Allianz SE · XETR:ALV
Allianz — Investor Day (July 2005)
117 slides from Allianz's investor day presentation, Jul 14, 2005
Slide 1: Life insurance in Germany and the USA
Allianz Capital Markets Day Life insurance in Germany and the USA Munich July 14, 2005
Slide 2: Agenda
Agenda A. Allianz Leben: Capitalize on growth opportunities Gerhard Rupprecht (CEO) A1 B. Allianz Life: An exceptional growth opportunity Mark Zesbaugh (CEO) B1 Gabby Matzdorff (CFO) Neil McKay (Chief Actuary) C. Appendix Investor Relations Contacts C1 Disclaimer C2
Slide 3: A. Allianz Leben: Capitalize on growth opportunities
Gerhard Rupprecht – CEO Allianz Lebensversicherungs-AG A. Allianz Leben Capitalize on growth opportunities All figures based on HGB (German GAAP) if not stated otherwise
Slide 4: Agenda
Agenda I. Market and company profile 3 II. Growth opportunities 7 III. Profitability 19 IV. Reserves and risk management 30 V. Takeaways 39 A 01
Slide 5: Agenda
Agenda I. Market and company profile 3 II. Growth opportunities 7 III. Profitability 19 IV. Reserves and risk management 30 V. Takeaways 39 A 02
Slide 6: German life market 2004 - Allianz Leben is market leader
I. Market and company profile German life market 2004 - Allianz Leben (AZL)1 is market leader (EUR bn) Key figures (2004) Market AZL Market share No. of contracts (m) 97 11.4 ~ 12% Gross premiums written 70.2 10.9 15.5% of which regular premiums 62.7 9.0 New business premiums 20.0 3.7 18.5% of which
Slide 7: German life market (2)
I. Market and company profile German life market (2) (in %) Product mix Distribution structure New business Term Other 5 Other 7 3 Unit-linked 13 24 Banks Annuities 59 Endowment 18 24 Independent advisors Business in force (regular premiums) 7 Tied financial advisors Term Other Unit-linked 0.3 13 4
Slide 8: Business mix Allianz Leben 2004
I. Market and company profile Business mix Allianz Leben 2004 (EUR bn) Split of in-force and new business: Private business Corporate business No. of contracts (m) 9.0 (79%) 2.41 (21%) Policy reserves2 77.2 (78%) 21.7 (22%) Gross premiums written 7.6 (70%) 3.3 (30%) New business premiums 2.3 (62%) 1
Slide 9: Agenda
Agenda I. Market and company profile 3 II. Growth opportunities 7 III. Profitability 19 IV. Reserves and risk management 30 V. Takeaways 39 A 06
Slide 10: German life market underdeveloped: still strong reliance on statutory pensions
II. Growth opportunities German life market underdeveloped: still strong reliance on statutory pensions Split of retirement income Statutory Company+private 85% 73% 65% 58% 42% 35% 27% 15% Germany France UK Switzerland Source: Deutsches Institut für Altersvorsorge (2005) Per capita life premiums (US
Slide 11: Demography challenges statutory pension system
II. Growth opportunities Demography challenges statutory pension system State pension system being eroded Ratio of contributors to pensioners Theoretical rate of contribution before last statutory pension reform1 3.00 30.0 2.50 27.5 2.00 25.0 1.50 22.5 Targeted maximum rate of contribution 1.00 20.0
Slide 12: Pension reforms and retirement savings law offer enormous growth potential
II. Growth opportunities Pension reforms and retirement savings law (AEG1) offer enormous growth potential for life insurers Reforms create pension gap Deferred taxes widen gap Huge savings necessary Statutory pension reforms AEG introduces deferred Intention of legislator: lower coverage rati
Slide 13: AEG increases incentives for retirement savings
II. Growth opportunities AEG increases incentives for retirement savings Tax-incentivized Tax incentivized amounts (EUR) 20,0001 Layer I Premiums out of gross - Basic pensions 0 income (deferred taxation) Layer II 4,296 2,472 High incentives - Company pensions Regulated product features -
Slide 14: Product strategy: concentrate on three core competencies
II. Growth opportunities Product strategy: concentrate on three core competencies Product lines are targeted on customer needs 1. Ensure Basic pension 9 life-long Riester pension1 income Private pension1 Company pension 2. Accumulate Education Plan1 wealth with guarantee and tax Allianz
Slide 15: Allianz Inheritance Policy
II. Growth opportunities 2006-2010: an estimated EUR 1,030bn1 are expected to be bequeathed – Allianz Inheritance Policy Basic features How it works Benefit Single, regular and limited premium payment possible Capital gain is not subject Life-time protection to income tax Add-on premiums durin
Slide 16: Corporate business offers huge potential
