During the entire reporting year, the Supervisory Board observed the duties incumbent upon it in accordance with the law and the Statutes. We advised the Management Board in the running of the business and supervised the management of the company. The Supervisory Board was directly involved in decisions of fundamental importance.
Within the framework of its monitoring and advisory activities, the Supervisory Board was regularly provided by the Management Board, both verbally and in writing, with timely and comprehensive information on the course of business, the financial and economic development of the Allianz Group and of Allianz SE, including the risk situation and the management of risk as well as the company strategy. In Supervisory Board meetings, on the basis of reporting from the Management Board, we discussed in detail the development of the business and important decisions and business matters. As far as necessary under the law or the Statutes, the Supervisory Board passed resolutions after detailed examination. In addition we took care of the Management Board’s planning for the financial year 2007 and medium term planning. For the past financial year, explanations of any deviation from plans and objectives in the course of the business were presented to us and examined by us on the basis of the documents provided.
The Supervisory Board met in total six times during financial year 2006. The Allianz AG Supervisory Board met in February, March, May and in September. The constitutive meeting of the Allianz SE Supervisory Board also took place in September. The first regular meeting of the Allianz SE Supervisory Board was held in December. In between meetings the Management Board kept us informed in writing of important issues. In addition the chairman of the Supervisory Board was continually kept up to date on major developments and decisions.
Merger of RAS into Allianz AG, transformation of Allianz AG into a European Company (SE)
An important area of our advisory and supervisory activity was the merger of the Italian Allianz subsidiary RAS Holding S.p.A. (RAS) into Allianz AG and the necessary preparations for this. We discussed and checked all this in our meetings in March, May and September on the basis of verbal reports from the Management Board and written material. In two cases, the Supervisory Board passed written resolutions on this. In addition to its ordinary meetings, the Standing Committee twice took decisions through the medium of telephone conference calls. One of the decisions dealt with the conclusion of a settlement with those shareholders who had started actions in law to contest the merger. In the settlement that was reached the plaintiffs agreed to withdraw their actions in consideration for our assuming their lawyers’ costs, so that these actions no more stood in the way of the merger and transformation of the company. The Supervisory Board also closely monitored the negotiations over the future participation of employees in Allianz SE, in conjunction with the merger and transformation of the company. These negotiations ended on September 20, 2006 with the signing of the Agreement concerning the Participation of Employees in Allianz SE. The merger became effective with registration in the Commercial Register on October 13, 2006. At the same time Allianz took on the form of a European Company (Societas Europaea – SE) and its company name is now Allianz SE.
Reorganization of our insurance business in Germany
At our meetings in March, May, September and December, the Management Board kept us informed of progress in the reorganization of our German insurance business. We appraised ourselves with the new business organization headed up by the insurance holding company for Germany, Allianz Deutschland AG, and concerned ourselves with Allianz Beratungs- und Vertriebs-AG, the consulting and marketing company responsible for all sales activity. Finally we were consulted on the concept for business locations and employment in Germany and its implementation.
Planned buy-out of minority interests in AGF and Allianz Lebensversicherungs-AG
In January and February 2007 in two extraordinary telephone conference calls and one extraordinary meeting of the Standing Committee as well as an extraordinary meeting of the Supervisory Board we dealt with the tender offer to buy the minority interests in the French Allianz subsidiary AGF. At the same time we considered the decision by Allianz Deutschland AG to make an offer to purchase the minority shareholdings in Allianz Lebensversicherungs-AG. Both transactions were approvingly noted by the Supervisory Board. The Standing Committee gave its formal consent to purchase 100% of AGF. In addition, the Standing Committee gave its approval to the Management Board’s decision to exercise Authorized Capital 2006/I in order to create the Allianz shares offered as part of the consideration for the acquisition of AGF shares. Again in March 2007 and on the basis of a presentation of the Management Board we concerned ourselves in the Supervisory Board plenum with the tender offer to the minority shareholders in AGF and Allianz Lebensversicherungs-AG.
Restructuring of Dresdner Bank AG
In addition to regular reports on turnover and results of our banking business segment we were informed in the September and December meetings of developments at Dresdner Bank and its restructuring into the business divisions Private & Corporate Clients and Investment Banking. We were able to satisfy ourselves that Dresdner Bank, after having amortized its equity costs in 2005, was able in 2006 to increase profitability and obtain a post-tax return on equity employed of 10.9 %, excluding restructuring costs. We will continue to follow developments at Dresdner Bank very closely.
