A Contact page allows visitors to send e-mail queries to the shareholder and investor relations teams, at actionnaires@cnp.fr or infofi@cnp.fr.
Selected for the soundtrack of all five films, Dimitri Shostakovitch’s Waltz 2 has become our sound logo.
Scenario: Fifty years in a man’s life, from 1944 to 1993, a lifetime of encounters in a single camera shot.
An institutional film (“The dance”) and a personal risk film (“One sunny morning”)
Scenario: Relations between the generations during a family get-together at the grandparents’ home.
Filmed in February 2003, “From one life to the next” takes the viewer on a journey through more than 100 years of time, via a series of vignettes depicting different historical moments. With each scene, the camera plunges into a photograph and goes back in time. The photographs act as shortcuts in the filming sequence, establishing a link to the past while anchoring the film in the present. This latest production once again highlights CNP Assurances’ steadfast presence alongside policyholders and its ability to move with the times.
The film was directed by Philipp Stoelzl and produced by Louis XIV DDB advertising.
Viewable at www.cnp.fr, the Flash-based, fully interactive documentary comes with a variety of extras, such as a making-of, interviews with the cast and crew, the project storyboard and a biography of the director. There are also comments by various personalities, including two well-known French journalists, Christian Blachas and Jérôme Bonaldi. Numerous archival documents relate 150 years of French advertising, illustrated with original pictures.
CNP Assurances designs, develops, distributes and manages savings, pension and personal risk products. By insuring people throughout their lives, we practice the principles of sustainability day in, day out.
In France, we meet the insurance needs of 14 million people, helping them protect their future by offering savings solutions and insurance against the risks of everyday life. Internationally, we are deploying through subsidiaries the bancassurance model that has been tried and tested in France over the last 150 years.
We set exacting standards, offering a personalised service to every one of the holders of our roughly 12.4 million individual policies, managing our €171 billion worth of assets in a manner that yields healthy returns while protecting the underlying value of the portfolio, and maintaining close relations with our 240,000 private shareholders and our institutional shareholders in Europe and the United States.
The personal insurance market performed significantly better than the economy as a whole. French GDP grew 2.4% in 2004, the highest rate since 2000. Although this represented a respectable performance compared with France’s neighbours and main trading partners, Germany and Italy, it nevertheless lagged behind growth rates in the rest of the world, particularly the United States and the countries of Asia. Moreover, the outlook remains uncertain, due to persistently high unemployment, a deteriorating external trade balance and a budget deficit that shows no signs of falling.
In last year’s uncertain environment, which weighed on consumer confidence, CNP Assurances demonstrated its underlying strength by achieving steady growth in both revenues and earnings. Compared to our competitors, our top and bottom lines are less sensitive to changes in the economic cycle, while our prudent management and strong fundamentals inspire confidence. We have proved our resilience in periods of stock market turbulence and by taking up the development opportunities offered by the new pension products as well as in international markets, we have also confirmed our ability to launch new businesses and prepare the future. Lastly, the 2003 renewal of the shareholders’ pact among our main shareholders (Caisse des Dépôts, La Poste, Caisses d’Epargne and the French State) gives us even greater stability.
The Supervisory Board’s attentive oversight has contributed to this good performance. As Chairman of the Supervisory Board, I can testify that our corporate governance processes operate in the interests of all shareholders, both large and small, with the objective of creating value over the long term. All the opportunities offered by the Loi de Sécurité Financière corporate governance legislation have been used to improve internal control processes. As part of its general oversight role, the Supervisory Board closely examines procedures for the preparation and processing of accounting and financial information. The key goal is to ensure that all information given to shareholders and the market on matters that may impact the Group’s net asset value is as clear and reliable as possible.
Concerning policyholders, several important developments took place in 2004. In particular, the Cour de Cassation, France’s supreme court, handed down four rulings confirming that, unlike certain investment products sold by banks, insurance contracts by definition contain an element of risk. These rulings make our transactions even more legally watertight. We have also taken an important step towards increasing policyholder satisfaction by launching an initiative to make policies and other commercial documents clearer and easier to understand. I will be personally monitoring this initiative, to ensure that continuous improvements are made.
The Supervisory Board is responsible for assessing the targets set by the Executive Board and approving strategic investments. Accordingly, with my fellow Supervisory Board members, I closely monitor the Group’s international development, which has just entered a new phase with the acquisition of a 57.5% stake in Fineco Vita, the life insurance subsidiary of Italy’s fourth largest banking group, Capitalia. This acquisition and the development of CNP Italia’s loan insurance business mark CNP Assurances’ return to the Italian market which it had left on a high note in 2002 by selling its stake in Carivita at a healthy profit. Fineco Vita will enable us to significantly increase the proportion of revenues generated outside France, as from this year.
As a member of the Board of Directors of Caixa Seguros, I also review the accounts and outlook of our Brazilian subsidiary. The business is growing at a satisfactory rate and Caixa Seguros is now ranked number seven in a rapidly expanding market.
Lastly, although it is taking us longer than expected to launch operations in China, the amount of equity capital tied up in the project is limited and it represents a very good longterm proposition.
Italy, Brazil and China all represent buoyant markets, while the new pensions market in France constitutes a powerful engine for future domestic growth. This provides our shareholders with the assurance of future value creation and allows us to look to the future with confidence.
We are very pleased with CNP Trésor’s performance. Taking over this activity represented a major challenge and we set an ambitious first-year target of 75% of the French Treasury network’s 2003 premium income. In fact, we did a lot better, with premium income of €614 million representing 83%. And we achieved this with an incomplete team; at the end of the year, we had 247 people compared with our target of 280.
How do you view your financial performance in 2004? Do you plan to increase the dividend payout rate?
What has been the effect of the new pension products on your business? What is the outlook in this market?
The new pension products have enabled us to add to the range of long-term savings solutions offered to clients interested in boosting their retirement income. The system is a good one and was sorely needed in France. The market got off to a good start, with 1.3 million Perps sold in the first year, representing €500 million in premiums. The potential is far greater but it will take a while for the products to really catch
Our total premium income increased by just over 10% and we achieved similar growth in France. This was slightly below the rate for the French market as a whole, mainly due to slower growth in unit-linked sales. In addition, 2004 was the first year of operation of our new CNP Trésor sales force, which has replaced the former French Treasury network.
We intend to continue developing the businesses of our existing subsidiaries in Portugal, Brazil and Argentina across all segments of the personal insurance market. We also plan to step up the development of our Italian and Spanish branches in the loan insurance market, and we will accompany our financial partners in their expansion plans under the EU freedom to provide services directive. Lastly, we will remain open to new growth opportunities that are in line with our strategy and our strict profitability criteria.
Our main objective for 2005 is to outperform current FFSA estimates for the French market, which point to growth of 2 to 6%, helped by the contribution of our foreign subsidiaries. And we also intend to maintain the steady pace of earnings growth.
on – for the time being, certain consumers understandably prefer to continue investing in traditional products paying a lump sum rather than an annuity. We are pleased with our own results in this market; with some 500,000 new pension contracts sold during the year, including around 300,000 Perps, we have forged a position as a player to be reckoned with. Moreover, the new products have helped to refresh our client base. In the main, the new policyholders are in their late thirties or early forties, are investing for the first time in life insurance and have chosen to pay regular premiums. With our partner networks, we have set as our goal for 2005 to increase both the number of contracts sold – with a target of some 300,000 – and the average premium.
In 2004, unit-linked sales represented 13% of our total savings and pensions sales, and revenues from these products rose 4%. By comparison, the unit-linked segment represented 19% of the total savings and pensions market and grew 35%. We want to expand our unitlinked business, because these contracts represent a good product for clients who understand the risks, and also for the insurer in view of their profitability. We are working on this with our partner networks and our CNP Trésor sales force, in the areas of both savings and pensions. Unit-linked contracts are particularly effective as a pension product, because of the superior yields offered by equities over the long term.
Return on average equity (ROE) came to 11.2% for the Savings business, 15.5% for the Pensions business and 16.3% for the Personal Risk business.
CNP Assurances has a total of 2,821 employees in France, excluding information systems staff on the payroll of GIP and Ecureuil Vie employees.
The ratio of unrealised gains to the net book value of the portfolio rose to 7.5% from 5.5% in 2003, reflecting the good performance of the stock market last year.
The European solvency margin requirement after dividends and net of intangible assets was covered 2.74 times at 31 December 2004, including 1.16 times by equity and subordinated debt, before taking into account unrealised gains. In 2004, CNP Assurances issued €483 million worth of subordinated debt.
As a personal insurer, we view sustainable growth as being integral to our way of doing business. Our strategy to steadily expand the business over the long term reconciles the interests of all stakeholders – our policyholders, shareholders, employees and society as a whole. Our commitment to transparency permeates everything we do, whether it be developing products that protect policyholders and their families, investing for the long term, adhering to the principles of good corporate governance, implementing human resources policies that promote integration, or fulfilling our corporate social responsibility through the CNP Foundation and other measures.
As such, corporate governance is one of the lynchpins of sustainable growth.
CNP Assurances adheres to the fundamental rules of corporate governance of listed companies set out in the Bouton Report on Corporate Governance published in September 2002.
Ever since the IPO in 1998, we have applied the fundamental principles of sound corporate governance, including those of individual and collective accountability of management and the Supervisory Board, complete and transparent disclosure, and respect for shareholder and employee rights.
We have implemented the recommendations contained in the Bouton Report on Corporate Governance, taking into account the specific features of our ownership structure.
The Supervisory Board is assisted by two Committees of the Board, the Audit Committee and the Remunerations and Nominations Committee.
The Supervisory Board, as of 7 June 2005* they are applied consistently from one period to the next, and that they comply with generally accepted accounting principles. Based on the reports prepared by the Executive Board, the Committee also assesses the effectiveness of the Internal Audit department, the quality of internal control and the reliability of risk management procedures.
As part of the constant drive to improve corporate governance, a process has been established to update the internal rules of the Supervisory Board, the Committees of the Board and the Executive Board, as and when required. These regular updates reflect our ongoing commitment to protecting the Company’s interests through sound corporate governance.
Audit Committee Alexandre Lamfalussy, Chairman Edmond Alphandéry Dominique Marcel Nicolas Mérindol Patrick Werner
The goals of asset/liability management processes are to ensure that we are able to fulfil our medium and long-term commitments to the insured, whatever the situation in the financial markets, offer the best possible yields to the insured and our shareholders, and manage the risks affecting our shareholders ’ equity.
There are several ways of optimising asset/liability management. Liabilities can be controlled by conservatively defining policy guarantees, options, duration, and the annuity adjustment rate. Asset yields can be enhanced through careful asset allocation and hedging strategies.
Our specialised ALM team is involved in all phases of the process, from product design and the determination of policies concerning technical reserves to deciding asset allocation and hedging strategies.
We have tested our balance sheet’s resistance to a prolonged period of rock-bottom interest rates (1 to 2%) and fairly low stock market prices. Even assuming reinvestment in very low yield products, we would still be able to honour our commitments to policyholders.
The guaranteed yield is capped at 60% of the TME (average government bond rate) and is offered for a maximum of 8 or 10 years. Beyond this period, we have no yield commitment. This policy ensures that we can ride out long periods of low interest rates.
(1) TME: average government bond rate (2) Guaranteed yield based on government bond rate for the reference period (3) Guaranteed yield less than 75% of the TME (4) Including personal risk, loan insurance and annuity contracts
To assess the level of risk on the equity portfolio, several techniques are used: ■ Under accounting rules and insurance regulations, insurers are required to book provisions for permanent impairment in value and liquidity risk reserves in the event of a sharp drop in equity prices.
We determine the allocation of assets by type of portfolio, based on their respective characteristics. The average weighting of equities is currently 12.8%.
We manage this risk by holding a significant portfolio of floating rate or indexlinked bonds (representing 10% of the bond portfolio in 2004) and through the use of hedging instruments. The hedging portfolio comprises long-term (5 to 10 years) caps mainly purchased during periods of low interest rates. At 31 December 2004, we held caps on a notional amount of €19.3 billion.
Hedge funds typically pursue positive absolute returns rather than seeking to outperform a benchmark.
In order to diversify the portfolio, in 2004 we increased our investment in these assets by setting up three dedicated funds of funds managed by three managers selected through an international competitive bidding process. The funds of funds are multi-manager and multi-strategy. In all, hedge funds carried in the portfolio at 31 December 2004 amounted to some €640 million, compared with €260 million the previous year.
Disciplined management of equity risk ensured that we successfully navigated the stormy waters of the financial markets in 2002.
At 31 December 2004, the aggregate market value of the equity portfolio exceeded its book value. Since 1998, equities have represented around 13% of total managed assets (excluding unit-linked portfolios) and this weighting was maintained in 2004. Unlike other companies, we chose not to wind down our equity portfolio in 2002 and 2003, while prices were low. In 2004, we stepped up diversification towards other specific types of assets, particularly hedge funds and private equity funds.
We have invested in around one hundred private equity funds, paying close attention to diversifying risks. Seventy-nine percent of the private equity portfolio is denominated in euros.
Under IFRS, securities are recorded in three different categories based on the intended holding period: ■ Held to Maturity securities, which are measured at historical cost. Securities recorded in this category cannot be sold before maturity.
■ Trading securities, which are measured at fair value with gains and losses arising from remeasurement at fair value recorded in profit.
We have decided to classify very few assets as Held to Maturity. The bulk of the portfolio is classified as Available for Sale, with around 12% classified as Trading securities.
We have decided to value our investment properties by the cost model in the IFRS accounts and not the fair value model. Each property will be broken down into components (equipment, shell, etc.), with each component being depreciated over its respective useful life.
Ixis AM is jointly owned by the Caisses d’Epargne Group and CNP Assurances. The 14.1% interest held by CNP Assurances as of 1 January 2005 was increased to 20% in April 2005.
At the end of 2003, we decided to adopt the internationally-recognised internal control framework developed by the COSO (Committee of Sponsoring Organisations of the Treadway Commission).
Ten processes that have a material impact on the accounts had been modelled by the end of 2004, leading to the identification of around 1,200 basic risk items. Modelling offers a more detailed analysis of each risk but is less effective in providing broader overview. Combining this very detailed approach to risks by process with an approach by business line provides the best of both worlds.
In response to the new measures introduced in the Loi de Sécurité Financière concerning the responsibilities of the statutory auditors and the transparency of financial information, in 2004 we strengthened our system of internal control by setting up a specific internal control unit. The new unit reports to the Risk and Internal Control department set up in 1999.
We have always considered it essential to clearly identify risks in order to manage them effectively. Changes in the regulatory environment, particularly the 2003
Loi de Sécurité Financière, and new market expectations are encouraging us to go even further in this direction.
By the end of 2004, risk maps had been produced for the Group companies whose activities have the biggest impact on the accounts. These maps by business line, which were prepared with significant input from line management, offer a consolidated vision of risks that could have a material adverse effect on the Group accounts or on the fulfilment of our growth and other objectives.
The three main categories of risk inherent in the personal insurance business – financial, underwriting and operational – are broken down into around 150 basic risks.
During 2004, some fifty detailed risk maps were drawn up for the Group companies that are considered the most significant by virtue of their business and/or their impact on the accounts. Steps were taken to better control a specific financial risk and further corrective action is planned for 2005.
For ease of reference, each risk map is divided into four coloured quadrants which indicate the degree of risk and control: ■ Risks in the green quadrant have a low potential impact and a high control rating.
■ Risks in the lower orange quadrant are deemed to have a lower impact but require more active control. ■ Risks in the upper orange quadrant are identified as having a high potential impact and high degree of control effectiveness. ■ Finally, risks in the red quadrant have a high potential impact and must be prioritised for action.
Good control of a low risk Good control of a high risk
Action: – Choice of accounting options and drafting of technical analyses supporting each choice.
– User needs assessments, for all the systems concerned. – Choice of first-time adoption exemptions and options.
Implementation – launched during 2004 Aim: to make the necessary changes to information systems, procedures, etc., for the preparation of IFRS accounts.
Action: – Information system developments, based on user needs analyses, and user acceptance of the applications. – Transition preparations (opening IFRS balance sheet, adjustment of 2004 data, creation of new reporting packages, etc.).
The project to prepare for the publication of our financial statements in accordance with IFRS starting in 2005 was launched in 2002. It was organised in four phases: Advanced technical monitoring – underway since the beginning of 2002 Aim: to identify expected changes in terms of financial communications. In particular, we took part in working groups set up in France, as well as in exchanges of views with the IAS Board concerning disclosure requirements.
Action: the IFRS project team was organised in working groups tasked with examining issues common to all companies and issues that are specific to insurance companies, in order to identify the main differences between Group accounting policies and IFRS and the required changes to information systems.
In 2004, the number employees in France increased by 9.8%, including the new CNP Trésor team. On a likefor -like basis, however, the number declined 1.1%.
For several years now, executive pay has included a variable bonus based on Group performance in relation to objectives. The amount of the bonus ranges from 15 to 30% of basic salary.
More than 75% of employees in France and 60% of employees of the main international subsidiaries are shareholders of the Company.
With their focus on enhancing capabilities, promoting internal mobility and maintaining healthy employee relations, our human resources policies support the growth of the business, both in France and internationally, while maintaining a keen awareness of our medium-term corporate social responsibility.
Human resources policies in line with the principles of corporate social responsibility 22 Applying the principles of sustainable growth
■ Information system developers on the payroll of GIP (Groupement Informatique pour la Prévoyance): 352
■ Employees under permanent contracts: 2,769 ■ Employees under fixed-term contracts: 52 ■ Women: 62.5% of the total
These modules accounted for 80% of the training given to the new sales force.
Lastly, during 2004 the performance appraisal and rating process for civil servants seconded to the Group was extensively upgraded, to give greater recognition to good performance and the achievement of objectives.
A strong training commitment was maintained throughout 2004, with 6,544 days of training delivered to 1,879 employees and funded at the equivalent of 4.4% of total payroll. As in previous years, training in insurance techniques accounted for the bulk of the total budget (21%), followed by management training. To implement the training programme, we have focused on developing the capabilities of a team of 200 in-house trainers who are called on to deliver company-specific courses.
A major training drive was launched to support the creation of the new CNP Trésor sales force. The day-release scheme organised for these employees enabled them to acquire the technical and selling skills needed to meet their objectives. In all, 1,402 days’ training was delivered to 296 CNP Trésor sales people.
The training drive was organised around three modules: ■ The Regional Team Leader module, including training in managing sales teams working in the field.
■ The Sales Person module, with specific training in telephone sales techniques.
In 2003, a two-year agreement was signed with a specialist organisation, offering employees over 45 the opportunity to obtain pension simulations. The aim is to give them a clear idea of the level of income they can expect to receive when they retire, and allow them to get used to the idea of working beyond the age of 55.
Total men: 1,046 Total women: 1,723 60-64 yrs 55-59 yrs 50-54 yrs 45-49 yrs 40-44 yrs 35-39 yrs 30-34 yrs 25-29 yrs 20-24 yrs
Three-year targets are set for total employee numbers and also for the number of employees in each discipline. Variance analyses are performed each year and the targets are adjusted where necessary. This information serves as a benchmark for determining the number of people to be replaced and the employees to be redeployed in the course of each year. The last two years have also been devoted to preparing succession plans for key executives. Finally, a skills management process was launched last year and 2005 will see further action in identifying, assessing and developing the capabilities of all employees.
In line with our commitment to providing job opportunities for the disabled, we have signed four specific agreements with employee representatives setting out the action to be taken in this area. These three-year agreements are designed to make managers and staff more aware of the importance of not discriminating against people with disabilities, and the latest agreements place increased emphasis on hiring and integrating disabled workers and adapting the work place to meet their needs.
