Interim Report Second Quarter and First Half of 2006
Table of Contents

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


Form 6-K

Report of Foreign Private Issuer

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

the Securities Exchange Act of 1934

 


for the period ended June 30, 2006

Commission file Number: 1-15154

 


ALLIANZ AKTIENGESELLSCHAFT

Königinstrasse 28

80802 Munich

Germany

(Address of principal executive offices)

 


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

Form 20-F  x                Form 40-F  ¨

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

Yes  ¨                No  x

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ALLIANZ AKTIENGESELLSCHAFT AND TO BE A PART THEREOF FROM THE DATE ON WHICH THIS REPORT IS FURNISHED, TO THE EXTENT NOT SUPERSEDED BY DOCUMENTS OR REPORTS SUBSEQUENTLY FILED OR FURNISHED.

 



Table of Contents

Interim Report Second Quarter and First Half of 2006

Allianz Group

  

 

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Table of Contents

Contents

 

4

  

Group Management Report

4

  

Executive Summary

10

  

Property-Casualty Insurance Operations

16

  

Life/Health Insurance Operations

22

  

Banking Operations

26

  

Asset Management Operations

30

  

Outlook

32

  

Consolidated Financial Statements for the Second Quarter and First Half of 2006

37

  

Notes to the Consolidated Financial Statements

Investor Relations

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

Allianz AG

Investor Relations

Koeniginstrasse 28

80802 Munich

Germany

 

Investor Line:

   +49 1802 2554269
   +49 1802 ALLIANZ

Fax:

   +49 89 3800 3899

E-Mail:

   investor.relations@allianz.com

Internet:

  

www.allianz.com/investor-relations

Other Reports

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

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Moderate share price development despite strong business performance.

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

January 1, 2005 – June 30, 2006

in €

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

Allianz Share Information

 

Share type:

   Registered share with restricted transfer

Denomination:

   No-par-value share

Stock exchanges:

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

Security codes:

   WKN 840 400
  

ISIN DE 000 840 400 5

Bloomberg:

   ALV GY

Reuters:

   ALVG.DE

Financial Calendar 2006/2007

Important dates for shareholders and analysts

 

November 10, 2006

   Interim report first three quarters of 2006

February 22, 2007

   Financial press conference for the 2006 fiscal year

February 23, 2007

   Analysts’ conference for the 2006 fiscal year

May 2, 2007

   Annual General Meeting

May 11, 2007

   Interim report first quarter of 2007

August 10, 2007

   Interim report first half of 2007

November 14, 2007

   Interim report first three quarters of 2007

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

 

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Table of Contents

Allianz Group Selected Consolidated Financial Data

 

          June 30,
2006
   December 31,
2005
   Change
%
 

Balance Sheet

           

Investments

    mn    281,331    285,015    (1.3 )

Loans and advances to banks and customers

   mn    393,970    336,808    17.0  

Total assets

   mn    1,022,672    988,584    3.4  

Liabilities to banks and customers

   mn    349,485    310,316    12.6  

Reserves for loss and loss adjustment expenses

   mn    65,702    67,005    (1.9 )

Reserves for insurance and investment contracts

   mn    279,849    278,829    0.4  

Shareholders’ equity

   mn    40,323    39,487    2.1  

Minority interests

   mn    7,006    7,615    (8.0 )
                   

 

         

Three months

ended June 30,

   

Change

%

    Six months ended
June 30,
   

Change

%

 
          2006     2005       2006    2005    

Income Statement

                

Total revenues1)

    mn    24,067     23,693     1.6     53,708    51,955     3.4  

Operating profit

   mn    2,794     2,346     19.1     5,471    4,233     29.2  

Income before income taxes and minority interests in earnings

   mn    2,992     2,134     40.2     6,023    4,389     37.2  

Net income

   mn    2,279     1,390     64.0     4,058    2,714     49.5  
                                          

Segments

                

Property-Casualty

                

Operating profit

   mn    1,845     1,650     11.8     3,231    2, 864     12.8  

Loss ratio

     %    65.1     65.5     (0.4)pts     65.6    65.8     (0.2)pts  

Expense ratio

     %    26.8     26.6     0.2pts     27.7    27.2     0.5pts  

Combined ratio

     %    91.9     92.1     (0.2)pts     93.3    93.0     0.3pts  

Life/Health

                

Operating profit

   mn    527     472     11.7     1,250    989     26.4  

Statutory expense ratio

     %    9.9     8.9     1.0pts     9.0    7.9     1.1pts  

Banking (Dresdner Bank)

                

Operating profit

   mn    319     205     55.6     848    414     104.8  

Cost-income ratio

     %    81.0     88.6     (7.6)pts     77.2    84.4     (7.2)pts  

Loan loss provisions

   mn    (5 )   54     —       28    (46 )   —    

Coverage ratio at June 302)

     %    58.5     62.1     (3.6)pts     58.5    62.1     (3.6)pts  

Asset Management

                

(Allianz Global Investors)

                

Operating profit

   mn    295     249     18.5     595    478     24.5  

Cost-income ratio

     %    58.9     60.7     (1.8)pts     59.0    59.8     (0.8)pts  

Third-party assets under management at June 30

   bn    721     7433 )   (3.0 )   721    7433 )   (3.0 )
                                          

Share Information

                

Basic earnings per share

        5.62     3.61     55.7     10.02    7.11     40.9  

Diluted earnings per share

        5.51     3.59     53.5     9.83    7.06     39.2  

Share price at June 30

        123.52     127.943 )   (3.5 )   123.52    127.943 )   (3.5 )

Market capitalization at June 30

   bn    50.2     51.93 )   (3.3 )   50.2    51.93 )   (3.3 )
                                          

1) Total revenues comprise Property-Casualty segment’s gross premiums written, Life/Health segment’s statutory premiums, Banking segment’s operating revenues and Asset Management segment’s operating revenues.
2) Represents total loan loss allowances as a percentage of total non-performing loans and potential problem loans.
3) At December 31, 2005.

Allianz AG Ratings at June 30, 20061)

 

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

Insurer financial strength

   AA-     Aa3    A+  

Outlook

   Positive     Stable    Stable  

Counterparty credit

   AA-     Not    aa-2 )

Outlook

   Positive     rated    Stable  

Senior unsecured debt

   AA-     Aa3    aa-  

Outlook

     Stable    Stable  

Subordinated debt

   A/A-3 )   A2    a+/a3 )

Outlook

     Stable    Stable  

Commercial paper
(short term)

Outlook

   A-1+

 

 

  P-1
Stable
   Not
rated
 
 

1) Includes ratings for securities issued by Allianz Finance B.V., Allianz Finance II B.V. and Allianz Finance Corporation.
2) Issuer credit rating.
3) Ratings vary on the basis of maturity period and terms.

 

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Table of Contents

Executive Summary

Momentum sustained in the second quarter.

 

    Strong operating profit of €2.8 billion (+19.1% from a year ago) with all segments continuing to improve.

 

    Combined ratio of 91.9% in Property-Casualty.

 

    Double-digit growth of Life/Health operating profit, despite dip in sales.

 

    Dresdner Bank grows operating revenues and operating profit dynamically.

 

    Asset Management delivered seventh consecutive quarter of double-digit operating profit growth year-over-year.

 

    Strong net income of €2.3 billion (+64.0%), after restructuring charges for our German insurance operations.

 

    Full year outlook: Operating profit above €9.0 billion, net income between €5.5 billion and €6.0 billion.1)

 

Total Revenues2)

in € bn

 

Net Income

in € mn

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Operating Profit

in € mn

 

Shareholders’ Equity

in € mn

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1) However, as always, natural catastrophes and adverse developments in the capital markets, as well as the factors stated in our Outlook in the cautionary note regarding forward-looking statements, may severely impact our profitability.
2) Total revenues comprise Property-Casualty segment’s gross premiums written, Life/Health segment’s statutory premiums, Banking segment’s operating revenues and Asset Management segment’s operating revenues.

 

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Table of Contents

Allianz Group’s Consolidated Results of Operations

Total Revenues1)

Our total revenues were €24.1 billion in 2Q 2006, up 1.6% from a year ago (1H 2006: year-over-year increase of 3.4% to €53.7 billion). In 2Q 2006, we experienced dynamic growth in operating revenues from our Banking and Asset Management segments, compared to the prior year period. Our Property-Casualty segment’s gross premiums written grew modestly and our Life/Health segment’s statutory premiums showed a slight decline. Internal total revenue growth year-over-year amounted to 1.7% in 2Q 2006 (1H 2006: 2.3%).

Total Revenues – Segments

in € mn

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Property-Casualty We continued our commitment to focus on profitability and remained diligent in our risk selection. In 2Q 2006, this translated into an internal growth in gross premiums written year-over-year of 1.2% (1H 2006: decline of 0.1%), which was accompanied by another quarter of very strong underwriting profitability.

Life/Health Statutory premiums decreased 1.2% in 2Q 2006 compared to the prior year period. This was the net effect of the dynamic growth in statutory premiums in Europe and Asia-Pacific, which could, however, not fully compensate the marked shortfall in the United States. The decline in the United States occurred after several years of substantial rise and as a result of regulatory uncertainty concerning equity-indexed annuity products. On an internal growth basis, statutory premiums were down 1.4% (1H 2006: up 1.7%).

Banking Our Banking segment successfully sustained its operating revenue momentum and experienced dynamic growth to €1.7 billion in 2Q 2006, up 22.4% from a year earlier. Internal growth was comparable at 22.8% (1H 2006: 18.2%). At Dresdner Bank, all revenue categories and operating divisions contributed to this positive development.


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

Asset Management In 1H 2006, we experienced net inflows of €15 billion and positive market effects of €3 billion, notwithstanding challenging market conditions. However, net inflows and positive market effects were more than offset by negative currency effects resulting in third-party assets of €721 billion at June 30, 2006. Strong net inflows throughout the previous quarters led to significant operating revenue growth year-over-year of 13.3% to €726 million in 2Q 2006. Internal growth was even higher at 16.0% (1H 2006: 19.3%).

Operating Profit

Operating profit improved significantly across all segments. Overall, growth compared to a year ago was 19.1% to €2.8 billion in 2Q 2006 (1H 2006: 29.2% year-over-year increase to €5.5 billion).

