Groupe AXA Direction de la communication et du développement durable 25, avenue Matignon – 75008 Paris – France billion euros (1)
in consolidated revenues +11% on a comparable basis billion euros (1)
• Other Supplementary Financial Information 441 Parent company 442 Embedded value 455 Salaried employees 462
In 1995, AXA acquired a majority ownership interest in National Mutual Holdings following its demutualization. National Mutual Holdings changed its name to AXA Asia Pacific Holdings Ltd.
In 2001 and 2002, AXA acquired two financial advisory networks in Australia, Sterling Grace and Ipac Securities, as well as a banking platform in France, Banque Directe. AXA also continued to streamline its portfolio of businesses, selling its health business in Australia and insurance operations in Austria and Hungary, and reorganizing its reinsurance business. In 2002, the Group sold its bank and insurance businesses in Chile.
In 2003, AXA sold all its activities in Argentina and Brazil.
In December 2005, AXA and Finaxa shareholders’ meetings voted in favour of the merger of FINAXA into AXA. Finaxa was a holding company listed on the Paris Stock Exchange and its main subsidiary was AXA. It also owned the “AXA” brand. This merger resulted in a simplification of AXA’s shareholder structure and in an increase in the proportion of publicly traded shares. In addition, AXA obtained ownership of the “AXA” brand.
In 2006, AXA acquired the Winterthur Group, which is active in 17 countries and serves 13 million clients worldwide. This operation gives AXA the opportunity to strengthen its leading position on the European market and to increase its presence in high growth markets, such as Eastern Europe and Asia.
(f) 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 Gere Companhia de Seguros (Portugal R.C). (g) Holding Company that owns AXA France Vie, AXA France IARD, AVANSSUR, AXA Corporate Solutions Assurance and AXA Epargne Entreprise. (h) Holding Company that owns AXA Assicurazioni S.p.A.
Main subsidiaries as at december 31, 2006 America 1 UNITED STATES n Insurance
(n) Holding d Company that owns AXA Life Insurance Co., Ltd and AXA non-life Insurance Co. Ltd. (o) Holding Company that owns AXA Life Singapore Pte Ltd.
AXA Portugal Companhia 99% 100% de Seguros SA AXA Portugal Companhia 95% 95% de Seguros de Vida SA
AXA stock is listed on the Eurolist by Euronext, Euroclear France code: 12062 and, since June 25, 1996, on the New York stock exchange under American Depositary Shares (ADS) representing one AXA stock.
AXA and AXA ADS stocks transactions since 20 months (Paris and New York)
Volume Price per Share in euros (in thousand) High (a) Low (a)
Shares created since January 1, 2007 by exercise of convertible bonds or subscription options are listed “au comptant” on the Eurolist until they are assimilated after the payment of the 2006 dividend planned on May 21, 2007.
– 471 n Life & Savings n Property & Casualty n International Insurance n Asset management n Other financial services n Holdings
Underlying earnings (a) 4,010 3,337 3,258 2,730 2,637 Net capital gains attributable to shareholders
(a) Underlying earnings correspond to adjusted earnings excluding net realized capital gains attributable to shareholders. Net realized gains or losses attributable to shareholders include: – realized gains and losses (on assets not designated under fair value option or trading assets) and change in impairment valuation allowance, – related impact on policyholder participation net of tax (Life business), – DAC and VBI amortization or other reactivity to those elements if any (Life business).
Adjusted earnings represent the net income (group share) before: – The impact of exceptional operations (primarily change in scope, including restructuring costs related to a newly acquired company during the considered accounting period).
(a) Please refer to (a) in prior page. (b) Calculated according to the principles of European Embedded Value (EEV). The methodology applied for the calculation of the EEV is based on a “bottom up market consistent” approach for a better evaluation of the risk. Please refer to page 455 for further details. (c) Total return on Life & Savings EEV. (d) Dividende net / Adjusted earnings.
instruments (perpetual subordinated debts) into shareholders’ equity for all periods presented in the 2006 financial statements with impact on net income.
(g) Please refer to (g) in prior page. (h) Excluding unrealized gains on AllianceBernstein. (i) Personnel of non-consolidated companies accounted for using the equity method are not included in the above graph. Personnel of companies proportionally consolidated are included, pro-rata, in accordance with the percentage of consolidation. Please refer to page 462 for further details. (j) Number of ordinary share outstanding * Share price as at December 31.
Agency Date Rating Outlook Insurer Financial Strength Ratings The Company’s principal insurance subsidiaries Standard & Poor’s 26/01/2007 AA- Stable
Ratings of the Company’s Long Term and Short Term Debt Senior Debt Standard & Poor’s 26/01/2007 A
FULL DISCLOSURE ON EXECUTIVE AND EMPLOYEES COMPENSATION AND SHARE IN CAPITAL
Implementing sound corporate governance principles has been a priority at AXA for many years. Because its stock is publicly traded on the New York Stock Exchange, AXA is subject to the Sarbanes-Oxley Act, which was adopted in the United States in 2002. Accordingly, AXA has made various adjustments necessary to bring the Company into compliance with the Act. AXA has also reviewed its rules of corporate governance in light of the recommendations contained in the Bouton Report and the relevant sections of the French Financial Security Act (Loi de Sécurité Financière) of August 1st, 2003.
An Executive Committee assists the Management Board in the performance of its duties. In addition, the Supervisory Board has established four special-purpose Committees.
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
Role and powers The Supervisory Board oversees the management of the Company and reports 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 share buyback 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 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.
Executive compensation includes a fixed and a variable component. The fixed component is targeted to fall within the lower quartile of the market. The variable component is tied to AXA’s global performance, local performance, and the attainment of the executive’s individual objectives, weighted to reflect his or her level of responsibility. The variable portion is designed to represent the principal component of the executive’s annual global compensation such that, in the case of successful attainment of the objectives, the compensation levels of AXA executives will be in the third or fourth quartile of the going market rate.
This documentation always includes information on: – the Group’s operations, as presented in the Management Board’s quarterly report, a press review and a stock price performance report; – reports on Committee meetings that have been held since the last Supervisory Board meeting.
Composition On December 31, 2006, the Supervisory Board had 14 members, elected by the shareholders. Currently, 4 members of the Supervisory Board are not French nationals.
The Board makes a special effort to assess the independence of each Supervisory Board member with respect to the Management Board and the Company.
Acting on the recommendation of its Selection, Ethics, Governance and Human Resources Committee, the Supervisory Board has
Henri Lachmann, Gérard Mestrallet, Mrs Dominique Reiniche and Mr. Ezra Suleiman.
David Dautresme Senior Advisor, Lazard Frères. Lazard Frères April 1990 / (73) (1) 121, bd Haussmann 2007 AGM (Member of the Supervisory Board) 75008 Paris
Jacques de Chateauvieux Chairman and Chief Executive Officer of BOURBON BOURBON April 2005 / (56) (1) 33, rue du Louvre 2009 AGM (Member of the Supervisory Board) 75002 Paris
Anthony Hamilton Non-executive Chairman of AXA UK Plc (United Kingdom) and AXA UK PLC January 1996 / (65) (1) AXA Equity and Law (United Kingdom) 5 Old Broad Street 2009 AGM (Member of the Supervisory Board) London EC2N 1AD
Henri Lachmann Chairman of the Supervisory Board of Schneider Electric Schneider Electric May 1996 / (68) (1) 43-45, bd Franklin Roosevelt 2009 AGM (Member of the Supervisory Board) 92500 Rueil-Malmaison
(1) Independent. (2) Appointed by the shareholders on May 4, 2006.
In addition, Mr. Jean-Martin Folz (60) is expected to be elected for a 4-year term at the Annual General Meeting of May 14, 2007, replacing Mr. Henri Hottinguer, whose term had expired at the close of this meeting. He was Chairman of the PSA Peugeot Citroën Group from October 1997 to February 2007. He is currently director of different companies.
General Meeting of May 14, 2007, replacing Mr. David Dautresme whose term had expired at the close of this meeting. His mandates include Chairman of the Board of Banca Monte dei Paschi di Siena (BMPS) and director of Sansedoni S.p.A.
Messrs Jean-René Fourtou, Léo Apotheker, Gérard Mestrallet and Ezra Suleiman are expected to be re-elected for a 4-year term at the Annual General Meeting of May 14, 2007.
Name (age) and Principal occupation Principal business First (Office presently held) (as of December 31, 2006) address appointment /
term of office Michel Pébereau Chairman of the Board of Directors of BNP Paribas BNP Paribas January 1997 / (65) 3, rue d’Antin 2009 AGM (Member of the Supervisory Board) 75002 Paris
Ezra Suleiman Professor of Politics and Chair of the Committee for European Studies, EPS/PIIRS April 2003 / (65 ) (1) Princeton University (United States) Aaron Burr Hall 2007 AGM (Member of the Supervisory Board) Princeton University
Director or member of the Supervisory Director: Chairman and Chief Executive Officer: Chairman and Chief Executive Officer: Chairman and Chief Executive Officer: Board: AXA Assurances IARD Mutuelle, FINAXA FINAXA FINAXA AXA Assurances IARD Mutuelle, AXA Assurances Vie Mutuelle, Director: Director: Director: AXA Assurances Vie Mutuelle, AXA Courtage Assurance Mutuelle, AXA Assurances IARD Mutuelle, AXA Assurances IARD Mutuelle, AXA Assurances IARD Mutuelle, BNP Paribas and Vivendi BNP Paribas and Vivendi Universal AXA Assurances Vie Mutuelle, AXA Assurances Vie Mutuelle, AXA Assurances Vie Mutuelle, Non voting member of the Board: Non-voting member of the Board: AXA Courtage Assurance Mutuelle, AXA Courtage Assurance Mutuelle, AXA Courtage Assurance Mutuelle, Schneider Electric Schneider Electric BNP Paribas and Vivendi Universal BNP Paribas and Vivendi Universal Schneider Electric, BNP Paribas and
Jean-René Fourtou April 1990 2007 AGM Vice-Chairman of the Supervisory Vice-Chairman of the Supervisory Vice-Chairman of the Supervisory Vice-Chairman of the Supervisory Vice-Chairman of the Supervisory Vice-Chairman of the Supervisory Board of AXA Board: AXA Board: AXA Board: AXA Board: AXA Board: AXA Chairman of the Supervisory Board of Vivendi Chairman of the Supervisory Board: Chairman of the Supervisory Board: Chairman and Chief Executive Officer: Chairman and Chief Executive Officer: Chairman and Chief Executive Officer: Vivendi and Groupe Canal+ Vivendi Universal and Groupe Canal+ Vivendi Universal Vivendi Universal Vivendi Universal Director or member of the Supervisory Director or member of the Supervisory Chairman of the Supervisory Board: Chairman of the Supervisory Board: Chairman of the Supervisory Board: Board: Sanofi-Aventis, Board or member of the Management Groupe Canal+ Groupe Canal+ Vivendi Environnement and Groupe Canal+ Cap Gemini, AXA Millésimes (SAS), Committee: Director: Sanofi-Aventis and Director: Aventis and Vice-Chairman of the Management Maroc Telecom (Morocco), Maroc Telecom (Morocco), Cap Gemini Cap Gemini Board: AXA Assurances IARD Mutuelle, NBC Universal Inc. (United States) and NBC Universal Inc. (USA), AXA Assurances Vie Mutuelle, Nestlé (Switzerland) Sanofi-Aventis, Cap Gemini AXA Courtage Assurance Mutuelle
David Dautresme April 1990 2007 AGM 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: DD Finance Managing Partner: DD Finance Managing Partner: DD Finance Director: Vice-Chairman of the Supervisory Chairman of the Supervisory Board: Chairman of the Supervisory Board: Chairman: Parande Développement (Groupe Euris) Board: Club Méditerranée Club Méditerranée Club Méditerranée Montech Expansion (United States) Director: Lazard Frères Banque, Director or member of the Supervisory Director: Casino, Fimalac Director: Casino, Fimalac Director: Club Méditerranée, Casino, Club Méditerrannée, Casino, Board: AXA, Fimalac Non-voting member of the Board: Non-voting member of the Board: Rue Impériale, Fimalac Rue Impériale Non-voting member of the Board: EURAZEO Groupe Go Sport, Lazard Frères Banque, Non-voting member of the Board: Non-voting member of the Board: EURAZEO EURAZEO Groupe Go Sport, Lazard Frères Banque Groupe Go Sport
Permanent Representative: Permanent Representative: Permanent Representative: Permanent Representative: Financière Norbert Dentressangle to Financière Norbert Dentressangle to Financière Norbert Dentressangle to Financière Norbert Dentressangle to the board of Financière Egnatia and the board of Financière Egnatia and the board of Financière Egnatia and the board of Financière Egnatia and to the board of Via Location to the board of Via Location to the board of Via Location to the board of Via Location
Chairman of the Supervisory Board: Chairman of the Supervisory Board: Chairman of the Supervisory Board: Chairman of the Supervisory Board: AXA AXA AXA AXA Director: Chairman and Chief Executive Officer: Chairman and Chief Executive Officer: Chairman and Chief Executive Officer: AXA Assurances IARD Mutuelle, FINAXA FINAXA FINAXA AXA Assurances Vie Mutuelle, Director: Director: Director: AXA Courtage Assurance Mutuelle, AXA Assurances IARD Mutuelle, AXA Assurances IARD Mutuelle, AXA Assurances IARD Mutuelle, BNP Paribas and Vivendi Universal AXA Assurances Vie Mutuelle, AXA Assurances Vie Mutuelle, AXA Assurances Vie Mutuelle, Non-voting member of the Board: AXA Courtage Assurance Mutuelle, AXA Courtage Assurance Mutuelle, AXA Courtage Assurance Mutuelle, Schneider Electric BNP Paribas and Vivendi Universal BNP Paribas and Vivendi Universal Schneider Electric, BNP Paribas and
Senior Advisor: Lazard Frères Senior Advisor: Lazard Frères Senior Advisor: Lazard Frères Senior Advisor: Lazard Frères Managing Partner: DD Finance Managing Partner: DD Finance Managing Partner: DD Finance Director: Chairman of the Supervisory Board: Chairman of the Supervisory Board: Chairman: Parande Développement (Groupe Euris) Club Méditerranée Club Méditerranée Montech Expansion (United States) Director: Lazard Frères Banque, Director: Casino, Fimalac Director: Casino, Fimalac Director: Club Méditerranée, Casino, Club Méditerrannée, Casino, Non-voting member of the Board: Non-voting member of the Board: Rue Impériale, Fimalac Rue Impériale EURAZEO Groupe Go Sport, Lazard Frères Banque, Non-voting member of the Board: Non-voting member of the Board: EURAZEO Groupe Go Sport, Lazard Frères Banque Groupe Go Sport
AXA Equity and Law (United Kingdom) AXA Equity & Law (United Kingdom) Director or member of the Supervisory Chairman: Fox-Pitt, Chairman: Fox-Pitt, Director or member of the Supervisory Director or member of the Supervisory Board: Kelton Group Limited (United Kingdom) Kelton Group Limited (United Kingdom), Board: Board: Pinault-Printemps-Redoute, Director or member of the Supervisory Fox-Pitt, Kelton Nominees Limited AXA, AXA Financial, Inc. (United States), Pinault-Printemps-Redoute, Swiss Re Capital Markets Limited Board: (United Kingdom) Binley Limited (United Kingdom), Swiss Re Capital Markets Limited (United Kingdom), Pinault-Printemps-Redoute, Director or member of the Supervisory Tawa UK Limited (United Kingdom), (United Kingdom), Binley Limited (United Kingdom), Swiss Re Capital Markets Limited Board: Club de Golf Valderrama (Spain), Binley Limited (United Kingdom), Tawa UK Limited (United Kingdom) (United Kingdom), Pinault-Printemps-Redoute, Fox-Pitt, AXA Equitable Life Insurance Company Tawa UK Limited (United Kingdom) Binley Limited (United Kingdom), Kelton Limited (United Kingdom), (United States), CX Reinsurance (United Kingdom) Swiss Re Capital Markets Limited MONY Life Insurance Company (United Kingdom), (United States), Binley Limited (United Kingdom) MONY Life Insurance Company of America (United States)
Management (Luxemburg) Didot Bottin Didot Bottin Non-voting member of the Board: Non-voting member of the board: Didot Bottin Didot Bottin
Chairman non executive: Chairman: Chairman: Chairman: AXA UK PLC (United Kingdom) and AXA UK Plc (United Kingdom) AXA UK Plc (United Kingdom) AXA UK Plc (United Kingdom) AXA Equity & Law (United Kingdom) Director or member of the Supervisory Chairman: Fox-Pitt, Chairman: Fox-Pitt, Director or member of the Supervisory Board: Kelton Group Limited (United Kingdom) Kelton Group Limited (United Kingdom), Board: Pinault-Printemps-Redoute, Director or member of the Supervisory Fox-Pitt, Kelton Nominees Limited Pinault-Printemps-Redoute, Swiss Re Capital Markets Limited Board: (United Kingdom) Swiss Re Capital Markets Limited (United Kingdom), Pinault-Printemps-Redoute, Director or member of the Supervisory (United Kingdom), Binley Limited (United Kingdom), Swiss Re Capital Markets Limited Board: Binley Limited (United Kingdom), Tawa UK Limited (United Kingdom) (United Kingdom), Pinault-Printemps-Redoute, Fox-Pitt, Tawa UK Limited (United Kingdom) Binley Limited (United Kingdom), Kelton Limited (United Kingdom),
CX Reinsurance (United Kingdom) Swiss Re Capital Markets Limited (United Kingdom), Binley Limited (United Kingdom)
Name Present principal occupation First appointment Term of office 2006 2005 2004 2003 2002 or employment
Michel Pébereau January 1997 2009 AGM Chairman of the Board of Directors: Chairman of the Board of Directors: Chairman of the Board of Directors: Chairman of the Board of Directors: Chairman and Chief Executive Officer: Chairman of the Board of Directors of BNP Paribas BNP Paribas BNP Paribas BNP Paribas BNP Paribas BNP Paribas
Jacques Tabourot April 2004 2008 AGM Member of the Supervisory Board: Member of the Supervisory Board: Member of the Supervisory Board: – – Member of the Supervisory Board of AXA, AXA, representing the employee AXA, representing the employee AXA, representing the employee representing the employee shareholders shareholders shareholders shareholders
Chairman and Chief Executive Officer: Chairman and Chief Executive Officer: Chairman and Chief Executive Officer: Chairman and Chief Executive Officer: Suez Suez Suez Suez Chairman: Suez Environnement, Chairman: Suez Environnement, Chairman: Suez-Tractebel (Belgium), Chairman: Suez-Tractebel (Belgium), Suez-Tractebel (Belgium), Hisua (Spain) Société Générale de Belgique (Belgium), Electrabel (Belgium) Electrabel (Belgium) Vice-Chairman: Sociedad General de Tractebel (Belgium) Vice-Chairman: Hisusa (Spain), Vice-Chairman: Hisusa (Spain) Aguas de Barcelona (Spain) Vice-Chairman: Hisusa (Spain), Sociedad General de Aguas de Sociedad General de Aguas de Director or member of the Supervisory Sociedad General de Aguas de Barcelona (Spain) Barcelona (Spain) Board: Barcelona (Spain) Director or member of the Supervisory Director or member of the Supervisory Crédit Agricole S.A., Director or member of the Supervisory Board: Board: Compagnie de Saint-Gobain, Taittinger, Board: Compagnie de Saint-Gobain, Crédit Agricole S.A., Pargesa Holding S.A. (Switzerland), Crédit Agricole S.A., Pargesa Holding S.A. (Switzerland) Compagnie de Saint-Gobain, Taittinger, Electrabel (Belgium) Compagnie de Saint-Gobain, Taittinger,
Chairman of the Board of Directors: Chairman of the Board of Directors: Chairman of the Board of Directors: Chairman and Chief Executive Officer: BNP Paribas BNP Paribas BNP Paribas BNP Paribas Director of member of the Supervisory Director of member of the Supervisory Director of member of the Supervisory Director or member of the Supervisory Board: Board: Board: Board: Saint Gobain, Total, Lafarge, Saint Gobain, Total, Lafarge, Saint Gobain, Total, Lafarge, Saint Gobain, Total Fina Elf, Lafarge, BNP Paribas UK (United Kingdom), BNP Paribas UK (United Kingdom), Dresdner Bank AG Francfort (Germany), Dresdner Bank AG (Germany), Banque Marocaine pour le Commerce et Banque Marocaine pour le Commerce et BNP Paribas UK (United Kingdom) BNP Paribas UK (United Kingdom) l’Industrie (BMCI) l’Industrie (BMCI) Non-voting member of the Board: Non-voting member of the Board: Non-voting member of the Board: Non-voting member of the Board: Galeries Lafayette Galeries Lafayette Galeries Lafayette Galeries Lafayette
Claude Bébéar 1958: Joined Anciennes Mutuelles, an insurance company in Rouen where he remained until 1975 working his way through various divisions of the company 1964 – 1966: Was sent on assignment to Canada where he created the life insurance division of Provinces Unies, a
Norbert Dentressangle 1979: Founded the Norbert Dentressangle group, a transportation and logistics specialist, and served as its chairman until 1998. Today, he is Chairman of the
Jacques de Chateauvieux 1975 – 1977: Management auditor – Union des Transports
Anthony Hamilton 1968 – 1978: Worked in London and New York for the investment bankers Schroders, Morgan Grenfell, and
Wainright 1978: Joined Fox-Pitt, Kelton – Chief Executive Officer 1993: Non-executive Director of AXA Equity and Law, 1997: Non-executive Director of AXA UK
Since 1996: Director of Schneider Electric SA and member of the Schneider Electric Supervisory Board
Management Committee of Société Générale de Belgique 1995: Chairman and Chief Executive Officer of Compagnie de Suez
Michel Pébereau 1967: Auditor at the Treasury 1970 – 1974: Project leader and then Adviser to the
Crédit Commercial de France 1993 – 2000: Chairman and Chief Executive Officer of
Banque Nationale de Paris 2000 – 2003: Chairman and Chief Executive Officer of BNP
Since 2004: Chairman of the Board of Directors of de BNP
Gamble 1981 – 1983: Product Manager - Procter & Gamble 1983 – 1986: Associate Advertising Manager – Procter &
Manager – Coca-Cola Entreprise 1997 – 1998: Assistant Chief Executive Officer – Coca-
Ezra Suleiman 1973 – 1979: Professor at the University of California, Los
Jacques Tabourot 1972 – 1978: Auditor to Deloitte, then Frinault Fiducaire 1978 – 1986: Assistant to the accounting Manager then
1990 – 2005: Lecturer for masters in banking and finance at Université Panthéon-Assas Paris II
Service contracts between the AXA Group and members of the Supervisory Board Mr. Jacques Tabourot, employee shareholder representative at the Supervisory Board, is bound to the AXA Group by a contract with the GIE AXA as a “Cadre de réserve”.
