THE AXA GROUP 11 1.1 Key figures 13 1.3 Business overview 19
ACTIVITY REPORT AND CAPITAL MANAGEMENT 25 2.1 Market environment 26 2.2 Operating Highlights 30 2.3 Activity Report 34 2.4 Liquidity and capital resources 73 2.5 Events subsequent to December 31, 2017 79
CONSOLIDATED FINANCIAL STATEMENTS 187 5.1 Consolidated statement of financial position 188 5.2 Consolidated statement of income 190 5.3 Consolidated statement of comprehensive income 191 5.4 Consolidated statement of changes in equity 192 5.5 Consolidated statement of cash flows 196 5.6 Notes to the Consolidated Financial Statements 198 5.7 Report of the Statutory Auditors on the consolidated financial statements 334
SHARES, SHARE CAPITAL AND GENERAL INFORMATION 341 6.1 AXA shares 342 6.2 Share capital 343 6.3 General Information 349
This Registration Document, the French version of which was filed with the French Autorité des marchés financiers
Document”), may be used in support of a financial transaction if supplemented by a securities note approved by the
AMF. This document has been prepared by the issuer, and its signatories are responsible for its content.
In this Annual Report, unless provided otherwise, (i) the “Company”, “AXA” and “AXA SA” refer to AXA, a société anonyme (a public limited company) organized under the laws of France, which is the publicly traded parent company of the AXA Group, and (ii) the “AXA Group”, the “Group” and “we” refer to AXA SA together with its direct and indirect consolidated subsidiaries.
This Annual Report may include statements with respect to future events, trends, plans, expectations or objectives and other forward-looking statements relating to the Group’s future business, financial condition, results of operations, performance, and strategy. Forward-looking statements are not statements of historical fact and may contain the terms “may”, “will”, “should”, “continue”, “aims”, “estimates”, “projects”, “believes”, “intends”, “expects”, “plans”, “seeks” or “anticipates”, or words of similar meaning. Such statements are based on Management’s current views and assumptions and, by nature, involve known and unknown risks and uncertainties; therefore, undue reliance should not be placed on them. Actual financial condition, results of operations, performance or events may diff er materially from those expressed or implied in such forward-looking statements, due to a number of factors including, without limitation, general economic and political conditions and competitive situation; future financial market performance and conditions, including fluctuations in exchange and interest rates; frequency and severity of insured loss events, and increases in loss expenses; mortality and morbidity levels and trends; persistency levels; changes in laws, regulations and standards; the impact of acquisitions and disposal, including related integration issues, and reorganization measures; and general competitive factors, in each case on a local, regional, national and/or global basis. Many of these factors may be more likely to occur, or more pronounced, as a result of catastrophic events, including weather-related catastrophic events, or terrorist-related incidents. Please refer to Part 4 – “Risk factors and Risk Management” of this Annual Report for a description of certain important factors, risks and uncertainties that may aff ect AXA’s business and/or results of operations. AXA assumes no obligation to update or revise any of these forwardlooking statements, whether to reflect new information, future events or circumstances or otherwise, except as required by applicable laws and regulations.
In addition to the Consolidated Financial Statements, this Annual Report refers to certain non-GAAP financial measures, or alternative performance measures, used by Management in analyzing the Group’s operating trends, financial performance and financial position and providing investors with additional information that Management believes to be useful and relevant regarding the Group’s results. These non-GAAP financial measures generally have no standardized meaning and therefore may not be comparable to similarly labelled measures used by other companies. As a result, none of these non-GAAP financial measures should be considered in isolation from, or as a substitute for, the Consolidated Financial Statements included in Part 5 – “Consolidated Financial Statements” of this Annual Report. The non-GAAP financial measures used by the Group are defined in the Glossary set forth in Appendix V to this Annual Report.
Europe * AXA ranks within Top 5 in the following countries: France, Switzerland, Belgium, UK & Ireland, Germany, Spain, Hong Kong, Mexico, Thailand and Indonesia.
All percentages expressed are underlying earnings contribution (excluding AXA SA and other Central Holdings)
(3) Proposed d ividend , submitted for approval at the A nnual S hareholders’ M eeting, April 25, 2018.
2017 was a decisive year for the implementation of AXA’s strategy,
The Board of Directors and I are more committed than ever to assisting the new management team assembled by Thomas
Buberl with the implementation of Ambition 2020, which has our full support.
Further to its decision in 2016 to divest from the tobacco industry, in 2017 AXA sponsored the world’s first international investor declaration in support of the World Health Organization Framework on tobacco control and in support of related government action.
Finally, last December, the Board of Directors decided to propose the renewal of my and Thomas Burberl’s directorships at the next Shareholders’ Meeting, to be held on April 25, 2018, and also announced that it would reappoint Mr. Thomas Buberl as Chief
Aft er more than a year as the CEO of AXA, I have the same conviction that our industry is facing unprecedented transformations. New protection needs arise all over the world. Emerging risks linked to cybersecurity and climate change generate and exacerbate these new protection needs, as they do the development of new forms of labor and the soaring healthcare costs in more and more countries.
The AXA Group is well positioned to tackle these new challenges. However, and in order to fulfill our promise to empower people to live a better life, we ought to transform ourselves to become the trusted partner of our customers. Among other things, this boils down to simplifying our organization to get closer to the end customer and to stepping up our eff orts to innovate and better cater to the evolving needs of our customers.
We also set up a new business unit dedicated to innovation that falls under my purview, and which mission will be to develop an open innovation ecosystem to launch and scale adjacent services to our current offers. To speed up our efforts, we decided to dedicate 20% of our M&A budget, or about €200 million annually, to innovation.
In addition to these important milestones in our transformation journey, the Group managed to deliver a solid performance last year. In 2017, our earnings went over the €6 billion threshold for the first time in the Group’s history. It is a key landmark and achievement for the Group, and I would like to congratulate the great work and dedication of all the AXA employees across the world, who have all contributed to this excellent performance. Further evidence that our business priorities are reflected in our overall performance is that several of our key segments have recorded strong growth figures for 2017, like health insurance, which revenues grew at a healthy 6% last year. With underlying earnings per share up 7%, adjusted earnings at 14. 5%, operating free cash flows at €6. 3 billion and a solvency ratio up 8 points, at 205%, we have ticked all the boxes and overachieved our financial targets, which confirms our trajectory to achieve our strategic plan Ambition 2020.
These excellent results are also the fruit of a long-term vision and evolution of our industry and expertise and our responsibility in society. This is also the reason why we decided to reinforce our commitments against global warming, by quadrupling our green investments targets, by further divesting €3 billion of our assets from coal producers, and by committing to stop insuring new coal and oil sands producers and associated pipelines – in that regard, the One Planet Summit has been a great opportunity for us to reaff irm our strong will to have a positive impact on the environment.
AXA SA is the holding company of the AXA Group, a worldwide leader in insurance and Asset Management. In 2017, AXA remained the 1st global insurance brand for the 9th consecutive year (1) and AXA Group was the world’s largest insurance group (2) with total assets of €870 billion and the world’s 10th largest asset manager (3) with total assets under management of €1,439 billion for the year ended December 31, 2017.
(3) Ranking in terms of assets under management established by AXA based on information available as of September 30, 2017.
On November 13, 2017, AXA announced a simplification of its operating model designed to empower its subsidiaries to accelerate their transformation and operate as closely as possible to their customers.
To reflect this new operating model, the AXA Group reorganized its governance based on five main geographies (France, Europe, Asia, the US, and International), and a single, refocused Corporate Center (reduced from the previous three-layer model - head off ice, global business lines, r egions). Key transversal entities are managed alongside those five geographies and correspond mainly to AXA Investment Managers, the AXA’s core fully-owned Asset Management unit, and AXA Corporate Solutions Assurance, the AXA’s entity dedicated to Property and Casualty business for large corporates. As part of this simplification, direct and traditional entities in Europe are reported together within their respective countries to accelerate the synergies between these activities.
In order to fully reflect the above-mentioned changes in the governance of the Group, the financial reporting has been aligned and retroactively restated for the year-ended December 31, 2016 in this Annual Report under the six following segments: ■ France (insurance and banking activities, and holdings); ■ Europe, consisting in: • Switzerland (insurance activities),
• Asia - Direct, consisting in: • AXA Global Direct Japan,
The IFRS indicators presented below are derived from the Consolidated Financial Statements for the year ended December 31, 2017.
(a) Including Life-like Health products. (b) Alternative Performance Measures. For further information, refer to Section 2.3 Activity Report and the Glossary set forth in Appendix V of this Annual Report.
Assets backing contracts with financial risk borne by policyholders (Unit-Linked) 175,003 175,292
A dividend of €1.26 per share for the 2017 fiscal year will be proposed to the Shareholders’ Meeting to be held on April 25, 2018.
Dividends not claimed within five years aft er the payout date become the property of the French Public Treasury.
AXA’s social, societal, environmental and governance performance is rated by a number of specialists, including investors, brokers and rating agencies that focus specifically on the SRI market, as well as specialist organizations focused on single sustainability themes. The Group generally ranks amongst the top performers in its industry and is also included in the main international sustainability indices: ■ DJSI World and DJSI Europe (based on RobecoSAM research); ■ World 120, Eurozone 120 and France 20 (based on Vigeo Eiris research); ■ FTSE4GOOD (based on FTSE ESG research).
The AXA Group’s main SRI ratings are listed below (not all ratings are updated annually): Agency/Organisation Scores & ratings
Voluntary delisting of AXA SA from the New York Stock Exchange and deregistration with the Securities and Exchange Commission (SEC); and
Sale by AXA UK of its traditional Life and Pensions businesses to Resolution Ltd.
Sale of (i) AXA’s Australian and New Zealand Life & Savings operations and acquisition of the AXA APH Life & Savings operations in Asia and (ii) AXA Canada to the Canadian insurance group Intact.
Sale by (i) AXA Investment Managers of a majority stake in AXA Private Equity and (ii) AXA Financial of a MONY portfolio.
Acquisition of (i) 50% of Tian Ping, a Chinese Property & Casualty insurance company; (ii) 51% of Grupo Mercantil Colpatria’s insurance operations in Colombia and (iii) 77% of Mansard Insurance plc in Nigeria.
Sale of Hong Kong’s mandatory retirement schemes business to The Principal Financial group.
Sale of AXA’s (i) Portuguese operations to Ageas; (ii) UK off shore investment bonds business based in the Isle of Man to Life company Consolidation group; (iii) UK (non-platform) investment and pensions businesses and its direct protection businesses to Phoenix group Holdings; (iv) UK wrap platform business Elevate to Standard Life plc; (v) Hungarian banking operations to OTP bank plc. and (vi) Life & Savings and Property & Casualty operations in Serbia to Vienna Insurance group and exit from the Serbian market.
Announcement of the intention to list a minority stake of AXA’s US operations (expected to consist of its US Life & Savings business and AXA Group’s interest in AB) subject to market conditions; a strategic decision to create significant additional financial flexibility to accelerate AXA’s transformation, in line with Ambition 2020.
Launch of AXA Global Parametrics, a new entity dedicated to accelerate the development of parametric insurance solutions, broaden the range of solutions to better serve existing customers and expand its scope to SMEs and individuals.
AXA operates in six segments (France, Europe, Asia, the US, International and Transversal & Central Holdings) and off ers a broad range of Life & Savings, Property & Casualty, Health, Asset Management and Banking products and expertise.
AXA off ers in France a full range of insurance products, including Life & Savings, Property & Casualty and Health. Its off ering covers a broad range of products including m otor, h ousehold, property and general liability insurance, banking, savings vehicles and other investment-based products for both Personal/Individual and Commercial/Group customers, as well as health, protection and retirement products for individual or professional customers.
AXA distributes its insurance products through exclusive and non exclusive channels including exclusive agents, salaried sales forces, direct sales, banks, as well as brokers, independent financial advisors, aligned distributors or wholesale distributors and partnerships.
AXA distributes its insurance products through exclusive and non exclusive channels that vary from country to country, including exclusive agents, salaried sales forces, direct sales, banks and other partnerships (e.g. car dealers), brokers, independent financial advisors, aligned distributors or wholesale distributors and partnerships.
AXA offers a full range of insurance products, including Life & Savings, Property & Casualty as well as Health. Types and specificities of the products off ered by AXA vary depending on geographies: ■ in Japan, AXA primarily off ers savings, protection and h ealth products, notably including whole life insurance, with or without medical cover, term life insurance as well as other protection and h ealth products (such as disability, cancer). Direct Property & Casualty business focuses on m otor insurance as well as other personal insurance products; ■ in Hong Kong, AXA distributes individual life insurance (notably traditional whole of life, investment-linked), as well as protection and h ealth products (critical illness). In Property & Casualty, product off er includes traditional general insurance products such as m otor, h ousehold, group medical as well as commercial insurance; ■ in Thailand, Indonesia and the Philippines, AXA off ers a broad range of Life & Savings and Health products including whole life, endowment, unit-linked, group term insurance, critical illness and hospital cash products and also develops a traditional Property & Casualty off er; ■ in China, AXA primarily distributes m otor insurance as well as other general insurance products, and covers the whole range of Life & Savings products; ■ in South Korea, Direct business focuses on m otor insurance as well as casualty insurance.
In the United States, AXA distributes its insurance products through several channels, in particular AXA Advisors and Broker dealers.
(a) Net of intercompany eliminations. (b) Restated: as per the new governance. (c) Include fees and charges related to investment contracts with no participating features, net revenues from banking activities and revenues from other activities.
AXA distributes its insurance products through exclusive and non exclusive channels that vary from country to country, including exclusive agents, salaried sales forces, direct sales, banks and other partnerships (e.g. car dealers), as well as brokers, independent financial advisors, aligned distributors or wholesale distributors.
(a) Net of intercompany eliminations. (b) Restated: as per the new governance. (c) Others include AXA Art, AXA Liabilities Managers, AXA Global Re and AXA Life Europe. (d) Include fees and charges related to investment contracts with no participating features and revenues from other activities.
AXA Assistance is the Group subsidiary providing its customers with assistance services in emergencies and everyday situations. AXA Assistance operates through four business lines (Vehicle, Travel, Health and Home) to off er customer focused services.
In the United States, economic growth for 2017 continued to improve at 2.2% versus 1.6% in 2016. The labour market strengthened further with unemployment dropping to 4.1% at the end of the year, and inflation increased (around 2.1% in 2017 versus 1.3% in 2016). This pushed the Federal Reserve (Fed) to increase rates three times during the year, taking them to a range of 1.25%-1.50% at the end of 2017. Aft er periods of uncertainties about policy reforms, the Trump administration delivered its tax reform program in December 2017 which should support economic activity in the years to come.
Growth in Japan surprised on the upside (around 1.7% in 2017 aft er 0.7% in 2016), mainly supported by private investment, as h ousehold consumption struggled to rebound. Inflation remained low but should be positive in 2017 at around 0.4% on average (versus -0.1% in 2016). The yield curve control measures, introduced in September 2016 by the Bank of Japan, seemed to be bearing fruit with evidence of decoupling with other bond markets.
The MSCI G7 index increased by 16.9% and the MSCI Emerging index increased by 27.8%.
The S&P 500 implied volatility index (VIX) decreased from 14.0% on December 31, 2016, to 11.0% on December 31, 2017.
The S&P 500 realized volatility index decreased from 10.2% on December 31, 2016, to 5.6% on December 31, 2017.
In most mature economies, except the US, government bond yields increased since December 31, 2016. The 10-year German Bund yield increased by 22 bps to 0.43%, the French 10-year government bond yield increased by 10 bps to 0.78%, the 10-year Belgium government bond yield increased by 10 bps to 0.64% and the 10-year Swiss government bond yield increased by 4 bps to -0.15%, while the 10-year US T-bond yield decreased by 5 bps to 2.40%.
In Europe, the iTRAXX Main spreads decreased by 27 bps to 45 bps compared to December 31, 2016, and the iTRAXX Crossover decreased by 56 bps to 232 bps. In the United States, the CDX Main spread Index decreased by 18 bps to 49 bps.
The French insurance market saw steady growth overall, with good momentum on the Individual Protection & Health businesses, and ongoing pressure on price and customer service in retail Property & Casualty. The overall market is benefiting from a positive economic outlook.
Life insurance sales in the United States were up with growth in both Whole Life and Unit-Linked products. US Variable Annuity sales decreased in the second half of 2017, following the implementation of the first phase of the US Department of Labor rule.
In Latin America, the Property & Casualty business experienced a positive trend, with strong growth in Mexico mainly from NonMotor. The Brazilian market experienced limited growth in the context of the economic recession on-going since 2015.
In China, the Life & Savings market still witnessed strong growth but was subject to increased regulatory scrutiny on short-term savings products, as local authorities continued to push Protection at the expense of short-term savings products. In Property & Casualty, the market recorded solid double-digit growth although competition intensified due to the ongoing tariff deregulation. In Thailand, the Life & Savings market experienced negative growth due to the low interest rate environment and weak performance in bancassurance. Competition remained active with a few strategic partnerships announced. In Indonesia, the Life & Savings market experienced a double-digit growth, supported by the development of single premium products while the Property & Casualty market was supported by tariff increases. In the Philippines, the Life & Savings market continued to experience resilient growth, supported by the continuous increase in population and ongoing urbanization.
Please find below AXA’s rankings and market shares in the main countries where it operates: Life & Savings Property & Casualty
United States Life 19 1.7 n/a n/a LIMRA Life sales as of September 30, 2017.
Ireland (Republic of Ireland) Motor n/a n/a 1 24.0 Insurance Ireland P&C Statistics 2016, as of December 31, 2016.
Germany 8 3.8 5 5.4 GDV (German association of Insurance companies) as of December 31, 2016.
Germany Health 4 7.7 n/a n/a PKV (Association of German private healthcare insurers) as of December 31, 2016.
Switzerland 2 26.0 1 13.0 SIA (Swiss Insurance Association) Market share based on statutory premiums and market estimations by the SIA as at January 18, 2018.
Japan 14 1.7 n/a n/a Life Insurance Association Japan of Insurance Research Institute (excluding Kampo Life) for the 12 months ended September 30, 2017.
Hong Kong 6 4.9 1 8.0 Insurance Authority statistics as of September 30, 2017 based on gross written premiums.
China 15 1.5 14 0.8 CIRC (China Insurance Regulatory Commission) as of November 30, 2017.
Philippines n/a 13.0 n/a n/a Insurance Commission as of December 31, 2017 measured on total premium income. Ranking not available.
On November 13, 2017, AXA announced a series of appointments to form a new management team to steer its operating model to achieve the objectives of Ambition 2020. The composition of the new Management Committee was made eff ective from December 1, 2017.
AXA’s Board of Directors decided to propose the renewal of Denis Duverne and Thomas Buberl
In preparation for AXA’s next Shareholders’ Meeting to be held on April 25, 2018, and based on the recommendation of its Compensation and Governance Committee, on December 14, 2017, AXA’s Board of Directors unanimously decided to propose to shareholders the renewal of Messrs. Denis Duverne and Thomas Buberl as directors for a period of 4 years.
AXA completed the sale of its UK P&C C ommercial broker Bluefin to Marsh
On January 2, 2017, AXA announced that it had completed the sale of Bluefin Insurance group Ltd (“Bluefin”), its P&C commercial broker in the United Kingdom, to Marsh. AXA recorded an exceptional negative impact of €82 million, accounted for in the 2016 net income.
AXA completed the sale of its Romanian operations to Vienna Insurance G roup
AXA to sell its Swiss Privilege franchise in Hong Kong (AXA Wealth Management (HK) Ltd)
On December 22, 2017, AXA announced that it had entered into an agreement with Jeneration Holdings Limited to sell its Swiss Privilege franchise in Hong Kong, AXA Wealth Management (HK) Limited (“AWM”).
The price consideration is HKD 2,200 million (or €237 million (2 )) to be fully paid at closing, representing an implied 1.4x EV multiple. The proposed transaction is subject to customary conditions, including the receipt of regulatory approvals, and is expected to be finalized by the end of 2018 or early 2019.
On July 25, 2017, AXA announced the signing of a partnership with Uber in view of strengthening the protection of independent workers using Uber technology in France.
