | 2010 | | 2011 | | 2012 | | 2013 | | Thereafter | | |
| | | € mn1) | | € mn1) | | € mn1) | | € mn1) | | € mn1) | | € mn1) | | € mn | | € mn | | € mn2) | | € mn2) | | € mn2) | | € mn2) | | € mn2) | | € mn2) | | € mn | | € mn |
Allianz SE2) | | | | | | | | | | | | | | | | | |
Allianz SE3) | | | | | | | | | | | | | | | | | |
Senior bonds | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fixed rate | | 1,631 | | | — | | | — | | | — | | | 893 | | | 1,483 | | | 4,007 | | 6,195 | | — | | | — | | | — | | | 882 | | | 1,482 | | | 1,484 | | | 3,848 | | 4,007 |
Contractual interest rate | | 5.00 | % | | — | | | — | | | — | | | 5.63 | % | | 4.00 | % | | — | | — | | — | | | — | | | — | | | 5.63 | % | | 5.00 | % | | 4.00 | % | | — | | — |
Floating rate | | — | | | 272 | | | — | | | — | | | — | | | — | | | 272 | | — | | 287 | | | — | | | — | | | — | | | — | | | — | | | 287 | | 272 |
Current interest rate | | — | | | 5.23 | % | | — | | | — | | | — | | | — | | | — | | — | | 4.05 | % | | — | | | — | | | — | | | — | | | — | | | — | | — |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Subtotal | | 1,631 | | | 272 | | | — | | | — | | | 893 | | | 1,483 | | | 4,279 | | 6,195 | | 287 | | | — | | | — | | | 882 | | | 1,482 | | | 1,484 | | | 4,135 | | 4,279 |
Exchangeable bonds | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fixed rate | | 450 | | | — | | | — | | | — | | | — | | | — | | | 450 | | 1,262 | | — | | | — | | | — | | | — | | | — | | | — | | | — | | 450 |
Contractual interest rate | | 0.75 | % | | — | | | — | | | — | | | — | | | — | | | — | | — | | — | | | — | | | — | | | — | | | — | | | — | | | — | | — |
Money market securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fixed rate | | 2,929 | | | — | | | — | | | — | | | — | | | — | | | 2,929 | | 870 | | 4,103 | | | — | | | — | | | — | | | — | | | — | | | 4,103 | | 2,929 |
Contractual interest rate | | 4.19 | % | | — | | | — | | | — | | | — | | | — | | | — | | — | | 4.47 | % | | — | | | — | | | — | | | — | | | — | | | — | | — |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total Allianz SE2) | | 5,010 | | | 272 | | | — | | | — | | | 893 | | | 1,483 | | | 7,658 | | 8,327 | |
Total Allianz SE3) | | | 4,390 | | | — | | | — | | | 882 | | | 1,482 | | | 1,484 | | | 8,238 | | 7,658 |
| | | | | | | | | | | | | | | | | | | | | | | |
Banking subsidiaries | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Senior bonds | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fixed rate | | 5,206 | | | 2,807 | | | 2,031 | | | 270 | | | 484 | | | 638 | | | 11,436 | | 14,608 | | 564 | | | 172 | | | 57 | | | 23 | | | 22 | | | 3 | | | 841 | | 11,436 |
Contractual interest rate | | 6.50 | % | | 4.61 | % | | 4.45 | % | | 5.64 | % | | 4.57 | % | | 5.65 | % | | — | | — | | 3.77 | % | | 3.73 | % | | 3.75 | % | | 3.28 | % | | 2.93 | % | | 4.48 | % | | — | | — |
Floating rate | | 2,009 | | | 1,122 | | | 793 | | | 913 | | | 1,191 | | | 647 | | | 6,675 | | 8,729 | | 237 | | | 25 | | | 30 | | | — | | | — | | | 145 | | | 437 | | 6,675 |
Current interest rate | | 5.16 | % | | 4.35 | % | | 4.90 | % | | 4.48 | % | | 4.86 | % | | 4.24 | % | | — | | — | | 4.15 | % | | 5.35 | % | | 4.97 | % | | — | | | — | | | 2.84 | % | | — | | — |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Subtotal | | 7,215 | | | 3,929 | | | 2,824 | | | 1,183 | | | 1,675 | | | 1,285 | | | 18,111 | | 23,337 | | 801 | | | 197 | | | 87 | | | 23 | | | 22 | | | 148 | | | 1,278 | | 18,111 |
Money market securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fixed rate | | 16,289 | | | — | | | — | | | — | | | — | | | — | | | 16,289 | | 17,677 | | — | | | — | | | — | | | — | | | — | | | — | | | — | | 16,289 |
Contractual interest rate | | 4.50 | % | | — | | | — | | | — | | | — | | | — | | | — | | — | | — | | | — | | | — | | | — | | | — | | | — | | | — | | — |
Floating rate | | 9 | | | — | | | — | | | — | | | — | | | — | | | 9 | | 4,978 | | — | | | — | | | — | | | — | | | — | | | — | | | — | | 9 |
Current interest rate | | 6.80 | % | | — | | | — | | | — | | | — | | | — | | | — | | — | | — | | | — | | | — | | | — | | | — | | | — | | | — | | — |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Subtotal | | 16,298 | | | — | | | — | | | — | | | — | | | — | | | 16,298 | | 22,655 | | — | | | — | | | — | | | — | | | — | | | — | | | — | | 16,298 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total banking subsidiaries | | 23,513 | | | 3,929 | | | 2,824 | | | 1,183 | | | 1,675 | | | 1,285 | | | 34,409 | | 45,992 | | 801 | | | 197 | | | 87 | | | 23 | | | 22 | | | 148 | | | 1,278 | | 34,409 |
| | | | | | | | | | | | | | | | | | | | | | | |
All other subsidiaries | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Certificated liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fixed rate | | — | | | — | | | — | | | — | | | — | | | 3 | | | 3 | | 4 | | — | | | — | | | — | | | — | | | — | | | 3 | | | 3 | | 3 |
Contractual interest rate | | — | | | — | | | — | | | — | | | — | | | 2.11 | % | | — | | — | | — | | | — | | | — | | | — | | | — | | | 2.11 | % | | — | | — |
Money market securities | | | | | | | | | | | | | | | | | |
Fixed rate | | — | | | — | | | — | | | — | | | — | | | — | | | — | | 599 | |
Contractual interest rate | | — | | | — | | | — | | | — | | | — | | | — | | | — | | — | |
Floating rate | | | — | | | 25 | | | — | | | — | | | — | | | — | | | 25 | | — |
Current interest rate | | | — | | | 4.05 | % | | — | | | — | | | — | | | — | | | — | | — |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total all other subsidiaries | | — | | | — | | | — | | | — | | | — | | | 3 | | | 3 | | 603 | | — | | | 25 | | | — | | | — | | | — | | | 3 | | | 28 | | 3 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | 28,523 | | | 4,201 | | | 2,824 | | | 1,183 | | | 2,568 | | | 2,771 | | | 42,070 | | 54,922 | | 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.weighted average. |
2)3)
| Includes senior bonds and exchangeable bonds and money market securities issued by 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)
2224 Participation certificates and subordinated liabilities
| | | | Contractual Maturity Date | | As of
December 31, | | As of
December 31, | | Contractual Maturity Date | | As of
December 31, | | As of
December 31, |
| | | 2008 | | 2009 | | 2010 | | 2011 | | 2012 | | Thereafter | | 2007 | | 2006 | | 2009 | | 2010 | | 2011 | | 2012 | | 2013 | | Thereafter | | 20081) | | 2007 |
| | | € mn1) | | € mn1) | | € mn1) | | € mn1) | | € mn1) | | € mn1) | | € mn | | € mn | | € mn2) | | € mn2) | | € mn2) | | € mn2) | | € mn2) | | € mn2) | | € mn | | € mn |
Allianz SE2) | | | | | | | | | | | | | | | | | |
Allianz SE3) | | | | | | | | | | | | | | | | | |
Subordinated bonds | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fixed rate | | — | | | — | | | — | | | — | | | — | | | 1,129 | | | 1,129 | | 1,164 | | — | | — | | | — | | — | | — | | | 2,548 | | | 2,548 | | 1,129 |
Contractual interest rate | | — | | | — | | | — | | | — | | | — | | | 5.94 | % | | — | | — | | — | | — | | | — | | — | | — | | | 7.28 | % | | — | | — |
Floating rate | | — | | | — | | | — | | | — | | | — | | | 5,724 | | | 5,724 | | 5,719 | | — | | — | | | — | | — | | — | | | 5.649 | | | 5,649 | | 5,724 |
Current interest rate | | — | | | — | | | — | | | — | | | — | | | 5.61 | % | | — | | — | | — | | — | | | — | | — | | — | | | 5.60 | % | | — | | — |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Subtotal | | — | | | — | | | — | | | — | | | — | | | 6,853 | | | 6,853 | | 6,883 | | — | | — | | | — | | — | | — | | | 8,197 | | | 8,197 | | 6,853 |
Participation certificates3) | | | | | | | | | | | | | | | | | |
Participation certificates4) | | | | | | | | | | | | | | | | | |
Floating rate | | — | | | — | | | — | | | — | | | — | | | 85 | | | 85 | | 85 | | — | | — | | | — | | — | | — | | | 85 | | | 85 | | 85 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total Allianz SE2) | | — | | | — | | | — | | | — | | | — | | | 6,938 | | | 6,938 | | 6,968 | |
Total Allianz SE3) | | | — | | — | | | — | | — | | — | | | 8,282 | | | 8,282 | | 6,938 |
| | | | | | | | | | | | | | | | | | | | |
Banking subsidiaries | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Subordinated bonds | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fixed rate | | 342 | | | 297 | | | 116 | | | 20 | | | 36 | | | 1,004 | | | 1,815 | | 2,621 | | — | | 20 | | | — | | — | | 70 | | | 83 | | | 173 | | 1,815 |
Contractual interest rate | | 5.87 | % | | 5.34 | % | | 6.31 | % | | 6.76 | % | | 5.83 | % | | 6.30 | % | | — | | — | | — | | 3.75 | % | | — | | — | | 5.66 | % | | 5.14 | % | | — | | — |
Floating rate | | 171 | | | 282 | | | 32 | | | 59 | | | 21 | | | 442 | | | 1,007 | | 1,048 | | — | | — | | | — | | — | | — | | | — | | | — | | 1,007 |
Current interest rate | | 5.62 | % | | 4.70 | % | | 4.91 | % | | 5.22 | % | | 6.15 | % | | 5.24 | % | | — | | — | | — | | — | | | — | | — | | — | | | — | | | — | | — |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Subtotal | | 513 | | | 579 | | | 148 | | | 79 | | | 57 | | | 1,446 | | | 2,822 | | 3,669 | | — | | 20 | | | — | | — | | 70 | | | 83 | | | 173 | | 2,822 |
Hybrid equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fixed rate | | — | | | — | | | — | | | 500 | | | — | | | 1,929 | | | 2,429 | | 2,513 | | — | | — | | | — | | — | | — | | | — | | | — | | 2,429 |
Contractual interest rate | | — | | | — | | | — | | | 5.79 | % | | — | | | 7.20 | % | | — | | — | | — | | — | | | — | | — | | — | | | — | | | — | | — |
Participation certificates4) | | | | | | | | | | | | | | | | | |
Participation certificates | | | | | | | | | | | | | | | | | |
Fixed rate | | 903 | | | 51 | | | — | | | — | | | — | | | 732 | | | 1,686 | | 2,262 | | — | | — | | | — | | — | | — | | | — | | | — | | 1,686 |
Contractual interest rate | | 7.87 | % | | 6.13 | % | | — | | | — | | | — | | | 5.39 | % | | — | | — | | — | | — | | | — | | — | | — | | | — | | | — | | — |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total banking subsidiaries | | 1,416 | | | 630 | | | 148 | | | 579 | | | 57 | | | 4,107 | | | 6,937 | | 8,444 | | — | | 20 | | | — | | — | | 70 | | | 83 | | | 173 | | 6,937 |
| | | | | | | | | | | | | | | | | | | | |
All other subsidiaries | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Subordinated liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fixed rate | | 60 | | | — | | | — | | | — | | | — | | | 618 | | | 678 | | 680 | | — | | — | | | — | | — | | — | | | 621 | | | 621 | | 678 |
Contractual interest rate | | 6.84 | % | | — | | | — | | | — | | | — | | | 5.35 | % | | — | | — | | — | | — | | | — | | — | | — | | | 5.34 | % | | — | | — |
Floating rate | | — | | | — | | | — | | | — | | | — | | | 226 | | | 226 | | 225 | | — | | — | | | — | | — | | — | | | 225 | | | 225 | | 226 |
Current interest rate | | — | | | — | | | — | | | — | | | — | | | 5.66 | % | | — | | — | | — | | — | | | — | | — | | — | | | 4.45 | % | | — | | — |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Subtotal | | 60 | | | — | | | — | | | — | | | — | | | 844 | | | 904 | | 905 | | — | | — | | | — | | — | | — | | | 846 | | | 846 | | 904 |
Hybrid equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fixed rate | | — | | | — | | | — | | | — | | | — | | | 45 | | | 45 | | 45 | | — | | — | | | — | | — | | — | | | 45 | | | 45 | | 45 |
Contractual interest rate | | — | | | — | | | — | | | — | | | — | | | 5.58 | % | | — | | — | | — | | — | | | — | | — | | — | | | 6.43 | % | | — | | — |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total all other subsidiaries | | 60 | | | — | | | — | | | — | | | — | | | 889 | | | 949 | | 950 | | — | | — | | | — | | — | | — | | | 891 | | | 891 | | 949 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | 1,476 | | | 630 | | | 148 | | | 579 | | | 57 | | | 11,934 | | | 14,824 | | 16,362 | | — | | 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.weighted average. |
2)3)
| Includes subordinated bonds issued by Allianz Finance B.V. and Allianz Finance II B.V. and guaranteed by Allianz SE. |
3)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, 2008.2009. 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 recallcall of the participation certificate. In lieu of redemption for cash, Allianz SE may offer 10 Allianz SE ordinary shares per 8 profit participation certificates. |
4)
| Participation certificates issued by the Dresdner Bank Group entitle holders to annual interest payments, which take priority over its shareholders’ dividend entitlements. They are subordinated to obligations for all other creditors of the respective issuer, except those similarly subordinated, and share in losses of the respective issuers in accordance with the conditions attached to the participation certificates. The profit participation certificates will be redeemed subject to the provisions regarding loss sharing.
|
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
2325 Equity
| As of December 31, | | 2007 | | 2006 | | | 2008 | | 2007 | |
| | | € mn | | € mn | | | € mn | | € mn | |
Shareholders’ equity | | | | | | | | |
Issued capital | | 1,152 | | | 1,106 | | | 1,160 | | | 1,152 | |
Capital reserve | | 27,169 | | | 24,292 | | | 27,409 | | | 27,169 | |
Revenue reserves | | 12,790 | | | 13,511 | | | 7,257 | | | 12,790 | |
Treasury shares | | (172 | ) | | (441 | ) | | (147 | ) | | (172 | ) |
Foreign currency translation adjustments | | (3,656 | ) | | (2,210 | ) | | (4,006 | ) | | (3,656 | ) |
Unrealized gains and losses (net)1) | | 10,470 | | | 13,392 | | | 2,011 | | | 10,470 | |
Subtotal | | 47,753 | | | 49,650 | | | 33,684 | | | 47,753 | |
| | | | | | | |
Minority interests | | 3,628 | | | 7,180 | | | 3,564 | | | 3,628 | |
| | | | | | | |
Total | | 51,381 | | | 56,830 | | | 37,248 | | | 51,381 | |
| | | | | | | |
1) | As of December 31, 20072008 includes €175€203 mn related to cash flow hedges (2006: €140(2007: €175 mn). |
Issued capital
Issued capital at December 31, 20072008 amounted to €1,152,384,000€1,159,808,000 divided into 450,150,000453,050,000 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, 2007,2008, Allianz SE had €406,545,646 (158,806,893 shares) of authorized unissued capital (Authorized Capital 2006/I) which can be issued at any time up to February 7, 2011. The Board of Management, with approval of the Supervisory Board, is authorized to exclude the preemptive 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, 2007,2008, Allianz SE had €9,848,297 (3,846,991€8,056,297 (3,146,991 shares) of authorized unissued capital (Authorized Capital 2006/II) which can be issued at any time up to February 7, 2011. The Board of Management, with approval of the Supervisory Board, is authorized to exclude the preemptive rights of shareholders if the shares are issued to employees of the Allianz Group. Further, as of December 31, 2007,2008, Allianz SE had an unissued conditional capital in the amount of €250,000,000 (97,656,250 shares),
authorized in 2006 and2006. In February 2008 the remaining 2.2 mn warrants were exercised which the Allianz Group had issued in February 2005 as part of the amount“All-in-One” transaction. In conjunction with the exercise, 2.2 mn new shares of €5,632,000 (2,200,000 shares), authorized in 2004. Allianz 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 capital will becarriedbe carried out only to the extent that conversion or option rights are exercised by holders of bonds issued by Allianz SE or any of its subsidiaries or that mandatory conversion obligations are fulfilled.
Changes in the number of issued shares outstanding
| | | | 2007 | | 2006 | | 2005 | | 2008 | | 2007 | | 2006 | |
Issued shares outstanding as of January 1, | | 429,336,291 | | | 405,298,397 | | | 366,859,799 | | 448,910,648 | | | 429,336,291 | | | 405,298,397 | |
Capital increase for merger with RAS | | — | | | 25,123,259 | | | — | | — | | | — | | | 25,123,259 | |
Capital increase for tender offer AGF | | 16,974,357 | | | — | | | — | | — | | | 16,974,357 | | | — | |
Exercise of warrants | | — | | | — | | | 9,000,000 | | 2,200,000 | | | — | | | — | |
Capital increase for cash | | — | | | — | | | 10,116,850 | |
Capital increase for employee shares | | 1,025,643 | | | 986,741 | | | 1,148,150 | | 700,000 | | | 1,025,643 | | | 986,741 | |
Change in treasury shares held for non- trading purposes | | (86,431 | ) | | (57,232 | ) | | 17,165,510 | |
Change in treasury shares held for non-trading purposes | | | (96,521 | ) | | (86,431 | ) | | (57,232 | ) |
Change in treasury shares held for trading purposes | | 1,660,788 | | | (2,014,874 | ) | | 1,008,088 | | (223,904 | ) | | 1,660,788 | | | (2,014,874 | ) |
| | | | | | | | | | | | | | | | | |
Issued shares
outstanding as of December 31, | | 448,910,648 | | | 429,336,291 | | | 405,298,397 | | 451,490,223 | | | 448,910,648 | | | 429,336,291 | |
Treasury shares | | 1,239,352 | | | 2,813,709 | | | 741,603 | | 1,559,777 | | | 1,239,352 | | | 2,813,709 | |
| | | | | | | | | | | | | | | | | |
Total number of issued shares | | 450,150,000 | | | 432,150,000 | | | 406,040,000 | | 453,050,000 | | | 450,150,000 | | | 432,150,000 | |
| | | | | | | | | | | | | | | | | |
In November 2007, 1,025,643 (2006: 986,741)2008, 700,000 (2007: 1,025,643) shares were issued at a price of €154.07 (2006: €131.00)€64.30 (2007: €154.07) per share, enabling employees of Allianz Group subsidiaries in Germany and abroad to purchase 881,980 (2006: 929,509)660,700 (2007: 881,980) shares at prices ranging from €107.85 (2006: €91.70)€45.01 (2007: €107.85) to €128.39 (2006: €111.35)€53.58 (2007: €128.39) per share. The remaining 143,663 (2006: 57,232)39,300 (2007:143,663) shares were warehoused and booked
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
as treasury shares for further subscriptions by employees in the context of the employee share purchase plan in 2008.2009. As a result, issued capital increased by €3€2 mn and capital reserve increased by €155€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.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
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.
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.
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 SE. 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. On February 15, 2008 the remaining 2.2 mn warrants were exercised.
All shares issued during the years ended December 31, 2008, 2007 2006 and 20052006 are qualifying shares from the beginning of the year of issue.
Dividends
For the year ended December 31, 2007,2008, the Board of Management will propose to shareholders at the Annual General Meeting the distribution of a dividend of €5.50€3.50 per qualifying share. During the years ended December 31, 20062007 and 2005,2006, Allianz SE paid a dividend of €5.50 and €3.80 and €2.00,, respectively, per qualifying share.
Treasury shares
The Annual General Meeting on May 2, 2007 (2006: May 3),21, 2008, authorized Allianz SE to acquire its own shares for other purposes pursuant to clause 71(1) no. 8 of the German Stock Corporation Law (“Aktiengesetz”). During the year ended December 31, 20072008 the authorization was used to acquire 143,663 (2006: 57,232)39,300 (2007: 143,663) shares of Allianz SE.
In order to enable Dresdner Bank Group to trade in shares of Allianz SE, the Annual General MeetingonMeeting on May 2, 200721, 2008 authorized the Allianz Group’s domestic or foreign credit institutions in which Allianz SE has a majority holding to acquire treasury shares for trading purposes pursuant to clause 71(1) no. 7 of the Aktiengesetz. During the year ended December 31, 2007,2008, in accordance with this authorization, the credit institutions of the Allianz
Group purchased 24,780,668 (2006: 44,741,900)30,227,150 (2007:24,780,668) of Allianz SE’s shares at an average price of €131.55€106.73 per share (2006: €131.45)(2007: €131.55), which included previously held Allianz SE shares. During the year ended December 31, 2007, 25,348,1692008, 30,977,574 shares (2006: 42,180,935)(2007: 25,348,169) were disposed of holdings at an average price of €127.39€100.87 per share (2006: €132.76)(2007: €127.39). During the year ended December 31, 2007,2008, the lossesgains arising from treasury share transactions and in consideration of the holding, were €110€21 mn (2006: gains €29(2007: losses €110 mn), which were recorded directly in revenue reserves.
In 2005, the Dresdner Bank Group placed 17,155,008 shares of Allianz SE in the market.
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 €-mn (2006: €2 mn), in case the put options are exercised.
Composition of the treasury shares
| As of December 31, | | Acquisition
costs | | Number of
shares | | Issued
capital | | Acquisition
costs | | Number of
shares | | Issued
capital |
| | | | € mn | | % |
2008 | | | | | | | |
Allianz SE | | | 65 | | 545,807 | | 0.12 |
Dresdner Bank Group | | | 69 | | 895,558 | | 0.20 |
Other | | | 13 | | 118,412 | | 0.02 |
| | | | | | | |
Total | | | 147 | | 1,559,777 | | 0.34 |
| | | € mn | | % | | | | | | |
2007 | | | | | | | | | | | | |
Allianz SE | | 72 | | 567,698 | | 0.13 | | 72 | | 567,698 | | 0.13 |
Dresdner Bank Group | | 100 | | 671,654 | | 0.15 | | 100 | | 671,654 | | 0.15 |
Dresdner Bank Group (obligation for written put options on Allianz SE shares) | | — | | — | | — | |
| | | | | | | | | | | | |
Total | | 172 | | 1,239,352 | | 0.28 | | 172 | | 1,239,352 | | 0.28 |
| | | | | | | | | | | | |
2006 | | | | | | | |
Allianz SE | | 57 | | 481,267 | | 0.11 | |
Dresdner Bank Group | | 382 | | 2,332,442 | | 0.54 | |
Dresdner Bank Group (obligation for written put options on Allianz SE shares) | | 2 | | — | | — | |
| | | | | | | |
Total | | 441 | | 2,813,709 | | 0.65 | |
| | | | | | | |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)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 planning dialogues with its operating entities, capital requirements are determined 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.
On January 1, 2005, the Financial Conglomerates Directive, a supplementary European Union (or “EU”)(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 calculates the capital needed to meet the respective solvency requirements on a consolidated basis.
At December 31, 2007,2008, 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 €45.5€39.5 bn (2006: €49.5(2007: €46.5 bn) including off-balance sheet reserves1), surpassing the minimum legally stipulated level by €16.6€9.9 bn (2006: €23.4(2007: €17.6 bn). This margin resulted in a preliminary cover ratio2) of 157%133% at December 31, 2007 (2006: 190%2008 (2007: 161%). In 2007,2008, all Allianz Group companies also have met their local solvency requirements.
At December 31, 2007,Starting with the third quarter 2008, unrealized gains and losses on bonds are excluded from the calculation of our eligible capital for the solvency margin, required for insurance groups under German law, was €50.9 bn (2006: €53.3 bn),surpassing the minimum legally stipulated level by €32.8 bn (2006: €37.9 bn).capital. This margin resulted in preliminary cover ratio2) of 281% (2006: 345%).
Dresdner Bank is subjectnew methodology, which better reflects economic reality, added around 6 (2007: 4) percentage points to the German Banking Act (“Kreditwesengesetz”) as well as to the new Solvency Regulation (“Solvabilitäts-Verordnung”) and therefore Dresdner Bank calculates and reports under such guidelines to the German Federal Financial Supervisory Authority (the Bundesanstalt für Finanzdienstleistungsaufsicht, or “BaFin”) and the Deutsche Bundesbank, the German central bank. These guidelines are used to evaluate capital adequacy based primarily on the perceived credit risk associated with balance sheet assets, as well as certain off-balance sheet exposures such as unfunded loan commitments, letters of credit, and derivative and foreign exchange contracts. In addition, for Allianz SE to maintain its status as a “financial holding company” under the U.S. Gramm-Leach-Bliley Financial Modernization Act of 1999, Dresdner 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 2007 and 2006.
The following table sets forth Dresdner Bank’s BIS capital ratios:
| | | | |
As of December 31, | | 2007 | | 2006 |
| | | € mn | | € mn |
Tier I capital (core capital) | | 11,234 | | 12,469 |
Tier I & Tier II capital | | 16,964 | | 18,668 |
Tier III capital (supplementary capital) | | — | | — |
| | | | |
Total capital | | 16,964 | | 18,668 |
Risk-weighted assets—banking book | | 119,477 | | 117,355 |
Risk-weighted assets—trading book | | 3,638 | | 2,625 |
| | | | |
Total risk-weighted assets | | 123,115 | | 119,980 |
Tier I capital ratio (core capital)
in % | | 9.1 | | 10.4 |
Tier I & Tier II capital ratio
in % | | 13.8 | | 15.6 |
Total capital ratio in % | | 13.8 | | 15.6 |
F-78
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.
|
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
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 SE 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, 2007,2008, 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 SE without prior approval by the appropriate regulatory body. SuchrestrictionsSuch 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 Allianz SE to pay dividends to its shareholders in the future. In addition, Allianz SE is not subject to legal restrictions on the amount of dividends it can pay to its shareholders, except the legal reserve in the appropriated retained earnings, which is required according to clause 150 (1) of the German Stock Corporation Act (AktG).Aktiengesetz.
