All around the world, we deliver our products and services under a global brand. Combined with our tagline –Be Life Confident–
History and development / p. 4 Simplified organization chart / p. 6 AXA stock price / p. 8
In 1988, AXA transferred its insurance businesses to Compagnie du Midi and operated under the name of AXA Midi, which subsequently reverted back to the AXA name. Two years later, the French insurance operations were reorganized to operate by distribution channel.
Life activities in the United States. In addition, AXA sold its insurance activities in Uruguay (AXA Seguros Uruguay) thereby finalizing its disengagement from South America; it also disposed of its broking activities (Unirobe) and its activity of health insurance in the Netherlands, and finally its activity of loan on real property in Germany (AXA Bausparkasse AG).
n Insurance AXA Aurora S.A. (g) 100% 100% Hilo Direct S.A. de 100% 100% Seguros y Reaseguros
(g) Holding Company that owns AXA Aurora Iberica, S.A., de Seguros y Reaseguros and AXA Aurora Vida, S.A. de Seguros y Reaseguros and Seguro Directo (Portugal R.C). (h) Holding Company that owns AXA France Vie, AXA France IARD, AVANSSUR and AXA Corporate Solutions Assurance 8 M
n Insurance AXA Portugal Companhia 99% 100% de Seguros SA AXA Portugal Companhia 95% 95% de Seguros de Vida SA Vie
n Life & Savings n Property & Casualty n International Insurance n Asset management n Other financial services n Holdings
Profit or loss (excluding change) on financial assets (under FV option) & derivatives 149 428 – –
Adjusted earnings represent the net income (group share) before: (i) The impact of exceptional operations (primarily change in scope, including restructuring costs related to a newly acquired company during the considered accounting period).
(c) Dividende net / Adjusted earnings. (d) In 2005, AXA published Life Embedded Value and the New Business Value for 2004, restated according to the principles of European Embedded Value (EEV). The methodology applied for the calculation of the EEV is based on an approach “bottom up market consist” for a better apprehension of the evaluation of the risk. Please refer to page 413 for further details. (e) Since 2004, gearing ratio excludes cash surplus at Group Level. (f) Represents EEV Return. * On a comparable basis.
(i) Number of ordinary share outstanding * Share price as at December 31.
Stock capitalization as at the end of December (i) (in euro billions)
Corporate Governance / p. 20 Internal control procedures / p. 40 Full disclosure on executive and employees compensation and share in capital / p. 55 Principal statutory information concerning the Company / p. 76
Information concerning the share capital of the Company / p. 78 Other legal information / p. 88
Supervisory Board The developments below on the “Supervisory Board” and “Supervisory Board Committees” correspond to the first part of the Supervisory Board Chairman’s Report on the conditions under which the Board’s work is prepared and organized, which was prepared in accordance with the French Financial Security Act of August 1st, 2003. The second part, which concerns internal control procedures, follows this section on Corporate Governance.
Role and powers The Supervisory Board oversees the management of the Company and is accountable to the shareholders. The Supervisory Board appoints and dismisses the Chairman and members of the Management Board and supervises executive management of the Company.
Article 12 of the Company’s bylaws, and the Supervisory Board’s own internal regulations, specify that, in light of its enhanced supervisory power with respect to matters of particular concern to the shareholders, the following transactions or issues require the prior consent of the Supervisory Board: – the issuance of securities with a direct or indirect claim on the equity capital of the Company; – proposed stock repurchase programs submitted to a vote of the shareholders assembled in an ordinary meeting; – financing operations that may have a material impact on the Company’s financial position; – any contemplated business acquisition; – agreements to form strategic partnerships; – the setting up of any stock option plans or the granting of any free allotments of shares for employees of the Company, as well as for employees and officers of related parties, as well as the granting of stock options or free allotments of shares to members of the Management Board of the Company; – proposals to amend the Company’s bylaws submitted to a vote of the shareholders in an extraordinary meeting; – appropriations of earnings and dividends for the previous year proposed to shareholders in an ordinary meeting; – interim and final dividend payment dates.
Operating procedures and activity The guidelines governing the operation, organization and compensation of the Supervisory Board and its committees are contained in its internal regulations.
Its members receive documentation concerning matters to be reviewed prior to each meeting, generally eight days in advance.
Composition On December 31, 2005, the Supervisory Board had 13 members, elected by the shareholders. Currently, 4 members of the Supervisory Board are not French nationals.
The shareholders also: – ratified the Supervisory Board’s decision to appoint
Acting on the recommendation of its Selection, Governance and Human Resources Committee, the Supervisory Board has assessed the independence of all of its members on the basis of the recommendations contained in the Bouton Report on corporate governance in publicly traded companies and, for the members of the Audit Committee, on the basis of the criteria set forth in the Sarbanes-Oxley Act.
The Supervisory Board has taken the required measures to ensure that, by July 31st, 2005, all of the members of the Audit Committee would meet the independence criteria set forth in the Sarbanes-Oxley Act.
Jean-René Fourtou Vice-Chairman of Chairman of the Supervisory Board of Vivendi Universal Vivendi Universal April 1990 / (66) the Supervisory Board and Groupe Canal+; Director of member of the Supervisory Board 42, avenue de Friedland April 2007 of Sanofi-Aventis, Cap Gemini, AXA Millésimes, 75008 Paris Maroc Telecom (Morocco) and NCB Universal Inc (United States)
Léo Apotheker Member of President Customer Solutions & Operations, Member of SAP February 2005 / (52) (1) (3) the Supervisory Board the Executive Committee of SAP AG; Director of SAP America, Inc. 141, bd Haussmann April 2007
David Dautresme Member of Senior Advisor, Lazard Frères; Managing Partner of DD Finance; Lazard Frères April 1990 / (72) (1) the Supervisory Board Chairman of the Supervisory Board of Club Méditerranée; 121, bd Haussmann April 2007
Jacques de Member of Président-Directeur Général de BOURBON, Président du Conseil BOURBON April 2005 / Chateauvieux the Supervisory Board d’Administration de SAPMER S.A., Cbo Territoria, JACCAR SAS ; 33, rue du Louvre April 2009 (55) (1) (4) Administrateur de Vindemia SAS, Happy World Foods, Ltd 75002 Paris
(1) Independent. (2) Reappointed by the shareholders on April 20, 2005. (3) Co-opted by the AXA Supervisory Board on February 23, 2005; ratified by the shareholders on April 20, 2005. (4) Appointed by the shareholders on April 20, 2005.
Directors of Hottinger Bank & Trust Limited (Nassau, Bahamas); 75009 Paris Chairman of Mofipar (SAS) and Hottinger & Co. Bale (Switzerland), Vice-Chairman of Gaspee (Switzerland); Senior Chief Officer and Director of Financière Hottinguer Chief Officer of the Board of Director of Hottinger Finanz & Treuhand (Switzerland); Director of AXA France IARD, AXA France Vie, Intercom, Hottinger International Fund (Luxembourg) and Hottinger International Asset Management (Luxembourg); Non-voting member of the board of Didot Bottin
Gérard Mestrallet Member of Chairman and CEO of Suez; Chairman of Suez Environnement, Suez January 1997 / (57) (1) the Supervisory Board Suez-Tractebel (Belgium) and Electrabel (Belgium); 16, rue de la Ville l’Evêque April 2007
Michel Pébereau Member of Chairman of the Board of Directors of BNP Paribas; Director or BNP Paribas January 1997 / (64) (2) the Supervisory Board member of the Supervisory Board of Saint Gobain, Total, Lafarge, 3, rue d’Antin April 2009
Mme Dominique Member of Chairman Europe of The Coca-Cola Company; Coca-Cola Entreprises, April 2005 / Reiniche the Supervisory Board Director of Essilor; Member of the Advisory Board of ING Direct Groupe Europe April 2009 (50) (1) (4) and of the Executive Committee of the MEDEF 27, rue Camille Desmoulins 92784 Issy-les-Moulineaux Cedex 9
In addition, Norbert Dentressangle (51) is expected to be elected for a 4-year term at the Annual General Meeting of May 4, 2006. His mandates include Chairman and CEO of Financière Norbert Dentressangle, Chairman of the Supervisory Board of Groupe Norbert Dentressangle and FINAIXAM, CEO of SOFADE (SAS), as well as director or member of the Supervisory Board of SEB, Sogebail and Emin-Leydier (SAS). After this appointment, the number of Independent member within AXA’s Supervisory Board would be 10 out of 14 since Norbert Dentressangle is himself an independent member.
Claude Bébéar June 1988 2008 AG Chairman of the Supervisory Board of AXA Chairman of the Supervisory Board of AXA Chairman of the Supervisory Board of AXA Chairman of the Supervisory Board of AXA Chairman of the Supervisory Board of AXA Chairman of the Supervisory Board of AXA Director of AXA Assurances IARD Mutuelle, Chairman and CEO of FINAXA Chairman and CEO of FINAXA Chairman and CEO of FINAXA Chairman and CEO of FINAXA
AXA Assurances Vie Mutuelle, Director of AXA Assurances IARD Mutuelle, Director of AXA Assurances IARD Mutuelle, Director of AXA Assurances IARD Mutuelle, Director of AXA Conseil Vie Assurance AXA Courtage Assurance Mutuelle, AXA Assurances Vie Mutuelle, AXA Assurances Vie Mutuelle, AXA Assurances Vie Mutuelle, Mutuelle, AXA Assurances IARD Mutuelle, BNP Paribas and Vivendi Universal AXA Courtage Assurance Mutuelle, AXA Courtage Assurance Mutuelle, AXA Courtage Assurance Mutuelle, AXA Assurances Vie Mutuelle, Non-voting member of the Board BNP Paribas and Vivendi Universal BNP Paribas and Vivendi Universal Schneider Electric, BNP Paribas and AXA Courtage Assurance Mutuelle, of Schneider Electric Non-voting member of the Board Vivendi Universal BNP Paribas, and Schneider Electric of Schneider Electric
EADS (The Netherlands), Schneider Electric, Pernod-Ricard, La Poste, USA Interactive (USA) Rhodia, EADS (The Netherlands)
Léo Apotheker February 2005 2007 AG President Customer Solutions & Operations – Chairman, Global Field Operations of SAP Chairman, Global Field Operations of SAP Chairman, Global Field Operations of SAP President Customer Solutions & Operations Member of the Executif Committee of SAP AG Director of SAP America, Inc. (US), Director of SAP FRANCE S.A, Director of SAP Systems Integration Member of the Executif Committee of SAP AG Directors: SAP America, Inc. (United States) SAP Global Marketing Inc. (US), S.A.P. ITALIA Sistemi, applicazioni, AG (Germany), SAP FRANCE S.A,
SAP Global Marketing Inc. (United States) SAP Asia Pte. Ltd.(Singapore), prodotti in data processing s.p.a., (Italy), SAP Finland Oy (Finland), SAP Svenska SAP Asia Pte. Ltd. (Singapore) SAP JAPAN Co., Ltd.(Japan), SAP Hellas Systems Application and Aktiebolag (Sweden), S.A.P. ITALIA Sistemi, SAP JAPAN Co., Ltd. (Japan) SAP FRANCE S.A., S.A.P. ITALIA Sistemi, Data Processing S.A. (Greece), applicazioni, prodotti in data processing SAP FRANCE S.A., S.A.P. ITALIA Sistemi, applicazioni, prodotti in data processing SAP America, Inc. (US), s.p.a., (Italy), SAP Hellas Systems applicazioni, prodotti in data processing s.p.a., s.p.a., (Italy), SAP Hellas Systems Application SAP JAPAN Co., Ltd.(Japan), Application and Data Processing S.A. (Italy), SAP Hellas “Systems Application and Data Processing S.A. (Greece), SAP Manage Ltd. (Israel), (Greece), SAP America, Inc. (US), and Data Processing S.A.” (Greece) SAP (Beijing) Software System Co., SAP Global Marketing Inc. (US) SAP JAPAN Co., Ltd. (Japan), SAP (Beijing) Software System Co., Ltd., (China) Ltd., (China), Enigma Inc. (US) SAP Danmark A/S (Denmark), Ginger S.A. SAP Manage Ltd. (Israel)
David Dautresme April 1990 2007 AG Senior Advisor Lazard Frères Senior Advisor Lazard Frères Senior Advisor Lazard Frères Senior Advisor Lazard Frères Senior Advisor Lazard Frères Senior Advisor Lazard Frères Managing partner : DD Finance Managing partner of DD Finance Managing partner of DD Finance Chairman of Parande Développement Chairman of Parande Développement
Chairman of the Supervisory Board: Chairman of the Supervisory Board Chairman of Montech Expansion (US) (Groupe Euris) (Groupe Euris) Club Méditerranée of Club Méditerranée Director of Club Méditerranée, Casino, Director of Lazard Frères Banque, Director of Société Immobilière Director: Casino, Fimalac Director of Casino, Fimalac Rue Impériale, Fimalac Club Méditerrannée, Casino, Rue Impériale Marseillaise, Lazard Frères Banque, Non-voting member of the Board: EURAZEO Non-voting member of the Board Non-voting member of the Board Non-voting member of the Board Club Méditerrannée, Casino of Groupe Go Sport, Lazard Frère Banque, of Groupe Go Sport, Lazard Frère Banque of Groupe Go Sport EURAZEO
Chairman of the Supervisory Board of AXA Chairman of the Supervisory Board of AXA Chairman of the Supervisory Board of AXA Chairman of the Supervisory Board of AXA Chairman and CEO of FINAXA Chairman and CEO of FINAXA Chairman and CEO of FINAXA Chairman and CEO of FINAXA Director of AXA Assurances IARD Mutuelle, Director of AXA Assurances IARD Mutuelle, Director of AXA Assurances IARD Mutuelle, Director of AXA Conseil Vie Assurance AXA Assurances Vie Mutuelle, AXA Assurances Vie Mutuelle, AXA Assurances Vie Mutuelle, Mutuelle, AXA Assurances IARD Mutuelle, AXA Courtage Assurance Mutuelle, AXA Courtage Assurance Mutuelle, AXA Courtage Assurance Mutuelle, AXA Assurances Vie Mutuelle, BNP Paribas and Vivendi Universal BNP Paribas and Vivendi Universal Schneider Electric, BNP Paribas and AXA Courtage Assurance Mutuelle, Non-voting member of the Board Vivendi Universal BNP Paribas, and Schneider Electric of Schneider Electric
Chairman of the Board of Directors of SAS, Vindemia SAS Director of Sapmer, Antenne Réunion Télévision Antenne Réunion Télévision SAPMER S.A., Cbo Territoria, JACCAR SAS Director of Happy World Foods, Ltd Happy World Foods, Ltd Director of Sapmer, Director of Sapmer, Director of VINDEMIA SAS, Happy World Foods, Ltd Happy World Foods, Ltd HAPPY WORLD FOODS, Ltd
Non-voting member of the Board Non-voting member of the Board of Didot Bottin of Didot Bottin
(United Kingdom), CX Reinsurance Capital Markets Limited (United Kingdom), & Co Ltd (UK) (United Kingdom) Binley Limited (United Kingdom) Director or member of the Supervisory
Gérard Mestrallet January 1997 April 2007 Chairman and CEO of Suez Chairman and CEO of Suez Chairman and CEO of Suez Chairman and CEO of Suez Chairman and CEO of Suez Chairman and CEO of Suez Chairman: Suez Environnement, Chairman of Suez Environnement, de Suez- Chairman of Suez-Tractebel (Belgium), Chairman of Société Générale de Belgique Chairman of Société Générale de Belgique
Compagnie de Saint-Gobain, Taittinger Pargesa Holding S.A. (Switzerland), Compagnie de Saint-Gobain, Taittinger, Saint-Gobain, Pargesa Holding S.A. Pargesa Holding S.A. (Switzerland) Electrabel (Belgium) Pargesa Holding S.A. (Switzerland) (Switzerland), Casino, Metropole
Michel Pébereau January 1997 April 2009 Chairman of the Board of Directors Chairman of the Board of Directors Chairman of the Board of Directors Président-Directeur Général Président-Directeur Général Chairman of the Board of Directors of BNP Paribas of BNP Paribas of BNP Paribas of BNP Paribas de BNP Paribas de BNP Paribas
Director of member of the Supervisory Director of member of the Supervisory Director of member of the Supervisory Director of member of the Supervisory Director of member of the Supervisory Board: Saint Gobain, Total Lafarge, Board: Saint Gobain, Total Lafarge, Board: Saint Gobain, Total Lafarge, Board: Saint Gobain, Total Fina Elf, Board: Galeries Lafayettes, BNP Paribas UK (United Kingdom), BNP Paribas UK (United Kingdom), Dresdner Bank AG Francfort (Germany), Lafarge, Dresdner Bank AG (Germany), Compagnie Saint Gobain, Total Fina Elf, Banque Marocaine pour le Commerce et Banque Marocaine pour le Commerce et BNP Paribas UK (United Kingdom) BNP Paribas UK (United Kingdom) Lafarge l’Industrie (BMCI) l’Industrie (BMCI) Non-voting member of the Board: Non-voting member of the Board: Permanent representative of BNP Paribas Non-voting member of the Board: Non-voting member of the Board: Galeries Lafayettes Galeries Lafayettes at Renault and Dresdner Bank AG’s Galeries Lafayettes Galeries Lafayettes boards (Germany)
Ezra Suleiman April 2003 April 2007 Professor of Politics and Chair of Professor of Politics and Chair of Professor of Politics and Chair of Professor of Politics and Chair of the Committee for European Studies, the Committee: for European Studies, the Committee: for European Studies, the Committee: for European Studies, Princeton University (US) Princeton University (United States) Princeton University (United States) Princeton University (United States)
Associate Professor: Associate Professor: Associate Professor: Institut d’Etudes Politiques (Paris) Institut d’Etudes Politiques (Paris) Institut d’Etudes Politiques (Paris) Member of the Management Committee: Member of the Management Committee: Member of the Management Committee: Institut Montaigne, Centre Américain, Institut Montaigne, Centre Américain, Institut Montaigne, Centre Américain, Institut d’Etudes Politiques (Paris) Institut d’Etudes Politiques (Paris) Institut d’Etudes Politiques (Paris) Member of the Editorial Committee: Member of the Editorial Committee: Member of the Editorial Committee: Comparative Politics, La Revue Comparative Politics, La Revue Comparative Politics, La Revue des Deux Mondes and Politique Internationale des Deux Mondes and Politique Internationale des Deux Mondes and Politique Internationale
Présidente de Coca-Cola Enterprises – Présidente de Coca-Cola Enterprises – Président-Directeur Général de Président-Directeur Général de Groupe Europe Groupe Europe Coca-Cola Entreprise Coca-Cola Entreprise Membre de l’Advisory Board de ING Direct Vice-Présidente de Coca-Cola
Professor of Politics and Chair of Professor of Politics and Chair of the Committee: for European Studies, the Committee: for European Studies, Princeton University (United States) Princeton University (United States) Associate Professor: Associate Professor: Institut d’Etudes Politiques (Paris) Institut d’Etudes Politiques (Paris) Member of the Management Committee: Member of the Management Committee: Institut Montaigne, Centre Américain, Institut Montaigne, Centre Américain, Institut d’Etudes Politiques (Paris) Institut d’Etudes Politiques (Paris) Member of the Editorial Committee: Member of the Editorial Committee: Comparative Politics, La Revue Comparative Politics, La Revue des Deux Mondes and Politique Internationale des Deux Mondes and Politique Internationale
1975: Was appointed Chief Executive Officer of Anciennes Mutuelles (which was renamed Mutuelles Unies in 1978). Created l’Ancienne Mutuelle de Réassurance – l’AMré – which later became AXA RE.
1982: Chairman of Mutuelles Unies and Chairman of Groupe Drouot. 1985: Chairman of GIE AXA at its founding. 1990 – 2000: Chairman and Chief Executive Officer and Chairman of the Management Board of AXA (1997/2000). Since May 2000: Chairman of the AXA Supervisory Board.
Honory Chairman of Aventis and member of the Supervisory Board of Aventis, and director of Sanofi-Aventis. 07/2002 – 04/2005: Chairman and Chief Executive Officer of Vivendi Universal.
1965: Was appointed Associé-Gérant of the bank then was appointed Chairman or director of various companies. 1982 – 1987: Chairman and Chief Executive Officer of Compagnie Financière Drouot.
End of 1997 / December 2004: Chairman of the Supervisory Board of Crédit Suisse Hottinguer.
1981 – 1998: Chairman and Chief Executive Officer of Financière Strafor, which later became Strafor Facom. Since 1996: Director of Schneider Electric SA. Since February 1999: Chairman and Chief Executive Officer of Schneider Electric SA.
Gérard Mestrallet 1984: Joined Compagnie de Suez as Vice-President, Special Projects.
