The selected historical consolidated financial data presented below have been derived from AXA’s consolidated financial statements and related notes for the years ended December 31, 2007, 2006, 2005 and 2004 in accordance with IFRS. Note that certain entities within AXA have a reporting year-end that does not coincide with December 31, in particular AXA Life Japan, which has a September 30 financial year end.
incoMe StateMent data: in accordance with iFRS: Net investment result excluding financing expenses (a) (b) 25,891 32,555 32,693 27,699
For information concerning the ownership structure of the Group, please see Part 3.4 — “Major Shareholders and related Party Transactions”, in this Annual report.
ratings > 2.2 InformatIon on the Company prInCIpal ratInGs of the Group as at marCh 26, 2008 The Company and certain of its insurance subsidiaries are rated by recognized rating agencies. The significance and the meaning of individual ratings vary from agency to agency.
Group share. (d) New Business Value: (NBV) The value of new business issued during the current year consists of the Value In Force of new business at the end of the year plus the statutory profit result of the business during the year. NBV is Group share.
The table below sets forth the total assets managed by AXA’s entities, including assets managed on behalf of third parties: aXa’s total assets unDer manaGement in Euro million at December 31,
The table below presents the main Life & Savings insurance markets in which AXA operates ranked by worldwide gross revenues in 2006, along with AXA’s estimated ranking (by market share): InsuranCe marKet — lIfe & saVInGs
Of which: Contracts with financial risk borne by policyholders (Unit-Linked) 21,529 37% 18,512 38% 12,947 30% 183,241
marKets anD CompetItIon In the Property & Casualty segment, AXA operates mainly in the main Western European markets, including France, Germany, the United Kingdom, Belgium, Switzerland and the Mediterranean region. AXA also offers personal and commercial Property & Casualty insurance products in other countries in Central and Eastern Europe as well as in Canada, Asia (notably Japan, Singapore, Korea and Hong Kong), and the Middle East.
For more details on market description, refer to “Part 2.3 — Activity report”, section “Insurance and Asset Management Markets”.
Operations in this segment are principally focused on large risks, reinsurance, and assistance. The offered insurance products, which specifically relate to AXA Corporate Solutions Assurance, include coverage to large national and international corporations mainly relating to property damage, third party liability, marine, aviation and transport, construction risk, financial risk, and directors and officer liability. In addition, AXA Liabilities Managers is the Group’s specialized unit in charge of managing the AXA Group’s Property & Casualty run-off portfolios including risks underwritten by AXA rE for all periods prior to and including 2005. reinsurance operations (AXA rE) principally focus on property damage, third party liability, marine and aviation property, and third-party liability reinsurance. The reserves corresponding to the ceded business are fully reinsured by Paris ré, with AXA rE however keeping the risk of any deviation (positive or negative) as compared to the reserves constituted as at January 1, 2006 in respect of occurrence years 2005 and prior.
Gross revenues Gross insurance liabilities at December 31, 2007 years ended December 31,
total gross claims and other reserves excluding life & savings segment 48,754 4�,035 40,173
— A 2002 EU directive, implemented into French law in 2005, concerns the regulation and supervision of financial conglomerates and provides for the assessment of a financial conglomerate’s capital requirements at the consolidated group level, the supervision of risk concentration and intra-group transactions, and the prevention of double-leveraging of the capital of a parent holding company, i.e. once at the holding parent level and a second time at the subsidiary level (“double gearing”). Although the AXA Group is not currently deemed a financial conglomerate within the meaning of this legislation by the French insurance regulator, there can be no assurance that it will not become (or be deemed) a financial conglomerate in the future. Due to the lack of uniform interpretation of this legislation by local insurance regulators throughout the various EU jurisdictions, AXA’s Belgian subsidiary has been deemed a financial conglomerate by the Belgian insurance regulator and it is possible that other European subsidiaries of the AXA Group may also be deemed financial conglomerates by local regulators thereby subjecting them to the requirements of this law.
(13) Middle-income countries of the Association of South east Asian Nations: Indonesia, Malaysia, Philippines and Thailand. (14) Asia Development Bank, Asia Economic Monitor, December 2007.
United Kingdom & Ireland10. Hardening of the United Kingdom market commenced, led by Motor which had modest upward trend throughout 2007. Household and Commercial remained soft, but Property lines were expected to harden following the summer floods. Liability lines were expected to be last to turn, with increases only offsetting claims inflation by 2009-2010. Within AXA, Personal Lines saw significant growth within Motor following the acquisition of Swiftcover and organic growth in household. Commercial lines revenues were flat reflecting difficult market conditions. AXA was up one position to 4th in the market. Overall growth in the Healthcare market remained limited and competition was intense but AXA growth of 12% was driven by new business deals, strong growth in International and product innovation. AXA continued to rank 2nd in the market, with a 1% growth in market share to 25.5%. In Ireland, the Motor market remained soft with intense competition and rates continued to fall. AXA ranked 4th in the Irish market11.
(7) Q3 2007 report of the Association of Hungarian Insurance Companies (Mabisz). (8) Czech association of insurance companies.
On July 5, 2007, AXA finalized definitive settlements with all claimants in litigations seeking nullity and avoidance (Nichtigkeits— und Anfechtungsklagen) of the squeeze-out resolutions adopted by the general meetings of AXA Konzern Ag and Kölnische Verwaltungs-AG für Versicherungswerte on July 20 and July 21, 2006, respectively. Following the completion of these settlements, the squeeze-out resolutions have been registered in the commercial register of AXA Konzern AG and Kölnische Verwaltungs-AG für Versicherungswerte on July 5, 2007. Thus, these squeeze-out resolutions are now effective and AXA holds 100% of the shares of these two subsidiaries. Following registration of these squeeze-out, further litigation with minority shareholders on valuation issues is expected in a compensation review procedure (Spruchverfahren) under German law. The total investment to reach a 100% ownership in AXA Konzern, KVAG, AXA Lebensversicherung and Deutsche Ärzteversicherung starting from the situation as at January 1, 2006 amounted to €367 million.
otHer On July 6, 2007, AXA announced the closing of the €450 million securitization of its pan-european Motor insurance portfolio. This transaction aimed at transferring to the financial markets the deviation above a certain level of the cost of claims on the underlying liabilities: over 6 million individual Motor contracts underwritten through multi-distribution channels and representing €2.6 billion of premiums in 2006, spread across a diversified portfolio covering 4 countries (Belgium, Germany, Italy and Spain).
