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                       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, 2002

                                       OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934

                         COMMISSION FILE NUMBER 1-15154

                           ALLIANZ AKTIENGESELLSCHAFT
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                          FEDERAL REPUBLIC OF GERMANY
                (JURISDICTION OF INCORPORATION OR ORGANIZATION)

                    KONIGINSTRASSE 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, 2002:


                                                       
Ordinary shares, without par value......................  266,565,625 shares


     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 which financial statement item the registrant has
elected to follow.

                          Item 17 [ ]          Item 18 [X]
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                               TABLE OF CONTENTS



ITEM                                                                          PAGE
----                                                                          ----
                                                                        
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...................................................    4
                Exchange Rate Information...................................    5
                Risk Factors................................................    7
ITEMS 4. - 5.   INFORMATION ON THE COMPANY AND
                OPERATING AND FINANCIAL REVIEW AND PROSPECTS................   18
                Introduction................................................   18
                Strategy....................................................   19
                Summary Financial Information...............................   22
                Recent Developments.........................................   24
                Factors Affecting Results of Operations.....................   24
                Critical Accounting Policies................................   26
                Accounting Differences......................................   29
                Consolidated Results of Operations..........................   29
                Consolidated Assets and Liabilities.........................   31
                Investment Portfolio Impairments and Unrealized Losses......   32
                Unrealized Losses...........................................   34
                Property-Casualty Insurance Operations......................   37
                  Germany...................................................   43
                  Rest of Europe............................................   50
                  NAFTA.....................................................   57
                  Rest of World.............................................   59
                Specialty Lines.............................................   61
                Life/Health Insurance Operations............................   64
                  Germany...................................................   67
                  Rest of Europe............................................   73
                  Rest of World.............................................   76
                Banking Operations..........................................   79
                Asset Management Operations.................................   98
                Liquidity and Capital Resources.............................  113
                Consolidated Cash Flows.....................................  113
                Property-Casualty Insurance Reserves........................  116
                Selected Statistical Information Relating to Our Banking
                Operations..................................................  130
                Regulation and Supervision..................................  156
ITEM 6.         DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES..................  177
                Corporate Governance........................................  177
                Management Board............................................  178
                Supervisory Board...........................................  180
                Compensation of Directors and Officers......................  184
                Board Practices.............................................  186


                                        i




ITEM                                                                          PAGE
----                                                                          ----
                                                                        
                Share Ownership.............................................  186
                Employees...................................................  186
                Options to Purchase Securities..............................  187
ITEM 7.         MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS...........  188
                Major Shareholders..........................................  188
                Related Party Transactions..................................  189
ITEM 8.         FINANCIAL INFORMATION.......................................  192
                Consolidated Statements and Other Financial Information.....  192
                Legal Proceedings...........................................  192
                Dividend Policy.............................................  195
                Significant Changes.........................................  195
ITEM 9.         THE OFFER AND LISTING.......................................  195
                Trading Markets.............................................  195
                Market Price Information....................................  195
ITEM 10.        ADDITIONAL INFORMATION......................................  198
                Objects and Purposes........................................  198
                Share Capital...............................................  198
                Material Contracts..........................................  199
                Exchange Controls...........................................  199
                Taxation....................................................  200
                Documents on Display........................................  205
ITEM 11.        QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
                RISK........................................................  206
                Risk Management Organization................................  206
                Market Risk Measurement.....................................  212
                Allianz Group Market Risk Exposure Estimates................  213
ITEM 12.        DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES......  217
ITEM 13.        DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.............  218
ITEM 14.        MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND
                USE OF PROCEEDS.............................................  218
ITEM 15.        CONTROLS AND PROCEDURES.....................................  218
ITEM 16A.       AUDIT COMMITTEE FINANCIAL EXPERT............................  218
ITEM 16B.       CODE OF ETHICS..............................................  218
ITEM 16C.       PRINCIPAL ACCOUNTANT FEES AND SERVICES......................  218
ITEM 17.        FINANCIAL STATEMENTS........................................  219
ITEM 18.        FINANCIAL STATEMENTS........................................  219
ITEM 19.        EXHIBITS....................................................  219
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES....................  F-1


                                        ii


                PRESENTATION OF FINANCIAL AND OTHER INFORMATION

     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 Aktiengesellschaft (or Allianz AG, and
together with its consolidated subsidiaries, the Allianz Group) as of December
31, 2002 and 2001 and for each of the years in the three-year period ended
December 31, 2002, which have been audited by KPMG Deutsche
Treuhand-Gesellschaft AG Wirtschaftsprufungsgesellschaft. The consolidated
financial statements have been prepared in accordance with International
Financial Reporting Standards (or IFRS), which 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,
you should read Note 45 to the consolidated financial statements. All 1999 and
1998 balances have been restated to reflect the retroactive consolidation of
certain investment funds in accordance with IAS Standing Interpretations
Committee (or SIC) 12. Note 45 to our consolidated financial statements includes
a restatement of previous U.S. GAAP reconciling items for the year ended
December 31, 2000. Income statement balances in 2002 and 2001 have been
reclassified to reflect the elimination of certain amounts recorded as both
reserve adjustments and expenses. 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 "DM" are to Deutsche marks, references to "$", "US$"
and "U.S. dollars" are to United States dollars and references to "E" 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."

     Prior to December 31, 1998, we prepared and reported our consolidated
financial statements in DM. With the introduction of the euro on January 1,
1999, we have adopted the euro as our reporting currency. Accordingly, our DM
consolidated financial statements for 1998 have been restated into euro using
the official fixed conversion rate of E1.00 = DM1.95583. Our 1998 restated euro
financial statements depict the same trends as would have been presented if the
financial statements had been continued to be presented in DM. However, the
consolidated financial statements will not be comparable to the euro financial
statements of other companies that previously reported their financial
information in a currency other than DM.

     For convenience only (except where noted otherwise), some of the euro
figures have been translated into U.S. dollars at the rate of US$1.1710 = E1.00,
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 June 18, 2003. 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 DM and the euro from January 1, 1998 through June 18, 2003.

     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.

     Unless otherwise indicated, we have obtained data regarding the relative
size of various national insurance markets from annual reports prepared by
SIGMA, an independent organization which publishes market research data on the
insurance industry. In addition, unless otherwise indicated, insurance market
share data are based on gross premiums written. Data on market share within
particular countries is based on our own internal estimates.

                                        1


           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 and 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 due to weakening credit
       quality;

     - 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 our acquisition of Dresdner Bank AG, including related
       integration and restructuring issues; and

     - terror attacks, events of war, and their respective consequences.

                                        2


                                     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

     The selected consolidated financial data set forth below are derived from
our consolidated financial statements, which have been audited by KPMG Deutsche
Treuhand-Gesellschaft AG Wirtschaftsprufungsgesellschaft.

     We prepare our consolidated financial statements in accordance with IFRS,
which differ in certain significant respects from U.S. GAAP. For a description
of the significant differences between IFRS and U.S. GAAP and a reconciliation
of certain income statement and balance sheet items to U.S. GAAP, you should
read Note 45 to the consolidated financial statements.

     You should read the information below in conjunction with our consolidated
financial statements and the other financial information we have included
elsewhere in this annual report.



                                              AT OR FOR THE YEAR ENDED DECEMBER 31,
                                    ----------------------------------------------------------
                                    2002(1)    2002      2001      2000       1999     1998(2)
                                    -------   -------   -------   -------    -------   -------
                                       $         E         E         E          E         E
                                               (IN MILLIONS, EXCEPT PER SHARE DATA)
                                                                     
IFRS CONSOLIDATED INCOME STATEMENT
  DATA
Gross premiums written(3)
  Property-Casualty...............   50,697    43,294    42,137    38,382     36,027    30,868
  Life/Health.....................   24,196    20,663    20,145    20,239     18,473    15,882
  Consolidation adjustments(4)....     (941)     (804)     (694)     (736)      (693)     (543)
                                    -------   -------   -------   -------    -------   -------
     Total........................   73,952    63,153    61,588    57,885     53,807    46,207
Premiums earned (net).............   64,561    55,133    52,745    49,907     46,182    39,781
Total income
  Property-Casualty...............   65,056    55,556    48,770    45,197     42,079    35,687
  Life/Health.....................   42,784    36,536    34,092    37,251     32,723    27,319
  Banking Operations..............   24,913    21,275    12,755     1,722      1,795     1,266
  Asset Management Operations.....    3,730     3,185     2,738     1,722        693       754
  Consolidation adjustments(4)....  (10,394)   (8,876)   (2,705)   (2,103)    (1,471)   (1,519)
                                    -------   -------   -------   -------    -------   -------
     Total........................  126,089   107,676    95,650    83,789     75,819    63,507
Net income........................   (1,367)   (1,167)    1,623     3,460      2,317     2,177
Earnings per share................    (5.63)    (4.81)     6.66     14.10       9.46      8.97
Earnings per share, diluted.......    (5.63)    (4.81)     6.66     14.10       9.46      8.97
U.S. GAAP CONSOLIDATED INCOME
  STATEMENT DATA
Net income........................   (1,403)   (1,198)    4,284     6,531(5)   2,869     2,185
Net income per share..............    (6.08)    (5.19)    18.96     28.90(5)   11.70      9.01


                                        3




                                              AT OR FOR THE YEAR ENDED DECEMBER 31,
                                    ----------------------------------------------------------
                                    2002(1)    2002      2001      2000       1999     1998(2)
                                    -------   -------   -------   -------    -------   -------
                                       $         E         E         E          E         E
                                               (IN MILLIONS, EXCEPT PER SHARE DATA)
                                                                     
IFRS CONSOLIDATED BALANCE SHEET
  DATA
Total investments(6)..............  845,567   722,090   809,630   350,895    331,700   300,868
Total assets......................  997,758   852,056   942,925   439,995    410,690   365,575
Total insurance reserves..........  358,048   305,763   299,512   284,824    268,064   237,663
Total liabilities.................  972,263   830,284   911,261   404,392    381,014   340,508
Issued capital and capital
  reserves........................   17,313    14,785    14,769     7,994      7,811     7,721
Shareholders' equity..............   25,495    21,772    31,664    35,603     29,676    25,066
Shareholders' equity per share....      105        90       131       145        121       103
Weighted average number of shares
  outstanding
  Basic...........................    284.3     242.8     243.6     245.4      245.0     242.5
  Diluted.........................    284.3     242.8     243.6     245.4      245.0     242.5
U.S. GAAP CONSOLIDATED BALANCE
  SHEET DATA
Shareholders' equity..............   26,857    22,935    31,706    35,113(5)  30,003    25,457
Shareholders' equity per share....      116        99       140       155(5)     122       104
OTHER FINANCIAL AND OPERATING DATA
Combined ratio (for the period)...    105.7%    105.7%    108.8%    104.9%     104.5%    100.8%
Third-party assets................  656,449   560,588   620,458   336,424     29,506    22,548
Market capitalization.............   25,892    22,111    64,156    97,813     81,920    77,513


---------------
(1) Amounts given in euros have been translated for convenience only into U.S.
    dollars at the rate of US$1.1710 = E1.00, 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 June 18, 2003. See "Presentation of Financial
    and Other Information."

(2) All 1998 balances have been restated from Deutsche marks into euros using
    the official fixed conversion rate. See "Presentation of Financial and Other
    Information."

(3) In some countries, health insurance operations are reflected in either or
    both of the property-casualty and life/health segments in accordance with
    local practice and regulatory considerations.

(4) Represents the elimination of intercompany transactions between Group
    companies in different segments.

(5) See Note 45 to our consolidated financial statements for a discussion of our
    restatement of previous U.S. GAAP reconciling items.

(6) Includes separate account assets. For additional information on investments,
    see "Information on the Company and Operating and Financial Review and
    Prospects -- Asset Management Operations."

                                   DIVIDENDS

     The following table sets forth the annual dividends paid per ordinary share
and American Depositary Share (or ADS) equivalent for 1998 through 2002. The
table does not reflect the

                                        4


related tax credits available to German taxpayers. See "Additional
Information -- Taxation -- German Taxation -- Taxation of Dividends."



                                                                DIVIDEND      DIVIDEND PAID
                                                              PER ORDINARY       PER ADS
                                                                  SHARE        EQUIVALENT
                                                              -------------   -------------
                                                              E(1)    $(2)    E(1)    $(2)
                                                                          
1998........................................................  1.12    1.06    0.112   0.106
1999........................................................  1.25    1.18    0.125   0.118
2000........................................................  1.50    1.42    0.150   0.142
2001........................................................  1.50    1.42    0.150   0.142
2002........................................................  1.50    1.76    0.150   0.176


---------------

(1) Dividends for 1998 were declared in Deutsche marks.

(2) Dividend amounts given in euros have been translated for convenience only
    into U.S. dollars at the rate of US$1.1710 = E1.00, 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 June 18, 2003. See "Presentation of
    Financial and Other Information."

     Although the ability to pay future dividends will depend upon our future
earnings, financial condition (including our cash needs), prospects and other
factors, we do not presently anticipate any changes to our current dividend
policy. However, 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

     Germany is a member of the European Community. Pursuant to the Maastricht
Treaty to which Germany and other members of the European Community are
signatories, the euro is legal tender in those member states of the EMU that
satisfied the convergence criteria set forth in the Maastricht Treaty, including
Germany. The euro replaced the Deutsche mark as the official currency of Germany
on January 1, 1999, after which the Deutsche mark continued to exist solely as a
subdivision of the euro. The Deutsche mark ceased to be legal tender in the
Federal Republic of Germany on January 1, 2002. The conversion rate between the
Deutsche mark and the euro in the period between January 1, 1999 and January 1,
2002 was fixed by the Council of the European Union at DM1.95583 = E1.00.

     As of January 1, 1999, we declare all dividends in euros. As a result,
euro/U.S. dollar exchange rate fluctuations will affect the U.S. dollar
equivalent of any cash dividend received by holders of ordinary shares or ADSs.

     The table below sets forth, for the periods indicated, information
concerning the noon buying rates for the euro expressed in U.S. dollars per
E1.00. 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.

     Since the euro did not exist prior to January 1, 1999, we cannot present
actual exchange rates between the euro and the U.S. dollar for earlier periods
in our consolidated financial statements and in the other financial information
discussed in this annual report. To enable you to ascertain how the trends in
our financial results might have appeared had they been expressed in U.S.
dollars, the table below shows the high, low, average and period-end exchange
rates of U.S. dollars per euro for the periods shown. For all periods prior to
the creation of the euro on January 1, 1999, this information has been
calculated using the noon buying rates for the Deutsche mark per US$1.00 for
each period, as translated into euro at the official fixed rate of DM1.95583 =
E1.00.

                                        5




                                                                           PERIOD     PERIOD
                                                        HIGH     LOW     AVERAGE(1)    END
                                                        ----     ---     ----------   ------
                                                                   ($ PER E1.00)
                                                                          
1998.................................................  1.2178   1.0548     1.1120     1.1733
1999.................................................  1.1812   1.0016     1.0588     1.0070
2000.................................................  1.0335   0.8270     0.9207     0.9388
2001.................................................  0.9535   0.8370     0.8909     0.8901
2002.................................................  1.0485   0.9927     0.9495     1.0485
  December...........................................  1.0485   0.9927     1.0206     1.0485
2003
  January............................................  1.0861   1.0361     1.0550     1.0739
  February...........................................  1.0875   1.0708     1.0770     1.0779
  March..............................................  1.1062   1.0545     1.0868     1.0900
  April..............................................  1.1180   1.0621     1.1042     1.1180
  May................................................  1.1853   1.1200     1.1502     1.1766
  June (until June 18, 2003).........................  1.1870   1.1678     1.1790     1.1710


---------------
(1) Computed using the average of the noon buying rates for Deutsche marks or
    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 June 18, 2003, the noon buying rate for the euro was US$1.1710.

                                        6


                                  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 OUR 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 our
insurance, asset management and banking 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 our various
investment portfolios. Our investment portfolios are heavily weighted toward
euro-denominated fixed-income investments. Accordingly, interest rate movements
in the euro zone will significantly affect the value of our investment
portfolios. In 2002, lower interest rates resulted in a decline in current
income from new investments in fixed-income securities as higher yielding
investments matured. An increase in interest rates could substantially decrease
the value of the fixed income portfolio, and any unexpected change in interest
rates could materially adversely affect our bond and interest rate derivative
positions.

     Excluding separate account assets and trading assets, our insurance
investment portfolio consists primarily of fixed income securities, which
represented approximately 74% of our insurance investments at December 31, 2002.
Excluding trading assets, certain loans to banks and loans to customers, our
banking investment portfolio consists primarily of fixed-income securities
(approximately 65% at December 31, 2002).

     The short-term impact of interest rate fluctuations on our life/health
insurance business may be reduced in part by products designed to partly or
entirely transfer our exposure to interest rate movements to the policyholder.
While product design reduces our exposure to interest rate volatility, changes
in interest rates will impact this business to the extent they result in changes
to current interest income, impact the value of our fixed income portfolio, and
affect the levels of new product sales or surrenders of business in force. In
addition, reductions in the investment income below the rates assumed in product
pricing, 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 our life/health subsidiaries.

     Results of our asset management business may also be affected by movements
in interest rates, since management fees are generally based on the value of
assets under management, which fluctuate with changes in the level of interest
rates.

     In addition, our management of interest rate risks affects the results of
our banking operations. The composition of our banking assets and liabilities,
and any mismatches resulting from that composition, cause the net income of our
banking operations to vary with changes in interest rates. We are particularly
impacted by changes in interest rates as they relate to different maturities of
contracts and the different currencies in which we hold interest rate positions.
A mismatch with respect to maturity of interest-earning assets and
interest-bearing liabilities in any given period can have a material adverse
effect on the financial position or results of operations of our banking
business. In 2002, both the net interest margin and the net interest spread in
our banking operations declined significantly from 2001 levels, due to changes
in the mix of our assets and liabilities. If we are unable to manage any
mismatch between our interest earning-assets and interest-bearing liabilities,
the consequences of further declines in net interest margin and net interest
income could have a material adverse effect on our results of operations. For

                                        7


additional information, see "Information on the Company and Operating and
Financial Review and Prospects -- Selected Statistical Information Relating to
Our Banking Operations."

OUR INVESTMENT PORTFOLIO IS SIGNIFICANTLY EXPOSED TO EQUITY SECURITIES. MARKET
RISKS COULD IMPAIR THIS PORTFOLIO AND ADVERSELY IMPACT OUR FINANCIAL POSITION
AND RESULTS OF OPERATIONS.

     We hold a significant equity portfolio, which represented approximately 19%
of our investments (excluding separate account assets, trading assets, certain
loans to banks and loans to customers) at December 31, 2002. Our equity
investment portfolio includes, in particular, large stakes in a number of major
German companies, including Munchener Ruckversicherungs-Gesellschaft
Aktiengesellschaft in Munchen (or Munich Re) and Beiersdorf AG, significant
holdings in companies in France and Italy and equity investments in companies in
virtually all major financial markets of the world. Fluctuations in equity
markets affect the market value and liquidity of these holdings.

     Most of our assets and liabilities are recorded at fair value, including
trading assets and liabilities, and securities available for sale. Changes in
the value of securities held for trading purposes are recorded through the
consolidated statement of income. Changes in the market value of securities
available for sale are recorded directly in the consolidated shareholders'
equity. Securities available for sale are reviewed regularly for impairments,
and valuation writedowns to fair value are charged to income if an other than
temporary diminution in value occurs. If a decline in the market value below the
original cost of an available for sale security is considered other than
temporary, the decline in value will be recorded in the consolidated income
statement. A decline in the market value below the original cost of a security
available for sale generally is determined to be other than temporary if it is
20% or more below book value for more than six consecutive months.

     In 2002, developments in the capital markets had a significant impact on
our investment portfolios, reducing their value by E60.0 billion. In particular,
reduced valuations of our equity portfolio led to a reduction of approximately
E7.2 billion in the amount of net unrealized gains in our shareholders' equity.
We recorded an additional net income effect of E846 million from impairment
losses on our equity portfolio in the first quarter of 2003. If equity markets
continue to decline, further significant impairments affecting net income and
reductions in shareholders' equity could be realized in 2003. Accordingly, in
the event of further market declines, there can be no assurance as to the amount
or timing of future unrealized losses or impairments of equity securities, which
may, in each case, materially adversely impact our results of operations and
shareholders' equity.

MARKET FACTORS, AS WELL AS A LACK OF IMPROVEMENT IN OUR OPERATING PERFORMANCE,
COULD ADVERSELY AFFECT GOODWILL, DEFERRED ACQUISITION COSTS AND DEFERRED TAX
ASSETS; OUR DEFERRED TAX ASSETS ARE ALSO POTENTIALLY IMPACTED BY CHANGES IN
GERMAN TAX LEGISLATION.

     The current uncertain trends and investment climate in many of our major
markets have adversely affected our businesses and profitability in 2002 and can
be expected to continue to do so unless conditions improve.

     Business and market conditions may impact the amount of goodwill we carry
in our consolidated accounts. As of December 31, 2002 we have recorded goodwill
in an aggregate amount of E13,786 million, of which E2,216 million relates to
our banking business, E5,079 million to our asset management business and E6,491
million relates to our insurance business.

     Our banking operations, of which Dresdner Bank represents by far the most
significant component, reported a net loss of E1,358 million for the year ended
December 31, 2002. See "Information on the Company and Operating and Financial
Review and Prospects -- Banking Operations -- Results of Operations."
Notwithstanding such loss, at December 31, 2002, we concluded that a writedown
of the goodwill relating to Dresdner Bank was not required. We are
                                        8


implementing further turnaround steps and continue to expect the turnaround of
our banking operations in the near future. If conditions in our banking
operations do not improve or continue to deteriorate, however, an impairment
test for the fiscal year 2003 could result in a significant writedown of
goodwill, adversely impacting our results of operations. As the value of certain
other parts of our businesses, including in particular our asset management
business, are also 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 further significant writedowns, which
could be material.

     The assumptions we made with respect to recoverability of deferred
acquisition costs (or DAC), particularly in our annuity business in the United
States, are also affected by such factors as operating performance and market
conditions. DAC is incurred in connection with the production of new business
and deferred, to be amortized generally in proportion to profits expected to be
generated over the life of the underlying contracts. If the assumptions on which
expected profits are based prove to be incorrect, it may be necessary to
accelerate amortization of DAC, which could materially adversely affect results
of operations.

     As of December 31, 2002, we had a total of E13,258 million in deferred tax
assets. We also recorded deferred tax liabilities of E12,188 million. The
calculation of the respective tax assets and liabilities is based on current tax
laws and accounting standards and depends on the performance of the Group as a
whole and certain business units in particular. At December 31, 2002, E4,910
million (E3,019 million as of December 31, 2001) of deferred tax assets depended
on the ability to use existing tax-loss carry forwards.

     Changes in tax legislation or regulations or an operating performance below
currently anticipated levels may lead to a significant impairment of tax assets.
The Draft Bill on the Reduction of Tax Privileges
(Steuervergunstigungsabbaugesetz) proposed by the German government accordingly
provided for a minimum taxation, pursuant to which tax loss carryforwards could
be offset against only 50% of taxable profits for purposes of corporate and
trade income tax. In addition, the proposal included limitations on the use of
tax credits from prior year profits in connection with profit distributions.
After the draft act was passed by the German First Chamber (Bundestag) and
rejected by the Second Chamber (Bundesrat), on April 9, 2003, the Mediation
Committee (Vermittlungsausschuss) of the Bundestag and Bundesrat proposed a
compromise to the Draft Bill on the Reduction of Tax Privileges. The proposed
compromise included essentially a temporary restriction of the use of accrued
corporate tax credits through the introduction of a three-year moratorium. The
proposals that were not included in the compromise, however, are expected to be
reintroduced, perhaps in modified form in a separate legislative process. In
this case, we could be obligated to write-off certain tax assets. Tax assets may
also need to be written down if certain assumptions of profitability prove to be
incorrect, as losses incurred for longer than expected will make the usability
of tax assets more unlikely. Any such development may have a material adverse
impact on our results of operations.

ALLIANZ AG OPERATES BOTH AS A REINSURANCE COMPANY AND AS A HOLDING COMPANY FOR
THE ALLIANZ GROUP, AND IS EXPOSED TO VARIOUS LIQUIDITY RISKS.

     Allianz AG acts as the principal reinsurer for the Group companies. At the
same time, Allianz AG is a holding company, conducting its insurance and
financial services operations through direct and indirect subsidiaries. In
addition to premiums from our reinsurance operations, the principal sources of
Allianz AG's funds are dividends received from subsidiaries, associated
companies and other equity investments as well as funds that we may raise from
time to time through the issuance of debt or equity securities or through bank
or other borrowings. Allianz AG's uses of funds include payment of interest on
our outstanding debt, obligations arising in our reinsurance business, which may
include large and unpredictable claims including

                                        9


catastrophe claims, as well as the funding of potential capital requirements of
our operating subsidiaries or of acquisitions.

     As of December 31, 2002, Allianz AG had total outstanding debt of E35,475
million (2001: E23,219 million), including amounts owed to credit institutions
of E2,247 million, outstanding subordinated debt instruments of E3,575 million
and outstanding non-subordinated debt instruments of E29,654 million (2001:
E3,079 million, E0 million and E20,140 million, respectively). For the year
ended December 31, 2002, Allianz AG made payments of E1,111 million in respect
of interest on outstanding debt. E1,810 million of long-term debt of Allianz AG
to non-Group companies matures during 2003. Allianz AG has implemented a hedging
strategy to protect its equity portfolio from further losses due to downward
market moves. This strategy includes the use of forward contracts for
which -- in the case of adverse market moves -- margin payments have to be made.
Those margin payments have to be made in cash. In addition, on each of March 31,
2003 and June 30, 2003, respectively, a subsidiary of Allianz AG received notice
from the former parent company of our asset management subsidiary PIMCO Group
(or PIMCO) that such former parent company had exercised its right to put US$250
million of its remaining ownership interest in PIMCO to Allianz, with payment
therefor due by April 30, 2003 and July 31, 2003, respectively. The first such
payment was made on April 14, 2003. For additional discussion concerning these
put arrangements, see "Information on the Company and Operating and Financial
Review and Prospects -- Recent Developments" and "Information on the Company and
Operating and Financial Review and Prospects -- Asset Management
Operations -- Results of Operations -- Year Ended December 31, 2002 compared to
Year Ended December 31, 2001 -- Net Income."

     Allianz AG expects that its premiums from its own reinsurance business,
together with dividends and other amounts received from subsidiaries, associated
companies and other investments, will continue to cover its operating expenses,
including interest payments on its outstanding debt, together with its
reinsurance and other obligations. As a holding company, Allianz AG can offer no
assurance, however, that funds available to it will continue to be sufficient to
meet its operating expenses, funding obligations and interest payments in the
future, and that it will not need to raise additional funds from time to time
through the issuance of debt or equity securities, through bank or other
borrowings or through dispositions of assets or other transactions, nor as to
the adequacy or timing of any such measures.

LOSS RESERVES FOR OUR PROPERTY-CASUALTY INSURANCE AND REINSURANCE POLICIES ARE
BASED ON ESTIMATES AS TO FUTURE CLAIMS LIABILITIES. IN 2002, WE MADE SIGNIFICANT
ADDITIONAL RESERVES RELATING TO ASBESTOS-RELATED AND ENVIRONMENTAL CLAIMS IN THE
UNITED STATES AND IN CONNECTION WITH DISCONTINUED AND RUN-OFF BUSINESSES.
FURTHER ADVERSE DEVELOPMENTS RELATING TO CLAIMS COULD LEAD TO FURTHER RESERVE
ADDITIONS AND MATERIALLY ADVERSELY IMPACT OUR RESULTS OF OPERATIONS.

     In accordance with industry practice and accounting and regulatory
requirements, we establish reserves for loss and loss adjustment expenses
related to our property-casualty insurance and reinsurance businesses, including
discontinued property and casualty business in run-off. Reserves are based on
estimates of future payments that will be made in respect of claims, including
expenses relating to such claims. Such estimates are made both on a case-by-
case basis, based on the facts and circumstances available at the time the
reserves are established, as well as in respect of losses that have been
incurred but not reported (or IBNR) to the Group. These reserves represent the
estimated ultimate cost necessary to bring all pending reported and IBNR claims
to final settlement.

     Reserves, including IBNR reserves, are subject to change due to a number of
variables which affect the ultimate cost of claims, such as changes in the legal
environment, results of litigation, changes in medical costs, costs of repairs
and risk factors such as inflation. Our earnings depend significantly upon the
extent to which our actual claims experience is consistent with the assumptions
we use in setting the prices for products and establishing the liabilities for
                                        10


obligations for technical provisions and claims. To the extent that our actual
claims experience is less favorable than the underlying assumptions used in
establishing such liabilities, we may be required to increase our reserves,
which may materially adversely effect earnings.

     Reserves Generally.  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. We also
conduct reviews of various lines of business to consider the adequacy of reserve
levels, as we did recently with our asbestos and environmental exposure in the
United States. Based on current information available to us and on the basis of
our internal procedures, our management considers that these reserves are
adequate. However, because the establishment of claims reserves is an inherently
uncertain process, there can be no assurance that ultimate losses will not
materially exceed our loss reserves and have a material adverse effect on our
earnings. See "Information on the Company and Operating and Financial Review and
Prospects -- Property-Casualty Insurance Reserves -- General."

     Asbestos-related and Environmental Pollution Claims.  In relation to
asbestos-related and environmental pollution, it has been necessary, and may
over time continue to be necessary, to revise estimated potential loss exposure
and, therefore, the related loss reserves. Changes in law, novel or changing
policy interpretations, evolving judicial theories as well as developments in
class action litigation add to the uncertainties inherent in claims of this
nature. As a result, we continue to monitor developments in asbestos-related and
environmental claims and may determine that further adjustments in the reserve
amounts are required in the future. In 2002, reserves were increased for
asbestos and environmental claims in the United States by E762 million following
external and internal actuarial reviews.

     Discontinued and Run-off Insurance Businesses.  We maintain loss reserves
in our discontinued and run-off insurance businesses to cover our estimated
ultimate liability for losses and loss adjustment expenses for reported and
unreported losses incurred as of the end of each accounting period. We have
discontinued certain lines of business formerly pursued by Fireman's Fund
Insurance Company (or Fireman's Fund) in the United States, including the
surety, national accounts, diversified risk and medical malpractice lines of
business. Commercial auto liability, medical malpractice, other liability and
workers' compensation reserves were increased in respect of prior years in the
amount of E230 million in 2002. We believe that reserves associated with
discontinued lines are adequate; however, the costs and liabilities associated
with these divested and run-off businesses and other contingent liabilities
could cause us to take additional charges that could be material to our results
of operations. In particular, Fireman's Fund has issued surety bonds in favor of
certain companies, some of which are currently experiencing financial
difficulties. In the case of a default in respect of the obligations covered by
the surety bonds, Fireman's Fund could be required to establish significant
additional loss reserves.

ACTUARIAL EXPERIENCE AND OTHER FACTORS COULD DIFFER FROM THAT ASSUMED IN THE
CALCULATION OF LIFE/HEALTH ACTUARIAL RESERVES AND PENSION LIABILITIES.

     The assumptions we make in assessing our life/health insurance reserves may
differ from what we experience in the future. We derive our 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. We monitor our actual experience of these assumptions and
to the extent that we consider that this experience will continue in the longer
term we refine our long-term assumptions. Similarly, estimates of our own
pension obligations necessarily depend on assumptions concerning future
actuarial, demographic, macroeconomic and financial markets developments.
Changes in any

                                        11


such assumptions may lead to changes in the estimates of life/health insurance
reserves or pension obligations.

     We have a substantial 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. In Germany, this rate is
currently 3.25% per year for policies issued on or after July 1, 2000 and with
euro as applicable currency, and for policies issued through June 2000, the
maximum rate of return is 4.0% per annum. For policies issued prior to 1995, the
maximum rate is 3.5% or 3.0%, depending on the generation of tariff. The average
interest rate that was guaranteed in Germany at the end of 2002 was
approximately 3.5%. If interest rates should remain at current historically low
levels, we could be required to provide additional funds to our 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 our results of operations.

     In the United States, we have a substantial portfolio of contracts with
guaranteed investment returns indexed to equity markets. We enter into hedging
arrangements in order to meet the expected returns of the contracts. There can
be no assurance that the hedging arrangements will satisfy the returns
guaranteed to policyholders.

OUR FINANCIAL RESULTS MAY BE MATERIALLY ADVERSELY AFFECTED BY THE OCCURRENCE OF
CATASTROPHES.

     Portions of our property and casualty insurance cover losses from
unpredictable events such as hurricanes, windstorms, hailstorms, earthquakes,
fires, industrial explosions, freezes, riots, floods and other man-made or
natural disasters. The incidence and severity of these catastrophes in any given
period are inherently unpredictable.

     Although we monitor our overall exposure to catastrophes and other
unpredictable events in each geographic region, each of our subsidiaries
independently determines its own underwriting limits related to insurance
coverage for losses from catastrophic events. We generally seek to reduce our
exposure to these events through the purchase of reinsurance, selective
underwriting practices and by monitoring risk accumulation. However, such
efforts to reduce exposure may not be successful and claims relating to
catastrophes may result in unusually high levels of losses and could have a
material adverse effect on our financial position or results of operations.
During 2002 and 2001 we incurred significant catastrophe losses, in particular
net claims costs of approximately E1.5 billion relating to the terrorist attack
of September 11, 2001. We also suffered losses from severe flooding in Germany
and Central and Eastern Europe which adversely affected our results by E710
million in 2002. If catastrophes affecting properties insured by us continue to
occur with such frequency or with greater frequency or severity than has
historically been the case, related claims could have a material adverse effect
on our consolidated financial position, results of operations and cash flows.

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 and credit 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. In addition, under credit default swaps,
which Dresdner Bank has entered into,

                                        12


Dresdner Bank may become obliged to make payments if and when a default of a
particular debtor occurs.

     During 2002, we recognized losses of E2,818 million due to these credit
exposures, including writedowns and write-offs in our fixed income portfolio.
The current uncertain trends and investment climate in financial markets have
resulted in an increase in investment impairments on our investment assets due
to defaults and credit downgrades and a further downturn in the economy
generally could result in increased impairments. In addition, we are subject to
geographic and industry concentrations with respect to our credit exposures, and
as a result developments in particular geographic regions or industries may
adversely impact us. In particular, we have extended significant credit to
financial institutions in Germany, and as a result any systemic risk
materializing in the German financial industry could have a material adverse
effect on our results of operations.

     Reinsurers.  We transfer our exposure to certain risks in our
property-casualty and life insurance business to others through reinsurance
arrangements. Under these arrangements, other insurers assume a portion of our
losses and expenses associated with reported and unreported losses in exchange
for a portion of policy premiums. The availability, amount and cost of
reinsurance depend on general market conditions and may vary significantly. Any
decrease in the amount of our reinsurance will increase our risk of loss. When
we obtain reinsurance, we are still liable for those transferred risks if the
reinsurer cannot meet its obligations. Therefore, the inability of our
reinsurers to meet their financial obligations could materially affect our
results of operations. Although we conduct periodic reviews of the financial
statements and reputations of our reinsurers, the reinsurers may become
financially unsound by the time they are called upon to pay amounts due, which
may not occur for many years. For a discussion of our external reinsurance
relationships, see "Information on the Company and Operating and Financial
Review and Prospects -- Property-Casualty Operations By Geographic Region --
Allianz AG."

FURTHER POOR OPERATING PERFORMANCE, DIFFICULTIES IN MANAGING AND DELAYS IN
COMPLETING THE INTEGRATION OF DRESDNER BANK WOULD ADVERSELY AFFECT OUR RESULTS.

     In July 2001, we acquired Dresdner Bank. Our banking operations, of which
Dresdner Bank is the most significant component, suffered significant net losses
in 2002. In addition to poor operating performance, continuing difficulties in
managing and integrating the additional operations and personnel, significant
delays in completing the integration of Dresdner Bank and any loss of key
employees or customers could adversely affect our results. The future success of
our banking business depends in large part on our ability to restore the
profitability of Dresdner Bank, and it is possible that the anticipated benefits
from the acquisition may not be realized in full, may take longer to realize
than expected or may not be realized at all. In the event that management is
unable to successfully implement the restructuring and cost-cutting measures
announced to date, our financial performance and results of operations may
continue to be materially adversely affected.

DRESDNER BANK MAY EXPERIENCE FURTHER SIGNIFICANT LOSSES RELATING TO PROBLEM
LOANS.

     At December 31, 2002, following the deconsolidation of Deutsche
Hypothekenbank AG (or Deutsche Hyp) on August 1, 2002, our non-performing loans
and potential problem loans, substantially all of which were attributable to
Dresdner Bank, were E11,625 million and E2,437 million, respectively,
representing a net increase of E1,276 million, or 12.3%, in non-performing
loans, and E231 million, or 10.5%, in potential problem loans from year-end 2001
(excluding the loan portfolio of Deutsche Hyp).

     A substantial majority of Dresdner Bank's problem loans is comprised of
loans made to German corporate customers as well as to individuals. Certain of
its loans to corporate customers represent significant credit exposure to
individual companies. As a result of the effects

                                        13


of the weak economic conditions in Germany, which have continued into 2003, as
well as recent financial difficulties faced by Dresdner Bank's customers, we
have recorded substantial provisions. For the year ended December 31, 2002,
additional net loan loss provisions in our banking segment were E2,222 million,
including E3,106 million of gross new provisions. Of the new provisions, E2,151
million were specific provisions relating to both Dresdner Bank's German
corporate business, including small businesses and professionals, and its
non-German corporate business, especially in Latin America and the United
States, reflecting the continued weakness in the global economy, deteriorating
credit quality of borrowers, declines in collateral value, inability to enforce
its security interest in collateral and increased insolvencies. Of the new loan
loss provisions in 2002, approximately E1,259 million were specific provisions
relating to our German business, including small businesses and professionals.
Our banking operations also recorded specific provisions of E665 million
relating to private individuals and E73 million relating to banks.

     Dresdner Bank may need to make additional loan loss provisions or recognize
further credit losses as a result of continuing weak economic conditions,
declines in collateral value, inability to enforce security interests in
collateral, an increase in corporate or personal bankruptcies, in particular in
Germany, further deterioration of the financial position of Dresdner Bank's
borrowers or changes in reserve and risk management requirements. Any such
developments could materially adversely affect our results of operations or
result in further capital requirements in its banking operations.

A REDUCED CAPITAL BASE AT DRESDNER BANK, TOGETHER WITH FURTHER ADDITIONAL
WRITEDOWNS AND IMPAIRMENTS, COULD RESULT IN CAPITAL REQUIREMENTS THAT MAY
CONSTRAIN OUR OPERATIONS.

     Dresdner Bank's capital ratios at December 31, 2002 were 6.0% in the case
of consolidated Tier 1 capital and 10.6% in the case of consolidated total
capital under BIS principles. In recent years, Dresdner Bank has suffered from
poor operating performance, an increased level of loan loss allowances,
deteriorating asset quality and substantial impairments in its investment
portfolio. Dresdner Bank had to set aside significant new provisions for
possible loan losses in 2002, and additional provisions may be required in the
future. If these trends continue, there can be no assurance that Dresdner Bank
will be able to maintain its capital ratios at the above mentioned levels.
Failure to do so could require us to restrict our banking operations, or further
support our banking operations through injection of additional capital. See
"Information on the Company and the Operating and Financial Review and
Prospects -- Regulation and Supervision" for a discussion of the capital
adequacy guidelines applicable to our banking operations.

     Further, the risk-adjusted capital guidelines (or Basle Accord) promulgated
by the Basle Committee on Banking Supervision, which form the basis for the
capital adequacy guidelines of the German Federal Financial Supervisory
Authority (the Bundesanstalt fur Finanzdienstleistungsaufsicht, or BaFin), are
being revised and implementation is planned for 2006. At this time, we are
unable to predict how the revised guidelines will affect our requirements for
capital and the impact of these revisions on our banking or other operations.

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.

     Standard & Poor's Ratings Services (or Standard & Poor's), Moody's Investor
Services (or Moody's) and A.M. Best assign ratings to various obligations of
certain Group companies. On March 20, 2003, Standard & Poor's cut the Group's
financial strength ratings from AA to AA-, citing the Group's negative
performance and reduced capital base resulting from significant writedowns and
losses in the period to December 31, 2002, and noted that Allianz AG continued
to be on "negative outlook." Although Moody's maintained its rating of Aa2 for
the senior unsecured debt securities issued by the Group's finance subsidiaries,
Moody's rating also had a
                                        14


negative outlook. On May 22, 2003, Moody's placed the rating under review for
possible downgrade. On March 21, 2003 A.M. Best also cut the Group's financial
strength rating from A++ to A+, and noted that Allianz AG continued to be on
"negative outlook." Rating agencies can be expected to continue to monitor our
financial strength, and no assurances can be given that further 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.

     Claims paying ability and financial strength ratings are 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 Group or any of its insurance
subsidiaries could, among other things, adversely affect relationships with
agents, brokers and other distributors of our products and services, thereby
negatively impact 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, further ratings downgrades could adversely impact
sales of our life insurance products. Any further ratings downgrades will 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.

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 affiliated Allianz Group insurance
operations, a growing portion of our assets under management, particularly
following the acquisitions of PIMCO in May 2000, Nicholas-Applegate in January
2001 and Dresdner Bank in July 2001, represents third-party funds. In 2002,
despite substantial increases in third-party assets under management, declines
in world equity markets resulted in reductions in the value of the equity
portfolios in our asset management business as customers withdrew or
re-allocated funds from equities. 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 continue 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. 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 from our
reinsurers.

     At this time, we cannot assess the future effects of terrorist attacks, the
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.

                                        15


CHANGES IN EXISTING, OR NEW, GOVERNMENT REGULATIONS IN THE COUNTRIES IN WHICH WE
OPERATE MAY MATERIALLY IMPACT US.

     Our insurance, banking and asset management businesses are subject to
detailed, comprehensive regulation and 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.

     In December 2002, the EU adopted a directive that provides for assessment
of the capital requirements of a financial conglomerate on the group level,
supervision of risk concentration and intra-group transactions and prevention of
double-leveraging of the capital of the holding or parent company, i.e. once in
the holding or parent company and a second time in the subsidiary
("double-gearing"). We are a financial conglomerate within the scope of this
directive. The EU member states are required to implement this directive into
national law for fiscal years beginning on or after January 1, 2005. It is as
yet unclear how the directive will be implemented in Germany. Therefore, it is
impossible to determine what future impact these requirements will have on our
capital requirements, but there can be no assurance that the current and future
level of capital will be sufficient to meet such requirements. For more
information, see "Information on the Company and the Operating and Financial
Review and Prospects -- Regulation and Supervision."

CHANGES IN TAX LEGISLATION COULD ADVERSELY AFFECT OUR BUSINESS.

     Changes to tax laws may affect the attractiveness of certain of our
products that currently receive favorable tax treatment. Under current German
tax regulations, payments received at the maturity of a life insurance policy
with a term of at least 12 years and on which premiums have been paid for at
least five years are not taxable, and the life insurance premiums are deductible
from the insured's income in the year paid, subject to certain limitation. In
recent years, the German legislature has from time to time proposed legislation
that would reduce the tax-favored treatment of both premiums and benefit payouts
for these life insurance policies. The enactment of legislation reducing the tax
benefit associated with our German life insurance products could significantly
reduce the attractiveness of life insurance in Germany. Because the German life
business accounts for a significant portion of our total income (14.7% in 2002),
the enactment of any such legislation could adversely affect our financial
results. From time to time, governments in other jurisdictions in which we do
business have also considered changes to tax laws which could adversely affect
the tax advantages of such products, and if enacted, could result in a
significant reduction in the sale of such products.

     In addition, from time to time, proposals have been made to repeal the
provisions of the recently enacted German Tax Reform (see "Taxation -- German
Taxation") that exempted from German tax certain capital gains on the disposal
of corporate shareholdings. In the event such proposals were to be enacted into
law, the Group's ability to dispose of its shareholdings profitably might be
significantly affected.

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 euros. 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.

                                        16


For the year ended December 31, 2002, approximately 30.8% of our gross premiums
written 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 euros may adversely affect our reported
results. The strength of the euro against other currencies, in particular the
U.S. dollar and pound sterling, reduced premium income by E736 million during
2002. Our third-party assets under management declined by E77 billion during
2002 due to depreciation of other currencies against the euro, in particular,
the U.S. dollar.

     In addition, Allianz AG's dividends are generally payable in euros. Adverse
changes in exchange rates used to translate the currencies in which our non
euro-zone subsidiaries pay dividends to Allianz AG may materially adversely
affect the cash flow available to Allianz AG to pay dividends and other
obligations. While our non-euro assets and liabilities, and revenues and related
expenses, are generally denominated in the same currencies, we do not generally
engage in hedging transactions with respect to dividends or cash flows in
respect of our non-euro subsidiaries.

THE SHARE PRICE OF ALLIANZ AG HAS BEEN AND MAY CONTINUE TO BE VOLATILE.

     The share price of Allianz AG has been volatile in the past 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 its
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 the strategy,
including the capital raising, described in this annual report; 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 and banking activities; announcements concerning the
bankruptcy or other similar reorganization proceedings involving, or any
investigations into the accounting practices of, other insurance or reinsurance
companies or banks; and general market volatility.

                                        17


ITEMS 4. -- 5.  INFORMATION ON THE COMPANY AND OPERATING AND FINANCIAL REVIEW
                AND PROSPECTS

     You should read the following discussion in conjunction with our
consolidated financial statements including the notes thereto. We prepare our
consolidated financial statements in accordance with IFRS, which differ in
certain significant respects from U.S. GAAP. For a description of the
significant differences between IFRS and U.S. GAAP and a reconciliation of
certain income statement and balance sheet items to U.S. GAAP, you should read
Note 45 to the consolidated financial statements. Unless otherwise indicated,
the financial information we have included in this annual report is presented on
a consolidated basis under IFRS. Unless otherwise indicated, we have obtained
data regarding the relative size of various national insurance markets from
annual reports prepared by SIGMA, an independent organization which publishes
market research data on the insurance industry. In addition, unless otherwise
indicated, insurance market share data are based on gross premiums written. Data
on market share within particular countries are based on our own internal
estimates.

                                  INTRODUCTION

     Allianz AG is a stock corporation organized in the Federal Republic of
Germany under the German Stock Corporation Act. It was incorporated as Allianz
Versicherungs-Aktiengesellschaft in Berlin, Germany on February 5, 1890. It is
registered in the Commercial Register in Munich, Germany under the entry number
HR B 7158. Our registered office is located at Koniginstrasse 28, 80802 Munich,
Germany, telephone (49)(89) 3800-0. Allianz AG is the ultimate parent company of
the Allianz Group.

     The Allianz Group is one of the world's leading financial services
providers, offering insurance, banking and asset management products and
services through property-casualty, life/health, banking and asset management
business segments. We are one of the leading insurance groups in the world based
on gross premiums written in 2002. We are the leading German property-casualty
and life/health insurance company, with estimated market shares of approximately
18.3% and 14.2%, respectively, based on gross premiums written in 2002. We also
have leading market positions in a number of other countries, including France,
Italy, the United Kingdom, Switzerland and Spain. We are the second-largest
German financial institution, based on market capitalization at March 31, 2003.
We believe that we are well capitalized relative to our competitors,
notwithstanding recent downgrades of our ratings in March 2003. As of April 7,
2003, we had financial strength ratings of A+ from A.M. Best and AA- from
Standard & Poor's, both with a negative outlook. Moody's does not provide a
rating for Allianz AG, but as of April 7, 2003, debt securities issued by our
finance subsidiaries had a senior unsecured debt rating of Aa2 from Moody's,
again with a negative outlook. On May 22, 2003, Moody's placed the rating under
review for possible downgrade. Our investment portfolio includes a number of
significant equity participations, primarily in major German companies,
including both financial institutions and industrial enterprises.

     We were founded in 1890 in Berlin, Germany, and since that time we have
become the largest German insurer. Through our international expansion strategy,
we have sought to bring into the Allianz Group companies that are
well-positioned in their domestic markets and that have leading positions in
particular business lines and attractive earnings prospects. In the last several
years, our non-German insurance business has therefore grown substantially in
importance. Gross premiums written by our non-German business represented
approximately 63.3% of our total gross premiums written in 2002. We now operate
in more than 70 countries worldwide and have leading market positions in many of
them.

     In 1998, building on over a century's experience in managing our extensive
insurance investment portfolio, we established financial services as our third
core business segment, in

                                        18


addition to our property-casualty and life/health insurance businesses. In 2001,
following our acquisition of Dresdner Bank, we reorganized our financial
services segment into separate asset management and banking segments. In our
asset management segment, the acquisitions of Dresdner Bank on July 23, 2001 and
Nicholas-Applegate on January 31, 2001 increased our third-party assets under
management by E228 billion and E36 billion, respectively, as of the respective
dates of the acquisitions and made us one of the five leading asset managers in
the world based on total assets under management as of December 31, 2002. In our
banking segment, which is now our fourth core business segment, our acquisition
of Dresdner Bank made us one of the leading banks in Germany and provided us
with significantly expanded bank distribution channels for our
property-casualty, life/health and asset management products and services.

     Our German property-casualty and life/health insurance businesses are
managed by subsidiaries located primarily in Munich and Stuttgart. Our
non-German insurance businesses are locally managed, generally through
operations located in France, Italy, the United Kingdom, Switzerland, Spain and
the United States, which are our largest non-German markets. In contrast, each
of our specialty lines of credit insurance, marine and aviation insurance,
industrial reinsurance through Allianz Global Risks Ruckversicherungs-AG (or
Allianz Global Risks) and travel and assistance insurance is managed and
operates on a global basis. Our asset management segment also operates on a
worldwide basis, with key management centers in Munich, Hong Kong, Paris, Milan,
Westport, Connecticut, and San Diego and Newport Beach, California. Our banking
segment operates through the approximately 1,100 German and non-German branch
offices of Dresdner Bank and various subsidiaries, with significant operations
in Germany, the United Kingdom, other European countries and the United States.

     At December 31, 2002, we employed more than 181,000 persons in our
insurance, banking and asset management businesses worldwide, of whom more than
94,000 were based outside Germany. Through interdisciplinary and
multi-jurisdictional training and advancement programs, we seek to develop and
promote a corporate culture that emphasizes technical expertise, dedication to
client service and an international outlook.

     Our headquarters are located in Munich, Germany. In addition, we have
subsidiary, branch, representative and similar offices worldwide. We own
substantially all of the land and buildings that are used in the normal course
of our business in Europe and lease office space in various locations throughout
the world. We also have part of our investment portfolio invested in land and
buildings. We believe that our facilities are adequate for our present needs in
all material respects.

                                    STRATEGY

     This section regarding our strategy contains forward-looking statements
and, therefore, should be read in conjunction with the section "Forward-Looking
Statements." In addition, for a discussion of the risks involved in achieving
our strategic goals, see "Risk Factors."

     Our strategy is to achieve profitable growth across our four business
segments for the benefit of our shareholders, policyholders and employees. We
believe that our size, financial strength and worldwide reach are key
competitive strengths that will permit us to participate in the ongoing
consolidation of the financial services industry and maintain our position as an
industry leader. We offer our products through multiple distribution channels
including agents and brokers and, in many markets, bancassurance and e-commerce.
In our mature markets of Germany, the rest of western Europe and the United
States, we believe demographic trends will particularly favor our life/health
and asset management businesses in the coming years. We intend to capitalize on
cross-selling opportunities between our banking and pension provision businesses
for corporate customers and to take advantage of additional potential synergies
between our life/health, asset management and banking operations.
                                        19


     As a reflection of the underlying strengths of our franchise as well as the
leading market positions in many of our businesses, our core strategy remains
substantially unchanged. Our five main strategic priorities are:

     - Optimize the Economic Value Added (EVA) of our Group, based on
       risk-adjusted capital requirements and sustainable growth targets;

     - Exploit attractive market opportunities by leveraging our traditional
       risk management expertise;

     - Strengthen our leading position in life and health insurance and in asset
       management, especially in private and corporate retirement insurance
       plans;

     - Increase our asset gathering capabilities by building customer-oriented,
       multi-channel distribution platforms; and

     - Expand our investments and capital markets expertise.

     We have implemented Group-wide a rigorous and disciplined capital
allocation approach. All capital allocation decisions are based on an internal
risk-based model, which, in addition to traditional insurance and banking risks,
also takes into account investment and other capital markets risks. We will
monitor our risk-adjusted results closely on an ongoing basis. Companies and
business lines which are not expected to meet the hurdle risk adjusted return on
allocated capital over the medium term will be reviewed for possible
divestiture.

     We manage the business of the Group with a significant degree of autonomy
for local management teams. We believe that these teams are best positioned to
determine what measures to take to maximize the profitability of their business,
and we make them accountable, and compensate them, based on this performance. We
measure performance both on a local level as well as on a Group basis based on
the EVA model. We also monitor closely the nature and volume of risks
accumulated locally as well as across the Group on an ongoing basis.

FOCUS ON IMPLEMENTATION

     Our immediate objective is to address the most significant operating
challenges we face:

     Further strengthening our pricing and underwriting discipline and internal
efficiency in line with the EVA requirements, and enforcing these consistently
across the Group. As part of this effort, we aim to improve the operational
performance of selected operations such as Assurances Generales de France (or
AGF, and, together with its subsidiaries, the AGF Group), Fireman's Fund and
Allianz Global Risks;

     - Returning Dresdner Bank to profitability;

     - Improving the profitability of our life business;

     - Reducing the dependence of our results on the volatility of the equity
       markets.

OPERATIONAL DISCIPLINE

PROPERTY-CASUALTY INSURANCE

     Our goal for 2003 and thereafter is to achieve a combined ratio of below
100% for the group. We are particularly focused on Fireman's Fund, Allianz
Global Risks and AGF, businesses with combined ratios of over 100%:

     - Fireman's Fund's operational discipline is expected to be improved by a
       new management team, the reduction of headcount, exit of underperforming
       businesses, recent strengthening of environmental and asbestos reserves
       and more defensive portfolio management;

                                        20


     - Allianz Global Risks is actively seeking to turn its property-casualty
       business around. Allianz Global Risks has undertaken significant changes
       including appointing a new management team, introducing clear operational
       targets and non-renewing certain clients and treaties;

     - AGF has increased rates, not renewed policies and implemented operational
       improvements to reduce the expense ratio.

     TURNAROUND OF DRESDNER BANK PROFITABILITY.

     Due to the continuing difficult economic environment and the sharp
deterioration in the capital markets since late 2001, Dresdner Bank reported
significant losses in 2002. We have recently appointed a new CEO of Dresdner
Bank and intend to reduce personnel costs, operating expenses and non-core
lending to fully exploit the bank's franchise in the coming years. In the last
18 months, Dresdner Bank has significantly reduced its headcount, and plans are
in place to further reduce headcount positions.

     The turnaround program to restore profitability has several components:

     - IRU: New Institutional Restructuring Unit (or IRU) within our banking
       segment to free up risk capital through the reduction of risk-weighted
       assets by restructuring non-performing loans to strategic customers with
       the intent of returning such loans to the business units from which they
       originated, while maximizing the recovery from remaining non-performing
       loans, as well as non-strategic customer loans, through repayment, sale,
       hedging, securitization and other means. Loans to be bundled together in
       the IRU are primarily performing loans to non-strategic clients, such as
       small-capitalization clients in Latin America, Asia and the United
       States, as well as, to a lesser extent, loans to corporate and private
       clients that are currently non-performing. The IRU is expected to
       initially include approximately E31 billion, consisting of approximately
       E22 billion of loans (including approximately E7 billion of
       non-performing loans and approximately E1 billion of potential problem
       loans) and approximately E1 billion of other non-strategic assets,
       including private equity investments, and approximately E8 billion of
       undrawn commitments.

     - Cost-Cutting and Restructuring Measures:

      -- Ongoing cost-cutting efforts are being stepped up.

      -- Certain centralized services were transferred to the two business
         units, Private and Business Clients and Corporates & Markets, which are
         now directly responsible for managing these costs.

CAPITAL AND PORTFOLIO MANAGEMENT.

     We believe that we are well capitalized relative to our competitors,
notwithstanding recent downgrades of our ratings in March 2003. As of April 7,
2003, we had financial strength ratings of A+ from A.M. Best and AA- from
Standard & Poor's, both with a negative outlook. Moody's does not provide a
rating for us, but as of April 7, 2003, debt securities issued by our finance
subsidiaries had a senior unsecured debt rating of Aa2 from Moody's, again with
a negative outlook. On May 22, 2003, Moody's placed the rating under review for
possible downgrade.

     However, our internal risk based model showed a gap of approximately E1.7
billion as of December 2002. It was therefore decided to launch a capital
improvement program to secure our financial strength.

REDUCTION OF EQUITY EXPOSURE AND VOLATILITY

     The reduction of our equity exposure is being addressed through a number of
measures. These measures include a significant hedging program to protect us
against potential future

                                        21


losses while retaining an upside potential. We will continue to further assess
this program to manage our exposures.

     We also actively sold and expect to continue to sell equity investments to
further reduce our equity exposure. This includes, for example, an intended
reduction of our stake in Munich Re from 22.4% as of December 31, 2002 to
approximately 15% during the course of 2003 and 2004. As of June 30, 2003, our
stake in Munich Re had been reduced to approximately 18.9%. On July 10, 2003 we
announced our intention to redeem a first tranche of approximately 50% of our
index-linked exchangeable bonds (MILES) ahead of schedule, using Munich Re
shares. This transaction, when completed, will reduce our shareholding in Munich
Re by approximately 3%. See "Major Shareholders and Related Party
Transactions -- Related Party Transactions -- Transactions with Munich Re."

FOCUSED PORTFOLIO MANAGEMENT AND CAPITAL ALLOCATION

     In addition, we will significantly step up our focus on the efficient use
of capital in the Group. As stated before, we will implement economic capital
savings by discontinuing and selectively scaling down certain business lines. In
addition, sub-performing and non-core businesses will be divested if, according
to the EVA methodology, a positive contribution to the Group is not expected.

CAPITAL RAISING

     In April 2003, we conducted a capital raising, which was an important
element of the decision to strengthen the capital base, with a set of
transactions intended to raise total capital of up to E5 billion. By way of a
rights offering, we raised approximately E4.4 billion, based on a subscription
price of E38.00 per share, resulting in net proceeds of approximately E4.3
billion after deduction of the commission payable to the underwriters and other
costs borne by us.

     In a second step -- planned for the second half of this year -- we intend
to use the Group's hybrid capital capacity, subject to market conditions and the
Group's needs.

                         SUMMARY FINANCIAL INFORMATION

     The following table shows the relative contributions of our
property-casualty, life/health, banking and asset management segments and
related geographic and other subsegments to our gross premiums written, total
income and net income in 2002, 2001 and 2000. The table also shows the impact of
consolidation adjustments, amortization of goodwill and minority interests.
Consistent with our general practice, gross premiums written and total income by
geographic region are presented before consolidation adjustments representing
the elimination of transactions between Group companies in different geographic
regions and different segments, and net

                                        22


income by geographic region is presented before those consolidation adjustments,
amortization of goodwill and minority interests.



                                                                    YEAR ENDED DECEMBER 31,
                                  -------------------------------------------------------------------------------------------
                                              2002                            2001                           2000
                                  -----------------------------   ----------------------------   ----------------------------
                                    GROSS                           GROSS                          GROSS
                                   PREMIUMS     TOTAL     NET      PREMIUMS    TOTAL     NET      PREMIUMS    TOTAL     NET
                                  WRITTEN(1)   INCOME    INCOME   WRITTEN(1)   INCOME   INCOME   WRITTEN(1)   INCOME   INCOME
                                  ----------   -------   ------   ----------   ------   ------   ----------   ------   ------
                                                                        (E IN MILLIONS)
                                                                                            
Property-Casualty
  Germany.......................    12,314      24,019   9,235(2)   12,644     18,382    3,773     11,948     16,966   3,320
  Rest of Europe................    20,494      22,653    1,932     19,606     20,553      848     17,302     20,011   1,285
  NAFTA.........................     5,992       5,819    (933)      6,822      6,837   (1,030)     6,300      5,866     (86)
  Rest of World.................     2,428       2,118       38      2,401      1,787       39      1,886      1,630       5
  Specialty Lines...............     4,948       3,712    (199)      2,321      2,303       94      2,267      2,036     227
  Consolidation
    adjustments(3)..............   (2,882)     (2,765)   (1,680)   (1,657)     (1,092)   (265)    (1,321)     (1,312)   (570)
                                    ------     -------   ------     ------     ------   ------     ------     ------   -----
    Subtotal....................    43,294      55,556    8,393     42,137     48,770    3,459     38,382     45,197   4,181
  Amortization of goodwill......        --          --    (370)         --         --    (349)         --         --    (277)
  Minority interests............        --          --    (816)         --         --    (746)         --         --    (642)
                                    ------     -------   ------     ------     ------   ------     ------     ------   -----
    Total Property-Casualty.....    43,294      55,556    7,207     42,137     48,770    2,364     38,382     45,197   3,262
Life/Health
  Germany.......................    12,234      21,247      137     11,660     19,809      127     11,681     21,662     583
  Rest of Europe................     5,181      10,903     (95)      5,486     10,430      381      5,751     11,866     910
  Rest of World.................     3,251       4,388     (24)      3,010      3,856     (49)      2,818      3,724     (71)
  Consolidation
    adjustments(3)..............       (3)         (2)      (2)       (11)        (3)       --       (11)        (1)      (2)
                                    ------     -------   ------     ------     ------   ------     ------     ------   -----
    Subtotal....................    20,663      36,536       16     20,145     34,092      459     20,239     37,251   1,420
  Amortization of goodwill......        --          --    (174)         --         --    (146)         --         --    (137)
  Minority interests............        --          --      177         --         --     (84)         --         --    (658)
                                    ------     -------   ------     ------     ------   ------     ------     ------   -----
    Total Life/Health...........    20,663      36,536       19     20,145     34,092      229     20,239     37,251     625
Banking(4)
  Operations....................        --      21,275   (1,142)        --     12,755      303         --      1,722     183
  Amortization of goodwill......        --          --    (241)         --         --     (70)         --         --       8
  Minority interests............        --          --       25         --         --    (453)         --         --     (90)
                                    ------     -------   ------     ------     ------   ------     ------     ------   -----
    Total Banking...............        --      21,275   (1,358)(5)       --   12,755    (220)         --      1,722     101
Asset Management
  Operations....................        --       3,185      202         --      2,738       77         --      1,722     138
  Amortization of goodwill......        --          --    (377)         --         --    (243)         --         --     (89)
  Minority interests............        --          --    (230)         --         --    (182)         --         --    (136)
                                    ------     -------   ------     ------     ------   ------     ------     ------   -----
    Total Asset Management......        --       3,185    (405)         --      2,738    (348)         --      1,722     (87)
                                    ------     -------   ------     ------     ------   ------     ------     ------   -----
Subtotal........................    63,957     116,552    5,463     62,282     98,355    2,025     58,621     85,892   3,901
Consolidation adjustments(6)....     (804)     (8,876)   (6,630)     (694)     (2,705)   (402)      (736)     (2,103)   (441)
                                    ------     -------   ------     ------     ------   ------     ------     ------   -----
Total...........................    63,153     107,676   (1,167)    61,588     95,650    1,623     57,885     83,789   3,460
                                    ======     =======   ======     ======     ======   ======     ======     ======   =====


---------------

(1) Represents premiums written for both direct business and reinsurance assumed
    between Group companies in different countries and segments, as well as from
    third parties. Our gross premiums written in respect of reinsurance assumed
    from Group companies are eliminated in consolidation.

(2) Includes significant investment related results. See "-- Property-Casualty
    Insurance Operations -- Year Ended December 31, 2002 Compared to Year Ended
    December 31, 2001 -- Net Income."

                                        23


(3) Represents elimination of intercompany transactions between Group companies
    in different geographic regions.

(4) Reflects the inclusion of Dresdner Bank in our consolidated financial
    statements for the full twelve months of 2002, compared to 2001, where
    Dresdner Bank was consolidated only from July 23, 2001, the date of
    acquisition.

(5) Includes a realized gain of E1,912 million resulting from the transfer in
    August 2002 of substantially all of Dresdner Bank's German asset management
    subsidiaries to ADAM. See "-- Banking Operations." The gain on this transfer
    was eliminated at the Group level. In addition, this item includes a
    realized gain of E224 million resulting from the merger of Deutsche Hyp into
    Eurohypo in August 2002. See "Banking Operations -- Other -- Description of
    Business -- Real Estate."

(6) Represents elimination of intercompany transactions between Group companies
    in different segments.

                              RECENT DEVELOPMENTS

     At the end of the first quarter of 2003, the Institutional Restructuring
Unit (or IRU) within our banking segment included approximately E31 billion,
consisting of approximately E22 billion of loans (including approximately E7
billion of non-performing loans and approximately E1 billion of potential
problem loans) and approximately E1 billion of other non-strategic assets,
including private equity investments, and approximately E8 billion of undrawn
commitments. As of June 24, 2003, the IRU had disposed of approximately E3
billion of loans by means of securitization transactions.

     On June 27, 2003, a subsidiary of Allianz received notice from the former
parent company of PIMCO that such former parent company of PIMCO had exercised
its right to put an additional US$250 million of its remaining ownership
interest in PIMCO to Allianz as of June 30, 2003, with payment therefor due by
July 30, 2003. For additional information, see "-- Asset Management
Operations -- Result of Operations -- Year Ended December 31, 2002 Compared to
Year Ended December 31, 2001 -- Net income."

     On July 10, 2003 we announced our intention to redeem a first tranche of
approximately 50% of our index-linked exchangeable bonds (MILES) ahead of
schedule, using Munich Re shares. This transaction, when completed, will reduce
our shareholding in Munich Re by approximately 3%.

                    FACTORS AFFECTING RESULTS OF OPERATIONS

     Our results of operations are affected by demographics (particularly with
respect to life insurance) and by a variety of market conditions, including
economic cycles, insurance industry cycles (particularly with respect to
property-casualty insurance) and fluctuations in interest rates. We believe that
the impact of these factors will continue to affect our results of operations.
For the year ended December 31, 2002, approximately 36.7% of our gross premiums
were derived from our German operations. As a result, economic, demographic and
market developments in Germany have materially impacted and can be expected to
continue to materially impact our results. In addition, fluctuations in exchange
rates in non-euro zone countries in which we do business affect our
euro-denominated reported results. See "-- Exchange Rates." Our German net
income includes investment income and realized capital gains on the substantial
equity portfolio held at Allianz AG, which is part of our German
property-casualty segment.

GENERAL MARKET CONDITIONS

     Property-Casualty.  Conditions in the property-casualty insurance markets
in which we operate are generally characterized by periods of price competition,
fluctuations in underwriting

                                        24


results and the occurrence of unpredictable weather-related and other
catastrophe losses. In recent years, the commercial and industrial
property-casualty markets in which we operate have also been characterized by
generally lower customer demand and a growing trend towards higher retention
levels and the use of self-insurance mechanisms by insureds. During this same
period in Europe, our automobile insurance business lines have been
characterized by increased competition. We have succeeded in achieving
substantial rate increases in the majority of our primary property-casualty
markets in 2002.

     In addition, the underwriting results of our property-casualty operations
are significantly influenced by estimates of property-casualty loss reserves,
which are an accumulation of the estimated amounts necessary to settle all
outstanding claims as of a particular reporting date. In recent years, our U.S.
property-casualty loss reserves have shown cumulative deficiencies, primarily as
a result of claims related to environmental and asbestos exposures. See "Risk
Factors -- Claims reserves for our property and casualty insurance and
reinsurance policies are based on future estimates which if not correct could
materially adversely affect earnings," as well as "-- Property-Casualty
Insurance Reserves" for a discussion of our property-casualty reserves on a
consolidated Group basis under IFRS, and on an individual country basis under
local accounting rules.

     Prior to March 31, 2003, our most significant associated enterprise was
Munich Re, one of the world's largest reinsurers. To the extent loss reserve
development (favorable or unfavorable) impacted Munich Re's results, it was also
reflected in our results on an equity basis. Effective March 31, 2003, however,
we reduced our shareholding in Munich Re to less than 20%. As a result of this
reduction, we ceased to account for Munich Re as an associated enterprise at
March 31, 2003. Accordingly, the treatment of Munich Re in our financial
statements after March 31, 2003 will not be comparable to that of prior periods.

     Life/Health.  Demographic studies suggest that over the next decade there
will be growth in our principal life insurance markets of Germany, France, Italy
and the rest of Europe and the United States in the number of individuals who
enter the age group that we believe is most likely to purchase
retirement-oriented life insurance products. In addition, in a number of our
European markets, including Germany, retirement, medical and other social
benefits previously provided by the government have been or are expected to be
curtailed in the coming years. We believe that these trends will increase
opportunities for private sector providers of life insurance, health, pension
and other social benefits-related insurance products. We believe that our
distribution networks, the quality and diversity of our products and our
investment management expertise in each of these markets position us to benefit
from such developments.

     Banking.  Conditions in the banking market in which we operate,
particularly in Europe, are generally characterized by intense competition and
low profit margins. In 2002, the downturn in global equity markets, declining
transaction volumes and increasing levels of default by both corporate and
individual borrowers combined to result in significant net losses in our banking
segment. Nonetheless, the sale of life insurance and retirement savings products
through our bank branches increased in 2002, particularly in our core markets of
Germany, Italy and France. We believe that bancassurance will be an increasingly
important distribution channel for all of our business segments in the years to
come.

     Asset Management.  Prior to 2001, our asset management segment had
generally benefited from favorable market conditions, including falling interest
rates and generally strong capital markets conditions in Europe and the United
States, marked by intermittent periods of extreme volatility. In 2001 and 2002,
the downturn in the global equity markets, together with the terrorist attack of
September 11, 2001, had a significant negative impact on our asset management
operations, resulting in widespread price declines in equity securities and
transaction volumes and increased uncertainty on the part of many third-party
investors. We cannot predict how long the downturn in the capital markets will
last or what its long-term effect on investor confidence

                                        25


will be. While the assets under management in our asset management segment
include a significant amount of funds related to affiliated Allianz Group
insurance operations, a growing portion of our assets under management,
particularly following our acquisitions of PIMCO in May 2000, Nicholas-Applegate
in January 2001 and Dresdner Bank in July 2001, represents third-party funds.

EXCHANGE RATES

     We publish our consolidated financial statements in euros. A significant
portion of our 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. As a result, we have a financial
reporting translation exposure attributable to fluctuations in the values of
these currencies against the euro. The impact of these fluctuations in exchange
rates is mitigated by the fact that our non-euro revenues and related expenses,
as well as assets and liabilities, are generally denominated in the same
currencies. See "-- Risk Management" for a discussion of our management of
foreign exchange rate-related risks as well as "Risk Factors -- Changes in value
relative to the euro or non-euro zone currencies in which we generate revenues
and incurs expenses could adversely affect our reported earnings and cash flow."

CONSOLIDATION DIFFERENCES

     Our reported segment results in 2002 were significantly affected by
intercompany transactions, including the transfer in August 2002 of
substantially all of Dresdner Bank's German asset management subsidiaries to
Allianz Dresdner Asset Management GmbH (or ADAM) (see "-- Banking Operations")
and transfers of investment securities in connection with the repositioning of
certain shareholdings within the Group (see "-- Insurance Operations" and "--
Banking Operations"). The gains and losses on these transfers were eliminated at
the Group level. In addition, our 2002 results reflect the consolidation of
Dresdner Bank for the full twelve months of 2002, compared to 2001, where
Dresdner Bank was consolidated only from July 23, 2001, the date of the
acquisition. On August 1, 2002, we deconsolidated the assets and liabilities of
our former mortgage banking subsidiary, Deutsche Hyp. See "-- Banking
Operations -- Other -- Description of Business -- Real Estate."

     Prior to March 31, 2003, our most significant associated enterprise was
Munich Re, one of the world's largest reinsurers. To the extent loss reserve
development (favorable or unfavorable) impacted Munich Re's results, it was also
reflected in our results on an equity basis. Effective March 31, 2003, however,
we reduced our shareholding in Munich Re to less than 20%. As a result of this
reduction, we ceased to account for Munich Re as an associated enterprise at
March 31, 2003. Accordingly, the treatment of Munich Re in our financial
statements after March 31, 2003 will not be comparable to that of prior periods.

                          CRITICAL ACCOUNTING POLICIES

     We have identified the accounting policies that are critical to our
business operations and the understanding of its results of operations. These
critical accounting policies are those which involve the most complex or
subjective decisions or assessments, and relate to insurance reserves, loan loss
allowances, the determination of the fair value of financial assets and
liabilities (including impairment charges), goodwill and deferred tax assets and
off-balance sheet arrangements. In each case, the determination of these items
is fundamental to our financial position and results of operations, and requires
management to make complex judgments based on information and financial data
that may change in future periods. As a result, determinations regarding these
items necessarily involve the use of assumptions and subjective judgments as to
future events and are subject to change, and the use of different assumptions or
data could produce materially different results.

                                        26


INSURANCE RESERVES

     Our insurance reserves represent estimates of future payouts that we will
make in respect of property-casualty and life/health insurance claims, including
expenses relating to such claims. Such estimates are made on a case-by-case
basis, based on the facts known to us at the time reserves are established, and
are periodically adjusted to recognize the estimated ultimate cost of a claim.
In addition, we establish so-called IBNR reserves in our property-casualty
business to recognize the estimated cost of losses that have occurred but of
which we do not yet have notice. When actual claims experience differs from our
previous estimates, the resulting difference will generally be reflected in our
reported results for the period of the change in estimate. In each case, the
establishment of our insurance reserves is an inherently uncertain process,
involving assumptions as to factors such as court decisions, changes in laws,
social, economic and demographic trends, inflation and other factors affecting
claim costs, and, in our life/health insurance business, assumptions concerning
mortality and morbidity trends. In recent years, our property-casualty insurance
reserves in the United States have been significantly impacted by claims
relating to asbestos and environmental exposures. For a further discussion of
our property-casualty insurance reserves, including an additional E762 million
in asbestos and environmental reserves taken in 2002, see "-- Property-Casualty
Insurance Reserves," as well as "-- Property-Casualty Loss Reserves" and "Risk
Factors -- Claims reserves for our property-casualty insurance and reinsurance
policies are based on estimates as to future claims liabilities. In 2002, we
made significant additional reserves relating to asbestos-related and
environmental claims in the United States and in connection with discontinued
and run-off businesses. Further adverse developments relating to claims could
lead to further reserve additions and adversely impact our results of
operations."

LOAN LOSS ALLOWANCES

     Our loan loss allowances represent management's estimate of the probable
credit losses in our loan portfolio. Allowances are established on a
case-by-case basis, are updated over time, and are described at greater length
under "-- Selected Statistical Information Relating to Our Banking Operations."
Judgments concerning the timing and level of our loan loss allowances are based
on numerous estimates and judgments, including determinations concerning
borrower creditworthiness, contractual loan terms and available judicial and
other remedies. Allowances for counterparty risk are established against
individual exposures and are subject to periodic management review. Specific
loan loss allowances are recorded if it is probable that the borrower will not
repay principal and/or interest according to the contractually agreed terms.
Individually impaired loans are measured on the basis of the present value of
expected cashflows and take into consideration the borrower's financial
position, the contractual terms of the loan and the value of collateral if any.
In 2002, our banking operations' recorded additional net loan loss provisions of
E2,222 million. See "-- Banking Operations -- Results of Operations -- Year
Ended December 31, 2002 Compared to Year Ended December 31, 2001 -- Loan Loss
Provisions" as well as "Risk Factors -- We have significant counterparty risk
exposure" and "Risk Factors -- Dresdner Bank continues to experience significant
loan losses relating to problem loans."

     General loss allowances are established to provide for incurred but
unidentified losses that are inherent in the loan portfolio at the relevant
balance sheet date. The general loan loss allowance is reviewed in the light of
general economic conditions, the size and diversity of the portfolio and
historical default rates.

     Country risk allowances are established for transfer risk, which is a
measure of the likely ability of a borrower in a certain country to repay its
foreign currency-denominated debt in light of the impact of currency
devaluations, macroeconomic or political developments in that country. Country
risk allowances are based on country ratings that incorporate current and
historical economic, political and other data to categorize countries by risk
profile.
                                        27


     When we determine that a loan is uncollectible, the loan is charged off
against any existing specific loss allowance or directly recognized as expense
in the income statement. Changes in judgments, analyses and the methodologies we
utilize may lead to changes over time in the level and timing of the allowances
we establish and related charge-offs, which may in turn materially impact the
results of our banking segment. In 2002, our banking segment's gross charge-offs
were E1,889 million.

FAIR VALUES AND IMPAIRMENTS

     A portion of our assets and liabilities is recorded at fair value,
including trading assets and liabilities, and securities available for sale.
Fair value determinations for financial assets and liabilities are based
generally on listed market prices or broker or dealer price quotations. If
prices are not readily determinable, fair value is based on either internal
valuation models or management's estimate of amounts that could be realized
under current market conditions. Fair values of certain financial instruments,
including OTC derivative instruments, are determined using pricing models that
consider, among other factors, contractual and market prices, correlations, time
value, credit, yield curve volatility factors and/or prepayment rates of the
underlying positions. The use of different pricing models and assumptions could
lead to different estimates of fair value.

     Financial assets are reviewed regularly for impairments, and valuation
writedowns to fair value are charged to income if an other than temporary
diminution in value occurs. Determinations concerning an other than temporary
diminution involve judgments concerning market conditions, issuers' financial
positions and other factors. We generally consider an other than temporary
diminution to have occurred upon a decline of 20% or greater from book value
over a period in excess of six consecutive months. For a discussion of
impairment charges taken in 2002, see "-- Investment Portfolio Impairments and
Unrealized Losses," "Risk Factors -- Our investment portfolio is significantly
exposed to equity securities. Market risks could impair this portfolio and
adversely impact our financial position and results of operations," and "Risk
Factors -- Market factors, as well as a lack of improvement in our operating
performance, may adversely affect the levels of deferred acquisition costs,
goodwill and deferred tax assets we maintain on our balance sheet; the deferred
tax assets we maintain are also potentially impacted by changes in German tax
legislation."

OFF-BALANCE-SHEET ARRANGEMENTS

     Off-balance sheet arrangements that we enter into in our investment and
banking activities include securitization and other transactions involving
special- or limited-purpose entities (or SPEs), credit lines and loan
commitments. Off-balance-sheet arrangements we enter into in our insurance
business also include letter of credit (or LOC) transactions where we provide
LOC coverage for all or part of our obligations to insureds or other customers,
or where similar coverage is provided to us by reinsurers or other
counterparties, in each case in accordance with applicable credit or regulatory
requirements.

     Off-balance sheet transactions may be carried out with or through a variety
of unconsolidated SPEs. In our insurance and reinsurance businesses, we have
entered into reinsurance transactions with SPEs which provide us with long-term
reinsurance coverage and were funded through the issuance of so-called
"catastrophe bonds" to third-party investors. In our banking business, we have
established SPEs in order to provide administrative services, engage in
underwriting activities, enter into derivative transactions, provide liquidity
and overdraft facilities and guarantees, securitize financial assets we hold,
reduce credit risks on our loan portfolios, and provide alternative financing
structures and investment products for our customers. Material exposures related
to the transactions are recorded or disclosed in our consolidated financial
statements. Risks associated with establishing SPEs and transactions entered
into with SPEs are reviewed in the banking operations risk management process.
                                        28


     In the context of the "Silver Tower" asset-backed program of Dresdner Bank,
in which third-party receivables and receivables of Dresdner Bank Group are
securitized, and which is refinanced by commercial paper, Dresdner Bank has
granted short-term credit lines in the amount of E10.2 billion in the event that
a refinancing through commercial paper is not possible. As of June 18, 2003, E4
billion of such credit lines had been used for refinancing instead of the
placement of commercial paper. The risk exists that Dresdner Bank would be
required to use its own credit lines by up to further E7 billion, which would
accordingly raise its regulatory risk-weighted assets.

                             ACCOUNTING DIFFERENCES

     During 2002, we reduced the time lag in accounting for all material
investments in associates to a period of no more than three months for IFRS. We
accounted for this reduction by recording the income and equity changes
occurring during the catch-up period (i.e., the period from June 30, 2001 to
September 30, 2001), less any amounts already reflected in fiscal 2001 due to
their significance, directly in shareholders' equity. The amount of income
directly recorded in shareholders' equity in 2002 was E131 million.

     The impact of the terrorist attack of September 11, 2001 on the financial
results of Munich Re, our most significant associate, was considered in our 2001
income statement and statement of shareholders' equity in light of the
significance and relevance of this impact to our 2001 consolidated financial
statements.

     On January 1, 2001, we adopted IAS 39, Financial instruments: recognition
and measurement, and IAS 40, Investment property. IAS 39 sets forth requirements
for the recognition in financial statements and valuation of the financial
assets and liabilities of an enterprise, including the reporting of hedging
instruments, and relating to additional disclosure. Under this standard, all
financial assets and liabilities, including all derivatives, are initially
recognized on the balance sheet at cost. Subsequent to initial recognition, all
financial assets are re-measured to fair value, with the exception of certain
assets and liabilities listed in the standard. This standard does not apply to
rights and obligations arising under insurance contracts. The effect of the
first-time recognition under IAS 39 of the market values of derivatives that
have until now not been shown in the balance sheet have been recorded in the
beginning balance of shareholders' equity. This reduced revenue reserves by E153
million.

     IAS 40 covers investment property independent of the main activity of the
enterprise concerned. Investment property is real estate held to earn rentals or
for capital appreciation. IAS 40 does not apply to real estate held for use in
the production or supply of goods or services or for administrative purposes.
The standard allows an enterprise to choose either a fair value model or a cost
model for valuation purposes. We have chosen the acquisition cost method, which
is consistent with our previous accounting policy. First-time application of IAS
40 has resulted only in changes in presentation.

     For more information on accounting changes, see Note 2 to the consolidated
financial statements.

                       CONSOLIDATED RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001

     Our total income increased by E12,026 million, or 12.6%, to E107,676
million in 2002 from E95,650 million in 2001, due primarily to the full-year
consolidation of Dresdner Bank in 2002, offset in part by the effects of
weakness in the capital markets and the global economy, which affected all of
our operating segments and our banking segment in particular. Our earnings from
ordinary activities before taxation decreased by E3,041 million, or 166.4%, to a
loss of

                                        29


E1,214 million in 2002 from income of E1,827 million in 2001. We had a
consolidated tax benefit of E735 million in 2002 and a consolidated tax benefit
of E840 million in 2001, representing overall effective tax rates of (62.8)% and
(52.1)%, respectively, compared to statutory rates for our primary German and
other operating subsidiaries that ranged from 12.5% to 45.5% and averaged 32.5%.
The consolidated tax benefit in 2002 was due primarily to tax losses, for which
a deferred tax asset was recognized.

     Net income decreased E2,790 million, or 171.9%, to a loss of E1,167 million
in 2002, compared to income of E1,623 million in 2001, reflecting primarily
weakness in the capital markets and the global economy, offset in part by the
tax benefit discussed above. This weakness was particularly evident in
writedowns of available for sale investments, which increased significantly to
E5,523 million in 2002. In our banking segment, earnings were negatively
affected by additional net loan loss provisions of E2,222 million. Our
property-casualty insurance business was negatively impacted by significant
claims, including primarily E762 million relating to asbestos and environmental
reserve-strengthening measures at Fireman's Fund and E710 million in net claims
relating to severe floods that struck Germany and Central and Eastern Europe in
July and August 2002. These negative effects in our property-casualty segment
were offset in part by significant investment-related gains and rate increases
in most of our major property-casualty markets.

     The following table sets forth the percentage changes for 2002 over 2001 in
our total income, total expenses and net income by segment, which are discussed
in greater detail below, and for the Group as a whole. Changes in results in our
banking and asset management segments related primarily to the full-year
consolidation of Dresdner Bank in 2002. Percentage changes for 2002 over 2001
for our banking segment, which we established as a separate segment in 2001,
reflect the inclusion of Dresdner Bank in our consolidated financial statements
as of July 23, 2001 and are therefore not comparable. See "-- Banking
Operations."



                                                                   % CHANGE 2002/2001
                                                       ------------------------------------------
                                                       TOTAL INCOME   TOTAL EXPENSES   NET INCOME
                                                       ------------   --------------   ----------
                                                                              
Property-Casualty....................................      13.9 %           3.5 %         204.9 %
Life/Health..........................................       7.2 %           8.8 %         (91.7)%
Banking..............................................      66.8 %          82.1 %        (517.3)%
Asset Management.....................................      16.3 %          11.3 %         (16.4)%
Consolidated Group...................................      12.6 %          16.1 %        (171.9)%


YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000

     Our total income increased E11.861 million, or 14.2%, to E95,650 million in
2001 from E83,789 million in 2000, due primarily to the acquisition of Dresdner
Bank in July 2001, together with increases in property-casualty insurance,
offset in part by a decrease in life/health insurance. Despite the increase in
total income, our earnings from ordinary activities before taxation decreased by
E3,086 million, or 62.8%, to E1,827 million in 2001 from E4,913 million in 2000,
reflecting primarily the effects of the terrorist attack of September 11, 2001
in the United States and weakness in the capital markets. On a consolidated
Group basis, the terrorist attack of September 11, 2001 resulted in net claims
costs of approximately E1.5 billion. As a result of the weakness in the capital
markets, earnings were also negatively affected by E1.6 billion of investment
writedowns. We had a consolidated tax benefit of E840 million in 2001 and a
consolidated tax expense of E176 million in 2000, representing overall effective
tax rates of (52.1)% and 2.8% respectively, compared to statutory rates for our
primary German and other operating subsidiaries that ranged from 10.0% to 43.0%,
and averaged 19.2%. The consolidated tax benefit in 2001 was due to a
substantial amount of tax losses resulting primarily from claims related to the
September 11, 2001 terrorist attack in the United States, together with a
significant amount of tax-exempt realized gains on investments.

                                        30


     Net income decreased E1,837 million, or 53.1%, to E1,623 million in 2001,
compared to E3,460 million in 2000, reflecting primarily the impact of the
special adjustment to income taxes in 2000, the effects of the terrorist attack
of September 11, 2001 in the United States and weakness in the capital markets,
offset in part by the tax benefit discussed above.

     The following table sets forth the percentage changes for 2001 over 2000 in
our total income, total expenses and net income by segment, which are discussed
in greater detail below, and for the Group as a whole. Results in our banking
and asset management segments reflected primarily the acquisition of Dresdner
Bank in July 2001. Percentage changes for 2001 over 2000 for our banking
segment, which we established as a separate segment in 2001, are based on the
results for 2000 of the banking operations of the Allianz Group, which we
reported in 2000 and prior years together with asset management as part of our
financial services segment and are therefore not comparable. See "-- Asset
Management Operations" and "-- Banking Operations."



                                                                   % CHANGE 2001/2000
                                                       ------------------------------------------
                                                       TOTAL INCOME   TOTAL EXPENSES   NET INCOME
                                                       ------------   --------------   ----------
                                                                              
Property-Casualty....................................       8.2 %          12.6 %         (27.5)%
Life/Health..........................................      (8.2)%          (5.2)%         (63.4)%
Banking..............................................     645.7 %         689.4 %        (317.8)%
Asset Management.....................................      59.0 %          83.2 %        (300.0)%
Consolidated Group...................................      14.5 %          19.3 %         (53.1)%


                      CONSOLIDATED ASSETS AND LIABILITIES

YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001

     Total assets decreased by E90,869 million, or 9.6%, to E852,056 million at
December 31, 2002, from E942,925 million at December 31, 2001, primarily as a
result of the deconsolidation of Deutsche Hyp and price declines in the capital
markets. Our own investments (including loans and advances in our banking
segment) decreased by E88,505 million, or 11.3%, to E696,433 million in 2002
from E784,938 million in 2001, while separate account assets increased by E965
million, or 3.9%, to E25,657 million at December 31, 2002, from E24,692 million
at December 31, 2001. Insurance investments (excluding separate account assets)
increased by E8,442 million, or 2.4%, to E362,577 million in 2002 from E354,135
million in 2001.

     Our shareholders' equity decreased by 31.2% to E21,772 million at December
31, 2002 compared to E31,664 million at December 31, 2001. This decrease
resulted primarily from a decrease in net unrealized gains of E7,198 million
from E8,276 million at December 31, 2001 to E1,049 million (adjusted for
currency translation) at December 31, 2002, reflecting generally adverse
conditions in the capital markets.

YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000

     Total assets increased by E502,930 million, or 114.3%, to E942,925 million
at December 31, 2001, from E439,995 million at December 31, 2000, primarily as a
result of our acquisition of Dresdner Bank in July 2001. Our own investments
grew by E456,813 million, or 139.2%, to E784,938 million in 2001 from E328,125
million in 2000, while separate account assets increased E1,922 million, or
8.4%, to E24,692 million at December 31, 2001, from E22,770 million at December
31, 2000. Insurance investments grew by E19,066 million, or 5.7%, to E354,135
million in 2001 from E335,069 million in 2000.

     Our shareholders' equity decreased by 11.1% to E31,664 million at December
31, 2001 compared to E35,603 million at December 31, 2000. This decrease
resulted primarily from a decrease in net unrealized gains of E5,210 million in
2001.

                                        31


             INVESTMENT PORTFOLIO IMPAIRMENTS AND UNREALIZED LOSSES

VALUATION OF SECURITIES AVAILABLE FOR SALE

     All investments in our investment portfolio are subject to regular
impairment reviews. Generally, the carrying value of our investments is reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. Impairments are measured as the
difference between the acquisition cost of a particular investment and the
expected recoverable amount (generally market value).

     Securities available for sale are recorded at fair value, and are reviewed
regularly for impairments. Valuation write-downs to fair value are charged to
income if an other than temporary diminution in value occurs. As of the closing
date for each quarter and year end, we identify on a Group-wide basis all
securities whose market values are other than temporarily below acquisition cost
based on our policy guidelines. Fair value determinations for financial assets
and liabilities are based generally on listed market prices or broker or dealer
price quotations.

FIXED INCOME SECURITIES

     Fixed income securities are written down if one or more of the following
factors indicate that repayment of the principal can no longer be expected in
light of the intended holding period:

     -  the issuer's or counterparty's financial condition deteriorates,
        evidenced by a variety of circumstances, including the fact that
        creditors grant special conditions or concessions that they would not
        otherwise grant, disappearance of an active market for the investment,
        or actual or impending bankruptcy;

     -  disappearance of an active market for the security due to the issuer's
        financial difficulties;

     -  default or delay in interest service or repayment of principal;

     -  in the case of asset-backed securities, a pattern indicates that the
        entire amount of a portfolio of accounts receivable or other assets may
        not be collected; or

     -  Group management no longer has the intent and ability to hold the
        security through the anticipated recovery period.

     We analyze fixed income assets for impairment if any of the following
occurs:

     -  rating agency downgrade below investment grade;

     -  fair value declines significantly below cost;

     -  change in conditions in the issuer's or counterparty's industry,
        business segment or geographic area; or

     -  change in recommendations of investment advisors or market analysts.
        Generally, we do not consider fixed income instruments impaired if the
        decline in value is caused solely by changes in interest rates.

EQUITY INVESTMENTS

     Equity investments categorized as securities available for sale are valued
at market value.

     Other Than Temporary Declines in Market Value.  We record an impairment
loss if a decline in the market value of an equity security is other than
temporary. In 2001, we generally considered a decline in market value in an
equity security classified as available for sale to be other than temporary if
the market value of the security was continuously for a period of more than six
months more than 30% below both the weighted average acquisition cost of the
individual Group company that held the security and the Group's weighted average
acquisition cost. In these instances we recorded an impairment on equity
securities held by Group companies that were in an unrealized loss position. In
2002, we modified our policy and generally considered a decline to be other than
temporary if the market value was continuously for a period of more than six
months 20% or more below both the weighted average acquisition cost

                                        32


of the individual Group company that held the security and the Group's weighted
average acquisition cost.

     Additional Factors.  In addition, we record an impairment on our available
for sale securities if one or more of the following factors indicate that the
cost of the investment may not be recovered in light of the intended holding
period:

     -  the issuer's financial condition deteriorates, evidenced by a variety of
        circumstances, including disappearance of an active market for the
        investment, or actual or impending bankruptcy;

     -  the issuer is adversely affected by significant developments in its
        business environment; or

     -  the market value of an investment has declined more than 80% below an
        individual Group company's acquisition cost as of the end of any fiscal
        quarter.

     If any of the following occurs, we analyze the investment for impairment in
greater detail:

     -  change in recommendations of investment advisors or market analysts;

     -  significant developments or events in the issuer's business conditions
        and environment;

     -  decline in the issuer's P/E ratio;

     -  losses recently incurred by the issuer;

     -  changes in the issuer's dividend policy.

     Management Judgment Analysis.  If the criteria mentioned above indicate an
impairment but recovery of the acquisition cost is still expected in the medium
term, the decrease in value may still be considered temporary based on
management's judgment, provided we have the intent and ability to hold the
investment for a period of time sufficient to allow for a recovery in fair
value. The following information is required to support any decision not to
record an impairment in such cases:

     -  relative performance of the investment compared to benchmarks indicate
        that the decrease in value is attributable to industry or market
        conditions, rather than issuer-specific problems;

     -  positive evaluations of market analysts;

     -  historical share price development and volatility in share prices
        indicate that acquisition cost may be recovered in the near future; or

     -  specific intentions and ability to hold the investment exist.

