Allianz Group
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Allianz, 80790 Munich, Germany
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80802 München
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International Accounting Standards Board
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15th March 2006
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Ref.: Comment letter by the Allianz Group on the Discussion Paper Management Commentary
Ladies and Gentlemen,
The Allianz Group wishes to thank the International Accounting Standards Board (or “IASB”) and its
staff, the staff of its partner standard-setters and other contributing parties for the opportunity to
provide feedback on the discussion paper, Management Commentary (or “MC”). Additionally, and
after reviewing our letter, we would welcome further dialogue on this topic should the IASB or any
related party wish to discuss or question any of the commentary provided herein. We would especially welcome further discussions on items within the MC in as far as IFRS 7 is concerned as we
strongly believe that there exist placement criteria issues which require further exploration and review.
In summary, the Allianz Group fully endorses the idea of a Management’s Discussion and Analysis,
or an MC, and does not question the importance of other financial information outside a company’s
financial statements and footnotes. However, we firmly believe that an MC should not and cannot
be subjected to audit. Instead, we propose to limit auditor procedures to an “in line with the financial statements” assessment as an MC is written “through the eyes of management” and is compiled to provide a company’s current and prospective shareholders with information that puts the
financial statements into context of a company and its operating environment. Our detail arguments supporting this position are enumerated later in this response letter.
IASB Questions
Requirements for Management Commentary
1. Do you agree that MC should be considered an integral part of financial reports?
Yes, under the definition of a ‘financial report’ as defined in paragraph 8, figure 1.1.. In this
context, we also concur with paragraph 13 of the Framework for the Preparation and PresentaVorsitzender des Aufsichtsrats: Dr. Henning Schulte-Noelle.
Vorstand: Michael Diekmann, Vorsitzender;
Dr. Paul Achleitner, Clement B. Booth, Jan R. Carendi, Enrico Tomaso Cucchiani,
Dr. Joachim Faber, Dr. Helmut Perlet, Dr. Gerhard Rupprecht, Jean-Philippe Thierry,
Dr. Herbert Walter, Dr. Werner Zedelius.
Für Umsatzsteuerzwecke: Steuernummer: 9143 / 801/ 80009 Ust-ID-Nr.: DE 129 274 114; Versicherungsbeiträge sind umsatzsteuerfrei.
Sitz der Gesellschaft: München
Registergericht: München HRB 7158
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tion of Financial Statements, which states: “Financial statements prepared for this purpose [as
described in paragraph 12] meet the common needs of most users. However, financial statements do not provide all the information that users may need to make economic decisions since
they largely portray the financial effects of past events and do not necessarily provide nonfinancial information.”.
2. Should the development of requirements for MC be a priority for the Board? If not, why
not? If yes, should the IASB develop a standard or non-mandatory guidance or both?
Yes. However, as an SEC registrant and a producer of an MC as part of our quarterly and annual financial reports, we believe that, to a large degree, adequate guidance currently exists,
both in terms of applicable SEC rules and regulations, as well as the Deutschen Standardisierungsrat (or “German Accounting Standards Board” or “GASB”), specifically GAS 15, Management Reporting. We feel this is the case for a significant number of mid to large capitalized
companies who are already accustomed to writing MCs due to either local requirements or regulations imposed by the public exchanges they are traded on, or both. However, we believe
such guidance would prove useful to companies less seasoned or regulated in the area of MC
and it would help to drive comparability across all companies who apply IFRS, thereby improving the usefulness of reports for users. Therefore, any guidance offered by the IASB should be
mandatory provided the IASB undertakes the initiative to cooperate with other standard setters
and regulatory bodies to minimize any differences created by an MC against requirements that
companies may be already held to by their respective regulatory environment or public exchanges. Please also refer to our response to Question 3.
Additionally, another reason why we believe the development of requirements for an MC should
be a priority includes the topic of placement criteria. As further discussed in our response to
Question 9, we find that the MC Discussion Paper provides a good opportunity to re-examine
the locale of existing disclosure requirements within a financial report.
3. Should entities be required to include MC in their financial reports in order to assert
compliance with IFRSs? Please explain why or why not.
Yes, but MCs should not be subject to audit, but rather an “in line with the financial statements”
assessment. The inclusion of an MC should be required in a company’s financial report in order to assert compliance with IFRS, but an MC should not be subject to audit due to, but not
limited to, the following:

