Edgar Filing: ALLIANZ AKTIENGESELLSCHAFT

Annual Report, For the fiscal year ended December 31, 2005

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

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2005

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

For the transition period to

¨	SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell report

Commission file number 1-15154

ALLIANZ AKTIENGESELLSCHAFT

(Exact name of registrant as specified in its charter)

Federal Republic of Germany

(Jurisdiction of incorporation or organization)

Königinstrasse 28, 80802 Munich, Germany

(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act:


Title of Each Class		Name of Each Exchange on Which Registered
Ordinary Shares (without par value)*		The New York Stock Exchange, Inc.

*	Not for trading, but only in connection with the listing of American Depositary Shares, pursuant to the requirements of the New York Stock Exchange.

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock at December 31, 2005:


Ordinary shares, without par value		405,298,397 shares

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

YES x NO ¨

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

YES ¨ NO x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES x NO ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer x		Accelerated filer ¨		Non-accelerated filer ¨

Indicate by check mark which financial statement item the registrant has elected to follow.

Item 17 ¨ Item 18 x

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

YES ¨ NO x

TABLE OF CONTENTS


Item		Page
TABLE OF CONTENTS		i
Presentation of Financial and Other Information		1
Cautionary Statement Regarding Forward-Looking Statements		2
ITEM 1.	Identity of Directors, Senior Management and Advisors	3
ITEM 2.	Offer Statistics and Expected Timetable	3
ITEM 3.	Key Information	3
	Selected Consolidated Financial Data	3
	Dividends	5
	Exchange Rate Information	5
	Risk Factors	6
ITEM 4.	Information on the Company	12
	The Allianz Group	12
	Insurance Operations	12
	Banking Operations	13
	Asset Management Operations	14
	Competition	15
	International Presence	15
	Allianz-RAS Merger/European Company (SE)	18
	Reorganization of German Insurance Operations	19
	Property-Casualty Insurance Reserves	19
	Selected Statistical Information Relating to Our Banking Operations	33
	Regulation and Supervision	53
ITEM 4A.	Unresolved Staff Comments	58
ITEM 5.	Operating and Financial Review and Prospects	58
	Critical Accounting Policies and Estimates	58
	Changes to Accounting and Valuation Policies	66
	Introduction	66
	Executive Summary	67
	Allianz Group’s Consolidated Results of Operations	69
	Allianz Group’s Consolidated Assets, Liabilities and Shareholders’ Equity	74


	Effects of Recently Adopted Accounting Pronouncements	78
	Recently Issued Accounting Pronouncements	79
	Events After the Balance Sheet Date	79
	Property-Casualty Insurance Operations	80
	Property-Casualty Operations by Geographic Region	85
	Our Largest Markets & Companies	88
	Life/Health Insurance Operations	90
	Life/Health Operations by Geographic Region	94
	Our Largest Markets & Companies	98
	Banking Operations	100
	Banking Operations by Division	105
	Banking Operations by Geographic Region	106
	Asset Management Operations	107
	Liquidity and Capital Resources	113
	Investment Portfolio Impairments, Depreciation and Unrealized Losses	119
	Tabular Disclosure of Contractual Obligations	124
	Expected Developments	125
ITEM 6.	Directors, Senior Management and Employees	126
	Corporate Governance	126
	Board of Management	128
	Supervisory Board	131
	RAS Merger and the Future Allianz SE—Anticipated Changes in the Corporate Constitution	135
	Compensation of Directors and Officers	135
	Board Practices	139
	Share Ownership	139
	Employees	139
	Stock-based Compensation Plans	139
	Employee Stock Purchase Plans	140
ITEM 7.	Major Shareholders and Related Party Transactions	140
	Major Shareholders	140
	Related Party Transactions	141

TABLE OF CONTENTS


Item		Page
ITEM 8.	Financial Information	141
	Consolidated Statements and Other Financial Information	141
	Legal Proceedings	141
	Dividend Policy	141
	Significant Changes	141
ITEM 9.	The Offer and Listing	141
	Trading Markets	141
	Market Price Information	142
ITEM 10.	Additional Information	143
	Articles of Association	143
	Capital Increase	144
	Material Contracts	144
	Exchange Controls	144
	German Taxation	145
	United States Taxation	147
	Documents on Display	149
ITEM 11.	Quantitative and Qualitative Disclosures About Market Risk	149
	Risk Governance Structure	149
	Market Risk Measurement	159
	Allianz Group Market Risk Exposure Estimates	160


Item		Page
ITEM 12.	Description of Securities Other than Equity Securities	162
ITEM 13.	Defaults, Dividend Arrearages and Delinquencies	162
ITEM 14.	Material Modifications to the Rights of Security Holders and Use of Proceeds	162
ITEM 15.	Controls and Procedures	163
ITEM 16A.	Audit Committee Financial Expert	163
ITEM 16B.	Code of Ethics	163
ITEM 16C.	Principal Accountant Fees and Services	163
ITEM 16D.	Exemptions from the Listing Standards for Audit Committees	164
ITEM 16E.	Purchases of Equity Securities by the Issuer and Affiliated Purchasers	165
ITEM 17.	Financial Statements	166
ITEM 18.	Financial Statements	166
ITEM 19.	Exhibits	166

Index to the Consolidated Financial Statements and Schedules

PRESENTATION OF FINANCIAL AND OTHER INFORMATION

In this Annual Report, the terms “we,” “us” and “our” refer to Allianz Aktiengesellschaft (or Allianz AG, and together with its consolidated subsidiaries, the Allianz Group), unless the context requires otherwise.

Unless otherwise indicated, when we use the term “consolidated financial statements,” we are referring to the consolidated financial statements (including the related notes) of Allianz AG as of December 31, 2005 and 2004 and for each of the years in the three-year period ended December 31, 2005, which have been audited by KPMG Deutsche Treuhand-Gesellschaft AG Wirtschaftsprüfungsgesellschaft. The consolidated financial statements have been prepared in accordance with the new and revised International Financial Reporting Standards, effective January 1, 2005, as adopted under European Union regulations in accordance with clause 315a of the German Commercial Code, which we refer to herein as “IFRS” or “2005 IFRS.” IFRS differs in certain respects from accounting principles generally accepted in the United States of America (U.S. GAAP). For a discussion of significant differences between IFRS and U.S. GAAP and a reconciliation of net income and shareholders’ equity under IFRS and U.S. GAAP, you should read Note 47 to the consolidated financial statements. In addition, the amounts set forth in some of the tables may not add up to the total amounts given in those tables due to rounding.

References herein to “$”, “U.S.$” and “U.S. dollars” are to United States dollars and references to “€” and “Euro” are to the Euro, the single currency established for participants in the third stage of the European Economic and Monetary Union (or EMU), commencing January 1, 1999. We refer to the countries participating in the third stage of the EMU as the “Euro zone.”

For convenience only (except where noted otherwise), some of the Euro figures have been translated into U.S. dollars at the rate of $1.2139 = €1.00, the noon buying rate in New York for cable transfers in Euros certified by the Federal Reserve Bank of New York for customs purposes on March 31, 2006. These translations do not mean that the Euro amounts actually represent those U.S. dollar amounts or could be converted into U.S. dollars at those rates. See “Key Information—Exchange Rate Information” for information concerning the noon buying rates for the Euro from January 1, 2001 through March 31, 2006.

Unless otherwise indicated, when we use the terms “gross premiums,” “gross premiums written” and “gross written premiums,” we are referring to premiums (whether or not earned) for insurance policies written during a specific period, without deduction for premiums ceded to reinsurers, and when we use the terms “net premiums,” “net premiums written” and “net written premiums,” we are referring to premiums (whether or not earned) for insurance policies written during a specified period, after deduction for premiums ceded to reinsurers. When we use the term “statutory premiums,” we are referring to gross premiums written from sales of life insurance policies as well as gross receipts from sales of unit-linked and other investment-oriented products, in accordance with the statutory accounting practices applicable in the relevant insurer’s home jurisdiction.

Unless otherwise indicated, we have obtained data regarding the relative size of various national insurance markets from annual reports prepared by SIGMA, an independent organization which publishes market research data on the insurance industry. In addition, unless otherwise indicated, insurance market share data are based on gross premiums written and statutory premiums for our Property-Casualty and Life/Health segments, respectively. Data on position and market share within particular countries are based on various third party and/or internal sources as indicated herein.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This annual report includes “forward-looking statements” within the meaning of the safe harbor provisions of The Private Securities Litigation Reform Act of 1995. These include statements under “Information on the Company,” “Operating and Financial Review and Prospects,” “Quantitative and Qualitative Disclosures About Market Risk” and elsewhere in this annual report relating to, among other things, our future financial performance, plans and expectations regarding developments in our business, growth and profitability, and general industry and business conditions applicable to the Allianz Group. These forward-looking statements can generally be identified by terminology such as “may,” “will,” “should,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or other similar terminology. We have based these forward-looking statements on our current expectations, assumptions, estimates and projections about future events. These forward-looking statements are subject to a number of risks, uncertainties, assumptions and other factors that may cause our actual results, performance or achievements or those of our industry to be materially different from or worse than those expressed or implied by these forward-looking statements. These factors include, without limitation:

•

general economic conditions, including in particular economic conditions in our core business areas and core markets;

•

function and performance of global financial markets, including emerging markets;

•

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

•

mortality and morbidity levels and trends;

•

persistency levels;

•

interest rate levels;

•

currency exchange rate developments, including the Euro/U.S. dollar exchange rate;

•

levels of additional loan loss provisions;

•

further impairments of investments;

•

general competitive factors, in each case on a local, regional, national and global level;

•

changes in laws and regulations, including in the United States and in the European Union;

•

changes in the policies of central banks and/or foreign governments;

•

the impact of acquisitions, including related integration and restructuring issues; and

•

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

PART I

ITEM 1.

Identity of Directors, Senior Management and Advisors

Not applicable.

ITEM 2. Offer Statistics and Expected Timetable

Not applicable.

ITEM 3. Key Information

Selected Consolidated Financial Data

We present below our selected financial data as of and for each of the years in the five-year period ended December 31, 2005. We derived the selected financial data for each of the years in the five-year period ended December 31, 2005 from our audited annual consolidated financial statements, including the notes to those financial statements. All the data should be read in conjunction with our consolidated financial statements and the notes thereto.

We prepare our annual audited consolidated financial statements in accordance with 2005 IFRS, which introduced a number of new and revised IFRS effective January 1, 2005. Some of these new and revised IFRS required retrospective application to all years of a company’s financial statements. As a result, the financial statements for the Allianz Group previously issued in connection with our Annual Report on Form 20-F for the year ended December 31, 2004 have been revised to retrospectively apply 2005 IFRS, and are included herein. Retrospective application has the effect of applying 2005 IFRS to prior periods as if those accounting principles had always been used. This Annual Report on Form 20-F for the year ended December 31, 2005 is prepared in accordance with 2005 IFRS. Our selected financial data as of and for each of the years ended December 31, 2004, 2003 and 2002 is also presented below in accordance with 2005 IFRS. The selected financial data as of and for the year ended December 31, 2001 is, however, presented below in accordance with IFRS effective as of December 31, 2004 (or “pre-2005 IFRS”) and accordingly does not reflect the retrospective application of 2005 IFRS, due to the unreasonable effort or expense required to prepare such information, in particular resulting from the implementation for such year of the new impairment criteria of IAS 39 revised, Financial Instruments: Recognition and Measurement.

IFRS differ in certain significant respects from U.S. generally accepted accounting principles, which in this Annual Report on Form 20-F we refer to as “U.S. GAAP.” For a description of the significant differences between IFRS and U.S. GAAP as they relate to us and a reconciliation of our net income and shareholders’ equity under IFRS to U.S. GAAP, see Note 47 to our audited annual consolidated financial statements included herein.


At or For the Years ended December 31,	2005		2005		Change from prev. year		2004		2003		2002		2001⁽²⁾
	$⁽¹⁾		€		%		€		€		€		€
	(in millions, except per share data)
Income statement
Total revenues⁽³⁾
Property-Casualty	53,486		44,061		0.6		43,780		43,420
Life/Health	58,424		48,129		6.5		45,177		42,319
Banking	7,569		6,235		(3.3	)	6,446		6,704
Asset Management	3,318		2,733		18.4		2,308		2,226
Consolidation	(317	)	(261	)			(836	)	(929	)

Total Group	122,480		100,897		4.2		96,875		93,740			⁽⁴⁾		⁽⁴⁾
Operating profit
Property-Casualty	5,052		4,162		4.6		3,979		2,397
Life/Health	1,946		1,603		13.0		1,418		1,265
Banking	1,026		845		44.2		586		(396	)
Asset Management	1,375		1,133		32.4		856		716

Total Group	9,399		7,743		13.2		6,839		3,982			⁽⁴⁾		⁽⁴⁾
Earnings from ordinary activities before taxes⁽⁵⁾	9,566		7,880		54.6		5,096		3,866		(3,991	)	1,768
Net income (loss)⁽⁵⁾	5,317		4,380		93.3		2,266		2,691		(3,243	)	1,585
Balance sheet
Investments	343,437		282,920		13.9		248,327		231,397		228,111		345,302
Loans and advances to banks and customers	408,851		336,808		(10.7	)	377,223		378,295		329,195		300,967
Total assets	1,211,328		997,881		0.8		990,318		933,213		848,752		942,986
Shareholders’ equity before minority interests	47,933		39,487		31.6		29,995		27,993		21,046		31,613
Minority interests in shareholders’ equity	9,244		7,615		(1.1	)	7,696		7,266		7,965		17,349
Reserves for insurance and investment contracts	435,956		359,137		10.0		326,380		309,460		303,258		299,512	⁽⁶⁾
Liabilities to banks and customers	376,693		310,316		(11.0	)	348,484		332,906		284,598		312,725
Returns
Return on equity after taxes⁽⁷⁾	12.6	%	12.6	%	4.8 pts		7.8	%	11.0	%	(12.5	)%	4.7	%
Return on equity after taxes and before goodwill amortization⁽⁷⁾	12.6	%	12.6	%	1.0 pts		11.6	%	16.5	%	(8.3	)%	6.9	%
Share information
Basic earnings per share⁽⁵⁾	13.64		11.24		81.6		6.19		7.96		(11.71	)	6.51
Diluted earnings per share⁽⁵⁾	13.52		11.14		80.8		6.16		7.93		(11.71	)	6.51
Weighted average number of shares outstanding
Basic	389.8		389.8		6.5		365.9		338.2		276.9		277.8
Diluted	393.3		393.3		6.8		368.1		339.8		276.9		277.8
Shareholders’ equity per share	147		121		17.5		103		104		105		176
Dividend per share	2.43		2.00		14.3		1.75		1.50		1.50		1.50
Dividend payment	984		811		20.3		674		551		374		364
Share price⁽⁸⁾	155.31		127.94		31.1		97.60		100.08		80.80		237.10
Market capitalization	63,061		51,949		44.6		35,936	⁽⁹⁾	36,743	⁽⁹⁾	22.039	⁽⁹⁾	64,156	⁽⁹⁾
Other data
Employees	177,625		177,625		0.6		176,501		173,750		181,651		179,946
Third-party assets under management	901,851		742,937		27.0		584,624		564,714		560,588		620,458
U.S. GAAP consolidated data
Net income (loss)	4,483		3,693		28.2		2,881		2,245		(1,260	)	4,246
Basic earnings per share	11.33		9.33		18.6		7.87		6.71		(4.79	)	16.30
Diluted earnings per share	11.24		9.26		18.3		7.83		6.70		(4.79	)	16.30
Shareholders’ equity	53,877		44,383		33.0		33,380		30,825		22,836		31,655
Shareholders’ equity per share	138		114		25.3		91		91		83		114

⁽¹⁾	Amounts given in Euros have been translated for convenience only into U.S. dollars at the rate of $1.2139 = €1.00, the noon buying rate in New York for cable transfers in Euros certified by the Federal Reserve Bank of New York for customs purposes on March 31, 2006.

