Robust earnings despite difficult market environment

Allianz Group in the 1st quarter 2008: Robust earnings despite difficult market environment
Operating profit of 1.86 billion euros achieved – Markdowns of 845 million euros in ABS trading book – Realized gains deliberately kept low; net harvesting 1.8 billion euros below first quarter 2007 – Perlet: "We remain optimistic about the medium term, as the fundamentals of our business are in very good shape."

Munich, May 9, 2008
Allianz Group weathered difficult market conditions in the first quarter of 2008, which were due to the continuing credit crisis and weak equity markets worldwide. Total revenues decreased by 5.7 percent to 27.7 billion euros, compared to 29.3 billion euros in the same period of 2007. Operating profit in the first quarter of 2008 amounted to 1.86 billion euros, or 1.0 billion euros less than in the first quarter of 2007. Thereof, 845 million euros are attributable to ABS markdowns in first quarter 2008. Quarterly net income amounted to 1.15 billion euros. This represents a 64.6 percent decrease, which is mainly a result of Allianz's decision to not realize gains from capital investments due to unfavorable stock markets. This is in strong contrast to the first quarter of 2007, when Allianz recorded net realized gains of 2.0 billion euros from investments. Net-harvesting was 1.8 billion euros lower than in first quarter 2007.
Allianz Group did register some spill-over effects from the financial markets turmoil into its operations, such as lower investment income in Life and Health, decreased fee and commission income in Banking, and lower revenues from third-party equities business in Asset Management. However, Allianz Group’s fundamental business operations were robust with continued efficiency gains. Moreover, the Property and Casualty business recorded a very strong increase of operating profit and a combined ratio of 94.8 percent. The asset quality in insurance was strong. Also, the new business margin in Life and Health was at target level.
Allianz Group's capital base remains strong with shareholders’ equity amounting to 45.0 billion euros, compared to 47.8 billion euros at December 31, 2007.
The Property and Casualty business posted strong performance in the first quarter of 2008 with an operating profit improvement of 16.7 percent to 1.48 billion euros, compared to 1.27 billion euros in the first quarter of 2007. Gross premiums written, at 13.7 billion euros, nearly reached the same level of the previous year's first quarter. At 94.8 percent, the combined ratio was in the target range and significantly lower than 96.8 percent in the first quarter of 2007. The expense ratio was 26.1 percent, 2.5 percentage points lower than in the previous year's first quarter.
"We have again achieved superior results in soft P&C markets, through selective underwriting, pricing discipline and improved efficiency. Therefore, we are in a position for strong growth when the cycle turns in our mature markets," said Helmut Perlet, CFO of Allianz SE.
In the Life and Health business, total premium income remained stable at 12.3 billion euros, compared with the first quarter of 2007. Strong top-line growth in most major markets was in contrast to a specific development in Italy, where the entire bancassurance market was down by more than 30 percent in the first months of 2008. Switzerland, France and Germany recorded strong internal growth in Life through the acquisition of large group contracts. In Asia Pacific, Allianz maintained the growth momentum despite weaker bancassurance sales.
Operating profit decreased by 21.5 percent from 750 million euros in the first quarter of 2007 to 589 million euros, which was predominantly driven by a lower investment income.
"The underlying fundamentals in our Life and Health business are on track, demonstrated by a new business margin of 3 percent and positive net inflows," said Helmut Perlet.
Dresdner Bank saw a significant decline in operating revenues by 64.5 percent to 719 million euros, compared to over 2.0 billion euros in the first quarter of 2007. This was predominantly driven by 845 million euros in markdowns on the ABS trading book. The interest income amounted to 669 million euros, compared to 900 million euros in the first quarter of 2007. Net fee and commission income decreased from 789 million euros to 604 million euros, which reflects the current market environment leading to a lower income from transaction-driven securities business.
The operating profit decreased to -453 million euros, from 677 million euros in the first quarter of 2007. However, expenses were further reduced across all expense categories and divisions. Overall, operating expenses decreased to 1.16 billion euros from 1.35 billion euros in the previous year's first quarter.
In Asset Management, third-party assets under management decreased to 736 billion euros from 765 billion euros at December 31, 2007. Third-party net inflows at 25.9 billion euros in the first quarter of 2008 were strong and supported by Allianz Global Investors' resilient fixed-income business in the difficult market conditions. Internal growth of third-party assets under management was 2.4 percent. Given the weak equity markets, operating profit decreased from 312 million euros in the previous year's quarter to 241 million euros. The cost-income ratio amounted to 66.9 percent.
"We believe our Asset Management business did very well, given the extremely difficult market environment. Taking into consideration strong net inflows and stable margins, the segment is poised for future growth as markets go back to normal," said Helmut Perlet.
"Although we are seeing somewhat lesser tension in US residential mortgage prices as well as cautiously rebounding equity markets, it is hard to predict when the stormy weather will end. While 2008 will remain a challenging year, the longer this environment persists the harder it will also be to achieve our medium term outlook. Yet we remain optimistic, as the fundamentals of our business are in very good shape and we are very well positioned for the return to normal market conditions," said Helmut Perlet.

