Allianz SE · XETR:ALV
Allianz — Investor Day (July 2004)
102 slides from Allianz's investor day presentation, Jul 15, 2004
Slide 1: Allianz Capital Markets Day: risk management
Allianz Capital Markets Day: risk management Munich July 15, 2004
Slide 2: Agenda
Agenda A. Risk management: No Surprises Raj Singh A 1 B. Risk capital methodology Jürgen Guhe B 1 C. RoRAC calculation Rainer Schwarz C 1 D. Appendix Related published charts D1 Investor Relations contacts D2 Financial calendar 2004/2005 D3 Disclaimer D4
Slide 3: A. Risk management: No Surprises!
Raj Singh - Head of Group Risk Controlling A. Risk management: No Surprises! Allianz Capital Markets Day July 15, 2004
Slide 4: Agenda
Agenda I. Vision II. Governance III. Identification IV. Quantification V. Diversification VI. Solvency II A 01
Slide 5: The challenge: protect capital base and enhance value creation
I. Vision The challenge: protect capital base and enhance value creation Key elements § Sufficient economic risk capital Protect financial § Compliance with regulatory requirements strength § Stress tests and diversification § Customers Protect reputation § Shareholders and brand Assure § Employees
Slide 6: Agenda
Agenda I. Vision II. Governance III. Identification IV. Quantification V. Diversification VI. Solvency II A 03
Slide 7: Incorporate common sense and defy destiny
II. Governance Incorporate common sense and defy destiny Risk management processes have Proactive management of risk to be embedded in the institution on the books can reduce losses § General framework of risk management § Active portfolio review process for Allianz currently being developed necessa
Slide 8: Enhanced management of Group risk profile through Group Risk Committee (RiCo)
II. Governance Enhanced management of Group risk profile through Group Risk Committee (RiCo) Function Allianz Allianz § Set Group strategic risk framework Group Board Group Board § Decide risk appetite at segment and risk factor level § Monitor Group/OE risk profile and solvency Group Risk § Approve
Slide 9: Dresdner Bank fully integrated into Allianz Group risk governance
II. Governance Dresdner Bank fully integrated into Allianz Group risk governance Function Allianz Dresdner Bank Credit Commission § Set Group strategic risk framework Group Board § Definition of risk policies/guidelines, frameworks and Risk Executive risk related methods and instruments Dresdner Ban
Slide 10: Group risk policy and minimum standards are mandatory for all OEs
II. Governance Group risk policy and minimum standards are mandatory for all OEs Hierarchy of standards § Group risk policy AZ Group § OE minimum standards Segments Insurance Banking § Segment-specific guidelines (Insurance, Banking, Asset Management) Asset Management Operating entities § OE-specifi
Slide 11: Minimum standards provide the basis for local risk policies
II. Governance Minimum standards provide the basis for local risk policies Key elements Details § Risk-based strategy § Clear risk strategy to be defined in line with overall Group strategy § Risk limits & § A limit framework must formalize the risk strategy policies § OEs must have in place documen
Slide 12: Risk diagnostic to be performed annually to assess OE risk management capabilities
II. Governance Risk diagnostic to be performed annually to assess OE risk management capabilities Key elements Analysis of OE § Identification of main development priorities for OE risk risk management management capabilities Dialogue § Discussion & agreement between Group and OE on on results devel
Slide 13: Risk/Capital analysis is integrated in existing business-planning process
II. Governance Risk/Capital analysis is integrated in existing business-planning process Risk/Capital analysis Risk/Capital reporting Capital-management process 6 Risk View Pre-strategic dialogue 5 1Q 2003 Capital View 1Q 2004 4 § Group capital & solvency 3 Strategic dialogue 2 § OE capital & solven
Slide 14: Example: Allianz Capital View - executive summary
II. Governance Example: Allianz Capital View - executive summary Illustrative Risk capital S&P capital Regulatory capital § Comment § Comment § Comment Group § Comment § Comment § Comment Segments § Comment § Comment § Comment OEs Capital overview is supplemented by OE level drill-downs A 11
Slide 15: Example: Allianz Capital View - heat map of stress results
II. Governance Example: Allianz Capital View - heat map of stress results on supervisory capital requirements across OEs Illustrative Heat map of threats - regulatory Comments Current Base Case Equity Fall IR Rise IR Fall Credit New Def. Business Mini CAT Reserve § Comment on critical developments G