Minority interests
| | | | |
As of December 31, | | 2007 | | 2006 |
| | | € mn | | € mn |
Unrealized gains and losses (net) | | 95 | | 888 |
Share of earnings | | 748 | | 1,289 |
Other equity components | | 2,785 | | 5,003 |
| | | | |
Total | | 3,628 | | 7,180 |
| | | | |
The reduction in minority interests includes the impact of the minority buy-out of AGF with an amount of €(3,868) mn.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Supplementary Information to the Consolidated Income Statements
2426 Premiums earned (net)
| | | | Property-Casualty | | Life/Health | | Consolidation | | Total | | | 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 | |
| | | € mn | | € mn | | € mn | | € mn | | | | | | | | | | | | | |
2007 | | | | | | | | | | | | | | | | |
Premiums written | | | | | | | | | | | | | | | | |
Direct | | 41,526 | | | 21,241 | | | — | | | 62,767 | | | 41,526 | | | 21,241 | | | — | | | 62,767 | |
Assumed | | 2,763 | | | 281 | | | (23 | ) | | 3,021 | | | 2,763 | | | 281 | | | (23 | ) | | 3,021 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Subtotal | | 44,289 | | | 21,522 | | | (23 | ) | | 65,788 | | | 44,289 | | | 21,522 | | | (23 | ) | | 65,788 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Ceded | | (5,320 | ) | | (637 | ) | | 23 | | | (5,934 | ) | | (5,320 | ) | | (637 | ) | | 23 | | | (5,934 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net | | 38,969 | | | 20,885 | | | — | | | 59,854 | | | 38,969 | | | 20,885 | | | — | | | 59,854 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Change in unearned premiums | | | | | | | | | | | | | | | | |
Direct | | (352 | ) | | (77 | ) | | — | | | (429 | ) | | (352 | ) | | (77 | ) | | — | | | (429 | ) |
Assumed | | (68 | ) | | 2 | | | 1 | | | (65 | ) | | (68 | ) | | 2 | | | 1 | | | (65 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Subtotal | | (420 | ) | | (75 | ) | | 1 | | | (494 | ) | | (420 | ) | | (75 | ) | | 1 | | | (494 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Ceded | | 4 | | | (1 | ) | | (1 | ) | | 2 | | | 4 | | | (1 | ) | | (1 | ) | | 2 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net | | (416 | ) | | (76 | ) | | — | | | (492 | ) | | (416 | ) | | (76 | ) | | — | | | (492 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Premiums earned | | | | | | | | | | | | | | | | |
Direct | | 41,174 | | | 21,164 | | | — | | | 62,338 | | | 41,174 | | | 21,164 | | | — | | | 62,338 | |
Assumed | | 2,695 | | | 283 | | | (22 | ) | | 2,956 | | | 2,695 | | | 283 | | | (22 | ) | | 2,956 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Subtotal | | 43,869 | | | 21,447 | | | (22 | ) | | 65,294 | | | 43,869 | | | 21,447 | | | (22 | ) | | 65,294 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Ceded | | (5,316 | ) | | (638 | ) | | 22 | | | (5,932 | ) | | (5,316 | ) | | (638 | ) | | 22 | | | (5,932 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net | | 38,553 | | | 20,809 | | | — | | | 59,362 | | | 38,553 | | | 20,809 | | | — | | | 59,362 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
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 | | |
| | | | | | | | | | | | | |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
| | | | | | | | | | | | |
| | | Property-Casualty | | | Life/Health | | | Consolidation | | | Total | |
| | | € mn | | | € mn | | | € mn | | | € mn | |
2005 | | | | | | | | | | | | |
Premiums written | | | | | | | | | | | | |
Direct | | 40,547 | | | 20,707 | | | — | | | 61,254 | |
Assumed | | 3,152 | | | 386 | | | (26 | ) | | 3,512 | |
| | | | | | | | | | | | |
Subtotal | | 43,699 | | | 21,093 | | | (26 | ) | | 64,766 | |
| | | | | | | | | | | | |
Ceded | | (5,529 | ) | | (926 | ) | | 26 | | | (6,429 | ) |
| | | | | | | | | | | | |
Net | | 38,170 | | | 20,167 | | | — | | | 58,337 | |
| | | | | | | | | | | | |
Change in unearned premiums | | | | | | | | | | | | |
Direct | | (378 | ) | | (161 | ) | | — | | | (539 | ) |
Assumed | | (246 | ) | | (6 | ) | | — | | | (252 | ) |
| | | | | | | | | | | | |
Subtotal | | (624 | ) | | (167 | ) | | — | | | (791 | ) |
| | | | | | | | | | | | |
Ceded | | 139 | | | (3 | ) | | — | | | 136 | |
| | | | | | | | | | | | |
Net | | (485 | ) | | (170 | ) | | — | | | (655 | ) |
| | | | | | | | | | | | |
Premiums earned | | | | | | | | | | | | |
Direct | | 40,169 | | | 20,546 | | | — | | | 60,715 | |
Assumed | | 2,906 | | | 380 | | | (26 | ) | | 3,260 | |
| | | | | | | | | | | | |
Subtotal | | 43,075 | | | 20,926 | | | (26 | ) | | 63,975 | |
| | | | | | | | | | | | |
Ceded | | (5,390 | ) | | (929 | ) | | 26 | | | (6,293 | ) |
| | | | | | | | | | | | |
Net | | 37,685 | | | 19,997 | | | — | | | 57,682 | |
| | | | | | | | | | | | |
26 Premiums earned (net)—continued
| | | | | | | | | | | | |
| | | 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 | |
| | | | | | | | | | | | |
2527 Interest and similar income
| | | | 2007 | | 2006 | | 2005 | | 2008 | | 2007 | | 2006 |
| | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn |
Interest from held-to-maturity investments | | 223 | | 233 | | 253 | | 243 | | | 223 | | 233 |
Dividends from available-for-sale investments | | 2,332 | | 2,119 | | 1,469 | | 1,864 | | | 2,282 | | 2,086 |
Interest from available-for-sale investments | | 9,709 | | 9,160 | | 8,592 | | 10,164 | | | 9,164 | | 8,741 |
Share of earnings from investments in associates and joint ventures | | 521 | | 287 | | 253 | | (37 | ) | | 284 | | 223 |
Rent from real estate held for investment | | 835 | | 930 | | 993 | | 703 | | | 780 | | 805 |
Interest from loans to banks and customers | | 12,200 | | 11,058 | | 10,875 | | 5,928 | | | 5,670 | | 5,177 |
Other interest | | 227 | | 169 | | 209 | | 207 | | | 221 | | 165 |
| | | | | | | | | | | | | |
Total | | 26,047 | | 23,956 | | 22,644 | | 19,072 | | | 18,624 | | 17,430 |
| | | | | | | | | | | | | |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
2628 Income from financial assets and liabilities carried at fair value through income (net)
| | | | | | | | | | | | | | | | | | | | | |
| | | Property-
Casualty | | | Life/
Health | | | Banking | | | Asset
Managment | | | Corporate | | | Consolidation | | | Group | |
| | | € mn | | | € mn | | | € mn | | | € mn | | | € mn | | | € mn | | | € mn | |
2007 | | | | | | | | | | | | | | | | | | | | | |
Income (expense) from financial assets and liabilities held for trading | | (51 | ) | | (1,337 | ) | | (464 | ) | | — | | | 44 | | | (35 | ) | | (1,843 | ) |
Income from financial assets designated at fair value through income | | 150 | | | 345 | | | 67 | | | 64 | | | 7 | | | (8 | ) | | 625 | |
Income (expense) from financial liabilities designated at fair value through income | | 3 | | | 11 | | | (34 | ) | | — | | | — | | | — | | | (20 | ) |
Income (expense) from financial liabilities for puttable equity instruments (net) | | (17 | ) | | 41 | | | — | | | (33 | ) | | — | | | — | | | (9 | ) |
| | | | | | | | | | | | | | | | | | | | | |
Total | | 85 | | | (940 | ) | | (431 | ) | | 31 | | | 51 | | | (43 | ) | | (1,247 | ) |
| | | | | | | | | | | | | | | | | | | | | |
2006 | | | | | | | | | | | | | | | | | | | | | |
Income (expense) from financial assets and liabilities held for trading | | 83 | | | (808 | ) | | 1,282 | | | 7 | | | (274 | ) | | 72 | | | 362 | |
Income (expense) from financial assets designated at fair value through income | | 121 | | | 742 | | | 95 | | | (105 | ) | | 5 | | | — | | | 858 | |
Expense from financial liabilities designated at fair value through income | | (1 | ) | | (2 | ) | | (42 | ) | | — | | | — | | | 1 | | | (44 | ) |
Income (expense) from financial liabilities for puttable equity instruments (net) | | (14 | ) | | (293 | ) | | — | | | 136 | | | (65 | ) | | — | | | (236 | ) |
| | | | | | | | | | | | | | | | | | | | | |
Total | | 189 | | | (361 | ) | | 1,335 | | | 38 | | | (334 | ) | | 73 | | | 940 | |
| | | | | | | | | | | | | | | | | | | | | |
2005 | | | | | | | | | | | | | | | | | | | | | |
Income (expense) from financial assets and liabilities held for trading | | 32 | | | (324 | ) | | 1,170 | | | 3 | | | (441 | ) | | (3 | ) | | 437 | |
Income from financial assets designated at fair value through income | | 128 | | | 780 | | | 74 | | | 247 | | | — | | | — | | | 1,229 | |
Expense from financial liabilities designated at fair value through income | | — | | | — | | | (81 | ) | | — | | | — | | | 3 | | | (78 | ) |
Income (expense) from financial liabilities for puttable equity instruments (net) | | 4 | | | (198 | ) | | — | | | (231 | ) | | — | | | — | | | (425 | ) |
| | | | | | | | | | | | | | | | | | | | | |
Total | | 164 | | | 258 | | | 1,163 | | | 19 | | | (441 | ) | | — | | | 1,163 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | 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)
Income from financial assets and liabilities carried at fair value through income (net) comprises:
| | | | | | | | | | | | |
| | | Interest and
dividend
income
(expense) | | | Net realized
gains
(losses) | | | Net
valuation
result | | | Total | |
| | | € mn | | | € mn | | | € mn | | | € mn | |
2007 | | | | | | | | | | | | |
Financial assets and liabilities held for trading | | (334 | ) | | 433 | | | (1,942 | ) | | (1,843 | ) |
Financial assets designated at fair value through income | | 511 | | | 182 | | | (68 | ) | | 625 | |
Financial liabilities designated at fair value through income | | (117 | ) | | 52 | | | 45 | | | (20 | ) |
Financial liabilities for puttable equity instruments (net) | | — | | | — | | | (9 | ) | | (9 | ) |
| | | | | | | | | | | | |
Total | | (219 | ) | | 667 | | | (1,695 | ) | | (1,247 | ) |
| | | | | | | | | | | | |
2006 | | | | | | | | | | | | |
Financial assets and liabilities held for trading | | (577 | ) | | 927 | | | 12 | | | 362 | |
Financial assets designated at fair value through income | | 316 | | | 167 | | | 375 | | | 858 | |
Financial liabilities designated at fair value through income | | (89 | ) | | 45 | | | — | | | (44 | ) |
Financial liabilities for puttable equity instruments (net) | | — | | | — | | | (236 | ) | | (236 | ) |
| | | | | | | | | | | | |
Total | | (350 | ) | | 1,139 | | | 151 | | | 940 | |
| | | | | | | | | | | | |
2005 | | | | | | | | | | | | |
Financial assets and liabilities held for trading | | 244 | | | 567 | | | (374 | ) | | 437 | |
Financial assets designated at fair value through income | | 211 | | | 117 | | | 901 | | | 1,229 | |
Financial liabilities designated at fair value through income | | (73 | ) | | (5 | ) | | — | | | (78 | ) |
Financial liabilities for puttable equity instruments (net) | | — | | | — | | | (425 | ) | | (425 | ) |
| | | | | | | | | | | | |
Total | | 382 | | | 679 | | | 102 | | | 1,163 | |
| | | | | | | | | | | | |
Income 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, 20072008 includes in the Life/ Health segment income of €1,149 mn (2007: expenses of €1,352 mn (2006:mn; 2006: expenses of €834 mn; 2005: €377 mn) from derivative financial instruments. ExpensesThis includes income of €1,769 mn (2007: expenses of €756 mn (2006:mn; 2006: expenses of €513 mn; 2005: €50 mn) result from forward sales of equities and the purchase of forward contracts for interest bonds and forward salesfixed-income of shares.German entities. Also included are expenses from derivative financial instruments in the U.S.A. amongst others related to equity indexedequity-indexed annuity contracts and guaranteed benefits under unit-linked contracts of €1,304 mn (2007: €622 mn (2006:mn; 2006: €350 mn; 2005: €199 mn) and income from other derivative financial instruments of €684 mn (2007: income of €26 mn (2006:mn; 2006: income of €29 mn; 2005: €128 mn).
Banking Segment
Income from financial assets and liabilities held for trading of the Banking segment comprises:
| | | | | | | | |
| | | 2007 | | | 2006 | | | 2005 |
| | | € mn | | | € mn | | | € mn |
Trading in interest products1) | | 411 | | | 637 | | | 569 |
Trading in loan products2) | | (1,231 | ) | | 241 | | | 146 |
Trading in equity products | | 309 | | | 304 | | | 224 |
Foreign exchange/ precious metals trading | | 256 | | | 209 | | | 112 |
Other trading activities | | (209 | ) | | (109 | ) | | 119 |
| | | | | | | | |
Total | | (464 | ) | | 1,282 | | | 1,170 |
| | | | | | | | |
1)
| For the year ended December 31, 2007 includes impairments of €(23) mn for asset-backed securities held for trading of Dresdner Bank.
|
2)
| For the year ended December 31, 2007 includes impairments of €(1,252) mn for asset-backed securities held for trading of Dresdner Bank.
|
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Corporate Segment
Income from financial assets and liabilities held for trading for the year ended December 31, 2007,2008, includes in the Corporate segment expenses of €186 mn (2007: €15 mn (2006:mn; 2006: €152 mn; 2005: €332 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 hedge accounting is not applied. This includes expensesincome from financial derivative financial instruments embedded in exchangeable bonds of €133 mn (2007: expenses of €222 mn (2006:mn; 2006: expenses of €570 mn; 2005: €605 mn), incomeexpenses 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 €164 mn (2006: €290 mn; 2005: €288 mn), and incomeexpenses from other derivative financial instruments of €292 mn (2007: income of €43 mn; 2006: income of €128 mn). Additionally income from financial assets and liabilities held for trading for the year ended December 31, 2008 includes income of €324 mn (2006: €128(2007: €60 mn; 2005: expense2006: expenses of €15€122 mn). from the hedges of share based compensation plans granted by restricted stock units.
2729 Realized gains/losses (net)
| | | | 2007 | | 2006 | | 2005 | | | 2008 | | 2007 | | 2006 | |
| | | € m | | € m | | € m | | | € mn | | € mn | | € mn | |
Realized gains | | | | | | | | | | | | |
Available-for-sale investments | | | | | | | | | | | | |
Equity securities | | 7,744 | | | 5,052 | | | 3,348 | | | 5,890 | | | 6,852 | | | 5,003 | |
Debt securities | | 423 | | | 739 | | | 968 | | | 716 | | | 421 | | | 742 | |
| | | | | | | | | | | | | | | | | | |
Subtotal | | 8,167 | | | 5,791 | | | 4,316 | | | 6,606 | | | 7,273 | | | 5,745 | |
| | | | | | | | | | | | | | | | | | |
Investments in associates and joint ventures1) | | 220 | | | 891 | | | 1,218 | | | 158 | | | 197 | | | 723 | |
Real estate held for investment | | | 268 | | | 371 | | | 653 | |
Loans to banks and customers | | 80 | | | 47 | | | 116 | | | 101 | | | 52 | | | 26 | |
Real estate held for investment | | 371 | | | 766 | | | 373 | | |
| | | | | | | | | | | | | | | | | | |
Subtotal | | 8,838 | | | 7,495 | | | 6,023 | | | 7,133 | | | 7,893 | | | 7,147 | |
| | | | | | | | | | | | | | | | | | |
Realized losses | | | | | | | | | | | | |
Available-for-sale investments | | | | | | | | | | | | |
Equity securities | | (598 | ) | | (342 | ) | | (566 | ) | | (2,608 | ) | | (577 | ) | | (326 | ) |
Debt securities | | (1,433 | ) | | (795 | ) | | (332 | ) | | (789 | ) | | (1,120 | ) | | (737 | ) |
| | | | | | | | | | | | | | | | | | |
Subtotal | | (2,031 | ) | | (1,137 | ) | | (898 | ) | | (3,397 | ) | | (1,697 | ) | | (1,063 | ) |
| | | | | | | | | | | | | | | | | | |
Investments in associates and joint ventures2) | | (93 | ) | | (15 | ) | | (32 | ) | | (6 | ) | | (84 | ) | | (4 | ) |
Loans to banks and customers3) | | (120 | ) | | (57 | ) | | (93 | ) | |
Real estate held for investment | | (46 | ) | | (135 | ) | | (22 | ) | | (99 | ) | | (46 | ) | | (134 | ) |
Loans to banks and customers | | | (28 | ) | | (58 | ) | | (25 | ) |
| | | | | | | | | | | | | | | | | | |
Subtotal | | (2,290 | ) | | (1,344 | ) | | (1,045 | ) | | (3,530 | ) | | (1,885 | ) | | (1,226 | ) |
| | | | | | | | | | | | | | | | | | |
Total | | 6,548 | | | 6,151 | | | 4,978 | | | 3,603 | | | 6,008 | | | 5,921 | |
| | | | | | | | | | | | | | | | | | |
1) | During the year ended December 31, 2007,2008, includes realized gains from the disposal of subsidiaries and businesses of €185€143 mn (2006: €613(2007: €164 mn; 2005: €3942006: €567 mn). |
2) | During the year ended December 31, 2007,2008, includes realized losses from the disposal of subsidiaries of €1 mn (2007: €83 mn (2006: €3 mn; 2005: €142006: €2 mn). |
3)
| During the year ended December 31, 2007, includes realized losses from leveraged buy-out transactions of Dresdner Bank of €30 mn.
|
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
2830 Fee and commission income
| | | | | | | | | | | | | | | | | | | | | |
| | | 2007 | | 2006 | | 2005 |
| | | 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 | | 703 | | (2 | ) | | 701 | | 681 | | — | | | 681 | | 662 | | — | | | 662 |
Service agreements | | 475 | | (24 | ) | | 451 | | 318 | | (37 | ) | | 281 | | 316 | | (42 | ) | | 274 |
Investment advisory | | — | | — | | | — | | 15 | | — | | | 15 | | 11 | | — | | | 11 |
| | | | | | | | | | | | | | | | | | | | | |
Subtotal | | 1,178 | | (26 | ) | | 1,152 | | 1,014 | | (37 | ) | | 977 | | 989 | | (42 | ) | | 947 |
| | | | | | | | | | | | | | | | | | | | | |
Life/Health | | | | | | | | | | | | | | | | | | | | | |
Service agreements | | 174 | | (15 | ) | | 159 | | 191 | | (26 | ) | | 165 | | 176 | | (82 | ) | | 94 |
Investment advisory | | 513 | | (16 | ) | | 497 | | 423 | | (28 | ) | | 395 | | 306 | | — | | | 306 |
Other | | 14 | | (14 | ) | | — | | 16 | | (16 | ) | | — | | 25 | | (13 | ) | | 12 |
| | | | | | | | | | | | | | | | | | | | | |
Subtotal | | 701 | | (45 | ) | | 656 | | 630 | | (70 | ) | | 560 | | 507 | | (95 | ) | | 412 |
| | | | | | | | | | | | | | | | | | | | | |
Banking | | | | | | | | | | | | | | | | | | | | | |
Securities business | | 1,519 | | (184 | ) | | 1,335 | | 1,472 | | (186 | ) | | 1,286 | | 1,339 | | (151 | ) | | 1,188 |
Investment advisory | | 534 | | (145 | ) | | 389 | | 611 | | (156 | ) | | 455 | | 558 | | (140 | ) | | 418 |
Payment transactions | | 372 | | (3 | ) | | 369 | | 364 | | (2 | ) | | 362 | | 381 | | (3 | ) | | 378 |
Mergers and acquisitions advisory | | 233 | | — | | | 233 | | 284 | | — | | | 284 | | 256 | | — | | | 256 |
Underwriting business | | 80 | | (1 | ) | | 79 | | 133 | | — | | | 133 | | 102 | | — | | | 102 |
Other | | 913 | | (57 | ) | | 856 | | 734 | | (77 | ) | | 657 | | 761 | | (19 | ) | | 742 |
| | | | | | | | | | | | | | | | | | | | | |
Subtotal | | 3,651 | | (390 | ) | | 3,261 | | 3,598 | | (421 | ) | | 3,177 | | 3,397 | | (313 | ) | | 3,084 |
| | | | | | | | | | | | | | | | | | | | | |
Asset Management | | | | | | | | | | | | | | | | | | | | | |
Management fees | | 3,558 | | (126 | ) | | 3,432 | | 3,420 | | (112 | ) | | 3,308 | | 2,987 | | (93 | ) | | 2,894 |
Loading and exit fees | | 313 | | — | | | 313 | | 341 | | — | | | 341 | | 338 | | — | | | 338 |
Performance fees | | 206 | | (1 | ) | | 205 | | 107 | | 1 | | | 108 | | 123 | | (2 | ) | | 121 |
Other | | 326 | | (11 | ) | | 315 | | 318 | | (6 | ) | | 312 | | 298 | | (2 | ) | | 296 |
| | | | | | | | | | | | | | | | | | | | | |
Subtotal | | 4,403 | | (138 | ) | | 4,265 | | 4,186 | | (117 | ) | | 4,069 | | 3,746 | | (97 | ) | | 3,649 |
| | | | | | | | | | | | | | | | | | | | | |
Corporate | | | | | | | | | | | | | | | | | | | | | |
Service agreements | | 198 | | (92 | ) | | 106 | | 190 | | (117 | ) | | 73 | | 164 | | (94 | ) | | 70 |
| | | | | | | | | | | | | | | | | | | | | |
Subtotal | | 198 | | (92 | ) | | 106 | | 190 | | (117 | ) | | 73 | | 164 | | (94 | ) | | 70 |
| | | | | | | | | | | | | | | | | | | | | |
Total | | 10,131 | | (691 | ) | | 9,440 | | 9,618 | | (762 | ) | | 8,856 | | 8,803 | | (641 | ) | | 8,162 |
| | | | | | | | | | | | | | | | | | | | | |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
| | | | | | | | | | | | | | | | | | | | | |
| | | 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 |
| | | | | | | | | | | | | | | | | | | | | |
2931 Other income
| | | | | | |
| | | 2007 | | 2006 | | 2005 |
| | | € mn | | € mn | | € mn |
Income from real estate held for own use | | | | | | |
Realized gains from disposals of real estate held for own use | | 210 | | 82 | | 23 |
Other income from real estate held for own use | | 2 | | 3 | | 33 |
| | | | | | |
Subtotal | | 212 | | 85 | | 56 |
| | | | | | |
Income from non-current assets and disposal groups held for sale | | 4 | | 1 | | 35 |
Other | | 1 | | — | | 1 |
| | | | | | |
Total | | 217 | | 86 | | 92 |
| | | | | | |
30 Income from fully consolidated private equity investments
| | | | | | | | | | |
| | | MAN
Roland
Druck-
maschinen
AG | | Selecta
AG | | Four
Seasons
Health
Care
Ltd. | | Other | | Total |
| | | € mn | | € mn | | € mn | | € mn | | € mn |
2007 | | | | | | | | | | |
Sales and service revenues | | 1,936 | | 375 | | — | | 22 | | 2,333 |
Other operating revenues | | 21 | | — | | — | | — | | 21 |
Interest income | | 13 | | — | | — | | — | | 13 |
| | | | | | | | | | |
Total | | 1,970 | | 375 | | — | | 22 | | 2,367 |
| | | | | | | | | | |
2006 | | | | | | | | | | |
Sales and service revenues | | 1,044 | | — | | 327 | | — | | 1,371 |
Other operating revenues | | 15 | | — | | — | | — | | 15 |
Interest income | | 5 | | — | | 1 | | — | | 6 |
| | | | | | | | | | |
Total | | 1,064 | | — | | 328 | | — | | 1,392 |
| | | | | | | | | | |
2005 | | | | | | | | | | |
Sales and service revenues | | — | | — | | 597 | | — | | 597 |
Other operating revenues | | — | | — | | — | | — | | — |
Interest income | | — | | — | | 1 | | — | | 1 |
| | | | | | | | | | |
Total | | — | | — | | 598 | | — | | 598 |
| | | | | | | | | | |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
31 Claims and insurance benefits incurred (net)
| | | | | | | | | | | | |
| | | Property-Casualty | | | Life/Health | | | Consolidation | | | Total | |
| | | € mn | | | € mn | | | € mn | | | € mn | |
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 | ) |
| | | | | | | | | | | | |
2005 | | | | | | | | | | | | |
Gross | | | | | | | | | | | | |
Claims and insurance benefits paid | | (26,026 | ) | | (18,281 | ) | | 8 | | | (44,299 | ) |
Change in loss and loss adjustment expenses | | (2,452 | ) | | (51 | ) | | — | | | (2,503 | ) |
| | | | | | | | | | | | |
Subtotal | | (28,478 | ) | | (18,332 | ) | | 8 | | | (46,802 | ) |
| | | | | | | | | | | | |
Ceded | | | | | | | | | | | | |
Claims and insurance benefits paid | | 3,429 | | | 875 | | | (8 | ) | | 4,296 | |
Change in loss and loss adjustment expenses | | (282 | ) | | 18 | | | — | | | (264 | ) |
| | | | | | | | | | | | |
Subtotal | | 3,147 | | | 893 | | | (8 | ) | | 4,032 | |
| | | | | | | | | | | | |
Net | | | | | | | | | | | | |
Claims and insurance benefits paid | | (22,597 | ) | | (17,406 | ) | | — | | | (40,003 | ) |
Change in loss and loss adjustment expenses | | (2,734 | ) | | (33 | ) | | — | | | (2,767 | ) |
| | | | | | | | | | | | |
Total | | (25,331 | ) | | (17,439 | ) | | — | | | (42,770 | ) |
| | | | | | | | | | | | |
| | | | | | |
| | | 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)
32 Change in reserves for insuranceIncome and investment contracts (net)expenses from fully consolidated private equity investments
| | | | | | | | | | | | |
| | | Property-Casualty | | | Life/Health | | | Consolidation | | | Total | |
| | | € mn | | | € mn | | | € mn | | | € mn | |
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 | ) |
| | | | | | | | | | | | |
2005 | | | | | | | | | | | | |
Gross | | | | | | | | | | | | |
Aggregate policy reserves | | (225 | ) | | (5,162 | ) | | — | | | (5,387 | ) |
Other insurance reserves | | (11 | ) | | (12 | ) | | — | | | (23 | ) |
Expenses for premium refunds | | (521 | ) | | (5,409 | ) | | (26 | ) | | (5,956 | ) |
| | | | | | | | | | | | |
Subtotal | | (757 | ) | | (10,583 | ) | | (26 | ) | | (11,366 | ) |
| | | | | | | | | | | | |
Ceded | | | | | | | | | | | | |
Aggregate policy reserves | | 17 | | | 118 | | | — | | | 135 | |
Other insurance reserves | | (6 | ) | | 5 | | | — | | | (1 | ) |
Expenses for premium refunds | | 39 | | | 17 | | | — | | | 56 | |
| | | | | | | | | | | | |
Subtotal | | 50 | | | 140 | | | — | | | 190 | |
| | | | | | | | | | | | |
Net | | | | | | | | | | | | |
Aggregate policy reserves | | (208 | ) | | (5,044 | ) | | — | | | (5,252 | ) |
Other insurance reserves | | (17 | ) | | (7 | ) | | — | | | (24 | ) |
Expenses for premium refunds | | (482 | ) | | (5,392 | ) | | (26 | ) | | (5,900 | ) |
| | | | | | | | | | | | |
Total | | (707 | ) | | (10,443 | ) | | (26 | ) | | (11,176 | ) |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | 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 Interest expenseClaims and insurance benefits incurred (net)
| | | | | | | | | |
| | | 2007 | | | 2006 | | | 2005 | |
| | | € mn | | | € mn | | | € mn | |
Liabilities to banks and customers | | (3,406 | ) | | (2,818 | ) | | (3,102 | ) |
Deposits retained on reinsurance ceded | | (101 | ) | | (120 | ) | | (279 | ) |
Certificated liabilities | | (2,063 | ) | | (1,532 | ) | | (1,498 | ) |
Participating certificates and subordinated liabilities | | (584 | ) | | (716 | ) | | (693 | ) |
Other | | (518 | ) | | (573 | ) | | (805 | ) |
| | | | | | | | | |
Total | | (6,672 | ) | | (5,759 | ) | | (6,377 | ) |
| | | | | | | | | |
| | | | | | | | | | | | |
| | | 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 Interest expenses
| | | | | | | | | |
| | | 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 | ) |
| | | | | | | | | |
36 Loan loss provisions
| | | | 2007 | | 2006 | | 2005 | | | 2008 | | 2007 | | 2006 | |
| | | € mn | | € mn | | € mn | | | € mn | | € mn | | € mn | |
Additions to allowances including direct
impairments1) | | (572 | ) | | (533 | ) | | (774 | ) | |
Additions to allowances including direct impairments | | | (121 | ) | | (110 | ) | | (69 | ) |
Amounts released | | 485 | | | 317 | | | 782 | | | 35 | | | 58 | | | 55 | |
Recoveries on loans previously impaired | | 200 | | | 180 | | | 101 | | | 27 | | | 34 | | | 9 | |
| | | | | | | | | | | | | | | | | | |
Total | | 113 | | | (36 | ) | | 109 | | | (59 | ) | | (18 | ) | | (5 | ) |
| | | | | | | | | | | | | | | | | | |
1)
| Additions to allowances for the year ended December 31, 2007 include allowances of €70 mn related to sub-prime crisis.