Each Committee issues opinions, proposals and recommendations and is empowered to undertake or commission studies on subjects to be presented to the Supervisory Board. Each Committee may invite outside participants to attend its meetings.
Audit Committee On December 31, 2006, the Audit Committee had four members having either finance or accounting expertise, all of whom would be considered independent according to the criteria contained in the Bouton report and in the Sarbanes-Oxley Act. They were Messrs David Dautresme (Chairman), Anthony Hamilton, Henri Lachmann and Ezra Suleiman.
On April 11, 2006, Mr. Jacques de Chateauvieux left this Committee.
Under the Rules of Procedure (“Règlement Intérieur”) of the Supervisory Board and the Charter of the Audit Committee approved by the Supervisory Board, the Committee’s missions are as follows: – To review the Company’s interim and annual financial statements before they are presented to the Supervisory Board, as well as examine some of the financial disclosures released by the Company.
– To control the appointment, compensation, and replacement of, and oversee, the external auditors of the Group and, where legally permissible, its subsidiaries and review audit programs, 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 Statutory Auditors by examining their relationships with the AXA Group and, in particular, by examining all fees for audit services, audit related services and any other services; it supervises the subject and performance of outside audits when the assignment does not pertain to
The external auditors of the Group, the Chief Financial Officer, the accounting Manager as well as the Internal Audit regularly take part in the Committee’s sessions.
Finance Committee The Finance Committee had four members on December 31, 2006, one of whom met the independence criteria: Messrs Claude Bébéar (Chairman), Henri Lachmann, Michel Pébereau and Jacques Tabourot.
The Finance Committee: – examines the Group’s financial structure and reviews the broad outlines governing AXA’s asset management policy; – examines plans to sell real-estate or equity interests whose appraised value exceeds the authorizations granted to the Management Board by the Supervisory Board; – reviews all material financial transactions involving AXA that are put forth by the Management Board; – examines all acquisition plans over €500 millions.
The Selection, Ethics, Governance and Human Resources Committee: – formulates recommendations to the Supervisory
The Committee met 3 times in 2006. The global attendance rate was 77%.
The AXA Management Board now has 6 members and who will serve for a 3-year term expiring on October 11, 2009.
– Alfred Bouckaert (60), Chief Executive Officer for Northern, Central and Eastern Europe. – Claude Brunet (49), in charge of Transversal
– Denis Duverne (53), Chief Financial Officer, – François Pierson (59), Chairman and Chief
Members of the Management Board devote their time exclusively to the management of the Group.
Chairman of the Board of Directors: AXA Assurances Iard Mutuelle AXA Assurances Vie Mutuelle AXA Financial, Inc. (United States)
Director or member of the Supervisory Board: AXA France IARD AXA France Vie AXA UK Plc (United Kingdom) AllianceBernstein Corporation (United States) AXA Equitable Life Insurance Company (United States) AXA Belgium (Belgium) AXA Holdings Belgium (Belgium) AXA America Holdings Inc. (United States) MONY Life Insurance Company (United States) MONY Life Insurance Company of America (United States)
Chairman of the Board of Directors: AXA Luxembourg (Luxembourg) AXA Assurances Luxembourg SA (Luxembourg) AXA Assurances Vie Luxembourg (Luxembourg) AXA Participations Belgium (Belgium) AXA Bank Belgium (Belgium) L’Ardenne Prévoyante (Belgium) Viaxis (Belgium)
Permanent representative: of AXA to the board of AXA Cessions * Mandates concerned by the accumulaion rules (pursuant to the provisions of the French Company Code).
Director, “President” and Chief Executive Officer: AXA Financial, Inc. (United States)
Chairman of the Board, “President” and Chief Executive Officer: MONY Holdings, LLC (United States)
Director: AllianceBernstein Corporation (United States) AXA Art Insurance Corporation (United States) Central Supply Corp (United States) American Council of Life Insurers (ACLI) (United States) KBW, Inc. (United States)
Director: AXA Assurances IARD Mutuelle AXA Assurances Vie Mutuelle AXA Assurances Inc. (Canada) AXA Japan Holdings Ltd (Japan) AXA-ONA (Morocco)
Permanent Representative: of AXA France IARD to the board of UCAR*
Midi with and into the AXA Group 1993 – 2000: Senior Executive Vice President for the
Claude Brunet 1988 – 2001: Ford 1991 – 1992: Corporate Sales Manager of Ford Switzerland 1992 – 1993: Corporate Sales Manager of Ford France 1993 – 1996: Chairman and Chief Executive Officer of Ford
April 2001: Joined the AXA Group as a Member of the
Banque Colbert, in charge of operations 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
François Pierson 1974: Joined AGP and became Sales Manager 1990: General Manager of the South-East Region of AXA
Assurances and Director of Distribution in that company 1995: Deputy Chief Executive of AXA Assurances 1997: Chief Executive Officer of UAP Vie and of Alpha
Board, Chairman and Chief Executive Officer of AXA France, responsible for Large Risks, Assistance and AXA Canada
Messrs Christopher Condron and Alfred Bouckaert, members of the Management Board, as well also have a contract which respectively binds them to the company AXA Equitable in the United States and AXA Belgium.
On December 31, 2006, to the best of the Company’s knowledge, no arrangement or understanding have been entered into with major shareholders, customers, suppliers or others pursuant to which a member of the Management Board or Supervisory Board was selected. However, in March 2007, pursuant to the agreement that has been reached between AXA and the Italian bank Banca Monte dei Paschi di Siena (BMPS) for the establishment of a long term strategic partnership in life and non-life bancassurance as well as pensions business, Mr. Giuseppe Mussari was recommended for appointment by the shareholders at their May 14, 2007 meeting to serve a four-year term.
Absence of any conviction in relation to fraudulent offences, any official public incrimination and/or sanctions, or any responsibility in a bankruptcy for the last 5 years To the best of the Company’s knowledge, none of the members of its Management Board or Supervisory Board has been during the last 5 years (i) subject to any conviction in relation to fraudulent offences or to any official public incrimination and/or sanction by statutory or regulatory authorities, (ii) disqualified by a court from acting as a member of the administrative, management or supervisory bodies of an issuer or from acting in the management or conduct of the affairs of any issuer, or (iii) associated as a member of the administrative, management or supervisory bodies with any company that has declared bankruptcy or been put into receivership or liquidation, provided, however, that AXA has from time to time sold, discontinued and/or restructured certain business operations and voluntarily liquidated affiliated companies in connection with these or similar transactions and certain members of AXA’s Management Board and/or Supervisory Board may have been associated with other companies that have undertaken similar solvent liquidations.
The 14 members of the Executive Committee, including 8 non French, conduct quarterly business reviews (QBR), during which performance is reviewed. These reviews were introduced in 2000 to provide a clear and consistent framework for: – reviewing operational performance and monitoring the progress of key projects using quantifiable standards of measurement defined in collaboration with the Management Board;
– assessing the status of Group transversal projects; – exchanging ideas and information on key’s Group strategic orientations.
John R. Dacey (a) Chief Executive Officer for the Japan Asia-Pacific
Gerald Lieberman President and Chief Operating Officer of AllianceBernstein (United States)
Nicolas Moreau (d) Chief Executive Officer of AXA UK-Ireland and Chairman of Board of Directors of AXA Investment Managers
Andrew Penn (e) Chief Executive Officer of AXA Asia Pacific Holdings
Eugène Teysen (f) Chief Executive of Insurance and Bank activities in Belgium
(b) Philippe Egger has been appointed Chief Executive of Insurance activities in Switzerland since January 1st, 2007. (c) Frank Keuper has been appointed Chief Executive Officer of AXA Konzern AG since January 1st, 2007. (d) Nicolas Moreau has been appointed Group Chief Executive of AXA UK. He has replaced Dennis Holt. Nicolas Moreau has become Non-Executive Chairman of the Board of
AXA Investment Managers since June 30, 2006. (e) Andrew Penn has been appointed Chief Executive Officer of AXA Asia-Pacific Holdings since October 1st, 2006. He has replaced Les Owen. (f) Eugène Teysen has been appointed Chief Executive of Insurance and Bank activities in Belgium since January 1st, 2007.
Business units AXA has 7 business units, whose CEOs report directly to the Management Board and its Chairman.
(a) John R. Dacey has been appointed Chief Executive Officer for the Japan AsiaPacific since April 11, 2007. He has replaced Philippe Donnet.
Implementing the principles of corporate governance is a priority at AXA. In that respect, AXA has come up 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.
role, duties, and composition of these Committees (including the requirements for participation of independent directors) are specified in a detailed Audit Committee Standard and Compensation Committee Standard. The Audit Committee Standard requires the Audit Committee to have a significant component of independent directors in order to ensure that this Committee is strongly independent of management given its critical role in reviewing financial results and other financial information prepared by management, financial reporting and control processes, critical accounting policies, particular accounting issues, fraud and similar issues. In addition, the Group’s Compensation Committee Standard requires that the Compensation Committee have a minimum of one independent director to ensure a level of independent review and judgment on all senior executive compensation matters.
AXA has a dual corporate governance structure that establishes and maintains a clear separation of power between management (Management Board - MB) and supervision (Supervisory Board). AXA’s operations are organized into seven business units (BUs) whose chief executive officers report directly to the Management Board and its Chairman. The major executives of the business unit, as well as members of the Management Board, serve on the Executive Committee. This Committee meets four times a year to review Company performance during its Quarterly Business Review (QBR).
– AXA’s principal subsidiaries, whether traded on a public stock market or not, have appointed independent (non-executive) directors to their boards of directors and audit committees,
Guide, in particular, written codes of ethics, anti-fraud and anti-money laundering policies),
– Operating processes are subject to controls and ongoing improvement, notably via the Group-wide continuous process improvement program called AXA Way and through the Sarbanes-Oxley 404 compliance project to assess internal controls over financial reporting,
Setting business objectives and strategic planning process The aim of AXA’s strategic planning process is to exert upstream control over entity strategy and action plan, and the three-year forecasts developed by the Group’s main subsidiaries. Subject to various analyses and adjustments between group management [MB, Group Strategic Plan Steering Committee, Group Management Services (GMS) teams, such as Group Strategic Planning (GSP) and Business Support and Development (BSD)] and the entities, this procedure results in a consolidated forecast that is used as the Group’s budget and forms the basis of the objectives contained in each operating unit’s annual target letter.
Role of Business Support Development (BSD) As indicated above, the Group has a decentralized organization structured around seven business units.
Through corporate governance bodies 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 six 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 Group.
Each Management Board member is assigned responsibility for some specific aspects of the Company’s management.
QBRs (Quarterly Business Reviews) Quarterly Business Reviews are divided into two parts: – meetings between the Management Board and each business unit, – a meeting attended by all Executive
integration, in particular the synergies and measures related to growth accelerator,
In addition, members of the Executive Committee share their local achievements during these meetings, and efforts are made to encourage the reuse of winning practices and success stories in areas touching on the business as well as on its people.
– credit and concentration risks in the Group’s asset portfolios (equities and bonds) are managed by the Risk Management department and aggregated at the Group level. The central Risk Management Department also monitors the corresponding exposures on a monthly basis, and ensures that local operating units comply with the concentration limits established by the Group.
Internal and external auditors hold meetings to exchange views on the risks that the Group faces and on the conclusions made in drawing up action plans.
Group IT Department A dedicated organization, Group IT Department, has been set up to handle IT risks: – Group IT defines Group IT strategy and policy, in particular in relation to information security and IT governance,
– AXA Technology Services (AXA Tech) is responsible for supplying IT infrastructure service delivery (servers, storage, desktops and telecoms) for 80% of the Group,
The Management Board mandates the development and publication of Information Security policy, and is kept informed of the implementation status.
AXA Tech is responsible for ensuring that IT security policy is consistently and transparently implemented at the infrastructure level, in cooperation with their clients, the operating companies.
Group Procurement Department In order to reduce procurement costs and achieve better control over its major suppliers and vendors, AXA has set up a Group Procurement Department. Its primary missions are to (i) build procurement expertise based on the Group Procurement Standard within the principal operating units so that procurements are made almost exclusively by professional buyers, (ii) negotiate global agreements with suppliers and vendors in compliance with the Standard, and (iii) reduce the overall costs and risks by establishing contractual and ethical standards.
The Management Board approves Group procurement strategy and is kept informed on its implementation status.
Finance and Control Department (DCFG) The role of the DCFG is described in detail in paragraphs “Monitoring of financial commitments” and “Management of the Group financial structure”.
Planning, Budgets, Results and Central Department (PBRC) The role of the Group’s PBRC Department is described in detail in paragraph “Consolidation Management, Reporting, and Control over Financial and Accounting Information” of this document.
Control Procedures Compliance Guide The Group Compliance and Ethics Guide was adopted by the Management Board in 2004. It was distributed by the Group HR Leader to all HR Leaders throughout the Group in May 2004 with a specific request to communicate this Guide to all employees. The Guide applies to all Group companies and employees, subject to compliance with local legislation.
The Guide was updated in 2005 and a new release was communicated in February 2006 by the Group Chief Financial Officer (CFO) to CEOs and Chief Financial officers (CFOs), heads of legal departments, of HR and of internal communications throughout the Group together with local implementation guidelines. Any problems encountered with, local adaptation of the Guide due to legal requirements, distribution, understanding or certification must be reported to Group relevant departments.
A network of correspondents involved in the fight against money laundering has been set up to co-ordinate actions and distribute important information. In France, an organization has been set up to ensure efficient collaboration with TRACFIN (Traitement du renseignement et action contre les circuits financiers clandestins).
As far as the fight against internal fraud is concerned, a formal policy has been put into place and a network of correspondents dedicated to this task was set up in 2005. Internal fraud has been divided up into four specific categories: Fraudulent Financial Reporting; Misappropriation of Assets; Improper or Fraudulent Financial Activity; Senior Management Frauds.
DERIVATIVE INSTRUMENTS For managing and optimizing interest rate and exchange rate risk, the DCFG is authorized to use derivative instruments, mainly interest rate and currency swaps, options, caps and floors. These instruments, which may be either standard or structured, are used as part of strategies described and authorized by the Supervisory Board’s Finance Committee. Persons authorized to commit the company and trade such transactions are listed in a book of signatures, available for distribution to bank counterparts.
Valuations are checked with an external banking source for each transaction on a semi-annual basis.
OTHER COMMITMENTS The DCFG is responsible for managing liquidity risk. Therefore, the DCFG determines the required amount of committed credit facilities required by the Group to manage a liquidity crisis and sets constraints on the debt maturity profile.
Information about off-balance sheet commitments can be found in the appendix to the Company’s annual financial statements.
Working in close collaboration with local finance teams, the DCFG (i) defines and manages subsidiaries’ capital adequacy; (ii) defines and manages the Group’s liquidity policy; and (iii) coordinates and centralizes the Group’s financing policy.
