Iberica contributed € 3 million, an increase of € 2 million over 1997. Despite the increase in claim frequency and severity, the claims ratio for all exercise years improved from 81.3% in 1997 to 79.4% in 1998 principally due to the increase in the results of reinsurance ceded, net. The increase in the combined ratio from 110.5% in 1997 to 111.7% in 1998 is primarily due to a decrease in gross premiums and a reallocation of general costs from life insurance to property and casualty insurance. This deterioration was offset by significant realized gains on the sale of equity securities and real estate investments.
Canada was able to limit its decline due to the initiation of partnership agreements with new brokers.
The expense ratio remained constant at 35.1% while the combined ratio improved from 103.9% in 1997 to
ance, which represents approximately 30% of gross premiums, increased 0.8% despite increased competitive pressures. Fire insurance gross premiums, which represent approximately 25% of total gross premiums, decreased by 7.6% due to the reduction in coinsurance gross premiums. Net loss was € 12 million in 1998 versus a profit of € 5 million in 1997.
London market decreased net income by € 4 million. As a result of these events, excluding brokerage business the claims ratio for all accident years increased from 68.4% in 1997 to 87.4% in 1998, while the combined ratio rose to 129.1% in 1998 versus 106.5% in 1997. Excluding the reserve strengthening recorded in 1998, the claims ratio
Other Countries. Gross premiums remained stable in 1998 on a constant exchange rate basis at € 572 million. Gross premiums were up in Austria and
Hungary, in Portugal and in Luxembourg and declined in Switzerland and in Asia. In Switzerland, the reduction in premiums is primarily a result of risk assumed on certain business underwritten by AXA
Group. Excluding this item, the Swiss gross premiums increased 3.2%. In Asia, the activity in Singapore and
Hong Kong was affected by the financial market crisis. The net loss recorded in 1998 totaled € 1 million in 1998 compared to € 4 million in 1997. Austria and Hungary earned € 11 million in 1998 compared to € 9 million in 1997. Luxembourg earned € 1 million versus € 2 million in 1997. Portugal earned € 4 million versus € 3 million in 1997; and Switzerland earned € 2 million versus € 2 million in 1997, and losses of € 20 million were recorded by the Asian subsidiaries versus € 12 million in 1997. A net loss of € 9 million was recorded by direct marketing operations in Japan, the direct marketing insurance established in 1998 and expected to begin selling products in early 1999. The net loss of € 11 million recorded by the other Asian subsidiaries as compared to a net loss of € 12 million in 1997 was due to the impact of the financial crisis: significant losses were realized, particularly in connection with the restructuring of their equity security portfolios.
The International Insurance Segment principally includes AXA Re, AXA Global Risks, AXA Assistance,
The following table sets forth certain summarized financial information for the International Insurance
AXA Re Year Ended December 31, (in euro millions) 1999 1998 1997
On a constant structural basis, gross life reinsurance premiums of € 68 million decreased by 23%. The reduction in the life reinsurance portfolio is partially offset by new business, as AXA Re began to revise its underwriting policy for life reinsurance business. In 1999, gross financial risk reinsurance premiums remained in line with the trend observed in 1998, a year marked by intensive commercial activity on US
The € 36 million increase in the unearned premium reserve was due to the growth in proportional treaty business. Net investment results increased by € 27 million, attributable to stable investment income and a b03-338 • Item 9 (US) ok 23/05/00 12:11 Page 170 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
sustained level of realized gains (€ 202 million in 1999, compared to € 185 million in 1998) against a backdrop of strong financial market performance.
Realized gains net of investment provisions increased to € 121 million versus € 74 million in 1997.
Caribbean and frozen rainstorms in Canada, the cost of which totaled € 0.3 billion before retrocessions.
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General costs (acquisition expenses, administrative expenses and claims handling expenses, which are included as part of insurance reserves) increased € 73 million to € 478 million. This increase was the result of the increase in commissions on proportional reinsurance, which has been growing since 1997.
Proportional reinsurance has higher commission rates than other types of reinsurance. In addition, information system costs and personnel costs increased.
from 34.4% in 1997. The improvement was due to the recovery of commissions on the retrospectivelyrated contracts discussed above.
(a) Includes investment income, net to investment expenses and interest expense on short-term and long-term debt, and net realized investment gains or losses. (b) Includes the net result of premiums, insurance benefits and claims and commissions ceded under reinsurance contracts. (c) In 1999 and 1998, AXA used the weighted average exchange rate to translate the results of operations whereas in 1997 the year-end exchange rate was used.
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■ Gross premiums recorded by AXA Global Risks in 1999 include € 33 million in large risks contracts originating from GRE that have been re-underwritten by
AXA Global Risks UK as of July 1999. On a constant structural basis, gross premiums recorded by AXA
The claims ratio for all accident years, net of reinsurance, increased from 105.5% in 1998 to 118.5% in 1999. The increase is attributable to a deterioration in the claims ratio for the current accident year caused by the high frequency of large commercial risks claims at a cost (net of reinsurance) of € 70 million, and the occurrence of several natural catastrophes (earthquakes in Taiwan, Turkey and Greece, Hurricane Floyd and severe storms in France) at a cost of € 80 million.
AXA Global Risks recorded a net loss of € 151 million, attributable to the sharp deterioration in the claims ratio for the current accident year due in particular to the occurrence of several natural catastrophes.
■ In 1998, financial results were affected by several portfolio transfers, in particular the transfer by AXA
French companies with less than 1,000 employees and the sale of GIE Réunion Aérienne and Réunion
The net investment results, which included € 44 million of realized gains, totaled € 119 million versus €
In 1998, AXA Global Risks recorded a net loss of € 86 million versus a profit of € 16 million in 1997. AXA
€ 9 million for reserve strengthening recorded in the construction and legal liability lines of business, respectively. These events were partly offset by positive loss reserve development on property and casualty reinsurance due to the sale of GIE Réunion Aérienne (€
12 million after tax) and other positive loss reserve development of € 9 million. As a result of such events, the increase in the combined ratio to 124.6% in 1998 from 114.8% in 1997. Excluding reserve strengthening and the sale of GIE Réunion Aérienne, the combined ratio increased to 113.1% in 1998.
AXA Global Risks UK posted a net loss of € 9 million in 1998, versus net income of € 4 million in 1997.
The net loss recorded by AXA Global Risks US of € 45 million as compared to a net loss of € 0.4 million in 1997 resulted from € 58 million of claims reserve strengthening for claims years prior to 1997 (€ 37 million group share). The availability of net loss carryforwards gave rise to a deferred tax asset of € 20 million. In addition, € 13 million of losses were due to poor results in the transport line of business.
Australia and Taiwan). Conversely, AXA Cessions was covered by a group protection treaty that resulted in an after-tax profit of € 17 million in connection with the year-end storms in 1999.
English & Scottish and Saint-George Re provided net loss of € 6 million and net income of € 1 million, respectively, versus net loss of € 10 million for each in 1998.
■ On a constant exchange rate basis, AXA Assistance’s premiums increased by 8.7%, to € 310 million in 1998 due to growth in international sales. Gross premiums increased 5.8% on a constant exchange rate basis to € 278 million on a group share basis. Net income totaled € 10 million, an increase of € 14 million compared to 1997. This increase was primarily due to an increase in total revenues of € 5 million, the recording of an increase in a provision for restructuring in 1997 and an increase in net investment
In 1998, AXA changed its segmentation in financial service operations to align its segmentation with the basis used by management to evaluate group performance and to allocate resources. Previously, the Financial Services Segment was comprised of the US Financial Services Group and the International
Financial Services Group. Since asset management has become increasingly more important to AXA both from a strategic and profitability perspective, AXA created the Asset Management Segment along with the Other
Financial Services Segment. Prior years’ amounts have been restated to reflect the changes in segmentation.
The asset management segment includes third-party asset management and asset management on behalf of AXA insurance companies. The tables below present the revenues and net income for the Asset
Asset Management Revenues Year Ended December 31, (in euro millions) 1999 1998 1997
(a) Includes asset management revenues from Equitable Real Estate of € 115 million in 1997. (b) For National Mutual Funds Management, fiscal year end is September 30th.
In 1999, the Asset Management Segment accounted for 2.9% of AXA’s total revenues (compared to 2.3%
Segment represented 4.5% of AXA’s consolidated net income (group share) and Alliance Capital Management generated 86% of this net income.
Alliance Capital Management’s 1999 asset management revenue increased by 42.2% on a constant exchange rate basis. This increase is primarily due to 28.5% growth in assets under management compared with 1998 and the change in asset mix, which impacts the fees earned. Mutual fund assets under management relating to individual investors increased by 43% compared with 18% growth in institutional accounts. In addition, the percentage of products invested in equities, on which asset management fees are higher, continued to grow. The growth in assets under management (€ 80 billion at December 31, 1999) of 35.9% resulted from the addition of new accounts, while 64.1% was due to financial market appreciation.
The intermediate holding companies had a net loss of € 71 million in 1999, compared to € 31 million in 1998. This adverse change is largely attributable to costs relating to the legal restructuring of Alliance
Capital Holding (€ 8 million group share). In addition, net income in 1999 included a dilution gain of € 2 million attributable to the exercise of stock options in 1999, compared to € 11 million in 1998.
The financial results presented above are comprised of the asset management company, Alliance L.P., and its holding companies. Equitable Real Estate was also held by such holding companies until it was sold in 1997.
Alliance Capital Management’s 1998 asset management revenue was € 1,132 million, an increase of 34.6% on a constant exchange rate and structural basis. This increase was the result of continuing growth in assets under management (31.1% since
increase for institutional accounts in 1997. On a constant structural basis, 61.3% of the increase in assets under management is attributable to investment appreciation while 38.7% is a result of the addition of new accounts.
Net income of Alliance LP totaled € 88 million, an increase of € 49 million as compared to 1997. Net income in 1997 was impacted by the € 38 million reduction in the recorded value of Cursitor Eaton. (The impact on net income of the reduction in the recorded value of Cursitor Eaton was € 33 million.
The € 38 million reduction in recorded value recorded by Alliance LP was partially offset by a tax credit of € 6 million recorded by its holding companies. ) In 1998, the contribution from Alliance Capital was reduced by € 9 million due to changes in tax laws. Under prior tax law, Alliance, as a partnership, was generally not subject to federal income tax.
Excluding the impact of these items, net income rose by € 21 million, 28.9% on a constant exchange rate and structural basis, principally due to the strong financial markets in 1998, despite their drop in the third quarter.
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on a constant structural and exchange rate basis. This increase is attributable to growth in assets under management of € 33 billion (14.7% on a constant structural and exchange rate basis, of which 39% is due to the addition of new accounts, and 61% is due to growth in the financial markets), and a change in asset mix which impacts the fees earned. Assets under management on behalf of third parties, which generate higher asset management fees, increased 34.5% on a constant structural and exchange rate basis. In addition, performance-based fees increased significantly, from € 2 million in 1998 to € 30 million in 1999 as a result of the good performance
AXA Rosenberg recorded asset management revenue of € 51 million. This entity was consolidated from date of acquisition in January 1999.
AXA IM’s contribution to AXA’s consolidated net income decreased by € 26 million in 1999 (41% on a constant exchange rate and structural basis). This decrease was primarily a result of goodwill amortization on the newly acquired companies and an increase in net losses of € 22 million (group share) attributable to the holding company relating to an increase in administrative costs, compared to € 4 million in 1998.
In 1998, net income increased by 44.4% on a constant exchange rate basis to € 37 million compared to € 26 million in 1997. This increase comes principally from the operational subsidiaries, which increased their contribution to net income by 50.7%
These subsidiaries experienced growth in their asset management revenues of 25.5% on a constant exchange rate basis that outpaced the growth in their financial company expenses. This operational growth was partially offset by the AXA IM’s holding company loss of € 4 million, group share, which increased by € 3 million as compared to 1997. This deterioration is due to AXA IM’s policy to increase its financial company expenses to ensure global coordination of certain key functions such as strategic direction, equity and debt security analysis, and information systems.
O t h e r F i n a n c i a l S e r v i c e s S e g m e n t
Segment”, the Other Financial Services Segment was created as a separate operating segment in 1998.
In 1999, the Other Financial Services Segment accounted for 15.7% of AXA’s revenues compared to 14.5%
Revenues in the real estate subsidiaries declined by € 14 million, principally because of a decrease in management fees earned by Soffim, Sofinad and Sofapi.
Other finance company revenues grew by € 399 millions, following the integration of the Banque ANHYP, a Belgian savings bank, acquired at the end of 1998
Services Segment represented 11.8% of AXA’s consolidated net income (group share) compared to 11.2%
(a) Includes investment income, net of investment expenses, interest expense on short-term and long-term debt (other than interest expense on short-term trading instruments which is included in operating costs and other deductions), and net realized investment gains or losses.
(b) Includes interest expense on short-term trading instruments (c) In 1999 and 1998, AXA used the weighted average exchange rate to translate the results of operations whereas in 1997, the year-end exchange rate was used.
Within a favorable market context, all of DLJ’s activities recorded good results as set out below.
The Mergers and Acquisition advisory business increased by 169% in 1999. DLJ expanded its market share, in terms of completed transactions on the US
market, moving from twelfth to fourth place. Financial services operations, whose main activities are stock market settlement using Pershing, a division within
DLJ, and online brokerage through DLJdirect, benefited significantly from the market’s rapid expansion.
The financial services operations had increases in both the number of transactions and the number of clients.
Syndicated stock and bond issuing activities also expanded significantly. In addition, DLJ continued its international development and now operates in 16 countries around the world. In 1999, the revenues from these activities virtually doubled to reach € 735 million.
The contribution to net income, group share, in 1999 was up by € 97 million (€ 87 million at constant exchange rates). This increase was attributable to the strong operating performances by each operational area within DLJ while managing general operating expense levels. This compares to 1998, which was affected by the crisis in the emerging financial markets.
These positive trends were partly offset by the decline in revenues from private capital raising and investment banking activities caused by the increased volatility of equity markets in third quarter 1998 which affected trading security income and private placement activities. Financial company expenses increased by 14.7% on a constant exchange rate basis, to € 7,104 million in 1998. This increase was largely due to fixed compensation costs related to the increase in personnel costs and rental and start-up costs linked to the development of business, principally in Europe. The increase in variable costs was 12.0% on a constant exchange rate basis as compared to 1997.
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The results include AXA Bank Belgium of € 33 million and the losses from Banque Worms of € 80 million.
A change in accounting treatment for Banque Worms was made in 1999 and its results have been included in operating results given that this operation has not yet been sold following its acquisition via the UAP
(i) integration of 1997 and 1998 operating losses of € 12 million; (ii) amortization of the goodwill in the opening balance sheet on acquisition of the UAP
There are a number of activities within Banque Worms, which have been affected by political and economic crisis, changes in regulation and significant competition in this marketplace. In order to improve the operating results, a reorganization is underway. This reorganization includes the closing of certain sites, curtailment of certain activities, linking the different businesses and subsidiaries in the most cost effective matter with an improved organizational structure.
