Annual Report AMB Generali Holding AG

Transcription

1 Annual Report AMB Generali Holding AG 2003

2 Key figures of AMB Generali Holding AG 2003 Change over 2002 For details prec. year see page in % Net premiums earned m of which life m property/casualty m Claims and benefits m Operating expenses m Underwriting result before equalization provision m Underwriting result after equalization provision m Investment result (before technical interest) m , 41 Result of ordinary activities m Taxes m , 42 Net income for the year m Investments m 6, , , 32 ff. Equity m 1, , f. Underwriting provisions (net) m 3, Balance-sheet total m 7, ,045.1 Number of employees , 44 AMB Generali share Dividend per share 1.35* Dividend distribution m 72.5* Price of AMB Generali share as at Dec * subject to resolution by the General Meeting

3 Annual Report 2003 AMB Generali Holding AG

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5 Contents 4 Corporate bodies 6 Report by the Supervisory Board Management Report 11 Business performance of AMB Generali 13 Relationships with affiliated enterprises 13 Result 13 Balance-sheet profit and appropriation 14 Outlook Risks involved in the future development and risk controlling 20 Corporate Governance Annual Financial Statements 23 Balance Sheet as at December 31, Income Statement for the period from January 1 to December 31, Notes 47 Auditor s Report 49 Mandates

6 Corporate bodies Supervisory Board Prof. h.c. Dr. h.c. (RUS) Dr. iur. Wolfgang Kaske Chairman Attorney Monika Hendricks* Deputy Chairwoman Insurance employee Dott. Sergio Balbinot Amministratore Delegato of Assicurazioni Generali S.p.A. Antoine Bernheim Presidente of Assicurazioni Generali S.p.A. Martin Blessing Member of the Board of Management of Commerzbank AG Prof. Gerardo Broggini Attorney Shirley Drewing-Jeitner* (since May 20, 2003) Insurer Karl-Heinz Düsterdick* (until May 20, 2003) Landscape gardener Susanne Hille* Trade Union Secretary of the trade union ver.di Vereinte Dienstleistungsgewerkschaft e.v. Brigitte Jakob* Trade Union Secretary of the Trade union ver.di Vereinte Dienstleistungsgewerkschaft e.v. Dr. Michael Kalka (since May 20, 2003) Retired Chief Executive Dr. Helmut Kohl Former German Chancellor Michael Kuß* Insurance employee Martin Lemcke* (since May 20, 2003) Head of the Codetermination Division at the Federal Executive Committee of the trade union ver.di Vereinte Dienstleistungsgewerkschaft e.v. Joachim Mädler Banker Dieter Paul* (until May 20, 2003) Commercial employee Ulrich Peters* (since May 20, 2003) Management employee of Aachener und Münchener Versicherungen For the mandates held by the members of the Supervisory Board and the Board of Management see pages 49 ff. 4

7 Corporate bodies Dieter Philipp (until May 20, 2003) President of the ZDH Central Association of German Crafts, Managing Director of Emil Philipp GmbH Dr. jur. Dr. h.c. mult. Reinfried Pohl Chief Executive Officer of Deutsche Vermögensberatung AG DVAG Gerhard Preckel* Insurer Roland Schwarz* (since May 20, 2003) Banker Richard Sommer* (until May 20, 2003) Trade Union Secretary of the trade union ver.di Vereinte Dienstleistungsgewerkschaft e.v., Head of the Federal Insurance Section Peter Stüve* (until May 20, 2003) Insurer Rudolf Winkelmann* Insurer BWV Dr. Wilhelm Winterstein Retired banker * Employees representative Board of Management Dr. Walter Thießen Chief Executive Officer Group development Law Internal audit Human resources Information technology Dr. Hans-H. Kasten Property and casualty insurance Legal expenses insurance Health insurance Reinsurance Distribution Dietmar Meister Finance Shareholdings/controlling Investor relations Accounting Tax Life insurance Building society 5

