Interim Report First Quarter of 2006
Table of Contents

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


Form 6-K

Report of Foreign Private Issuer

Pursuant to Rules 13a-16 or 15d-16 of

the Securities Exchange Act of 1934

 


for the period ended March 31, 2006

Commission file Number: 1-15154

 


ALLIANZ AKTIENGESELLSCHAFT

Königinstrasse 28

80802 Munich

Germany

(Address of principal executive offices)

 


Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

Form 20-F  x                Form 40-F  ¨

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes  ¨                No  x

THIS REPORT ON FORM 6-K SHALL BE DEEMED TO BE INCORPORATED BY REFERENCE IN THE REGISTRATION STATEMENT ON FORM S-8 (FILE NO. 333-13462) OF ALLIANZ AKTIENGESELLSCHAFT AND TO BE A PART THEREOF FROM THE DATE ON WHICH THIS REPORT IS FURNISHED, TO THE EXTENT NOT SUPERSEDED BY DOCUMENTS OR REPORTS SUBSEQUENTLY FILED OR FURNISHED.

 



Table of Contents

Interim Report First Quarter of 2006

Allianz Group

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Table of Contents

Contents

 

3

  

Group Management Report

3

  

Executive Summary

8

  

Property-Casualty Insurance Operations

12

  

Life/Health Insurance Operations

16

  

Banking Operations

19

  

Asset Management Operations

23

  

Outlook

25

  

Consolidated Financial Statements for the First Quarter of 2006

30

  

Notes to the Consolidated Financial Statements

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7.7% share price increase in the first quarter of 2006.

Allianz share price vs DJ EURO STOXX 50 and DJ EURO STOXX Insurance

January 1, 2005 – March 31, 2006

in €

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Source: Thomson Financial Datastream
Current information on the development of the Allianz share price is available at www.allianz.com/stock.

Allianz Share Information

 

Share type:

   Registered share with restricted transfer

Denomination:

   No-par-value share

Stock exchanges:

   All German stock exchanges, London, New York, Paris, Zurich

Security codes:

   WKN 840 400
  

ISIN DE 000 840 400 5

Bloomberg:

   ALV GY

Reuters:

   ALVG.DE

Financial Calendar 2006/2007

Important dates for shareholders and analysts

 

August 11, 2006

   Interim report first half of 2006

November 10, 2006

   Interim report first three quarters of 2006

February 22, 2007

   Financial press conference for the 2006 fiscal year

February 23, 2007

   Analysts’ conference for the 2006 fiscal year

May 2, 2007

   Annual General Meeting

May 11, 2007

   Interim report first quarter of 2007

August 10, 2007

   Interim report first half of 2007

November 14, 2007

   Interim report first three quarters of 2007

As we cannot rule out changes to dates, we recommend that you check them at www.allianz.com/financialcalendar.


Table of Contents

Allianz Group Selected Consolidated Financial Data

Through the implementation of various reporting changes effective January 1, 2006, and applied retrospectively, we aim to further improve transparency for the readers of our consolidated financial statements. Please see Note 2 to our consolidated financial statements for further information.

 

          March 31,
2006
   December 31,
2005
    Change
%
 

Balance Sheet

          

Investments

    mn    285,585    285,015     0.2  

Loans and advances to banks and customers

   mn    391,699    336,808     16.3  

Total assets

   mn    1,038,035    988,584     5.0  

Liabilities to banks and customers

   mn    355,253    310,316     14.5  

Reserves for loss and loss adjustment expenses

   mn    66,069    67,005     (1.4 )

Reserves for insurance and investment contracts

   mn    280,539    278,829     0.6  

Shareholders’ equity

   mn    41,301    39,487     4.6  

Minority interests

   mn    7,705    7,615     1.2  
                    

Three months ended March 31,

        2006    2005     Change
%
 

Income Statement

          

Total revenues1)

   mn    29,641    28,262     4.9  

Operating profit

   mn    2,677    1,887     41.9  

Income before incometaxes and minority interests in earnings

   mn    3,031    2,255     34.4  

Net income

   mn    1,779    1,324     34.4  
                    

Returns

          

Return on shareholders’ equity after taxes2)

     %    4.4    4.2     0.2 pts  
                    

Segments

Property-Casualty

          

Operating profit

   mn    1,386    1,214     14.2  

Loss ratio

     %    66.2    66.1     0.1 pts  

Expense ratio

     %    28.5    27.9     0.6 pts  

Combined ratio

     %    94.7    94.0     0.7 pts  

Life/Health

          

Operating profit

   mn    723    517     39.8  

Statutory expense ratio

     %    8.3    7.0     1.3 pts  

Banking (Dresdner Bank)

          

Operating profit

   mn    529    209     153.1  

Cost-income ratio

     %    73.7    81.0     (7.3) pts  

Loan loss provisions

   mn    33    (100 )   —    

Coverage ratio at March 313)

     %    60.4    61.9     (1.5) pts  

Asset Management

(Allianz Global Investors)

          

Operating profit

   mn    300    229     31.0  

Cost-income ratio

     %    59.2    58.7     0.5 pts  

Third-party assets under management at March 31

   bn    753    7434 )   1.3  
                    

Share Information

          

Basic earnings per share

        4.39    3.50     25.4  

Diluted earnings per share

        4.32    3.48     24.1  

Share price at March 31

        137.78    127.944 )   7.7  

Market capitalization at March 31

   bn    55.9    51.94 )   7.7  
                    

Allianz AG Ratings at March 31, 2006

 

     Standard
& Poor’s
    Moody’s    A.M.
Best
 

Insurer financial strength

   AA-     Aa3    A+  

Outlook

   Stable1 )   Stable    Stable  

Counterparty credit

   AA-     Not    aa-2 )

Outlook

   Stable1 )   rated    Stable  

Senior unsecured debt

   AA-     Aa3    aa-  

Outlook

     Stable    Stable  

Subordinated debt

   A/A-3 )   A2    a+/a3 )

Outlook

     Stable    Stable  

Commercial paper

(short term)

Outlook

   A-1+     P-1
Stable
   Not
rated
 
 

1) Outlook upgraded to “Positive” on April 20, 2006.
2) Issuer credit rating.
3) Ratings vary on the basis of maturity period and terms.

Investor Relations

We endeavor to keep our shareholders up-to-date on all company developments. Our Investor Relations Team is pleased to answer any questions you may have.

Allianz AG

Investor Relations

Koeniginstrasse 28

80802 Munich

Germany

 

Investor Line:

   +49 1802 2554269
   +49 1802 ALLIANZ

Fax:

   +49 89 3800 3899

E-Mail:

   investor.relations@allianz.com

Internet:

   www.allianz.com/investor-relations

Other Reports

All Allianz Group published quarterly and annual financial reports are available for download at www.allianz.com/investor-relations. Alternatively, you can order printed copies of our reports.


1) Total revenues comprise Property-Casualty segment’s gross premiums written, Life/Health segment’s statutory premiums, Banking segment’s operating revenues and Asset Management segment’s operating revenues.
2) Based on average shareholders’ equity. Average shareholders’ equity has been calculated based upon the average of the current and preceding end of period’s shareholders’ equity.
3) Represents total loan loss allowances as a percentage of total non-performing loans and potential problem loans.
4) At December 31, 2005.

 

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Executive Summary

A very good start into 2006.

 

    In 1Q 2006, we were able to successfully capitalize on our operational strengths, the positive capital market developments and the absence of major natural catastrophes.

 

    Operating profit rose 41.9% to €2.7 billion, thus establishing a good basis to attain our challenging 2006 targets.

 

    Property-Casualty maintained its strong profitability level with a combined ratio of 94.7%.

 

    Life/Health operating profit hit €723 million, a 39.8% rise.

 

    Banking operating profit more-than-doubled to €547 million.

 

    Asset Management had €14 billion in net inflows and increased operating profit by 31.6% to €304 million.

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

 

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Allianz Group’s Consolidated Results of Operations

Total Revenues1)

We experienced substantial growth in total revenues in our Life/Health, Banking and Asset Management segments, whereas total revenues from our Property-Casualty segment remained flat. Overall, our total revenues increased as planned by 4.9% to €29.6 billion. Internal growth amounted to 2.9%.

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Property-Casualty With a clear – and successful – focus on profitability, we continue to allocate our resources with the purpose of balancing profit generation with volume accumulation and accepting only those risks which we believe will produce sufficient returns. Overall, our gross premiums written remained stable at €14.1 billion. On an internal growth basis, we experienced a slight decline of 1.0%.

Life/Health Our statutory premiums rose by 7.9% to €12.8 billion. Internal growth was 5.0%. We were successful in achieving increases in statutory premiums across all geographic regions, with particularly strong growth rates in Europe and Asia-Pacific.

Banking Operating revenues from our Banking segment experienced dynamic growth in the traditionally strong first quarter of the year, and increased by 15.3% to €1.9 billion. At Dresdner Bank, growth was even stronger at 16.1%. All revenue categories contributed to these developments.

Asset Management At March 31, 2006, third-party assets amounted to €753 billion, a €10 billion increase from December 31, 2005. Continued strong net inflows of €14 billion were offset by negative foreign currency impacts of a similar magnitude. Excluding foreign currency impacts, our third-party assets rose by €24 billion, or 3.2%, compared to December 31, 2005. Commensurate with this positive development, our operating revenues increased by 32.5% to €751 million, primarily reflecting higher net fee and commission income.


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

Operating Profit

Our consolidated operating profit grew by 41.9% to €2.7 billion, driven by strong improvements across all segments.

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Property-Casualty We were successful in maintaining our strong profitability level and achieved an operating profit growth of 14.2% to €1.4 billion. Our combined ratio remains at a competitive level and, on a comparable basis, increased by 0.7 percentage points to 94.7%. This was driven by a 0.6 percentage point rise in our expense ratio to 28.5%, whereas our loss ratio remained relatively unchanged at 66.2% (1Q 2005: 66.1%), benefiting from improved risk management and the absence of significant losses from natural catastrophes.

Life/Health Our operating profit increased significantly by 39.8% to €723 million. The key factor in this development was the further margin improvement on our in-force business.

Banking We more-than-doubled our operating profit to €547 million, of which Dresdner Bank contributed €529 million. Driven by the strong increase in operating revenues and strict cost management, our Banking segment’s cost-income ratio improved significantly by 7.3 percentage points to 73.6% (Dresdner Bank: 7.3 percentage point improvement to 73.7%).

Asset Management Operating profit growth of 31.6% to €304 million reflected the strong increase in our operating revenues. Our Asset Management segment’s cost-income ratio of 59.5% remained nearly flat compared to 1Q 2005.

 

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Non-Operating Items

Non-operating items contributed €354 million, slightly less than in 1Q 2005. We leveraged strong equity capital markets and generated in 1Q 2006 a disproportionate part of our capital gains target for 2006, although not at the prior year’s level. In aggregate, the impact from realized gains/losses (net) and impairments of investments (net) was €778 million. Approximately one-half of this development was offset by interest expense from external debt, acquisition-related expenses from our Asset Management segment and other non-operating items.

Net Income

Our net income grew significantly by 34.4% to €1.8 billion.

Income before income taxes and minority interests in earnings increased €776 million to 3.0 billion. Operating profit, with its growth of €790 million and reaching €2.7 billion, was the single main driver behind both the increase in, and magnitude of, income before income taxes and minority interests in earnings.