⁽²⁾	Our selected financial data as of and for the year ended December 31, 2001 is presented in accordance with pre-2005 IFRS.

⁽³⁾	Total revenues comprise Property-Casualty segment’s gross premiums written, Life/Health segment’s statutory premiums, Banking segment’s operating revenues, and Asset Management segment’s operating revenues.

⁽⁴⁾	Not previously presented as net income and total income were the relevant performance measures used by the Allianz Group in such years.

⁽⁵⁾	Effective January 1, 2005, under IFRS, and on a prospective basis, goodwill is no longer amortized.

⁽⁶⁾

Represents amounts included in the “Insurance reserves” line-item under pre-2005 IFRS. Under 2005 IFRS, this line-item has been replaced with “Reserves for insurance and investment contracts” in our consolidated financial statements pursuant to the Allianz Group’s adoption of IFRS 4, Insurance Contracts, as discussed further in Note 3 to our consolidated financial statements.

⁽⁷⁾	Based on average shareholders’ equity before minority interests. Average shareholders’ equity before minority interests has been calculated based upon the average of the current and preceding year’s shareholders’ equity before minority interests.

⁽⁸⁾	Retrospectively adjusted for transactions affecting our share capital, specifically capital increases.

⁽⁹⁾	Excluding treasury shares.

Dividends

The following table sets forth the annual dividends paid per ordinary share and American Depositary Share (or “ADS”) equivalent for 2001 through 2005. The table does not reflect the related tax credits available to German taxpayers. See “Additional Information—Taxation—German Taxation—Taxation of Dividends.”


	Dividend per ordinary share		Dividend paid per ADS equivalent
	€	$	€	$
2001	1.50	1.42	0.150	0.142
2002	1.50	1.76	0.150	0.176
2003	1.50	1.82	0.150	0.182
2004	1.75	2.27	0.175	0.227
2005⁽¹⁾	2.00	2.43	0.200	0.243

⁽¹⁾

Dividend amounts given in Euros have been translated for convenience only into U.S. dollars at the rate of $1.2139 = €1.00, the noon buying rate in New York for cable transfers in Euros certified by the Federal Reserve Bank of New York for customs purposes on March 31, 2006. 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

The table below sets forth, for the periods indicated, information concerning the noon buying rates for the Euro expressed in U.S. dollars per €1.00. No representation is made that the Euro or U.S. dollar amounts referred to herein could be or could have been converted into U.S. dollars or Euros, as the case may be, at any particular rate or at all.


	High	Low	Period average⁽¹⁾	Period end
	($ per €1.00)
2001	0.9535	0.8370	0.8952	0.8901
2002	1.0485	0.8594	0.9454	1.0485
2003	1.2597	1.0361	1.1321	1.2597
2004	1.3625	1.1801	1.2478	1.3538
2005	1.3476	1.1667	1.2400	1.1842
October	1.2148	1.1914	1.1955	1.1995
November	1.2067	1.1667	1.1894	1.1790
December	1.2041	1.1699	1.1772	1.1842
2006
January	1.2287	1.1980	1.2069	1.2158
February	1.2100	1.1860	1.2009	1.1925
March	1.2197	1.1886	1.2028	1.2139

⁽¹⁾	Computed using the average of the noon buying rates for Euros on the last business day of each month during the relevant annual period or on the first and last business days of each month during the relevant monthly period.

On March 31, 2006, the noon buying rate for the Euro was $1.2139.

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. An increase in interest rates could substantially decrease the value of our fixed income portfolio, and any unexpected change in interest rates could materially adversely affect our bond and interest rate derivative positions. 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.

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.

In addition, 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.

Market risks could impair the value of our portfolio and adversely impact our financial position and results of operations.

We hold a significant equity portfolio, which represented approximately 16% of our Group’s own investments at December 31, 2005, excluding trading portfolios. Fluctuations in equity markets affect the market value and liquidity of these holdings. We also have real estate holdings in our investment portfolio, the value of which is likewise exposed to changes in real estate market prices and volatility.

Most of our assets and liabilities are recorded at fair value, including trading assets and liabilities, financial assets and liabilities designated at fair value through income, and securities available-for-sale. Changes in the value of securities held for trading purposes and financial assets designated at fair value through income are recorded through our consolidated income statement. Changes in the market value of securities available-for-sale are recorded directly in our consolidated shareholders’ equity. Available-for-sale equity and fixed income securities, as well as securities classified as held-to-maturity, are reviewed regularly for impairment, with write-downs to fair value charged to income if there is objective evidence that the cost may not be recovered. See “Operating and Financial Review and Prospects—Critical Accounting Policies and Estimates” and Note 2 to our consolidated financial statements for further information concerning our significant accounting and valuation policies.

Market and other factors could adversely affect goodwill, deferred policy acquisition costs and deferred tax assets; our deferred tax assets are also potentially impacted by changes in tax legislation.

Business and market conditions may impact the amount of goodwill we carry in our consolidated financial statements. As of December 31, 2005, we have recorded goodwill in an aggregate amount of €12,023 million, of which €1,625 million relates to our banking business, €6,604 million to our asset management business and €3,794 million relates to our insurance business.

As the value of certain parts of our businesses, including in particular our banking and asset management businesses, are significantly impacted by such factors as the state of financial markets and ongoing operating performance, significant declines in financial markets or operating performance could also result in impairment of other goodwill carried by us and result in significant write-downs, which could be material. No impairments were recorded for goodwill in 2005.

The assumptions we made with respect to recoverability of deferred policy acquisition costs (or “DAC”) are also affected by such factors as operating performance and market conditions. DAC is incurred in connection with the production of new and renewal insurance business and is deferred and amortized generally in proportion to profits or to premium income expected to be generated over the life of the underlying policies, depending on the classification of the product. If the assumptions on which expected profits are based prove to be incorrect, it may be necessary to accelerate amortization of DAC, even to the extent of writing down DAC through impairments, which could materially adversely affect results of operations. No impairments were recorded for DAC in 2005.

As of December 31, 2005, we had a total of €14,596 million in net deferred tax assets and €14,621 million in deferred tax liabilities. The calculation of the respective tax assets and liabilities is based on current tax laws and IFRS and depends on the performance of the Allianz Group as a whole and certain business units in particular. At December 31, 2005, €5,018 million (2004: €5,337 million) of deferred tax assets depended on the ability to use existing tax-loss carry forwards.

Changes in German or other tax legislation or regulations or an operating performance below currently anticipated levels may lead to a significant impairment of deferred tax assets, in which case we could be obligated to write-off certain tax assets. Tax assets may also need to be written-down if certain assumptions of profitability prove to be incorrect, as losses incurred for longer than expected will make the usability of tax assets more unlikely. Any such development may have a material adverse impact on our results of operations.

Loss reserves for our property-casualty insurance and reinsurance policies are based on estimates as to future claims liabilities. Adverse developments relating to claims could lead to further reserve additions and materially adversely impact 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 property-casualty business in run-off. Reserves are based on estimates of future payments that will be made in respect of claims, including expenses relating to such claims. Such estimates are made both on a case-by-case basis, based on the facts and circumstances available at the time the reserves are established, as well as in respect of losses that have been incurred but not reported (or “IBNR”) to the Allianz Group. These reserves represent the estimated ultimate cost necessary to bring all pending reported and IBNR claims to final settlement.

Reserves, including IBNR reserves, are subject to change due to a number of variables 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 other factors such as inflation and exchange rates, and our reserves for asbestos and environmental and other latent claims are particularly subject to such variables. Our results of operations 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 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 affect our results of operations.

Established loss reserves estimates are periodically adjusted in the ordinary course of settlement, using the most current information available to management, and any adjustments resulting from changes in reserve estimates are reflected in current results of operations. We also conduct reviews of various lines of business to consider the adequacy of reserve levels. Based on current information available to us and on the basis of our internal procedures, our management considers that these reserves are adequate at December 31, 2005. However, because the establishment of reserves for loss and loss adjustment expenses is an inherently uncertain process, there can be no assurance that ultimate losses will not materially exceed the established reserves for loss and loss adjustment expenses and have a material adverse effect on our results of operations. See “Information on the Company—Property-Casualty Insurance Reserves.”

Actuarial experience and other factors could differ from that assumed in the calculation of life/health actuarial reserves and pension liabilities.

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

We have a significant portfolio of contracts with guaranteed investment returns, including endowment and annuity products for the German market as well as certain guaranteed contracts in other markets. The amounts payable by us at maturity of an endowment policy in Germany and in certain other markets include a “guaranteed benefit,” an amount that, in practice, is equal to a legally mandated maximum rate of return on actuarial reserves. If interest rates 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 significant portfolio of contracts with guaranteed investment returns indexed to equity markets. We enter into derivative contracts as a means of mitigating the risk of investment returns underperforming guaranteed returns. However, there can be no assurance that the hedging arrangements will satisfy the returns guaranteed to policyholders, which could in turn have a material adverse effect on our results of operations.

Our financial results may be materially adversely affected by the occurrence of catastrophes.

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

Although we monitor our overall exposure to catastrophes and other unpredictable events in each geographic region, each of our subsidiaries independently determines its own underwriting limits related to insurance coverage for losses from catastrophic events. We generally seek to reduce our exposure to these events through the purchase of reinsurance, selective underwriting practices and by monitoring risk accumulation. However, such efforts to reduce exposure may not be successful and claims relating to catastrophes may result in unusually high levels of losses and could have a material adverse effect on our financial position or results of operations.

We have significant counterparty risk exposure.

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

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

Reinsurers. We transfer our exposure to certain risks in our property-casualty and life/health insurance business to others through reinsurance arrangements. Under these arrangements, other insurers assume a portion of our losses and expenses associated with reported and unreported losses in exchange for a portion of policy premiums. The availability, amount and cost of reinsurance depend on general market conditions and may vary significantly. Any decrease in the amount of our reinsurance will increase our risk of loss. When we obtain reinsurance, we are still liable for those transferred risks if the reinsurer cannot meet its obligations. Therefore, the inability of our reinsurers to meet their financial obligations could materially affect our results of operations. Although we conduct periodic reviews of the financial statements and reputations of our reinsurers, including, and as appropriate, requiring letters of credit, deposits or other financial measures to further minimize our exposure to credit risk, reinsurers may become financially unsound by the time they are called upon to pay amounts due.

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

Claims paying ability and financial strength ratings are a factor in establishing the competitive position of insurers. Our financial strength rating has a significant impact on the individual ratings of key subsidiaries. If a rating of certain subsidiaries falls below a certain threshold, the respective operating business may be significantly impacted. A ratings downgrade, or the potential for such a downgrade, of the Allianz Group or any of our insurance subsidiaries could, among other things, adversely affect relationships with agents, brokers and other distributors of our products and services, thereby negatively impacting new sales, adversely affect our ability to compete in our markets and increase our cost of borrowing. In particular, in those countries where primary distribution of our products is done through independent agents, such as the United States, future ratings downgrades could adversely impact sales of our life insurance products. Any future ratings downgrades could also materially adversely affect our cost of raising capital, and could, in addition, give rise to additional financial obligations or accelerate existing financial obligations which are dependent on maintaining specified rating levels.

Rating agencies can be expected to continue to monitor our financial strength and claims paying ability, and no assurances can be given that future ratings downgrades will not occur, whether due to changes in our performance, changes in rating agencies’ industry views or ratings methodologies, or a combination of such factors.

If our asset management business underperforms, it may experience a decline in assets under management and related fee income.

While the assets under management in our asset management segment include a significant amount of funds related to our insurance operations, third-party assets under management, particularly following the acquisitions of PIMCO in May 2000, Nicholas-Applegate in January 2001 and Dresdner Bank in July 2001, represent the majority. Results of our asset management activities are affected by share prices, share valuation, interest rates and market volatility. In addition, third-party funds are subject to withdrawal in the event our investment performance is not competitive with other asset management firms. Accordingly, fee income from the asset management business might decline if the level of our third-party assets under management were to decline due to investment performance or otherwise.

The individual or combined impact of any of the events mentioned above could also cause an impairment of goodwill and result in significant write-downs, which could be material.

Increased geopolitical risks following the terrorist attack of September 11, 2001, and any future terrorist attacks, could have a continuing negative impact on our businesses.

After September 11, 2001, reinsurers generally either put terrorism exclusions into their policies or drastically increased the price for such coverage. Although we have attempted to exclude terrorist coverage from policies we write, this has not been possible in all cases, including as a result of legislative developments such as the Terrorism Risk Insurance Act (or “TRIA”) in the United States. Furthermore, even if terrorism exclusions are permitted in our primary insurance policies, we may still have liability for fires and other consequential damage claims that follow an act of terrorism itself. As a result we may have liability under primary insurance policies for acts of terrorism and may not be able to recover a portion or any from our reinsurers.