8 Report by the Supervisory Board Report by the Supervisory Board Throughout the reporting year, we continuously monitored the conduct of business of the Board of Management of AMB Generali Holding AG and accompanied management with our advice. For fulfilling these tasks assigned to us by the Articles of Association and by law, we regularly obtained detailed reports from the Board of Management on the business development, the situation and business policy of AMB Generali and on its major Group companies. In addition, the Chairman of the Supervisory Board was in close contact with the Chief Executive Officer and informed himself regularly on the decisions taken by the management. In the business year 2003 the Supervisory Board met twice in each half-year period. The General Committee of the Supervisory Board held one meeting. The Committee in charge of personnel issues of the Managing Board met twice. Furthermore, the committees took resolutions in writing. The committee under art. 27 para. 3 of the Co-Determination Act did not have to be convened. The Board of Management informed us comprehensively about business policy, corporate planning, business performance, risk situation and risk management as well as about the state of the AMB Generali Group s activities to improve results by projects at Group level and by measures at the level of the individual Group companies. The Supervisory Board had extensive discussions with the Board of Management, in particular on the measures for reinforcing activities in the field of company pension business, the pruning and restructuring in property and casualty business, the effect of tax legislation on life and health insurers, the strategic orientation and processes of investment management, the further development of value-based controlling instruments and the activities of the Group s internal audit department. In line with the catalogue resolved by the Supervisory Board concerning the transactions to be submitted to the Supervisory Board for approval, the Supervisory Board was involved, among others, in decisions concerning major transactions of the AMB Generali Group. With the approval of the General Committee, further steps were taken for simplifying the Group structure, Central Krankenversicherung acquired an interest in Medicator the safety-net company of the German insurance industry for health insurers in financial difficulties and Volksfürsorge Deutsche Lebensversicherung sold a stake in Vereinsund Westbank to HypoVereinsbank. In the period under report, the Supervisory Board dealt intensively with Corporate Governance issues. In particular, the efficiency of the Supervisory Board was verified and discussed in detail. It was stated that the Supervisory Board efficiently complied with the tasks assigned to it by law and by the Articles of Association. In this context, the internal rules of the Supervisory Board representing the constitution of our corporate body and the internal rules of the Board of Management, which were already renewed in 2002 and which also include specifications in respect of a timely and comprehensive information of the Supervisory Board, proved to be a reliable basis for performing our functions. 6

9 Report by the Supervisory Board Dr. Wolfgang Kaske Furthermore, the Supervisory Board discussed and approved the structure of the remuneration for the members of the Managing Board of AMB Generali. PwC Deutsche Revision AG Wirtschaftsprüfungsgesellschaft, Düsseldorf, audited the Annual Financial Statements of AMB Generali, the Management Report, the Consolidated Financial Statements established in compliance with internationally recognized accounting principles (IFRS) and the Group Management Report for the business year 2003, including an assessment of the system for an early identification of risks. An unqualified auditor s opinion was issued. In addition, the auditor verified whether the company had made the declaration of compliance of the German Corporate Governance Code required under art. 161 of the Companies Act. Furthermore the auditing company examined the report by the Board of Management concerning the relationships with affiliated enterprises and issued an unqualified certificate as follows: After having duly performed our audit we confirm that 1. the actual information provided in the report is correct; 2. for the legal transactions indicated in the report the companies consideration was not inappropriately high or any disadvantages were compensated; 3. in respect of the measures indicated in the report there are no facts that would lead to an assessment materially different from the assessment expressed by the Board of Management. We received for examination the Annual Financial Statements with the Management Report and the Consolidated Financial Statements with the Group Management Report for the business year 2003, the auditor s reports on the financial statements of the company and of the Group as well as the report on controlled companies. In the accounts meeting of the Supervisory Board, the reports were explained by the auditors and discussed by us in detail. The thorough examination of the reports and of the financial statements of the company and the Group did not result in any objections on our part. We share the assessment given by the Board of Management in its report on relationships with affiliated enterprises. 7

10 Report by the Supervisory Board The Supervisory Board approves the Annual Financial Statements of the company and the Consolidated Financial Statements for the business year The Annual Financial Statements are thus adopted under art. 172 of the Companies Act. We join the Board of Management in its proposal for the appropriation of the balance-sheet profit. In the closed business year the Supervisory Board was newly elected. Starting from the end of the General Meeting of May 2003, the shareholders have been represented by Dott. Sergio Balbinot, Antoine Bernheim, Martin Blessing, Prof. Gerardo Broggini, Dr. Michael Kalka, Dr. Wolfgang Kaske, Dr. Helmut Kohl, Joachim Mädler, Dr. Reinfried Pohl and Dr. Wilhelm Winterstein. The representatives of the employees in the Supervisory Board are Shirley Drewing-Jeitner, Monika Hendricks, Michael Kuß, Gerhard Preckel, Roland Schwarz, Rudolf Winkelmann, Ulrich Peters as a representative of executive employees and Susanne Hille, Brigitte Jakob and Martin Lemcke as trade union representatives. In its constituent meeting, the Supervisory Board confirmed Dr. Wolfgang Kaske as Chairman and Monika Hendricks as Deputy Chairwoman. With the end of the 2003 General Meeting, Karl-Heinz Düsterdick, Dieter Paul, Dieter Philipp, Richard Sommer and Peter Stüve left the Supervisory Board. We thank the former members of the Supervisory Board for their dedicated cooperation in our Board. We express our thanks to the members of the Managing Boards and to the staff of AMB Generali and the Group companies for their good work and successful activities. Their commitment and expertise are the basis for the future prosperity of the AMB Generali Group. Also for the future we wish good luck and success to the Board of Management of AMB Generali and equally to all managers and employees of the AMB Generali Group. Aachen, March 9, 2004 On behalf of the Supervisory Board Dr. Wolfgang Kaske Chairman 8