II. Growth opportunities Corporate business offers huge potential Strong position in a strong growth market 1. Legal General principle: tax incentives only for risk-bearing products framework German corporate pension plan system clearly focuses on annuity-type solutions 2. Low Approximately 57
Slide 17: Corporate business: Allianz Leben market share 2004
II. Growth opportunities Corporate business: Allianz Leben market share 2004 New business1 In-force business2 Direct insurance (Direktversicherung) 22.4% 24.4% Group pension fund (Pensionskasse) 24.1% 23.6% Support fund & indirect insurance 25.7% 16.9% (Rückdeckung + Unterstützungskasse) Total 24.3%
Slide 18: Successful channel mix: IFSP concept works
II. Growth opportunities Successful channel mix: IFSP concept works Annualized new business premiums1 (in EUR m) Highlights 2004 Dresdner: High volume business Tied agents 41.3% 1,164 Brokers: reputation and financial strength of Allianz as unique selling proposition Banks 25.6% 722 Increase of br
Slide 19: Allianz Leben: strongest brand in German life market
II. Growth opportunities Allianz Leben: strongest brand in German life market Brand Overall opinion Brand awareness Brand strength index mean score on 1-7 scale1 in % overall opinion weighted by people who know brands2 total representative, n=1013 awareness / average = 100 + = Allianz 4.4 98 146 Ham
Slide 20: Consumers with the highest purchase intention
II. Growth opportunities Allianz Leben: consumers with the highest purchase intention of all analyzed brands and the lowest rejection rate 100 6 I would … 8 6 5 5 8 90 19 9 purchase this insurance 10 10 10 from this provider 15 12 80 70 17 27 27 28 definitely 31 30 probably 60 34 not sure whether or
Slide 21: Agenda
Agenda I. Market and company profile 3 II. Growth opportunities 7 III. Profitability 19 IV. Reserves and risk management 30 V. Takeaways 39 A 18
Slide 22: Profitability proven over long period of time
III. Profitability Profitability proven over long period of time Net income1 (1994 – 2004) in EUR m Net Income Dividends IFRS net income2 467 242 226 210 210 210 216 175 151 108 123 81 97 72 65 63 -32 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Return on equity1 (1994 – 2004) in % 20.9% 1
Slide 23: High value of business in force
III. Profitability High value of business in force1 (EUR m) Embedded Value 2004 3,201 4,089 -209 -293 1,390 NAV det. PVFP O&G2 CRC3 EEV Split (in %) Sensitivity analysis Base case Germany 4,089 Corporate Private Economic factors business business -1 %-p in total investment yield4 -2,232 +1 %-p in
Slide 24: Profitability of new business further improved
III. Profitability Profitability of new business further improved Value of new business1 (EUR m) New business margin3/spread4 (in %) Margin 2.4 Spread 229 1.5 0.30 1.1 104 0.18 59 0.14 2002 2003 20042 2002 2003 2004 New business priced at 30 bp spread - ROE well above 15% Same new business margins
Slide 25: Profitability drivers and measures taken
III. Profitability Profitability drivers and measures taken Increase margins Measures taken Raise prices Cost loadings increased Reduce costs E. g. Sustainability Program Life initiated Increase share of contracts with riders; Select risks sophisticated acceptance guidelines for disability riders im
Slide 26: Shareholder participation: where the gross surplus comes from and goes
III. Profitability Shareholder participation: Where the gross surplus comes from and where it goes to Expense loadings Interest income Risk premiums + “Zillmer” DAC Benefits Extraordinary income paid for death, disability, Administrative expenses long-term care Technical interest rate1 Released / ad
Slide 27: Mechanism of the RfB
III. Profitability Mechanism of the RfB (reserves for premium refunds) Technical interest rate (average 3.5%) Direct bonus Gross surplus after taxes EUR 3.2bn (2004) EUR 0.5bn (2004) EUR 2.5bn (2004) RfB (in EUR bn) Allocated RfB Free RfB Terminal bonus fund EUR 0.2bn (2004) 4.1 4.6 1.6 Allocated in
Slide 28: Features of profit participation in Germany
III. Profitability Features of profit participation in Germany Contracts effected before July 1994 Contracts effected after July 1994 Gross surplus after taxes Net investment Underwriting result income on mathe- Expense result matical reserves Other results if positive Minimum Maximum Minimum Approp
Slide 29: Example: maximum profit participation before 1994
III. Profitability Example1: maximum profit participation before 1994 Sources of surplus and profit participation Gross investment income2 600 – Technical interest rate -300 Investment result 300 Underwriting result 10 Expense result 10 Gross surplus before taxes 320 Taxes -20 Gross surplus after ta