     A decision based on management judgment has to follow these guidelines,
must be supported by full documentations and is required to be updated at
regular intervals. The evaluation includes other factors, such trends in stock
market performance, the extent to which the fair value is below the acquisition
price and the period of time for which unrealized losses have existed. To ensure
consistency, decisions based on management judgment may only be taken at the
Group level and not by any of the Group's subsidiary operating entities.

     Private Equity Investments.  The IFRS carrying value of the Group's
available for sale private equity investments was E1,723 million at December 31,
2002 and E1,959 million at December 31, 2001.

     Direct private equity investments, which are primarily non-traded
securities, are generally carried by the Allianz Group at cost. The Group tests
private equity investments for impairment on a quarterly basis, generally on the
basis of financial measures such as EBITDA and EBIT or price to earnings ratios.
If appropriate, discounted cash models or leveraged buyout models are applied.
Information from publicly available reports of the Group's private equity
investees is also

                                        33


taken into account. If a decline in the fair value of a private equity
investment is determined to be other than temporary, the investment is
considered to be impaired.

     A significant portion of the Group's available for sale private equity
investments was held at Dresdner Bank (E980 million at December 31, 2002 and
E1,140 million at December 31, 2001). Dresdner Bank records an impairment loss
on such investments if a decline in the value of the investment is determined to
be other than temporary. Dresdner Bank generally considers a decline to be other
than temporary if the market value was 20% or more below acquisition cost over a
period of six months.

     Investments in Funds.  The Group's valuation of investments in funds, or
funds of funds, relies primarily on information relating to net asset value
provided by the general partners of such funds. If a decline in the net asset
value of a fund of funds is determined to be other than temporary, the
investment is considered to be impaired. Additional factors not reflected in the
net asset value of a fund of funds may also be taken into account in making
impairment determinations.

VALUATIONS OF SECURITIES HELD TO MATURITY

     The fair value of individual securities held to maturity can fall
temporarily below their carrying value, but, provided there is no risk resulting
from changes in financial standing, such securities are not written-down in
value. Impairment charges on securities held to maturity totaled E31 million in
2002 and E35 million in 2001.

IMPAIRMENT CHARGES

     For the year ended December 31, 2002, other expenses for investments
totaled E14,102 million, of which E8,204 related to realized losses and E5,898
related to depreciation and write-downs. Of the total amount of realized losses
in 2002, E8,063 million related to securities available for sale, E4 million to
securities held to maturity, E131 million to real estate used by third parties
and E6 million to other investments. Of the amount related to depreciation and
write-downs, E5,523 million was attributable to securities available for sale,
E31 million to securities held to maturity, E333 million to real estate used by
third parties (including scheduled depreciation) and E11 million to other
investments. In 2002, we recorded E4,953 million of write-downs related to
equity securities, E345 million related to corporate bonds and E202 million
related to government bonds.

     For the year ended December 31, 2001, other expenses for investments
totaled E8,923 million, of which E6,998 million were attributable to realized
losses and E1,925 million resulted from depreciation and write-downs. Realized
losses for securities available for sale were E6,888 million, for securities
held to maturity E12 million, for real estate used by third parties E19 million,
and for other investments E79 million. Of the total amount for depreciation and
write-downs, E1,507 million related to securities available for sale, E35
million to securities held to maturity, E378 million to real estate used by
third parties (including scheduled depreciation) and E5 million to other
investments. In 2001, we recorded E1,201 million of write-downs related to
equity securities, E170 million related to corporate bonds and E103 million
related to government bonds.

UNREALIZED LOSSES

     As of December 31, 2002, unrealized losses from securities available for
sale totaled E12,752 million, of which E11,833 million were attributable to
equity securities, E472 million to corporate bonds and E426 million to
government bonds. As of December 31, 2001, we recorded a total of E9,656 million
unrealized losses. Of this amount, E7,700 million related to equity securities,
E1,195 to government bonds and E710 to corporate bonds. The gross amount of
unrealized losses that would have been recognized as impairments based on our
current policies but for the application of management judgments (i.e.,
unrecognized impairment losses) was E261 million and E764 million at December
31, 2001 and December 31, 2002, respectively. On a net basis, after policyholder
participation and minority interests, these amounts were E145 million

                                        34


and E267 million, respectively. All of the foregoing unrecognized impairment
losses arose in respect of our equity holdings. In determining such amounts, we
have utilized the Group's average acquisition cost of such securities as
determined on a quarterly basis.

     Of the gross unrecognized impairment losses attributable to equity
securities as of December 31, 2001, E261 million related to our positions in
five equity securities in the telecom and technology sector, in which we
considered the decline in market values to be only temporary even though market
prices were 30% or more below the Group's average acquisition cost in the second
half of 2001. The approach reflected a decision based on management's judgment
in light of independent research analysis.

     There were gross unrealized losses of E764 million as of December 31, 2002
relating to positions in nine equity securities for which we did not record
impairments although they were 20% or more below the Group's average acquisition
cost for the period between July 1, 2002 and December 31, 2002. As a result of
the assessment of each individual stock, we determined that the current
unrealized losses in these nine investment positions were only temporary.

     All of these nine equity securities were attributable to investment-grade
issuers and none to non-investment grade companies. Of the nine investment
positions, four related to the telecom industry, with aggregate gross unrealized
loss of E218 million. Three investment positions related to technology companies
with aggregate gross unrealized loss of E424 million. The two remaining
positions were in the utilities sector (gross unrealized loss of E28 million)
and in a financial institution (gross unrealized loss of E94 million). For U.S.
GAAP purposes, we recorded an impairment charge of E324 million before tax and
minority interest with respect to these nine securities. See Note 45 to our
consolidated financial statements.

     The following table sets forth further details regarding the duration and
amount below cost of the Group's unrealized loss positions for equity
securities, excluding the nine securities referred to above, as of December 31,
2002.

 AGEING TABLE: DURATION AND AMOUNT OF UNREALIZED LOSSES AS OF DECEMBER 31, 2002



                        0 TO 6 MONTHS   6 TO 12 MONTHS   12 TO 18 MONTHS   GREATER THAN 18 MONTHS   TOTAL
                        -------------   --------------   ---------------   ----------------------   -----
                                                         (E IN MILLIONS)
                                                                                     
Market Value..........     21,948            7,603              513                  211            30,274
Cost..................     27,495           11,118              718                  247            39,577
Unrealized Loss.......     (5,547)          (3,515)            (205)                 (36)           (9,303)




                                        LESS THAN 20%      20% TO 50%         GREATER THAN 50%      TOTAL
                                        -------------      ----------         ----------------      -----
                                                         (E IN MILLIONS)
                                                                                     
Market Value..........                      18,414           11,432                  428            30,274
Cost..................                      21,957           16,658                  962            39,577
Unrealized Loss.......                      (3,543)          (5,226)                (534)           (9,303)


     Although all individual securities were reviewed to ensure that no material
impairments or other than temporary losses were required to be charged to income
in 2002, the identification of impairment and other then temporary losses and
the determination of the recoverable amount are an inherently uncertain process
involving various assumptions and factors, including the financial condition of
the issuer, expected future cash flows, observable market prices and expected
net selling prices. Further developments after December 31, 2002 may indicate
that certain unrealized losses that existed as of December 31, 2002 will need to
be considered other than temporary, resulting in a negative impact on our profit
and loss account. However, the net income effect of any charges would be
decreased by the allocation of a portion of such charges to policyholder
participation and minority interests.

     Determinations relating to unrealized losses and impairments in our
investment positions, including decisions based on management judgment, are made
on the basis of an assessment of

                                        35


each individual investment position. We accordingly do not believe that such
determinations have an impact on other material investments held.

                  DISCUSSION OF OPERATIONS BY BUSINESS SEGMENT

INSURANCE OPERATIONS

     We provide property-casualty and life/health products and services on an
individual and group basis in more than 70 countries worldwide. In our
property-casualty business, we provide, among other things, automobile,
homeowners, travel and other personal lines products and are a leading provider
of commercial and industrial coverages to business enterprises of all sizes,
including many of the world's largest companies. Our life/health insurance
businesses provide endowment, annuity and term insurance products and a wide
range of health, disability and related coverages to individual insureds, as
well as group life, group health and pension products to employers. In addition
to strong local positions, we have established leading positions in certain
specialty lines on a global basis, including credit insurance, marine and
aviation insurance, industrial reinsurance through Allianz Global Risks, and
travel and assistance insurance.

     Our products are marketed in Germany primarily under the "Allianz" brand
name. In other countries we generally operate through our subsidiary insurers'
brand names, which are identified as part of the Allianz Group. We believe that
our brand name is one of the best-known and most highly respected in the German
marketplace, combining a reputation for excellent customer service with an image
of superior financial strength.

     Our philosophy is to provide considerable latitude to our operating
entities in product design, underwriting, distribution, marketing and operations
while providing various levels of centralized support in such areas as financial
and strategic planning, investment management, knowledge transfer, accounting
and reinsurance to our subsidiaries from our headquarters in Munich. We refer to
this combination of centralized strategic management and local business autonomy
as a "multi-local" approach to our global insurance business. We believe that
this gives our subsidiary operations the flexibility to best respond to local
market conditions and allows us to implement strategic goals and create
incentives for our employees on a country-by-country basis.

                                        36


                     PROPERTY-CASUALTY INSURANCE OPERATIONS

     The following table sets forth certain financial information for our
property-casualty operations for the years indicated:



                                                                YEAR ENDED DECEMBER 31,
                                                              ---------------------------
                                                               2002      2001      2000
                                                              -------   -------   -------
                                                                    (E IN MILLIONS)
                                                                         
Gross premiums written......................................   43,294    42,137    38,382
Premiums earned(net)(1).....................................   36,458    34,428    31,529
Interest and similar income.................................    4,473     5,068     5,568
Income from affiliated enterprises, joint ventures and
  associated enterprises....................................  8,494(2)      889     1,833
Other income from investments...............................    3,652     4,307     4,259
Trading income..............................................      207     1,451       (10)
Fee and commission income, and income from service
  activities................................................      521     1,425       940
Other income................................................    1,751     1,202     1,078
                                                              -------   -------   -------
       Total income.........................................   55,556    48,770    45,197
                                                              -------   -------   -------
Insurance benefits(net)(3)..................................  (28,974)  (28,200)  (25,413)
Interest and similar expenses...............................   (1,564)   (1,323)   (1,136)
Other expenses for investments..............................   (3,567)   (2,888)   (1,913)
Loan loss allowance.........................................       (7)       (4)       --
Acquisition costs and administrative expenses(4)............  (10,521)  (10,042)   (9,106)
Amortization of goodwill....................................     (370)     (349)     (277)
Other expenses..............................................   (2,999)   (3,555)   (3,453)
                                                              -------   -------   -------
       Total expenses.......................................  (48,002)  (46,361)  (41,298)
                                                              -------   -------   -------
Earnings from ordinary activities before taxation...........    7,554     2,409     3,899
Taxes.......................................................      469       701         5
Minority interests in earnings..............................     (816)     (746)     (642)
                                                              -------   -------   -------
Net income..................................................    7,207     2,364     3,262
                                                              =======   =======   =======


---------------

(1) Net of reinsurance ceded of E6,150 million, E6,669 million and E6,488
    million in 2002, 2001 and 2000, respectively.

(2) Reflects realized gains of E1,886 million from open market sales of Munich
    Re shares and E713 million on the sale of a real estate subsidiary in Italy,
    as well as significant income from intercompany transactions, including
    realized gains of E3,332 million from the transfer of Munich Re shares from
    Allianz AG to Dresdner Bank and dividend income of E382 million from
    Dresdner Bank. The gains on these intercompany transactions were eliminated
    at the Group level.

(3) Includes loss and loss adjustment expenses of E28,502 million, E27,919
    million and E24,566 million in 2002, 2001 and 2000, respectively.

(4) Includes net underwriting costs of E10,015 million, E9,543 million and
    E8,548 million in 2002, 2001 and 2000, respectively.

YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001

     Gross Premiums Written.  Our gross premiums written from property-casualty
operations in 2002 increased by E1,157 million, or 2.7%, to E43,294 million from
E42,137 million in 2001. Eliminating the effect of exchange rate movements and
changes in the scope of consolidation,

                                        37


which decreased 2002 gross premiums written by E246 million, gross premiums
written increased by 3.2%. This increase came primarily as a result of rate
increases in all of our major markets, offset in part by a more selective
underwriting policy, particularly in our industrial reinsurance business and in
the United States, but also in other major markets.

     Premiums Earned (Net).  On a Group-wide basis, property-casualty net
premiums earned in 2002 and 2001 reflected premiums ceded to reinsurers of
E6,150 million and E6,669 million, respectively, resulting in overall retention
levels of approximately 85.6% in 2002 and 83.8% in 2001. Net premiums earned
increased by E2,030 million, or 5.9%, to E36,458 million in 2002 from E34,428
million in 2001, which exceeded the 2.7% increase in gross premiums written and
reflected the increase in overall retention levels.

     Trading Income.  Trading income from our property-casualty operations
decreased by E1,244 million, to E207 million in 2002 from E1,451 million in
2001, due primarily to the decrease of E1,212 million in gains from certain
derivative financial instruments. These gains relate to derivative financial
instruments embedded in outstanding exchangeable bonds that do not qualify for
hedge accounting and from forward contracts that are used to hedge investments.
Gains or losses on such financial instruments arising from valuation at fair
value are included in trading income. The decrease in 2002 reflected primarily
long positions on index futures entered into in late 2001, which substantially
offset the market value gains from outstanding short positions. We had entered
into short positions on these index futures in connection with our issuance of
certain exchangeable bonds in 2001 and prior years. See "-- Year Ended December
31, 2001 Compared to Year Ended December 31, 2000 -- Trading Income."

     Insurance Benefits (Net).  Net insurance benefits for our worldwide
property-casualty business, which consist of claims paid, changes in reserves
for loss and loss adjustment expenses, changes in other reserves and expenses of
premium refunds, increased by E774 million, or 2.7%, to E28,974 million in 2002
from E28,200 million in 2001. Of this amount in 2002, E762 million related to
asbestos and environmental reserve-strengthening measures at Fireman's Fund. An
additional approximately E710 million was attributable to net claims relating to
severe flooding in Germany and Central and Eastern Europe in July and August
2002. The increase in net insurance benefits in 2002 followed on an already high
level of net insurance benefits in 2001, which reflected claims from the
terrorist attack of September 11, 2001. For additional information on
reserve-strengthening measures at our U.S. property-casualty insurance
subsidiaries, see "-- Property-Casualty Insurance Reserves -- Individual Country
Reserves -- Gross Reserves -- United States."

     The following table sets forth net loss, expense and combined ratio
information for our property-casualty operations by geographic region for the
years 2002 and 2001:



                                                      YEAR ENDED DECEMBER 31, 2002
                                         -------------------------------------------------------
                                                   REST OF           REST OF   SPECIALTY
                                         GERMANY   EUROPE    NAFTA    WORLD      LINES     TOTAL
                                         -------   -------   -----   -------   ---------   -----
                                                                         
Loss ratio(1)..........................    74.2%     76.8%   94.6%     74.5%      75.9%     78.2%
Expense ratio(2).......................    28.3%     24.6%   32.9%     28.1%      32.5%     27.5%
                                          -----     -----    -----    -----      -----     -----
Combined ratio.........................   102.5%    101.4%   127.5%   102.6%     108.4%    105.7%




                                                      YEAR ENDED DECEMBER 31, 2001
                                         -------------------------------------------------------
                                                   REST OF           REST OF   SPECIALTY
                                         GERMANY   EUROPE    NAFTA    WORLD      LINES     TOTAL
                                         -------   -------   -----   -------   ---------   -----
                                                                         
Loss ratio(1)..........................    76.2%     80.3%   99.9%     72.8%      66.5%     81.1%
Expense ratio(2).......................    26.8%     26.2%   29.2%     32.9%      39.5%     27.7%
                                          -----     -----    -----    -----      -----     -----
Combined ratio.........................   103.0%    106.5%   129.1%   105.7%     106.0%    108.8%


---------------

(1) Represents ratio of total loss and loss adjustment expenses to net earned
    premium.

(2) Represents ratio of net underwriting costs to net earned premium.

                                        38


     The overall decrease in the Group combined ratio to 105.7% in 2002 from
108.8% in 2001 reflects the decrease in the Group's loss ratio to 78.2% in 2002
from 81.1% in 2001. The Group loss ratio was affected primarily by improved loss
ratios in the Group's reinsurance operations at Allianz AG and in many of the
Group's major markets, reflecting rate increases, particularly in our automobile
lines, and decreased claim frequency. These improvements were offset in part by
increased net claims related to severe flooding in Germany and Central and
Eastern Europe in July and August 2002 and a series of other storms, asbestos
and environmental reserve-strengthening measures at Fireman's Fund and increased
net claims in our credit insurance. Excluding the effect of the flooding-related
claims and the asbestos and environmental reserve-strengthening measures in 2002
and the effects of the September 11, 2001 terrorist attack in 2001, the Group
loss ratio would have decreased to 74.2% in 2002 from 76.7% in 2001. The Group
expense ratio was largely unchanged at 27.5% in 2002 compared to 27.7% in 2001.
Increased expenses relating to the development of the distribution capacity in
Germany were offset by increased operating efficiencies at other Group
companies.

     Acquisition Costs and Administrative Expenses.  Acquisition costs and
administrative expenses consist primarily of changes in deferred acquisition
costs, administrative expenses, and net underwriting costs. Net underwriting
costs of E10,015 million in 2002 increased E472 million, or 4.9%, over 2001
levels of E9,543 million, which slightly exceeded our property-casualty premium
growth rate of 2.7% due primarily to reduced commission income from reinsurance
business ceded, reflecting higher overall retention levels. The increased
expenses were offset in part by increased operating efficiencies at Group
companies and cost reduction measures.

     Net Income.  Net income from property-casualty insurance operations in 2002
increased by E4,843 million, or 204.9%, to E7,207 million in 2002 compared with
E2,364 million in 2001. The increase was due primarily to investment-related
items, including realized gains of E1,886 million from open market sales of
Munich Re shares, approximately E1,100 million from open market sales of
Vodafone AG shares and E713 million on the sale of a real estate subsidiary in
Italy, as well as realized gains from the sale of other shareholdings in the
Group's German equity portfolio. The segment also recorded significant income
from intercompany transactions, including realized gains of E3,332 million from
the transfer of Munich Re shares from Allianz AG to Dresdner Bank, dividend
income of E382 million from Dresdner Bank and E224 million from the sale of
Vereinte Lebensversicherung AG from Vereinte Versicherung AG to Allianz
Lebensversicherungs-AG (or Allianz Leben). The gains on these intercompany
transactions were eliminated at the Group level. These increases were offset in
part by realized losses of E1,536 million and net investment writedowns of
E1,737 million, reflecting weakness in the capital markets. Excluding these
investment related items, net income from property-casualty operations in 2002
reflected significantly increased net insurance benefits, including primarily
E762 million relating to asbestos and environmental reserve-strengthening
measures at Fireman's Fund and E710 million in net claims relating to severe
flooding in Germany and Central and Eastern Europe in July and August 2002,
offset in part by the increase in net insurance premiums attributable to rate
increases in most of our major markets.

     Amortization of goodwill was E370 million in 2002, an increase of E21
million, or 6.0%, from E349 million in 2001, largely as a result of the
amortization of goodwill associated with our acquisition of additional
shareholdings in Frankfurter Versicherungs-AG and Bayerische Versicherungsbank
AG in June 2002. See "Major Shareholders and Related Party Transactions --
Related Party Transactions -- Transactions with Munich Re." Minority interests
in earnings increased to E816 million in 2002 from E746 million in 2001.

                                        39


YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000

     Gross Premiums Written.  Our gross premiums written from property-casualty
operations in 2001 increased by E3,755 million, or 9.8%, to E42,137 million from
E38,382 million in 2000. Eliminating the effect of exchange rate movements,
which increased 2001 gross premiums written by E28 million, gross premiums
written increased by 9.7%. This increase came as a result of increases in all of
our geographic segments, particularly in Rest of Europe, due to growth in France
and Italy, and in Germany as discussed below.

     Premiums Earned (Net).  On a Group-wide basis, property-casualty net
premiums earned in 2001 and 2000 reflected premiums ceded to reinsurers of
E6,669 million and E6,488 million, respectively, resulting in overall retention
levels of approximately 83.8% in 2001 and 82.9% in 2000. Net premiums earned
increased by E2,899 million, or 9.2%, to E34,428 million in 2001 from E31,529
million in 2000, paralleling the 9.8% increase in gross premiums written.

     Trading Income.  Trading income from property-casualty operations increased
by E1,461 million, to E1,451 million in 2001 from a loss of E10 million in 2000,
due primarily to gains on derivative financial instruments for which hedge
accounting is not applied. These derivative financial instruments include
embedded derivatives in exchangeable bonds issues and forward contracts that are
used to hedge investments but do not qualify for hedge accounting. We issued two
series of bonds in 2001 that were exchangeable in accordance with their terms
into equity securities of other publicly traded companies in order to reduce our
long-term shareholdings in those issuers. We entered into short forward
contracts on shares of HypoVereinsbank in connection with our acquisition of
Dresdner Bank in 2001. See "Related Parties -- Transactions with Munich
Re -- Agreement in Principle."

     In 2001, we had outstanding four exchangeable bonds with a total notional
amount of E5,777 million, which contained embedded short options on equity
securities and equity indices that were required to be separated from the host
debt instrument because the risks of the embedded derivatives were not clearly
and closely related to that of the host instrument. In 2001, we recorded a
market value gain of E880 million related to these embedded derivatives as a
result of the decline in the market value of the underlying shares and indices
covered by the short options. We also recorded market value gains of E571
million in 2001 on derivative financial instruments for which hedge accounting
was not applied. These gains were primarily the result of market value gains on
short forward contracts on equity securities of HypoVereinsbank due to declines
in the market value of the underlying shares.

     The significant increase in trading income in 2001 compared with 2000 was
primarily attributable to the fact that many of these derivative transactions
were new in 2001. In addition, embedded derivatives in exchangeable bonds issued
prior to 2001 were separated from their host contracts for the first time in
2001 upon the implementation of IAS 39 and SFAS 133 as of January 1, 2001. For
additional information, see Note 28 to our consolidated financial statements.

     Insurance Benefits (Net).  Net insurance benefits for our worldwide
property-casualty business increased by E2,787 million, or 11.0%, to E28,200
million in 2001 from E25,413 million in 2000. A significant portion of the
increase was attributable to the September 11, 2001 terrorist attack in the
United States, which negatively impacted net claims in the property-casualty
lines by approximately E1.5 billion in 2001, primarily in the United States, and
to a lesser extent, in our reinsurance operations in Germany and other
countries. The remainder of the increase in net insurance benefits related to
increased premium volume.

                                        40


     The following table sets forth net loss, expense and combined ratio
information for our property-casualty operations by geographic region for the
years 2001 and 2000:



                                              YEAR ENDED DECEMBER 31, 2001
                                 -------------------------------------------------------
                                           REST OF           REST OF   SPECIALTY
                                 GERMANY   EUROPE    NAFTA    WORLD      LINES     TOTAL
                                 -------   -------   -----   -------   ---------   -----
                                                                 
Loss ratio(1)..................    76.2%     80.3%   99.9%     72.8%      66.5%     81.1%
Expense ratio(2)...............    26.8%     26.2%   29.2%     32.9%      39.5%     27.7%
                                  -----     -----    -----    -----      -----     -----
Combined ratio.................   103.0%    106.5%   129.1%   105.7%     106.0%    108.8%




                                              YEAR ENDED DECEMBER 31, 2000
                                 -------------------------------------------------------
                                           REST OF           REST OF   SPECIALTY
                                 GERMANY   EUROPE    NAFTA    WORLD      LINES     TOTAL
                                 -------   -------   -----   -------   ---------   -----
                                                                 
Loss ratio(1)..................   73.5%      80.8%   87.9%     75.5%     53.1%      77.9%
Expense ratio(2)...............   24.2%      27.1%   29.6%     30.0%     36.3%      27.0%
                                  ----      -----    -----    -----      ----      -----
Combined ratio.................   97.7%     107.9%   117.5%   105.5%     89.4%     104.9%


---------------

(1) Represents ratio of total loss and loss adjustment expenses to net earned
    premium.

(2) Represents ratio of net underwriting costs to net earned premium.

     The overall increase in the Group combined ratio to 108.8% in 2001 from
104.9% in 2000 reflects deteriorating loss ratios in the NAFTA zone, Germany and
our specialty lines, primarily due to increased net claims as a result of the
September 11, 2001 terrorist attack and, in the case of specialty lines,
unfavorable economic conditions, offset in part by improved loss ratios in Rest
of Europe and Rest of World. Excluding the effect of the claims relating to the
September 11, 2001 terrorist attack in the United States, the combined ratio
would have decreased slightly to 104.4% in 2001 from 104.9% in 2000. The Group
expense ratio worsened slightly to 27.7% in 2001 from 27.0% in 2000, due
primarily to expenses incurred in our German property-casualty operations and at
Allianz AG, the results of which are included in our property-casualty segment,
in connection with the build-out of our information technology systems and
marketing and sales force development. Also contributing to the increased
expense ratio were expenses incurred at Allianz AG relating to the integration
of Dresdner Bank.

     Acquisition Costs and Administrative Expenses.  Net underwriting costs of
E9,543 million in 2001 increased E995 million, or 11.6%, over 2000 levels of
E8,548 million, which slightly exceeded our property-casualty premium growth
rate of 9.8% due primarily to expenses incurred in connection with information
technology, marketing and sales force development.

     Net Income.  Net income from property-casualty insurance operations in 2001
decreased by E898 million, or 27.5%, to E2,364 million in 2001 compared with
E3,262 million in 2000. The decrease was driven primarily by the special
adjustment to income taxes, which benefited our results in 2000, increased net
claims resulting from the September 11, 2001 terrorist attack and reduced
investment results, reflecting weakness in the capital markets. These were
offset in part by a tax benefit resulting from a substantial amount of tax
losses attributable primarily to claims related to the September 11, 2001
terrorist attack in the United States, together with a significant amount of
tax-exempt realized gains on investments resulting in large part from forward
sales and other transactions that were entered into in 2001 but concluded in
2002.

     Amortization of goodwill was E349 million in 2001, an increase of E72
million, or 26.0%, from E277 million in 2000, largely as a result of
amortization of goodwill on acquisitions made in Australia and the Netherlands.
Minority interest increased to E746 million in 2001 from E642 million in 2000.

                                        41


     Our consolidated results of operations in 2000 included the effects of
certain special adjustments to income taxes. There were no special adjustments
to our consolidated results of operations in 2001. Excluding the impact of these
items in 2000, net income would have increased by E139 million, or 6.2%, to
E2,364 million in 2001, from E2,225 million in 2000.

PROPERTY-CASUALTY LOSS RESERVES

     We establish loss reserves in our property-casualty business to cover our
future payment obligations under insurance claims where either the amount of
benefits to be paid or the date when payments are to be made is not yet fixed.
The reserve is calculated using recognized actuarial methods to arrive at an
estimated amount necessary to settle claims in full. For additional information
on our property-casualty loss reserves, including discussion of our reserves by
individual country on a local statutory accounting basis, see "--
Property-Casualty Loss Reserves." See also Note 16 to our consolidated financial
statements.

     In 2002, our gross consolidated IFRS loss reserves decreased by E1,822
million, or 2.9%, to E59,564 million compared to E61,476 million in 2001,
reflecting primarily a decrease from the high levels of 2001 that resulted from
the terrorist attack of September 11, 2001. The decrease in 2002 was offset in
part primarily by asbestos and environmental reserve-strengthening measures in
our U.S. operations, as well as smaller reserve increases in France and Italy.
In the United States, we recorded a net increase of E762 million relating to
asbestos and environmental exposures at our U.S. subsidiary Fireman's Fund for
accident years 1987 and prior. We recorded this increase in September 2002
following completion of a study by external and internal actuaries of Fireman's
Funds asbestos and environmental liabilities, which reflected deteriorating
industry-wide loss trends. See "-- Property-Casualty Loss Reserves -- Individual
Country Reserves -- Gross Reserves -- United States." Following the
re-evaluation of certain lines of business in 2002, we also increased reserves
relating to liability and workers' compensation at Fireman's Fund for accident
years 2000 and 1999. In addition, we increased general liability reserves by
E921 million at Allianz Insurance Co. for accident years 1997 to 2001 as a
result of an actuarial analysis and more conservative re-underwriting in 2002,
and property reserves at Allianz Insurance Co. by E184 million due to additional
provisions relating to the terrorist attack of September 11, 2001. These
increases were offset in part by favorable developments in commercial
multi-peril and surety reserves at Fireman's Fund for the accident year 2000. In
France, we increased gross loss reserves by E360 million in 2002, reflecting
adverse reserve development in AGF's motor liability (E185 million), general
liability (E105 million) and property (E50 million) lines, offset by favorable
development at EULER & HERMES and Allianz Marine & Aviation. In Italy, we
strengthened reserves in 2002 relating to motor liability and general liability
at RAS Group.

     In 2001, our gross loss reserves increased by E7,429 million, or 13.7%, to
E61,476 million compared to E54,047 million in 2000, primarily as a result of
the terrorist attack of September 11, 2001. On a consolidated Group basis, the
terrorist attack of September 11, 2001 resulted in net claims of approximately
E1.5 billion. In the United States, we increased gross reserves by E3,591
million in 2001, substantially all of which related to exposures at Allianz
Insurance Co. resulting from the terrorist attack of September 11, 2001. We also
increased reserves in Germany, the majority of which was attributable to
reinsurance underwritten by Allianz AG, and the United Kingdom at Allianz
Cornhill, in both cases for exposures resulting from the terrorist attack of
September 11, 2001. In Italy, in 2001, we strengthened reserves relating to
motor liability and general liability at RAS Group for several accident years,
reflecting primarily a market-wide increase in personal injuries and average
cost of claims in the motor liability line and an increase in late-reported
claims in the general liability line.

                                        42


               PROPERTY-CASUALTY OPERATIONS BY GEOGRAPHIC REGION

     The following table sets forth our property-casualty gross premiums written
and net income by geographic region. Consistent with our general practice, gross
premiums written by geographic region is presented before consolidation
adjustments representing the elimination of transactions between Group companies
in different geographic regions and different segments, and net income by
geographic region is presented before those consolidation adjustments,
amortization of goodwill and minority interests.



                                                   YEAR ENDED DECEMBER 31,
                            ---------------------------------------------------------------------
                                    2002                    2001                    2000
                            ---------------------   ---------------------   ---------------------
                             GROSS                   GROSS                   GROSS
                            PREMIUMS                PREMIUMS                PREMIUMS
                            WRITTEN    NET INCOME   WRITTEN    NET INCOME   WRITTEN    NET INCOME
                            --------   ----------   --------   ----------   --------   ----------
                                                       (E IN MILLIONS)
                                                                     
Germany(1)................   12,314       9,235      12,644       3,773      11,948      3,320
Rest of Europe(1).........   20,494       1,932      19,606         848      17,302      1,285
NAFTA.....................    5,992        (933)      6,822      (1,030)      6,300        (86)
Rest of World.............    2,428          38       2,401          39       1,886          5
Specialty Lines(1)........    4,948        (199)      2,321          94       2,267        227
Consolidation
  adjustments.............   (2,882)     (1,680)     (1,657)       (265)     (1,321)      (570)
                             ------      ------      ------      ------      ------      -----
  Subtotal................   43,294       8,393      42,137       3,459      38,382      4,181
Amortization of
  goodwill................       --        (370)         --        (349)         --       (277)
Minority interests........       --        (816)         --        (746)         --       (642)
                             ------      ------      ------      ------      ------      -----
  Total...................   43,294       7,207      42,137       2,364      38,382      3,262
                             ======      ======      ======      ======      ======      =====


---------------

(1) Reflects the transfers, effective January 1, 2002, of marine, aviation and
    industrial transport insurance business and industrial reinsurance business
    to our marine and aviation and Allianz Global Risks specialty lines,
    respectively. See "-- Specialty Lines."

                                    GERMANY

DESCRIPTION OF BUSINESS

     Germany is the world's third-largest property-casualty insurance market,
based on gross premiums written in 2002. We were the largest provider of
property-casualty insurance in Germany, with an estimated market share of 18.3%,
as measured by gross premiums written in 2002. Germany is our most important
single market for property-casualty insurance. As a percentage of our total
property-casualty gross premiums written worldwide, Germany accounted for 26.7%
in 2002, 28.9% in 2001, and 30.1% in 2000. This decrease in percentage primarily
reflects the increased levels of gross premiums written from our operations in
countries other than Germany.

     We conduct our property-casualty insurance operations in Germany primarily
through the Sachversicherungsgruppe Deutschland (or the German Property-Casualty
Group), which handles most of our lines of property-casualty insurance in
Germany, other than credit insurance and marine and aviation insurance. Allianz
AG, the parent company of the Group, acts as the reinsurer for most of the
Group's German property-casualty operations and for other Group companies, other
than credit and industrial reinsurance. In addition, Allianz AG underwrites a
relatively small amount of reinsurance with customers outside of the Group. The
Group's industrial reinsurance needs are largely handled by Allianz Global
Risks. See "-- Specialty Lines -- Allianz Global Risks Ruckversicherungs-AG."

                                        43


GERMAN PROPERTY-CASUALTY GROUP

     The German Property-Casualty Group comprises a number of different
operating entities, some of which offer a full range of property-casualty lines
and others of which provide specialized coverage:

     - Allianz Versicherungs-AG (or Allianz Versicherung), which is the German
       Property-Casualty Group's primary full-line property-casualty insurer;

     - Frankfurter Versicherungs-AG, a full-line property-casualty insurer based
       in Frankfurt;

     - Bayerische Versicherungsbank AG, a full-line property-casualty insurer
       based in Munich;

     - Kraft Versicherungs-AG, a specialist provider of predominantly automobile
       insurance; and

     - Vereinte Spezial Versicherung AG, primarily a specialist provider of
       automobile insurance.

     Our interests in some of these subsidiaries were substantially restructured
pursuant to our letter of intent with Munich Re. See "Major Shareholders and
Related Party Transactions." In addition, effective January 1, 2002, we
transferred our marine, aviation and industrial transport insurance business in
Germany to our marine and aviation specialty line (see "-- Specialty
Lines -- Marine & Aviation"). In November 2002, we merged our former
property-casualty subsidiaries Vereinte Versicherung AG and Vereinte
Rechtsschutzversicherung-AG into Allianz Versicherung, with retroactive effect
to January 1, 2002. In 2003, we intend to merge Kraft Versicherungs-AG into
Vereinte Spezial Versicherung AG, with retroactive effect to January 1, 2003.

PRODUCTS

     The operating companies that make up the German Property-Casualty Group
together offer a comprehensive range of property-casualty insurance products and
related services to customers primarily in Germany. The German Property-Casualty
Group's principal product lines are automobile liability and other automobile
insurance, fire and property insurance, personal accident insurance, liability
insurance and legal expense insurance.

     The German Property-Casualty Group's policy terms and conditions largely
conform to those offered by other insurers in the German market. While the
German Property-Casualty Group does seek to develop new policy types, given its
position as the market leader in the German property-casualty insurance market,
any competitive advantage gained by the introduction of new policy types tends
to be short-lived, as competitors introduce equivalent forms of coverage.

     In all of our German business lines, policy persistency is an important
factor in our profitability. Accordingly, we seek to ensure that our
policyholders maintain their policies in force with us for long periods of time.
Based on German industry statistics, we believe that our persistency rates are
generally higher than those of most other German companies. In the
property-casualty area, we have found that customers with multiple policies with
us generally keep their policies in force for longer periods of time.
Accordingly, the German Property-Casualty Group provides its customers with
substantial discounts to the extent they hold multiple Allianz insurance
policies. We estimate that currently more than 50% of the German
Property-Casualty Group's German personal lines customers have more than one
Allianz policy in force.

     While our insurance operations in Germany generally operate on a
decentralized basis through separate operating entities, many of our products in
Germany are distributed through common or overlapping distribution systems. The
importance of these distribution channels varies by type of business. For the
German Property-Casualty Group's personal and commercial lines, the network of
full-time tied agents is our most important distribution channel. For industrial
lines, the brokerage channel predominates. In connection with our acquisition of
Dresdner Bank in 2001, we have placed approximately 960 insurance specialists to
sell both life insurance

                                        44


products and property-casualty insurance products at Dresdner Bank branches
throughout Germany at December 31, 2002. The relative importance of each of
these distribution channels also varies by region and by product mix.

     The following sets forth certain key data concerning our German insurance
distribution systems as they related to property-casualty insurance at and for
the year ended December 31, 2002:



                                                                               % OF 2002
                                                                           PROPERTY-CASUALTY
                                                              NUMBER(1)        PREMIUMS
                                                              ---------    -----------------
                                                                     
Full-time tied agents.......................................   11,656             65.5
Part-time tied agents.......................................   43,076              6.5
Brokers.....................................................    7,601             14.1
Banks.......................................................    2,224(2)           3.1
Other(3)....................................................       --             10.8
                                                                                 -----
  Total.....................................................       --            100.0
                                                                                 =====


---------------

(1) Represents the total number in Germany for all Allianz Group segments.

(2) Represents the number of German branches at Dresdner Bank (811), and at
    unaffiliated banks, comprising Volks-und Raiffeisenbanken (1,406) and
    Industrie Kredit-Bank (7), with which we have distribution agreements
    covering our property-casualty and life/health insurance products.

(3) Includes all Allianz Group employees in Germany, who are able to sell
    Allianz policies.

     In our German property-casualty insurance business, we distribute our
products primarily through a network of self-employed, full-time tied agents. We
believe that our network of tied agents is the largest full-time insurance sales
force in Europe. These agents, who have an average of more than ten years'
experience selling Allianz products, receive a full range of support from the
Allianz Group, from initial support in establishing an office and a portfolio to
pension benefits based upon the volume and product mix of their portfolios.
Apart from pension provisions, agent compensation is based primarily on volume,
although we also utilize a number of incentive schemes to encourage sales of
strategically more important policy types. Our full-time tied agents follow
centralized underwriting and pricing guidelines, allowing us to carefully
segment and monitor our German book of business.

ALLIANZ AG

     Allianz AG, the parent company of the Group, acts as the reinsurer for most
of our German property-casualty operations and for other Group companies, other
than credit insurance and international industrial reinsurance. In addition,
Allianz AG assumes a relatively small amount of reinsurance from non-Group
companies. Each subsidiary is able to place reinsurance directly with reinsurers
other than Allianz AG, but Allianz AG has a preferred partnership with respect
to reinsurance cessions of its subsidiaries based on ordinary market terms and
conditions. For the years ended December 31, 2002, 2001 and 2000, Allianz AG
assumed 39.4%, 41.5% and 41.8%, respectively, of all reinsurance ceded by Group
companies.

     While the Group remains liable as a primary insurer notwithstanding the
ceding of reinsurance to third parties, our evaluation criteria, which include
the claims-paying and debt ratings, capital and surplus levels, and marketplace
reputation of our reinsurers, are such that we believe any risks of
collectibility to which we are exposed are not significant, and historically
Group companies have not experienced difficulty in collecting from their
reinsurers. Munich Re is our primary outside reinsurer. For the fiscal years
ended December 31, 2002, 2001 and 2000, Munich Re Group assumed E2,300 million,
E2,400 million and E2,300 million in reinsurance

                                        45


premiums from us, representing 31.3%, 30.6% and 30.2%, respectively, of our
total reinsurance premiums ceded. See Note 11 to the consolidated financial
statements.

     The following table sets forth premiums ceded by Allianz Group to Munich Re
Group and other reinsurers for the years indicated:



                                                         YEAR ENDED DECEMBER 31,
                                              ---------------------------------------------
                                                  2002            2001            2000
                                              -------------   -------------   -------------
                                                E       %       E       %       E       %
                                                             (E IN MILLIONS)
                                                                    
Premiums ceded..............................  2,300    31.3   2,400    30.6   2,300    30.2
Other.......................................  5,057    68.7   5,438    69.4   5,327    69.8
                                              -----   -----   -----   -----   -----   -----
  Total.....................................  7,357   100.0   7,838   100.0   7,627   100.0
                                              =====   =====   =====   =====   =====   =====


     Allianz AG acts as the primary reinsurer of our German property-casualty
subsidiaries, other than our credit insurance subsidiary, EULER & HERMES, and
our industrial reinsurance unit, Allianz Global Risks, for which Munich Re is
the primary reinsurer. We bundled all of our reinsurance activities for our
industrial lines in Allianz Global Risks effective January 1, 2002. See
"-- Specialty Lines -- Allianz Global Risks Ruckversicherungs-AG." In the
life/health area, Allianz AG and Munich Re each assume 50% of the reinsurance
ceded by Allianz Lebensversicherungs-AG, the main operating company for our
German life insurance operations. Outside of Germany, Allianz AG acts as a
reinsurer of Group subsidiaries, with a preferred partnership on all business
ceded, and provides centralized advice to subsidiaries on structuring their own
reinsurance programs, establishing lists of permitted reinsurers, and monitoring
aggregate exposures to catastrophes and other events.

     The following table sets forth the reinsurance assumed by Allianz AG by
gross premiums written for the years shown:



                                                              YEAR ENDED DECEMBER 31,
                                                              ------------------------
                                                               2002     2001     2000
                                                              ------   ------   ------
                                                                  (E IN MILLIONS)
                                                                       
From German Property-Casualty Group subsidiaries............  3,028    3,024    3,176
From German life/health subsidiaries........................    638      539      567
From EULER & HERMES(1)......................................    155      107      107
From non-German subsidiaries................................  1,190    1,170      907
                                                              -----    -----    -----
     Subtotal...............................................  5,011    4,840    4,757
From non-Group companies....................................    589      847      830
                                                              -----    -----    -----
     Total..................................................  5,600    5,687    5,587
                                                              =====    =====    =====


---------------

(1) Reflects the consolidation of our former French subsidiary, EULER, and our
    former German subsidiary, HERMES, into a new corporate entity EULER & HERMES
    in July 2002.

     Allianz AG writes a limited amount of third-party reinsurance, with
premiums totaling E589 million in 2002, E847 million in 2001 and E830 million in
2000. Other than Munich Re Group, which represented E240 million, E511 million
and E606 million, or 40.7%, 60.3% and 73.0%, of Allianz AG's third-party assumed
reinsurance in 2002, 2001 and 2000, respectively, no single third party
accounted for any significant amount of reinsurance assumed in such years. See
"Major Shareholders and Related Party Transactions."

RESULTS OF OPERATIONS

     The following table shows key financial data for our German
property-casualty operations. Gross premiums written by operating company are
presented before consolidation adjustments

                                        46


representing the elimination of transactions between Group companies in
different countries and different segments. Net income by operating company is
presented before those consolidation adjustments, amortization of goodwill and
minority interests.

                     GERMANY -- PROPERTY-CASUALTY: KEY DATA



                                                      YEAR ENDED DECEMBER 31,
                                     ---------------------------------------------------------
                                           2002                2001                2000
                                     -----------------   -----------------   -----------------
                                      GROSS               GROSS               GROSS
                                     PREMIUMS    NET     PREMIUMS    NET     PREMIUMS    NET
                                     WRITTEN    INCOME   WRITTEN    INCOME   WRITTEN    INCOME
                                     --------   ------   --------   ------   --------   ------
                                                          (E IN MILLIONS)
                                                                      
German Property-Casualty Group.....    9,782     1,883    10,075    1,660      9,576    1,377
Allianz AG.........................    5,600     9,513(1)   5,687   2,516      5,587    2,293
Consolidation items................   (3,068)   (2,161)   (3,118)    (403)    (3,215)    (350)
                                      ------    ------    ------    -----     ------    -----
  Total............................   12,314     9,235    12,644    3,773     11,948    3,320
                                      ======    ======    ======    =====     ======    =====


---------------

(1) Includes significant investment related results. See "-- Property-Casualty
    Insurance Operations -- Year Ended December 31, 2002 Compared to Year Ended
    December 31, 2001 -- Net Income."

     The following table shows the composition of the German Property-Casualty
Group's gross premiums written by product line for each of the years shown:

 GERMAN PROPERTY-CASUALTY GROUP: GROSS PREMIUMS WRITTEN BY LINE OF BUSINESS(1)



                                                         YEAR ENDED DECEMBER 31,
                                              ---------------------------------------------
                                                  2002            2001            2000
                                              -------------   -------------   -------------
                                                E       %       E       %       E       %
                                                             (E IN MILLIONS)
                                                                    
Automobile liability........................  2,376    24.7   2,330    23.9   2,229    23.8
Fire and property(2)........................  1,528    15.9   1,514    15.5   1,454    15.5
Other automobile............................  1,481    15.4   1,468    15.0   1,394    14.9
Personal accident...........................  1,440    14.9   1,401    14.4   1,385    14.8
Liability(3)................................  1,209    12.6   1,293    13.3   1,243    13.3
Legal Expense...............................    384     3.9     382     3.9     379     4.0
Transport and aviation(4)...................     70     0.7     259     2.7     229     2.4
Other(5)....................................  1,148    11.9   1,102    11.3   1,051    11.3
                                              -----   -----   -----   -----   -----   -----
  Total.....................................  9,636   100.0   9,749   100.0   9,364   100.0
                                              =====   =====   =====   =====   =====   =====


---------------

(1) Does not reflect business assumed through reinsurance operations in the
    amount of E146 million in 2002, of E326 million in 2001 and of E212 million
    in 2000.

(2) Includes fire, household goods, building and other property insurance.

(3) Excludes aviation liability insurance in 2002 due to the transfer of our
    aviation insurance activities into our specialty line, Marine & Aviation
    (see "-- Specialty Lines -- Marine & Aviation").

(4) Includes only commercial transport insurance in 2002 due to the transfer of
    our industrial transport and aviation insurance activities into our
    specialty line, Marine & Aviation (see "-- Specialty Lines -- Marine &
    Aviation").

                                        47


(5) Includes multi-line policies with individual customers in the former German
    Democratic Republic that were acquired through the acquisition of Deutsche
    Versicherungs-AG, as well as commercial multi-line property insurance.

YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001

     Gross Premiums Written.  Property-casualty gross premiums written in 2002
were E12,314 million, a decrease of E330 million, or 2.6%, from 2001 levels of
E12,644 million, reflecting primarily the transfers effective January 1, 2002 of
our marine, aviation and industrial transport business into Allianz Marine &
Aviation, our separately reporting marine and aviation specialty line (see
"-- Specialty Lines -- Marine & Aviation") and of our international industrial
reinsurance activities from Allianz AG to Allianz Global Risks, our separately
reporting international industrial reinsurance specialty line (see "-- Specialty
Lines -- Allianz Global Risks Ruckversicherungs-AG"). This decrease was offset
in part by increases in gross premiums written in our automobile and other lines
due to rate increases.

     Automobile liability and other automobile gross premiums written in Germany
increased by E59 million, or 1.6%, to E3,857 in 2002 from E3,798 million in
2001, due primarily to rate increases, offset in part by a more selective
underwriting policy. The number of vehicles insured decreased slightly to 8.97
million in 2002 from 9.17 million in 2001. Fire and property gross premiums
written in Germany increased by E14 million, or 0.9%, to E1,528 million in 2002
from E1,514 million in 2001, primarily as a result of increases in residential
fire insurance and other property insurance. Personal accident gross premiums
written increased by E39 million, or 2.8%, to E1,440 million in 2002 from E1,401
million in 2001, due primarily to continuing increases in new business.
Liability gross premiums written decreased by E84 million, or 6.5%, to E1,209
million in 2002 from E1,293 million in 2001, reflecting primarily the transfer
of our aviation liability business to our marine and aviation specialty line
(see "-- Specialty Lines -- Marine & Aviation"), continued strong competition in
commercial liability lines and portfolio cleansing measures in our large
industrial and corporate lines. Reinsurance assumed by the German
Property-Casualty Group decreased by E180 million, or 55.2%, to E146 million in
2002 from E326 million in 2001, reflecting primarily the transfer of our marine,
aviation and industrial transport business into our marine and aviation
specialty line. Premiums in our other lines of insurance showed slight increases
from 2001 levels.

     Reinsurance assumed by Allianz AG decreased by E87 million, or 1.5%, to
E5,600 million in 2002 from E5,687 million in 2001, reflecting primarily the
transfer effective January 1, 2002 of our international industrial reinsurance
activities from Allianz AG into Allianz Global Risks, a decrease in reinsurance
assumed from Munich Re Group related to the restructuring of the respective
shareholdings of Allianz AG and Munich Re in certain jointly owned subsidiaries
and affiliates in 2002 and a market-wide shift from proportional to
non-proportional reinsurance coverage. See "Major Shareholders and Related Party
Transactions -- Related Party Transactions -- Transactions with Munich
Re -- Letter of Intent." The decrease was offset in part by strong rate
increases in almost all lines of business and increased gross premiums written
from expanded reinsurance relationships, predominantly with Allianz Group
companies outside of Germany.

     Net Income.  In Germany, property-casualty net income increased by E5,462
million, or 144.8%, to E9,235 million in 2002 from E3,773 million in 2001. The
increase was due primarily to increased investment results, including realized
gains of E1,886 million from open market sales of Munich Re shares and
approximately E1,100 million from open market sales of Vodafone AG shares, as
well as realized gains from the sale of other shareholdings in the Group's
German equity portfolio. We also recorded significant income from intercompany
transactions, including realized gains of E3,332 million from the transfer of
Munich Re shares from Allianz AG to Dresdner Bank, dividend income of E382
million from Dresdner Bank and E224 million from the sale of Vereinte
Lebensversicherung AG from Vereinte Versicherung AG to Allianz Leben. The gains
on these intercompany transactions were eliminated at the Group level. Total net
insurance
                                        48


benefits in Germany decreased by E125 million, or 1.6%, to E7,980 million in
2002 from E8,105 million in 2001, due primarily to the transfers effective
January 1, 2002 of our international industrial reinsurance and marine, aviation
and industrial transport activities into our international industrial
reinsurance and marine and aviation specialty lines, respectively. The decrease
in net insurance benefits in Germany in 2002 also reflected decreased
reinsurance claims at Allianz AG in comparison to the high level of net
insurance benefits in 2001, which reflected claims from the terrorist attack of
September 11, 2001. The decrease was partially offset by a substantial increase
in natural catastrophe claims, including approximately E490 million in net
claims related to flooding in Germany and Central and Eastern Europe in July and
August 2002, as well as additional net claims related to Hurricane Isidore in
Mexico in September 2002 (E25 million) and the windstorm "Jeanett" in Western
Europe in October 2002 (E134 million). The loss ratio decreased to 74.2% in 2002
from 76.2% in 2001, reflecting primarily the decrease in claims in comparison to
2001 and the transfers of our industrial reinsurance and marine, aviation and
transport activities into our industrial reinsurance and marine and aviation
specialty lines, respectively. The expense ratio increased to 28.3% in 2002 from
26.8% in 2001, due primarily to increased personnel costs relating to employee
pensions and expenses incurred in connection with the build-out and integration
of distribution capacities of Allianz and Dresdner Bank.

YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000

     Gross Premiums Written.  Property-casualty gross premiums written in 2001
were E12,644 million, an increase of E696 million, or 5.8%, from 2000 levels of
E11,948 million, due primarily to growth in our automobile liability, other
automobile, fire and property and liability lines, as well as in reinsurance.

     Automobile liability and other automobile gross premiums written in Germany
increased by E175 million, or 4.8%, to E3,798 million in 2001 from E3,623
million in 2000, due primarily to a general rise in rates in the German market.
The number of vehicles insured decreased slightly to 9.17 million in 2001 from
9.24 million in 2000. Fire and property gross premiums written in Germany
increased by E60 million, or 4.1%, to E1,514 million in 2001 from E1,454 million
in 2000, primarily as a result of the purchase of a block of business from
another insurance company. Liability gross premiums written increased by E50
million, or 4.0%, to E1,293 million in 2001 from E1,243 million in 2000,
primarily as a result of increased demand for coverage of industrial and
commercial risks. Reinsurance assumed by the German Property-Casualty Group
increased by E114 million, or 53.8%, to E326 million in 2001 from E212 million
in 2000, due to increased aviation and transportation reinsurance business
written by Allianz and ceded in part through various pooling arrangements.
Premiums in our other lines of insurance showed slight increases from 2000
levels.

     Reinsurance assumed by Allianz AG increased by E100 million, or 1.8%, to
E5,687 million in 2001 from E5,587 million in 2000, due primarily to increased
gross premiums written from expanded reinsurance relationships, predominantly
with Allianz Group companies outside of Germany, offset by the reduction of an
internal quota share cession from the German Property-Casualty Group to Allianz
AG, which had a calculated premium impact of E204 million.

     Net Income.  In Germany, property-casualty net income increased by E453
million, or 13.6%, to E3,773 million in 2001 from E3,320 million in 2000. Net
income in 2000 reflected special adjustments to income taxes before minority
interests of E1,017 million. Excluding the impact of these adjustments, German
property-casualty net income would have increased by E1,470 million, or 63.8%,
to E3,773 million in 2001 from E2,303 million in 2000. The increase was due
primarily to increased investment results, including the E1,437 million of
trading income discussed above, offset in part by higher claims resulting from
the September 11, 2001 terrorist attack, amounting to E273 million in net
reinsurance claims at Allianz AG and E67 million in net claims in the German
Property-Casualty Group. Total net insurance benefits in Germany increased by
E249 million, or 3.2%, to E8,105 million in 2001 from E7,856 million in 2000.
The loss ratio
                                        49


increased to 76.2% in 2001 from 73.5% in 2000 as a result of the increased
claims. The increase in the loss ratio resulting from the September 11, 2001
terrorist attack was offset in part by improvements in claim frequency, and a
decrease in natural disasters affecting our German property-casualty results.
The expense ratio increased to 26.8% in 2001 from 24.2% in 2000, due primarily
to expenses incurred in connection with the build-out of our information
technology systems and marketing and sales force development. Also contributing
to the increased expense ratio were expenses incurred at Allianz AG relating to
the integration of Dresdner Bank.

                                 REST OF EUROPE

DESCRIPTION OF BUSINESS

     The Rest of Europe is, in the aggregate, our largest market for
property-casualty insurance. As a percentage of our total property-casualty
gross premiums written worldwide, the Rest of Europe accounted for 44.4% in
2002, 44.8% in 2001 and 43.6% 2000.

     We conduct our property-casualty insurance operations in the Rest of Europe
through five main groups of operating companies in France, Italy, the United
Kingdom, Switzerland and Spain. In the remainder of the Rest of Europe, we
operate through approximately 35 Allianz subsidiaries in more than 17 other
European countries. The property-casualty insurance products we offer in the
Rest of Europe are in each case generally similar to those we offer in Germany.

     France.  We conduct our property-casualty insurance operations in France
through the AGF Group. The AGF Group is the third-largest property-casualty
insurance provider in France, with an estimated market share of 11.4%, as
measured by gross premiums written in 2002. The primary property-casualty
insurance products which we offer in France are automobile, personal property,
commercial, fire and injury insurance. As of December 31, 2002, we held 58.9% of
the share capital of AGF (or 64.2% after deduction of own shares held by AGF),
with the remainder being publicly traded in France. We distribute our
property-casualty products and services in France primarily through a network of
general agents and brokers. We also utilize specialized employee sales staff and
bancassurance and other direct sales channels.

     Italy.  We conduct our property-casualty insurance operations in Italy
primarily through the RAS Group and Lloyd Adriatico, which we refer to together
with our other Italian subsidiaries as our "Italian Subsidiaries." Taken
together, the Italian Subsidiaries are the third-largest property-casualty
insurer in the Italian market, with an estimated combined market share of 15.2%,
as measured by gross premiums written in 2002. Lloyd Adriatico operates in all
property-casualty lines, having developed a particular expertise in automobile
insurance, while RAS Group underwrites primarily automobile insurance together
with various other types of property-casualty insurance for both personal and
commercial business throughout Italy. As of December 31, 2002, we held 51.7% of
the voting rights of RAS Group, with the remainder being publicly traded in
Italy, and 99.7% of the share capital of Lloyd Adriatico. As a result of a share
buyback and other excess capital reduction measures at RAS Group that were
completed in February 2003, our holding in the voting rights of RAS Group was
increased to 55.5% as of February 17, 2003. The Italian Subsidiaries distribute
our property-casualty products and services primarily through an extensive
network of general agents, brokers and through Internet and telephone-based
direct sales channels.

     United Kingdom.  We were the sixth-largest provider of property-casualty
insurance in the United Kingdom, with an estimated market share of 4.7%, as
measured by gross premiums written in 2002. We operate our property-casualty
insurance business in the United Kingdom primarily through our wholly owned
subsidiary Allianz Cornhill Insurance plc (or Allianz Cornhill), formerly known
as Cornhill Insurance Public Limited Company. The primary property-casualty
insurance products that Allianz Cornhill offers in the United Kingdom are
generally similar to

                                        50


those offered by the German Property-Casualty Group in Germany. In addition, we
sell a number of specialty products in the United Kingdom, including extended
warranty and pet insurance. We distribute our property-casualty products and
services in the United Kingdom through a range of distribution channels,
including brokers and various product specific distribution channels, including
affinity groups and other targeted direct marketing.

     Switzerland.  We were the third-largest provider of property-casualty
insurance in Switzerland, with an estimated market share of 8.3%, as measured by
gross premiums written in 2002, not including travel insurance. We conduct our
property-casualty insurance operations in Switzerland primarily through the
Allianz Suisse Versicherungsgesellschaft, comprising the former ELVIA
Versicherungs-AG group of companies, the Berner Versicherungs-Group and Allianz
Versicherung (Schweiz) AG, which were merged into Allianz Suisse
Versicherungsgesellschaft. Together with AGF Phenix, we refer to these companies
as our "Swiss Subsidiaries." The Swiss Subsidiaries handle our lines of
property-casualty insurance in Switzerland other than travel insurance. In
addition, our wholly owned subsidiary Allianz Risk Transfer (or ART) sells
conventional reinsurance as well as a variety of alternative risk transfer
products for corporate customers worldwide. Our travel insurance subsidiary
Mondial Assistance Group operates and is managed on a global basis and is
discussed separately (see "-- Specialty Lines"). The Swiss Subsidiaries and ART
distribute our products and services through a wide range of tied and general
agents, and also through brokers, bancassurance and other direct channels.

     Spain.  We were the second-largest provider of property-casualty insurance
in Spain, with an estimated market share of 6.8%, as measured by gross premiums
written in 2002. We serve the Spanish property-casualty insurance market through
Allianz Compania de Seguros (Allianz Spain) and the two former AGF companies
Union y Fenix and Athena Seguros. Allianz Spain has headquarters in Madrid and
Barcelona, with regional offices throughout the country. Allianz Spain offers a
wide variety of traditional personal and commercial property-casualty insurance
products, with an emphasis on automobile insurance. Allianz Spain distributes
its products through agents, brokers and direct distribution channels.

     Netherlands.  Our most important subsidiaries in the Netherlands are Royal
Nederland Verzekeringsgroep and Zwolsche Algemeene Holding. Our most important
products are automobile and fire insurance. Our Netherlands subsidiaries
distribute their products through independent agents and brokers.

     Austria.  Allianz Elementar offers a broad range of property-casualty and
health insurance products to individual and group customers in Austria. We
distribute our property-casualty products in Austria primarily through employee
agents, tied agents and brokers.

     Ireland.  Our subsidiary Allianz Irish Life Holdings offers a wide variety
of traditional property-casualty insurance products, including mainly automobile
and commercial/industrial lines. Allianz Irish Life Holdings distributes its
products primarily through brokers and to a lesser extent through agents and
banks.

     Belgium.  We conduct our property-casualty insurance business in Belgium
primarily through AGF Belgium Insurance and Cobac. Our primary emphasis is on
industrial insurance, in which we are among the market leaders. We also have a
significant position in the market in automobile insurance. We distribute our
property-casualty products in Belgium mainly through brokers.

     Other.  In addition, we have property-casualty insurance operations in
Hungary, Portugal, Luxembourg, Greece, the Czech Republic, Poland, Croatia and
Bulgaria. We are also represented in the Slovak Republic, Romania and Russia,
and are among the top five insurers in many of these markets. The primary
products sold in these countries are mandatory third-party liability coverages
and related additional coverage. We expect further increases in
property-casualty gross premiums written as we work to build up our sales
organization and exploit other synergies in our insurance operations in the rest
of Europe.

                                        51


RESULTS OF OPERATIONS

     The following table shows key financial data for our Rest of Europe
property-casualty operations. Consistent with our general practice, gross
premiums written by geographic region are presented before consolidation
adjustments representing the elimination of transactions between Group companies
in different countries and different segments, and net income by geographic
region is presented before those consolidation adjustments, amortization of
goodwill and minority interests.

                 REST OF EUROPE -- PROPERTY-CASUALTY: KEY DATA



                                                      YEAR ENDED DECEMBER 31,
                                     ---------------------------------------------------------
                                           2002                2001                2000
                                     -----------------   -----------------   -----------------
                                      GROSS               GROSS               GROSS
                                     PREMIUMS    NET     PREMIUMS    NET     PREMIUMS    NET
                                     WRITTEN    INCOME   WRITTEN    INCOME   WRITTEN    INCOME
                                     --------   ------   --------   ------   --------   ------
                                                          (E IN MILLIONS)
                                                                      
France(1)..........................    4,941      383      5,392       31      4,745      451
Italy..............................    4,939      907      4,585      487      4,264      258
United Kingdom.....................    2,711      256      2,507       94      2,108       49
Switzerland........................    1,747       64      1,750      155      1,650      249
Spain..............................    1,490       62      1,278       32      1,073       69
Netherlands........................    1,023      285        873      284        557      438
Austria............................      852      (33)       844       16        831      (50)
Ireland............................      860      170        738       (4)       563       19
Belgium............................      362      (57)       391        8        393      (37)
Other..............................    1,739       68      1,410       98      1,284      118
Consolidation adjustments..........     (170)    (173)      (162)    (353)      (166)    (279)
                                      ------    -----     ------     ----     ------    -----
  Total............................   20,494    1,932     19,606      848     17,302    1,285
                                      ======    =====     ======     ====     ======    =====


---------------

(1) Reflects the transfer, effective January 1, 2002 of our French marine,
    aviation and industrial transport business to our marine and aviation
    specialty line. See "-- Specialty Lines -- Marine & Aviation."

YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001

     Gross Premiums Written.  In Rest of Europe, property-casualty gross
premiums written increased by E888 million, or 4.5%, to E20,494 million in 2002
from E19,606 million in 2001. This increase reflected growth in gross premiums
written in most of our primary property-casualty markets in Rest of Europe,
especially Italy, Spain and the United Kingdom, due primarily to rate increases
in a number of lines.

     Net Income.  Property-casualty net income in Rest of Europe increased by
E1,084 million, or 127.8%, to E1,932 million in 2002 from E848 million in 2001,
primarily as a result of realized gains of E713 million on the sale of a real
estate subsidiary and E156 million on the intercompany transfer of our
property-casualty subsidiary Allianz Irish Life Holdings from Allianz Holdings
Ireland to Allianz AG, as well as improved underwriting results in our major
Rest of Europe markets. Partially offsetting the increase was a broad decline in
investment results due to weakness in the capital markets. Net insurance
benefits in Rest of Europe rose by E387 million, or 3.0%, to E13,185 million in
2002 from E12,798 million in 2001, which was less than the 6.2% increase in net
premiums earned, which increased to E17,108 million in 2002 from E16,106 million
in 2001. The loss ratio in Rest of Europe decreased to 76.8% in 2002 from 80.3%
in 2001,

                                        52


reflecting the comparatively smaller increase in net insurance benefits than net
premiums earned. The expense ratio decreased to 24.6% in 2002 from 26.2% in
2001.

     The following table sets forth net loss, expense and combined ratio
information for our property-casualty operations in the Rest of Europe by
geographic area for the years 2002 and 2001:



                                                    YEAR ENDED DECEMBER 31, 2002
                                   --------------------------------------------------------------
                                                    UNITED
                                   FRANCE   ITALY   KINGDOM   SWITZERLAND   SPAIN   OTHER   TOTAL
                                   ------   -----   -------   -----------   -----   -----   -----
                                                                       
Loss ratio.......................   84.5%   74.8%    68.1%       70.3%      77.0%    77.9%   76.8%
Expense ratio....................   26.4%   22.7%    30.0%       23.8%      20.6%    24.0%   24.6%
                                   -----    ----     ----        ----       ----    -----   -----
Combined ratio...................  110.9%   97.5%    98.0%       94.1%      97.6%   101.9%  101.4%




                                                    YEAR ENDED DECEMBER 31, 2001
                                   --------------------------------------------------------------
                                                    UNITED
                                   FRANCE   ITALY   KINGDOM   SWITZERLAND   SPAIN   OTHER   TOTAL
                                   ------   -----   -------   -----------   -----   -----   -----
                                                                       
Loss ratio.......................   83.0%   76.7%     73.2%       79.1%     78.7%    86.1%   80.3%
Expense ratio....................   29.3%   22.5%     31.0%       26.9%     21.2%    25.7%   26.2%
                                   -----    ----     -----       -----      ----    -----   -----
Combined ratio...................  112.3%   99.2%    104.2%      106.0%     99.9%   111.8%  106.5%


     France.  In France, property-casualty gross premiums written decreased by
E451 million, or 8.4%, to E4,941 million in 2002 from E5,392 million in 2001,
reflecting primarily the transfer of our French marine, aviation and transport
business effective January 1, 2002 into Allianz Marine & Aviation, our
separately reported specialty line. See "-- Specialty Lines -- Marine &
Aviation." This decrease was offset in part by rate increases in all lines of
business, particularly in our large industrial business and commercial property
and liability lines. In the individual lines, gross premiums written also
increased due to rate increases and growth in new business in our automobile
insurance line. Our distribution arrangement with Credit Lyonnais Bank continued
to contribute to the increase in individual lines.

     Net income increased significantly by E352 million to E383 million in 2002
from E31 million in 2001. The increase resulted primarily from improved
underwriting results attributable to a decrease in acquisition costs and
administrative expenses, realized gains on investments, as well as a tax
benefit. Our loss ratio in France worsened to 84.5% in 2002 from 83.0% in 2001,
largely due to strengthening of reserves for prior-year claims. Our expense
ratio improved to 26.4% in 2002 from 29.3% in 2001 primarily as a result of
streamlining of our information technology operations.

     Italy.  In Italy, property-casualty gross premiums written were E4,939
million in 2002, an increase of E354 million, or 7.7%, from E4,585 million in
2001, due primarily to an increase in automobile premiums. Automobile premiums
increased by E256 million, or 8.7%, in 2002, reflecting rate increases in the
Italian market and an increase in the number of vehicles insured, despite a
selective underwriting policy. We saw moderate increases in our other main lines
of business, including fire, health and personal accident.

     Net income increased by E420 million, or 86.2%, to E907 million in 2002
from E487 million in 2001, due primarily to increased investment results
reflecting a realized gain of E713 million on the sale of a real estate
subsidiary, as well as improved underwriting results reflecting lower net
claims. The loss ratio decreased to 74.8% in 2002 from 76.7% in 2001, reflecting
the overall reduction in claim frequency, particularly in the automobile line,
due to a more selective underwriting policy in recent years.

     United Kingdom.  In the United Kingdom, property-casualty gross premiums
written increased by E204 million, or 8.1%, to E2,711 million in 2002 from
E2,507 million in 2001 as a result of increases in almost all of our business
lines, but particularly in commercial and industrial

                                        53


business, due primarily to increased rates in the commercial, industrial and
automobile insurance lines, reflecting the claims experience of UK insurers
generally. The increase was offset in part by the negative effects of exchange
rate movements (E34 million).

     Net income increased by E162 million, or 172.3% to E256 million in 2002
from E94 million in 2001, due primarily to improved underwriting results
reflecting increased rates and the absence of major claim events in comparison
to 2001, which reflected claims from the terrorist attack of September 11, 2001,
as well as increased realized gains on investments due to dispositions. Net
insurance benefits decreased by E24 million, or 1.8%, to E1,276 million in 2002
from E1,300 million in 2001. The loss ratio improved to 68.1% in 2002 from 73.2%
in 2001, reflecting the comparatively greater increase in premiums as well as
the absence of major claim events.

     Switzerland.  In Switzerland, property-casualty gross premiums written were
largely unchanged at E1,747 million in 2002, compared with E1,750 million in
2001, due primarily to decreased premiums in our technical, health and personal
accident lines reflecting portfolio cleansing measures, offset in part by
increased premiums at ART and in our automobile, property and liability lines as
a result of increased rates. Gross premiums written in 2002 reflected a decrease
of E46 million attributable to the one-time effect of a change in our method of
recording assumed reinsurance premiums. We began recording such premiums on a
current-year basis in 2001, with the result that two years' premiums were
recorded in 2001, compared to the single-year premiums recorded in 2002. An
additional approximately E40 million was attributable to the positive effect of
exchange rate movements.

     Net income decreased by E91 million, or 58.7%, to E64 million in 2002 from
E155 million in 2001, reflecting primarily investment writedowns and realized
losses on investments, particularly equity securities, due to the weakness of
the capital markets, offset in part by improved underwriting results. The loss
ratio improved to 70.3% in 2002 from 79.1% in 2001 due to more favorable loss
experience and portfolio cleansing in our health and accident insurance lines.

     Spain.  In Spain, property-casualty gross premiums written increased by
E212 million, or 16.6%, to E1,490 million in 2002 from E1,278 million in 2001,
as a result of increased sales in all lines of business, particularly automobile
lines, where premium income increased by E127 million, or 14.4%. The increased
sales resulted from new business in our automobile lines and the ongoing
reorganization of our distribution channels to increase productivity and
efficiency by expanding our sales agent network and better incentivizing agents.

     Net income increased by E30 million, or 93.8%, to E62 million in 2002 from
E32 million in 2001. The increase reflected primarily improved underwriting
results and a write-up of a real estate property in Spain, offset in part by
decreased investment results. The loss ratio improved to 77.0% in 2002 from
78.7% in 2001, due primarily to increased premium income as a result of rate
increases, together with a decrease in claims frequency in the automobile line
due to a more selective underwriting policy. The expense ratio also improved to
20.6% in 2002 from 21.2% in 2001, due to proportionately lower underwriting
expenses as a result of cost reduction measures.

     Other.  Property-casualty gross premiums written in Rest of Europe
countries other than France, Italy, Switzerland, the United Kingdom and Spain
(which we refer to as Other Rest of Europe) increased by E580 million, or 13.6%,
to E4,836 million in 2002 from E4,256 million in 2001, primarily as a result of
growth in the Netherlands, Ireland, Hungary and the Slovak Republic. Net income
in Other Rest of Europe increased by E31 million, or 7.7%, to E433 million in
2002 from E402 million in 2001, primarily as a result of increased net income in
Ireland, due primarily to a realized gain of E156 million on the intercompany
transfer of our property-casualty subsidiary Allianz Irish Life Holdings from
Allianz Holdings Ireland to Allianz AG, offset in part by decreased net income
in Austria and Belgium, due primarily to decreased investment results in Austria
and deteriorating underwriting results and decreased investment results in
Belgium.

                                        54


YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000

     Gross Premiums Written.  In Rest of Europe, property-casualty gross
premiums written increased by E2,304 million, or 13.3%, to E19,606 million in
2001 from E17,302 million in 2000. This increase reflected growth in gross
premiums written in all of our primary property-casualty markets in Rest of
Europe, especially France, the United Kingdom and Italy, due primarily to rate
increases in a number of lines.

     Net Income.  Property-casualty net income in Rest of Europe decreased by
E437 million, or 34.0%, to E848 million in 2001 from E1,285 million in 2000,
primarily as a result of sharply decreased net income in France, due primarily
to reduced investment results and increased reinsurance costs, offset in part by
increased investment results in Italy. Also contributing to the decrease in Rest
of Europe was a broad decline in investment results in other countries due to
weakness in the capital markets. Net insurance benefits in Rest of Europe rose
by E822 million, or 6.9%, to E12,798 million in 2001 from E11,976 million in
2000, which was slightly less than the 8.8% increase in net premiums earned,
which increased to E16,106 million in 2001 from E14,797 million in 2000. The
loss ratio in Rest of Europe decreased slightly to 80.3% in 2001 from 80.8% in
2000, reflecting decreases in France, Italy, United Kingdom and Spain, offset in
part by increases in Switzerland and Other Rest of Europe. The expense ratio
declined slightly to 26.2% in 2001 from 27.1% in 2000.

     The following table sets forth net loss, expense and combined ratio
information for our property-casualty operations in the Rest of Europe by
geographic area for the years 2001 and 2000:



                                                   YEAR ENDED DECEMBER 31, 2001
                                  --------------------------------------------------------------
                                                   UNITED
                                  FRANCE   ITALY   KINGDOM   SWITZERLAND   SPAIN   OTHER   TOTAL
                                  ------   -----   -------   -----------   -----   -----   -----
                                                                      
Loss ratio......................   83.0%   76.7%     73.2%       79.1%      78.7%   86.1%   80.3%
Expense ratio...................   29.3%   22.5%     31.0%       26.9%      21.2%   25.7%   26.2%
                                  -----    ----     -----       -----      -----   -----   -----
Combined ratio..................  112.3%   99.2%    104.2%      106.0%      99.9%  111.8%  106.5%




                                                   YEAR ENDED DECEMBER 31, 2000
                                  --------------------------------------------------------------
                                                   UNITED
                                  FRANCE   ITALY   KINGDOM   SWITZERLAND   SPAIN   OTHER   TOTAL
                                  ------   -----   -------   -----------   -----   -----   -----
                                                                      
Loss ratio......................   85.8%   77.8%     82.7%       71.3%      81.1%   82.0%   80.8%
Expense ratio...................   28.3%   21.6%     33.4%       30.9%      23.8%   28.4%   27.1%
                                  -----    ----     -----       -----      -----   -----   -----
Combined ratio..................  114.1%   99.4%    116.1%      102.2%     104.9%  110.4%  107.9%


     France.  In France, property-casualty gross premiums written increased by
E647 million, or 13.6%, to E5,392 million in 2001 from E4,745 million in 2000,
reflecting rate increases in all lines of business. In the commercial and
industrial lines, the increase in gross premiums written was also due to new
large industrial business and the increase of AGF MAT's share in aviation pools.
In the individual lines, our distribution arrangement with Credit Lyonnais Bank
also contributed to the increase.

     Net income decreased by E420 million, or 93.1%, to E31 million in 2001 from
E451 million in 2000. The decrease resulted primarily from sharply reduced
investment results as a result of the weak capital markets. We also experienced
an increase in net insurance benefits, due to a greater volume of losses,
especially in the second half of the year in our large industrial accounts, as
well as a rise in the cost of reinsurance resulting from a change in market
conditions for general industrial risks, particularly for non-proportional
windstorm covered risks. Our loss ratio in France nonetheless improved to 83.0%
in 2001 from 85.8% in 2000, largely reflecting increased premiums, the
significant claims recorded in 2000 in relation to the late December 1999 storms
"Lothar" and "Martin," a reduction in the frequency of automobile

                                        55


claims, and a decrease in the average claim payments in our private insurance
business. Net insurance benefits included E17 million related to the September
11, 2001 terrorist attack.

     Italy.  In Italy, property-casualty gross premiums written were E4,585
million in 2001, an increase of E321 million, or 7.5%, from E4,264 million in
2000, primarily due to increased automobile premiums. Automobile premiums
increased by E238 million, or 8.8%, in 2001, reflecting the overall rate
increases in the Italian market following a twelve-month statutory rate freeze
on third-party liability policies which expired in March 2001. We also had an
increase in the number of vehicles insured and an increase in rates on
automobile policies other than third party liability. We saw moderate increases
in our other main lines of business, including fire and personal property,
general liability, health and personal accident.

     Net income increased by E229 million, or 88.8%, to E487 million in 2001
from E258 million in 2000, due primarily to improved underwriting results and
increased investment results, offset in part by expenses incurred to improve the
organizational structure and information technology systems of the RAS group.
The loss ratio decreased slightly to 76.7% in 2001 from 77.8% in 2000,
reflecting a more selective underwriting policy.

     United Kingdom.  In the United Kingdom, property-casualty gross premiums
written increased by E399 million, or 18.9%, to E2,507 million in 2001 from
E2,108 million in 2000, primarily as a result of increased rates in the
automobile and property lines, reflecting the claims experience of UK insurers
generally, as well as volume increases in commercial lines and pet insurance.

     Net income increased by E45 million, or 91.8% to E94 million in 2001 from
E49 million in 2000, reflecting primarily improved underwriting results due to
increased rates in the automobile and property lines. Net insurance benefits
decreased by E26 million, or 2.0%, to E1,300 million in 2001 from E1,326 million
in 2000, reflecting a more selective underwriting policy. The loss ratio
improved to 73.2% in 2001 from 82.7% in 2000, reflecting the increase in gross
premiums written and the decrease in net insurance benefits.

     Switzerland.  In Switzerland, property-casualty gross premiums written
increased by E100 million, or 6.1%, to E1,750 million in 2001 from E1,650
million in 2000. Of this increase, E46 million was due to the one time effect of
a change in our method of recording assumed reinsurance premiums. In previous
years, such premiums were recorded on a one-year lag basis. In 2001, due to a
change in our accounting policies, we began recording such premiums on a
current-year basis, with the result that two years' premiums were recorded in
2001. The effect of this change, all of which was recorded in 2001 due to its
overall minor impact on our results, was an increase in gross earned premiums of
E46 million, or 0.1%, of the Group's consolidated property-casualty earned
premiums, and an increase in income before taxes and minority interests of E3.4
million or 0.2%, compared to 2001. An additional E56 million was attributable to
the positive effects of exchange rate movements.

     Net income decreased by E94 million, or 37.8%, to E155 million in 2001 from
E249 million in 2000, reflecting a decrease in investment results. The loss
ratio deteriorated to 79.1% in 2001 from 71.3% in 2000, despite a low level of
natural catastrophes, due to a change in accounting methods whereby
approximately E40 million previously allocated to underwriting costs are now
included under net insurance benefits. This change in turn improved the expense
ratio to 26.9% in 2001 from 30.9% in 2000. We also experienced increased
reinsurance claims at ART, including E17 million related to the September 11,
2001 terrorist attack.

     Spain.  In Spain, property-casualty gross premiums written increased by
E205 million, or 19.1%, to E1,278 million in 2001 from E1,073 million in 2000,
reflecting increased sales in all lines of business, particularly automobile
lines, where premium increased 21.8%. The increased sales resulted from the
reorganization of the distribution system to better incentivize agents and to
increase productivity.

                                        56


     Net income decreased by E37 million, or 53.6%, to E32 million in 2001 from
E69 million in 2000, despite improved underwriting results in the automobile
line. The decrease reflected primarily the effect of a tax adjustment in 2000,
which increased net income in 2000 by E37 million, as well as decreased
investment results in 2001. The loss ratio improved to 78.7% in 2001 from 81.1%
in 2000, due to more selective underwriting policies introduced in recent years,
which led to a reduction in claims frequency, particularly in the automobile
line. The expense ratio also improved to 21.2% in 2001 from 23.8% in 2000, due
to cost savings resulting from the successful integration of our Spanish
subsidiaries into Allianz Spain.

     Other.  Property-casualty gross premiums written in Rest of Europe
countries other than France, Italy, Switzerland, the United Kingdom and Spain
(which we refer to as Other Rest of Europe) increased by E628 million, or 17.3%,
to E4,256 million in 2001 from E3,628 million in 2000, primarily as a result of
growth in the Netherlands and Ireland. Net income in Other Rest of Europe
decreased by E86 million, or 17.6%, to E402 million in 2001 from E488 million in
2000, primarily as a result of deteriorating underwriting results and increased
interest expense in the Netherlands.

                                     NAFTA

DESCRIPTION OF BUSINESS

     Our property-casualty insurance markets in the NAFTA zone are the United
States, Canada and Mexico. As a percentage of our total property-casualty gross
premiums written worldwide, the NAFTA zone accounted for 13.0%, 15.6% and 15.9%
in 2002, 2001 and 2000, respectively.

     United States.  Our property-casualty operations in the United States are
organized under the umbrellas of Allianz Insurance Co. and Allianz of America,
Inc. (or Allianz of America). We have been present in the United States since
1977, when we established Allianz Insurance Co., a leading provider of
commercial insurance to major corporate customers, as one of our first U.S.
subsidiaries. In 1991, we acquired Fireman's Fund Insurance Company, a leading
personal and commercial lines property-casualty insurance company founded in
1864. Allianz of America comprises a group of companies writing a wide variety
of property-casualty lines of business. Our operations in the United States
accounted for 88.7% of our gross written property-casualty insurance premiums in
the NAFTA zone in 2002.

     Other.  We also conduct property-casualty operations in Canada and Mexico.
Our property-casualty products are generally similar to those we offer and sell
in the United States.

RESULTS OF OPERATIONS

     The following table shows key financial data for our NAFTA zone
property-casualty operations. Consistent with our general practice, gross
premiums written by geographic region are presented before consolidation
adjustments representing the elimination of transactions between Group companies
in different countries and different segments, and net income by geographic
region is presented before those consolidation adjustments, amortization of
goodwill and minority interests.

                                        57


                      NAFTA -- PROPERTY-CASUALTY: KEY DATA



                                                      YEAR ENDED DECEMBER 31,
                                     ---------------------------------------------------------
                                           2002                2001                2000
                                     -----------------   -----------------   -----------------
                                      GROSS               GROSS               GROSS
                                     PREMIUMS    NET     PREMIUMS    NET     PREMIUMS    NET
                                     WRITTEN    INCOME   WRITTEN    INCOME   WRITTEN    INCOME
                                     --------   ------   --------   ------   --------   ------
                                                          (E IN MILLIONS)
                                                                      
United States......................   5,330      (927)    6,171       (986)   5,667      (100)
Canada.............................     549        (6)      539        (40)     516        (1)
Mexico.............................     132        --       135         (4)     137        15
Consolidated adjustments...........     (19)       --       (23)        --      (20)       --
                                      -----      ----     -----     ------    -----      ----
  Total............................   5,992      (933)    6,822     (1,030)   6,300       (86)
                                      =====      ====     =====     ======    =====      ====


YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001

     Gross Premiums Written.  Gross premiums written in the NAFTA zone decreased
E830 million, or 12.2%, to E5,992 million in 2002 from E6,822 million in 2001,
due primarily to decreases in the United States. Gross premiums written in the
United States decreased E841 million, or 13.6% to E5,330 million in 2002 from
E6,171 million in 2001. Excluding the effect of exchange rate movements (E279
million), gross premiums written decreased by 9.1%, due primarily to a more
selective underwriting policy and portfolio cleansing measures reflecting a
renewed focus at Fireman's Fund on core business lines, offset in part by rate
increases in all lines of business. The decrease in gross premiums written
reflected decreased premium income in our workers' compensation insurance
business at Fireman's Fund, which continued to reduce its exposure to this line
of business in 2002, as well as decreases in our automobile line reflecting our
determination to exit unprofitable markets. On a constant currency basis, our
workers' compensation gross written premiums decreased by 58.5%.

     Net Income.  In the NAFTA zone, net income increased by E97 million to a
loss of E933 million in 2002 from a loss of E1,030 million in 2001, due
primarily to reduced losses in the United States and Canada. Net income from
property-casualty operations in the United States increased by E59 million, to a
loss of E927 million in 2002 from a loss of E986 million in 2001, due primarily
to reduced net insurance benefits compared to 2001, which reflected claims from
the terrorist attack of September 11, 2001, offset in part by investment
writedowns due to weakness in the capital markets. Net income was negatively
affected by net insurance benefits of E762 million relating to asbestos and
environmental reserve-strengthening measures at Fireman's Fund, and two major
claims in the surety business (E108 million), which we discontinued in December
2001. The loss ratio in the NAFTA zone decreased to 94.6% in 2002 from 99.9% in
2001, largely due to our focus on core business lines and a more selective
underwriting policy, as well as the absence of major claims in comparison to
2001, which reflected claims from the terrorist attack of September 11, 2001.
For additional information on increased reserves at Fireman's Fund, see
"-- Property-Casualty Insurance Reserves -- Individual Country Reserves -- Gross
Reserves -- United States."

YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000

     Gross Premiums Written.  Gross premiums written in the NAFTA zone increased
E522 million, or 8.3%, to E6,822 million in 2001 from E6,300 million in 2000,
due primarily to increases in the United States. Gross premiums written in the
United States increased E504 million, or 8.9% to E6,171 million in 2001 from
E5,667 million in 2000. Excluding the effect of exchange rate

                                        58


movements (E201 million), gross premiums written increased by 5.3%, primarily
reflecting growth at Fireman's Fund. On a constant currency basis, gross
premiums written for commercial and automobile lines in the United States
increased by 6.6% and 13.3%, respectively, as a result of rate increases due to
the hardening market. Premium increases also reflect growth from new business in
the liability, marine and crop lines of business. These increases were offset by
a decrease in workers' compensation at Fireman's Fund, which continued to reduce
its exposure to this line of business in 2001. On a constant currency basis, our
workers' compensation gross written premiums decreased by 19.6%.

     Net Income.  In the NAFTA zone, net income decreased sharply by E944
million to a loss of E1,030 million in 2001 from a loss of E86 million in 2000,
due primarily to decreases in the United States. Net income from
property-casualty operations in the United States decreased by E886 million, to
a loss of E986 million in 2001 from a loss of E100 million in 2000, due
primarily to the September 11, 2001 terrorist attack in the United States and
weakness in the U.S. capital markets. The loss ratio in the NAFTA zone increased
to 99.9% in 2001 from 87.9% in 2000, largely due to net claims of E642 million
at Allianz Insurance Co. and E55 million at Fireman's Fund related to the
September 11, 2001 terrorist attack.

                                 REST OF WORLD

DESCRIPTION OF BUSINESS

     The primary property-casualty insurance markets in which we operate in the
Rest of World are Asia-Pacific and South America. As a percentage of our total
property-casualty gross premiums written worldwide, Rest of World accounted for
5.2%, 5.5% and 4.8% in 2002, 2001 and 2000, respectively.

Asia-Pacific

     Australia.  Through Allianz Australia Group, we serve the markets of
Australia, New Zealand and Papua New Guinea. Allianz Australia Group's insurance
operations comprise exclusively property-casualty insurance products and
services. We are the second-largest workers' compensation insurer in Australia,
based on gross premiums written in 2002, and a leading provider of
rehabilitation and occupational health, safety and environment services. We also
operate in certain niche areas including premium financing and pleasure craft
insurance. We market our products through brokers, which are the major
distribution channels for commercial business in Australia, as well as non-tied
agents (including automobile dealers, accountants and banks) and directly to the
customer. Allianz Australia Group had gross premiums written of E1,163 million
in 2002.

     Other.  We also market property-casualty insurance products and services
through our subsidiaries in Taiwan, Malaysia, Japan, Hong Kong, Indonesia, Laos,
Singapore, Vietnam, South Korea and China, and through signed joint venture
agreements with Bajaj Auto, a large manufacturing company in India and the CP
Group, a large conglomerate in Thailand.

South America

     Brazil.  We conduct our property-casualty operations in Brazil through our
subsidiary AGF Seguros. With gross premiums written of E336 million in 2002, AGF
Seguros is our largest property-casualty operation in South America and the
sixth-largest property-casualty insurance provider in Brazil. The company writes
primarily automobile insurance, together with fire, transportation and other
lines. Distribution is primarily through brokers.

     Other.  In addition to the markets described above, we sell
property-casualty products in Colombia, Argentina, Chile and Venezuela.

                                        59


RESULTS OF OPERATIONS

     The following table shows key financial data for our Rest of World
property-casualty operations. Consistent with our general practice, gross
premiums written by geographic region are presented before consolidation
adjustments representing the elimination of transactions between Group companies
in different countries and different segments, and net income by geographic
region is presented before those consolidation adjustments, amortization of
goodwill and minority interests.

                  REST OF WORLD -- PROPERTY-CASUALTY: KEY DATA



                                                           YEAR ENDED DECEMBER 31,
                                          ---------------------------------------------------------
                                                2002                2001                2000
                                          -----------------   -----------------   -----------------
                                           GROSS               GROSS               GROSS
                                          PREMIUMS    NET     PREMIUMS    NET     PREMIUMS    NET
                                          WRITTEN    INCOME   WRITTEN    INCOME   WRITTEN    INCOME
                                          --------   ------   --------   ------   --------   ------
                                                               (E IN MILLIONS)
                                                                           
Asia-Pacific............................   1,596      (18)     1,344       11        784       31
South America...........................     768       47        962       29        891      (34)
Other...................................      64        9         95       (1)       211        8
                                           -----      ---      -----       --      -----      ---
  Total.................................   2,428       38      2,401       39      1,886        5
                                           =====      ===      =====       ==      =====      ===


YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001

     Gross Premiums Written.  Gross premiums written in Rest of World increased
by E27 million, or 1.1%, to E2,428 million in 2002 from E2,401 million in 2001.
The increase was primarily attributable to increased gross premiums written in
Asia-Pacific, reflecting rate increases in all lines of business and the
full-year consolidation of our property-casualty subsidiary in Malaysia, which
was consolidated for the first time in October 2001, offset in part by decreased
premium income in South America due to the negative effect of exchange rate
movements and the scaling down of our property-casualty operations in Argentina.

     Net Income.  In Rest of World, net income decreased by E1 million to E38
million in 2002 from E39 million in 2001, due primarily to decreased investment
results in our Australian operations in Asia-Pacific, reflecting weakness in the
capital markets. This decrease was offset in part by increased income in South
America attributable to cost reduction measures and an improved investment
strategy, particularly in Colombia and Venezuela. The loss ratio increased to
74.5% in 2002, compared with 72.8% in 2001, reflecting deteriorating
underwriting results in South America, offset in part by improved underwriting
results in our Australian operations in Asia-Pacific.

YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000

     Gross Premiums Written.  Gross premiums written in Rest of World increased
by E515 million, or 27.3%, to E2,401 million in 2001 from E1,886 million in
2000. The increase was primarily attributable to our Australian operations,
which acquired a significant block of business in 2001.

     Net Income.  In Rest of World, net income increased by E34 million, to E39
million in 2001 from E5 million in 2000, due primarily to increased income in
South America from our Brazilian and Colombian operations. These increases were
offset in part by decreased income in Asia-Pacific. The loss ratio decreased to
72.8% in 2001 from 75.5% in 2000, reflecting more favorable underwriting results
in South America, partially offset by deteriorating underwriting results in our
Australian operations in Asia-Pacific.

                                        60


                                SPECIALTY LINES

DESCRIPTION OF BUSINESS

     In addition to our multi-local approach to our global insurance business,
under which our non-German insurance businesses are locally managed, we manage
our specialty lines of credit/ trade insurance, marine, aviation and industrial
transport insurance, industrial reinsurance and travel/assistance insurance on a
worldwide basis. Through our subsidiary EULER & HERMES, we are the largest
credit insurer in the world, and in travel/assistance insurance, we are also one
of the world's largest insurers.

CREDIT INSURANCE

     In July 2002, we consolidated our French subsidiary, EULER, and our German
subsidiary, HERMES, into a new corporate entity, EULER & HERMES. The
consolidation of EULER and HERMES, which complemented each other in terms of
product mix and geographical penetration, further strengthened our presence in
the marketplace. Through EULER & HERMES, we are the largest credit insurer in
the world, with an estimated world market share of 37.0%, based on gross
premiums written in 2002. Our credit operations generated gross premiums written
of E1,579 million in 2002, E1,589 million in 2001 and E1,611 million in 2000.

     EULER & HERMES is the global leader in credit insurance in terms of gross
premiums written and one of the European market leaders in factoring. EULER &
HERMES's credit insurance operations are rated AA- by Standard & Poor's.

     EULER & HERMES is the leading credit insurer in Germany, with an estimated
domestic market share of approximately 42% at December 31, 2002, based on gross
premiums written. EULER & HERMES cedes a large portion of its gross premiums
written to reinsurers. The percentage of gross premiums written ceded in
reinsurance was 45.0% in 2002, 42.7% in 2001 and 42.0% in 2000, of which 9.8%,
6.7% and 6.6%, respectively, was ceded to Allianz AG.

     EULER & HERMES provides customers around the world with a wide range of
credit insurance and related products and services, including commercial credit
insurance and reinsurance, factoring services, guarantee insurance, fidelity
insurance and consumer credit insurance, and manages, and derives fee income
from, the German federal governments export credit guarantee program.