Largely as a result of our improved operating profit, our income taxes rose to €899 million, representing an effective income tax rate of 29.7% (1Q 2005: 26.0%). The increase in our effective income tax rate stemmed principally from the favorable taxation of a large gain in 1Q 2005 from the sale of the holding in Gecina S.A. at our Life/Health subsidiary AGF Vie, which was not repeated in 1Q 2006. Minority interests in earnings remained rather stable at €353 million, primarily due to significantly higher earnings at RAS in Italy, which more than compensated for the reduced shareholdings of third parties following the buy-out of minorities in late 2005.

The following graph sets forth our basic and diluted earnings per share for 1Q 2006 and 1Q 2005.

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1) See Note 35 to our consolidated financial statements for further details regarding the dilutive effect of certain outstanding securities.

The following table summarizes the total revenues and operating profit for each of our segments for the three months ended March 31, 2006 and 2005, as well as IFRS consolidated net income of the Allianz Group.

 

     Property-
Casualty
    Life/Health     Banking     Asset
Management
    Corporate     Consolidation
Adjustments
    Allianz Group  

Three months ended
March 31,

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

Total revenues1)

   14,149     14,143     12,822     11,880     1,948     1,689     751     567     —       —       (29 )   (17 )   29,641     28,262  
                                                                                    

Operating profit

   1,386     1,214     723     517     547     229     304     231     (180 )   (267 )   (103 )   (37 )   2,677     1,887  

Non-operating items

   428     516     158     88     392     450     (136 )   (164 )   (211 )   (123 )   (277 )   (399 )   354     368  
                                                                                    

Income before income taxes and minority interests in earnings

   1,814     1,730     881     605     939     679     168     67     (391 )   (390 )   (380 )   (436 )   3,031     2,255  
                                                                                    

Income taxes

   (524 )   (543 )   (219 )   (104 )   (245 )   (74 )   (65 )   (24 )   154     153     —       7     (899 )   (585 )

Minority interests in earnings

   (190 )   (191 )   (128 )   (122 )   (28 )   (26 )   (13 )   (13 )   (2 )   (1 )   8     7     (353 )   (346 )
                                                                                    

Net income

   1,100     996     534     379     666     579     90     30     (239 )   (238 )   (372 )   (422 )   1,779     1,324  
                                                                                    

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

 

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Allianz Group’s Invested Assets and Total Equity

Total Equity

In 1Q 2006, we continued to succeed in strengthening our capital base on a sustainable basis.

Compared to December 31, 2005, our total equity increased by 4.0% to €49.0 billion at March 31, 2006. The increase in shareholders’ equity was even stronger at 4.6% to €41.3 billion, whereas minority interests remained relatively flat at €7.7 billion.

The growth in shareholders’ equity was driven predominantly by our strong net income in 1Q 2006 and, to a lesser degree, increased unrealized gains on investments due to favorable equity market conditions. Partially offsetting these positive developments were higher negative foreign currency translation adjustments from a weaker U.S. Dollar compared to the Euro at March 31, 2006 as compared to December 31, 2005.

The following graph sets forth the development of our shareholders’ equity in 1Q 2006.

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1) Consists of the following developments (in € mn): foreign currency translation adjustments (335); changes in the consolidated subsidiaries of the Allianz Group 12; treasury shares 255; net income 1,779; miscellaneous (259).

Invested Assets

In the following, we present the breakdown of invested assets owned and managed by our Property-Casualty, Life/Health and Banking segments by category and instruments.

Invested Assets – Property-Casualty: Allocation by Category and Instruments at March 31, 2006

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1) Held-to-maturity investments and real estate held for investment are stated at amortized cost. Investments in associates and joint ventures are stated at either amortized cost or equity, depending upon, among other factors, our ownership percentage.
2) Includes debt securities at €3.2 bn and equity securities at €0.4 bn.
3) Includes associates and joint ventures at €0.5 bn, but does not include affiliates at €9.1 bn.
4) Includes held-to-maturity investments at €0.6 bn.

Invested Assets – Life/Health: Allocation by Category and Instruments at March 31, 2006

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1) Held-to-maturity investments and real estate held for investment are stated at amortized cost. Investments in associates and joint ventures are stated at either amortized cost or equity, depending upon, among other factors, our ownership percentage.
2) Includes debt securities at €6.6 bn, equity securities at €2.6 bn and derivative financial instruments at €(3.1) bn.
3) Includes associates and joint ventures at €1.0 bn, but does not include affiliates at €3.5 bn.
4) Includes held-to-maturity investments at €4.0 bn.

Invested Assets – Banking: Trading Portfolio Allocation at March 31, 2006

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Corporate

Our Corporate segment is comprised of all holding activities which are exercised on behalf of the Allianz Group as a whole.

Operating revenues increased by 17.4% to €331 million, largely driven by fee and commission income stemming from Four Seasons Health Care Ltd. Mainly attributable to a significant decline in other operating expenses, specifically investment expenses, operating profit improved to a loss of €180 million. Investment expenses benefited from substantially lower foreign currency losses, resulting from a stronger U.S. Dollar in 1Q 2006.

 

Three months ended March 31,

   2006     2005  
     €mn     €mn  

Operating revenues

   299     258  

Interest expense, excluding interest expense from external debt1)

   (173 )   (173 )

Acquisition and administrative expenses (net)

   (156 )   (121 )

Other operating expenses

   (150 )   (231 )
            

Operating expenses

   (479 )   (525 )
            

Operating profit

   (180 )   (267 )
            

Income from financial assets and liabilitiesheld for trading (net)

   (96 )   (4 )

Realized gains/losses (net)

   70     106  

Impairments of investments (net)

   13     (32 )

Interest expense from external debt1)

   (198 )   (193 )
            

Non-operating items

   (211 )   (123 )
            

Income before income taxes and minority interests in earnings

   (391 )   (390 )
            

1) The total of these items equals interest expense in the segment income statement.

Events After the Balance Sheet Date

See Note 39 to our consolidated financial statements.

 

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Property-Casualty Insurance Operations

Strong operating profit growth at 14.2%.

 

    Putting profitability first, we maintained our gross premiums written at €14.1 billion.

 

    Our combined ratio remained at a competitive level at 94.7%, increasing 0.7 percentage points.

 

    Our operating profit rose to €1.4 billion.

 

    Net income grew by 10.4% to €1.1 billion, founded on our robust operating profitability.

Earnings Summary

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1) After elimination of transactions between Allianz Group companies in different geographic regions.

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1) Before elimination of transactions between Allianz Group companies in different geographic regions.
2) Comprise “Other Europe”.

Gross Premiums Written

With a clear – and successful – focus on profitability, we continue to allocate our resources with the purpose of balancing profit generation with volume accumulation and accepting only those risks which we believe will produce sufficient returns. In summary, our gross premiums written remained stable at €14,149 million and comparable to 1Q 2005. Based on internal growth, gross premiums written declined slightly by 1.0%.

Growth varied considerably across different markets in which we are active. Positive developments were primarily experienced by our operations in the United States, Australia and Spain with additional gross premiums written of €72 million (7.7%), €28 million (9.2%) and €26 million (4.1%), respectively. In the United States, our operations benefited from a stronger U.S. Dollar in 1Q 2006. The positive trend in Australia, where the growth of gross premiums written was well above the market average1), occurred primarily in our financial


1) Source: Own calculations and estimates.

 

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institutions/direct line of business, where sales significantly increased after strengthened marketing and sales activities. All lines of business contributed to the increase of gross premiums written in Spain.

These increases were offset by decreased gross premiums written primarily in Germany and the United Kingdom where gross premiums written declined by €101 million (2.0%) and €53 million (8.4%), respectively.

In Germany, our largest market, we remained committed to our focus on profitability and not volume. Gross written premiums declined mainly due to lower average premiums in our motor business following the introduction of the new “scoring tariff” as well as higher “no claims bonuses”. Additionally, softer market conditions in the commercial property business also proved challenging, leading to a decline in gross written premiums. In the United Kingdom, the decline was related to lower premiums written in our personal and commercial lines, as we continued our cycle management efforts, through which we endeavor to balance volume and margin criteria.

Operating Profit

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Our operating profit increased by 14.2% to €1,386 million. The top five contributing operating entities included Sachgruppe Deutschland (or “SGD”) in Germany at €321 million, Fireman’s Fund in the United States at €199 million, AGF in France at €127 million, RAS in Italy at €80 million and Allianz Cornhill in the United Kingdom at €60 million, which represent nearly all of our primary insurance markets. The strongest improvements occurred at AGR/AMA (€108 million), our newly formed unit which combines the activities of Allianz Global Risks Re, Allianz Marine & Aviation and our German corporate customer business, as well as in France (€73 million) and the United States (€52 million).

Claims and insurance benefits incurred (net) increased by 2.4% to €6,182 million, due largely to a €137 million net increase in claims in 1Q 2006 on an accident year basis, while run-off related to prior periods remained relatively unchanged with a benefit of €181 million. As claims and insurance benefits incurred (net) increased relatively at the same rate as premiums earned (net), our loss ratio remained nearly unchanged at 66.2% (1Q 2005: 66.1%), benefiting from our improved risk management and the absence of significant claims from natural catastrophes.

Acquisition and administrative expenses (net) increased by 4.4% to €2,663 million. Thereof, acquisition costs increased by 7.1% to €1,507 million, largely due to higher commission payments. Administrative expenses increased slightly by 1.0% to €1,156 million. As a result of these effects, despite the increase in our premiums earned (net), our expense ratio rose by 0.6 percentage points to 28.5% (1Q 2005: 27.9%).

Driven largely by the rise in our expense ratio, our combined ratio was 94.7%, 0.7 percentage points higher than the prior year period, but continues to remain at a competitive level.

Interest and similar income increased by 6.3% to €922 million, reflecting primarily increased interest income at our operations in the United States and AGR/AMA, largely as a result of higher income from debt securities.

 

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Non-Operating Items

Our non-operating items declined 17.1% to €428 million. This development was primarily attributable to a 16.4% decline in realized gains/losses (net), excluding realized gains/losses (net) on participating policies to €439 million largely as a result of large gains from the sale of MAN AG and Gecina S.A. in 1Q 2005.

Net Income

Net income increased by 10.4% to €1,100 million, driven by our robust operating profitability and an €88 million decline in our non-operating items.

Income taxes amounted to €524 million, resulting in an effective tax rate of 28.9% (2005: 31.4%).

Minority interests in earnings remained relatively stable at €190 million as the result of significantly higher earnings at RAS in Italy, which more than compensated for the reduced shareholdings of third parties following the buy-out of minorities in late 2005.

The following table sets forth our Property-Casualty insurance segment’s income statement and key operating ratios for the three months ended March 31, 2006 and 2005.