French insurance and reinsurance companies were excluded from consolidation, effective January 1, 1998. The net income contribution for these entities in 1997 was € 31 million. If the investment and real estate companies had been consolidated in 1998, they would have contributed € 190 million to AXA’s consolidated total revenues. From 1998 these entities are accounted on a cost basis and their contribution to AXA’s consolidated results will be from dividends paid and any gains or loss from any disposals of these companies. In addition, both UIF and
H o l d i n g C o m p a n y a c t i v i t i e s
December 31, 1999 includes the dilution gain relating to SLPH in connection with the GRE transaction.
Excluding this dilution gain of € 486 million, losses recorded by the Company increased by € 7 million.
• Amortization of goodwill of € 55 million increased 47 million over 1997. In 1997, The Company amortized into net income the remaining negative goodwill related to the acquisition of AXA Financial, Inc.
(€ 31 million). In 1998, the Company began amortizing goodwill related to the acquisition of Royale
Belge (€ 11 million) and wrote off all goodwill related to Dongbu AXA Life in Korea (€ 14 million).
• Income tax expense of € 31 million, mainly comprised of the of tax paid on the intercompany sale of consolidated subsidiaries AXA Belgium, AXA
on the sale of equity securities in BNP was recorded in 1999 (compared to € 82 million in 1998) by AXA
France Assurance (holding company). This was partially offset by a provision of € 19 million (after tax)
• A gain recorded in 1999 by AXA Financial, Inc. relating to the offering of tracking stock in DLJdirect of € 64 million net income (group share).
The exceptional amortization in 1999 by SLPH of goodwill on the UK and Irish property and casualty insurance subsidiaries of GRE, of € 242 million net income
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Leven to AXA Nederland partially offset by the increase in investment results resulting from the investment of proceeds received on the sale of New
O t h e r M a t t e r s
Holocaust based on criteria established by the relevant regulatory authorities. In addition, as of January 31, 2000, AXA had received a total of 23 claims through the International Commission, all of which related to AXA Colonia.
At the end of December, a centralized command center was established linking all of the Group’s companies to each other and to Company Management.
This command center allowed AXA to monitor each stage of the rollover to Year 2000 from December 31, 1999 to January 4, 2000. No disruption of activity was experienced during this period, and business resumed normally on January 3, 2000. The overall cost (internal and external) of completing the Year 2000 project was approximately € 410 million.
To the best of the Company’s knowledge, no material Year 2000-related damage has been noted to date. Since the Group’s insurance and reinsurance companies have not been notified thus far of any material damage related to the Year 2000, there appears to be limited exposure to Year 2000 insurance risk for AXA.
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L i q u i d i t y a n d C a p i t a l R e s o u r c e s
The Company and each of its major operating subsidiaries are responsible for financing their operations.
AXA has obligations that are not characterized or classified in the consolidated balance sheet as debt or equity capital. These funds, referred to as mezzanine capital, include subordinated debt and mandatorily convertible bonds and notes. On a consolidated basis at December 31, 1999 and 1998, AXA’s subordinated debt and mandatorily convertible bonds and notes was € 4.8 billion and € 2.7 billion respectively. Further information is provided in Note 10 to the Consolidated
On a consolidated basis at December 31, 1999 and 1998, AXA’s financing debt was € 5.4 billion and €
Company has expanded its insurance operations through a combination of acquisitions, joint ventures, direct investments and internal growth. This expansion is funded primarily through a combination of (i) proceeds from the sale of non-core businesses and assets,
proceeds from the issuance of convertible debt securities, as well as borrowings (including from affiliates), and the issuance of new ordinary shares.
Company in accordance with the defined terms and conditions set out in the offering circular. The redemption price is equal to the original price per note of € 25.
The purpose of the additional debt is to finance the growth of the Company or any of its subsidiaries and to strengthen the Company’s consolidated financial structure. In particular, the proceeds of these issues could be used to finance the buyout of AXA China
In February 1999, the Company issued 2.5 % subordinated convertible notes due 2014 for € 1,524 million. The proceeds were primarily used to finance the acquisition of GRE by AXA Sun Life. The conversion into shares of all the notes issued would result in the issuance of AXA ordinary shares of 9,239,333. In addition, the Company has the right to redeem these notes starting in 2005 at a price of € 186.12 per note. The issuance price per note was € 165.
This acquisition was funded by the issuance of 9.6 million new ordinary shares valued at € 985 million, the exchange of the Company’s treasury stock valued at € 419 million, a cash payment of € 1,478 million and the issuance of 2.7 million Certificates of Guaranteed
In addition in 1998, the Company also obtained € 183 million on an existing line of credit and raised € 381 million through the issuance of commercial paper and obtained syndicated credit facility of € 762 million, representing € 1,326 million in total. At
September 15, 1999, the € 1,326 million of borrowings was repaid.
The Company acquired Compagnie UAP in 1997. In connection with the acquisition, the Company increased its capital by € 4,574 million through the issuance of 111.1 million new ordinary shares in exchange for the Compagnie UAP shares tendered by the former shareholders. The Company also issued 128 million AXA-UAP Certificates of Guaranteed Value that matured on July 1, 1999 to the former shareholders of Compagnie UAP. These Certificates of
Company expects that anticipated investment in subsidiaries and existing operations, future acquisitions and strategic investments will be funded from available cash flow remaining after payments of dividends, debt service and operating expenses, proceeds from the sale of non-strategic assets and businesses and future issues of debt and equity securities.
482 million in 1998 and 1997, respectively. These dividends principally are received from the Company’s
Cash dividends received by the Company in currencies other than the euro were approximately € 264 million and € 163 million in 1999 and 1998, respectively. The increase in dividends received in 1999 compared to 1998 is primarily due to the payment of large dividends by the Belgian subsidiaries. Certain of the
Statements). The Company does not believe that such restrictions constitute a material limitation on its ability to meet its obligations or pay dividends.
The Company also maintains a € 1.5 billion French commercial paper program and a € 1.5 billion French medium-term paper note program (compared to € 1.2 billion for each at December 31, 1998). At December 31, 1999, approximately € 373 million of commercial paper was outstanding with an average maturity of 15 days and approximately € 202 million of medium term notes were outstanding with an average maturity of 5.7 years.
Other sources of financing appear in the balance sheet under "Mezzanine Capital” and include subordinated debt and mandatorily convertible bonds and notes (see Note 10 to the Consolidated Financial
Statements). The Company’s mezzanine capital is comprised of certain subordinated debt and other debt convertible into ordinary shares of AXA. The 4.5% bonds are mandatorily convertible into ordinary shares (“Mandatorily Convertible Bonds”) and were issued in 1995 in connection with the acquisition of
AXA Mutuelles. These bonds matured on January 1, 1999 and were converted into 1.6 million of AXA
The Company’s level of subordinated debt increased to € 2,998 million at December 31, 1999 compared to € 1,125 million at December 31, 1998. The increase is primarily attributable to the issue of € 1.524 billion of 2.5% subordinated convertible debt (due 2014) in
February 1999 (previously addressed) and € 234 million perpetual borrowing to finance internal growth.
Japanese yen of ¥ 27 billion (€ 0.2 billion) to finance start-up costs in connection with the establishment of its direct marketing insurance subsidiary in Japan as well as to raise capital for AXA Japan Life, its Japanese life insurance subsidiary. This borrowing is redeemable at the Company’s option from July 31, 2028.
Interest expense of the Company for 1999, 1998 and million, respectively. Annual interest expense of the
Company to be held on May 3, 2000, the shareholders are expected to declare a cash dividend of approximately € 713 million (€ 2.00 or FF 13.12 per ordinary share) in respect of 1999. This dividend compares with dividends paid to shareholders in 1999 of € 595 million (€ 1.70 ordinary share) in respect of share) in respect of 1997. All dividends in respect of 1998 and 1997 were paid in cash.
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Spain and Japan since their creation totaled € 393 million as follows: – € 190 million in respect of Direct Assurance
(France) since 1993 of which € 42 million was invested in 1999; – € 106 million in respect of Sicher Direct (Germany)
Nippon Dantai and the integration of Company’s subsidiary, AXA Life Japan, with Nippon Dantai, the
Company plans to invest a total of approximately ¥ 200 billion (approximately € 2 billion) in 2000 and 2001.
Financial, Inc., (ii) dividends, distributions and sales proceeds from less liquid investment assets, and (iii) reimbursements from subsidiaries in respect of management expenses incurred by AXA Financial, Inc, such as personnel costs. Other potential sources of liquidity for
In April 1998, AXA Financial Holding issued € 213 million (US$ 250 million) of 6.50% Senior Notes due in 2008 and € 290 million (US$ 350 million) of 7%
Dividends paid by DLJ to AXA Financial, Inc in 1999, 1998 and 1997 were € 12 million, € 11 million and € 11 million, respectively. In July 1998, DLJ sold an aggregate of 5 million newly issued shares, of which 1.8 million were acquired by AXA Financial, Inc. for
source of liquidity is dividends from its subsidiaries. In 1999, AXA Asia Pacific Holdings received € 146 million (A$ 249 million) in dividends from its subsidiaries.
Holdings’ primary use of funds is the payment of dividends to its shareholders, interest expense on its debt and general operating expenses of the holding company.
SLPH’s acquisition of GRE in 1999 for a total consideration of £3,417 million (€ 5,110 million) was financed through the issuance of new SLPH shares valued at £1,114 million (€ 1,666 million), with the remainder
(€ 3,444 million) financed in cash. To finance the cash portion of the offer, SLPH was granted a loan by the
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In connection this program, Equitable Life received proceeds of € 623 million on the sale of real estate in 1999 compared to € 1,147 million in 1998. The remaining balance of real estate classified as “held for sale” was € 564 million at December 31, 1999, compared to € 979 million at December 31, 1998.
European countries in which the Company’s principal European subsidiaries operate require life and property and casualty insurance companies to maintain a minimum solvency margin. The primary objective of the solvency margin is to protect policyholders. Each of AXA’s French and other European subsidiaries is in compliance with its applicable solvency requirements.
These guidelines provide a method to measure the adjusted statutory capital (as defined) a life insurance company should have for regulatory purposes (see
tion, investment earnings, death, disability claims, surrenders, premium dormancy and policyholder options, distribution of assets among investment categories, and the matching of specific categories of assets and liabilities. National Mutual Life met its capital adequacy and solvency margin requirements at September 30, 1999.
Alliance Capital has a new three-year floating rate revolving credit facility of € 198 million (US$ 200 million ), which brings its total credit line program to € 718 million (US$ 725 million). In addition, Alliance Capital has a € 421 million (US$ 425 million) commercial paper program. At December 31, 1999, Alliance
Capital had € 381 million (US$ 385 million) in commercial paper outstanding, and there were no borrowings outstanding under the revolving credit facility.
master notes, and (vi) collateralized borrowings consisting primarily of bank loans, repurchase agreements and securities loaned. Most of the assets held by DLJ
(US$1,285 million) in Medium Term Notes, and € 644 million (US$650 million) in Senior Notes
At December 31, 1999, DLJ had utilized € 1,149 million (US$1,160 million) of its commercial paper program totaling approximately € 1,980 million
■ AXA’s European financial services subsidiaries must comply with various French and European regulations that require each to maintain, depending on its area of b03-338 • Item 9 (US) ok 23/05/00 12:11 Page 194 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
December 31, 1999, each of AXA’s financial services subsidiaries was in compliance with its applicable requirements.
Net cash used by investing activities in 1998 was € 10,687 million compared to net cash used of € 10,352 million in 1997. The increase in cash used by investing activities primarily stems from the increase in the invested assets of the insurance activities.
generally accepted accounting principles which can result in material adjustments for US GAAP purposes, although the net effect of such differences may not result in a material difference between French GAAP
Financial Statements. Included therein is also a condensed balance sheet and income statement prepared in accordance with US GAAP. All the differences between French GAAP and US GAAP described in this discussion are net of income tax expense.
(a) US GAAP except for adjustments for the increase in net unrealized gains on assets allocated to UK with-profit contracts.
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■ In US GAAP terms, consolidated net income totaled €1,209 million, compared to € 2,021 million in accordance with French GAAP. The € 811 million difference is attributable primarily to (i) the accounting treatment of the unrealized gains recorded in the year in respect of the UK with-profits contracts (€ 1,030 million), (ii)
This exceptional amortization charge relates mainly to a significant deficiency in insurance reserves established for UK, Irish and Portuguese businesses (€ 259 million net of minority interests), it was not included in the calculation of net income under US GAAP. Such deficiency relates mainly to the difference between the basis for measuring claims reserves on a local statutory basis in these countries compared to the claims reserves which should be recognized in accordance with AXA’s accounting policies.
However, the impact of this item was partly offset by the amortization of goodwill related to the UAP acquisition that is charged to shareholders’ equity under
Property and Casualty Segment is € 59 million higher than that calculated according to French GAAP, due to (i) the inclusion of the income contribution of mutual funds and other real estate and investment portfolio management companies that are consolidated only under US GAAP (€ 211 million), and (ii) the elimination of catastrophe equalization reserves which are not recognized under US GAAP.
February 1999 (€ 195 million). This premium is spread over the period up to the earliest redemption date in
adjusted net income is explained as follows: b03-338 • Item 9 (US) ok 23/05/00 12:11 Page 197 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
On an overall basis, other items caused significant impacts, although partially offsetting, on the US and
GAAP was € 1207 million compared to € 310 million under US GAAP for the year ended December 31, 1997. Consolidated net income under US GAAP was € 898 million less than consolidated net income determined in accordance with French GAAP primarily due to the negative impact on consolidated net income under US GAAP from the difference between the two bases of accounting for assets allocated to UK withprofits contracts (approximately € 953 million). Net income under US GAAP except for the adjustment related to UK with-profits contracts amounted to € 1,263 million. This increase in adjusted US GAAP net income of € 56 million when compared to French
GAAP net income is due to the positive impacts arising from the differences in the scope of consolidation
of € 109 million (€ 68 million of which was related to the amortization of goodwill from the acquisition of UAP), the elimination of intercompany realized gains and gains realized on the sale of Treasury Shares amounting to € 59 million and an additional charge for stock-option plans of € 63 million.
Financial Statements included in this Annual Report, and (iii) information under the heading ‘Cautionary
Market risk represents the potential loss as a result of absolute and relative price movements in financial instruments due to changes in interest rates, equity prices, foreign currency exchange rates, and other factors. AXA’s exposure to market risk varies by nature across its operations.
AXA actively manages its exposures to market risks. Risk exposures are reduced through effective asset-liability management and prudent and diversified underwriting and investing. Primary responsibility for risk management rests with the local subsidiaries who know best their respective products, clients and risk profile.
This approach allows subsidiaries to react in a timely manner to changes in financial markets, insurance cycles, and economic and political environments.