MARINE & AVIATION

     Effective January 1, 2002, we reorganized our marine, aviation and
industrial transport insurance business in Germany, France and the United
Kingdom under Allianz Marine & Aviation, a new specialty line. Our marine,
aviation and industrial transport insurance activities in these countries, which
we had previously included in the property-casualty insurance results of our
respective subsidiaries, were integrated into Allianz Marine & Aviation as a
single European marine, aviation and industrial transport unit. Allianz Globus
MAT Versicherungs-AG, our former German specialty insurer for marine, aviation
and industrial transport insurance, was renamed Allianz Marine & Aviation
Versicherungs-AG, and AGF MAT, our French specialty unit for marine, aviation
and transport insurance, was renamed Allianz Marine & Aviation (France). Allianz
Marine & Aviation generated gross premiums written of E1,424 million in 2002.

ALLIANZ GLOBAL RISKS RUCKVERSICHERUNGS-AG

     We launched Allianz Global Risks on January 1, 2002 to establish our
international industrial risks reinsurance business as a globally managed
segment. While our operating subsidiaries around the world continue to conduct
our direct industrial insurance business, Allianz Global Risks acts as our
industrial reinsurance clearing house, assuming industrial insurance from

                                        61


Group companies and centralizing the placement of outgoing reinsurance with
third-party carriers, primarily Munich Re, in the reinsurance market. Allianz
Global Risks generated gross premiums written of E1,136 million in 2002, of
which approximately E138 million, or 12.1%, was ceded in reinsurance to Munich
Re.

     Through Allianz Global Risks, we aim to increase the efficiency and
transparency of our international industrial reinsurance activities through
economies of scale and a consistent reinsurance structure, including a selective
underwriting policy, appropriate rates and coverage limits, tight risk
management and centralized policies and standards throughout the Group. We have
also introduced new products tailored for specific risks, such as our
specialized directors and officers policy in the U.S. market, specialized
liability products for the pharmaceutical and chemical industries, and policies
covering Internet risks. Through these and other measures, we intend to
reestablish our international industrial risks reinsurance business as a
profitable market leader.

TRAVEL AND ASSISTANCE INSURANCE

     We are one of the world's largest providers of travel and assistance
insurance. Our travel and assistance insurance operations generated gross
premiums written of E808 million in 2002, E732 million in 2001 and E656 million
in 2000. We believe that internal growth and recent acquisitions in our travel
and assistance business will enable us to strengthen our leading market position
and achieve enhanced efficiencies in this dynamic market. With a view toward
establishing long-term partnerships, our travel and assistance business provides
business-to-business services to clients in the travel, insurance, automobile
and banking industries. We provide travel and assistance insurance primarily
through the Mondial Assistance Group, which is owned equally by our subsidiaries
AGF and RAS.

RESULTS OF OPERATIONS

     The following table shows key financial data for our specialty insurance
operations. Consistent with our general practice, gross premiums written by
geographic region are presented before consolidation adjustments representing
the elimination of transactions between Group companies in different countries
and different segments, and net income by geographic region is presented before
those consolidation adjustments, amortization of goodwill and minority
interests.

                         SPECIALTY INSURANCE: KEY DATA



                                                      YEAR ENDED DECEMBER 31,
                                     ---------------------------------------------------------
                                           2002                2001                2000
                                     -----------------   -----------------   -----------------
                                      GROSS               GROSS               GROSS
                                     PREMIUMS    NET     PREMIUMS    NET     PREMIUMS    NET
                                     WRITTEN    INCOME   WRITTEN    INCOME   WRITTEN    INCOME
                                     --------   ------   --------   ------   --------   ------
                                                          (E IN MILLIONS)
                                                                      
Credit.............................   1,579        16     1,589       91      1,611      203
Marine and aviation................   1,424        21        --       --         --       --
Industrial reinsurance.............   1,136      (257)       --       --         --       --
Travel and assistance..............     808        21       732        3        656       24
                                      -----      ----     -----       --      -----      ---
                                      4,947      (199)    2,321       94      2,267      227
                                      =====      ====     =====       ==      =====      ===


YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001

     Gross Premiums Written.  Gross premiums written in our specialty lines
increased E2,626 million, or 113.1%, to E4,947 million in 2002 from E2,321
million in 2001, reflecting

                                        62


primarily the inclusion of our international industrial reinsurance and marine
and aviation specialty lines effective January 1, 2002. Premiums in
international industrial reinsurance reflected significant rate increases,
particularly in property and liability reinsurance. Increased gross premiums in
the travel and assistance line was due largely to the expansion of our travel
and assistance business in the United Kingdom and the full-year consolidation of
travel and assistance providers in Australia and Thailand, which were
consolidated in September 2001, offset in part by the ongoing downturn in the
international travel market in 2002. In our aviation and marine specialty line,
gross premiums written increased due to rate increases, offset in part by
portfolio cleansing measures. The slight decrease in the credit line was
attributable primarily to more selective underwriting policies and weakness in
the global economy.

     Net Income.  In our specialty lines, net income decreased significantly by
E293 million to a loss of E199 million in 2002 from income of E94 million in
2001, due primarily to the inclusion of our international industrial reinsurance
specialty line, which experienced net claims of E564 million related primarily
to flooding in Central and Eastern Europe in July and August 2002, and expenses
incurred in building up the industrial reinsurance business, as well as reduced
net income in the credit line, resulting from reduced investment results and an
increase in the frequency and severity of claims. Net income in our travel and
assistance lines increased due to the absence of major claims in comparison to
2001, which reflected claims from the terrorist attack of September 11, 2001. In
our marine and aviation specialty line, net income increased, reflecting
primarily the absence of major claims compared to 2001. The loss ratio increased
to 75.9% in 2002 from 66.5% in 2001, largely reflecting increased net claims
attributable to the inclusion of our international industrial reinsurance
specialty line and the increased claims in the credit line.

YEAR ENDED DECEMBER 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000

     Gross Premiums Written.  Gross premiums written in our specialty lines
increased E54 million, or 2.4%, to E2,321 million in 2001 from E2,267 million in
2000, reflecting an increase in the travel and assistance lines, offset in part
by a decrease in the credit lines. The increase in travel and assistance
premiums is attributable to internal growth, together with targeted
acquisitions. The decrease in the credit lines was due to a change in the method
of reporting service fees for EULER. Prior to 2001, these fees were included as
part of gross premiums written. Beginning in 2001, these fees, which amounted to
E144 million and E122 million in 2001 and 2000, respectively, were excluded from
gross premiums written consistent with the treatment of such fees by HERMES.
Excluding the impact of this change, gross premiums written would have increased
by E122 million, or 7.6%, in 2001 compared to 2000, primarily due to internal
growth.

     Net Income.  In our specialty lines, net income decreased by E133 million,
or 58.6%, to E94 million in 2001 from E227 million in 2000, due primarily to
reduced net income in the credit line, resulting from an increased number of
large claims as a result of unfavorable economic conditions. Net income in our
travel and assistance lines also decreased due to lower investment results and
higher expenses for assistance services. The loss ratio increased to 66.5% in
2001 from 53.1% in 2000, largely due to the increased claims in the credit line.

                                        63


                        LIFE/HEALTH INSURANCE OPERATIONS

     The following table sets forth certain financial information for our
life/health insurance operations for the years indicated:



                                                                YEAR ENDED DECEMBER 31,
                                                              ---------------------------
                                                               2002      2001      2000
                                                              -------   -------   -------
                                                                    (E IN MILLIONS)
                                                                         
Gross premiums written(1)...................................   20,663    20,145    20,239
                                                              -------   -------   -------
Premiums earned (net)(2)....................................   18,675    18,317    18,378
Interest and similar income.................................   11,215    10,765    10,152
Income from affiliated enterprises joint ventures and
  associated enterprises....................................      445       525       693
Other income from investments...............................    4,932     3,562     6,667
Trading income..............................................      244      (117)      (49)
Fee and commission income, and income from service
  activities................................................      200       268       271
Other income................................................      825       772     1,139
                                                              -------   -------   -------
  Total income..............................................   36,536    34,092    37,251
                                                              -------   -------   -------
Insurance benefits (net)....................................  (21,284)  (21,979)  (26,354)
Interest and similar expenses...............................     (434)     (492)     (148)
Other expenses for investments..............................   (8,656)   (5,537)   (3,004)
Loan loss allowance.........................................      (10)       (4)       --
Acquisition costs and administrative expenses...............   (4,263)   (4,259)   (3,927)
Amortization of goodwill....................................     (174)     (146)     (137)
Other expenses..............................................   (1,806)   (1,263)   (2,055)
                                                              -------   -------   -------
  Total expenses............................................  (36,627)  (33,680)  (35,625)
                                                              -------   -------   -------
Earnings from ordinary activities before taxation...........      (91)      412     1,626
Taxes.......................................................      (67)      (99)     (343)
Minority interests in earnings..............................      177       (84)     (658)
                                                              -------   -------   -------
Net income..................................................       19       229       625
                                                              =======   =======   =======


---------------

(1) Under IFRS reporting standards, gross written premiums include only the
    cost- and risk-related components of premiums generated from unit-linked and
    other investment-oriented products, but do not include the full amount of
    statutory premiums written on these products. Statutory premiums are total
    revenues from sales of life insurance policies, in accordance with the
    statutory accounting practices applicable in the insurer's home
    jurisdiction. On a statutory premium basis, total premiums written were
    E40,066 million, E33,687 million and E31,025 million in 2002, 2001 and 2000,
    respectively.

(2) Net of reinsurance ceded of E1,207 million, E1,169 million and E1,139
    million in 2002, 2001 and 2000, respectively.

YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001

     Gross Premiums Written.  Gross premiums written of our life/health
operations in 2002 increased by E518 million, or 2.6%, to E20,663 million in
2002 from E20,145 million in 2001. Disregarding the effects of exchange rate
movements and changes in the scope of consolidation, which increased 2002
life/health gross premiums written by E32 million, gross premiums written would
have increased by E486 million or 2.4%. On a statutory premium basis, gross
premiums written increased by E6,379 million, or 18.9%, to E40,066 million in
2002 from E33,687 million in

                                        64


2001, due to significant increases in sales of investment-oriented products,
reflecting the general trend towards investment-oriented insurance products in
particular in the United States and Italy. Gross premiums written for
investment-oriented insurance products increased by E5,861 million, or 43.3%, to
E19,403 million.

     Premiums Earned (Net).  On a Group-wide basis, life/health net premiums
earned in 2002 and 2001 reflected premiums ceded to reinsurers of E1,207 million
and E1,169 million, respectively, resulting in overall retention levels of
approximately 93.9% in 2002 and 94.0% in 2001. Net premiums increased by E358
million, or 2.0%, to E18,675 million in 2002 from E18,317 million in 2001,
generally consistent with the increase in gross premiums written in this period.

     Insurance Benefits (Net).  Net insurance benefits for our worldwide
life/health business consist of benefits paid, changes in aggregate policy
reserves, and expenses of premium refunds to policyholders. Net life/health
insurance benefits decreased by E695 million, or 3.2%, to E21,284 million in
2002 from E21,979 million in 2001, primarily as a result of reduced income from
investments in 2002 resulting from weakness in the capital markets. The
reduction in income from investments in turn resulted in reduced policyholder
participation benefits, which are included in benefits paid and changes in
aggregate policy reserves, due to the participatory nature of our life insurance
business. See, for example, "-- Germany -- Life Insurance."

     Acquisition Costs and Administrative Expenses.  Acquisition costs and
administrative expenses which consist primarily of payments and changes in
deferred acquisition costs, administrative expenses, and net underwriting costs,
remained relatively constant at E4,263 million in 2002, compared with E4,259
million in 2001.

     Net Income.  Net income from life/health insurance decreased by E210
million, or 91.7%, to E19 million in 2002 from E229 million in 2001, primarily
as a result of reduced income from investments, particularly in our operations
in Germany, France and Switzerland. See "-- Asset Management
Operations -- Group's Own Investments -- Investment Income" for a discussion of
investment results for life/health insurance investments.

     Amortization of goodwill in our life/health lines increased to E174 million
in 2002 from E146 million in 2001, while minority interests in earnings were a
credit of E177 million in 2002, compared to a debit of E84 million in 2001,
primarily as a result of the increase in our shareholding in Allianz Leben and
decreased earnings. See "Major Shareholders and Related Party
Transactions -- Transactions with Munich Re."

YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000

     Gross Premiums Written.  Gross premiums written of our life/health
operations in 2001 decreased by E94 million, to E20,145 million in 2001 from
E20,239 million in 2000. Disregarding the effects of exchange rate movements,
which reduced 2001 life/health gross premiums written by E85 million, gross
premiums written would have decreased by E9 million. A large portion of the
decrease is explained by the sale of a large group policy in France in 2000,
which increased gross premiums written in that year by approximately E800
million. Excluding the impact of this sale, together with the impact of foreign
exchange movements, gross premiums written would have increased by E791 million,
or 3.9%, in 2001, due to increases in Rest of Europe and Rest of World. On a
statutory premium basis, gross premiums written increased by E2,662 million, or
8.6%, to E33,687 million in 2001 from E31,025 million in 2000, reflecting the
general trend towards investment-oriented insurance products in Rest of Europe
and the United States. Gross premiums written for investment-oriented insurance
products increased by E2,756 million, or 25.6%, to E13,542 million.

     Premiums Earned (Net).  On a Group-wide basis, life/health net premiums
earned in 2001 and 2000 reflected premiums ceded to reinsurers of E1,169 million
and E1,139 million,

                                        65


respectively, resulting in overall retention levels of approximately 94.0% in
2001 and 94.2% in 2000. Net premiums decreased slightly by E61 million to
E18,317 million in 2001 from E18,378 million in 2000, generally consistent with
the slight decrease in gross premiums written in this period.

     Insurance Benefits (Net).  Net life/health insurance benefits decreased by
E4,375 million, or 16.6%, to E21,979 million in 2001 from E26,354 million in
2000, primarily as a result of reduced income from investments in 2001. The
reduction in income from investments in turn resulted in reduced policyholder
participation benefits, which are included in benefits paid and changes in
aggregate policy reserves.

     Acquisition Costs and Administrative Expenses.  Acquisition costs and
administrative expenses increased by E332 million, or 8.5%, to E4,259 million in
2001 from E3,927 million in 2000, due primarily to increased underwriting costs
resulting from the continued expansion of our investment-oriented products.
Under IFRS, these costs are expensed as incurred, even though significantly less
than the amount of statutory premium is recognized as revenue.

     Net Income.  Net income from life/health insurance decreased by E396
million, or 63.4%, to E229 million in 2001 from E625 million in 2000, primarily
as a result of reduced income from investments, particularly in Germany and Rest
of Europe. See "-- Asset Management Operations -- Group's Own
Investments -- Investment Income" for a discussion of investment results for
life/health insurance investments.

     On a Group-wide basis, amortization of goodwill in our life/health lines
increased to E146 million in 2001 from E137 million in 2000, while minority
interest decreased to E84 million in 2001 from E658 million in 2000. The
decrease in minority interests resulted primarily from decreased earnings.

     The consolidated results of our life/health operations in 2000 included the
effects of certain special adjustments to income taxes. There were no special
adjustments to our consolidated results of operations in 2001. Excluding the
impact of these items in 2000, net income would have decreased by E412 million,
or 64.3%, to E229 million in 2001 from E641 million in 2000.

                  LIFE/HEALTH OPERATIONS BY GEOGRAPHIC REGION

     The following table sets forth our gross life/health premiums written and
net income by geographic region for the years indicated. Consistent with our
general practice, gross premiums written by geographic region are presented
before consolidation adjustments representing the elimination of transactions
between Group companies in different geographic regions and different segments,
and net income by geographic region is presented after tax and before those
consolidation adjustments, amortization of goodwill and minority interests.

                                        66




                                                           YEAR ENDED DECEMBER 31,
                                          ---------------------------------------------------------
                                                2002                2001                2000
                                          -----------------   -----------------   -----------------
                                           GROSS               GROSS               GROSS
                                          PREMIUMS    NET     PREMIUMS    NET     PREMIUMS    NET
                                          WRITTEN    INCOME   WRITTEN    INCOME   WRITTEN    INCOME
                                          --------   ------   --------   ------   --------   ------
                                                               (E IN MILLIONS)
                                                                           
Germany
  Life..................................    9,369       80      8,969       65      9,094      514
  Health................................    2,865       64      2,691       48      2,587       56
  Consolidation adjustments.............       --       (7)        --       14         --       13
                                           ------     ----     ------     ----     ------    -----
     Total..............................   12,234      137     11,660      127     11,681      583
Rest of Europe..........................    5,181      (95)     5,486      381      5,751      910
Rest of World...........................    3,251      (24)     3,010      (49)     2,818      (71)
Consolidation adjustments...............       (3)      (2)       (11)      --        (11)      (2)
                                           ------     ----     ------     ----     ------    -----
     Subtotal...........................   20,663       16     20,145      459     20,239    1,420
Amortization of goodwill................       --     (174)        --     (146)        --     (137)
Minority interests......................       --      177         --      (84)        --     (658)
                                           ------     ----     ------     ----     ------    -----
     Total..............................   20,663       19     20,145      229     20,239      625
                                           ======     ====     ======     ====     ======    =====


     A significant portion of our life/health operations in Rest of Europe and
Rest of World consists of sales of unit-linked products. Only the cost- and
risk-related components of premiums generated from the sale of such products is
included in gross premiums written under IFRS.

                                    GERMANY

DESCRIPTION OF BUSINESS

     We were the largest provider of life insurance and the third-largest
provider of health insurance in Germany, with estimated market shares of 14.8%
and 12.4%, respectively, as measured by gross premiums written in 2002. Germany
is by far our most important market for life/health insurance. As a percentage
of our total life/health gross premiums written worldwide, Germany accounted for
59.2% in 2002, 57.8% in 2001, and 57.7% in 2000. On a statutory premium basis,
Germany accounted for 31.4% of our total life/health gross premiums written in
2002.

     We conduct our life/health insurance operations in Germany through:

     - Allianz Lebensversicherungs-AG (or Allianz Leben), the main operating
       company for our German life insurance operations. In January 2002,
       pursuant to an agreement announced in 2001, we purchased an additional
       40.5% of Allianz Leben's outstanding shares from Munich Re, thereby
       increasing our shareholding in Allianz Leben to 91.0%, with the balance
       of the outstanding shares in Allianz Leben publicly traded in Germany.
       See "Major Shareholders and Related Party Transactions." At December 31,
       2002, we owned 91.0% of Allianz Leben. In November 2002, we merged our
       former life insurance subsidiary Vereinte Lebensversicherung AG into
       Allianz Leben, with retroactive effect to January 1, 2002;

     - Deutsche Lebensversicherungs-AG, a wholly owned subsidiary of Allianz
       Leben, which is our vehicle for selling standardized, low-cost term
       insurance in Germany; and

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     - Allianz Private Krankenversicherungs-AG (or Allianz Private Health), our
       health insurance subsidiary, formerly known as Vereinte
       Krankenversicherung AG, which we renamed in January 2003.

     Our life/health insurance operations in Germany employed 9,683 people at
the end of 2002, 10,366 people at the end of 2001 and 9,995 people at the end of
2000.

DISTRIBUTION

     Our distribution channels for our life/health products in Germany are
similar to those used for our property-casualty products. Many of our products
in Germany are distributed through common or overlapping distribution systems.
In our German life/health insurance businesses, we distribute our products
primarily through a network of self-employed, full-time tied agents. For our
individual life, health and mutual fund products, the network of full-time tied
agents is our most important distribution channel. Brokers are also an important
channel for the distribution of Allianz Leben's and Allianz Private Health's
group life and health products. The bank distribution channel is utilized
primarily in our life insurance business. We distribute our life insurance
products through Dresdner Bank, and under contractual arrangements with
Volks-und Raiffeisenbanken, a network of cooperative banks in southern Germany,
as well as through IKB, a German industrial credit bank. Since 2001, we have
placed approximately 960 insurance specialists (as of December 31, 2002) to sell
both life insurance products and property-casualty insurance products at
Dresdner Bank branches throughout Germany.

     The following table sets forth certain key data concerning our distribution
systems as they relate to life and health insurance at and for the year ended
December 31, 2002:



                                                                              % OF 2002
                                                                         --------------------
                                                                           LIFE       HEALTH
                                                            NUMBER(1)    PREMIUMS    PREMIUMS
                                                            ---------    --------    --------
                                                                            
Full-time tied agents.....................................   11,656        58.6        82.0
Part-time tied agents.....................................   43,076         5.5         7.2
Brokers...................................................    7,601         9.7         5.9
Banks.....................................................    2,224(2)     19.4          --
Other(3)..................................................       --         6.8         4.9
                                                                          -----       -----
  Total...................................................       --       100.0       100.0
                                                                          =====       =====


---------------

(1) Represents the total number in Germany for all Allianz Group segments.

(2) Represents the number of German branches at Dresdner Bank, (811), and at
    unaffiliated banks, comprising Volks- und Raiffeisenbanken (1,406) and
    Industrie Kredit-Bank (7), with which we have distribution agreements
    covering our property-casualty and life/health insurance products.

(3) Includes all Allianz Group employees in Germany, who are able to sell
    Allianz policies.

LIFE INSURANCE

     Life insurance is the most popular form of savings for old age in Germany.
With the demographic shift toward an aging German population, we see increasing
opportunities for our life insurance business as private sector products are
used to supplement decreasing levels of state provisions. In addition, the
demand for insurance against financial loss resulting from occupational
disability has grown rapidly in Germany in recent years as the German statutory
social insurance system has provided declining levels of support.

     On January 1, 2002, a new law (the Altersvermogensgesetz) took effect,
providing incentives for private retirement plans and company pension funds
beginning in 2002. The new law, which

                                        68


was enacted by the German legislature in May 2001, provides for direct state
subsidies or, in certain circumstances, tax-free premium payments, and it
requires that life-long benefit payments be guaranteed. The benefit payments
will be subject to income tax. In July 2001, we started selling through Allianz
Leben specially designed products that satisfy the legal requirements of the
Altersvermogensgesetz, primarily that the sum of premium payments be fixed at
the beginning of the benefit payment period. We established Allianz
Pensionskasse AG, a wholly owned subsidiary of Allianz Leben, and Allianz
Dresdner Pensionsfonds AG, a wholly owned subsidiary of Allianz AG, in 2002 in
order to more aggressively sell a variety of pension products in accordance with
the Altersvermogensgesetz. Although sales of Altersvermogensgesetz products have
been slower than initially expected, Allianz Leben is the leader in this market,
with an estimated market share of approximately 20% as of December 31, 2002.

     In the life insurance area, our policy surrender rates were 3.7% in 2002,
3.6% in 2001, and 3.6% in 2000, compared to German industry-wide surrender rates
of 4.9%, 4.6%, and 4.5% (based on information provided by Gesamtverband der
Deutschen Versicherungswirtschaft), respectively. We believe that this is in
large part due to our widely recognized and well respected brand name, our
position as a market leader in most German insurance lines, our reputation for
superior customer service and our financial strength. We also pay close
attention to promoting follow-on business, which involves persuading
policyholders to reinvest funds. This typically takes the form of using the
benefits paid out on an endowment policy as the single premium for an immediate
annuity that ensures a guaranteed income for the rest of the policyholder's
life, or investing in a fund managed by our asset management subsidiary ADAM.
See "-- Asset Management Operations." The proportion of funds paid by our German
life insurance operations that were reinvested in other Allianz products has
increased significantly over the past three years.

PRODUCTS

     Our German life insurance companies offer a comprehensive and unified range
of life insurance and life insurance-related products on both an individual and
group basis. The main classes of coverage offered are: endowment life insurance,
annuity policies, term life insurance, unit-linked annuities, and other life
insurance-related forms of cover, which are provided as riders to other policies
and on a stand-alone basis. Allianz Leben also assumes reinsurance of each of
these individual and group life insurance products.

     Our endowment life products for the German market include policies both
with unchanging levels of premiums and guaranteed benefits and with premiums and
guaranteed benefits that rise automatically in accordance with contributions to
the German statutory pension system in Germany. Amounts payable at maturity of
an endowment policy include a "guaranteed benefit," an amount established by
reference to a legally mandated maximum guaranteed technical interest rate on
actuarial reserves. This interest rate is currently 3.25% per year for policies
issued on or after July 1, 2000, having declined from 4% per year. The future
profit participation credited to policyholders is not guaranteed. The total
amount payable at the maturity of a policy, which is calculated based on the
total expected profit participation, is the principal basis of competition
between life insurance providers in the German market. Under current German law,
the policyholder must be credited with at least 90% of each year's statutory net
investment result plus an appropriate share in other profit components. In the
current competitive environment, however, the rate of profit participation
exceeds this statutory minimum and is subject to periodic adjustment by insurers
in light of competitive conditions prevailing from time to time. In conformity
with prevailing market conditions, we currently credit 91% to 92% of each year's
profits to policyholders.

                                        69


RESULTS OF OPERATIONS

     The following table sets forth the components of life insurance gross
premiums written in Germany for the years 2002, 2001 and 2000:



                                                        YEAR ENDED DECEMBER 31,
                       ------------------------------------------------------------------------------------------
                                   2002                           2001                           2000
                       ----------------------------   ----------------------------   ----------------------------
                         NEW      RECURRING             NEW      RECURRING             NEW      RECURRING
                       BUSINESS   PREMIUMS    TOTAL   BUSINESS   PREMIUMS    TOTAL   BUSINESS   PREMIUMS    TOTAL
                       --------   ---------   -----   --------   ---------   -----   --------   ---------   -----
                                                            (E IN MILLIONS)
                                                                                 
Individual policies
  Endowment..........     236       4,330     4,566      208       4,501     4,709      378       4,524     4,902
  Annuities..........   1,452       1,438     2,889    1,176       1,320     2,496    1,145       1,363     2,508
  Term...............      18          78        96       16          73        89       14          68        82
                        -----       -----     -----    -----       -----     -----    -----       -----     -----
    Subtotal.........   1,706       5,846     7,551    1,400       5,894     7,294    1,537       5,955     7,492
  Group policies.....     695       1,122     1,818      617       1,058     1,675      591       1,011     1,602
                        -----       -----     -----    -----       -----     -----    -----       -----     -----
    Total............   2,401       6,968     9,369    2,017       6,952     8,969    2,129       6,965     9,094
                        =====       =====     =====    =====       =====     =====    =====       =====     =====


YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001

     Gross Premiums Written.  In Germany, life insurance premiums increased E400
million, or 4.5%, to E9,369 million in 2002 from E8,969 million in 2001, due
primarily to a substantial increase in new business, reflecting the increased
efficiency of our life insurance distribution channels, including Dresdner Bank.

     Individual life insurance policies, which include endowment, term and
annuity policies, accounted for 80.6% of our gross life insurance premiums
written in Germany in 2002. Gross premiums written on individual life insurance
increased by 3.5%, to E7,551 million in 2002 from E7,294 million in 2001, due
primarily to increased individual pension business. New individual business
increased to E1,706 million in 2002 from E1,400 million in 2001. The increase in
new individual business was attributable to premium income from new
Altersvermogensgesetz policies, many of which were sold in 2001 but had premium
payments that began on January 1, 2002. Sales of such policies slowed
market-wide in 2002 as a result of weakening customer demand for such policies
due to the complexity of such policies, public skepticism regarding the
Altersvermogensgesetz scheme and public discussion of the possibility of further
pension-related reforms.

     Group life insurance gross premiums written increased E143 million, or
8.5%, to E1,818 million in 2001 from E1,675 million in 2001, due primarily to
successful development of new distribution capacities for occupational pension
schemes.

     Net Income.  In Germany, net income from life insurance operations
increased by E15 million, or 23.1%, to E80 million in 2002 from E65 million in
2001, due primarily to reduced costs and a lower tax expense, offset in part by
substantial writedowns of investments as a result of weakness in the capital
markets. Despite the increase in new business, acquisition costs decreased by
26.2%, and the expense ratio decreased by 4.0% to 9.7% in 2002 from 13.7% in
2001, reflecting primarily lower amortization of deferred acquisition costs.

YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000

     Gross Premiums Written.  In Germany, life insurance premiums decreased E125
million, or 1.4%, to E8,969 million in 2001 from E9,094 million in 2000, due
primarily to a decrease in premiums on individual policies.

     Individual life insurance policies, which include endowment, term and
annuity policies, accounted for 81.3% of our gross life insurance premiums
written in Germany in 2001. Gross

                                        70


premiums written on individual life insurance decreased by 2.6%, to E7,294
million in 2001 from E7,492 million in 2000, due primarily to a large number of
endowment policies either maturing or reaching the end of their premium payment
period. New individual business decreased to E1,400 million in 2001 from E1,537
million in 2000. The decrease in new individual business was attributable
primarily to a shift in the focus of our full-time tied agent distribution
channel toward the sale of new Altersvermogensgesetz policies, most of which,
although sold in 2001, have premium payments which began on January 1, 2002.

     Group life insurance gross premiums written increased E73 million, or 4.6%,
to E1,675 million in 2001 from E1,602 in 2000, due to the growth of new
business.

     Net Income.  In Germany, net income from life insurance operations
decreased by E449 million, or 87.4%, to E65 million in 2001 from E514 million in
2000. Excluding the impact of a release of deferred taxes in 2000 resulting from
a change in German statutory tax rates, net income would have decreased by E402
million, or 86.1%, to E65 million in 2001 from E467 million in 2000, due
primarily to reduced investment results in 2001, attributable to weakness in the
capital markets.

HEALTH INSURANCE

     Allianz Private Health is the third-largest private health insurer in
Germany, with approximately 2.3 million customers and an estimated market share
of approximately 12.4% in 2002. Allianz Private Health has strong ties to the
German medical profession and is the largest health insurer for this profession
in Germany and is the market leader in providing group health insurance.

     The German statutory healthcare system operates as a mandatory system for
persons with incomes below a specified threshold (Versicherungspflichtgrenze)and
allows persons with incomes above the threshold to voluntarily opt out of the
statutory system and use the private healthcare system. Currently, the German
healthcare system is dominated by the German statutory schemes, while private
providers of health insurance, including Allianz Private Health, compete for the
remainder.

     In January 2003, this specified income threshold was raised by the German
legislator in order to stabilize and maintain the statutory healthcare system.
As a consequence, the number of individuals who are able to choose protection
under the private healthcare system may decrease. While this measure may reduce
new business for full private health coverage for salaried employees, it may
also create new business opportunities for supplementary insurance for
individuals insured under statutory health insurance plans. Further changes to
the German healthcare system are currently being considered, in particular with
a view to reducing costs. Enactment into law of any such changes may have an
impact on private health insurance providers, as the amount of new business
written under full private health coverage may further decrease.

     Allianz Private Health provides a wide range of health insurance products,
including full private healthcare coverage for the self-employed, salaried
employees and civil servants; supplementary insurance for people insured under
statutory health insurance plans; daily sickness allowance for the self-employed
and salaried employees; hospital daily allowance; supplementary care insurance;
and foreign travel medical expenses insurance.

     Like endowment and other life insurance products, health insurance products
include mandatory profit-sharing features, whereby Allianz Private Health, like
any other German private health insurer, returns 80% of the statutory profit on
its health business, after the payment of claims and claims costs, the
establishment of reserves, payment of taxes and other expenses, to policyholders
annually, generally in the form of premium subsidies or rebates. Since the
beginning of 2000, Allianz Private Health has also been required by law to
allocate to its

                                        71


policyholders 90% of interest surplus which is a component of statutory profits.
As with our endowment policies in Germany, the actual level of profit sharing we
provide our policyholders is, for competitive reasons, in excess of the
statutory minimum and has been between 85% and 90% of statutory profits in
recent years.

RESULTS OF OPERATIONS

     The following table sets forth the components of health insurance gross
premiums written in Germany for the years 2002, 2001 and 2000:



                                                              YEAR ENDED DECEMBER 31,
                                                              ------------------------
                                                               2002     2001     2000
                                                              ------   ------   ------
                                                                  (E IN MILLIONS)
                                                                       
Individual policies.........................................  2,180    2,054    1,979
Group policies..............................................    685      637      608
                                                              -----    -----    -----
  Total.....................................................  2,865    2,691    2,587
                                                              =====    =====    =====
Medical expense insurance...................................  2,029    1,853    1,754
Other personal supplementary insurance......................    370      370      358
Compulsory long-term care insurance.........................    230      230      238
Other health insurance......................................    236      238      237
                                                              -----    -----    -----
  Total.....................................................  2,865    2,691    2,587
                                                              =====    =====    =====


YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001

     Gross Premiums Written.  Health insurance premiums in Germany increased
E174 million, or 6.5%, to E2,865 million in 2002 from E2,691 million in 2001.
This increase was due primarily to rate increases in medical expense insurance
and new business.

     Gross premiums written on medical expense insurance, which accounted for
70.8% of health insurance premiums in Germany in 2002, increased by E176
million, or 9.5% to E2,029 million in 2002 from E1,853 million in 2001. The
increase was attributable primarily to rate increases and new business. Gross
premiums written on other personal supplementary insurance and compulsory
long-term care insurance remained unchanged at E370 million and E230 million,
respectively, in 2002 compared to E370 million and E230 million, respectively,
in 2001. Gross premiums written on other health insurance in Germany decreased
to E236 million in 2002 from E238 million in 2001.

     Net Income.  In Germany, net income from health insurance operations
increased by E16 million, or 33.3%, to E64 million in 2002 from E48 million in
2001, reflecting primarily improved investment results.

YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000

     Gross Premiums Written.  Health insurance premiums in Germany increased
E104 million, or 4.1%, to E2,691 million in 2001 from E2,587 million in 2000.
This increase was due primarily to increases in new business, especially in
medical and other personal supplementary lines, as well as increased rates and a
decrease in cancellations from the previous year.

     Gross premiums written on medical expense insurance, which accounted for
68.9% of health insurance premiums in Germany in 2001, increased by E99 million,
or 5.6% to E1,853 million in 2001 from E1,754 million in 2000. Gross premiums
written on other personal supplementary insurance increased by E12 million, or
3.4% to E370 million in 2001 from E358 million in 2000. Both increases were
attributable to a growth in new business and a decrease in cancellations.
Compulsory long-term care insurance decreased by E8 million, or 3.4%, from E238
million in 2000

                                        72


to E230 million in 2001, reflecting a reduction in the industry-wide tariff for
compulsory long-term care insurance. Gross premiums written on other health
insurance in Germany increased by E1 million to E238 million in 2001.

     Net Income.  In Germany, net income from health insurance operations
decreased by E8 million, or 14.3%, to E48 million in 2001 from E56 million in
2000. This was due primarily to decreased investment results, offset in part by
an increase in the amount of deferred taxes released in 2001 compared to 2000.

                                 REST OF EUROPE

DESCRIPTION OF BUSINESS

     The Rest of Europe is our second-largest market for life/health insurance.
As a percentage of our total life/health gross premiums written worldwide, the
Rest of Europe accounted for 25.1% in 2002, 27.2% in 2001 and 28.4% in 2000.

     We conduct our life/health insurance operations in the Rest of Europe
through four main groups of operating companies in France, Italy, Spain and
Switzerland. The life products we write in our various Rest of Europe markets
are written on both an individual and group basis and include traditional term
and annuity products, unit-linked products and endowment and pension products.
The design and features of these products vary by country, depending on local
tax laws, product regulation and market conditions, and are designed to pay
death benefits, optimize inheritances, provide for retirement, pay annuities or
build capital, or combinations of these.

     France.  We conduct our life/health insurance operations in France through
the companies of the AGF Group. The AGF Group is the eighth-largest life
insurance provider in France, with an estimated market share of 4.7%, based on
gross premiums written in 2002. The AGF Group provides a broad line of life
insurance and other financial products, including short-term investment and
savings products. An important portion of AGF Group's life premiums is generated
through the sale of unit-linked policies and investment-oriented products with
guaranteed interest, for which only the cost- and risk-related components of
premiums are reflected in gross premiums written under IFRS.

     The AGF Group also operates in the French health insurance market through a
separate business unit responsible for both group insurance and health insurance
and offers a wide variety of health products, which are designed to pay benefits
that complement those of the mandatory French social security plan. The results
of our health operations in France are included in part in our property-casualty
segment and in part in our life segment.

     Italy.  We conduct our life/health insurance operations in Italy primarily
through the Italian Subsidiaries. Taken together, the Italian Subsidiaries are
the second-largest life insurer in the Italian market, with an estimated market
share of 13.6%, based on gross premiums written in 2002. The Italian
Subsidiaries' individual life policies are primarily endowment policies but also
include annuities and other policies, including capitalization and other
products. Consistent with trends in the Italian market generally, the Italian
Subsidiaries' products include an increasing amount of unit-linked policies,
where policyholders participate directly in the performance of policy-related
investments, and a decreasing amount of endowment products. In 2002, sales of
unit-linked and equity-linked products sold through banks reached 71.0% of our
total statutory life premiums in Italy, reflecting the importance of this
distribution channel. The Italian Subsidiaries' unit-linked policies include
products linked to funds managed by the Italian Subsidiaries, as well as by
third-party investment managers, and index-linked products.

     Spain.  We are the fourteenth-largest life insurance provider in Spain,
with an estimated market share of 2.0%, based on gross premiums written in 2002.
We conduct our life/health

                                        73


operations in Spain primarily through Allianz Spain and through Eurovida and
Europensiones, our joint ventures with Banco Popular. Our Spanish life insurance
subsidiaries sell mainly traditional life insurance and pensions and unit-linked
products.

     Switzerland.  We conduct our life/health operations in Switzerland
primarily through the Swiss Subsidiaries. Taken together, the Swiss Subsidiaries
are the sixth-largest life insurance provider in Switzerland, with an estimated
market share of 4.8%, based on gross premiums written in 2002. The Swiss
Subsidiaries sell a wide range of individual and group life insurance products,
including retirement and old age, death and disability products.

     Other.  We conduct significant life/health operations in the remainder of
the Rest of Europe through approximately 18 Allianz subsidiaries in more than 13
other European countries. In Austria, we operate through our life insurance
subsidiary Allianz Elementar Leben. We serve the Belgian life insurance market
primarily through AGF Belgium Insurance and the Netherlands life insurance
market primarily through Royal Nederland Verzekeringsgroep. Our largest life
insurance subsidiaries in other countries in the Rest of Europe are located in
Greece, Luxembourg, Portugal, Hungary and Poland. Our life insurance products in
Other Rest of Europe are generally the same as the life products we offer in the
German market. Our life insurance operations in Other Rest of Europe had gross
premiums written of E1,260 million in 2002, E1,148 million in 2001, and E971
million in 2000.

RESULTS OF OPERATIONS

     The following table shows key financial data for our Rest of Europe
life/health operations. Consistent with our general practice, gross premiums
written by geographic region are presented before consolidation adjustments
representing the elimination of transactions between Group companies in
different countries and different segments, and net income by geographic region
is presented before those consolidation adjustments, amortization of goodwill
and minority interests.

                    REST OF EUROPE -- LIFE/HEALTH: KEY DATA



                                                      YEAR ENDED DECEMBER 31,
                                     ---------------------------------------------------------
                                           2002                2001                2000
                                     -----------------   -----------------   -----------------
                                      GROSS               GROSS               GROSS
                                     PREMIUMS    NET     PREMIUMS    NET     PREMIUMS    NET
                                     WRITTEN    INCOME   WRITTEN    INCOME   WRITTEN    INCOME
                                     --------   ------   --------   ------   --------   ------
                                                          (E IN MILLIONS)
                                                                      
France.............................   1,493      (223)    1,556       97      2,297      391
Italy..............................   1,298       289     1,336      261      1,454      306
Switzerland........................     651       (80)      584      (17)       524       43
Spain..............................     502        30       879       28        532       75
Other..............................   1,260      (109)    1,148       12        971       95
Consolidation adjustments..........     (23)       (2)      (17)      --        (27)      --
                                      -----      ----     -----      ---      -----      ---
  Total............................   5,181       (95)    5,486      381      5,751      910
                                      =====      ====     =====      ===      =====      ===


YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001

     Gross Premiums Written.  In Rest of Europe, life/health gross premiums
written decreased by E305 million, or 5.6%, to E5,181 million in 2002 from
E5,486 in 2001, reflecting primarily decreases in gross premiums written in
Spain, France and Italy, offset in part by increases in Other Rest of Europe and
Switzerland.

                                        74


     Net Income.  In Rest of Europe, net income from life/health insurance
operations decreased by E476 million, or 124.9%, to a loss of E95 million in
2002 from income of E381 million in 2001. This was due to decreases in France,
Other Rest of Europe and Switzerland, offset in part by increases in Italy and
Spain.

     France.  In France, life/health gross premiums written, which include fees
from unit-linked products and investment-oriented products with guaranteed
interest, decreased by E63 million, or 4.0%, to E1,493 million in 2002 from
E1,556 million in 2001. The decrease was due primarily to decreased premium
income in our group life business, reflecting the sale of a large group policy
in France in 2001. In addition, we experienced decreased sales in our individual
life business of conventional unit-linked life insurance products, reflecting
the continuing weakness in the capital markets, offset in part by an increase in
investment-oriented products with guaranteed interest. Net income in France
decreased significantly by E320 million to a loss of E223 million in 2002 from
income of E97 million in 2001, primarily as a result of substantial realized
losses and writedowns on investments due to unfavorable conditions in the
capital markets.

     Italy.  In Italy, life gross premiums written, which include fees from
unit-linked products, decreased E38 million, or 2.8%, to E1,298 million in 2002
from E1,336 million in 2001. This decrease was attributable primarily to
decreased sales of traditional life insurance policies in favor of
investment-oriented products with guaranteed interest. Sales of traditional
unit-linked products slowed in 2002 compared to 2001 as a result of weakness in
the capital markets. Net income in Italy increased to E289 million in 2002 from
E261 million in 2001, due primarily to a realized gain of E186 million from the
sale of a real estate subsidiary.

     Spain.  In Spain, life gross premiums written decreased by E377 million, or
42.9%, to E502 million in 2002 from E879 million in 2001, primarily attributable
to a substantial decrease in our pension group business as a result of a
one-time premium recorded in 2001 in connection with the underwriting of a large
group policy, offset in part by increases in gross premiums written in other
group business and individual life business. Net income increased by E2 million,
or 7.1%, to E30 million in 2002 from E28 million in 2001, due primarily to
improved investment results, offset in part by decreased underwriting results.

     Switzerland.  In Switzerland, life/health gross premiums written increased
by E67 million, or 11.5%, to E651 million in 2002 from E584 million in 2001.
This increase was attributable primarily to an increase in individual business
with high single premiums. In Switzerland, net income decreased to a loss of E80
million in 2002 from a loss of E17 million in 2001, due primarily to realized
losses on investments and writedowns of impairments, particularly on equity
securities. This decrease was offset by a tax benefit of approximately E95
million relating to the accrual of deferred tax benefits attributable to the
capitalization of tax losses carried forward.

     Other.  Life/health gross premiums written in Other Rest of Europe
increased by E112 million, or 9.8%, to E1,260 million in 2002 from E1,148
million in 2001. Net income in Other Rest of Europe decreased significantly by
E121 million to a loss of E109 million in 2002, compared with income of E12
million in 2001, reflecting primarily reduced net income in the Netherlands and
Belgium as a result of weakness in capital markets.

YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000

     Gross Premiums Written.  In Rest of Europe, life/health gross premiums
written decreased by E265 million, or 4.6%, to E5,486 million in 2001 from
E5,751 in 2000, reflecting primarily in a sharp decrease in gross premiums
written in France and a smaller decrease in Italy, offset in part by increases
in Spain, Other Rest of Europe and Switzerland.

     Net Income.  In Rest of Europe, net income from life/health insurance
operations decreased by E529 million, or 58.1%, to E381 million in 2001 from
E910 million in 2000. This was due to

                                        75


decreases in all of our Rest of Europe markets, particularly France and
Switzerland, reflecting primarily reduced income from investments.

     France.  In France, life/health gross premiums written, which include fees
from unit-linked products, decreased by E741 million, or 32.3%, to E1,556
million in 2001 from E2,297 million in 2000. The decrease in 2001 from 2000
reflects primarily the sale of a large group policy in 2000. Excluding this
policy, gross premiums written would have increased by 3% in 2001 over 2000. Net
income in France decreased by E294 million, or 75.2%, to E97 million in 2001
from E391 million in 2000, primarily as a result of decreased income from
investments due to unfavorable conditions in the capital markets, while expenses
remained constant compared to 2000.

     Italy.  In Italy, life gross premiums written, which include fees from
unit-linked products, decreased E118 million, or 8.1%, to E1,336 million in 2001
from E1,454 million in 2000. This decrease was primarily attributable to a high
number of endowment policies which matured and were replaced by sales of
unit-linked products, reflecting the importance of the banking channel, which
distributes such products. Net income in Italy decreased to E261 million in 2001
from E306 million in 2000, due primarily to reduced income from investments
resulting from weak capital markets in 2001.

     Spain.  In Spain, life gross premiums written increased by E347 million, or
65.2%, to E879 million in 2001 from E532 million in 2000. This increase was
primarily attributable to higher sales of pension policies. Net income decreased
by E47 million, or 62.7%, to E28 million in 2001 from E75 million in 2000, due
primarily to reduced income from investments in 2001 and a tax adjustment in
2000.

     Switzerland.  In Switzerland, life/health gross premiums written increased
by E60 million, or 11.5%, to E584 million in 2001 from E524 million in 2000.
This increase was attributable primarily to growth in single premium policies,
especially in group life. In Switzerland, net income decreased to a loss of E17
million in 2001 from net income of E43 million in 2000, due primarily to lower
income from investments, including significant writedowns for impairments.

     Other.  Life/health gross premiums written in Other Rest of Europe
increased by E177 million, or 18.2%, to E1,148 million in 2001 from E971 million
in 2000. Net income in Other Rest of Europe decreased by E83 million or 87.4%,
to E12 million in 2001 from E95 million in 2000, reflecting primarily reduced
income in our Belgian operations, as a result of lower income from investments.

                                 REST OF WORLD

DESCRIPTION OF BUSINESS

     As a percentage of our total life/health gross premiums written worldwide,
Rest of World accounted for 15.7% in 2002, 14.9% in 2001 and 13.9% in 2000. Our
primary life/health markets in Rest of World are the United States and the
Asia-Pacific region.

     United States.  We serve the United States life/health insurance market
through Allianz Life, which is headquartered in Minneapolis, Minnesota. Allianz
Life and its subsidiaries are licensed to write business in all 50 states, the
District of Columbia and Guam. Allianz Life markets a wide variety of fixed and
variable life insurance and annuity contracts, and long-term care insurance to
individual and corporate customers. Allianz Life is a market leader in providing
fixed annuities (including equity-indexed annuities) to individuals. Allianz
Life also provides life reinsurance and healthcare excess of loss coverage. In
2002, our total statutory premiums written from life/health insurance in the
United States, which include sales of investment-oriented products, were E9,530
million, up significantly from E4,982 million in 2001.

                                        76


     Asia-Pacific.  The primary life, health insurance markets in which we
operate in the Asia-Pacific area are as follows:

     South Korea.  Our insurance operations in South Korea consist of our two
subsidiaries, Allianz Life Insurance Korea, formerly Allianz First Life, which
we acquired in 1999, and France Life, a former subsidiary of AGF which joined
the Allianz Group in 1998 following our acquisition of AGF. We refer to these
subsidiaries together as the South Korean Subsidiaries. The South Korean
Subsidiaries market a wide variety of life insurance products including
individual endowment insurance, education insurance, protection insurance,
annuities, traditional whole life insurance policies, group life insurance
protection and employee severance plans. Together, the South Korean Subsidiaries
generated E1,894 million in annual statutory premiums in 2002.

     Other Asia-Pacific.  In addition to the primary markets described above, we
conduct life and accident insurance operations in Taiwan, China, Thailand,
Indonesia, India and Malaysia. We also market a range of health insurance
products in Indonesia, Singapore and Pakistan.

     Other.  In addition to the United States and Asia-Pacific, we also sell
life/health products in South America, primarily Brazil, Chile and Colombia.

RESULTS OF OPERATIONS

     The following table shows key financial data for our Rest of World
life/health operations. Consistent with our general practice, gross premiums
written by geographic region are presented before consolidation adjustments
representing the elimination of transactions between Group companies in
different countries and different segments, and net income by geographic region
is presented before those consolidation adjustments, amortization of goodwill
and minority interests.

                     REST OF WORLD -- LIFE/HEALTH: KEY DATA



                                                       YEAR ENDED DECEMBER 31,
                                        ------------------------------------------------------
                                              2002               2001               2000
                                        ----------------   ----------------   ----------------
                                         GROSS              GROSS              GROSS
                                        PREMIUM    NET     PREMIUM    NET     PREMIUM    NET
                                        WRITTEN   INCOME   WRITTEN   INCOME   WRITTEN   INCOME
                                        -------   ------   -------   ------   -------   ------
                                                           (E IN MILLIONS)
                                                                      
United States........................    1,411     (18)     1,478     (24)     1,465      133
Asia-Pacific.........................    1,639      (9)     1,229      (5)       970     (181)
Other................................      201       3        303     (20)       383      (23)
                                         -----     ---      -----     ---      -----     ----
  Total..............................    3,251     (24)     3,010     (49)     2,818      (71)
                                         =====     ===      =====     ===      =====     ====


YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001

     Gross Premiums Written.  Life/health gross written premiums for Rest of
World increased by E241 million, or 8.0%, to E3,251 million in 2002 from E3,010
million in 2001. Life/health gross premiums written in the United States were
E1,411 million in 2002, a decrease of E67 million from E1,478 million in 2001.
On a constant currency basis, gross premiums written in the United States
increased slightly by E9 million, or 0.6%, in 2002. The slight increase was
primarily attributable to growth in our fixed annuity business at Allianz Life
and the expansion of our distribution channels, offset in part primarily by
decreased premium income from other life and health insurance business.
Life/health gross premiums written in Asia-Pacific increased by E410 million, or
33.4%, to E1,639 million in 2002 from E1,229 million in 2001, primarily as a
result of increases in our operations in South Korea, where gross premiums
written increased by E182 million, or 17.2%, to E1,242 million in 2002 from
E1,060 million in 2001, as a result of a significant increase in new business
and Taiwan. Life/health gross premiums written in Other Rest of World

                                        77


decreased by E102 million, or 33.7%, to E201 million in 2002 from E303 million
in 2001, primarily due to decreased premium income in Brazil, Colombia and
Chile.

     Net Income.  Life/health net income in Rest of World increased by E25
million to a loss of E24 million in 2002 from a loss of E49 million in 2001. The
increase was primarily the result of increased net income in South America due
to lower acquisition costs and administrative expenses. Net income in
Asia-Pacific decreased by E4 million, to a loss of E9 million in 2002 from a net
loss of E5 million in 2001, due primarily to decreased net income in South
Korea, reflecting primarily higher tax expense. In 2002, losses from life/health
operations in the United States were E18 million, compared to a net loss of E24
million in 2001, due primarily to improved underwriting results and a higher
volume of business, offset in part by investment writedowns as a result of
weakness in the capital markets.

YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000

     Gross Premiums Written.  Life/health gross written premiums for Rest of
World increased by E192 million, or 6.8%, to E3,010 million in 2001 from E2,818
million in 2000. Life/health gross premiums written in the United States were
E1,478 million in 2001, an increase of E13 million from E1,465 million in 2000.
On a constant currency basis, gross premiums written in the United States
decreased by E35 million, or 2.4%, in 2001. The decrease was primarily
attributable to reduced mortality and expense fees on our variable annuity
business due to decreased assets under management resulting from unfavorable
market conditions, together with the termination of our accident and health
reinsurance assumed and broker administrator business. Life/health gross
premiums written in Asia-Pacific increased by E259 million, or 26.7%, to E1,229
million in 2001 from E970 million in 2000, primarily as a result of our
operations in South Korea, where gross premiums written increased by E206
million, or 24.1%, to E1,060 million in 2001 from E854 million in 2000, as a
result of a significant increase in new business. Life/health gross premiums
written in Other Rest of World decreased by E80 million, or 20.9%, to E303
million in 2001 from E383 million in 2000, primarily due to decreased gross
premiums written in Brazil and Colombia.

     Net Income.  Life/health net income in Rest of World increased by E22
million to a loss of E49 million in 2001 from a loss of E71 million in 2000. The
reduced loss was primarily the result of reduced losses in Asia-Pacific, despite
a loss in the United States in 2001. Losses in Asia-Pacific decreased by E176
million, to a net loss of E5 million in 2001 from a net loss of E181 million in
2000, due primarily to improved results in South Korea, whose 2000 results
reflected significant write-offs as discussed below. In 2001, the net loss from
life/health operations in the United States was E24 million, compared to net
income of E133 million in 2000. This decrease was primarily the result of
realized losses on investments of E38 million in 2001 compared to realized gains
on investments of E146 million in 2000. In addition, net income in the United
States decreased as a result of increased reinsurance claims, primarily due to
the September 11, 2001 terrorist attack, and increased costs associated with the
development of our distribution force for our variable annuity business, coupled
with decreased annuity considerations as a result of lower variable annuity
assets under management, due to declines in the capital markets.

COMPETITION

     There is substantial competition in Germany and the other countries in
which we do business for the types of insurance products and services that we
provide. This competition is most pronounced in our more mature
markets -- Germany, France, Italy and the United States. In recent years,
however, competition in emerging markets has also increased as large insurance
and other financial services participants from more developed countries have
sought to establish themselves in markets perceived to offer higher growth
potential, and as local institutions have

                                        78


become more sophisticated and have sought alliances, mergers or strategic
relationships with our competitors.

     In Germany, which is our largest market for insurance operations, there is
intense competition for virtually all of the products and services that we
provide. In addition, the German insurance sector is a mature market in which we
already have significant market shares in most lines of business.

                               BANKING OPERATIONS

     Through our subsidiary Dresdner Bank, we offer a wide range of private,
commercial and investment banking products and services for corporate,
governmental and individual customers, primarily in the European market. Based
on total assets at December 31, 2002, Dresdner Bank was one of the largest banks
in Germany.

     We established banking as our fourth core business segment alongside
property-casualty insurance, life/health insurance and asset management
following our acquisition of Dresdner Bank in 2001. We have included Dresdner
Bank in our consolidated financial statements since July 23, 2001, the date of
the acquisition. Prior to 2001, we had included the results of our banking
operations, together with those of our asset management business, in our
financial services segment. Our banking segment, established in 2001, consists
primarily of the banking operations of Dresdner Bank, as our other banking
operations have not historically been significant. Total banking income
increased from E1,722 million in 2000 to E12,755 million and E21,275 million in
2001 and 2002, respectively. For a discussion of our asset management
operations, including those of Dresdner Bank, which are not included in our
banking segment, see "-- Asset Management Operations." For the year ended
December 31, 2002, our banking segment recorded a loss of E1,358 million. This
result included a realized gain of E1,912 million from the transfer in August
2002 of substantially all of Dresdner Bank's German asset management
subsidiaries to ADAM (see "-- Asset Management Operations") and a realized gain
of E244 million from the merger of our mortgage banking subsidiary Deutsche
Hypothekenbank AG (or Deutsche Hyp) into Eurohypo AG (or Eurohypo)(see
"-- Other -- Description of Business -- Real Estate"), as well as E287 million
of other net realized gains on investments (see "-- Results of
Operations -- Year Ended December 31, 2002 Compared to Year Ended December 31,
2001").

     The selected statistical information on our banking operations set forth in
"-- Selected Statistical Information Relating to Our Banking Operations" differs
in significant respects from, and may not be comparable to, the financial
information presented below. Although we have included Dresdner Bank in our
consolidated financial statements since July 23, 2001, the statistical
information includes the banking operations of Dresdner Bank for all periods
presented. The statistical information for all periods presented also includes
the asset management operations of Dresdner Bank, which we do not include in our
banking segment. In addition, the statistical information presents the assets
and liabilities of Dresdner Bank without reflecting the adjustments that are
necessary to apply purchase accounting, which we have applied in the financial
information presented below. For additional information, see "-- Selected
Statistical Information Relating to Our Banking Operations."

     Dresdner Bank was founded in 1872 in Dresden, Germany, and grew by
acquisition and branch expansion throughout Germany to become a leading German
bank. In 1952, Dresdner Bank was split into three separate institutions, which
were subsequently reunified to form Dresdner Bank Aktiengesellschaft, Frankfurt
am Main, in 1957. In recent years, Dresdner Bank has made significant
acquisitions in investment banking, including British merchant bank Kleinwort
Benson Group plc in 1995 and U.S.-based investment bank Wasserstein Perella &
Co. in January 2001, and asset management, including U.S. asset manager RCM
Capital Management in 1995.

                                        79


     With approximately 1,100 branch offices and 47,000 employees at December
31, 2002, Dresdner Bank is focused on selected customer groups, geographic
regions and business areas in which the bank traditionally holds a strong
position. Our principal banking products and services include traditional
commercial banking activities such as deposit taking, lending (including
residential mortgage lending), cash management and transaction banking, as well
as corporate finance advisory services, mergers and acquisitions advisory
services, capital and money market services, securities underwriting and
securities trading and derivatives business on our own account and for our
customers.

     We operate through the domestic and international branch network of
Dresdner Bank and through various subsidiaries both in Germany and abroad, some
of which also have branch networks. At December 31, 2002, our branch banking
network comprised approximately 1,000 German branches, giving us a presence
throughout Germany, and 100 non-German branches. For 2002, Germany, the Rest of
Europe and the NAFTA zone accounted for approximately 77%, 14% and 8%,
respectively, of our net revenue from banking operations.

REORGANIZATION OF BUSINESS DIVISIONS

     Dresdner Bank reorganized its business structure in the course of 2001 to
focus on two major operating divisions, Private and Business Clients and
Corporates & Markets. In 2001, in order to serve comparable customer needs out
of a single integrated business division focused on corporate customers and the
capital markets, we combined our investment banking activities and our European
corporate banking and capital markets activities into our Corporates & Markets
division. Effective January 1, 2002, we also integrated our small business
operations, which we had previously included as part of our Corporates & Markets
division, with our Private Clients division to form a new Private and Business
Clients division. The goal of this reorganization is to increase fee and
commission income by creating cross-selling opportunities through joint
provision of services to both small business and private client customers and by
offering a wider range of commission-related services together with additional
advisory expertise.

     In addition, effective January 1, 2002, we merged the home loan savings
businesses of the Allianz Group and Dresdner Bank, which provide home loans at
favorable rates to customers with home loan savings accounts, into a new entity,
Allianz Dresdner Bauspar AG, within the new Private and Business Clients
division. In 2001, we included the home loan savings business of the Allianz
Group other than Dresdner Bank in our Private Clients division, while the home
loan savings business of Dresdner Bank was reported with our other real estate
activities in the real estate business line of our Other division.

     On August 1, 2002, we also merged our mortgage banking subsidiary, Deutsche
Hyp, which was a part of our Other division, with the mortgage banking
subsidiaries of Commerzbank and Deutsche Bank into a single entity, Eurohypo.
The assets and liabilities of the former Deutsche Hyp were accordingly
deconsolidated as of August 1, 2002. In connection with the merger, we provided
a guarantee of up to E351 million for loan losses relating to the portfolio of
Deutsche Hyp. We account for our remaining interest of approximately 28% of
Eurohypo using the equity method. Following the merger, the real estate business
line of our banking segment was dissolved. See "-- Other -- Description of
Business -- Real Estate."

     In September 2002, in conjunction with the restructuring measures described
below, we announced that certain performing loans to non-strategic customers and
non-performing loans as well as certain private equity investments held
primarily by our Corporates & Markets division and certain undrawn loan
commitments would be bundled together in the new IRU within our banking segment,
effective in 2003. The aim of the IRU is to free up risk capital through the
reduction of risk-weighted assets by restructuring non-performing loans to
strategic customers

                                        80


with the intent of returning such loans to the business units from which they
originated, while maximizing the recovery from remaining non-performing loans,
as well as non-strategic customer loans, through repayment, sale, hedging,
securitization and other means. Loans to be bundled together in the IRU are
primarily performing loans to non-strategic clients, such as small-
capitalization clients in Latin America, Asia and the United States, as well as,
to a lesser extent, loans to corporate and private clients that are currently
non-performing. The IRU is expected to initially include approximately E31
billion, consisting of approximately E22 billion of loans, (including
approximately E7 billion of non-performing loans and approximately E1 billion of
potential problem loans) and approximately E1 billion of other non-strategic
assets, including private equity investments, and approximately E8 billion of
un-drawn commitments.

     In other initiatives, we combined the private equity operations of the
Allianz Group and Dresdner Bank into Allianz Private Equity Holding in April
2002 and merged our information technology companies AGIS and DREGIS effective
January 1, 2003.

     In May 2003, we announced that our mid-sized corporate clients business,
which we had previously included as part of our Corporates & Markets division,
would be integrated into our Private & Business Clients division, effective
October 2003, to serve our mid-sized corporate clients more efficiently.

COST-CUTTING AND RESTRUCTURING MEASURES

     In 2002, in order to increase operating efficiency and cut costs in our
banking segment, Dresdner Bank supplemented its existing restructuring programs
introduced in 2000 and 2001 with new initiatives affecting major parts of its
banking operations. For these combined initiatives, Dresdner Bank has announced
plans to eliminate an aggregate of approximately 11,000 positions and to
significantly improve the operating efficiency of Dresdner Bank by 2004. An
aggregate of approximately 7,050 positions had been eliminated under these
initiatives as of December 31, 2002. We believe that we have made significant
progress in 2002 toward reaching these goals, and we intend to continue striving
in 2003 toward the successful completion of our cost-cutting initiatives.

     In order to align costs more closely with the two major operating divisions
of our banking segment, in 2002 we recorded restructuring charges associated
with our cost-cutting and restructuring plans within the respective operating
divisions of our banking segment. Restructuring charges originally reflected in
net income of our Other division in 2001 have accordingly been reclassified to
our Private and Business Clients division and our Corporates & Markets division
in order to facilitate comparison with the presentation of such charges in 2002.

     For additional information on restructuring charges recorded in 2002, see
"-- Results of Operations -- Year Ended December 31, 2002 Compared to Year Ended
December 31, 2001 -- Other Expenses." For additional information on
restructuring charges generally, see also Note 21 to our consolidated financial
statements.

     The principal cost-cutting and restructuring measures implemented in 2002
were as follows:

     - In September 2002, we announced further initiatives involving the
       elimination of an additional approximately 3,000 positions in our banking
       segment, including approximately 2,100 positions in our Corporates &
       Markets division, 300 positions in our Private and Business Clients
       division and 600 positions in our Other division. The goal of the
       initiatives is to further reduce administrative expenses without reducing
       operating income. In connection with the elimination of the first 1,500
       of these positions, we recorded restructuring charges of approximately
       E199 million in 2002. We recorded an additional approximately E8 million
       in charges associated with the termination of a further 111 of these
       3,000 positions in the first half of 2003. We expect to record the
       remaining charges

                                        81


       under these plans when such charges qualify under IFRS. Approximately
       1,050 employees had been terminated pursuant to these plans as of April
       30, 2003.

     - In April 2002, as part of our ongoing cost-cutting measures, we announced
       the elimination of an additional approximately 200 positions in our
       Corporates & Markets division. Costs associated with eliminating these
       positions of approximately E17 million were recorded within Acquisition
       costs and administrative expenses in 2002 without establishing
       restructuring provisions. All 200 of these positions had been eliminated
       as of December 31, 2002. See "-- Results of Operations -- Year Ended
       December 31, 2002 Compared to Year Ended December 31, 2001 -- Acquisition
       Costs and Administrative Expenses."

     Over the course of 2002, we also continued to implement the comprehensive
restructuring plans introduced by Dresdner Bank in 2001 and 2000 to reduce
administrative expenses:

     - In September 2001, we announced plans involving an aggregate reduction of
       approximately 1,300 positions throughout our banking segment. In the
       course of 2001, only our restructuring plans at our German subsidiaries
       were sufficiently detailed to qualify for restructuring charges to be
       recorded under IFRS. Pursuant to such qualifying plans, we recorded
       charges of E31 million in 2001 for the elimination of approximately 240
       positions in branch and support functions at our German subsidiaries.
       Pursuant to plans that qualified for restructuring charges in 2002, we
       recorded further charges of E73 million in connection with the
       elimination of approximately 1,000 positions. In addition, we expect to
       record charges for the elimination of the approximately 60 remaining
       positions in 2003 when such charges qualify under IFRS. Of the 1,300
       positions to be eliminated under these plans, approximately 900 positions
       had been eliminated as of April 30, 2003.

     - In 2001, in connection with the reorganization of our Corporates &
       Markets division discussed above (see "-- Reorganization of Business
       Divisions"), we recorded charges of approximately E118 million for the
       elimination of approximately 1,500 positions, primarily in front and back
       office support functions. Additional charges of approximately E6 million
       associated with the reorganization were recorded in 2002 to reflect a
       revised estimate of costs associated with leased property. For additional
       information on the restructuring charges recorded in 2001, see
       "-- Results of Operations -- Year Ended December 31, 2001 -- Other
       Expenses." Of the 1,500 positions to be reduced under this
       reorganization, all 1,500 had been eliminated as of December 31, 2002.

     - In 2000, Dresdner Bank announced a restructuring plan calling for
       consolidation of its German branch network and related back-office
       activities in Germany, including closing approximately 300 of our German
       branches, and the discontinuation of commercial lending activities
       outside of Europe that are not directly related to investment banking, by
       2004. These measures included aggregate job cuts of approximately 5,000
       employees. Restructuring charges for the plan were initially recorded by
       Dresdner Bank in 2000, with further charges of approximately E10 million
       recognized during 2002. Of the charges recorded in 2000, we recorded
       releases of E76 million in 2002 and E5 million in 2001. The releases
       recorded in 2002 reflected primarily a decision not to implement plans to
       relocate certain banking operations in New York and changes in estimates
       of costs associated with the consolidation of back-office functions in
       Germany. The releases recorded in 2001 were attributable to changes in
       estimates of employee termination costs in connection with the
       discontinuation of our commercial lending activities outside Europe. As a
       result of this plan, we reduced the total number of German branch
       locations from approximately 1,350 at December 31, 1999 to approximately
       1,000 at December 31, 2002. Of the aggregate 5,000 positions to be
       eliminated under this plan, approximately 4,200 positions had been
       eliminated as of April 30, 2003.

     In February 2003, as part of the continued reorganization of our business
structure to focus on our two operating divisions, we announced the closure of
our wholly owned subsidiary
                                        82


Lombardkasse AG (or Lombardkasse), a broker-dealer specializing in securities
custody and clearing transactions. The closure was effective in February 2003
and involved the termination of approximately 80 employees. Charges of
approximately E40 million were recorded within other expenses in 2002 in
connection with the termination of certain service contracts associated with the
closure. See "-- Results of Operations -- Year Ended December 31, 2002 Compared
to Year Ended December 31, 2001 -- Other Expenses."

     In addition, in February 2003, as part of our efforts to focus on the
Allianz and Dresdner Bank brands, we announced plans to integrate the activities
of our direct banking subsidiary Advance Bank and Financial Planner into the
Allianz Group in 2003. We plan to incorporate the approximately 900 employees of
Advance Bank and Financial Planner into the joint sales network of Allianz and
Dresdner Bank. In connection with this initiative, we estimate that we may
record total charges of approximately E70 million.

     We had approximately 47,000 employees at December 31, 2002 in our banking
segment, compared to approximately 52,300 employees (including part-time
employees and employees on leave) at December 31, 2001.

COMPETITION

     We are subject to intense competition in all aspects of our banking
business from both bank and non-bank institutions that provide financial
services and, in some of our activities, 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 to
provide the types of banking products and services that we offer in our banking
operations. In our Private and Business Clients division, our main competitors
are Deutsche Bank, HypoVereinsbank, Commerzbank, Citibank and German savings and
cooperative banks. In our Corporates & Markets division, our main competitors
for large multinational corporate and financial institution clients are Deutsche
Bank, Goldman Sachs, Morgan Stanley, Merrill Lynch, Citigroup and Commerzbank,
while our main competitors for medium-sized corporate clients are Deutsche Bank,
Commerzbank and HypoVereinsbank, as well as German public state banks and
savings and cooperative banks. Competition is based on a number of factors,
including distribution systems, transaction execution, products and services,
innovation, reputation and price. In recent years, we have generally experienced
intensifying price competition as competitors have sought to increase their
market share. We believe this trend will continue.

                                        83


RESULTS OF OPERATIONS

     The following table sets forth certain financial information for our
banking operations for the years indicated.



                                                                 YEAR ENDED DECEMBER 31
                                                              ----------------------------
                                                               2002      2001(1)     2000
                                                              -------    -------    ------
                                                                    (E IN MILLIONS)
                                                                           
Interest and similar income.................................   13,336      9,085     1,502
Income (net) from investments in affiliated enterprises,
  joint ventures, and associated enterprises................    2,071(2)   1,016       122
Other income from investments...............................    1,430        628        25
Trading income..............................................    1,081        244         7
Fee and commission income, and income resulting from service
  activities................................................    2,925      1,474         2
Other income................................................      432        308        64
                                                              -------    -------    ------
  Total income..............................................   21,275     12,755     1,722
                                                              -------    -------    ------
Interest and similar expenses...............................   (9,509)    (6,766)   (1,257)
Other expenses for investments..............................   (2,225)      (465)      (33)
Loan loss provisions........................................   (2,222)      (588)      (21)
Acquisition costs and administrative expenses...............   (7,581)    (3,446)     (170)
Amortization of goodwill....................................     (241)       (70)        8
Other expenses..............................................   (1,034)    (1,193)     (125)
                                                              -------    -------    ------
  Total expenses............................................  (22,812)   (12,528)   (1,598)
                                                              -------    -------    ------
Earnings from ordinary activities before taxation...........   (1,537)       227       124
Taxes.......................................................      154          6        67
Minority interests in earnings..............................       25       (453)      (90)
                                                              -------    -------    ------
Net income (loss)...........................................   (1,358)      (220)      101
                                                              =======    =======    ======


---------------

(1) Reflects the inclusion of Dresdner Bank in our consolidated financial
    statements as of July 23, 2001.

(2) Includes a realized gain of E1,912 million resulting from the transfer in
    August 2002 of substantially all of Dresdner Bank's German asset management
    subsidiaries to ADAM. See "-- Asset Management Operations." The gain on this
    transfer was eliminated at the Group level. In addition, this item includes
    a realized gain of E244 million resulting from the merger of Deutsche Hyp
    into Eurohypo in August 2002. See "-- Other -- Description of Business --
    Real Estate."

YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001

     In the following section, we discuss the consolidated results of our
banking operations for the years ended December 31, 2002 and 2001. This
discussion focuses on factors and trends that affected our consolidated banking
results for the full year 2002 compared to the part-year period after our
acquisition of Dresdner Bank on July 23, 2001, since our banking operations
prior to our acquisition of Dresdner Bank were not significant. As discussed
below, our banking results in 2002 were significantly affected by the merger
into Eurohypo and deconsolidation on August 1, 2002 of our former mortgage
banking subsidiary Deutsche Hyp (see "-- Other -- Description of
Business -- Real Estate"), as well as the E1,912 million of realized gains
recorded in connection with the transfer in August 2002 of Dresdner Bank's
German asset management subsidiaries to ADAM (see "-- Asset Management
Operations").

                                        84


     Net interest and current income.  We measure interest and current income in
our banking operations on a net basis. Net interest and current income consists
of interest and similar income, income from affiliated enterprises, joint
ventures and associated enterprises, less interest and similar expenses.

     The following table shows net interest and current income and its income
statement components for the years indicated:



                                                                  YEAR ENDED
                                                                 DECEMBER 31,
                                                              ------------------
                                                               2002      2001(1)
                                                              -------    -------
                                                               (E IN MILLIONS)
                                                                   
Interest and similar income.................................   13,336     9,085
Income (net) from investments in affiliated enterprises,
  joint ventures and associated enterprises.................    2,071(2)  1,016
Interest and similar expenses...............................   (9,509)   (6,766)
                                                              -------    ------
     Net interest and current income........................    5,898     3,335
                                                              =======    ======


---------------

(1) Reflects the inclusion of Dresdner Bank in our consolidated financial
    statements as of July 23, 2001.

(2) Includes a realized gain of E1,912 million resulting from the transfer in
    August 2002 of substantially all of Dresdner Bank's German asset management
    subsidiaries to ADAM. See "-- Asset Management Operations." The gain on this
    transfer was eliminated at the Group level. In addition, this item includes
    a realized gain of E244 million resulting from the merger of Deutsche Hyp
    into Eurohypo in August 2002. See "-- Other -- Description of Business --
    Real Estate."

     Interest and similar income consists primarily of income from loans and
advances to banks and to customers and investment securities. Interest and
similar income from our banking operations was E13,336 million in 2002,
reflecting primarily a decrease of approximately E79,700 million, or
approximately 19%, of our average interest-earning assets due to the
deconsolidation of Deutsche Hyp as of August 1, 2002 and decreasing interest
yields in the major markets in which we operate. Of this amount, income from
loans and advances to customers accounted for E7,092 million. Interest and
similar income on loans and advances to customers was adversely affected by both
a decrease in average interest yields and a decrease in average volume due
primarily to the deconsolidation in August 2002 of Deutsche Hyp, which affected
primarily our German operations. Income from lending and money market
transactions was E1,073 million, substantially all of which related to
transactions with banks. Interest income from lending and money market
transactions was also adversely affected by both a decrease in average interest
yields and a decrease in average volume. Interest and similar income from
investment securities was E2,232 million, consisting primarily of income from
fixed-interest government securities of E1,951 million and corporate debt
securities of E50 million, reflecting the significance of fixed-income
securities in our portfolio despite decreased volume in our German operations
due to the deconsolidation in August 2002 of Deutsche Hyp. Dividends from equity
securities, which are included in interest and similar income, were E206
million, reflecting primarily a decline in investments in equity securities.

     Net income from investments in affiliated enterprises, joint ventures and
associated enterprises, which consists primarily of realized gains and losses
from the disposition of such investments, was E2,071 million in 2002, reflecting
primarily a realized gain of E1,912 million resulting from the transfer in
August 2002 of substantially all of Dresdner Bank's German asset management
subsidiaries to ADAM. See "-- Asset Management Operations." The gain on this
transfer was eliminated at the Group level. In addition, net income from
investments in affiliated enterprises, joint ventures and associated enterprises
included a realized gain of E244 million

                                        85


resulting from the merger of Deutsche Hyp into Eurohypo in August 2002. See
"-- Other -- Description of Business -- Real Estate."

     Interest and similar expense consists primarily of interest expense on
certificated liabilities, deposits, repurchase agreements and derivatives
qualifying for hedge accounting treatment. Interest and similar expense was
E9,509 million in 2002, consisting primarily of interest expense of E4,075
million on deposits, E3,633 million on certificated liabilities, consisting of
long-term bonds and certificated money-market instruments, as well as long-term
subordinated liabilities (E578 million) and profit participation certificates
(E133 million), which reflected in each case the impact of a general decline in
interest rates as well as declining volumes. The decline in volumes was due
primarily to a decrease of approximately E76,200 million, or 21%, in our average
interest-bearing liabilities due to the deconsolidation in August 2002 of
Deutsche Hyp and reduced funding requirements as a result of reduced lending
activities. The impact of the deconsolidation was particularly evident in
certificated liabilities and in liabilities to customers. Other interest expense
was E1,090 million.

     Net interest and current income from our banking operations was E5,898
million in 2002, reflecting primarily decreased interest and similar income due
to lower interest rates and decreased lending volumes, which were more than
offset by income from investments in affiliated enterprises, joint ventures and
associated enterprises of E2,071 million, reflecting realized gains from the
transfer in August 2002 of substantially all of Dresdner Bank's German asset
management subsidiaries to ADAM (E1,912 million) and the merger in August 2002
of Deutsche Hyp into Eurohypo (E244 million), as well as decreased interest and
similar expense due to decreased average liability volumes and lower average
interest rates.

     We define our net interest spread and our net interest margin by reference
to the information set forth in "-- Selected Statistical Information Relating to
Our Banking Operations -- Average Balance Sheet and Interest Rate Data." Our net
interest spread, which consists of the difference between the average interest
rate earned on average interest-earning assets of 4.0% and the average interest
rate paid on average interest-bearing liabilities of 3.7%, was 0.3% in 2002,
reflecting an overall reduction in interest income from higher-yielding loans to
customers and investment securities, due primarily to the deconsolidation in
August 2002 of Deutsche Hyp, reduced lending volumes and an overall decline in
the interest rate environment. Our net interest margin, which we define as net
interest income, including net interest income on trading assets and trading
liabilities, as a percentage of average interest-earning assets, was 0.7% in
2002. For further information concerning the net interest spread and net
interest margin in our banking business for 2002 and prior years, see
"-- Selected Statistical Information Relating to Our Banking Operation -- Net
Interest Margin."

     Other Income from Investments.  Other income from investments consists
primarily of realized gains on investments. Other income from investments was
E1,430 million in 2002, primarily as a result of E1,265 million of realized
gains on the disposition of equity securities available for sale, including
intercompany transfers to reposition equity investments within the Group in the
course of 2002, and an additional E116 million on the disposition of government
debt securities available for sale. The gains on these intercompany transfers
were eliminated at the Group level.

     Trading Income.  Trading income comprises mainly realized and unrealized
gains and losses from trading in interest and equity products, foreign exchange
and precious metals, and the effects of derivative contracts that do not qualify
for hedge accounting. Trading income is net of interest expense and includes
both proprietary trading revenues and margins realized from trades made on
behalf of customers. Trading income was E1,081 million in 2002, reflecting
primarily the full-year consolidation of Dresdner Bank in 2002 and a significant
increase in trading income from interest products such as government bonds and
corporate bonds, as well as derivatives on interest products. Trading income
from interest products was E738 million in 2002,

                                        86


reflecting an increase in the trading volume of interest products due to ongoing
weakness in the equity securities markets. Income from trading in equity
products was a loss of E49 million. Income from foreign exchange and precious
metals trading was E301 million, while income from the effects of derivative
contracts that do not qualify for hedge accounting declined to E90 million,
reflecting the decrease in income from derivative instruments that do not
qualify for hedge accounting and are therefore recorded at fair value. Gains or
losses on such financial instruments arising from valuation at fair value are
included in trading income. For additional information on trading income in our
banking operations, see Note 28 to our consolidated financial statements.

     Fee and Commission Income, and Income from Service Activities.  Fee and
commission income, and income from service activities from our banking
operations comprises mainly fees and commissions from our securities, lending,
transaction banking, underwriting and mergers and acquisitions advisory
businesses. Fee and commission income, and income from service activities was
E2,925 million in 2002. Fee and commission income from our securities business
was E1,066 million for this period, reflecting decreased transaction volume in
our equity products business due to the continuing reluctance of German clients
to engage in equity securities transactions in light of market conditions. Fee
and commission income from our mergers and acquisitions advisory businesses
(E252 million) and our underwriting business (E104 million) also was negatively
affected as a result of slowing market activity in the underwriting and advisory
businesses in 2002. In addition, fee and commission income included commission
income on account and payment transactions (E390 million), insurance, real
estate and other brokerage commissions (E232 million), commissions earned from
lending (E196 million), commissions earned for asset management products from
third-party customers (E207 million) and commissions earned from our ADAM
segment for marketing and selling their asset management products (E113
million).

     Other Income.  Other income from our banking operations was E432 million,
consisting primarily of income from releasing or reducing miscellaneous accrued
liabilities (E53 million), non-trading foreign currency transaction gains (E36
million), gains from disposals of fixed assets (E28 million) and other income
(E279 million).

     Other Expenses for Investments.  Other expenses for investments from our
banking operations consist of realized losses and impairment writedowns on
securities and other investments. Other expenses for investments were E2,225
million in 2002, reflecting E1,129 million of impairment writedowns, primarily
on equity securities, and E1,096 million of realized losses, mainly on
investments in equity securities. The realized losses on equity securities
reflected primarily realized losses on two major shareholdings as part of
intercompany transfers to reposition equity investments within the Group in the
course of 2002. The losses on intercompany transfers were eliminated at the
Group level.

     Loan Loss Provisions.  Loan loss provisions in our banking operations
consists of specific loan loss provisions, country loan loss provisions and
general loan loss provisions. In addition, provisions for contingent liabilities
relating to our lending business are included in this category. We establish
specific loan loss provisions if we consider it probable that specifically
identified borrowers are no longer able to make their contractually agreed upon
interest and principal payments. We establish general loss provisions to provide
for incurred but unidentified losses that are inherent in the loan portfolio as
of the relevant balance sheet date. We establish country risk provisions for
transfer risk, which is a measure of the likely ability of a borrower in a
certain country to repay its foreign currency-denominated debt in light of the
economic or political situation prevailing in that country, on the basis of our
country rating system that incorporates current and historical economic,
political and other data to categorize countries by risk profile. For the year
ended December 31, 2002, additions to net loan loss provisions in our banking
segment were E2,222 million, consisting of E3,106 million of new provisions,
offset in part primarily by releases of E810 million of existing provisions and
recoveries of E74 million.
                                        87


     We recorded new specific loan loss provisions of E2,889 million in 2002, of
which E2,151 million related to corporate borrowers, particularly in the
telecommunications, media and construction sectors, reflecting the continued
weakness in the global economy, deteriorating credit quality of borrowers and
increased insolvencies. We also recorded specific provisions of E665 million
relating to private individuals and E73 million relating to banks. Country loan
loss provisions were a net release of E97 million in 2002, reflecting releases
of E208 million, due primarily to country upgrades, decreased lending volumes
and other reductions of exposures subject to country risk provisions, offset in
part by increased provisions of E111 million primarily relating to exposures in
Brazil. Net general loan loss provisions were E89 million in 2002, based
primarily on historical loss experience and management's assessment of the
credit quality of the loan portfolio caused by the deteriorating condition of
the global economy. Of the additional net loan loss provisions of E2,222 million
in 2002, we recorded E1,592 million in our Corporates & Markets division,
primarily in Germany, Latin America and the United States, E561 million in our
Private and Business Clients divisions, primarily in Germany, and E69 million in
our Other division. A total of approximately E1,259 million of the net specific
loan loss provisions in 2002 related to borrowers in Germany.

     The continuing weakness in the loan portfolio of our banking segment is
evidenced by the increase in our non-performing loans and potential problem
loans in 2002. For additional information on non-performing loans and potential
problem loans, see "-- Selected Statistical Information Relating to Our Banking
Operations -- Risk Elements." At December 31, 2001, our non-performing loans and
potential problem loans were E13,655 million and E2,876 million, respectively,
which included approximately E3,306 million of non-performing loans and E670
million of potential problem loans, respectively, attributable to the loan
portfolio of Deutsche Hyp. Excluding Deutsche Hyp, at December 31, 2001, our
non-performing loans and potential problem loans were E10,349 million and E2,206
million, respectively. At December 31, 2002, following the deconsolidation of
Deutsche Hyp on August 1, 2002, our non-performing loans and potential problem
loans were E11,625 million and E2,437 million, respectively. On a comparable
basis, excluding loans attributable to Deutsche Hyp, these amounts represented a
net increase of E1,276 million, or 12.3%, in non-performing loans and E231
million, or 10.5%, in potential problem loans from year-end 2001. At December
31, 2002, the ratio of the total allowances for loan losses to total loans was
approximately 5.2%, while the ratio of the total allowances for loan losses to
total non-performing loans was approximately 59.9%, in each case reflecting the
deconsolidation of Deutsche Hyp. These percentages represented an increase from
the corresponding ratio of 4.5% and a decrease from the corresponding ratio of
68.5%, respectively, at December 31, 2001, on a comparable basis excluding loans
and allowances for loan losses attributable to Deutsche Hyp.

     Since 2000, Dresdner Bank has charged off loans when, based on management's
judgment, all economically sensible means of recover have been exhausted. Prior
to 2000, Dresdner Bank charged off loans only when all legal means of recovery
had been exhausted. This change in practice has affected both the timing and
amount of charge-offs in the years 2000 to 2002, and in 2002 also affected the
level of our non-accrual loans. In 2002, our banking segment's gross charge-offs
were E1,889 million. See "-- Selected Statistical Information Relating to the
Our Banking Operations -- Summary of Loan Loss Experience."

     To reduce our exposure to credit risks, we have taken a variety of steps in
2002 and 2003, including reducing our loans to corporate borrowers in the United
States, Argentina and Brazil. In addition, in 2003, we began the process of
reorganizing certain performing loans to non-strategic customers, non-performing
loans and certain other non-strategic assets into the IRU. See
"-- Reorganization of Business Divisions." For additional information, see
"-- Selected Statistical Information Relating to Our Banking
Operations -- Summary of Loan Loss Experience."

     Acquisition Costs and Administrative Expenses.  Acquisition costs and
administrative expenses in our banking segment, which consist primarily of
personnel expenses and operating
                                        88


expenses, were E7,581 million in 2002. Personnel expenses amounted to E4,335
million, reflecting primarily decreased wages and salary expenses, social
security and pension expenses due to a reduction in headcount as a result of our
ongoing cost-cutting and restructuring measures and the expiration of the bonus
and retention agreements with Dresdner Bank executives and key management
personnel made after merger negotiations with Deutsche Bank in 2000. These
decreases were offset in part by continuing bonus and retention payments made in
connection with the acquisition of Wasserstein Perella & Co. in January 2001.
Bonus and retention payments recorded in 2002 amounted in the aggregate to
E1,058 million. Operating expenses were E3,246 million, consisting mainly of
occupancy-related costs (E1,263 million), depreciation expenses (E395 million),
fee and commission expenses (E267 million), marketing and advertising expenses
(E249 million), expenses for amortization of software and other intangible
assets (E235 million), travel expenses (E143 million), consulting fees (E134
million), training costs (E125 million) and other operating expenses (E435
million). For a discussion of our restructuring program to reduce administrative
expenses, see "-- Cost-Cutting and Restructuring Measures."

     Amortization of Goodwill.  Amortization of goodwill in our banking
operations was E241 million in 2002, attributable primarily to the acquisition
of Dresdner Bank on July 23, 2001. See Note 3 to our consolidated financial
statements.

     Other Expenses.  Other expenses from our banking operations were E1,034
million in 2002, reflecting primarily restructuring charges of E245 million, and
writedowns of E202 million relating to an investment in a real estate property
owned by Dresdner Bank, as well as other expenses of E587 million, including E40
million of costs recorded in connection with the termination of certain service
contracts associated with the closure of Lombardkasse. Restructuring charges
recorded in 2002 consisted primarily of charges relating to cost-cutting
measures in our Corporates & Markets division (E288 million), offset in part by
releases of E87 million from restructuring plans initiated by Dresdner Bank in
2001 and 2000. For a discussion of our restructuring programs, see "-- Cost
Cutting and Restructuring Measures." See also Note 21 to our consolidated
financial statements.

     Taxes.  Taxes on our banking segment amounted to a tax credit of E154
million in 2002. The tax benefit was due to tax losses, for which a deferred tax
asset was recognized.

     Minority Interests in Earnings.  Minority interests in our banking segment
were a credit of E25 million in 2002.

     Net Income.  Net income for our banking operations was a loss of E1,358
million in 2002, reflecting the continued weakness in the capital markets and
the deteriorating credit quality of borrowers in Germany and our other major
markets. The loss was attributable primarily to a significant decline in income
in conjunction with a high level of net loan loss provisions (E2,222 million),
writedowns on investment securities (E1,129 million) and realized losses on
investment securities (E1,096 million), offset in part by realized gains from
the transfer of substantially all of Dresdner Bank's German asset management
subsidiaries to ADAM (E1,912 million), the merger of Deutsche Hyp into Eurohypo
(E244 million) and realized gains on equity securities (E1,265 million), as well
as a tax credit (E154 million). Although we were able to reduce administrative
expenses significantly over the course of 2002 as a result of cost-cutting and
restructuring measures (see "-- Cost Cutting and Restructuring Measures"), the
reduction in costs was not sufficient to offset the decline in income.

YEAR ENDED DECEMBER 31, 2001

     In the following section, we discuss the consolidated results of our
banking operations for the year ended December 31, 2001. This discussion focuses
on factors and trends that affected our consolidated banking results after our
acquisition of Dresdner Bank on July 23, 2001, since our banking operations
prior to our acquisition of Dresdner Bank were not significant.
                                        89


     Net interest and current income.  We measure interest and current income in
our banking operations on a net basis.

     The following table shows net interest and current income and its income
statement components for the years indicated:



                                                                 YEAR ENDED
                                                                DECEMBER 31,
                                                              ----------------
                                                              2001(1)    2000
                                                              -------   ------
                                                              (E IN MILLIONS)
                                                                  
Interest and similar income.................................   9,085     1,502
Income (net) from investments in affiliated enterprises,
  joint ventures and associated enterprises.................   1,016       122
Interest and similar expenses...............................  (6,766)   (1,257)
                                                              ------    ------
     Net interest and current income........................   3,335       367
                                                              ======    ======


---------------

(1) Reflects the inclusion of Dresdner Bank in our consolidated financial
    statements as of July 23, 2001.

     Interest and similar income from our banking operations was E9,085 million
in 2001, reflecting primarily declining interest rates and decreasing loan
balances, offset in part by increased income from other interest-bearing
instruments. Of this amount, income from loans accounted for E5,566 million,
reflecting our reduction of non-core commercial lending activities outside of
Europe, together with intense competition for borrowers in most areas of
lending. Income from lending and money market transactions was E1,908 million,
of which E1,472 million related to increased volume of reverse repurchase
agreements. Interest income from securities available for sale was E1,291
million, consisting primarily of income from fixed-interest government
securities (E1,148 million), reflecting an increase in the volume of such
securities in our portfolio.

     Net income from investments in affiliated enterprises, joint ventures and
associated enterprises was E1,016 million in 2001, reflecting primarily realized
gains of E866 million from the sale of equity holdings in Munich Re in
connection with our acquisition of Dresdner Bank on July 23, 2001. For
additional information on our disposition of ordinary shares of Munich Re in
2001, see "Major Shareholders and Related Party Transactions -- Transaction with
Munich Re."

     Interest and similar expense was E6,766 million in 2001, consisting
primarily of interest expense of E3,837 million on certificated liabilities,
including long-term bonds and long-term subordinated liabilities, which
reflected the impact of declining interest rates. Interest expense on deposits
and from repurchase agreements was E2,079 million, reflecting primarily an
increase with respect to repurchase agreements in the volume of short term
transactions due to uncertain economic conditions, as well as a slight increase
in the average balance of deposits from customers, particularly non-German
corporate clients, offset in part by a decrease in deposits from banks.

     Net interest and current income from our banking operations amounted to
E3,335 million in 2001. Excluding our sale of a part of our shareholding in
Munich Re, there was a downward trend in net interest and current income in 2001
due to a shift in the second half of the year from corporate and customer
lending to lower-yielding reverse repurchase agreements and investment
securities and a shift in funding from deposits from banks to repurchase
agreements.

     Our net interest spread was 0.36% in 2001, reflecting a change in the mix
of interest income from higher-yielding loans to customers to lower-yielding
reverse repurchase agreements and trading assets, and a change in the mix of
funding from higher-yielding deposits from banks to lower-yielding repurchase
agreements. Our net interest margin was 0.45% in 2001. In each case, our net
interest spread and margin reflect income and expense from Dresdner Bank only
for the

                                        90


period from July 23, 2001 to December 31, 2001, calculated as a percentage of
the average assets for such period. For a discussion of the interest spread and
margin in our banking business for the full year 2001 and prior years, see
"-- Selected Statistical Information Relating to Our Banking Operation -- Net
Interest Margin."

     Other Income from Investments.  Other income from investments amounted to
E628 million in 2001, primarily as a result of E406 million of realized gains on
the disposition of equity securities available for sale, including primarily
shareholdings of Dresdner Bank, and an additional E92 million on the disposition
of government debt securities available for sale.

     Trading Income.  Trading income was E244 million in 2001, reflecting
primarily income from other dealings in derivative financial instruments of E177
million, net of trading interest expense. Income from securities trading was E67
million, reflecting gains from foreign exchange and bond trading which more than
offset losses in the equity trading portfolio. For additional information on
trading income in our banking operations, see Note 28 to our consolidated
financial statements.

     Fee and Commission Income, and Income from Service Activities.  Fee and
commission income, and income from service activities amounted to E1,474 million
in 2001. Fee and commission income from our securities business was E623 million
for this period, reflecting decreased transaction volume in our mutual fund and
equity securities businesses due to the reluctance of German clients to engage
in securities transactions. Fee and commission income from our lending,
underwriting and mergers and acquisitions advisory businesses of E213 million,
also was negatively affected as a result of slowing market activity in the
underwriting and advisory businesses in 2001. In addition, fee and commission
income included commission income on account and payment transactions (E176
million), insurance and real estate commissions (E76 million), and commissions
earned from our asset management segment (E194 million).

     Other Income.  Other income from our banking operations in 2001 was E308
million.

     Other Expenses for Investments.  Other expenses for investments were E465
million in 2001, reflecting primarily E340 million of realized losses, mainly on
investments in equity securities and E125 million of impairment writedowns. The
realized losses on equity securities reflected primarily realized losses on
shareholdings of Dresdner Bank.

