■ France: 26% of Group assets at the end of 2017 (24% in 2016): In France, AXA was exposed to exchange-rate risk for a total amount of €18,751 million at the end of 2017 (€19,549 million in 2016) held both directly and indirectly through investment funds partly invested in foreign currencies (US Dollar: €14,884 million versus €15,376 million in 2016, Pound Sterling: €2,581 million versus €2,988 million in 2016 and Japanese Yen: €261 million versus €233 million in 2016). This exposure allows AXA France to diversify its investments and enable policyholders to benefit from the performance of international financial markets. AXA France offsets its exposure to exchange-rate risk by using foreign exchange forwards and other derivatives (notional of €15,815 million versus €17,399 million in 2016).
■ Europe: 32% of Group assets at the end of 2017 (33% in 2016): Switzerland
In Germany, AXA held €9,582 million investments denominated in foreign currencies at the end of 2017 (€10,432 million in 2016) both directly and indirectly through investment funds with the aim of diversifying its investments and taking advantage of foreign markets’ performance. These investments were mainly denominated in US Dollar (€7,641 million versus €8,860 million in 2016) including the US Short Duration High Yield Fund (€741 million versus €1,729 million in 2016) and in Pound Sterling (€1,200 million versus €1,034 million in 2016). AXA Germany controls and limits its exchange-rate risk by using foreign exchange forwards for a notional amount of €7,148 million
In Spain, AXA entities held investments in foreign currency for €864 million in 2017 (€978 million in 2016), directly and indirectly through physical assets. These investments are mainly in US Dollar €764 million (€913 million in 2016). Exchange-rate risk exposure is hedged for a notional amount of €713 million using mainly foreign exchange forwards and currency swaps.
In Italy, AXA held investments in foreign currency for €1,422 million in 2017 (€1,556 million in 2016) both directly and indirectly through physical assets. These investments are mainly in US Dollar for €1,218 million (€1,406 million in 2016). The overall exchange risk exposure is managed within the FX limits approved in the correspondent Local Investment Committees. Unhedged FX exposure amounts to €214 million.
■ International: 5% of Group assets at the end of 2017 (5% in 2016): AXA entities held investments denominated in foreign currencies for €3,003 million in 2017 (€2,913 million in 2016) both directly and indirectly through investment funds, mainly denominated in US Dollar €1,678 million (€1,616 million in 2016). Exchangerate risk exposure is being mainly under congruent coverage (matching assets and liabilities denominated in the same currency) in particular for Mexico, and also due to investments in countries having their currency pegged to US Dollar.
■ Transversal and C entral H oldings: 8% of Group assets at the end of 2017 (8% in 2016): AXA Corporate Solutions Assurance
In respect of Japan activities, mainly in the form of derivatives
In addition to the foreign exchange rate management performed locally (hedged through Foreign Exchange forward and currency swaps), the Group Corporate Finance and Treasury Department steers the global exposure to foreign exchange risk and reports the position five times a year to the Finance Committee of the Board of Directors.
AXA Group’s exposure to credit risk is covered by AXA Group’s Solvency Capital Requirement metric, as detailed in the paragraph “Internal Model” in the 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).
These limits aim at managing the default risk of a given issuer, depending on its rating and on the maturity and seniority of all bonds issued by the issuer and held by the AXA Group (corporate, Government agency and sub sovereign). The limits also take into account all AXA Group exposures on a given ultimate shareholder through debt securities, cash, equity, derivatives and reinsurance counterparty risk.
Compliance with the limits is ensured by the Group through defined governance. The Group Credit Risk Committee handles, on a monthly basis, the issuer exposure breaches to the Group’s limits and determines coordinated actions for excessive credit concentrations. A Group Credit Team reporting to the Group Chief Investment Off icer (Group CIO) provides credit analyses independently from Group asset managers, in addition to local CIO teams. The Group Financial Risk Committee is regularly kept informed of the work performed.
At December 31, 2017, the breakdown of the debt security portfolio (€431 billion) by credit rating category was as follows: Other
At December 31, 2017, the breakdown of Government and Government related bonds fair values (€231 billion) by country was as follows: Spain
Limits applied to issuers take into account the credit derivative positions.
At December 31, 2017, total invested assets of Banking activities amounted to €33.0 billion (€32.1 billion at December 31, 2016).
■ tightly managed market, asset & liability, foreign exchange and interest rate risks including a strict collateral policy.
Credit risks are regularly reviewed by the Management Board of each bank, and are subject to regulation. For instance AXA Bank Belgium’s internal capital adequacy assessment and strategic planning processes take into account capital required to mitigate all material risks, capital required for expected business growth, liquidity requirements and stress testing results.
• mispricing of policies to be written (including renewals) during the period, and
• fluctuation of payments around their statistical average; ■ catastrophe risks embedding both natural disasters such as climatic events (including windstorms, hurricanes, flood or earthquakes), and man-made ones, such as terrorist attacks.
I Risk control and risk mitigation For more information on the AXA Group’s risk controls and Risk Management processes, please refer to Section 4.2 “Internal control and Risk Management” of this Annual Report.
Group Risk Management (GRM) has defined a set of procedures to approve new products launches. These procedures are adapted and implemented locally, and aim to foster product innovation across the Group while maintaining risks under control. The validation framework relies among others on the results of the Solvency Capital Requirement’s assessments, based on the AXA Group’s Internal Model, to ensure that new products undergo a thorough approval process before they are brought to market.
AXA Group reviews regularly its exposure to ensure that the risks underwritten are diversified geographically and by lines of business in order to manage risk concentration, and to verify adequacy of reinsurance.
For Life & Savings, Health and Property & Casualty activities, GRM has developed and deployed common models and metrics to consistently measure risks throughout the Group. This enables the Group to verify that its exposure complies with consolidated risk appetite limits along the dimensions of earnings, Available Financial Resources (AFR), solvency and liquidity. These tools also contribute substantially to monitoring the major risks (claims frequency deviation, claims severity, reinsurance, pricing consistency, natural catastrophes, biometric and behavior risks deviations).
For the Life & Savings, Health and Property & Casualty operations, reinsurance programs are set up as follows: ■ Group’s operating entities reinsurance capacity are set in alignment with Group Standards and with their local risk appetite limits; ■ their risks are modeled through in-depth actuarial analyses conducted on each portfolio; specifically for Property & Casualty natural catastrophe modelling, via the Group economic capital model, GRM uses several models both internal and external for assessing the risk associated with the main natural perils (storms, floods, earthquake…). Since 2015, the Group has strategically developed a strong inhouse expertise of development and validation of natural catastrophe models to cope with their dynamic nature in the context of global climate change.
of the risk exposure is retained and mitigated within AXA Global Re through the Group covers (including pools) and the remaining part is ceded to external reinsurers.
The structures of these Group covers are designed to adequately protect the Group in compliance with the Group risk appetite framework. In order to protect the Group, specific covers are arranged through either the traditional reinsurance market or the financial one through securitization (cat bonds).
As opposed to the other Property & Casualty internal Group covers where the risk is retained within AXA Global Re, in 2017 92% of the Property Pool and 55% of the Life Pool yearend financial result net of external reinsurance protections is retroceded back to local entities.
The Group Actuarial Function Holder has been set with a specific role to define and coordinate the tasks undertaken by the Group actuarial function stakeholders (notably GRM, PBRC) as well as the local actuarial functions established in insurance entities across the Group.
The nomination of the local Actuarial Function Holder must be agreed in advance by the Group Actuarial Function Holder.
The breakdown of the Group’s Life & Savings technical insurance reserves by product type was as follows: ■ 20% at the end of 2017 (19% at the end of 2016) of the Group’s Life & Savings technical reserves cover separate-account (Unit-Linked) products that do not materially aff ect AXA’s risk exposure. On these products, the underlying financial market performance is mostly passed on to the policyholders. This category also includes products that may provide a standalone guarantee on invested capital in the event of death. Overall, they present only a limited market risk for the Group through reduction of shareholders’ value; ■ 12% at the end of 2017 (12% at the end of 2016) of the Group’s Life & Savings technical reserves cover separate-account products with related interest-rate or equity guarantees provided by the insurance companies, called Variable Annuities.
Information in this section should be read in conjunction with the paragraph “Operational and business-related risks” in Section 4.1 “Risk factors” of this Annual Report.
As regards information risks, AXA is building an Information Risk Management (IRM) practice to enable information risk decisions to be made consistently across the organization and establish sustainable Risk Management capabilities that are integrated with the business.
Given the nature of strategic risks, there is no capital charge assessment but a strong strategic Risk Management framework to anticipate and mitigate these risks. Group Risk Management is involved at early stage in every major strategic projects (e.g. partnerships, M&A projects, etc.). The Group governance standards require among other things a Risk Management second opinion on key processes, including significant transactions and strategic plans. Furthermore, the ORSA report provides an assessment on the overall solvency needs which include the Solvency II ratio projection made until the strategic plan horizon and in stress scenarios as detailed in the paragraph “Own Risk and Solvency Assessment (“ORSA”)” in Section 4.2 “Internal control and Risk Management” of this Annual Report.
AXA Group has a Global Reputation Network whose purpose is to implement locally a Reputation Risk Management framework. The objectives of the Reputation Risk Management approach are in line with AXA’s overall Enterprise Risk Management approach aiming to develop a reputation risk culture and risk intelligence.
Three main objectives drive the Reputation Risk Management approach: ■ proactively manage reputation risks, avoid or minimize negative issues impacting the reputation of AXA and build trust among all of AXA stakeholders; ■ define accountability for reputation risks across the organization, at Group and local levels; ■ implement a common reputation Risk Management framework throughout the organization.
(in Euro million) Notes 6 Value of purchased business in force (a) 1,891 2,209 7 Deferred acquisition costs and equivalent 22,881 24,132 8 Other intangible assets 3,170 3,266
Tangible assets 1,380 1,513 14 Deferred policyholders’ participation assets - 146 19 Deferred tax assets 837 1,417
Receivables arising from direct insurance and inward reinsurance operations 16,360 16,418
Other receivables 12,868 17,416 5 Assets held for sale (d) 5,019 1,100 12 Cash and cash equivalents 23,898 26,314
Liabilities arising from investment contracts with no discretionary participating features and where the financial risk is borne by policyholders 12,260 11,917
Payables arising from direct insurance and inward reinsurance operations 9,318 10,356
Collateral debts relating to investments under lending agreements or equivalent 28,401 30,402
Other payables 14,503 16,962 5 Liabilities held for sale (c) 4,419 910
Change in unearned premiums net of unearned revenues and fees (405) (346)
Net realized gains and losses relating to investments at cost and at fair value through shareholders’ equity (c) 1,781 4,410
Change in goodwill impairment and other intangible assets impairment and amortization (114) (114)
Income from operating activities before tax 7,735 9,149 10 Income (net of impairment) from investment accounted for using the equity method 265 218 24 Financing debts expenses (g) (315) (296)
Net consolidated income - Minority interests 394 364 27 Earnings per share (i) 2.50 2.30
(a) Gross of reinsurance. (b) Net of investment management costs and including gains/losses from derivatives hedging variable annuities. (c) Includes impairment releases on investments sold. (d) Includes realized and unrealized forex gains and losses relating to investments at cost and at fair value through shareholders’ equity. (e) Change in fair value of assets with financial risk borne by policyholders is off set by a balancing entry in technical charges relating to insurance activities. (f) Excludes impairment releases on investments sold.
(g) Includes net balance of income and expenses related to derivatives on financing debt (however excludes change in fair value of these derivatives). (h) Relates to the discontinued AXA Life Europe in UK and Ireland operations.
(i) Refer to Note 27 for the split of earnings per share between continuing and discontinued operations.
Items that may be reclassified subsequently to Profit or Loss (3,557) 1,754
Capital in excess of nominal value - - - (116) -
Equity component of compound financial instruments - - - - -
Change in goodwill impairment and other intangible assets impairment (b) - 457
Change in fair value of investments at fair value through profit or loss (20,054) (12,135)
Net change in liabilities arising from insurance and investment contracts (c) 26,571 18,956
Income (net of impairment) from investment accounted for using the equity method (265) (218)
Investment expense (excluding interests on financing and undated subordinated debts, margin calls and others) (3,818) (5,073)
Net cash provided by other assets and liabilities (f) 1,593 (533)
Sales of investment properties held directly or not (f) 2,549 4,421
Sales and/or repayment of loans and other assets (f) (h) 30,863 12,418
Purchases of equity instruments and non consolidated investment funds (f) (g) (38,732) (34,276)
Net cash related to sales and purchases of tangible and intangible assets (348) (428)
Increase in collateral payable / Decrease in collateral receivable 140,262 131,913
Net cash impact of assets lending / borrowing collateral receivables and payables (256) 4,050
Net impact of foreign exchange fluctuations and reclassification on cash and cash equivalents (487) (275)
(a) Includes premiums/discounts capitalization and relating amortization, amortization of investment and owner occupied properties (held directly). (b) Includes impairment and amortization of intangible assets booked in the context of business combinations. (c) Includes impact of reinsurance and change in liabilities arising from contracts where the financial risk is borne by policyholders. (d) Mainly includes change in provisions for risks & charges, for bad debts/doubtful receivables and change in impairment of assets held for sale. (e) Includes gains/losses from derivatives hedging variable annuities. (f) Includes related derivatives.
AXA SA, a French Société Anonyme (the “Company” and together with its consolidated subsidiaries, “AXA” or the “Group”), is the holding (parent) company of an international financial services group focused on financial protection. AXA operates principally in Europe, the Americas, Asia and Africa. The list of the main entities included in the scope of AXA’s consolidated financial statements is provided in Note 2 of the Notes to the consolidated financial statements.
The consolidated financial statements are prepared in compliance with IFRS and interpretations of the IFRS Interpretations Committee that are endorsed by the European Union before the balance sheet date with a compulsory date of January 1, 2017. The Group does not use the “carve out” option allowing not to apply all hedge accounting principles required by IAS 39.
These new requirements must be applied retrospectively, and as permitted by IFRS 9, the Group has not restated the comparative 2016 financial statements. Consequently, a net loss arising from changes in these liabilities attributable to changes in the credit risk of the liabilities of €23 million (net of tax) was included in other reserves within the shareholder’s equity as of December 31, 2017. This amount is comprised of a €8 million (net of tax) reclassification from undistributed profits related to the retrospective application of the new policy for liabilities recognized in the balance sheet as of January 1, 2017 and €-30 million (net of tax) related to the changes in the fair value of liabilities for the year ending December 31, 2017.
The application of the amendments below as of January 1, 2017 had no material impact on the Group’s consolidated financial statements.
IAS 12 – Income Taxes January 19, 2016 Guidance on how to account for deferred tax assets related to debt instruments measured at fair value in particular for the assessment of future taxable profit.
December 8, 2016 Clarification of the scope of the disclosure requirements in IFRS 12 Disclosure of Interests in Other Entities.
IFRS 17 – Insurance Contracts, published on May 18, 2017 establishes the principles for the recognition, measurement, presentation and disclosure of insurance contracts and supersedes IFRS 4 – Insurance contracts. The new standard applies to insurance contracts issued, to all reinsurance contracts and to investment contracts with discretionary participating features provided the entity also issues insurance contracts. It requires to separate the following components from insurance contracts: (i) embedded derivatives, if they meet certain specified criteria; (ii) distinct investment components; and (iii) distinct performance obligations to provide non-insurance goods and services. These components should be accounted for separately in accordance with the related standards.
The CSM is adjusted subsequently for changes in cash flows related to future services but the CSM cannot be negative, so changes in future cash flows that are greater than the remaining CSM are recognized in profit or loss. Interest is also accreted on the CSM at rates locked in at initial recognition of a contract (i.e. discount rate used at inception to determine the present value of the estimated cash flows). Moreover, the CSM will be released into profit or loss based on coverage units, reflecting the quantity of the benefits provided and the expected coverage duration of the remaining contracts in the g roup.
In terms of presentation, the amounts recognized in the statements of financial performance have to be disaggregated into: ■ an insurance service result, comprising insurance revenue and insurance service expenses (i.e. incurred claims and other incurred insurance service expense),
The Standard has to be applied retrospectively unless impracticable, in which case two options are possible: ■ either the modified retrospective approach: based on reasonable and supportable information available without undue cost and effort to the entity, certain modifications are applied to the extent full retrospective application is not possible, but still with the objective to achieve the closest outcome to retrospective application possible; ■ or the fair value approach: the CSM is determined as the positive difference between the fair value determined in accordance with IFRS 13 and the fulfilment cash flows (any negative diff erence would be recognized in retained earnings at the transition date).
The method of implementation of IFRS 17 and its potential impact on the Group’s consolidated financial statements are currently being examined.
IFRS 9 Financial Instruments, published on July 24, 2014, has replaced IAS 39. The new standard addresses the following items related to financial instruments: ■ classification and measurement: IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost, fair value through other comprehensive income or fair value through profit or loss. A financial asset is measured at amortized cost if both a) the asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows and b) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding (“SPPI”). If both a) the asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows and for sale and b) the contractual terms of cash flows are SPPI, the financial asset is measured at fair value through other comprehensive income and realized gains or losses would be recycled through profit or loss upon sale. Assets not meeting either of these categories are measured at fair value through profit or loss. Additionally, at initial recognition, an entity can use the option to designate a financial asset at fair value through profit or loss if doing so eliminates or significantly reduces an accounting mismatch. For equity instruments that are not held for trading, an entity can also make an irrevocable election to present in other comprehensive income subsequent changes in the fair value of the instruments (including realized gains and losses), dividends being recognized in profit or loss. Additionally, for financial liabilities that are designated as at fair value through profit or loss, the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of that liability is recognized in other comprehensive income, unless the recognition of the eff ects of changes in the liability’s credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss; ■ impairment: The impairment model under IFRS 9 reflects expected credit losses, as opposed to incurred credit losses under IAS 39. Under the IFRS 9 approach, it is no longer necessary for a credit event to have occurred before credit losses are recognized. Instead, an entity always accounts for expected credit losses and changes in those expected credit losses. The amount of expected credit losses is updated at each reporting date to reflect changes in credit risk since initial recognition; ■ hedge accounting: IFRS 9 introduces new requirements for hedge accounting that align hedge accounting more closely with Risk Management. The requirements establish a more principles-based approach to the general hedge accounting model. The amendments apply to all hedge accounting with the exception of portfolio fair value hedges of interest rate risk (commonly referred to as “fair value macro hedges”). For these, an entity may continue to apply the hedge accounting requirements currently in IAS 39. This exception was granted largely because the IASB is addressing macro hedge accounting as a separate project.
■ adopt IFRS 9 but, for designated financial assets, remove from profit or loss the eff ects of some of the accounting mismatches that may occur before the new insurance contract standard is implemented. During the interim period, additional disclosures are required.
The Group has determined that it is eligible for the temporary exemption option (1). The eligibility conclusion is based on an analysis of the percentage of the total consolidated carrying amount of liabilities connected with insurance activities relative to the total consolidated carrying amount of all liabilities, which indicates AXA’s activities are predominately connected with insurance. Consequently, the Group has decided to defer the implementation of IFRS 9 until the eff ective date of a new insurance contracts standard, however, no later than January 1, 2021. The amendments permitting the temporary exemption are eff ective for annual periods beginning on or aft er January 1, 2018.
Eff ective for annual periods beginning on or aft er Topic
December 8, 2016 January 1, 2018* Clarification on transfer to, or from, investment properties: the transfer to, or from, investment properties must result from a change in use of the asset.
December 8, 2016 January 1, 2018* Clarification on the exchange rate to be used for the accounting for transactions that include the receipt or payment of advance consideration in a foreign currency.
Under IFRS 11, companies over which AXA exercises a joint controlling influence alongside one or more third parties are joint ventures and are accounted for under the equity method.
