H. de C.: The recent turbulence does not in any way cast doubt on the Group’s core business.
Mr. Henri de Castries was reappointed Chairman of the Management Board.
Supervisory Board members are accomplished and recognized for their competencies, their experience, their complementarity and their ability to involve themselves in the supervision of a group as AXA.
Chairman and CEO of Finaxa; Member of the Board of Directors or Supervisory Board of AXA Financial (United States), Schneider Electric, BNP Paribas, Vivendi Universal and Mutuelles AXA.
– is informed by the Management Board of compensation levels set by the Board of Directors of Company subsidiaries.
– the remainder is allocated by the Supervisory Board to the various specialized Committees and distributed among their members in proportion to actual attendance at Committee meetings.
of the voting rights. These shares are owned through 14 mutual funds or directly, in the form of shares or ADS.
Cost of September 11th events (89) (561) Net investment gains attributable to shareholders (240) 229 1,096
Impact of exceptional operations 235 - 1,431 Goodwill amortization (group share) (643) (681) (279)
* ** Per ordinary share financial data for 2000 have been restated to take account of the effect of the 4-1 stock split approved by the shareholders at the annual general meeting held on May 9, 2001.
On February 12, 2003, Standard & Poor’s lowered the Financial Strength Ratings of the main insurance and reinsurance companies of the Group to AA- stable outlook from AA negative outlook. This change of rating was driven by an expected reduction in the Group’s 2002 operating earnings growth, that failed to reach the expected 20%
The ANAV can be reconciled to the consolidated balance sheet as follows: The Life Insurance ANAV is calculated from the free capital available on a local regulatory (statutory) basis, adjusted for the cost of holding capital consistent with maintaining a “AA” rating, and for any unrealized capital gains or losses not included in the calculation of PVFP. Starting from the consolidated accounts, an adjustment is needed for the differences between AXA's consolidated accounting basis and local regulatory bases, including elimination of intangible assets such as deferred acquisition costs, value of business inforce, and goodwill.
The table below summarizes AXA’s Life & Savings gross premiums and gross insurance liabilities by geographic region for the periods and as at the dates indicated: MARKET 2002 was similar to 2001 in that the Life & Savings markets in which AXA operates were adversely affected by the continued decrease in the global stock markets. Consequently, consumer demand for unit-linked products was mediocre and encouraged consumers to be more cautious in their investment decisions. As a result, consumers returned to more traditional financial protection products, such as products with some form of guarantee. Despite the continued decrease in global stock markets, the long-term view is of increasing demand for insurance products.
In each of its principal markets, AXA operates through well-established life insurance companies. AXA’s principal life insurance subsidiaries are set out below: – Europe: France: AXA France Vie (a result of a merger in 2002 between AXA Assurances Vie and AXA Conseil Vie) and AXA
PRODUCTS AXA’s Life & Savings products include a broad range of life, health, retirement and savings-related products marketed to both individuals and corporate clients, the latter in the form of group contracts. The life and savings-related products offered by AXA’s operations include, term life, whole life, universal life, mortgage endowment, deferred annuities, immediate annuities, variable life and other investment-based products. The health products offered include critical illness and permanent health insurance products. The nature of the products offered by AXA varies from market to market.
For the ten-year loss development of the Property & Casualty claims reserves, see “Property and Casualty Claims
In addition to the principal markets discussed above, AXA offers personal and commercial Property & Casualty insurance products in the following countries: Italy, Spain, Netherlands, Portugal, Luxembourg, Switzerland, Austria,
The International Insurance segment accounted for €5.8 billion, or 8% of AXA’s consolidated gross premiums and financial services revenues for the year ended December 31, 2002 (2001: €5.7 billion or 8%, respectively).
Asset Management Asset Management conditions were difficult in 2002 as in 2001, given that the stock markets around the world continued to suffer significant losses, reducing the market value at assets under management. The depressed markets resulted in a general move away from more volatile equity investments towards more stable investment options, such as fixed maturity and mutual fund investments. The decrease in average value of assets under management and the change in product mix negatively impacted the fees collected by Asset Management companies.
Total equity investments, including holdings in mutual funds 46,822 43,155 9,353 7,908 1,127 985 57,303 52,048 27% 24%
(a) Amounts are net of valuation allowances. For details on valuation allowances see note 8 to AXA’s consolidated financial statements. (b) Assets allocated to UK “With-profit” business are carried at estimated fair value in the consolidated balance sheet of AXA. (c) These amounts exclude separate account (unit-linked) assets and investments in affiliated colmpanies accounted for under the equity method.