Premium Partner of FC Bayern Munich

The Allianz Arena has been home to FC Bayern Munich since May 2005. The connection was intensified by the Premium Partnership which exists between FC Bayern Munich and Allianz. FC Bayern Munich has 135,000 members and is one of the largest sports clubs in the world today. Its successes range from 19 championship titles and 13 DFB Cup victories through to winning the Champions League. Before the Champions League was launched FC Bayern succeeded in winning the European Cup three times. Beyond Europe's boundaries they also brought home the Intercontinental Cup twice.
Allianz has reinforced its sponsorship commitment to FC Bayern in the form of a comprehensive sponsorship package up to 2010.
The partnership is a prime example, on the national level, of corporate citizenship. But at the international level, too, there are similarities between the two partners. Allianz is an international financial services provider in the field of insurance, asset management and banking; it is supporting FC Bayern, a football club which is also regarded as a global player with an international focus.
In the next few screens you will find plenty of exciting details on e.g. the founding, history and executive bodies of the successful Bayern Munich Football Club - a club with great expectations for the future. In the 2007/2008 season the club has invested EUR 70 million in new players, putting it firmly in the elite circle of top European clubs. Besides attracting such international stars as Franck Ribéry and Luca Toni, FC Bayern also succeeded in bringing back a familiar face to Munich in the form of Zé Roberto, who continues to inspire Bundesliga fans with his impressive technical skills.
The phenomenon of Franck Ribéry
"Dynamism, speed, imagination and technical finesse". These are attributes which the entire footballing world - in Germany and beyond - associate with one name: "Franck Ribéry". With his great enthusiasm and his inspirational way of carrying the team, the French national player managed to win over the hearts of the fans within a matter of weeks at FC Bayern. Zinedine Zidane described him as the "jewel of French football", and Thierry Henry called him "every defender's nightmare" - Franck Ribéry inspires passionate responses from all who have played with him. However, the path from Boulogne-sur-Mer in the north of France to the top German team was anything but straightforward for the right-footer. He repeatedly changed teams, experiencing many highs and lows. It was not until the 2004/05 season that his prospects started to look up at FC Metz and at Galatasaray Istanbul. On moving to Olympique Marseille he then finally became the shooting star of French football over the next two seasons.
His fast, intense and inventive playing combined with his high-precision passes are what make him unique. One thing is absolutely certain: Franck Ribéry will continue to thrill fans at FC Bayern and on the world football stage!

Mutual Funds


Targeted Investments
Mutual funds aim at particular targets. To hit them, the funds make certain types of investments.

Every mutual fund — stock, bond, or money market — is established with a specific investment objective that focuses on one of three basic goals:
  • Future growth
  • Current income
  • Both income and growth
To achieve its objective, the fund invests in securities it believes will produce the results it wants. To identify those securities, a fund often does a vast amount of research, often using what's known as a bottom-up style, which involves analyzing individual companies. When the objective is small-company growth or the focus is on emerging markets, the process can be more difficult because there's limited information readily available.

