CORPORATE GOVERNANCE 81 3.1 Corporate governance structure – A balanced and eff icient governance 82 3.2 Executive compensation and share ownership 106 3.3 Corporate Governance Code of Reference 136 3.4 Related party transactions 137
Ambition 2020, which got off to an excellent start. AXA announced its intention to list a minority stake in AXA’s US operations, subject to market conditions, to reduce AXA’s exposure to financial risks while strengthening its economic capital position.
(a) Shareholders’ equity per share is calculated based on the actual number of outstanding shares at each period-end presented. Shares held by AXA and its subsidiaries (i.e. treasury shares) are deducted for the calculation of outstanding shares. Undated debt is excluded from shareholders’ equity for this calculation.
The tables below summarize AXA gross revenues (aft er intersegment eliminations) by segment for the periods and at the indicated dates.
The Euro interest rates implied volatility index (based on 10x10 Euro swaptions) decreased from 76.3% as of December 31, 2016, to 43.4% as of December 31, 2017.
Japan Health 12 2.6 n/a n/a Life Insurance Association Japan of Insurance Research Institute (excluding Kampo Life) for the 12 months ended September 30, 2017.
Indonesia 2 8.6 n/a n/a AAJI Statistic as of September 30, 2017 measured on Weighted New Business Premium.
Europe gross revenues were down 1% (or €-536 million) to €35,992 million on a comparable basis, from: ■ Switzerland (€-134 million or -1%) to €9,797 million mainly from Life & Savings driven by the non-repeat of the sale of a large Group Protection contract in 2016; ■ Germany (€+138 million or +1%) to €10,672 million mainly from preferred businesses with (i) Health mainly due to tariff increases in full benefit insurance and continued growth in the civil service segment and (ii) Property & Casualty Commercial lines due to Non-Motor new business in SME and Mid-Market; ■ Belgium (€-67 million or -2%) to €3,310 million from (i) Property & Casualty and Health both mainly due to the non-repeat of the one-off booking of a prior year reinsurance contract, and (ii) Life & Savings mainly driven by Unit-Linked due to the exit from the Individual Savings business; ■ The United Kingdom & Ireland (€+72 million or +1%) to €5,130 million from (i) Property & Casualty mainly in Commercial Motor due to higher new business volumes and tariff increases, partly off set by Personal Property reflecting lower volumes following tariff increases and the exit of a scheme, and (ii) Health mainly driven by volume growth and tariff increases in the United Kingdom, as well as in Commercial International business; ■ Spain (€-170 million or -7%) to €2,365 million mainly from Life & Savings, in line with the strategy to shift towards capital light products, driven by (i) Protection with Savings mainly due to the non-renewal of two large bank agreements, and (ii) G/A Savings as a consequence of the reduction of interest credited rates, partly off set by (iii) Unit-Linked mainly due to commercial focus; ■ Italy (€-376 million or -7%) to €4,719 million mainly from (i) Life & Savings driven by G/A Savings, partly offset by UnitLinked, driven by the diff iculties faced by Banca Monte dei Paschi di Siena and the commercial focus on the new UnitLinked products launched in 2H17, partly off set by (ii) Property & Casualty driven by Personal and Commercial lines both from higher volumes from agencies and new broker agreements.
■ Life & Savings (€-460 million or -3%) to €13,151 million. On a comparable basis, Life & Savings gross revenues decreased by €437 million (-3%) mainly in Funds & Other (€-1,067 million) reflecting the non-repeat of a large contract underwritten in December 2016. Adjusting for this large contract, Life & Savings gross revenues increased by 4% mainly driven by Unit-Linked (€+413 million) reflecting higher sales in real estate funds and discretionary mandates. Unit-Linked revenues contributed to 40.3% of total Individual Savings revenues, compared to 29.9% on average for the market. G/A Savings revenues increased by €217 million mainly in Group business due to the sale of a large contract in 4Q17 (€392 million), partly off set by lower revenues in Individual business; ■ Other (€-66 million or -32%) to €139 million. On a comparable basis, Other gross revenues decreased by €66 million (-32%) driven by Banking activities. Operating net banking revenues slightly increased (€+2 million).
NBV Margin increased by 15.2 points to 58.2% mainly driven by a business mix shift from G/A traditional business to Pure Protection, as well as a positive evolution in Health.
Profit or loss on financial assets (under fair value option) and derivatives 16 34
Net income increased by €428 million to €243 million. On a constant exchange rate basis, net income increased by €442 million as lower adjusted earnings and an unfavorable change in the fair value of derivatives not eligible to hedge accounting were more than offset by the non-repeat of the realized loss relating to the disposal of the Life & Savings operations and Bluefin in the United Kingdom in 2016, and lower restructuring costs.
