Management Board report on Agenda Item 10

The Management Board is currently authorized by resolution of the Annual General Meeting on May 4, 2022, under Agenda Item 10, with the approval of the Supervisory Board, to issue, either once or several times until May 3, 2027, bearer or registered convertible bonds and bonds with warrants, profit participation rights, and hybrid instruments without conversion and warrant rights or conversion obligations, with or without definite maturity, with a nominal value of up to EUR 15,000,000,000. In certain cases, the Management Board is authorized to exclude shareholders’ subscription rights with the approval of the Supervisory Board. 

The Management Board has made use of this authorization by issuing hybrid instruments without definite maturity to create own-fund items in accordance with insurance regulatory requirements, with a nominal value of USD 1,250,000,000 on August 26, 2025. The issue of these hybrid instruments served to repay hybrid instruments in the same nominal amount that the Company issued in 2020. Otherwise, no use has been made of the authorization to date. In particular, it has not been used to issue convertible bonds or bonds with warrants. Allianz SE currently has no outstanding financial instruments that provide for conversion or warrant rights or conversion obligations.

In order to continue to be able to issue financial instruments, a new authorization is to be resolved and the existing authorization, insofar as it has not been used, is to be canceled. The new authorization covers the following instruments in total: 

• Convertible bonds, bonds with warrants, and convertible profit participation rights with or without definite maturity, each including subordinated bonds or subordinated convertible profit participation rights (hereinafter also collectively referred to as “convertible bonds and bonds with warrants”);
• Profit participation rights without conversion or warrant rights or conversion obligations, which are issued to create own-fund items in accordance with insurance regulatory requirements, including subordinated profit participation rights (hereinafter also referred to as “profit participation rights”); and 
• Subordinated bonds without conversion or warrant rights or conversion obligations, with or without definite maturity, which are issued to create own-fund items in accordance with insurance regulatory requirements, insofar as their issuance requires the approval of the General Meeting pursuant to § 221 AktG due to, for example, profit-based interest payments, the structure of loss participation or for other reasons (these instruments are hereinafter also referred to as “hybrid instruments” and, together with convertible bonds and bonds with warrants as well as profit participation rights, as “financial instruments”). 

The authorization is proposed because Allianz SE must be able to act quickly and flexibly in the interests of its shareholders at all times. The Management Board therefore considers it its duty to ensure that the Company is always in a position to issue the necessary financial instruments, regardless of specific plans for utilization. The authorization to issue profit participation rights and hybrid instruments also enables long-term planning, particularly with regard to the repayment and replacement of hybrid instruments already issued with newly issued profit participation rights or hybrid instruments. These financial instruments are recognized under insurance supervisory law as own-fund items and are therefore of particular importance to the Company. 

In view of the five-year term of the authorization and the inclusion of profit participation rights and hybrid instruments without conversion or warrant rights or conversion obligations, it seems appropriate to leave the permissible issue volume in the new authorization at EUR 15,000,000,000. The authorization provides that the holders of convertible bonds and bonds with warrants shall be granted conversion or warrant rights or conversion obligations to shares of the Company with a proportionate amount of the share capital of up to EUR 116,992,000 – this corresponds to 10% of the share capital of EUR 1,169,920,000 at the time of this authorization. The number of shares required to fulfill conversion or warrant rights or conversion obligations arising from convertible bonds and bonds with warrants with a specific issue volume depends on the stock market price of Allianz shares at the time of issue of the respective instrument or in the period immediately prior to conversion. 

New conditional capital (Conditional Capital 2026) is to be created to service conversion or warrant rights or conversion obligations of holders of convertible bonds and bonds with warrants issued on the basis of the authorization to be resolved under Agenda Item 10. Allianz SE’s Conditional Capital 2022 (§ 6 of the Statutes) in the amount of EUR 116,992,000 has not been used to date. The Conditional Capital 2022 is to be canceled when the new Conditional Capital 2026 takes effect.

Apart from the authorizations to be canceled under Agenda Items 9 and 10, Allianz SE currently has no further authorizations to increase its share capital.