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’
– 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,
– “GIE AXA Trésorerie Europe”, an intercompany partnership (GIE), carries out centralized cash management for AXA operating units in the euro zone, using Group standards designed to ensure liquidity due to the profile of invested assets, particularly through the ownership of a significant portfolio of assets defined as eligible by the European Central Bank (ECB),
The structure of financial resources and debt ratios are managed to ensure that they remain compatible with the Group’s financial strength rating targets, even in adverse circumstances of rising interest rates and falling profits. The structure of financial resources, as well as the repayment schedule and debt service costs, is managed on the basis of a three-year plan.
engaged over the last 2 years in a comprehensive exercise of evaluating, documenting and testing its internal controls over financial reporting in preparation for a formal audit of its internal controls that will be required for its SEC 20F filing relating to year-end 2006 under Section 404 of Sarbanes-Oxley Act.
All information contained in these legal documents is also audited by the External Auditors in accordance with professional standards applicable in France.
Group Audit Role The Group’s Internal Audit Department works on behalf of the Management Board and the Audit Committee to verify that the Group’s internal audit systems are efficient and effective. All Group subsidiaries, companies, activities and projects fall within its scope.
The Head of the Group’s internal audit team reports to the Management Board and, more specifically, to the Management Board member in charge of the current operations of AXA’s Finance Department. In addition, strategic internal audit assignments are carried out exclusively in accordance with the written instructions of the Management Board Chairman. The Head of the Group Internal
Since the launch of AXA strategic initiative Ambition 2012 in 2005, AXA Way has been enabling the Differentiation Strategy, aiming to make of AXA the preferred company. Key strategic processes have been identified, action plans have been set up and all AXA Way teams are highly engaged to raise the service quality level for exceeding our Customer expectations.
Group Audit recommendations and related action plans are subject to regular monitoring, the results of which are submitted to the AXA Management Board and Audit Committee for review.
– coordinating the production of AXA’s Document de Référence filed with the AMF,
Financial and accounting information is consolidated within the Finance Department in accordance with international accounting standards (IFRS) as adopted by the European Union. It is reviewed on the basis of a complementary economic analysis.
Respective responsibilities of the local and central PBR Departments The subsidiaries are responsible for the consolidation and the control of the financial information produced in their consolidation sub-group whereas PBRC reviews this information and produces the Group’s consolidated financial statements and related summaries at the Group level.
The role of the PBRC in this process is as follows: – Upstream of the consolidation and control process, it is responsible for the information transmission system – comprised of the consolidation system, consolidation guidelines, reporting guidelines and guidelines for measuring embedded value – and for issuing instructions to subsidiaries,
Moreover, the review and analysis of financial and accounting information, which is consolidated using the aforementioned system and accompanied by detailed comments from subsidiaries that make up the various consolidation sub-groups, are carried out 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 Group publications, i.e. interim and annual consolidated financial statements, quarterly revenue releases, and an annual statement of embedded value.
– The principal options for closing the consolidated accounts are presented to the Management Board and then to the Audit Committee prior to their examination of the annual accounts, for validation purposes,
In addition, the production of Group financial statements involves a process of transmitting information to Group subsidiaries. This allows for an assessment of the validity of financial data, through the transmission of subsidiaryrelated data that has been approved by the subsidiary’s Chief Executive Officer and CFO. Through this process, the Group CFO is apprised of the specific conditions under which the work has been carried out.
It should be noted that due to the high number of mergers and acquisitions to which the Group has undertaken in recent years, financial information is produced by several different information systems, which are gradually becoming more integrated.
Neither the control environment nor the control system is static. Consequently, Group Management remains attentive to changes in this area, so that continuous improvements can be made to its own internal control system.
It is the role of the Chairman of the Supervisory Board to give an account, in his report, notably of the conditions in which the duties of the Supervisory board are prepared and organized and of the internal control procedures in place within the company.
It is our responsibility to report to you our observations on the information set out 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.
We performed our procedures in accordance with professional standards applicable in France. These require us to perform procedures to assess the fairness of the information set out in the Chairman’s report on the internal control procedures relating to the preparation and processing of financial and accounting information to prepare the consolidated financial statements in accordance with IFRSs, as adopted by the European Union. These procedures notably consisted of: – Review the aims and general organization of internal control, as well as the internal control procedures, as presented in the Chairman’s report, pertaining to the preparation and treatment of accounting and financial information used to establish, the consolidated financial statements in
PricewaterhouseCoopers Audit Mazars & Guérard Yves Nicolas – Eric Dupont Patrick de Cambourg – Jean-Claude Pauly accordance with IFRSs, as adopted by the European Union; – Review the work serving as the basis for the information and data provided in this report.
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 compensation Committee.
Executive compensation is therefore structured as to foster and reward performance: – both at individual level and collective level
(local business entity and AXA Group), – both with a short-term, medium-term and long-term focus.
Individual Individual Entity AXA Group AXA Share Competencies Performance Performance Performance Performance
The compensation of Management Board members is fixed by the Supervisory Board, based on the Compensation Committee’s recommendation. The fixed compensation of the Chairman of the Management Board (€500,000) has not changed since he was appointed in May 2000. The variable component of his pay is calculated on the basis of a predefined target amount
– AXA stock performance, measured in comparison to that of its competitors,
– Individual performance, which is evaluated by the Compensation Committee on the basis of the specific objectives set at the beginning of the year.
Variable compensation for the year 2001 paid in 2002 €719,967 €1,750,000
Variable compensation for the year 2002 paid in 2003 €1,419,277 €2,000,000
Variable compensation for the year 2004 paid in 2005 €2,304,277 €2,000,000
Variable compensation for the year 2005 paid in 2006 €2,671,626 €2,000,000
For other members of the Management Board, four factors are taken into consideration: – Group performance (underlying earnings,
– performance of the business unit or functional area of responsibility, measured against objectives set at the beginning of the year,
When target variable compensation levels are set (pay for actual performance), the portion tied to Group performance is greater for members of the Management Board than for other members of the Executive Committee (whose variable compensation is generally linked to the results of their respective business units). Performance hurdles (floors and ceilings) are set to ensure the genuine variability of compensation.
The table below provides the following information: – gross compensation paid in respect of 2006
Fixed Variable Director’s Benefits Total Variable Total Variable Total component component fees paid in kind compensation component compensation component compensation for 2006 (€) for 2006 (€) in 2006 (€) 2006 (€) paid in paid in paid in paid in paid in
(a) (b) (c) (d) (e) = (a)+(b)+(c)+(d) (f) (g) = (a)+(f)+(c)+(d)
(1) A. Bouckaert was appointed as member of the Management Board on October 11th, 2006. (2) Compensation and benefits in kind paid to J.R. Abat include benefits paid in respect of his expatriate status in Spain. (3) Compensation and benefits in kind paid to P. Donnet include benefits paid in respect of his expatriate status in Japan, then in Singapore from April 1st, 2006. (4) Compensation and benefits in kind paid to N. Moreau include benefits paid in respect of his expatriate status in the UK from 1st July 2006. (5) A. Penn was appointed as member of the Executive Committee on October 1st, 2006. (6) E. Teysen joined AXA on 16th August 2005 and has been appointed as member of the Executive Committee on October 1st, 2006. Compensation and benefits in kind paid to E. Teysen include benefits paid in respect of his expatriate status in Germany until 31st December 2006.
– gross compensation paid in 2006 (g), i.e. the fixed component paid in 2006 (a), the variable component earned in respect of 2005 and paid in 2006 (including expatriation allowances paid in 2006) (f), any directors’ fees paid in 2006 (c) and benefits in kind for the year 2006 (d); – and gross compensation paid in 2005, i.e. fixed compensation paid in 2005, the variable component earned in respect of 2004 and paid in 2005 (including expatriation allowances paid in 2005), any directors’ fees paid in 2005 and benefits in kind for the year 2005.
The amount of directors’ fees to be paid is determined by the shareholders, in accordance with the Company’s articles of incorporation and Bylaws, and apportioned by the Supervisory Board to its members for their Board and Committee duties as follows: – half of the amount of directors’ fees is distributed evenly among the members of the Supervisory Board as the fixed component; – a portion of the remainder is distributed among the members of the Supervisory Board in proportion to their actual attendance at the meetings of the Supervisory Board; – the remainder is allocated by the Supervisory Board to the various specialized Committees and distributed among their members in proportion to their actual attendance at Committee meetings.
Due to the importance of their role, members of the Audit Committee receive a higher proportion of directors’ fees.
The representative of the employee shareholders at the Supervisory Board (Mr. Jacques Tabourot) has received during the year 2006 a total amount of €223,447 as a preretirement compensation.
Pension The French members of the Management Board of AXA (Messrs Henri de Castries, François Pierson, Denis Duverne,
Mr. Alfred Bouckaert, member of the Management Board, benefits from a contractual supplementary pension arrangement with AXA Belgium providing for a capital at the age of 65 equivalent to N/40 x (25% T1 + 75% T2) x 12.2221, where: N = number of years of service T1 = annual SS ceiling (€44,112 in 2006) T2 = part of the fixed salary exceeding T1
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 31, 2006, €33.8 million; this amount includes the actuarial reserve for the annuity paid to Mr. Claude Bébéar.
Annual grants are made during the first quarter of the year. In 2006, grants were made 20 trading days after the date annual earnings were released, i.e. on March 31, 2006 and the strike price was determined based on the 20 trading days before the grant date.
In the United States, options may be granted during the year to newly-hired or newlypromoted employees or when the performance measures that give rise to option grants are available after the first quarter of the year.
Individual option grants are determined on the basis of the following criteria: – importance of the job í role – importance of the individual in the job í retention – importance of the individual in the future í potentiel – quality of the individual contribution í performance
If the performance condition has not been met at the expiry date of the options, the last tranche of options will be automatically cancelled.
Meeting (adjusted Executive Executive of options (adjusted price) at 31/12/2006 not granted as numbers) Committee Committee at 31/12/2006
66% – 09/05/2004 100% – 09/05/2005 50% – 30/05/2004 75% – 30/05/2005 100% – 30/05/2006 66% – 27/02/2005 100% – 27/02/2006 66% – 14/03/2006 100% – 14/03/2007 66% – 14/03/2006 100% – 14/03/2007 66% – 02/04/2006 100% – 02/04/2007 66% – 26/03/2007 100% – 26/03/2008 66% – 14/04/2007 100% – 14/04/2008 66% – 29/03/2008 100% – 29/03/2008 66% – 29/03/2008 100% – 29/03/2008 66% – 06/06/2008 100% – 06/06/2008 66% – 27/06/2008 100% – 27/06/2008 66% – 01/07/2008 100% – 01/07/2008 66% – 28/07/2008 100% – 28/07/2008 66% – 21/09/2008 100% – 21/09/2008 66% – 31/03/2009 100% – 31/03/2010 66% – 31/03/2009 100% – 31/03/2010 66% – 25/09/2009 100% – 25/09/2010
(1) Ex-LOR FINANCE. (2) Ex-FINAXA. (3) Options exercised by the heirs of a deceased beneficiary.
Vesting schedule Exercise Discount Number of options Options cancelled, Balance as price euros exercised as forfeited and at 31/12/2006
Options granted Options exercised Options granted Options exercised Beneficiaries Number Expiry date Price Number (a) Price Number Expiry date Price Number Price
A. BOUCKAERT (Belgium) 147,063 31/03/2016 28.43 – – – – – – –
(a) Underligned numbers indicate exercises of options where the AXA shares have been retained or given by beneficiaries.
Stock options exercised by Claude Bébéar are options granted in 1997 and those exercised by Jacques Tabourot are options granted in 1997 and 2003.
Stock options granted and/or exercised by the top 10 beneficiaries (outside the management board) during 2006
Stock options held by management bodies members and Executive Committee members (options granted but not exercised on
Executive Committee members (on December 31, 2006) J.R. Abat (in Spain) 571,692 –
(b) Also owns 80,000 shares of stock in Alliance Capital. (c) Also owns 7,562 stock options on AXA Investment Managers. (d) Also owns 783,334 options on AXA Asia Pacific Holdings.
Since 2004, stock options have partially been replaced by performance units.
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 of the AXA share price on the medium-term (2 to 4 years); – Reduced shareholder dilution by granting less stock options.
– The performance targets in 2004 and 2005 have been : • for the business unit : underlying earnings and adjusted earnings; • for the AXA Group : underlying earnings and adjusted earnings per share.
Business Value in Life. – 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 the AXA Group.
As far as performance units are concerned: – Each unit is valued based on the average opening price of the AXA SA share during the past 20 trading days of the acquisition period.
– 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’ share ownership and align employees and shareholders’ interests.
Performance shares represent less shareholder dilution than stock options, due to the smaller grant volume.
A third performance unit plan was launched on March 31, 2006 and 1,453,441 performance units have been initially granted to 2,072 beneficiaries outside France.
The first performance share plan was launched on April 21, 2005, after approval having been obtained at the Annual General Meeting of April 20, 2005. A total of 743,310 performance shares have been granted to 1,154 beneficiaries in France.
Furthermore, 770 employees in France have elected to renounce to their performance units granted in 2004 and have been granted on April 21, 2005 an equivalent number of shares. As a total, they received 250,306 performance shares and 143,630 restricted shares.
NB: 1,924 Performance units have been acquired further to the decease of beneficiaries in 2005 and 2006.
Initial grant Shares Units Shares Shares Balance at Acquisition Date Shares actually at stake at cancelled at acquired at 31/12/2006 Date Shares granted granted 31/12/2006 31/12/2006 31/12/2006 acquired
(a) Performance shares granted as a replacement for Performance Units 2004 cancelled. (b) Restricted shares granted as a replacement for Performance Units 2004 cancelled.
Units Units Balance at Acquisition cancelled at acquired at 31/12/2006 Date Units 31/12/2006 31/12/2006 acquired 64,340 – – – –
– – 29,771 21/04/2007 – – – 11,909 21/04/2007 – – 6,460 21/04/2007
– – 45,468 21/04/2007 – – – 16,889 21/04/2007 – – 9,161 21/04/2007
The Supervisory Board agreed to the following rules: – For the Chairman of the Management Board: ownership of shares worth at least three times his total annual compensation.
To calculate the level of ownership, the following shares will be taken into account: AXA shares, AXA ADRs, mutual fund units invested in AXA stock, and AXA APH and AllianceBernstein shares.
On February 28, 2007, Messrs Henri de Castries, Alfred Bouckaert, Claude Brunet, Denis Duverne and Christopher Condron were already in compliance with this requirement.
On March 30, 2004 and on December 28, 2004, Messrs 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.
New mutual funds with direct voting rights have been created to allow beneficiaries to directly exercise their voting rights.
The Shareplan 2006 program was carried out through a share issue that took place in November and was open to all Group employees through voluntary contributions.
Legal form and governing law A form of limited liability company (French société anonyme) with a Management Board and a Supervisory Board, governed by the laws of France, in particular the French Company Code (the Code de Commerce) and the French Insurance Code (the Code des Assurances).
Incorporation and life of the Company The Company was incorporated in 1852. The corporate life of the Company is set to expire on December 31, 2059, unless it is prolonged after, or wind-up before, this date.
Corporate purpose (Article 3 of the articles of incorporation and Bylaws): – to acquire, manage and/or dispose of equity interests in French or foreign companies or businesses, regardless of their legal form; – to perform any and all transactions directly or indirectly related to the foregoing or in furtherance thereof; – in particular, to acquire and manage equity interests in any form, directly or indirectly, in any French or foreign company engaged in the insurance business.
Trade and Company Register No. 572.093.920 in the Paris Trade and Company Register APE Code: 741 J
Meetings of shareholders and voting power Shareholders are convened, meet, and deliberate in accordance with applicable law and regulations.
The right to attend the shareholders’ meetings of companies whose stock is traded on a regulated market or transactions of a central depository is evidenced by an accounting entry showing the number of shares in the name of the shareholder of record (or the intermediary of record for the account) in accordance with the seventh paragraph of Article L. 228-1 of the French Commercial Code, on the third business day preceding the meeting at midnight (Paris time), either in the nominee share ownership records kept by the company or in the bearer share records kept by a qualified intermediary.
The accounting registration or recording of the shares in the bearer share accounts on the books of the qualified intermediary is evidenced by a certificate of attendance delivered by the latter, by electronic means where applicable, pursuant to the terms and conditions set forth in Article 119 of the French decree n° 67-236 of March 23, 1967, appended to the proxy or mailin voting slip or upon request for an admission card established in the name of the shareholder or on behalf of the shareholder represented by the registered intermediary. A certificate is also delivered to any shareholder wishing to physically attend the meeting but who has not received an admission card by the third business day preceding the scheduled date of the meeting at midnight (Paris time).
A shareholder who has already voted by mail, sent a proxy card or requested his or her admission card or certificate of attendance may, at any time, sell or otherwise transfer ownership all or some of his or her shares.
However, if the sale or transfer of ownership of such shares occurs before the third business day preceding the date of the shareholder meeting at midnight (Paris time), the company invalidates or modifies accordingly, as the case may be, the vote that was mailed in, the proxy that was granted, the admission card, or the certificate of attendance. To this end, the qualified intermediary of record with whom the shares are registered notifies the company or agent of the sale or transfer and transmits the required information.
Shareholders may vote by mail in accordance with legislation and regulations in force.
Each shareholder is entitled to one vote per share held. However, since the Extraordinary Shareholders’ meeting of May 26, 1977, Article 23 of the Company bylaws provides that holders of shares that are fully paid up and registered in the name of their owner for at least two years at the end of the calendar year preceding the scheduled date of a shareholders’ meeting enjoy double voting rights with respect to these shares. In the event of a share capital increase through capitalization of reserves, profits, share or issue premiums, registered shares that are freely allotted to shareholders on the basis of existing shares granting a double voting right shall also grant a double voting right to their holders.
Moreover, the French Commercial Code provides that the shareholders may not revoke this right to a double vote unless a special meeting of the holders of such rights has been held to authorize this revocation.
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
New equity issue reserved for AXA employees in France 1,668,797 18,690,526 1,780,402,000 4,077,120,580
Bonds payable into shares (ORAN, financing for the acquisition of MONY) 110,245,309 1,143,794,078 1,890,647,309 4,329,582,338
New equity issue reserved for employees of AXA 16,495,888 182,658,904 1,907,558,921 4,368,309,929
New equity issue reserved for employees of AXA 13,728,714 222,657,172 2,206,029,594 5,051,807,770
Share capital reduction by cancellation of shares – 11,273,270 – 279,268,697 2,074,589,470 4,750,809,886
Stock subscription warrants related to the Shareplan program in Germany 3,040,327 3,048,475
The meeting of holders of the 2017 convertible bonds did not approve the amendment.