The initial coupon has been set at 5.125% per annum. It will be fixed until the first call date in January 2027 and floating thereaft er with a margin including a 100 basis points step-up. The notes have been swapped into Euro over 10 years at a rate of 2.80%, corresponding to a 209 basis points spread over swap. Settlement of the notes took place on January 17, 2017.
The notes will be treated as debt from an IFRS perspective and as capital from a regulatory and rating agencies’ perspective within applicable limits. The transaction has been structured for the notes to be eligible as Tier 2 capital under Solvency II.
AXA SA announced filing of amendment no. 1 to AXA US registration statement for initial public off ering
The shares will be offered by a group of underwriters led by Morgan Stanley & Co. LLC and J.P. Morgan Securities LLC, with Barclays Capital Inc. and Citigroup Global Markets Inc. also acting as underwriters for the off ering. The number of shares to be off ered and the price range for the proposed off ering have not yet been determined.
In order to meet its obligation to deliver shares and to eliminate the dilutive effect of certain share-based compensation schemes (1), as of June 30, 2017, AXA had bought back 37,000,000 shares, and then bought back a further 7,960,944 shares during the second half of the year. These shares will be delivered to the beneficiaries of share-based compensation schemes or canceled, all in accordance with the share repurchase program (2).
On December 4, 2017, AXA announced the results of the AXA Group employee share off ering (“Shareplan 2017”), a capital increase reserved to its employees worldwide, which had been launched on August 25, 2017. Over 29,000 employees in 39 countries, representing over 27% of the eligible employees, subscribed to Shareplan 2017.
The aggregate proceeds from the offering amounted to €444 million, for a total of over 19 million newly-issued shares, subscribed at a price of €20.19 for the classic plan and €22.96 for the leveraged plan. The new shares have been created with full rights as of January 1, 2017.
In order to eliminate the dilutive eff ect of the Shareplan 2017 offering and as announced in its press release published on September 13, 2017, AXA undertook a cancellation of its shares in accordance with its share repurchase program as authorized by the Shareholders’ Meeting of April 26, 2017.
(2) AXA share repurchase program was authorized by the Shareholder’s Meeting of April 26, 2017.
These new decisions concern all the levers that the Group can activate: investments, divestments, and insurance.
In addition, because oil sands are also an extremely carbonintensive form of energy and a serious cause of environmental pollution, AXA announced the divestment of over €700 million from the main oil sands producers and associated pipelines, and the discontinuation of further investments in these businesses.
(c) Changes are on comparable basis. (d) Annual Premium Equivalent (APE) represents 100% of new regular premiums plus 10% of single premiums, in line with EEV methodology. APE is Group share. (e) New Business Value (NBV) Margin is the ratio of (i) New Business Value representing the value of newly issued contracts during the current year to (ii) APE.
The comparable basis mainly consisted in the adjustment of the foreign exchange rate movements (€+1.5 billion or +1.5 point) mainly due to the appreciation of average Euro exchange rate against USD, GBP, JPY and CHF.
France gross revenues remained stable at €24,475 million on a comparable basis as the growth in (i) Health (€+474 million or +14%) notably reflecting an increase in Group business driven by tariff and volume increases in both international and domestic markets, and (ii) Property & Casualty (€+39 million or +1%) driven by Commercial lines due to higher volumes in assumed business and tariff increases in all segments as well as higher volumes in the Credit & Lifestyle Protection business, and by Personal lines mainly stemming from the Direct business, was partly off set by (iii) a slowdown in Life & Savings (€-437 million or -3%) mainly in Funds & Other reflecting the non-repeat of a large contract underwritten in December 2016, partly offset by Unit-Linked reflecting higher sales in real estate funds and discretionary mandates, and G/A Savings mainly in Group business due to the sale of a large contract in 4Q17.
New business APE was down 2% on a reported basis and stable on a comparable basis at €6,470 million. The growth in the United States, International and France was more than off set by the slowdown in Asia and Europe.
New Business Value Margin stood at 43.1%, improved by 3.3 points. On a comparable basis, New Business Value Margin improved by 3.5 points mainly driven by more favorable investment assumptions, and a favorable business mix in Asia mainly from China and Japan, partly off set by a less favorable country mix, mainly reflecting lower volume contribution in Asia, and higher volume contribution from the United States.
(1) Annual Premium Equivalent (APE) represents 100% of new regular premiums plus 10% of single premiums, in line with EEV methodology. APE is Group share.
(2) New Business Value (NBV) Margin is the ratio of (i) New Business Value representing the value of newly issued contracts during the current year to (ii) APE.
I Underlying E arnings, A djusted E arnings and N et I ncome G roup share
Amortization of value of purchased life business inforce (42) - (25) (13) (1) (3) -
Underlying earnings before tax from insurance activities 7,758 2,018 3,180 1,187 836 330 207
Underlying earnings before tax from other activities (2) (7) 24 (0) 556 49 (623)
Income from aff iliates and associates 297 20 7 166 - 86 18
Goodwill and other related intangible impacts (90) - (44) (16) (2) (27) (1)
Income from aff iliates and associates 239 17 2 160 - 47 12
Profit or loss on financial assets (under fair value option) and derivatives (118) 27 30 45 (17) 22 (225)
Goodwill and other related intangible impacts (89) - (47) (15) (0) (24) (3)
■ cost at inception, intrinsic value and pay-off of derivatives involved in the economic hedging of realized gains and impairments of equity securities backing General Account and shareholders’ funds.
For further information on those indicators, see the Appendix V Glossary of this Annual Report.
Underlying earnings amounted to €6,002 million, up €314 million (+6%) versus 2016 on a reported basis. On a constant exchange rate basis, underlying earnings increased by €424 million (+7%) supported by all geographies.
• AXA Investment Managers (€+42 million or +13%) as a result of higher gross revenues and an improved underlying cost income ratio reflecting the cost savings program.
On a constant exchange rate basis, income tax expenses decreased by €220 million (-12%) to €-1,665 million as higher pre-tax underlying earnings across geographies were more than off set by a lower eff ective tax rate, the impact of the removal of the 3% French tax on dividends paid to shareholders in 2017 at
On a constant exchange rate basis, income from affiliates & associates increased by €50 million (+21%) to €297 million mainly driven by an improved net technical margin at Reso, portfolio growth in the Philippines and Thailand and an improved mix from Asian joint ventures at AXA Investment Managers.
On a constant exchange rate basis, minority interests increased by €55 million (+16%) to €-387 million mainly driven by the United States from AB as AXA ownership increased from 63.7% on December 31, 2016, to 64.7% on December 31, 2017.
On a constant exchange rate basis, the Health combined ratio improved by 0.3 point to 94.7% supported by an improvement across geographies, notably from growth in France and Europe, the positive impact of profitability measures in Indonesia, in the Gulf Region and Turkey, as well as the United States mainly driven by lower expenses.
As a result, adjusted earnings amounted to €6,457 million, up €354 million (+6%). On a constant exchange rate basis, adjusted earnings increased by €464 million (+8%).
Net income amounted to €6,209 million, up €380 million (+7%). On a constant exchange rate basis, net income increased by €494 million (+8%) mainly from: ■ higher adjusted earnings (€+464 million); ■ a less favorable change in the fair value of financial assets and derivatives net of foreign exchange impacts; down €17 million to €-134 million driven by: • the unfavorable change in the fair value of foreign exchange derivatives not eligible for hedge accounting under IAS 39 net of foreign exchange rate movements on investments denominated in foreign currencies, down €191 million to €-152 million,
• the change in the fair value of assets accounted for under fair value option driven by equity and private equity funds, up €185 million to €+222 million; ■ lower integration and restructuring costs (€+302 million) to €-148 million; ■ lower impact from exceptional and discontinued operations (€-254 million) to €+1 24 million mainly due to: • the non-repeat of major transactions which occurred in 2016: the sale of two real estate properties in New York (€1. 0 billion), partly off set by the disposal of the Life & Savings operations and Bluefin in the United Kingdom (€+0.5 billion),
• the negative impact from the sale of a part of the occupational pensions portfolio in Germany (€-0.1 billion), partly off set by: • the impact of the revaluation of the net deferred tax liability in the United States (€+0.3 billion) following the decrease in the corporate tax rate from 35% to 21% enacted in December 2017 and eff ective from 2018 onwards,
• the one-off benefit from the upcoming reimbursement of the 3% tax on the dividend paid to shareholders on prior years (2013 to 2016) at AXA SA (€+0.3 billion).
As of December 31, 2017, S hareholders’ e quity Group share totaled €69.6 billion. The movements in S hareholders’ e quity Group share since December 31, 2016, are presented in the table below: (in Euro million) Shareholders’
(in Euro million) December 31, 2017 December 31, 2016 December 31, 2017/
(a) Including an adjustment to reflect net financial charges related to undated debt (recorded through shareholders’ equity). (b) Excluding fair value of invested assets and derivatives and undated debt (both recorded through shareholders’ equity).
Net capital gains or losses attributable to shareholders net of income tax 237 152
Profit or loss on financial assets (under fair value option) and derivatives 31 27
APE increased by €25 million (+1%) to €1,849 million. On a comparable basis, APE increased by €32 million (+2%) mainly driven by Unit-Linked (€+54 million) reflecting higher sales in real estate funds and discretionary mandates as well as in Group Retirement, Health (€+44 million) driven by higher volumes in international markets, and G/A Savings (€+40 million) mainly from Group Retirement due to the sale of a large contract in 4Q17 (€51 million), partly off set by Funds & Other (€-100 million) reflecting the non-repeat of a large contract underwritten in December 2016.
Underlying earnings before tax increased by €83 million (+4%) to €2,011 million. On a constant exchange rate basis, underlying earnings before tax increased by €86 million (+4%): ■ Life & Savings (€+81 million or +9%) to €1,007 million. On a constant exchange rate basis, Life & Savings underlying earnings before tax increased by €84 million (+9%) mainly driven by higher Unit-Linked management fees (€+89 million) reflecting a higher asset base and higher average fee bps, as well as higher loadings on premiums (€+63 million) mainly in Protection and Unit-Linked stemming from higher sales. Net technical margin increased by €41 million driven by higher profitability in Protection. This was partly offset by higher commissions (€-82 million) and a lower investment margin (€-21 million) mainly from lower reinvestment yields; ■ Property & Casualty (€+4 million or 0%) to €908 million. On a constant exchange rate basis, Property & Casualty underlying earnings before tax increased by €4 million (0%) mainly due to a lower current year loss ratio (-1.0 point) mainly driven by the cancellation of unprofitable contracts in Commercial lines and a favorable prior year reserve development (-0.3 point), partly off set by an increase in expense ratio as well as a lower net investment margin (€-24 million). The natural event charges remained stable; ■ Health (€+3 million or +3%) to €103 million. On a constant exchange rate basis, Health underlying earnings before tax increased by €3 million (+3%) mainly driven by higher volumes; ■ Other (€-5 million) to €-7 million. On a constant exchange rate basis, Other underlying earnings before tax decreased by €5 million mainly at AXA France Holding.
Income tax expenses increased by €42 million (+7%) to €-598 million. On a constant exchange rate basis, income tax expenses increased by €42 million (+8%) mainly driven by higher pre-tax underlying earnings.
Net capital gains or losses attributable to shareholders net of income tax 237 237
Profit or loss on financial assets (under fair value option) and derivatives (2) 30
Net capital gains or losses attributable to shareholders net of income tax 55 49
Profit or loss on financial assets (under fair value option) & derivatives (43) (42)
Adjusted earnings increased by €53 million (+7%) to €864 million. On a constant exchange rate basis, adjusted earnings increased by €71 million (+9%) driven by higher underlying earnings as well as higher net realized capital gains.
Net income increased by €57 million (+8%) to €792 million. On a constant exchange rate basis, net income increased by €73 million (+10%) mainly driven by higher adjusted earnings.
Profit or loss on financial assets (under fair value option) and derivatives 46 18
(a) Net of intercompany eliminations. (b) Restated: reallocation of banking activities and holdings into the Other activities. (c) Other corresponds to banking activities and holdings.
APE decreased by €21 million (-5%) to €361 million. On a comparable basis, APE decreased by €21 million (-5%) reflecting lower new business in G/A traditional business (€-14 million) and lower volume of hybrid products (€-10 million), partly off set by higher sales in Protection (€+4 million).
Underlying earnings before tax decreased by €11 million (-1%) to €771 million as the growth across insurance businesses was more than off set by the decrease in Holdings: ■ Property & Casualty (€+33 million or +8%) to €419 million as a higher current year combined ratio (+0.6 point) driven by higher large losses and natural events, partly off set by a lower expense ratio (-0.6 point) reflecting the impact of the cost savings program, was more than off set by higher prior year reserve results (-2.5 points) mainly due to the non-repeat of an unfavorable 2016 prior year reserve development. This was partly off set by a lower investment margin (€-39 million) mainly from lower reinvestment yields on fixed income assets; ■ Life & Savings (€+15 million or +8%) to €201 million mainly due to a decrease in expenses driven by lower Deferred Acquisition Cost amortization and a lower VBI amortization from the non-repeat of the unfavorable change in interest rate assumptions, partly off set by a lower investment margin (€-43 million) mainly from lower reinvestment yields on fixed income assets; ■ Health (€+12 million or +12%) to €115 million mainly driven by profitable growth supported by tariff increases; ■ Other (€-71 million) to €36 million mainly driven by Holdings (€-73 million) mainly due to the non-repeat of an exceptional decrease in pension costs in 2016.
Income tax expenses decreased by €14 million (-6%) to €-221 million due to higher positive tax one-off s (€+9 million).
Income from affiliates and associates increased by €4 million to €7 million.
Adjusted earnings increased by €55 million (+9%) to €665 million mainly driven by higher net realized capital gains.
(a) Net of intercompany eliminations. (b) Restated: reallocation of Direct Insurance business into the other Property & Casualty activities and the holding into the Other activities. (c) Other corresponds to the holding.
APE increased by €1 million (+1%) to €56 million. On a comparable basis, APE increased by €1 million (+1%) mainly from G/A Savings (€+9 million) driven by pension products for SME and self-employed, partly off set by Unit-Linked (€-4 million) due to lower single premiums, mainly on the Oxylife Invest hybrid product, in line with the strategy to stop the Individual Savings business, as well as lower new business in Group Protection (€-4 million).
Income tax expenses increased by €14 million (+9%) to €-174 million driven by an exceptional dividend paid to the Group (€-13 million).
Net income increased by €126 million (+36%) to €475 million as lower adjusted earnings and an unfavorable change in the fair value of foreign exchange derivatives not eligible for hedge accounting were more than off set by the non-repeat of restructuring costs combined with the impact of the reduction of the net deferred tax liability position due to the decrease in the corporate tax rate from 34% to 25% enacted in 2017 and eff ective in the coming years (€+34 million).
Net capital gains or losses attributable to shareholders net of income tax 13 11
(a) Net of intercompany eliminations. (b) Restated: reallocation of Direct Insurance business into the other Property & Casualty activities and holdings into the Other activities. (c) Other corresponds to holdings.
Underlying earnings before tax decreased by €35 million (-9%) to €340 million. On a constant exchange rate basis, underlying earnings before tax decreased by €15 million (-4%): ■ Property & Casualty (€-52 million or -18%) to €228 million. On a constant exchange rate basis, Property & Casualty underlying earnings before tax decreased by €40 million (-14%) as the improvement in the current year combined ratio (-1.7 points) mainly driven by lower natural events in Great Britain and Motor tariff increases to compensate for increases in injury claims costs following the ‘Ogden’ legislation change, was more than offset by a lower favorable prior reserve development (+2.7 points) reflecting the non-repeat of a favorable prior year reserve development in Direct in 2016 combined with reserves strengthening of Travel business in 2017. Investment margin decreased by €6 million mainly due to higher foreign exchange hedging costs;
Income tax expenses increased by €3 million (+6%) to €-58 million. On a constant exchange rate basis, income tax expenses increased by €6 million (+12%) as lower pre-tax underlying earnings were more than off set by the non-repeat of positive tax one-off s in 2016.
Net capital gains or losses attributable to shareholders net of income tax 4 5
Profit or loss on financial assets (under fair value option) and derivatives (2) 13
Gross revenues decreased by €170 million (-7%) to €2,365 million. On a comparable basis, gross revenues decreased by €170 million (-7%): ■ Life & Savings (€-223 million or -28%) to €571 million. On a comparable basis, Life & Savings gross revenues decreased by €223 million (-28%) in line with the strategy to shift towards capital light products, driven by Protection with Savings (€180 million) mainly due to the non-renewal of two large bank agreements, and G/A Savings (€-123 million) as a consequence of the reduction of interest credited rates, partly off set by UnitLinked (€+73 million) mainly due to the commercial focus; ■ Property & Casualty (€+38 million or +2%) to €1,606 million. On a comparable basis, Property & Casualty gross revenues increased by €38 million (+2%) driven by both Personal lines (€+25 million) from Motor (€+26 million) with higher volumes and moderate tariff increases, and Commercial lines (€+13 million) with higher volumes and tariff increases across lines of business; ■ Health (€+15 million or +9%) to €188 million. On a comparable basis, Health gross revenues increased by €15 million (+9%) mainly driven by Personal lines with higher volumes and tariff increases.
Income tax expenses increased by €3 million (+7%) to €-48 million mainly driven by higher pre-tax underlying earnings.
Net income increased by €15 million (+12%) to €140 million mainly driven by higher adjusted earnings and lower restructuring costs, partly off set by an unfavorable change in the fair value of foreign exchange derivatives not eligible to hedge accounting.
Profit or loss on financial assets (under fair value option) and derivatives 13 (15)
Gross revenues decreased by €376 million (-7%) to €4,719 million. On a comparable basis, gross revenues decreased by €376 million (-7%): ■ Life & Savings (€-426 million or -12%) to €2,985 million. On a comparable basis, Life & Savings gross revenues decreased by €426 million (-12%) mainly from G/A Savings (€-815 million), partly offset by Unit-Linked (€+376 million) driven by the diff iculties faced by Banca Monte dei Paschi di Siena and the commercial focus on new Unit-Linked products launched in 2H17, and Protection (€+13 million); ■ Property & Casualty (€+42 million or +3%) to €1,663 million. On a comparable basis, Property & Casualty gross revenues increased by €42 million (+3%) from Personal lines
(€+23 million) as a consequence of higher volumes from new agencies and Commercial lines (€+18 million) mainly due to higher volumes from agencies and new broker agreements; ■ Health (€+8 million or +13%) to €70 million. On a comparable basis, Health gross revenues increased by €8 million (+13%) resulting from a strong commercial focus.
APE decreased by €15 million (-5%) to €284 million. On a comparable basis, APE decreased by €15 million (-5%) mainly from G/A Savings (€-53 million), partly offset by Unit-Linked (€+35 million) 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.
NBV Margin decreased by 0.8 point to 34.9% mainly driven by higher volume share of Unit-Linked with lower than average profitability.
Underlying earnings before tax decreased by €22 million (-6%) to €341 million: ■ Property & Casualty (€-18 million or -10%) to €156 million as the improvement of the current year combined ratio (-1.9 points) driven by the cost savings program and selective underwriting measures was more than offset by a lower positive prior year reserve development (+2.7 points) and a lower investment margin (€-8 million); ■ Life & Savings (€-9 million or -5%) to €181 million mainly due to lower Unearned Revenue Reserve and Deferred Acquisition Cost amortization (€-24 million) as a consequence of lower Protected Unit-Linked surrenders, partly off set by higher UnitLinked management fees and a higher investment margin
(€+4 million) due to the decrease in minimum guaranteed rates; ■ Health (€+5 million) to €5 million mainly due to higher volumes and improved profitability.
Income tax expenses decreased by €6 million (-5%) to €-105 million mainly driven by lower pre-tax underlying earnings.
Net income increased by €5 million (+3%) to €164 million as lower adjusted earnings and higher exceptional costs related to the renewal of the partnership with Banca Monte dei Paschi di Siena were more than off set by a favorable change in the fair value of derivatives not eligible to hedge accounting.
Net capital gains or losses attributable to shareholders net of income tax 23 19
Profit or loss on financial assets (under fair value option) & derivatives (59) 45
Profit or loss on financial assets (under fair value option) & derivatives (8) 69
APE decreased by €58 million (-12%) to €441 million. On a comparable basis, APE decreased by €38 million (-8%) mainly due to lower new business from the G/A capital light Single Premium Whole Life product (€-33 million) in the context of new regulatory requirements eff ective late 2016.
