The main purpose of these reviews is to measure adherence to the Group Standards and Policies, to defi ne improvement action plans, to provide experienced advice and to rate the entity’s maturity level against other Group companies. This program was introduced in 2009 using a risk-based approach.
These include major regulatory changes that have compliance implications, results of the Compliance Risk Assessment, and any other signifi cant issues that require escalation.
Offi cer, to provide reasonable assurance regarding: ■ the reliability of Internal Control Over Financial Reporting
In order to assess the effectiveness of internal fi nancial control, the Group IFC team has put in place a top-down and risk-based approach, based on the 5 following steps: ■ assessing the risks to determine the scope of processes and controls; ■ documenting the in-scope processes and controls; ■ testing the design and operating effectiveness of controls; ■ remediating the identifi ed control defi ciencies; and
Committee and the Group’s Management Committee with independent and objective assurance on the effectiveness of internal control and Risk Management across the Group.
The Group’s Internal Audit function exists to help the Board and Executive Management protect the assets, reputation and sustainability of the organization by providing an independent and objective assurance activity designed to add value and improve the organization’s operations. It helps the organization meet its objectives by bringing a systematic, disciplined approach to challenge Executive Management and evaluate the effectiveness of Risk Management, control and governance processes.
Over a fi ve year period, all applicable “Common Audit Universe”
categories for each entity are expected to be audited. Any exceptions identifi ed are notifi ed to the Audit Committee for ratifi cation.
Governance: The Group Governance Standards require, among other things, the Boards of AXA’s main subsidiaries to establish an Audit Committee. The Audit Committees have a critical role in reviewing fi nancial results and other fi nancial information prepared by the management of these subsidiaries, fi nancial reporting and control processes, critical accounting policies, specifi c accounting issues, key risks and systems of internal control, fraud and similar issues.
The Group Governance Standards are part of the larger set of
GSH. These Group Standards are designed to ensure that all the companies of the Group have effective Risk Management processes and appropriate governance structures, and meet the Group’s minimum control requirements. Chief Executive
Offi cers of AXA Group companies are therefore required to certify annually that the companies under their responsibility are in compliance with the Group Standards.
Local Chief Risk Offi cers head the local r isk m anagement teams within each operational entity, and report both to their local Chief
Executive Offi cer and to the Group Chief Risk Offi cer. They are independent from operations and Internal Audit Departments.
Their teams are responsible for controlling and managing risks within Group policies and limits, and for validating investment or underwriting decisions through local Risk Committees. The
Group Chief Risk Offi cers chairs the Chief Risk Offi cers’ meeting composed of the Chief Risk Offi cers of AXA’s main subsidiaries, that meets on a quarterly basis and have monthly calls.
Compliance Plan must be developed at the end of each year for the following year. The local Compliance function must directly report on a regular basis to local senior management and the local Audit Committee (or equivalent body), on signifi cant compliance matters, including key compliance risks, major regulatory changes that have compliance implications, the
Development Program action points and any other signifi cant issues that require escalation.
■ fostering convergence of accounting and fi nancial reporting processes, systems and organizations for insurance activities in Europe.
Financial Offi cer of each entity signs off on the accuracy of their respective contribution to the consolidated fi gures reported through “Magnitude” and their compliance with both the AXA
At PBRC level, accounting, fi nancial and economic information reported by entities are analyzed by teams that liaise with subsidiaries on a full-time basis. In particular, these teams analyze the compliance with the AXA Group Accounting Manual and Group actuarial standards.
The IFC program is based on the Group’s IFC Standard, which is an internal control and governance standard based on the “Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). It is designed to defi ne the IFC scope and governance, ensure consistency and quality in AXA Group’s fi nancial reporting, and provide an overall framework for the annual IFC program.
At each year-end, the in-scope entities are required to perform an evaluation of their ICOFR as part of an internal certifi cation process. This process involves formal sign-off by the entity’s process owners and culminates with a formal management report from the entity’s Chief Financial Offi cer or another senior executive stating their conclusion as to the effectiveness of the entity’s ICOFR.
The Group believes that it has established a comprehensive system of internal control procedures and mechanisms that
(i.e. all insurance entities in the European Economic Area and insurance entities outside the European Economic Area that are within the scope of the Internal Model) are each required to produce an ORSA report which is fi led with the applicable national regulator. At Group level, the Group Chief Risk Offi cer is responsible for developing the ORSA policy, implementing the
Group. Adherence to this policy is expected to be promoted and monitored by all regional and entity heads of r isk m anagement d epartment (Chief Risk Offi cers).
Committee and then presented, fi rst, to the ARCC and the Audit
This review encompasses solvency ratio results at year-end targets, risk and solvency management internal best practices and conclusions on management actions for material risks assessed out of the economic capital requirement.
Beyond the annual ORSA report, a quarterly assessment is performed to update the Group’s risk profile and adapt management actions accordingly. This information is reported to the ARCC which regularly reviews all material audit, risk and compliance issues faced by the Group.
ORSA encompasses processes to identify, assess, monitor, manage and report the short to medium term risks to which the
Group is exposed and to ensure the adequacy of the level of own funds within the Group solvency targets, taking into account the
Group’s risk profi le, approved risk tolerance limits and business strategy. An important component of the r isk m anagement system, it is intended to give a comprehensive and complete vision of the risks embedded in the businesses of the Group.
ORSA mainly encompasses r isk m anagement and fi nancial activities, which are organized around the following processes: ■ Solvency Capital Requirement & Available Financial Resources
(AFR) quarterly calculation; ■ liquidity risk reporting; ■ strategic planning and fi nancial projections; ■ risk appetite process; ■ stress and scenario testing analysis and monitoring; and
Internal Model outputs for key decision making processes provides a feedback loop for improving the modelling according to the evolution of the risk profi le; ■ the extent to which the risk profile of the AXA Group deviates from the assumptions underlying the Solvency
Model. Extensive validation tests are performed to assess the relevance of the Internal Model and the model error.
The Solvency Capital Requirement, calculated on the basis of the Internal Model, represents the value at risk of Group Available
Requirement through the Internal Model calculation, the Group also considers liquidity risk, reputation risk, strategic risk and regulatory risks as well as emerging threats.
(2 ) The Group risk grid is designed to identify all risks applicable to AXA businesses. Risk categories are further split into sub-risks. The risk assessment is performed at the sub-risk level. The risk grid is regularly reviewed and validated at Group Level.
These analyses quantify, for instance, the potential impact on the AXA Group solvency ratio of (i) fi nancial shocks on corporate bond spreads, on interest rates, and on equity; (ii) a wide range of shocks refl ecting historical stress events (such as the 20082009 fi nancial crisis, the 2011 fi nancial crisis, the 1918 Spanish fl u and the 1999 Lothar & Martin storms).
These sensitivity analyses do not take into account preemptive management actions that might be taken to mitigate the effects of the defi ned shocks, nor indicate a probability of occurrence, but, are designed: ■ to demonstrate that the AXA Group solvency ratio is resilient to a wide range of shocks; ■ to ensure through the risk appetite framework that the management reviews and acknowledges the risks that arise in their company, understands the consequences of an adverse development of these risks, and have action plans that can be implemented in case of unfavorable developments; and
Solvency II ratio will be fi nalized prior to the publication of AXA’s Solvency and Financial Condition Report (SFCR) expected by July 1, 2017.
Solvency II Committee. The Solvency II Committee also reviews the Internal Model validation and model change processes, and liaises with local governance. It also reviews the conclusions of the regular validation activities.
Risk m anagement performs regular integrated validation activities, described in the Internal Model validation policy, mostly organized around: ■ validation of the model structure, modelling choices, parameters and assumptions; and
These tasks are performed mostly within the r isk m anagement d epartments in charge of the model, through controls and validation activities using validation tools such as sensitivity tests, back testing, scenario testing, and stability analysis and any other relevant activity.
Group Risk Management teams provide independent testing of the local model choices, local parameters, assumptions or calibration as well as local results.
Risk Offi cer’s review and sign-off, a comprehensive independent review process has been defi ned and implemented to provide adequate comfort to AXA Group Management and Board of
At the end of the annual validation process, the Board of
Directors is provided with a report summarizing the conclusions of the internal review by Risk Management and the conclusion of the independent review by IMR and IFC as well as a review by an independent third party.
Group Chief Financial Offi cer. His role includes aligning AXA’s investment strategy with the broader strategy of the Group, fostering closer cooperation amongst local entities, enhancing methodology, and steering investment decisions.
Local CIOs manage local portfolios, aiming at an optimized riskreturn ratio, maintain reporting lines to the Group, and manage close relationships with asset managers and local stakeholders.
ALM aims to match assets with the liabilities generated by the sale of insurance policies. The objective is to defi ne the optimal asset allocation so that all liabilities can be met with the highest degree of confi dence while maximizing the expected investment return.
Solvency II economic capital model considerations, earnings stability, protection of the solvency margin, preservation of liquidity, as well as local and consolidated capital adequacy and requirement.
At the entity level, the strategic asset allocation issued from the ALM study must be reviewed by local Risk Management, and verifi ed against predefi ned risk appetite limits, before being approved by the local Investment and ALM Committee.
For a large proportion of its assets, the Group utilizes the services of asset managers to invest in the market: ■ local AXA companies assign the day-to-day management of their asset portfolios primarily to AXA’s Asset Management subsidiaries, i.e. AXA Investment Managers and AB. Local
Information in this section should be read in conjunction with Note 4 “ Financial and insurance risk management” in
Report. Only information referred to in Note 4 is covered by the report of the Statutory Auditors on the C onsolidated F inancial
Information in this section should be read in conjunction with the paragraph “Market related risks” in Section 4.1 “Risk Factors”
Property & Casualty (P&C) portfolios are exposed arise from a variety of factors including: ■ a decline in market returns may cause us to accelerate amortization of deferred acquisition costs, value of business in- force and other intangibles; ■ a decline in returns on assets (linked to a sustained fall in yields on fi xed income investments or to lower equity markets) could reduce investment margins on General Account products or fees on Unit-Linked contracts; ■ a rise in yields on fi xed-income investments (linked to changes in interest rates or in credit spreads) reduces the market value of fixed-income investments and could impact adversely the Group’s solvency position, and increase policyholder’s surrenders due to competitive pressures; ■ a decline in asset market value (relating, for example, to equity, real estate, or alternatives, etc.) could adversely impact the
Group’s value; ■ a change in foreign-exchange rates would have limited impact for the operating units since foreign-currency commitments are matched to a large extent by assets in the same currency or covered by hedges, but it could affect the earnings contribution in euros; ■ furthermore, P&C activities are subject to infl ation which may increase the compensation payable to policyholders, so that the actual payments may exceed the associated reserves set aside. This risk can be signifi cant for long-tail businesses but is managed through regular pricing adjustments or specifi c protections against peaks of infl ation.
Group’s Solvency Capital Requirement metric, as detailed in the paragraph “Internal Model” in Section 4.2 “Internal control and risk management ” of this Annual Report and is taken into account in AXA’s liquidity Risk Management framework (please refer to Section 4.5 “Liquidity Risk” of this Annual Report).
structure in order to reduce the risk to a desired level ; ■ a disciplined investment process, requiring for any sophisticated investment a formal thorough analysis by the Investment Department, and a second opinion by Risk
AXA Investment Managers and AllianceBernstein for operating units as well as AXA Bank Europe and AXA US for the hedging program of Variable Annuities’ guarantees; ■ a regular monitoring of the financial risks on the Group solvency ratio; and
As regards the market risks relating to the management of holding companies’ foreign exchange and interest rates exposure , the following r isk m anagement measures have been defi ned and implemented.
Corporate Finance and Treasury Department has defined and implemented formal management standards, as well as guidelines for monitoring and assessing fi nancial risks. These standards are designed to permit a consistent measurement of the positions of AXA SA and sub-holdings.
The policy on the management of holding companies’ interest rate risk aims at monitoring and limiting the potential mediumterm variation in interest expenses and consequently at partially protecting future levels of interest expenses against movements in interest rates. Regarding foreign exchange risk, the implemented policy’s objective is to limit variations in net foreign currency-denominated assets resulting from movements in exchange rates. The purpose of the policy is therefore to protect partially or in full the value of AXA’s net foreign-currency investments in its subsidiaries and thus reduce the variability of Group consolidated shareholders’ equity against currency fl uctuations, but also of other key indicators such as liquidity, gearing and solvency ratio at Group level. AXA regularly monitors its exchange rate hedging strategy and will continue to review its effectiveness and the potential need to adapt it taking into account impacts on earnings, value, solvency, gearing ratio and liquidity.
INTEREST RATES & EQUITY RISKS RELATED TO THE OPERATING ACTIVITIES OF GROUP SUBSIDIARIES
AXA Group performs sensitivity analyses to estimate its exposure to movements in interest rates and equity markets. These analyses quantify the potential impact on the Group of positive and adverse changes in fi nancial markets.
The AXA Group analyzes sensitivities to movements in interest rates and equity markets looking at two different measures: ■ sensitivities of the Group Available Financial Resources (AFR), as described below; ■ sensitivities of Group solvency ratio (please refer to Section 4.2 “Internal control and risk management” of this annual report) (1).
AXA Group Risk Management is monitoring AFR sensitivities and the AFR is derived from IFRS equity. The following table presents the reconciliation between IFRS Shareholders’ equity to Group AFR.
The main elements of the reconciliation from the €70.6 billion of IFRS shareholders’ equity to the €33.7 billion of IFRS TNAV
Group AFR are as follows: ■ deduction of €-2.8 billion of foreseeable dividends to be paid to shareholders in 2017; ■ inclusion of €8.1 billion of undated deeply subordinated notes
(% of L&S AFR) of 2% to 10% higher value and -3% to 10% lower value show limited asymmetries mainly driven by the impact of guarantees and profi t-sharing rules, along with some hedging programs to limit potential losses. The impacts of equity market value changes can come from General Account exposures or from changing asset balances impacting future fee revenue on separate account business.
to 10% lower value refl ect the impacts on equities including derivatives on equities.
■ Life & Savings business: 79% of Group assets at the end of 2016 (79% in 2015): In France, AXA was exposed to exchange-rate risk for a global amount of €15,689 million at the end of 2016 (€15,041 million in 2015) held both directly and indirectly through investment funds partly invested in foreign currencies (particularly US Dollar: €12,284 million versus €10,916 million in 2015, Pound Sterling: €2,352 million versus €2,526 million in 2015 and Japanese Yen: €233 million versus €216 million in 2015). This exposure allows
AXA France offsets its exposure to exchange-rate risk by using foreign exchange forwards and other derivatives (notional of €13,941 million versus €12,104 million in 2015).
represented an amount of €12,058 million (€12,988 million in 2015). Excluding assets backing unit-linked contracts, the corresponding exchange-rate risk was fully hedged through the use of derivatives.
US Short Duration High Yield Fund (€1,329 million versus €1,395 million in 2015) and in Pound Sterling (€850 million versus €735 million in 2015). Exchange-rate risk exposure is hedged using foreign exchange forwards for a notional amount of €6,381 million (notional amount of €5,472 million in 2015), currency swaps for a notional amount of €615 million (notional amount of €383 million in 2015) and foreign exchange collars notional €842 million (notional €987 million in 2015).
AXA Hong Kong holds investments denominated in foreign currencies for an amount of €12,254 million (€10,057 million in 2015), both directly and indirectly through investment funds.
bond market which is more developed than the HK bond one notably in terms of liquidity and available maturities. Exchangerate risk exposure is hedged using foreign exchange forwards and cross currency swap for a notional amount of €5,098 million.
(€1,329 million in 2015) both directly and indirectly through investment funds and mainly denominated in US Dollar €1,030 million (€1,047 million in 2015). Exchange-rate risk exposure is being mainly under congruent coverage (matching assets and liabilities denominated in the same currency) in particular for Mexico.
AXA in Italy held investments in foreign currency for €1,111 million in 2016 (€637 million in 2015) both directly and indirectly through physical assets. These investments are mainly in US Dollar for €996 million (€576 million in 2015). The overall exchange-rate risk exposure is hedged for a notional amount of €979 million, using foreign exchange-rate forwards (€748 million) and currency swaps (€231 million).
Dollar €561 million (€381 million in 2015). Exchange-rate risk exposure is hedged for a notional amount of €503 million using mainly foreign exchange forwards and currency swaps.
■ Property & Casualty business: 11% of Group assets at the end of 2016 (11% in 2015): In France, AXA was exposed to exchange-rate risk for a global amount of €3,860 million at the end of 2016 (€3,263 million in 2015) held both directly and indirectly through investment funds partly invested in foreign currencies in order to diversify its investments (mainly US Dollar: €3,092 million versus €2,171 million in 2015 and Pound Sterling: €636 million versus €627 million in 2015). AXA France offsets its exposure to exchange-rate risk by using foreign exchange forwards in these currencies (notional of €3,458 million versus €2,655 million in 2015).
(€402 million versus €455 million in 2015). Remaining exchangerate risk exposure, mainly concerning the Pound Sterling for €185 million (€193 million in 2015), is incurred for the purpose of diversifying investments. AXA Germany controls and limits its exchange-rate risk by using foreign exchange forwards for a notional amount of €1,638 million (notional €1,865 million in 2015), currency swaps for a notional amount of €117 million
(notional €145 million in 2015), foreign exchange collars for a notional amount of €274 million (notional €183 million in 2015) and congruent coverage (matching assets and liabilities denominated in the same currency) for €37 million (€18 million in 2015).
In the United Kingdom, AXA is exposed to exchange-rate risk through its AXA Insurance and AXA PPP Healthcare subsidiaries, which operate in Pound Sterling, and through AXA Ireland which operates in Euro. It has diversifi ed its investment portfolios in line with Asset Liability Management objectives. AXA UK held investments denominated in foreign currencies for €3,434 million
Pound Sterling (€328 million) in Ireland. This exposure is held both directly and indirectly through investment funds (CLO funds,
Alternative Credit funds, Assets Backed Securities, commercial real estate loans and other investment funds). Of this exposure, €3,046 million is hedged through foreign exchange forwards or cross currency swaps, with a further €330 million of exposure hedging liabilities held within the business.
In Switzerland, foreign exchange exposure amounted to €7,021 million (circa 48% of total assets) at the end of 2016 versus €6,661 million (circa 46% of total assets) in 2015, of which €4,934 million were hedged with foreign exchange derivatives (€4,564 million in 2015).