Under the equity method, AXA’s share of equity investments’ post-acquisition profit or loss is recognized in the income statement, and its share of post-acquisition movements in reserves is stated under “Other reserves”.
In accordance with the option made available by IFRS 1 Firsttime adoption of IFRS, business combinations prior to 2004 were not restated with respect to French accounting principles in force at the time.
In step acquisitions, any previous minority interest held by the Group is measured at fair value and the resulting adjustment is recognized through net income. Similarly, when an additional purchase changes the control from significant influence or joint control to control, any investment pre-existing in a former associate/joint venture is re-measured to its fair value with the gain or loss through net income (consequently also resulting in a new goodwill).
Goodwill is allocated to cash generating units corresponding (i) to the companies acquired or portfolios of business acquired according to their expected profitability, and (ii) to the entities already within the AXA Group that will benefit from the synergies of the combination with the activities acquired. This allocation of goodwill is used both for segment reporting and for impairment testing.
At the local entity level, foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at closing rates of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement, except where hedge accounting is applied as explained in paragraph 1.10.
Fair values of assets and liabilities traded on active markets are determined using quoted market prices when available. An instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency and those prices represent actual and regularly occurring market transactions on an arm’s length basis between a willing seller and a willing buyer. For financial instruments traded in active markets, quotes received from external pricing services represent consensus prices, i.e. using similar models and inputs resulting in a very limited dispersion.
The objective of valuation techniques is to arrive at the price at which an orderly transaction would take place between market participants (a willing buyer and a willing seller) at the measurement date. Valuation technique models include: • market approach: the consideration of recent prices and other relevant information generated by market transactions involving substantially similar assets or liabilities; • income approach: use of discounted cash flow analysis, option pricing models, and other present value techniques to convert future amounts to a single current (i.e. discounted) amount; • cost approach: the consideration of amounts that would currently be required to construct or replace the service capacity of an asset.
• Italy (insurance activities and holdings); ■ Asia, consisting of : • Japan (insurance activities),
• Asia High Potentials, consisting of : • Thailand (insurance activities),
• Asia Holdings; ■ United States (insurance activities, AB and holdings); ■ International, consisting of : • 14 countries (1) within Europe, Middle East, Africa & Latin America, mainly including Turkey, Mexico, Morocco, Czech Republic & Slovak Republic and Luxembourg (insurance activities and holdings),
• AXA Bank Belgium; ■ Transversal Entities & Central Holdings, consisting of : • AXA Investment Managers,
(1) Please refer to the Glossary set forth in Appendix V to this Annual Report.
AXA performs an impairment test of goodwill at least annually based on cash generating units, using a multi-criteria analysis with parameters such as the value of assets, future operating profits and market share, in order to determine any significant adverse changes. It also considers the interdependence of transactions within sub-groups. Within each cash generating unit, a comparison is made between net book value and the recoverable value (equal to the higher of fair value less costs to sell and value in use). Value in use consists of the net assets and expected future earnings from existing and new business, taking into account the cash generating units’ future cash flows. The value of future expected earnings is estimated on the basis of the life insurance and investment contracts embedded value models or similar calculations for other activities. Fair values less costs to sell are based on the IFRS 13 fair value as described in paragraph 1.5 using various valuation multiples.
Fair value approach is based on risk neutral valuation techniques that include discounted cashflows taking into account: ■ The current shareholders’ net asset value plus future profitability of the business in force: The current shareholders’ net asset value is adjusted to take into account any diff erence between the basis of cash flows projections used in the value of business in force calculations and IFRS.
The value of purchased insurance contracts and investment contracts with discret ionar y part ic ipating features recognized in a business combination (see paragraph 1.3.2) is amortized as profits emerge over the life of the contracts’ portfolio. In conjunction with the liability adequacy test (see paragraph 1.14.2), VBI is subject to annual recoverability testing based on actual experience and expected changes in the main assumptions.
1.7.3 Deferred acquisition costs (DAC) relating to insurance contracts and investment contracts with discretionary participating features – rights to future management fees, also known as deferred origination costs (DOC) relating to investment contracts with no discretionary participating features
They also include customer relationships intangibles as well as distribution agreements recognized as a result of business combinations. If these assets have a finite useful life, they are amortized on a straight line basis over their estimated life. In all cases, they are subject to impairment tests, at each closing for assets with a finite useful life and at least annually for other assets. In the event of a significant decline in value, an impairment is booked corresponding to the diff erence between the value on the balance sheet and the higher of value in use and fair value less costs to sell.
If, in subsequent periods, the appraisal value rises to at least 15% more than the net carrying value, previously recorded impairment is reversed to the extent of the diff erence between a) the net carrying value and b) the lower of the appraisal value and the depreciated cost (before impairment).
Underlying financial instruments held in the “Core Investment Portfolios” are classified as available for sale with change in fair value through shareholders’ equity unless involved in a qualifying hedge relationship or more broadly when electing the fair value option reduces accounting mismatch. As specified above, the financial instruments held in the “Satellite Investment Portfolios” are accounted for at fair value with changes in fair value recognized through income statement.
Assets designated as available for sale, trading assets, investments designated as at fair value through profit or loss and all derivatives are measured at fair value, i.e. the amount for which an asset could be exchanged, between knowledgeable,
The Group is party to repurchase agreements and securities lending transactions under which financial assets are sold to a counterparty, subject to a simultaneous agreement to repurchase these financial assets at a certain later date, at an agreed price. While substantially all of the risks and rewards of the financial assets remain with the Group over the entire lifetime of the transaction, the Group does not derecognize the financial assets. The proceeds of the sale are reported separately. Interest expense from repurchase and security lending transactions is accrued over the duration of the agreements.
Changes in the fair value of derivatives designated and qualifying as fair value hedge are recorded in the income statement, together with any changes in the fair value of the hedged asset or liability. Therefore, the gain or loss relating to any ineff ective portion is directly recognized in the income statement.
The eff ective portion of changes in the fair value of derivatives designated and qualifying as cash flow hedge is recognized in shareholders’ equity. The gain or loss relating to any ineff ective portion is recognized in the income statement. Cumulative gain or loss in shareholders’ equity is recycled in the income statement when the hedged underlying item impacts the profit or loss for the period (for example when the hedged future transaction is recognized). When a hedging instrument reaches its maturity date or is sold, or when a hedge no longer qualifies for hedge accounting, the cumulative gains or losses in shareholders’ equity are held until the initially hedged future transaction ultimately impacts the income statement.
Changes in the fair value of all other derivative instruments that do not qualify for hedge accounting are recognized in the income statement. Given IAS 39 constraints, only a few hedges are eligible to hedge accounting provisions described above. However, most of the derivatives used by the Group are purchased with a view to hedge or for example to use such instruments as an alternative to gain exposure to certain asset classes through “synthetic positions”. See Note 20.
■ they are contractually based on the performance of a group of contracts, the investment returns of a financial asset portfolio or the Company profits, a fund or another entity that issues the contract.
In some insurance or investment contracts, the financial risk is borne by policyholders. Such contracts are usually Unit-Linked contracts.
Except where IAS 39 applies, according to IFRS 4, recognition and derecognition are based on the AXA accounting policies existing prior to IFRS and are described below, except for the elimination of equalization provisions, selective changes as permitted by IFRS 4 (see below) and the extension of shadow accounting.
The main characteristics of the accounting principles applied prior to IFRS and retained aft er the conversion to IFRS are as follows: ■ reserves must be suff icient; ■ life reserves cannot be discounted using a discount rate higher than prudently estimated expected assets yield; ■ acquisition costs are deferred to the extent recoverable and amortized based on the estimated gross profits emerging over the life of the contracts; ■ Property and Casualty claims reserves represent estimated ultimate costs. Post claims reserves are generally not discounted, except in limited cases (a detail of discounted reserves is shown in Note 14.10).
Unearned premiums reserves represent the prorata portion of written premiums that relates to unexpired risks at the closing date.
In addition, at each balance sheet date, liability adequacy tests are performed in each consolidated entity in order to ensure the adequacy of the contract liabilities net of related DAC and VBI assets and deferred policyholders’ participation asset. To perform these tests, entities group contracts together according to how they have been acquired, are serviced and have their profitability measured. Entities use current best estimates of all future contractual cash flows as well as claims handling and administration expenses, and take into account guarantees and investment yields relating to assets backing these contracts.
■ such tests are based on the intention and capacity of entities to hold financial assets according to various sets of scenarios, excluding the value of new business; ■ they include projections of future investments sales according to estimated surrender patterns; and
Contract specific risks (insurance risk, asset return risk, inflation risk, persistency, adverse selection, etc.) directly related to the contracts are also considered.
Depending on the type of business, the future investment cash flows and discounting may be based on a deterministic best estimate rate, with corresponding participation, or in the case of Guaranteed Minimum Benefits, stochastic scenarios. Testing is performed either by a comparison of the reserve booked net of related assets (DAC, VBI, etc.) directly with discounted cash flows, or by ensuring that the discounted profit net of participation from release of the technical provisions exceeds net related assets.
Embedded derivatives that meet the definition of an insurance contract or correspond to options to surrender insurance contracts for a set amount (or based on a fixed amount and an interest rate) are not separately measured. All other embedded derivatives are bifurcated and booked at fair value when material (with change in fair value recognized through income statement) if they are not considered as closely related to the host insurance contract and/or do not meet the definition of an insurance contract.
Financing debt issued to finance the solvency requirements of operational entities or to acquire a portfolio of contracts are isolated in a specific aggregate of the statement of financial position and are accounted for at amortized cost.
Defined benefit plans: an actuarial assessment of the commitments based on each plan’s internal rules is performed. The present value of the future benefits paid by the employer, known as the DBO (Defined Benefit Obligation), is calculated annually on the basis of long-term projections of rate of salary increase, inflation rate, mortality, staff turnover, pension indexation and remaining service lifetime. The amount recorded in the balance sheet for employee defined benefit plans is the difference between the present value of the Defined Benefit Obligation and the market value at the balance sheet date of the corresponding invested plan assets after adjustment for any minimum funding requirement or any asset ceiling eff ect. If the net result is positive, a provision is recorded under the provision for risks and charges heading. If the net result is negative, a prepaid pension asset is recorded in the balance sheet but not more than its recoverable amount (asset ceiling). Actuarial gains and losses (now termed remeasurments under IAS 19 revised) arising from experience adjustments and changes in actuarial assumptions are recognized in shareholders’ equity (in Other Comprehensive Income) in full in the period in which they occur. Similarly, the actual return on assets and any change in asset ceiling, excluding the net interest income on assets, is recognized in shareholders’ equity. The regular impact in the income statement mainly relates to the current service cost (annually accruing employee benefit) and the net interest on the amount recorded in the opening balance sheet (unwinding of discount applied to the net liability/asset at start of the annual period, taking into account contributions and benefits payments during the period). Past service cost represents the change in the present value of the defined benefit obligation resulting from a plan amendment or curtailment to a defined benefits plan. It is recognized totally and immediately in the income statement when incurred. Gains and losses on the settlement of a defined benefit plan also have an impact in the income statement when the settlement occurs.
Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of past events, when it is probable that an outflow of resources will be required to settle the obligation, and when the provision can be reliably estimated. Provisions are not recognized for future operating losses. The same applies to contingent liabilities, except if identified at the time of a business combination (see paragraph 1.3.2).
Investment contracts with no discretionary participating features fall within the scope of IAS 39. Deposit accounting applies to these contracts, which involves the following: ■ the Group directly recognizes the consideration received as a deposit financial liability rather than as revenues; ■ claims paid are recognized as withdrawals with no posting in the income statement apart from potential fees.
Net revenues from banking activities include all revenues and expenses from banking operations, including interest expenses not related to financing, banking fees, capital gains and losses on sales of financial assets, changes in the fair value of assets under the fair value option and related derivatives.
In respect of banking activities, interest income and expenses are included in the “Net revenue from banking activities” (see paragraph 1.19.6).
AXA Non Life Insurance Co. Ltd. (Japan) 100.00 98.69 100.00 98.69
Kyobo AXA General Insurance Co. Ltd. (South Korea) 99.71 99.71 99.71 99.71
AXA Aff in General Insurance Berhad Minority interest buyout 50.00 50.00 45.41 45.41
AXA Investment Managers (sub group) Minority interest buyout 97.51 97.44 97.04 96.97
As of December 31, 2017, investment funds represented a total of €123,468 million invested assets (€110,280 million at the end of 2016), corresponding to 289 investment funds mainly in France, Japan, Germany and Belgium.
In most investment funds (particularly open-ended investment funds), minority interests are presented as liabilities under “Minority interests of consolidated investment funds”. As of December 31, 2017, minority interests in consolidated investment funds amounted to €8,756 million (€11,503 million as of December 31, 2016). Minority interests related to consolidated investment funds and real estate companies that are classified in shareholder’s equity amounted to €2,545 million as of December 31, 2017 (€2,136 million as of December 31, 2016).
Kyobo AXA Investment Managers Company Limited Relution 50.00 48.72 50.00 48.49
As of December 31, 2017, real estate companies accounted for using the equity method amounted to €163 million invested assets (€167 million at the end of 2016) and investment funds accounted for using the equity method amounted to €4,953 million invested assets (€4,777 million at the end of 2016), mainly in the United States, United Kingdom, Ireland, France, Belgium and Germany.
AXA announced a simplification of its operating model designed to empower subsidiaries to deliver on the transformation and operate as close as possible to their customers. The AXA Group reorganized its operations based on five main geographies (France, Europe, Asia, United States, and International). A new Management Committee was appointed to reflect this new operating model. The CEOs supervising these five main geographies (respectively CEO of AXA France, CEO of AXA in Europe, CEO of AXA in Asia, CEO of AXA US, CEO of International & New Markets) are members of the Management Committee.
Key transversal entities and Central Holdings are managed alongside these 5 geographies.
The results of operating activities and non-operating activities are presented on the basis of 6 segments: France, Europe, Asia, the United States, International and Transversal & Central Holdings. Please refer to the Note 1.6 “Segment reporting” for more detailed information.
United States: This segment includes Life & Savings activities in United States, ACS Life Reinsurance, Asset Management services off ered by AB, and US holdings.
In this document, “Insurance” covers the three insurance activities: Life & Savings, Property & Casualty and Health. It is worth noting that except in Note 21, no carve-out of Health business is performed.
Net realized gains and losses and change in fair value of other investments at fair value through profit or loss (c) 1,840 433 1,178 16,781 241 (174) (0) 20,299 20,420 of which change in fair value of assets with financial risk borne by policyholders 2,085 611 1,308 14,912 227 74 (1) 19,215 19,215
Net result from outward reinsurance (275) (300) (78) 296 (149) (254) 182 (578) (578)
Amortization of the value of purchased business in force - (25) (14) (2) (3) - - (44) (44)
Income from operating activities before tax 1,947 3,377 1,168 1,506 333 (227) (368) 7,735 6,949
Income (net of impairment) from investment accounted for using the equity method 22 7 128 - 91 17 - 265 243
Net income from operating activities before tax 1,968 3,356 1,291 1,374 408 (712) (0) 7,686 7,184
Result from discontinued operations net of tax (d) - 0 - - - - - 0 0
Net consolidated income aft er tax 1,426 2,531 1,035 1,652 312 (353) - 6,603 6,539
Net consolidated income - Minority interests 6 97 7 237 36 12 - 394 145
(a) Insurance covers the three insurance activities: Life & Savings, Property & Casualty and Health. (b) Includes gains/losses from derivatives hedging variable annuities within the Life & Savings activity. (c) Includes net realized and unrealized foreign exchange gains and losses relating to investments at cost and at fair value through shareholders’ equity. (d) Relates to the discontinued operations of AXA Life Europe in UK and Ireland.
Fees and charges relating to investment contracts with no participating features 1 124 44 - 49 - - 219 219
Change in unearned premiums net of unearned revenues and fees (95) (68) (38) 39 (125) (46) (15) (346) (346)
Net realized gains and losses relating to investments at cost and at fair value through shareholders’equity 588 1,673 212 1,719 (45) 151 112 4,410 2,726
Net investment result excluding financing expenses 5,837 8,341 1,869 10,486 777 99 (226) 27,184 24,846
Change in goodwill impairment and other intangible assets impairment - (61) (17) (5) (30) - - (114) (109)
Other operating income and expenses (28,270) (42,465) (10,168) (24,414) (7,347) (5,976) 760 (117,881) (113,773)
(a) Restated: as per the new governance. (b) Insurance covers the three insurance activities: Life & Savings, Property & Casualty and Health. (c) Includes gains/losses from derivatives hedging variable annuities within the Life & Savings activity. (d) Includes net realized and unrealized foreign exchange gains and losses relating to investments at cost and at fair value through shareholders’ equity. (e) Relates to the discontinued UK Life & Savings operations.
All of the following paragraphs form an integral part of the Group financial statements. They appear in Section 4 “Risk Factors and Risk Management” and Section 2.4 “Liquidity and c apital Resources” of this Annual Report: 4.1 RISK MANAGEMENT ORGANIZATION
Please refer to pages 158 to 163 of Section 4.2 “Internal control and Risk Management” subsections “Risk Management and Internal Control O rganis ation”, “Financial reporting, disclosure, controls and procedures” and “Conclusion ”.
Please refer to pages 180 to 182 of Section 4.6 “Insurance risks”, subsections “Product approval”, “Exposure Analysis”, “Reinsurance” and “Technical reserves”.
The total goodwill Group share amounted to €14,285 million as of December 31, 2017 and €15,402 million as of December 31, 2016.
(a) Restated: as per the new governance. (b) Acquisition of GIM and Asian entities by AXA Assistance (€+39 million), AXA Corporate Solutions Seguros (€+32 million), Liberty by AXA Poland (€+32 million), Ramius
For most Life & Savings businesses recoverability of goodwill is assessed using a fair value approach. For AXA US and AXA Belgium recoverability is assessed using the value in use approach. Both approaches are described in note 1.
For Property & Casualty and Asset Management businesses (tested separately), recoverability of goodwill is also assessed using the value in use approach, as described in note 1.
The results of cash flow projections exceed the carrying amount of each related cash-generating unit or group of units.
5.3.2 AXA to sell its Swiss privilege franchise in Hong Kong (AXA Wealth Management (HK) Ltd)
(1) EUR 1 = HKD 9.29 as of December 21, 2017 (Source: Bloomberg).
AXA Germany entered into an agreement with Frankfurter Leben-Gruppe to sell parts of its occupational pensions portfolio in Germany (ProbAV Pensionskasse AG). AXA recorded an exceptional negative impact of €87 million. Completion of the transaction is subject to customary closing conditions, including the receipt of regulatory approvals.
As of December 31, 2017, comprehensive income amounted to €+30 million.
The change in Value of Business In-force (“VBI”) was as follows: (in Euro million) 2017 2016
Deferred Acquisition Costs relating to Life & Savings (a) 21,935 22,850
Deferred Acquisition Costs and equivalent relating to Life & Savings 20,863 22,151
Deferred Acquisition Costs and equivalent net carrying value as of January 1 23,355 777 22,805 1,223
Amortization and impairment for the period of Life DAC (1,883) (94) (2,544) (104)
Deferred Acquisition Costs and equivalent net carrying value as of December 31 22,183 698 23,355 777
(a) Restated to include the Deferred Acquisition Costs and equivalent of Property & Casualty activities in addition to those related to Life & Savings activities. (b) Relating to contracts subject to IFRS 4, i.e. insurance contracts and investment contracts with discretionary participating features. (c) Applicable to investment contracts with no discretionary participation features (IAS 39).
8.3 CHANGE IN INTANGIBLE ASSETS RECOGNIZED IN BUSINESS COMBINATIONS AND OTHER BUSINESS OPERATIONS
(a) In 2017, includes €29 million in Brazil due to Pernambucanas agreement and €14 million in Singapore Life from DBS bank agreement. In 2016, includes €13 million in AB from the acquisition of Raimus Alternative Solutions LLC, €13 million in United Kingdom from the acquisition of Aid Call, €6 million in the United States from AIG agreement, €5 million in AXA Investment Managers from the acquisition of Eureka Funds Management, €2 million in Mexico from Promotoria agreement and €2 million in Turkey.