AXA’s exposure to market risk is greatly minimized as a result of the nature of its operations. By virtue of
Life Insurance. At December 31, 1999, approximately 39% of the total net life insurance liabilities represented separate account contracts, whereby all investment risk and reward is transferred to the policyholders. Amounts due to policyholders are based on the fair value of the investments supporting such products.
AXA’s ability to adjust interest crediting rates may be constrained by competitive forces and minimum guaranteed crediting rates, if any. Interest rate risk is further reduced by managing the duration and maturity structure of each investment portfolio in relation to the estimated duration of the liabilities it supports.
Proceeds from policies with long-term fixed payout patterns, such as guaranteed income contracts, annuities in the payout phase, and disability income policies, are predominately invested in highly-rated fixed-income securities with the objective of matching their durations to the underlying liabilities.
• Sensitivity analyses are primarily used for participating products and simulate the impact of certain market fluctuation scenarios on future cash flows, fair values, or forecasted earnings. Many of these sensitivity analyses are performed for local regulatory purposes. The goal of such analyses is to ensure
DLJ actively manages its exposures to these risks. It has an independent risk oversight function to principally oversee risk policies and risk monitoring. This department is assisted by a Risk Committee comprised of senior professionals from each of the operating and key administrative groups. The Risk
Committee’s objective is to update risk policies as appropriate and improve monitoring capabilities throughout DLJ.
For each of DLJ’s significant operations, there are formal procedures and committees to determine and manage investment strategies and to determine and monitor risk policies, including the basis for using derivatives and monitoring exposures.
AXA uses derivatives in its insurance and financial services operations to manage customer and shareholder exposures to interest rates, currency exchanges rates, security and other price risks. See Note 1, 4 and 17 to the Consolidated Financial Statements for information regarding AXA’s use of derivatives, including a discussion of DLJ’s primary market and credit risk exposures and their methods of managing such risks.
Such sensitivity analyses quantify the potential loss in terms of estimated fair value or future earnings under certain scenarios of reasonably possible adverse changes in financial markets. The sensitivity analyses estimate risk exposure and, therefore, potential net gains are ignored. Instruments within the scope of the analyses include fixed maturity and equity securities, mortgage loans, policy and other loans, debt and other borrowings, on- and off-balance sheet derivatives, and life insurance, property and casualty insurance, and reinsurance contracts. In accordance with
For purposes of interest rate sensitivity analyses, yield curve shifts were made relative to the yield curves prevailing in the country in which the subsidiary operates.
Financial Statements. However, the financial statement disclosures relating to fair values on financial instruments (note 4) includes only insurance contracts defined as "investment" insurance contracts, i.e., those with insignificant mortality and morbidity risk, while the sensitivity analyses include all insurance contracts.
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• The fair values of property and casualty, reinsurance and non-participating life insurance contracts were estimated using a discounted cash flow approach.
December 31, 1999 and 1998 yield curves would result in an estimated net fair value loss for all items within the scope of the analyses of approximately € 1.1 billion and € 0.2 billion, respectively, before minority interest allocations and tax effects. The variation is predominantly attributable to the change in the investment portfolio mix and average asset duration period during 1999, specifically in France, the
Equity Price Risk. The estimated potential exposure to a 10 % decline in the value of December 31, 1999 and 1998 stock markets would result in an estimated fair value loss for all items within the scope of the analyses of approximately € 1.8 billion and € 1.2 billion, respectively, before minority interest allocations and tax effects. A 20 % decline would result in fair value losses of approximately € 3.5 billion and € 2.4 billion at
In both 1999 and 1998, the potential loss from stock market fluctuations was larger than the loss resulting from interest rate changes. The impact of interest rate fluctuations on interest-sensitive investments was partially offset by fair value changes in the related insurance liabilities. The impact of stock market declines on equity securities was accompanied by smaller changes in the estimated fair value of insurance liabilities. The insurance liabilities are largely unaffected by equity price fluctuations given that approximately 89 % of the total net insurance liabilities reported in the consolidated financial statements are attributable to the life insurance business. After excluding separate account liabilities (representing 34 % total net insurance liabilities, for which fair value changes in assets result in an equal and opposite change in related liabilities), the remaining life insurance liabilities are supported largely by fixed maturity securities and the fair value of these liabilities are generally estimated using discounted cash flows.
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GAAP earnings loss of € 69 million and € 83 million, respectively, before minority interest allocations and tax effects. In order to calculate the largest potential exposure to foreign currency fluctuations, all material combinations of foreign currency fluctuations were analyzed. The analyses revealed the most adverse scenario for AXA in terms of French GAAP earnings would be a decline in all currencies relative to the Euro currencies. The potential 1999 French GAAP earnings impact includes both: (i) the potential transaction losses on all the balance sheet instruments within the scope of the analyses, and,
(ii) potential impact of translating foreign subsidiary earnings into euros at a lower rate. For simplicity purposes, it was assumed that 2000 foreign subsidiary earnings were identical to their 1999 earnings. The positive impacts of currency fluctuations on foreign subsidiaries generating losses was not considered.
Limitations. The above analyses do not consider that assets and liabilities are actively managed and that there are strategies in place to minimize the exposure to market fluctuations.
Risk (“VAR”) model. This model used a variance-covariance approach with a confidence interval of 95% and a one-day holding period, based on historical data for one year. DLJ has made changes to the model in the course of 1998. In response to the volatile and illiquid markets of the third quarter of 1998, which departed markedly from the normal statistical distributions that underlie the variance-covariance approach, DLJ estimated VAR by using an historical simulation model based on two years of weekly historical data, a 95% confidence interval, and a oneday holding period. The effect of this change in approach was not material. The VAR number is the statistically expected maximum loss on the fair value of DLJ’s market sensitive instruments for 19 of 20 trading days. In other words, in 1 out of every 20 trading days, the loss is expected to be statistically greater than the VAR number. However, the model, does not indicate how much greater.
Because a VAR model is not a sufficient tool to measure and monitor market risk (given there are limitations inherent in any statistical analysis), DLJ will continue to use other risk management measures such as stress testing, independent review of position and trading limits and daily revenue reports.
Credit risk is the potential for loss resulting from a counterparty defaulting on its obligations. Exposure to credit risk is generated by securities and currency settlements, contracting derivative and forward transactions with customers and dealers, and the holding in inventory of fixed maturities (bonds) and/or loans. DLJ
uses various means to manage its credit risk. The creditworthiness of all counterparties is analyzed at the outset of a credit relationship and subsequently renewed on a periodic basis. DLJ also sets a maximum exposure limit for each counterparty as well as groups or classes of counterparties.
M a n a g e m e n t B o a r d The Company's business is managed by a Management Board (Directoire) currently consisting of six members.
The table below sets forth the names of the members of the Management Board, the dates of their initial appointment as members, the expiration dates of their current terms and their current principal occupation or employment.
Henri de Castries 2000 2003 Vice Chairman of the Management Board
Gérard de La Martinière 1997 2003 Group Executive President, Finance, Control and Strategy
Françoise Colloc'h 2000 2003 Group Executive President, Human Resources, Communication and Synergies
The members of the Management Board are appointed by the Supervisory Board for a period of three years. The members of the Management Board need not be shareholders; however, they must be individuals. The Supervisory Board must appoint one of the members of the Management Board as Chairman.
Jacques Friedmann 1997 2003 Chairman of the Supervisory Board of the Company
Jacques Calvet 1997 2003 Vice-Chairman of the Supervisory Board of Galeries Lafayette
Jean-René Fourtou 1997 2003 Vice-Chairman of the Management Board of Aventis
Michel François-Poncet 1997 2003 Chairman of the Supervisory Board of Paribas
Gérard Mestrallet 1997 2003 Chairman of the Management Board of Suez Lyonnaise des Eaux
Friedel Neuber 1997 2001 Chairman of the Supervisory Board of Preussag AG
E x e c u t i v e O f f i c e r s
Robert Gogel Group Executive Vice President, Human Resources and Synergies 2000
Jean-Marie Nessi Chairman and Chief Executive Officer of AXA Réassurance 1998
Claude Tendil Member of the Management Board and Chairman and Chief Executive Officer of the Insurance Companies in France 1989
The Supervisory Board has established four subcommittees: the Audit Committee, the Finance
Board proceedings. Outside participants may be invited to meetings at the discretion of the members of these Committees.
The Audit Committee is composed of seven members: Patrice Garnier, Chairman - Jacques Calvet -
Company’s interim and annual financial statements before they are presented to the Supervisory Board, as well as other financial documents of the Company in connection with the accounts for each reporting period. The Committee is also consulted on the selection of the Company’s Independent Auditors and reviews the independent auditors’ audit plan, the results of their audits, their recommendations and planned follow-up steps. Events that may expose AXA
to material risks are referred to the Audit Committee by the Management Board or the independent auditors. The Audit Committee is also informed of accounting practices in force at AXA, and it reviews projected changes in accounting policy or method.
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Board and the members of the Management Board, the amount of directors’ fees to be submitted to the approval of the Annual General Meeting of the
executives and on all Company stock subscription and purchase options granted to AXA employees.
Management Board to prepare for the succession of members of said Board.
AXA (21 persons, three persons who are no more serving ) who served during 1999 was € 40,857,675 (FF
Executive compensation consists of both a fixed and a variable component. The fixed component is based on local market conditions, situated within the top quartile range. The variable component is linked to the global financial performance of AXA, local company performance, and individual performance, weighted to take into account individual levels of responsibility.
and FINAXA shares, listed holding companies, which the assets mainly include AXA shares.
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Because of the different tax systems according to the countries where Executive Committee members are located, the comparison of the compensations is difficult. For information, the taxation marginal rate for the following countries are: Germany: 55.925%*; Australia: 48.50%; Belgium: 60%; United States: 46.43%; France: 54% plus 10% (social tax); United
(1) Current Executive Officers; compensation received in 1999 from AXA Group affiliates; exchange rate as of December 31, 1999. (2) Fees received as Board members of AXA Group companies and outside AXA Group as a representative of AXA Group. (3) As of December 31, 1999. (4) Paid in 1999 for 1998.
(5) A. Bouckaert joined AXA Group in April 1999. (6) C.M. Dill joined AXA Group in April 1999.
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Options1 held by Executive Officers in certain of AXA Group’s Companies
Companies AXA AXA Sun Life Mofipar Finaxa Financial Inc. & Provincial
(1) Outstanding options as of December 31, 1999. (2) Beneficiary of options of non listed companies (AXA Investment Managers). (3) Beneficiary of options of non listed companies (Lor Finance). (4) Beneficiary of options of non listed companies (AXA Réassurances).
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and the Mutuelles AXA, see Item ''Relationships with the Mutuelles AXA'' and Note 20 of Notes to the
The name "AXA" and the AXA trademark are owned by FINAXA, which in the second quarter of 1996 granted AXA a non-exclusive license in all the countries in which AXA and its subsidiaries operate. The annual cost to AXA for this license was FF 5 million
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Item 17: Financial Statements The following financial statements and schedules are filed as part of this Annual Report, together with the report of the independent accountants.
Schedules: Report of Independent Accountants Incorporated by reference to Exhibit 27a
Parent Company Condensed Financial Statements Incorporated by reference to Exhibit 27b
Item 19: Financial Statements and Exhibits (a) The Consolidated Financial Statements appear on pages F-2 to F-.
In our opinion, the consolidated financial statements audited by us present fairly, in all material respects, the financial position of the Company and its subsidiaries at December 31, 1999 and 1998 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999 in conformity with accounting principles generally accepted in France.
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AXA - Consolidated Balance Sheets At December 31, (in euro millions) 1999 1998 (a)
Investments in companies accounted for by the equity method 1,408 1,193
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Short-term and long-term debt: Accrued expenses and other liabilities (Note 23) 44,057 33,817
AXA - Consolidated Statements of Income Year ended December 31, (in euro millions except per ordinary share amounts) 1999 1998 (a) 1997 (a)
Issuance of Ordinary Shares for UAP acquisition 122.70 1,122 1,694 2,235 5,051
Adjustement to goodwill from Royale Belge acquisition charged to shareholders’ equity – – – 52 52
Change in goodwill arising from UAP acquisition – – – 88 88
(a) The euro amounts were converted using the previously reported financial information in French francs and the French franc to euro legal conversion rate established on January 1, 1999 of FF 6.55957 = € 1.00. See Note 1.
AXA - Consolidated Statements of Cash Flows Years Ended December 31,
Cash flows from investing activities: Maturities and sales: Loans and other 3,138 2,862 3,479
Net cash provided by (used in) financing activities 2,192 111 (26)
Change in cash due to change in scope of consolidation 3,548 (25) 2,081
(b) Other debtors and creditors including reinsurance deposits. (c) Includes net movement in Separate Account assets in 1999 of € 8,640 million, in 1998 and 1997, such movements were included in the separate lines by category of security under “maturities and sales” and “purchases” above. The total movement in separate account assets in 1998 and 1997 included in those line items was €4,794 million and € 3,687 million, respectively.
Life (Australia and other countries in the Asia/Pacific region), (iii) Sun Life & Provincial Holdings (“SLPH”
The Company’s Consolidated Financial Statements are as at December 31. Subsidiaries that have a fiscal year that does not coincide with the calendar year prepare financial statements for a twelve-month period as of
December 31. However, in cases where the difference between the subsidiary’s fiscal year end and the
Company’s fiscal year end is not greater than three months, the financial statements used in consolidation are those as of such subsidiaries’ fiscal year end. This is the case for AXA Asia Pacific Holdings and its subsidiaries, which are consolidated on the basis of their financial statements for the fiscal year ended September 30.
French and include additional disclosures required by the United States Securities and Exchange Commission
Statements are prepared in accordance with generally accepted accounting principles in France (“French
January 3, 1985 and its Décret of application regarding consolidation; French insurance regulatory Décrets
Nos. 94-481 and 94-482 of June 8, 1994, and the related Order (Arrêté) of June 20, 1994, implementing European Union Directive No. 91/674 (Third
GAAP and US GAAP and a reconciliation of AXA’s consolidated net income and shareholders’ equity to US
Changes in such estimates and assumptions may affect the amounts reported and disclosed in future periods.
Notes to the Consolidated Financial Statements b03-338 • Items 17-19 (US) 23/05/00 12:14 Page F-7 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
Statements were previously reported in French francs and have been converted to euro using the FF/euro conversion rate of FF 6.55957 = € 1.00 established on January 1, 1999 (the legal conversion rate). In order to depict the same trends and relationships among AXA’s financial amounts as would have been presented if AXA continued to present the
AXA’s reported consolidated financial statement amounts expressed in French francs, which include the effects of translating the financial statements of companies outside of France into French francs, were translated from the French franc to the euro. An alternative approach would have been to translate the financial statements of each respective country directly into euro using the exchange rate applicable for that particular currency; however, such approach would have altered reported trends. AXA’s amounts reported in euro for the years ended December 31, 1998 and 1997 and at December 31, 1998 may not be comparable to euro amounts reported by other companies, both French and non-French.
