Annual Report for the fiscal year ended December 31, 2006
Table of Contents

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 ended December 31, 2006

 

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)

 

Königinstrasse 28, 80802 Munich, Germany

(Address of principal executive offices)

 

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.
* 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, 2006:

 

Ordinary shares, without par value

   432,150,000 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 financial statement item the registrant has elected to follow.

 

Item 17  ¨        Item 18  x

 

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

YES  ¨        NO  x

 



Table of Contents

TABLE OF CONTENTS

 

Item

       Page

TABLE OF CONTENTS

   i

Presentation of Financial and Other Information

  

1

Cautionary Statement Regarding Forward-Looking Statements

  

2

ITEM 1.

 

Identity of Directors, Senior Management and Advisors

  

3

ITEM 2.

 

Offer Statistics and Expected Timetable

  

3

ITEM 3.

 

Key Information

   3
 

Selected Consolidated Financial Data

  

3

 

Dividends

   5
 

Exchange Rate Information

   5
 

Risk Factors

   6

ITEM 4.

 

Information on the Company

  

12

 

The Allianz Group

   12
 

Legal Structure: Conversion into Allianz SE Completed

  

15

 

Important Group Organizational Changes

  

16

 

Global Diversification

   19
 

Our Largest Insurance Markets and Companies

  

21

 

International Presence

   27
 

Property-Casualty Insurance Reserves

  

30

 

Selected Statistical Information Relating to Our Banking Operations

  


45

 

Regulation and Supervision

   67

ITEM 4A.

 

Unresolved Staff Comments

   72

ITEM 5.

 

Operating and Financial Review and Prospects

  

73

 

Critical Accounting Policies and Estimates

  

73

 

Changes to Accounting and Valuation Policies

  

83

 

Introduction

   83
 

Executive Summary

   85
 

Property-Casualty Insurance Operations

  

92

 

Property-Casualty Operations by Geographic Region

  

98

 

Life/Health Insurance Operations

   101

Item

       Page
 

Life/Health Operations by Geographic Region

  

106

 

Banking Operations

   109
 

Banking Operations by Division

  

114

 

Banking Operations by Geographic Region

  

115

 

Asset Management Operations

   116
 

Corporate Activities

   124
 

Balance Sheet Review

   126
 

Liquidity and Capital Resources

   130
 

Investment Portfolio Impairments, Depreciation and Unrealized Losses

  


135

 

Tabular Disclosure of Contractual Obligations

  

139

 

Recent and Expected Developments

  

140

ITEM 6.

 

Directors, Senior Management and Employees

  

142

 

Corporate Governance

   142
 

Board of Management

   144
 

Supervisory Board

   146
 

Compensation of Directors and Officers

  

150

 

Board Practices

   156
 

Share Ownership

   156
 

Employees

   156
 

Stock-based Compensation Plans

  

156

 

Employee Stock Purchase Plans

   157

ITEM 7.

 

Major Shareholders and Related Party Transactions

  

157

 

Major Shareholders

   157
 

Related Party Transactions

   157

ITEM 8.

 

Financial Information

   158
 

Consolidated Statements and Other Financial Information

  

158

 

Legal Proceedings

   158
 

Dividend Policy

   158
 

Significant Changes

   158

ITEM 9.

 

The Offer and Listing

   158
 

Trading Markets

   158
 

Market Price Information

   159

ITEM 10.

 

Additional Information

   160
 

Articles of Association (Statutes)

  

160

 

Capital Increase

   161

 

i


Table of Contents

TABLE OF CONTENTS

 

Item

       Page
 

Material Contracts

   161
 

Exchange Controls

   162
 

German Taxation

   162
 

United States Taxation

   164
 

Documents on Display

   166

ITEM 11.

 

Quantitative and Qualitative Disclosures About Market Risk

  


166

 

Risk Governance Structure

   166
 

Risk Capital

   168
 

Internal Risk Capital

   169
 

Risk Measurement

   171
 

Market Risk Measurement

   174
 

Credit Risk Measurement

   183
 

Actuarial Risk Measurement

   186
 

Business Risk Measurement

   186
 

Management of Other Risks

   188
 

Risk Monitoring by Third-Parties

  

189

 

Outlook

   189

ITEM 12.

 

Description of Securities Other than Equity Securities

  

190

ITEM 13.

 

Defaults, Dividend Arrearages and Delinquencies

  

190

ITEM 14.

 

Material Modifications to the Rights of Security Holders and Use of Proceeds

  


190

Item

       Page

ITEM 15.

 

Controls and Procedures

   190

ITEM 16A.

 

Audit Committee Financial Expert

  

192

ITEM 16B.

 

Code of Ethics

   192

ITEM 16C.

 

Principal Accountant Fees and Services

  

192

ITEM 16D.

 

Exemptions from the Listing Standards for Audit Committees

  


193

ITEM 16E.

 

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

  


193

ITEM 17.

 

Financial Statements

   194

ITEM 18.

 

Financial Statements

   194

ITEM 19.

 

Exhibits

   194

Index to the Consolidated Financial Statements and Schedules

  

 

ii


Table of Contents

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, 2006 and 2005 and for each of the years in the three-year period ended December 31, 2006, which have been audited by KPMG Deutsche Treuhand-Gesellschaft AG Wirtschaftsprüfungsgesellschaft. The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (or “IFRS”), as adopted under European Union regulations in accordance with clause 315a of the German Commercial Code. IFRS differ in certain respects from accounting principles generally accepted in the United States of America (“U.S. GAAP”). For a discussion of significant differences between IFRS and U.S. GAAP and a reconciliation of net income and shareholders’ equity under IFRS and U.S. GAAP, you should read Note 53 to the consolidated financial statements. In addition, 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 $1.3511 =

€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 May 18, 2007. 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. See “Key Information—Exchange Rate Information” for information concerning the noon buying rates for the Euro from January 1, 2002 through May 18, 2007.

 

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 party and/or internal sources as indicated herein.


 

1


Table of Contents

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;

 

   

frequency and severity of insured loss events, including terror attacks, environmental and asbestos claims;

 

   

mortality and morbidity levels and trends;

 

   

persistency levels;

 

   

interest rate levels;

 

   

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.


 

2


Table of Contents

PART I

 

ITEM  1. Identity of Directors, Senior Management and Advisors

 

Not applicable.

 

ITEM  2. Offer Statistics and Expected Timetable

 

Not applicable.

 

ITEM  3. Key Information

 

Selected Consolidated Financial Data

 

We present below our selected financial data as of and for each of the years in the five-year period ended December 31, 2006. We derived the selected financial data for each of the years in the five-year period ended December 31, 2006 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.

 

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. We applied these revisions to all three years of the Allianz Group’s consolidated financial statements. As a result, we have retrospectively applied these revisions to the Allianz Group’s consolidated financial statements as

of and for the years ended December 31, 2005 and 2004, as previously issued in connection with our Annual Report on Form 20-F for the year ended December 31, 2005, without any impact on our consolidated net income and shareholders’ equity for these years. See Note 3 to the consolidated financial statements for detailed information on the changes of our consolidated financial statements and the impact of these revisions. Our selected financial data as of and for the years ended December 31, 2005, 2004, 2003 and 2002 presented below also reflects these revisions, with the exception of total revenues and operating profit for the years ended December 31, 2003 and 2002. 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. Total revenues and operating profit for the year ended December 31, 2002 are not presented, because total income and net income were the relevant performance measures used by the Allianz Group for 2002.

 

IFRS differ in certain significant respects from U.S. generally accepted accounting principles, which in this Annual Report on Form 20-F we refer to as “U.S. GAAP.” For a description of the significant differences between IFRS and U.S. GAAP as they relate to us and a reconciliation of our net income and shareholders’ equity under IFRS to U.S. GAAP, see Note 53 to our audited annual consolidated financial statements included herein.


 

3


Table of Contents
As of or For the Years ended December 31,       2006     2006     Change from
previous year
    2005     2004     2003     2002  
        $(1)         %                  
        (in millions, except per share data)  

Income Statement

               

Total revenues(2)

               

Property-Casualty

  € mn   59,007     43,674     (0.1 )   43,699     42,942     43,420 (3)   —   (4)

Life/Health

  € mn   64,070     47,421     (1.8 )   48,272     45,233     42,319 (3)   —   (4)

Banking

  € mn   9,577     7,088     12.2     6,318     6,576     6,704 (3)   —   (4)

Asset Management

  € mn   4,113     3,044     11.8     2,722     2,245     2,226 (3)   —   (4)

Consolidation

  € mn   (132 )   (98 )   not meaningful     (44 )   (47 )   (929 )(3)   —   (4)
                                           

Total Group

  € mn   136,635     101,129     0.2     100,967     96,949     93,740 (3)   —   (4)

Operating profit(5)

               

Property-Casualty

  € mn   8,470     6,269     21.9     5,142     4,825     2,397 (3)   —   (4)

Life/Health

  € mn   3,466     2,565     22.5     2,094     1,788     1,265 (3)   —   (4)

Banking

  € mn   1,921     1,422     102.0     704     447     (396 )(3)   —   (4)

Asset Management

  € mn   1,743     1,290     14.0     1,132     839     716 (3)   —   (4)

Corporate

  € mn   (1,123 )   (831 )   not meaningful     (881 )   (870 )   —   (3)   —   (4)

Income (loss) before income taxes and minority interests in earnings

  € mn   13,947     10,323     31.9     7,829     5,044     3,812     (4,044 )

Net income (loss)(6)

  € mn   9,486     7,021     60.3     4,380     2,266     2,691     (3,243 )

Balance Sheet

               

Investments

  € mn   402,809     298,134     4.6     285,015     254,085     237,682     239,220  

Loans and advances to banks and customers

  € mn   551,624     408,278     21.2     336,808     377,223     378,295     329,195  

Total assets

  € mn   1,423,014     1,053,226     6.5     989,288     990,959     933,802     848,753  

Liabilities to banks and customers

  € mn   487,852     361,078     16.4     310,316     348,484     332,906     284,598  

Reserves for loss and loss adjustment expenses

  € mn   88,448     65,464     (2.3 )   67,005     62,331     62,782     65,961  

Reserves for insurance and investment contracts

  € mn   388,707     287,697     3.4     278,312     251,497     233,896     225,049  

Shareholders’ equity

  € mn   68,205     50,481     27.8     39,487     29,995     27,993     21,046  

Minority interests

  € mn   8,659     6,409     (15.8 )   7,615     7,696     7,266     7,965  

Returns

               

Return on equity after income taxes(7)

  %   15.6     15.6     3.0     12.6     7.8     11.0     (12.5 )

Return on equity after income taxes and before goodwill amortization(7)

  %   15.6     15.6     3.0     12.6     11.6     16.5     (8.3 )

Share Information

               

Basic earnings per share(6)

    23.09     17.09     52.0     11.24     6.19     7.96     (11.71 )

Diluted earnings per share(6)

    22.67     16.78     50.6     11.14     6.16     7.93     (11.71 )

Weighted average number of shares outstanding

               

Basic

  mn   410.9     410.9     5.4     389.8     365.9     338.2     276.9  

Diluted

  mn   418.3     418.3     6.4     393.3     368.1     339.8     276.9  

Shareholders’ equity per share

    166     123     21.8     101     82     83     76  

Dividend per share

    5.13     3.80     90.0     2.00     1.75     1.50     1.50  

Dividend payment

  € mn   2,219     1,642     102.5     811     674     551     374  

Share price as of December 31(8)

    209.10     154.76     21.0     127.94     97.60     100.08     80.80  

Market capitalization as of December 31

  € mn   90,362     66,880     28.7     51,949     35,936 (9)   36,743 (9)   22,039 (9)

Other data

               

Employees

    166,505     166,505     (6.3 )   177,625     176,501     173,750     181,651  

Third-party assets under management as of December 31

  € mn   1,032,044     763,855     2.8     742,937     584,624     564,714     560,588  

U.S. GAAP consolidated data

               

Net income (loss)

  € mn   8,805     6,517     76.5     3,693     2,881     2,245     (1,260 )

Basic earnings per share

    21.06     15.59     67.1     9.33     7.87     6.71     (4.79 )

Diluted earnings per share

    20.78     15.38     66.1     9.26     7.83     6.70     (4.79 )

Shareholders’ equity

  € mn   71,607     52,999     19.4     44,383     33,380     30,825     22,836  

Shareholders’ equity per share

    174     129     13.2     114     91     91     82  

(1)

Amounts given in Euros have been translated for convenience only into U.S. Dollars at the rate of $1.3511 = €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 May 18, 2007.

(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.

(3)

Total revenues and operating profit for the year ended December 31, 2003 do not reflect the reporting changes effective January 1, 2006.

(4)

Not presented, because total income and net income were the relevant performance measures used by the Allianz Group for 2002.

(5)

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, see Note 5 to our consolidated financial statements.

(6)

Effective January 1, 2005, under IFRS, and on a prospective basis, goodwill is no longer amortized.

(7)

Based on average shareholders’ equity. Average shareholders’ equity has been calculated based upon the average of the current and preceding year’s shareholders’ equity.

(8)

Source: Thomson Financial Datastream.

(9)

Excluding treasury shares.

 

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Table of Contents

Dividends

 

The following table sets forth the annual dividends paid per ordinary share and American Depositary Share (or “ADS”) equivalent for 2002 through 2006. The table does not reflect the related tax credits available to German taxpayers. See “Additional Information—German Taxation—Taxation of Dividends.”

 

    

Dividend per

  ordinary share  

  

Dividend paid per

   ADS equivalent   

         €            $            €            $    

2002

   1.50    1.76    0.150    0.176

2003

   1.50    1.82    0.150    0.182

2004

   1.75    2.27    0.175    0.227

2005

   2.00    2.43    0.200    0.243

2006(1)

   3.80    5.13    0.380    0.513

(1)

Dividend amounts given in Euros have been translated for convenience only into U.S. Dollars at the rate of $1.3511 = €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 May 18, 2007. See “Presentation of Financial and Other Information.”