Underlying earnings before tax decreased by €6 million (-1%) to €412 million. On a constant exchange rate basis, underlying earnings before tax increased by €4 million (+1%): ■ Life & Savings stable at €367 million. On a constant exchange rate basis, Life & Savings underlying earnings before tax increased by €9 million (+2%) mainly due to higher fees & revenues from gross revenues growth, higher mortality and surrender margins, partly off set by an unfavorable impact from an accounting mismatch; ■ Health (€-2 million or -7%) to €27 million. On a constant exchange rate basis, Health underlying earnings before tax decreased by €1 million (-5%); ■ Property & Casualty (€-3 million or -15%) to €19 million. On a constant exchange rate basis, Property & Casualty underlying earnings before tax decreased by €3 million (-13%) mainly due to a less favorable claim s experience in Personal Motor combined with higher losses from natural events in both Personal Motor and Commercial Property.
Profit or loss on financial assets (under fair value option) & derivatives 96 (17)
(a) Net of intercompany eliminations. (b) Restated: reallocation of AXA Corporate Solutions Life Reinsurance company operations into the Life & Savings activities, as well as Asset Management activities and holdings into the Other activities. (c) Other corresponds to Asset Management activities and holdings.
Gross revenues increased by €53 million (+1%) to €7,034 million. On a comparable basis, gross revenues increased by €165 million (+2%): ■ Life & Savings (€+147 million or +10%) to €1,678 million. On a comparable basis, Life & Savings gross revenues increased by €158 million (+10%) mainly driven by Singapore (€+121 million to €576 million) with higher Unit-Linked revenues; ■ Property & Casualty (€-10 million or 0%) to €3,798 million. On a comparable basis, Property & Casualty gross revenues increased by €23 million (+1%): • Brazil (€+87 million or +109%) to €180 million mainly driven by new business in Commercial lines,
APE increased by €31 million (+13%) to €278 million. On a comparable basis, APE increased by €37 million (+15%): ■ Singapore (€+25 million or +24%) to €124 million mainly driven by Unit-Linked sales; ■ The Czech Republic and the Slovak Republic (€+6 million or +16%) to €45 million mainly driven by higher Mutual funds sales; ■ Mexico (€-6 million or -19%) to €23 million mainly due to lower Protection sales with the non-repeat of large Group Protection accounts underwritten in 2016.
Net income increased by €19 million to €14 million driven by higher adjusted earnings combined with lower restructuring costs.
The Group’s operating insurance companies are required to meet multiple regulatory constraints, in particular, a minimum solvency ratio. The level of internal dividends paid by operating subsidiaries must therefore take into account these constraints. Cash positions also fluctuate as a result of cash-settled margin calls from counterparties related to collateral agreements on derivatives. The Company’s statutory results may be significantly impacted by unrealized gains and losses on derivatives used to hedge, in particular, currency and interest rate risks.
In 2017, AXA continued to follow a prudent approach to manage its liquidity risk. At year-end 2017, AXA had: ■ a large cash position across all business lines (information on cash flows from operations is provided in Note 12 “Cash and cash equivalents” in Part 5 – “Consolidated Financial Statements” of this Annual Report). As of December 31, 2017, AXA’s consolidated statement of financial position included cash and cash equivalents of €23.2 billion, net of bank overdraft s of €0.7 billion; ■ broad access to various markets via standardized debt programs: for example, at the end of 2017, this included a maximum capacity of €6.0 billion of French commercial paper, $2.0 billion of US commercial paper, €17.0 billion under a Euro Medium Term Note (“EMTN”) program (of which €14.5bn issued) and €1.5bn of French titres négociables à moyen terme (formerly bons à moyen terme négociables); ■ a debt profile characterized by (i) debt that is mostly subordinated, with a long maturity profile. Over the next two years, €0.9 billion of debt repayments (1) are expected out of total financing debt in an amount of €16.2 billion at year-end 2017; and (ii) improvement in the debt ratios (debt gearing (2): 24.8% at year-end 2017, versus 26.4% at year-end 2016; interest coverage (3): 14.9x at year-end 2017, versus 15.7x at year-end 2016).
Expertise and experience Mr. Thomas Buberl holds a Master of Economics degree from WHU Koblenz (Germany), a MBA from Lancaster University (UK) and a PhD in Economics from the University of St.Gallen (Switzerland). In 2008 he was nominated as a Young Global Leader by the World Economic Forum. From 2000 to 2005, Mr. Thomas Buberl worked at the Boston Consulting Group as a consultant for the banking & insurance sector in Germany and abroad. From 2005 to 2008, he worked for the Winterthur Group as member of the Management Board of Winterthur in Switzerland, first as Chief Operating Off icer and then as Chief Marketing and Distribution Off icer. Then, he joined Zurich Financial Services where he was Chief Executive Off icer for Switzerland. From 2012 to April 2016, he was Chief Executive Off icer of AXA Konzern AG (Germany). In 2012, he became member of the AXA Executive Committee. In March 2015, he became Chief Executive Off icer of the Global Business Line for the Health Business and joined the AXA Management Committee. In January 2016, Mr. Thomas Buberl was also appointed Chief Executive Officer of the global business line Life & Savings. From March 21, 2016 to August 31, 2016, Mr. Thomas Buberl was Deputy Chief Executive Officer (Directeur Général Adjoint) of AXA. Since September 1, 2016, Mr. Thomas Buberl has been Chief Executive Officer and director of AXA.