In the course of its business, AXA Corporate Solutions Assurance carries some insurance liabilities denominated in foreign currencies, particularly in US Dollar (€1,288 million at the end of 2016 versus €933 million in 2015) and, to a lesser extent, Pound
Sterling (€397 million at the end of 2016 versus €503 million in 2015). AXA Corporate Solutions Assurance carries assets denominated in foreign currencies to ensure balance sheet congruence. The congruence between the Company’s foreign currency assets and liabilities is regularly adjusted.
(€512 million in 2015) both directly and indirectly through investment funds and mainly denominated in US Dollar for €379 million (€506 million in 2015). Exchange-rate risk exposure is hedged for a notional amount of €60 million using mainly foreign exchange forwards. The remaining portion corresponds notably to investments in countries having their currency pegged to US Dollar.
AXA in Italy held investments in foreign currency for €433 million in 2016 (€384 million in 2015) both directly and indirectly through physical assets. These investments are mainly in US Dollar for €399 million (€278 million in 2015). The overall exchange-rate risk exposure is hedged for a notional amount of €289 million, using foreign exchange-rate forwards (€220 million) and currency swaps (€69 million).
■ Holding companies: (5% of Group assets at the end of 2016 versus 5% in 2015): Since 2001, AXA SA has adopted a hedging policy on net investments denominated in foreign currencies, which aims at protecting the Group’s consolidated shareholders’ equity against currency fl uctuations, using derivatives instruments and foreign currency debt.
At December 31, 2016, the main hedging positions of AXA SA were as follows: Foreign currency hedging
AXA SA’s assets accounted for the biggest part of the Group holding companies assets at the end of 2016.
Part 5 – “C onsolidated F inancial S tatements” of this Annual
(excluding assets backing separate-account products where the fi nancial risk is borne by policyholders) as well as by banks and holding companies; and
■ receivables from reinsurers resulting from reinsurance ceded by the AXA Group.
On sovereign exposures, specifi c limits have also been defi ned on government bonds and government-guaranteed bonds.
Chief Investment Offi cer (Group CIO) provides credit analysis independently from Group asset managers, in addition to local
At December 31, 2015, the breakdown of the debt security portfolio (€428 billion) by credit rating was: 19% in AAA, 30% in
AA, 22% in A, 23% in BBB, 3% in BB and lower, and 3% in other.
At December 31, 2016, the nominal amount of positions taken through credit derivatives was €24.5 billion (1) of CDS (cumulated notional amounts of €10.6 billion protections bought and of €14.0 billion protections sold), which can be broken down as follows: ■ €9.3 billion of CDS protections bought to hedge credit risk with regard to certain investments, mostly in corporate bonds; ■ €1.3 billion of CDS protections bought used to lock the liquidity premium through purchasing bonds and CDS
At December 31, 2016, the breakdown of these CDS’s underlying debt securities gross exposure by rating was as follows: High Yield/NR
At December 31, 2016, the breakdown of counterparty exposure coming from OTC derivatives by rating was as follows (positive fair value net of collateral received): BBB+
Security Committee meets monthly – and more frequently during renewal periods – and decides on any action to be taken with the aim of limiting AXA Group’s exposure to the risk of default by any of its reinsurers.
In addition, the Group summarizes and analyzes its exposure to all reinsurers by factoring in all positions with reinsurers (claims, premiums, reserves, deposits, pledges and security deposits).
At year-end 2016, total invested assets of the Banking segment amounted to €32.1 billion (€33.7 billion in 2015).
The liquidity risk is the uncertainty, emanating from business operations, investments or fi nancing activities, over whether
to be paid are projected to measure the excess liquidity. The stressed conditions are calibrated so as to reflect extreme circumstances (e.g. distressed fi nancial markets, confi dence crisis towards the Group, natural catastrophes). In addition some conservatism is added by considering that all events occur simultaneously.
Report. Only information referred to in Note 4 is covered by the report Statutory Auditors on the C onsolidated F inancial
• expense payments; ■ reserve risk resulting from fluctuations in the timing and amount of claim settlements and relating to the insuffi ciency of claims reserves, which includes: • misestimating claims reserves (average payments), and
AXA Group’s exposure to insurance risks is covered by the AXA
Group’s peak exposures thereby protecting its solvency by reducing volatility and to mitigate risk within the Group to benefi t from diversifi cation; ■ reviewing technical reserves including a roll forward analysis; and; ■ monitoring emerging risks to share expertise within the underwriting and risk communities.
In Property & Casualty, methods are adapted to the underwriting of risks, while maintaining the principle of local decision-making based on a documented approval procedure and using the output of the internal model. The aim is twofold: ■ for pre-launch business, the aim is to ensure that new risks underwritten by the Group have been scrutinized before proposing them to customers; ■ for post-launch business, appropriate profi tability and risk control are performed to verify that the business remains in line with the Group’s risk framework.
This framework is part of the Group underwriting policy and ensures that no risks are taken outside the Group tolerances and that value is created by adequate risk pricing.
AXA Group reviews regularly its exposure to ensure that the risks underwritten are diversifi ed geographically and by lines of business in order to manage risk concentration, and to verify adequacy of reinsurance.
For both Property & Casualty and Life & Savings activities, GRM
In the Life & Savings business, these tools allow for mortality/
longevity risks to be analyzed on a multi-country basis. The AXA
Regarding the Property & Casualty exposures, ad hoc concentration risk studies are developed to ensure no singleperil event, natural (such as windstorm, earthquake, hurricane or typhoon) or man-made (such as c yber risk), is likely to affect the Group above the set tolerance levels.
Casualty natural catastrophe modelling, via the Group economic capital model, GRM uses several external models for assessing the risk associated with the main natural perils
Group’s Internal Model: up to 96% of the Group’s exposure to earthquakes, windstorms and fl oods are covered by the
Climate-related risks may be classifi ed as follows: ■ physical risks: direct impacts caused by weather-related events, such as fl oods and storms. These risks are described above; ■ energy transition risks: sometimes referred to as “carbon asset risks”, these are fi nancial risks which could arise for investors from the transition to a lower-carbon economy
These risks are explored by the Group and further described in Part 7 – “Corporate responsibility” of this Annual Report(1) ; ■ liability risks: risks that could potentially arise from claims by parties who have allegedly suffered losses from climate change, and who seek to recover these losses from third parties who they believe may have been responsible (or are
Health risks. AXA Global P&C and AXA Global Life can place a variable part of the local treaties on the domestic reinsurance market, for regulatory reason for example. A portion of the risk exposure is retained and mitigated within AXA Global P&C and
As opposed to the other P&C internal pools where the risk is retained within AXA Global P&C, in 2016 90% of the Property
Pool year-end financial result net of external reinsurance protections is retroceded back to local entities.
Claims reserves are estimated and booked on a fi le by fi le basis by the claims handlers. Additional reserves are also booked the local entities.
They notably ensure that: ■ a sufficient number of elements have been scrutinized
handling, and reinsurance effects); ■ the technical assumptions and actuarial methodologies are in line with professional practices and sensitivity analyses are performed at least for most signifi cant ones; ■ a roll-forward analysis of reserves including merit-rating (bonimali ) back-tests has been performed, the regulatory and economic context references are taken into account and material deviations are explained; ■ the operational losses relating to the reserving process have been adequately quantifi ed; and
In addition, the Solvency II regime requires insurance and reinsurance companies to provide for an effective actuarial function to: ■ coordinate the calculation of technical provisions; ■ ensure the appropriateness of the methodologies and underlying models used as well as the assumptions made in the calculation of technical provisions; ■ assess the suffi ciency and quality of the data used in the calculation of technical provisions; ■ compare best estimates against experience; ■ inform the management and the Board of the reliability and adequacy of the calculation of technical provisions; ■ oversee the calculation of technical provisions; ■ express an opinion on the overall underwriting policy; ■ express an opinion on the adequacy of reinsurance arrangements; and
The breakdown of the Group’s Property & Casualty technical reserves by Line of Business was as follows: ■ 36% at the end of 2016 (35% at the end of 2015) of the
Group’s Property & Casualty reserves cover Property insurance business; ■ 18% at the end of 2016 (18% at the end of 2015) of the
AXA’s risk exposure. On these products, the underlying fi nancial market performance is mostly passed on to the policyholders. This category also includes products that may provide a stand-alone guarantee on invested capital in the event of death. Overall, they present only a limited market risk for the Group through reduction of shareholders’ value; ■ 12% at the end of 2016 (12% at the end of 2015) of the
Suitable Risk Management policies have been put in place with respect to these products: • derivatives are used to help mitigate reserve changes linked to these guarantees due to movements in equity, fi xed income and foreign exchange markets. Benefi ts include
Information in this section should be read in conjunction with the paragraph “Operational and b usiness-related r isks” in
Operational risk is defined as the risk of loss arising from inadequate or failed internal processes, personnel or systems or from external events. Operational risk includes legal risks and excludes risks arising from strategic decisions, as well as reputation risks.
Both quantitative and qualitative requirements are defi ned: ■ across the Group, the most critical operational risks of each entity and a set stress scenarios are identifi ed and assessed following a forward-looking and expert-opinion approach.
In 2016, the Group Operational Risk Profi le is reasonably well spread out with all seven operational risk categories covered and the main risks being the following: ■ by nature, transaction capture, execution and maintenance risk is a major one and relates to process error, failure, and/or misperformance. This category is stable compared to 2015 and for the most important risks, controls are in place; ■ external Fraud & System Security Risk continues to be a top priority. AXA Group’s exposure to c yber risk is still high with more and more new technology into AXA Group’s products and services. Information on c yber risks should be read in conjunction with the paragraph “Operational and b usinessrelated Risks” in Section 4.1 “Risk f actors” of this Annual
Reputation risk is the risk that an event, internal or external, will negatively infl uence the stakeholders’ perception and trust of the Company or where there is a gap between stakeholders’
The objectives of the reputation Risk Management approach are in line with AXA’s overall enterprise Risk Management approach aiming to develop a reputation risk culture and risk intelligence.
Three main objectives drive the reputation Risk Management approach: ■ proactively manage reputation risks, avoid or minimize negative issues impacting the reputation of AXA and build trust among all of AXA stakeholders; ■ defi ne accountability for reputation risks across the organization
Assets backing contracts where the fi nancial risk is borne by policyholders (b) 175,292 194,601 9 Investments from insurance activities 727,402 715,282 9 Investments from banking and other activities 35,459 37,579 10 Investments accounted for using the equity method 2,245 2,306 14 Reinsurers’ share in insurance and investment contracts liabilities 14,988 19,734
Tangible assets 1,513 1,432 14 Deferred policyholders’ participation assets 146 88 19 Deferred tax assets 1,417 2,083
Receivables arising from direct insurance and inward reinsurance operations 16,418 16,566
(c) As of December 31, 2016, amounts include assets of discontinued AXA Life Europe UK & Ireland operations for which the disposal process was not fi nalized at year-end. As of December 31, 2015, amounts include assets of Portuguese operations, AXA Bank Hungary and two real estate properties in the United States for which the disposal process was not fi nalized at year-end.
Share capital and capital in excess of nominal value 25,885 26,094
Liabilities arising from insurance contracts where the fi nancial risk is borne by policyholders (b) 160,222 152,079
Liabilities arising from investment contracts with discretionary participating features 32,466 33,142
Liabilities arising from investment contracts with no discretionary participating features 2,382 538
Liabilities arising from investment contracts with discretionary participating features and where the fi nancial risk is borne by policyholders 3,593 3,362
Liabilities arising from investment contracts with no discretionary participating features and where the fi nancial risk is borne by policyholders 11,917 39,564
14 Liabilities arising from insurance and investment contracts 675,299 675,127 15 Liabilities arising from banking activities (a) 31,743 32,639 16 Provisions for risks and charges 13,735 12,659 19 Deferred tax liabilities 6,187 5,156
Minority interests of consolidated investment funds and puttable instruments held by minority interest holders 11,503 10,525
Other payables 16,962 14,509 5 Liabilities held for sale (c) 910 2,059
(b) Includes liabilities arising from contracts where the fi nancial risk is borne by policyholders with Guaranteed Minimum features.
Net realized gains and losses and change in fair value of investments at fair value through profi t and loss (e) 8,629 (442)
Amortization of the value of purchased business in force (170) (156)
Net consolidated income - Minority interests 364 370 27 Earnings per share (j) 2.30 2.19
(i) Relates to the discontinued United Kingdom Life & Savings operations.
(j) Refer to Note 27 for the split of earning per share between continuing and discontinued operations.
Reserves relating to changes in fair value through shareholders’ equity 1,827 (2,610)
Items that may be reclassifi ed subsequently to Profi t or Loss 1,754 947
Items that will not be reclassifi ed subsequently to Profi t or Loss (581) (62)
Capital in excess of nominal value - - - (450) -
Change in goodwill impairment and other intangible assets impairment (b) 457 (0)
Change in fair value of investments at fair value through profi t or loss (12,135) (881)
Net change in liabilities arising from insurance and investment contracts (c) 18,956 10,560
Adjustment of non cash balances included in the operating income before tax 7,971 9,415
Investment income & expense recorded in profi t or loss during the period (e) (13,254) (14,318)
Investment expense (excluding interests on fi nancing and undated subordinated debts, margin calls and others) (5,073) (5,699)
Disposal of subsidiaries and affi liated companies, net of cash ceded 204 295
Sales of investment properties held directly or not (f) 4,421 654
Sales and/or repayment of loans and other assets (f) (h) 12,418 32,882
Net cash related to sales and repayments of investments (f) (g) (h) 119,013 136,610
Purchases of equity instruments and non consolidated investment funds (f) (g) (34,276) (30,625)
Net cash related to purchases and issuance of investments (f) (g) (h) (132,993) (148,725)
CASH AND CASH EQUIVALENT AS OF JANUARY 1 (j ) 25,630 21,631
Net impact of foreign exchange fl uctuations and reclassifi cation on cash and cash equivalents (275) 1,180
(a) Includes premiums/discounts capitalization and relating amortization, amortization of investment and owner occupied properties (held directly).
The consolidated fi nancial statements are prepared in compliance with IFRS and interpretations of the IFRS Interpretations
IFRS 11 – Joint Arrangements May 6, 2014 Guidance on how to account for the acquisition of an interest in a joint operation that constitutes a business.
May 12, 2014 Clarifi cation of the principle for the basis of depreciation and amortization as being the expected pattern of consumption of the future economic benefi ts of an asset.
September 25, 2014 Collection of amendments to IFRS in response to issues that are not part of a major project.
December 18, 2014 Improvement of presentation and disclosure in fi nancial reports. The amendments are designed to encourage entities to apply professional judgment in determining what information to disclose in their fi nancial statements. For example, materiality should apply to the whole fi nancial statements knowing that the inclusion of immaterial information can inhibit the usefulness of fi nancial disclosures.
IFRS 10, IFRS 12, and IAS 28 December 18, 2014 Clarifi cation of the requirements when accounting for investment entities.
IFRS 9 – Financial Instruments, published on July 24, 2014, has replaced IAS 39. The new standard addresses the following items related to fi nancial instruments: ■ classification and measurement: IFRS 9 uses a single approach to determine whether a fi nancial asset is measured at amortized cost, fair value through other comprehensive income or fair value through profi t or loss. A fi nancial asset is measured at amortized cost if both a) the asset is held within a business model whose objective is to hold assets in order to collect contractual cash fl ows and b) the contractual terms of the fi nancial asset give rise on specifi ed dates to cash fl ows that are solely payments of principal and interest on the principal amount outstanding (“SPPI”). If both a) the asset is held within a business model whose objective is to hold assets in order to collect contractual cash fl ows and for sale and b)
the contractual terms of cash fl ows are SPPI, the fi nancial asset is measured at fair value through other comprehensive income and realized gains or losses would be recycled through profi t or loss upon sale. Assets not meeting either of these
categories are measured at fair value through profi t or loss.
Additionally, at initial recognition, an entity can use the option to designate a fi nancial asset at fair value through profi t or loss if doing so eliminates or signifi cantly reduces an accounting mismatch. For equity instruments that are not held for trading, an entity can also make an irrevocable election to present in other comprehensive income subsequent changes in the fair value of the instruments (including realized gains and losses), dividends being recognized in profi t or loss. Additionally, for fi nancial liabilities that are designated as at fair value through profi t or loss, the amount of change in the fair value of the fi nancial liability that is attributable to changes in the credit risk of that liability is recognized in other comprehensive income, unless the recognition of the effects of changes in the liability’s credit risk in Other Comprehensive Income would create or enlarge an accounting mismatch in profi t or loss; ■ impairment: The impairment model under IFRS 9 refl ects expected credit losses, as opposed to incurred credit losses under IAS 39. Under the IFRS 9 approach, it is no longer necessary for a credit event to have occurred before credit losses are recognized. Instead, an entity always accounts for expected credit losses and changes in those expected credit losses. The amount of expected credit losses is updated at each reporting date to refl ect changes in credit risk since initial recognition; ■ hedge accounting: IFRS 9 introduces new requirements for hedge accounting that align hedge accounting more closely with Risk Management. The requirements establish a more principles-based approach to the general hedge accounting model. The amendments apply to all hedge accounting with the exception of portfolio fair value hedges of interest rate risk (commonly referred to as “fair value macro hedges”). For these, an entity may continue to apply the hedge accounting requirements currently in IAS 39. This exception was granted largely because the IASB is addressing macro hedge accounting as a separate project.
Contracts, published on September 12, 2016, changes the existing IFRS 4 to allow entities issuing insurance contracts within the scope of IFRS 4 to mitigate certain effects of applying
The amendments introduce two alternative options: (1) apply a temporary exemption from implementing IFRS 9 until the earlier of (i) the effective date of a new insurance contracts standard; or (ii) Annual Reporting periods beginning on or after January 1, 2021. Additional disclosures related to fi nancial assets are required during the deferral period. This option is only available to entities whose activities are predominately connected with insurance and have not applied IFRS 9 previously; or
(2) adopt IFRS 9 but, for designated fi nancial assets, remove from profi t or loss the effects of some of the accounting mismatches that may occur before the new insurance contracts standard is implemented. During the interim period, additional disclosures are required.