PROPERTY & CASUALTY AND INTERNATIONAL INSURANCE (EXCLUDING AXA CORPORATE SOLUTIONS REINSURANCE) AXA does not discount its reserves for claims and claims expenses except for disability claims for which final settlement has been agreed and the payments are generally fixed over a period of time. The disability claims reserves have not been included in the Loss Reserve Development Table, as these are similar to structured settlements.
Gross reserves for unpaid claims and claims expenses developed initially 4,665 4,932 5,595 5,712 5,847 20,371 20,941 26,656 26,916 28,636 28,465 Gross reserves for unpaid claims and claims expenses developed in 2001 12,581 13,827 15,467 15,208 19,338 22,338 23,251 26,287 27,202 27,775 na Paid (cumulative) at: Seven years later 8,753 8,806 8,799 9,615 Eight years later 9,032 8,850 9,079 Nine years later 9,043 9,084 Ten years later 8,929
The financing needs primarily relate to the Asset Management operations and include funds to support commissions paid on back-end load mutual fund sales, distributions to unit holders (Alliance Capital), capital expenditures requirements and general working capital needs.
December 31, 2001. Of the total non-subordinated debt outstanding at December 31, 2002, the amounts classified as financing debt and operating debt represented €3,622 million and €1,060 million, respectively (2001: €4,712 million and €1,243 million, respectively). The €1,275 million decrease was primarily due to the activities set out below.
In addition, a European Directive dated October 27, 1998 requires a consolidated solvency calculation effective for periods ending on or after December 31, 2001. France transposed this directive under an ordinance dated August 29, 2001, decreed on March 14, 2002 and applicable from 2002.
AXA’s financial services subsidiaries must comply with various French and European regulations that require each to maintain, depending on its area of activity (bank, credit establishment or other), a minimum liquidity ratio or a minimum solvency ratio.
AXA manages its market risk within the framework of disciplined and organized investment processes: – Insurance subsidiaries are responsible for monitoring risks through the use of asset liability matching techniques.
This information, compiled by AXA’s insurance subsidiaries, indicates that AXA has a very significant surplus of assets as measured against a level of assumed risks that is consistent with a rating in the AA range. In addition, the geographic and business diversification of these risks contributes significantly to reducing AXA’s global hedging requirements.
In addition, the product range has evolved, with the aim of reducing the risk of this type of investment through improved segmentation for new products on the basis of policyholder risk profiles. Consequently, some products offer guaranteed rates with lower cash value guarantees upon surrender (this the case in Belgium and Spain). Other products offer surrender guarantees but no guaranteed interest-crediting rates.
In accordance with French GAAP, the carrying value of AXA’s consolidated invested assets is generally at historical cost or amortized cost, with the exception of assets backing UK with-profit contracts, separate account assets, and trading account securities, which are held at market value.
The increase in exposure is the result of the increase in the contribution to Group net earnings by subsidiaries operating in countries outside the euro zone.
Other limitations to these sensitivity analyses include: – the use of hypothetical (but reasonably possible) market movements that do not represent management’s view of expected future market changes,
Subsidiaries are solely responsible for identifying and obtaining insurance coverage with respect to their transferable risks (relating to property, equipment and personnel).
EXCHANGE RATES In 2002, the euro raised against all other currencies, in particular the U.S. dollar (+17.8% to 1.0487 from 0.89) and the yen (+6.26% to 124.5 from 116.7). Weighted for trade, the dollar declined by 9.6%, after having appreciated by
(a reduction of 3% compared to fiscal year 2001). In the midst of difficult conditions for Japanese domestic companies
Australia. In Australia and New Zealand, the savings related investment sector continued to be the growth area due to the ageing of the population and continued government support for self-funded retirement. Retail savings and investment sectors have been adversely impacted in 2002 by the poor performance of global investment markets, with net inflows 40% lower than the same period last year. Although Life insurance is a smaller segment of the market than investment related products, individual life and disability insurance products have grown at over 10% in 2002.
France. Market has experienced four consecutive years of growth since 1999. The increase in gross premiums has accelerated from 2% in 1999 to an estimated 7% in 2001 and in 2002 (including large risks). Growth was fuelled by the increase in French gross domestic product and the increase in rates in all lines of business, particularly large commercial lines in recent years. In 2001 and 2002, the escalating reinsurance costs were also a reason for commercial property & pommercial liability rates’ upwards revisions.