Appointed on September 1, 2016 Term expires at the 2018 Shareholders’ Meeting
Directorship held outside the AXA Group Director: Railway Pension Investments Ltd (“RPMI”) (United Kingdom)
Directorships held within the AXA Group Director or member of the Management Committee: AXA*, AXA ASIA (SAS)
Co-founder and ViceChairman of the Board of Directors of Acqupart Holding AG (Switzerland)
Expertise and experience Mrs. Deanna Oppenheimer graduated from the University of Puget Sound with degrees in political science and urban aff airs. She completed the Advanced Executive Programme at the J.L. Kellogg School of Management at Northwestern University. Mrs. Deanna Oppenheimer started her career in Banking at Washington Mutual (United States) in 1985, retiring in March 2005 as President, Consumer Banking. In October 2005, Mrs. Deanna Oppenheimer joined Barclays (United Kingdom) as UK Banking Chief Operating Off icer. In December 2005 she became Chief Executive of UK Retail and Business Banking (UK RBB). In recognition of her importance to retail banking at Barclays, she was given the additional title of Vice Chair, Global Retail Banking in 2009 where she shared the UK RBB best practice throughout Europe and Africa. In September 2010, Mrs. Oppenheimer added the role of Chief Executive of Europe Retail and Business Banking. At the end of 2011, she left Barclays. In 2012, Mrs. Deanna Oppenheimer founded the advisory firm CameoWorks (United States). In 2017, Mrs. Deanna Oppenheimer founded BoardReady.io (United States), a start-up that accelerates the diversification of g overning b oards. On February 2018, Mrs. Deanna Oppenheimer was appointed Chairwoman of Hargreaves Lansdown plc (United Kinddom).
Directorships held during the last five years Director: NCR Corporation (United States), Tesco Personal Finance Group Limited (“Tesco Bank”) (United Kingdom), Worldpay (United Kingdom) Member of the Advisory Board: Brooks Running (United States)
In addition, within the six months following the Shareholders’ Meeting to be held on April 25, 2018, two employee directors are expected to be appointed as members of the AXA Board of Directors, in accordance with the terms of appointment to be approved by the shareholders.
The determination of the actual amount of variable compensation to be paid to the Chief Executive Officer is based on the following formula: Variable compensation due = [Variable target compensation x (Group Performance x Individual Performance)].
Pursuant to Articles L.225-37-2 and L.225-100 of the French Commercial Code, the payment of the Chief Executive Off icer’s 2017 variable compensation is withheld until the approval of the Shareholders’ Meeting on April 25, 2018.
In the tables of this section, compensation not paid in Euro was converted into Euro on the basis of the following yearly average exchange rates for 2017: 1 USD = 0.8852 EUR; 1 SGD = 0.6415 EUR; 1 HKD = 0.1135 EUR and 1 CHF = 0.8995 EUR.
The variable compensations paid to the Management Committee members for 2015, 2016 and 2017 were: VARIABLE COMPENSATIONS PAID TO MANAGEMENT COMMITTEE MEMBERS
(a) The number of options and exercise prices have been adjusted, pursuant to applicable regulation, as a result of operations on the AXA stock. (b) “Employees” other than corporate off icers at grant date.
I Report of the Board of Directors on the compensation policy of the Company’s corporate off icers
Under this mechanism, payment of 30% of his actual annual variable compensation will be deferred over the course of two years and will be subject to performance conditions. Thus, the actual deferred amount will vary depending on changes in the AXA share price over the deferral period, within a minimum of 80% and a maximum of 120% of the deferred amount. However, no variable compensation will be paid in the event that the Group’s underlying earnings are negative for the year ending immediately prior to the year of the scheduled payout, or in case of resignation or dismissal for gross or willful misconduct, prior to the payout date.
Further, while our NBV and EEV calculations are done on a market consistent basis, changes in assumptions used in calculating these measures may have a material adverse eff ect on the level of our NBV and/or EEV. For example, our NBV is sensitive to interest rate movements and, consequently, an adverse evolution of interest rates relative to our assumptions may have a significant impact on our NBV and a corresponding impact on the trading price of our securities.
Catastrophic events such as hurricanes, windstorms, hailstorms, earthquakes, volcanic eruptions, freezes, floods, explosions, fires, pandemic diseases, terrorist attacks, cyber-crimes, military actions, and power grid and other core infrastructure failures could adversely affect our operations, results or financial condition, including as a result of claims occurring at higher levels or materially earlier than anticipated; losses resulting from disruptions in our operations or failures of our counterparties to perform; or declines in value of our investment portfolio. We monitor the evolution of these risks closely and generally seek to manage our exposure to them through individual risk selection, monitoring risk accumulation, purchase of reinsurance and use of available data in estimating potential catastrophic risks. There can be no assurance, however, that we will be able to adequately anticipate such evolution. We have in the past experienced and could in the future experience material losses from these types of risks.