 

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. See “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

    ($ per €1.00)

2002

  1.0485   0.8594   0.9454   1.0485

2003

  1.2597   1.0361   1.1321   1.2597

2004

  1.3625   1.1801   1.2478   1.3538

2005

  1.3476   1.1667   1.2400   1.1842

2006

  1.3327   1.1860   1.2481   1.3197

September

  1.2833   1.2648   1.2847   1.2687

October

  1.2773   1.2502   1.2759   1.2773

November

  1.3261   1.2705   1.3016   1.3261

December

  1.3327   1.3073   1.3257   1.3197

2007

       

January

  1.3286   1.2904   1.3142   1.2998

February

  1.3246   1.2933   1.3126   1.3230

March

  1.3374   1.3094   1.3274   1.3374

April

  1.3660   1.3363   1.3517   1.3660

May (until May 18, 2007)

  1.3616   1.3494   1.3556   1.3511

(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.

 

On May 18, 2007, the noon buying rate for the Euro was $1.3511.


 

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Table of Contents

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.

 

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- and long-term rates) can affect Allianz Group’s insurance, asset management, banking and corporate results.

 

Over the past several years, 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 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 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 from 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 19% of Allianz Group’s financial assets at December 31, 2006, excluding financial assets and liabilities carried at fair value through income. Fluctuations in equity markets 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 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


 

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securities available-for-sale are recorded directly in Allianz Group’s consolidated shareholders’ equity. Available-for-sale equity and fixed 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. See “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.

 

Market 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 tax legislation.

 

Business and market conditions may impact the amount of goodwill Allianz Group carries in its consolidated financial statements. As of December 31, 2006, Allianz Group has recorded goodwill in an aggregate amount of €12,007 million, of which €6,272 million relates to its asset management business, €3,965 million relates to its insurance business, €1,626 million relates to its banking business, and €144 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. No impairments were recorded for goodwill in 2006.

 

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 2006.

 

As of December 31, 2006, Allianz Group had a total of €4,727 million in net deferred tax assets and €4,618 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, 2006, €4,128 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 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 established 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


 

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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, 2006. 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 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, we have a significant 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


 

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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.

 

We have significant counterparty risk exposure.

 

We are subject to a variety of counterparty risks, including:

 

General Credit Risks. Third-parties that owe us money, securities or other assets may not pay or perform under their obligations. These parties include the issuers whose securities we hold, borrowers under loans made, customers, trading counterparties, counterparties under swaps, credit default and other derivative contracts, clearing agents, exchanges, clearing houses and other financial intermediaries. These parties may default on their obligations to us due to bankruptcy, lack of liquidity, downturns in the economy or real estate values, operational failure or other reasons.

 

Reinsurers. We transfer our exposure to certain risks in its 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. 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. Therefore, the inability of Allianz Group’s reinsurers to meet their financial obligations 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 measures to further minimize its exposure to credit risk, reinsurers may become financially unsound by the time they are called upon to pay amounts due.

 

Many of our businesses are dependent on the financial strength and credit ratings assigned to us and our businesses by various rating agencies. Therefore, a downgrade in our ratings may materially adversely affect relationships with customers and intermediaries, negatively impact sales of our products and increase our cost of borrowing.

 

Claims paying ability and financial strength ratings are 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 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


 

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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 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.

 

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, 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.

 

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 European Union (“EU”), the United States and elsewhere continue to scrutinize payment processing and other transactions under regulations governing such matters as money-laundering, prohibited transactions with countries subject to sanctions, and bribery or other anti-corruption measures. If we fail to address, or appear to fail to address, appropriately any of these changes or initiatives, our reputation could be harmed and we could be subject to additional legal risk, including to enforcement actions, fines and penalties. Despite our best efforts to comply with applicable regulations, there are a number of risks in areas where applicable regulations may be unclear or where regulators revise their previous guidance or courts overturn previous


 

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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 have finally been implemented in Germany effective June 2, 2007. Although Allianz SE expects 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, currently discussions on a new solvency regime for insurance companies in the EU (Solvency II) are ongoing. As those discussions are in a preliminary stage, its potential future impact for capital requirements can not currently be assessed. For more information, see “Regulation and Supervision.”

 

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 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 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, 2006, approximately 32.8% of our gross premiums written in our property-casualty segment and 31.5% of our statutory premiums in our life/health segment originated in currencies other than the Euro.

 

As a result, although our non-Euro zone subsidiaries generally record their revenues and expenses in the same currency, changes in the exchange rates used to translate foreign currencies into Euro may adversely affect our results of operations.


 

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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 the completed merger with RAS S.p.A. and from Allianz AG’s conversion into a European Company (Societas Europaea) in connection therewith could be materially different from our current expectations.

 

The benefits that Allianz SE may realize from the merger with its Italian subsidiary, RAS S.p.A., and from Allianz AG’s conversion into a European Company (Societas Europaea, SE) in connection therewith and the subsequent reorganization of its European operations could be materially different from our current expectations. For more information about this transaction and reorganization, see “Information on the Company—Legal Structure:

Conversion into Allianz SE Completed” and “Information on the Company—Important Group Organizational Changes—Simplification of European Structures.” 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 the merger and conversion to an SE therefore could be materially different from our current expectations.

 

The benefits that Allianz SE may realize from the contemplated acquisition of full ownership in AGF could be materially different from its current expectations.

 

The benefits that Allianz SE may realize from the contemplated acquisition of full ownership in its French subsidiary, AGF, could be materially different from its current expectations. Allianz SE’s estimates of the benefits that it may realize as a result of the full ownership involve subjective judgments that are subject to uncertainties. A variety of factors that are partially or entirely beyond Allianz SE’s control could cause actual results to be materially different from what it currently expects, and any synergies that it realizes from the full ownership therefore could, as a result, be materially different from its current expectations.

 

ITEM 4. Information on the Company

 

The Allianz Group

 

Founded in 1890 and with 116 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-


 

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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.(1)

 

The Allianz Group’s Business Model

 

As an integrated and globally operating financial services provider we are able to offer our clients considerable value by providing a wide range of insurance and finance products as well as 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 are well-positioned to anticipate and successfully respond to competitive forces within our various operations.

 

Property-Casualty and Life/Health Insurance Operations(2)

 

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, in 2006.(3) We are also among the largest insurance companies in a number of the other countries in which we operate.

 

Our product portfolio includes a wide array of property-casualty and life/health insurance products for both private and corporate customers.

 

In our Property-Casualty segment, our product range consists of, among others, individual motor, injury, liability, homeowner and accident insurance. Furthermore, we are a leading provider of commercial and industrial coverage to enterprises of all sizes, including many of the world’s largest companies. Through our specialty lines of business,

we offer credit insurance, marine, aviation and industrial transport insurance, international industrial risks reinsurance, as well as travel insurance and assistance services, which we manage on a world-wide basis.

 

Our Life/Health segment’s portfolio includes, among others, traditional life, endowment, annuity and term insurance products as well as unit-linked and investment-oriented products. Additionally we serve private customers with health, disability and related coverage and provide group life and pension products for employers.

 

We distribute our insurance products via a broad network of self-employed full-time agents, part-time tied agents, brokers, banks and other channels. The particular distribution channels vary by product and geographic market.

 

Within our home market of Europe, Germany, France, Italy, the United Kingdom, Switzerland and Spain comprise our primary insurance markets, with Germany as our most important single market, although we operate in almost every European country. We also consider the United States and Asia-Pacific as two of our primary markets. Our more mature insurance markets (e.g. Germany, France, Italy, United States) are highly competitive. In recent years, we have also experienced increased competition in emerging markets as large insurance companies and other financial services 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.

 

Our global diversification in the property-casualty business permits us to implement “cycle management”, whereby we seek to capitalize on growth opportunities that offer a profitable correlation between premium rates and risks and forego premium growth in markets with increasing pricing pressures. In our life insurance business, we view the expected increased demand for wealth accumulation and private retirement provisions in the face of underfunded social insurance systems as an opportunity for growth.

 

In order to further strengthen our market position and maintain profitable growth we have


 


(1)

See “—Legal Structure: Conversion into Allianz SE Completed” for more information on the conversion into a European Company upon completion of its merger with Riunione Adriatica di Sicurtà S.p.A. (or “RAS”).

(2)

Please see “Operating and Financial Review and Prospects—Property-Casualty Insurance Operations by Geographic Region” and “Operating and Financial Review and Prospects—Life/Health Insurance Operations by Geographic Region” for a breakdown of our insurance operations by geographic region.

(3)

Source: Gesamtverband der deutschen Versicherungswirtschaft e.V. (or “GDV“). The GDV is a private association representing the German insurance industry.

 

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launched two comprehensive programs for our insurance segments: the Sustainability Program and the Customer Focus Initiative. Under our Sustainability Program, we systematically search for the best practices in product and service offerings, and processes across our organization. The highest standard is then made obligatory for all Allianz Group companies. The objective of our Customer Focus Initiative is to take a more customer-oriented approach towards our product and service offerings, and our flexibility awareness. In addition, we are undertaking various reorganization measures.(1)

 

Allianz SE, the Allianz Group’s parent company, acts on an arm’s length basis as our reinsurer for most of our insurance operations, other than international industrial risks reinsurance. Allianz SE assumed 33.3%, 35.6% and 38.1% of all reinsurance ceded by Allianz Group companies for the years ended December 31, 2006, 2005 and 2004, respectively. Allianz SE also assumes a relatively small amount of reinsurance from external cedents. We also cede risk to third-party reinsurers, of which Munich Re is our primary partner.

 

Allianz SE also provides advice to subsidiaries on structuring their own reinsurance programs and establishing lists of permitted reinsurers. In addition the Allianz Group has a pooling concept via Allianz SE in place offering reinsurance cover to the Allianz Group’s subsidiaries against natural catastrophes, which provides Group internal diversification benefits.

 

Banking Operations(2)

 

Our Banking activities are primarily executed by Dresdner Bank Group (or “Dresdner Bank”), through which we serve individual, corporate and governmental customers with a broad range of private, commercial and investment banking products. Dresdner Bank has a strong and well-known brand and is one of the largest banks in Germany.(3)

 

We distribute our banking products mainly through 952 (as of December 31, 2006) branch offices, of which 902 are located in Germany and 50 outside of Germany. Furthermore, the distribution of

 


(1)

For further information please see “—Important Group Organizational Changes”.

(2)

Please see “Operating and Financial Review and Prospects—Banking Operations” for a breakdown of our banking operations by division and geographic region, respectively.

(3)

Based on total assets as of December 31, 2006.

 

Dresdner Bank products through our insurance agents network is increasing in importance. While Dresdner Bank focuses on selected geographic regions worldwide, Germany is its primary market, which, as of December 31, 2006, made up 73% of Dresdner Bank’s operating revenues. Similarly, on the same date, 61% of Dresdner Bank’s loan portfolio represented loans to German counterparties. The largest credit exposures to borrowers in Germany are loans to private individuals (including self-employed professionals) at 55%; this category represented 34% of total loans outstanding as of December 31, 2006.

 

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, savings 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.

 

For the purpose of strengthening our position as a leading bank in Germany, we started our “Neue Dresdner Plus” restructuring program in 2006 to further integrate our banking business model and to thereby enable us to increase efficiency and reduce complexity.(4)

 

Asset Management Operations(5)

 

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. As of December 31, 2006, we managed €764 billion of third-party assets on a worldwide basis, which includes fixed income, equity, money market and sector products, as well as alternative investments. We are one of the five largest asset managers in the world.(6)

 

We conduct our retail asset management business primarily through our operating companies worldwide under the brand name, “Allianz Global


 


(4)

Please see “—Important Group Organizational Changes—“Neue Dresdner Plus” Reorganization Program”, which includes a description of Dresdner Bank’s operating divisions effective starting in the first quarter of 2007.

(5)

Please see “Operating and Financial Review and Prospects—Asset Management Operations” for a breakdown of our third-party assets by geographic region.

(6)

Based on total assets under management as of December 31, 2006. Source: Own internal analysis and estimates.

 

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Investors”. In our institutional asset management business, we operate under the brand names of our investment management entities; Allianz Global Investors serves as an endorsement brand.

 

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, and financial advisors.

 

The United States and Germany as well as France, Italy and the Asia-Pacific region are our primary asset management markets.

 

Our distribution channels vary by product and geographic market. In Europe and in the United States, Allianz Global Investors markets and services its institutional products through specialized personnel located in Frankfurt, London, Munich, Paris, Milan, San Francisco, San Diego and Newport Beach (California). Retail products in Europe are mostly distributed through proprietary Allianz Group channels such as branch bank advisors, full-time agents employed by affiliated companies and other Allianz Group financial planners and advisors. With the merger of Deutscher Investment-Trust Gesellschaft für Wertpapieranlagen mbH (or “dit”) and dresdner bank investment management Kapitalanlagegesellschaft mbH (or “dbi”) into Allianz Global Investors Kapitalanlagegesellschaft mbH, we combined our institutional business with our retail business in Germany in order to implement the existing integrated asset management business model into one entity.

 

In the United States, Allianz Global Investor’s local asset management operating entities offer a wide range of retail products. We have committed substantial resources to the expansion of the third-party asset management business in the Asia-Pacific region with offices in Tokyo, Hong Kong, Shanghai, Singapore, Taipei, Seoul and Sydney. We expect this region to become an increasingly important market.

 

In the asset management business, we experience competition from all major international financial institutions and peer insurance companies that also offer asset management products and services and compete for retail and institutional clients.

 

Our competitive investment performance has resulted in the majority of our third-party assets outperforming their respective benchmarks in 2006.

 

Legal Structure: Conversion into Allianz SE Completed

 

On September 11, 2005, Allianz AG (now Allianz SE) and Riunione Adriatica di Sicurtà S.p.A. (or “RAS”, and taken together with its subsidiaries, the “RAS Group”) announced their intention to merge RAS with and into Allianz AG in a cross-border merger. Effective with the registration of the merger in the commercial register of Allianz AG on October 13, 2006, Allianz AG changed its legal form to a European Company (Societas Europaea, or SE), and is now named Allianz SE.(1) The last step in connection with the transaction was the listing of the Allianz SE shares on the Italian Stock Exchange on October 16, 2006. Allianz SE is the first company in the Dow Jones EURO STOXX 50 to have become an SE.