1986: Executive Vice-President Industry. February 1991: Executive Director and Chairman of the Management Committee of Société Générale de Belgique. 1995: Chairman and Chief Executive Officer of Compagnie de Suez. June 1997: Chairman of the Management Board of Suez Lyonnaise des Eaux.
1978 – 1981: Head of the Finance Minister’s Cabinet (René Monory), then Project leader to the Minister. 1982 – 1987: Chief Executive Officer of Crédit Commercial de France.
1993 – 2000: Chairman and Chief Executive Officer of Banque Nationale de Paris.
1992 – 1994: Marketing & Responsable “Compte-clé” Manager – Coca-Cola Entreprise.
1994 – 1997: Commercial & Operational Marketing Manager – Coca-Cola Entreprise.
2002 – 2003: Vice-Chairman of Coca Cola Enterprises – Europe Group.
2003 – 2005: Chairman of Coca-Cola Enterprises – Groupe Europe. Since May 2005: Chairman Europe of The Coca-Cola Company
Ezra Suleiman 1973 – 1979: Professor at the University of California, Los Angeles. Since September 1979: Professor of Political Sciences at the University of Princeton (IBM chair).
Jacques Tabourot 1972 – 1978: Auditor to Deloitte, then Frinault Fiducaire. 1978 – 1986: Assistant to the accounting Manager then Accountant Manager of Secours.
1986 – 2003: Responsible of the AXA consolidation then Manager of the Accounting Department of AXA Group. Since April 1st, 2003: Cadre de réserve of AXA. 1990 – 2005: Lecturer for masters in banking and finance at Université Panthéon-Assas Paris II.
Since April 2004: Member of the AXA Supervisory Board, representing the employee-shareholders.
Service contracts between the AXA Group and members of the Supervisory Board To date, no service contracts have been entered into between a member of the AXA Supervisory Board and AXA or one of its subsidiaries whose terms call for the payment of a benefit or entitlement of any kind.
Self-review of the Supervisory Board activity The Supervisory Board understands the importance of self-review.
Board and Group Management; – the organization and operation of the Board, of the
Committee Chairmen reports on completed committee work at the next scheduled Supervisory Board meeting.
The role, organization and operating procedures of each Committee are set forth in the Supervisory Board’s Internal Regulations.
findings and recommendations, as well as any actions taken in light of these recommendations; the Committee works with the Management Board and Group Internal Audit to review the Internal Audit Guidelines (for subsidiaries) and the structure of internal audit operations; it assesses the independence of independent auditors by examining their relationships with the AXA Group and, in particular, by verifying the completeness of invoices submitted for audit work; it supervises the subject and performance of outside audits when the assignment does not pertain to financial statement audits (in particular support for the implementation of new accountings standards); it reviews the appointment and replacement of independent auditors for Group subsidiaries; and the Audit Committee also may be asked by the Management Board or the independent auditors to examine matters or events that expose the AXA Group to a significant risk.
– To review the accounting rules in force at AXA, and review any proposed changes in method, policy or principle.
Finance Committee The Finance Committee had four members on December 31, 2005, one of whom met the independence criteria: Claude Bébéar (Chairman), Henri Lachmann, Michel Pébereau and Jacques Tabourot.
The Committee met 4 times in 2005. The global attendance rate was 78%.
The Selection, Governance and Human Resources Committee: – formulates recommendations to the Supervisory Board on appointments to the Supervisory Board or the Management Board, including their respective chairmen and vice-chairmen, as well as on all appointments to the Supervisory Board’s special-purpose Committees, including their respective Chairmen; – is notified of the appointments of AXA’s main executive officers, in particular members of the Executive Committee; – is notified of AXA’s strategy in terms of Human Resources management.
The Committee met twice in 2005. The global attendance rate was 78%.
The Compensation Committee: – makes recommendations to the Supervisory Board on compensation levels for Management Board
The members of the Management Board are: – Henri de Castries (51), Chairman. – Claude Brunet (48), Transversal Operations and Projects,
Human Resources, Brand and Communication. – Christopher Condron (58), Insurance in the United
1993 – 2000: Senior Executive Vice President for the Group’s asset management, financial and real-estate businesses. In 1994, he assumed the additional role of overseeing North American and UK operations. In 1996, he played an active role in preparing for the UAP Merger. In 1997, he was appointed Chairman of the Equitable Companies (wich later became AXA Financial).
1995: Assumed responsibility for The Dreyfus Corporation as Chairman & Chief Executive Officer.
1998: President and Chief Operating Officer of Mellon Bank N.A. 1999 – 2001: President & Chief Operating Officer of Mellon Financial Corporation.
1995: Joined the AXA Group. Took part in the supervision of AXA’s companies in the US and the UK. Has been closely involved in the reorganization process of AXA Companies in Belgium and the United Kingdom.
Dennis Holt (c) Chief Executive Officer of AXA UK (United Kingdom)
François Pierson Member of the Management Board, Chief Executive Officer of AXA France, Head of Large Risks, Assistance and AXA Canada (Canada)
Stanley Tulin Vice Chairman and Chief Financial Officer of AXA Financial (United States)
(a) Philippe Donnet has been appointed Chairman of the AXA Japan Holding's Board as of March 2006. (b) Hans Peter Gerhardt was appointed as Member of the Executive Committee in March 2005. (c) Dennis Holt has retired from his executive role as Group Chief Executive of AXA UK as of June 30, 2006. (d) Nicolas Moreau has been appointed Group Chief Executive of AXA UK. He will replace Dennis Holt. Nicolas Moreau will become Non-Executive Chairman of the Board of AXA
Business units AXA has 9 business units, whose CEOs report directly to the Management Board and its Chairman.
They are listed below: in 2005 with a Corporate Governance standards in its subsidiairies designed to achieve a very substantial degree of harmonization, especially in terms of board composition and size, directors’ independence criteria, Board Committees’ role, directors’ fees.
(b) Nicolas Moreau has been appointed Group Chief Executive of AXA UK. He will replace Dennis Holt. Nicolas Moreau will become Non-Executive Chairman of the Board of AXA Investment Managers as of June 30, 2006. Dominique Carrel-Billiard, currently Senior Vice-President in charge of Business Support & Development for the asset management, the U.S. insurance activities and the reinsurance activities of the AXA Group will become Chief Executive of AXA Investment Managers as of
Implementing the principles of corporate governance is a priority at AXA. In that respect, AXA has come up
AXA has a dual corporate governance structure that establishes and maintains a clear separation of power between management (Management Board) and supervision (Supervisory Board). AXA’s operations are organized into nine business units (BUs) whose chief executive officers report directly to the Management Board and its Chairman. The CEOs of each business unit, as well as members of the Management Board, serve mainly on the Executive Committee. This Committee meets four times a year to review Company performance during its Quarterly Business Review (QBR).
– Operating processes are subject to controls and ongoing improvement, notably via the Group-wide continuous process improvement program called AXA Way.
– AXA employees have the resources they need to operate. The corporate Human Resources Department has implemented processes for assessing and monitoring AXA employees, as well for providing training and development opportunities.
Each year, as part of a rigorous, interactive process, the Group’s principal operating units present the following information for each of their business segments (property/casualty insurance, life insurance, asset management, banking), with a rolling threeyear outlook: – analysis of operational and strategic positions
As indicated above, the Group has a decentralized organization structured around nine business units.
AXA’s Management Board maintains ongoing relationships with all of these BUs through its BSD organization, which reports back to Group management on key projects being considered or under way at business unit level.
Thus, operating units draw up their strategic plans in accordance with pre-targets set by the Management Board. The BSD team prepares these pre-targets, sends them to the business units and monitors compliance.
In addition, the BSD team collects and reviews all the relevant information concerning the business model, the market position or any other issue that may be of interest to the Management Board. The BSD team passes on specific information to facilitate and monitor the execution of the strategic plan.
A sophisticated risk management control has been put in place to ensure that the aforementioned objectives are met.
Management Board and Supervisory Board AXA has a dual governance structure. The work done by the Supervisory Board is described in the first part of this report (see section on Corporate Governance). The Management Board is the Group’s collegial management and decision-making body. To ensure that Group business is monitored between Quarterly Business Reviews, the Management Board’s five members meet weekly to discuss strategy and operations. Its members devote their time exclusively to managing the Group, and none are directors of companies outside the AXA Group.
Executive Committee In carrying out its duties, the Management Board is assisted by an Executive Committee, whose composition reflects the Group’s structure. It consists of: – the members of the Management Board, – the CEOs of the Group’s business units.
In preparation for individual meetings with the Management Board, each business unit provides the Board with formal quarterly information updates on its performance, operational questions that are specific to it, and transversal issues.
In 2005, the following transversal issues were examined in detail: – the performance of Property & Casualty operations, – the profitability of the Life and Savings business, – the satisfaction indicators for customers and distributors,
During the actual review meeting, the Management Board compares the actual business and performance of each business unit with the targets set out in the budget and in the annual target letter. The business unit’s performance is also assessed based on the market trends, the competitive environment and regulatory issues. In this way, quarterly business reviews enable the Management Board to monitor Group operations on a regular basis.
A central team, supported by local risk management teams within each operating unit, coordinates Risk Management for the AXA Group. The types of risk covered include operating risks, asset and liability risks, and asset/liability mismatch risks. The principal control processes that fall under the responsibility of the Risk Management unit are described below: – the central Risk Management Department carries out a regular review of the insurance reserves established by property-casualty and reinsurance operating units,
– the asset/liability management policy in place at operating unit level is monitored and controlled through an annual detailed analysis of asset/ liability matching. This work is undertaken to validate the strategic allocations of invested assets. In addition, a quarterly reporting process is used to monitor portfolio developments and detect deviations from strategic asset allocations as well as with respect to benchmarks determined with asset managers,
Summary findings are then presented to the Management Board, for decision-making purposes when appropriate. The Supervisory Board and the Audit Committee are also informed.
Reinsurance – AXA Cessions Property-casualty reinsurance policy is implemented by operating units with the help of AXA Cessions, a centralized unit. Operating units define their needs on the basis of cost constraints and risk exposure reduction targets. With the exception of optional reinsurance operations that are still carried out directly, risks are ceded through AXA Cessions, which operates directly in the reinsurance market. AXA Cessions has substantial expertise, particularly in carrying out actuarial analyses of the Group’s exposure to catastrophic risks. AXA Cessions manages reinsurer counterparty risk through a Security Committee.
Internal Audit ROLE The Group’s Internal Audit Department works on behalf of the Management Board and the Audit Committee to verify that the AXA Group’s internal audit systems are efficient and effective. All Group subsidiaries, companies, activities and projects fall within its scope.
SCOPE OF OPERATIONS The Group Internal Audit team fulfills its responsibilities in two ways: – It coordinates internal audit teams, which entails establishing internal audit directives and standards, planning the work done by local teams, guaranteeing that the relevant risk-based approach is used, monitoring the quality of work and compliance with recommendations, ensuring that adequate resources are made available to internal audit teams. The Group Internal Audit Department monitors on an annual basis the internal audit teams’ performance indicators and also periodically reviews the quality of the work done.
– It carries out strategic internal audits, which are intended to determine whether the local unit managers are effectively fulfilling their planning, organizational, governance and supervisory roles.
ADMINISTRATION AND MANAGEMENT The Group Internal Audit Department complies with a set of guidelines approved by AXA’s Management Board and Audit Committee.
RISK IDENTIFICATION Several years ago, the Group Internal Audit Department set up a risk-based planning system for local internal audit teams based on the RAM (Risk Assessment Model) system. The aim of the RAM system is to identify each company’s risk exposure and evaluate the internal audit systems that have been adopted in order to prevent and/or limit the risks impact.
IT Group Department A dedicated organization has been set up to handle IT risks: – the IT Group Department defines Group IT policy, especially with respect to security issues; – AXA Technology Services (“AXA Tech”) is responsible for operating IT equipment and telecoms networks for 80% of the Group; – AXA Group Solutions offers AXA subsidiaries shared IT solutions that are consistent with the Group’s general strategy; – the IT departments of local operating units develop and maintain the software used in the business. 20% of them also manage the IT infrastructures.
The IT Group Department sets IT security standards and monitors their application.
The Management Board approves IT security policy, and is kept informed of implementation status. The IT Group Department works through TOs (Transversal Officers), who report to the Management Board and maintain ongoing relationships with all operating units, and ensure adequate reporting at the Group Management level on strategic or large-scale IT projects.
Group Legal Department (“DJC”) The Group’s Legal Department is responsible for identifying and managing the legal risks to which the Group is exposed. It provides expertise on all significant corporate legal issues facing the Group and ensures the legal security of operations undertaken by the Group or its executives. The DJC monitors significant litigation and regulatory procedures involving the Group, and directly manages some of them involving AXA or its executives. The DJC also helps draft business critical standards and procedures, some of which being described below (anti-money laundering, Compliance Guide, offbalance sheet commitments monitoring, Group corporate governance standards, Group beneficial ownership policy…).
A network of correspondents involved in the fight against money laundering has been set up to coordinate actions and distribute important information. In France, an organization has been set up to ensure efficient collaboration with TRACFIN.
COLLATERAL, SECURITIES, PLEDGES AND GUARANTEES These commitments are governed by the Supervisory Board’s internal regulations, which set an authorized annual limit, along with limits for each type of commitment. They are also subject to a specific procedure. The DJC and DCFG are responsible for supervising these commitments, and in particular for analyzing their legal nature, arranging their prior validation by management, and monitoring their execution. Most of these commitments are granted to subsidiaries and relate to loan guarantees on behalf of other Group entities or third parties.
In addition, the Finance Committee validates the risk analysis methods, measurement standards and action plans that allow the Group to maintain a solid financial position. It also determines the scope of action of the Management Board.
As part of the recurrent capital allocation process, each subsidiary sends a report to the DCFG on every interim reporting period, enabling the latter to verify the subsidiaries’ capital adequacy with respect to local regulatory constraints.
In addition, subsidiaries carry out simulations that take into account their regulatory requirements using extreme scenarios concerning assets (market value of equities and interest rate movements). For every interim reporting period, these simulations are consolidated by the DCFG, enabling the latter to measure each subsidiary’s financial flexibility.
The DCFG also maintains a three-year forecast of the Group’s consolidated solvency margin at all times, using extreme equity market and interest rate scenarios.
LIQUIDITY RISK MONITORING AND MANAGEMENT The liquidity risk is managed by AXA’s various operating units. The DCFG monitors this risk at the consolidated level, carrying out standardized measurements of the maturity of resources available to each local operating unit that may carry a significant risk. To this end, the DCFG has devised formal principles for monitoring and measuring resources, along with liquidity risk management standards: – Liquidity is managed centrally and conservatively by the DCFG, using long-term and mainly subordinated debt facilities. In addition, a significant amount of unused confirmed medium-term credit facilities is maintained as a back-up at all times.
Communication, Brand and Sustainable Development The Communication, Brand and Sustainable development Department defines the Group policy in terms of internal communication, brand and commercial communication, press relations (tools and support), sustainable development, communication to individual shareholders and corporate sponsorship. It has the needed resources to release accurate and reliable information and manage the image impairment risk. In addition to that, it ensures that information flows smoothly and is shared throughout the AXA Group. To achieve this aim, it uses a variety of media, including a global electronic messaging system, internet and intranet, document databases as well as regular in-house publications.
Evaluating corporate governance structures The Supervisory Board and some of its specialized Sub-Committees use regular self-assessment as a mean to improve performance. The procedures used to evaluate the Supervisory Board and its Committees are described in the first section of this report. The Supervisory Board evaluates the Management Board through its ongoing supervision of the latter’s management of the Company.
Monitoring audit recommendations All audit assignments culminate in a set of recommendations for the audited unit or business. These recommendations and related action plans are subject to regular monitoring, the results of which are submitted to the Management Board and Audit Committee for review.
Principles The PBRC Department, which is part of the Finance Department, is responsible for consolidation, management control and financial and accounting information audits. It works with local PBR (planning, budgets and results) units within the finance departments of Group subsidiaries.
– developing and using management control tools, – analyzing quantitative data on Group business and results, and key performance indicators, – liaising with the outside auditors (independent accountants) and contributing to Audit Committee meetings as required.
international accounting standards (IFRS) as adopted by the European Union1. It is reviewed on the basis of a complementary economic analysis.
This system is also used to deliver the management control information used to produce an economic perspective on the consolidated financial statements.
The process through which this management reporting information is produced and validated is the same as that used to prepare consolidated financial information.
Group accounting standards, which are consistent with accounting and regulatory principles for consolidated financial statements, are set forth in the AXA Group Consolidation Guidelines. Updated annually by PBRC experts, these guidelines are submitted to AXA’s independent auditors for review and approval before being made available to AXA subsidiaries. These experts are also responsible for ensuring that interim and annual financial statements are compliant with generally accepted standards, as illustrated in the Document de Référence.
Control mechanisms As indicated in the previous paragraph, AXA subsidiaries are responsible for controlling the financial information produced locally for consolidation purposes.
Moreover, the review and analysis of financial and accounting information, which is consolidated using the aforementioned system and accompanied by
(1) Up until 2004, financial and accounting information was consolidated in accordance with French accounting standards. The first-half and full-year 2004 financial statements were restated in accordance with IFRS standards which were applicable for the first time as of the 2005 accounting year.
detailed comments from subsidiaries that make up the various consolidation sub-groups, are carried out at the Group level by teams that liaise with subsidiaries on a full-time basis. In particular, these teams review: – restatements of local GAAP to comply with Group standards and consolidation principles, – all items in the financial statements, including: • information provided to the Investor Relations Department,
This organization is used for all AXA Group publications, i.e. interim and annual consolidated financial statements, quarterly revenue releases, and an annual statement of embedded value.
– The main audit issues are addressed and resolved in the phase prior to accounts closing through closing meetings with local and central auditors.
– The principal options for closing the accounts are presented to the Management Board and then to the Audit Committee prior to their examination of the annual accounts, for validation purposes.
Other information Along with work relating to the preparation of financial statements, PBRC Department produces monthly activity reports, quarterly profitability reports and one half-year and two full-year sets of targets for internal use, and consolidates the financial data contained in the budget and the business plan. The independent auditors identify risks and validate the proposed accounting principles and accounts closing options, working on both annual and half-year financial statements.
2004. These application guidelines have been implemented, with the January 1st 2004 opening balance sheet and pro forma financial statements for 2004 which were publicly disclosed in June 2005.
Report of the Independent Auditors, prepared in compliance with the Article L.225-235 of Commercial Code, on the report prepared by the Chairman of the AXA Supervisory Board pertaining to the internal control procedures relating to the preparation and treatment of financial and accounting information (For the year ended December 31, 2005)
In our capacity as Independent Auditors of AXA S.A., and in compliance with the requirements of the Article L.225-235 of the Commercial Code we hereby submit our report on the report prepared by the Chairman of the Supervisory Board of your Company in conformity with the terms of Article L.225-68 of the aforementioned Code, for the year ended
It is our responsibility to report to you our observations on the information set ou in the Chairman’s report on the internal control procedures relating to the preparation and processing of financial and accounting information to establish the consolidated financial statements in accordance with IFRSs, as adopted by the European Union, for the first time.
On the basis of these procedures, we have no matter to report in connection with the information contained in the report of the Chairman of the Supervisory board, which was prepared in accordance with the requirements of the last paragraph of Article L.225-68 of the French Commercial Code, relating to the internal control procedures applied within the Company in connection with the preparation and treatment of accounting and financial information used to establish the consolidated financial statements in accordance, for the first time, with IFRSs, as adopted by the European Union.
Compensation of the Management Board and the Executive Committee members The general principles of AXA’s executive compensation policy have been regularly reviewed and approved by the Compensation Committee of the AXA Supervisory Board. This policy applies to all executive officers of the Company and is adapted to local regulations and practices under the supervision of the Boards of Directors and compensation committees of the Company’s subsidiaries. The effective application of these principles is regularly reviewed by the Remuneration Committee.
– driving superior performance, – aligning compensation levels with business performance.
The compensation of Management Board members is fixed by the Supervisory Board, based on the Compensation Committee’s recommendation.
Compensation Committee on the basis of the specific objectives set at the beginning of the year.
For other members of the Management Board, four factors are taken into consideration: – Group performance (adjusted earnings per share and underlying earnings), – AXA stock price performance compared with its competitors, – performance of the business unit or functional area of responsibility, measured against objectives set at the beginning of the year,
(1) Compensation and benefits in kind paid to J.R. Abat include benefits paid in respect of his expatriate status in Spain. (2) Compensation and benefits in kind paid to P. Donnet include benefits paid in respect of his expatriate status in Japan. (3) Compensation and benefits in kind paid to H.P. Gerhardt include benefits paid in respect of his expatriate status in France. (4) Compensation and benefits in kind paid to L. Owen include benefits paid in respect of his expatriate status in Australia.