January 1, 2021. The amendments permitting the temporary exemption are effective for annual periods beginning on or after
IFRS 16 model a lessee is required to recognize (i) assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value; and (ii) depreciation of lease assets separately from interest on lease liabilities in the income statement. Lessors will continue to classify and account for their leases as (i) operating leases with recognition of the underlying assets; or (ii) fi nance leases by derecognizing the underlying asset and recognition of a net investment, similar to the current IAS 17 requirements. IFRS 16 is effective for annual periods beginning on or after January 1, 2019. The standard has not yet been endorsed by the European Union. The potential impact of the new standard on the Group’s consolidated fi nancial statements is currently being assessed.
January 29, 2016 January 1, 2017* These amendments require entities to provide information about changes in their fi nancing liabilities, including changes from cash fl ows and non-cash changes (such as foreign exchange gains or losses).
June 20, 2016 January 1, 2018* Guidance on how: ■ to take into account the vesting and non-vesting conditions on the measurement of a cash-settled share-based payment transaction; ■ to classify a share-based payment transaction with net settlement features for withholding tax obligations; ■ to account for a modifi cation to the terms and conditions of a share-based payment transaction that changes its classifi cation from cash-settled to equity-settled.
December 8, 2016 January 1, 2017* or January 1, 2018* depending on the improvement
Collection of amendments to IFRS in response to issues that are not part of a major project.
December 8, 2016 January 1, 2018 * Clarifi cation on the exchange rate to be used for the accounting for transactions that include the receipt or payment of advance consideration in a foreign currency.
Some companies in which AXA exercises control, a joint controlling influence or a significant influence are excluded from the scope of consolidation as they are not material with respect to the Group’s consolidated fi nancial statements. These are mainly investment funds.
Upon fi rst consolidation, all assets, liabilities and contingent liabilities (unless they are not present obligations) of the acquired company are estimated at their fair value. However, in compliance with an exemption permitted by IFRS 4, liabilities related to life insurance contracts or investment contracts with discretionary participating features are maintained at the carrying value prior to the acquisition date to the extent that this measurement basis is consistent with AXA’s accounting principles. The fair value of acquired business in force relating to life insurance contracts and investment contracts with discretionary participating features is recognized as an asset corresponding to the present value of estimated future profi ts emerging on acquired business in force at the date of acquisition (also referred to as value of acquired business in force or VBI and refl ecting the difference between the fair value and the carrying value of the liabilities).
In the context of a business combination, only restructuring costs that can be measured reliably and which correspond to an existing liability of the acquired company prior to the acquisition date are included in restructuring provisions recognized in the acquired company’s balance sheet at acquisition date.
Group is measured at fair value and the resulting adjustment is recognized through net income. Similarly, when an additional purchase changes the control from significant influence or joint control to control, any investment pre-existing in a former associate/joint venture is re-measured to its fair value with the gain or loss through net income (consequently also resulting in a new goodwill).
If the cost of acquisition is less than the net of the acquisitiondate amounts of the identifi able assets acquired and the liabilities assumed, the difference is directly recorded in the consolidated statement of income.
The fair value amounts of assets and liabilities for which fair value is determined in whole directly by reference to an active market are disclosed as level 1 in the Notes to the fi nancial statements.
External pricing services may be fund asset managers in the case of non-consolidated investments in funds or brokers. To the extent possible, the Group collects quotes from external pricing providers as inputs to measure fair value. Prices received may form tight clusters or dispersed quotes which may then lead to the use of valuation techniques. The dispersion of quotes received may be an indication of the large range of assumptions used by external pricing providers given the limited number of transactions to be observed or refl ect the existence of distress transactions. In addition, given current market conditions since the fi nancial crisis and the persistency of complete inactivity of some markets since then, many fi nancial institutions closed their desks dedicated to structured assets deals and are no longer in a position to deliver meaningful quotes.
The dislocation of certain markets may be evidenced by various factors, such as very large widening of bid ask spreads which may be helpful indicators in understanding whether market participants are willing to transact, wide dispersion in the prices of the small number of current transactions, varying prices over time or among market participants, inexistence of secondary markets, disappearance of primary markets, closing down of dedicated desks in fi nancial institutions, distress and forced transactions motivated by strong needs of liquidity or other diffi cult fi nancial conditions implying the necessity to dispose of assets immediately with insuffi cient time to market the assets to be sold, and large bulk sales to exit such markets at all costs that may involve side arrangements (such as sellers providing fi nance for a sale to a buyer).In such cases, the Group uses valuation techniques including observable data whenever possible and relevant, adjusted if needed to develop the best estimate of fair value, including adequate risk premiums or develops a valuation model based on unobservable data representing estimates of assumptions that willing market participants would use when prices are not current, relevant or available without undue costs and efforts: in inactive markets, transactions may be inputs when measuring fair value, but would likely not be determinative and unobservable data may be more appropriate than observable inputs.
Casualty, Asset Management and Banking. An additional Holding companies segment includes all non-operational activities. The
The following changes have been implemented in the fi nancial reporting in order to refl ect the evolutions in the governance of the Group mentioned in the Activity Report. As a consequence, the information has been retroactively restated in the Notes to the Financial Statements: ■ Spain and Italy, which were formerly reported within the
Reinsurance Company are now part of the Life & Savings segment.
1.7.3. Deferred acquisition costs (DAC) relating to insurance contracts and investment contracts with discretionary participating features – rights to future management fees, also known as deferred origination costs (DOC) relating to investment contracts with no discretionary participating features
Depending on the intention and ability to hold the invested assets, financial instruments are classified in the following categories: ■ assets held to maturity, accounted for at amortized cost; ■ assets held for trading and assets designated as at fair value with change in fair value through profi t or loss; ■ available-for-sale assets accounted for at fair value with changes in fair value recognized through shareholders’ equity; ■ loans and receivables (including some debt instruments not quoted in an active market) accounted for at amortized cost.
In practice, assets held through consolidated investment funds are classifi ed: ■ either as assets of the “Core Investment Portfolios” which include assets backing liabilities arising from insurance and investment contracts, managed according to AXA’s ALM
■ as assets of the “Satellite Investment Portfolios”, refl ecting the strategic asset allocation based on a dynamic Asset
Portfolios” are classifi ed as available-for-sale with change in fair value through shareholders’ equity unless involved in a qualifying hedge relationship or more broadly when electing the fair value option reduces accounting mismatch. As specifi ed above, the fi nancial instruments held in the “Satellite Investment
Additionally, the Group is party to total return swaps under which fi nancial assets are sold to a counterparty with a corresponding agreement. Cash fl ows equal to those of the underlying assets will be remitted to the Group in exchange for specifi ed payments taking into account any increase or decline in the fair value of the assets. This results in substantially all of the risks and rewards of the fi nancial assets remaining with the Group. As such, the
The accounting of net investments in foreign operations hedge is similar to the accounting of cash fl ow hedge. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognized in shareholders’ equity; the gain or loss relating to the ineffective portion is recognized in the income statement. Cumulative gains and losses in shareholders’ equity impact the income statement only on disposal of the foreign operations.
In the event of a discontinuation of operations representing either a business line, a main and distinct geographical Region or a subsidiary acquired solely with a view to reselling, their after-tax contribution is stated on a separate line of the income statement. For comparison purposes, the same applies to the presentation of income statements relating to previous periods that are included in the fi nancial statements. This separate line also includes the post-tax gain/loss recognized on the disposal of the discontinued operation at the date of loss of control.
A number of insurance and investment contracts contain discretionary participating features. These features entitle the contract holder to receive additional benefi ts or bonuses on top of these standard benefi ts: ■ they are likely to represent a signifi cant portion of the overall contractual benefi ts;
■ they are contractually based on the performance of a group of contracts, the investment returns of a fi nancial asset portfolio or the Company profi ts, a fund or another entity that issues the contract.
The main characteristics of the accounting principles applied prior to IFRS and retained after the conversion to IFRS are as follows: ■ reserves must be suffi cient; ■ life reserves cannot be discounted using a discount rate higher than prudently estimated expected assets yield; ■ acquisition costs are deferred to the extent recoverable and amortized based on the estimated gross profi ts emerging over the life of the contracts; ■ property and casualty claims reserves represent estimated ultimate costs. Post claims reserves are generally not discounted, except in limited cases (a detail of discounted reserves is shown in Note 14.10).
“savings contracts” in AXA’s accounting principles) that carry low mortality and morbidity risk are generally calculated using a prospective approach based on discount rates usually set at inception with reserves similar to the retrospective approach,
Part of the policyholders participation reserve is included in future policy benefits reserves, according to contractual clauses. Except when these guarantees are covered by a Risk
Management program using derivative instruments (see next paragraph), guaranteed minimum benefi ts reserves relating to contracts where the fi nancial risk is borne by policyholders
level projections and considers interest rates and other market assumptions. The liabilities revaluation impact in the current period is recognized through income, symmetrically with the impact of the change in value of hedging derivatives. This change in accounting principles was adopted on the fi rst time application of IFRS on January 1, 2004 for contract portfolios covered by the Risk Management program at that date. Any additional contract portfolios covered by the Risk Management program after this date are valued on the same terms as those that applied on the date the program was fi rst applied.
The DPL or DPA corresponds to the discretionary participation available to the policyholders and is generally determined by applying on the basis of estimated participation of policyholders in unrealized gains and losses and any other valuation difference with the local contractual basis. Jurisdictions where participating business is signifi cant are Switzerland (for group insurance policies), Germany and France where the minimum is set to 90%, 90% and 85% respectively, of a basis which may include not only fi nancial income but also other components such as in
The estimated discretionary participating feature of such contracts is fully recognized in the liabilities. As a consequence, there is no component recognized as an equity component and
When a net unrealized loss (unrealized change in fair value, impairment, expense related…) is accounted, a deferred participating asset (DPA) may be recognized only to the extent that it is highly probable that it can be charged to policyholders, by entity, in the future. This could be the case if the DPA can be offset against future participation either directly through deduction of the DPL from future capital gains or the DPL
These tests therefore include the capacity to charge estimated future losses to policyholders on the basis of the assessment of the holding horizon and potential realization of losses among unrealized losses existing at closing date.
Any identifi ed defi ciency is charged to the income statement, initially by respectively writing off DPA, DAC or VBI, and subsequently by establishing a LAT provision for losses arising from the liability adequacy test for any amount in excess of DPA,
This category includes mainly Unit-Linked contracts that do not meet the defi nition of insurance or investment contracts with discretionary participating features. For these Unit-Linked contracts, the liabilities are valued at current unit value, i.e. on the basis of the fair value of the fi nancial investments backing those contracts at the balance sheet date together with Rights to future management fees, also known as Deferred origination costs (DOC, described in paragraph 1.7.3).
Obligation and the market value at the balance sheet date of the corresponding invested plan assets after adjustment for any minimum funding requirement or any asset ceiling effect. If the net result is positive, a provision is recorded under the provision for risks and charges heading. If the net result is negative, a prepaid pension asset is recorded in the balance sheet but not more than its recoverable amount (asset ceiling). Actuarial gains and losses (now termed remeasurments under IAS 19 revised) arising from experience adjustments and changes in actuarial assumptions are recognized in shareholders’ equity
Cash-settled share-based compensation plans are recognized at fair value, which is remeasured at each balance
Management activities; ■ insurance companies revenues from non-insurance activities, notably commissions received on the sales or distribution of fi nancial products; and
Subsequent events relate to events that occur between the balance sheet date and the date when the fi nancial statements are authorized for issue: ■ such events lead to an adjustment of the consolidated fi nancial statements if they provide evidence of conditions that existed at the balance sheet date; ■ such events result in additional disclosures if indicative of conditions that arose after the balance sheet date, and if relevant and material.
AXA Affi n General Insurance Berhad (a) Acquisition of shares 45.41 45.41 43.63 43.63
AXA Portugal Companhia de Seguros SA Disposal - - 99.73 99.49
Kyobo AXA General Insurance Co. Ltd. (South Korea) Relution 99.71 99.71 99.66 99.66
AXA Global Direct Seguros y Reaseguros SAU branch (Portugal) Disposal - - 100.00 100.00
(b) UK Direct activities is part of AXA Insurance UK Plc.
As of December 31, 2016, investment funds represented a total of €110,280 million invested assets (€106,740 million at the end of 2015), corresponding to 284 investment funds mainly in
December 31, 2016, minority interests in consolidated investment funds amounted to €11,503 million (€10,525 million as of
As of December 31, 2016, 23 consolidated real estate companies corresponded to a total of €9,413 million invested assets
(€7,980 million at the end of 2015), mainly in France, Germany and Japan.
As regards main subsidiaries with minority interests (other than investment funds and real estate companies): ■ the fi nancial information of AB is available in Part II – Item 8.
as of December 31, 2015). AB is part of the Asset Management segment and AXA MPS is part of both Life & Savings and
As of December 31, 2016, real estate companies accounted for using the equity method amounted to €167 million invested assets (€169 million at the end of 2015) and investment funds accounted for using the equity method amounted to €4,777 million invested assets (€7,164 million at the end of 2015), mainly in the United States, United Kingdom, Ireland,
Furthermore, given its insurance business, the Group holds direct investments in corporates of various sectors, such as debt instruments, equity securities and loans. These investments are not designed to be done in structured entities and the whole
Note 2.1.). Other funds are not consolidated because they are not controlled or under signifi cant infl uence. By nature, and notably because of the power of decision usually given to the asset managers (internal or external to AXA), most of these funds are structured entities.
Information on these unconsolidated investment funds are provided in different sections of this Annual Report: ■ Section 1 .1 . Keys fi gures : • Business overview: AXA’s total assets under management including assets managed on behalf of third parties; • Asset Management segment: assets under management
Note 9.8; • Note 22 - Net investment result excluding financing expenses.
Given the new governance structure of AXA, it was decided that the International Insurance segment would no longer be reported separately. Please refer to the Note 1.6 “Segment reporting” for more detailed information.
Management and Banking. An additional Holding companies segment includes all non-operational activities.
Life & Savings: AXA’s Life & Savings products include a broad range of Investment and Savings products as well as Protection and Health products marketed to individual and commercial clients. The Life & Savings products offered by AXA include term life, whole life, universal life, endowment, deferred annuities, immediate annuities, and other investment-based products. The
Property & Casualty: This segment includes a broad range of products including mainly Motor, Household, property and general liability insurance for both personal and commercial customers (commercial customers being mainly small to medium-sized companies). In some countries, this segment includes Health products. The Property & Casualty segment consists of ten geographical operating entities (France, Germany, the United Kingdom and Ireland, Switzerland, Belgium, EMEA-
LATAM Region, Italy, Spain, Asia and other entities) and three entities being present in multiple countries (AXA Global Direct,
The intersegment eliminations include only operations between entities from different segments. They mainly relate to reinsurance treaties, assistance guarantees recharging, Asset Management fees and interests on loans within the Group.
Fees and charges relating to investment contracts with no participating features 219 - - - - - 219
Change in unearned premiums net of unearned revenues and fees 84 (415) - - - (15) (346)
Net result from outward reinsurance 80 (918) - - - 249 (589)
Other operating income and expenses (79,593) (34,826) (3,210) (453) (557) 758 (117,881)
Net consolidated income after tax 3,272 2,473 702 102 (357) - 6,193
Split between: Net consolidated income - Group share 3,196 2,415 474 100 (357) 0 5,829
Net consolidated income - Minority interests 76 58 228 2 (0) (0) 364
Fees and charges relating to investment contracts with no participating features 236 - - - - - 236
Net realized gains and losses relating to investments at cost and at fair value through shareholders’ equity 2,099 409 0 - 8 1 2,518
of which change in fair value of assets with fi nancial risk borne by policyholders 784 - - - - (1) 784
Net investment result excluding fi nancing expenses 15,397 2,429 9 (77) 109 (278) 17,590
Income from operating activities before tax 4,579 3,462 990 92 (651) (480) 7,992
Income from investment accounted for using the equity method 164 45 1 - 3 - 214
Net income from operating activities before tax 4,684 3,489 975 82 (1,515) 3 7,718
Result from discontinued operations net of tax 68 - - - - (3) 64
Net consolidated income after tax 3,861 2,464 693 51 (1,081) - 5,987
Please refer to pages 94 to 99 of Section 2.4, “Liquidity and c apital r esources” subsections “Liquidity, sources and needs for Group operating subsidiaries”, “Liquidity position”, “Uses of funds”, “Impact of regulatory requirements” and “Subsequent events after December 31, 2016 impacting AXA’s liquidity”.
EMEA-LATAM Region (MedLA and CEE in 2015) 230 - 230 278 - 278
(c) Property & Casualty: includes the deconsolidation of AXA Ukraine (€-15 million) and the classifi cation as held for sale of AXA Global Direct Portugal (€-13 million) and AXA Portugal (€-4 million).
CONSOLIDATED FINANCIAL STATEMENTS 5 5.6 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(a) Reclassifi cation of International Insurance activity in Life & Savings and Property & Casualty segments.
An impairment loss is recognized for a cash-generating unit if, and only if, the recoverable amount of the unit or group of units is less than the carrying amount of the unit or group of units.
Value in use calculations are based on valuation techniques, incorporating both observable market data and entity specifi c assumptions.
are industry-specifi c valuation methods which are consistent with the principles of discounted earnings approaches as the value of business in force results from the projection of distributable earnings. The Group uses however both market consistent risk neutral approaches and traditional discounted cash fl ows projections. The current shareholders’ net asset value is adjusted to take into account any difference between the basis of cash flows projections used in the value of business in force calculations and IFRS; ■ the profi tability on future new business.
The value of new business is computed either on the basis of multiples of a standardized year of new business contribution (present value of projected future distributable profi ts generated from business written in a year) or on a projection of each of the expected annual future earnings when multiples are not appropriate.
The results of cash fl ow projections exceed the carrying amount of each related cash-generating unit or group of units.
For all cash-generating units, to the extent that securities valuations and interest rates levels remain low for prolonged periods of time, volatility and other market conditions stagnate or worsen, new business volumes and profi tability together with the in force portfolio value would likely be negatively affected.
In addition, the future cash fl ow expectations from both the in force and new business and other assumptions underlying management’s current business plans could be negatively impacted by other risks to which the Group’s business is subject.
5.3. OTHER INFORMATION RELATING TO GOODWILL, ACQUISITIONS AND DISPOSALS OF SUBSIDIARIES
AXA COMPLETED THE SALE OF ITS UK LIFE & SAVINGS BUSINESSES TO PHOENIX GROUP HOLDINGS & STANDARD LIFE
recorded an exceptional negative P&L impact of €0.5 billion, accounted for in net income in 2016.