At this time, we cannot assess the future effects of terrorist attacks, potential ensuing military and other responsive actions, and the possibility of further terrorist attacks, on our businesses. Such matters have significantly adversely affected general economic, market and political conditions, increasing many of the risks in our businesses noted in the previous risk factors. This may have a material negative effect on our businesses and results of operations over time.

Changes in existing, or new, government laws and regulations, or enforcement initiatives in respect thereof, in the countries in which we operate may materially impact us and could adversely affect our business.

Our insurance, banking and asset management businesses are subject to detailed, comprehensive laws and regulation as well as supervision in all the countries in which we do business. Changes in existing laws and regulations may affect the way in which we conduct our business and the products we may offer. Changes in regulations relating to pensions and employment, social security, financial services including reinsurance business, taxation, securities products and transactions may materially adversely affect our insurance, banking and asset management businesses by restructuring our activities, imposing increased costs or otherwise.

Regulatory agencies have broad administrative power over many aspects of the financial services business, which may include liquidity, capital adequacy and permitted investments, ethical issues, money laundering, privacy, record keeping, and marketing and selling practices. Banking, insurance and other financial services laws, regulations and policies currently governing us and our subsidiaries may change at any time in ways which have an adverse effect on our business, and we cannot predict the timing or form of any future regulatory or enforcement initiatives in respect thereof. Also, bank regulators and other supervisory authorities in the EU, the United States and elsewhere continue to scrutinize payment processing and other transactions under regulations governing such matters as money-laundering, prohibited transactions with countries subject to sanctions, and bribery or other anti-corruption measures. If we fail to address, or appear to fail to address, appropriately any of these changes or initiatives, our reputation could be harmed and we could be subject to additional legal risk, including to enforcement actions, fines and penalties. Despite our best efforts to comply with applicable regulations, there are a number of risks in areas where applicable regulations may be unclear or where regulators revise their previous guidance or courts overturn previous rulings. Regulators and other authorities have the power to bring administrative or judicial proceedings against us, which could result, among other things, in suspension or revocation of our licenses, cease-and-desist orders, fines, civil penalties, criminal penalties or other disciplinary action which could materially harm our results of operations and financial condition.

Effective January 2005, reinsurance companies in Germany such as Allianz AG are subject to specific legal requirements regarding the assets covering their technical reserves. These assets are required to be appropriately diversified to prevent a reinsurer from relying excessively on any particular asset. The introduction of these requirements anticipated the implementation of EU Reinsurance Directive (2005/68/EC) which was adopted in November 2005. The implementation of the directive’s provisions that have not yet been

implemented in Germany effective January 2006 is expected to occur by the end of 2006. Although Allianz AG expects to meet the new requirements of the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, or “BaFin”) once fully implemented, there can be no assurances as to the impact on Allianz AG of any future amendments to or changes in the interpretation of the laws and regulations regarding assets covering technical reserves of reinsurance companies, which could require Allianz AG to change the composition of its asset portfolio covering its technical reserves or take other appropriate measures.

In addition, currently discussions on a new solvency regime for insurance companies in the EU (Solvency II) are ongoing. As those discussions are in a preliminary stage, its potential future impact for capital requirements can not currently be assessed. For more information, see “Information on the Company—Regulation and Supervision.”

In addition, changes to tax laws may affect the attractiveness of certain of our products that currently receive favorable tax treatment. Governments in jurisdictions in which we do business may consider changes to tax laws which could adversely affect such existing tax advantages, and if enacted, could result in a significant reduction in the sale of such products.

Our business may be negatively affected by adverse publicity, regulatory actions or litigation with respect to the Allianz Group, other well-known companies and the financial services industry generally.

Adverse publicity and damage to our reputation arising from failure or perceived failure to comply with legal and regulatory requirements, financial reporting irregularities involving other large and well-known companies, increasing regulatory and law enforcement scrutiny of “know your customer” anti-money laundering and anti-terrorist-financing procedures and their effectiveness, regulatory investigations of the mutual fund and insurance industries, and litigation that arises from the failure or perceived failure by Allianz Group companies to comply with legal and regulatory requirements, could result in increased regulatory supervision, affect our ability to attract and retain customers, maintain access to the capital markets, result in suits, enforcement actions, fines and penalties or have other adverse effects on us in ways that are not predictable.

Changes in value relative to the Euro of non-Euro zone currencies in which we generate revenues and incur expenses could adversely affect our reported earnings and cash flow.

We prepare our consolidated financial statements in Euro. However, a significant portion of the revenues and expenses from our subsidiaries outside the Euro zone, including in the United States, Switzerland and the United Kingdom, originates in currencies other than the Euro. We expect this trend to continue as we expand our business into growing non-Euro zone markets. For the year ended December 31, 2005, approximately 35.8% of our gross premiums written in our property-casualty segment and 34.2% of our statutory premiums in our life/health segment originated in currencies other than the Euro.

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

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 and may continue to be volatile due in part to the high volatility in the securities markets generally, and in financial institutions’ shares in particular, as well as developments which impact our financial results. Factors other than our financial results that may affect our share price include but are not limited to: market expectations of the performance and capital adequacy of financial institutions generally; investor perception of as well as the actual performance of other financial institutions; investor perception of the success and impact of our strategy; a downgrade or rumored downgrade of our credit ratings; potential litigation or regulatory action involving the Allianz Group or any of the industries we have exposure to through our

insurance, banking and asset management activities; announcements concerning the bankruptcy or other similar reorganization proceedings involving, or any investigations into the accounting practices of, other insurance or reinsurance companies, banks or asset management companies; and general market volatility.

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

The benefits that Allianz AG may realize from the merger with its Italian subsidiary, RAS S.p.A., and from Allianz AG’s conversion into a European Company (Societas Europaea, or “SE”) in connection therewith could be materially different from our current expectations. For more information about this transaction, see “Information on the Company – Allianz-RAS Merger / European Company (SE).” However, our estimates of the benefits that we may realize as a result of the merger and conversion to an SE involve subjective judgments that are subject to uncertainties. A variety of factors that are partially or entirely beyond our control could cause actual results to be materially different from what we currently expect, and any synergies that we realize from the merger and conversion to an SE therefore could as a result be materially different from our current expectations.

ITEM 4. Information on the Company

The Allianz Group

We are among the world’s largest financial services providers.

•

Founded in 1890, with 115 years of experience in the financial services industry and operations in over 70 countries worldwide, we continue our legacy of commitment in providing financial security to our more than 60 million customers across the globe.

•

We are among the world’s largest 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 the largest German financial institution, based on market capitalization at March 1, 2006⁽¹⁾.

Allianz AG, a stock corporation organized in the Federal Republic of Germany under the German Stock Corporation Act, is the ultimate parent company of the Allianz Group. It was incorporated as Allianz Versicherungs-Aktiengesellschaft in Berlin, Germany on February 5, 1890. Our registered office is located at Königinstrasse 28, 80802 Munich, Germany, telephone (49)(89) 3800-0. See “– Allianz-RAS Merger / European Company (SE)” for information on the conversion of Allianz AG into a European Company (SE) upon completion of the contemplated merger with Riunione Adriatica di Sicurtà S.p.A. (or “RAS”) to become Allianz SE.

Insurance Operations

•

We are one of the leading insurance groups in the world. We rank number one in the German property-casualty and life insurance markets based on gross premiums written and statutory premiums, respectively, in 2005⁽²⁾.

•

Of the more than 70 countries in which we operate, we are among the largest insurance companies in a number of them, including France, Italy, Spain, Switzerland and the United Kingdom.

In our Property-Casualty segment, we provide a wide array of products, including, among others, motor, homeowners, travel and other personal lines products. Furthermore, we are a leading provider of commercial and industrial coverage to enterprises of all sizes, including many of the world’s largest companies. Through our specialty lines of business, we offer credit insurance, marine, aviation and industrial transport insurance, international industrial risks reinsurance, as well as travel insurance and assistance services, which we manage on a worldwide basis.

⁽¹⁾	Source: Deutsche Börse Group.

⁽²⁾	Source: Gesamtverband der Deutschen Versicherungswirtschaft e.V. (or “GDV”) and our own internal analysis and estimates. The GDV is a private association representing the German insurance industry.

Our Life/Health segment provides, among others, traditional life, endowment, annuity, including equity-indexed annuities, and term insurance products. Additionally, we serve individuals with a wide range of health, disability and related coverage and provide group life, group health and pension products to employers.

Within our home market of Europe, France, Germany, Italy, Spain, Switzerland and the United Kingdom comprise our primary insurance markets, with Germany as our most important single market, although we operate in almost every European country. We also consider the United States as one of our primary markets. Please see “– International Presence” for a breakdown of selected operating entities within our primary markets and others.

We distribute our property-casualty and life/health insurance products through a broad network of self-employed full-time tied agents, part-time tied agents, brokers, banks and other channels. The particular distribution channels we use vary based on product and geographic market. Within our primary market of Germany, we rely predominantly on full-time tied agents. Our insurance products are marketed in Germany primarily under the “Allianz” brand name. In other countries, we operate through our subsidiary insurers’ brand names, which are identified as part of the Allianz Group.

Allianz AG, the parent company of the Allianz Group, acts as the Allianz Group’s reinsurer for almost all of our insurance operations, other than international industrial risks reinsurance. For the years ended December 31, 2005, 2004 and 2003, Allianz AG assumed 39.6%, 37.6% and 39.1%, respectively, of all reinsurance ceded by Allianz Group companies, while Munich Re is our primary third-party reinsurer. Allianz AG also provides centralized advice to subsidiaries on structuring their own reinsurance programs and establishing lists of permitted reinsurers. In addition, the Allianz Group, through Allianz AG, has a pooling concept in place whereby natural catastrophe reinsurance cover is offered to Allianz Group’s subsidiaries allowing the Allianz Group to benefit from internal diversification effects. Allianz AG also assumes a relatively small amount of reinsurance from external cedents.

Please see the respective sections of “Operating and Financial Review and Prospects” for breakdowns of our insurance operations by geographic region, including gross premiums written, statutory premiums, earnings and various key performance indicators, as well as a description of our largest property-casualty and life/health markets and companies.

Banking Operations

•

Dresdner Bank is one of the largest banks in Germany, based on total assets at December 31, 2005.

Our banking operations consist primarily of those of Dresdner Bank, through which 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. Please see “– International Presence” for a breakdown of selected operating entities within our primary markets and others.

While Dresdner Bank focuses on selected geographic regions worldwide, Germany is its primary market, which contains 66.1% of its loan portfolio. The largest credit exposures to borrowers in Germany are loans to private individuals (including self-employed professionals) at 58.2%; this category represented 38.5% of Dresdner Bank’s total loans outstanding at December 31, 2005. Dresdner Bank operates and distributes its products primarily through 959 branch offices, of which 927 are located in Germany and 32 outside of Germany. In 2005, we conducted our Dresdner Bank operations through six divisions:

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Personal Banking provides personalized financial services such as payments transactions, financing, investment advice, financial planning and insurance products.

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Private & Business Banking provides access for its worldwide clients to its range of private banking services, such as wealth management, portfolio management, real estate investment advice and trust and estate advice, as well as business banking advisory services to assist corporate clients in arranging their private and business finances in an integrated and customized manner.

•

Corporate Banking offers corporate loans, structured financing, as well as treasury, securities and insurance products, and provides corporate customers with cash management solutions, payment services, global documentary services and advice on occupational pension plans.

•

Dresdner Kleinwort Wasserstein (or “DrKW”) offers corporate finance advisory services on mergers and acquisitions, divestitures, restructurings and other strategic matters, and provides securities underwriting and market-making, securitization products and services, securities and derivatives trading, portfolio management, and other capital markets products and services.

•

Institutional Restructuring Unit (or “IRU”) closed down effective September 30, 2005 having successfully completed its mandate to free-up risk capital through the reduction of risk-weighted assets.

•

Corporate Other contains income and expense items that are not directly assigned to our operating divisions, such as income and expenses from the Dresdner Bank-wide treasury function, as well as provisioning requirements for country and general risks.

In November 2005, we announced that, effective 1Q 2006, we will reorganize our banking business. Our newly-formed Private & Business Clients division will combine all banking activities formerly provided by the Personal Banking and Private & Business Banking divisions. Additionally, our Corporate Banking and DrKW divisions will be combined within a single organizational unit, Corporate & Investment Banking, to further improve the leverage of the market potential in our corporate client and capital markets business. In the future, we expect to increase the part of banking products sold through insurance agents.

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

Asset Management Operations

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Allianz Global Investors is one of the largest asset managers in the world, based on total assets under management.

Our asset management operations act as a global provider of institutional and retail asset management products and services to third-party investors and provide investment management services to our insurance operations. We managed approximately € 743 billion of third-party assets on a worldwide basis at December 31, 2005, which includes fixed income, equity, money market and sector products, as well as alternative investments.

We conduct our retail asset management business primarily through our operating companies worldwide under the brand name, Allianz Global Investors (or “AGI”). In our institutional asset management business, we operate under the brand names of our investment management entities; AGI serves as an endorsement brand. Please see “– International Presence” for a breakdown of selected operating entities within our primary markets and others.

We serve a comprehensive range of retail and institutional asset management clients. Our institutional clients include corporate and public pension funds, insurance and other financial services companies, governments and charities, financial advisors and private individuals.

The particular distribution channels we use vary by product and geographic market. In Europe and the United States, AGI markets and services its institutional products through specialized personnel located primarily in its Frankfurt, London, Munich, Paris and Milan, as well as San Francisco, San Diego and Newport Beach (California) offices. European retail distribution is provided 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 the United States, AGI asset managers also offer a wide range of retail products. AGI has committed substantial resources to the expansion of the third-party asset management business in the Asia-Pacific region with offices in Tokyo, Hong Kong, Shanghai, Singapore, Taipei, Seoul and Sydney.

For a discussion of investment portfolios of our insurance, banking and asset management operations, which we refer to as “group’s own investments”, see “Operating and Financial Review and Prospects – Executive Summary – Allianz Group’s Consolidated Assets, Liabilities and Shareholders’ Equity – Group Asset Allocation.”