Operating Profit – Segments

in € mn

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Property-Casualty Operating profit grew markedly by 11.8% year-over-year to €1.8 billion in 2Q 2006, mainly as a result of favorable loss development and an increase in interest and similar income. Our combined ratio of 91.9% and 93.3% in 2Q and 1H 2006, respectively, (2Q 2005: 92.1%, 1H 2005: 93.0%) remained at a competitive level, despite claims from natural catastrophes of €109 million and €150 million, respectively, (2Q 2005: €– million, 1H 2005: €31 million) benefiting from our careful risk selection and the positive developments of claims from prior years.

Life/Health In 2Q 2006, we continued to substantially increase our operating profit by 11.7% compared to the prior year period. A higher investment result was the main driver behind this positive development, stemming from both an increased asset base due to the growth of the segment in recent years and from improved yields. Increased realized gains compensated for the restructuring charges related to our German organization.

 

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Table of Contents

Banking We experienced dynamic operating profit growth in 2Q and 1H 2006 compared to last year. Correspondingly, our Banking segment’s and Dresdner Bank’s cost-income ratio improved strongly. Non-revenue-linked personnel expenses in 2Q 2006 decreased from a year ago, excluding the positive one-off effect in 2Q 2005 stemming from the release of provisions for employment anniversary payments.

Asset Management We successfully achieved significant year-over-year operating profit growth in 2Q and 1H 2006. Similar to our operating revenue growth, our operating profit also benefited from strong net inflows to third-party assets throughout the previous quarters. As operating expenses increased at a much lower rate than operating revenues, our Asset Management segment’s cost-income ratio further improved above its already competitive level to 59.1% and 59.3% in 2Q and 1H 2006, respectively.

Non-Operating Items

In aggregate, non-operating items amounted to an income of €198 million in 2Q 2006, compared to a charge of €212 million a year ago, only contributing approximately 7% to our income before income taxes and minority interests in earnings. The improvement in non-operating items was despite a €404 million negative impact from restructuring charges related primarily to our German insurance operations – with another €118 million being part of operating profit, more than compensated by higher realized capital gains.

In 2Q 2006, significant realized gains stemmed from the sale of our shareholdings in Schering AG. Similarly, in 1Q 2006, we leveraged strong equity capital markets and generated already more than our initial capital gains target for 2006. Overall, non-operating income from realized gains/losses (net) and impairments of investments (net) was €1.3 billion in 2Q 2006 and €2.1 billion in 1H 2006.

The impact from restructuring charges on non-operating items rose to €404 million in 2Q 2006 and €408 million in 1H 2006 (from €78 million and €83 million a year ago). This was primarily a result of restructuring charges at Allianz Deutschland AG in 2Q 2006 in connection with the reorganization of our German insurance operations. This reorganization is intended to help us to improve our competitiveness and offer our customers better service, while operating more efficiently. The structural changes at our German insurance operations announced in detail on June 22, 2006, are in line with with our repositioning plan as announced in September 2005 and the objectives of our “3+One” program.

Interest expense from external debt, acquisition-related expenses from our Asset Management segment, and other non-operating items, in aggregate, were up to €694 million in 2Q 2006 and €1.1 billion in 1H 2006 (2Q 2005: €572 million, 1H 2005: €941 million).

Net Income

We achieved a 64.0% year-over-year growth in our net income, which reached €2.3 billion in 2Q 2006. Similarly, net income for 1H 2006 was €4.1 billion, a 49.5% increase over the prior year period.

Income tax expenses in 2Q 2006 were down slightly by €48 million from a year earlier, albeit on a substantially higher income before income taxes and minority interests in earnings, reflecting a lower effective income tax rate of 11.9% (2Q 2005: 18.9%). Our income taxes and effective income tax rate in 2Q 2006 benefited from the tax-exemption of the significant capital gain in connection with the sale of our shareholdings in Schering previously mentioned. In 1H 2006, income taxes were €1.3 billion, up €266 million from a year ago, with a reduced effective income tax rate of 20.8% (1H 2005: 22.6%). The smaller decrease in our effective income tax rate in 1H 2006 compared to that in 2Q 2006 stemmed principally from the favorable taxation of a large gain in 1Q 2005 from the sale of our shareholdings in Gecina S.A.

Minority interests in earnings remained rather stable at €356 million in 2Q 2006 and at €709 million in 1H 2006.

The following graph sets forth the development of our basic and diluted earnings per share.

Earnings per Share

in €

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

 

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Table of Contents

The following tables summarize the total revenues and operating profit for each of our segments for the three and six months ended June 30, 2006 and 2005, respectively, as well as IFRS consolidated net income of the Allianz Group.

 

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

Three months ended
June 30,

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

Total revenues1)

  9,682     9,597     11,931     12,072     1,706     1,394     726     641     —       —       22     (11 )   24,067     23,693  
                                                                                   

Operating profit

  1,845     1,650     527     472     266     215     297     252     (74 )   (190 )   (67 )   (53 )   2,794     2,346  

Non-operating items

  440     100     (17 )   37     12     217     (134 )   (173 )   184     (381 )   (287 )   (12 )   198     (212 )
                                                                                   

Income before income taxes and minority interests in earnings

  2,285     1,750     510     509     278     432     163     79     110     (571 )   (354 )   (65 )   2,992     2,134  
                                                                                   

Income taxes

  (466 )   (442 )   (90 )   (46 )   (89 )   (155 )   (62 )   8     80     231     270     (1 )   (357 )   (405 )

Minority interests in earnings

  (237 )   (205 )   (92 )   (106 )   (27 )   (25 )   (11 )   (10 )   (7 )   (6 )   18     13     (356 )   (339 )
                                                                                   

Net income

  1,582     1,103     328     357     162     252     90     77     183     (346 )   (66 )   (53 )   2,279     1,390  
                                                                                   

 

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

Six months ended
June 30,

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

Total revenues1)

  23,831     23,740     24,753     23,952     3,654     3,083     1,477     1,208     —       —       (7 )   (28 )   53,708     51,955  
                                                                                   

Operating profit

  3,231     2,864     1,250     989     813     444     601     483     (254 )   (457 )   (170 )   (90 )   5,471     4,233  

Non-operating items

  868     616     141     125     404     667     (270 )   (337 )   (27 )   (504 )   (564 )   (411 )   552     156  
                                                                                   

Income before income taxes and minority interests in earnings

  4,099     3,480     1,391     1,114     1,217     1,111     331     146     (281 )   (961 )   (734 )   (501 )   6,023     4,389  
                                                                                   

Income taxes

  (990 )   (985 )   (309 )   (150 )   (334 )   (229 )   (127 )   (16 )   234     384     270     6     (1,256 )   (990 )

Minority interests in earnings

  (427 )   (396 )   (220 )   (228 )   (55 )   (51 )   (24 )   (23 )   (9 )   (7 )   26     20     (709 )   (685 )
                                                                                   

Net income

  2,682     2,099     862     736     828     831     180     107     (56 )   (584 )   (438 )   (475 )   4,058     2,714  
                                                                                   

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

 

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Allianz Group’s Shareholders’ Equity and Invested Assets

Shareholders’ Equity

Since December 31, 2005, our shareholders’ equity has increased by 2.1% to €40.3 billion at June 30, 2006. Our strong net income more than compensated for significant negative market effects and dividends paid of €811 million. Due to the substantial decreases in market values of our available-for-sale debt securities, following the increase in market interest rates, our unrealized gains and losses (net) declined. Additionally, a weaker U.S. Dollar compared to the Euro at June 30, 2006 resulted in a rise in negative foreign currency translation adjustments from that at December 31, 2005.

The following graph sets forth the development of our shareholders’ equity in the first half of 2006.

Shareholders’ Equity

in € mn

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1) Consists of the following developments (in € mn): foreign currency translation adjustments (894); changes in the consolidated subsidiaries of the Allianz Group 21; treasury shares 1,275; net income 4,058; dividends paid (811); miscellaneous (347).

Invested Assets

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

Invested Assets – Property-Casualty: Allocation by Category and Instruments at June 30, 2006

Fair Values1) in € bn (Total: €96.8 bn)

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1) Held-to-maturity investments and real estate held for investment are stated at amortized cost. Investments in associates and joint ventures are stated at either amortized cost or equity, depending upon, among other factors, our ownership percentage.
2) Includes debt securities at €3.3 bn, equity securities at €0.3 bn and derivative financial instruments at €0.7 bn.
3) Includes associates and joint ventures at €0.5 bn, but does not include affiliates at €9.2 bn.
4) Includes held-to-maturity investments at €0.6 bn.

Invested Assets – Life/Health: Allocation by Category and Instruments at June 30, 2006

Fair Values1) in € bn (Total: €274.3 bn)

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1) Held-to-maturity investments and real estate held for investment are stated at amortized cost. Investments in associates and joint ventures are stated at either amortized cost or equity, depending upon, among other factors, our ownership percentage.
2) Includes debt securities at €7.1 bn, equity securities at €2.9 bn and derivative financial instruments at €0.7 bn.
3) Includes associates and joint ventures at €1.2 bn, but does not include affiliates at €3.1 bn.
4) Includes held-to-maturity investments at €4.0 bn.

Invested Assets – Banking: Trading Portfolio Allocation at June 30, 2006

Fair Values in € bn

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Table of Contents

Corporate Segment

Operating profit improved to a loss of €74 million in 2Q 2006 and €254 million in 1H 2006 from a loss of €190 million and €457 million, respectively, in the prior year periods, reflecting substantially higher operating revenues while operating expenses were relatively stable. The increase in operating revenues stemmed primarily from higher interest and similar income, due to higher dividends received from investments.

 

    

Three months

ended June 30,

   

Six months

ended June 30,

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

Operating revenues

   426     331     725     589  

Interest expense, excluding interest expense from external debt1)

   (142 )   (226 )   (315 )   (399 )

Acquisition and administrative expenses (net)

   (167 )   (96 )   (323 )   (217 )

Other operating expenses

   (191 )   (199 )   (341 )   (430 )
                        

Operating expenses

   (500 )   (521 )   (979 )   (1,046 )
                        

Operating profit

   (74 )   (190 )   (254 )   (457 )
                        

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

   (56 )   (149 )   (152 )   (153 )

Realized gains/losses (net)

   427     2     497     108  

Impairments of investments (net)

   9     (4 )   22     (36 )

Interest expense from external debt1)

   (196 )   (230 )   (394 )   (423 )

Non-operating items

   184     (381 )   (27 )   (504 )
                        

Income before income taxes and minority interests in earnings

   110     (571 )   (281 )   (961 )
                        

1) The total of these items equals interest expense in the segment income statement in Note 3 to the consolidated financial statements.