Requiring Auditor Attestation Of MC Would Provide Little, If Any, Additional Value to
Users.
Auditors of preparers’ financial statements are engaged to express an independent opinion on the fairness of a preparer’s financial statements in accordance with
IFRS. It is understood, and also required in the context of SEC requirements for U.S.
listed companies, that the financial numbers and measures discussed and commented
on in the MC, including any assertions made therein, need to reconcile to and be consistent with the IFRS financial statements, and where this is not the case, provisions for
“Non-GAAP financial measures” currently exist. As paragraph 191, not surprisingly,
states:
“Despite the existence of auditing standards and guidance relating to MC and forward-looking information there appears to be limited demand for separate opinions
on MC. In the US, for example, Ernst & Young in its submission to the SEC on the
proposed ‘Disclosure in Management’s Discussion and Analysis about the Application of Critical Accounting Policies’ stated that the firm had been requested to attest
to only one MC report between 1996 and 2002.”
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Furthermore, in the case of our company, and due to German Commercial Code and
German Accounting Standards, our auditor opines on our Group Management Report
for purposes of our Allianz Group annual report only – which reads: “Our audit, which
also extends to the group management report prepared by the Company’s management
for the business year from January 1 to December 31, 2004, has not led to any reservations. In our opinion, on the whole, the group management report provides a suitable
understanding of the Group’s position and suitably presents the risks of future development.” However, we are not aware of any request from analysts, shareholders or other
users of our reports requesting an attestation report on sections of our Form 20-F outside of the financial statements, footnotes and schedules.
Finally, as a preparer, if the basis of the MC is the financial statements, and the MC is
there to provide an investor with information that puts the financial statements into context of the entity and its operating environment (paragraph 169.a.), does it not stand to
reason that if the financial statements receive an unqualified opinion and the auditor ensures that the financial information and related discussions which take place in the MC
are consistent with the financial statements, what additional benefit is expected by requiring the attestation of an MC in order for a financial report to be in compliance with
IFRS? The answer here can only be marginal, if any.

MCs Would be Subject To The Sarbanes-Oxley Act Of 2002, Section 404. Further to
above point, should MCs be required to be audited, rather that simply included in a financial report in order for said financial report to be in compliance with IFRS, MCs
would fall within the scope of SOX 404 for internal controls over financial reporting as
MCs would be covered by the auditors’ opinion. This would result in additional work and
expense on both the part of preparers and auditors, lending little, if any, additional benefit to users of the MC.

Lack of Objective Criteria For Auditors. Auditing, while clearly involves professional
judgement, is largely objective in nature. For example, ensuring the recognition, measurement and disclosure requirements of accounting standards are appropriately accounted for and reflected in a company’s financial statements are largely objective.
However, and while an auditor may be able to attest to the fact that a company has disclosed in its MC the nature of its business or its key resources and risks, how does an
auditor attest to whether or not said disclosures are complete? While an auditor is
clearly expected to understand a client’s business and its industry as part of professional practice standards it is held to, but does the auditor really know more about the nature of a company’s business, its key resources and risks than the company’s management in order to challenge, let alone attest to, the completeness of MC disclosures?
This can only be answered “no”, unless the auditor can rise to the same level and possess the same breadth and depth of understanding and knowledge of a company’s operations as the senior management of said company.

Requiring Auditor Attestation Of MC Is Cost Prohibitive. Further to the first bullet point
under question 3, should an MC be required to be covered by an auditor’s opinion on
the financial statements, additional costs to the company, and therefore shareholders,
would most likely result. This fact needs to be balanced with the additional assurance, if
any, management and shareholders gain from such an exercise. This is especially so in
our case as indicated in the second bullet point above where we are not aware of any
requests by our customers for such an attestation report on our MC.

Capital Markets Will Not Embrace Companies Without An MC Or With A Less Than
Forthcoming MC. It is our understanding that of the companies which are publicly traded on various stock exchanges throughout the world, the vast majority of rules associated with being a publicly traded company on these exchanges already require, at some
level, an MC. Therefore, it stands to argue that a publicly traded company not providing
an MC to the users of its financial statements, at a minimum, would be in non-
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compliance with its applicable requirements. More importantly, and while we are sure
the analyst community would attest to this, a company that is not forthcoming in its MC
about its operating environment, financial condition and results of operation would, in return, be arguably damaged by a less than prevailing analyst recommendation. In other
words, more often than not, the capital markets themselves act as a policing agent in
cases of poor quality within a financial report.
Purpose of MC
4. Do you agree with the objective suggested by the project team or, if not, how should it
be changed? Is the focus on the needs of investors appropriate?
We agree with the objective suggested by the project team, which is to provide information to
help investors:

To interpret and assess the related financial statements in the context of the environment in which the entity operates;

To assist investors to assess what management views as the most important issues facing the entity and how it intends to manage those issues; and

To assist investors to assess the strategies adopted by the entity and the likelihood that
those strategies will be successful.
Principles, Qualitative Characteristics and Content of MC
5. Do you agree with the principles and qualitative characteristics that the project team
concluded are essential to apply in the preparation of MC? If not, what additional principles or characteristics are required, or which ones suggested by the project team would
you change?
Yes. We fully endorse the principles of supplement and complement financial statement information, through the eyes of management and an orientation to the future, as well as the qualitative characteristics of understandability, relevance, supportability, balance and comparability
over time.
6. Do you agree with the essential content elements that the project team concluded that
MC should cover? If not, what additional areas would you recommend or which ones
suggested by the project team would you change?
Yes. We agree that the content elements below are essential for current and potential shareholders in understanding a company’s business, its operating environment, financial position
and results of operations.