Maturity of the bonds Redemption on January 1st, 2017 at 269.16 euros per bond, i.e. 162.63% of the nominal amount
Early redemption – The Company may purchase the notes on any Stock Exchange or otherwise in accordance with applicable law, including by way of tender for purchase or exchange,
(a) Following the capital increase with preferential subscription rights made by AXA to finance part of the Winterthur acquisition, the conditions of conversion of AXA 3.75% 2017 convertible bond have been adjusted. The conversion ratio has been increased from 4.06 to 4.15 AXA shares (€2.29 par) for 1 convertible bond (see Euronext notice n°2006-2063 published on July 18, 2006).
Self-held shares and shares owned by subsidiaries as of February 28, 2007
Analysis of self-held shares in terms of objectives as of February 28, 2007
Objectives of the Company’s own shares buyback program European Regulation n° 2273/2003 which came into force on October 13, 2004, expressly 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 14, 2007 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
Duration of the buyback program 18 months, from the shareholders’ meeting of May 14, 2007 on, pending approval of the program.
Number of shares sold since the beginning of the program 19,884,447
Number of shares transferred since the beginning of the program 536
Number of shares cancelled since the beginning of the program 11,273,270
(a) Following the adaptation of the Transparency Directive into French law, the 223-11 article of the “Règlement Général de l’AMF” – approved by the 18 September 2006 decree – holds that the total number of voting power is worked out on the basis of all the shares to which the votes are attached, including the shares deprived of voting power.
Of the 2,093,544,381 shares composing the share capital, 257,724,368 shares entitled their holders to double voting rights as at
The changes in the Company’s share capital between December 31, 2004 and
of which: – Mutuelles AXA n/a n/a n/a n/a n/a n/a n/a n/a 51,959,561 2.72% 100,862,677 4.37%
(a) Following the adaptation of the Transparency Directive into French law, the 223-11 article of the “Règlement Général de l’AMF” – approved by the 18 September 2006 decree – holds that “the total number of voting power is worked out on the basis of all the shares to which the votes are attached, including the shares deprived of voting power”.
( ) Voting power. (a) Following the adaptation of the Transparency Directive into French law, the 223-11 article of the “Règlement Général de l’AMF” – approved by the 18 September 2006 decree – holds that “the total number of voting power is worked out on the basis of all the shares to which the votes are attached, including the shares deprived of voting power”.
(b) Voting power will be valid again once the shares to which they are attached stop being self-held or owned by subsidiaries.
Number Capital Number Voting power Number Capital Number Voting power of shares ownership (%) of votes (%) of shares ownership (%) of votes (%)
The new agreement maintains the existing provisions in terms of minimal and stable crossshareholdings [the AXA Group undertakes initially to hold at least 43,412,598 shares of BNP Paribas stock; the BNP Paribas Group undertakes initially to hold at least 61,587,465 shares of AXA stock; these amounts will be adjusted thereafter to reflect the impact of capital transactions, including but not limited to free allotments of stock or share tenders involving the same company (stock splits, business re-combinations, etc.), and capital increases involving either BNP Paribas or AXA], and also provides for a reciprocal repurchase option in the event of a hostile takeover attempt on either AXA or BNP Paribas.
(c) As of January 1, 2006 individual shareholders who had elected tax domicile in France were eligible for an abatement of 40% on the dividend, i.e 0.35 euro per share for fiscal year 2005.
(d) As of January 1, 2007 individual shareholders who have elected tax domicile in France are eligible for an abatement of 40% on the dividend, i.e 0.424 euro per share for fiscal year 2006.
Performance shares – 0.5% of the share capital (e) 38 months June 20, 2008
Shares issued in connection with – 2.5% of share the exercise of stock options capital (f) 38 months June 20, 2008
The following authorizations to issue shares or securities require shareholder consent.
Securities Maximum amount Maximum amount Term Expiration of the issue of the capital in euros increase in euros
Ordinary shares or 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 billion (c) 26 months July 14, 2009
Shares reserved for employees – 150 million 26 months July 14, 2009
Press releases www.amf-france.org www.axa.com 2006 off to a good start with very strong 1Q06 activity indicators (05/11/2006)
AXA announces the squeeze-out of the minority shareholders of AXA Konzern AG and other streamling operation s in Germany (05/15/2006)
AXA announces the signing of a definitive agreement to cede AXA RE’s business to Stone Point Capital (06/06/2006)
AXA to acquire Winterthur for CHF 12.3 billion (€7.9 billion) (06/14/2006)
AXA announces its 2006 employee share offering subscription price (Shareplan 2006) (09/19/2006)
Alfred Bouckaert, Chief Executive Officer of the Northern & Eastern Europe Region is appointed to the AXA Management Board (10/12/2006)
First nine months 2006 activity indicators confirm strong top-line growth momentum (11/08/2006)
Total subscription up by 23.4% in AXA’s 2006 employee share offering (11/28/2006)
Bulletin of Required Legal Notices Publications (BALO) www.journal-officiel.gouv.fr 2005 Annual Financial Statements after shareholders’ meeting (04/21/2006)
Notice to the holders of convertible bonds 2.5% 2014 and 3.75% 2017 (les “Convertibles bonds”). Ajustment of the conditions of conversion of the convertibles bonds (07/19/2006)
Notice to the holders of convertible bonds – expiration 2014 & 2017 (12/27/2006)
Documents filed with the Registry (Greffe) www.infogreffe.fr Extract of the minutes of the Shareholders’ Meeting of 04/05/2006 regarding the appointment of a new member of the Supervisory Board (06/02/2006)
Extract of the minutes of the Shareholders’ Meeting of 04/05/2006 regarding the financial authorisations (05/18/2006)
Extract of the minutes of the Management Board of 06/05/2006 regarding the increase of the share capital (06/15/2006)
Extract of the minutes of the Management Board of 07/17/2006 regarding the increase of the share capital (08/04/2006)
Extract of the minutes of the Management Board regarding the increase of the share capital (02/01/2007)
Documents at the disposal of the Shareholders Headquarters 21, avenue Matignon 75008 Paris
A copy of the “BALO” dated April 7, 2006 and a copy of a Legal Advertisement Newspaper “La Gazette du Palais” dated April 7, 2006 containing the Notice of Convening
Copies and acknowledgement of receipts of the recorded delivery letters sent to the auditors
Disclosure of trading in the Company’s shares by its directors 05/01/2006 Kip Condron 11/10/2006 Henri de Castries 06/23/2006 Claude Brunet 11/14/2006 Denis Duverne 07/13/2006 Norbert Dentressangle 11/15/2006 Jacques Tabourot 07/13/2006 Michel Pébereau 11/27/2006 François Pierson 07/13/2006 Jacques Tabourot 11/27/2006 Claude Brunet 07/13/2006 Jean-René Fourtou 11/27/2006 Henri de Castries 07/13/2006 Henri Hottinguer 11/27/2006 Denis Duverne 07/13/2006 Henri de Castires 11/27/2006 Jacques Tabourot 07/13/2006 Gérard Mestrallet 11/27/2006 Alfred Bouckaert 07/13/2006 François Pierson 11/27/2006 Kip Condron 07/13/2006 David Dautresme 12/01/2006 Henri de Castries 07/13/2006 Denis Duverne 12/01/2006 Denis Duverne 07/13/2006 Claude Bébéar 12/06/2006 Denis Duverne 08/09/2006 Denis Duverne 12/15/2006 Claude Brunet 08/10/2006 Henri de Castries 12/18/2006 François Pierson 08/28/2006 Henri de Castries 12/19/2006 François Pierson 09/19/2006 Jacques Tabourot 12/20/2006 Claude Bébéar 10/10/2006 Jacques Tabourot 12/22/2006 Claude Bébéar 10/13/2006 Kip Condron 01/25/2007 Léo Apotheker 11/02/2006 Claude Brunet 02/23/2007 Norbert Dentressangle
Six month reports on AXA’s liquidity contract As of June 30, 2006 As of December 31, 2006
Disclosures of share ownership thresholds www.amf-france.org Disclosure made by AXA Assurances IARD Mutuelle (01/08/2007)
Form 6-K for June 2006: Press release issued on June 6, 2006 by AXA announcing the signing of a definitive agreement to cede AXA RE’s business to Stone Point Capital
Press Release issued on June 14, 2006 by AXA, announcing the launch of a capital increase in the amount of approximately €4.1 billion
Questions and Answers notice issued on June 21, 2006 by AXA to all U.S. holders of AXA ordinary share options and AXA ADR options describing the effect on such U.S. holders of the recently announced capital increase and suspension of the right to exercise AXA ordinary share options
Form 6-K for August 2006: Press Release issued on August 3, 2006 by AXA, announcing strong first half 2006 results
Press Release issued on October 16, 2006 by AXA announcing that it has entered into an agreement with Alpha Bank to acquire its insurance subsidiary, Alpha Insurance
Press Release issued on October 18, 2006 by AXA, announcing the investor conference “On the Road to Ambition 2012” to be held on October 18, 2006
Form 6-K for November 2006: Press Release issued on November 8, 2006 by AXA, announcing the first nine months 2006 activity indicators
Press Release issued on February 22, 2007 by AXA, announcing its consolidated earnings for the full year 2006
Form 6-K for April 2007: Press Release issued on April 10, 2007 by AXA, announcing its 2006 Life and Savings embedded value and its 2006 Group embedded value.
For the last two years, AXA has not entered into any material contract, other than contracts entered into in the ordinary course of business, that contain any provision under which the Group has any material obligation or entitlement.
In our capacity as Statutory Auditors of AXA, we hereby submit our report on regulated agreements and commitments.
It does not fall within the scope of our assignment to ascertain the potential existence of other agreements and commitments but rather, on the basis of the information that was supplied to us, to inform you, the shareholders, of the relevant features of those agreements of which we were informed. It is not our responsibility to express an opinion on the utility or merits of such agreements. Pursuant to Article R-225-58 of the French Company Code, you are asked to form an opinion on the relevance of such agreements for the purpose of approving them.
With Schneider On May 15, 2006, and after authorization on December 21, 2005 by the AXA Supervisory Board, the AXA Group (the AXA Mutuelles, AXA and its subsidiaries) and the Schneider Group entered into an agreement that provides for the maintenance of minimal crossshareholdings. Under the terms of this agreement, the AXA Group undertakes to hold at least 2,583,300 shares of Schneider stock and the Schneider Group undertakes to hold at least 8,816,681 shares of AXA stock. The number of shares held under this crossshareholding agreement will be adjusted as needed to reflect the impact of capital transactions, including but not limited to free allotments of stock or share tenders involving the same company (stock splits, business recombinations, etc.). In addition, the parties have consented to a reciprocal repurchase option in the event of a hostile takeover attempt on either AXA or Schneider.
In force for a period of one year as of the date of signature, this agreement is renewable automatically for successive periods of one year thereafter, unless one of the two parties decides
The agreement was made public by the AMF (Autorité des Marchés Financiers) on May 31, 2006.
We hereby inform you that Mr. Henri Lachmann is a member of the Supervisory Board of the AXA Group and Chairman of the Supervisory Board of Schneider Electric.
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, Asset Management, and Other Financial Services (including banks). In addition, various Holding companies within the AXA Group conduct certain non-operating activities.
AXA believes that factors such as the ageing population, increasing health risks and healthcare costs, need for retirement funding,
(1) Source: AXA from Pensions & Investments, Watson Wyatt Global 500 survey.
the rising severity and frequency of natural catastrophes, financial market uncertainty, and terrorism tend to make people more averse to risk and therefore increase demand for protection. AXA is working hard to understand this demand, in order to meet it more effectively. Besides, these evolutions are opening up attractive development opportunities for the Group.
As a worldwide leader in Financial Protection, AXA has set for itself in 2005 the target of becoming the “Preferred Company” for its customers, employees and shareholders. AXA is developing projects as part of its “Ambition 2012” program aiming at improving the quality of its advice and services, product innovation, distribution network development and improved operational efficiency in all its business segments.
AXA is convinced that customers are attracted and retained by innovative and competitive products designed to meet their evolving needs. AXA’s approach to innovation is therefore based on identifying these needs and creating products to address them.
Distribution networks are the starting point of AXA’s relationship with its customers. Distribution channels’ quality and efficiency determine AXA’s ability to become the “Preferred Company” for the customers. Ease of access and initial contact with AXA employees often determine the customer’s view of the company. AXA’s distribution strategy combines strengthening traditional channels and developing new ones, such as the internet, telephone platform and partnerships. AXA entities around the world try to enhance their distribution strategy by adopting best practice and successful initiatives developed in other countries.
In this context, AXA fosters growth by making acquisitions in key markets. For example, in a consolidating industry, the Winterthur acquisition is intended to strengthen AXA’s position in five key European countries and gives it a greater presence in fast-growing markets, particularly in Eastern Europe and Asia. Winterthur’s activities complement and reinforce AXA’s distribution networks and product range, and increase its geographical diversification.
(b) 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. (c) New Business Value: 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.
The table below sets forth the total assets managed by AXA’s entities, including assets managed on behalf of third parties: (in Euro million)
(a) Winterthur (acquired on December 22, 2006) represents €104 billion of total assets under management. (b) Including Mutuelles AXA.
(%) to total (%) to total (%) to total Segment Segment Segment
AXA offers a broad range of Life & Savings products, including individual and group investment and savings products, as well as life and health products for both individuals and commercial clients. The Life & Savings segment accounted for €50.5 billion or 64% of AXA’s consolidated gross revenues for the year ended respectively).
The table below summarizes AXA’s Life & Savings consolidated gross revenues and gross insurance liabilities by geographic region for the periods and as at the dates indicated: (in Euro million, except percentages)
(a) MONY was acquired on July 8,2004, and represents €980 million in 2004 and €1,381 million in 2005 of the revenues recorded. (b) Proforma 2004 takes into account the impacts of the following changes in scope: – As of January 2005, Turkey was fully consolidated instead of being accounted for under the equity method. If full consolidation had been applied in 2004, revenues would have been €61 million higher.
– As of December 1, 2004, in the Netherlands, sale of the Health portfolio (€149 million), and transfer of the Disability activity from Life & Savings to Property & Casualty (€76 million). 2004 revenues would have been €225 million lower if Health and Disability activity had been excluded.
The nature and level of competition vary among the countries in which AXA operates for all the types of individual and group Life & Savings products sold by AXA. Many other insurance companies offer similar products to those offered by AXA, and, in some cases, also use similar marketing techniques. In addition, AXA may compete with banks, mutual fund companies, 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 business include: – size, strength and quality of the distribution channels, in particular the quality of advisors, – range of product lines and product quality, feature functionality and innovation, – price, – quality of service, – investment management performance, – historical levels of bonuses with respect to participating contracts, – crediting rates on fixed products, – reputation, visibility and recognition of brand, – quality of management, – ratings for an insurer’s financial strength and claims-paying ability (at December 31, 2006, the main Life & Savings entities of the AXA Group (excluding Winterthur) were rated AA by Fitch Ratings, AA– by Standard & Poor’s and Aa3 by Moody’s, which enable them be part of the companies with very strong ratings for financial strength), and
In 2006, local insurance market’s growth was impacted by a number of factors. The ageing population and the continuing shift of financial responsibility from governments to individuals are worldwide factors that have increased the demand in the retirement market for new
(a) Source: Swiss Re, Sigma report 2006 “World insurance in 2005”. (b) Source AXA, mainly based on national insurance association data for each specific country. (c) Relates to variable annuity products. (d) Based on new business APE.
AXA Japan’s customer base has been built on strong relationships within the chambers of commerce (CCIs) market, with exclusive partnerships with more than 70% of CCIs nation-wide. Within CCIs, two distinct customers can be identified, on the one hand, the companies that need efficient savings products and group insurance coverage for their employees, and, on the other hand, the individuals looking for a broad range of personal insurance products. Employees and retirees of large corporations are another significant customer segment with sales, predominantly medical, coming through regular solicitations.
Survey of customer needs and customer retention To acquire more detailed information about customer needs and expectations, which may differ from one country or region to another, AXA conducts regular customer scope surveys to measure satisfaction. The results of these surveys are used locally to identify and address customer concerns through targeted actions, but also to measure customer satisfaction levels and retention. AXA believes that the last survey conducted shows a significant improvement of the overall customer satisfaction with 84% of AXA customers that are extremely and very satisfied in 2006 versus 81% in 20051.
In Australia and New Zealand, AXA improved its quality of customer service by developing faster, more accurate and more reliable service processes. For instance, in 2006, AXA implemented a 2 day service level in portfolio administration services to improve the client and adviser experience and increase reliability – target is 95% of service requests actioned within 2 days, 95% of the working days in the year1. In addition, AXA is training its customer service staff to better handle the customer issues that fall outside AXA standard processes and hence turn potential problems into opportunities to strengthen customer relationships. Customer retention is also a focus, through proactive direct marketing campaigns targeting customers considered to be “at risk,” as well as through dedicated call centre teams that respond to particular customer enquiries.
In the United States, variable and interestsensitive insurance is targeted at individuals in middle-to-upper income levels for protection and estate planning purposes, business owners to assist in, among other things, business continuation planning and funding for executive benefits, and professional and trade associations.
In the United Kingdom, AXA’s individual clients are concentrated in higher socioeconomic groups, typically investing in shortterm bonds or in the long-term pension policies.
Product types by nature of risk Investment and savings products include: – Deferred annuities, which may be purchased with either a single premium or regular premiums. A deferred annuity has two distinct periods: an accumulation period and an annuity payment period. Typically, more flexibility is permitted in premium payments for longer deferred periods. The premium can be invested in the general account of the company, or in a choice of unit-linked funds. Also known as variable annuities in the United States, these products often include optional guarantees (for a fee) such as guaranteed minimum income – or annuity – benefit (GMIB), guaranteed minimum death benefit (GMDB) and guaranteed minimum withdrawal benefit (GMWB).
– Whole life products, which provide a death benefit over a person’s entire lifetime or to a certain age, such as age 95 or 100, as long as the required premiums are paid.
– Endowment products, which pay a level death benefit for a limited period of time or to age 65. An endowment benefit is paid at the end of that period if the insured is still alive.
Health products offer reimbursement of medical expenses or provision of medical services.
Participating contracts Certain of AXA’s Life & Savings products are participating contracts, which enable the policyholders to participate in the excess assets over liabilities (the surplus) of the insurance company issuing the contract through an interest or bonus payment. AXA offers this type of participating contracts in most of its main Life & Savings operations. The policyholder may participate in the investment return and/or in part of the operating profits earned by the issuing company. The nature and extent of such participation vary from country to country.
In France, AXA offers a full range of products for individual and commercial customers, and enhanced its product offering in 2006 with the launch of new individual products, such as “Arpèges”, which is an universal life product with a large range of funds, services and guarantees, and “Prêt-à-Protéger”, which is a protection product distributed through the tied agents’ channel with a promising start. The universal life product “Odyssiel” and the life product “Héliade”, launched through the salaried sales force, appear to be commercial successes. Commercial business is mainly driven by group products with large companies, which are tailor made contracts addressing each corporation main issues.
In the United Kingdom, “Investment Bonds”, a pure savings product written both in the United Kingdom and offshore, provide packaged investment solutions to individuals with a tax efficient Life & Savings insurance wrapper. Product innovation and wide investment choice have made AXA a UK market leader in offshore Investment Bonds.