Events After the Balance Sheet Date

See Note 39 to our consolidated financial statements.

 

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Property-Casualty Insurance Operations

Continued underwriting excellence.

 

    Selective volume growth with a focus on profitability delivers results.

 

    Combined ratio of 91.9% in 2Q 2006 reflects underwriting discipline and favorable loss development.

 

    High interest and dividend income.

 

    Particularly high operating profit growth at our operations in the United States and France.

Earnings Summary

Gross Premiums Written by Region1)

in € bn

LOGO


1) After elimination of transactions between Allianz Group companies in different geographic regions and different segments. Gross premiums written from our speciality lines have been allocated to the respective geographic regions.

Gross Premiums Written – Growth Rates1)

LOGO


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

Gross Premiums Written

2006 to 2005 Three Month Comparison

Notwithstanding an environment where price depression was prevalent in some markets, profitability remained our focus. We accept only those risks which we believe will produce adequate returns. As a result of these continued and successful efforts, our gross premiums written grew only modestly from €9,597 million to €9,682 million. Based on internal growth, gross premiums written increased 1.2%.

Positive developments were primarily experienced by our entities in the United States, Spain, South America and New Europe, our growth markets in Central and Eastern Europe, with additional gross premiums written of €51 million (5.1%), €38 million (8.9%), €37 million (23.1%) and €28 million (7.1%), respectively. In 2Q 2006, our growth markets in Asia-Pacific and in New Europe, together with the markets in South America accounted for 11% of our gross premiums written in the segment.

 

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In the United States, our operations benefited from growth in our crop line, largely as a result of earlier underwriting of a significant book of business. The positive trend in Spain occurred primarily within our industrial lines, where we established sound growth with customers in the engineering and transportation sectors. In South America, growth mainly stemmed from Brazil, driven by a good performance of the fleet business and the increase of new car sales. Additionally, foreign currency effects, in particular the appreciation of the Brazilian Real compared to the Euro, contributed to the growth in gross premiums written in South America. Largely as a result of strong sales performance within the Polish and Romanian motor markets, we continued to expand our presence within New Europe.

These increases were offset by decreased gross premiums written in other countries, where keeping up profitability in more difficult market conditions required concessions to volume growth.

In France, our third largest property-casualty market, AGF’s gross premiums written declined by 3.4% to €1,132 million, mainly as a result of price pressure negatively affecting our large client business and, to a lesser degree, lower volume in our individual motor business.

The decline under specialty lines by €294 million (12.9%) was almost exclusively due to lower assumed gross premiums written at Allianz Re. Allianz Re primarily comprises the reinsurance business assumed by Allianz AG, in particular from our property-casualty subsidiaries. Gross premiums written volume at Allianz Re declined €260 million to €648 million, mainly impacted by the change of an intra-Allianz Group reinsurance contract, resulting in increased aggregate loss retention levels of participating entities. This effect, however, is consolidated at the segment level and therefore eliminated.

Within our German property-casualty business, our primary market, gross premiums written were challenged by lower volume within our motor business, compensated by sound development in our casualty line, leaving our gross premiums written relatively stable at €1,698 million.

2006 to 2005 Six Month Comparison

For the first six months of 2006, our gross premiums written remained stable at €23,831 million. However, we were able to achieve growth particularly in the United States, Spain and South America. While maintaining our strategy of selective and profitable growth, our German and United Kingdom operations recorded slight decreases. Based on internal growth, our gross premiums written declined marginally by 0.1%.

Operating Profit

Operating Profit

in € mn

LOGO

2006 to 2005 Three Month Comparison

Our operating profit increased markedly by 11.8% to €1,845 million, as a result of a favorable calendar year loss development and an increase in interest and similar income. Our top five contributing entities included Allianz Sach in Germany at €350 million, Fireman’s Fund in the United States at €227 million, RAS in Italy at €169 million, AGF in France at €139 million and our credit insurance activities combined within our Euler Hermes brand at €122 million. The strongest improvements, by markets, occurred in our operations within the United States (€61 million), France (€57 million) and at our credit insurance operations (€31 million).

Premiums earned (net) declined slightly to €9,358 million, due to increased reinsurance rates for our industrial and marine & aviation business, following the significant natural catastrophe losses in 2005.

Interest and similar income exhibited a considerable increase of 12.2% to €1,257 million, primarily reflecting growth in income at our operations in Germany and France as a result of higher dividend and bond yields.

Claims and insurance benefits incurred (net) decreased slightly by 0.9% to €6,090 million, a consequence of favorable loss development of reserves concerning prior years, especially in the United States at Fireman’s Fund and at Allianz Re. In the context of our sustainability program we have reviewed and improved our claims management process in many companies, which has begun to pay off. Our calendar year loss ratio declined to 65.1% (2Q 2005: 65.5%). On an accident year basis, claims slightly increased by 2.2% to €6,512 million, producing an accident year loss ratio of 69.6% (2Q 2005: 67.9%), mainly driven by claims from natural catastrophes of €109 million (2Q 2005: €– million) and single large claims from our industrial business.

 

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Acquisition and administrative expenses (net) remained relatively stable at €2,511 million, with only a slight rise in administrative expenses at Fireman’s Fund in the United States as well as within our German operations. This development, together with a marginal depression in our premiums earned (net) as a result of hardened reinsurance pricing conditions, caused our expense ratio to rise slightly by 0.2 percentage points to 26.8% (2Q 2005: 26.6%).

Driven by the improvement of our loss ratio, our combined ratio reached 91.9%, 0.2 percentage points lower, further solidifying our competitive position within the property-casualty market.

2006 to 2005 Six Month Comparison

Consistent with our 2Q success, we succeeded in increasing operating profit in the first six months of 2006 by 12.8% to €3,231 million. A major driver was the growth in interest and similar income, in particular at our German property-casualty business and AGF in France. Conversely, our combined ratio in the first six months of 2006 increased marginally to 93.3%, largely due to the increase in our expense ratio in 1Q 2006 from higher commission payments.

Non-Operating Items

2006 to 2005 Three Month Comparison

Income from our non-operating items increased to €440 million. This development was primarily attributable to significantly increased realized gains/losses (net) from investments, not shared with policyholders, largely as the result of gains from the sale of our participation in Schering AG. To a lesser degree, we realized gains in Austria through the sale of our real estate portfolio and at our subsidiary Lloyd Adriatico in Italy, where we disposed of Banca Antonveneta shares. Conversely, impairments of investments (net), not shared with policyholders increased from €25 million to €80 million, as stock markets around the world trended lower.

The increased realizations of investments gains were partially offset by overall costs of €354 million recorded as restructuring charges. At an amount of €333 million, these charges were incurred in connection with the reorganization of our German insurance operations, which unites our German property-casualty and life/health businesses within the new entity Allianz Deutschland AG (or “ADAG”). This reorganization is intended to help us to improve our competitiveness and offer better service to our customers, while operating more efficiently. The structural changes, which were announced in detail on June 22, 2006, are in line with our repositioning plan as announced in September 2005 and the objectives of our “3+One” program. Additionally, RAS in Italy recorded restructuring costs of €21 million.

2006 to 2005 Six Month Comparison

Income from our non-operating items for the first-half of 2006 was driven by similar measures as those previously mentioned for 2Q. In particular, by increased realized gains/losses (net) from investments, not shared with policyholders, especially through our sale of our participation in Schering AG in 2Q. Additionally, while restructuring charges, primarily in connection with the reorganization of our German operations, resulted in charges of €356 million, net realizations on investments proved a compensating balance, driving our non-operating income up by 40.9% to €868 million.

Net Income

2006 to 2005 Three Month Comparison

Net income increased by 43.4% to €1,582 million, driven both by our marked growth in operating profit and a significantly improved non-operating income.

Income tax expenses amounted to €466 million, rising slightly. However, largely due to higher tax-exempt income, in particular the realized gain from the sale of our participation in Schering AG, our effective tax rate declined to 20.4% (2Q 2005: 25.3%).

Minority interests in earnings rose slightly to €237 million as a result of significantly higher earnings at AGF in France, which more than compensated lower earnings attributable to third-party shareholders at RAS in Italy following the buy-out of minorities in late 2005.

2006 to 2005 Six Month Comparison

Driven both by our further enhanced operating profitability and significantly improved non-operating income, our net income for the first six months of 2006 was up significantly by 27.8% to €2,682 million. Due to the effects of a relatively higher share of tax-exempt income, our effective tax rate decreased to 24.2% (1H 2005: 28.3%).

 

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The following table sets forth our Property-Casualty insurance segment’s income statement, loss ratio, expense ratio and combined ratio for the three and six months ended June 30, 2006 and 2005, respectively.

 

     Three months
ended June 30,
   

Six months

ended June 30,

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

Gross premiums written1)

   9,682     9,597     23,831     23,740  

Ceded premiums written

   (1,230 )   (1,161 )   (2,942 )   (2,859 )

Change in unearned premiums

   906     950     (2,190 )   (2,355 )
                        

Premiums earned (net)

   9,358     9,386     18,699     18,526  

Interest and similar income

   1,257     1,120     2,179     1,987  

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

   6     35     42     56  

Realized gains/losses (net) from investments, shared with policyholders3)

   11     72     36     86  

Fee and commission income

   265     270     517     486  

Other income

   24     17     38     21  
                        

Operating revenues

   10,921     10,900     21,511     21,162  
                        

Claims and insurance benefits incurred (net)

   (6,090 )   (6,144 )   (12,272 )   (12,184 )

Changes in reserves for insurance and investment contracts (net)

   (121 )   (211 )   (193 )   (334 )

Interest expense

   (66 )   (115 )   (129 )   (195 )

Loan loss provisions

   (2 )   —       (3 )   —    

Impairments of investments (net), shared with policyholders4)

   (13 )   (2 )   (17 )   (4 )

Investment expenses

   (67 )   (102 )   (115 )   (195 )

Acquisition and administrative expenses (net)

   (2,511 )   (2,496 )   (5,174 )   (5,048 )

Fee and commission expenses

   (205 )   (175 )   (375 )   (332 )

Other expenses

   (1 )   (5 )   (2 )   (6 )
                        

Operating expenses

   (9,076 )   (9,250 )   (18,280 )   (18,298 )
                        

Operating profit

   1,845     1,650     3,231     2,864  
                        

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

   (1 )   (6 )   3     (1 )

Realized gains/losses (net) from investments, not shared with policyholders3)

   878     193     1,317     718  

Impairments of investments (net), not shared with policyholders4)

   (80 )   (25 )   (89 )   (30 )

Amortization of intangible assets

   (3 )   (4 )   (7 )   (9 )

Restructuring charges

   (354 )   (58 )   (356 )   (62 )
                        

Non-operating items

   440     100     868     616  
                        

Income before income taxes and minority interests in earnings

   2,285     1,750     4,099     3,480  
                        

Income taxes

   (466 )   (442 )   (990 )   (985 )

Minority interests in earnings

   (237 )   (205 )   (427 )   (396 )
                        

Net income

   1,582     1,103     2,682     2,099  
                        

Loss ratio5) in %

   65.1     65.5     65.6     65.8  

Expense ratio6) in %

   26.8     26.6     27.7     27.2  
                        

Combined ratio7) in %

   91.9     92.1     93.3     93.0  
                        

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

 

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Property-Casualty Operations by Geographic Region

The following tables set forth our property-casualty gross premiums written, premiums earned (net), combined ratio, loss ratio, expense ratio and operating profit by geographic region for the three and six months ended June 30, 2006 and 2005, respectively. Consistent with our general practice, gross premiums written, premiums earned (net), combined ratio, loss ratio, expense ratio and operating profit by geographic region are presented before consolidation adjustments, representing the elimination of transactions between Allianz Group companies in different geographic regions and different segments.