Slide 30: Example: maximum profit participation after 1994
III. Profitability Example1: maximum profit participation after 1994 Sources of surplus Gross investment income2 300 – Technical interest rate -150 Investment result 150 Underwriting result 5 Expense result 5 Gross surplus before taxes 160 Profit participation Gross investment income Underwriting re
Slide 31: Example: shareholder participation rate
III: Profitability Example1: shareholder participation rate Sources of surplus (before and after 1994)2 Investment result2 450 Underwriting result 15 Expense result 15 Gross surplus before taxes2 480 Taxes 34 Sources of shareholder participation s/h profit participation before 1994 30 s/h profit par
Slide 32: Agenda
Agenda I. Market and company profile 3 II. Growth opportunities 7 III. Profitability 19 IV. Reserves and risk management 30 V. Takeaways 39 A 29
Slide 33: Reserves: financial strength further improved in 2004
IV. Reserves and risk management Reserves: financial strength further improved in 2004 (in EUR bn) Total 16.7 Liability reserves Total +20% 13.9 Equity 10.0 8.9 1.3 free RfB 1.3 4.1 Terminal bonus fund 2.9 4.6 4.7 Net hidden reserves 5.0 6.7 1.8 Real estate (incl. indirect holdings) 1.9 2.4 3.9 Divi
Slide 34: Allianz Leben with comfortable solvency ratio
IV. Reserves and risk management Allianz Leben1 with comfortable solvency ratio (in EUR m) Required solvency margin Available solvency capital 6.7 Net hidden reserves3 9.7 Solvency ratio: 1.0 Equity4 comfortable 253% 4.1 Free RfB Solvency ratio incl. net hidden Approx. 16.0% of 3.8 0.1 reserves 428%
Slide 35: Above average reserves as basis for superior investment results
IV. Reserves and risk management Above average reserves as basis for superior investment results (2004 in %) Net hidden reserves Free RfB and terminal bonus fund (in % of investments) (in % of investments) 7.9 6.0 5.4 2.3 AZL Competitors1 AZL Competitors1 Equity ratio Net investment result (in % of
Slide 36: Trigger point: critical interest rate for contractual guarantees
IV. Reserves and risk management Trigger point: critical interest rate for contractual guarantees well below current level Assets Equity & liabilities Effects to be considered when calculating Guarantees critical interest rate level: only on Reserves on loans; mathematical Market value of investme
Slide 37: Risk management tools as integrated part of investment process
IV. Reserves and risk management Risk management tools as integrated part of investment process Life insurers face specific investments, issues and risks Life insurers must fulfill guarantees and policyholder benefits in accounting terms year by year Life insurers face risk of asset/liability mi
Slide 38: Mandatory stress test for monitoring short term risks
IV. Reserves and risk management Mandatory stress test for monitoring short term risks Approach Test the ability of insurer to fulfill technical interest rate and committed policyholder participation from a one-year accounting view. Reviews short term financial stability given different capital mark
Slide 39: Solvency II: development of a German life model
IV. Reserves and risk management Solvency II: development of a German life model1 Risk model as pillar 1 of Solvency II Pillar 1 Pillar 2 Pillar 3 Minimum Supervisory Market capital decrees and discipline requirements measures German Life Model: standard model to determine capital requirements and
Slide 40: Solvency II model: capital requirements and available risk capital
IV. Reserves and risk management Solvency II model: capital requirements and available risk capital1 Solvency Capital Requirement (SCR) Available Solvency Margin (ASM) Is needed to compensate for: Equity Investment risk G1 Operational risk G2 < Special tax-allowable reserve Free RfB Pric
Slide 41: Agenda
Agenda I. Market and company profile 3 II. Growth opportunities 7 III. Profitability 19 IV. Reserves and risk management 30 V. Takeaways 39 A 38
Slide 42: Allianz Leben: takeaways
V. Takeaways Allianz Leben: takeaways We are well positioned to capitalize on the growth potential of Growth the German retirement pension market Distribution IFSP concept gives us access to enormous customer base and provides a stand-alone advisory competency Brand We have the strongest brand in th
Slide 43: Back-up
Allianz (il) Back-up A 40
Slide 44: Strict fixed-income guidelines limit the credit risk
Back-up Strict fixed-income guidelines and continuous monitoring limit the credit risk Rating structure, bonds and tradable loans (31.12.04) Guidelines Market value: EUR 79.7bn Credit limits Issuer limits Other AAA Definition of A or better: max. 20% <1% 64% - individual benchmark per bond issue