 

Concurrent with the merger, and in order to provide the merger consideration to RAS shareholders, Allianz completed a capital increase involving the issuance of approximately 25.1 million new Allianz SE shares. In accordance with the merger plan, the remaining RAS shareholders received 3 new Allianz SE shares in exchange for 19 RAS shares. Prior to the merger date, Allianz AG had purchased in a voluntary cash tender offer certain of the RAS ordinary shares and RAS savings shares that were not already held by Allianz AG. The total consideration for the acquisition of the outstanding RAS shares amounted to approximately € 6.4 billion, which includes the approximately € 2.7 billion paid to acquire RAS shares in the voluntary cash tender offer.

 

The merger with RAS and the conversion of Allianz AG to Allianz SE was designed to simplify the Allianz Group’s management and organizational structures, thus reducing complexity and increasing efficiency. Our Allianz Group-wide objectives and programs on the basis of our “3+One” program(2) are expected to be achieved more consistently and more


 


(1)

The SE is a legal form based on European Community law and was introduced into the EU by the Council Regulation (EC) No. 2157/2001 of October 8, 2001 on the Statute for a European Company (the “SE Regulation”). Since Allianz SE keeps it registered office in Germany, it is governed by the SE Regulation, the applicable German law supplementing the SE Regulation and relevant German law applicable to German stock corporations, in particular the German Stock Corporation Act.

(2)

Under our “3+One” program, we work on achieving sustainable growth of our competitive strength and company value.

 

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efficiently with the implementation of the merger. Furthermore, the merger was designed to facilitate more efficient capital and liquidity management within the Allianz Group, to simplify accounting and reporting processes, and to increase the Allianz Group’s presence in the attractive Italian insurance market.

 

In addition to improving efficiency, the change in governance framework to an SE reflects the Allianz Group’s European and international dimension. As part of these changes, we reduced the size of the Supervisory Board and established an SE works council. Nevertheless, Allianz SE remains governed to a large extent by German Corporate Law.

 

Milestones of the Allianz-RAS Merger 2006

 

February 3,

2006

   RAS S.p.A. shareholders approve the merger plan at the extraordinary shareholders’ meetings

February 8,

2006

   Allianz AG shareholders approve the merger plan at the extraordinary shareholders’ meeting

July 19,

2006

   Contestation suits against formation of Allianz SE withdrawn

September 20,

2006

   Agreement concerning participation of employees in Allianz SE signed

October 13,

2006

  

Allianz AG’s legal form changed to a Societas Europaea, new company name Allianz SE

 

Capital increase effective (3 new Allianz SE shares for 19 RAS shares)

October 16, 2006

   Allianz SE shares listed in Itlay

 

Important Group Organizational Changes(1)

 

Simplification of European Structures

 

The Allianz-RAS merger provided the opportunity to streamline the Allianz Group’s structure in an effort to increase capital efficiency and to benefit from operational and strategic synergies.

 

As a consequence of the merger, Allianz SE now holds 100% of its property-casualty and life/health subsidiaries in Switzerland (Allianz Suisse Versicherungs-Gesellschaft and Allianz Suisse Lebensversicherungs-Gesellschaft) and in Austria (Allianz Elementar Versicherungs-Aktiengesellschaft

 


(1)

Please see Note 4 to our consolidated financial statements for information on changes in the scope of consolidation in the years ended December 31, 2006, 2005 and 2004.

 

and Allianz Elementar Lebensversicherungs-Aktiengesellschaft) through holding companies. These subsidiaries were formerly held jointly by Allianz AG (now Allianz SE) and RAS, with RAS holding the majority. Also due to implementation of the merger, Allianz SE now directly holds majority interests in the Portuguese insurance subsidiary, Compañhía de Seguros Allianz Portugal S.A., and in the Spanish insurance subsidiary, Allianz Compañía de Seguros y Reaseguros S.A.

 

The acquisition of the minority interest in AGF, which was announced on January 18, 2007, is also designed to further streamline our Group structure across regions and business units.(2)

 

Reorganization of German Insurance Operations

 

In 2006, we further consolidated our major German insurance subsidiaries (Allianz Versicherungs-Aktiengesellschaft, Allianz Lebensversicherungs-Aktiengesellschaft and Allianz Private Krankenversicherungs-Aktiengesellschaft) under the new holding company Allianz Deutschland AG (wholly-owned by Allianz SE). In the course of this reorganization, which we announced in September 2005, Frankfurter Versicherungs-AG and Bayerische Versicherungsbank AG were merged into Allianz Versicherungs-Aktiengesellschaft. The tied agent sales activities of the German property-casualty and life/health business, which previously were run by five different corporations, were consolidated into a separate sales company, Allianz Beratungs- und Vertriebs-AG, which is also a subsidiary of Allianz Deutschland AG. We have replaced the insurance operations’ previous regional structure with four sales and service regions.

 

The reorganization of our German insurance operations is designed to simplify structures and reduce complexity within the Allianz Group, allowing us to react to changes in our markets with greater speed, focus and flexibility. Our goal is 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. This process is part of our strategy to further develop our leading position in the German insurance market.


 


(2)

Please see “Operating and Financial Review and Prospects—Recent and Expected Developments—Significant Expected Investments” for further information on this transaction.

 

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We are continuing this reorganization plan and expect to have the new business model in place by 2008. The new business model will require approximately 5,700 fewer staff. In connection with this reorganization we took the following steps in 2006:

 

   

Created the German insurance holding company Allianz Deutschland AG.

 

   

Top management team in place.

 

   

Agreement on key points between the works councils and the management of Allianz Deutschland AG and its main subsidiaries.

 

   

Allianz Deutschland AG and its main subsidiaries committed not to make any compulsory redundancies until the end of 2009.

 

   

Districts organized into four regions.

 

   

Distribution centralized.

 

   

Property-Casualty companies merged.

 

We expect the reduced complexity to allow us to reduce costs in the long-term. As of December 31, 2006, Allianz Deutschland AG’s provisions for restructuring amounted to €455 million.(1)

 

Merger of Industrial Insurance Business within Allianz Global Corporate & Specialty

 

In the second half of 2006, we commenced the reorganization of the Allianz Group’s international corporate and specialty insurance business by creating Allianz Global Corporate & Specialty AG, a wholly-owned subsidiary of Allianz SE. This unit houses the activities of the former Allianz Global Risks Re and Allianz Marine & Aviation operating entities, the corporate customer business of Allianz Sach, as well as Allianz Risk Transfer in Switzerland, under the umbrella of one Munich-based company. In the future, we also plan to integrate other local corporate and specialty insurance activities in selected locations into Allianz Global Corporate & Specialty AG in order to offer a comprehensive range of risk management solutions and specialist expertise from one source. The new organization is designed to facilitate a clear client focus, while it reduces complexity, increases efficiency and promotes globally consistent management practices.

 


(1)

For further information see Note 49 to our consolidated financial statements.

 

“Neue Dresdner Plus” Reorganization Program

 

In 2006, Dresdner Bank launched the “Neue Dresdner Plus” reorganization program, by integrating its former four operating divisions into two operating divisions. As part of this restructuring, 2,480 full-time positions are to be cut at the Dresdner Bank Group in the period up to 2008. The Board of Management and the employee representatives have agreed on a social plan for implementing the reduction of the number of employees associated with the program as part of a reconcilement of interests. The final new business model of Dresdner Bank will consist of the following two new operating divisions:

 

   

Private & Corporate Clients combines all banking activities formerly provided by the Personal Banking and Private & Business Banking divisions (including Private Wealth Management) as well as our activities with medium-sized business clients from our former Corporate Banking division.

 

   

Investment Banking, 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.

 

In addition, the Corporate Other division contains income and expense items that are not assigned to Dresdner Bank’s operating divisions.

 

The goal of the “Neue Dresdner Plus” program is to re-position Dresdner Bank to further develop its advisory services and sales activities for private clients as well as to create a single source for groups and institutional clients. As of December 31, 2006, Dresdner Bank Group’s provisions for restructuring amounted to €379 million. In 2006, Dresdner Bank Group recorded restructuring charges for all restructuring programs of €422 million.(2)

 

Reorganization in the United States

 

In order to capture the potential for regional synergies, the Allianz Group has commenced a reorganization of the business lines in the United States by strengthening the role of the Allianz of America Inc. holding company in an effort to create expense and distribution synergies between the


 


(2)

For further information see Note 49 to our consolidated financial statements.

 

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different businesses in the United States. This regionalization is designed to allow our U.S. companies to leverage all of the available resources and assets and to enable Allianz Life United States and Fireman’s Fund to more effectively anticipate and deliver on customer needs. The respective management teams of each company will be able to

draw upon the resources of Allianz of America to provide customers with high-quality solutions, maximize cross-selling opportunities, simplify services, and leverage combined assets while driving a performance-based culture. The goal of the reorganization is to optimize the ability of both companies to improve their market positions.


 

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Global Diversification(1)

 

As an integrated financial services provider we offer insurance, banking and asset management products and services from a single source to more

than 60 million customers in over 70 countries. We are one of the leading insurers and financial services providers world-wide. Based on our market capitalization(2) we are the largest financial institution in Germany.


LOGO

Europe is our home market. We consider property-casualty insurance in the region to be rather saturated. In life/health insurance, we see the characteristics of aging societies and their rising need for private retirement provision products and additional health insurance coverage as a growth opportunity.

 

n n n n    Austria             n n    Luxembourg
n n n    Belgium     n n n n    Netherlands
n n n n    France     n n      n    Portugal
n n n n    Germany     n n n n    Spain
n n      n    Greece     n n n n    Switzerland
n           n    Ireland     n      n n    United Kingdom
n n n n    Italy     n n    Turkey

2006 in review:

  Ÿ January 1: Allianz Deutschland AG and a new independent sales company in Germany are launched and, at the same time, regional structures are simplified.
  Ÿ June 22: Restructuring details at Allianz Deutschland AG and Dresdner Bank AG announced.
  Ÿ October 13: Allianz AG completes conversion into Allianz SE.
  Ÿ November 28: First European company pension offer launched.
  Ÿ December 18: Merger of dit and dbi in our Asset Management segment.

LOGO

New Europe – We are committed to a region in transition: We are established in the most important insurance markets in the region and have leading market positions. New Europe offers substantial opportunities across all lines of business alongside rising living standards.

n n n n    Bulgaria     n n      n    Slovakia
n n      n    Croatia       
n n      n    Czech Republic       
n n n n    Hungary       
n n      n    Poland       
n n         Romania       
n n n n    Russia       

2006 in review:

  Ÿ October 2: Introduction of a limited edition index-linked life insurance product in Bulgaria, Croatia, Czech Republic, Poland, Romania and Slovakia.
  Ÿ October 17: Allianz Hungária is the first insurer and asset manager in Hungary to found a retail bank. With this move, Allianz in Hungary becomes an integrated financial services provider.
  Ÿ December 27: Allianz Direct New Europe commences operations as the first pan-European regional direct platform offering property-casualty insurance products for customers in Poland and the Czech Republic.
n   Property-Casualty     n  

Life/Health

    n  

Banking

    n   Asset Management

(1)

Please see “—International Presence” for a breakdown of selected operating entities.


(2)

As of March 1, 2007. Source: Deutsche Börse Group.

 

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LOGO

 

The Americas – We are well-positioned in the United States, the largest insurance market of the world. Overall, our American operations take place in attractive markets.

 

n n

   Argentina   
n n n    Brazil   
n    Colombia   
n    Mexico   
n n n n    United States   
n n    Venezuela   

 

2006 in review:

   

September 5: Standard & Poor’s affirmed its “A” counterparty and insurer financial strength ratings on Fireman’s Fund and rated subsidiaries. The rating outlook has been revised to positive from stable.

   

December 7: AlIianz Life United States announced the full integration of operations between its retail broker/dealer subsidiaries, USAllianz Securities® and Questar Capital Corporation. The organization will operate under the Questar Capital name.

LOGO

 

Asia-Pacific and Africa – Asia-Pacific is the Allianz Group’s largest emerging region. Many markets in this part of the world are characterized by high growth rates.

 

n           n    Australia          n      n    South Korea   
n n n n    China     n n n    Malaysia   
n n    Indonesia     n      n n    Singapore   
n n    India          n      n    Taiwan   
n      n n    Japan     n n    Egypt   
n    Laos          

 

2006 in review:

   

January 24: AlIianz is the first western joint-venture insurer to introduce insurance products in Indonesia, which comply with the rules of the Islamic law, Sharia.

   

January 27: AlIianz and Industrial and Commercial Bank of China Ltd. (or “ICBC”) announce strategic investment and partnership agreement. AlIianz acquires a 2.5% interest in ICBC.

   

April 1: Following the shareholder change in 2005, the former AlIianz Dazhong was renamed into AlIianz China Life.


 

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Our Largest Insurance Markets and Companies

 

Property-Casualty Insurance Operations(1)

 

Germany

 

Operations We operate in the German property-casualty market through operating entities combined under the umbrella of Allianz Versicherungs-Aktiengesellschaft (or “Allianz Sach”). Allianz Sach is the market leader in Germany based on gross premiums written in 2006.(2) Our results of operations presented under Germany also include our property-casualty assumed reinsurance business, primarily attributable to Allianz SE.

 

Products and Distribution We offer a wide variety of insurance products, of which our main lines of business include motor (liability and own damage), general liability, homeowner and accident. Allianz Sach distributes its products mainly through a network of full-time tied agents. However, distribution through Dresdner Bank branches and the Internet is increasing in relative importance.

 

Expected Developments With Germany being a rather mature market with a high degree of competition, one of the key challenges is managing the trade-off between achieving growth while maintaining profitability. We are currently reorganizing our major German operating entities. The new structure is designed to further develop our leading position in the German insurance market by a joint presence, thus allowing us to provide an enhanced customer orientation and improved service, while at the same time cutting costs in the long-term through reduced complexity.(3)

 

France

 

Operations Through the companies of AGF Group, we ranked third in the property-casualty market in France, based on gross premiums written in 2005.(4)

 

Products and Distribution The broad range of “AGF” brand products for both individuals and

 


(1)

Please see “—International Presence” for the Allianz Group’s ownership percentages in the operating subsidiaries mentioned.