United Kingdom. The market has been challenged through a number of adverse events in 2002 including: – Reduction in underwriting capacity for some competitors, particularly in commercial property as a result of the decline in global equity markets.
– Net capital gains attributable to shareholders were lower by €–469 million to €–240 million including valuation allowances on equities, following the strong further decline of financial markets, and mainly stemming from a significant decrease in realized gains by €–491 million, partly offset by a lower level of valuation allowance on equity
& Health business as the consequence of the new line of mortgage guarantee business successfully marketed in 2002. On savings products, distribution costs were down by €18 million mainly due to reduced sales.
“Inherited Estate” assets under the financial reorganization, following the repeat proposal to policyholders in 2001.
(1) Part of these expenses are located in the “With-profit” funds and therefore are borne by policyholders.
“Inherited Estate” will not be distributed in the foreseeable future. Income tax also decreased in the year as more profit emerged in funds where effective tax rates are lower.
Gross written premiums amounted to €6,428 million, showing an increase of 29% on constant exchange rate, driven by sustained efforts to increase the sales of higher margin individual Health and Life products. Gross written premiums also benefited from the strong growth in group pension business.
NET INCOME 75 187 169 (a) Pro forma New French GAAP, as if New French GAAP had been in force since January 1, 2000. (b) For the first time, includes the Australia and New Zealand mutual funds and financial advisory businesses. Previously these results were shown under NMFM in the Asset Management segment. The prior year has not been restated for this change, as it is not material to the consolidated results.
Contribution to consolidated gross revenues 15,948 15,880 15,896 15,579 (a) Gross written premiums, plus fees, commissions and other revenues. (b) Discontinued business has been transfered to the International Insurance segment.
As a consequence of the higher technical result, the net combined ratio improved by 11 points to 107.3%. Excluding the September 11 U.S. terrorist attacks in 2001, the improvement amounted to 9.3 points.
Gross revenues 2,749 2,468 2,480 2,686 Current accident year loss ratio (net) 72.5% 77.2% 77.5% 80.0% All accident year loss ratio (net) 78.7% 79.3% 82.1% 90.9% Net technical result 561 518 460 245 Expense ratio 36.5% 36.0% 35.2% 35.9% Net investment result 82 155 202 384 Operating income (308) (216) (244) (334) Income tax expense / benefit 112 102 111 111 Minority interests 0 0 0 74 ADJUSTED EARNINGS (196) (113) (133) (150)
– Personal lines (62% of total gross written premiums) increased by 5%. In motor (+7%) portfolio registered a 1%
As a result, underlying earnings were down by €8 million to €–9 million in 2002, mainly due to the deterioration in technical margin.
(f) In the context of AXA Corporate Solutions activities restructuring (Insurance / Reinsurance / Cession), the proforma ratios presented have been computed gross of inter-company transactions for each activities. Ratios were previously presented as a single segment for which inter-company transactions were eliminated.
NET INCOME 218 153 166 (a) Pro forma New French GAAP, as if New French GAAP had been in force since January 1, 2000.
Fees and Revenues include: (i) Revenues derived from mutual fund sales (which are part of consolidated revenues),
Net attritional margin on current accident year includes the following elements: (i) earned premiums, net of cession / retrocession (reinsurance ceded excluding covers),
GENERAL PRINCIPLES AXA, a French “société anonyme” (the “Company” and, together with its consolidated subsidiaries, “AXA”), is the holding (Parent) Company for an international financial services group focused on financial protection, insurance and asset management. The list of AXA’s consolidated entities is provided in note 4.
d’urgence du Conseil National de la Comptabilité) on December 18, 2002 in respect of durable impairments. It is presumed that there is a durable impairment when the unrealized loss is significant and for a continuous period of 6 months or more prior to year-end. The criteria for determining whether an unrealized loss is significant is 20% of carrying value in periods where the markets are slightly volatile and increases to 30% when the markets are volatile.
– certain investments held by non-European Life insurance subsidiaries, for which the unrealized gains and losses of invested assets are included within insurance liabilities,
Income taxes Current income tax expense (benefit) is recorded in earnings based upon amounts estimated to be payable or recoverable as a result of taxable operations for the current year based on the relevant local tax regulation. Deferred income tax assets and liabilities are recorded based on the differences between financial statement carrying amounts and income tax bases of assets and liabilities and for net operating loss carry forwards, if any. Valuation allowances are recorded for deferred tax assets that are not expected to be recovered.