Slide 45: The five German pension vehicles
Back-up The five German pension vehicles Employer enters into a pension commitment; tax deductible pension provisions Pensionszusage based on actuarial calculations; no rules governing investment or statutory (Pension commitment) supervision; benefits are safeguarded by the Pension Guarantee Fund; i
Slide 46: B. Allianz Life: An exceptional growth opportunity
Mark Zesbaugh (CEO), Gabby Matzdorff (CFO), Neil McKay (Chief Actuary) B. Allianz Life An exceptional growth opportunity
Slide 47: Agenda
Agenda I. The U.S. Life insurance market 3 II. Overview of Allianz Life 10 III. Opportunities and strategic initiatives 24 IV. Fixed annuity line of business (includes equity index annuities) 29 V. Variable annuity line of business 42 VI. Takeaways 54 B 01
Slide 48: Agenda
Agenda I. The U.S. Life insurance market 3 II. Overview of Allianz Life 10 III. Opportunities and strategic initiatives 24 IV. Fixed annuity line of business (includes equity index annuities) 29 V. Variable annuity line of business 42 VI. Takeaways 54 B 02
Slide 49: Overview – market (1)
I. The U.S. Life insurance market Overview – market (1) Consumer-driven market Gross written premiums plus deposits totaled nearly USD 750bn in 2004 Industry began with focus on death-benefit protection, but has evolved to target consumers with other needs: - Asset accumulation - Estate planni
Slide 50: Overview – market (2)
I. The U.S. Life insurance market Overview – market (2) Rank Market share1 - Top life companies Stat GPW (USD m) 1 MetLife 8.4% 62,750 2 AIG 8.2% 60,878 3 ING 4.2% 31,000 4 Hartford 4.1% 30,755 5 Prudential 4.1% 30,563 6 Aegon 3.7% 27,366 7 Manulife 3.4% 24,997 8 New York Life 3.2% 24,097 9 Allstate
Slide 51: Overview – distribution
I. The U.S. Life insurance market Overview – distribution Life Insurance – 2004 new annualized premiums1 Distribution channels vary by product and Other 4.0% Direct marketing 2.0% carrier Financial institutions2 4.0% - Affiliated (captive) agents - Independent agents - Direct sales/marketing - Oth
Slide 52: Demographic changes (1)
I. The U.S. Life insurance market Demographic changes (1) Aging of the U.S. population and increasing longevity Baby Boomers – large segment of the U.S. population, high median income Retirement years quickly approaching – need to accumulate and protect wealth Life expectancies are increasing
Slide 53: Demographic changes (2)
I. The U.S. Life insurance market Demographic changes (2) Anticipated wealth transfer Massive transfer of wealth has begun from one generation to the next Expect transfer of USD 40 trillion - USD 135 trillion between 1998 and 20521 Consumer need for Rising healthcare costs wealth management He
Slide 54: Regulatory and tax environment
I. The U.S. Life insurance market Regulatory and tax environment Regulation Alleged instances of fraud, bid-rigging and price-fixing Broker Differentiate between brokers who act on behalf of a client and agents who act on behalf of the compen- insurer sation Additional consumer disclosure is e
Slide 55: Agenda
Agenda I. The U.S. Life insurance market 3 II. Overview of Allianz Life 10 III. Opportunities and strategic initiatives 24 IV. Fixed annuity line of business (includes equity index annuities) 29 V. Variable annuity line of business 42 VI. Takeaways 54 B 09
Slide 56: Background - Allianz Life
II. Overview of Allianz Life Background - Allianz Life Who is Allianz Life? Current financial strength ratings Largest Life/Health entity in the Allianz Group (as measured by A.M. Best A+ (Superior) statutory gross premiums written (GPW) for the year ended S&P AA- (Very Strong) December 31, 2004)
Slide 57: Background - geographic locations
II. Overview of Allianz Life Background - geographic locations Field Marketing Org. Fargo, ND Allianz Life Minneapolis, MN Field Marketing Org. Field Marketing Org. Quincy, MA Ann Arbor, MI Field Marketing Org. Field Marketing Org. Allianz Life of NY Minneapolis, MN Fort Washington, PA Field Marketi
Slide 58: Background - board and management
II. Overview of Allianz Life Background - board and management Board of Directors Company Position Jan Carendi Allianz AG Member of Board of Management Robert MacDonald Allianz Life Retired Chairman and Chief Executive Officer Helmut Perlet Allianz AG Member of Board of Management Peter Huehne Allia
Slide 59: Background - primary market segments