11 Management Report

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13 Business performance Management Report Business performance of AMB Generali AMB Generali Holding AG manages the German units of the Generali Group. Since 1997 the company has also been operating as the internal reinsurer of the AMB Generali Group, Germany s third-biggest primary insurer, and has thus been in charge of the Group companies treaty reinsurance business and the management of the Group s external reinsurance requirements. As the central reinsurer of the Group, AMB Generali has meanwhile reached a substantial business volume as a result of restructuring reinsurance relationships. The organizational development of the company, however, is characterized by the fact that it increasingly ensures a steering function as the management holding company of the Group. In the wake of realizing synergies, various interface functions were installed in AMB Generali. The resulting transfer of jobs from the subsidiaries to the Group headoffice led to an increase of the number of employees of AMB Generali to 261 (preceding year: 198) on an annual average. Reinsurance business Gross premiums earned went up by 23.2 percent over the preceding year to a total of 1,427.8 m. The growth is attributable to a higher volume of reinsurance business ceded by the Group companies to AMB Generali both in property/casualty and in life insurance. Gross premiums earned go up 23.2 percent In terms of net premiums earned, the increase over the preceding year was 81.5 percent to m. This growth is on the one hand attributable to substantially higher retentions of the company and on the other hand due to the fact that AMB Generali Pensionskasse ceded reinsurance business for the first time. The retention went up from 36.9 percent in 2002 to 54.3 percent in 2003, which is in line with our medium-term target. Given the focus on less volatile business with private and medium-sized corporate customers and the Group's financial strength, bearing a higher retention makes sense from an economic point of view. Retention increased to 54.3 percent Besides, the business year 2003 was marked by a much more favourable claims experience, especially in property and casualty insurance. The net claims ratio in property and casualty insurance was 59.8 percent compared to 72.2 percent in the preceding year which had been particularly affected by flood and storm claims. In addition, the withdrawal from industrial business, especially of Aachener und Münchener Versicherung, as well as the Group-wide restructuring measures and run-off profits contributed to the positive development of the business year Claims experience much more favourable than in 2002 The net underwriting result, before allocation to the equalization provision, showed a profit of 20.4 m after a loss of 1.6 m in the preceding year. The net result in life stated a loss of 1.6 m compared to a profit of 3.3 m in the preceding year. This loss is almost exclusively due to advance financing of new business in company pensions. The total allocation to the equalization provisions amounted to 59.1 m which was markedly higher than the preceding year's allocation of 39.8 m. As at December 31, 2003, the equalization provision totalled m. After the allocation to the equalization provision, the net underwriting loss was 38.7 m compared to 41.4 m in the preceding year. Underwriting loss after allocation to equalization provision 11

14 Management Report Business performance Increase of investments due to life reinsurance Investments and investment income The investments of AMB Generali have gone up by 2,343.7 m to 6,863.9 m since January 1, The strong rise is mainly the result of higher deposits with ceding companies due to the expansion of internal life reinsurance within the Group. The provision for future policy benefits went up concurrently. The increase of stakes in affiliated enterprises was primarily attributable to internal transactions within the Group with a view to a further simplification of the Group's shareholding structure. In addition, the shares held by minority shareholders in Volksfürsorge Holding were transferred to AMB Generali after the entry of the squeeze-out resolution in the commercial register. The investment result showed a profit of m (preceding year: m). The main elements were the profit transfer from Aachener und Münchener Versicherung AG, whose 2003 result was marked by positive extraordinary items in investment business, and the substantial increase of interest income from deposits due to the expansion of life reinsurance business. Besides, write-downs reduced considerably compared to the preceding year's figure which had included the transfer of a special item with an equity portion in line with art. 6b Income Tax Act. On the other hand there was a lower level of realized capital gains. The investment result, after deduction of income to be allocated to the underwriting account, was m (preceding year: m). The balance of other income and expenses led to an expenditure of 51.7 m (preceding year: 32.4 m). The higher amount of expenses was mainly due to interest on loans from affiliated enterprises. Tax charge substantially below 2002 level The tax charges of 27.8 m were substantially below the preceding year's figure of m. This was mainly due to the winding-up of deferred tax assets in the preceding year. These had originally been capitalized in the balance sheets of subsidiaries in the time before the creation of the fiscal-unity scheme and had to be reimbursed as a one-off payment by AMB Generali. 12

15 Result Management Report Relationships with affiliated enterprises The company is a controlled enterprise of Assicurazioni Generali S.p.A., Trieste. Therefore the Board of Management of AMB Generali established a report about the relationships of the company with affiliated enterprises. The concluding statement of that report reads as follows: Pursuant to art. 312 para. 3 of the Companies Act we declare that with regard to the transactions indicated in this report, the company received a consideration for each transaction that was adequate under the circumstances known to the Board of Management at the time the transaction was made. Insofar no measures were taken or omitted that may have involved advantages or disadvantages for the company. Result AMB Generali reached a net income for the year of m (preceding year: m). An amount of m (preceding year: 54.6 m) was allocated to the other revenue reserves. The balance-sheet profit amounted to m (preceding year: 73.7 m). Net income for the year of m Balance-sheet profit and appropriation The net income for the business year 2003 amounted to m (preceding year: m). After winding up the profit brought forward from the year 2002 of 49 thousand (preceding year: 121 thousand), withdrawals from the reserve under the Articles of Association (charitable fund) of 135 m (preceding year: 142 m) and an allocation of 14 thousand (preceding year: withdrawal of 103 thousand) to the reserve for treasury stock as well as an allocation of m (preceding year: 54.6 m) to the other revenue reserves, the balance-sheet profit amounted to m (preceding year: 73.7 m). The Board of Management and the Supervisory Board propose to the General Meeting to be held on May 19, 2004 to appropriate this profit as follows: Balance-sheet profit of m Balance-sheet profit and appropriation 1. Distribution to the shareholders Payment of a dividend of 1.35 per unit share entitled to dividends, payable on May 21, Allocation to the reserve under the Articles of Association (charitable fund) 3. Allocation to the other revenue reserves 4. Profit carried forward 72,467, ,227, ,700, , Balance-sheet profit 102,425,