Income tax expenses increased by €20 million (+10%) to €-215 million. On a constant exchange rate basis, income tax expenses increased by €30 million (+15%) driven by higher pretax underlying earnings as well as the non-repeat of the tax oneoff related to the decrease in the corporate tax rate in 1H16.
Underlying earnings increased by €17 million (+4%) to €497 million. On a constant exchange rate basis, underlying earnings increased by €40 million (+8%).
Net capital gains or losses attributable to shareholders net of income tax 2 (5)
Gross revenues decreased by €2 million (0%) to €3,170 million. On a comparable basis, gross revenues increased by €78 million (+2%): ■ Life & Savings (€+10 million or 0%) to €2,384 million. On a comparable basis, Life & Savings gross revenues increased by €39 million (+2%) from Protection (€+150 million) and G/A Savings (€+38 million) both due to new business sales and inforce growth, partly off set by Unit-Linked (€-149 million) due to the prolonged impact of the regulatory changes and lower single premiums;
■ Health (€-21 million or -4%) to €530 million. On a comparable basis, Health gross revenues increased by €24 million (+5%) mainly driven by higher volumes in Individual business; ■ Property & Casualty (€+9 million or +4%) to €256 million. On a comparable basis, Property & Casualty gross revenues increased by €15 million (+6%) from Personal lines (€+8 million) driven by higher new business in Motor and price increases in Travel, as well as Commercial lines (€+7 million) mainly from higher new business in Liability and Workers’ Compensation.
NBV Margin decreased by 1 1.2 points to 63.8% mainly driven by an unfavorable business mix and higher unit costs as a result of lower sales volume.
Income tax expenses decreased by €9 million (-30%) to €-20 million. On a constant exchange rate basis, income tax expenses decreased by €8 million (-28%) as higher pre-tax underlying earnings were more than off set by positive tax oneoff s.
Net income decreased by €2 million (0%) to €373 million. On a constant exchange rate basis, net income increased by €8 million (+2%) driven by higher adjusted earnings, partly off set by an unfavorable change in the fair value of financial assets as well as higher restructuring costs.
Gross revenues increased by €3 million (+2%) to €180 million. On a comparable basis, gross revenues increased by €3 million (+2%): ■ Health (€+3 million or +8%) to €42 million. On a comparable basis, Health gross revenues increased by €3 million (+9%) mainly driven by Indonesia (€+2 million) due to in-force growth and Thailand (€+2 million) mainly driven by tariff increases in both Commercial and Personal lines; ■ Life & Savings (€+1 million or +2%) to €66 million. On a comparable basis, Life & Savings gross revenues increased by €3 million (+4%) in Indonesia (€+3 million) mainly driven by Protection; ■ Property & Casualty (€-1 million or -2%) to €72 million. On a comparable basis, Property & Casualty gross revenues decreased by €3 million (-4%) in Thailand (€-3 million) driven by lower revenues from Commercial Property and Personal Motor.
APE decreased by €13 million (-2%) to €613 million. On a comparable basis, APE increased by €3 million (0%): ■ The Philippines (€+7 million or +17%) to €50 million. On a comparable basis, APE increased by €12 million (+27%) mainly from Protection (€+11 million) driven by the strong performance of Unit-Linked products from both bancassurance and agency channels; ■ Indonesia (€+3 million or +2%) to €133 million. On a comparable basis, APE increased by €6 million (+5%) driven by the launch of a new Protection product through agency channel as well as successful marketing initiatives in Health;
■ China (€-22 million or -7%) to €269 million. On a comparable basis, APE decreased by €10 million (-4%) due to lower sales of traditional G/A Savings products (€-38 million), partly off set by Protection (€+24 million) due to higher sales of a critical illness product; ■ Thailand (€-1 million or -1%) to €161 million. On a comparable basis, APE decreased by €4 million (-3%) due to lower Protection with Savings sales (€-25 million) following the decision to stop sales of a product with low profitability, partly off set by higher G/A Savings (€+15 million) and Unit-Linked sales (€+3 million) both driven by the launch of new products.
NBV Margin increased by 14.8 points t o 45.8%. On a comparable basis, NBV Margin increased by 15.1 points mainly driven by a more favorable business mix and an increase in interest rates in China.
Income tax expenses remained stable at €1 million. On a constant exchange rate basis, income tax expenses remained stable.
Income from affiliates and associates increased by €5 million (+3%) to €166 million. On a constant exchange rate basis, income from associates and aff iliates increased by €7 million (+5%): ■ The Philippines (€+5 million or +30%) to €21 million and Thailand (€+5 million or +6%) to €85 million, both mainly from higher fees & revenues combined with a higher investment income, as a result of portfolio growth; ■ Indonesia (€+2 million or +6%) to €44 million mainly from UnitLinked management fees due to portfolio growth and positive equity market performance; ■ China (€-5 million or -25%) to €15 million mainly from financial assumption updates.
Adjusted earnings increased by €17 million (+10%) to €185 million. On a constant exchange rate basis, adjusted earnings increased by €20 million (+12%) driven by higher underlying earnings as well as higher net realized capital gains.
(a) Net of intercompany eliminations. (b) Restated: reallocation of AXA Corporate Solutions Life Reinsurance company operations into the Life & Savings activities, and holdings into the Other activities. (c) Other corresponds to holdings.
Gross revenues decreased by €131 million (-1%) to €14,210 million. On a comparable basis, gross revenues increased by €183 million (+1%): ■ Life & Savings (€-133 million or -1%) to €14,154 million. On a comparable basis, Life & Savings gross revenues increased by €180 million (+1%) mainly from Unit-Linked (€+114 million) driven by higher sales of non-GMxB Variable Annuity products, partly off set by a decrease in GMxB Variable Annuity sales, and Mutual F unds & Other (€+100 million) reflecting higher advisory sales from favorable market conditions; ■ Health (€+2 million or +4%) to €57 million. On a comparable basis, Health gross revenues increased by €3 million (+6%).
APE increased by €67 million (+4%) to €1,799 million. On a comparable basis, APE increased by €107 million (+6%) mainly from Mutual F unds & Other (€+92 million) reflecting higher advisory sales from favorable market conditions.
Underlying earnings before tax decreased by €89 million (-11%) to €707 million. On a constant exchange rate basis, underlying earnings before tax decreased by €73 million (-9%): ■ Life & Savings (€-88 million or -9%) to €863 million. On a constant exchange rate basis, Life & Savings underlying earnings before tax decreased by €69 million (-7%) mainly driven by unfavorable actual mortality and morbidity experience (€-161 million) as well as model and assumption changes (€-81 million) in 2017, partly off set by favorable GMxB hedge margin and higher Unit-Linked management fees reflecting higher average separate account balances;
■ Other (€-12 million or -11%) to €-129 million. On a constant exchange rate basis, Other underlying earnings before tax decreased by €15 million (-13%) from Holdings mainly driven by lower rental income due to the sale of two real estate properties in New York in 2016; ■ Health (€+12 million or +31%) to €-27 million. On a constant exchange rate basis, Health underlying earnings before tax increased by €11 million (+29%) mainly driven by lower expenses.
Income tax benefits increased by €134 million to €145 million. On a constant exchange rate basis, income tax benefits increased by €137 million due to lower pre-tax underlying earnings, higher positive tax settlements (€202 million in 2017 vs. €164 million in 2016) as well as a lower eff ective tax rate.
(a) Net of intercompany eliminations. Gross Revenues amounted to €2,816 million before intercompany eliminations as of December 31, 2017.
Management fee bps increased by 2.7 bps to 39.8 bps due to a change in business mix from higher average retail AUM.
Underlying earnings before tax increased by €69 million (+11%) to €685 million. On a constant exchange rate basis, underlying earnings before tax increased by €85 million (+14%) mainly driven by higher gross revenues and staff costs containment initiatives, partly off set by one-off charges linked to the reduction of real estate footprint (€-33 million), higher promotion and servicing expenses (€-32 million), and vendor termination payment (€18 million).
Income tax expenses decreased by €68 million (-31%) to €-152 million. On a constant exchange rate basis, income tax expenses decreased by €64 million (-29%) mainly due to the nonrepeat of an unfavorable tax one-off (€-66 million).
Net income increased by €200 million (+95%) to €410 million. On a constant exchange rate basis, net income increased by €209 million (+100%) mainly driven by higher adjusted earnings and the impact of the revaluation of the net deferred tax liability following the decrease in the corporate tax rate from 35% to 21% enacted in December 2017 and effective from 2018 onwards (€+148 million).
Scope: (i) Mexico, Singapore, Colombia, Turkey, Poland, the Gulf Region, Morocco, AXA Bank Belgium, Malaysia Property & Casualty, Luxembourg, Brazil, the Czech Republic Life & Savings, the Slovak Republic Life & Savings, and Greece are fully consolidated; (ii) Russia (Reso), India, Nigeria and Lebanon are consolidated under the equity method and contribute only to the underlying earnings, adjusted earnings and net income; (iii) Poland Property & Casualty traditional activities are fully consolidated since January 1, 2017; (iv) AXA Bank Hungary was disposed since November 2, 2016.
In the comments below, the 2016 comparable basis includes the contribution of Poland (acquisition of Liberty Ubezpieczenia and first consolidation of Property & Casualty traditional activities) and excludes the contribution of AXA Bank Hungary.
NBV Margin increased by 6.2 points to 28.0%. On a comparable basis, NBV Margin increased by 5.9 points mainly driven by an improvement in Unit-Linked in Singapore and higher weight of Group business with higher margins in Poland.
Underlying earnings before tax increased by €23 million (+6%) to €379 million. On a comparable basis, underlying earnings before tax increased by €51 million (+15%): ■ Life & Savings (€+20 million or +28%) to €92 million. On a comparable basis, Life & Savings underlying earnings before tax increased by €22 million (+31%) mainly driven by (i) Singapore reflecting higher Unit-Linked fees, partly offset by (ii) Poland reflecting higher Deferred Acquisition Cost amortization in line with increased surrenders; ■ Health (€+17 million) to €3 million. On a comparable basis, Health underlying earnings before tax increased by €17 million mainly driven by the Gulf Region and Turkey reflecting profitability measures on the net technical margin, partly off set by Mexico mainly driven by higher expenses to support the business growth, partly compensated by an improved loss ratio benefiting from tariff increases, and Singapore mainly due to higher expenses;
■ Property & Casualty (€+5 million or +2%) to €235 million. On a comparable basis, Property & Casualty underlying earnings before tax increased by €31 million (+14%) mainly driven by (i) Turkey with higher investment income (€+46 million) due to both higher interest rates and average asset base, combined with a higher net technical margin mainly driven by lower large losses in Commercial Property, and (ii) Poland from a higher net technical margin in Personal Motor, partly off set by (iii) Singapore due to a lower net technical margin in Personal Motor, and (iv) Mexico mainly driven by Nat Cat events (notably Raboso earthquake of September 19); ■ Other (€-19 million or -28%) to €49 million. On a comparable basis, Other underlying earnings before tax decreased by €19 million from AXA Bank Belgium (€-13 million to €67 million) mainly due to the decrease in gross revenues, and Holdings (€-6 million).
Income tax expenses increased by €11 million (+14%) to €-91 million. On a comparable basis, income tax expenses increased by €14 million (+17%) mainly driven by higher pre-tax underlying earnings in Turkey.
Income from affiliates and associates increased by €39 million (+83%) to €86 million. On a comparable basis, income from aff iliates and associates increased by €29 million (+62%) mainly driven by higher earnings from Reso.
Underlying earnings increased by €49 million (+17%) to €337 million. On a comparable basis, underlying earnings increased by €63 million (+22%).
Adjusted earnings increased by €63 million (+23%) to €330 million. On a comparable basis, adjusted earnings increased by €75 million (+29%) driven by higher underlying earnings as well as higher net realized capital gains.
Net capital gains or losses attributable to shareholders net of income tax 26 20
(a) Net of intercompany eliminations. (b) Other corresponds to Asset Management activities and holdings.
Profit or loss on financial assets (under Fair Value option) and derivatives 10 8
Assets under Management (“AUM”) increased by €29 billion from December 31, 2016, to €746 billion at the end of December 31, 2017, driven by €+21 billion positive market eff ects, €+20 billion positive scope impact mainly related to the transfer of the AXA Japan advisory mandate from AB, €+8 billion net inflows mainly from Third-Party clients (€+9 billion), partly off set by Main Fund (€-1 billion), as well as €-21 billion negative foreign exchange rate impact.
Management fee bps increased by 0.2 bps to 17.9 bps. On a comparable basis, management fee bps increased by 0.3 bps due to a better product and client mix.
Underlying earnings before tax increased by €37 million (+12%) to €353 million. On a constant exchange rate basis, underlying earnings before tax increased by €42 million (+13%) as a result of higher gross revenues and an improved underlying cost income ratio reflecting the cost savings program.
Income tax expenses increased by €8 million (+8%) to €-104 million. On a constant exchange rate basis, income tax expenses increased by €9 million (+9%).
Income from affiliates and associates increased by €7 million (+59%) to €18 million. On a constant exchange rate basis, income from aff iliates and associates increased by €7 million (+64%) mainly due to an increase in both AUM and management fee bps in the Chinese joint venture.
Underlying earnings and adjusted earnings increased by €32 million (+14%) to €257 million. On a constant exchange rate basis, underlying earnings and adjusted earnings increased by €36 million (+16%).
Underlying earnings before tax decreased by €77 million (-50%) to €78 million. On a constant exchange rate basis, underlying earnings before tax decreased by €78 million (-50%) driven by a higher all accident year loss ratio (+2.9 points) mainly due to higher natural events (€80 million in 2017).
Underlying earnings decreased by €71 million (-59%) to €50 million. On a constant exchange rate basis, underlying earnings decreased by €72 million (-59%).
Adjusted earnings decreased by €65 million (-45%) to €81 million. On a constant exchange rate basis, adjusted earnings decreased by €66 million (-45%) driven by lower underlying earnings, partly off set by higher net realized capital gains.
Net income decreased by €109 million (-73%) to €40 million. On a constant exchange rate basis, net income decreased by €109 million (-74%) driven by lower adjusted earnings, higher negative foreign exchange impacts (€-49 million) and the impact of the partial write-off of the net deferred tax asset position due to the decrease in the corporate tax rate from 34% to 26% enacted in 2017 and eff ective in the coming years (€-4 million).
Profit or loss on financial assets (under fair value option) and derivatives (7) (2)
Income tax expenses decreased by €5 million (-25%) to €-16 million driven by a lower eff ective tax rate due to a more favorable country mix.
Adjusted earnings increased by €14 million (+104%) to €28 million driven by higher underlying earnings.
Net capital gains or losses attributable to shareholders net of income tax (0) (7)
Profit or loss on financial assets (under fair value option) and derivatives (197) (247)
Net income increased by €311 million to €-822 million mainly due to higher adjusted earnings, the one-off benefit from the upcoming reimbursement of the 3% tax above-mentioned on prior years (2013 to 2016) and a favorable change in the fair value of interest rate and foreign exchange economic derivatives not eligible for hedge accounting, partly off set by the impact of the partial write-off of the net deferred tax asset position due to the decrease in the corporate tax rate from 34% to 26% enacted in 2017 and eff ective in the coming years (€-113 million).
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 of the Statutory Auditors on the Consolidated Financial Statements.
Liquidity management is a core part of the Group’s financial planning and includes debt profile scheduling and, more generally, the Group’s capital allocation process. Liquidity resources result mainly from Insurance and Asset Management operations, as well as from capital raising activities and committed bank credit lines.
Over the past several years, the Group has expanded its core operations (insurance and Asset Management) through a combination of organic growth, direct investments and acquisitions. This expansion has been funded primarily through a combination of (i) dividends received from operating subsidiaries, (ii) proceeds from debt instruments issuance (mainly subordinated debt) and borrowings (including debt issued by subsidiaries), (iii) the issuance of ordinary shares and (iv) proceeds from the sale of non-core businesses and assets.
The Company anticipates that cash dividends received from its operating subsidiaries and other financing sources available to the Company will continue to cover its operating expenses (including interest payments on its outstanding debt and borrowings) and dividend payments during each of the next three years. AXA expects that anticipated investments in subsidiaries and existing operations, future acquisitions and strategic investments will be funded from available cash flow remaining aft er payments of dividends and operating expenses, proceeds from the sale of non-strategic assets and businesses as well as future issues of debt and/or equity instruments.
The principal sources of liquidity for the Group’s insurance subsidiaries 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 financial assets and meet potential collateral exchange obligations in relation to derivatives. The liquidity of the Group’s insurance operations is aff ected by, among other things, the overall quality of the Group’s investments and the Group’s ability to liquidate its financial assets in a timely manner and to meet policyholder benefits and insurance claims as they fall due. The Group regularly reviews the quality of its assets to ensure adequate liquidity in stress scenarios.
Information on projected payments and surrenders related to Life & Savings and Property & Casualty insurance contracts are disclosed in Note 14.10.1 “Payment and surrender projections” in Part 5 – “Consolidated Financial Statements” of this Annual Report.
The investment strategy of AXA’s Life & Savings subsidiaries is designed to match the investment returns and estimated maturities of their investments with expected cash flows on their insurance contracts. Entities regularly monitor the valuation and duration of their investments and the performance of their financial assets. Financial market performance may aff ect the level of surrenders and withdrawals on life insurance policies, as well as immediate and projected long-term cash needs. Group operating entities seek to adjust their investment portfolios to reflect such considerations and react in a targeted manner.
(1) Estimated taking into account the first date of step-up calls on institutionally-placed subordinated debt.
At year-end 2017, Group entities held, in the aggregate, more than €232 billion government and related bonds of which €144 billion issued by eurozone countries, which enables them to address local liquidity needs through highly liquid assets. AXA SA also held €11.9 billion of committed undrawn credit lines at year-end 2017. AXA has its own liquidity requirements resulting mainly from solvency needs of Group entities under severe stress scenarios and collateralized derivatives held by AXA SA. The derivatives book is monitored and managed on a daily basis by the AXA Group Treasury Department.
In addition, as part of its risk control framework, AXA remains vigilant regarding contra ctual provisions, such as rating triggers or restrictive covenants in financing and other documentation that may give lenders, security holders or other counterparties, the right to accelerate repayment, demand collateral or seek other similar remedies under circumstances that could have a material adverse eff ect on the Group’s consolidated financial position. At year-end 2017, AXA had no rating triggers and no financial covenants in its credit facilities.
On a consolidated basis, subordinated debt that qualifies as financing debt (excluding derivative instruments) amounted to €7,741 million as of December 31, 2017 (€7,086 million including derivatives) aft er taking into account all intra-group eliminations and excluding undated subordinated debt that qualifies as equity (TSS/TSDI, which are included in shareholders’ equity, as described in Note 1.13.2 “Undated subordinated debt” in Part 5 – “Consolidated Financial Statements” of this Annual Report), compared to €9,007 million as of December 31, 2016 (€7,818 million including derivatives), thus showing a decrease of €1,266 million excluding the impact of derivatives.
At December 31, 2017, other debt instruments issued was equal to €1,608 million, up from €1,191 million at the end of 2016. The increase of €417 million resulted mainly from the issuance of commercial paper by AXA Financial.
Debt instruments (other than financing debt) issued by Group entities are described in Note 18 “Payables” in Part 5 – “Consolidated Financial Statements” of this Annual Report.
(2 ) This information is not required under IFRS and as such is not part of the Consolidated Financial Statements. Therefore, it is not covered by the report of the Statutory Auditors on the Consolidated Financial Statements.
For several years, the AXA Group has off ered to its employees, in and outside France, the opportunity to subscribe for shares issued through a capital increase reserved for employees. In 2017, approximately 19.6 million new shares were issued for a total amount of €444 million. To eliminate the dilutive impact of the newly issued shares, AXA bought back the equivalent number of such shares to cancel them.
Newly issued shares arising from long term incentive plans (stock options) amounted to 8.05 million shares in 2017. To eliminate the dilutive impact of the newly issued shares, AXA bought back the equivalent number of such shares to cancel them.
Dividends received by the Company from its subsidiaries amounted to €4,990 million in 2017 (€3,521 million in 2016), of which €1,045 million were denominated in currencies other than the Euro (€1,302 million in 2016).