In addition, the rapid increase in the nature, volume and availability of data in recent years, whether resulting from connected customers, so-called “big data,” cloud computing, personalization of genetic data, asymmetric information with respect to genetic testing, artificial intelligence or otherwise, may have unanticipated and adverse impacts on our business, for example by changing the nature of insurance underwriting and pricing; by allowing customers and competitors to tailor coverage in ways that we do not currently off er; and by potentially exposing us to increased “moral hazard” in business lines where we are unable for regulatory or other reasons to adjust pricing or coverage to reflect individual risk profiles. While data-driven changes in the industry are at an early stage and diff icult to predict, they could adversely impact our business going forward, including through the expense and eff ort that we will need to incur in order to ensure that our employees, systems and processes are able to eff iciently adapt to and manage such changes as they arise.
The Audit Risk and Compliance Committee (“ARCC”) has been created in 2016 by the Chief Executive Off icer with the view to strengthen the overall Group’s Risk Management governance and is chaired by the Group Deputy Chief Executive Off icer (“Directeur Général Adjoint”) and General Secretary with the purpose of reviewing all material audit, risk and compliance issues faced by the Group.
Their teams are responsible for controlling and managing risks within Group policies and limits, and for validating investment or underwriting decisions through local Risk Committees. The Group Chief Risk Off icer chairs the Chief Risk Off icers’ meeting composed of the Chief Risk Off icers of AXA’s main subsidiaries, that meets on a quarterly basis and have monthly calls.
Local Heads of Internal Control (or equivalent) are independent from operations and report preferably to their local Chief Risk Off icer. Local Heads of Internal Control (or equivalent) regularly report to the local Executive Committee (or to a sub-Committee) on Internal Control matters.
The AXA Group’s ICOFR is a process designed under the supervision of the Group Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of Consolidated Financial Statements.
Products involving hedging programs based on derivative instruments are designed with the support of dedicated teams at AXA Bank Belgium, AXA Investment Managers, AB, AXA US and AXA SA. In a similar way, this set-up ensures that all entities benefit from technical expertise, legal protection and good execution of such transactions within the following governance framework for derivatives.
(notional €8,016 million in 2016), currency swaps for a notional amount of €687 million (notional €732 million in 2016), foreign exchange collars for a notional amount of €1,241 million (notional €1,116 million in 2016) and congruent coverage (matching assets and liabilities denominated in the same currency) for €34 million (€36 million in 2016).
At December 31, 2017, the breakdown of these CDS’s underlying debt securities gross exposure by rating was as follows: High Yield/Non rated
At December 31, 2017, the breakdown of counterparty exposure coming from OTC derivatives by rating was as follows (positive fair value net of collateral received): BBB+
Information in this section should be read in conjunction with Note 4 “Financial and insurance Risk Management” in Part 5 “Consolidated Financial Statements” of this Annual Report. Only information referred to in Note 4 is covered by the report Statutory Auditors on the Consolidated Financial Statements.
bank, Asset Management and supporting entities such as AXA Technology Services) which allows expertise to be shared within the business (including underwriting) and risk communities and ensures adequate underwriting policies are defined.
Liabilities arising from investment contracts with discretionary participating features and where the financial risk is borne by policyholders 3,637 3,593
14 LIABILITIES ARISING FROM INSURANCE AND INVESTMENT CONTRACTS 656,938 675,299 15 Liabilities arising from banking activities (a) 32,898 31,743 16 Provisions for risks and charges 11,901 13,735 19 Deferred tax liabilities 5,784 6,187
As of December 31, 2016, amounts include the liabilities of discontinued AXA Life Europe UK and Ireland operations for which the disposal process was not finalized at year-end.
Net gains and losses recognized directly through shareholders’ equity (3,172) 1,173
Adjustment of non cash balances included in the operating income before tax 5,468 7,971
Sales of equity instruments and non consolidated investment funds (f) (g) 39,810 32,903
Purchases of investment properties held direct or not (f) (4,230) (3,269)
Purchases and/or issues of loans and other assets (g) (h) (28,287) (13,534)
These consolidated financial statements including all Notes were set by the Board of Directors on March 15, 2018.
IAS 7 – Statement of Cash Flows January 29, 2016 These amendments require entities to provide information about changes in their financing liabilities, including changes from cash flows and non-cash changes (such as foreign exchange gains or losses).
In addition, amendments to IFRS 9 - Financial Instruments: Prepayment Features with Negative Compensation, published on October 12, 2017, changes the initial IFRS 9, in regards of the classification of financial assets with prepayment features that may result in negative compensation. The amendments to the standard have not yet been endorsed by the European Union.
Companies in which AXA exercises significant influence are accounted for under the equity method. Under IAS 28, significant influence is presumed when AXA directly or indirectly holds 20% or more of the voting rights. Significant influence can also be exercised through an agreement with other shareholders.
The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Group, the liabilities incurred by the Group to former owners of the acquiree and the equity interests issued by the Group.
In practice, assets held through consolidated investment funds are classified: ■ either as assets of the “Core Investment Portfolios” which include assets backing liabilities arising from insurance and investment contracts, managed according to AXA’s ALM strategy; or
Revenues from other activities mainly include: ■ commissions received and fees for services relating to asset management activities; ■ insurance companies revenues from non-insurance activities, notably commissions received on the sales or distribution of financial products; and
AXA SPDB Investment Managers Company limited Relution 39.00 38.00 39.00 37.82
Structured entities are entities that have been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when relevant activities are directed by means of contractual arrangements. Structured entities often have a narrow and well-defined objective or restricted activities.