An additional provision is recorded in the event of an adverse impact on the benefits due to a change in mortality tables.
3.10.2. OPTIONS TO PURCHASE SHARES (WHICH ARE PURCHASED WITHIN THE MARKET) When employee share options to purchase shares are issued by AXA, a provision is recorded (corresponding to the difference between the market value of the shares to be acquired in the market and the exercise price) over the acquisition period. This provision is adjusted on an annual basis to reflect the change in market value of the underlying shares up until the date the shares are to be acquired.
AXA Kranken Versicherung AG 99.42 89.43 99.40 89.63 (*) Entity had no activity in 2002 and therefore, was not material and was deconsolidated.
6.5. AXA NICHIDAN (SUBSEQUENTLY KNOWN AS AXA LIFE JAPAN) AXA and the shareholders of Nippon Dantai contributed their Japanese Life insurance operations to a new holding company, AXA Nichidan Holding. In addition, AXA contributed cash to increase AXA Nichidan’s capital. The goodwill in respect of this acquisition was €1,856 million, to be amortized over 30 years. Following the revaluation of an intangible asset that decreased the opening balance sheet by €130 million (Group share), goodwill was subsequently increased. The goodwill amortization charge in 2002 was €60 million.
In 2002, the goodwill charge was €22 million. Had no goodwill been charged directly to retained earnings and reserves, additional goodwill amortization of €11 million would have been recorded against income.
(a) The realization of unrealized gains and losses upon disposal of the investments may give rise to an allocation to participating insurance contracts, minority interests and tax.
9. Separate account (unit-linked) assets Assets that are represented by separate account (unit-linked) contracts and stated at market value (refer to
The change in scope in 2001 was related to the sale of Banque Worms to Deutsche Bank and the treatment of real estate entities in Australia and New Zealand as investments under the equity method.
The minority interests’ share in the 2002 total equity included €1,683 million in respect of Alliance Capital, with the remaining balance from non-wholly owned operations in Australia / New Zealand, Germany and Japan.
In 2001, excluding the impact of foreign exchange rates the principal movements were the following: – In February 2001 and in response to favorable market conditions, AXA increased the amount of debt issued under its U.S.$5.0 billion debt shelf registration statement filed with the U.S. SEC in 2000 by U.S.$ 770 million (approximately €827 million at transaction date). The debt securities issued were denominated in two currencies: U.S. dollar (a)
(€–610 million) principally due to the following elements: – An increase in the deferred tax asset depreciation reserve in Japan (€–40 million).
(a) As restated for the new French Regulations effective from January 1, 2001. (b) In 2001, the provision for the cost associated with settling / exchanging the outstanding stock options of AXA Financial of euro 539 million (net of tax) from AXA’s buyout of minority interests in AXA Financial in 2000 was reclassified from “pension obligations and other similar liabilities” to “other provisions”.
23.4. TECHNICAL RESULTS The table below summarizes AXA’s technical results: (in euro millions)
Net investment result included in technical result 6,340 – 6,340 7,454 12,325
Investment gains (losses), net of valuation allowances on: (4,196) (2,891) 3,720 376 97 225 424 395 3,060 – – – (3,396) (2,399) 7,004
(a) Amounts do not include investment income and investment expenses from the banking operations, which are included in “Revenues from banking activities” and in “Bank operating expenses” in the consolidated statements of income. Also, depreciation expense related to real estate held by AXA’s real estate companies is excluded in the above presentation, as they are included in “Bank operating expenses”.
Mortgage, policy and other loans 1,385 1,705 1,497 113 80 73 30 6 5 1,528 1,790 1,575
DERIVATIVE INSTRUMENTS ACCOUNTED FOR AS TRADING OR SPECULATIVE INSTRUMENTS AXA uses these derivative instruments to manage its asset and liability exposures principally as it relates to interest rate, foreign currency and equity price risk exposures in certain of its operations.
– Collateralized commitments: As at December 31, 2002 and 2001, substantially all of the collateralized commitments related to AXA Bank Belgium operations. In the normal course of its banking operations AXA Bank Belgium is required to give collateralized commitments (i) to the central bank in Belgium as security for normal clearing-house activities, and (ii) to financial institutions in respect of existing security repurchase agreements.