Interest paid by the Company in 2017 was equal to €1,129 million (€1,078 million in 2016), of which interest on undated subordinated debt of €359 million (€444 million in 2016).
The Group was in compliance with the applicable solvency requirements as of December 31, 2017 and monitors compliance with such requirements on a continuous basis.
The AXA Group defined a clear framework for its capital management policy around a central regulatory solvency ratio target range: ■ the central target range is between 170% and 230%. Within this central range, AXA intends to (i) maintain its dividend policy which targets a 45% to 55% payout ratio; (ii) neutralize dilution resulting from employee share off erings and stock options exercise; and (iii) maintain investments in business growth; ■ above 230% and as solvency increases, flexibility may be added to the dividend payout ratio. Excess capital could also provide some additional flexibility to invest in business growth or increase its appetite for investment risk; ■ below 170%, the AXA Group may become more conservative gradually, selectively de-risking the investment portfolio, increasing selectivity in growth initiatives, allowing for dilution resulting from employee shares off ering and stock options exercise; and reviewing the dividend payout ratio; ■ below 140%, the AXA Group may restrict its growth initiatives, further reduce its appetite for investment risk and reduce dividend payout.
Subordinated notes issued since January 17, 2015 have been structured to be eligible as own funds regulatory capital under Solvency II regulations. Subordinated notes issued prior January 17, 2015 mostly benefit from the transitional provisions foreseen in the Directive 2014/51/EU (Omnibus II) as they were previously eligible under the Solvency I regime and were issued prior to the Solvency II Delegated Regulation.
Pursuant to the terms and conditions of AXA’s TSDI, the Company may, at its option, under certain circumstances and shall, in other circumstances, defer interest payment (e.g. no dividend declared or paid in the preceding Annual Shareholders’ Meeting or receipt by the Company or by certain of its principal insurance subsidiaries of a regulatory demand to restore their solvency position). Payment of deferred interest may become due in certain specified cases (e.g. payment of a dividend, notification of the end of a regulatory demand to restore solvency, liquidation of the Company or redemption of the TSDI, etc.).
I Subsequent events aft er December 31, 2017 impacting AXA’s liquidity
A dividend per share of €1.26 will be proposed to the Shareholders’ Meeting to be held on April 25, 2018. Subject to the Shareholders’ Meeting approval, the dividend will be payable on May 7, 2018, with an ex-dividend date of May 3, 2018.
For other subsequent events, please refer to Note 32 “Subsequent events” in Part 5 – “Consolidated Financial Statements” of this Annual Report.
Maestro Health provides a digital integrated platform encompassing a full set of health benefit administration services and third-party administrator services for self-insured companies, including care coordination solutions for employees, enabling companies to be more eff ective in lowering healthcare costs and empowering employees to make better health-related choices.
Founded in 1986, XL G roup is a leader in P&C commercial and specialty lines with an active global network. XL G roup generated USD 15 billion of GWP in FY17. It is a growing franchise with a high-quality underwriting platform and a rich and diversified product off ering. XL G roup is a highly agile company renowned for innovative client solutions and has a comprehensive business model of originating, packaging and selling risks. XL G roup has ca. 7,400 colleagues worldwide and has a strong presence across specialty and mid-market segments via insurance and reinsurance.
The opportunity to acquire XL G roup has led AXA to review its exit strategy from its existing US operations which AXA now expects to accelerate. Together with the planned IPO of AXA’s US operations (expected in 1H18 subject to market conditions) and intended subsequent sell-downs, this transaction would gear AXA further towards technical margins less sensitive to financial markets.
The strong complementarities between AXA and XL G roup provides opportunities for significant value creation, off setting the planned US IPO earnings dilution as soon as 2018. It also allows for material capital diversification benefits under the Solvency II framework and a strong return on investment. In this context, AXA also reaff irmed its Ambition 2020 targets.
(1) EUR 1 = USD 1.2233 as of January 19, 2018 (Source: Bloomberg).
(2) EUR 1 = USD 1.2317 as of March 2, 2018 (Source: Bloomberg).
(4) Include P&C Commercial lines and P&C Commercial Health for comparability purposes with peers.
AXA’s Solvency II position and free cash flow generation should remain strong and resilient to external shocks thanks to robust underwriting policies, a high quality asset portfolio and disciplined capital allocation.
With its clear Ambition 2020 strategy, a simplified organization focused on fewer countries designed to foster growth across its preferred segments, AXA is well positioned to create lasting shareholder value and off er an attractive return.
Implementing sound corporate governance principles has been a priority at AXA for many years. In this context, AXA chose to adopt, in 2008, the Corporate Governance Code for French corporations (Code de gouvernement d’entreprises des sociétés cotées) published by the Afep (Association française des entreprises privées) and the Medef (Mouvement des entreprises de France) (the “Afep-Medef Code”). The Board of Directors believes that AXA’s corporate governance practices are in line with the recommendations of the Afep-Medef Code (revised in November 2016 and available on AXA’s website – www.axa.com) and its accompanying guide and have followed the evolution of corporate governance practices in France and abroad, as well as the recommendations and standards of shareholders, regulators, the French High Committee for Corporate Governance (Haut Comité de Gouvernement d’Entreprise), proxy advisors, rating agencies and other stakeholders overtime
The Board is assisted by three specialized Board Committees: the Audit Committee, the Finance Committee and the Compensation & Governance Committee.
Given the international profile of the Group, the Board and its Compensation & Governance Committee regularly review the membership of the Board and endeavor to ensure that directors come from diverse backgrounds with different experiences, technical skills, gender, age and nationality.
On December 31, 2017, the Board of Directors comprised fourteen members: six women and eight men. Seven directors were citizens of countries other than France.
Chairman of the Board of Directors 1,445,562 April 2010/2018 Annual Shareholders’ Meeting
Director and Chief Executive Off icer 193,119 September 2016/2018 Annual Shareholders’ Meeting
Mrs. Irene Dorner (63) Companies’ director AXA – 25, avenue Matignon – 75008 Paris – France British nationality
Jean-Martin Folz (70) Companies’ director AXA – 25, avenue Matignon – 75008 Paris – France French nationality
Senior Independent D irector Chairman of the Compensation & Governance Committee 11,084 May 2007/2019 Annual Shareholders’ Meeting
Independent director Member of the Compensation & Governance Committee Member of the Finance Committee 5,342(b) December 2016/2018 Annual Shareholders’ Meeting
Mrs. Angelien Kemna (60) Companies’ director AXA – 25, avenue Matignon – 75008 Paris – France Dutch nationality
Mrs. Suet Fern Lee (59) Managing Partner of Morgan Lewis Stamford LLC (Singapore) 10 Collyer Quay #27-00 Ocean Financial Centre – Singapore 049315 – Singapore Singaporean nationality
Stefan Lippe (62) Co-founder and Chairman of the Board of Directors of YES.com AG (Switzerland) and co-founder and ViceChairman of the Board of Directors of Acqupart Holding AG (Switzerland) Baarerstrasse 8 – CH 6300 Zug – Switzerland German and Swiss nationalities
Independent director Chairman of the Audit Committee Member of the Finance Committee 12,000 April 2012/2020 Annual Shareholders’ Meeting
Independent director Chairman of the Finance Committee Member of the Audit Committee 11,300 April 2009/2021 Annual Shareholders’ Meeting
Mrs. Doina Palici-Chehab (60) Interim Chief Executive Off icer of AXA Asia (Hong Kong) (c )
29/F Dorset House Taikoo Place – 979 King’s Road Quarry Bay – Hong Kong German and French nationalities
(a) On January 16, 2018. (b) On January 5, 2018. (c ) As of April 1, 2018, Mrs. Doina Palici-Chehab will become Executive Chairman of AXA Corporate Solutions Assurance.
Mrs. Isabelle Kocher and Mrs. Suet Fern Lee whose term of off ice ends at the 2018 Shareholders’ Meeting and who informed the Board of Directors of their decision to retire from the Board aft er two successive directorships.
Directorships held within the AXA Group Chairman of the Board of Directors: AXA* Chairman: AXA Millésimes (SAS) Director: AllianceBernstein Corporation* (United States)
Directorships held during the last five years Deputy Chief Executive Officer: AXA Chairman & Chief Executive Officer: AXA America Holdings, Inc. (United States) Chairman of the Board of Directors: AXA Holdings Belgium (Belgium), AXA Financial, Inc. (United States) Director or member of the Management Committee: AXA ASIA (SAS), AXA Assicurazioni S.p.A. (Italy), AXA Belgium (Belgium), AXA Equitable Life Insurance Company (United States), AXA Italia S.p.A. (Italy), AXA MPS Assicurazioni Danni S.p.A. (Italy), AXA MPS Assicurazioni Vita S.p.A. (Italy), AXA UK plc (United Kingdom), MONY Life Insurance Company (United States), MONY Life Insurance Company of America (United States)
Directorships held within the AXA Group Director and Chief Executive Officer: AXA* Chairman of the Board of Directors: AXA Financial, Inc. (United States), AXA Equitable Holdings, Inc. (United States) (formerly AXA America Holdings, Inc.), AXA Leben AG (Switzerland), AXA Versicherungen AG (Switzerland), Chairman of the Supervisory Board: AXA Konzern AG (Germany) Director or member of the Management Committee: AXA ASIA (SAS), AXA Equitable Life Insurance Company (United States), MONY Life Insurance Company of America (United States)
(1) The current directorships held by members of the Board of Directors within a listed company are indicated by the following symbol: *. The current directorships held by members of the Board of Directors within companies belonging to the same group are indicated by the following symbol: **.
(2 ) Mr. Thomas Buberl requested the Board of Directors’ approval before accepting new directorships in companies outside the AXA Group.
Chairman of the Executive Committee and member of the Board of Directors of Solvay (Belgium)
Directorships held outside the AXA Group Chairman: Control Risks Group Holding Ltd (United Kingdom) Chair Elect and Non-Executive Director: Virgin Money* (United Kingdom) Director: Rolls-Royce Holdings plc* ** (United Kingdom), Rolls Royce plc** (United Kingdom) Trustee: SEARRP (the South-East Asia Rainforest Research Partnership) (Malaysia) Member of the Advisory Board: University of Nottingham for Asia (United Kingdom) Honorary Fellow: St. Anne’s College, Oxford (United Kingdom)
Directorships held during the last five years Chief Executive Officer & President: HSBC USA (United States) Chief Executive Officer and member of the Management Board: HSBC Holdings plc (United Kingdom) Chairman: British American Business (United States) Director: City of New York Partnership (United States), Committee Encouraging Corporate Philanthropy (United States), Financial Services Roundtable (United States), The Clearing House (United States) Member of the Advisory Board: Outleadership (United States)
Appointed on December 14, 2016 Term expires at the 2018 Shareholders’ Meeting
Directorships held during the last five years Chairman of the Supervisory Board: Yellow&Blue Investment Management B.V. (the Netherlands) Director or member of the Supervisory Board: Duisenburg School of Finance (the Netherlands), Stichting Child and Youth Finance International (the Netherlands), Universiteit Leiden (the Netherlands)
Expertise and experience Mrs. Suet Fern Lee graduated with a double first in law from Cambridge University in 1980 and qualified as a Barrister-atLaw at Gray’s Inn London in 1981. She was admitted to the Singapore Bar in 1982 and has practised law in London and Singapore since then. Since 2000, and until its combination in 2015 with the law firm Morgan Lewis in the United States, she has been founder and managing partner of Stamford Law Corporation, a major law firm in Singapore. She is a member of the Executive Committee of the Singapore Academy of Law, where she also chairs the group on Legal Education and Studies, a member of the Advisory Board to the Law School at Singapore Management University, where she also chairs the Expert Panel Centre of Cross-Border Commercial Law in Asia and a trustee for Nanyang Technological University as well as a Fellow of the Singapore Institute of Directors. She also sits on the Board of the World Justice Project, a global organization for the promotion of the rule of law.
Directorships held outside the AXA Group Partner: Morgan Lewis Stamford LLC** (Singapore) Director or member of the Supervisory Board: Rothschild & Co*, Sanofi*, Caldecott Inc. (Cayman Islands), Morgan Lewis & Bockius LLP** (United States), Stamford Corporate Services Pte Ltd** (Singapore), The World Justice Project (United States) Trustee: Nanyang Technological University (Singapore) Member of the Accounting Advisory Board: National University of Singapore Business School (Singapore) Member of the Advisory Board: Singapore Management University School of Law (Singapore) Member of the Executive Committee: Singapore Academy of Law (Singapore)
Chair of the International Leadership Team of Morgan Lewis & Bockius LLP (United States)
Expertise and experience Mr. Stefan Lippe is a graduate in mathematics and business administration from the University of Mannheim. He obtained his doctorate in 1982 being awarded the Kurt Hamann foundation prize for his thesis. In October 1983, he joined Bavarian Re (a former Swiss Re subsidiary). From 1985, he was involved in the casualty department’s operations in the German-speaking area. In 1986, he became Head of the nonproportional Underwriting Department. He was appointed member of the Management Board in 1988 when he assumed responsibility for the company’s casualty line of business in the German-speaking area. In 1993, he became Chairman of the Management Board of Bavarian Re. Mr. Stefan Lippe was appointed a member of Swiss Re’s Executive Board in 1995, as Head of the Bavarian Re Group. In 2001, he was assigned the role of Head of the Property & Casualty business Group and appointed a member of Swiss Re’s Executive Committee. Beginning in 2005, he led Swiss Re’s Property & Casualty and Life & Health Underwriting activities; and in September 2008, he took over as Chief Operating Off icer of Swiss Re and was also appointed Deputy Chief Executive Off icer of Swiss Re. In 2009, he was appointed Chief Executive Off icer of Swiss Re and stayed in this function until January 2012. Mr. Stefan Lippe was named Reinsurance CEO of the year 2011 by the leading industry publication, Reaction, and he was recognised at the Worldwide Reinsurance Awards 2013 ceremony with the “Lifetime Achievement Award”. Aft er nearly 30 years with Swiss Re, he turned to other activities. In 2011, Mr. Stefan Lippe co-founded Acqupart Holding AG of which he serves as Vice-Chairman of the Board of Directors, and Acqufin AG. In May 2013, he co-founded Paperless AG renamed as YES.com AG in 2017 and currently serves as Chairman of the Board of Directors of this company. In October 2013, Mr. Stefan Lippe was elected Chairman of the Board of Directors of CelsiusPro AG. Since May 2014, Mr. Stefan Lippe has also been a member of the Supervisory Board of Commerzbank AG.
Directorship held during the last five years Vice-Chairman of the Board of Directors: Acqufin AG (Switzerland)
Directorships held outside the AXA Group Managing Partner: Lussan/Société d’avocats Vice-Chairman and director: Bred Banque Populaire Vice-Chairman and member of the Supervisory Board: Associations Mutuelles Le Conservateur**, Assurances Mutuelles Le Conservateur** Director: AXA Assurances IARD Mutuelle, AXA Assurances Vie Mutuelle, Conservateur Finance**
Directorships held within the AXA Group Director: AXA*, AllianceBernstein Corporation* (United States), AXA Equitable Life Insurance Company (United States), AXA Financial, Inc. (United States), MONY Life Insurance Company of America (United States)
Directorships held outside the AXA Group Managing Director: Investment Audit Practice, LLC (United States) Chairman of the Investment Committee: Fonds de Dotation du Musée du Louvre Vice-Chairman: JACCAR Holdings SA (Luxembourg)
Directorships held during the last five years Chairman of the Board of Directors: Friends of Education (non-profit organization) (United States) Trustee and Chairman of the Investment Committee: The Kauff man Foundation (United States) Director or member of the Supervisory Board: American Century Companies Inc. (United States), JP Morgan Suisse (Switzerland), MONY Life Insurance Company (United States), Quilvest (Luxembourg), SunGard Data Systems (SDS) (United States), Taittinger-Kobrand USA (United States), The Hartford Insurance Company (United States) Member of the Investment Committee: The Red Cross (United States)
Expertise and experience Mrs. Doina Palici-Chehab is a graduate of the University of Bucarest (Romania) (Magister Artium) and of the Deutsche Versicherungsakademie of Munich (Germany) (Degree in insurance management (Versicherungsbetriebswirt (DVA)). From 1980 to 1983, she was a teacher for foreign languages in Romania. From 1983 to 1990, she was subject Matter Expert in AGF (now Allianz) in Cologne (Germany). In 1990, she joined the AXA Group as Reinsurance Director of AXA Germany (Germany). In 2000, she became head of Group Reinsurance of AXA Global P&C in Paris (France). From 2010 to March 2013, she was Chief Executive Off icer of AXA Business Services in Bangalore (India). From April 2013 to December 2016, she was Chief Executive Off icer of AXA Insurance Singapore (Singapore) and from July 2016 to December 2016, Chief Executive Off icer of AXA Life Insurance Singapore. From January 2017 to June 30, 2017, Mrs. Doina Palici-Chehab was Chief Executive Off icer of AXA Insurance Pte Ltd (Singapore). Since July 1, 2017, she serves as interim Chief Executive Off icer of AXA Asia. She will become, on April 1, 2018, Executive Chairman of AXA Corporate Solutions, AXA Matrix Risk Consultants and AXA ART and will also supervise the development of our Group cyber risk activities. Since April 2012, Mrs. Doina Palici-Chehab has been the employee shareholder representative to the AXA Board of Directors.
Directorships held during the last five years Chairman: AXA ASIA (SAS), Chambre de Commerce Française (Singapore) Chief Executive Officer: AXA Business Services Pvt. Ltd. (India), AXA Insurance Singapore Pte Ltd (Singapore), AXA Life Insurance Singapore (Singapore), Red Switch Pte. Ltd. (Singapore) Director: AXA MATRIX Risk Consultants India Private Limited (India), Krungthai AXA Life Insurance Public Company Limited (Thailand), AXA Insurance Public Company Limitd (Thailand) Member of the Advisory Board: Singapore Management University Lee Kong Chian School of Business (Singapore) Member of the Management Committee of the General Insurance Association of Singapore to the Board of Governors: Singapore College of Insurance (Singapore)
The following table summarizes the position of each director of the Company with regard to the criteria of the Afep-Medef Code as of December 31, 2017.
Dorner 1 Not have been an employee or executive off icer of the Company, or an employee, executive off icer or director of a consolidated subsidiary during the last five years 2 Not have cross-directorships 3 Not have significant business relationships 4 Not be related by close family ties to an executive off icer 5 Not have been an auditor of the Company within the previous five years 6 Not have been a director of the Company for more than twelve years 7 Not represent an important shareholder of the Company (holding more than 10% of share capital or voting rights)
On February 21, 2018, the AXA Board of Directors determined that, on December 31, 2017, ten of the fourteen Board members were independent aft er assessing the criteria of the Afep-Medef Code: Mmes Irene Dorner, Angelien Kemna, Isabelle Kocher, Suet Fern Lee and Deanna Oppenheimer and Messrs. Jean-Pierre Clamadieu, Jean-Martin Folz, André François-Poncet, Stefan Lippe and Ramon de Oliveira.
* The Company considers the fact that certain members of the AXA Board of Directors hold non-executive directorships in one or more Group subsidiaries wholly owned, directly or indirectly, by AXA does not automatically (i) place them in a situation of conflict of interest, or (ii) impair their independence in any way. The Board believes that permitting its members to sit on the Boards of certain Group subsidiaries is beneficial to the Board’s overall knowledge and appreciation of the Group’s operations, strategy and risk profile. Directors who also serve on the Boards of Group subsidiaries, however, are required to abstain from participating in the debates and decisions of the AXA Board which could aff ect the interests of the entity in which they hold a directorship to prevent any conflict of interest or potential independence issues.
To ensure that the personal interests of the members of the Board of Directors and those of the Company are appropriately aligned, the Board’s Terms of Reference provide that each member of the Board of Directors must hold, within two years following his/ her first appointment, a number of AXA shares with a value at least equal to the director’s gross fees earned in respect of the previous fiscal year (1).