AXA’s Chief Executive Off icer, Chief Operating Decision Maker, is a member of the Board of Directors. He is assisted by a Management Committee in the operational management of the Group and by a group of senior executives, the so-called Partners’ Group, in developing and implementing any strategic initiatives. The financial information related to AXA’s business segments and Holding Companies reported to the Board of Directors twice a year is consistent with the presentation provided in the consolidated financial statements.
Change in unearned premiums net of unearned revenues and fees (120) (75) (24) (108) (67) (5) (6) (405) (405)
Net income from operating activities before tax 2,090 2,916 1,377 3,005 360 (678) (0) 9,071 6,817
Please refer to pages 175 to 177 of Section 4.4 “Credit risk” subsections “Invested assets: A central monitoring of counterparty exposure”, “Credit derivatives”, “Counterparty risk arising from over-the-counter (OTC) derivatives”, “Receivables from reinsurers: rating processes and factors” and “Bank credit activities”.
Please refer to pages 73 to 78 of Section 2.4 “Liquidity and capital resources” subsections “Liquidity, sources and needs for Group operating subsidiaries”, “Liquidity position”, “Uses of funds”, “Impact of regulatory requirements” and “Subsequent events aft er December 31, 2017 impacting AXA’s liquidity”.
AXA SA and other holdings - - - - - -
As of December 31, 2017, comprehensive income amounted to €-0.2 million.
Debt instruments (at cost) that are not quoted in an active market (e) (f) 8,350 8,130 1.14%
Equity instruments available for sale 844 1,073 1,073 257 28 903 1,117 1,117 243 28
Equity instruments available for sale 17,056 (2,280) 14,775 4,759 19,534 16,470 (2,666) 13,804 3,812 17,616
Fair value determined directly by reference to active market excluding derivatives
Investment in real estate properties at amortized cost (a) - 32,028 0 32,028 32,074 - 29,050 - 29,050 29,155
AXA SPDB Investment Managers Company Limited - (0) 9 (1) 14 22
The decrease of gross unrealized gains and losses on assets available for sale totalled €-3,573 million, of which €-4,690 million decrease in unrealized capital gains on debt securities which was mainly driven by interest rates increase.
Minority interests’ share in unrealized gains and losses (b) (215) (267)
The positive impact in equity of actuarial gains and losses arising from employee defined benefits obligation was mainly explained by: ■ the outperformance of plan assets covering employee’ defined benefit pension plans (mainly in the United Kingdom) compared to the discount rate; ■ the revisited alternative approach (stochastic model) used to derive the pension increase assumptions and the update of mortality assumption (mainly in the United Kingdom); ■ the expected decrease in conversion rate at retirement, decrease in crediting rate assumption and revisited demographic assumptions.
• minority interests qualified as equity resulting from the consolidation of two new investment funds and capital addition to an existing consolidated investment fund for €+914 million.
TOTAL INSURANCE AND INVESTMENT LIABILITIES NET OF REINSURER’S SHARE (F = D-E) 166,391 242,967 59,428 171,062 12,625 7,837 660,312
Liabilities arising from investment contracts with no discretionary participating features 2,900 - 2,900 2,382 - 2,382
Reinsurers’ share in other reserves 632 (22) 611 398 (18) 380
Reinsurers’ share in liabilities arising from insurance contracts (D) 8,272 4,730 13,002 9,483 5,274 14,756
(Non Unit-Linked) – Liabilities arising from: Investment contracts with Discretionary Participation Features (DPF) measured according to existing accounting policies (a) (d) 33,199 32,466
The table below gives reconciliation between developed reserves and total recognized claims reserves for the claims reserves and other reserves arising from insurance contract as disclosed in Note 14.2.
AXA actively conducts its exposure to asbestos claims by using its unit specialized in non-life run-off s: AXA Liabilities Managers. Claims are managed by dedicated teams of experts who use a variety of claims payment including settlements, policy buybacks and, in certain cases, litigation. In addition, they focus specifically on final resolutions of exposures, either through commutations or other solutions.
The following table shows liabilities and assets arising from policyholder participation and other obligations as of December 31, 2017 : (in Euro million) December 31, 2017 December 31, 2016
The deferred policyholder participation and other obligations liabilities and deferred policyholder participation assets include the impact of shadow accounting (see definition in Note 1.14.2) mainly in relation to unrealized gains and losses on invested financial assets available for sale as described in Note 13.2.1, but also with regard to other temporary diff erences not necessarily linked to financial assets. Note 13.2.1 also contains a focus on jurisdictions with significant portions of participating business and where required minimum local policyholders’ share in the entities’ results are significant. This Note discloses for such jurisdictions unrealized gains and losses related to available for sale investments and related shadow accounting adjustments. The decrease in deferred policyholders’ participation liabilities mainly relates to a decrease in unrealized gains on assets available for sale in Germany and France.