Slide 16: Agenda
Agenda I. Vision II. Governance III. Identification IV. Quantification V. Diversification VI. Solvency II A 13
Slide 17: Know where you stand
III. Identification Know where you stand Risk identification and quantification is the basis for all risk management decisions § Comprehensive definition of risk categories for all business segments § Standardized risk quantification to allow risk aggregation § Different models tailored to different
Slide 18: Risk categories
III. Identification Risk categories Insurance Banking Asset Management Market/ALM ✔ ✔ ✔ )1 (✔ Credit/Counterparty ✔ )1 (✔ § Investment ✔ § Reinsurance ✔ § Wholesale Banking ✔ § Retail Banking ✔ Actuarial § Premium Non-Cat ✔ § Premium Cat ✔ § Reserve ✔ § Life biometric risk ✔ Operating § Business ✔ ✔
Slide 19: The risk-capital analysis sheds light on the true risk drivers for Allianz
III. Identification The risk-capital analysis sheds light on the true risk drivers for Allianz Risk capital for Allianz Group 20031 …split by risk categories …split by business segments Operating risk Market/ALM risk (in EUR bn) 12% 46% 3.5 Holding 1.6 Asset Management 4.8 Life/Health Credit/counter
Slide 20: Independent risk oversight will improve risk-reward balance of complex products
III. Identification Independent risk oversight will improve risk-reward balance of complex products Responsibilities § Underwriting within limits of risk guidelines Business § Proactive risk management § Setting of local product-related risk guidelines Local risk § Independent risk oversight over OE
Slide 21: Agenda
Agenda I. Vision II. Governance III. Identification IV. Quantification V. Diversification VI. Solvency II A 18
Slide 22: Put money away for a rainy day
IV. Quantification Put money away for a rainy day Risk requires capital and capital has a price § Adequate capitalization of risks mandatory § Risk buffer to protect against rating downgrade § Risk-adjusted pricing includes charging for cost of capital A 19
Slide 23: Risk capital is required to cover volatility due to unexpected losses
IV. Quantification Risk capital is required to cover volatility due to unexpected losses Losses are random Expected Unexpected Planning Best-estimate NAV Risk quality NAV volatility Expected losses have to be considered in efficient budgeting and planning A 20
Slide 24: Adequate capitalization is key ...
IV. Quantification Adequate capitalization is key ... (as of 12/2003, in EUR bn) Economic risk capital1 Surplus: 11.8 47.3 35.5 Available risk- Allocated economic bearing funds risk capital 1) Before minorities A 21
Slide 25: ... but risk has a price
IV. Quantification ... but risk has a price Economic Value Added EVA = NOPAT1 – (Risk Capital x CoC) Risk adjusted Market performance Risk drivers expectation measurement § Integration of risk into regular budgeting/planning process § Management compensation linked to economic value creation Cost of
Slide 26: Cost of capital has to be included in pricing
IV. Quantification Cost of capital has to be included in pricing EVA for insurance EVA for credit + Gross premiums earned + Interest income – Premiums ceded – Interest expense + Investment income + Fee income – Operating cost/commissions – Operating cost – Best estimate reserves – Expected loss – Ca
Slide 27: Customized models cover specific aspects of risk and capital
IV. Quantification Customized models cover specific aspects of risk and capital A. Risk capital B. Stress test C. Scenario analysis § Capital necessary to § Quantifies effect of a § Testing effect of protect liabilities even in stress scenario on possible scenarios on a worst case shock balance shee
Slide 28: Stress tests on regulatory and rating capital complement risk capital
IV. Quantification Stress tests on regulatory and rating capital complement the economic perspective of risk capital Regulatory capital Rating agency capital Risk capital § Local solvency § Rating agency § Economic Perspective perspective perspective perspective § Internally defined § Internally def
Slide 29: Example: Capital View shows results for regulatory and rating stress tests
IV. Quantification Example: Capital View shows results for regulatory and rating stress tests Illustrative Stress test results: regulatory solvency Stress test results: rating BBB A AA Current 250% Current 210% Equity 170% Equity 151% Int. rate up 160% Int. rate up 95% Int. rate down 260% Int. rate
Slide 30: Risk capital analysis and stress testing integrated into management processes