Following its decision to appoint Mr. Denis Duverne as Chairman, the Board decided, in light of his experience and knowledge of the AXA Group, to extend the role of the Chairman as follows (2): ■ promote the Company’s values and culture in particular in relation to corporate responsibility and professional ethics; ■ upon request by the Chief Executive Officer, represent the Company in its relations, nationally and internationally with public bodies, institutions, regulators, shareholders and the Company’s main strategic partners and stakeholders; ■ consult with the Chief Executive Off icer on major topics and events relating to the Company (including the Company’s strategy, major acquisition or divestment projects, significant financial transactions, major community projects and the appointment of the most senior executives of the Group); ■ upon invitation of the Chief Executive Officer, take part in internal meetings with Group executives and teams to provide his opinion on strategic issues or projects; ■ assist and advise the Chief Executive Off icer.
(1) For this purpose, AXA shares are valued using the closing price of the AXA share on December 31 of the preceding fiscal year.
(2) The role of the Chairman is set out in the Board’s Terms of Reference which are available on AXA’s website.
■ at the request of the Chief Executive Officer, participated in internal meetings in connection with significant events concerning the Company (e.g. acquisition and disposal projects).
In 2017, the Board of Directors met eleven times and scheduled a session without the presence of Executive Management at each Board of Directors’ meeting.
In 2017, the Board focused, in particular, on the review of the Group’s strategy, examination of the 2016 financial statements and the 2017 half-year financial statements, review of proposed significant acquisitions and disposals, review of the Board Committees’ reports, review of the ORSA report and AXA’s Internal Model as well as other written policies required under Solvency II, the Group’s Recovery Plan, Systemic Risk Management Plan and Liquidity Risk Management Plan, the Group’s dividend policy, internal control and Risk Management, approval of non-audit services, the self-assessment of the Board of Directors and the appointment, re-appointment and independence of its Board members.
In March 2017, the Board of Directors held its annual two-day off -site strategy session with presentations by all members of the Management Committee on a variety of key strategic topics related to the implementation of the Group’s 2020 Strategic Plan.
Since 2013, the Board of Directors, upon recommendation of its Compensation & Governance Committee, has, on a regular basis, entrusted the annual assessment of the Board of Directors to an external consultant.
In 2016, the Board self-assessment was carried out by a consultant (SpencerStuart) which collected each of the individual
director’s input, views and suggestions on the Board work and its performance.
In 2017, the self-assessment was conducted internally and each director (except for the Chairman of the Board of Directors and the Chief Executive Officer) responded in writing to a questionnaire and had a meeting with the Chairman of the Board of Directors who obtained their opinion on the participation and contribution of each Board member. The conclusions concerning the personal contribution of each director were then transmitted by the Chairman to each member of the Board during individual interviews.
The main identified areas for improvements are: (i) the need to closely monitor the selection of future Board members with the objective to appoint younger directors with recognized skills, particularly in areas such as FinTechs, finance or marketing, (ii) to strengthen the monitoring of the Company’s performance measures by regularly providing the directors with a summary of the evolution of certain key performance indicators; (iii) the need to manage the time dedicated to the presentation of topics to the Board of Directors by Executive Management in order to allocate more time to debates, and (iv) to further develop the regular transmission by the Chief Executive Off icer to the members of the Board of short information notes on insurance sector-related news or public announcements made by the Company between Board meetings.
In 2017, the Board met eleven times and the average attendance rate was 94%. Board meetings lasted approximately four hours on average.
The Board of Directors has established three specialized Committees: the Audit Committee, the Finance Committee and the Compensation & Governance Committee.
Each Committee issues opinions, proposals or recommendations to the Board of Directors on matters within the scope of its responsibilities with each Committee Chairman reporting to the Board at the following Board meeting. However, under French law, Board Committees do not have any formal decision-making power and are advisory only.
Each Committee is composed of members with expertise in the relevant areas, and its composition is reviewed regularly by the Board of Directors.
Composition: Stefan Lippe (Chairman) – Irene Dorner – Angelien Kemna – Ramon de Oliveira
The principal missions of the Committee are to: ■ monitor the financial reporting process and the integrity of the publicly reported results and disclosures made in the financial statements; ■ monitor the adequacy and eff ectiveness of the internal control and r isk m anagement frameworks; ■ form an opinion on the eff ectiveness, performance and independence of the Group’s internal auditors; ■ consider the appointment and oversee the process for selecting Statutory Auditors, monitor the Statutory Auditors’ audits and review of the Group’s consolidated financial statements, as well as the auditors’ independence and the breakdown of their fees and make recommendations to the Board as to the appointment of the Statutory Auditors to provide non-audit services.
The review of financial statements by the Audit Committee is accompanied by a report from the Statutory Auditors on the main results of the statutory audit and the accounting methods chosen in this regard.
The Committee also receives presentations from the Group Chief Risk Off icer, the Group General Secretary, the Group General Counsel and the Group Chief Financial Off icer describing the Company’s principal risk exposures and where applicable the material off -balance-sheet commitments.
The Committee focused, in particular, on the following issues: ■ the 2016 financial statements; ■ the 2016 Annual Report (Registration Document); ■ the 2017 half-year financial statements; ■ the internal control and r isk m anagement (reports on the financial and operational risks, on compliance, on litigation, on Group IT security – cyber risk, on the Group’s Internal Financial Control (IFC) function, and on the Group’s Standards…); ■ the r isk m anagement, risk appetite and reporting framework; ■ the compliance with the Solvency II and ORSA, SFCR and RSR
reports; ■ the results of internal and external audit work; ■ the review, for recommendation to the Board, of the non-audit services provided by the Statutory Auditors; ■ the renewal of one of the Statutory Auditors; and ■ the internal and external audit plans and resources.
Composition: Ramon de Oliveira (Chairman) – André François-Poncet – Suet Fern Lee – Stefan Lippe – Doina Palici-Chehab
The principal missions of the Committee are: ■ to examine and issue an opinion on any sureties, guarantees, endorsements and warrantees in favor of third parties which exceed the delegations of power granted to the Chief Executive Off icer by the Board of Directors; ■ to examine and issue an opinion on any of the following: – securities issuances giving a claim, whether directly or indirectly, to the Company’s share capital, – share repurchase programs proposed to the Ordinary
■ to review the risk appetite framework developed by the Executive Management for financial, insurance and operational exposures.
The Group Chief Financial Off icer and the Group Chief Risk Off icer attend each Finance Committee meeting.
Director, the members of the Executive Management and the persons who eff ectively run.
The Committee also prepares, with the Chairman of the Board of Directors and the Chief Executive Off icer, the succession of the Executive Management. t he members of the Committee are also kept informed of the appointments of the main executives of the Group, and in particular the members of the Management Committee; ■ to issue proposals to the Board of Directors on: – the compensation of the Chairman of the Board of Directors and the Chief Executive Off icer and the preparation of their annual assessment,
– the number of Company stock options or performance shares to be granted to the Chief Executive Off icer and the other members of the Management Committee; – the amount of directors’ fees for the members of the Board of Directors to be submitted to the Shareholders’ Meeting,
■ to formulate an opinion on the proposals of the Chief Executive Off icer concerning: – the principles and conditions for the determination of the compensation of the main executives of the AXA Group, – the overall annual allocation of Company stock options or performance shares to employees of the AXA Group.
Governance issues: ■ the process of selection of future directors; ■ the composition of the Board and its Committees; ■ the independence of the members of the Board; ■ the self-assessment of the Board of Directors; ■ the share ownership requirements for the Chairman, the members of the Board of Directors, the Chief Executive Off icer as well as for the members of the Management Committee and Partners group; ■ the review of the terms of appointment of the directors representing the employees; ■ the emergency succession plan of the Executive Management and the Chairman of the Board of Directors; ■ the review of the Organization and Talent Review (OTR) and succession plans; ■ the Company’s Corporate Responsibility; ■ the Diversity & Inclusion strategy; and ■ the parametric insurance business.
The Chairman of the Board of Directors, as well as the Chief Executive Off icer, although not members of the Committee, contribute to the work of the Committee and attend its meetings, except when their personal situation is discussed.
The Chief Executive Officer is assisted in the day-to-day operational management of the Group by a Management Committee and a Partners group.
The Partners group is composed of the members of the Management Committee and approximately thirty other senior executives from across the Group. Its principal role is to assist the Chief Executive Off icer and the Management Committee in the definition and implementation of key strategic initiatives in the context of the Ambition 2020 plan and to contribute to a permanent strategic dialogue throughout the Group. It has no formal decision-making authority and is advisory in nature. The Partners group meets quarterly.
The table below sets forth the number of salaried employees of the AXA Group over the past three years broken down by segment: Salaried employees (Full time equivalent) At December 31, 2015 At December 31, 2016 restated (a) At December 31, 2017
(k) In 2017, the increase by 44 in Asia – Direct was driven by South Korea due to recruitments in call centers and Japan due to the internalization of IT staff and new recruitments for transformation project and technical related staff .
(l) In 2017, the decrease by 63 in International (excluding AXA Bank Belgium) was mainly driven by AXA Mediterranean Holdings following reorganization and eff iciency programs, partly off set by the consolidation of P&C traditional activities in Poland since January 1, 2017. (m) In 2017, the decrease by 89 in Group Management Services reflected reorganization and eff iciency programs. (n) In 2017, the decrease by 332 was mainly reflecting the transfer of employees from AXA Technology Services to AXA insurance entities. (o) In 2017, the decrease by 962 in AXA Assistance was mainly driven by the outsourcing of some IT activities, increased reliance on contractors in Mexico, the termination of contracts in Mauritius and Brazil, the closure of Indian off ices as well as the implementation of eff iciency programs. (p) In 2017, the decrease by 37 in AXA Global Re was mainly driven by restructuring measures.
AXA’s overall policy on executive compensation focuses on the variable part of the compensation package, which is the compensation at risk for beneficiaries. The structure of AXA’s executive compensation is composed of a variable portion which represents a significant part of the aggregate compensation. This is designed to align executive compensation more directly with the operational strategy of the Group and the interests of the shareholders while encouraging performance: ■ both on an individual and collective level; and
COMPENSATION OF THE CORPORATE OFFICERS AND MANAGEMENT COMMITTEE MEMBERS ON DECEMBER 31, 2017
The principal mission of the Compensation & Governance Committee of AXA’s Board of Directors is to formulate propositions to the Board regarding, in particular, (i) the Company’s compensation policy and principles, (ii) the determination of the corporate off icers’ compensation and performance assessment, and (iii) the grant of AXA stock options or performance shares to the Chief Executive Off icer and the other members of the Group Management Committee.
■ achievement of the Group’s overall financial and operational objectives over the short, medium and long term as well as execution against medium and long term strategic objectives as a prerequisite to fund any mid-to-long term award.
AXA broadly applies a pay-for-performance approach which (i) recognizes achievement of defined financial and operational targets aligned with AXA’s business plan (ii) promotes long-term sustainable performance by incorporating risk adjustment measures in performance metrics and (iii) determines individual compensation amounts on the basis of both financial results and demonstrated individual leadership skills.
Each year, AXA, with the assistance of specialized firms, conducts compensation reviews in order to ensure the competitiveness and consistency of executives’ compensation and to measure the suitability of the global compensation policies. In this context, four markets are used as a reference: ■ a first market composed of 12 companies in the French CAC 40 index (companies selected to form the panel, which may vary from year-to-year, are comparable to AXA in terms of stock capitalization, revenues, sector, number of employees and/ or geographic coverage); ■ a second market composed exclusively of international financial companies comparable in size and scope to the AXA Group (insurance companies and banks) which are principally based in the main European markets (Belgium, France, Germany, Italy, the Netherlands, the United Kingdom, Spain and Switzerland) and in the United States; ■ a third and fourth market composed exclusively of international financial companies comparable in size and scope to the AXA Group (insurance companies and banks) which are principally based in Asia and Japan.
The fixed annual compensation of the Chief Executive Off icer amounts to €1,450,000 and the variable component of his compensation is set at €1,450,000 i.e. 100% of his fixed annual compensation.
The total amount of compensation of the Chief Executive Off icer and the balance between its diff erent components (fixed and variable) are mainly based on a study by an external advisory firm (Willis Towers Watson) on compensation practices for similar positions within a sample of CAC 40 companies as well as the main European companies in the financial sector (insurance companies, banks), and follows the recommendations of the G20, the European Commission and the Financial Stability Board in terms of compensation.
The Board of Directors, upon proposal of its Compensation & Governance Committee, has decided to maintain unchanged in 2017 the fixed annual compensation of the Chairman of the Board, Mr. Denis Duverne, at €1,200,000.
In order to determine Mr. Denis Duverne’s fixed compensation, the Board of Directions consulted an external advisory firm (Willis Towers Watson) regarding compensation practices for similar positions within a sample of CAC 40 companies as well as the main European companies in the financial sector (insurance companies, banks).
Furthermore, Mr. Denis Duverne, who claimed his rights to pension as of September 1, 2016, has decided to waive payment, for his entire term of off ice as Chairman of the Board of Directors, of the annuities which he would have received as from September 1, 2016 under the complementary pension scheme for Group executive off icers in France, amounting to circa €750,000 per year. Mr. Denis Duverne has decided not to receive
payment of these annuities until termination of his term of off ice as Chairman of the Board without any retroactive payment.
Finally, no variable compensation shall be paid to him, nor will he receive directors’ fees, be granted any stock options or performance shares or any other long-term incentive during his term of off ice.
The determination of the variable compensation to be paid to the Chief Executive Off icer, Mr. Thomas Buberl, was based in 2017 on the following two metrics: ■ Group performance for 50%. This metric is measured based on (i) underlying earnings per share, (ii) return on equity (adjusted Return on Equity – RO E), (iii) gross revenues in both Commercial Property & Casualty and Protection & Health and (iv) Net Promoter Score (customer recommendation index). The relative weight of each indicator is, respectively, 55%, 15%, 15% and 15%.
The selected indicators to measure the Group performance reflect objectives widely disclosed internally and externally with respect to growth, profitability, capital management, operational eff iciency and proximity with clients. Thus, these indicators, directly linked to the strategic orientations of the Group, are both financial and operating criteria and rely on the budget and on predefined performance indicators; ■ Individual performance for 50%, which is evaluated based on objectives specifically related to strategic initiatives set and reviewed each year.
■ Gross revenues in Commercial Property & Casualty and in Protection & Health
The Group component of the variable compensation of Mr. Thomas Buberl was computed according to the following elements: underlying earnings per share and adjusted Return on Equity – RO E were both above target whereas gross revenues in Commercial Property & Casualty and in Protection & Health and the Net Promoter Score were in line with target.
In order to assess Mr. Thomas Buberl’s individual performance in 2017, the Board of Directors assessed the achievement of the following objectives set in his target letter: ■ the development and the execution of the Group mid-term strategic orientations (for 35%); ■ the delivery of the Ambition 2020 Plan commitments articulated around the two strategic priorities: Focus and Transform (for 25%): • Focus: deliver positive underlying earnings growth (between 3 and 7%) while maintaining a Solvency II Ratio within the 170-230% target range,
• Transform: develop the P ayer-to-P artner concept and establish a clear governance structure to launch and develop the first related strategic initiatives,
■ the development of the Group Senior Executives population and the improvement of the talent pipeline (for 25%): • undertaking of a global talent mapping exercise to identify talent shortages in key areas required for execution of the Ambition 2020 Plan,
• recruitment of at least 5% of new external or emerging market talents at the Group Senior Executive level,
■ the strengthening of the control environment (for 15%): • implementation of the internal controls project action plan across all pilot entities,
• assessment of the current state of IT security implementation and reinforce existing global program to reach first quartile of peers .
The variable compensation of the members of the Management Committee with Group responsibilities is determined according to the following metrics: (Group performance (100%)) x (individual performance (100%)).
The performance of operating businesses is determined on the basis of the following performance indicators: ■ U nderlying earnings; ■ N et promoter score; ■ Protection & Health gross revenues; ■ New Business Value; ■ A ccounting expenses; ■ Property & Casualty – Commercial lines gross revenues; ■ C urrent year combined ratio.
Performance indicators that measure the Group performance are defined at the beginning of the year with: ■ a predefined target, aligned with the strategic plan (budget), the completion of which will result in 100% achievement; ■ a floor (which may vary between 25% and 50% of achievement against the target depending on the indicator), which defines the threshold below which no variable compensation for that component will be paid; ■ a cap (which may vary between 150% and 175% of achievement against the target depending on the indicator), which defines the threshold above which the variable compensation for that component is capped.
Individual performance is assessed both on (i) the achievement of results for each predetermined individual objective (the “what”) and (ii) qualitative factors, including leadership skills demonstrated by the members of the Management Committee measured against AXA’s Leadership framework (the “how”).
Total of the other Management Committee members 10,849,642 11,820,917 109% 8,795,152 9,029,203 103% 5,032,997 6,128,763 122%
The variable compensation deferral component is subject to a clawback mechanism which while not required by law in France, is designed to further align AXA’s policy with current practices, laws and regulations on executive compensation in the financial services sector internationally.
At the end of February 2018, the first tranche of Mr. Thomas Buberl’s deferred variable compensation for the 2016 fiscal year i.e. an amount of €84,604 was paid.
In relation with previous terms of off ice as Chairman & CEO and Deputy CEO, respectively, Messrs. Henri de Castries and Denis Duverne received (i) the second tranche of their deferred variable compensation for the 2015 fiscal year (i.e. an amount of €395,716 for Mr. Henri de Castries and €233,503 for Mr. Denis Duverne) and (ii) the first tranche of their deferred variable compensation for the 2016 fiscal year (i.e. an amount of €274,235 for Mr. Henri de Castries and €169,209 for Mr. Denis Duverne).
These LTIs represent an important part of their global variable compensation in order to associate the Group executives to the creation of long-term value. In this context, the number of LTIs granted is set so that the executives are between the median and the 3rd quartile of market references considering the total amount of the variable part (comprised of one part in cash and one part in LTIs). The Compensation & Governance Committee and the Board of Directors however ensure that the stock options and the performance shares granted to the Group executives and valued in accordance with IFRS standards are not disproportionate compared to the aggregate compensation, options and shares granted to the said executives.
The Board of Directors, upon recommendation of its Compensation & Governance Committee, decided that Mr. Denis Duverne, as Chairman of the Board of Directors shall not receive any stock options, performance shares or other long-term incentive during his term of off ice.
(b) The options and performance shares were granted to Mr. Thomas Buberl prior his appointment as the AXA Chief Executive Off icer. (c) This amount does not include the compensation received by Mr. Thomas Buberl in respect of his employee position for the period from January 1 to August 31, 2016 (i.e.
On June 21, 2017, the fair value of one option was €1.66 for options with performance conditions, and the fair value of one performance share was €15.91.
(a) This amount does not include the part of the variable compensation with respect to 2016 which has been deferred in accordance with the mechanism described on page 111 . (b) Director’s fees are deducted up to 70% from the variable compensation. (c) This amount does not include the compensation paid to Mr. Thomas Buberl in respect of his employee position for the period from January 1 to August 31, 2016 (€554,999 fixed compensation and €592,850 variable compensation).
The corporate off icers do not receive directors’ fees from AXA SA.
During the fiscal year 2017, the members of the Board of Directors, except for the corporate off icers, only received directors’ fees as compensation from the Company. The amount of directors’ fees paid to each AXA Board member is indicated in the table below.
At the Shareholders’ Meeting of April 25, 2018, shareholders of the Company will be asked to increase this amount to €1,900,000, i.e. an increase of 15%. This increase will be apportioned progressively so that the amount paid to each director would remain stable in the next years despite the increase in the number of directors due to the appointment of two directors representing the employees.
The total amount of directors’ fees is determined by the Shareholders’ Meeting, in accordance with applicable laws, and apportioned by the Board of Directors to its members in accordance with its Terms of Reference (in accordance with the recommendations of Afep-Medef Code, a minority part of the fees is distributed evenly among the members of the Board of Directors as a fixed fee): ■ a fixed amount determined by the Board of Directors shall be paid annually to the Senior Independent Director (set to €80,000); ■ 65% of the remaining amount shall be allocated to the Board as follows: 40% shall be divided equally among Board members and paid as a fixed fee and 60% shall be paid according to Board attendance; ■ the remaining 35% shall be allocated by the Board of Directors to the Board Committees as follows: 25% to the Finance Committee, 25% to the Compensation & Governance Committee and 50% to the Audit Committee. Each Committee shall then allocate such amount to its members as follows: 40% shall be divided equally among members and paid as a fixed fee and 60% shall be paid according to Committee attendance, with the Chairman of the Committee receiving in each case a double fee.