Investment in real estate properties at amortized cost (a) (b) 31,296 21,645 3.04%
Debt instruments designated as at fair value through profit or loss (d) 34,746 34,746 4.88%
Other assets designated as at fair value through profit or loss, held by consolidated investment funds 15,231 15,231 2.14%
Loans designated as at fair value through profit or loss (c) - - -
Assets backing contracts where the financial risk is borne by policyholders 175,003 175,003 24.60%
(a) Includes infrastructure investments. (b) On January 1, 2017, real estate loans were reclassified from loans at cost to Investment in real estate properties at amortized cost for a total of €0.5 billion. (c) Assets measured at fair value under the fair value option. (d) Includes assets measured at fair value notably under the fair value option. (e) Eligible to the IAS 39 Loans and Receivables measurement category. (f) On January 1, 2017, infrastructure and mid-cap loans were reclassified from loans at cost to debt instruments (at cost) that are not quoted in an active market for a total of €1.6 billion.
Debt instruments designated as at fair value through profit or loss (c) 42,340 42,340 5.82%
Non consolidated investment funds designated as at fair value through profit or loss (b) 4,545 4,545 0.62%
Other assets designated as at fair value through profit or loss, held by consolidated investment funds 14,067 14,067 1.93%
Assets backing contracts where the financial risk is borne by policyholders 175,292 175,292 24.10%
Change in impairment and amortization of investment in real estate properties at amortized cost (all activities): (in Euro million)
Including the eff ect of derivatives, unrealized capital gains and losses on financial investments, when not already reflected in the income statement, are allocated as follows: Insurance
Non consolidated investment funds available for sale 8,000 9,118 9,118 1,227 109 8,094 9,030 9,030 1,028 91
(a) Net of impairment - including premiums/discounts and related accumulated amortization. (b) Net of impairment. (c) On January 1, 2017, infrastructure and mid-cap loans were reclassified from loans at cost to debt instruments (at cost) that are not quoted in an active market for a total of €1.6 billion.
Debt instruments (at cost) that are not quoted in an active market 997 997 997 0 - 1,136 1,136 1,136 - 0
Non consolidated investment funds available for sale 95 110 110 15 0 76 91 91 16 -
(a) Net of impairment - including premiums/discounts and related accumulated amortization. (b) Net of impairment.
The table below sets out the contractual maturities of debt instruments held by the Group. Eff ective maturities may diff er from those presented, mainly because some assets include clauses allowing early redemption, with or without penalty or duration extension features. In some cases, the effect of derivatives (detailed in Note 20.3) modifies in certain cases the maturity profile of assets presented below.
Total Financial investments exposed to interest rate risk 32,692 120,744 336,249 489,684 (2,201) 487,484 40,305 132,873 338,967 512,145 (3,795) 508,350
The Group is party of repurchase agreements and securities lending transactions under which financial assets are sold to a counterparty, subject to a simultaneous agreement to repurchase these financial assets at a certain later date, at an agreed price. While substantially all of the risks and rewards of the financial assets remain with the Group over the entire lifetime of the transaction, the Group does not derecognize the financial assets. The proceeds of the sale are reported separately. Interest expense from repurchase and security lending transactions is accrued over the duration of the agreements.
The breakdown of transferred financial assets / liabilities not qualifying for derecognition was as follows: (in Euro million)
Carrying value of associated liabilities (a) - 31,153 100 1,514 29,147 169
Non consolidated investment funds mainly holding equity securities 2,359 698 3,057 2,212 408 2,619
Other non consolidated investment funds 7,345 46 7,391 7,485 110 7,595
Derivatives related to non consolidated investment funds (88) - (88) (77) - (77)
(a) Amounts are presented net of the eff ect of related hedging derivatives (IAS 39 qualifying hedges or economic hedges) except derivatives related to macro-hedges which are shown separately.
The amortized cost of non consolidated investment funds available for sale was as below: ■ funds mainly holding equity securities: €1,103 million in 2017 compared to €1,306 million in 2016; ■ funds mainly holding debt instruments: €2,872 million in 2017 compared to €2,701 million in 2016; ■ other funds: €4,121 million in 2017 compared to €4,162 million in 2016.
Each investment item is presented net of the eff ect of related hedging derivatives (IAS 39 qualifying hedges or economic hedges).
Non consolidated investment funds available for sale 9,180 (1,084) 8,096 1,133 9,228 9,296 (1,126) 8,170 952 9,122
Investment in real estate properties - 1,456 - 1,456 1,456 - 1,256 - 1,256 1,256
Other assets held by consolidated investment funds designated as at fair value through profit or loss 3,297 6,136 5,875 15,309 15,339 3,749 6,107 4,327 14,184 14,130
Financial investments and loans designated as at fair value through profit or loss 32,377 20,033 12,773 65,183 65,313 32,773 28,035 11,632 72,440 72,310
Note: This table excludes assets backing contracts where the financial risk is borne by policyholders with guaranteed minimum features.
Methods applied to determine the fair value of investments measured at fair value in the financial statements are described in Note 1.5. The Group applies the IFRS 13 fair value hierarchy.
Level 2 and 3 assets are investments which are not quoted in an active market or for which there is no active market. Fair values for level 2 and 3 assets include: ■ values provided by external parties which: • are readily available including last transaction prices but relate to assets for which the market is not always active or,
• values provided at the request of the Group by pricing services and which are not readily publicly available,
■ assets measured on the basis of valuation techniques including a varying degree of assumptions supported by market transactions and observable data.
The common characteristic of level 2 and 3 assets is that their markets are considered as inactive. Their value is generally based on mark to market basis, except when there is no market or when the market is distressed, in which case a mark to model approach is used. Assets not quoted in an active market which are marked to market mainly using observable inputs are classified in level 2. Assets not quoted in an active market for which fair value determination is not mainly based on observable inputs are classified as level 3. For all assets not quoted in an active market / no active market and for which a mark to model approach is used, the classification between level 2 and level 3 depends on the proportion of assumptions used supported by market transactions and observable data (market observable inputs): ■ assumed to be used by pricing services or; ■ used by the Group in the limited cases of application of mark to model valuations.
Since the 2008 financial crisis, a significant volatility related to corporate spreads has been observed leading to transfers between level 1 and 2 with both yield and bid ask spreads widening and narrowing from one closing to another. Since 2010, this volatility has also been experienced on European government bonds with yields and bid ask spreads widening significantly leading to transfers from level 1 to level 2 and then also subsequent sustained improved market liquidity for certain government issuers resulting in transfers back to level 1 from level 2. As of December 31, 2017, Irish, Portuguese and Spanish sovereign bonds continue to be classified in level 2. For these sovereign bonds classified in level 2, trends observed in previous years were confirmed in 2017. These market indicators will continue to be monitored to assess the sustainability of those improvements. Therefore, the classification as of December 31, 2017, was maintained compared to December 31, 2016.
As of December 31, 2017, the net transfer between level 1 and level 2 was €8,201 million. This amount was comprised of €12,671 million transferred investments from level 2 to level 1 and €4,470 million transferred from level 1 to level 2, primarily in corporate bonds.
Amounts presented in level 2 and 3 represent a variety of circumstances. A financial instrument is regarded as not quoted in an active market if there is little observation of transaction prices as an inherent characteristic of the instrument, when there is a significant decline in the volume and level of trading activity, in case of significant illiquidity or if observable prices cannot be considered as representing fair value because of dislocated market conditions. Characteristics of inactive markets can therefore be very diff erent in nature, inherent to the instrument or be indicative of a change in the conditions prevailing in certain markets.
A majority of assets classified in level 3 corresponds to private investments and in particular private equity assets.
Debt instruments at cost (loans & receivables) (b) 299 6,062 3,013 9,375 9,347 345 4,916 1,851 7,111 7,091
Financial investments and loans at amortized cost 343 66,677 39,589 106,609 105,351 393 61,427 41,248 103,069 102,589
TOTAL FAIR VALUE OF INVESTED ASSETS AT AMORTIZED COST 343 66,677 39,589 106,609 105,351 393 61,427 41,248 103,069 102,589
Generally fair values of investments in real estate properties cannot be determined via reference to quotes of an active market from an exchange market or service provider and no property is therefore categorized in level 1. However, AXA’s investments in real estate properties are mostly physically located within liquid markets with identical or comparable asset sales. Given the regulatory environment, some real estate properties located in markets like France are valued by experts using very similar approaches leading to very limited dispersion in prices, with a majority of market inputs themselves homogeneous in terms of sources and values. Hence, the Group, consistently with the policy described in Note 1.5 which notably considers, for assets not quoted in an active market, the weight of observable inputs in the valuation, concludes that the fair value calculations, which are based on valuations performed by qualified property appraisers mainly based on market observable inputs, are considered as level 2 fair values. However, as noted in Note 1.5 and Note 9.10.1, the assessment of the significance of an input against the fair value measurement in its entirety involves judgment and a diff erent weighting could produce a diff erent categorization.
These assets (including investment in real estate properties) are measured at fair value through profit or loss. Financial assets included in these investments are valued at fair value through profit or loss under the fair value option.
As described in Note 4 “Financial and insurance Risk Management”, the financial risk associated with these contracts is borne by policyholders, except for contracts that off er some investment-related guarantees.
PT AXA Mandiri Financial Services 56 - 44 (7) (40) 52
Total assets (including cash and cash equivalents) 6,387 1,586 5,416 1,722
Change in unearned premiums net of unearned revenues and fees (8) 21 (11) (61)
As of December 31, 2017, the Group share of interest in Krungthai AXA Life Insurance Company Ltd. and AXA Tian Ping were of 50.0%.
Current accounts receivables from other Companies 1,104 (4) 1,100 1,100 1,777 (2) 1,775 1,775
Receivables arising from outward reinsurance operations 1,074 (61) 1,013 1,013 1,070 (70) 1,000 1,000
(a) Fair value is assessed as being equal to net carrying value given the nature of such assets. (b) including €708 million deposits in the central banks in 2017 and €836 million in 2016.
The table below reconciles assets and liabilities cash and cash equivalent balances with the statement of consolidated cash flows: (in Euro million) December 31, 2017 December 31, 2016
Cash and cash equivalents as of December 31 (b) 23,196 25,734
As of December 31, 2017, total consolidated net cash and cash equivalents amounted to €23,196 million, net of €702 million bank overdraft s classified under “Other debt instrument issued and bank overdraft s” in the consolidated statement of financial position.
Net cash used in investing activities was €-12,337 million in 2017, mainly reflecting: ■ €-11,721 million of net cash used in purchases and sales of financial invested assets; ■ €-256 million of net cash impact of assets lending / borrowing collateral receivables and payables.
Net cash used in investing activities was €-10,269 million in 2016, mainly reflecting: ■ €-13,980 million of net cash used in purchases and sales of financial invested assets; ■ €+4,050 million of net cash impact of assets lending / borrowing collateral receivables and payables.
I Note 13 Shareholders’ equity and minority interests 13.1 IMPACT OF TRANSACTIONS WITH SHAREHOLDERS
During 2017, the following transactions had an impact on AXA’s share capital and capital in excess of nominal value: ■ a capital increase of €443 million from the employee share off ering (December 2017) of 19.6 million shares; ■ a capital increase of €133 million due to exercice of stock options; ■ share-based payments for €37 million; ■ a capital decrease of €688 million for 27.5 million shares in order to eliminate the dilutive effect of share-based compensation schemes (AXA SA’s stocks options, performance shares plans and share plan).
As of December 31, 2017, 2.1 million treasury shares backing contracts where financial risk is borne by policyholders held in consolidated investment funds were not deducted from shareholders’ equity. Their total estimated historical cost was €39 million and their market value €52 million at the end of December 2017.
As described in the accounting principles, undated subordinated debt instruments issued by the Group do not qualify as liabilities under IFRS.
In 2017, the following transactions pertaining to undated subordinated debt had an impact on AXA’s other reserves: ■ €-331 million from repayment of undated subordinated debt,
As of December 31, 2017 and December 31, 2016, undated subordinated debt recognized in shareholders’ equity broke down as follows: (in million)
(a) These undated Deeply Subordinated notes were part of the liability management exercise launched on October 29, 2014.
As of December 31, 2016, 1.9 million treasury shares backing contracts where financial risk is borne by policyholders held in consolidated investment funds were not deducted from shareholders’ equity. Their total estimated historical cost was €31 million and their market value €45 million at the end of December 2016.
RESERVES RELATED TO CHANGES IN FAIR VALUE OF AVAILABLE FOR SALE FINANCIAL INSTRUMENTS INCLUDED IN SHAREHOLDERS’ EQUITY
Unrealized gains and losses (net of tax) - Assets available for sale 16,174 15,317
Unrealized gains and losses (net of tax) - Equity accounted companies 20 58
On December 31, 2017, most of the unrealized gains on assets available for sale related to Life & Savings activities, leading to significant movements in shadow policyholder participation and other obligations.
(limited to investment result or not) are significant, the reconciliation between gross unrealized gains and losses on available for sale financial assets and the corresponding net reserve recognized in shareholders’ equity were as follows as of December 31, 2017:
Less unrealized gains and losses attributable to: Shadow accounting on policyholders’ participation and other obligations (12,982) (6,810) (2,131) (2,377)
Shadow accounting on Deferred Acquisition Costs (b) (295) - (77) (88)
Shadow accounting on Value of purchased Business In force - - (105) (10)
Unrealized gains and losses (net of tax) - Assets available for sale 3,185 798 1,116 2,329
UNREALIZED GAINS AND LOSSES (NET OF TAX) – 100% - TOTAL 3,229 798 1,116 2,329
UNREALIZED GAINS AND LOSSES (NET GROUP SHARE) 3,222 798 967 2,329
The change in reserves related to changes in fair value of available for sale financial instruments included in shareholders’ equity as of December 31, 2017, and December 31, 2016 broke down as follows: (in Euro million)
Unrealized gains and losses (net of tax) 100%, opening 15,376 13,352
Investments bought in the current accounting period and changes in fair value 2,177 2,936
The Group share translation reserves (€-4,588 million) was mainly driven by the the United States (€-1,967 million), Switzerland (€953 million), Asia (€-628 million), Japan (€-571 million), AXA IM (€-227 million) and International (€-198 million).
The total impact of employee benefits actuarial gains and losses amounted to €+408 million (of which Group share was €+405 million and minority interests were €+3 million) as of December 31, 2017.
partially off set by: ■ net experience losses mainly driven by the decrease in discount rates (mainly in the United Kingdom and United States) and other parameters aff ecting the defined benefit obligation.
The Group share translation reserves movement (€-150 million) was mainly driven by the United Kingdom (€-717 million), International (€-157 million), France (€-51 million) and change in fair value of derivatives and debt hedging net investments in foreign operations (€-85 million), partly off set by the United States (€+459 million) and Japan (€+392 million).
The total impact of employee benefits actuarial gains and losses amounted to €-581 million (of which Group share was €-580 million and minority interests was €-1 million) as of December 31, 2016.
• decrease in a real estate fund due to capital redemption and market eff ects for €-23 million.
The €1,117 million increase in minority interests to €5,283 million was driven by comprehensive income and transactions with minority interests’ holders: ■ the comprehensive income for the period notably included the following: • net income attributable to minority interests for €+364 million,
14.1 BREAKDOWN OF LIABILITIES ARISING FROM INSURANCE AND INVESTMENT CONTRACTS (GROSS AND REINSURERS’ SHARE)
Reinsurers’ share in insurance and investment contracts’ liabilities (E) 4,773 1,138 264 3,905 1,055 1,946 13,081
TOTAL INSURANCE AND INVESTMENT LIABILITIES NET OF REINSURER’S SHARE (F = D-E) 171,267 233,629 56,107 162,670 12,610 7,574 643,857
Reinsurers’ share in insurance and investment contracts’ liabilities (E) 4,464 1,177 389 5,459 873 2,625 14,988
(a) Other liabilities was comprised of unearned revenue and unearned fee reserves, liabilities arising from policyholders’ participation and other obligations, and derivatives instruments relating to insurance and investment contracts.
14.1.2 Breakdown of Liabilities arising from Insurance and Investment contracts (gross and reinsurers’ share)
Total insurance and investment liabilities (D = A+B+C) 590,295 66,643 656,938 608,320 66,980 675,299
Reinsurers’ share in insurance contracts liabilities 8,272 4,730 13,002 9,483 5,274 14,756
Reinsurers’ share in liabilities arising from investment contracts 69 - 69 93 - 93
Total reinsurers’ share in insurance and investment contracts liabilities (E) 8,342 4,739 13,081 9,712 5,276 14,988
TOTAL INSURANCE AND INVESTMENT LIABILITIES NET OF REINSURERS’ SHARE (F = D-E) 581,953 61,904 643,857 598,607 61,704 660,312
Liabilities arising from insurance contracts, including those where the financial risk is borne by policyholders, as disclosed in the total (A) of Note 14.1.1, were split by as follows: (In Euro million)
Sub-total Liabilities arising from insurance contract (C = A+B) 494,615 66,216 560,831 508,096 66,694 574,791
Reinsurers’ share in unearned premiums reserves 45 805 850 43 817 859
Reinsurers’ share in claims reserves (a) 1,897 3,952 5,849 1,602 4,475 6,077
Sub-total Reinsurers’ share in liabilities (F = D+E) 8,272 4,730 13,003 9,483 5,274 14,757
(a) Includes reserves for claims handling expenses. (b) For the detail of Property & Casualty IBNR, see Note 21.3.3. (c) Notably includes non-life annuities mathematical reserves. (d) See Note 1.14.2 – Reserves measured according to the option off ered by IFRS 4.24 for selective re-measurement of reserves at current market assumptions.
Reinsurers’ share in liabilities arising from investment contracts where the financial risk is borne by policyholders (G) 4 4
Note: Liabilities relating to unearned revenues and fees (see Note 7.3), to policyholders’ participation (see Note 14.9), and derivative instruments (see Note 20.4), are excluded from the table above. Reinsurance’s share in investments contracts liabilities relating to policyholders’ participation (none in 2017 and 2016), as well as derivatives instruments (none in 2017 and 2016) are excluded from the table above.
14.4 CHANGE IN CLAIMS RESERVES FOR PROPERTY & CASUALTY (INSURANCE CONTRACTS)
Change in scope of consolidation and change in accounting method 73 441
Reinsurers’ share in claims reserves as of December 31 3,952 4,475
Technical reserves as of January 1 (a) 508,096 50,358 558,454 485,560 76,606 562,166
Surrenders, maturities and other claims and benefits paid net of charges and penalties (-) (49,363) (5,322) (54,686) (49,286) (6,781) (56,068)
Technical reserves as of December 31 (a) 494,615 51,995 546,610 508,096 50,358 558,454
In 2017, the change in scope of consolidation totalled €2,926 million, mainly due to the classification in held for sale due to the planned sale of ProbAV Pensionskasse AG in Germany for €3,016 million as well as AXA Wealth Management (HK) Limited (“AWM”) in Hong Kong for €914 million, partly off set by €1,097 million related to a change in reserve classification at AXA France.
In 2016, the change in scope of consolidation totalled €24,715 million, mainly due to the disposal of UK L&S business for €-23,804 million and the classification as held for sale of AXA Life Europe UK and Ireland business for €-941 million.
14.5.2 Change in reinsurers’ share in liabilities arising from insurance and investment contracts
Change in scope of consolidation and change in accounting principles 193 - 193 (1) - (1)
Impact of foreign currency fluctuation (636) (3) (638) 168 0 169
(Unit-Linked) – Liabilities arising from contracts where financial risk is borne by policyholders: Investment contracts with Discretionary Participation Features (DPF) measured according to existing accounting policies (a) (c) 3,637 3,593
The loss reserve development table shows movements in loss reserves between 2007 and 2017, based on previously applied accounting standards. All contracts concerned are insurance contracts as defined by IFRS.