16 Management Report Outlook Outlook 2004 The business volume in the reinsurance segment will decrease slightly in 2004 in terms of gross premiums earned. This is above all attributable to non-group business written by our Company concerning old contracts of property and casualty insurance expired on December 31, Net premiums earned are expected to go up slightly over the preceding year. The increase of net premium income is on the one hand attributable to the growth of reinsurance in respect of company-pension business and on the other hand due to the reduction of the volume of business ceded to third parties. This refers in particular to the business of Thuringia Generali Versicherung where high-volume quota-share reinsurance treaties were replaced by surplus reinsurance treaties. The result before equalization provision should be approximately at the preceding year's level, provided that in 2004 there are no major and/or catastrophe claims comparable to the floods and storms of the year In the current business year, the business performance of AMB Generali in nonunderwriting business will mainly depend on its income from participating interests. As a result of the profit and loss transfer agreements concluded all over the Group, that income, in turn, is directly related to the business development of its subsidiaries. Proceeding from the assumption that the primary insurers of our Group achieve an improvement of underwriting results and capital markets are not affected by critical events, we expect to reach a net income for the year 2004 that will allow the payment of an adequate dividend for the current business year. 14

17 Risk report Management Report Risks involved in the future development and risk controlling Overall system for monitoring and controlling risks AMB Generali is the Group's management holding company and ensures the central controlling function. Within the AMB Generali Group, the company acts as an internal reinsurer and is thus in charge of the treaty reinsurance business of the Group companies and of the management of external reinsurance requirements of the Group. In these functions, AMB Generali is subject to various risks. It is our target to master these risks and to cope with them by an active risk controlling. This enables us to ensure the long-term profitability of AMB Generali. The prerequisite for this is a professional risk management. Organization and tasks of risk monitoring and controlling In the Group companies, risk management is organized at two levels: on the one hand in the individual operational divisions and on the other hand with a superior Company Risk Manager. In addition, AMB Generali has a centralized Group Risk Management. The heads of the operational divisions in the Group companies are responsible for the risk management in their departments. They implement the Group-wide standards in their divisions and they are the operational contacts for the Company Risk Manager. The Company Risk Manager is the head of the company's controlling department. In addition to the risks specific to the Group company, the Company Risk Manager also monitors the risks identified as Group risks. He thus is the link between the persons in charge of risk management in the company and the Group Risk Manager. Group Risk Management is in the responsibility of the shareholdings/controlling department of AMB Generali. The latter is in charge of Group risks and of the conceptual development and updating of the risk-management system at Group level. The tasks of the Group Risk Manager therefore include in addition to setting the uniform Group-wide standards for risk management the activities of initiating, elaborating and coordinating risk-management measures together with the Company Risk Managers of the Group companies. The Group Risk Manager reports regularly on the Group's risk situation to the Board of Management of AMB Generali. The Group internal audit department, as a superior body independent of risk-management processes, regularly verifies the efficiency of the risk-management system, gives advice to the Risk Managers regarding the further development of that system and documents the results of its findings for the Boards of Management of the Group companies. Monitoring and controlling of risks Underwriting risks Reinsurance AMB Generali mainly operates in outward reinsurance business. It is an active inward reinsurer for its subsidiaries only. The underwriting risks, in particular the premiums/claims risk in property and casualty insurance and the premiums/cover risk in life and health insurance, are controlled by numerous internal as well as external mechanisms and functions. For risk controlling, use is made of the actuarial service of our professional retrocession partners and of our own analyses and variation calculations with a view to assessing the adequacy of premium and exposure, checking accumulation risks and determining an adequate amount of underwriting provisions. 15