The sum of (i) the shares to be issued to service conversion or warrant rights or conversion obligations arising from financial instruments issued under this authorization and (ii) the shares issued from the Authorized Capital 2026 during the term of this authorization may not exceed a proportionate amount of the share capital of EUR 467,968,000 – this corresponds to 40% of the share capital of EUR 1,169,920,000 at the time of this authorization.

Adequate capitalization is an essential basis for the development of the Company. By issuing convertible bonds or bonds with warrants, the Company can raise capital at a low interest rate. By issuing convertible bonds or bonds with warrants in the form of convertible profit participation rights, the interest rate can also be based on the Company’s current dividend, for example. The conversion and warrant premiums generated benefit the Company. The possibility of effecting a conversion at a conversion price based on the stock market price of Allianz shares in a period prior to or at the time of conversion through a mandatory exchange gives the Company security with regard to the conversion of convertible bonds and convertible profit participation rights into equity. 

Regulatory own-fund items are particularly important for insurance companies. The European own-fund requirements for insurance and reinsurance companies pursuant to Directive 2009/138 EC of November 25, 2009 (as amended) (hereinafter referred to as the “Solvency II Directive”) require adequate capital resources. Delegated Regulation (EU) 2015/35 of October 10, 2014 (as amended) supplementing the Solvency II Directive contains detailed requirements for the recognition of subordinated financial instruments that may be issued to create own-fund items to cover regulatory capital requirements. Profit participation rights and hybrid instruments issued to strengthen Tier 1 own funds, which do not grant or impose conversion or warrant rights or conversion obligations provide for a write-down or other loss participation in the event of a crisis. From a regulatory perspective, the write-down or other loss participation results in a qualitative strengthening of own funds, which is also in the interests of shareholders in the event of a crisis in order to avert other, more drastic measures as far as possible. 

Profit participation rights and hybrid instruments are already part of the Company’s capital base prior to a write-down or the implementation of another loss participation measure provided for in the terms and conditions, as they can constitute (regulatory) own funds. It is in the Company’s interest to have the necessary flexibility to issue such instruments for effective capital management and to meet regulatory own-fund requirements.

When issuing financial instruments that require the approval of the General Meeting pursuant to § 221 AktG, shareholders shall generally be granted subscription rights. However, the Management Board shall also be authorized, in particular in the cases specified in the authorization under Agenda Item 10, to exclude shareholders’ subscription rights to the financial instruments with the approval of the Supervisory Board.

In corresponding application of § 186 (3) sentence 4 AktG, the Management Board shall be authorized to exclude shareholders' subscription rights with the approval of the Supervisory Board when issuing convertible bonds and bonds with warrants against cash payment, provided that the issue price of the convertible bonds and bonds with warrants is not significantly below their market value as determined by recognized methods, in particular financial mathematical methods. This may be appropriate in order to quickly take advantage of favorable capital market windows and to be able to place convertible bonds and bonds with warrants on the market quickly and flexibly at attractive terms. Achieving the most favorable issue result depends, particularly in volatile markets, on the ability to react quickly. Market-oriented terms can generally only be set if the Company is not bound to them for an extended period of time. In the case of issues with subscription rights, a considerable discount is required due to the longer offering period. § 186 (2) AktG allows the subscription price (and, in the case of convertible bonds and bonds with warrants, the terms of these financial instruments) to be published up to the third-to-last day of the subscription period. However, given the volatility of the financial markets, there is still a market risk over several days, which leads to discounts when determining the terms and conditions of convertible bonds and bonds with warrants and thus to terms and conditions that are not in line with market conditions. Furthermore, due to the uncertainty of subscription behavior, alternative placement with third parties is difficult and involves additional expense. Finally, if subscription rights are granted, the Company cannot react quickly to changes in market conditions due to the length of the subscription period. 