The first line labelled “Gross reserves for unpaid claims and claim expenses developed initially at the booking date” represents the loss reserves developed in the Group’s balance sheet on the reporting date for the year indicated in the column heading. For example, the amount of €44,020 million appearing in the first line of the table in the 2007 column represents all loss reserves developed in all years of occurrence prior to and including 2007, recognized on the Group’s balance sheet as of December 31, 2007.
The surplus (shortfall) of the initial reserve with respect to the re-estimated (gross) final cost for each year represents, for a given year N, the diff erence between the amount shown in the second line (gross reserves for unpaid claims and claims expenses developed in 2017 adjusted for changes in exchange rates and scope of consolidation) and the amount shown in the final diagonal under “Reserve re-estimated”.
TOTAL GROSS CLAIM RESERVES AND OTHER RESERVES FOR PROPERTY & CASUALTY 55,165 55,641
(a) Total gross claims and other reserves developed are presented on the basis of the loss reserves development table. The reserves of AXA Corporate Solutions Insurance US were included in Property & Casualty reserves.
The calculation of reserves for asbestos risks raises specific diff iculties as conventional reserving techniques cannot be used for evaluating IBNR. AXA evaluates the future cost of those claims using a range of specific methods based either on exposure analysis, frequency / cost projections or reserving benchmarks. Asbestos reserves are reviewed on a yearly basis to ensure that they adequately reflect the latest claims experience, as well as legal and economic developments. Consistent with AXA’s reserving practices, and despite the particularly long-tail nature of those risks, reserves for asbestos are undiscounted.
(a) Reserves at the end of the year / Average yearly payments over the last 3 years (excluding commutations).
AXA held total reserves for asbestos exposure (net of reinsurance) of €832 million at year-end 2017. This decrease was mainly driven by release for French asbestos and movement in exchange rates between 2017 and 2016.
14.9 LIABILITIES AND ASSETS ARISING FROM POLICYHOLDER PARTICIPATION AND OTHER OBLIGATIONS
14.10 PAYMENT, SURRENDER PROJECTIONS, INSURANCE AND INVESTMENT CONTRACT LIABILITIES DISCOUNT RATES
The table below shows the breakdown of projected payments and surrenders related to insurance and investment contracts (excluding contracts where the financial risk is borne by policyholders). Actual maturities may diff er significantly from the estimates set out below, mainly because some of the contracts contain a surrender option controlled by the policyholder that may reduce their duration.
As shown in the table below, as at December 31, 2017: 88% of Life & Savings reserves (excluding unit-linked contracts) were discounted, of which 15% were subject to a revision of the discount rate and 73% retained the rate set at inception, subject to the liability adequacy test described in Note 1.
In Property & Casualty business, most reserves (91% as of December 31, 2017) are not discounted, with the exception of disability annuities and worker s’ compensation liabilities that are deemed structured settlements and where the discount rate is revised regularly. Undiscounted reserves are not sensitive to interest rate risks in the financial statements.
Life & Savings – unlocked discount rate 54,964 2.62% 53,587 2.81%
Non Life – locked-in discount rate (a) 4,285 3.15% 4,235 3.59%
Liabilities arising from insurance contracts (as per Note 14.2) 401,129 414,569
Liabilities arising from investment contracts with discretionary participating features (as per Note 14.3) 33,199 32,466
The estimated impact of the unlocking of discount rates relating to Life & Savings reserves was €745 million reserve decrease for 2017 (compared to €231 million reserve decrease for 2016) gross of policyholders’ participation, tax impacts and other shadow accounting impacts and was included in the income statement of the period.
The tables in Note 21 set out the Group’s major insurance business areas, and reflect the Group’s high degree of diversification.
Macro-hedge derivatives and other derivatives relating to liabilities arising from banking activities (334) (334) (370) (370)
The fair value option is used to measure the fair value through profit or loss of certain banking liabilities. The December 31, 2017, carrying fair value amount and the related contractual amount due at maturity for such liabilities where €2,710 million and €2,483 million, respectively (€2,810 million and €2,647 million at December 31, 2016), including the Euro Medium Term Notes.
In 2017, the Group early adopted the IFRS 9 requirements for the classification and measurement of these liabilities, which require that the changes in fair value that are attributable to changes in the credit risk of the liabilities be recognized in other comprehensive income, unless doing so would create or enlarge an accounting mismatch in profit or loss. This limited early adoption resulted in a loss arising from changes in these liabilities attributable to changes in the credit risk of the liabilities of €30 million (gross of tax) in other reserves within the shareholder s’ equity as of December 31, 2017. This amount is comprised of a €12 million (gross of tax) reclassification from undistributed profits related to the retrospective application of the new policy for liabilities recognized in the balance sheet at January 1, 2017 and €-42 million (gross of tax) related to the changes in the fair value of liabilities for the year ending December 31, 2017.
The Group applies the IFRS 13 fair value hierarchy as described in Note 1.5. The valuation method of liabilities arising from banking activities excluding derivatives (detailed in Note 20.5) are as follows: ■ banking liabilities issued at fair value – Retail customers (€2,710 million as of December 31, 2017): • €1,361 million as of December 31, 2017 (€1,326 million as of December 31, 2016) based upon market prices that are available in active markets and are considered as level 1 fair values,
• €541 million fair values as of December 31, 2017 (€462 million as of December 31, 2016) mainly based on non-observable market data inputs and are considered to be level 3 fair values; ■ retail customers (€21,016 million as of December 31, 2017), Corporate customers (€3,271 million as of December 31, 2017), and Interbanking refinancing (€1,390 million as of
December 31, 2017), are not traded in active markets and quoted prices are not available. Given the short maturities of main liabilities arising from banking activities (see Note 15.2), the carrying amounts may be considered as reasonable proxies for fair values. Thus, the fair value of amounts displayed above for these instruments are considered to be level 3 fair values.
■ other liabilities arising from banking activities relate to bonds issued with fair values mainly based on observable market data inputs. As such, the fair values of these liabilities are considered as level 2 instruments.
Other liabilities arising from banking activities 42 2,127 1,000 3,169 917 1,104 743 2,765
As of December 31, 2017, the “Other provisions for risks and charges” mainly included provisions for tax liability (€724 million)
principally in the United States (€455 million) and Germany (€159 million). Other provisions for risks and charges other than provisions for tax liability amounted to €1,380 million mainly in France (€501 million), Germany (€232 million) and Switzerland (€166 million).
16.2 CHANGE IN PROVISIONS FOR RISKS AND CHARGES (EXCLUDING EMPLOYEE BENEFITS AND SHARE-BASED COMPENSATION)
AXA SA - Subordinated notes, 5.125%, due 2047 (US$) 834 -
For the sensitivity to movements in interests rates, please refer to page 171 of the “Interest rates & Equity risk related to the operating activities of Group subsidiaries” Section 4.3 Market risks .
(a) Hedging instruments in accordance with IAS 39 and economic hedge derivatives which are not acting as hedge under IAS 39.
Data used when calculating the fair value of financing debt are period-end market data that reflect (i) interest rates by currency, (ii) AXA’s average spread by maturity and currency, distinguishing subordinated and senior debt and (iii) options included in issued contracts, such as issuer redemption options.
The fair value of subordinated convertible bonds is equal to the quoted price for these instruments at the end of the period. Therefore, reported fair value includes the value of the conversion option, which is included as a component of equity. As of December 31, 2017, AXA does not have this type of debts.
The fair value of financing debt as of December 31, 2017, excluding accrued interests, was €9,742 million, including related hedging derivative instruments. The fair value decreased by €157 million compared to December 31, 2016, mainly due to the repayment of some financial debts instrument issued which was partially off set by the issuance of new financing debt instruments.
Carrying value of financing debt by contractual maturity as of December 31
Impact of Derivatives Total carrying value including derivatives12 months or less More than 1 year up to 5 years More than 5 years
The “Minority interests of consolidated investment funds” caption is the counterparty of assets recognized on the diff erent lines of the consolidated balance sheet for the share not held by the Group in consolidated investment funds. Movements in this caption both depend on the changes in the Group’s ownership and the changes in fair value of these funds.
“Collateral debts relating to investments under lending agreements and equivalent” totaled €28,401 million as of December 31, 2017, a decrease of €2,001 million compared to December 31, 2016, mainly due to activities in the United States, France and Switzerland, and partially off set by those in Hong Kong.
Other debt instruments issued, notes and bank overdraft s (other than financing debt) by issuance are described below: (in Euro million)
OTHER DEBT INSTRUMENTS ISSUED, NOTES AND BANK OVERDRAFTS EXCLUDING TRS 3,043 2,081
As of December 31, 2017, other debt instruments issued and bank overdraft s excluding total return swap agreement (“TRS”) totaled €3,043 million, an increase of €962 million compared to December 31, 2016, mainly due to the increase in other debt instruments issued.
As of December 31, 2017, payables arising from direct insurance and inward reinsurance operations as disclosed in the Note 18.1, totaled €9,318 million, a decrease of €1,038 million compared to December 31, 2016, mainly due to the decrease in payables to policyholders, brokers and general agents and reinsurance operations in Switzerland, France and AXA Global Re.
Debts relating to investments under total return swap agreement (“TRS”) 5 167 3,436 3,608
Debts relating to investments under total return swap agreement (“TRS”) - 163 949 1,112
Other debt instruments issued, notes and bank overdraft s excluding TRS - Carrying value 1,928 153 0 2,081
Collateral debts relating to investments under a lending agreement and equivalent 29,030 1,372 - 30,402
The reconciliation between the theoretical tax charge (pre-tax profit multiplied by the applicable tax rate in France for the period concerned) and the eff ective tax charge was as follows: (in Euro million) December 31, 2017 December 31, 2016
Income from operating activities, gross of tax expenses (excluding result from investments consolidated using equity method) 7,421 8,853
Impact of rates diff erence on notional tax charges (420) (406)
Impact of diff erences in tax rate and impact of taxes not linked to pre-tax income 26 179
Deferred tax assets recognized on tax losses of prior years (30) (28)
Deferred tax assets not recognized on tax losses of the year 31 18
Derocognition of deferred tax assets on tax losses of prior years (a) 19 5
■ Impact of permanent differences (-4 points) mainly represented the impact in some countries of non-taxable dividends and realized capital gains on equity instruments which were favored by strong equity performance in 2017, partly compensated by non-deductible financial impairments and realized capital losses on equity instruments.
RECOGNIZED DEFERRED TAX ASSETS (DTA) ON TAX LOSS CARRIED FORWARD BY MATURITY AND EXPIRATION DATE: The tables below break down (i) in the first part the maturity by which the Group expects to use the DTA accounted at yearend and the corresponding tax losses carried forward, (ii) in the second part, the “expiration date” of the DTA, i.e. the latest date at which the Group could use them.
DTA recognized on tax losses carried forward 298 221 245 251 163 93 248 40 - 1,558
DTA recognized on tax losses carried forward 10 8 4 1 9 - 99 306 1,120 1,558
The amount of the potential DTA which has not been recorded in the accounts at the end of the year as considered unrecoverable represented €237 million (€272 million in 2016) of which: ■ €170 million concerned unrecognized DTA on €913 million tax losses carried forward (€199 million DTA on €1041 million tax losses carried forward in 2016). The major part of these losses has no maturity date (€730 million in 2017 and €818 million in 2016); ■ €66 million related to other unrecognized deferred tax assets (€73 million in 2016).
This Note includes all types of derivatives including derivative instruments held by consolidated investment funds in the “Satellite Investment Portfolio”(see Note 1.8.2) which are recognized at fair value in accordance with the IFRS hierarchy as described in Note 1.5, but excluding derivative instruments that meet the definition of shareholders’ equity instruments (see Note 13 for details).
Maturity of notional amount as of December 31, 2017 (a) Notional amount Positive fair value Negative fair value Net fair value
< 1 year 1 to 5 years > 5 years restated (b) December restated (b) December restated (b) December restated (b)
Note: This table includes all derivatives (assets and liabilities) as described in Note 1.10, i.e. hedge, macro-hedge and other asset or liability positions. (a) Restated to include derivatives instruments held by consolidated investment funds in the “Satellite Investment Portfolio” (see Note 1.8.2).
AXA uses derivatives primarily to hedge various risks stemming from both sides of the balance sheet in the context of its Asset Liability Management (ALM) strategy in insurance companies, as well as holdings and banks. Notional amount of such hedging strategies amounted to €453.5 billion as of December 31, 2017 (€442.3 billion at the end of 2016) and includes: ■ managing interest rate exposures on fixed maturity investments, long-term debt and guaranteed interest rates on insurance contracts; ■ reducing foreign-currency exposures on foreign-currency denominated investments and liabilities; ■ managing liquidity positions (including the ability to pay benefits and claims when due) in connection with Asset Liability Management and local regulatory requirements for insurance and banking operations; ■ limiting equity risk; ■ limiting credit risk with regard to certain investments in corporate debt instruments.
In particular, hedging activities are one of the most important instruments to decrease the risk of the options and guarantees that are embedded in most Life & Savings products and in some Property & Casualty products; they also lead to a reduction of the capital requirements for those business activities under Solvency II. The various policies that AXA applies with reference to the use of derivatives and hedging instruments, include a close monitoring of its hedging strategy and associated risks as part of a Systemic Risk Management Plan (SRMP), approved by the Management Committee and the Board of Directors, in the context of the policy measures that apply to Global Systemically Important Insurers (GSII).
In 2017, the use of derivatives within the Group increased overall by €10.4 billion in terms of notional amount for the main reasons listed below (see also details in Note 20.2.1.): ■ notional amount of interest rates derivatives increased by €14.7 billion, mainly due to (i) the increase of interest rate derivatives mainly in the Company for hedging debts, (ii) the unwind of interest rate caps and the purchase of interest rate swaps mainly in AXA Bank Belgium and (iv) the increase of interest rate swaps in the United Kingdom; ■ notional amount of credit derivatives decreased by €7.4 billion due to the exposure to the corporate spread risk decrease; ■ notional amount of equity derivatives increased by €7.8 billion due to hedge the equity risk as part of the Asset Liability Management strategy; ■ notional amount of currency derivatives decreased by €1.6 billion compared to 2016 mainly due to a decrease in fair value of foreign currency portfolios.
In the tables above, the fourth column includes derivatives that do not qualify for hedge accounting under IAS 39, but whose objective is nevertheless to provide economic hedging of a risk, with the exception notably of certain credit derivatives. They also include “macro-hedging” derivatives as defined by the IASB in IAS 39.
As of December 31, 2017 the notional amount of hedging derivative instruments as defined by IAS 39 (fair value hedge, cash flow hedge and net investment hedge) of the Group was €78.1 billion versus €73.6 billion in 2016. The net fair value recorded was €-1,111 million as of December 31, 2017, versus €-578 million in 2016.
As of December 31, 2017, the notional amount of interest rate derivative instruments totalled €231.1 billion (€216.4 billion at the end of 2016). Their net fair value as of December 31, 2017 totalled €1,725 million (€2,812 million at the end of 2016). AXA mainly uses (i) interest rate swaps (62% of total notional amount of interest rate derivative instruments), (ii) interest rate options (18%), and (iii) futures and forwards (18%).
These instruments are mainly used to: ■ hedge interest rate risk and interest volatility risk as part of the Asset Liability Management strategy associated with the guaranteed minimum benefits on Variable Annuity products, with notional amount of €53.3 billion at the end of 2017 (€53.5 billion at the end of 2016) mainly in the United States (notional amount of €22.5 billion in 2017 versus €22.4 billion in 2016), Germany (notional amount of €15.2 billion in 2017 versus €12.8 billion in 2016), in Japan (notional amount of €8.5 billion in 2017 versus €10.2 billion in 2016), in Italy (notional amount of €1.7 billion in 2017 versus €2.5 billion in 2016) and in Switzerland (notional amount of €1.6 billion in 2017 versus €1.6 billion in 2016); ■ manage duration gap and/or hedge convexity risk between assets and liabilities on the General Account as a part of Asset Liability Management strategies mainly in France for €60.7 billion (versus €63.3 billion in 2016), Japan for €16.8 billion in 2017 (versus €19.5 billion in 2016) and in Switzerland for €3.5 billion in 2017 (versus €3.6 billion in 2016); ■ minimize the cost of Group debt and limit volatility of financial charges, mainly in the Company, with notional amount of €40.5 billion in 2017 versus €30.9 billion in 2016, mainly due to the management of its interest rate derivatives in a context of low but volatile interest rate environment; ■ hedge interest rate risk exposures arising in the context of its ordinary banking activities, mainly at AXA Bank Belgium, in order to manage an interest rate exposure between its interest-earning assets and interest-bearing liabilities mainly by interest rate swaps (notional value of €18.6 billion in 2017 versus €13.0 billion in 2016).
As of December 31, 2017, the notional amount of currency derivative amounted to €147.9 billion versus €149.5 billion in 2016. Their market value was €-867 million versus €-2,921 million in 2016. AXA mainly uses (i) currency future and forward contracts (63% of total notional amount of currency derivative instruments), (ii) currency swaps (19%) and (iii) currency option contracts (16%).
A description of exchange-rate risk related to the operating activities of Group subsidiaries and the Company is included in Section 4.3 “Market Risks” with amounts of exposures to exchange-rate risk and corresponding hedges.
(a) Carrying value, i.e net of impairment, discount premiums and related amortization, including accrued interest, but excluding any impact of derivatives. (b) Including macro-hedge and other derivatives.
Macro-hedge and other derivatives 0 349 349 - (203) (203) 0 146 146
Assets backing contracts where the financial risk is borne by policyholders 175,277 15 175,292 - - - 175,277 15 175,292
(a) Restated to include derivative instruments held by consolidated investment funds in the “Satellite Investment Portfolio” (see Note 1.8.2). (b) Carrying value, i.e net of impairment, discount premiums and related amortization, including accrued interest, but excluding any impact of derivatives. (c) Including macro-hedge and other derivatives. (d) Carrying value (see (b)), but including eff ect of hedging instruments (IAS 39), economic hedging instruments not acting as hedging under IAS 39, macro-hedge and other derivatives.
(e) Other investments held through consolidated investment funds designated as at fair value through profit or loss.
The impact of derivative instruments is presented in the balance sheet within their related underlying financial liabilities (and assets see Note 20.3). The tables below set out the impact of derivative instruments on the related underlying liabilities.
Liabilities arising from insurance contracts 401,129 (1,109) 400,020 414,569 (1,489) 413,080
Liabilities arising from insurance contracts where the financial risk is borne by policyholders 159,702 (0) 159,702 160,222 0 160,222
As of December 31, 2017, derivatives related to banking liabilities shown in Note 15 are used to hedge interest rate risk exposures in the context of ordinary banking activities, in order to achieve an appropriate interest rate spread between its interest earning assets and interest bearing liabilities. Related hedged assets are disclosed in Note 9.4.2. and liabilities in Note 15.
Fair value determined directly by reference to an active market (Level 1)
Fair value mainly not based on observable market data (Level 3)
The Group mitigates counterparty credit risk of derivative instruments by contractually requiring collateral for the majority of derivative contracts. As of December 31, 2017, the adjustment to the fair value of derivatives for non-performance risk was not material.
Given the Group’s scale and diversity, none of its client’s accounts for more than 10% of its business.
Life contracts (including endowment contracts) 20,533 167,856 898 21,433 178,806 970
Fees and charges relating to investment contracts with no participating features (b) 211 - 15,159 219 - 14,299
(a) Excludes liabilities relating to unearned revenues and fees, and policyholder bonuses, along with derivatives relating to insurance and investment contracts. (b) Relates to liabilities arising from investment contracts without discretionary participation features and investment contracts without discretionary participation features where the financial risk is borne by policyholders.