These new initiatives are in addition to the measures that have been in force for many years to leverage the expertise of older employees, for example by mentoring new employees who are just starting their career, actively participating in preparing training programmes and dispensing training.
■ The Health, Safety and Working Conditions Committee representing CNP Assurances employees and civil servants seconded to the Group held 14 meetings.
■ Trade union representatives, who also represent CNP Assurances employees and civil servants seconded to the Group pursuant to a specific agreement, held 40 meetings.
Following our recent international development initiatives, we suggested to employee representatives setting up a European Works Council. Pending a decision on this matter, we are taking care to ensure that our foreign subsidiaries demonstrate the same commitment to social dialogue, based on local practices.
Since the new working hours agreement came into effect in 2001, over 80% of our full time staff have chosen to take advantage of the flexible work options, while the other 20% work an agreed number of days per year. Part-time employees represented nearly 15% of the workforce in 2004, with managers accounting for just under one-third of the total.
Lastly, in addition to the compulsory annual medical check-ups, employees are offered the opportunity to consult specialists in cardiology, gynaecology, sporting injuries and psychiatry.
At the end of 2004, disabled workers represented more than 4% of the total work force, compared with less than 2% at the beginning of 1995. And we also use specialised subcontractors for tasks that are suited to this type of arrangement.
We pay close attention to successfully integrating school-leavers and graduates who join our Group. For several years, we have been taking on around fifty young people a year – mainly studying for their baccalauréat or a 2-year higher education diploma – under work-study schemes, assigning them a speciallytrained mentor to help them make the most of their work experience.
Women make up the majority of our work force (62.5%). Fifty percent of women are in executive grade positions and 15% are in senior management
The twin challenges of reducing the unit cost of processing very large transaction volumes, while continuing to offer a personalised service, called for an industrial strength information systems strategy. The developments carried out in 2004 form part of an overall systems upgrade project in line with this strategy.
As part of our constant drive to improve process efficiency, we have increased the automation of death benefit claim management and settlement processes, which represent 40 to 50% of transactions processed by the management centres. Rolled out in February 2005, the new system includes: ■ Assistance in preparing claim files (automatic retrieval of data concerning portfolios, financial transactions, beneficiary clauses, etc.).
■ Proactive management of claim file documents (automatic determination of the documents required based on the parties involved, automatic generation of correspondence and reminders, etc.).
■ Automatic process tracking (on-screen task list, with completion deadlines and alerts, etc.), to come on stream during 2005.
While being geared up to process large volumes of information and transactions every day, we have nevertheless retained our ability to offer clients a personalised service.
■ Electronic transmission to CNP, also in real time, of files requiring manual intervention. ■ Automatic generation, by the bank, of letters to physicians, in cases where the insurance decision depends on the results of a medical check-up.
CNPNet was installed in Crédit Agricole branches in the Paris region in 2004 and over 26,000 medical questionnaires have already been processed by the new system. It is currently being rolled out to other banks.
In 2004, we launched an initiative to assess the perceived quality of our policyholder services, based on a satisfaction survey among clients and employees. The aim was to measure the gap between perceived and expected service quality (including implicit expectations that have not been clearly formulated), in order to launch corrective measures to narrow the gap.
Over 7,500 questionnaires were also sent to beneficiaries of whole life policies, with the aim of optimising death benefit settlement processes. The key aim of the survey, which was conducted jointly with the French Post Office network, was to determine the level of service quality expected by beneficiaries (expected quality) and to measure their degree of satisfaction with the service received (perceived quality).
The results of these surveys help us to better understand the factors that contribute to client satisfaction, identify satisfaction criteria for the various target populations, identify the perceived role of the French Post Office and CNP in the related procedures and formulate recommendations to improve the quality of the service offered and/or the documents sent to clients.
Twice a year, satisfaction questionnaires are sent to the approximately 3,000 insurance advisors employed by the French Post Office network, to assess their level of satisfaction with our telephone services and with the selling aids that we make available to them.
The Belorgey convention is designed to provide improved access to credit and insurance for people suffering from serious illnesses. Following an analysis of a borrower’s medical questionnaire, if cover is rejected under the group policy taken out by the lender for all borrowers (level 1), the application is automatically transferred to a level 2 contract and examined on an individual basis. If level 2 cover is also rejected, the application is re-examined for inclusion in a highly aggravated risk insurance pool.
Since 2002, specific satisfaction surveys have been carried out jointly by CNP and the French Post Office among holders of the upmarket GMO and Ascendo contracts. The purpose of these surveys is to measure policyholders’ satisfaction with the quality of administrative services (subscriptions, transfers between accounts, adjustments to regular premiums, adjustments to planned withdrawal clauses, total and partial surrenders, policyholder loans, etc.). They are also used to assess the extent to which Ascendo policyholders understand their account statements.
In March 2005, the first meeting was held of the client panel set up in connection with the creation of the CNP Trésor network to serve policyholders who purchased their contract through the former French Treasury network. The panel was consulted on the various methods of client contact, including visits by insurance advisors, telephone contacts, letters and e-mails. Panel members were also asked for their opinion on information brochures for new clients and fact sheets on specific topics such as contract clauses and the tax implications of surrenders.
In 2004, the Purchasing Coordination department implemented a broad-based procedure to improve control over the buying process, in the form of a “buyer’s toolkit”. This procedure, implemented jointly with internal customers, has already generated savings in terms of both purchase prices and process costs for several types of purchases.
As a personal insurer, CNP Assurances protects policyholders and their families from the risks of day-today life. In addition, our life insurance products are designed to facilitate the transfer of assets so that savings can be passed on from one generation to the next. Our longstanding development and investment goals are to increase capital over the long term for policyholders and generate continued earnings growth for shareholders. In our quest for growth, we remain committed to basic life values.
can range from simply receiving information to developing volunteer projects and enlisting the CNP Foundation’s support. Nearly 10% of projects examined by the Foundation in 2004 were submitted by employees, and all were accepted.
The organisation of internal events linked to projects funded by the Foundation, such as a conference on child migraine or a visit to a retirement home, help our employees to better understand the issues involved and how the project is addressing them. This in turn gives them a better grasp of our policies in the area of corporate philanthropy.
Standard contracts have been drawn up for service providers and other suppliers, setting out their responsibilities in terms of sustainable development. Monitoring of energy consumption and the related environmental impact has been stepped up at several properties, leading where necessary to audits of hot water systems, the replacement of cooling towers and other work. Innovative processes have also been adopted, such as reflective plaster ceilings, solar-powered central heating systems, and centralised building management. We are currently discussing with the Paris water utility implementation of a system to warn us if water consumption rises above normal levels. We also play close attention to the safety and protection of site workers.
In 2003, a satisfaction survey was conducted to find out the opinion of tenants concerning our property management. A new survey will be carried out in 2005 to measure the progress made in raising tenant satisfaction levels.
Our property assets, representing €4.2 billion or 2.5% of the total asset portfolio, are managed in line with the principles of sustainable development. These principles apply first and foremost to our forestry assets.
On 27 May 2003, the shareholders who signed a pact in September 1998, just before the IPO (the French State, Caisse des Dépôts, La Poste and the Caisses d’Epargne Group), announced their intention to extend the pact, as modified in December 2000, until 31 December 2008. They also decided to maintain their current balance of interests, with Caisse des Dépôts continuing to be our largest shareholder, with 37%.
Alongside these core shareholders, some 240,000 private shareholders together own 4.5% of our issued capital and institutional investors hold 22.3%, representing 83.2% of the free float. Foreign institutional investors hold 15.8% of the capital and just under 59% of the free float.
CNP Assurances ownership structure as of 31 December 2004 37% Caisse des Dépôts 36% Sopassure*
Organised in partnership with Ecole de Bourse, a subsidiary of Euronext, the ten stock market initiation sessions held every year in various French towns and cities provide yet another opportunity to talk to shareholders. The sessions held between 1999 and 2004 focused on explaining to shareholders the workings of the stock market as well as the basic principles of portfolio management. In 2005, a new topic – “Understanding the economy in order to understand the stock market” – was added, drawing an enthusiastic response from participants at the first sessions of the year, held in Amiens and Limoges.
Financial publications include the Annual Report, the Interim Report and the Guide to General Meetings, which is updated every year. In addition, private investors receive a quarterly Shareholders’ Newsletter, a Shareholder Guide, a booklet presenting “France’s leading personal insurer” and other publications for members of the Shareholders’ Club.
The www.cnp.fr website, in French and English, presents most of the information intended for private shareholders, in the “Shareholders” section, and for institutional investors, in the “Financial Information” section. Shareholders can also sign up on the web site to receive a free e-newsletter containing key figures (1-month and 12-month share performance ), reports (results, shareholder sur-
% of free float % of capital Institutional investors 83.16% 22.34% Of which United States 25.99% 6.98%
Earnings per share (2004) €4.54 Market capitalisation at 31 March 2005 €7.58 billion Average daily trading volume in 2004 91,206 shares Average daily trading volume over two years 103,096 shares * Closing price
Lastly, shareholders can contact the shareholder and investor relations teams by e-mail at actionnaires@cnp.fr and infofi@cnp.fr.
Five years after it was formed, the Shareholders’ Club now has over 15,000 members. Its lasting success can be put down to the broad range of services offered to private shareholders, including “Privileges” services in the areas of healthcare information, personalised investment advice, training on the workings of the stock market and assistance in dealing with the legal and administrative formalities of daily life.
Investors and analysts were particularly interested in two topics: ■ Preparations for the transition to International Financial Reporting Standards (IFRS).
The two operations were a great success, with participation rates of more than 75% for the French issue and 60% for the international issue. As of 31 December 2004, employees held approximately 1.3% of the issued capital.
In France, CNP Assurances operates as both a bancassurer backed by two powerful distribution networks – the French Post Office and the Savings Banks – and a group insurer serving companies, local government, mutual insurers and financial institutions. For over 150 years, we have been designing, developing, distributing and managing savings, pension and personal risk products, together with property and casualty insurance outside France.
grew by 13% in 2004 to an estimated €117 billion according to industry (FFSA)
The new pension products introduced in the market in the middle of the year have proved to be very popular, particularly among individual savers.
An expanding savings market, boosted by increased investment in pension products
Health and accident insurance premiums totalled €13 billion, an increase of 13% over 2003 (source: FFSA estimates, January 2005). Growth was driven by significantly higher health insurance premiums, representing the direct result of the sharp rise in health spending in France, as well as by the development of insurance cover for the accidents of daily life and long-term care cover.
CNP Assurances market share in France in 2004 (source: FFSA estimates, January 2005)
Life insurers’ mathematical reserves (excluding reinsurance) amounted to some €840 billion at the end of 2004, an increase of 9% over the year-earlier figure (source: FFSA estimates, January 2005).
Performance of the French personal insurance market over the last ten years (in € billions – source: FFSA estimates, January 2005)
Moves to inform the public about the pensions reform and the introduction of new types of products boosted sales of all long-term savings contracts, led by pension products taxed as life insurance such as the comprehensive pensions offering proposed by CNP Assurances and distributed via the French Post Office network.
Purpose To save over the long term in order To build up capital to be passed to receive a regular income at retirement on to future generations
Taxation – Payments are tax deductible: – Payments not deductible Ceiling: 10% of salary or equivalent, – Reduced rate of tax on capital gains up to approximately €24,000 – Reduced inheritance tax (separate ceiling for each family member)
Financial management Assets managed in segregated portfolios Assets not required to be managed in segregated portfolios
Open to everyone, the Perp personal pension plan is a tax-advantaged pure annuity product with no surrender option: ■ In the year the contract is purchased, buyers of a Perp are entitled to a 10% deduction from their net taxable income up to eight times the annual ceiling for social security deductions (“PASS”, as adjusted each year). The minimum deduction is equal to 10% of the PASS. The maximum deduction for 2004 is €23,769 for a single person and €47,538 for a double income couple, and the minimum deduction per member of the tax household is €2,971.
■ Payments made to other pension products (Préfon, Peres, matching employer contributions to a Perco) must be included in this amount.
■ Any tax deduction not used in a given year may be carried forward for three years.
Product distribution is handled by the partner networks, working with CNP. In France, products are distributed essentially through the more than 20,000 outlets in the Post Office and Savings Banks networks and, since January 2004, through our own CNP Trésor insurance advisors. In Brazil, distribution of Caixa Seguros products is handled by Caixa Econômica Federal, the country’s second largest banking network, while in Italy, following the acquisition of Fineco Vita at the beginning of this year, products are distributed through the Capitalia banking network.
To ensure that we are able to fulfil our commitments to the insured whatever the economic environment, while also offering them attractive yields, disciplined asset/liability management is central to our business approach.
CNP Assurances has developed an original personal insurance business model that has delivered good results. We design, develop and manage individual insurance products. In group insurance, our original business, we manage the entire process, including distribution.
Group insurance consists of selling a product to a company, a mutual insurer, a financial institution, a provident society, a municipality or an association, which in turn sells contracts to individuals. This structure provides the insurer with considerable leverage to increase sales.
Shareholders and partners ■ Shareholders with a stake in the performance of CNP, La Poste (the French Post Office) and Caisses d’Epargne (Savings Banks) together hold 36% of our capital.
In Brazil and Italy, the two distribution networks are joint shareholders of the insurance subsidiaries.
■ We have negotiated long-term distribution agreements with the networks; the agreement with Caisses d’Epargne ends in 2008, the La Poste agreement in 2009, the Capitalia agreement (Italy) in 2015 and the Caixa Econômica Federal agreement (Brazil) in 2021. In most cases, we have developed integrated marketing policies, product offers and information systems with our partners.
The classes of business covered by group contracts are employee benefits (death/ disability cover, health insurance and pensions), loan insurance and long-term care insurance. CNP Assurances is a major player in these markets. We hold nearly 40% of the loan insurance market and are ranked among the top three in group pension products.
Sales of personal risk products – mainly through Assurposte, which is owned on a 50/50 basis by La Poste and CNP Assurances – increased by 24.4% to €87.7 million, raising the total number of outstanding contracts to over 700,000. Lastly, September saw the successful launch of Protectys Autonomie, a longterm care product, with nearly 30,000 contracts sold in the first four months.
Sales of personal insurance products by the French Post Office in 2004 totalled €7,821.1 million, an increase of 12.4% over the previous year. Sales for the fourth quarter were up by 35.3%. This excellent performance was attributable to a sustained marketing drive across all product families, including savings, personal risk, pensions and long-term care insurance. Although new money invested in unitlinked products rose by a strong 29%, these products accounted for only 8% of total new money in the savings and pensions segments. Some 200,000 new pension contracts were sold during the year, representing revenues of €190 million. They included 180,000 Solésio Vie contracts taxed as life insurance, and 20,000 Solésio Préfon contracts – in the Post
Insurance products offered through more than 20,000 sales outlets in France
The CNP Trésor network generated premium income of €614 million in 2004, compared with €738 million for the former French Treasury network in 2003. CNP Trésor’s full year sales represented 83% of the French Treasury’s prior year total, significantly outstripping the target of 75%. Helped by the “3 in 1” promotional offer in June-July, sales of unitlinked products rose by 5.2% to €51.2 million, representing 8.7% of savings and pensions premium income. A new pension product, Perp Horizon Retraite, was introduced in September, leading to the sale of 300 contracts by the end of the year.
CNP Trésor insurance advisors took part in ten investment fairs in Paris and the regions, the CNP Assurances television advertisement was adapted and shown in four regions on the France 3 channel, and the network managers took part in national and local professional events.
The French Treasury stopped selling insurance products at the end of 2003, and since then CNP Assurances has been managing relations with former French Treasury clients through a dedicated team of nearly 250 insurance advisors with the objective of preserving the value of the insurance book. These advisors offer advice and a selection of CNP products to the roughly 432,000 policyholders based on an analysis of their asset management needs. 232,000 policyholders have been allocated among 280 client portfolios to be managed by advisors working in the field, and the other 200,000 are managed at a distance. The insurance advisors, overseen by 33 regional managers, visit the insured in their homes throughout France.
Set up in 2001, Banque Casino is 51%-owned by the Casino group and 49% by Cofinoga. Its 90 employees manage €530 million worth of loans to 700,000 clients. To support the new venture, our teams in Paris and the Southern France-Mediterranean region organised extensive training programmes for Banque Casino staff and partnered the sales force in the field.
One or several concepts are developed, in some cases in a joint project with a partner. Marketing trials are then carried out, to ensure that the offer effectively addresses the identified need and can be sold on a profitable basis. We are assisted in this by the expertise of our teams in risk pricing, insurance and consumer law, contract administration, claims and benefits management, and asset management. The next step consists of developing marketing and communications tools, which are offered to the partners who will distribute the products. The last step is to finalise the offer’s technical characteristics, internal and external management circuits, contractual documents, client letters and administrative methods.
CNP Assurances designs, develops, distributes and manages a full range of personal insurance products spanning three market segments: savings, pensions and personal risk, including loan insurance and health insurance.
Insurance-based savings products are endowment products that also include cover for the risk of death.
■ Non-unit-linked products – also known as investment insurance – are invested essentially in bonds and offer both a capital guarantee and a guaranteed yield.
2004 saw a radical transformation of the French pensions market. The “Fillon” pension reform act of 21 August 2003 extended the contribution period to be entitled to a full pension under government -sponsored schemes, particularly for government employees. This change came at a time of growing uncertainty about the level of pensions that will be payable in the medium term under pay as you go schemes, encouraging people to consider investing in a private pension. The government responded to the concerns of future retirees by creating the framework for the introduction of specific tax-advantaged pension products.
Individual insurance Group insurance Non-unit-linked only Combination unitlinked /non-unit-linked 54 An original business model
In all, we sold 492,000 individual pension contracts in 2004, representing premiums of €260 million. The total includes 308,000 Perps sold by the network (including Solésio Préfon contracts sold by the Post Office network), generating €85 million in premiums. The marketing strategy for these products, mainly targeting people in their late thirties and early forties, has helped to refresh our client base and although initial premiums are low, we expect them to increase steadily. Nearly twothirds of buyers are new clients who do not yet have any life insurance.
The Post Office network sold 200,000 new pension contracts representing premiums of €190 million. They include 180,000 Solésio Vie contracts taxed as life insurance and 20,000 Solésio Préfon contracts and Solésio Perps. Ninety-five percent of sales concerned regular premium contracts.
In all, our total premium income from pension products was 40% higher in 2004 compared with the previous year.
■ Two new insurance products have been created, the Perp (Plan d’Epargne Retraite Populaire) for individuals and the Pere (Plan d’Epargne Retraite en Entreprise) for companies. In addition, the tax rules governing “Article 83” products have been changed.
■ A new employee savings product has also been introduced, the Perco (Plan d’Epargne Retraite Collectif).
Préfon Retraite covers all central and local government employees, members of the military and the employees of State-controlled enterprises, as well as former civil servants, and the spouses, widows and widowers of civil servants. Association Préfon comprises 253,000 active members and 71,000 retired members currently receiving pension benefits. Préfon Retraite is now also distributed by the French Post Office. In 2004, the scheme continued to attract considerable funds, with new money up
Association Préfon, made up primarily of union representatives, Préfon Retraite is managed by CNP Assurances which guarantees fulfilment of the long-term commitments to scheme members. To increase the safeguards, risks are reinsured with three leading French insurers who also participate in managing the scheme assets.
Préfon Retraite is a money-purchase scheme which pays an indexed pension to each member. The funds available for pensions in payment are topped up by a portion of contributions by active civil servants.