Financial situation and profitability
In every Supervisory Board meeting throughout financial year 2006 (except the constitutive meeting of the Allianz SE Supervisory Board) the Management Board reported on turnover and results in the group and gave further details on how business was running in each individual business segment and reported on the financial situation. This was then discussed in the Supervisory Board. The Management Board explained that the capital base was further strengthened and that the group’s high rating was once again assured.
Other issues
We were kept continually up to date by the Management Board on current capital investment projects. In our September 2006 meeting we appraised ourselves of the main points of the reform of the health care system in Germany and possible consequences for private health insurance business; in addition we took a look at the planned reform of the law on insurance contracts. In our September and December meetings we were brought up-to-date on the current state of settlement of claims arising out of the World Trade Center loss. One of the subjects of our March and December meetings was also the completed concentration of our industrial insurance business in Allianz Global Corporate & Specialty AG and the objectives of this realignment. In addition to regular information updates on risk exposures the Management Board gave a presentation to our September meeting on risk management at Allianz SE.
As in previous years, we unanimously welcomed the decision of the Management Board to offer Allianz shares to employees of the Allianz Group in 22 different countries at preferential terms.
Corporate Governance and declaration of compliance
We were involved in the further development of corporate governance standards in the organization on an ongoing basis. On December 18, 2006 the Management Board and the Supervisory Board issued our declaration of compliance in accordance with Section 161 of the German Stock Corporation Act (Aktiengesetz) and put it up on the company website on a permanent basis where it can be consulted at will. Allianz SE is in compliance with all recommendations of the Government Commission German Corporate Governance Code, also those in the June 12, 2006 version of the Code.
In our December meeting, without the presence of the Management Board, we monitored once again the efficiency of our work. We worked on the implementation of measures agreed upon in the previous year to improve efficiency and discussed further possibilities to improve the workings of the Supervisory Board, in particular to improve the efficiency of the work done in the committees.
In the context of the transformation into an SE the Supervisory Board in its December meeting adopted new rules of procedure. These replaced the temporary procedures that the SE Supervisory Board had adopted at its constitutive meeting in September and which were only designed to remain in force until the employee representatives joined the Supervisory Board. These new rules of procedure were necessary so as to bring the existing Allianz AG Supervisory Board rules of procedure into line with the provisions in the SE Regulation, the German SE Implementation Act (SE-Einführungsgesetz) and the newly enacted Statutes of Allianz SE. In the course of adopting these new procedures we took a look at the split of responsibilities between the Supervisory Board plenary sessions and committees and also set up a new Risk Committee.
In order to efficiently exercise its functions, the Supervisory Board has set up an Audit Committee, a Standing Committee and a Personnel Committee and in December 2006 it also set up a Risk Committee. These committees prepare resolutions and the work of Supervisory Board plenary sessions. Also, in adequate cases authority to take decision has been delegated to committees themselves. The Conciliation Committee no longer exists because the German Co-Determination Act (Mitbestimmungsgesetz), which provides for such a committee, does not apply to Allianz SE. The current composition of these committees is set out in the following list.
Committees of the Supervisory Board of Allianz SE
As of December 31, 2006
Chairman of the Supervisory Board Dr. Henning Schulte-Noelle
Deputy Chairpersons of the Supervisory Board Dr. Gerhard Cromme Claudia Eggert-Lehmann
Audit Committee Dr. Gerhard Cromme (Chairman) Dr. Wulf H. Bernotat Igor Landau Jean-Jacques Cette Jörg Reinbrecht
Personnel Committee Dr. Henning Schulte-Noelle (Chairman) Dr. Gerhard Cromme Claudia Eggert-Lehmann
Risk Committee Dr. Henning Schulte-Noelle (Chairman) Dr. Wulf H. Bernotat Prof. Dr. Renate Köcher Godfrey Robert Hayward Margit Schoffer
Standing Committee Dr. Henning Schulte-Noelle (Chairman) Dr. Gerhard Cromme Dr. Franz B. Humer Claudia Eggert-Lehmann Rolf Zimmermann
During financial year 2006 the Standing Committee held three meetings (two as part of Allianz AG and one as part of Allianz SE) and two telephone conference calls dealing primarily with implementing the merger of RAS into Allianz AG, the transformation into an SE, the employee share purchase program and questions of corporate governance. The Personnel Committee met on two occasions. The meetings dealt with staffing matters as well as the structure and amount of Management Board remuneration. No occasion arose that necessitated calling a meeting of the former Conciliation Committee.