     Loan Loss Provisions.  For the year ended December 31, 2001, net loan loss
provisions in our banking segment were E588 million, consisting of E1,197
million of new provisions, offset in part primarily by releases of E593 million
of existing provisions. Provisions for loan losses in 2001 significantly
exceeded expectations in both our German and non-German loan portfolios, due
primarily to the continuing deterioration of the global economy. In our Dresdner
Bank operations, we added specific loan loss provisions of E562 million for
corporate borrowers and E308 million for private clients. All of our private
client provisions and the majority of our corporate provisions were incurred in
respect of German borrowers. A substantial part of our non-German corporate
provisions in 2001 were incurred in the United States, including approximately
E100 million related to one corporate borrower. We recorded net general loss
provisions of E33 million in 2001, based primarily on historical loss experience
and management's assessment of the credit quality of the loan portfolio caused
by the deteriorating condition of the global economy, and released net country
risk provisions of E92 million. To reduce our loan loss exposure, we took a
variety of steps in 2001, including reducing our loans to corporate borrowers in
the United States by approximately 25% for the year ended December 31, 2001. To
manage country risk, we also reduced our loan exposure in Latin American and
other problem loan countries, including Argentina, which helped to reduce the
impact on our banking operations of the Argentine financial crisis in late 2001.
For additional information, see "-- Selected Statistical Information Relating to
Our Banking Operations -- Summary of Loan Loss Experience."

                                        91


     Acquisition Costs and Administrative Expenses.  Acquisition costs and
administrative expenses in our banking segment were E3,446 million in 2001.
Personnel expenses amounted to E2,045 million, reflecting primarily wages and
salary expenses, social security and pension expenses and bonus and retention
payments made to Dresdner Bank executives and key management personnel pursuant
to agreements made after merger negotiations with Deutsche Bank in 2000 and in
connection with the acquisition of Wasserstein Perella & Co. in January 2001.
Bonus and retention payments recorded in 2001 amounted in the aggregate to E744
million, of which E462 million were recorded in acquisition costs and
administrative expenses and E282 million in other expenses. See "-- Other
Expenses." Operating expenses were E1,401 million, consisting mainly of rental
expenses (E376 million), depreciation expenses (E205 million), fee and
commission expenses (E184 million), marketing and advertising expenses (E151
million), training and outsourcing expenses (E92 million) and travel expenses
(E84 million). For a discussion of our restructuring program to reduce
administrative expenses, see "-- Cost-Cutting and Restructuring Measures."

     Amortization of Goodwill.  Amortization of goodwill in our banking
operations was E70 million in 2001, attributable primarily to the acquisition of
Dresdner Bank on July 23, 2001.

     Other Expenses.  Other expenses from our banking operations were E1,193
million in 2001, reflecting primarily charges of E206 million recorded in
connection with the integration of Dresdner Bank into the Allianz Group,
restructuring charges of E132 million, expenses for amortization of software and
other intangible assets of E119 million and consulting fees of E60 million.
Other expenses also included bonus and retention payments of E282 million; we
recorded the additional bonus and retention payments noted above in acquisition
costs and administrative expenses. The integration costs of E206 million
comprised mainly consulting costs of E98 million and other non-staff costs of
E95 million relating primarily to integration of information technology systems.
We recorded additional charges in connection with the integration of Dresdner
Bank at Allianz AG, the results of which are shown in our property-casualty
business segment. See "-- Insurance Operations -- Property-Casualty Insurance
Operations -- Results of Operations -- Year Ended December 31, 2001 Compared to
Year Ended December 31, 2000 -- Acquisition Costs and Administrative Expenses."
Restructuring charges recorded in 2001 consisted primarily of charges relating
to the reorganization of our Corporates & Markets division (E118 million) and
other German subsidiaries (E31 million), offset in part by releases of E17
million from restructuring plans initiated in May 2000. For a discussion of our
restructuring programs, see "-- Cost Cutting and Restructuring Measures." See
also Note 21 to our consolidated financial statements.

     Taxes.  Taxes on our banking operations amounted to a tax credit of E6
million in 2001. The tax benefit was due to tax losses, for which a deferred tax
asset was recognized. Taxable income was reduced by tax-exempt capital gains.

     Minority Interests in Earnings.  Minority interests in our banking
operations were E453 million in 2001, reflecting primarily the application of
the minority interest ownership in Dresdner Bank during the period ended
December 31, 2001 to the historical cost basis of Dresdner Bank.

     Net Income.  Net income for our banking operations was a loss of E220
million in 2001, reflecting the weakness in the capital markets, particularly in
the second half of 2001. The loss was attributable primarily to reduced fee and
commission income (E1,474 million), due primarily to decreased transaction
volume attributable to clients' general reluctance to engage in securities
transactions, in combination with a high level of net loan loss provisions (E588
million). At the same time, administrative expenses were high (E3,446 million),
due largely to high personnel costs and bonus and retention payments, and we
incurred significant other expenses (E1,193 million), primarily in connection
with the integration of Dresdner Bank into the Allianz Group and the
implementation of measures to restructure our banking segment as discussed
above. See "-- Cost Cutting and Restructuring Measures."

                                        92


BANKING OPERATIONS BY DIVISION

     We conduct our banking operations through two principal operating business
divisions, Private and Business Clients and Corporates & Markets. Our Other
division includes income and expense items that are not attributable to one of
our operating divisions.

     The following tables set forth certain key data concerning our banking
operations by division and by geographic region for the years indicated.
Consistent with our general practice, net revenue by division, and total income
and net revenue by geographic region are presented before consolidation
adjustments representing the elimination of transactions between Group companies
in different geographic regions and different segments, and net income by
geographic region is presented before those consolidation adjustments,
amortization of goodwill and minority interests. Net income by division is
presented before amortization of goodwill and minority interests.

                   BANKING OPERATIONS -- KEY DATA BY DIVISION



                                                       YEAR ENDED DECEMBER 31,
                                  ------------------------------------------------------------------
                                        2002(1)                2001(2)                  2000
                                  -------------------   ----------------------   -------------------
                                     NET        NET        NET          NET         NET        NET
                                  REVENUE(3)   INCOME   REVENUE(3)   INCOME(4)   REVENUE(3)   INCOME
                                  ----------   ------   ----------   ---------   ----------   ------
                                                           (E IN MILLIONS)
                                                                            
Private and Business
  Clients(5)....................    3,227        (304)    1,678         (160)        --         --
Corporates & Markets(5).........    3,598      (1,642)    1,725         (797)        --         --
Other(5)........................    2,349         804     1,861        1,260        432        183
                                    -----      ------     -----        -----        ---        ---
Subtotal........................    9,174      (1,142)    5,264          303        432        183
                                    -----      ------     -----        -----        ---        ---
Amortization of goodwill........       --        (241)       --          (70)        --          8
Minority Interests..............       --          25        --         (453)        --        (90)
                                    -----      ------     -----        -----        ---        ---
Total...........................    9,174      (1,358)    5,264         (220)       432        101
                                    =====      ======     =====        =====        ===        ===


---------------

(1) Includes a realized gain of E1,912 million resulting from the transfer in
    August 2002 of substantially all of Dresdner Bank's German asset management
    subsidiaries to ADAM. See "-- Asset Management Operations." The gain on this
    transfer was eliminated at the Group level. In addition, includes a realized
    gain of E244 million resulting from the merger of Deutsche Hyp into Eurohyp
    in August 2002. See "-- Other -- Description of Business -- Real Estate."

(2) Reflects the inclusion of Dresdner Bank in our consolidated financial
    statements as of July 23, 2001.

(3) Consists of total income less interest and similar expenses, other expenses
    for investments, fees and commission expenses and other investment-related
    expenses.

(4) Restructuring charges of E14 million and E95 million originally reflected in
    net income of our Other division have been reclassified to our Private and
    Business Clients division and our Corporates & Markets division,
    respectively, to facilitate comparison with the presentation of such charges
    in 2002. In addition, integration charges of E44 million and E16 million
    originally reflected in Net income of our Other division have been
    reclassified to our Private and Business Clients division and our Corporates
    & Markets division, respectively, to facilitate comparison with the
    presentation of such charges in 2002.

(5) In order to facilitate comparison with the presentation of amounts in 2002,
    amounts for 2001 have been reclassified to reflect the integration effective
    January 1, 2002 of our small business operations, which we had previously
    included as part of our Corporates & Markets division, with our former
    Private Clients division to form our new Private and Business Clients
    division.

                                        93


             BANKING OPERATIONS -- KEY DATA BY GEOGRAPHIC REGION(1)



                                                        YEAR ENDED DECEMBER 31,
                       ------------------------------------------------------------------------------------------
                                   2002                         2001(2)                          2000
                       ----------------------------   ----------------------------   ----------------------------
                       TOTAL       NET        NET     TOTAL       NET        NET     TOTAL       NET        NET
                       INCOME   REVENUE(3)   INCOME   INCOME   REVENUE(3)   INCOME   INCOME   REVENUE(3)   INCOME
                       ------   ----------   ------   ------   ----------   ------   ------   ----------   ------
                                                            (E IN MILLIONS)
                                                                                
Germany..............  15,976     7,059       1,858   12,515      6,227     1,931      144        70          2
Rest of Europe.......   6,687     1,177        (999)   3,853      1,451      (434)   1,444       331        166
NAFTA................   2,483       755      (1,527)     984        572      (218)      --        --         --
Rest of World........   1,164       206        (474)     544        245      (106)     134        31         15
Consolidation
  adjustments(4).....  (5,035)      (23)         --   (5,141)    (3,231)     (870)      --        --         --
                       ------     -----      ------   ------     ------     -----    -----       ---        ---
  Total..............  21,275     9,174      (1,142)  12,755      5,264       303    1,722       432        183
                       ======     =====      ======   ======     ======     =====    =====       ===        ===


---------------

(1) Represents the location of the entity or branch that recorded the
    transaction.

(2) Reflects the inclusion of Dresdner Bank in our consolidated financial
    statements as of July 23, 2001.

(3) Consists of total income (less interest and similar expenses, other expenses
    for investments, fees and commission expenses, other investment-related
    expenses).

(4) Represents elimination of intercompany transactions between Group companies
    in different geographic regions.

                          PRIVATE AND BUSINESS CLIENTS

DESCRIPTION OF BUSINESS

     We serve our private and small business customers through our Private and
Business Clients division. In 2002, our Private and Business Clients division
accounted for approximately 35.2% of our net revenue from banking operations.

     Our Private and Business Clients business is one of our two core banking
activities. We believe that rising levels of private wealth, increasing emphasis
on private retirement provision and an interest in equity securities and
investment funds are increasing long-term demand not only in Germany, but
throughout Europe for sophisticated, individualized investment and private
retirement provision advice. Focusing on structured investment and private
retirement provision advice is a core element of our Private and Business
Clients strategy. Our Private and Business Clients operations also continue to
grow in importance for the distribution of investment banking, asset management
and insurance products. We aim to bundle our banking know-how to provide private
individual and small business clients with similar advisory requirements with an
all-around selection of products and services for their business as well as
private financial needs. In 2002, we provided Private and Business Clients
banking products and services to approximately 5.7 million customers with more
than E49 billion of deposits and more than E93 billion of assets held under
custody.

     Our Private and Business Clients customer base consists of high net worth
customers worldwide, individual customers in Germany (including affluent
customers) and small business customers.

PRODUCTS AND SERVICES

     We offer a wide range of banking, asset management and insurance products
and services for high net worth, affluent and other private individual
customers. For our high net worth customers, we offer sophisticated,
personalized solutions through Dresdner Private Banking

                                        94


International. Our services include advisory and discretionary portfolio
management, fund-based portfolio management, administration of trusts and
estates and structural asset analysis, including tax planning. For our affluent
customers, we provide structured financial advice based on a variety of
financial planning and investment tools and products, such as mutual funds,
mutual fund portfolio management, tax-advantaged products and alternative
investments. For our other private individual customers, our banking products
and services include deposit-taking, the transmission of payments, commercial
and consumer lending, mortgage lending and other property-related financing
services, credit card operations, securities brokerage and asset management
services and insurance. For our small business customers, we provide
comprehensive financial advice for their private and business needs, including
assistance with credit facilities and securities investment, company pension
scheme and insurance products and services. We allocate fees between our banking
segment and our asset management and insurance segments in the case of
cross-segment sales and distribution activities, e.g., the sale of proprietary
fund products or insurance policies through our Private and Business Client
distribution channels.

DISTRIBUTION

     In our Private and Business Clients division, we distribute our products
primarily through our branch bank network and our on-site securities advisors,
as well as our network of ATMs. We also offer our banking products and services
through a variety of other Internet and electronic banking channels, Allianz
Group insurance agencies and call centers.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001

     Net Revenue.  Net revenue in our Private and Business Clients division was
E3,227 million in 2002, reflecting primarily flat net interest and current
income and fee and commission income, despite the weakness in the capital
markets, due primarily to the successful introduction of new products.

     Net Income.  Net income in our Private and Business Clients division
amounted to a loss of E304 million in 2002, primarily as a result of flat
income, in combination with a high level of loan loss provisions relating to
German borrowers, offset in part by reduced administrative expenses. The
increase in loan loss provisions was attributable in part to the inclusion in
2002 in our Private and Business Clients division of small business customers,
whose credit quality continued to deteriorate during the year.

YEAR ENDED DECEMBER 31, 2001

     Net Revenue.  Net revenue in our Private and Business Clients division was
E1,678 million in 2001, reflecting primarily the downward trend in net fee and
commission income due to decreased transaction volume attributable to German
clients' reluctance to engage in securities transactions.

     Net Income.  Net income in our Private and Business Clients division
amounted to a loss of E160 million in 2001, primarily as a result of declining
net fee and commission income, in combination with a high level of loan loss
provisions relating to German borrowers.

                                        95


                              CORPORATES & MARKETS

DESCRIPTION OF BUSINESS

     We serve our corporate and capital markets customers through our Corporates
& Markets division, into which we combined our former investment banking and
corporate clients business divisions in 2001. Through this combination, we aim
to take advantage of our access to corporate Europe, our strong credit rating,
our extensive capital markets experience around the world and our strong
position in Germany and the United Kingdom. In 2002, our Corporates & Markets
division accounted for approximately 39.2% of our net revenue from banking
operations.

     Our Corporates & Markets division is focused on raising capital for
corporate and institutional customers in our core markets of Germany, the United
Kingdom and other countries in Western Europe and the United States. We offer a
wide range of investment banking, commercial banking and other capital markets
products and services to our Corporates & Markets customers. Our customer base
consists of approximately 20,000 client groups, most of which are domiciled in
Germany.

PRODUCTS AND SERVICES

     Our Corporates & Markets division offers corporate finance advisory
services on mergers and acquisitions, divestitures, restructurings and other
strategic matters, securities underwriting and market making, securities and
derivatives trading, portfolio management, custodial services, and other capital
markets products and services. We also provide corporate loans, take deposits,
and provide our corporate customers with payment, management consulting, real
estate and other corporate banking services.

DISTRIBUTION

     In our Corporates & Markets division, we rely on relationship managers and
sales teams working together with product specialists to develop in-depth
corporate finance expertise in both investment banking and commercial banking to
meet the capital markets needs of our clients. Our goal is to offer a full range
of capital markets products and services to our Corporates & Markets clients
worldwide. Our customers now have a choice of three complementary distribution
channels: standard "face-to-face" support by professional advisory staff, the
Internet, and our service centers.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001

     Net Revenue.  Net revenue in our Corporates & Markets division was E3,598
million in 2002, reflecting mainly decreased net interest earned and decreased
fee and commission income, particularly in our mergers and acquisitions and
other advisory business. Trading income from interest products was flat,
reflecting a shift into interest products as a result of the poor performance of
many equity indices.

     Net Income.  Net income in our Corporates & Markets division was a loss of
E1,642 million in 2002. Net income for our Corporates & Markets business
declined primarily as a result of decreased net interest earned and fee and
commission income, in conjunction with significant increases in net loan loss
provisions and writedowns on private equity investments as a result of
deteriorating economic conditions. Although we were able to reduce
administrative expenses significantly as a result of cost-cutting and
restructuring measures, the reduction in costs was not sufficient to offset the
decline in income.

                                        96


YEAR ENDED DECEMBER 31, 2001

     Net Revenue.  Net revenue in our Corporates & Markets division was E1,725
million in 2001, reflecting mainly decreased fee and commission income,
particularly in our mergers and acquisitions and other advisory business, and
decreased trading income, particularly from equity securities, due to the weak
capital markets. These declines were offset in part by increased interest income
and trading income from fixed-income securities, reflecting a shift into fixed-
income securities as a result of the poor performance of many equity indices.

     Net Income.  Net income in our Corporates & Markets division was a loss of
E797 million in 2001. Net income for our Corporates & Markets business declined
primarily as a result of decreased fee and commission and trading income, in
conjunction with increases in net loan loss provisions and writedowns on private
equity investments as a result of deteriorating economic conditions, as well as
high personnel and other administrative expenses.

                                     OTHER

DESCRIPTION OF BUSINESS

     Our banking segment's Other division contains income and expense items that
are not directly assigned to our operating divisions, as well as our transaction
banking and, until August 2002, real estate business lines. Income and expense
items that are not directly assigned to our operating divisions include, in
particular, expenses for banking segment functions and projects affecting more
than one division, realized gains and losses from our strategic investment
portfolio and provisioning requirements for country and general risks. In
addition, other items contains charges for the restructuring measures that have
been introduced. See "-- Cost-Cutting and Restructuring Measures." In 2002, our
banking segment's Other division accounted for approximately 25.6% of our net
revenue from banking operations.

     Real Estate.  Until August 2002, we served our real estate customers
through our real estate business line, which comprised primarily the business
operations of our mortgage bank Deutsche Hyp and our German real estate fund
management subsidiary, DEGI Deutsche Gesellschaft fur Immobilienfonds GmbH (or
DEGI).

     On August 1, 2002, we merged Deutsche Hyp with Rheinische Hypothekenbank
AG, the mortgage banking subsidiary of Commerzbank, and Eurohypo AG, the
mortgage banking subsidiary of Deutsche Bank, into a single entity, which
retained the name Eurohypo. We deconsolidated Deutsche Hyp, which had assets of
E79,134 million and liabilities of E76,784 million as of the date of the
deconsolidation, on August 1, 2002. We hold an ownership interest of
approximately 28% in Eurohypo, while Deutsche Bank and Commerzbank hold
approximately 38% and 32% respectively, with the remainder publicly traded. We
expect Eurohypo to develop over the next several years into a strong competitor
in the European commercial mortgage banking market by achieving economies of
scale and offering a broader product portfolio. Eurohypo retained the existing
residential and other private mortgage banking business of Deutsche Hyp at the
time of the merger, while our new residential and other private mortgage banking
operations were transferred to Allianz Leben. As of August 1, 2002, the real
estate business line in our Other division was dissolved. Our German real estate
fund management subsidiary DEGI remained in our banking segment's Other
division.

     Transaction Banking.  As a corporate service unit in Germany, our
transaction banking business line primarily provides our Private and Business
Clients and Corporates & Markets divisions, as well as ADAM and other Allianz
Group companies, with a wide variety of products and services relating to the
processing of securities business and payments transactions. Through our custody
business, we offer a comprehensive range of custody products and

                                        97


services to national and international financial intermediaries. As of December
31, 2002, the total market value of securities under custody in Dresdner Bank
was E415 billion.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001

     Net Revenue.  Net revenue in our Other division was E2,349 million in 2002,
reflecting primarily realized gains of E1,912 million on the transfer in August
2002 of substantially all of Dresdner Bank's German asset management
subsidiaries to ADAM, E1,265 million on intercompany transfers of equity
securities and E244 million on the merger in August 2002 of Deutsche Hyp into
Eurohypo, offset in part primarily by realized losses on investment securities
(E1,096 million), writedowns of investment securities (E1,129 million) and the
negative effect on income attributable to the deconsolidation in August 2002 of
Deutsche Hyp.

     Net Income.  Net income in our Other division was E1,775 million in 2002.
Net income was positively affected by realized gains, offset primarily by
writedowns on investment securities and realized losses on investment
securities.

YEAR ENDED DECEMBER 31, 2001

     Net Revenue.  Net revenue in our Other division was E804 million in 2001,
reflecting primarily realized gains of E866 million from the sale of shares of
Munich Re held by Dresdner Bank, other investment income of E628 million from
realized gains on our strategic investment portfolio, changes in the fair value
of non-qualifying hedge derivatives and interest income from our mortgage
lending operations, offset in part by other expense from investments of E465
million consisting of realized losses and writedowns of investments.

     Net Income.  Net income in our Other division was E1,260 million in 2001.
Net income was positively affected by the disposition of Munich Re shares and
other investment income, offset primarily by realized losses on investments of
E340 million, restructuring charges of E23 million and charges of E146 million
relating to the integration of Dresdner Bank into the Allianz Group.

                          ASSET MANAGEMENT OPERATIONS

ASSET MANAGEMENT OPERATIONS

     Our asset management segment operates as a global provider of institutional
and retail asset management products and services to third-party investors and
provides investment management services to our insurance operations. We managed
approximately E989 billion of third-party assets and Group's own investments on
a worldwide basis as of December 31, 2002, with key management centers in
Munich, Frankfurt, London, Paris, Singapore, Hong Kong, Milan, Westport,
Connecticut, and San Francisco, San Diego and Newport Beach, California. Our
third-party assets under management have grown significantly in recent years,
with the exception of 2002, and were approximately E561 billion as of December
31, 2002. As measured by total assets under management at December 31, 2002, we
were one of the five leading asset managers in the world.

                                        98


     The following table sets forth certain key data concerning our asset
management operations at December 31 for the years indicated:

                       ASSETS UNDER MANAGEMENT: KEY DATA



                                                          DECEMBER 31,
                                      -----------------------------------------------------
                                           2002              2001(1)             2000
                                      ---------------   -----------------   ---------------
                                         E        %         E         %        E        %
                                                         (E IN MILLIONS)
                                                                    
Third-party assets(2)...............  560,588    56.7     620,458    55.1   336,424    48.0
Group's own investments(3)..........  403,061    40.7     480,876    42.7   341,283    48.7
Separate account assets(2)(4).......   25,657     2.6      24,692     2.2    22,770     3.3
                                      -------   -----   ---------   -----   -------   -----
Total...............................  989,306   100.0   1,126,026   100.0   700,477   100.0
                                      =======   =====   =========   =====   =======   =====


---------------

(1) Reflects the inclusion of Dresdner Bank in our consolidated financial
    statements as of July 23, 2001.

(2) Assets are presented at fair value.

(3) Includes trading liabilities and adjustments to reflect real estate and
    investments in affiliated enterprises, joint ventures and associated
    enterprises at market value, and excludes certain loans to banks and loans
    to customers. Amounts in 2001 have been revised to facilitate comparison
    with the presentation of Group's own investments in 2002.

(4) Represents investments held on account and at risk of life insurance
    policyholders.

     Our asset management operations pursue two separate but related objectives.
In our third-party asset management business, we seek to leverage the power of
our portfolio management expertise, existing customer relationships and
distribution to maintain and further develop our position as a leading global
asset manager. In the management of our Group's own investments, we seek to
maximize long-term total return on our investments for the benefit of our
shareholders and policyholders, including the value of our portfolio of
financial and industrial equity participations, while remaining within the
Group's risk management guidelines.

     We manage our third-party asset management business primarily through ADAM,
our wholly owned asset management subsidiary formed after our acquisition of
Dresdner Bank in July 2001. We reorganized our former financial services segment
in late 2001 under ADAM in order to integrate the asset management operations of
Dresdner Bank, to achieve new economies of scale and to extend the reach of our
distribution networks for asset management products and services. We
consolidated the assets and liabilities and results of operations of Dresdner
Bank's asset management business into our asset management segment as of July
23, 2001, the date of the acquisition. In August 2002, we transferred
substantially all of Dresdner Bank's German asset management subsidiaries to
ADAM. Debt outstanding as a result of this transfer was repaid in full as of
July 2003. The banking operations formerly included in our financial services
segment are now a part of our banking segment. See "-- Banking Operations." As
of December 31, 2002, ADAM managed approximately E513 billion, or 91%, of our
third-party assets under management and approximately E194 billion, or 48%, of
our Group's own investments. The remainder of our third-party assets are managed
by Dresdner Bank (approximately E24 billion, or 4%) and other Allianz Group
companies. The majority of our Group's own investments (approximately E209
billion, or 52%) continue to be managed by the respective investment management
units of Allianz Group insurance companies around the world.

     We conduct our third party asset management business primarily through our
operating companies worldwide under the umbrella brand ADAM. As part of our
multi-regional strategy, however, we operate under multiple brand names in
different regions. In the United States, our main operating companies include
PIMCO, Nicholas-Applegate, Dresdner RCM Global Investors,

                                        99


and Oppenheimer Capital. In Europe, we operate primarily through AGF Asset
Management, RAS Asset Management, Deutscher Investment Trust (or dit) and
Dresdner Bank Investment Management (or dbi), as well as Dresdner RCM Global
Investors and PIMCO. In Asia, after rebranding in 2002, our main brands are
Allianz Dresdner Asset Management, PIMCO and Meiji Dresdner Asset Management.

     In October 2002, together with Guotai Junan Securities (or GTJA), we
established Guotai Junan Allianz Fund Management Co., a Shanghai-based joint
venture that was the first joint venture fund management company and the first
licensed fund manager with foreign participation in China. Through the
combination of GTJA's distribution network and our international asset
management expertise, we believe our joint venture is well positioned to make
successful inroads into this growth market.

RESULTS OF OPERATIONS

     The following table sets forth certain summarized financial information for
our asset management operations for the years indicated:



                                                               YEAR ENDED DECEMBER 31,
                                                              -------------------------
                                                               2002    2001(1)    2000
                                                              ------   -------   ------
                                                                   (E IN MILLIONS)
                                                                        
Interest and similar income.................................     119      129       204
Income from affiliated enterprises, joint ventures and
  associated enterprises....................................     (12)      (3)        1
Other income from investments...............................      35       44        18
Trading income..............................................      (1)      10        16
Fee and commission income, and income from service
  activities................................................   2,918    2,479     1,420
Other income................................................     126       79        63
                                                              ------   ------    ------
  Total income..............................................   3,185    2,738     1,722
                                                              ------   ------    ------
Interest and similar expenses...............................     (89)     (82)      (61)
Other expenses for investments..............................     (22)     (57)       --
Net loan loss provision.....................................      (2)      --        --
Acquisition costs and administrative expenses...............  (2,378)  (1,895)     (484)
Amortization of goodwill....................................    (377)    (243)      (89)
Other expenses..............................................    (551)    (795)   (1,043)
                                                              ------   ------    ------
Total expenses..............................................  (3,419)  (3,072)   (1,677)
                                                              ------   ------    ------
Earnings from ordinary activities before taxation...........    (234)    (334)       45
Taxes.......................................................      59      168         4
Minority interests in earnings..............................    (230)    (182)     (136)
                                                              ------   ------    ------
Net income..................................................    (405)    (348)      (87)
                                                              ======   ======    ======


---------------

(1) Reflects the inclusion of Dresdner Bank in our consolidated financial
    statements as of July 23, 2001.

YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001

     Assets Under Management.  Third-party assets under management, Group's own
investments and separate account assets decreased by E137 billion, or 12.2%, to
E989 billion at the end of 2002 from E1,126 billion at the end of 2001. The
decrease was due primarily to exchange rate movements (E77 billion with respect
to third-party assets), particularly a decline in the U.S. dollar, and
substantial price declines in the capital markets (E25 billion with respect to
third-

                                       100


party assets), offset in part by significant net capital inflows of
approximately E56 billion into fixed-income funds. Of the decrease, E78 billion
represented a decrease in Group's own investments, while E59 billion represented
a decrease in third-party assets under management. Excluding the effects of
exchange rate movements, our third-party assets under management would have
increased by E18 billion, or 2.9%, to E638 billion at the end of 2002 due
primarily to net inflows of E43 billion, primarily into fixed-income funds.

     Net Income.  Asset management net income decreased by E57 million, to a net
loss of E405 million in 2002 from a net loss of E348 million in 2001, due
primarily to increased amortization of goodwill reflecting the acquisition and
full-year consolidation in 2002 of Dresdner Bank, as well as minority interest
in earnings related to the PIMCO Group. Total income, which consists primarily
of fee and commission income, and income from service activities, increased by
E447 million, or 16.3%, to E3,185 million in 2002 from E2,738 million in 2001,
reflecting primarily the full-year consolidation in 2002 of Dresdner Bank's
former asset management operations, offset in part by the lower average assets
under management due to the effects of exchange rate movements and price
declines in the capital markets. Total expenses increased by E347 million or
11.3%, to E3,419 million in 2002 from E3,072 million in 2001, due primarily to
the full-year consolidation in 2002 of Dresdner Bank's former asset management
operations, offset in part by restructuring measures implemented in the course
of 2002 at virtually all of our equity investment operations to increase
operational efficiency by reducing personnel and streamlining back-office
operations and product lines. Total expenses included acquisition-related
expenses of E729 million recorded in 2002. The acquisition-related expenses
consisted primarily of amortization of goodwill of E377 million associated with
the acquisitions of Dresdner Bank, PIMCO and Nicholas-Applegate and amortization
charges of E155 million relating to capitalized retention payments to key
executives of the PIMCO Group, which are being amortized over periods of five to
seven years from the date of the acquisition. Another E197 million were
retention payments for the management and employees of PIMCO and
Nicholas-Applegate. In addition, minority interest of E230 million in our asset
management operations was accounted for mainly by the minority interest in PIMCO
(E162 million) of PIMCO's former parent company, which continues to hold a
minority ownership interest in PIMCO. Our ownership interest in PIMCO was
recently restructured. Pursuant to such restructuring, neither Allianz nor
PIMCO's former parent company can put or call the entire ownership interest of
PIMCO's former parent company in PIMCO with effect prior to October 2004,
although either party may put or call up to US$250 million of such ownership
interest in any calendar quarter, beginning with the quarter ended March 31,
2003. On March 31, 2003, a subsidiary of Allianz AG received notice from the
former parent company of PIMCO that such former parent company had exercised its
right to put US$250 million of its remaining ownership interest in PIMCO to
Allianz, with payment therefor due by April 30, 2003. Such payment was made on
April 14, 2003. Excluding the effects of the acquisition-related expenses of
E729 million, earnings from ordinary activities before taxation from our asset
management operations would have been E495 million in 2002.

YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000

     Assets Under Management.  Third-party assets under management, Group's own
investments and separate account assets increased by E426 billion, or 60.8%, to
E1,126 billion at the end of 2001 from E700 billion at the end of 2000. The
increase was due primarily to our acquisitions of Dresdner Bank and
Nicholas-Applegate, and to a lesser extent, an increase in the Group's own
investments and third-party assets under management. Of the increase, E140
billion represented growth in Group's own investments, while E284 billion
represented growth in third-party assets under management, primarily as a result
of the acquisition of Dresdner Bank (E211 billion), as well as the acquisition
of Nicholas-Applegate (E29 billion). Excluding the effects of these
acquisitions, as well as the effects of exchange rate movements (E16 billion),

                                       101


our third-party assets under management would have increased by E28 billion, or
8.3%, to E364 billion at the end of 2001 due primarily to growth in fixed-income
investments in our PIMCO operations.

     Net Income.  Asset management net income decreased by E261 million, to a
net loss of E348 million in 2001 from a net loss of E87 million in 2000, despite
the increase in assets under management, primarily because costs rose more
quickly than income. Total income, which consists primarily of fee and
commission income, and income from service activities, increased by E1,016
million, or 59.0% to E2,738 million in 2001 from E1,722 million in 2000,
reflecting primarily the increased assets under management due to our
acquisition of Dresdner Bank. Total expenses increased by E1,395 million or
83.2%, to E3,072 million in 2001 from E1,677 million in 2000, due primarily to
increased expenses associated with our acquisition of Dresdner Bank. Total
expenses included acquisition-related expenses of E647 million recorded in 2001,
as well as costs incurred in connection with the establishment of ADAM and the
reorganization of our asset management operations as a result of our acquisition
of Dresdner Bank. The acquisition-related expenses included amortization of
goodwill of E243 million associated with the acquisitions of PIMCO and
Nicholas-Applegate, amortization charges of E374 million relating to capitalized
retention payments to key executives of the PIMCO Group, which are being
amortized over periods of five to seven years from the date of the acquisition,
and an additional E30 million of expenses incurred in connection with retention
payments to key executives at Dresdner RCM following our acquisition of Dresdner
Bank in July 2001. In addition, minority interest of E182 million in our asset
management operations was accounted for mainly by the minority interest in PIMCO
(E142 million) of PIMCO's former parent company, which continues to hold an
approximately 30% ownership interest in PIMCO. Excluding the effects of the
acquisition-related expenses of E647 million, earnings from ordinary activities
before taxation from our asset management operations would have been E313
million in 2001, due primarily to earnings at PIMCO.

THIRD-PARTY ASSETS

     The following table sets forth certain key data concerning our third-party
assets under management at December 31 for the years indicated:

        ASSET MANAGEMENT OPERATIONS -- KEY DATA BY GEOGRAPHIC REGION(1)



                                                                DECEMBER 31,
                                                   ---------------------------------------
                                                      2002          2001          2000
                                                   -----------   -----------   -----------
                                                    E      %      E      %      E      %
                                                   ---   -----   ---   -----   ---   -----
                                                               (E IN BILLIONS)
                                                                   
ADAM
  Germany........................................   80    14.3    96    15.5     8     2.4
  Rest of Europe.................................   37     6.6    53     8.5    22     6.5
  NAFTA..........................................  388    69.1   409    66.0   297    88.4
  Rest of World..................................    8     1.4    26     4.2    --      --
                                                   ---   -----   ---   -----   ---   -----
     Subtotal....................................  513    91.4   584    94.2   327    97.3
Other(2).........................................   48     8.6    36     5.8     9     2.7
                                                   ---   -----   ---   -----   ---   -----
     Total.......................................  561   100.0   620   100.0   336   100.0
                                                   ===   =====   ===   =====   ===   =====


---------------

(1) Represents location of Allianz Group asset management operations.

(2) Consists of assets managed by Dresdner Bank (E24 billion and E27 billion in
    2002 and 2001, respectively) and other Allianz Group companies (E24 billion
    and E9 billion in 2002 and 2001, respectively). The increase from 2001 to
    2002 reflects a reclassification of certain companies from ADAM in 2001 to
    other Allianz Group companies in 2002.

                                       102


     We have significantly grown our third-party assets under management in
recent years, both through acquisitions such as Dresdner Bank and
Nicholas-Applegate in 2001 and PIMCO in 2000, and through organic growth. We
intend to leverage the PIMCO, dit, Nicholas-Applegate and Dresdner RCM
franchises in further developing our third-party asset management business
through our flagship subsidiaries on a global basis. We believe that the
European markets offer especially attractive opportunities for third-party fund
managers. We also expect that investment fund products, in particular retirement
planning vehicles, will increase in importance in Europe. We expect this trend
to be supported by the increased demographic pressure that state-run pension
systems will face and the rising prevalence of defined contribution
arrangements. We believe that we are well positioned in third-party markets,
especially in Germany, France and Italy, and we are seeking to increase our
market share in these markets.

     We are also developing our insurance and banking distribution capabilities,
including our dedicated advisory, branch bank and insurance networks in Europe,
as asset accumulation arms to further our asset management capabilities. Leading
examples of our activities in this area include our operations through Dresdner
Bank, where we have approximately 7,000 financial advisors in branch offices to
distribute our asset management, life insurance and other financial products;
our operations at RAS Group, with its independent network of licensed financial
advisors who distribute life insurance and financial products; and our
operations at the AGF Group in France, with its network of advisors offering
comprehensive financial planning services. See also "-- Banking Operations."

     As a result of the reorganization of our asset management operations under
ADAM, we believe we are well positioned to deliver quality products and services
in all major asset classes for both retail and institutional clients. We aim to
provide our clients with first-class products on a global basis by fully
utilizing our distribution channels and leveraging the asset management
expertise of our specialized asset managers around the world.

     We serve a comprehensive range of retail and institutional asset management
clients, including corporate and public pension funds, insurance and other
financial services companies, governments and charities, financial advisors and
private individuals. Our third-party asset management includes primarily equity,
fixed income, money market and sector products, as well as alternative
investments.

     The following tables show our third-party assets under management by
investment category and by investor class at December 31 for the years
indicated:



                                                                DECEMBER 31,
                                                   ---------------------------------------
                                                      2002          2001          2000
                                                   -----------   -----------   -----------
                                                    E      %      E      %      E      %
                                                   ---   -----   ---   -----   ---   -----
                                                               (E IN BILLIONS)
                                                                   
Fixed income.....................................  405    72.2   377    60.8   240    71.3
Equity...........................................  141    25.1   218    35.2    96    28.7
Other(1).........................................   15     2.7    25     4.0    --      --
                                                   ---   -----   ---   -----   ---   -----
  Total..........................................  561   100.0   620   100.0   336   100.0
                                                   ===   =====   ===   =====   ===   =====


---------------

(1) Includes primarily investments in real estate.



                                                                DECEMBER 31,
                                                   ---------------------------------------
                                                      2002          2001          2000
                                                   -----------   -----------   -----------
                                                    E      %      E      %      E      %
                                                   ---   -----   ---   -----   ---   -----
                                                               (E IN BILLIONS)
                                                                   
Institutional....................................  403    71.8   466    75.2   269    80.1
Retail...........................................  158    28.2   154    24.8    67    19.9
                                                   ---   -----   ---   -----   ---   -----
  Total..........................................  561   100.0   620   100.0   336   100.0
                                                   ===   =====   ===   =====   ===   =====


                                       103


     Our third-party asset management subsidiary ADAM is organized globally into
three principal business lines: global equity, global fixed-income and global
retail (distribution). Each of our asset management business lines is led by a
global head. Together with ADAM's chief executive officer and chief operating
officer, who sets standards and coordinates corporate controlling and
administration, each of the global heads is also a member of ADAM's executive
committee, which is responsible for ADAM's strategic development and financial
performance. In addition, country organizations led by country managers provide
shared infrastructure and services. ADAM's management structure has been
designed to manage the complexity of its multi-regional, multi-product and
multi-channel business activities. Within this structure, ADAM maintains
significant incentives for entrepreneurship and encourages its business units to
operate autonomously.

PORTFOLIO MANAGEMENT

     ADAM has globally consistent, well-structured and transparent investment
processes that are based on fundamental primary research. ADAM's goal is to
provide its clients with portfolios that consistently offer superior performance
in accordance with its clients' investment objectives. ADAM aims for
outperformance through active portfolio management coupled with comprehensive
risk management at all levels of the investment process. At December 31, 2002,
we had more than 560 portfolio managers and more than 200 analysts in major
markets worldwide providing a comprehensive range of actively managed
fixed-income and equity products and services.

Global Fixed Income

     ADAM's fixed-income portfolio investment process is led by PIMCO, one of
the world's leading fixed-income investment managers. Our fixed-income product
range includes total return, short and long duration, regional,
country-specific, global and other geographic products, sector products
including government and corporate bonds and specialty funds such as high yield
and emerging markets. We deliver our fixed-income products in a broad range of
investment vehicles, including separate accounts, fixed-income mutual funds and
investment trusts.

Global Equity

     Our equity portfolio investment products include all major investment
styles: value investment, growth investment and core investment. Our equity
product range comprises regional, country-specific, global and other geographic
products, sector products such as technology, biotechnology, capital equipment,
consumer goods, energy and materials, and finance, as well as large, medium and
small market capitalization funds. We deliver our equity products in a broad
range of investment vehicles.

DISTRIBUTION

     In Europe, ADAM markets and services institutional products offered by its
asset management subsidiaries through specialized personnel located primarily in
its Frankfurt, London, Munich, Paris and Milan offices. European retail
distribution is provided primarily through the proprietary channels of the
Allianz Group, including branch bank advisors, full-time agents employed by
affiliated insurance companies and other Allianz Group financial planners and
advisors.

     In Germany, ADAM and its predecessors have offered mutual funds since 1949.
The funds are distributed primarily through our branch bank network and our
full-time insurance agents. To strengthen these channels, ADAM provides asset
management specialists and support services, including call centers and client
services.

                                       104


     In France, AGF Asset Management markets a wide range of retail products to
individual investors through its own in-house network of financial advisors,
including full-time agents employed by AGF Group, brokers and specialist
networks.

     In Italy, RAS Asset Management offers mutual funds, private banking
products, current accounts, credit and debit cards, brokerage services and real
estate financing. Retail products and services are marketed through affiliated
financial planners, financial advisors, banks and via the Internet.

     In the United Kingdom and the United States, each of our ADAM asset
managers markets and services its institutional products through its own
specialized personnel. The institutional markets in the United Kingdom and the
United States are dominated by consultants, who advise their clients with regard
to investment strategy and asset allocation, conduct due diligence on and rank
portfolio managers, and conduct searches. As a result, ADAM portfolio managers
in these areas put emphasis on servicing consultants. In addition, in the United
States, ADAM asset managers offer a wide range of retail products. The principal
proprietary channel is PIMCO Funds, which distributes mutual funds managed by
its affiliates through broker-dealers, financial planners, 401(k) funds and
other intermediaries. We also provide "wrap" services through broker-dealers, by
managing all or a part of separate accounts maintained by broker-dealers for
their customers. In the United States, ADAM also advises mutual funds sponsored
by third parties, including other mutual fund families and insurance companies
offering variable annuity products.

     ADAM has committed substantial resources to the build-out of a third-party
asset management business in Asia-Pacific. We have offices in Tokyo, Hong Kong,
Singapore, Taipei, Seoul and Sydney, which are being enlarged to accommodate
equity and fixed-income portfolio management as well as institutional and retail
distribution. In November 2002, we rebranded our fund management operations
across Asia-Pacific under the umbrella brand ADAM. ADAM is also seeking to
leverage its brand, investment know-how and customer relationships in China and
to exploit the opportunities in this growing asset management market.

COMPETITION

     Our main competitors in the asset management business include Deutsche
Bank, AXA, UBS, Credit Suisse, Fidelity Investments, Citigroup, Merrill Lynch,
Capital Group and Amvescap. Each of these entities has large,
multi-jurisdictional and multi-product asset management operations, and most of
them compete with us for both retail and institutional clients.

GROUP'S OWN INVESTMENTS

     Our Group's own investments consist of the investment portfolios of our
insurance, banking and asset management operations. Our investment strategy with
regard to our Group's own investments is to maximize long-term total return
while remaining within the Group's risk management guidelines. These guidelines
relate primarily to the quality of the investments and the matching of assets
and liabilities. Our policy is to closely match the maturities and currencies of
assets and liabilities. The investment policies of the insurance subsidiaries
reflect the different liability characteristics and tax profiles of their
respective operations. Our internationally integrated teams of portfolio
managers work closely with the regional asset management subsidiaries to
coordinate asset/liability management and product development activities.
Because our insurance investments mostly serve to cover liabilities in the
insurance business, our asset management professionals place a high priority on
high quality, liquid and widely marketable securities in our insurance
investments portfolio. For a discussion of the investment portfolios of our
banking operations, see "-- Selected Statistical Information Relating to Our
Banking Operations." For further discussion regarding our Group's investment
strategy and risk management practices, see "Quantitative and Qualitative
Disclosures about Market Risk."

                                       105


     The following tables set forth the components of our Group's own investment
portfolios by investment category, as well as separate account assets, at the
end of the years indicated. Consistent with our general practice, amounts by
investment category are presented before consolidation adjustments representing
the elimination of transactions between Group companies in different segments.



                                                   DECEMBER 31, 2002(1)
                           --------------------------------------------------------------------
                           PROPERTY-    LIFE/                ASSET      CONSOLIDATION
                           CASUALTY    HEALTH    BANKING   MANAGEMENT    ADJUSTMENTS     TOTAL
                           ---------   -------   -------   ----------   -------------   -------
                                                     (E IN MILLIONS)
                                                                      
Investments in affiliated
  enterprises, joint
  ventures and associated
  enterprises............    51,448      6,183     4,349        20         (50,655)      11,345
Investments..............    76,855    189,172    28,965       993         (10,645)     285,340
Loans and advances to
  banks..................     5,219      3,490    76,748     1,863            (498)      86,822
Loans and advances to
  customers..............     2,882     24,747   168,919       228          (8,692)     188,084
Trading assets...........     1,404      1,177   122,139       156             (34)     124,842
                            -------    -------   -------     -----         -------      -------
  Subtotal...............   137,808    224,769   401,120     3,260         (70,524)     696,433
Separate accounts........        --     25,657        --        --              --       25,657
                            -------    -------   -------     -----         -------      -------
  Total..................   137,808    250,426   401,120     3,260         (70,524)     722,090
                            =======    =======   =======     =====         =======      =======


---------------

(1) Group's own investments are stated at balance sheet value.



                                                   DECEMBER 31, 2001(1)
                           --------------------------------------------------------------------
                           PROPERTY-    LIFE/                ASSET      CONSOLIDATION
                           CASUALTY    HEALTH    BANKING   MANAGEMENT    ADJUSTMENTS     TOTAL
                           ---------   -------   -------   ----------   -------------   -------
                                                     (E IN MILLIONS)
                                                                      
Investments in affiliated
  enterprises, joint
  ventures and associated
  enterprises............    40,387      6,043     2,079       116         (38,378)      10,247
Investments..............    91,712    180,076    85,133     1,362         (12,981)     345,302
Loans and advances to
  banks..................     5,079      1,010    54,271     1,646            (732)      61,274
Loans and advances to
  customers..............     2,837     24,843   222,916       561         (11,464)     239,693
Trading assets...........     1,373        775   125,741       539              (6)     128,422
                            -------    -------   -------     -----         -------      -------
  Subtotal...............   141,388    212,747   490,140     4,224         (63,561)     784,938
Separate accounts........        --     24,692        --        --              --       24,692
                            -------    -------   -------     -----         -------      -------
  Total..................   141,388    237,439   490,140     4,224         (63,561)     809,630
                            =======    =======   =======     =====         =======      =======


---------------

(1) Group's own investments are stated at balance sheet value.

                                       106




                                                    DECEMBER 31, 2000(1)
                            --------------------------------------------------------------------
                            PROPERTY-    LIFE/                ASSET      CONSOLIDATION
                            CASUALTY    HEALTH    BANKING   MANAGEMENT    ADJUSTMENTS     TOTAL
                            ---------   -------   -------   ----------   -------------   -------
                                                      (E IN MILLIONS)
                                                                       
Investments in affiliated
  enterprises, joint
  ventures and associated
  enterprises.............    22,514      5,615       96         62         (16,524)      11,763
Investments...............    95,718    186,799    3,070        528          (5,281)     280,834
Loans and advances to
  banks...................     4,527      3,747    1,142      1,102          (3,448)       7,070
Loans and advances to
  customers...............     1,565     14,445   12,555        395            (874)      28,086
Trading assets............        20        119       51        182              --          372
                             -------    -------   ------      -----         -------      -------
  Subtotal................   124,344    210,725   16,914      2,269         (26,127)     328,125
Separate accounts assets..        --     22,770       --         --              --       22,770
                             -------    -------   ------      -----         -------      -------
  Total...................   124,344    233,495   16,914      2,269         (26,127)     350,895
                             =======    =======   ======      =====         =======      =======


---------------

(1) Group's own investments are stated at balance sheet value.

INSURANCE OPERATIONS INVESTMENTS

     The following is a discussion of the investment portfolio of our insurance
operations. For a discussion of the investment portfolios of our banking
operations, see "-- Selected Statistical Information Relating to Our Banking
Operations."

INTEREST-BEARING INVESTMENTS

     Fixed income securities, including both government and corporate bonds,
constituted 54.8% of our property-casualty investment portfolio and 74.5% of our
life/health investment portfolio as of December 31, 2002. The credit quality of
our fixed income securities portfolio has historically been strong. As of
December 31, 2002, of the rated fixed income securities in our Group's own
investments portfolio, approximately 34% had a rating comparable to a Standard &
Poor's rating of AAA, approximately 63% were invested in securities with a
Standard & Poor's rating of AA or better and approximately 95% were invested in
securities with a Standard & Poor's rating of BBB or better.

     The following table analyzes the maturities of our fixed income investments
available for sale at December 31, 2002:



                                                              AMORTIZED COST   MARKET VALUE
                                                              --------------   ------------
                                                                     (E IN MILLIONS)
                                                                         
Contractual term to maturity:
  Up to one year............................................      18,459          21,091
  Over one year through five years..........................      86,646          79,500
  Over five years through ten years.........................      70,109          90,113
  Over ten years............................................      31,377          27,122
                                                                 -------         -------
     Total..................................................     206,591         217,826
                                                                 =======         =======


EQUITY INVESTMENTS

     Equity investments constituted 27.9% of our property-casualty investment
portfolio and 12.7% of our life/health investment portfolio as of December 31,
2002. We have a long-standing

                                       107


strategy of investing life policyholders' and shareholders' funds and some
amounts of property-casualty cash flow in equities. Since the early 1900's, the
life/health and property-casualty investments in Germany have included equity
positions in a number of well-known German companies (see table below).

     In view of weak capital markets in 2002, we have reduced our equity
exposure through various divestments and hedging activities. However, we believe
that shares continue to represent an attractive long-term investment option and
will deliver additional value to a well-diversified investment portfolio
long-term.

     The following table sets forth our Group's own investment portfolios by
geographic region at the end of the years indicated:



                                                          DECEMBER 31,
                                 ---------------------------------------------------------------
                                        2002                  2001                  2000
                                 -------------------   -------------------   -------------------
                                 PROPERTY-    LIFE/    PROPERTY-    LIFE/    PROPERTY-    LIFE/
                                 CASUALTY    HEALTH    CASUALTY    HEALTH    CASUALTY    HEALTH
                                 ---------   -------   ---------   -------   ---------   -------
                                                         (E IN MILLIONS)
                                                                       
Germany........................   101,802    119,870    100,600    117,233     79,398    121,100
Rest of Europe.................    64,634    103,270     59,139     97,547     56,164     93,400
NAFTA..........................    19,522     22,038     20,398     18,438     17,945     15,604
Rest of World..................     2,855      5,291      2,514      4,491      1,820      3,607
Specialty Lines................     4,417         --      3,007         --      3,057         --
Consolidated Adjustments.......   (55,422)       (43)   (44,270)      (270)   (34,040)      (216)
                                  -------    -------    -------    -------    -------    -------
  Total........................   137,808    250,426    141,388    237,439    124,344    233,495
                                  =======    =======    =======    =======    =======    =======


SIGNIFICANT GROUP EQUITY INVESTMENTS

     The following tables set forth information regarding our significant equity
investments in German and non-German companies at December 31, 2002. Except for
the investments in Munich Re, Beiersdorf AG and Eurohypo, which are valued by
the equity method because we hold more than a 20% interest, these investments
are carried on our financial statements at market value.



                                                                   DECEMBER 31, 2002
                                                     ---------------------------------------------
                                                     CARRYING VALUE    MARKET VALUE    % OWNERSHIP
                                                     --------------    ------------    -----------
                                                                    (E IN MILLIONS)
                                                                              
Munich Re(1).......................................      3,045             4,548          22.4
Beiersdorf AG(2)...................................      1,620             3,886          43.6
Eurohypo...........................................      1,933             1,984          28.7


---------------

(1) Our interest in Munich Re was substantially restructured pursuant to our
    acquisition of Dresdner Bank in July 2001 and our related agreements with
    Munich Re. In addition, we reduced our interest in Munich Re to less than
    20% on March 31, 2003 and further intend to reduce our interest in Munich Re
    to approximately 15% by the end of 2004. As of June 30, 2003, our interest
    in Munich Re was approximately 18.9%. See "Related Party
    Transactions -- Transactions with Munich Re."

(2) Includes 13.1% sold pursuant to repurchase agreements.

                                       108




                                                                  DECEMBER 31, 2002
                                                              --------------------------
                                                              MARKET VALUE   % OWNERSHIP
                                                              ------------   -----------
                                                                   (E IN MILLIONS)
                                                                       
GERMAN COMPANIES
  E.ON AG...................................................     1,695           6.4
  BASF AG...................................................     1,269           6.1
  Siemens AG................................................     1,053           2.9
  Bayerische Motorenwerke AG................................       995           5.2
  Schering AG...............................................       978          12.0
  RWE AG....................................................       931           6.9
  Deutsche Bank AG..........................................       824           3.1
  Bayer AG..................................................       872           5.8
  Linde AG..................................................       526          12.6

NON-GERMAN COMPANIES
  Credit Lyonnais S.A.......................................     1,915          10.3
  UniCredito Italiano S.p.A.................................     1,181           4.9
  Banco Popular Espanol S.A.................................       842           9.9
  Total Fina Elf S.A........................................       767           1.3
  Nestle S.A................................................       546           0.7
  Royal Dutch Petroleum.....................................       519           0.5


INVESTMENT INCOME

     The following tables set forth the components of our investment income and
expenses for each of the property-casualty, life/health, banking and asset
management segments for the years ended December 31, 2002, 2001 and 2000:



                                                       YEAR ENDED DECEMBER 31, 2002
                                    -------------------------------------------------------------------
                                    PROPERTY-   LIFE/                ASSET      CONSOLIDATION
                                    CASUALTY    HEALTH   BANKING   MANAGEMENT    ADJUSTMENTS     TOTAL
                                    ---------   ------   -------   ----------   -------------   -------
                                                              (E IN MILLIONS)
                                                                              
INVESTMENT INCOME
  Interest and similar income.....    4,473     11,215    13,336       119           (933)       28,210
  Income from affiliated
    enterprises, joint ventures
    and associated enterprises....    8,494        445     2,071       (12)        (6,600)        4,398
  Realized gains..................    3,358      4,571     1,389        30           (694)        8,654
  Income from revaluations........      294        361        41         5             --           701
  Trading income..................      207        244     1,081        (1)           (24)        1,507
                                     ------     ------   -------      ----         ------       -------
    Subtotal......................   16,826     16,836    17,918       141         (8,251)       43,470

INVESTMENT EXPENSES
  Interest and similar expenses...   (1,564)      (434)   (9,509)      (89)           945       (10,651)
  Realized losses.................   (1,536)    (5,930)   (1,096)      (11)           368        (8,205)
  Loan loss allowance.............       (7)       (10)   (2,222)       (2)            --        (2,241)
  Writedowns and other expenses...   (2,031)    (2,726)   (1,129)      (11)            --        (5,897)
  Investment management
    expenses......................     (528)      (650)       --        --            121        (1,057)
                                     ------     ------   -------      ----         ------       -------
    Subtotal......................   (5,666)    (9,750)  (13,956)     (113)         1,434       (28,051)
                                     ------     ------   -------      ----         ------       -------
INVESTMENT INCOME (NET)...........   11,160      7,086     3,962        28         (6,817)       15,419
                                     ======     ======   =======      ====         ======       =======


                                       109




                                                       YEAR ENDED DECEMBER 31, 2001
                                    -------------------------------------------------------------------
                                    PROPERTY-   LIFE/                ASSET      CONSOLIDATION
                                    CASUALTY    HEALTH   BANKING   MANAGEMENT    ADJUSTMENTS     TOTAL
                                    ---------   ------   -------   ----------   -------------   -------
                                                              (E IN MILLIONS)
                                                                              
INVESTMENT INCOME
  Interest and similar income.....    5,068     10,765    9,085        129           (823)       24,224
  Income from affiliated
    enterprises, joint ventures
    and associated enterprises....      889        525    1,016         (3)          (839)        1,588
  Realized gains..................    4,211      3,405      505         33            (39)        8,115
  Income from revaluations........       96        157      123         11             --           387
  Trading income..................    1,451       (117)     244         10              4         1,592
                                     ------     ------   ------       ----         ------       -------
    Subtotal......................   11,715     14,735   10,973        180         (1,697)       35,906

INVESTMENT EXPENSES
  Interest and similar expenses...   (1,323)      (492)  (6,766)       (82)           802        (7,861)
  Realized losses.................   (2,088)    (4,542)    (341)       (51)            24        (6,998)
  Loan loss allowance.............       (4)        (4)    (588)        --             --          (596)
  Writedowns and other expenses...     (800)      (995)    (124)        (6)            --        (1,925)
  Investment management
    expenses......................     (499)      (546)      --         --            104          (941)
                                     ------     ------   ------       ----         ------       -------
    Subtotal......................   (4,714)    (6,579)  (7,819)      (139)           930       (18,321)
                                     ------     ------   ------       ----         ------       -------
INVESTMENT INCOME (NET)...........    7,001      8,156    3,154         41           (767)       17,585
                                     ======     ======   ======       ====         ======       =======




                                                       YEAR ENDED DECEMBER 31, 2000
                                    -------------------------------------------------------------------
                                    PROPERTY-   LIFE/                ASSET      CONSOLIDATION
                                    CASUALTY    HEALTH   BANKING   MANAGEMENT    ADJUSTMENTS     TOTAL
                                    ---------   ------   -------   ----------   -------------   -------
                                                              (E IN MILLIONS)
                                                                              
INVESTMENT INCOME
  Interest and similar income.....    5,568     10,152    1,502        204           (831)       16,595
  Income from affiliated
    enterprises, joint ventures
    and associated enterprises....    1,833        693      122          1           (789)        1,860
  Realized gains..................    4,250      6,639       24         18            (24)       10,907
  Income from revaluations........        9         28        1         --             --            38
  Trading income..................      (10)       (49)       7         16             --           (36)
                                     ------     ------   ------       ----         ------       -------
    Subtotal......................   11,650     17,463    1,656        239         (1,644)       29,364

INVESTMENT EXPENSES
  Interest and similar expenses...   (1,136)      (148)  (1,257)       (61)           203        (2,399)
  Realized losses.................   (1,428)    (2,624)     (28)        --              1        (4,079)
  Loan loss allowance.............       --         --      (21)        --             --           (21)
  Writedowns and other expenses...     (485)      (380)      (5)        --             --          (870)
  Investment management
    expenses......................     (558)      (406)      --         --              8          (956)
                                     ------     ------   ------       ----         ------       -------
    Subtotal......................   (3,607)    (3,558)  (1,311)       (61)           212        (8,325)
                                     ------     ------   ------       ----         ------       -------
INVESTMENT INCOME (NET)...........    8,043     13,905      345        178         (1,432)       21,039
                                     ======     ======   ======       ====         ======       =======


YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001

     Net investment income decreased by E2,166 million, or 12.3%, to E15,419
million in 2002 from E17,585 million in 2001, largely as a result of weakness in
the capital markets in 2002, as

                                       110


reflected in the increase in realized losses, which increased by E1,207 million,
or 17.2%, in 2002 compared to 2001 and increased writedowns and other expenses
of E5,897 million in 2002, compared to E1,925 million in 2001.

     Property-casualty insurance investments decreased by E3,580 million, or
2.5%, to E137,808 million in 2002 from E141,388 million in 2001, due primarily
to a decrease in securities available for sale, largely offset by an increase in
investments in affiliated enterprises, joint ventures and associate enterprises.
Net investment income from property-casualty investments increased by E4,159
million, or 59.4%, to E11,160 million in 2002 from E7,001 million in 2001, due
primarily to realized gains of E1,886 million from open market sales of Munich
Re shares, approximately E1,100 million from open market sales of Vodafone AG
shares and E713 million on the sale of a real estate subsidiary in Italy as well
as realized gains from the sale of other shareholdings in our German equity
portfolio. Net investment income from property-casualty investments also
included significant investment income from intercompany transactions, including
realized gains of E3,332 million from the transfer of Munich Re shares from
Allianz AG to Dresdner Bank and E224 million from the sale of Vereinte
Lebensversicherung AG from Vereinte Versicherung AG to Allianz Leben. The gain
on this intercompany transaction was eliminated at the Group level. Net
investment income from property-casualty insurance investments was negatively
affected by price declines on the capital markets. Writedowns on investments
increased by E1,231 million, or 153.9%,in 2002 compared with 2001. Interest and
similar income decreased 11.7% to E4,473 million in 2002, compared with E5,068
million in 2001, while realized gains decreased to E3,358 million in 2002,
compared with E4,211 million in 2001. Investment expenses increased by E952
million, or 20.2%, to E5,666 million in 2002 from E4,714 million in 2001,
reflecting primarily increased realized losses on investments and writedowns of
investments as a result of price declines in the capital markets.

     Life/health insurance investments increased by E12,987 million, or 5.5%, to
E250,426 million in 2002 from E237,439 million in 2001, reflecting primarily an
increase in securities available for sale. Net investment income from
life/health investments decreased by E1,070 million, or 13.1%, to E7,086 million
in 2002 from E8,156 million in 2001, primarily due to an increase in investment
writedowns, which increased by E1,731 million, or 174%, in 2002 compared with
2001 due to price declines in the capital markets. Interest and similar income
increased 4.2%, to E11,215 million in 2002, compared with E10,765 million in
2001, while realized gains increased 34.2%, to E4,571 million in 2002, compared
with E3,405 million in 2001. Investment expenses increased by E3,171 million, or
48.2%, to E9,750 million in 2002 from E6,579 million in 2001, reflecting
primarily an increase in realized losses on investments and writedowns of
investments due to price declines in the capital markets.

     Banking investments decreased by E89,020 million to E401,120 million in
2002 from E490,140 million in 2001, due primarily to a significant decrease in
securities available for sale. Net investment income from banking investments
increased by E808 million, to E3,962 million in 2002 from E3,154 million in
2001, due primarily to a realized gain of E1,912 million resulting from the
transfer in August 2002 of substantially all of Dresdner Bank's German asset
management subsidiaries to ADAM. The gain on this intercompany transaction was
eliminated at the Group level. Net investment income from banking investments
was negatively affected by price declines in the capital markets. Writedowns of
investments increased significantly by E1,005 million, to E1,129 million in
2002, compared with E124 million in 2001. Interest and similar income increased
to E13,336 million in 2002, compared with E9,085 million in 2001, while realized
gains increased to E1,389 million in 2002, compared with E505 million in 2001.
Investment expenses increased to E13,956 million in 2002 from E7,819 million in
2001.

     Asset management investments decreased by E964 million, or 22.8%, to E3,260
million in 2002 from E4,224 million in 2001, reflecting primarily decreases in
trading assets and securities available for sale. Net investment income from
asset management investments decreased by E13 million to E28 million in 2002
from E41 million in 2001. Interest and similar income decreased
                                       111


by E10 million, or 7.8%, to E119 million in 2002, compared with E129 million in
2001, while realized gains decreased to E30 million in 2002 from E33 million in
2001. Investment expenses decreased by E26 million, or 18.7%, to E113 million in
2002 from E139 million in 2001.

YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000

     Net investment income decreased by E3,454 million, or 16.4%, to E17,585
million in 2001 from E21,039 million in 2000, largely as a result of the
downturn in the capital markets in 2001, as reflected in the decrease in
realized gains, which decreased by E2,792 million, or 25.6%, and the increase in
realized losses, which increased by E2,919 million, or 71.6%, in 2001 compared
to 2000.

     Property-casualty insurance investments increased by E17,044 million, or
13.7%, to E141,388 million in 2001 from E124,344 million in 2000, due primarily
to an increase in investments in affiliated enterprises, joint ventures and
associated enterprises. Net investment income from property-casualty investments
decreased by E1,042 million, or 13.0%, to E7,001 million in 2001 from E8,043
million in 2000, due primarily to price declines on the capital markets.
Interest and similar income decreased 9.0% to E5,068 million in 2001, compared
with E5,568 million in 2000, while realized gains decreased slightly to E4,211
million in 2001, compared with E4,250 million in 2000. Investment expenses
increased by E1,107 million, or 30.7%, to E4,714 million in 2001 from E3,607
million in 2000, reflecting primarily increased realized losses on investments
and writedowns of investments as a result of price declines in the capital
markets.

     Life/health insurance investments increased slightly by E3,944 million, or
1.7%, to E237,439 million in 2001 from E233,495 million in 2000, reflecting
primarily an increase in separate account investments. Net investment income
from life/health investments decreased by E5,749 million, or 41.3%, to E8,156
million in 2001 from E13,905 million in 2000, primarily due to a decrease in
realized gains on investments and an increase in realized losses on investments
due to price declines in the capital markets. Interest and similar income
increased 6.0%, to E10,765 million in 2001, compared with E10,152 million in
2000, while realized gains decreased 48.7%, to E3,405 million in 2001, compared
with E6,639 million in 2000. Investment expenses increased by E3,021 million, or
84.9%, to E6,579 million in 2001 from E3,558 million in 2000, reflecting
primarily an increase in realized losses on investments and writedowns of
investments due to price declines in the capital markets.

     Banking investments increased by E473,226 million to E490,140 million in
2001 from E16,914 million in 2000, due primarily to the acquisition of Dresdner
Bank. The Dresdner Bank acquisition was also the primary driver of the banking
segment's investment results, as our banking operations were not significant in
2000. Net investment income from banking investments increased by E2,809
million, to E3,154 million in 2001 from E345 million in 2000. Interest and
similar income increased to E9,085 million in 2001, compared with E1,502 million
in 2000, while realized gains increased to E505 million in 2001, compared with
E24 million in 2000. Investment expenses increased to E7,819 million in 2001
from E1,311 million in 2000.

     Asset management investments increased by E1,955 million, or 86.2%, to
E4,224 million in 2001 from E2,269 million in 2000, reflecting primarily the
acquisition of Dresdner Bank, offset in part by price declines on the capital
markets. Net investment income from asset management investments decreased by
E137 million to E41 million in 2001 from E178 million in 2000. Interest and
similar income decreased by E75 million, or 36.8%, to E129 million in 2001,
compared with E204 million in 2000, while realized gains increased to E33
million in 2001 from E18 million in 2000. Investment expenses increased by E78
million, or 127.9%, to E139 million in 2001 from E61 million in 2000, reflecting
primarily realized losses on investments due to price declines in the capital
markets.

                                       112


                        LIQUIDITY AND CAPITAL RESOURCES

     We operate as both a holding company for the Group's insurance, banking and
other subsidiaries and as a reinsurance company, primarily for other Group
companies. The liquidity and capital resource considerations for us and for our
domestic and non-domestic operating subsidiaries vary in light of the business
conducted by each, as well as the insurance and banking regulatory requirements
applicable to the Allianz Group in Germany and the other countries in which it
does business. At December 31, 2002, 2001 and 2000, Allianz Group had E21,008
million, E21,240 million and E4,209 million, respectively, of cash and cash
equivalents. See Note 10 to our consolidated financial statements. We believe
that our working capital is sufficient for our present requirements.

     Our principal sources of funds are premiums, customer deposits, investment
income, funds that may be raised from time to time from the issuance of debt or
equity securities and bank or other borrowings, as well as cash dividends and
reinsurance premiums received from our subsidiaries. For additional information,
see Note 19 to the consolidated financial statements. See also "-- Selected
Statistical Information Relating to Our Banking Operations" and "Quantitative
and Qualitative Disclosures about Market Risk." For further information
regarding the uses and sources of liquidity, capital requirements, and other
related matters, see "-- Consolidated Cash Flows."

     The majority of Allianz AG's external debt financing at December 31, 2002
was in the form of debentures and money market securities. Our total
certificated liabilities outstanding at December 2002, 2001 and 2000 were
E78,750 million, E134,670 million and E13,606 million, respectively. Of the
certificated liabilities outstanding at December 31, 2002, E41,077 million were
due within one year. For further information regarding outstanding certificated
liabilities, see Note 19 to our consolidated financial statements. Proceeds to
Allianz Finance B.V. and Allianz Finance II B.V. from the issuance of debt for
the years ended December 31, 2002, 2001 and 2000 were approximately E5,400
million, E3,054 million and E2,354 million, respectively.

     We paid dividends of E374 million, E364 million, E367 million and E307
million on our shares in 2003, 2002, 2001 and 2000 with respect to the fiscal
years 2002, 2001, 2000 and 1999, respectively. See "Key
Information -- Dividends." Dividends paid by our operating companies outside of
Germany are generally retained by an intermediate holding company to finance
operations or acquisitions in the relevant countries. As a result, we generally
pay dividends out of the profits from our reinsurance operations and profits
transferred from our German operating subsidiaries.

     Certain of the companies within the Allianz Group are subject to legal
restrictions on the amount of dividends they can pay to their shareholders. In
addition to the restrictions in respect of minimum capital and solvency
requirements that are imposed by insurance and other regulators in the countries
in which these companies operate, other limitations exist in certain countries.
For example, the operations of our insurance company subsidiaries located in the
United States are subject to limitations on the payment of dividends to their
parent company under applicable state insurance laws. Dividends paid in excess
of these limitations generally require prior approval of the insurance
commissioner of the state of domicile. See "-- Regulation and Supervision."

                            CONSOLIDATED CASH FLOWS

     The liquidity requirements of our insurance operations are met both on a
short- and long-term basis by funds provided by insurance premiums collected,
investment income and collected reinsurance receivables, and from the sale and
maturity of investments. We also have access to commercial paper, medium-term
notes and other credit facilities as additional sources of liquidity. The major
uses of these funds are to pay property-casualty claims and related claims
expenses,

                                       113


provide life policy benefits, pay surrenders, cancellations and profit sharing
for life policyholders and pay other operating costs. We generate a substantial
cash flow from insurance operations as a result of most premiums being received
in advance of the time when claim payments or policy benefits are required.
These positive operating cash flows, along with that portion of the investment
portfolio that is held in cash and liquid securities, have historically met the
liquidity requirements of our insurance operations.

     In the insurance industry, liquidity generally refers to the ability of an
enterprise to generate adequate amounts of cash from its normal operations,
including its investment portfolio, in order to meet its financial commitments,
which are principally obligations under its insurance or reinsurance contracts.
The liquidity of our property-casualty insurance operations is affected by the
frequency and severity of losses under its policies, as well as by the
persistency of its products. Future catastrophic events, the timing and effect
of which are inherently unpredictable, may also create increased liquidity
requirements for our property-casualty operations. The liquidity needs of our
life operations are generally affected by trends in actual mortality experience
relative to the assumptions with respect thereto included in the pricing of its
life insurance policies, by the extent to which minimum returns or crediting
rates are provided in connection with its life insurance products, as well as by
the level of surrenders and withdrawals.

     With regard to our banking operations, our primary sources of liquidity are
customer deposits and interest income from our lending transactions and our
investment portfolio, while our major uses of funds are for the issuance of new
loans and advances to banks and customers, and the payment of interest on
deposits, certificated liabilities and subordinated liabilities and other
operating costs. Other sources of liquidity include our ability to borrow on the
interbank market and convert securities in our investment and trading portfolios
into cash.

     Our uses of funds, in addition to the dividends paid to shareholders of
Allianz AG include underwriting expenditures (reinsurance premiums, benefits,
surrenders, claims -- including claims handling expenses -- and profit sharing
by life policyholders), acquisitions, and employee and other operating expenses,
as well as interest expense on outstanding borrowings. Our life and health
insurance products include mandatory profit-sharing features, whereby we return
a specified portion of statutory profits to policyholders annually, generally in
the form of premium subsidies or rebates. See "-- Life/Health Insurance
Operations -- Life/Health Operations by Geographic Region -- Germany -- Life
Insurance" and "-- Life/Health Insurance Operations -- Life/Health Operations by
Geographic Region -- Germany -- Health Insurance."

     Recent significant acquisitions have included the purchases of PIMCO in May
2000, Nicholas-Applegate in January 2001 and Dresdner Bank in July 2001. On
March 31, 2003, a subsidiary of Allianz AG received notice from the former
parent company of PIMCO that such former parent company had exercised its rights
to put US$250 million of its remaining ownership interest in PIMCO to Allianz,
with payment therefore due by April 30, 2003. Such payment was made on April 14,
2003. See Note 3 to our consolidated financial statements for additional
information.

     Our capital requirements are primarily dependent on our business plans
regarding the levels and timing of capital expenditures and investments.

     The following cash flow discussion reflects reclassifications in 2002 of
cash flows in 2001 and 2000 relating to aggregate policy reserves for life
insurance products according to SFAS 97 and investments held on account and at
risk of life insurance policyholders from investing activities to financing
activities.

YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001

     Net cash used in operating activities was E670 million in 2002, compared to
net cash used in operating activities of E775 million in 2001. The decrease in
net cash used reflected primarily a

                                       114


significant increase in cash provided by trading securities (including trading
liabilities), offset in part by increases in cash used in other operating
activities. Cash provided by trading securities (including trading liabilities)
increased to E14,064 million provided in 2002 from E12,544 million used in 2001,
a net change of E26,608 million, due primarily to reductions in investments held
in the Dresdner Bank trading portfolio and an increase in trading liabilities,
which reflected primarily obligations to deliver securities and net declines in
the market values of derivative transactions. The reductions in the Dresdner
Bank trading portfolio reflected a decline in the carrying value of equity
securities. The increase in cash provided by trading securities was offset in
part by a decrease in cash provided by loans and advances to banks and customers
to E5,846 million used in 2002 from E3,442 million provided in 2001, resulting
primarily from a significant increase in short term loans. Cash flow from other
receivables and liabilities also decreased to E1,399 million used in 2002 from
E3,843 million provided in 2001. Cash flow from certificated liabilities
decreased to E1,727 million used in 2002 from E3,130 million provided in 2001,
due to repayment of money market liabilities. Cash flow from liabilities to
banks and customers decreased to E8,215 million used in 2002 from E5,456 million
used in 2001. In addition, we recorded a net loss in 2002 of E1,167 million, a
net change of E2,790 million from 2001, when we recorded net income of E1,623
million.

     Net cash used in investing activities was E13,780 million in 2002, compared
to net cash provided by investing activities of E11,395 million in 2001. The
significant decrease in net cash from investing activities was due primarily to
the decrease in cash and cash equivalents resulting from the deconsolidation of
the cash balances of Bayerische Versicherungsbank AG, Frankfurter
Versicherungs-AG and Deutsche Hyp in 2002. The aggregate impact of the
deconsolidation of these cash balances was E10,787 million. The decrease in 2002
also reflected the high levels of net cash provided by investing activities in
2001, which resulted from a significant increase in cash and cash equivalents
due to the first-time consolidation of the cash balances of Dresdner Bank in
July 2001. The remaining decrease in investing cash flows in 2002 was due to net
purchases of investments, excluding the effects of the above deconsolidations.

     Net cash provided by financing activities was E14,327 million in 2002,
compared to net cash provided by financing activities of E6,393 million in 2001.
The increase was attributable primarily to an increase in cash provided by
subordinated liabilities, reflecting E3,445 million in subordinated debt issued
in 2002. Cash provided by aggregate policy reserves also increased to E10,808
million provided in 2002 from E8,089 million provided in 2001, reflecting the
increased net inflow of funds related to variable annuities and unit-linked life
insurance policies in line with the overall increase in our life insurance
business in 2002. These increases were offset in part by a decrease in cash flow
attributable to redemption of participation certificates.

YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000

     Net cash used in operating activities was E775 million in 2001, compared to
net cash provided by operating activities of E2,476 million in 2000. The
decrease was primarily attributable to a decrease in cash provided by trading
securities to E12,544 million used in 2001 from E46 million provided in 2000,
reflecting a significant increase in trading assets held by Dresdner Bank as a
result of trading positions taken at year end. Also contributing to the decrease
were a reduction in cash provided by liabilities to banks and customers, which
decreased to E5,456 million used in 2001 from E836 million provided in 2000,
reflecting repayment of short term loans and deposits over the course of 2001,
and an increase in cash used in other insurance reserves, which decreased to
E4,007 million used in 2001 from E2,227 million provided in 2000, reflecting
increased premium refunds to policyholders relative to additions to reserves.
These decreases were offset in part by an increase in cash provided by loans and
advances to banks and customers, which increased to E3,442 million provided in
2001 from E3,694 million used in 2000, due to repayments of loans at Dresdner
Bank as well as the lack of new loan volume attributable to our reduction of
non-core lending activity outside of Europe. Also offsetting

                                       115


the decrease was an increase in the cash provided by other receivables and
liabilities to E3,843 million provided in 2001 from E1,408 million used in 2000
and an increase in unearned premiums written in line with the increase in our
overall business volume in 2001.

     Net cash provided by investing activities was E11,395 million in 2001,
compared to net cash used in investing activities of E11,783 million in 2000,
reflecting primarily an increase in cash and cash equivalents from the
acquisition of consolidated affiliated companies, which increased to E12,114
million provided in 2001 from E3,045 million used in 2000. The increase was
attributable primarily to the consolidation of the cash balances of Dresdner
Bank in July 2001. Also contributing to the increase in net cash from investing
activities was a decrease in cash used in connection with securities available
for sale to E3,465 million used in 2001 from E7,271 million used in 2000 and an
increase in cash provided by other investments to E2,692 million provided in
2001 from E416 million used in 2000.

     The net cash provided by financing activities was E6,393 million in 2001,
compared to net cash provided by financing activities of E9,577 million in 2000,
reflecting primarily a decrease in cash provided by participation certificates
and subordinated liabilities to E770 million used in 2001 from E1,714 million
provided in 2000. The decrease was offset in part by an increased net inflow of
funds related to variable annuities and unit-linked life insurance policies in
line with the overall increase in our life insurance business in 2001.

                      PROPERTY-CASUALTY INSURANCE RESERVES

GENERAL

     When claims are made by or against policyholders, any amounts that a member
of the Allianz Group's property-casualty segment pays or expects to pay the
claimant are referred to as losses, and the costs of investigating, resolving
and processing these claims are referred to as loss adjustment expenses (or
LAE). We establish reserves for payment of losses and LAE for claims that arise
from its property-casualty insurance and reinsurance policies by product,
coverage and year for each company in the Group. In accordance with IFRS, no
specific loss and LAE reserves are established until an event that causes a loss
occurs.

     Loss and LAE falls into two categories: reserves for reported claims and
reserves for incurred but not reported (IBNR) claims. Reserves for reported
claims 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 on a
case-by-case basis, based on the facts and circumstances available at the time
the reserves are established. The estimates reflect the informed judgment of our
claims personnel based on general insurance reserving practices and knowledge of
the nature and value of a specific type of claim. These reserves are
periodically adjusted in the ordinary course of settlement and represent the
estimated ultimate costs necessary to bring all pending reported claims to final
settlement, taking into account inflation, and other societal and economic
factors which can influence the amount of the reserves required. Consideration
is given to historic trends of disposition patterns and loss payments, pending
levels of unpaid claims and types of coverage. In addition, court decisions,
economic conditions and public attitudes may also affect the estimation of
reserves, as well as ultimate costs of claims.

     IBNR reserves are established to recognize the estimated cost of losses
that have occurred but about which the Group does not yet have notice. These
reserves, like the reserves for reported claims, are established to recognize
the estimated costs, including expenses, necessary to bring claims arising out
of losses to final settlement. Since nothing is known about the occurrence, the
Group relies on its past experience adjusted for current trends and any other
factors that would modify past experience to estimate the IBNR liability. These
reserves are estimates that involve actuarial and statistical projections of the
expected cost of the ultimate settlement and administration of claims. The
analyses are based on facts and circumstances

                                       116


known at the time, predictions of future events, estimates of future inflation
and other societal and economic factors. Late reported claim trends, claim
severity, exposure growth and future inflation are some of the factors used in
projecting the IBNR reserve requirements. These reserves are reviewed and
revised periodically as additional information becomes available and actual
claims are reported.

     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 reported within a few days or weeks and are
generally settled within two to three years. Medium-tail claims such as personal
and commercial motor liability claims generally take four to six years to
settle, while long-tail claims, such as general liability, workers compensation,
construction and professional liability claims take longer to settle. Based on
the profile of property-casualty reserves for our largest operating entities, we
characterize our reserves as approximately 20% short-tail, 40% medium-tail and
40% long-tail.

     The ultimate cost of loss and LAE is subject to a number of highly variable
circumstances. As time passes between when a claim is reported to the final
settlement of the claim, a change in circumstances may require established
reserves to be adjusted either upwards or downwards. Items such as changes in
the legal environment, results of litigation, and changes in medical costs,
costs of automobile and home repair materials and labor rates can substantially
impact claim costs. These factors can cause actual developments to vary from
expectations, perhaps materially. Claims reserve estimates are periodically
reviewed and updated, using the most current information available to
management, and any adjustments resulting from changes in reserve estimates are
reflected in current results of operations.

     On the basis of the Group's internal procedures, management believes, based
on information currently available to it, that the Group's property-casualty
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 the Group's initial estimates.

RECONCILIATION OF BEGINNING AND ENDING LOSS AND LAE RESERVES

     The following table is a summary reconciliation of 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, 2002, on an IFRS basis.

                                       117


                    RECONCILIATION OF LOSS AND LAE RESERVES
                      PROPERTY-CASUALTY INSURANCE SEGMENT



                                                              YEAR ENDED DECEMBER 31,
                                                              ------------------------
                                                               2002     2001     2000
                                                              ------   ------   ------
                                                                  (E IN MILLIONS)
                                                                       
Balance as of January 1.....................................  61,476   54,047   51,272
Less reinsurance recoverable................................  16,156   12,571   12,089
                                                              ------   ------   ------
Net.........................................................  45,320   41,476   39,183
                                                              ------   ------   ------
Plus incurred related to:
  Current year..............................................  27,130   27,295   24,163
  Prior years(1)............................................     646       76     (123)
                                                              ------   ------   ------
Total incurred..............................................  27,776   27,371   24,040
                                                              ======   ======   ======
Less paid related to:
  Current year..............................................  12,642   11,895   11,735
  Prior years...............................................  12,143   12,462   11,968
                                                              ------   ------   ------
Total paid..................................................  24,785   24,357   23,703
                                                              ------   ------   ------
Effect of foreign exchange..................................  (3,367)     407      649
Effect of acquisitions(2)...................................     122      423      240
Reclassification(3).........................................      --       --      458
Other(4)....................................................      --       --      609
                                                              ------   ------   ------
Net balance at end of year..................................  45,066   45,320   41,476
Plus reinsurance recoverable................................  14,588   16,156   12,571
                                                              ------   ------   ------
Balance as of December 31...................................  59,654   61,476   54,047
                                                              ======   ======   ======


---------------

(1) The favorable development in 2000 is primarily due to our subsidiaries in
    Germany, Austria and the United Kingdom, offset to some extent by
    unfavorable run-off in Italy and the United States. The unfavorable
    development during 2002 is primarily due to increases in asbestos and
    general liability reserves in the United States.

(2) Reserves for loss and LAE of subsidiaries purchased (or sold) are included
    (or excluded) as of the date of acquisition (or disposition).

(3) Represents the movement of certain AGF Belgium reserves from aggregate
    policy reserves to loss reserves.

(4) In 2000, includes the impact of the commutation of a reinsurance agreement
    with Munich Re (E322.5 million).

CHANGES IN HISTORICAL LOSS AND LAE RESERVES

     The following loss and LAE reserve development table illustrates the change
over time of the loss and LAE reserves of the Group at the end of the years
indicated. The reserves represent the estimated amount of loss and LAE for
claims arising in the current and all prior accident years that are unpaid at
the balance sheet date, including IBNR. Since the Group adopted IFRS in 1997,
historical loss development data is available on an IFRS basis of accounting for
the six years 1997 to 2002 only.

                                       118


     The first section of each table shows gross reserves for loss and LAE as
initially established at the end of each stated year. The second section,
reading down, shows the cumulative amounts paid, gross of reinsurance and
retrocessions, as of the end of the successive years with respect to the reserve
initially established. The third section shows the retroactive re-estimation of
the initially established gross reserves for loss and LAE as of the end of each
successive year, which results primarily from the Group's expanded awareness of
additional facts and circumstances that pertain to open claims. The last 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, 2002. For
instance, 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. 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.

             CHANGES IN HISTORICAL RESERVES FOR UNPAID LOSS AND LAE
                      PROPERTY-CASUALTY INSURANCE SEGMENT
                              GROSS OF REINSURANCE



                                                             DECEMBER 31,(1)
                                     ---------------------------------------------------------------
                                      1997      1998       1999         2000      2001         2002
                                     ------   --------   --------      ------   --------      ------
                                                             (E IN MILLIONS)
                                                                            
Gross liability for unpaid claims
  and claims expenses..............  34,323     45,560(2)   51,272(3)  54,047     61,476(4)   59,654
Paid (cumulative) as of:
  One year later...................   8,573     12,996     15,949      16,639     17,384
  Two years later..................  13,329     20,967     24,132      24,451
  Three years later................  16,778     24,588     29,123
  Four years later.................  19,562     27,829
  Five years later.................  21,539
Liability re-estimated as of:
  One year later...................  32,200     46,768     52,663      55,357     60,195
  Two years later..................  33,104     46,975     53,589      55,289
  Three years later................  32,766     47,346     53,101
  Four years later.................  33,455     46,687
  Five years later.................  33,426
Cumulative surplus (deficiency)....     897     (1,127)    (1,829)     (1,243)     1,281
Cumulative surplus (deficiency)
  excluding impact of foreign
  exchange.........................   1,731      1,511     (1,353)     (2,227)    (1,572)
  Percent..........................     5.0%       3.3%      (2.6)%      (4.1)%     (2.6)%


---------------

(1) Reserves for loss and LAE of subsidiaries purchased (or sold) are included
    (or excluded) as of the date of the acquisition (or disposition).

(2) As a result of the acquisition of AGF, loss and LAE reserves at December 31,
    1998 increased by E10,658 million on a gross basis.

(3) As of December 31, 1999, gross reserves increased by E1.2 billion as a
    result of the completion of the acquisition of Allianz Australia and by E2.0
    billion as a result of the strengthening of the U.S. dollar and the pound
    sterling against the euro.

                                       119


(4) As of December 31, 2001, the increase in gross reserves was primarily due to
    the gross incurred losses and loss adjustment expenses related to the
    terrorist attack of September 11, 2001.

     As of December 31, 2002, 2001 and 2000, our consolidated property-casualty
reserves reflected discounts of E1,529 million E1,580 million, and E1,445
million, respectively.

     Reserves are discounted to varying degrees in the United States, Germany,
Hungary, Switzerland, Portugal, France and Belgium. For the United States, the
discount reflected in the reserves is related to annuities for certain
long-tailed liabilities, primarily in workers' compensation. For the other
countries, the reserve discounts relate to annuity reserves for 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
and health disability in Belgium. All of the reserves that have been discounted
have payment amounts that are fixed and timing that is reasonably determinable.

     The significant increase in the gross reserves for 2001 over 2000 for the
Allianz Group companies is driven by gross incurred losses and loss adjustment
expenses related to the terrorist attack of September 11, 2001. On a
consolidated Group basis, the terrorist attack of September 11, 2001 resulted in
net claims costs of approximately E1,500 million. Estimated losses are based on
a policy-by-policy analysis as well as a variety of actuarial techniques,
coverage interpretations and claim estimation methodologies, and include an
estimate of incurred but not reported, as well as estimated costs related to the
settlement of claims. These loss estimates are subject to considerable
uncertainty.

     Because the terrorist attack of September 11, 2001 was a single coordinated
event, it is the belief of the Group's management that the losses at the World
Trade Center constitute one occurrence. A Group company is currently a defendant
in a lawsuit brought by an insured alleging that the attack constituted multiple
occurrences. Based on the policy wording, the Group believes it is clear that
the attack constitutes one occurrence and intends to defend this matter
vigorously.

     The reserves held at year-end 1997 and year-end 1998 show surpluses of 5.0%
and 3.3%, respectively, after adjusting for the impact of exchange rate
fluctuations. The surplus is primarily driven by favorable claims experience in
Germany, France, the United Kingdom, and Austria and is offset by adverse
development in Italy. The reserves held at year-end 1999, year-end 2000 and
year-end 2001 show deficiencies of 2.6%, 4.1% and 2.6%, respectively, after
adjusting for the impact of exchange rate fluctuations. The deficiency for
year-end 1999 is driven by upward development on claims related to the storms
"Lothar" and "Martin" that occurred in Europe in late 1999. Additionally, the
strengthening of the reserves U.S. casualty, asbestos and environmental, as well
as for motor liability and general liability in Italy during 2001 and 2002
contributed to the deficiencies shown for 1999, 2000 and 2001. The cumulative
deficiency in 2001 was also significantly impacted by exchange rate fluctuations
between the euro and U.S. dollar, reflecting the reserve additions taken at our
U.S. subsidiaries Fireman's Fund and Allianz Insurance Co.

INDIVIDUAL COUNTRY RESERVES -- GROSS RESERVES

     The following five tables present loss development data on a local
statutory basis of accounting for Germany, the United States, the United
Kingdom, France and Italy, the five countries in which we write the majority of
our business.

     Since the Group adopted IFRS in 1997, historical loss development data is
not available on a consistent basis of accounting for years prior to 1997.
Therefore, the individual country tables

                                       120


presented on the following pages are prepared on a local statutory basis of
accounting for each respective country.

     Generally, under German, French and Italian statutory accounting
principles, property-casualty loss and LAE reserves are established based on a
case reserving approach. Individual case reserves, set by claims adjusters, are
aggregated to determine the overall reserve amounts. In addition, local
regulations in some countries require an equalization reserve as a safety
margin. In comparison, under IFRS, overall property-casualty reserves are set by
analyzing past data and applying actuarial methodologies to this data. In
addition, IFRS-based reserves exclude equalization reserves. Consistent with
IFRS principles, catastrophe and equalization reserves are not included in the
individual country loss and LAE reserves disclosures.

     The tables for Germany, France, Italy and the United Kingdom present nine
years of loss information, as over 60% of the business in these countries is
short and medium tail. The table for the United States presents ten years of
loss information, as the Group provides longer tail coverages in this market.

GERMANY

     The loss reserve development table for Germany includes the development of
property-casualty reserves for the Group subsidiaries that insure or reinsure
property-casualty risks in Germany. The table is presented on a consolidated
basis for the Group's subsidiaries in Germany on a German statutory accounting
basis, and represents 100% of property-casualty reserves in Germany.

     In Germany, reserves related to annuities for personal accident, general
liability and motor liability claims are discounted. As of December 31, 2002,
2001, and 2000, our German property-casualty reserves reflected discounts of
E223 million, E202 million, and E180 million, respectively.



                                                                    DECEMBER 31,
                                   ------------------------------------------------------------------------------
                                    1994     1995     1996     1997     1998     1999     2000     2001     2002
                                   ------   ------   ------   ------   ------   ------   ------   ------   ------
                                                                  (E IN MILLIONS)
                                                                                
Gross reserves for unpaid claims
  and claims expenses............  10,068   10,787   13,046   13,409   13,235   13,341   13,522   14,642   14,519
Cumulative paid as of:
  One year later.................   2,080    2,052    2,448    2,444    2,527    2,841    2,721    2,992
  Two years later................   2,875    2,829    3,434    3,328    3,576    3,889    3,872
  Three years later..............   3,334    3,357    3,927    4,013    4,198    4,587
  Four years later...............   3,710    3,762    4,421    4,453    4,683
  Five years later...............   4,026    4,103    4,766    4,839
  Six years later................   4,299    4,329    5,081
  Seven years later..............   4,480    4,564
  Eight years later..............   4,670
Liability re-estimated as of:
  One year later.................   9,314    9,780   11,821   11,954   11,982   12,413   12,427   13,483
  Two years later................   8,701    9,144   10,814   10,764   10,916   11,424   11,469
  Three years later..............   8,337    8,542    9,977   10,036   10,279   10,662
  Four years later...............   7,913    8,105    9,425    9,549    9,589
  Five years later...............   7,602    7,772    9,061    9,003
  Six years later................   7,366    7,518    8,593
  Seven years later..............   7,167    7,513
  Eight years later..............   7,167
  Cumulative surplus
    (deficiency).................   2,901    3,274    4,453    4,406    3,646    2,679    2,053    1,159
    Percent......................    28.8%    30.4%    34.1%    32.9%    27.5%    20.1%    15.2%     7.9%


                                       121


     As a multi-line insurer in the German market, our reserves include diverse
property-casualty coverages including motor liability, general liability,
property, marine, and credit. In Germany, the general practice is to record
statutory reserves based on a prudent case-by-case reserve approach.
Statistically, due to favorable outcomes on certain portions of the case
reserves, this methodology leads to overall favorable development in the total
reserves, leading to statutory reserves that are generally redundant. There were
no material changes in the past year in the methods, assumptions or practices of
estimating loss reserves in Germany.

     The increase in the gross reserves for 2001 over 2000 for Allianz Group
non-life insurance companies in Germany is driven by gross incurred losses and
loss adjustment expenses related to the terrorist attack of September 11, 2001,
a majority of which is attributable to reinsurance underwritten by Allianz AG.

UNITED STATES

     The loss reserve development table for the United States includes the
development of property-casualty reserves for the Group subsidiaries in the
United States that insure or reinsure property-casualty risks. The table is
presented on a consolidated basis for the Group's subsidiaries in the United
States on a U.S. statutory basis, and represents 100% of property-casualty
reserves in the United States. As of December 31, 2002, 2001, and 2000, our U.S.
property-casualty reserves reflected discounts of E316 million, E412 million,
and E295 million, respectively.