Non-Motor revenues were up 2%, with France (+7%) mainly driven by Construction and the United Kingdom & Ireland (+3%) largely driven by Health, partly offset by Belgium (—4%) due to the non-renewal of some less profitable contracts.
Belgium APE was up 8% to €340 million due to (i) Individual Life (+5% to €307 million) driven by both non unit-linked (largely Crest 40) and unit-linked products (Twinstar launched in September 2007), and (ii) Group business (+60% to €33 million including €6 million from a 2007 large contract). Unit-linked share of total APE was 14%.
AXA Investment Managers revenues increased by 20% or +21% on a comparable basis to €1,732 million mainly due to higher average assets under management. The favorable client and product mix evolution was offset by a slight decrease in performance fees. AXA Investment Managers net inflows of €5 billion were driven by Institutional clients (€5 billion) and Main Fund (€1 billion) partly offset by retail segment (€—2 billion).
net investment result excluding financing expenses (a) 24,572 30,286 30,774 30,268 30,928
(iii) Lower income tax expense and minority interests (€+124 million) mainly due to Germany (€+82 million mainly reflecting the €42 million positive outcome of a tax audit on the ex-Albingia portfolio, and the €31 million favourable impact of the new income tax rate on the deferred tax liabilities), the United Kingdom (€+65 million notably reflecting the deterioration in the pre-tax result, and a benefit from a settlement on prior years), and Belgium (€+61 million including the €10 million positive contribution resulting from the favorable court decision from insurance companies on RDT (“Revenus Définitivement Taxés”)), partly offset by the Mediterranean region (€—44 million in line with pre-tax earnings evolution).
Adjusted earnings amounted to €6,138 million. Excluding the contribution of Winterthur (€575 million) and on a constant exchange rate basis, adjusted earnings were up €695 million (+14%) as a result of higher underlying earnings and higher net capital gains.
Ape increased by €129 million to €1,360 million or 3% on a comparable basis driven by both Individual lines and Group business despite a contracting insurance market. In Individual lines, the Accumulator-type product “Capital Resources” launched in March 2007 recorded €23 million of APE. Group business growth was largely driven by Life & Health while Group retirement remained stable following a strong 2006 performance. Unit-linked share in total APE was stable at 25%.
net technical margin decreased by €69 million to €90 million on a reported basis. Excluding Winterthur and on constant exchange rate basis, net technical margin decreased by €71 million (—45%) as 2006 included favorable non recurring items (€88 million which notably included the reduction of possible endowment misselling provision and favorable movements in Unit-linked reserves following the finalization of compensation amounts to policyholders), partly offset by various reserves releases (€+29 million) including a further 2007 release of possible endowment misselling provision. Winterthur contribution amounted to €2 million.
Investment margin increased by €3 million on a reported basis to €3 million. Excluding the contribution of Winterthur and on a constant exchange rate basis, investment margin remained constant at €0 million, with higher investment income (€+77 million) driven by higher income from fixed maturities and stronger returns from alternative investments being fully allocated to policyholders’ credited interests (€—77 million). Winterthur contribution amounted to €3 million.
fees & revenues increased by €64 million on a reported basis to €172 million. Excluding Winterthur and on a constant exchange rate basis, fees & revenues increased by €38 million, or +35%. Excluding the contribution of Alpha Insurance (€26 million), fees & revenues increased by €13 million (+12%) due to new business mix with higher loadings, especially index linked and unit-linked products. Winterthur contribution amounted to €25 million.
net technical margin rose by €10 million on a reported basis to €52 million. Excluding Winterthur and on a constant exchange rate basis, net technical margin increased by €3 million, due to the €3 million contribution of Alpha Insurance. Winterthur contribution amounted to €7 million.
vBI amortization increased by €4 million on a reported basis to €—9 million. Excluding Winterthur and on a constant exchange rate basis, VBI amortization was down €—2 million. Winterthur contribution amounted to €—5 million.
Ape was up 59% on a comparable basis to €107 million, mainly driven by Life and Savings business (+128% to €48 million), benefiting from strong unit-linked sales (+128% to €44 million), and gains in market share in the Pension Fund business (+27% to €59 million). Main countries contributing to the growth were Czech Republic (+82% to €37 million) and Poland (+56% to €49 million).
IncoMe froM operAtIng ActIvItIeS, groSS of tAX eXpenSe 2,647 2,162 2,213 1,862 1,890
Net realized capital gains or losses attributable to shareholders 562 440 441 335 307
Adjusted earnings and net income remained stable at €10 million as higher realized capital gains offset the lower underwriting results.
Profit or loss on financial assets (under fair value option) & derivatives 1 1 5 (5)
The underlying cost income ratio improved by 0.4 point to 66.8%.
Adjusted earnings increased by €13 million to €315 million. On a constant exchange rate basis, adjusted earnings increased by €41 million (+14%) in line with the underlying earnings evolution.
Assets under management (AUM) increased by €64 billion to €548 billion from year-end 2006 (+13% on a reported basis). This variation was driven by €5 billion Net New Money (including €5 billion from third-party institutional clients), €7 billion market appreciation and €68 billion change in scope (mainly from the integration of Winterthur), partly offset by €—16 billion unfavorable exchange rate variation.