Subordinated debt and mandatorily convertible bonds and notes (810) (1,774) 8,174
Net (decrease) increase in cash and cash equivalents (e) (f) 497 (10,047) 11,935
In most cases, the amounts available for dividends from the AXA’s insurance subsidiaries are limited to the accumulated earnings calculated using the subsidiaries’ historical statutory basis of accounting. These amounts can be further limited based on the discretion of the insurance regulators in each country in which AXA operates. In some cases, amounts available for dividends are also subject to regulatory capital adequacy tests, individual subsidiary restrictions contained in company by-laws or approval of the company chief actuary.
(i) the implementation of new French regulations that became effective from January 1, 2001, and (ii) certain new accounting principles under U.S. GAAP that became effective in 2002 and 2001. The significant differences in accounting principles between French GAAP and U.S. GAAP along with the significant changes in 2002 and 2001 are summarized below.
The strict guidance set out by the FASB and the DIG limits the extent to which existing hedge arrangements qualify for hedge accounting under FAS 133. AXA manages its risks and, therefore, its hedging strategies to meet the hedging requirements as set forth under French GAAP, rather than U.S. GAAP. As a result, certain hedging relationships established by AXA have not be designated as qualifying hedging relationships under FAS 133 and, therefore, are not subject to
GAAP an impairment for an other-than-temporary decline in value is recorded as a valuation allowance. With specific regard to equity investments, under French GAAP it is presumed that there is an other-than-temporary impairment dependent on the extent to which the fair value is below carrying value (that is, depending on market conditions, 20% in 2001 or 30% for 2002 given the stock markets volatility) and for a continuous period of 6 months or more
Under French GAAP, the impairment charge can be reversed in future periods in the event that market conditions change.
U.S. GAAP. The cumulative effect of changes in French accounting principles were recorded as adjustments to opening shareholders’ equity under French GAAP. Consequently, certain differences in accounting principles in prior years are not representative of the differences that will exist in future periods as indicated below.
U.S. GAAP was lower than the consolidated net income under French GAAP by €1,703 million primarily due to the following items: – Life & Savings segment: Under U.S. GAAP, the investment holdings in mutual funds are stated at market value whereby under French GAAP such investments are held at cost. Consequently, due to the deterioration in the global stock markets in 2001, net unrealized investment losses in these investments were recognized under U.S. GAAP
but not under French GAAP: AXA’s Life & Savings segment (€291 million). Moreover, as a result of the fundamental restructuring of AXA Equity & Law in connection with the plan of financial reorganization undertaken in 2001, under
– Property & Casualty activities: Under U.S. GAAP, the investment holdings in mutual funds are stated at market value whereby under French GAAP such investments are held at cost. Consequently, due to the deterioration in the global stock markets in 2001, net unrealized investment losses in these investments were recognized under U.S. GAAP
Cumulative effect of a change in accounting principles, net of tax – (2,698) – –
The €1,112 million increase can be attributed to the increase in the Company’s equity interest in AXA Financial (€1,052 million) through the repurchase of securities held by its subsidiary AXA Life UK. By year-end 2002, €58 million securities have been sold again to AXA Holding Belgium. As of December 31, 2002, AXA has 96% equity ownership of AXA Financial.
AXA DIRECT JAPON 90 (48) 100.00% 184 Ariake Frontier building Tower A 135-0063 Tokyo
Failure to comply with the requirement to disclose the passing of statutory thresholds may entail the forfeiture of voting rights with respect to any shares exceeding the above referenced thresholds if ownership of these ordinary shares has not been duly disclosed to AXA. This period of forfeiture may last for two years as of the date on which the holder complies with these disclosure requirements.
Exercise of stock options 2,467,439 61,683,108 356,335,683 3,260,471,499 Conversion of bonds into shares 45 7,013 356,335,728 3,260,471,911
New equity issue reserved for employees 1,970,360 216,524,113 394,996,196 3,614,215,193 Conversion of bonds into shares 1,062 163,865 394,997,258 3,614,224,910 Exercise of stock options 243,497 8,677,461 395,240,755 3,616,452,908
POTENTIAL CAPITAL AT FEBRUARY 28, 2003 The following table describes the potential change in the Company’s share capital, assuming that the maximum number of new shares is issued following conversion of all convertible bonds and the exercise of all stock options.
Options exercisable as of 03/29/97 05/14/98 10/07/98 01/22/99 10/09/99 Expiration date 03/28/05 05/13/03 09/07/06 01/21/07 09/09/07 of stock options
h o to g ra p h y cr ed its : M éd ia th