Competition

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We believe that we are well-positioned in our markets to anticipate and successfully respond in the face of competitive forces within our various operations.

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Insurance Competition is most pronounced in our more mature markets (Germany, France, Italy and the United States), while in recent years, 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 become more sophisticated and have sought alliances, mergers or strategic relationships with our competitors.

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Banking We are subject to competition 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.

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Asset Management Competition stems from all major international financial institutions and peer insurance companies, which have large, multi-jurisdictional and multi-product asset management operations and compete for both retail and institutional clients.

International Presence

The following table sets forth selected Allianz Group companies by geographic region at December 31, 2005, including our ownership percentage. It does not contain all subsidiaries of the Allianz Group, nor does it indicate whether an interest is held directly or indirectly by the Allianz AG. Further, the ownership percentage presented in the following table includes equity participations held by dependent enterprises of the Allianz Group in full, even if the Allianz Group’s ownership in the dependent enterprise is below 100%. Please see Note 48 to our consolidated financial statements for a more extensive list of Allianz Group operating subsidiaries.

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

Business segments

LOGO Property-Casualty

LOGO Life/Health

LOGO Banking

LOGO Asset Management


	GERMANY

Germany
	Allianz Capital Partners GmbH	100.0	%
	Allianz Dresdner Bauspar AG	100.0	%
	Allianz Global Investors Advisory GmbH	100.0	%
	Allianz Global Investors AG	100.0	%
	Allianz Global Risks Rückversicherungs-AG	100.0	%
	Allianz Lebensversicherungs-Aktiengesellschaft	91.0	%
	Allianz Marine & Aviation Versicherungs-AG	100.0	%
	Allianz Private Krankenversicherungs-Aktiengesellschaft	100.0	%
	Allianz Versicherungs-Aktiengesellschaft	100.0	%
	Bayerische Versicherungsbank AG (was merged in January 2006 retroactively effective October 1, 2005 into Allianz Versicherungs-Aktiengesellschaft)	100.0	%
	DEGI Deutsche Gesellschaft für Immobilienfonds mbH	94.0	%
	Deutsche Lebensversicherungs-AG	100.0	%
	Deutscher Investment-Trust Gesellschaft für Wertpapieranlagen mbH	100.0	%
	Dresdner Bank AG	100.0	%
	dresdnerbank investment management Kapitalanlagegesellschaft mbH	100.0	%
	Euler Hermes Kreditversicherungs-AG	100.0	%
	Frankfurter Versicherungs-AG (was merged in January 2006 retroactively effective October 1, 2005 into Allianz Versicherungs-Aktiengesellschaft)	100.0	%
	Oldenburgische Landesbank AG	89.4	%
	Reuschel & Co. Kommanditgesellschaft	97.5	%


	EUROPE

Austria
	Allianz Elementar Lebensversicherungs-Aktiengesellschaft	100.0	%
	Allianz Elementar Versicherungs-Aktiengesellschaft	100.0	%

Belgium
	AGF Belgium Insurance S.A.	100.0	%

France
	AGF Asset Management S.A.	99.9	%
	Assurances Générales de France IART S.A.	100.0	%
	Assurances Générales de France Vie S.A.	100.0	%
	Assurances Générales de France	61.0	%
	Banque AGF S.A.	100.0	%
	Euler Hermes SFAC S.A.	100.0	%
	Mondial Assistance S.A.S.	100.0	%

Greece
	Allianz General Insurance Company S.A.	100.0	%
	Allianz Life Insurance Company S.A.	100.0	%

Ireland
	Allianz Irish Life Holdings p.l.c.	66.4	%
	Allianz Worldwide Care Ltd.	100.0	%

Italy
	ALLIANZ SUBALPINA S.p.A. SOCIETA’ DI ASSICURAZIONI E RIASSICURAZIONI	98.0	%
	Lloyd Adriatico S.p.A.	99.7	%
	RAS ASSET MANAGEMENT Socièta di gestione del risparmio S.p.A.	100.0	%
	Riunione Adriatica di Sicurtà S.p.A.	76.3	%

Luxemburg
	Allianz Global Investors Luxembourg S.A.	100.0	%
	Dresdner Bank Luxembourg S.A.	100.0	%

Netherlands
	Allianz Nederland Levensverzekering N.V.	100.0	%
	Allianz Nederland Schadeverzekering N.V.	100.0	%

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

Spain
	Allianz CompanÍa de Seguros y Reaseguros S.A.	99.9	%

Switzerland
	Allianz Risk Transfer AG	100.0	%
	Allianz Suisse Lebensversicherungs-Gesellschaft	100.0	%
	Allianz Suisse Versicherungs-Gesellschaft	100.0	%
	Dresdner Bank (Schweiz) AG	99.8	%
	ELVIA Reiseversicherungs-Gesellschaft AG	100.0	%



United Kingdom
	Allianz Cornhill Insurance plc.	98.0	%⁽¹⁾
	Four Seasons (JDM) Ltd. (former: Four Seasons Health Care Ltd.)	100.0	%
	RCM (UK) Ltd.	100.0	%


	EMERGING MARKETS (EUROPE)

Bulgaria
	Allianz Bulgaria Insurance and Reinsurance Company Ltd.	78.0	%
	Allianz Bulgaria Life Insurance Company Ltd.	99.0	%
	Commercial Bank Allianz Bulgaria Ltd.	99.6	%

Croatia
	Allianz Zagreb d.d.	80.1	%

Czech Republic
	Allianz pojist’ovna, a.s.	100.0	%

Hungary
	Allianz Hungária Biztosító Rt.	100.0	%

Poland
	TU Allianz Polska S.A.	100.0	%
	TU Allianz Polska Zycie S.A.	100.0	%

Romania
	Allianz Tiriac Insurance S.A.	51.6	%

Russian Federation
	Insurance Joint Stock Company “Allianz”	100.0	%

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


	THE AMERICAS

Argentina
	AGF Allianz Argentina Compania de Seguros Generales S.A.	100.0	%

Brazil
	AGF Brasil Seguros S.A.	72.5	%

Colombia
	Colseguros Generales S.A.	100.0	%

Mexico
	Allianz México S.A. Compañía de Seguros	100.0	%

United States
	Allianz Global Investors of America L.P.	97.0	%
	Allianz Global Investors Distributors LLC	100.0	%
	Allianz Global Risks US Insurance Company	100.0	%
	Allianz Life Insurance Company of North America	100.0	%


	Fireman’s Fund Insurance Company	100.0	%
	NFJ Investment Group L.P.	100.0	%
	Nicholas Applegate Capital Management LLC	100.0	%
	Oppenheimer Capital LLC	100.0	%
	Pacific Investment Management Company LLC	85.0	%
	RCM Capital Management LLC	100.0	%

Venezuela
	Adriática de Seguros C.A.	97.0	%


	ASIA-PACIFIC/AFRICA

Australia
	Allianz Australia Limited	100.0	%

China
	Allianz Dazhong Life Insurance Company Ltd.	51.0	%
	Allianz Global Investors Hong Kong Ltd.	100.0	%
	Allianz Insurance (Hong Kong) Ltd.	100.0	%

Indonesia
	PT Asuransi Allianz Utama Indonesia Ltd.	75.4	%
	PT Asuransi Allianz Life Indonesia p.l.c.	99.8	%

Japan
	Allianz Fire and Marine Insurance Japan Ltd.	100.0	%
	Dresdner Kleinwort Wasserstein (Japan) Limited	100.0	%

Laos
	Assurances Générales du Laos Ltd.	51.0	%

South Korea
	Allianz Global Investors Korea Limited	100.0	%
	Allianz Life Insurance Co. Ltd.	100.0	%

Malaysia
	Allianz General Insurance Malaysia Berhad p.l.c.	98.7	%
	Allianz Life Insurance Malaysia Berhad p.l.c.	100.0	%

Singapore
	Allianz Insurance Company of Singapore Pte. Ltd.	100.0	%

Taiwan
	Allianz President Life Insurance Co. Ltd.	50.0	%⁽²⁾
	Allianz Global Investors Taiwan (SITE) Ltd.	100.0	%

Egypt
	Allianz Egypt Insurance Company S.A.E.	85.0	%
	Allianz Egypt Life Company S.A.E.	96.0	%

⁽¹⁾	99.99 % of the voting share capital.

⁽²⁾	Controlled by the Allianz Group.

Allianz-RAS Merger / European Company (SE)

•

Reducing complexity and increasing profitability and customer service.

On September 11, 2005, Allianz AG announced its intention to merge Riunione Adriatica di Sicurtà S.p.A. (or “RAS”, and taken together with its subsidiaries, the “RAS Group”) with and into Allianz AG. This merger is part of a comprehensive transaction, resulting in the full acquisition of RAS by Allianz AG. In connection with this transaction Allianz AG will convert into a European Company (Societas Europaea or “SE”) and subsequently adopt the corporate name Allianz SE⁽¹⁾. As a preparatory step, Allianz AG placed a voluntary tender offer to purchase all RAS ordinary shares and RAS savings shares it did not already own. The offer period began on October 20 and the acceptance period closed on November 23, 2005. Through this voluntary tender offer, Allianz AG purchased 139,719,262 RAS ordinary shares at a price of €19 per share and 328,867 RAS savings shares at a price of €55 per share. As another preparative step of the merger, RAS will, prior to the effectiveness of the merger, contribute its business with the exception of the participation in certain foreign subsidiaries to a newly incorporated (in October 2005), wholly-owned Italian subsidiary that, subsequently to the merger, will continue the corporate name “RAS S.p.A.”.

By fully integrating RAS, Allianz AG expects to increase profitability and customer service and to take a significant step forward in reducing complexity of the entire Allianz Group. In 2005, the Allianz Group generated €5.4 billion in gross premiums written and €9.3 billion in statutory premiums from its Italian property-casualty and life/health insurance operations, respectively. Additionally, Italy is the Allianz Group’s second most important European insurance market after Germany. The Allianz Group is represented in Italy by RAS and Lloyd Adriatico. Taken together, RAS and Lloyd Adriatico are the third-largest property- casualty and second-largest life insurer in the Italian market, based on gross premiums written and statutory premiums, respectively, in 2004⁽²⁾.

Following completion of the tender offer and further purchases of RAS shares outside the tender offer, the Allianz Group increased its ownership to 76.3% of the total ordinary and savings shares of RAS at December 31, 2005 from 55.4% at December 31, 2004. The total cost to the Allianz Group of the tender offer and the additional purchases of RAS shares outside the tender offer, including transaction-related costs, amounted to approximately €2.7 billion. Thereof, €2.2 billion, in aggregate, was secured in 3Q 2005 from equity-based financing and the issuance of an equity-linked loan. In this context, approximately €1.1 billion was placed out of authorized capital without pre-emptive rights and a €1.1 billion equity-linked loan was executed with a variable redemption amount linked to the share price of Allianz AG, which can be settled, at the Allianz Group’s option, in cash or 10.7 million Allianz AG shares. The remaining amount was financed through internal funds.

On December 15 and 16, 2005, the Board of Management of Allianz AG and the Board of Directors of RAS accomplished the merger plan for the merger of RAS with and into Allianz AG. This merger plan was notarially certified on December 16, 2005. On February 3, 2006, the extraordinary shareholders’ meetings of holders of RAS ordinary shares and holders of RAS savings shares and on February 8, 2006, the extraordinary shareholders’ meeting of Allianz AG agreed to the merger plan. Against the resolution of the shareholders’ meeting of Allianz AG regarding the agreements to the merger plan and the capital increase to implement the merger, contestation suits have been filed. The entry of the merger in the commercial register of Allianz AG may only take place once the competent court rejects the lawsuits, or if such lawsuits are withdrawn or if the competent court rules finally and conclusively that the lawsuits do not prevent the entry of the merger in the commercial register (so-called “Freigabeverfahren”). We are confident that we will achieve the entry of the merger in the course of such release ruling. As a further prerequisite for the effectiveness of the merger and the accompanying conversion of Allianz AG into an SE,

⁽¹⁾

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

⁽²⁾	Source: Italian Insurers Association, ANIA.

a procedure for the employee involvement in decisions of the Allianz SE must be conducted. We expect the merger to become effective in September 2006 at the earliest.

The exchange ratio for the remaining RAS shares is 3 Allianz AG shares for 19 RAS ordinary shares or 19 RAS savings shares. To implement the merger, the remaining RAS shares will be exchanged for Allianz AG shares through an increase of Allianz AG’s issued capital by up to €64.3 million, which was approved by the extraordinary shareholders’ meeting on February 8, 2006. The capital increase will be accomplished by the issuance of up to 25,123,259 new registered no-par value Allianz AG shares. Allianz AG expects the cost of the entire transaction, including the voluntary tender offer, to be approximately €5.9 billion. However, this amount may vary, depending upon the market price of Allianz AG shares at the time of the share exchange.

Reorganization of German Insurance Operations

•

Enhanced customer orientation and service, cost reduction and reduced complexity.

As part of our repositioning plan, in September 2005, we announced our decision to reorganize our major German operating entities which are active in our insurance operations. The new structure is designed to further develop our leading position in the German insurance market by a joint presence, thus allowing us to provide an enhanced customer orientation and improved service, while at the same time cutting costs in the long-term through reduced complexity.

In Germany, and through the end of 2005, our property-casualty and our life/health insurance operations were essentially conducted through five different corporations, each with its own sales organization. This structure had grown historically and had become complex. Consequently, and effective November 2005, the German insurance operations have been consolidated under a new holding company, Allianz Deutschland AG. This new holding company is a wholly-owned subsidiary of Allianz AG, the future Allianz SE. Allianz Versicherungs-AG (property-casualty insurance), Allianz Lebensversicherungs-AG (life insurance) and Allianz Private Krankenversicherungs-AG (health insurance) are subsidiaries of Allianz Deutschland AG since November 2005. In connection with this reorganization, on January 30, 2006, and effective October 1, 2005, two property-casualty subsidiaries, Frankfurter Versicherungs-AG and Bayerische Versicherungsbank AG, were merged into Allianz Versicherungs-AG. Prior to this, Allianz Versicherungs-AG had increased its interest in Bayerische Versicherungsbank AG in November 2005 from 90 % to 100 %. In addition, the sales activities of the said German property-casualty and life/health insurance companies are to be consolidated into a separate sales company as the fourth subsidiary of Allianz Deutschland AG.