The Holdings and other companies consist of AXA’s nonoperating companies, including mainly AXA parent company, AXA France Assurance, AXA Financial, AXA Asia Pacific
Underlying earnings decreased by €6 million to €—16 million due to €—9 million taxes on higher received dividends partly compensated by €+6 million related to the interest income on a €1 billion loan granted to AXA SA following the sale of AXA Netherlands.
Underlying earnings decreased by €16 million to €18 million due to lower contribution of the run-off portfolios in 2007.
(1) All comparisons to prior year figures are on a constant exchange rate basis. (2) AXA interest in AXA Asia Pacific Group is 53.86% broken down into 53.00% direct interest holding and an additional 0.86% owned by the AAPH Executive plan trust.
(iv) Deferral income such as capitalization net of amortization of URR (Unearned Revenue Reserve) and UFR (Unearned Fee Reserve).
All accident year loss ratio net of reinsurance is the ratio of: (i) [all accident years claims charge gross of reinsurance
AXA’s insurAnce operAtions The principal sources of funds for AXA’s insurance operations are premiums, investment income and proceeds from sales of invested assets. These funds are mainly used to pay policyholder benefits, claims and claims expenses, policy surrenders and other operating expenses, and to purchase invested assets. The liquidity of the Group’s insurance operations is affected by, among other things, the overall quality of AXA’s investments and the Group’s ability to liquidate its invested assets to meet policyholder benefits and insurance claims as they fall due.
The guidelines governing the operation, organization and compensation of the Supervisory Board and its Committees are set forth in the Board’s Rules of Procedure, which notably describes the powers, the missions and the duties of the Supervisory Board and its Committees.
Jacques de Chateauvieux, Norbert Dentressangle, Jean-Martin Folz, Anthony Hamilton, Henri Lachmann, Gérard Mestrallet, Giuseppe Mussari and Ezra Suleiman. In addition, the Supervisory Board has determined that all the members of the Audit Committee meet the independence criteria set forth in the Sarbanes-Oxley Act.
Non-executive Chairman of AXA UK PLC (United Kingdom) and AXA Equity and Law (United Kingdom)
Henri lacHMann, Member of the aXa supervisory Board 69, French nationality.
Since April 2004, Mr. Jacques Tabourot is a member of the Supervisory Board of AXA, representing the employee shareholders.
AXA Financial, Inc. 1290, avenue of the Americas 10104 New York NY — USA
The general principles of AXA’s executive compensation policy are regularly presented to the Remuneration Committee of the AXA Supervisory Board. This policy applies to all executive officers of the Group and is adapted to local regulations under the supervision of the Boards of Directors and compensation committees of the Company’s subsidiaries. The effective application of these principles is regularly reviewed by the Remuneration Committee of AXA.
The Chairman of the Supervisory Board (Claude Bébéar) has received during the year 2007 a total amount of retirement pension of €438,971.
The French members of the AXA Management Board (Henri de Castries, Claude Brunet, Denis Duverne and François Pierson), and the representative of the employee-shareholders at the Supervisory Board (Jacques Tabourot) participate, as all other executives (directeurs) of AXA Group entities in France, to a supplementary pension scheme pursuant to article 39 of the French Tax Code (Code Général des Impôts).
Individual option grants are determined on the basis of the following criteria: — importance of the job Ì role — importance of the individual in the job Ì retention — importance of the individual in the future Ì potential — quality of the individual contribution Ì performance
In 2007, AXA stock options were granted as follows: — 9,745,234 subscription options at a weighted average price of €34.01 granted to 4,933 employees, representing 0.47% of the share capital,
Date of grant Date of the shareholders Meeting total options granted (adjusted numbers) (c)
A third performance shares plan was launched on May 10, 2007. A total of 782,432 performance shares were granted to 1,433 beneficiaries in France. The 2-year acquisition period will end on May 10, 2009. The shares acquired will be subject to a 2-year restriction period until May 10, 2011.
Pursuant to the provisions of the European Commission Regulation n° 2273/2003 which came into force on December 22, 2003 and in accordance with market practices allowed by the AMF, the objectives of the Company’s share repurchase program that will be submitted to the Shareholders’ approval on April 22, 2008 are the following: a) optimizing the liquidity of AXA securities, notably to foster regular and liquid trading in the securities through a liquidity agreement that complies with the AFEI Code of conduct approved by the AMF, entered into with an investment services provider (liquidity provider) in compliance with the market practice accepted by the AMF, b) (i) hedging stock options offered to some or all employees or eligible directors and officers of the Company and/or affiliates as defined in Article L.225-180 of the French Commercial Code,
Number of shares transferred since the beginning of the program 2,305
Treasury shares held by Company subsidiaries (directly and indirectly) (e) 20,859,062 1.01% [20,859,062] (c) [0.88%] (c) 26,991,283 1.29% [26,991,283] (c) [1.15%] (c) 35,347,654 1.89% [35,347,654] (c) [1.62%] (c)
Since 1993, the AXA Group has promoted employee shareholding by offering each year to its employees an opportunity to become shareholders through a special equity issue reserved exclusively for them.
By virtue of the authorization granted by the shareholders at the Annual General Meeting of May 14, 2007, the Management Board increased share capital through the issue of shares to employees of the Group under the Shareplan 2007 program. The shareholders waived their preferential subscription rights so that this offering could be made to employees.
compared to Shareplan 2006 (€375.5 million), as follows: • €74 million in the traditional plan (versus €51.8 million in 2006); • €478.3 in the leveraged plan (versus €323.7 million in 2006).
By granting the same number of shares to all employees having at least 3 months of service at July 1, 2007, whatever their position within the organisation, their hierarchical level, their country or their remuneration level, the AXA Group wanted to demonstrate that everyone has a role to play in attaining objectives of Ambition 2012 and should share its success.