IV. Quantification Risk capital analysis and stress testing is integrated into management processes and quarterly reporting Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Full risk analysis Risk analysis update Risk analysis update Risk analysis update Analysis Full stress test Stress test update S
Slide 31: Example: OE-specific action plan
IV. Quantification Example: OE-specific action plan Illustrative Proposed actions GRC recommendations Action Description Timing Cost / benefit 1 2 3 Impact on regulatory solvency Impact on CAR 140% 140% 130% 130% 120% 120% 110% 110% 100% 100% 90% 90% 80% 80% 1 2 3 4 1 2 3 4 n n io io n n n n n n n n
Slide 32: Scenario analysis uses available inputs to generate what-if outputs
IV. Quantification Scenario analysis uses available inputs to generate “what if” outputs that link to planning Inputs Outputs Business figures Profit & loss From business plan: § Business growth Balance sheet § Claims ratio Scenario analysis § Expense ratio § Investment mix Risk capital Market envir
Slide 33: Agenda
Agenda I. Vision II. Governance III. Identification IV. Quantification V. Diversification VI. Solvency II A 30
Slide 34: Don't put all your eggs in one basket
V. Diversification Don’t put all your eggs in one basket Diversification is key principle for risk management § Limits are necessary to avoid high concentrations § Capital requirements can be reduced through diversification § Reinsurance and securitization provide means to optimize diversification A
Slide 35: A comprehensive limit system is necessary to manage concentration risks
V. Diversification A comprehensive limit system is necessary to manage concentration risks Management steering Risk control n Optimization of risk/return structure n Controlling of concentration risks at Group and portfolio level n Budgeting, i.e. allocation of scarce – Counterparty (credit) resourc
Slide 36: The overall Group limit framework covers different types of limits
V. Diversification The overall Group limit framework covers different types of limits Implementation of a comprehensive limit system Types of limits Group limits OE limits set by Group Solvency limits Solvency target & corridor Capital budgets OE risk capital limit Concentration limits Counterparty/
Slide 37: Maximum loss potential as a harmonized measure of usage within group limits
V. Diversification Maximum loss potential as a harmonized measure of usage within integrated group limits Integrated Aggregate Volume-based Group limits limit usage measure of set by across “Maximum Loss Allianz GRC all OEs Potential” Available limit Loan § Maximum of client limit and usage to accou
Slide 38: Example: limit system to manage counterparty credit exposure
V. Diversification Example: limit system to manage and control counterparty credit exposure Hierarchical order of different limit perspectives Credit limit - Purely based on counterparty financials Capital limit Group level - Considers concentrations within Allianz Group portfolio Early warning limi
Slide 39: Reducing risk concentrations reduces capital requirements
V. Diversification Reducing risk concentrations reduces capital requirements Illustrative Diversification effects Portfolio optimization Original portfolio Optimized portfolio Risk § Reduction of high risks (concentrations) causes over- 160 proportional reduction of total risk 140 120 § Smaller risk
Slide 40: Agenda
Agenda I. Vision II. Governance III. Identification IV. Quantification V. Diversification VI. Solvency II A 37
Slide 41: Solvency II project will significantly change the European insurance solvency system
VI. Solvency II Solvency II project will significantly change the European insurance solvency system § Provide supervisors with quantitative and qualitative tools to assess the overall solvency of an insurance company § Risk-sensitive approach – Higher risk business will require more capital – Busin
Slide 42: Basel II type three-pillar structure proposed for new solvency system
VI. Solvency II Basel II type three-pillar structure proposed for new solvency system Quantitative requirements Supervisory review process Disclosure requirements § Harmonization of § Risk governance § Enhanced transparency provisions for outstanding principles: internal control § Disclosure require
Slide 43: Allianz risk management approach should lead to full regulatory compliance
VI. Solvency II Allianz risk management approach should lead to full compliance with regulatory requirements Building blocks Solvency II Identification; quantification; Pillar I diversification (Quantitative requirements) Pillar II Governance (Supervisory review process) Pillar III Risk and capital
Slide 44: B. Risk capital methodology