Effective January 1, 2006, the previous regional structure of the property-casualty operations in Germany as well as of the branch offices of Allianz Lebensversicherungs-AG and Allianz Private Krankenversicherungs-AG has been replaced by the establishment of four sales and service regions, which include the “northwest” (Schleswig-Holstein, Hamburg, Bremen, Lower Saxony, North Rhine-Westphalia), the “northeast” (Mecklenburg-Western Pommerania, Brandenburg, Berlin, Saxony-Anhalt, Saxony, Thuringia), the “southwest” (Hesse, Rhineland-Palatine, Baden-Wuerttemberg, Saarland) and the “southeast” (Bavaria).

Property-Casualty Insurance Reserves

General

The Allianz Group establishes property-casualty loss reserves for the payment of losses and loss adjustment expenses (or “LAE”) on claims which have occurred but are not yet settled. Loss and LAE reserves fall into two categories: individual case reserves for reported claims and reserves for incurred but not reported (or “IBNR”) claims.

Case reserves for reported claims are based on estimates of future payments that will be made in respect of claims, including LAE relating to such claims. Such estimates are made on a case-by-case basis, based on the facts and circumstances available at the time the reserves are established. The estimates reflect the informed judgment of claims personnel based on general insurance reserving practices and knowledge of the nature and value of a specific type of claim. These case reserves are regularly re-

evaluated in the ordinary course of the settlement process and adjustments are made as new information becomes available.

IBNR reserves are established to recognize the estimated cost of losses that have occurred but where the Allianz Group has not yet been notified. IBNR reserves, similar to case reserves for reported claims, are established to recognize the estimated costs, including expenses, necessary to bring claims to final settlement. Since nothing is known about the occurrence, the Allianz Group relies on its past experience, adjusted for current trends and any other relevant factors.

IBNR reserves are estimates based on actuarial and statistical projections of the expected cost of the ultimate settlement and administration of claims. The analyses are based on facts and circumstances known at the time, predictions of future events, estimates of future inflation and other societal and economic factors. Trends on claim frequency, severity and time-lag in reporting are examples of factors used in projecting the IBNR reserves. IBNR reserves are reviewed and revised periodically as additional information becomes available and actual claims are reported.

The process of estimating loss and LAE reserves is by nature uncertain due to the large number of variables affecting the ultimate amount of claims. Some of these variables are internal, such as changes in claims handling procedures, introduction of new IT systems or company acquisitions and divestitures. Others are external, such as inflation, judicial trends and legislative changes. The Allianz Group attempts to reduce the uncertainty in reserve estimates through the use of multiple actuarial and reserving techniques and analysis of the assumptions underlying each technique.

Within the Allianz Group, loss and LAE reserves are estimated by local operating entity, and within each entity by line of business. In addition, actuaries at Allianz AG use a variety of methods to oversee and monitor reserve levels set by the local companies. These methods include independent reserve reviews, peer reviews of local reserve analyses, monitoring of quarterly loss data and assessments of local actuarial reserving processes. Meetings are held quarterly of the Group Reserve Committee, consisting of the Group CEO, Group CFO, Head of Group Financial Reporting, Head of Group Accounting and the Group Chief Actuary to oversee this control process. This central control process serves not only to ensure that the total loss and LAE reserves for the Allianz Group are reasonable, but also to improve the consistency and quality of reserve analyses across the Allianz Group.

During 2005, there were no significant changes in the mix of business written. Moreover, there were no material changes to the amount and type of reinsurance placed in respect of the Allianz Group’s business.

On the basis of currently available information, management believes that the Allianz Group’s property-casualty loss and LAE reserves are adequate. However, the establishment of loss reserves is an inherently uncertain process, and accordingly, there can be no assurance that ultimate losses will not differ from these estimates.

Loss and LAE Composition by Region and Line of Business

The time required to learn of and settle claims is an important consideration in establishing reserves. Short-tail claims, such as automobile property damage claims, are typically reported within a few days or weeks and are generally settled within two to three years. Medium-tail claims such as personal and commercial motor liability claims generally take four to six years to settle, while long-tail claims, such as general liability, workers compensation, construction and professional liability claims take longer to settle.

The following table breaks down the loss and LAE reserves of the Allianz Group, gross of reinsurance ceded, by region and line of business for the year ended December 31, 2005, on an IFRS basis. The credit, travel and marine & aviation lines are written on a world-wide basis through multiple legal entities in several countries, and as a result, are not included in the regional totals.

Loss and LAE Reserves by Region and Line of Business⁽¹⁾

as of December 31, 2005


	Gross of Reinsurance
	Automobile Insurance	General Liability	Property	Other Short-Tail Lines⁽²⁾	Other Medium-Tail Lines⁽³⁾	Other Long-Tail Lines⁽⁴⁾	Total
	€ mn	€ mn	€ mn	€ mn	€ mn	€ mn	€ mn
Germany⁽⁵⁾	4,558	2,185	726	—	4,216	1,280	12,965
France⁽⁵⁾	2,176	1,897	1,158	298	3,197	—	8,726
Italy	4,163	1,574	448	158	409	15	6,767
United Kingdom	1,035	420	618	55	214	932	3,274
Switzerland⁽⁵⁾	823	236	146	73	1,235	764	3,277
Spain	1,036	264	135	2	258	—	1,695
Rest of Europe	2,750	1,036	486	182	430	471	5,355
NAFTA Region⁽⁶⁾	469	5,059	3,001	14	996	1,533	11,072
Asia-Pacific Region	1,384	379	219	3	146	671	2,802
South America, Africa and Rest of World	165	56	111	2	75	—	409

Subtotal of regions	18,559	13,106	7,048	787	11,176	5,666	56,342

Credit insurance	—	—	—	1,012	93	—	1,105
Travel insurance and assistance services	—	—	—	128	—	—	128
Marine & aviation	—	—	—	—	1,804	867	2,671

Subtotal of specific business (global)	—	—	—	1,140	1,897	867	3,904

Allianz Group Total	18,559	13,106	7,048	1,927	13,073	6,533	60,246

⁽¹⁾	By jurisdiction of individual Allianz Group subsidiary companies.

⁽²⁾	Other Short-Tail Lines are comprised of health, credit insurance, crop and hail.

⁽³⁾	Other Medium-Tail Lines are comprised of personal accident, legal protection, marine hull, aviation hull, construction, packages, pools, multi-peril lines, assumed reinsurance and other business.

⁽⁴⁾	Other Long-Tail Lines are comprised of workers compensation, marine third party liability and aviation third party liability.

⁽⁵⁾	For Germany, France and Switzerland, Other Medium-Tail business consists primarily of assumed business.

⁽⁶⁾	For the NAFTA Region, Other Long-Tail business consists primarily of workers’ compensation in the United States.

The Allianz Group estimates that loss and LAE reserves consist of approximately 20% short-tail, 51% medium-tail and 29% long-tail business.

Reconciliation of Beginning and Ending Loss and LAE Reserves

The following table reconciles the beginning and ending reserves of the Allianz Group, including the effect of reinsurance ceded, for the property-casualty insurance segment for each of the years in the three-year period ended December 31, 2005 on an IFRS basis.

Reconciliation of Loss and LAE Reserves


	Year Ended December 31,
	2005		2004		2003
	€ mn		€ mn		€ mn
Balance as of January 1	55,536		56,644		60,054
Less reinsurance recoverable	(10,029	)	(12,049	)	(14,588	)

Net	45,507		44,595		45,466

Plus incurred related to:
Current year	26,418		25,643		25,712
Prior years	(1,166	)⁽¹⁾	(446	)	279

Total incurred	25,252		25,197		25,991

Less paid related to:
Current year	(11,762	)	(11,374	)	(11,860	)
Prior years	(10,787	)	(11,818	)	(13,155	)

Total paid	(22,549	)	(23,192	)	(25,015	)

Effect of foreign exchange and other	1,467		(469	)	(1,822	)
Effect of (divestitures)/acquisitions⁽²⁾	1		(624	)	(25	)
Net balance at end of year	49,678		45,507		44,595
Plus reinsurance recoverable	10,568		10,029		12,049

Balance as of December 31	60,246		55,536		56,644

⁽¹⁾	The €1,166 million of favorable development during 2005 was the result of many individual developments by region and line of business. See “—Changes in Loss and LAE Reserves During 2005.”

⁽²⁾	Reserves for loss and LAE of subsidiaries acquired (or disposed) are shown during the year of acquisition (or disposition). The divestiture of €624 million in 2004 was driven primarily by the sale of Allianz Insurance Company of Canada in December 2004.

Changes in Loss and LAE Reserves During 2005

As noted above, loss and LAE reserves of the Allianz Group at December 31, 2005 included €1,166 million reduction in incurred loss and LAE relating to prior years, representing 2.6% of net loss and LAE reserves at January 1, 2005. The following table provides a breakdown of this amount by region.

Changes in Loss and LAE Reserves During 2005


	Net Reserves as of December 31, 2004	Net Development in 2005 related to Prior Years		in%⁽¹⁾
	€ mn	€ mn
Germany	8,601	(216	)	(2.5	)
France	7,256	5		0.1
Italy	6,105	(212	)	(3.5	)
United Kingdom	2,463	(251	)	(10.2	)
Switzerland	2,799	(57	)	(2.0	)
Spain	1,266	(46	)	(3.6	)
Rest of Europe	6,745	(252	)	(3.7	)
NAFTA Region	5,833	85		1.5
Asia-Pacific Region	2,255	(71	)	(3.2	)
South America, Africa and Rest of World	224	(9	)	(4.0	)

Subtotal of regions	43,548	(1,024	)	(2.4	)
Credit insurance	811	(213	)	(26.3	)
Travel insurance and assistance services	120	(15	)	(12.2	)
Marine & aviation	1,029	85		8.3

Allianz Group Total	45,507	(1,166	)	(2.6	)

⁽¹⁾	In percent of net reserves as of December 31, 2004

Within each region, these reserve developments represent the sum of amounts for individual companies and lines of business. Because of the multitude of these reviewed segments, it is not feasible, or meaningful, to provide detailed information regarding each segment (e.g., claim frequencies, severities and settlement rates). We discuss below the major highlights of the reserve developments during the past year as they are recognized at the operating entities. Most of these companies analyze loss and LAE reserves on a gross basis. Therefore, the discussion is based on gross loss and LAE reserves in the local currency of the company before consolidation and converted to Euro for uniform presentation. Consequently, individual amounts in the following discussion, which are based on significant developments of our major operating entities, do not fully reconcile to those in the above table, which are based on net loss and LAE reserves and net developments during 2005.

Germany

In Germany, gross loss and LAE reserves developed favorably during 2005 by approximately €216 million, or 2.0% of reserves at January 1, 2005.

At Sachgruppe Deutschland (or “SGD”), the property-casualty insurance group of the Allianz Group in Germany, gross loss and LAE reserves developed favorably by €11 million. This development was the result of multiple effects.

Favorable developments included:

•

€24 million for engineering due to the settlement of two large losses from 2001 with no payments and a refined methodology applying actuarial evaluations to more homogeneous sub-portfolios; and

•

€51 million in aggregate as a result of minor movements of less than €10 million each in legal protection, personal accident with

premium refund, homeowners, household, indexed property, engineering, motor, fire and business interruption and other insurance products.

Offsetting unfavorable developments include:

•

€60 million for refining the actuarial analysis of general liability into more homogeneous sub-portfolios including an offsetting effect from favorable development on large losses; and

•

€13 million for personal accident based on a first-time standalone analysis of annuity claims.

Also during 2005, Allianz AG, the Allianz Group company underwriting primarily intra-Allianz Group reinsurance, experienced €48 million of favorable reserve development. This amount was the result of favorable developments, and partially offseting unfavorable developments. In many cases, these developments were the direct result of corresponding developments in reserves on the underlying business of the Allianz Group companies that were ceded to Allianz AG.

Favorable developments included:

•

€65 million for business written on behalf of large international accounts for Allianz Versicherungs-AG due to re-estimations based on updated assumptions derived from direct business;

•

€56 million on property in Western Europe to allow for accelerating reporting patterns for large surplus contracts;

•

€15 million on participation in credit business from Euler Hermes; and

•

€14 million on business assumed from Fireman’s Fund Insurance Company (or “Fireman’s Fund”).

Offsetting adverse developments included:

•

€25 million on facultative business following an updated reserve analysis;

•

€22 million for World Trade Center claims re-estimated based on more detailed information on open claims and on retrocessional covers;

•

€22 million based on an updated review of reserves for HIV contaminated blood reserves;

•

€18 million on deferred underwriting year accounts for Middle-East and North Africa business in run-off;

•

€14 million on marine & aviation fronting business on an underwriting year basis as well as an increase in connection with hurricane Ivan in 2004; and

•

€13 million based on a reassessment of reserves for one claim in facultative business.

Allianz Global Risks Re, which provides reinsurance for the international corporate business of the Allianz Group companies worldwide, experienced a favorable development of €157 million during 2005, arising from a range of factors. Similar to Allianz AG, reserve developments for Allianz Global Risks Re are often attributable to developments in the underlying business of the Allianz Group companies underwriting the international corporate business.

Favorable developments at Allianz Global Risks Re included:

•

€137 million on property business, resulting largely from favorable developments in the major markets of France, England, United States and Germany;

•

€40 million on energy and engineering following re-estimation in particular for United States and England; and

•

€11 million for releasing IBNR on a stop loss treaty in run-off;

These have been partially offset by strengthening liability reserves by € 21 million due to a general increase in reported losses and, in particular, for two individual large claims as well as an adverse foreign currency exchange effect of €23 million.

France

In France, gross loss and LAE reserves developed favorably by €180 million, or 2.1% of the reserves at January 1, 2005.

At AGF IART, favorable reserve developments of €202 million were partially offset by €99 million unfavorable developments.

Favorable developments at AGF IART included:

•

€147 million on property business from agents, brokers and international corporate business, due to reductions in the estimated ultimate loss;

•

€35 million for annuities; and

•

€20 million for pecuniary losses.