|
3537 Impairments of investments (net)
| | | | 2007 | | 2006 | | 2005 | | | 2008 | | 2007 | | 2006 | |
| | | € mn | | € mn | | € mn | | | € mn | | € mn | | € mn | |
Impairments | | | | | | | | | | | | |
Available-for-sale investments | | | | | | | | | | | | |
Equity securities | | (1,155 | ) | | (479 | ) | | (245 | ) | | (8,736 | ) | | (1,154 | ) | | (471 | ) |
Debt securities1) | | (75 | ) | | (106 | ) | | (10 | ) | | (698 | ) | | (26 | ) | | (83 | ) |
| | | | | | | | | | |
Subtotal | | (1,230 | ) | | (585 | ) | | (255 | ) | | (9,434 | ) | | (1,180 | ) | | (554 | ) |
| | | | | | | | | | |
Held-to-maturity investments | | — | | | (8 | ) | | (2 | ) | | — | | | — | | | (8 | ) |
Investments in associates and joint ventures | | (10 | ) | | (12 | ) | | (50 | ) | | (71 | ) | | (2 | ) | | (1 | ) |
Real estate held for investment | | (51 | ) | | (252 | ) | | (240 | ) | | (128 | ) | | (23 | ) | | (2 | ) |
| | | | | | | | | | | | | | | | | | |
Subtotal | | (1,291 | ) | | (857 | ) | | (547 | ) | | (9,633 | ) | | (1,205 | ) | | (565 | ) |
| | | | | | | | | | | | | | | | | | |
Reversals of impairments | | | | | | | | | | | | |
Available-for-sale investments | | | | | | | | | | | | |
Debt securities | | 13 | | | 1 | | | 3 | | | 84 | | | 13 | | | 1 | |
Held-to-maturity investments | | — | | | 1 | | | 3 | | | — | | | — | | | 1 | |
Real estate held for investment | | 6 | | | 80 | | | 1 | | | 54 | | | 7 | | | 3 | |
| | | | | | | | | | | | | | | | | | |
Subtotal | | 19 | | | 82 | | | 7 | | | 138 | | | 20 | | | 5 | |
| | | | | | | | | | | | | | | | | | |
Total | | (1,272 | ) | | (775 | ) | | (540 | ) | | (9,495 | ) | | (1,185 | ) | | (560 | ) |
| | | | | | | | | | | | | | | | | | |
1) | Impairments on available-for-sale debt securities include impairments of asset-backed securities of €12€0.4 mn for the Property-Casualty segment and €7€15.6 mn for the Life/Health segment. |
3638 Investment expenses
| | | | 2007 | | 2006 | | 2005 | | | 2008 | | 2007 | | 2006 | |
| | | € mn | | € mn | | € mn | | | € mn | | € mn | | € mn | |
Investment management expenses | | (432 | ) | | (493 | ) | | (374 | ) | | (429 | ) | | (432 | ) | | (493 | ) |
Depreciation from real estate held for investment | | (192 | ) | | (230 | ) | | (253 | ) | | (165 | ) | | (183 | ) | | (210 | ) |
Other expenses from real estate held for investment | | (270 | ) | | (278 | ) | | (265 | ) | | (177 | ) | | (259 | ) | | (245 | ) |
Foreign currency gains and losses (net) | | | | | | | | | | | | |
Foreign currency gains | | 687 | | | 473 | | | 417 | | | 1,255 | | | 687 | | | 473 | |
Foreign currency losses | | (850 | ) | | (580 | ) | | (617 | ) | | (1,129 | ) | | (850 | ) | | (580 | ) |
| | | | | | | | | | | | | | | | | | |
Subtotal | | (163 | ) | | (107 | ) | | (200 | ) | | 126 | | | (163 | ) | | (107 | ) |
| | | | | | | | | | | | | | | | | | |
Total | | (1,057 | ) | | (1,108 | ) | | (1,092 | ) | | (645 | ) | | (1,037 | ) | | (1,055 | ) |
| | | | | | | | | | | | | | | | | | |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
3739 Acquisition and administrative expenses (net)
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2007 | | | 2006 | | | 2005 | |
| | | Segment | | | Consolidation | | | Group | | | Segment | | | Consolidation | | | Group | | | Segment | | | Consolidation | | | Group | |
| | | € mn | | | € mn | | | € mn | | | € mn | | | € mn | | | € mn | | | € mn | | | € mn | | | € mn | |
Property-Casualty | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Acquisition costs | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Incurred | | (7,310 | ) | | — | | | (7,310 | ) | | (7,131 | ) | | — | | | (7,131 | ) | | (6,805 | ) | | — | | | (6,805 | ) |
Commissions and profit received on reinsurance business ceded | | 691 | | | (2 | ) | | 689 | | | 722 | | | (1 | ) | | 721 | | | 953 | | | (1 | ) | | 952 | |
Deferrals of acquisition costs | | 4,511 | | | — | | | 4,511 | | | 3,983 | | | — | | | 3,983 | | | 2,804 | | | — | | | 2,804 | |
Amortization of deferred acquisition costs | | (4,384 | ) | | — | | | (4,384 | ) | | (3,843 | ) | | — | | | (3,843 | ) | | (2,686 | ) | | — | | | (2,686 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Subtotal | | (6,492 | ) | | (2 | ) | | (6,494 | ) | | (6,269 | ) | | (1 | ) | | (6,270 | ) | | (5,734 | ) | | (1 | ) | | (5,735 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Administrative expenses | | (4,124 | ) | | 64 | | | (4,060 | ) | | (4,321 | ) | | 81 | | | (4,240 | ) | | (4,482 | ) | | 82 | | | (4,400 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Subtotal | | (10,616 | ) | | 62 | | | (10,554 | ) | | (10,590 | ) | | 80 | | | (10,510 | ) | | (10,216 | ) | | 81 | | | (10,135 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Life/Health | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Acquisition costs | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Incurred | | (3,823 | ) | | 3 | | | (3,820 | ) | | (3,895 | ) | | — | | | (3,895 | ) | | (3,822 | ) | | — | | | (3,822 | ) |
Commissions and profit received on reinsurance business ceded | | 146 | | | — | | | 146 | | | 150 | | | — | | | 150 | | | 115 | | | — | | | 115 | |
Deferrals of acquisition costs | | 2,526 | | | — | | | 2,526 | | | 2,771 | | | — | | | 2,771 | | | 2,796 | | | — | | | 2,796 | |
Amortization of deferred acquisition costs | | (1,643 | ) | | — | | | (1,643 | ) | | (1,772 | ) | | — | | | (1,772 | ) | | (1,393 | ) | | — | | | (1,393 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Subtotal | | (2,794 | ) | | 3 | | | (2,791 | ) | | (2,746 | ) | | — | | | (2,746 | ) | | (2,304 | ) | | — | | | (2,304 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Administrative expenses | | (1,794 | ) | | (72 | ) | | (1,866 | ) | | (1,691 | ) | | (19 | ) | | (1,710 | ) | | (1,669 | ) | | 14 | | | (1,655 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Subtotal | | (4,588 | ) | | (69 | ) | | (4,657 | ) | | (4,437 | ) | | (19 | ) | | (4,456 | ) | | (3,973 | ) | | 14 | | | (3,959 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Banking | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Personnel expenses | | (2,979 | ) | | — | | | (2,979 | ) | | (3,485 | ) | | — | | | (3,485 | ) | | (3,352 | ) | | — | | | (3,352 | ) |
Non-personnel expenses | | (2,082 | ) | | 62 | | | (2,020 | ) | | (2,120 | ) | | 54 | | | (2,066 | ) | | (2,309 | ) | | 29 | | | (2,280 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Subtotal | | (5,061 | ) | | 62 | | | (4,999 | ) | | (5,605 | ) | | 54 | | | (5,551 | ) | | (5,661 | ) | | 29 | | | (5,632 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Asset Management | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Personnel expenses | | (1,705 | ) | | — | | | (1,705 | ) | | (1,657 | ) | | — | | | (1,657 | ) | | (1,679 | ) | | — | | | (1,679 | ) |
Non-personnel expenses | | (686 | ) | | 16 | | | (670 | ) | | (629 | ) | | 16 | | | (613 | ) | | (598 | ) | | 8 | | | (590 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Subtotal | | (2,391 | ) | | 16 | | | (2,375 | ) | | (2,286 | ) | | 16 | | | (2,270 | ) | | (2,277 | ) | | 8 | | | (2,269 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Corporate | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Administrative expenses | | (642 | ) | | 9 | | | (633 | ) | | (655 | ) | | (44 | ) | | (699 | ) | | (516 | ) | | (48 | ) | | (564 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Subtotal | | (642 | ) | | 9 | | | (633 | ) | | (655 | ) | | (44 | ) | | (699 | ) | | (516 | ) | | (48 | ) | | (564 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | (23,298 | ) | | 80 | | | (23,218 | ) | | (23,573 | ) | | 87 | | | (23,486 | ) | | (22,643 | ) | | 84 | | | (22,559 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
38 Fee and commission expenses
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2007 | | | 2006 | | | 2005 | |
| | | 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 | | (615 | ) | | 1 | | (614 | ) | | (487 | ) | | 1 | | (486 | ) | | (594 | ) | | — | | (594 | ) |
Service agreements | | (352 | ) | | 16 | | (336 | ) | | (231 | ) | | 27 | | (204 | ) | | (172 | ) | | 10 | | (162 | ) |
Investment advisory | | — | | | — | | — | | | (3 | ) | | 2 | | (1 | ) | | (9 | ) | | 4 | | (5 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Subtotal | | (967 | ) | | 17 | | (950 | ) | | (721 | ) | | 30 | | (691 | ) | | (775 | ) | | 14 | | (761 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Life/Health | | | | | | | | | | | | | | | | | | | | | | | | |
Service agreements | | (45 | ) | | 18 | | (27 | ) | | (88 | ) | | 27 | | (61 | ) | | (137 | ) | | 31 | | (106 | ) |
Investment advisory | | (164 | ) | | 6 | | (158 | ) | | (135 | ) | | 19 | | (116 | ) | | (82 | ) | | — | | (82 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Subtotal | | (209 | ) | | 24 | | (185 | ) | | (223 | ) | | 46 | | (177 | ) | | (219 | ) | | 31 | | (188 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Banking | | | | | | | | | | | | | | | | | | | | | | | | |
Securities business | | (172 | ) | | 1 | | (171 | ) | | (120 | ) | | 1 | | (119 | ) | | (114 | ) | | — | | (114 | ) |
Investment advisory | | (177 | ) | | 8 | | (169 | ) | | (190 | ) | | 7 | | (183 | ) | | (178 | ) | | 5 | | (173 | ) |
Payment transactions | | (22 | ) | | — | | (22 | ) | | (22 | ) | | — | | (22 | ) | | (21 | ) | | — | | (21 | ) |
Mergers and acquisitions advisory | | (19 | ) | | — | | (19 | ) | | (49 | ) | | — | | (49 | ) | | (37 | ) | | — | | (37 | ) |
Underwriting business | | (2 | ) | | — | | (2 | ) | | (4 | ) | | — | | (4 | ) | | — | | | — | | — | |
Other | | (211 | ) | | 9 | | (202 | ) | | (205 | ) | | 49 | | (156 | ) | | (197 | ) | | 19 | | (178 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Subtotal | | (603 | ) | | 18 | | (585 | ) | | (590 | ) | | 57 | | (533 | ) | | (547 | ) | | 24 | | (523 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Asset Management | | | | | | | | | | | | | | | | | | | | | | | | |
Commissions | | (948 | ) | | 435 | | (513 | ) | | (953 | ) | | 427 | | (526 | ) | | (862 | ) | | 350 | | (512 | ) |
Other | | (322 | ) | | 5 | | (317 | ) | | (309 | ) | | 4 | | (305 | ) | | (248 | ) | | 5 | | (243 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Subtotal | | (1,270 | ) | | 440 | | (830 | ) | | (1,262 | ) | | 431 | | (831 | ) | | (1,110 | ) | | 355 | | (755 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Corporate | | | | | | | | | | | | | | | | | | | | | | | | |
Service agreements | | (130 | ) | | 7 | | (123 | ) | | (127 | ) | | 8 | | (119 | ) | | (92 | ) | | 7 | | (85 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Subtotal | | (130 | ) | | 7 | | (123 | ) | | (127 | ) | | 8 | | (119 | ) | | (92 | ) | | 7 | | (85 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | (3,179 | ) | | 506 | | (2,673 | ) | | (2,923 | ) | | 572 | | (2,351 | ) | | (2,743 | ) | | 431 | | (2,312 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
39 Other expenses
| | | | | | | | | |
| | | 2007 | | | 2006 | | | 2005 | |
| | | € mn | | | € mn | | | € mn | |
Expenses from real estate held for own use | | | | | | | | | |
Realized losses from disposals of real estate held for own use | | (4 | ) | | (9 | ) | | (8 | ) |
Impairments of real estate held for own use | | (17 | ) | | (3 | ) | | (9 | ) |
| | | | | | | | | |
Subtotal | | (21 | ) | | (12 | ) | | (17 | ) |
| | | | | | | | | |
Other | | 7 | | | 13 | | | (34 | ) |
| | | | | | | | | |
Total | | (14 | ) | | 1 | | | (51 | ) |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 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 Allianz Group’s Consolidated Financial Statements—(Continued)
40 Expenses from fully consolidated private equity investmentsFee and commission expenses
| | | | | | | | | | | | | | | |
| | | MAN
Roland
Druck-
maschinen
AG | | | Selecta
AG | | | Four
Seasons
Health
Care
Ltd. | | | Other | | | Total | |
| | | € mn | | | € mn | | | € mn | | | € mn | | | € mn | |
2007 | | | | | | | | | | | | | | | |
Cost of goods sold | | (1,526 | ) | | (234 | ) | | — | | | (3 | ) | | (1,763 | ) |
Commissions | | (164 | ) | | — | | | — | | | — | | | (164 | ) |
General and administrative expenses | | (218 | ) | | (106 | ) | | — | | | — | | | (324 | ) |
Interest expense | | (26 | ) | | (40 | ) | | — | | | — | | | (66 | ) |
| | | | | | | | | | | | | | | |
Total | | (1,934 | ) | | (380 | ) | | — | | | (3 | ) | | (2,317 | ) |
| | | | | | | | | | | | | | | |
2006 | | | | | | | | | | | | | | | |
Cost of goods sold | | (849 | ) | | — | | | — | | | — | | | (849 | ) |
Commissions | | (71 | ) | | — | | | — | | | — | | | (71 | ) |
General and administrative expenses | | (133 | ) | | — | | | (264 | ) | | — | | | (397 | ) |
Interest expense | | (14 | ) | | — | | | (50 | ) | | — | | | (64 | ) |
| | | | | | | | | | | | | | | |
Total | | (1,067 | ) | | — | | | (314 | ) | | — | | | (1,381 | ) |
| | | | | | | | | | | | | | | |
2005 | | | | | | | | | | | | | | | |
Cost of goods sold | | — | | | — | | | — | | | — | | | — | |
Commissions | | — | | | — | | | — | | | — | | | — | |
General and administrative expenses | | — | | | — | | | (497 | ) | | — | | | (497 | ) |
Interest expense | | — | | | — | | | (75 | ) | | — | | | (75 | ) |
| | | | | | | | | | | | | | | |
Total | | — | | | — | | | (572 | ) | | — | | | (572 | ) |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | 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 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
41 Other expenses
| | | | | | | | | |
| | | 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 | ) |
| | | | | | | | | |
42 Income taxes
| | | | 2007 | | 2006 | | 2005 | | | 2008 | | 2007 | | 2006 | |
| | | € mn | | € mn | | € mn | | | € mn | | € mn | | € mn | |
Current income tax expense | | | | | | | | | | | | |
Germany | | (738 | ) | | 198 | | | (1,020 | ) | | (181 | ) | | (371 | ) | | 434 | |
Other countries | | (2,066 | ) | | (1,888 | ) | | (1,025 | ) | | (925 | ) | | (2,066 | ) | | (1,886 | ) |
| | | | | | | | | | | | | | | | | | |
Subtotal | | (2,804 | ) | | (1,690 | ) | | (2,045 | ) | | (1,106 | ) | | (2,437 | ) | | (1,452 | ) |
| | | | | | | | | | | | | | | | | | |
Deferred income tax expense | | | | | | | | | | | | |
Germany | | 234 | | | 100 | | | 408 | | | (575 | ) | | 149 | | | 155 | |
Other countries | | (284 | ) | | (423 | ) | | (426 | ) | | 394 | | | (284 | ) | | (423 | ) |
| | | | | | | | | | | | | | | | | | |
Subtotal | | (50 | ) | | (323 | ) | | (18 | ) | | (181 | ) | | (135 | ) | | (268 | ) |
| | | | | | | | | | | | | | | | | | |
Total | | (2,854 | ) | | (2,013 | ) | | (2,063 | ) | | (1,287 | ) | | (2,572 | ) | | (1,720 | ) |
| | | | | | | | | | | | | | | | | | |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
During the year ended December, 31, 2007,2008, current income tax expense included a benefitan expense of €5€6 mn (2006: benefit(2007: an income of €51€20 mn; 2005: charge of €442006: an income €82 mn) related to prior years.
The German Reorganization Tax Act (SEStEG) which entered into force in December 2006 stipulates that corporation tax credits accumulated under the pre-2001 corporation tax imputation system will be refunded in the future without regard to dividend distributions. The refunds are spread equally over a ten year period from 2008 to 2017. As a consequence of the tax law change Allianz Group’s total corporate tax credits were capitalized on a discounted basis as of December 31, 2006, and reduced current income tax expense in 2006 by €571 mn.
Of the deferred tax charge for the year ended December 31, 2007,2008, an expense of €178€387 mn (2006:(2007: expense of €463 mn; 2006: income of €480 mn; 2005: income of €468€485 mn) is attributable to the recognition of deferred taxes on temporary differences and an income of €227 mn (2007: an expense of €57 mn (2006: €785€14 mn; 2005: €4922006: an expense €747 mn) is attributable to tax losses carried forward. Additionally, changes of applicable tax rates due to changes in tax law produced deferred tax expense of €21 mn (2007 income of €185 mn (2006€341 mn; 2006 expense of €18 mn; 2005 income of €7€5 mn). In 2007, in this amount is included a tax income of €152€291 mn resulting from the German corporate tax reform. Current and deferred tax benefit included in shareholders’ equity during the year ended December 31, 2007,2008, amounted to €1,084 mn (2007: €870 mn (2006: benefit ofmn; 2006: €740 mn; 2005: charge of €101 mn).
The recognized income tax chargeexpense for the year ended December 31, 2007,2008, is €524€312 mn (2006: €1,130(2007: €557 mn; 2005: €2782006: €1,183 mn) lower than the expected income tax charge.expense. The following table shows the reconciliation from the expected income tax chargeexpense of the Allianz Group to the effectively recognized tax 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. 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% (2006:31.00% (2007: 26.38%; 2005:2006: 26.38%), including corporate tax and solidarity surcharge in both prior periods).
Notes 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 Group’s Consolidated Financial Statements—(Continued)companies.
The effective tax rate is determined on the basis of the effective income tax chargeexpense on income before income taxes and minority interests in earnings.
| | | | 2007 | | 2006 | | 2005 | | | 2008 | | 2007 | | 2006 | |
| | | € mn | | € mn | | € mn | | | € mn | | € mn | | € mn | |
Income before income taxes and minority interests in earnings | | | | | | | | | | | | |
Germany | | 3,373 | | | 2,314 | | | 1,780 | | | 3,393 | | | 2,367 | | | 1,554 | |
Other countries | | 8,195 | | | 8,009 | | | 6,049 | | | 2,080 | | | 8,196 | | | 8,009 | |
| | | | | | | | | | | | | | | | | | |
Total | | 11,568 | | | 10,323 | | | 7,829 | | | 5,473 | | | 10,563 | | | 9,563 | |
| | | | | | | | | | | | | | | | | | |
Expected income tax rate in % | | 29.2 | | | 30.4 | | | 29.9 | | | 29.2 | % | | 29.6 | % | | 30.4 | % |
Expected income tax charge | | 3,378 | | | 3,143 | | | 2,340 | | |
Expected income tax expense | | | 1,599 | | | 3,129 | | | 2,903 | |
Municipal trade tax and similar taxes | | 522 | | | 208 | | | 280 | | | 166 | | | 405 | | | 151 | |
Net tax exempt income | | (1,022 | ) | | (884 | ) | | (503 | ) | | (469 | ) | | (592 | ) | | (773 | ) |
Effects of tax losses | | 226 | | | (50 | ) | | (73 | ) | | 28 | | | (17 | ) | | (29 | ) |
Effects of German tax law changes | | (152 | ) | | (571 | ) | | — | | | — | | | (291 | ) | | (521 | ) |
Other | | (98 | ) | | 167 | | | 19 | | | (37 | ) | | (62 | ) | | (11 | ) |
| | | | | | | | | | | | | | | | | | |
Income taxes | | 2,854 | | | 2,013 | | | 2,063 | | | 1,287 | | | 2,572 | | | 1,720 | |
| | | | | | | | | | | | | | | | | | |
Effective tax rate in % | | 24.7 | | | 19.5 | | | 26.3 | | | 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, 2007,2008, a deferred tax chargeexpense of €5 mn (2007: €8 mn (2006: €35 mn; 2005: €4 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 €52€19 mn (2006: €45(2007: €43 mn; 2005: €642006: €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 €207€4 mn (2006: €54(2007: €4 mn; 2005: €392006: €12 mn). The non-recognition of deferred taxes on tax losses for the current fiscal year increased the tax chargesexpense by €477€46 mn (2006: €14(2007: €22 mn; 2005: €262006: €10 mn). The above mentioned effects are shown in the reconciliation statement as “effects of tax losses”.
Notes to the 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 20072008 ranged from 10.0% to 45.4%42.05%. Changes to tax rates already adopted on December 31, 2007,2008, are taken into account.
Deferred taxes on losses carried forward are recognized as an asset to the extent sufficient future taxable profits are available for realization.
Deferred tax assets and liabilities
| As of December 31, | | 2007 | | 2006 | | | 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 | | 471 | | | 556 | | | 156 | | | 167 | |
Investments | | 2,533 | | | 2,786 | | |
Financial assets held for trading | | 134 | | | 236 | | |
Deferred acquisition costs | | 244 | | | 351 | | |
Tax losses carried forward | | 4,041 | | | 4,859 | | | 2,060 | | | 4,041 | |
Other assets | | 932 | | | 955 | | |
Insurance reserves | | 3,608 | | | 4,668 | | | 3,845 | | | 3,610 | |
Pensions and similar obligations | | 357 | | | 384 | | | 177 | | | 357 | |
Other liabilities | | 1,325 | | | 1,513 | | | 712 | | | 1,325 | |
| | | | | | | | | | | | |
Total deferred tax assets | | 13,645 | | | 16,308 | | | 12,561 | | | 13,645 | |
| | | | | | | | | | | | |
Non recognition or valuation allowance for deferred tax assets on tax losses carried forward | | (814 | ) | | (731 | ) | | (197 | ) | | (814 | ) |
Effect of netting | | (8,060 | ) | | (10,850 | ) | | (8,368 | ) | | (8,060 | ) |
| | | | | | | | | | | | |
Net deferred tax assets | | 4,771 | | | 4,727 | | | 3,996 | | | 4,771 | |
| | | | | | | | | | | | |
Deferred tax liabilities | | | | | | | | |
Intangible assets | | 614 | | | 861 | | |
Financial assets carried at fair value through income | | | 50 | | | 543 | |
Investments | | 3,244 | | | 4,055 | | | 3,090 | | | 3,191 | |
Financial assets held for trading | | 490 | | | 842 | | |
Deferred acquisition costs | | 3,486 | | | 3,927 | | | 4,531 | | | 3,746 | |
Other assets | | 751 | | | 1,076 | | | 680 | | | 751 | |
Intangible assets | | | 115 | | | 349 | |
Insurance reserves | | 2,383 | | | 3,152 | | | 2,465 | | | 2,389 | |
Pensions and similar obligations | | 231 | | | 257 | | | 226 | | | 231 | |
Other liabilities | | 834 | | | 1,268 | | | 1,044 | | | 833 | |
| | | | | | | | | | | | |
Total deferred tax liabilities | | 12,033 | | | 15,438 | | | 12,201 | | | 12,033 | |
| | | | | | | | | | | | |
Effect of netting | | (8,060 | ) | | (10,850 | ) | | (8,368 | ) | | (8,060 | ) |
| | | | | | | | | | | | |
Net deferred tax liabilities | | 3,973 | | | 4,588 | | | 3,833 | | | 3,973 | |
| | | | | | | | | | | | |
Net deferred tax assets/(liabilities) | | 798 | | | 139 | | | 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, 2007,2008, of €14,079€8,856 mn (2006: €13,336(2007: €7,169 mn) result in
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
recognition of deferred tax assets to the extent there is sufficient certainty that the unused tax losses will be utilized. €12,271€8,244 mn (2006: €10,414(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:
| | |
| | | 2007 |
| | | € mn |
2008 | | 64 |
2009 | | 120 |
2010 | | 63 |
2011 | | 120 |
2012 | | 149 |
2013 | | 7 |
2014 | | 58 |
2015 | | 2 |
2016 | | 6 |
2017 | | 10 |
>10 years | | 1,209 |
Unlimited | | 12,271 |
| | |
Total | | 14,079 |
| | |
Other Information
42 Supplemental information on the Banking Segment
Net interest income from the Banking Segment
| | | | | | | | | |
| | | Segment | | | Consolidation | | | Group | |
| | | € mn | | | € mn | | | € mn | |
2007 | | | | | | | | | |
Interest and similar income | | 8,370 | | | (66 | ) | | 8,304 | |
Interest expense | | (5,266 | ) | | 178 | | | (5,088 | ) |
| | | | | | | | | |
Net interest income | | 3,104 | | | 112 | | | 3,216 | |
| | | | | | | | | |
2006 | | | | | | | | | |
Interest and similar income | | 7,312 | | | (52 | ) | | 7,260 | |
Interest expense | | (4,592 | ) | | 71 | | | (4,521 | ) |
| | | | | | | | | |
Net interest income | | 2,720 | | | 19 | | | 2,739 | |
| | | | | | | | | |
2005 | | | | | | | | | |
Interest and similar income | | 7,321 | | | (36 | ) | | 7,285 | |
Interest expense | | (5,027 | ) | | 81 | | | (4,946 | ) |
| | | | | | | | | |
Net interest income | | 2,294 | | | 45 | | | 2,339 | |
| | | | | | | | | |
Net fee and commission income from the Banking Segment
| | | | | | | | | |
| | | Segment | | | Consolidation | | | Group | |
| | | € mn | | | € mn | | | € mn | |
2007 | | | | | | | | | |
Fee and commission income | | 3,651 | | | (390 | ) | | 3,261 | |
Fee and commission expense | | (603 | ) | | 18 | | | (585 | ) |
| | | | | | | | | |
Net fee and commission income | | 3,048 | | | (372 | ) | | 2,676 | |
| | | | | | | | | |
2006 | | | | | | | | | |
Fee and commission income | | 3,598 | | | (421 | ) | | 3,177 | |
Fee and commission expense | | (590 | ) | | 57 | | | (533 | ) |
| | | | | | | | | |
Net fee and commission income | | 3,008 | | | (364 | ) | | 2,644 | |
| | | | | | | | | |
2005 | | | | | | | | | |
Fee and commission income | | 3,397 | | | (313 | ) | | 3,084 | |
Fee and commission expense | | (547 | ) | | 24 | | | (523 | ) |
| | | | | | | | | |
Net fee and commission income | | 2,850 | | | (289 | ) | | 2,561 | |
| | | | | | | | | |
The net fee and commission income of the Allianz Group’s Banking segment includes the following:
| | | | | | |
| | | 2007 | | 2006 | | 2005 |
| | | € mn | | € mn | | € mn |
Securities business | | 1,347 | | 1,352 | | 1,225 |
Investment advisory | | 357 | | 421 | | 380 |
Payment transactions | | 350 | | 342 | | 360 |
Merger and acquisitions advisory | | 214 | | 235 | | 219 |
Underwriting business | | 78 | | 129 | | 102 |
Other | | 702 | | 529 | | 564 |
| | | | | | |
Total | | 3,048 | | 3,008 | | 2,850 |
| | | | | | |
| | |
| | | 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)
Volume of foreign currency exposure from the Banking segmentOther Information
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 measurements under current accounting policies. 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.
| | | | | | | | | | |
| | | 2007 | | 2006 |
| | | USD | | GBP | | Other | | Total | | Total |
| | | € mn | | € mn | | € mn | | € mn | | € mn |
Balance sheet items | | | | | | | | | | |
Assets | | 93,906 | | 45,067 | | 30,815 | | 169,788 | | 222,548 |
Liabilities | | 108,159 | | 39,425 | | 33,343 | | 180,927 | | 207,692 |
Trustee business in the Banking segment
The following presents trustee business within the Allianz Group’s Banking segment not recorded in the consolidated balance sheet:
| | | | |
As of December 31, | | 2007 | | 2006 |
| | | € mn | | € mn |
Loans and advances to banks | | 2,030 | | 1,956 |
Loans and advances to customers | | 959 | | 1,205 |
Investments and other assets | | 564 | | 729 |
| | | | |
Total assets1) | | 3,553 | | 3,890 |
| | | | |
Liabilities to banks | | 655 | | 870 |
Liabilities to customers | | 2,898 | | 3,020 |
| | | | |
Total liabilities | | 3,553 | | 3,890 |
| | | | |
1)
| Including €1,554 mn (2006: €1,964 mn) of trustee loans.
|
Other banking information
As of December 31, 2007, the Allianz Group had deposits that have been reclassified as loan balances of €8,152 mn (2006: €6,697 mn) and deposits with related parties of €302 mn (2006: €627 mn). The Allianz Group received no deposits on terms other than those available in the normal course of banking operations.