Net investment result (excluding financing expenses) from the financial assets of insurance c ompanies and c ompanies in other business segments (excluding revenues from the financial assets of banks included in net revenues from banking activities) was as follows: (in Euro million)
Non consolidated investment funds designated as at fair value through profit or loss 271 - 189 - 460
Debt instruments designated as at fair value through profit or loss (b) 1,036 - (315) - 722
Non quoted debt instruments (amortized cost) 117 1 - - 119
Equity instruments designated as at fair value through profit or loss (c) 321 - 325 - 645
Net realized gains and losses and change in fair value of investments designated as at fair value through profit or loss consist mainly of: ■ adjustments relating to investments backing contracts where the financial risk is borne by policyholders which are off set by an adjustment of related policyholder reserves, as there is a full pass through of the performance of held assets to the individual contract holder; ■ changes in the fair value of investments designated as at fair value through profit or loss held by funds of the “Satellite Investment Portfolios” as defined in Note 1.8.2; ■ changes in fair value of underlying hedged items in fair value hedges (as designated by IAS 39) or “natural hedges” (i.e. underlying assets designated as at fair value through profit or loss part of an economic hedge not eligible for hedge accounting as defined by IAS 39).
Premiums ceded and unearned premiums ceded (1,682) (721) (489) (559) (790) (1,116) 502 (4,855)
Claims ceded (including change in claims reserves) 1,221 320 322 849 511 663 (290) 3,597
Commissions received from / paid to reinsurers 186 100 89 6 130 198 (30) 680
NET RESULT OF REINSURANCE CEDED (275) (300) (78) 296 (149) (254) 182 (578)
Premiums ceded and unearned premiums ceded (2,525) (710) (628) (562) (772) (1,119) 424 (5,893)
Commissions received from / paid to reinsurers 183 96 87 12 115 182 (17) 657
In 2017, financing debt expenses, which include income and expenses relating to hedging derivative instruments on financing debt, amounted to €315 million (€296 million in 2016) mainly in the Company: €206 million (€209 million in 2016).
Change in deferred acquisition expenses and equivalents (b) (1,252) - - (1,252) (695)
(a) Includes all acquisition expenses relating to insurance and investment contracts before capitalization/amortization of deferred acquisition expenses and equivalents. (b) Change (capitalization and amortization) in deferred acquisition expenses relating to insurance and investment contracts with discretionary participation features and changes in net rights to future management fees relating to investment contracts with no discretionary participation features.
Increase/(write back) of tangible assets amortization (5) (0) - (5) 1
Charges relating to owner occupied properties 538 229 (0) 766 814
Expenses increased by €5 million compared to December 31, 2016. On a constant exchange rate basis, expenses increased by €417 million, mainly in insurance activities resulting from: ■ the United States (€+357 million) driven by both higher acquisition costs due to higher new business as well as the impact of Deferred Acquisition Costs related to both actuarial and GMxB model changes; ■ Asi a (€+226 million) notably in Hong Kong resulting mainly from the non-repeat of income following portfolio growth of coinsured business in 2016; ■ France (€+132 million) mainly driven by higher volume and unfavorable business mix on international deals; partly off set by: ■ Europe (€-406 million) primarily from Belgium and Germany mainly due to the non-repeat of restructuring costs booked in 2016.
The defined benefit plans within AXA are mostly final salary pension plans or are based on a cash balance formula, which provide with members, benefits in the form of a guaranteed level of lump-sum payable at retirement age or pension payable for life. The level of benefits is generally based on members’ length of service and their salary in the final years leading up to retirement.
In Switzerland, the benefit plan is a Swiss contribution-based plan classified as a defined benefit plan under IAS 19 because of guarantees, risks related to the mortality and disability coverage.
In the United Kingdom, the main defined benefit plan was closed to new members on August 31, 2013 and members who were part of defined benefit sections had the option to participate in the defined contributions sections.
The assumptions for each of the liabilities are consistent with the economic features of the corresponding countries’ plans. The weighted-average financial assumptions used by AXA for pension plans in the principal regions in which AXA operates were as follows: DECEMBER 2017 ASSUMPTIONS
For any given plan, the discount rate is determined at the closing date by using market yields for the corresponding currency on high quality corporate bonds with consideration of AA-rated bonds and depending on the plan’s duration and the maturity profile of the defined benefit obligation.
Significant demographic assumptions used by AXA are mortality tables in the measurement of the Group’s obligations under its defined benefit schemes. These assumptions are oft en set based on actuarial advice in accordance with published statistics and experience in each country. Translated into averages remaining life expectancy at retirement age (between 60 and 65 in average), the mortality assumptions would give: ■ 22.83 years for male and 25.31 years for female retiring at end of December 2017; ■ 25.52 years for male and 28.10 years for female retiring at end of December 2027 (i.e. 10 years aft er the reporting date).
The table below presents the change in benefit obligation and the change in plan assets associated with pension plans and other benefit plans sponsored by AXA, together with an analysis of Separate Assets and the balance sheet position.
Change in benefit obligation Defined Benefit Obligation at the beginning of the year 22,132 21,093 645 623 22,777 21,716
Defined Benefit Obligation at the end of the year (A) 20,497 22,132 566 645 21,062 22,777 Change in plan assets Fair value of plan assets at the beginning of year 12,436 11,697 6 5 12,442 11,702 Interest income on plan assets 227 264 0 0 227 264 Actual return on plan assets, excluding interest income 657 1,399 (1) 0 657 1,399
Fair value of separate assets at the end of the year 1,281 1,204 - - 1,281 1,204 Change in the cumulative eff ect of asset ceiling Cumulative eff ect of asset ceiling at the beginning of the year 18 19 - - 18 19 Interest cost on asset ceiling 0 1 - - 0 1 Changes in the asset ceiling, excluding the interest cost (0) 1 - - (0) 1
Cumulative impact of asset ceiling (17) (18) - - (17) (18) Liability and asset recognized in the statement of financial position (excluding separate assets) Net position (excluding separate assets) (8,094) (9,713) (560) (639) (8,654) (10,352) Fair value of separate assets at the end of the year 1,281 1,204 - - 1,281 1,204 Net balance sheet position (including separate assets) (6,813) (8,509) (560) (639) (7,373) (9,148) (a) In 2017, this amount mainly included plan amendments eff ect in Japan. In 2016, this amount mainly included plan amendments or curtailments eff ect in France and Germany. (b) In 2016, this amount mainly included AXA Portugal disposal eff ect. (c) In 2017, this amount included additional contributions paid to plan assets in the United Kingdom to reduce the deficit. In 2016, this amount included additional contributions paid to plan assets in the United Kingdom and in the United States to reduce the deficit.
A surplus (including any minimum funding requirement eff ect) is recognized to the extent that it is recoverable, either through future contribution reductions or a refund to which the Group has an unconditional right, including the ability to use the surplus to generate future benefits.
Interest income on plan assets (227) (264) (0) (0) (227) (264)
Interest cost on asset ceiling 0 1 - - 0 1
Defined pension and other benefits expense (Service Cost + Net Interest Cost/Income) 339 288 21 26 359 313
The calculation of the periodic pension cost is based on a “spot rate approach” or “full yield approach” that involves the use of separate discount rates of the yield curve (retained for the valuation of the Defined Benefit Obligation), to determine the related service cost, interest cost and interest income on assets associated to each discounted cashflow or segregated subsets of plan’s obligation.
Consistently with IAS 19 requirements, this Note only considers liabilities net of Plan Assets and therefore excludes Separate Assets and assets within the insurance General Accounts that are backing employee benefits.
Separate Assets amounted to €1,281 million as of December 31, 2017 (€1,204 million as of December 31, 2016) mainly in France and Belgium. This represents the fair value of assets backing Defined Benefit Obligations covered by both i) insurance policies written within the Group that provide direct rights to the employees and ii) insurance policies with related parties that are outside the scope of consolidation. Under these circumstances, these assets are not considered Plan Assets that would be deducted from pensions’ DBO (Defined Benefit Obligation), but represent reimbursement rights accounted for as Separate Assets under IAS 19. Insurance assets or liabilities (within the Group) and pension obligations remain on the balance sheet.
IAS 19 considers liabilities net of Plan Assets on the one hand and Separate Assets and a part of Swiss assets on the other hand separately while economically, Separate Assets and a part of Swiss assets should be considered as backing Defined Benefit Obligation like any other Plan Assets (which are presented in Note 26.2.8.) and deducted from the Defined Benefit Obligation. The presentation required by IAS 19 seems to imply that such DBOs are not covered by corresponding assets.
Consistently with IAS 19 requirements, the roll-forward of the statement of financial position liability from January 1, 2017 to December 31, 2017 shown below only captures the evolution of the liability recorded in the Group’s statement of financial position net of Plan Assets and does not include Separate Assets and Swiss assets included in the Insurance General Account liabilities (which are presented in Note 26.2.8.). The table below shows the detailed roll-forward of the statement of financial position liability, with the Separate Assets added at each year end.
Statement of financial position liability at the beginning of the year (9,713) (9,415) (639) (618) (10,352) (10,033)
Benefits directly paid by the employer 310 312 38 39 348 352
Net transfer In/(Out) (including acquisitions, disposals and reclassifications) 0 5 (0) (1) - 4
Actuarial gains and losses recognized in OCI 894 (840) (5) (23) 889 (863)
Statement of financial position liability at the end of the year (8,094) (9,713) (560) (639) (8,654) (10,352)
The sensitivity analysis are performed plan by plan using the projected unit credit method (same than the method applied when calculating the defined benefit liability recognized in the statement of financial position) and are based on a change in an assumption while holding all other assumptions constant.
In Switzerland, the presentation of the pension liability reflects the fact that the assets covering a large part of the retirees do not qualify as pension assets defined under IAS 19 (not taken into consideration in the pension assets disclosures as described in Note 26.2.6) because managed internally by the insurance company and not handled by a third party. However, legally, the sole purpose of these assets is the coverage of the liabilities of the pension fund. This means that under statutory (and legal) requirements, the pension fund of AXA Switzerland is not underfunded and therefore there is no requirement of additional contributions from AXA.
In summary, considering both the Swiss case (and other entities in a similar case) and Separate Assets, the net economic situation of the funding for Defined Benefit plans is the following: (in Euro million)
Assets other than plan assets (b) 2,767 2,901 - - 2,767 2,901
(a) This amount represents the Defined Benefit Obligation less plan assets adjusted for any assets not recoverable. (b) This amount includes: Separate Assets or right to reimbursements and other assets managed within the Group but not taken into consideration in the pension disclosures as described in Note 26.2.6.
26.2.10 Management of risks specific to the Group arising from defined benefit plans
Local operating entities and trustees have the primary responsibility for managing the risks that plans are exposed to through a defined benefit plan, in accordance with local legislation if any and the risk framework defined at local level.
In most countries, Trustees or Investment Committees set the general investment policies and guidelines regarding the allocation of plan assets in accordance with the long term horizon of the benefit plans. The investment strategy is reviewed regularly, following actuarial valuations of the funded benefit plans.
(a) Net position (excluding separate assets) for pension benefits and other benefits as reported in Note 26.2.6. (b) Included in the net position above but the contribution of held for sale operations is stated on separate asset and liability items on the statement of financial position. (c) It corresponds to a liability of €9,075 million as of December 31, 2017 (€10,738 million as of December 31, 2016) included in the statement of financial position under the caption “ provision for risks and charges’’, and an asset included in the statement of financial position under the caption “ other receivables’’.
The cost includes the expenses from share-based compensation instruments issued by the Group as well as by AXA subsidiaries.
The fair value of AXA SA stock options is calculated using the Black & Scholes option pricing model. The eff ect of expected early exercise is taken into account through the use of an expected life assumption based on historical data. AXA SA share price volatility is estimated on the basis of implied volatility, which is checked against an analysis of historical volatility to ensure consistency. The expected AXA SA dividend yield is based on the market consensus. The risk-free interest rate is based on the Euro Swap Rate curve for the appropriate term.
The option pricing assumptions and fair value at grant date for plans issued in 2017, 2016, 2015, and 2014 are as follows: Assumptions (a)
Weighted average fair value per option at grant date in Euro (b) (c) 1.81 1.80 1.42 1.88
The total cost is amortized over the vesting period and an estimated pre-vesting lapse rate of 0% is applied over the remaining vesting period. On that basis, the expense recognized in profit or loss for the year ended December 31, 2017 was €4.5 million (€4.3 million for the year ended December 31, 2016).
AXA off ers its employees the opportunity to become shareholders through a special employee share off ering. In countries that meet the legal and fiscal requirements, two investment options are available: the traditional plan and the leveraged plan.
The cost of this plan is valued taking into account the five-year lock-up period, as recommended by the ANC (Autorité des normes comptables). The ANC approach values the restricted shares through a replication strategy whereby the employee would sell the restricted shares forward at the end of the lockup period, borrow enough money to buy unrestricted shares immediately, and uses the proceeds of the forward sale together with dividends paid during the lock-up period to finance the loan. For the leveraged plan, the cost also includes the opportunity gain implicitly provided by AXA by enabling its employees to benefit from an institutional price for derivatives as opposed to a retail price.
In 2017, the AXA Group off ered its employees to subscribe to a share off ering, at a price of €20.19 per share for the traditional plan (discount of 20% to the reference price of €25.23 representing the average over the twenty trading days ending on the date preceding the Chief Executive Off icer’s decision setting the definitive terms of the operation) and at a price of €22.96 per share for the leverage plan (discount of 8.98% to the reference price). A total of 19.6 million new shares were issued, increasing the share capital by €443 million. This off ering represented a total cost of €8.9 million taking into account the five-year lock-up period. In 2017, the cost of the lock-up period was measured at 19.61% for the traditional plan and 8.95% for the leveraged plan (due to diff erent discounts). In addition to the lock-up cost, the opportunity gain off ered to the employees under the leveraged plan was measured at 1.92%.
TOTAL COST FOR AXA (IN EURO MILLION) 0.18 8.71 0.55 8.53
The total cost of the AXA Miles is amortized over the vesting period (i.e. over 2 years for the 2+2 plan and over 4 years for the 4+0 plan) starting from the grand date. On that basis, the expense recognized in the profit or loss for the year ended December 31, 2016 was €1.7 million (no expense recognized as of December 31, 2017).
AXA issues Performance Units and International Performance Shares to executive off icers and other key employees mainly outside France.
Since 2013, AXA has established common terms and conditions for the attribution of “International Performance Shares” to eligible employees. Under the International Performance Shares (PSi) plan, beneficiaries of Performance Shares have the right to receive at the settlement date, a certain number of AXA shares based on the achievement of performance criteria defined by AXA and vesting period. The performance’s period and measurement is between two and three years. The vesting period (service condition) is between three and four years. However, as opposed to Performance Units granted in 2011 and 2012, under the International Performance Shares plan, the settlement will be made in shares rather than in cash (except where the settlement in shares is impossible for legal or other reasons).
The total cost of the International Performance Shares and Performance Units recorded as of December 31, 2017, was €85.9 million in earnings (€80.1 million as of December 31, 2016).
The total cost of the Performance Shares Retirement recorded as of December 31, 2017, was €14.0 million in earnings, gross of tax (€10.7 million as of December 31, 2016).
Main share-based compensation plans issued by AXA subsidiaries are described below: AXA INVESTMENT MANAGERS SHARE-BASED COMPENSATION PLANS
AXA Investment Managers grants Performance Shares to certain key employees as part of its overall LTI policy that also includes DIP (Deferred Incentive Plan). The Investment Managers Performance Shares incentive plan is a long term award plan in which participants are allocated AXA Investment Managers shares or, more specifically rights to acquire shares upon completion of a specified vesting period depending on applicable local regulations, and subject to fulfilment of certain performance conditions. The performance condition is based on the achievement of Actual AXA Investment Managers Underlying Earnings Group share versus budgeted and/or investment performance conditions.
The total cost of Investment Managers Performance Shares recorded as of December 31, 2017, amounted to €18.9 million in earnings (€9.9 million as of December 31, 2016), gross of tax.
Under the Incentive Compensation Program, AB made awards in December 2017 aggregating €148.8 million (€142.8 million in December 2016) of which €135.1 million in the form of Restricted AB Holding Units (€127.6 million in 2016), elected in December 2017 and representing 6.1 million restricted AB Holding Units (6.1 million in 2016).
AB also awarded restricted Holding Units in connection with certain employee and separation agreements.
The decrease of salaried employees by 1,980 in 2017 was mainly driven by: ■ AXA Assistance (-962) 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; ■ France (-459) driven by the optimization of the replacement rate of retirees ; ■ Belgium (including AXA Bank Belgium) (-174) reflecting mainly the restructuring plan announced in September 2016.
BASIC NET INCOME PER ORDINARY SHARE C = A/B 2.50 2.30
(a) Except for number of shares (million of units) and earnings per share (Euro). (b) Weighted average. (c) Taking into account the impact of potentially dilutive instruments.
In 2017, net income per ordinary share stood at €2.50 on a basic calculation, all attributable to continuing operations, and €2.49 on a fully diluted basis also all attributable to continuing operations.
In 2016, net income per ordinary share stood at €2.30 on a basic calculation, of which €2.48 attributable to continuing operations and €-0.18 from discontinued operations, and €2.30 on a fully diluted basis, of which €2.48 attributable to continuing operations and €-0.18 from discontinued operations.
The Mutuelles AXA (AXA Assurances IARD Mutuelle and AXA Assurances Vie Mutuelle, hereaft er the “Mutuelles AXA”) are two mutual insurance companies engaged in the Property & Casualty insurance business and Life & Savings insurance business in France. On December 31, 2017, the Mutuelles AXA collectively owned 14.13% of the Company’s outstanding ordinary shares representing 23.97% of the voting rights.
The Mutuelles AXA and certain of the Company’s French insurance subsidiaries, AXA France IARD and AXA France Vie (the “Subsidiaries”), are parties to an agreement pursuant to which they provide a full range of management services to manage the insurance operations and portfolios of the Mutuelles AXA. The agreement includes provisions designed to ensure the legal independence and protection of the respective client portfolios of the Mutuelles AXA and these subsidiaries. Certain costs and charges (excluding commissions) are allocated between the subsidiaries and the Mutuelles AXA through an economic interest grouping (G roupement d’ I ntérêt E conomique) or “GIE”.
The Company, from time to time, makes capital contributions, loans, other extensions of credit, or otherwise provides liquidity and capital resources to its subsidiaries and aff iliates for various business purposes including to finance their business operations and/or to promote the development of their business (e.g. to facilitate acquisitions, integration of acquired businesses, distribution arrangements, internal restructurings, or similar transactions). These transactions may involve the Company entering into various types of transactions with its subsidiaries and aff iliates from time to time including loans or other types of credit arrangements, acquisitions or sales of assets, securities or other financial instruments and/or similar transactions. The Company may also from time to time borrow from its subsidiaries for various business purposes. These transactions are generally carried out on arms-length terms and conditions with loans and other extensions of credit bearing interest at varying rates that generally reflect prevailing market rates at the respective dates such loans were originated.
Consistent with the principles set forth in Note 1.3.1 “Scope and basis of consolidation” to the financial statements, (i) AXA’s investments or other arrangements with non-consolidated special purpose entities (SPEs) do not allow AXA to exercise control over such SPEs, and (ii) SPEs controlled by AXA are consolidated as disclosed in Note 2.2 of the financial statements.
Pledged securities and collaterized commitments 30,639 1,573 753 3,949 36,914 41,211
Letters of credit given totaled €151 million at the end of 2017 and were mainly from Turkey (€75 million) and on run-off portfolios managed by AXA Liabilities Managers (€42 million).