 

Three months ended March 31,

   2006     2005  
     €mn     €mn  

Gross premiums written1)

   14,149     14,143  

Ceded premiums written

   (1,712 )   (1,698 )

Change in unearned premiums

   (3,096 )   (3,305 )
            

Premiums earned (net)

   9,341     9,140  

Interest and similar income

   922     867  

Income from financial assets and liabilities designated at fair value through income (net)2)

   36     21  

Realized gains/losses (net) on participating policies3)

   25     14  

Fee and commission income

   252     216  

Other income

   14     4  
            

Operating revenues

   10,590     10,262  
            

Claims and insurance benefits incurred (net)

   (6,182 )   (6,040 )

Changes in reserves for insurance and investment contracts (net)

   (72 )   (123 )

Interest expense

   (63 )   (80 )

Loan loss provisions

   (1 )   —    

Impairments of investments (net) on participating policies4)

   (4 )   (2 )

Investment expenses

   (48 )   (93 )

Acquisition and administrative expenses (net)

   (2,663 )   (2,552 )

Fee and commission expenses

   (170 )   (157 )

Other expenses

   (1 )   (1 )
            

Operating expenses

   (9,204 )   (9,048 )
            

Operating profit

   1,386     1,214  
            

Income from financial assets and liabilities held for trading (net)2)

   4     5  

Realized gains/losses (net), excluding realized gains/losses (net) on participating policies3)

   439     525  

Impairments of investments (net), excluding impairments of investments (net) on participating policies4)

   (9 )   (5 )

Amortization of intangible assets

   (4 )   (5 )

Restructuring charges

   (2 )   (4 )
            

Non-operating items

   428     516  
            

Income before income taxes and minority interests in earnings

   1,814     1,730  
            

Income taxes

   (524 )   (543 )

Minority interests in earnings

   (190 )   (191 )
            

Net income

   1,100     996  
            

Loss ratio5) in %

   66.2     66.1  

Expense ratio6) in %

   28.5     27.9  
            

Combined ratio7) in %

   94.7     94.0  
            

1) For the Property-Casualty segment, total revenues are measured based upon gross written premiums.
2) The total of these items equals Income from financial assets and liabilities carried at fair value through income (net) in the segment income statement.
3) The total of these items equals Realized gains/losses (net) in the segment income statement.
4) The total of these items equals Impairments of Investments (net) in the segment income statement.
5) Represents claims and insurance benefits incurred (net) divided by premiums earned (net).
6) Represents acquisition and administrative expenses (net) divided by premiums earned (net).
7) Represents the total of acquisition and administrative expenses (net) and claims and insurance benefits incurred (net) divided by premiums earned (net).

 

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Property-Casualty Operations by Geographic Region

The following table sets forth our property-casualty gross premiums written, premiums earned (net), combined ratio, loss ratio, expense ratio and operating profit by geographic region. Consistent with our general practice, gross premiums written, premiums earned (net), combined ratio, loss ratio, expense ratio and operating profit by geographic region are presented before consolidation adjustments, representing the elimination of transactions between Allianz Group companies in different geographic regions and different segments.

 

     Gross premiums
written
    Premiums
earned (net)
    Combined ratio     Loss ratio     Expense ratio     Operating Profit  
     €mn     €mn     %     %     %     €mn  

Three months ended March 31,

     2006         2005         2006         2005         2006         2005         2006         2005         2006         2005         2006         2005    

Germany1)

   4,853     4,954     2,412     2,440     92.7     89.9     59.6     60.2     33.1     29.7     369     408  

France

   1,713     1,695     1,114     1,103     101.0     104.7     74.3     77.3     26.7     27.4     78     5  

Italy

   1,247     1,242     1,205     1,189     96.8     98.2     72.9     71.6     23.9     26.6     108     115  

United Kingdom

   579     632     457     480     99.0     96.0     67.9     65.1     31.1     30.9     56     67  

Switzerland

   958     993     436     425     96.3     95.1     70.2     67.9     26.1     27.2     63     37  

Spain

   657     631     395     364     91.4     92.8     72.7     74.0     18.7     18.8     58     49  
                                                                        

Other Europe, thereof:

   1,655     1,649     1,040     1,017     95.2     91.8     67.3     63.9     27.9     27.9     136     166  

Netherlands

   318     310     198     200     93.4     93.7     59.5     63.1     33.9     30.6     27     27  

Austria

   357     359     192     189     109.8     98.1     86.4     73.2     23.4     24.9     (6 )   21  

Ireland

   198     215     153     161     91.8     90.4     67.7     68.2     24.1     22.2     27     30  

Belgium

   121     118     74     71     101.7     103.1     65.4     65.9     36.3     37.2     9     8  

Portugal

   84     88     66     70     87.3     88.9     65.5     65.6     21.8     23.3     11     10  

Greece

   19     19     11     11     95.1     85.6     65.6     54.4     29.5     31.2     1     2  
                                                                        

Western and Southern Europe

   1,097     1,109     694     702     98.0     94.5     70.2     67.4     27.8     27.1     744 )   974 )
                                                                        

Hungary

   192     185     127     132     91.9     88.9     64.6     62.0     27.3     26.9     27     31  

Slovakia

   93     123     62     62     80.2     74.8     46.9     35.0     33.3     39.8     17     20  

Czech Republic

   81     75     43     37     90.1     92.7     67.3     72.9     22.8     19.8     5     5  

Poland

   72     61     47     36     96.4     89.4     65.5     56.2     30.9     33.2     3     5  

Romania

   71     54     36     28     89.6     89.8     71.4     64.8     18.2     25.0     3     3  

Bulgaria

   20     20     17     8     80.3     116.1     49.8     54.5     30.5     61.6     5     3  

Croatia

   22     17     13     11     96.5     94.7     65.7     59.9     30.8     34.8     1     1  

Russia

   7     5     1     1     60.3     37.1     28.2     0.9     32.1     36.2     1     1  
                                                                        

Central and Eastern Europe

   558     540     346     315     89.6     86.0     61.6     56.2     28.0     29.8     62     69  
                                                                        

NAFTA, thereof:

   1,202     1,105     925     842     89.8     90.7     60.2     61.0     29.6     29.7     221     165  

United States

   1,002     930     886     816     90.5     91.7     60.1     61.4     30.4     30.3     199     147  

Allianz Global Risks US

   149     146     14     7     52.4     108.7     42.6     83.6     9.8     25.1     19     15  

Mexico

   51     29     25     19     108.8     62.0     84.0     36.6     24.8     25.4     3     3  
                                                                        

Asia-Pacific, thereof:

   418     381     339     309     101.8     98.4     75.5     72.8     26.3     25.6     40     50  

Australia

   334     306     300     277     102.5     98.6     77.6     74.6     24.9     24.0     38     48  

Other

   84     75     39     32     94.9     93.8     59.0     56.3     35.9     37.5     2     2  
                                                                        

South America

   226     153     152     106     101.4     98.5     75.4     73.2     26.0     25.3     41     50  
                                                                        

Other

   41     39     12     16     —  2 )   —  2 )   —  2 )   —  2 )   —  2 )   —  2 )   1     1  
                                                                        

Specialty Lines

                        

Credit Insurance

   468     473     260     242     81.1     70.5     53.9     46.3     27.2     24.2     95     96  

AGR/AMA1)

   906     952     375     404     85.0     96.7     63.4     72.1     21.6     24.6     127     19  

Travel Insurance and Assistance Services

   266     253     231     213     101.5     95.8     61.8     63.1     39.7     32.7     22     20  
                                                                        

Subtotal

   15,189     15,152     9,353     9,150     —       —       —       —       —       —       1,415     1,248  
                                                                        

Consolidation adjustments3)

   (1,040 )   (1,009 )   (12 )   (10 )   —       —       —       —       —       —       (29 )   (34 )
                                                                        

Total

   14,149     14,143     9,341     9,140     94.7     94.0     66.2     66.1     28.5     27.9     1,386     1,214  
                                                                        

1) With effect from 1Q 2006, we have combined the activities of the former Allianz Global Risk Re and Allianz Marine & Aviation, as well as the corporate customer business of Sachgruppe Deutschland, which was formerly included within “Germany”. Prior year balances have been adjusted to reflect this reclassification and allow for comparability across periods. Gross premiums written are presented before consolidation within AGR/AMA.
2) Presentation not meaningful.
3) Represents elimination of transactions between Allianz Group companies in different geographic regions.
4) Contains run-off of a former operating entity located in Luxembourg of €5 mn in 2006 and €(1) mn in 2005.

 

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Life/Health Insurance Operations

Very strong operating profit growth of 39.8%.

 

    Overall 7.9% increase in statutory premiums to €12.8 billion, driven by France and South Korea.

 

    Operating profit reached €723 million, reflecting further margin increases on in-force business.

 

    Net income rose 40.9% to €534 million.

Earnings Summary

LOGO


1) After elimination of transactions between Allianz Group companies in different geographic regions.

LOGO


1) Before elimination of transactions between Allianz Group companies in different geographic regions.
2) Comprise “Other Europe”.

Statutory Premiums

Our statutory premiums rose by 7.9% to €12,822 million, with particularly strong growth in France at €252 million (20.9%) and South Korea at €222 million (63.4%). Based on internal growth, our statutory premiums increased by 5.0%.

At Germany Life, statutory premiums remained relatively unchanged at €3,128 million, despite a prior year period that had seen a strong increase in statutory premiums from the carryover effect of contracts executed in late 2004 following the introduction of legislation, which reduced the favorable tax treatment of life insurance contracts with effect from January 1, 2005. In the United States, statutory premiums increased 1.7% to €2,772 million compared to a strong 1Q 2005, aided by a comparably stronger U.S. Dollar.

In France, dynamic statutory premiums growth of 20.9% to €1,460 million at AGF was well above plan. This success was driven by strong sales of individual life insurance policies, a development caused by favorable tax changes, which took effect in January 2006. Allianz Life Insurance Korea Ltd., Seoul (or “Allianz Life Korea”), with a growth in statutory premiums of 63.4% to €572 million, again enjoyed successful sales from variable life products, thus continuing the sales momentum experienced throughout 2005.

 

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Conversely, in Italy, statutory premiums fell by 3.3% to €2,268 million due to lower production from our banking joint-venture.

Operating Profit

LOGO

Our operating profit increased significantly by 39.8% to €723 million. Further margin increases on our in-force business were a key factor in this development.

The top five contributing operating entities were Allianz Lebensversicherungs-AG (or “Allianz Leben”) within Germany Life at €133 million, AGF Vie in France at €124 million, Allianz Life of North America (or “Allianz Life”) at €121 million, our German Health subsidiary Allianz Private Krankenversicherungs-AG (or “APKV”) at €53 million and Allianz Life Korea at €25 million. The strongest improvements occurred at our operations in the United States, France and Italy, with increases of €85 million, €55 million and €38 million, respectively.

Interest and similar income developed favorably with an increase of 8.4% to €3,047 million, driven by both increased investment yields and an increased investment base as the result of positive business developments producing significant cash inflows from policyholders in recent years.

Realized gains/losses (net), excluding strategic investments declined 19.3% to €1,103 million. This was primarily the result of decreased realizations at our German Life operating entities, where net realized gains/losses declined by €258 million, largely as a result of the gain from the sale of MAN AG in 1Q 2005. Additionally, the decline was driven by lower net realized gains/losses of €41 million at AGF, also owing to the fact that 1Q 2005 had encompassed a significant gain on the sale of Gecina S.A.

Changes in reserves for insurance and investment contracts (net) declined 15.7% to €2,648 million. This decrease was attributable primarily to our German life operating entities, as a result of lower capital gains, higher acquisition related expenses, triggered by a “true-up” for deferred acquisition costs, and lower interest expenses for reduced reinsurance.

Acquisition and administrative expenses (net) increased markedly by 28.8% to €1,042 million, driven by a €241 million increase in acquisition expenses. This development was mainly attributable to Germany Life, in the context of the aforementioned “true-up”, and to a lesser extent to increased acquisition expenses at Allianz Life, AGF and RAS.

Our statutory expense ratio increased by 1.3 percentage points to 8.3% (1Q 2005: 7.0%), resulting largely from the aforementioned developments within acquisition and administrative expenses (net). Through the effects of the “true-up”, the statutory expense ratio of our German Life operating entities rose by 3.7 percentage points to 8.7%. Excluding the “true-up” effects in 1Q 2006 and 1Q 2005, our Germany Life statutory expense ratio would have improved by 2.1 percentage points, from 9.2% to 7.1%.

Non-Operating Items

Our non-operating items increased by €70 million to €158 million. This development was primarily related to an increase in realized gains/losses (net) from strategic investments, which is attributable to shareholders, of €68 million to €159 million, driven by Allianz Life in the United States, where we recorded an increase of €50 million stemming from gains from the sale of equity securities and an intra-Allianz Group sale of a participation in a sales company.