A c c o u n t i n g P o l i c i e s
The foreign exchange transition allowance recorded in equity for subsidiaries operating in euro memberstate countries was € 34 million. Such amounts will continue to be recorded as a reduction of equity until such subsidiaries are sold.
French stock exchange authority, AXA changed its method of accounting for certain stock option plans.
Under the new method of accounting, compensation expense is recorded over the vesting period based on the excess of the market value of the underlying stock over the exercise price of the options. The cumulative effect of this change in accounting principle was € 67 million, which represents associated goodwill at
December 31, 1997 and compensation expense that should have been recorded in 1997 and prior years.
– The segmentation of activities has been revised to reflect certain changes during the period as follows: • A UK Property and Casualty Insurance Group was created subsequent to the acquisition of GRE in May 1999, and the International Insurance Segment is a newly-formed segment that includes the activities reported in the former Reinsurance Segment and the
Ré, a Belgian reinsurance company that has been in run-off since 1998, are included under the Belgian
Insurance Groups. Previously, Royale Belge Ré was included under the Transnational Insurance
Certified Public Accounts (“AICPA”) issued Statement of Position No. 97-3 (“SOP 97-3”), “Accounting by
SOP 97-3 is effective for financial statements issued for periods beginning after December 31, 1998.
No. 98-1 (“SOP 98-1”). SOP 98-1 requires capitalization of external and certain internal costs incurred to obtain or develop internal-use computer software during the application development stage. All other costs including costs associated with preliminary project assessments, data conversion and post-implementation training and maintenance costs must be expensed when incurred. AXA adopted SOP 98-1 prospectively for both
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The adoption of SOP 98-1 did not have a material impact on AXA’s Consolidated Financial Statements.
Benefits”. FAS 132 revised disclosure requirements for employer’s pension and other retiree post retirement and did not change the measurement or recognition basis of these plans. No change in pension and other postretirement benefits accounting principles was made as a result of the adoption of FAS 132.
Related Information”. This statement established disclosure standards regarding information about AXA’s operating segments in financial statements issued to shareholders. It also established standards for disclosures about products and services, geographic areas and major customers. Generally, financial information is required to be reported on the basis used by management for evaluating segment performance and deciding how to allocate resources to segments. In 1998, AXA changed certain of its segmentation in order to more closely align its segmentation with the basis used by management to evaluate group performance and to allocate resources. Previously, the
In 1998, AXA adopted Statement of Financial Accounting Standards No. 130 (“FAS 130”), “Reporting
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– Companies in which AXA exercises significant long term influence are accounted for by the equity method. Significant influence is presumed when AXA
Assets of consolidated companies linked with separate account (unit-linked) contracts are included in the calculation of the Company’s controlling interest but excluded from the calculation of the percentage of this interest.
In preparing the Consolidated Financial Statements, the effect of transactions among consolidated companies is generally eliminated. In accordance with
French insurance regulations, realized gains or losses on sales of assets, other than shares of subsidiaries, from or to a consolidated insurance company are not eliminated if the assets were supporting or are intended to support insurance reserves. The acquiring subsidiary will record the asset at the lower of current market value or carrying amount as reported previously by the selling subsidiary. The selling subsidiary will record a loss, if the market value is less than the net book value. The portion of intercompany gains or losses realized on the sale of a subsidiary’s shares, which are included in the calculation of policyholder dividends, is not eliminated.
AXA consolidated subsidiaries (for which AXA has a level of interest less than 100% in either entity) will effect the value of that security as reported in AXA’s
Changes in scope of consolidation are detailed in Note 25 of the Consolidated Financial Statements.
Acquisitions of minority interests are accounted for using the purchase method of accounting with the exception that the acquired portion of assets and liabilities are not recorded at their estimated fair value at the minority interest acquisition date. Rather, the carrying values used for the acquired portion of assets and liabilities are the same as those used before the minority interest acquisition.
■ In conjunction with purchase accounting, relating to acquired life insurance operations, an identifiable intangible asset is recorded, in certain cases, for the present value of future profits of purchased insurance business inforce. The value of purchased business inforce represents the value of estimated future profits from insurance contracts existing at the date of acquisition. The future profits are estimated using actuarial assumptions based on anticipated experience determined as of the purchase date, discounted at rates that range from 12% to 15%. The value of purchased business inforce is amortized over the remaining lives of the underlying contracts in proportion to the earnings on the contracts, generally between 10 and 25 years. The value of purchased business inforce is subject to recoverability testing at the end of each accounting period, based on actual experience and expected trends with respect to the principal assumptions used to calculate the value of purchase insurance business inforce.
French stock exchange authority, and Bulletin No 210 in June 1988, when new shares are issued by the
The value in retained earnings and reserves will remain unchanged unless there is a dilution of ownership interest in the acquired company.
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■ Fixed maturity securities are stated at amortized cost, less valuation allowances. Purchase premium or discount is amortized over the life of the security.
European subsidiaries record a valuation allowance and AXA’s non-European subsidiaries directly write down the equity investment. Mutual fund investments are included in equity securities.
Trading account securities are stated at estimated fair value based principally on quoted market prices or on quoted market prices of comparable securities.
Assets allocated to UK with-profit contracts, for which the policyholder participates in the investment return under the contract terms (refer to “Liabilities for insurance benefits and claims”), are reported at estimated fair value, with the change in estimated fair value of such assets included as an adjustment to the related insurance reserves.
Separate Account Assets relate to certain life insurance contracts which, when issued, are linked with specific pools of assets (France: assurance à capital variable (“ACAV”) and assurance à capital variable immob03 -338 • Items 17-19 (US) 23/05/00 12:14 Page F-13 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
Australia: unit-linked funds). The policyholder bears the investment risks and receives the rewards of the associated assets. The assets supporting these contracts are generally segregated and not subject to claims of creditors which may arise out of the companies ’ other business.
■ The basis for determining the fair value of investments is as follows: (i) listed equity and fixed maturity securities are based on the quoted market price at date of valuation, (ii) the fair value of real estate held for investment purposes is determined by qualified appraisers and are reviewed with reference to current market conditions and no depreciation is recorded, and (iii) the fair value of loans is based on estimated future cash flows utilizing interest rates that reflect current market conditions, and non-performing loans are valued based on the lower of the guaranteed value or future cash flows.
each accounting period and the cumulative effect of any changes in estimated gross profits impacting the amortization of deferred acquisition costs is recognized immediately in income.
Fees charged to policyholders for future services that are not fully earned in the period assessed are reported as a reduction of deferred acquisition costs. These unearned revenue amounts are recognized in net income over the periods benefited using the same assumptions and methods as are used for amortizing deferred acquisition costs.
■ The costs of acquiring new business are generally specifically identified and an asset is recorded for such amounts and amortized over the life of the related contracts (generally one year). In cases where acquisition costs are not specifically identified, the asset is calculated based on various percentages established by regulation in the countries in which AXA operates to reflect the costs incurred to acquire the business, principally commissions. The amount of deferred acquisition costs estimated not to be recoverable is charged to expense and the asset is reduced. AXA does not anticipate future investment results in determining whether deferred acquisition costs are recoverable.
Computer hardware is amortized on a straight-line basis over the estimated useful lives of such assets.
Capitalized computer software as determined in accordance with SOP 98-1 is amortized over a period not to exceed five years.
Amounts receivable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured business. These receivables are evaluated and monitored for recoverability to minimize exposure to significant losses from reinsurer insolvencies. The reinsurers’ share in insurance reserves are presented net of insurance reserves in accordance with
French GAAP and presented separately in the condensed balance sheet under US GAAP.
surrenders. If the contract provides for a minimum interest rate guarantee and the investment results are insufficient to meet that guarantee, an additional provision will be established for that shortfall.
The liability for universal life and investment-type contracts, contracts that have a small portion of insurance risk, is the balance that accrues to the benefit of the policyholders. This balance represents an accumulation of gross premium payments plus credited b03-338 • Items 17-19 (US) 23/05/00 12:14 Page F-15 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
Separate account (unit linked) contracts are linked to a specific pool of investment funds/assets and are written by AXA’s life insurance companies. The insured bears the investment risks and rewards. For these contracts the liability represents the fair value of the investment funds/assets linked to those contracts at the balance sheet date.
Appropriations” (“FFA”) which represents the excess of assets over liabilities in the long term business fund, and in general is used to fund the future terminal bonuses to be attributed to participating policyholders in accordance with the terms of the insurance contract. In the Consolidated Financial Statements, the portion of the FFA attributable to future terminal bonuses is included in insurance reserves with the remaining portion included in retained earnings and reserves.
Catastrophe equalization reserves are established by line of business in accordance with the local regulation and defer a portion of income to future periods to be earned when future catastrophic
In property and casualty insurance and reinsurance, the unearned premium reserve represents premiums, which have been collected with respect to future insurance coverage.
Derivative financial instruments designated to hedge a specific asset, liability or net investment and deemed highly effective in offsetting the hedged item’s changes in estimated fair value or cash flows are recorded on the accrual method. Under such method, gains and losses of effective hedges are deferred and recognized in net investment results generally over the life of the hedged asset or liability with amounts recorded in the category corresponding to the hedged item.
The estimated fair value is determined based on quoted market prices, dealer quotes, pricing models or others methods determined by management based on amounts estimated to be realized on settlement, assuming current market conditions and an orderly and reasonable disposition. Fair value of option contracts includes unamortized premiums which are deferred and amortized over the life of the option contracts on a straight-line basis or are recognized through the change in the fair value of the option in net investment income. The notional amount of equity swap contracts, and forward and futures contracts are treated as off-balance sheet items.
An unearned premium reserve is established to cover the unexpired portion of written premiums. The unearned premium reserve generally is calculated by pro rata methods, based on the proportion of insurance still inforce at year-end. The change in the unearned premium reserve in the period represents earned premium and is included to total premiums earned in the period.
■ Asset management and other financial services revenues include fees earned from asset management, investment banking and brokerage income, and gross rental income from real estate companies.
Subsidiaries, which are not 100% owned by AXA, may issue additional capital, which thereby dilutes AXA’s ownership interest in that subsidiary. When additional capital is issued, the change in AXA’s ownership is recorded in the net investment result.
■ Pursuant to a defined plan, provisions for restructuring operations related to an acquired company are established for costs such as severance payments and other staff reduction expenses, costs associated with closing office sites and other associated exit activity.
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a charge against income in the year that the defined plan is approved by appropriate levels of management.
■ AXA administers defined benefit plans and defined contribution plans and provides other post-retirement related benefits to its employees worldwide. The pension cost is charged against income. The pension cost and the related provision is based on the advice of qualified actuaries, calculated using actuarial valuation methods which give a substantially even charge over the expected service lives of employees on a going concern basis. The total pension cost for the Company and its subsidiaries is recorded in other liabilities (for pension plans not administered within AXA) or insurance reserves (for pension plans administered by insurance companies within AXA).
Other postretirement plans are accounted for according to local statutory accounting principles.
service period that is generally considered to be the vesting period of the options.
Where an employee may receive cash in lieu of stock, compensation expense is recorded over the vesting period based on the excess of market value of the underlying stock over the exercise price of the options.
January 1, 2001 and, therefore, changes would be reflected in AXA’s consolidated financial statements in 2001. The effect of this statement on French insurance companies is currently under review. Based on current information available, the basis for preparing and presenting AXA’s Consolidated Financial Statements should not be affected materially.
Activities”. In June 1999, the FASB issued Statement of Financial Accounting Standards No. 137 (“FAS
No 133”. FAS 137 allows entities which have not yet b03-338 • Items 17-19 (US) 23/05/00 12:14 Page F-19 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
adopted FAS 133 to defer its effective date to all fiscal years beginning on or after June 15, 2000 (that is for AXA’s Consolidated Financial Statements beginning January 1, 2001).
FAS 133 establishes accounting and reporting standards for derivative instruments, including derivatives embedded in other contracts, and for hedging activities. It requires all derivatives to be recognized on the balance sheet at fair value. The accounting for changes in the fair value of a derivative depends on its intended use. Derivatives not used in hedging activities must be adjusted to fair value through earnings. Changes in the fair value of derivatives used in hedging activities will, depending on the nature of the hedge, either be offset in earnings against the change in fair value of the hedged item attributable to the risk being hedged or recognized in other comprehensive income until the hedged item affects earnings. For all hedging activities, the ineffective portion of a derivative’s change in fair value will be recognized immediately in earnings.
Statements has not yet been determined given that the application of FAS 133 is subject to certain factors including future interpretative guidance to be issued by the FASB, any potential changes to AXA’s current strategy regarding investments in derivatives and hedging, and the extent to which AXA’s existing hedging strategies will meet the requirements of hedge effectiveness.
Information regarding the fixed maturity and equity securities supporting the general account, that is, excluding separate account (unit-linked) business and trading account securities, and also excluding UK
with-profit business at December 31, 1999 and 1998 is presented below.
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Carrying Amortized Gross Gross Estimated value or original unrealized unrealized fair value (in euro millions) cost gains losses
Assets allocated to UK with-profit contracts (19,539) (9,631) – – (19,539)
Fixed Maturities: Assets allocated to UK with-profit contracts (3,307) (2,683) – – (3,307)
Assets allocated to UK with-profit contracts (13,188) (8,478) – – (13,188)
The difference between estimated fair value and carrying value of investments constitutes unrealized gains or losses. Upon disposal of the investment, the realization of these unrealized gains and losses will be reflected in AXA’s operating results after taking
is accounted for as an investment in equity securities if the treasury shares are considered held for sale. At
The carrying value of mortgage, policy and other loans was € 13,177 million, € 4,940 million and € 5,804 million, respectively, at December 31, 1999 million, respectively, at December 31, 1998. At
December 31, 1999, approximately 41 % of AXA’s mortgage loans are secured by real estate located in the United States, 29% in Belgium and 24% in
with provisions for losses had an amortized cost of € 176 million and € 160 million, respectively and provisions for losses of € 29 million and € 35 million, respectively. Impaired mortgage loans with no provisions for losses had an amortized cost of € 7 million and € 21 million at December 31, 1999 and 1998, respectively. Impaired mortgage loans with no provision for losses are loans where the fair value of the collateral or the net present value of the loan equals or exceeds the recorded investment. Interest income earned on impaired loans where the collateral value is used to measure impairment is recorded on a cash basis. Interest income on impaired loans where the present value method is used to measure impairment is accrued on the net carrying value of the loan at the interest rate used to discount the cash flows. Changes in the present value attributable to changes in the amount or timing of expected cash flows are reported as investment gains or losses. For the years ended
AXA’s investment in real estate is through both direct ownership and through investments in real estate joint ventures. Depreciation on real estate is computed using the straight-line method over the estimated useful lives of the properties, which generally range from 20 to 50 years. Accumulated depreciation on investment real estate was € 1,119 million and respectively. Depreciation expense on such real estate totaled € 224 million, € 196 million and € 280 million for the years ended December 31, 1999, 1998 and 1997, respectively.
At December 31, 1999 and 1998, Equitable Life owned € 527 million and € 594 million, respectively, of real estate acquired in satisfaction of debt.