4.1 RISK FACTORS — Risks relating to the financial markets 166
Third parties that owe us money, securities or other assets may not perform under their obligations. These parties include issuers whose securities we hold in our investment portfolios (including mortgage-backed, asset-backed and other types of securities), borrowers under mortgages and other loans that we extend, reinsurers to which we have ceded insurance risks, customers, trading counterparties, counterparties under swap and other derivative contracts, clearing agents, exchanges, clearing houses and other financial intermediaries. In addition, defaults by parties with which we have no direct contractual relation, such as a default by a credit insurer that has insured bonds, structured finance products or other securities we may hold in our investment portfolios, may adversely impact the value of those securities and potentially adversely affect the financial markets more generally. These parties may default on their obligations due to bankruptcy, lack of liquidity, downturns in the economy or real estate market, operational failure or other reasons. Negative trends and investment climates in our major markets may result in an increase in investment impairments on our investment assets due to defaults, unrealized losses, credit downgrades or overall declines in securities markets.
We continually review the adequacy of the established claims reserves, including emerging claims development, and actual claims compared to the original assumptions used to estimate gross claims reserves. Based on current information available, we believe that our claims reserves are sufficient. However, because the establishment of claims reserves is an inherently uncertain process involving estimates, there can be no assurance that ultimate losses will not materially exceed our claims reserves and have a material adverse effect on our earnings. For example, there is a high degree of uncertainty with respect to future exposure from asbestos claims because of significant issues surrounding the liabilities of insurers, diverging legal interpretations and judgments in different jurisdictions and aggressive asbestos related litigation, particularly in the U.S. and increasingly in the UK and other European countries. These uncertainties include the extent of coverage under insurance policies, whether or not particular claims are subject to an aggregate limit, the number of occurrences involved in particular claims and new theories of insured and insurer liability. We have established reserves for insurance and reinsurance contracts related to environmental pollution and asbestos at December 31, 2007, which represent our best estimate of ultimate claims exposure at December 31, 2007 based on our current knowledge of facts and law. However, given uncertainties surrounding the related claims, there can be no assurance that ultimate losses will not materially exceed our claims reserves and have a material adverse effect on our earnings. For additional information, see “Environmental Pollution and Asbestos” in Note 14 to AXA’s consolidated financial statements included in the Part V of this Annual Report.
The terrorist attacks and responsive actions in recent years have significantly adversely affected general economic, financial and political conditions, increasing many of the risks in our businesses. Such attacks and actions may have a continuing negative effect on our businesses and results of operations over time. Our general account investment portfolios include investments in industries that we believe may be adversely affected by the terrorist attacks and responsive actions, including airlines, lodging and entertainment companies and non-life insurance companies. The effect of these events on the valuation of these investments is uncertain and could lead to impairments due to lasting declines in the value of investments. The cost, and possibly, the availability, in the future, of reinsurance coverage against terrorist attacks for our various insurance operations is uncertain. In addition, the rating agencies could reexamine the ratings affecting the insurance industry generally, including our companies.
Our acquisitions may divert management attention and other resources and involve risks of additional liabilities
AXA Cessions advises and supports the Group’s Property & Casualty and Life & Savings companies with their reinsurance strategy and centralizes the Group’s purchasing of reinsurance. Its role is defined more precisely in sections “Pre-launch product approval and exposure monitoring” and “Definition of reinsurance requirements and analysis of underwriting” of this chapter.
The policies put in place to manage these risks are tailored to each product type and the risks relating to it.
— 14% at the end of 2007 (12% at the end of 2006 and 7% at the end of 2005) of the Group’s Life & Savings technical reserves are related to products offering oneyear guaranteed rates that are updated every year. The risks arising from a sustained fall in interest rates in the financial markets are limited for these types of products, which mainly concern policies in France and collective policies in Japan. Hedging derivatives programs are often implemented to cover long-term fixed maturities from the risk of an increase of interest rates.
These analyses are designed to validate AXA’s ability to satisfy capital adequacy requirements over the short and medium terms. These requirements are included as constraints in asset-liability analyses.
— Expenses are adjusted for non-recurring expenses and one-time strategic spending.
10% higher value of equity markets at start of projection 1,594 5% 997 3% 2,591 7% 1,929 5% 1,105 3% 3,034 9%
All sensitivities are presented net of tax and minority interests, and where applicable net of policyholder participation.
Global warming is now proven beyond doubt, although experts may disagree on its magnitude and projection. Very broadly, global warming leads to higher maximum and minimum temperatures, with more hot days (heatwaves) as well as heavier and more frequent cyclonic precipitation events. These phenomena have already been observed and could become more prevalent, albeit to different extents, across almost all land surfaces on the planet.
Actuaries in charge of assessing reserves for claims payable do not use a single method but a selection of approaches such as: — Methods based on the development of claims (paid or incurred) using triangulation methods (e.g. chain ladder and link ratio) for which past experience is applied to each loss occurrence or underwriting year, in order to make reserves projections until their estimated final development.
— Methods based on claims ratios (such as the ultimate claims ratio or the additional claims ratio).
The Group Insurances are reviewed annually to ensure that AXA has achieved the market’s best terms, conditions, rates, limits and overall protection. The insurers used by the Group are acknowledged international leaders. The financial solidity of each insurer is checked and approved according to AXA Group standards.
(h) As described in note 1.12.2, the adoption in 2006 of FRS27 in the United Kingdom led to adjustments to 2005. The effect of these adjustments is set out in note 14. (i) In accordance with IFRS 3, i.e. within 12 months following the acquisition date, the Group has adjusted certain items impacting the allocation of Winterthur purchase price.
(d) Also includes liabilities arising from deferred policyholders’ participation. (e) Financing debt amounts are shown net of effect of derivative instruments (please refer to note 19).