(2)

Source: German Insurance Association, GDV.

(3)

Please see “—Important Group Organizational Changes—Reorganization of German Insurance Operations” for further information.

(4)

Source: French Insurers Association, FFSA.

 

corporate customers, including property, injury and liability insurance, are distributed primarily through a network of general agents, brokers and other direct sales channels.

 

Expected Developments Operating in a market that has seen limited growth in recent years, we seek to focus on maintaining operating profitability while simultaneously implementing selective initiatives aimed to generate growth. One such initiative is the introduction of a new motor tariff at the end of 2006, which we expect will have a beneficial impact on our business development in the coming years.

 

The acquisition of the minority interest in AGF is expected to reduce the complexity of our organization and allows us to further implement Allianz Group-wide programs and initiatives, as well as to strengthen our market position in France.(5)

 

Italy

 

Operations We operate in the Italian market through our “RAS”, “Lloyd Adriatico” and “Allianz Subalpina” brands. Jointly, we continued to rank third in the Italian property-casualty market, based on gross premiums written in 2005.(6)

 

Products and Distribution The RAS Group operates in most major personal and commercial property-casualty lines in Italy, while Lloyd Adriatico S.p.A. underwrites mainly personal lines. The RAS Group’s most important business line is motor. Other important businesses include fire, general liability and personal accident.

 

Expected Developments The Italian non-motor market, which has a lower penetration rate for insurance products compared to other European markets, represents a potential market for growth. Among other channels, we also view distribution through direct operations as a growth channel.

 

RAS S.p.A., Lloyd Adriatico S.p.A. and Allianz Subalpina S.p.A. have launched the project to integrate the Allianz Group’s operations in Italy. The integration is designed to allow Allianz to serve the Italian market, its second largest based on premiums,


 


(5)

Please see “Operating and Financial Review and Prospects—Recent and Expected Developments—Significant Expected Investments” for further information.

(6)

Source: Italian Insurers Association, ANIA.

 

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with a broad range of insurance and financial products and with more effective customer service. We are also implementing this integration to seek to benefit from the announced deregulation of insurance distribution in Italy.

 

United Kingdom

 

Operations We serve the market in the United Kingdom primarily through our subsidiary Allianz Cornhill Insurance plc. (or “Allianz Cornhill”) and rank seventh based on gross premiums written in 2005.(1) In 2006, Allianz Cornhill further strengthened its market position in the United Kingdom through the acquisition of the remaining interest in Premier Line Direct Ltd. and the acquisition of Home & Legacy (Holdings) Ltd.

 

Products and Distribution We offer a broad range of property-casualty products, including a number of specialty products, which we offer through our personal, commercial and specialty lines and through a range of distribution channels, including affinity groups.

 

Expected Developments Operating in a highly competitive market, Allianz Cornhill has concentrated on active cycle management as a measure to support its operating profitability.

 

Effective April 30, 2007, Allianz Cornhill Insurance plc. changed its company name to Allianz Insurance plc. in order to benefit from the “Allianz” brand.

 

Switzerland

 

Operations In the Swiss market we are represented by the Allianz Suisse brand and Allianz Risk Transfer AG. Allianz Suisse acts as the umbrella brand for our four general property-casualty legal entities in Switzerland. Based on gross premiums written in 2005, Allianz Suisse ranks fourth in Switzerland.(2)

 

Products and Distribution While Allianz Suisse operates in the general property-casualty market in Switzerland, Allianz Risk Transfer AG offers conventional reinsurance and a variety of

 


(1)

Source: Financial Services Authority, FSA.

(2)

Source: Statistics of the Swiss Federal Bureau of Private Insurers.

 

alternative risk transfer products. The most important line of business for Allianz Suisse is motor, comprising approximately 42% of its gross premiums written in 2006.

 

Expected Developments In the very competitive market environment in Switzerland, we will continue to put profitability first, while expecting to achieve attractive growth.

 

Spain

 

Operations We serve the Spanish market through our operating entities Allianz Compañía de Seguros y Reaseguros S.A. and Fénix Directo S.A. We currently rank third in the Spanish market, based on gross premiums written in 2006.(3)

 

Products and Distribution In Spain, we offer a wide variety of personal and commercial property-casualty insurance products, with an emphasis on motor business, comprising approximately two-thirds of our gross premiums written in Spain in 2006.

 

Expected Developments Market conditions in Spain are characterized by the continuation of intense price competition in motor business.

 

Western and Southern Europe

 

Operations We conduct property-casualty operations in most of the other Western and Southern European countries, of which, based on gross premiums written in 2006, the largest are our operations in the Netherlands, Austria and Ireland.

 

Products and Distribution The most important lines of business of Allianz Nederland Schadeverzekering N.V. in the Netherlands are motor and fire insurance. Our Dutch subsidiary distributes its products through independent agents and brokers.

 

Allianz Elementar Versicherungs-Aktiengesellschaft in Austria offers a broad range of products to individual and group customers primarily through salaried sales forces, tied agents and brokers.

 

Our subsidiary Allianz Irish Life Holdings p.l.c. offers a wide variety of products, mainly motor and property insurance for both commercial and private


 


(3)

Source: Research and Statistics Bureau of Spanish Insurers and Pension Funds, ICEA.

 

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customers in Ireland, and distributes predominantly through brokers and banks as well as telephone- and internet-based direct sales channels.

 

Expected Developments The Dutch insurance market is characterized by intense competition. In the motor business with expected price decreases. In Ireland, we expect the market will become more favorable in 2007, both in commercial and in personal lines.

 

New Europe

 

Operations We are the leading international insurance company in Central and Eastern Europe, based on gross premiums written in 2005(1), 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 and Croatia. We also sell property-casualty insurance in Russia through our subsidiaries embraced under Allianz Russia and our participation in Russian People’s Insurance Society “Rosno”.

 

Products and Distribution The primary products sold in these countries are mandatory motor third-party liability and motor own damage coverage.

 

Expected Developments Motor business and increasingly other personal lines products continue to be the primary sources of our profitable growth, while we also expect to expand and further develop our sales network. We believe we are well-positioned to capture the opportunities from the expected growth in demand for property-casualty insurance products.

 

On February 21, 2007, the Allianz Group announced the purchase of further interest in Rosno, increasing our holding to approximately 97%. With this acquisition we are expanding our position as the number one insurer in Central and Eastern Europe.

 

United States

 

Operations Our operations in the United States are organized under the umbrella of Allianz of America Inc., which comprises a group of operating entities underwriting a wide, but focused, variety of lines of business.

 


(1)

Source: Own estimate based on published annual reports.

 

Products and Distribution Through Fireman’s Fund Insurance Company (or “Fireman’s Fund”), we underwrite personal, commercial and specialty lines. Fireman’s Fund’s business strategy focuses on specific markets. The personal lines address the needs of high net worth customers. The commercial business targets a core set of industries offering specialized products and services. Our specialty products are sold through local distribution channels, which allow us to tailor our products and services to our customer’s needs.

 

Expected Developments Fireman’s Fund expects to continue to grow in these target markets by enhancing customer solutions. We plan to upgrade customer service capabilities, introduce new products and services, and leverage cross-selling through strengthened distribution management.

 

In addition, we are currently undertaking certain reorganization measures in the United States. We expect these measures will help us to strengthen our market position.(2)

 

Asia-Pacific

 

Operations In Asia-Pacific, the large majority of our business is generated by Allianz Australia, which serves the markets of Australia and New Zealand. We also maintain operations in Malaysia, Indonesia, as well as other Asia-Pacific countries, including China, Thailand, Japan, Hong Kong, Singapore, Laos and India.

 

Products and Distribution Our Australian insurance operations include a variety of products and services, with particularly 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 our products through brokers and non-tied agents as well as directly to customers.

 

Expected Developments Allianz Australia expects to continue to employ market segmentation technique, which includes diversifying its portfolio outside of the traditionally cyclical areas.


 


(2)

Please see “—Important Group Organizational Changes—Reorganization in the United States” for further information.

 

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South America

 

Operations We conduct our property-casualty operations in Brazil through our subsidiary AGF Brasil Seguros S.A. Based on gross premiums written in 2006, we are the seventh-largest property-casualty insurance provider in Brazil.(1) We also sell property-casualty products in Colombia, Argentina and Venezuela.

 

Products and Distribution In Brazil, we write primarily automobile insurance, but also fire, transportation and other lines. Distribution is organized primarily through independent agents and brokers. In Colombia, Venezuela and Argentina we also market a broad range of products.

 

Expected Developments We expect growth to continue, primarily in Brazil and Argentina, mainly driven by the motor market.

 

Specialty Lines

 

Operations Through our subsidiary Euler Hermes, the largest credit insurer in the world, based on gross premiums written in 2005(2), we underwrite credit insurance in major markets around the world.

 

Allianz Global Corporate & Specialty primarily combines the Allianz Group’s international corporate insurance business.(3)

 

Through Mondial Assistance Group, we are among the world’s largest providers of travel insurance and assistance services based on gross premiums written in 2005.(4)

 

Products and Distribution Euler Hermes provides enterprises protection against the risk of non-payment of receivables and customer insolvency. Thereby, we help companies of all sizes, wherever they trade, to safeguard and grow their business. In addition, through Allianz Global Corporate & Specialty, we offer a variety of other specialty lines of business, namely marine, aviation and industrial

 


(1)

Source: Own estimate based on published annual reports.

(2)

Source: Own estimate based on published annual reports.

(3)

Please see “—Important Group Organizational Changes—Merger of Industrial Insurance Business within Allianz Global Corporate & Specialty” for further information on this newly created subsidiary.

(4)

Source: Own estimate based on published annual reports.

 

transport insurance, international industrial risks reinsurance, and through Moncial Assistance Group, we offer travel insurance and assistance services. In contrast to our other insurance businesses, we manage and offer these services on a worldwide basis.

 

Expected Developments Through the recent combination of our international corporate business within Allianz Global Corporate & Specialty, which manages 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 in new markets and develop new products. A variety of sales channels including the internet is used to achieve this goal.

 

Life/Health Insurance Operations(5)

 

Germany Life

 

Operations In our most important market, Allianz Lebensversicherungs-Aktiengesellschaft (or “Allianz Leben”) is the market leader for life insurance based on statutory premiums in 2006.(6) In addition to Allianz Leben, we operate through a variety of smaller operating entities in the German market.

 

Products and Distribution 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 schemes and defined contribution plans. Allianz Leben distributes its products mainly through a network of full-time tied agents, while distribution through Dresdner Bank branches and brokers is increasing.

 

Expected Developments We are currently reorganizing our major German operating entities. The new structure is designed to further develop our


 


(5)

Please see “—International Presence” for the Allianz Group’s ownership percentages in the operating subsidiaries mentioned.

(6)

Source: German Insurance Association, GDV.

 

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leading position in the German insurance market by a joint presence, thus allowing us to provide an enhanced customer orientation and improved service, while at the same time cutting costs in the long-term through reduced complexity.

 

Germany Health

 

Operations Through Allianz Private Kranken-versicherungs-Aktiengesellschaft (or “Allianz Private Kranken”), we are the third-largest private health insurer in Germany based on statutory premiums in 2005(1) with more than two million customers.

 

Products and Distribution Allianz Private Kranken provides a wide range of health insurance products, including full private healthcare coverage for salaried employees and the self-employed, supplementary insurance for individuals insured under statutory health insurance plans, supplementary care insurance as well as foreign travel medical insurance. Allianz Private Kranken distributes its products mainly through a network of full-time tied agents.

 

Expected Developments The ongoing discussions about reforming the German statutory health insurance system causes uncertainty among customers. The demographic change combined with medical progress will cause rising expenses within the statutory health insurance system. Furthermore, benefit cuts will most likely occur. Private health insurers will benefit from this development in the long-run.

 

France

 

Operations In France, through the companies of AGF Group, we are the eighth-largest life insurance provider based on statutory premiums in 2005.(2)

 

Products and Distribution We provide a broad range of life and health insurance products, including short-term investment and savings products. An important portion of our life statutory premiums in France is generated through the sale of unit-linked policies.

 

 


(1)

Source: German Insurance Association, GDV.

(2)

Source: French Insurers Association, FFSA.

 

Expected Developments Life insurance is one of the fastest growing businesses of the AGF Group and we expect this strong growth to continue.

 

The acquisition of the minority interest in AGF is designed to allow us to reduce the complexity of our organizational and management structures, permitting us to further implement Allianz Group-wide programs and initiatives, as well as strengthen our market position in France.(3)

 

Italy

 

Operations We maintain a strong position in the Italian life insurance market through RAS Group, Lloyd Adriatico S.p.A. and Allianz Subalpina S.p.A. Jointly, on the basis of statutory premiums in 2005, our Italian subsidiaries ranked second.(4)

 

Products and Distribution In Italy, we offer individual life policies, primarily endowment policies, annuities and unit-linked products in addition to other products. Consistent with general trends in the Italian market, our business includes an increasing number of unit-linked policies, in which policyholders participate directly in the performance of policy-related investments. In 2006, two-thirds of our combined statutory premiums in Italy comprised unit-linked products. A large percentage of our contracts are marketed through our bancassurance channel.

 

Expected Developments RAS S.p.A., Lloyd Adriatico S.p.A. and Allianz Subalpina S.p.A. have launched the project to integrate the Allianz Group’s operations in Italy. The integration is designed to allow Allianz so serve the Italian market, its second largest based on premiums, with a broad range of insurance and financial products and with more effective customer service. We are also implementing this integration to seek to benefit from the announced deregulation of insurance distribution in Italy.

 

Switzerland

 

Operations We conduct our life/health operations in Switzerland primarily through Allianz


 


(3)

Please see “Operating and Financial Review and Prospects—Recent and Expected Developments—Significant Expected Investments” for further information.