II. Overview of Allianz Life Background - primary market segments Market Product lines 2004 Statutory GPW (USD 14.0bn) Traditional Fixed Annuities Other1 Fixed Annuities 7% 5% Healthcare Equity Index Annuities Excess of Loss (EIA’s) 2% Individual Fixed Long-Term Care insurance Variable Annuities EIA
Slide 60: Business model and strategies
II. Overview of Allianz Life Business model and strategies Our goal is to be the preferred choice of Americans looking for financial products offering security and value Strategy Develop products that provide solutions for the needs of today’s consumer (not yesterday’s), that focus on value and be
Slide 61: Sources of competitive advantage
II. Overview of Allianz Life Sources of competitive advantage Statutory GPW (USD m) 1. Other1 Strong Variable annuities distribution Fixed annuities 2. CAGR: + 46% 13,977 Innovative product 1,441 development 9,670 4,048 9,101 1,028 1,068 3. 2,524 Operational 1,789 8,488 excellence 4,464 1,079 6,244
Slide 62: 1. Strong distribution
II. Overview of Allianz Life 1. Strong distribution Philosophy Establish an emotional tie with distributors as our primary customers (customer intimacy) - an outside-in view whereby everything begins with the customer in mind Primary distribution channel - independent agents and registered repre
Slide 63: 2. Innovative product development & management
II. Overview of Allianz Life 2. Innovative product development & management Philosophy Efficiently develop products that are innovative, competitive, profitable and manageable Maintain parallel interests: balance the needs of the distribution, contract holder and shareholder Recent examples –
Slide 64: 3. Operational excellence
II. Overview of Allianz Life 3. Operational excellence Philosophy Holistic view of how to serve the primary and secondary customer: not one thing, but rather a combination of unique service standards and platforms delivered by people and technology focused on establishing an emotional tie Custom
Slide 65: 4. Performance based culture
II. Overview of Allianz Life 4. Performance based culture Philosophy Allianz Life is a company with a value-driven culture of shared, deeply held beliefs, which guide our behavior and decisions on how to conduct business Performance is expected from our employees and is engrained in our culture
Slide 66: Key figures (1)
II. Overview of Allianz Life Key figures (1) (USD m) Profitability measures 2001 2002 2003 2004 Statutory GPW 4,464 9,101 9,670 13,977 IFRS operating profit1 66 169 174 434 IFRS net income (45) (35) 169 331 Normalized RoE (RoRAC) 5.5% 4.3% 9.2% 14.2% IFRS results Dividends IFRS net income IF
Slide 67: Key figures (2)
II. Overview of Allianz Life Key figures (2) (USD m) Balance sheet and other measures 2001 2002 2003 2004 Total assets 23,167 30,303 39,834 51,040 Total equity (IFRS) 1,564 2,726 2,912 3,191 Assets under management 16,319 22,773 27,877 38,791 Embedded value (including net asset value) 1,648
Slide 68: Key figures (3)
II. Overview of Allianz Life Key figures (3) Investments by asset class Fixed maturity securities by NAIC rating2 Conservative investment portfolio supporting Other1 Mortgage loans 5% 4% policyholder obligations Cash & short-term Overall fixed portfolio credit quality of AA-/Aa3 securities 1% Eq
Slide 69: Agenda
Agenda I. The U.S. Life insurance market 3 II. Overview of Allianz Life 10 III. Opportunities and strategic initiatives 24 IV. Fixed annuity line of business (includes equity index annuities) 29 V. Variable annuity line of business 42 VI. Takeaways 54 B 23
Slide 70: Key opportunities
III. Opportunities and strategic initiatives Key opportunities Growth in demand for wealth management and retirement income Consumers - Demographic changes - aging of the population, longevity coupled with and medical advancements and the transition of the U.S. culture (diversity) products - Enhan
Slide 71: Current strategic initiatives (1)
III. Opportunities and strategic initiatives Current strategic initiatives (1) Challenge Initiative 1. Separate distribution Developing comprehensive enterprise Distribution strategies employed for distribution strategy – aligns objectives of all strategy – distinct lines of business limits prod
Slide 72: Current strategic initiatives (2)
III. Opportunities and strategic initiatives Current strategic initiatives (2) Challenge Initiative 3. Resource limitations reduce Enroll employees in comprehensive Talent ability to capitalize on growth development and training program acquisition, opportunities and achieve Expand recruiting
Slide 73: Current strategic initiatives (3)