Adjustment of non cash balances included in the operating income before tax 18,317 13,829 14,862
(a) Included in “Other debt instruments issued and bank overdrafts“. (b) The “Cash and cash equivalents” balances shown in the statement of consolidated cash flows do not include cash balances of consolidated investment funds from the Satellite
1.8. ASSETS BACkING LIABILITIES ARISING FROM CONTRACTS WHERE THE FINANCIAL RISk IS BORNE BY POLICYHOLDERS Assets backing liabilities arising from insurance or investment contracts where the financial risk is borne by policyholders are presented in a separate aggregate of the balance sheet so that they are shown in a symmetrical manner to the corresponding liabilities. This presentation is considered more relevant for the users and consistent with the liquidity order recommended by IAS 1 for financial institutions, since the risks are borne by policyholders, whatever the type of assets backing liabilities (investment properties, fixed maturities or equities, etc). Details of these assets are provided in the notes.
For traditional life insurance contracts (that is, contracts with significant mortality risk), the future policy benefits reserves are calculated on a prospective basis according to each country regulation provided methods used are consistent with the Group’s policies and using assumptions on investment yields, morbidity/mortality and expenses.
The measurement of deferred tax liabilities and deferred tax assets reflects the expected tax impact, at the balance sheet date. That would follow the way the Group expects to recover or settle the carrying amount of its assets and liabilities. When income taxes are calculated at a different rate if dividends are paid, deferred taxes are measured at the tax rate applicable to undistributed profits. The income tax consequences of dividends are only accounted when a liability to pay the dividend is recognized.
1.17.5. Change in unearned premiums reserves net of unearned revenues and fees
The Consolidated Statement of Recognized Income and Expense for the period (SORIE) includes all gains and losses over the period, that is, in addition to net income for the period, any changes in unrealized gains and losses on available for sale securities, the reserve of cash flow hedging derivatives, reserves for currency translation and employee benefits’ actuarial gains and losses through OCI. This statement shows only changes in reserves over the period, in addition to net income. The reconciliation with the related reserves recognized through equity is shown in Note 13. This statement also shows transactions with shareholders and all changes in equity for the periods presented.
On October 31, 2007, AXA closed the sale of Winterthur Life Taiwan Branch (WLTB), to China Life Insurance Co Ltd., a life insurance company incorporated in Taiwan.
Through securitization, AXA has transferred to the financial markets the potential deviation of the cost of claims on the securitized insurance portfolios above certain thresholds.
Liabilities arising from insurance contracts (a) 366,487 47,138 11,058 — — — (320) 424,363
OF WHICH WINTERTHUR TOTAL LIABILITIES EXCLUDING SHAREHOLDER’S EQUITY 93,669 14,787 1,612 4 2,885 2,018 (3,763) 111,212
(d) As described in note 1.12.2, the adoption in 2006 of FRS 27 in the UK led to adjustments to 2005. The effect of these adjustments is set out in note 14.
Change in financial instruments impairment (655) (251) (6) — — (14) — (927)
Technical charges relating to insurance activities (68,999) (12,697) (2,272) — — — (90) (83,877)
Bank operating expenses — — — — (64) 3 — (61)
Other operating income and expenses (71,115) (17,981) (4,096) (2,825) (336) (600) 492 (96,462)
SLPH (AXA UK Holdings) (minority buyout) 1,525 — — — 17 (1) 1,541
Decrease following the transfer of portfolios as “held for sale” category
(b) Applicable to investment contracts with no discretionary participation features. (c) As described in note 1.12.2, in 2006 the adoption of FRS 27 in the United Kingdom has led to adjustments to 2005. The effects of these adjustments are set out in note 14.
Life & Savings deferred acquisition costs and equivalent net carrying value as at January 1 13,047 1,152 12,360 960 10,273 692
DAC = Deferred Acquisition Costs. (a) Relating to contracts subject to IFRS 4, i.e. insurance contracts and investment contracts with discretionary participating features. (b) Applicable to investment contracts with no discretionary participation features (IAS 39). (c) As described in note 1.12.2, the adoption of FRS 27 in the United Kingdom has led to adjustments to 2005. The effects of these adjustments are set out in note 14.
Fixed maturities held for trading 120 120 0.02% 1,019 1,019 7.44% 1,139 1,139 0.19%
Non quoted fixed maturities (amortized cost) 10 10 — 1 1 0.01% 11 11 —
In 2006, the integration of Winterthur increased the amount of investment properties by €5,623 million on a fair value basis. €5,506 million of this increase related to the insurance business, while €117 million related to other activities.
Equities at fair value through profit and loss 2,739 2,243 388 730 1,503 1,314 1,074 324 636 10,952
(a) Amounts are presented excluding macro hedging and other derivatives but including the effect of hedging derivatives (IAS 39) and economic hedging derivatives that do not form part of a hedge relationship within the meaning of IAS 39.
(a) Asset value including impact of discounts/premiums and accrued interests, but before impairment and revaluation to fair value of assets available for sale. (b) Asset value including impairment, discounts/premiums and accrued interests, but before revaluation to fair value of assets available for sale. (c) Including policy loans. (d) In accordance with IFRS 3, i.e. within 12 months following the acquisition date, the Group has adjusted certain items impacting the allocation of Winterthur purchase price.
In 2005, “other changes” related mainly to changes in consolidation method. The following companies are now fully consolidated: — Turkish Life, Non life and holding companies (€—71 million). — Hong Kong Non life companies (€—68 million). — Singapore Non life companies (€—42 million).
Subordinated perpetual debt is classified in shareholders’ equity at its historical value as regards interest rates and its closing value as regards exchange rates. The corresponding exchange differences are cancelled out through the translation reserve.
Value of the perpetual debt in currency of issuance (in million)
750 M € (TSS) (October 5, 2007) 6.211 % not before 10 years EUR 750 746 — — — —
13.2.1. Recognized income and expense for 2007 a) Reserve related to changes in fair value of available for sale financial instruments included in shareholders’ equity
The main contributors to the €252 million change in actuarial gains and losses on employee benefit obligations were the United States (€146 million), Germany (€63 million) and the Netherlands (€16 million).