The operations affected by these transactions are treated as discontinued operations in AXA’s consolidated financial statements as of December 31, 2016.
(1) EUR 1 = GBP 0.83105 as of June 30, 2016.
The statement of income of the United Kingdom Life & Savings business operations classifi ed as ’Discontinued operations’ (including both operations for which the disposal process was not fi nalized as of December 31, 2016 and operations for which the sale was completed in 2016) is as follows: (in Euro million)
The statement of Cash Flows of the discontinued United Kingdom Life & Savings business operations is as follows as of December 31, 2016: (in Euro million) December 31, 2016
As of December 31, 2016, impact of the disposal of United
Kingdom Life & Savings operations in the consolidated statement of cash fl ows amounted of € 415 million and is presented on the row “net cash from discontinued operations”.
On April 1, 2016, AXA announced that it had completed the sale of its Portuguese operations to Ageas, including in particular its entire stake in AXA Portugal Companhia de Seguros SA
Deferred acquisition costs relating to Life & Savings (a) 22,850 22,417
Unearned revenues and unearned fees reserves 2,256 309 2,339 727 of which shadow unearned revenues reserves (494) - (474) -
DAC net of unearned revenues and unearned fees reserves 19,118 468 18,531 497
Other intangible assets represented €3,266 million net value as of December 31, 2016, and mainly included: (in Euro million)
Intangible assets recognized in business combinations and other business operations 3,395 (1,054) (24) 2,316 2,427 8.2. BREAKDOWN OF INTANGIBLE ASSETS RECOGNIZED IN BUSINESS COMBINATIONS AND OTHER BUSINESS OPERATIONS
Intangible assets recognized in business combinations mainly include value of distribution agreements and customer related intangibles, including €1,422 million (net carrying value) assets with indefi nite useful life.
(a) In 2016, includes €13 million in AB from acquisition of Raimus Alternative Solutions LLC, €13 million in UK from acquisition of Aid Call, €6 million in US from AIG agreement, €5 million in AXA IM from acquisition of Eureka Funds Management, €2 million in Mexico from Promotorias agreement and €2 million in Turkey.
In 2015, includes €95 million from the 10 years distribution agreement signed with mBank in Poland, €64 million signed by Singapore with SingPost and €24 million from the acquisition of Simplyhealth in the UK.
Investment in real estate properties at amortized cost (a) 28,968 20,123 2.77%
Investment in real estate properties designated as at fair value through profi t or loss (b) 1,256 1,256 0.17%
Other assets designated as at fair value through profi t or loss, held by consolidated investment funds 14,067 14,067 1.93%
Investment in real estate properties at amortized cost 27,103 19,262 2.69%
Equity instruments designated as at fair value through profi t or loss (a) 9,180 9,180 1.28%
Non consolidated investment funds designated as at fair value through profi t or loss (a) 5,720 5,720 0.80%
(a) Assets measured at fair value under the fair value option.
Debt instruments (at cost) that are not quoted in an active market 5,756 5,955 5,736 274 75 5,827 6,044 5,829 228 12
Equity instruments available for sale 12,901 16,499 16,499 3,799 202 13,473 16,681 16,681 3,435 227
Debt instruments (at cost) that are not quoted in an active market 1,136 1,136 1,136 - (0) 1,192 1,192 1,192 0 -
Non consolidated investment funds available for sale 76 91 91 16 - 118 125 125 9 2
Debt instruments available for sale 349,087 396,234 396,234 55,011 7,864 333,926 377,846 377,846 50,481 6,560
Equity instruments available for sale 13,804 17,616 17,616 4,042 230 14,617 18,167 18,167 3,777 228
See also Note 9.9.1 “Breakdown of fi nancial investments subject to impairment”.
Debt instruments (at cost) that are not quoted in an active market and loans and debt instruments backing contracts where the fi nancial risk is borne by policyholders are excluded from the table below. The effect of derivatives (detailed in Note 20.3) modifi es in certain cases the maturity profi le of assets presented below.
Most of the debt instruments and loans held by the Group are fi xed-rate instruments (i.e. exposed to fair value interest rate risk).
Equity instruments as of December 31, 2015 8,832 8,412 569 1,619 3,157 981 1,314 2,942 27,827 4 27,830
The breakdown of transferred fi nancial assets / liabilities not qualifying for derecognition was as follows: (in Euro million)
Carrying value of associated liabilities (a) 1,514 29,147 169 1,358 28,186 181
(a) Amount does not include securities received as collateral to securities lending transactions if such collateral is not recognized under the terms of the agreement because the risks and rewards have not been transferred to the Group (detailed in Note 29).
Non consolidated investment funds mainly holding equity securities 2,212 408 2,619 2,406 418 2,825
Non consolidated investment at cost - - - - - -
Equity instruments available for sale 16,470 (2,666) 13,804 3,812 17,616 16,761 (2,144) 14,617 3,550 18,167
Note 20.5), but excluding the assets backing contracts where the fi nancial risk is borne by policyholders is as follows: (in Euro million)
Assets not quoted in an active market or no active market excluding derivatives
Fair value mainly not based on observable market data excluding derivatives
Financial investments and loans available for sale 294,708 127,292 4,049 426,048 422,972 278,915 122,846 3,861 405,622 403,562
Other assets held by consolidated investment funds designated as at fair value through profi t or loss 3,749 6,107 4,327 14,184 14,130 2,006 6,266 3,289 11,561 11,550
The common characteristic of level 2 and 3 assets is that their related market is considered as inactive. Their value is generally based on mark to market basis, except when there is no market or when the market is distressed, in which case a mark to model approach is used. Assets not quoted in an active market which are marked to market using mainly observable inputs are classifi ed in level 2. Assets not quoted in an active market for which fair value determination is not mainly based on observable inputs are classifi ed as level 3. For all assets not quoted in an active market / no active market and for which a mark to model approach is used, the classifi cation between level 2 and level 3 depends on the proportion of assumptions used supported by market transactions and observable data
Since the 2008 fi nancial crisis, a signifi cant volatility related to corporate spreads has been observed leading to transfers between level 1 and 2 with both yield and bid ask spreads widening and narrowing from one closing to another. Since 2010, this volatility has also been experienced on European government bonds with yields and bid ask spreads widening signifi cantly leading to transfers from level 1 to level 2 and then also subsequent sustained improved market liquidity for certain government issuers resulting in transfers back to level 1 from level 2. As of December 31, 2016, Irish, Portuguese and Spanish sovereign bonds continue to be classifi ed in level 2. For these sovereign bonds classifi ed in level 2, trends observed in previous years were confi rmed in 2016. These market indicators will continue to be monitored to assess the sustainability of those improvements. Therefore, the classifi cation as of December 31, 2016 was maintained compared to December 31, 2015.
prices (if any) and observable data but some of the underlying sectors to which the investments relate may be so particular that signifi cant adjustments are performed or unobservable data are used. Private equity funds of funds are measured on the basis of the latest net asset values of funds provided to the Group.
Main movements related to Level 3 assets to be noted were the following: ■ €+2.6 billion of new investments; ■ €+0.4 billion of change in unrealized gains and losses; ■ €+0.2 billion of net asset transfers in and out of Level 3 and foreign exchange fl uctuation impact; ■ €-1.4 billion of asset sales, redemptions and settlements mainly of debt instruments, equity securities and non-conso investment funds accounted as available for sale and of equity securities, non-conso investment funds, other assets held by controlled investment funds and debt instruments accounted as fair value through P&L.
Non consolidated investment at cost - - - - - - - - - -
TOTAL FAIR VALUE OF INVESTED ASSETS AT AMORTIZED COST 393 61,427 41,248 103,069 102,589 451 56,006 39,387 95,844 95,186
Note: T his table excludes assets backing contracts where the fi nancial risk is borne by policyholders with guaranteed minimum features.
Note 1.5 and Note 9.10.1, the assessment of the signifi cance of an input against the fair value measurement in its entirety involves judgment and a different weighting could produce a different categorization.
The fair values of debt instruments and loans at cost are determined with consideration of market inputs to the extent possible. For level 2 instruments, the fair value is mainly derived using valuation techniques based upon observable market interest rate curves. For level 3 instruments, the fair values of debt instruments and loans at cost are determined by valuation techniques using limited observable market data.
Krungthai AXA Life Insurance Company Ltd 158 - 60 6 (48) 176
PT AXA Mandiri Financial Services 54 - 39 3 (40) 56
PT AXA Mandiri Financial Services 52 - 41 0 (39) 54
(b) AXA Mansard Insurance plc acquisition amounts include minority interest for €18 million.
Total assets (including cash and cash equivalents) 5,416 1,722 4,411 1,732
Net investment result excluding fi nancing expenses 183 57 227 73
Group share in net assets 176 247 158 258 10.3. MAIN ASSOCIATES
Financial information for main associates is as follows (including AXA and external share but excluding goodwill related to AXA’s investment): (in Euro million)
Dividends received by AXA from the associate - - - -
Current accounts receivables from other Companies 1,777 (2) 1,775 1,775 1,658 (1) 1,656 1,656
Receivables from policyholders, brokers and general agents 8,676 (365) 8,311 8,311 9,520 (352) 9,168 9,168
Receivables from brokers and general agents 11 (7) 5 5 16 (8) 8 8
The table below reconciles assets and liabilities cash and cash equivalent balances with the statement of consolidated cash fl ows: (in Euro million) December 31, 2016 December 31, 2015
Net cash and cash equivalents increased by €104 million compared to 2015 mainly due to: ■ US Life (€-1068 million) mainly due to purchases of fi nancial invested assets, repayment of debt and dividend paid; ■ US Holding (€+469 million) mainly due to proceeds from the sale of two real estate properties and AXA Arizona’s repayment of affi liated loans, partly offset by the repayment of loans to AXA; ■ UK Holding (€+ 653 million) mainly due to net receipts following the restructuring of Group Loans and Debt in the period together with proceeds from the disposal of the Wealth business; ■ AXA SA (€+ 326 million) mainly due to the dividends received from subsidiaries net of the dividend paid to shareholders, the issuances of senior and subordinated debt for €2,756 million partly offset by the repayment of external debt (€-1,260 million)
Net cash used in investing activities was €-10,269 million in 2016, mainly refl ecting: ■ €-13,980 million of net cash used in purchases and sales of fi nancial invested assets; ■ €+4,050 million of net cash impact of assets lending /
During 2016, the following transactions had an impact on AXA’s share capital and capital in excess of nominal value: ■ a capital increase of €492 million including the employee share offering (December 2016) of 24.5 million shares for €430 million net of related charges; shares distributed of 1.3 million under AXA Miles for €3 million (reclassifi ed from other reserves); ■ a capital decrease of €637 million for 31 million shares in order to eliminate the dilutive effect of share-based compensation schemes (AXA SA’s stocks options, performance shares plans and share plan); ■ share-based payments for €37 million.
As of December 31, 2016, the carrying value of treasury shares and related derivatives was €297 million. There was no AXA
As described in Note 1.13.2. of the accounting principles, undated subordinated debt issued by the Group does not qualify as liabilities under IFRS.
Undated subordinated debt instruments are classified in shareholders’ equity at their historical value as regards credit spread and interest rates and their closing value as regards exchange rates. The corresponding foreign exchange differences are eliminated through the translation reserve.
October 26, 2006 - 600 MA$ (of which 300 MA$ 7.5%) - - 600 400
At April 30, 2016 Shareholders’ Meeting, shareholders approved a dividend distribution of €1.10 per share corresponding to €2,656 million with respect to the 2015 fi nancial year.
As of December 31, 2015, the Company and its subsidiaries owned approximately 2.0 million AXA shares, representing 0.08% of the share capital, an increase of 1.4 million shares compared to December 31, 2014.
As of December 31, 2015, the carrying value of treasury shares and related derivatives was €209 million. There was no AXA
At April 30, 2015 Shareholders’ Meeting, shareholders approved a dividend distribution of €0.95 per share corresponding to €2,317 million with respect to the 2014 fi nancial year.
The increase of gross unrealized gains and losses on assets available for sale totalled €4,390 million, of which €3,900 million increase in unrealized capital gains on debt securities which was mainly driven by interest rates decrease and corporate spreads tightening.
Less unrealized gains and losses attributable to: Shadow accounting on policyholders’ participation and other obligations (30,959) (29,459)
Shadow accounting on Value of purchased Business In force (185) (155)
Unrealized gains and losses (net of tax) - Equity accounted companies (c) 58 210
Minority interests’ share in unrealized gains and losses (d) (267) (133)
(b) Net of shadow accounting on unearned revenues and fees reserves and held for sale activities.
(c) Including unrealized gains and losses on assets held for sale operations.
At December 31, 2016, most of the unrealized gains on assets available for sale related to the Life & Savings segment, leading to signifi cant movements in shadow policyholders’ participation and other obligations.
In jurisdictions where participating business represents an important portion of contracts in force and where required minimum local policyholders’ share in the entities’ results (limited to investment or not) are signifi cant, the reconciliation between gross unrealized gains and losses on available for sale fi nancial assets and the corresponding net reserve recognized in shareholders’ equity were as follows as of December 31, 2016: (in Euro million)
Unrealized gains and losses (net of tax) - Assets available for sale 2,914 942 879 1,806
UNREALIZED GAINS AND LOSSES (NET GROUP SHARE) 2,943 942 640 1,806
Investments bought in the current accounting period and changes in fair value 2,936 (1,928)
Minority interests’ share in unrealized gains and losses (b) (267) (133)
UNREALIZED GAINS AND LOSSES (NET GROUP SHARE) (d ) 14,643 12,774
(a) Transfer induced by disposal of fi nancial assets, impairment write-back following revaluation, or transfer of expenses following impairment charge during the period, and debt instruments discount premium impacts.
LATAM Region (€-159 million), France (€-51 million) and change in fair value of derivatives and debt hedging net investments in foreign operations (€-85 million), partly offset by the United
The total impact of employee benefits actuarial gains and losses amounted to €-581 million (of which Group share was €-580 million and minority interests was €-1 million) as of
The negative impact in equity of actuarial losses arising from employee defi ned benefi ts obligation was mainly explained by: ■ the effect of the decrease in the discount rates by 60 bps on an average; ■ the increase in pension indexation rate (mainly in the UK); partially offset by: ■ the outperformance of assets covering employee’ Defi ned
Benefi t Pension plans (mainly in the UK) compared to the discount rate; ■ net experience gains and other parameters affecting the
The total impact of foreign exchange rate movement was €+3,557 million (of which €+3,387 million from Group share and €+169 million from minority interest) as of December 31, 2015.
The total impact of employee benefi ts actuarial gains and losses amounted to €-62 million (of which Group share was €-63 million and minority interests was €+1 million) as of December 31, 2015.
(in the UK); almost offset by: ■ the effect of the increase in discount rates in Eurozone countries, in the US and in the UK; ■ net experience gains and other parameters affecting the
Under IFRS, minority interests in most investment funds in which the Group invests consist of instruments that holders can redeem at will at fair value, and qualify as a liability rather than shareholders’ equity items.
• reserves relating to changes in fair value through shareholders’ equity for €-26 million,
• minority interest qualified as equity resulting from the consolidation of a new consolidated investment fund for €+1,129 million.
Liabilities arising from insurance contracts 347,874 66,694 414,569 333,481 65,296 398,776
Liabilities arising from investment contracts where the fi nancial risk is borne by policyholders 15,511 - 15,511 42,926 - 42,926
Total insurance and investment liabilities (D = A+B+C) 608,320 66,980 675,299 609,513 65,614 675,127
Reinsurer’s share in liabilities arising from investment contracts 93 - 93 101 - 101
Liabilities arising from insurance contracts, including those where the fi nancial risk is borne by policyholders, as disclosed in the sub total (A) of Note 14.1, were split by segment as follows: (In Euro million)
Liabilities arising from insurance contracts (A) 347,874 66,694 414,569 333,481 65,296 398,776 of which measured at current assumptions (e) 15,355 - 15,355 14,923 - 14,923
Sub-total Liabilities arising from insurance contract (C = A+B) 508,096 66,694 574,791 485,560 65,296 550,856
Reinsurers’ share in future policy benefi t reserves 7,440 - 7,440 12,890 26 12,916
Reinsurers’ share in liabilities arising from insurance contracts (D) 9,483 5,274 14,756 14,812 4,665 19,477
Reinsurer’s share in insurance contracts liabilities relating to policyholders’ participation (€138 million in 2016 and €154 million in 2015), as well as derivatives instruments (none in 2016 and 2015) are excluded from the table above.
(a) Reclassifi cation of the International Insurance activity in Life & Savings and Property & Casualty segments
(c) For the detail of Property & Casualty IBNR, see Note 21.3.3 .
Liabilities arising from investment contracts where the fi nancial risk is borne by policyholders (C) 15,511 42,926
Sub-total Liabilities arising from insurance contract (D = A+B+C) 50,358 76,606
Reinsurers’ share in liabilities arising from investment contracts where the fi nancial risk is borne by policyholders (G) 4 5
Note: Liabilities relating to unearned revenues and fees (see Note 7.3), policyholders’ participation (see Note 14.9.) and derivative instruments (see Note 20.4), are excluded from the table above.
Reinsurance’s share in investments contracts liabilities relating to policyholders’ participation (none in 2016 and 2015), as well as derivatives instruments (none in 2016 and 2015) are excluded from the table above.
Change in scope of consolidation and change in accounting method 441 (194)
(b) Excluding “other policy benefi ts liabilities” (mainly mathematical annuity reserves), which totaled €5.5 billion in 2016 and €5.4 billion in 2015.