Substantial differences in the tax systems to which AXA’s executive officers are subject make meaningful comparisons of the compensation and benefits they earn difficult. For information, the relevant marginal tax rates are as follows: Australia: 47%; Belgium: 53.50%; the United States: 41,85% and 38.07% (respectively, for New York and Philadelphia); Spain: 45%; France: 59.09%, including an additional 11% for social taxes; Japan:37%, the United Kingdom: Compensation of the Supervisory Board members
Retirement and pre-retirement pension payments The Chairman of the Supervisory Board (Claude Bébéar) has received during the year 2005 a total amount of retirement pension of €433,766.
The representative of the employee-shareholders at the Supervisory Board (Jacques Tabourot) has received during the year 2005 a total amount of €223,447 as a pre-retirement compensation.
The total amount set aside or accrued by AXA SA and its subsidiaries to provide pension or retirement to the aforementioned executives is, as at December
Termination provisions The French members of the Management Board of AXA (Henri de Castries, François Pierson, Denis Duverne, Claude Brunet) benefit, as all other executives of AXA Group companies in France, from the regulations provided for under the Agreement of March 3, 1993 signed by the Fédération Française des Sociétés d’Assurances (F.F.S.A), the Syndicat National des Cadres de Direction de l’Assurance (CFE-CGC) and the Syndicat du Personnel de Direction des Sociétés d’Assurances et de Capitalisation (S.D.A.C).
Stock options are valid for a period of 10 years. They are granted at fair market value, with no discount, and become exercisable upon vesting, generally in thirds between 2 and 4 years following the grant date.
Individual option grants are determined on the basis of the following criteria: – importance of the job ê role – importance of the individual in the job ê retention
In 2005, AXA stock option grants were as follows: – 12,377,340 subscription options at an average price of €20.69 granted to 3,156 employees, representing 0.65% of the share capital; – 1,852,811 purchase options on ADRs granted by AXA Financial at an average price of $26.77 to 960 employees in the United States, representing 0.1% of the share capital.
73,632,306 AXA subscription options2 and 38,619,842 ADR purchase options, together representing 5.99% of the share capital, were outstanding on December 31, 2005.
(1) In light of an AXA Financial all-employee stock option program in 2001. (2) Includes 6 448 232 options further to the conversion of FINAXA options into AXA options on 16 Decembre 2005.
50.00% – 10/07/1999 75.00% – 10/07/2000 100.00% – 10/07/2001 50.00% – 10/07/1999 75.00% – 10/07/2000 100.00% – 10/07/2001 50.00% – 22/01/2000 75.00% – 22/01/2001 100.00% – 22/01/2002 50.00% – 22/01/2000 75.00% – 22/01/2001 100.00% – 22/01/2002 50.00% – 10/09/2000 75.00% – 10/09/2001 100.00% – 10/09/2002 50.00% – 30/09/2000 75.00% – 30/09/2001 100.00% – 30/09/2002 50.00% – 20/04/2001 75.00% – 20/04/2002 100.00% – 20/04/2003 50.00% – 20/04/2001 75.00% – 20/04/2002 100.00% – 20/04/2003 50.00% – 09/06/2002 75.00% – 09/06/2003 100.00% – 09/06/2004 50.00% – 09/06/2002 75.00% – 09/06/2003 100.00% – 09/06/2004 50.00% – 18/11/2002 75.00% – 18/11/2003 100.00% – 18/11/2004 66.67% – 05/07/2003 100.00% – 05/07/2004
50.00% – 12/07/2003 75.00% – 12/07/2004 100.00% – 12/07/2005 66.67% – 13/11/2003 100.00% – 13/11/2004 66.67% – 09/05/2004 100.00% – 09/05/2005 66.67% – 27/02/2005 100.00% – 27/02/2006 66.67% – 14/03/2006 100.00% – 14/03/2007 66.67% – 14/03/2006 100.00% – 14/03/2007 66.67% – 26/03/2007 100.00% – 26/03/2008 66.67% – 29/03/2008 100.00% – 29/03/2009 66.67% – 29/03/2008 100.00% – 29/03/2009 66.67% – 06/06/2008 100.00% – 06/06/2009 66.67% – 27/06/2008 100.00% – 27/06/2009 66.67% – 01/07/2008 100.00% – 01/07/2009 66.67% – 21/09/2008 100.00% – 21/09/2009
Vesting schedule Exercise price Discount Number of options Options cancelled, Balance as at euros (adjusted exercized as forfeited and 31/12/2005 price) at 31/12/2005 not granted as at 31/12/2005 50.00% – 12/07/2003 75.00% – 12/07/2004 100.00% – 12/07/2005 66.67% – 13/11/2003 100.00% – 13/11/2004 66.67% – 09/05/2004 100.00% – 09/05/2005 66.67% – 27/02/2005 100.00% – 27/02/2006 66.67% – 14/03/2006 100.00% – 14/03/2007 66.67% – 14/03/2006 100.00% – 14/03/2007 66.67% – 26/03/2007 100.00% – 26/03/2008 66.67% – 29/03/2008 100.00% – 29/03/2009 66.67% – 29/03/2008 100.00% – 29/03/2009 66.67% – 06/06/2008 100.00% – 06/06/2009 66.67% – 27/06/2008 100.00% – 27/06/2009 66.67% – 01/07/2008 100.00% – 01/07/2009 66.67% – 21/09/2008 100.00% – 21/09/2009
50.00% – 10/07/1999 75.00% – 10/07/2000 100.00% – 10/07/2001 50.00% – 07/05/2001 75.00% – 07/05/2002 100.00% – 07/05/2003 50.00% – 26/05/2002 75.00% – 26/05/2003 100.00% – 26/05/2004 50.00% – 26/05/2002 75.00% – 26/05/2003 100.00% – 26/05/2004 66.67% – 05/07/2003 100.00% – 05/07/2004 66.67% – 30/05/2004 100.00% – 30/05/2005 66.67% – 02/04/2006 100.00% – 02/04/2007 66.67% – 14/04/2007 100.00% – 14/04/2008 66.67% – 28/07/2008 100.00% – 28/07/2009
Stock options granted and/or exercised by management bodies members in 2005
C. BEBEAR (Chairman) n/a n/a n/a 105,014 €8.22 n/a n/a n/a – –
Stocks options granted or exercised by the top 10 beneficiaries Number of options granted Weighted average price (outside the Management Board) during 2005 or exercised
of the AXA share price on the medium-term (2 to 4 years).
The principle of performance units/shares is as follows: – Each beneficiary receives an initial grant of performance units/shares which will be used to calculate the actual number of units/shares that will be definitely acquired at the end of a 2-year acquisition
(a) Includes FINAXA stock options converted into AXA stock options further to the merger AXA/FINAXA on December 16, 2005. (b) As part of AXA’s buyout of minority interests in AXA Financial, the outstanding options on AXA Financial ordinary shares were converted into AXA American Depository Shares
(ADR) on January 2, 2001. (c) Also owns 80,000 shares of stock in Alliance Capital. (d) Also owns 7,562 shares of stock in AXA Investment Managers, an unlisted company. (e) Also owns 3,300,000 shares of stock in AXA Asia Pacific Holdings, a company listed in Australia.
From 2005, performance units are replaced in France by performance shares. Performance shares are free shares subject to performance conditions.
Performance units/shares aim at: – Reward and retain the best talents by the intrinsic performance of the AXA Group and of their operational business unit as well as the performance
– The performance targets used for the 2004 and 2005 performance units/shares are: • for the business unit : underlying earnings and adjusted earnings • for the AXA Group : underlying earnings and adjusted earnings per share – The degree of achievement for each target determines the number of units/shares actually granted to the beneficiary, which may vary between 0% and 130% of the units/shares at stake each year.
– At the end of the acquisition period, units/shares actually granted each year become definitely acquired, subject to the beneficiary being still employed by tha AXA Group.
• The total amount corresponding to the value of units that are definitely acquired, is paid to the beneficiary as a remuneration.
• If the number of units definitely acquired is equal or larger than 1,000 the beneficiary only receives 70% of the value in order to allow him/her to pay social contributions and income taxes calculated on 100% of that value. 30% of the value is reinvested into AXA SA shares which are restricted from sale during a 2-year period, in order to develop employees’shareownership and align employees and shareholders’ interests.
A second performance unit plan was launched on March 29, 2005 and 919,394 performance units have been initially granted to 1,707 beneficiaries.
In addition, 770 beneficiaries in France have elected to renounce to their performance units granted under the 2004’ plan and have been granted an equivalent number of free shares in 2005.
– The second and third tranches of performance units granted on March 26, 2004 being subject to performance testing in 2005 and 2006, the 245,073 corresponding units have been cancelled and replaced by 245,073 free shares granted on April 21, 2005, with similar performance conditions (performance shares).
Initial Actual grant based on performance criterias Units Definitive Grant Period 2004 Period 2005 Period 2006 cancelled Acquisition
Initial Grant Shares Definitive Acquisition Shares Initial cancelled Number Date Initially Grant at 31/12/05 of shares Granted Date
Units Units Units Units Units Units Units Units Number Date Initially at stake at stake Actually at stake Actually at stake Actually of units Granted Granted Granted Granted
Initial Grant Actual Grant based on performance criterias Units/Shares Definitive Acquisition Performance units Performance shares Period 2005 Period 2006 cancelled
Restricted shares at 31/12/05 Units Initial Shares Initial Units / Shares Units / Shares Units / Shares Units / Shares Number of Date
based on performance criterias Units cancelled Definitive Acquisition Period 2005 Period 2006 at 31/12/05
Units Units Units Units Number Date at stake Actually at stake Actually of units
On March 30, 2004 and on December 28, 2004, Henri de Castries, Claude Bébéar, Denis Duverne and other AXA shareholders had entered into two agreements providing for an engagement to hold their AXA shares for a period of 6 years in order to take advantage of the favorable wealth tax (ISF) regime provided by the “Dutreil” Act of August 1, 2003. The first agreement related to 20.35% of the capital of AXA as of year-end 2004 and the second one related to 20.52%. The parties to the agreements must hold their shares throughout this 6 year period in order to maintain the 50% abatement applied in 2004 and 2005 to the value of these shares subject to ISF. However, they are no longer eligible for this favorable wealth tax regime from 2006 on, because the collective holding threshold of at least 20% of AXA’s share capital is no longer reached following the merger of FINAXA into AXA.
(a) Purchase of 100 shares in April 2006. (b) Purchase of 1.675 additional shares in March 2006.
As of December 31, 2005, AXA employees held 5.60% of the Group’s outstanding ordinary shares and 7.04% of the voting rights. These shares are owned through 22 mutual funds or directly, in the form of shares or ADRs.
Related formalities must be completed at least five days prior to the meeting. However, the Management Board may reduce or waive this requirement, provided that its decision pertains to all shareholders. Accordingly, the AXA Management Board has reduced this requirement to two days.
The law also allows the Company to request from the depository trust company concerned, at its own expense and at any time, information pertaining to the identity of holders of shares of the Company carrying immediate or future voting rights in shareholder meetings, as well as the number of shares held by each individual or legal entity.
As of December 31, 2005, AXA’s fully paid up share capital totaled €5,053,311,984.24 divided into 2,206,686,456 shares with a par value of €2.29 and eligible for dividends as of January 1, 2005.
AXA’s share capital was reduced to €4,280,458,015.60 divided into 1,869,195,640 shares.
Exercise of stock subscription warrants (employees in Germany) 2,488 22,392 1,763,924,947 4,039,388,129
Exercise of stock subscription warrants (employees in Germany) 7,643 77,400 1,891,063,033 4,330,534,346
Conversion of stock subscription warrants by German employees 1,711 17,513 1,908,444,170 4,370,337,149
Stock subscription warrants related to the Shareplan program in Germany 2,728,667 2,735,333
Conversion Starting February 9, 1999: 4.06 shares Starting February 17, 2000: 4.06 shares for 1 bond for 1 bond
Early redemption – The Company may purchase the notes on – The Company may purchase the notes on any Stock Exchange or otherwise in any Stock Exchange or otherwise in accordance with applicable law, including accordance with applicable law, including by way of tender for purchase or exchange, by way of tender for purchase or exchange,
– at any time, at the option of the issuer, – at any time, at the option of the issuer, at 230.88 euros if the number of bonds at 269.16 euros if the number of bonds in circulation is below 10% of the number in circulation is below 10% of the number of bonds issued. of bonds issued.
Number of shares % of share capital Par value (in euros)
Description of the company’s own shares buyback program to be submitted to shareholders’ approval on May 4, 2006
Self-held shares and shares owned by subsidiaries as of February 28, 2006
Objectives of the Company’s own shares buyback program European Regulation n° 2273/2003 which came into force on October 13, 2004, expressely provides that shares purchased in connection with own stock buyback programs must serve one of the following purposes: (i) to reduce share capital through the cancellation of the shares purchased ; (ii) to fulfill obligations related to the issuance of debt securities with an immediate or deferred claim on the capital of the issuer, as well as stock options programs or other share allocations made to employees of the issuer or one of its affiliates.
Besides, the European Directive n°2003/6/CE on market abuse offers the option of pursuing accepted market practices. Accordingly, under the terms of the AMF position on “the implementation of the new regulation on own shares buyback programs”, published in March of 2005, two market practices are accepted in addition to the objectives allowable under the European Regulation: (i) liquidity contracts entered into with an investment services provider in compliance with the code of conduct drawn up by AFEI ; (ii) purchases made by the issuer for the purpose of holding its own shares for subsequent tender offers.
Pursuant to the provisions of the European Regulation and in accordance with market practices allowed by the AMF, the objectives of the Company’s own shares buyback program that will be submitted to the shareholders’ approval on May 4, 2006 are the following: a) optimizing the liquidity of AXA securities, notably to foster regular and liquid trading in the securities through a liquidity contract that complies with the AFEI Code of conduct approved by the AMF, entered into with an investment services provider (liquidity provider) in compliance with the market practices accepted by the AMF, b) (i) hedging stock options offered to some or all employees or directors and officers of the Company and/or affiliates as defined in Article L.225-180 of the French Commercial Code, (ii) granting free shares to employees and former employees enrolled in a company savings plan sponsored by the Company or the AXA Group, and/or (iii) granting free shares to employees and directors and officers of the Company and its affiliates as defined in Article L.225-197-2 of the French Commercial Code, in connection with the provisions of Articles L.225-197-1 et seq of the French Commercial Code, c) holding or tendering such shares later in payment or in exchange, especially in connection with potential external growth acquisitions, in compliance with the market practices accepted by the AMF, d) remitting shares during the exercise of rights attached to bonds with an immediate or future claim on shares of the Company, e) cancelling some or all of these shares for the purpose of optimizing cash management, return on equity and earnings per share, subject to shareholders approval of the ninth extraordinary resolution hereinafter, which authorizes this cancellation, and/or, more generally, f) performing all operations in compliance with the laws and regulations in force.
Number of shares sold since the beginning of the program 14,099,317
Number of shares transferred (a) since the beginning of the program 92,450
Number of shares cancelled since the beginning of the program 19,809,693
Share buyback program submitted to shareholders approval on May 4, 2006
Duration of the buyback program 18 months, from the shareholders’ meeting of May 4, 2006 on, pending approval of the program.
Table of transactions made during the previous share buyback program (until February 28, 2006)
The Company has not used derivative in connection with the previous share buyback program. All of the share buybacks have been made in cash.
(a) Directly and indirectly. Source Euronext Notice as of February 28, 2006.
(1) i.e, AXA Assurances IARD Mutuelle, including Matipar, its 100% subsidiary, AXA Assurances Vie Mutuelle and AXA Courtage Assurance Mutuelle.
In addition, AXA and BNP Paribas have granted each other options to repurchase to be used in the event of a change in the control of the capital of one of them.
The Agreement shall remain in force for a period of five years, as of December 16, 2005, the date on which it went into effect, and is to be renewed automatically thereafter for an initial term of two years, and then for subsequent periods of one year each, barring termination on the part of either party notified three months prior to the automatic renewal date.
Self-held shares 653,857 0.03% – – – – – – – – – –
Prior to the merger of Finaxa into AXA, Mutuelles AXA held 20.32% of AXA’s share capital and 32.68% of its voting rights, in concert, directly and indirectly, via Finaxa. Following this merger, Mutuelles AXA declared that its holding had fallen on December 16, 2005 below 25% of the voting rights, and 20% and 15% of AXA’s share capital, and that it held in concert 12.11% of the share capital and 21.31% of the Company’s voting rights.
Agreement with BNP Paribas Axa and BNP Paribas signed on December 15, 2005, a shareholders’ agreement (the “Agreement”) replacing the one signed on September 12, 2001 and amended by an additional clause on October 26, 2004.
The details of this agreement are available on the internet site of the AMF (“Autorité des Marchés Financiers”) : www.amf-france.org
Number Capital Number Voting Number Capital Number Voting of shares ownership (%) of votes power (%) of shares ownership (%) of votes power (%)
(a) Proposal submitted to the Extraordinary and Ordinary Shareholders’ Meeting to be held on May 4, 2006.
Ordinary shares and other securities granting a claim to shares of the Company at maturity through subscription, conversion, exchange, redemption, presentation of a warrant or other (d) 6 billion (b) 1.5 billion (c) 26 months June 20, 2007
Securities Maximum amount Maximum amount Term Expiration of the issue in euros of the capital increase in euros
Shares issued in connection with – 2.5% of share 38 months June 20, 2008 the exercise of stock options capital (f)
AXA and FINAXA announce their intention to merge (April 19, 2005)
AXA Half Year 2005 earnings: a very strong performance expected strong double-digit 2005 earnings growth (September 22, 2005)
AXA launches its 2005 employee Share Offering (Shareplan 2005) (September 23, 2005)
AXA announces its 2005 employee Share offering subscription price (October 24, 2005)
AXA launches the first securization of a motor insurance portfolio (November 3, 2005)
AXA acquires a block of bonds exchangeable into AXA Shares (November 4, 2005)
Strong activity levels in the first nine months of 2005 – Acceleration of growth in life and savings and asset management during the third quarter of 2005 - Very strong net inflows in asset management
AXA enhances its Embedding Value disclosure by adopting European Embedded Value principles
AXA and FINAXA shareholders’ meetings voted in favor of the merger of FINAXA into AXA
AXA announces its intention to acquire shares from minority shareholders of its German subsidiary AXA Konzern AG (December 21, 2005)
Success of AXA 2005 employee share offering total subsciption up by 30% (December 23, 2005)
Nicolas Moreau is appointed Group Chief Executive of AXA UK and Non-Executive Chairman of the Board of AXA Investment Managers. Dominique Carrel-Billiard is appointed Chief Executive of AXA Investment Managers (March 24, 2006)
Philippe Donnet is appointed Chairman of the Board of Directors of AXA Japan Holding (March 31, 2006)
AXA announces having received a binding offer from Stone Point Capital for AXA RE’s business (April 07, 2006)
Bulletin of Required Legal Notices Publications (BALO) www.journal-officiel.gouv.fr 2004 Annual Financial statements before Shareholders’ Meeting (April 1, 2005)
Notice of Meeting (Extraordinary General - December 16, 2005) (November 23, 2005)
Anticipated Reimbursement of the FINAXA bonds exchangeable into AXA shares issued by FINAXA 3%
Notice of realization of the merger of FINAXA into AXA and subsequent increase of the share capital of AXA (December 23, 2005)
Notice to the Shareholders: Issue and admission of shares to the “Eurolist d’Euronext Paris SA” Market
Notice of meeting (Shareholder’s meeting of May 4, 2006) (March 17, 2006)
Extract of the minutes of the Management Board of April 20, 2005 regarding the changes in the Supervisory Board (May 26, 2005)
Extract of the minutes of the Management Board of December 23, 2005 regarding the increase and decrease of the share capital (February 9, 2006)
Declaration of conformity (merger of FINAXA into AXA) (February 1, 2006).