In Germany, AXA has improved its competitiveness with the launch of Twinstar, the first variable annuity product with living benefits in Germany. The product concept allows a clear differentiation from competition by offering guarantees that are tailored to the client needs. The product won an innovation award by Cash Magazin1 in 2006. The product is sold by the German branch of AXA Life Europe and has been positioned in the market successfully as a complement to the existing product offer. The Twinstar launch was an example of the successful transfer of local expertise around the AXA Group.
In Southern Europe, AXA has launched easy to sell packaged products, such as “ticket life”, a simple life product with only one question required to underwrite. AXA Italy was the first company to introduce a “double engine” investment and savings product for both regular and single premiums, which allows the policyholder to switch between unit linked and general account investment.
In Hong Kong, using the experience of AXA in Australia, AXA launched the first true multi-manager investment platform in Hong Kong, Elite MPF, as part of AXA MPF retirement offer, in early 2005. In recognition of the market leading nature of Elite MPF, AXA received the Asian Investor magazine “MPF Master Trust of the Year Award” for 2006. In July 2006, AXA extended its multi-manager proposition to the retail unit trust offers, which allows individual customers to invest their
(1) Financial Advisor Award granted by Cash media Group in August/September 2006 issue. (2) Source: AXA, in 2006.
The table below presents consolidated gross revenues (after inter-segment eliminations) and gross insurance liabilities by major product for the periods and as of the dates indicated for AXA’s Life & Savings segment.
LIFE & SAVINGS SEGMENT Gross revenues by main product lines Gross insurance Years ended December 31, liabilities 2006 (a)
Salaried sales forces are salespeople employed by a single insurance company (or an affiliated company) to exclusively sell the company’s products.
Brokers are independent firms who negotiate with insurance companies on behalf of customers. As opposed to exclusive agents they can work with different insurance companies.
Independent financial advisors are individuals or firms who provide financial advice to customers and negotiate related policies with insurance companies on behalf of customers.
The distribution network is the starting point of the relationship with customers. Ease of access and initial contact with AXA employees often determine the customer’s view of the company. AXA’s distribution strategy focuses on strengthening traditional channels and developing new ones, such as the internet, direct selling and partnerships. Staff hiring, retention of veteran staff, professionalism and commercial performance are the main initiatives to strengthen distribution channels. To face more volatile and more demanding customers, AXA considers that the diversification of distribution channels improves the opportunities to create contact with the AXA customer base.
In the United Kingdom, AXA relies mainly on the independent financial advisor distribution channel, where it holds a 6.9% market share1 in 2006. In 2006, AXA invested heavily in relationship management, including the launch of innovative advisor tools enabling the advisor to model asset risks and returns. It assists the independent financial advisor in delivering strategic asset allocation advice to customers. During 2006, AXA also announced the acquisition of Thinc Destini, an independent financial advisor network, which AXA expects will strengthen AXA’s distribution presence in the United Kingdom, build its advisory capabilities and allow it to take a stake in another part of the insurance value-chain. AXA also has a small tied advisor network in the United Kingdom selling AXA products and a distribution agreement with a major United Kingdom mortgage provider.
In Japan, AXA has a well-established, balanced and diversified distribution model. AXA Advisors, a salaried sales force channel and the largest distribution channel of AXA in Japan, has strong relationships within the small and medium-sized enterprises and Chambers of Commerce (CCI) market focusing on medical and savings products. To reinforce growth, AXA Advisors have launched a number of initiatives aimed at increasing new recruits, improving retention and boosting productivity. AXA also targets the rapidly expanding bancassurance market via a range of innovative variable annuity products. Whilst a relatively new area of focus, customers looking to purchase insurance from mega and smaller independent financial advisors are catered for via the AXA Agent and AXA Corporate channels.
In Germany, AXA sells its products through a variety of distribution channels: tied agents, brokers, banking and insurance partnerships and salaried sales force. To reach one of its strategic target groups, the medical sector, AXA had, as of 2006, 330 specialized tied agents offering life and non-life products for the medical sector. In recent years, AXA has broadened its distribution base with increasing sales through brokers, banks and corporation partners in addition to tied agents. A new important partnership with the SEB-Bank started to operate in January 2007. In an effort to attract and retain distributors, AXA also optimized the application process by direct routing, case-ownership and direct feedback to the brokers and agents. With respect to health products, this allows AXA to guarantee sameday processing for all applications coming in before noon2.
In Southern Europe, exclusive networks are developing strongly, owing to organic growth initiatives (mass trainings of agents, advertisement of investments on direct channel), as well as external growth (recruitment of new agencies). As far as non-exclusive networks are concerned, the strategy is focused on the development of distribution partnerships with banks.
Money), aligned advisers (AXA Financial Planning and Charter Financial Planning) and independent financial advisers. Similarly, AXA’s distribution capability in New Zealand includes owned advice practices (Spicers), aligned advisers, brokers, banks and partnerships. The owned advice practices are the largest of their type in each country, while the aligned networks are ranked # 51 in Australia and # 22 in New Zealand, in terms of number of advisers. AXA has developed a number of “industry first” programmes to recruit new advisers, establish new advice practices, support the growth of existing adviser practices and increase adviser productivity. AXA is also actively acquiring practices and transitioning them to the ipac model.
The split by distribution channels used by AXA’s principal Life & Savings operations, based on consolidated gross revenues for the years ended December 31, 2006 and 2005, is presented below: (1) Money Management Top 100 dealer Groups Survey, June 2006. (2) Source: AXA, estimation at December 2006.
(a) Based on APE. (b) Gross written premiums under IFRS overweight the share of agents, salaried salesforce and direct sales and marketing in the United Kingdom. (c) In 2006, there was a realignment of wholesale distribution channels in the US, resulting in an inconsistent classification between 2005 and 2006. If 2005 has been restated, the “intermediaries” share would have been 14% and the “other networks” 27%.
For most Life & Savings products, fees and revenues are accrued over time, while costs to the issuing company in the first year are higher than costs in subsequent years due to first year commissions and the costs of underwriting and issuing a contract. Consequently, the rate of policies remaining in-force and not lapsing, also known as the “persistency rate”, plays an important role in profitability. The majority of individual Life & Savings products issued by AXA may be surrendered for a cash surrender value. Most of the individual Life & Savings products issued by AXA have front-end charges to the policyholder (or subscription fees), which are assessed at the inception date of the contract and/or surrender charges (charges assessed in the case of early surrender). Both front-end charges and surrender charges are intended to offset a portion of the acquisition costs.
In Japan, the main drivers for the improvement in lapses and surrenders are lower conversions and lower group pension transfers. Almost offsetting these are higher surrenders mainly driven by the maturation of the inforce portfolio of contracts.
In Southern Europe, the unfavorable experience in surrender rate was mainly due to the market interest rate increase in 2006.
Life and health businesses generate mortality and morbidity margins that flow through technical margin.
AXA believes that the Winterthur acquisition should complement and strengthen AXA’s distribution channels and product range, while further increasing AXA’s geographic diversification, by both strengthening AXA’s European franchise and increasing its presence in certain high growth markets.
In Germany, the aggregation of Winterthur and AXA’s market positions would have placed the combined company in the sixth position with a market share of 5% in Life & Savings and of 7% in Health3. The number of tied agents should increase by more than 1,500 to more than
(1) This benchmark study compares 29 German insurance companies. Benchmarking is done yearly by the Boston Consulting Group. (2) Source: AXA. (3) Source: AXA, estimates based on 2005 data.
AXA’s market position would have placed the combined company in the seventh position in 20052 (versus # 8 for AXA alone.)
In Asia, AXA believes that Winterthur will bring complementary activities notably in Japan, Hong Kong and China. In Japan, AXA and Winterthur have a good complementary fit. The aggregation of Winterthur and AXA’s market position would have placed the combined company in the eighth position based on new business3. The Winterthur’s tied agent channel, with its strong presence in major cities, is expected to complement AXA Advisors’ strong and established presence in regional areas.
The table below summarizes AXA’s Property & Casualty consolidated gross revenues (after inter-segment eliminations) and gross insurance liabilities by geographic region for the periods and as at the indicated dates.
Spain and Portugal). AXA offers personal and commercial Property & Casualty insurance products in other countries in Europe (including the Netherlands, Luxembourg, Switzerland and Turkey), as well as in Canada, Asia (notably Japan, Singapore, and Hong Kong), the Middle East, and Morocco.
The principal competitive factors are as follows: – Price, – Quality of service, – Distribution network, – Brand recognition, – Ratings for financial strength and claimspaying ability (at December 31, 2006, the main Property & Casualty entities of the AXA Group (excluding Winterthur) were rated AA by Fitch Ratings, AA– by Standard & Poor’s and Aa3 by Moody’s, which enable them be part of the companies with very strong ratings for financial strength), and
The table below presents the Property & Casualty markets in which AXA operates ranked by worldwide gross revenues in 2005, along with AXA’s ranking (by market share).
For more detail on market description, please refer to the activity report section.
In France, AXA developed a segmented approach based on the category of clients, using specific scoring tools to retain clients with high added value as well as to enhance cross-selling.
In the United Kingdom, AXA aims at becoming leader in the market of insurance services to the SME market. AXA is in the second year of an initiative to provide services that consistently meet customer expectations. In the United Kingdom, AXA was awarded “Best Personal and Medical Insurance Provider 2006” in the Your Money Direct Awards.
In Southern Europe, in 2006, notably in Italy, AXA focused on improving the quality of the service delivery through an acceleration of the claims settlement process. In Italy, the last edition of “Customer Scope” survey highlighted a progression of overall satisfaction of 7 points in 2006 compared to 2005.
TOTAL 19,741 100% 18,831 100% 17,810 100% 46,102 Liabilities arising from policyholders’
To attract and retain clients, new products are designed to add value for the clients and support cross-selling, thus improving client retention. Recently, a range of successful or innovative products were launched in AXA’s main markets.
In France, in personal lines, mainly motor and household, products are more segmented in order to better fit all client needs, and focus on the development of customer loyalty. Several products were launched in 2006, such as a dedicated package to owners of more than
In Belgium, in commercial lines, new assistance covers are progressively integrated into all products. For medium businesses, packaged products have been customized for specific professions, for instance the Talisman package for car repair shops.
In France, developing the exclusive agents’ networks is a key element of AXA’s Property & Casualty distribution strategy driven by a focus on segmentation and increased professionalism of selected agents to develop the commercial business. A new channel through the internet was launched in 2006, taking advantage of the Avanssur experience, a direct distribution channel by phone.
In the United Kingdom, intermediaries remained a key distribution channel in 2006, and, during the year, AXA acquired a specialist Personal and Medical Insurance intermediary, and agreed to an innovative distribution partnership with a leading UK retailer for distribution of healthcare products. As consolidation continued in the intermediary market in 2006, AXA focused on growing direct and affinity channels.
The split by distribution channel used by AXA’s Property & Casualty operations, based on gross revenues for the year ended December 31, 2006 and 2005, is presented below.
BASED ON GROSS REVENUES IN 2005 General agents Intermediaries, Direct sales and Other networks, and salaried independent marketing including corporate sales force advisers & brokers partnerships and bank networks
In 2006, AXA France launched a securitization on part of its motor portfolio to take advantage of the financial capacities in a reinsurance capacity shortage situation.
AXA believes that long tail business, including workers’ compensation, liability and construction, is more driven by investment return, and its contribution to earnings depends in part on the pace of growth, technical gains emerging gradually over years.
AXA follows a tight underwriting approach and implemented various claims management initiatives: fraud containment, claims leakage reduction and insurance procurement. The enhanced productivity of AXA internal processes and its strong cost management have led to an improving expense ratio. Procurement has been involved in many sourcing and negotiation events leading to increasing rebates, risk minimization and quality increase. Various initiatives are targeted at continuously improving operational efficiency, ranging from tighter procurement policy, smoother and more stable operational processes through reengineering, and improvements in efficiency for IT resources usage.
In a context of growing activity, AXA France is focusing on creating value by improving productivity, mainly by closely monitoring the evolution of staff in order to optimize unit costs, focusing on investments with short payback and high return, such as repurchase agreements (Repos) and hedge funds, and reviewing and optimizing processes mainly through AXA Way.
In 2006, despite inflation and owing to claims management initiatives, AXA Belgium has been able to maintain the average claims cost at the 2005 level in motor individual lines.
20%1). As an all-line insurer, Winterthur offers a wide range of products, especially in motor and workers’ compensation.
In Belgium, the deal should strengthen AXA’s # 1 position in Property & Casualty with a combined market share of approximately 23%2. It also represents an opportunity for AXA to enter the fast growing Property & Casualty direct segment with Winterthur’s subsidiary Touring Assurances, the market’s # 2 direct distribution channel as of 20051.
Operations in this segment are principally focused on reinsurance, large risks, and assistance. The offered insurance products, which specifically relate to AXA Corporate Solutions Assurance, include coverage to large national and international corporations mainly relating to property damage, third party liability, marine, aviation and transport, construction risk, financial risk, and director and officer liability. In addition, AXA Liabilities Managers is the specialized unit in charge of managing the AXA Group’s Property & Casualty run-off portfolios including risks underwritten by AXA RE for all periods prior to and including 2005. Reinsurance operations (AXA RE) principally focus on property damage, third party liability, marine and aviation property, and third party liability reinsurance. Operations are 100% reinsured through Paris Re Holdings Limited for all periods following 2005.
AXA Corporate Solutions Assurance is the AXA Group subsidiary dedicated to large Property & Casualty risk insurance for large European companies, and to aviation and marine insurance companies worldwide.
AXA Cessions is an intra-group reinsurance company. Most of the companies within the AXA Group cede internally some of their major claims and catastrophic exposure to AXA Cessions which analyzes, structures and places reinsurance programs for such risks with thirdparty reinsurers. It also provides advice in risk management and purchase of reinsurance coverage to AXA Group subsidiaries.
AXA Liabilities Managers is the specialized unit in charge of managing the AXA Group’s Property & Casualty run-off portfolios. This entity manages the internal run-off portfolios of AXA UK, AXA Germany and AXA Belgium, as well as a number of stand-alone run-off companies of the “Other International Activities” segment. In connection with the disposal of AXA’s reinsurance activities, AXA Liabilities Managers also started managing the run-off of AXA RE at the end of 2006.
The table below summarizes AXA’s consolidated gross revenues and gross insurance liabilities (gross of reinsurance) for the International Insurance segment for the periods and as at the dates indicated.
AXA Corporate Solutions Assurance provides global insurance programs to large international corporations that require coverage for all their locations. AXA Corporate Solutions Assurance underwrites large insurance risks for large national and international corporations. AXA Corporate Solutions Assurance products cover property damage, liability, construction risks, motor fleet, marine and aviation. AXA also offers loss-prevention and risk management services. In 2006, AXA Corporate Solutions Assurance focused on developing its worldwide
INTERNATIONAL INSURANCE SEGMENT Gross revenues Gross insurance Years ended December 31, liabilities at
Of which AXA RE 1,217 34% – – – – 3,534
(a) Transfer (in 2006 only) of reinsurance activities formerly led by AXA RE to AXA Liabilities Managers (recorded in “Other international activities”), following the sale of AXA RE to Stone Point Capital. (b) Winterthur represents €1,163 million of total gross insurance liabilities.
The table below presents the International Insurance segment’s gross revenues and gross insurance liabilities by major product lines for the periods and as at the dates indicated: (in Euro million, except percentages)
AXA Assistance mainly operates as a business to business company although it also uses direct sales and marketing to sell its products. In countries in which AXA offers Property & Casualty insurance products, such as France, Spain, the United Kingdom and Germany, AXA distribution networks offer assistance services in their insurance products. AXA Assistance aims at integrating service providers and developing capacities of distribution to final customers.
AXA Corporate Solutions Assurance reviews annually its exposure to ensure that the risks underwritten are diversified geographically and by line of business in order to avoid concentration risk. In 2006, AXA Corporate Solutions Assurance ceded €738 million premiums (2005: €653 million) to third-party reinsurers.
AXA Liabilities Managers focuses on maximizing the value embedded in the Group’s run-offs. Key drivers of performance include claims management, commutations, collection of reinsurance, asset-liability management and optimization of capital and management expenses. The Company has developed specific skills and expertise tailored to a run-off environment in each of those areas.
The acquisition of Winterthur will bring new talent to AXA Liabilities Managers in the field of run-off management. This is indeed an area where Winterthur had developed specific expertise through their “Closed Portfolio Management” team. This team will be integrated into AXA Liabilities Managers and will gain access to its global platform, enabling to further optimize the management of Winterthur’s runoffs.
Asset Management is important to AXA, from both a strategic and profitability perspective. The development of Asset Management activities is a key part of AXA’s financial services strategy, which seeks to capitalize on existing strengths and expand its client base. This strategy is based on the belief that its asset management expertise will enable AXA to benefit in the future from the expected growth in savings-related products in the markets in which it operates. The Asset Management segment accounted for €4.4 billion of AXA’s consolidated gross revenues for the year-ended
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.
AXA has Asset Management specialists’ teams in each of its major markets: Western Europe, the United States and the Asia / Pacific region.
AllianceBernstein AllianceBernstein, through its parent company AllianceBernstein Holding, is a listed subsidiary of AXA Financial and is a leading global investment management firm in the United States. 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 (which collectively are AllianceBernstein’s largest client) as well as unaffiliated entities such as corporate and public employee pension funds, endowment funds, and United States and foreign governments.
As at December 31, 2006, AllianceBernstein had €544 billion of assets under management, including €491 billion of assets managed on behalf of third party clients (2005: €491 billion and €431 billion, respectively). Excluding the exchange rates impact, assets under management at AllianceBernstein increased by 24%.
As at December 31, 2006, AXA IM had €485 billion of assets under management, including €197 billion of assets managed on behalf of third party clients (2005: €432 billion and €143 billion respectively).
Shareholders value is calculated as the difference between revenues and costs. The latter can be broken down into four main categories: sales and marketing, fund management, middle and back office, and support.
AXA believes that the integration of Winterthur’s business within AXA IM is an opportunity to grow in the race toward global size. AXA believes that Winterthur will expand AXA presence, mainly in Switzerland and Germany. AXA IM should become a significant player in Switzerland, with a new management centre in Zurich and new market for AXA REIM. AXA considers that Winterthur will also strengthen AXA fixed income and alternative expertise, with a new expertise in Swiss Franc fixed income management and in Swiss real estate, and the consolidation of AXA asset base in Hedge Funds.
The operations in the Other Financial Services segment are conducted primarily in Belgium, France and Germany. For the years ended December 31, 2006 and 2005, the Other Financial Services segment accounted for €0.4 billion, or around 1% of AXA’s consolidated gross revenues.