(4)

Source: Italian Insurers Association, ANIA.

 

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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 2005.(1)

 

Products and Distribution We market a wide range of individual and group life insurance products, including retirement, death and disability products.

 

Expected Developments Given the relatively higher market share we hold in our property-casualty business in Switzerland, we believe there is potential for growth in our life/health business through cross-selling between our segments.

 

Spain

 

Operations We conduct our life/health operations in Spain through Allianz Compañía de Seguros y Reaseguros S.A. and through Eurovida, our joint venture with Banco Popular.

 

Products and Distribution Our Spanish insurance subsidiaries offer a broad 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.

 

Expected Developments In 2006, income tax reforms were approved in Spain and became effective as of January 2007. Under the new tax law, most life insurance policies, except annuities, lose their tax privileges. It is still too early to finally assess the long-term impact of this income tax reform on our business. Nevertheless, we have analyzed our existing product range resulting in the development of new products and adaptation of the existing ones, in order to benefit through further profitable growth.

 

Western and Southern Europe

 

Operations We conduct life/health insurance operations in most of the other Western and Southern European countries, of which, based on statutory premiums 2006, the largest are in Belgium and the Netherlands.

 

Products and Distribution AGF Belgium Insurance S.A. markets a wide range of life insurance

 


(1)

Source: Statistics of the Swiss Federal Bureau of Private Insurers.

 

products 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.

 

Expected Developments The larger life insurance markets forming our Western and Southern European region are mature and provide limited growth opportunities.

 

New Europe

 

Operations We are present in all key markets in this region and are one of the top four international life insurance providers, based on statutory premiums in 2005.(2)

 

Products and Distribution In 2006, we continued to expand our product range and sales capacity throughout New Europe. We follow a multi-channel distribution approach and sell both unit-linked and traditional life insurance products. In the fourth quarter of 2006, our companies in the region launched a limited-edition index-linked life insurance product across six markets. In 2006, our Hungarian insurer, Allianz Hungária Biztositó Rt., opened its own retail bank and has become an integrated financial services provider.

 

Expected Developments Central and Eastern Europe represents one of the fastest growing life insurance markets of the world, as current penetration levels are low. In anticipation of the expected growth, we continuously strengthen our sales capacity and product range.

 

United States

 

Operations In the United States, we are represented by Allianz Life Insurance Company of North America (or “Allianz Life United States”) which is, as with our property-casualty business in the United States, also organized under the umbrella of Allianz of America Inc. In August 2006, Allianz Life United States sold its health insurance business to HCC Insurance Holdings Inc.

 

Products and Distribution Allianz Life United States is the market leader in fixed-indexed annuities, with approximately one-third of the market share based on statutory premiums in 2006.(1) On the same


 


(2)

Source: Own estimate based on published annual reports.

 

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basis, Allianz Life United States holds a 10% share of the overall fixed annuity market and also has a 2% share of the large variable annuity market.(1) Its smaller but growing product lines include individual life and long-term care insurance.

 

Expected Developments Allianz Life United States 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 product development of variable products and fixed-indexed products. For example, since November 2006, Allianz Life United States has entered into broker-dealer marketing agreements, having signed six in 2006 adding more than 10,000 agents. In addition, we are currently undertaking certain reorganization measures in the United States. We are confident that these measures will also help us to strengthen our market position.(2)

 

Asia-Pacific

 

Operations In Asia-Pacific, the majority of our operations are conducted in South Korea through Allianz Life Insurance Co. Ltd. (or “Allianz Life Korea”). Allianz Life Korea is the fifth-largest life insurance company in South Korea based on statutory premiums in 2005.(3) We are also represented in Taiwan by Allianz President Life Insurance Co. Ltd. (or “Allianz Life Taiwan”) and maintain operations in Malaysia, Indonesia, as well as other Asia-Pacific countries, including China, Thailand and India.

 

Products and Distribution Our South Korean operations market a wide range of life insurance products. Due to the very low interest rate environment and a favorable equity market in South Korea, Allianz Life Korea has increasingly shifted its focus to variable life products. Allianz Life Taiwan sells term life, whole life and endowment products. In addition, Allianz Life Taiwan increasingly offers investment-linked products.

 

Expected Developments We are seeking to expand in all of our selected markets, through

 


(1)

Source: LIMRA.

(2)

Please see “—Important Group Organizational Changes—Reorganization in the United States” for further information.

(3)

Source: South Korean Life Insurance Association.

 

internal growth and selected acquisitions. For example, in January 2007, we agreed with our long-term joint venture partner in Taiwan, the Uni-President Group, to acquire Uni-President’s shareholding in our joint venture Allianz Life Taiwan.

 

China is a strategic market for the Allianz Group and 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 in China.

 

Additionally, Bajaj Allianz Life Insurance Company Ltd. (or “Allianz Life India”), in which we held an interest of 26.0% at December 31, 2006, has demonstrated strong growth in the last several years, becoming a leading private insurer in India, which we expect to continue.

 

South America

 

Operations Our largest life operation in this region is in Colombia. We also operate a small life portfolio in Brazil.

 

Products and Distribution Our life insurance activities in Colombia include traditional group life insurance as well as investment-oriented products like savings, pensions and annuity products.

 

Expected Developments We estimate that growth rates in the South American life insurance market will remain attractive over the coming years. Accordingly, we seek to expand our presence in life insurance beyond our Colombian subsidiary.

 

International Presence

 

The following table sets forth selected Allianz Group operating companies by geographic region at December 31, 2006, including our ownership percentage. It does not contain all companies of the Allianz Group, nor does it indicate whether an interest is held directly or indirectly by Allianz SE. Further, the ownership percentage presented in the following table includes equity participations held by dependent enterprises of the Allianz Group in full, even if the Allianz Group’s ownership in the dependent enterprise is below 100%. Please see Note


 

27


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54 to our consolidated financial statements for a more extensive list of Allianz Group companies.

 

  GERMANY  
  LOGO   Allianz Capital Partners GmbH   100.0%  
  LOGO   Allianz Dresdner Bauspar AG   100.0%  
 

LOGO

  Allianz Global Corporate & Specialty AG   100.0%  
 

LOGO

  Allianz Global Investors Advisory GmbH   100.0%  
 

LOGO

  Allianz Global Investors AG   100.0%  
 

LOGO

  Allianz Global Investors Europe GmbH   100.0%  
 

LOGO

  Allianz Global Investors Kapitalanlagegesellschaft mbH   100.0%  
 

LOGO

  Allianz Lebensversicherungs-Aktiengesellschaft   91.0%  
 

LOGO

  Allianz Private Krankenversicherungs-Aktiengesellschaft   100.0%  
 

LOGO

  Allianz Versicherungs-Aktiengesellschaft   100.0%  
 

LOGO

  DEGI Deutsche Gesellschaft für Immobilienfonds m.b.H.   94.0%  
 

LOGO

  Deutsche Lebensversicherungs-AG   100.0%  
 

LOGO

  Dresdner Bank AG   100.0%  
 

LOGO

  Euler Hermes Kreditversicherungs-AG   100.0%  
 

LOGO

  MAN Roland Druckmaschinen AG   100.0%  
 

LOGO

  Oldenburgische Landesbank Aktiengesellschaft   89.4%  
 

LOGO

  Reuschel & Co. Kommanditgesellschaft   97.5%  

 

  OTHER EUROPE – WESTERN AND SOUTHERN EUROPE  
  Austria    
 

LOGO

  Allianz Elementar Lebensversicherungs-Aktiengesellschaft   100.0%  
 

LOGO

  Allianz Elementar Versicherungs-Aktiengesellschaft   100.0%  
  Belgium    
 

LOGO  LOGO

  AGF Belgium Insurance S.A.   100.0%  
  France    
  LOGO   AGF Asset Management S.A.   99.8%  
  LOGO   Assurances Générales de France IART S.A.   100.0%  
  LOGO   Assurances Générales de France Vie S.A.   100.0%  
  LOGO   Assurances Générales de France   60.2%  
  LOGO   Banque AGF S.A.   100.0%  
  LOGO   Euler Hermes SFAC S.A.   100.0%  
  LOGO   Mondial Assistance S.A.S.   100.0%  
  Greece    
 

LOGO

  Allianz General Insurance Company S.A.   100.0%  
 

LOGO

  Allianz Life Insurance Company S.A.   100.0%  
  Ireland    
 

LOGO

  Allianz Irish Life Holdings p.l.c.   66.4%    
 

LOGO

  Allianz Worldwide Care Ltd.   100.0%    
  Italy    
 

LOGO  LOGO

  ALLIANZ SUBALPINA S.p.A. SOCIETÀ DI ASSICURAZIONI E RIASSICURAZIONI   98.0%    
 

LOGO  LOGO

  Lloyd Adriatico S.p.A.   99.7%    
 

LOGO

  RAS ASSET MANAGEMENT Società di gestione del risparmio S.p.A.   100.0%    
 

LOGO  LOGO

  Riunione Adriatica di Sicurtà S.p.A.   100.0%    
  Luxembourg    
 

LOGO

  Allianz Global Investors Luxembourg S.A.   100.0%    
 

LOGO

  Dresdner Bank Luxembourg S.A.   100.0%    
  Netherlands    
 

LOGO

  Allianz Nederland Levensverzekering N.V.   100.0%    
 

LOGO

  Allianz Nederland Schadeverzekering N.V.   100.0%    
  Portugal    
 

LOGO  LOGO

  Companhia de Seguros Allianz Portugal S.A.   64.8%    
  Spain    
 

LOGO  LOGO

  Allianz Compañía de Seguros y Reaseguros S.A.   99.9%    
  Switzerland    
 

LOGO

  Allianz Risk Transfer AG   100.0%    
 

LOGO

  Allianz Suisse Lebensversicherungs-Gesellschaft   100.0%    
 

LOGO

  Allianz Suisse Versicherungs-Gesellschaft   100.0%    
 

LOGO

  Dresdner Bank (Schweiz) AG   99.8%    
 

LOGO

  ELVIA Reiseversicherungs-Gesellschaft AG   100.0%    
  United Kingdom    
 

LOGO

  Allianz Cornhill Insurance plc.   98.0% (1)  
 

LOGO

  RCM (UK) Ltd.   100.0%    

 

  OTHER EUROPE – NEW EUROPE  
  Bulgaria    
  LOGO   Allianz Bulgaria Insurance and Reinsurance Company Ltd.   78.0%  
  LOGO   Allianz Bulgaria Life Insurance Company Ltd.   99.0%  
  LOGO   Commercical Bank Allianz Bulgaria Ltd.   99.8%  
  Croatia    
  LOGO  LOGO   Allianz Zagreb d.d.   80.1%  
  Czech Republic    
  LOGO  LOGO   Allianz pojistóvna, a.s.   100.0%  

 

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  Hungary    
 

LOGO  LOGO

  Allianz Hungária Biztositó Rt.   100.0%  
  Poland    
  LOGO   TU Allianz Polska S.A.   100.0%  
  LOGO   TU Allianz Polska Zycie S.A.   100.0%  
  Romania    
  LOGO   Allianz Tiriac Asigurari SA   51.6%  
  Russian Federation    
  LOGO   Insurance Joint Stock Company “Allianz”   100.0%  
  Slovakia    
 

LOGO  LOGO

  Allianz-Slovenská poist’ovna a.s.   84.6%  

 

  NORTH AND SOUTH AMERICA  
  Argentina    
 

LOGO  LOGO

  AGF Allianz Argentina Compañía de Seguros Generales S.A.   100.0%  
  Brazil    
 

LOGO  LOGO

  AGF Brasil Seguros S.A.   72.5%  
  Colombia    
  LOGO   Colseguros Generales S.A.   100.0%  
  Mexico    
  LOGO   Allianz México S.A. Companía de Seguros   100.0%  
  United States    
  LOGO   Allianz Global Investors of America L.P.   97.3%  
  LOGO   Allianz Global Investors Distributors LLC   100.0%  
  LOGO   Allianz Global Risks US Insurance Company   100.0%  
  LOGO   Allianz Life Insurance Company of North America   100.0%  
  LOGO   Fireman’s Fund Insurance Company   100.0%  
  LOGO   NFJ Investment Group L.P.   100.0%  
  LOGO   Nicholas Applegate Capital Management LLC   100.0%  
  LOGO   Oppenheimer Capital LLC   100.0%  
  LOGO   Pacific Investment Management Company LLC   85.0%  
  LOGO   RCM Capital Management LLC   100.0%  
  Venezuela    
 

LOGO  LOGO

  Adriática de Seguros C.A.   98.3%  

 

  ASIA-PACIFIC AND REST OF WORLD    
  Australia    
  LOGO   Allianz Australia Limited   100.0%    
  China    
 

LOGO

  Allianz China Life Insurance Co. Ltd.   51.0%    
  LOGO   Allianz Global Investors Hong Kong Ltd.   100.0%    
  LOGO   Allianz Insurance (Hong Kong) Ltd.   100.0%    
  Indonesia    
  LOGO   PT Asuransi Allianz Utama Indonesia Ltd.   75.4%    
  LOGO   PT Asuransi Allianz Life Indonesia p.l.c.   99.8%    
  Japan    
  LOGO   Allianz Fire and Marine Insurance Japan Ltd.   100.0%    
  LOGO   Dresdner Kleinwort (Japan) Ltd.   100.0%    
  Laos    
 

LOGO  LOGO

  Assurances Générales du Laos Ltd.   51.0%    
  South Korea    
  LOGO   Allianz Global Investors Korea Limited   100.0%    
  LOGO   Allianz Life Insurance Co. Ltd.   100.0%    
  Malaysia    
  LOGO   Allianz General Insurance Malaysia Berhad p.l.c.   98.7%    
  LOGO   Allianz Life Insurance Malaysia Berhad p.l.c.   100.0%    
  Singapore    
  LOGO   Allianz Global Investors Singapore Ltd.   100.0%    
  LOGO   Allianz Insurance Company of Singapore Pte. Ltd.   100.0%    
  Taiwan    
  LOGO   Allianz President Life Insurance Co. Ltd.   50.0% (2)  
  LOGO   Allianz Global Investors Taiwan (SITE) Ltd.   100.0%    
  Egypt    
  LOGO   Allianz Egypt Insurance Company S.A.E.   85.0%    
  LOGO   Allianz Egypt Life Company S.A.E.   99.4%    

 

Business segments

 

  LOGO Property-Casualty
  LOGO Life/Health
  LOGO Banking
  LOGO Asset Management
  LOGO Corporate

 

  LOGO Operating entity contributes a substantial portion of our total revenues within our primary geographic markets. Total revenues comprise Property-Casualty segment’s gross premiums written, Life/Health segment’s statutory premiums, Banking segment’s operating revenues and Asset Management segment’s operating revenues.