Offsetting unfavorable developments at AGF IART included:

•

€35 million for natural catastrophe claims in agents business arising from government decrees on 2003 drought damages in France;

•

€21 million for motor third party liability agents business mainly due to court decisions on cases for claims from prior accident years;

•

€17 million arising from local brokerage general liability business attributable to medical liability business which is in run-off;

•

€14 million for natural catastrophe overseas, reflecting further development during 2005 on claims arising from an earthquake in Guadeloupe at the end of 2004; and

•

€12 million for international transport business.

Italy

As a result of a combination of reserve developments at four operating entities, the gross loss and LAE reserves developed favorably in Italy by €242 million, or 3.8% of the reserves at January 1, 2005.

At RAS S.p.A., favorable developments of €46 million were attributable to the following factors:

•

€23 million due to decrease in frequency in motor third party liability;

•

€18 million for indirect business; and

•

€18 million due to other lines of business.

These favorable developments were partially offset by adverse development of €21 million for general liability.

Allianz Subalpina, a consolidated subsidiary of RAS S.p.A., exhibited favorable development of €25 million during 2005, mainly consisting of €8 million for property, €6 million for personal accident and an additional €8 million for general liability, motor third party liability and credit.

Genialloyd, a consolidated subsidiary of RAS S.p.A. specializing in motor business, exhibited a favorable development of €13 million during 2005, due to an accelerated settlement of smaller claims.

Lloyd Adriatico experienced favorable development of €165 million mainly driven by a favorable development of €135 million in motor third party liability due to a significant decrease in volatility. Furthermore, Lloyd Adriatico experienced favorable development of €25 million in its personal accident, property, general liability and other motor lines.

United Kingdom

In the United Kingdom, gross loss and LAE reserves developed favorably during 2005 by €327 million, or 10.7%, of the reserves at January 1, 2005.

At Allianz Cornhill, gross loss and LAE reserves developed favorably during 2005 by €344 million due primarily to the following factors:

•

€83 million on commercial property and €41 million on industrial property as a result of the release of reserves on individual large claims and due to a reduction of reserves for weather related events from accident year 2004, which were by nature very uncertain at the end of 2004;

•

€54 million on specialized insurance programs or schemes due to favorable experience on the creditor and all risks accounts;

•

€50 million on commercial motor due to generally favorable claims experience, as well as revised claim payment patterns on bodily injury claims observed in a claims process review;

•

€32 million on personal motor due to a release of reserves for potential late reported large losses at year-end 2004;

•

€29 million on commercial liability benefiting from the same bodily injury development as that of motor claims; and

•

€23 million in run-off of industrial business arising from several large reductions on individual losses.

At AGF U.K., a company in run-off reserves for loss and loss adjustment expenses, developed unfavorably by €15 million.

Switzerland

In Switzerland, gross loss and LAE reserves experienced favorable development of €39 million, or 1.3% of the reserves at January 1, 2005.

At Allianz Suisse Versicherungs-Gesellschaft, gross loss and LAE reserves developed favorably by €24 million due to the following factors:

•

€24 million for revised assumptions for tail development in motor and liability business; and

•

€7 million release in LAE reserves due to an improved cost allocation procedure resulting in allocating less loss adjustment expenses.

These favorable developments were partly offset by an increase of €7 million for assumed reinsurance.

Loss and LAE reserves of Allianz Risk Transfer, the Allianz Group company selling conventional reinsurance as well as a variety of alternative risk transfer products, developed favorably by €7 million primarily due to the favorable development on a large traditional quota-share reinsurance contract.

Spain

Gross loss and LAE reserves for Allianz Seguros developed favorably by €49 million, or 3.6% of the reserves at January 1, 2005. Favorable development of €58 million attributable to the reduction in frequency and average claim cost in motor business was partly offset by €13 million unfavorable development arising from a court decision affecting one large loss.

Rest of Europe

Loss and LAE reserves in other European Allianz Group companies developed favorably by €287 million, or 4.0% of the reserves at January 1, 2005. This figure represents the net result of unfavorable as well as favorable developments for numerous individual companies. Since the business is written in different currencies, these developments were also affected by foreign exchange rate movements.

Allianz Irish Life Holdings p.l.c. experienced favorable development of €105 million. Favorable court decisions and declining claim frequencies contributed to a €45 million surplus in commercial and personal motor. The case estimate savings in property led to another €15 million surplus. Further favorable developments included €20 million in commercial liability and €10 million in credit insurance.

Gross loss and LAE reserves for Allianz Slovenská experienced favorable development of €82 million in 2005, due primarily to:

•

€40 million for motor due to the improvement managing salvages and the enhancement in the calculation of IBNR reserves; and

•

€40 million for lower participation in the loss and LAE reserves for claims from the former state insurer in motor.

Gross loss and LAE reserves for Allianz Nederland Schade experienced favorable development of €59 million in 2005, due primarily to:

•

€28 million for motor business from the former Zwolsche Algemeene portfolio and due to a decrease in claim frequency;

•

€26 million from property caused by a lower frequency and a low number of large claims; and

•

€12 million for engineering and marine business.

NAFTA Region

For the entire NAFTA region, Allianz Group’s gross loss and LAE reserves developed unfavorably

during 2005 by €906 million, or 10.3% of the reserves at January 1, 2005. The largest Allianz Group companies in this region are Fireman’s Fund and Allianz Global Risks U.S. Insurance Company (or “AGR U.S.”).

At Fireman’s Fund, prior period gross loss and LAE reserve estimates increased by €920 million including an gross increase of €926 million as a result of a ground-up reserve study on asbestos and environmenal (or “A&E”) claims. The A&E net increase for Fireman’s Fund was €52 million for uncollectible reinsurance and ULAE, as loss and ALAE reserves after external reinsurance have been ceded to Allianz AG based on a coverage provided in 2002. The details of the A&E study and the transaction with Allianz AG are discussed below at “—Asbestos and Environmental Loss Reserves in the United States”. Unfavorable developments unrelated to A&E included:

•

€49 million in medical malpractice driven by one large claim that was heavily reinsured; and

•

€20 million in the surety business in run-off driven by a single account based on re-estimation of the cost to complete projects.

These adverse developments were offset by the following favorable developments:

•

€40 million in workers compensation driven by a larger than expected impact from California workers’ compensation reforms as well as cost savings from our “3+One” project initiatives; and

•

€9 million from the affiliated Jefferson Insurance Company driven by re-estimation of losses in other liability and commercial multi-peril lines.

AGR U.S., which underwrites large industrial accounts in the United States and through a newly- established branch office in Canada, experienced favorable developments of €21 million following indications of internal actuarial reserve studies during 2005 relating to property lines. AGR U.S. also experienced a favorable development of €14 million for general liability, which was entirely offset by an adverse development of the same amount in workers’ compensation.

Asia-Pacific

Gross loss and LAE reserves for the Asia-Pacific region developed favorably during 2005 by approximately €130 million or 5.2% of reserves at January 1, 2005. The largest Allianz Group property-casualty insurer in the region is Allianz Australia, representing approximately 93% of the region’s total reserves.

Allianz Australia experienced favorable development of €115 million during 2005. This result arose from partially favorable developments from different lines of business:

•

€66 million from motor third party liability following favorable loss experience in Queensland and New South Wales due to the impact of prior years’ legislative changes;

•

€44 million in property, fire and engineering businesses, where the development of a number of large claims was favorable during 2005;

•

€34 million for general liability due to a reduction in claim costs following a significant legislative reform during 2002, as well as an improvement in its estimation method resulting in lower estimates;

•

€14 million for workers’ compensation related to reductions in Western Australia and Tasmania to allow for favorable trends after legislative changes in 1999 and 2002 with an offsetting increase for a run-off portfolio developing favorably in total but being charged with increased assumptions for future inflation and the future number of mesothelioma claims; and

•

€7 million for inwards reinsurance business, a portfolio in run-off, experiencing slower than expected reported claim costs.

Credit Insurance

Credit insurance is underwritten in the Allianz Group by Euler Hermes. During 2005, Euler Hermes experienced favorable development of €324 million, or 26.8% of the reserves at January 1, 2005. Of this amount, €134 million are attributable to Euler Hermes Germany due primarily to further refinement

of the actuarial approach and simultaneously experiencing favorable loss trends. In France, the favorable development of €89 millions was mainly attributable to a decrease in IBNR for 2004 due to a better economic environment. Furthermore, in Italy, a favorable development of €27 million was mainly due to a release in reserves on two large claims, which developed better than expected. Lastly, a favorable development of €27 million in the United Kingdom was attributable to a lower-than-expected loss ratio in accident year 2004.

Marine & Aviation

Allianz Marine & Aviation consists of two legal entities located in Germany and France, as well as a branch office in the United Kingdom. Additional marine & aviation business is underwritten in other entities of the Allianz Group (e.g., Firemans’ Fund) and is reported in these respective entities.

Allianz Marine & Aviation gross loss and LAE reserves developed favorably by €152 million in France and unfavorably by €172 million in Germany resulting in a total of €20 million unfavorable development, or 1.0% of the reserves at January 1, 2005.

In Germany, the unfavorable development was due to a charge of €350 million to reflect the difference between the analysis based on underwriting year and accounting based on accident year. In the United Kingdom, blue water hull developed unfavorably by of €15 million. These effects are partly offset by the favorable development of aviation claims of €150 million, primarily for underwriting years 2003 and 2004, for business both in Germany and the United Kingdom and a further €20 million due to a favorable development for losses in German marine business.

In France, the favorable development was due primarily to revised estimates of ultimate losses in aviation and marine. A release of €108 million was attributable to aviation both in the United Kingdom and France, €20 million in marine in France and an additional €11 million favorable development in marine in the United Kingdom.

Changes in Historical Loss and LAE Reserves

The following table illustrates the development of the Allianz Group’s loss and LAE reserves, on an IFRS basis and gross of reinsurance, over the past nine years. Since the Allianz Group adopted IFRS in 1997, historical loss development data is available on an IFRS basis of accounting for the nine years 1997 to 2005 only.

Each column of this table shows reserves as of a single balance sheet date, with subsequent development of these reserves. The top row of each column shows gross reserves as initially established at the end of each stated year. The next section, reading down, shows the cumulative amounts paid as of the end of the successive years with respect to the reserve initially established. The next section shows the retroactive re-estimation of the initially established gross reserves for loss and LAE as of the end of each successive year. This re-estimation results primarily from additional facts and circumstances that pertain to open claims.

The bottom section compares the latest re-estimated gross reserves for loss and LAE to the gross reserves as initially established and indicates the cumulative development of the initially established gross reserves through December 31, 2005. For instance, the surplus (deficiency) shown in the table for each year represents the aggregate amount by which the original estimates of reserves at that year-end have changed in subsequent years. Accordingly, the cumulative surplus (deficiency) for a year-end relates only to reserves at that year-end and such amounts are not additive. Caution should be exercised in evaluating the information shown on this table, as each amount includes the effects of all changes in amounts for prior periods. For example, the portion of the development shown for year-end 1999 reserves that relates to 1997 losses is included in the cumulative surplus (deficiency) of the 1997 through 1999 columns.

This table below presents calendar year data, not accident year data. Conditions and trends that have affected development of liability in the past may or may not necessarily occur in the future, and accordingly, conclusions about future results may not be derived from information presented in this table.

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		2003		2004		2005
	€ mn		€ mn		€ mn		€ mn		€ mn		€ mn		€ mn		€ mn		€ mn
Gross liability for unpaid claims and claims expenses	33,259		38,899		50,980		53,680		61,033		59,204		55,889		55,529		60,246
Paid (cumulative) as of:
One year later	8,027		11,166		14,877		16,001		15,624		16,120		14,218		13,357
Two years later	12,062		17,598		22,497		22,889		24,069		23,739		20,987
Three years later	15,120		22,097		26,926		27,755		29,394		28,687
Four years later	17,429		25,030		30,312		31,220		33,016
Five years later	19,154		27,416		32,820		33,826
Six years later	20,499		29,199		34,760
Seven years later	21,536		30,684
Eight years later	22,504
Liability re-estimated as of:
One year later	32,825		40,807		51,378		54,577		57,738		55,836		54,050		56,311
Two years later	29,776		44,593		52,246		53,069		55,703		55,650		55,227
Three years later	31,558		45,325		50,819		51,495		55,820		57,119
Four years later	32,001		44,027		49,293		52,016		57,130
Five years later	31,321		42,824		49,992		53,234
Six years later	30,147		43,659		50,970
Seven years later	31,141		44,364
Eight years later	31,988
Cumulative surplus (deficiency)	1,271		(5,465	)	10		446		3,903		2,085		662		(782	)
Cumulative surplus (deficiency) excluding impact of foreign exchange⁽²⁾	1,737		1,256		(977	)	(1,996	)	(1,415	)	781		1,767		1,589
Percent	5.2	%	3.2	%	(1.9	)%	(3.7	)%	(2.3	)%	1.3	%	3.2	%	2.9	%

⁽¹⁾	Reserves for loss and LAE of subsidiaries sold are excluded in the above table. Reserves for loss and LAE of subsidiaries purchased are included as of the date of the acquisition.

⁽²⁾	The cumulative surplus (deficiency) excludes the impact of foreign exchange and other effects.

In 2005, loss and LAE reserves increased by €4,717 million. A primary contributor to this increase was the number of natural catastrophes which occurred during 2005, in particular the U.S. hurricanes Katrina, Rita and Wilma, resulting in total estimated claims from natural catastrophes, net of reinsurance, of €1,090 million for the Allianz Group. Operating entities most affected by natural catastrophes in 2005 included Allianz Marine & Aviation, Allianz Global Risks Re, Allianz AG, Fireman’s Fund, Allianz Versicherungs-AG and Allianz Suisse. An additional factor which contributed to the increase in loss and LAE reserves in 2005 was the weakening of the Euro relative to U.S. dollar and Australian dollar, resulting in a total foreign currency exchange rate effect of €2,286 million. Reserve developments during 2005 are described in further detail in the preceding section “—Changes in Loss and LAE Reserves During 2005”.

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

The overall decrease in loss and LAE reserves between December 31, 2002 and 2003 was attributable primarily to the strengthening of the Euro relative to the U.S. dollar, the British pound sterling and the Swiss franc during 2003. Reserves in these three currencies decreased by €2.8 billion during 2003 due to a stronger Euro and a reduction of reserves in U.S. dollar attributable to the exit from some business lines, including surety at Fireman’s Fund and general liability at AGR U.S.