                                                               DECEMBER 31,
                          ---------------------------------------------------------------------------------------
                           1993     1994     1995     1996     1997     1998     1999     2000     2001     2002
                          ------   ------   ------   ------   ------   ------   ------   ------   ------   ------
                                                              (E IN MILLIONS)
                                                                             
Gross reserves for
  unpaid claims and
  claims expenses.......   7,972    7,174    7,415    8,633   10,571   10,047   11,932   12,701   16,292   15,860
Cumulative paid as of:
  One year later........   1,589    1,536    1,626    2,538    2,589    2,937    4,043    3,966    4,277
  Two years later.......   2,557    2,516    3,191    4,099    4,429    5,323    6,284    6,013
  Three years later.....   3,213    3,573    4,308    5,455    5,963    6,707    7,715
  Four years later......   3,960    4,432    5,384    6,410    6,882    7,672
  Five years later......   4,569    5,358    6,132    7,087    7,655
  Six years later.......   5,436    5,981    6,654    7,745
  Seven years later.....   5,991    6,414    7,255
  Eight years later.....   6,358    6,970
  Nine years later......   6,890


                                       122




                                                               DECEMBER 31,
                          ---------------------------------------------------------------------------------------
                           1993     1994     1995     1996     1997     1998     1999     2000     2001     2002
                          ------   ------   ------   ------   ------   ------   ------   ------   ------   ------
                                                              (E IN MILLIONS)
                                                                             
Liability re-estimated
  as of:
  One year later........   6,970    7,285    8,260   10,644   10,254   11,711   13,081   13,361   16,899
  Two years later.......   7,207    7,984    9,859   10,341   11,286   11,965   13,312   14,429
  Three years later.....   7,814    9,274    9,614   11,087   11,374   11,969   14,311
  Four years later......   8,834    9,112   10,250   11,074   11,316   12,853
  Five years later......   8,780    9,687   10,261   10,959   12,277
  Six years later.......   9,384    9,710   10,130   11,940
  Seven years later.....   9,428    9,597   11,185
  Eight years later.....   9,329   10,684
  Nine years later......  10,450
  Cumulative surplus
    (deficiency)........  (2,478)  (3,510)  (3,770)  (3,307)  (1,706)  (2,806)  (2,379)  (1,728)    (606)
  Cumulative surplus
    (deficiency)
    excluding impact of
    foreign exchange....  (2,075)  (1,958)  (1,166)  (1,040)    (765)    (553)  (1,601)  (2,126)  (2,501)
      Percent...........   (26.0)%  (27.3)%  (15.7)%  (12.1)%   (7.2)%   (5.5)%  (13.4)%  (16.7)%  (15.3)%


     The Group's portfolio in the United States consists of a diverse group of
personal and commercial coverages, including workers' compensation, general
liability, automobile liability, property, fire and marine generally written
throughout the United States, and as such we are exposed to general developments
and risks that affect the entire U.S. property-casualty industry.

     The significant increase in the gross reserves for 2001 over 2000 for the
Allianz Group non-life insurance companies in the United States is driven by
incurred losses and loss adjustment expenses related to the simultaneous
terrorist attack of September 11, 2001, nearly all of which is attributable to
Allianz Insurance Co.

     Primary drivers of the increase in 2002 in the estimated liability for
prior years were:

     - Reserve strengthening of US$750 million (net and gross) relating to
       asbestos and environmental (A&E) exposures at Fireman's Fund for accident
       years 1987 and prior;

     - General net reserve strengthening at Fireman's Fund for accident years
       1999 and 2000; and

     Increases of US$1,145 million in gross reserves for general liability and
property exposures at Allianz Insurance Co.

     In 2002 Fireman's Fund completed an analysis of A&E liabilities. The
analysis used ground-up exposure-based modeling where appropriate, supplemented
by aggregate methods such as average cost models and survival ratio methods. In
response to the results of this study, we increased gross asbestos reserves by
US$750 million (net and gross) in September 2002, which was within the
reasonable range of the analysis and resulted in an unadjusted one-year survival
ratio of 12.8 and an unadjusted three-year survival ratio of 15.7. In 1995,
Fireman's Fund had increased its net and gross reserves for A&E by US$800
million and in 2000 an additional US$250 million was reallocated to A&E.

     There are significant uncertainties in estimating the amount of A&E claims.
Reserves for asbestos-related illnesses, toxic waste clean-up claims and latent
drug and chemical exposures cannot be estimated with traditional loss reserving
techniques. Case reserves are established when sufficient information has been
obtained to indicate the involvement of a specific insurance policy. In
addition, IBNR reserves are established to cover additional exposures on both
known and unasserted claims. In establishing the liabilities for claims arising
from asbestos-related

                                       123


illnesses, toxic waste clean-up and latent drug and chemical exposures,
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, and given the inherent uncertainty
in estimating A&E liabilities, significant adverse deviation from the current
carried A&E reserve position is possible.

     In response to the uncertainty associated with A&E claims, Fireman's Fund
has created an environmental claims unit focused on A&E claims evaluation and
remediation for our U.S. subsidiaries. The staff of this unit, consisting of a
total of approximately 50 employees, determines appropriate coverage issues
according to the terms of the policies and contracts involved and, on the basis
of its experience and expertise, makes judgments as to the ultimate loss
potential related to each claim submitted for payment under the various policies
and contracts. Judgments of potential losses are also made from precautionary
reports submitted by insured companies for claims which have the possibility of
involving policy coverage. Factors considered in determining the reserve are:
whether the claim relates to asbestos or hazardous waste; whether the claim is
for bodily injury or property damage; the limits of liability and attachment
points; policy provisions for expenses (which are a significant portion of the
estimated ultimate cost of these claims); type of insured; and any provision for
reinsurance recoverables. In addition, Fireman's Fund actively pursues
commutations and reinsurance cessions to reduce its A&E exposures.

     The industry-wide loss trends for some of these exposures, especially for
asbestos-related losses, have deteriorated recently. Some of the reasons for
this deterioration include: insureds who either produced or installed products
containing asbestos have seen more and larger claims brought against them, some
of these companies have declared bankruptcy, which has caused plaintiffs'
attorneys to seek larger amounts from solvent defendants and to also include new
defendants; some defendants are also seeking relief under different coverage
provisions when the products liability portion of their coverage has been
exhausted. These developments led the Allianz Group to engage outside actuarial
consulting firms to update a previous study conducted in 1995 to analyze the
adequacy of the Group's reserves for these types of losses.

     These A&E reserve analyses were completed during 2002, ultimately resulting
in an additional US$750 million of reserves attributed entirely to
asbestos-related exposures. The analyses included a review of the ultimate gross
asbestos loss and allocated loss expense reserves for accident years 1987 and
prior. The methodology involved exposure-based modeling of policies with the
greatest asbestos exposure, supplemented by aggregate methods for the remaining
insureds.

     The range of reasonable potential outcomes for A&E liabilities provided in
these analyses was particularly large, and given the inherent uncertainty in
estimating A&E liabilities, significant adverse (or favorable) deviation from
the current carried A&E reserve position is possible. The range of net loss and
allocated loss expense reserve estimates resulting from our A&E study (based on
data evaluated as of December 31, 2001) -- taking into account internal and
external actuarial analyses, together with management's estimates concerning
such factors as the impact of claims handling efforts, commutations, aggressive
reinsurance collection, potential conservatism in the estimates and the
recognition that not all outcomes would likely be favorable or unfavorable at
the same time (resulting in a compression of the range) -- was US$1,196 million
to US$1,965 million, with a midpoint of US$1,580 million. Such range compared to
our carried A&E reserves of US$816 million at December 31, 2001, resulting in a
deficiency of US$380 million to US$1,149 million. As a result, we increased
gross and net A&E reserves by US$750 million in 2002 in order to bring carried
A&E reserves at December 31, 2002 to the midpoint of such range.

                                       124


     The table below shows Fireman's Fund case count activity for A&E in 2002
and 2001:



                                                              YEAR TO DATE CASE
                                                                   COUNTS
                                                                DECEMBER 31,
                                                              -----------------     PERCENT
                                                               2002       2001      CHANGE
                                                              ------     ------     -------
                                                                           
New.........................................................    495        486         1.9%
Reopened....................................................    241        175        37.7%
Closed......................................................    902      1,906       (52.7)%
Pending.....................................................  1,741      1,903        (8.5)%


     On September 30, 2002, Fireman's Fund entered into a reinsurance contract
whereby it ceded all net carried A&E reserves to Allianz AG, with Allianz AG
providing reinsurance cover up to a maximum of US$2,158 million. Total A&E
reserves ceded under this treaty were US$1,276 million for consideration in the
amount of US$1,276 million. The following table summarizes the gross and net
U.S. claim reserves for A&E claims at December 31 for the years indicated.



                                                                 AS PERCENTAGE OF   AS PERCENTAGE OF
                                                                  U.S. PROPERTY-       THE GROUP'S
                                                                     CASUALTY       PROPERTY-CASUALTY
YEAR-END DECEMBER 31,    A&E NET RESERVES   A&E GROSS RESERVES    GROSS RESERVES     GROSS RESERVES
---------------------    ----------------   ------------------   ----------------   -----------------
                         (E IN MILLIONS)     (E IN MILLIONS)
                                                                        
1998...................         982               1,849                18.4%               4.1%
1999...................         883               1,509                12.6%               2.9%
2000...................       1,072               1,778                14.0%               3.3%
2001...................         979               1,649                10.1%               2.7%
2002...................         249               1,704                10.7%               2.9%


     In addition to the increase in A&E and general liability reserves, in 2002
Fireman's Fund increased reserves for accident years 1999 and 2000 following the
re-evaluation of several business segments during our regular quarterly reserve
analyses. For 1999, commercial auto liability, medical malpractice, other
liability and workers' compensation reserves were increased US$102 million,
partially offset by favorable development in commercial multi-peril (US$41
million). Accident year 2000 reserves were increased in commercial auto
liability, medical malpractice and other liability (US$141 million), partially
offset by favorable development in commercial multi-peril and surety (US$56
million). Two of the major business segments that drove the results for
commercial auto liability and medical malpractice above have been reevaluated as
businesses that we will not write in the future. For Allianz Insurance Co., the
gross increases in general liability reserves in 2002 were based on a thorough
actuarial analysis carried out in conjunction with a significant re-underwriting
of the company's business. The company discontinued most of its general
liability portfolio from mid-2002. Of the gross reserve increases for this
segment the majority, US$816 million, relates to the accident years 1997 through
2001. There was substantial reported loss emergence for these years during 2002,
partly due to a more conservative case reserving philosophy but mainly due to
increased loss activity. It has become apparent over the last year that the
development characteristics of accident years 1997 onwards are substantially
different than for prior years, being more exposed to severity losses as more
excess business was written. In recognition of this, during 2002, we added a
frequency severity approach to the standard actuarial projections previously
applied. Of the remaining increase, US$130 million is for accident years 1985
and prior, partly for A&E exposures and including US$77 million for potential
claims for against priests in California.

     The US$188 million increase in the property segment is entirely due to
additional provisions for the terrorist attack of September 11, 2001.

                                       125


     The table below shows total A&E loss activity for the past five years for
Fireman's Fund and Allianz Insurance Co. These figures are shown gross of
reinsurance and on a statutory basis.

                        A & E GROSS LOSS AND LAE HISTORY



                                                               YEAR ENDED DECEMBER 31,
                                                         -----------------------------------
                                                         1998    1999    2000   2001   2002
                                                         -----   -----   ----   ----   -----
                                                                   ($ IN MILLIONS)
                                                                        
ASBESTOS
Loss + LAE Reserves as of January 1....................    499     957   727    679      596
Plus Incurred Loss and LAE.............................    553     (54)  126     23      688
Less Loss and LAE Payments.............................     95     175   174    106      137
  Payments for Loss....................................            149   142     79      102
  Payments for LAE.....................................             26    32     27       35
Loss + LAE Reserves as of December 31..................    957     727   679    596    1,147




                                                               YEAR ENDED DECEMBER 31,
                                                         -----------------------------------
                                                         1998    1999    2000   2001   2002
                                                         -----   -----   ----   ----   -----
                                                                   ($ IN MILLIONS)
                                                                        
ENVIRONMENTAL
Loss + LAE Reserves as of January 1....................  1,307   1,205   788    975      863
Plus Incurred Loss and LAE.............................    (41)    (34)  318    (37)      73
Less Loss and LAE Payments.............................     61     383   131     75      306
  Payments for Loss....................................            349    75     38      259
  Payments for LAE.....................................             34    55     37       47
Loss + LAE Reserves as of December 31..................  1,205     788   975    863      630




                                                             YEAR ENDED DECEMBER 31,
                                                      -------------------------------------
                                                      1998    1999    2000    2001    2002
                                                      -----   -----   -----   -----   -----
                                                                 ($ IN MILLIONS)
                                                                       
TOTAL ASBESTOS AND ENVIRONMENTAL
Loss + LAE Reserves as of January 1.................  1,806   2,162   1,515   1,654   1,459
Plus Incurred Loss and LAE..........................    512     (88)    444     (13)    760
Less Loss and LAE Payments..........................    156     558     305     182     443
  Payments for Loss.................................            498     217     117     361
  Payments for LAE..................................             60      87      65      83
Loss + LAE Reserves as of December 31...............  2,162   1,515   1,654   1,459   1,776


UNITED KINGDOM

     The loss reserve development table for the United Kingdom includes the
development of property-casualty reserves for the Group subsidiaries that insure
or reinsure property-casualty risks in the United Kingdom. The table is
presented on a consolidated basis for the Group's subsidiaries on a U.K. GAAP
basis, which is similar to an IFRS basis, and represents 100% of
property-casualty reserves in the United Kingdom.

                                       126




                                                                         DECEMBER 31,
                                             ---------------------------------------------------------------------
                                             1994    1995    1996    1997    1998    1999    2000    2001    2002
                                             -----   -----   -----   -----   -----   -----   -----   -----   -----
                                                                        (E IN MILLIONS)
                                                                                  
Gross reserves for unpaid claims and claims
  expenses.................................  1,141   1,158   1,445   1,797   2,727   3,165   3,262   3,557   3,369
Cumulative paid as of:
  One year later...........................    305     393     469     507     835     911   1,059   1,033
  Two years later..........................    534     627     695     759   1,264   1,496   1,586
  Three years later........................    708     765     856     907   1,622   1,825
  Four years later.........................    807     882     947   1,039   1,841
  Five years later.........................    897     938   1,031   1,109
  Six years later..........................    934   1,001   1,075
  Seven years later........................    969   1,035
  Eight years later........................    995
Liability re-estimated as of:
  One year later...........................  1,055   1,349   1,613   1,606   2,960   3,052   3,189   3,153
  Two years later..........................  1,205   1,467   1,467   1,629   2,816   3,013   2,954
  Three years later........................  1,298   1,356   1,485   1,614   2,720   2,873
  Four years later.........................  1,203   1,356   1,467   1,506   2,622
  Five years later.........................  1,204   1,355   1,407   1,461
  Six years later..........................  1,219   1,330   1,391
  Seven years later........................  1,270   1,322
  Eight years later........................  1,265
  Cumulative surplus (deficiency)..........   (124)   (164)     54     336     105     292     308     404
  Cumulative surplus (deficiency) Excluding
    impact of foreign exchange.............      8     143     228     339     369     259     251     223
    Percent................................    0.7%   12.4%   15.8%   18.9%   13.5%    8.2%    7.7%    6.3%


     In the United Kingdom, we write a broad mix of property-casualty business
for both individual and commercial clients. Our general practice is to record
property-casualty reserves at the actuarial best estimate plus a margin for
prudence. Accordingly, from 1996 through 2000, we have experienced favorable
development in property-casualty claim reserves, which has arisen to differing
degrees on almost all lines of business and reflects the approach of calculating
reserves on a prudent best estimate basis. This approach reflects industry
practice in the United Kingdom.

     Allianz Cornhill experienced gross incurred losses and loss adjustment
expenses related to the terrorist attack of September 11, 2001, which was a
primary factor in year-to-year reserves development.

     The periods prior to and including 1995 differ from subsequent periods in
that they showed a deficiency for earlier development years before a surplus
emerged. This deficiency arose from the strengthening of reserves relating to
Marine Excess of Loss business written through the London Market during the late
1980's. This strengthening of Marine reserves more than offset the redundancy
emerging from other lines of business at the time. The Group considers that the
reserve issues that arose at the time have been fully addressed, as evidenced by
the now positive run-off. There were no material changes in reserving
assumptions, methods or philosophy during 2002.

     The table also shows a sharp increase in the level of gross reserves from
1997 to 1998. This is primarily due to the acquisition of AGF in 1998. Reserves
from AGF's UK subsidiaries were E1,067 million at December 31, 1998.

FRANCE

     The loss reserve development table for France includes the development of
property-casualty reserves for the Group subsidiaries that insure or reinsure
property-casualty risks in

                                       127


France. The table is presented on a consolidated basis for the Group's
subsidiaries in France on a French statutory accounting basis. All
property-casualty lines other than construction, marine, aviation and
transportation, and credit are presented on an accident year basis.
Construction, marine, aviation and transportation, and credit are presented on
an underwriting year basis, consistent with applicable French statutes. Loss
reserves presented on an "underwriting year" basis represent claims related to
all policies written during a given year. In contrast, "accident year" loss
reserves represent claims for events that occurred during a given calendar year,
regardless of when the policy was written. Loss reserves on an underwriting year
basis may include claims from different accident years. For example, a policy
written during 1999 may have losses in accident year 1999 and in accident year
2000. Therefore, underwriting year data as of a particular evaluation date is
less mature than accident year data. This leads to loss emergence taking place
over a slightly longer period of time. For year-ends 1998 through 2002, the
lines of business accounted for on an underwriting year basis accounted for
approximately 25% of the Group's reserves in France.

     At December 31, 2002, 2001, and 2000, as permitted by applicable French
statutes, the Group carried approximately E1.4 billion, E1.4 billion, and E1.4
billion, respectively, in annuity reserves. These annuities reflected discounts
of E451 million, E451 million, and E444 million, respectively. These annuities
relate to individual and group health disability reserves (included in the
non-life segment under the Group's French statutory financial statements) and to
motor liability where payment amounts are fixed and the timing is reasonably
determinable. The reserve development reflected in the table below includes
development attributable to the amortization of the discount.



                                                                                DECEMBER 31,
                                                  ------------------------------------------------------------------------
                                                  1994    1995    1996    1997    1998     1999    2000     2001     2002
                                                  -----   -----   -----   -----   -----   ------   -----   ------   ------
                                                                             (E IN MILLIONS)
                                                                                         
Gross reserves for unpaid claims and claims
  expenses......................................  1,231   1,275   1,319   1,297   8,468    9,169   9,573   10,277   10,450
Cumulative paid as of:
  One year later................................    373     363     345     341   2,076    3,003   2,877    2,642
  Two years later...............................    536     518     500     469   3,140    4,358   3,977
  Three years later.............................    641     622     594     573   3,826    5,065
  Four years later..............................    723     696     672     648   4,304
  Five years later..............................    780     758     733     707
  Six years later...............................    829     803     780
  Seven years later.............................    867     840
  Eight years later.............................    898
Liability re-estimated as of:
  One year later................................  1,230   1,293   1,280   1,279   8,082   10,231   9,860   10,359
  Two years later...............................  1,260   1,273   1,271   1,218   8,649   10,033   9,939
  Three years later.............................  1,253   1,276   1,222   1,241   8,615    9,863
  Four years later..............................  1,277   1,233   1,234   1,228   8,335
  Five years later..............................  1,242   1,239   1,239   1,261
  Six years later...............................  1,215   1,236   1,259
  Seven years later.............................  1,252   1,237
  Eight years later.............................  1,234
  Cumulative surplus (deficiency)...............     (3)     39      60      36     132     (694)   (366)     (82)
    Percent.....................................   (0.3)%   3.1%    4.6%    2.8%    1.6%    (7.6)%  (3.8)%   (0.8)%


     The Allianz Group companies in France form one of the leading French
property-casualty groups. The first-time inclusion of AGF in 1998 resulted in a
E5,513 million increase in held reserves at December 31, 1998.

                                       128


     The Group's primary property-casualty lines of business in France are motor
liability, property, individual and group health, group disability, general
liability, construction, marine, aviation and transportation, and credit.
Declining frequency trends for motor liability in recent years and a prudent
case reserving philosophy for motor liability and general liability have
contributed to the favorable run-off reflected in the table for years 1995
through 1997. For 1999, the adverse run-off is primarily due to the upward
development during 2000 of losses from the storms "Lothar" and "Martin," which
occurred in Europe in late December 1999.

     During 2002, reserves for AGF IART experienced adverse development of
approximately E124 million on assumed reinsurance, approximately E63 million on
commercial property and E10 million on general liability. These adverse
developments were primarily offset by favorable reserve development on the
reserves of EULER & HERMES and Allianz Marine & Aviation. There were no changes
in reserving assumptions, methods or policies during 2002.

     For commercial property, the development was primarily attributable to the
2001 accident year, with smaller offsetting favorable development for prior
accident years. For general liability, the development arose primarily from the
2000 and 2001 accident years. These changes in reserve estimates are not
attributable to changes in actuarial assumptions, or trends in claim frequency,
severity or similar factors. Between 1999 and 2001, four distinct legal entities
(AGF IART, Allianz Assurances, PFA TIARD and CAMAT IARD) were merged into AGF
IART, and the reserve adjustments noted reflect changes in claims practices and
data processing systems resulting from the integration of systems and processes
due to such restructuring.

ITALY

     The loss reserve development table for Italy includes the development of
property-casualty reserves for the Group subsidiaries that insure or reinsure
property-casualty risks in Italy. The table is presented on a consolidated basis
for the Group's subsidiaries in Italy on an Italian statutory accounting basis,
and represents 100% of property-casualty reserves in Italy.



                                                                        DECEMBER 31,
                                          ------------------------------------------------------------------------
                                          1994    1995    1996    1997    1998      1999     2000    2001    2002
                                          -----   -----   -----   -----   -----   --------   -----   -----   -----
                                                                      (E IN MILLIONS)
                                                                                  
Gross reserves for unpaid claims and
  claims expenses.......................  2,379   3,471   3,829   4,029   4,640      5,040   5,560   6,097   6,508
Cumulative paid as of:
  One year later........................    888   1,308   1,487   1,562   1,824      1,940   2,092   2,060
  Two years later.......................  1,280   1,989   2,152   2,308   2,626      2,879   2,957
  Three years later.....................  1,534   2,372   2,571   2,742   3,173      3,357
  Four years later......................  1,717   2,660   2,861   3,101   3,496
  Five years later......................  1,859   2,877   3,129   3,334
  Six years later.......................  1,989   3,084   3,306
  Seven years later.....................  2,118   3,222
  Eight years later.....................  2,208


                                       129




                                                                        DECEMBER 31,
                                          ------------------------------------------------------------------------
                                          1994    1995    1996    1997    1998      1999     2000    2001    2002
                                          -----   -----   -----   -----   -----   --------   -----   -----   -----
                                                                      (E IN MILLIONS)
                                                                                  
Liability re-estimated as of:
  One year later........................  2,376   3,527   3,829   4,037   4,650      5,091   5,687   6,021
  Two years later.......................  2,333   3,524   3,804   4,147   4,788      5,332   5,677
  Three years later.....................  2,404   3,605   3,938   4,279   4,984      5,286
  Four years later......................  2,449   3,710   4,049   4,429   4,904
  Five years later......................  2,498   3,796   4,162   4,337
  Six years later.......................  2,547   3,879   4,061
  Seven years later.....................  2,165   3,789
  Eight years later.....................  2,547
  Cumulative surplus (deficiency).......   (168)   (319)   (232)   (309)   (264)      (247)   (117)     75
    Percent.............................   (7.0)%  (9.1)%  (6.0)%  (7.6)%  (5.7)%     (4.9)%  (2.1)%   1.2%


     The Allianz Group companies in Italy form one of the leading Italian
property-casualty groups. The property-casualty reserve portfolio in Italy
consists predominantly of motor liability and general liability. During the past
few calendar years, adverse development in the Italian general liability market
has occurred due to an increase in late-reported claims. In addition, an
increase in personal injuries for motor liability, coupled with an increase in
the average cost of claims, has led to an increase in the ultimate cost of
claims for motor liability. As a result, during the last several calendar years,
but especially during 2001 and 2002, reserves for motor liability and general
liability were strengthened at the RAS Group across several accident years.
These adverse developments were however more than offset by favorable
development in 2002 for other lines and other companies in Italy. There were no
material changes during 2002 to reserving assumptions, methods or philosophy.

      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, and certain other banking
subsidiaries of Allianz. This presentation differs from the presentation in the
remainder of "Information on the Company and 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
adjustments necessary to convert such information to U.S. GAAP. Although the
financial statements of Dresdner Bank were consolidated into the financial
statements of Allianz AG on the date of our acquisition of Dresdner Bank on July
23, 2001, the information presented below includes the banking operations of
Dresdner Bank for all periods in order to provide the reader with comparable
information about our banking operations. Additionally, the assets and
liabilities of Dresdner Bank do not reflect the purchase accounting adjustments
applied with respect to Dresdner Bank's assets and liabilities at July 23, 2001.
Additional limitations concerning certain of the average balance sheet data of
Dresdner Bank for the periods ending before January 1, 2002 discussed in this
section are noted below under "-- Average Balance Sheet and Interest Rate Data."

     In applying our accounting policies to the financial statements of Dresdner
Bank during periods prior to July 23, 2001, certificated commercial loans common
to the German market, or Schuldscheindarlehen, have been reclassified from Loans
and advances to banks and Loans and advances to customers to Investment
securities available for sale in order to conform to our accounting policies. At
December 31, 2002, 2001, 2000, 1999 and 1998, the book value of
Schuldscheindarlehen was approximately E1.4 billion, E44.0 billion, E46.6
billion, E48.6 billion and

                                       130


E49.1 billion, respectively. Because there were no loss allowances recorded on
such Schuldscheindarlehen, such reclassification had no impact on the gross
amount of the loss allowances described below under "-- Summary of Loan Loss
Experience." However, such reclassification did adversely affect the ratio of
total allowances for loan losses to total loans. On August 1, 2002, we also
merged our mortgage banking subsidiary, Deutsche Hyp, which was a part of our
Other division, with the mortgage banking subsidiaries of Commerzbank and
Deutsche Bank into a single entity, Eurohypo. The assets and liabilities of the
former Deutsche Hyp were accordingly deconsolidated as of August 1, 2002.

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, 2002, 2001
and 2000. For the year ended December 31, 2002, the average balance sheet and
interest rate data is based on consolidated monthly average balances using
month-end balances prepared in accordance with IFRS. For the years ended
December 31, 2001 and 2000, Dresdner Bank did not prepare consolidated balance
sheet and interest rate data on a monthly basis. The average balance sheet and
interest rate data shown below for the years ended December 31, 2001 and 2000
was derived using unconsolidated monthly balances of Dresdner Bank AG and its
non-German branch operations and significant subsidiaries, together with
quarterly consolidated balances of Dresdner Bank prepared in accordance with
IFRS. Such unconsolidated monthly balances reflected approximately 90% of
Dresdner Bank's consolidated assets and liabilities, were not available for all
months in the periods shown, and were not in all cases prepared fully in
accordance with IFRS. Dresdner Bank has reconciled such monthly balances to the
consolidated quarterly balances that were not subject to these limitations, and
the data shown below reflects adjustments to give effect to differences
identified in such a reconciliation process. We believe that the average
balances provide a fair representation of the activities of our banking
operations.

     Since the adoption of IAS 39 on January 1, 2001, the fair values of all
derivative instruments have been included within non-interest-earning assets or
non-interest-bearing liabilities. Prior to January 1, 2001, the fair values of
qualifying hedge derivative instruments were not recorded in the balance sheet;
however, the fair values of all non-qualifying hedge and trading derivatives
have been included within non-interest-earning assets or non-interest-bearing
liabilities for each period. 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 nonaccrual status. For a description of our
accounting policies on nonaccrual loans see "-- Risk Elements -- Nonaccrual
loans."

     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.

                                       131




                                                                      YEAR ENDED DECEMBER 31,
                                     ------------------------------------------------------------------------------------------
                                                 2002                           2001                           2000
                                     ----------------------------   ----------------------------   ----------------------------
                                               INTEREST   AVERAGE             INTEREST   AVERAGE             INTEREST   AVERAGE
                                     AVERAGE   INCOME/    YIELD/    AVERAGE   INCOME/    YIELD/    AVERAGE   INCOME/    YIELD/
                                     BALANCE   EXPENSE     RATE     BALANCE   EXPENSE     RATE     BALANCE   EXPENSE     RATE
                                     -------   --------   -------   -------   --------   -------   -------   --------   -------
                                                                     (E IN MILLIONS, EXCEPT %)
                                                                                             
ASSETS
Trading securities
  In German offices................   57,523     1,681     2.9%      56,220     2,075     3.7%      38,637     1,387     3.6%
  In non-German offices............   30,155     1,137     3.8%      30,020     1,484     4.9%      22,093     1,057     4.8%
                                     -------    ------              -------    ------              -------    ------
  Total............................   87,678     2,818     3.2%      86,240     3,559     4.1%      60,730     2,444     4.0%
                                     -------    ------              -------    ------              -------    ------
Loans and advances to banks
  In German offices................   15,708       454     2.9%      22,028       744     3.4%      17,632       651     3.7%
  In non-German offices............    9,966       343     3.4%      18,009       776     4.3%      12,853     1,271     9.9%
                                     -------    ------              -------    ------              -------    ------
  Total............................   25,674       797     3.1%      40,037     1,520     3.8%      30,485     1,922     6.3%
                                     -------    ------              -------    ------              -------    ------
Loans and advances to customers
  In German offices................  112,709     5,490     4.9%     131,346     8,339     6.3%     133,241     7,391     5.5%
  In non-German offices............   45,760     2,413     5.3%      56,144     3,741     6.7%      50,850     3,627     7.1%
                                     -------    ------              -------    ------              -------    ------
  Total............................  158,469     7,903     5.0%     187,490    12,080     6.4%     184,091    11,018     6.0%
                                     -------    ------              -------    ------              -------    ------
Securities purchased under resale
  agreements
  In German offices................   56,213     2,109     3.8%      46,890     2,267     4.8%      24,895     1,180     4.7%
  In non-German offices............   38,059       794     2.1%      41,254     1,545     3.7%      33,170     1,656     5.0%
                                     -------    ------              -------    ------              -------    ------
  Total............................   94,272     2,903     3.1%      88,144     3,812     4.3%      58,065     2,836     4.9%
                                     -------    ------              -------    ------              -------    ------
Investment securities(1)
  In German offices................   35,017     1,584     4.5%      59,346     2,929     4.9%      60,712     3,310     5.5%
  In non-German offices............    9,893       401     4.1%      10,577       469     4.4%      10,460       702     6.7%
                                     -------    ------              -------    ------              -------    ------
  Total............................   44,910     1,985     4.4%      69,923     3,398     4.9%      71,172     4,012     5.6%
                                     -------    ------              -------    ------              -------    ------
Total interest-earning assets......  411,003    16,406     4.0%     471,834    24,369     5.2%     404,543    22,232     5.5%
                                     -------    ------              -------    ------              -------    ------
Non-interest-earning assets
  In German offices................   49,686                         49,006                         30,123
  In non-German offices............   29,206                         22,101                         30,702
                                     -------                        -------                        -------
Total non-interest-earning
  assets...........................   78,892                         71,107                         60,825
                                     -------                        -------                        -------
Total assets.......................  489,895                        542,941                        465,368
                                     =======                        =======                        =======
Percent of assets attributable to
  non-German offices...............     33.3%                          32.8%                          34.4%

LIABILITIES AND SHAREHOLDERS'
  EQUITY
Liabilities to banks(2)
  In German offices................   58,881     1,978     3.4%      71,681     2,765     3.9%      49,420     2,026     4.1%
  In non-German offices............   23,284     1,081     4.6%      30,217     2,301     7.6%      21,602     2,121     9.8%
                                     -------    ------              -------    ------              -------    ------
  Total............................   82,165     3,059     3.7%     101,898     5,066     5.0%      71,022     4,147     5.8%
                                     -------    ------              -------    ------              -------    ------
Liabilities to customers(2)
  In German offices................   71,296     1,906     2.7%      99,113     2,713     2.7%      90,666     2,040     2.3%
  In non-German offices............   36,977     1,126     3.0%      46,628     1,653     3.5%      40,780     2,172     5.3%
                                     -------    ------              -------    ------              -------    ------
  Total............................  108,273     3,032     2.8%     145,741     4,366     3.0%     131,446     4,212     3.2%
                                     -------    ------              -------    ------              -------    ------


                                       132




                                                                      YEAR ENDED DECEMBER 31,
                                     ------------------------------------------------------------------------------------------
                                                 2002                           2001                           2000
                                     ----------------------------   ----------------------------   ----------------------------
                                               INTEREST   AVERAGE             INTEREST   AVERAGE             INTEREST   AVERAGE
                                     AVERAGE   INCOME/    YIELD/    AVERAGE   INCOME/    YIELD/    AVERAGE   INCOME/    YIELD/
                                     BALANCE   EXPENSE     RATE     BALANCE   EXPENSE     RATE     BALANCE   EXPENSE     RATE
                                     -------   --------   -------   -------   --------   -------   -------   --------   -------
                                                                     (E IN MILLIONS, EXCEPT %)
                                                                                             
Securities sold under repurchase
  agreements
  In German offices................   40,328     1,544     3.8%      39,327     1,958     5.0%      20,441       917     4.5%
  In non-German offices............   26,840       588     2.2%      37,548     1,315     3.5%      33,661     1,640     4.9%
                                     -------    ------              -------    ------              -------    ------
  Total............................   67,168     2,132     3.2%      76,875     3,273     4.3%      54,102     2,557     4.7%
                                     -------    ------              -------    ------              -------    ------
Subordinated liabilities
  In German offices................    4,541       206     4.5%       4,439       189     4.3%       4,355       176     4.0%
  In non-German offices............    4,661       361     7.7%       4,793       458     9.6%       4,335       369     8.5%
                                     -------    ------              -------    ------              -------    ------
  Total............................    9,202       567     6.2%       9,232       647     7.0%       8,690       545     6.3%
                                     -------    ------              -------    ------              -------    ------
Certificated liabilities(2)
  In German offices................   42,166     2,507     5.9%      71,266     4,628     6.5%      73,717     4,803     6.5%
  In non-German offices............   56,854     2,108     3.7%      44,657     2,440     5.5%      45,818     2,683     5.9%
                                     -------    ------              -------    ------              -------    ------
  Total............................   99,020     4,615     4.7%     115,923     7,068     6.1%     119,535     7,486     6.3%
                                     -------    ------              -------    ------              -------    ------
Profit participation certificates
  outstanding
  In German offices................    1,771       133     7.5%       2,052        76     3.7%       2,034        64     3.1%
                                     -------    ------              -------    ------              -------    ------
  Total............................    1,771       133     7.5%       2,052        76     3.7%       2,034        64     3.1%
                                     -------    ------              -------    ------              -------    ------
Total interest-bearing
  liabilities......................  367,599    13,538     3.7%     451,721    20,496     4.5%     386,829    19,011     4.9%
                                     -------    ------              -------    ------              -------    ------
Non-interest-bearing liabilities
  In German offices................   64,014                         34,196                         27,538
  In non-German offices............   39,288                         34,576                         38,693
                                     -------                        -------                        -------
Total non-interest-bearing
  liabilities......................  103,302                         68,772                         66,231
                                     -------                        -------                        -------
Shareholders' equity...............   18,994                         22,448                         12,308
                                     -------                        -------                        -------
Total liabilities and shareholders'
  equity...........................  489,895                        542,941                        465,368
                                     =======                        =======                        =======
Percent of liabilities attributable
  to non-German offices............     39.9%                          38.1%                          40.8%


---------------

(1) The average yields for investment securities available for sale have been
    calculated using amortized cost balances and do not include changes in fair
    value recorded within a component of shareholders' equity. The average
    yields for investment securities held to maturity have been calculated using
    amortized cost balances.

(2) Interest-bearing deposits have been presented within liabilities to banks
    and liabilities to customers; certificates of deposit have been presented
    within certificated liabilities.

NET INTEREST MARGIN

     The following table sets forth the average total interest-earning assets,
net interest earned and the net interest margin of our banking operations.



                                                                YEAR ENDED DECEMBER 31,
                                                              ---------------------------
                                                               2002      2001      2000
                                                              -------   -------   -------
                                                               (E IN MILLIONS, EXCEPT %)
                                                                         
Average total interest-earning assets.......................  411,003   471,834   404,543
Net interest earned(1)......................................    2,868     3,873     3,221
Net interest margin(2)......................................     0.70%     0.82%     0.80%


---------------

                                       133


(1) Net interest earned is defined as total interest income less total interest
    expense.

(2) Net interest margin is defined as net interest earned divided by average
    total interest-earning assets.

     The following table sets forth an allocation of changes in interest income,
interest expense and net interest income between changes in the average volume
and changes in the average interest rates for the two most recent years. Volume
and interest rate variances have been calculated based on movements in average
balances over the period and changes in interest rates on average
interest-earning assets and average interest-bearing liabilities. Changes due to
a combination of volume and rate are allocated proportionally to the absolute
change in volume and rate.



                                                                     YEAR ENDED DECEMBER 31,
                                                  -------------------------------------------------------------
                                                              2002 OVER 2001                  2001 OVER 2000
                                                           --------------------            --------------------
                                                           INCREASE/(DECREASE)             INCREASE/(DECREASE)
                                                            DUE TO CHANGE IN:               DUE TO CHANGE IN:
                                                           --------------------            --------------------
                                                            AVERAGE                         AVERAGE
                                                  TOTAL    INTEREST    AVERAGE    TOTAL    INTEREST    AVERAGE
                                                  CHANGE     RATE       VOLUME    CHANGE     RATE       VOLUME
                                                  ------   ---------   --------   ------   ---------   --------
                                                                        (E IN MILLIONS)
                                                                                     
INTEREST INCOME
Trading securities
  In German offices.............................    (394)     (441)         47      688         40        648
  In non-German offices.........................    (347)     (354)          7      427         36        391
                                                  ------    ------      ------    -----     ------      -----
  Total.........................................    (741)     (795)         54    1,115         76      1,039
                                                  ------    ------      ------    -----     ------      -----
Loans and advances to banks
  In German offices.............................    (290)      (97)       (193)      93        (59)       152
  In non-German offices.........................    (433)     (135)       (298)    (495)      (885)       390
                                                  ------    ------      ------    -----     ------      -----
  Total.........................................    (723)     (232)       (491)    (402)      (944)       542
                                                  ------    ------      ------    -----     ------      -----
Loans and advances to customers
  In German offices.............................  (2,849)   (1,770)     (1,079)     948      1,054       (106)
  In non-German offices.........................  (1,328)     (704)       (624)     114       (248)       362
                                                  ------    ------      ------    -----     ------      -----
  Total.........................................  (4,177)   (2,474)     (1,703)   1,062        806        256
                                                  ------    ------      ------    -----     ------      -----
Securities purchased under resale agreements
  In German offices.............................    (158)     (561)        403    1,087         24      1,063
  In non-German offices.........................    (751)     (639)       (112)    (111)      (465)       354
                                                  ------    ------      ------    -----     ------      -----
  Total.........................................    (909)   (1,200)        291      976       (441)     1,417
                                                  ------    ------      ------    -----     ------      -----
Investment securities
  In German offices.............................  (1,345)     (227)     (1,118)    (381)      (308)       (73)
  In non-German offices.........................     (68)      (39)        (29)    (233)      (241)         8
  Total.........................................  (1,413)     (266)     (1,147)    (614)      (549)       (65)
                                                  ------    ------      ------    -----     ------      -----
Total interest income...........................  (7,963)   (4,967)     (2,996)   2,137     (1,052)     3,189
                                                  ------    ------      ------    -----     ------      -----
INTEREST EXPENSE
Liabilities to banks
  In German offices.............................    (787)     (331)       (456)     739       (126)       865
  In non-German offices.........................  (1,220)     (768)       (452)     180       (544)       724
                                                  ------    ------      ------    -----     ------      -----
  Total.........................................  (2,007)   (1,099)       (908)     919       (670)     1,589
                                                  ------    ------      ------    -----     ------      -----


                                       134




                                                                     YEAR ENDED DECEMBER 31,
                                                  -------------------------------------------------------------
                                                              2002 OVER 2001                  2001 OVER 2000
                                                           --------------------            --------------------
                                                           INCREASE/(DECREASE)             INCREASE/(DECREASE)
                                                            DUE TO CHANGE IN:               DUE TO CHANGE IN:
                                                           --------------------            --------------------
                                                            AVERAGE                         AVERAGE
                                                  TOTAL    INTEREST    AVERAGE    TOTAL    INTEREST    AVERAGE
                                                  CHANGE     RATE       VOLUME    CHANGE     RATE       VOLUME
                                                  ------   ---------   --------   ------   ---------   --------
                                                                        (E IN MILLIONS)
                                                                                     
Liabilities to customers
  In German offices.............................    (807)      (62)       (745)     673        471        202
  In non-German offices.........................    (527)     (213)       (314)    (519)      (799)       280
                                                  ------    ------      ------    -----     ------      -----
  Total.........................................  (1,334)     (275)     (1,059)     154       (328)       482
                                                  ------    ------      ------    -----     ------      -----
Securities sold under repurchase agreements
  In German offices.............................    (414)     (463)         49    1,041        111        930
  In non-German offices.........................    (727)     (413)       (314)    (325)      (499)       174
                                                  ------    ------      ------    -----     ------      -----
  Total.........................................  (1,141)     (876)       (265)     716       (388)     1,104
                                                  ------    ------      ------    -----     ------      -----
Subordinated liabilities
  In German offices.............................      17        13           4       13          9          4
  In non-German offices.........................     (97)      (85)        (12)      89         48         41
                                                  ------    ------      ------    -----     ------      -----
  Total.........................................     (80)      (72)         (8)     102         57         45
                                                  ------    ------      ------    -----     ------      -----
Certificated liabilities
  In German offices.............................  (2,121)     (363)     (1,758)    (175)       (16)      (159)
  In non-German offices.........................    (332)     (900)        568     (243)      (176)       (67)
                                                  ------    ------      ------    -----     ------      -----
  Total.........................................  (2,453)   (1,263)     (1,190)    (418)      (192)      (226)
                                                  ------    ------      ------    -----     ------      -----
Profit participation certificates outstanding
  In German offices.............................      57        69         (12)      12         11          1
  Total.........................................      57        69         (12)      12         11          1
                                                  ------    ------      ------    -----     ------      -----
TOTAL INTEREST EXPENSE..........................  (6,958)   (3,516)     (3,442)   1,485     (1,510)     2,995
                                                  ------    ------      ------    -----     ------      -----
CHANGE IN TAXABLE NET INTEREST INCOME...........  (1,005)   (1,451)        446      652        458        194
                                                  ======    ======      ======    =====     ======      =====


RETURN ON EQUITY AND ASSETS

     The following table sets forth the net income, average shareholders' equity
and selected financial information and ratios of our banking operations.



                                                                YEAR ENDED DECEMBER 31,
                                                              ---------------------------
                                                               2002       2001      2000
                                                              -------    ------    ------
                                                               (E IN MILLIONS, EXCEPT %)
                                                                          
Net (loss)/income...........................................    (944)       539     1,809
Average shareholders' equity................................  18,994     22,448    12,308
Return on assets(1).........................................   (0.19)%     0.10%     0.39%
Return on equity(2).........................................   (4.97)%     2.40%    14.70%
Equity to assets ratio(3)...................................   3.88%       4.13%     2.64%


---------------

(1) Return on assets is defined as net income of our banking operations divided
    by average total assets of our banking operations.

(2) Return on equity is defined as net (loss)/income of our banking operations
    divided by average shareholders' equity of our banking operations.

(3) Equity to assets ratio is defined as average shareholders' equity of our
    banking operations divided by average total assets of our banking
    operations.

                                       135


TRADING AND INVESTMENT SECURITIES

     The following table sets forth the book value of trading and investment
securities held by our banking operations by type of issuer. The allocation
between German and non-German components is based on the domicile of the issuer.



                                                                     AT DECEMBER 31,
                                                              -----------------------------
                                                                2002       2001       2000
                                                              --------    -------    ------
                                                                     (E IN MILLIONS)
                                                                            
TRADING SECURITIES
  GERMAN:
     Federal and state government and government agency debt
       securities...........................................    14,304      8,267     4,225
     Local government debt securities.......................     2,573      3,153     1,611
     Corporate debt securities..............................    34,645     35,326    29,892
     Mortgage-backed securities.............................       403         50        --
     Equity securities......................................       412      1,147     2,661
                                                              --------    -------    ------
     German total...........................................    52,337     47,943    38,389
                                                              --------    -------    ------
  NON-GERMAN:
     U.S. Treasury and other U.S. government agency debt
       securities...........................................     5,798        802       610
     Other government and official institution debt
       securities...........................................    23,568     29,509    22,477
     Corporate debt securities..............................     8,066     12,667    11,734
     Mortgage-backed securities.............................     1,021        474        --
     Equity securities......................................     8,668     13,917     9,762
                                                              --------    -------    ------
     Non-German total.......................................    47,121     57,369    44,583
                                                              --------    -------    ------
TOTAL TRADING SECURITIES....................................    99,458    105,312    82,972
                                                              ========    =======    ======
SECURITIES AVAILABLE FOR SALE
  GERMAN:
     Federal and state government and government agency debt
       securities...........................................       581      6,691     7,030
     Local government debt securities.......................     1,840     24,842    25,517
     Corporate debt securities..............................     7,534     21,566    24,196
     Mortgage-backed and other debt securities..............        22         63        73
     Equity securities......................................     3,951      7,003     7,295
                                                              --------    -------    ------
     German total...........................................  13,928(1)    60,165    64,111
                                                              --------    -------    ------
  NON-GERMAN:
     U.S. Treasury and other U.S. government agency debt
       securities...........................................       227        453       916
     Other government and official institution debt
       securities...........................................     2,550      6,884     6,467
     Corporate debt securities..............................     5,337      6,270     5,626
     Mortgage-backed and other debt securities..............       520        105        19
     Equity securities......................................     3,097      3,297     2,863
                                                              --------    -------    ------
     Non-German total.......................................    11,731     17,009    15,891
                                                              --------    -------    ------
TOTAL SECURITIES AVAILABLE FOR SALE.........................    25,659     77,174    80,002
                                                              ========    =======    ======


                                       136




                                                                     AT DECEMBER 31,
                                                              -----------------------------
                                                                2002       2001       2000
                                                              --------    -------    ------
                                                                     (E IN MILLIONS)
                                                                            
SECURITIES HELD TO MATURITY
  GERMAN:
     Mortgage-backed securities.............................        --        301       219
                                                              --------    -------    ------
     German total...........................................        --        301       219
                                                              --------    -------    ------
  NON-GERMAN:
     Other government and official institution debt
       securities...........................................       579        558       593
     Corporate debt securities..............................       145        152       165
                                                              --------    -------    ------
     Non-German total.......................................       724        710       758
                                                              --------    -------    ------
TOTAL SECURITIES HELD TO MATURITY...........................       724      1,011       977
                                                              ========    =======    ======


---------------

(1) Change from 2001 to 2002 reflects primarily the August 2002 deconsolidation
    of Deutsche Hyp.

     At December 31, 2002, our banking operations held ordinary shares of Munich
Re that had a book value in excess of ten percent of the shareholders' equity of
our banking operations. The aggregate shareholders' equity of Dresdner Bank and
our other banking operations was approximately E13,036 million at December 31,
2002. The aggregate book value and market value of such ordinary shares were
E1,518 million at December 31, 2002.

MATURITY ANALYSIS OF DEBT INVESTMENT SECURITIES

     The following table sets forth an analysis of the contractual maturity and
weighted average yields of our banking operations' debt investment securities.
Actual maturities may differ from contractual maturity dates because issuers may
have the right to call or prepay obligations. The allocation between German and
non-German components is based on the domicile of the issuer.

                                       137




                                                                         AT DECEMBER 31, 2002
                                                        -------------------------------------------------------
                                                                   DUE AFTER    DUE AFTER
                                                         DUE IN     ONE YEAR    FIVE YEARS
                                                        ONE YEAR    THROUGH      THROUGH     DUE AFTER
                                                        OR LESS    FIVE YEARS   TEN YEARS    TEN YEARS   TOTAL
                                                        --------   ----------   ----------   ---------   ------
                                                                       (E IN MILLIONS, EXCEPT %)
                                                                                          
SECURITIES AVAILABLE FOR SALE
  GERMAN:
    Federal and state government and government agency
      debt securities.................................      206         170          156          49        581
    Local government debt securities..................        6       1,139          675          20      1,840
    Corporate debt securities.........................    1,479       4,759        1,236          60      7,534
    Mortgage-backed and other debt securities.........       --          22           --          --         22
                                                         ------      ------       ------       -----     ------
    German total......................................    1,691       6,090        2,067         129      9,977
                                                         ------      ------       ------       -----     ------
  NON-GERMAN:
    U.S. Treasury and other U.S. government agency
      debt securities.................................        1           1            4         221        227
    Other government and official institution debt
      securities......................................    1,084         688          524         254      2,550
    Corporate debt securities.........................    2,260       2,233          518         326      5,337
    Mortgage-backed and other debt securities.........      495          16            6           3        520
                                                         ------      ------       ------       -----     ------
    Non-German total..................................    3,840       2,938        1,052         804      8,634
                                                         ------      ------       ------       -----     ------
TOTAL SECURITIES AVAILABLE FOR SALE...................    5,531       9,028        3,119         933     18,611
                                                         ======      ======       ======       =====     ======
WEIGHTED AVERAGE YIELD................................      3.4%        4.1%         5.0%        5.6%       4.1%
SECURITIES HELD TO MATURITY
  GERMAN:
    Mortgage-backed securities........................       --          --           --          --         --
                                                         ------      ------       ------       -----     ------
    German total......................................       --          --           --          --         --
                                                         ------      ------       ------       -----     ------
  NON-GERMAN:
    Other government and official institution debt
      securities......................................      489          90           --          --        579
    Corporate debt securities.........................      145          --           --          --        145
                                                         ------      ------       ------       -----     ------
    Non-German total..................................      634          90           --          --        724
                                                         ------      ------       ------       -----     ------
TOTAL SECURITIES HELD TO MATURITY.....................      634          90           --          --        724
                                                         ======      ======       ======       =====     ======
WEIGHTED AVERAGE YIELD................................      7.2%        9.3%          --          --        7.5%


                                       138


LOAN PORTFOLIO

     The following table sets forth an analysis of our loan portfolio, excluding
allowances for loan losses, net of unearned income, according to the industry
sector of borrowers. The allocation between German and non-German components is
based on the domicile of the borrower.



                                                           AT DECEMBER 31,
                                           -----------------------------------------------
                                            2002      2001      2000      1999      1998
                                           -------   -------   -------   -------   -------
                                                           (E IN MILLIONS)
                                                                    
GERMAN:
  Corporate:
     Manufacturing industry..............    9,728    10,825    11,539    11,014    12,459
     Construction........................    1,226     1,813     2,042     2,228     3,378
     Wholesale and retail trade..........    6,041     7,165     7,419     7,555     9,988
     Financial institutions (excluding
       banks) and insurance companies....    2,810     4,896     4,196       926     4,090
     Banks...............................      611       517       601     2,342       628
     Service providers...................   13,797    22,943    21,326    23,658    15,243
     Other...............................    2,911     3,974     3,067     4,416     3,048
                                           -------   -------   -------   -------   -------
     Corporate total.....................   37,124    52,133    50,190    52,139    48,834
                                           -------   -------   -------   -------   -------
  Public authorities.....................      212       718       540       276     1,101
  Private individuals (including self-
     employed professionals).............   43,041    63,773    65,883    64,706    60,545
                                           -------   -------   -------   -------   -------
  German total...........................   80,377   116,624   116,613   117,121   110,480
                                           -------   -------   -------   -------   -------
NON-GERMAN:
  Corporate:
     Manufacturing industry,
       construction, wholesale and retail
       trade and service providers.......   21,846    38,383    43,771    39,197    24,586
     Financial institutions (excluding
       banks) and insurance companies....    6,312    10,285    10,166     8,100     7,379
     Banks...............................    3,348     5,157     6,287     6,645     8,888
     Other...............................    9,144     3,899     3,536     3,405     4,446
                                           -------   -------   -------   -------   -------
     Corporate total.....................   40,650    57,724    63,760    57,347    45,299
                                           -------   -------   -------   -------   -------
  Public authorities.....................    2,065     3,458       990     2,913     1,239
  Private individuals (including self-
     employed professionals).............   11,046    10,601    10,151     9,922     9,595
                                           -------   -------   -------   -------   -------
  Non-German total.......................   53,761    71,783    74,901    70,182    56,133
                                           -------   -------   -------   -------   -------
TOTAL LOANS..............................  134,138   188,407   191,514   187,303   166,613
                                           =======   =======   =======   =======   =======


     The following table sets forth our banking operations' mortgage loans and
finance leases that are included within the above analysis of loans.



                                                              AT DECEMBER 31,
                                                 ------------------------------------------
                                                  2002     2001     2000     1999     1998
                                                 ------   ------   ------   ------   ------
                                                              (E IN MILLIONS)
                                                                      
Mortgage loans.................................  39,683   57,315   61,303   60,587   55,975
Finance leases.................................   1,104    2,414    1,430    1,778    1,568


                                       139


LOAN CONCENTRATIONS

     Although our loan portfolio is diversified across more than 152 countries,
at December 31, 2002 approximately 59.9% of our total loans were to borrowers in
Germany. At December 31, 2002, our largest credit exposures to borrowers in
Germany were loans to private individuals (including self-employed
professionals). Approximately 54.3% of these loans are residential mortgage
loans, which represent approximately 17.4% of our total loans. Our residential
mortgage loans include owner-occupied, single- and two-family homes and
apartment dwellings and investment properties. Our residential mortgage loans
are well diversified across all German states. Our remaining loans to private
individuals in Germany primarily include other consumer installment loans and
loans to self-employed professionals, which are also geographically diversified
across Germany. We have no other concentrations of loans to private individuals
(including self-employed professionals) in Germany in excess of ten percent of
our total loans.

     Our corporate customers are broadly diversified. At December 31, 2002,
approximately 10.3% of our total loans were to German corporate customers in
various services industries, including utilities, media, transportation and
other service providers. However, none of those industries are individually
significant to our domestic loan portfolio and we have no concentrations of
loans to borrowers in any services industry in excess of ten percent of our
total loans.

     At December 31, 2002, approximately 23.1% of our total loans were to
non-financial corporate borrowers outside Germany.

     These loans are well diversified across various commercial industries,
including:



                                                               PERCENT OF
                                                               TOTAL LOANS
                                                               -----------
                                                            
Manufacturing industry......................................       6.9%
Construction................................................       1.6%
Wholesale and retail trade..................................       1.1%
Telecommunications..........................................       1.5%
Transportation..............................................       1.1%
Other service providers(1)..................................       4.1%
Other.......................................................       6.8%


---------------

(1) Other services providers include media, utilities, natural resources and
    other services.

     We have no concentrations of loans to non-financial corporate borrowers in
any industry in excess of ten percent of our total loans.

                                       140


MATURITY ANALYSIS OF LOAN PORTFOLIO

     The following table sets forth an analysis of the contractual maturity of
our loans at December 31, 2002. The allocation between German and non-German
components is based on the domicile of the borrower.



                                                                  AT DECEMBER 31, 2002
                                                      --------------------------------------------
                                                                 DUE AFTER
                                                       DUE IN     ONE YEAR
                                                      ONE YEAR    THROUGH     DUE AFTER
                                                      OR LESS    FIVE YEARS   FIVE YEARS    TOTAL
                                                      --------   ----------   ----------   -------
                                                                    (E IN MILLIONS)
                                                                               
GERMAN:
  Corporate:
       Manufacturing industry.......................    5,238       3,158        1,332       9,728
       Construction.................................      884         150          192       1,226
       Wholesale and retail trade...................    3,477       1,839          725       6,041
       Financial institutions (excluding banks) and
          insurance companies.......................    1,495       1,043          272       2,810
       Banks........................................      354         181           76         611
       Service providers:
          Telecommunication.........................       10         497          104         611
          Transportation............................      300         157          390         847
          Other service providers...................    5,420       3,763        3,156      12,339
       Total service providers......................    5,730       4,417        3,650      13,797
       Other........................................    1,462         972          477       2,911
                                                       ------      ------       ------     -------
       Corporate total..............................   18,640      11,760        6,724      37,124
                                                       ------      ------       ------     -------
  Public authorities................................      180          24            8         212
  Private individuals (including self-employed
     professionals):
     Residential mortgage loans.....................      277       5,643       17,450      23,370
     Consumer installment loans.....................    3,154           0            0       3,154
     Other..........................................    5,872       1,848        8,797      16,517
  Total private individuals (including self-employed
     professionals).................................    9,303       7,491       26,247      43,041
                                                       ------      ------       ------     -------
  German total......................................   28,123      19,275       32,979      80,377
                                                       ------      ------       ------     -------
NON-GERMAN:
  Corporate:
       Manufacturing industry.......................    4,600       3,801          831       9,232
       Construction.................................      417       1,094          700       2,211
       Wholesale and retail trade...................      870         574           57       1,501
       Service Providers:
          Telecommunication.........................      326       1,370          276       1,972
          Transportation............................      253         575          628       1,456
          Other service providers...................    2,698       2,326          450       5,474
       Total service providers......................    3,277       4,271        1,354       8,902
       Total manufacturing industry, construction,
          wholesale and retail trade and service
          providers.................................    9,164       9,740        2,942      21,846


                                       141




                                                                  AT DECEMBER 31, 2002
                                                      --------------------------------------------
                                                                 DUE AFTER
                                                       DUE IN     ONE YEAR
                                                      ONE YEAR    THROUGH     DUE AFTER
                                                      OR LESS    FIVE YEARS   FIVE YEARS    TOTAL
                                                      --------   ----------   ----------   -------
                                                                    (E IN MILLIONS)
                                                                               
       Financial institutions (excluding banks) and
          insurance companies.......................    1,633       3,128        1,551       6,312
       Banks........................................    2,007         994          347       3,348
       Other........................................    5,768       1,867        1,509       9,144
                                                       ------      ------       ------     -------
       Corporate total..............................   18,572      15,729        6,349      40,650
                                                       ------      ------       ------     -------
  Public authorities................................    1,702         188          175       2,065
  Private individuals (including self-employed
     professionals):
          Residential mortgage loans................      850       2,702        5,368       8,920
          Consumer installment loans................       43          52           34         129
          Other.....................................    1,197         276          524       1,997
  Total private individuals.........................    2,090       3,030        5,926      11,046
                                                       ------      ------       ------     -------
  Non-German total..................................   22,364      18,947       12,450      53,761
                                                       ------      ------       ------     -------
TOTAL LOANS.........................................   50,487      38,222       45,429     134,138
                                                       ======      ======       ======     =======


     The following table sets forth the total amount of loans due after one year
with predetermined interest rates and floating or adjustable interest rates at
December 31, 2002. Loans with predetermined interest rates are loans for which
the interest rate is fixed for the entire term of the loan. All other loans are
considered floating or adjustable interest rate loans. The allocation between
German and non-German components is based on the domicile of the borrower.



                                                                    AT DECEMBER 31, 2002
                                                          ----------------------------------------
                                                                             LOANS WITH
                                                            LOANS WITH      FLOATING OR
                                                          PREDETERMINED      ADJUSTABLE
                                                          INTEREST RATES   INTEREST RATES   TOTAL
                                                          --------------   --------------   ------
                                                                       (E IN MILLION)
                                                                                   
GERMAN:
  Private individuals (including self-employed
     professionals).....................................      31,098            2,640       33,738
  Corporate and public customers........................      12,446            6,070       18,516
German total............................................      43,544            8,710       52,254
NON-GERMAN:
  Private individuals (including self-employed
     professionals).....................................       2,637            6,319        8,956
  Corporate and public customers........................       5,763           16,678       22,441
Non-German total........................................       8,400           22,997       31,397
Total...................................................      51,944           31,707       83,651


                                       142


RISK ELEMENTS

NON-PERFORMING LOANS

     The following table sets forth the outstanding balance of our
non-performing loans. The allocation between German and non-German components is
based on the domicile of the borrower.



                                                                AT DECEMBER 31,
                                                    ---------------------------------------
                                                     2002     2001    2000    1999    1998
                                                    ------   ------   -----   -----   -----
                                                                (E IN MILLIONS)
                                                                       
NONACCRUAL LOANS:
  German..........................................   7,355    8,751   7,991   7,516   6,322
  Non-German......................................   3,097    2,404   1,928   1,618     869
                                                    ------   ------   -----   -----   -----
  Total nonaccrual loans..........................  10,452   11,155   9,919   9,134   7,191
                                                    ======   ======   =====   =====   =====
LOANS PAST DUE 90 DAYS AND STILL ACCRUING
  INTEREST:
  German..........................................     644    1,640   1,238   1,526   1,876
  Non-German......................................     151      309     300     305     196
                                                    ------   ------   -----   -----   -----
  Total loans past due 90 days and still accruing
     interest.....................................     795    1,949   1,538   1,831   2,072
                                                    ======   ======   =====   =====   =====
TROUBLED DEBT RESTRUCTURINGS:
  German..........................................      65      215     253     261     307
  Non-German......................................     313      336     323     289     294
                                                    ------   ------   -----   -----   -----
  Total troubled debt restructurings..............     378      551     576     550     601
                                                    ======   ======   =====   =====   =====


NONACCRUAL LOANS

     Nonaccrual loans are loans on which interest income is no longer recognized
on an accrual basis and loans for which a specific provision is recorded for the
full amount of accrued interest receivable. We place loans on nonaccrual status
when we determine, based on management's judgment, that the payment of interest
or principal is doubtful.

     When a loan is placed on nonaccrual status, any accrued and unpaid interest
receivable is reversed and charged against interest income. We restore loans to
accrual status only when interest and principal are made current in accordance
with the contractual terms and, in management's judgment, future payments are
reasonably assured. When we have doubts about the ultimate collectibility of the
principal of a loan placed on nonaccrual status, all cash receipts are recorded
as reductions in principal. Once the recorded principal amount of the loan is
reduced to zero, future cash receipts are recognized as interest income. For all
remaining loans, interest income is recognized when received.

LOANS PAST DUE 90 DAYS AND STILL ACCRUING INTEREST

     Loans past due 90 days and still accruing interest are loans that are
contractually past due 90 days or more as to principal or interest on which we
continue to recognize interest income on an accrual basis.

TROUBLED DEBT RESTRUCTURINGS

     Troubled debt restructurings are loans that we have restructured due to a
deterioration in the borrower's financial position and in relation to which, for
economic or legal reasons related to the borrower's deteriorated financial
position, we have granted a concession to the borrower that we would not have
otherwise granted.

                                       143


INTEREST INCOME ON NON-PERFORMING LOANS

     The following table sets forth the gross interest income that would have
been recorded during the year ended December 31, 2002 on nonaccrual loans and
troubled debt restructurings if such loans had been current in accordance with
their original contractual terms and the interest income on such loans that was
actually included in interest income during the year ended December 31, 2002.



                                                                YEAR ENDED DECEMBER 31, 2002
                                                              ---------------------------------
                                                              IN GERMAN   IN NON-GERMAN
                                                               OFFICES       OFFICES      TOTAL
                                                              ---------   -------------   -----
                                                                       (E IN MILLIONS)
                                                                                 
Interest income that would have been recorded in accordance
  with the original contractual terms.......................     341           137         478
Interest income actually recorded...........................      48            30          78


POTENTIAL PROBLEM LOANS

     Potential problem loans are loans that are not classified as nonaccrual
loans, loans past due 90 days and still accruing interest or troubled debt
restructurings, but where known information about possible credit problems
causes us to have serious doubts as to the ability of the borrower to comply
with the present loan repayment terms and which may result in classifying the
loans in one of the three categories of non-performing loans described above.
The outstanding balance of our potential problem loans was E2,437 million at
December 31, 2002.

     Each of our potential problem loans has been subject to our normal credit
monitoring and review procedures. Of these loans, approximately E576 million
have a specific loss allowance. The remaining loans have also been reviewed for
impairment, however, based on our estimated measurement of the impairment, no
specific loss allowance has been recorded on such loans.

     Approximately 6% and 2% of our potential problem loans are to private
individuals in Germany and Latin America, respectively. The remaining loans are
to corporate borrowers in manufacturing, construction, wholesale and retail
trade, telecommunication, transportation and other services, including media,
utilities, natural resources and other services and other industry sectors. Our
potential problem loans to corporate borrowers are diversified across the
following geographic regions:



                                                                  AT DECEMBER 31, 2002
                                                               PERCENT OF TOTAL POTENTIAL
                                                                     PROBLEM LOANS
                                                               --------------------------
                                                            
Germany.....................................................               62%
North America...............................................               11%
Europe (excluding Germany)..................................                8%
Latin America...............................................                7%
Asia/Pacific................................................                2%
Middle East/Africa..........................................                2%


FOREIGN OUTSTANDINGS

     Cross-border outstandings consist of loans, net of allowances for loan
losses, accrued interest receivable, acceptances, interest-bearing deposits with
other banks, other interest-bearing investments and other monetary assets that
either are recorded in an office that is not in the same country as the domicile
of the borrower, guarantor, issuer or counter-party, or are denominated in a
currency that is not the local currency of the borrower, guarantor, issuer or
counter-party or are net local country claims. Net local country claims are
domestic claims

                                       144


recorded in offices outside Germany that are denominated in local or foreign
currency and that are not funded by liabilities in the same currency as the
claim and recorded in the same office.

     Our cross-border outstandings are allocated by country based on the country
of domicile of the borrower, guarantor, issuer or counter-party of the ultimate
credit risk. At head-office level we set limits on and monitor actual
cross-border outstandings on a country-by-country basis based on transfer,
economic and political risks.

     The following table sets forth our cross-border outstandings by geographic
location for countries that exceeded 0.75% of the total assets of our banking
operations. At December 31, 2002, there were no cross-border outstandings that
exceeded 0.50% of the total assets of our banking operations in any country
currently facing debt restructurings or liquidity problems that we expect would
materially impact the borrowers' ability to repay their obligations.



                                                             AT DECEMBER 31, 2002
                        ----------------------------------------------------------------------------------------------
                         GOVERNMENT     BANKS AND                NET LOCAL   TOTAL CROSS-    PERCENT
                        AND OFFICIAL    FINANCIAL                 COUNTRY       BORDER      OF TOTAL     CROSS-BORDER
                        INSTITUTIONS   INSTITUTIONS   OTHER(1)    CLAIMS     OUTSTANDINGS   ASSETS(2)   COMMITMENTS(3)
                        ------------   ------------   --------   ---------   ------------   ---------   --------------
                                                          (E IN MILLIONS, EXCEPT %)
                                                                                   
COUNTRY
United States.........      1,853          4,708       3,963          --        10,524        2.53%         13,100
United Kingdom........        718          3,048       2,803       3,583        10,152        2.44%          5,421
France................      1,035          3,596       1,511          56         6,198        1.49%          2,498
Italy.................      6,194          1,573         202       1,932         9,901        2.38%            649
Netherlands...........        400          3,233       1,064          --         4,697        1.13%          1,972
Japan.................        749            476         109          41         1,375        0.33%          1,187
Switzerland...........         79          1,701         964          --         2,744        0.66%            942
Spain.................        829            948         519          --         2,296        0.55%            148




                                                             AT DECEMBER 31, 2001
                        ----------------------------------------------------------------------------------------------
                         GOVERNMENT     BANKS AND                NET LOCAL   TOTAL CROSS-    PERCENT
                        AND OFFICIAL    FINANCIAL                 COUNTRY       BORDER      OF TOTAL     CROSS-BORDER
                        INSTITUTIONS   INSTITUTIONS   OTHER(1)    CLAIMS     OUTSTANDINGS   ASSETS(2)   COMMITMENTS(3)
                        ------------   ------------   --------   ---------   ------------   ---------   --------------
                                                          (E IN MILLIONS, EXCEPT %)
                                                                                   
COUNTRY
United States.........      1,266          8,200       7,135       1,178        17,779        3.38%         14,301
United Kingdom........        354          9,472       2,495          --        12,321        2.34%          7,137
France................        556          6,834       4,020          --        11,410        2.17%            124
Italy.................     11,320          1,344         361       1,088        14,113        2.68%          2,409
Netherlands...........      1,408          4,561       2,105          --         8,074        1.54%             --
Japan.................        361          1,334         422         644         2,761        0.53%          3,132
Switzerland...........         86          2,995       1,887          --         4,968        0.94%            219
Spain.................      2,509          1,530       1,004          32         5,075        0.97%            133


                                       145




                                                             AT DECEMBER 31, 2000
                        ----------------------------------------------------------------------------------------------
                         GOVERNMENT     BANKS AND                NET LOCAL   TOTAL CROSS-    PERCENT
                        AND OFFICIAL    FINANCIAL                 COUNTRY       BORDER      OF TOTAL     CROSS-BORDER
                        INSTITUTIONS   INSTITUTIONS   OTHER(1)    CLAIMS     OUTSTANDINGS   ASSETS(2)   COMMITMENTS(3)
                        ------------   ------------   --------   ---------   ------------   ---------   --------------
                                                          (E IN MILLIONS, EXCEPT %)
                                                                                   
COUNTRY
United States.........      1,130         11,944       6,632       1,421        21,127        4.22%         18,568
United Kingdom........        216         12,398       2,891          --        15,505        3.09%          6,685
France................        730          6,454       3,513          --        10,697        2.14%             69
Italy.................      6,548          3,098         314          77        10,037        2.00%          1,041
Netherlands...........      1,131          4,809       2,510          --         8,450        1.69%             --
Japan.................        966          2,316         424         696         4,402        0.88%          3,204
Switzerland...........        116          3,531       2,181         455         6,283        1.25%            248
Spain.................      2,281          1,430         712         182         4,605        0.92%            775


---------------

(1) Other includes insurance, commercial, industrial, service providers and
    other corporate counter-parties.

(2) Percent of total assets is defined as total cross-border outstandings
    divided by total assets of our banking operations. The total assets of our
    banking operations were E415 billion, E526 billion and E501 billion at
    December 31, 2002, 2001 and 2000, respectively.

(3) Cross-border commitments have been presented separately as they are not
    included as cross-border outstandings unless utilized.

     Total cross-border outstandings disclosed above included E945 million and
E668 million of gross loans outstanding to borrowers in the United States that
are also disclosed within the category of non-performing loans at December 31,
2002 and 2001, respectively. At December 31, 2002, total cross-border
outstandings disclosed above also included E126 million of gross loans
outstanding to borrowers in the United States that are also disclosed within the
category of potential problem loans.

SUMMARY OF LOAN LOSS EXPERIENCE

     The following discussion of loan loss allowances refers to the banking
operations of Dresdner Bank, which represents substantially all of our banking
segment, as our other banking operations have not historically been significant.

     We establish allowances for loan losses in our loan portfolio that
represent management's estimate of probable losses at the balance sheet date. We
calculate an allowance for each of the following risks that are allocable to
identified loans or groups of loans in our portfolio:

     - a specific loan loss allowance for impaired loans;

     - a general loan loss allowance for impairments that have been incurred but
       are not yet identified; and

     - an allowance for transfer risk, or country risk allowance.

     We do not maintain any additional reserves that are not allocable to
specifically identified loans or groups of loans in the portfolio.

SPECIFIC LOAN LOSS ALLOWANCE

     A specific loan loss allowance is established to provide for specifically
identified counter-party risks. Loans are identified as impaired if it is
probable that borrowers are no longer able to make their contractually
agreed-upon interest and principal payments. Specific loan loss allowances are
established for impaired loans. We calculate the specific loan loss allowance
based on the guidance provided in IAS 39 and SFAS 114, according to which an
impaired loan
                                       146


should be recorded at its estimated recoverable amount either directly, or
through the use of an allowance account by recording a charge to the income
statement. The estimated recoverable amount is the present value of expected
future cash flows discounted at the loan's original effective interest rate, or
if the loan is collateral dependant and foreclosure on the loan is probable, the
fair value of the collateral, or if there is an observable market for the loan,
the market value of the loan. If the amount of the impairment subsequently
increases or decreases due to an event occurring after the initial measurement
of impairment, a change in the allowance is recognized in earnings by a charge
or a credit to net loan loss provisions.

     We evaluate each of our loans individually. We use an internal credit
rating system implemented in 2002 to assign ratings from 1 to 16 to each loan on
the basis of specific quantitative and qualitative customer criteria, including
financial condition, historical earnings, management quality, and general
industry data, among others. Loans that are classified in the rating categories
15 and 16 are loans that are deemed to be impaired under IAS 39 and SFAS 114. In
addition, loans that carry ratings of 13 and 14 are reviewed for potential
impairment. Prior to 2002, we used an internal credit rating system that
assigned ratings from 1 to 8 to each loan.

     Loans for which a specific loan loss allowance has previously been
established are evaluated on an individual basis if the existing specific loan
loss allowance is E500,000 or more. Loans for which a specific loan loss
allowance of less than E500,000 has previously been established have been
aggregated into portfolios of similar loans by collateral types for evaluation
under IAS 39 and SFAS 114. We determine the impairment provision on such
portfolios by calculating the average loss rates and the collection periods for
different types of collateral and applying a weighted average discount rate to
these aggregated expected future cash flows. The results of such calculations
are subject to back-testing procedures, such as individual evaluation of sample
loans within particular sub-portfolios.

GENERAL LOAN LOSS ALLOWANCE

     General loan loss allowances are established to provide for incurred but
unidentified losses that are inherent in the loan portfolio as of the relevant
balance sheet date. General allowances for loan losses are established for loans
that are impaired but not yet identified as impaired due to the time lag between
the occurrence of an impairment event and the detection of that event by our
credit risk monitoring systems and controls. Such a time lag may occur due to
intervals between impairment tests, ratings reviews and/or a borrower's
financial reporting. In order to avoid layering or double counting of both
specific and general loan loss allowances, only those loans that have not been
deemed impaired under IAS 39 or SFAS 114 are included as part of the portfolio
used to establish the general loan loss allowance.

     The amount of the general loan loss allowance is based on historical loan
loss experience and management's evaluation of the loan portfolio under current
events and economic conditions. Toward this end, we follow a three-step process.

     First, we derive an economic measure of future expected credit losses over
a given time horizon, based on the application of historical loss data to the
loan portfolio as of the most recent balance sheet date. On the basis of the
individual ratings that we have assigned, we assign empiric probabilities of
default to loans with a similar rating. In a bottom-up process, we apply credit
risk parameters based on differentiation between the underlying risks (e.g.
probabilities of default by internal rating class and collateral recovery rates
by collateral types) to the position data of the loan portfolio. We calculate
probabilities of default using empiric historical data of Dresdner Bank's loan
portfolio, which serves as the basis for predicting future default rates within
our rating categories. We derive the expected loss from Dresdner Bank's
historical experience of the amount of the balance of a claim that is not likely
to be recovered based on the balance of the claim when the loan became impaired.
The result is an economic measure of

                                       147


the expected credit losses of each individual loan, representing a
probability-weighted amount of credit loss in the event of a default over the
measurement horizon. These amounts are aggregated to the total portfolio level.
Through a revolving analysis of actual credit losses, we update the underlying
credit risk parameters of our credit risk models in order to improve the quality
and reliability of our credit risk measures.

     Second, we adjust the expected credit loss estimate, which reflects all
future credit losses regardless of the accounting period in which they are
expected to occur, to reflect only those credit losses that can be attributed to
the current accounting period as having already occurred, but as not yet having
been identified as of the most recent balance sheet date. These adjustments are
performed on the basis of loss emergence periods, which measure the average time
lag between the economic loss event and accounting recognition of the loss under
IAS 39 or SFAS 114. We generally use default horizons of between six and eight
months from the balance sheet date, depending on the portfolio. The resulting
amount is used as the basis for determining the general loan loss allowance.

     Third, since expected loss estimates are dependent on historical
information, which may not be representative of current circumstances, the
general loan loss allowance may be reviewed by Dresdner Bank senior management.
If we believe that certain current factors such as internal lending practices or
the state of the broader credit cycle are not adequately reflected in the
historical credit risk parameters used to establish the general loan loss
allowance, we perform an additional qualitative analysis of the allowance.
Modifications of the allowance may then be proposed to Dresdner Bank's
management board. Factors for which such modifications of the general loan loss
allowance may be made include:

     - Levels of and trends in delinquencies and impaired loans;

     - Levels in and trends in recoveries of prior charge offs;

     - Trends in volume and terms of loans;

     - Effects of changes in lending policies and procedures;

     - Experience, ability, and depth of lending management and other relevant
       staff;

     - National and local trends and conditions; and

     - Credit concentrations.

COUNTRY RISK ALLOWANCE

     Country risk allowances are established for transfer risk. Transfer risk is
a measure of the likely ability of a borrower in a certain country to repay its
foreign currency-denominated debt in light of the economic or political
situation prevailing in that country. We establish a country risk allowance for
loan exposures if serious doubts exist regarding a counterparty's ability to
comply with the repayment terms due to the economic or political situation
prevailing in the country of the domicile of the counterparty. We believe that
this risk represents an additional risk above and beyond the normal counterparty
risk.

     Country risk allowances are based on our country rating system that
incorporates current and historical economic, political and other data to
categorize countries by risk profile. Using this system, we define country risk
ratings from 1 to 8. Country risk allowances are established only for loans to
borrowers in countries that are classified in country risk rating categories 6,
7 and 8.

     We exclude certain loans from this assessment, including loans made in
local currency, certain short-term trade financing loans and loans that are
collateralized by assets in, or guaranteed by a party in, an economically and
politically stable country. In order to avoid layering or double counting of
both specific loan loss allowances and country risk allowances, loans that

                                       148


have been deemed impaired under IAS 39 or SFAS 114 are excluded from the
portfolio used to establish the country risk allowance.

SELF-CORRECTING MECHANISMS

     The principal self-correcting mechanism used to reduce the difference
between estimated and actual observed losses is our practice of basing loss
estimates on our historical loss experience. Where actual observed losses differ
from estimated losses, information relating to the actual observed losses is
incorporated into the historical statistical data on which we base our estimates
and is accordingly reflected in our subsequent estimated losses. Similarly, the
credit default models that we use in calculating the general loan loss allowance
are updated to incorporate newly available statistical evidence on impairment
into the default calculations.

     In addition, Dresdner Bank reviews its loss estimates on a quarterly basis,
and, where such estimates differ from actual observed losses, makes appropriate
adjustment to the general loan loss allowance and/or the country risk allowance.

MOVEMENTS IN LOAN LOSS ALLOWANCE

     The primary change in the concentration, quality and terms of our loan
portfolio in 2002 was the deconsolidation in August 2002 of our former mortgage
banking subsidiary Deutsche Hyp. Primarily as a result of the deconsolidation,
our total loan portfolio decreased by E54,269 million, or 28.8%, to E134,138
million at December 31, 2002 from E188,407 million at December 31, 2001.
Substantially all of the decrease related to commercial mortgage loans held by
German borrowers. Such loans typically are longer term than other loans in our
portfolio, with the result that the deconsolidation slightly reduced our
portfolio's overall maturity profile. This change was reflected directly in both
the specific loan loss allowance and the general loan loss allowance, which were
reduced by E923 million and E62 million, respectively, as a result of the
deconsolidation, as well as indirectly in the general loan loss allowance, to
the extent that loans attributable to Deutsche Hyp were no longer included in
the portfolio used to calculate the general loan loss allowance following the
deconsolidation.

     In addition, we significantly decreased exposures to corporate borrowers in
the course of 2002, particularly in the United States and Asia, as part of our
strategic plan to reduce our non-core lending activities outside of Europe. The
reduction in exposures to corporate borrowers was more than offset by the
deterioration in the credit quality of existing borrowers, however, reflecting
the weakness in the current global economic climate. On a comparable basis,
excluding loans attributable to Deutsche Hyp, our non-performing loans increased
by E1,276 million, or 12.3%, and potential problem loans increased E231 million,
or 10.5%, from December 31, 2001 to December 31, 2002.

     We did not introduce significant changes in the terms of our loan
underwriting in 2002, nor did we introduce significant changes in our estimation
methods and assumptions. Beginning in late 2001 and over the course of 2002,
Dresdner Bank implemented a revised and improved loan rating system to reflect
16 categories of loan rating rather than merely eight, and to reflect more
accurately qualitative as well as quantitative information relating to loans.
The new loan grading system did not significantly affect our loan loss
allowances at December 31, 2002.

     During 2002, there were no reallocations of the allowance among the
different parts of the loan portfolio or different elements of the allowance. As
discussed above, when we establish a specific loan loss allowance in relation to
a particular loan, that loan is removed from the portfolio of loans that is used
as a basis for calculating the general loan loss allowance and the country risk
allowance. The establishment of a specific loan loss allowance may therefore
result indirectly in a decrease in the general loan loss allowance and the
country risk allowance, but no direct reallocation of allowances occurs.

                                       149


     In 2002, we established significant specific loan loss allowances of E288
million in relation to E729 million of loans to borrowers in Argentina. Such
loans were subsequently excluded from the portfolio of loans used to calculate
the general loan loss allowance and the country risk allowance. The resulting
indirect decrease in the country risk allowance was offset in part, however, by
increased country risk provisions of E70 million relating to exposures in
Brazil.

     In general, the comparatively high level of net loan loss provisions of
E2,222 million in 2002, together with the decrease in the overall size of the
loan portfolio attributable to the deconsolidation of Deutsche Hyp and the
reduction in non-core lending outside Europe, resulted in a lower projected
level of general loan loss allowances than in previous years. In light of global
economic and geopolitical conditions, however, we determined not to reduce our
general loan loss allowance to reflect such projections. Our general loan loss
allowance was E747 million at December 31, 2002, compared to E753 million at
December 31, 2001.

     We believe the level of our total loan loss allowance is adequate in
comparison to our historical net loss experience. The average credit rating of
loans in our portfolio based on our internal rating system has remained largely
constant in recent years, while at the same time our total loan loss allowance
as a percentage of total loans has increased to 5.2% at December 31, 2002,
compared to 4.5% at December 31, 2001, excluding loans and allowances for loan
losses attributable to Deutsche Hyp, and 3.7% at December 31, 2000.

     The following table sets forth an analysis of the specific loan loss
allowances by industry sector and geographic category of the borrowers, and the
percentage of our total loan portfolio accounted for by those industry and
geographic categories, on the dates specified. The allocation between German and
non-German components is based on the domicile of the borrower.



                                                                         AT DECEMBER 31,
                                -------------------------------------------------------------------------------------------------
                                      2002                2001                2000                1999                1998
                                -----------------   -----------------   -----------------   -----------------   -----------------
                                         PERCENT             PERCENT             PERCENT             PERCENT             PERCENT
                                         OF TOTAL            OF TOTAL            OF TOTAL            OF TOTAL            OF TOTAL
                                          LOANS               LOANS               LOANS               LOANS               LOANS
                                         IN EACH             IN EACH             IN EACH             IN EACH             IN EACH
                                         CATEGORY            CATEGORY            CATEGORY            CATEGORY            CATEGORY
                                         TO TOTAL            TO TOTAL            TO TOTAL            TO TOTAL            TO TOTAL
                                AMOUNT    LOANS     AMOUNT    LOANS     AMOUNT    LOANS     AMOUNT    LOANS     AMOUNT    LOANS
                                ------   --------   ------   --------   ------   --------   ------   --------   ------   --------
                                                                    (E IN MILLIONS, EXCEPT %)
                                                                                           
GERMAN:
 Corporate:
   Manufacturing industry.....    884       7.2%      884       5.7%      687       6.0%      840       5.9%      738       7.5%
   Construction...............    301       0.9%      353       1.0%      381       1.1%      389       1.2%      372       2.0%
   Wholesale and retail
     trade....................    426       4.5%      448       3.8%      506       3.9%      585       4.0%      557       6.0%
   Financial institutions
     (excluding banks) and
     insurance companies......    171       2.1%      133       2.6%      135       2.2%      110       0.5%      126       2.5%
   Banks......................      7       0.5%        5       0.3%        1       0.3%       --       1.3%       --       0.4%
   Service providers..........    827      10.3%      982      12.2%    1,030      11.1%      887      12.6%      654       9.1%
   Other......................    108       2.2%       59       2.1%       95       1.6%      130       2.4%       97       1.8%
                                -----               -----               -----               -----               -----
   Corporate total............  2,724      27.7%    2,864      27.7%    2,835      26.2%    2,941      27.9%    2,544      29.3%
   Public authorities.........     --       0.2%       --       0.4%       --       0.3%        1       0.1%        2       0.7%
   Private individuals
     (including self-employed
     professionals)...........  1,702      32.1%    2,090      33.8%    1,730      34.4%    1,342      34.6%    1,170      36.3%
                                -----               -----               -----               -----               -----
   German total...............  4,426      60.0%    4,954      61.9%    4,565      60.9%    4,284      62.6%    3,716      66.3%
                                -----               -----               -----               -----               -----


                                       150




                                                                         AT DECEMBER 31,
                                -------------------------------------------------------------------------------------------------
                                      2002                2001                2000                1999                1998
                                -----------------   -----------------   -----------------   -----------------   -----------------
                                         PERCENT             PERCENT             PERCENT             PERCENT             PERCENT
                                         OF TOTAL            OF TOTAL            OF TOTAL            OF TOTAL            OF TOTAL
                                          LOANS               LOANS               LOANS               LOANS               LOANS
                                         IN EACH             IN EACH             IN EACH             IN EACH             IN EACH
                                         CATEGORY            CATEGORY            CATEGORY            CATEGORY            CATEGORY
                                         TO TOTAL            TO TOTAL            TO TOTAL            TO TOTAL            TO TOTAL
                                AMOUNT    LOANS     AMOUNT    LOANS     AMOUNT    LOANS     AMOUNT    LOANS     AMOUNT    LOANS
                                ------   --------   ------   --------   ------   --------   ------   --------   ------   --------
                                                                    (E IN MILLIONS, EXCEPT %)
                                                                                           
NON-GERMAN:
 Corporate:
   Manufacturing industry,
     construction, wholesale
     and retail trade and
     service providers........    659      16.3%    1,201      20.4%      998      22.9%    1,183      20.9%    1,001      14.8%
   Financial institutions
     (excluding banks) and
     insurance companies......     33       4.7%       96       5.5%      109       5.3%      107       4.3%       17       4.4%
   Banks......................    244       2.5%      118       2.7%       92       3.3%      142       3.5%      195       5.3%
   Other......................    321       6.8%      247       2.1%      118       1.8%       85       1.8%       98       2.7%
                                -----               -----               -----               -----               -----
   Corporate total............  1,257      30.3%    1,662      30.7%    1,317      33.3%    1,517      30.5%    1,311      27.2%
   Public authorities.........     14       1.5%       15       1.8%       14       0.5%       30       1.6%       15       0.7%
   Private individuals
     (including self-employed
     professionals)...........    182       8.2%      211       5.6%      224       5.3%      231       5.3%      216       5.8%
                                -----               -----               -----               -----               -----
   Non-German total...........  1,453      40.0%    1,888      38.1%    1,555      39.1%    1,778      37.4%    1,542      33.7%
                                -----               -----               -----               -----               -----
TOTAL SPECIFIC LOAN LOSS
 ALLOWANCES...................  5,879     100.0%    6,842     100.0%    6,120     100.0%    6,062     100.0%    5,258     100.0%
COUNTRY RISK ALLOWANCES.......    340                 443                 480                 659                 529
GENERAL LOSS ALLOWANCES.......    747                 753                 523                 386                 344
                                -----               -----               -----               -----               -----
TOTAL LOAN LOSS ALLOWANCES....  6,966               8,038               7,123               7,107               6,131
                                =====               =====               =====               =====               =====


                                       151


     The following table sets forth the movements in the loan loss allowance
according to the industry sector and geographic category of the borrower. The
allocation between German and non-German components is based on the domicile of
the borrower.



                                                                YEAR ENDED DECEMBER 31,
                                                         --------------------------------------
                                                          2002    2001    2000    1999    1998
                                                         ------   -----   -----   -----   -----
                                                                    (E IN MILLIONS)
                                                                           
TOTAL ALLOWANCES FOR LOAN LOSSES AT BEGINNING OF THE
  YEAR.................................................   8,038   7,123   7,107   6,131   4,955
GROSS CHARGE-OFFS:
GERMAN:
  Corporate:
     Manufacturing industry............................     314      66     211      71      47
     Construction......................................     138      16      53      33      11
     Wholesale and retail trade........................     206      54     163      71      26
     Financial institutions (excluding banks) and
       insurance companies.............................      74      17      19       4       1
     Banks.............................................      11      --      --      --      --
     Service providers.................................     327     103     131      82      78
     Other.............................................     117      16      36       5       5
                                                         ------   -----   -----   -----   -----
     Corporate total...................................   1,187     272     613     266     168
     Public authorities................................      --      --       1      --      --
     Private individuals (including self-employed
       professionals)..................................     348     211     337     173     115
                                                         ------   -----   -----   -----   -----
German total...........................................   1,535     483     951     439     283
                                                         ------   -----   -----   -----   -----
NON-GERMAN:
  Corporate:
     Manufacturing industry, construction, wholesale
       and retail trade and service providers..........     270     516     594      93     116
     Financial institutions (excluding banks) and
       insurance companies.............................      12      23      48       6       5
     Banks.............................................       6      13      14      19       3
     Other.............................................      28       2      72       1       4
                                                         ------   -----   -----   -----   -----
     Corporate total...................................     316     554     728     119     128
     Private individuals (including self-employed
       professionals)..................................      38      49      32       9      11
                                                         ------   -----   -----   -----   -----
Non-German total.......................................     354     603     760     128     139
                                                         ------   -----   -----   -----   -----
TOTAL GROSS CHARGE-OFFS................................   1,889   1,086   1,711     567     422
                                                         ------   -----   -----   -----   -----


                                       152




                                                                YEAR ENDED DECEMBER 31,
                                                         --------------------------------------
                                                          2002    2001    2000    1999    1998
                                                         ------   -----   -----   -----   -----
                                                                    (E IN MILLIONS)
                                                                           
RECOVERIES:
GERMAN:
  Corporate:
     Manufacturing industry............................      --       1       9       1       1
     Construction......................................      --      --      --       1      --
     Wholesale and retail trade........................      --      --      --       1      --
     Service providers.................................      --      --      --      10       1
     Other.............................................       1      --      --      --       1
                                                         ------   -----   -----   -----   -----
     Corporate total...................................       1       1       9      13       3
     Private individual (including self-employed
       professionals)..................................      28      25      21      17      17
                                                         ------   -----   -----   -----   -----
German total...........................................      29      26      30      30      20
                                                         ------   -----   -----   -----   -----
NON-GERMAN:
  Corporate:
     Manufacturing industry, construction, wholesale
       and retail trade and service providers..........      57       3       1       1       3
     Financial institutions (excluding banks) and
       insurance companies.............................       1       7      --      --      --
     Banks.............................................      --       4       1      --      --
     Other.............................................      32       2       1      --      37
                                                         ------   -----   -----   -----   -----
     Corporate total...................................      90      16       3       1      40
     Public authorities................................      --      --       1      --      --
     Private individuals (including self-employed
       professionals)..................................      56       6       2       5       6
                                                         ------   -----   -----   -----   -----
Non-German total.......................................     146      22       6       6      46
                                                         ------   -----   -----   -----   -----
TOTAL RECOVERIES.......................................     175      48      36      36      66
                                                         ------   -----   -----   -----   -----
NET CHARGE-OFFS........................................   1,714   1,038   1,675     531     356
                                                         ------   -----   -----   -----   -----
Additions to allowances charged to operations..........   1,902   1,901   1,595   1,237   1,024
(Decreases)/Increases in allowances due to
  (dispositions)/acquisitions of group companies and
  other increases/(decreases)..........................  (1,085)     12      41     158     555
Foreign exchange translation adjustments...............    (175)     40      55     112     (47)
                                                         ------   -----   -----   -----   -----
TOTAL ALLOWANCES FOR LOAN LOSSES AT END OF THE YEAR....   6,966   8,038   7,123   7,107   6,131
                                                         ======   =====   =====   =====   =====
RATIO OF NET CHARGE-OFFS DURING THE YEAR TOAVERAGE
  LOANS OUTSTANDING DURING THE YEAR....................    0.93%   0.46%   0.78%   0.27%   0.15%


     When we determine that a loan is uncollectible, the loan is charged off
against any existing specific loss allowance or directly recognized as expense
in the income statement. Subsequent recoveries, if any, are recognized in the
income statement as a credit to the net loan loss provisions. Since 2000, we
have charged off loans when, based on management's judgment, all economically
sensible means of recovery have been exhausted. Our determination considers
information such as the age of specific loss allowances and expected proceeds
from liquidation of collateral and other repayment sources. Prior to 2000, we
charged off loans only when all legal means of recovery had been exhausted, for
example only after completion of bankruptcy

                                       153


proceedings. The change in practice has affected both the timing and amount of
charge-offs in the years 2000-2002, and in 2002 also affected the level of our
non-accrual loans. See "-- Risk Elements -- Non-performing Loans."

DEPOSITS

     The following table sets forth the average balances and the average
interest rates on deposit categories in excess of ten percent of average total
deposits of our banking operations. The allocation between German and non-German
components is based on the location of the office that recorded the transaction.