Net Income

Driven by strong operating profitability, our net income grew significantly by €40.9% to €534 million.

Income taxes more-than-doubled to €219 million. In addition to the significant growth in operating profit in 1Q 2006, income taxes in 1Q 2005 included the favorable tax treatment of a large gain from the sale of the holding in Gecina S.A. at AGF, which was not repeated in 1Q 2006. Hence, our effective tax rate increased to 24.9% from 17.2%.

Minority interests in earnings increased slightly to €128 million, as the result of significantly higher earnings at RAS in Italy, which more than compensated for the reduced shareholdings of third parties following the buy-out of minorities in late 2005.

 

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The following table sets forth our Life/Health insurance segment’s income statement and key operating ratio for the three months ended March 31, 2006 and 2005.

 

Three months ended March 31,

   2006     2005  
     €mn     €mn  

Statutory premiums1)

   12,822     11,880  

Ceded premiums written

   (196 )   (231 )

Change in unearned premiums

   (58 )   (29 )
            

Statutory premiums (net)

   12,568     11,620  

Deposits from SFAS 97 insurance and investment contracts

   (7,472 )   (6,453 )
            

Premiums earned (net)

   5,096     5,167  

Interest and similar income

   3,047     2,812  

Income from financial assets and liabilities carried at fair value through income (net)

   31     23  

Realized gains/losses (net), excluding strategic investments2)

   1,103     1,367  

Fee and commission income

   129     92  

Other income

   6     9  
            

Operating revenues

   9,412     9,470  
            

Claims and insurance benefits incurred (net)

   (4,693 )   (4,722 )

Changes in reserves for insurance and investment contracts (net)

   (2,648 )   (3,143 )

Interest expense

   (64 )   (104 )

Loan loss provisions

   —       (1 )

Impairments of investments (net), excluding strategic investments

   (35 )   (22 )

Investment expenses

   (157 )   (122 )

Acquisition and administrative expenses (net)

   (1,042 )   (809 )

Fee and commission expenses

   (50 )   (30 )
            

Operating expenses

   (8,689 )   (8,953 )
            

Operating profit

   723     517  
            

Realized gains/losses (net) from strategic investments2)

   159     91  

Amortization of intangible assets

   (1 )   (3 )
            

Non-operating items

   158     88  
            

Income before income taxes and minority interests in earnings

   881     605  
            

Income taxes

   (219 )   (104 )

Minority interests in earnings

   (128 )   (122 )
            

Net income

   534     379  
            

Statutory expense ratio3) in %

   8.3     7.0  
            

1) For the Life/Health segment, total revenues are measured based upon statutory premiums. Statutory premiums are gross premiums written from sales of life insurance policies as well as gross receipts from sales of unit linked and other investment-oriented products, in accordance with the statutory accounting practices applicable in the insurer’s home jurisdiction.
2) The total of these items equals Realized gains/losses (net) in the segment income statement.
3) Represents acquisition and administrative expenses (net) divided by statutory premiums (net).

 

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Life/Health Operations by Geographic Region

The following table sets forth our life/health statutory premiums, premiums earned (net), statutory expense ratio and operating profit by geographic region. Consistent with our general practice, statutory premiums, premiums earned (net), statutory expense ratio and operating profit by geographic region are presented before consolidation adjustments, representing the elimination of transactions between Allianz Group companies in different geographic regions and different segments.

 

    

Statutory

premiums1)

   

Premiums

earned (net)

  

Statutory

expense ratio

  

Operating

Profit

 
     € mn     € mn    %    € mn  

Three months ended March 31,

       2006             2005             2006             2005            2006            2005            2006             2005      

Germany Life

   3,128     3,117     2,581     2,699    8.7    5.0    133     156  

Germany Health2)

   770     756     770     756    7.1    9.5    53     45  

Italy

   2,268     2,345     242     256    5.8    5.0    94     56  

France

   1,460     1,208     373     392    14.1    15.0    174     119  

Switzerland

   519     488     209     196    5.5    5.8    15     12  

Spain

   142     136     100     117    8.4    7.8    21     16  
                                             

Other Europe, thereof:

   740     500     321     304    11.7    16.4    65     41  

Netherlands

   124     102     38     34    12.3    13.8    10     7  

Austria

   102     91     68     63    9.6    6.7    13     8  

Belgium

   179     152     75     87    8.0    14.4    16     14  

Portugal

   19     20     17     17    13.7    22.7    7     4  

Luxembourg

   10     9     7     6    17.4    21.0    1     1  

Greece

   26     23     15     13    24.2    23.1    2     (1 )
                                             

Western and Southern Europe

   460     397     220     220    10.7    14.0    49     33  
                                             

Hungary

   23     20     19     18    26.7    26.1    4     3  

Slovakia

   43     36     32     32    19.7    17.7    6     2  

Czech Republic

   18     13     14     10    22.6    25.4    2     1  

Poland

   169     17     19     12    7.4    41.8    2     1  

Romania

   10     3     2     1    31.3    45.1    —       (1 )

Bulgaria

   5     4     5     4    14.5    11.7    1     1  

Croatia

   10     10     8     7    26.0    21.2    1     1  

Russia

   2     —       2     —      39.2    —      —       —    
                                             

Central and Eastern Europe

   280     103     101     84    13.4    25.3    16     8  
                                             

United States

   2,772     2,725     88     113    5.7    3.1    121     36  
                                             

Asia-Pacific, thereof:

   929     516     302     290    8.7    17.0    31     11  

South Korea

   572     350     255     245    11.0    20.4    25     5  

Taiwan

   299     126     14     20    1.1    5.3    4     7  

Malaysia

   22     19     19     15    17.8    16.6    2     —    

Indonesia

   15     17     9     7    34.7    21.7    —       —    

Other

   21     4     4     3    18.1    59.2    —       (1 )
                                             

South America

   46     32     13     7    10.9    13.2    —       —    
                                             

Other4)

   113     64     98     37    34.0    17.0    61     27  
                                             

Subtotal

   12,887     11,887     5,097     5,167    —      —      768     519  
                                             

Consolidation adjustments3)

   (65 )   (7 )   (1 )   —      —      —      (45 )   (2 )
                                             

Total

   12,822     11,880     5,096     5,167    8.3    7.0    723     517  
                                             

1) Statutory premiums are gross premiums written from sales of life insurance policies as well as gross receipts from sales of unit linked and other investment-oriented products, in accordance with the statutory accounting practices applicable in the insurer’s home jurisdiction.
2) Loss ratios were 75.7% and 74.9%, for the three months ended March 31, 2006 and 2005, respectively.
3) Represents elimination of transactions between Allianz Group companies in different geographic regions.
4) Contains, among others, the life/health business assumed by Allianz AG, which was previously reported under “Germany” in the Property-Casualty segment. Prior year balances have been adjusted to reflect this reclassification and allow for comparability across periods.

 

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Banking Operations

Strong first quarter.

 

    Operating revenues rose 15.3% to €1.9 billion.

 

    Operating profit more-than-doubled to €547 million.

 

    Cost-income ratio strengthened by 7.3 percentage points – both of Dresdner Bank’s operating divisions contributed strongly.

Earnings Summary

The €547 million operating profit of our Banking segment is almost exclusively represented by Dresdner Bank, accounting for 96.7% of our total Banking segment’s operating revenues and operating profit in 1Q 2006 (1Q 2005: 96.1% and 91.3%). Accordingly, the discussion of our Banking segment’s results of operations relates solely to the operations of Dresdner Bank.

Operating Revenues

Operating revenues experienced increases across all categories producing an aggregate increase of 16.1% to €1,884 million. This positive development, which benefited from a favorable market environment in the first quarter, was primarily driven by a significant increase in net fee and commission income to €793 million. Within the Private & Business Clients (or “PBC”) division, there was a strong increase in the securities business, especially from equities, investment funds and certificates. Additionally, within the Corporate & Investment Banking (or “CIB”) division, revenues from corporate finance and advisory services more-than-doubled. As a result of substantial increases in equity and foreign currency trading, considerable growth occurred in income from financial assets and liabilities carried at fair value through income (net), reaching €487 million. Additionally, and largely attributable to a much lower negative impact from the accounting for derivative financial instruments which do not qualify for hedge accounting, as well as increased revenues from our structured finance activities, net interest income grew to €578 million.

Operating Profit

Operating profit more-than-doubled to €529 million – both PBC and CIB contributed to this positive development, which was primarily due to the strengthening of the said divisions’ operating revenues. An additional factor, albeit to a lesser degree, was a net release of loan loss provisions of €33 million. While gross releases and recoveries continued to decrease, the decline in gross new additions to specific loan loss allowances was again even stronger. This resulted from the improved credit quality within our private and corporate customer portfolios, due to improved credit processes. An additional factor influencing this development was the decline in the number of individuals filing for bankruptcy in Germany in 1Q 2006.1) Our coverage ratio remained relatively stable at 60.4% at March 31, 2006 (March 31, 2005: 61.9%).

While our operating revenues within our PBC and CIB divisions increased 11.6% and 28.8%, respectively, our administrative expenses only rose by 5.3%. Specifically, personnel expenses increased by 10.0% to €891 million reflecting higher performance-related payments in our CIB division, offset in part by a slight decline in non-personnel expenses by 2.2% to €490 million. As a consequence of the strong operating revenue development, Dresdner Bank’s cost-income ratio improved significantly to 73.7% (1Q 2005: 81.0%).

LOGO


1) Source: Own calculations and estimates.

 

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Table of Contents

Non-Operating Items

Our non-operating items declined by 12.9% to €392 million due to lower realized gains/losses (net) of €414 million (1Q 2005: €492 million). Realized gains/losses (net) in 1Q 2006 included a tax-exempt gain of €282 million from the sale of Dresdner Bank’s remaining 2.3 % shareholdings in Munich Re to Allianz AG as well as a significant gain from the disposal of our remaining participation in Eurohypo AG.

Net Income

Founded on the favorable developments within operating profit, net income improved by 15.2% to €658 million.

Due primarily to increased operating profit, income taxes rose significantly to €238 million with an effective tax rate of 25.8% (1Q 2005: 10.3%). In 1Q 2005, a similar tax-exempt gain from the sale of Munich Re shares was realized, which had a larger impact on the 1Q 2005 effective tax rate due to a lower income before taxes and minority interests in earnings.

The following table sets forth the income statements and cost-income ratios for both our Banking segment as a whole and Dresdner Bank’s contribution to 1Q 2006 and 1Q 2005.

 

Three months ended March 31,

   2006     2005  
     Banking
Segment
    Dresdner
Bank
    Banking
Segment
    Dresdner
Bank
 
     € mn     € mn     € mn     € mn  

Net interest income1)

   601     578     549     531  

Net fee and commission income2)

   832     793     702     666  

Income from financial assets and liabilities carried at fair value through income (net)

   490     487     438     426  

Other income

   25     26     —       —    
                        

Operating revenues3)

   1,948     1,884     1,689     1,623  
                        

Administrative expenses

   (1,428 )   (1,381 )   (1,366 )   (1,311 )

Investment expenses

   (6 )   (7 )   (7 )   (10 )

Other expenses

   —       —       6     7  
                        

Operating expenses

   (1,434 )   (1,388 )   (1,367 )   (1,314 )
                        

Loan loss provisions

   33     33     (93 )   (100 )
                        

Operating profit

   547     529     229     209  
                        

Realized gains/losses (net)

   414     414     492     492  

Impairments of investments (net)

   (20 )   (20 )   (42 )   (42 )

Restructuring charges

   (2 )   (2 )   —       —    
                        

Non-operating items

   392     392     450     450  
                        

Income before income taxes and minority interests in earnings

   939     921     679     659  
                        

Income taxes

   (245 )   (238 )   (74 )   (68 )

Minority interests in earnings

   (28 )   (25 )   (26 )   (20 )
                        

Net income

   666     658     579     571  
                        

Cost-income ratio4) in %

   73.6     73.7     80.9     81.0  
                        

1) Represents interest and similar income less interest expense.
2) Represents fee and commission income less fee and commission expense.
3) For the Banking segment, total revenues are measured based upon operating revenues.
4) Represents operating expenses divided by operating revenues.