Change in scope of consolidation, portfolio transfers, change in accounting principles and other changes 282 64
14.5. CHANGE IN LIABILITIES ARISING FROM INSURANCE AND INVESTMENT CONTRACTS - LIFE & SAVINGS
The table below gives detailed information on change in liabilities arising from insurance and investment contracts in Life & S avings segment presented in Note 14.2 (C) and Note 14.3 (D): (in Euro million)
Surrenders, maturities and other claims and benefi ts paid net of charges and penalties (-) (49,286) (6,781) (56,068) (48,027) (5,665) (53,692)
Impact of foreign currency fl uctuation 8,403 (3,922) 4,482 26,702 1,704 28,406
14.5.2. Change in reinsurers’ share in liabilities arising from insurance and investment contracts
The table below gives detailed information on change reinsurer’s share in liabilities arising from insurance and investment contracts in Life & Savings segment presented in Note 14.2 (F) and 14.3 (H): (in Euro million)
Reinsurers’ share in technical reserves as of January 1 (b) 14,812 101 14,914 14,312 94 14,406
Reinsurers’ share in collected premiums net of loadings on premiums (+) 2,105 7 2,111 1,541 15 1,555
Change in scope of consolidation and change in accounting principles (1) - (1) 2 - 2
Impact of foreign currency fl uctuation 168 0 169 588 1 589
(a) The contribution of discontinued United Kingdom Life & Savings operations is reclassifi ed on a separate line of Statement of Income and reclassifi cation of the International Insurance activity in Life & Savings and Property & Casualty segments in order to present a comparable basis.
(Non Unit-Linked) – Liabilities arising from: Investment contracts with Discretionary Participation Features (DPF) measured according to existing accounting policies (a) (d) 32,466 33,142
(Unit-Linked) – Liabilities arising from contracts where fi nancial risk is borne by policyholders: Investment contracts with Discretionary Participation Features (DPF) measured according to existing accounting policies (a) (c) 3,593 3,362
Investment contracts with no Discretionary Participation Features (DPF) measured at current unit
The recognition of investment contracts with discretionary participating features is subject to IFRS 4, which allows, under certain conditions, the use of accounting principles applied prior to the adoption of IFRS. However, these contracts must be treated in accordance with IFRS 7 with regards to the disclosures to be provided in the Notes to the fi nancial statements. IFRS 7 requires the disclosure of fair value or value ranges for these contracts, unless the Group cannot reliably measure the participating features.
In the context of the current IFRS 4, the IAS Board acknowledged the diffi culties involved in the recognition and the measurement of discretionary participating features included in insurance or investment contracts. The IAS Board issued guidance to measure fair value but with no principles addressing policyholder participation features and interpreting them before the issuance of IFRS 17 (that is expected to replace IFRS 4 in 2021) would be premature.
The fi rst line labelled “Gross reserves for unpaid claims and claim expenses developed initially at the booking date” represents the loss reserves developed in the Group’s balance sheet on the reporting date for the year indicated in the column heading.
For example, the amount of €41,301 million appearing in the fi rst line of the table in the 2006 column represents all loss reserves developed in all years of occurrence prior to and including 2006, recognized on the Group’s balance sheet as of
Gross reserves for unpaid claims and claims expenses developed initially at the booking date 41,301 44,020 44,046 44,470 46,367 45,946 46,440 47,031 49,868 51,965 53,286
Gross reserves for unpaid claims and claims expenses developed in 2016 adjusted for changes in exchange rates and scope of consolidation 45,770 44,250 44,703 44,961 45,127 45,436 46,229 47,182 48,715 51,435 53,286
Cumulative redundancy (defi ciency) from the initial gross reserves in excess of re-estimated gross reserves (f): (a) In 2006, Winterthur’s operations were integrated within AXA. Total loss reserves developed amounted to €41.3 billion including €8.7 billion in respect of Winterthur (fi nal fi gure after PGAAP re-opening).
(d) The comparative information related to previous periods was restated for the implementation of IFRS 10 and 11.
(b) Total gross claims and other reserves developed are presented on the basis of the loss reserves development table. The reserves of AXA Corporate Solutions Insurance US were included in Property & Casualty reserves.
(c) Includes reserves inward reinsurance (€1,101 million in 2016, €1,210 million in 2015).
Reserves adequacy ratios 3-Year survival ratio excluding commutations (a) 31 years 34 years 29 years 31 years
of €944 million at year-end 2016. This decrease was mainly driven by movement in exchange rates between 2015 and 2016.
This year, the 3-Year survival ratio increased mainly due to a decrease of claims paid for UK asbestos.
Note 1.14.2.) mainly in relation to unrealized gains and losses on invested fi nancial assets available for sale as described in
Note 13.2.1., but also with regard to other temporary differences not necessarily linked to fi nancial assets. Note 13.2.1. also contains a focus on jurisdictions with signifi cant portions of participating business and where required minimum local policyholders’ share in the entities’ results are signifi cant. This
Note discloses for such jurisdictions unrealized gains and losses related to available for sale investments and related shadow accounting adjustments. The increase in deferred policyholders’
participation liabilities mainly relates to an increase in unrealized gains on assets available for sale in Germany and France. The increase in deferred policyholders’ participation assets relates to unrealized losses on assets available for sale in Hong Kong
In the tables presented in Note 14.10.1 and 14.10.2, liabilities arising from Life & Savings and Property & Casualty insurance and investment contracts exclude contracts where the fi nancial risk is borne by policyholders. These liabilities are not exposed to interest rate or duration risk, except unit-linked contracts with performance guarantees. In addition, as far as liquidity risk is concerned, entities hold unit-linked assets backing the corresponding liabilities arising from these contracts. Occasional mismatches result mainly from administrative timing differences in the processing of day-to-day operations.
Actual maturities may differ signifi cantly from the estimates set out below, mainly because some of the contracts contain a surrender option controlled by the policyholder that may reduce their duration.
The projections shown below cannot be compared with the reserves carried on the balance sheet and are higher than the published balance sheet fi gures because they represent expected cash fl ows without the impact of discounting. They are also shown net of infl ows of periodical premiums payable by policyholders.
The fi gures shown in the fi rst line of the table below represent estimated undiscounted cash outflows in connection to death, incapacity and disability claims, surrenders, annuities, minimum guaranteed benefits for unit-linked contracts,
Liabilities arising from insurance and investment contracts 25,583 73,295 520,269 619,147 27,333 68,969 514,259 610,561 of which Life & Savings liabilities relating to contracts including a surrender option with some surrender benefi t before maturity 13,380 54,926 380,431 448,737 13,095 49,892 367,310 430,297 14.10.2. Insurance and investment contract liabilities – discount rates
As shown in the table below, as of December 31, 2016: 88%
of Life & Savings reserves (excluding unit-linked contracts) were discounted, and 14% were subject to a revision of the discount rate and 74% retained the rate set at inception, subject to the liability adequacy test described in Note 1.
Non Life – locked-in discount rate (b) 4,235 3.59% 4,237 3.48%
Liabilities arising from insurance contracts with no discretionary participating features (as per Note 14.3) 2,382 538
In accordance with IFRS 7, the Group discloses, in Note 4 of its consolidated fi nancial statements, quantitative sensitivities of the Group AFR (as defi ned in the Section 4.3 “Market risks”) to interest risk and equity price risk.
AXA reports separately at fair value because: ■ Many of the features would be considered clearly and closely related to the host contract, and
■ Many of the features would themselves qualify as insurance contracts under Phase I (IFRS 4).
This Note describes the features that are embedded derivatives and meet the defi nition of an insurance contract on a standalone basis. The primary features can be divided into two main categories: Guaranteed Minimum Death Benefi ts (GMDB) or
Guaranteed Minimum Income Benefi ts (GMIB) offered on unitlinked contracts and guaranteed annuity purchase rates.
There can be no assurance that ultimate experience will not differ from management’s estimates. In addition to providing for risk through establishing reserves, AXA also manages the
I Note 15 Liabilities arising from banking activities 15.1. BREAKDOWN OF LIABILITIES ARISING FROM BANKING ACTIVITIES
The Group applies the IFRS 13 fair value hierarchy as described in Note 1.5. The valuation method of liabilities arising from banking activities excluding derivatives (detailed in Note 20.5.)
(€2,810 million as of December 31, 2016): • €1,326 million as of December 31, 2016 (€1,196 million as of December 31, 2015) based upon market prices that are available in active markets and are considered as Level 1 fair values,
(€375 million as of December 31, 2015) mainly based on non-observable market data inputs and are considered to be Level 3 fair values.
Banking liabilities issued at fair value - Retail customers 222 598 1,989 2,810 258 729 1,842 2,829
Macro-hedge derivatives and other derivatives related to liabilities arising from banking activities (129) (194) (48) (370) (87) (151) (26) (264)
Germany (€155 million). Other provisions for risks and charges other than provisions for tax liability amounted to €1,119 million mainly in the Holdings (€505 million), Belgium (€228 million) and
Impact of change in scope of consolidation and other changes 202 8
Subordinated debt maturity below 10 years fi xed rate 35 46
Other fi nancing debt instruments issued (under €100 million) 100 97
Other fi nancing debt instruments issued (under €100 million) 131 136
For the sensitivity to movements in interests rates, please refer to page 206 of the “Interest rates & Equity risk related to the operating activities of Group subsidiaries” Section 4.3 Market risks.
The fair value of financing debt as of December 31, 2016, excluding accrued interests, was €9,899 million, including related hedging derivative instruments. The fair value increased by €674 million compared to December 31, 2015 mainly due to the issuance of new fi nancial debts instrument which is partial offset by the repayment of some fi nancial debts instrument issued.
Debts relating to investments under total return swap agreement (“TRS”) 1,112 153
(b) Excludes debt relating to investments under lending agreements and equivalent in Bank segment (see Note 15).
Collateralized debt – JPY Libor 3M +4 bps annual interest – maturity March 27, 2021 153 144
OTHER DEBT (OTHER THAN FINANCING DEBT) - OWED TO CREDIT INSTITUTIONS 310 282
Debts relating to investments under total return swap (“TRS”) - 163 949 1,112
Collateral debts relating to investments under a lending agreement or equivalent 29,030 1,372 - 30,402
Deferred tax assets not recognized on tax losses of the year 18 17
Derocognition of deferred tax assets on tax losses of prior years (b) 5 1
Derecognition/Recognition of DTA on temporary differences of prior years (other than tax losses) (b) (21) (3)
Impact of adjustments, decrease in value and other items (83) (68)
The impact of the change in tax rate included in 2016, includes the decrease from 34.43% to 28%, from 2020, enacted by the 2017 French tax reform.
The change from net liability position €-3,073 million in 2015 to €-4,770 million in 2016 mainly came from a signifi cant increase in unrealized capital gains on fi xed income assets.
(a) The contribution of discontinued United Kingdom Life & Savings operations is reclassifi ed on a separate line of the income statement in ordrer to present a comparable basis.
In 2015, the €-3,073 million net DTL position included €23,437 million DTA of which €1,466 million DTA on tax losses carried forward.
As of December 31, 2016, the net fair value (€-139 million) of derivatives instruments is comprised of the fair value of derivatives on investment assets (€-3,471 million – see Note 20.3.) and of the fair value of derivatives on liabilities (€-3,332 million – see Note 20.4.).
(€432.8 billion at the end of 2015) and includes: i. managing interest rate exposures on fixed maturity investments, long-term debt and guaranteed interest rates on insurance contracts; ii. reducing foreign-currency exposures on foreign-currency denominated investments and liabilities; iii. managing liquidity positions (including the ability to pay benefi ts and claims when due) in connection with Asset
Liability Management and local regulatory requirements for insurance and banking operations; iv. limiting equity risk; v. limiting credit risk with regard to certain investments in corporate debt instruments.
AXA actively manages counterparty risk generated by derivatives through a specifi c Group-wide policy. This policy includes a limit framework and an exposure monitoring process. Limits are specifi cally set for each authorized counterparty, based on an internal scoring system. This policy also includes daily to weekly collateralization for the majority of the Group’s exposure. The total net collateral given communicated for all derivative instruments including those related to derivatives held within investment funds of the “Satellite Investment Portfolio”
(€0.5 billion at the end of 2015). This net total includes amounts recognized in the Consolidated Statement of Financial Position and unrecognized commitments received or given disclosed in Note 29.
Solvency II. The various policies that AXA applies with reference to the use of derivatives and hedging instruments, include a close monitoring of its hedging strategy and associated risks as
part of a Systemic Risk Management Plan (SRMP), approved by the Management Committee and the Board of Directors, in the context of the policy measures that apply to Global Systemically
For further detail on Asset Liability Management governance, please refer to page 190 of Section 4.2. “Internal control and
Savings and (iv) the unwind of interest rate swaps in Italy
As of December 31, 2016 the notional amount of hedging derivative instruments as defi ned by IAS 39 (fair value hedge, cash fl ow hedge and net investment hedge) of the Group was €73.6 billion versus €72.2 billion in 2015. The net fair value recorded was €-578 million as of December 31, 2016, versus €-310 million in 2015.
As of December 31, 2016, the notional amount of interest rate derivative instruments totalled €208.1 billion (€236.5 billion at the end of 2015). Their net fair value as of December 31, 2016 totalled €2,810 million (€1,126 million at the end of 2015). AXA
These instruments are mainly used to: i. hedge interest rate risk and interest volatility risk as part of the Asset Liability Management strategy associated with the guaranteed minimum benefi ts on Variable Annuity products, with notional amount of €53.5 billion at the end of 2016 (€62.0 billion at the end of 2015) mainly in the United
States Life & Savings (notional amount of €22.4 billion in 2016 versus €31.8 billion in 2015), Germany Life & Savings
(notional amount of €12.8 billion in 2015 versus €13.6 billion in 2015), and in Japan Life & Savings (notional amount of €10.2 billion in 2016 versus €8.8 billion in 2015); ii. manage duration gap and/or hedge convexity risk between assets and liabilities on the General Account as a part of
& Saving for €53.1 billion (versus €52.8 billion in 2015) and in Japan Life & Saving for €19.5 billion in 2016 (versus €22.5 billion in 2015); iii. minimize the cost of Group debt and limit volatility of fi nancial charges, mainly in the Company, with notional amount of €30.9 billion in 2016 versus €41.8 billion in 2015, mainly due to the management of its interest rate derivatives in a context of low but volatile interest rate environment and by the restructuring of derivatives to minimize potential impacts on capital needs linked to the systemic regulation; iv. hedge interest rate risk exposures arising in the context of its ordinary banking activities, mainly at AXA Bank Europe, in order to manage an interest rate exposure between its interest-earning assets and interest-bearing liabilities mainly by interest rate swaps (notional value of €13.0 billion in 2016 versus €14.9 billion in 2015).
These instruments are mainly used to: i. hedge equity risk as part of the Asset Liability Management strategy associated with the guaranteed minimum benefi ts on Variable Annuity products, which totalled €8.8 billion at the end of 2016 (€11.7 billion at the end of 2015) mainly in the United States Life & Savings (notional amount of €7.7 billion in 2016 compared with €11.1 billion in 2015);
States Life & Savings (notional amount of €11.7 billion in 2016 compared with €6.9 billion in 2015).
One of the main objectives of currency derivatives instruments is to limit variations in net foreign currency-denominated assets resulting from movements in exchange rates in order to protect partially or in full the value of AXA’s net foreign-currency investments in its subsidiaries and thus reduce the variability of Group consolidated shareholders’ equity against currency fl uctuations, but also of others key indicators such as liquidity, gearing and solvency ratios. Notional amount of derivatives used by the Company to hedge the foreign currency exposure increased from €24.2 billion in 2015 to €25.0 billion in 2016, mainly due to the continuous review of its Net Investment Hedge policy.
Credit derivative instruments are mainly used to: i. hedge credit risk involving the purchase of CDS as a protection mainly on single corporate names or specifi c portfolios including from a certain level of losses through tranches instruments (notional amount of €9.4 billion in 2016 versus €9.2 billion in 2015); ii. implement credit risk hedging strategies by purchasing bonds and protection on the same name (i.e. CDS). During stressed market conditions, the credit derivative market is indeed more liquid than the cash market. For instance, holders of cash bonds may be unwilling or unable to sell the bonds that they hold as part of their longer-term investment strategies. For this reason, rather than simply selling their bonds, they turn to the CDS market to buy protection on a specifi c company or issuer and thus, contribute to increase the CDS market liquidity. This creates hedging opportunities
In fact, through hedging strategies, insurance companies execute Negative Basis Trade (NBT) strategies, leading to the creation of an asset that can be compared to a riskfree asset. CDS protections use by AXA in this context amounted to €1.3 billion in 2016 versus €2.5 billion in 2015; iii. enhance the return mainly on government bonds portfolios by holding government bonds and at same time selling protection on very good quality names as an alternative to the direct purchase of a corporate bond. This type of
The impact of derivative instruments is presented in the consolidated statement of fi nancial position within their related underlying fi nancial assets (and liabilities see Note 20.4.). The table below sets out the impact of derivative instruments on the related underlying assets.
Investment in real estate properties 20,353 17 20,369 126 - 126 20,478 17 20,495
Liabilities arising from insurance contracts where the fi nancial risk is borne by policyholders 160,222 0 160,222 152,079 0 152,079
Macro-hedge and other derivative instruments on insurance and investment contracts (liabilities) - (318) (318) - (873) (873)
Liabilities arising from banking activities 32,113 (370) 31,743 32,902 (264) 32,639
(a) Financing debts are disclosed in the balance sheet net of the impact of derivatives. As a result, the amount showing in the column “value including effect of derivatives” is their carrying value.
Related hedged assets are disclosed in Note 9.4.2 and liabilities in Note 15.
Derivative instruments relating to fi nancing debt, operating debt and other fi nancial liabilities - (1,219) - (1,219) - 603 - 603
Derivatives on Liabilities arising from banking activities and Payables 4 (197) (17) (210) 23 (122) (12) (111)
For more information about the Group’s segments identifi cation, please refer to pages 258 to 262 of Note 3 Consolidated statement of income by segment.
(b) The contribution of discontinued United Kingdom Life & Savings operations is reclassifi ed on a separate line of statement of Income and the International Insurance activity is reclassifi ed in Life & Savings and Property & Casualty segments.