Jürgen Guhe - Head of Risk Aggregation & Control B. Risk capital methodology Allianz Capital Markets Day July 15, 2004
Slide 45: Agenda
Agenda I. Valuation II. Risk capital framework III. P/C IV. L/H V. Bank VI. Asset Management VII. Diversification VIII. Stress tests B 01
Slide 46: Available capital acts as a buffer against unfavorable developments
I. Valuation Available capital acts as a buffer against unfavorable developments Assets Liabilities Large claims Available Required capital capital = + Excess capital Market crisis How much capital does a company need to withstand extreme events? B 02
Slide 47: There is no unique definition of required nor available capital
I. Valuation There is no unique definition of required capital nor of available capital Regulatory capital Assets Liabilities Rating agency capital Internal risk capital Required capital Available capital § Shareholders’ equity (IAS) § Total adjusted capital (S&P) § Risk bearing funds (Risk capital)
Slide 48: IAS equity artificially volatile due to inconsistent valuation
I. Valuation IAS equity artificially volatile due to inconsistent valuation of assets and liabilities Application example: interest rate increase in L/H business; IAS balance sheet IAS b/s IAS b/s after IR-increase Equity Equity securities securities Insurance Interest rate Real estate Insurance Rea
Slide 49: Risk capital quantifies capital due to volatility of economic value
I. Valuation Risk capital quantifies capital due to volatility of economic value of business Economic balance sheet Assets Liabilities Statutory balance sheet Assets Liabilities Fair value Statutory Market value of liabilities value of of current liabilities assets Statutory value of assets Solvency
Slide 50: Agenda
Agenda I. Valuation II. Risk capital framework III. P/C IV. L/H V. Bank VI. Asset Management VII. Diversification VIII. Stress tests B 06
Slide 51: Risk is uncertainty about future development of economic value
II. Risk capital framework Risk is uncertainty about the future development of the economic value of the business Available capital after one year Market value Fair value of assets of liabilities Available Liability capital volatility Economic insolvency 0 Probability Economic value Asset volatility
Slide 52: Common risk framework translates risk taking into capital requirement
II. Risk capital framework Common risk framework allows for consistent translation of risk taking into capital requirement One year value at risk (VaR) approach Solvency standard Probability AAA AA A Worst 0 Expectation Change in case = Best estimate economic value Required risk capital Risk capital
Slide 53: All risk drivers identified and classified into broader risk categories
II. Risk capital framework To calculate risk capital, all risk drivers have to be identified and classified into broader risk categories Market/ Credit/ Actuarial Operating ALM risks Counterparty risk risks risks § Equities § Investments P/C L/H Operational Business risks risks risks risks § Interes
Slide 54: Risk categories
II. Risk capital framework Risk categories Insurance Banking Asset management Market/ALM ✔ ✔ ✔ )1 (✔ Credit/Counterparty ✔ )1 (✔ § Investment ✔ § Reinsurance ✔ § Wholesale Banking ✔ § Retail Banking ✔ Actuarial § Premium Non-Cat ✔ § Premium Cat ✔ § Reserve ✔ § L/H biometric risk ✔ Operating § Busine
Slide 55: All standalone risk capital numbers are aggregated
II. Risk capital framework All standalone risk capital numbers are aggregated Operating entity risk capital Aggregation Market/ Credit / to OE-wide Actuarial Operating ALM counterparty risk capital L/H P/C risks Aggregation to risk types Premium Reserve risks risks B 11
Slide 56: Economic capital is a refinement of rating agency capital adequacy methodologies
II. Risk capital framework Economic capital is a customized refinement of rating agency capital adequacy methodologies Internal model - the stochastic approach S&P model - the deterministic approach § Customized approach to account for local § Standard approach heavily influenced by business specifi
Slide 57: Agenda
Agenda I. Valuation II. Risk capital framework III. P/C IV. L/H V. Bank VI. Asset Management VII. Diversification VIII. Stress tests B 13
Slide 58: P/C risk capital requirements are mainly driven by actuarial risks
III. P/C P/C risk capital requirements are mainly driven by actuarial risks Premium risk P/C Two components § Non-CAT – Losses – Pricing margin Market/ Actuarial Business § CAT Credit ALM risks risks – Losses – Pricing margin Premium Reserve Reserve risk risk risk § Volatility of best estimate ultim
Slide 59: Measuring NatCat exposure relies on probabilistic modeling techniques