The significant increase in the gross reserves for 2001 over 2000 was driven by gross incurred losses and loss adjustment expenses related to the terrorist attack of September 11, 2001. On a consolidated Allianz Group basis, the terrorist attack of September 11, 2001 resulted in net claims costs of approximately €1,500 million. Estimated losses are based on a policy-by-policy analysis as well as a variety of actuarial techniques, coverage interpretations and claim estimation methodologies, and include an estimate of incurred but not reported, as well as estimated costs related to the settlement of claims. These loss estimates are subject to considerable uncertainty. In connection with the terrorist attack of September 11, 2001, we recorded net claims expenses of approximately €1,500 million in 2001 for the Allianz Group on the basis of one occurrence.

On December 6, 2004, a New York jury rendered a verdict that the World Trade Center attack constituted two occurrences under the alleged terms of various coverages. At December 31, 2005, this decision had no adverse impact on the Allianz Group’s operating results. AGR U.S. has appealed this decision. The final implications of this decision for the Allianz Group will not be determined until the completion of further proceedings.

Discounting of Loss and LAE Reserves

As of December 31, 2005, 2004 and 2003, the Allianz Group consolidated property-casualty reserves reflected discounts of €1,326 million, €1,220 million and €1,261 million respectively.

Reserves are discounted to varying degrees in the United States, United Kingdom, Germany, Hungary, Switzerland, Portugal, France and Belgium. For the United States, the discount reflected in the reserves is related to annuities for certain long-tailed liabilities, primarily in workers’ compensation. For the other countries, 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, health disability in Belgium and claims from employers’ liability in the United Kingdom. All of the reserves that have been discounted have payment amounts that are fixed and timing that is reasonably determinable. The following table shows, by country, the carrying amounts of reserves for claims and claim adjustment expenses that have been discounted, and the interest rates used for discounting for the years ended December 31:


	Discounted Reserves in		Amount of the Discount		Interest rate used for Discounting
	2005	2004	2005	2004	2005	2004
	€ mn	€ mn	€ mn	€ mn
France	1,404	1,402	357	330	3.25%	3.25%
Germany	445	407	298	278	2.75% to 4.00%	2.75% to 4.00%
Switzerland	414	392	236	236	3.25%	3.25%
United States	213	190	230	216	6.00%	6.00%
United Kingdom	116	84	110	65	4.00% to 4.25%	4.25%
Belgium	91	83	28	26	4.68%	4.75%
Hungary	67	69	22	22	1.40%	1.40%
Portugal	57	57	44	47	4.00%	4.25%

Total	2,807	2,684	1,326	1,220

Asbestos and Environmental Loss Reserves in the United States

There are significant uncertainties in estimating A&E reserves for loss and loss adjustment expense. Reserves for asbestos-related illnesses and environmental clean-up losses cannot be estimated using traditional actuarial techniques due to the long latency period and sensitivity to legal, socio-economic and regulatory trends. Case reserves are established when sufficient information is available to indicate the involvement of a specific insurance policy. In addition, IBNR reserves are established to cover additional exposures on both known and not yet reported claims. To the extent possible, A&E loss reserve estimates are based not only on claims reported to date but also on a survey of policies that may be exposed to claims reported in the future (i.e., an exposure analysis).

In establishing liabilities for A&E claims, management considers facts currently known and the current state of the law and coverage litigation. However, given the expansion of coverage and liability by the courts and the legislatures in the past and the possibilities of similar interpretation in the future, there is significant uncertainty regarding the extent of remediation and insurer liability.

The industry-wide loss trends for some of these exposures, especially for asbestos-related losses, have deteriorated recently. Some of the reasons for this deterioration include the fact that insureds who either produced or installed products containing asbestos have seen more and larger claims brought against them, and some of these companies have declared bankruptcy which has caused plaintiff attorneys to seek larger amounts from solvent defendants and to also include new defendants. Some defendants are also seeking relief under different coverage provisions when the products liability portion of their coverage has been exhausted.

In response to these developments, Fireman’s Fund engaged an external consultant to review its gross asbestos liabilities at December 31, 2004. Based on the results of this external study, Fireman’s Fund estimated its asbestos reserves net of reinsurance, analyzed the company’s environmental reserves gross and net of reinsurance and selected the actuarial best estimate reserves for its A&E exposure. The analyses included a review of the ultimate, gross asbestos and environmental loss and allocated loss adjustment reserves for accident years 1987 and prior. The 1987 and prior year cut-off date for A&E is consistent with the way Fireman’s Fund segregates its data for reporting and reserving purposes; this definition coincides with changes in policy language and the introduction of pollution exclusions which occurred in the mid-1980s. The methodology involved exposure-based modeling of policies with the greatest asbestos exposures, supplemented by aggregate methods for the remaining insureds and environmental loss exposures.

The range of reasonable potential outcomes for A&E liabilities provided in these analyses is particularly large. Given this inherent uncertainty in estimating A&E liabilities, significant deviation from the currently carried A&E reserve position is possible.

The table below shows Fireman’s Fund case count activity for A&E in 2003 to 2005, including the activity for A&E of Jefferson Insurance Company of New York for 2004 and 2005:


	Year-to-Date Case Counts December 31,			Percent Change
	2005	2004	2003	2005		2004
New	1,173	2,314	1,782	(49.3	)%	29.9	%
Reopened	207	213	326	(2.8	)%	(34.7	)%
Closed	4,590	1,606	1,296	185.8	%	23.9	%
Pending	3,388	6,624	5,726	(48.9	)%	15.7	%

On September 30, 2002, Fireman’s Fund and Allianz AG entered into a reinsurance contract whereby Fireman’s Fund ceded net carried A&E loss and allocated ALAE reserves to Allianz AG, with Allianz AG providing reinsurance cover up to a maximum of USD 2,158 million. Based on the aforementioned A&E study completed during the year ended December 31, 2005, Fireman’s Fund increased the cession to this treaty from USD 1,276 million at December 31, 2004 to USD 2,080 million at December 31, 2005, leaving further coverage of USD 78 million. As a result of already sufficient reserves, there was no net impact on Allianz Group level, absent a USD 65 million loss caused by the increase in provisions for uncollectible reinsurance recoverables and ULAE.

Total net reserves for A&E related liabilities for the U.S. based subsidiaries of the Allianz Group (i.e., Fireman’s Fund and AGR U.S.) at December 31, 2005 and 2004 were €1,390 million and €739 million, respectively, excluding intercompany reinsurance agreements.

The following table summarizes the gross and net loss and loss adjustment expenses reserves for the U.S.- based subsidiaries for A&E claims before intercompany reinsurance agreements.


Year-end December 31,	A&E Net Reserves	A&E Gross Reserves	As percentage of U.S. Property- Casualty Gross Reserves		As percentage of the Allianz Group’s Property-Casualty Gross Reserves
	€ mn	€ mn
2001	979	1,649	10.1	%	2.7	%
2002	1,250	1,704	11.8	%	2.9	%
2003	906	1,263	11.9	%	2.2	%
2004	739	1,097	12.4	%	2.0	%
2005	1,390	1,887	17.1	%	3.1	%

The table below shows total A&E loss activity for the past five years for Fireman’s Fund and AGR U.S. These numbers are shown gross of reinsurance and on a U.S. statutory basis.


	Year Ended December 31,
Asbestos:	2001		2002	2003		2004	2005
	$ mn		$ mn	$mn		$mn	$mn
Loss + LAE Reserves as of January 1	679		596	1,147		1,097	1,033
Plus Incurred Loss and LAE	23		688	101		110	1,090
Less Loss and LAE Payments	106		137	151		173	270
Payments for Loss	79		102	106		121	220
Payments for LAE	27		35	45		52	50
Loss + LAE Reserves as of December 31	596		1,147	1,097		1,033	1,853

	Year Ended December 31,
Environmental:	2001		2002	2003		2004	2005
	$mn		$mn	$mn		$mn	$mn
Loss + LAE Reserves as of January 1	975		863	630		482	462
Plus Incurred Loss and LAE	(37	)	73	(89	)	67	86
Less Loss and LAE Payments	75		306	59		87	88
Payments for Loss	38		259	31		53	52
Payments for LAE	37		47	28		34	36
Loss + LAE Reserves as of December 31	863		630	482		462	460

	Year Ended December 31,
Total Asbestos and Environmental:	2001		2002	2003		2004	2005
	$ mn		$ mn	$ mn		$ mn	$ mn
Loss + LAE Reserves as of January 1	1,654		1,459	1,776		1,579	1,495
Plus Incurred Loss and LAE	(14	)	761	12		177	1,176
Less Loss and LAE Payments	181		443	210		260	358
Payments for Loss	117		361	137		174	272
Payments for LAE	64		82	73		86	86
Loss + LAE Reserves as of December 31	1,459		1,776	1,579		1,495	2,313

Non-U.S. Asbestos and Environmental Exposures

Asbestos and environmental exposures also exist outside of the United States and have led to insurance claims in several other countries. The level of claims activity to date, and the potential for future claims varies significantly from country to country due to many factors, including differing social and legal systems, policy terms and conditions and mix of insured business. The Allianz Group is currently conducting a review of its non-U.S. asbestos exposures.

Selected Statistical Information Relating to Our Banking Operations

For the purposes of presenting the following information, our banking operations include Dresdner Bank AG and its subsidiaries (“Dresdner Bank”), including its asset management operations, which are insignificant in size relative to Dresdner Bank’s banking operations, and certain other banking subsidiaries of the Allianz Group. This presentation differs from the presentation in the remainder of “Operating and Financial Review and Prospects”, where the asset management operations of Dresdner Bank are included in our asset management segment and excluded from our banking segment. The following information has been derived from the financial records of our banking operations and has been prepared in accordance with IFRS; it does not reflect certain adjustments and consolidations to convert such information to the Allianz Group’s consolidated financial statements. Particularly, the assets and liabilities of Dresdner Bank do not reflect the purchase accounting adjustments applied for the Allianz Group’s consolidated financial statements with respect to Dresdner Bank’s assets and liabilities at July 23, 2001, the date of the acquisition of Dresdner Bank by the Allianz Group. Further, the following information does not reflect adjustments necessary to convert such information to U.S. GAAP.

As discussed in more detail in “Key Information—Selected Consolidated Financial Data” and Note 3 to our consolidated financial statements, our consolidated financial statements have been prepared in accordance with 2005 IFRS, which introduced a number of new and revised IFRS standards effective January 1, 2005 and which also apply to the financial records of our banking operations. Certain of these standards are required to be applied retrospectively, which has the effect of applying 2005 IFRS to prior periods as if those accounting principles had always been used. These standards include IAS 39 revised, Financial Instruments: Recognition and Measurement, which has an impact on the selected statistical information relating to our banking operations. Accordingly, the information at and for the years ended December 31, 2005, 2004, 2003 and 2002 is presented below in accordance with 2005 IFRS, and where applicable and as indicated, certain information for the years 2004, 2003 and 2002 has been revised to reflect the retrospective application of IAS 39 revised. The information at and for the year ended December 31, 2001 is presented in accordance with pre-2005 IFRS and accordingly does not reflect the retrospective application of 2005 IFRS, due to the unreasonable effort or expense required to prepare such information, in particular resulting from the implementation for such year of the new impairment criteria of IAS 39 revised. For more information on the impact of the retrospective application of 2005 IFRS at and for the years ended December 31, 2004 and 2003, see Note 3 to our consolidated financial statements.

The following information also reflects the closure of Dresdner Bank’s non-strategic IRU effective September 30, 2005, having completed its mandate to free-up risk capital through the reduction of risk-weighted assets. At September 30, 2005, the IRU’s remaining risk assets amounted to €1.4 billion, of which the majority was sold in 4Q 2005, resulting in a further decrease of these risk assets to approximately one-third at December 31, 2005.

Average Balance Sheet and Interest Rate Data

The following table sets forth the average balances of assets and liabilities and related interest earned from interest-earning assets and interest expensed on interest-bearing liabilities, as well as the resulting average interest yields and rates for the years ended December 31, 2005, 2004 and 2003. The average balance sheet and interest rate data is based on consolidated monthly average balances using month-end balances prepared in accordance with IFRS.

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

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

Our banking operations do not have a significant balance of tax-exempt investments. Accordingly, interest income on such investments has been included as taxable interest income for purposes of calculating the change in taxable net interest income.