29.3.3 Supports provided without having a contractual or constructive obligation to do so
In accordance with European Union directives, insurance companies with their registered office in a European Union member country are required to maintain minimum solvency ratios which must be supported by eligible elements. AXA’s insurance operations in countries outside the European Union are also subject to local capital adequacy and solvency margin regulations.
AXA SA is exposed to foreign currency fluctuations notably stemming from its Non-Euro participations. The aim of the hedging programs of AXA SA is to protect the shareholder value while managing the associated costs.
I Note 30 Fees paid to Statutory Auditors 30.1 STATUTORY AUDITORS
PricewaterhouseCoopers Audit is registered as an independent auditor with the Compagnie Régionale des Commissaires aux Comptes de Versailles.
61, rue Henri Regnault – 92400 Courbevoie, represented by Messrs. Jean-Claude Pauly and Maxime Simoen, first appointed on June 8, 1994. The current appointment is for a term of 6 years, until the General Shareholders’ Meeting called to approve the financial statements for the fiscal year 2021.
Mazars is registered as an independent auditor with the Compagnie Régionale des Commissaires aux Comptes de Versailles.
Mr. Yves Nicolas: 63, rue de Villiers – 92208 Neuilly-sur-Seine, first appointed on April 25, 2012. The current appointment is for a period of 6 years, until the Annual General Meeting of the shareholders called to approve the financial statements for the fiscal year 2017.
PwC Audit Network Total 2017 % PwC Audit Network Total 2016 %
Statutory audit and certification of local and consolidated financial statements 5 23 28 67 % 5 21 26 66 %
(a) Fees for other services paid to Statutory Auditors mainly relate to (i) other insurance assignments – agreed upon procedures on financial information, insurance services over regulatory information, confort letters, SSAE16/ISAE3402 reports, insurance reports on AFR and SFCR, and due diligences; (ii) tax services – out of France such as tax compliance services; and (iii) other permitted advisory services.
AXA SA is involved in lawsuits, investigations and other actions arising in the various jurisdictions where it does business, including the following: In 2007, AXA SA completed the squeeze out of the minority shareholders at two German subsidiaries, AXA Konzern AG (“AKAG”) and Kölnische Verwaltungs-AG für Versicherungswerte (“KVAG”). Following the effective date of these squeeze out transactions in July 2007, certain former AKAG and KVAG shareholders brought proceedings in Germany alleging that the cash compensation off ered by AXA SA was not adequate. In the first half of 2016, an initial expert valuation report was delivered to the court based on recent precedents in other German minority buy-out transactions and recommending a significant increase in the cash compensation to be paid to minority shareholders. In addition, interest will be payable on any additional amount finally decided. AXA SA has appointed an independent expert to challenge this report and submitted its statement in February 2017. A final decision is not expected before 2019. Consequently, the financial impact of this matter cannot be estimated with any certainty at this time.
In addition, several AXA subsidiaries are involved in lawsuits (both class action and individual), investigations, and other actions arising in the various jurisdictions where they do business, including the following: 31.2.1 United States matters
Statutory audit and certification of local and consolidated financial statements 3 6 9 72 % 4 6 10 75 %
A number of lawsuits have been filed against insurers and other financial institutions in the United States and elsewhere involving insurers’ sales practices, alleged agent misconduct or misrepresentation, alleged failure to properly supervise agents, compensation of intermediaries, product features, fees or performance as well as numerous other matters. Some of these actions have resulted in the award of substantial judgments against insurers (including material amounts of punitive damages) or in substantial settlements. In certain jurisdictions, juries have broad discretion in awarding punitive damages. AXA’s United States subsidiaries are involved in these types of litigations as well as regulatory inquiries, investigations or actions with respect to these and a wide variety of other matters related to the ownership or management of real estate, asset or investment management activities, corporate transactions, employee benefit disputes, alleged discrimination in employment practices, as well as other matters.
For additional details on these matters, please see the Subsidiary SEC Reports. Copies of the Subsidiary SEC Reports can obtained through the SEC’s website (www.sec.gov).
In July 2011, a derivative action was filed in the United States District Court of the District of New Jersey entitled Mary Ann Sivolella v. AXA Equitable Life Insurance Company and AXA Equitable Funds Management Group, LLC (“FMG LLC”) (“Sivolella Litigation”) and a substantially similar action was filed in January 2013 entitled Sanford et al. v. FMG LLC (“Sanford Litigation”). These lawsuits were filed on behalf of a total of twelve m utual funds and, among other things, seek recovery under (i) Section 36(b) of the Investment Company Act of 1940, as amended (the “Investment Company Act”), for alleged excessive fees paid to AXA Equitable and FMG LLC for investment management services and administrative services and (ii) a variety of other theories including unjust enrichment. The plaintiff s seek recovery of the alleged overpayments, rescission of the contracts, restitution of all fees paid, interest, costs, attorney fees, and expert witness fees. The Sivolella Litigation and the Sanford Litigation have been consolidated and went to trial on January 6, 2016. In August 2016, the court decided in favor of AXA Equitable. In December 2016, plaintiff s filed a notice to appeal and a ruling is expected in 2018. AXA Equitable believes that it has strong defenses to these claims and will defend them vigorously.
During the fourth quarter of 2012, a lawsuit was filed against AXA Seguros Generales SA de Seguros y Reaseguros (“AXA Spain”) in Madrid by a real estate development company, Sistema KLEC, alleging breach of contract in connection with an arrangement entered into by AXA Spain in 2008 for the development of up to 125 agencies. The plaintiff claims damages on alternative theories for amounts ranging from approximately €149 million to €623 million. On June 11, 2015, the court of first instance of Madrid ruled in favor of KLEC and awarded damages of €18 million to KLEC which have been reserved in AXA’s consolidated accounts. Both parties have appealed. AXA Spain believes that it has strong defenses to support its appeal and will defend this matter vigorously.
In addition to the various matters noted above, AXA and certain of its subsidiaries are also involved in numerous legal actions and proceedings arising out of transactions involving the acquisition or sale of businesses or assets, mergers or other business combination transactions, the establishment or dissolution of joint ventures or other partnerships, public exchange or tender offers, buy-outs of minority interests or similar types of transactions (“M&A Transactions”). In connection with M&A Transactions, AXA and its subsidiaries from time to time: ■ are involved in legal actions or other claims brought by purchasers, joint venture partners, shareholders or other transaction parties asserting claims for damages on various theories (including misrepresentation, failure to disclose material information, failure to perform contractual duties, breach of fiduciary duties), seeking contractual indemnification, or otherwise seeking to impose liability on AXA and/or its subsidiaries; and/or
■ benefit from contractual rights to indemnification from third party sellers or other transaction counterparties that are designed to protect the Group against existing or potential future litigation exposures or other types of contingent liabilities of the acquired businesses or assets. These indemnities generally constitute unsecured obligations of the indemnifying party and, consequently, their value may be substantially impaired or rendered worthless in the event of the bankruptcy or insolvency of the indemnifying party.
Over the past several years a number of jurisdictions, including France and Belgium, have enacted legislation that permits corporate entities to be charged with criminal offences. The standard for attributing criminal conduct by corporate off icers and employees to corporate entities is not clearly defined in many of these jurisdictions and government prosecutors and judges have broad discretion in this area. In recent years, complaints against or indictments of corporate entities for alleged criminal off ences have become increasingly common and certain AXA Group companies have been the subject of penal complaints and/or indictments from time to time including in Belgium and
France. While a criminal complaint against or indictment of a corporate entity may not pose material financial risk, it has broad potential implications for a regulated financial institution like AXA both from a reputation point of view and from a regulatory perspective because a criminal conviction can have potentially far reaching negative implications for AXA Group companies engaged in regulated businesses around the world (including for their ability to obtain or maintain licenses to engage in certain types of regulated business activities such as asset management, insurance and banking).
Although the outcome of any lawsuit cannot be predicted with certainty, particularly in the early stages of an action, Management believes that the ultimate resolutions of the matters described above are not likely to have a material adverse eff ect on the consolidated financial position of the Group, taken as a whole. However, due to the nature of such lawsuits and investigations and the frequency of large damage awards and regulatory sanctions in certain jurisdictions (particularly the United States) that bear little or no relation to actual economic damages incurred by plaintiffs or the underlying regulatory violations, Management cannot make an estimate of loss, if any, or predict whether or not these matters, individually or in the aggregate, will have a material adverse eff ect on the Group’s consolidated results of operations in any particular period.
AXA accelerates its “Payer -to- Partner” strategy with the acquisition of Maestro Health
Founded in 2013, the Chicago-based company has more than 300 employees and targets mid-size and large-size employers across the United States, currently covering over 1 million lives.
AXA to acquire XL Group: creating the #1 global P&C commercial lines insurance platform
This acquisition is aligned with AXA’s Ambition 2020 preferred segments favoring product lines with high frequency customer contacts, quality service and superior technical expertise. XL Group provides both a premier specialty platform complementing and diversifying AXA’s existing Commercial lines insurance portfolio, and reinsurance capabilities that will allow AXA an access to enhanced diversification and alternative capital. The combination of AXA’s and XL Group’s existing position will propel the Group to the #1 global position in P&C Commercial lines with combined 2016 revenues of ca. €30 billion (1) and total P&C revenues of ca. €48 billion (2).
The opportunity to acquire XL Group 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 Group 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.
I Statutory A uditors’ report on the consolidated financial statements For the year ended December 31, 2017
In compliance with the engagement entrusted to us by your Shareholders’ Meeting, we have audited the accompanying consolidated financial statements of AXA SA for the year ended December 31, 2017.
We conducted our audit engagement in compliance with independence rules applicable to us, for the period from January 1, 2017 to the date of our report and specifically we did not provide any prohibited non-audit services referred to in Article 5 (1) of Regulation (EU) No. 537/2014 or in the French Code of Ethics (code de déontologie) for statutory auditors.
As stated in Note 4.4 to the consolidated financial statements, the breakdown of these contracts at December 31, 2017 was as follows: ■ 12% of the Life & Savings technical reserves, covering unit-linked products with related financial guarantees; ■ 31% of the Group’s Life & Savings technical reserves, covering other products such as Protection & Health with surrender guarantees and, in some cases, a guaranteed long-term rate.
The sensitivity of these measurements increases with the term and complexity of the guarantees: even a slight variation in certain assumptions (chief among them future changes in medium/ long-term interest rates and future returns generated by equity portfolios) could have a material impact on the level of provisioning, and therefore, their determination requires a higher degree of judgment from management.
Our audit approach to the risk relating to the valuation of Life & Savings future policy benefit reserves, including deferred acquisition costs, covering contracts with long-term financial guarantees was as follows: ■ We assessed the compliance of the methodology applied by the Group with current accounting standards.
■ We updated our knowledge of the procedures implemented for measuring future policy benefit reserves covering these contracts as well as the models used to calculate the reserves and where applicable the IT systems used to process the technical data and integrate that data into the accounting system.
Accordingly, due to the inherent uncertainty of certain components taken into account to calculate the estimates, we deemed the measurement of claim reserves in the property and casualty line to be a key audit matter.
■ We applied procedures to test the reliability of the underlying data.
■ We assessed the outcome of the accounting estimates made the previous year with a view to assessing the reliability of the process used by management to calculate these estimates.
■ Our work also consisted in assessing the statistical methods and actuarial inputs applied, as well as of the assumptions used, with respect to the applicable regulations, market practices, and the economic and financial context of the AXA Group.
Measurement of the recoverable amount of goodwill (See Notes 1.3.2, 1.7.1 and 5 to the consolidated financial statements)
Goodwill corresponds to the excess of the cost of the business combination over the net identifiable assets acquired and liabilities assumed on the acquisition date. Goodwill is allocated to the cash generating units (CGUs) of the activities into which that business was incorporated.
This is especially the case for the goodwill on the Life Insurance CGU in the United States, which totaled a gross amount of €2,844 million with cumulative impairment of €1,089 million, for which the recoverable amount corresponds to value in use. Value in use calculation is based on assumptions including discount rates and financial assumptions used to forecast future cash flows and a multiple of new business value, thus requiring significant judgment from management.
Deferred tax assets are recognized on tax losses carried forward when it is probable that taxable profit will be available against which the tax losses can be utilized. The Group’s ability to recognize deferred tax assets on tax losses carried forward is assessed by management at the end of each reporting period, taking into account forecasts of future taxable profits and the law and jurisdiction of the taxable items. The assumptions on which these projections are determined by management.
At December 31, 2017, deferred tax assets recognized in the Group’s consolidated financial statements totaled €16,814 million; €568 million of that amount related to the AXA SA French tax consolidation group.
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards as adopted in the European Union and for such internal control as management determines in necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
STATUTORY AUDITORS’ RESPONSIBILITIES FOR THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS
■ Evaluates the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management in the consolidated financial statements.
■ Assesses the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. This assessment is based on the audit evidence obtained up to the date of their audit report. However, future events or conditions may cause the Company to cease to continue as a going concern. If the statutory auditor concludes that a material uncertainty exists, there is a requirement to draw attention in the audit report to the related disclosures in the consolidated financial statements or, if such disclosures are not provided or inadequate, to modify the opinion expressed therein.
The table below sets forth, for the periods indicated, the reported high and low prices (intraday) in Euro for AXA ordinary shares on Euronext Paris: Calendar period Intraday High
On December 31, 2017, AXA’s fully paid up and issued share capital amounted to €5,553,789,869.79 divided into 2,425,235,751 ordinary shares, each with a par value of €2.29 and eligible for dividends as of January 1, 2017.
To the best of the Company’s knowledge, the table below summarizes the ownership of its issued outstanding ordinary shares and related voting rights on December 31, 2017: Number of shares
Treasury shares held directly by the Company 41,395,855 1.71% [1.45%] (c)
Treasury shares held by Company subsidiaries (d) 413,421 0.02% [0.01%] (c)
(c) These shares will be entitled to vote when they cease to be treasury shares (e.g. upon their sale or other transfer to an unaff iliated third party). (d) Treasury shares as indicated in Note 13 “Shareholders’ equity and minority interests” in Part 5 - “Consolidated Financial Statements” of this Annual Report. (e) Source: Euronext Notice of January 8, 2018.
To the best of the Company’s knowledge, only one shareholder, BlackRock Inc., acting on behalf of its clients and funds that it manages, held more than 5% of the Company’s share capital or voting rights on December 31, 2017.
Significant changes in the Company’s share capital ownership between December 31, 2015 and December 31, 2017 are set forth in the table below: On December 31, 2017 (a) On December 31, 2016 (a) On December 31, 2015 (a)
(b) AXA Assurances IARD Mutuelle and AXA Assurances Vie Mutuelle. (c) These shares will be entitled to vote when they cease to be treasury shares (e.g. upon their sale or other transfer to an unaff iliated third party). (d) Treasury shares as indicated in Note 13 “Shareholders’ equity and minority interests” in Part 5 - “Consolidated Financial Statements” of this Annual Report. (e) Source: Euronext Notice of January 8, 2018.
On December 31, 2017, to the best of the Company’s knowledge based on the information available to it, the Company had 10,950 total registered holders of its ordinary shares (i.e. shareholders holding in nominative form).
By virtue of the authorization granted by the Shareholders’ Meeting of April 26, 2017, the Board of Directors increased the Company’s share capital through the issue of shares reserved to the Group employees under the Shareplan 2017 program. The shareholders waived their preferential subscription rights so that this off ering could be made exclusively to Group employees (Shareplan 2017).
In countries that met the legal, regulatory and tax requirements to participate in Shareplan , two investment options were off ered to the Group employees in 2017: ■ the traditional plan, off ered in 38 countries; ■ the leveraged plan, off ered in 34 countries.
Mutual funds (FCPE) with direct voting rights have been created since 2005 to allow beneficiaries, in most cases, to directly exercise their voting rights during the Company’s Shareholders’ Meetings.
The Shareplan 2017 program was carried out through a capital increase that took place in December 2017. Over 29,000 employees took part in the Shareplan 2017 program, representing over 27% of eligible employees: ■ the total amount invested was approximately €444 million, as follows: • €37.5 million in the traditional plan, and
New equity issue reserved for employees of AXA (Shareplan 2015) 18,736,297 327,179,193 2,462,887,941 5,640,013,385
Share capital reduction by cancellation of shares (40,313,450) (812,967,057) 2,422,574,491 5,547,695,584
Share capital reduction by cancellation of shares (4,928,904) (11,287,190) 2,422,809,388 5,548,233,499
Ordinary shares and other securities giving a claim to ordinary shares of the Company through subscription, conversion, exchange, redemption, presentation of a warrant or otherwise (b) 6 billion (c ) 2 billion (d ) 26 months June 26, 2019
(a) Independent ceiling. (b) Including the issue of ordinary shares as result of securities issued by subsidiaries of AXA. (c ) The aggregate nominal value of debt instruments associated with the issue of securities with or without preferential subscription rights may not exceed the global upper limit of €6 billion.
Ordinary shares and other securities giving a claim to ordinary shares of the Company through subscription, conversion, exchange, redemption, presentation of a warrant or otherwise (a ) 6 billion (b ) 550 million 26 months June 26, 2019
Ordinary shares or securities giving access to the capital, reserved for employees – 135 million (c ) 18 months October 26, 2018
Performance shares (actions de performance) (d) (g ) – 0.40% (e ) 38 months June 27, 2019
(b ) The aggregate nominal value of debt instruments associated with the issue of securities with or without preferential subscription rights may not exceed the global upper limit of €6 billion.
The following authorizations to issue shares or securities giving a claim to ordinary shares of the Company and will be submitted to the Shareholders’ Meeting on April 25, 2018: Issues without preferential subscription rights for shareholders
Maximum nominal amount of the capital increase (in Euro or in percentage of the share capital) Term Expiration date
Ordinary shares or securities giving access to the capital, reserved for employees – 135 million (a) 18 months October 25, 2019
The following documents may be consulted at the AXA Group Legal Department (21, avenue Matignon, 75008 Paris, France) until the filing of AXA’s next Registration Document with the AMF: (i) the Bylaws of the Company, (ii) the reports or other documents prepared by any expert at the Company’s request which are (in whole or in part) included or referred to in this Annual Report, and (iii) AXA SA’s financial statements and Consolidated Financial Statements for each of the two financial years preceding the publication of this Annual Report.
AXA is engaged in regulated business activities on a global scale through numerous operating subsidiaries. The Group’s principal business activities of insurance and Asset Management are subject to comprehensive regulation and supervision in each of the various jurisdictions where the Group operates. AXA SA, the ultimate parent holding company of the AXA Group, is also subject to extensive regulation as a result of its listing on Euronext Paris and its direct and indirect shareholding in numerous regulated insurance and Asset Management subsidiaries. Given that the AXA Group is headquartered in Paris, France, this supervision is based to a significant extent on European Union directives and regulations and on the French regulatory system. AXA’s principal regulators in France are the AMF, which is the financial markets regulator, and the Autorité de contrôle prudentiel et de résolution (“ACPR”), which is the insurance regulator. Since 2013, and most recently in November 2016, AXA SA has been identified by the Financial Stability Board (“FSB”) acting through the International Association of Insurance Supervisors (“IAIS”) as a Global Systemically Important Insurer (“GSII”) and is consequently subject to specific measures in this respect.
The Company’s insurance subsidiaries are subject to regulatory capital requirements in the jurisdictions where they do business, which are designed to monitor capital adequacy and to protect policyholders. While the specific regulatory capital requirements (including the definition of admitted assets and methods of calculation) vary between jurisdictions, an insurer’s required regulatory capital can be impacted by a wide variety of factors including, but not limited to, business mix, product design, sales volume, invested assets, liabilities, reserves and movements in the capital markets, including interest rates and financial markets. Regulatory capital requirements may increase, possibly significantly, during periods of declining financial markets and/ or lower interest rates.