The French Post Office successfully launches a new long-term care product
After being trialled in three regions of France between June and September 2004, the French Post Office’s new long-term care product, Protectys Autonomie, was rolled out to the entire network in September. The product was an instant success, with nearly 30,000 contracts sold by the end of the year.
The personal long-term care benefit is determined based on the level of dependence defined by iso-resource group (“IRG”). Levels IRG 1 and IRG 2 correspond to total dependence and levels IRG 3 and IRG 4 to partial dependence, with IRG 4 representing the lowest level.
As of the end of 2004, Filassistance International worked with some 50 partners from the mutual insurance, insurance, bancassurance, insurance brokerage, provident, corporate and local government sectors, providing services to some 2 million beneficiaries.
Lastly, various formulas are available covering the insured in the case of an accident, temporary or permanent disability, total and irreversible loss of autonomy and death. Benefits include compensation, daily allowances, a lump sum payment, annuities for school-age children, spouse annuities, funeral costs, etc.
Aviposte 20.7 Resolys/Premunys/Seralys/Avisys/Ponctualys/Prévialys 48.2 Compte Prévoyance CNP Trésor 12.1 Urgence et Famille 19.6 Group policies (companies) 264.4 Group policies (mutual insurers and local government) 681.2 Brazilian products 58.4 Group policies (banking networks) 1,100.5 Group policies (mutual insurers and local government) 186.0 Brazilian products 100.2 Complétys Santé 6.4 Group policies (companies) 201.9 Group policies (mutual insurers and local government) 25.9 57An original business model
The number of subscribers to this service increased threefold in 2004, making Filassistance International a recognised player in telephone assistance services. Growth was achieved through the signature of a number of partnership and distribution agreements, including with Caisse Nationale de Retraite des Agents des Collectivités Locales (the pension scheme for local government employees), CNP Trésor and Age d’Or Services.
Age d’Or Services, our subsidiary specialised in providing services to the elderly and the disabled, enjoyed strong growth in 2004. With 27 new agencies opened during the year, it ranked among the fifteen fastest growing franchise networks. A further nine franchise agencies were opened in January 2005, bringing the total to 100. Age d’Or Services’ expansion policy aims to build a network spanning the whole of France.
As well as extending its network, Age d’Or Services also broadened its business base by stepping up its presence in the home assistance market and launching innovative new services such as assistance for people when they leave hospital. It is also participating in the plan to develop personal services announced by the Minister of Employment, Labour and Social Cohesion, Jean-Louis Borloo. Having played a pioneering role in this area, the company took part in the work groups tasked with drawing up the government plan, which includes simplifying service provider licensing procedures and creating a service voucher scheme.
Filassistance International’s broad service offer, its responsiveness to partners’ needs and its innovation capabilities drove a strong 70% increase in like-for-like revenues in 2004, to more than €3 million.
After just three years in business, the company ended the year in profit and should repeat this performance in 2005.
Several innovative long-term care and health insurance products launched recently, particularly the French Post Office’s Protectys Autonomie and Solésio Vie, include an assistance service offer managed by Filassistance International. The aim is to offer policyholders a financial solution, in the form of a lump sum or an annuity, and also a range of practical solutions to their needs. These include advice on ways of preserving their autonomy, assistance in making necessary alterations to their home, technical and medical assistance, activities to combat social isolation, and on-call assistance 24/7. For example, people in the first stages of dependence can sign up for the new Filassist Contact telephone assistance service. Filassist Contact issues clients with simple, secure handfree telephone equipment, allowing them to answer the phone effortlessly, simply by pressing a necklace button. Clients can also phone the Filassistance International medico-social call centre whenever they need to hear a friendly voice, helping to reduce their sense of isolation and calm the anxiety they may feel as a result of living alone.
Filassistance International’s telephone assistance service won the prize for innovation in communication aids at the 2004 Salon Autonomic fair, which showcases solutions to the problems of dependence.
The health insurance market was shaped by increased healthcare spending and the continued scaling back of social security reimbursements. Key developments of the year included the gradual rollout of national health insurance reforms and the vote on 13 August 2004 of a new health insurance reform act that will have significant implications in 2005 in terms of new product development. In personal risk insurance, the number of partial and total disability claims continued to rise, leading to higher premiums.
At CNP, 2004 also saw the introduction of a new on-line supplementary pension service for group insurance partners, providing them with a set of selling aids to help them penetrate the SME market. During the year, we also signed new long-term partnership agreements with major provident institutions, and continued to expand the assistance offer marketed by Filassistance International and Age d’Or Services.
CNP Assurances’ nearly 40% share of the French loan insurance market is testimony to our expertise in this area. Serving partners such as the Savings Banks, the French Post Office, Crédit Agricole and numerous other banks, to support their home-loan and personal loan businesses, we recorded 9.5% growth in loan insurance premiums in 2004 to €1,626.9 million. This performance was partly attributable to last year’s dynamic credit market, with particularly strong demand for consumer loans.
CNP Assurances has been selling group insurance policies to companies, mutual insurers, banks, provident institutions, local authorities and associations, which in turn sell cover to their employees or members. Specialist teams have been set up to develop and deploy tailor-made solutions for the thousand companies, 250 banks, more than 50 mutual insurers, 22,000 local authorities and numerous associations that have chosen
We are also partnering Crédit Immobilier de France in its mission to help low income families to purchase their own home or carry out work to bring their home up to current standards, by setting up a loan insurance contract for “social mission” loans distributed by the Sociétés de Crédit Immobilier (“Sacis”). The group contract has been taken out with CNP Assurances by Chambre Syndicale des Sociétés de Crédit Immobilier, the central body of the Crédit Immobilier group.
An offer for buy-to-let investors was launched at the beginning of this year with Invest Immo, a subsidiary of UCB specialised in this market. Our loan insurance contract is specially tailored to the needs of buy-to-let investors, who rely on their rental revenues to repay all or part of their loan.
CNP Assurances writes statutory insurance cover for employees of more than 22,000 local authorities. In 2004, we kept a close watch over loss ratios and took drastic measures to restore the profitability of contracts. In addition, a communication campaign was launched to raise local authorities’ awareness of the consequences of the 30% increase in employee sick leave.
“Article 83” contracts are group pension contracts whose cost is known in advance and expressed as a percentage of salary. They are compulsory participation contracts covering all employees of a company or certain employee categories. The company is required to commit to financing the benefit obligation up to a certain level. The pension benefits paid to retired employees are subject to income tax.
The Plan d’Epargne Retraite Collective (Perco) replaces the PPESV voluntary employee savings plans. Under this group pension plan (treated for accounting purposes as an employee savings plan and not as life insurance), the funds are held in the plan until the employee retires, at which point the employee can choose to receive either a lump sum or an annuity. They may be withdrawn early in the case of death or disability, if the person’s entitlement to unemployment benefit comes to an end or he or she is recognised as having unmanageable levels of debt, or to help finance the purchase of a home.
Gross Domestic Product rose by 5.2%, the highest growth rate since 1994. After rising sharply in early June, the dollar continued to slide against the real in the fourth quarter despite Central Bank interventions in the currency market. The Brazilian currency ended the year at 2.66 per dollar, a 9.3% rise compared with the rate at the beginning of January.
Nevertheless, due to high oil prices and urban transport fare increases in the last three months of the year, the cumulative IPCA inflation index for 2004 stood at 7.60%. However, although this was above the government’s average annual target of 5.5% (albeit with a 2.5-point margin), it was 1.7 points below the 2003 rate. To keep inflation under control, after the interest rate cuts decided in the first nine months of the year, the Central Bank’s Monetary Policy Committee decided to raise the Selic base rate on four 64 International ambitions
The restrained 0.4% increase in loan insurance premiums was due to a 10% fall in premiums on a portfolio managed on a run-off basis on behalf of the Brazilian State – consisting of insurance for State-guaranteed loans granted under a former system that are gradually being paid off – offset by 10% growth in loan insurance written directly by Caixa Seguros. The volume of new business contracted in the fourth quarter, however, due to the September interest rate increase which dampened the credit market.
The May addition of a new formula to the Multirisco Residencial comprehensive homeowner insurance policy fuelled a sharp rise in sales. While volumes were running at an average of 800 policies per month in the first four months, they rose to an average of 5,000 per month over the remainder of the year and 6,500 in the last five months.
The end of August launch of a new version of the monthly premium endowment product CaixaCap PM 60, renamed CaixaCap Campeão, created renewed sales momentum. Average monthly sales nearly doubled over the last five months of the year, to 16,851 from an average of 8,660 in the period from January to July, despite the impact of the strike by bank workers.
In line with its strategy to diversify distribution channels, the Caixa Seguros Group signed several partnership agreements in 2004.
The Brazilian insurance market expanded by nearly 17% in 2004, on the back of 19% growth the previous year. The pensions market continued to represent the main growth engine, rising 26%, and the tax incentives introduced by the government to encourage long-term savings, based on the French model, should ensure that the momentum is maintained.
The number of Caixa Seguros employees increased by 35 in 2004 to 690 from 655 at the end of 2003. Some of the additional employees were taken on to keep pace with sales growth and support development initiatives in new market segments and distribution channels. Others were hired to strengthen internal control and risk management functions, in particular with the formation of a new internal control department and a medical department to provide guidance to the underwriting and loss adjustment teams.
A nationwide loyalty programme was launched during the year for the approximately 57,000 employees of Caixa Econômica Federal. Named Sempre ao Lado (Always By Your Side) in reference to the Group’s institutional advertising campaign, the programme aims to drive further sales growth, strengthen the ties between Caixa Seguros and Caixa Econômica Federal employees and encourage sales teams to step up their efforts to build client loyalty.
After reaching a high 8.3% in 2003, the Argentine growth rate slowed to 7.3% in 2004. The economy is expected to continue to expand in 2005, although economists forecast a further loss of momentum, putting the growth rate at 4.5%. The insurance market is taking some time to recover, however, due to the severe effects of the late 2001 economic crisis on corporate balance sheets and the population’s savings capacity.
CNP Compania de Seguros de Vida returned to growth, with premium income up 14.4% to ARS 9.4 million (€2.5 million). At constant exchange rates, premium income rose 25.6%. Growth was driven by the 79% increase in personal risk premiums, which offset an 11.7% decline in the savings business. The sharp rise in sales of individual personal risk policies – representing twothirds of total individual policies which increased 80% in 2004 – and the growth in net new money helped by the significantly lower surrender rate augur well for future growth in an economy that has been restored to health but remains at risk of a relapse.
Growth was driven primarily by savings products, with sales up 20% compared with 2003. Global Vida was ranked nineteenth in the Portuguese life insurance market at the end of 2004.
At the end of the year, the sales team led a successful drive to promote sales of pension products before the withdrawal of certain tax incentives announced for 2005.
On 10 November 2004, we announced the acquisition of a 57.5% interest in Fineco Vita, the insurance subsidiary of Capitalia, Italy’s fourth largest banking group with nearly 6% of the retail banking market and 5 million clients. Capitalia remains a shareholder of Fineco Vita, with just under 39% of the capital. The acquisition represents a significant transaction at the level of the Italian market; completed at the beginning of 2005, it will make CNP Assurances Italy’s sixth largest bancassurer.
sonal risk products through some 70 bank branches in Buenos Aires province. Lastly, distribution of personal risk products through the Previsol AFJP network also began during the year.
The property and casualty business grew by 12.9% to €129.8 million, helped by a 13.2% increase in automobile premiums. This was significantly above the 4.3% growth recorded for the market as a whole. At the end of the year, Global was ranked number nine in the Portuguese non-life market.
The 15.5% increase in life premiums, to €51.5 million, was in line with market growth.
In 2004, the Portuguese insurance market grew by 10.9% to €10.46 billion. The life segment rose 15.7% to €6.25 billion, representing 59.8% of the total market.
After obtaining a licence to write life insurance in Beijing in 2001, we signed an agreement with the Chinese Post Office in September 2002 for the creation of an insurance joint venture. Since then, we have been working together to prepare the launch of the business. A company has been set up, staff have been hired, and management systems have been developed. We have also developed a product offering and trained sales teams in the Chinese Post Office network.
In December, the new joint venture – Sino-French Life Insurance Company – received a licence to write individual life insurance from the China Insurance Regulatory Commission.
During 2004, CNP Assurances kept up its strategy to build a European loan insurance business by leveraging the expertise acquired in France. To accompany partner financial institutions, we have set up branches in Italy and Spain, which both offer significant potential for growth in loan insurance. The Milan branch enjoyed rapid business growth as from the second half of the year, insuring home loans granted by the Volterra and Spoleto savings banks and consumer loans granted by the San Paolo IMI Group.
Combined unit-linked and non-unit-linked contracts Insurance policy for which the surrender value and benefit payments are expressed as either a cash amount or in units. The policyholder generally has the choice between investing premiums in a non-unit-linked or a unit-linked fund. Some policies allow policyholders to shift their capital from one fund to the other during the life of the policy.
Commission de Contrôle des Assurances, des Mutuelles et des Institutions de Prévoyance (CCAMIP) An independent regulator responsible for ensuring that all insurance and reinsurance companies operating in France comply with all insurance laws and regulations and fulfil their commitments to the insured.
Conseil National de la Comptabilité (CNC) The French national accounting board. The CNC’s responsibilities include issuing opinions on all accounting matters.
Dow Jones Euro Stoxx Insurance (DJ Insurance) Stock market index comprising the main European insurance stocks (38 companies in 2004).
Group insurance Class of insurance allowing a company (or an association, local authority, mutual insurer or bank) – referred to as the policyholder – to take out an insurance policy covering a natural group of individuals (such as the company’s employees).
IAS/IFRS (International Accounting Standards/ International Financial Reporting Standards) Internationally recognised accounting standards that all listed European companies are required to apply as from 2005.
In force business Discounted present value of the future earnings stream from in-force business less the cost of the capital needed to comply with solvency margin requirements.
Net asset value (NAV) Shareholders’ equity (including the capitalisation reserve) less goodwill plus unrealised gains, net of tax, attributable to shareholders.
New business/Goodwill Multiple of the value of new business. The multiple depends on the growth outlook.
Pension products (insurance) Unit-linked or non-unit-linked insurance policy allowing the insured to receive a lump sum or an annuity when he or she retires. Most pension products are group insurance policies. The Pensions Reform Act (“Fillon Act”) of 21 August 2003 established the framework for the launch of new tax-advantaged pensions offerings (see Perp and Perco).
PERP (Plan d’épargne retraite populaire) New personal pension plan introduced in the 2003 Pensions Reform Act, open to everyone. Taxadvantaged pure annuity product with no surrender option. Savers are given added protection by the creation of an open group (known as a “Gerp”) to set up and monitor the Perp. A “Perp” layer may now also be added to “Article 83” group pension plans; these two-layer plans are known as Peres (Plan d’epargne Retraite en Entreprise).
Personal insurance Insurance policy concerning an insured individual, not the insured’s property. Examples include endowment insurance, whole life insurance, accident insurance, disability insurance and health insurance.
Personal risk insurance Insurance policy offering cover against the risk of death, accident or illness. The premiums are not recoverable if the insured risk does not occur.
Policyholder dividends In life insurance, the portion of the investment yield distributed to policyholders in the form of dividends.
Provision for permanent impairment in value Provision intended to cover a lasting fall in value of specific assets of the insurer. In December 2002, the CNC emerging issues taskforce issued guidelines concerning the method to be used to calculate these provisions.
Regulatory solvency margin Minimum coverage of insurance risks required by the regulatory authorities to protect the interests of the insured. Solvency margin carrying cost corresponds to the present value of the cost of equity capital held to cover the solvency margin requirement over the period until all obligations to policyholders have been extinguished. It is calculated as the difference between the return expected by shareholders (discount rate) and the net of tax return earned from the investment of the solvency margin.
Segregated assets A portfolio of insurance policies is segregated when the assets corresponding to technical reserves are managed separately in a segregated portfolio.
Subordinated notes Debt securities that are repayable, in the event of bankruptcy, after all other creditor claims have been settled. In the case of an insurance company, repayment would be made after all commitments to the insured had been settled, together with all other debts. Depending on the notes’ characteristics, subordinated debt may be included in the calculation of the insurer’s solvency margin. Notes that are subordinate in ranking to all other senior and subordinated debt are referred to as “junior subordinated notes” (titres super subordonnés).
Report of the Chairman of the Supervisory Board (internal control report) 83
The Supervisory Board is required to inform shareholders in General Meeting of our observations concerning the Executive Board’s management and the annual financial statements.
In accordance with our control and oversight role, we reviewed the Company’s business performance and results at regular intervals during the year, based mainly on the quarterly, half-yearly and annual reports presented by the Executive Board.
We were also called on to approve material strategic development projects planned by the Company.
The Supervisory Board has seventeen members elected by shareholders in General Meeting or appointed by the Supervisory Board, subject to shareholder ratification, for a five-year term. Meetings are held according to the annual timetable adopted at the end of the previous year. During 2004, the Supervisory Board met five times with an average attendance rate of 87%.
The Supervisory Board’s organisation and procedures, and its relations with the Executive Board, are governed by the law and the articles of association, and also by the internal rules described in the report of the Chairman of the Supervisory Board prepared in accordance with the Loi de Sécurité Financière dated 1 August 2003.
As part of the constant drive to put corporate governance practices on a formal footing, at the beginning of 2004 certain rules of good practice were added to the internal rules of the Supervisory Board and the Committees of the Board, reflecting the efforts that have been underway within the Company for several years to achieve ever greater transparency, accountability and control.
3. Matters examined by the Supervisory Board and the Audit Committee in 2004 3.1 2003 FINANCIAL STATEMENTS AND PREPARATION OF THE 2004 ANNUAL GENERAL MEETING
The Audit Committee reported to us on its review of the 2003 financial statements and related analyses, carried out on 8 March 2004. The Committee noted that, after taking into account dividends, the Company’s return on equity (ROE) for 2003, at 12.5%, was slightly below the previous year’s ROE of 13.3%.
The Committee also reviewed embedded value calculations, obtaining explanations from the head of the Actuarial Department and representatives of BW Deloitte, the firm of actuaries that validated the calculation method and reviewed the calculations.
During their review of documents for the Annual General Meeting, the Audit Committee and the Supervisory Board discussed the substance and form of the Chairman’s report, prepared in accordance with the Loi de Sécurité Financière. This report summarises the action taken in 2003 in the areas of corporate governance and internal control, and describes the main areas of improvement to be addressed in 2004.
In connection with our review of the resolutions concerning the re-appointment of the Auditors tabled at the 2004 Annual General Meeting, we examined the proposals submitted by the six candidates, comprising four international firms and two French firms.
Following its review of the interim financial statements, the Audit Committee drew our attention to the divergence between the 14% growth in operating profit and 5% growth in net profit.
The main explanation lies in the abolition of the avoir fiscal tax credit on French source dividends and the decline in realised capital gains.
The Audit Committee drew our attention to the negative effect of local authority personal risk business on the interim results and certain weaknesses that were specific to this business.
Although these weaknesses did not have a material impact on the interim accounts, the Committee noted that the administrative monitoring of group personal risk results was not wholly reliable.
We concluded that the Executive Board had implemented many of the measures needed in this area and that it should be possible to complete the remaining measures without any particular difficulties.
The Audit Committee regularly monitors and reports to us on strategic development initiatives, including the performance of our Brazilian subsidiary, Caixa Seguros. For the first time in 2004, Caixa Seguros had an accretive impact on our Company’s accounts, even after taking into account currency effects.