43 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
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
control procedures. Credit risks related to counterparties are assessed by calculating gross replacement values. Market risks are monitored by means of up-to- dateup-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 areindividuallyare 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. To reduce the counter-partycounterparty 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.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Property-Casualty, Life/Health and Corporate 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 | |
| | | 2007 | | 2006 | | | Up to
1 year | | 1–5
years | | Over 5
years | |
| | | Maturity by
notional amount | | Notional
principal
amounts | | Positive
fair
values | | Negative
fair
values | | | Notional
principal
amounts | | Positive
fair
values | | Negative
fair
values | | |
As of December 31, | | Up to
1 year | | 1–5
years | | Over 5
years | | |
| | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | |
Interest rate contracts, consisting of: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
OTC | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Forwards | | 11,177 | | 1,884 | | — | | 13,061 | | 10 | | (370 | ) | | 5,057 | | 69 | | (163 | ) | | 450 | | 575 | | 702 | | 1,727 | | 38 | | (47 | ) | | 13,061 | | 10 | | (370 | ) |
Swaps | | 2,132 | | 16,066 | | 13,734 | | 31,932 | | 160 | | (87 | ) | | 14,254 | | 171 | | (89 | ) | | 541 | | 7,084 | | 3,988 | | 11,613 | | 429 | | (166 | ) | | 31,932 | | 160 | | (87 | ) |
Swaptions | | 340 | | 580 | | — | | 920 | | 46 | | (17 | ) | | 1,037 | | 8 | | (11 | ) | | 465 | | 200 | | — | | 665 | | 4 | | — | | | 920 | | 46 | | (17 | ) |
Caps | | 621 | | 7,524 | | 10 | | 8,155 | | — | | (50 | ) | | 14,403 | | — | | (83 | ) | | 481 | | 7,130 | | 11 | | 7,622 | | — | | (29 | ) | | 8,155 | | — | | (50 | ) |
Floors | | — | | — | | 106 | | 106 | | — | | — | | | — | | — | | — | | | — | | — | | 129 | | 129 | | 1 | | — | | | 106 | | — | | — | |
Options | | 13 | | — | | — | | 13 | | — | | — | | | 2 | | — | | — | | | — | | 20 | | — | | 20 | | — | | (1 | ) | | 13 | | — | | — | |
Exchange traded | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Forwards | | — | | — | | — | | — | | — | | — | | | 295 | | — | | (3 | ) | |
Futures | | 10,966 | | 4,754 | | — | | 15,720 | | 67 | | (62 | ) | | 33,211 | | 35 | | (39 | ) | | 2,297 | | — | | — | | 2,297 | | 23 | | (1 | ) | | 15,720 | | 67 | | (62 | ) |
Options | | 21 | | — | | — | | 21 | | — | | — | | | 1,417 | | — | | (3 | ) | | — | | — | | — | | — | | — | | — | | | 21 | | — | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Subtotal | | 25,270 | | 30,808 | | 13,850 | | 69,928 | | 283 | | (586 | ) | | 69,676 | | 283 | | (391 | ) | | 4,234 | | 15,009 | | 4,830 | | 24,073 | | 495 | | (244 | ) | | 69,928 | | 283 | | (586 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Equity index contracts, consisting of: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
OTC | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Forwards | | 4,295 | | 1,556 | | — | | 5,851 | | 39 | | (2,151 | ) | | 5,996 | | 316 | | (1,178 | ) | | 1,647 | | 1,225 | | — | | 2,872 | | 520 | | (381 | ) | | 5,851 | | 39 | | (2,151 | ) |
Swaps | | 146 | | 339 | | — | | 485 | | 12 | | (19 | ) | | 295 | | — | | — | | | 339 | | — | | — | | 339 | | 122 | | — | | | 485 | | 12 | | (19 | ) |
Floors | | 5 | | — | | — | | 5 | | 5 | | — | | | 3 | | 3 | | — | | | — | | — | | — | | — | | — | | — | | | 5 | | 5 | | — | |
Options1) | | 59,476 | | 1,851 | | 55 | | 61,382 | | 1,029 | | (4,493 | ) | | 78,365 | | 1,242 | | (4,554 | ) | | 49,494 | | 1,055 | | 2,245 | | 52,794 | | 1,227 | | (5,567 | ) | | 61,382 | | 1,029 | | (4,493 | ) |
Warrants | | — | | — | | 13 | | 13 | | 13 | | — | | | — | | — | | — | | | — | | — | | — | | — | | — | | — | | | 13 | | 13 | | — | |
Structured Note | | | 5 | | — | | — | | 5 | | 4 | | — | | | — | | — | | — | |
Exchange traded | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Futures | | 8,520 | | — | | — | | 8,520 | | 24 | | (97 | ) | | 9,820 | | 2 | | (42 | ) | | 2,312 | | — | | — | | 2,312 | | 21 | | (15 | ) | | 8,520 | | 24 | | (97 | ) |
Options | | — | | 1 | | 2 | | 3 | | — | | (1 | ) | | 692 | | — | | (2 | ) | | 48 | | — | | — | | 48 | | 14 | | — | | | 3 | | — | | (1 | ) |
Forwards | | 450 | | — | | — | | 450 | | — | | (428 | ) | | 1,262 | | — | | (752 | ) | | — | | — | | — | | — | | — | | — | | | 450 | | — | | (428 | ) |
Warrants | | — | | 1 | | — | | 1 | | 3 | | — | | | 1 | | 4 | | — | | | — | | 19 | | 1 | | 20 | | 9 | | — | | | 1 | | 3 | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Subtotal | | 72,892 | | 3,748 | | 70 | | 76,710 | | 1,125 | | (7,189 | ) | | 96,434 | | 1,567 | | (6,528 | ) | | 53,845 | | 2,299 | | 2,246 | | 58,390 | | 1,917 | | (5,963 | ) | | 76,710 | | 1,125 | | (7,189 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Foreign exchange contracts, consisting of: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
OTC | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Forwards | | 6,001 | | 25 | | — | | 6,026 | | 61 | | (32 | ) | | 5,222 | | 965 | | (957 | ) | | 11,529 | | 109 | | 20 | | 11,658 | | 550 | | (48 | ) | | 6,026 | | 61 | | (32 | ) |
Swaps | | — | | 245 | | 27 | | 272 | | 10 | | (21 | ) | | 282 | | 13 | | (11 | ) | | 800 | | 304 | | 417 | | 1,521 | | 15 | | (59 | ) | | 272 | | 10 | | (21 | ) |
Options | | 71 | | — | | — | | 71 | | 2 | | (10 | ) | | — | | — | | — | | | 11 | | — | | — | | 11 | | — | | — | | | 71 | | 2 | | (10 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Subtotal | | 6,072 | | 270 | | 27 | | 6,369 | | 73 | | (63 | ) | | 5,504 | | 978 | | (968 | ) | | 12,340 | | 413 | | 437 | | 13,190 | | 565 | | (107 | ) | | 6,369 | | 73 | | (63 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Credit contracts, consisting of: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
OTC | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Options | | — | | — | | — | | — | | — | | — | | | 100 | | — | | (3 | ) | |
Swaps | | 242 | | 1,112 | | 582 | | 1,936 | | 6 | | (7 | ) | | 1,138 | | 2 | | (8 | ) | | 414 | | 1,841 | | 524 | | 2,779 | | 46 | | (55 | ) | | 1,936 | | 6 | | (7 | ) |
Exchange traded | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Swaps | | — | | 257 | | — | | 257 | | 3 | | — | | | 273 | | 2 | | — | | | — | | — | | — | | — | | — | | — | | | 257 | | 3 | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Subtotal | | 242 | | 1,369 | | 582 | | 2,193 | | 9 | | (7 | ) | | 1,511 | | 4 | | (11 | ) | | 414 | | 1,841 | | 524 | | 2,779 | | 46 | | (55 | ) | | 2,193 | | 9 | | (7 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | 104,476 | | 36,195 | | 14,529 | | 155,200 | | 1,490 | | (7,845 | ) | | 173,125 | | 2,832 | | (7,898 | ) | | 70,833 | | 19,562 | | 8,037 | | 98,432 | | 3,023 | | (6,369 | ) | | 155,200 | | 1,490 | | (7,845 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
1) | As of December 31, 2007,2008, includes embedded derivatives related to equity indexedequity-indexed annuities with negative fair values of €5,163 mn (2007: €4,327 mn (2006: €4,199 mn). |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Banking and Asset Management Segments
| As of December 31, | | 2007 | | 2006 | | | 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 | | Notional
principal
amounts | | Positive
fair
values | | Negative
fair
values | | | Notional
principal
amounts | | Positive
fair
values | | Negative
fair
values | |
| | | Up to 1
year | | 1–5
years | | Over 5
years | | | | | Up to 1
year | | 1–5
years | | Over 5
years | |
| | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | | € mn | | € mn | | € mn | | € mn | | €mn | | € mn | | € mn | | € mn | | € mn | |
Interest rate contracts, consisting of: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
OTC | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Forwards | | 53,445 | | 4,706 | | — | | 58,151 | | 43 | | (33 | ) | | 122,708 | | 37 | | (30 | ) | | — | | — | | — | | — | | — | | — | | | 58,151 | | 43 | | (33 | ) |
Swaps | | 1,049,672 | | 1,171,006 | | 1,254,247 | | 3,474,925 | | 43,098 | | (41,487 | ) | | 3,364,548 | | 41,870 | | (40,669 | ) | | 821 | | 359 | | 1,164 | | 2,344 | | 9 | | (67 | ) | | 3,474,925 | | 43,098 | | (41,487 | ) |
Swaptions | | 16,416 | | 29,209 | | 52,617 | | 98,242 | | 750 | | (1,928 | ) | | 92,938 | | 858 | | (2,253 | ) | | — | | — | | — | | — | | — | | — | | | 98,242 | | 750 | | (1,928 | ) |
Caps | | 11,401 | | 34,707 | | 10,874 | | 56,982 | | 200 | | (300 | ) | | 61,775 | | 172 | | (191 | ) | | 23 | | 71 | | 12 | | 106 | | — | | — | | | 56,982 | | 200 | | (300 | ) |
Floors | | 5,909 | | 17,278 | | 4,575 | | 27,762 | | 147 | | (119 | ) | | 41,442 | | 203 | | (144 | ) | | — | | — | | — | | — | | — | | — | | | 27,762 | | 147 | | (119 | ) |
Options | | 102 | | 454 | | 532 | | 1,088 | | 35 | | (20 | ) | | 2,225 | | 41 | | (32 | ) | | — | | — | | — | | — | | — | | — | | | 1,088 | | 35 | | (20 | ) |
Other | | 3,724 | | 1,107 | | 5,339 | | 10,170 | | 819 | | (579 | ) | | 12,199 | | 2,316 | | (1,388 | ) | | — | | — | | — | | — | | — | | — | | | 10,170 | | 819 | | (579 | ) |
Exchange traded | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Futures | | 89,404 | | 20,876 | | 29 | | 110,309 | | 1 | | (1 | ) | | 116,164 | | 7 | | (5 | ) | | 354 | | — | | — | | 354 | | 2 | | — | | | 110,309 | | 1 | | (1 | ) |
Options | | 458,934 | | 366 | | — | | 459,300 | | 1,432 | | (1,254 | ) | | 29,909 | | 1,390 | | (915 | ) | | 13 | | — | | — | | 13 | | — | | — | | | 459,300 | | 1,432 | | (1,254 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Subtotal | | 1,689,007 | | 1,279,709 | | 1,328,213 | | 4,296,929 | | 46,525 | | (45,721 | ) | | 3,843,908 | | 46,894 | | (45,627 | ) | | 1,211 | | 430 | | 1,176 | | 2,817 | | 11 | | (67 | ) | | 4,296,929 | | 46,525 | | (45,721 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Equity index contracts, consisting of: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
OTC | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Swaps | | 15,584 | | 8,119 | | 4,506 | | 28,209 | | 1,042 | | (1,246 | ) | | 42,029 | | 1,059 | | (977 | ) | | — | | — | | — | | — | | — | | — | | | 28,209 | | 1,042 | | (1,246 | ) |
Options | | 104,037 | | 84,067 | | 9,151 | | 197,255 | | 11,080 | | (12,033 | ) | | 194,791 | | 10,668 | | (11,091 | ) | | 39 | | — | | — | | 39 | | 15 | | — | | | 197,255 | | 11,080 | | (12,033 | ) |
Warrants | | | — | | — | | — | | — | | — | | — | | | — | | — | | — | |
Other | | 6 | | 4 | | 15 | | 25 | | 2 | | (117 | ) | | 948 | | 5 | | (47 | ) | | — | | — | | — | | — | | — | | — | | | 25 | | 2 | | (117 | ) |
Exchange traded | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Futures | | 8,663 | | 43 | | — | | 8,706 | | — | | — | | | 9,160 | | — | | (10 | ) | | — | | — | | — | | — | | — | | — | | | 8,706 | | — | | — | |
Options | | 76,888 | | 63,107 | | 4,167 | | 144,162 | | 6,197 | | (5,948 | ) | | 93,683 | | 4,705 | | (3,911 | ) | | 215 | | — | | — | | 215 | | 10 | | (6 | ) | | 144,162 | | 6,197 | | (5,948 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Subtotal | | 205,178 | | 155,340 | | 17,839 | | 378,357 | | 18,321 | | (19,344 | ) | | 340,611 | | 16,437 | | (16,036 | ) | | 254 | | — | | — | | 254 | | 25 | | (6 | ) | | 378,357 | | 18,321 | | (19,344 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Foreign exchange contracts, consisting of: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
OTC | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Forwards | | 473,173 | | 17,358 | | 478 | | 491,009 | | 6,358 | | (6,139 | ) | | 374,725 | | 4,888 | | (4,900 | ) | | 279 | | 67 | | — | | 346 | | 21 | | (10 | ) | | 491,009 | | 6,358 | | (6,139 | ) |
Swaps | | 24,579 | | 44,794 | | 24,042 | | 93,415 | | 4,128 | | (3,203 | ) | | 95,563 | | 3,588 | | (3,222 | ) | | — | | — | | — | | — | | — | | — | | | 93,415 | | 4,128 | | (3,203 | ) |
Options | | 238,872 | | 30,696 | | 3,990 | | 273,558 | | 2,978 | | (3,165 | ) | | 215,826 | | 1,540 | | (1,755 | ) | | 7 | | 22 | | — | | 29 | | — | | — | | | 273,558 | | 2,978 | | (3,165 | ) |
Warrants | | | — | | — | | — | | — | | — | | — | | | — | | — | | — | |
Other | | 39 | | — | | — | | 39 | | — | | — | | | — | | — | | — | | | — | | — | | — | | — | | — | | — | | | 39 | | — | | — | |
Exchange traded | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Futures | | 2,895 | | 1,410 | | — | | 4,305 | | 21 | | (15 | ) | | 1,773 | | 3 | | (5 | ) | | — | | — | | — | | — | | — | | — | | | 4,305 | | 21 | | (15 | ) |
Options | | 1,082 | | 118 | | — | | 1,200 | | 13 | | (4 | ) | | 722 | | 4 | | (1 | ) | | — | | — | | — | | — | | — | | — | | | 1,200 | | 13 | | (4 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Subtotal | | 740,640 | | 94,376 | | 28,510 | | 863,526 | | 13,498 | | (12,526 | ) | | 688,609 | | 10,023 | | (9,883 | ) | | 286 | | 89 | | — | | 375 | | 21 | | (10 | ) | | 863,526 | | 13,498 | | (12,526 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Credit contracts, consisting of: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
OTC | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Credit default swaps | | 56,977 | | 831,150 | | 252,400 | | 1,140,527 | | 11,525 | | (10,993 | ) | | 895,412 | | 5,313 | | (5,025 | ) | | — | | — | | — | | — | | — | | — | | | 1,140,527 | | 11,525 | | (10,993 | ) |
Total return swaps | | 6,850 | | 4,776 | | 1,253 | | 12,879 | | 430 | | (857 | ) | | 11,519 | | 937 | | (1,440 | ) | | — | | — | | — | | — | | — | | — | | | 12,879 | | 430 | | (857 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Subtotal | | 63,827 | | 835,926 | | 253,653 | | 1,153,406 | | 11,955 | | (11,850 | ) | | 906,931 | | 6,250 | | (6,465 | ) | | — | | — | | — | | — | | — | | — | | | 1,153,406 | | 11,955 | | (11,850 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other contracts, consisting of: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
OTC | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Precious metals | | 11,830 | | 3,214 | | — | | 15,044 | | 736 | | (640 | ) | | 11,890 | | 440 | | (417 | ) | | — | | — | | — | | — | | — | | — | | | 15,044 | | 736 | | (640 | ) |
Options | | 1,188 | | 2,562 | | 182 | | 3,932 | | 554 | | (583 | ) | | 24 | | — | | (1 | ) | | — | | — | | — | | — | | — | | — | | | 3,932 | | 554 | | (583 | ) |
Other | | 68 | | — | | 87 | | 155 | | — | | (25 | ) | | 7,618 | | 126 | | (108 | ) | | — | | — | | — | | — | | — | | — | | | 155 | | — | | (25 | ) |
Exchange traded | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Futures | | 1,738 | | 459 | | — | | 2,197 | | — | | — | | | 1,938 | | 1 | | — | | | — | | — | | — | | — | | — | | — | | | 2,197 | | — | | — | |
Options | | | — | | — | | — | | — | | — | | — | | | — | | — | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Subtotal | | 14,824 | | 6,235 | | 269 | | 21,328 | | 1,290 | | (1,248 | ) | | 21,470 | | 567 | | (526 | ) | | — | | — | | — | | — | | — | | — | | | 21,328 | | 1,290 | | (1,248 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | 2,713,476 | | 2,371,586 | | 1,628,484 | | 6,713,546 | | 91,589 | | (90,689 | ) | | 5,801,529 | | 80,171 | | (78,537 | ) | | 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)
Derivative financial instruments used in accounting hedges
The Allianz Group principally uses fair value hedging. Important hedging instruments are equity forward contracts, interest rate swaps, interest rate forwards, 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 in fair value hedges of the interest rate risk of certificated and subordinated liabilities had a total net fair value as of December 31, 2007 of €176 mn (2006: €247 mn). Thereof, interest rate swaps with a positive fair value of €241 mn (2006: €305 mn) are recorded in the Allianz Group’s consolidated balance sheet in other assets, and interest rate swaps with a negative fair value of €65 mn (2006: €58 mn) are recorded in other liabilities. During the year ended De-cember 31, 2007, the fair value of the interest rate swaps decreased by €91 mn (2006: €184 mn), whereas the certificated and subordinated liabilities hedged increased in fair value by €84 mn (2006: €187 mn), resulting in a net ineffectiveness of the hedge of €(7) mn (2006: €3 mn) that is recognized in the Allianz Group’s consolidated income statement as income (expense) for financial assets and liabilities held for trading. For detailed information about certificated and subordinated liabilities, see Note 21 and Note 22, respectively.
The Property-Casualty and the Life/Health segments useGroup uses fair value hedges to hedge forward sales of shares.its equity portfolio against equity market risk. The financial instruments used in the related fair value hedges had a total fair value of €(2,050)€902 mn (2006: €(67)(2007: €(2,050) mn) as of December 31, 2007.2008.
Additionally the Allianz Group uses fair value hedges to protect against the change in the fair value of financial assets due to movements in interest rates or exchange rate.rates. The derivative financialinstrumentsfinancial instruments used for allthe related fair value hedges of the Allianz Group had a total positivenegative fair value as of December 31, 20072008 of €168€39 mn (2006: negative(2007: positive fair value of €388€168 mn).
For the year ended December 31, 2007,2008, the Allianz Group recognisedrecognized for fair value hedges a net gain of €2,115 mn (2007: net loss of €462 mn (2006:mn; 2006: net loss of €687 mn; 2005: €359 mn) on the hedging instrument and a net loss of €2,027 mn (2007: net gain of €494 mn (2006:mn; 2006: net gain of €698 mn; 2005: €400 mn) on the hedged item attributable to the hedged risk.
Cash flow hedges
During the year ended December 31, 2007,2008, cash flow hedges were used to hedge variable cash flows exposed to interest rate and exchange rate fluctuations. As of December 31, 2007,2008, the interest rate swapsderivative instruments utilized had a positive fair value of €31 mn (2007: negative fair value of €2 mn (2006: €55 mn); other. Other reserves in shareholders’ equity increased by €35€27 mn (2006: €1 mn). Ineffectiveness of the cash flow hedges led to net realized losses of €1 mn in 2007 (2006: €2(2007: €35 mn).
The majority of the cash flow hedges originate from the Banking Segment. The cash flows of variable interest rate loans (hedge item) are hedged with interest rate swaps. The interest payments of the loans are based on the Libor and mature in June/July 2010. At the time of the interest payment the effective portion of the hedge, depending on the reference interest rate at that time, is recognised in the consolidated income statements.
Hedge of net investment in foreign operations
As of December 31, 2002, foreign exchange hedging transactions in2008, the formAllianz Group hedges part of foreign currency forwardsits USD net investments through the issuance of USD denominated liabilities with a total fair valuenominal amount 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.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 presents a comparison of the carrying amount and the fair value of the Allianz Group’s classes of financial instruments:
| As of December 31, | | 2007 | | 2006 | | 2008 | | 2007 |
| | | Carrying
amount | | Fair
Value | | Carrying
amount | | Fair
Value | | Carrying
amount | | Fair
Value | | Carrying
amount | | Fair
Value |
| | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn |
Financial assets | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | 31,337 | | 31,337 | | 33,031 | | 33,031 | | 8,958 | | 8,958 | | 31,337 | | 31,337 |
Financial assets held for trading | | 163,541 | | 163,541 | | 180,105 | | 180,105 | | 2,624 | | 2,624 | | 163,541 | | 163,541 |
Financial assets designated at fair value through income | | 21,920 | | 21,920 | | 18,887 | | 18,887 | | 11,616 | | 11,616 | | 21,920 | | 21,920 |
Available-for-sale investments | | 268,001 | | 268,001 | | 277,898 | | 277,898 | | 242,099 | | 242,099 | | 268,001 | | 268,001 |
Held-to-maturity investments | | 4,659 | | 4,705 | | 4,748 | | 4,912 | | 4,934 | | 5,066 | | 4,659 | | 4,705 |
Loans and advances to banks and customers | | 396,702 | | 394,741 | | 423,765 | | 425,527 | | 115,655 | | 117,944 | | 396,702 | | 394,741 |
Financial assets for unit linked contracts | | 66,060 | | 66,060 | | 61,864 | | 61,864 | |
Financial assets for unit-linked contracts | | | 50,450 | | 50,450 | | 66,060 | | 66,060 |
Derivative financial instruments and firm commitments included in other assets | | 344 | | 344 | | 463 | | 463 | | 1,101 | | 1,101 | | 344 | | 344 |
| Financial liabilities | | | | | | | | | | | | | | | | |
Financial liabilities held for trading | | 124,083 | | 124,083 | | 120,885 | | 120,885 | | 6,244 | | 6,244 | | 124,083 | | 124,083 |
Financial liabilities designated at fair value through income | | 1,970 | | 1,970 | | 937 | | 937 | | — | | — | | 1,970 | | 1,970 |
Liabilities to banks and customers | | 336,494 | | 335,394 | | 376,565 | | 376,765 | | 18,451 | | 18,494 | | 336,494 | | 335,394 |
Investment contracts with policyholders | | 90,404 | | 90,404 | | 87,108 | | 87,267 | | 101,898 | | 101,898 | | 90,404 | | 90,404 |
Financial liabilities for unit linked contracts | | 66,060 | | 66,060 | | 61,864 | | 61,864 | |
Financial liabilities for unit-linked contracts | | | 50,450 | | 50,450 | | 66,060 | | 66,060 |
Derivative financial instruments and firm commitments included in other liabilities | | 2,210 | | 2,210 | | 907 | | 907 | | 208 | | 208 | | 2,210 | | 2,210 |
Financial liabilities for puttable equity instruments | | 4,162 | | 4,162 | | 3,750 | | 3,750 | | 2,718 | | 2,718 | | 4,162 | | 4,162 |
Certificated liabilities, participation certificates and subordinated liabilities | | 56,894 | | 57,961 | | 71,284 | | 73,212 | | 18,890 | | 17,643 | | 56,894 | | 57,961 |
The fair value of a financial instrument is defined as the amount for which a financial asset could be exchanged, or a financial liability settled, between knowledgeable, willing parties in an arm’s length transaction. Whenever possible
For the following financial instruments, carried at fair value in the consolidated balance sheet, the fair value is determined using the market prices availableas described in active markets. If there is no quoted market price available, valuation techniques are used which are based on market pricesNote 2 “Summary of comparable instruments or parameters from comparable active markets (market observable inputs). If no observable market inputs are available valuation models are used (non-market observable inputs).significant accounting policies”:
Financial assets and liabilities held for trading
Financial assets and liabilities designated at fair value through income
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 the determination of the fair value for financial 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 cash equivalents
Cash and cash equivalents comprises cash and demand deposits with banks together with short-termhighlyshort-term highly liquid investments that are readily convertible to known amounts of cash and subject to insignificant risk of change in value.