                                                          YEAR ENDED DECEMBER 31,
                                         ---------------------------------------------------------
                                               2002                2001                2000
                                         -----------------   -----------------   -----------------
                                         AVERAGE   AVERAGE   AVERAGE   AVERAGE   AVERAGE   AVERAGE
                                         BALANCE    RATE     BALANCE    RATE     BALANCE    RATE
                                         -------   -------   -------   -------   -------   -------
                                                         (E IN MILLIONS, EXCEPT %)
                                                                         
IN GERMAN OFFICES:
  Non-interest-bearing demand
     deposits(1).......................   16,603              14,364              10,193
  Interest-bearing demand deposits.....   45,697    2.6%      31,608    1.5%      33,849    2.1%
  Savings deposits.....................    6,495    2.8%      10,352    3.4%      14,457    2.6%
  Time deposits(1).....................   77,985    3.2%     116,239    4.0%      83,367    3.6%
                                         -------             -------             -------
  German total.........................  146,780             172,563             141,866
                                         -------             -------             -------
IN NON-GERMAN OFFICES:
  Non-interest-bearing demand
     deposits..........................    2,443               6,098               8,405
  Interest-bearing demand deposits.....   16,327    2.3%      11,351    3.8%      10,392    4.2%
  Savings deposits.....................    1,370    3.4%       1,073    3.9%         612    3.1%
  Time deposits........................   41,277    4.2%      57,432    5.3%      44,358    7.5%
                                         -------             -------             -------
Non-German total.......................   61,417              75,954              63,767
                                         -------             -------             -------
TOTAL DEPOSITS.........................  208,197             248,517             205,633
                                         =======             =======             =======


---------------

(1) Certain amounts in 2001 and 2000 have been reclassified from time deposits
    to non-interest-bearing deposits to conform to the current-year
    presentation.

     The aggregate amount of deposits by foreign depositors in our German
offices was E51,688 million E63,663 million and E55,263 million at December 31,
2002, 2001 and 2000, respectively.

                                       154


TIME DEPOSITS

     The following table sets forth the balance of time certificates of deposit
and other time deposits in the amount of E100,000 or more issued by our German
offices by time remaining to maturity at December 31, 2002.



                                                               AT DECEMBER 31, 2002
                                                                 TIME DEPOSITS OF
                                                                 E100,000 OR MORE
                                                               --------------------
                                                                 (E IN MILLIONS)
                                                            
Maturing in three months or less............................          56,390
Maturing in over three months through six months............           2,385
Maturing in over six months through twelve months...........           5,770
Maturing in over twelve months..............................           3,028
                                                                      ------
Total.......................................................          67,573
                                                                      ======


     The amount of time deposits of E100,000 or more issued by our non-German
offices was E25,840 million at December 31, 2002.

SHORT-TERM BORROWINGS

     Short-term borrowings are borrowings with an original maturity of one year
or less. Short-term borrowings are included within liabilities to customers,
liabilities to banks and certificated liabilities. Securities sold under
agreements to repurchase and negotiable certificates of deposit are the only
significant categories of short-term borrowings of our banking operations.

     The following table sets forth certain information relating to the
categories of our short-term borrowings.



                                                                   YEAR ENDED DECEMBER 31,
                                                            -------------------------------------
                                                             2002          2001           2000
                                                            ------      ----------      ---------
                                                                        (E IN MILLIONS, EXCEPT %)
                                                                               
SECURITIES SOLD UNDER REPURCHASE AGREEMENTS:
  Balance at the end of the year..........................  63,287        56,354         60,648
  Monthly average balance outstanding during the year.....  67,168        76,875         54,102
  Maximum balance outstanding at any period end during the
     year.................................................  91,929       102,587(1)      68,950(1)
  Weighted average interest rate during the year..........     3.2%          4.3%           4.7%
  Weighted average interest rate on balance at the end of
     the year.............................................     2.6%          2.4%           4.7%

NEGOTIABLE CERTIFICATES OF DEPOSIT:
  Balance at the end of the year..........................  30,765        30,268         28,552
  Monthly average balance outstanding during the year.....  31,632        28,718         28,009
  Maximum balance outstanding at any period end during the
     year.................................................  35,467        30,518(2)      28,552(2)
  Weighted average interest rate during the year..........     2.8%          5.0%           5.7%
  Weighted average interest rate on balance at the end of
     the year.............................................     2.6%          3.1%           6.4%


---------------

(1) During the years ended December 31, 2001 and 2000, the maximum balance
    outstanding at any period-end during the year was derived from the maximum
    balance outstanding at any month-end, based on the unconsolidated balances
    of Dresdner Bank AG, its branch operations and significant subsidiaries, and
    certain other banking subsidiaries of Allianz.

                                       155


(2) During the years ended December 31, 2001 and 2000, the maximum balance
    outstanding at any period-end during the year was derived from the maximum
    balance outstanding at any quarter-end, based on the consolidated balances
    of our banking operations.

                           REGULATION AND SUPERVISION

                                    GENERAL

     Our insurance, banking and asset management businesses are subject to
detailed, comprehensive regulation and supervision in all the countries in which
we do business. In addition, certain EU regulations and directives implemented
through local legislation in EU member states, have had and will continue to
have a significant impact on the regulation of the insurance, banking and asset
management industries in EU member states, including those in which many of our
most important flagship operations are located, such as Germany, France, Italy
and the United Kingdom. The following discussion addresses significant aspects
of the regulatory schemes in these countries.

                                   ALLIANZ AG

     Allianz AG operates as a reinsurer and holding company for our insurance,
banking and asset management operating entities and, as such, is supervised and
regulated by the German Federal Financial Supervisory Authority (the
Bundesanstalt fur Finanzdienstleistungsaufsicht, or BaFin). The BaFin was
established on May 1, 2002. The creation of the BaFin consolidates the functions
of the former offices for banking supervision (the Bundesaufsichtsamt fur das
Kreditwesen), insurance supervision (the Bundesaufsichtsamt fur das
Versicherungswesen) and securities supervision (the Bundesaufsichtsamt fur den
Wertpapierhandel) into a single federal regulatory authority. The BaFin monitors
and enforces regulatory standards for banks, financial services institutions and
insurance companies by supervising their activities in the financial markets and
performing functions relating to consumer protection. The BaFin is a federal
institution governed by public law that belongs to the portfolio of the German
Federal Ministry of Finance.

     Allianz AG is not required to be licensed as a reinsurance company in
Germany. In July 2002, the German Insurance Supervision Act
(Versicherungsaufsichtsgesetz), which used to provide only for indirect
supervision of reinsurance companies, was amended to extend the BaFin's right to
direct supervision. The BaFin is entitled to monitor whether the management of a
reinsurance company is of good repute and meets certain standards of
professional competence as well as whether the holders of qualified
participating interests in the reinsurance company are of good repute.
Previously, the BaFin already had the power to give orders to request
information. With the amendment in July 2002, the BaFin's power has been
significantly expanded. The BaFin is explicitly entitled to take administrative
action to ensure that a reinsurance company operates in compliance with
applicable laws and that it is able to meet its reinsurance liabilities.
Beginning January 1, 2005, additional restrictions will apply to investments
held to cover reinsurance reserves. Reinsurance activities continue to be
regulated indirectly through the supervision of reinsurance programs submitted
by direct insurers. The BaFin also reviews transactions between the Allianz AG
and its subsidiaries, including reinsurance relationships and cost sharing
agreements.

     In addition, the Allianz AG is subject to regulation as a reinsurance
company and is required to submit internal annual reports, including certain
accounting documents, and internal quarterly reports regarding its investments
to the BaFin.

                                       156


                               GROUP REGULATIONS

     Under German law based on an EU directive on supplementary supervision of
insurance groups, insurance companies that are members of an insurance group as
defined by law are subject to additional regulatory requirements. The additional
regulation includes the following three components: (i) the supervision of
intra-group transactions, (ii) the monitoring of the adjusted solvency, i.e. on
a consolidated basis, and (iii) the establishment of appropriate internal
controls for providing the BaFin with information as part of its monitoring of
the first two components. The most important intra-group transactions must be
reported to the BaFin annually; intra-group transactions endangering the
solvency of an insurance company subject to supervision must be reported
immediately. The law requires that the insurance group calculate the capital
needed to meet the respective solvency requirements for the insurance group on a
consolidated basis. IFRS accounting may be used as a basis for the calculation.
Similar group solvency requirements are required to be fulfilled by the local
parent companies of insurance subsidiary groups in the different EU
jurisdictions.

     Regarding the banking sector, the credit institutions directive of 2000,
consolidating certain older directives, and the capital adequacy directive of
1993 also provide for capital requirements on a consolidated basis. They define,
among other things, the capital requirements needed to ensure sufficient capital
to cover, also on a consolidated basis, the bank's market and credit risks
associated with banking and trading book activities. The directives have been
implemented into German law. With respect to the Allianz Group, Dresdner Bank is
responsible for the capital requirements of the companies within our banking
sector.

                            FINANCIAL CONGLOMERATES

     In December 2002, the EU adopted a directive that provides for assessment
of the capital requirements of a financial conglomerate on the group level,
supervision of risk concentration and intra-group transactions and prevention of
double-leveraging of the capital of the holding or parent company, i.e. once in
the holding or parent company and a second time in the subsidiary ("double
gearing"). The Allianz Group is a financial conglomerate within the scope of
this directive. The EU member states are required to implement this directive
into national law for the fiscal year beginning on or after January 1, 2005.

     In the United States, the Gramm-Leach-Bliley Financial Modernization Act of
1999 substantially eliminates barriers separating the banking, insurance and
securities industries in the United States. The legislation allows the formation
of diversified financial services firms that can provide a broad array of
financial products and services to their customers. In addition, the legislation
permits insurers and other financial services companies to acquire banks.

                                   INSURANCE

EUROPEAN UNION

     Under the Treaty of Rome of 1957, Germany and the other EU member states
are required to implement EU legislation into domestic law and to take EU
legislation into account in applying domestic law. EU legislation can take
several forms. If legislation takes the form of a EU regulation, the regulation
is directly applicable as binding law in all member states. If legislation takes
the form of a EU directive, the directive creates an obligation for the member
states to implement and transpose the directive into their national legal
systems. In addition, certain directives include "self-executing" features that
are directly binding on member states, although the directives still require
formal implementation into national legislation.

                                       157


     Since 1973, the EU has adopted a series of insurance directives on life
insurance and direct insurance other than life insurance. These directives have
been implemented in Germany, France, Italy, the United Kingdom, Austria and the
other EU jurisdictions through national legislation and have resulted in
significant deregulation of the EU insurance markets. The directives are based
on the general principles of freedom of branch operations, freedom of provision
of services and home country control. Under the directives, the regulation of
insurance companies, including insurance operations outside their respective
home countries (whether direct or through branches), is the responsibility of
the home country insurance regulatory authority. In particular, the home country
insurance regulatory authority is responsible for monitoring compliance with
applicable regulations, the solvency and actuarial reserves of insurers and the
assets supporting those reserves.

     As a result of the home country control principle, the EU insurance
directives generally permit an insurance company licensed in any jurisdiction of
the EU to conduct insurance activities, directly or through branches, in all
other jurisdictions of the EU, without being subject to additional licensing
requirements. Under the EU insurance directives, there is no authorization
procedure to regulate insurance terms and conditions or tariffs. Insurers are
required to submit reports to the regulatory authorities in jurisdictions
outside their home country regarding the management, qualifying shareholders,
and other matters such as general and specific policy terms and conditions,
premiums and technical reserves.

     Insurance selling activities are generally regulated by the regulatory
authorities in the country in which the sale of the insurance product takes
place. In December 2002 a new EU directive on insurance mediation became
effective. Under this directive, insurance and reinsurance intermediaries,
including ancillary intermediaries, are required to register in their home
member state and to possess appropriate knowledge and ability, as determined by
their home member state. Member states are required to implement this directive
effective January 15, 2005. The impact of the new directive on Allianz Group
companies in EU member states depends on how the directive will be implemented
by the member states. Consequently, we cannot assess the potential impact of the
directive.

     The EU insurance directives generally prohibit an insurance company from
conducting both non-life and life insurance activities. However, life insurance
companies that conducted non-life insurance activities in EU member states prior
to March 15, 1979, including some of our subsidiaries, may continue to conduct
these activities without restriction. In addition, member states may permit life
insurance companies to write personal accident and health insurance policies, or
insurance companies authorized to write personal accident and health insurance
policies to write life insurance policies.

GERMANY

GENERAL

     German insurance companies, including the companies in our German
Property-Casualty Group, our credit insurance companies, our life insurance
companies and our health insurance companies, are subject to a comprehensive
system of regulation under the German Insurance Supervision Act. The BaFin
monitors and enforces compliance with German insurance laws, applicable
accounting standards, technical administrative regulations, and investment and
solvency provisions. Any change in the articles of association (except changes
regarding capital increases) and all material changes in the business plan of a
German insurance company must be approved, and the books and records of German
insurance companies are subject to examination at any time, by the BaFin.

     Under the Insurance Supervision Act, German insurance companies are subject
to detailed requirements with respect to the administration of their assets and
liabilities. In general, the actuarial and claims reserves of each insurer must
be adequate to allow the insurer to fulfill its
                                       158


contractual commitments to pay upon receipt of claims. Toward this end, insurers
must maintain a solvency margin (own funds) equal to the minimum solvency
margin. One third of the minimum solvency margin constitutes the guarantee fund.
If the solvency margin falls below the minimum solvency margin, the BaFin may
request that the company submits a plan for restoring its sound financial
position; under exceptional circumstances, the BaFin may restrict or prohibit
the free disposal of the assets. If the solvency margin of an insurance company
falls below the guarantee fund, at the request of the BaFin, the insurance
company must submit a plan detailing how the company will promptly obtain the
necessary solvency margin; in this case, the BaFin may with no further
requirements limit or prohibit the disposal of the insurer's assets. German
property-casualty insurance companies are also required to establish claims
equalization reserves according to established actuarial rules. These claims
equalization reserves are intended to level out fluctuating claims requirements
over the course of time. German regulation law requires that insurers maintain
assets equal to the sum of technical reserves, regarding life insurers including
mathematical provisions, and of liabilities and deferrals under insurance
contracts (gebundenes Vermogen) and that they invest these assets in accordance
with certain standards. German law limits the proportion of the assets which
German insurers may invest in certain categories of investments and imposes
restrictions with respect to particular investments. A regulation issued by the
German Federal Government provides for detailed investment rules.

     New insurance products and policies may be offered in Germany without prior
approval of the BaFin. Insurers must file a description of new products and
policies, and the BaFin may require the modification of terms and conditions or
the withdrawal from the market or modification of any contract that does not
comply with applicable laws and regulations. In addition, the terms of all
health insurance policies are subject to particular consumer protection and
other legislation.

LIFE INSURANCE

     Under German law, German life insurance companies are required, after
receiving the authorization to conduct a life insurance business, to notify the
BaFin of the principles they use to set premium rates and establish actuarial
provisions, and of any intention to alter or amend these principles. German life
insurance companies are also required to appoint a chief actuary responsible for
reviewing and ensuring the appropriateness of actuarial calculation methods.
Prior to the appointment, the insurer must provide the BaFin with the name of
the actuary. Before and after the appointment, the BaFin is entitled to request
that the insurer appoint another actuary if the BaFin has doubts as to the
professional qualifications of the appointed actuary. In case the second
appointee does not meet the professional requirements, or the insurer does not
appoint another actuary, the BaFin itself may appoint an appropriate actuary.

     Additional restrictions apply to the investment of German life insurance
company assets. The BaFin closely monitors the calculation of actuarial reserves
and the allocation of assets covering actuarial reserves. Assets covering
actuarial reserves are also monitored by an independent trustee. The rules
governing the appointment of the trustee are similar to those governing the
appointment of the actuary. The BaFin may issue supplemental instructions to an
insurer if deemed necessary to safeguard the interests of policyholders.

     Amounts payable to policyholders at the maturity of endowment policies
underwritten by German life insurance companies include a "guaranteed benefit"
an amount that, in practice, is equal to a legally mandated maximum rate of
return on actuarial reserves. This rate is currently 3.25% per year for policies
issued on or after July 1, 2000 and with euro as applicable currency. For
policies issued through June 30, 2000, the maximum rate of return is 4.0% per
annum. For policies issued prior to 1995, the maximum rate is 3.5% or 3.0%,
depending on the generation of tariff. On policies written through 1994, German
life insurance companies are obliged by regulations to allocate for the benefit
of policyholders at least 90% of their annual surplus. In 1994 and 1996, the
laws and the regulations, respectively, were modified, and on policies written
                                       159


since June 30, 1994 and thereafter, German life insurance companies are obliged
by the modified regulations to allocate for the benefit of policyholders at
least 90% of their net interest yield on assets corresponding to technical
reserves. In addition, holders of policies written after June 30, 1994 are
entitled to participate in "appropriate amounts" of profit from sources other
than assets, mainly from earnings related to risk management and cost
management. The amount required to be allocated to policyholders may be used to
directly increase a policyholder's profit participation or to contribute to the
policyholder's profit reserve. In general, the amount contributed to the
policyholder's profit reserve may be used only for the policyholder's profit
participation. In the event of an overall loss and to avoid an emergency
situation, the insurer may use parts of the policyholder profit reserve to cover
the loss with the approval of the BaFin if doing so is in the interest of the
policyholders. The profit reserve is accordingly included in the calculation of
the life insurer's solvency margin. The respective determinations and
calculations are based on German statutory accounting principles. These
statutory accounting principles were amended on March 26, 2002, with respect to
impairment charges for equity, investment funds and other fixed-interest rate
and non-fixed-interest rate securities. This amendment has a stabilizing effect
on statutory profits and profit participation.

     The Retirement Savings Act (Altersvermogensgesetz), which is intended to
reform the pension system in Germany, took effect on January 1, 2002. This act
provides for state subsidies, in the form of either direct subsidies or, under
certain circumstances, tax benefits. The prerequisite for state subsidies is
that the underlying products contain certain characteristics entitled to
certification by the BaFin. The main characteristic is that at least the amount
that has been paid in premiums is available at maturity and that life-long
benefit payments be guaranteed. Administration costs of the certified products
may be high due to the complex state subsidy process. The Retirement Savings Act
also intends to foster company old-age provision. As of January 1, 2002,
employees are entitled by law to request that parts of their compensation be
converted into company old-age provision. In addition to the already existing
pension schemes, (Pensionskassen) the new law and the regulations promulgated
thereunder permit the establishment of pension schemes for employees within
separate legal entities (Pensionsfonds), as new means of company old-age
provision, which are treated as life insurers under the German Insurance
Supervisory Act. Both Pensionskassen and Pensionsfonds are supervised by the
BaFin.

HEALTH INSURANCE

     We offer "substitutive" health insurance products in Germany designed to
partially or totally replace statutory public health insurance coverage. We also
offer products intended to supplement both the statutory and substitutive
schemes. These products are subject to detailed regulations designed to protect
policyholders.

     In general, the core products of German health insurance companies,
including comprehensive health insurance, daily sickness and hospital daily
allowance insurance, are regulated by the BaFin. German law also requires that
private health insurance companies offer certain kinds of health insurance,
including private compulsory long-term care insurance, to policyholders with
substitutive health insurance.

     German health insurance companies are required to appoint and register a
chief actuary and an independent trustee with the BaFin. Premiums are calculated
in accordance with established actuarial and legal principles and are required
to provide an adequate reserve for the increased likelihood of poor health in
old age. Health insurance policies may provide for premium increases to cover
inflation and the increased costs of medical treatment and other developments.
However, any such adjustments must be approved by an independent trustee.

     Since the beginning of 2000, Allianz Private Health has also been required
by law to allocate to its policyholders 90% of interest surplus, which is a
component of statutory profits. Like

                                       160


endowment and other life insurance products, health insurance products include
mandatory profit-sharing features, whereby Allianz Private Health, like any
other German private health insurer, returns 80% of the statutory profit on its
health business, after the payment of claims and claims costs, the establishment
of reserves, payment of taxes and other expenses, to policyholders annually,
generally in the form of premium subsidies or rebates. These serve to limit
premium increases for policyholders in higher age brackets. As with the Group's
endowment policies in Germany, the actual level of profit sharing the Group
provides its policyholders is, for competitive reasons, in excess of the
statutory minimum and has been between 85% and 90% of statutory profits in
recent years.

     In January 2003, the specific income threshold for German statutory health
insurance coverage was raised by the German legislator in order to stabilize and
maintain the statutory health-care system. As a consequence, the number of
individuals who are able to choose protection under the private healthcare
system may decrease. While this measure may reduce new business for full private
health coverage for salaried employees, it may also create new business
opportunities for supplementary insurance for individuals insured under
statutory health insurance plans. Further changes to the German healthcare
system are currently being considered, in particular with a view to reducing its
costs. Enactment into law of any such changes may have an impact on private
health insurance providers, as the amount of new business written under full
private health coverage may further decrease.

FRANCE

     The activities of French insurance companies including AGF are governed by
the French Insurance Code and licensed and supervised by the French Ministry of
the Economy and the Commission de Controle des Assurances (or Insurance
Commission). The Insurance Commission is an independent administrative authority
that supervises the financial position and solvency of French insurance
companies and their compliance with applicable insurance regulations, including
statutory accounting principles and financial and technical management
regulations. According to a proposed law concerning financial security, the
Insurance Commission shall be replaced by the Commission de Controle des
Assurances, des Mutuelles et des Institutions de Prevoyance with the same
functions. French insurers are required to make periodic filings of financial,
accounting and statistical statements with the Insurance Commission. Any change
in the articles of association of French insurance companies must also be
approved by the Insurance Commission. The Insurance Commission may examine the
accounts of French insurance companies at any time. French insurance companies
may not engage on an ongoing basis in any commercial activity other than that of
providing insurance coverage and directly related activities.

     French insurance companies are subject to a number of requirements with
respect to the administration of their assets and liabilities. With respect to
liabilities, actuarial and claims reserves must be adequate to allow the insurer
to fulfill contractual commitments to pay claims upon receipt. French law also
prescribes compliance with a minimum solvency margin and requires insurance
companies to make contributions to certain state-administered guarantee funds.
French insurance companies may invest assets that support actuarial and claims
reserves generally only in debt securities, equity securities and shares of
mutual funds, real estate, mortgage loans, certain government-guaranteed loans
and certain other loans and deposits. French law limits the proportion of assets
that French insurers may invest in certain categories of investments and imposes
restrictions with respect to particular investments.

     French life insurers are obligated by law to allocate for the benefit of
policyholders (other than holders of contracts supported by separate accounts
and term policies) at least 85% of annual investment results on assets
attributable to such policyholders, plus at least 90% of other profits. Amounts
allocated must be credited to policyholders within eight years but otherwise can
be credited at the insurer's discretion. The allocation generally takes the form
of an increase in guaranteed benefits but may also take the form of a reduction
of future premiums.
                                       161


     New insurance products and policies may be offered in France by either a
French or foreign insurer without obtaining prior approval. However, the
Ministry of the Economy may require submission of contracts or advertising
materials relating to the insurance business. The Ministry of the Economy may
also require the withdrawal from the market or the modification of any contract
or advertising material which, in its judgment, does not comply with applicable
laws and regulations.

ITALY

     Italian insurance companies including our major subsidiaries RAS and Lloyd
Adriatico are subject to a comprehensive regulatory scheme contained in the
Supervision of Insurance Act and supplemented by numerous other regulations and
ordinances. These laws and regulations regulate access to insurance activities,
require the maintenance of certain solvency margins, in part through a guarantee
fund, determine the form of financial statements for insurance concerns and
regulate the activities of insurance intermediaries.

     The activities of Italian insurance companies, insurance agents and brokers
are regulated by the Institute for the Supervision of Private and Public
Interest Insurance, known by its Italian acronym ISVAP. ISVAP grants
authorization to companies to conduct insurance activities. ISVAP is also
responsible for the supervision of the financial management of Italian insurance
companies. In addition, ISVAP has the authority to propose disciplinary
measures, including the revocation of authorizations, which may ultimately be
taken by the Ministry of Industry. ISVAP has the power to request information
from insurance companies, conduct audits of their activities and question their
legal representatives, managing directors and statutory auditors and convene
shareholders, directors and statutory auditors meetings in order to propose
measures necessary to conform the management of insurance companies to legal
requirements. Insurance companies having their registered offices in Italy must
receive prior authorization by ISVAP in order to operate life or non-life
insurance activities.

     All Italian insurance companies are required to maintain adequate technical
reserves in respect of each insurance contract. ISVAP establishes the maximum
interest rate Italian insurance companies may guarantee to the policyholders,
for the calculation of required life reserves. Italian law also establishes
maximum limits on the amount of reserves that may be invested in any particular
category of investments. ISVAP may establish stricter limits under some
circumstances. In addition, ISVAP may prohibit companies that do not comply with
reserve requirements from disposing of their assets located in Italy and from
accepting new business.

     Italian insurance companies are required to observe a minimum solvency
margin calculated in accordance with a formula that varies depending on the
types of insurance that they underwrite. In cases where the solvency margin is
less than the guarantee fund, ISVAP may require a company to prepare and
implement a short-term financing plan in order to bring it into compliance with
the applicable requirements, or may prohibit a company from disposing of its
assets.

     In July 2000, the Italian antitrust authority imposed fines totaling E361
million on several insurance companies because of alleged coordination of
activities through sharing of information in automobile liability insurance in
previous years. Our Italian subsidiaries have been assessed, and have paid, E83
million of this fine. In February 2002, the fine was upheld by the Italian State
Council, the highest administrative court in Italy.

SWITZERLAND

     Swiss insurance companies including our Swiss subsidiaries must be licensed
by the Swiss Federal Department of Justice and Police and are subject to the
supervision of the Swiss Federal Office of Private Insurance. A separate
authorization is required for each separate line of

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insurance business conducted in Switzerland. Although Switzerland is not a
member state of the EU and is not subject to the EU insurance directives, Swiss
insurance regulation is generally consistent with regulation in the EU.

     The Federal Office of Private Insurance monitors the compliance of Swiss
insurance companies with requirements relating to solvency, minimum capital,
reserve building and assets and may conduct audits at any time. The Federal
Office of Private Insurance also fixes the interest rate for calculation of
required life insurance company reserves. Swiss life and health insurance
companies are required to file tariffs and contract conditions with the Federal
Office of Private Insurance.

UNITED KINGDOM

     Insurance companies in the United Kingdom are regulated under the Financial
Services and Markets Act 2000 (or FSMA). The FSMA provides the framework for the
regulation of all business activities within the financial services sector in
the United Kingdom, including life insurance and general insurance companies
such as our subsidiary Allianz Cornhill. The FSMA took effect on December 1,
2001 and provides that no firm may carry on a regulated activity in the United
Kingdom in the insurance, securities, banking or pension sectors, unless it has
been authorized to do so under the FSMA or exempted from it. The Financial
Services Authority (or FSA) has been created as a single regulator for the
insurance, securities, banking and pension sectors in the United Kingdom. The
FSA enforces detailed requirements that firms have to meet in order to receive
authorization, including requirements relating to minimum capital, internal
governance systems and risk control, and the suitability of management and
controlling shareholders. A self-regulatory body known as the General Insurance
Standards Council (or GISC) has also been established to ensure compliance by
general insurance companies with applicable codes of business conduct. The
Treasury has announced that the FSA will assume statutory responsibility for the
conduct of the sale of general insurance by intermediaries and insurance
companies from October 2004. Accordingly, self regulation by the GISC will cease
at that time. The FSA also establishes the conditions on which the home country
principle is implemented with respect to insurance, securities and banking,
granting a European financial services "passport."

     All insurance companies in the United Kingdom must submit to the FSA annual
and, in some cases, quarterly returns together with audited accounts. These
returns must include a certificate as to whether domestic assets are sufficient
to cover domestic liabilities, and are subject to examination by the FSA. An
annual assessment for the protection of UK policyholders is imposed on all
insurance companies underwriting life and general business.

     Policyholder protection exists through two bodies, the Financial Services
Compensation Scheme (or FSCS) and the Motor Insurance Bureau (or MIB). The FSCS
provides policyholders with a level of protection against insurance company
insolvency. The protection covers all types of property and casualty insurance.
The MIB provides coverage for victims of automobile accidents where there is no
(or inadequate) insurance coverage. FSCS and MIB are funded by means of levies
on insurance companies.

     Insurance companies in the United Kingdom may only market products in
conformity with classes authorized by the FSA.

     In some areas, UK regulations establish customer information rights that
exceed the disclosure standards mandated by the relevant EU directives.
Regulations that came into effect on October 1, 1999 enable policyholders who
are consumers to challenge the terms of policies which they claim are unfair or
unclear. The Office of Fair Trading and certain consumer groups are empowered to
enforce these regulations by requiring revised contracts when the terms of
existing contracts appear to contravene the regulations.

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UNITED STATES

     Our insurance subsidiaries in the United States are subject to
comprehensive and detailed regulation of their activities under U.S. state and
federal laws.

     U.S. property-casualty and life insurance companies are subject to
insurance regulation and supervision in the individual states in which they
transact business. Supervisory agencies in various states have broad powers to
grant or revoke licenses to transact business, regulate trade practices, license
agents, approve insurance policy terms and certain premium rates, set standards
of solvency and reserve requirements, determine the form and content of required
financial reports, examine insurance companies and prescribe the type,
concentration, and amount of investments permitted. Insurance companies are
subject to a mandatory audit every three to five years by state regulatory
authorities, depending on the state of domicile, and every year by independent
auditors.

     U.S. property-casualty and life insurers are also subject to risk based
capital (or RBC) guidelines, which provide a method to measure the adjusted
capital (statutory capital and surplus plus other adjustments) that insurance
companies should have for regulatory purposes, taking into account the risk
characteristics of the company's investments and products. The RBC requirements
establish capital requirements for four categories of risk: asset risk,
insurance risk, interest rate risk and business risk. For each category, the
capital requirement is determined by applying factors to various asset, premium
and reserve items, with the factors being higher for those items with greater
underlying risk and lower for less risky items. An insurance company's RBC ratio
will vary over time depending upon many factors, including its earnings, the mix
of assets in its investment portfolio, the nature of the products it sells and
its rate of sales growth, as well as changes in the RBC formulas required by
regulators. The RBC guidelines are intended to be a regulatory tool only, and
are not intended as a means to rank insurers generally. Each of our U.S.
insurance subsidiaries met its statutory minimum RBC ratios at December 31,
2002.

     Although the federal government generally does not directly regulate the
insurance business, many federal laws affect the insurance business in a variety
of ways. In November 2002, the Terrorism Risk Insurance Act was signed into law.
This legislation requires insurers to offer coverage for terrorist acts in their
commercial property and casualty insurance policies and it establishes a federal
program to reimburse insurers for a portion of losses so insured. These
mandatory rules have implications for Allianz Group companies doing business in
the United States. In addition, our U.S. subsidiaries are subject to the
restrictions on fund transfers and other activities under the USA PATRIOT Act of
2001, which, although it affects primarily our banking and investment services
subsidiaries, also applies to our insurance subsidiaries. On September 18, 2002,
the Treasury Department issued proposed rules regarding Section 352 of the USA
PATRIOT Act, requiring financial institutions to establish anti-money laundering
programs. In the proposed rules, application of this provision to insurers has
been limited to life insurers, annuity issuers and any other insurance product
with investment features similar to life insurance. According to an interim rule
released by the Treasury Department on October 25, 2002, other insurance and
financial services companies are exempted from the requirement to establish
anti-money laundering programs until final rules have been issued. The
publication of final rules is expected in the first half of 2003. Our U.S. life
insurance subsidiaries have implemented programs to comply with applicable
Treasury rules. The Treasury Department has postponed the adoption of rules
related to the customer identification provision of Section 326 of the USA
PATRIOT Act. However, all financial institutions are required to scan their
customers for potential matches to the list of Specially Designated Nationals
issued by the Office of Foreign Assets Control.

     There are a number of proposals for regulation which may significantly
affect the U.S. market, such as the establishment of an optional federal charter
for insurance and reinsurance companies, employee benefit regulations,
establishment of a federal registry for

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asbestos claims subject to compensation limits, and the taxation of insurance
companies and their products. These initiatives are mostly in a preliminary
stage and, consequently, we cannot assess their potential impact at this time.

OTHER COUNTRIES

     Our insurance operations in countries other than those discussed above are
also subject to detailed regulation and supervision by authorities in the
relevant jurisdictions, including with respect to such matters as policy forms
and rates, reserving, investment and financial practices, and marketing,
distribution and sales activities.

               BANKING, ASSET MANAGEMENT AND INVESTMENT SERVICES

EUROPEAN UNION

     The supervision of banking, asset management and investment services in the
member states of the European Union is the exclusive responsibility of national
authorities within the individual member states. However, the rules governing
the regulation and supervision of these financial services have been harmonized
by a number of EU directives, which have been implemented in the member states.
These directives mostly focus on establishing harmonized minimum capital
requirements and the freedom to provide services within the member states. As a
result of this harmonization, banking licenses granted in one EU member state
are recognized in all other member states.

     Under the EU investment services directive, member states have to ensure
that financial institutions that are members of a securities exchange in one
member state are eligible for admission to trading on the exchanges of all other
member states. Moreover, the investment services directive provides for certain
rules of conduct and organizational requirements for financial institutions.

     Another field of harmonization which is of importance for financial
institutions is securities trading. The EU directive on offering prospectuses
provides for harmonized rules with respect to the contents and filing of
prospectuses for publicly traded securities. Another directive harmonizes the
rules for disclosure of financial and other information that publicly traded
companies have to provide. The insider trading directive sets forth certain
rules for securities trading by corporate insiders. There are also EU directives
harmonizing rules governing investment fund management and investor protection.

GERMANY

     Our banking and other financial services activities in Germany are
extensively supervised and regulated by the BaFin.

BANKING

     Engaging in the banking business requires the authorization by the BaFin.
Banking activities include, among others, deposit and lending activities, safe
custody activities, checking account and e-money activities as well as
underwriting activities. Enterprises engaged in banking business are formally
referred to as credit institutions (Kreditinstitute).

     All banks in Germany, including Dresdner Bank, are subject to comprehensive
governmental supervision and regulation, also on a consolidated basis, by the
BaFin in accordance with the German Banking Act (Kreditwesengesetz, or the
German Banking Act). The BaFin is authorized to issue regulations and guidelines
implementing the provisions of the German Banking Act and other laws affecting
German banks. The German Banking Act and the regulations issued thereunder have
been amended over time to implement the recommendations on banking

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supervision issued by the Basle Committee on Banking Supervision and the
relevant European Council Directives.

     The BaFin supervises the operations of all banks, including Dresdner Bank,
to ensure that they conduct their business in accordance with the provisions of
the German Banking Act and other applicable German laws and regulations. To this
end, the BaFin is empowered to request information and documentation on business
matters from the banks. The BaFin may conduct on-site inspections without
specific cause. Reports by a bank's auditors have to be submitted to the BaFin
and the Deutsche Bundesbank or the Bundesbank, the German central bank. The
contents of the reports are prescribed in a special regulation issued by the
former Bundesaufsichtsamt fur das Kreditwesen (the Prufungsberichtsverordnung).
Particular emphasis is placed on compliance with capital adequacy and liquidity
requirements, lending limits and restrictions on certain activities imposed by
the German Banking Act and the regulations promulgated thereunder.

REGULATION BY THE BUNDESBANK

     The BaFin carries out its banking supervision role in close cooperation
with the Deutsche Bundesbank. Although the authority to issue administrative
orders that are binding on specific banks is vested solely with the BaFin, the
BaFin must consult with the Bundesbank before issuing general regulations and
must obtain the consent of the Bundesbank if the regulations affect the
Bundesbank. The Bundesbank is responsible for organizing the collection and
analysis of the periodic and other reports from the banks.

CAPITAL ADEQUACY REQUIREMENTS

     German banking regulation contains certain capital adequacy requirements.
In accordance with what is known as Principle I, each bank's ratio of Liable
Capital to risk-weighted assets and certain off-balance sheet items, as such
terms are defined or described below, must be at least 8% at the end of each
business day in order to cover credit risks. This ratio is known as the Solvency
Ratio.

     Liable Capital of a bank organized as a stock corporation consists
principally of (i) paid-in share capital without preferred stock
(Vorzugsaktien), (ii) capital reserves, (iii) earnings reserves which are
disclosed in the bank's annual balance sheet, (iv) net profits which are shown
in audited interim financial statements and which will not be used for
distribution or the payment of taxes, (v) the fund for general banking risks
pursuant to Section 340g of the German Commercial Code, (vi) capital paid in by
silent partners which meets certain conditions set forth in the German Banking
Act, including subordination to all other creditors and participation in the
bank's losses, (vii) reserves for general banking risks pursuant to Section 340f
of the German Commercial Code, provided that such reserves may not exceed 4% of
the book value of such receivables and securities, (viii) preferred stock, (ix)
capital paid in consideration of profit participation rights
(Genussrechtsverbindlichkeiten) which meets certain conditions set forth in the
German Banking Act, including subordination to all creditors in the case of
insolvency and participation in the bank's losses, (x) long-term subordinated
debt with a term of at least five years meeting certain conditions set forth in
the German Banking Act, including subordination to all creditors in the case of
insolvency, (xi) certain revaluation reserves and (xii) reserves pursuant to
Section 6b of the German Income Tax Act (Einkommensteuergesetz) up to 45%, less
certain positions that are required to be deducted. The capital components set
forth in items (i) through (vi) above, less balance sheet losses, certain
intangible assets (including goodwill) and certain other items, constitute the
core capital. Supplementary Capital is the portion of Liable Capital referred to
in items (vii) through (xii) above. The distinction between Core Capital and
Supplementary Capital reflects the ability of the capital components to cover
losses. Core Capital, with the highest ability to cover losses, corresponds to
Tier I capital, and Supplementary Capital corresponds to Tier II capital as such
terms are used in U.S. capital adequacy rules. The German Banking Act provides
that the aggregate amount of Supplementary Capital must not
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exceed the Core Capital. In addition, the sum of long-term subordinated debt
must not exceed 50% of Core Capital. The German Banking Act also requires that
certain investments in banks or financial institutions and certain other items,
be deducted in computing Liable Capital.

     To calculate risk-weighted assets and certain off-balance sheet items, the
assessment basis must first be determined. With respect to risk assets, the
assessment basis is equal to the balance sheet value, adding or deducting
certain items. Further, the assets of a bank are assigned to six broad
categories of relative credit risk depending on the debtor or on the type of
instrument or collateral securing the asset (0%, 10%, 20%, 50%, 70% and 100%),
and the assessment basis of each asset is multiplied by the percentage weight
applicable to its risk category to arrive at the risk-weighted value to be
covered with Liable Capital. With respect to off-balance sheet items, such as
financial guarantees and letters of credit, their value, subsequent to the
determination of their assessment basis, is adjusted according to their risk
classification depending on the type of instrument (20%, 50% and 100%), or, in
the case of swaps and other financial derivatives, according to a
"mark-to-market" method or an original exposure method. After such adjustment,
they are assigned, in the same manner as on-balance sheet assets, to the credit
risk categories multiplied by the applicable percentage weight.

     The German Banking Act also requires market risk and counterparty risk
associated with securities transactions, transactions in derivative products and
foreign exchange transactions of banks to be covered by adequate capital. The
German Banking Act also employs two related concepts: (i) Bank Funds
(Eigenmittel) and (ii) market risk positions. Market risk positions are made up
of overall foreign exchange positions, commodities positions and the trading
book risk positions. For assessing the trading book risk positions, the
distinction between trading transactions which are allocated to a bank's trading
book (Handelsbuch) and transactions in commercial banking business which are
allocated to a bank's investment book (Anlagebuch) is important.

     Bank Funds consist of Liable Capital plus Tier III Capital. Tier III
Capital consists of (i) short-term subordinated debt (with a term of at least
two years) that meets certain conditions set forth in the German Banking Act and
(ii) the net profits which would be realized if all positions in the trading
book were matched, if all anticipated expenses and distributions on capital were
deducted and if all losses that would be incurred in the investment book if the
bank were liquidated were deducted. The sum of Tier III Capital plus the portion
of Supplementary Capital that is not required to cover risk positions in the
investment book cannot exceed 250% of the portion of Core Capital that is not
required to cover risk positions in the investment book.

     The trading book of a bank comprises (i) securities, money market
instruments, foreign currency or units of account, derivatives and marketable
claims and participations that are held by the bank for its own account for
resale or trading or that are acquired by the bank with the intent of profiting
in the short term from existing or expected differences between buying and
selling prices or variations in prices or interest rates; (ii) instruments held
and transactions entered into for the purpose of hedging the market risk of the
trading book and transactions to refinance such hedging; (iii) transactions
subject to the designation of the counterparty (Aufgabegeschafte); (iv)
receivables for fees, commissions, interest, dividends and margin payments
related to positions in the trading book; and (v) securities lending, loans or
similar transactions related to positions in the trading book.

     Banks must establish guidelines for the inclusion of transactions in their
trading books, which must be submitted to the BaFin and the Bundesbank. The
investment book of a bank consists of all transactions that are not contained in
the trading book.

     The sum of the risk-weighted values of market risk positions and, under
certain circumstances, separately computed option positions, may not exceed the
difference between Liable Capital and an amount equal to 8% of the risk-weighted
assets increased by the amount of Tier III Capital. This limitation must be
computed daily at the close of business. The risk-
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weighted values of market risk positions and option positions must be computed
in accordance with rules set forth in Principle I or, in the case of market risk
positions, in accordance with the bank's own risk computation models which have
been approved by the BaFin. The positions allocated to the trading book are
risk-weighted according to market risk (interest rate and equity security price
related) and according to counterparty risk.

     Capital adequacy rules must not only be met by a bank and its banking
subsidiaries on an individual basis, but also by the entire banking group.

LIQUIDITY REQUIREMENTS

     The German Banking Act and the regulations issued by the BaFin also contain
liquidity requirements. Each bank must invest its funds in a manner designed to
provide adequate liquidity at all times. Under what is known as Principle II,
banks must compute one liquidity factor and three monitoring factors at the end
of every calendar month. Each factor is the quotient of available funds to
payment obligations for one of four short-term time periods of up to one year.

LENDING AND INVESTMENT LIMITS

     The lending activities of banks are restricted in order to avoid high
concentrations of risk. According to the applicable law, lending includes not
only bank loans in the ordinary sense but all items on the asset side of the
balance sheet, derivative transactions (other than written option positions) and
related guarantees and other off-balance sheet positions. A borrower is defined
to include a related group of borrowers consisting of certain related natural or
legal persons or partnerships of the borrower. There are exemptions, and the
limitations on large credits are applied on a risk-weighted basis in a manner
similar to the application of the risk-weighted capital adequacy rules.

     The German Banking Act as it applies to Dresdner Bank as a trading book
institution, distinguishes between investment book lending limits, combined
investment and trading book lending limits, and trading book lending limits. The
limits are as follows:

     (i)  A credit constitutes a "large investment book credit" if the sum of
          credits allocated to the investment book extended to any one borrower
          or related group of borrowers, in the aggregate, equals or exceeds 10%
          of a bank's Liable Capital. The bank has to ensure that, without
          approval of the BaFin, no single large investment book credit exceeds
          25% of the bank's Liable Capital (20% in the case of a bank's
          unconsolidated affiliate) and that the sum of all of a bank's
          disbursed large investment book credits does not exceed eight times
          the bank's Liable Capital.

     (ii)  A credit constitutes a "large combined investment and trading book
           credit" if the sum of credits allocated to both the investment and
           trading books extended to any one borrower or related group of
           borrowers, in the aggregate, equals or exceeds 10% of the bank's Bank
           Funds. The bank has to ensure that, without approval of the BaFin, no
           single large combined investment trading book credit exceeds 25% of
           the bank's Bank Funds (20% in the case of a bank's unconsolidated
           affiliate) and that the sum of all of a bank's disbursed large
           combined investment trading book credits does not exceed eight times
           the bank's Bank Funds.

     (iii) If a single large combined investment and trading book credit exceeds
           the respective percentage of the bank's Bank Funds set forth in (ii)
           above, the sum of credits extended to any one borrower or related
           group of borrowers that is allocated to the trading book cannot
           exceed five times that portion of the bank's Bank Funds that is not
           required to cover risk positions in the investment book, even with
           approval of the BaFin.

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     (iv) The sum of all portions of single large combined investment and
          trading book credits that exceed the respective percentage of the
          bank's Bank Funds set forth in (ii) above for more than 10 days cannot
          exceed, after deducting the amounts that do not exceed this limit, six
          times that portion of the bank's Bank Funds that is not required to
          cover risk positions in the investment book.

     A bank must report its large credits to the Bundesbank and must notify the
BaFin and the Bundesbank if it exceeds the ceilings set forth above. With the
approval of the BaFin, a bank may exceed the limits set forth in (i) and (ii).
The amount exceeding these ceilings must be covered by Liable Capital and Bank
Funds, respectively. The limits set forth in (iii) and (iv) may generally not be
exceeded. The excess must be reported, and the excessive amount must be covered
by Liable Capital. The amounts of Liable Capital used to cover such excess
amount must be disregarded when computing the adequacy of Liable Capital under
the capital adequacy rules. If the respective percentage ceilings and the eight
times Liable Capital ceiling or Bank Funds ceiling as mentioned in (i) and (ii)
are exceeded, only the larger of both excess amounts must be covered by Liable
Capital and Bank Funds, respectively.

     The provisions of the German Banking Act limiting large credits by a bank
apply also to the aggregate credits extended by members of a banking group. In
order to determine whether members of a banking group in the aggregate have
extended a large credit, all credits extended by members of the group to one
borrower are consolidated and measured against the consolidated Liable Capital
and Bank Funds (including the shares of other shareholders) of the banking
group. Consolidation of credits to one borrower or related group of borrowers is
only required if the individual total credit position from overall business of
at least one member of the banking group to such borrower is equal to or exceeds
5% of such member's Liable Capital.

BANK REPORTING REQUIREMENTS

     In order to enable the BaFin and the Bundesbank to monitor compliance with
the German Banking Act and other applicable legal requirements and to obtain
information on the financial position of the German banks, the BaFin and the
Bundesbank require the routine periodic filing of information.

     Each bank must file with the BaFin or the Bundesbank, or both, among other
things, the following information: (i) immediate notice of certain personnel and
organizational changes, the extension or increase of large credits, the
acquisition or disposition of 10% or more of the equity or voting rights of
another company or certain changes in the amount of such equity investment, and
the commencement or termination of certain non-banking activities; (ii) monthly
balance sheet and statistical information and annual audited unconsolidated and
consolidated financial statements; (iii) the acquisition or disposition of a
direct or indirect investment in the bank representing 10% or more of the equity
or voting rights of the bank, whether held in the shareholder's own interest or
in the interest of a third party, or giving the person making the investment a
significant influence over the management of the bank (or Significant
Shareholding), or an increase or decrease of a Significant Shareholding which
results in the investment reaching or passing the threshold of 20%, 33% or 50%
of such voting rights or equity, as well as the fact that the bank became or
ceased to be a subsidiary of another enterprise, as soon as the bank has
knowledge of such facts; and on an annual basis, the names and addresses of
holders of Significant Shareholdings in the bank and its foreign subsidiary
banks, and the amount of such investment; (iv) monthly compliance statements
with regard to the capital adequacy rules and the requirements on liquidity; and
(v) quarterly statements listing the borrowers to whom the reporting bank has
outstanding loans of E1.5 million or more and certain information about the
amount and the type of the loan, including syndicated loans exceeding this
amount even if the reporting bank's share does not reach E1.5 million.

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     If several banks report to the Bundesbank loans of E1.5 million or more to
the same borrower or to a group of affiliated borrowers, the Bundesbank must
inform the reporting banks of the total reported indebtedness and of the type of
such indebtedness and of the number of reporting lending banks.

SANCTIONS FOR NON-COMPLIANCE

     If the BaFin discovers irregularities, it has a wide range of enforcement
powers. The BaFin can exert a direct influence over the management of a bank. If
the Liable Capital of a bank is not adequate or if the liquidity requirements
are not met and the bank has failed to remedy the deficiency within a period
determined by the BaFin, the BaFin may prohibit or restrict the bank's
distribution of profits or extension of credit. These prohibitions also apply to
the parent bank of a banking group if the Bank Funds of the bank members of the
group do not meet the legal requirements.

     If a bank is in danger of defaulting on its obligations to creditors, the
BaFin may take emergency measures to avert default. In this connection, it may,
among other things: (i) issue instructions relating to the management of the
bank; (ii) prohibit the acceptance of deposits and the extension of credit;
(iii) prohibit or restrict management of the bank from carrying on their
functions; and (iv) appoint supervisors. To avoid the insolvency of a bank, the
BaFin has the authority to (i) prohibit payments and disposals of assets, (ii)
suspend customer services and (iii) prohibit the acceptance of payments other
than in payment of debt owed to the bank. Finally, the BaFin may revoke the
bank's license. In addition, violations of the German Banking Act may result in
criminal and administrative penalties.

DEPOSIT PROTECTION

     In accordance with the German Deposit Guarantee Act (Einlagensicherungs-und
Anlegerentschadigungsgesetz), the Bundesverband Deutscher Banken, the
association of the German private sector commercial banks, established a company
known as the Compensation Institution (Entschadigungseinrichtung deutscher
Banken GmbH) to carry out and ensure the deposit guarantee scheme of the German
private sector commercial banks. The Deposit Guarantee Act provides that the
aggregate deposits of a given depositor at a given bank and claims resulting
from securities transactions by a customer with a given bank must each be
covered up to 90% of the aggregate amount or E20,000, whichever is less. Certain
creditors, as defined by the German Deposit Guarantee Act, including other
banks, insurance companies, the public sector and enterprises and persons
related to the bank, may not claim compensation. The deposit guarantees will be
funded through contributions by the private sector commercial banks to the
Compensation Institution.

     In addition, the banking industry has voluntarily set up various protection
funds for the protection of depositors. Most private sector commercial banks,
including Dresdner Bank, are members of the Einlagensicherungsfond, a deposit
protection association with a fund which covers liabilities to each creditor up
to a certain amount. Obligations vis-a-vis other banks and other persons
described by the fund's articles of association are not covered. Furthermore,
the articles of association provide for certain restrictions not related to
specific creditors, but rather to categories of obligations. Payments from the
Einlagensicherungsfond generally cover the portion of a deposit not already
covered by the Compensation Institution. Members are required to provide certain
information to the association and the Prufungsverband deutscher Banken e.V., an
institution for the auditing of German banks. This auditing institution conducts
its own inspections of banks in order to reduce the risk of failures within the
deposit protection system.

     Furthermore, depositors and other creditors of German banks are protected
by the arrangements in relation to Liquiditats-Konsortialbank GmbH (or LIKO), a
bank founded in 1974 in order to provide funding for German banks which
experience liquidity problems. The shares in

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LIKO are owned 30% by the Bundesbank, with the rest of the shares being held by
other German banks and banking associations. LIKO is funded by its shareholders.
For additional information, see Note 43 to our consolidated financial
statements.

MORTGAGE BANKS

     Through Dresdner Bank, we hold approximately 28% of the shares of Eurohypo
AG, a mortgage bank. In Germany, mortgage banks are regulated by a special
statute. the German Mortgage Bank Act (Hypothekenbankgesetz), in addition to the
German Banking Act. Under the Mortgage Bank Act, mortgage banks are authorized
to finance themselves through the issuance of mortgage bonds
(Hypothekenpfandbriefe) and public-debt bonds (Kommunalschuldverschreibungen).
These bonds are generally long-term bonds with an original maturity of four
years or longer, the principal and interest of which are at all times required
to be covered by a pool of specified qualifying assets. Mortgage-backed bonds
are backed by mortgage loans extended by the mortgage bank that cover 60% or
less of the market value of the respective real estate property, and public-debt
backed bonds are backed by communal loans extended by the mortgage bank to
German public authorities or entities organized under public law or to member
states of the EU or to the contracting states to the agreement on the European
Economic Area (or EEA), or which are guaranteed or otherwise secured by such
persons. Separate pools are maintained for the mortgage-backed bonds and for the
public-debt backed bonds. The total amount of mortgage and public-debt bonds
issued by the mortgage bank must be fully covered by mortgages and communal
loans in at least the same total amount and with at least the same interest
earnings. The qualifying assets remain on the mortgage bank's balance sheet. In
case of insolvency proceedings relating to the mortgage bank, the asset pools
constituting cover will be exempt from such proceedings.

INVESTMENT COMPANIES

     In Germany, investment funds are managed by investment companies.
Investment companies are specialized credit institutions and are subject to the
German Investment Companies Act (Gesetz uber Kapitalanlagegesellschaften), in
addition to the German Banking Act. Within the Allianz Group, DEUTSCHER
INVESTMENT-TRUST Gesellschaft fur Wertpapieranlagen mbH (dit) and dresdnerbank
investment management Kapitalanlagegesellschaft mbH (dbi) are investment
companies.

     An investment fund must be segregated from the investment company's own
assets and is not a legal entity; therefore the assets of the investment fund
may either be jointly owned by the unit-holders or owned by the investment
company as trustee. The German Investment Companies Act provides for specific
investment restrictions for different types of investment funds, such as
money-market, securities and real estate investment funds, among others. The
BaFin supervises the investment company's compliance with the applicable
investment restrictions.

     Investment companies do not fall within the scope of the above-mentioned
Principles I and II. Therefore, they are not subject to the capital and
liquidity requirements provided for by these principles.

FINANCIAL SERVICES INSTITUTIONS

     Financial Services Institutions are enterprises that provide certain
financial services described by the German Banking Act. These financial services
include investment and contract brokering, portfolio management and own-account
trading with financial instruments for third parties.

     To engage in the provision of financial services, an authorization by the
BaFin is required. The supervision and regulation of financial services
institutions is substantially similar to the
                                       171


regulation and supervision of banks. Like investment companies, certain
financial services institutions are exempted from the capital and liquidity
requirements described by Principles I and II.

     Within the Allianz Group, Allianz Capital Managers GmbH and Allianz
Dresdner Asset Management International GmbH are financial services
institutions.

UNITED KINGDOM

     In the United Kingdom, the FSMA also provides the framework for the
regulation of activities of the financial services sector outside of the
insurance business, with the FSA as the responsible supervisory authority. The
FSA also prosecutes offenses involving insider dealing, market manipulation,
money laundering and of market abuse.

     The above requirements of the FSA with respect to the financial services
sector apply to most Allianz Group entities in the United Kingdom, including our
Dresdner Bank subsidiaries. The London branch of Dresdner Bank is a "passported"
bank in the United Kingdom in accordance with the provisions of the EU
directives as implemented in UK law. As such it is lead regulated in prudential
matters by BaFin in Germany.

FRANCE

     Under French law, investment and investment services companies dealing with
financial instruments must be authorized by the Comite des Etablissement de
Credit et des Entreprises d'Investissement (Banque de France) and by the
Commission des Operations de Bourse if they act under the portfolio management
status. They are subject to the supervision of the Conseil des Marches
Financiers for the dealing with listed financial instruments and the Commission
des Operations de Bourse for their portfolio management activity. Pursuant to
the draft law concerning the financial security mentioned above in connection
with the insurance business, it is intended to merge the Commission des
Operations de Bourse, the Conseil de Discipline de Ia Gestion Financiere and the
Conseil des Marches Financiers into the Autorite des Marches Financiers.

     Banks in France, including our Dresdner Bank subsidiary Dresdner Bank
Gestions France, must be authorized by the Comite des Etablissement de Credit et
des Entreprises d'Investissement (Banque de France) and are subject to the
supervision of the Commission Bancaire (Banque de France). The supervision
extends to all the activities of French banks, including their capital adequacy,
shareholdings in other companies and limitation of risk. The Paris branch of
Dresdner Bank is a "passported" bank in France in accordance with the provisions
of EU directives as implemented in French law. As such it is primarily regulated
by the BaFin.

     Banks are required to file monthly reports to the Commission Bancaire.
Changes of shareholdings in French banks do need approval by the Comite des
Etablissement de Credit et des Entreprises d'Investissement (Banque de France).

     French securities regulations prescribe a minimum amount of share capital
for investment and investment services companies and impose certain requirements
on company management and shareholders. The companies must also submit a
business plan with their application for authorization. There are also
regulatory restrictions with respect to equity capital on limitation of risks,
and specific disclosure rules must be observed. In addition, the Conseil des
Marches Financiers and the Commission des Operations de Bourse oversee the
dealings of investment and investment services companies with investors,
including the provision of appropriate information to investors, and supervise
control procedures within these companies. The Conseil des Marches
Financierssupervises compliance with market rules, and the Commission des
Operations de Bourse supervises the fairness of transactions.

                                       172


     French supervisory authorities are authorized to impose sanctions,
including revocation of operating licenses, on companies that fail to comply
with applicable regulations.

ITALY

     Investment and investment services companies in Italy dealing with
financial instruments must be licensed and are subject to regulation by both
Banca d'Italia, the Italian national bank, and the Commissione Nazionale per le
Societa e la Borsa (or CONSOB). Shareholdings in excess of 5% in Italian
investment and investment services companies require the authorization of Banca
d'Italia.

     Banks in Italy, including our subsidiary Rasbank S.p.A. and our Dresdner
Bank subsidiaries, must be authorized by Banca d'Italia and are subject to the
supervision of both Banca d'Italia and CONSOB. The supervision of Banca d'Italia
extends to all the activities of Italian banks, including their capital
adequacy, shareholdings in other companies and limitation of risk. The Milan
branch of Dresdner Bank is a "passported" bank in Italy in accordance with the
provisions of EU directives as implemented in Italian law. As such it is lead
regulated by the BaFin. The CONSOB supervises the provision of investment
services by banks in Italy and rules of conduct to be followed by the banks in
their dealings with the public. Banks are required to file their annual and
semi-annual reports with both Banca d'Italia and the CONSOB. They also have
ongoing disclosure obligations. The Milan branch of Dresdner Bank is exempt from
these requirements and instead has to submit the annual financial statements of
Dresdner Bank Group to the Camera di Commercio and Banca d'Italia. Changes in
organizational structure of the branch have to be reported annually.

     Major shareholders of banks and investment and investment services
companies must be of good standing and the top managers and members of the
boards of directors and boards of auditors must meet specific qualifications in
terms of professionalism and good standing. With respect to banks, Italian law
requires those assuming control of or a shareholding of greater than 5% in an
Italian bank to obtain authorization from Banca d'ltalia. Similarly, banks
assuming shareholdings in any other company are required to obtain authorization
from Banca d'Italia.

     Italian supervisory authorities are empowered to impose sanctions,
including revocation of operating licenses, on companies that fail to comply
with relevant regulations.

UNITED STATES

     Allianz of America, Inc., Allianz Dresdner Asset Management of America
L.P., Pacific Investment Management Company LLC, Oppenheimer Capital,
Nicholas-Applegate, Dresdner RCM Global Investors LLC and other financial
services subsidiaries of Allianz AG in the United States are registered as
investment advisers under the Investment Advisers Act of 1940. Many of the
investment instruments managed by these financial services subsidiaries,
including a variety of mutual funds and other pooled investment vehicles, are
registered with the SEC under the Investment Company Act of 1940. The investment
advisory activities of these financial services subsidiaries are subject to
various U.S. federal and state laws and regulations. These laws and regulations
relate to, among other things, limitations on the ability of investment advisers
to charge performance-based or non-refundable fees to clients, record-keeping
and reporting requirements, disclosure requirements, limitations on principal
transactions between an adviser or its affiliates and advisory clients, as well
as general anti-fraud provisions. The failure to comply with these laws or
regulations may result in possible sanctions, including the suspension of
individual employees, limitations on the activities in which the investment
adviser may engage, suspension or revocation of the investment adviser's
registration as an adviser, censure and/or fines.

     Some U.S. financial service subsidiaries of Allianz AG are also registered
with the SEC as broker-dealers under the Securities Exchange Act of 1934 and are
subject to extensive regulation
                                       173


as such. In addition, some of these subsidiaries are members of, and subject to,
regulation by self-regulatory organizations such as the National Association of
Securities Dealers and, in the case of Dresdner Kleinwort Wasserstein Securities
LLC, the New York Stock Exchange. The scope of broker-dealer regulation covers
matters such as capital requirements, the use and safekeeping of customers'
funds and securities, advertising and other communications with the public,
record-keeping and reporting requirements, supervisory and organizational
procedures intended to assure compliance with securities laws and rules of the
self-regulatory organizations and to prevent improper trading on material
non-public information, employee-related matters, limitations on extensions of
credit in securities transactions, and clearance and settlement procedures. A
particular focus of the applicable regulations concerns the relationship between
broker-dealers and their customers. As a result, in some instances they may be
required to make "suitability" determinations as to certain customer
transactions.

     Dresdner Bank provides commercial banking services in the United States
through its offices in New York and Los Angeles, as well as the Miami office of
its subsidiary Dresdner Bank Lateinamerika AG. Dresdner Bank is accordingly
subject to regulation, supervision and examination by the Federal Reserve Board
under the U.S. Bank Holding Company Act of 1956, as amended (or BHCA), and the
International Banking Act of 1978, as amended (or IBA). The New York branch of
Dresdner Bank is licensed, supervised and examined by the New York State Banking
Department.

     The Gramm-Leach-Bliley Act of 1999 substantially eliminated barriers
separating the banking, insurance and securities industries in the United
States. According to this act, a bank holding company that has effectively
elected to become a financial holding company may conduct business activities
either directly or through its subsidiaries that were previously prohibited for
bank holding companies. Dresdner Bank became a financial holding company under
the Gramm-Leach-Bliley Act in 2000. To qualify as a financial holding company, a
bank is required to meet the criteria of being well-managed and
well-capitalized. A foreign bank that is well-capitalized has capital ratios
equal to or comparable with those required for a well-capitalized U.S. bank,
i.e. a Tier I capital ratio of 6% and a total capital to total risk-based assets
ratio of 10%. Dresdner Bank is currently in compliance with these capital
requirements. In addition, a bank holding company is required to elect to be
treated as a financial holding company vis-a-vis the Federal Reserve Board. In
the event of non-compliance with these criteria, a financial holding company may
be required to limit previously authorized financial activities or, after a
certain time period, to terminate authorized banking operations or to divest any
commercial lending companies owned or controlled by the financial holding
company. As a result of its ownership of Dresdner Bank, Allianz AG is also
subject to the supervision of the Federal Reserve Board under the BHCA and the
IBA and has applied to be treated as a financial holding company. Allianz AG was
granted a two-year transition period during which it was treated as a financial
holding company without having been granted such status. In May 2003, this
period was extended until May 21, 2004, and it is subject to possible extension
for up to two additional years.

     Under the IBA, the Federal Reserve Board may terminate the activities of
any U.S. office of a foreign bank if it determines that the foreign bank is not
subject to comprehensive regulation on a consolidated basis in its home country
or that there is reasonable cause to believe that the foreign bank or its
affiliate has violated U.S. law or engaged in unsafe or unsound banking practice
in the United States, and as a result of such violation or practice, the
continued operation of the U.S. office would be inconsistent with the public
interest or the purposes of federal banking law.

     Under the trade name Dresdner Kleinwort Capital, subsidiaries of Dresdner
Bank are also active in the private equity business. They provide investment
management services and make, manage and monitor private equity investments in
unaffiliated companies and investment funds, and establish and operate
investment funds in which third-party investors make private equity

                                       174


investments. These subsidiaries are subject to regulation by the Federal Reserve
Board and the SEC. Two subsidiaries of Dresdner Bank are also active as small
business investment companies and are subject to the U.S. Small Business
Administration Act.

OTHER COUNTRIES

     Our financial services businesses in countries other than those discussed
above are also subject to detailed regulation and supervision by authorities in
the relevant jurisdictions, including with respect to such matters as capital
adequacy, investment advisory and securities trading activities, and mutual fund
management and distribution activities.

                          ACQUISITION CONTROL MATTERS

     In a number of jurisdictions, the direct or indirect acquisition of
"control" of companies is subject to prior regulatory approval. Under the
applicable EU directives, any person acquiring shares in an insurance, bank or
investment services company who would become a "qualifying shareholder" as a
result of the acquisition is required to give prior notice of the proposed
acquisition to the relevant supervisory authorities in the company's home
jurisdiction. A qualifying shareholder is a shareholder that holds at least 10%
of the voting rights or the capital of such a company or otherwise has the
ability to exercise a significant influence over the management of the company.
A qualifying shareholder must also report any increases in shareholdings by any
holder to levels equal to or exceeding 20%, 33% or 50% of the voting rights or
the capital. The supervisory authorities have a maximum period of three months
during which to oppose an acquisition of shares if they believe that the
acquisition would jeopardize the sound and prudent management of the insurance
company. Reductions in ownership below the thresholds indicated above must also
be notified to the supervisory authorities. These directives have been
implemented in most EU jurisdictions.

     Under the German Securities Trading Act (Wertpapierhandelsgesetz, or the
German Securities Trading Act), holders of voting securities of a German company
listed on a stock exchange within the European Union or within the other
contracting states to the agreement on the EEA must notify the company and the
BaFin in writing and without delay (at the latest, within seven calendar days)
of the level of their holding whenever that holding reaches, exceeds or falls
below 5%, 10%, 25%, 50% and 75% of the company's shares. Also, a German company
receiving this notification of shareholding must generally publish these facts.
Effective January 1, 2002, the provisions of the German Securities Trading Act
were amended to broaden the criteria for attribution of shares.

     On January 1, 2002, the German Securities Acquisition and Takeover Act
(Wertpapier-erwerbs- und Ubernahmegesetz, or WpUG) took effect. The WpUG applies
to all offers to acquire securities issued by stock corporations and
partnerships limited by shares (Kommanditgesellschaften auf Aktien) by shares
that are domiciled in Germany and admitted to trading on an organized market in
the European Economic Area (or EEA). The WpUG provides that any shareholder
obtaining direct or indirect control, which is defined as 30% or more of the
voting rights, of a stock corporation or of a partnership limited by shares, is
required to make a mandatory takeover offer to all other shareholders of the
corporation. The law amending the WpUG also added provisions to the German Stock
Corporation Act (Aktiengesetz) relating to the buyout and the compensation of
minority shareholders. Upon request of a shareholder holding 95% or more of the
share capital of the stock corporation, the shareholders' meeting of the stock
corporation can resolve to transfer all shares held by minority shareholders to
the controlling shareholder in exchange for appropriate cash compensation. The
Allianz AG has made use of these new provisions to acquire the remaining
minority shareholdings of Vereinte Versicherungs-AG, Dresdner Bank AG and Hermes
Kreditversicherungs AG.

                                       175


     Similar regulations relating to acquisition of control have been
established in the jurisdiction inside and outside of the EU in which we do
business. State insurance holding company statutes in the United States
applicable to Allianz AG's U.S. insurance subsidiaries generally provide that no
person may acquire control of the Allianz AG, and thus indirect control of its
U.S. insurance subsidiaries, without the prior approval of the appropriate
insurance regulators. Generally, any person who acquires beneficial ownership of
10% or more of the outstanding ordinary shares or voting power of the Allianz AG
(including ADSs) would be presumed to have acquired such control unless the
appropriate insurance regulators upon application determine otherwise.

                     ANTITRUST REGULATION AND MERGER REVIEW

     EU and national antitrust regulation affects the cooperation between
insurance companies and within insurance associations. While the EC Treaty
generally prohibits arrangements that restrict competition, some types of
cooperation in the insurance sector are expressly exempt from this prohibition
by EU regulation providing for a so-called block exemption.

     In February 2003, the EU adopted a new block exemption regulation for the
insurance sector to replace the existing regulation on this subject at its
expiry on March 31, 2003. In particular with respect to the establishment and
management of insurance and reinsurance pools, the new regulation raises the
market share thresholds for insurance pools and restricts the simultaneous
memberships of insurers who may exercise a determining influence on the
commercial policy of pools acting on the same relevant market in these pools.

     Insurers have in the past been able to seek individual exemption under
applicable antitrust laws for insurance pools that were not eligible for block
exemption and other restrictions on competition. As of May 1, 2004 this
procedure is no longer available.

     In some business lines, the Allianz Group's market share might raise
concerns under European merger control regulations. If the Allianz Group were to
consider a substantial acquisition in these business lines, the relevant EU
authorities might require divestiture of parts of the portfolio or might
disapprove the transaction. Comparable legislation with respect to merger review
has been enacted in many jurisdictions inside and outside the EU.

                    RULES OF CONDUCT FOR SECURITIES TRADING

     The German Securities Trading Act prohibits insider trading with respect to
securities admitted to trading or included in the over-the-counter market at a
German exchange or the exchange in another EU member state or in other
contracting states to the agreement on the EEA. The German Securities Trading
Act also requires that the issuer of securities admitted to trading on a German
stock exchange promptly publish any new fact relating to the field of the
issuer's activities that is not publicly known if this fact could have a
material influence on the market price of such securities due to its effects on
the financial position or the overall business performance of the issuer. The
BaFin carries out supervisory functions with respect to these regulations.

     The German Securities Trading Act also introduced rules of conduct for
banks and securities firms (the Rules of Conduct). The Rules of Conduct apply to
all investment services firms in Germany. The BaFin has broad powers to
investigate investment services firms with a view to monitoring compliance with
the Rules of Conduct. The German Securities Trading Act provides for an annual
examination on behalf of the BaFin of a bank's compliance with its obligations
under the German Securities Trading Act.

                                       176


ITEM 6.  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

                              CORPORATE GOVERNANCE

     The corporate bodies of Allianz AG are the management board (Vorstand), the
supervisory board (Aufsichtsrat) and the general meeting (Hauptversammlung). The
management board and the supervisory board are separate and no individual may
serve simultaneously as a member of both boards.

     The management board is responsible for managing the day-to-day business of
Allianz AG in accordance with the German Stock Corporation Act (Aktiengesetz)
and the articles of association of Allianz AG. The management board is bound by
applicable German law, the articles of association of Allianz AG as well as its
internal rules of procedure (Geschaftsordnung). The management board represents
Allianz AG in its dealings with third parties. The supervisory board oversees
the management of Allianz AG. It is also responsible for appointing and removing
the members of the management board and representing Allianz AG in connection
with transactions between a member of the management board and Allianz AG. The
supervisory board may not make management decisions, but the supervisory board
or the articles of association must determine that certain types of transactions
require the supervisory board's prior consent.

     In carrying out their duties, the members of the management board and the
supervisory board must exercise the standard of care of a diligent and prudent
business person. In complying with this standard of care, the members of both
boards must take into account a broad range of considerations in their
decisions, including the interests of Allianz AG, its shareholders, employees
and creditors. The management board is additionally required to respect the
rights of shareholders to equal treatment and equal information.

     Members of either board who violate their duties may be personally liable
for damages to Allianz AG. Allianz AG may waive these damages or settle these
claims only if at least three years have passed from the date of their
origination, and if the general meeting approves the waiver or settlement with a
simple majority. No approval of a waiver or settlement by the general meeting
will be effective if opposing shareholders who hold, in the aggregate, one-tenth
or more of the share capital of Allianz AG have their opposition formally noted
in the minutes recorded by a German notary. As a general rule under German law,
a shareholder has no direct recourse against the members of the management board
or the supervisory board in the event that they are believed to have breached a
duty to Allianz AG.

     The supervisory board has comprehensive monitoring functions. To ensure
that these functions are carried out properly, the management board must
regularly report to the supervisory board with regard to current business
operations and future business planning (including financial, investment and
personnel planning). The supervisory board is also entitled to request at any
time special reports regarding the affairs of Allianz AG, the legal or business
relations of Allianz AG to its subsidiaries and the affairs of any of its
subsidiaries to the extent that the affairs of such subsidiary may have a
significant impact on Allianz AG.

     The management board is required to ensure that adequate risk management
and internal monitoring systems exist within Allianz AG to detect risks relating
to the Group's business activities at the earliest possible stage.

     Pursuant to the amendment in July 2002 of the German Stock Corporation Act,
the management board and the supervisory board are required to declare annually
that Allianz AG has complied or will comply with the recommendations set forth
in the Corporate Governance Code published by the German Ministry of Justice
(Bundesministerium der Justiz). In addition, the management board and the
supervisory board are required to disclose any specific recommendation with
which they have failed or will fail to comply. The Corporate Governance

                                       177


Code contains provisions for corporate governance with respect to shareholders
and general meetings, management board, supervisory board, cooperation between
management board and supervisory board, transparency, reporting and audit of the
annual financial statements. On December 18, 2002, the management board and
supervisory board signed the first compliance declaration, confirming that
Allianz AG complies with all recommendations of the Corporate Governance Code.
However, the members of Allianz AG's management board reserve the right to
exceed the maximum number of board mandates that may be held outside the Group
under the Corporate Governance Code, as appropriate, as the acceptance of
supervisory board mandates in companies in which Allianz AG has substantial
holdings forms an essential part of the duties of members of the management
board.

                                MANAGEMENT BOARD

     The management board of Allianz AG currently consists of eleven members.
The number of members of the management board decreased from twelve to eleven as
of November 1, 2002. Under the articles of association of Allianz AG, the
supervisory board determines the size of the management board, although it must
have at least two members. Under the articles of association, Allianz AG may be
legally represented by two members of the management board or by one member of
the management board and the holder of a general commercial power of attorney
(Prokura), which entitles its holders to carry out all legal acts and
transactions on behalf of Allianz AG. In addition, pursuant to a filing with the
commercial register in Munich, Allianz AG may also be represented by two holders
of a general commercial power of attorney. The supervisory board represents
Allianz AG in connection with transactions between a member of the management
board and Allianz AG. To the extent that a supervisory board committee is
entitled to decide on a specific matter in lieu of the supervisory board, the
right of representing Allianz AG vis-a-vis the management board in that matter
can be transferred to the relevant supervisory board committee.

     The supervisory board appoints the members of the management board. The
initial term of the members of the management board is generally limited to
three years. Each member may be reappointed or have his term extended by the
supervisory board for one or more terms of up to five years each. The initial
appointment or the reappointment of members of the management board attaining
the age of 60 is generally limited to terms of one year. Members of the
management board must resign from office at the end of the fiscal year in which
they attain the age of 65. The supervisory board may remove a member of the
management board prior to the expiration of his term for good cause, for example
in the case of a serious breach of duty or a bona fide vote of no confidence by
the general meeting. A member of the management board may not deal with, or vote
on, matters relating to proposals, arrangements or contractual agreements
between himself and Allianz AG and may be liable to Allianz AG if he has a
material interest in any contractual agreement between Allianz AG and a third
party which was not disclosed to, and approved by, the supervisory board. The
management board has adopted its own internal rules of procedure.

     The management board regularly reports to the supervisory board on the
business of Allianz AG. According to the internal rules of procedure of the
supervisory board, the management board requires the consent of the supervisory
board for certain transactions, primarily, share capital measures and
acquisitions or divestitures of companies or shareholdings in companies of a
significant volume.

     The current members of the management board, their areas of responsibility,
the year in which each member was first appointed, the year in which the term of
each member expires, and the principal supervisory or management board
memberships outside the Allianz Group, respectively, are as follows:

                                       178




                                                                   YEAR
                                                        YEAR      CURRENT
                                        AREA OF         FIRST      TERM         PRINCIPAL OUTSIDE BOARD
NAME                                 RESPONSIBILITY   APPOINTED   EXPIRES         MEMBERSHIPS IN 2002
----------------------------------  ----------------  ---------   -------   -------------------------------
                                                                
Michael Diekmann..................  Chairman of the     1998       2006     Member of the supervisory
                                    management board                        boards of BASF AG, Linde AG
                                                                            (deputy chairman) and Lufthansa
                                                                            AG
Dr. Paul Achleitner...............  Group Finance       2000       2004     Member of the supervisory
                                                                            boards of Bayer AG, MAN AG, RWE
                                                                            AG and OTAG
Detlev Bremkamp...................  Europe II           1991       2004     Member of the supervisory
                                                                            boards of ABB AG (Deutschland)
                                                                            and Hochtief AG
Jan R. Carendi....................  Americas            2003       2005     None
Dr. Joachim Faber.................  Allianz Dresdner    2000       2004     Member of the supervisory
                                    Asset Management                        boards of Bayerische Borse AG,
                                    (ADAM)                                  Infineon Technologies AG, and
                                                                            Societa Metallurgica Italiana
                                                                            S.p.A.
Dr. Reiner Hagemann...............  Europe I            1995       2004     Member of the supervisory
                                                                            boards of E.ON Energie AG,
                                                                            Schering AG and Steag AG
Dr. Horst Muller..................  Group Financial     2001       2003     Member of the supervisory
                                    Risk Management                         boards of Buderus AG and BVV
                                                                            Versicherungsverein des
                                                                            Bankgewerbes a. G.
Dr. Helmut Perlet.................  Group               1997       2004     None
                                    Controlling,
                                    Accounting,
                                    Taxes,
                                    Compliance
Dr. Gerhard Rupprecht.............  Group               1991       2005     Member of the supervisory
                                    Information                             boards of Heidelberger
                                    Technology, Life                        Druckmaschinen AG, Quelle AG
                                    Insurance                               and ThyssenKrupp Automotive AG
                                    Germany
Dr. Herbert Walter................  Allianz Dresdner    2003       2007     Member of the supervisory board
                                    Banking                                 of Deutsche Borse AG
Dr. Werner Zedelius...............  Growth Markets      2002       2004     Member of the supervisory board
                                                                            of SMS AG


     The following is a summary of the business experience of the current
members of the management board within the Allianz Group:

     Michael Diekmann:  Joined the Allianz Group in 1988. From 1996 to 1998 he
was chief executive officer of Allianz Insurance Management Asia-Pacific Pte.
Ltd., Singapore. He became a deputy member in October 1998 and a full member of
the management board of Allianz AG in March 2000. He was appointed chairman of
the management board in April 2003.

     Dr. Paul Achleitner:  Joined the management board of Allianz AG in January
2000. He was previously chairman of Goldman, Sachs & Co. oHG, Frankfurt, Germany
and a partner of Goldman Sachs Group from 1994 to 1999.

     Detlev Bremkamp:  Joined the Allianz Group in 1963. He was a deputy member
of the management board of Allianz Versicherung from 1981 to 1982 and a full
member from 1983 to 1987, managing director and general manager of Allianz
Europe Ltd. in Amsterdam from 1987 to 1990, and became a member of the
management board of Allianz AG in 1991.

     Jan R. Carendi:  Became a member of the Management Board of Allianz AG in
May 2003. He previously held a variety of positions at Skandia Insurance Company
Ltd. and other

                                       179


companies of the Skandia Group, including chief executive officer of Skandia
Insurance Company Ltd. and Skandia New Markets Inc. and chief executive officer
of American Skandia Inc.

     Dr. Joachim Faber:  Joined the Allianz Group in 1997 after holding various
positions at Citibank AG, Frankfurt, Germany (1984-1992), including chairman of
the management board, and Citibank International PLC, London (1992-1997),
including head of capital markets. He was a member of the management board of
Allianz Versicherung from 1997 to 1999 and became a member of the management
board of Allianz AG in January 2000.

     Dr. Reiner Hagemann:  Joined the Allianz Group in 1977. In 1987, he became
a deputy member, in 1990 a full member and in 1995 was made chairman of the
management board of Allianz Versicherung. He was a member of the management
board of Allianz Leben from 1991 through 1994 and became a member of the
management board of Allianz AG in 1995.

     Dr. Horst Muller:  Joined Dresdner Bank in 1970. He became a deputy member
of the management board of Dresdner Bank in 1992, and a full member in 1994.
With the acquisition of Dresdner Bank in July 2001, he became a member of the
management board of Allianz AG.

     Dr. Helmut Perlet:  Joined the Allianz Group in 1973. He has been head of
the foreign tax department since 1981, head of corporate finance since 1990 and
head of accounting and controlling since 1992. He became a deputy member in July
1997 and a full member of the management board of Allianz AG in January 2000.

     Dr. Gerhard Rupprecht:  Joined the Allianz Group in 1979. In January 1989,
he became a deputy member, and in January 1991 a full member, and in October
1991 was appointed chairman, of the management board of Allianz Leben. He became
a member of the management board of Allianz AG in October 1991.

     Dr. Herbert Walter:  Held various positions at Deutsche Bank AG since 1983,
including chairman of the business segment Private & Business Clients and
speaker of the management board of Deutsche Bank 24. Since 2002, he was a member
of the Group Executive Committee of Deutsche Bank group as well as Global Head
of Private & Business Clients. He became a member of the management board of
Allianz AG on March 19, 2003, and became the Chairman of the management board of
Dresdner Bank AG effective March 25, 2003.

     Dr. Werner Zedelius:  Joined the Allianz Group in 1987. After various
positions in branch offices and in the headquarters of Allianz AG, he was
General Manager Finance and member of the board of directors of Cornhill
Insurance PLC in London from 1996 until 1999. Dr. Zedelius became a member of
the management board of Allianz AG on January 1, 2002.

     The members of the management board may be contacted at the address of
Allianz AG.

                               SUPERVISORY BOARD

     In accordance with the articles of association of Allianz AG and the German
Codetermination Act (Mitbestimmungsgesetz), the supervisory board of Allianz AG
consists of 20 members, ten of whom are elected by the shareholders and ten of
whom are elected by the employees of the German companies of the Allianz Group.
Three of the employee representatives are representatives of the trade unions
represented in the Allianz Group in Germany. The general meeting may remove any
supervisory board member it has elected by a simple majority of the votes cast.
The employee representatives may be removed with a majority of three-quarters of
the votes cast by those employees who elected them. In addition, any member of
the supervisory board may resign by written notice to the management board.

     The supervisory board has a quorum when all members of the supervisory
board were invited or requested to participate in a decision and either ten or
more members, including the chairman of the supervisory board, or, when the
chairman of the supervisory board is not

                                       180


present, fifteen or more members, participate in a decision before the
supervisory board. Except where a different majority is required by law or the
articles of association of Allianz AG, the supervisory board acts by simple
majority of the votes cast. In the case of any deadlock, the chairman has the
deciding vote. The supervisory board meets at least twice each half-year. Its
main functions are:

     - to monitor the management of Allianz AG;

     - to appoint the members of the management board; and

     - to approve matters in areas where such approval is required by German law
       or which the supervisory board has made generally or in the individual
       case subject to its approval. See "-- Management Board."

     In addition, supervisory boards of German insurance companies are tasked
with the appointment of the auditors.

     The supervisory board has established a Standing Committee, an Audit
Committee, a Compensation Committee and a Mediation Committee.

     Standing Committee.  The Standing Committee, which comprises the chairman
of the supervisory board, his deputy and three additional members elected by the
supervisory board, may approve or disapprove certain transactions of Allianz AG
to the extent that such transactions do not fall under the competency of any
other committee or are required to be decided by plenary meeting of the
supervisory board. The Standing Committee examines the corporate governance of
Allianz AG, drafts the declaration of compliance and examines the efficiency of
the work of the supervisory board. In addition, it determines the guest status
of non-members who wish to attend supervisory board meetings as well as changes
in form to the articles of association. The Standing Committee held four
meetings in 2002. The members of the Standing Committee are Dr. Henning
Schulte-Noelle as chairman, Norbert Blix, Dr. Gerhard Cromme, Dr. Manfred
Schneider and Peter Haimerl.

     Audit Committee.  The Audit Committee, established in September 2002,
comprises five members elected by the supervisory board. The Audit Committee
prepares the decisions of the supervisory board about the Group's annual
financial statements, the consolidated financial statements and the appointment
of the auditors and ascertains the independence of the auditors. Furthermore,
the Audit Committee assigns the mandate to the auditors, sets priorities for the
audit and determines the compensation of the auditors. In addition, it examines
the quarterly reports. After the end of the fiscal year, the Audit Committee
examines the Group's annual financial statements and the consolidated financial
statements, examines the risk monitoring system and discusses the auditor's
report with the auditors. The Audit Committee held one meeting in 2002. The
members of the Audit Committee are Dr. Manfred Schneider as chairman, Dr.
Gerhard Cromme, Prof. Dr. Rudolf Hickel, Frank Ley and Dr. Henning
Schulte-Noelle.

     Compensation Committee.  The Compensation Committee consists of the
chairman of the supervisory board and two other members elected by the
supervisory board. It prepares the appointment of members of the management
board. In addition, it tends to on-going personnel matters of the members of the
management board including their membership on boards of other companies, the
payments they receive and the structure of long-term incentive programs. See
"-- Options to Purchase Securities -- Long-term Incentive Plans." The
Compensation Committee held six meetings in 2002. The members of the
Compensation Committee are Dr. Henning Schulte-Noelle as chairman, Norbert Blix
and Dr. Gerhard Cromme.

     Mediation Committee.  The Mediation Committee consists of the chairman of
the supervisory board and his representative elected according to the rules of
the German Codetermination Act of 1976, one member elected by the employees and
one member elected by the shareholders. Under sec. 27(3) of the German
Codetermination Act, the Mediation Committee is charged with the

                                       181


solution of conflicts in the appointment of members of the management board. If
the supervisory board in a vote on the appointment or recall of a member of the
management board fails to obtain the required majority, the Mediation Committee
has to present a proposal to the supervisory board. There arose no need for the
Mediation Committee to meet in 2002. The members of the Mediation Committee are
Dr. Henning Schulte-Noelle as chairman, Norbert Blix, Hinrich Feddersen and
Jurgen E. Schrempp.

     Each member of the supervisory board is generally elected for a fixed term,
which expires at the end of the general meeting at which the shareholders
discharge the members of the supervisory board in respect of the fourth fiscal
year after the beginning of the term. The fiscal year in which the members of
the supervisory board are first elected is not considered. Supervisory board
members may be reelected.

     The current members of the supervisory board of Allianz AG, their principal
occupations, the year in which each member first served on the supervisory
board, the year in which the current term of each member expires and principal
memberships in statutory supervisory boards of each member outside the Allianz
Group, respectively, are as follows:



                                                                             YEAR
                                                                            CURRENT
                                                               YEAR FIRST    TERM     PRINCIPAL OUTSIDE BOARD
NAME                                  PRINCIPAL OCCUPATION     APPOINTED    EXPIRES     MEMBERSHIPS IN 2002
----------------------------------  -------------------------  ----------   -------   ------------------------
                                                                          
Dr. Henning Schulte-Noelle,         Former chairman of the        2003       2008     Member of the
  Chairman(1).....................  management board of                               supervisory boards of
                                    Allianz AG                                        E.ON AG, Siemens AG and
                                                                                      ThyssenKrupp AG
Norbert Blix, Deputy                Employee of Allianz           1997       2008     None
  Chairman(2).....................  Versicherung
Dr. Wulf H. Bernotat(1)...........  Chairman of the               2003       2008     Member of the management
                                    management board of E.ON                          boards of E.ON AG
                                    AG                                                (chairman), Metro AG,
                                                                                      RAG Aktiengesellschaft
                                                                                      and Ruhrgas AG
                                                                                      (chairman)
Dr. Diethart Breipohl(1)..........  Former member of the          2000       2008     Member of the
                                    management board of                               supervisory boards of
                                    Allianz AG                                        Beiersdorf AG,
                                                                                      Continental AG,
                                                                                      KarstadtQuelle AG, mg
                                                                                      technologies AG, KM
                                                                                      Europa Metal AG
                                                                                      (chairman), Banco
                                                                                      Popular Espanol, Banco
                                                                                      Portugues de
                                                                                      Investimento and Credit
                                                                                      Lyonnais
Bertrand Collomb(1)...............  President Directeur           1998       2008     Member of the boards of
                                    General of Lafarge S.A.                           directors of Total-
                                                                                      Fina-Elf, ATCO Ltd. and
                                                                                      the Conseil
                                                                                      D'Administration of
                                                                                      Credit Commercial de
                                                                                      France S.A.


                                       182




                                                                             YEAR
                                                                            CURRENT
                                                               YEAR FIRST    TERM     PRINCIPAL OUTSIDE BOARD
NAME                                  PRINCIPAL OCCUPATION     APPOINTED    EXPIRES     MEMBERSHIPS IN 2002
----------------------------------  -------------------------  ----------   -------   ------------------------
                                                                          
Dr. Gerhard Cromme(1).............  Chairman of the               2001       2008     Member of the
                                    supervisory board of                              supervisory boards of
                                    ThyssenKrupp AG                                   ThyssenKrupp AG
                                                                                      (chairman), Axel
                                                                                      Springer Verlag
                                                                                      Aktiengesellschaft,
                                                                                      Siemens AG, Deutsche
                                                                                      Lufthansa AG, E.ON AG,
                                                                                      Ruhrgas AG, Volkswagen
                                                                                      AG and Suez S.A.
Jurgen Dormann(1).................  Chairman of the board of      1998       2008     Member of the
                                    directors and CEO of ABB                          supervisory boards of
                                    Ltd.                                              Aventis S.A. (chairman)
                                                                                      and LION bioscience AG
                                                                                      (chairman) and the board
                                                                                      of directors of ABB Ltd.
                                                                                      (chairman) and IBM
                                                                                      Corporation
Claudia Eggert-Lehmann(2).........  Employee of Dresdner Bank     2003       2008     None
Hinrich Feddersen(2)..............  Member of the federal         2001       2008     Member of the
                                    steering committee of                             supervisory boards of
                                    ver.di (Vereinte                                  Deutscher Ring
                                    Dienstleistungs-                                  Lebensversicherungs AG
                                    gewerkschaft e.V.)                                (deputy chairman) and
                                                                                      Basler Versicherung
                                                                                      Beteiligungsgesellschaft
                                                                                      mbH (deputy chairman)
Peter Haimerl(2)..................  Employee of Dresdner          2001       2008     None
                                    Bank; Chairman of the
                                    shop committee of
                                    Dresdner Bank
Professor Dr. Rudolf Hickel(2)....  Professor of Finance at       1999       2008     Member of the
                                    the University of Bremen                          supervisory boards of
                                                                                      Salzgitter Stahl und
                                                                                      Technologie AG,
                                                                                      Howaldtswerke Deutsche
                                                                                      Werft AG and Gewoba
                                                                                      Aktiengesellschaft fur
                                                                                      Wohnen und Bauen
Dr. Renate Kocher(1)..............  Head of Institut fur          2003       2008     Member of the
                                    Demoskopie, Allensbach                            supervisory boards of
                                                                                      MAN AG and BASF AG
Frank Ley(2)......................  Employee of Allianz           1993       2008     None
                                    Leben; Chairman of the
                                    shop committee of Allianz
                                    Leben
Karl Neumeier(2)..................  Employee of Allianz           2003       2008     None
                                    Versicherungs-AG


                                       183




                                                                             YEAR
                                                                            CURRENT
                                                               YEAR FIRST    TERM     PRINCIPAL OUTSIDE BOARD
NAME                                  PRINCIPAL OCCUPATION     APPOINTED    EXPIRES     MEMBERSHIPS IN 2002
----------------------------------  -------------------------  ----------   -------   ------------------------
                                                                          
Herbert Pfennig(2)................  Employee of Dresdner Bank     2003       2008     None
Sultan Salam(2)...................  Employee of Dresdner Bank     2003       2008     None
Dr. Manfred Schneider(1)..........  Chairman of the               1998       2008     Member of the
                                    supervisory board of                              supervisory boards of
                                    Bayer AG                                          Bayer AG (chairman),
                                                                                      DaimlerChrysler AG,
                                                                                      Linde AG, METRO AG, RWE
                                                                                      AG and TUI AG
Margit Schoffer(2)................  Employee of Dresdner Bank     2003       2008     None
Dr. Herbert Scholl(1).............  Managing director of          1998       2008     Managing director of
                                    Robert Bosch GmbH                                 Robert Bosch GmbH and
                                                                                      member of the
                                                                                      supervisory board of
                                                                                      BASF AG
Jurgen E. Schrempp(1).............  Chairman of the               1998       2008     Chairman of the
                                    management board of                               management board of
                                    DaimlerChrysler AG                                DaimlerChrysler AG and
                                                                                      member of the board of
                                                                                      directors of South-
                                                                                      African Coal, Oil and
                                                                                      Gas Corporation (Sasol)
                                                                                      Ltd., Vodafone Group plc
                                                                                      and The New York Stock
                                                                                      Exchange


---------------

(1) Elected by Allianz AG's shareholders.

(2) Elected by the employees of the German companies of the Allianz Group.

     The members of the supervisory board may be contacted at the address of
Allianz AG.

                     COMPENSATION OF DIRECTORS AND OFFICERS

     Management Board.  Total compensation for members of our management board
includes a fixed component (the basic salary) and a variable component. The
total compensation paid by the Allianz Group to the management board for 2002
was approximately E17.4 million. The compensation allocated to the management
board in 2002 consisted of variable compensation of approximately E9.5 million
and fixed compensation of approximately E7.9 million compared to E9.2 million
and E6.7 million in 2001, respectively. Beginning in 2002, the variable
component consisted of the annual bonus, which includes an individual element
and an element based on

                                       184


company performance, and a three-year bonus, from which payments to members of
the management board can be made for the first time in 2004.

     In addition to these amounts, in 2002 the Allianz Group paid an amount of
approximately E9 million to increase pension reserves and reserves for similar
obligations in favor of active members of the management board.

     In addition, under the long-term incentive plan for 2002 described under
'-- Options to Purchase Securities -- Long-term Incentive Plans", a total of
47,200 stock appreciation rights tied to the price of Allianz stock were awarded
to members of the management board during the fiscal year 2002. Based on
standard option valuation methods (Black-Scholes or Binomial Method), these
rights had a value of E5.2 million at the time of their award. The value of
these rights at December 31, 2002 was E0.3 million. Since none of the
appreciation rights had an intrinsic or exercise value, these amounts are
entirely time values.