III. Opportunities and strategic initiatives Current strategic initiatives (3) Challenge Initiative Demographic changes toward Launched initiative in 2004 to become the 6. diversity among consumers preeminent financial services company for Multi-cultural initiative multi-cultural markets Project
Slide 74: Agenda
Agenda I. The U.S. Life insurance market 3 II. Overview of Allianz Life 10 III. Opportunities and strategic initiatives 24 IV. Fixed annuity line of business (includes equity index annuities) 29 V. Variable annuity line of business 42 VI. Takeaways 54 B 28
Slide 75: Sales
IV. Fixed annuity line of business (includes equity index annuities) Sales Key facts and figures Allianz Life is the 2nd largest U.S. fixed annuity producer in terms of total fixed annuity sales1 and the largest producer of EIA’s1 Allianz Life is also the largest seller of fixed annuities throug
Slide 76: Sales by product
IV. Fixed annuity line of business (includes equity index annuities) Sales by product 2004 Total 2004 production: USD 8,487m Other MasterDex1 10% 53% Drivers of 2004 sales growth: - Increased sales of EIA’s BonusDex1 - MasterDex series launched in May 2004 9% - Sales promotion during August and
Slide 77: Products – Fixed Annuities in general
IV. Fixed annuity line of business (includes equity index annuities) Products – Fixed Annuities in general General Traditional Fixed Annuities – annuity contract whereby the policyholder is credited with a fixed rate of interest during the accumulation stage on funds placed in the contract; policy
Slide 78: Products – Equity Index Annuities in general
IV. Fixed annuity line of business (includes equity index annuities) Products – Equity Index Annuities in general Ways to calculate index returns Annual point-to-point – index returns are calculated based on the change in index values from the first day of the year to the last day of the year Mo
Slide 79: Products – MasterDex series
IV. Fixed annuity line of business (includes equity index annuities) Products – MasterDex series Allianz Life launched the MasterDex series of products in mid-2004 - Flexible premium deferred equity index annuities - Returns tied to the S&P 500 and Nasdaq-100 indexes As illustrated on the follow
Slide 80: MasterDex crediting examples
IV. Fixed annuity line of business (includes equity index annuities) MasterDex crediting examples Cumulative capped monthly return 1995 Month S&P return Capped return1 January 2.43% 2.43% 40% 26.30% annual February 3.61% 3.00% March 2.73% 2.73% 1995 30% index credit April 2.80% 2.80% May 3.63% 3.00%
Slide 81: Profitability – sources of earnings
IV. Fixed annuity line of business (includes equity index annuities) Profitability – sources of earnings IFRS profit margin Estimated contribution to profit margin1 Primary sources of net revenue: - Earned investment rate Varies by issuance2 - Credited rate / hedging costs Varies by issuance2 - In
Slide 82: Key external risks and actions/levers (1)
IV. Fixed annuity line of business (includes equity index annuities) Key external risks and actions/levers (1) Primary external risks Actions/levers Declining interest rates reduce Management may adjust crediting rates/caps on new and earned investment yields and in-force business to maintain sp
Slide 83: Key external risks and actions/levers (2)
IV. Fixed annuity line of business (includes equity index annuities) Key external risks and actions/levers (2) Primary external risks Actions/levers Exposure to litigation and/or Continuing to focus on sales suitability and sales regulatory action, including compliance market conduct and sales -
Slide 84: EIA hedging programs (1)
IV. Fixed annuity line of business (includes equity index annuities) EIA hedging programs (1) Program design by product type Crediting Hedged through the use of over-the-counter (OTC) call options on the S&P 500 Index and the based on Nasdaq-100 Index average - Static hedging strategy – capped ann
Slide 85: EIA hedging programs (2)
IV. Fixed annuity line of business (includes equity index annuities) EIA hedging programs (2) Sustainable competitive advantage Our industry leading hedging strategies are difficult to copy Less reliance on complex OTC structures Economies of scale due to large premium volume provides leverage
Slide 86: EIA hedging programs (3)
IV. Fixed annuity line of business (includes equity index annuities) EIA hedging programs (3) Point-to-point example Example – equity index option value movement Index movements Hedging results: The asset curve (OTC derivative Value of option options) and the liability curve Liability option (poli
Slide 87: Agenda