	Year Ended December 31,
	2005					2004					2003
	Average Balance		Interest Income/ Expense	Average Yield/ Rate		Average Balance		Interest Income/ Expense	Average Yield/ Rate		Average Balance		Interest Income/ Expense	Average Yield/ Rate
	€ mn		€ mn	%		€ mn		€ mn	%		€ mn		€ mn	%
Assets
Financial assets carried at fair value through income
In German offices	88,194		4,215	4.8	%	110,316		3,972	3.6	%	84,197		1,724	2.0	%
In non-German offices	53,059		1,941	3.7	%	37,643		1,131	3.0	%	29,191		809	2.8	%

Total	141,253		6,156	4.4	%	147,959		5,103	3.4	%	113,388		2,533	2.2	%

Loans and advances to banks
In German offices	19,646		424	2.2	%	21,880		455	2.1	%	20,163		517	2.6	%
In non-German offices	14,276		564	4.0	%	8,653		210	2.4	%	7,244		325	4.5	%

Total	33,922		988	2.9	%	30,533		665	2.2	%	27,407		842	3.1	%

Loans and advances to customers
In German offices	77,873		4,313	5.5	%	83,950		4,058	4.8	%	90,720		4,452	4.9	%
In non-German offices	34,371		1,600	4.7	%	28,029		1,210	4.3	%	39,246		2,137	5.4	%

Total	112,244		5,913	5.3	%	111,979		5,268	4.7	%	129,966		6,589	5.1	%

Securities purchased under resale agreements
In German offices	83,614		2,690	3.2	%	110,439		2,896	2.6	%	91,306		2,602	2.8	%
In non-German offices	59,513		2,324	3.9	%	64,030		1,399	2.2	%	27,492		851	3.1	%

Total	143,127		5,014	3.5	%	174,469		4,295	2.5	%	118,798		3,453	2.9	%

Investment securities⁽¹⁾
In German offices	7,392		237	3.2	%	5,727		206	3.6	%	5,909		254	4.3	%
In non-German offices	5,651		237	4.2	%	7,663		241	3.1	%	7,683		263	3.4	%

Total	13,043		474	3.6	%	13,390		447	3.3	%	13,592		517	3.8	%

Total interest-earning assets	443,589		18,545	4.2	%	478,330		15,778	3.3	%	403,151		13,934	3.5	%

Non-interest-earning assets
In German offices	45,974		—	—		45,760		—	—		38,581		—	—
In non-German offices	43,714		—	—		38,008		—	—		30,868		—	—

Total non-interest-earning assets	89,688		—	—		83,768		—	—		69,449		—	—

Total assets	533,277		—	—		562,098		—	—		472,600		—	—

Percent of assets attributable to non-German offices	39.5	%	—	—		32.7	%	—	—		30.0	%	—	—


	Year Ended December 31,
	2005					2004					2003
	Average Balance		Interest Income/ Expense	Average Yield/ Rate		Average Balance		Interest Income/ Expense	Average Yield/ Rate		Average Balance		Interest Income/ Expense	Average Yield/ Rate
	€ mn		€ mn	%		€ mn		€ mn	%		€ mn		€ mn	%
Liabilities and shareholders’ equity
Financial liabilities carried at fair value through income
In German offices	215		16	7.4	%	184		15	8.2	%	163		13	8.0	%
In non-German offices	19		1	4.6	%	—		—	—		—		—	—

Total	234		17	7.2	%	184		15	8.2	%	163		13	8.0	%

Liabilities to banks
In German offices	67,698		1,869	2.8	%	86,796		1,989	2.3	%	86,173		2,000	2.3	%
In non-German offices	25,374		1,414	5.6	%	21,784		1,066	4.9	%	13,784		754	5.5	%

Total	93,072		3,283	3.5	%	108,580		3,055	2.8	%	99,957		2,754	2.8	%

Liabilities to customers
In German offices	60,254		1,720	2.9	%	57,877		1,576	2.7	%	57,322		1,726	3.0	%
In non-German offices	39,056		1,139	2.9	%	32,792		1,043	3.2	%	37,211		910	2.4	%

Total	99,310		2,859	2.9	%	90,669		2,619	2.9	%	94,533		2,636	2.8	%

Securities sold under repurchase agreements
In German offices	60,471		2,382	3.9	%	75,091		2,019	2.7	%	58,998		1,719	2.9	%
In non-German offices	59,113		2,226	3.8	%	52,942		1,105	2.1	%	17,568		638	3.6	%

Total	119,584		4,608	3.9	%	128,033		3,124	2.4	%	76,566		2,357	3.1	%

Subordinated liabilities
In German offices	3,244		163	5.0	%	3,433		164	4.8	%	3,757		174	4.6	%
In non-German offices	3,062		181	5.9	%	3,707		220	5.9	%	3,836		267	7.0	%

Total	6,306		344	5.5	%	7,140		384	5.4	%	7,593		441	5.8	%

Certificated liabilities⁽²⁾
In German offices	18,441		758	4.1	%	16,651		604	3.6	%	13,745		536	3.9	%
In non-German offices	32,258		1,205	3.7	%	28,392		779	2.7	%	40,093		1,365	3.4	%

Total	50,699		1,963	3.9	%	45,043		1,383	3.1	%	53,838		1,901	3.5	%

Profit participation certificates outstanding
In German offices	1,521		110	7.2	%	1,517		111	7.3	%	1,515		111	7.3	%

Total	1,521		110	7.2	%	1,517		111	7.3	%	1,515		111	7.3	%

Total interest-bearing liabilities	370,726		13,184	3.6	%	381,166		10,691	2.8	%	334,165		10,213	3.1	%

Non-interest-bearing liabilities
In German offices	94,036		—	—		116,286		—	—		89,561		—	—
In non-German offices	56,582		—	—		52,892		—	—		36,447		—	—
Total non-interest-bearing liabilities	150,618		—	—		169,178		—	—		126,008		—	—

Shareholders’ equity	11,934		—	—		11,754		—	—		12,427		—	—

Total liabilities and shareholders’ equity	533,277		—	—		562,098		—	—		472,600		—	—

Percent of liabilities attributable to non-German offices	41.3	%	—	—		35.0	%	—	—		32.4	%	—	—

⁽¹⁾

In 2003, 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. In 2005 and 2004, the average yields for investment securities available-for-sale have been calculated using the fair value balances. These balances are not materially different from the amortized cost balances. The average yields for investment securities held-to-maturity have been calculated using amortized cost balances.

⁽²⁾	Interest-bearing deposits are presented within liabilities to banks and liabilities to customers; certificates of deposit are 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,
	2005		2004		2003
	€ mn		€ mn		€ mn
Average total interest-earning assets	443,589		478,330		403,151
Net interest earned⁽¹⁾	5,361		5,087		3,721
Net interest margin in %⁽²⁾	1.21	%	1.06	%	0.92	%

⁽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,
	2005 over 2004						2004 over 2003
	Increase/(Decrease) due to Change in:						Increase/(Decrease) due to Change in:
	Total Change		Average Interest Rate		Average Volume		Total Change		Average Interest Rate		Average Volume
	€ mn		€ mn		€ mn		€ mn		€ mn		€ mn
Interest income
Financial assets carried at fair value through income
In German offices	243		1,139		(896	)	2,248		1,595		653
In non-German offices	810		281		529		322		72		250

Total	1,053		1,420		(367	)	2,570		1,667		903

Loans and advances to banks
In German offices	(31	)	17		(48	)	(62	)	(103	)	41
In non-German offices	354		174		180		(115	)	(170	)	55

Total	323		191		132		(177	)	(273	)	96

Loans and advances to customers
In German offices	255		563		(308	)	(394	)	(66	)	(328	)
In non-German offices	390		100		290		(927	)	(390	)	(537	)

Total	645		663		(18	)	(1,321	)	(456	)	(865	)

Securities purchased under resale agreements
In German offices	(206	)	580		(786	)	294		(220	)	514
In non-German offices	925		1,030		(105	)	548		(311	)	859

Total	719		1,610		(891	)	842		(531	)	1,373

Investment securities
In German offices	31		(24	)	55		(48	)	(40	)	(8	)
In non-German offices	(5	)	68		(73	)	(22	)	(21	)	(1	)

Total	26		44		(18	)	(70	)	(61	)	(9	)

Total interest income	2,766		3,928		(1,162	)	1,844		346		1,498


	Year Ended December 31,
	2005 over 2004						2004 over 2003
	Increase/(Decrease) due to Change in:						Increase/(Decrease) due to Change in:
	Total Change		Average Interest Rate		Average Volume		Total Change		Average Interest Rate		Average Volume
	€ mn		€ mn		€ mn		€ mn		€ mn		€ mn
Interest expense
Financial liabilities carried at fair value through income
In German offices	1		1		—		2		—		2
In non-German offices	1		1		—		—		—		—

Total	2		2		—		2		—		2

Liabilities to banks
In German offices	(120	)	364		(484	)	(11	)	(25	)	14
In non-German offices	348		159		189		312		(87	)	399

Total	228		523		(295	)	301		(112	)	413

Liabilities to customers
In German offices	144		78		66		(150	)	(167	)	17
In non-German offices	96		(92	)	188		133		250		(117	)

Total	240		(14	)	254		(17	)	83		(100	)

Securities sold under repurchase agreements
In German offices	363		810		(447	)	300		(141	)	441
In non-German offices	1,121		980		141		467		(367	)	834

Total	1,484		1,790		(306	)	767		(508	)	1,275

Subordinated liabilities
In German offices	(1	)	8		(9	)	(10	)	5		(15	)
In non-German offices	(39	)	(1	)	(38	)	(47	)	(38	)	(9	)

Total	(40	)	7		(47	)	(57	)	(33	)	(24	)

Certificated liabilities
In German offices	154		85		69		68		(39	)	107
In non-German offices	426		309		117		(586	)	(234	)	(352	)

Total	580		394		186		(518	)	(273	)	(245	)

Profit participation certificates outstanding
In German offices	(1	)	(1	)	—		—		—		—
Total	(1	)	(1	)	—		—		—		—

Total interest expense	2,493		2,701		(208	)	478		(843	)	1,321

Change in taxable net interest income	273		1,227		(954	)	1,366		1,189		177

Return on Equity and Assets

The following table sets forth the net income, average shareholders’ equity and selected financial information and ratios of our banking operations.


	Year Ended December 31,
	2005		2004		2003
	€ mn		€ mn		€ mn
Net income/(loss)	1,768		343		(2,242	)
Average shareholders’ equity	11,934		11,754		12,427
Return on assets in %⁽¹⁾	0.33	%	0.06	%	(0.47	)%
Return on equity in %⁽²⁾	14.81	%	2.92	%	(18.04	)%
Equity to assets ratio in %⁽³⁾	2.24	%	2.09	%	2.63	%

⁽¹⁾	Return on assets is defined as net income/(loss) of our banking operations divided by average total assets of our banking operations.

⁽²⁾	Return on equity is defined as net income/(loss) of our banking operations divided by average shareholders’ equity of our banking operations.

⁽³⁾	Equity to assets ratio is defined as average shareholders’ equity of our banking operations divided by average total assets of our banking operations.

Financial Assets Carried At Fair Value Through Income and Investment Securities

The following table sets forth the book value of financial assets carried at fair value through income (including trading securities) and investment securities held by our banking operations by type of issuer. The allocation between German and non-German components is based on the domicile of the issuer.


	At December 31,
	2005		2004⁽²⁾	2003⁽²⁾
	€ mn		€ mn	€ mn
Financial assets carried at fair value through income⁽¹⁾
German:
Federal and state government and government agency debt securities	11,497	⁽³⁾	33,693	19,764
Local government debt securities	690		1,578	4,384
Corporate debt securities	18,972		30,157	31,319
Mortgage-backed securities	139		112	315
Equity securities	2,656		2,853	1,636

German total	33,954		68,393	57,418


	At December 31,
	2005		2004⁽²⁾	2003⁽²⁾
	€ mn		€ mn	€ mn
Non-German:
U.S. Treasury and other U.S. government agency debt securities	915		2,083	5,107
Other government and official institution debt securities	25,534	⁽³⁾	51,636	28,424
Corporate debt securities	39,425		26,557	20,623
Mortgage-backed securities	13,601	⁽⁴⁾	7,059	543
Equity securities	28,105	⁽⁵⁾	16,301	13,216

Non-German total	107,580		103,636	67,913

Total financial assets carried at fair value through income	141,534		172,029	125,331

Securities available-for-sale
German:
Federal and state government and government agency debt securities	305		77	1,036
Local government debt securities	1,777		2,083	1,591
Corporate debt securities	5,195		5,865	3,424
Mortgage-backed and other debt securities	—		—	14
Equity securities	1,573		2,354	742

German total	8,850		10,379	6,807

Non-German:
U.S. Treasury and other U.S. government agency debt securities	5		—	246
Other government and official institution debt securities	1,245		1,430	1,792
Corporate debt securities	3,180		3,061	3,560
Mortgage-backed and other debt securities	721		424	905
Equity securities	1,649		1,552	3,546

Non-German total	6,800		6,467	10,049

Total securities available-for-sale	15,650		16,846	16,856

Securities held-to-maturity
Non-German:
Other government and official institution debt securities	41		103	96

Non-German total	41		103	96

Total securities held-to-maturity	41		103	96

⁽¹⁾	Excludes derivative financial instruments held for trading.

⁽²⁾	The years ended December 2004 and 2003 have been revised to reflect the required retrospective application of IAS 39 revised, which became effective January 1, 2005, as if IAS 39 revised had always been used.

⁽³⁾

The decrease in German federal and state government and government agency debt securities as well as non-German other government and official institution debt securities is primarily driven by the reduction of government and agency bonds and other fixed-income securities during 2005 due to declined earnings prospects in this sector.

⁽⁴⁾	The increase in non-German mortgage-backed securities was driven largely by the increased volume of credit derivative trades during 2005.

⁽⁵⁾	The increase in non-German equity securities reflects the positive developments within the stocks markets and indices during 2005.

At December 31, 2005, our banking operations held no ordinary shares with a book value in excess of ten percent of the shareholders’ equity of our banking operations.

Maturity Analysis of Debt Investment Securities

The following table sets forth an analysis of the contractual maturity and weighted average yields of our banking operations’ debt investment securities. Actual maturities may differ from contractual maturity dates because issuers may have the right to call or prepay obligations. The allocation between German and non-German components is based on the domicile of the issuer.


	At December 31, 2005
	Due In One Year Or Less		Due After One Year Through Five Years		Due After Five Years Through Ten Years		Due After Ten Years		Total
	€ mn		€ mn		€ mn		€ mn		€ mn
Securities available-for-sale
German:
Federal and state government and government agency debt securities	11		114		175		5		305
Local government debt securities	57		1,678		42		—		1,777
Corporate debt securities	348		3,447		1,400		—		5,195

German total	416		5,239		1,617		5		7,277

Non-German:
Government and official institution debt securities	258		564		362		66		1,250
Corporate debt securities	326		2,042		764		48		3,180
Mortgage-backed and other debt securities	467		152		101		1		721

Non-German total	1,051		2,758		1,227		115		5,151

Total securities available-for-sale	1,467		7,997		2,844		120		12,428

Weighted average yield in %	3.4	%	3.4	%	3.3	%	3.0	%	3.3	%
Securities held-to-maturity⁽¹⁾
Non-German:
Other government and official institution debt securities	41		—		—		—		41

Non-German total	41		—		—		—		41

Total securities held-to-maturity	41		—		—		—		41

Weighted average yield in %	8.7	%	—		—		—		8.7	%

⁽¹⁾	We did not hold any German securities held-to-maturity at December 31, 2005.

Loan Portfolio

The following table sets forth an analysis of our loan portfolio, gross of allocated loan loss allowances and net of unearned income, according to the industry sector of borrowers, excluding reverse repurchase agreements and collateral paid for securities borrowing transactions, short-term investments and certificates of deposit, as well as other advances to banks and customers. The allocation between German and non-German components is based on the domicile of the borrower.

At December 31,

2005

2004⁽¹⁾

2003⁽¹⁾

2002⁽¹⁾

2001

€ mn

German:

Corporate:

&nbs