Equity — share based compensation — — — 92 — — — — — — — 92 —
Capital in excess of nominal value — — — 3,800 — — — — — — — 3,800
Net income of the period — — — — — — — — — — 5,085 5,085 673
Reinsurers’ share in claim reserves (a) 455 1,964 3,861 6,280 442 1,964 4,348 6,754 376 1,791 2,692 4,859
Reinsurers’ share in future policy benefit reserves — — — — — — —
Reinsurers share in liabilities arising from investment contracts where the financial risk is borne by policyholders 9 — 9 9 9 8 8
Claim reserves as of January 1 33,733 10,275 44,007 25,614 10,366 35,980 23,708 8,890 32,599
Reinsurers’ share in claim reserves as of January 1 1,964 4,348 6,312 1,791 2,692 4,483 1,628 2,051 3,680
The surplus (shortfall) of the initial reserves with respect to the re-estimated gross final cost for each year represents, for a given year N, the difference between the amount shown on the second row (gross reserves for unpaid claims and claims expenses developed in 2007 adjusted for changes in exchange rates and scope of consolidation) and the amount shown in the final diagonal under “Reserves re-estimated”.
Reserves for savings contracts with non-zero guaranteed rates are discounted at the technical interest rate.
— a €324 million decrease in AXA Bank Belgium term accounts in relation with the interbanking activity slowdown,
17.3. FAIR VALUE MEASUREMENT OF OTHER DEBT INSTRUMENTS ISSUED AND BANk OVERDRAFTS (OTHER THAN FINANCING DEBT) The fair value of other debt instruments issued and bank overdrafts (other than financing debt) was €6,259 million at December 31, 2007. Among the elements included in the preceeding table, fair value is only calculated for other debt instruments issued. Other items mainly comprise repository agreements balances or short-term interbank liabilities carried by Group banks. By nature, their fair value is very similar to their nominal value.
Current accounts payable to other companies 1,842 1,842 1,223 1,223 771 771
Derecognition of deferred tax assets on tax losses of prior years (a) 1 19 (387)
Impact of correction, decrease in value and other elements (214) (100) 170
— Deferred tax through reserves relating to the fair value adjustment of available for sale investments 678 1,378 (701) (1,833) (2,557)
Deferred tax through reserves relating to gains and losses on defined benefits pension plans 224 — (283) (1) (7) (67)
Deferred tax through reserves relating to the fair value adjustment of cash flow hedge derivatives (55) (1) (10) — — (65)
Other unrecognized deferred tax — — — — — — 5 — — 5
Note 4 to the financial statements refers to Risk Management within the Group, and describes its main principles and guidelines. In general, derivatives are used by the various entities and by the Company for economic hedging purposes, with the exception of certain credit derivatives. However, the notion of hedge accounting within the meaning of IAS 39 only applies to a small portion of derivatives used by the Group. The overall objectives of the economic hedging implemented by AXA are described briefly below, along with details of any items that qualify for hedge accounting in the meaning of IAS 39.
Total liabilities arising from investment contracts 111,161 — (102) 111,059 101,399 — (62) 101,338 82,742 — (52) 82,689
(a) As described in note 1.12.2 on accounting principles, the adoption of FRS 27 in the United Kingdom led to adjustments to 2005 figures (see note 14 for details). (b) In accordance with IFRS 3, i.e. within 12 months following the acquisition date, the Group has adjusted certain items impacting the allocation of Winterthur purchase price.
December 31, 2007 December 31, 2006 December 31, 2005 December 31, 2007 December 31, 2006 Restated (a) December 31, 2005
Total — Property & Casualty including International Insurance 32,381 10,643 1,401 44,673 13,345 58,018
Financing debt expenses of €471 million in 2007 included incomes and expenses relating to hedging derivative instruments on financing debt, mainly for AXA SA (€211 million in 2007).
(e) As described in note 1.10, the contribution of discontinued operations is stated on a separate line of the income statement.
International Insurance Total Insurance Asset management Banking Holdings Inter-segment eliminations TOTAL TOTAL TOTAL
(a) Includes all acquisition expenses relating to insurance and investment contracts before capitalization/amortization of deferred acquisition costs and equivalents. (b) Claims handling expenses are included in the “Technical charges relating to insurance activities” profit & loss caption. (c) Investment management expenses are included in the “Net investment income” profit & loss caption. (d) Amount detailed in Note 25.
Impact of foreign currency fluctuations (69) (227) 274 — — —
Opening actuarial gains and losses recognized in shareholders’ equity (720) (1,112) (445) (4) (28) —
Experience and assumptions adjustments on plan liabilities 1,055 226 (1,053) 57 28 (30)
[b] Cost of the lock-up for the employee 13.45% 13.15% 13.41% 14.32% 16.07% > 17.50%
The total cost of the AXA Miles is amortised over the vesting period and an estimated 5% pre-vesting lapse rate is applied. On that basis, the expense recognized in the profit & loss for the year ended December 31, 2007 was €23.8 million.
In 2005, 2006 and 2007, Performance Shares were issued in France only. Performance Shares are similar to Performance Units, but the payment is equity-settled rather than cash-settled. In France, most of the Performance Units granted to employees have been converted into Performance Shares. The total cost of Performance Shares was €23.6 million in 2007.
FULLY DILUTED — WEIGHTED AVERAGE NUMBER OF SHARES D 2,061 2,032 1,991
The insurance businesses of the Mutuelles AXA and the insurance businesses of the Company’s French insurance subsidiaries use similar distribution channels and are managed as a single business, subject to legal and management arrangements established to maintain the legal distinctions between their respective businesses. Certain of the costs and expenses of operating these businesses (other than commissions) are shared by these subsidiaries and the Mutuelles AXA and allocated among them through a Groupement d’Intérêt Economique or “GIE” which is a type of French inter-company partnership more fully described below. There are no agreements between the Mutuelles AXA and the Group’s insurance subsidiaries that restrict in any way their ability to compete with one another.