Life contracts (including endowment contracts) 21,433 178,806 970 22,558 177,983 851
Fees and charges relating to investment contracts with no participating features (c) 219 - 14,299 236 - 40,102
Investment in real estate properties at amortized cost 775 2,003 - (126) 2,652
Debt instruments designated as at fair value through profi t or loss (b) 1,036 - (315) - 722
Equity instruments designated as at fair value through profi t or loss (c) 321 - 325 - 645
Non consolidated investment funds held for trading 3 - 3 - 6
Loans designated as at fair value through profi t or loss - - 0 - 0
Non quoted debt instruments (amortized cost) 132 2 - - 134
Equity instruments designated as at fair value through profi t or loss (d) 227 - 247 - 474
Net realized gains and losses and change in fair value of investments designated as at fair value through profit or loss consists mainly of: ■ adjustments relating to investments backing contracts where the fi nancial risk is borne by policyholders which are offset by an adjustment of related policyholders reserves, as there is a full pass through of the performance of held assets to the individual contract holder; ■ changes in the fair value of investments designated as at fair value through profi t or loss held by funds of the “Satellite
Claims ceded (including change in claims reserves) 2,919 1,890 (163) 4,646
Claims ceded (including change in claims reserves) 1,994 1,795 (112) 3,677
In 2016, fi nancing debt expenses, which includes income and expenses relating to hedging derivative instruments on fi nancing debt, amounted to €296 million (€488 million in 2015) mainly in the Company: €209 million (€435 million in 2015).
Increase/(write back) of tangible assets amortization 1 0 1 - - - - 1 1
Charges relating to owner occupied properties 249 317 566 210 12 29 (4) 814 782
Expenses increased by €776 million compared to December 31, 2015. On a constant exchange rate basis, expenses increased by €1,057 million, driven by: ■ higher expenses in Mature markets (€+1,097 million) mainly in
Other staff expenses and employees’ profi t sharing (b) 733 303
Pension benefi t obligation - assumptions as of December 31, 2015
Defi ned Benefi t Obligation at the beginning of the year 21,093 20,310 623 665 21,716 20,974
Actuarial (gains) and losses arising from changes in demographic assumptions (74) 64 7 (14) (67) 49 Actuarial (gains) and losses arising from changes in fi nancial assumptions 2,293 (130) 11 (33) 2,304 (163) Benefi ts paid by plan assets and by separate assets (722) (687) (1) - (723) (687) Benefi ts directly paid by the employer (312) (334) (39) (36) (352) (370)
Defi ned Benefi t Obligation at the end of the year (A) 22,132 21,093 645 623 22,777 21,716 Change in plan assets Fair value of plan assets at the beginning of year 11,697 11,187 5 5 11,702 11,191 Interest income on plan assets 264 347 0 0 264 347 Actual return on plan assets, excluding interest income 1,399 (411) 0 (1) 1,399 (412)
Fair value of plan assets at the end of the year (B) 12,436 11,697 6 5 12,442 11,702 Change in separate assets Fair value of separate assets at the beginning of year 1,276 1,116 - - 1,276 1,116 Interest income on separate assets 19 18 - - 19 18 Actual return on separate assets, excluding interest income (7) 68 - - (7) 68
Net transfer In/(Out) (including acquisitions, disposals and reclassifi cations) (b) - 93 - - - 93 Benefi ts paid by separate assets (169) (116) (1) - (170) (116)
Cumulative effect of asset ceiling at the end of the year 18 19 - - 18 19 Funded status
(c) In 2016 and 2015, this amount included additional contributions paid to plan assets in the United Kingdom and in the United States to reduce the defi cit.
“Other benefi ts” include post-retirement benefi ts other than pensions, principally health care benefi ts, and post-employment benefi ts after employment but before retirement.
The annual expense for employee pension and other benefi ts recorded in the income statement (included in Note 26.1.), for the years ended December 31, 2016 and 2015 is presented below: (in Euro million)
Interest income on plan assets (264) (347) (0) (0) (264) (347)
Interest income on separate assets (19) (18) - - (19) (18)
Defi ned pension and other benefi ts expense (Service Cost + Net Interest Cost/Income) 288 393 26 14 313 407
26.2.6. Change in the liability (net of plan assets but excluding Separate Assets and assets within the insurance General Accounts backing employee benefi ts) recognized in the statement of fi nancial position
Separate Assets amounted to €1,204 million as of December 31, 2016 (€1,276 million as of December 31, 2015) mainly in France and Belgium. This represents the fair value of assets backing
Defined Benefit Obligations covered by both i) insurance policies written within the Group that provide direct rights to the employees and ii) insurance policies with related parties that are outside the scope of consolidation. Under these circumstances, these assets are not considered Plan Assets that would be deducted from pensions’ DBO (Defi ned Benefi t Obligation), but represent reimbursement rights accounted for as Separate
Obligation between entities within the Group are effectively backed by General Account assets (available to general creditors
in case of bankruptcy), they are not taken into consideration in the pension assets disclosures.
Note 26.2.8.) and deducted from the Defi ned Benefi t Obligation.
Consistently with IAS 19 requirements, the roll-forward of the statement of fi nancial position liability from January 1, 2016 to
December 31, 2016 shown below only captures the evolution of the liability recorded in the Group’s statement of fi nancial position net of Plan Assets and does not include Separate Assets and
Adjustment due to separate assets (24) (94) - - (24) (94)
Benefi ts paid by separate assets 169 116 1 - 170 116
Actuarial gains and losses recognized in OCI (840) (38) (23) 80 (863) 43
Fair value of separate assets at the end of the year 1,204 1,276 - - 1,204 1,276
Net balance sheet position at the end of the year (8,509) (8,139) (639) (618) (9,148) (8,757)
In the United Kingdom, the Pensions Act 1995 legislation governs pension funds and the Pensions Act 2004 introduced regulations on the funding of defi ned benefi t pension arrangements and several other measures. Central to the funding regime are the
Statutory Funding Objective (SFO) which is a requirement that the Scheme has appropriate and adequate assets to meet its technical provisions and the Statement of Funding Principles
(SFP) which is a document prepared by the Trustees which sets out their policy for ensuring that the SFO is met. As part of the actuarial valuation, the appropriate level of future contributions to be paid to the pension plan is determined and a schedule of contributions is prepared by the Trustees of the pensions scheme following discussions with the entity. This includes a 10 year recovery plan to ensure that the Statutory Funding Objective
Assets other than plan assets (b) 2,901 3,042 - - 2,901 3,042
ESTIMATED EMPLOYER CONTRIBUTIONS TO THE PLAN FOR THE NEXT ANNUAL REPORTING PERIOD
The estimated amount of 2017 employer contributions for pension benefi ts is €281 million (€384 million estimated in 2015 for 2016).
These estimated future contributions and benefi ts expected to be paid are subject to uncertainty as they will be notably driven by economics of future years.
As pension liabilities have a long-term nature, a mix of equity instruments, debt instruments and real estate investments is used in
(a) Net position (excluding separate assets) for pension benefi ts and other benefi ts as reported in Note 26.2.6.
(c) It corresponds to a liability of €10,738 million as of December 31, 2016 (€10,374 million as of December 31, 2015) included in the statement of fi nancial position under the caption “provision for risks and charges”, and an asset included in the statement of fi nancial position under the caption “other receivables”.
The above presentation of the cost related to Performance Units does not include a gain of €19.4 million in 2015 before tax on the hedging program through equity swaps in place at Group level.
Insurance Index (“SXIP”). Since 2013, for all benefi ciaries, the vesting of the fi nal instalment has been subject to the fulfi lment of the market performance condition regardless of the number of options granted.
All options granted to the members of the Management Board since 2009, Management Committee since 2011, and Executive
Black & Scholes option pricing model. The effect of expected early exercise is taken into account through the use of an expected life assumption based on historical data. AXA SA share price volatility is estimated on the basis of implied volatility, which is checked against an analysis of historical volatility to ensure consistency. The expected AXA SA dividend yield is based on the market consensus. The risk-free interest rate is based on the Euro Swap Rate curve for the appropriate term.
(b) The options with market performance criteria were valued at €1.67 per option granted in 2016 and €1.39 per option granted in 2015, based on a Monte-Carlo model. The options without performance criteria were valued at €1.92 per option granted in 2016 and €1.47 per option granted in 2015, based on the Black & Scholes model.
(c) Based on an estimated pre-vesting annual lapse rate per year for options without performance criteria of 0% for options granted in 2016 and 5% for options granted before 2016.
None of the modifications made to AXA Financial’s sharebased compensation programs as a result of AXA’s delisting and deregistration resulted in the recognition of additional compensation expenses.
The traditional plan allows employees to purchase, through a personal investment, AXA shares (either through m utual funds
(FCPE) or through direct share ownership, depending on the country) with a discount of 20%. The shares are held within the Group Company Savings Plans and are restricted from sale during a period of approximately 5 years (except specifi c early exit cases allowed by applicable laws). Employees are subject to the share price evolution, up or down, as compared to the subscription price.
At the end of the 5 years holding period, the employees can, depending on their residence country, do any one of the following: (1) receive the cash value of their investment; (2)
The leveraged plan allows employees to purchase, on the basis of 10 times their personal investment, AXA shares (either through m utual funds (FCPE) or through direct share ownership, depending on the country) with a discount. The shares are held within the Group Company Savings Plans and are restricted from sale during a period of approximately 5 years (except specifi c early exit cases allowed by applicable laws). Employees’
personal investment is guaranteed by a bank, and employees also benefi t from a portion of the share appreciation, calculated on the basis of the non-discounted reference price.
In 2016, the AXA Group offered its employees to subscribe to a share offering, at a price of €15.53 per share for the traditional plan (discount of 20% to the reference price of €19.40 representing the average over the twenty trading days ending on the date preceding the Chief Executive Offi cer’s decision setting the defi nitive terms of the operation) and at a price of €17.73 per share for the leverage plan (discount of 8.63% to the reference price). A total of 24.5 million new shares were issued, increasing the share capital by €430.4 million. This offering represented a total cost of €9.1 million taking into account the fi ve-year lockup period.
[B] Cost of the lock-up for the employee 18.72% 8.57% 19.68% 8.54%
Total cost for AXA = [A] – [B] + [C] (as a percentage of the reference price) 1.28% 1.97% 0.32% 2.03%
(“AXA Miles”) to more than 120,000 employees worldwide, engaging all employees in the successful execution of the company’s strategic plan Ambition AXA. A fi rst tranche of 25
These 50 AXA Miles shares granted in 2012 vest upon completion of a two or four year vesting period (i.e. in 2014 or 2016) depending on applicable local regulations, and subject to fulfi lment of certain conditions.
The Performance Shares are valued using the ANC approach described in the AXA Group Sharep lan section using assumptions adapted to the structure of the plan.
In 2016, the valuation was based on a market price of €21.82 per share at grant date and an estimate 5% pre-vesting lapse rate per year. The grant date average fair value of Performance
For 2011 and 2012 grants, the number of Performance Units defi nitely acquired is known after two years and is paid one
year later in cash by the employing entity, provided that the benefi ciary is still an employee of the AXA Group at that date.
(except where the settlement in shares is impossible for legal or other reasons).
Performance Units recorded as of December 31, 2016, was €80.1 million in earnings (€102.3 million as of December 31, 2015).
As voted by the Shareholders’ Meeting of April 27, 2016, AXA’s
Board of Directors is authorized to grant retirement performance shares to designated senior executives in France. Under this plan, benefi ciaries of Performance Shares have the right to receive at the settlement date, a certain number of AXA shares based on the achievement of a performance condition related to the average AXA Group Solvency II ratio calculated during the performance period of three years.
The total cost of Investment Managers Performance Shares recorded as of December 31, 2016 amounted to €9.9 million in earnings (€7.8 million as of December 31, 2015), gross of tax.
Most of the awards granted in 2015 and in 2016 contained the same conditions as awards amended in 2011, resulting in the immediate recognition of the cost of these awards instead of an amortization over a maximum of four years.
Under the Incentive Compensation Program, AB made awards in December 2016 aggregating €142.8 million (€159.7 million in December 2015) of which €127.6 million in the form of
Restricted AB Holding Units (€144.1 million in 2015), elected in December 2016 and representing 6.1 million restricted AB
Moreover, options to acquire AB Holding Units were granted as follows: 54,546 options were granted during 2016, 29,056 options were granted during 2015, and 25,106 options were granted during 2014.
Compensation costs/expenses: ■ short-term benefits: compensation paid to members of the Management Committee in 2016 totaled €19.5 million
(€7.3 million in 2015); ■ post-retirement benefi ts: the estimated cost to the Group of providing defi ned benefi t pensions and other post-retirement benefi ts to members of the Management Committee for the current year of service measured in accordance with IAS 19 amounted to €5.8 million in 2016 (6.2 million in 2015).
Singapore, Hong Kong, Thailand and Malaysia; partly offset by: ■ AXA Technology Services (-920) refl ecting mainly the sale of the Indian subsidiary; ■ AXA Bank Hungary (-282) refl ecting the sale of the Hungarian banking operations completed in 2016.
Net income including impact of undated subordinated debt A 5,562 5,312
Weighted average number of ordinary shares (net of treasury shares) - opening 2,424 2,442
FULLY DILUTED NET INCOME PER ORDINARY SHARE E = A / D 2.30 2.18
In 2015, net income per ordinary share stood at €2.19 on a basic calculation, of which €2.16 attributable to continuing operations and €0.03 from discontinued operations, and €2.18 on a fully diluted basis, of which €2.15 attributable to continuing operations and €0.03 from discontinued operations.
Assurances Vie Mutuelle, hereafter the “Mutuelles AXA”) are two mutual insurance companies engaged in the Property & Casualty insurance business and Life & Savings insurance business in
France. On December 31, 2016, the Mutuelles AXA collectively owned 14.13% of the Company’s outstanding ordinary shares representing 23.93% of the voting rights.
Each Mutuelle AXA is supervised by a b oard of d irectors elected by delegates representing policyholders. Certain members of the Company’s Executive Management and Board of Directors serve as directors or executive offi cers of the Mutuelles AXA.
AXA. The agreement includes provisions designed to ensure the legal independence and protection of the respective client portfolios of the Mutuelles AXA and these Subsidiaries. Certain costs and charges (excluding commissions) are allocated between the Subsidiaries and the Mutuelles AXA through an economic interest grouping (groupement d’intérêt économique)
(e.g. fi nance, accounting and reporting, tax, legal, marketing and brand, internal audit, human resources, procurement, information systems, r isk m anagement, cash management) as well as certain other services. Expenses invoiced by these GIEs to the Company and its subsidiaries are generally invoiced at cost and are included in the consolidated expenses refl ected in the Company’s audited C onsolidated F inancial S tatements.
Expenses invoiced by the GIE AXA to its members in 2016 and 2015 amounted to respectively €230 million and €228 million.
The Company, from time to time, makes capital contributions, loans, other extensions of credit, or otherwise provides liquidity and capital resources to its subsidiaries and affi liates for various business purposes including to fi nance their business operations and/or to promote the development of their business (e.g. to facilitate acquisitions, integration of acquired businesses, distribution arrangements, internal restructurings, or similar transactions). These transactions may involve the Company entering into various types of transactions with its subsidiaries and affi liates from time to time including loans or other types of credit arrangements, acquisitions or sales of assets, securities or other fi nancial instruments and/or similar transactions. The
Consistent with the principles set forth in Note 1.3.1. “Scope and basis of consolidation” to the fi nancial statements, (i) AXA’s investments or other arrangements with non-consolidated special purpose entities (SPEs) do not allow AXA to exercise control over such SPEs; and (ii) SPEs controlled by AXA are consolidated as disclosed in Note 2.2. of the fi nancial statements.
Commitments received by AXA totalled €82,540 million at the end of 2016, and increased by €6,778 million compared to the end of 2015, mainly due to an increase in pledged assets and collaterals (€3,887 million), guarantee commitments
(€211 million), (ii) €1,601 million other guarantees received from customers mainly at AXA Banque France (€1,599 million) and
(€457 million) and AXA Global P&C (€351 million); ■ Collateral for derivatives €3,610 million mainly from AXA Bank
(€300 million) and Belgium Life & Savings (€342 million) from an increase in collaterals deposit according to the variations of the derivatives to cover the risk of the counterparty;
■ Security reverse repurchase agreements and similar operations totaled €3,829 million mainly in Germany Life &
Letters of credit received totaled €4,192 million at the end of 2016 and were mainly from the United States (€3,904 million)
Financing commitments given totaled €4,568 million at the end of 2016, and mainly consisted of fi nancing commitments to customers (€3,191 million) notably comprising loan commitments granted at AXA Bank Europe (€1,430 million), AXA Banque
notably from AXA SA (€4,449 million), guarantees related to fi nancial obligations (€2,411 million) notably from AXA Bank
Life & Savings (€910 million); ■ pledged assets and collaterals for reinsurance operations totaled €1,258 million mainly in France Life & Savings
Other commitments given totaled €19,440 million at the end of 2016 and mainly consisted of: ■ €6,496 million commitment to Private Equity funds mainly from France Life & Savings (€2,034 million), Switzerland Life &
Germany Property & Casualty (€149 million); ■ €3,162 million commitments to invested assets other than
Casualty (€176 million); ■ €2,448 million guarantees given by the Company as part of
Group employee insurance contracts; ■ €2,423 million as commitments to Real Estate funds mainly from the France Life & Savings (€965 million), United States
(€218 million); ■ €859 million as commitments for constructions contracts given mainly by Switzerland (€794 million).
AXA’s insurance subsidiaries and joint ventures are limited to net income for the year and retained earnings calculated in accordance with the statutory accounting policies used by the subsidiaries to prepare their local fi nancial statements. Further restrictions may be imposed by the local insurance regulators in countries where AXA operates. In some cases, amounts available for distribution are also subject to regulatory capital adequacy tests or the approval of an independent actuary or subject to individual provisions contained in a company’s by laws.
AXA SA is exposed to foreign currency fl uctuations notably stemming from its Non-Euro participations. The aim of the hedging programs of AXA SA is to protect the shareholder value while managing the associated costs.
Annual General Meeting of the shareholders called to approve the fi nancial statements for the fi scal year 2021.
T he table below distinguishes the fee amounts paid by AXA to each of the Statutory Auditors in charge of auditing the Group’s fi nancial statements between the fees for the legal mission of Statutory Auditors of the statements and for other services.
(“KVAG”). Following the effective date of these squeeze out transactions in July 2007, certain former AKAG and KVAG
In the fi rst half of 2016, an initial expert valuation report was delivered to the court based on recent precedents in other
In the United States, certain AXA subsidiaries are involved in a number of lawsuits (both class actions and individual litigations), investigations and other actions in various states and jurisdictions where they do business. A detailed description of signifi cant matters involving AXA Equitable Life Insurance Company and its subsidiaries (including AllianceBernstein L.P.) is included in the
Annual Reports on Form 10-K for the year ended December 31, 2016 and subsequent reports on Form 10-Q, respectively, of
A number of lawsuits have been filed against insurers and other fi nancial institutions in the United States and elsewhere involving insurers’ sales practices, alleged agent misconduct or misrepresentation, alleged failure to properly supervise agents, compensation of intermediaries, product features, fees or performance as well as numerous other matters. Some of these actions have resulted in the award of substantial judgments against insurers (including material amounts of punitive damages)
States subsidiaries are involved in these types of litigations as well as regulatory inquiries, investigations or actions with respect to these and a wide variety of other matters related to the ownership or management of real estate, asset or investment management activities, corporate transactions, employee benefi t disputes, alleged discrimination in employment practices, as well as other matters.