Investment valuation allowances, which have been deducted in arriving at investment carrying values as presented in the consolidated balance sheets, and changes thereto are shown below (amounts included in other changes relate principally to changes in the scope of consolidation and the impact of changes in foreign currency exchange rates on opening balances): b03-338 • Items 17-19 (US) 23/05/00 12:14 Page F-23 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
(a) In 1999, there was a reclassification of assets from invested assets to other assets (€ 953 million) and the corresponding reclassification of the related provision for valuation allowances of € 451 million.
1998 Balance at Other Balance at (in euro millions) January 1, Additions Deductions Changes December 31, 1997 Balance at Other Balance at (in euro millions) January 1, Additions Deductions Changes December 31, b03-338 • Items 17-19 (US) 23/05/00 12:14 Page F-24 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
At December 31, 1999, the carrying values of investments held for the production of income (excluding equity security investments and investments in unconsolidated affiliates) which were non-income producing for the twelve months preceding the consolidated balance sheet date were € 173 million fixed maturities, € 1 million of mortgage loans and € 73 million of real estate.
Equitable Life has restructured or modified the terms of certain fixed maturity and mortgage loan investments. The investment portfolio, based on amortized cost, includes restructured fixed maturity securities and mortgage loans of € 201 million and € 134 million at December 31, 1999 and 1998, respectively. Gross interest income that would have been recorded in accordance with the original terms of these restructured fixed maturities and mortgage loans amounted to € 16 million, € 13 million and € 34 million for the years ended December 31, 1999, 1998 and 1997, respectively. Gross interest income on these fixed maturities and mortgage loans included in net investment results aggregated € 14 million, € 10 million and € 26 million for the years ended December 31, 1999, 1998 and 1997, respectively.
Financial Statements. An analysis of carrying value and contribution to net income of equity method investments is shown below: b03-338 • Items 17-19 (US) 23/05/00 12:14 Page F-25 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
Item 17 1999 Carrying Exchange Carrying Contribution value Other rate value at in
Banque PPP Columbia (PPP’s subsidiary) – 116 – – – 116 4
CKAG subsidiaries: NMLA subsidiaries: Other subsidiaries b03-338 • Items 17-19 (US) 23/05/00 12:14 Page F-26 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
The following table sets forth an analysis of entities accounted for using the cost method: Historical cost Last fiscal year less valuation Shareholders’ net income Fiscal Percent
The carrying amount of short-term borrowings approximates its fair value. The fair value of long-term debt is determined using published market values, where available, or contractual cash flows discounted at market interest rates reflecting the credit worthiness of the Company or subsidiary issuing the debt. The estimated fair value for non-recourse mortgage debt is determined by discounting contractual cash flows at a rate which takes into account the level of current
market interest rates and collateral risk. The estimated fair values for recourse mortgage debt are determined by discounting contractual cash flows at a rate based upon current interest rates of other companies with credit ratings similar to those of the Company or the subsidiary issuing the debt.
Carrying Estimated Carrying Estimated (in euro millions) value fair value value fair value
Financial Assets: Mortgage, policy and other loans 23,921 24,180 22,584 23,716
The estimated fair values of financial instruments for which carrying value differs from estimated fair value are as follows: A c q u i s i t i o n C o s t s
December 31, December 31, Year Ended December 31, 1997 Year Ended December 31, 1998 1998 December 31, 1999 1999
Carrying Structural Currency Amorti- Carrying Structural Currency Amorti- Other Carrying Years (in FF millions) value changes (a) changes zation value changes (a) changes zation changes value remaining
hedging program set up by AXA in 1998 was settled in the first six months of 1999 for a total cost of € 71 million. This cost was added to the acquisition cost of UAP and recorded as additional goodwill. Amortization expense relating to this additional goodwill amount of € 7 million, representing three years worth of amortization from the date of acquisition (from 1997 through to and including 1999).
– Dilution of AXA’s ownership of SLPH due to the GRE
Royale Belge Certificates were cancelled when the closing price of AXA stock was above FF 900 (€ 137.3)
Luxembourg, France, the United Kingdom, Ireland and South Africa (pending the approval of local regulators ), for a total of € 2,959 million. The sale of these businesses outside the Group had no impact on income for the period. In addition to these disposals, the Company combined former GRE operations and
German insurance subsidiaries. This goodwill is being amortized over 30 years. Given that AXA has a 56.3%
interest in SLPH, goodwill of € 764 million, group share (includes the goodwill relating to the acquisition of minority interests in Albingia, a former GRE
AXA’s consolidated operating results since the date of acquisition being May 1, 1999.
DLJ in 1998, goodwill of € 56 million was recorded and is being amortized over 30 years. The investment was made jointly by AXA Holding Belgium, AXA
and an earn-out that is contingent on AXA Rosenberg’s future performance. This transaction gave rise to goodwill of € 104 million which is being amortized over 15 years. The operating results have been included for the full year in 1999.
December 31, 1998. Total consideration for the purchase of AXA’s Colonia’s stock was € 342 million, and resulted in goodwill of € 100 million. Consequently, at December 31, 1999 total goodwill relating to AXA
Colonia resulted in the recording of goodwill of € 58 million, being amortized over 30 years.
Item 17 b03-338 • Items 17-19 (US) 23/05/00 12:14 Page F-32 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
Financial Statements at original cost (fair value at date of acquisition) less estimated disposal costs, as it was the Company’s intention to sell these operations within one year of the UAP acquisition. Since Banque Worms has not yet been sold, in 1999 Banque Worms was accounted for using the equity method of accounting. The goodwill relating to Banque Worms of € 36 million was written off in 1999 as the operations are currently loss making.
In 1992, the difference between AXA’s equity capital ownership of AXA Financial, Inc. (the former Equitable
Companies Inc.) as stated in AXA Financial, Inc.’s financial statements prepared according to US GAAP and the purchase price paid for shares of stock in the US
subsidiary gave rise to negative goodwill, amortized over five years. The remaining balance of the negative goodwill of € 31 million was amortized into income in 1997.
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Goodwill, net of notional amortization, recorded in retained earnings and reserves totaled € 1,740 million and € 1,942 million at December 31, 1999 and 1998, respectively. The decrease is attributable to the following: (i) adjustments to goodwill relating to the acquisition of AXA Royale Belge’s minority interests of € 52 million, (ii) notional amortization relating to UAP
in 1999 (as SLPH issued additional capital stock to partly fund the GRE acquisition) of € 88 million, and
Such goodwill was impacted in 1998 by the following: (i) the acquisition of AXA Royale Belge’s minority interests which resulted in additional goodwill of € 338 million being charged to retained earnings and reserves; (ii) purchase accounting adjustments related to the UAP acquisition which increased such goodwill by € 38 million; (iii) and notional amortization of € 62 million. The 1998 purchase accounting adjustments for holding companies primarily related to the
Company of € 47 million and is not included in goodwill recorded in retained earnings and reserves. As the goodwill relates to a holding company it is not subject to notional amortization.
AXA Asia Pacific Holdings: Sun Life & Provincial Holdings : Syndicated loan, variable due 2001 (H) 480 434
Wholly-owned and Joint venture Real Estate (AXA Financial, Inc.): Mortgage Notes, 5.87% to 12.00% due through 2006 350 498
Guardian Royal Exchange: Compagnie Financière de Paris: Compagnie Financière de Paris: loan variable due through 2003 (J) 108 –
Note: Certain increases year on year are attributable to the impact of foreign currency exchange rates.
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(A) -- The Company maintains standby committed credit facilities at December 31, 1999 with an average expiration period of approximately 2.1 years in an aggregate amount of € 2.3 billion of which € 758 million was outstanding. These committed credit facilities consist of several different credit lines with interest rates based on the Euro Interbank Offered Rate
EURIBOR was 3.339%. In addition, a quarterly or semiannual commitment fee is paid on the average daily unused amounts. The Company also maintains a € 1.5 billion French commercial paper program. As of December 31, 1999, € 373 million of commercial paper was outstanding under the program with an average maturity of 15 days. In addition, the
Company set up a committed bank facility to finance the acquisition of GRE, for a total original amount of £ 1,000 million (€ 1,600 million), of which £ 450 million (€ 720 million) was drawn down as of December 31, 1999. The committed credit facilities and the commercial paper program are available for general corporate purposes and support the liquidity of the
Several of the long-term debt agreements of AXA’s subsidiaries have restrictive covenants related to their total amount of debt, net tangible assets and other matters. Management believes that the subsidiaries are in compliance with all material debt covenants.
(B) -- In April 1995, the Company issued € 406 million principal amount of 4.5% convertible notes (the
(E) -- In 1998, AXA Financial, Inc. completed an offering under its existing shelf registration of US$ 350 million (€ 344 million) 7% Senior Debentures due 2028 and US$ 250 million (€ 247 million) 6.50% Senior
(F) -- In December 1994, AXA Financial, Inc. completed a public offering of US$ 300 million (€ 297 million)
principal amount of senior notes having a fixed interest rate of 9.0% and maturing in 2004. In 1993, AXA
Holdings entered into a five year, floating rate, syndicated loan agreement in the amount of UK £ 300 million (€ 480 million). The interest rate on the outstanding balance is based on LIBOR plus 15 basis points. Sun Life Holdings has arranged interest rate swaps on the full amount of the borrowing, fixing the interest rate at an average rate of 7.48% through
(I) -- Guardian Royal Exchange plc has issued loan notes of £ 156 million (€ 249 million) with an interest rate of 6.625 % due 2023.
At December 31, 1999, aggregate maturities of longterm debt based on required principal payments at maturity for 2000 and the succeeding four years are lion and € 603 million, respectively, and € 1,060 million thereafter.
Long-term and short-term operating debt consist of the following: December 31, (in euro millions) 1999 1998
At December 31, 1999 and 1998, DLJ had short-term borrowings from banks and other financial institutions of US$ 1,818 million (€ 1,801 million) and US$ 617 million, respectively. Such borrowings are generally demand obligations at interest rates approximating US
Federal funds rates and are generally used to finance securities inventories, to facilitate the securities settlement process and to finance securities purchases by customers on margin. In addition, such borrowings include structured notes with maturities of less than one year.
(B) – In 1999, DLJ issued US$ 650 million (€ 644 million ) in 5.875% Senior Notes that mature in 2002, in connection with a US$ 2 billion (€ 2 billion) debt securities and preferred stock program which commenced in March 1999.
(C) -- In 1998, DLJ issued US$ 250 million (€ 247 million ) of 6% Senior Notes that mature in 2001, in connection with a US$ 1 billion shelf registration established in 1997. To convert these fixed rate notes into floating rate notes based upon the LIBOR, DLJ entered into an interest rate swap transaction.
DLJ redeemed US$ 154 million (€ 153 million) of this senior debt.
(G) -- In August 1997, DLJ filed a shelf registration statement which enables DLJ to issue up to US$ 1.0 billion (€ 914 million) aggregate principal amount senior or subordinated debt securities. DLJ commenced a program for an offering of up to US$ 500 million medium term notes due nine months or more from the date of issuance. At December 31, 1998, there was US$ 248 million Medium Term Notes outstanding under this program at a fixed rate of 6.94%. In accordance with this registration statement, DLJ also issued US$ 350 million (€ 345 million) Global
Floating Rate Notes due in September 2002. Such notes bear interest at LIBOR plus 25 basis points and are redeemable by DLJ in whole or in part on or after
Item 17 b03-338 • Items 17-19 (US) 23/05/00 12:14 Page F-38 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
(I) – Borrowings of Compagnie Financière de Paris was reclassified as Finance Debt in 1999 (see Note 7).
In accordance with the French insurance code, debt for which reimbursement is subordinated to other creditors in the event of a company’s liquidation, insolvency or bankruptcy and which has an original maturity date of at least five years (notice period of at least five years in the case of perpetual debt) is considered mezzanine capital.
BOR (6 month and 12 month rates) plus a margin ranging from 0.56 % to 0.69 % up to ten years and increases to up to 2.18 % after ten years.
subordinated convertible notes due 2014 for € 1,524 million. The proceeds were primarily used to finance the acquisition of GRE by AXA Sun Life. The conversion into shares of all notes issued would result in the issuance of AXA ordinary shares of 9.2 million. The
Company has the right to redeem these notes starting in January 2005 at a price of € 186.12 per note.
400 million (€ 396 million) of surplus notes having an interest rate of 6.95% and scheduled to mature in 2005 and US$ 200 million (€ 198 million) of surplus notes having an interest rate of 7.7% and scheduled to mature in 2015. Payments of interest on or principal of the surplus notes are subject to prior approval by the New York Insurance Department.
(F) -- In October 1996, DLJ exercised its option under the terms of its Cumulative Exchangeable Preferred
Subordinated Exchange Notes due on October 15, 2003. The notes are redeemable, in whole or in part, at the option of DLJ at any time.
(G) -- During the third quarter of 1996, DLJ and its wholly-owned trust, DLJ Capital Trust I (the “Trust’’)
In January 1998, DLJ issued an initial 3.5 million shares of fixed/adjustable rate cumulative preferred stock,
Series B, with a liquidation preference of US$ 50 per share, a US$ 175 million (€ 173 million) aggregate liquidation value.
(H) -- Bank IPPA, a subsidiary of AXA Royale Belge, has outstanding BF 5.3 billion (€ 131 million) aggregate principal amount renewable subordinated debt. The b03-338 • Items 17-19 (US) 23/05/00 12:14 Page F-41 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
renewable subordinated debt has scheduled maturity dates between 1997 and 2004 and is renewed automatically unless the credit worthiness of the bank deteriorates. Interest is payable annually at interest rates which vary between 5.420% and 9.875%.
(I) -- In October 1997, National Mutual Life renegotiated its deferrable facilities agreement for a five-year period with an option for a further five years. As part of these negotiations, the facility became subordinated and was reclassified accordingly as subordinated debt.
Pension costs for AXA’s defined benefit plans, are actuarially determined based on assumed discount rates
(generally between 5.5% and 8%) and are calculated, in general, using the projected unit credit method.
Components of net periodic pension cost for AXA’s significant defined pension plans are as follows: Years Ended December 31, (in euro millions) 1999 1998 1997
The funded status of AXA’s significant defined benefit pension plans is as follows: December 31, (in euro millions) 1999 1998
Unrecognized net (gain) loss from past experience different from that assumed (242) 124
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The following table sets forth the reconciliation of the projected benefit obligation and fair value of plan assets at December 31 : Item 17
Fair value of plan assets at end of year 7,523 3,909 3,776
Financial, Inc. pension plans with accumulated benefit obligations in excess of plan assets were € 323 million and € 36 million, respectively at December 31, 1999 and € 307 million and € 34 million, respectively at December 31, 1998.