18 Management Report Risk Report Another important instrument for limiting the risks for our company is retrocession. The business assumed by us is not fully kept within the scope of our retention but is retroceded as necessary. The business ceded to us by our subsidiaries is verified as to whether it is balanced as a collective. On that basis, our retentions are defined and retrocession volumes determined. Our net claims ratios developed as follows over the period from 1998 to 2003: Claims ratios (net)* Figures in % * Net claims expenditure as a percentage of net premiums earned On the claims side, the underwriting provisions were determined prudently on the basis of recognized statistical methods. During the period indicated, the run-off result of the provision for oustanding claims developed as follows: Run-off ratio of the provision for outstanding claims on Jan. 1 of each year* Figures in % * Net run-off result as a percentage of the net provision for outstanding claims The increase of the run-off ratio in the busines year 2003 is mainly the result of the agreement of higher retentions and the entry into older run-off years. Default risks concerning amounts receivable under insurance business Since the inward reinsurance activities of AMB Generali are limited to Group business, the default risk concerning amounts receivable from ceding companies is transparent and does not involve any problems. With regard to our retrocessionaires we pay attention to the financial soundness of our business partners, in particular in long-tail business. In doing so, we orientate ourselves at the rules of the 4th Act on Financial Market Promotion and the requirements regarding the efficiency and solvency of reinsurers and retrocessionaires as defined by the Regulatory Authority's circular letter R 1/97. In addition, the assessment of our retrocessionaires is also supported by the opinions of internationally recognized rating agencies and by our own analyses based on our expertise in the market. 16

19 Risk Report Management Report As at the balance-sheet date there were no receivables outstanding which had been due for more than 90 days. The amounts receivable from reinsurers were 95.3 m as at the balance-sheet date. Receivables under reinsurance business due from non-group business partners by rating categories m AAA 28.8 AA 9.0 A 51.8 BBB 5.2 Not rated 0.5 Investment risks With regard to investments a distinction has to be made between the stakes held by AMB Generali in its function as a holding company and the other investments which are freely marketable. The risk management for the stakes is the result of the entire process of Group-wide risk management. The freely marketable investments of AMB Generali are to ensure high security and adequate profitability. For that purpose and on the basis of a sufficient diversification of investments, the aspects of quality and liquidity are in the foreground. In this context AMB Generali, like the entire Group, makes use of the central asset-management units of the AMB Generali Group in order to improve risk identification, risk quantification and risk management by a transparent portfolio handling and a continuous monitoring of investments. As a whole, the major part of the investments of AMB Generali consists of euro treasury bonds. The share of bearer bonds and other loans is markedly lower. The already small portion of equity investments (not including partici-pating interests and affiliated enterprises) was further reduced in 2003 and is 4 m or 0.06 percent in terms of carrying amounts. Market risks For an early recognition of possible consequences of market-price fluctuations we also make use of stress tests based on the following assumptions: index fluctuations of +/- 10 percent and +/- 20 percent for our equity portfolios changes of the interest-structure curve of +/- 100 and +/- 200 base points (bp) for our bond portfolios. At year-end 2003, the market values on the basis of the above scenarios (without participating interests and affiliated enterprises) were as shown in the table below: 17

20 Management Report Risk Report Change of share price Market values of investments with a share-price sensitivity m Increase by 20 percent 4.4 Increase by 10 percent 4.3 Decrease by 10 percent 4.0 Decrease by 20 percent 3.9 Change of interest rate Market values of investments with an interest-rate sensitivity m Increase by 200 bp Increase by 100 bp Decrease by 100 bp Decrease by 200 bp Base points (bp) Credit risks In addition to being subject to the market risk, security positions also involve the credit risk of the issuer. Since the vast majority of AMB Generali's investments is in treasury bonds and the remaining securities have issuers of good and best credit standing, the credit risk is only of little significance for AMB Generali. Issuer accumulations are avoided by the observance of internal limits. AMB Generali has granted a guarantee for part of the business of Deutsche Bausparkasse Badenia involving risks. Liquidity risks Liquidity risks are directly controlled by AMB Generali taking into account all payment flows under insurance business, investments and general administration. Operational risks IT security The tasks of the AMB Generali Group in the IT field are concentrated in AMB Generali Informatik Services (AMB Informatik). By integrating AMB Informatik in the risk-management system of the AMB Generali Group we have efficient instruments at our disposal for recognizing IT risks at company and Group level. For the purpose of minimizing risks, measures are taken on a continuous basis in order to ensure the largest possible availability of hardware and software systems in the data centre of AMB Informatik and the highest possible security and protection of the data of all Group companies. In the business year 2003, a noticeable improvement of emergency precautions was reached with the completion of the new data centre. The printing centre, which was also newly established, completion the existing printing centre and makes it possible for the first time to rely on our own resources in the case of a failure of one of our locations. These measures as a whole create the facility and network basis for the high availability 18