III. P/C Measuring NatCat exposure relies on probabilistic modeling techniques Key elements § Financial model – Exposure – Reinsurance coverage § Vulnerability model § Hazard model – Location geocoding – Local conditions – Regional impacts – Hazard Risk concentrations need to be managed by limit sys
Slide 60: Reinsurance has a dual effect on risk capital
III. P/C Reinsurance has a dual effect on risk capital Reduction of actuarial risk P/C § Extreme events passed on to reinsurer Increase of credit risks Market/ Actuarial Business Credit ALM risks risks § Possibility of reinsurer default Internal risk capital model properly accounts for reinsurance e
Slide 61: Other risk categories in P/C
III. P/C Other risk categories in P/C Market risk P/C § Equity and real estate modeled by standard approach § Liability cash flows (claims run-off) for ALM risk determined with actuarial Market/ Actuarial Business models Credit ALM risks risks § Equity § Invest- § New Credit ments business § Interes
Slide 62: P/C risk capital split
III. P/C P/C risk capital split (as per 12/2003) Group risk capital by line of business1 Operating (5%) Credit (8%) Actuarial (49%) Market/ALM (39%) Total risk capital EUR 17.8bn 1) Group diversified B 18
Slide 63: Agenda
Agenda I. Valuation II. Risk capital framework III. P/C IV. L/H V. Bank VI. Asset Management VII. Diversification VIII. Stress tests B 19
Slide 64: L/H business is mainly driven by Market/ALM risk
IV. L/H L/H business is mainly driven by Market/ALM risk – insurance risks diversify away in large portfolios Profit sharing creates a tie between asset L/H returns and liability value § Liability cash flows (usually) depend on future asset returns Market/ Actuarial Business Policyholders own valuab
Slide 65: Value of liabilities determined in a stochastic asset/liability model
IV. L/H Value of liabilities has to be determined in a stochastic asset/liability model Fair value balance sheet Simulation of future cash flows Assets Liabilities Return Investment return PV of future net outflows Guaranteed Investments at (Benefits L/H rate + Expenses Credited returns market value
Slide 66: Overview of valuation steps
IV. L/H Overview of valuation steps Illustrative 1 Generate market scenario (risk neutral) 3 Determine cash flows Rate (%) 50 CF's Year 16% 0 12% 8% -50 4% -100 Determining cash flows 0% 0 10 20 30 40 50 60 -150 from asset returns Year -200 requires assumptions Asset allocation strategy 4 Discount @
Slide 67: Asset/liability model calculates risk capital through revaluation under stresses
IV. L/H The asset/liability model allows calculation of risk capital through a revaluation of business under economic stresses Economic scenario generator provides stress scenarios Value Best estimate asset value Asset Asset Risk capital value value impact impact Liability Worst value case impact Wo
Slide 68: Current IAS does not adequately reflect interest rate changes on L/H business
IV. L/H Current IAS does not adequately reflect interest rate changes on L/H business Illustrative Non-linear interest rate sensitivity in L/H 30% Fair value Current IAS Change of economic value 15% 0% -15% -30% -2.0% -1.5% -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% Shift of yield curve The fair
Slide 69: Actual liability interest rate sensitivity much lower than duration
IV. L/H Actual liability interest rate sensitivity much lower than respective duration Illustrative Duration: 14.31 Liabilities IR sensitivity : 5.41 1 Duration: 6.09 Assets IR sensitivity : 4.65 1 Economic value § Traditional Macaulay duration - Reasonable proxy for the interest rate sensitivity of
Slide 70: L/H risk capital split
IV. L/H L/H risk capital split (as per 12/2003) Group risk capital by line of business1 Actuarial (2%) Operating (20%) Market/ALM (55%) Credit (23%) Total risk capital EUR 4.8bn 1) Group diversified B 26
Slide 71: Agenda
Agenda I. Valuation II. Risk capital framework III. P/C IV. L/H V. Bank VI. Asset Management VII. Diversification VIII. Stress tests B 27
Slide 72: Credit risk is the main risk driver for the bank
V. Bank Credit risk is the main risk driver for the bank Bank Potential loss in value due to changes in credit quality § Downgrade § Default Market Operating Credit ALM risk Need for credit portfolio measurement and management § Loan risk § Credit risk depends on portfolio § Issuer risk composition
Slide 73: Credit risk has high loss potential due to default correlation and concentration
V. Bank Credit risk is characterized by high loss potential due to default correlation and obligor concentration Credit losses Credit losses Risk capital Expected Loss Time (years) Frequency B 29