Financial assets held for trading
A financial asset is classified as held for trading if it is acquired principally for the purpose of selling in the near term, or forms part of a portfolio of financial instruments that are managed together and for which there is evidence of short-term profit taking, or it is a derivative (not in a qualifying hedge relationship). Held for trading financial assets are initially recognized at fair value with transaction costs being recognized in profit or loss. Subsequently they are measured at fair value. Gains and losses on held for trading financial assets are recognized in profit or loss as they arise.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Financial assets designated as at fair value through income
Financial assets that the Group designates on initial recognition as being at fair value through income are recognized at fair value, with transaction costs being recognized in income and are subsequently measured at fair value. Gains and losses on financial assets that are designated as at fair value through income are recognized in profit or loss as they arise. Financial assets may be designated as at fair value through income only if such designation (a) eliminates or significantly reduces a measurement or recognition inconsistency; or (b) applies to a group of financial assets, financial liabilities or both that the Group manages and evaluates on a fair value basis; or (c) relates to an instrument that contains an embedded derivative which is not evidently closely related to the host contract. Fair value designation significantly reduces the measurement inconsistency that would arise if these assets were classified as available-for-sale.
Available-for-sale investments
Available-for-sale investments are financial assets that are designated as available-for-sale on initial recognition or are not classified as held-to-maturity, held for trading, designated as at fair value through income, or loans and receivables. Available-for-sale financial assets are initially recognized at fair value plus directly related transaction costs. They are subsequently measured at fair value. Unquoted equity investments whose fair value cannot be measured reliably are carried at cost and classified as available-for-sale financial assets. Impairment losses and exchange differences resulting from retranslating the amortized costnominal value, which represents a reasonable estimate of currency monetary available-for-sale financial assets are recognized in profit or loss together with interest calculated using the effective interest method. Other changes in the fair value of available-for-salefor these short term financial assets are reported in a separate component of shareholders’ equity until disposal, when the cumulative gain or loss is recognized in profit or loss.instruments.
Held-to-maturity investments
A financial asset is classified as a held-to-maturity investment only if it has fixed or determinable payments, a fixed maturity and theGroup has the positive intention and ability to hold to maturity. Held-to-maturity investments are initially recognized atThe fair value plus directly related transaction costs. They are subsequently measured at amortized costof held-to-maturity investments is determined using the effective interest method, less any impairment losses.quoted market price as of the balance sheet date.
Loans and advances to banks and customers
Non-derivative financial assets with fixed or determinable repayments thatFor loans and advances to banks and customers quoted market prices are not quoted in anavailable as there are no active marketmarkets where these instruments are classified as loans, except for those that are classified as available-for-sale or as held for trading, or are designated as at fair value through income. Loans are initially recognized at fair value plus directly related transaction costs. They are subsequently measured at amortized cost using the effective interest method less any impairment losses.
Financial assets for unit linked contracts
The fair values of financial assets for unit linked contracts were determined using the market value of the underlying investment.
Derivative financial instruments and firm commitments included in other assets and other liabilities
traded. The fair value ofis determined using generally accepted valuation techniques with actual market parameters. For short-term loans the carrying amount represents a derivative financial instrument is derived from the valuereasonable estimate of the underlying assets and other market parameters. Exchange-traded derivative financial instruments are valued using the fair-value method, andfair value. For long-term loans the fair value is based on publicly quoted market prices. Valuation models establishedestimated 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 financial markets (such as presentthe fair 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.determination of loans.
Financial liabilities
Financial liabilities held for trading
On initial recognition a financial liability is classified as held for trading if it is incurred principally for the purpose of selling in the near term,
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
forms part of a portfolio of financial instruments that are managed together and for which there is evidence of short-term profit taking, or is a derivative (not in a qualifying hedge relationship). Held for trading financial liabilities are recognized at fair value with transaction costs being recognized in profit or loss. Subsequently they are measured at fair value. Gains and losses are recognized in profit or loss as they arise.
Financial liabilities designated as at fair value through income
Financial liabilities that the Group designates on initial recognition as being at fair value through income are recognized at fair value, with transaction costs being recognized in profit or loss, and are subsequently measured at fair value. Gains and losses on financial liabilities that are designated as at fair value through income are recognized in profit or loss as they arise. Financial liabilities may be designated as at fair value through income only if such designation (a) eliminates or significantly reduces a measurement or recognition inconsistency; or (b) applies to a group of financial assets, financial liabilities or both that the Group manages and evaluates on a fair value basis; or (c) relates to an instrument that contains an embedded derivative which is not evidently closely related to the host contract.
Liabilities to banks and customers
FinancialFor short-term liabilities due to banks and customers which are not held for trading, not designated as atthe carrying amount represents a reasonable estimate of the fair value through income, not financial guarantee contracts, not commitments to provide a loan at a below-market interest rate and not designated as hedged items are measured at amortized cost using the effective interest method.
Investment contracts with policyholders
Fair values for investment and annuity contracts are determined using the cash surrender values of policyholders’ and contract holders’ accounts.
Financial liabilities for unit linked contracts
Fair values of financial liabilities for unit linked contracts are equal tovalue. 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 financial assets for unit linked contracts.
Financial liabilities for puttable equity instruments
A puttable equity instrument is a financial instrument that gives the holder the right to put the instrument back to the issuer for cash or another financial asset. IAS 32 classifies any puttable instrument as a financial instrument.Allianz Group.
Certificated liabilities, participation certificates and subordinated liabilities
The fair value of bondscertificated liabilities, participation certificates and loans payablesubordinated liabilities is determined using quoted market prices, if available. If quoted prices are not available, 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 the remaining contractual future cash flows at a discount-rate at which Allianz Group could issue debt with similar remaining maturity. The fair value determination reflects current market interest rates and the credit rating of the Allianz Group.
Fair value hierarchy of financial instruments
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).
Notes to presentthe Allianz Group’s Consolidated Financial Statements—(Continued)
The following table presents the fair 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 ABS-related instruments of €16 bn as of December 31, 2008 for which valuation techniques with observable market ratesinputs 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 similar loanstrading 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 Consolidated Financial Statements—(Continued)
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 other borrowings.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, 20072008 the Allianz Group entered into transactions, where the fair value of financial instruments is determined using valuation techniques for whichdid not all inputs are market observable rates or prices. The difference between transaction price and the model fair value is calledrecognize day one profit.
profits. The following table shows the reconciliation of day one profitprofits of the previous year all related to Dresdner Bank and loss forwere reclassified with the years ended December 31, 2007, 2006related assets to “Non-current assets and 2005:
| | | | | | | | | |
| | | 2007 | | | 2006 | | | 2005 | |
| | | € mn | | | € mn | | | € mn | |
Day one profit as of January 1, | | 42 | | | 42 | | | 68 | |
Additions from new transactions | | 2 | | | 22 | | | 11 | |
Realeases to income statements | | (16 | ) | | (22 | ) | | (37 | ) |
Day one profit as of December 31, | | 28 | | | 42 | | | 42 | |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)assets of disposal groups classified as held-for-sale”.
45 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, costsharing 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.
Schering Disposal
In June 2006, the Allianz Group sold its 10.6% shareholding in Schering AG for approximately €1.8 bn to Dritte BV GmbH, a 100% subsidiary of Bayer AG. Following this sale, Bayer AG acquired control of Schering AG. One member of the Board of Management of Allianz SE is a member of the Supervisory Board of Bayer AG, but this individual did not participate in the meeting of the Supervisory Board of Bayer AG that approved the acquisition of Schering AG. In addition, at the time of the transaction, the Chairman of the Supervisory Board of Bayer AG was also a member of Allianz’s Supervisory Board but was not involved in Allianz SE’s decision to sell its interest in Schering AG to Bayer AG, which occurred at the level of the Board of Management.
46 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 companies, employers, investors and taxpayers. It is not feasible to predict or determine the ultimate outcome of the pending or threatened proceedings.Managementproceedings. 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.
In March 2005, Allianz Versicherungs-AG, among other German insurance companies, was fined by the German Federal Cartel Office (“Bundeskartellamt”) for alleged coordinated behaviour to achieve premium increases in parts of the commercial and industrial insurance business and subsequently filed an appeal against this decision. In August 2007, Allianz Versicherungs-AG withdrew its appeal and paid the fully reserved fine, which is of an immaterial amount for the Allianz Group.
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 SE which is now named Allianz Global Risks USU.S. Insurance Company (“AGR US”(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 US.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 October 18, 2006, the United States Court of Appeals for the Second Circuit of New York affirmed 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. Following this decision, we determined that no additional provisions on a net basis were necessary because additional liabilities arising from the decision were offset by positive developments in settling WTC claims and higher levels of reinsurance coverage due to Allianz under the two occurrence theory. On May 23, 2007, following a court-ordered mediation, AGR USU.S. reached a settlement with Silverstein Properties regarding the disputed insurance claims. The settlement amount is within our set case reserve and secured by letters of credit from SCOR, which is a
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
reinsurer of AGR USU.S. for the relevant insurance policy. On May 24, 2007, SCOR announced that it considers the settlement agreed between AGR USU.S. and Silverstein Properties to not respect the terms and conditions of the Certificate of Reinsurance between SCOR and AGR USU.S. and referred the case to arbitration as contemplated under the Certificate of Reinsurance. The arbitration proceeding commenced in October 2007 and discovery is ongoing. We doManagement does not expect any material negative financial impact for Allianz from such 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 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 SEGroup’s Consolidated Financial Statements—(Continued)
Allianz on the basis of an expert opinion, and its adequacy was confirmed by a court 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”), which is pending with the district court (“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 that were transferred to Allianz.
Allianz Global Investors of America L.P. and certain 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. The consolidatedThese lawsuits concerning revenue sharing allegations were dismissed by the court on September 18, 2007. The plaintiffs have not appealed this decision, which is final now. The lawsuits relating to market timing have been consolidated into and transferred to a multi-district litigation proceeding in the USU.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.
In August 2005, twoTwo nearly identical class action civil complaints were filed in the Northern District of Illinois Eastern Division against Pacific Investment Management Company LLC (“PIMCO”)(PIMCO), a subsidiary of Allianz Global Investors of America L.P., in August 2005, in the Northern District of Illinois Eastern Division. The complaints have been consolidated into a single case, and PIMCO Funds, a trustalleged that is an open end investment company with multiple separate portfolios managed by PIMCO (the “Trust”), was added as a defendant. Plaintiffs, whothe plaintiffs each purchased and sold a 10-year Treasury note futures contracts, claim that theycontract and suffered damages from an alleged shortage of such notes 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, makes the allegationwhich claims that PIMCO violated the federal Commodity Exchange Act by engaging in market manipulation. OnIn addition to PIMCO as a named defendant, PIMCO Funds has been added as a defendant to the consolidated action. In July 31, 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. On October 17, 2007, PIMCO and the Trust each filed a motion for summary judgment. The briefing of those motions was completed on February 6, 2008, and the motions are pending. OnIn December 10, 2007, the U.S. Court of Appeals for the Seventh Circuit
granted the petition of PIMCO and the TrustPIMCO Funds for seeking leave to appeal the class certification ruling. TheThat appeal has not yet been briefed or argued. The Allianz Groupis pending. Management currently believes the complaint is without merit but given the early stage of the court proceedings, the outcome of this 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”)(FFIC) involvement as a provider of Federalfederal 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.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Three members of the Fireman’s Fund group of companies in the United States, all subsidiaries of Allianz SE, are among the roughly 135 defendants named in a class action filed on August 1, 2005 in the United States District Court of New Jersey in connection with allegations relating to contingent commissions in the insurance industry. No class has been certified for this class action. The court dismissed with prejudice the federal court causes of action and dismissed without prejudice the state law causes of action. The plaintiffs have appealed the 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 time.
Allianz Life Insurance Company of North America (“Allianz Life”) ishas been named as a defendant in various putative class action lawsuits, mainly in Minnesota and California, in connection with the marketing and sale of deferred annuity products. Two lawsuitsOne lawsuit in Minnesota and three in California have beenare currently pending as certified as class 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, withproducts. The Minnesota
Notes to the respect to one of the Minnesota lawsuits, theAllianz Group’s Consolidated Financial Statements—(Continued)
lawsuit alleges violation of the Minnesota Consumer Fraud and Deceptive and Unlawful Trade Practices Act. In November 2007, the court granted final approval of settlement in the other of the Minnesota cases. Another lawsuit that was filed by the Minnesota Attorney General in January 2007 against Allianz Life alleging unsuitable sales of deferred annuities to senior citizens was settled in October 2007. The still pending lawsuits have not yet progressed to a stage at which a potential outcome or 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 (6.07%). Dresdner Bank AG is contingently liable to pay future assessments toLIKO up to €60.7 mn (6.07%). 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, 2007, the Joint Fund levied a contribution of €24 mn (2006: €22 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 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.result, the 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 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 December 31, | | 2007 | | 2006 |
| | | € mn | | € mn |
Advances | | 34,065 | | 35,149 |
Stand-by facilities | | 1,635 | | 8,930 |
Guarantee credits | | 1,604 | | 1,765 |
Discount credits | | 64 | | 64 |
Mortgage loans/public-sector loans | | 527 | | 662 |
| | | | |
Total | | 37,895 | | 46,570 |
| | | | |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
| | | | |
As of December 31, | | 2008 | | 2007 |
| | | € mn | | € mn |
Advances | | 160 | | 34,065 |
Stand-by facilities | | 29 | | 1,635 |
Guarantee credits | | 3 | | 1,604 |
Discount credits | | — | | 64 |
Mortgage loans/public-sector loans | | 85 | | 527 |
| | | | |
Total | | 277 | | 37,895 |
| | | | |
Moreover the Allianz Group has extended a loan commitment of €245 mn to the purchaser of a real estate portfolio (“Charlotte”). Title transfer of the real estate as well as disbursement of the loan occurred on March 1, 2008.
Leasing commitments
The Allianz Group occupies property in many 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.
As of December 31, 2007,2008, the future minimum lease payments under non-cancelable operating leases were as follows:
| | | | 2007 | | | 2008 | |
| | | € mn | | | € mn | |
2008 | | 567 | | |
2009 | | 408 | | | 261 | |
2010 | | 399 | | | 253 | |
2011 | | 343 | | | 217 | |
2012 | | 304 | | | 196 | |
2013 | | | 175 | |
Thereafter | | 1,631 | | | 1,108 | |
| | | | | | |
Subtotal | | 3,652 | | | 2,210 | |
Subleases | | (120 | ) | | (43 | ) |
| | | | | | |
Total | | 3,532 | | | 2,167 | |
| | | | | | |
Rental expense net of sublease rental income received of €16€10 mn, for the year ending December 31, 2007,2008, was €253 mn (2007: €429 mn (2006:mn; 2006: €518 mn; 2005: €315 mn).
Purchase obligations
The Allianz Group has commitments for mortgage loans and to buy multi-tranche loans of €4,489€5,102 mn (2006: €4,337(2007: €4,489 mn) as well as to invest in private equity funds totaling €2,045€2,455 mn (2006: €1,675(2007: €2,045 mn) as of December 31, 2007.2008. As of December 31, 2007,2008, commitments outstanding to purchase real estate used by third-parties and owned by the Allianz Group used for its own activities amounted to €219€650 mn (2006: €325(2007: €219 mn). As of December 31, 2007,2008, commitments outstanding to purchase items of equipment amounted to €197€3 mn (2006 €112(2007: €197 mn). In addition, as of December 31, 2007,2008, the Allianz Group has other commitments of€229of €224 mn (2006: €290(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 Allianz of America, Inc., Wilmington, a guarantee declaration was made for liabilities in connection with the acquisition of PIMCO Advisors L.P. Allianz originally acquired through its subsidiary Allianz of America Inc., Wilmington, a stake of 69.5% in PIMCO, whereby minority shareholders held the option to tender their share to Allianz of America Inc.,Wilmington. On December 31, 2007 the stake of Pacific Life in PIMCO was still 2.0%, so that the liabilities towards Pacific Life as of December 31, 2007 amounted to US Dollar 0.3 bn.
Pursuant to para. 124 ff. of the German Insurance Supervision Act (“Versicherungsaufsichtsgesetz– VAG”Versicherungsaufsichtsgesetz-VAG”), a mandatory 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 for each member is calculated according to the provisions of a Federal Regulation (“Sicherungsfonds-Finanzierungs-Verordnung (Leben) – —SichLVFinV”). As of December 31, 2007,2008, the future liabilities of Allianz Lebensversicherungs-Aktiengesellschaft and its subsidiaries to the insurance guarantee scheme amount to annual contributions of €36€24 mn (2006: €47(2007: €36 mn) and an obligation for special payments of €85€95 mn (2006: €78(2007: €85 mn).
In December 2002, Protektor Lebensversicherungs-Aktien gesellschaftLebensversicherungs-Aktien-gesellschaft (“Protektor”), a life insurance company whose role is to protect policyholders of all German life insurers, was founded. Allianz Lebensversicherungs-AktiengesellschaftLebensversicherungs-Aktiengesell-schaft and some of its subsidiaries are obligated to provide additional funds either to the mandatory insurance guarantee scheme or to Protektor, in the event that the funds provided to the mandatory insurance guarantee scheme are not sufficient to handle an insolvency case. Such obligation amounts to a maximum of 1% of the sum of the net underwriting
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
reserve with deduction of payments already provided to the insurance guarantee scheme. As of December 31, 2007,2008, and under inclusion of the contributions to the mandatory insurance scheme mentioned above, the aggregate outstanding commitment of Allianz Lebensversicherungs-Aktiengesellschaft and its subsidiaries to the insurance guarantee scheme and to Protektor was €809€877 mn (2006: €751(2007: €809 mn).
Guarantees
A summary of guarantees issued by the Allianz Group by maturity and related collateral-held is as follows:
| | | | Letters of
credit and
other
financial
guarantees | | Market
value
guarantees | | Indemni-
fication
contracts | | Letters of
credit and
other
financial
guarantees | | Market
value
guarantees | | Indemni-
fication
contracts |
| | | | € mn | | € mn | | € mn |
2008 | | | | | | | |
Up to 1 year | | | 740 | | — | | 7 |
1-3 years | | | 99 | | 439 | | 15 |
3-5 years | | | 18 | | 478 | | — |
Over 5 years | | | 38 | | 1,224 | | 134 |
| | | | | | | |
Total | | | 895 | | 2,141 | | 156 |
| | | | | | | |
Collateral | | | 25 | | — | | 10 |
| | | € mn | | € mn | | € mn | | | | | | |
2007 | | | | | | | | | | | | |
Up to 1 year | | 10,956 | | 59 | | — | | 10,956 | | 59 | | — |
1-3 years | | 2,371 | | 451 | | 16 | | 2,371 | | 451 | | 16 |
3-5 years | | 2,042 | | 273 | | — | | 2,042 | | 273 | | — |
Over 5 years | | 994 | | 2,528 | | 244 | | 994 | | 2,528 | | 244 |
| | | | | | | | | | | | |
Total | | 16,363 | | 3,311 | | 260 | | 16,363 | | 3,311 | | 260 |
| | | | | | | | | | | | |
Collateral | | 6,023 | | — | | 10 | | 6,023 | | — | | 10 |
| | | | | | | | | | | | |
2006 | | | | | | | |
Up to 1 year | | 12,157 | | 11 | | 200 | |
1-3 years | | 1,644 | | 66 | | 12 | |
3-5 years | | 1,284 | | 464 | | 6 | |
Over 5 years | | 1,498 | | 2,419 | | 268 | |
| | | | | | | |
Total | | 16,583 | | 2,960 | | 486 | |
| | | | | | | |
Collateral | | 7,537 | | — | | 4 | |
| | | | | | | |
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 predefined 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, 2007,2008, the maximum potential amount of future payments of the market value guarantees was €1,956€785 mn (2006:€1,874(2007: €1,956 mn), which represents the total value guaranteed under the respective agreements 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, 2007,2008, was €2,151€822 mn (2006 €1,882(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, 2007,2008, the maximum potential amount of future payments of the market value and performance-at-maturity guarantees was €1,355€1,356 mn (2006: €1,086(2007: €1,355 mn), which represents the total value guaranteed under the respective agreements. The fair value of the mutual funds
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
related to the market guarantees as of December 31, 2007,2008, was approximately €1,316€1,260 mn (2006 €1,033(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 Allianz 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, 20072008 are provided in Note 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 December 31, | | 2007 | | 2006 | | 2008 | | 2007 |
| | | € mn | | € mn | | € mn | | € mn |
Investments | | 597 | | 932 | | 175 | | 597 |
Loans and advances to banks and customers | | 1,663 | | 1,432 | | — | | 1,663 |
Financial assets carried at fair value through income | | 4,302 | | 10,637 | | — | | 4,302 |
| | | | | | | | |
Total | | 6,562 | | 13,001 | | 175 | | 6,562 |
| | | | | | | | |
As of December 31, 2007,2008, the Allianz Group has received collateral, consisting of fixed incomefixed-income and equity securities, with a fair value of €212,894€1,672 mn (2006: €254,653(2007: €212,894 mn), which the Allianz Group has the right to sell or repledge. As of December 31, 2007,2008, €– mn (2007: €156,096 mn (2006: €134,005 mn) related to collateral that the Allianz Group has received and sold or repledged.
As of December 31, 20072008 the Allianz Group took possession of collateral it holds as security with a carrying amount of €174€– mn. These financial assets will be systematically sold in the market.
47 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, | | 2007 | | | 2006 | |
| | | € mn | | | € mn | |
Prepaid benefit costs | | (402 | ) | | (265 | ) |
Accrued benefit costs | | 4,184 | | | 4,120 | |
| | | | | | |
Net amount recognized | | 3,782 | | | 3,855 | |
| | | | | | |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
| | | | | | |
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:
| | | | 2007 | | 2006 | | | 2008 | | 2007 | |
| | | € mn | | € mn | | | € mn | | € mn | |
Change in projected benefit obligations | | | | | | | | |
Projected benefit obligations as of January 1, | | 17,280 | | | 17,159 | | | 16,142 | | | 17,280 | |
Service cost | | 437 | | | 472 | | | 321 | | | 437 | |
Interest cost | | 785 | | | 725 | | | 672 | | | 785 | |
Plan participants’ contributions | | 67 | | | 61 | | | 65 | | | 67 | |
Amendments | | (23 | ) | | (48 | ) | | 41 | | | (23 | ) |
Actuarial (gains)/losses | | (1,316 | ) | | (689 | ) | | (774 | ) | | (1,316 | ) |
Foreign currency translation adjustments | | (266 | ) | | (43 | ) | | (182 | ) | | (266 | ) |
Benefits paid | | (685 | ) | | (678 | ) | | (570 | ) | | (685 | ) |
Changes in the consolidated subsidiaries of the Allianz Group | | (137 | ) | | 321 | | | (38 | ) | | (137 | ) |
Divestitures1) | | | (3,430 | ) | | — | |
| | | | | | | | | | | | |
Projected benefit obligations as of December 31,1) | | 16,142 | | | 17,280 | | |
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, | | 10,888 | | | 8,287 | | | 10,931 | | | 10,888 | |
Expected return on plan assets | | 577 | | | 557 | | | 448 | | | 577 | |
Actuarial gains/(losses) | | (331 | ) | | (90 | ) | | (781 | ) | | (331 | ) |
Employer contributions2) | | 342 | | | 2,154 | | |
Employer contributions | | | 500 | | | 342 | |
Plan participants’ contributions | | 67 | | | 61 | | | 65 | | | 67 | |
Foreign currency translation adjustments | | (229 | ) | | (30 | ) | | (150 | ) | | (229 | ) |
Benefits paid3) | | (315 | ) | | (307 | ) | | (321 | ) | | (315 | ) |
Changes in the consolidated subsidiaries of the Allianz Group | | (68 | ) | | 256 | | | (36 | ) | | (68 | ) |
Divestitures1) | | | (2,692 | ) | | — | |
| | | | | | | | | | | | |
Fair value of plan assets as of December 31, | | 10,931 | | | 10,888 | | | 7,964 | | | 10,931 | |
| | | | | | | | | | | | |
Funded status as of December 31, | | 5,211 | | | 6,392 | | | 4,283 | | | 5,211 | |
Unrecognized net actuarial losses | | (1,444 | ) | | (2,556 | ) | | (685 | ) | | (1,444 | ) |
Unrecognized prior service costs | | 15 | | | 19 | | | 13 | | | 15 | |
| | | | | | | | | | | | |
Net amount recognized as of December 31, | | 3,782 | | | 3,855 | | | 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, 2007,2008, includes direct commitments of the consolidated subsidiaries of the Allianz Group of €4,953€4,429 mn (2006: €5,306(2007: €4,953 mn) and commitments through plan assets of €7,818 mn (2007: €11,189 mn (2006: €11,974 mn). |
2)
| During January 2006, the Dresdner Bank AG contributed €1,876 mn to a contractual trust arrangement for the defined benefit plans of the Dresdner Bank Group.
|
3) | In addition, the Allianz Group paid €370€249 mn (2006: €371(2007: €370 mn) directly to plan participants. |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
As of December 31, 2007,2008, post-retirement health benefits included in the projected benefit obligation and in the net amount recognized amounted to €109€60 mn (2006: €142(2007: €109 mn) and €138€92 mn (2006: €152(2007: €138 mn), respectively.
The net periodic benefit cost related to defined benefit plans of the Allianz Group consists of the following components:
| | | | 2007 | | 2006 | | 2005 | | | 2008 | | 2007 | | 2006 | |
| | | € mn | | € mn | | € mn | | | € mn | | € mn | | € mn | |
Service cost | | 437 | | | 472 | | | 353 | | | 321 | | | 382 | | | 417 | |
Interest cost | | 785 | | | 725 | | | 693 | | | 672 | | | 617 | | | 571 | |
Expected return on plan assets | | (577 | ) | | (557 | ) | | (411 | ) | | (448 | ) | | (432 | ) | | (407 | ) |
Amortization of prior service cost | | (25 | ) | | (33 | ) | | (45 | ) | | 38 | | | — | | | (33 | ) |
Amortization of net actuarial loss | | 101 | | | 126 | | | 57 | | | 6 | | | 62 | | | 84 | |
(Income)/expenses of plan curtailments or settlements | | (65 | ) | | (36 | ) | | (6 | ) | | — | | | (51 | ) | | (13 | ) |
| | | | | | | | | | | | | | | | | | |
Net periodic benefit cost | | 656 | | | 697 | | | 641 | | |
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, 2007,2008, net periodic benefit cost includes net periodic benefit cost related to post-retirement health benefits of €4€(7) mn (2006: €9(2007: €— mn; 2005: €82006: €4 mn).