21 Risk Report Management Report of the data centre in the future. The first steps towards reaching this high availability will be initiated in Litigation risks Within the scope of control agreements and profit-transfer agreements concluded with subsidiary companies and under the so-called squeeze-out procedures, indemnification offers were made to the outside shareholders of subsidiary companies, in particular Aachener und Münchener Lebensversicherung AG, Aachener und Münchener Versicherung AG, the former Thuringia Versicherungs-AG and Volksfürsorge Holding AG. Furthermore, on the basis of the control agreements and profit-transfer agreements, the shareholders of the Group companies concerned were offered the payment of a compensation. Former shareholders of the subsidiaries filed a court application for an arbitration procedure to verify the adequacy of our offer of indemnity and compensation. Apart from the arbitration procedures concerning the profit-transfer agreement and squeeze-out in the former Thuringia Versicherungs-AG, which were settled by a compromise, legally binding court decisions are still pending in the other procedures. The legal action for setting aside the squeeze-out resolution taken in 2002 by the General Meeting of Volksfürsorge Holding AG was rejected by the Higher Regional Court of Hamburg as court of second instance. In respect of this procedure a so-called complaint of non-admission is still pending with the Federal Supreme Court. After completion of the second instance of the procedure, however, the squeeze-out resolution has become of legally binding effect by the entry in the commercial register of Volksfürsorge Holding AG at the end of August Apart from these procedures we are of the opinion that there are no material litigation risks for AMB Generali. Furthermore there are tax risks resulting from the application of legal provisions, regulatory rules and jurisdiction. These risks are continuously monitored and checked with regard to their consequences for the financial statements. Insider rules The renown and reputation of the company could already be damaged by the mere suspicion of an infringement of insider rules. For that reason we have taken measures to ensure that insider information is handled in line with statutory requirements. Outlook The further development of risk management is a continuous process. At regular intervals, new elements of business administration are included in risk management by the updating of indicators and threshold values. Summary presentation of the risk situation As a whole, no development can be identified at present that could substantially affect the assets, financial standing and earning situation of AMB Generali Holding AG. There are currently no risks recognizable that could jeopardize its continuation. 19

22 Corporate Governance Corporate Governance The term Corporate Governance comprises the reliable and efficient management and control of a company, including its organization, business philosophy and principles as well as the internal and external mechanisms of controlling and monitoring. The target of Corporate Governance is to enhance the confidence of customers, investors and the general public and, not least, of the company s employees. A commission set up by the Federal Government took care of this issue and in February 2002 published the German Corporate Governance Code for the first time. The amended version of the Code of May 21, 2003 is documented in the official section of the electronic Federal Gazette (Bundesanzeiger). Since the coming into force of the Act on Transparency and Disclosure on July 25, 2002, the Board of Management and the Supervisory Board of a listed company have been obliged to make a declaration as to what extent they comply with the recommendations of the Code. That declaration has to be made every year and it also has to be published. AMB Generali welcomes the Code. Already in the past we complied with the requirements of a good and responsible Corporate Governance and we have a high level of transparency in our reporting. AMB Generali thus fulfils all the transparency requirements defined by Deutsche Börse AG for the so-called Prime Standard (such as International Financial Reporting Standards, interim reports, publication of a financial calendar, at least one analyst conference a year as well as ad-hoc announcements in German and English). Accordingly, with the introduction of the Prime Standard segment of the German Stock Exchange on January 1, 2003, AMB Generali was admitted to that segment. AMB Generali complies with most of the recommendations and suggestions of the Code. Details are indicated in the Declaration of Compliance under art. 161 of the German Companies Act and last renewed by the Board of Management and the Supervisory Board of AMB Generali on November 25, To the extent that declaration indicates deviations from the recommendations of the Code, AMB Generali follows legal standards which in part deviate from the recommendations of the German Corporate Governance Code. The currently applicable wordings of the German Corporate Governance Code and the Declaration of Compliance are published on the Internet at under the headline Investor Relations. All previous versions of these two documents are equally available on that website. The Corporate Governance of AMB Generali is being continuously examined by the Board of Management and the Supervisory Board of the company. 20

23 Annual Financial Statements

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25 AMB Generali Holding AG Annual Financial Statements Balance Sheet as at December 31, 2003 Assets A. Intangible assets Other intangible assets Note B. Investments I. Land, land rights and buildings, including buildings on third-party land II. Investments in affiliated enterprises and participating interests III. Other investments IV. Deposits with ceding companies of which from affiliated enterprises: 3,559,960 thsd. (prec.y.: 1,532,933) C. Receivables I. Accounts receivable under reinsurance operations of which from affiliated enterprises: 96,329 thsd. (prec.y.: 71,968) II. Other receivables of which from affiliated enterprises: 127,548 thsd. (prec.y.: 184,967) D. Other assets I. Tangible assets and inventories II. Current accounts with credit institutions, cheques and cash in hand III. Treasury stock IV. Other E. Accrued income and prepaid expenses I. Accrued interest and rent II. Other prepaid expenses F. Deferred tax assets under art. 274 para. 2 Commercial Code ,967 10,130 2,906,877 2,359, , ,061 3,572,326 1,545,980 6,863,925 4,520, , , , , , ,745 1,515 1,430 1,036 2, ,581 3, ,425 12,890 12,890 Total assets 7,403,097 5,045,146 23