Liabilities arising from insurance and investment contracts 28,551 72,764 506,306 607,620 25,583 73,295 520,269 619,147 of which Life & Savings liabilities relating to contracts including a surrender option with some surrender benefit before maturity 14,929 52,438 352,491 419,858 13,380 54,926 380,431 448,737 14.10.2 Insurance and investment contract liabilities – discount rates
• €808 million as of December 31, 2017 (€1,022 million as of December 31, 2016) mainly based on observable market data inputs and are considered as level 2 fair values, and
Macro-hedge derivatives and other derivatives related to liabilities arising from banking activities (65) (179) (89) (334) (129) (194) (48) (370)
The table below sets out the reconciliation of financing debt and undated subordinated debt with the statement of cash flows. The numbers given are excluding derivatives: (in Euro million)
The table below sets out the contractual maturities of financing debt (including the impact of derivatives detailed in Note 20.1 ). Eff ective maturities may diff er from those presented, mainly because some instruments include clauses allowing early redemption, with or without penalty.
Other debt instruments issued, notes and bank overdraft s 6,651 3,194
Collateral debts relating to investments under lending agreements and equivalent (b) 28,401 30,402
One of the main objectives of currency derivatives instruments is to limit variations in net foreign currency-denominated assets resulting from movements in exchange rates in order to protect partially or in full the value of AXA’s net foreign-currency investments in its subsidiaries and thus reduce the variability of Group consolidated shareholders’ equity against currency fluctuations, but also of others key indicators such as liquidity, gearing and solvency ratios. Notional amount of derivatives used by the Company to hedge the foreign currency exposure increased from €25.0 billion in 2016 to €27.0 billion in 2017, mainly due to the continuous review of its Net Investment Hedge policy.
(a) Restated to include derivative instruments held by consolidated investment funds in the “Satellite Investment Portfolio” (see Note 1.8.2). (b) Financing debts are disclosed in the balance sheet net of the impact of derivatives. As a result, the amount showing in the column “value including eff ect of derivatives” is their carrying value.
Derivative instruments relating to financing debt, operating debt and other financial liabilities - (698) - (698) - (1,219) - (1,219)
Investment in real estate properties as at fair value through profit or loss 28 - (16) - 12
NET RESULT OF REINSURANCE CEDED (205) (327) (229) 323 (374) (25) 247 (589)
Pension and other benefits expense (339) (288) (21) (26) (359) (313)
Defined benefit plans expose AXA mainly to market investment risk, interest rate risk, inflationary risk and longevity risk: ■ a decline in asset market value (equity, real estate, alternatives etc.) will immediately increase the balance sheet liability and the near-term cash flows for countries where there is a minimum funding requirements; ■ a decrease in corporate bond yields will result in an increase in plan liabilities even if this eff ect will be partially off set by an increase in the value of the plans’ bonds; ■ and an increase in inflation rate or an increase in life expectancy will result in higher plan liabilities.
Executive officers and other key employees may be granted options on AXA ordinary shares under employee stock option plans. These options may be either subscription options involving newly issued AXA ordinary shares or purchase options involving AXA treasury shares. While the precise terms and conditions of each option grant may vary, options are currently (i) granted at a price not less than the average closing price of the ordinary share on the Paris Stock Exchange during the 20 trading days preceding the date of grant, (ii) valid for a maximum term of ten years, and (iii) vest generally in instalments of 33.33% per year on each of the second, third and fourth anniversaries of the grant date. For options granted since 2014, the vesting remains in instalments of 33.33% per year but on each of the third, fourth and fift h anniversaries of the grant date.
Mr. Emmanuel Charnavel: 61, rue Henri Regnault – 92400 Courbevoie Cedex, first appointed on April 27, 2016. The current appointment is for a period of 6 years, until the Annual General Meeting of the shareholders called to approve the financial statements for the fiscal year 2021.
Beginning in June 2014, a series of related lawsuits (Zweiman, Shuster and O’Donnell) were filed against AXA Equitable Life
5.7 REPORT OF THE STATUTORY AUDITORS ON THE CONSOLIDATED FINANCIAL STATEMENTS
■ We evaluated and tested the internal control environment relating to: – the management of claims and, in particular, the measurement of reserves on a case-by-case basis; – the process of calculating the ultimate cost (assumptions, judgments, data, methods, compliance with the applicable accounting principles and methods), including any second opinions supplied by Risk Management with respect to technical reserves; – the IT systems used to process the technical data and integrate that data into the accounting system.
Amount of recoverable deferred tax assets with respect to tax loss carry forwards (See Note 19 to the consolidated financial statements)
On December 31, 2017, AXA’s share capital was comprised of 2,425,235,751 ordinary shares, each with a par value of €2.29. All these shares were fully paid up and non-assessable and began earning dividends on January 1, 2017.
Furthermore, since 2008, there have been a variety of proposals with respect to executive compensation practices at financial institutions including from the FSB and other regulatory bodies. Certain of these proposals have been embodied in regulation or legislation while others remain best practice recommendations.