The actual return on plan assets amounted to €(333) mn, €246 mn €467 mn and €883€467 mn during the years ended December 31, 2008, 2007 2006 and 2005.2006.
A summary of amounts related to defined benefit plans is as follows:
| | | | | |
| | | 2007 | | | 2006 |
| | | € mn | | | € mn |
Projected benefit obligation | | 16,142 | | | 17,280 |
Fair value of plan assets | | 10,931 | | | 10,888 |
Funded status | | 5,211 | | | 6,392 |
Actuarial (gains) / losses from experience adjustments on: | | | | | |
Plan obligations | | (56 | ) | | 8 |
Plan assets | | 331 | | | 90 |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
| | | | | | | | |
| | | 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-averageweighted average value of the assumptions for the Allianz Group’s defined benefit plans used to determine projected benefit obligation:
| As of December 31, | | 2007 | | 2006 | | 2008 | | 2007 |
| | | % | | % | | % | | % |
Discount rate | | 5.5 | | 4.6 | | 5.8 | | 5.5 |
Rate of compensation increase | | 2.6 | | 2.6 | | 2.5 | | 2.6 |
Rate of pension increase | | 1.8 | | 1.5 | | 1.9 | | 1.8 |
The discount rate assumptions reflect the market yields at the balance sheet date of high-quality fixed incomefixed-income investments corresponding to the currency and duration of the liabilities.
The weighted-averageweighted average value of the assumptions used to determine net periodic benefit cost:
| | | | 2007 | | 2006 | | 2005 | | 2008 | | 2007 | | 2006 |
| | | % | | % | | % | | % | | % | | % |
Discount rate | | 4.6 | | 4.1 | | 4.9 | | 5.5 | | 4.6 | | 4.1 |
Expected long-term return on plan assets | | 5.3 | | 5.3 | | 5.8 | | 5.5 | | 5.3 | | 5.3 |
Rate of compensation increase | | 2.6 | | 2.7 | | 2.7 | | 2.6 | | 2.6 | | 2.7 |
Rate of pension increase | | 1.5 | | 1.4 | | 1.6 | | 1.8 | | 1.5 | | 1.4 |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
For the year ended December 31, 2007,2008, 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 | | Target
allocation | | Weighted
expected long-
term rate of
return |
| | | % | | % | | % | | % |
Equity securities | | 30.9 | | 7.6 | | 28.7 | | 7.6 |
Debt securities | | 64.4 | | 4.3 | | 66.4 | | 4.6 |
Real estate | | 4.2 | | 3.5 | | 4.2 | | 4.6 |
Other | | 0.5 | | 0.8 | | 0.7 | | 3.5 |
| | | | | | | | |
Total | | 100.0 | | 5.3 | | 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-averageweighted average asset allocations by asset category are as follows:
| As of December 31, | | 2007 | | 2006 | | 2008 | | 2007 |
| | | % | | % | | % | | % |
Equity securities | | 28.1 | | 28.3 | | 16.2 | | 28.1 |
Debt securities | | 65.1 | | 66.6 | | 78.4 | | 65.1 |
Real estate | | 2.8 | | 2.9 | | 3.6 | | 2.8 |
Other | | 4.0 | | 2.2 | | 1.8 | | 4.0 |
| | | | | | | | |
Total | | 100.0 | | 100.0 | | 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.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, 2008,2009, the Allianz Group expects to contribute €303€226 mn to its defined benefit plans and pay €382€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. 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, 2007,2008, the Allianz Group recognized expense for defined
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
contribution plans of €282€212 mn (2006: €223(2007: €192 mn; 2005: €1922006: €136 mn). Additionally, the Allianz Group paid contributions for state pension schemes of €398€317 mn (2006: €381(2007: €294 mn; 2005: €3622006: €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 SE 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 price represents the average of the closing prices of an Allianz SE share for the 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 SE share has outperformed the Dow Jones Europe STOXX Price Index at least once for a period of five consecutive trading days; and
the Allianz SE 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 of control of the Allianz Group or notice for operational reason the stock appreciation rightsSARs vest immediately and will be exercised by the company provided the above market conditions have been attained.
Upon the expiration date, any unexercised stock appreciation rightSAR will be exercised automatically iftheif 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 exercise conditions are not attained by the expiration date.
The fair value of the stock appreciation rightsSARs 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 exercise patterns (all plans issued between 19992002 and 20022008 are significantly “out of the money”), the expected life has been estimated to equal the term to maturity of the stock appreciation rights.SARs.
The following table provides the assumptions used in estimating the fair value of the stock appreciation rightsSARs at grant date:
| | | | 2007 | | 2006 | | 2005 | | | 2008 | | 2007 | | 2006 | |
Expected volatility | | | 27.9 | % | | | 28.0 | % | | | 27.8 | % | | | 32.0 | % | | | 27.9 | % | | | 28.0 | % |
Risk-free interest rate | | | 3.9 | % | | | 4.1 | % | | | 3.1 | % | | | 3.6 | % | | | 3.9 | % | | | 4.1 | % |
Expected dividend rate | | | 3.0 | % | | | 1.6 | % | | | 1.9 | % | | | 5.3 | % | | | 3.0 | % | | | 1.6 | % |
Share price | | € | 158.01 | | | € | 123.67 | | | € | 99.33 | | | € | 112.83 | | | € | 158.01 | | | € | 123,67 | |
Expected life (years) | | | 7 | | | | 7 | | | | 7 | | | | 7 | | | | 7 | | | | 7 | |
The stock appreciation rightsSARs 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, 2007,2008, the Allianz Group recognized compensation expense related to the unexercised stock appreciation rightsSARs of €18€(116) mn (2006: €116(2007: €14 mn; 2005: €992006: €102 mn).
As of December 31, 2007,2008, the Allianz Group recorded a liability, in other liabilities, for the unexercised stock appreciation rightsSARs of €37 mn (2007: €182 mn (2006: €276 mn).
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
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 SE share in the ten trading days preceding the vesting date or issue one Allianz SE share, or other equivalent 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 of control of the Allianz Group or notice for operational reason the restricted stock unitsRSUs vest immediately and will be exercised by the company.
The restricted stock unitsRSUs 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 restricted stock unitsRSUs from the prevailing share price as of the valuation date.
The following table provides the assumptions used in calculating the fair value of the restricted stock unitsRSUs at grant date:
| | | | 2007 | | 2006 | | 2005 | | | 2008 | | 2007 | | 2006 | |
Average interest rate | | 3.9 | % | | 3.8 | % | | 2.8 | % | | 3.4 | % | | 3.9 | % | | 3.8 | % |
Average dividend yield | | 3.2 | % | | 1.5 | % | | 1.9 | % | | 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, 2007,2008, the Allianz Group recognized compensation expense related to the nonvested restricted stock unitsRSUs of €55€(19) mn (2006: €85(2007: €41 mn; 2005: €492006: €68 mn).
As of December 31, 2007,2008, the Allianz Group recorded a liability, in other liabilities, of €209€87 mn (2006: €157(2007: €209 mn) for the nonvested restricted stock units.RSUs.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Share-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 SE 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 six6 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.
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, 2007,2008, the Allianz Group recognized compensation expense related to the Class B equity units of €185 mn (2007: €362 mn (2006:mn; 2006: €383 mn; 2005: €536 mn). In addition, the Allianz Group recognized expense related to the priority claim on the adjusted operating profits of PIMCO LLC of €93 mn (2007: €126 mn (2006:mn; 2006: €140 mn; 2005: €141 mn). During the year ended December 31, 2007,2008, the Allianz Group called 22,15527,826 Class B equity units. The total amount paid related to the call of the Class B equity units was €324€418 mn.
The total recognized compensation expense for Class B equity units that are outstanding is recorded as a liability in other liabilities. As of December 31, 2007,2008, the Allianz Group recorded a liability for the Class B equity units of €1,350€1,151 mn (2006: €1,455(2007: €1,350 mn).
PIMCO LLC Class M-Unit
Allianz Global Investors (AGI) has launched a new management share-based payment incentive plan for certain senior level executives of PIMCO LLC and certain of its affiliates. Participants in the plan are granted options to acquire a new class of equity instruments (M-Units), which vest in one-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 assumptions used in calculating the fair value of the 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 Allianz Group’s Consolidated Financial Statements—(Continued)
Dresdner KleinwortA summary of the number and weighted average exercise price of the M-Options outstanding and exercisable are as follows:
| | | | | |
| | | Number of
options | | | Weighted
average
exercise
price |
| | | | | | € |
Outstanding as of January 1, 2008 | | — | | | — |
Granted | | 27,674 | | | 6,230.05 |
Exercised | | — | | | — |
Forfeited | | (1,142 | ) | | 6,230.86 |
| | | | | |
Outstanding as of December 31, 2008 | | 26,532 | | | 6,230.01 |
| | | | | |
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 Allianz Group awarded eligible employeesM-Units outstanding as of Dresdner Kleinwort (“DrK”)December 31, 2008 have an exercise price between of €6,190.13 and of €6,230.86 and a promise to deliver Allianz SE shares on the vesting dates (hereafter “nonvested shares”). In jurisdictions in which regulatory restrictions do not allow for delivery of shares, the awards are settled in cash. The awards vest in three installments in each of the three years following the initial award. The number of shares to be disbursed depends on beneficiaries leaving the company and the operating results for the following years. If the results are positive, additional shares will be distributed, whereas if the results are negative, the number of shares to be disbursed will be reduced. A portion of the awards is also subject to performance vesting conditions, which are based on the financial operating results of DrK. If all of the performance targets have not been met for the previous year, then immediately prior to vesting, some or all of the performance related shares for that year are forfeited.
In 2007 Dresdner Kleinwort granted 1,164,377 (2006: 1,405,646) nonvested share units in total. The weighted average fair value at grant date was €162.78 (2006: €135.40). Thereof 1,068,189 (2006: 1,303,856) non-vested share units are equity settled and 96,188 (2006: 101,791) share units are cash settled.remaining contractual life of 4.46 years.
The shares settled by delivery of Allianz SEPIMCO 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. Upon vesting, any changes in the fair value of the unexercised nonvested shares settled in cash are recognized as compensation expense.
During the year ended December 31, 2007,2008, the Allianz Group recognizedrecorded compensation expense of €2 mn related to the nonvested shares of €103 mn (2006: €135 mn). Thereof €95 mn (2006: €125 mn) were recognized for equity settledthese share options.
As of December 31, 2007, the Allianz Group recorded a liability for the nonvested cash settled shares of €13 mn (2006: €10 mn).
AGF Group share option plan
The AGF Group has awarded share options on AGF shares to eligible AGF Group executives and managers of subsidiaries, as well as to certain employees, whose performance justified grants. The primary objective of the share option plan is to encourage the retention of key personnel of AGF Group and to link their compensation to the performance of AGF Group.
During the year ended December 31.31, 2007, Allianz acquired all of the remaining AGF shares from minority shareholders in the context of the Tender Offer and Squeeze-out (see Note 4 regarding the AGF acquisition and disposal of minority interests).Squeeze-out. Under the terms of an agreement (the ”Liquidity“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.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
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 plans were granted independently from the remuneration plans of the Allianz Group. At their original grant dates, the AGF share options had an exercise price of at least 85% of the then prevaillingprevailing market price. The original maximum term for the AGF share option plans granted was eight years.
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, 2007,2008, the Allianz Group recognized total compensation expenses related to the modified AGF share option plans of €(33) mn (2007: €15 mn.mn). As of December 31, 2007,2008, the Allianz Group recorded a liability for the AGF plans of €11 mn (2007: €46 mn.mn).
RAS Group Allianz SE share option plan (modified RAS Group share option plan 2005)
The RAS Group awarded eligible members of senior management with share purchase options on RAS ordinary shares. The share options had a vesting period of 18 months to 2 years and a term of 6.5 to 7 years.
The share options allow 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 grant date fair value and the assumptions used in calculating their fair value:
| | | | |
| | | 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-averageweighted 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 basisofbasis
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 servicevesting 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 valuevalue:
| | | | |
| | | 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-averageweighted average exercise price of the options outstanding and exercisable are as follows:
| | | | 2007 | | 2006 | | 2008 | | 2007 | | 2006 |
| | | Number
of
options | | Weighted
average
exercise
price | | Number
of
options | | Weighted
average
exercise
price | | 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, | | 173,241 | | | 93.99 | | — | | — | | 131,249 | | | 80.74 | | 173,241 | | | 93.99 | | — | | — |
Granted | | — | | | — | | 173,241 | | 93.99 | | — | | | — | | — | | | — | | 173,241 | | 93.99 |
Exercised | | — | | | — | | — | | — | | (13,424 | ) | | 48.96 | | — | | | — | | — | | — |
Forfeited | | (41,992 | ) | | 84.51 | | — | | — | | — | | | — | | (41,992 | ) | | 84.74 | | — | | — |
Expired | | — | | | — | | — | | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
Outstanding as of December 31, | | 131,249 | | | 80.74 | | 173,241 | | 93.99 | | 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 €11€6 mn for the year ended December 31, 2007 (2006:2008 (2007: €11 mn).
The options outstanding as of December 31, 20072008 have an exercise price of €80.74€48.96 and a weighted average remaining contractual life of 43 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, 2007,2008, the Allianz Group recorded compensation expense of €— mn (2007: €4 mn (2006:mn; 2006: €6 mn) related to these share options.
Employee Stock purchase plans
The Allianz Group offers Allianz SE shares in 2422 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, 2007,2008, the number of shares sold to employees under these plans was 939,303 (2006: 929,509; 2005: 1,144,196)721,830 (2007: 939,303; 2006: 929,509). During the year ended December 31, 2007,2008, the Allianz Group recognized as compensation expense, the difference between the market price (lowest quoted price of the Allianz SE stock at the official market in Germany on September 6, 2007)October 10, 2008) and the discounted price of the shares purchased by employees, of €10 mn (2007: €30 mn (2006:mn; 2006: €25 mn; 2005: €24 mn).
In addition, during the year ended December 31, 2006, the AGF Group offered AGF shares toqualifiedto
qualified employees in France at favorable conditions. During the year ended December 31, 2006 the number of shares sold to employees under this plan was 651,012. During the year ended December 31, 2006 the compensation expense recorded was €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 the consolidated financial statements. During the year ended December 31, 2007,2008, the total expense, in the aggregate, recorded for these plans was €4€2 mn (2006: €3(2007: €7 mn; 2005: €42006: €6 mn).
49 Restructuring plans
As of December 31, 2007,2008, the Allianz Group has provisions for restructuring resulting from a number of restructuring programs in various segments. 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.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Changes in the provisions for restructuring were:
| | | | Allianz
Deutschland
AG | | Dresdner
Bank
Group | | Other | | Total | | | Allianz
Deutschland
AG | | Dresdner
Bank
Group | | AGF
Group | | Other | | Total | |
| | | € mn | | € mn | | € mn | | € mn | | | € mn | | € mn | | € mn | | € mn | | € mn | |
As of January 1, 2005 | | — | | | 670 | | | 69 | | | 739 | | |
New provisions | | — | | | 22 | | | 86 | | | 108 | | |
Additions to existing provisions | | — | | | 29 | | | 3 | | | 32 | | |
Release of provisions recognized in previous years | | — | | | (48 | ) | | (2 | ) | | (50 | ) | |
Release of provisions via payments | | — | | | (288 | ) | | (68 | ) | | (356 | ) | |
Release of provisions via transfers | | — | | | (294 | ) | | — | | | (294 | ) | |
Foreign currency translation adjustments | | — | | | 12 | | | — | | | 12 | | |
Other | | — | | | (13 | ) | | 8 | | | (5 | ) | |
As of December 31, 2005 | | — | | | 90 | | | 96 | | | 186 | | |
As of January 1, 2006 | | — | | | 90 | | | 96 | | | 186 | | | — | | | 90 | | | — | | | 96 | | | 186 | |
New provisions | | 526 | | | 328 | | | 41 | | | 895 | | | 526 | | | 328 | | | — | | | 41 | | | 895 | |
Additions to existing provisions | | — | | | 9 | | | 1 | | | 10 | | | — | | | 9 | | | — | | | 1 | | | 10 | |
Release of provisions recognized in previous years | | — | | | (15 | ) | | (5 | ) | | (20 | ) | | — | | | (15 | ) | | — | | | (5 | ) | | (20 | ) |
Release of provisions via payments | | (2 | ) | | (13 | ) | | (83 | ) | | (98 | ) | | (2 | ) | | (13 | ) | | — | | | (83 | ) | | (98 | ) |
Release of provisions via transfers | | (69 | ) | | (20 | ) | | — | | | (89 | ) | | (69 | ) | | (20 | ) | | — | | | — | | | (89 | ) |
Changes in the consolidated subsidiaries of the Allianz Group | | — | | | — | | | 4 | | | 4 | | | — | | | — | | | — | | | 4 | | | 4 | |
Foreign currency translation adjustments | | — | | | — | | | (1 | ) | | (1 | ) | | — | | | — | | | — | | | (1 | ) | | (1 | ) |
| | | | | | | | | | | | | | | | |
As of December 31, 2006 | | 455 | | | 379 | | | 53 | | | 887 | | | 455 | | | 379 | | | — | | | 53 | | | 887 | |
| | | | | | | | | | | | | | | | |
As of January 1, 2007 | | 455 | | | 379 | | | 53 | | | 887 | | | 455 | | | 379 | | | — | | | 53 | | | 887 | |
New provisions | | — | | | 8 | | | 145 | | | 153 | | | — | | | 8 | | | — | | | 145 | | | 153 | |
Additions to existing provisions | | 22 | | | 19 | | | 4 | | | 45 | | | 22 | | | 19 | | | — | | | 4 | | | 45 | |
Release of provisions recognized in previous years | | (65 | ) | | (29 | ) | | (1 | ) | | (95 | ) | | (65 | ) | | (29 | ) | | — | | | (1 | ) | | (95 | ) |
Release of provisions via payments | | (27 | ) | | (65 | ) | | (52 | ) | | (144 | ) | | (27 | ) | | (65 | ) | | — | | | (52 | ) | | (144 | ) |
Release of provisions via transfers | | (159 | ) | | (140 | ) | | — | | | (299 | ) | | (159 | ) | | (140 | ) | | — | | | — | | | (299 | ) |
Foreign currency translation adjustments | | — | | | (6 | ) | | — | | | (6 | ) | | — | | | (6 | ) | | — | | | — | | | (6 | ) |
| | | | | | | | | | | | | | | | |
As of December 31, 2007 | | 226 | | | 166 | | | 149 | | | 541 | | | 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 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 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 toprovisionsto 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, whichthat is expected to continue throughbe 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 achieve growth.
During the year ended December 31, 2007,2008, Allianz Deutschland AG recorded restructuring charges of €(9) mn (2007: €(16) mn.mn). This amount includes additions
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
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 5,7005,345 positions. Approximately 3,1764,695 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.
| | | |
| | | 20072008 | |
| | | € mn | |
New provisions | | — | |
Additions to existing provisions | | 223 | |
Release of provisions recognized in previous years | | (6510 | ) |
Restructuring charges directly reflected in the consolidated income statement | | 27(2 | ) |
| | | |
Total restructuring charges during the year ended December 31, 20072008 | | (169 | ) |
| | | |
Total restructuring charges incurred to date | | 510501 | |
A summary of the changes in the provisions for restructuring of the Allianz Deutschland AG during the year ended December 31, 20072008 is:
| | | | Provisions
as of
January 1,
2007 | | Provisions recorded during 2007 | | Release of
provisions
via
transfer | | | Foreign
currency
translation
adjustments | | Other | | Provisions
as of
December 31,
2007 | | 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 | | | 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 | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn |
Program 2006 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Personnel costs | | 353 | | — | | 18 | | (25 | ) | | — | | | (159 | ) | | — | | — | | 187 | | 187 | | — | | 3 | | (10 | ) | | — | | | (61 | ) | | — | | — | | 119 |
Contract termination costs | | 102 | | — | | 4 | | (40 | ) | | (27 | ) | | — | | | — | | — | | 39 | | 39 | | — | | — | | — | | | (10 | ) | | — | | | — | | — | | 29 |
Other | | — | | — | | — | | — | | | — | | | — | | | — | | — | | — | | — | | — | | — | | — | | | — | | | — | | | — | | — | | — |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | 455 | | — | | 22 | | (65 | ) | | (27 | ) | | (159 | ) | | — | | — | | 226 | | 226 | | — | | 3 | | (10 | ) | | (10 | ) | | (61 | ) | | — | | — | | 148 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Allianz Deutschland AG recorded releases of provisions via transfers to other provision categories of €159€61 mn as of December 31, 2007.2008 (2007: €159 mn).
Dresdner Bank Group’sAssurance Générales de France (AGF Group)’s provisions for restructuring
Dresdner BankIn 2008, the AGF Group supplemented its existingannounced a restructuring programs introduced since 2000 withplan, so called “Comprehensive Adaptation Plan” (“Plan Global d’Adaptation”), for the initiative “Programs 2007”. For these combined initiatives, Dresdner Bank Group has announced plansinsurance business in France which is expected to eliminate an aggregatecontinue through 2011. The objectives of approximately 19,650 positions. Asthe restructuring program are to regain market shares and increase the quality of December 31, 2007, anaggregate of approximately 17,810 positions had been eliminatedservice, by
increasing commercial staff and approximately 550 additional employees had contractually agreed to leave Dresdner Bank Group under these initiatives.sales effectiveness,
During
developing employees’ competencies, and
implementing a comprehensive plan of competitiveness.
The restructuring activities of the year ended December 31, 2007, Dresdner BankAGF Group recorded restructuring charges for all restructuring programswill result in a reduction of €51 mn. This amount includes new provisions, additionslocations within France from 14 to existing provisions, release10 and a relocation of provisions recognized in previous years,workers and restructuring chargesactivities with critical team size purpose as reflected in the consolidated income statement.well as a strong reduction of non-HR costs (especially IT, purchasing, facilities).
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
A summaryThrough the Comprehensive Adaptation Plan, the AGF Group plans to reduce the number of administrative jobs by 688 and increase the restructuring charges related to Dresdner Bank Group that are reflected in the Allianz Group’s consolidated income statementnumber 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 year ended December 31, 2007,employees affected by restructuring program is as follows:the close-down of locations.
| | | | | | | | | | | |
| | | 2007 | |
| | | Programs
2007 | | New
Dresdner
Plus | | | Former
Programs | | | Total | |
| | | € mn | | € mn | | | € mn | | | € mn | |
New provisions | | 8 | | — | | | — | | | 8 | |
Additions to existing provisions | | — | | 19 | | | — | | | 19 | |
Release of provisions recognized in previous years | | — | | (24 | ) | | (5 | ) | | (29 | ) |
Restructuring charges directly reflected in the consolidated income statement | | 40 | | 9 | | | 4 | | | 53 | |
Total restructuring charges during the year ended December 31, 2007 | | 48 | | 4 | | | (1 | ) | | 51 | |
Total restructuring charges incurred to date | | 48 | | 412 | | | 1,560 | | | 2,020 | |
A summary of the existing provisions for restructuring related to the Dresdner Bank Group is as follows:
Programs 2007
During the year ended December 31, 2007, Dresdner Bank2008, the AGF Group recorded restructuring charges of €48€81 mn for the announced restructuring initiative “Programs 2007”, which is in addition to and separately from the initiative “New Dresdner Plus” and the “Former Programs”.as follows:
As a result of the recent developments in the Credit Markets Dresdner Kleinwort, the InvestmentBanking Division (IB) of Dresdner Bank Group, decided to restructure parts of their Credit Business. This decision lead to the exit of specific market segments and to the alignment of the product range to the current market environment within the respective Credit Business. Hereby were impacted the areas Credit Flow Trading, Exotic Credit Derivatives, and Debt Capital Markets as well as the respective support areas within the front-office.
Through the “Credit Initiative” and further restructuring initiatives within the Investment Banking Division (IB) the Dresdner Bank Group plans to reduce approximately 150 positions globally. Approximately 10 employees had been terminated and approximately 100 additional employees had contractually agreed to leave Dresdner Bank Group pursuant to “Credit Initiative” as of December 31, 2007.
New Dresdner Plus and Former Programs
During the year ended December 31, 2007, Dresdner Bank Group recorded combined restructuring charges of €3 mn for the announced restructuring initiative “New Dresdner Plus” and the “Former Programs”, which are in addition to and separately from the “Programs 2007”.
Through the program “New Dresdner Plus”, Dresdner Bank Group plans to eliminate 2,480 positions. Approximately 1,000 employees had been terminated and approximately 300 additional employees had contractually agreed to leave Dresdner Bank Group pursuant to program “New Dresdner Plus” as of December 31, 2007.
Through the “Former Programs”, Dresdner Bank Group plans to eliminate approximately 17,020 positions. Approximately 16,800 employees had been terminated and approximately 150 additional employees had contractually agreed to leave Dresdner Bank Group pursuant to the “Former Programs” as of December 31, 2007.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued) | | |
| | 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 Dresdner BankAGF Group during the year ended December 31, 20072008 is:
| | | | Provisions
as of
January 1,
2007 | | Provisions recorded during 2007 | | Release of
provisions
via
transfer | | | Foreign
currency
translation
adjustments | | | Other | | Provisions as
of
December 31,
2007 | | 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 | | | | 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 | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn |
Programs 2007 | | | | | | | | | | | | | | | | | | | |
Comprehensive Adaptation Plan | | | | | | | | | | | | | | | | | | | |
Personnel costs | | — | | 8 | | — | | — | | | — | | | — | | | — | | | — | | 8 | | — | | 76 | | — | | — | | (2 | ) | | — | | — | | — | | 74 |
Contract termination costs | | — | | — | | — | | — | | | — | | | — | | | — | | | — | | — | | — | | — | | — | | — | | — | | | — | | — | | — | | — |
Other | | — | | — | | — | | — | | | — | | | — | | | — | | | — | | — | | — | | 1 | | — | | — | | — | | | — | | — | | — | | 1 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Subtotal | | — | | 8 | | — | | — | | | — | | | — | | | — | | | — | | 8 | |
| | | | | | | | | | | | | | | | | | | | | | | |
New Dresdner Plus | | | | | | | | | | | | | | | | | | | |
Personnel costs | | 299 | | — | | 18 | | (17 | ) | | (47 | ) | | (114 | ) | | (5 | ) | | — | | 134 | |
Contract termination costs | | 27 | | — | | 1 | | (7 | ) | | (1 | ) | | (5 | ) | | (1 | ) | | — | | 14 | |
Other | | 2 | | — | | — | | — | | | — | | | — | | | — | | | — | | 2 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Subtotal | | 328 | | — | | 19 | | (24 | ) | | (48 | ) | | (119 | ) | | (6 | ) | | — | | 150 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Former Programs | | | | | | | | | | | | | | | | | | | |
Personnel costs | | 44 | | — | | — | | (5 | ) | | (11 | ) | | (20 | ) | | — | | | — | | 8 | |
Contract termination costs | | 2 | | — | | — | | — | | | (1 | ) | | (1 | ) | | — | | | — | | — | |
Other | | 5 | | — | | — | | — | | | (5 | ) | | — | | | — | | | — | | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
Subtotal | | 51 | | — | | — | | (5 | ) | | (17 | ) | | (21 | ) | | — | | | — | | 8 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Total | | 379 | | 8 | | 19 | | (29 | ) | | (65 | ) | | (140 | ) | | (6 | ) | | — | | 166 | | — | | 77 | | — | | — | | (2 | ) | | — | | — | | — | | 75 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Dresdner Bank Group recorded releases of provisions via transfers to other provision categories of €140 mn as of December 31, 2007.