Nevertheless, our satisfaction with this result is tempered by two factors: • The success of this strategic project hinges on Caixa
Seguros meeting its business plan targets, and this in turn depends largely on the efforts of Caixa Econômica Federal’s teams in selling Caixa Seguros’ products. We should be able to measure their success in 2005.
Responding to the new demands created by this Act, the Executive Board has created a unit responsible for coordinating internal control procedures and drawn up a charter describing the respective roles and responsibilities of the Internal Audit department and the Risks and Internal Control department.
At the Audit Committee meeting held on 21 December 2004, the Group Finance Director gave a presentation on the background to the IFRS project and the key transition issues. The Committee then reviewed the principal impacts of applying IFRS on the main balance sheet items, and examined the simulations produced according to various stock market scenarios.
These simulations show that CNP Assurances will be capable of adapting to changing stock market conditions within the framework of IFRS, thanks to the quality of its asset/liability management processes.
Based on the report presented at the meeting by Group management, the Audit Committee was satisfied that the IFRS project was going smoothly.
We were therefore reassured that the project would be successfully completed and expressed our appreciation to the Executive Board for keeping us fully informed. We were pleased to note that the Executive Board’s asset/liability management policy appeared to be working well and that the extension of the fair value principle to liabilities would not compromise the Company’s interests.
The Committee noted that, in 2004, the Internal Audit department devoted significant resources to monitoring implementation of the Loi de Sécurité Financière – Internal Control (LSF-IC) project, with the result that the internal audit programme was only 70% completed. However, as regards internal audit effectiveness, the Committee observed that on average 90% of the recommendations were accepted by the audited units and implemented within a reasonable time frame.
We observed that the internal auditors frequently uncovered gaps in procedures or controls that were not formally set out in writing. However, the LSF-IC project has already led to significant improvements in this area.
We consider that the 2005 internal audit plan is balanced and takes into account all the requests made last year by the Audit Committee.
4. Matters examined by the Supervisory Board and the Remunerations and Nominations Committee in 2004
The Remunerations and Nominations Committee met once in 2004, to review the remuneration packages of Executive Board members.
The review was based on a benchmarking study of management remuneration practices at comparable companies, performed by an independent consulting firm on the Committee’s behalf.
The general objectives, which serve to determine up to 30% of variable remuneration, concern: • Productivity, as measured by the ratio of administrative expenses to technical reserves.
In addition to these general objectives, which have been applied since 1999, up to 20% of variable remuneration is based on the attainment of personal objectives. These differ according to each Executive Board member’s area of management responsibility.
After assessing actual performance in relation to these objectives, we decided – on the recommendation of the Remunerations and Nominations Committee – to set the variable remuneration pegged to general objectives at 22% and that pegged to personal objectives at 10 to 14%. The total variable remuneration received by Executive Board members for 2003 therefore represented between 32 and 36% of their fixed remuneration.
The proposal formulated by the Committee, which we adopted, consists of allocating directors’ fees based on each individual’s attendance record at meetings of the Supervisory Board and the Committees of the Board. The unit fee is unchanged compared with 2003 at €3,050 per Supervisory Board or Committee meeting, except for the Chairman of the Audit Committee who is paid double the standard fee for his attendance at Audit Committee meetings.
The Chairman of the Supervisory Board and the State’s representative on the Supervisory Board do not receive any directors’ fees.
At our meeting on 7 September 2004, we approved in principle the proposal to transfer CNP Assurances’ interest in Ixis AM to IAMG and to reinvest the redemption proceeds from the convertible bonds in additional IAMG shares, subject to two conditions precedent: • Independent confirmation, by an advisor retained by
• Signature of a shareholders’ pact with Caisses d’Epargne, providing CNP Assurances with certain guarantees in its position as minority shareholder of IAMG.
These two conditions precedent were met and CNP Assurances agreed to take part in the transfers to IAMG in December 2004.
In November 2004, we were consulted concerning the proposed acquisition by CNP Assurances of 57.5% of Fineco Vita, the bancassurance subsidiary of Capitalia, an Italian banking group, for €575 million.
Following our review of the project, we concluded that the acquisition represented a significant transaction in the Italian market and would make CNP Assurances one of the sixth largest bancassurers in Italy, while also bringing the Company closer to its goal of generating 15% of premium income outside France.
The proposed 10-year partnership with Capitalia would be supported by the exclusive distribution agreements between Fineco Vita and the Capitalia networks. CNP Assurances would acquire management control of Fineco Vita and would have the majority of seats on its Board of Directors.
More generally, we decided that the project was fully consistent with CNP Assurances’ growth strategy in the euro zone.
We informed the Executive Board that we would closely monitor developments concerning this strategic project, with the Audit Committee’s support.
are invested in floating rate and indexed bonds. In addition, maturities of the fixed rate bond portfolios are not too long, providing plenty of scope to gradually replace them with higher rate bonds.
The hedging programme offers protection over the medium to long-term and is managed in a way that takes full advantage of market opportunities.
We noted that the cost of this policy to ward against the risk of higher interest rates is fairly low and has only a limited impact on the Company’s asset yields, estimated at around 2 to 3 basis points.
We obtained an overview of human resources policies for 2004 and of certain projects planned for the period to 2007.
• Civil servants currently represent just under 20% of the Company’s total employees. Their falling number, due to retirements and the ending of secondments from Caisse des Dépôts, has refreshed our age pyramid, placing CNP Assurances in a more robust position than other French insurers, which are faced with a wave of retirements in the short to medium-term.
Among the human resources projects submitted to us for review, we were particularly interested in the proposal to create a skills database and in the pilot programme to create a management institute to provide employee training. The project was launched in 2004 and will be rolled out to the entire organisation in the coming years.
The highly structured project is being managed by a certain number of internal committees, with impetus provided by senior management. This ensures that the necessary resources are deployed so that the information system is capable of delivering the required services as and when they are needed.
The meeting to review the 2004 financial statements of the Company and the Group, as well as the related reports of the Executive Board, was held on 15 March 2005.
Supervisory Board. • Elect Henri Proglio to the Supervisory Board, to replace
We would like to end by thanking all members of staff for their hard work alongside the Executive Board during the past year.
This report comprises two sections, the first covering the preparation and organisation of the work of the Board and the second covering internal control procedures. It has been prepared based on the guidelines issued by the French securities regulator (Autorité des Marchés Financiers – AMF) on 23 January 2004 and by the various professional bodies (AFEP, MEDEF, ANSA) on the topic of internal control.
CNP Assurances has a two-tier management structure, with an Executive Board and a Supervisory Board. This choice of structure complies with certain basic principles of good corporate governance, by clearly segregating responsibility for day-to-day management, assumed by the Executive Board, from the oversight role played by the Supervisory Board.
Internal rules clearly describing the Supervisory Board’s role, organisation principles and procedures
• The duties and ethical obligations of Supervisory Board members, including regular attendance at meetings, ownership of a certain number of CNP shares.
During 2004, the Supervisory Board met five times with an average attendance rate of 87%. To underscore the importance of active participation, directors’ fees are allocated among the members solely on the basis of their attendance rate at meetings of the Supervisory Board and, where applicable, of the Committees of the Board.
a) The Audit Committee The Audit Committee met five times in 2004 with an average attendance rate of 96%. The Committee members are Alexandre Lamfalussy (chairman), an independent member of the Supervisory Board, Edmond Alphandéry, Jean-Pierre Menanteau (1), Patrick Werner and Nicolas Mérindol.
• Changes in unrealised gains on the bond portfolio and in embedded value.
• Status of the Loi de Sécurité Financière – Internal Control (LSF-IC) project and the IFRS project.
b) The Remunerations and Nominations Committee The Remunerations and Nominations Committee has four members, all of whom attended the meeting of the Committee held in March 2004. The Committee is chaired by Edmond Alphandéry, Chairman of the Supervisory Board; the other members are Francis Mayer, Managing Director of Caisse des Dépôts, Jean-Paul Bailly, Chairman of La Poste, and Charles Milhaud, President of the Executive Board of Caisse Nationale des Caisses d’Epargne.
The main changes to the internal rules of the Supervisory Board and the Committees of the Board are consistent with the underlying aims of the Loi de Sécurité Financière, France’s answer to the Sarbanes-Oxley Act. Examples include formally recognising the right of Board members to use the services of independent experts, who have the same powers of investigation as the Supervisory Board in the areas submitted to them for review.
The wording of the internal rules and related updates reflects the high quality, balanced relationships that exist in practice among the Company’s corporate governance structures.
This 2004 report is more detailed than the one for 2003, in line with calls by the French securities regulator (AMF) for companies to gradually improve the quality of disclosures on internal control, rather than simply updating the previous year’s report.
• Product design and presentation: control over the quality of general and special policy terms and conditions.
These reviews and discussions provide a basis for this report, and I also methodically seek and obtain all additional information that I consider can usefully be disclosed, in line with my obligation to report to shareholders on internal control.
While there is no legal definition of internal control, CNP Assurances, in common with other market players, recognised many years ago the need to have increasingly effective management and control systems. To this end, specific structures and procedures have been put in place over the years within the operating departments.
The Company decided to base the project on the internationally-recognised COSO internal control framework. COSO defines internal control as a process, effected by an entity’s board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following categories: • Effectiveness and efficiency of operations.
Internal control can be expected to provide only reasonable assurance, not absolute assurance, that the process will enable the entity to fulfil these objectives.
CNP Assurances’ business is governed by numerous laws and regulations. The Insurance Code includes strict rules covering the legal, technical, financial and accounting aspects of insurance operations and the ability of insurance companies to fulfil their obligations.
In addition, French insurance companies are subject to controls by the insurance regulators (Commission de Contrôle des Assurances, Mutuelles et Institutions de Prévoyance – CCAMIP). CNP Assurances is required to prepare a solvency report in accordance with Article L. 322-2-4 of the Insurance Code, which is submitted to the insurance regulator and the external auditors.
The Company’s internal control system is organised in two tiers: • Each operating or corporate department is required to establish first-tier controls to manage the risks associated with its activities.
• Second-tier controls are performed by the Internal Audit and Risk & Internal Control departments, to validate the quality and effectiveness of first-tier controls.
The Executive Board and the Supervisory Board, backed by the Committees of the Board, oversee and lead the entire internal control process at the highest level, to ensure that it contributes to fulfilling the Company’s strategic goals.
The system is built on references such as the Internal Control Charter, the Code of Conduct and internal delegations of authority. In addition, the Audit Committee and the Risk Committee have specific responsibility for monitoring risk management and the quality of internal control. The Risk Committee, made up of the members of the Executive Board and the Risk & Internal Control Director, is tasked with monitoring CNP Assurances’ material risk exposures and obtaining assurance about the existence and effectiveness of risk prevention, detection and management measures.
• Performing specific ex-post controls over the legitimacy of fund transfers and taking all necessary measures to prevent money laundering and the financing of terrorist organisations.
The aim of internal audits is to pinpoint the strengths and weaknesses of the audited activity or process, based on substantive evidence, recommend measures to eliminate identified weaknesses and monitor implementation of these recommendations. In this way, they support the preliminary risk and control assessments performed by the Risk & Internal Control department, and help to improve the Company’s efficiency.
• The effectiveness of internal control structures and organisations, including the efficient use of the related resources.
The head of Internal Audit also acts at Ethics Officer, with responsibility for defining and implementing the ethical rules applicable to all staff, as well as for providing advice and assistance in the areas falling within his sphere of competence as and when required.
Details of internal controls over statutory and management accounting information and actuarial data are provided in section 2.2.4, which describes internal control procedures for the preparation of financial and accounting information in accordance with the recommendations of professional bodies.
The ultimate aim is to obtain ISO certification of all processes. In 2004, ISO 9001 certification was renewed for risk acceptance processes under the Credit Agricole group loan insurance policy and for the production of annual tax information for policyholders.
A certain number of indicators have been set up, to: • Monitor and communicate to the networks error profiles by product, type and geographic area, to permit corrective action to be taken.
Service level agreements have been set up with all service providers used by the policy administration unit, for example to deal with correspondence, enter documents and administrative transactions in the information system, file documents in the archives, produce documents and process cheques.
• The Outsourcing Committee monitors the quality of service provided by external service providers.
2.2.3.2 Policy administration: group policies Group policies cover essentially the same types of guarantees as individual policies and the inherent administrative risks are therefore the same. However, group policies also give rise to specific risks arising from the delegation of decision-making authority to clients (mainly companies, mutual insurers and banks), brokers and outside service providers.
• General audits are carried out to advise partners and service providers on the best methods, tools and organisation for the marketing, operational and financial aspects of their activities.
• Controls are performed, extending where necessary as far as a detailed review of individual files; in 2004, this type of procedure was carried out in the Financial Institutions partnership centre.
The Executive Board is aware of the inherent difficulty of administering group policies, which are tailor-made for each client, and has launched a specific quality certification initiative for this area.
2.2.3.3 Asset management Asset management is outsourced, in part, to Ixis Asset Management, Ixis Conservation d’Actifs (custodial services), Ixis AEW (property), GFF (rental properties), Société Forestière (woodland) and other service providers.
Interest rate risk is a major issue for life insurance companies, due to the nature of liabilities towards policyholders. These consist of very long-term commitments, with a capital guarantee and, in some cases, a guaranteed yield. In addition, policyholders generally have the option of surrendering their policies, transferring funds between portfolios or paying top-up premiums. Changes in interest rates can materially affect the present value of these commitments.
At the same time, to fund these commitments life insurers invest mainly in bonds, which are also sensitive to changes in interest rates.
CNP’s proprietary asset/liability management (“ALM”) software is upgraded each year to extend the range of simulations and calculations and add new functions. The software takes into account the different characteristics of the various products and insured populations, as well as the specific accounting, tax and regulatory features of life insurance in France. Statistical insurer and policyholder behaviour laws are integrated in the system and regularly updated, to simulate changes in liabilities and the corresponding assets based on different market conditions.
With the transition to IFRS, the ALM system is now also being used to calculate the fair value of insurance liabilities. The results of the simulations have been tested and checked by independent consultants on their own software, providing confirmation of the quality of the new application and of the results obtained.
A lasting, steep rise in interest rates could erode the value of the bond portfolio, make the Company’s products less competitive and potentially trigger a sharp increase in surrender rates. Under this scenario, the Company could be forced to sell bonds in the portfolio at a loss, in order to fulfil its commitments.
Controls over this risk are based on investment strategies that take the risk into account (for example by investing in floating rate and indexed bonds or in fixed rate bonds with fairly short maturities), hedging strategies involving the use of derivatives, or restrictions on policyholder rights to transfer their savings among the portfolios underlying combined unit-linked/non-unit-linked products.
A steep fall in interest rates would swiftly lead to falling asset yields. This is because funds from coupons and from the redemption at maturity of bonds held in the portfolio would be reinvested at lower rates, resulting in a steady decline in the average interest rate on the portfolio. Under this scenario, asset yields could fall to a level where they barely cover the guaranteed yield on liabilities or worse still, where the yield payable to policyholders is actually greater than the yield on the corresponding assets.
The risk of a lasting, steep fall in interest rates is managed essentially by limiting the level and duration of guaranteed yields offered to clients, as well as through hedging strategies involving the use of derivative instruments.
Control mechanisms include portfolio diversification rules and minimum rating requirements based on the intended holding period. The Counterparty Risk Committee sets exposure limits by counterparty. These limits and the Company’s investment rules are sent to the portfolio managers each month.
Exposure to a sharp fall in equity prices is managed through monthly monitoring of the trigger point for the recording of a liquidity risk reserve by each Group company. The risk is taken into account to determine the weighting of equities in each company’s portfolios.
Operational risk affecting the execution of strategies or compliance with exposure limits
Various measures have been taken to manage operational risk affecting the execution of investment strategies or portfolio managers’ compliance with exposure limits. These include: • The requirement for portfolio managers to give a contractual undertaking to implement the strategies and comply with the limits communicated by CNP Assurances.
• Written confirmation of monthly strategies and limits to portfolio managers.
The life insurance business is heavily regulated and carries major operational, legal and reputation risks. The Legal & Tax Guidance department plays an essential role in analysing and monitoring these risks.
The risks emerge as soon as a product is developed and the related contractual documents are drafted, but they also concern the way that the product is presented to the public. And they may also emerge as a result of guidance issued by the regulatory authorities on matters that are open to diverging interpretations.
The risks concern certain documents and advertising materials made available to policyholders and the public, such as general and specific policy terms and conditions, institutional and point-of-sale advertising materials, and product prospectuses. An additional risk lies in the way that insurance advisors present the products to potential clients.
In 2004, French life insurers received a flood of complaints from policyholders who had lost money on unit-linked contracts due to falling stock market prices. Arguing that the general terms and conditions of the contracts in question were flawed or too vague, many of these policyholders sought a court ruling extending the coolingoff period, which would allow them to obtain a refund of their premiums.
To effectively address this type of legal and regulatory risk, CNP Assurances has implemented various procedures, as follows: • Confirmed and potential changes in the regulatory, legal and tax environment are actively monitored.
• Formal partnership agreements are drawn up and signed, specifying in detail the way that insurance products may be presented to potential clients, and defining the respective roles and responsibilities of CNP Assurances and the networks (French Post Office and Savings Banks).
• Client complaints are reviewed in detail, to identify any recurring causes and improve the wording of contractual documents where necessary.
Priority needs to be given to strengthening internal controls over legal risks, related in particularly to documents issued to the public and to partners. I will personally ensure that regular improvements are made in this area.
A Finance Committee meets regularly to review the subsidiaries’ investment policies. The risk mapping process is being rolled out to the main foreign subsidiaries, providing a basis for assessing and managing risks related to their operations.
A management reporting system has been set up for foreign subsidiaries, allowing the production of detailed monthly management accounts and of management indicators used by the Executive Board to monitor these subsidiaries’ performance.
These controls over non-recurring data and accounting estimates are described below. They fall into three broad categories: • Determination of underwriting results.
• Analyses of contractual and financial data used to calculate technical reserves, and reconciliations to accounting data.
• Risk selection policies based on statistical analyses of historical mortality and life expectancy data. For example, an “annuitant experience table” has been developed by the method prescribed in the Insurance Code. Certified by an independent actuary, this table reflects changes in mortality and life expectancy rates, helping to improve the quality of estimates used to determine technical reserves for annuity products.
2.2.4.2 Management Accounting In addition to managing financial and insurance risks, three of the main challenges facing insurance companies are to control general operating expenses, improve productivity and reduce policy administration costs.
The business plan is rolled down to all Group units in the form of annual targets by entity and by function, covering both revenues and expenses. These targets serve as the basis for the detailed allocation of resources in the annual budget.
Expenditures and purchases are approved for payment by the departments concerned, recorded in the accounts by the Management Accounting department and paid by the Statutory Accounting department. This organisation guarantees an appropriate segregation of tasks between approval, accounting and payment.
Management information schedules and indicators are produced to track actual performance against the budget and changes in productivity rates. They comprise a mix of technical, financial and accounting indicators based on data reported by all the units and departments concerned (Management Accounting, Statutory Accounting, Policy Administration, Actuarial Analyses, Investments, etc.).
Lastly, recurring and one-off business analyses are produced to measure the profitability of insurance operations and the return on investment in material projects, and also to identify potential improvements in management processes.
For example, the action taken has delivered productivity gains in policy administration, leading to a reduction in the administrative expense ratio from 0.35% in 2000 to 0.31% in 2004, with a target of 0.30% in 2005. Over the same period, the average number of policies administered by employee increased from just over 18,000 to more than 21,000, with a target of some 23,000 in 2005. And the creation of a Purchasing function led to estimated savings of €2.7 million in 2004.