     At December 31, 2002, members of our management board held a total of
119,739 stock appreciation rights awarded from 1999 through 2002 under the
long-term Incentive Plans. Based on standard option valuation methods
(Black-Scholes or Binomial Method), these rights had a value of E0.5 million at
December 31, 2002. None of the appreciation rights had an intrinsic value at
December 31, 2002, so that this amount is entirely a time value. For additional
information on the appreciation rights held by members of our management board,
see Note 44 to our consolidated financial statements. See also "-- Options to
Purchase Securities -- Long-term Incentive Plans" below.

     In 2002, pensions and other benefit payments for former members of the
management board as well as payments to compensate the claims of former members
of the management board amounted to approximately E13 million. E7 million were
set aside in 2002 for compensating the claims of former members of the
management board. An amount of E29 million was set aside for current and future
pension benefits of former members of the management board and their
beneficiaries.

     Supervisory Board.  The current articles of association provide that the
remuneration of the members for service on the supervisory board until the
annual general meeting held on April 29, 2003, is calculated according to the
provisions of the articles of association effective prior to that time. Pursuant
to these provisions, each member of the supervisory board receives an annual
remuneration of E4,000, which increases by E500 for every cent by which the
dividend per share exceeds the amount of 15 cents. The chairman of the
supervisory board receives double these amounts, and every other member of a
committee of the supervisory board (except the Mediation Committee) one and one
half times these amounts. Allianz AG reimburses the members of the supervisory
board members for their out-of-pocket expenses and the value-added tax payable
on these salaries. In addition, Allianz AG provides insurance coverage and
technical support to the supervisory board members to the extent reasonably
adequate for the exercise of their supervisory board office. The aggregate
amount of compensation paid to the members of the supervisory board for the
fiscal year 2002 was E2 million, including fees becoming payable after the 2003
general meeting.

     On April 29, 2003, at the 2003 ordinary general meeting of Allianz AG, the
management board and the supervisory board proposed, and the shareholders
approved, revisions to the articles of association which relate to the
compensation of the supervisory board. The respective resolutions became
effective upon registration in the commercial register on June 23, 2003 and
apply to service on the supervisory board following April 30, 2003. Pursuant to
the new articles of association, each member of the supervisory board will
receive an annual fixed remuneration of E4,000 and in addition, a remuneration
of E500 for every cent by which the dividend per share declared by the annual
general meeting exceeds the amount of 15 cents. The chairman of the supervisory
board will receive double, and each vice chairman one and one half times, these
amounts. Each member of a supervisory board committee (except the Mediation
Committee and
                                       185


the Audit Committee) will receive an additional 25% of these amounts, while the
chairman of these committees will receive an additional 50%. Members of the
Audit Committee will receive an additional annual fixed remuneration of E30,000,
while the chairman will receive an additional E45,000. Members of the
supervisory board who served for only part of the fiscal year shall receive one
twelfth of the annual remuneration for each initiated month of service. This
applies in the same manner to the members of supervisory board committees. The
total annual remuneration of a member of the supervisory board shall not exceed
double, and the remuneration of the chairman of the supervisory board shall not
exceed triple, the sum of the annual fixed compensation and the additional
dividend-related compensation of a member of the supervisory board who has none
of these specific positions. Allianz AG reimburses all supervisory board members
for their out-of-pocket expenses and the value-added tax payable on these
salaries. In addition, Allianz AG provides insurance coverage and technical
support to the supervisory board members to the extent reasonably adequate to
carry out their supervisory board duties.

                                BOARD PRACTICES

     Allianz AG has entered into service contracts with management board members
providing for a limited benefit upon termination of service prior to the stated
expiration date of a management board member's contract. In such circumstances,
the management board member would receive monthly fixed payments for a further
six months as well as pro rata bonus payments if the conditions for the bonus
payments are fulfilled. If regular pension benefits were to become due during
this time period, they would be credited against these payments. Allianz AG has
not entered into such contracts with supervisory board members.

                                SHARE OWNERSHIP

     As of June 18, 2003, the members of the management board and the
supervisory board held less than 1% of our ordinary shares issued and
outstanding. As of such date, based on our share register, the members of the
management board and the supervisory board held in the aggregate approximately
6,700 ordinary shares of Allianz AG.

                                   EMPLOYEES

     As of December 31, 2002, Allianz Group had more than 181,000 employees
worldwide, of whom more than 87,000, or approximately 48.1%, were employed in
Germany. A large number of our German employees are covered by collective
bargaining agreements or similar arrangements. In the past three years, there
have been no work stoppages or strikes at our various sites that have arisen
from collective bargaining disputes or for other reasons which had a material
adverse effect on the Group's results of operations. We believe that our
employee relations are good.

     The following table shows the average number of employees of the Allianz
Group by region for the years ended December 31, 2002, 2001 and 2000.



                                                                    AT DECEMBER 31,
                                                              ---------------------------
                                                               2002      2001      2000
                                                              -------   -------   -------
                                                                         
Germany.....................................................   87,398    87,589    43,124
Rest of Europe..............................................   66,657    61,892    50,569
NAFTA.......................................................   12,644    14,722    12,667
Rest of World...............................................   14,952    15,743    13,323
Total.......................................................  181,651   179,946   119,683


                                       186


                         OPTIONS TO PURCHASE SECURITIES

LONG-TERM INCENTIVE PLANS

     Since 1999, we have established long-term incentive plans for the members
of the management board of Allianz AG and eligible key executives of the Allianz
Group, which are subject to approval by the supervisory board. As of the date of
this annual report, long-term incentive plans were authorized for 2002, 2001,
2000 and 1999. Under these incentive plans, we granted non-transferable
appreciation rights tied to the value of the ordinary shares of Allianz AG to
members of the management board of Allianz AG and eligible key executives of the
Allianz Group. The appreciation rights were granted on April 1 of each of these
years. The rights expire after seven years.

     Under the relevant incentive plan, each plan participant is advised at the
beginning of the plan of the number of the appreciation rights that have been
granted to him or her. Each appreciation right entitles the holder to the
difference between the price of Allianz AG's ordinary shares at the time the
right is exercised and the base price of Allianz AG's ordinary shares as
specified in the plan, the maximum difference being capped at 150% of the base
price. The 2002, 2001 and 2000 incentive plans specify base prices of E265, E356
and E367, respectively. As of December 31, 2002, a total of 1,507,414
appreciation rights were outstanding under all incentive plans. Of this amount,
625,454 appreciation rights were outstanding under the 2002 incentive plan,
380,391 were outstanding under the 2001 incentive plan and 245,542 were
outstanding under the 2000 incentive plan.

     The appreciation rights may be exercised at any time between the beginning
of the third and the end of the seventh year after commencement of the relevant
plan, provided that the closing stock price of Allianz AG in the Frankfurt Xetra
Trade has exceeded the closing price of the Dow Jones Europe Stoxx Price Index
(600) on each of at least five consecutive trading days and the closing stock
price of Allianz AG in the Frankfurt Xetra Trade has appreciated as of the
exercise date by at least 20% over the base price specified in the plan. Holders
may not exercise an appreciation right within fixed time periods prior to the
publication of quarterly, semi-annual or annual reports. At other times, an
appreciation right may be exercised only with the approval of the Allianz
Group's compliance department.

     Upon exercise of the appreciation rights, payment is made in the relevant
local currency by the Group company granting the appreciation rights.
Appreciation rights not exercised by the last day of a plan will be exercised
automatically where the necessary conditions have been met. Where these
conditions have not been met or a plan participant ceases to be employed by the
Allianz Group for reasons other than disability or death, the plan participant's
appreciation rights are forfeited.

EMPLOYEE STOCK OWNERSHIP ARRANGEMENTS

     Allianz AG offers certain eligible employees and certain Allianz Group
companies for their respective employees in Germany and abroad to buy its
ordinary shares within a limited period of time at a discounted price per share.
Costs for the arrangement are met by the relevant company. In general, to be
eligible, employees are required to have been employed for a minimum period of
six continuous months prior to the share offering. Employees are also subject to
certain restrictions on the amount that may be invested to purchase the shares.
Each participating Group subsidiary establishes a restricted period of at least
one and maximum five years during which employees may not transfer the shares
after purchasing them. After this period, the shares are not subject to vesting
or other restrictions. The eligible employees of the Allianz Group acquired a
total of 136,222 ordinary shares under such arrangements in 2002.

     For additional information on our long-term incentive plans and employee
stock ownership arrangements, see Note 44 to our consolidated financial
statements.

                                       187


ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

                               MAJOR SHAREHOLDERS

     The outstanding capital stock of Allianz AG consists of ordinary shares
without par value that are issued in registered form. Under the articles of
association, each outstanding ordinary share represents one vote. Major
shareholders do not have different voting rights. Based on our share register,
as of June 18, 2003, we had approximately 567,800 registered shareholders, of
which approximately 1,950 were holders resident in the United States. Based on
our share register, approximately 5.7% of our ordinary shares issued were held
by such U.S. holders. Although our shareholders are generally required when
registering to indicate their respective names, addresses and, in the case of
legal entities, whether they hold on behalf of a third party, many of our
ordinary shares may be held of record by brokers, trustees or other nominal
holders who are not required to provide such information with regard to
beneficial holders. As a result, the number of holders of record or registered
holders in the United States may not be representative of the actual number of
beneficial holders in the United States. See also "Directors, Senior Management
and Employees -- Share Ownership."

     Under the German Securities Trading Act, holders of voting securities of a
listed German company must notify the German Federal Financial Supervisory
Authority and the company of the level of their holding whenever it reaches,
exceeds or falls below specified thresholds. These thresholds are 5%, 10%, 25%,
50% and 75% of a company's shares. In addition, effective January 1, 2002, the
provisions of the German Securities Trading Act were amended to broaden the
criteria for attribution of shares.

     The following table sets forth information about beneficial ownership of
our ordinary shares as of the indicated date as to each person (or group of
affiliated persons) known by us, through documents filed publicly with the SEC,
to own beneficially more than 5% of the ordinary shares issued and outstanding,
and as adjusted for recent changes in our outstanding ordinary shares. In
addition, where different, we have indicated the percentage ownership provided
by such shareholders in the filings under the new German reporting requirements
discussed above.



                                                        NUMBER OF                      OWNERSHIP
                                                     ORDINARY SHARES    OWNERSHIP     REPORTED IN
                                                       REPORTED IN     REPORTED IN       GERMAN
NAME OF BENEFICIAL OWNER                               SEC FILINGS     SEC FILINGS     FILINGS(4)
------------------------                             ---------------   ------------   ------------
                                                                             
Munich Re..........................................     51,487,400(1)     21.2%(1)       18.1%(5)
Deutsche Bank......................................     13,532,423(2)      5.5%(3)          --(6)


---------------

(1) As of December 31, 2002, as reported on June 19, 2003. In its report, Munich
    Re stated that such percentage was based on a total number of 266,565,625
    ordinary shares issued by Allianz as of December 31, 2002, but did not
    include ordinary shares of Allianz AG owned by Allianz Group companies or by
    HypoVereinsbank.

(2) As of December 31, 2002, as reported on February 10, 2003. In its report,
    Deutsche Bank stated that it had sole dispositive power over 13,532,423
    ordinary shares, sole voting power over 12,428,173 ordinary shares, and
    beneficially owned 5.5% of Allianz's ordinary shares. On July 9, 2003, as of
    June 30, 2003, Deutsche Bank reported that it had sole dispositive power
    over 12,616,371 ordinary shares, sole voting power over 11,317,491 ordinary
    shares and beneficially owned 3.4% of Allianz's ordinary shares.

(3) As of December 31, 2002, as reported on February 10, 2003.

(4) Percentages have been rounded to a single decimal place.

(5) As reported under the German Securities Trading Act on April 2, 2003.

(6) Less than 5% as reported under the German Securities Trading Act on April 8,
    2002.

                                       188


     As of June 18, 2003, 383,753,125 ordinary shares were issued but only
364,810,435 were outstanding, primarily as a result of our repurchase of 786,100
ordinary shares in May 2001 and our purchase of 5,500,000 ordinary shares from a
subsidiary of Dresdner Bank in February 2002, as well as the holding of
17,155,008 ordinary shares by Dresdner Bank or its subsidiaries.

     Significant changes in the percentage ownership held of record by any of
our major shareholders in the last three years were as follows:

     -  the share ownership of Munich Re as reported under German law decreased
        from slightly less than 25% as of October 2000 to approximately 18.1% of
        our outstanding ordinary shares on April 2, 2003;

     -  the share ownership of Deutsche Bank as reported to the SEC decreased
        from approximately 6.9% as of February 2001 to 5.5% as of December 31,
        2002 and 3.4% as of June 30, 2003; and

     -  the share ownership of HypoVereinsbank as reported under German law
        decreased from approximately 6.8% as of October 2000 to less than 5% in
        2002.

                           RELATED PARTY TRANSACTIONS

     The following describes certain transactions between the Allianz Group and
its related parties since January 1, 2002.

TRANSACTIONS WITH MUNICH RE

     As of June 30, 2003, we held approximately 18.9% of Munich Re's ordinary
shares. On July 10, 2003 we announced our intention to redeem a first tranche of
approximately 50% of our index-linked exchangeable (MILES) ahead of schedule,
using Munich Re shares. This transaction, when completed, will reduce our
shareholding in Munich Re by approximately 3%. As of April 2, 2003, based on its
most recent German reporting, Munich Re held approximately 19.4% of our ordinary
shares outstanding, which constituted approximately 18.1% of our ordinary shares
issued as of such date.

PRINCIPLES OF COOPERATION

     Certain principles of cooperation have historically governed the
relationship between Allianz AG and Munich Re. These principles have been
adapted to current circumstances in an agreement, dated May 2000 (or Principles
of Cooperation), which sets forth the principles governing the
cross-shareholdings, joint interests in third parties and reinsurance
relationships between Allianz AG and Munich Re. The Principles of Cooperation
were amended by a supplementary agreement in December 2001 (or First
Supplement), effective through December 31, 2010, as well as a second
supplementary agreement in December 2002 (or Second Supplement) and a third
supplementary agreement on March 20, 2003 (or Third Supplement). The Principles
of Cooperation are effective from January 1, 2000 through December 31, 2005.
Pursuant to the Second Supplement, the terms governing the termination of the
Principles of Cooperation were suspended until December 31, 2003 and the
required notice of termination reduced from three years to two years, with the
result that the Principles of Cooperation will be automatically renewed for
another ten years only if they are not terminated prior to December 31, 2003.

     Cross Shareholdings.  In connection with the our capital increase in April
2003, we agreed with Munich Re in the Third Supplement to amend the provisions
of the Principles of Cooperation relating to the long-term reciprocal
shareholdings between Allianz AG and Munich Re. Pursuant to the Third
Supplement, Munich Re agreed to reduce its ownership interest in Allianz AG to
approximately 15% following the capital increase in April 2003, and Allianz AG
agreed to reduce

                                       189


its ownership interest in Munich Re to approximately 16% to 18% by the end of
2003 and to approximately 15% in the course of 2004. The Third Supplement does
not relate to ordinary shares held in the ordinary course of business either as
part of the trading portfolio or for the account of third parties.

     Shareholdings in Insurance Subsidiaries.  The shareholdings of Allianz AG
and Munich Re in certain jointly owned subsidiaries and affiliates were
restructured in July 2002. See "-- Letter of Intent."

     Reinsurance Relationships.  Munich Re is the primary external reinsurer for
the Allianz Group. The Allianz Group ceded approximately E2.3 billion, E2.4
billion and E2.3 billion in reinsurance premiums written to Munich Re in 2002,
2001 and 2000, respectively. Of the Allianz Group's total third-party
reinsurance premiums ceded, approximately 31.3%, 30.6% and 30.2% were ceded to
Munich Re in 2002, 2001 and 2000, respectively. These amounts represented
approximately 4%, 4% and 4% of the Allianz Group's gross premiums written in
2002, 2001 and 2000, respectively.

     The Principles of Cooperation provide that Allianz AG will cede to Munich
Re a 14% quota-share of the gross self-retention of the insurance business of
Allianz Versicherung, Frankfurter Versicherungs-AG, Bayerische Versicherungsbank
AG, Allianz Globus MAT (since renamed Allianz Marine & Aviation
Versicherungs-AG), Kraft Versicherungs-AG and Vereinte Spezial Versicherung-AG.
Due to the merger of Vereinte Versicherung AG with Allianz Versicherung
effective January 1, 2002, we agreed with Munich Re in August 2002 to reduce the
share of the gross self-retention of the insurance business of German
Property-Casualty Group companies ceded to Munich Re to 10.5%, effective
retroactively to January 1, 2002. In addition, the Principles of Cooperation
provide that Munich Re shall, subject to competitive conditions, assume a
majority of reinsurance ceded by Allianz AG externally other than pursuant to
the quota-share arrangements described above. The Principles of Cooperation
further provide that Allianz AG and Munich Re shall share the reinsurance ceded
by all other majority jointly held German insurance companies (other than the
German Property-Casualty Group companies subject to the quota-share arrangements
described above) pro rata based on each party's respective ownership interest in
such companies. The Principles of Cooperation also provide that Allianz AG and
Munich Re shall equally share, on an arm's-length basis, the reinsurance ceded
by Allianz Leben and Karlsruher Leben. Finally, the Principles of Cooperation
provide that Allianz AG shall be entitled to assume reinsurance from Munich Re,
although the amounts and terms thereof are not specified. During 2002, 2001 and
2000, Munich Re ceded approximately E600 million, E850 million and E900 million,
respectively, in reinsurance premiums to the Allianz Group. The First Supplement
provides that the mutually ceded reinsurance volume between the Allianz Group
and Munich Re is to be adjusted on a step-by-step basis by 2005.

     Allianz AG believes that the reinsurance it cedes to Munich Re and the
reinsurance it assumes from Munich Re are on terms that are comparable to those
that could be obtained from unrelated third parties.

     Termination.  Upon termination of the Principles of Cooperation, each of
Allianz AG and Munich Re may, after a two-year period from termination, sell the
interests it holds in the other party, subject to a right of first offer and a
right to designate the buyer on the part of the party whose shares are being
sold. In addition, if the party whose shares are being sold exercises its right
of first offer, the selling party shall be entitled to request the other party
to sell to it or another designated person the shares of the selling party.
Reciprocal rights of first refusal also apply to post-termination dispositions
of interests in majority jointly held German insurance companies. Upon
termination of the Principles of Cooperation, the existing reinsurance
arrangements between Allianz AG and Munich Re will remain in force but may be
terminated at any time pursuant to the provisions of the relevant reinsurance
agreements. The reinsurance

                                       190


arrangements with respect to majority jointly held entities will remain in
effect. All disputes arising from the Principles of Cooperation are to be
resolved through binding arbitration.

LETTER OF INTENT

     Pursuant to a non-binding Letter of Intent, dated May 4, 2000 (or Letter of
Intent), Allianz AG and Munich Re agreed to gradually reduce their shareholdings
in each other to a level of approximately 20% of outstanding shares. As of June
30, 2003, the Allianz Group's ownership interest in Munich Re was approximately
18.9%. As of April 2, 2003, based on its most recent German reporting, Munich
Re's ownership interest in Allianz AG was approximately 18.1%. See "-- Major
Shareholders."

     In addition, pursuant to the Letter of Intent, the shareholdings of Allianz
AG and Munich Re in certain jointly owned subsidiaries and affiliates were
restructured in July 2002. As contemplated by the Letter of Intent, Munich Re
transferred its indirect 45.0% interest in Bayerische Versicherungsbank AG and
its indirect 50% interest in Frankfurter Versicherungs-AG to Allianz
Versicherung, while Allianz AG transferred its indirect 36.1% interest in
Karlsruher Leben and its 39% interest in Mercur Assistance AG Holding (or
Mercur), a German provider of medical and automobile assistance services, to
Munich Re. Pursuant to the Letter of Intent, Allianz AG sold its 39% interest in
Mercur to Munich Re in 2000. The parties' other interests were transferred
effective June 30, 2002. As a result of the restructuring, Munich Re holds
approximately 90% of Karlsruher Leben, and Allianz AG holds approximately 90% of
Bayerische Versicherungsbank AG and 99.9% of Frankfurter Versicherungs-AG.

AGREEMENT IN PRINCIPLE

     In April 2001, in connection with our acquisition of Dresdner Bank, we
entered into an Agreement in Principle with Munich Re (or Agreement in
Principle), pursuant to which we sold a 16.0% shareholding in HypoVereinsbank to
Munich Re for an aggregate price of approximately E5.133 billion on January 15,
2002, thereby reducing our shareholding in HypoVereinsbank to approximately
0.5%. In addition, we purchased from Munich Re its 40.6% shareholding in Allianz
Leben for an aggregate price of E2.587 billion on January 15, 2002, thereby
increasing our shareholding in Allianz Leben to 91.0%. The current reinsurance
relationships between Allianz Leben and Munich Re are intended to remain in
effect on the basis of existing contracts until 2010.

     The Agreement in Principle was amended by the Third Supplement, pursuant to
which Munich Re agreed to reduce its ownership interest in Allianz AG to
approximately 15% following our capital increase in April 2003, and Allianz AG
agreed to reduce its ownership interest in Munich Re to approximately 16% to 18%
by the end of 2003 and to approximately 15% in the course of 2004.

OTHER TRANSACTIONS

     In addition to the arrangements described above, the Allianz Group and
Munich Re and its subsidiaries enter into various transactions with each other
in the ordinary course of business, including the provision of direct insurance
by Allianz Group companies to Munich Re and its subsidiaries, and vice versa.
Allianz expects these transactions to continue.

TRANSACTIONS WITH HYPOVEREINSBANK

     Pursuant to the Agreement in Principle, we disposed of the Allianz Group's
16.0% shareholding in HypoVereinsbank to Munich Re in January 2002. See
"-- Transactions with Munich Re -- Agreement in Principle." As of May 31, 2003,
we held approximately 0.3% of the ordinary shares of HypoVereinsbank, and
HypoVereinsbank, based on its most recent reporting under German law, owned less
than 5% of our ordinary shares.
                                       191


     Allianz Group companies and HypoVereinsbank and its subsidiaries enter into
a wide variety of transactions with each other in the ordinary course of
business, including banking, insurance, broker-dealer, securities lending, joint
venture and other transactions.

TERROR RISK INSURANCE COMPANIES

     In the aftermath of the terrorist attacks of September 11, 2001, terror
risk insurance companies were founded in Germany and Luxembourg to address the
existing shortage of direct insurance and reinsurance coverage for major risks
in the international markets. The shareholders of these companies are a number
of direct insurers and reinsurers, including companies of the Allianz Group.
Allianz Versicherungs-AG holds a 16% interest in Deutsche EXTREMUS
Versicherungs-AG (or EXTREMUS), which was registered on October 22, 2002 and has
an equity capital of E50 million. Munich Re also holds a 16% interest in
EXTREMUS. On the basis of the E10 billion state guarantee granted by the Federal
Republic of Germany, EXTREMUS is able to provide excess coverage of up to E13
billion for terror risks encountered in Germany. Allianz AG also holds an 18.2%
interest in Special Risk Insurance and Reinsurance Luxembourg S.A. (or SRIR),
which was registered on April 4, 2002 and has an equity capital of E300 million.
SRIR's new business was discontinued in March 2003 due to a lack of demand.

OTHER RELATIONSHIPS

     In the normal course of business and subject to applicable legal
restrictions, members of the management board and the supervisory board may be
granted loans by Dresdner Bank, which are subject to the usual conditions in the
industry. On December 31, 2002, loans to board members granted in previous years
and amounting to E0.5 million were still outstanding, including E0.5 million to
board members of subsidiaries. None of these loans was granted in the course of
fiscal 2002.

ITEM 8. FINANCIAL INFORMATION

            CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

     See pages F-1 through F-135 for the consolidated financial statements
required by this item.

                               LEGAL PROCEEDINGS

GENERAL

     Allianz Group companies are involved in legal, regulatory and arbitration
proceedings in Germany and a number of foreign jurisdictions, including the
United States, involving claims by and against them, which arise in the ordinary
course of their businesses, including in connection with their activities as
insurers, employers, investors and taxpayers. While it is not feasible to
predict or determine the ultimate outcome of all pending or threatened
proceedings, management does not believe that the outcome of these proceedings,
including the litigation and the Holocaust-related matters discussed below, will
have a material adverse effect on the financial position or results of
operations of Allianz Group, after consideration of any applicable reserves.

LITIGATION

     In May 2001, a consolidated class action complaint seeking class action
status, In re Deutsche Telekom Securities Litigation, was brought against
Dresdner Bank and other defendants in the United States District Court for the
Southern District of New York by purported purchasers of Deutsche Telekom
American Depositary Shares (ADSs) issued pursuant to a registration statement
filed with the Securities and Exchange Commission on May 22, 2000 and

                                       192


pursuant to a prospectus dated June 17, 2000. Dresdner Bank, which was one of
the underwriting syndicate's joint global coordinators, was one of the named
defendants. The complaint alleges that the offering prospectus contained
material misrepresentations and/or omissions relating to Deutsche Telekom. In
October 2002, the court granted the plaintiffs' motion for class certification.
The action seeks rescission of the sales and damages in an as yet unspecified
amount. The management of Dresdner Bank believes the complaint is without merit
insofar as it relates to Dresdner Bank.

     In August 2001, the European Commission initiated antitrust proceedings
pursuant to Article 81 of the EU Treaty against various banks, including
Dresdner Bank, in connection with alleged agreements to set prices for the
exchange of foreign currencies within the EU. In December 2001, pursuant to
these proceedings, the European Commission imposed a fine of E28 million against
Dresdner Bank. The management of Dresdner Bank believes these proceedings are
without merit as they relate to Dresdner Bank. In February 2002, Dresdner Bank
initiated proceedings against the European Commission in the Court of First
Instance of the European Community. Due to delayed pleadings by the European
Commission, Dresdner Bank requested a judgment by default on June 25, 2002.

     In July 2002, the German Federal Cartel Office (Bundeskartellamt)commenced
an investigation against several property-casualty insurance companies in
Germany, including subsidiaries of Allianz AG, in connection with alleged
coordinated behavior to achieve premium increases for the commercial and
industrial property and liability insurance business. Also, in December 2001 the
European Commission commenced a preliminary investigation against several
insurance companies operating in London, including a subsidiary of Allianz AG,
in connection with alleged anti-competitive behavior related to aviation war
risk insurance in the London market. To date, the Allianz Group has not received
any official complaint, or indication of any amount claimed, in either matter.
Allianz AG cannot predict the outcome of these investigations at this time.

     On November 5, 2001, a lawsuit, Silverstein v. Swiss Re International
Business Insurance Company Ltd., was filed against certain insurers and
reinsurers, including Allianz Insurance Co., in the United States District Court
for the Southern District of New York seeking a determination that the terrorist
attack of September 11, 2001 on the World Trade Center constituted two separate
occurrences under the alleged terms of various coverages. Allianz Insurance Co.
has also filed suit against Silverstein on January 2, 2002, in connection with
the coverage issues arising from the September 11, 2001 attack on the World
Trade Center, and these and other related suits have been consolidated for
discovery and other purposes. On January 30, 2003, the court rejected a motion
by Allianz Insurance Co. seeking a determination by the court itself that the
terror attack of September 11, 2001, constituted a single event. The judge
referred this issue to the jury. Based on the policy wording at issue, we
believe that the basis of Allianz Insurance Co.'s claim is sound, and that the
Silverstein claims are without merit insofar as they relate to Allianz Insurance
Co. In connection with the terrorist attack of September 11, 2001 Allianz Group
recorded net claims expense of approximately E1.5 billion in 2001 for the
Allianz Group on the basis of one occurrence. In the event that liability is
premised under a two occurrence theory, Allianz AG estimates that the Allianz
Group may have an additional net exposure of approximately E200 million.

     On December 19, 2002, the insolvency administrator of KirchMedia GmbH & Co.
KGaA (or KirchMedia) made a formal demand on Dresdner Bank to return a former
KirchMedia shareholding to the insolvency assets (Insolvenzmasse) or to make
payment to the insolvency assets to compensate for the loss of the shareholding.
The shareholding, a 25% stake in the Spanish television group Telecinco, had
been pledged by subsidiaries of KirchMedia to Dresdner Bank as collateral for a
loan of E500 million from Dresdner Bank to KirchMedia's holding company,
TaurusHolding GmbH & Co. KG (or TaurusHolding). Following TaurusHolding's
default on the loan in April 2002 and insolvency in June 2002, Dresdner Bank
enforced its security interest and acquired through a subsidiary the Telecinco
shareholding in a forced auction sale.

                                       193


The insolvency administrator contends that the pledge was created under
circumstances that cause it to be invalid or void and may initiate legal action
against Dresdner Bank. The management of Dresdner Bank believes that there is no
valid basis for the insolvency administrator's demand.

     On May 24, 2002, pursuant to a statutory squeeze-out procedure, the general
meeting of Dresdner Bank AG resolved to transfer shares from its minority
shareholders to Allianz AG as principal shareholder in return for payment of a
cash settlement amounting to E51.50 per share. The amount of the cash settlement
was established by Allianz AG on the basis of an expert opinion, and its
adequacy was confirmed by a court-appointed auditor. Some of the former minority
shareholders applied for a court review of the appropriate amount of the cash
settlement in a mediation procedure (Spruchverfahren), which is pending with the
district court (Land-gericht) of Frankfurt. The outcome of this mediation
procedure remains uncertain at this time. In the event that the court were to
determine a higher amount as an appropriate cash settlement, this would affect
all approximately 16 million shares which were transferred to Allianz AG.

HOLOCAUST-RELATED MATTERS

     In July 2000, the governments of Germany and the United States signed an
Executive Agreement, meant to secure a comprehensive and enduring resolution
with respect to Holocaust-related claims brought against German companies and
their non-German subsidiaries. Pursuant to the Executive Agreement, after being
notified that a Holocaust-related claim has been asserted in a U.S. federal or
state court against a German company, the U.S. government shall inform the court
through a statement of interest that it is in the foreign policy interests of
the United States for the Foundation for Remembrance, Responsibility and the
Future (or the Foundation) to be the exclusive remedy and forum for resolving
such claims against German companies and their subsidiaries, and that dismissal
of such claims by U.S. federal and state courts is in the foreign policy
interest of the United States.

     The U.S. government has consented to use its best efforts to achieve
similar objectives with respect to legislation that has been implemented by the
states of the United States since 1998, requiring insurance companies to report
the status of policies sold in Europe prior to and during World War II. Some of
these statutes provide for license suspension in the event of non-compliance.
This legislation has been challenged primarily on constitutional grounds in
federal courts in Florida and California by individual insurance companies and
in addition, in California by the American Insurance Association. On October 2,
2001, the United States Court of Appeals for the Eleventh Circuit struck down
the reporting provisions of the Florida statute as unconstitutional. The period
for appeal of this decision has expired. In October 2001, the United States
District Court for the Eastern District of California struck down the California
statute as unconstitutional. This decision was reversed by an appellate decision
of the United States Court of Appeals for the Ninth Circuit on July 15, 2002. On
June 23, 2003, the United States Supreme Court struck down the California
statute on constitutional grounds.

     In August 2000, the German government enacted legislation (or the
Foundation Law) implementing the Foundation, which was funded with approximately
E5.1 billion in equal parts from the German government and German companies.
Allianz (including Dresdner Bank) has fulfilled all of its obligations as a
member of the Foundation Initiative, and the Foundation Law explicitly provides
that no further payments by donors such as Allianz are required. Eligible
claims, including costs, are covered under the provisions of the Foundation Law.
The Foundation began to distribute funds in mid-2001.

     Based on the Executive Agreement and statements of interest of the U.S.
government, individual actions and purported class actions previously filed in
the United States against Allianz AG and its subsidiaries, including Dresdner
Bank, were dismissed since 2000. On June 21, 2001, Dresdner Bank was served with
process in a purported Holocaust-related action,

                                       194


Ungaro-Benages v. Dresdner Bank, filed in the United States District Court for
the Southern District of Florida. On January 18, 2002, the U.S. government filed
a statement of interest to the court. Upon the defendants' motion, the court
rejected the action on February 14, 2003. On April 9, 2003, the plaintiff in
this action filed an appeal. On May 31, 2002, Dresdner Bank was served with
process in an additional Holocaust-related action, Widerynski v. Dresdner Bank,
filed in the Superior Court of California, County of Los Angeles. Upon the
defendant's motion, this action was rejected on January 31, 2003. On June 20,
2002, a new Holocaust-related action, Gross v. German Foundation Industrial
Initiative, was filed in the United States District Court for the District of
New Jersey against Allianz AG, Dresdner Bank and other members of the German
Foundation Industrial Initiative. So far, no service of process has taken place
in connection with this action, and the Allianz Group has not received any
indication of the amount claimed.

                                DIVIDEND POLICY

     Allianz AG normally declares dividends at the annual general assembly of
shareholders and has historically paid these dividends once a year. Under
applicable German law, dividends may be declared and paid only from balance
sheet profits as shown in the German statutory annual financial statements of
Allianz AG. For each fiscal year, the management board approves the annual
financial statements and submits them to the supervisory board with its proposal
as to the appropriation of the annual profit. This proposal will set forth what
amounts of the annual profit should be paid out as dividends, transferred to
capital reserves, or carried forward to the next fiscal year. Upon approval by
the supervisory board, the management board and the supervisory board submit
their combined proposal to the shareholders at the shareholders' assembly. The
general assembly of shareholders ultimately determines the appropriation of the
annual profits, including the amount of the annual dividends. Shareholders
generally participate in distributions of any dividends in proportion to the
number of their ordinary shares. Any dividends declared by Allianz AG will be
paid in euro.

     For information regarding annual dividends paid from 1998 through 2002, see
"Key Information -- Dividends."

                              SIGNIFICANT CHANGES

     For a description of significant developments since the date of the annual
financial statements included in this annual report, see Note 44 to the
consolidated financial statements.

ITEM 9.  THE OFFER AND LISTING

                                TRADING MARKETS

     The principal trading market for the ordinary shares is the Frankfurt Stock
Exchange. The ordinary shares also trade on the other German stock exchanges in
Berlin, Bremen, Dusseldorf, Hamburg, Hanover, Munich and Stuttgart, as well as
the stock exchanges in London, Paris and Zurich. The ADSs of Allianz AG, each
representing one-tenth of an ordinary share, trade on the New York Stock
Exchange under the symbol "AZ." See also "Major Shareholders and Related Party
Transactions -- Major Shareholders."

                            MARKET PRICE INFORMATION

     The table below sets forth, for the periods indicated, the high and low
closing sales prices on the Frankfurt Stock Exchange for the ordinary shares of
Allianz AG as reported by Xetra. Since January 4, 1999, the first official
trading day of 1999, the prices of shares traded on German stock exchanges,
including the ordinary shares of Allianz AG, have been quoted in euros. In order
to achieve comparability with the sales prices quoted in Deutsche marks during
the

                                       195


relevant periods in 1997 and 1998, the sales prices indicated for those periods
have been converted into euros at the official conversion rate of DM1.95583 =
E1.00. The table also shows, for the periods indicated, the highs and lows of
the DAX. See the discussion under "Key Information -- Exchange Rate Information"
for information with respect to rates of exchange between the U.S. dollar and
the Deutsche mark (translated into euros at the official conversion rate of
DM1.95583 = E1.00) and the U.S. dollar and the euro applicable during the
periods set forth below.



                                                            PRICE PER
                                                        ORDINARY SHARE(1)            DAX
                                                        ------------------    ------------------
                                                         HIGH        LOW       HIGH        LOW
                                                        -------    -------    -------    -------
                                                               (E)
                                                                             
ANNUAL HIGHS AND LOWS
1998..................................................   316.2      196.0     6,171.4    3,896.1
1999..................................................   313.5      214.5     6,958.1    4,678.7
2000..................................................   399.2      285.9     8,065.0    6,200.7
2001..................................................   358.3      185.8     6,795.1    3,787.2
2002..................................................   257.9       68.1     5,462.6    2,598.0
2003 (until June 18, 2003)............................    89.4       41.1     3,304.2    2,203.0

QUARTERLY HIGHS AND LOWS

2001
First quarter.........................................   358.3      276.9     6,795.1    5,388.0
Second quarter........................................   319.8      269.6     6,278.9    5,553.5
Third quarter.........................................   309.9      185.8     6,109.5    3,787.2
Fourth quarter........................................   258.8      220.7     5,271.3    4,240.0

2002
First quarter.........................................   259.5      212.2     5,462.6    4,745.6
Second quarter........................................   254.1      164.7     5,343.9    4,099.1
Third quarter.........................................   188.1       78.4     4,483.0    2,769.0
Fourth quarter........................................   109.1       69.4     3,380.2    2,597.9

2003
First quarter.........................................    89.5       41.1     3,157.3    2,203.0
Second quarter (until June 18, 2003)..................    78.2       43.4     3,304.0    2,450.2

MONTHLY HIGHS AND LOWS

2002
December..............................................   104.0       81.4     3,380.2    2,840.0

2003
January...............................................    89.4       66.1     3,157.3    2,643.8
February..............................................    69.6       57.5     2,752.0    2,450.2
March.................................................    61.5       41.1     2,715.1    2,203.0
April.................................................    63.4       43.4     2,974.4    2,450.2
May...................................................    69.5       59.0     3,067.0    2,822.8
June (until June 18, 2003)............................    78.2       66.8     3,304.2    3,026.8


---------------

(1) Adjusted to reflect the capital increase in April 2003.

     On June 18, 2003, the closing sale price per Allianz AG ordinary share on
XETRA was E78.00, which was equivalent to US$91.42 per ordinary share,
translated at the noon buying rate for euros on such date.

                                       196


     Based on turnover statistics supplied by Bloomberg, the average daily
volume of the ordinary shares of Allianz AG traded on the Frankfurt Stock
Exchange (XETRA) between January 1, 2003 and June 18, 2003 was 4,476,881.

TRADING ON THE NEW YORK STOCK EXCHANGE

     Official trading of Allianz AG ADSs on the New York Stock Exchange
commenced on November 3, 2000. Allianz AG ADSs trade under the symbol "AZ."

     The following table sets forth, for the periods indicated, the high and low
closing sales prices per Allianz AG ADS as reported on the New York Stock
Exchange Composite Tape:



                                                              PRICE PER ADS
                                                              -------------
                                                              HIGH     LOW
                                                              -----   -----
                                                                   ($)
                                                                
ANNUAL HIGHS AND LOWS
2000 (from November 3, 2000)................................  37.5    33.4
2001........................................................  37.6    18.7
2002........................................................  25.2     7.5
2003 (until June 18, 2003)..................................  10.5     5.0

QUARTERLY HIGHS AND LOWS
2001
First quarter...............................................  37.6    27.0
Second quarter..............................................  30.2    26.2
Third quarter...............................................  29.9    18.7
Fourth quarter..............................................  25.4    22.2

2002
First quarter...............................................  25.2    20.7
Second quarter..............................................  25.1    17.9
Third quarter...............................................  20.4     8.6
Fourth quarter..............................................  12.3     7.5

2003
First quarter...............................................  10.5     5.0
Second quarter (until June 18, 2003)........................   9.3     5.3

MONTHLY HIGHS AND LOWS

2002
December....................................................  11.5     9.3

2003
January.....................................................  10.5     7.8
February....................................................   8.2     6.9
March.......................................................   7.5     5.0
April.......................................................   8.1     5.3
May.........................................................   7.9     7.0
June (until June 18, 2003)..................................   9.3     7.9


     On June 18, 2003, the closing sales price per Allianz AG ADS on the New
York Stock Exchange as reported on the New York Stock Exchange Composite Tape
was US$9.11.

                                       197


ITEM 10.  ADDITIONAL INFORMATION

     Information relating to Allianz AG's memorandum and articles of association
is incorporated in this annual report by reference to Allianz AG's Registration
Statement on Form 20-F (File No. 1-15154) as filed with the SEC on October 31,
2000.

                              OBJECTS AND PURPOSES

     The objects and purposes of Allianz AG as described in article 1, paragraph
2 of our articles of association are to direct an international group of
companies that are active in the areas of insurance, banking, asset management
and other financial, consulting and similar services, and to hold ownership
interests in insurance companies, banks, industrial companies, investment
companies and other companies. As a reinsurer, Allianz AG primarily assumes
insurance business from Group companies and other companies in which Allianz AG
holds ownership interests.

                                 SHARE CAPITAL

     The following is a summary of material information concerning the share
capital of Allianz AG. This summary is not complete and is qualified by
reference to Allianz AG's articles of association and German law as in effect at
the date of this annual report. Copies of the articles of association are
publicly available from the Commercial Register in Munich or in German- and
English-language versions at our headquarters, and an English translation has
been filed with the Securities and Exchange Commission in the United States.

GENERAL

     Allianz AG is a stock corporation organized in the Federal Republic of
Germany under the German Stock Corporation Act. It is registered in the
Commercial Register in Munich, Germany under the entry number HR B 7158.

     The share capital of Allianz AG consists of ordinary shares without par
value. As of June 18, 2003, the issued share capital of Allianz AG was
E982,408,000, divided into 383,753,125 registered shares, of which 364,810,435
shares were outstanding. See also "Major Shareholders and Related Party
Transactions -- Major Shareholders."

SHARE CAPITAL INCREASES AND DECREASES

     Allianz AG has several categories of authorized capital. At the annual
general meeting on April 29, 2003, the shareholders approved the following
authorized capital for issuance by the management board (with the approval of
the supervisory board) of new registered shares:

     - Up to E300,000,000 in the aggregate on one or more occasions on or before
       April 28, 2008 by issuing new registered no-par ordinary shares against
       contributions in cash or in kind, of which amount E300,000,000 remain as
       of June 18, 2003. The management board is authorized, upon the approval
       of the supervisory board, to exclude shareholders' preemptive rights with
       respect to shares issued against contributions in kind. Whenever shares
       are issued against contributions in cash, the shareholders shall retain
       their preemptive rights. The management board is nevertheless authorized,
       upon the approval of the supervisory board, to exclude fractional amounts
       from the shareholders' preemptive rights. The management board is further
       authorized, upon the approval of the supervisory board, to exclude
       shareholders' preemptive rights in the case of a capital increase against
       contributions in cash when the issue price is not substantially lower
       than the market price, subject to certain additional limitations in
       accordance with the German Stock Corporation Act.

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     - Up to E7,841,187.84 in the aggregate on one or more occasions on or
       before July 10, 2006 by issuing new registered no-par ordinary shares
       against contributions in cash, of which amount E7,841,187.84 remain as of
       June 18, 2003. The management board is authorized, with the consent of
       the supervisory board, to exclude shareholders' preemptive rights in
       order to issue shares to the employees of Allianz AG and its Group
       companies.

     - Up to E10,000,000 in the aggregate on one or more occasions on or before
       April 28, 2008 by issuing new registered no-par ordinary shares against
       contributions in cash, of which amount E10,000,000 remain as of June 18,
       2003. The management board is authorized, upon the approval of the
       supervisory board, to exclude the shareholder preemptive rights as to
       these ordinary shares in order to grant bearers of conversion privileges
       or option rights issued by Allianz AG or its group member companies a
       right to subscribe to that number of new shares in future cash capital
       increases to which they would be entitled on exercising their option
       right or conversion privilege.

     The shareholders have conditionally increased the share capital by an
aggregate amount of E50,000,000.00. The conditional increase in capital will be
carried out only to the extent that the holders of convertible bonds or bonds
with warrants issued by Allianz AG, or by majority owned direct or indirect
group subsidiaries, against payment in cash pursuant to the authorization
approved by the annual general meeting of shareholders on July 11, 2001 for the
period up to July 10, 2006, exercise their conversion and/or option rights, or
to the extent that holders of mandatory convertible bonds fulfill their
conversion obligation, and insofar as no treasury shares are delivered to the
holders of the bonds.

     With respect to purchases of our own ordinary shares, see Note 13 to our
consolidated financial statements.

CAPITAL INCREASE

     In April 2003, by way of a rights offering, we raised approximately E4.4
billion, based on a subscription price of E38.00 per share, resulting in net
proceeds of approximately E4.3 billion after deduction of the commission payable
to the underwriters. We increased our issued share capital by E300,000,000 to
E982,408,000 by issuing 117,187,500 new no-par value shares with full dividend
entitlement for the 2003 fiscal year.

                               MATERIAL CONTRACTS

     For information on material contracts to which Allianz AG or any of its
subsidiaries was a party in the preceding two years, see "Major Shareholders and
Related Party Transactions -- Related Party Transactions."

                               EXCHANGE CONTROLS

     Germany does not generally restrict capital movements between Germany and
other countries, institutions or persons. Restrictions currently exist with
respect to Iraq and the Taliban, among others, as a result of UN resolutions and
EU rules.

     For statistical purposes, subject to certain exceptions, each company or
person domiciled in Germany is required to report to the German Bundesbank each
payment received from or made to a company or person not domiciled in Germany in
excess of E12,500 (or an equivalent amount in a foreign currency). Moreover, all
claims and liabilities of a company or person domiciled in Germany against or
towards a company or person not domiciled in Germany in excess of E5 million (or
an equivalent amount in a foreign currency) are required to be reported monthly
to the German Bundesbank.

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     Other than as described above, there is no limitation on the right of
non-resident or foreign owners to receive dividends or other payments relating
to the ordinary shares or the ADSs permitted or granted by German law. Various
national, state and other laws relating to the acquisition of "control" of
Allianz AG's insurance and banking subsidiaries may impose limitations on the
ability to acquire ordinary shares or ADSs beyond specified thresholds. In
addition, some national laws may authorize investigation of certain money
transfers. See "Information on the Company and Operating and Financial Review
and Prospects -- Regulation and Supervision -- Acquisition Control Matters."

                                    TAXATION

GERMAN TAXATION

     The following discussion is a summary of the material German tax
consequences for beneficial owners of shares or ADSs who are (i) not German
residents for German income tax purposes (i.e., persons whose residence,
habitual abode, statutory seat or place of effective management and control is
not located in Germany) and (ii) whose shares do not form part of the business
property of a permanent establishment or fixed base in Germany. Throughout this
section we refer to these owners as "Non-German Holders."

     This summary is based on German tax laws and typical tax treaties to which
Germany is a party as they are in effect on the date hereof and is subject to
changes in German tax laws or such treaties. This summary also reflects changes
resulting from the German Tax Reduction Act (which we refer to as the German Tax
Reform) approved by the German legislature in July 2000. Most changes out of the
German Tax Reform were implemented effective January 1, 2001.

     The following discussion does not purport to be a comprehensive discussion
of all German tax consequences which may be relevant for Non-German Holders. You
should consult your tax advisor regarding the German federal, state and local
tax consequences of the purchase, ownership and disposition of shares or ADSs
and the procedures to follow for the refund of German taxes withheld from
dividends.

TAXATION OF THE COMPANY IN GERMANY

     German corporations with a fiscal year that equals the calendar year,
including Allianz AG, are generally subject to a corporate income tax rate of
25%. The solidarity surcharge of 5.5% on the net assessed corporate income tax
has been retained in 2002, so that the corporate income tax and the solidarity
surcharge, in the aggregate, amount to approximately 26.38%. Solely for the year
2003, the corporate income tax rate will amount to 26.5% plus the solidarity
surcharge of 5.5% on the net assessed corporate income tax, so that the
corporate income tax and the surcharge, in the aggregate, will amount to
approximately 27.96%.

     In addition, German corporations are subject to profit-related trade tax on
income, the exact amount of which depends on the municipality in which the
corporation maintains its business establishment(s). Trade tax on income is a
deductible item in computing the corporation's tax base for corporate income tax
purposes.

TAXATION OF DIVIDENDS

     The German Tax Reform abolished the corporate income tax credit system and
introduced a classic corporate tax system. Under the new system, a tax credit is
no longer attached to the dividends. To avoid multiple levels of taxation in a
corporate chain, the law provides for an exemption comparable to a full dividend
received deduction for inter-corporate dividends at the level of a German
corporate shareholder. German resident individuals are required to recognize 50%
of the dividends received as taxable income. Dividends received from
non-qualifying

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participations, which are participations of less than 10%, are subject to trade
tax on income. The new system applies to dividend distributions paid by Allianz
AG in 2002 for the financial year 2001 and in subsequent years. Certain
transition rules apply in connection with the change from the corporate income
tax credit system in effect in 2000 to the new system.

IMPOSITION OF WITHHOLDING TAX

     Dividend distributions by a German corporation with a fiscal year that
equals the calendar year on or after January 1, 2002 are subject to a 20%
withholding tax. In addition, a solidarity surcharge at a rate of 5.5% on the
withholding tax is levied such that the aggregate withholding from dividends is
21.1% of the declared dividend. The withholding tax is generally withheld
irrespective of whether and to what extent the dividend distribution is exempt
at the level of the holder.

     If you are a Non-German Holder, the withholding tax rate may be reduced in
accordance with an applicable income tax treaty. Under most income tax treaties
to which Germany is a party, including the U.S.-German income tax treaty, the
rate of dividend withholding tax for individual holders and corporate holders of
a non-qualifying participation is reduced to 15%. In that case, the Non-German
Holder eligible for the reduced treaty rate may apply for a refund of 6.1% of
the declared dividend for dividend distributions paid on or after January 1,
2002 by Allianz AG. The application for refund must be filed with the German
Federal Tax Office (Bundesamt fur Finanzen, Friedhofstrasse 1, D-53225 Bonn,
Germany). The relevant forms can be obtained from the German Federal Tax Office
or from German embassies and consulates.

REFUND PROCEDURE FOR U.S. SHAREHOLDERS

     For shares and ADSs kept in custody with The Depository Trust Company in
New York or one of its participating banks, the German tax authorities have
introduced a collective procedure for the refund of German dividend withholding
tax and the solidarity surcharge thereon on a trial basis. Under this procedure,
The Depository Trust Company may submit claims for refunds payable to eligible
U.S. holders as defined below under "-- United States Taxation" under the Treaty
collectively to the German tax authorities on behalf of these eligible U.S.
holders. The German Federal Tax Office will pay the refund amounts on a
preliminary basis to The Depository Trust Company, which will redistribute these
amounts to the eligible U.S. holders according to the regulations governing the
procedure. The German Federal Tax Office may review whether the refund was made
in accordance with the law within four years after making the payment to The
Depository Trust Company. Details of this collective procedure are available
from The Depository Trust Company.

     Individual claims for refunds may be made on a special German form which
must be filed with the German Federal Tax Office at the address noted above.
Copies of such form may be obtained from the German Federal Tax Office at the
same address or from the Embassy of the Federal Republic of Germany, 4645
Reservoir Road, N.W., Washington, D.C. 20007-1998. Claims must be filed within a
four-year period from the end of the calendar year in which the dividend was
received. Holders who are entitled to a refund in excess of E150 for the
calendar year generally must file their refund claims on an individual basis.
However, the custodian bank may be in a position to make refund claims on behalf
of such holders.

     As part of the individual refund claim, an eligible U.S. holder must submit
to the German tax authorities the original bank voucher (or a certified copy
thereof) issued by the paying agent documenting the tax withheld, and an
official certification on IRS Form 6166 of its last United States federal income
tax return. IRS Form 6166 may be obtained by filing a request with the Internal
Revenue Service Center in Philadelphia, Pennsylvania, Foreign Certification
Request, P.O. Box 16347, Philadelphia, PA 19114-0447. Requests for certification
must include the eligible U.S. holder's name, Social Security or Employer
Identification Number, tax return form number,

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and tax period for which the certification is requested. Requests for
certifications can include a request to the Internal Revenue Service to send the
certification directly to the German tax authorities. If no such request is
made, the Internal Revenue Service will send a certification on IRS Form 6166 to
the eligible U.S. holder, who then must submit this document with his refund
claim.

TAXATION OF CAPITAL GAINS

     Under German domestic tax law as in effect in 2002, capital gains derived
on or after January 1, 2002 by a Non-German Holder from the sale or other
disposition of shares or ADSs are subject to tax in Germany only if such
Non-German Holder has held, directly or indirectly, shares or ADSs representing
1% or more of the registered share capital of the company at any time during the
five-year period immediately preceding the disposition. In computing the
relevant size of a Non-German Holder's shareholding, shareholdings already
existing prior to the effective date of the German Tax Reform are also taken
into account. Pursuant to the German Tax Reform, corporate Non-German Holders
are fully exempt from German tax on capital gains derived on or after January 1,
2002 from the sale or other disposition of shares or ADSs in a German
corporation with a fiscal year that equals the calendar year. Half of the
capital gains realized by the individual Non-German Holders are subject to
German individual income tax plus a 5.5% solidarity surcharge.

     U.S. holders that qualify for benefits under the Treaty are exempt in
Germany under the Treaty on capital gains derived from the sale or disposition
of shares or ADSs.

INHERITANCE AND GIFT TAX

     Under German law, German gift or inheritance tax will be imposed on
transfers of shares or ADSs by a Non-German Holder at death or by way of gift,
if

     (i)  the decedent or donor, or the heir, donee or other transferee has his
          residence in Germany at the time of the transfer or with respect to
          German citizens who are not resident in Germany, if the decedent or
          donor, or the heir, donee or other transferee has not been
          continuously outside of Germany for a period of more than five years;
          or

     (ii)  the shares or ADSs subject to such transfer form part of a portfolio
           which represents 10% or more of the registered share capital of the
           company and has been held, directly or indirectly, by the decedent or
           donor, respectively, himself or together with related parties.

     The right of the German government to impose inheritance or gift tax on a
Non-German Holder may be further limited by an applicable estate tax treaty
(such as the U.S.-German Inheritances and Gifts Tax Treaty of December 3, 1980).

OTHER TAXES

     No German transfer, stamp or similar taxes apply to the purchase, sale or
other disposition of shares or ADSs by a Non-German Holder. Currently, net worth
tax is not levied in Germany.

                             UNITED STATES TAXATION

     This section describes the principal United States federal income tax
consequences of owning ordinary shares or ADSs. It applies to you only if you
hold your ordinary shares or ADSs as capital assets for tax purposes. This
section does not address all material tax consequences

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of owning ordinary shares or ADSs. It does not address special classes of
holders, some of whom may be subject to other rules, including:

     - dealers in securities or currencies;

     - tax-exempt entities;

     - life insurance companies;

     - broker-dealers;

     - traders in securities that elect to use a mark-to-market method of
       accounting for their securities holdings;

     - investors liable for alternative minimum tax;

     - investors that actually or constructively own 10% or more of the voting
       stock of Allianz AG;

     - investors that hold ordinary shares or ADSs as part of a straddle or a
       hedging or conversion transaction; or

     - investors whose functional currency is not the U.S. dollar.

     This section is based on the Internal Revenue Code of 1986, as amended, its
legislative history, existing and proposed regulations, and published rulings
and court decisions, all as currently in effect, as well as on the Treaty. These
laws are subject to change, possibly on a retroactive basis.

     In addition, this section is based in part upon the representations of the
depositary and the assumption that each obligation in the deposit agreement and
any related agreement will be performed in accordance with its terms. In
general, for United States federal income tax purposes, if you hold ADRs
evidencing ADSs, you will be treated as the owner of the shares represented by
those ADSs. Exchanges of shares for ADRs, and ADRs for shares, generally will
not be subject to United States federal income tax.

     You are a "U.S. holder" if you are a beneficial owner of ordinary shares or
ADSs and you are, for United States federal income tax purposes:

     - a citizen or resident of the United States;

     - a domestic corporation;

     - an estate whose income is subject to United States federal income tax
       regardless of its source; or

     - a trust if a United States court can exercise primary supervision over
       the trust's administration and one or more United States persons are
       authorized to control all substantial decisions of the trust.

     You are an "eligible U.S. holder" if you are a U.S. holder that:

     - is a resident of the United States for purposes of the Treaty;

     - does not maintain a permanent establishment or fixed base in Germany to
       which the ordinary shares or ADSs are attributable and through which you
       carry on or have carried on business (or, in the case of an individual,
       perform or have performed independent personal services); and

     - is otherwise eligible for benefits under the Treaty with respect to
       income and gain from the ordinary shares or ADSs.

     You should consult your own tax advisor regarding the United States
federal, state, local, foreign and other tax consequences of owning and
disposing of ordinary shares and ADSs in your

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particular circumstances. In particular, you should confirm whether you qualify
for the benefits of the Treaty and the consequences of failing to do so.

TAXATION OF DIVIDENDS

     If you are a U.S. holder, the gross amount of any dividend we pay out of
our current or accumulated earnings and profits (as determined for United States
federal income tax purposes) is subject to United States federal income
taxation. If you are a noncorporate U.S. holder, dividends paid to you in
taxable years beginning after December 31, 2002 and before January 1, 2009 that
constitute qualified dividend income will be taxable to you at a maximum tax
rate of 15% provided that you hold the ordinary shares or ADSs for more than 60
days during the 120 day period beginning 60 days before the ex-dividend date and
meet other holding period requirements. Dividends we pay with respect to the
ordinary shares or ADSs generally will be qualified dividend income. You must
include any German tax withheld from the dividend payment in this gross amount
even though you do not in fact receive it. The dividend is taxable to you when
you, in the case of ordinary shares, or the depositary, in the case of ADSs,
receive the dividend, actually or constructively. The dividend will not be
eligible for the dividends-received deduction generally allowed to United States
corporations in respect of dividends received from other United States
corporations. The amount of the dividend distribution that you must include in
your income as a U.S. holder will be the U.S. dollar value of the gross dividend
amount, determined at the spot euro/U.S. dollar rate on the date the dividend
distribution is includible in your income, regardless of whether the payment is
in fact converted into U.S. dollars. Generally, any gain or loss resulting from
currency exchange fluctuations during the period from the date you include the
dividend payment in income to the date you convert the payment into U.S. dollars
will be treated as ordinary income or loss and will not be eligible for the
special tax rate applicable to qualified dividend income. The currency gain or
loss generally will be income or loss from sources within the United States for
foreign tax credit limitation purposes. Distributions in excess of current and
accumulated earnings and profits, as determined for United States federal income
tax purposes, will be treated as a return of capital to the extent of your basis
in the ordinary shares or ADSs and thereafter as capital gain.

     Subject to certain limitations, the German tax withheld in accordance with
German law or the Treaty and paid over to Germany will be creditable against
your United States federal income tax liability. To the extent a refund of the
tax withheld is available to you under German law or under the Treaty, the
amount of tax withheld that is refundable will not be eligible for credit
against your United States federal income tax liability. See "-- German
Taxation -- Refund Procedure for U.S. Shareholders," above, for the procedures
for obtaining a tax refund. Special rules apply in determining the foreign tax
credit limitation with respect to dividends that are subject to the maximum 15%
tax rate.

     Dividends constitute income from sources outside the United States, but
generally will be "passive income" or "financial services income" which are
treated separately from other types of income for purposes of computing the
foreign tax credit allowable to you.

TAXATION OF CAPITAL GAINS

     If you are a U.S. holder and sell or otherwise dispose of your ordinary
shares or ADSs, you will recognize capital gain or loss for United States
federal income tax purposes equal to the difference between the U.S. dollar
value of the amount that you realize and your tax basis, determined in U.S.
dollars, in your ordinary shares or ADSs. Capital gain of a non-corporate U.S.
holder that is recognized on or after May 6, 2003 and before January 1, 2009 is
generally taxed at a maximum rate of 15% where the property is held for more
than one year. Gain or loss generally will be treated as arising from sources
within the United States for foreign tax credit limitation purposes.

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                              DOCUMENTS ON DISPLAY

     Allianz AG is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended. In accordance with these requirements, Allianz
AG files reports and other information with the Securities and Exchange
Commission. These materials, including this annual report and the exhibits
thereto, may be inspected and copied at the Commission's Public Reference Room
at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of the materials may
be obtained from the Commission's Public Reference Room at prescribed rates. The
public may obtain information on the operation of the Commission's Public
Reference Room by calling the Commission in the United States at 1-800-SEC-0330.
The Commission also maintains a web site at http://www.sec.gov that contains
reports, proxy statements and other information regarding registrants that file
electronically with the Commission. Allianz AG's annual reports and some of the
other information submitted by Allianz AG to the Commission may be accessed
through this web site. In addition, material filed by Allianz AG can be
inspected at the offices of the New York Stock Exchange at 20 Broad Street, New
York, New York 10005.

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ITEM 11.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     As a provider of financial services, we consider risk management one of our
core competencies. As a result, risk management is an integrated part of our
controlling process, which involves identifying, measuring, aggregating and
managing risks. This process is used to determine how capital is allocated to
our divisions for performance and risk measurement purposes.

                          RISK MANAGEMENT ORGANIZATION

RESPONSIBILITIES

     In our business, successful management essentially means controlling risks
in order to increase the value of the Allianz Group. This is done through
risk-based allocation of capital resources and activities required to achieve
sustainable growth. As a result, Allianz AG's Management Board formulates our
business objectives on the basis of return and risk criteria. These objectives
are implemented by the Allianz Group Center and the local operational units. Our
risk-control strategy involves assignment of responsibility for risk management
to local entities, which operate within the legal frameworks applicable for
their respective locations.

     This decentralized approach is complemented by centralized responsibility.
This is necessary because we need to deal with an accumulation of global risks
which can considerably increase potential risk exposure. As a result, central
controls are essential. The responsibility for central control lies with Group
Risk Controlling, a unit that was expanded in 2002. Central control now also
includes the banking business. Group Controlling assesses the Allianz Group's
risk exposure on the basis of local and global risks. The results of these
analyses are then submitted to senior management. At the same time, Group
Controlling aims to ensure that the processes are transparent and comprehensive.
Risk management activities are supervised by both internal and external
auditors.

RISK CATEGORIES

     Our total risk exposure is subdivided into individual risk categories:

     ACTUARIAL RISKS.  These risks are based on the technicalities of our
insurance business: we must guarantee future payment commitments, and the volume
of such payments must be calculated in advance. Different actuarial risks exist
in the various insurance lines.

     In property and casualty insurance, actuarial risks arise from an
unexpected variance, i.e. the volume of losses exceeds premiums fixed in advance
(premium risk), or the payout for claims made is higher than the corresponding
provisions (reserve risk).

     In life insurance, actuarial risks arise because we are committed to making
guaranteed long-term payments in return for a fixed insurance premium calculated
in advance, even though the biometric data of the population may change over
time (for example, longer life expectancy as a result of medical progress).

     CREDIT AND COUNTERPARTY RISKS.  These risks involve potential losses that
may result from the default of a business partner. "Default" means the inability
or refusal of a counterparty, an issuer or another contracting party to meet
contractual obligations. Credit risk also includes the risk of a deterioration
of a business partner's creditworthiness. It thus includes credit risks from the
lending business and credit insurance, counterparty risks from trading
activities as well as country risks in connection with cross-border transactions
and the local business of foreign units. Counterparty risks from trading
activities relate primarily to derivatives and especially over-the-counter (OTC)
transactions. In the insurance business, these risks stem from the possibility
that receivables may remain unpaid, in particular those due from reinsurers.

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     MARKET RISKS.  Market risks result from portfolio valuation fluctuations
due to changes in share prices, interest rates or exchange rates. Also risk
relevant are changes observed in the variation behavior (volatility) of an asset
price, for example.

     In the banking business, the volatility risk especially concerns trading
activities, which are shown in the institution's trading portfolio. Unlike the
latter, the non-trading portfolio, which contains customer business and
strategic investments, is exposed to long-term factors. In this case, the market
risk is essentially the interest rate risk resulting from granting long-term
fixed-rate loans, which are funded in part by short-term deposits. In addition,
loans and deposits in foreign currencies are exposed to currency risks.

     INVESTMENT RISKS.  Investment risks in the insurance business primarily
include all counterparty and market risks. There is a direct link between
investments and obligations to our customers. Certain insurance lines are
exposed to an interest guarantee risk. Life insurance, for example, must
generate the guaranteed interest payment agreed upon.

     LIQUIDITY RISKS.  These risks can materialize under various circumstances,
for example, if present or future payment obligations cannot be met in full or
as of the due date, or if refinancing capital can only be raised at higher rates
(refinancing risk) in the case of a liquidity crisis or if assets can only be
liquidated below current market prices (market liquidity risk).

     HEALTH INSURANCE RISKS.  Health insurance risks are treated either as
property and casualty insurance risks or as life and health insurance risks,
depending on the segment to which the health insurance is assigned in the given
market.

MANAGEMENT THROUGH RISK CAPITAL

     We control our activities through our respective local companies. Economic
Value Added (EVA) and risk capital are the most important parameters used in the
context of our risk-based controlling process.

     Risk capital is required to cover unexpected losses. The amount of risk
capital is calculated by using internal models. These models are based on
generally accepted quantification methods, which are used for purposes of group
internal risk management as well.

     In the insurance business, we calculate risk capital for premium, reserve,
investment and credit risks. Within these risk categories, we distinguish
between the following types of risks:

     - Actuarial risks, which, in the area of property and casualty insurance,
       include the premium and reserve risks for the various insurance lines.
       Reinsurance is considered separately. In the case of life insurance, we
       calculate the insurance provisions required.

     - Investment risks, which include market and counterparty risks. The market
       risks are subdivided according to dividend-bearing instruments,
       interest-bearing instruments and real estate. The credit and counterparty
       risk as part of investment risks is assessed on the basis of the debtor
       creditworthiness or rating class.

     - Credit and counterparty risks in connection with receivables in the
       insurance business. This risk is mainly assessed on the basis of the
       financial strength or the rating class of our reinsurance partners.

     In 2002, we launched a comprehensive project to substantially improve
internal risk analysis in the insurance business. Our new tools enable us to
systematically evaluate internal data by means of models based on the theory of
probability. This process takes into account the special characteristics of our
local units as well as the specific nature of their risks. It also takes into
account portfolio effects. In the current year, we intend to further develop
this large-scale project. At present, we use risk capital models provided by the
Standard & Poor's rating agency.

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RISK CONTROLLING IN OUR INSURANCE BUSINESS

     To control risks in the insurance business, we focus on premium risks,
reserve risks, credit and counterparty risks and investment risks.

     PREMIUM RISKS.  Premium risks are controlled primarily with the help of
actuarial models used to calculate premiums and monitor claim patterns. In
addition, we issue guidelines for concluding insurance contracts and assuming
insurance risks. In the case of life insurance, we essentially concentrate on
biometric risks -- for example, life expectancy, disability, illness and
long-term care requirements. We also focus on risks that could arise from future
policy cancellations.

     Risk management also includes participation in scientific and technical
loss prevention. We regularly carry out technical studies for the manufacturing
and automobile industries. The purpose of these studies is to reduce the
probability of claims and keep losses to a minimum.

     Natural disasters such as earthquakes, storms and floods represent a
special challenge for risk management. Although they happen considerably less
frequently than other incidents, the consequences can be far more extensive
when, for example, entire regions are devastated. We use special modeling
techniques to control such risks. They involve the collection of data on
earthquakes and weather patterns, which are used to simulate natural disaster
scenarios and estimate the potential for damage.

     RESERVE RISKS.  We must constitute provisions for insurance claims that
have been submitted but not yet settled. The amount is estimated on the basis of
past experience and on the use of statistical methods. We also seek to limit
risks by constantly monitoring the development of these provisions and using the
information we obtain to make forecasts. In the area of life insurance, reserves
are calculated by using actuarial methods. In addition to other criteria, these
calculations take into account the biometric data of the populations insured by
using, for example, national mortality tables. See "Information on the Company
and Operating and Financial Review and Prospects -- Property-Casualty Insurance
Reserves" for a discussion of certain historical data concerning the development
of our property-casualty insurance reserves.

     CREDIT AND COUNTERPARTY RISKS.  To limit our liability from insurance
business we cede part of the risks we assume to the international reinsurance
market when necessary. When selecting our reinsurance partners, we consider only
companies that we judge to offer excellent security. Our Group companies use
comprehensive rating information for the active management of credit risks. This
information is either in the public domain or gathered through internal
investigations.

     INVESTMENT RISKS.  Investments are an integral part of insurance coverage.
They ensure our ability to meet the payment commitments we make in our insurance
contracts. The link between insurance obligations and investment of the capital
related to these obligations is monitored by using specific models. This also
enables us to manage risks arising from interest guarantees provided to our
customers.

     We monitor market risks by means of sensitivity analyses and stress
testing. Exchange rate fluctuations represent a risk that can essentially be
disregarded because our insurance commitments are generally backed by funds in
the same currency. We limit credit risks by setting high requirements on the
creditworthiness of our debtors and by spreading the risk. We consolidate our
exposure according to debtors, and across all investment categories, and use
limit lists to monitor exposure.

     In individual cases, we use derivative financial instruments such as swaps,
options and futures to hedge against changes in prices or interest rates. The
end-users of these derivatives are Allianz Group companies. We believe that our
internal investment and monitoring rules are stricter than the regulations
imposed by supervisory authorities.

                                       208


     Market and counterparty risks arising from the use of derivative financial
instruments are subject to particularly strict control procedures. Credit risks
are assessed by calculating replacement values; market risks are monitored by
means of up-to-date value-at-risk calculations and stress tests and limited by
specifying stop-loss limits.

     We seek to limit liquidity risks by reconciling our investment portfolio
with our insurance commitments. In addition, we plan our cash flow from ordinary
activities. Asset structure and diversification are other elements in our
management of investment risk.

     ORGANIZATIONAL RISK CONTROLLING.  In terms of organization, we seek to
limit our investment risks through a clear separation of management and
controlling functions. Within the Group, risk management is implemented in
cooperation with the local units in a top-down, bottom-up process. The Allianz
Finance Committee, which is made up of members of Allianz AG's Management Board,
delegates significant decision-making authority to the regional Finance
Committees, which monitor activities in their respective regions or countries.
The duties and responsibilities at each decision-making level are defined by
guidelines issued at the Group level. These guidelines are then applied by the
regional Finance Committees, which formulate specific local investment
guidelines. These are adapted according to national legislation and the nature
of the local insurance and capital markets. Operational responsibility for
investment portfolios lies with the local units.

     RISK CAPITAL.  At the end of fiscal 2002, risk capital before minority
interests was composed as follows: In property and casualty insurance E16.1
billion was allocated for actuarial risks, E0.8 billion for credit and
counterparty risks and E3.9 billion for investment risks. Risk capital in life
insurance came to a total of E11.1 billion as of December 31, 2002. It is our
policy that, as a minimum, the capital we allocate to our local units meets the
requirements for an A rating from Standard & Poor's.

RISK CONTROLLING IN OUR BANKING BUSINESS

     In this business segment, the following types of risks are controlled:
credit and counterparty risks including counterparty risks from trading
activities, country risks, market risks in the trading and investment
portfolios, and liquidity risks. See "Information on the Company and Operating
and Financial Review and Prospects -- Selected Statistical Information Relating
to Our Banking Operations" for further information concerning our bank lending,
investment and deposit portfolios.

     CREDIT AND COUNTERPARTY RISKS.  These risks are directly linked to granting
credits in the banking business. Dresdner Bank controls these risks through
guidelines and credit risk committees. The ratings of our customers and their
credit engagements represent the central element used in the approval,
supervisory and control process in the area of credit and derivatives
activities. This process involves analyzing and weighting the various
creditworthiness characteristics of the customers and presenting the results in
the form of rating scales. The forecasting quality, up-to-dateness and portfolio
coverage of the rating methods used are controlled by periodic sampling and
regular reports.

     In the past year, Dresdner Bank increased the number of rating classes from
8 to 16. The first six classes correspond to "investment grade," classes VII to
XIV signify "non-investment grade." Rating classes XV and XVI are default
classes according to the Basel II Definition. At the end of fiscal 2002, about
70 percent of all counterparty risks in the trading and banking portfolios of
Dresdner Bank fell into rating classes I to VI.

     The volume of the overall portfolio is largely determined by the Bank's
trading business, which involves primarily transactions with low default
probability, typically with state and local agencies and financial services
providers. Approximately 85 percent of the transactions with

                                       209


public agencies or organizations are rated in the top risk class I.
Approximately 60 percent of the transactions with financial services providers
fall into risk classes III to V. These two segments represent 56 percent of the
Bank's total portfolio.

     Counterparty risks are now centrally controlled by Dresdner Bank's Risk
Management and Control Committee, which is headed by the Chief Risk Officer of
Dresdner Bank. The newly created body is responsible for issuing the appropriate
guidelines and standards for the risk strategy and risk control of the Dresdner
Bank Group and for ensuring compliance. In addition, the committee decides on
essential projects involving a credit risk. In this context, the Risk Management
and Control Committee oversees the coordination between the risk management of
the company's divisions and the Corporate Center Risk Control Unit. This is done
in close cooperation with Allianz AG's Group Risk Controlling (Allianz Group
Center). In addition, the committee is responsible for the monthly audit of the
overall portfolio. This audit, which is performed in cooperation with the
divisions, is controlled by Risk Controlling. Its purpose is to monitor credit
risks on a continuing basis and to make sure that the management's credit risk
strategy is adhered to.

     In the past year, we set up the IRU in the banking segment. The task of
this unit is to free up risk capital through the reduction of risk-weighted
assets by restructuring non-performing loans to strategic customers with the
intent of returning such loans to the business units from which they originated,
while maximizing the recovery from remaining non-performing loans, as well as
non-strategic customer loans, through repayment, sale, hedging, securitization
and other means. Loans to be bundled together in the IRU are primarily
performing loans to non-strategic clients, such as small-capitalization clients
in Latin America, Asia and the United States, as well as, to a lesser extent,
loans to corporate and private clients that are currently non-performing.

     We account for the development of risks in the lending business by making
allowances for individual risks and country risks. In setting up risk
provisions, we consider the creditworthiness of the borrower, the general
economic environment and risk-reducing measures, for example collateral. In
2002, total risk provisions in the banking business amounted to E7.6 billion.

     COUNTERPARTY RISK FROM TRADING ACTIVITIES.  In the credit-sensitive trading
business with OTC derivatives, the selection of counterparties plays a decisive
role. The selection process is aimed at counterparties with top-quality credit
ratings. In the derivatives portfolios of Dresdner Bank, 95 percent of the
positive replacement values, which are essential for assessing counterparty
risk, involve counterparties in risk classes I to VI as described above and are
thus of "investment grade." To reduce the counterparty risk from trading
activities, so-called cross-product netting master agreements with the business
partners are set up. In the case of a defaulting counterparty, netting makes it
possible to offset any claims and liabilities not yet due.

     COUNTRY RISKS.  We control these risks by using internal country ratings.
These ratings are based upon macroeconomic data and key qualitative indicators.
The latter take into account the economic, social and political environment and
focus on a country's ability to make payments in foreign currencies. At present,
Dresdner Bank's country rating system includes eight risk groups. At the end of
2002, Dresdner Bank's country risk provisions totaled E367 million.

     MARKET RISK.  Dresdner Bank uses a proprietary value-at-risk model that
takes into account both general and specific risks. Value-at-risk is defined as
the potential loss which may occur during a specific period of time and with a
given confidence level. In 1998, the BaFin first approved Dresdner Bank's
value-at-risk model for purposes of reporting in accordance with Principle I of
the German Banking Act. It also approved the improvements made in 2001 and 2002.
The value-at-risk data used to calculate capital adequacy requirements for
regulatory purposes must take into account potential market movements within a
confidence level of 99 percent, based on an assumed holding period of 10 trading
days.

                                       210


     MARKET RISKS IN THE TRADING PORTFOLIO.  The risks from Dresdner Bank's
trading activities decreased in comparison to the previous year. This is mainly
attributable to reduced holdings of interest-bearing instruments.

     To validate the quality of the value-at-risk model, Dresdner Bank performs
regular backtests. For this purpose, the value-at-risk calculated on the basis
of the current position is compared to the actual change in value on the
following day. This shows whether the model used provided an adequate assessment
of the risks.

     For purposes of setting internal limits and risk determination, Dresdner
Bank calculates value-at-risk with a confidence level of 95 percent and a
one-day holding period. Unlike the value-at-risk calculation required by the
supervisory authority, which is based on market data from the past, Dresdner
Bank thus assigns greater weight to the most recent market fluctuation. Dresdner
Bank believes this ensures that value-at-risk data more accurately reflect
current market developments.

     Value-at-risk (or VaR) is only one of the instruments used to characterize
the risk profile of the Dresdner Bank Group. In addition, Dresdner Bank also
uses operational risk indicators and limits, which are specifically adapted to
the risk situation of the trading units. Trading is controlled by setting
value-at-risk and operational market risk limits. Current limit utilization is
determined and monitored by Risk Controlling on a daily basis. Limit breaches
must be immediately indicated to the management concerned so that corrective
action can be taken.

     The following table below shows the VaR for the trading portfolio of
Dresdner Bank at and for the periods indicated (99% confidence level, 10-day
holding period):



                                         AT            2002 ANNUAL STATISTICS            AT
                                    DECEMBER 31,   ------------------------------   DECEMBER 31,
                                        2002       MEAN VALUE   MAXIMUM   MINIMUM       2001
                                    ------------   ----------   -------   -------   ------------
                                                          (E IN MILLIONS)
                                                                     
Aggregate risk....................       81           120         167       35          147
Interest rate risk................       65           101         147       65          124
Equity risk.......................       45            53          83       26           64
Currency/commodity risk...........       13            17         104        2           18
Diversification effect(1).........      (42)          (51)         --       --          (59)


---------------

(1) No diversification effect can be taken into account since the maximum values
    were measured at different dates.

     MARKET RISKS IN THE NON-TRADING PORTFOLIO.  This risk mainly comprises the
risk of interest changes and is analyzed on the basis of sensitivity and
value-at-risk indicators (99% confidence level, 10-day holding period). As in
the case of trading, Dresdner Bank controls this risk by setting value-at-risk
limits. The value-at-risk for interest rate risk in the banking portfolio of
Dresdner Bank Group decreased 67% to E31.9 million at the end of the year. This
indicator also takes into account portfolio effects. The reduction is mainly due
to the deconsolidation of Deutsche Hyp.

     CURRENCY RISKS.  Currency risks at Dresdner Bank are limited by applying
the following principle: all loans and deposits in foreign currencies are
refinanced or reinvested in the same currency with matching maturities.

     LIQUIDITY RISKS.  As part of a Group liquidity policy, Treasury and Risk
Control establishes principles for liquidity management. This policy must meet
both regulatory requirements and internal standards. The liquidity risk limits
include a reporting process for limit breaches and provisions for emergency
planning.

                                       211


     Liquidity risk measurement is based on the liquidity management system.
This system models the maturities of all cash flows and draws up a
scenario-based liquidity balance sheet, taking into account available
prime-rated securities.

     ORGANIZATIONAL RISK CONTROLLING.  At the organizational level, risk
management and risk controlling are strictly separated on the basis of the
principle of dual control. Dresdner Bank's risk management sets the limits for
the company's different activities that are exposed to risks. This is done in
accordance with a general framework approved by the Management Board.

RISK CONTROL IN ASSET MANAGEMENT

     Risk control in asset management is an integral part of the processes of
the local units or the investment platform. The Corporate Center is responsible
for ensuring that Group-wide standards for asset management are applied at the
local level. The individual asset management companies continually monitor the
portfolio risks of the customer assets they manage by using analytical tools
specifically adapted to the risk profile of the product concerned. At the same
time, the performance of the various product lines is periodically monitored and
analyzed at the Group level.

                            MARKET RISK MEASUREMENT

SENSITIVITY ANALYSIS

     The Group uses a risk modeling technique known as "sensitivity analysis" to
show the implications of changes in market conditions on the financial
instruments it holds in its trading and non-trading portfolios. This enables us
to make comparisons across our business segments. Sensitivity analysis measures
the potential loss due to changes in fair values resulting from hypothetical
changes in equity prices, interest rates and foreign currency rates at a given
point in time. Sensitivity analysis generates values representing the risk
inherent in each position under given market conditions. Due to the
standardization of the sensitivity analysis in this risk assessment,
diversification effects are not considered.

ASSUMPTIONS

     In calculating equity price sensitivity, we assume a 20% decrease in stock
prices. This assumption has been made in conformity with applicable German risk
reporting standards.

     Estimates of interest rate risk sensitivity assume a 100 basis point
increase in interest rates. If interest rates rise, the fair values of
interest-sensitive instruments such as bonds, loans and mortgages may fall; the
magnitude of this decrease depends on the maturity, coupon or other
characteristics of a particular instrument. The table below shows the aggregate
effect on the fair value of all of the Group's interest-sensitive investments,
assuming a 100 basis point parallel shift that occurs simultaneously and
instantaneously across all countries, markets and maturities. This assumption
has also been made in conformity with applicable German risk reporting
standards.

     Foreign exchange risk is calculated in a manner similar to equity price
sensitivity, by assuming a 10% decrease in all non-euro currency exchange rates
against the euro. Consequently, the aggregate fair value sensitivity shown in
the table below illustrates the effect on fair values if, simultaneously and
uniformly, all non-euro currencies lose 10% of their value relative to the euro.

     The Group believes that the scenarios used in sensitivity analysis
represent reasonable assumptions based on past observations of market
conditions. Although market fluctuations exceeding 20% or 100 basis points are
possible, the Group believes that estimates based on these assumptions offer a
fair view on the risk inherent in its positions. Although these

                                       212


assumptions are intentionally simplified (for example, they assume static
portfolios and do not take into account that market prices under normal
conditions change neither simultaneously nor by the same magnitude), we believe
they provide a useful framework for our risk management analysis and support our
strategic decisions.

LIMITATIONS

     While the Allianz Group believes that sensitivity analysis provides its
managers with a valid estimation of market risk exposures, it recognizes that
there are certain limitations to the use of this method.

     Price changes in a diversified portfolio have offsetting effects, since
various assets revalue in directions or in magnitudes different to overall
marketplace changes. This is known as the "diversification effect" of holding a
portfolio consisting of different assets. Because sensitivity analysis uses a
generalized methodology, the Group's risk estimates do not take this
diversification effect into account. Actual changes in the fair value of the
Group's assets could be different to those shown in the table below.

     Additionally, routine daily business activity entails a certain amount of
change in the portfolios' composition as bonds mature or as portfolio managers
buy or sell investments. As a result, the actual sensitivity of the Allianz
Group's portfolio will vary at any particular moment in time, and the risk of
loss from equity, interest rate, foreign exchange or other risks cannot be
eliminated, although it can be quantified and monitored.

     Finally, the Group's sensitivity analyses are estimates based on a fixed
point in the past. Nearly all of the Group's assets and liabilities are subject
to market risk from fluctuating equity, interest and foreign exchange market
values. These fluctuations cannot be foreseen and can occur suddenly. The
quantitative risk measurements provided by the model and reflected in the table
below are a snapshot, describing the potential losses to investments under a
particular set of assumptions and parameters. Although these measurements
reflect reasonable possibility, they may differ considerably from actual losses
that may be experienced in the future.

                  ALLIANZ GROUP MARKET RISK EXPOSURE ESTIMATES

TRADING PORTFOLIOS

     The trading portfolios of the Group and resulting market risks relate
primarily to our banking segment. In our worldwide trading activities we use
financial derivatives both as non-standardized financial instruments for the
individual management of market risks and as a component of structured financial
transactions. We use derivatives to manage our proprietary trading portfolio.
Our derivative trading activities focus on interest bearing financial
instruments, predominately interest rate swaps. We also use currency and credit
derivatives as well as equity/ index derivatives.

     INSURANCE OPERATIONS.  Our insurance business does not generally engage in
trading activities. With the adoption of IAS 39 (effective January 1, 2001),
however, derivative instruments that do not meet IFRS hedge accounting standards
are treated as trading derivatives. As a result of this new accounting rule, the
trading portfolio tables below show significant impact from trading not only for
our banking business but also for our insurance business. Derivatives used in
our insurance operations, however, are principally used for portfolio hedging
and not for trading purposes.

     BANKING OPERATIONS.  Our banking segment is active in trading equities,
interest rate instruments and foreign exchange and commodities. Our banking
segment uses derivatives in its trading portfolios primarily to meet customer
demand as well as to hedge market risk. Derivatives are also used to take
advantage of market opportunities. In terms of volume, the primary derivative
products we use are interest rate swaps, futures and options as well as foreign
exchange swaps and equity related derivatives.

                                       213


     The primary exposures in foreign currencies are U.S. dollars and British
pounds sterling.

     The following table shows the sensitivity analysis of the market risk in
our material trading portfolio of the Allianz Group. Certain financial
instruments are included in more than one risk category, because they may be
affected by changes in more than one parameter. For example, equities
denominated in non-euro currencies are affected by fluctuation in both stock
prices and exchange rates. In 2000, prior to the adoption of IAS 39 and our
acquisition of Dresdner Bank, all of our portfolios were considered non-trading.

 SENSITIVITY ANALYSIS BY BUSINESS SEGMENT AND RISK CATEGORY: TRADING PORTFOLIOS
                                (E IN MILLIONS)



                                                          AT DECEMBER 31, 2002
                                        ---------------------------------------------------------
                                        PROPERTY-
                                        CASUALTY    LIFE/HEALTH                  ASSET
                                        INSURANCE    INSURANCE    BANKING(3)   MANAGEMENT   TOTAL
                                        ---------   -----------   ----------   ----------   -----
                                                                             
Equity price risk(1)..................     200          500            --         --         700
Interest rate risk....................      --           --          (100)        --        (100)
Foreign exchange risk(2)..............      --           --           100         --         100




                                                          AT DECEMBER 31, 2001
                                        ---------------------------------------------------------
                                        PROPERTY-
                                        CASUALTY    LIFE/HEALTH                  ASSET
                                        INSURANCE    INSURANCE    BANKING(3)   MANAGEMENT   TOTAL
                                        ---------   -----------   ----------   ----------   -----
                                                                             
Equity price risk(1)..................     300         (200)         (200)        --        (100)
Interest rate risk....................      --           --          (400)        --        (400)
Foreign exchange risk(2)..............    (100)         100           300         --         300


---------------

(1) Amounts do not take into account the Allianz Group's unconsolidated
    subsidiaries, or affiliated enterprises, joint ventures and associated
    enterprises.

(2) Amounts take into account financial instruments not denominated in euros.

(3) Includes Dresdner Bank.

NON-TRADING PORTFOLIOS

     Our remaining portfolios contain all non-trading activities of the banking
segment, as well as the financial investments of the insurance segment. We hold
and use many different financial instruments in managing our businesses. Grouped
according to risk category, the following are the most significant assets
according to their fair values:

     - equity price risk: common shares and preferred shares;

     - interest rate risk: bonds, loans and mortgages; and

     - foreign exchange rate risk: non-euro denominated equities and interest
       rate risk sensitive assets.

     INSURANCE SEGMENT.  The insurance segment's non-trading portfolio is
exposed to foreign exchange risk because some of its assets are denominated in
currencies other than the euro. If non-euro foreign exchange rates decline
against the euro, the fair values of the corresponding assets would also
decline. The insurance segment's primary exposures for foreign exchange risk are
for the U.S. dollar, Swiss franc and the Korean won. Local laws generally
require that the insurance policy obligations of our subsidiaries and the
investments covering them must be in the same currency. As a result, currency
fluctuations in connection with foreign subsidiaries have only a minor impact on
the insurance segment's risk management strategies.

                                       214


     The decline in the equity price risk in 2002 was due to the overall decline
in stock prices. Most of our insurance-related equity investments are intended
to be held for the long term. The equity holdings are primarily in the euro zone
equity markets of Germany, France and Italy, with significant additional
exposures in the U.S., Swiss and U.K. markets.

     The insurance segment is exposed to interest rate risk due to its
investments in fixed-income instruments, in particular bonds, loans and
mortgages. The primary exposures for interest rate sensitivity securities are
for bonds, loans and mortgages held by our German, French, U.S., Italian and
Swiss subsidiaries.

     BANKING SEGMENT.  Our banking operations are subject to currency risk on
all non-euro loans and deposits. For our non-trading activities, it is our
policy that all loans and deposits in foreign currencies be funded and
reinvested in the same currency and with matching maturities. Any residual
currency risk in non-trading portfolios results primarily from developments in
results of affiliated companies outside of the euro-zone during the year.

     The non-trading portfolio of the banking segment with respect to interest
rate risk includes all loans and deposits, issued securities, interest
rate-related investment securities as well as corresponding hedges of Dresdner
Bank. Market risk associated with these positions is primarily interest rate
risk resulting from long-term fixed rate loans, which are funded in part by
short-term deposits. On the bank's non-trading books, interest rate derivatives
are used to hedge risk associated with fixed rate loans. For this purpose, the
bank primarily uses interest rate swaps. Futures and options are also used for
asset and liability management in the non-trading activities, albeit to a
significantly smaller degree. We also use swaptions to hedge risk arising from a
borrower's prepayment options under some loan agreements. A small volume of
equity derivatives is held due to investments in shares from affiliated and
non-affiliated companies.

     Most of our equity investments are intended to be held for long term.
Equity holdings in the banking segment are primarily in the German market. The
following table shows a sensitivity analysis of the market risk in our material
non-trading portfolios. Certain financial instruments are included in more than
one risk category, because they may be affected by changes in more than one
parameter.

    SENSITIVITY ANALYSIS BY BUSINESS SEGMENT AND RISK CATEGORY: NON-TRADING
                                   PORTFOLIOS



                                                        AT DECEMBER 31, 2002
                                     -----------------------------------------------------------
                                     PROPERTY-
                                     CASUALTY    LIFE/HEALTH                  ASSET
                                     INSURANCE    INSURANCE    BANKING(3)   MANAGEMENT    TOTAL
                                     ---------   -----------   ----------   ----------   -------
                                                           (E IN MILLIONS)
                                                                          
Equity price risk(1)...............   (4,400)      (5,200)       (1,000)         --      (10,600)
Interest rate risk.................   (2,500)      (9,800)         (400)       (100)     (12,800)
Foreign exchange risk(2)...........   (2,700)      (3,800)           --          --       (6,500)




                                                        AT DECEMBER 31, 2001
                                     -----------------------------------------------------------
                                     PROPERTY-
                                     CASUALTY    LIFE/HEALTH                  ASSET
                                     INSURANCE    INSURANCE    BANKING(3)   MANAGEMENT    TOTAL
                                     ---------   -----------   ----------   ----------   -------
                                                           (E IN MILLIONS)
                                                                          
Equity price risk(1)...............   (5,900)      (7,600)       (2,800)       (100)     (16,400)
Interest rate risk.................   (2,400)      (8,500)         (400)       (200)     (11,500)
Foreign exchange risk(2)...........   (2,600)      (2,600)           --          --       (5,200)


---------------

(1) Amounts do not take into account unconsolidated subsidiaries of the Allianz
    Group, or affiliated enterprises, joint ventures and associated enterprises.

(2) Amounts take into account financial instruments in foreign currency.

(3) Includes Dresdner Bank.

                                       215


OPERATIONAL RISKS

     OPERATIONAL RISKS.  Operational risks are risks caused by inadequacies or
faults in business processes or controls. These may be related to technical
problems or employees, operational structures or external influences. We seek to
minimize such risks by installing a comprehensive system of internal controls
and security systems in each operating unit. Operational risks are limited by a
wide range of technical and organizational measures such as redundant hardware
configurations, communications equipment and systems, back-up computing
facilities, and data backups to maintain IT capability in emergencies. In
addition, procedures are in place for safeguarding the confidentiality and
integrity of stored data and information. For this purpose, high-performance
firewall systems were introduced to protect the IT network against external
interference along with access authorization procedures, supervision and control
processes. The principle of dual control is adhered to in the case of operating
procedures. The purpose of these measures is to ensure and document an adequate
standard for Group-internal processes.

     LEGAL RISKS.  Legal risks result from contractual agreements or legal
frameworks. They include risks from the adoption of new statutory regulations,
disadvantageous amendments to existing legislation or regulations or prejudicial
changes in their interpretation. Legal risks also take into account the
possibility that contractual agreements may not be enforceable through legal
action or court proceedings. The limitation of legal risks is an important task
of our Legal Department. This is done, for example, by using internationally
recognized standard documentation and, if necessary, by obtaining legal
opinions. Contracts for established products are continuously reviewed to
include any amendments required by changes in legislation or jurisdiction. In
addition, our Legal Department assists Group companies in matters pertaining to
business transactions and contractual negotiations to ensure compliance with
minimum standards. It also supports the management and supervisory bodies of
Allianz in meeting their statutory obligations.

RISK MONITORING BY THIRD PARTIES

     Supervisory authorities and rating agencies are additional risk monitoring
bodies. Supervisory authorities specify the minimum precautions that must be
taken in individual countries and at the international level. Rating agencies
determine the relationship between the required risk capital of a company and
the available safeguards. In their evaluation of capital resources, the rating
agencies include equity shown in the balance sheet, minority interests and other
items representing additional securities in times of crisis. In addition to
capital resources, the rating process also takes into account elements such as,
the strategic position of the company in individual business areas and markets
as well as its medium-term business prospects.

                                       216


ITEM 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

     Not applicable.

                                       217


                                    PART II

ITEM 13.  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

     None.

ITEM 14.  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
          PROCEEDS

     None.