SEC Reports. Copies of the Subsidiary SEC Reports can be obtained through the SEC’s website (www.sec.gov).
In July 2011, a derivative action was filed in the United
Mary Ann Sivolella v. AXA Equitable Life Insurance Company and AXA Equitable Funds Management Group, LLC (“FMG
LLC”) (“Sivolella Litigation”) and a substantially similar action was fi led in January 2013 entitled Sanford et al. v. FMG LLC
The plaintiffs seek recovery of the alleged overpayments, rescission of the contracts, restitution of all fees paid, interest, costs, attorney fees, and expert witness fees. The Sivolella
Company in US Federal District Court for the Southern District of New York on behalf of a purported class of persons who renewed or paid premiums on life insurance and/or annuity contracts issued by AXA Equitable from 2011 to March 2014.
State Courts. These actions were brought on behalf of classes of persons who purchased Variable Annuities or variable life insurance policies from AXA Equitable that were subject to the AXA Tactical Manager (ATM) strategy which is a managed volatility strategy in certain variable investment options offered to purchasers of certain AXA Equitable Variable Annuity and variable life insurance contracts. These suits assert claims for breach of contract and allege that AXA Equitable breached express provisions of the contracts/policies when it implemented this strategy. Damages sought are not quantifi ed. During 2015, the Zweiman case was removed from New York State Court to the United States District Court for the Southern District of New
The plaintiffs initially appealed but, in February 2016, voluntarily dismissed that appeal. In February 2016, the Shuster case was dismissed on similar grounds. In March 2016, plaintiff fi led a notice of appeal in that case and the briefi ng of that appeal was completed in late 2016. The O’Donnell case was transferred to the United States District Court for the Southern District of New
France believes that it has strong defenses to these claims and will defend this matter vigorously.
to €623 million. On June 11, 2015, the court of fi rst instance of Madrid ruled in favor of KLEC and awarded damages of €18 million to KLEC which have been reserved in AXA’s consolidated accounts. Both parties have appealed. AXA Spain believes that it has strong defenses to support its appeal and will defend this matter vigorously.
AXA Corporate Solutions Assurance (“AXA CS”). The underlying liabilities in question arise out of a series of lawsuits (more than 500 individual suits) brought against Enedis by local electricity producers in France engaged in production of solar/green energy. These local producers allege fi nancial losses due to
Enedis’s delay in processing their applications to be connected to the public grid within the statutory period, resulting in their inability to profi t from attractive buyback rates under certain
Cour de cassation but the appeal was dismissed in June 2015
AXA CS in this matter, if any, cannot be reasonably estimated at this time and will depend on a variety of factors including (i) the ultimate outcome of the litigation for NatWest and, in the event of an adverse outcome, (ii) the number of deemed separate incidents that would trigger coverage, and (iii) whether certain policy exclusions apply.
Transactions, AXA and its subsidiaries from time to time: ■ are involved in legal actions or other claims brought by purchasers, joint venture partners, shareholders or other transaction parties asserting claims for damages on various theories (including misrepresentation, failure to disclose material information, failure to perform contractual duties, breach of fi duciary duties), seeking contractual indemnifi cation, or otherwise seeking to impose liability on AXA and/or its subsidiaries; and/or
(including for their ability to obtain or maintain licenses to engage in certain types of regulated business activities such as a sset m anagement, insurance and banking).
AXA and its subsidiaries are subject, from time to time, to examinations, investigations, enforcement proceedings and other actions by regulatory and law enforcement authorities (involving civil and/or penal matters) as well as to proposed changes in law and/or regulation that may signifi cantly impact their business and results of operations. For additional information on these matters as well as other risks and contingent liabilities affecting the
Group and its business, please see Section 4.1 “Risk f actors”
and Section 6.3 “General Information” of this Annual Report and Note 29 “Contingent assets and unrecognized contractual commitments” in Part 5 – “Consolidated Financial Statements” of this Annual Report. Some of the litigations described above have been brought on behalf of various alleged classes of claimants, and certain of the claimants in these actions seek signifi cant or unspecifi ed amounts of damages, including punitive damages.
Management believes that the ultimate resolutions of the matters described above are not likely to have a material adverse effect on the consolidated fi nancial position of the Group, taken as a whole. However, due to the nature of such lawsuits and investigations and the frequency of large damage awards and regulatory sanctions in certain jurisdictions (particularly the
United States) that bear little or no relation to actual economic damages incurred by plaintiffs or the underlying regulatory violations, Management cannot make an estimate of loss, if any, or predict whether or not these matters, individually or in the aggregate, will have a material adverse effect on the Group’s consolidated results of operations in any particular period.
The notes have been swapped into Euro over 10 years at a rate of 2.80%, corresponding to a 209 basis points spread over swap. Settlement of the notes took place on January 17, 2017.
I Report of the Statutory Auditors on the consolidated fi nancial statements (For the year ended December 31, 2016)
In accordance with the requirements of article L. 823-9 of the French Commercial Code (Code de commerce) relating to the justifi cation of our assessments, we bring to your attention the following matters.
We assessed the reasonableness of the assumptions used to calculate these values, particularly with respect to the Group’s experience and its regulatory and economic environments as well as the overall consistency of these assumptions; ■ The carrying value of goodwill is tested for impairment at each closing date using the methods described in Notes 1.7.1 and 5.2.2 to the consolidated fi nancial statements.
We verifi ed that the valuation methods used take into account the nature of tax differences, forecasts established by the Group and, when accounting policies permit, its intentions.
Bylaws 388 373I REGISTRATION DOCUMENT - ANNUAL REPORT 2016 - AXA I
Stock Exchange on March 26, 2010, AXA ADRs have traded on the US over-the-counter (“OTC”) market and are listed on the OTC QX
Paris. AXA ordinary shares are also included in Euronext 100, the index representing Euronext’s blue chip companies based on market capitalization and liquidity and in EURO STOXX 50, the blue chip index comprised of the 50 most highly capitalized and most actively traded equities of the main industry sectors of the eurozone. In addition, AXA ordinary shares are also included in STOXX® Europe 600 Insurance, the insurance sector index for European companies and in the EURO STOXX Sustainability 40, the index representing the largest sustainability leaders in the eurozone in terms of long-term environmental, social and governance criteria.
On December 31, 2016, AXA’s fully paid up and issued share capital amounted to €5,553,591,507.70 divided into 2,425,149,130 ordinary shares, each with a par value of €2.29 and eligible for dividends as of January 1, 2016.
Mutuelle (the “Mutuelles AXA”) are parties to agreements pursuant to which they have stated their intention to collectively vote their shares in AXA. As part of these agreements, the
Signifi cant changes in the Company’s share capital ownership between December 31, 2014 and December 31, 2016 are set forth in the table below: On December 31, 2016 (a) On December 31, 2015 (a) On December 31, 2014 (a)
Treasury shares held by Company subsidiaries (d) 450,272 0.02% [457,420] (c) [0.02%] (c) 493,206 0.02% [500,354] (c) [0.02%] (c) 533,576 0.02% [540,724] (c) [0.02%] (c)
April 30, 2015 (r esolution 10) and April 27, 2016 (r esolution 16)
Code (Code de commerce), (i) 43,926,297 AXA shares were repurchased (for the purposes of (a) hedging free grants of shares to employees of the Group, (b) delivering the shares upon exercise of the rights attached to securities corresponding to debt instruments or (c) cancelling them in order to neutralize the dilutive impact of shares issued in connection with equity compensation arrangements and employee share plan offerings)
for an average weighted gross unit price per share of €21.02, and (ii) no AXA shares were sold between January 1 and
treasury shares to Group employees during 2016 in the context of performance share plans, and the cancellation of AXA treasury shares, the total number of AXA treasury shares, all allocated for hedging or cancellation purposes, was 5,463,201 (or 0.23% of
The Shareholders waived their preferential subscription rights so that this offering could be made exclusively to Group employees
Group Company Savings Plans and are restricted from sale during a period of approximately 5 years (except specifi c early exit cases allowed by applicable law). Employees are subject to the share price evolution, up or down, as compared to the subscription price.
(either through m utual funds (FCPE) or through direct share ownership, depending on their countries of residence) with an 8.63% discount. These shares are held within the Group
The Sharep lan 2016 program was carried out through a capital increase that took place in December 2016. Over 28,000 employees took part in the Sharep lan 2016 program, representing over 24% of eligible employees: ■ the total amount invested was over €430 million, as follows: • €34.2 million in the traditional plan, and
Share capital reduction by cancellation of shares (26,331,484) (60,299,098) 2,422,434,671 5,547,375,397 31/12/2016 Exercise of stock options and bond conversions 2,714,459 33,657,414 2,425,149,130 5,553,591,508
Bondholders who have elected to maintain their conversion option must exercise their conversion option prior to the end of a 3 month-period beginning on January 1, 2017, i.e. until
March 31, 2017 included. Convertible Bonds for which the conversion option has not been exercised during such period will be redeemed on April 3, 2017 at a price of Euro 269.16 per
Ordinary shares reserved for a specifi c category of benefi ciaries in connection with offerings for employees – 135 million (f) 18 months October 27, 2017
Performance shares (actions de performance) (g) – 1% (h) 38 months June 27, 2019
Performance shares (actions de performance) (g) (j) – 0.40% (h) 38 months June 27, 2019
Shares issued in connection with the exercise of stock options – 1% (i) 38 months June 23, 2017
AXA’s authorizations to issue shares or other types of securities that were valid as of December 31, 2016 are summarized in the tables below: Issues with preferential subscription rights for shareholders
Ordinary shares and other securities giving a claim to ordinary shares of the Company through subscription, conversion, exchange, redemption, presentation of a warrant or otherwise (c) 6 billion (d) 550 million 26 months June 26, 2019
Ordinary shares or securities giving access to the capital, reserved for employees – 135 million (f) 18 months October 26, 2018
(g) At the date on which stock options are granted by the Board of Directors.
In 2016, by virtue of the authorization granted by the shareholders at the Shareholders’ Meeting of April 23, 2014 (resolution 18)
USE OF THE FINANCIAL AUTHORIZATIONS PERTAINING TO CAPITAL INCREASES IN 2016
The following authorizations to issue shares or securities giving a claim to ordinary shares of the Company and will be submitted to the Shareholders’ Meeting on April 26, 2017: Issues with preferential subscription rights for shareholders
AXA is a société anonyme (a public limited company) organized under the laws of France, which is the publicly traded parent company of the AXA Group. The Company’s registered offi ce is located at 25, avenue Matignon, 75008 Paris, France and its telephone number is +33 (0) 1 40 75 57 00. AXA was incorporated in 1957 but the origin of its activities goes back to 1852. The Company’s corporate existence will continue, subject to dissolution or prolongation, until December 31, 2059. The Company is registered with the Paris Trade and
Paris, France, this supervision is based to a significant extent on European Union directives and regulations and on the French regulatory system. AXA’s principal regulators in France are the
(including the definition of admitted assets and methods of calculation) vary between jurisdictions, an insurer’s required regulatory capital can be impacted by a wide variety of factors including, but not limited to, business mix, product design, sales volume, invested assets, liabilities, reserves and movements in the capital markets, including interest rates and fi nancial
markets. Regulatory capital requirements may increase, possibly significantly, during periods of declining fi nancial markets and/
(“ORSA”) which will be used by the regulator as part of the supervisory review process; and (3) Pillar 3 introduces an enhanced reporting and disclosure regime, pursuant to which subject insurance undertakings headquartered in the European
Report (“SFCR”), which is to be made publicly available on an annual basis. The Solvency II framework covers, among other matters, valuation of assets and liabilities, the treatment of insurance groups, the definition of capital and the overall level of required capital. A key aspect of Solvency II is that assessment of the Group’s risks and capital requirements is aligned more closely with economic capital methodologies and allows the use of either a standard model or an insurer’s own internal economic capital model (to permit a better understanding of the actual risks and risk management of the insurer) to calculate the Solvency Capital Requirements (“SCR”), subject in the latter case to the approval of the insurer’s lead regulator.
Requirement (MCR), which is the amount of own funds below which policyholders and beneficiaries are exposed to an unacceptable level of risk should the insurance and reinsurance companies be allowed to continue its operations, and (ii) the SCR , which corresponds to a level of eligible own funds that enables insurance and reinsurance companies to absorb signifi cant losses and that gives reasonable assurance to policy holders and benefi ciaries that payments will be made.
to use its internal model (the “Internal Model”) to calculate its regulatory capital under Solvency II. The Solvency II ratio of the
Group as of December 31, 2016, published on February 23, 2017, was estimated at 197% (1) which remains within AXA’s target range set at 170-230%.
AXA continues to review regularly the scope, underlying methodologies and assumptions of the Internal Model and will adjust its SCR accordingly. Any signifi cant changes to the
Solvency II. In addition it will review the consistency of European insurer’s internal models and any such review may lead to further regulatory changes to increase convergence and to strengthen oversight of cross-border groups. For more information on the
Group or the insurance subsidiaries to meet their solvency capital requirements could have a material adverse effect on our business, liquidity, ratings, results of operations and fi nancial position” in Section 4.1 “Risk f actors” of this Annual
Supervisors (“IAIS”) published an initial assessment methodology for designating GSIIs, as part of the global initiative launched by the G20 with the assistance of the FSB to identify those insurers whose distress or disorderly failure, because of their size, complexity and interconnectedness, would cause signifi cant disruption to the global fi nancial system and economic activity.
On the same date, the FSB published its initial list of nine
Crisis Management Group ( CMG ) by the ACPR, the preparation of the above-mentioned documents (SRMP, LRMP and RRP)
and the development and implementation of the BCR in 2014, while other measures are to be phased in more gradually, such as the HLA (the fi rst version of which was endorsed by the FSB
in October 2015 but which is expected to be revised before its implementation in 2022).
On June 16, 2016, the IAIS published an updated assessment methodology, applicable to the 2016 designation process, which is yet to be endorsed by the FSB. To support some adjustments proposed by the revised assessment methodology, the IAIS also published a paper on the same date, describing the “Systemic
Features Framework” that the IAIS intends to employ in assessing whether certain contractual features and other factors are likely to expose an insurer to a greater degree of systemic risk, focusing specifi cally on two sets of risks: macroeconomic exposure and substantial liquidity risk. Also, the IAIS stated that the 2016 assessment methodology, along with the Systemic
Features Framework, “will lead to a change in HLA design and calibration.”
As part of its efforts to create a common framework for the supervision of internationally active insurance groups (“IAIGs”), the IAIS has also been developing a comprehensive, groupwide international insurance capital standard (the “ICS”) to be applied to both GSIIs and IAIGs, although it is not expected to be fi nalized until at least 2019. Although the BCR and HLA are more developed than the ICS at present, the IAIS has stated that it intends to revisit both standards following development and refi nement of the ICS, and that the BCR will eventually be replaced by the ICS.
For additional information, see “Our businesses are subject to extensive regulation and regulatory supervision in the various jurisdictions in which we operate” and “As a holding company, we are dependent on our subsidiaries to cover our operating expenses and dividend payments” in Section 4.1 “Risk f actors”
Management expects the regulatory landscape with respect to insurance and fi nancial markets will continue to evolve in 2017 and beyond with further legislative and regulatory initiatives.
and a “one-stop-shop” that will streamline cooperation between the data protection authorities on issues with implications for all the EU, and (iii) a stronger enforcement regime, under which data protection authorities will be able to fi ne companies which do not comply with EU rules up to 4% of their global annual turnover. Regulation (EU) 2016/679 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data was adopted in April 2016 and will apply from May 25, 2018.
July 2016. The safe harbor, referred to as the “EU-US Privacy
subsidiaries of EU-based companies) to handle personal data concerning EU individuals. Because banks and insurance companies are generally not currently eligible to register on the EU-US Privacy Shield list, the safe harbor provisions of the
European Insurers. These regulations specify that the companies subject to Solvency II must adopt a written remuneration policy compliant with a number of principles set out in the Commission
Furthermore, since 2008, there have been a variety of proposals with respect to executive compensation practices at financial institutions including from the FSB and other regulatory bodies.
Practices, together with implementation standards. Among the matters covered in these standards and principles are a variety of mechanisms (including minimum recommended deferrals of cash bonuses, greater use of long-term equity grants rather than cash as a form of compensation, minimum vesting/ deferral periods, and performance criteria for vesting of long-term awards) that are designed to ensure an appropriate alignment of interests between (i) Executive Management and certain employees (such as traders) who can have a potentially significant impact on the nature and duration of risks incurred,
These principles and standards are reflected in a variety of regulations and legislative initiatives that have been enacted over the past few years in various jurisdictions where the Group does business. While these restrictions are often aimed primarily at the banking sector and do not apply uniformly to the Group across the various jurisdictions where it does business, the
On April 6, 2016, the US Department of Labor (the “DOL”) issued a fi nal rule that signifi cantly expands the range of activities that would be considered to be fi duciary investment advice under the
Pursuant to the new regulation, advisors and employees, including those affi liated with AXA US, who provide investmentrelated information and support to retirement plan sponsors, participants, and Individual Retirement Account (“IRA”) holders would be subject to enhanced fi duciary duty obligations and requirements. Implementation of the rule is currently scheduled to be phased in, starting in April 2017, with a transition period for certain requirements through January 2018. In February 2017, however, the DOL was directed by executive order and memorandum (the “President’s Order and Memorandum”) to review the fi duciary rule and determine whether the rule should be rescinded or revised, in light of the new administration’s policies and orientations. On March 2, 2017, the DOL submitted a proposal to delay for sixty days the applicability date of the fiduciary rule and invited comments on both the proposed extension and the examination described in the President’s
Group will apply the IFRS 9 standard on fi nancial instruments issued on July 24, 2014. The published effective date of IFRS 9 was January 1, 2018. However, given the interaction between fi nancial assets and technical insurance liabilities, the IASB
Investment Products (“PRIIPs”). Similar initiatives are under review (or in the course of implementation) in other jurisdictions where the Group operates and are likely to increase operational compliance costs to ensure point-of-sale compliance.