The main risks concern the accuracy, completeness, fairness and presentation of accounting data, and compliance with regulatory deadlines for the publication of the financial statements.
• Financial data (purchases and sales of securities, coupons, etc.): controls over data completeness and consistency.
• Client accounts and individual insurance data: reconciliation of data from management systems and accounting databases.
The management accounts generated after period-end entries have been recorded provide an operational and economic snapshot of the components of income. Consistency tests between the various information sources and analytical reviews of the main variances are also performed.
Accounting procedure manuals have been produced and are available for consultation by the Accounting and Legal departments. The accounts closing process has also been documented and is managed with input from the units that contribute to producing accounting data.
An accounting and financial reporting manual has been prepared for the subsidiaries and a consolidation procedure manual has been drawn up for consolidation teams at headquarters.
Taxes are calculated and paid by a specialised unit in the Accounting and Legal department. External tax advisors are consulted when specific expertise or a second opinion is needed.
The transition to IFRS provides an opportunity to revise and, where possible, improve existing internal controls.
Progress is monitored at twice-monthly meetings of a project committee and monthly or bi-monthly meetings of a steering committee chaired by the Finance Director and the Management and Innovation Director, both of whom are members of the Executive Board.
The IFRS project also contributes to improving internal control by creating opportunities to enhance the consolidation manual, with the inclusion of a detailed description of the technical choices under IFRS, and to set up a database to facilitate the collection of data from management systems in a standard format.
Qualitative information about the effects of the transition to IFRS is provided in the Executive Board’s report.
In accordance with the recommendation of the French securities regulator (AMF) concerning the transition to IFRS, the Group decided that it would not be advisable to provide detailed information about the effects of the transition in this annual report because the accounting treatment of certain items is still being discussed by national workgroups.
During the year, all processes that have a material impact on the preparation and processing of financial information were mapped (11 processes, the last of which was being finalised at the beginning of this year), together with the 19 processes defined as mission-critical. Complete models have been produced of all these processes and rollout of the project to the subsidiaries has been launched.
Processes have been modelled based on a common language used by all players, the risks associated with these processes have been identified and assessed, and work has begun on documenting the related controls. Where necessary, action plans have been drawn up, providing for the introduction of new controls or improvements to existing ones.
Most of the controls described to date have not yet been tested, and it is therefore too early to make any assertions concerning their effectiveness.
The Auditors have not informed me of any material internal control weaknesses identified during their audit.
Action under the project in 2005 will include setting up an internal control database and implementing a testing plan. The tests will provide a basis for recurring checks on the effectiveness of these key controls. The results will be used to draw up action plans for the implementation of recommended improvements.
Since 1 January 2004, CNP Assurances has been managing relations with policyholders who purchased their policy via the Treasury network.
The 470,000 policyholders represent around a million CNP policies and €10.5 billion in technical reserves.
To guarantee a seamless transition and retain these policyholders’ confidence, CNP Assurances has set up a team of insurance advisors that will ultimately have 280 members. These advisors offer clients personalised advice, based on a review of their specific situation, with the underlying aim of preserving the value of the inherited portfolio.
CNP Assurances has been selected to write loan insurance for Créfidis, a new credit institution set up by Cofidis in partnership with Crédit Mutuel Nord Europe.
The insurance package provided by CNP comprises death, temporary and permanent disability and unemployment cover.
In connection with the partnership agreement between FNMF (Fédération Nationale de la Mutualité Française) and CNP Assurances, CNP and UNPMF – the pensions, savings and personal risk arm of FNMF – have launched a Perp pension offering for clients of UNPMF members, named Plan Retraite Mutex. UNPMF (Union Nationale de Prévoyance de la Mutualité Française) comprises 164 mutual insurance companies with more than 1,000 outlets.
Casino Group and CNP Assurances have signed a strategic agreement for the development and promotion of a comprehensive personal insurance offering for customers of Casino Group stores in France.
The initial offering includes personal risk insurance and loan insurance, as well as savings and pension products. The two partners also plan to work together in the areas of assistance and other personal services.
Initially, CNP insured the credits and personal loans extended to the customers of Casino’s banking subsidiary.
This new web-enabled system enables account managers in bank branches who are arranging finance for their clients to set up insurance cover in real time. On-line underwriting optimises the insurance process by reducing the time required – for the majority of applications, the account manager receives an immediate reply directly on screen.
CNP Assurances decided to take advantage of favourable conditions on the subordinated debt market to reinforce its solvency ratio through the launch of a €250 million junior subordinated issue in the first half, followed by a €50 million issue in September.
– GMO: 2004 Silver Medal in the combination unitlinked /non-unit-linked (diversified funds) category.
Products distributed by the Savings Banks: – Initiatives Plus: 2004 Gold Medal in the non-unit linked category.
On 10 November 2004, CNP Assurances and Fineco Group, a member of the Capitalia group, Italy’s fourth largest bank, announced the signature of an agreement for the acquisition by CNP of a 57.5% stake in Fineco Vita, Capitalia’s bancassurance subsidiary, for €575 million. The transaction was completed on 17 February 2005.
Fineco Vita is Italy’s sixth largest life insurer with 3.6% of the market in 2003. In 2004, it had premium income of €1.89 billion, underwriting profit of €51.9 million and shareholders’ equity of €323.8 million. Formed on 1 January 2004 through the merger of Roma Vita and Cisalpina Previdenza, the company distributes bancassurance products through the 2,000 bank branches in the Capitalia networks (Banca di Roma, Bipop Carire and Banco di Sicilia), and through the Fineco Bank network, comprising 1,600 sales persons.
Capitalia is Italy’s fourth largest banking group, with around 6% of the retail banking market and 5 million clients. It will continue to own just under 39% of Fineco Vita’s capital.
The 10-year partnership will be based on the existing exclusive distribution agreements between Fineco Vita and Capitalia. The aim is to grow Fineco Vita’s market share and increase its penetration rate among Capitalia clients, which currently stands at around 15%. The agreement gives CNP control over the day-to-day management of the business, as well as a majority of the seats on the Board of Directors.
With a population of 57 million, Italy is Europe’s most attractive personal insurance market in terms of growth potential, with a life insurance penetration rate of only 4.8% in 2003. Over the ten years from 1994 to 2003, the market grew at an average rate of 15% per year, expanding tenfold to reach €62.78 billion, equivalent to 60% of the French market.
Under the partnership agreement between FNMF (Fédération Nationale de la Mutualité Française) and CNP Assurances, a combined loan insurance and guarantee product has been launched for the clients of mutual insurance companies that are members of FNMI (Fédération Nationale de la Mutualité Interprofessionnelle ), offering them secure solutions for the purchase of a new home.
The agreements between the partners were signed on 21 July 2004 and the products were rolled out to FNMI members as from October. The marketing launch of the new offer is scheduled for the first half of 2005.
In November, Ecureuil Vie carried out a €183 million perpetual subordinated debt issue underwritten by Caisse Nationale des Caisses d’Epargne et de Prévoyance.
Growth rates were particularly high in Asia and also in the United States where the economy expanded by 4.4% despite a certain loss of momentum in the second quarter. Loose American monetary and fiscal policy supported consumer spending but also fostered a steady increase in household debt, while corporate capital spending was boosted by low interest rates and solid earnings performances. At the same time, the US balance of payments deficit widened to 5.6% of GDP, fuelled by high imports and rising oil prices. Despite the very strong recovery in economic activity, the Federal Reserve Bank waited until the end of the first half to embark on a series of interest rate hikes which took the Fed Funds rate to 2.25% in December. On the other side of the Atlantic, the European Central Bank kept the base rate at 2% throughout the year to avoid restraining economic growth. South America improved its economic performance, registering 5.5% growth versus 1.7% in 2003. Brazil staged a remarkable recovery; the 5.2% increase in GDP compared with a 0.2% fall in 2003 represented the country’s best economic performance since 1994. The renewed momentum was accompanied by lower inflation in nearly all countries, leading to a decline in country risks that helped to drive up prices on the financial markets.
France proved to be an exception to the rule. In the first half of the year, consumer spending rose at a brisk pace, exceeding the growth in disposable incomes. A certain loss of momentum was observed in the third quarter, but this was short-lived and over the full year, French consumers increased their spending by 2.1% by cutting back on savings.
Confirming the trend observed in recent years, growth in financial investment by French consumers was fairly subdued. The saving rate declined to 15.3% from 15.8% in 2003, as consumers continued to increase their spending despite only limited rises in their incomes. Savers also chose to invest in property rather than in financial products, which were generally viewed as less attractive. Life insurance nevertheless continued to represent a popular investment vehicle, partly due to its favourable tax treatment and relatively high yields, but also as a result of concerns about the financing of pensions. The same could not be said of stocks and shares, as evidenced by the net outflow of savings from the stock market towards broader-based mutual funds. Despite the recent recovery in share prices – with the CAC 40 ending the year up 7.4% at 3,821.16 points – savers have not yet got over the disappointments suffered in previous years.
The 10-year OAT rate rose in the early part of the year but the trend reversed in the spring and the rate ended the year at 3.70%.
CNP Assurances’ premium income for 2004 amounted to €21,441.8 million, an increase of 10.2% over 2003 or 10.4% at constant exchange rates. New money invested in the Group’s savings products in France rose 10.4%, while growth in net new money came to 21%.
However, the Group under-performed the French savings market, which according to FFSA estimates grew by 13% to €104.2 billion.
This below-market growth in France was primarily attributable to the creation in 2004 of the new CNP Trésor network to take over from the former French Treasury network and, in particular, to a much lower increase in sales of unit-linked products than that seen on the French market as a whole, at 4% versus 35%. CNP Assurances’ sales of unit-linked products totalled €2,342.9 million, €137 million of which concerned group products. Leaving aside group business, new money invested in individual unit-linked savings and pensions products rose 4.4% to €2,206.1 million.
Changes in CNP Assurances premium income by business segment were as follows: Average exchange rate for 2004: €1 = BRL 3.70882 €1 = ARS 3.74868 Average exchange rate for 2003 (constant rates): €1 = BRL 3.48751 €1 = ARS 3.41835
Pensions premium income climbed 43.9% for the year and 72.4% in the fourth quarter. This very sharp increase concerned both Brazil (up 37% in euros) and France (up 45%). The pensions segment accounted for 9% of the Group’s 2004 premium income compared with 6.9% in 2003.
In France, strong growth in the pensions business was attributable to: • A significant increase in sales of individual products.
• A solid 28.8% rise in premium income from group products, particularly those sold to companies, due to pension contracts sold in the fourth quarter.
• A 9.1% increase in new money invested in Préfon (now sold by the Post Office network) to €560.7 million from €514.1 million.
Sales of group personal risk contracts to mutual insurers, local authorities and companies climbed by 9.3%, mainly due to higher premium rates for local authority contracts.
Loan insurance premium income rose by 8.5% (8.9% at constant exchange rates).
Property and casualty insurance business is written only by the Portuguese and Brazilian subsidiaries. Premium income rose 5.6% (8.4% at constant exchange rates) to €218.8 million, with Portugal contributing €127.2 million (up 12.8%) and Brazil €91.6 million (up 3.1% at constant exchange rates).
Savings Pensions Personal risk Loan insurance Health insurance Property & Casualty Total
Premium income generated by the French Post Office rose by 12.4% to €7,821 million. Fourth quarter premium income increased by 35.3% to €2,358.8 million. This excellent performance was attributable to a sustained marketing drive across all business segments – savings, personal risk, pensions and long-term care products. Unit-linked sales recovered strongly, increasing by 29% to €592.3 million or 7.7% of total savings and pension premium income. In addition, 200,000 new pension contracts were sold in 2004, representing premium income of €190 million (180,000 Solésio Vie contracts taxed in the same way as life insurance, and 20,000 Solésio Préfon contracts and Solésio Perps). These contracts (95% of which generate regular payments) are targeted at clients in their late thirties and early forties, allowing the Group to refresh its client base. CNP’s personal risk insurance business totalled €87.7 million (mainly generated by 50%-owned Assurposte), representing an increase of 24.4% for more than 700,000 contracts. The long-term care product Protectys Autonomie was successfully launched in September, with close to 30,000 contracts sold.
Premium income generated by the Savings Banks rose 9.6% to €8,486.9 million, including €1,692.1 million written in the fourth quarter. In the pensions segment, 288,000 Perp contracts were sold, mainly to clients aged under 40, with higher monthly premiums than for all other products in the range. Sales of the top-of-the range product Nuances Plus continued to grow, rising 73% to €1,119 million. Unit-linked sales totalled €1,501 million (versus €1,558 million in 2003), accounting for 18.4% of savings and pensions premium income.
Premium income increased for both individual and group products, as shown below: Premium income in € millions 2004 2003 Change 2002
CNP Seguros de Vida (Argentina)(1) and others 2.5 2.2 +13.8% 4.5
Financial institutions contributed premium income of €1,101.7 million, an increase of 9.1% compared with 2003.
Premium income generated by mutual insurance companies and local authorities totalled €1,504.7 million, up 11.1%. The rate increases introduced on local authority statutory insurance contracts drove a 29-point rise in premium income.
CNP’s Italian branch sold €2.5 million worth of loan insurance contracts in the fourth quarter.
(1) Caixa Seguros was consolidated as from the second half of 2001
In € millions Savings Pensions Personal risk Loan Health Property Total insurance insurance & Casualty
The profit and loss account shows operating profit of the life insurance business, non-life business and other Group businesses – corresponding to two property companies and a property leasing company –, as well as the net profit of consolidated companies after other income and expenses, exceptional items and tax. Income from associated companies is added to this amount and goodwill amortisation is deducted to derive consolidated net profit.
Comments on changes in the main profit and loss account items
(1) Corresponds to growth in average technical reserves. Growth in technical reserves at 31 December was 8.8%
Claims expenses and changes in technical reserves, including policyholder dividends, increased by 8.7%. Excluding positive adjustments to linked liabilities, the increase was 8.3%. Claims and claims settlement expenses rose 3.1% in absolute terms, but declined as a percentage of technical reserves, to 7.8% from 8.3%. Total revenues allocated to policyholders, including credited interest and policyholder dividends, amounted to €6.4 billion, representing 4.0% of average technical reserves compared with 4.1% in 2003.
Operating profit, corresponding essentially to premium income and net investment income less acquisition and administrative expenses, totalled €1,138.5 million, an increase of 12.4% compared with the 2003 figure excluding the effect of changing stock market prices.
Consolidated shareholders’ equity rose 8.7% to €5,492.9 million from €5,055.1 million before appropriation of profit at 31 December 2003. An amount of €22.5 million, net of tax, was charged against equity, in application of CNC recommendation dated 25 March 2004 and CNC press release dated 22 July 2004 concerning long service awards, pensions and other post-retirement benefit obligations.
Based on book values, the portfolio structure – including unit-linked portfolios – was largely unchanged. Bonds accounted for 78% of the total, equities 20% and property 2%. Excluding unit-linked portfolios, the percentages were 85%, 13% and 2% respectively.
The European regulation dated July 2002 requires all listed companies in Europe to apply IFRS to prepare their consolidated financial statements as from 2005 at the latest.
ECOFIN and ARC (Accounting Regulation Committee) issued statements in July 2003 endorsing IFRSs.
In order to prepare the comparative data, the Group will produce an opening IFRS balance sheet at 1 January 2004 (the transition date) in which the effects of the changes of method arising from the adoption of IFRS will be reflected in equity.
• Estimate the main impacts of the transition to IFRS. • Adapt management processes and information systems, where necessary, to produce the data required under IFRS.
The project is being overseen by a Steering Committee headed jointly by the Finance Department and the Management and Innovation Department. Work groups have been set up to examine the following issues with the assistance of experts: measurement and classification of assets, shadow accounting, measurement and classification of liabilities, investment property, employee benefits, software and other intangible assets, consolidation, financial communications, accounting and management information systems. In addition, the Group is taking part in ongoing industry-level discussions concerning, in particular, the interpretation of IFRS 4.
The Audit Committee was kept regularly informed of progress on the project, and met several times to approve the options selected by the Group for the preparation of its first set of IFRS financial statements.
The three most important issues are as follows: Scope of consolidation Under IFRS, mutual funds and property companies must be consolidated even if they represent admissible assets. These entities will therefore be included in the IFRS scope of consolidation.
In addition, the other entities included in (or excluded from) the scope of consolidation will be reviewed at the IFRS transition date based on the substance-over-form principle (IFRS 1).
Employee benefits IAS 19 requires companies to recognize in the balance sheet all pension and other employee benefit obligations.
The key items in the balance sheet of a life insurer are dealt with in four standards that apply mainly to the financial services sector: • IAS 32, IAS 39: Financial instruments • IAS 40: Investment property • IFRS 4: Insurance contracts
Financial instruments (IAS 32, IAS 39) IAS 32 and IAS 39 deal with the disclosure, presentation, recognition and measurement of financial assets and liabilities.
The method used to measure financial assets depends on the intended holding period. IAS 39 defines three categories of financial assets based on this criterion: • Trading assets, which are measured at fair value, corresponding to market value in the case of securities traded on an organised market. Gains and losses arising from remeasurement at fair value at each period end are recognised in profit or loss.
• Available-for-sale assets are assets that an entity does not have a positive intention to sell but which may be sold, to meet liquidity needs for example. These assets are also measured at fair value, but the resulting gains and losses are recognized in equity.
• Held-to-maturity investments, corresponding to securities that an entity has the positive intention and ability to hold to maturity. These assets are measured at amortised cost, in the same way as in the French GAAP accounts.
In the opening IFRS balance sheet, the vast majority of securities will be classified as available-for-sale. Heldto -maturity investments will be marginal. Trading assets will consist mainly of assets with an embedded derivative, the asset portfolios of consolidated mutual funds and derivative instruments.
The method used to recognise permanent impairments of value will also be different from that applied under French GAAP. In the IFRS accounts, impairment losses will be recognised for all securities whose fair value is a) below their carrying value over a continuous period of six months or b) more than 20% below their carrying value at the period-end. The impairment loss will cover the total difference between the assets’ fair value and carrying value. In addition, impairment losses will also be recognised on investment properties (IAS 40).
Investment Property (IAS 40) IAS 40 – Investment Property allows companies to choose as their accounting policy either the fair value model or the cost model (measurement at amortised cost). The Group has decided to apply the cost model. However, properties held through property companies will be measured at fair value.
Classification of liabilities (IFRS 4, IAS 39) According to IFRS 4 and IAS 39, insurance liabilities fall into three categories: • Insurance contracts (IFRS 4) corresponding to contracts that carry an insurance risk. This is the case of personal risk, pension and property and casualty contracts, as well as unit-linked contracts with a guaranteed element.
• Investment contracts without a discretionary participation feature (IAS 39), such as unit-linked contracts without a guaranteed element.
The vast majority of contracts written by CNP Assurances are “IFRS 4” contracts.
If the test shows that recognised liabilities represent less than the Group’s commitments, the difference is recognised in profit or loss.
Shadow accounting (IFRS 4) The shadow accounting technique provided for in IFRS 4 is used to recognise a provision for policyholder benefits to match the gains or losses arising from remeasurement at fair value that are recognised in the IFRS accounts. The purpose of shadow accounting is to avoid the artificial asset/liability imbalance that may result from the use of different methods to measure assets and liabilities.
• Reconciliation of French GAAP and IFRS net profit for 2004. • The main IFRS adjustments to the 2004 statement of cash flows.