ITEM 15.  CONTROLS AND PROCEDURES

     The Chairman of the Management Board (Chief Executive Officer) and the
Member of the Management Board responsible for Group Controlling, Accounting,
Taxation and Compliance (Chief Financial Officer), with the assistance of other
members of management, performed an evaluation of our disclosure controls and
procedures, as that term is defined in Rule 13a-14(c) of the Securities Exchange
Act of 1934, as amended, within 90 days prior to the filing date of this report.
Based on that evaluation, they concluded that our disclosure controls and
procedures are effective to ensure that information required to be disclosed in
this report is recorded, processed, summarized and reported on a timely basis.
There were no significant changes in our internal controls or in other factors
that could significantly affect internal controls subsequent to the date of the
evaluation. No significant deficiencies and material weaknesses were identified
that required corrective actions.

ITEM 16A.  AUDIT COMMITTEE FINANCIAL EXPERT

     Not applicable.

ITEM 16B.  CODE OF ETHICS

     Not applicable.

ITEM 16C.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

     Not applicable.

                                       218


                                    PART III

ITEM 17.  FINANCIAL STATEMENTS

     Not applicable.

ITEM 18.  FINANCIAL STATEMENTS

     See pages F-1 forward for the consolidated financial statements required by
this item.

ITEM 19.  EXHIBITS

     The following exhibits are filed as part of this annual report:



EXHIBIT
NUMBER                              DOCUMENT
-------                             --------
       
  1.1     Articles of Association
  4.1     Principles of Cooperation between Allianz AG and Munich Re,
          dated May 2000*
  4.2     Letter of Intent between Allianz AG and Munich Re, dated May
          4, 2000**
  4.3     Agreement in Principle between Allianz AG and Munich Re,
          dated April 4, 2001***
  4.4     Basic Agreement between Allianz AG and Dresdner Bank, dated
          March 31, 2001****
  4.5     First Supplement to Principles of Cooperation between
          Allianz AG and Munich Re, dated December 2001 *****
  4.6     Second Supplement to Principles of Cooperation between
          Allianz AG and Munich Re, dated December 19, 2002
  4.7     Third Supplement to Principles of Cooperation between
          Allianz AG and Munich Re, dated March 20, 2003
  8.1     List of subsidiaries


---------------
     * Incorporated by reference to Exhibit 3.1 to the Registrant's Registration
       Statement on Form 20-F (File No. 1-15154).

    ** Incorporated by reference to Exhibit 3.2 to the Registrant's Registration
       Statement on Form 20-F (File No. 1-15154).

  *** Incorporated by reference to Exhibit 4.3 to the Registrant's Annual Report
      on Form 20-F for the year ended December 31, 2000.

 **** Incorporated by reference to Exhibit 4.4 to the Registrant's Annual Report
      on Form 20-F for the year ended December 31, 2000.

***** Incorporated by reference to Exhibit 4.5 to the Registrant's Annual Report
      on Form 20-F for the year ended December 31, 2001.

                                       219


                                 ALLIANZ GROUP

            INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES



                                                              PAGE
                                                              ----
                                                           
Independent Auditors' Report................................    F-2
Consolidated Balance Sheets as of December 31, 2002 and
  2001......................................................    F-3
Consolidated Income Statements for each of the years in the
  three-year period ended December 31, 2002.................    F-4
Consolidated Statements of Movements in Shareholders' Equity
  for each of the years in the three-year period ended
  December 31, 2002.........................................    F-5
Consolidated Cash Flow Statements for each of the years in
  the three-year period ended December 31, 2002.............    F-6
Notes to the Consolidated Financial Statements:
  Business Segment Information:
     Consolidated Balance Sheets as of December 31, 2002 and
      2001..................................................    F-8
     Consolidated Income Statements for each of the years in
      the three-year period ended December 31, 2002.........   F-10
     Insurance..............................................   F-12
     Banking................................................   F-14
  Accounting Regulations....................................   F-15
  Changes to the Accounting, Valuation and Reporting
     Policies...............................................   F-15
  Consolidation.............................................   F-16
  Accounting and Valuation Policies.........................   F-19
  Supplementary Information on Group Assets.................   F-35
  Supplementary Information on Group Liabilities and
     Equity.................................................   F-52
  Supplementary Information on the Consolidated Income
     Statement..............................................   F-72
  Other Information.........................................  F-106
  Summary of Significant Differences between the Accounting
     Principles used in the Preparation of the Consolidated
     Financial Statements and Accounting Principles
     Generally Accepted in the United States of America.....  F-112
  Selected subsidiaries and other holdings..................  F-130
Schedules:
  Schedule I Summary of Investments.........................    S-1
  Schedule II Condensed Financial Information of the
     Registrant.............................................    S-3
  Schedule III Supplementary Insurance Information..........    S-6
  Schedule IV Supplementary Reinsurance Information.........    S-8


     Schedule of Valuation and Qualifying Accounts excluded as account balances
are not material.

                                       F-1


[KPMG Logo]

                          INDEPENDENT AUDITORS' REPORT

To the Management Board and Supervisory Board of Allianz Aktiengesellschaft:

     We have audited the accompanying consolidated balance sheets of Allianz
Aktiengesellschaft and its subsidiaries (collectively, "the Allianz Group") as
of December 31, 2002 and 2001, and the related consolidated statements of
income, movements in shareholders' equity and cash flows for each of the years
in the three-year period ended December 31, 2002. In connection with our audits
of the consolidated financial statements we have also audited the accompanying
financial statement schedules. These consolidated financial statements and
financial statement schedules are the responsibility of Allianz Group's
management. Our responsibility is to express an opinion on these consolidated
financial statements and financial statement schedules based on our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Allianz
Group as of December 31, 2002 and 2001, and the results of their operations and
their cash flows for each of the years in the three-year period ended December
31, 2002, in conformity with International Financial Reporting Standards. Also,
in our opinion, the related financial statement schedules referred to above,
when considered in relation to the basic consolidated financial statements taken
as a whole, present fairly, in all material respects, the information set forth
therein.

     International Financial Reporting Standards vary in certain significant
respects from accounting principles generally accepted in the United States of
America (US GAAP). Application of accounting principles generally accepted in
the United States of America would have affected results of operations for each
of the years in the three-year period ended December 31, 2002 and shareholders'
equity as of December 31, 2002 and 2001 to the extent summarized in Note 45 to
the consolidated financial statements.

                              /s/ KPMG Deutsche Treuhand-Gesellschaft
                                  Aktiengesellschaft
                                  Wirtschaftsprufungsgesellschaft

                              KPMG Deutsche Treuhand-Gesellschaft
                              Aktiengesellschaft
                              Wirtschaftsprufungsgesellschaft

Munich, Germany
July 11, 2003

                                       F-2


                                 ALLIANZ GROUP

                          CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2002 AND 2001



                                                                      2002      2001
                                                              NOTE    E(MN)     E(MN)
                                                              ----   -------   -------
                                                                      
ASSETS
A.  Intangible assets.......................................    5     18,273    16,911
B.  Investments in affiliated enterprises, joint ventures
      and associated enterprises............................    6     11,345    10,247
C.  Investments.............................................    7    285,340   345,302
D.  Investments held on account and at risk of life
      insurance policyholders...............................          25,657    24,692
E.  Loans and advances to banks.............................    8     86,822    61,274
F.  Loans and advances to customers.........................    8    188,084   239,693
G.  Trading assets..........................................    9    124,842   128,422
H.  Cash and cash equivalents...............................   10     21,008    21,240
I.   Amounts ceded to reinsurers from insurance reserves....   11     28,420    30,999
J.  Deferred tax assets.....................................   37     13,258     8,415
K.  Other assets............................................   12     49,007    55,730
                                                                     -------   -------
               Total assets.................................         852,056   942,925
                                                                     =======   =======
EQUITY AND LIABILITIES
A.  Shareholders' equity....................................   13     21,772    31,664
B.  Minority interests in shareholders' equity..............   14      8,165    17,349
C.  Participation certificates and subordinated
      liabilities...........................................   15     14,174    12,207
D.  Insurance reserves......................................   16    305,763   299,512
E.  Insurance reserves for life insurance where the
      investment risk is carried by policyholders...........          25,687    24,726
F.  Liabilities to banks....................................   17    137,332   135,402
G.  Liabilities to customers................................   18    147,266   177,323
H.  Certificated liabilities................................   19     78,750   134,670
I.   Trading liabilities....................................   20     53,520    44,538
J.  Other accrued liabilities...............................   21     13,069    14,117
K.  Other liabilities.......................................   22     31,360    37,236
L.  Deferred tax liabilities................................   37     12,188     8,898
M.  Deferred income.........................................   23      3,010     5,283
                                                                     -------   -------
               Total equity and liabilities.................         852,056   942,925
                                                                     =======   =======


        See accompanying notes to the consolidated financial statements.
                                       F-3


                                 ALLIANZ GROUP

                         CONSOLIDATED INCOME STATEMENTS
                  YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000



                                                                 2002      2001      2000
                                                         NOTE    E(MN)     E(MN)     E(MN)
                                                         ----   -------   -------   -------
                                                                        
1.  Premiums earned (net)..............................   24     55,133    52,745    49,907
2.  Interest and similar income........................   25     28,210    24,224    16,595
3.  Income (net) from investments in affiliated
       enterprises, joint ventures and associated
       enterprises.....................................   26      4,398     1,588     1,860
4.  Other income from investments......................   27      9,355     8,502    10,945
5.  Trading income.....................................   28      1,507     1,592       (36)
6.  Fee and commission income, and income from service
       activities......................................   29      6,102     4,827     2,187
7.  Other income                                          30      2,971     2,172     2,331
                                                                -------   -------   -------
               Total income (1. to 7.).................         107,676    95,650    83,789
                                                                -------   -------   -------
8.  Insurance benefits (net)...........................   31     50,229    50,154    51,738
9.  Interest and similar expenses......................   32     10,651     7,861     2,399
10. Other expenses for investments.....................   33     14,102     8,923     4,949
11. Loan loss provisions...............................   34      2,241       596        21
12. Acquisition costs and administrative expenses......   35     24,407    19,324    13,679
13. Amortization of goodwill...........................    5      1,162       808       495
14. Other expenses.....................................   36      6,098     6,157     5,595
                                                                -------   -------   -------
               Total expenses (8. to 14.)..............         108,890    93,823    78,876
                                                                -------   -------   -------
15. Earnings from ordinary activities before taxes.....          (1,214)    1,827     4,913
16. Taxes (benefit)....................................   37       (735)     (840)      176
17. Minority interests in earnings.....................   14        688     1,044     1,277
                                                                -------   -------   -------
18. Net income.........................................          (1,167)    1,623     3,460
                                                                =======   =======   =======
                                                                   E         E         E
                                                                -------   -------   -------
     Basic earnings per share..........................   44      (4.81)     6.66     14.10
                                                                =======   =======   =======
     Diluted earnings per share........................   44      (4.81)     6.66     14.10
                                                                =======   =======   =======


        See accompanying notes to the consolidated financial statements.
                                       F-4


                                 ALLIANZ GROUP

          CONSOLIDATED STATEMENTS OF MOVEMENTS IN SHAREHOLDERS' EQUITY
                  YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000



                                                              UNREALIZED
                                                                GAINS        CONSOLIDATED
                                        PAID-IN   REVENUE        AND        UNAPPROPRIATED   SHAREHOLDERS'
                                        CAPITAL   RESERVES   LOSSES (NET)       PROFIT           EQUITY
                                         E(MN)     E(MN)        E(MN)           E(MN)            E(MN)
                                        -------   --------   ------------   --------------   --------------
                                                                              
Beginning balance January 1, 2000.....   7,811      9,884       11,626            355            29,676
Currency translation adjustments......      --        374           77             --               451
Changes in the group of consolidated
  companies...........................      --        283           --             --               283
Capital paid in.......................     183         --           --             --               183
Unrealized investment gains and
  losses..............................      --         --        1,745             --             1,745
Net income for the year...............      --      3,027           --            433             3,460
Shareholders' dividend................      --         --           --           (306)             (306)
Miscellaneous.........................      --        160           --            (49)              111
                                        ------     ------       ------          -----            ------
Balance as of December 31, 2000.......   7,994     13,728       13,448            433            35,603
                                        ------     ------       ------          -----            ------
Currency translation adjustments......      --       (127)          38             --               (89)
Changes in the group of consolidated
  companies...........................      --       (554)          --             --              (554)
Capital paid in.......................   6,775         --           --             --             6,775
Treasury stock........................      --     (5,801)          --             --            (5,801)
Unrealized investment gains and
  losses..............................      --         --       (5,210)            --            (5,210)
Net income for the year...............      --      1,213           --            410             1,623
Shareholders' dividend................      --         --           --           (367)             (367)
Miscellaneous.........................      --       (250)          --            (66)             (316)
                                        ------     ------       ------          -----            ------
Balance as of December 31, 2001.......  14,769      8,209        8,276            410            31,664
                                        ------     ------       ------          -----            ------
Currency translation adjustments......      --     (1,232)         (29)            --            (1,261)
Changes in the group of consolidated
  companies...........................      --        364           --             --               364
Capital paid in.......................      16         --           --             --                16
Treasury stock........................      --       (157)          --             --              (157)
Unrealized investment gains and
  losses..............................      --         --       (7,198)            --            (7,198)
Net income for the year...............      --     (2,332)          --          1,165            (1,167)
Shareholders' dividend................      --         --           --           (364)             (364)
Miscellaneous.........................      --        (79)          --            (46)             (125)
                                        ------     ------       ------          -----            ------
Balance as of December 31, 2002.......  14,785      4,773        1,049          1,165            21,772
                                        ======     ======       ======          =====            ======


        See accompanying notes to the consolidated financial statements.
                                       F-5


                                 ALLIANZ GROUP
                       CONSOLIDATED CASH FLOW STATEMENTS
                  YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000



                                                               2002       2001       2000
                                                               E(MN)      E(MN)      E(MN)
                                                              -------    -------    -------
                                                                           
Operating activities
Net income for the year.....................................   (1,167)     1,623      3,460
Change in unearned premiums.................................      542        949       (674)
Change in aggregate policy reserves (without aggregate
  policy reserves for life insurance products in accordance
  with SFAS 97).............................................    6,039      6,859      6,550
Change in reserve for loss and loss adjustment expenses.....    2,530      3,375      2,715
Change in other insurance reserves (without change in the
  reserve for latent premium refunds from unrealized
  investment gains and losses)..............................   (4,241)    (4,007)     2,227
Change in deferred acquisition costs........................   (1,211)      (662)    (1,093)
Change in funds held by others under reinsurance business
  assumed...................................................    1,349       (171)        66
Change in funds held under reinsurance business ceded.......     (192)      (278)       483
Change in accounts receivable/payable on reinsurance
  business..................................................      232         (4)      (604)
Change in trading securities (including trading
  liabilities)..............................................   14,064    (12,544)        46
Change in loans and advances to banks and customers.........   (5,846)     3,442     (3,694)
Change in liabilities to banks and customers................   (8,215)    (5,456)       836
Change in certificated liabilities..........................   (1,727)     3,130      2,642
Change in other receivables and liabilities.................   (1,399)     3,843     (1,408)
Change in deferred tax assets/liabilities (without change in
  deferred tax assets/liabilities from unrealized investment
  gains and losses).........................................   (1,295)    (2,181)    (2,226)
Adjustment for investment income/expenses not involving
  movements of cash.........................................      175        112     (7,525)
Adjustments to reconcile amortization of goodwill...........    1,162        808        495
Other.......................................................   (1,470)       387        180
                                                              -------    -------    -------
Net cash flow (used in) provided by operating activities:...     (670)      (775)     2,476
                                                              -------    -------    -------
Investing activities
Change in securities available for sale.....................   (7,073)    (3,465)    (7,271)
Change in investments held to maturity......................    1,092        383        634
Change in real estate.......................................    2,226        112       (287)
Change in other investments.................................    1,681      2,692       (416)
Change in cash and cash equivalents from the acquisition of
  consolidated affiliated companies.........................  (10,787)    12,114     (3,054)
Other.......................................................     (919)      (441)    (1,389)
                                                              -------    -------    -------
Net cash flow (used in) provided by investing activities:...  (13,780)    11,395    (11,783)
                                                              -------    -------    -------
Financing activities
Change in participation certificates and subordinated
  liabilities...............................................    2,784       (770)     1,714
Change in investments held on account and at risk of life
  insurance policyholders...................................   (2,154)    (1,465)    (1,942)
Change in aggregate policy reserves for life insurance
  products according to SFAS 97.............................   10,808      8,089      6,770
Cash inflow from capital increases..........................       16        275        184
Dividend payouts............................................     (682)      (673)      (613)
Other from shareholders' capital and minority interests
  (without change in revenue reserve from unrealized
  investment gains and losses)..............................    3,555        937      3,464
                                                              -------    -------    -------
Net cash flow provided by financing activities..............   14,327      6,393      9,577
                                                              -------    -------    -------
Effect of exchange rate changes on cash and cash
  equivalents...............................................     (109)        18          9
                                                              -------    -------    -------
Change in cash and cash equivalents.........................     (232)    17,031        279
                                                              -------    -------    -------
Cash and cash equivalents at beginning of period............   21,240      4,209      3,930
                                                              -------    -------    -------
Cash and cash equivalents at end of period..................   21,008     21,240      4,209
                                                              =======    =======    =======


        See accompanying notes to the consolidated financial statements.
                                       F-6


                      [THIS PAGE INTENTIONALLY LEFT BLANK]

                                       F-7


                                 ALLIANZ GROUP

                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS:
          BUSINESS SEGMENT INFORMATION -- CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2002 AND 2001



                                                     PROPERTY-
                                                     CASUALTY           LIFE/HEALTH           BANKING
                                                 -----------------   -----------------   -----------------
                                                  2002      2001      2002      2001      2002      2001
                                                  E(MN)     E(MN)     E(MN)     E(MN)     E(MN)     E(MN)
                                                  -----     -----     -----     -----     -----     -----
                                                                              
ASSETS
A.     Intangible assets.......................    2,960     2,943     4,817     4,005     3,509     3,183
B.     Investments in affiliated enterprises,
         joint ventures and associated
         enterprises...........................   51,448    40,387     6,183     6,043     4,349     2,079
C.     Investments.............................   76,855    91,712   189,172   180,076    28,965    85,133
D.     Investments held on account and at risk
         of life insurance policyholders.......       --        --    25,657    24,692        --        --
E.     Loans and advances to banks.............    5,219     5,079     3,490     1,010    76,748    54,271
F.     Loans and advances to customers.........    2,882     2,837    24,747    24,843   168,919   222,916
G.     Trading assets..........................    1,404     1,373     1,177       775   122,139   125,741
H.     Cash and cash equivalents...............    2,880     2,617     2,267     2,351    16,322    16,244
I.     Amounts ceded to reinsurers from
         insurance reserves....................   17,188    19,209    17,623    17,927        --        --
J.     Deferred tax assets.....................    7,410     5,060     2,601     1,911     3,161     1,350
K.     Other assets............................   21,482    22,840    17,320    17,634    15,416    14,977
                                                 -------   -------   -------   -------   -------   -------
             Total segment assets..............  189,728   194,057   295,054   281,267   439,528   525,894
                                                 =======   =======   =======   =======   =======   =======
EQUITY AND LIABILITIES
A.     Participation certificates and
         subordinated liabilities..............    4,342       573        --        --     9,846    11,757
B.     Insurance reserves......................   87,557    90,432   224,673   215,217        --        --
C.     Insurance reserves for life insurance
         where the investment risk is carried
         by Policyholders......................       --        --    25,687    24,726        --        --
D.     Liabilities to banks....................    5,166     6,303     1,708     2,143   130,568   131,454
E.     Liabilities to customers................       --        --        --        --   146,945   175,228
F.     Certificated liabilities................   19,031    14,727       263       229    64,569   122,713
G.     Trading liabilities.....................      544       448       825        50    52,152    44,052
H.     Other accrued liabilities...............    5,626     5,387       850       967     5,984     7,130
I.     Other liabilities.......................   18,312    21,624    20,555    19,963     5,468     4,134
J.     Deferred tax liabilities................    7,356     5,920     2,551     1,958     2,220       980
K.     Deferred income.........................      104        84       354       406     2,545     4,793
                                                 -------   -------   -------   -------   -------   -------
             Total segment liabilities.........  148,038   145,498   277,466   265,659   420,297   502,241
                                                 =======   =======   =======   =======   =======   =======
       Shareholders' equity and minority interests........................................................
             Total equity and liabilities.................................................................


                                       F-8




       ASSET            CONSOLIDATION
     MANAGEMENT          ADJUSTMENTS              GROUP
  ----------------    ------------------    ------------------
   2002      2001      2002       2001       2002       2001
  E(MN)     E(MN)      E(MN)      E(MN)      E(MN)      E(MN)
  -----     -----      -----      -----      -----      -----
                                        
   6,987     6,780         --         --     18,273     16,911
      20       116    (50,655)   (38,378)    11,345     10,247
     993     1,362    (10,645)   (12,981)   285,340    345,302
      --        --         --         --     25,657     24,692
   1,863     1,646       (498)      (732)    86,822     61,274
     228       561     (8,692)   (11,464)   188,084    239,693
     156       539        (34)        (6)   124,842    128,422
     940       550     (1,401)      (522)    21,008     21,240
      --        --     (6,391)    (6,137)    28,420     30,999
      86        94         --         --     13,258      8,415
   3,672     2,589     (8,883)    (2,310)    49,007     55,730
  ------    ------    -------    -------    -------    -------
  14,945    14,237    (87,199)   (72,530)   852,056    942,925
  ======    ======    =======    =======    =======    =======
      --        22        (14)      (145)    14,174     12,207
      --        --     (6,467)    (6,137)   305,763    299,512
      --        --         --         --     25,687     24,726
     177     1,554       (287)    (6,052)   137,332    135,402
   2,754     2,981     (2,433)      (886)   147,266    177,323
     435       435     (5,548)    (3,434)    78,750    134,670
      --         2         (1)       (14)    53,520     44,538
     609       633         --         --     13,069     14,117
   1,239     1,413    (14,214)    (9,898)    31,360     37,236
      61        40         --         --     12,188      8,898
       7        --         --         --      3,010      5,283
  ------    ------    -------    -------    -------    -------
   5,282     7,080    (28,964)   (26,566)   822,119    893,912
  ======    ======    =======    =======    =======    =======
                                             29,937     49,013
                                            =======    =======
                                            852,056    942,925
                                            =======    =======


                                       F-9


                                 ALLIANZ GROUP

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
         BUSINESS SEGMENT INFORMATION -- CONSOLIDATED INCOME STATEMENTS
                  YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000



                                   PROPERTY/CASUALTY             LIFE/HEALTH                  BANKING
                                ------------------------   ------------------------   -----------------------
                                 2002     2001     2000     2002     2001     2000     2002     2001    2000
                                E(MN)    E(MN)    E(MN)    E(MN)    E(MN)    E(MN)    E(MN)    E(MN)    E(MN)
                                -----    -----    -----    -----    -----    -----    -----    -----    -----
                                                                             
1.  Premiums earned (net).....  36,458   34,428   31,529   18,675   18,317   18,378       --       --      --
2.  Interest and similar
    income....................   4,473    5,068    5,568   11,215   10,765   10,152   13,336    9,085   1,502
3.  Income (net) from
    affiliated enterprises,
    joint ventures and
    associated enterprises....   8,494      889    1,833      445      525      693    2,071    1,016     122
4.  Other income from
    investments...............   3,652    4,307    4,259    4,932    3,562    6,667    1,430      628      25
5.  Trading income............     207    1,451      (10)     244     (117)     (49)   1,081      244       7
6.  Fee and commission income,
    and income from service
    activities................     521    1,425      940      200      268      271    2,925    1,474       2
7.  Other income..............   1,751    1,202    1,078      825      772    1,139      432      308      64
                                ------   ------   ------   ------   ------   ------   ------   ------   -----
      Total income
         (1. to 7.)...........  55,556   48,770   45,197   36,536   34,092   37,251   21,275   12,755   1,722
                                ------   ------   ------   ------   ------   ------   ------   ------   -----
8.  Insurance benefits
    (net).....................  28,974   28,200   25,413   21,284   21,979   26,354       --       --      --
9.  Interest and similar
    expenses..................   1,564    1,323    1,136      434      492      148    9,509    6,766   1,257
10. Other expenses for
    investments...............   3,567    2,888    1,913    8,656    5,537    3,004    2,225      465      33
11. Loan loss provisions......       7        4       --       10        4       --    2,222      588      21
12. Acquisition costs and
    administrative expenses...  10,521   10,042    9,106    4,263    4,259    3,927    7,581    3,446     170
13. Amortization of
    goodwill..................     370      349      277      174      146      137      241       70      (8)
14. Other expenses............   2,999    3,555    3,453    1,806    1,263    2,055    1,034    1,193     125
                                ------   ------   ------   ------   ------   ------   ------   ------   -----
      Total expenses
         (8. to 14.)..........  48,002   46,361   41,298   36,627   33,680   35,625   22,812   12,528   1,598
                                ------   ------   ------   ------   ------   ------   ------   ------   -----
15. Earnings from ordinary
    activities before taxes...   7,554    2,409    3,899      (91)     412    1,626   (1,537)     227     124
16. Taxes (benefit)...........    (469)    (701)      (5)      67       99      343     (154)      (6)    (67)
17. Minority interests in
    earnings..................     816      746      642     (177)      84      658      (25)     453      90
                                ------   ------   ------   ------   ------   ------   ------   ------   -----
18. Net income................   7,207    2,364    3,262       19      229      625   (1,358)    (220)    101
                                ======   ======   ======   ======   ======   ======   ======   ======   =====


                                       F-10




                        ASSET MANAGEMENT       CONSOLIDATION ADJUSTMENTS              GROUP
                      ---------------------   ---------------------------   -------------------------
                      2002    2001    2000     2002      2001      2000      2002      2001     2000
                      E(MN)   E(MN)   E(MN)    E(MN)     E(MN)     E(MN)     E(MN)    E(MN)    E(MN)
                      -----   -----   -----    -----     -----     -----     -----    -----    -----
                                                                    
                         --      --      --       --        --        --     55,133   52,745   49,907
                        119     129     204     (933)     (823)     (831)    28,210   24,224   16,595
                        (12)     (3)      1   (6,600)     (839)     (789)     4,398    1,588    1,860
                         35      44      18     (694)      (39)      (24)     9,355    8,502   10,945
                         (1)     10      16      (24)        4        --      1,507    1,592      (36)
                      2,918   2,479   1,420     (462)     (819)     (446)     6,102    4,827    2,187
                        126      79      63     (163)     (189)      (13)     2,971    2,172    2,331
                      -----   -----   -----   ------    ------    ------    -------   ------   ------
                      3,185   2,738   1,722   (8,876)   (2,705)   (2,103)   107,676   95,650   83,789
                      -----   -----   -----   ------    ------    ------    -------   ------   ------
                         --      --      --      (29)      (25)      (29)    50,229   50,154   51,738
                         89      82      61     (945)     (802)     (203)    10,651    7,861    2,399
                         22      57      --     (368)      (24)       (1)    14,102    8,923    4,949
                          2      --      --       --        --        --      2,241      596       21
                      2,378   1,895     484     (336)     (318)       (8)    24,407   19,324   13,679
                        377     243      89       --        --        --      1,162      808      495
                        551     795   1,043     (292)     (649)   (1,081)     6,098    6,157    5,595
                      -----   -----   -----   ------    ------    ------    -------   ------   ------
                      3,419   3,072   1,677   (1,970)   (1,818)   (1,322)   108,890   93,823   78,876
                      -----   -----   -----   ------    ------    ------    -------   ------   ------
                       (234)   (334)     45   (6,906)     (887)     (781)    (1,214)   1,827    4,913
                        (59)   (168)     (4)    (120)      (64)      (91)      (735)    (840)     176
                        230     182     136     (156)     (421)     (249)       688    1,044    1,277
                      -----   -----   -----   ------    ------    ------    -------   ------   ------
                       (405)   (348)    (87)  (6,630)     (402)     (441)    (1,167)   1,623    3,460
                      =====   =====   =====   ======    ======    ======    =======   ======   ======


                                       F-11


                                 ALLIANZ GROUP

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                   BUSINESS SEGMENT INFORMATION -- INSURANCE
                        DECEMBER 31, 2002, 2001 AND 2000



                                                                                        NET EXPENSE
                                                            PREMIUMS EARNED (NET)         RATIO(1)
                                                            ----------------------    ----------------
                                                             2002    2001    2000     2002  2001  2000
                                                            E(MN)   E(MN)   E(MN)      %     %     %
                                                            -----   -----   -----     ----  ----  ----
                                                                             
PROPERTY/CASUALTY
1.   Europe
       Germany(4).........................................  10,265  10,035   9,617    28.3  26.9  24.2
       France(4)..........................................   4,066   3,746   3,644    26.4  30.0  28.1
       Great Britain......................................   1,875   1,765   1,604    30.0  31.0  33.4
       Italy..............................................   4,490   4,181   3,956    22.7  22.5  21.6
       Switzerland........................................   1,611   1,599   1,514    23.8  26.9  30.9
       Spain..............................................   1,171   1,027     915    20.6  21.2  23.8
2.   America
       NAFTA Region.......................................   4,689   5,177   4,173    32.9  29.2  29.6
       South America......................................     494     610     653    34.8  39.7  34.8
3.   Asia-Pacific
       Region.............................................   1,134     768     553    24.8  27.3  23.0
4.   Specialty Lines
       Allianz Global Risks
         Ruckversicherungs AG.............................     559      --      --    41.7    --    --
       Credit.............................................     857     901     932    34.2  44.0  35.9..
       Travel and Assistance..............................     740     669     608    32.5  33.4  36.5
       Allianz Marine & Aviation..........................     578     450     256    21.1  22.5  29.8
5.   Other................................................   3,929   3,500   3,104    24.2  25.8  28.6
6.   Consolidation adjustments(3).........................      --      --      --      --    --    --
                                                            ------  ------  ------
     Total................................................  36,458  34,428  31,529
                                                            ======  ======  ======




                                                                                          NET EXPENSE
                                                            PREMIUMS EARNED (NET)           RATIO(1)
                                                          --------------------------    ----------------
                                                           2002     2001      2000      2002  2001  2000
                                                          E(MN)    E(MN)     E(MN)       %     %     %
                                                          -----    -----     -----      ----  ----  ----
                                                                               
LIFE/HEALTH
1.   Europe
       Germany..........................................  11,044    10,545    10,500    10.0  12.7  10.7
       France...........................................   1,449     1,515     2,283    52.5  52.0  27.6
       Italy............................................   1,219     1,247     1,339    31.3  22.5  14.8
       Switzerland......................................     624       557       477    23.1  22.6   9.9
       Spain............................................     493       873       525     7.3   4.2   8.9
2.   USA................................................     924     1,068     1,092    47.0  49.2  48.2
3.   Asia-Pacific.......................................   1,605     1,202       937    19.0  17.6  19.6
4.   Other..............................................   1,317     1,310     1,225    33.9  30.5  34.7
5.   Consolidation adjustments(3).......................      --        --        --      --    --    --
                                                          ------  --------  --------
       Total............................................  18,675    18,317    18,378
                                                          ======  ========  ========


---------------
(1) The net expense ratio represents net underwriting costs as a percentage of
    net premiums earned.

(2) The net loss ratio represents net loss and loss adjustment expenses as a
    percentage of net premiums earned.

(3) Represents elimination of intercompany transactions between Group companies
    in different geographical regions.

(4) The 2001 and 2000 figures have been restated to reflect the reorganization
    of the Group's marine, aviation and industrial transport insurance into
    Allianz Marine & Aviation, a new specialty line.
                                       F-12




        NET INCOME (LOSS)         INVESTMENTS      NET LOSS RATIO(2)
     -----------------------    ---------------    ------------------
      2002     2001    2000      2002     2001     2002   2001   2000
     E(MN)    E(MN)    E(MN)    E(MN)    E(MN)       %      %     %
     -----    -----    -----    -----    -----     ----   ----   ----
                                         
      8,917    3,243   3,008    30,347   41,400     74.2   75.2  73.5
        129      (62)    187     8,771    8,540     84.5   82.3  86.1
        233       68      21     2,617    2,865     68.1   73.2  82.7
        524      318     144     8,780    8,417     74.8   76.7  77.8
         26       81     121     3,438    4,098     70.3   79.1  71.3
         36       18      38     1,398    1,387     77.0   78.7  81.1
       (964)  (1,064)   (117)    9,878   12,595     94.6   99.9  87.9
         24       12     (24)      337      479     67.0   63.7  70.9
        (62)     (25)     17     1,829    1,520     78.5   79.9  83.1
       (257)      --      --         1       --    100.8     --    --
         33       70     131     2,000    2,118     72.1   68.0  46.6
          4       (8)      6       269      237     62.0   64.4  63.2
         17      (54)     (4)    1,011      920     75.2  108.1  78.4
        360      219     427     6,351    7,263     77.7   86.0  81.5
     (1,813)    (452)   (693)     (172)    (127)      --     --    --
     ------   ------   -----    ------   ------
      7,207    2,364   3,262    76,855   91,712
     ======   ======   =====    ======   ======




       NET INCOME (LOSS)         INVESTMENTS
     ---------------------    -----------------
     2002    2001    2000      2002      2001
     E(MN)   E(MN)   E(MN)     E(MN)     E(MN)
     -----   -----   -----     -----     -----
                         
       96      63     339      97,030    93,316
      (10)    132     127      38,282    39,319
      152     133     158      16,630    14,171
      (59)    (20)     14       6,851     7,042
       13      12      38       3,342     3,176
      (40)    (46)    112      13,693    10,415
      (40)    (32)   (184)      4,046     3,296
      (90)    (13)     33       9,476     9,572
       (3)     --     (12)       (178)     (231)
      ---    ----    ----     -------   -------
       19     229     625     189,172   180,076
      ===    ====    ====     =======   =======


                                       F-13


                                 ALLIANZ GROUP

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                    BUSINESS SEGMENT INFORMATION -- BANKING
                        DECEMBER 31, 2002, 2001 AND 2000



                                                            LOAN LOSS                            EARNINGS AFTER
                                       NET REVENUE(1)       PROVISIONS       TOTAL EXPENSES         TAXES(2)
                                      ----------------    --------------    ----------------    -----------------
                                      2002     2001(3)    2002     2001     2002     2001(3)     2002     2001(3)
                                      E(MN)     E(MN)     E(MN)    E(MN)    E(MN)     E(MN)     E(MN)      E(MN)
                                      -----    -------    -----    -----    -----    -------    ------    -------
                                                                                  
Private and business clients(4).....  3,227      1,678      561      233    3,093      1,605      (304)     (160)
Corporates & Markets(4).............  3,598      1,725    1,592      361    3,808      2,161    (1,642)     (797)




                                                                 NET REVENUE(1)          EARNINGS AFTER TAXES(2)
                                                            -------------------------    ------------------------
                                                             2002      2001     2000      2002     2001     2000
                                                            E(MN)     E(MN)     E(MN)    E(MN)     E(MN)    E(MN)
                                                            ------    ------    -----    ------    -----    -----
                                                                                          
Germany...................................................   7,059     6,227       70     1,858    1,931        2
Europe (excluding Germany)................................   1,177     1,451      331      (999)   (434)      166
NAFTA.....................................................     755       572       --    (1,527)   (218)       --
Rest of world.............................................     206       245       31      (474)   (106)       15
                                                            ------    ------    -----    ------    -----    -----
Subtotal..................................................   9,197     8,495      432    (1,142)   1,173      183
                                                            ------    ------    -----    ------    -----    -----
Consolidation Adjustments(5)..............................     (23)   (3,231)      --        --    (870)       --
                                                            ------    ------    -----    ------    -----    -----
        Total.............................................   9,174     5,264      432    (1,142)    303       183
                                                            ======    ======    =====    ======    =====    =====


---------------

(1) Consists of total income (less interest and similar expenses, other expenses
    for investments, fee and commission expenses, and other investment-related
    expenses).

(2) Earnings after taxes represent income before goodwill amortization and
    minority interest.

(3) When comparing the figures for fiscal year 2002 with those for 2001 and
    2000, it should be noted that Dresdner Bank was consolidated as of July 23,
    2001. Changes in the divisional structure and reclassifications have been
    taken into account in the prior-year figures stated.

(4) Amounts in 2001 have been restated to reflect integration effective January
    1, 2002 of the Group's small business operations, which the Allianz Group
    had previously included as part of its Corporates & Markets division, with
    the Group's former Private Clients division to form its new Private and
    Business Clients division.

(5) Represents elimination of intercompany transactions between Group companies
    in different geographical regions.

                                       F-14


                                 ALLIANZ GROUP

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2002, 2001 AND 2000

(1) ACCOUNTING REGULATIONS

     Allianz Aktiengesellschaft ("Allianz AG" or "the Company") and its
subsidiaries (collectively, "the Allianz Group" or "the Group") have global
property and casualty insurance, life and health insurance, banking and asset
management operations in more than 70 countries, with the largest of their
operations in Europe. The Group's headquarters are located in Munich, Germany.

     The consolidated financial statements of the Allianz Group have been
prepared in conformity with International Financial Reporting Standards (IFRS),
in accordance with sec.292a of the German Commercial Code (HGB). Since 2002, the
designation IFRS applies to the overall framework of all standards approved by
the International Accounting Standards Board. Already approved standards
continue to be cited as International Accounting Standards (IAS). All standards
currently in force for the years under review have been adopted in the
presentation of the consolidated financial statements. IFRS do not provide
specific guidance concerning the reporting of insurance transactions in annual
financial statements. In such cases, as envisioned in the IFRS Framework, the
provisions embodied under accounting principles generally accepted in the United
States of America (US GAAP) have been applied.

     The consolidated financial statements have been translated into English
from those published in German and include additional disclosures required by US
GAAP and by the United States Securities and Exchange Commission. Significant
differences between IAS and US GAAP affecting the Group's consolidated net
income and shareholders' equity have been summarized in Note 45. Condensed
consolidated balance sheet and income statement information reflecting the
impact of differences between IAS and US GAAP are also presented in Note 45.

     The financial statements have been prepared in euros (E).

(2) CHANGES TO THE ACCOUNTING, VALUATION AND REPORTING POLICIES

     The following IAS accounting principles were applied for the first time in
fiscal year 2001: IAS 39 -- Financial Instruments: recognition and measurement
and IAS 40 -- Investment property.

     IAS 39 sets forth requirements for the recognition in financial statements
and valuation of financial assets and liabilities of an enterprise, including
the reporting of hedging instruments, as well as requirements for additional
disclosure. Under this standard all financial assets and liabilities, including
all derivatives, are initially recognized on the balance sheet at cost.
Subsequent to initial recognition, all financial assets are remeasured to fair
value, with the exception of certain assets and liabilities listed in the
standard. IAS 39 does not apply to rights and obligations arising under
insurance contracts.

     The effects of the first time application of IAS 39 on January 1, 2001
resulted in a reduction in revenue reserves of E153 million. This amount is
included as a miscellaneous reduction of revenue reserves shown in the
Consolidated Statements of Movements in Shareholders' Equity.

     IAS 40 covers investment property independent of the main activity of the
enterprise concerned. Investment property is real estate held to earn rentals or
for capital appreciation. IAS 40 does not apply to real estate held for use in
the production or supply of goods or services or for administrative purposes.
IAS 40 allows an enterprise to choose either a fair value model or a cost model
for valuation purposes. The Group has chosen the acquisition cost model which is
consistent with its previous accounting policy. First time application of IAS 40
in 2001 resulted only in changes in presentation.

                                       F-15

                                 ALLIANZ GROUP

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     For reasons of comparability with the current reporting year, some
prior-year figures were adjusted in the balance sheet and the income statement
through reclassifications that do not affect net income or shareholders' equity.

(3) CONSOLIDATION

SCOPE OF THE CONSOLIDATION

     In addition to Allianz AG, 213 (2001: 163 and 2000: 104) German and 1,045
(2001: 1,021 and 2000: 660) foreign enterprises have been consolidated in full.
In addition, 74 (2001: 73 and 2000: 59) German and 79 (2001: 85 and 2000: 79)
foreign investment funds were consolidated. Of the entities that have been
consolidated in full, 12 (2001: 19 and 2000: 14) subsidiaries have been
consolidated where Allianz AG owns less than majority of the voting power of the
subsidiary, including CreditRas Vita S.p.A. and Antoniana Popolare Veneta Vita
S.p.A., in all periods presented. Allianz AG exercises control over these
entities by its ability to govern the financial and operating policies of the
enterprise through management agreements, as further discussed in Note 44 under
"Other information". A majority interest in Bayerische Versicherungsbank AG and
Frankfurter Versicherungs-AG, which were already fully consolidated, was
acquired in 2002.

     There are 12 (2001: 13 and 2000: 9) joint ventures that have been accounted
for using the equity method; each of these enterprises is managed by Allianz AG
together with a third party not included in the consolidated financial
statements.

     There are 198 (2001: 146 and 2000: 95) associated enterprises that have
been accounted for using the equity method.

     Certain enterprises have not been included in the consolidation or
accounted for using the equity method, in cases where their value is not
material to the presentation of the financial statements as a whole.

     All affiliated companies, joint ventures, and associated companies that are
included in or excluded from the consolidated financial statements are
individually listed in the disclosure of equity investments filed with the
Commercial Register in Munich. All private companies are also listed and
identified separately in this disclosure of equity investments, for which the
consolidated financial statements and the Group management report are exempt in
accordance with the application of sec.264 b of the German Commercial Code
(HGB). Selected affiliated and associated enterprises are listed in Note 46.

ACQUISITIONS

     The following are the significant companies consolidated for the first-time
for the years ended December 31, 2002, 2001 and 2000:



                                                    EFFECTS ON THE CONSOLIDATED FINANCIAL
                                                     STATEMENTS IN YEAR OF ACQUISITION(1)
                                                ----------------------------------------------
                                 DATE OF         GROSS      NET                   AMORTIZATION
                               FIRST-TIME       PREMIUMS   INCOME   GOODWILL(2)   OF GOODWILL
PRINCIPAL NEW ACQUISITIONS    CONSOLIDATION      E(MN)     E(MN)       E(MN)         E(MN)
--------------------------    -------------     --------   ------   -----------   ------------
                                                                   
2002
Slovenska poist' ovna a.
  s., Bratislava.........     July 22, 2002        125         (8)        138            (7)


                                       F-16

                                 ALLIANZ GROUP

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)



                                                    EFFECTS ON THE CONSOLIDATED FINANCIAL
                                                     STATEMENTS IN YEAR OF ACQUISITION(1)
                                                ----------------------------------------------
                                 DATE OF         GROSS      NET                   AMORTIZATION
                               FIRST-TIME       PREMIUMS   INCOME   GOODWILL(2)   OF GOODWILL
PRINCIPAL NEW ACQUISITIONS    CONSOLIDATION      E(MN)     E(MN)       E(MN)         E(MN)
--------------------------    -------------     --------   ------   -----------   ------------
                                                                   
2001
Dresdner Bank AG,
  Frankfurt/Main.........     July 23, 2001         --       (300)      3,977          (108)
Nicholas-Applegate, San
  Diego..................   January 31, 2001        --        (29)      1,042           (47)
2000
PIMCO Advisors L.P.,
  Delaware...............      May 5, 2000          --        (37)      2,674           (88)
Allianz-Tiriac Asigurari,
  Bucharest..............    October 1, 2000        18          1          10            --
Arab International
  Insurance Company,
  Cairo..................    January 1, 2000        12         --          --            --
Munchener und Magdeburger
  Hagelversicherung AG,
  Munich.................     July 1, 2000          19         (1)          1            --
Zwolsche Algemeene
  Holding, Nieuwegein....   December 31, 2000       --         --         153            --


     --------------------
     (1) Consolidated in the business segments.

     (2) On the date of first-time consolidation.

2002 ACQUISITIONS:

     - Slovenska poist'ovna a. s., Bratislava: On July 22, 2002, Allianz Group
       acquired 66.8% of Slovenska poist'ovna a. s. at a purchase price of E142
       million. Slovenska poist'ovna operates in both the property-casualty and
       the life/health insurance business segments. An additional 25.8% and 6.5%
       interests were acquired on July 29, 2002 and December 20, 2002
       respectively. The total acquisition cost for the 99.1% interest in
       Slovenska poist'ovna amounted to E216 million.

     - Allianz Lebensversicherungs-AG, Stuttgart: On January 15, 2002, the
       Allianz Group increased its interest in Allianz Lebensversicherungs-AG by
       40.5% to 91.0% and resulted in additional goodwill of E633 million. The
       acquisition cost for the additional interest was E2,587 million.

     - Frankfurter Versicherungs-AG, Frankfurt/Main: On June 28, 2002, the
       Allianz Group increased its interest in Frankfurter Versicherungs-AG by
       50.0% to 100.0% and resulted in additional goodwill of E57 million. The
       acquisition cost for the additional interest was E930 million.

     - Bayerische Versicherungsbank AG, Munich: On June 28, 2002, the Allianz
       Group increased its interest in Bayerische Versicherungsbank AG by 45.0%
       to 90.0% and resulted in additional goodwill of E94 million. The
       acquisition cost for the additional interest was E858 million.

                                       F-17

                                 ALLIANZ GROUP

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     - Dresdner Bank AG, Frankfurt/Main: On January 15, 2002, June 28, 2002,
       July 2, 2002 and August 23, 2002, the Allianz Group increased its
       interest in Dresdner Bank AG by 21.5% to 100.0% which resulted in
       additional goodwill of E2,002 million. The acquisition cost for the
       additional interest totaled E6,338 million.

2001 ACQUISITIONS:

     - Dresdner Bank AG, Frankfurt/Main and its subsidiaries:  On July 23, 2001,
       Allianz Group acquired 56.7% of the outstanding shares of common stock of
       Dresdner Bank AG, and its subsidiaries (Dresdner Bank) for a price of
       E17,277 million. Between July 23, 2001, and December 31, 2001, Allianz
       Group purchased an additional 1.0% of the outstanding shares of common
       stock of Dresdner Bank for E418 million. Prior to the July 23, 2001
       acquisition, Allianz Group held an equity interest of 20.8% in Dresdner
       Bank, and accounted for it under the equity method. Total acquisition
       costs to obtain the majority holding of 78.5% as of December 31, 2001
       amounted to E19,561 million. The transaction included the issuance of
       19,972,339 shares of Allianz AG common stock valued at E6,596 million.

     Allianz AG accounted for its 2001 acquisitions of 57.7% of Dresdner Bank
     under the purchase method of accounting. The value of Allianz AG shares
     issued in connection with the acquisition was based on the share price as
     of the last trading date prior to the public announcement of the Group's
     acquisition of Dresdner. This value is representative of the contractually
     fixed terms related to the acquisition of outstanding shares and
     registration of new shares which were issued in exchange for Dresdner
     shares. If the share price as of the date of the physical exchange of
     shares had been considered to record the value of the shares issued, the
     Group would have recorded E301 million less goodwill. Additionally,
     goodwill amortization for 2002 and 2001 would have been lower by E20
     million and E9 million, respectively. The results of operations of Dresdner
     Bank are included in the consolidated financial statements of the Allianz
     Group since July 23, 2001.

     Dresdner Bank is among the leading banks in the European banking market
     with a wide range of private, commercial and investment banking products
     and services for corporate, governmental and individual customers. As a
     result of the acquisition, the Group will seek to generate significant
     income opportunities and cost synergies over the coming years with regard
     to integration and associated strategic realignment in the German financial
     services market.

     - Nicholas-Applegate, San Diego:  On January 31, 2001, the Allianz Group
       acquired 100% of this U.S. asset management holding company at a purchase
       price of E1,111 million. The transaction also included
       performance-related purchase price payments of up to E1,236 million and
       incentive and retention schemes amounting to a maximum of E170 million.

2000 ACQUISITIONS:

     - PIMCO Advisors L.P., Delaware:  On May 5, 2000, the Allianz Group
       acquired 69.5% of the ownership interests in PIMCO Advisors L.P., a
       Delaware limited partnership. The total cost of acquisition was E3,738
       million in cash and shares of Allianz AG and obligations for future
       payments of approximately E200 million. The excess of the purchase price
       of E3,738 million over the estimated fair value of net assets acquired of
       E103 million was allocated to covenants not to compete in an amount of
       E863 million, to be amortized on a straight-line basis over 5 years, and
       goodwill of E2,773 million, to be amortized on a straight-line basis over
       20 years. In connection with this acquisition, Allianz AG holds a call
                                       F-18

                                 ALLIANZ GROUP

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

       option on the remaining 30.5% ownership interest in PIMCO Advisors L.P.,
       which is currently held by a third party. Subject to certain conditions,
       the call option will allow Allianz AG to purchase the remaining ownership
       interests on the last business day of any calendar quarter beginning on
       January 31, 2003. In addition, this third party holds a put option, under
       which it can require Allianz AG, subject to certain conditions, to
       purchase its ownership interests in PIMCO Advisors L.P., on the last
       business day of any calendar quarter. Settlement of the call and put
       options requires physical delivery of the PIMCO Advisor L.P. shares in
       exchange for cash. The put option is not recorded on the balance sheet as
       the fair value was determined to be zero based on the nature and terms of
       the option.

     - Allianz-Tiriac Asigurari, Bucharest:  On August 21, 2000, the Allianz
       Group acquired 51.0% of Allianz-Tiriac Asigurari for E14 million.

     - Arab International Insurance Company, Cairo:  On March 2, 2000, the
       Allianz Group increased its interest in Arab International Insurance
       Company by 40.0% to 80.0%. The acquisition cost was E10 million, bringing
       the total cost to E18 million.

     - Munchener und Magdeburger Hagelversicherung, Munich:  On June 26, 2000,
       the Allianz Group increased its interest in Munchener and Magdeburger
       Hagelversicherung AG by 1.5% to 50.7%. The acquisition cost of additional
       interest was E0.1 million, bringing the total cost to E2 million.

     - Zwolsche Algemeene Holding, Nieuwegein:  On December 20, 2000, AGF Group,
       Paris purchased 100% of the Zwolsche Algemeene Holding Company and its
       subsidiaries. The subsidiaries include life and health, property and
       casualty and asset management companies. The cost of the purchase was
       E599 million. The operating results of these companies were included in
       the consolidated financial statements for the first time in fiscal year
       2001 with gross premium income of E205 million and net loss for 2001 of
       E12 million.

     - Assurance Generales de France (AGF), Paris:  In 2000, the Allianz Group
       increased its interest in AGF by 10.9% to 65.2% for E780 million. The
       purchase resulted in additional goodwill of E467 million. The Allianz
       Group also incurred additional costs of E40 million for AGF contingent
       value rights (CVRs), which also resulted in additional goodwill of E40
       million.

(4) ACCOUNTING AND VALUATION POLICIES

PRINCIPLES OF CONSOLIDATION

     The consolidated financial statements are based on the annual financial
statements of Allianz AG and all principal subsidiaries. Financial statements
are uniformly prepared in conformity with IFRS accounting and valuation
standards as of December 31, 2002. The Group has used interim financial
statements for those entities whose fiscal year end is other than December 31,
2002.

     Equity consolidation is carried out on the basis of the benchmark method in
conformity with IAS 22, Business Combinations. The acquisition costs are offset
against the Group's proportion of the shareholders' equity in the subsidiaries
at the date of acquisition. Certain assets and liabilities acquired by the
Allianz Group are carried at their fair value on the date of acquisition of the
subsidiary enterprises; for the proportion attributable to minority interests,
the pre-acquisition carrying amounts are used. When foreign subsidiaries are
consolidated for the first time, their net assets are translated at the current
exchange rates at the date of acquisition.

                                       F-19

                                 ALLIANZ GROUP

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Goodwill arising from acquisitions is capitalized and amortized over the
estimated useful life. In the case of acquisitions prior to January 1, 1995,
such differences have been recorded directly in revenue reserves within
shareholders' equity in accordance with the transitional provisions in force
under IAS 22.

     The earnings generated by subsidiaries after their first-time consolidation
or, where appropriate, their acquisition adjusted for consolidation effects, are
allocated to revenue reserves of the Group based on the Group's ownership
percentage in the subsidiaries.

     The proportion of net income or losses attributable to minority interests
has been calculated on the basis of the consolidated net income or losses of
those enterprises for the year.

     Intra-Group receivables and payables, income and expenses, and profits have
been eliminated.

FOREIGN CURRENCY TRANSLATION

     Allianz AG's reporting currency is the euro (E). Foreign currency is
translated in accordance with IAS 21 -- The Effects of Changes in Foreign
Exchange Rates, by the method of functional currency. The functional currencies
for Group companies are usually the local currency of the relevant company,
e.g., the prevailing currency in the environment where the enterprise carries
out its ordinary activities. In accordance with the functional currency method,
assets and liabilities are translated at the closing rate on the balance sheet
date and income and expenses are translated at the annual average rate in all
financial statements of subsidiaries not reporting in euro. Any translation
differences, including those arising in the process of equity consolidation, are
recorded directly in shareholders' equity.

     Assets and liabilities of the Group, which are subject to exchange rate
fluctuations, are normally safeguarded against such fluctuations by the fact
that individual foreign subsidiaries have most of their assets and liabilities
in the same currency.

     Currency gains/losses arising from foreign currency transactions
(transactions in a currency other than the functional currency of the entity)
are reported in other income or other expenses.

     The principal exchange rates used are summarized in the following table:



                                    E CLOSING RATES          E AVERAGE RATES
                                   -----------------   ---------------------------
CURRENCY                            2002      2001      2002      2001      2000
--------                           -------   -------   -------   -------   -------
                                                            
Australian Dollar (AUD)..........    1.851     1.739     1.735     1.732     1.596
Japanese Yen (JPY)...............  124.389   115.330   118.094   108.749    99.736
Pound Sterling (GBP).............    0.651     0.609     0.629     0.622     0.069
Swiss Franc (CHF)................    1.454     1.483     1.473     1.510     1.561
South Korean Won (KRW) (in
  thousands).....................    1.249     1.162     1.178     1.155     1.053
US Dollar (USD)..................    1.042     0.885     0.945     0.896     0.926


USE OF ESTIMATES

     The preparation of consolidated financial statements requires the Group to
make estimates and assumptions that affect items reported in the consolidated
balance sheet and income statement, and under contingent liabilities. The actual
values may differ from those reported. The most important of such items are the
reserve for loss and loss adjustment expenses, the

                                       F-20

                                 ALLIANZ GROUP

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

aggregate policy reserves and the loan loss allowance. In addition, management
makes certain assumptions in connection with impairment reviews of investments,
goodwill, and deferred taxes.

SUPPLEMENTARY INFORMATION ON ASSETS

INTANGIBLE ASSETS

     Intangible assets comprise goodwill and other intangible assets.

     GOODWILL represents the difference between the purchase price of
subsidiaries and the Group's proportionate share of the fair value of net
assets, at the time of acquisition. Minority interests are generally valued at
amortized historical cost. Goodwill is amortized on a straight-line basis over
its estimated useful life, which is normally 10 years for property and casualty
insurance enterprises, 20 years for life and health insurance enterprises, 10
years for banks, and 20 years for asset management companies.

     GOODWILL AND OTHER INTANGIBLE ASSETS are assessed as of each balance sheet
date and each interim reporting date to determine if there are any factors that
indicate goodwill and other intangible assets may be impaired. If there are
indications that goodwill and other intangible assets are impaired, recoverable
amounts for the goodwill and other intangible assets are determined. If the
recoverable amounts are less than the carrying amount, an impairment charge is
recognized. Gains or losses realized on the disposal of subsidiaries include any
related unamortized goodwill balances.

     The present value of future profits (PVFP) represents the capitalized value
of life/health insurance portfolios. The capitalized value is the present value
of net cash flows anticipated in the future from insurance policies written at
the point in time of first-time consolidation after the insurance portfolio was
purchased. Interest accrues on the unamortized PVFP based upon the policy
liability rate or contract rate. The capitalized value of life/health insurance
policies is amortized over the years that such profits are anticipated to be
received in proportion to the estimated gross margins or estimated gross profits
for traditional participating products that follow the contribution principle
and financial or investment products, respectively, and over the premium paying
period in proportion to premiums for other traditional insurance products.

     The methods used by the Group to value insurance products purchased are
consistent with the valuation methods used most commonly to value blocks of
insurance business. They are also consistent with the basic methodology
generally used to value insurance assets. The procedures used by the Group
include:

     - Identify the future cash flows from the acquired business.

     - Identify the risks inherent in realizing those cash flows and the rate of
       return the Group believes it must earn in order to accept the risks
       inherent in realizing the cash flows.

     - Determine the value of the insurance asset by discounting the expected
       future cash flows by the discount rate the Group requires.

     Expected future cash flows used in determining the PVFP are based on
actuarial determinations of future premium income, mortality, disease and
surrender probabilities, in addition to underwriting costs and returns on assets
that were invested in order to be able to meet the obligations arising under the
insurance contracts.

     The discount rate used to determine the PVFP corresponds to the opportunity
costs for the risk capital used. In selecting the rate of return, the Group
considers the magnitude of the risks associated with the type of business being
acquired, actuarial factors described in the preceding
                                       F-21

                                 ALLIANZ GROUP

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

paragraph, cost of capital available to the Group to fund the acquisition and
compatibility with other Group activities that may favorably affect future
profits.

     Other intangible assets include software purchased from third parties or
developed internally and real property rights, which are amortized on a
straight-line basis over their useful service lives or contractual terms.

     OTHER INTANGIBLE ASSETS also include capitalized loyalty bonuses for senior
management of the PIMCO Group, Delaware that are amortized on a straight-line
basis over five years, as well as the value of the brand names of Dresdner Bank
that are amortized on a straight-line basis over 20 years. The fair value for
the names "Dresdner Bank" and "dit" (Deutscher Investment-Trust), registered as
trade names, was determined using a royalty savings approach.

INVESTMENTS IN AFFILIATED ENTERPRISES, JOINT VENTURES AND ASSOCIATED ENTERPRISES

     Investments in affiliated enterprises, joint ventures and associated
enterprises are generally accounted for using the equity method, such that the
carrying value of such investment represents the Group's proportionate share of
their net assets. During 2002, the Group reduced the time lag in accounting for
all material investments in associates to a period of no more than three months
for IFRS. We accounted for this reduction by recording the income and equity
changes occurring during the catch-up period (i.e., the period from June 30,
2001 to September 30, 2001), less any amounts already reflected in fiscal 2001
due to their significance, directly in shareholders' equity. The amount of
income directly recorded in shareholders' equity in 2002 was E131 million.

     The impact of the terrorist attack of September 11, 2001 on the financial
results of Munich Re, our most significant associate, was considered in our 2001
income statement and statement of shareholders' equity in light of the
significance and relevance of this impact to our 2001 consolidated financial
statements.

     In the case of investments in enterprises that prepare their own
consolidated financial statements, their carrying values are based on the
sub-group's consolidated equity. The company's share of net income or loss from
such investments is included in consolidated net income. The effect of profits
and losses from intercompany transactions has been eliminated.

     Investments in affiliated enterprises, joint ventures, and associated
enterprises, which are not accounted for using the equity method because they
are not material, are carried at cost. Associated enterprises are all those
enterprises in which the Group has an interest of between 20 percent and 50
percent, for all of which a significant influence is presumed.

     Income from investments in affiliate enterprises, joint ventures and
associated enterprises is included as a separate component of total income as
the Group considers income earned from such investments to be consistent with
revenues such as realized gains, interest, and dividends earned from other
investments.

INVESTMENTS

     Investments include securities held to maturity, securities available for
sale, real estate used by third parties and funds held by others under
reinsurance contracts assumed. Derivatives used for hedge transactions are
included with the classification of the item hedged.

     SECURITIES HELD TO MATURITY are comprised of fixed income securities which
the Group has the intent and ability to hold to maturity. They are carried at
amortized cost and the related

                                       F-22

                                 ALLIANZ GROUP

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

premium or discount is amortized using the interest method over the life of the
security. Amortization of premium or discount is included in interest income.

     SECURITIES AVAILABLE FOR SALE are securities that are not classified as
held to maturity or trading assets. Available for sale securities are valued at
fair value at the balance sheet date. Unrealized gains and losses, which are the
difference between fair value and cost (amortized cost in the case of fixed
income securities), are included as a separate component of shareholders'
equity, net of deferred taxes, or, for amounts that would be due to
participating policyholders if realized, taken to the latent reserve for premium
refunds within other insurance reserves. Realized gains and losses on securities
are generally determined by applying the average cost method.

     SECURITIES HELD TO MATURITY, SECURITIES AVAILABLE FOR SALE AND INVESTMENTS
ACCOUNTED FOR USING THE EQUITY METHOD are subject to impairment reviews. An
impairment charge is recorded if a decline in fair value below the asset's
carrying value is deemed to be other than temporary.

     As of the closing date for each quarter and year end, the Group identifies
on a group-basis all shares whose market values indicate potential impairment
(i.e. recoverable amount is below the group's acquisition cost). Impairment
charges to be recognized in net profit or loss are determined on the basis of
these data.

     Debt instruments are written down if financial difficulties on the part of
the issuer, a default or delay in interest service or repayment of principal or
an impending or actual insolvency indicate that repayment of the principal can
no longer be expected.

     If in a subsequent period, the amount of the impairment decreases related
to an event occurring after the initial impairment charge, such charges are
reversed through net income for the period. The maximum amount up to which such
write-ups may occur is the acquisition cost or amortized cost, as applicable.

     REAL ESTATE USED BY THIRD PARTIES (i.e., real property and equivalent
rights and buildings, including buildings on leased land) is carried at cost
less accumulated, scheduled and unscheduled depreciation. Real estate used by
third parties is depreciated on a straight-line basis over its estimated life.
The fair value of real estate used by third parties is determined by the
discounted cash flow method.

     FUNDS HELD BY OTHERS UNDER REINSURANCE CONTRACTS ASSUMED relate to cash
deposits to which the Group is entitled, but which the ceding insurer retains as
collateral for future obligations of the Group. The cash deposits are recorded
on the balance sheet at face value, less any write-downs for balances that are
deemed to not be fully recoverable.

INVESTMENTS HELD ON ACCOUNT AND AT RISK OF LIFE INSURANCE POLICYHOLDERS

     Investments held on account and at risk of life insurance policyholders
comprise mainly investments funding unit-linked life insurance policies and
investments to cover obligations under policies where the benefits are
index-linked. They are valued at market value on the balance sheet date.
Unrealized gains and losses arising from market valuations lead to a
corresponding increase or decrease in the related insurance reserves.

     Group enterprises keep and invest these investments separately from the
Group's own investments. Policyholders are entitled to all gains and losses
relating to this investments and therefore to the total amount of all the
investments shown under this heading.

                                       F-23

                                 ALLIANZ GROUP

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

DERIVATIVES

     The Group's insurance companies selectively use derivative financial
instruments such as swaps, options and futures to hedge against changes in
prices or interest rates in their investment portfolio. In the Group's banking
business, derivatives are used both for trading purposes and to hedge against
movements in interest rates, currency and other price risks of their
investments, loans, deposit liabilities and other interest sensitive assets and
liabilities.

     For derivatives used for hedging purposes, the Group designates its
derivative instruments as a fair value cash flow, or hedge of a net investment
in a foreign entity. Pursuant to IAS 39, the Group documents the hedge
relationship, as well as its risk-management objective and strategy for entering
into various hedge transactions. The company also assesses, both at the hedge's
inception and on an on-going basis, whether the derivatives that are used for
hedging transactions are highly effective in offsetting changes in fair values
or cash flows of the hedged items.

     The Group discontinues hedge accounting prospectively when it is determined
that the derivative is no longer highly effective, the derivative or the hedged
item expires, or is sold, terminated or exercised, or when management determines
that designation of the derivative as a hedging instrument is no longer
appropriate. When a fair value hedge is discontinued, the Group continues to
carry the derivative on balance sheet at its fair value, and no longer adjusts
the hedged item for changes in fair value. The adjustment of the carrying amount
of the hedged item is accounted for in the same manner as other components of
the carrying amount of that item. When hedge accounting for a cash flow hedge is
discontinued, the Group continues to carry the derivative on balance sheet at
its fair value and any unrealized gains and losses accumulated in shareholder's
equity are recognized immediately. When a hedge of a net investment in a foreign
entity is discontinued, the Group continues to carry the derivative on balance
sheet at its fair value and any net unrealized gain or losses accumulated in
shareholder's equity remain in shareholder's equity until the disposal of the
foreign entity.

     Pursuant to IAS 39, derivative financial instruments that do not meet the
criteria for hedge accounting are reported at fair value as financial assets or
liabilities held for trading. Gains or losses on these instruments arising from
valuation at fair value are included under trading income. This treatment is
applicable to derivatives used independently, not in connection with hedge
transactions, and for separated embedded derivatives of a hybrid financial
instrument. In contrast, derivatives used in hedge transactions are recognized
and classified as follows:

     Fair value hedges:  The risk of changes in the fair value of reported
assets or liabilities is hedged by a fair value hedge. Changes in the fair value
of a hedging instrument are recognized in current period income, and classified
together with the pro rata share of the profit or loss attributable to the
change in value of the hedged risk recognized in the income statement.

     Cash flow hedges:  Cash flow hedges reduce the exposure to variability in
cash flows that is attributable to a particular risk associated with a
recognized asset or liability or attributable to future cash flows from a firm
commitment or a forecasted transaction. Any value changes in derivative
instruments that represent an effective hedge are recorded under shareholders'
equity, and recognized in income when the offsetting gain or loss associated
with the hedged item is recognized. The ineffective part of the hedge is
recognized directly in the income statement in the current period.

     Hedges of a net investment in a foreign entity:  Hedge accounting may be
applied to hedge a net investment in a foreign entity. Financial instruments are
used to hedge currency risk. The proportion of gains or losses arising from
valuation of the hedging instrument, which is classified
                                       F-24

                                 ALLIANZ GROUP

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

as an effective hedge, is recognized in shareholders' equity, while the
ineffective part is recognized in the income statement.

     For fair value and cash flow hedges of investment securities or loans, the
hedge instrument is classified in the same balance sheet category as the hedged
item when the hedge instrument has a positive fair value, and in Other
Liabilities when the hedge instrument has a negative fair value. For fair value
and cash flow hedges of debt issued and for hedges of a net investment in a
foreign entity, the hedge instrument is included in Other Assets or Other
Liabilities.

LOANS AND ADVANCES TO BANKS AND CUSTOMERS

     Loans and advances to banks and customers originated by the Group and its
consolidated subsidiaries that are intended to be held to maturity are generally
carried at their outstanding unpaid principal balance net of the allowance for
loan losses, deferred fees and costs on origination, and unamortized premiums or
discounts. Interest revenues are accrued on the unpaid principal balance. Net
deferred fees and premiums or discounts are recorded as an adjustment of the
interest revenue yield over the lives of the related loans.

     Loans are placed on non-accrual status when management determines that the
payment of principal or interest is doubtful. Management's judgment is applied
based on its credit assessment of the borrower. Non-accrual loans consist of
loans on which interest income is no longer recognized on an accrued basis, and
loans for which a specific provision is recorded for the entire amount of
accrued interest receivable. When a loan is placed on non-accrual status, any
accrued but unpaid interest previously recorded is reversed against current
period interest revenues. Loans can only be restored to accrual status when
interest and principal payments are made current (in accordance with the
contractual terms), and in management's judgment, future payments in accordance
with those terms are reasonably assured. When there is a doubt, regarding the
ultimate collectibility of the principal of a loan placed in non-accrual status,
all cash receipts are applied as reductions of principal. Once the recorded
principal amount of the loan is reduced to zero, future cash receipts are
recognized as interest income.

     Included in loans and advances to banks and customers are outstanding
reverse repurchase transactions. A reverse repurchase transaction involves the
purchase of securities with the simultaneous obligation to sell these securities
at a future date at an agreed-upon price. If control of the securities remains
in the Group over the entire lifetime of the transactions, the securities
concerned are included in the Group's balance sheet and are valued in accordance
with the accounting principles for trading assets or investments. Interest
income on reverse repurchase agreements is reported as interest income in the
consolidated income statement.

LOAN IMPAIRMENTS AND PROVISIONS

     Impaired loans represent loans, for which, based upon current information
and events, it is probable that the Group will not be able to collect all
interest and principal amounts due in accordance with the contractual terms of
the loan agreements. Impaired loans are generally placed on non-accrual status.

     The allowance for loan losses represents management's estimate of probable
losses that have occurred in the loan portfolio and other lending-related
commitments as of the date of the consolidated financial statements. The
allowance for loan losses is reported as a reduction of assets and the
provisions for contingent liabilities, such as guarantees, loan commitments and
other obligations are carried as liabilities.

                                       F-25

                                 ALLIANZ GROUP

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     To allow management to determine the appropriate level of the allowance for
loan losses, all significant counterparty relationships are periodically
reviewed. Specific allowances are established for impaired loans. The
measurement of specific loss is determined by the excess of the recorded
investment in the loan, including accrued interest, over either the present
value of the expected future cash flows, the fair value of the underlying
collateral or the market price of the loan. The country risk component is for
loan exposures in countries where there are serious doubts about the debtors'
abilities to comply with the repayment terms due to the economic or political
situations prevailing in their respective countries of domicile, that is, for
transfer and currency conversion risks. General losses (inherent losses) are
established to provide for incurred but unidentified losses that are inherent to
the loan portfolio. The amount of this allowance is determined based upon
historical loss experience and management's evaluation of the loan portfolio
under current events and economic conditions.

     Amounts determined to be uncollectible are charged to the allowance or
written-off directly against the loan balance. Subsequent recoveries, if any,
are credited to the allowance. The provision for loan loss, which is charged to
income, is the amount necessary to adjust the allowance to a level determined
through the process described above.

LEASE FINANCING TRANSACTIONS

     Loans and advances to customers include the Group's gross investment in
leases less unearned finance income relating to lease financing transactions for
which the Group is the lessor. The gross investment in leases is the aggregate
of the minimum lease payments and any unguaranteed residual value accruing to
the Group. Lease financing transactions include direct financing leases and
leveraged leases. The unearned finance income is amortized over the period of
the lease so as to produce a constant periodic rate of return on the net
investment outstanding in respect of the finance lease.

TRADING ASSETS

     Trading assets consist of debt and equity securities, derivatives with
positive market values, promissory notes and precious metal holdings, which have
been acquired solely for sale in the near term. They are classified as "Held for
trading" on account of their purpose and are reported at fair value at the
balance sheet date. Changes in fair value are recognized directly in the income
statement. Exchange-traded financial instruments are valued at the exchange
prices prevailing on the last exchange trading day of the year. To determine the
market values of unlisted financial instruments, quotations of similar
instruments or other valuation models (in particular present value models or
option pricing models) are used. Creditworthiness, settlement costs and market
liquidity are also taken into account as integral components of the valuation
process. Realized gains and losses on securities are primarily calculated based
on the average cost method.

CASH AND CASH EQUIVALENTS

     Cash and cash equivalents include balances with banks payable on demand,
balances with central banks, checks and cash on hand, treasury bills (to the
extent that they are not included in trading assets), and bills of exchange
which are eligible for refinancing at central banks, subject to a maximum term
of six months from the date of acquisition. Cash and cash equivalents are stated
at their face value, with holdings of foreign notes and coins valued at year-end
closing prices.

                                       F-26

                                 ALLIANZ GROUP

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

OTHER ASSETS

     Other assets consist of real estate owned by the Allianz Group and used for
its own activities, equipment, accounts receivable, deferred acquisition costs,
prepaid expenses and miscellaneous assets.

     REAL ESTATE OWNED BY THE ALLIANZ GROUP USED FOR ITS OWN ACTIVITIES (e.g.,
real property, and buildings, including buildings on leased land) is carried at
cost less accumulated, scheduled and unscheduled depreciation. The capitalized
cost of buildings is calculated on the basis of acquisition cost and depreciated
over a maximum of 50 years in accordance with their useful lives. Buildings
owned by the Allianz Group for its own use are depreciated on a straight-line
basis over their estimated useful lives.

     EQUIPMENT is carried at cost, less accumulated depreciation. Depreciation
is generally computed using the straight-line method over the estimated useful
lives of the assets. The estimated useful life of equipment is 2 to 10 years,
except for purchased information technology equipment which is 2 to 8 years. An
impairment loss is recognized when the recoverable amounts of these assets are
less than their carrying amount. Costs for repairs and maintenance are charged
to expenses while improvements are capitalized.

     RECEIVABLES are recorded at face value less any payments received or
appropriate valuation allowances.

     DEFERRED POLICY ACQUISITION COSTS related to universal life, investment
products and traditional participating business that follow the contribution
principle are amortized in relation to expected gross profits or estimated gross
margins over the life of the policy. Deferred policy acquisition costs related
to other traditional life business are deferred and amortized over the premium
paying period of the policy in proportion to premium revenues. Deferred
acquisition costs include commissions paid and other costs which vary with and
are incurred in connection with the acquisition or renewal of insurance
policies.

     All deferred policy acquisition costs are reviewed regularly to determine
if they are recoverable from future operations, including anticipated investment
income. Deferred acquisition costs which are not deemed to be recoverable, are
charged to income.

SECURITIES BORROWING AND LENDING

     The Group enters into securities borrowing and lending transactions on
behalf of its customers and to fulfill its own obligations to deliver or take
delivery of securities and to maximize returns on the investment-portfolios of
the insurance companies. Such transactions involve the transfer of securities
from one market participant (lender) to a counterparty (borrower), for a certain
period of time. If the lender retains control, the lender continues to report
the securities involved on its balance sheet, whereas borrowed securities are
not reported. Securities borrowed and securities loaned are recorded at the
amount of cash advanced and received, respectively, and are collateralized
primarily by equity and fixed income securities. Securities borrowed
transactions generally require the Group to deposit cash collateral with the
securities lender. In a securities loaned transaction, the Group generally
receives cash collateral in an amount equal to or in excess of the market value
of the securities loaned. The Group monitors the fair value of securities
borrowed and securities loaned and additional collateral is obtained if
necessary. Income and expenses from securities borrowing and lending
transactions are recognized on an accrual basis and reported under "Interest and
similar income" or "Interest and similar expenses".

                                       F-27

                                 ALLIANZ GROUP

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     In cases where securities lending transactions are combined with forward
contracts with the same counterparty ("structured securities lending
transactions"), both the securities lending transaction and derivative
instrument are considered collectively in assessing whether the Group has
surrendered of the securities, resulting in the derecognition of securities.
Upon derecognition, gains and losses are recognized as the difference between
the value of consideration received and the carrying value of the securities.

ASSET SECURITIZATIONS

     The Group transfers financial assets to certain special purpose entities in
revolving securitizations of commercial mortgage or other loan portfolios. The
Group consolidates these special purpose entities as the Group continues to
control the financial assets transferred and retains the servicing of such
loans.

LEASES

     Property and equipment holdings are used by the Group under operating
leases, whereby the risks and benefits relating to ownership of the assets
remain with the lessor, and are not recorded on our balance sheet. Payments made
under operating leases to the lessor are charged to administrative expenses
using the straight-line method over the period of the lease. When an operating
lease is terminated before the lease period has expired, any penalty is
recognized in full as an expense at the time when such termination takes place.

SUPPLEMENTARY INFORMATION ON EQUITY AND LIABILITIES

SHAREHOLDERS' EQUITY

     Treasury stock held by the Group is stated as shares held by the company.
These shares are deducted from shareholders' equity at cost. Gains and losses
arising from trading in treasury stock held by the company are added to revenue
reserves after income tax has been deducted.

     COMPREHENSIVE INCOME is defined as the change in equity of an entity
excluding transactions with shareholders such as the issuance of common or
preferred shares, payment of dividends and purchase of treasury shares.
Comprehensive income has two major components: net income, as reported in the
Consolidated Income Statement, and other comprehensive income. Other
comprehensive income includes such items as unrealized gains and losses on
foreign currency translation, securities available for sale, and derivatives
involved in hedging relationships net of applicable deferred income taxes. It
also includes, where applicable, adjustments to insurance policyholder
liabilities and deferred acquisition costs. Comprehensive income does not
include changes in the fair value of non-marketable securities and other assets
generally carried at cost.

INSURANCE RESERVES

     Insurance reserves include unearned premiums, the aggregate policy
reserves, reserves for loss and loss adjustment expenses, and other insurance
reserves. Premiums written attributable to income of future years are accrued in
unearned premiums. These premiums are distributed to the current fiscal year and
subsequent years in relation to the exact risk coverage period. However, if
there is no proportionality between risk and premium, account must be taken of
the varying development of risk over time.

     Unearned premiums for reinsurance business assumed are generally based on
the calculations of the cedant.
                                       F-28

                                 ALLIANZ GROUP

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The AGGREGATE POLICY RESERVE for traditional life insurance products,
including the reserve for advancing age in health insurance, is based on
actuarial principles and is calculated using the present value of future
benefits less the present value of future net premiums. Reserves for traditional
participating insurance products that follow the contribution principle are
computed based on assumptions for mortality and interest that are guaranteed in
the contracts or are used in determining dividends. Reserves for other
traditional life insurance products are determined using Group experience as to
mortality, morbidity, lapses, and interest rates, with a provision for adverse
deviation. The Group may vary assumptions by year of policy issue.

     The aggregate policy reserve for financial and investment products is equal
to the account value. Account values are not actuarially determined. Rather,
account values are equal to the premium received and interest credited to the
policy less deductions for mortality costs and expense charges assessed against
the policyholder. Mortality costs and expense charges are established by the
Group based upon its experience and cost structure and in accordance with policy
terms.

     The Group's life insurance subsidiaries offer a wide range of traditional
life insurance, financial and investment products. Traditional life insurance
products consist of both short and long duration policies with participating and
non-participating features. Short duration traditional life insurance products
include term, accident and health contracts. Long duration traditional life
insurance products include individual and group whole-life, endowment,
guaranteed renewable term and accident and health, and annuity contracts.
Financial and investment products consist of universal life, unit-linked
products (variable annuities), single premium annuity, and guaranteed investment
contracts.

     The calculation of aggregate policy reserves is in compliance with various
U.S. Financial Accounting Standards (FAS), such as FAS 60, FAS 97, and FAS 120.
The calculation of aggregate policy reserves depends on the extent to which
policyholders benefit from any surpluses earned on insurance policies. The
assumptions on which the calculation is based vary, particularly with regard to
mortality, morbidity, interest rates and the treatment of acquisition costs. A
distinction is drawn between the following situations:

     -- policyholders participate in surpluses in the same proportion as their
        policies have contributed to these surpluses. Policyholders do not
        participate in losses. This is referred to as the contribution
        principle. Assumptions in this case are conservative and contractually
        agreed, so there is a strong probability that surpluses will arise, most
        of which have to be distributed to policyholders. Acquisition costs are
        deferred over the term of the policies in the same proportion as the
        surpluses in individual years contribute to the surplus on the portfolio
        concerned.

     -- policyholders participate in a surplus on the basis of a mechanical or
        non-contributory system, and policyholders are guaranteed fixed benefits
        and do not participate in any profits. All other benefits and risks are
        carried by the insurer. Assumptions in these cases, including provisions
        for adverse deviations, are used which are based on values at the time
        when the policy is taken out. In health insurance the insurer has the
        option of adjusting premiums when the assumptions change. Acquisition
        costs are also recognized over the terms of these policies, but in the
        same proportion as premiums written for the year concerned compared to
        the total premium income.

     -- policyholders carry not only the investment risk and corresponding
        opportunities for benefit, but also any losses (e. g. unit-linked
        insurance policies). The aggregate reserve for these policies is shown
        under a separate liability heading "Insurance reserves for life

                                       F-29

                                 ALLIANZ GROUP

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

        insurance where the investment risk is carried by policyholders." In
        this case, the aggregate reserve is not calculated actuarially, but
        rather it moves in line with the value of the related investments.

     -- policyholders are entitled, within certain limits, to vary the level of
        premium payments, and the life insurance enterprise does not generally
        give any contractual guarantees about minimum rate of return or the
        level of management fees (e. g. universal life policies). In this case,
        the aggregate reserve is not calculated actuarially, but rather it moves
        in line with the policyholders' account balances.

     The interest rate assumptions were as follows:



                                                             POLICIES USING THE      OTHER
                                                           CONTRIBUTION PRINCIPLE   POLICIES
                                                           ----------------------   --------
                                                                              
Aggregate policy reserves................................           3-4%              3-7%
Deferred acquisition costs...............................           5-6%              5-7%


     Acquistion costs are deferred over the term of the policies in the same
proportion as the surpluses in individual years contribute to the surplus on the
portfolio concerned.

     THE RESERVE FOR LOSS AND LOSS ADJUSTMENT EXPENSES is for future payment
obligations under insurance claims, where normally either the amount of benefits
to be paid or the date when payments are to be made is not yet fixed. The
reserve for loss and loss adjustment expenses is calculated at the estimated
amount considered necessary to settle claims in full. It is calculated using
recognized actuarial methods. Unusual cases are calculated on an individual
basis. Past experience is taken into account as well as current and future
anticipated social and economic factors. With the exception of claims for which
annuity reserves have been established, claim reserves are not discounted. The
necessary estimates may mean that the payment obligations calculated may differ
from the ultimate costs.

     The reserve for loss and loss adjustment expenses includes:

     - claims reported at the balance sheet date

     - claims incurred but not yet reported at the balance sheet date

     - claims settlement expenses.

     There is no adequate statistical data available for some risk exposures in
liability insurance, such as environmental and asbestos claims and large-scale
individual claims, because some aspects of these types of claims are still
evolving. Appropriate provision has been made for such cases following an
analysis of the portfolios in which such risks occur.

     OTHER INSURANCE RESERVES include the reserve for premium refunds. This item
includes experience-rated and other premium refunds in favor of policyholders.

     The reserve for premium refunds includes the amounts allocated under the
relevant local statutory or contractual regulations to the accounts of the
policyholders and the amounts resulting from the differences between these IFRS
based financial statements and the local financial statements (latent reserve
for premium refunds), which will reverse and enter into future deferred profit
sharing calculations. These differences are recognized on a future accrual basis
and reported in profit participation accounts.

     Unrealized gains and losses in connection with the valuation of investments
are recognized in the latent reserve for premium refunds to the extent that the
policyholder will participate in such gains and losses on the basis of statutory
or contractual regulations when they are realized.

                                       F-30

                                 ALLIANZ GROUP

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The profit participation allocated to participating policyholders or paid
out to them reduces the reserve. Any dividends allocated or paid out over and
above the reserve are recorded in operating expenses.

     Methods and corresponding percentages for participation in profits by the
policyholders are set out below for the most significant countries:



COUNTRY                                                       METHOD    PERCENTAGE
-------                                                       -------   ----------
                                                                  
Germany:
  Life......................................................  Minimum       90%
  Health....................................................  Minimum       80%
France-Life.................................................  Minimum       85%
Italy-Life..................................................  Minimum       85%


     Other insurance reserves also include the premium deficiency reserve which
is calculated individually for each insurance portfolio on the basis of
estimates of future claims, costs, premiums earned and proportionate investment
income. For short duration contracts, a premium deficiency is recognized if the
sum of unexpected claim costs, claim adjustment expenses, expected dividends to
policyholders, unamortized acquisition costs, and maintenance expenses exceeds
related unearned premiums while considering anticipated investment income. For
long duration contracts, if actual experience regarding investment yields,
mortality, morbidity, terminations or expense indicate that existing contract
liabilities, along with the present value of future gross premiums, will not be
sufficient to cover the present value of future benefits and to recover
unamortized acquisition costs, then a premium deficiency is recognized.

REINSURANCE

     Reinsurance premiums ceded and reinsurance recoveries on benefits and
claims incurred are deducted from the respective income and expense accounts.
Assets and liabilities related to reinsurance ceded are reported on a gross
basis. Prepaid reinsurance represents the ceded portion of unearned premiums.
Amounts recoverable from reinsurers are estimated in a manner consistent with
the claim liability associated with the reinsured risks. Accordingly, revenues
and expenses related to reinsurance agreements are recognized consistent with
the underlying risk of the business reinsured.

LIABILITIES TO BANKS AND CUSTOMERS AND CERTIFICATED LIABILITIES

     Interest-bearing liabilities are accounted for at their nominal value,
e.g., at the amount to be repaid. Where liabilities are entered into subject to
a discount, such discounts are reported as prepaid expenses and amortized over
the life of the respective liabilities, using the effective yield method.
Non-interest-bearing liabilities such as zero-coupon bonds are valued at their
present value on initial recognition and written up in accordance with the
effective yield method at the contracted interest rate. Costs relating to the
issuance of debt securities, such as fees relating to placement, underwriting
commitments, subscription, management or syndication are recognized in the year
that they are incurred, and are reported in "Other expenses".

     Liabilities to banks and customers also include repurchase ("repo")
transactions. Repo transactions involves the sale of securities by the Group to
a counterparty, subject to the simultaneous agreement to repurchase these
securities at a certain later date, at an agreed price. If control of the
securities remains in the Group over the entire lifetime of the transactions,
the securities concerned are retained in the Group's balance sheet and are
valued in accordance

                                       F-31

                                 ALLIANZ GROUP

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

with the accounting principles for trading assets or investments. The proceeds
of the sale are reported under "Liabilities to banks" or "Liabilities to
customers" as appropriate.

     Interest expenses from repos are reported as Interest and similar expenses
in the consolidated income statement.

TRADING LIABILITIES

     Trading liabilities primarily include derivatives with negative market
values and obligations to deliver assets arising from short sales of securities,
which are carried out in order to benefit from short-term price fluctuations.
The securities required to close out short sales are obtained through securities
borrowing or repurchase agreements. These liabilities are valued the same as
trading assets.

OTHER ACCRUED LIABILITIES

     Pension and similar reserves are calculated taking local circumstances into
account as well as current mortality, morbidity and employee turnover
projections. Expected future trends in salaries and wages, retirement rates and
pension increases are also taken into account. The notional interest rate used
is based on the rate for long-term, highly rated corporate or government bonds.

     Accrued taxes are calculated in accordance with relevant local tax
regulations.

     Miscellaneous accrued liabilities primarily include reserves for
restructuring, for anticipated losses arising from non-insurance business, for
litigation, for employees (e.g., early retirement, phased retirement, employee
awards for long service, and vacation) and agents (e.g., unpaid commissions).

OTHER LIABILITIES

     Other liabilities include funds held under reinsurance business ceded,
accounts payable on direct insurance business, accounts payable on reinsurance
business, and miscellaneous liabilities. These are reported at the redemption
value.

DEFERRED TAXES

     The calculation of deferred tax is based on temporary differences between
the carrying amounts of assets or liabilities in the published balance sheet and
their tax bases, and on differences arising from the application of uniform
valuation policies for consolidation purposes. The tax rates used for the
calculation of deferred taxes are the local rates applicable in the countries
concerned; changes to tax rates already adopted prior to or as of the balance
sheet date are taken into account.

PREMIUMS

     Property-casualty insurance premiums are recognized as revenues over the
period of the contract in proportion to the amount of insurance protection
provided. Unearned premiums are calculated separately for each individual policy
to cover the unexpired portion of written premiums.

     Health insurance premiums for long duration contracts such as
non-cancelable and guaranteed renewable contracts that are expected to remain in
force over an extended period of time are recognized as earned when due.
Premiums for short duration health insurance contracts
                                       F-32

                                 ALLIANZ GROUP

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

are recognized as revenues over the period of the contract in proportion to the
amount of insurance protection provided. Unearned premiums are calculated
separately for each individual policy to cover the unexpired portion of written
premiums.

     In the case of premiums for life insurance products where the policyholder
carries the investment risk (e.g., variable annuities), only those parts of the
premiums used to cover the risks insured and costs involved are treated as
premium income.

     Life insurance premiums on traditional life insurance policies are
recognized as earned when due. Premiums on short duration life insurance
policies are recognized as revenues over the period of the contract in
proportion to the amount of insurance protection provided. Unearned premiums are
calculated separately for each individual policy to cover the unexpired portion
of written premiums. Benefits and expenses are provided against such revenues to
recognize profits over the estimated life of the policies.

     Revenues for financial and investment policies, such as universal life and
variable annuity contracts, represent charges assessed against the
policyholders' account balance for the cost of insurance, surrenders and policy
administration and are included with premiums earned on the income statement.
Benefits charged to expense include benefit claims incurred during the period in
excess of policy account balances and interest credited to policy account
balances.

INTEREST AND SIMILAR INCOME/EXPENSES

     Interest income and interest expenses are recognized on an accrual basis.
Interest income from lending business is recognized using the effective yield
method. This item also includes dividends from available for sale equity
securities and interest recognized on finance leases. Dividends are recognized
in income when earned. Interest on finance leases is recognized in interest
income over the term of the respective lease so that a constant period yield
based on the net investment is attained.

TRADING INCOME

     Trading income comprises all realized and unrealized gains and losses from
trading assets and trading liabilities. In addition, commissions and all
interest and all dividend income attributable to trading operations and related
refinancing costs are included in trading income.

FEE AND COMMISSION INCOME AND EXPENSES

     Interest income and interest expenses are recognized on an accrual basis.
Reporting of current income includes interest, dividends from equity securities,
the share of net income from enterprises accounted for using the equity method,
dividend income from investments in affiliated enterprises and participations,
and interest recognized on finance leases. Dividends are recognized in income
when received. Interest on finance leases is recognized in interest income over
the term of the respective lease so that a constant yield based on the net
investment is attained.

     In addition to traditional commission income received on security
transactions, fee and commission income in the securities business also includes
commissions received in relation to private placements, syndicated loans and
financial advisory services. Other fees reflect commissions received for trust
and custody services, for the brokerage of insurance policies, credit cards,
home loans and savings contracts and real estate. Fee and commission income is
recognized in banking business when the corresponding service is provided.

                                       F-33

                                 ALLIANZ GROUP

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

TRUSTEE BUSINESS

     Assets and liabilities held by the Group in its own name, but for the
account of third parties, are not reported in the balance sheet. Commissions
received from such business are shown as "Fee and commission income" in the
income statement.

CONSOLIDATED CASH FLOW STATEMENT

     The consolidated statement of cash flows shows the structure of and changes
in cash and cash equivalents of Allianz Group during the financial year from the
cash flows arising from operating activities, investing activities and financing
activities. The cash flows from investing activities primarily comprise of
changes in investment securities (such as securities available for sale or held
to maturity). Financing activities include all cash flows from transactions
involving equity capital, participation certificates and subordinated
liabilities. Cash flows from operating activities contain all other activities,
which belong to the principal revenue-generating activities.

EQUITY REMUNERATION PLANS

     The Group has elected to account for its share awards (stock appreciation
rights) under the intrinsic value-based method of accounting prescribed by
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees as permitted by Statement 123, Accounting for Stock Based
Compensation. Under the intrinsic value-based method, compensation expense is
the excess, if any, of the quoted market price of the underlying shares at the
balance sheet date over the reference price at the grant date. Compensation
expense is recorded over a period in which employees perform services to which
the awards relate. An increase or decrease in market price of the underlying
shares results in a corresponding change in compensation expense. Compensation
expense is reversed in the period an award is forfeited.

     The following table illustrates the pro forma effect on net income (loss)
and earnings per share for each period indicated as if the Group applied the
fair value recognition provisions of Statement 123 to its equity remuneration
plans. See Note 44 for a description of the method and fair value assumptions
used in estimating the fair value of options.



                                                           YEAR ENDED DECEMBER 31
                                                        ----------------------------
                                                          2002      2001      2000
                                                        --------   -------   -------
                                                              (E IN MILLIONS)
                                                                    
Net income, as reported...............................  E (1,167)  E 1,623   E 3,460
Add: Share-based compensation expense included in
  reported net income, net of related tax effects.....         5        27        21
Deduct: Share-based compensation expense determined
  under fair value method for all awards, net of
  related tax effects.................................         6        31        23
                                                        --------   -------   -------
Pro forma net income (loss)...........................  E (1,168)  E 1,619   E 3,458
                                                        ========   =======   =======
Earnings (loss) per share:
  Basic-as reported...................................  E  (4.81)  E  6.66   E 14.10
  Basic-pro forma.....................................  E  (4.81)  E  6.65   E 14.09

  Diluted-as reported.................................  E  (4.81)  E  6.66   E 14.10
  Diluted-pro forma...................................  E  (4.81)  E  6.65   E 14.09


                                       F-34

                                 ALLIANZ GROUP

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

SEGMENT REPORTING

     Information on segments is reported separately in the consolidated
financial statements. Segment information has been prepared on the basis of the
accounting regulations used to prepare the consolidated financial statements as
a whole. In determining the segments of the Group, management evaluates the
organization of the Group, the revenue generating activities of the Group, the
Group's internal management reporting process and the level of financial
information available and utilized by the Management Board in reviewing
performance.

     As a result of the Group's worldwide organization, the business activities
of the Group are first segregated by product and type of service: insurance
activities, banking activities and asset management activities. Due to
differences in the nature of products, risks and capital allocation, insurance
activities are further divided between property-casualty and life/health
categories. Thus, the operating segments are structured as Property-Casualty,
Life/Health, Banking, and Asset Management. The Group does not aggregate
separate operating segments.

     Based on various legal, regulatory and other operational issues associated
with operating entities in jurisdictions worldwide, the segments of the Group
are also further analyzed by geographical areas or regions in a matrix that
comprises a number of profit and service-center segments. This geographic
analysis is performed to provide further understanding of trends and results
underlying the segment data.

     Property-Casualty:  The Group's property-casualty segment provides
automobile, homeowners