Agenda I. The U.S. Life insurance market 3 II. Overview of Allianz Life 10 III. Opportunities and strategic initiatives 24 IV. Fixed annuity line of business (includes equity index annuities) 29 V. Variable annuity line of business 42 VI. Takeaways 54 B 41
Slide 88: Sales
V. Variable annuity line of business Sales Key facts and figures Allianz Life is the 13th largest U.S. variable annuity producer in terms of sales1 Products are distributed primarily through the financial planner channel (over 90%) and the remaining distribution is primarily in banks (7%) 2001 2
Slide 89: Sales by product
V. Variable annuity line of business Sales by product 2004 Total 2004 production: USD 4,044m Other High Five 4% 48% Drivers of 2004 sales growth: High Five Bonus - Introduction of High Five product in late 6% 2002 - Launched bonus version of High Five Rewards product in the spring of 2004 18% -
Slide 90: Products – Variable Annuities in general
V. Variable annuity line of business Products – Variable Annuities in general General Variable annuities – annuity contract whose value fluctuates based on performance of an underlying investment portfolio (i.e., mutual funds); benefit payouts will vary based on account value of the contract Inves
Slide 91: Products – High Five and PRIME series
V. Variable annuity line of business Products – High Five and PRIME series High Five Series A series of variable annuity products which provide for a level of principal protection through a guaranteed account value (GMAB feature) - Guaranteed account value (GAV) initially equal to principal paymen
Slide 92: Profitability – sources of earnings
V. Variable annuity line of business Profitability – sources of earnings IFRS profit margin Estimated contribution to profit margin1 Primary sources of revenue: - Mortality and expense (M&E) charges Approx. 140 - 210 bps - Mutual fund and subadvisory fees Approx. 35 bps - Other (surrender charges,
Slide 93: Key external risks and actions/levers
V. Variable annuity line of business Key external risks and actions/levers Primary external risks Actions/levers Equity market performance Hedging strategy implemented on new business for tail increases volatility of revenue risk in GMIB and GMDB product features and can negatively impact asset
Slide 94: Guarantee exposure (overall VA business)
V. Variable annuity line of business Guarantee exposure (overall VA business) (USD m) 12/31/04 12/31/03 Death benefit exposure GMDB amount 1 13,672 9,518 1) Represents current value of guaranteed benefit amount (i.e., payment in the event GMDB net amount at risk 2 281 388 all contractholders die on
Slide 95: Hedging program – High Five products (1)
V. Variable annuity line of business Hedging program – High Five products (1) Program design Guaranteed death benefits and guaranteed living benefits on High Five contracts are hedged through an automated investment allocation process Transfers are made at the full discretion of Allianz Life bet
Slide 96: Hedging program – High Five products (2)
V. Variable annuity line of business Hedging program – High Five products (2) Simple illustrative example – USD 100,000 initial contractholder premium in USD End of year 1 - the account value increases to USD 105,000. Guaranteed accumulation benefit value increases to USD 105,000 and locks in. 110
Slide 97: Hedging program – PRIME products (1)
V. Variable annuity line of business Hedging program – PRIME products (1) Program design Guaranteed death benefits and guaranteed living benefits – hedged through the use of OTC European put and call options Program implemented September 2003 – hedge guarantees on business issued subsequent to M
Slide 98: Hedging program – PRIME products (2)
V. Variable annuity line of business Hedging program – PRIME products (2) Guarantee Utilization1 Current Hedging costs charge2 2004 2003 LT 95th Percentile GMDB - greater of ratchet and 3% 1% 30 bps 29 bps 29 bps 43 bps roll-up GMIB/GMWB - greater of ratchet and 36% 70 bps 27 bps 27 bps 53 bps 3% ro
Slide 99: Agenda
Agenda I. The U.S. Life insurance market 3 II. Overview of Allianz Life 10 III. Opportunities and strategic initiatives 24 IV. Fixed annuity line of business (includes equity index annuities) 29 V. Variable annuity line of business 42 VI. Takeaways 54 B 53
Slide 100: Allianz Life: takeaways
VI. Takeaways Allianz Life: takeaways Achieved significant scale and are well positioned to capitalize on the Growth demographic changes of the U.S. market Distribution Well established relationships with an extensive and expanding independent distribution force, with additional channels being devel
Slide 101: Back-up
Allianz (il) Back-up B55
Slide 102: Life insurance products defined (1)