Report of the Executive Board 5. Financial statements of the company 5.1 PREMIUM INCOME
Growth in premium income from individual policies was boosted by the launch of new pension products. Premium income from group products rose strongly, driven by a robust performance in the pension and early-retirement benefit markets.
The launch of a new pensions offer comprising products taxed as life insurance and Perps did not have any adverse impact on sales of traditional savings products, such as Poste Avenir, a non-unit-linked product offered on a stand-alone basis and as an underlying investment for Garantie Multi-Options (GMO), or of high-end products such as Ascendo.
CNP Trésor, which steadily scaled up operations over the year, recorded first-year premium income in excess of its target.
CNP Assurances’ contribution to consolidated shareholders’ equity amounted to €4,767.7 million, after deducting €22.5 million charged against equity in application of CNC recommendation dated 25 March 2004 and CNC press release dated 22 July 2004 concerning long service awards, pensions and other post-retirement benefit obligations.
In last year’s improved economic and financial environment, Caixa Seguros reported a 13.2% increase in operating profit. The Brazilian subsidiary’s contribution to consolidated profit before financing costs rose to €24.5 million from €17.3 million. After deducing financing costs, contribution was a positive €4.5 million.
CNP IAM contributed €1,538 million to consolidated premium income. Contribution to profit rose sharply to €38.6 million from €2.3 million in 2003. The 2003 figure was exceptionally low due to measures to boost technical reserves for contracts covering local government employees. In 2004, CNP IAM also posted a significant improvement in net investment income.
In 2005, CNP Assurances intends to remain on the path of profitable growth.
• In individual insurance, the focus will be on selling higher-margin personal risk and unit-linked products, continuing to work closely with partner networks to promote the new personal pensions offering, in order to refresh the policyholder base, and increasing the weighting of regular premiums in total premium income.
• In both individual and group insurance, CNP will continue to target growth in sales of pension products.
The Group will also continue to examine external growth opportunities, mainly in Europe. Particular attention will be paid to ensuring that business growth goes hand-inhand with earnings growth.
Developments concerning phase 2 of IFRS 4 – Insurance Contracts will be closely monitored, to anticipate their impact on information systems and financial communications.
• External laws and regulations, and internal rules and procedures are complied with.
CNP Assurances’ system of internal control is based on the integrated framework published by COSO (Committee of Sponsoring Organizations of the Treadway Commission). It comprises five interrelated components: • An efficient control environment, based on a clear, formal definition of roles and responsibilities. • Regular risk assessment and monitoring. • Control activities that serve to reduce risks. • Regular pertinent and reliable information and communication.
• The system of internal control covers: – CNP Assurances and its directly and indirectlycontrolled subsidiaries. – Non-consolidated indirect subsidiaries over which
– Unincorporated entities (such as intercompany partnerships) of which CNP Assurances is a partner with joint and several liability.
The internal control organisation has been structured in the form of a two-tier pyramid spanning the entire Group: • First-tier controls are performed by line personnel, who are responsible for ensuring that the necessary controls are in place to manage the risks associated with their activities and for constantly monitoring the fairness, safety and validity of all transactions carried out in the course of their work.
The provisions of section III of the Loi de Sécurité Financière, dealing with auditing and disclosure issues, require companies to strengthen their internal control systems.
Business process modelling represents an essential phase in the project. By documenting all business processes, the model will make it easier to understand how the company operates, and thus to identify and assess the related risks together with the level of corresponding controls.
The Group’s business model is built around 15 mega processes, which in turn break down into 51 major processes. Among these, 11 processes materially impact the accounts and 19 are considered critical from a business standpoint.
As of the 2004 year-end, models had been produced for 32 processes, including 10 of the 11 processes that materially impact the accounts. The project is expected to be completed on schedule at the end of 2005. A new Internal Control unit was set up in 2004 within the Risks and Internal Control department, with responsibility for verifying the existence of controls reported during the business process modelling exercise and assessing the controls’ effectiveness and the quality of the related documentation. The first tests were performed in mid2004 on one of the processes that materially impacts the accounts. The testing plan will be considerably extended in 2005, as the unit becomes fully operational, focusing on controls over material business processes.
In 1999, the Group strengthened its internal control system by setting up a dedicated risk management structure. The project to enhance risk management was organised in two phases: • At the end of 2002, a new risk management approach was implemented to provide a comprehensive and coherent overview of exposures by company or by group of companies in the same line of business.
• At the end of 2003, an approach by business process was introduced, as part of the LSF project.
The aim is to identify and assess risks and improve their management. The complementary nature of the two approaches provides reasonable assurance that all of the Group’s material risk exposures are covered.
An operational risks “incident” database was developed in 2004, to log all such incidents, monitor the action taken to deal with them and measure their impact and frequency, providing valuable information to assess actual risks. The new base will come on-stream at Group level in early 2005 and be deployed to the various units according to a phased process.
The project is organised in two phases: • The first phase consists of identifying and assessing risks in terms of their impact and the extent to which they are controlled.
• The second phase involves setting up a system to monitor and control risks on a consolidated basis and, where necessary, drawing up action plans to reduce exposures.
Stage one rollout to the most significant companies had been completed by the end of 2004, with the production of risk maps used for both identification and assessment purposes. A separate map was produced for each function, in close cooperation with line management. These documents provide a consolidated view of the risks that could potentially have adverse financial consequences or prevent the Group from fulfilling its development and other objectives.
The three main types of risk – financial, insurance and operational – that are a feature of the personal insurance business are broken down into around 150 basic risks.
As part of the LSF project, the Group has decided to model all of its business processes, in view of the approach’s clear benefits from a methodological standpoint and despite the considerable resources required for its implementation.
The modelling process is being carried out in two phases: • The first phase consists of describing the sequence of activities in each process, the objectives of each process, the key players and the input and output data.
It therefore allows the Group to perform a detailed analysis of each risk that is found to be inadequately controlled and to devise closely tailored solutions; however it is difficult to use the data to obtain a broad overview of risks which is why the approach is used in tandem with the approach by business.
7.3 TOOLS AND PROCEDURES TO FORECAST CHANGES IN OUTSTANDING COMMITMENTS AND THEIR COVERAGE
Forecasting models are tailored to the types of products concerned. They include: • Asset/liability models for savings and pension products. • Specific loan insurance models which break down the insurance book by underwriting year.
• The interest rate, which reflects the return on the capital managed by the insurer.
For these contracts, results are determined by long-term financial management policies and actual mortality rates compared with the assumptions used.
Personal risk products: primarily technical commitments The main factors used to assess risks related to personal risk products are the age, sex and socio-professional category of the insured.
The approach used to ensure that technical reserves are adequate focuses on: • Managing the risks associated with a fall in interest rates.
– Detailed analyses and statistical studies of personal risk contracts, including loss monitoring (by contract/ underwriting year/loss year) and tracking of the utilisation of reserves.
Contracts with similar characteristics are grouped together into categories. Each category of contracts is backed by a portfolio of assets that are managed according to a strategy closely tailored to the profile of the related liabilities.
In 2004, 13% of Group assets were invested in equities and equity funds (based on book values, excluding unitlinked portfolios).
The portfolios invested directly in equities are also highly diversified. Their performances and tracking error are monitored on a monthly basis.
The aggregate exposure of each Group company to equity risk is monitored through the monthly calculation of the trigger point for the recording of a liquidity risk reserve.
The Insurance Code requires insurers to set up a liquidity risk reserve if the aggregate market value of positions valued according to article R. 332.20 of the Code is less than their book value net of provisions for permanent impairment in value. This rule mainly applies to equities, mutual funds and property investments.
The credit risk management strategy approved by the Executive Board consists of holding investment grade securities and diversifying bond portfolios to avoid concentrations of credit risks by issuer or geographic area. The CNP Risks Committee meets periodically to approve and direct the investment policy.
Asset/liability simulations are carried out using proprietary software that takes into account the specific characteristics of the life insurance business. The simulations are based on a certain number of typical interest rate scenarios. In addition, a large number of scenarios are generated at random to measure the statistical dispersion of results (stochastic simulations).
• Matching of interest rate commitments with fixed rate bonds that have an at least equivalent life.
The CNP Group pays close attention to the risk associated with an increase in interest rates and this is a key focus of its asset/liability management.
of the portfolios. • Part of the fixed income portfolio is hedged against the risk of a sharp rise in interest rates, using caps. In favourable market conditions, such as those prevailing in 2004, the programme is extended.
Lawsuits concerning the interpretation of policy terms declined by 10% in 2004. The number of suits in progress at 31 December 2004 was down by 7% on the previous year, after staying at around 2,500 to 2,600 cases in each of the previous five years, a figure that is not material in relation to the total number of individual and group policies managed by CNP Assurances.
CNP Assurances manages this risk by recording a provision for the amount claimed. At 31 December 2004, these provisions stood at €12.9 million.
Certain issues raised in connection with lawsuits go beyond a simple dispute between CNP Assurances and the insured. These issues could have serious consequences for the entire insurance industry if the courts all found against the insurer.
However, other significant issues have yet to be resolved, arising from: • Systematic efforts by certain insured persons or their advisors to find loopholes in contractual documents, which are in fact designed to secure the cancellation of unit-linked contracts. This risk is currently more prevalent, due to low equity prices, and the insurance industry is lobbying to obtain changes in the law to eliminate provisions that are open to differing interpretations.
Combating money laundering and the financing of terrorism is a constant concern for the Group and a system designed to comprehensively address this risk has been set up, based on: • A new anti-money laundering unit, made up of representatives of all the units concerned.
• Upgraded procedures to detect transactions that could be used to launder money or finance terrorist organisations. These procedures describe the checks to be performed by line personnel on the documents presented by clients and the trigger points for the launch of warning procedures.
Ex-post controls are performed by the specialized antimoney laundering department, to detect any unusual transactions that may have slipped through the net during the first tier controls.
• A reporting system to inform the Executive Board of all the action taken during the year and the results obtained, backed by regular internal audits.
The system is now being rolled out to all the international subsidiaries.
• Insurance has been taken out with several insurers at a total cost of €819,363 covering: – Personal injury.
– Property damage (including damage to buildings used in the business, investment properties, information systems hardware and software).
Based on a review of the structure of the policies and the level of cover provided, the Group’s overall level of insurance cover is considered satisfactory.
The contingency plan is updated quarterly and the entire system is reviewed each year, to take into account the Company’s changing needs and check that the earmarked resources are adequate.
A model contingency plan and a set of methodological guidelines have been prepared for the foreign subsidiaries, allowing these companies to benefit from CNP’s experience in France.
In 2001, CNP Assurances incorporated in its code of ethics a new rule governing competitive bidding processes. All invitations to tender now include a clause requiring Group entities that issue invitations to tender to obtain information from bidders about their employment practices, to ensure that CNP Assurances only does business with companies that fulfil their social obligations. Any companies that fail to comply with this clause are banned from taking part in the bidding process.
We also responded to another key problem facing today’s society – the greying of the population – by developing new long-term care products for the French Post Office and for our own network. These products were an immediate success, confirming the existence of a genuine need for solutions combining financial and practical assistance, backed by advice as from the time of sale.
In line with our commitment to providing clients with more than just financial solutions, we have continued developing our personal services offer. Solésio Vie, a pensions product taxed as life insurance that has been distributed by the French Post Office since the beginning of 2003, is our first contract incorporating advisory and assistance services.
Filassist Contact, a telephone assistance service sold by our Filassistance subsidiary is another good example. Support for the elderly and disabled living alone has been considerably enhanced by a necklace button that allows the wearer to effortlessly answer a phone call or contact a medico-social helpline at any time of the day or night. This represents an important source of reassurance for the subscriber and his or her family. Filassist Contact won the prize for innovation in communication aids at the 2004 Salon Autonomic fair, which showcases solutions to the problems of dependence.
The number of Filassistance subscribers increased threefold in 2004, placing the company among the leading players in the French telephone assistance market. Building on this success, Filassistance was the driving force behind the creation of Association Française de Téléassistance, which has drawn up a code of ethics that has also been signed by three other assistance companies.
2004 was another prize-winning year for our Company, with five awards from Le Revenu magazine and four from Le Journal des Finances.
We are judged on our service quality across the life of a policy, from the day it is sold, through regular policy statements, to the day the policy matures and the benefit is paid. At the time of sale, future clients must clearly understand the general conditions and other information, so that they can make an enlightened decision. In 2004, we continued our initiatives in this area, in line with the rules established by the Loi de Sécurité Financière. The specific regulations applicable to Perps were implemented as soon as the products were introduced in the market.
We have long been concerned by the need to help people classified as representing an aggravated risk to obtain credit. We have rolled out to all our loan insurance partners the system of Level 2 contracts, under which a personalized insurance offer is made to applicants who have been rejected for cover under the Level 1 policy. And we have also extended the scope of application of the Belorgey Convention to provide improved access to credit and insurance for people suffering from serious illnesses. These measures, combined with our constant drive to refine statistical analyses of these populations, have led to a threefold reduction in the rejection rate in the last three years, allowing an additional 7,000 people to obtain cover in 2004.
As the manager of policies distributed by our partners, we pay close attention to the quality of information given to the insured. At the beginning of 2004, seven million policy statements were sent out. During the year, another two million letters were sent in response to policyholders’ queries or to provide half-yearly information about the situation of combined unit-linked/non-unit-linked policies.
Three core principles guide our responsible management of the €167 billion asset portfolio. The first is strong risk discipline, to ensure that we are able to fulfil our long-term commitments to the insured. The second is profitability, which means applying strategies that generate a satisfactory return for policyholders and shareholders. And the third is ethics.
A defining feature of our asset management is the absence of volatility. By responsibly weighting the different classes of assets and closely managing risks, we were able to avoid liquidating equity positions during the stock market crisis. In 2004, we increased our investment in hedge funds, to leverage attractive yield opportunities. Since 1999, we have also been steadily building up our private equity portfolio, in line with the commitment made by the insurance industry to the Minister of the Economy.
Through our partner networks, we offer holders of combined unit-linked/non-unit-linked contracts the opportunity to invest in socially-responsible investment (SRI) funds. The value of assets held in SRI portfolios managed on behalf of clients has increased steadily, rising by 11% in 2004. If we add in our proprietary portfolios, total SRI assets grew 40% last year.
For CNP Assurances, 2004 was a landmark year in the human resources area, with the creation of a new sales force comprising 279 people at the end of the year. The team represents nearly 10% of our total work force, which totalled 2,821 employees at 31 December 2004. The increase of more than 9% compared with the year-earlier figure was three times the average growth rate observed since 2001.
Managers play an important role in helping employees move up the career ladder and the annual performance appraisals of department managers include an assessment of their skills in this area. They are supported by Human Resources, which has set up a policy administration skills database – operational since 2004 – and created a management institute to help managers hone their expertise.
Nurturing the CNP Assurances corporate community also means sharing information. Twice a year, the 400 heads of departments are invited to a convention to explain and discuss the Company’s strategy and results. In addition, information for all employees is posted on the Company’s intranet.
The term “community” is particularly appropriate in the case of CNP Assurances, because of the many employees who have been with us for a very long time. For historical reasons, the average seniority of civil servants seconded to our Company is close to 29 years. And the average years of service of permanent employees is steadily increasing, to more than 9 years in 2004 (excluding the effect of creating CNP Trésor). This is not down to any freeze on recruitments – on the contrary, in 2004 we hired 354 people under permanent contracts – but rather to the low staff turnover rate. In 2004, the rate was 2.24% (excluding CNP Trésor) versus 2.98% the year before.
We have also set up work-study programmes for young students. In 2004, 54 people were employed under these programmes, ten more than the previous year. This increase was made possible by the willingness of staff members to act as mentors for these young recruits.
The insurance industry has always employed a majority of women, and CNP Assurances is no exception, with women representing 64.5% of the total workforce excluding CNP Trésor. Although the majority of them work in non-management positions, the proportion of female managers and department heads increased by more than 1 percentage point in 2004 (excluding CNP Trésor). Sixty-four percent of employees who received training in 2004 were women and they accounted for 57% of employees promoted to management positions.
We are convinced that the key to motivating employees lies in applying fair remuneration policies and respecting their work-life balance. Just under 74% of employees have personalised working hours and 16.2% work parttime including 13.6% of managers (in all cases, excluding CNP Trésor). In 2004, gross salaries were increased by an average of 3.8% and 50% of employees received meritbased pay rises. We also launched groundbreaking initiatives in the area of staff safety, including advanced driving courses for the sales force.
Concerning employee representation in Europe, we suggested to employee representatives that plans be made for the creation of a European Works Council ahead of the regulatory requirement. And in December of last year, we sent out a strong message to our teams outside France by launching an international employee rights issue.
Our main employee indicators are as follows (information disclosed in accordance with article 116 of the “NRE” corporate governance act): Indicator At 31 December 2004 Comments
Total number of employees 2,821 employees; men 37.5%; Employee numbers increased women 62.5%; managers 46% by 9.8% in 2004, due to the hiring non-managers 54%; of 279 people for the new sales force permanent employees 84%; seconded civil servants 16%
Working hours Full-time employees and seconded civil servants: 1,568 hours. 14.6% of employees work part-time and 73.8% have personalised working hours
Annual remunerations Average: €41,881 Concerns permanent employees Increase vs 2003: 3.81% on the payroll throughout 2004 Average gross profit-sharing and incentive bonus payments per employee: €4,819
Equal opportunities policy: - Disabled employees 40 disabled employees Recruitment target in the 2004-2007 agreement: 10 disabled employees - Gender equality 49% of managers are women - Employment of school-leavers 54 employees taken on under work-study schemes
Promotion of the application Employment practices are included of ILO fundamental principles in subcontractor selection criteria among subcontractors
Since 1988, sponsorship and philanthropy programmes have channelled back part of our profit into society and share our expertise. As a personal insurer, we are particularly sensitive to the needs of the more vulnerable members of the population and in 1998 we decided to make a long-term commitment to helping to improve the quality of care given to the elderly and the quality of pain management.
In 2004, the CNP Foundation lent its support to eleven new projects to help combat pain suffered by patients of all ages. We provide backing for long-term projects, such as the Sparadrap Association’s programme to improve information on recognising and managing pain in children, and also for groundbreaking initiatives, such as the creation of a dental care centre for the physically and mentally handicapped, and the Maison de Vie Etincelle centre offering moral support to female cancer sufferers.
The core aims of our corporate philanthropy programmes are to provide thought-leadership on identifying and addressing the practical needs of vulnerable populations, and to partner the caring professions over the long-term. Embodying our corporate values, these programmes attract a high level of employee participation. Over the years, our employees have become increasingly involved in raising funds for the muscular dystrophy campaign and we have supported their efforts with corporate donations to the cause. For example, we were the second largest corporate giver to the “Virades de l’Espoir” fund-raiser. In addition, some 10% of the projects funded by the CNP Foundation were submitted by employees, including the Maison de Vie Etincelle.
In terms of supplies, one of our main purchases is paper. We have therefore extended our waste-sorting systems, with white and coloured paper recycled separately in Paris, and non-recyclable waste incinerated to power the district heating system. Toner cartridges are also recovered. When computers are replaced, the old machines are given to associations, sold to employees with the proceeds donated to a charity working in the developing world, or recycled depending on their condition.
Purchasing policies are an important means of promoting sustainable development. In 2004, the purchasing department drew up new specifications based on the Caisse des Dépôts responsible purchasing guidelines. Environmental considerations are now high on the list of supplier selection criteria, covering not only environmentally-certified raw materials, manufacturing processes and recycling processes, but also compliance with labour regulations by the end-supplier.