To the best of the Company’s knowledge, based on information reported to it, at December 31, 2007, there were no loans outstanding from the Group to any member of AXA’s Management Board or Supervisory Board other than: (i) one loan to a member of AXA’s Management Board (loan originated in 2002 in the original principal amount of €200,000, bearing interest at a rate of 4.58% annually and with a 10-year term); (ii) two loans to another member of AXA’s Management Board (a loan originated in 1999 in the original principal amount of €152,449 bearing interest at a rate of 4.50% annually and with a 10 year term and a second loan originated in 2000 in the original principal amount of €76,225 bearing interest at a rate of 5.80% annually and with a 10 year term); and (iii) one loan to a member of AXA’s Supervisory Board (loan originated in 2007 in the original principal amount of €5,275,955 bearing interest at a rate of 4.70% annually and with a 7-year term). In addition, the Management Board member with the two loans outstanding at December 31, 2007 referred to in (ii) above had the following other recent loans or loan commitments from a banking subsidiary of the Company: (i) a short-term loan originated and fully repaid in October 2007 (loan in the original principal amount of €536,500 bearing interest at annual rate of 1 month Euribor + 115 basis points); and (ii) a commitment for a secured short-term loan entered into during the first quarter of 2008 for a loan in the principal amount of €1,073,000 at annual rate of 1 month Euribor + 115 basis points). These loans and loan commitments were made in the ordinary course of business of the Group’s banking subsidiary at prevailing market terms and conditions at the time of origination.
At the end of 2007, guarantee commitments received increased by €756 million compared to the end of 2006, mainly due to (i) an increase in guarantees received from credit institutions by AXA Banque (€+207 million) following the strong growth of credit in 2007 (and thus in outstanding property loans), and (ii) an increase in AXA Bank Belgium (€+228 million) on guarantees received by customers on house loans and credits to small businesses.
— €250 million of commitments given by AXA France Assurance (French holding company) for the consolidated SPV Acacia.
In the United States, AXA’s U.S. subsidiaries are involved in a number of lawsuits, investigations and other actions in various states and jurisdictions where they do business. A detailed description of these matters involving AXA Financial, Inc. and its subsidiaries (including AXA Equitable and AllianceBernstein) is included in the annual reports on Form 10-K for the year ended December 31, 2007 and subsequent reports on Form 10-Q, respectively, of AXA Financial, Inc. (SEC file no. 1-11166), AXA Equitable (SEC file no. 0-25280) and AllianceBernstein (SEC file no. 000-29961) filed with the SEC (collectively, the “Subsidiary SEC Reports”). The Subsidiary SEC Reports are publicly available and copies can be obtained through the SEC’s EDGAR system (www.sec.gov), or on the websites of these companies.
claiming that the Policy was void due to Philips’ non-disclosure of material information concerning the existence and nature of THAN’s business in connection with the underwriting and subscription of the Policy. This Dutch litigation is currently pending. THAN initiated a competing lawsuit in the U.S. federal District Court for the District of Kansas, claiming that its asbestos exposure should be covered under the Policy. The Kansas court dismissed the action for lack of jurisdiction and THAN’s appeal of this decision was dismissed by the 10th Circuit United States Court of Appeals on June 12, 2007. Subsequent to this dismissal, Philips indicated to the insurers that it may put THAN into bankruptcy in the US. AXA’s acquisition of Winterthur Group on December 22, 2006, increased the AXA Group’s potential exposure in this matter because Winterthur Group insurers held a significant participation in the Philips program. Management believes that the claims of Philips and its subsidiaries in connection with these matters are without merit and intends to vigorously defend the AXA Group’s interests.
We conducted our audit in accordance with professional standards applicable in France. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
— Deferred tax assets and liabilities are recorded and measured using the methods described in note 1.15.1 of the notes to the consolidated financial statements.
Any member of the Management Board who, during a fiscal year, reaches the age of sixty-five while in office is automatically deemed to have resigned at the end of that fiscal year. However, when a member of the Management Board reaches that age, the Supervisory Board may choose to extend his term of office one or several times, provided that the total extended period does not exceed three years.
In order to facilitate compliance with the notification requirements concerning thresholds, a holder of ADRs representing ADSs, may deliver any such notification with respect to ADRs representing ADSs to The Bank of New York, which will, as soon as practicable, forward the notification to AXA and the AMF.
shareholders’ Meetings Under French law, prior to any ordinary and/or extraordinary shareholders’ meeting, a notice of Meeting must be published in the Bulletin des annonces légales obligatoires, or “BALO”, at least 35 days prior to the meeting date (or 15 days if convened, in the event that the Company is subject to a tender offer, for purposes of approving measures the implementation of which would be likely to cause such tender offer to fail) and must indicate, in particular, the agenda and the proposed resolutions.
— conditions of preparation and organisation of the Supervisory board’s work 390
PARt 1 > cONDiTiONS OF PrEPArATiON AND OrgANiSATiON OF THE SuPErViSOry bOArD’S wOrk
For managing and optimizing interest rate and exchange rate risk, the DcFg is authorized to use derivative instruments, mainly interest rate and currency swaps, options, caps and floors. These instruments, which may be either standard or structured, are used as part of strategies reviewed by the Supervisory board’s Finance committee. Persons authorized to commit the company and trade such transactions are listed in a book of signatures, available for distribution to bank counterparts.
The group Financial communications Department coordinates relations with analysts and with AXA group investors.