 

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

Three months ended June 30,

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

Germany1)

   1,698     1,681     1,866    1,763    92.8     89.4     66.8     64.3     26.0     25.1     350     372  

France

   1,132     1,172     1,092    1,092    98.6     101.9     71.1     73.3     27.5     28.6     139     82  

Italy

   1,373     1,355     1,242    1,229    93.5     96.4     70.3     71.0     23.2     25.4     250     231  

United Kingdom

   648     658     462    478    94.6     94.3     65.6     63.1     29.0     31.2     71     80  

Switzerland

   284     260     432    429    94.9     88.3     72.8     69.8     22.1     18.5     54     62  

Spain

   464     426     417    384    90.0     91.5     70.6     71.2     19.4     20.3     64     53  
                                                                      

Other Europe, thereof:

   1,199     1,207     1,026    1,035    84.9     91.6     57.1     63.4     27.8     28.2     271     195  

Netherlands

   227     247     206    210    87.3     92.3     55.1     59.4     32.2     32.9     47     42  

Austria

   200     204     188    195    96.9     100.5     70.1     75.7     26.8     24.8     36     24  

Ireland

   176     184     153    165    65.9     80.7     42.5     57.9     23.4     22.8     68     44  

Belgium

   85     84     75    73    98.7     103.0     63.3     63.3     35.4     39.7     14     9  

Portugal

   68     74     64    69    86.5     93.5     60.9     67.4     25.6     26.1     13     8  

Greece

   19     18     12    11    78.0     86.7     49.1     53.0     28.9     33.7     3     2  
                                                                      

Western and Southern Europe

   775     811     698    723    86.0     93.0     57.6     64.5     28.4     28.5     1863 )   1283 )
                                                                      

Hungary

   124     134     123    124    83.2     102.9     55.9     70.5     27.3     32.4     36     18  

Slovakia

   59     52     60    60    64.3     62.0     36.9     41.9     27.4     20.1     27     28  

Czech Republic

   57     56     44    40    82.1     91.0     63.0     68.1     19.1     22.9     9     5  

Poland

   71     60     49    37    83.8     86.9     49.8     54.7     34.0     32.2     9     6  

Romania

   67     49     24    29    103.8     83.3     97.9     66.2     5.9     17.1     1     5  

Bulgaria

   23     23     15    9    88.9     56.4     50.7     21.4     38.2     35.0     2     4  

Croatia

   18     17     13    11    95.0     98.6     62.5     63.4     32.5     35.2     1     1  

Russia

   5     5     —      2    90.4     70.6     37.8     19.6     52.6     51.0     —       —    
                                                                      

New Europe

   424     396     328    312    82.4     88.4     55.9     60.7     26.5     27.7     85     67  
                                                                      

NAFTA, thereof:

   1,094     1,051     862    848    83.9     89.6     50.3     59.5     33.6     30.1     232     168  

United States

   1,053     1,002     838    827    83.7     90.2     49.8     60.0     33.9     30.2     227     166  

Mexico

   41     49     24    21    93.5     65.0     69.5     39.6     24.0     25.4     5     2  
                                                                      

Asia-Pacific, thereof:

   447     431     336    321    86.7     82.4     59.5     56.1     27.2     26.3     88     102  

Australia

   368     363     301    291    85.9     82.1     60.1     56.9     25.8     25.2     83     96  

Other

   79     68     35    30    93.5     87.5     54.1     50.2     39.4     37.3     5     6  
                                                                      

South America

   197     160     148    119    102.0     94.4     64.8     61.4     37.2     33.0     15     15  
                                                                      

Other

   30     25     14    8    —  4 )   —  4 )   —  4 )   —  4 )   —  4 )   —  4 )   3     2  
                                                                      

Specialty Lines

                          

Alllianz Re1)

   648     908     564    746    94.3     88.4     72.2     65.6     22.1     22.8     75     70  

Credit Insurance

   398     425     283    251    77.3     81.9     50.9     50.4     26.4     31.5     122     91  

Allianz Global Corporate & Specialty1)

   687     690     368    432    103.1     91.0     72.0     66.2     31.1     24.8     66     78  

Travel Insurance and Assistance Services

   249     253     239    241    98.9     93.0     58.5     56.3     40.4     36.7     25     26  
                                                                      

Subtotal

   10,548     10,702     9,351    9,376    —       —       —       —       —       —       1,825     1,627  
                                                                      

Consolidation adjustments2)

   (866 )   (1,105 )   7    10    —       —       —       —       —       —       20     23  
                                                                      

Total

   9,682     9,597     9,358    9,386    91.9     92.1     65.1     65.5     26.8     26.6     1,845     1,650  
                                                                      

1) With effect from 1Q 2006, we have combined the activities of the former Allianz Global Risk Re and Allianz Marine & Aviation, as well as the corporate customer business of Allianz Sach, which was formerly included within Germany. Additionally, with effect from 2Q 2006, we have included Allianz Global Re US, which was formerly presented within NAFTA, within the newly combined entity Allianz Global Corporate & Specialty. Further, with effect from 2Q 2006, we present our property-casualty assumed reinsurance business, primarily attributable to Allianz AG and formerly included within Germany, as Allianz Re within our specialty lines. Prior year balances have been adjusted to reflect this reclassification and allow for comparability across periods.
2) Represents elimination of transactions between Allianz Group companies in different geographic regions.
3) Contains run-off of a former operating entity located in Luxembourg of €5 mn in 2006 and €(1) mn in 2005.
4) Presentation not meaningful.

 

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     Gross premiums
written
   

Premiums

earned (net)

   Combined ratio     Loss ratio     Expense ratio     Operating profit  
     € mn     € mn    %     %     %     € mn  

Six months ended June 30,

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

Germany1)

   5,896     5,987     3,558    3,477    91.9     89.4     64.2    62.2     27.7     27.2     670     686  

France

   2,845     2,867     2,206    2,195    99.8     103.3     72.7    75.3     27.1     28.0     216     87  

Italy

   2,620     2,596     2,447    2,418    95.1     97.3     71.6    71.3     23.5     26.0     358     346  

United Kingdom

   1,227     1,290     919    958    96.7     95.1     66.7    64.1     30.0     31.0     127     148  

Switzerland

   1,241     1,253     868    854    95.6     91.7     71.5    68.9     24.1     22.8     118     100  

Spain

   1,121     1,057     812    748    90.7     92.1     71.6    72.5     19.1     19.6     123     102  
                                                                     

Other Europe, thereof:

   2,854     2,855     2,067    2,051    89.9     91.8     62.1    63.7     27.8     28.1     406     359  

Netherlands

   545     558     403    410    90.3     93.0     57.3    61.2     33.0     31.8     74     70  

Austria

   557     563     380    383    103.3     99.3     78.3    74.5     25.0     24.8     29     45  

Ireland

   374     399     306    326    78.8     85.5     55.1    63.0     23.7     22.5     95     73  

Belgium

   206     202     149    144    100.2     103.1     64.3    64.6     35.9     38.5     23     16  

Portugal

   152     162     130    139    86.9     91.2     63.2    66.5     23.7     24.7     24     17  

Greece

   38     37     23    22    86.4     86.2     57.2    53.7     29.2     32.5     4     4  
                                                                     

Western and Southern Europe

   1,872     1,921     1,391    1,424    92.0     93.8     63.8    66.0     28.2     27.8     2593 )   2233 )
                                                                     

Hungary

   316     319     250    256    87.6     95.7     60.3    66.1     27.3     29.6     63     49  

Slovakia

   152     175     122    122    72.4     68.4     42.0    38.4     30.4     30.0     44     48  

Czech Republic

   139     130     87    78    86.0     91.8     65.1    70.4     20.9     21.4     14     11  

Poland

   143     120     97    73    90.0     88.2     57.5    55.5     32.5     32.7     12     11  

Romania

   138     103     60    57    95.3     86.4     82.1    65.5     13.2     20.9     4     8  

Bulgaria

   43     43     31    16    81.1     64.1     47.4    25.4     33.7     38.7     7     8  

Croatia

   40     34     27    22    95.8     96.7     64.1    61.7     31.7     35.0     2     1  

Russia

   11     10     2    3    69.0     57.0     31.0    12.0     38.0     45.0     1     —    
                                                                     

New Europe

   982     934     676    627    85.6     87.3     58.6    58.5     27.0     28.8     147     136  
                                                                     

NAFTA, thereof:

   2,146     2,011     1,772    1,684    87.4     90.2     55.5    60.1     31.9     30.1     434     318  

United States

   2,054     1,932     1,723    1,643    87.0     90.9     54.9    60.7     32.1     30.2     426     313  

Mexico

   92     79     49    41    101.3     63.5     76.9    38.1     24.4     25.4     8     5  
                                                                     

Asia-Pacific, thereof:

   860     807     670    626    94.2     90.5     67.5    64.6     26.7     25.9     130     151  

Australia

   703     669     601    568    94.1     90.1     68.8    65.5     25.3     24.6     121     143  

Other

   157     138     69    58    94.3     93.8     55.9    55.4     38.4     38.4     9     8  
                                                                     