Slide 74: Expected portfolio credit loss is the sum of individual expected losses
V. Bank The expected portfolio credit loss is the sum of expected losses of individual exposures Probability Calibration at default based on (PD) historical data Exposure at Max loss in default case of Expected loss of obligor i EL= åELi (EaD) default ELi = PDi x EaDi x LGDi i Loss given Fraction of
Slide 75: Monte Carlo simulation required to derive portfolio credit loss distribution
V. Bank Monte Carlo simulation is required to derive the portfolio credit loss distribution Probability 7 bp chance of annual losses exceeding this point 1 Losses Expected loss Market value of portfolio Risk capital Default correlation Obligor concentration § Defines probability that different oblig
Slide 76: Market/ALM and operational risk tools comply with Basle II advanced approach
V. Bank Market/ALM and operational risk tools comply with Basle II advanced approach Market risk Bank § Trading book – Scaling of (99%, 10 days) VaR to (99.93%, 1 year) VaR – (99%, 10 days) VaR model approved by BaFin Market/ Operating § Banking book Credit ALM risk – (99.93%, 1 year) VaR approach f
Slide 77: Bank risk capital split
V. Bank Bank risk capital split (as per 12/2003) Group risk capital by line of business1 Operating (8%) Credit (50%) Market/ALM (42%) Total risk capital EUR 7.7bn 1) Group diversified B 33
Slide 78: Agenda
Agenda I. Valuation II. Risk capital framework III. P/C IV. L/H V. Bank VI. Asset Management VII. Diversification VIII. Stress tests B 34
Slide 79: Rating agency approach in place for Asset Management
VI. Asset Management Rating agency approach in place – internal model for operational risk under development Asset Operational event risk Management § Current capital charge: based on assets under management § Roll-out of advanced measurement approach (AMA) underway based on Market Operating structu
Slide 80: Agenda
Agenda I. Valuation II. Risk capital framework III. P/C IV. L/H V. Bank VI. Asset Management VII. Diversification VIII. Stress tests B 36
Slide 81: Diversification benefits have to be considered
VII. Diversification Since most risks are not fully correlated, diversification benefits have to be considered Equity risks Probability Aggregation Probability Worst Expected Equity value case case Probability Worst Expected Asset value Worst Expected Real estate value case case case case Real estat
Slide 82: Standalone risk capital numbers aggregated using appropriate diversification
VII. Diversification All standalone risk capital numbers are aggregated using appropriate diversification Market/ALM Credit Diversi- OE risk fication capital between risk types Actuarial Geo- Group risk graphical OE risk capital diversi- capital Operating fication OE risk capital Diversified risk ca
Slide 83: Risk capital before and after diversification
VII. Diversification Risk capital before and after diversification 1Q 2004 risk capital diversification effects (EUR bn) Operating 100 Actuarial Credit 80 Market/ALM 60 -21% 47.4 -14% +9% 37.0 35.0 40 32.0 20 0 OE diversified [A] Group diversified Group divers. incl. Total Group [AA] (business mix a
Slide 84: Agenda
Agenda I. Valuation II. Risk capital framework III. P/C IV. L/H V. Bank VI. Asset Management VII. Diversification VIII. Stress tests B 40
Slide 85: Stress test models built to identify threats to external capital requirements
VIII. Stress tests Stress test models were built to identify threats to external capital requirements (early warning system) Seven standalone stresses: § Equity -30% § Interest rate +200 bps / -150 bps Calibrated to Analysis § Credit default (EL + Standard deviation) “1-in-10-year” § New business +5
Slide 86: C. RoRACN calculation
Rainer Schwarz - Head of Group Planning and Controlling C. RoRACN calculation Allianz Capital Markets Day July 15, 2004
Slide 87: Allianz capital efficiency metrics – accounting view
C. RoRACN calculation Allianz capital efficiency metrics – accounting view IFRS RoE (%) Simple measure, direct determination from + P&L and balance sheet 6.4 Net income Ø SH equity - IFRS net income does not reflect full operating performance -4.6 2002 2003 - Based on shareholders’ equity, which doe
Slide 88: Allianz capital efficiency metrics – economic view
C. RoRACN calculation Allianz capital efficiency metrics – economic view RoACN/old model (%) + Based on internal profit metrics NOPAT1 + Better approximation of economic reality 11.8 Ø Capital necessary 3.2 for AA rating - S&P model rather mechanistic 2002 2003 - Diversification effects on Group lev
Slide 89: Why RoRACN?