Renewed success of AXA employee share offering in 2007: total subscription up by 47% (11/29/2007)
A copy of the bylaws transactions on AXA shares www.axa.com www.amf-france.org
The Statutory Auditors have provided me with a letter of completion of assignment, whereby they state that they have verified the information relating to the financial position and the financial statements contained in this document, and that they have perused the entire document.
a) in French companies (total) 39 35 b) in foreign companies (total) 33 19 1
This multivariate analysis reflects the long-term nature of ownership of subsidiaries and excludes factors relating to short-term market volatility. Net book value is compared with the going concern value, which is the value of the assets and expected profits of existing and new business, taking into account the entity’s future prospects. The value of future profits is estimated on the basis of calculations
Subordinated debts amounted to €6,891 million, compared with €7,976 million in 2006. This €1,085 million reduction was due to the repayment of two perpetual subordinated bonds, one in the amount of $400m and the other €559 million, for a total of €833 million, plus €252 million of exchange rate gains.
The perpetual subordinated notes are perpetual bonds. The company has the option of deferring payment of the coupons under certain conditions. Nonetheless, the coupons must be paid when these conditions cease to be met or on redemption of the instruments. where payment is deferred for an extended period, the coupons remain payable by law. Similarly, in the absence of dividends being paid, unpaid coupons accumulated over years will be recognized as payable on any liquidation. These instruments are classified as debt on the basis of this contractual obligation to pay the coupons.
“Embedded Value” (EV) is a valuation methodology often used for long term insurance business. it attempts to measure the present value of cash available to shareholders now and in the future. “European Embedded Value” (EEV) is a refinement of this methodology based on Principles issued by the cFO Forum of European insurers, which AXA adopted during 2005.
“life & Savings New business Value” (NbV) measures the value of new business sold during the year. it includes the ViF on new business, and also the upfront costs associated with acquiring new business (often called “strain”). Therefore NbV combines elements which increase ViF balances from one year to the next and elements which reduce the ANAV from
in addition to life & Savings EEV, AXA calculates a “group EV” which adds to the life & Savings EEV the Tangible Net Asset Value for other-than-life businesses.
Unrealized capital gains projected in Life & Savings VIF & other Stat-GAAP adjustments (599) (599)
The life & Savings ANAV can be further segmented into two pieces: 1) the required capital which represents an amount consistent with obtaining a AA rating at each operation, net of implicit items that can support capital requirements, and 2) the Free Surplus, which represents the excess of ANAV over the required capital.
contract that complies with the AFEi code of conduct approved by the AMF, entered into with an investment services provider in compliance with the market practice accepted by the AMF; b) (i) hedging stock options offered to some or all employees or eligible corporate officers of the AXA group, (ii) granting free shares to employees and former employees enrolled in a company savings plan, and (iii) granting free shares to employees and eligible corporate officers of the AXA group in connection with the provisions of Articles l.225-197-1 and following of the French commercial code, c) holding and tendering such shares later in payment or in exchange, in connection with potential external growth acquisitions, in compliance with the market practice accepted by the AMF, d) delivering shares upon the exercise of rights attached to bonds with an immediate or future claim on shares of the company, e) cancelling some or all of these shares, subject to Shareholders approval of the 20th resolution hereinafter, which authorizes this cancellation and/or, more generally, f) performing all operations in compliance with the laws and regulations in force, it being specified that in the event the Management board intends to use this authorization to purchase stock for objectives other than those explicitly mentioned above, the shareholders will be informed beforehand by any means allowed under applicable regulations.
in accordance with applicable laws, the discount off the average price of the company’s shares on the Paris Stock Exchange over the twenty trading days prior to the day on which the Management board formally determines the opening date of the subscription period, shall not exceed 20%. However the subscription price shall not be higher than this average.
The subscription price, decided by the Management board at its Meeting on September 17, 2007, was based on a reference price equal to the arithmetical average of the 20 opening stock price quotes for the AXA shares on Eurolist by Euronext Paris S.A. over a period of 20 trading days from August 20, 2007 through September 14, 2007.
To the Shareholders of AXA 25, avenue Matignon 75008 Paris in our capacity as Statutory Auditors of AXA, and in accordance with the terms of our assignment pursuant to Articles l.225-135 and following of the French commercial code, we hereby submit our report on the contemplated increase of the share capital with preferential subscription rights waived, up to a maximum nominal amount of €100 million, and reserved for a category of beneficiaries, on which you are being asked to deliberate and vote.
The Shareholders, having fulfilled the quorum and majority requirements pertaining to ordinary general meetings, having reviewed the Management board report, and Article 10. c of the company’s bylaws in particular, and upon the recommendation of the employee shareholders mentioned in Article l.225-102 of the French commercial code, — hereby appoint Mr. Jason Steinberg to serve as a member of the Supervisory board, replacing Mr. Jacques Tabourot, whose term of office expires at the end of this general Meeting, for a four-year term, as provided for in Article 10. c of the company’s bylaws, expiring at the close of the general Meeting of Shareholders in 2012 called to approve the financial statements for the year ending December 31, 2011; — also decide that (i) in the event that several of the resolutions numbering from the sixth to the fourteenth resolution receive more votes in favor than a majority of all the votes to which the shareholders present today or duly represented may cast, only that resolution receiving the highest number of votes in favor shall be considered as having passed; the other resolutions in the aforementioned series shall be considered as rejected; and finally decide that (ii) in the event that none of the resolutions numbering from the sixth to the fourteenth resolution receive more votes in favor than a majority of all the votes to which the shareholders present today or duly represented may cast, then no candidate shall be appointed to serve as a member of the Supervisory board by the present general Meeting.
Authorization granted to the Management Board to increase the Company’s share capital with waiver of the preferential subscription rights, to a category of beneficiaries
Honorary Professor at the law and Political Sciences School of lima (Peru)
Commission Regulation of April 29, 2004 Correspondence table > APPENDIX XI
Statement made by the person responsible for the Annual Financial Report 404
w w w. a x a . c o m A