Extract of the minutes of the Management Board of January 9, 2006 regarding the decrease of the share capital (February 9, 2006)
A copy of the convening file sent to the shareholders as well as all documents at the disposal of the shareholders (D133 et D135)
A copy of the treaty of merger signed on June 29 2005
A copy of the “BALO” dated September 16, 2005 and a copy of a Legal Advertisement Newspaper “La Gazette du Palais” dated September 16-17, 2005 containing the Notice of the project of mergers
A copy of the “BALO” dated November 4, 2005 and a copy of a Legal Advertisement Newspaper “La Gazette du Palais” dated November 5, 2005 containing the correction of the Notice of the project of mergers
Form 6-K for April 2005: Press Release issued on April 19, 2005 by AXA, announcing AXA and FINAXA’s intention to merge
Form 6-K for May 2005: Press Release issued on May 12, 2005 by AXA, announcing its activity indicators for the first quarter 2005
Form 6-K for June 2005: Press Release issued on June 21, 2005 by AXA, announcing its 2004 results under International Financial Reporting Standards
Press Release issued on September 22, 2005 by AXA, announcing its half year 2005 earnings
Form 6-K for November 2005: Press Release issued on November 8, 2005 by AXA, announcing strong activity levels in the first nine months of 2005
Form 6-K for January 2006: Press Release issued on January 26, 2006 by AXA, announcing its 2005 activity performance
Form 6-K for February 2006: Press Release issued on February 28, 2006 by AXA, announcing its consolidated earnings for the full year 2005
Documents pertaining to the Company may be consulted at : AXA Legal Department 21, avenue Matignon - 75008 Paris (France): – The bylaws; – The reports and other documents prepared by any expert at the Company’s request, any part of which is included onto or referred to in this Annual Report (Document de Référence); – The parent company financial statements as well as the consolidated financial statements for each of the two financial years preceding the publication of this Annual report (Document de Référence).
Special report of the Independent Auditors on regulated agreements (for the year ended December 31, 2005)
This is a free translation into English of the statutory auditors’ report issued in the French language and is provided solely for the convenience of English speaking readers. This report should be read in conjunction with, and construed in accordance with, French law and professional auditing standards applicable in France.
In our capacity as Independent Auditors of AXA, we hereby submit our report on regulated agreements.
In accordance with Article L.225-88 of the French Commercial Code, we were informed of the agreements that were subject to the prior approval of your Supervisory Board.
Agreements authorized during the 2005 fiscal year: With the BNP Paribas Group: On December 15, 2005 and after authorization on June 29, 2005 by the AXA Supervisory Board, the AXA Group and the BNP Paribas Group entered into an agreement which replaces the one in force since September 12, 2001 (and amended on October 26, 2004). The new agreement contains the existing provisions in terms of cross-shareholdings (respectively 43.412.598 BNP Paribas’ shares held by AXA and 61.587.465 AXA shares held by BNP Paribas), and also provides for a reciprocal repurchase option in the event of a hostile takeover attempt on either AXA or BNP Paribas.
In force for a period of five years as of the date of signature, this agreement is renewable automatically for an initial period of two years and for successive periods of one year thereafter, unless one of the two parties decides to terminate beforehand, in which case it is required to give three months’ notice prior to the next renewal date.
With FINAXA. In May 1996, FINAXA granted a nonexclusive license to AXA (referred to hereinafter as the “License”) authorizing use of the AXA trademark in countries in which its subsidiaries operate. By virtue of the License, AXA is required to pay FINAXA an annual fee of 637,329 euros, exclusive of taxes, as well as 50 percent of all net fees it receives from its own licensees.
To enable the subsidiaries of the Company to use the AXA trademark to distribute products using new technologies and through partnerships with companies that are not controlled by AXA, FINAXA and AXA amended the agreement in January of 2001, to specify the terms and conditions under which licenses and sub-licenses are granted to subsidiaries of AXA and companies not controlled by AXA, subject to the prior written consent of FINAXA.
As of December 31, 2005, AXA had granted a total of 20 sub-licenses to 20 subsidiaries it controls, which in turn may sub-license the right to use the “AXA” trademark to their own affiliates, provided that the latter are controlled within the meaning of Article L.233-3 of the French Commercial Code.
On December 22, 2004 and February 23, 2005, respectively, the FINAXA Board of Directors and the
AXA Supervisory Board decided to change the amount payable by AXA to FINAXA on the net fees the former receives from its own licensees. Effective January 1, 2005, the percentage that is payable to FINAXA is 80%. At the same time, it was decided that FINAXA would no longer pay a 10% charge to offset trademark-related expenditures.
With France Telecom. AXA Technology Services (as the Principal), AXA (as the Guarantor) and France Telecom entered into an agreement on December 15, 2003, after the Supervisory Board granted its authorization on December 10, 2003. This agreement entrusts the management of all AXA Group communications networks worldwide to a single global provider, and contains a clause committing to expenditures totaling approximately 280 million euros over the term of the agreement (six and a half years starting from July 1, 2003). It also provides for a contract performance guarantee from AXA to France Telecom on behalf of AXA Technology Services, the amount of which is capped at 50 million euros, and the term of which is the term of the aforementioned agreement.
Description of business / p. 99 Risk factors / p. 133
Investment Strategy and Capital Resources / p. 125 Activity Report / p. 157 Other Financial Supplementary Information / p. 395 ations
Asset Management Segment / p. 118 Other Financial Services Segment / p. 120 Insurance-related Invested Assets / p. 121
AXA operates primarily in Western Europe, North America, the Asia Pacific region and, to a lesser extent, in other regions including in particular the Middle East and Africa. AXA has five operating business segments: Life & Savings, Property & Casualty, International Insurance (including reinsurance), Asset Management, and Other Financial Services (including banks). In addition, various Holding companies within the AXA Group conduct certain non-operating activities.
Underlying earnings from operating segments 3,258 100% 2,637 100% Net capital gains 850 705
Adjusted earnings (d) 4,108 3,342 Exceptional operations (including discontinued operations) (72) 10 Goodwill and other related intangible impacts (13) (41) Profit or loss (excluding change) on financial assets (under fair value option) & derivatives 149 428
(ii) Goodwill and other related intangible impacts, and (iii) Profit and loss on financial assets accounted for under fair value option (excluding assets backing contract liabilities for which the financial risk is borne by the policyholder) and derivatives related to invested assets (excluding (i) all impacts of foreign exchange except the ones related to currency options in earnings hedging strategies and (ii) those related to insurance contracts evaluated according to the “selective unlocking” accounting policy).
The table below sets forth the total assets managed by AXA’s entities, including assets managed on behalf of third parties: The table below sets forth AXA’s consolidated gross premiums and financial revenues by segment for
AXA (general account assets) 353,775 317,148 Assets backing contracts with financial risk borne by policyholders (Unit-linked) 141,410 114,387 Subtotal 495,185 431,535 Managed on behalf of third parties 568,639 439,924 TOTAL 1,063,823 871,460
Other Financial Services 1% 1% French banks 15% 26% German banks 6% 6% AXA Bank Belgium 78% 67%
The table below summarizes AXA’s Life & Savings gross revenues and gross insurance liabilities by geographic region for the periods and as at the dates indicated: Life & Savings Segment
(c) Includes revenues from other activities (commissions and related fees associated with the management of AXA’s general account assets and mutual funds sales).
France gross written premiums experienced a strong development in 2005 (+14%). Contracts with financial risk born by policyholder’s products (Unit Linked) increased by 49%, thanks to a very dynamic financial market. 450,000 new accounts affecting pensionrelated products (PERP/PERE) have been opened in 2005. Since April 2004 (date of launch), about 1,720,000 of these contracts have been underwritten
In Japan the life insurance market continued to grow, driven by expanding individual annuity sales sourced from bankinsurance distribution channels. A gradual economic and market recovery have contributed to the strengthening of most insurers, evidenced by improvements in solvency margins and credit ratings. Reflecting the impact of a declining and aging population and falling birth rates, the industry has witnessed a steady decline in the number of in-force individual life policies. Consumers have shifted from traditional death protection products to retirement products, resulting in higher volumes for savings, annuities and medical hospitalization products. Foreign life insurers continued to expand their market share at the expense of domestic life insurers.
Germany. The introduction of the German Retirement Earnings Law (“Alterseinkünftegesetz”) on January 1st, 2005 significantly reduced tax advantages for Life
(a) Annual Premium Equivalent (APE): Measure of new business volume. Represents 100% of regular premiums + 10% of single premiums, in line with EEV methodology. APE is group share calculation.
(b) New Business Value: (NBV) The value of new business issued during the current year consists of the Value In Force of new business at the end of the year plus the statutory profit result of the business during the year.
(c) On a proforma basis, excluding H1 2005 Mony impact (€155 million), total APE in 2005 amounted to €5,321 million of which €1,545 million in USA.
In the United Kingdom, the market saw increased investor confidence in Wealth Management products, particularly Unit-Linked onshore and offshore bonds, whilst pension providers continue to adapt their propositions in advance of pensions legislation simplification in 2006 (A-Day).
In Southern Europe, the Spanish market increased despite the adverse market environment, namely, a decreasing saving capacity. The growth, focused on the retail market, came mainly from traditional life products and life savings not linked with retirements. In Italy, the market growth was driven by the bank insurance and post office distribution channel thanks to indexed linked products, and the agent network thanks to traditional corporate contracts, which altogether cover a 91% of the total market. In Portugal, the market increased was driven by capitalisation products. Fiscal benefits for PPR´s (Individual pensions plans) have ceased in 2005, but the bank insurance channel is still pushing sales for this product.
Company (subsidiary of AXA Financial Inc., the holding company) and its insurance and distribution subsidiaries and affiliates, MONY Life Insurance company “MONY Life”
The nature and level of competition vary among the countries in which AXA operates. There is strong
competition among companies for all the types of individual and group Life & Savings products sold by AXA. Many other insurance companies offer one or more products similar to those offered by AXA, in some cases using similar marketing techniques. In addition, AXA still competes with banks, mutual funds, investment advisers and other financial institutions for sales of savings-related investment products and, to a lesser extent, life insurance products.
The principal competitive factors affecting the Life & Savings segment’s business include: – Size, strength and quality of the distribution platform, in particular the quality of advisers, – Range of product lines and product quality, and innovation – Price, – Quality of service, – Investment management performance, – Historical levels of bonuses with respect to participating contracts, – Reputation, visibility and recognition of brand, – Quality of management, – Ratings for an insurer’s financial strength and claimspaying ability (at December 31, 2005, the main Life & Savings entities of AXA Group were rated AA by Fitch Ratings, AA– by Standard & Poor’s and Aa3 by Moody’s), which enable them to account for the very strong ratings for financial strength, and
– Changes in regulations that may affect the policy charging structure relating to commission and administrative charges.
In 2005, in France, a new Life & Savings product “Odyssiel” has been launched through the salaried sales force channel. First commercial results are very promising: percentage of asset backing contracts with financial risk borne by policyholders (unit-linked) premium of the total premiums has increased to 37.5% in this channel.
In the United States, AXA offers in particular a broad range of variable products that gives to the policyholders the possibility to underwrite some enhanced guarantees (Accumulator series). Over this market, AXA is one of the market leaders. Basically, guarantees could be: (i) In case of death (“GMDB – Guaranteed Minimum Death Benefits”), for which the minimum return is equal to the total cumulated written premiums or (ii) income benefits guarantees (“GMIB – Guaranteed Minimum Income Benefits” Those guarantees are reinsured thought an active financial risk management program, using derivatives financial instruments.
In Belgium, AXA successfully launched a new structured product (Millesimo series) at the end of 2004 , which is a contract with financial risk born by policyholder’s product (unit-linked) with an underlying open architecture fund providing capital protection.
The table below presents consolidated gross revenues (after inter-segment elimination) and gross insurance liabilities by major product for the periods and as of the dates indicated for AXA’s Life & Savings segment.
Fees and charges relating to investment contracts with no particpating features 509 417 39,762
expenses, mortality experience and income taxes). Terminal bonuses can represent a significant portion of the total amount paid at maturity (which has in the past often exceeded 50% and currently exceeds 25% in some cases) or upon surrender prior to maturity. The amount of terminal bonus to be paid is determined at the discretion of the board of directors.
Following policyholder and court approvals, in 2001 AXA Equity & Law underwent a f inancial reorganization whereby the life insurance funds were transferred to AXA Sun Life and fundamentally restructured. A port ion of the assets that accumulated over the years (which we refer to in this Annual Report as the “inherited estate”) were attributed to AXA as the shareholder, less a portion allocated to the “With-Profit” policyholders in the form of a reorganization bonus, based on the number of eligible policyholders that elected in favor of this plan.
Variable life and annuity products Variable life and variable annuity products may be linked to investments supporting such contracts and are referred to in this Annual Report as “Asset backing contracts with financial risk borne by policyholders” (unit-linked contracts). In general, the investment risk (and reward) is transferred to the policyholder while the issuing company earns fee income from managing the underlying assets. However, there may be certain types of variable products that offer guarantees, such as guarantees of minimum l iving benefits or death benefits. Guaranteed minimum l iv ing benefits include guaranteed minimum income benefits, guaranteed minimum accumulation benefits and guaranteed minimum withdrawal benefits.
(a) Amounts reported for the US operations exclude lapses and institutional assets borne contracts with financial risk carried by policyholders (€401 million). (b) Including conversions in Japan.
PROPERTY & CASUALTY SEGMENT Gross revenues Gross insurance Years ended December 31, liabilities
For the ten-year loss development of the Property & Casualty claims reserves, see Note 15 “Property and Casualty Claims Reserves” included in the consolidated financial Statements of the annual report. Key ratios for Property & Casualty operations are presented in the Activity Report.
United Kingdom AXA Insurance UK and & Ireland: AXA Insurance Limited (Ireland). Germany: AXA Versicherung AG. Belgium: AXA Belgium SA.
Southern Europe: Spain: AXA Aurora Iberica; Hilo Direct Seguros y Reasuguros.
BASED ON WORLDWIDE GROSS PROPERTY & CASUALTY REVENUES IN 2004 Country Statistics (a) AXA (b)
((a) Source: Swiss Re, Sigma report 2005 “World insurance in 2004”. (b) Source AXA, mainly based on 2004 national insurance association data for each specific country. (c) Based on 2004 gross Property & Casualty revenues in Germany, AXA is ranked as follows: (group ranking without International Insurance): third in liability insurance (6.7% market share), fifth in homeowners’ insurance (4.9% market share), seventh in automobile insurance (4.2% market share). (d) The United Kingdom, including Health and excluding Ireland product lines.
In addition to the principal markets discussed above, AXA offers personal and commercial Property & Casualty insurance products in other countries in Europe (Netherlands, Luxembourg, Switzerland and Turkey), in Canada, in Asia (notably Japan, Singapore, and Hong Kong), in the Middle East and in Africa (including Morocco). The products in these markets are offered through various distribution channels, including brokers and direct sales force.
The nature and level of competition vary among the countries in which AXA operates. Overall, the Property & Casualty insurance industry in each of
increased concentration among the top players in recent years. In Ireland, new players have entered the Irish market recently.
The table below sets forth gross revenues and gross insurance liabilities by major product for the periods and as at the dates indicated.
BASED ON GROSS REVENUES General agents Intermediaries / Direct sales Other networks, including IN 2005 and sale force independent advisers / and marketing corporate partnerships brokers and bank networks
AXA RE is a reinsurer which mainly writes Property including catastrophe covers, Casualty, Motor, Marine, Aviation, Space as well as Credit under the form of treaties and facultatives. Its operates mainly from the Paris headquarters but also from Canada, Miami (for South American business) and Singapore.
AXA Corporate Solutions Assurance operates on large risk Property & Casualty insurance business for large corporate clients in Europe, as well as in the worldwide Marine and Aviation lines.
AXA Assistance provides assistance services including medical aid for travelers, automobilerelated road assistance, home assistance and health-related services mainly to insurance companies, credit card companies, tour operators and automobile manufacturers.
The International Insurance segment accounted for €3.8 billion, or 5% of AXA’s consolidated gross revenues for the year ended December 31, 2005 (2004: €3.4 billion or 5%, respectively).
For the ten-year loss development of AXA’s International Insurance liabilities, see Note 15 “Property and Casualty Claims Reserves” included in the financial Statements of the annual report.
On the Reinsurance side, market prices were stable in 2005, property rates being supported by the increased hurricane activity in 2004 and 2005. AXA RE’s turnover growth in 2005 was driven by higher premiums in selected non proportional Casualty business – taking advantage of favorable pricing conditions – as well as in non proportional Property Miscellaneous and proportional Credit business. Nevertheless, 2005 was a turning point for the market: it brought high-severity losses of exceptional frequency, not only in the USA, creating a profound disturbance within the Non Life (Re) insurance industry.
mainly related to Catastrophe covers all around the world (essentially wind, flood and earthquake covers). Moreover, AXA RE provides the market with the following classes of business on a very selective basis: other property damage, casualty, credit, marine, aviation, life and health insurance.
AXA CESSIONS AXA’s Property & Casualty subsidiaries reinsure a large portion of their business internally through AXA Cessions. AXA Cessions coordinates retrocession with external reinsurers to reduce the loss exposures of each subsidiary and of AXA as a whole.
AXA RE and AXA Corporate Solutions Assurance review their exposures to ensure that the risks underwritten are diversified geographically and by line of business in order to avoid concentration risk.
During 2005, on the asset management market, total long-term stock, bond and hybrid fund net inflows were $193 billion for 2005, compared with $210 billion for 2004. The year market appreciation was amounted to +3% for the S&P 500 U.S. Equity Index and +14% for the MSCI World Equity Index.
AXA’s main Asset Management companies are AllianceBernstein and AXA Investment Managers. The Asset Management companies manage assets on behalf of retail investors, private clients and institutional clients as well as on behalf of companies affiliated with AXA.
(a) Based on estimated fair value at the dates indicated. Assets under management presented in this table are based on asset management companies only; AXA Group (including insurance companies) assets under management amounted to respectively €1,064 million and €871 million as of December 31, 2005 and 2004.
AllianceBernstein (previously named AllianceCapital) AllianceBernstein, through its parent company AllianceBernstein Holding, is a listed subsidiary of AXA Financial and is a leading global investment management firm in the U.S. AllianceBernstein provides diversified investment management and related services to individual investors, private clients and to a variety of institutional clients, including AXA Financial and its insurance company subsidiaries (collectively AllianceBernstein’s largest clients) as well as unaffiliated entities such as corporate and public employee pension funds, endowment funds, and U.S. and foreign governments.
AllianceBernstein provides diversified Asset Management and related services globally to a broad range of clients including: – Management of assets backing contracts with financial risk borne by policyholders (unit-linked), hedge funds and other investment vehicles for private clients (such as, high net worth individuals, trusts and estates, charitable foundations).
– Management of mutual funds sponsored by AllianceBernstein, its subsidiaries and affiliates for individual investors.
In 2000, AllianceBernstein acquired the business of Sanford C. Bernstein Inc., which complemented AllianceCapital’s growth equity investment orientation, with a highly regarded value equity investment capability, institutional research capabilities and a strong private client business portfolio.
The operations in the Other Financial Services segment are conducted primarily in Belgium and in France. For the years ended December 31, 2005 and 2004, the Other Financial Services segment accounted for €0.4 billion, or 1% of AXA’s consolidated gross revenues.
The assets underlying AXA’s insurance operations (included within the three segments: the Life & Savings segment, the Property & Casualty segment and the International Insurance segment) are mainly managed by AXA’s Asset Management entities – AllianceBernstein and AXA Investment Managers. These assets consist of (i) general account assets whereby the insurer generally bears the investment risk and reward, and (ii) asset backing contracts with financial risk borne by policyholders (unit-linked), whereby the investment risk and reward is principally transferred to the policyholders.
The discussion below concerns the general account investment assets of AXA’s insurance operations, which are referred to in this annual report as “insurance -related invested assets.”
The general account liabilities of AXA’s Life & Savings operations can be divided into two primary types, participating and non-participating. For participating products, the investment results of the underlying assets determine, to a large extent, the return to the policyholder that is either reflected as an increase in future policy benefits or paid out in cash in the year the bonus is credited to the policyholder. The insurer’s profits on such business are earned from investment management net of policyholders’ participation, mortality and other charges. For non-participating or interest-sensitive products, the insurer’s profits are earned from a positive spread between the investment return, the crediting or reserve interest rate, and mortality.
Although all the general account assets of each insurer support all of that insurer’s liabilities, the insurers have developed asset-liability management techniques with separate investment objectives for specific classes of product liabilities.
The following table presents AXA’s consolidated insurance-related invested assets (including impact of related derivatives), by insurance segment at
(1) Based on net carrying value and excluding assets backing UK “With-Profit” contracts, assets backing assets with financial risk borne by policyholders (unit-linked contracts) and investments in affiliated companies (Equity Method).