South America

   423     312     300    225    102.5     97.3     65.7    62.3     36.8     35.0     27     31  
                                                                     

Other

   72     63     26    23    —  4 )   —  4 )   —      —  4 )   —  4 )   —  4 )   4     3  
                                                                     

Specialty Lines

                           

Allianz Re1)

   2,377     2,645     1,279    1,467    94.7     89.8     63.0    63.1     31.7     26.7     145     163  

Credit Insurance

   866     898     543    492    79.1     76.4     52.3    48.4     26.8     28.0     217     186  

Allianz Global Corporate & Specialty1)

   1,557     1,594     757    843    92.8     93.5     67.2    69.2     25.6     24.3     211     112  

Travel Insurance and Assistance Services

   515     505     470    453    100.2     94.3     60.1    59.5     40.1     34.8     47     46  
                                                                     

Subtotal

   26,620     26,740     18,694    18,514    —       —       —      —       —       —       3,233     2,838  
                                                                     

Consolidation adjustments2)

   (2,789 )   (3,000 )   5    12    —       —       —      —       —       —       (2 )   26  
                                                                     

Total

   23,831     23,740     18,699    18,526    93.3     93.0     65.6    65.8     27.7     27.2     3,231     2,864  
                                                                     

1) With effect from 1Q 2006, we have combined the activities of the former Allianz Global Risk Re and Allianz Marine & Aviation, as well as the corporate customer business of Allianz Sach, which was formerly included within Germany. Additionally, with effect from 2Q 2006, we have included Allianz Global Re US, which was formerly presented within NAFTA, within the newly combined entity Allianz Global Corporate & Specialty. Further, with effect from 2Q 2006, we present our property-casualty assumed reinsurance business, primarily attributable to Allianz AG and formerly included within Germany, as Allianz Re within our specialty lines. Prior year balances have been adjusted to reflect this reclassification and allow for comparability across periods.
2) Represents elimination of transactions between Allianz Group companies in different geographic regions.
3) Contains run-off of a former operating entity located in Luxembourg of €10 mn in 2006 and €(2) mn in 2005.
4) Presentation not meaningful.

 

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Life/Health Insurance Operations

Operating profit up 11.7%.

 

    Dynamic statutory premium growth in Asia-Pacific and Europe could not fully compensate the dip in sales in the United States.

 

    Higher investment result drove operating profit.

 

    Restructuring charges fully funded.

Earnings Summary

Statutory Premiums by Regions1)

in € bn

LOGO


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

Statutory Premiums – Grouth Rates1)

LOGO


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

Statutory Premiums

2006 to 2005 Three Month Comparison

Our statutory premiums base remains sound; we experienced a slight decline in 2Q by 1.2% to €11,931 million. This was the net result of a quarter during which most of our major life insurance markets continued to enjoy very dynamic growth, offset by declines particularly in the United States and to a lesser degree in Italy. Based on internal growth, our statutory premiums decreased by 1.4%.

At Germany Life, our operating entities experienced strong production of new business leading to a total statutory premiums growth in 2Q of 20.7% to €3,075 million, after an already excellent 2Q 2005. This success was primarily driven by the sale of single premium products, including the limited offer of an innovative and very successful equity-indexed product on the German market. Additionally, recurring premiums picked up significantly due to the sales success of our government-sponsored pension products and unit linked contracts.

In France, our entities continued to enjoy the sales momentum achieved through our proprietary financial advisors network and through partnerships with independent advisors, driving a 6.9% rise with statutory premiums written reaching €1,474 million. Our Korean entity, Allianz Life Insurance Co. Ltd., furthered its successful marketing efforts, as evidenced by a significant increase in statutory premiums written of 49.1% to €522 million, also driven by the launch of equity-indexed products.

 

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Within New Europe, our growth markets in Central and Eastern Europe, our Polish operations continued to benefit from a successful sales campaign with a bank partner in 1Q 2006, evidenced by statutory premiums written which tripled to €62 million in 2Q.

Conversely, in the United States, statutory premiums written decreased by 27.4% to €2,204 million compared to a strong 2Q 2005, as the sale of equity-indexed annuity products fell short of their prior year success. This development was largely due to uncertainty in part of our broker-dealer distribution channel following the introduction of new regulation by the National Association of Securities Dealers on the supervision of sales of equity-indexed annuities. However, the statutory premium written volume in the United States continues to maintain a sound base and remains a key market for us. In Italy, the picture was mixed: RAS maintained strong statutory premium volume in a market environment prevalent with lower sales of unit linked life products due to uncertainty among investors in response to the high volatility of capital markets in 2Q 2006. At Lloyd Adriatico, we experienced a slowdown of sales through the bancassurance channel, which ultimately led to a decline in statutory premiums written in Italy of 8.6% to €2,362 million.

2006 to 2005 Six Month Comparison

In contrast to the overall development in 2Q, our statutory premiums written increased by 3.3% to €24,753 million, driven in particular by strong sales within Germany Life, France, South Korea and New Europe. However, the trend in statutory premiums written in the United States and Italy did not vary from that of 2Q. Based on internal growth, our statutory premiums written increased by 1.7 %.

Operating Profit

Operating Profit

in € mn

LOGO

2006 to 2005 Three Month Comparison

Our operating profit rose by 11.7% to €527 million in 2Q, despite restructuring charges related to the reorganization of our German insurance business. This development was primarily the result of a significant rise in investment income, which was due to both a higher asset base and increased yields.

The markets which contributed strongest to operating profit were our German Life subsidiaries at €113 million, Italy at €109 million, France at €101 million and Germany Health at €46 million. The strongest improvements occurred within our primary market of Germany at our life and health operations, with increases of €100 million and €16 million, respectively.

Interest and similar income developed favorably with an increase of 11.8% to €3,698 million, driven by higher dividend distributions from equity investments at Germany Life, as well as higher interest income from bonds at our French and American entities through increased yields and larger investment volumes.

Within income from financial assets and liabilities carried at fair value through income (net) especially our French operating entities exhibited negative fair value changes, leading to an overall increase of charges by €189 million to €216 million.

Our realized gains/losses (net) from investments, shared with policyholders more-than-tripled to €947 million in 2Q, as we maximized opportunities within the capital markets for the realization of capital gains. The increase was in particular due to the sale of our participation in Schering AG within Germany Life. To a lesser degree, our French entities also benefited from a rise in realized investment gains.

Conversely, impairments of investments (net), shared with policyholders rose substantially from €31 million to €210 million, as stock markets around the world trended lower. Similarly, investment expenses increased significantly to €211 million, primarily from disproportionately higher foreign exchange losses than foreign exchange gains on available-for-sale debt securities at Germany Life, driven by the year-on-year decline of the U.S. Dollar to the Euro.

Changes in reserves for insurance and investment contracts (net) rose by 26.2% to €2,950 million. This increase was primarily attributable to the sale of our participation in Schering AG within Germany Life, of which the associated realized gain is allocated largely to our policyholders. Additionally, though to a lesser degree, this movement was driven by new business volume both from traditional and investment-oriented policies, especially within our German operations.

Acquisition and administrative expenses (net) increased markedly by 9.9% to €1,153 million, caused in particular by a rise in acquisition expenses due to new business written at our German Life operations as well as higher amortization of deferred acquisition costs due to the business in force volume growth of recent years. Consequently, our statutory expense ratio increased by 1.0 percentage points to 9.9% (2Q 2005: 8.9%).

 

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Overall charges of €118 million were recorded for operating restructuring charges. These charges were incurred in connection with the reorganization of our German insurance operations, which unites our German property-casualty and life/health businesses within the new entity Allianz Deutschland AG (or “ADAG”). This reorganization is intended to help us to improve our competitiveness and offer better service to our customers, while operating more efficiently. The structural changes, which were announced in detail on June 22, 2006, are in line with our repositioning plan as announced in September 2005 and the objectives of our “3+One” program. Of the total amount, €71 million was recorded within Germany Life and €47 million within Germany Health.

2006 to 2005 Six Month Comparison

Operating profit was up by 26.4% to €1,250 million. Favorable developments were experienced in particular by our German and French life entities. One of the key drivers of this development was interest and similar income, which showed a significant increase, primarily through higher dividend payments from equity investments. To a lesser degree, operating profit was up due to higher realized gains/losses (net) from investments, shared with policyholders, especially from the sales transaction of Schering AG shares in 2Q 2006.

Non-Operating Items

2006 to 2005 Three Month Comparison

Non-operating items were down by €54 million to a charge of €17 million. This development resulted from charges for non-operating restructuring charges of €43 million in connection with the restructuring of our German life and health businesses, as previously indicated. To a lesser degree, the decline in non-operating items was also attributable to lower realized gains/losses (net) from investments, not shared with policyholders, which fell €29 million to €27 million as a result of lower gains at our Italian, Dutch and South Korean life entities.

2006 to 2005 Six Month Comparison

In contradiction to the development in 2Q, during the first six months of 2006 we recorded an €16 million increase in non-operating income to €141 million, primarily from increased realized gains/losses (net) from investments, not shared with policyholders, as we had recorded gains in 1Q 2006 from the sale of a strategic equity portfolio and a sales company at Allianz Life in the United States. However, non-operating restructuring charges in 2Q 2006 within our German life and health businesses were an offsetting measure to this development.

Net Income

2006 to 2005 Three Month Comparison

Despite a stable income before income taxes and minority interests in earnings, our net income declined by 8.1% to €328 million, impacted primarily by higher income taxes in 2Q 2006 resulting from the absence of a favorable tax settlement which occurred in the prior year period.

Income taxes nearly doubled to €90 million, significantly driving up our effective tax rate to 17.6% (2Q 2005: 9.0%). In 2Q 2005, our income taxes benefited from a favorable tax settlement at Allianz Life in the United States.

Minority interests in earnings were down 13.2% to €92 million, mainly through lower minority interest at RAS in Italy resulting from the buy-out of minority shares at our Italian subsidiary in late 2005.

2006 to 2005 Six Month Comparison

Net income for the first six months of 2006 rose by 17.1%, driven by a strong operating profit development, primarily caused by increased dividend income from equity investments. At the same time, our non-operating items were also up over the first six months 2005, as increased realized gains/losses (net) from investments, not shared with policyholders more-than-offset higher non-operating restructuring charges for our German reorganization.

 

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The following table sets forth our Life/Health insurance segment’s income statement and statutory expense ratio for the three and six months ended June 30, 2006 and 2005, respectively.