In addition, each fund manager has a buying style, seeking a particular type of investment from the pool that may be appropriate for the objective. Some equity-fund managers, for example, stress value, which means buying stocks whose prices are lower than might be expected. Other managers may be contrarians, buying investments that others are shunning.

There is always the risk that a fund won't hit its target. And some funds are, by definition, riskier than others. For example, a fund that invests in small new companies takes the chance that some of its investments will do poorly because it believes that some, at least, will do very well. In contrast, other funds work to moderate risk by balancing their investments between stocks and bonds.

These charts group funds in three basic categories by investment objective. They also illustrate the correlation between a fund's objective and the risks it may face.
Kind of
What the
fund buys
Agency bond Income and regular return of capital Value and return dependent on interest rates Securities issued by US government-sponsored agencies and related institutions
Corporate bond Steady income Interest-rate changes and inflation Highly rated corporate bonds, with various maturities
High-yield bond Highest current income High-risk bonds in danger of default Low-rated and unrated corporate government bonds
International and money market Income and currency gains Changes in currency values and interest rates CDs and short-term securities
Municipal bond Tax-free income Interest-rate changes and inflation Municipal bonds in various maturities
Short-/ intermediate-term debt Income Small risk of loss. Less influenced by changes in interest rate Different types of debt issues with varying maturities, depending on type of fund
US Treasury bond Steady income Interest-rate changes and inflation Highly rated government bonds
Kind of
What the
fund buys
Balanced Income and growth Limited risk to principal. Moderate long-term growth Part stocks and preferred stocks (usually 60%), and part bonds (40%)
Equity income Income and growth Limited risk to principal. Moderate long-term growth Blue chip stocks and utilities that pay high dividends
Growth and income Growth plus some current income Limited risk to principal. Moderate long-term growth Stocks that pay high dividends and show good growth
Income Primarily income Limited risk of loss to principal, but less growth in strong market Primarily bonds, but some dividend-paying stocks
Kind of
What the
fund buys
Aggressive growth funds, also called capital appreciation Long-term growth Very volatile and speculative. Risk of above-average losses to get above-average gains Stocks of new or undervalued companies expected to increase in value
Emerging markets Growth Typically more volatile than other growth funds Stock in companies in developing countries
Equity index Imitate the stock market Average gains and losses for the market the index tracks Stocks represented in the index the fund tracks
Global equity Global growth Gains and losses depend on stock prices and forex fluctuations. Some risk to principal Stocks in various markets
Growth Above-average growth Can be volatile. Some risk of loss to principal to get higher gains Stocks in mid-sized or large companies whose earnings are expected to rise quickly
International equity International growth Potentially volatile, based on currency fluctuation and political instability Stocks in non-US companies
Sector Growth Volatile funds dependent on right market timing to produce results Stocks in one particular industry, such as energy or transportation
Small company growth Long-term growth Volatile and speculative. Risk of above-average losses to get higher gains Stocks in small companies traded on the exchanges or over the counter
Value funds Growth Often out of step with overall market Stocks in companies whose prices are lower than they seem to be worth
International fund managers may use a practice called hedging to protect the return on their funds. That's because if a currency gains value in relation to others, investments denominated, or sold, in those other currencies have less value when they are converted into the stronger currency. To protect against losses that could result from that situation, mutual funds often buy futures contracts on a currency at preset exchange rates.

Funds that hedge may put up to 50% of their total assets in currency contracts rather than stocks or bonds. But other funds don't hedge at all, figuring that exposure to other currencies is part of the reason for investing overseas.

City Bank


US Treasury Bonds, Notes & Bills
The US government is a big force in the bond market.

The US Treasury issues three types of debt securities. They differ from each other in their maturities, in the frequency with which they are offered, in the interest rates they pay, and the way in which the interest is paid. They share the reputation of being absolutely safe from default, though they're vulnerable to changes in market price and the impact of rising or falling interest rates.