Fixed maturities Available-for-sale 157,144 157,144 25,045 25,045 At fair value through P&L 40,389 40,389 2,669 2,669
Of which allocated to UK with-profits 3,623 3,623 – – Total real estate 11,370 14,385 1,409 1,819 Morgages, policy and other loans Loans designated as at fair value through P&L 125 125 – –
Total Morgages, policy and other loans 17,568 17,940 729 753 Cash and cash equivalents 14,690 14,690 3,560 3,560 INVESTED ASSETS before those backing contrats with financial risk borne by policyholders) 283,575 286,960 43,018 43,452 Financial assets backing contrats with financial risk borne by policyholders 141,410 141,410 – – INVESTED ASSETS (incl. those backing contrats with financial risk borne by policyholders) 424,985 428,371 43,018 43,452
More specifically, in 2005, insurance related fixed maturity included Sovereign bonds and equivalent (63% compared to 61% in 2004), investments in private sector (33% in 2005 compared to 32% in 2004) as well as other issuers (4% compared to 7% in 2004).
Investment Strategy and Capital Resources 2005 Investment Strategy / p. 126 Liquidity and capital resources / p. 127
On October 31st, 2005, AXA Investment Managers (AXA IM) completed the purchase of the Framlington Group Limited. Framlington is an investment management boutique with an emphasis on specialist, high-performance and high-value-added equity investments, and has a significant market position within the UK retail market segment. The purchase price amounted to €303 million, with a related goodwill of €142 million and an intangible asset of €132 million (net of tax).
On October 18th, 2005, AXA acquired from the group Caixa Geral de Depósitos, the insurance company Seguro Directo which operates in the direct insurance market in Portugal (by telephone and Internet). The purchase price amounted to €42 million, and the related goodwill to €31 million.
The principal sources of funds for AXA’s insurance operations are premiums, investment income and proceeds from asset sales. The major uses of these funds are to pay policyholder benefits, claims and claims expenses, policy surrenders and other operating expenses, and to purchase investments. The liquidity of insurance operations is affected by, among other things, the overall quality of AXA’s investments and the ability of AXA to realize the carrying value of its investments to meet policyholder benefits and insurance claims as they fall due.
AXA’s investment strategy is designed to match the net investment returns and the estimated maturity of its investments with expected payments on insurance contracts. AXA regularly monitors the valuation and maturity of its investments and the performance of its financial assets. Financial market performance may affect the level of surrenders and withdrawals on life insurance policies, as well as projected immediate and long-term cash needs. AXA adjusts its investment portfolios to reflect such considerations.
Property & Casualty and International Insurance Liquidity needs can be affected by actual claims experience if significantly different from the estimated claims experience (see “Description of business – Claims Reserves”).
The f inancing needs of asset management subsidiaries arise from their activities, which require working capital, in particular to finance prepaid commissions on some mutual fund-type products.
Maturities of financing debts are detailed in Note 17.4 of the consolidated financial statements.
The decline of €337 million equates to a fall of €662 million at constant exchange rates, with the adverse €325 million exchange rate impact relating mainly to subordinated bonds denominated in US dollars. The decline was mainly due to the exercise, by AXA SA, of its early redemption clause on the €500 million of perpetual subordinated notes issued in March 2000 and the maturing of €294 million of subordinated debt issued by AXA Financial, partly offset by a reduced mark-to-market on derivatives hedging instruments (€+68 million), following foreign exchange rates changes.
For further information, refer to Note 17 to the consolidated financial statements.
Financing debt instruments issued At December 31, 2005, the parent company’s financing debt instruments issued (excluding accrued interest) totalled €1,236 million, a decrease of €178 million compared to end-2004. The reduction was mainly due to the redemption of EMTN (Euro Medium-Term Notes) and BMTNs (Bons à Moyen Terme Négociables) in an amount of approximately €332 million, partly offset by a €150 million issue of commercial paper.
For further information refer to Note 17 to the consolidated financial statements.
Other debt (Other than financing debt) Other debt instruments issued At December 31, 2005, other consolidated debt instruments issued (maturing in less than 1 year) totalled €2,410 million, up from €2,196 million at end-2004 (including €1,684 million of debt issued by CDOs in 2005). The €215 million increase was mainly due to €141 million relating to customer deposits with Sterling Grace and the entry in the scope of consolidation of the real estate company European Office Income Venture (€177 million), part ly offset by the exit from the scope of consolidation of CDO Ecureuil (€–95 million)
For further information refer to Note 18 to the consolidated financial statements.
4.76% of AXA’s ordinary shares (or 5.6% after the cancellation of AXA shares following the AXA/Finaxa merger) as opposed to 5.11% at December 31,
Following these transactions, the AXA mutual companies now own 14.3% of AXA’s capital and 23.19% of its voting rights.
(ii) Dividends from insurance companies outside Europe fell by €47 million to €74 million in 2005 (2004: €121 million). The decrease was due to the non-recurrence of an exceptional dividend paid by the Moroccan unit in 2004. AXA Financial has not paid a dividend for two years. It is using its cash flows primarily to redeem debts, arising in particular from the acquisition of MONY in 2004.
(iii) Dividends from financial companies fell by €94 million to €38 million (consisted mainly of the €31 mill ion received from AXA Investment Managers) as compared to €132 mill ion at December 31, 2004. This fall is explained principally by the lack of dividends paid by Compagnie Financière de Paris, whose 2003 earnings were boosted by releases of risk provisions.
The Company anticipates that cash dividends received from operating subsidiaries will continue to cover its operating expenses, including planned capital investment in existing operations, interest
payments on its outstanding debt and borrowings, and dividend payments during each of the next three years. AXA expects that anticipated investments in subsidiar ies and exist ing operations, future acquisitions and strategic investments will be funded from available cash flow remaining after payments of dividends, debt service and operating expenses, proceeds from the sale of non-strategic assets and businesses and future issues of debt and equity securities.
Interest paid by the Company in 2005 totalled €518 million (2004: €561 million, 2003: €487 million) or €266 million after the impact of hedging derivative instruments (2004: €321 million, 2003: €235 million). On a consolidated basis, total interest paid in cash in
Each insurance company within AXA is required by regulations in the local jurisdictions to maintain minimum levels of capital adequacy and solvency margin. The primary objective of the solvency margin requirements is to protect policyholders. AXA’s insurance subsidiaries comply with the applicable solvency requirements.
The European Directive dated October 27, 1998 required a consolidated solvency calculation effective for periods ending on or after December 31, 2001. France transposed this directive under an ordinance dated August 29, 2001, decreed on March 14, 2002 and applicable from 2002.
Furthermore, the supplementary supervision of credit institutions, insurance undertakings and investment firms that are within a financial conglomerate was introduced by European Parliament and Council Directive 2002/87/EC of December 16, 2002.
The Group margin requirement does not take into the benefits of securitization of motor insurance portfolio in France, waiting for regulatory decisions.
In order to make a tangible and measurable contribution to the Group’s activities, Risk Management has three key characteristics.
– Pragmatic: focusing on clearly identified priorities. – Operational: working directly with the Group’s businesses.
– Managing information systems: projection, simulation, risk assessment, consolidation and reporting.
The Group’s Risk Management structure is mainly based around two entities: the Group Risk Management (GRM) department and AXA Cessions. AXA Cessions advises and supports the Group’s property and casualty companies with their reinsurance strategy and centralizes the Group’s purchasing of reinsurance. Its role is defined more precisely in sections “Definition of reinsurance requirements and analysis of underwriting” and “Implementation of the reinsurance strategy Role of AXA Cessions” of this chapter.
Group Risk Management (GRM), under the authority of the Group Chief Risk Officer, is responsible for defining AXA’s standards as regards risk. This includes developing and deploying tools for assessing and managing risk.
report directly to local CFOs. The roles and responsibilities of local Risk Management departments are formally approved by local executive committees. These roles and responsibilities comply with the Group’s Risk Management priorities (see above) and consist of: – leading efforts to determine the Economic Capital of local entities and developing the necessary tools. The Risk Management department performs these tasks using a uniform set of techniques including stochastic models. These modelling techniques allow an assessment of AXA’s risk exposure based on the large number of scenarios examined in this type of approach. These tools complement more traditional deterministic forecasting tools, such as stress scenarios. Besides the specific conclusions for each product line and each unit, these analyses indicate that AXA has a significant surplus of assets in excess of the economic capital required to cover a level of assumed risks consistent with an AA credit rating. This positive situation is attributable primarily to the diversification of risks between the various businesses and countries in which AXA operates.
A wide variety of risk management techniques are used to control and mitigate the market risks to which the AXA Group’s operating entities and the Group itself are exposed, including: – ALM, and in particular the definition of optimal strategic asset allocations.
– hedging of financial risks when they exceed the tolerance levels set by the Group All products needed to set up hedging programmes involving derivative instruments are designed with the assistance of the Group’s specialist asset management teams (AXA Investment Managers and AllianceBernstein).
Asset-liability and market risk management: general quantitative information There is a clear distinction between the issues involved in the Life & Savings and Property & Casualty businesses: Description of Life & Savings insurance reserves: risk profiles The market risks to which Life & Savings subsidiaries are exposed arise from a number of factors: – A decline in returns on assets (due in particular to a sustained fall in yields on fixed-income investments or in equity markets) could reduce the investment margin if the return on new invested assets is not sufficient to cover contractual interest rates payable to life insurance policyholders.
– A rise in yields on fixed-income investments reduces the value of fixed-income portfolios and could have an adverse impact on the solvency margin and surrender levels on certain contracts if competitive pressures lead to higher rates of policyholder profit participation on new contracts.
– A decline in equity and real estate prices may reduce the level of unrealized capital gains and therefore solvency margins, as well as available surpluses.
• In the United States, derivatives are used as part of the dynamic management of risks related to guaranteed benefits on separate-account savings products, in order to cover guaranteed minimum death benefits, guaranteed minimum withdrawal benefits and guaranteed minimum income benefits. Having previously been 50%-reinsured, products featuring guaranteed minimum income benefits have been fully covered by these programmes since the start of 2005.
When these separate-account products show a material risk of transfer to products that offer guaranteed-rate annuities, hedging programmes that use derivatives are also put in place.
– 20% of AXA’s life insurance mathematical reserves cover products without guaranteed cash values upon surrender.
• The in force “With-Profit” policies of AXA UK are managed with a significant surplus of free assets, used to adjust performance over the duration of such policies while at the same time reflecting financial market performance in policyholders’ revenues.
• Annuities in the payout phase are usually backed by fixed-income assets with maturities that match the underlying payout schedules, thereby avoiding reinvestment and liquidity risks.
• In the UK, surrender options on guaranteed-rate annuities are monitored through specific analyses and partially covered by interest-rate options.
– 35% of AXA’s life insurance reserves cover other products. These reserves cover both surrender guarantees and, in some cases, a guaranteed long-term rate. Related risks are managed in the following ways: • Products that are not surrender-sensitive are usually backed by fixed-income investments whose maturities and interest rates are generally sufficient to cover guaranteed benefits, so as to reduce the reinvestment risk as far as possible.
Description and breakdown of Property & Casualty insurance reserves Property & Casualty technical reserves break down as follows.
rates. On the other hand, a prolonged period of low yields would have an impact on the pricing of these products.
Management processes These processes are carried out in three stages. The first consists of defining general ALM organizational principles, allowing the most effective investment strategy. The second involves implementing investment processes and precise governance principles. The third consists of asset management companies applying the investment strategy.
– Validation of these strategic allocations by the entity’s risk management unit and then by Group Risk Management.
LONG-TERM OUTLOOK Long-term analysis is carried out in order to model commitments resulting from insurance policies and to define asset allocation so that these commitments can be met with a high degree of confidence while maximizing the expected return.
SHORT-/MEDIUM-TERM OUTLOOK These analyses are designed to validate AXA’s ability to satisfy capital adequacy requirements over the short and medium terms. These requirements are included as constraints in asset-liability analyses.
This process is based primarily on monitoring and analyzing local and consolidated capital adequacy and solvency margin requirements. It is intended to ensure that AXA complies with its regulatory commitments and makes optimum use of capital resources at all times.
In addition, AXA’s insurance operations are subject to local regulatory requirements in most jurisdictions in which AXA operates. These local regulations prescribe: – the category, nature and diversification (by issuer, geographical zone and type) of investments, – the minimum proportion of assets invested in the local currency taking into account technical commitments denominated in this currency (congruence rule),
As stated in the previous section, insurance subsidiaries are responsible for monitoring risks through the use of liability structure analysis and asset-liability matching techniques. They define the strategic asset allocation policy, which is implemented by asset management companies appointed via investment management agreements. Insurance subsidiaries are responsible for monitoring and controlling the investment policy carried out on their behalf by these asset management companies.
At Group level, an ALM Co-ordination Committee, supervised by the Group Chief Financial Officer, determines general asset-liability management policy guidelines and evaluates the results, which are then submitted to the Management Board and to the Finance Committee of AXA’s Supervisory Board.
REPORTING: QUARTERLY ASSET REPORTING Operating entities produce an asset allocation statement every quarter, to ensure that strategic allocations are being implemented. This allows regular monitoring of certain key ALM indicators such as the duration and convexity of bond portfolios.
Tactical allocation duties of Group asset management companies (AXA IM and AllianceBernstein) Asset management specialists, primarily AXA subsidiaries (AXA Investment Managers and AllianceBernstein), are responsible for the day-to-day management of investments. Processes have been put in place in these companies to manage investments without exceeding agreed risk tolerance thresholds stipulated by their client insurance companies in investment management agreements. This organization makes the skills required in these activities available for the benefit of all Group insurance companies.
All products that involve hedging programmes using derivative instruments are designed with the help of dedicated teams at AXA IM and AllianceBernstein. This organization means that all entities benefit from the best possible expertise and a high level of legal and operational security in these transactions, which are sometimes complex.
Reporting documents must also mention the risk of authorities in the countries where AXA operates imposing dividend restrictions or limitations on the ability to reduce reserves. The Group’s operating subsidiaries must comply with local regulations, particularly minimum solvency requirements. As a result, internal dividend pay-out must take into account these constraints and possible future regulatory changes.
Foreign exchange-rate risk DEFINITION: foreign exchange-rate risk results from a mismatch between the currency of an asset (particularly net foreign currency investments in subsidiaries) and the currency in which it is financed.
ASSESSMENT: foreign exchange-rate sensitivity analyses assess, year by year, changes in interest expenses resulting from a 10% appreciation in the euro against all other currencies together with the impact on the gearing ratio, adjusted net asset value, European Embedded Value and solvency ratios.
Liquidity risk DEFINITION: liquidity risk results from a mismatch between the date on which an asset matures and the date on which a liability falls due.
POLICY: the policy establishes the amount of confirmed credit lines required by AXA to weather a liquidity crisis and sets constraints on the debt maturity profile. In addition, liquidity is secured by Group standards, particularly through a procedure for tendering eligible assets to the European Central Bank’s tender operations.
– AXA remains constantly vigilant regarding contractual documentation clauses that may be binding on the Group. This helps ensure that AXA is not exposed to default or early repayment clauses that may have a material adverse effect on its consolidated financial position.
In the UK, AXA Life is exposed to exchange-rate risk solely through its foreign-currency investments in Group companies, which are held in non-profit funds, and through investments held entirely in With-Profit funds.
In Japan, AXA Japan’s investment strategy has led it to invest outside the Japanese market in order to benefit from the wider credit spreads available in foreign markets and thereby increase returns. The exchange-rate risk arising from these transactions is hedged.
In Belgium and the USA, the Group’s life insurance companies do not have any significant exposure to exchange-rate risk.
– Property & Casualty business (9% of Group assets): In France, AXA France Dommages is exposed to exchange-rate risk through the shares it owns in certain investment funds partly invested in foreign currencies (mainly US dollar) in order to attain marginal diversification of its investments. It controls and limits its exposure to exchange-rate risk by using foreign exchange derivatives (forwards).
In Belgium, AXA Belgium manages a US dollar runoff portfolio, which is fully hedged with investments in the same currency in an amount of around €155 million.
In Germany, AXA Versicherung is exposed to US dollar exchange-rate risk both directly and through certain investment funds. It controls and limits its exchange-rate risk by using foreign exchange derivatives (forwards). Remaining exchange-rate risk exposure, mainly concerning the pound sterling and the Japanese yen, is incurred for the purpose of diversifying investments.
In the UK and Ireland, AXA UK is exposed to exchange-rate risk through its AXA Insurance subsidiary, which operates in pound sterling but has diversified its investment portfolio in line with its assigned management constraints. At December 31, 2005, AXA Insurance managed around €165 million of foreign-currency investments, equal to around 3.5% of its investment portfolio. In addition, AXA UK’s Irish subsidiary also operates in Northern Ireland, and so manages a portfolio of poundsterling policies in an amount of £75 million, hedged with investments in the same currency.
These four companies account for 79.93% of the Group’s Property & Casualty companies’ assets.
• ¥346 billion in respect of activities in Japan, mainly in the form of cross-currency swaps,
AXA performs sensitivity analyses to estimate Group exposure to movements in interest rates, equity prices and exchange rates. These analyses quantify the potential impact on the Group of positive and adverse changes in financial markets.
The AXA Group analyses sensitivity to movements in interest rates and equity markets in three main ways: – It analyses the sensitivity of European Embedded
These analyses cover AXA SA, which carries most of the Group’s debt, along with the largest subsidiaries in France, the USA, the UK, Belgium, Germany, Southern Europe (Spain, Portugal and Italy), Australia, Hong Kong and Japan. At December 31, 2005, these subsidiaries represented more than 95% of AXA’s consolidated invested assets and technical reserves within its insurance operations.
Sensitivity of economic value to variations in interest rates and equity markets
INTEREST RATES The purpose of these analyses is to estimate changes in the economic value of assets and liabilities in the event of parallel 50-basis-point upward or downward shift in the risk-free bond yield curve in the country in which each subsidiary operates.
In the Group’s Life & Savings business, a parallel 50basis -point downward shift in the risk-free bond yield curve would reduce Group EEV by €0.96 billion. It would also increase the fair value of Group debt by an estimated €0.25 billion. On the other hand, it would increase economic value (fair value of assets net of liabilities) in the Property & Casualty business by an estimated €0.27 billion. The overall impact of these three factors in the event of a 50-basis-point fall in interest rates is therefore – €0.94 billion.
In 2005, a 10% increase in the euro against all other currencies would have had an approximately €61 million negative impact on AXA’s net income, taking into account hedging, particularly on US Dollar movements. The same scenario applied to the end2004 position would have resulted in a negative impact of €36 million on AXA’s 2004 net income.
– The “snapshot” analyses presented do not take into consideration the fact that the asset-liability management carried out by the various Group entities to minimize exposure to market fluctuations
is an active and dynamic strategy. As market indices fluctuate, these strategies may involve buying and selling investments, changing investment portfolio allocations or adjusting bonuses credited to policyholders.
– In addition, these sensitivity analyses do not take into account the impact of market changes on new business, which is a critical component of future profitability. Like its industry peers, AXA would reflect adverse market changes in the pricing of new products. These analyses do not include the possible impact of these movements on business levels. A fall in interest rates would increase the value of bond assets and would increase revenues from asset management activities.
Taken together, these factors limit the ability of these analyses to accurately predict the actual trend in the fair value of assets and liabilities and in AXA’s future earnings.
These changes already affect and will affect in future a large number of insurance sectors (property, agricultural, business interruption, civil liability, marine and aviation, life, health, etc.). The insurance sector thus faces major challenges in the coming years in the form of potential increases in property and casualty claims, the emergence of new liability claims and growing uncertainties about the size of maximum possible losses, which have become harder to assess and to predict on the basis of past events. Furthermore, certain key economic sectors that work together with the insurance sector are set to undergo radical changes, due in particular to future greenhouse gas emission constraints laid down in the Kyoto protocol, which came into force on
Risk relating to new product launches, particularly underwriting, pricing and ALM risks (before taking into account reinsurance), is managed on a gross basis, primarily by AXA’s insurance operations. These have a set of actuarial tools for this purpose, enabling them to price products and then monitor their profitability over time.
These procedures are intended to ensure that new risks underwritten by the Group have undergone a rigorous prior approval process before the products are offered to customers. This harmonised approach also facilitates the sharing of product innovation within the Group.
This type of analysis underlines the benefits of the diversification created by AXA’s wide range of businesses and regional operations.
In the Life & Savings business, therefore, the aforementioned tools allow multi-country analyses to be carried out on mortality/longevity risks. The AXA Group regularly monitors its exposure to these risks. It uses the results of its work to enhance the structure of its product ranges and its reinsurance coverage.
Estimates of catastrophic risks are carried out on the basis of several pieces of modelling software available in the market. Although this software is vital to allow objective discussions with reinsurers, it is regularly assessed within GRM and adjusted to the specific features of AXA’s portfolio. Experience shows that this software gives imperfect estimates of real exposure, and can underestimate some important factors such as inflation following a major catastrophe and the effects of climate change. In addition, it does not factor in risks relating to legal developments requiring an insurer retrospectively to cover a risk that it believed it had excluded from its policies.
In addition to the analyses performed above, AXA regularly monitors its exposure to its main reinsurers, as described in the section relating to credit risk management.