Mrs. Doina Palici-Chehab, member of the Board of Directors representing the employee shareholders of the AXA Group, received in 2017 an annual gross cash compensation of €634,047 (1) in connection with her position as Chief Executive Officer of AXA Insurance Pte Ltd. (Singapore) and AXA China Region Insurance Company Limited (Hong Kong). This compensation consists of €498,175 of fixed compensation and €135,872 of variable compensation.
Mrs. Suet Fern Lee and Mr. Ramon de Oliveira received in 2017, as Non-Executive Director of several companies of the Group, directors’ fees for a gross amount of €11,231 for Mrs. Suet Fern Lee, and USD 83,400 for Mr. Ramon de Oliveira.
Since 1989, AXA has granted stock options to its corporate off icers and its employees in France and abroad. The purpose of these grants is to associate them with AXA’s share price performance and encourage their performance over the long term.
Each year, the Board of Directors, upon recommendation of its Compensation & Governance Committee, approves the grant of a global option pool. The pool of options allocated to each operating business is essentially determined on the basis of their contribution to the Group’s financial results during the previous year and with consideration of specific local needs (market competitiveness, adequacy with local practices, specific regulatory frameworks, and support to Group development).
Beneficiaries and individual grants are determined taking into account the (i) criticality of the position within the organization, (ii) criticality of the individual in the current position and potential for future, (iii) sustainability of the individual contribution and
Usually, annual grants are made during the first half of the year. In 2017 the option grant took place on June 21, 2017. The strike price, equal to the average of the closing AXA share price during the 20 trading days before the grant date, was set at €23.92.
In 2017, 3,070,397 subscription or purchase options with a strike price of €23.92 were granted to 144 employees, representing 0.13% of the outstanding share capital as at December 31, 2017 (disregarding the dilution related to the potential future exercise of these options).
Furthermore, as from 2017, the Board of Directors decided that a new performance condition will apply to all the options granted, pursuant to which beneficiaries would not be able to exercise their stock options in the event the net income Group share is negative, and for as long as it remains.
Date of the Shareholders’ Meeting 20/04/2005 20/04/2005 20/04/2005 20/04/2005 20/04/2005 20/04/2005 20/04/2005 20/04/2005 20/04/2005 22/04/2008
Total number of shares to be subscribed (a) or purchased, from which to be subscribed or purchased by: 6,818,804 1,815,676 1,312,233 10,681 12,587 4,689 8,205 8,056,370 1,240,890 6,004
Corporate off icers: Start date of exercise 10/05/2009 10/05/2009 10/05/2009 24/09/2009 24/09/2011 19/11/2009 19/11/2011 01/04/2010 01/04/2010 19/05/2010
Exercise schedule of options 33% aft er 2 y 66% aft er 3 y 100% aft er 4 y 33% aft er 2 y 66% aft er 3 y 100% aft er 4 y 100% aft er 4 y 33% aft er 2 y 66% aft er 3 y 100% aft er 4 y 100% aft er 4 y 33% aft er 2 y 66% aft er 3 y 100% aft er 4 y 100% aft er 4 y 33% aft er 2 y 66% aft er 3 y 100% aft er4 y 100% aft er 4 y 33% aft er 2 y 66% aft er 3 y 100% aft er 4 y
Number of options exercised at 31/12/2017 0 0 0 0 0 0 0 3,828,918 545,980 0
Expiry date of options 19/05/2018 22/09/2018 22/09/2018 24/11/2018 20/03/2019 20/03/2019 02/04/2019 10/06/2019 10/06/2019 21/09/2019
Exercise schedule of options 100% aft er 4 y 33% aft er 2 y 66% aft er 3 y 100% aft er 4 y 100% aft er 4 y 100% aft er 4 y 33% aft er 2 y 66% aft er 3 y 100% aft er 4 y 100% aft er 4 y 33% aft er 2 y 66% aft er 3 y 100% aft er 4 y 100% aft er 4 y 33% aft er 2 y 66% aft er 3 y 100% aft er 4 y 100% aft er 4 y
Corporate off icers: Start date of exercise 08/12/2011 08/12/2013 19/03/2012 19/03/2012 18/08/2012 18/08/2014 13/10/2012 13/10/2014 22/12/2014 18/03/2013
Number of options exercised at 31/12/2017 0 3,656 4,435,754 118,733 15,846 6,458 2,274 7,121 5,582 4,704,130
Date of the Shareholders’ Meeting 22/04/2008 22/04/2008 27/04/2011 27/04/2011 27/04/2011 27/04/2011 23/04/2014 23/04/2014 26/04/2017
Grant date (Board of Directors or Management Board) 18/03/2011 04/04/2011 16/03/2012 13/06/2012 22/03/2013 24/03/2014 19/06/2015 06/06/2016 21/06/2017
Expiry date of options 18/03/2021 04/04/2021 16/03/2022 13/06/2022 22/03/2023 24/03/2024 19/06/2025 06/06/2026 21/06/2027
Subscription or purchase price of options (a) 14.73 14.73 12.22 9.36 13.81 18.68 22.90 21.52 23.92
Number of options exercised at 31/12/2017 62,948 243,390 2,861,837 76,089 1,763,719 313,684 0 0 0
(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. (c) In 2016, options were granted to Mr. Thomas Buberl prior to his appointment as AXA Chief Executive Off icer.
Chief Executive Off icer 21/06/2017 subscription or purchase 21/06/2027 100% of options: SXIP
Representative of employee shareholders to the Board of Directors 21/06/2017 subscription or purchase 21/06/2027
This value does not represent a current market value, a current valuation of these options, nor does the actual proceed if and when the options are exercised. On June 21, 2017, the fair value of one option was €1.96 for options without performance conditions and €1.66 for options with performance conditions.
Chief Executive Off icer 22/03/2013 subscription or purchase 17,332 13.81 22/03/2023 100% of options: SXIP index 24/03/2014 subscription or purchase 16,267 18.68 24/03/2024 100% of options: SXIP index
Chief Executive Off icer 22/03/2013 24/03/2014 20/12/2017 20/12/2017 - - - - - - - -
STOCK OPTIONS GRANTED AND/OR EXERCISED BY THE TOP 10 BENEFICIARIES (OUTSIDE THE CORPORATE OFFICERS) DURING 2017
Doina Palici-Chehab Representative of employee shareholders to the Board of Directors 53,119 -
Performance Shares are designed to recognize and motivate the Group’s best talents and critical skills by aligning the individuals interests with the overall performance of the AXA Group, of their operating business as well as with the stock performance of the AXA share in the medium-term (3 to 5 years). Performance Shares generally result in less shareholder dilution than stock options, due to the possibility to deliver existing shares, this choice being the one made up to this date.
Within the global cap authorized by the shareholders, the Board of Directors approves all performance share programs prior to their implementation.
The achievement rate of the performance indicators (“performance rate”) is used to determine the number of s hares, which will be definitively acquired by the beneficiaries at the end of the acquisition period, under the condition that the beneficiary is still employed by the AXA Group. The number of performance shares definitively granted shall therefore be equal to the number of performance shares initially granted multiplied by the performance rate, which may vary between 0% and 130%.
As from the 2016 grant, the performance of the operating business weighs for 50% of the total performance while the AXA Group performance weighs for 40%. For beneficiaries in Group functions (including AXA executive officers), the considered operating business is the AXA Group.
• 80% of the shares shall be granted if AXA’s score is equal to the seventy-fift h percentile,
Between these minimal and maximal performance levels, the number of shares definitely granted are calculated on a linear basis depending on the performance achieved; ■ one financial criterion of relative performance is meant to compare the growth of the total return of the AXA share (Total Shareholder Return – “TSR”) with the growth of the TSR of the stock reference index of the insurance sector (SXIP) in order to adjust upwards or downwards within the limit of 5 points the global performance rate. Thus, AXA’s outperformance (150% or more) compared to the SXIP index shall trigger a maximum increase of the global performance rate of 5 points (subject however to the upper limit of 130% of the global performance rate) and AXA’s under-performance (75% or less) compared to the SXIP index shall trigger a maximum decrease of 5 points of the global performance rate.
Between the different levels of performance listed above, the number of shares definitively granted to beneficiaries is calculated on a linear basis.
(1) The percentile represents the percentage of other companies included in the index which obtained a lower score.
Floor 100% of the average AEPS over the 3 years immediately prior to the grant date 50% Floor 80% of the performance required to reach the target
Operating Business Performance (50%) Average (Adjusted Earnings + Underlying Earnings) Capped at 130%
Outperformance 130% of the performance required to reach the target 130% Outperformance 130% of the performance required to reach the target
Calculation of the global performance rate = [40% Group Performance + 50% Operating Business Performance + 10% CSR criterion] +/-5 points according to AXA’s score vs a relative performance criterion (TSR)
As far as P erformance S hares are concerned: ■ the P erformance S hare grants are conditioned on a minimal 3-year acquisition period allowing the measurement of the performance determining the definitive grant of the shares over a longer period, i.e. at least 3 years; ■ shares acquired, under the condition that the beneficiary is still employed by the AXA Group, at the end of the acquisition period are restricted from sale during a 2-year period.
Total number of International Performance Shares granted 6,958,447 5,795,117 5,737,538 6,324,271 5,759,830 from which granted to: Corporate off icers: Acquisition date of the International Performance Shares 22/03/2016 24/03/2017 (b) 19/06/2019 06/06/2020 21/06/2021
Number of International Performance Shares acquired at 31/12/2017 6,653,980 (c) 2,644,621 7,863 (d) 421 (e) 4,528 (f)
Number of International Performance Shares cancelled 1,027,125 (g) 1,174,391 775,427 646,231 158,104
(a) In 2016, International Performance Shares were granted to Mr. Thomas Buberl prior to his appointment as AXA Chief Executive Off icer. (b) 50% of shares acquired on March 24, 2017 and 50% to be acquired on March 24, 2018. (c) 479 units of the March 22, 2013 plan acquired post acquisition date. (d) 7,863 units of the June 19, 2015 plan acquired by anticipation.
(e) 421 units of the June 6, 2016 plan acquired by anticipation. (f) 4,528 units of the June 21, 2017 plan acquired by anticipation.
Total number of Performance Shares granted 2,944,910 2,662,849 2,459,256 2,358,236 2,486,368 from which granted to: Corporate off icers: Acquisition date of the shares 22/03/2015 24/03/2016 (a) 19/06/2018 (b) 06/06/2019 21/06/2020 (c)
(b) One employee has chosen the 4+0 vesting calendar (aquisition on June 19, 2019 with no restricted period), based on the plan rules as he has moved out of France during the acquisition period.
(c) One employee has chosen the 4+0 vesting calendar (aquisition on June 21, 2021 with no restricted period), based on the plan rules as he has moved out of France during the acquisition period.
Chief Executive Off icer 21/06/2017 Performance Shares 100,526 0.004% 1,599,369 21/06/2020 21/06/2022 ajusted earnings per share ajusted earnings underlying earnings
Shares 8,700 0.000% 134,154 21/06/2021 21/06/2021 ajusted earnings per share ajusted earnings underlying earnings
Under the AXA Group Compliance and Ethics Guide, all employees (including the executive off icers of the Company) are prohibited from engaging in any transaction designed to hedge the value of equity-based compensation awards (stock options and performance shares) granted under any plan or arrangement maintained by AXA or any of its subsidiaries. This restriction applies from the date of grant until such time as the beneficiary receives the securities underlying the award upon, for example, the exercise of a stock option or the lapse of restrictions on performance shares. In accordance with the recommendations of the Afep-Medef Code, the executive off icers of the Company make a formal commitment to not resort to hedging transactions.
(a) The performance rate of 110% is composed of: 1/3 x 111% (Net income per share) + 2/3 x 109% (Underlying earnings and Net income, 50% of Norcee Region score 99% and 50% of Germany score 119%).
PERFORMANCE SHARES/INTERNATIONAL PERFORMANCE SHARES BECOMING UNRESTRICTED DURING 2017 FOR EACH CORPORATE OFFICER
Doina Palici-Chehab Representative of employee shareholders to the Board of Directors 24/03/2014 5,199 24/03/2017
AXA shares, ADS AXA or shares of listed Group subsidiaries, held directly or indirectly through Mutual funds or similar investment vehicles, are taken into account for the purposes of calculating this Minimum Shareholding Requirement.
Each concerned senior executive is required to meet this Minimum Shareholding Requirement within a period of 5 years as from the date of his/first appointment.
On December 31, 2017, based on the AXA share value on that date (€24.735), the Chief Executive Off icer meets his Minimum Shareholding Requirement such as described in the above Section “Share ownership policy for executives of the Group”.
Mrs. Doina Palici-Chehab 6,740 - * AXA shares which could be indirectly held through Mutual funds are not taken into account. (a) On January 16, 2018. (b) On January 5, 2018.
AXA Group mutual funds invested in AXA shares to other AXA Group mutual funds
Subscription to units of AXA Group mutual funds invested in AXA shares
Mr. Denis Duverne, who retired from his position as Deputy Chief Executive Off icer on August 31, 2016 and was appointed Chairman of the Board of Directors as of September 1, 2016, claimed his pension rights according to the collective defined benefit pension scheme as of September 1, 2016. However, Mr. Denis Duverne decided to waive payment of the annuities amounting to circa €750,000 per year before taxes and social security charges, until termination of his term of office as Chairman of the Board without any retroactive payment.
Since December 2016, AXA implemented a retirement performance shares plan which benefits to all executive employees (directeurs) of AXA Group entities in France including Mr. Thomas Buberl, AXA’s Chief Executive Off icer.
No shares will be acquired if the average ratio is below 150%. No minimum number of shares is guaranteed.
At the Company’s Board of Directors meeting on December 14, 2017, the Board of Directors approved a grant of retirement performance shares. Accordingly, 601,444 retirement performance shares were granted to 522 off icers, which represent 0.02% of the outstanding share capital on the date of the grant, of which 11,376 retirement performance shares were granted to AXA’s Chief Executive Off icer representing less than 2% of the total grant.
(b) Mr. Thomas Buberl is a beneficiary of the retirement performance shares plans. (c) Mr. Denis Duverne decided to waive payment of the annuities he is entitled to under the collective defined benefit pension scheme, until termination of his term of off ice as Chairman of the Board without any retroactive payment.
The initial amount of the severance benefit is equal to 12 months of the average compensation (fixed and variable) paid during the 24-month period preceding termination. One month should then be added to the initial amount of the severance benefit for each additional year of future service up to a maximum cap of 24 months.
Pursuant to Article L.225-42-1 of the French Commercial Code, further to AXA’s Board of Directors unanimous decision to propose to shareholders the renewal of Thomas Buberl as directors at AXA’s next Shareholders’ Meeting, these commitments will be again submitted to the approval of AXA’ Shareholders’ Meeting to be held on April 25, 2018.
The Compensation & Governance Committee is exclusively composed of independent members who exchange frequently with the Group’s management and the Internal Departments of the Company including Group Human Resources and Group Legal. The Committee is also empowered to undertake or commission specific reviews by external experts when deemed appropriate. Such reviews allow the Committee to benefit from a technical expertise and independent insights in comparing AXA’s compensation practices with market practice.
STRUCTURE AND CRITERIA FOR DETERMINATION OF THE CHIEF EXECUTIVE OFFICER’S COMPENSATION
In this context, the compensation policy for the Chief Executive Off icer is based on a pay-for-performance approach which (i) requires the achievement of challenging financial and operational targets that are defined and aligned with the Group’s strategy, (ii) promotes long-term sustainable performance while incorporating risk adjustment measures in performance metrics, and (iii) determines the eff ective amount of the actual individual compensation on the basis of both financial results and demonstrated individual leadership competencies.
The determination of the amount of the Chief Executive Off icer’s fixed compensation is based on an in-depth analysis of market practices as well as applicable national and international regulations. It also takes into consideration various other factors such as experience, technical skills, as well as criticality and scarcity of such skills, and the Group’s fairness principles or the individual’s compensation history.
The Board of Directors, relying in particular on a study carried out by an external advisory firm (Willis Towers Watson) regarding compensation practices for similar functions in a sample of CAC 40 companies and in the main European companies in the financial sector (insurance companies, banks), and upon recommendation of its Compensation & Governance Committee, decided to maintain unchanged, for 2018, the amount of the Chief Executive Off icer’s fixed annual compensation, at €1.45 million.
The determination of the actual amount of variable compensation to be paid to the Chief Executive Off icer will be based on the following formula: Amount of the variable compensation to be paid = [Target variable compensation * (Group performance * Individual performance)].
In order to give the Chief Executive Off icer a stake in long-term value creation, these LTIs represent an important part of his compensation. Therefore, the value of the allocated LTIs is determined in order to position the Chief Executive Off icer’s overall compensation (in cash and in shares) between the median and the 3rd quartile of market references.
Given the principles presented above and following an analysis of practices observed on the market for similar functions in CAC 40 companies of similar size and scope, the Board of Directors, upon proposal of its Compensation & Governance Committee, has decided that the total value of the LTIs to be granted to the Chief Executive Off icer during 2018, shall not exceed 150% of the amount of his annual variable compensation target.
The Chief Executive Off icer, who also is a member of the Board of Directors of the Company, is not entitled to payment of any directors’ fees from the Company.
Acquisition of the performance shares is subject to the satisfaction of a performance condition (the details of which are set out in Section 3.2. of the 2017 Annual Report), linked to the average AXA Group Solvency II ratio calculated over the vesting period. Therefore, no minimum grant or gain is guaranteed to the Chief Executive Off icer under this scheme.
The Board of Directors, upon recommendation of its Compensation & Governance Committee, has decided that the total value of the retirement performance shares to be granted to the Chief Executive Off icer during 2018 shall not exceed 15% of his cash fixed and variable annual compensation.
The Board of Directors, upon recommendation of its Compensation & Governance Committee, and in accordance with the recommendations set forth in the Afep-Medef Code, has considered that the most appropriate compensation structure for the Chairman of the Board of Directors would be the payment of a sole fixed compensation.
In determining the fixed annual compensation of its Chairman, the Board of Directors has consulted an external advisory firm (Willis Towers Watson) in order to identify compensation practices for similar functions in a sample of CAC 40 companies and in the main European companies in the financial sector.
The Board of Directors has also taken into account the extensive role it decided to entrust Mr. Denis Duverne with as Chairman of the Board of Directors. This role is presented in detail in the Board’s Terms of Reference as well as in Section 3.1 of the 2017 Annual Report and goes beyond the statutory duties of a Chairman under French law.
Accordingly, the Board of Directors has decided, upon recommendation of its Compensation & Governance Committee, to maintain the amount of the fixed annual compensation of the Chairman of the Board of Directors unchanged, for 2018, i.e. at €1.2 million.
In addition, the Board of Directors does not contemplate granting any exceptional compensation to the Chairman of the Board of Directors.
Finally, there is no employment contract between the Company and the Chairman of the Board of Directors and the Chairman is not entitled to any severance benefits or any allowance relating to any non-compete clause in the event that he ceases to be Chairman of the Board of Directors.
The only benefit in kind granted to the Chairman of the Board of Directors is the use of a company car.
For purposes of this report only, and in accordance with applicable regulations, the Board of Directors has also considered the hypothetical appointment of a new Chairman of the Board of Directors following the Shareholders’ Meeting to be held on April 25, 2018.
For information concerning related-party transactions, please see Note 28 “Related-party transactions” included in Part 5 “Consolidated Financial Statements” of this Annual Report.
In our capacity as Statutory Auditors of AXA we hereby submit our report on regulated agreements and commitments.
Furthermore, we are required, if necessary, to provide information, in accordance with Article R.225-31 of the French Commercial Code, on agreements and commitments previously approved by the Shareholders’ Meeting which remained in force.
AGREEMENTS AND COMMITMENTS AUTHORIZED SINCE THE YEAR ENDED DECEMBER 31, 2017
A severance benefit would be applicable, except in the case of gross or willful misconduct, solely in the event of dismissal or nonrenewal further to the Board of Directors’ decision. The payment of the severance benefit would be subject to the three following performance conditions as determined by the Board of Directors: (1) achievement, for at least 2 of the 3 preceding fiscal years, of the objectives set for the beneficiary’s variable compensation and corresponding to the payment of at least 60% of his variable compensation target, (2) evolution of the AXA share price at least equal to the stock reference index of the insurance sector (SXIP) (in
percentage) over a 3-year period preceding the termination of the term of off ice, and (3) the average consolidated adjusted Return On Equity over the 3 preceding years higher than or equal to 5%.