 

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Banking Operations by Division

The following table sets forth our banking operating revenues, operating profit and cost-income ratio by division. Consistent with our general practice, operating revenues, operating profit and cost-income ratio by division are presented before consolidation adjustments, representing the elimination of transactions between Allianz Group companies in different segments.

 

Three months ended March 31,

   2006     2005  
     Operating
revenues
   Operating
profit
    Cost-income
ratio
    Operating
revenues
   Operating
profit
    Cost-income
ratio
 
     €mn    €mn     %     €mn    €mn     %  

Private & Business Clients1)

   892    270     68.4     799    142     76.3  

Corporate & Investment Banking1)

   967    263     76.3     751    107     80.3  

Corporate Other2)

   25    (4 )   —  3 )   73    (40 )   —  3 )
                                  

Dresdner Bank

   1,884    529     73.7     1,623    209     81.0  
                                  

Other Banks4)

   64    18     71.9     66    20     80.3  
                                  

Total

   1,948    547     73.6     1,689    229     80.9  
                                  

1) Effective 1Q 2006, we have reorganized our banking business within Dresdner Bank. Our newly formed Private & Business Clients division combines all banking activities formerly provided by the Personal Banking and Private & Business Banking divisions. Additionally, our Corporate Banking and Dresdner Kleinwort Wasserstein (or “DrKW”) divisions have been combined within a single organizational unit, Corporate & Investment Banking.
2) The Corporate Other division contains income and expense items that are not assigned to Dresdner Bank’s operating divisions. These items include, in particular, impacts from the accounting for derivative financial instruments which do not qualify for hedge accounting, provisioning requirements for country and general risks, as well as realized gains and losses from Dresdner Bank’s non-strategic investment portfolio. In 1Q 2006, the impact from the accounting for derivative financial instruments which do not qualify for hedge accounting on Corporate Other’s operating revenues amounted to a charge of €23 mn (1Q 2005: charge of €20 mn). With effect from 1Q 2006, the majority of expenses for support functions and central projects previously included within Corporate Other have been allocated to the operating divisions. Additionally, the non-strategic Institutional Restructuring Unit (or “IRU”) was closed down effective September 30, 2005 having successfully completed its mandate to free-up risk capital through the reduction of risk-weighted assets. Furthermore, effective in 1Q 2006, and as a result of Dresdner Bank restructuring its divisions, the IRU’s 2005 results of operation were reclassified into Corporate Other. Prior year balances have been adjusted to reflect these reclassifications and allows for comparability across periods.
3) Presentation not meaningful.
4) Consists of non-Dresdner Bank banking operations within our Banking segment.

 

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Asset Management Operations

Net inflows of €14 billion.

 

    Compared to December 31, 2005, our third-party assets rose by 3.2%, excluding foreign currency impacts—hence, we are well on track to achieve our growth target for 2006.

 

    Growth above 30% in both operating revenues and operating profit.

 

    Net income tripled versus 1Q 2005, reaching €90 million.

Third-Party Assets Under Management

In 1Q 2006, net inflows to third-party assets under management amounted to €14 billion. Market-related appreciation was €10 billion, primarily attributable to favorable equity capital markets and, to a lesser extent, bond capital markets worldwide. Hence, at March 31, 2006, and excluding foreign currency impacts, third-party assets were €24 billion, or 3.2%, higher compared to December 31, 2005. These achievements further strengthened our position as one of the world’s largest asset managers, based on total assets under management.1) A major success factor has been our competitive performance, as the overwhelming majority of the third-party assets we manage continued to outperform in 1Q 2006. Negative effects of €14 billion from exchange rate movements partly offset the growth in third-party assets, resulting primarily from the weaker U.S. Dollar versus the Euro at March 31, 2006, as compared to December 31, 2005.

Our major developments in 1Q 2006 included:

United States

 

    Allianz/PIMCO Funds were named “Best Mutual Fund Family of 2005” in the annual Lipper/Barron’s Fund Families Survey.

 

    Particularly strong net inflows of approximately €3 billion at our equity fund manager NFJ Investment Group.

Germany

 

    Allianz Global Investors (or “AGI”) ranked first among German asset management companies, based on net inflows in retail equity products.2)

 

    Feri Rating & Research gave Deutscher Investment-Trust (or “dit”) a five star rating as a top asset management company 2005.

1) Source: Own internal analysis and estimates.
2) Source: Bundesverband Investment und Asset Management (or “BVI”), an association representing the German investment fund industry.

We operate our third-party asset management business primarily through AGI. At March 31, 2006, AGI managed approximately 94.7% (December 31, 2005: 95.2%) of our third-party assets. The remaining assets are managed by Dresdner Bank (approximately 2.7% and 2.3% at March 31, 2006 and December 31, 2005, respectively) and other Allianz Group companies (approximately 2.6% and 2.5% at March 31, 2006 and December 31, 2005, respectively).

The following graphs present the third-party assets managed by the Allianz Group by geographic region, investment category and investor class at March 31, 2006 and December 31, 2005, respectively.

Third-party Assets Under Management – Fair Values by Geographic Region1)

LOGO


1) Based on the origination of the assets.
2) Consists of third-party assets managed by Dresdner Bank (approximately €20 bn and €17 bn at March 31, 2006 and December 31, 2005, respectively) and by other Allianz Group companies (approximately €20 bn and €19 bn at March 31, 2006 and December 31, 2005, respectively).

 

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Third-party Assets Under Management – Fair Values by Investment Category

in € bn

LOGO

 


1) Includes primarily investments in real estate.

Third-party Assets Under Management – Fair Values by Investor Class

in € bn

LOGO

Earnings Summary

The results of operations of our Asset Management segment are almost exclusively represented by AGI, accounting for 97.9% and 98.7% of our total Asset Management segment’s operating revenues and operating profit, respectively, for 1Q 2006 (1Q 2005: 97.9% and 99.1%). Accordingly, the discussion of our Asset Management segment’s results of operations relates solely to the operations of AGI.

Operating Revenues

Our operating revenues increased by 32.4% to €735 million, primarily reflecting the strong growth of our third-party assets since March 31, 2005.

Net fee and commission income improved by 28.7% to €704 million, as AGI’s third-party assets at March 31, 2006 were €129 billion higher compared to March 31, 2005. The following table sets forth the composition of AGI’s net fee and commission income.

 

Three months ended March 31,

       2006             2005      
     €mn     €mn  

Fee and commission income, thereof:

   1,015     792  

Management fees

   829     647  

Loading and exit fees

   91     77  

Performance fees

   16     9  

Other

   79     59  

Fee and commission expenses, thereof:

   (311 )   (245 )

Commissions

   (226 )   (187 )

Other

   (85 )   (58 )
            

Net fee and commission income

   704     547  
            

Income from financial assets and liabilities carried at fair value through income (net) increased by €13 million to €14 million, predominantly due to mark to market valuation of seed money in the United States.

Operating Profit

Operating profit increased significantly by 31.0% to €300 million, primarily resulting from the growth in our operating revenues. Operating profit development was particularly strong in the United States.

Operating expenses grew by 33.4% to €435 million. Thereof, personnel expenses rose to €285 million, an increase of 27.6%, due largely to increased performance-related compensation in the United States as a result of our strong business developments. Further, non-personnel expenses increased to €150 million, due to, among other factors, the growth of third-party assets.

As a result, our cost-income ratio increased moderately by 0.5 percentage points to 59.2%.

Operating Profit – Allianz Global Investors

in € mn

LOGO

 

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Non-Operating Items

Acquisition-related expenses remained flat at €138 million. Thereof, €136 million was due to the deferred purchases of interests in PIMCO related to the PIMCO LLC Class B Unit Purchase Plan (or “Class B Plan”), which increased by 7.1%. The rise was commensurate with the strong operating profit development at PIMCO. During 1Q 2006, the Allianz Group called a further 6,294 Class B equity units from both former and current members of management of PIMCO. The total amount paid related to the call was €89 million. Of the 150,000 Class B equity units, which the plan participants had originally acquired annually through December 31, 2004, the Allianz Group, in aggregate, has acquired 11,721 units as of March 31, 2006.

Amortization of intangible assets decreased by €30 million, benefiting from the expiration of amortization charges in 2005 relating to capitalized bonuses for PIMCO management.

Net Income

Net income reached €87 million, a €60 million improvement from the prior year period.

Income taxes increased by €39 million to €64 million. This development was predominantly driven by our improved operating profit. Overall, AGI’s effective income tax rate rose to 39.4% (1Q 2005: 38.4%).

 

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Table of Contents

The following table sets forth the income statements and key operating ratio for both our Asset Management segment as a whole and AGI on a stand-alone basis for 1Q 2006 and 1Q 2005.

 

Three months ended March 31,

   2006     2005  
     Asset
Management
Segment
    Allianz
Global
Investors
    Asset
Management
Segment
    Allianz
Global
Investors
 
     € mn     € mn     € mn     € mn  

Net fee and commission income1)

   717     704     556     547  

Net interest income2)

   17     14     3     4  

Income from financial assets and liabilities carried at fair value through income (net)

   14     14     5     1  

Other income

   3     3     3     3  
                        

Operating revenues3)

   751     735     567     555  
                        

Administrative expenses, excluding acquisition-related expenses4)

   (447 )   (435 )   (336 )   (326 )
                        

Operating expenses

   (447 )   (435 )   (336 )   (326 )
                        

Operating profit

   304     300     231     229  
                        

Realized gains/losses (net)

   2     1     2     —    

Acquisition-related expenses, thereof:4)

        

Deferred purchases of interests in PIMCO

   (136 )   (136 )   (127 )   (127 )

Other acquisition-related expenses5)

   (2 )   (2 )   (9 )   (9 )
                        

Subtotal

   (138 )   (138 )   (136 )   (136 )
                        

Amortization of intangible assets6)

   —       —       (30 )   (30 )
                        

Non-operating items

   (136 )   (137 )   (164 )   (166 )
                        

Income before income taxes and minority interests in earnings

   168     163     67     63  
                        

Income taxes

   (65 )   (64 )   (24 )   (25 )

Minority interests in earnings

   (13 )   (12 )   (13 )   (11 )
                        

Net income

   90     87     30     27  
                        

Cost-income ratio7) in %

   59.5     59.2     59.3     58.7  
                        

1) Represents fee and commission income less fee and commission expense.
2) Represents interest and similar income less interest expense and investment expenses.
3) For the Asset Management segment, total revenues are measured based upon operating revenues.
4) The total of these items equals acquisition and administrative expenses (net) in the segment income statement.
5) Consists of retention payments for the management and employees of PIMCO and Nicholas Applegate of €2 mn and €9 mn for 1Q 2006 and 1Q 2005, respectively. These retention payments largely expired in 2005.
6) Consists of amortization charges relating to capitalized bonuses for PIMCO management of €– mn and €29 mn for 1Q 2006 and 1Q 2005, respectively. These amortization charges expired in 2005. Until December 31, 2005, these amortization charges were classified as acquisition-related expenses. Prior year balances have been reclassified to allow for comparability across periods.
7) Represents operating expenses divided by operating revenues.