Additional reserves for incurred but not reported (IBNR) claims, along with reserves for claims incurred and reported but insufficiently reserved are also booked. Various statistical and actuarial methods are used in these calculations. This work is done by operational entities.
In addition to the reviews performed at entity level or by the local supervisory authorities, overall reserves for claims payable are reviewed at Group level by Risk Management.
Since this work is carried out on a large proportion of the portfolio, it makes a major contribution to improving the reliability of estimates. However, these estimates are based on assumptions regarding the development of reserved claims, which may be different from the actual development of claims over time. This risk may be significant in the event of a sharp rise in inflation or developments that are particularly adverse in terms of civil liability claim amounts, particularly if such developments simultaneously affect the Group’s main portfolios.
These tools allow Group Risk Management to ensure that limits are complied with. The ALM Co-ordination Committee is regularly kept informed of the work performed.
At December 31, 2005, the breakdown of the bond portfolio by credit rating category was as follows: Credit risks
The Group’s top 25 reinsurers accounted for 73% of reinsurers’ share of insurance and investment contract liabilities in 2004, and 76% in 2005. The breakdown of all reserves ceded to reinsurers by rating is as follows, taking into account only the ratings of these top 25 reinsurers: A 51.7%
AXA has classified its operational risks as follows: – Business interruption due to external (disaster, etc.)
Using the typology provided above, AXA subsidiaries perform annual inventories of their operational risks to identify and evaluate them. AXA Group’s Audit Department is responsible for centralizing the key results of this process.
To comply with Sarbanes-Oxley legislation, AXA adopted a new code of professional ethics in February 2004. The code was updated in March 2006. It defines rules for day-to-day professional conduct. Rules defined in specific chapters include those concerning conflicts of interest, transactions involving AXA securities and those of its listed subsidiaries, confidentiality and control of sensitive information, and data protection and storage. There is also a code of ethics for business units, which include requirements relating to the methods used to market products and services and sales practices, in accordance with local regulations. With respect to customers, ethical requirements focus on the quality of advice and the transparency of information provided to them, the confidentiality of customer information, equal treatment, and efforts to combat fraud and money laundering.
AXA is firmly committed to combating money laundering wherever its entities have business
AXA, due to its principal activity of acquiring and managing equity interests in insurance companies, is considered to be an insurance group (“société de groupe d’assurance”) under Article L.322-1-2 of the French Insurance Code (the “Code des assurances”). Consequently, it is subject to supervision by ACAM (Autorité de Contrôles des Assurances et des Mutuelles – French insurance company supervisory authority), which ensures compliance with the relevant legal and regulatory provisions of the French Insurance Code.
AXA and its subsidiaries are involved in a number of lawsuits arising from their business activities, particularly the USA, where lawsuits – including classaction lawsuits – are in progress against AXA and its subsidiaries. In some of these lawsuits, plaintiffs are seeking punitive damages which bear little relation to the real amount of damages suffered. Although it is difficult to predict with any certainty the level of damages or compensation that AXA and its subsidiaries may be required to pay as a result of these lawsuits, as of the date of this report, none of these lawsuits has resulted in a decision against AXA or any of its subsidiaries that has had a material adverse effect on the Group’s consolidated financial position. At the present time, based on information available to it, AXA’s management does not believe that any of these lawsuits is likely to have a material adverse impact on the consolidated financial position of the AXA Group taken as a whole.
PanEurolife In January 2002, US insurance company Nationwide, filed a complaint with the International Chamber of Commerce against the AXA Group companies in connection with their sale of the Luxembourg life insurance company PanEurolife to Nationwide in January 1999. This procedure follows the French legal investigation into PanEurolife for alleged money
Some subsidiaries prefer to take out insurance with external insurers, which is the case for around three quarters of property damage and civil liability coverage. On the other hand, most motor and IT risks are self-insured or pooled within the Group.
One of AXA Cessions’ roles is to manage reinsurance for the Group. It is also in charge of buying certain group-wide insurance policies for risks shared by all entities. These policies, covering directors and officers’ liability, civil liability and fraud, are set out below.
The Group’s insurance programmes are designed for its specific requirements and its main businesses of insurance, banking, assistance, investment, asset management and property.
Insurance cover is revised annually to ensure that AXA has achieved the market’s best terms as regards conditions, rates, limits and protection.
Insurance and Asset Management markets / p. 159 Post-closing trends / p. 163 Market conditions in 2005 / p. 164 December 31, 2005 operating highlights / p. 165
Cautionary statements concerning the use of non-GAAP measures and forward-looking statements This report includes certain terms that are used by AXA in analyzing its business operations and, therefore, may not be comparable with terms used by other companies; these terms are defined in the glossary provided at the end of this document.
United States. In 2005, the U.S. economy proved itself strong and resilient despite the effects of several major hurricanes and much higher oil prices positively impacted by a robust housing market, steady growth in corporate profits and outperformance in the energy sector. The Federal Reserve continued to tighten monetary policy increasing short-term interest rates 14 times since June 2004 to 4.50% in order to stem inflationary pressures while foreign investor demand for U.S. Treasury bonds contributed to lower longterm bond yields resulting in a flattening yield curve. In the annuity market, industry sales of variable annuities were up 3%, driven by strong equity markets and the continued popularity of guaranteed living benefit riders. Industry fixed annuity sales decreased 10% as a result of the low interest rate environment and competition from competing products such as bank certificates of deposit. In the life insurance market, total life industry sales were up 2% with continued weakness in variable life market, down 10% from 2004. The variable life business generally lags the movement in the equity market. Sales of life insurance products with fixed returns, such as “universal life”, continued their strong traction in 2005 with industry universal life sales up 13%. Fixed whole life insurance sales decreased 1%, and term insurance sales decreased 2% from 2004.
United Kingdom. New annualized business (new regular premiums plus 10% of single premiums) was 8% higher than 2004 in the year to September 2005. This was primarily driven by increased investor confidence in Wealth Management products, in part due to improved investor confidence fuelled by the increases seen in the UK stock market during 2005. The Pensions market has seen activity boosted by the impending simplification of Pensions Legislation on 6 April 2006 (known as A Day). The Corporate Pensions market continues to see a high level of activity as the closure of Final Salary Pension Schemes continues and employers reconstruct their pension arrangements. Conversely, a cooling of the UK housing market resulted in decreased sales of associated Protection products which, combined with a number of new entrants, has increased competitiveness in this sector. Within the IFA channel (which represents around 72% of new business), depolarisation has seen some IFAs offer a “multi-tie” proposition to their members, although the impact of this on the distribution landscape has so far been limited.
Japan. Some positive economic growth, prospects to an end of deflation, an increase in interest rates and a progressive rise in stock prices have all contributed to stability and contentment in the industry. Japan’s life insurance market showed a premium income growth of 4%, reaching 27 trillion yen in the Japanese fiscal year 2004 and continued growth from the previous year. This growth was mainly owed to expanding individual annuity sales, which is estimated to reach over 7 Trillion Yen of inflow from the effect of bancassurance business. Stability in the financial markets has improved the financial strength of most insurers evidenced by improvements in their solvency and credit standings, as markets continued steady growth in spite of the difficult investment envi-
ronment. In addition, reduction of the negative spread and the improvement of surrender & lapse contributed to the stability of many insurance companies. However, even with such improvements, Japan’s life insurance industry faced a decline of inforce individual life policies from FY2001 due to a continuous weak new business environment for traditional products, as a growing number of policyholders have reduced death benefits to enrich hospitalization coverage against a falling birth rate and an aging population. Foreign life insurers expand its market reaching 27%, up from 21% of the previous year in terms of premium income. On the other hand, nine major traditional life insurers decreased their market share from 72% to 66%.
Germany. The introduction of the German Retirement Earnings Law (“Alterseinkünftegesetz”) on January 1st, 2005 significantly reduced tax advantages for Life Insurance, especially for products with a one-time pay-out option. This led to a run for these old products in Q4 2004 and declining premium volumes in 2005. Compared to prior years the development of the current premiums for pure life new business was especially weak in Q4 (–67.8%). On a yearly basis, the decreases were most significant for many high-volume products (non unit-linked endowments –58.2% to €1.1 billion, non unit-linked annuity products –57.4% to €1.9 billion, unit-linked endowments –57.4% to €0.5 billion, and unit-linked annuity products –39.9% to €0.7 billion). Among business for single premiums, that grew by 19.7% to € 8.9 billion, non unit-linked annuity products are still dominating (+2.2% to €3.6 billion), followed by non credit-linked collective insurance (+17.0% to €2.4 billion), and bank-like savings products (“Kapitalisierungsgeschäfte ”) (+118.7% to €1.4 billion).
New business for “Pensionskasse” (current premiums ) decreased by 52.0% to €0.5 billion after losing tax advantages compared to individual pension plans (“Direktversicherung”) that are easier portable. Also in the future, an ongoing need to replace defined benefit systems is expected to push group life pension products in general. Pensions funds (Type “Pensionsfonds”), are still unimportant, cumulating gross written premiums of just €0.1 billion that are even decreasing.
As expected the core products of the Retirement Earnings Law (“Alterseinkünftegesetz”), the “Rürup” pensions, did not meet much demand as they are inflexible (current premiums just €0.2 billion, regular premiums below €0.1 billion). In contrast, the also highly regulated “Riester”-products profited from simplification and increased flexibility. The year 2005
Belgium. The Life and Savings market has accelerated its growth in 2005 (estimated at +18,5% compared to +13,4% in 2004). The upturn of the Unitlinked market has been confirmed and even accelerated (+47%) while the Non Unit-linked market has grown substantially (+11.3%). Bank savings accounts have increased by an estimated +8.6%.
Southern Europe. In 2005, the Spanish market grew by 11.1% in the first 9 months of the year. This increase surpasses the 5.2% in 2004, despite of the adverse market environment, namely, a decreasing saving capacity. The growth, focused on the retail market (+11%), came mainly from traditional life products (+23%) and life savings not linked with retirements (+15%). In Italy, the market grew by 17% driven by the bank insurance and post office distribution channel (+18% thanks to indexed linked products ) and the agent network (+17% thanks to traditional corporate contracts), which altogether cover a 91% of the total market. In Portugal, market increased by 59% driven by capitalisation products, which grew by 69%1. Fiscal benefits for PPR´s (Individual pensions plans) have ceased in 2005, but the bank insurance channel is still pushing sales for this product (+45%).
France. After 5 consecutive years of accelerated growth from 1999 (2%) until 2003 (8%), market’s premium growth reduced slightly to 4% in 2004 and an estimated 2% in 2005. Household is expected to grow by 5% (+6% in 2004) whereas market should stay flat in Motor (+2% in 2004) and in Commercial Property (+4% in 2004).
On the Reinsurance side, market prices were stable in 2005, rates being sustained by the four strong hurricanes which landed in the USA in 2004 after two years of very low claims experience in 2002 and 2003. Nevertheless, 2005 was a turning point for the market: it brought high-severity losses of exceptional frequency, not only in the USA, creating a profound disturbance within the Non Life (Re)insurance industry.
In 2005, total long-term stock, bond and hybrid fund net inflows were $193 billion for 2005, compared with $210 billion for 2004, in addition to moderate market appreciation of +3% for the S&P 500 U.S. Equity Index and +14% for the MSCI World Equity Index. Specifically, stock and hybrid fund net inflows decreased 24% and 41%, respectively as net inflows for long-term bonds largely offset net inflows in equity funds, partially reflecting the continual demand for life-style funds, asset allocation funds, and target maturity funds. The demographics changes in the United States and other developed economies have increased the pool of savings available for private investment and created substantial demand for investment products and services.
2006 post-closing trends rate environment, narrowing credit spreads and a flat yield curve. Specifically, life insurance earnings were buoyed by strong equity markets outside the U.S., a product mix shift toward fee-based accounts and an expansion in distribution channels. Property and casualty earnings remained an important contributor to 2005 results despite record natural catastrophe losses.
Regulatory and accounting issues, competition and the low interest rate environment continue to challenge the sector. However, investor sentiment has improved with higher industry returns and positive long-term growth outlook, augmented by heightened cross border mergers and acquisitions activity. In addition, the European life industry continued its shift toward improved transparency as companies reported earnings under IFRS and embedded value using the European Embedded Value methodology.
The global expansion slowed down after an exceptional year in 2004. Growth was driven by both the United States and the economies of the emerging world–notably China, where GDP increased by just above 9% in 2005. The US slowed down slightly in 2005, to around 3.5%, whilst both the euro area and Japan showed progressive improvement over the prior year.
Stock Markets With the exception of the United States, which did not match performance achieved in 2003 and 2004 (S&P500 was up +4.9% in 2005), all other stock markets soared in 2005–led by Japan, with the Nikkei up 40%. The Euro area gained 26% on the year, slightly outperforming the United Kingdom (FTSE +21%). In Europe, the Stoxx 50 rose by 21.2% and the CAC40 by 23.1%.
Acquisitions On October 31st, 2005, AXA Investment Managers (AXA IM) completed the purchase of the Framlington Group Limited. Framlington is an investment management boutique with an emphasis on specialist, highperformance and high-value-added equity investments, and has a significant market position within the UK retail market segment. The purchase price amounted to €303 million, with a related goodwill of €142 million and an intangible asset of €132 million (net of tax).
Capital operations On December 16, 2005, both AXA and FINAXA’s shareholders approved the merger of the two companies at their extraordinary shareholders’ meetings. From AXA SA’s accounting and fiscal standpoint (statutory accounts), the merger is retroactive as of January 1, 2005. The merger resulted in the creation of 299 million AXA shares as of December 16, 2005, while 337.5 million AXA shares owned by FINAXA and its subsidiaries were cancelled, effective January 9, 2006 (end of the opposition period granted to creditors).
As a result of this transaction, French Mutuelles AXA hold 14.3% of AXA’s outstanding shares, representing 23.19% of AXA’s voting rights.
For AXA and its shareholders, this merger simplified the shareholder structure, improved the standing of the stock and increases the proportion of publicly traded shares. In addition, AXA obtained ownership of the “AXA” brand which was the property of FINAXA. For FINAXA shareholders, this transaction improved the liquidity of their securities and eliminated the discount which affected the value of their securities.
On December 9, 2005, AXA announced the closing of its €200 million securitization of its French motor insurance portfolio. This operation, launched on November 3, 2005, was the first ever securitization of a low claim severity, high claim frequency insurance portfolio. Through securitization, AXA has transferred to the financial markets the deviation of the cost of claims on the securitized insurance portfolio above a certain threshold for four consecutive and independent annual periods. The transaction was oversubscribed and had an average margin per tranche of 28bp over Euribor 3 month rates, in line with similarly rated synthetic bank securitizations.
In order to further protect the Group balance sheet, by matching net assets denominated in foreign currencies with liabilities denominated in the same currencies, an additional US$ 2.7 billion, Yen 50 billion and CAN$ 0.3 billion hedges have been implemented in 2005 through Cross Currency Swaps and foreign exchange options.
Other In August 2005, AXA Asia Pacific Holdings Limited (AXA APH) announced that it has signed a binding agreement with Bharti Enterprises Private Limited (Bharti) to establish a life insurance joint venture company and to apply for a life insurance licence in India. Under the agreement AXA APH has a 26% equity interest in the joint venture, the maximum permitted under the current Indian regulations, with Bharti holding the remaining shares.
The joint venture will invest AUD 70-130 million (€4380 million) over the first three to four years of operations, reflecting both partners’ commitment to quickly establish a strong foothold in the Indian market.
On November, 21, 2005 AXA Asia Pacific Holdings Limited (AXA APH), AFFIN Holdings Berhad (AHB), and Tahan Insurance Malaysia Berhad (Tahan) have signed a legally binding agreement whereby a joint venture company, 49.999% owned by AXA APH and 50.001% by AHB, will purchase the life insurance business of Tahan. The total purchase price was RM121 million (€28 million) with AXA’s share being RM60.5 million (€14 million).
Reaching the threshold of more than 95% in AXA Konzern AG will allow AXA to launch a squeeze-out on AXA Konzern AG. Following completion of the offer, AXA’s current intention is to launch a squeezeout on the remaining minority shareholders in AXA Konzern AG, assuming that all conditions to achieving such a squeeze-out have been fulfilled.
In January 2006, AXA pursued its share purchase program to control dilution arising from 2005 sharebased compensations and employees Shareplan program and purchased 9.4 million of shares for a total amount of €0.25 billion.
In 2006, in order to further protect the group net asset denominated in US dollar, AXA implemented a US dollar 1.5 billion foreign exchange hedge.
On February 21, 2006, AXA Asia Pacific Holdings has reached agreement with National Australia Bank to purchase 100% of MLC Hong Kong and MLC Indonesia for €357 million.
Investment & Savings new business was up 17%, reflecting very strong growth in unit-linked premiums (up 60% to represent 32% of individual Investment & Savings new business) driven by the continued focus on unit-linked products in proprietary channels. Group new business was up 7%, benefiting in 4Q05 from a significant new Pension contract.
The United States continued to benefit from the MONY acquisition, with new business up 15% on a reported basis. On a comparable basis4, new business increased by 4% primarily driven by Life APE (up 10%) and Variable Annuity APE (up 9%), partly offset by a 64% decline in Fixed Annuity APE, as, in the current interest rate environment, this product does not correspond to Group profitability targets. Excluding fixed annuities, new business was up 8% with a strong acceleration in the second half of the year.
of which Fees and revenues from investment contracts with no participating feature 509 417 21.9%
(a) Net of intercompany eliminations. (b) Excluding net realized capital gains and change in fair value of assets under fair value option and derivatives, net banking revenues and total consolidated revenues would respectively amount to €408 million and €71,645 million for the period of December 31, 2005.
October 2004 and March 2005), and Group Life APE was up 311%, primarily due to the New Mutual Aid product, a Group Term Life product featuring new cancer and disability riders.
In the United Kingdom, new business was up 16% driven by Investments and Savings new business (+34%), thanks to sales of unit-linked investment bonds, and Group Pension products, partly offset by individual pensions and Life. Sales within the IFA channel were up 21%.
Germany APE decline (–30%) was primarily due to the strong Life new business boom at the end of 2004 in connection with the drop of the tax privilege leading to only moderate demand for life insurance in 2005.
Benelux new business increased by 21% driven by Belgium up 26%, mainly due to the continuing strong growth momentum of structured unit-linked products, such as the open-architecture product Millesimo, and Crest 30 and 40 (non unit-linked products with no guaranteed rate). In December 2005, activity in Belgium also benefited from policyholders’ anticipation of the tax changes to be implemented on January 1, 2006. Netherlands APE decreased by 8.7% driven by the delay in the outsourcing project to Accenture Insurance Services, and the delayed introduction of new products.
Property & Casualty gross written premiums were up 5.7%, or +2.8% on a comparable basis to €18,874 million, mainly driven by France (+3.5% to 5,070 million) and Southern Europe (+4.1% to €3,012 million).
Personal lines (62% of P&C premiums) were up 3.9%, stemming from both Motor (+3%) and Non Motor (+5%).
Motor revenues grew 3%, mainly driven by Southern Europe and France up 4% and 2%, respectively, benefiting from positive net inflows of +125,000 and +100,000 policies (of which +77,600 four wheels policies), respectively. Canada (up 7%), Turkey (up 17%), Hong Kong (up 19%) and Singapore (up 15%) also contributed to motor revenues growth while in UK, Motor revenues were down –4% due to increased competition in Ireland.
Non-motor revenues increased by 5% mainly driven by the UK health activity, France Construction and Property business, portfolio evolution and increased tariffs in both Belgium, and Canada, an increase of higher insured sums and new business in Individual disability in the Netherlands and new product launches in Southern Europe.
Non-motor revenues were up 1% mainly driven by France (+6%) as a result of tariff increases in most business lines, while maintaining a strict underwriting policy.
International Insurance revenues were up +13.4%, or +10.3% on a comparable basis to €3,813 million, both attributable to AXA RE and AXA Corporate Solutions Assurance.
(1) Please note that UK Health is no longer reported in other lines but is now allocated between personal non motor and commercial non motor lines.
AXA RE revenues increased by 17% to €1,451 million mainly due to the non recurrence of some 2004 negative premium adjustments and the increase in reinstatement premiums linked to major events in 2005. Excluding the two effects, growth on current year was limited to 6% coming mostly from selected non proportional General Liability business - taking advantage of favorable pricing conditions - as well as in Credit business, marine offshore and non-cat property.
AXA Corporate Solutions Assurance revenues were up +6.6% or +4.8% on a comparable basis to €1,605 million, reflecting a selective growth in the marine and aviation lines of business. Development remained cautious on commercial property and liability lines.