For additional information regarding the powers of the Board of Directors, please see Part 3 – “Corporate G overnance” of this Annual Report.
Insurance fosters risk anticipation, management and mitigation, individual income stability and intergenerational welfare
In June 2009, a Group EWC agreement (available at www.axa. com) was concluded in order to guarantee a high level of social dialogue. AXA holds two EWC plenary meetings a year – gathering 50 employee representatives from European countries, as well as monthly sessions, held by 12 members of the EWC, to stay abreast of labor and economic developments in each country.
The Centers of Expertise in International Mobility established several years ago, for the first year served all the international moves across AXA Group. It is a globally consistent and cost controlled global mobility framework which provides high level service to both assignees (customer satisfaction level based on 2017 results made 87%) and AXA entities (the satisfaction level across HR family made 93%).
■ Number of fixed-term contracts transformed into open-ended contracts 1,637 emp. 1,547 emp.
Internal mobility rate of salaried workforce 10.5 % +1.9pt 8.6 %
Turnover rate of salaried non-sales force 14.3 % +1.1pt 13.2 %
At AXA France, 2,662 employees were practicing teleworking while 1,037 employees were experiencing NWOW at endof -December 2017. In Belgium, for the same period, 3,238 employees were enjoying teleworking from one to three days weekly. In AXA Spain, 50% of employees benefit from “Smart Working” models.
■ Proportion of absences due to sickness 69.9 % 70.5 %
Long Term Incentives are designed to recognize and retain the Group’s best talents and critical skills by aligning their interests with the performance of the AXA Group, of their operating business, as well as with the stock performance of the AXA share in the medium and long-term.
In September 2017, AXA hosted the Global Diversity Forum organized by Mercer during which, major corporate representatives discussed their D&I challenges and best practices.
“Generalised Linear Models Pricing for P&C”. As an example, the completion rate for “P&C H ealth Fraud awareness” exceeded 64% in September 2017.
Percentage of salaried workforce having received at least one training course 84.2 % -1.2pt 85.4 %
To better engage with students and graduates in particular, AXA shared stories from the second “Great Global Adventure” winner to attract new talent to consider AXA as a potential employer.
In 2017, 29%of the total paper consumed (off ice, marketing and distribution) was sorted for recycling by AXA. AXA has no control on the end of life of its marketing and distribution paper going to its clients. 55% of ink cartridges and toners were recycled. AXA’s IT business unit, AXA Technology Services, for which
AXA’s Responsible Investment strategy includes several sectorlevel divestments. Indeed, certain activities and products are inconsistent with our corporate responsibility goals of protecting people over the long term. In this context, AXA has have developed specific “sector guidelines” and business restrictions, which apply both to investments and insurance. AXA’s current divestments/business restrictions currently cover the following areas: ■ “controversial weapons” manufacturers that are banned by international conventions (antipersonnel landmines, cluster munitions/cluster bombs chemical, biological and depleted uranium weapons, nuclear weapons proliferation); ■ tobacco manufacturers, whose products are the main cause of long term non-communicable diseases, which conflicts with our role as one of the world’s largest health insurers; ■ palm oil producers which do not adhere to this industry’s best sustainability practices (notably regarding deforestation, land and labour rights); ■ soft commodity derivatives which may be responsible for inflating the price of basic food commodities; ■ coal and oil sands: see “One Planet Summit” paragraph below.
This work provides insights into our investments’ “temperature gauge”, but cannot yet be considered as a comprehensive “portfolio temperature” given the shortage of coverage, the experimental nature of the approach and some additional data to be factored, such as our Green investments target. AXA is currently exploring reallocation tests to reach a “2°C” scenario for the corporate bonds and for the equity portfolio, which is not implementable within a short timeframe given market sourcing capacity and AXA’s numerous investment constraints (solvency, rating, concentration limits). However, as in 2016, this testing work helps AXA in its explorative journey to better understand the links between our asset allocation and a convergence towards a “2°C” world. Please refer to our TCFD “full report” on AXA’s website for further information.
AXA believes a better understanding and broader public awareness are critical to design a resilient society. This is why AXA supports open, public academic research since 2007 via the AXA Research Fund. AXA commits to continue to finance climaterelated research to the tune of €1.5 million per year. Projects supported include a chair in African Climate Risk within the African Climate and Development Initiative at the University of Cape Town, carbon tar iff s as an instrument for tackling climate change, understanding China’s sensitivity to climate-related crop disruption, etc. The complete list of projects are detailed on AXA Research Fund’s website.
AXA has a set of Stakeholder Engagement Principles, published on its corporate website. These principles apply to all AXA’s businesses worldwide, and set out the Group’s overall approach to stakeholder engagement. As well as these principles, AXA is also guided in its stakeholder engagement by the Group’s own internal rules and procedures, as well as by its external commitments (to the UN Global Compact and the UN Principles for Sustainable Insurance for example). We believe that engaging with stakeholders improves the Group’s understanding of key social, environmental, and governance issues. It is also used to strengthen the Group’s decision-making, helping identify risks and opportunities for the business and improve the products and
Given that its operations are largely decentralized and its staff spread across a number of diff erent locations, AXA’s activities generally have no significant direct impact on local employment or development in any specific Region, nor does AXA engage in significant levels of subcontracting.