Other restructuring plans
For 2007,2008, amongst others the following restructuring plans were announced: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 supportfunctionssupport 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, 2007,2008, Allianz S.p.A. together with its group companies recordedrecognized restructuring charges of €2 mn (2007: €73 mn.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 GmbHSE (ASIC SE)
During 2007, Allianz Deutschland AGASIC SE recorded anothera provision for restructuring of €42 mn.restructuring. The reason for the restructuring program are outsourcing activities for the devisionsdivisions Desktop, Network and Telecommunication Services of ASIC SE (former Allianz Shared Infrastructure Service GmbH (former Allianz Dresdner Informationssysteme GmbH), MunichMunich.
During the year ended December 31, 2007, Allianz Group recorded2008, ASIC SE recognized restructuring charges of €— mn (2007: €79 mnmn) in total. As of December 31, 2008 ASIC SE recorded a provision for restructuring of €15 mn (2007: €42 mn).
50 Earnings per share
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)
50 EarningsDiluted earnings per share
BasicDiluted earnings per share is computedare calculated by dividing net income (loss) by the weighted average number of common shares outstanding. Diluted earnings per share reflectsoutstanding for the effectperiod, both adjusted for the effects of potentiallypotential dilutive securities. Ascommon shares. Potential dilutive common shares arise from the assumed conversion of December 31, 2007, 1,175,554 (2006: 1,175,554) participation certificates issued by Allianz SE, were outstanding which can potentially be converted to 1,469,443 (2006: 1,469,443)warrants issued by Allianz SE and share-based compensation plans into Allianz shares, (on a weighted basis: 1,469,443 (2006: 1,469,443) Allianz SE shares) and therefore have a dilutive effect.
The Allianz Group’s share compensation plans with potentially dilutive securitiesas well as from the conversion of 1,321,100 (2006: 335,346) are included in the calculation of diluted earnings per share for the year ended December 31, 2007.
Furthermore 3,265,298 (2006: 4,868,560) 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, 2007.shares.
Reconciliation of basic and diluted earnings per share
| | | | | | | | | |
| | | 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 | |
| | | | | | | | | | | |
| | | 2007 | | | 2006 | | | 2005 |
| | | € mn | | | € mn | | | € mn |
Numerator for basic earnings per share (net income) | | | 7,966 | | | | 7,021 | | | | 4,380 |
Effect of dilutive securities | | | (4 | ) | | | (3 | ) | | | — |
| | | | | | | | | | | |
Numerator for diluted earnings per share (net income after assumed conversion) | | | 7,962 | | | | 7,018 | | | | 4,380 |
| | | | | | | | | | | |
Denominator for basic earnings per share (weighted-average shares) | | | 442,544,977 | | | | 410,871,602 | | | | 389,756,350 |
Dilutive securities: | | | | | | | | | | | |
Participation certificates | | | 1,469,443 | | | | 1,469,443 | | | | 1,469,443 |
Warrants | | | 962,547 | | | | 737,847 | | | | 743,179 |
Share-based compensation plans | | | 1,321,100 | | | | 335,346 | | | | 493,229 |
Derivatives on own shares | | | 3,265,298 | | | | 4,868,560 | | | | 807,859 |
Subtotal | | | 7,018,388 | | | | 7,411,196 | | | | 3,513,710 |
| | | | | | | | | | | |
Denominator for diluted earnings per share (weighted-average shares after assumed conversion) | | | 449,563,365 | | | | 418,282,798 | | | | 393,270,060 |
| | | | | | | | | | | |
Basic earnings per share | | € | 18.00 | | | € | 17.09 | | | € | 11.24 |
Diluted earnings per share | | € | 17.71 | | | € | 16.78 | | | € | 11.14 |
| | | | | | | | | | | |
During the year ended December 31, 2007,2008, the weighted average number of common shares does not include 1,130,838 (2006: 730,391; 2005: 2,389,193)2,004,155 (2007: 1,130,838; 2006: 730,391) treasury shares held by the Allianz Group.
51 Other Information
Employee information
| As of December 31, | | 2007 | | 2006 | | 2008 | | 2007 |
Germany | | 72,063 | | 76,790 | | 71,267 | | 72,063 |
Other countries | | 109,144 | | 89,715 | | 111,598 | | 109,144 |
Total | | 181,207 | | 166,505 | |
thereof undergoing training | | 4,332 | | 3,955 | |
| | | | | |
Total1) | | | 182,865 | | 181,207 |
| | | | | |
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, 20072008 was 176,257181,549 people.
Personnel expenses
| | | | 2007 | | 2006 | | 2005 | | 2008 | | 2007 | | 2006 |
| | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn |
Salaries and wages | | 9,741 | | 10,230 | | 9,582 | | 9,153 | | 9,741 | | 10,230 |
Social security contributions and employee assistance | | 1,666 | | 1,731 | | 1,628 | | 1,298 | | 1,666 | | 1,731 |
Expenses for pensions and other post-retirement benefits | | 1,028 | | 1,005 | | 855 | | 1,223 | | 1,028 | | 1,005 |
| | | | | | | | | | | | |
Total | | 12,435 | | 12,966 | | 12,065 | | 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 20, 2007,18, 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 two publicly traded group companies Allianz Lebensversicherungs-Aktiengesellschaft andcompany Oldenburgische Landesbank AG werewas issued in December 2007, respectively,2008 and werewas 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 192 and 193.176. The information provided there is considered part of these consolidated financial statements.
Compensation for the Board of Management
As of December 31, 2007,2008, the Board of Management had 11 (2006:(2007: 11) members.
Total compensation of the Board of Management for the year ended December 31, 20072008 amounts to €26.5€18.5 mn (2006: €28.9(2007: €26.5 mn). Furthermore 102,950 (2006: 110,434)120,707 (2007: 102,950) stock appreciation rights and 51,805 (2006: 66,280)58,580 (2007: 51,805) restricted stock units with a total fair value at grant date of €12.3€7.7 mn (2006:(2007: €12.3 mn) were granted to the Board of Management for the year ended December 31, 2007.2008.
Compensation to former members of the Board of Management and their beneficiaries totaled €5.0€7.0 mn (2006: €4.3(2007: €5.0 mn). Pension obligations to former members of the Board of Management and their beneficiaries are accrued in the amount of €49.0€47.0 mn (2006: €52.0(2007: €49.0 mn).
Total compensation to the Supervisory Board amounts to €1.6€1.1 mn (2006: €2.5(2007: €1.6 mn).
Board of Management and Supervisory Board compensation by individual is included in the Corporate Governance section of this Annual Report.TheReport. The information provided there is considered part of these consolidated financial statements.
52 Subsequent events
DisposalSale of tranche of propertiesDresdner Bank AG to IVG Group
In August 2007, the Allianz Group sold five held for use properties for €876 mn to IVG Group. The sale will be finalized in the first half of 2008. After the sale, the properties will be leased back and will continue to be used by the Al-lianz Group.
Disposal of property portfolio to Whitehall Funds
In December 2007 the Allianz Group closed a contract with Whitehall Funds to sell a property portfolio for €1.7 bn. The sale was finalized on March 1, 2008. No immediate gain was recognized on the sale due to the seller financing that the Allianz Group extended to the buyer.
Allianz redeems remaining part of the BITES exchangeable bondCommerzbank AG
On August 31, 2008, Allianz SE and Commerzbank AG agreed on the sale of Dresdner Bank AG to Commerzbank AG. The transaction agreement was adjusted on November 27, 2008, and January 14, 2008,9, 2009. For details on the transaction agreement and financial effects please refer to Note 4 of the consolidated financial statements. The transaction was closed as scheduled on January 12, 2009. In exchange for Dresdner Bank AG, Allianz Group announced its intention to redeem the remaining 35.7%received a cash payment of the BITES bond issued in February 2005 with€3.2 bn, 163.5 mn shares of Munich Re. The number of Munich Re shares usedCommerzbank AG accounted for the redemption was based on the averages of the DAX indexas available-for-sale equity investments, and the Munich Re share price during a 20-day reference periodcominvest which started on January 22, 2008 and ended on February 18, 2008. The delivery of Munich Re shares took place on February 27, 2008. As a result of the redemption of the index-linked exchangeable bond, the Allianz Group’s shareholding in Munich Re was reduced to under 2%.
Allianz Deutschland AG announces squeeze-out on Allianz Lebensversicherungs-Aktiengesellschaft, Stuttgart (“Allianz Leben”)
On January 18, 2008 the Allianz Group´s subsidiary Allianz Deutschland AG announced that it has signed contracts via an investment management company regarding the acquisition of further shares in Allianz Leben. Following this transaction, Allianz Deutschland AG’s equity stake in Allianz Leben will increase to more than 95%. Allianz Leben intends to present a resolution regarding the squeeze-out procedure at its next Annual General Meeting.
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
Acquisition of minority interests in Allianz Global Investors of America L.P., Delaware
In January 2008, the Allianz Group increased its interest in Allianz Global Investors of America L.P., Delaware by approximately 1.86%. The acquisition cost for the additional interest amounted to approximately €194 mn.
Exercise of warrants
On February 15, 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 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.
Financial market turbulences
The Allianz Group expects to experience further mark-downsbe first consolidated in the first quarter of 2008 due2009. In addition, Commerzbank AG and Allianz Group entered into a long-term distribution agreement. According to further deteriorationIFRS 5, OCI components of observable market prices and credit indexes.€(0.4) bn were realized with completion of the entire transaction.
Subsequent to the sale, Allianz Group repurchased Colleraterized Debt Obligations (CDOs) for a consideration of about €1.1 bn from Dresdner Bank AG. Furthermore, Allianz will provide a silent participation of €750 mn in Dresdner Bank AG. The terms are identical to SoFFin’s silent participation in Commerzbank AG.
Net claims estimate from “Emma” winter stormthe storms “Klaus” and “Quinten” in Southwest Europe and the bushfires in Australia
TheUntil end of February 2009 several natural catastrophes took place. Based on the current information the Allianz Group estimatesexpected net claims before taxes from the “Emma” winter storm in Europe in March 2007 of above €200 mn.
Issue of 5% senior bond by Allianz Finance II B.V., Amsterdam
On March 6, 2008 Allianz Finance II B.V., Amsterdam issued €1.5 bn of senior bonds, guaranteed by Allianz SE, under our debt issuance program. The bond has a coupon rate of 5% and its maturity is March 6, 2013.
Dresdner Bank provides support to K2
On March 18, 2008, Dresdner Bank and K2 Corporation entered into an agreement through which Dresdner Bank will provide a support facility to the Structured Investment Vehicle, K2. The agreement, which consists of a U.S.$1,500,000,000 committed revolving mezzanine credit facility and a ‘backstop’ facility, follows the announcement by Dresdner Bank on February 21, 2008 that it intended to offer support to K2 .
The mezzanine credit facility provides K2 with immediate additional liquidity, allowing K2 to draw-down funds for terms up to the maturity date of its longest dated senior debt obligations. Under the terms of the backstop facility, Dresdner Bank has undertaken to provide to K2 firm prices at which it will purchase assets from K2 in the event that K2 is unable to obtain better prices for such assets on the open market. The aggregate of such prices provided by Dresdner Bank will at all times equate to an amount that ensures K2 has sufficient funds to repay its senior debt in full.of approximately €236 mn before taxes:
AGIStorm “Klaus” in the Southwest of America LLC intends to call further PIMCO Class B UnitsFrance and parts of Spain (€163 mn)
Allianz Global Investors of America LLC intends to call 23,946 PIMCO Class B units on March 31, 2008 for U.S.$555 mn.Winterstorm “Quinten” in France (€32 mn)
Bushfires in Australia (€41 mn).
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
53 Selected subsidiaries and other holdings
| Operating Subsidiaries | | Equity | | % owned1) | | Equity | | % owned1) | |
| | | € mn | | | | € mn | | |
Germany | | | | | | | | |
 Allianz Capital Partners GmbH, Munich
| | 0.03 | | 100.0 | | 0.03 | | 100.0 | |
Allianz Capital Partners Verwaltungs GmbH, Munich | | 685 | | 100.0 | | 632 | | 100.0 | |
 Allianz Dresdner Bauspar AG, Bad Vilbel
| | 99 | | 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 | | 778 | | 100.0 | |
 Allianz Global Investors Advisory GmbH, Frankfurt/Main
| | 3 | | 100.0 | | 3 | | 100.0 | |
Allianz Global Investors AG, Munich | | 2,592 | | 100.0 | | 2,401 | | 100.0 | |
 Allianz Global Investors Europe GmbH, Munich
| | 17 | | 100.0 | | 17 | | 100.0 | |
 Allianz Global Investors Kapitalanlagegesellschaft mbH, Frankfurt/Main
| | 139 | | 100.0 | | 146 | | 100.0 | |
Allianz Global Investors Produkt Solutions GmbH, Munich | | 0.1 | | 100.0 | |
 Allianz Immobilien GmbH, Stuttgart
| | 5 | | 100.0 | |
 Allianz Global Investors Product Solutions GmbH, Munich
| | | 0.1 | | 100.0 | |
 Allianz Lebensversicherungs-Aktiengesellschaft, Stuttgart
| | 1,456 | | 94.8 | | 1,456 | | 100.0 | |
 Allianz Pension Partners GmbH, Stuttgart
| | 0.5 | | 100.0 | |
 Allianz Pension Partners GmbH, Munich
| | | 0.5 | | 100.0 | |
 Allianz Pensionskasse Aktiengesellschaft, Munich
| | 146 | | 100.0 | | 182 | | 100.0 | |
Allianz Private Equity Partners GmbH, Munich | | 0.04 | | 100.0 | | 0.04 | | 100.0 | |
 Allianz Private Krankenversicherungs-Aktiengesellschaft, Munich
| | 360 | | 100.0 | | 360 | | 100.0 | |
Allianz ProzessFinanz GmbH, Munich | | 0.04 | | 100.0 | | 0.4 | | 100.0 | |
Allianz Shared Infrastructure Services GmbH, Munich | | 219 | | 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
| | 2,512 | | 100.0 | | 2,566 | | 100.0 | |
AZT Automotive GmbH, Munich | | 0.2 | | 100.0 | |
AZT Automotive GmbH, Ismaning | | | 0.2 | | 100.0 | |
Deutsche Lebensversicherungs-Aktiengesellschaft, Berlin | | 45 | | 100.0 | | 56 | | 100.0 | |
 Dresdner Bank AG, Frankfurt am Main
| | 8,674 | | 100.0 | |
 Dresdner Bank Aktiengesellschaft, Frankfurt/Main2)
| | | 2,496 | | 100.0 | |
Euler Hermes Kreditversicherungs-AG, Hamburg | | 246 | | 100.0 | | 220 | | 100.0 | |
MAN Roland Druckmaschinen AG, Offenbach | | 289 | | 100.0 | |
manroland AG, Offenbach | | | 332 | | 100.0 | 3) |
Münchener und Magdeburger Agraversicherung Aktiengesellschaft, Munich | | 8 | | 59.9 | | 7 | | 62.5 | |
Oldenburgische Landesbank Aktiengesellschaft, Oldenburg | | 531 | | 89.4 | | 502 | | 89.6 | |
Reuschel & Co. Kommanditgesellschaft, Munich | | 149 | | 97.5 | |
risklab germany GmbH, Frankfurt am Main | | 0.03 | | 100.0 | |
Reuschel & Co. Kommanditgesellschaft, Munich2) | | | 140 | | 97.5 | |
risklab germany GmbH, Munich | | | 0.03 | | 100.0 | |
 Vereinte Spezial Krankenversicherung Aktiengesellschaft, Munich
| | 3 | | 100.0 | | 4 | | 100.0 | |
Vereinte Spezial Versicherung AG, Munich | | 45 | | 100.0 | | 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 100.0%. |
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 AssetManagementAsset Management segment’s operating revenues. |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
| | | | |
Operating Subsidiaries—Other countries | | Equity | | % owned1) |
| | | € mn | | |
Argentina | | | | |
AGF Allianz Argentina Compania de Seguros Generales S.A., Buenos Aires | | 13 | | 100.0 |
Australia | | | | |
Allianz Australia Limited, Sydney | | 1,005 | | 100.0 |
Austria | | | | |
Allianz Elementar Lebensversicherungs-Aktiengesellschaft, Vienna | | 62 | | 100.0 |
Allianz Elementar Versicherungs-Aktiengesellschaft, Vienna | | 375 | | 100.0 |
Privatinvest Bank AG, Salzburg | | 15 | | 74.0 |
Belgium | | | | |
Allianz Belgium Insurance S.A., Brüssel | | 441 | | 100.0 |
Brazil | | | | |
AGF Brasil Seguros S.A., Sao Paulo | | 138 | | 72.5 |
Bulgaria | | | | |
Allianz Bulgaria Insurance and Reinsurance Company Ltd., Sofia | | 26 | | 78.0 |
Allianz Bulgaria Life Insurance Company Ltd., Sofia | | 13 | | 99.0 |
Commercial Bank Allianz Bulgaria Ltd., Sofia | | 50 | | 99.8 |
China | | | | |
Allianz China Life Insurance Co. Ltd., Shanghai | | 18 | | 51.0 |
Allianz Global Investors Hong Kong Ltd., Hong Kong | | 65 | | 100.0 |
Allianz Insurance (Hong Kong) Ltd., Hong Kong | | 9 | | 100.0 |
Dresdner Kleinwort (Japan) Limited, Hong Kong | | 288 | | 100.0 |
RCM Asia Pacific Ltd., Hong Kong | | 14 | | 100.0 |
Colombia | | | | |
Colseguros Generales S.A., Bogota | | 35 | | 100.0 |
Croatia | | | | |
Allianz Zagreb d.d., Zagreb | | 17 | | 80.1 |
Czech Republic | | | | |
Allianz poistóvna a.s., Prague | | 121 | | 100.0 |
Egypt | | | | |
Allianz Egypt Insurance Company S.A.E., Cairo | | 6 | | 85.0 |
Allianz Egypt Life Company S.A.E., Cairo | | 8 | | 99.4 |
France | | | | |
AAAM S.A., Paris | | 32 | | 84.9 |
AGF Asset Management S.A., Paris | | 93 | | 99.8 |
Allianz Global Corporate & Specialty France, Paris | | 179 | | 100.0 |
Assurances Générales de France IART S.A., Paris | | 2,267 | | 100.0 |
Assurances Générales de France Vie S.A., Paris | | 2,361 | | 100.0 |
Assurances Générales de France, Paris | | 7,287 | | 100.0 |
Banque AGF S.A., Paris | | 179 | | 100.0 |
Euler Hermes SFAC S.A., Paris | | 337 | | 100.0 |
Mondial Assistance S.A. S., Paris Cedex | | 205 | | 100.0 |
Greece | | | | |
Allianz Hellas Insurance Company S.A., Athen | | 71 | | 100.0 |
Hungary | | | | |
Allianz Hungária Biztosító Zrt., Budapest | | 220 | | 100.0 |
Indonesia | | | | |
PT Asuransi Allianz Life Indonesia p.l.c., Jakarta | | 20 | | 99.8 |
PT Asuransi Allianz Utama Indonesia Ltd., Jakarta | | 19 | | 76.0 |
Ireland | | | | |
Allianz Global Investors Ireland Ltd., Dublin | | 5 | | 100.0 |
Allianz Irish Life Holdings p.l.c., Dublin | | 488 | | 66.4 |
Allianz Re Dublin Limited, Dublin | | 17 | | 100.0 |
Allianz Worldwide Care Ltd., Dublin | | 12 | | 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 100.0%.
|
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
| | | | |
Operating Subsidiaries—Other countries | | Equity | | % owned1) |
| | | € mn | | |
Italy | | | | |
ALLIANZ SUBALPINA S.p.A. SOCIETÀ DI ASSICURAZIONI E RIASSICURAZIONI, Turin | | 246 | | 98.0 |
Allianz Global Investors Italia S.p.A, Milan | | 48 | | 100.0 |
Allianz S.p.A., Trieste | | 3,016 | | 100.0 |
GENIALLOYD S.p.A., Milan | | 72 | | 100.0 |
INVESTITORI SGR S.p.A., Milan | | 17 | | 87.7 |
Lloyd Adriatico S.p.A., Trieste | | 989 | | 99.9 |
RAS Tutela Giudiziaria S.p.A., Milan | | 9 | | 100.0 |
RB Vita S.p.A., Milan | | 209 | | 100.0 |
Japan | | | | |
Allianz Global Investors Japan Co. Ltd. , Tokyo | | 0.6 | | 100.0 |
Laos | | | | |
Assurances Générales du Laos Ltd., Laos | | 3 | | 51.0 |
Luxembourg | | | | |
Allianz Global Investors Luxembourg S.A., Luxembourg | | 69 | | 100.0 |
Dresdner Bank Luxembourg S.A., Luxembourg | | 530 | | 100.0 |
Malaysia | | | | |
Allianz General Insurance Malaysia Berhad p.l.c., Kuala Lumpur | | 30 | | 100.0 |
Allianz Life Insurance Malaysia Berhad p.l.c., Kuala Lumpur | | 44 | | 100.0 |
Mexico | | | | |
Allianz México S.A. Compañia de Seguros, Mexico | | 93 | | 100.0 |
Netherlands | | | | |
Allianz Europe Ltd., Amsterdam | | 28,961 | | 100.0 |
Allianz Nederland Asset Management B.V., Amsterdam | | 33 | | 100.0 |
Allianz Nederland Levensverzekering N.V., Utrecht | | 263 | | 100.0 |
Allianz Nederland Schadeverzekering N.V., Rotterdam | | 346 | | 100.0 |
Dresdner VPV N.V., Gouda | | 48 | | 100.0 |
Poland | | | | |
TU Allianz Polska S.A., Warsaw | | 100 | | 100.0 |
TU Allianz Zycie Polska S.A., Warsaw | | 31 | | 100.0 |
Portugal | | | | |
Companhia de Seguros Allianz Portugal S.A., Lisbon | | 199 | | 64.8 |
Republic of Korea | | | | |
Allianz Global Investors Korea Limited, Seoul | | 19 | | 100.0 |
Allianz Life Insurance Co. Ltd., Seoul | | 513 | | 100.0 |
Romania | | | | |
Allianz Tiriac Asigurari SA, Bukarest | | 126 | | 52.1 |
Russia | | | | |
Dresdner Bank ZAO, St. Petersburg | | 75 | | 100.0 |
Insurance Company “Progress Garant”, Moscow | | 35 | | 100.0 |
Insurance Joint Stock Company „Allianz”, Moscow | | 11 | | 100.0 |
Russian People’s Insurance Society “ROSNO”, Moscow | | 152 | | 97.2 |
Singapore | | | | |
Allianz Global Investors Singapore Ltd., Singapore | | 1 | | 100.0 |
Slovakia | | | | |
Allianz-Slovenská poist’ovna a.s., Bratislava | | 417 | | 84.6 |
Spain | | | | |
Allianz Compañia de Seguros y Reaseguros S.A., Madrid | | 502 | | 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 | | 59 | | 51.0 |
1)
| Percentage includes equity participations held by dependent enterprises in full, even if the Allianz Group’s share in the dependent enterprise is under 100.0%.