The interests of shareholders are protected by ensuring that the convertible bonds and bonds with warrants are not issued significantly below market value. The market value is to be determined using recognized methods, in particular financial mathematical methods. When setting the price, the Management Board will keep the discount on the market value of the convertible bonds and bonds with warrants as low as possible, taking into account the respective situation on the capital market. This means that the calculated value of a subscription right will be practically zero, so that shareholders will not suffer any significant economic disadvantage as a result of the exclusion of subscription rights. 

Market-driven terms can be set, thereby avoiding any significant dilution of value, by the Management Board conducting a bookbuilding process when placing the convertible bonds and bonds with warrants. In this process, investors submit their purchase orders based on the preliminary terms and conditions of the convertible bonds and bonds with warrants, specifying their respective minimum returns and, if applicable, other economic components. The bookbuilding process takes place within the framework of a standard market auction procedure for bonds, which leads to a market-driven price setting on the day of placement. After the bookbuilding period ends, the terms that are still open at that point, i.e., the interest rate and, if applicable, other economic components, are determined in line with market conditions based on supply and demand on the basis of the purchase orders submitted by investors. In this way, the issue price of the convertible bonds and bonds with warrants is determined in line with market conditions. This bookbuilding process enables the Management Board to ensure that the exclusion of subscription rights does not result in a significant dilution of the value of the shares.

The authorization to exclude shareholders’ subscription rights pursuant to § 186 (3) sentence 4 AktG applies only to convertible bonds and bonds with warrants that carry rights to receive shares representing a proportionate amount of the share capital not exceeding 10% of the share capital, neither at the time this authorization takes effect nor – if this value is lower – at the time this authorization is exercised. This ensures that the total scope of the exclusion of shareholders’ subscription rights is limited.

This limit shall include shares of the Company (i) that are sold during the term of this authorization with the exclusion of shareholders’ subscription rights in corresponding application of § 186 (3) sentence 4 AktG, and (ii) that are issued during the term of this authorization from authorized capital with the exclusion of shareholders’ subscription rights in corresponding application of § 186 (3) sentence 4 AktG. This offsetting is done in the interest of shareholders to minimize the dilution of their holdings.

Insofar as profit participation rights or hybrid instruments without conversion or warrant rights or conversion obligations are issued against cash, the Management Board shall also be authorized, with the approval of the Supervisory Board, to generally exclude shareholders’ subscription rights if these profit participation rights or hybrid instruments do not confer voting rights or other membership rights in Allianz SE. In this case, too, the interests of shareholders are protected by ensuring that the issue price does not fall significantly below the market value determined using recognized methods, in particular financial mathematical methods. The issue price may be determined by means of the bookbuilding process described above in order to avoid any significant economic disadvantage resulting from the exclusion of shareholders’ subscription rights.

The issue of profit participation rights and hybrid instruments without conversion or warrant rights or conversion obligations does not result in any change in the shareholding structure or in voting rights. For the purchaser, participation in the Company is not the primary focus, especially since these profit participation rights and hybrid instruments do not confer any share in the Company’s increase in value. However, these instruments provide for loss participation and/or other features similar to equity. This risk is taken into account by an increased coupon payment, which may lead to a reduction in the Company’s dividend capacity. 

The exclusion of shareholders’ subscription rights is necessary when issuing profit participation rights and hybrid instruments without conversion or warrant rights or conversion obligations in order to maintain the flexibility for the Company to issue such profit participation rights and hybrid instruments as quickly as possible. This may be particularly useful for the short-term fulfillment of regulatory own-fund requirements, to take advantage of favorable capital market windows, or for optimal timing in the event of refinancing. A delay can lead to considerable financial disadvantages for the Company. As a rule, the Company can therefore carry out a needs-based issuance of the instruments only if shareholders’ subscription rights are excluded.