 

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Table of Contents

Outlook

Well on track to achieving our targets.

LOGO

However, as always, natural catastrophes and adverse developments in the capital markets, as well as the factors stated below in our cautionary note regarding forward-looking statements, may severely impact our profitability.

Cautionary Note Regarding Forward-Looking Statements

Certain of the statements contained herein may be statements of future expectations and other forward-looking statements that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. In addition to statements which are forward-looking by reason of context, the words ‘may, will, should, expects, plans, intends, anticipates, believes, estimates, predicts, potential, or continue’ and similar expressions identify forward-looking statements. Actual results, performance or events may differ materially from those in such statements due to, without limitation, (i) general economic conditions, including in particular economic conditions in the Allianz Group’s core business and core markets, (ii) performance of financial markets, including emerging markets, (iii) the frequency and severity of insured loss events, (iv) mortality and morbidity levels and trends, (v) persistency levels, (vi) the extent of credit defaults (vii) interest rate levels, (viii) currency exchange rates including the Euro-U.S. dollar exchange rate, (ix) changing levels of competition, (x) changes in laws and regulations, including monetary convergence and the European Monetary Union, (xi) changes in the policies of central banks and/or foreign governments, (xii) the impact of acquisitions, including related integration issues, (xiii) reorganization measures and (xiv) general competitive factors, in each case on a local, regional, national and/or global basis. Many of these factors may be more likely to occur, or more pronounced, as a result of terrorist activities and their consequences. The company assumes no obligation to update any forward-looking information contained herein.

 

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Table of Contents

The previous analysis is based on our consolidated financial statements and should be read in conjunction with those statements. We evaluate the results of our Property-Casualty, Life/Health, Banking, Asset Management and Corporate segments using a financial performance measure we refer to herein as “operating profit”. We define our segment operating profit as income before income taxes and minority interests in earnings, excluding, as applicable for each respective segment, all or some of the following items: income from financial assets and liabilities held for trading (net), realized gains/losses (net), impairments of investments (net), amortization of intangible assets, acquisition-related expenses and restructuring charges.

While these excluded items are significant components in understanding and assessing our consolidated financial performance, we believe that the presentation of operating results enhances the understanding and comparability of the performance of our segments by highlighting net income attributable to ongoing segment operations and the underlying profitability of our businesses. For example, we believe that trends in the underlying profitability of our segments can be more clearly identified without the fluctuating effects of the realized gains/losses or impairments of investments, as these are largely dependent on market cycles or issuer specific events over which we have little or no control, and can and do vary, sometimes materially, across periods. Further, the timing of sales that would result in such gains or losses is largely at our discretion. Operating profit is not a substitute for income before income taxes and minority interests in earnings or net income as determined in accordance with International Financial Reporting Standards (or “IFRS”). Our definition of operating profit may differ from similar measures used by other companies, and may change over time. For further information on operating profit, as well as the particular reconciling items between operating profit and net income, see Note 3 to our consolidated financial statements.

In the previous analysis, we analyze the Allianz Group’s consolidated results of operations for the three months ended March 31, 2006 (or “1Q 2006”) as compared to the three months ended March 31, 2005 (or “1Q 2005”), using operating profit and net income as the relevant performance measures, as permitted under IFRS.

We further believe that an understanding of our total revenue performance is enhanced when the effects from foreign currency translation as well as acquisitions and disposals (or “changes in scope of consolidation”) are excluded. Accordingly, in addition to presenting “nominal growth”, “internal growth,” which excludes the effects from foreign currency translation and changes in scope of consolidation, is also provided. The following table sets forth the reconciliation of nominal total revenue growth to internal total revenue growth for each of our segments and the Allianz Group as a whole for 1Q 2006 as compared to 1Q 2005.

Composition of Total Revenues1) Growth for the Three Months Ended March 31, 2006

 

Segment2)

   Nominal
growth
   Changes in
scope of
consolidation
    Foreign
currency
translation
   Internal
growth
 
     %    %     %    %  

Property- Casualty

   —      (0.1 )   1.1    (1.0 )

Life/ Health

   7.9    —       2.9    5.0  

Banking

   15.3    —       0.8    14.5  

thereof: Dresdner Bank

   16.1    —       0.9    15.2  

Asset Management

   32.5    0.9     8.7    22.9  

thereof: Allianz Global Investors

   32.4    0.9     8.5    23.0  
                      

Allianz Group

   4.9    —       2.0    2.9  
                      

1) Total revenues comprise Property-Casualty segment’s gross premiums written, Life/Health segment’s statutory premiums, Banking segment’s operating revenues, and Asset Management segment’s operating revenues.
2) Before the elimination of transactions between Allianz Group companies in different segments.

 

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Table of Contents

Consolidated Financial Statements

Contents

 

26 Consolidated Balance Sheets
27 Consolidated Income Statements
28 Consolidated Statements of Changes in Equity
29 Consolidated Statements of Cash Flows

Notes to the Consolidated Financial Statements

 

30    1    Basis of presentation
30    2    Changes in the presentation of the consolidated financial statements
34    3      Segment reporting

Supplementary Information to the Consolidated Balance Sheets

 

44    4    Financial assets carried at fair value through income
44    5    Investments
45    6    Loans and advances to banks and customers
45    7    Reinsurance assets
45    8    Deferred acquisition costs
46    9    Other assets
46    10    Intangible assets
46    11    Financial liabilities carried at fair value through income
47    12    Liabilities to banks and customers
47    13    Reserves for loss and loss adjustment expenses
48    14    Reserves for insurance and investment contracts
48    15    Other liabilities
49    16    Certificated liabilities
49    17    Participation certificates and subordinated liabilities
49    18    Equity

Supplementary Information to the Consolidated Income Statements

 

50    19    Premiums earned (net)
51    20    Interest and similar income
51    21    Income from financial assets and liabilities carried at fair value through income (net)
     
52    22    Realized gains/losses (net)
53    23    Fee and commission income
54    24    Other income
54    25    Claims and insurance benefits incurred (net)
55    26    Changes in reserves for insurance and investment contracts (net)
55    27    Interest expense
55    28    Loan loss provisions
56    29    Impairments of investments (net)
56    30    Investment expenses
57    31    Acquisition and administrative expenses (net)
58    32    Fee and commission expenses
59    33    Other expenses
59    34    Income taxes
59    35    Earnings per share

Other Information

 

60    36    Supplemental information on the Banking Segment
60    37    Supplemental information on the consolidated statements of cash flows
61    38    Other information
61    39    Subsequent events

 

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Table of Contents

Consolidated Balance Sheets

As of March 31, 2006 and as of December 31, 2005

 

ASSETS

   Note    As of
March 31,
2006
   As of
December 31,
2005
          € mn    € mn

Cash and cash equivalents

      32,897    31,647

Financial assets carried at fair value through income

   4    173,191    180,346

Investments

   5    285,585    285,015

Loans and advances to banks and customers

   6    391,699    336,808

Financial assets for unit linked contracts

      57,690    54,661

Reinsurance assets

   7    20,872    22,120

Deferred acquisition costs

   8    18,447    17,437

Deferred tax assets

      5,217    5,299

Other assets

   9    39,534    42,293

Intangible assets

   10    12,903    12,958
            

Total assets

      1,038,035    988,584
            

LIABILITIES AND EQUITY

   Note    As of
March 31,
2006
   As of
December 31,
2005
          € mn    € mn

Financial liabilities carried at fair value through income

   11    88,267    86,842

Liabilities to banks and customers

   12    355,253    310,316

Unearned premiums

      16,900    13,303

Reserves for loss and loss adjustment expenses

   13    66,069    67,005

Reserves for insurance and investment contracts

   14    280,539    278,829

Financial liabilities for unit linked contracts

      57,690    54,661

Deferred tax liabilities

      5,065    5,324

Other liabilities

   15    48,450    51,315

Certificated liabilities

   16    55,630    59,203

Participation certificates and subordinated liabilities

   17    15,166    14,684
            

Total liabilities

      989,029    941,482
            

Shareholders’ equity

      41,301    39,487

Minority interests

      7,705    7,615
            

Total equity

   18    49,006    47,102
            

Total liabilities and equity

      1,038,035    988,584
            

 

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Table of Contents

Consolidated Income Statements

For the three months ended March 31, 2006 and 2005

 

     Note    2006     2005  
          € mn     € mn  

Premiums earned (net)

   19    14,437     14,307  

Interest and similar income

   20    5,691     5,124  

Income from financial assets and liabilities carried at fair value through income (net)

   21    500     487  

Realized gains/losses (net)

   22    1,895     2,219  

Fee and commission income

   23    2,403     1,938  

Other income

   24    39     13  
               

Total income

      24,965     24,088  
               

Claims and insurance benefits incurred (net)

   25    (10,875 )   (10,762 )

Change in reserves for insurance and investment contracts (net)

   26    (2,712 )   (3,281 )

Interest expense

   27    (1,600 )   (1,392 )

Loan loss provisions

   28    32     (94 )

Impairments of investments (net)

   29    (55 )   (103 )

Investment expenses

   30    (183 )   (299 )

Acquisition and administrative expenses (net)

   31    (5,843 )   (5,290 )

Fee and commission expenses

   32    (688 )   (567 )

Amortization of intangible assets

      (5 )   (38 )

Restructuring charges

      (4 )   (5 )

Other expenses

   33    (1 )   (2 )
               

Total expenses

      (21,934 )   (21,833 )
               

Income before income taxes and minority interests in earnings

      3,031     2,255  

Income taxes

   34    (899 )   (585 )

Minority interests in earnings

      (353 )   (346 )
               

Net income

      1,779     1,324  
               
               

Basic earnings per share

   35    4.39     3.50  

Diluted earnings per share

   35    4.32     3.48  
               

 

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Consolidated Statements of Changes in Equity

For the three months ended March 31, 2006 and 2005

 

     Paid-in
capital
   Revenue
reserves
    Foreign
currency
translation
adjustments
    Unrealized
gains and
losses (net)
    Shareholders’
equity
    Minority
interests
    Total
equity
 
     € mn    € mn     € mn     € mn     € mn     € mn     € mn  

Balance as of December 31, 2004

   19,433    5,893     (2,634 )   7,303     29,995     7,696     37,691  

Foreign currency translation adjustments

   —      —       538     29     567     (1 )   566  

Capital paid in

   174    —       —       —       174     —       174  

Treasury shares

   —      1,611     —       —       1,611     —       1,611  

Unrealized gains and losses (net)

   —      —       —       24     24     94     118  

Net income

   —      1,324     —       —       1,324     346     1,670  

Dividends paid

   —      —       —       —       —       (23 )   (23 )

Miscellaneous

   —      (105 )   —       —       (105 )   (113 )   (218 )
                                         

Balance as of March 31, 2005

   19,607    8,723     (2,096 )   7,356     33,590     7,999     41,589  
                                         

Balance as of December 31, 2005

   21,616    8,579     (1,032 )   10,324     39,487     7,615     47,102  

Foreign currency translation adjustments

   —      —       (335 )   (13 )   (348 )   (110 )   (458 )

Changes in the consolidated subsidiaries of the Allianz Group

   —      12     —       (4 )   8     28     36  

Treasury shares

   —      255     —       —       255     —       255  

Unrealized gains and losses (net)

   —      —       —       379     379     (162 )   217  

Net income

   —      1,779     —       —       1,779     353     2,132  

Dividends paid

   —      —       —       —       —       (15 )   (15 )