The Audit Committee held five meetings in financial year 2006 (four as part of Allianz AG and one as part of Allianz SE). Together with the auditors the committee discussed and checked the Allianz SE and Allianz Group annual accounts, the management reports, the auditor’s reports and the US Form 20-F report. In addition the committee checked the quarterly financial statements and together with the auditors went through details of the auditor’s review of the quarterly financial statements. After carrying out these checks the Audit Committee had no objections to raise. In addition the committee decided on the different audit assignments to be carried out and set the main audit objectives. Furthermore the measures that are taken to bring about compliance with the provisions of the US Sarbanes Oxley Act in respect of efficiency of internal control systems for financial reporting were discussed. In the reporting year too, the company asked the auditors to check that the provisions of section 404 of the Sarbanes Oxley Act are being complied with. In addition assignments to the auditors for services not connected to the audit itself were discussed. The head of Group Audit reported to the committee on the audit plan for 2007 and on the main points that resulted from the audit process in financial year 2006.
The newly established Risk Committee held no meetings in the last financial year. Its future role will be to supervise the establishment and maintenance of the risk management and risk control system and its organization and development. Furthermore it monitors consistency risk strategy with overall business strategy and appraises itself of the general risk situation and any particular risk developments. Within the framework of the audit of the annual accounts and management reports, this committee is responsible for prior verification of any particular risk-related statements and for reporting to the Audit Committee on the results of this preliminary review.
The Supervisory Board was kept regularly and comprehensively up-to-date on the workings of the different committees.
Audit of annual accounts and consolidated financial statements
KPMG Deutsche Treuhand-Gesellschaft AG Wirtschaftsprüfungsgesellschaft, Munich, audited the financial statements of Allianz SE and Allianz Group as well as the respective management reports and issued their certification without any reservations. The consolidated financial statements were prepared in accordance with International Financial Reporting Standards (IFRS). In addition the quarterly financial statements were reviewed by KPMG.
The financial statements and the KPMG auditor’s report for financial year 2006 were made available to all members of the Supervisory Board in a timely manner. The financial statements and the results of the KPMG audit were discussed on a provisional basis by the Audit Committee in their meeting held on February 21, 2007. The final accounts and KPMG auditor’s reports were examined by the Audit Committee in its meeting on March 13, 2007 and in the Supervisory Board plenary session on March 14, 2007. The auditors took part in these discussions. They gave an account of the main findings of the audit and were available for any questions or further information.
On the basis of our own review of the financial statements of Allianz SE and Allianz Group, the management report and the Group Management Report and the recommendation for appropriation of earnings, we made no objections and agreed with the result of the KPMG audit. We approved the financial statements for Allianz SE and Allianz Group drawn up by the Management Board; the individual accounts are therefore adopted. We concur with the proposal of the Management Board as to the appropriation of earnings.
Explanations appending to the management report's statements in accordance with section 289 paragraph 4 and section 315 paragraph 4 of the German Commercial Code
For the first time in financial year 2006 the German Act on the Implementation of the EU Takeover Directive of July 8, 2006 lays down in section 289 paragraph 4 and section 315 paragraph 4 of the German Commercial Code (Handelsgesetzbuch) supplementary information obligations relating to the management report. The Supervisory Board is obliged to make a statement relating to this in accordance with section 171 paragraph 2 sentence 2 of the German Stock Corporation Act. The Management Board has provided the necessary information and it can be found on page Statements in accordance with Section 315 Paragraph 4 of the German Commercial Code and Explanations. We concur with the explanations provided by the Management Board and in addition would like to point out the following:
Allianz SE issues registered shares with restricted transferability. Under German stock corporation law in case of registered shares only those persons who appear in the share register are deemed by the company to be shareholders. This is particularly important for such things as taking part in general meetings and making use of voting rights. Appearing in the share register also facilitates direct communications with the shareholders. In this way, for instance, all shareholders can be personally invited to attend general meetings. The restriction on share transferability goes right back to the creation of Allianz in 1890. This practice is widespread in the insurance industry in Germany. In accordance with the Statutes, the company will only withhold the approval necessary for transfer of shares when this is for extraordinary reasons and is considered to be in the interest of the company. For several decades no such case has occurred. With the standardization of share transfer processes, the restriction on share transferability does not cause any delay in the registration in the share register and does not impede in any way the quotation of the shares on stock exchanges.