|
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
| | | | | |
Operating Subsidiaries—Other countries | | Equity | | % owned1) | |
| | | € mn | | | |
Switzerland | | | | | |
Alba Allgemeine Versicherungs-Gesellschaft, Basel | | 32 | | 100.0 | |
Allianz Risk Transfer AG, Zurich | | 309 | | 100.0 | |
Allianz Suisse Lebensversicherungs-Gesellschaft, Zurich | | 484 | | 100.0 | |
Allianz Suisse Versicherungs-Gesellschaft, Zurich | | 559 | | 100.0 | |
Compagnie d’Assurance de Protection Juridique S.A., Zug | | 13 | | 100.0 | |
Dresdner Bank (Schweiz) AG, Zurich | | 114 | | 99.8 | |
ELVIA Reiseversicherungs-Gesellschaft AG, Zurich | | 218 | | 100.0 | |
Selecta AG, Muntelier2) | | 135 | | 100.0 | |
Taiwan | | | | | |
Allianz Global Investors Taiwan Ltd., Taipei | | 27 | | 100.0 | |
Allianz Taiwan Life Insurance Co. Ltd., Taipei | | 63 | | 99.6 | |
United Kingdom | | | | | |
Allianz (UK) Limited, Guildford | | 588 | | 100.0 | |
Allianz Insurance plc., Guildford | | 1,085 | | 98.0 | 3) |
Dresdner Kleinwort Group Ltd., London | | 45 | | 100.0 | |
Dresdner Kleinwort Limited, London | | 344 | | 100.0 | |
Kleinwort Benson Channel Islands Holdings Ltd., St. Peter Port/Guernsey | | 280 | | 100.0 | |
Kleinwort Benson Private Bank Ltd., London | | 73 | | 100.0 | |
RCM (UK) Ltd., London | | 14 | | 100.0 | |
United States | | | | | |
Allianz Global Investors of America L.P., Dover/Delaware | | 1,436 | | 97.5 | |
Allianz Global Investors U.S. Retail LLC, Dover/Delaware | | 37 | | 100.0 | |
Allianz Global Risks US Insurance Company, Burbank/California | | 2,910 | | 100.0 | |
Allianz Life Insurance Company of North America, Minneapolis/Minnesota | | 2,636 | | 100.0 | |
Allianz of America Inc., Wilmington/Delaware | | 9,868 | | 100.0 | |
Allianz Underwriters Insurance Company, Burbank/California | | 41 | | 100.0 | |
Dresdner Kleinwort Securities Llc, Wilmington/Delaware | | 182 | | 100.0 | |
Fireman’s Fund Insurance Company, Novato/California | | 2,427 | | 100.0 | |
NFJ Investment Group LP, Dover/Delaware | | 4 | | 100.0 | |
Nicholas Applegate Capital Management LLC, Dover/Delaware | | 12 | | 100.0 | |
Pacific Investment Management Company LLC, Wilmington/Delaware | | 246 | | 85.0 | |
RCM Capital Management LLC, Wilmington/Delaware | | 15 | | 100.0 | |
Wm. H McGee & Co. Inc., New York/New York | | 2 | | 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 |
1) | Percentage includes equity participations held by dependent enterprises in full, even if the Allianz Group’s share in the dependent enterprise is under 100.0%. |
2) | Classified as “held for sale”No subsidiary of the Allianz Group since January 12, 2009
|
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
| | | | |
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 |
1) | Percentage includes equity participations held by dependent enterprises in full, even if the Allianz Group’s share in the dependent enterprise is under 100.0%. |
2) | No subsidiary of the Allianz Group since January 12, 2009 |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
| | | | | |
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 100.0%. |
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 Enterprises1) | | Equity | | % owned2) | |
| | | € mn | | | |
Phenix Alternative Holding | | 3,275 | | 32.8 | |
Allianz-dit Euro Bond Total Return Fonds | | 2,923 | | 38.8 | |
AGF Jour | | 2,705 | | 12.6 | 3) |
AGF Euribor | | 2,242 | | 35.4 | |
AGF Eurocash | | 1,480 | | 7.4 | 3) |
Natinium 2007-1 | | 1,146 | | 48.4 | |
AGF SECURICASH L | | 755 | | 15.7 | 3) |
Allianz PIMCO Euro Bond Total Return | | 713 | | 30.3 | |
Deutsche Schiffsbank AG, Bremen und Hamburg | | 552 | | 40.0 | |
AGF Peh Eur. IV FCPR | | 306 | | 49.2 | |
Oddo, Paris | | 289 | | 20.0 | |
Cofitem Cofimur, Paris | | 230 | | 22.1 | |
PHRV (Paris Hotels Roissy Vaugirard), Paris | | 163 | | 24.9 | |
Bajaj Allianz Life Insurance Company Ltd., Pune | | 153 | | 26.0 | |
Koç Allianz Sigorta T.A.S., Istanbul | | 147 | | 37.1 | |
Dresdner-Cetelem Kreditbank GmbH, Munich | | 138 | | 49.9 | |
FONDO IMMOBILIARE DOMUS | | 133 | | 25.5 | |
Citylife Srl., Milano | | 129 | | 26.7 | |
Ayudhya Allianz C.P. Life Public Company Limited, Bangkok | | 113 | | 25.0 | |
Kommanditgesellschaft Allgemeine Leasing GmbH & Co, Gruenwald | | 104 | | 40.5 | |
Bajaj Allianz General Insurance Company Ltd., Pune | | 89 | | 26.0 | |
Scandferries Holding GmbH, Hamburg | | 60 | | 38.1 | |
Euro Media Télévision S.A., Bry-sur_Marne | | 17 | | 21.4 | |
| | | | | |
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 | |
1) | Associated enterprises are all those enterprises other than affiliated enterprises or joint ventures, in which the Allianz Group has an interest of between 20.0% and 50.0% regardless of whether a significant influence is exercised or not. The presented associated enterprises represent 90%90.0% of total carrying amount of investments in associated enterprises. |
2) | Including shares held by dependent subsidiaries. |
3) | Significant influence due to Allianz’s role in the funds’(funds’) management and its ownership share |
Notes to the Allianz Group’s Consolidated Financial Statements—(Continued)
| | | | | | | | | | | |
Other selected holdings in listed companies1) | | Market
value | | owned2) | | Group
equity | | Net
profit | | | Balance
sheet date |
| | | € mn | | % | | € mn | | € mn | | | |
Banco BPI S.A., Porto | | 360 | | 8.8 | | 1,905 | | 355 | | | 12/31/2007 |
Banco Popular Espanol S.A., Madrid | | 1,331 | | 9.4 | | 5,914 | | 1,026 | | | 12/31/2006 |
BASF SE, Ludwigshafen | | 1,246 | | 2.5 | | 18,578 | | 3,215 | | | 12/31/2006 |
Bayer AG, Leverkusen | | 1,737 | | 3.6 | | 12,851 | | 1,683 | | | 12/31/2006 |
Beiersdorf AG, Hamburg | | 883 | | 6.6 | | 1,790 | | 664 | | | 12/31/2006 |
Bollore Investissement S.A., Ergue-Gaberic | | 206 | | 6.0 | | 3,894 | | 583 | | | 12/31/2006 |
E.ON AG, Duesseldorf | | 2,956 | | 2.9 | | 52,762 | | 5,057 | | | 12/31/2006 |
ENI S.p.A., Rom | | 592 | | 0.6 | | 41,199 | | 9,217 | | | 12/31/2006 |
GEA Group AG, Bochum | | 458 | | 10.4 | | 1,261 | | (288 | ) | | 12/31/2006 |
Heidelberger Druckmaschinen AG, Heidelberg | | 243 | | 13.4 | | 1,202 | | 263 | | | 03/31/2007 |
Industrial & Commercial Bank of China Limited, Beijing | | 3,138 | | 1.9 | | 44,378 | | 4,642 | | | 12/31/2006 |
Linde AG, Munich | | 1,307 | | 8.8 | | 8,225 | | 1,838 | | | 12/31/2006 |
Münchener Rückversicherungs-Gesellschaft Aktiengesellschaft in München, Munich | | 1,422 | | 4.9 | | 26,429 | | 3,440 | | | 12/31/2006 |
Nestlé S.A., Vevey | | 827 | | 0.7 | | 31,805 | | 5,535 | | | 12/31/2006 |
Rhön Klinikum AG, Bad Neustadt/Saale | | 142 | | 6.4 | | 729 | | 105 | | | 12/31/2006 |
Royal Dutch Shell plc, London | | 533 | | 0.3 | | 79,892 | | 17,683 | | | 12/31/2006 |
RWE AG, Essen | | 2,232 | | 4.1 | | 14,111 | | 3,847 | | | 12/31/2006 |
Sanofi-Aventis S.A., Paris | | 521 | | 0.6 | | 45,820 | | 4,006 | | | 12/31/2006 |
Sequana Capital S.A., Paris | | 131 | | 11.8 | | 1,244 | | 958 | | | 12/31/2006 |
SGS S.A., Geneve | | 336 | | 5.3 | | 958 | | 267 | | | 12/31/2006 |
Siemens Aktiengesellschaft, Munich | | 1,049 | | 1.1 | | 29,627 | | 3,806 | | | 09/30/2007 |
Total S.A., Paris | | 897 | | 0.7 | | 41,148 | | 11,768 | | | 12/31/2006 |
UniCredito Italiano S.p.A., Milan | | 1,819 | | 2.4 | | 38,468 | | 5,448 | | | 12/31/2006 |
Zagrebacka Banka d.d., Zagreb | | 624 | | 11.7 | | 1,026 | | 134 | | | 12/31/2006 |
| | | | | | | | | | |
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 |
1) | Market value greater than or equal to €100 mn and percentage of shares owned greater than or equal to 5.0%, or market value greater than or equal to €500 mn, excluding trading portfolio of banking business. |
2) | 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.
Glossary
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—deductedlosses-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:
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 INVESTMENTS1)2)(1) (2)
As of December 31, 20072008
| | | | | | |
| | | Amortized
cost
| | Fair
Value
| | Amount shown
in balance sheet
|
| | | € mn | | € mn | | € mn |
Debt securities: | | | | | | |
Government and agency mortgage-backed securities (residential and commercial) | | 7,628 | | 7,546 | | 7,546 |
Corporate mortgage-backed securities (residential and commercial) | | 6,663 | | 6,601 | | 6,601 |
Other asset-backed securities | | 5,384 | | 5,326 | | 5,326 |
Government Bonds: | | | | | | |
Germany | | 13,117 | | 13,057 | | 13,057 |
Italy | | 23,537 | | 23,519 | | 23,510 |
France | | 13,452 | | 13,793 | | 13,793 |
United States | | 4,544 | | 4,638 | | 4,638 |
Spain | | 6,717 | | 6,788 | | 6,788 |
Belgium | | 5,050 | | 4,974 | | 4,974 |
All other countries | | 34,000 | | 33,521 | | 33,512 |
Corporate Bonds: | | | | | | |
Public utilities | | 2,581 | | 2,553 | | 2,553 |
All other corporate bonds | | 86,014 | | 84,374 | | 84,346 |
Other | | 2,960 | | 2,955 | | 2,955 |
| | |
| |
| |
|
Total debt | | 211,647 | | 209,645 | | 209,599 |
| | | |
Equity securities: | | | | | | |
| | | |
Common stocks: | | | | | | |
Public utilities | | 4,963 | | 9,549 | | 9,549 |
Banks, insurance companies, funds | | 12,451 | | 16,964 | | 16,964 |
Industrial, miscellaneous and all other | | 22,485 | | 35,666 | | 35,666 |
Non-redeemable preferred stocks | | 156 | | 281 | | 281 |
| | |
| |
| |
|
Total equity securities | | 40,794 | | 63,061 | | 63,061 |
Mortgage loans on real estate | | 26,661 | | 26,661 | | 26,661 |
Real Estate | | 7,758 | | 12,031 | | 7,758 |
Policy loans | | 1,765 | | 1,765 | | 1,765 |
Certificates of deposit | | 2,756 | | 2,756 | | 2,756 |
Short-term investments | | 7,560 | | 7,560 | | 7,560 |
| | |
| |
| |
|
Total investments | | 298,941 | | 323,479 | | 319,160 |
| | |
| |
| |
|
| | | | | | |
| | | 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)(1)
| Includes all Allianz Group investments exceptDresdner Bank financial assets and portfolios carried at fair value through income.income are excluded.
|
2)(2)
| The total of investments on the balance sheet of €286,952€260,147 mn includes total debt securities, total equity securities and real estate shown above. Plusabove, as well as investments in associates and joint ventures of €5,471€4,524 mn and funds held by others under reinsurance contracts assumed of €1,063€1,039 mn. The other itemsShort-term investments and certificates of deposit (shown above) and policy loans (not shown) are included in the above summary of investments are recorded in loans and advances to banks and customers.customers on the balance sheet. |
SCHEDULE II
ALLIANZ SOCIETAS EUROPAEASE
PARENT ONLY CONDENSED FINANCIAL STATEMENTS
BALANCE SHEETS (IFRS BASIS)SHEET
| As of December 31,
| | 2007
| | 2006
| | 2008 | | 2007 |
| | | € mn | | € mn | | € mn | | € mn |
Assets: | | | | | | | | |
Investment in subsidiaries and affiliates | | 67,488 | | 74,774 | | 63,609 | | 67,488 |
Other invested assets | | 19,236 | | 19,387 | | 19,903 | | 19,236 |
Insurance reserves ceded | | 2,896 | | 3,211 | | 2,058 | | 2,896 |
Cash funds and cash equivalents | | 81 | | 72 | | 169 | | 81 |
Other assets | | 7,804 | | 6,447 | | 5,656 | | 7,804 |
| | |
| |
| | | | |
| | | 97,505 | | 103,891 | | 91,395 | | 97,505 |
| | |
| |
| | | | |
Liabilities and Shareholders’ Equity: | | | | | | | | |
Insurance reserves | | 10,404 | | 11,654 | | 10,319 | | 10,404 |
Participation certificates and subordinated liabilities | | 7,306 | | 7,336 | | 6,660 | | 7,306 |
Certificated liabilities | | 4,829 | | 1,799 | | 9,801 | | 4,829 |
Other liabilities | | 27,213 | | 33,452 | | 30,931 | | 27,213 |
| | |
| |
| | | | |
| | | 49,752 | | 54,241 | | 57,711 | | 49,752 |
Shareholders’ equity | | 47,753 | | 49,650 | | 33,684 | | 47,753 |
| | |
| |
| | | | |
| | | 97,505 | | 103,891 | | 91,395 | | 97,505 |
| | |
| |
| | | | |
SCHEDULE II
ALLIANZ SOCIETAS EUROPAEASE
PARENT ONLY CONDENSED FINANCIAL STATEMENTS
STATEMENTS OF INCOME (IFRS BASIS)
| For the years ended December 31,
| | 2007
| | 2006
| | 2005
| | 2008 | | 2007 | | 2006 | |
| | | € mn | | € mn | | € mn | | € mn | | € mn | | € mn | |
Revenues: | | | | | | | | |
Net premiums earned | | 2,294 | | | 2,887 | | | 3,291 | | 2,770 | | | 2,294 | | | 2,887 | |
Investment income | | 1,708 | | | 475 | | | 2,704 | | 1,363 | | | 1,708 | | | 475 | |
Other income | | 15 | | | 20 | | | — | | 1 | | | 15 | | | 20 | |
| | |
|
| |
|
| |
| | | | | | | | | |
| | | 4,017 | | | 3,382 | | | 5,995 | | 4,134 | | | 4,017 | | | 3,382 | |
Expenses: | | | | | | | | |
Insurance benefits | | 1,622 | | | 2,013 | | | 2,194 | | 1,863 | | | 1,622 | | | 2,013 | |
Acquisition costs and administrative expenses | | 1,202 | | | 1,392 | | | 1,249 | | 1,103 | | | 1,202 | | | 1,392 | |
Investment expense | | 1,851 | | | 1,639 | | | 1,661 | | 1,594 | | | 1,851 | | | 1,639 | |
Other expense | | — | | | 37 | | | — | | 3 | | | — | | | 37 | |
| | |
|
| |
|
| |
| | | | | | | | | |
| | | 4,675 | | | 5,081 | | | 5,105 | | 4,563 | | | 4,675 | | | 5,081 | |
| | |
|
| |
|
| |
| | | | | | | | | |
Income before tax | | (658 | ) | | (1,699 | ) | | 891 | | (429 | ) | | (658 | ) | | (1,699 | ) |
Taxes | | 210 | | | 808 | | | 572 | | 109 | | | 210 | | | 808 | |
| | |
|
| |
|
| |
| | | | | | | | | |
Income before equity in undistributed net income of subsidiaries | | (448 | ) | | (891 | ) | | 1,463 | | (320 | ) | | (448 | ) | | (891 | ) |
Equity in undistributed net income of subsidiaries | | 8,414 | | | 7,912 | | | 2,917 | | (2,124 | ) | | 8,414 | | | 7,912 | |
| | |
|
| |
|
| |
| | | | | | | | | |
Net Income | | 7,966 | | | 7,021 | | | 4,380 | | (2,444 | ) | | 7,966 | | | 7,021 | |
| | |
|
| |
|
| |
| | | | | | | | | |
SCHEDULE II
ALLIANZ SOCIETAS EUROPAEASE
PARENT ONLY CONDENSED FINANCIAL STATEMENTS
STATEMENT OF CASH FLOWS (IFRS BASIS)
| For the years ended December 31,
| | 2007
| | 2006
| | 2005
| | | 2008 | | 2007 | | 2006 | |
| | | € mn | | € mn | | € mn | | | € mn | | € mn | | € mn | |
Cash flows from operating activities: | | | | | | | | |
Net income | | 7,966 | | | 7,021 | | | 4,380 | | | (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 | | (8,414 | ) | | (7,912 | ) | | (2,917 | ) | | 2,124 | | | (8,414 | ) | | (7,912 | ) |
Change in insurance reserves—net | | (935 | ) | | (1,787 | ) | | (2,330 | ) | | 753 | | | (935 | ) | | (1,787 | ) |
Change in other assets | | (1,357 | ) | | (1,586 | ) | | (225 | ) | | 2,148 | | | (1,357 | ) | | (1,586 | ) |
Change in other liabilities | | (6,239 | ) | | 2,418 | | | 5,448 | | | (4,442 | ) | | (6,239 | ) | | 2,418 | |
| | |
|
| |
|
| |
|
| | | | | | | | | |
Net cash (used) provided by operating activities | | (8,979 | ) | | (1,846 | ) | | 4,356 | | | (1,861 | ) | | (8,979 | ) | | (1,846 | ) |
| | |
|
| |
|
| |
|
| | | | | | | | | |
Cash flows from investing activities: | | | | | | | | |
Change in investments in subsidiaries | | (45 | ) | | (7,280 | ) | | (17,429 | ) | | 2340 | | | (45 | ) | | (7,280 | ) |
Change in other invested assets | | 151 | | | (3,340 | ) | | 3,839 | | | (667 | ) | | 151 | | | (3,340 | ) |
| | |
|
| |
|
| |
|
| | | | | | | | | |
Net cash provided (used) in investing activities | | 106 | | | (10,620 | ) | | (13,590 | ) | | 1,673 | | | 106 | | | (10,620 | ) |
| | |
|
| |
|
| |
|
| | | | | | | | | |
Cash flows from financing activities: | | | | | | | | |
Change in certificated liabilities, participation certificates and subordinated liabilities | | 2,999 | | | 595 | | | 1,224 | | | 4,326 | | | 2,999 | | | 595 | |
Net proceeds from issuance of common stocks and additional paid in capital | | 115 | | | 98 | | | 2,159 | | | 239 | | | 115 | | | 98 | |
Dividends paid | | (1,642 | ) | | (811 | ) | | (674 | ) | | (2,472 | ) | | (1,642 | ) | | (811 | ) |
Other changes in shareholders’ capital | | 7,410 | | | 12,597 | | | 6,544 | | | (1,817 | ) | | 7,410 | | | 12,597 | |
| | |
|
| |
|
| |
|
| | | | | | | | | |
Net cash provided (used) by financing activities | | 8,882 | | | 12,479 | | | 9,253 | | | 276 | | | 8,882 | | | 12,479 | |
| | |
|
| |
|
| |
|
| | | | | | | | | |
Net increase (decrease) in cash | | 9 | | | 13 | | | 19 | | | 88 | | | 9 | | | 13 | |
Cash at January 1 | | 72 | | | 59 | | | 40 | | | 81 | | | 72 | | | 59 | |
| | |
|
| |
|
| |
|
| | | | | | | | | |
Cash at December 31 | | 81 | | | 72 | | | 59 | | | 169 | | | 81 | | | 72 | |
| | |
|
| |
|
| |
|
| | | | | | | | | |
Note to Parent Only Condensed Financial Statements
Contingent liabilities and other financial commitments
AsGuarantees to group companies
The guarantees as described below are provided by Allianz SE to secure liabilities of December 31, 2007 the company had contingent liabilities under guarantees amounting of €8 million, matched by rights of recourse for the same amount.group companies to third parties:
Bonds issued in 1998 for €1.6 billion by Allianz Finance B.V., Amsterdam
Bonds issued in 2002 for €900 million by Allianz Finance II B.V., Amsterdam, for €9.7 bn, thereof €5.6 bn on a subordinated basis.
Subordinated bondsCommercial Papers issued in 2002 for €3.0 billion by Allianz Finance II B.V., AmsterdamCorporation, USA. At the end of the year USD 0.4 bn in commercial papers were issued as part of the program.
Subordinated bonds issued in 2002 for USD 500 million by Allianz Finance II B.V., Amsterdam
Loan taken out in 2002 for AUD 100 million by Allianz Australia Ltd., Sydney
Bonds issued in 2005 by Allianz Finance II B.V., Amsterdam with a repayment dependent on the development of the German share index (DAX) issue volume €450 million
Subordinated bonds issued in 2005 for €1.4 billion by Allianz Finance II B.V., Amsterdam
Subordinated bonds issued in 2006 for €800 million by Allianz Finance II B.V., Amsterdam
Bonds issued in 2006 for €1.5 billion by Allianz Finance II B.V., Amsterdam
Bonds issued in 2007 for USD 400 million by Allianz Finance II B.V., Amsterdam
In the context of the Minority buyout of AGF, Allianz SE guarantees debt obligations of Allianz Holding France amounting to €4.5 billion.
Guarantee declaration for Allianz Cornhill Insurance, Guildford in favour of Lloyds TSB amounting GBP 78 million.
Letters of credit for liabilities ofCredit issued to various operating Allianz Global Corporate & Specialty AG, Munich, amounting to USD 642 million.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 152 million143 mn and are secured by pledges in securities.
Letters of credit for liabilities of Allianz Global Risks US Insurance Company, Los Angeles, amounting to USD 330 million.
Allianz SE provides a guarantee to Allianz Argos14Argos 14 GmbH to secure the payment obligations under the derivative contract entered into with Blue Fin Ltd., a Cayman Islands exempted SPE, in the context of the issuance of a catastrophe bond.
Allianz SE provides a maximum €1 billion€1.0 bn guarantee for the obligations of AGF Vie, Paris, under a unit linked pension insurance contract (ascontract. As of December 31, 2007: €211 million utilized).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. They are limited to USD 1.1 billion.
A commitment to make capital payments in theThe remaining guarantee amount of €27 million also exists with respect to Allianz Global Corporate & Specialty France, Paris.
For Allianz of America, Inc.,Wilmington, a guarantee declaration was made for liabilities in connection with the acquisition of PIMCO Advisors L.P. Allianz originally acquired through its subsidiary Allianz of America Inc., Wilmington, a stake of 69.5 % in PIMCO, whereby minority shareholders held the option to tender their share to Allianz of America Inc.,Wilmington. On December 31, 2007 the stake of Pacific Life in PIMCO was still 2.0 %, so that the liabilities towards Pacific Life as of December 31, 2007 amounted to2008 is USD 0.3 billion.
A guarantee declaration was given to Dresdner Bank AG, Frankfurt, amounting to €50 million, for the acquisition of receivables from payments for the rights to use a name in connection with Allianz Arena.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 favourfavor of Marsh, Inc. for coverage of potential liabilities for various Allianz subsidiaries.
For the US Dollar Commercial Paper Program These guarantees have a guarantee was given to investors by Allianz Finance Corporation, USA. At the end of the year USD 1.0 billion in commercial papers was issued as part of the program.
In the context of a Securities Lending Agreement, Allianz SE gave a payment guarantee to PIMCO fundsyearly maturity and Abu Dhabi Investment Authority to fulfill financial obligations of Dresdner Bank AG, Frankfurt.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 is a conditional commitment to repay dividends received to Allianz Capital Partners GmbH, in order to ensure that company’s ability to meet warranty obligationsare financial commitments in connection with the disposalpromise of a shareholding.compensation to holders of rights under stock option programs of Assurances Générales de France.
There are also value asset liabilities of €76 million€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 respectconnection 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 saleamount of CHF 120 mn in connection with a loan granted.
Commitments of Allianz of Canada, which took place in 2005, these also relate to additional elements of purchase price fixing and, secondly, to the business insuredNederland Schadeverzekering N.V. arising from an insurance contract are guaranteed by Allianz Global Risks US Reinsurance Canada Branch.SE with a maximum exposure of €350 mn.
A contingent indemnity agreement was entered with respectIn addition Allianz SE issued guarantees to securities issued by HT1 Funding GmbH in case HT1 Funding GmbH can not serve the agreed coupon of the bond partly or in total.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 is 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)5(10) of the Statute of Deposit Security Arrangement Fund.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 guarantees the commitments of Allianz Argos 14 GmbH undergave a payment guarantee from November 7, 2007 which relateswith respect to a counterpartythe obligations of Dresdner Bank AG, Frankfurt.
A contingent indemnity agreement and a reimbursement agreement. In addition,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 provides common warranties in the context of capital market transactions. The liability of this obligation amountshad contingent liabilities under guarantees amounting to total €41 million.€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:
Allianz Alternative Assets Holding GmbH
Allianz Finanzbeteiligungs GmbH
Allianz Global Corporate & Specialty AG
Allianz Immobilien GmbH (agreement cancelled as of December 31, 2007)
Allianz ProzessFinanz GmbH (agreement cancelled as of December 31, 2007)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
ControlAny other control and transfer-of-profit agreements were not concluded by Allianz SE with Allianz Investment Management SE on October 8, 2007 and with Allianz Argos 14 GmbH on October 31, 2007. These agreements require the consent of the General Meeting ofin 2008.
On February 17, 2009 Allianz SE to be granted in the General Meeting on May 21, 2008 and registration in the Commercial Register to become effective. Thehas concluded a control and transfer-of-profit agreement with Allianz Investment ManagementShared Infrastructure Services SE shall apply as from July 1, 2007,that now requires the agreementconsent of the Supervisory Board and the General Meeting of Allianz SE. The contract will come into effect with Allianz Argos 14 GmbH as from November 1, 2007, provided that the control under the agreements applies only as fromits registration in the respective Commercial Register.
There are financial commitments in connection withregister of the promise of compensation to holders of rights under stock option programs of Assurances Générales de France.controlled company.
Financial liabilities of €223 million€203 mn arose in 20072008 from advertising agreements.
Potential liabilities amounting to €30 millionmn were outstanding at the balance sheet date for calls on equity stocks not fully paid up with respect to affiliated enterprises.
In the course of the sale of an real estate portfolio comprising objects from different Allianz Group entities, Allianz SE agreed to provide under certain cirmumstances guarantees to the buyer for the purchase price of the objects in an amount of up to €1.6 billion.
Security deposits for leasing contracts amount to €0.2 million€0.3 mn financial commitments.
SCHEDULE III
SUPPLEMENTARY INSURANCE INFORMATION1)
| | | | | | | | | | |
| | | 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, 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 | | 15,021 | | 27,810 | | 59,362 |
| | |
| |
| |
| |
| |
|
As of and for the year ended December 31, 2006: | | | | | | | | | | |
Life/Health | | 13,779 | | 256,051 | | 1,874 | | 28,791 | | 20,574 |
Property-Casualty | | 4,127 | | 65,813 | | 12,994 | | 1,807 | | 37,950 |
| | |
| |
| |
| |
| |
|
Total | | 17,906 | | 321,864 | | 14,868 | | 30,598 | | 58,524 |
| | |
| |
| |
| |
| |
|
As of and for the year ended December 31, 2005: | | | | | | | | | | |
Life/Health | | 12,959 | | 248,997 | | 1,580 | | 26,579 | | 19,997 |
Property-Casualty | | 3,899 | | 67,120 | | 12,945 | | 2,300 | | 37,685 |
| | |
| |
| |
| |
| |
|
Total | | 16,858 | | 316,117 | | 14,525 | | 28,879 | | 57,682 |
| | |
| |
| |
| |
| |
|
1)
| After eliminating intra-Allianz Group transactions between segments.
|
SCHEDULE III
SUPPLEMENTARY INSURANCE INFORMATION1)
| | | | | | | | | | |
| | | 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, 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 | | 20,040 | | 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 |
| | |
| |
| |
| |
| |
|
As of and for the year ended December 31, 2005: | | | | | | | | | | |
Life/Health | | 14,295 | | 27,882 | | 1,285 | | 2,688 | | 20,167 |
Property-Casualty | | 4,801 | | 26,038 | | 2,683 | | 7,533 | | 38,170 |
| | |
| |
| |
| |
| |
|
Total | | 19,096 | | 53,920 | | 3,968 | | 10,221 | | 58,337 |
| | |
| |
| |
| |
| |
|
1)
| After eliminating intra-Allianz Group transactions between segments.
|
| | | | | | | | | | |
| | | 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 IVIII
SUPPLEMENTARY INSURANCE INFORMATION
| | | | | | | | | | |
| | | 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 INFORMATION3)
| | | | | | | | | | | | |
| | | Direct gross
amount
| | Ceded to
other
companies
| | | Assumed
from other
companies
| | Net
amount
| | Amount
assumed to
net
| |
| | | € mn | | € mn | | | € mn | | € mn | | | |
2007: | | | | | | | | | | | | |
Life insurance in force | | 706,754 | | 53,169 | | | 20,496 | | 674,081 | | 3.04 | % |
| | |
| |
|
| |
| |
| | | |
Premiums earned: | | | | | | | | | | | | |
Life/Health insurance1) | | 21,164 | | (638 | ) | | 283 | | 20,809 | | 1.36 | % |
Property-Casualty insurance, including title insurance2) | | 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 insurance1) | | 21,027 | | (816 | ) | | 363 | | 20,574 | | 1.76 | % |
Property-Casualty insurance, including title insurance2) | | 40,616 | | (5,529 | ) | | 2,863 | | 37,950 | | 7.54 | % |
| | |
| |
|
| |
| |
| | | |
Total premiums | | 61,643 | | (6,345 | ) | | 3,226 | | 58,524 | | 5.51 | % |
| | |
| |
|
| |
| |
| | | |
2005: | | | | | | | | | | | | |
Life insurance in force | | 702,597 | | 66,062 | | | 23,081 | | 659,616 | | 3.50 | % |
| | |
| |
|
| |
| |
| | | |
Premiums earned: | | | | | | | | | | | | |
Life/Health insurance1) | | 20,546 | | (929 | ) | | 380 | | 19,997 | | 1.90 | % |
Property-Casualty insurance, including title insurance2) | | 40,169 | | (5,390 | ) | | 2,906 | | 37,685 | | 7.71 | % |
| | |
| |
|
| |
| |
| | | |
Total premiums | | 60,715 | | (6,319 | ) | | 3,286 | | 57,682 | | 5.70 | % |
| | |
| |
|
| |
| |
| | | |
| | | | | | | | | | | | |
| | | 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)(1)
| Life/Health have been combined for this schedule.schedule |
2)(2)
| Title insurance has been combined with Property-Casualty insurance.insurance |
3)(3)
| After eliminating intra-Allianz Group transactions between segments.segments |
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: March 19, 200831, 2009