AllianceBernstein revenues were up +6.3% or +9.2% on a comparable basis to €2,472 million as higher investment advisory fees, driven by 11% higher average AUM, and increased performance fees were partly offset by lower distribution revenues due to lower AUM in the retail channel. In addition, Alliance has restructured its private client fee structure during the first half of 2005, effectively eliminating transaction charges while raising base fees.
AUM increased by €95 billion from year-end 2004 to €491 billion at the end of 2005 as a positive exchange rate impact (€63 billion), a favorable market impact (€34 billion) and strong net positive longterm inflows (€22 billion) more than offset the €24 billion decrease in AUM related to change in scope mainly linked to the sale of the Cash Management Services to Federated Investors.
AXA Investment Managers showed a +27.5% performance or +26.9% on a comparable basis to €968 million, due to AUM growth (+21% on a comparable basis), mostly from third party retail and institutional client segments which generate higher average fees and higher performance fees, especially on AXA Rosenberg’s portfolios.
Income arising from investment in associates - Equity method 20 55
Profit or loss (excluding change) on financial assets (under fair value option) & derivatives 149 428
Group underlying earnings reached €3,258 million, up +24% or €+621 million. At constant exchange rates, the growth was €+624 million, attributable to all operational segments except International Insurance as AXA RE was unfavorably impacted by major losses in 2005.
Life & Savings underlying earnings were up €+368 million or €+375 million at a constant exchange rate. In the United States, underlying earnings included 12 months Mony activity (€+150 million) compared to 6 months in 2004.
Excluding MONY H1 2005 (€63 million at constant exchange rates), underlying earnings increased by €+312 million mainly attributable to France (€+37 million to €387 million), the United States (€+139 million to €804 million), Japan (€+128 million of which €67 million related to non-recurring impacts), Germany (€+17 million to €30 million).
(iii) An improved net technical margin (€+280 million ); driven by the US (mostly from an improved life mortality margin), the UK (non recurring positive impacts in 2005), and Japan (mainly driven by higher morbidity margin on Health and mortality margin on Life).
This was partly offset by: (iv) Higher expenses including Deferred Acquisition Cost (€–581 million impact), mainly in the US (mostly driven by higher commissions), UK (mainly as a result of a lower alllocation from with-profit funds as a result of lower volumes, higher other expenses notably from strategic initiatives, higher amortization expenses related to Creditor business offset in fees and revenues for €56 million and a non recurring increase of deferred policyholder tax for €48 million), and France (mainly due
(v) A higher level of VBI amortization (€–153 million ) mainly attributable to Japan, reflecting an additional VBI amortization due to a change in future investment assumptions and related reactivity impacts (€–219 million or €–136 million net of tax), partly offset by a lower amortization notably in the UK.
Property & Casualty underlying earnings improved by €244 million to €1,346 million. This improvement was attributable to almost all countries (mainly UK €+97 million, France €+58 million, Germany €+58 million, The Netherlands €+24 million, Canada €+19 million) mainly stemming from: (i) A higher net technical result (€+686 million to €5,759 million), with an accounting loss ratio improving by 2.1 point to 69.2%.
(ii) Higher expenses (€–503 million to €–5,331 million ), the expense ratio deteriorated by 1.4 point to 28.5% driven by both a 0.6 point higher acquisition ratio notably in the UK (product mix and profit sharing ), France (a €42 million non recurring lower level of acquisition costs in 2004) and Germany (due to a €16 million non recurring event), and a higher administrative expense ratio by 0.7 point, notably in Germany where, the deterioration was linked to a change in cost allocation between claims handling cost and administrative expenses and in France due to a €31 million non recurring charge related to agent benefits. Excluding non recurring items, the expense ratio increased by 0.4 point driven by the change in product mix in the UK.
(v) Income/Loss arising from investment in affiliates and associates-equity method decreased by €–31 million as a result of the change in consolidation method for Asian P&C entities and Turkey previously accounted for under the equity method.
(vi) Minority interest increased by €12 million, of which €7 million on Turkey, previously accounted for under the equity method.
The decrease was mainly attributable to AXA RE (€–85 million), as a result of lower Non Life technical result (€–227 million). Major losses cost increased by €316 million to €572 million (pre-tax), due to seven major losses in 2005 of which Katrina, Rita and Wilma hurricanes. As a consequence the loss ratio deteriorated (up 16.4 points to 99.2%) and, despite the improvement of the expense ratio by 4.7 points to 13.3%, led to an increase in combined ratio by 11.7 points to 112.5%.
AXA Corporate Solutions Assurance underlying earnings increased by €+22 million to €72 million mainly stemming from higher investment result (€+26 million ) reflecting higher asset base and lower financial charges. The combined ratio increased by 0.7 point to 100.9%, reflecting the deterioration of the loss ratio.
at AllianceBernstein and +21% at AXA Investment Managers on comparable basis) and increased performance fees,
(ii) Contained increase in costs (iii) And higher ownership interest in AllianceBernstein
(from approximately 58% on average in 2004 to approximately 61% in 2005 as a result of the acquisition of 16.32 million private units in 2004).
Other Financial Services underlying earnings increased by €+43 million to €67 million, mainly attributable to: (i) AXA Bank Belgium (€+24 million to €50 million), mainly due to an improved interest margin and the reversal of a provision for risks related to loan activities in France,
Holdings underlying earnings were down €–61 million to €-549 million. This deterioration was mainly attributable to: (i) AXA Financial Holdings (€–32 million at constant exchange rate to €–110 million) due to higher net interest expense principally related to the Mony acquisition and higher stock based compensation expense,
(iii) AXA SA (€–19 million to €–282 million, mainly due to higher financial charges (€6 million) and an increase in general expenses,
Group net capital gains attributable to shareholders were up €+145 million to €850 million, mainly as a result of: – Higher net realized capital gains by €126 million overall mainly coming from: (i) France Life (€+103 million to €191 million)
– A €–94 million impact of foreign exchange rates in 2005 (€+3 million in 2004). In 2005, France and AXA SA experienced net unrealized foreign exchange losses on currency macro hedges or unqualified hedges, respectively for €–66 million and €–45 million to €–34 million.
(iii) Lower goodwill and other related intangible impacts (€+29 million to €–13 million) as a result of (i) €–37 million non-repeated 2004 amortization of remaining goodwill in the Netherlands P&C and in AXA Re Finance, and (ii) the amortization of Mony intangible asset on a full year basis in 2005 (€+3 million change) and of Framlington intangible asset (€+4 million in 2005).
Assistance participation in CAS (€23 million), of AllianceBernstein Cash Management activity (€8 million ), and of BIA in AXA Bank Belgium (€2 million)
Full-Year 2004 exceptional operations (€10 million) related to: – Mony additional restructuring provisions (€–146 million) – The realized capital gains on the disposal of Unirobe in The Netherlands Holding (€+104 million), – The realized capital loss on the disposal of AXA
– The realized capital gain on the sale by AXA Insurance UK of the right to renew of its direct business to RAC plc in October 2004 (€+12 million net Group share)
As of December 31, 2005, consolidated shareholders ’ equity totaled €33.8 billion. The movement in shareholders’ equity since December 31, 2004 is presented in the table below: (in euro millions)
Shareholders’ Equity - Capital in excess of nominal value (b) (966)
- Equity-share based compensation 57 - Treasury shares sold or bought in open market (272)
Adjusted Earnings Per Ordinary Share 2.18 2.16 1.85 1.78 17.9% 21.0%
Underlying Earnings Per Ordinary Share 1.73 1.72 1.46 1.42 18.5% 21.5%
Underlying ROE 14.6% 14.2% 0.3 pts (a) Excluding change in fair value on invested assets and derivatives (recorded through SHE).
Amortization of value of purchased life business in force and other intangible asset (529) (389)
attributable to AXA’ s Life & Savings segment for the periods indicated.
Profit or loss (excluding change) on financial assets (under fair value option) & derivatives 50 77
grew by 16.3% to €8,911 million. Both general account and unit linked premiums experienced growth by respectively +8% and +52% with a strong acceleration during the fourth quarter of 2005 resulting from the launch of a new product for salaried sales force and strong activity in Group business
Fees & revenues were up €+132 million or +12.4% to €1,196 million, benefiting from higher sales volumes on life & health business (€+70 million) and from higher revenues on unit linked products due to both higher sales and increased asset bases (€+62 million).
Net capital gains attributable to shareholders net of income tax 154 105
Profit or loss (excluding change) on financial assets (under FV option) & derivatives 90 79
Expenses increased by €149 million to €–1,590 million mainly due to increased commissions (€+90 million to €698 million) in line with increased volume, €28 million higher administrative expenses (notably IT investments) and €42 million higher amortization charge of deferred acquisition costs induced by the impact of 2005 experience on the expected pattern of future profits partly offset by a €16 million higher Deferred Acquisition Cost capitalization.
Underlying cost income ratio improved by 0.2 point to 76.2% reflecting increased underlying investment margin and fees and revenues partly offset by higher expenses (mainly commissions).
Income tax expenses increased by €8 million to €–176 million, in line with increased taxable income (impact of €15 million) partly offset by a decrease in effective tax rate (down 1.3 point to 31.1% for €+7 million) following the decrease of short term tax rates in France.
Net income rose by €97 million to €630 million, resulting mainly from the €+85 million increase in adjusted earnings. Change in fair value of assets designated at fair value through profit & loss (€+28 million to €89 million), mainly due to real estate and private equity funds, was partly offset by a less favorable impact of change in fair value of derivatives (€–17 million to €1 million) mainly explained by a lower decrease of interest rate in 2005 as compared to 2004.
In the following commentaries, “on a comparable basis” means excluding the contribution from MONY’s distribution channels in the first half of 2005 and on a constant exchange rate basis.
Gross Revenues increased by 9% to €13,940 million both on a current and constant exchange rate basis. On a comparable basis, gross revenues increased by 2% driven primarily by increases in Variable Annuity premiums (up 12%) and First Year life premiums (up 9%), partially offset by a 44% decrease in Institutional Separate Account premiums, a 64% decline in Fixed Annuity premiums, and a 3% decline in Life renewal premiums. Other revenues were up by 3%, primarily reflecting increases in asset management fees resulting from higher account balances.
APE increased by 15% to €1,700 million both on current exchange rate basis and constant exchange rate basis. On a comparable basis, APE increased by 4% primarily driven by Life APE (up 10%) and Variable Annuity APE (up 9%) partly offset by a 64% decline in Fixed Annuity APE, as, in the current interest rate environment, this product does not match Group profitability targets.
Underlying investment margin increased by €95 million to €807 million, or by €96 million on a constant exchange rate basis. On a comparable basis, investment margin increased by €48 million. Investment income increased by €31 million to €2,339 million, primarily due to an increase in distributions from private equity funds and higher assets in the General Account, partially offset by lower yields on Fixed Maturities and Mortgages driven by lower reinvestment rates. Interest and bonus credited decreased by €17 million to €1,578 million due to lower credited rates in life and annuity business partly offset by higher General Account balances.
Net capital gains attributable to shareholders net of income tax 5 49
VBI amortization increased by €23 million to €51 million both on current and constant exchange rate basis reflecting the consolidation of MONY for the full year in 2005.
Income tax expenses increased by €88 million to €–354 million, or by €89 million on a constant exchange rate basis. On a comparable basis, income tax expenses increased by €53 million mainly due to higher earnings.
Underlying earnings increased by €202 million to €866 million and by €203 million on a constant exchange rate basis. On a comparable basis, underlying earnings increased by €139 million. This increase primarily reflects higher fees and revenues and net technical margin partially offset by higher expenses including DAC amortization. MONY contributed €150 million in 2005.
Adjusted earnings were €871 million, an increase of €158 million compared with 2004 on a current exchange basis and an increase of €159 million on a constant exchange rate basis. On a comparable basis, adjusted earnings increased by €91 million as the increase in the underlying earnings was partly offset by lower capital gains (€48 million), primarily on fixed maturities and equities. MONY contributed €150 million in 2005.
Net income increased by €296 million to €872 million, or €297 million on a constant exchange rate basis. On a comparable basis, net income increased by €235 million, due to the increase in adjusted earnings and the absence of MONY integration expenses incurred in 2004. MONY contributed €141 million in 2005.
Gross revenues decreased by 1% to €2,395 million or were flat on a constant exchange rate basis: – Investment & Savings (70% of gross revenues).
• Insurance Premiums (51% of gross revenues) were flat as the positive impact of the launch of a new onshore bond product, was offset by the shift away from Old World Pension products.
– Life Insurance premiums (30% of gross revenues) decreased by 10% primarily due to lower volumes of Creditor Insurance.
APE was up 16% to €817 million driven by Investments and Savings new business (+34%), thanks to sales of unit-linked investment bonds, and Group Pension products, partly offset by individual pensions and Life. Sales within the IFA channel were up 21%.
Underlying investment margin decreased by €1 million in 2005 or was flat on a constant exchange rate basis, with increased investment income (€+16 million ) mostly offset by a €14 million reduction on shareholders ’ participation in With-Profit bonus payments.
Fees and revenues increased by €99 million in 2005, or €103 million on a constant exchange rate basis, due to: – €56 million increase in loadings on premiums on
Creditor insurance products (which as mentioned hereunder is offset by a similar increase in expenses).
– €28 million increase in fees earned due to higher average account balances due to improved stock market levels and net inflows.
Expenses, net of policyholder allocation1 increased by €210 million in 2005, or €215 million on a constant exchange rate basis, mainly as a result of: – €56 million increase in amortization of deferred expenses relating to Creditor Insurance business (offsetting the increase in loadings on premiums above).
– €31 million investment in sales, marketing and customer service incurred in delivering the new distribution agreement with Britannia and developing the new range of protection products.
– €42 million as a result of a lower allocation of expenses to the With-Profit funds due to the lower volumes of new business in these funds.
VBI amortization decreased by €32 million in 2005 both on current and constant exchange rate basis, due to changes in amortization patterns and modeling improvements in 2004.
Income tax benefits decreased by €17 million in 2005 or €16 million on a constant exchange rate basis due to the non recurrence of 2004 tax credits partly offset by lower taxable profits and differing profit profiles by entity.
As a result, underlying earnings decreased by €1 million to €85 million on a constant exchange rate basis.
Net Income included the undiscounted tax adjustment on unrealized gains attributable to policyholders in Unit Linked Life funds2, for €–54 million in 2005 compared to €–26 million in 2004. As a result, net income increased by €72 million to €44 million in 2005, on a constant exchange rate.
– Life (46% of gross revenues excluding conversions and group pension transfers): premiums increased by 2% at constant exchange rate to €2,026 million mainly driven by higher revenues from Term products and Term riders.
– Health (23% of gross revenues excluding conversions and group pension transfers): premiums increased by 10% at constant exchange rate to €1,027 million driven by the good retention on high margin medical products such as Medical Whole Life and Medical Riders.
Full Year 2005 net income earnings included the following significant items: Significant capital gains on securities (€331 million pre-tax) have been realized in the first half of the year
2005, mainly following a change in asset allocation from US Bonds to Japanese government bonds.
AXA Japan actively manages its investments considering both income and all realized capital gains/losses to optimize continuously the investment yield in the context of low interest rates and significant traditional insurance in-force; therefore, investment income and realized gains are taken into account together to fund investment items such as guaranteed credited interest and bonuses as well as reserves impacts due to change in future investment assumptions.
In parallel, AXA Japan recorded a €331 million (pretax ) strengthening of insurance reserves mainly resulting from a change in future investment assumptions, which impacted the investment margin. In addition, this new set of assumptions and the level of realized capital gains led to record higher VBI and DAC amortization (respectively €219 million and €27 million).
Finally, and following an improved outlook on recovery of the tax losses carried forward, a €342 million release of valuation allowance on deferred tax assets net of goodwill amortization was made.
Underlying investment margin decreased by €42 million at constant and current exchange rate, to 0 mainly driven by : – A €169 million reduction to €443 million in net investment income mainly due to lower net investment yield as a result of the portfolio restructuring in December 2004, shifting from US corporate bonds to lower yielding of Japanese Government Bonds.
Fees & revenues increased by €24 million at current exchange rate, or increased by €50 million at constant exchange rate, to €889 million reflecting the contribution from new business resulting from the launch of new Term products and sales of high margin health products, along with continuing efforts to retain profitable policies. This increase was partly offset by a small decline in group medical fees and revenues, which was limited by the implementation of a retention program on Medical Term customers in a competitive environment.
Expenses increased by €55 million, or by €74 million at constant exchange rate, to €635 million mainly as a result of higher DAC amortization (€66 million) resulting from growing in-force and a change in future investment and actuarial assumptions.
Underlying cost income ratio improved from 77% to 70% mainly reflecting higher fees and revenues and technical margin partly offset by lower investment margin.
recoverability of tax losses carried forward. Part of it has been offset by a goodwill reduction (€70 million) related to the purchase of Nichidan. Excluding these impacts, income tax expenses declined by €79 million, or €78 million at constant exchange rate, to €–31 million due to lower pre-tax earnings in 2005.
Net income increased by €118 million or €129 million at constant exchange rate, to €392 million following the improvement in adjusted earnings by €105 million with the remaining €24 million being comprised of (i) €+65 million due to a higher change in fair value of the assets under fair value option in 2005 (the majority of which relates to alternative assets) partially offset by volatility coming mainly from derivatives, and (ii) €–41 million of tax, DAC and VBI reactivity impacts.
Gross written premiums rose by 2.5% (€ +86 million) to € 3,585 million mainly due to unit-linked business. – Investment & Savings (22% of gross written premiums ) increased strongly by 14% to €803 million, mainly driven by regular unit-linked premiums as a result of high new business in the previous years. The share of unit-linked premiums grew significantly to 22% (15% for the same period in 2004).
– Life (47% of gross written premiums) decreased by 1% to €1,676 million. Decrease in Life non unitlinked premiums (–3%) was nearly compensated by strong growth of unit-linked premiums (+12%) mainly due to high new business in 2004 following the change in taxation rule. The share of unit-linked premiums thus rose to 14% (vs 12% in 2004).
– Other (6% of gross written premiums) slightly decreased by 1% to €202 million as the share in medical council business was reduced at the beginning of the year.
APE was down 30% to €270 million following the strong Life new business boom in 2004 in connection with the reduction of tax privileges. The Health market continued to be negatively impacted by higher social contribution limits introduced at the beginning of 2004 and the continued uncertainty over the potential changes in the Health regulatory environment.
Net Expenses increased by €9 million to €–82 million driven by higher acquisition expenses at Pensionskasse net of DAC and policyholder bonus partly offset by a decrease of expenses in Health.
Underlying Earnings increased by €17 million to €30 million mainly driven by the increase of underlying net technical margin and lower tax expenses.
Net Income increased by €39 million to €36 million, benefiting from increased adjusted earning and the non recurrence of the loss on the sale of Bausparkasse in 2004 (€10 million).
– Group Life and Savings revenues (14% of revenues ) were stable at €386 million. Regular premiums increased by 4% to €341 million and single premiums decreased by 16% to €45 million.
APE increased by 26% to €336 million, mainly due to the continuing strong growth momentum of structured unit-linked products, such as the open-architecture product Millesimo and Crest.
Underlying investment margin was down by €25 million to €74 million due to the decrease of the average investment return by 38 bps while average credited rate decreased by 11 bps. As a consequence of the high production in products with lower guaranteed rate (Crest 30 and 40), the average guaranteed rate decreased by 29 bps.
Fees & revenues were up by €11 million to €143 million (+9%) mainly due to loadings on premiums following higher sales on both Crest and unit-linked contracts.
The net technical margin increased by €8 million to €49 million mainly due to a higher mortality margin in individual life and a refund on undue annuity paid to a social security body.
Profit or loss (excluding change) on financial assets (under FV option) & derivatives (11) 19
The Underlying cost income ratio increased from 70% to 77% as a consequence of the lower underlying investment margin.
Gross revenues rose by 8% to € 1,439 million. The increase was mainly driven by traditional investment and savings (€+157 million; +20%) as a result of a sustained growth in tied agents network (€+124 million, +18%) and in brokers network (€+53 million, +39%), partly due to large contracts. This growth was offset by lower sales through partnerships with banks (€–59 million, –17%) deriving from (i) the termination of a distribution agreement on traditional life and (ii) a lower volume of Investment & Savings UL contracts distributed through Bank and assurance partners.
APE increased by 12%, mainly driven by traditional savings’ new business in the agent network in Italy as well as some significant corporate contracts, partly offset by lower unit-linked business as 2H04 was particularly strong, benefiting from the launch of some significant bancassurance agreements. Activity in individual Life products (including the launch of new products) remained strong.
As a result, the underlying cost income ratio improved by 4,8 points to 65,7%.
Underlying earnings increased by €2 million to €44 million as a result of the evolutions mentioned above.