 

     Three months
ended June 30,
   

Six months

ended June 30,

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

Statutory premiums1)

   11,931     12,072     24,753     23,952  

Ceded premiums written

   (213 )   (211 )   (409 )   (442 )

Change in unearned premiums

   (28 )   (25 )   (86 )   (54 )
                        

Statutory premiums (net)

   11,690     11,836     24,258     23,456  

Deposits from SFAS 97 insurance and investment contracts

   (6,874 )   (7,231 )   (14,346 )   (13,684 )
                        

Premiums earned (net)

   4,816     4,605     9,912     9,772  

Interest and similar income

   3,698     3,309     6,745     6,121  

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

   (216 )   (27 )   (185 )   (4 )

Realized gains/losses (net) from investments, shared with policyholders2)

   947     277     2,050     1,644  

Fee and commission income

   162     114     291     206  

Other income

   7     20     13     29  
                        

Operating revenues

   9,414     8,298     18,826     17,768  
                        

Claims and insurance benefits incurred (net)

   (4,103 )   (4,132 )   (8,796 )   (8,854 )

Changes in reserves for insurance and investment contracts (net)

   (2,950 )   (2,337 )   (5,598 )   (5,480 )

Interest expense

   (73 )   (119 )   (137 )   (223 )

Loan loss provisions

   1     (2 )   1     (3 )

Impairments of investments (net), shared with policyholders

   (210 )   (31 )   (245 )   (53 )

Investment expenses

   (211 )   (124 )   (368 )   (246 )

Acquisition and administrative expenses (net)

   (1,153 )   (1,049 )   (2,195 )   (1,858 )

Fee and commission expenses

   (70 )   (32 )   (120 )   (62 )

Operating restructuring charges3)

   (118 )   —       (118 )   —    
                        

Operating expenses

   (8,887 )   (7,826 )   (17,576 )   (16,779 )
                        

Operating profit

   527     472     1,250     989  
                        

Realized gains/losses (net) from investments, not shared with policyholders2)

   27     56     186     147  

Amortization of intangible assets

   (1 )   (4 )   (2 )   (7 )

Non-operating restructuring charges3)

   (43 )   (15 )   (43 )   (15 )
                        

Non-operating items

   (17 )   37     141     125  
                        

Income before income taxes and minority interests in earnings

   510     509     1,391     1,114  
                        

Income taxes

   (90 )   (46 )   (309 )   (150 )

Minority interests in earnings

   (92 )   (106 )   (220 )   (228 )
                        

Net income

   328     357     862     736  
                        

Statutory expense ratio4) in %

   9.9     8.9     9.0     7.9  
                        

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

 

19


Table of Contents

Life/Health Operations by Geographic Region

The following tables set forth our life/health statutory premiums, premiums earned (net), statutory expense ratio and operating profit by geographic region for the three and six months ended June 30, 2006 and 2005, respectively. Consistent with our general practice, statutory premiums, premiums earned (net), statutory expense ratio and operating profit by geographic region are presented before consolidation adjustments, representing the elimination of transactions between Allianz Group companies in different geographic regions and different segments.

 

     Statutory premiums1)    

Premiums

earned (net)

   Statutory expense
ratio
   

Operating

profit

 
     € mn     € mn    %     € mn  

Three months ended June 30,

       2006             2005             2006            2005            2006             2005             2006             2005      

Germany Life

   3,075     2,547     2,317    2,043    9.5     9.2     113     13  

Germany Health2)

   772     762     772    762    7.6     8.9     46     30  

Italy

   2,362     2,584     280    233    6.9     5.6     109     127  

France

   1,474     1,379     425    406    15.1     14.4     101     117  

Switzerland

   178     204     80    93    12.8     14.2     13     6  

Spain

   174     149     122    126    9.3     6.4     20     17  
                                              

Other Europe, thereof:

   536     480     313    295    16.6     16.2     60     49  

Netherlands

   104     95     35    38    11.9     16.3     12     7  

Austria

   83     78     64    65    15.5     10.0     9     9  

Belgium

   116     144     69    69    14.2     10.5     16     18  

Portugal

   25     17     16    13    16.2     20.2     5     4  

Luxembourg

   12     7     8    6    13.4     27.6     1     1  

Greece

   24     23     16    14    22.1     23.4     —       —    
                                              

Western and Southern Europe

   364     364     208    205    14.4     13.3     43     39  
                                              

Hungary

   22     23     18    18    27.4     25.1     4     4  

Slovakia

   45     36     34    32    19.2     22.6     7     1  

Czech Republic

   19     17     13    13    19.3     18.9     2     2  

Poland

   62     22     21    13    19.8     35.7     2     1  

Romania

   5     4     4    2    46.8     23.2     —       1  

Bulgaria

   6     4     5    4    17.2     9.4     1     1  

Croatia

   11     10     8    8    23.6     26.7     1     —    

Russia

   2     —       2    —      4.7     —  5 )   —       —    
                                              

New Europe

   172     116     105    90    21.2     25.0     17     10  
                                              

United States

   2,204     3,037     80    145    7.6     4.4     32     90  
                                              

Asia-Pacific, thereof:

   1,043     798     308    293    11.0     13.8     20     1  

South Korea

   522     350     248    242    15.8     24.3     13     1  

Taiwan

   445     393     27    20    3.3     3.0     5     (1 )

Malaysia

   28     33     22    18    23.7     17.5     2     1  

Indonesia

   19     16     7    8    29.3     22.7     1     —    

Other

   29     6     4    5    18.4     30.2     (1 )   —    
                                              

South America

   42     33     12    8    18.1     19.4     (1 )   (1 )
                                              

Other3)

   129     207     105    200    —  5 )   —  5 )   38     24  
                                              

Subtotal

   11,989     12,180     4,814    4,604    —       —       551     473  
                                              

Consolidation adjustments4)

   (58 )   (108 )   2    1    —       —       (24 )   (1 )
                                              

Total

   11,931     12,072     4,816    4,605    9.9     8.9     527     472  
                                              

1) Statutory premiums are gross premiums written from sales of life insurance policies as well as gross receipts from sales of unit linked and other investment-oriented products, in accordance with the statutory accounting practices applicable in the insurer’s home jurisdiction.
2) Loss ratios were 63.7% and 68.5% for the three months ended June 30, 2006 and 2005, respectively.
3) Contains, among others, the life/health business assumed by Allianz AG, which was previously reported under Germany in the Property-Casualty segment. Prior year balances have been adjusted to reflect this reclassification and allow for comparability across periods.
4) Represents elimination of transactions between Allianz Group companies in different geographic regions.
5) Presentation not meaningful.

 

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Table of Contents
   

Statutory

premiums1)

   

Premiums

earned (net)

 

Statutory

expense ratio

   

Operating

profit

 
    € mn     € mn   %     € mn  

Six months ended June 30,

      2006             2005             2006           2005           2006             2005             2006             2005      

Germany Life

  6,204     5,665     4,898   4,742   9.1     6.9     246     169  

Germany Health2)

  1,541     1,517     1,542   1,518   7.3     9.2     99     75  

Italy

  4,631     4,928     522   489   6.4     5.3     203     183  

France

  2,934     2,587     798   798   14.6     14.6     275     236  

Switzerland

  697     692     289   289   7.4     8.3     27     18  

Spain

  316     285     222   243   8.9     7.1     41     33  
                                           

Other Europe, thereof:

  1,274     981     636   599   13.8     16.2     124     91  

Netherlands

  228     197     73   72   12.2     15.0     22     14  

Austria

  184     169     132   129   12.5     8.4     22     16  

Belgium

  295     296     145   155   10.4     12.5     32     32  

Portugal

  45     37     33   30   15.1     21.6     12     8  

Luxembourg

  21     16     15   12   15.2     23.9     3     2  

Greece

  50     46     31   27   23.1     23.2     2     —    
                                           

Western and Southern Europe

  823     761     429   425   12.3     13.5     93     72  
                                           

Hungary

  44     44     37   35   27.1     25.6     8     8  

Slovakia

  88     71     67   64   19.5     20.2     14     4  

Czech Republic

  38     30     27   24   20.9     21.7     4     3  

Poland

  231     40     40   25   10.7     38.4     3     2  

Romania

  15     7     6   3   39.1     32.2     —       —    

Bulgaria

  11     8     10   8   15.9     10.6     1     1  

Croatia

  20     20     16   15   24.7     23.9     1     1  

Russia

  4     —       4   —     17.4     —  5 )   —       —    
                                           

New Europe

  451     220     207   174   16.4     25.1     31     19  
                                           

United States

  4,976     5,761     168   258   6.5     3.8     153     126  
                                           

Asia-Pacific, thereof:

  1,972     1,312     609   584   9.9     15.1     51     14  

South Korea

  1,094     699     503   486   13.3     22.4     38     6  

Taiwan

  744     519     41   41   2.5     3.6     9     6  

Malaysia

  50     52     41   33   21.2     17.2     4     1  

Indonesia

  34     33     16   15   31.9     22.2     1     1  

Other

  50     9     8   9   18.3     41.4     (1 )   —    
                                           

South America

  88     65     25   15   14.3     16.3     (1 )   (1 )
                                           

Other3)

  242     271     203   237   —  5 )   —  5 )   99     50  
                                           

Subtotal

  24,875     24,064     9,912   9,772   —       —       1,317     994  
                                           

Consolidation adjustments4)

  (122 )   (112 )   —     —     —       —       (67 )   (5 )
                                           

Total

  24,753     23,952     9,912   9,772   9.0     7.9     1,250     989  
                                           

1) Statutory premiums are gross premiums written from sales of life insurance policies as well as gross receipts from sales of unit linked and other investment-oriented products, in accordance with the statutory accounting practices applicable in the insurer’s home jurisdiction.
2) Loss ratios were 69.7% and 71.7% for the six months ended June 30, 2006 and 2005, respectively.
3) Contains, among others, the life/health business assumed by Allianz AG, which was previously reported under Germany in the Property-Casualty segment. Prior year balances have been adjusted to reflect this reclassification and allow for comparability across periods.
4) Represents elimination of transactions between Allianz Group companies in different geographic regions.
5) Presentation not meaningful.

 

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Banking Operations

Another strong quarter.

 

    Operating revenues and operating profit momentum sustained, attaining dynamic growth.

 

    Cost-income ratio strongly improved.

 

    On track to achieve ambitious full year targets.