At December 31, 1999 and 1998, plan assets in the amount of € 542 million and € 472 million, respectively, related to pension plans sponsored by the
b03-338 • Items 17-19 (US) 23/05/00 12:14 Page F-44 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
Rate of increase in remuneration 2.5% to 6,4% 2.5% to 5.0%
Rate of return on plan assets 4.5% to 9% 4.5% to 10.25%
NET PERIODIC POSTRETIREMENT BENEFITS COST 43 34 40 medical and life insurance benefits (“postretirement benefits’’) to qualifying employees, managers and agents who retire after having met certain age and service requirements. The life insurance benefits are related to age and salary at retirement.
The following table sets forth the postretirement benefits plans’ status, reconciled to amounts recognized in AXA’s consolidated balance sheet: The following table sets forth the reconciliation of the above accumulated postretirement benefits obligation and fair value of plan assets: Item 17
Unrecognized net loss from past experience different from that assumed and from changes in assumptions 105 110
Financial, Inc. The assumed health care cost trend rate used in measuring the accumulated postretirement benefits obligation in 1999 was 7.5%, gradually declining to 4.75% in the year 2010, and in 1998 was 8.0%, gradually declining to 2.5% in the year 2009. The discount rate used in determining the accumulated postretirement benefits obligation was respectively. If the health care cost trend rate assumptions were increased by 1%, the accumulated postretirement benefits obligation as of December 31, 1999 would be increased by 3.55%, representing an 3.91%
TOTAL INSURANCE RESERVES, NET OF REINSURANCE CEDED 288,318 233,337 27,956 21,956 7,672 6,424 323,947 261,717
Effect of changes in foreign currency exchange rates 407 269 (160) (116) 51 361
Claims and claims expenses attributable to prior years (4,956) (809) (4,681) (633) (4,448) (842)
Total reserve for claims and claims expenses, before reinsurance end of year 23,007 8,194 17,332 6,943 16,698 7,026
Net reserve for claims and claims expenses, end of year 23,481 6,325 18,633 5,444 17,389 5,912
b03-338 • Items 17-19 (US) 23/05/00 12:14 Page F-48 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
1999 was marked by a series of significant climatic events in all regions in which AXA operates, including Hurricane Floyd in the United States, earthquakes in Turkey and Taiwan, flooding in Southwest France and the December storms (Lothar and Martin) across
Western Europe. In total, these natural disasters have led to claims payments of €1,140 million, of which € 675 million is covered by reinsurance contracts. In addition, AXA utilized €142 million of its equalization provisions, which are established to cover these types of events. The impact of these natural climatic events on the AXA’s consolidated net income for 1999 was a charge of € 199 million (group share), of which € 106 million can be attributed to the storms in
Net investment income: Mortgage, policy and other loans 1,278 1,221 1,303 – – – – 3 2 1,278 1,224 1,305
In 1999, AXA tendered its Paribas stock in the public offer of exchange initiated by BNP. At December 31, 1999 AXA owns an 8.3% interest in BNP-Paribas.
Based on the average price of BNP stock on the three trading days preceding and following the initial offer made by Societe Generale, the realized gain on this transaction totaled € 331 million, group share.
The net investment result includes provisions for valuation allowances on investments held by AXA.
Gross sales proceeds associated with disposal of investments is presented in the Statement of Cash Flows.
In November 1997, AXA Royale Belge exchanged its interest in Banque Bruxelles Lambert (“BBL”), a bank holding company, for a direct interest in ING, an insurance holding company which purchased BBL.
AXA recognized a gain, which was not taxable, of € 82 million as a result of this exchange.
In August 1997, AXA Financial, Inc. redeemed in full its 6.125% subordinated debentures and all outstanding shares of its series C and E preferred stock in exchange for approximately 32.5 million shares of newly issued common stock. AXA received approximately 15.9 million shares in exchange for its ownership of Series E preferred stock. As a result of this transaction, AXA recognized a gain of € 54 million.
Equitable Life entered into long-term advisory agreements whereby Equitable Real Estate will continue to provide Equitable Life substantially the same investment and real estate management services for substantially the same fees as provided prior to the sale.
General Account for the difference between the fair value of the fund shares and their carrying value.
Annual fund income is credited to the policyholders and additional fund shares are transferred from the
AXA’s life insurance subsidiaries reinsure individual mortality risks in excess of amounts that vary by subsidiary, based on the subsidiaries’ financial position. AXA also assumes certain levels of risk in various areas of exposure from other insurance companies or reinsurers.
The components of reinsurance ceded, net, as presented in the consolidated statements of income, are summarized as follows: Item 17 b03-338 • Items 17-19 (US) 23/05/00 12:14 Page F-52 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
At December 31, 1999 and 1998, accounts receivable from reinsurers totaled € 1,248 million and € 903 million, respectively; accounts payable to reinsurers totaled € 1,297 million and € 1,040 million, respectively; and cash deposits from reinsurers totaled € 1,699 million and € 1,795 million, respectively.
A summary of the income tax (expense) benefit in the consolidated income statements is shown below: Item 17
French income tax (expense) benefit: Foreign income tax (expense) benefit: Years Ended December 31, (in euro millions) 1999 1998 1997
The sources of differences from the statutory rate and the tax effect of each are as follows: b03-338 • Items 17-19 (US) 23/05/00 12:14 Page F-54 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
Deferred income tax expense results from changes in temporary differences in the basis of assets and liabilities for financial reporting and income tax purposes.
The tax authorities in various jurisdictions have examined income tax returns and have proposed certain adjustments that are being contested. Management believes settlement of the contested amounts will have no material adverse effect on the consolidated financial position or results of operations of AXA, taken as a whole.
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basis). The weighted average number of share options outstanding during 1999 but not included in the calculation of diluted net income per ordinary share because the exercise price exceeded the average market price of AXA’s shares during 1999 was 12.2 million (1998 and 1997: € nil).
(a) Relates to stock options issued by subsidiaries within AXA which are not 100% owned by AXA, principally AXA Financial, Inc. and its subsidiaries (Alliance Capital and DLJ).
Options contracts are substantially covered by the following financial instruments which DLJ has purchased or sold on a proprietary basis and are reflected in the table below at either the underlying notional (contract)
The trading revenues from option writing activity (net of related interest expense) were approximately € 96 million, € 68 million and € 78 million for the years ended December 31, 1999, 1998 and 1997, respectively. The fair value of certain written options is measured by the unamortized premiums and the intrinsic value determined from various pricing sources. The average monthly fair value of the options was approximately € 456 million and € 260 million for the years ended December 31, 1999 and 1998, respectively.
The notional or market value of these contracts are as follows: Item 17
Futures contracts and options on futures contracts at market value 2,882 4,206 1,061 1,371 b03-338 • Items 17-19 (US) 23/05/00 12:14 Page F-58 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
In general, forward and futures contracts are entered into for periods of 90 days or less. The remaining maturities for all forwards and futures are less than 13 months. The following is a summary of the value of these contracts included in the Consolidated Financial
Average fair values during the period were computed using month-end averages. The fair values of futures contracts are measured by reference to quoted market prices. Fair values of forward contracts are estimated on the basis of dealer quotes, pricing models or quoted prices for financial instruments with similar characteristics.
Net trading (losses) gains on forward contracts were € (44) million, € 6 million and € (5) million and net trading gains (losses) on futures contracts were € 19 million, € (77) million and € (22) million for the years ended December 31, 1999, 1998 and 1997, respectively.
Swap arrangements. DLJ’s swap agreements consist primarily of equity and interest rate swaps. Equity swaps
Forward contracts: Average fair value of asset (liability) during the period 9 2
Futures contracts: Average fair value of asset (liability) during the period 6 (21)
Unrealized gains included in assets at end of period 3 3
The notional (contractual) value of swap arrangements was approximately € 28 million and € 7 million at
Unrealized gains included in total assets at end of period 256 44
controls this risk by monitoring the market value of securities pledged on a daily basis and by requiring adjustments of collateral levels in the event of excess market exposure. At December 31, 1999, pledged securities with a market value of approximately
Concentration of credit risk. As a securities broker and dealer, DLJ is engaged in various securities trading and brokerage activities servicing a diverse group of US and non-US corporations, governments, institutional and individual investors. Substantial portions of these transactions are collateralized. DLJ’s exposure to credit risk associated with the non performance of these counterparties, in fulfilling their contractual obligations pursuant to securities transactions and collateral held, can be directly impacted by volatile securities markets, credit markets and regulatory changes. All counterparties are reviewed on a regular basis to establish appropriate exposure limits for a variety of transactions. In certain cases, specific transactions are analyzed to determine the amount of potential exposure that could arise, and the counterparty ’s credit is reviewed to determine whether it supports such exposure. In addition to the counterparty ’s credit status, DLJ analyzes market movements that could affect exposure levels. DLJ considers four main factors that may affect trades in determining trading limits: the settlement method; the time it will take for a trade to settle (i.e., the maturity of the trade); the volatility that could affect the value of the securities involved in the trade; and the size of the trade. In addition to determining trading limits, DLJ
actively manages the credit exposure relating to its trading activities by entering into master netting agreements when feasible; monitoring the creditworthiness of counterparties and the related trading limits on an ongoing basis; requesting additional collateral when deemed necessary; diversifying and limiting exposure to individual counterparties and geographic locations; and limiting the duration of exposure. In certain cases, DLJ also may close out transactions or assign them to other counterparties when deemed necessary or appropriate to mitigate credit risks.
AXA is exposed to the credit risk of the counterparty to the extent that amounts are due to AXA if the swap contract was terminated currently, but AXA has no credit risk related to notional principal amounts.
The notional amount of interest rate swaps (representing asset and liability positions) outstanding at and € 14,809 million, respectively. The unexpired terms at December 31, 1999 and 1998 generally range from less than one year to five years. At
December 31, 1999, the cost of terminating outstanding interest rate swaps in a loss position was € 223 million, and the unrealized gain on outstanding swaps in a gain position was € 137 million. AXA
currently has no intention of terminating these contracts prior to maturity. During 1999, 1998 and 1997, net gains (losses) of € 10 million, € 20 million and € (15) million, respectively, were recorded in connection with interest rate swap activity.
Perpetual Notes described in Note 10, the Company entered into interest rate caps designed to hedge the exposure to rising interest rates.
The notional value of options written by insurance companies and financial services operations (excluding DLJ and its trading activities) was approximately € 377 million and € 357 million in 1999 and 1998, respectively. The net premiums received related to these written options were € 4 million and € 25 million in 1999 and 1998, respectively. Although generally used in connection with AXA’s investment operations and considered part of risk management activities, written options are generally accounted for as a trading activity and thus are stated at estimated fair value with changes in fair value recorded currently in net investment results.
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(specifically DLJ), certain alternative funds are held that utilize trading securities that may be leveraged, and atttempt to protect against market risk, through a variety of methods, including short sales, financial futures, options and other derivative financial instruments any may be collateralized by cash deposits or fixed maturity securities (essentially Treasury Bonds and
In the normal course of business, AXA principally through its financial services operations enters into letters of credit for the purpose of facilitating certain financing transactions and for securing various margin requirements. Additionally, financial guarantees are provided to customers and other financial institutions. Such commitments are noted in the following table: Item 17
(see Note 6) minority interests in 1998, AXA issued 2.7 million Royale Belge Certificates of Guaranteed Value to former Royale Belge shareholders, representing a maximum value of € 82 million. These Certificates were cancelled in December 1999 and did not give rise to payment.
In addition, DLJ enters into commitments in extend credit to non-investment grade borrowers in connection with the origination and syndication of senior bank debt. At December 31, 1999, unfunded senior bank loan commitments outstanding amounted to
(“FSA”) for the purpose of submitting a proposal regarding the interpretation of the legal basis for sharing surpluses accumulated by AXA Equity & Law in respect of prior years. If approval of the FSA is obtained, policyholders will be asked to vote on the proposal in 2000. The ultimate outcome of AXA’s proposal to the FSA and to its participating policyholders is not yet known. Management is unable to determine whether the future financial impact, if any, of the resolution of this uncertainty would be material to AXA’s consolidated results of operations, liquidity or financial condition. Furthermore, AXA’s accounting method for measuring future policy benefits for the
■ AXA has issued insurance policies and assumed reinsurance for cover related to environmental pollution and asbestos exposure. The insurance companies have been and continue to be involved in disputes regarding policy coverages and judicial interpretation of legal liability for potential environmental and asbestos claims, principally in the US. AXA has received and continues to receive notices of potential insurance and reinsurance claims asserting environmental and asbestos losses under insurance policies issued or reinsured by AXA. Such claim notices are frequently merely b03-338 • Items 17-19 (US) 23/05/00 12:14 Page F-63 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
(commonly referred to as “Superfund”) could affect the liabilities of policyholders and insurers relating to environmentally impaired sites covered by Superfund.
Resolution of these uncertainties may ultimately result in additional claim losses. AXA has made cumulative payments under insurance and reinsurance contracts related to environmental pollution and asbestos claims and legal costs of approximately €115 million up to December 31, 1999 (1998: € 85 million and 1997: € 74 million). At December 31, 1999 and 1998, AXA has insurance claim liabilities of € 194 million and € 146 million, respectively, for reported insurance and reinsurance claims and additional reserves for incurred but not reported (IBNR) claim liabilities of € 375 million and € 323 million, respectively related to environmental pollution and asbestos claims. The
IBNR liabilities are estimated and evaluated regularly based on information received by management. AXA
carefully monitors potential claims for which it has received notice. When estimates are revised, AXA
increases or decreases claims liabilities attributable to prior years for such claims. These increases or decreases are reflected in the results of operations for the period in which the estimates are changed.
Commission. The International Commission is currently conducting an investigatory process to determine the current status of policies issued to Holocaust victims between 1920 and 1945 and has established a claim and valuation process designed to resolve unpaid insurance policies under which first payments were made accordingly by AXA. In Germany, AXA is working closely under guidance of the German insurance regulatory authority, the BAV and is also involved in the implementation of the German Foundation
Commission, a governmental commission investigating Holocaust era issues, primarily through searching its files for policies issued to Holocaust victims. In
Holocaust victims is complex due to the passage of time, incomplete records, restitution programs, payments to blocked accounts, currency devaluations, insurance portfolio transfers and nationalization of insurance companies. This assessment involves historical, actuarial, economic, regulatory and legal expertise, research and analysis.
Item 17 b03-338 • Items 17-19 (US) 23/05/00 12:14 Page F-64 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
health insurers in the US involving insurers’ sales practices, alleged agent misconduct, failure to properly supervise agents and other matters. Some of the lawsuits have resulted in the award of substantial judgements against other insurers (including material amounts of punitive damages) or in substantial settlements. Equitable Life and its subsidiaries in the past have been involved in such lawsuits, and continue to be periodically named as a defendant in such lawsuits, including lawsuits which are currently pending. Life insurers in the United Kingdom, including AXA Sun
DLJ’s and its subsidiaries’ conduct of its investment banking, securities trading and brokerage activities.
In most cases, the amounts available for dividends from the Company’s insurance subsidiaries are limited to the accumulated earnings calculated using the subsidiaries ’ historical statutory basis of accounting.