One example concerns the replacement of desks at the Paris site. Responsible purchasing also means buying products that are built to last. All of the new desks carry a ten-year guarantee covering repairs and adaptations. The old desks have not been scrapped, but have been given to associations in Romania and France.
Our environmental indicators are presented below (information disclosed in accordance with article 116 of the “NRE” corporate governance act): Environmental indicators
Energy efficiency measures Low-energy light bulbs, upgrading of air-conditioning systems, movement sensors to turn off lights automatically, etc.
Measures to reduce waste Sorting of waste paper and non-recyclable waste Recovery of toner cartridges Recycling of obsolete computers
Promotion of environmentally-sound purchasing policies Integration of sustainable development considerations in supplier selection criteria
Based on the recommendations of the Viénot and Bouton corporate governance reports, the Executive Board and the Supervisory Board have reviewed their respective internal rules at periodic intervals since 2002 and made certain changes to enhance control over their procedures. The latest enhancements adopted in 2004 concern an internal requirement to periodically assess their performance.
In recent years, new laws have been adopted that give shareholders access to more detailed information and encourage companies to tighten up internal control. The Loi de Sécurité Financière defines the role of the external Auditors more clearly and requires them to include in their reports on the financial statements of the Company and the Group a section describing the basis of their opinion.
The Auditors are also required to present to the Annual General Meeting a specific report setting out their comments on internal control procedures for the preparation and processing of accounting and financial information.
In 2004, the Supervisory Board gave the Audit Committee the task of overseeing the Auditor selection process, expressing an opinion on the proposed fee budgets and presenting a short-list of candidate firms to the Supervisory Board, explaining the reasons for its choices.
During 2004, the Executive Board continued to lead measures to further improve internal control. These mainly concerned the risk mapping exercise undertaken by the Risks & Internal Control department with the assistance of the Internal Audit department, and the vast “LSF-IC” project to document internal controls.
This project will be pursued in 2005, as part of the process of constant improvement of internal control that is a significant, practical aspect of corporate governance, one of the core aims of which is to contain and manage business risks.
Approval of the 2004 financial statements of the Company and the Group, and the Executive Board report (1st and 2nd resolutions)
The financial statements of the Company and the Group for the year ended 31 December 2004, the review of CNP Assurances’ financial position, business and results for the year and the other information prescribed by law are presented in a document de référence filed with the securities regulator (“AMF”).
Following adoption of the Finance Act of 30 December 2003 (article 93), the dividend no longer gives rise to an avoir fiscal tax credit. However, private shareholders will be entitled to 50% tax relief.
Approval of the Auditors’ special report on agreements governed by Article L. 225-86 of the Commercial Code (4th resolution)
The agreements referred to in the Auditors’ special report concern: • Agreements authorised by the Supervisory Board in prior years that remained in effect in 2004.
At the Annual General Meeting, shareholders will be asked to: • Re-elect Alexandre Lamfalussy to the Supervisory Board.
• To purchase shares for delivery in connection with future business acquisitions.
The authorisation, to be given for a period of eighteen months, concerns the share buyback programme described in an information memorandum approved by the Autorité des Marchés Financiers.
Authorisation to be given to the Executive Board to make stock grants to employees and/or officers (8th resolution)
Stock grants without consideration offer all-round benefits (provided that the statutory attribution rules are complied with): • For the Company, because stock grants have the advantage of being exempt from payroll taxes.
• For shareholders, because their interests will not be diluted if the Company decides to use shares held in treasury to make the share grants.
The Executive Board is asking the General Meeting for the necessary powers to draw up the list of grantees and any eligibility criteria, such as years of service, continued employment by the Company during the vesting period, or any other individual or collective financial or performance criteria.
Any proposed stock grants under this authorisation would be submitted to the Remunerations and Nominations Committee for an opinion and would require the prior approval of the Supervisory Board, in accordance with CNP Assurances’ corporate governance rules.
Name, age, Main functions within the Main functions date of first appointment, CNP Assurances Group in other companies expiry date of current term Number of CNP Assurances shares held
Xavier Larnaudie-Eiffel - Member of the Executive Board, - Director of ESL Network (Belgium) Born on 26 April 1958 Director, International Operations - Director of Italia Holding SA First appointed: - Director and Chief Executive Officer 16 December 2003 of CNP International SA Current term expires: June 2007 (since 10 September 2004) CNP shares: 500 - Chairman of the Board of Directors of Caixa Seguros (Brazil)
Antoine Lissowski - Member of the Executive Board, - Member and Vice President of the Born on 27 April 1956 Finance Director Supervisory Board of Ixis Corporate First appointed: - Chairman of the Board of Directors & Investment Bank SA 16 December 2003 of CNP IAM SA (since 14 June 2004) - Permanent representative of CNP Assurances Current term expires: June 2007 - Director of Assurbail SA, Ecureuil Vie SA, on the Supervisory Board of CIFG CNP shares: 500 Caixa Seguros (Brazil) Holding SA (ex-CDC Ixis Financial - Permanent representative of CNP Guaranty Holding); Ixis Asset Management SA Assurances on the Boards of Directors - Permanent representative of CNP IAM of Assurposte SA, ITV SA, Filassistance on the Board of Directors of Société Forestière International SA de la CDC SA (since 8 June 2004)
- Permanent representative of CNP - Member of the Supervisory Board Assurances, Legal Manager of the following of CDC Enterprises SA (since 8 June 2004) non-trading property companies: Société Foncière de la CNP; Société Civile du 136, rue de Rennes; Société Civile du 147, avenue Victor Hugo; Société Immobilière de Construction et d’Acquisition de la CNP-Sicac; CNP Immobilier; Compagnie Immobilière de la CNP-Cimo; Société Civile Immobilière de la CNP; Vendôme Europe; Issy Desmoulins; Rueil Newton; Société Civile Immobilière l’Amiral; Société Civile Immobilière Belvédère
Gérard Ménéroud - Member of the Executive Board Born on 24 November 1947 - Director, Partnerships and Business First appointed: 4 June 2002 Development Current term expires: June 2007 - Chairman of the Board of Directors CNP shares: 1,045 of CNP Caution SA (since 14 April 2004); CNP corporate mutual Fongepar SA; Investissement fund units: 1,561.04 Trésor Vie SA; Préviposte SA
- Chairman of Carrés Bleus SA - Director and Vice Chairman of Assurposte SA - Director of CNP International SA - Permanent representative of CNP
- Member and Vice Chairman of the Supervisory Board of GPM Assurances SA
Jean-Pierre Walbaum - Member of the Executive Board, - Director of: Ecureuil IARD SA Born on 31 August 1945 Director, Management and Innovation - Permanent representative of CNP Assurances First appointed: - Permanent representative of CNP IAM on the Supervisory Board of Locindus SA 17 January 2001 on the Board of Directors of Filassistance Current term expires: June 2007 International SA CNP shares: 2,640 - Director of Assurposte SA: CNP corporate mutual Ecureuil Vie SA; Fongepar SA fund units: 4,438.70 - Non executive Director
Edmond Alphandéry Born on 2 September 1943. Chairman of the Supervisory Board of CNP Assurances. First elected: 9 July 1998/current term expires: June 2007. Holds 501 CNP shares.
• Member of the Board of Directors of Caixa Seguros (Brazil).
Other directorships and functions • Director of Calyon SA; Suez SA; Icade SA (since 13 May 2004); Société des Éditions de Presse Affiches Parisiennes SA.
Member of the Remunerations and Nominations Committee of CNP Assurances. Holds 50 shares.
Francis Mayer Born on 1 September 1950. Chief Executive Officer of Caisse des Dépôts.
Dépôts Développement SA (C3D). • Chairman of the Supervisory Board of Société Nationale
Entreprises SAS. • Director of Caisse des Dépôts Holding Finance SA. • Censor of Financière Lille SA.
Other directorships and functions • Chairman of the Supervisory Board of Ixis SA. • Member of the Supervisory Board of CNCEP SA; Accor
Directorships and functions within the Caisse des Dépôts Group • Chairman and Chief Executive Officer of Icade SA. • Member of the Supervisory Committee of Groupement
Jérôme Gallot Born on 25 October 1959. Member of the Supervisory Board of CNP Assurances. First elected: 9 March 2004/current term expires: June 2008.
Caisse des Dépôts. • Director of: Icade SA; Galaxy Management Services
Member of the Supervisory Board of CNP Assurances First elected: 9 March 2004/current term expires: June 2008. Member of the Audit Committee since 21 December 2004.
Directorships and functions within the Caisse des Dépôts Group • Director, Finance and Strategy, Caisse des Dépôts and
• Chairman of the Board of Directors of Financière Transdev SA; Caisse des Dépôts Holding Finance SA.
• Member of the Supervisory Board of Caisse des Dépôts Entreprises SAS.
• Director of Caisse des Dépôts Développement SA (C3D); Icade SA; Société Forestière de la Caisse des Dépôts SA.
Member of the Supervisory Board of CNP Assurances. First elected: 4 June 2002/current term expires: June 2006. Holds 50 shares.
Participations; Géodis; SOFIAP; Eurofima (Switzerland). • Censor on the Supervisory Board of Kéos.
Other directorships and functions • Member of the Supervisory Board of Ixis Corporate
Charles Milhaud Born on 20 February 1943. Member of the Supervisory Board of CNP Assurances. First elected: 25 January 1999/current term expires: June 2008.
• Member of the Board of Directors of: Sopassure SA; Sodexho Alliance SA.
• Permanent representative of Perexia on the Supervisory Board of Sogima SA.
Marc-André Feffer Born on 22 December 1949. Permanent representative of Sopassure on the Supervisory Board of CNP Assurances.
Other directorships and functions • Chairman-Chief Executive Officer of Sopassure SA. • Chairman of the Supervisory Board of Xange Capital SA. • Director of Geopost SA.
Member of the Supervisory Board of CNP Assurances. First elected: 25 January 1999/current term expires: June 2008. Member of the Audit Committee of CNP Assurances.
Other directorships and functions • Chief Operating Officer of La Poste SA. • Chairman of: Efiposte SA; SF2 SA; Assurposte SA. • Chairman of: BMS Développement SAS; BMS
• Director of Poste Immo SA. • Director of Europay SAS.
• Chairman of the following Sicav mutual funds: Intensys; Emergence Euro Poste; Elanciel France; Elanciel Euro.
Member of the Supervisory Board of CNP Assurances. First elected: 9 September 2003/current term expires: June 2007.
• Chairman of the Board of Directors of Ecureuil Vie SA; Ingepar SA.
• Director of: Entenial SA; Banque des Antilles Françaises SA; Banque de La Réunion SA; CDC Entreprises Capital Investissement SA; Sopassure SA; Efidis SA.
Other directorships and functions • Vice Chairman of the Supervisory Board of: Crédit
Finance SA. • Member of the Supervisory Board of CDC Finance-
CDC Ixis SA. • Chairman of the Board of Directors of Gérer Participations SA.
Directors of Compagnie Financière Eulia SA. • Permanent representative of CNCE on the Board of
Directors of the following Sicav mutual funds: Ecureuil Monétaire; Revenus Trimestriels.
• Permanent representative of CNCE on the Board of Directors of: Mutuelle du Mans; Mutuelle du Mans Iard.
Member of the Supervisory Board of CNP Assurances. First elected: 10 September 2002/current term expires: June 2008.
Other directorships and functions • Chairman of Moneden, a Sicav mutual fund. • Member of the Supervisory Board of GAIA (variable capital cooperative society).
• Treasurer of Union Système Fédéral de Garantie; FNMF • Censor on Filia Maif SA. • Joint Legal Manager of SCI Philgen.
Michel Liès Born on 16 May 1954. Permanent representative of la Compagnie Suisse de Réassurances on the Supervisory Board de CNP Assurances.
Compagnie Suisse de Réassurances first elected: 12 October 1998/current term expires: June 2007.
Réassurances. • Chairman of the Swiss Re Pension Fund. • Chairman of the Board of Directors of Swiss Re
Germany AG (Germany). • Director of the following UK companies: Swiss Re
• Director of Swiss Re Italia SpA (Italy); Swiss Re Management SA (Luxembourg); Swiss Re Africa Ltd (Johannesburg - South Africa); Swiss Re Life & Health Africa (South Africa).
Other directorships and functions • Professor at Institut d’Etudes Européennes de Louvain
(Belgium). • Member of the Supervisory Board of MOL (Hungarian oil company).
Member of the Supervisory Board of CNP Assurances since 8 June 2004/current term expires: June 2009. Holds 50 shares.
Other directorships and functions • Chairman of the Executive Board of Caisse d’Epargne
Ile-de-France. • Vice Chairman of the Supervisory Board of CNCEP. • Director of: SACCEF SA; Eulia Caution SA; Socamab
Censor on the Supervisory Board of CNP Assurances. First elected: 19 September 1998/current term expires: June 2008.
• Chairman of the Supervisory Board of AG2R Gestion d’actifs SA; Arial Assurance.
Candidate for election to the Supervisory Board at the Annual General Meeting
Other directorships and functions within the Véolia Environnement Group • Chairman of the Board of Directors of: Veolia Water; Onyx; Connex.
Dalkia France. • Member and Vice Chairman of the Supervisory Board of SARP. • Member of the A and B Supervisory Boards of Dalkia
SAS. • Director of: SARP Industries; Dalkia International; Eaux de Marseille.
Directors of Onyx. • Director and Vice Chairman of Onyx Asia Holding
• Member of the Supervisory Board of: Elior SCA; Lagardère SCA.
11.2 REMUNERATION OF THE MEMBERS OF THE EXECUTIVE BOARD AND SUPERVISORY BOARD
Executive Board members based on collective and individual objectives, as follows: • Collective objectives, which account for up to 60% of total variable remuneration (equivalent to 30% of fixed remuneration), are based on: – Growth in productivity, as measured by the expense ratio.
• Individual objectives account for up to 40% of variable remuneration (equivalent to 20% of fixed remuneration ). The criteria applied vary depending on each Executive Board member’s specific area of responsibility.
The total remuneration paid to the members of the Executive Board in 2004 - in respect of their executive functions and as officers of the Company - was as follows (expressed as gross taxable income): Report of the Executive Board
(1) Including €91,599.29 in allowances for days spent outside France in his capacity as Director, International Operations (2) For the period from 16 December to 31 December 2003 (3) Benefits in kind, including the value attributed to his company car and CNP Assurances’ matching payment to the EPI plan (a group life insurance plan covering all employees) (4) Including benefits in kind (5) Including his remuneration as officer of the Company for 2004 (€30,489.84) and his 2003 remuneration for the period worked (€1,270.41)
In € TOTAL Members of the Executive Board Fixed Variable Directors’ Benefits Stock remuneration remuneration remuneration fees in kind(3) options paid in 2004
In € Fixed remuneration Variable remuneration Variable remuneration paid in 2004(4) for 2003 paid for 2004 paid in 2004 in April 2005
Name Employment As Total Employment As Total Employment As Total Contract director Contract director Contract director
Report of the Executive Board 11.2.2 Members of the Supervisory Board
The fees awarded by shareholders to the Supervisory Board represent attendance fees and their payment depends on the attendance rate of members of the Supervisory Board at meetings of the Board and of its specialist committees, where applicable.
Fees allocated to Jean-Jacques Doaré were paid to the Association des Personnels Actionnaires de la CNP (ADPA-CNP), the CNP employee-shareholders association. Philippe Baumlin, who replaced Jean-Jacques Doaré on the Supervisory Board, chose to have his fees paid to CDC Tiers-Monde, a charity operating in developing countries.
As Chairman of the Audit Committee, Alexandre Lamfalussy receives double the fee awarded to the other members of the Committee.
The Chairman of the Supervisory Board, Edmond Alphandéry, did not receive any attendance fees in 2004, except as director of the Brazilian subsidiary, Caixa Seguros. His remuneration in respect of his functions with CNP Assurances and CNP International is as follows: (1) Corresponding to attendance fees received in his capacity as director of the Brazilian subsidiary, Caixa Seguros, for the period September/December 2003
* Also member of a Committee of the Supervisory Board (1) Jean-Jacques Doaré decided to transfer his total fees (net of the tax cost) to the Association des Personnels Actionnaires de la CNP, the
Audit of the financial statements of the Company and the Group
1. Embedded value at 31 December 2004 1.1 SOLVENCY MARGIN CALCULATION AND CARRYING COST
Embedded value amounted to €50.1 per share after dividends, including adjusted NAV of €42.3 and €7.8 corresponding to the value of in-force business.
Treatment of top-up Single Single premiums premiums in premiums in new business new business
NAV 100 bps increase in bond yield –105 –0.7 10% increase in CAC 40 +175 +1.3
As shown above, the sensitivity of CNP Assurances’ embedded value to a moderate change in interest rates is fairly low.
Assumptions 2. Value of new business in 2004 2.1 SOLVENCY MARGIN CALCULATION AND CARRYING COST
= 2004 Embedded value after dividend 50.10 €m €/share €m €/share
New business before solvency margin carrying cost 239.5 1.73 212 1.54
Intangible assets: 53.7 56.2 100.2 - Value of acquired in-force business 5 28.1 35.7 45.0 - Other 25.6 20.5 55.2
Liabilities resulting from insurance and reinsurance transactions 15 1,246.9 805.1 1,259.8
Claims expenses and change in technical reserves 21 (25,048.7) (1,626.1) (26,674.8) (24,539.4) (20,134.1)
Subordinated debt issues for 2004 were as follows: • In June, CNP Assurances carried out a €250 million subordinated debt issue, which was increased by €50 million in September.
In 2004, CNP Assurances carried out rights issues for employees in France and employees of foreign subsidiaries, in accordance with the authorisation given at the 4 June 2002 Annual General Meeting.
The 470,000 policyholders represented premium income of €614 million in 2004.
The consolidated financial statements of the CNP Group have been prepared in accordance with French Accounting Standards Committee (Comité de la Réglementation Comptable) standard CRC 2000-05 dealing with the consolidated financial statements of insurance companies, adopted by Government order dated 17 January 2001.
All consolidated companies have a 31 December yearend, with the exception of the Argentinean associated companies whose financial year ends on 30 September.
The financial statements of consolidated subsidiaries have been restated in accordance with Group accounting policies in all cases where the impact of the related adjustments is material.
The value in use of life and non-life portfolios is determined based on the discounted future cash flows of business in force at the date of acquisition.
Goodwill, representing the difference between the cost of shares in consolidated companies and the Group’s equity in the fair value of the underlying net assets, is amortised over the estimated period of benefit, not to exceed 20 years. In the case of a material impairment in value of goodwill, an impairment loss may be recorded or the amortisation period may be adjusted. Impairment tests are based on the assumptions used to prepare the business plans of the companies concerned.
• Reinsurance Outward and inward reinsurance transactions are recorded and eliminated in the Underwriting Year.
• Loans Intercompany loans are eliminated from the consolidated balance sheet and profit and loss account.
• The above restatements have no impact on the amounts attributable to policyholders or on the calculation of deferred taxes.
Exceptionally, the provisions for permanent impairment in value set up in 1995 in application of the new insurance accounting standards (Decree of 8 June 1994 and Government order of 20 June 1994) were charged to reserves at 1 January 1995, in accordance with the guidelines of the French National Accounting Board. Amounts released from these provisions following an increase in the value of the assets concerned are credited to reserves.
In accordance with standard CRC 2000-02 and recommendation 98D of the French National Accounting Board emerging issues task force, treasury shares – held by CNP Assurances essentially for the purpose of stabilizing the share price – are recorded in assets under “Investments”.
Investments are stated at historical cost, excluding transaction expenses, except as explained below. • Investments intended to cover linked liabilities are marked to market at each period end and the corresponding technical reserves are adjusted accordingly. The mark-to-market method is also applied in the consolidated financial statements.