On November 17, 2015, AXA received approval from the ACPR to use its internal model (the “Internal Model”) to calculate its regulatory capital under Solvency II. The Solvency II ratio of the
AXA continues to review regularly the scope, underlying methodologies and assumptions of the Internal Model and will adjust its SCR accordingly. Any significant changes to the Internal Model will have to be approved by the ACPR who may require adjustments to the level of SCR.
On July 18, 2013, the IAIS published an initial assessment methodology for designating GSIIs, as part of the global initiative launched by the G20 with the assistance of the FSB to identify those insurers whose distress or disorderly failure, because of their size, complexity and interconnectedness, would cause significant disruption to the global financial system and economic activity. On the same date, the FSB published its initial list of nine GSIIs, which included AXA. This list included AXA for the four years of its publication.
In February 2017, the IAIS announced that it is developing an activities-based approach to systemic risk assessment in the insurance sector, and that it had adopted a systemic risk assessment and a policy workplan to develop that approach, and to revise its GSII assessment methodology. The IAIS intends to release a revised systemic risk assessment methodology for public consultation by year-end 2018, with adoption planned for 2019. In connection with the development by the IAIS of an activities-based approach, the FSB announced on November 21, 2017, that it would not publish a new G SII list for 2017. The FSB has stated that it will review the situation in November 2018 based on the progress made by the IAIS in developing the activities-based approach, and has further indicated that certain policy measures will continue to apply to firms, including AXA, identified as GSIIs by the FSB in 2016. Therefore, it remains uncertain whether the FSB will continue to designate GSIIs going forward, and to what extent policy measures for GSIIs developed by IAIS may evolve in terms of content and scope of application in light of the upcoming activities-based approach.
The contemplated policy measures also include the constitution of a Crisis Management group (“CMG”) by the ACPR, the preparation of the above-mentioned documents (SRMP, LRMP and RRP) and the development and implementation of the BCR in 2014, while other measures are to be phased in more gradually, such as the HLA (the first version of which was endorsed by the FSB in September 2015 but which will be revised, as described below, before its implementation in 2022).
As part of its efforts to create a common framework for the supervision of internationally active insurance groups (“IAIGs”), the IAIS has also been developing a comprehensive, groupwide, minimum International Insurance capital standard (the “ICS”) to be applied to both GSIIs and IAIGs, which is expected to be finalized in late 2019 and fully implemented aft er a fiveyear monitoring period. The HLA as indicated by the IAIS in February 2017 would then be revised to take into account the finalized ICS and be applied as from 2022 for GSIIs identified in 2020.
While the full impact of such requirements can only be evaluated in the context of implementing regulations and national transposition laws, such new legislation could have a substantial impact on AXA’s regulated Asset Management business.
Following invalidation in 2015 of the European Commission’s Safe Harbour Decision by the European Union Court of Justice, which allowed for the transfer of personal information for commercial purposes from companies in the EU to companies in the United States which had signed up to the US Department of Commerce “Safe Harbor Privacy Principles,” transatlantic data flows between companies continued using other mechanisms, such as standard contractual clauses with US companies and binding corporate rules for transfers within a multinational corporate group. While a new safe harbor, referred to as the “EU-US Privacy Shield,” was adopted in July 2016, banks and insurance companies are generally not currently eligible to register on the EU-US Privacy Shield list, and the AXA Group has accordingly been relying on the above-mentioned mechanisms to transfer personal data from the Company or its EU-based affiliates to its banking and insurance affiliates based in the United States. For further information concerning transatlantic data transfers, please see the paragraph “The quickly evolving regulatory environment surrounding data transfer and protection in the European Union could increase our costs and adversely impact our business” in Section 4.1 “Risk factors” of this Annual Report.
In 2009, the FSB published the “Principles for Sound Compensation Practices” together with implementation standards. Among the matters covered in these standards and principles are a variety of mechanisms (including minimum recommended deferrals of cash bonuses, greater use of longterm equity grants rather than cash as a form of compensation, minimum vesting/deferral periods, and performance criteria for vesting of long-term awards) that are designed to ensure an appropriate alignment of interests between (i) Executive Management and certain employees (such as traders) who can have a potentially significant impact on the nature and duration of risks incurred, (ii) the Company and (iii) shareholders.
On April 6, 2016, the US Department of Labor (the “DOL”) issued a final rule that significantly expands the range of activities that would be considered to be fiduciary investment advice (the “Fiduciary Rule”) under the Employee Retirement Income Security Act of 1974 (“ERISA”). Pursuant to the new regulation, advisors and employees, including those aff iliated with AXA US, who provide investment-related information and support to retirement plan sponsors, participants, and individual retirement account holders would be subject to enhanced fiduciary duty obligations and requirements. In February 2017, the DOL was directed by memorandum (the “President’s Memorandum”) to review the Fiduciary Rule and determine whether the rule should be rescinded or revised, in light of the new administration’s policies and orientations. In response, in March 2017, the DOL published a notice soliciting comments on the examination described in the President’s Memorandum, which were due in April 2017. In addition, in April 2017, the DOL announced that the applicability date of the Fiduciary Rule was deferred from April 10, 2017 until June 9, 2017. The Fiduciary Rule became partially effective on June 9, 2017, with a special transition period, ending January 1, 2018, for certain of the Fiduciary Rule’s requirements. On July 6, 2017, the DOL published a request for information in connection with its examination of the Fiduciary Rule, on which comments were requested by August 7, 2017, at the latest. On November 29, 2017, the DOL extended the special transition period from January 1, 2018 to July 1, 2019, with the primary purpose of considering public comments under the criteria set forth in the President’s Memorandum, including whether possible changes and alternatives to exemptions would be appropriate in light of the current comment record and potential input from, and action by, the Securities and Exchange Commission and other regulators.
In parallel with IFRS 17, the Group will apply the IFRS 9 standard on financial instruments issued on July 24, 2014. The published eff ective date of IFRS 9 was January 1, 2018. However, given the interaction between financial assets and technical insurance liabilities, the IASB issued amendments to IFRS 4 on
Management is currently assessing the impact of the adoption of IFRS 17 and IFRS 9, which may significantly aff ect the accounting treatment of policyholder liabilities and investments.
The Group’s insurance and Asset Management operations are subject to an increasing number of legislative and regulatory initiatives designed to increase consumer protection in the sector of financial services. In the European Union, initiatives related to the financial sector include in particular the Insurance Distribution Directive (“IDD”), MiFID II and the regulation on Key Information Documents for Packaged Retail and Insurance-based Investment Products (the “PRIIPs Regulation”). Similar initiatives are under review (or in the course of implementation) in other jurisdictions where the Group operates and are likely to increase operational compliance costs to ensure point-of-sale compliance.
The IDD supersedes the Insurance Mediation Directive and is designed to improve consumer protection by ensuring that all distributors of insurance products operate on a level playing field. The main provisions of the IDD relate to enhanced professional requirements (e.g., continuing training and development for distributors), conduct of business rules, conflicts of interest (relating to fees, commissions and bonuses), increased disclosure and transparency and extensive product governance requirements. It also includes additional requirements for the sale of insurance products with investment elements in order to ensure that policyholders receive a similar level of protection as buyers of retail investment products regulated under MiFID II (e.g., when providing advice distributors have to assess whether the insurance-based investment product is suitable for the customer).
Finally, financial crime compliance programs of financial institutions (anti-money laundering, anti-corruption and international sanctions compliance) continue to be a major focus of regulatory and law enforcement authorities with increasingly significant sanctions imposed for compliance failures. In particular, French Law No. 2016-1691 of December 9, 2016 on transparency, fight against corruption and modernization of the economy, known as “Sapin II”, which entered into force on June 1, 2017, introduces new requirements for all large French companies, such as the Group, including the establishment of internal procedures to prevent and detect acts of corruption and influence peddling committed in France and abroad.
The litigation environment in which the Group operates also continues to evolve. In continental Europe, the introduction of class actions, including in France in 2014, has, and is likely to continue to, increase litigation risks and costs for insurers, asset managers and other financial institutions.
The taxes AXA pays are an important part of its wider economic and social impact and play a key role in the development of countries where it operates (1). AXA regards it as a critical element of its commitment to grow in a sustainable, responsible and socially inclusive way.
As an international group operating in several countries, the AXA Group is subject to various tax regimes and regulations and takes into account any changes in tax law. AXA is specifically vigilant about the changes that could result in higher tax expenses and payments, higher compliance costs or that may aff ect the AXA Group’s tax liability, return on investments and business operations. In particular, please see the paragraph “Changes in tax laws or uncertainties in the interpretation of certain tax laws may result in adverse consequences on our business and our results of operations” in Section 4.1 “Risk Factors” of this Annual Report.
In addition to the details reported around the Group eff ective tax rate, AXA reports substantial information on the impacts of any change in local tax regulations on its business, as well as details of the tax burden per line of business and per country. AXA’s income tax expenses/benefits are extensively disclosed in the Annual Report and are broken down by business segment and country. For each, a dedicated paragraph provides a comment about the line related to Tax Income (see Section 2.3 “Activity Report – Underlying E arnings, A djusted E arnings and N et I ncome Group share” of this Annual Report).
(1 ) The Tax Code of Ethics sets forth four guiding principles: to remain up to date with respect to applicable law and regulations, to comply with tax law and regulations, to maintain a good relationship with local tax authorities and not to engage in aggressive tax driven transactions.
(2 ) The list of non-cooperative jurisdictions under French tax rules is given by a ministerial decree dated April 8, 2016 and is composed of the following countries: Botswana, Brunei, Guatemala, Marshall Islands, Nauru, Niue and Panama.
A specific focus on transfer pricing items is done in application of these standards. In particular, Chief Financial Off icers must ensure that (re)insurance policies entered into represent a true transfer of risk and that their status as (re)insurance contracts could not be subject to challenge. Business between Group companies must be transacted at market prices where a market price exists, or in the absence of market prices, must be supported by formally documented justification for the charge made.
Certain material provisions of applicable French law, in force at the filing date of this Annual Report, and of the Company’s Bylaws are summarized below. You may obtain copies of the Company’s Bylaws in French from the Paris Trade and Companies Register (Registre du commerce et des sociétés).
■ perform all industrial, commercial, financial, personal or real estate property transactions, directly or indirectly related to any of the foregoing.
Members of the Board of Directors receive a fixed annual directors’ fee, the maximum overall amount of which is determined by the Shareholders’ Meeting and apportioned by the Board of Directors among its members. Notwithstanding the above, the Board’s Terms of Reference provide that no directors’ fee shall be paid to the Company’s management.
An individual aged 70 or older may be appointed or reappointed to the Board of Directors exclusively for a two-year term of off ice. His/her term of off ice can be renewed only once.
In accordance with the Afep-Medef Code and regardless of any statutory obligation of holding shares, the directors shall be shareholders of the Company and own a significant number of shares in the Company; if they do not own such shares at the time they are first appointed, they shall use their directors’ fees to acquire AXA shares. Accordingly, the Board of Directors has set for each Board member, whether an individual or a permanent representative of a legal entity to whom directors’ fees were paid, the objective of holding, within two years aft er first being appointed, a number of shares in the Company, which value on the basis of the closing price of the AXA share on December 31 of the preceding fiscal year shall correspond to an amount at least equivalent to the gross director’s fees earned in respect of the previous fiscal year. The shares purchased for the purpose of this holding objective will be held in registered form.
Each AXA share entitles its holder to one vote at every AXA Shareholders’ Meeting, subject to the provisions regarding double voting rights described below. On May 26, 1977, the Shareholders’ Meeting decided that each ordinary share fully paid up and held in registered form by the same person for at least two full fiscal years entitled its holder to double voting rights with respect to such share.
Upon proposal by the AXA Board of Directors, the shareholders of AXA may decide to allocate all or part of distributable profits to special or general reserves, to carry them forward to the next fiscal year as retained earnings, or to allocate them to the shareholders as dividends. If AXA has earned a distributable profit since the end of the previous fiscal year, as reflected in an interim balance sheet certified by its Statutory Auditors, the Board of Directors may distribute interim dividends to the extent of the distributable profit without prior approval of the shareholders. AXA’s Bylaws require AXA to distribute dividends between its shareholders in proportion to their share in the capital.
Under the provisions of AXA’s Bylaws, the actual dividend payment date is decided by the Board of Directors.
AXA’s Bylaws provide that the Shareholders’ Meeting may grant each shareholder the choice of receiving dividends in either cash or additional ordinary shares.
Under French law, shareholders have preferential subscription rights to subscribe, on a pro rata basis, additional ordinary shares (and/or convertible, exchangeable or other securities giving a claim, directly or indirectly, to AXA ordinary shares). This subscription right is transferable and normally trades separately during the subscription period for a capital increase. In order to issue additional shares without preferential subscription rights, except for issues already approved or authorized by AXA shareholders, AXA must obtain the approval of a twothirds majority of voting rights of the shareholders attending or represented at an Extraordinary Shareholders’ Meeting.
If AXA is liquidated, the assets remaining aft er it pays its debts, liquidation expenses and all prior claims will be used to repay AXA shareholders up to the amount of the liquidation balance and the par value of the shares held by each shareholder. Any surplus will be divided among all shareholders, subject to rights arising, if any, from the diff erent classes of shares, in proportion of the rights they own in the Company’s share capital.
Under French law, shareholders of a French public company (société anonyme) have the power to amend AXA’s Bylaws. Such an amendment generally requires the approval of two-thirds of the shareholders attending or represented at an extraordinary shareholders’ meeting. However, no such Extraordinary Shareholders’ Meetings may decide (i) to increase the liability of the shareholders in respect of the Company or a third-party; or (ii) to reduce the individual rights vested in each shareholder (such as voting rights, the right to distributable profits of the Company when allocated as dividends, the right to sell one’s shares and the right to sue the Company).
A notice of meeting must be published in the Bulletin des annonces légales obligatoires (“BALO”), at least 35 days before any Shareholders’ Meeting (or 15 days in certain specific cases) and must indicate, in particular, the agenda and the proposed resolutions.
At least 15 days (or six days in certain cases) prior to the date set for the meeting on first call, and at least 10 days (or four days in certain cases) before any second call, the Company shall send a final notice containing all the information requested by law by mail to all registered shareholders who have held shares for more than one month prior to the date of this final notice and publish a final notice in a bulletin of legal notices as well as the BALO.
Pursuant to the provisions of Article L.225-37-4 of the French Commercial Code, the conditions for the participation to Shareholders’ Meetings are detailed in Article 23 of AXA’s Bylaws, copies of which are available at the Paris Trade and Companies Register (Registre du commerce et des sociétés du Tribunal de commerce de Paris). AXA’s Bylaws are also available on the Company’s website (www.axa.com). In addition, the information referred to in Article L.225-37-5 of the French Commercial Code is made public in AXA’s Board of Directors’ report on corporate governance which is attached to AXA’s Board of Directors’ report included in this Annual Report.
There are no French anti-takeover statutes similar to the anti-takeover statutes enacted by certain states in the United States and other jurisdictions. However, a number of French law provisions in particular those resulting from the law dated March 29, 2014 (visant à reconquérir l’économie réelle) or from certain provisions of the European Directive of April 21, 2004 (which was implemented in France in 2006) concerning takeover bids, may have certain anti-takeover effects. In the case of AXA, the relevant provisions include, among other things, the existence of AXA shares with double voting rights.
French law generally requires mergers and certain consolidations to be approved by two-thirds of the shareholders attending or represented at the Extraordinary Shareholders’ Meeting convened to decide on such matters.
The notification shall be repeated in the conditions stated above each time an additional fraction of 0.5% of the share capital or voting rights is crossed upward or downward.
AXA’s position regarding climate change 380 7.4 RESPONSIBLE INVESTMENT, “ARTICLE 173”/CLIMATE-RELATED FINANCIAL 381 DISCLOSURES (TCFD)
Context: “Article 173” and “TCFD” reporting frameworks combined 381 7.5 SOCIETAL INFORMATION 388
In doing so, we are not only contributing to global economic growth but also ensuring social stability, in line with our ambition to “Empower People to Live a Better Life”. This approach is inherent to our business and it also drives our Corporate Responsibility strategy.
In-depth information on the AXA Group’s corporate responsibilityrelated policies and practices is also available in the “Integrated report”, in the “Social Data report” and on the AXA Group’s website (www.axa.com), in particular in the “Corporate Responsibility” Section. The following pages describe both our CR strategy and, in accordance with the provisions of the Articles L.225-102-1 and R.225-104 of the French Commercial Code, they describe the manner in which the Company takes into account the social and environmental impacts of its business.
AXA strives to be a responsible employer, placing employee engagement at the heart of its business strategy. Achieving this has meant creating a workplace built on AXA’s values, which foster diversity and equal opportunities for all, promote employee participation, encourage professional development and support employee well-being. For additional and more comprehensive information, refer to www.axa.com.
Headcount (number of persons) as of December 31 2017 Evolution 2016
Total headcount of salaried workforce (open-ended and fixed-term contract) 116,514 emp. -1.6% 118,366 emp.
Headcount of salaried workforce with fixed-term contract 4,926 emp. 4,802 emp.
Average FTE of salaried workforce 106,928.6 ft e -1.3% 108,296.3 ft e
Average FTE of salaried non-sales force 91,109.7 ft e 92,268.1 ft e
Average FTE of temporary non-salaried staff 8,399.9 ft e 7,522.8 ft e
In addition, AXA, UNI Europe Finance and all French trade unions signed a major European agreement on anticipating change. The agreement, negotiated within the EWC, sets out an approach for social dialogue, with the purpose of anticipating change in the sector, in order to adapt employee skills to future needs and thus preserve jobs. According to the EWC, this agreement is unique in the insurance sector and it off ers significant means to secure employment in Europe.
AXA established Group-wide mobility policies and processes and enabled Group-wide posting of internally and externally available jobs. This makes the mobility opportunities for our employees immediately visible, thereby helping AXA better source the right people for its business needs.
In 2014, AXA joined the “Alliance for Youth”, a private sector initiative designed to address youth unemployment in Europe. The Company committed to provide at least 20,000 young people (aged 30 and under) with professional experience over five years in Europe in the form of 10,000 paid apprenticeships and/ or internship positions and 10,000 employment opportunities (open-ended or fixed-term contracts). Furthermore, AXA pledges to help increase employability of young people through coaching and training on essential skills and exposure to the work environment. By the end of 2017 (four years aft er starting the initiative), AXA provided more than 27,200 professional opportunities for the youth in Europe (and more than 53,600 opportunities in AXA globally).
International m obility within AXA Group keeps being an important enabler of organization transformation. The types and duration of cross-borders movements in 2017 were impacted by ongoing changes in the Company; we observed high dependence between international moves and internal announcement while in the regular years the volume is very much subject to company acquisitions and seasonality.
While the overall volume of international assignments somewhat decreased (in 2017, 788 employees were on international missions), the range of assignment and transfer types kept changing. Long-term assignments which traditionally were the most popular ones, have dropped over the last two years and now represent less than 50% of the moves. Cross-border commuting assignments are becoming more popular, and reached 8% of international assignments (vs. 5% in 2016), global graduates made 11% (vs. 7% in 2016).
Net headcount evolution (entries versus departures) ( 1,729) emp. ( 1,017) emp.
■ Number of external recruitments (including re-hires) 3,336 emp. 3,492 emp.
■ Number of entries following mergers and acquisitions 34 emp. 323 emp.
Turnover rate of salaried sales force 22.3 % -2.0pts 24.4 %
Entities have identified their workforce challenges and needs in terms of headcount evolution, emerging jobs and skills becoming increasingly important for AXA’s future success. Globally, the
Group expects that 50% of AXA jobs will face high changes in the required skill set.
New Ways of Working (“NWOW” or “Agility”) features the various aspects of our approach to create an inclusive workplace environment: “Bricks” (Real Estate), “Bytes” (IT) and “Behaviors” (Culture). Via innovative solutions, employees are empowered to adapt their working style while yielding a reduced environmental footprint.