Earnings Summary

The results of operations of our Banking segment are almost exclusively represented by Dresdner Bank, accounting for 98.3% of our total Banking segment’s operating revenues in 1H 2006 (1H 2005: 95.8%). Accordingly, the discussion of our Banking segment’s results of operations relates solely to the operations of Dresdner Bank.

Operating Revenues

2006 to 2005 Three Month Comparison

Operating revenues, at €1,709 million, experienced dynamic growth of 28.5%. All revenue categories and both operating divisions, Private & Business Clients (or “PBC”) and Corporate & Investment Banking (or “CIB”), contributed to this development.

Net interest income was up 17.9% to €631 million. In 2Q 2006, the impact of accounting for derivative financial instruments which do not qualify for hedge accounting was marginal, whereas 2Q 2005 was negatively affected to a significant extent. Excluding this impact as well as lower income from associated companies as a result of the sale of our shareholdings in Eurohypo AG in the prior two quarters, net interest income was stable.

Net fee and commission income increased 3.3% to €680 million. Despite a challenging market environment our PBC division managed to expand its securities business, especially from equities, investment funds and certificates. Our CIB division exhibited a decline, however, exclusively due to a large client IPO in 2Q 2005.

Trading income (net) was the main contributor to the increase in operating revenues and almost tripled to €381 million amongst a volatile market environment in 2Q 2006. This development resulted from our strong business performance in 2Q 2006, which compares to a weak second quarter a year earlier. In the same quarter, the accounting for derivative financial instruments which do not qualify for hedge accounting had a significant positive impact. Excluding this impact, growth in trading income (net) was even stronger.

2006 to 2005 Six Month Comparison

Operating revenues increased by 21.7% to €3,593 million. The strong growth resulted principally from the developments previously described, with net fee and commission income evolving even more favorably for the first six months of 2006.

Operating Profit

2006 to 2005 Three Month Comparison

Operating profit experienced substantial growth to €319 million, up 55.6% from a year ago. Our PBC and CIB divisions both contributed to this positive development, which was primarily due to the strengthening of the divisions’ operating revenues.

Operating expenses increased 17.5%, almost entirely influenced by the development of administrative expenses, which amounted to €1,386 million, a rise of 20.0%. This increase almost exclusively refers to revenue-linked personnel expenses, which predominantly were incurred from the dynamic operating revenue growth within our CIB division. As a result, personnel expenses were up 45.8% to €892 million, as the weak 2Q 2005 included only marginal bonus accruals for CIB. Further, personnel expenses last year benefited from a one-off effect as a result of the release of provisions for employee anniversary payments. Non-personnel expenses decreased by 9.0% to €494 million in 2Q 2006. This development was mainly attributable to lower expenses for office space and information technology. As a consequence of the dynamic operating revenue growth, our cost-income ratio improved significantly by 7.6 percentage points to 81.0%.

Loan loss provisions resulted in a net charge of €5 million, compared to a net release of €54 million a year ago. Adequate reserving for current risks was broadly offset by significant recoveries of loans and releases of provisions of, in aggregate, €101 million. Gross new additions to loan loss provisions amounted to €106 million, in line with our qualitatively improved loan portfolio following the successful completion of the wind-down of our Institutional Restructuring Unit’s (or “IRU”) portfolio in September 2005.

 

22


Table of Contents

2006 to 2005 Six Month Comparison

Operating profit doubled to €848 million. This positive development is largely attributable to the dynamic operating revenue growth, which drove our cost-income ratio down 7.2 percentage points to 77.2%. Further, loan loss provisions resulted in a net release of €28 million in 1H 2006, compared to a net charge of €46 million a year ago. Similar to 2Q 2006, significantly higher recoveries of loans was a key factor in this development. At June 30, 2006, our coverage ratio was 58.5%, down 3.6 percentage points from a year earlier.

Operating Profit – Dresdner Bank

in € mn

LOGO

Non-Operating Items

2006 to 2005 Three Month Comparison

Income from non-operating items was €12 million, down €206 million from a year earlier. This development is almost exclusively attributable to the decline in realized gains/losses (net), which, in the prior year period, included significant gains from sales, including our shareholdings in Bilfinger Berger AG.

2006 to 2005 Six Month Comparison

The decrease in non-operating items in 1H 2006 was of a similar magnitude compared to that in 2Q 2006. Realized gains/losses (net) in 1Q 2006 included a tax-exempt gain of €282 million from the sale of Dresdner Bank’s remaining 2.3% shareholdings in Munich Re to Allianz AG as well as a significant gain from the disposal of our remaining participation in Eurohypo AG.

Net Income

2006 to 2005 Three Month Comparison

Net income was down 19.5% to €198 million. This development – despite strong operating profit growth – reflected the impact of the substantial decrease in non-operating items. Income taxes declined to €112 million from €156 million with a relatively stable effective income tax rate of 33.8% (2Q 2005: 36.9%).

2006 to 2005 Six Month Comparison

Net income increased 4.8% to €856 million. Backed by strong operating profit growth, income taxes rose by €126 million to €350 million. Our effective income tax rate was 27.9%, considerably higher from 20.6% a year earlier. In 1Q 2005, a tax-exempt gain similar to 1Q 2006 from the sale of Munich Re shares was realized, which had a larger impact on the 1Q 2005 effective income tax rate due to a lower income before income taxes and minority interests in earnings.

 

23


Table of Contents

The following table sets forth the income statements and cost-income ratios for both our Banking segment as a whole and Dresdner Bank for the three and six months ended June 30, 2006 and 2005, respectively.

 

     Three months ended June 30,     Six months ended June 30,  
     2006     2005     2006     2005  
     Banking
Segment1)
    Dresdner
Bank
    Banking
Segment1)
    Dresdner
Bank
    Banking
Segment1)
    Dresdner
Bank
    Banking
Segment1)
    Dresdner
Bank
 
     € mn     € mn     € mn     € mn     € mn     € mn     € mn     € mn  

Net interest income2)

   652     631     555     535     1,253     1,209     1,104     1,066  

Net fee and commission income3)

   728     680     695     658     1,560     1,473     1,397     1,324  

Trading income (net)4)

   308     381     135     128     795     865     582     563  

Income from financial assets and liabilities designated at fair value through income (net)4)

   18     18     5     5     21     21     (4 )   (4 )

Other income

   —       (1 )   4     4     25     25     4     4  
                                                

Operating revenues5)

   1,706     1,709     1,394     1,330     3,654     3,593     3,083     2,953  
                                                

Administrative expenses

   (1,436 )   (1,386 )   (1,209 )   (1,155 )   (2,864 )   (2,767 )   (2,575 )   (2,466 )

Investment expenses

   (10 )   (12 )   (8 )   (9 )   (16 )   (19 )   (15 )   (19 )

Other expenses

   13     13     (14 )   (15 )   13     13     (8 )   (8 )
                                                

Operating expenses

   (1,433 )   (1,385 )   (1,231 )   (1,179 )   (2,867 )   (2,773 )   (2,598 )   (2,493 )
                                                

Loan loss provisions

   (7 )   (5 )   52     54     26     28     (41 )   (46 )
                                                

Operating profit

   266     319     215     205     813     848     444     414  
                                                

Realized gains/losses (net)

   32     30     237     237     446     444     729     729  

Impairments of investments (net)

   (12 )   (12 )   (15 )   (14 )   (32 )   (32 )   (57 )   (56 )

Amortization of intangible assets

   (1 )   —       —       —       (1 )   —       —       —    

Restructuring charges

   (7 )   (6 )   (5 )   (5 )   (9 )   (8 )   (5 )   (5 )
                                                

Non-operating items

   12     12     217     218     404     404     667     668  
                                                

Income before income taxes and minority interests in earnings

   278     331     432     423     1,217     1,252     1,111     1,082  
                                                

Income taxes

   (89 )   (112 )   (155 )   (156 )   (334 )   (350 )   (229 )   (224 )

Minority interests in earnings

   (27 )   (21 )   (25 )   (21 )   (55 )   (46 )   (51 )   (41 )
                                                

Net income

   162     198     252     246     828     856     831     817  
                                                

Cost-income ratio6) in %

   84.0     81.0     88.3     88.6     78.5     77.2     84.3     84.4  
                                                

1) Consists of Dresdner Bank and non-Dresdner Bank banking operations within our Banking segment, as well as the elimination of trading income (net) of €81 mn at Dresdner Bank resulting from Dresdner Bank’s trading activities in Allianz AG shares in 2Q and 1H 2006.
2) Represents interest and similar income less interest expense.
3) Represents fee and commission income less fee and commission expense.
4) The total of these items equals income from financial assets and liabilities carried at fair value through income (net) in the segment income statement in Note 3 to the consolidated financial statements.
5) For the Banking segment, total revenues are measured based upon operating revenues.
6) Represents operating expenses divided by operating revenues.

 

24


Table of Contents

Banking Operations by Division

The following tables set forth our banking operating revenues, operating profit and cost-income ratio by division for the three and six months ended June 30, 2006 and 2005, respectively. Consistent with our general practice, operating revenues, operating profit and cost-income ratio by division are presented before consolidation adjustments, representing the elimination of transactions between Allianz Group companies in different segments.