Despite the increase of the long term interest rates in 2006, the volume of the market of mortgage loans remained high. Because of the strong pressure on margins, the market share of AXA Bank Belgium decreased from 11% to 8% in 20052. Prepayments decreased but stayed at a high level as customers switched from variable formulas to loans with fixed interest rates. AXA Bank Belgium has increased its presence in consumer and commercial loans.
While the volume in deposit accounts decreased for the whole market, the AXA Bank Belgium portfolio increase was mainly due to the launch of a new product with a higher base rate. Certificates of deposit decreased at a lesser pace in 2005 due to lower maturities.
Based in Paris, AXA Banque had more than 550,000 registered customers at the end of 2006, with development focused on exclusive networks (exclusive agents and salaried sales force) covering 70% of client scope. It offers a large range of retail banking products including deposit and saving accounts and consumer loans.
In 2006, AXA Banque has strengthened its innovation capabilities with a packaged product including a remunerating deposit account (“le Compte Oligo”) and exclusive advantages for insurance clients. It also launched its own mortgage loan offer.
In 2006 AXA Canada had announced on November 29, 2005, that it had entered into an agreement to buy Winterthur Canada Financial Corporation, whose main asset was The Citadel General Assurance Company (“Citadel”). The acquisition was financed internally by the AXA Group. The transaction closed in March 2006. The purchase price amounted to €221 million, and the related goodwill to €99 million.
On May 15, 2006, AXA announced the squeezeout of the minority shareholders of its German subsidiary AXA Konzern AG, whereby it would acquire the 3.2% of AXA Konzern shares it did not already own at a price of €134.54 per ordinary share and preference share. The resolution of the squeeze-out was endorsed at the Annual General Meeting of AXA Konzern on
As announced on December 21, 2005, AXA made a voluntary public offer between January 9, 2006 and February 27, 2006 to purchase the minority shares of its German subsidiary AXA Konzern AG (“AXA Konzern”) from minority shareholders at a price of €129.30 per ordinary and preference share. AXA reached a direct and indirect holding of 96.8% of the share capital of AXA Konzern as of the end of the offer period, thereby exceeding the 95% threshold that is a condition to launching a minority squeeze-out. Under the terms of the voluntary public offer, shareholders who tendered their shares to AXA at €129.30 per share during the offer period would also benefit from the higher squeeze-out price of €134.54 per share. At the end of December 2006, the corresponding ownership rate of the group in the German subsidiaries amounted to 96.84% generating an additional goodwill of €92 million.
AXA proceeded with a squeeze-out of the 0.44% minority shareholding in Kölnische Verwaltungs-Aktiengesellschaft für Versicherungswerte AG (“KVAG”) at a price of €2,042.01 per ordinary share. The principal asset of KVAG was a 25.6% stake in AXA Konzern’s share capital. The resolution of the squeeze-out was endorsed at the annual general meeting of KVAG, held on July 21, 2006. The total investment to reach a 100% ownership in both AXA Konzern and KVAG starting from the situation as at January 1, 2006 amounted to €309 million. A part of this amount remained to be paid in 2007 as the registration of the squeeze out is subject to various procedures according to German law. In order to further streamline the organization in Germany, AXA Konzern launched in parallel the squeeze-out of the minority shareholders of its listed life insurance subsidiaries. Upon the completion of these transactions, AXA would own directly or indirectly 100% of all its German subsidiaries.
AXA secured the total financing of the acquisition of Winterthur through: – €4.1 billion capital increase resulting in the issue of 208,265,897 new shares, – €3.8 billion of perpetual deeply subordinated note issues, – €0.7 billion financed through internal resources.
On October 16, 2006, AXA entered into an agreement with Alpha Bank to acquire its insurance subsidiary Alpha Insurance for €255 million. AXA and Alpha Bank signed a long-term exclusive agreement to pursue and strengthen the existing bancassurance partnership. Alpha Insurance is one of the top ten composite insurers on the Greek market with solid positions on profitable segments and a strong distribution network. Alpha Insurance recorded revenues of €151 million in 2005. It will be integrated to AXA’s Mediterranean Region platform upon completion of the acquisition which is subject to regulatory approvals in Greece.
On October 23, 2006, AXA UK announced that it reached agreement with the Board and two main institutional shareholders of Thinc Destini to acquire the entire share capital of Thinc Destini. AXA UK will be acquiring Thinc Destini using a newly created company, Advisory Services Limited (“ASL”). Under the terms of the agreement with the two main institutional shareholders and the Offer, the shareholders of Thinc Destini will share up to £70 million based primarily on the financial performance of the business during 2009. The maximum amount is subject to certain deductions as detailed in the terms of the Offer. AXA UK has also agreed to fund the repayment of Thinc Destini’s existing indebtedness, which arose primarily due to Thinc Destini’s acquisition of a number of IFA businesses, and provide further working capital to the Thinc Destini Group, up to an aggregate amount of £30 million. The transaction which was subject to the satisfaction or waiver of certain conditions, including the Offer being accepted by Thinc Destini ordinary shareholders holding at least 90 per cent of the issued Thinc Destini ordinary shares closed on November 10, 2006.
On December 14, 2006, ONA and AXA entered into an agreement for the buy-out of ONA’s 49% share in the capital of AXA-ONA (the holding company of AXA Assurance Maroc). The transaction values AXA-ONA at MAD 6.382 billion (revised value, €573 million with December 31, 2006 exchange rate) for
On October 18, 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.
In 2004 On July 8, 2004, following the receipt of all required regulatory approvals and the satisfaction of all conditions to the merger agreement, AXA Financial, Inc. finalized the acquisition of 100% of the MONY Group, Inc. (“MONY”), including MONY Life, MONY Life of America, Enterprise Capital Management, Advest and MONY Partner. This acquisition reinforced AXA Financial Life & Savings and asset management activities and enabled AXA to greatly expand its presence and influence in the U.S. market for financial advice, by increasing its multi-channel distribution networks and client bases.
Over the past few years, AXA has expanded its insurance and asset management operations through a combination of acquisitions, direct investments and organic growth. This expansion has been funded primarily through a combination of (i) proceeds from the sale of non-core businesses and assets, (ii) dividends received from operating subsidiaries, (iii) proceeds from the issuance of subordinated convertible debt securities, other subordinated debt securities and borrowings (including debt issued by subsidiaries), and (iv) the issuance of ordinary shares.
The Company and each of its major operating subsidiaries are responsible for financing their operations. The Company, as the holding company for the AXA Group, coordinates these activities and, in this role, participates in financing the operations of certain subsidiaries. Certain of AXA’s subsidiaries, including AXA France Assurance, AXA Financial, Inc., AXA Asia Pacific Holdings and AXA UK Plc. are also holding companies and are dependent on dividends received from their own subsidiaries to meet their obligations. Operating entities have to meet multiple regulatory constraints, in particular a minimum solvency ratio. The level of internal dividends paid by operating entities to AXA parent company or other Group companies must therefore take into account these constraints as well as potential future regulatory changes. However, based on the information currently available, AXA does not believe that such restrictions constitute a material limitation on its ability to meet its obligations or pay dividends.
As part of its risk control system, AXA has for a number of years paid close attention to contractual clauses, particularly those that may lead to early redemption. A large portion of AXA’s debts consist of subordinated bonds with no early redemption clauses, except in the event of liquidation. Early redemption clauses are in general avoided by AXA.
Subordinated debt Following clarification of IFRIC Agenda Committee following IASB decision, AXA has reclassified TSDI instruments (perpetual subordinated debts) into shareholders’ equity for all periods presented in the 2006 financial statements with impact on net income.
On a consolidated basis, subordinated debt (including derivative instruments impact) totaled €5,563 million after taking into account all intragroup eliminations, compared to €5,073 million
At December 31, 2006, the number of shares that could be issued as a result of bond conversions was 65.7 million versus 64.4 million at end-2005. The conversion ratio applicable to bonds was reviewed following the capital increase financing the Winterthur acquisition, explaining the increase in the number of shares that may potentially be created. See the “Subsequent events after December 31, 2006 affecting AXA’s liquidity” section, which sets out the initiatives undertaken by the Group in 2007 to offset this dilutive impact.
(€2,796 million mainly relating to the integration of Holland Homes SPEs, which securitize mortgages in the Dutch DBV Life business) totaled €1,919 million, down from €2,233 million at end-2005. The decline of €314 million (or €284 million at constant exchange rates) resulted mainly from the €238 million fall in CDO instruments.
Partly offset by: – a €332 million increase in bank overdrafts, and – a €290 million increase in deposits as part of
Movements in this item are described in Note 17 to the consolidated financial statements.
Issuance of ordinary shares On July 11, 2006, AXA announced the completion of a €4.1 billion capital increase (1 new share for 9 previously held at a price of €19.8 per share) to finance part of the Winterthur acquisition, resulting in the issue of 208,265,897 new shares. The settlement and listing of the new shares on the Eurolist market of Euronext Paris took place on July 13, 2006. The new shares are eligible for any future dividend distributions, including the dividend paid in 2007 in respect of fiscal year 2006 earnings.
For several years, the AXA Group has been offering to its employees in and outside of France, the opportunity to subscribe for shares issued by way of a capital increase reserved for employees. In 2006, employees invested a total of €375 million leading to a total issuance of 15.5 million newly issued shares. Employee shareholders represented approximately 4.98% of the outstanding share capital as of the end of
Dividends received Dividends paid to the Company totaled €1,581 million in 2006 (2005: €1,420 million, 2004: €970 million), of which approximately €109 million were in currencies other than the euro (2005: €74 million, 2004: €121 million). The €161 million increase in dividends in 2006 was mainly due to: (i) a €149 million rise in dividends received from financial companies to €192 million, mainly as a result of a €121 million special dividend paid by Compagnie Financière de Paris following the improvement in its major risk coverage ratio in 2006,
(ii) a €36 million increase in dividends received from insurance companies outside Europe to €109 million, mainly due to the €13 million dividend paid by the Moroccan subsidiary AXA-ONA and a €10 million increase in dividends from AXA Asia Pacific Holdings,
(iii) a €24 million decrease in dividends paid by European companies to €1,280 million. The main contributors remained AXA France Assurance (€674 million), AXA Holdings Belgique (€299 million), AXA UK (€114 million) and Southern European companies (€116 million). The non recurrent interim dividend of €236 million paid by AXA France Assurance in December 2005, was largely offset by increased dividends from Belgium (up €153 million) and AXA UK (up €106 million) as a result of higher earnings.
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 subsidiaries and existing operations, future acquisitions and strategic investments will be funded from available cash flow remaining after payments of dividends and operating expenses, proceeds from the sale of non-strategic assets and businesses and future issues of debt and equity securities.
Interests paid by the Company in 2006 totaled €530 million (2005: €518 million, 2004: €561 million) or €408 million after the impact of hedging derivative instruments (2005: €267 million, 2004: €321 million). On a consolidated basis, total interests paid in cash in 2006 was €539 million (2005: €568 million).
Dividends paid to AXA shareholders in 2006 totaled €1,647 million in respect of the 2005 financial year, or €0.88 per share, versus €0.61 per share paid in respect of the 2004 financial year (€1,164 million in total). All of these dividends were paid in cash.
Each insurance company within AXA is required by local regulations to maintain a minimum solvency margin. The primary objective of the solvency margin requirements is to protect policyholders. AXA’s insurance subsidiaries are in compliance with the applicable solvency requirements.
A European Directive dated October 27, 1998 requires a consolidated solvency calculation effective for periods ending on or after December 31, 2001. France transposed this directive under an ordinance dated August 29, 2001, decreed on March 14, 2002 and applicable from 2002.
Additional supervision of credit institutions, investment companies and insurance companies belonging to “financial conglomerates” was introduced by the European Parliament and Council Directive 2002/87/EC of December 16, 2002. France transposed this directive through an ordinance dated December 12, 2004, which introduced the notion of financial conglomerate into the Insurance Code. According to article 20 of the Insurance Code, the provisions of this ordinance applied for the first time to periods starting on or after January 1, 2005. AXA is not considered as a financial conglomerate. However, in accordance with the decree of September 19, 2005, if a company is not subject to the additional supervision applicable to a financial conglomerate, its solvency margin is nevertheless reduced by the amount of its equity interests in credit institutions, investment companies or financial institutions.
delivery by the bank to AXA (and subsequent cancellation) of an AXA share ; The issuance of a share in respect of the conversion of the bond and the cancellation by AXA of the AXA share received will offset each other. As a result of this transaction, there will no longer be a change to the outstanding number of AXA shares created by the convertible bond conversion.
For AXA shareholders, these transactions resulted in the elimination of the economic potential dilutive impact of the 2014 and 2017 convertible bonds (i.e. a maximum of 65.8 million shares). The total cash consideration paid by AXA amounts to €245 million.
Risk Management has five main priorities: – Co-ordinating and monitoring asset-liability management (ALM) and carrying out Economic Capital calculation and analyses.
GRM also coordinates risk detection and management at the Group level, and indirectly at the subsidiaries’ level. In particular, this includes all procedures for reporting risk and consolidating risk at Group level. GRM coordinates the local Risk Management teams of the Group’s various subsidiaries. In line with Group governance principles, this coordination focuses on minimum Group-wide requirements defined
– Controlling the implementation of ALM policies, and in particular monitoring the strategic asset allocation of local entities (see section “Management processes”).
– Identifying, quantifying and monitoring the main operational risks (see section “General principles”).
AXA is exposed to financial market risks through its financial protection business and through the financing of its activities as part of its equity and debt management. These two distinct sets of risks can be summarized as follows: Asset-liability management of insurance portfolios
One of the basic functions of the insurance business is to invest premiums received from customers with a view to settling any claims that might occur. The way these premiums are invested must take into account the way in which any claims will be settled. This is the role of asset-liability management. In an effort to protect and enhance shareholder value, AXA actively manages its exposure to market risks.
A wide variety of risk management techniques are used to control and mitigate the market risks to which the AXA Group’s operational entities and the Group itself are exposed. These techniques include: – ALM, and in particular the definition of optimal strategic asset allocations.
– The overall balance of the product range leads to some natural hedging effects between different products.
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 fixedincome investments or in equity markets)
– 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.
The percentages provided below, relating to the breakdown of life insurance reserves by product type and thus by AXA’s obligations to its policyholders, are derived from management data: – 30% of the Group’s life insurance technical reserves cover separate-account (unit-linked) products that do not affect AXA’s risk exposure. This category includes products that provide a guarantee on invested capital in the event of death. On these products, the underlying financial market performance is passed on to policyholders in full. In cases where these products include interest-rate guarantees, they are usually covered by a financial partner within the separate account. Overall, therefore, they do not present any market risk for the Group.
– 7% of the Group’s life insurance technical reserves cover separate-account products with related interest-rate guarantees provided by the insurance company. Suitable risk management policies have been put in place: • In the United States, derivatives are used as part of the dynamic management of risks related to guaranteed benefits on separateaccount 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 programs since the start of 2005.
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.
– 33% of the Group’s life insurance technical 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.
TOTAL PROPERTY & CASUALTY INSURANCE EXCLUDING INTERNATIONAL INSURANCE 46,102 Property 2,288
ALM co-ordination GENERAL ORGANIZATIONAL PRINCIPLES The definition and co-ordination of ALM involves six major stages: – Detailed analysis of the liability structure by insurance companies.
– Definition and proposal of a strategic asset allocation that factors in the long-term outlook as well as short-term constraints (see below).
– As part of an ongoing capital allocation process, subsidiaries perform twice-yearly simulations on the various regulatory constraints applicable to them using extreme scenarios for assets (in terms of both the market value of equity securities and interest rate trends). The Group Central Finance Department consolidates these models, enabling it to assess the extent of each subsidiary’s financial flexibility. The results are presented to the Finance Committee of AXA’s Supervisory Board on a regular basis.
– ALM constraints are also taken into account when new products are being designed as part of the product approval process (see section “Pandemic / extreme mortality risk”).
Monitoring investment processes AXA manages its financial market risk as part of disciplined and organized investment processes.
REPORTING: QUARTERLY ASSET REPORTING Operational 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 fixed income 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 dayto -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.
The main financial risks relating to the management of equity and debt are as follows: – Interest-rate risk.
Reporting documents must also mention the risk resulting from dividend restrictions or limitations on the ability to reduce reserves in the countries where AXA operates. The Group’s operating subsidiaries must comply with local regulations, particularly minimum solvency requirements. As a result, internal dividend pay-outs must take into account these constraints and possible future regulatory changes.
Interest-rate risk DEFINITION: interest-rate risk may result from: – a mismatch between types of interest rates
(fixed versus floating), – a mismatch between floating rate benchmarks, – a mismatch between floating rate renewal dates.
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 the insurance companies (including Winterthur subsidiaries) that accounted for 90% of Group assets at December 31, 2006, assets and liabilities with foreign currency exposure were generally matched or hedged.
– Life & Savings business (79% of Group assets): In France, AXA France Vie is exposed to exchange-rate risk through the units it owns in certain investment funds partly invested in foreign currencies (particularly US dollar, pound sterling and Japanese yen). It owns these units in order to diversify its investments and enable policyholders to benefit from the performance of international financial markets. AXA France Vie controls and limits its exposure to exchange-rate risk by using foreign exchange derivatives (forwards).
In Japan, AXA Japan’s investment strategy has led it to invest outside the Japanese market in order to benefit from the higher yields in bond markets and thereby increase returns on assets. The exchange-rate risk arising from these transactions is hedged. In 2006, however, AXA Japan reduced its investment in foreign markets.
taking advantage of foreign markets’ performance. These investments are mainly in US dollars, but also in pound sterling and Japanese yen, and account for a small proportion of assets. Exchange-rate risk exposure is also controlled using forwards and swaps. In Switzerland, Winterthur Life is exposed to exchange-rate risk through its investments in foreign currencies (particularly the euro, pound sterling and US dollar). It owns these investments in order to diversify its investments and enable policyholders to benefit from the performance of international financial markets. It controls and limits its exposure to exchange-rate risk by using foreign exchange derivatives (mainly forwards).
In Belgium, the Netherlands 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 units 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 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, 2006, AXA Insurance managed around €146 million of foreign-currency investments, equal to around 3.4% of its investment portfolio. In addition, AXA UK’s Irish subsidiary also operates in Northern Ireland, and so manages a portfolio of pound-sterling policies in an amount of £90 million, hedged with investments in the same currency.
– As regards holding companies (5% of Group assets), AXA SA has since 2001 adopted a hedging policy on net investments denominated in foreign currencies, aimed at protecting the group’s consolidated shareholders’ equity against currency fluctuations, using cross-currency swaps and foreign-currency debt.
• £1.2 billion in respect of the UK business, mainly in the form of debt,
AXA SA’s assets account for most of the assets of Group holding companies.
The AXA Group analyses sensitivity to movements in interest rates and equity markets in three main ways: – It analyses the sensitivity of European
– It analyses the sensitivity of the fair value of assets less liabilities for the Property & Casualty business.
– It analyses the sensitivity of the fair value of Group debt to movements in interest rates.