 

(1) 99.99% of the voting share capital.

(2) Controlled by the Allianz Group.


 

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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 initially 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 of claims relating to case reserves (incurred but not enough reported, or “IBNER”). Similar to case reserves for reported claims, IBNR reserves are established to recognize the estimated costs, including loss adjustment expenses, necessary to bring claims to final settlement. 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 regarding claim frequency, severity and time lag in reporting are examples of factors used in calculating 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 variables are internal to the Allianz Group, such as changes in claims handling procedures, introduction of new information technology (IT) systems or company acquisitions and divestitures. Other factors are external to the Allianz Group, such as inflation, judicial trends and changes in the applicable legal and regulatory environment. The Allianz Group attempts to reduce the uncertainty in reserve estimates through the use of multiple actuarial and reserving techniques and analysis of the assumptions underlying each technique.

 

Within the Allianz Group, loss and LAE reserves are estimated by local operating entity, and within each entity by line of business. Group-level actuaries at Allianz SE use a variety of methods to oversee and monitor reserve levels set by the local companies. The loss reserving process on a local entity level and the central oversight function are described in more detail below.

 

During 2006, there were no significant changes in the mix of business written across Allianz Group.

 

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.

 

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 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 provide consistent reserving methodologies and assumptions to be employed across the 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


 

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process begins with local reserving actuaries gathering data to calculate estimates and 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 or more years is used, while for shorter-tailed lines such as property, data going back five to seven 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 vs. 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 a priori 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 reserve 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 these reserving decisions and to select the best estimate of the ultimate amount of reserves within the 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


 

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diagnostic review – 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 significant entities are reviewed once every three years. 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 of reserve reports provided by local operating entities: Local operating entities are required to provide Group Actuarial with 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 automobile property damage claims, are typically reported within a few days or weeks and are generally settled within two to three years. Medium-tail claims such as personal and commercial motor liability claims generally take four to six years to settle, while long-tail claims, such as general liability, workers compensation, construction and professional liability claims take longer.

 

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, 2004, 2005 and 2006, 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 12% short-tail, 59% medium-tail and 29% long-tail business.


 

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Loss and LAE Reserves by Year, Region and Line of Business, Gross of Reinsurance(1)

     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,

  2004   2005   2006   2004   2005   2006   2004   2005   2006   2004   2005   2006   2004     2005     2006     2004   2005   2006   2004   2005   2006
    €mn   €mn   €mn   €mn   €mn   €mn   €mn   €mn   €mn   €mn   €mn   €mn   €mn     €mn     €mn     €mn   €mn   €mn   €mn   €mn   €mn

Germany(3)

  4,806   4,696   4,681   1,714   1,826   1,875   732   748   556   —     —     —     2,165     2,731     2,454     2,219   2,051   2,017   11,637   12,053   11,583

Case Reserves(1)

  4,663   4,579   4,555   1,127   1,251   1,300   597   592   452   —     —     —     1,503     1,984     1,631     640   679   695   8,530   9,085   8,632

IBNR

  143   117   126   587   574   575   135   156   104   —     —     —     662     748     824     1,579   1,373   1,322   3,106   2,968   2,951

France

  2,132   2,180   2,224   1,777   1,901   1,924   1,200   1,161   1,103   244   306   316   2,074     2,144     2,182     1,113   1,052   997   8,540   8,744   8,746

Case Reserves(1)

  1,607   1,610   1,511   1,538   1,541   1,534   1,002   963   921   76   95   114   828     785     763     67   54   66   5,117   5,049   4,910

IBNR

  525   571   713   238   359   390   198   197   182   169   211   202   1,246     1,359     1,419     1,046   997   931   3,423   3,695   3,836

Italy

  3,920   4,175   4,192   1,495   1,579   1,716   445   449   521   152   142   134   425     430     459     9   12   14   6,446   6,786   7,035

Case Reserves(1)

  2,626   2,927   3,091   1,025   1,023   1,067   401   422   510   131   119   110   379     385     407     8   11   13   4,571   4,886   5,197

IBNR

  1,294   1,249   1,101   470   556   649   43   27   10   21   23   24   45     45     53     0   1   1   1,875   1,900   1,838

United Kingdom

  964   1,029   1,005   342   418   503   465   615   485   66   73   77   305     194     259     897   927   935   3,038   3,257   3,265

Case Reserves(1)

  789   836   847   256   306   356   305   456   356   27   30   29   191     116     179     613   607   577   2,180   2,350   2,344

IBNR

  174   193   157   87   112   147   160   159   129   39   44   48   114     79     80     284   320   359   858   907   921

Switzerland

  845   824   842   239   236   233   101   146   104   96   82   74   554     872     836     1,116   1,119   1,080   2,950   3,278   3,169

Case Reserves(1)

  728   718   683   200   189   191   83   126   74   66   59   53   447     675     725     822   791   764   2,346   2,557   2,490

IBNR

  117   106   159   39   47   42   18   20   29   30   24   22   107     197     111     294   328   315   604   721   679

Spain

  915   1,036   1,134   210   264   280   120   135   142   2   2   3   35     69     82     135   189   183   1,417   1,695   1,824

Case Reserves(1)

  861   992   1,072   177   219   208   110   117   117   2   2   2   29     51     64     116   168   151   1,294   1,550   1,614

IBNR

  54   44   62   32   44   72   11   17   25   0   0   0   6     19     19     20   21   32   123   145   210

Other Europe

  2,937   2,742   2,864   1,039   1,033   1,051   537   485   538   399   302   197   171     174     146     638   604   592   5,721   5,340   5,388

Case Reserves(1)

  2,099   2,379   2,378   770   781   786   440   441   433   337   247   132   153     133     121     460   432   436   4,259   4,414   4,287

IBNR

  838   363   486   269   252   265   97   44   104   62   54   65   18     41     25     178   172   157   1,462   926   1,102

NAFTA Region(3)

  469   471   349   2,759   3,749   3,041   739   951   722   95   37   169   678     849     1,108     1,405   1,462   1,201   6,144   7,519   6,589

Case Reserves(1)

  256   275   202   1,074   1,182   976   104   183   89   85   23   101   380     449     425     1,145   1,149   938   3,043   3,260   2,730

IBNR

  213   196   147   1,685   2,568   2,065   635   768   632   10   14   68   298     401     683     259   313   263   3,101   4,260   3,859

Asia -Pacific Region

  1,211   1,384   1,381   343   379   379   226   219   184   33   39   40   101     110     119     599   671   665   2,513   2,802   2,768

Case Reserves(1)

  667   782   899   107   110   113   138   147   114   2   3   2   42     49     49     201   217   221   1,157   1,307   1,398

IBNR

  543   602   483   237   270   266   88   72   70   32   36   38   59     61     70     398   454   444   1,356   1,495   1,371

South America & other

  108   165   176   29   56   59   148   110   149   —     —     —     51     77     68     —     —     —     336   407   452

Case Reserves(1)

  87   130   127   28   55   57   131   91   136   —     —     —     34     52     46     —     —     —     280   328   366

IBNR

  21   34   48   1   1   2   16   19   13   —     —     —     18     25     22     —     —     —     56   80   86

Subtotal of countries / regions

  18,304   18,702   18,849   9,947   11,440   11,061   4,713   5,019   4,502   1,088   984   1,009   6,558     7,652     7,714     8,130   8,086   7,684   48,741   51,882   50,818

Case Reserves(1)

  14,382   15,228   15,365   6,303   6,656   6,588   3,311   3,538   3,204   725   578   543   3,986     4,678     4,409     4,072   4,107   3,859   32,778   34,785   33,968

IBNR

  3,923   3,475   3,484   3,645   4,784   4,473   1,402   1,481   1,298   363   406   467   2,572     2,974     3,305     4,059   3,979   3,825   15,963   17,097   16,850

Credit Insurance

  —     —     —     —     —     —     —     —     —     681   688   691   529     424     351     —     —     —     1,210   1,112   1,042

Case Reserves(1)

  —     —     —     —     —     —     —     —     —     454   445   452   696     663     586     —     —     —     1,150   1,108   1,038

IBNR

  —     —     —     —     —     —     —     —     —     228   243   239   (168 )   (239 )   (235 )   —     —     —     60   4   4

Allianz Global Corporate & Specialty(3)

  —     —     —     1,577   1,632   1,399   1,252   1,930   1,594   —     72   131   1,912     2,819     2,921     706   685   616   5,448   7,137   6,662

Case Reserves(1)

  —     —     —     713   713   719   976   1,305   966   —     33   78   1,290     1,622     1,463     408   441   408   3,387   4,114   3,633

IBNR

  —     —     —     864   919   681   276   625   629   —     39   53   622     1,197     1,458     298   244   208   2,061   3,023   3,028

Travel Insurance and Assistance Services

  —     —     —     —     —     —     —     —     —     130   128   143   —       —       —       —     —     —     130   128   143

Case Reserves(1)

  —     —     —     —     —     —     —     —     —     103   108   117   —       —       —       —     —     —     103   108   117

IBNR

  —     —     —     —     —     —     —     —     —     27   20   26   —       —       —       —     —     —     27   20   26

Subtotal of specific business (global)

  —     —     —     1,577   1,632   1,399   1,252   1,930   1,594   811   888   964   2,440     3,243     3,272     706   685   616   6,788   8,377   7,846

Case Reserves(1)

  —     —     —     713   713   719   976   1,305   966   557   586   647   1,986     2,285     2,049     408   441   408   4,640   5,330   4,789

IBNR

  —     —     —     864   919   681   276   625   629   254   302   317   454     958     1,223     298   244   208   2,147   3,047   3,057

Allianz Group Total

  18,304   18,702   18,849   11,525   13,072   12,460   5,965   6,949   6,096   1,899   1,872   1,973   8,998     10,894     10,986     8,837   8,770   8,300   55,528   60,259   58,664
                                                                                         

Case Reserves(1)

  14,382   15,228   15,365   7,016   7,369   7,307   4,287   4,843   4,169   1,282   1,164   1,190   5,972     6,963     6,458     4,480   4,548   4,267   37,418   40,115   38,757

IBNR

  3,923   3,475   3,484   4,509   5,703   5,153   1,678   2,106   1,927   617   707   783   3,026     3,931     4,528     4,357   4,223   4,032   18,110   20,145   19,908

(1)

By jurisdiction of individual Allianz Group subsidiary companies.

(2)

For 2006, 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 established in 2006 and combines reserves formerly presented as Marine & Aviation and as part of reserves for Germany and NAFTA Region. Prior year balances have been adjusted to reflect these reclassifications and allow for comparability across periods.

 

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When reviewing the foregoing tables, caution should be used in comparing the split between case and IBNR reserves across country and 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, like property, claims are generally reported immediately after occurrence and settled in a period of only a few years. For long-tail lines of business like 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.

 

In addition, the portion of IBNR as a percentage of total loss reserves varies considerably across regions. 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 total reserves and known case reserves. The relative level of case reserves, however, differs significantly by country and company based on the regulatory environment and company practices and procedures on setting case reserves. In some jurisdictions, such as Germany, case reserves are set on a prudent basis based on local regulatory requirements, leading to relatively low (or negative) IBNR. While total reserves for loss and LAE are set on a best estimate level as required by IFRS, the split by case reserve and IBNR is strongly dependent on the jurisdiction and line of business. In particular a low (or negative) level of IBNR in a certain country does not indicate weak overall reserve levels.


 

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, 2006 on an IFRS basis.

 

Reconciliation of Loss and LAE Reserves

 

    2006     2005     2004  
    Gross     Ceded     Net     Gross     Ceded     Net     Gross     Ceded     Net  
    € mn     € mn     € mn     € mn     € mn     € mn     € mn     € mn     € mn  

Balance as of January 1,

  60,259     (10,604 )   49,655     55,528     (10,049 )   45,479     56,750     (12,067 )   44,683  

Plus incurred related to:

                 

Current year

  28,214     (2,572 )   25,642     30,111     (3,580 )   26,531     28,693     (2,965 )   25,728  

Prior years

  (1,186 )   217     (969 )(1)   (1,632 )   433     (1,199 )   (1,293 )   836     (457 )
                                                     

Total incurred

  27,028     (2,355 )   24,673     28,479     (3,147 )   25,332     27,400     (2,129 )   25,271  
                                                     

Less paid related to:

                 

Current year

  (12,436 )   675     (11,761 )   (12,742 )   861     (11,881 )   (12,290 )   845     (11,445 )

Prior years

  (14,696 )   2,455     (12,241 )   (13,284 )   2,568     (10,716 )   (14,384 )   2,576     (11,808 )
                                                     

Total paid

  (27,132 )   3,130     (24,002 )   (26,026 )   3,429     (22,597 )   (26,674 )   3,421     (23,253 )

Effect of foreign exchange and other

  (1,491 )   496     (995 )   2,277     (837 )   1,440     (1,132 )   534     (598 )

Effect of (divestitures)/acquisitions(2)

  —       —       —       1     —       1     (816 )   192     (624 )
                                                     

Balance as of December 31,

  58,664     (9,333 )   49,331     60,259     (10,604 )   49,655     55,528     (10,049 )   45,479  
                                                     

(1)

The €969 million of favorable development during 2006 was the result of many individual developments by region and line of business. See “—Changes in Loss and LAE Reserves During 2006.”

(2)

Reserves for loss and LAE of subsidiaries acquired (or disposed) are shown during the year of acquisition (or disposition). The divestiture of €624 million in 2004 was driven primarily by the sale of Allianz Insurance Company of Canada in December 2004.