 

Three months ended June 30,

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

Private & Business Clients1)

   774     160     77.3     730    146     75.8  

Corporate & Investment Banking1)

   979     220     76.6     558    91     85.5  

Corporate Other2)

   (44 )   (61 )   —  3 )   42    (32 )   —  3 )
                                   

Dresdner Bank

   1,709     319     81.0     1,330    205     88.6  
                                   

Other Banks4)

   (3 )   (53 )   —  3 )   64    10     84.3  
                                   

Total

   1,706     266     84.0     1,394    215     88.3  
                                   

 

Six months ended June 30,

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

Private & Business Clients1)

   1,666     430     72.6     1,529    288     76.1  

Corporate & Investment Banking1)

   1,946     483     76.4     1,309    198     82.5  

Corporate Other2)

   (19 )   (65 )   —  3 )   115    (72 )   —  3 )
                                   

Dresdner Bank

   3,593     848     77.2     2,953    414     84.4  
                                   

Other Banks4)

   61     (35 )   —  3 )   130    30     80.8  
                                   

Total

   3,654     813     78.5     3,083    444     84.3  
                                   

1) Our reporting by divisions reflects the organizational changes within Dresdner Bank in 1H 2006 resulting in two operating divisions. Private & Business Clients combines all banking activities for private and corporate customers formerly provided by the Personal Banking and Private & Business Banking divisions. Furthermore, Corporate & Investment Banking combines the former Corporate Banking and Dresdner Kleinwort Wasserstein divisions. Following a decision taken in late June 2006, we will integrate our business activities with medium-sized business clients into that with private and corporate customers. In the table above, our medium-sized business clients are still included in Corporate & Investment Banking. The final new business model with two new organizational units Private & Corporate Clients and Investment Banking is not reflected in the table above.
2) The Corporate Other division contains income and expense items that are not assigned to Dresdner Bank’s operating divisions. These items include, in particular, impacts from the accounting for derivative financial instruments which do not qualify for hedge accounting, provisioning requirements for country and general risks, as well as realized gains and losses from Dresdner Bank’s non-strategic investment portfolio. For the three and six months ended June 30, 2006, the impact from the accounting for derivative financial instruments which do not qualify for hedge accounting on Corporate Other’s operating revenues amounted to a gain of €9 mn and a charge of €14 mn, respectively (2005: gain of €93 mn and €73 mn, respectively). With effect from 1Q 2006, the majority of expenses for support functions and central projects previously included within Corporate Other have been allocated to the operating divisons. Additionally, the non-strategic Institutional Restructuring Unit (or “IRU”) was closed down effective September 30, 2005 having successfully completed its mandate to free-up risk capital through the reduction of risk-weighted assets. Furthermore, effective in 1Q 2006, and as a result of Dresdner Bank restructuring its divisions, the IRU’s 2005 results of operations were reclassified into Corporate Other. Prior year balances have been adjusted to reflect these reclassifications and allow for comparability across periods.
3) Presentation not meaningful.
4) Consists of non-Dresdner Bank banking operations within our Banking segment, as well as the elimination of trading income (net) of €81 mn at Dresdner Bank resulting from Dresdner Bank’s trading activities in Allianz AG shares in 2Q and 1H 2006.

 

24


Table of Contents

Asset Management Operations

Strong operating profit development continues.

 

    Double-digit operating profit growth year-over-year for the seventh consecutive quarter.

 

    Net inflows of €15 billion in the first half of 2006 despite a challenging market environment.

 

    Net inflows and positive market effects more than offset by negative currency effects resulting in third-party assets under management of €721 billion.

Third-Party Assets Under Management

Overall, in the first half of 2006, we were faced with a challenging market environment. Whereas in 1Q 2006, capital markets worldwide developed favorably, 2Q 2006 showed substantial declines in market values, particularly within the equity capital markets. Additionally, net flows in the fixed income mutual fund market in the United States and Germany turned negative in 2Q 2006.

Despite this challenging market environment in the first six months of the year, we achieved net inflows to third-party assets of €15 billion. Both fixed income and equity products contributed to the positive development, which affirms our strong position as one of the world’s largest asset managers, based on total assets under management.1) A key success factor continues to be our competitive investment performance. The overwhelming majority of the third-party assets we manage again outperformed their respective benchmarks. Market-related appreciation was €3 billion. Net inflows and positive market effects were more than offset by negative effects of €40 billion from exchange rate movements, resulting primarily from a weaker U.S. Dollar versus the Euro. As a consequence, on a Euro-basis, our third-party assets decreased €22 billion to €721 billion at June 30, 2006, compared to December 31, 2005.

Our major achievements in the first half of 2006 included:

United States

 

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

 

    Particularly strong net inflows of approximately €4 billion at our equity fund manager NFJ Investment Group.

 

    PIMCO was named “Investor of the Year 2005” by Securitization News.

Germany

 

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

 

    Germany´s equity management platform ranked first among “Best German Asset Managers” and achieved twelve individual top 3 rankings.3)

1) Source: Own internal analysis and estimates.
2) Source: Bundesverband Investment und Asset Management (or “BVI”), an association representing the German investment fund industry.
3) Source: Handelsblatt and Thomson Extel Surveys, June 22, 2006.

We operate our third-party asset management business primarily through AGI. At June 30, 2006, AGI managed approximately 94.6% (December 31, 2005: 95.2%) of our third-party assets. The remaining assets are managed by Dresdner Bank (approximately 2.8% and 2.3% at June 30, 2006 and December 31, 2005, respectively) and other Allianz Group companies (approximately 2.6% and 2.5% at June 30, 2006 and December 31, 2005, respectively).

The following graphs present the third-party assets managed by the Allianz Group by geographic region, investment category and investor class at June 30, 2006 and December 31, 2005, respectively.

 

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Table of Contents

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

in € bn

LOGO


1) Based on the origination of the assets.
2) Consists of third-party assets managed by Dresdner Bank (approximately €20 bn and €17 bn at June 30, 2006 and December 31, 2005, respectively) and by other Allianz Group companies (approximately €19 bn and €19 bn at June 30, 2006 and December 31, 2005, respectively).

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

in € bn

LOGO


1) Includes primarily investments in real estate.

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

in € bn

LOGO

Earnings Summary

The results of operations of our Asset Management segment are almost exclusively represented by AGI, accounting for 98.8% and 99.3% of our total Asset Management segment’s operating revenues and operating profit, respectively, for 2Q 2006 (2Q 2005: 98.9% and 98.8%). Accordingly, the discussion of our Asset Management segment’s results of operations relates solely to the operations of AGI.

Operating Revenues

2006 to 2005 Three Month Comparison

Our operating revenues rose by 13.1% to €717 million. Internal growth was even stronger at 15.9%. Higher asset-based management fees, reflecting both net inflows, particularly in the United States, and rising financial markets throughout the previous quarters, contributed largely to this performance. In addition, we experienced positive impacts from our strengthened equity business.

2006 to 2005 Six Month Comparison

Operating revenues reached €1,452 million, up €263 million (22.1%) from a year ago. On an internal growth basis, operating revenues rose by 19.1%. The increase resulted principally from the factors previously described. Further, income from financial assets and liabilities carried at fair value through income (net) increased by €14 million to €12 million, predominantly due to the mark-to-market valuation of seed money in the United States.

 

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Table of Contents

The following table sets forth the composition of AGI’s net fee and commission income.

 

     Three months ended June 30,     Six months ended June 30,  
         2006             2005             2006             2005      
     € mn     € mn     € mn     € mn  

Fee and commission income, thereof:

   1,015     868     2,030     1,660  

Management fees

   823     707     1,652     1,354  

Loading and exit fees

   86     80     177     157  

Performance fees

   9     13     25     22  

Other

   97     68     176     127  

Fee and commission expenses, thereof:

   (314 )   (253 )   (625 )   (498 )

Commissions

   (223 )   (190 )   (449 )   (377 )

Other

   (91 )   (63 )   (176 )   (121 )
                        

Net fee and commission income

   701     615     1,405     1,162  
                        

Operating Profit

2006 to 2005 Three Month Comparison

We experienced an operating profit growth of 18.5% to €295 million, primarily resulting from the increase in our operating revenues. In addition, exchange rate movements also proved beneficial, predominantly stemming from a stronger U.S. Dollar compared to the Euro. Excluding the effects related to currencies, operating profit would have improved by €44 million, or 17.7%. In line with our continued positive business performance in the United States, our U.S.-based operations contributed substantially to our operating profit growth. On a Euro-basis, operating profit in the United States rose by 12.9% to €223 million.

Operating expenses were €422 million, up 9.6% from a year earlier. Thereof, personnel expenses reached €265 million, up 12.9%. This increase resulted largely from higher performance-linked compensation, rising in line with operating profit. In addition, increased headcount following our business growth over the previous quarters also contributed to the rise in operating expenses. Non-personnel expenses increased 4.2% to €157 million, coupled with, among other factors, the impact of a higher asset base on our administrative expenses.

As a result, our cost-income ratio improved by 1.8 percentage points to 58.9%.

2006 to 2005 Six Month Comparison

Operating profit improved by 24.5% to €595 million. Effects from exchange rate movements contributed €25 million, or 5.2%. Operating expenses at €857 million were 20.5% higher compared to a year ago. The developments in the six months comparison resulted principally from the factors previously described in the three months comparison. Consequently, our cost-income ratio improved by 0.8 percentage points to 59.0%.

Operating Profit – Allianz Global Investors

in € mn

LOGO

Non-Operating Items

2006 to 2005 Three Month Comparison

Acquisition-related expenses and amortization of intangible assets, in aggregate, decreased 24.6% to €132 million. This decline was mainly driven by a lower number of outstanding PIMCO LLC Class B Units (or “Class B Units”). As of June 30, 2006, the Allianz Group has acquired 11,721 of the 150,000 units originally outstanding.

Going forward, we expect acquisition-related expenses to be mainly driven by our operating profit development.

2006 to 2005 Six Month Comparison

Acquisition-related expenses and amortization of intangible assets, in aggregate, decreased 20.8% to €270 million. In addition to a lower number of outstanding Class B Units previously mentioned, the expiration of amortization charges relating to capitalized loyalty bonuses for PIMCO management in 2Q 2005 also contributed to this development.

 

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Table of Contents

Net Income

2006 to 2005 Three Month Comparison

Net income reached €90 million, up 18.4% from a year earlier. Currency-related effects contributed 2.6%, or €2 million, to this increase. Income taxes amounted to an expense of €62 million after a tax benefit of €8 million in 2Q 2005. This tax benefit stemmed predominantly from a one-off deferred tax credit of €37 million in the United States related to tax deductible goodwill amortization.

2006 to 2005 Six Month Comparison

Net income grew significantly by 71.8% to €177 million. Excluding the effects related to exchange rate movements, net income would have improved by €65 million, or 63.1%. Income taxes rose to €126 million from €17 million a year earlier due to significantly increased taxable income in the United States and the one-off deferred tax credit in 2Q 2005, previously mentioned.

The following table sets forth the income statements and cost-income ratios for both our Asset Management segment as a whole and AGI for the three and six months ended June 30, 2006 and 2005, respectively.

 

    Three months ended June 30,     Six months ended June 30,  
    2006     2005     2006     2005  
    Asset
Management
Segment
    Allianz
Global
Investors
   

Asset
Management

Segment

   

Allianz

Global

Investors

   

Asset

Management

Segment

   

Allianz

Global

Investors

   

Asset

Management

Segment

   

Allianz

Global

Investors

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

Net fee and commission income1)

  712     701     624     615     1,429     1,405     1,180     1,162  

Net interest income2)

  13     15     14     19     30     29     17     23  

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

  (2 )   (2 )   —       (3 )   12     12     5     (2 )

Other income

  3     3     3     3     6     6     6     6  
                                               

Operating revenues3)

  726     717     641     634   &n