In the Group’s Life & Savings business, a parallel 100-basis-point downward shift in the risk-free bond yield curve would reduce EEV by
It would also increase the fair value of Group debt by an estimated €0.7 billion. On the other hand, it would increase the fair value of assets net of liabilities in the Property & Casualty business by an estimated €0.8 billion.
The overall impact of these three factors in the event of a 100-basis-point fall in interest rates is therefore €–1.4 billion.
In the event of a 100-basis-point upward shift in the risk-free bond yield curve, EEV in the Life & Savings business would be unchanged overall. It would reduce the Group’s debt by €0.7 billion. These factors would be offset by a €0.7 billion fall in the fair value of assets net of liabilities in the Property & Casualty business. The overall impact of these three factors assuming this 100-basis-point rise in interest rates is therefore neutral.
EQUITY MARKETS The purpose of these analyses is to estimate changes in the economic value of assets and liabilities in the event of a 10% rise or fall in the main equity markets.
In the event of a 10% fall in the equity markets, calculations suggest a negative €2.0 billion impact on EEV in the Life & Savings business.
The same decline would cause a €0.9 billion fall in economic value in the Property & Casualty business, since liabilities in this business are regarded as insensitive to movements in equity markets.
This low sensitivity of AXA’s net income to a rise in the euro is stable over time. It results from the quality of hedging arranged, particularly on the US dollar (the main contributor currency to Group income after the euro) but also on other major currencies (GBP and JPY). This hedging is arranged systematically at the start of each year.
Limitations to sensitivity analyses The results of the analyses presented above must be examined with caution due to the following factors: – Only the assets and liabilities defined at the start of the sensitivity analysis section were included in the scope of estimates regarding sensitivity of fair values to market fluctuations.
– 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.
Taken together, these factors limit the ability of these analyses to predict accurately 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, which 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
By seeking to develop these solutions and actively contributing to the overall debate about the issues involved – particularly as part of the Carbon Disclosure Project – AXA, along with other major market players, intends to promote a better understanding and better forecasting of the risks resulting from global warming.
Product approval In its Individual Life & Savings activities, the AXA Group has set up pre-launch product approval procedures in each of its principal subsidiaries. These procedures are defined and implemented locally, and are structured and harmonized using the minimum requirements defined by GRM. The main characteristics of these procedures are as follows: – Although the decision to launch a new product is taken locally, it must be the result of a documented approval process that complies with local governance practices.
– All significant Individual Life & Savings products must go through this process.
Exposure analysis A uniform Group-wide framework for quantifying all risks has been developed by GRM and AXA Cessions using stochastic modeling tools factoring in asset and insurance risks. This framework includes pricing control systems used by insurance operations as part of their product development process, such as those described in the previous section.
Definition of reinsurance requirements and analysis of underwriting Reinsurance purchasing is an important part of the Group’s insurance activities and risk management. For the Property & Casualty and Life & Savings operations, reinsurance programs are set up as follows: – Reinsurance placement is handled centrally by
Estimates of catastrophic risks are carried out on the basis of several pieces of modeling 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 or 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 2006, this work was extended to the Life & Savings business based on the same procedures as in the Property & Casualty business. Certain entities now arrange reinsurance partially through AXA Cessions, which has set up a retention pool.
The retention rate and coverage applied to this pool are designed to protect the Group effectively at low cost. Coverage is arranged through the reinsurance markets or directly in the financial markets through securitization (cat bonds).
For the motor liability segment, AXA Cessions has arranged Group protection for all entities.
For 2007, retention of risk within the Group (borne by entities) has been extended to the general liability and marine segments. All local ceding of reinsurance is protected collectively by Group coverage and the results are retroceded to entities.
In addition to controlling upstream risks through prior product approval and analyzing the reinsurance strategy, the Property & Casualty businesses specifically monitor reserve risks. Reserves have to be booked for claims as they are incurred or reported. These reserves are measured individually for each dossier by the claims departments.
The Group’s methods are based on internal and industry best practice.
They also depend on economic, social and environmental factors, as well as on the legislative and political context, which are important variables in terms of reserves. Assumptions are made following discussions
with claims managers, pricing actuaries, underwriters and other specialised departments. These discussions lead to the definition of reasonable estimate ranges.
AXA has a database consolidating the Group’s listed assets and analyzing them by issuer, credit rating, sector and geographic region, in order to assess the risk of concentration in its equity and bond portfolios. This database allows AXA to monitor exposure to the default risk of a given issuer, particularly through holding its bonds. It also allows the monitoring of equity exposure, which is not subject to issuer-specific limits at Group level.
As regards bond issues, total issuer-specific exposure limits are set at Group level and at the level of each subsidiary. These limits depend on the issuer’s risk, assessed via its credit rating and type (private, sovereign or quasi-sovereign).
The AXA Group, as part of its investment and credit risk management activities, may use strategies that involve credit derivatives. AXA is exposed to credit derivatives through its investments in structured products such as CDOs (collateralized debt obligations), which use credit derivatives to build their portfolio of collateral.
Credit risk relating to CDOs is monitored separately, depending on the tranches held, and regardless of the type of collateral (bonds or credit derivatives).
For other credit derivatives positions (nominal amount of €5.6 billion), the credit risk taken by the AXA Group through these instruments is included in analyses of bond portfolios as described in the previous section. Limits applied to issuers take into account these credit derivative positions.
Responsibility for managing day-to-day operational risks lies mainly with subsidiaries, which are best positioned to take the appropriate measures to mitigate the risks facing their organizations. However, AXA has defined a Group framework for identifying, quantifying and monitoring the main operational risks involving the deployment of a common system.
– External fraud. – Employment practices & workplace safety. – Clients and business practices. – Damage to physical assets. – Business disruption and system failures. – Execution, products, delivery and process management.
On this basis, AXA develops quantification methods to estimate the capital allocation needed to cover operational risks based on models inspired by those proposed by the Basel Committee for banking supervision. These efforts will be continued and stepped up during 2007.
There are also codes 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 relations. This commitment is enshrined in a charter drawn up in 2002, which was approved by the Management and Supervisory Boards. In
AXA’s main activities are in Western Europe, North America, Asia-Pacific and to a lesser extent Africa and the Middle East. In each jurisdiction within these regions, AXA is subject to strict regulation of its insurance and investment activities.
Although the extent and type of regulations vary between countries, most jurisdictions in which
AXA’s insurance subsidiaries operate have a legal and regulatory framework covering: commercial practices, solvency margins, reserve levels, permitted investment types and concentrations, dividend distributions, relationships with supervisory authorities, insurance activities, agent authorization and, for some insurance segments, pricing approval or disclosure. From time to time, the AXA Group is subject to investigations by regulatory authorities. For example, in Japan, AXA is currently investigated by the FSA (the Japanese regulator), in relation with payments made to the policyholders under the terms of their life insurance policies, over the course of several years. In various countries, life-insurance products might offer tax advantages to policyholders. This advantageous tax treatment may be jeopardized by changes in tax laws. For example, the Japanese legislator is currently considering a change of this nature. The implementation of such a change in Japan is expected to have a negative impact on the results of the Group.
Risk related to the US stockmarket listing AXA is listed on the Paris stock exchange and, since August 1996, on the New York Stock Exchange (NYSE"). Because AXA, like all other non-US issuers, is listed on two different exchanges, it is subject to two sets of securities laws, and to accounting standards and corporate governance rules that may differ in certain respects. AXA prepares its consolidated financial
AXA and its subsidiaries are involved in a number of lawsuits arising from their business activities, particularly the USA, where lawsuits – including class-action 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.
Holocaust Since 1998, AXA has continued its efforts to identify unpaid life insurance policies issued to Holocaust victims in France, Germany, and Belgium and has actively participated in the International Commission on Holocaust Era Insurance Claims (“ICHEIC”) together with four other European insurance groups, US insurance regulators and non-governmental Jewish organizations. After having completed its archival research and audit processes as well as the payment of all valid claims submitted by Holocaust victims and their heirs, the ICHEIC concluded its work in March, 2007. As a result of its participation in the ICHEIC process, AXA benefits from a statement of interest issued by the US federal government which provides that ICHEIC should be recognized as the exclusive remedy for all Holocaust era insurance claims. This statement of interest is intended to protect AXA against future civil litigation in the US by Holocaust claimants and to encourage judges faced with this type of litigation to dismiss these claims. While this statement of interest provides AXA with a certain level of protection against future lawsuits of this type in the US, it does not offer complete protection and, consequently, AXA could still be subject to litigation in the US brought by Holocaust claimants.
Litigation in the USA In addition to the foregoing, AXA and its subsidiaries face a certain number of lawsuits in the USA arising from their ordinary business activities. In particular, AXA Financial, AXA Equitable and AllianceBernstein are involved in several lawsuits, including class-action suits. This litigation relates to various matters including, among others, the sale of these companies’ products in the US market, their investments, their real estate and asset management activities, their employees and their agents. Some of these lawsuits expose these companies to a risk of punitive damages, which bear no relation to the real damage suffered by the plaintiffs. In addition, certain US regulatory authorities regularly investigate the markets they supervise. These investigations may result in lawsuits from time to time. For example, the US insurance regulators, the SEC and certain state attorney generals – particularly the New York state attorney general – have continued to examine practices in the insurance market. As a result, AXA and its subsidiaries may be investigated by these authorities. It is difficult to estimate with any certainty the damages or compensation that AXA and its subsidiaries may be subjected to as a result of these lawsuits and investigations.
The AXA Group’s general policy concerning the insurance of transferable risks In general, the AXA Group’s purchasing of insurance is decentralized as far as possible. Group solutions are used wherever practical. Subsidiaries are responsible for identifying risks and buying their own insurance, for example property damage and professional liability cover for their local exposures.
Under the general decentralization policy, subsidiaries may take out cover with external insurers or an AXA Group insurer. AXA Cessions keeps an inventory of local insurance contracts.
Exposure to common risks and group-wide insurance programs Group-wide insurance programs cover all Group entities with the exception of AXA Asia Pacific Holdings and AXA Financial and their subsidiaries, which have traditionally bought cover in their local markets.
The Group’s insurance programs are designed for its specific requirements and its main businesses of insurance, banking, assistance, investment, asset management and property.
Insurance covers are revised annually to ensure that AXA has achieved the market’s best terms as regards conditions, rates, limits and protection. The insurers used by the Group are acknowledged international leaders in their fields, and the solidity of each company is checked and approved according to Group standards.
All coverage is systematically controlled by AXA Cessions in consultation with local entities.
For 2006, the total cost of Group cover for directors and officers liability, professional liability and fraud was around €8.3 million, excluding taxes and commissions.
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.1 In the annuity market, variable annuities have been the product of choice with industry sales up 18% through the first nine months of the year, primarily driven by the demand for guaranteed living benefit riders and favorable equity markets. Industry fixed annuity sales continued to decrease (–5%) over the same period as a result of the continued low interest rate and flat/inverted yield curve environment and competition from products such as bank certificates of deposit. In the life insurance market, total life industry sales were up 9% for the first nine months of 2006. Strong and consistent equity market performance buoyed variable life sales (+12%) through the first three quarters of 2006. 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 sales in the first nine months of 2006 with industry universal life sales up 16%. In that same period, fixed whole life insurance sales increased 2%, and term insurance sales increased 3%. AXA gained market share, ranking third in the variable annuity market and ninth in the variable life market for first nine months 2006 (source: VARDS).
Japan. The life insurance market continued to grow driven by individual annuity sales sourced from bancassurance distribution channels and Medical sales. This trend is expected to continue as changes in deregulation (notably the postal service privatization), social infrastructure (including a population that is both ageing & declining) and customer
Belgium. On the retail market, significant shifts occurred in 2006. The main ones were the decrease in the national savings rate, the introduction of a new insurance front-tax (1.1%) and the increase of the tax deductibility on the pension schemes premiums. This context clearly intensified the competition in the Life & Savings business. While AXA Belgium is very well positioned in these markets due to its investment capacities and its marketing skills,
(1) Derived from Q1-Q3 2006 figures. (2) Derived from Q1-Q3 2006 figures.
Nonetheless, AXA Belgium managed to increase its market share thanks to the robustness of its Crest product line as well as the launch of competitive unit-linked products. The corporate market in retirement and savings was rather stable in 2006, most insurance companies adjusting their existing plans (to comply with Loi de Pension Complémentaire). In Disability and Health, volumes remained stable while prices decreased.
Southern Europe. In Spain, socio-demographic evolution results in an ageing population, partly mitigated by recent influx of immigration, which now represents 7% of total country population. An increasing awareness of the need for retirement savings is observed. New tax law to be introduced in 2007 wipes out fiscal advantages of life insurance versus other forms of saving, and had a unfavorable impact on sales of unit-linked products. However, the new law also appears to favor annuities, for which insurers are better positioned than banks. In Italy, 2006 market forecast in Life & Savings (IAMA Source as of October 2006) shows a 5% new production decrease, with bank channels decreasing by 7% and agent networks at the same level as previous year. In Portugal, insurance activity has been facing an unfavorable economic environment. Portuguese economy has passed through a declining trend in the recent years, reaching recession in 2003. Since then, the recovery seems fragile. However, the government programs, namely, the new social security contribution schemes, the expected labor legislation towards increasing flexibility, the educational, health and technological plans, will have a medium term impact on insurance activity as new insurable markets are expected to emerge. In Spain, AXA is placed as 12th market player (before Winterthur integration). In Italy, AXA is ranked 13th, in a very concentrated market. In Portugal, where the market is dominated by bancassurance, AXA is ranking 7th (data September 2006).
Australia / New Zealand. Regulatory change and complexity, the continuing shift of financial responsibility from Government to individual and the poor savings behaviors of most households are driving demand for quality financial advice and, in turn, the need for comprehensive support services for advisers. Growth in the wealth management product markets in Australia and New Zealand continues to be driven by the ageing population, government support for selffunded retirement and strong investment markets. Major regulatory changes in both countries in 2006 aimed at encouraging retirement savings are expected to maintain momentum with market growth rates forecast before these changes of 9-13% pa. Financial protection product markets are underpinned by rising incomes, asset appreciation and widespread under-insurance, with expected growth rates of 6-7% pa. Both Australia and New Zealand have open, competitive and relatively concentrated markets. The top 10 companies account for around 60% of retail funds under management, 80% of net retail funds flow and close to 90% of new and in-force annual premiums in Australia. AXA is ranked 1st in New Zealand and 6th in Australia for retail wealth management and is 3rd in financial protection in both countries. AXA is unique amongst major competitors in operating across the entire wealth management and financial protection value chain – asset management, products, platforms, adviser services and financial advice. With open competition at each stage of the value chain, this end-to-end presence allows AXA to capture more overall margin and makes us less sensitive to the shifting of margin between different parts of the value chain.
insurance market, with high profit margins, high savings ratios and moderate life insurance penetration. Individual life market new business sales increased by 19%1 for the nine months to September 2006. AXA has also been seeing the emergence of wealth management. The Mandatory Provident Fund (MPF) and the huge level of bank savings mean that wealth management and financial advice have strong growth potential. Now in its sixth year, the Hong Kong workforce has shown increasing interest towards their MPF benefit and there have been increasing numbers of changes in MPF providers. Life insurance premiums have increased over the past few years partly because of growing product options and the entry of banks and new distribution channels to the market. Hong Kong life insurance market is relatively concentrated, 61% of individual life new business sales are contributed by the top 5 companies. Following the acquisition of MLC Hong Kong in May 2006 and strong organic growth, AXA is now number four for inforce premiums and for new business.2
France. After 5 consecutive years of accelerated growth from 1999 (2%) until 2003 (8%), market’s premium growth reduced slightly to 4% in 2004, 2% in 2005 and an estimated 2% in 2006. Household is expected to grow by 4.5% (+5% in 2005) whereas market should stay flat in Motor. In the property & Casualty market, AXA is the first player.
Motor market also remained soft with intense competition leading to a fall in average premium.
Germany. In the first nine months 2006, total business decreased by 1.3% (to €44.1 billion). Due to this, the combined ratio in Property & Casualty is expected to increase to 94%. In motor lines, an intensive price competition went on, initiated by the big players to keep or regain market share. Therefore, in these lines, gross written premiums decreased by 4.0% to €19.2 billion in the first nine months 2006. Despite partially high claims ratio increases in industrial property lines (but still keeping combined ratios below 100%) the gross written premiums decreased by 3.1% (in the first nine months 2006). The number of contracts is expected to remain stable in 2006 compared to previous year. Regarding retail dominated nonmotor lines, volume increased by only 0.8% in the first nine months 2006 as penetration is already high. However, the gross written premiums for these lines increased in a range from –4.2% (assistance) to 3.3% (accident) in the first nine months 2006. In the P&C market AXA ranks eighth with a market share above
Southern Europe. In Spain, the sales in motor car industry reached successive records level over past years, even though a recent slow down of the growth is noticeable. This has
Global equity markets got off to a buoyant start boosted by optimistic economic growth prospects, robust corporate earnings and an active M&A environment. During late February/early March the global financial markets experienced volatility not seen since 2003, the beginning of the four-year bull market. Concerns of a market correction materialized when China’s Shanghai Market sparked a worldwide equity sell-off causing significant downward pressure on all major indices; erasing recent benchmark highs. In addition, losses were extended in major markets by the concern of a slow down in US economic growth, the deteriorating condition of the US sub-prime mortgage lending market and the unwinding of the yen carry trade. However, since mid-March, markets seem to regain the lost ground. The European Central Bank and the Bank of England continued to raise their benchmark interest rates in early 2007 while the U.S. Federal Reserve maintained its target interest rate. Bond yields fell across all major bond markets during the month of February, highlighting the responsiveness of credit markets to turbulence in the equity markets.
The major stock markets ended the year on an upbeat note. The equity markets posted doubledigit growth in 2006, for the fourth year in a row, and fixed-income securities turned in slightly positive performances in the year.
Against this backdrop, monetary policies played a key role in 2006 with most of the world’s countries embarking on a course of monetary tightening in 2006. The European Central Bank continued to harden its policy stance gradually, taking the repo rate from 2.25% in the early part of the year to 3.5% in December. In the United Kingdom, the Bank of England adjusted its policy twice, bringing the base rate to 5% in November. Japan ended its policy of 0 % interest rates in July, raising its intervention rate to 0.25%, marking the beginning of the process to normalize its monetary policy.
Stock Markets Throughout the year, the Dow Jones advanced by 16.3%, the S&P 500 by 13.6%, the NASDAQ by 9.5%, the Stoxx 50 by 11.3%, the DAX by 23.1%, the CAC by 18.9%, and the FTSE by 11.6%. The Nikkei was the biggest disappointment in 2006, gaining a mere 5%, after having advanced by 40% in 2005. Equity markets in emerging countries posted good performances in general, with China (+83%), Argentina (+67%) and Russia (+56%) standing out.