 

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Changes in Loss and LAE Reserves During 2006

 

As noted above, net loss and LAE reserves of the Allianz Group at December 31, 2006 included a €969 million reduction in incurred loss and LAE relating to favorable development on prior years, representing 2 % of net loss and LAE reserves at January 1, 2006. The following table provides a breakdown of this amount by region.

 

Changes in Loss and LAE Reserves During 2006

 

     Net Reserves as of
December 31,
2005
   Net Development in
2006 related to
Prior Years
    in %(1)  
     € mn    € mn        

Germany

   9,988    (14 )   (0.1 )

France

   7,485    (142 )   (1.9 )

Italy

   2,971    (241 )   (8.1 )

United Kingdom

   2,687    (169 )   (6.3 )

Switzerland

   3,053    117     3.8  

Spain

   1,499    (70 )   (4.7 )

Rest of Europe

   5,011    (240 )   (4.8 )

NAFTA Region

   6,348    9     0.1  

Asia-Pacific Region

   2,528    (119 )   (4.7 )

South America, Africa and Rest of World

   4,072    (18 )   (0.4 )
                 

Subtotal of regions

   45,642    (887 )   (1.9 )

Credit insurance

   791    (168 )   (21.3 )

Allianz Global Corporate and Speciality

   3,098    104     3.3  

Travel insurance and assistance services

   124    (17 )   (13.9 )
                 

Allianz Group Total

   49,655    (968 )   (1.9 )
                 

(1)

In percent of net reserves as of December 31, 2005.

 

Within each region, these reserve developments represent the sum of amounts for individual companies and lines of business. Because of the multitude of these reviewed segments, it is not feasible, or meaningful, to provide detailed information regarding each segment (e.g., claim frequencies, severities and settlement rates). We discuss below the major highlights of the reserve developments during the past year as they are recognized at the operating entities. Most of these companies analyze loss and LAE reserves on a gross basis. Therefore, the discussion is based on gross loss and LAE reserves in the local currency of the company before consolidation and converted to Euro for uniform presentation. Consequently, individual amounts in the following discussion, which are based on significant developments of our major operating entities, do not fully reconcile to those in the above table, which are based on net loss and LAE reserves and net developments during 2006.

 

Germany

 

In Germany, gross loss and LAE reserves developed favorably during 2006 by approximately €45 million, or 0.4% of reserves at January 1, 2006.

 

At Allianz Sach the property-casualty insurance company of the Allianz Group in Germany, gross loss and LAE reserves developed unfavorably by €53 million. This development was the result of multiple effects.

 

Unfavorable developments included:

 

   

€97 million for motor third party liability on the basis of a more precise method of allocating loss adjustment expenses to origin periods. The increase in reserve represents a first indication of the effect of this reallocation on estimated ultimate losses, which will undergo further analysis in the future.


 

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€25 million for legal protection, as reserves were strengthened to reflect a change in the legislation concerning attorney fees and the increase of value added tax in Germany,

 

Offsetting favorable developments include:

 

   

€26 million resulting from the transfer of the corporate business to Allianz Global Corporate and Specialty. In the past, corporate, commercial and personal business had been analyzed in aggregate, but the separation has led to a reduction of reserves for the portfolio remaining with Allianz Sach; and

 

   

€23 million for the winter storm Dorian in December 2005. Early estimates of ultimate claims incurred from this storm were available as of end of 2005 and subsequent claims development has been favorable.

 

Also during 2006, Allianz SE, the Allianz Group company underwriting primarily intra-Allianz Group reinsurance, experienced €114 million of favorable reserve development. In many cases, these developments were the direct result of corresponding developments in reserves on the underlying business of the Allianz Group companies that were ceded to Allianz SE. The main drivers for the favorable development were:

 

   

€90 million for international corporate business resulting from an improved reserve calculation in property business. The new approach based on triangulations showed that the former approach based on benchmarks overestimated the ultimate loss for the portfolio.

 

   

€50 million on facultative business mainly due to a lower than expected number of late reported claims as well as case reserves being below average experience for these types of claims.

 

   

€12 million related to the settlement of World Trade Center claims.

 

These developments were partially offset by an increase of €17 million for IBNR claims in non-proportional motor and credit treaty business in Western Europe and an adverse development of €15 million for external business due to a increase of incurred losses by cedents.

 

France

 

In France, gross loss and LAE reserves developed favorably by €270 million, or 3.1% of the reserves at January 1, 2006.

 

At AGF IART, favorable reserve developments of €410 million were partially offset by €148 million unfavorable developments.

 

Favorable developments at AGF IART included:

 

   

€159 million on property business, mainly driven by reductions in the estimated ultimate loss for professional lines for recent accident years for which actual development has been less than expected and partly due to the settlement of older accident years;

 

   

€109 million on general liability business mainly driven by the international corporate business for professional liability due to reductions in the estimated ultimate loss for which actual development has been less than expected;

 

   

€78 million on health and group business mainly driven by accident claims on group contracts as a result of a detailed review of disability claims; and

 

   

€49 million in aggregate for smaller developments in eight lines of business.

 

Offsetting unfavorable developments at AGF IART included:

 

   

€44 million for construction business mainly due to a reduction in recoveries and an increase for underdeveloped recent years, estimated on exposures that are trending higher than expected;

 

   

€35 million for motor third party liability in agents and overseas business for older prior years following the indication of a re-estimation;

 

   

€11 million for general liability mainly driven by participation in local pools;

 

   

€11 million for natural catastrophes, reflecting further adverse development during 2006 on claims arising from droughts in 2003; and

 

   

€24 million as a result of aggregating smaller developments in several lines of business.


 

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Italy

 

As a result of a combination of reserve developments at several operating entities, the gross loss and LAE reserves developed favorably in Italy by €248 million, or 8.2% of the reserves at January 1, 2006.

 

At RAS S.p.A., gross loss and LAE reserves developed favorably by €15 million. This was the result of favorable developments mainly attributable to the following factors:

 

   

€41 million in motor third party liability due to a reduction in claims frequency influenced by a change in law permitting the introduction and acceptance of deductibles and a punitive point system against traffic rule offences. At the same time, claim severity has been favorably impacted by a revised claims handling strategy that gives priority to the quality of the settlement above the pure speed in closing claim files; and

 

   

€33 million in fire and engineering due to favorable settlement of reported large claims.

 

These favorable developments were partially offset by adverse developments in general liability reserves, which were increased for coinsured business and business with public entities related to older accident years that were identified as being deficient after reviewing separately from the ordinary general liability book.

 

Allianz Subalpina, a consolidated subsidiary of RAS S.p.A., exhibited favorable development of €34 million during 2006, mainly due to motor third party liability, for the same reasons discussed above for RAS S.p.A.

 

Genialloyd, a consolidated subsidiary of RAS S.p.A. specializing in direct motor business, exhibited favorable development of €24 million during 2006. This development is a result of more robust and stable analyses based on a larger volume of business due to the significant growth of the company since its founding in 1997.

 

Lloyd Adriatico experienced favorable development of €181 million during 2006 mainly due to a reduction of €150 million in motor third party liability. This reflects several factors, including a further reduction of already historically low claims frequencies and a lower than anticipated impact on the severity of bodily injury claims resulting from legal changes in 2005. Furthermore, Lloyd Adriatico experienced favorable development of €20 million in its personal accident, property and motor own damage lines.

 

United Kingdom

 

In the United Kingdom, gross loss and LAE reserves developed favorably during 2006 by €150 million, or 4.6%, of the reserves at January 1, 2006.

 

At Allianz Cornhill, gross loss and LAE reserves developed favorably during 2006 by €178 million due primarily to the following factors:

 

   

€34 million on private lines primarily related to motor accounts. Private car has seen a surplus mainly as a result of changing claims development patterns due to claims process review changes, faster delivery of benefits from group-wide implementation of improved practice processes in the claims division, and lower than anticipated inflation on bodily injury claims. There was also a small release from the household account largely resulting from the precautionary bad weather reserves established to allow for delayed claims reporting during the 2005 year-end holiday season not being needed;

 

   

€107 million on commercial lines, €64 million of which related from the motor account largely for the same reasons as for the personal lines discussed above. There was an additional €33 million surplus from the Property accounts partly arising from precautionary bad weather reserves established to allow for delayed claims reporting during the 2005 year-end holiday season not being needed, but also from favourable development from a few individual large claims. There were also releases from the more recent years for the liability account, but these were partially offset by deterioration in older years. This

 


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was mainly in respect of mesothelioma claims, where we have seen an increase in severity of claims notified in 2006, and we have reflected this in our expectations for the future;

 

   

€15 million on schemes where the improvement relates mainly to favourable experience on the creditor and all risks accounts; and

 

   

€21 million on marine where the surplus has arisen largely as a result of US asbestos related claims being settled, and a continuation of the recent trend of only a very low level of new claims being notified.

 

At AGF U.K., a company in run-off reserves for loss and loss adjustment expenses, developed unfavorably by €28 million as a result of higher number of mesothelioma claims received in 2006 than expected, and this being reflected in revised future expectations.

 

Switzerland

 

In Switzerland, gross loss and LAE reserves experienced unfavorable development of €110 million, or 3.3% of the reserves at January 1, 2006.

 

At Allianz Suisse Versicherungs-Gesellschaft, gross loss and LAE reserves developed favorably by €8 million. This development consists of a €21 million release in general liability, mainly a result of an improved database integrating all legal entities of Allianz Suisse allowing more robust review of claims. These favorable developments were partly offset by an increase of €14 million for allocation of interest to annuities.

 

Loss and LAE reserves of Allianz Risk Transfer, the Allianz Group company selling conventional reinsurance as well as a variety of alternative risk transfer products, developed unfavorably by €122 million. Reasons for this development were:

 

   

€37 million due to the unfavorable development on a large traditional quota-share reinsurance contract; and

 

   

€80 million negative run-off in the alternative risk transfer segment as a consequence of additional loss advices for 2005 U.S. Hurricanes.

 

Spain

 

Gross loss and LAE reserves for Allianz Seguros developed favorably by €82 million, or 4.8% of the reserves at January 1, 2006. This favorable development is mainly due to a change in methodology. Due to a limited history of data, in the past, estimates have been based on incurred loss development in prior reserve reviews. In 2006 sufficient 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 €299 million, or 5.6% of reserves at January 1, 2006. This figure includes the result of unfavorable as well as favorable developments for numerous individual companies. As the business is written in different currencies, these developments were also affected by foreign exchange rate movements.

 

Allianz Irish Life Holdings p.l.c. experienced favorable development of €133 million for several reasons:

 

   

€32 million release for commercial and personal motor mainly a result of better than anticipated levels of savings following the introduction of the Personal Injury Assessment Board (PIAB);

 

   

€28 million for commercial and religious liability; again due to the effect of introducing PIAB;

 

   

€19 million on the property account consisting of €6 million in favorable claims development on outstanding claims in the commercial fire account during 2006. At the beginning of 2006, there was a release of a €13 million reserve established to cover delayed claims reporting from the 2005 year-end holiday period that was not needed; and


 

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€25 million release on the PIAB reserve following the December 2006 review. The PIAB reserve is spread over motor, employers liability and public liability accounts. This reserve was set up to cover the risk of claims inflation as a result of the introduction of the PIAB in 2004. As exposure to this risk was reduced, the reserve is no longer required and was fully released in 2006.

 

Gross loss and LAE reserves for Allianz Nederland Schade experienced favorable development of €57 million in 2006, primarily due to:

 

   

€37 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;

 

   

€24 million from property caused by less then expected large claims for accident year 2005. In particular, held IBNYR of €10 million were not needed and incurred amounts for accident years 2003 and 2004 developed favorably.

 

Gross loss and LAE reserves for Allianz Hungária Biztosító experienced favorable development of €29 million in 2006, including:

 

   

€14 million for property due to favorable court decisions regarding industrial claims;

 

   

€13 million for motor third party liability driven by the reduction in the estimated ultimate loss; and

 

   

€5 million for motor non third party liability due to an improved claims settlement process.

 

Gross loss and LAE reserves for Allianz Slovenská experienced favorable development of €15 million in 2006, due primarily to improved management of unallocated loss adjustment expenses, better than expected settlement of two large property claims and as a result of a re-estimation in due course for motor business.

 

NAFTA Region

 

For the entire NAFTA region, Allianz Group’s gross loss and LAE reserves developed unfavorably during 2006 by €187 million, or 2.5% of the reserves at January 1, 2006. The largest Allianz Group company in this region is Fireman’s Fund Insurance Company.

 

At Fireman’s Fund, prior period gross loss and LAE reserve estimates increased by €179 million primarily driven by the following factors:

 

   

€190 million for the 2005 U.S. hurricanes. Most of it is attributed to hurricane Katrina in particular due to the most recent court ruling regarding flood versus wind coverage; and

 

   

€72 million for Asbestos and Environmental claims (A&E) resulting from reviews of recent developments in claims and exposure.

 

These adverse developments were partially offset by favorable developments of €40 million for agribusiness due to unusually low occurrence of crop claims and of €33 million in workers compensation due to a continued larger than expected impact from recent cost-reducing system reforms. Favorable development of €20 million was also observed for marine third party liability driven by fewer than usually experienced large claims.

 

Asia-Pacific

 

Gross loss and LAE reserves for the Asia-Pacific region developed favorably during 2006 by approximately €133 million or 4.7% of reserves at January 1, 2006. The largest Allianz Group property-casualty insurer in the region is Allianz Australia, representing approximately 93% of the region’s total reserves.

 

Allianz Australia experienced favorable development of €120 million during 2006. This result arose from partially favorable developments from different lines of business:

 

   

€88 million from motor third party liability following favorable loss experience in Queensland and New South Wales due to the impact of prior years’ legislative changes;


 

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€30 million in property, fire and engineering businesses. The surplus was a result of better than expected development across most accident years, but in particularly for the three most recent accident years. While the reserve as of December 31, 2005 assumed case reserves would develop further, the experience has shown that the case reserves development is actually negative. This portfolio is very volatile as a result of the size of risks being written, so unexpected movements from a few large claims can have significant impact.