• Investments included in legal revaluations are carried in the consolidated balance sheet at revalued cost.
Equities are stated at cost, excluding transaction expenses. Dividends are credited to the profit and loss account on the payment date, excluding the avoir fiscal tax credit, which is deducted from the corporate income tax charge.
Property investments are stated at cost, excluding transaction expenses but including the cost of improvements and certain taxes.
Property transaction expenses are recorded under “Prepaid expenses” and amortised on a straight-line basis over five years.
Rental income is recorded in the profit and loss account on an accruals basis.
Equities and other variable income securities, property Properties are depreciated by the straight-line method as follows: • Properties acquired prior to 1982 are depreciated at the rate of 1% per year. The depreciation base includes the value of the land, in accordance with the former section R. 332-31 of the Insurance Code.
Provisions are recorded to cover any permanent impairment in value of properties or securities (section R. 332-20 of the Insurance Code).
• The recoverable value is either fair value determined according to a multi-criteria approach, or the estimated medium-term value obtained by multiplying the market price for the last month of the year by a risk-free rate capitalised over the expected holding period, plus a risk premium where justified.
Section R. 331-5-1 of the French Insurance Code requires a liquidity risk reserve to be recorded in the balance sheet of individual Group companies in cases where the aggregate book value of equities and other variable income securities and property exceeds their recoverable amount. Standard CRC 2004-10 of 10 November 2004 stipulates that the liquidity risk reserve must be eliminated in consolidation.
Capital gains and losses on sales of investments are calculated by the FIFO method applied as if all investments were held in the same portfolio, in accordance with insurance accounting standards. They are recorded in the profit and loss account on the date on which the sale is completed.
• The closing market price of the shares on the date on which the results of the offer are announced by the stock market authorities.
The instruments are used for the sole purpose of hedging risks such as: • Interest-rate risk on the Group’s bond portfolio and insurance policies that carry a guaranteed minimum rate of return.
Interest-rate hedging Interest-rate hedging instruments used by the Group include: • Caps and floors, whose value increases when interest rates rise (caps) or fall (floors). • Put options, whose value increases as the bond price goes down.
• CNP actively manages its hedging positions, seeking out market opportunities and striking an appropriate balance between hedging costs and the protection obtained.
• The portion of the premium corresponding to the time value is recognised over the life of the instrument.
Guaranteed yield strategy: • Current or future income or expense relating to financial futures is recorded in the profit and loss account over the expected strategy timescale, based on the instrument’s effective yield.
• The results of the yield strategies are recognised over the life of the financial futures and any residual flows are charged to the profit and loss account on completion.
• Premium income is adjusted to exclude the estimated amount of cancelled premiums, the final amount of which is determined following a review of premiums written and not yet written. Premium cancellations are estimated for the main products based on the cancellation rate observed over the previous year.
Technical reserves for policies comprising whole-life cover include the portion of written premiums not earned during the period.
Any underwriting profits and investment returns due to policyholders in excess of the guaranteed minimum rate of return that are not distributed to policyholders during the period are credited to the policyholders’ surplus reserve.
Mathematical reserves for unit-linked policies are determined based on the value of the underlying portfolios. Unrealised capital gains and losses arising from the mark to market of the underlying investments are recorded in the profit and loss account in order to neutralise the impact of movements in mathematical reserves.
Inward reinsurance premiums, claims and technical reserves are recorded based on information received from ceding insurers, or if adequate information is not available, based on an estimate of the accounts not yet received.
• Administrative expenses include all routine costs of managing in-force business.
• Other underwriting expenses correspond to overheads that cannot be allocated on a rational basis to the other cost accounting sections.
For other expenses, a distinction is made between: • The costs of staff functions, which are allocated among the line functions using statistical cost allocation keys or on a time-spent basis.
CNP Assurances files a consolidated tax return with eleven of its subsidiaries, CNP IAM, Préviposte, Investissement Trésor Vie (ITV), CNP International, CNP Caution, Sogestop C, Sogestop H, Sogestop G, Carrés bleus, Prévimut, Cicoge SA (a property investment company) and Age d’Or Expansion.
The recommendation of the French National Accounting Board (CNC) dated 25 March 2004 and the CNC press release dated 22 July 2004 concerning long-service awards, pensions and other post-retirement benefits describe the methods to be used to recognise these liabilities in the balance sheet. The effect of applying these new methods was recognised in shareholders’ equity in the amount of €22.5 million net of tax.
(1) F: Full method (2) Caixa subgroup P: Proportional method (3) Ixis IAM Group has been accounted for by the equity EQ: Equity method method because CNP Assurances exercises significant influence over its management (see note 18 – Off-balance sheet commitments).
Name Consolidation Country % voting rights % interest Business Siren No. method (1)
Prévisol Seguros de Retiro EQ Argentina 29.82% 29.82% Insurance 4.2 GOODWILL
In € millions Goodwill Amortisation Accumulated Amortisation Net goodwill Net goodwill Net goodwill
AT 31 DECEMBER 2003 Fully consolidated companies Assurbail 99.07% 194.4 28.4 14.8 Caixa (sub-group) 51.75% 476.7 (47.9) 17.3 CNP Assurances (parent company) 100.00% 4,418.9 380.9 CNP IAM 100.00% 245.6 206.3 2.3 CNP International 100.00% 23.3 7.3 53.3 CNP Seguros de Vida 76.47% 6.1 (2.7) 0.9 Ecureuil Vie 50.00% 508.7 352.0 72.5 Global 83.52% 50.5 3.4 4.6 Global Vida 83.57% 26.3 (1.8) (0.1) Investissement Trésor Vie 100.00% 22.4 28.5 2.5 Préviposte 100.00% 125.8 178.6 27.4 SCI CNP Immobilier 100.00% 0.8 (9.7) (0.4)
In € millions Cost Amortisation Translation Net 2004 Net 2003 Net 2002 adjustment
Property includes buildings and forestry assets held by the Group, as well as shares in property companies. The market value of properties has been determined on the basis of valuations performed by independent surveyors, as required under insurance regulations. Equities and other variable income securities include all categories of variable income securities. Bonds and other fixed income securities include all categories of fixed income securities.
Equities and other variable income securities 1,135.3 1,138.2 1,119.5 Bonds and bond funds 1,992.6 1,866.5 1,683.4
Equities and other variable income securities 1,646.4 1,564.7 1,362.2 Bonds and bond funds 2,147.8 1,969.7 1,788.5
Bonds and other fixed income securities 154.6 103.6 105.2 6.5 OTHER INVESTMENTS
Other debtors are denominated essentially in euros and are mainly due within one year.
* In 2002, this item included CNP Assurances shares for an amount of €28.1 million. Since 2003, own shares are included in marketable securities
In € millions Other Capital Share Reserves Profit for Cumulative Revaluation Total Total premium the year translation reserve shareholders’ adjustment equity - Net profit for the year 629.3 629.3 2004 dividend and other appropriations** 399.2 (629.3) (230.1)
In € millions Other Reserves Profit for Cumulative Revaluation Total Total the year translation reserve shareholders’ adjustment equity - Change in capital 57.0 57.0 - Net profit for the year 119.1 119.1
Gross technical reserves increased by 8.8% to €167.3 billion at 31 December 2004, representing 92% of consolidated liabilities and shareholders’ equity.
Note 14 Provisions for liabilities and charges 14.1 BREAKDOWN OF PROVISIONS FOR LIABILITIES AND CHARGES
The movement for the year reflects higher provisions for employee benefits, largely offset by a reduction in provisions for deferred taxes.
Accrued interest included in the cost of purchased securities 0.4 (0.3) 0.1
Gains on shares sold in connection with tender offers (151.6) 84.0 (67.6)
Change in value of units in investment funds 10.2 0.3 10.5
A liability has been recognised in connection with repurchase agreements, corresponding to the amount received in exchange for the lent securities.
In 2004, additional reserves of €72 million were recorded in respect of contracts with mutual insurers and local authorities. The total amount was set aside in the first half of the year and no further charge was necessary in the second half. Reviews of invalidity risks led to the reversal of reserves in an equivalent amount.
Change in life premium reserves and other technical reserves: (7,356.1) (5,732.2) (3,013.5) Life premium reserves (5,170.9) (4,191.5) (3,319.7)
Market-to-market losses on assets held to cover linked liabilities (715.2) (879.8) (3,578.5)
Investment income transferred to the non-technical account 251.3 240.9 237.9 19.3 “OTHER BUSINESS” ACCOUNT
* The Branch network contributed to consolidated premium income as from the fourth quarter of 2004
GROSS PREMIUM INCOME 21,441.8 19,460.9 18,360.5 20.3 PREMIUM INCOME BY MARKET SEGMENT
Note 22 Net investment income 22.1 BREAKDOWN OF NET INVESTMENT INCOME
Internal and external investment management expenses and interest (328.0) (313.2) (352.0)
Other investment income and other investment expense correspond to the amortisation of premiums and discounts on fixed income securities, calculated by the yield-to-maturity method, and to movements in provisions for permanent impairment in value.
Caixa Seguros reclassified €60.2 million in 2003 and €27.0 million in 2002 from direct business to ceded business. This had the effect of converting the reinsurance result from a loss of €57.0 million to a profit of €3.2 million in 2003 and from a loss of €14.4 million to a profit of €12.6 million in 2002.
Note 24 Business acquisition costs and administrative expenses 24.1 BREAKDOWN OF BUSINESS ACQUISITION COSTS AND ADMINISTRATIVE EXPENSES
Other operating income and expenses 32.5 77.7 68.8 24.2 COMMISSIONS BY PARTNER
The increase in “Others” is due to the fact that certain group insurance partners chose to be paid a commission rather than receiving a share of profits.
Note 26 Management remuneration The total remuneration paid to the members of the Executive Board in 2004 amounted to €1.7 million. The total fees paid to the members of the Supervisory Board in 2004 amounted to €0.5 million.
Net operating expenses* - excluding foreign subsidiaries and “other businesses” 485.5 473.4 461.4 - including foreign subsidiaries and “other businesses” 577.4 558.7 541.8
RATIO* Operating expenses Technical reserves - excluding foreign subsidiaries and “other businesses” 0.29% 0.31% 0.33% - including foreign subsidiaries and “other businesses” 0.35% 0.36% 0.38%
Note 28 Corporate income tax 28.1 BREAKDOWN OF CORPORATE INCOME TAX
(1) Excluding the effect of the fall in stock market prices in 2003 and 2002
Consolidated profit before non-recurring items and tax and charges to capitalisation reserve (1) 1,065.6 866.1 811.4
We draw your attention to Note 3.9 to the consolidated financial statements, which describes a change in the method used to account for employee benefits. This observation does not affect the opinion expressed above.
• Goodwill and portfolio assets are tested to assess their recoverability as explained in note 3.1.4 to the consolidated financial statements.
We obtained assurance that the approaches used were based on assumptions that were consistent with the Group’s business plan projections.
We obtained assurance that the determination of these provisions was consistent with the intended holding period of the securities and examined, where necessary, the data and assumptions used and the related supporting documents. These procedures formed the basis of our assessment of the reasonableness of the estimates.
We also verified the information concerning the Group given in the Report of the Executive Board. We have no comments to make concerning the fairness of this information and its consistency with the consolidated financial statements.
Mark-to-market gains on assets held to cover linked liabilities 751.3 1,028.9 767.4
Mark-to-market losses on assets held to cover linked liabilities (379.0) (557.0) (2,314.7)
Profit before tax, depreciation, amortisation and provisions (EBTDA) 5.93 5.21 2.24 4.34 3.30
A. INVESTMENTS WITH A GROSS CARRYING VALUE IN EXCESS OF 1% OF CNP ASSURANCES’ SHARE CAPITAL
Assurbail 56, rue de Lille 75007 EUR 197,120 9,467 Assurposte 4, place Raoul Dautry 75015 EUR 5,202 92,314 Cicoge 4, place Raoul Dautry 75015 EUR 37,320 33,605 Cimo 4, place Raoul Dautry 75015 EUR 213,022 145,780 CNP Caution 4, place Raoul Dautry 75015 EUR 7,683 (3,022) CNP IAM 4, place Raoul Dautry 75015 EUR 30,500 438,270 CNP International 4, place Raoul Dautry 75015 EUR 22,875 6,574 Ecureuil Vie 5, rue Masseran 75007 EUR 527,120 992,074 Investissement Trésor Vie 4, place Raoul Dautry 75015 EUR 22,417 27,502 Préviposte 4, place Raoul Dautry 75015 EUR 125,813 172,994 SC rue de Rennes 4, place Raoul Dautry 75015 EUR 8 (1,784) SCI de la CNP 4, place Raoul Dautry 75015 EUR 59,711 34,400 Sogestop G 4, place Raoul Dautry 75015 EUR 11,167 (24,539) Sogestop H 4, place Raoul Dautry 75015 EUR 22,296 (32,285) Age d’Or Expansion 28, rue J. Didier 10120 St André-les-Vergers EUR NAv NAv CNP Immobilier 4, place Raoul Dautry 75015 EUR 760 (14,761) Sicac 4, place Raoul Dautry 75015 EUR 52 27,604 Caixa Seguros SCN Quadra 01 lote A Ed. N° 1 - 15°, 16° e 17° Andares Brasilia EUR 99,390 56,722 CNP Seguros de Vida Av. Leandro n alem 1002-piso 13- Buenos Aires EUR 2,318 1,657 Global Av. Duque d’avila, 171 - 1069-031 Lisboa EUR 16,250 14,584 Global Vida Av. Duque d’avila, 171 - 1069-031 Lisboa EUR 9,000 3,926
B. SUBSIDIARIES AND AFFILIATES WITH A CARRYING VALUE OF LESS THAN 1% OF CNP ASSURANCES’ SHARE CAPITAL
French subsidiaries - Foreign subsidiaries - French affiliates - Foreign affiliates - -
at 31 December 2004 Total assets Book value Book value % interest Loans Turnover Profit Dividends - cost - net granted or loss received
On the extracts from the CNP Assurances statutory financial statements for the years ended
In our capacity as Statutory Auditors of CNP Assurances and in application of Article L. 225-235, final paragraph, of the Commercial Code, we present below our report on the report prepared by the Chairman of the Supervisory Board of CNP Assurances in application of Article L. 225-68 of the Commercial Code for the year ended
Our responsibility is to report to shareholders our comments on the information contained in the Chairman’s report concerning the internal control procedures related to the preparation and processing of accounting and financial information.
• Reviewing the work underpinning the information given in the Chairman’s report.
Based on our procedures, we have no matters to report concerning the information about the Company’s internal control procedures related to the preparation and processing of accounting and financial information, as contained in the report of the Chairman of the Supervisory Board prepared in accordance with Article L. 225-68, final paragraph, of the Commercial Code.
In application of Article L. 225-88 of the Commercial Code and Article R. 322-7 of the Insurance Code, we were informed of the agreements approved in advance by the Supervisory Board.
Our responsibility does not include identifying any undisclosed agreements. We are required to report to shareholders, based on the information provided, about the main terms and conditions of agreements that have been disclosed to us, without commenting on their relevance or substance. Under the provisions of Article 117 of the 23 March 1967 decree, it is the responsibility of shareholders to determine whether the agreements are appropriate and should be approved.
At its meeting on 7 September 2004, the Supervisory Board approved in principle the contribution by CNP Assurances to the Ixis Asset Management Group holding company of: • 11,655,280 Ixis Asset Management shares, representing 20% of issued capital, and
In payment for these contributions, valued at € 203,338,318.88, CNP Assurances received 7,262,082.58 Ixis Asset Management Group ordinary shares, representing 14.1% of issued capital.
In application of the French Decree of 23 March 1967 and article R.332-7 of the French Insurance Code, we were duly advised of the following agreements authorised in prior years that remained in force during 2004.
Addenda to the Framework Agreement between CNP Assurances and Caisse Nationale des Caisses d’Epargne et de Prévoyance (CNCEP)
On 28 June 1995, CNP Assurances and Caisse Nationale des Caisses d’Epargne et de Prévoyance signed a Framework Agreement defining the terms of their cooperation in the individual life insurance and savings market through Ecureuil Vie, a joint subsidiary set up in 1988.
Addenda to the Service Agreement between CNP Assurances and Ecureuil Vie
The agreement has been extended to 31 December 2008, without any renewal clause.
In 2004, CNP Assurances received €96.9 million in fees under this agreement.
CNP Assurances, Dexia Credit Local de France and Sofca (collectively, Sofaxis) have signed a 10-year partnership agreement concerning cooperation in the local government market. The agreement is automatically renewable for successive periods of five years.
CNP Assurances underwrote a €103 million perpetual subordinated notes issue carried out by Ecureuil Vie on
Interest received by CNP Assurances in 2004 amounted to €5.7 million.
A financial management agreement was entered into between CNP Assurances and CDC Asset Management on 24 September 1998. Under the terms of this agreement, CNP Assurances has given full powers to CDC Asset Management to manage – in its name and on its behalf, or in the name and on behalf of its insurance subsidiaries – the portfolios referred to in the agreement and the cash deposited in a related account, subject to compliance with the applicable regulations and the investment guidelines and instructions issued by CNP Assurances.
CDC Asset Management receives a fee for its management services, determined as follows: • Fixed annual fee per portfolio (except for portfolios invested exclusively in mutual fund units).
Effective from 31 December 2001, the agreement is automatically extended for successive periods of one year, until terminated by one or other of the parties.
We performed our review in accordance with the professional standards applicable in France. Those standards require that we plan and perform the review to obtain reasonable assurance about whether the evidence supporting the information in our possession is consistent with that information.
The Executive Board may authorise electronic transmission of forms of proxy or postal voting forms, in which case shareholders will be informed of this option in the notice of meeting. The Executive Board may also authorise shareholders to participate in and vote at General Meetings by videoconference or any other telecommunication medium allowing shareholders to be identified.
The following is a summary and an adaptation of the information disclosed in the section entitled “Renseignements de caractère général” of the French language Document de Référence.
Any shareholder acting alone or in concert with other shareholders that acquires or raises its direct and/or indirect interest in the Company’s capital to more than 0.5% or 1% or any multiple of 1%, is required to notify the Company by registered letter with return receipt requested within five days of the disclosure threshold being crossed. The letter of notification should include full details of the number of shares and voting rights held.
The Company’s share capital at 31 December 2004 amounted to €554,541,208, divided into 138,635,302 ordinary shares with a par value of €4.
The main terms of the authorisation sought by the Executive Board at the 2005 Annual General Meeting are as follows: Renewal of the authorisation given at the 2004 Annual General Meeting to carry out a share buyback programme covered by an information memorandum approved by the French securities regulator (AMF).
• To acquire shares for allocation through stock grants without consideration, or under employee profit-sharing or share ownership plans, or on exercise of stock options.
• To purchase shares for allocation on exercise of securities convertible, redeemable, exchangeable or otherwise exercisable for shares.
Following a change in the law, the Executive Board now has the power to issue debt securities without being specifically authorised to do so by the shareholders, unless otherwise specified in the Company’s Articles of Association or decided by the shareholders in General Meeting. According to the new provisions of the law, the Executive Board may also delegate this authority to one or more of its members.
(1) Par value of FRF 100 (2) Par value of FRF 25 (3) Par value of €4
Date Description Number Aggregate Net premium of shares par value 1 January 1992 Shares issued in payment for assets acquired from CNP EPIC (the predecessor entity) 28,500,000 FRF 2,850,000,000.00(1) FRF 4,243,612,960.00