In addition, § 186 (3) sentence 4 AktG generally provides that shareholders’ subscription rights may be excluded, among other things, “if the capital increase against cash contributions does not exceed twenty percent of the share capital and the issue price is not significantly lower than the stock market price.” Even though the provision of § 186 (3) sentence 4 AktG on the simplified exclusion of shareholders’ subscription rights does not apply directly to issues of profit participation rights and hybrid instruments without conversion or warrant rights or conversion obligations, it can nevertheless be concluded from this provision that market requirements may justify the exclusion of subscription rights if the type of pricing, which ensures that the economic value of a subscription right would be close to zero, would result in no or only an insignificant disadvantage for shareholders. Since the proposed authorization ensures that the issue price does not fall significantly below the market value determined using recognized methods, in particular financial mathematical methods, shareholder interests are not affected or are affected as little as possible.

The Management Board is also authorized, with the approval of the Supervisory Board, to exclude fractional amounts from shareholders’ subscription rights. Such fractional amounts may result from the amount of the respective issue volume and the respective denomination of the financial instruments and the presentation of a practicable subscription ratio. In such cases, the exclusion of shareholders’ subscription rights facilitates the execution of the capital measure.

Furthermore, the Management Board shall be given the option, with the approval of the Supervisory Board, to exclude shareholders’ subscription rights in order to grant the holders of convertible bonds and bonds with warrants already issued by the Company or its Group companies subscription rights to the extent to which they would be entitled after exercising their conversion or warrant rights or after fulfilling their conversion obligations, if this is provided for in the terms and conditions of the respective convertible bonds and bonds with warrants. The holders of convertible bonds and bonds with warrants already issued are thus treated as if they were already shareholders. This offers the possibility of granting subscription rights as dilution protection instead of reducing the conversion or exercise price of the warrant. It is standard market practice to provide convertible bonds and bonds with warrants with such dilution protection. In order to be able to grant subscription rights as dilution protection to the holders of previously issued convertible bonds and bonds with warrants, the subscription rights of shareholders to the new convertible bonds and bonds with warrants used for this purpose must be excluded. This can be economically advantageous for the Company.

Financial instruments may also be issued against contributions in kind, provided this is in the interests of the Company. In this case, the Management Board shall be authorized, with the approval of the Supervisory Board, to exclude shareholders’ subscription rights, provided that the value of the contribution in kind is reasonable in relation to the market value of the financial instruments, which shall be determined using recognized methods, in particular financial mathematical methods. This opens up the possibility of using financial instruments as acquisition currency in appropriate individual cases, for example in the context of business combinations or in connection with the (also indirect) acquisition of companies, parts of companies, investments, or other assets, or of claims to the acquisition of assets or of receivables against the Company or its Group companies. The ability to offer financial instruments as consideration thus creates a competitive advantage in the pursuit of attractive acquisition targets and provides the necessary flexibility to take advantage of opportunities to acquire companies, company interests, or other assets in a manner that preserves liquidity. This can also be useful from the perspective of an optimal financing structure. Furthermore, it opens up the possibility of repurchasing existing financial instruments in exchange for the issue of new financial instruments, for example to enable the replacement of existing financial instruments if this is necessary in view of changing insurance regulatory requirements or makes economic sense for other reasons. The Management Board will carefully consider in each individual case whether to make use of the authorization to issue financial instruments against contributions in kind with the exclusion of shareholders’ subscription rights. It will only do so if this is in the interests of the Company and thus its shareholders.

The sum of (i) the shares to be issued under convertible bonds and bonds with warrants, which are issued under this authorization with the exclusion of shareholders’ subscription rights, and (ii) the shares issued during the term of this authorization from Authorized Capital 2026 with the exclusion of shareholders’ subscription rights may not exceed a proportionate amount of the share capital of EUR 116,992,000 – this corresponds to 10% of the share capital of EUR 1,169,920,000 at the time of this authorization. 

These restrictions ensure that the exclusion of subscription rights is limited overall, thus limiting the potential dilution of shareholders who are excluded from subscription rights through the use of these authorizations.

The Management Board will report on the use of the authorization to issue financial instruments at each subsequent General Meeting.

The creation of Conditional Capital 2026 serves to service the conversion or warrant rights or conversion obligations granted or imposed under convertible bonds and bonds with warrants. The conversion or warrant rights or conversion obligations may also be serviced in other ways, for example, by delivering treasury shares or shares from authorized capital.