Allianz Group: Fiscal 2001

The Allianz Group has completed the decisive steps necessary for integration of Dresdner Bank and is now operatively implementing the concept of the integrated financial services provider. “I am very satisfied with the progress of our integration work to date. We are well on schedule and I firmly believe that we will attain our goals for each year between 2002 and 2006”, said Chairman of the Board of Management, Dr. Henning Schulte-Noelle, at the Financial Press Conference in Munich. The company wants to continue expanding its leading position in life insurance and old-age provision business. The industrial insurance business, which has been making losses for some years, is to be turned around and the internationalization of the Group is to continue. The fiscal year 2001 was negatively impacted by the consequences of September 11 and the weak capital markets, and closed with net income of 1.6 billion euros. “2001 was an extremely difficult year,” said Schulte-Noelle. In the current year, the company intends to return to the continuous growth of previous years and to achieve earnings in excess of 3 billion euros.

In the fiscal year 2001, the Allianz Group generated net income of 1.6 billion euros. The effects of the terrorist attacks in the USA influenced the result with net claims expenses of 1.5 billion euros. Earnings per share fell back to 6.66 euros. The Board of Management of Allianz AG will propose a dividend unchanged from the previous year of 1.50 euros per share to the Annual General Meeting.
Total gross premium income for the insurance business at the Allianz Group increased by 9.4 percent from 68.7 to 75.1 billion euros by comparison with the previous year. This significantly exceeded the 5 percent growth originally projected. The spurt in growth mainly came from property and casualty insurance. Under IAS rules, which do not recognize sales from investment-oriented life-insurance products as premium income, there was an increase of 6.4 percent from 57.9 to 61.6 billion euros. Net revenues in the banking business, meaning the sum of net interest income and net fee and commission income as well as net trading income, came to 3.9 billion euros. The numbers of Dresdner Bank have been consolidated in the financial statements of the Allianz Group since July 23, 2001.

In property and casualty insurance premium income rose by 9.8 percent from 38.4 to 42.1 billion euros. Positive premium developments in automotive insurance especially in Germany, Great Britain, Spain and France, but also in industrial and corporate client business contributed to this rise. Disregarding claims payments arising from the September 11 attack, the loss ratio improved by 1.2 percentage points to 76.7 percent. Including these expenses, the loss ratio went up by 3.2 percentage points to 81.1 percent. Net income for the year grew by 6.2 percent to 2.4 billion euros, compared with the value for the previous year adjusted for special tax factors.

In life and health insurance, sales of the Allianz Group increased by 8.6 percent to 33.7 billion euros. More than 40 percent of this business was generated from investment-oriented products primarily unit-linked life insurance in Italy, France, and the USA. Despite the poor conditions in the capital markets, sales of these products could be accelerated by 26 percent. Allianz started the first year of the pension reform with success. By the close of the year around 323,000 so called “Riester” pension products will have been sold in the area of private and corporate pension provision, securing a market share of more than 20 percent.

Investment earnings in the life and health insurance segment were adversely affected by weak capital markets and fell by 5.5 to 8.6 billion euros. Net income thus came out 63 percent lower than in the previous year at 229 million euros.

The new segment banking is primarily determined by the performance of Dresdner Bank. Like all banks, Dresdner Bank was also affected by an extraordinarily difficult financial year. Overall, banking business in 2001 closed with a loss of 220 million euros. Loan loss allowance had to be increased significantly on account of the weak economy. The restructuring measures implemented are already beginning to have an effect, but their success will only be evident in figures for the fiscal year 2002.

Assets under management at the Allianz Group have increased since the end of 2000 by 700 billion to 1.172 billion euros. The newly consolidated Dresdner Bank contributed 414 billion euros. Assets under management for third parties amounted to 620 billion euros and made up slightly more than half of the total volume. Earnings after taxes for the segment came out negative at 348 million euros, reflecting expenses totaling 647 million euros related to acquisitions. This includes amortization of goodwill and loyalty bonuses in particular for the management of the PIMCO Group that were agreed as part of the purchase price. Minority interests in earnings amounted to 182 million euros, with PacLife, which has a 30 percent shareholding in the PIMCO Group, receiving the lion’s share.

The number of employees in the Group rose by 60,263 to 179,946. This growth was mainly due to integration of the Dresdner Bank Group.

Allianz forecasts that the Group will be able to again achieve the continual growth of previous years during the current fiscal 2002. An increase of at least 4 percent is anticipated in total premium income based on exchange rates for the year 2001. The Board of Management expects net income for the year to increase to more than 3 billion euros. These estimates are as usual subject to the disclaimer below.

In the coming years, Allianz intends to increase market capitalization significantly. The company has defined five strategic priorities, which form the focus for managing our operations and for developing the Group.

1. Optimizing value added

Restructuring Dresdner Bank is well under way. The eight-point program that is currently being implemented focuses on the two pillars “Corporates & Markets” and “Private & Business Clients”. This program and the synergies derived from integration with Allianz will pay off. The cost-cutting measures implemented will also strengthen the bank’s competitiveness on the cost side.

The industrial insurance business, which has been making losses for some years, is to be brought back on to track with risk commensurate premiums. Allianz Global Risks will manage it in future. The overall property and casualty business is working towards reducing the combined ratio (ratio of claims and expenses to earned premiums) to under 100 percent within the next three years. Adjusted for the loss from September 11 the combined ratio was 104.4 percent at the close of the fiscal year 2001 (previous year: 104.9 percent). “The insurance business must return to being the engine for income at Allianz”, said Schulte-Noelle.