26 Annual Financial Statements AMB Generali Holding AG Liabilities Balance Sheet as at December 31, 2003 A. Equity I. Subscribed capital II. Capital reserve III. Revenue reserves 1. legal reserve 2. reserve for treasury stock 3. reserves under the Articles of Association (charitable fund) 4. other revenue reserves IV. Balance-sheet profit Note , , ,282,463 1,282, ,534 1, , , , , , ,425 73,745 1,948,087 1,816,301 B. Special item with an equity portion 15 9,168 C. Underwriting provisions I. Unearned premiums 1. gross amount 2. less: share of reinsurance business ceded II. Provision for future policy benefits 1. gross amount 2. less: share of reinsurance business ceded III. Provision for outstanding claims 1. gross amount 2. less: share of reinsurance business ceded IV. Provision for profit-related and not profit-related premium refunds 1. gross amount 2. less: share of reinsurance business ceded V. Equalization provision and similar provisions VI. Other underwriting provisions 1. gross amount 2. less: share of reinsurance business ceded 266, ,230 74,705 82, ,288 60,746 3,352,705 1,423, ,305 1,036,120 2,596, , , , , , , , , ,361 6,758 6, ,271 5,867 3,401, ,982 Carried forward 5,349,341 2,678,451 24

27 AMB Generali Holding AG Annual Financial Statements Liabilities Carried forward Note ,349,341 2,678,451 D. Other provisions ,461 80,726 E. Deposits retained under reinsurance business ceded of which to affiliated enterprises: 546,273 thsd. (prec.y.: 721,390) 937,214 1,190,782 F. Other liabilities I. Accounts payable under reinsurance operations of which to affiliated enterprises: 134,341 thsd. (prec.y.: 155,293) II. Other liabilities of which to affiliated enterprises: 809,934 thsd. (prec.y.: 906,768) of which for taxes: 43 thsd. (prec.y.: 3,350) of which for social security: 363 thsd. (prec.y.: 224) , , , , ,081 1,095,187 Total liabilities 7,403,097 5,045,146 25

28 Annual Financial Statements AMB Generali Holding AG Income Statement for the period from January 1 to December 31, 2003 I. Underwriting account 1. Net premiums earned a) gross premiums written b) reinsurance business ceded c) change of gross unearned premiums d) change of reinsurers share in gross unearned premiums 2. Net allocated investment income 3. Net claims expenditure a) claims paid aa) gross amount bb) share of reinsurers b) change of the provision for outstanding claims aa) gross amount bb) share of reinsurers 4. Change of the other net underwriting provisions 5. Expenditure for profit-related and not profit-related premium refunds 6. Net operating expenses 7. Other net underwriting expenses 8. Subtotal 9. Change of equalization provision and similar provisions Note ,551,633 1,133, , , , , ,849 25,525 7,692 15, ,541 10, , , ,451 13, , , , , , , ,212-17,011 20,066-14, ,146-2, , , ,917-71, , ,904 1,348 1,225 20,444-1,592-59,137-39, Net underwriting result -38,693-41,419 26

29 AMB Generali Holding AG Annual Financial Statements Net underwriting result Note ,693-41,419 II. Non-underwriting account 1. Investment income 2. Investment charges 3. Investment income allocated to insurance business 4. Other income 5. Other charges 6. Result of ordinary business operations 7. Taxes on income and earnings of which charged to companies under fiscal unity 8. Other taxes of which charged to companies under fiscal unity 9. Net income for the year 10. Profit brought forward from the preceding year 11. Withdrawals from revenue reserves a) from the reserves under the Articles of Association b) from other reserves 12. Allocations to revenue reserves a) to the reserve for treasury stock b) to other revenue reserves , ,498 6, , , ,820-85,573-49, , ,407 48,276 46,997 99,964 79,443-51,688-32, , , , ,553 73,061 30,419 27, , ,847 2, ,429 27, , , , ,000 54, ,014 54, Balance-sheet profit 102,425 73,745 27

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31 Notes Annual Financial Statements Notes to the Annual Financial Statements 2003 Applicable legal provisions The Financial Statements and the Management Report for the business year 2003 are established according to the provisions applicable to insurance companies of the Commercial Code (HGB), the Companies Act (AktG), the Insurance Regulatory Act (VAG) and the Insurance Accounting Decree (RechVersV). For enhancing the informative quality of the Financial Statements, individual items are summarized and amounts are shown in thousand. Foreign currency translation and principles of accounting and valuation Foreign currency translation The carrying amount of shares in affiliated enterprises and participating interests in foreign currencies is shown at the exchange rate ruling at the time of acquisition. For foreign securities, however, and on the basis of the principle of recognizing the lower of cost or market, the carrying amount is determined by the stock market price of the security and the exchange rate on December 30, Other prepaid expenses as well as income and expenditure in foreign currencies under the non-underwriting account are translated into euros at the exchange rate ruling at the time of payment. All other nonunderwriting items in foreign currency are translated at the exchange rate ruling at the balance-sheet date. To the extent the underwriting items of the balance sheet and the items of the underwriting account in the income statement include amounts in foreign currencies, the latter are translated at the exchange rate of November 1, Balance-sheet value of assets IT software and licences shown under intangible assets are stated at cost less amounts for scheduled straight-line depreciation. Land, land rights and buildings including buildings on third-party land are valued at acquisition or construction costs, less the highest depreciation admissible under tax law (arts. 6b and 7 Income Tax Act). Shares in affiliated enterprises and participating interest are shown at cost, in part reduced by depreciation under art. 6b Income Tax Act. In the case of foreseeable durable value decreases, the carrying amounts of shareholdings take into account the lower value applicable as defined by art. 253 para. 2 Commercial Code (HGB). If the loans to affiliated enterprises are registered bonds, they are recognized at their nominal value. Fixed-interest securities are shown at the lower of cost or stock market price on December 30, Shares, bearer bonds and other securities are shown at the lower of cost or stock market price on December 30, For foreign securities, exchange-rate fluctuations are recognized if they cause write-downs. Registered bonds, debt securities and loans are stated at their nominal value less redemption paid. Under prepaid expenses, premiums are spread over the term of the loan. Deposits with credit institutions, deposits and accounts receivable under reinsurance business, accrued interest and rent as well as other receivables are stated at their nominal value. Furniture and equipment are valued at cost, reduced by the amounts of fiscally admissible depreciation on a reducing-balance or straight-line basis. Low-value assets are fully written off in the year of acquisition. Inventories are carried at cost. 29