France or in certain other countries (as approved by local regulators), unrealized capital gains on real estate as reported in regulatory filings. AXA’s insurance business in other countries, most notably the United States and Australia, and DLJ are also subject to capital adequacy and solvency margin regulations. At December 31, 1999, management believes AXA’s subsidiaries are in compliance with all applicable solvency and capital adequacy margin requirements.
Executive officers and other key employees may be granted options to purchase ordinary shares of the
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granted key managers options which vest over five years to acquire approximately 2 million shares of a wholly-owned subsidiary which has as its principal asset bonds which are exchangeable into 21,523,125
granted key managers options to acquire approximately 3.5 million ordinary shares of a substantially wholly-owned subsidiary which has as its principal asset shares of common stock of AXA Financial, Inc.
Total employee stock based compensation cost charged to earnings was € 21 million, € 19 million and € 32 million for the years ended December 31,
P a r t y T r a n s a c t i o n s
The Company and its French subsidiaries are parties to cost sharing arrangements with the Mutuelles AXA
AXA and the Mutuelles AXA, cash management functions of the Company and its French subsidiaries are performed through GIE. Cash and cash equivalents were deposited with this GIE of approximately € 5.1 b03-338 • Items 17-19 (US) 23/05/00 12:14 Page F-67 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
December 31, 1999, 1998 and 1997, respectively, of which € 881 million, € 758 million and € 186 million, respectively, were allocated to the Company’s
AXA and Finaxa, owner of the AXA trademark, entered into a Licensing Agreement pursuant to which Finaxa granted the Company a non-exclusive license (the
“AXA License”) to use the AXA trademark in the jurisdictions in which AXA currently operates and in any additional jurisdictions in which the AXA trademark is registered. AXA is obligated to pay Finaxa pursuant to the AXA license an annual fee of approximately € 760,000 as well as 50% of any net royalties the
Compagnie UAP (1997), Royale Belge minority interests (1998) and GRE (1999) (see Note 6). As a result of these acquisitions, AXA increased significantly its participation in insurance, financial services and other operations throughout AXA. Partly due to these acquisitions and partly due to objectives to improve AXA
In 1999 the International Insurance Segment was created which includes the activities reported in the former Reinsurance Segment and the Transnational
Prior to 1998 the Financial Services Segment was comprised of the US Financial Services Group and the
Property and Casualty Insurance Segment products and services. Includes a full range of products including principally automobile and homeowners’
insurance to individuals and commercial property and liability insurance to corporate customers, including workers’ compensation benefits.
Other Financial Services Segment products and services. Principally relates to DLJ whose products and services include securities underwriting, sales and trading, merchant banking, financial advisory services, investment research, venture capital, correspondent brokerage services, securities lending, online interactive brokerage services, asset management and other advisory services.
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Total Benefits, Claims and Other Deductions (46,748) (15,290) (3,518) (1,646) (10,063) (719) (77,985)
Income (loss) before income tax expense 2,006 901 (30) 492 936 (124) 4,182
Gross premiums and financial services revenues 32,446 11,889 2,833 1,292 8,236 1 56,697
Insurance benefits and claims (37,632) (9,396) (2,791) – – – (49,819)
Gross premiums and financial services revenues 31,354 12,088 3,443 1,005 7,694 3 55,587
Insurance benefits and claims (36,306) (9,299) (2,668) – – – (48,273)
Casualty € 42 million (1998: € 37 million and 1997: € 27 million), International Insurance € 11 million
Item 17 b03-338 • Items 17-19 (US) 23/05/00 12:14 Page F-72 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
Total (reinsurance assumed accounted for € 1,275 million, € 1,374 million and € 1,384 million, respectively) 37,091 32,446 31,354
Total (reinsurance assumed accounted for € 114 million, € 194 million and € 338 million, respectively) 13,593 11,889 12,088
Including: (a) Such costs are included within “insurance benefits and claims” in the consolidated statement of income (b) Includes amortization expense for value of purchased business inforce and deferred acquisition costs and other related external costs. (c) Such costs are included within “net investment results” in the consolidated statement of income. (d) Includes amortization of value of purchased business inforce and deferred acquisition costs.
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Mortgage, policy and other loans 17,266 17,425 5,920 5,838 734 917 23,921 24,180
Securities purchased under resale agreements – – 32,345 32,345 – – 32,345 32,345
TOTAL CASH AND INVESTED ASSETS 332,703 345,734 79,142 79,292 5,001 6,217 416,846 431,242
Assets allocated to UK with-profit contracts 18,713 18,713 – – – – 18,713 18,713
Mortgage, policy and other loans 16,244 16,316 978 1,064 45 45 17,266 17,425
Investments in companies accounted for by the equity method 464 464 225 225 – – 689 689
TOTAL CASH AND INVESTED ASSETS 237,045 251,415 24,286 27,931 6,551 7,134 267,883 286,481
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l i a b i l i t i e s
Other liabilities includes provisions for risks and charges set out in the table below.
France. The provision for restructuring costs and charges thereto are presented in the tables below for the years indicated.
Purchase Accounting Adjustment 188 188 b03-338 • Items 17-19 (US) 23/05/00 12:14 Page F-79 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
AXA’s European asset management and financial services information systems to report in euros. This changeover affected approximately 85% of the related information systems. The total estimated cost of this project is approximately € 176 million, of which € 48 million was incurred up to December 31, 1999.
With regard to its insurance and reinsurance operations, since 1997 AXA has been particularly restrictive in the provision of insurance coverage on Year 2000 risks, by excluding or limiting the most risk-sensitive guarantees. To the best of the Company’s knowledge, no material Year 2000-related damage has been noted to date. Since the Group’s insurance and reinsurance companies have not been notified thus far of any material damage related to the Year 2000, there appears to be limited exposure to Year 2000 insurance risk for AXA.
Royal Exchange Plc, GRE Royal Exchange International, Guardian Dublin Docks, Guardian Insurance
Item 17 b03-338 • Items 17-19 (US) 23/05/00 12:14 Page F-80 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
Health Care Ltd, PPP Life Time Care. AXA’s ownership interest in these subsidiaries is 56.3%.
Europe Holding. GRE’s 83.7% ownership of these subsidiaries via this holding, were purchased by AXA and then sold to AXA Colonia. In the second half of the year, AXA Colonia acquired minority interests on the open market, thereby bringing AXA’s ownership of
In total, the GRE subsidiaries (excluding the branch operations in Portugal and the Netherlands) contributed € 10,881 million to AXA’s balance sheet assets and € 2,383 million and € 8 million to gross revenues and net income, excluding non-recurring gains. The operating results were consolidated from date of acquisition and, therefore from May 1, 1999.
In 1999, the Luxembourg-based life insurance company PanEurolife, as well as National Commercial
The Company consolidated UAP and its subsidiaries from the date of acquisition, January 1, 1997.
United Kingdom AXA Asset Management Ltd 100.00 93.79 100.00 95.35 AXA Equity & Law Plc 99.94 99.94 99.92 99.92 AXA Sun Life Holding – – 100.00 71.55
Guardian Royal Exchange Plc (*) 100.00 56.31 – – Guardian Royal Exchange International BV (*) 100.00 56.31 – – Sun Life & Provincial Holdings Plc (4 companies) 56.32 56.31 71.57 71.55
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GREA Insurance (*) 100.00 56.31 – – Guardian Insurance Ltd (*) 100.00 56.31 – – PPP Group Plc (*) 100.00 56.31 – – PPP Healthcare Ltd (*) 100.00 56.31 – – PPP Lifetimecare (*) 100.00 56.31 – –
AXA Minmetals Insurance Co Ltd (China) (*) 51.00 34.67 – – AXA Non Life Insurance Co Ltd (Japan) 100.00 100.00 100.00 100.00 AXA Reinsurance Asia (Singapore) 100.00 99.72 100.00 99.90 GRE Singapore Branch (*) 100.00 100.00 – – Guardian Insurance Ltd Hong Kong (*) 100.00 100.00 – –
Germany Albingia Lebenversicherung (*) 100.00 85.17 – – Albingia Versicherung (*) 98.98 85.17 – –
Portugal AXA Portugal Companhia de Seguros 99.55 98.97 96.19 95.59 AXA Portugal Seguros Vida 95.09 95.06 95.09 95.06
Morocco AXA Al Amane Assurances 100.00 50.80 67.40 61.32 Compagnie Africaine d’Assurances (*) 100.00 50.80 – –
Turkey AXA Oyak Hayat Sigorta (*) 100.00 50.00 – – AXA Oyak Sigorta (*) 71.02 35.51 – –
AXA Investment Managers (2 companies) (*) 100.00 93.79 – – AXA Rosenberg LLC (*) 50.00 46.90 – –
Asia/Pacific AXA Investment Managers Hong Kong (*) 100.00 93.79 – – AXA Investment Managers Hong Kong SAR (*) 100.00 93.79 – – AXA Investment Managers Tokyo (*) 100.00 93.79 – – National Mutual Funds Management (24 companies) 100.00 47.11 100.00 48.47
Belgium AXA Bank Belgium (Anhyp) 100.00 99.80 98.76 97.46 AXA Investment Managers Bruxelles (*) 100.00 93.79 – –
The Netherlands AXA Investment Managers Den Haag (*) 100.00 93.79 – –
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AXA and Nippon Dantai will merge their Japanese life insurance operations and will create a new holding company called AXA Nichidan. AXA will contribute cash up to ¥ 200 billion (approximately € 2 billion): ¥ 135 billion before March 2000 and up to ¥ 65 billion before
(approximately € 519 million). AXA China Region is the second largest life insurer in Hong Kong. Before this transaction, AXA Asia Pacific Holdings had a 73.5%
AXA China Region and has delisted this company from the Hong Kong Stock Exchange.
The transaction was financed through a medium-term loan of € 521 million granted by AXA to AXA Asia
January 22, 1997 matured in January 2000 at which time the debt was converted into 4.1 million of AXA’s ordinary shares. This resulted in a capital increase of
In February 2000 the Company issued € 500 million 7.25% subordinated notes with no specified maturity date. These notes may be redeemed at the issuer’s option pursuant to contractually defined terms and conditions. Concomitantly, the Company issued € 1.1 billion 3.75% subordinated convertible notes due January 1, 2017 with the option of early redemption, at the issuer’s option, starting in 2007.
The purpose of these borrowings is to finance the growth of the Company, or any of its subsidiaries, and to finance the buyout of AXA China Region’s minority interests and the acquisition of Nippon Dantai.
M a t e r i a l D i f f e r e n c e s B e t w e e n A c c o u n t i n g P r i n c i p l e s G e n e r a l l y A c c e p t e d i n F r a n c e a n d i n t h e U n i t e d S t a t e s
French GAAP and US GAAP affecting AXA’s consolidated net income and shareholders’ equity which are set forth in the tables that follow.
■ The principles covering the scope of consolidation under French GAAP are set forth in Note 2. For US
Under French GAAP, AXA began accounting for investment and real estate companies owned by French life insurance subsidiaries using the cost method in 1998 in order to improve financial statement presentation
(see Note 2). Under US GAAP, such entities are either accounted for using the equity method or consolidated as AXA either exercises significant influence over or controls such entities, respectively.
■ Under US GAAP, business combinations, including the acquisition of non-controlling interests and the acquisition of minority interests, generally are accounted for as purchases and all assets and liabilities of the acquired company are recorded at fair value at the purchase date.
December 31, 1992 is generally the same except for insurance liabilities and certain fixed maturities (see
prospectively conformed its US GAAP policy for certificates of guaranteed value to EITF 97-8.
In addition, under US GAAP revisions to the original purchase price and consequently goodwill can be made up to 12 months from date of acquisition as subsequent information becomes available that may impact the fair value of identifiable net assets at date of acquisition. Under French GAAP such revisions can be made to the end of financial year following the acquisition.
US GAAP, when circumstances or events indicate that the carrying value of goodwill is no longer warranted, then there is an adjustment to the estimated useful life for amortizing goodwill or a recognition of a writedown in the carrying amount. The carrying amount of goodwill is subject to regular evaluation under both
GAAP the UAP purchase price was based primarily on UAP’s statutory net equity per share which differs from the fair value of assets distributed as consideration. The different methods of determining the UAP
purchase price as well as the differences in the underlying accounting principles used for determining the fair value of assets acquired between French GAAP
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(a) Relates to the acquisition of GRE by SLPH whereby SLPH issued additional capital stock to partly finance this acquisition. The issuance of capital stock diluted AXA’s ownership interest in SLPH from 71% to 56,3%.
Value (€ 44 million) issued in connection with the acquisition of minority interests were included in the purchase price in accordance with EITF 97-8 issued in
The Certificates were recorded at fair value at the acquisition date and included in the purchase price.
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Such instruments are classified as debt and changes in their fair value are recorded in earnings. Goodwill was unaffected by such changes in fair value of these
Under US GAAP, securities classified as “held to maturity ’’ are reported at amortized cost, securities classified as “trading’’ are reported at fair value, with unrealized gains and losses included in the statements of income, and securities classified as “available for sale’’ are reported at fair value, with unrealized gains and losses reported as a separate component of shareholders’
Under US GAAP, the fixed maturity and equity investments allocated to UK with-profit contracts are classified as available-for-sale. Therefore, the entire change in net unrealized investment gains is recognized in shareholders’ equity, and not in net income. Real estate assets allocated to UK with-profits contracts are carried at cost, less accumulated depreciation and subject to impairment testing under Statement of
“Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of”.
(loss) in accordance with US GAAP excludes the change in unrealized investment gains or losses on assets allocated to with-profits contracts, while recognizing in full the related increase or decrease in the liability for with-profits policyholder benefits associated with such gains or losses. As a result, in AXA’s view, revenues and expenses are no longer appropriately matched. Under US GAAP, when the estimated fair value of assets increases, the liability for policyholder benefits increases to reflect the higher expected terminal bonuses, without recognizing the corresponding unrealized investment gains in net income.
Decreases in the estimated fair value of assets reduce the liability for policyholder benefits, resulting in a positive impact on net income.
Accordingly, AXA believes that not including the change in estimated fair value of assets allocated to with-profits contracts results in amounts that do not fully reflect the economic effect of the UK with-profits contracts. The reconciliation of the effects on consolidated net income of differences between French
GAAP and US GAAP also shows consolidated net income in accordance with US GAAP, except for adjustment for the change in unrealized investment gains on assets allocated to UK with-profits contracts, resulting in a presentation AXA believes is more meaningful under the circumstances.
Under French GAAP AXA’s European subsidiaries, excluding the life operations in the United Kingdom and the Netherlands (which use a US GAAP basis), calculate future policy benefits in accordance with the applicable regulatory and accounting rules using actuarial assumptions relating to investment yields, mortality, morbidity and expenses. Contracts are assumed to remain inforce until their contractual maturity date or the death of the insured.