The most common issues are notes, available with 2-, 3-, 5-, or 10-year terms, and bills, available with 4-, 13-, or 26-week terms. There are also inflation-indexed 10-year notes. Finallly, there are Treasury STRIPS, which are government zero-coupon bonds.

In late 2001, the Treasury stopped auctioning new 30-year bonds and 30-year inflation indexed bonds, although existing bonds continue to trade in the secondary market. These long-term issues, sometimes called long bonds, typically paid higher interest than notes or bills, making them a more expensive way for the government to borrow.

Treasury issues are sold in $1,000 increments, and you can invest as little as $1,000 or as much as $1 million. You can buy and sell directly, through a program known as Treasury Direct, or through a broker.

Bills are auctioned every week. The 2-year notes are currently auctioned once a month, and the 5-and 10-year notes in February, May, August, and November. The frequency of those auctions changes from time to time, though. You can get current auction information by visiting the Treasury Direct website (

Like other debt securities, Treasurys are traded in the secondary market after issue, and their prices fluctuate to reflect changing demand. Details of those trades, in the order of maturity date, are reported regularly in tables like the one below.

Rate is the percentage of par value paid as annual interest. The note maturing in March 04 pays 5 7/8% interest.

Maturity is the month and year the bond or note comes due. A range of rates for notes maturing in the same month indicate that those notes were of different durations — from two years to ten — or were issued at different times, or both.

Government Bonds An n after the date indicates that the issue is a note as all the issues in this chart are.

Prices for Treasury issues are quoted as bid and asked instead of as a closing price. That's because these securities are traded over-the-counter, in thousands of private, one-on-one transactions. So it's not possible to determine the exact price of the last transaction. The best information that's available is the highest price offered — the bid — by buyers and the lowest price being asked by sellers at 4 pm Eastern time.

Treasury bond and note prices are measured in 32nds rather than 100ths of a point. Each 1/32 equals 31.25 cents, but the fractional part is dropped when the price is quoted. If a bond is selling at 100:2 (or 100 and 2/32), the price translates to $1,000.62.

For example, the note paying 5 7/8% that matures in March 04 has a bid price of 100:04 and an asked price of 100:06. So the bid price is $1,001.25 (4 x 31.25 cents = $1.25) and the asked price is $1,001.88 (6 x 31.25 cents = $1.875).

T-Bills Treasury bills, or T-bills, are sold originally at discount, and the difference between the price paid and par value is the dollar return, or interest. Full par value is repaid at maturity.

Dealers trade T-bills by bidding and asking discount percents. For example, the highest bid on the bill that matured February 4 was 4.73, meaning that the price offered was at a 4.73% discount. That is, the offer was $952.70 to buy a $1,000 bill. The asked price was $953.50, a 4.65% discount.

Bid change represents the change in the bid price given here and the bid price given in the tables for the previous trading day. The change is stated as a percent and preceded by a + if it is higher, and a – if it is lower. For example, the bid price on the February 04 bill was 0.14% of a point higher than on the previous day.

Ask yield is the yield to maturity. As with bonds and notes, it represents the relative value of the issue. The figure that gives the most accurate sense of what an investor makes on a T-bill is the coupon equivalent yield, or the percentage return resulting from dividing the dollar return by the amount paid. For example, a $1,000 bill sold for $960 has a coupon equivalent yield of 4.16%.

Dollar return on T-bill
Cost of T-bill
= Coupon yield equivalent
for example
= 4.16%

U.S. Treasury Strips Trading in STRIPS is also reported, in a separate section of the table. STRIPS prices are always less than par, since they are issued at a deep discount. Those closer to maturity trade at higher prices, since they can be redeemed at par value when they come due. Compare the 99:27 bid price of the issue that matures in February 02 with the 96.14 bid price for one that matures in November 02. Those with later maturity dates are also more volatile. Type describes the category of STRIP. ci indicates stripped coupon interest, np indicates a note with stripped principal, and bp, which doesn't appear in this example, indicates a bond with stripped principal.