32 Annual Financial Statements Notes The carrying amount of the treasury stock of the employee-share programme corresponds to the cost of the shares, taking into account the lower of cost or market. Balance-sheet value of liabilities Unearned premiums are recognized at the amounts indicated by the ceding companies or if no such information has been received according to the fractional or flatrate method. For the periodical apportionment of premiums under cancelled reinsurance treaties we take into account the contractually agreed portfolio cancellation rates; for determining the share attributable to reinsurance business ceded we use the calculation methods applicable to the items of assumed reinsurance business. The rules of the Insurance Regulator and the Coordinated 'Länder' Decree by the Tax Authority of April 30, 1974 are observed. The provision for future policy benefits is attributable to life insurance business and determined on the basis of the information provided by the ceding companies. The amounts attributable to our retrocessionaires are calculated in line with the contractual agreements or our own accounting bases. As a matter of principle, the measurement basis for the provision for outstanding claims determined in line with the regulations of commercial law is the information provided by the ceding companies. For risks under excess of loss reinsurance treaties, additional provisions are set aside in the balance sheet for claims incurred but not reported. As the share of reinsurers in the provision for outstanding claims we deduct the amount based on the retrocessionaires shares in the risks and on the corresponding contractual agreements. As a matter of principle, the provision for profit-related and not profit-related premium refunds corresponds to the amounts notified by the ceding companies and the agreements made with the retrocessionaires. Under the balance-sheet presentation applicable to insurance companies the equalization provision and similar provisions comprise the provisions set aside for compensating fluctuations in the annual claims experience and also include the provision for major terrorism risks. They are calculated on the basis of the rules of the Commercial Code and refer to the reinsurance business written for the company s net account. For determining the provisions for expected premium cancellations, the setting-off of premiums, suspended policies and benefits payable by the association Verkehrsopferhilfe e.v. we take into account the information provided by the ceding companies. The share of reinsurers is deducted at the amount corresponding to their accepted share of the risk. Provisions for pensions are determined at the partial value of obligations on the basis of actuarial principles, tax regulations and a 6 percent interest rate. As a calculation basis we use the 1998 amended guiding tables by Dr. Klaus Heubeck. In compliance with art. 6a Income Tax Act, the calculation of the provisions for commitments under early retirements takes into account the probability of the foreseeable utilization of these provisions. Regarding the obligations resulting from special part-time agreements that may be concluded with employees close to retirement age, a provision for uncertain liabilities is set aside under art. 249 para. 1 Commercial Code. The provision for bonuses for employees anniversaries is established in line with commercial law principles. In determining the amount of provisions for taxes and other provisions we take into consideration all recognizable risks and uncertain liabilities. 30

33 Notes Annual Financial Statements Deposits and accounts payable as well as other liabilities are shown at the redemption amounts. Determination of the market value On the basis of generally accepted valuation methods, investment property mainly occupied by third parties is in principle valued under the earnings value method as at the balance-sheet date. Mainly owner-occupied property was valued at amortized cost. The market value of bearer bonds, shares, registered securities usually traded at the stock exchange and investment-fund interests is determined by the stock market/redemption prices of December 30, The valuation of participating interests traded at the stock exchange is also based on the stock market price of December 30, 2003, increased by a control premium. Other participating interests and shares in affiliated enterprises are assessed at their capitalized earnings value. If market values are not available or if the enterprises fulfil partial functions of our operations or if the shares are exclusively held as a financial investment, the market value of these shares is determined by the corresponding share in the equity of the company concerned or by the carrying amount. The principle of prudence is observed in valuation. The following market values have been determined for assets carried at cost: Market value Land, land rights and buildings Shares in affiliated enterprises, loans to affiliated enterprises, participating interests, shares, fund units and other variable-yield securities Fixed-interest securities Market value Carrying amount m m , , Total 6, ,