The authority explained in the management report to buy back or make use of treasury shares or issue convertible bonds or bonds with warrants or issue new shares out of authorized capital enables the Management Board to raise capital swiftly and flexibly taking advantage of attractive financing opportunities as and when they arise on the markets and, for example, offer Allianz stock as consideration when making acquisitions of participations. Furthermore Allianz stock can be offered to employees of the Allianz Group. The authority to deal in own stock for trading purposes is especially useful for Dresdner Bank giving it the possibility to deal in Allianz stock.
The so-called “change of control” clause in Management Board members’ contracts of employment for the eventuality that a member should leave the board following a change in control is explained in the remuneration report in chapter Corporate Governance and Remuneration Report of this report. The Supervisory Board considers this arrangement to be justified. It is only effective when one shareholder alone or acting with other shareholders, holds more than 50% of voting rights in Allianz SE. Furthermore, it only applies if there is a close link between leaving the board and the change of control, in that the provision requires that within 12 months of the change of control the Supervisory Board terminates the appointment of the Management Board member concerned or the member leaves on the basis of an agreement or the member relinquishes, on account of materially diminished responsibilities, his or her appointment. The Supervisory Board also considers the amounts mentioned in this arrangement to be justified. Only in the case the remaining un-served period of the service contract is less than three years the compensation is higher than the remuneration for the remaining un-served period of the service contract. In such cases the amount of fixed remuneration and annual bonus claimable is increased corresponding to a period of three years. The same rules apply when a Management Board appointment is not renewed prior to the expiry of two years after the change in control. The change of control arrangement is designed to contribute to the independency of the Management Board’s opinion in the event of a possible change in control.
The Supervisory Board also considers the inclusion of a change of control clause in so-called Group Equity Incentive Plans to be justified; further details can be found on page Statements in accordance with Section 315 Paragraph 4 of the German Commercial Code and Explanations of this report. In providing for the non application, in the event of a change of control, of any limitation on the period for exercising rights under such plans, account is taken of the fact that the conditions under which the share price moves are very different when there is a change in control.
The rules explained on page Statements in accordance with Section 315 Paragraph 4 of the German Commercial Code and Explanations of this report whereby holders of profit participation certificates may cancel their participation certificates on change of control and receive a compensation on the basis of the terms and conditions of the participation certificate, are, in our opinion, justified too, and correspond to usual market practice for the defense of the interests of holders of participation certificates.
Members of the Supervisory and Management Boards
With the transformation into an SE the appointments of the members of the previous Allianz AG Supervisory Board came to an end. We have thanked the departing members of the Supervisory Board for their much appreciated work on our board.
As part of this transformation the Supervisory Board has been reduced to twelve members and is now composed of six shareholder representatives and six employee representatives. The six shareholder representatives in the Allianz SE Supervisory Board were appointed through the Statutes that formed part of the merger plan resolved at the Shareholders’ General Meeting of February 8, 2006. The shareholder representatives on the first Allianz SE Supervisory Board are Professor Dr. Renate Köcher, Dr. Wulf H. Bernotat, Dr. Gerhard Cromme, Dr. Franz B. Humer, Mr Igor Landau and Dr. Henning Schulte-Noelle.
The employee representatives on the Allianz SE Supervisory Board were nominated in the Agreement concerning the Participation of Employees in Allianz SE signed on September 20, 2006, and appointed by the local court of Munich on October 27, 2006. The employee representatives on the Allianz SE Supervisory Board are Ms Claudia Eggert-Lehmann and Ms Margit Schoffer as well as Mr Jean-Jacques Cette, Mr Godfrey Robert Hayward, Mr Jörg Reinbrecht and Mr Rolf Zimmermann. For the first time employee representatives from EU states outside Germany have been appointed as Supervisory Board members of Allianz SE and these are Mr Cette from France and Mr Hayward from the UK.
The newly constituted Supervisory Board has elected Dr. Henning Schulte-Noelle as chairman. The Supervisory Board elected as deputy chairpersons Dr. Gerhard Cromme upon proposal of the shareholder representatives and Ms Claudia Eggert-Lehmann upon proposal of the employee representatives.
The appointments of Allianz AG Management Board members also expired on the effective date of the transformation. They were all re-appointed by the Supervisory Board as members of the Allianz SE Management Board. The position of labour director within the meaning of section 33 of the German Co-determination Act no longer exists in Allianz SE. In accordance with the Agreement concerning the Participation of Employees in Allianz SE, the Management Board has appointed the former labour director, Dr. Gerhard Rupprecht, as Management Board member responsible for work and social welfare. The Supervisory Board has approved this appointment.
The Supervisory Board would like to thank all Allianz Group employees for the great effort they have put into our business over the past year.
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