Allianz intends to withdraw from markets that do not offer satisfactory opportunities for income over the medium term. As a result, insurance operations in Scandinavia and South Africa were sold in 2001.

2. Exploiting opportunities in strong growth markets

Allianz is already the second largest foreign insurer in the growth markets of Asia, Latin America and Central and Eastern Europe. It is intended to continue driving forward internationalization in order to use global opportunities for growth. The goal is to have competitive market positions in the markets where the Group is operational, with a ranking among the first five providers. The company sees particularly strong growth opportunities in China and India. It is already the number one foreign insurer in Central and Eastern Europe

3. Expansion of the leading position in life and health insurance, and in asset management, with particular focus on private and company retirement provision

With the sale of around 430,000 Riester pension contracts to date, Allianz has achieved market leader status from the start on. During the current year Allianz is expecting to sell a total of 1.3 million Riester contracts, with a strong demand anticipated in the second half of the year. In the unit-linked life insurance business, the company is anticipating additional impulses from the fact that these products can now be combined with a larger number of in house asset management products. Allianz also has a leading position in the segment of company pension provision. Schulte-Noelle indicated that he was confident that talks currently underway with various companies would lead to further contracts being concluded.

4. Increase in asset-gathering capabilities from the building of client-oriented, multi-channel business models

The acquisition of Dresdner Bank by Allianz is a specific response to developments in the German market. So far more than 840 insurance experts have taken up work in bank branches and around 300 investment consultants have moved into positions in the insurance agencies. With these steps and the online offering of Advance Bank as well as the network of financial planners currently under development (it has grown to 420 consultants to date) the Group in an excellent position. Sales strength is also being expanded abroad. In the meantime Allianz cooperates with almost 30 financial institutions as sales partners worldwide.

5. Expanding and consolidating our investment and capital markets expertise

As one of the world’s biggest institutional investors, the Allianz Group is continually expanding its capital markets expertise. The investment-banking expertise of Dresdner Bank makes a decisive contribution to this. “We are therefore extremely pleased that Dresdner Kleinwort Wasserstein now provides a unit with specialist expertise in the Allianz Group,” comments Schulte-Noelle. There is considerable potential for providing product innovations for institutional clients by bundling knowledge. Schulte-Noelle cited the example of agency lending. This is currently being built up at Dresdner Kleinwort Wasserstein in London. The business will be based on securities portfolios held within the Allianz Group.

The private equity units across the Group have now been integrated under a single roof. A newly established holding company will integrate all activities of Allianz and Dresdner Bank in this field and coordinate the investment process. With a total volume of 6.5 billion euros, the Allianz Group is one of the biggest insurance companies in this market.

Allianz boss Schulte-Noelle indicated he was very satisfied with progress on the integration of Dresdner Bank. All schedule and synergy goals had been implemented in concrete terms within the business plans of Allianz and Dresdner Bank. In the course of the current year, the integration functions would be transferred successively to line responsibility, that is to the responsible managers for operations.

Even though statistics on synergies for 2002 cannot be provided until next year: “I am confident that we are right on schedule in achieving our planned synergies for the year 2002,” explained Schulte-Noelle. More than 80 percent of the anticipated synergies amounting to 290 million euros for the year 2002 are cost synergies. In this area, integration is progressing well. "Cost synergies for the year 2002 and the downward trend for restructuring costs will lead to a significant improvement on the cost side over the coming years."

Clients have accepted the model of the integrated financial services provider. At Dresdner Bank alone, more than 100,000 clients have already received advice from Allianz experts. During the first quarter of 2002, the group sold four times more life insurance policies (24,000) through banking branches than via this sales channel during the previous year. Around 16 percent of all Riester contracts were sold through the bank. In the field of fund-linked annuity insurance the figure even exceeded 50 percent. More than 6,500 insurance policies were sold during the first three months of 2002 and this means that property insurance began the year well right from the start.

Risks for the success of the new business model are the wait-and-see approach of clients who are initially holding back on purchasing Riester pension products until they see what company solutions their employer will be offering by the end of June. The situation in the securities markets presents another risk. If the sentiment of the bear market persists, our successes in managed funds and securities business will be cut back.

However, according to Schulte-Noelle product innovation and high-quality service will overcome the prevailing risks. The Allianz Dresdner Fund Policy is a fund-linked annuity insurance which he cited as an example for the interplay of banking and insurance know-how. It links funds of Allianz Dresdner Asset Management with an insurance solution from Allianz Leben and is sold through Dresdner Bank. The dit Euro Bond Total Return was also highlighted as a product which had come into being as a result of cooperation within the Allianz Group and offered a lot of scope for success. The fund has been set up by dit as a European variant of the Pimco Total Return Fund, one of the most successful mutual funds in the USA.

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 business and 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) interest rate levels, (vii) currency exchange rates including the Euro – U.S. dollar exchange rate, (viii) changing levels of competition, (ix) changes in laws and regulations, including monetary convergence and the European Monetary Union, (x) changes in the policies of central banks and/or foreign governments, (xi) the impact of our acquisition of Dresdner Bank, including related integration issues, and (xii) general competitive factors, in each case on a local, regional, national and / or global basis. The matters discussed in this release may also involve risks and uncertainties described from time to time in Allianz AG’s filings with the U.S. Securities and Exchange Commission. Allianz AG assumes no obligation to update any forward-looking information contained in this release.