Miscellaneous

   —      (259 )   —       —       (259 )   (4 )   (263 )
                                         

Balance as of March 31, 2006

   21,616    10,366     (1,367 )   10,686     41,301     7,705     49,006  
                                         

 

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Table of Contents

Consolidated Statements of Cash Flows

For the three months ended March 31, 2006 and 2005

 

Three months ended March 31,

   2006     2005  
     € mn     € mn  

Operating activities

    

Net income

   1,779     1,324  

Adjustments to reconcile net income to net cash provided by operating activities:

    

Minority interests in earnings

   353     346  

Share of earnings from investments in associates and joint ventures

   (74 )   (76 )

Realized gains/losses (net) and impairments of investments (net)

   (1,978 )   (2,274 )

Depreciation and amortization

   148     199  

Loan loss provisions

   (32 )   94  

Net change in:

    

Financial assets and liabilities held for trading

   8,587     (8,828 )

Reverse repurchase agreements and collateral paid for securities borrowing transactions

   (46,705 )   41,409  

Repurchase agreements and collateral received for securities lending transactions

   38,953     (25,206 )

Reinsurance assets

   (177 )   (328 )

Deferred acquisition costs

   (730 )   (1,097 )

Unearned premiums

   3,724     3,870  

Reserves for loss and loss adjustment expenses

   (373 )   628  

Reserves for insurance and investment contracts

   1,586     2,265  

Deferred tax assets and liabilities

   422     460  

Other (net)

   (194 )   (537 )
            

Net cash flow provided by operating activities

   5,289     12,249  
            

Investing activities

    

Net change in:

    

Financial assets designated at fair value through income

   (111 )   (2,702 )

Available-for-sale investments

   (2,641 )   (4,550 )

Held-to-maturity investments

   42     74  

Investments in associates and joint ventures

   (346 )   2,340  

Assets held for sale

   1,416     —    

Real estate held for investment

   96     (78 )

Loans and advances to banks and customers

   (8,296 )   (11,222 )

Other (net)

   (317 )   (189 )
            

Net cash flow used in investing activities

   (10,157 )   (16,327 )
            

Financing activities

    

Net change in:

    

Liabilities to banks and customers

   6,050     3,485  

Aggregate policy reserves for universal-life type insurance and investment contracts

   2,463     2,288  

Participation certificates and subordinated liabilities

   494     1,915  

Certificated liabilities

   (2,798 )   (2,240 )

Capital paid in

   —       174  

Dividends paid

   (15 )   (23 )

Other (net)

   (49 )   839  
            

Net cash flow provided by financing activities

   6,145     6,438  
            

Effect of exchange rate changes on cash and cash equivalents

   (27 )   28  
            

Change in cash and cash equivalents

   1,250     2,388  

Cash and cash equivalents at beginning of period

   31,647     15,628  
            

Cash and cash equivalents at end of period

   32,897     18,016  
            

 

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Notes to the Consolidated Financial Statements

1 Basis of presentation

The consolidated financial statements have been prepared in conformity with International Financial Reporting Standards (“IFRS”) as adopted under European Union regulations in accordance with clause 315a of the German Commercial Code (“HGB”). Since 2002, the designation IFRS applies to the overall framework of all standards approved by the International Accounting Standards Board. Already approved standards continue to be cited as International Accounting Standards. For years through 2004, IFRS did not provide specific guidance concerning the reporting of insurance and reinsurance contracts. Therefore, as envisioned in the IFRS Framework, the provisions embodied under accounting principles generally accepted in the United States of America have been applied. The financial statements are presented in million Euros (€ mn).

2 Changes in the presentation of the consolidated financial statements

During 2005, the Allianz Group comprehensively reviewed its financial reporting methodology to improve the transparency of its financial results and ensure consistency with its peers. As a result of this review, the Allianz Group implemented numerous changes to its financial reporting that are effective on January 1, 2006. The Allianz Group’s financial reporting reflects reclassifications in the consolidated balance sheet and consolidated income statement, changes to segment reporting, changes to operating profit methodology and changes to the cash flow statement.

Reclassifications

A significant portion of these changes to financial reporting resulted from the implementation of changes to the structure of the Allianz Group’s consolidated balance sheet and consolidated income statement. These changes were implemented to improve transparency and result in the following:

 

- The line items in the consolidated income statement include aggregations of items which are similarly aggregated as the line items utilized for determining operating profit.

 

- The line items in the consolidated income statement include aggregations of items that allow the Allianz Group’s key performance indicators to be directly derived from the Allianz Group’s external financial results.

 

- The line items in the consolidated income statement include aggregations of items which are based more on the nature rather than the function.

 

- The line items in the consolidated balance sheet include aggregations of items which are similarly aggregated as the line items in the consolidated income statement.

 

- The line items in the consolidated balance sheet are relatively displayed in a liquidity format as required by IAS 1.

As a result, the Allianz Group’s previously reported consolidated balance sheets and consolidated income statements were reclassified to ensure consistency and comparableness with the presentation as implemented on January 1, 2006. These reclassifications did not have an impact on the Allianz Group’s net income or shareholders’ equity for any previously reported period.

The key changes to the previous presentation in the Allianz Group’s consolidated balance sheets are:

 

- Financial assets and liabilities for unit linked contracts are presented as separate line items.

 

- Investments in associates and joint ventures have been reclassified to investments.

 

- Deferred acquisition costs, including present value of future profits and deferred sales inducements, are presented as a separate line item.

 

- Unearned premiums and reserves for loss and loss adjustment expenses are presented as separate line items.

 

- Financial liabilities for puttable equity instruments have been reclassified to other liabilities.

 

- Deferred tax assets and deferred tax liabilities are presented on a net basis to the extent the requirements of IAS 12 for offset are met.

The key changes to the previous presentation in the Allianz Group’s consolidated income statements are:

 

- Interest and similar income includes share of earnings from investments in associates and joint ventures.

 

- Realized gains and realized losses are presented net as a separate line item. Realized gains/losses (net) include realized gains and losses from disposals of associates and subsidiaries and loans and advances to banks and customers.

 

- Impairments and reversals of impairments are presented net as a separate line item. Impairments of investments (net) include impairments and reversals of impairments of investments in associates and joint ventures.

 

- Changes in reserves for insurance and investment contracts (net) are presented as a separate line item.

 

- Fee and commission expenses and investment expenses are presented as separate line items.

 

- Foreign currency gains and losses and depreciation of real estate held for investment are included in investment expenses.

 

- Amortization of intangible assets includes amortization of intangible assets previously included in other expenses.

 

- Restructuring charges are presented as a separate line item. Restructuring charges were previously presented in other expenses.

 

- Acquisition and administrative expenses (net) includes a significant portion of the amounts previously reported in other income and other expense. Acquisition and administrative expenses (net) includes other taxes previously included in taxes.

 

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Table of Contents

Summary of the impact of the reclassifications on the consolidated balance sheet as of December 31, 2005:

 

     Balance as of
December 31, 2005
as previously reported
   Reclassifications     Balance as of
December 31, 2005
     € mn    € mn     € mn

Cash and cash equivalents

   31,647    —       31,647

Financial assets carried at fair value through income

   235,007    (54,661 )   180,346

Investments1)

   285,015    —       285,015

Loans and advances to banks and customers2)

   336,808    —       336,808

Financial assets for unit linked contracts

   —      54,661     54,661

Reinsurance assets3)

   22,120    —       22,120

Deferred acquisition costs

   —      17,437     17,437

Deferred tax assets

   14,596    (9,297 )   5,299

Other assets

   57,303    (15,010 )   42,293

Intangible assets

   15,385    (2,427 )   12,958
               

Total assets

   997,881    (9,297 )   988,584
               

Financial liabilities carried at fair value through income

   144,640    (57,798 )   86,842

Liabilities to banks and customers4)

   310,316    —       310,316

Unearned premiums

   —      13,303     13,303

Reserves for loss and loss adjustment expenses

   —      67,005     67,005

Reserves for insurance and investment contracts

   359,137    (80,308 )   278,829

Financial liabilities for unit linked contracts

   —      54,661     54,661

Deferred tax liabilities

   14,621    (9,297 )   5,324

Other liabilities5)

   48,178    3,137     51,315

Certificated liabilities

   59,203    —       59,203

Participation certificates and subordinated liabilities

   14,684    —       14,684
               

Total liabilities

   950,779    (9,297 )   941,482
               

Shareholders’ equity

   39,487    —       39,487

Minority interests

   7,615    —       7,615
               

Total equity

   47,102    —       47,102
               

Total liabilities and equity

   997,881    (9,297 )   988,584
               

1) Includes investments in associated enterprises and joint ventures previously reported as a separate balance sheet line item.
2) Includes loans and advances to banks and loans and advances to customers previously reported as two separate balance sheet line items.
3) Formerly “Amounts ceded to reinsurers from reserves for insurance and investment contracts”.
4) Includes liabilities to banks and liabilities to customers previously reported as two separate balance sheet line items.
5) Includes other accrued liabilities, other liabilities and deferred income previously reported as three separate balance sheet line items.

 

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Summary of the impact of the reclassifications on the consolidated income statement for the three months ended March 31, 2005:

 

     Balance as of
March 31, 2005
as previously reported
    Reclassifications     Balance as of
March 31, 2005
 
     € mn     € mn     € mn  

Premiums earned (net)

   14,307     —       14,307  

Interest and similar income

   5,048     76     5,124  

Income from investments in associated enterprises and joint ventures (net)

   713     (713 )   —    

Income from financial assets and liabilities carried at fair value through income (net)

   487     —       487  

Realized gains/losses (net)1)

   1,598     621     2,219  

Fee and commission income2)

   1,864     74     1,938  

Other income

   629     (616 )   13  
                  

Total income

   24,646     (558 )   24,088  
                  

Claims and insurance benefits incurred (net)3)

   (14,015 )   3,253     (10,762 )

Change in reserves for insurance and investment contracts (net)

   —       (3,281 )   (3,281 )

Interest expense4)

   (1,390 )   (2 )   (1,392 )

Loan loss provisions

   (94 )   —       (94 )

Impairments of investments (net)

   (258 )   155     (103 )

Investment expenses

   —       (299 )   (299 )

Acquisition costs and administrative expenses (net)

   (5,642 )   352     (5,290 )

Fee and commission expenses

   —       (567 )   (567 )

Amortization of intangible assets5)

   —       (38 )   (38 )

Restructuring charges

   —       (5 )   (5 )

Other expenses

   (981 )   979     (2 )
                  

Total expenses

   (22,380 )   547     (21,833 )
                  

Income before income taxes and minority interests in earnings

   2,266     (11 )   2,255  

Income taxes6)

   (596 )   11     (585 )

Minority interests in earnings

   (346 )   —       (346 )
                  

Net income

   1,324     —       1,324  
                  

1) Formerly “Other income from investments”.
2) Formerly “Fee and commission income, and income from service activities”.
3) Formerly “Insurance and investments contract benefits (net)”.
4) Formerly “Interest and similar expenses”.
5) Formerly “Amortization of goodwill”.
6) Formerly “Taxes”.

 

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Table of Contents

Segment Reporting

Effective January 1, 2006, the Allianz Group introduced a Corporate segment. The Corporate segment includes all group activities which are not allocated to a specific subsidiary. Further, the Corporate segment includes group funding and risk management activities, such as the senior bonds, subordinated bonds and money market securities issued or guaranteed by Allianz AG and the related derivative financial instruments held by Allianz AG or one of its subsidiaries. The activities included in the Corporate segment were previously reported in the Property-Casualty segment.