 

   

€23 million for workers’ compensation. The release from this portfolio is a result of continuing positive development in workers compensation portfolios, in particular Western Australia, Australian Capital Territory (ACT) and Tasmania for prior accident years. Legislative changes in these jurisdictions and positive return to work outcomes as a result of the lowest Australian unemployment rate in 30 years have contributed to this development. These releases were offset partially by an increase in the estimate for asbestos related claims following a review of developing experience.

 

   

€21 million for general liability. There was significant legislative reform during 2002 affecting this class of business intended to reduce claim costs. Claim frequencies have reduced significantly and claim sizes to date are also lower.

 

   

€9 million release for motor first-party relating almost entirely to the 2005 accident year, for which the estimate of the final accident quarter’s incurred claims, was, in hindsight, too high.

 

Credit Insurance

 

Credit insurance is underwritten in the Allianz Group by Euler Hermes. During 2006, Euler Hermes experienced favorable development of €223 million, or 20.1% of the reserves at January 1, 2006. Of this amount, €77 million is attributable to Euler Hermes Germany, which experienced favorable loss trends and an unexpected loss recovery in commercial credit. In France, the favorable development of €53

million was mainly attributable to an increase in salvage and subrogation and decrease of average claim cost. Furthermore, in Italy, the favorable development of €28 million was partly the result of a release of reserves on two large claims, which developed better than expected as well as the lower than expected loss development on attachment year 2005. A favorable development of €38 million in the United Kingdom was mainly attributable to a lower than anticipated number and severity of corporate insolvencies in 2005.

 

Allianz Global Corporate and Specialty

 

Allianz Global Corporate and Specialty (AGCS) was formed as the result of the merger of the corporate business company Allianz Global Risks and the specialty carrier Allianz Marine and Aviation. The new entity is designed to be the global carrier for corporate and specialty risks and also includes the corporate branch of the German business which was formerly part of the German general insurance company Sachgruppe Deutschland (SGD) now operating as Allianz Sach.

 

Overall AGCS experienced €3 million of unfavorable development in 2006. This was mainly caused by the following partly offsetting effects:

 

   

Reserves held at AGCS North-America for the losses from 2005 U.S. hurricanes developed favorably. Year end 2005 reserves for these events were set very shortly after the occurrence and were therefore subject to increased uncertainty. During 2006, actual loss emergence from the hurricanes was below expectation. This and the overall favorable loss reporting for U.S. property business during 2006 led to a release of €79 million of prior year reserves.

 

   

Reserves held by AGCS France especially for more recent underwriting years in cargo were reduced by €17 million due to better than expected development. Further favorable development of €25 million arose from marine UK business from underwriting years 2002 and prior.

 

   

AGCS Germany experienced unfavorable development of €128 million which was mainly driven by an increase in reserves of €235 million for inwards marine excess of loss reinsurance due to 2005 hurricane

 


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claims. Estimates of ultimate claims for this account had to be revised due to limited information flow and delayed reporting of losses by cedents. This effect is partially offset by the favorable development in aviation of €75 million, resulting mainly from a lack of large claims activity.

 

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 ten years. As the Allianz Group adopted IFRS in 1997, historical loss development data is available on an IFRS basis for the nine years 1997 to 2006 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, 2006. 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 1997 reserves during 2000 is included in the cumulative surplus (deficiency) of the 1997 through 1999 columns.

 

This 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 acquisition or sale of a company, 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.


 

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Changes in Historical Reserves for Unpaid Loss and LAE

Property-Casualty Insurance Segment

Gross of Reinsurance

 

As of December 31, (1)

  1997     1998     1999     2000     2001     2002     2003     2004     2005     2006
    € mn     € mn     € mn     € mn     € mn     € mn     € mn     € mn     € mn     € mn

Gross liability for unpaid claims and claims expenses

  34,323     45,564     51,276     54,047     61,883     60,054     56,750     55,528     60,259     58,664

Paid (cumulative) as of:

                   

One year later

  9,010     12,273     15,114     16,241     15,945     16,357     14,384     13,282     14,696    

Two years later

  14,113     18,847     22,833     23,077     24,567     24,093     21,157     20,051      

Three years later

  17,812     23,407     27,242     28,059     29,984     29,007     26,149        

Four years later

  20,591     26,327     30,698     31,613     33,586     32,839          

Five years later

  22,522     28,738     33,263     34,218     36,431            

Six years later

  24,233     30,550     35,194     36,317              

Seven years later

  25,536     32,051     36,930                

Eight years later

  26,699     33,344                  

Nine years later

  27,670                    

Liability re-estimated as of:

                   

One year later

  40,651     46,005     52,034     55,200     58,571     56,550     54,103     56,238     57,932    

Two years later

  38,058     46,043     52,792     53,535     56,554     55,704     55,365     53,374      

Three years later

  37,909     46,780     51,265     52,160     56,056     57,387     53,907        

Four years later

  38,530     45,307     49,929     52,103     57,640     56,802          

Five years later

  37,342     44,196     50,058     53,675     57,006            

Six years later

  36,346     44,524     51,432     53,204              

Seven years later

  36,648     45,679     51,263                

Eight years later

  37,696     45,478                  

Nine years later

  37,647                    

Cumulative surplus (deficiency)

  (3,324 )   86     13     843     4,877     3,252     2,843     2,154     2,327    

Effect of disposed/(acquired) portfolios(2)

  (5,514 )   (2,147 )       (93 )     540        

Effect of foreign exchange

  (482 )   (4,495 )   (1,155 )   515     3,415     2,007     (974 )   (1,544 )   1,141    

Excluding both effects

  2,672     6,728     1,168     328     1,155     1,245     3,277     3,698     1,186    

Percent

  7.8 %   14.8 %   2.3 %   0.6 %   2.5 %   2.1 %   5.8 %   6.7 %   2.0 %  

(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)

Major acquisitions were AGF (consolidated 1998), Allianz Australia and Allianz Ireland (consolidated 1999), and Allianz Slovenská (consolidated 2001). A major disposal was Allianz Canada (deconsolidated 2004). 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 2006, loss and LAE reserves decreased by €1,595 million. Important contributors to this decline were the positive development on prior years’ loss reserves primarily in Italy, France, the United Kingdom and within the credit insurance business, as well as the weakening of the U.S. Dollar and Australian Dollar relative to the Euro. A further

factor was the relative absence of natural catastrophe claims during 2006 compared to the unusually high reserves in 2005 for Hurricanes Katrina, Rita and Wilma in the United States. Reserve developments during 2006 are described in further detail in the preceding section “—Changes in Loss and LAE Reserves During 2006”.


 

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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 overall reduction in loss and LAE reserves from 2003 to 2004 is attributable to the then ongoing settlement and run-off of various U.S. business lines, and the appreciation of the Euro relative to U.S. Dollar during 2004.

 

Discounting of Loss and LAE Reserves

 

As of December 31, 2006, 2005 and 2004, the Allianz Group consolidated property-casualty reserves reflected discounts of €1,377 million, €1,326 million and €1,220 million respectively.

 

Reserves are discounted to varying degrees in the United States, United Kingdom, Germany, Hungary, Switzerland, Portugal, France and Belgium. For the United States, the discount reflected in the reserves is related to structured settlements with fixed and determinable payments for certain long-tailed liabilities, primarily in workers’ compensation. For the other countries, 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 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. 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, the carrying amounts of reserves for claims and claim adjustment expenses that have been discounted, and the interest rates used for discounting for the years ended December 31:


 

    

Discounted

Reserves in

  

Amount of the

Discount

   Interest rate used for Discounting
     2006    2005    2006    2005    2006    2005
     € mn    € mn    € mn    € mn          

France

   1,325    1,404    349    357    3.25%    3.25%

Germany

   504    445    346    298    2.75% to 4.00%    2.75% to 4.00%

Switzerland

   427    414    253    236    3.25%    3.25%

United States

   181    213    200    230    6.00%    6.00%

United Kingdom

   139    116    133    110    4.00% to 4.25%    4.00% to 4.25%

Belgium

   91    91    26    28    3.20% to 4.68%    4.68%

Portugal

   79    57    47    44    4.00%    4.00%

Hungary

   74    67    23    22    1.40%    1.40%
                         

Total

   2,820    2,807    1,377    1,325      
                         

 

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Asbestos and Environmental Loss Reserves

 

There are significant uncertainties in estimating A&E reserves for loss and loss adjustment expenses. 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.

 

While the U.S. A&E claims still represent a majority of the total A&E claims reported to the Company, the insurance industry is facing an increased prominence in exposures to A&E claims on a global basis. We have, as a result, increased our analysis of these non-U.S. A&E exposures during 2006. The results of our non-U.S. A&E reserve analysis support our prior and current level of carried A&E reserves without any need for additional reserve strengthening in 2006.

 

 

The following table summarizes the gross and net loss and loss adjustment expenses 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
 
     € mn    € mn       

2004

   3,161    3,638    6.6 %

2005

   3,147    3,873    6.4 %

2006

   2,990    3,636    6.2 %

 

The table below shows total A&E loss activity for the past three years.

 

     Years Ended December 31,  

Total Asbestos and
Environmental:

   2004     2005     2006  
     € mn     € mn     € mn  

Gross Loss and LAE Reserves as of January 1

   3,797     3,638     3,873  

Gross Loss and LAE Payments

   (225 )   (312 )   (205 )

Change in Loss and LAE Reserves

   66     547     (32 )
                  

Gross Loss and LAE Reserves as of December 31

   3,638     3,873     3,636  
                  

 

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Selected Statistical Information Relating to Our Banking Operations

 

For the purposes of presenting the following information, our banking operations include Dresdner Bank AG and its subsidiaries (“Dresdner Bank”), including its asset management operations, which are insignificant in size relative to Dresdner Bank’s banking operations, and certain other banking subsidiaries of the Allianz Group. This presentation differs from the presentation in “Operating and Financial Review and Prospects”, where the asset management operations of Dresdner Bank are included in our asset management segment and excluded from our banking segment. The following information has been derived from the financial records of our banking operations and has been prepared in accordance with IFRS; it does not reflect certain adjustments and consolidations to convert such information to the Allianz Group’s consolidated financial statements. 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. Further, the following information does not reflect adjustments necessary to convert such information to U.S. GAAP.

 

The information presented herein for the years ended December 2004, 2003 and 2002 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, 2006, 2005 and 2004. The average balance sheet and interest rate data is based on consolidated monthly average balances using month-end balances prepared in accordance with IFRS.

 

In accordance with IAS 39, the fair values of all derivative instruments are included within non-interest-earning assets or non-interest-bearing liabilities. Interest income and interest expense relating to qualifying hedge derivative instruments have been reported within the interest income and interest expense of the hedged item for each period.

 

The allocation between German and non-German components is based on the location of the office that recorded the transaction. Categories of loans and advances include loans placed on non-accrual status. For a description of our accounting policies on non-accrual loans see “—Risk Elements—Non-accrual Loans” and “Operating and Financial Review and Prospects—Critical Accounting Policies and Estimates.”


 

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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,  
     2006     2005     2004  
     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)

   37,181     1,228    3.3 %   88,194     2,626    3.0 %   110,316     3,299    3.0 %

In non-German offices

   55,947     2,364    4.2 %   53,059     1,941    3.7 %   37,643     1,131    3.0 %
                                       

Total

   93,128     3,592    3.9 %   141,253     4,567    3.2 %   147,959     4,430    3.0 %
                                       

Loans and advances to banks

                     

In German offices

   23,205     544    2.3 %   19,646     424    2.2 %   21,880     455    2.1 %

In non-German offices

   20,838     668    3.2 %   14,276     564    4.0 %   8,653     210    2.4 %
                                       

Total

   44,043     1,212    2.8 %   33,922     988    2.9 %   30,533     665    2.2 %
                                       

Loans and advances to customers

                     

In German offices

   76,642     4,058    5.3 %   77,873     4,313    5.5 %   83,950     4,058    4.8 %

In non-German offices

   50,291     3,165    6.3 %   34,371     1,600    4.7 %   28,029     1,210    4.3 %
                                       

Total

   126,933     7,223    5.7 %   112,244     5,913    5.3 %   111,979     5,268    4.7 %
                                       

Securities purchased under resale agreements

                     

In German offices

   91,242     3,622    4.0 %   83,614     2,690    3.2 %   110,439     2,896    2.6 %

In non-German offices

   46,093     2,361    5.1 %   59,513     2,324    3.9 %   64,030     1,399    2.2 %
                                       

Total

   137,335     5,983    4.4 %   143,127     5,014    3.5 %   174,469     4,295    2.5 %
                                       

Investment securities(3)

                     

In German offices

   8,585     307    3.6 %   7,304     237    3.2 %   5,720     207    3.6 %

In non-German offices

   4,394     161    3.7 %   5,739     237    4.1 %   7,670     241    3.1 %
                                       

Total

   12,979     468    3.6 %   13,043     474    3.6 %   13,390     448    3.3 %
                                       

Total interest-earning assets

   414,418     18,478    4.5 %   443,589     16,956    3.8 %   478,330     15,106    3.2 %
                                       

Non-interest-earning assets

                     

In German offices

   50,312     —      —       45,974     —      —       45,760     —      —    

In non-German offices

   46,644     —      —       43,714     —      —       38,008     —      —    
                                 

Total non-interest-earning assets

   96,956     —      —       89,688     —      —       83,768     —      —    
                                 

Total assets

   511,374     —      —       533,277     —      —       562,098     —      —    
                                 

Percent of assets attributable to non-German offices

   43.8 %   —      —       39.5 %   —      —       32.7 %   —      —    

 

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    Years Ended December 31,  
    2006     2005     2004  
    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

  387     22   5.7 %   215     16   7.4 %   184     15   8.2 %

In non-German offices

  —       —     —       19     1   4.6 %   —       —     —    
                                   

Total

  387     22   5.7 %   234     17   7.2 %   184     15   8.2 %
                                   

Liabilities to banks(4)