Aft er AXA US and AXA Switzerland, NWOW has been launched across many AXA campuses in Belgium, Germany, France, Italy, Hong Kong and Spain; including pilots in Japan and Philippines.
Part-time salaried workforce ■ Proportion of part-time salaried non-sales force 11.1 % 11.6 %
■ Proportion of part-time salaried sales force 2.7 % 3.5 %
■ Proportion of absences linked to maternity/paternity leave 28.1 % 27.4 %
■ Proportion of absences linked to maternity/paternity leave 28.6 % 27.7 %
■ Proportion of absences due to work related accidents 2.9 % 3.6 %
■ Proportion of absences linked to maternity/paternity leave 24.6 % 24.4 %
This compensation policy is designed to support the Group’s long-term business strategy and to align the interests of its employees with those of other stakeholders by, (i) establishing a clear link between performance and remuneration over the short, medium and long term, (ii) ensuring that the Group can off er competitive compensation arrangements across the multiple markets in which it operates, while avoiding potential conflicts of interest that may lead to undue risk-taking for short-term gain, and (iii) ensuring compliance with Solvency II regulations and any other applicable regulatory requirement.
Detailed information concerning AXA’s compensation policy is provided in Section 3.2 of this Annual Report.
In 2017, over 29,000 employees in 39 countries, representing over 27% of the eligible employees, subscribed to Sharep lan . The aggregate proceeds from the off ering, amount to approximately €444 million, for a total of over 19 million newly-issued shares.
Following Sharep lan 2017, AXA’s employees and agents hold 5.34% of the share capital and 6.88% of the voting rights as of December 31, 2017.
■ Proportion of fixed pay (related to wages) 76.2 % 77.0 %
■ Proportion of variable pay (related to wages) 23.8 % 23.0 %
■ Proportion of variable pay (related to wages) 16.9 % 15.9 %
(a ) As per the definition of compensation, it includes the individual fixed pay, the individual variable pay, employer social contribution and collective profit sharing (if any) and excludes equity based compensation (stocks options, performance shares, AXA Miles). On a constant exchange rate basis, total compensation cost increased by 0.2%.
The Global D&I Advisory Council (GDIAC) was reset to activate our People, Culture and Marketplace framework: a new way of designing our D&I initiatives with a 360° approach.
AXA also continued to further encourage and support the integration of employees with disabilities. In France, the number of employees with disabilities was 770 in 2017.
Since January 1, 2017, working parents across the countries where AXA operates can enjoy a new global employee benefit. The AXA Global Parent Policy offers 16 weeks of maternity/ primary parent paid leave and 4 weeks of paternity/co-parent paid leave, AXA is supporting all working parents in balancing work and their parental duty. The AXA parent policy applies to all composition of families.
AXA has been a sponsor for the Pride and Prejudice event hosted by The Economist in 2016 and 2017. This is a global LGBT conference catalyzing fresh debate on the economic and human costs of discrimination against the LGBT community. And Pride month was celebrated across the globe with several employees participating to Pride marches.
AXA Group has a Standard requiring all AXA entities to manage physical security, health and safety. AXA Group has implemented a Health and Safety policy, which defines processes to identify local health and safety requirements, consults and trains AXA employees, and reports health and safety issues.
AXA Group implemented Physical Security guidelines which define AXA’s operational approach to this protection and help AXA
Moreover, in order to adapt security measures for personnel and sites, AXA Group maintains a rating of the diff erent countries. The security ratings are defined according to an assessment of the crime, security services, civil unrest, terrorism, kidnapping and geopolitical threat within the country.
The sick absence rate in 2017 slightly increased to 3.3%. As AXA operates in an environment that generates business through management of capital and financial services (total absenteeism rate due to work-related accidents is 0.1%), the Group does not monitor gravity, severity or frequency of work-related accidents on a global level. Systems, procedures and processes are in place and in compliance with local health, safety and welfare legislation, wherever necessary.
The results of AXA’s development of employee skills remained high with 84.2% of its employees receiving a training course at least once during 2017. At the same time, the average number of training days per employee was at 3.1 days.
AXA focuses on delivering new digital learning experiences to foster a self-learning organization, leveraging on the latest approaches and technologies, that are illustrated in some of the following initiatives/projects: ■ the partnership signature with Coursera off ers over 300 courses on critical skills to all AXA employees with university certificates recognized on the market. By the end of December 2017, more than 6,000 employees connected to the Coursera curriculum. More than 4,000 employees have started a course and 1,200 are already certified. Overall, we reached a level of consumption of 8,500 courses, i.e. more than 43,000 training hours delivered; ■ the sharing of a common virtual off -the-shelf learning off er, called “Click & Learn”. AXA Employees can select courses according to the time they can allocate, through more than 600 modules covering Leadership, Management, Workplace and Personal excellence topics. Around 30,000 “Click & Learn”
Number of training days of salaried workforce 330,248.7 days +1.9% 323,967.1 days
AXA conducts annual Performance cycles, Performance & Potential calibrations, and Organization & Talent Reviews (OTR), which are structured processes reviewing individual and collective performance, development, talent, organizational structures, and succession plans. The processes are designed to (i) recognize and manage performance based on both individual and collective results, and AXA’s Leadership Competencies, and support personal development, (ii) identify people with high potential and people who are critical for AXA, and (iii) build and share robust and diverse talent pipelines for our most key positions and functions around the globe. These processes will be supported from 2018 onwards by a common HRIS (Oracle HCM Cloud) across all major entities of the Group.
AXA remained committed to hiring graduates across many countries in its global Graduate Program. With the purpose of accelerating leadership development, AXA believes it can prepare the next generation of leaders by giving them challenging experiences that are tied to its strategy for the future. In 2017, 24 graduates were selected to attend “Leader in Me”, a three day training designed to provide graduates with skills they need to lead and manage teams. Since 2012, the Graduate Program at AXA has put purpose, vision, and strategy at the center, and allows graduates to play a significant role in impacting the business.
AXA is conscious of the role it can play, as an insurer, investor and global corporation, in raising awareness about environmental protection amongst its stakeholders, contributing to improve the understanding of global and local environmental risks, and committing to address climate change. AXA’s environmental strategy includes both business drivers through our products and operational drivers, such as reducing our internal environmental footprint.
(related to fossil fuel and electricity consumption); electronic waste is AXA’s most significant hazardous type of waste; paper is the most significant raw material consumed by AXA; and AXA off ices use some water resources. As a result, AXA’s environmental reporting and management processes focus on energy, water and paper consumption, as well as CO
AXA’s Global Key Performance Indicator (KPI) target for the 20122020 period is to reduce its carbon emissions per Full-Time
In addition, the Group has also set two environmental targets that are unrelated to carbon emissions: ■ -15% water consumption; ■ 95% of paper must originate from recycled or sustainable sources.
To measure its environmental footprint, the Group Corporate Responsibility team coordinates a network of around 300 dedicated environmental managers and employees in local entities. This network monitors annual progress on its reduction targets through the internal reporting tool, which helps local entities evaluate their own action plans and targets. These managers then analyse indicators, identify performance targets and promote best practice sharing. To accompany these action plans, entities have put in place a wide variety of activities to raise awareness and train employees on environmental issues and risks. At Group level, AXA organizes a yearly event on Corporate Responsibility, the “CR Week” which is rolled out by all local entities. Environmental awareness is one of the key topics addressed during this event.
In addition to the steps taken above, by joining the “RE100” initiative in 2017, AXA also committed to buy 100% of its electricity from renewable energy sources by 2025, with an interim target of 70% by 2020. This target covers both AXA’s off ice buildings and AXA owned data-centers. In 2017, 115 sites bought electricity from renewable energy sources, representing about 53% of total electricity consumption for AXA buildings and 33% for our data centers.
Local AXA entities made significant steps to reduce their on-site energy footprint, for example: ■ AXA Technology Services continued implementing its Green IT program based on server refreshes, data center consolidation and virtualization, PC refreshes and power management. The total consumption for AXA Technology Services decreased by 13.4% when compared with 2016, which represents a net reduction of 7.5 GWh. Power consumption in data centers decreased by 9.7% to reach 39.3 GWh in 2017, which represents a net reduction of 4.2 GWh; ■ In the United Kingdom, AXA entities have installed solar panels on certain buildings. The entity uses the electricity generated by these panels for on-site use and in some cases sell it back to the electricity grid.
footprint, may be used only for long haul flights. Self-booking tools are also required to integrate CO
The average emissions rate of AXA car fleet is 119g of CO
from business travel (air and train), 16% from AXA’s vehicle fleet and 6% from paper.
emissions generated from gas and heating oil burned onsite, and fuel used by AXA’s car fleets. Absolute scope 1 emissions remained stable between 2017 and 2016, with a decrease of 2%, and 11% since 2012. Scope 1 emissions per FTE decreased by 2% between 2016 and 2017 and by 20% since 2012. Concerning gas consumption, some entities have replaced gas by steam. AXA’s car fleet have a maximum threshold at 120g of CO
Scope 2 emissions include emissions from the purchase of electricity, steam and chilled water. Absolute scope 2 emissions decreased by 18% between 2016 and 2017 and by 32% since 2012. Normalized scope 2 emissions decreased by 22% between 2016 and 2017 and by 39% since 2012. This performance is notably related to the purchase of renewable electricity. In order to calculate our CO
uses both market-based (electricity supplier energy mix) and location-based (average country energy mix) approaches. For the entities buying renewable electricity and which have electricity consumption data per source technology type (such as hydro, solar, wind, biomass and geothermal based on power generation mix used by their providers), AXA uses a more precise “marketbased ” approach, thus attributing the corresponding emissions factors to each source type. For entities which do not have information about their energy provider’s energy mix, AXA uses a “location-based” approach (with emissions factors provided by the French Environmental Regulatory body ADEME).
In addition, AXA also measures the carbon emissions related to its employee commute, even though such indirect emissions may be considered to be outside of the scope of the Group’s responsibilities. In 2017, 14,108 employees from over 32 countries participated in this commuting voluntary survey. Participating employees commuted a total of 985,383 thousand kilometers, out of which 52% were travelled by public transport, 5% by company cars, 36% by personal vehicles and rest by either walking or bike. However, employee commuting-related CO
increased by 2% compared to 2016 with 0.83 T eq. CO
AXA’s waste management policy integrates principles related to the circular economy such as “closing the loop” of product lifecycles. Recycling and re-use are followed to better manage our waste wherever possible. Even though AXA has not set any direct quantitative targets on waste generation , local entities are encouraged to improve their onsite waste sorting and implement voluntary initiatives to reduce waste and promote recycling. AXA
monitors it waste through three main indicators: Unsorted waste, sorted paper for recycling, and cartridge/toners for recycling.
AXA Group’s operations, focusing on financial services, do not generate major direct impacts on the environment. AXA has some sites classified for environmental protection. However, they do not produce any significant emissions into air, water and soil, and AXA’s activities and facilities are not likely to generate noise and odor emissions. No complaints, to AXA’s knowledge, related to this type of pollution were filed against the Group. AXA’s operations and land use do not significantly threaten biodiversity, nor water resources, as water consumption is mainly limited to building usage. Beyond its buildings, AXA owns over 595,117m2 of green spaces where it endeavors to preserve biodiversity.
The existence of “classified facilities” (for environmental protection purposes) such as fuel tanks for backup electricity generators, or major air conditioning systems, require attention regarding compliance with legal requirements. In 2017, the Group reported 29 sites with such certificates and 61 sites had some type of other environmental certificate. Those facilities benefit from adequate maintenance and their compliance with local legal obligations is monitored regularly. The full range of expenditures incurred to promote environmental preservation is minor and not monitored at Group level; no specific provisions or guarantees covering environmental risks have been set aside.
Number of employees on site, Full-Time Equivalent (FTEs) FTE 115,819 115,328
KPI: Marketing and distribution paper consumption per customer (j) kg/customer 0,14 0,10
Paper recycled and/or garanteeing sustainable management: marketing & distribution % 69 51
Stable reporting perimeter compared to 2016, representing the 42 most significant countries where the AXA Group is present. Key Performance Indicators (KPIs) highlighted in bold. (a) In 2017, environmental indicators were collected for 232 sites representing 91,791 FTEs working on AXA sites (unless otherwise indicated in these footnotes) and were then extrapolated, continent by continent, to cover all 115,328 salaried FTEs (all types of contracts) working at the AXA Group in average in 2017. (b) Includes electricity, natural gas, heating oil, steam, chilled water and covers 91,791 FTEs. (c) This data has been collected from 89,096 FTEs.
(d) Home/workplace commute estimations are based on an annual online transportation survey, issued to every AXA salaried employee. This data has been collected from 14,108 FTEs and then extrapolated. Sites whose response rate was below 5% have been excluded from the data consolidation process. (e) The emissions factors specific to each country used for energy, train and air were revised in 2017. Source: the lnternational Energy Agency (IEA) and Ademe. (f) The AXA vehicle fleet covers 91,791 FTEs.
(g) Does not include company cars, to avoid double counting with the AXA vehicle fleet data. (h) This data has been collected from 91,465 FTEs. Some sites in Asia and America are not equipped with water meters, which prevents accurate measurement and excludes them from the reporting scope before extrapolation. However, entities are starting to better track their water consumption with the installation of water meters (e.g. data centers, AXA Ireland). (i) Paper indicators covers 91,515 FTEs. (j) The Group had 105 millions customers in 2017.
AXA’s position regarding climate change is not only to adapt, but to take advantage of its privileged position to provide solutions. Indeed insurers are well equipped to address climate-related risks. They can fund and promote risk research and education. They possess claims loss data, as well as models and tools to analyze and project this data. They have a duty to disseminate knowledge about new risks. Insurers, through their significant investments, are also well positioned to send the right signals to the investment community and to the specific companies they invest in. This strategy addresses both the “mitigation” and the “adaptation” dimensions of climate change. It is not solely selfinterested or commercially driven, but it needs to be global and collective to be eff ective.
This section describes our Responsible Investment (RI) initiatives in line with the voluntary disclosure requirements related to the Taskforce on Climate-related Financial Disclosures (TCFD, focusing on climate risks) and the compulsory framework related to the French “Article 173 VI” decree (which also considers ESG issues). It is based on the TCFD structure, namely Governance, Strategy, Risk Management, and Metrics & Targets, according to the TCFD’s general guidance for the financial sector, and supplemental guidance for Insurance companies and asset owners. This text is an overview of our full “TCFD/Article 173” report, published on www.axa.com in March 2018.
Every year, the Board of Director’s Compensation & Governance Committee examines the Group Corporate Responsibility strategy, with a strong focus on ESG and climate. The CR Strategy can also be evaluated by the entire Board of Directors. Moreover, the AXA Stakeholder Advisory Panel, which meets twice a year in the presence of the CEO and Chairman of the Board, also assesses and provides feedback on AXA’s CR and RI strategy.
Carbon footprinting, across asset classes, is developed in Paragraph (Metrics & Targets).
“TRANSITION” RISKS: OUR APPROACH TO ASSESSING CLIMATE IMPACTS ON AXA’S CORPORATE BONDS & EQUITIES PORTFOLIO
These results can be translated into a forward-looking “Valueat -Risk” per security, which may bear more relevance than backward-looking carbon footprint-based approaches. The Equities “Climate VaR” is based on a “Gordon Growth”-type model with costs reduced by green revenues, thus representing the proportion of a company’s market value that is poised to decrease or increase due to climate changes. The Corporate Bonds model is based on a credit risk approach integrating the impact of future climate/energy transition-related costs and green revenue on interest rate coverage, and thus affecting credit spreads, bond price, rating and default risk. At this stage, we are testing this approach to better understand the nature of climate-related risks.
Our results, which are based on an exploratory methodology, show that both annual average losses, as well as losses generated by flood and windstorm events with a return period of 100 years, remain relatively limited compared to the total asset value. This is further described in AXA’s TCFD/Art. 173 report on www.axa.com.
AXA’s Property & Casualty business is exposed to climate-related natural catastrophe risks such as windstorms, hurricanes, floods. New exposures, changing weather patterns and climatic conditions create additional uncertainty on the frequency and severity of natural disasters. Our strategy is to accelerate the development of our catastrophe risk modeling capacities, based on both external (academic) and internal scientific resources. The link between the observed climate change and the frequency and severity of natural disasters is a key challenge for AXA. Catastrophe loss figures show a steadily increasing pattern, and this is largely explained by assets increasingly built near coasts, rivers, small islands or earthquake-prone areas.
However, no robust statistical global link between the frequency or severity of climate-related perils and climate change has been scientifically proven yet. A distinction must be made between what is very likely (such as mean sea level elevation, small coastal floods, threats to biodiversity, population displacement) and what is not, especially wind events or severe floods driven by severe cyclonic phenomena, which are neither more frequent nor more severe so far. This distinction is key to focus on the most relevant risks in order to take appropriate risk prevention measures and public policy in general. Please refer to Part 4 “Risk factors and Risk Management” of this Annual Report.
In addition to tracking ESG and climate metrics, AXA factors these risks and opportunities into its investments and insurancerelated processes. Our integration of ESG and climate-related risk and opportunities into our General Account investments is undertaken via initiatives such as ESG score tracking, exclusions, green and impact investments, engagement, public policy outreach, products and services and “2C” alignment analysis.
In 2015, AXA stated that investors and insurers have a key role to play in the fight against climate change, and proved it through strong action: AXA was the first global investor to initiate divestment from coal, and the first to phase out the insurance coverage of coal clients. We also adopted ambitious green investments targets. Ahead of COP21, we signaled that climate finance is a complex issue, but it can nonetheless be tackled. This helped AXA and some peers to overcome paralysis by analysis and shift into “action” mode. During the December 12, 2017 “One Planet Summit”, organized by the French Government, AXA announced the significantly ramped-up climate strategy described below.
In 2015, AXA committed to reach €3 billion in green investments by 2020. We have already reached that target in 2017 and have decided to set the bar higher to reach €12 billion in green investments by 2020. This doubles the recent recommendations by Christiana Figueres, one of the main architects of the COP21, to dedicate 1% of institutional investments to green assets.
This investment includes notably green infrastructures, green bonds and property and commercial real-estate with stringent environmental standards. AXA’s definition of “green” infrastructure is derived from an accepted and demanding market-based approach: the “Climate Bonds Initiative” classification. In addition, in the case of Real Estate and Commercial Real Estate loans assets, AXA applies the strictest environmental standards, classifying as Green the property, or the loans backed by property with the highest environmental certifications and ratings.
In 2017, AXA has decided to increase its divestment to reach €3 billion, by expanding our coal exclusion criteria. This new divestment is based on the Global Coal Exit List, a new NGO tool using 3 criteria. AXA will now divest from the following company types: ■ electric utilities with coal share of power production (energy mix) over 30%; mining companies with coal share of revenues over 30%. This captures long term financial risks related to “stranded assets”;
■ energy mix and revenue mix criteria do not enable to address companies that are actively developing new coal-based power capacity. Hence we now also divest from companies with coal-based power “expansion plans” exceeding 3 GigaWatts (GW). Such companies are building new coal plants that are locking economies into coal power for decades, which clearly contradicts the COP21 “Paris Agreement”. This new approach captures “real” climate impact, beyond pure financial risks. It is also more forward-looking; ■ mining companies with annual coal production over 20 million tons.
It is inconsistent to commercially support industries that the Group has divested from. Therefore, AXA also restricts insurance coverage for coal-related and oil sands-related assets. Because insurers can look at projects on a case-by-case basis, a nuanced approach has been chosen. AXA now excludes: ■ the development of new coal capacity by ending Construction covers for any new coal plant and new coal mine, whichever the Region or client (regardless of our investment blacklist); ■ the operations of existing coal assets by ending Property covers for existing coal plants and coal mines when these are included in coal-only risk packages. This does not apply to countries where access to energy remains a concern for local populations, and baseload energy alternatives to coal are not yet in place.