In addition, the Allianz Group reclassified its life and health reinsurance assumed business to the Life/Health segment. This business was previously reported in the Property-Casualty segment.

Finally, the Allianz Group changed the accounting for intra-Allianz Group dividends. Intra-Allianz Group dividends are now eliminated by the subsidiary receiving the dividend. Intra-Allianz Group dividends were previously eliminated within the segment if the dividend involved subsidiaries within the same segment or eliminated in the consolidation adjustments if the dividend involved subsidiaries in different segments.

The effects of all of these changes to segment reporting were implemented retrospectively; therefore, all previously reported segment balance sheets and segment income statements were reclassified to ensure consistency and comparableness with the presentation as implemented on January 1, 2006.

Operating Profit Methodology

As a result of the reclassifications and changes in segment reporting, as well as improving the consistency of external financial reporting with internal financial reporting, the methodology for defining operating profit was changed effective January 1, 2006. A summary of the key changes is as follows:

 

- Amortization of intangible assets and restructuring charges are non-operating items for all segments.

 

- Realized gains/losses (net) and impairments of investments (net) on participating policies are included in operating profit for the Property-Casualty segment.

 

- Realized gains/losses (net) and impairments of investments (net) are included in operating profit for the Life/Health segment, with the exception of strategic investments.

Summary of the impact of the changes to operating profit by segment for the three months ended March 31, 2005:

 

Three months ended March 31, 2005

   As
previously
reported
   Changes     Balance  
     € mn    € mn     € mn  

Property-Casualty

   1,004    210     1,214  

Life/Health

   357    160     517  

Banking

   228    1     229  

Asset Management

   231    —       231  

Corporate

   —      (267 )   (267 )

Consolidation adjustments

   —      (37 )   (37 )
                 

Allianz Group

   1,820    67     1,887  
                 

Cash Flow Statement

As a result of the reclassifications to the consolidated balance sheet and consolidated income statement discussed above, the Allianz Group made corresponding reclassifications to the consolidated statements of cash flows. In addition, the Allianz Group reclassified the following line items from operating activities to investing or financing activities in order to consistently present changes in interest bearing assets and liabilities:

 

- Loans and advances to banks and customers are reclassified to investing activities.

 

- Liabilities to banks and customers are reclassified to financing activities.

 

- Aggregate policy reserves for universal-life type insurance and investment contracts are reclassified to financing activities.

 

- Certificated liabilities are reclassified to financing activities.

 

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Table of Contents

3 Segment reporting

Segment Information – Consolidated Balance Sheets

As of March 31, 2006 and as of December 31, 2005

 

ASSETS

   Property-Casualty    Life/Health    Banking
    

As of

March 31,

2006

   As of
December 31,
2005
   As of
March 31,
2006
   As of
December 31,
2005
  

As of
March 31,

2006

  

As of
December 31,

2005

     € mn    € mn    € mn    € mn    € mn    € mn

Cash and cash equivalents

   4,068    3,793    6,323    5,874    22,304    21,848

Financial assets carried at fair value through income

   4,289    2,243    9,857    10,564    157,247    165,928

Investments

   89,999    87,587    184,307    183,350    15,591    17,323

Loans and advances to banks and customers

   15,548    15,873    84,737    84,072    300,715    249,212

Financial assets for unit linked contracts

   —      —      57,690    54,661    —      —  

Reinsurance assets

   12,811    12,728    8,177    9,494    —      —  

Deferred acquisition costs

   3,721    3,563    14,711    13,847    —      —  

Deferred tax assets

   1,859    1,775    632    567    1,903    2,016

Other assets

   18,413    16,607    13,386    12,505    8,217    12,273

Intangible assets

   1,608    1,595    2,389    2,390    2,285    2,283
                             

Total segment assets

   152,316    145,764    382,209    377,324    508,262    470,883
                             

EQUITY AND LIABILITIES

   Property-Casualty    Life/Health    Banking Asset Management    Corporate Consolidation Adjustments
    

As of

March 31,

2006

   As of
December 31,
2005
   As of
March 31,
2006
   As of
December 31,
2005
  

As of
March 31,

2006

  

As of
December 31,

2005

     € mn    € mn    € mn    € mn    € mn    € mn

Financial liabilities carried at fair value through income

   719    132    3,725    3,517    82,591    82,080

Liabilities to banks and customers

   4,966    4,383    6,812    5,479    345,584    301,586

Unearned premiums

   16,471    12,945    430    360    —      —  

Reserves for loss and loss adjustment expenses

   59,315    60,259    6,831    6,806    —      —  

Reserves for insurance and investment contracts

   9,228    9,161    271,570    269,950    —      2

Financial liabilities for unit linked contracts

   —      —      57,690    54,661    —      —  

Deferred tax liabilities

   4,098    4,155    1,641    1,800    355    405

Other liabilities

   16,778    16,491    17,392    18,454    9,975    12,557

Certificated liabilities

   416    412    4    4    46,855    50,719

Participation certificates and subordinated liabilities

   1,634    1,634    141    141    7,192    7,428
                             

Total segment liabilities

   113,625    109,572    366,236    361,172    492,552    454,777
                             

 

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Table of Contents

ASSETS

   Asset Management    Corporate     Consolidation
Adjustments
    Alllianz Group
     As of
March 31,
2006
   As of
December 31,
2005
   As of
March 31,
2006
    As of
December 31,
2005
    As of
March 31,
2006
    As of
December 31,
2005
    As of
March 31,
2006
   As of
December 31,
2005
     € mn    € mn    € mn     € mn     € mn     € mn     € mn    € mn

Cash and cash equivalents

   657    476    172     166     (627 )   (510 )   32,897    31,647

Financial assets carried at fair value through income

   1,093    1,031    1,109     956     (404 )   (376 )   173,191    180,346

Investments

   795    832    83,589     88,130     (88,696 )   (92,207 )   285,585    285,015

Loans and advances to banks and customers

   400    477    5,415     2,180     (15,116 )   (15,006 )   391,699    336,808

Financial assets for unit linked contracts

   —      —      —       —       —       —       57,690    54,661

Reinsurance assets

   —      —      —       —       (116 )   (102 )   20,872    22,120

Deferred acquisition costs

   15    27    —       —       —       —       18,447    17,437

Deferred tax assets

   205    213    1,734     1,840     (1,116 )   (1,112 )   5,217    5,299

Other assets

   3,491    3,567    4,950     5,331     (8,923 )   (7,990 )   39,534    42,293

Intangible assets

   6,621    6,690    —       —       —       —       12,903    12,958
                                           

Total segment assets

   13,277    13,313    96,969     98,603     (114,998 )   (117,303 )   1,038,035    988,584
                                           

EQUITY AND LIABILITIES

   Allianz Group                                  
     As of
March 31,
2006
   As of
December 31,
2005
   As of
March 31,
2006
    As of
December 31,
2005
    As of
March 31,
2006
    As of
December 31,
2005
    As of
March 31,
2006
   As of
December 31,
2005
     € mn    € mn    € mn     € mn     € mn     € mn     € mn    € mn

Financial liabilities carried at fair value through income

   —      —      1,661     1,492     (429 )   (379 )   88,267    86,842

Liabilities to banks and customers

   750    667    9,465     9,985     (12,324 )   (11,784 )   355,253    310,316

Unearned premiums

   —      —      —       —       (1 )   (2 )   16,900    13,303

Reserves for loss and loss adjustment expenses

   —      —      —       —       (77 )   (60 )   66,069    67,005

Reserves for insurance and investment contracts

   —      —      (40 )   (78 )   (219 )   (206 )   280,539    278,829

Financial liabilities for unit linked contracts

   —      —      —       —       —       —       57,690    54,661

Deferred tax liabilities

   52    54    34     22     (1,115 )   (1,112 )   5,065    5,324

Other liabilities

   3,806    3,876    12,989     11,931     (12,490 )   (11,994 )   48,450    51,315

Certificated liabilities

   4    4    9,144     8,956     (793 )   (892 )   55,630    59,203

Participation certificates and subordinated liabilities

   —      —      7,142     6,428     (943 )   (947 )   15,166    14,684
                                           

Total segment liabilities

   4,612    4,601    40,395     38,736     (28,391 )   (27,376 )   989,029    941,482
                                           

Total equity

                 49,006    47,102
                       

Total liabilities and shareholders’ equity

                 1,038,035    988,584
                       

 

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Table of Contents

Segment Information – Consolidated Income Statements

For the three months ended March 31, 2006 and 2005

 

     Property-Casualty     Life/Health     Banking  

Three months ended March 31,

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

Premiums earned (net)

   9,341     9,140     5,096     5,167     —       —    

Interest and similar income

   922     867     3,047     2,812     1,880     1,601  

Income from financial assets and liabilities carried at fair value through income (net)

   40     26     31     23     490     438  

Realized gains/losses (net)

   464     539     1,262     1,458     414     492  

Fee and commission income

   252     216     129     92     992     823  

Other income

   14     4     6     9     25     —    
                                    

Total income

   11,033     10,792     9,571     9,561     3,801     3,354  
                                    

Claims and insurance benefits incurred (net)

   (6,182 )   (6,040 )   (4,693 )   (4,722 )   —       —    

Change in reserves for insurance and investment contracts (net)

   (72 )   (123 )   (2,648 )   (3,143 )   —       —    

Interest expense

   (63 )   (80 )   (64 )   (104 )   (1,279 )   (1,052 )

Loan loss provisions

   (1 )   —       —       (1 )   33     (93 )

Impairments of investments (net)

   (13 )   (7 )   (35 )   (22 )   (20 )   (42 )

Investment expenses

   (48 )   (93 )   (157 )   (122 )   (6 )   (7 )

Acquisition and administrative expenses (net)

   (2,663 )   (2,552 )   (1,042 )   (809 )   (1,428 )   (1,366 )

Fee and commission expenses

   (170 )   (157 )   (50 )   (30 )   (160 )   (121 )

Amortization of intangible assets

   (4 )   (5 )   (1 )   (3 )   —       —    

Restructuring charges

   (2 )   (4 )   —       —       (2 )   —    

Other expenses

   (1 )   (1 )   —       —       —       6  
                                    

Total expenses

   (9,219 )   (9,062 )   (8,690 )   (8,956 )   (2,862 )   (2,675 )
                                    

Income before income taxes and minority interests in earnings

   1,814     1,730     881     605     939     679  

Income taxes

   (524 )   (543 )   (219 )   (104 )   (245 )   (74 )

Minority interests in earnings

   (190 )   (191 )   (128 )   (122 )   (28 )   (26 )
                                    

Net income

   1,100     996     534     379     666     579  
                                    

 

36


Table of Contents
     Asset Management     Corporate     Consolidation
Adjustments
    Alllianz Group  

Three months ended March 31,

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

Premiums earned (net)

   —       —       —       —       —       —       14,437     14,307  

Interest and similar income

   25     17     94     98     (277 )   (271 )   5,691     5,124  

Income from financial assets and liabilities carried at fair value through income (net)

   14     5     (96 )   (4 )   21     (1 )   500     487  

Realized gains/losses (net)

   2     2     70     106     (317 )   (378 )   1,895     2,219  

Fee and commission income

   1,031     805     192     160     (193 )   (158 )   2,403     1,938  

Other income

   3     3     13     —       (22 )   (3 )   39     13  
                                                

Total income

   1,075     832     273     360     (788 )   (811 )   24,965     24,088  
                                                

Claims and insurance benefits incurred (net)

   —       —       —       —       —       —       (10,875 )   (10,762 )

Change in reserves for insurance and investment contracts (net)

   —       —       —       —       8     (15 )   (2,712 )   (3,281