Nature of the Business

Objectives and Strategies

Key Resources, Risks and Relationships

Results and Prospects

Performance Measures and Indicators
However, the IASB should not, for any reason, require specific key performance indicators (or
“KPIs”) as KPIs are industry specific. Furthermore, while companies in a particular industry
may utilize industry KPIs, additional KPIs specific to the manner in which a company is managed, may also be utilized. Therefore, the standardization of any KPIs would result in diluting
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relevant information for users of financial reports. We also believe the same argument holds
true for risks.
7. Do you think it is appropriate to provide guidance or requirements to limit the amount of
information disclosed within MC, or at least ensure that the most important information
is highlighted? If not, why not? If yes, how would you suggest this is best achieved?
We fully agree with the concept of limiting the amount of information disclosed within the MC to
the most important information so to focus the reader and not to overwhelm the reader with less
than material information and thereby “obscuring” key information from the reader. However,
we believe it would be difficult to provide “requirements” as this is very subjective and dependent upon each company and its surrounding circumstances, and instead would endorse general
guidelines for preparers to follow. By way of example, SEC Staff Accounting Bulletin No. 99,
Materiality, states the following on materiality, which bears some context on the point of including the most important information in the MC and how information disclosed (or not disclosed)
can and does influence an investor’s decision:
“Concepts Statement 2, the FASB stated the essence of the concept of materiality as follows:
The omission or misstatement of an item in a financial report is material if, in the light of
surrounding circumstances, the magnitude of the item is such that it is probable that the
judgment of a reasonable person relying upon the report would have been changed or influenced by the inclusion or correction of the item.
This formulation in the accounting literature is in substance identical to the formulation used
by the courts in interpreting the federal securities laws. The Supreme Court has held that a
fact is material if there is:
a substantial likelihood that the...fact would have been viewed by the reasonable investor
as having significantly altered the “total mix” of information made available.”
8. Does your jurisdiction already have requirements for some entities to provide MC? If
yes, are your local requirements consistent with the model the project team has set out?
If they are not consistent, what are the major areas of conflict or difference? If you believe that any of these differences should be included in an IASB model for MC please
explain why.
Yes. While there may be less than significant differences, the concepts detailed in the applicable SEC rules and regulations, as well as GAS 15, are, for all intensive purposes, materially
consistent.
Placement Criteria
9. Are the placement criteria suggested by the project team helpful and, if applied, are they
likely to lead to more consistent and appropriate placement of information within financial reports? If not, what is a more appropriate model?
While we do not disagree with the placement criteria in paragraph 169 a. and b., we believe
these are largely intuitive and an already recognized concept, at least for companies listed on a
U.S. stock exchange. However we would like to underscore our position in that information
which is essential for understanding of the financial statements, that is information as of the respective balance sheet date (subsequent events notwithstanding), should remain within the
footnotes, and therefore covered by the auditor’s opinion. Conversely, we believe, consistent
with paragraph 169 a., that information which puts the financial statements into the context of
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the entity and its operating environment should remain outside of the financial statements and
footnotes, and therefore not be subject to the traditional audit opinion; please also refer to our
response to Question 3.
With this mind, it is our opinion that certain existing disclosure requirements should be revisited. By way of example, IFRS 7 requires sensitivity analyses and embedded values to be
disclosed in the notes to the financial statements. This is a fundamental change to current accounting practice where risk management tools are presented in various parts of a financial report, but not in the financial statements or footnotes. We strongly believe that sensitivity analyses and results calculated by risk management tools should not be presented within the notes.
The inclusion of risk management disclosures within the financial statements would have consequences on internal steering instruments of a company. For example, as IFRS 7 disclosure
requirements will fall within the notes to the financial statements, it will fall within the scope of
SOX 404, requiring extensive documentation and testing. As a result, the ongoing improvements of internal steering instruments would no longer be feasible. Each improvement needs to
be documented, tested internally and externally by the auditor to avoid SOX deficiency risks before it can be implemented. Thus, a company may not be able to develop its own steering instruments in a manner necessary to generate decision useful information.
As another example, the SEC requirements on market risk disclosures are published in the
MD&A and not in the notes to the financial statements. As such, the investor receives the same
information as the management of a company. Based on the above description, it might be
necessary for SEC filers to provide information based on SOX compliant processes and deviating steering information to management.
While risk is managed internally, capital and risk management are based on very different
recognition and measurement principles than those applied in the financial statements. Requiring the publication of the sensitivity analyses of IFRS net income and equity contradicts the
IASB approach of allowing each company to disclose risk information that is consistent with
how risk is managed internally.
We would be pleased to discuss our comments with you in further detail.
Yours sincerely,
Dr. Helmut Perlet
Member of the Management Board
and Chief Financial Officer