Exchange rates Compared to December 31, 2005, the Dollar lost nearly 12% against the Euro (Closing exchange rate moved from 1.18$ at the end of 2005 to 1.32$ at the end of December 2006). The same was true for the yen at September 2006 but to a lesser extent (Closing exchange rate moved from 136.3 yens at the end of September 2005 used for Full Year accounts to 149.3 yens at the end of September 2006).
On an average rate basis, the Dollar lost 1% against the Euro (from 1.25$ over 2005 to 1.26$ over 2006), whereas the yen lost 5 % against the Euro at September 2006 (from 136.3 yens for the twelve months to September 2005 used for Full Year accounts to 142.9 for the twelve months to September 2006).
Acquisitions AXA Canada had announced on November 29, 2005, that it had entered into an agreement to buy Winterthur Canada Financial Corporation, whose main asset was The Citadel General Assurance Company (“Citadel”). The acquisition was financed internally by the AXA Group. The transaction closed in March 2006. The purchase price amounted to €221 million, and the related goodwill to €99 million.
As announced on December 21, 2005, AXA made a voluntary public offer between January 9, 2006 and February 27, 2006 to purchase the minority shares of its German subsidiary AXA Konzern AG (“AXA Konzern”) from minority shareholders at a price of €129.30 per ordinary and preference share. AXA reached a direct and indirect holding of 96.8% of the share capital of AXA Konzern as of the end of the offer period, thereby exceeding the 95% threshold that is a condition to launching a minority squeeze-out. Under the terms of the voluntary public offer, shareholders who tendered their shares to AXA at €129.30 per share during the offer period would also benefit from the higher squeeze-out price of €134.54 per share. At the end of December, the corresponding ownership rate of the group in the German subsidiaries amounted to 96.84% generating an additional goodwill of €92 million.
AXA announced on June 14, 2006 that it had entered into a definitive agreement with Credit Suisse Group under which AXA would acquire 100% of Winterthur for CHF12.3 billion (€7.9 billion) to be paid in cash.
On October 23, AXA UK announced that it has reached agreement with the Board and two main institutional shareholders of Thinc Destini to acquire the entire share capital of Thinc Destini. AXA UK will be acquiring Thinc Destini using a newly created company, Advisory Services Limited (“ASL”). Under the terms of the agreement with the two main institutional shareholders and the Offer, the shareholders of Thinc Destini will share up to £70 million based primarily on the financial performance of the business during 2009. The maximum amount is subject to certain deductions as detailed in the terms of the Offer. AXA UK has also agreed to fund the repayment of Thinc Destini’s existing indebtedness, which arose primarily due to Thinc Destini’s acquisition of a number of IFA businesses, and provide further working capital to the Thinc Destini Group, up to an aggregate amount of £30 million. The transaction, which was subject to the satisfaction or waiver of certain conditions, including the Offer being accepted by Thinc Destini ordinary shareholders holding at least 90 per cent of the issued Thinc Destini ordinary shares, has closed on
Capital operations During the first semester of 2006, AXA pursued its share purchase program to control dilution arising from 2005 share-based compensation and employee Shareplan program and purchased 12.7 million shares for a total amount of €0.35 billion.
As part of the financing of the acquisition of Winterthur, AXA placed on July 6, 2006, a tripletranche Euro and Sterling perpetual deeply subordinated notes for a total amount of approximately €2.2 billion, of which €1 billion for the Euro Perpetual Non-Call 10 year tranche (issued at a spread of 150 bps over Euribor), GBP 500 million for the Sterling Perpetual Non Call 10 year tranche (issued at 150 bps over Libor) and GBP 350 million for the Sterling Perpetual Non Call 20 year tranche (spread of 175 bps over Libor).
For several years, the AXA Group has been offering to its employees in and outside of France, the opportunity to subscribe for shares issued by way of a capital increase reserved for employees. In 2006, employees invested a total of €375 million leading to a total issuance of 15.5 million newly issued shares. Employee
Financing operations In 2006, in order to further protect the Group net assets denominated in U.S. dollars, AXA implemented a U.S.$ 2 billion foreign exchange hedge, at an average rate €/$ of 1.25. Overall US Dollar 11.1 billion group net assets are hedged at an average rate of €/$ 1.17.
At June 30, 2006, in order to hedge the acquisition price of Winterthur, AXA implemented foreign exchange forwards denominated in Swiss francs for CHF7.3 billion.
On February 7, 2007, AXA UK announced that it is to acquire the UK’s only 100% online insurer, Swiftcover, jointly owned by international insurer Primary Group and Swiftcover’s management. The transaction is subject to the satisfaction or waiver of certain conditions including regulatory approval. Swiftcover is a business on the UK personal direct market, with net inflows of 120,000 policies in 2006. The upfront cash consideration for Swiftcover
amounts to £75 million, with an additional potential earn out of £195 million maximum over the next 4 years, based on policy volume and combined ratio level.
On March 16, 2007, AXA reached an agreement with Kyobo Life to acquire its 75% stake in Kyobo Auto which has a leading position in the South Korean direct motor insurance market with revenues of KRW 346 billion (€278 million) and a market share above 30%. Following this acquisition, the AXA Group will serve over 2 million clients through its direct distribution P&C operations worldwide. Completion of this transaction was subject to local regulatory approvals.
On March 23, 2007, AXA and BMPS reached an agreement for the establishment of a long term strategic partnership in life and non-life bancassurance as well as pensions business. AXA will acquire: – 50% of MPS Vita (life and savings) and MPS
Management of insurance companies assets (€13 billion as of year-end 2006) and open pension funds assets (€0.3 billion as of yearend 2006).
The partnership will be the sole platform for developing AXA’s and BMPS’s operations in the Italian bancassurance and pensions market including any new distribution channel. The objective of the transaction is to further strengthen and consolidate the competitive position of the joint operations in life and nonlife bancassurance and increase their profitability by: i) leveraging AXA specific knowhow to capture fully the growth potential and develop a leading position in the Italian pensions market and ii) fully exploiting the potential of BMPS’s franchise, improving the product and service offer, and achieving higher efficiency and commercial effectiveness.
CONSOLIDATED GROSS REVENUES (a) 2006 2005 2004 Variation 2006/2005 of which Gross written premiums 48,786 43,496 41,103 12.2% of which Fees and revenues from investment contracts with no participating feature 608 509 417 19.5%
Other Financial services (Net banking revenues) (c) 381 428 387 – 10.9%
Consolidated gross revenues for full year 2006 reached €78,775 million, up 9.9% compared to previous period.
Excluding the restatements to comparable basis, of which the impact of the appreciation of the Euro against other currencies (€423 million or 0.6 point, mainly from the Japanese Yen and US Dollar), and scopes differences, notably the restatement of AXA RE business (€234 million or 0.6 point), gross consolidated revenues were up 11% on a comparable basis.
The United States APE increased by 14% to €1,922 million mainly attributable to Variable Annuity (+17%) and Individual Life (+18% excluding COLI –Corporate Owned Life Insurance–). Excluding Fixed Annuities, COLI and mutual funds, APE was up 17% with a 51% increase in Variable Annuity distributed through the wholesale planner channel.
Germany APE increased by 6% to €287 million. Restated from the backlog effect in 1Q05 linked to a change in tax regulation in 2004, APE increased by 29% mainly driven by Investment & Savings unit-linked products (especially Twinstar) and Health business (notably following the launch of a new Medical Cost Insurance product).
Southern Europe new business APE was up 2% to €143 million, driven by the 20% growth in proprietary channels which more than offset the 28% decline in non-proprietary channels linked to the termination in May 2005 of a bancassurance agreement in Spain. Overall, while single premium products were down 15%, regular premium products benefited from new product launches in 2006.
Australia/New Zealand new business APE remained nearly stable as strong growth in the superannuation and investment fund inflows were offset to a large extent by a decrease in the more volatile international equity mandates into the JV with AllianceBernstein (which included two large mandate wins in 2005). Excluding AllianceBernstein mandates, APE was up 13%.
Hong Kong new business APE was up 28% on a comparable basis to €100 million benefiting from (i) the increase in Individual Life regular premiums, notably through the broker channel, (ii) strong growth in single premium unit linked products and (iii) new unit trust products sold through bank distribution agreements.
Non-motor revenues increased by 5% mainly driven by new products launches in UK household, positive net inflows in Household
with and ongoing price increase in France, the introduction of natural catastrophe guarantees in Belgium, and growth in all lines in Southern Europe.
Motor revenues were up 3% on a comparable basis, mainly as positive evolution in France (+3%, overall positive inflows), the Netherlands (+5%, mainly attributable to authorized agents), Southern Europe (+3%, growth of the existing fleets and the signature of new contracts), Belgium (+4%, as a result of portfolio and tariff increases), and the United Kingdom & Ireland (+2%). Non-motor revenues were up 4% on a comparable basis, mainly driven with France up 6% driven by Construction and Liability, the United Kingdom including Ireland up 5%, driven by Property and Belgium up 7%, with positive growth in most lines of business. Germany was down 2%, experiencing increased competition in Industrial Property, and Southern Europe was down 5% following non renewals of some low profitability contracts.
Other Lines1 (1% of P&C premiums) revenues increased by 7% on a comparable basis mainly due to AXA Art in Germany.
AXA Assistance revenues were up 13% or 11% on a comparable basis to €621 million reflecting increased business with car manufacturers (France), positive new inflows on travel insurance (mainly in Germany) and home service providing (France, United Kingdom) as well as the gain of some major contracts in the US.
AllianceBernstein revenues were up 20% or 25% on a comparable basis to €2,961 million due to higher investment advisory fees driven by 18% higher average AUM, as a result of net new business inflows and strong market appreciation, and higher performance fees.
AXA Investment Managers revenues including those earned from AXA insurance companies eliminated in consolidation, increased by €484 million, or +40% to €1,679 million. Excluding fees retroceded to distributors, AXA Framlington impact (€13 million in 2005 and €126 million in 2006), and exchange rate variation (€2 million), net revenues grew by 30%
Net banking revenues in Other Financial Services were down 10.9% or –11% on a comparable basis to €381 million, mainly attributable to AXA Bank Belgium (–12% to €293 million), as a result of the decrease of (i) realized capital gains, (ii) mark to market mainly due to derivatives (natural hedge on investment portfolio and credit spread portfolio) partly offset by an increase in loans and the money market and (iii) net interest and fee income.
Change in unearned premium reserves net of unearned revenues and fees (498) (502) (502) (97) (104)
Net investment result excluding financing expenses (a) 30,774 30,928 30,928 25,279 25,279 Technical charges relating to insurance activities (a) (84,074) (80,829) (80,827) (72,008) (72,009)
INCOME FROM OPERATING ACTIVITIES, GROSS OF TAX EXPENSE 6,876 5,233 5,233 4,790 4,790 Net income from investments in affiliates and
Minority interests in income or loss (620) (492) (492) (426) (426)
UNDERLYING EARNINGS 4,010 3,337 3,258 2,730 2,637 Net realized capital gains attributable to shareholders 1,130 944 850 679 705
(a) For the periods ended December 31, 2006, December 31, 2005, and December, 2004, the change in fair value of assets backing contracts with financial risk borne by policyholders impacted the net investment result for respectively €15,370 million, €13,978 million and €10,543 million, and benefits and claims by the offsetting amounts respectively.
(a) €26 million includes €38 million related to foreign exchange impact on TSDI. (b) Please note that FRS 27 impacts on the statement of income (underlying basis) are not detailed as they are not significant.
Profit or loss on financial assets & derivatives and tax impact 149 (94) 66 122
ADJUSTED EARNINGS AND NET INCOME Restated (a) Published Restated (a) Published Life & Savings 2,325 1,931 1,931 1,563 1,563
Net realized capital gains attributable to shareholders 1,130 944 850 679 705
(a) Restated means: (i) transfer of the forex impact from adjusted earnings to net income, and (ii) following clarification of IFRIC agenda committee following IASB decision, AXA has reclassified TSDI instruments (perpetual subordinated debts) into shareholders’ equity for all periods presented in the 2006 financial statements with impact on net income.
Group underlying earnings reached €4,010 million, up 20% or €+673 million compared to 2005. On a constant exchange rate basis, the growth was €+690 million, attributable to main operational segments.
Life & Savings underlying earnings were up €+394 million or €+417 million on a constant exchange rate basis. Excluding Japan 2005 non-recurring items (€67 million), underlying earnings were up +484 million on a constant exchange rate basis mainly attributable to the United States (€+143 million to €1,000 million, of which €+92 million favourable income tax settlement in 2006), France (€+76 million to €462 million), Japan (€+70 million to €256 million), the United Kingdom (€+70 million to €155 million) and Germany (€+39 million to €69 million).
Japan recorded €+67 million non-recurring items in the full year 2005 underlying earnings. These non-recurring items consisted in a significant DTA valuation allowance release of €225 million pre-Minority Interests (or €220 million net), following the improvement in the recovery of tax losses carry forward, partly offset by DAC and VBI one-off amortization for respectively €–27 million and €–219 million pre-tax & minority interests (or €–17 million and €–136 million net), following a change of future investment assumptions.
(€+137 million), primarily in the United States (€+58 million due to higher investment income), Germany (€+30 million mainly driven by higher fixed maturities income as well as lower policyholder participation), United Kingdom (€+16 million due to shareholder’s participation in higher With Profit bonuses), and Australia and New Zealand (€+19 million due lower interest expense on inter-company loans and debts and strong investment market performance), partly compensated by France (€–48 million due to lower investment income partly offset by lower policyholder participation).
(ii) Higher Fees and Revenues (€+789 million) principally pulled up by the United States (€+243 million notably due to higher fees earned on separate account business), France (€+149 million due to higher sales and increased asset base), the United Kingdom (€+132 million due to an increase in loadings on Life and Pensions business premiums primarily due to a change to an Onshore Bond Product to incorporate insurance features), Japan (€+88 million mainly due to higher sales notably of increasing Term, Term and high margin Health products), and Australia / New Zealand (€+82 million attributable to strong inflows and higher funds under management and administration following strong market performance).
(iii) An improved net technical margin (€+117 million) mainly driven by the United Kingdom (€+65 million or €+34 million excluding the impact of the change in the allocation methodology with fees and revenues, principally due to higher mortality and morbidity profits and 2006 non recurring items), Australia / New Zealand (€+26 million due to more favorable claims termination experience in the health business and strong claims experience in group life), Hong Kong (€+23 million due to better claims experience together with successful National Life switching campaigns leading to an increase in the surrender margin), partly compensated by Japan (€–39 million driven by a €–52 million decrease in mortality margin).
Acquisition Costs (€–372 million impact), mainly in the United States (€–168 million reflecting reactivity to higher margins in products which are DAC-reactive and lower favorable DAC unlocking for expected higher emerging margins on annuity and variable and interest sensitive life products), France (€–90 million due to increased commissions and higher general expenses mainly due to salaried sales force and IT costs), Australia / New Zealand (€–49 million due to higher commissions associated with increased fees and revenues) and Hong Kong (€–36 million mainly due to higher commissions).
As a consequence, Group combined ratio improved by 0.8 point to 96.9%: (iii) Higher investment income overall
(€+135 million to €1,586 million). (iv) Higher income tax expense (€–226 million to €–719 million) in line with higher pre-tax earnings.
(vi) Minority interest decreased by €2 million, of which €–8 million in Germany following the purchase of some minority shares of AXA Konzern AG at the end of June 2006, partly offset by €5 million on Turkey, previously accounted for under the equity method.
International Insurance underlying earnings reached €131 million, up €63 million on a current exchange rate basis or €62 million on a constant exchange rate basis, mainly attributable to Other transnational activities (€+52 million), mainly as a result of (i) the contribution of AXA Re’s run-off portfolio (€22 million driven by favorable claims experience on 2005 and prior years) and (ii) a €43 million higher result on the other non-Life run-off portfolios mainly due to the positive result generated by the commutation of some large portfolios, partly offset by (iii) a €–13 million lower result of the AXA RE US Life run-off portfolio fully explained by the cost of fully hedging on the remaining exposure of this portfolio.
Asset Management underlying earnings increased by €111 million on a current exchange rate basis, or €114 million on a constant exchange rate basis to €508 million, attributable to both AllianceBernstein (€+64 million to €302 million) and AXA Investment Managers (€+50 million to €206 million), following: (i) higher average Assets Under Management
(+18% at AllianceBernstein and +16% at AXA Investment Managers on comparable basis) and increased performance fees,
Other Financial Services underlying earnings decreased by €16 million to €51 million, mainly attributable to AXA Bank Belgium (€–29 million to €21 million), due to lower fixed income capital gains, a lower interest margin, and the non recurrence of the reversal in 2005 of a provision for risks related to loan activities in France following a favorable court decision.
Holdings underlying earnings were up €14 million on a current exchange rate basis, or €13 million on a constant exchange rate basis, to €–457 million mainly attributable to: (i) AXA France Assurance (€+19 million to €–13 million) due to the non recurrence of a €14 million settlement with Armenian policyholders in 2005.
(iii) Belgium holdings (€+14 million to €–10 million) principally due to the non recurrence of the indemnity fee paid in 2005 following the early repayment of a loan to AXA Bank Belgium.
Partly offset by: (iv) AXA Financial (€–27 million to €–135 million)
as a result of higher net interest expense principally related to short-term borrowings from AXA and higher share based compensation expenses.
exchange rate basis (+18% in both current and constant exchange rate base).
This growth was the result of: (i) Higher adjusted earnings (+20% or €+877 million to €5,140 million). (ii) Lower result on financial assets accounted for under Fair Value Option and derivatives including foreign exchange impact (€–350 million to €–226 million) principally attributable to AXA SA (€–361 million to €–367 million) as a result of: • a €–404 million change in the mark-to market of interest rate derivative instruments not considered as hedge accounting, mainly due to: (i) €–174 million related to interest swaps denominated in Euro covering the long term interest risk of long term debts due to the increase of Euro interest rate during 2006,
• partly offset by a €+85 million due to the change of the mark-to-market of foreign currency options hedging AXA Group underlying earnings denominated in foreign currencies.
(iii) Slight increase of goodwill and other related intangible impacts (€–12 million to €–24 million).
2006 Exceptional operations (€196 million) are related to: – €86 million dilution gains in AllianceBernstein and €4 million related to sale of Alliance Cash Management business.
– Tax refund related to the sale of DLJ (€43 million), release of contingency provision related to the sale of Advest (€3 million) and dilution gains (€9 million) in the US holdings.
Offset by: – €–38 million related to the repurchase by AXA
2005 Exceptional operations (€–72 million) related to: – the realized capital gains on the sale of AXA
As at December 31, 2006, consolidated shareholders’ equity totaled €47.2 billion. The movement in shareholders’ equity since
December 31, 2005 is presented in the table below: (in Euro million)
(a) Following clarification of IFRIC agenda committee following IASB decision, AXA has reclassified TSDI instruments (perpetual subordinated debts) into shareholders’ equity for all periods presented in the 2006 financial statements with impact on net income.