Back-up Life insurance products defined (1) Life products Whole Life (Ordinary Life) – provides death protection for an individual’s whole life, rather than a specified term, with premium payments made for the same period. A savings component, called cash value or loan value, builds over time and
Slide 103: Life insurance products defined (2)
Back-up Life insurance products defined (2) Annuity products Traditional Fixed Annuities – annuity contract whereby the policyholder is credited with a fixed rate of interest during the accumulation stage on funds placed in the contract. Policyholder principal is not at risk. Policyholder may rece
Slide 104: Disclosure of P/C-Holding activities – pro forma results for Q1 2005
Burkhard Keese (Head of Group Financial Reporting), Susanne Kanngiesser (Head of Group Accounting) Disclosure of P/C-Holding activities – pro forma results for Q1 2005
Slide 105: Group: result by segments overview (as stated)
Group: result by segments overview (as stated) (EUR m) Asset Con- # 3M 05 P/C L/H1 Banking Mgmt. solidation Total Ref5 1/1 Total revenues (EUR bn) 14.2 11.8 1.7 0.6 0.0 28.3 1/2 Operating profit2 1,004 357 238 231 0 1,830 7/1 1/3 + Net capital gains3 467 172 345 0 -261 723 1/4 - Net impairments -22
Slide 106: Disclosure of P/C-Holding activities: increase transparency
Disclosure of P/C-Holding activities: increase transparency Why introduce a Holding disclosure? Actions taken At present, P/C segment contains Separation of P/C-Holding activities1 from revenues and expenses from operational P/C business2 numerous entities dealing with finance, investment and ma
Slide 107: P/C-Holding activities: summary
P/C-Holding activities: summary (EUR m) P/C-Holding # 3M 05 Ref Majority of activities adjustments from P/C 3/1 Net income (loss) of -254 4/9 Holding activities Comprising: 3/2 Interest on debt -341 3/3 F/X losses -87 7/5 3/4 Group Center -121 7/6 expenses see 3/5 Net investment income +77 foot- not
Slide 108: P/C-Holding activities: overview
P/C-Holding activities: overview (EUR m) Asset Con- # 3M 05 P/C L/H Banking Mgmt. solidation1 Group Ref Combined ratio: Holding - 3M 05: 92.1% Insurance activities1 - Separating Holding activities: 91.3% 4/1 Operating profit 1,250 -272 383 238 231 0 1,830 6/1 1/3 & 4/2 + Net capital gains 388 88 172
Slide 109: Details
Allianz (il) Details
Slide 110: P/C-Holding activities: overview separating Holding activities
P/C-Holding activities: overview separating Holding activities (EUR m) Asset Con- # 3M 05 P/C L/H Banking Mgmt. solidation Group Ref Holding Insurance activities Separating Holding activities: 6/1 Operating profit 1,250 -272 383 238 231 0 1,830 7/9 6/2 Non-operating profit 426 -162 161 342 -165 -344
Slide 111: P/C-Holding activities: operating profit
P/C-Holding activities: operating profit (EUR m) Asset Con- # 3M 05 P/C L/H Banking Mgmt. solidation Group Ref Holding Insurance activities 7/1 Operating profit as 1,004 -- 357 238 231 0 1,830 1/2 stated Adjustments: 7/2 Premium L/H reins. -24 0 +24 0 0 0 0 10/1 7/3 Divid. & ins. benefits +56 -37 -2
Slide 112: P/C-Holding activities: non-operating profit
P/C-Holding activities: non-operating profit (EUR m) Asset Con- # 3M 05 P/C L/H Banking Mgmt. solidation Group Ref Holding Insurance activities 8/1 Non-operating profit 334 -- 163 342 -165 -416 258 1/6 as stated Adjustments: 8/2 Interest on external +246 -246 0 0 0 0 0 debt 8/3 Net impairments +42 -
Slide 113: P/C-Holding activities: taxes & minorities
P/C-Holding activities: taxes & minorities (EUR m) Asset Con- # 3M 05 P/C L/H Banking Mgmt. solidation Group Ref Holding Insurance activities 9/1 Taxes & minorities as -585 -- -194 -105 -38 18 -904 1/10 stated Adjustments: 9/2 Taxes -170 +180 -10 0 0 0 0 10/11 9/3 Minorities -10 0 0 0 0 +10 0 10/12
Slide 114: P/C-Holding activities: movement analysis
P/C-Holding activities: movement analysis (EUR m) P/C-Hold. Con- # 3M 05 L/H P/C Ref activities solidation1 1 10/1 Net premiums earned +24 -24 0 0 7/2 10/2 Current invest. income +27 -22 +68 -73 7/7 10/3 Divid. & ins. benefits -21 +56 -37 +2 7/3 Transfer of L/H Transfer of 10/4 Acq. & admin. costs -
Slide 115: C. Appendix
Allianz (il) C. Appendix
Slide 116: Investor Relations contacts
C. Appendix Investor Relations contacts Oliver Schmidt Tel. +49 (0) 89 3800-3963 Holger Klotz Tel. +49 (0) 89 3800-18124 Head of e-mail: e-mail: Investor Relations oliver.schmidt@allianz.com holger.klotz@allianz.com Susanne Arheit Tel. +49 (0) 89 3800-3324 Christian Tel. +49 (0) 89 3800-3892 Lamprec
Slide 117: Disclaimer
C. 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