The initial amount of the severance benefit shall amount to 12 months of the average compensation (fixed and variable) paid during the 24-month period preceding termination. One month should then be added to the initial amount of the severance benefit for each additional year of future service up to a maximum of 24 months.
In accordance with Article L.225-42-1 of the French Commercial Code and in the context of the reappointment of Mr. Thomas Buberl by the Shareholder’s Meeting of April 25, 2018, this severance benefit commitment has been authorized by the Board of Directors of February 21, 2018 and will be submitted again for approval to the Shareholder’s Meeting of April 25, 2018.
In accordance with Article R.225-30 of the French Commercial Code, we were advised of the following commitments and regulated agreements, approved during previous fiscal years, which remained in force during the past fiscal year.
The Supervisory Board was concerned that the decision of Mr. Duverne to renounce his employment contract, in accordance with the Afep-Medef recommendations, would not jeopardize the continuity of his accrued and future social benefits.
Risks related to the ownership of the Company’s shares 154 4.2 INTERNAL CONTROL AND RISK MANAGEMENT 155
Focus on main market risks and sensitivity analyses 171 4.4 CREDIT RISK 175
Risk control and risk mitigation 179 4.7 OPERATIONAL RISK 183 4.8 OTHER MATERIAL RISKS 184
Adverse business and market conditions as well as accounting rules may impact the amortization of our Deferred Acquisition Costs (“DAC”), Value of Business In-force (“VBI”) and other intangibles and/or reduce deferred tax assets and deferred policyholders participation assets, which could materially aff ect our results of operations and financial statements
Certain of our investment assets, for which there is no active trading market or other observable market data, are valued using models and methodologies that involve estimates, assumptions and significant Management judgment. During periods of market disruption, a larger portion of our investment assets may be valued using these models and methodologies as a result of less frequent trading or less observable market data with respect to certain asset classes that were previously actively traded in liquid markets. There can be no assurance that our valuations on the basis of these models and methodologies represent, for example, the price for which a security may ultimately be sold or for which it could be sold at any specific point in time. The choice of models, methodologies and/or assumptions may have a material impact on the estimated fair value amounts and could have a material adverse eff ect on our results of operations and financial condition.
Accordingly, during periods of declining interest rates or a prolonged period of low interest rates, our profitability may suff er as the result of a decrease in the spread between interest rates credited to insurance policyholders and annuity contract owners and the rates we are able to earn on our fixed-income investment portfolio. In addition, certain regulatory capital and reserve requirements are based on formulas and models that consider interest rates, and an extended period of low interest rates may increase the regulatory capital we are required to hold (including as a result of a lower solvency ratio) and the amount of assets we must maintain to support our reserves.
Conversely, in periods of increasing interest rates, the estimated fair value of certain of our fixed-income investments may decrease, which could negatively impact our solvency ratio and net income; surrenders of life insurance policies and fixed annuity contracts may accelerate, as policyholders seek higher returns, which may cause us to accelerate amortization of deferred policy acquisition costs or to liquidate fixed maturity investments in order to obtain liquidity to satisfy such obligations, which may result in realized investment losses; our fee income may decrease due to a decline in the value of v ariable a nnuity account balances invested in fixed income funds; and we may be required, as an issuer of securities, to pay higher interest rates on debt securities, debt and bank facilities, which may increase our interest expenses.
Our exposure to credit spreads primarily relates to market price and cash flow variability associated with changes in credit spreads. A widening of credit spreads will generally reduce the value of fixed income securities we hold (including credit derivatives where we assume credit exposure) and increase our investment income associated with purchases of new fixed income securities in our investment portfolios. Conversely, credit spread tightening will generally increase the value of fixed income securities we hold and reduce our investment income associated with new purchases of fixed income securities in our investment portfolios.
Fluctuations in currency exchange rates may significantly aff ect our results of operations, financial position, liquidity and solvency
We are subject to inflation risk in certain of our principal markets through our holdings of fixed interest and other instruments, and as a result of the potential for claim payments (particularly in relation to “long-tail” risks underwritten by our Property & Casualty businesses) and expenses to rise faster than anticipated in our reserving and pricing assumptions.
Downgrades in our insurer financial strength and credit ratings could adversely impact our competitive position and damage our relationships with creditors or trading counterparties
Insurer financial strength and credit ratings are important factors used by the market and customers in establishing the competitive position of insurance companies and in assessing our claims-paying ability. Rating agencies review their ratings and rating criteria and methodologies on a recurring basis, and may change their ratings at any time. Consequently, our current ratings may not be maintained in the future. A downgrade or the potential for a downgrade in our ratings could have an adverse eff ect on us, including (i) damaging our competitive position, (ii) negatively impacting our ability to underwrite new insurance policies, (iii) increasing the levels of surrenders and termination rates of our in-force policies, (iv) increasing our reinsurance cost, (v) negatively impacting our ability to obtain financing and/or increasing our cost of financing, (vi) harming our relationships with creditors or trading counterparties and/or (vii) adversely aff ecting public confidence in us. Any of these developments could have a material adverse eff ect on our business, liquidity position, results of operations, revenues and financial condition.
In our Life & Savings businesses, our earnings depend significantly upon the extent to which our actual claims experience is consistent with the assumptions we use in setting the prices for our products and establishing the liabilities for obligations for technical provisions and claims. In certain cases, product features such as minimum guarantees or options to swap between underlying funds in certain savings products may with time result in higher realized losses than anticipated in initial assumptions. In particular, assessing the impact of minimum guarantees which are contained within certain of our Variable Annuity products, such as Guaranteed Minimum Death Benefits (GMDB), Guaranteed Minimum Accumulation Benefits (GMAB), Guaranteed Minimum Income Benefits (GMIB) and Withdrawal for Life Benefits (GMWB), and the adequacy test performed on the reserves for life policies (which encompasses the recoverability of DAC, Value of Business In-Force and deferred participation assets) involves a significant degree of M anagement judgment. While we use both our own experience and industry data to develop products and to estimate future policy benefits, including information used in pricing the insurance products and establishing the related actuarial liabilities, there can be no assurance that actual experience will match these estimates and that emerging risks would not result in loss experience inconsistent with our pricing and reserve assumptions.
Historically, Property & Casualty insurers have experienced significant fluctuations in operating results due to volatile and sometimes unpredictable developments, many of which are beyond the direct control of the insurer, including competition, frequency or severity of loss events, levels of underwriting capacity by r egion or product line, general economic conditions and other factors. Changes in customer expectations for appropriate premium levels, the frequency or severity of claims or other loss events, or other factors affecting the p roperty & c asualty insurance business may have an adverse eff ect on our results of operations and financial condition.
In addition, legislative initiatives regarding climate change may affect our operations and those of our counterparties, and potentially limit our investments or affect their value, as certain companies struggle to adapt to these regulations. These may include (i) new investment requirements and/or (ii) new disclosure requirements, similar to the ones imposed by French Law no. 2015-992 on “energy transition for green growth” (transition énergétique pour la croissance verte) or future legislation resulting from the adoption of initiatives from the Financial Stability Board’s Taskforce on Climate-Related Financial Disclosures. Notably, Article 173 of Law no. 2015992, which applies to us as of January 1, 2016, requires for institutional investors such as AXA to include in their Annual Report a description of how their investment policies take into consideration social, environmental and governance objectives, and contribute to the transition to a low-carbon economy. These and similar regulatory requirements, as well as any further regulations regarding energy transition or our energy-related investments, could increase our compliance costs and adversely aff ect our business or the value of our investments. For further information on investment-related climate risk analysis, please refer to Section 7.4 “Responsible Investment, “Article 173”/ Climate-related Financial Disclosures (TCFD)” of this Annual Report.
We conduct businesses in highly competitive environments with evolving trends that could adversely impact our results of operations and financial condition
In certain cases, however, we may not be able to apply these techniques to eff ectively hedge our risks as intended or expected or may choose not to hedge certain risks because the derivative markets in question may not be of suff icient size or liquidity, the cost of hedging may be too expensive (as a result of adverse market conditions or otherwise), the nature of the risk itself may limit our ability to eff ectively hedge or for other reasons. This may result in higher realized losses and unanticipated cash needs to collateralize or settle transactions. Hedging counterparties may fail to perform their obligations, resulting in unhedged exposures and losses on positions that are not collateralized. Furthermore, the operation of our hedging program is based on models involving numerous estimates and management judgments, including among others, mortality, lapse rates, election rates, volatility and interest rates and correlation among various market movements. Our hedging program may change over time and there can be no assurance that actual experience will not diff er materially from our assumptions, which could adversely impact our results of operations and financial condition.
Certain risks under the minimum guarantees and under other contracts and policies issued by AXA US are currently reinsured by AXA RE Arizona Company (“AXA RE Arizona”) an indirectly wholly owned captive reinsurer subsidiary of AXA US, which hedges these risks using the techniques described above. In addition, in connection with the proposed initial public off ering of a minority stake in the common stock of AXA Equitable Holdings, Inc., a portion of the business currently reinsured to AXA RE Arizona will cease being reinsured by AXA RE Arizona and will instead be transferred to and reinsured by a newly formed captive insurance company. In the event AXA RE Arizona or any other such captive reinsurer subsidiary were not able to post required collateral or cash to settle the above-mentioned hedges when due, they may be required to reduce the size of their hedging programs, which could ultimately impact their ability to perform under the reinsurance arrangements and AXA US’s ability to receive full statutory reserve credit for such reinsurance arrangements.
In addition, the National Association of Insurance Commissioners (“NAIC”) and various state regulators continue to consider additional regulations relating to the use by insurance companies of captive reinsurers, like AXA RE Arizona, as part of their capital management strategy. If state insurance regulators were to restrict the use of such captive reinsurers or impose additional capital requirements or if AXA US otherwise is unable to continue to use a captive reinsurer, the capital management benefits received by AXA US under such reinsurance arrangements could be adversely aff ected which could have a material adverse eff ect on AXA US’s business, results of operations or financial condition.
The failure to respond eff ectively to various emerging technological changes may aff ect our business and profitability
An ongoing challenge we face is the eff ective adaptation to a constantly changing technological landscape. If we are not eff ective in anticipating the impact on our business of changing technologies, such as driverless cars, drones, connected devices, artificial intelligence or roboadvisors our ability to successfully operate our business may be impaired. Technologies that facilitate ride or home sharing could disrupt the demand for our products from current customers, create coverage issues or impact the frequency or severity of losses. These changes could also aff ect our ability to accurately price our products and might significantly aff ect our margins in certain lines of business. For example, the advent of driverless cars, connected devices and usage-based insurance could materially alter the way that automobile, health or other p ersonal lines insurance is marketed, priced and underwritten. In addition, the market for coverage for so-called “cyber risks” or similar emerging threats is a rapidly evolving one, and any failure by us to provide innovative products relative to our competitors or new entrants in the market may result in a competitive disadvantage.
Furthermore, if we are unable to eff ectively use and update or replace our key technology systems as they become obsolete or as emerging technology renders them competitively ineff icient, or if we fail to develop the talent and skills of our human resources to meet the new technological challenges, and to attract and assimilate new talents into our Group consistent with our business goals, our business, prospects, competitive position and financial condition could be adversely aff ected.
Inadequate or failed processes or systems, human factors or external events including hacking or other cyber-security risks may adversely aff ect our profitability, reputation or operational eff ectiveness
Our business is highly dependent on the effective operation of our telecommunications, electronic data, information technology and other operational systems. We rely on these systems to perform necessary business functions, including providing insurance quotes, processing applications and claims, providing information and support to customers and distributors, administering complex products, conducting actuarial analyses and keeping financial records. We also use computer systems to store, retrieve, evaluate and utilize customer, employee and company data and information, including proprietary and confidential information. Some of these systems, in turn, rely, on third-party systems.
Interruptions or disruptions of our telecommunications and electronic data systems, or those of our third-party providers (including third-party providers deemed critical to our principal activities) , or a failure to maintain the security, confidentiality or privacy of sensitive data residing on such systems, could also potentially result in financial loss, impairment to our liquidity, a disruption of our businesses, legal claims, regulatory sanctions or damage to our reputation. Notwithstanding the measures we take to manage such risk, operational risk is part of the business environment in which we operate and we may incur losses from time to time due to these types of risks.
As a holding company, we are dependent on our subsidiaries to cover our operating expenses and dividend payments
Regulatory and other legal restrictions may limit our ability to transfer funds freely, either to or from all our subsidiaries. In particular, our principal insurance subsidiaries are subject to restrictions on the amount of dividends and debt repayments that can be paid to us and our aff iliates. Moreover, our designation as a Global Systemically Important Insurer (“GSII”) by the Financial Stability Board, in consultation with the International Association of Insurance Supervisors (“IAIS”) and national authorities, could impose similar or other restrictions on the transfer of funds, including intra-group financing arrangements, which could negatively impact the fungibility of our capital. These factors may adversely impact our liquidity position and capacity to pay dividends.
We may, from time to time, retain insurance or reinsurance obligations and other contingent liabilities in connection with our divestiture, liquidation or run-off of various businesses. We may also, from time to time and in the course of our business provide guarantees and enter into derivative and other types of off -balance sheet transactions that could result in income statement charges.
External growth by acquisition involves risks that could adversely aff ect our operating results, including the substantial amount of management time that may be diverted from normal business to pursue and complete acquisitions. Our acquisitions could also result in the incurrence of additional indebtedness, costs, contingent or unforeseen liabilities and impairment and amortization expenses relating to goodwill and other intangible assets, all of which could materially adversely aff ect our business, financial condition and growth. We may also face diff iculties or delays in managing and integrating the operations and personnel we acquire which, in turn, may cause us to lose key employees and/ or customers of the acquired companies.
Most recently, on March 5, 2018 AXA entered into an agreement to acquire XL Group Ltd (“XL Group”), subject to approval by XL Group’s shareholders, receipt of certain regulatory approvals and other customary closing conditions.
The designation of the AXA Group as a GSII, and the policy measures for GSII contemplated by IAIS, could have far reaching regulatory implications for the AXA Group and may adversely impact our capital requirements, profitability, the fungibility of our capital, our ability to grow through acquisition and our overall competitive position as compared to insurance groups that are not designated as GSIIs. In addition, the multiplicity of diff erent regulatory regimes, capital standards and reporting requirements resulting from our GSII designation and/or work on new capital standards led by the IAIS such as the Insurance Capital Standard (“ICS”) could increase operational complexity and costs.
In addition, the applicable accounting standards, particularly IFRS as developed by the International Accounting Standards Board (“IASB”), are in a state of constant evolution, and the resulting changes could significantly impact insurers and other financial institutions, including AXA, that prepare their consolidated accounts in accordance with IFRS. In particular, IFRS 17, which will replace IFRS 4, may significantly aff ect the accounting treatment of policyholder liabilities. Given the interaction between financial assets and technical insurance liabilities, entities issuing insurance contracts within the scope of IFRS 4 may, under certain criteria, defer the implementation of IFRS 9 until the eff ective date of IFRS 17, but no later than
January 1, 2021. The Group is eligible for this temporary exemption and intends to apply it. Management is currently assessing the impact of the adoption of these new standards. Any significant modifications to IFRS may adversely impact the Company’s results of operations.
We have been named as defendants in numerous lawsuits (both class actions and individual lawsuits) and involved in various regulatory investigations and examinations and may be involved in such proceedings in the future. Certain of these lawsuits and investigations seek significant or unspecified amounts of damages, including punitive damages, and certain of the regulatory authorities involved in these proceedings have substantial powers over the conduct and operations of our business. The introduction of a class action system in France in 2014 and similar developments in certain other European jurisdictions have, and are likely to continue to, increase litigation risks and costs. Due to the nature of certain of these lawsuits and investigations, we cannot estimate the potential losses or predict with any certainty the potential impact thereof on our business, financial condition, results of operations or reputation.
Data collection, transfer and protection are critical to the operation of our business. Regulations in this area are quickly evolving in the European Union, which could adversely aff ect our business if we fail to timely adapt our rules and strategy to the emerging regulatory environment.
insurance aff iliates based in the United States. While we currently anticipate that we can continue using such mechanisms to transfer data into the United States, there is no guarantee that such mechanisms will not be subject to challenge or to stricter scrutiny by the competent authorities or that further changes in the regulation will not potentially increase our legal and compliance costs, or result in regulatory sanctions or damage to our image, brand or reputation.
As a global company operating in numerous jurisdictions, we are subject to various tax regimes and regulations. Changes in tax laws, including the U.S. Foreign Account Tax Compliance Act (FATCA) withholding requirements and the introduction of the Common Reporting Standard (CRS) across a multitude of jurisdictions in which the Group does business, could result in higher tax expenses and payments and are expected to result in higher compliance costs. In particular, the recently enacted U.S. Tax Cuts and Jobs Act (the “U.S. Tax Act”) has introduced substantial changes to the U.S. tax system, including a reduction of the statutory rate of U.S. federal corporate income tax to 21% eff ective January 1, 2018, as well as a repeal of the corporate
While the reduction in the statutory U.S. federal rate may positively impact AXA US’s future post-tax earnings, the ultimate impact of the U.S. Tax Act is subject to the eff ect of other complex provisions (including the Base Erosion and Anti-Abuse Tax (“BEAT”)), which M anagement is currently reviewing, as well as a number of internal system and process changes. It is possible that any impact of BEAT could reduce the benefit of the reduction in the statutory U.S. federal rate and, due to the uncertain practical and technical application of many of these provisions, it is currently not possible to reliably estimate how the U.S. Tax Act will impact the Group. Initial indications are that the reform positive ly impacts the Group on a recurring basis, and moreover resulted in a one-off positive impact of €288 million in 2017 due in particular to a re-evaluation of deferred tax liabilities through P&L under IFRS. It should be noted, however, that through equity, the U.S. Tax Act should have a negative one-off impact, since the U.S. was in a net DTA position at year-end 2017.
Overall, we expect the U.S. Tax Act to have a net positive economic impact on the Group. We continue to evaluate this new and complex piece of legislation, assess the magnitude of the various impacts, and monitor related potential regulatory changes.
Uncertainties in the interpretation or future developments of tax regimes, such as the U.S. tax system following the enactment of the U.S. Tax Act, may aff ect our tax liability, return on investments and business operations. We have been and may increasingly become exposed to the risk of tax audits and investigations in the various jurisdictions in which we operate. The international tax environment continues to change as a result of actions taken by the Organisation for Economic Co-operation and Development (OECD), the European Union and national governments intended to address concerns over perceived international tax avoidance techniques. We take tax positions that we believe are correct and reasonable in the course of our business. However, there is no guarantee that our tax positions will be upheld by the relevant tax authorities. Our business operations, results, financial position, liquidity, outlook or reputation could be materially aff ected if one or more of the aforementioned risks materialized.
In order to manage these risks, the Group has put in place a comprehensive system of internal control and Risk Management designed to ensure that executives are informed of significant risks on a timely and continuing basis and have the necessary information and tools to appropriately analyze and manage these risks, and that the Consolidated Financial Statements and other market disclosures are timely and accurate.
The three lines of defense are: (1) This information is not required under IFRS and as such is not part of the Consolidated Financial Statements. Therefore, it is not covered by the report of the Statutory Auditors on the Consolidated Financial Statements.
Responsibilities Owners 1st line of defense responsible for day-to-day risk and control management and decision-making
responsible for developing, facilitating and monitoring an eff ective risk and control framework
The Group’s Chief Executive Off icer, the Group’s Chief Financial Off icer and the Group General Secretary, who, under Solvency II, are deemed to be “persons who effectively run” the Group, and the key functions holders must fulfil the requirements for a fit and proper assessment, as set in the Group’s internal procedure, adopted in compliance with the requirements of Solvency II regulation. Following this procedure, the Group has implemented regular assessments to ensure that the persons who eff ectively run the Group and key function holders meet the following requirements both at appointment and on an ongoing basis: ■ appropriate competence and capability, taking into account professional qualifications, training, knowledge and relevant experience (such as prior Board or Board Committee membership) including understanding of regulatory requirements to enable sound and prudent management (fit); and
Furthermore, appointment of each person who eff ectively runs the Group and each key function holder at Group level is required to be notified to the French Autorité de contrôle prudentiel et de résolution (“ACPR”), through a formal process, including submission of a detailed questionnaire addressing the fitness and propriety of such person, as well as detailed background information. Solvency II also requires the implementation of procedures whereby the key function holders at Group level must have direct access to the Board of Directors.