However, AXA’s most significant impact on society occurs through its insurance, savings and investment services, which contribute to economic growth, stabilization, and improved risk sharing across firms and Households, and between generations. This societal role aff ects virtually all individuals and businesses.
This is a free translation into English of the Statutory Auditors’ report issued in French and is provided solely for the convenience of English speaking readers. This report should be read in conjunction with, and construed in accordance with, French law and professional standards applicable in France.
Our independence is defined by regulatory texts, the French Code of ethics (Code de déontologie) of our profession and the requirements of Article L.822-11-3 of the French Commercial Code. In addition, we have implemented a system of quality control including documented policies and procedures regarding compliance with the ethical requirements and applicable legal and regulatory requirements.
However, it is not for us to express an opinion on the compliance with the other legal provisions applicable, in particular those set out by the Article L.225-102-4 of the Commercial Code (plan of vigilance) and by the law n ° 2016-1691 of December 9, 2016 known as Sapin II (fight against corruption).
For any consolidated information that is not disclosed, we verified that explanations were provided in accordance with Article R.225105, paragraph 3 of the French Commercial Code.
As legally required, the AXA Group conducted an analysis to measure how the AXA Group’s activities and operations falling within the above scope potentially impact the environment and each of human rights, which consistent with United Nations principles AXA defines to include fundamental freedoms an d health and safety, with a view to ensuring each identified potential risk is covered by an AXA Group policy.
Moreover, the Group uses a “corporate responsibility” or “CR clause” in contracts where possible and requires, amongst other safeguards, suppliers to observe the core standards of the International Labour Organisation. Violations are addressed with the supplier or service provider, with AXA retaining the right to terminate the contract. Please refer to Section 7.5 “Responsible Procurement – Compliance with International Labour Organisation r ecommendations and b usiness e thics” of the Annual Report for detailed information.
The Company’s management is responsible for maintaining eff ective internal control over financial reporting and for establishing a statement on its assessment of the eff ectiveness of internal control over financial reporting as of December 31, 2017. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS accounting principles. The assessment of the eff ectiveness of internal control over financial reporting is based on criteria established in the Internal Financial Control (IFC) framework, as described in management’s annual evaluation of internal control over financial reporting on page 402 of this Annual Report. Our responsibility is to express an opinion on the Company’s management’s assertion, based on our audit procedures.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of eff ectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or if the degree of compliance with the policies or procedures may deteriorate.
Financial debt amounted to €13,230 million versus €14,343 million as of December 31, 2016, a decrease of €1,113 million, mainly due to fewer loans being granted by Group entities for €694 million and fewer margin calls received from banking counterparties under collateral agreements for €348 million.
Profit on ordinary activities before tax (VI = III + IV + V) 3,788 241
AXA EQUITY AND LAW PLC 1 2,191 99. 96% 1,133 5 Old Broad Street – LONDON EC2N 1AD – England 26, rue Drouot – 75009 PARIS – France 11F, 4 Hangang-daero 71-gil, Yongsan-gu – SEOUL – South Korea 9, avenue de Messine – 75009 PARIS – France 25, Boulevard du Souverain – 1170 BRUXELLES – Belgium 120-122, avenue Hassan II – 21000 CASABLANCA – Morocco
The financial statements as at December 31, 2017 are prepared and presented in accordance with the provisions of the 2014 Chart of Accounts (regulation ANC n°2014-03 dated June 5, 2014).
Employee benefit liability was reviewed and a valuation was carried out, in accordance with the Recommendation ANC n° 2013-02, so as to measure any additional adjustment necessary to ensure the coverage of defined post-retirement benefit obligations and for accounting purpose. The method 1, as defined by this Recommendation has been applied: past service costs are recognized in profit and loss over the vesting period and the expected return on asset is used in developing the net periodic pension cost. Pursuant to this review, the employee benefit liability recognized was nil as at December 31, 2017. Additional information on employees’ defined benefit obligations is provided in Note 26.2 of consolidated financial statements.
Foreign currency receivables and liabilities are adjusted at the balance sheet date exchange rate. The matching item for this adjustment is a translation variance asset account when the diff erence is an unrealized loss, and a translation variance liability account when it is an unrealized gain. These items do not flow through the income statement but a provision for foreign exchange risk is made to recognize unrealized losses relating to the translation variance asset.
None of the transactions operated by related parties, that are still outstanding at year end or that occurred during the course of the year, account for the distinctive characteristics of transactions to be disclosed in accordance with the ANC regulations n° 2014-03 (Article 831-3).
This glossary includes definitions of non-GAAP financial measures, or alternative performance measures (APMs), that management believes are useful to understand the Group’s business and analyze the Group’s performance. The scope of the following definitions of APMs remains unchanged compared to prior periods. All APMs are indicated by an asterisk (*).
Registration Document filed with the Autorité des marchés financiers (“AMF”) on March 19 , 2018.