For AXA’s non-European subsidiaries and the life operations in UK and the Netherlands, excluding Equitable
Management has elected not to implement FAS 120 for AXA’s consolidated accounts under US GAAP and accordingly is maintaining its previous US GAAP
Item 17 b03-338 • Items 17-19 (US) 23/05/00 12:14 Page F-92 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
Among such conditions is the US GAAP requirement that the benefit arrangement be communicated to employees and include sufficient detail to enable employees to determine the type and amount of benefits they will receive if they are terminated. As a result of this and other conditions, certain costs included in restructuring provisions under French GAAP are not permitted under US GAAP.
■ Under French GAAP, treasury shares are reported as an asset if they are held for sale and gains or losses realized on sale of such shares is included in income.
Under US GAAP, the cost of treasury shares is reported as a deduction from shareholders’ equity. If such shares are then reissued, the proceeds received are correspondingly reported as an increase to shareholders ’ equity. Therefore, any gains or losses from holding such shares are recorded as adjustments to shareholders’ equity.
■ Under French GAAP, realized gains or losses on intercompany sales of assets to or from a consolidated
French insurance or reinsurance company are not eliminated, if the assets were supporting or are intended to support the liabilities for future policy benefits or insurance claims and claims expenses or if the loss is a result of permanent impairment. Under US
Under French GAAP, capital gains are recognized when appreciated securities or real estate are contributed to mutual funds or real estate funds established for the purpose of supporting French Savings
Contracts (see Note 13). Under US GAAP, such gains are proportionately recognized when the French
■ Under French GAAP, AXA applies APB 25 as summarized at Note 2 with the exception that no compensation expense is recorded for the Company’s stock option incentive plans and its employee stock purchase plans.
Under French GAAP, valuation allowances are recorded for declines in the value of real estate deemed to be other than temporary. Under US GAAP, impairments in the value of real estate investments are determined and measured in accordance with FAS
121. FAS 121 requires that long-lived assets to be reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of such assets may not be recoverable.
Under French GAAP when long term debt is issued with early redemption rights whereby the redemption price is in excess of the original issue price per bond or note, the excess premium may not be amortized over the period from original issue date to earliest redemption period. Under US GAAP, this premium, if significant, is amortized over the period up to earliest redemption and is included in interest expense.
GAAP are as follows: Years Ended December 31, (in euro millions) 1999 1998 1997
Change in unrealized investment gains on assets allocated to UK with-profit contracts (1,486) (1,027) (1,382)
Under French GAAP, in accounting for UK with-profit contracts, revenue and expense are matched in net income by including both changes in the estimated fair values of assets allocated to UK with-profit contracts and corresponding increases or reductions in the liability for UK with-profit policyholder benefits. US GAAP, which was developed in an environment that differs from the one in which the UK with-profit contract was developed, requires the change in unrealized investment gains on assets allocated to UK with-profit contracts be excluded from net income, while requiring recognition of the corresponding change in the liability for with-profit policyholder benefits in net income. Accordingly, AXA believes this exclusion results in amounts that do not fully reflect the economic effect of the UK withprofit contracts. An increase in the fair value of these assets results in an increase in the liability for policyholder benefits and a reduction in AXA’s consolidated US GAAP net income. The adjustment below reverses the exclusion of the change in unrealized investment gains on assets allocated to UK with-profit contracts and sets forth the net income in accordance with US GAAP, except for such adjustment, resulting in a presentation AXA believes is more meaningful under the circumstances.
CONSOLIDATED NET INCOME IN ACCORDANCE WITH US GAAP, EXCEPT FOR ADJUSTMENT FOR THE CHANGE IN UNREALIZED INVESTMENT GAINS ON ASSETS ALLOCATED TO UK WITH-PROFIT CONTRACTS 2,239 1,457 1,263 b03-338 • Items 17-19 (US) 23/05/00 12:14 Page F-95 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
U S G A A P F i n a n c i a l S t a t e m e n t s
Under US GAAP, insurance contracts which have either flexible premiums or insignificant mortality or morbidity risk are deemed investment contracts. For these type of contracts, only the policy charges assessed against the policyholder are recorded as revenue and only the actual costs borne by the insurance company to administer and manage such contracts are recorded as an expense. The premiums received less policy charges are credited directly to the liability for future policy benefits (for universal life contracts) or separate account (unit linked) liabilities, as appropriate. In a corresponding manner, benefit payments are directly charged to such liability, rather than being included in benefits, claims and other deductions.
Given the impact on both revenues and expenses there is no net impact to net income reported between
French GAAP and US GAAP given that both revenues, changes to insurance reserves and claims expenses reduce: only a presentational change.
Block of participating policies established in connection with the demutualization of The Equitable Life
Certain subordinated debt and mandatorily convertible bonds and notes which are classified as mezzanine capital under French GAAP would be classified as debt under US GAAP.
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Total liabilities, minority interests, subordinated debt, mandatorily convertible bonds and notes, and shareholders’ equity 533,052 533,429 507,480
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Future policy benefits, other policy liabilities, insurance claims and claims expenses 189,665 189,665 185,295
Total liabilities, minority interests, subordinated debt, mandatorily convertible bonds and notes, and shareholders’ equity 410,171 410,437 384,835
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Condensed Consolidated Statements of Income Year ended December 31, 1999 (in euro millions) US GAAP Adjusted (a) French GAAP
NET INCOME PER ORDINARY SHARE: (a) US GAAP, except for adjustment for the increase in net unrealized investment gains on assets allocated to UK with-profit contracts of € 709 million.
NET INCOME PER ORDINARY SHARE: (a) US GAAP, except for adjustment for the increase in net unrealized investment gains on assets allocated to UK with-profit contracts of € 953 million.
Comprehensive income, includes net income and represents the change in shareholders’ equity during a period from non-owner sources. It includes “other comprehensive income” which represents revenues,
The calculation of basic and diluted net income per ordinary share under US GAAP is based on the same methodology as for French GAAP (see Note 16).
However, differences arise due to the underlying differences in accounting principles as noted below.
Balance at December 31 in accordance with US GAAP 7,938 4,704 6,920 4,126 5,291 3,180
(a) US GAAP, except for adjustment for the increase in net unrealized investment gains (net of deferred tax) on real estate allocated to UK with-profit contracts.
expenses, gains and losses that under US GAAP are excluded from net income. The changes in AXA’s US
At December 31, 1999 and 1998, net unrealized gains from available for sale securities included in shareholders ’ equity in accordance with the US GAAP was € 7,265 million and € 6,893 million, respectively. Such net unrealized gains were net of € 4,150 million and € 3,522 million of deferred income taxes and € 7,417 million and € 8,367 million of amounts allocated for policyholders and minority interests, which included amounts attributable to assets allocated to UK withprofit contracts of € 3,450 million and € 2,666 million (net of income taxes of € 2,628 million and respectively.
components of the net deferred income tax asset and liability are as follows: Item 17
AXA Financial, Inc. recorded, as a reduction of its shareholders’ equity, an additional minimum pension liability of € 16 million and € 24 million, net of income tax, at December 31, 1999 and 1998, respectively, under US GAAP. This liability which primarily represents the excess of the accumulated benefit obligation over the fair value of plan assets and accrued pension liability is not recorded under French GAAP. The German subsidiaries also recorded as a reduction of its shareholders ’ equity an additional minimum pension liability of € 52 million and € 36 million, net of income tax, at December 31, 1999 and 1998. This minimum pension liability is not recognized under French GAAP.
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GAAP (on a pro forma basis) would be as follows: Years Ended December 31, (in euro millions, except per share amounts) 1999 1998 1997 US GAAP: Net Income: Net income per ordinary share: – basic as reported 3.46 2.24 0.98
Years Ended December 31, (in euro millions, except per share amounts) 1999 1998 1997
The weighted average fair value per option granted by the Company in 1999, 1998 and 1997 was € 36, b03-338 • Items 17-19 (US) 23/05/00 12:14 Page F-103 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
b03-338 • Items 17-19 (US) 23/05/00 12:14 Page F-104 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
ACAV (Assurance à Capital Variable) Separate account products sold by the French Life Insurance
Group. The separate accounts are invested in equity and/or debt securities (other than securities of real estate companies) or mutual funds (including funds of mutual funds).
ACAVI (Assurance à Capital Variable Separate account products sold by the French Life Insurance
Asset valuation reserve (‘’AVR’’) The asset valuation reserve is a liability on a life insurance company ’s statutory balance sheet under US statutory accounting practices. AVR establishes statutory reserves related to the market risk of the insurance company’s portfolio, including mortgage loans, equity real estate, joint ventures, fixed maturities and common and preferred stock. AVR has no effect on financial statements prepared in conformity with French or US GAAP.
Capacity The amount of insurance or reinsurance available from a company based on its internal policies, financial strength and the market in general.
Cash surrender value The amount of cash available to a policyholder on the surrender of a contract for a life insurance product.
Immobilier) Contracts b03-338 • Items 17-19 (US) 23/05/00 12:14 Page G-1 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
Claim An occurrence that is the basis for submission and/or payment of a benefit under an insurance policy. Claims may be covered, limited or excluded from coverage, depending on the terms of the policy.
Claims reserves Reserves recorded by an insurer or reinsurer to reflect the estimated cost of payments for claims for which the insurer or reinsurer ultimately will be required to indemnify insureds or reinsureds in the future in respect of losses occurring on or prior to the balance sheet date on insurance or reinsurance it has written. Claims reserves are composed of case reserves and IBNR
reserves and, unless otherwise indicated, catastrophe equalization reserves. Unless otherwise indicated, for French GAAP purposes claims reserves are presented net of reserves established with respect to claims ceded to reinsurers. Such liability is gross of liability ceded to reinsurers under US GAAP. This term is used interchangeably with ‘’loss reserves.’’
Direct insurance Insurance coverage sold to individuals and commercial enterprises, as opposed to reinsurance, which is the ceding of all or a portion of risks to a reinsurer by the insurer who has sold such coverage.
Disability income insurance Health insurance that provides income payments to the insured wage earner when income is interrupted or terminated because of illness, sickness or accident.
Distribution fund A separate account investment option which distributes a portion of the investment income each year to the policyholder in cash rather than having it reinvested in the account.
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Expense ratio The ratio of property and casualty insurance operating expenses
(acquisition expenses and other insurance company expenses) to earned premiums net of reinsurance.
Facultative reinsurance The reinsurance of part or all of the insurance provided by a single policy negotiated on a contract-by-contract basis.
Flexible premium products Insurance products where the policyholder may choose the amount and frequency of the premiums paid (often within certain limitations).
Gross premiums Total premiums (whether or not earned) for insurance contracts written or assumed (including deposits for contracts with an insignificant amount of mortality or morbidity risk during a specific period, without deduction for premiums ceded.
Group products Insurance products under which individual employees or individuals related to other organizations generally created for purposes other than obtaining insurance are covered under a single policy. The employers or other groups often benefit from favorable tax treatment or contract terms.
Immediate annuity An annuity which begins benefit payments immediately, or usually not later than one year after issuance.
Interest maintenance reserve (‘’IMR’’) The interest maintenance reserve is a liability on a life insurance company’s statutory balance sheet under US statutory accounting practices that applies to all types of fixed income investments
(bonds, non-redeemable preferred stocks, commercial mortgage loans and mortgage-backed securities). In general, an insurance company must include in the IMR any gains or losses realized from the sale of fixed income investments that are due solely to changes in the prevailing level of interest rates.
Interest-sensitive product A life insurance policy or annuity that pays a minimum guaranteed interest rate plus a current rate of interest on policy or contract account values which is subject to being reset periodically by the insurer.
Life insurance products Term which includes all the products offered by a life insurance company, such as group, individual, life, health and retirement.
(“IBNR”) reserves b03-338 • Items 17-19 (US) 23/05/00 12:14 Page G-5 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
National Association of Insurance An association of the top insurance regulatory officials of all 50 states and the District of Columbia organized to promote consistency of regulatory practice and statutory accounting standards throughout the United States.
Non-proportional reinsurance Arrangement in which a reinsurer makes payments to the ceding insurer for losses in excess of a specified amount.
Participating contracts Insurance in which the policyholder is entitled to participate in the earnings or surplus of the insurance enterprise. The participation occurs through the distribution of dividends to policyholders.
Persistency Measurement of insurance policies remaining in force from yearto -year.
Proportional reinsurance Arrangement whereby the insurer cedes to the reinsurer an agreed fixed percentage of premiums and losses and other liabilities for each policy covered on a pro rata basis.
with-profits contractholders. Regular bonuses, once credited, are guaranteed on death or maturity.
Commissioners b03-338 • Items 17-19 (US) 23/05/00 12:14 Page G-6 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
Segmented tariff Insurance premiums that vary according to the insured’s age, gender or other factors (e.g. past driving record) deemed likely to have an impact on future losses.
Separate account Investment account established and maintained by an insurer to which funds have been allocated for certain insurance policies or contracts of the insurer. The income, gains and losses realized or not realized from assets allocated to the account are, in accordance with the insurance policies or contracts, credited to or charged against the account without regard to other income, gains or losses of the company or the company’s other separate accounts. Separate accounts cannot generally be charged with the liabilities of the general account. Products meeting this definition are often referred to as “investment-linked” or “unit-linked”
Single premium products Life insurance products which provide for only one premium to be paid at the issuance of the contract.
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Statutory fund A fund into which Australian life insurance companies must segregate similar types of policies and in which all related premiums must be credited and which may be used only for the conduct of the business of those policies. The investment portfolio supporting that fund must be kept segregated from the other assets of the company and may be applied only for the benefit of those policyholders.
Surrender The termination of a life or retirement contract at the request of the policyholder after which the policyholder receives the cash surrender value, if any, of the contract.
Terminal bonuses Bonuses (or policyholder dividends) paid at the termination of UK
Treaty reinsurance A type of reinsurance whereby the ceding company automatically will cede and the reinsurer automatically will assume a predetermined portion or category of risk underwritten by the ceding company.
Glossary b03-338 • Items 17-19 (US) 23/05/00 12:14 Page G-8 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
Underwriting results The pre-tax profit or loss experienced by a property-casualty insurance company or reinsurance company after deducting incurred claims and claims expenses and operating expenses from premiums earned. This profit and loss calculation includes reinsurance assumed and ceded but excludes investment income.
Unearned premium reserves Pro rata unearned premium reserves established for premiums written with respect to insurance coverage for future periods.
Universal life insurance A life insurance product under which (1) premiums are generally flexible, (2) the level of death benefits may be adjusted and (3)
Variable product A life insurance product that provides a return linked to an underlying portfolio. The portfolio is usually a group of mutual funds established as one or more separate accounts with the policyholder given some discretion in choosing the mix of assets.
Wind-up annuities Non-participating group annuities sold by The Equitable principally to satisfy liabilities under terminated pension plans.
Withdrawal Surrender in part. Many life insurance products permit the insured to withdraw a portion of the cash surrender value of the contract. Future benefits are reduced accordingly.
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant certifies that it meets all of the requirements for filing on Form 20-F and has duly caused this annual report to be signed on its behalf by the undersigned thereunto duly authorised.
Signatures b03-338 • Items 17-19 (US) 23/05/00 12:14 Page G-10 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):