C. RoRACN calculation Why RoRACN? NOPAT Risk-adjusted capital (RAC) § Reflects economic reality better than § Superior metric of capital adequacy alternative metrics (as compared to alternatives like shareholders’ equity/rating requirements) § Corresponds to Allianz Group’s key performance metric (E
Slide 90: RoRACN and EVA are closely linked
C. RoRACN calculation RoRACN and EVA are closely linked NOPAT Economic Value Added (EVA) = Risk Capital x (RoRACN - CoC) with: RoRACN = RAC Performance Market Risk drivers Capital efficiency measurement expectation § Portfolio § Risk analysis § Risk-adjusted § Effective use of management benchmark a
Slide 91: Overview: the numerator – NOPAT
C. RoRACN calculation Overview: the numerator – NOPAT Adjustment and normalization process on OE level 1 Banking: IAS 39 impact 2 Banking: Restructuring expenses IFRS net NOPAT 3 Elimination of goodwill and income acquisition-related expenses 4 Other impacts, mainly a) Non-Life reserve discounting b
Slide 92: The numerator – adjustments
C. RoRACN calculation The numerator – adjustments Item Adjustment Economic rationale Banking: Elimination Under IFRS, timing differences of P&L impacts arise between 1 IAS 39 impact classes of securities because of their different classification (e.g. hedges and their underlying), even though econom
Slide 93: The numerator – normalized investment income
C. RoRACN calculation 4b The numerator – normalized investment income Adjustment Economic rationale Normalization § Neutralize the volatility of equity markets § Eliminate discretionary effects from realization of capital gains/losses § Determine an adequate economic normalized return from the inves
Slide 94: The numerator – excess capital charge
C. RoRACN calculation 4c The numerator – excess capital charge Adjustment Economic rationale Deduct OEs earn normalized investment income on all their investments. Thus they earn income also on the portion of capital held on top of risk-adjusted capital requirements. This extra income is reversed fo
Slide 95: The numerator – from IFRS net income to NOPAT
C. RoRACN calculation The numerator – from IFRS net income to NOPAT (2003) Allianz Group (EUR m) 1,880 4,100 -126 588 142 1,616 Goodwill Banking: amortization, IFRS net Banking: IAS restructuring acquisition- income 39 impact1 expenses1 related expenses2 Other 3 NOPAT Before minorities 1) After tax;
Slide 96: The denominator – RAC factors in diversification benefits
C. RoRACN calculation The denominator – RAC factors in diversification benefits Allianz Group (Average 2003, after minorities, EUR bn) 2.4 44.7 2.7 10.8 32.6 7.6 -12.1 21.2 Asset Group Diversification RAC P/C L/H Banking Management Corporate before impact diversified diversifi- OEs consolidated in s
Slide 97: Allianz Group: RoRACN calculation
C. RoRACN calculation Allianz Group: RoRACN calculation (2003, after minorities) Normalized profit EUR 4.1bn RoRACN = = 12.6% Average RAC EUR 32.6bn C 11
Slide 98: D. Appendix
D. Appendix Allianz Capital Markets Day July 15, 2004
Slide 99: Allianz Group risk capital: required vs. available funds
D. Appendix Allianz Group risk capital: required vs. available funds (in EUR bn) from: Analysts‘ Conference 2004, Page B 54 Required risk-adjusted capital Required vs. available Available funds Surplus Risk categories EUR 11.8bn Shareholders’ equity 28.6 Market/ALM 16.2 Minorities 8.4 47.3 Credit/co
Slide 100: Investor Relations contacts
D. Appendix Investor Relations contacts Oliver Schmidt Tel. +49 (0) 89 3800-3963 Peter Hardy Tel. +49 (0) 89 3800-18180 Head of e-mail: e-mail: Investor Relations oliver.schmidt@allianz.com peter.hardy@allianz.com Susanne Arheit Tel. +49 (0) 89 3800-3324 Christian Tel. +49 (0) 89 3800-3892 Lamprecht
Slide 101: Financial calendar 2004/2005
D. Appendix Financial calendar 2004/2005 15 July 2004 Capital Markets Day 16 August 2004 Financial report first half 2004 12 November 2004 Financial report first three quarters 2004 17 March 2005 Financial press conference for the 2004 fiscal year 18 March 2005 Analysts’ conference on fiscal year 20
Slide 102: Disclaimer
D. Appendix Disclaimer These assessments are, as always, subject to the disclaimer provided below. 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 managemen