Net income was up by €7 million to €57 million in line with adjusted earnings evolution.
Netherlands, Singapore, Switzerland, Canada, Morocco, Luxembourg and Turkey, for the years indicated.
Contribution to consolidated gross revenues 3,059 2,993 (a) Change in consolidation method in Turkey (from equity method to full consolidation) as at January 1st, 2005.
Total gross revenues were €1,225 million, 3% higher than last year.
– Revenues from mutual fund and advice businesses of €189 million represented an 18% increase due to positive FUM growth and improved investment market conditions. The continued success of the Generations platform and higher sales into mezzanine unit trusts has also contributed to higher net revenues. Growth through fees from mutual funds and advice businesses is expected to continue as investors shift out of traditional investment and savings products.
Mutual funds retail net flows (excluding institutional ) of €1,164 million, were 15% higher than last year. The Generations platform continued to perform well and mezzanine unit trust net funds flow increased, most notably in the highly regarded Global and Australian equity funds. This was partially offset by a reduction into retail unit trusts following the end of support from a local bank.
APE was up 55% driven by a very high level of institutional mandate wins by AllianceBerstein who was elected Money Management 2005 Fund Manager of the Year and International Equities Fund Manager of the Year in Australia. Strong sales into “Generations” and “Summit” dedicated platforms and increased sales of global equity growth and value funds also contributed to the increase.
Underlying Earnings of €64 million were €11 million higher than last year. On a 100% ownership basis the evolution of underlying earnings is as follows: – The underlying investment margin of €5 million was €7 million higher than last year, largely due to improved market conditions in 2005.
– Fees and revenues of €552 million were €50 million higher than last year, mainly due to increased fees from mutual funds and advice businesses, reflecting higher inflows and growth of funds under management and administration, following strong Australian equity market performance.
– The net technical margin of €–3 million was €20 million lower than last year, primarily due to less favourable health claims experience.
– The tax benefit of €24 million was €12 million lower than last year, consistent with growth in pretax earnings.
As a consequence the underlying cost income ratio decreased from 84.4% to 82.0%.
Net Income of €69 million was €16 million higher than last year, reflecting the increase in underlying earnings and the increase in fair value of assets backing term annuities.
(1) All comparisons to prior year figures are on a constant exchange rate basis. (2) AXA interest in AXA Asia Pacific Group is 52.95% broken down into 51.6% direct interest holding and an additional 1.35% owned by the AAPH Executive plan trust (newly consolidated under IFRS).
Total APE sales of €75 million were 21% higher, reflecting the successful launch of new products and strong inflows into investment and retirement products in particular in the new multi manager investment platform and also continued improvements in productivity in both agency and adviser channels.
As a consequence the underlying cost income ratio decreased from 54.4% to 52.5%.
The Netherlands The Life segment now excludes the health and disability portfolios. Health portfolio has been disposed of at December 1st 2004, and disability portfolio is now reported under Property & Casualty segment.
Underlying, adjusted earnings and net income decreased by €6 million to €–3 million mainly due to (i) a reserve adjustment on specific product and (ii) the increase of future tax rate on reserves (by +3pts to 34%).
Gross revenues were down by 2% at constant exchange rate basis to €55 million mainly due to the termination of a bank insurance agreement.
(1) AXA Oyak Hayat is 50% owned by AXA. As of January 2005 Turkish operations are now fully consolidated instead of being accounted for under the equity method.
Change in unearned premium reserves net of unearned revenues and fees (269) (250)
Amortization of value of purchased life business in force and other intangible asset – –
Profit or loss (excluding change) on financial assets (under fair value option) & derivatives 85 83
NET INCOME 1,737 1,439 (a) Before intercompany transactions. (b) Change in consolidation method in Turkey, Hong-Kong and Singapore (from equity method to full consolidation) as at January 1st, 2005.
NET INCOME 1,737 1,439 (a) Change in consolidation method in Turkey, Hong-Kong and Singapore (from equity method to full consolidation) as at January 1st, 2005.
Gross revenues increased by €+164 million (+3.3%) to €5,096 million, or €+176 million to €5,070 million net of intercompany operations, in a more competitive French market with increased pressure on prices, mainly on personal motor. – Personal lines premiums (62% of gross revenues)
– The prior years net technical result improved by €70 million to €22 million mainly due to (i) the non recurrence of a €–54 million adverse loss developments in construction in 2004, (ii) positive developments in Property in 2005 (€+80) and Motor (€+10 million), which more than offset (iii) reserve strengthening on natural events (€–35 million related to 2003 drought) and (iv) a €–39 million impact of the decrease of the annuity reserve discount rate in line with lower interest rates in France.
Expense ratio increased by 1.0 point to 24.4% resulting mainly from a higher administrative expense
Profit or loss (excluding change) on financial assets (under FV option) & derivatives 45 26
ratio by 0.8 point to 9,4%. Administrative expenses increased by €60 million to €478 million due to (i) a €51 million increase of commissions allocated to administrative expenses (including a €31 million non recurring charge related to agents benefits) and to (ii) a limited €8 million increase of non-commission administrative expenses. Acquisition expenses increased by €44 million to €762 million fully explained by a €42 million lower level of capitalization on acquisition costs.
Income tax expenses increased by €29 million to €–206 million in line with increased taxable income (impact of €32 million) partly offset by a decrease in tax rate (down 0.6 point to 36.2%) following the decrease of short term tax rates in France.`
As a consequence, underlying earnings increased by €58 million to €363 million.
Gross revenues decreased by 2% to €4,413 million, but increased by 1% on a comparable basis. – Personal lines (49% of the P&C premiums) were up 5%.This reflected continued growth in Health (+16%) including the transfer of a major portfolio from November 2004 and Property (+13%) driven by new business deals. Personal Motor (excl. AXA UK Direct) decreased by 4% reflecting a fall in average premiums in Ireland.
– The current accident year loss ratio improved by 2.6 points to 65.1% mainly due to better claims experience on Personal Lines and the non recurrence of 2004 exceptional large injury loss claims on Motor. As a consequence, the current year technical result improved by €80 million to €1,520 million or by €92 million on a constant exchange rate basis.
Expense ratio deteriorated by 2.3 points to 33.3% driven an increase in commission ratio by 2.5 points to 20.4%, reflecting the change in business mix towards higher commission products. This was partially offset by an improvement of the general expense ratio by 0.2 point to 12.9%, reflecting improved controls on management expenses following the sale of Direct business.
As a result, the combined ratio improved by 1 point to 96.3%.
Income tax expenses decreased by €38 million, both on current and constant exchange rate basis, due to €51 million non recurring tax benefits in 2005, mainly as a result of a valuation allowances release on deferred tax assets following improved earnings.
Underlying earnings increased by €97 million to €399 million, or €99 million on a constant exchange rate basis, driven by an improved combined ratio.
Adjusted earnings increased by €104 million, or €107 million on a constant exchange rate basis to €464 million as, in addition to the increase in underlying earnings, realized capital gains were up by €7 million to €64 million.
– Commercial lines (24% of business, €717 million) grew by 1%. Motor (6% of business, €192 million) increased by 6% thanks to the growth of the existing fleets and the win of large contracts. Non-motor lines (18% of business, €525 million) were almost stable.
Expense ratio slightly increased by 0.2 point to 23.5%. This results from a marginally higher administration cost (+0.2 point to 5,2%) while commission (–0.3 point to 13,8%) and acquisition expense
Net underlying investment result increased by €17 million to €167 million mainly driven by a larger average asset base.
Adjusted earnings were down €25 million to €152 million due to the €35 million decrease in net capital gains to €27 million resulting from the non recurrence of significant capital gains on real estate in 2004 (€7 million in 2005 compared to €31 million in 2004, net of taxes) and lower realised capital gains on securities.
Net income decreased by €32 million to €153 million due to the decrease in adjusted earnings as well as a lower change in fair value of financial instruments.
Gross revenues decreased by 0.6% to €2,798 million or decreased by 0.9% on a comparable basis1: – Personal lines (59% of total gross revenues)
increased slightly by 0.1% as a result of new business and tariff increases in Property (+0.6%) and Liability (+1.1%) partly offset by a decrease in Personal Accident (–1.5%).
– Other lines (9% of total gross revenues) decreased by 8.8% mainly due to continued reduction in assumed business.
As a result, the net combined ratio improved by 0.5 point to 98.3%.
(1) Including Däv Sach in 2004 (€9 million gross revenues) which is a newly consolidated entity in 2005.
Net capital gains attributable to shareholders net of income tax 80 4
Underlying Income tax expense improved by €1 million to €–76 million despite higher operating income as a result of higher tax free investment income.
Underlying earnings improved by €58 million to €178 million, driven by higher net investment income and improvement of net combined ratio.
Adjusted earnings increased by €134 million to €258 million resulting from the improvement of underlying earnings and from higher capital gains as 2004 experienced realized losses (mainly a negative currency impact on foreign government bonds and impairment on equities). In 2005, net capital gains amounted to €80 million notably on equities (€60 million).
Gross written premiums increased by 1.3% to €1,462 million driven by growth in both personal and commercial lines.
– Commercial Lines (38% of the total gross written premiums): premiums increased by 1.4% driven by Workers’ Compensation (+5.8% mainly due to an increase in average premium), Motor (+2.5%), partially offset by a decrease in Corporate Accident (–4.3%) and in Property (–4.5%).
The net technical result was down by €–3 million to €439 million as a result of: – The current year loss ratio improved by –1.2 point to 81.4% mainly due to an improved claims pattern in Motor, Accident, Workers’ Compensation and
Underlying Earnings decreased by €–31 million to €128 million as a result of lower positive reserve development and lower net investment result.
Adjusted Earnings decreased by €–34 million to €181 million as a result of lower underlying earnings and lower capital gains.
Net Income decreased by €–46 million to € 183 million as a result of lower adjusted earnings and lower change in fair value of mutual funds under fair value option.
Canada Gross revenues amounted to €858 million, an increase of €56 million (+7.0%) over last year on a constant exchange rate basis. Excluding the additional positive impact of the policies issued for 18/24 months (€38 million), revenues increased by €18 million due to an increase in commercial lines revenues mainly due to new inflows.
Adjusted earnings increased by €19 million (on a constant exchange rate basis) to €94 million, resulting from improved underlying earnings (€+13 million) and increased net capital gains (€+6 million to €+14 million), driven by higher gains on fixed maturities sale and lower impairment.
As a consequence, net income increased by €18 million (on a constant exchange rate basis) to €93 million.
Profit or loss (excluding change) on financial assets (under fair value option) & derivatives – –
Adjusted earnings increased by €29 million or by €11 million on a comparable basis to €25 million driven by underlying earnings and higher realized capital gains of €5 million, mainly due to the sale of real estate in 2005.
Underlying earnings were stable at €8 million. The combined ratio reached 101.1%.
Adjusted earnings were up by €1 mil l ion to €9 million and net income was up €2 million to €10 million.
Underlying earnings were positive for the second consecutive year, improving from 3 million in 2004 to €5 mi l l ion in 2005 (+68% on a constant exchange rate basis). This improvement reflects (i) the decrease of the combined ratio from 113% to 102.4%, mainly as a result of the improvement of the expense ratio in line with the “scale effect” attributable to the growth of the motor portfolio, which was partially offset by (ii) a lower contribution from the release of the valuation allowance on deferred tax assets than last year.
Singapore On a comparable basis, gross revenues increased by +14% to €79 million mainly from increase in new business and improved renewal retention ratio.
(1) AXA Oyak is 35% owned by AXA. Turkish operations, which were previously accounted under the equity method, were fully consolidated from January 2005.
For the same reasons, Adjusted earnings and net income also were up by € 4 million to € 10 million.
Adjusted and net income were up by €1 million to €10 million driven by –6.9 points improvement in the net combined ratio partly offset by lower capital gains.
International Insurance Segment The following tables present the gross premiums and net income for the International Insurance Segment for the periods indicated: (in euro millions)
Profit or loss (excluding change) on financial assets (under fair value option) & derivatives (1) 25
Net technical result decreased by €165 million to €9 million, mainly explained by the following: Non Life net technical result decreased by €227 million to €–52 million: – The net attritional margin on current accident year decreased by €4 million down to €512 million driven by 5 points higher net attritional current year loss ratio at 58.5% offset by a positive volume effect (€126 million higher earned premiums).
Profit or loss (excluding change) on financial assets (under FV option) & derivatives 3 22
and gross of tax), versus €–256 million in 2004 essentially due to 2004 US hurricanes.
– The technical result on prior years increased by €80 million to €161 million. 2005 boni were mainly driven by the favorable development of claims experience on recent underwriting years (notably 2004).
As a result, the combined ratio increased by 11.7 points to 112.5%.
Adjusted earnings decreased by €47 million to €64 million driven by the decrease in underlying earnings partly offset by higher realized gains attributable to shareholders net of tax (€+37 million to €53 million) taking advantage of the good performance of European stock markets in 2005.
Gross written premiums increased by 6.4% to €1,614 million. On a comparable basis (exchange rate impact) the growth was 4.8% mainly driven by a strong growth in Marine (+6% on a comparable basis) and Aviation (+13% on a comparable basis). Other lines of business experienced a more limited growth (+3%) in a softening market.
– The prior accident year net technical result decreased by €7 million to €+23 million. 2005 is impacted by lower boni, notably in Aviation and in Property, while Liability and Motor reserves developments were more favourable.
Expenses increased by €6 million to €–203 million, mainly due to increased commission (€6 million or 7% to €98 million) in line with increased volume. Expense ratio decreased by 0.1 point to 12.9%, mainly due to increased earned premiums.
– a €–20 million decrease in European entities to €–19 million mainly driven by some negative reserve developments on UK entities,
– a €–6 million decrease in US life reinsurance entity to €19 million in line with the decrease in premium volume due to the runoff status of the business and the weak performance of US markets.
Assets under Management (“AUM”) increased by €95 billion from year-end 2004 to €491 billion at the end of 2005 as net positive long-term inflows (€22 billion), a positive exchange rate impact (€63 billion) and market appreciation (€34 billion) more than offset the €24 billion decrease in AUM related to the sale of the Cash Management Services to Federated Investors and sale of foreign joint ventures.
Fees, commissions and other revenues were up €147 million to €2,581 million, or up 9% on a comparable basis, due to higher investment advisory fees driven by 11% higher average AUM and increased performance fees, partially offset by lower distribution revenues due to lower AUM in the Retail channel. In addition, Alliance has restructured its Private Client fee structure during the first half of 2005, effectively eliminating transaction charges while raising base fees.
General expenses increased by €30 million or up 2% at constant exchange rate, as higher compensation expense from increased earnings were offset by lower distribution costs and professional fees.
Income tax expenses increased by €69 million to €–193 million both on constant and current exchange rate basis due to higher pre tax-earnings and 2004 state tax reserve release of €28 million.
Underlying earnings increased by €36 million to €240 million both on constant and current exchange rate basis due to higher earnings and higher ownership interest in AllianceBernstein.
Net income increased by €47 million to €254 million or up €48 million at constant exchange rate due to higher adjusted earnings and net capital gains from the sale of Alliance cash management business (€5 million post tax) and India and South Africa joint ventures (€3 million post tax).
As a result of the acquisition of 16.32 million private units in 2004, AXA Financial’s ownership interest in AllianceBernstein increased from approximately 58% on average in 2004 to approximately 61% in 2005.
Net capital gains attributable to shareholders net of income tax 6 2
General expenses increased by €160 million to €–956 million. Excluding commissions paid to thirdparty agents, expenses increased by 23% to €–619 million on a comparable basis i.e. at a lower pace than revenues.
Net capital gains attributable to shareholders net of income tax (1) –
Other Financial Services Segment The tables below present the revenues and the net income for the Other Financial Services segment for the periods indicated: (in euro millions)
Underlying earnings increased by €24 million to €50 million mainly due to an improved interest margin and the reversal of a provision for risks related to loan activities in France following a favorable court decision (€16 million). This increase was partly offset by lower fixed income capital gains.
Adjusted earnings increased by €29 million to €55 million due to an increase in underlying earnings (€+24 million) and in capital gains on equities (€+6 million).
Net income increased by €59 million to €69 million mainly driven by the increase in adjusted earnings (€+29 million) and the change in fair value of derivatives (€+27 million).
Adjusted and underlying earnings increased by €2 million to €–8 million resulting from higher underlying banking revenues, in line with the increased activity, and decreased expenses following non recurring media campaign in 2004.
Net income decreased by €8 million to €–11 million, reflecting a €–9 million unfavorable impact of the change in fair value of macro-hedging derivative instruments.
The increase of financial charges is related to: (i) € 47 million higher interest expense, mainly due to the increase of $ denominated debt through crosscurrency swaps, allowing to protect the group net asset denominated in $, and the extension of maturity on interest swaps in order to protect future financial charges, locked at higher rates than short term ones, partly offset by,
(ii) €31 million due to debt replaced by Undated Deeply Subordinated Notes issued at the end 2004-beginning 2005 (interest charges on Undated Deeply Subordinated Notes are recorded through equity),
(iii) the non-recurring 2004 interest charge on €10 million on the ORAN issued for Mony financing.
The Mark-to-Market impact on the portion of derivative instruments which are not considered as hedge accounting under IFRS, decreased by €297 million mainly due to: – the difference between 2004 and 2005 on the markto -market of foreign currencies options, hedging AXA Group underlying earnings denominated in foreign currencies, leads to a €67 million loss during 2005 versus a profit of €+73 million in 2004,
As a result and including AXA’s quota share related to settlement indemnity to Nationwide for €3 million, net income decreased by €342 million to €–328 million.
Net income of €–5 million decreased by €17 million mainly reflecting the recognition of gains in 2004 on deemed ineffective swaps.
AXA UK Holdings Underlying earnings decreased by €24 million in 2005 to €–96 million due to a €21 million increase in tax mainly explained by a provision for unremitted overseas earnings in Ireland partly offset by various prior year tax provision releases, together with a €6 million reduction in the net investment result.
Adjusted earnings consequently decreased by €25 million or €26 million at constant exchange rate.
German Holding companies Underlying earnings increased by €30 million to €–19 million mainly due to the implementation of a tax grouping with AXA Versicherung.
(1) All comparisons to prior year figures are on a constant exchange rate basis. (2) AXA interest in AXA Asia Pacific Group is 52.95% broken down into 51.6% direct interest holding and an additional 1.35% owned by AAPH Executive plan trust (newly consolidated under IFRS).
Belgium Holding companies Underlying and adjusted earnings decreased by €6 million to €–24 million and €–25 million respectively mainly due to indemnity fee paid following the early repayment of a loan.
Management believes that the Group should benefit from this positive momentum in 2006: – The combination of higher assets under management and the ongoing favorable trend for higher margin unit-linked products should underpin Life and Savings and Asset Management underlying earnings growth;
– related impact on policyholder participation net of tax (Life business),
– For insurance contracts and investment contracts with DPF: (i) Gross premiums (net of deposits), fees and other revenues are allocated in the Margin Analysis
Comparable basis On a comparable basis means that the data for the current year period were restated using the prevailing foreign currency exchange rate for the same period of prior year (constant exchange rate basis) and eliminated the results of acquisitions, disposals and business transfer (constant structural basis) and of changes in accounting principles (constant methodological basis), in one of the two periods being compared.
(ii) Goodwill and other related intangible impacts, and (iii) Profit and loss on financial assets accounted for under fair value option (excluding assets backing contract liabilities for which the financial risk is borne by the policyholder) and derivatives related to invested assets (excluding (i) all impacts of foreign exchange except the ones related to currency options in earnings hedging strategies and (ii) those related to insurance contracts evaluated according to the “selective unlocking “accounting policy).
Adjusted earnings per share diluted (adjusted EPS diluted) represents the AXA’s consolidated adjusted earnings, divided by the weighted average number of outstanding ordinary shares, on a diluted basis (that is to say including the potential impact of all outstanding dilutive stock options being exercised performance shares, and conversion of existing convertible debt into shares provided that their impact is not anti-dilutive).
– For investment contracts without DPF: (i) Deposit accounting is applied. As a consequence, fees and charges related to these contracts are presented in the underlying Statement of Income within Gross consolidated revenues on a separate line, and in Margin analysis in the lines “Fees & Revenues” and “Net Technical margin”.
Underlying Investment margin includes the following items: (i) Net investment income.
deposits and fees on funds under management for separate accounts (unit-linked) business.
(iii) Loading on (or contractual charges included in) premiums / deposits received on all non unit-linked product lines.
(iv) Deferral income such as capitalization net of amortization of URR (Unearned Revenue Reserve) and UFR (Unearned Fees Reserve).
(v) Other fee revenues, e.g., fees received on financial planning, sales of third party products.