The Board of Directors has established three Committees to assist it in fulfilling its responsibilities: an Audit Committee, a Finance Committee and a Compensation & Governance Committee. The Audit Committee and the Finance Committee play a major role in the Group’s overall internal control environment, notably when reviewing internal control and Risk Management related issues.
The Audit Committee (i) considers the Group’s internal control systems and procedures for Risk Management with a view to obtaining reasonable assurances as to their eff ectiveness and consistent application, and (ii) monitors the Group’s major risk exposures (insurance and operational), the results of the risk assessments performed, and the steps management has taken to monitor that such exposures remain within the risk appetite set by the Group.
The Finance Committee examines the impact on capital and solvency at Group level of the main orientations and limits of the Asset-Liability Management (“ALM”) policy; and reviews the risk appetite framework developed by the Executive Management for financial, insurance and operational exposures.
The Solvency II Committee, co-chaired by the Group Chief Risk Off icer and the Group Chief Financial Off icer, is in charge of (i) steering the overall AXA Group Solvency II framework, (ii) implementing the governance and validation of the Internal Model, and (iii) reviewing the Solvency II developments. The Solvency II Committee is also responsible to monitor the current development in systemic risk and to review the documentation required from the Group in light of its Global Systemically Important Insurer (GSII) status.
Group Risk Committees are supported by local Risk Committees to ensure consistency in the implementation of the Enterprise Risk Management (“ERM”) framework.
As an integrated part of all the Group’s business processes, GRM is also responsible for the definition and implementation of the ERM framework within the AXA Group.
The ERM framework is based on the following five pillars, cemented by a strong risk culture: Risk Management independence & comprehensiveness
2. Common risk appetite framework: Chief Risk Off icers are responsible for ensuring that senior management reviews and approves the risks to which the relevant entity or business unit is exposed, understands the consequences of an adverse development in such risks, and have action plans that can be implemented in case of unfavorable developments.
5. Proactive Risk Management: Chief Risk Officers are responsible for early detection of risks. This is ensured through challenge of and constant dialogue with the relevant business, and supported by the AXA Group’s emerging risks management framework.
GRM oversees the operating entities’ adherence to the ERM, supported by the local Risk Management teams. It coordinates Risk Management for the Group, steers the Local Risk Management Departments and strives to develop a risk culture throughout the Group.
The Risk Management function at Group level has been further reinforced since December 1, 2017 with the decision to create a Group Insurance Office (“GIO”) which reports to the Group Chief Risk Off icer and gathers Life & Savings, Health & Protection and Property & Casualty business experts in charge of promoting technical excellence and ensuring compliance with Group insurance guidelines and standards. In addition, a new reinsurance structure has been created (AXA Global Re) which also reports to the Group Chief Risk Off icer. Its main mandate is to contribute to the protection of the Group through the centralization of the Group’s purchasing of reinsurance. For additional information on the reinsurance strategy, please see Section 4.6 “Insurance Risks” of this Annual Report (1).
The Group Compliance function is responsible for advising Executive Management and the Board of Directors on applicable compliance laws, regulations and administrative provisions, and on the impact of major changes related to the regulatory evolution applicable to AXA Group’s operations. The Group Compliance function provides expertise, advice and support to the various entities of the Company to assess situations and significant compliance matters, analyze the major compliance risks and contribute to design solutions to mitigate those risks to which the Group is exposed. The Group Compliance function manages a wide range of compliance related matters including (i) financial crime matters (which include anti-corruption, antibribery, anti-money laundering programs as well as international sanctions/embargo compliance), (ii) data privacy, (iii) the
Compliance & Ethics Guide, (iv) the monitoring of other major compliance and regulatory risks, and (v) regular reporting of significant compliance and regulatory matters to Executive Management and regulators.
The Group Compliance Chief Off icer reports to the Group Deputy Chief Executive Off icer (“Directeur Général Adjoint”) & General Secretary.
In 2017, AXA Group Compliance reviewed and submitted to the Audit Committee and the Board of Directors a revised Compliance Policy. The updated policy is in force since January 1, 2018 and defines the responsibilities, scope, competencies and reporting duties of the compliance function as required by the Solvency II regime. The Compliance Policy also describes the responsibilities of the Group Compliance function in terms of risk identification, advice and monitoring activities.
The Group Compliance function undertakes an annual Compliance Risk Assessment exercise via which entities are required to identify the most significant compliance risks to which they are exposed. Based on this assessment, an Annual Compliance Plan is developed for the following year.
The Group Compliance function has implemented a number of monitoring processes. For example, the Compliance Support and Development Program (CSDP) which is an ongoing program of structured on-site Compliance reviews conducted by the Group Compliance Department to AXA Group Companies worldwide. The main purpose of these reviews is to measure adherence to the Group Standards and Policies, to define improvement action plans, to provide experienced advice and to rate the entity’s maturity level against other Group companies. This program was introduced in 2009 using a risk-based approach.
Compliance Risk Assessment, and any other significant issues that require escalation.
To further strengthen its control environment, the AXA Group established in 2017 a centralized Internal Control function within the second line of defense independent from business operations. Group Head of Internal Control is reporting to the Group Head of Operational Risk and Internal Control. Group Internal Control is responsible for the development of a standardized methodology and framework for internal control and for oversight of its implementation in the AXA’s subsidiaries Group. For more information on the internal control at local level, please refer to the paragraph “Risk Management and internal control at local level” below.
The Group’s Internal Audit function provides the Group Audit Committee and the Group’s Management Committee with independent and objective assurance on the eff ectiveness of internal control and Risk Management across the Group.
The Global Head of Internal Audit has a direct reporting line directly to the Group Audit Committee Chairman.
Group Internal Audit sets an annual plan of work, based on an assessment of both the inherent risk and the adequacy of controls as well as consideration of the audit cycle. The plan is formally approved and its performance formally monitored by the Group Audit Committee.
Chief Executive Off icers are required to certify annually to the Group Chief Executive Off icer that to the best of their knowledge their entities comply with the Standards. Entity Boards must be
formally informed of the Annual Certifications, together with any material breaches, areas of non-compliance and corresponding mitigation plans in order to monitor progress of remedial actions.
Risk Management: Risk Management is a local responsibility, in accordance with GRM standards and guidelines. The roles and responsibilities of local Risk Management teams are validated jointly by the Executive Committees of local entities and the Group’s Chief Risk Off icer to ensure a better alignment of central and local interests.
The minimum missions required for local Risk Management teams are: ■ coordinating the second line of defense locally (which covers among others Compliance, Security) through a specific system of governance framework; ■ ensuring that the risk appetite is implemented with respect to all risks consistently with the Group’s risk appetite, with enhanced reporting, risk limits and decision processes; ■ providing a second opinion on key processes, such as the definition of characteristics for new products before launch, reserves, ALM studies & asset allocation and reinsurance strategies; ■ with respect to the Internal Model, local Risk Management teams are responsible for checking the adequacy of the local risk profile, and for implementing, testing and validating the Internal Model.
Local Chief Risk Off icers head the local Risk Management teams within each operational entity, and report both to their local Chief Executive Off icer and to the Group Chief Risk Off icer. They are independent from Operations and Internal Audit Departments. Local Chief Risk Off icers regularly report to the local Board of Directors (or to a sub-Committee) on Risk Management matters.
In that context, the Group has implemented a comprehensive program, managed by PBRC, entitled Internal Financial Control (“IFC”), to ensure that the Group Chief Executive Off icer has a reasonable basis to conclude that AXA Group’s ICOFR is eff ective as of the end of each financial year.
The IFC program is based on the Group’s IFC Standard, which is an internal control and governance standard based on the “Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). It is designed to define the IFC scope and governance, ensure consistency and quality in AXA Group’s financial reporting, and provide an overall framework for the annual IFC program.
4. Chief Financial Off icer Sign-Off Certificates on notes to the Consolidated Financial Statements: PBRC provides Chief Financial Officers with the contribution of the entities under their responsibility to the Consolidated Financial Statements in order to facilitate their certification on the accuracy and completeness of the information in the Registration Document of the Group.
Under Solvency II, the Group and certain of its subsidiaries (i.e. all insurance entities in the European Economic Area and insurance entities outside the European Economic Area that are within the scope of the Internal Model) are each required to produce an ORSA report which is filed with the applicable national supervisor. At Group level, the Group Chief Risk Off icer is responsible for developing the ORSA policy, implementing the ORSA process and coordinating the ORSA reporting.
Beyond the annual ORSA report, a quarterly assessment is performed to update the Group’s risk profile against Risk Appetite limits and adapt management actions accordingly. This information is reported to the ARCC which regularly reviews all material audit, risk and compliance issues faced by the Group.
ORSA encompasses processes to identify, assess, monitor, manage and report the short to medium term risks to which the Group is exposed and to ensure the adequacy of the level of own funds within the Group solvency targets, taking into account the Group’s risk profile, approved risk appetite limits and business strategy. As an important component of the Risk Management system, it is intended to give a comprehensive and complete vision of the risks embedded in the businesses of the Group.
ORSA mainly encompasses Risk Management and financial activities, which are organized around the following processes: ■ Solvency Capital Requirement & Available Financial Resources (AFR) calculation; ■ liquidity risk reporting; ■ strategic planning and financial projections; ■ risk appetite process; ■ stress and scenario testing analysis and monitoring; and
For more information on regulatory and capital requirements applicable to the Group, including the Solvency II regime, please refer to Section 6.3 “General Information – Regulation and Supervision” of this Annual Report.
The Group has developed a robust economic capital model since 2007. This model has been used since 2009 in its Risk Management system and decision-making processes. On November 17, 2015, the Group received approval from the ACPR to use its Internal Model to calculate its Solvency Capital Requirement under Solvency II. The Internal Model encompasses the use of AXA Group economic capital model on all material entities, except AXA US which is considered in equivalence. The Group continues to review regularly the scope, underlying methodologies and assumptions of its Internal Model and will adjust its Solvency Capital Requirement accordingly. Any major changes to the model will have to be approved by the ACPR who may require further adjustments to the level of Solvency Capital Requirement. In addition, the Group monitors the work program of the European Insurance and Occupational Pensions Authority (EIOPA) which, through its objectives, is also expected to continue to carry out consistency reviews of the European insurer’s (internal) models and any such reviews may lead to regulatory changes or supervisory guidance to increase convergence and to strengthen oversight of cross-border groups.
The Group’s main goal in using its Internal Model as opposed to the standard formula is to better reflect the Group’s risk profile in its Solvency Capital Requirement. This is reflected through several objectives: ■ taking into account local specificities – The Group is a global company, and caters to a wide range of insurance markets with a variety of products off ered targeting certain demographics and with diff ering risk exposures. It is therefore appropriate, to the extent possible, to calibrate stresses specific for these risk profiles and to allow for the benefits of diversification of risks which arise as a result of being spread over these markets; ■ addressing shortcomings inherent to the standard formula – Based on its expertise, the Group can improve on the approach of the standard formula, which is naturally constrained by its general scope and which does not cover all measurable risks, and have models more appropriate to the scope of the Group; and
The Group risk grid (1) aims to identify all material risks applicable to the Company’s insurance businesses. The Internal Model is intended to capture all material risks to which the Group is exposed from the risk assessment performed at sub-risk level to the overall aggregation of risk categories.
The Solvency Capital Requirement, calculated on the basis of the Internal Model, represents the value at risk of Group Available Financial Resources at the 99.5th percentile over a one-year horizon. In other words, the Solvency Capital Requirement is the capital needed to sustain an extreme shock likely to occur with a 0.5% probability. It strives to include all measurable risks (market, credit, insurance and operational) and reflects the Group’s diversified profile.
In addition to the risks that result in a Solvency Capital Requirement through the Internal Model calculation, the Group also considers liquidity risk, reputation risk, strategic risk and regulatory risks as well as emerging threats.
(2) The Solvency II ratio is estimated based on the Internal Model calibrated based on adverse 1/200 year shock and assuming US equivalence. The Solvency II ratio will be finalized prior to the publication of AXA’s Solvency and Financial Condition Report (SFCR) .
In addition to the Solvency Capital Requirement assessment, which intends to cover all quantifiable risks to which the Group is exposed (insurance, financial, and operational risks), AXA Group performs sensitivity analyses of its solvency ratio to material risks and events.
These analyses quantify, for instance, the potential impact on the AXA Group Solvency ratio of (i) financial shocks on corporate bond and sovereign spreads, on interest rates, and on equity; (ii) a wide range of shocks reflecting historical stress events (such as the 2008-2009 financial crisis, the 2011 financial crisis, the 1918 Spanish flu and the 1999 Lothar & Martin storms).
At Group level, the Internal Model is reviewed, tested and approved on an ongoing basis by the Solvency II Committee. The Solvency II Committee is supported by risk technical working groups reviewing changes proposed to the Internal Model and presenting conclusions of these diligences to the Solvency II Committee. The Solvency II Committee also reviews the Internal Model validation and model change processes, and liaises with local governance. It also reviews the conclusions of the regular validation activities.
These tasks are performed mostly within the Risk Management Departments in charge of the model, through controls and validation activities using validation tools such as sensitivity tests, back testing, scenario testing, and stability analysis and any other relevant activity.
The independent reviews are performed by the following two internal teams: ■ IFC teams, at local and Group level, responsible for assessing the eff ectiveness of internal control framework over Solvency II, on the basis of the testing of processes and controls over the AFR and STEC, at least annually; and
Both IMR and IFC are fully independent from the development, the governance and the processing of the Internal Model.
The AXA Group, as an insurance group, follows an investment strategy mainly driven by Asset Liability Management (“ALM”). The overall objectives of all investment decisions made within the Group are to ensure that its obligations and commitments to policyholders are met at all times, to protect the solvency of the Group’s entities, and to generate superior return over time.
Local investment & ALM activities are steered by local CIOs. Local CIOs manage local portfolios, aiming at an optimized riskreturn ratio, maintain reporting lines to the Group, and manage close relationships with asset managers and local stakeholders. Moreover, they are responsible for the investment performance and for implementing and executing a sound Asset Liability Management.
In order to eff iciently coordinate local and global investment processes, decisions within the Group’s investment community are taken by two main governance bodies: ■ the Group Investment Committee, which is chaired by the Group Chief Financial Officer. This Committee defines investment strategies, steers tactical asset allocation, evaluates new investment opportunities and monitors the Group’s investment performance; and
ALM studies are performed by the Investment & ALM Department with the support of internal asset managers when appropriate and a second opinion is provided by the Risk Management Department. They use methodologies and modelling tools that develop deterministic and stochastic scenarios, embedding policyholders’ behavior considerations for the liabilities, financial market evolution for the assets and taking into account existing interaction between the two. This process aims at maximizing expected returns given a defined level of risk. Furthermore, a series of additional constraints are taken into account, such as Solvency II economic capital model considerations, earnings stability, protection of the solvency margin, preservation of liquidity, as well as local and consolidated capital adequacy and requirement.
Investment opportunities, like non-standard investments, new strategies or new structures, are subject to an Investment Approval Process (“IAP”) in line with the third pillar of the Group Risk Management principles which provides for a systematic second opinion on key processes. The IAP ensures key characteristics of the investment are analyzed, such as risk and return expectations, experience and expertise of the investment management teams, as well as accounting, tax, legal and reputational issues.
Derivative strategies are systematically reviewed and validated by local Investment and ALM Committees. In addition, there is a segregation of duties between those responsible for making investment decisions, executing transactions, processing trades and instructing the custodian. This segregation of duties aims in particular at avoiding conflicts of interest.
Valuation Risk is addressed through the use of expert teams. They independently counter-valuate the derivatives positions so as to achieve appropriate accounting, payment and collateral management. They also challenge the prices proposed by counterparties in the event that the applicable AXA entity wishes to initiate, terminate or restructure derivatives. Such capacity in pricing requires high-level expertise, which relies on rigorous market analysis and the ability to follow the most up-to-date market developments for new derivatives instruments.
For a large proportion of its assets, the Group utilizes the services of asset managers to invest in the market: ■ local AXA companies assign the day-to-day management of their asset portfolios primarily to AXA’s Asset Management subsidiaries, i.e. AXA Investment Managers and AB. Local CIOs continuously monitor, analyze, and challenge asset managers’ performances; and
Information in this section should be read in conjunction with the paragraph “Market related risks” in Section 4.1 “Risk Factors” of this Annual Report.
The market risks to which Life & Savings (L&S) and long-tail Property & Casualty (P&C) portfolios are exposed arise from a variety of factors including: ■ a decline in market returns may cause us to accelerate amortization of deferred acquisition costs, value of business in-force and other intangibles; ■ a decline in returns on assets (linked to a sustained fall in yields on fixed income investments or to lower equity markets) could reduce investment margins on General Account products or fees on Unit-Linked contracts and impact the performance of asset managers; ■ a change in yields on fixed-income investments (linked to changes in interest rates or in credit spreads) aff ects the market value of investments and liabilities and could impact adversely the Group’s solvency position, and increase policyholder’s surrenders due to competitive pressures; ■ a decline in asset market value (relating, for example, to equity, real estate, or alternatives, etc.) could adversely impact the Group’s solvency position, as well as available surplus; ■ a rise in financial market volatility may increase the cost of hedging the guarantees associated with certain products such as Unit-Linked and Variable Annuities and decrease the Group’s value; ■ a change in foreign-exchange rates would have limited impact for the operating units since foreign-currency commitments are matched to a large extent by assets in the same currency or covered by hedges, but it could affect the earnings contribution in euros; ■ furthermore, Health and Property & Casualty activities are subject to inflation which may increase the compensation payable to policyholders, so that the actual payments may exceed the associated reserves set aside. This risk can be significant for long-tail businesses but is managed through regular pricing adjustments or specific protections against peaks of inflation.
■ risks relating to the management of holding companies’ exposure to foreign currency exchange rate fluctuations and debt.
AXA Group’s exposure to market risks is covered by AXA Group’s Solvency Capital Requirement metric, as detailed in the paragraph “Internal Model” in Section 4.2 “Internal control and Risk Management” of this Annual Report and is taken into account in AXA’s Liquidity Risk Management framework (please refer to Section 4.5 “Liquidity Risk” of this Annual Report).
In addition, AXA Group’s investment strategy, which is mainly driven by Asset Liability Management, aims to ensure that the Group’s obligations and commitments to policyholders are met at all time, and to protect the solvency of the Group and of its entities (please refer to paragraph “Governance of investment strategy and Asset & Liability Management (ALM)” in Section 4.2 “Internal control and Risk Management” of this Annual Report).
AXA Group performs sensitivity analyses to estimate its exposure to movements in interest rates and equity markets. These analyses quantify the potential impact on the Group of positive and adverse changes in financial markets.
Available Financial Resources represent the amount of economic capital available to absorb losses under stress events. The AFR are the surplus of assets over liabilities derived from the Solvency II balance sheet.
(a) Group share. (b) Including minority interests. (c) Net Unrealized Capital Gains.
■ Elimination of €31.2 billion of intangible assets net of unearned revenues and fee reserves, taxes and policyholder bonuses.
The main elements of the reconciliation between the IFRS TNAV and the Group AFR are as follows: ■ deduction of €3.0 billion of foreseeable dividends to be paid to shareholders in 2018; ■ inclusion of €7.4 billion of undated deeply subordinated notes (TSS) and undated subordinated notes (TSDI), as well as €7.7 billion of dated subordinated debts; ■ addition of €9.4 billion reflecting the Solvency II technical provision adjustments corresponding to the adjustment from IFRS reserves to best estimate liabilities (€+19.1 billion) and the market value margin (€-9.7 billion); and
Information on the Group AFR is disclosed in the “Embedded Value & AFR report 2017” which is available on AXA Group website www.axa.com.
2017 equity market sensitivities for Property & Casualty business (% of P&C AFR) of 4% to 25% higher value and -4% to 25% lower value reflect the impacts on equities including derivatives on equities.
In the insurance companies, which accounted for 90% of Group assets at December 31, 2017 (90% in 2016), assets and liabilities with foreign currency exposure are generally naturally matched or hedged.