The litigation environment in which the Group operates also continues to evolve. In continental Europe, the introduction of class actions including in France through a law dated March 17, 2014 is likely to increase litigation risks and costs for insurers, asset managers and other fi nancial institutions.
Finally, financial crime compliance programs of financial institutions (anti-money laundering, anti-corruption and international sanctions compliance) continue to be a major focus of regulatory and law enforcement authorities with increasingly significant sanctions imposed for compliance failures. In particular, French Law No 2016-1691 of December 9, 2016 on transparency, fi ght against corruption and modernization of the economy, known as “Sapin II” introduces new requirements for all large French companies, including the Group, including the establishment of internal procedures to prevent and detect acts
of corruption and infl uence peddling committed in France and abroad. These provisions will enter into force on June 1, 2017.
AXA also squares its responsibilities as a co-operative, compliant taxpayer in each and every country in which it operates, with the need to support competitive business growth - serving all its stakeholders including investors, suppliers and employees.
France, all key operational entities/countries/regions have a tax team in charge of ensuring that tax regulations are well understood and satisfi ed by the entities and in the appropriate geographic zones. In this respect, a bi-annual tax review process of each key entity or business line is formalized within the internal
“Finance Professional Family Policies Manual” and performed by the Group Tax D epartment in connection with each local team.
Annual Report. The legal organizational chart of the Group is also published on the Company’s website (www.axa.com).
The Consolidated Financial Statements present the reconciliation between the theoretical tax charge and the effective tax charge under IFRS. All differences are fully explained (see Note 19
Annual Report). It should be noted that in many jurisdictions where AXA operates, the income and capital gains on savingsproducts benefi t from a favorable tax treatment, also when such products are included in life insurance products. This leads to a lower effective tax rate for life insurance companies. Over the last several years, and notably following the fi nancial crisis, this difference has trended down.
In addition to the details reported around the Group effective tax rate, AXA reports substantial information on the impacts of any change in local tax regulations on its business, as well as details of the tax burden per line of business and per country. AXA’s income tax expenses/benefi ts are extensively disclosed in the
According to these internal standards, local senior management must appreciate the tax implications of the activities in their entity. The main considerations are: ■ compliance with the taxation of employees in the territory in which they are employed; ■ compliance with the taxation of business undertaken in the territory (including levies and sales taxes); and
Group’s standards in terms of product features, pricing, a ssetl iability m anagement and aspects related to legal, compliance, regulatory, accounting and reputation.
Moreover, AXA has established strict policies regarding its crossborder activities and knowledge of its customers, in order to ensure that our products and services are not misused for money laundering or tax evasion purposes. Cross-border tax issues are addressed with a specifi c “Cross Border Business
Group Guidance dated 15 March 2012”, according to which any new cross-border offer must be presented to the Group
Certain material provisions of applicable French law, in force at the fi ling date of this Annual Report, and of the Company’s
Officer and the Deputy Chief Executive Officer(s) receive compensation in the amount and on conditions set by the Board of Directors, upon proposal of the Compensation & Governance
fee shall be paid to the Company’s management (Chairman of the Board, Chief Executive Offi cer and Deputy Chief Executive
Notwithstanding the term of offi ce for which the Chief Executive
Offi cer is appointed, his/her functions shall terminate at the latest at the end of the Ordinary Shareholders’ Meeting convened to approve the fi nancial statements of the preceding fi scal year and held during the year the Chief Executive Offi cer reaches the age of 65. The same rule applies for the Deputy Chief Executive
Upon proposal by the AXA Board of Directors, the shareholders of AXA may decide to allocate all or part of distributable profi ts to special or general reserves, to carry them forward to the next fi scal year as retained earnings, or to allocate them to the shareholders as dividends. If AXA has earned a distributable profi t since the end of the previous fi scal year, as refl ected in an interim balance sheet certifi ed by its Statutory Auditors, the Board of Directors may distribute interim dividends to the extent of the distributable profi t without prior approval of the shareholders. AXA’s Bylaws require AXA to distribute dividends between its shareholders in proportion to their share in the capital.
(such as voting rights, the right to distributable profi ts of the
Shareholders are convened, meet, and deliberate in accordance with applicable French laws and AXA’s Bylaws.
A notice of meeting must be published in the Bulletin des annonces légales obligatoires (“BALO”), at least 35 days before any Shareholders’ Meeting (or 15 days in certain specifi c cases)
At least 15 days (or 6 days in certain cases) prior to the date set for the meeting on fi rst call, and at least 10 days (or 4 days in certain cases) before any second call, the Company shall send a fi nal notice containing all the information requested by law by mail to all registered shareholders who have held shares for more than one month prior to the date of this fi nal notice and publish a fi nal notice in a bulletin of legal notices as well as the BALO.
All shareholders are entitled to attend these meetings, either in person or by proxy, provided that they show valid proof of ID and share ownership as specifi ed under French law. This ownership is justifi ed by a book entry showing the number of shares in the name of the shareholder (or the intermediary for the account), on the second business day preceding the meeting at midnight
Company or in the bearer share accounts kept by a qualifi ed intermediary.
(which was implemented in France in 2006) concerning takeover bids, may have certain anti-takeover effects. In the case of
French law generally requires mergers and certain consolidations to be approved by two-thirds of the shareholders attending or represented at the Extraordinary Shareholders’ Meeting convened to decide on such matters. French law also requires the affirmative vote of the shareholders of the surviving corporation of a merger at an Extraordinary Shareholders’
In the event of failure to comply with the notifi cation requirements described above, shares exceeding the fraction that should have been notifi ed will be deprived of voting rights at Shareholders’
The Company’s share capital may be modifi ed only under the conditions stipulated by the legal and regulatory provisions in force. The provisions of the Bylaws or the Board’s Terms of
Compliance with International Labour Organization recommendations and Business Ethics 412 7.5 RESPONSIBLE INVESTMENT, “ARTICLE 173”/CLIMATE-RELATED FINANCIAL DISCLOSURES 413
R.225-104 of the French Commercial Code, they also describe the manner in which the Company takes into account the social, societal and environmental impacts of its business.
AXA is a member of many sustainability initiatives. On a broader level, AXA Group is a member of the UN Global Compact
Leadership Coalition”, Observatoire de la responsibilité sociétale des entreprises (ORSE), Entreprises pour l’environnement (EpE),
This decrease is due to several business disposals in different countries.
continued to recruit in 2016 and hired more than 17,000 employees on open-ended contracts (excluding entries due to mergers and acquisitions), of which, almost 3,600 were sales employees.
Headcount (number of persons) as of December 31 2016 Evolution 2015
Total headcount of salaried workforce (open-ended and fi xed-term contract) 118,366 emp. -1.8% 120,486 emp.
Headcount of salaried workforce with fi xed-term contract 4,802 emp. 5,232 emp.
Each AXA Group entity therefore engages with staff or their representatives for communications on a regular basis. AXA
also set up a European Works Council (EWC), whose extensive role goes beyond regulatory requirements. The EWC is made up of staff representatives from AXA’s largest European entities, who meet in order to receive and exchange information on the social, strategic and economic issues that concern the Group and maintain an ongoing dialogue between employees and management.
EWC have also developed social dialogue agreements, but these are not monitored at Group level. More generally beyond Europe, the Group strives to ensure that employees are fairly represented in all major countries where it is present. In addition to the work of the EWC, numerous collective bargaining agreements are signed on a local basis.
European business units in local management practices: ■ when organizational changes affect jobs, AXA pledges to supply relevant information and, as appropriate in light of local cultures and rules, to consult with employees and their representatives; ■ in connection with an information-gathering and consultative process, AXA would provide data and information about possible alternative solutions, where relevant; ■ factoring in its employees’, customers’ and shareholders’
The agreement, negotiated within the European Works Council, sets out an approach for social dialogue with the purpose of anticipating change in the sector in order to adapt employee skills to future needs and thus preserve jobs. According to the
In 2014, AXA joined the “Alliance for Youth”, a private sector initiative designed to address youth unemployment in Europe.
pledges to help increase employability of young people through coaching and training on essential skills and exposure to the work environment. By the end of 2016 (three years after starting the initiative) AXA provided more than 20,400 professional opportunities for the youth in Europe (and more than 40,200 opportunities in AXA globally).
International mobility reached a total of 918 international assignments in 2016, which represents an increase of 6%
compared to 2015. A strong trend in change of types and geographies of assignments has been observed. The number of long-term assignments against the total structure of international moves has dropped by almost 10%, while shortterm assignments, local transfer and commuters keep growing.
Centre of Expertise for International Mobility) was implemented in 2012 to deliver services to French-based entities. Over the last two years, the extension of CEMI services across the globe has been running and was completed in 2016. CEMI 2016 priorities were about the enhancement of the quality of service provided to both assignees and Business/HR services, as well as the effi ciency of the international assignments.
■ Number of external recruitments (including re-hires) 11,871 emp. 13,044 emp.
■ Number of fi xed-term contracts transformed into open-ended contracts 1,547 emp. 1,819 emp.
■ Number of entries following mergers and acquisitions 1,453 emp. 1,430 emp.
■ Number of departures due to external transfers (a) 2,875 emp. 150 emp.
■ Number of external recruitments (including re-hires) 3,492 emp. 3,743 emp.
■ Number of entries following mergers and acquisitions 323 emp. 156 emp.
■ Number of departures due to external transfers (a) 284 emp. 4 emp.
Net headcount evolution of salaried sales force (entries versus departures) 74 emp. 210 emp.
■ Number of fi xed-term contracts ended 197 emp. 352 emp.
Turnover rate of salaried sales force 24.4 % -0.4 pt 24.8 %
AXA’s business continues to go through profound digitization and transformation. More than 20 entities, representing near 75%
Group expects that 50% of AXA jobs will face high changes in the required skill set. Therefore, AXA has decided to increase its learning budget by almost 25%, and to invest more than €140 million to upskill its employees (over 2016-2020), to build today the skills of tomorrow.
AXA developed and formalized an agility c harter and an agility toolkit at Group level, describing the principles of agile working.
Various entities have launched or are about to launch “agile working programs” (recently AXA Germany, AXA Hong Kong), introducing an activity-based desk-sharing principle combined with remote working. These initiatives contribute to increasing employee trust, engagement, empowerment, work-life balance and productivity. Moreover it also takes part in the attraction and retention of diverse talent and yielded a reduced environmental footprint.
(1) Source: 2016 Employee Scope S urvey with 82% response rate.
Average number of working hours per week 36.8 hrs +0.3% 36.7 hrs
■ Proportion of part-time salaried non-sales force 11.6 % 11.4 %
Absenteeism rate of salaried workforce 4.5 % -0.2 pt 4.7 %
■ Proportion of absences due to sickness 70.5 % 66.2 %
■ Proportion of absences due to sickness 70.3 % 67.0 %
■ Proportion of absences due to sickness 72.0 % 59.9 %
■ Proportion of absences linked to maternity/paternity leave 24.4 % 37.7 %
Equity which takes into account the capital required to deliver performance) and (iii) determines individual compensation amounts on the basis of both fi nancial results and demonstrated individual leadership and behaviours.
In 2016, total compensation cost was €8.6 billion, which corresponds to an increase of 0.3% compared to 2015. On a constant foreign exchange basis, total compensation cost increased by 1.1%.
is a robust and recognized independent assessment of long term performance drivers, including corporate governance, compliance, customer relations, environmental management, human capital development, etc.
Benefi ts form a signifi cant part of AXA’s broader total rewards offer. AXA’s policy is to target benefi ts coverage at a minimum level of the median of the relevant market. Benefi ts should include pension, healthcare and protection covers (the nature and type of which may vary by entity depending on local competitive and cost considerations). In all cases, local minimum requirements must be respected.
Following Sharep lan 2016, AXA’s employees and agents hold 5.70% of the share capital and 7.40% of the voting rights as of
Compensation cost of salaried workforce (a) 8,638 M€ +0.3% (a ) 8,610 M€
■ Proportion of fi xed pay (related to wages) 77.0 % 76.8 %
■ Proportion of variable pay (related to wages) 23.0 % 23.2 %
■ Proportion of fi xed pay (related to wages) 84.1 % 83.4 %
■ Proportion of variable pay (related to wages) 15.9 % 16.6 %
AXA opposes all forms of unfair or unlawful discrimination and does not tolerate discrimination based on age, nationality, ethnic origin, gender, sexual orientation, gender identity, religion, marital status or disability. By making the workplace attractive and accessible to diverse people, we create conditions more favorable to innovation.
continued to be leveraged in 2016 as a way to engage AXA’s employees across the globe on various inclusion topics. “Allies@
AXA_Pride”, a group on sexual orientation, and “WoMen@AXA”, a group on gender equality, have grown in membership since their launch in 2014 (with over 2,300 members in total).
Working parents were made another key topic in 2016: the AXA
ILO (International Labor Organization) Disability Charter in 2015, AXA hosted in June 2016 the Disability Matters Europe
operates in an environment that generates business through management of capital and fi nancial services (total absenteeism rate due to work-related accidents is 0.1%), the Group does not monitor gravity, severity nor frequency of work-related accidents on a global level. Systems, procedures and processes are in place and in compliance with local health, safety and welfare legislation, wherever necessary.
The results of AXA’s development of employee skills remained high with 85.4% of its employees receiving a training course at least once during 2016. At the same time, the average number of training days per employee was at 3.0 days.
AXA focuses on delivering global learning solutions to enable more learning agility for all, across all geographies and all businesses, leveraging on the latest approaches and technologies in the following domains: leadership and management, technical and digital skills.
December 31, 2016; ■ the Data Science for Analytics, a 3-day bootcamp in Python coding, has involved 160 people with multiple profiles
(Senior) Executives was the “Digital Reverse Mentoring”, connecting digital savvy employees with their leaders and acting as their mentors on new technology, social media usage and trends. As of 2016, 525 employees mentored 718 mentees worldwide, delivering more than 4,000 cumulated hours of mentoring.
In 2016, a performance management standard has been established to ensure that the Group’s performance-based pay policy, formalized skill mapping and the evaluation of training needs run effi ciently. During the year, two entities have started to use this new performance management standard and platform as pilots for the Group. The Group also provides with a multidimensional feedback platform, “AXA 360°”, enabling all AXA employees to get qualitative feedback from their professional network and to build a more comprehensive and tailored development plan.
T hroughout 2016, AXA continued deploying its employer brand through global campaigns on LinkedIn and other social media, with the aim to support the recruitment efforts of AXA’s local entities. The objective is to develop the “pride of belonging” to
AXA among its current employees and attract the best diverse and international profi les.
To enhance its employer brand attractiveness among early careers, as well as digital and data science targets, AXA has continued to develop its Facebook page and Twitter handle
Further in 2016, a global campaign on LinkedIn targeted at digital IT and data science was launched to engage and attract key talent ready to contribute to AXA’s transformation.
re-launched the “Great Global Adventure” to attract new talent to consider AXA as a potential employer. This was enhanced throughout the year by stories shared around the 2015 and 2016 winners’ journeys on Instagram.
entity. Since 2012, the Graduate Programs at AXA has put purpose, vision, and strategy at the center, and allows graduates to play a signifi cant role in impacting the business.
AXA. As a result, AXA’s environmental reporting and management processes focus on energy, water and paper consumption, as well as related CO2 emissions.
“Scopes (1)”: ■ Scope 1: emissions from fuel consumed on AXA sites as well as by AXA-owned car fl eet; ■ Scope 2: emissions from purchased energy (essentially electricity consumed by AXA buildings); ■ Scope 3: emissions from business travel and paper consumption; ■ Note: investment-related “indirect” Scope 3 emissions are analyzed in the Responsible Investment section below.
CO2 emissions related to home-work commuting and help raise employee awareness on alternative modes of transportation.
Fossil-based energy consumption is a key source of CO2 worldwide. In order to reduce our CO2 emissions from power consumption (“Scopes 1 & 2”), AXA relies on energy effi ciency measures, raising environmental awareness amongst employees, and, where possible, procuring electricity from renewable energy sources.
AXA’s power consumption per FTE decreased by 4% in 2016 compared to 2015. AXA entities made signifi cant steps forward to reduce their energy footprint, for example: ■ AXA Technology Services has pursued its Green IT program based on server refreshes, data center consolidation and virtualization, PC refreshes and power management. For example, total consumption for AXA Technology Services reduced by almost 7% when compared with 2015 which represents a net reduction of nearly 4 GWh. Power consumption in data centers decreased by 2% to reach around 43 GWh in 2016 which represents a net reduction of 1 GWh; ■ some entities have improved their energy efficiency by upgrading their installations. For instance, AXA General
Insurance Japan changed lighting to LEDs in one of its call centers and renovated their air-conditioning reducing their electricity consumption; ■ some entities have selected more energy effi cient buildings in cases of location transfers (e.g. AXA Morocco).
AXA’s premises use electricity (74% of fl oor space), gas (16% of fl oor space), fuel/steam (7% of fl oor space) and chilled water (3%
CO2 emissions are a key contributor to climate change; businesses have a role to play in reducing these emissions.
Targets adopted are considered “science-based” if they are in line with the level of “de-carbonization” required to keep global temperature increase below 2 degrees Celsius, as mentioned by the Intergovernmental Panel on Climate Change.
CO2 emissions per FTE increased by almost 3% compared to 2015 with 0.72 T eq. CO2 per FTE.
Water scarcity is a growing global concern, driven by rapid population growth, urbanization and increasing demand for natural resources. Prudent water management can therefore play a signifi cant role in sustainable use of this resource. Continuing our efforts from previous years, AXA’s water consumption per
FTE has decreased by almost 6% in 2016. Since 2008, AXA
Related recent initiatives include the installation of water sensors in bathroom facilities for AXA France and water-saving initiatives at various entities (e.g. AXA Switzerland).
in 2015 platform to remove commodity-driven deforestation from its supply chains by 2020. In line with this commitment,
used 61% of offi ce paper and 69% of marketing and distribution paper from recycled sources. To promote this type of paper, since 2011 the Group requires environmentally-friendly offi ce paper as a minimum standard for the main Group entities. It should be noted that AXA Technology Services has published a paper purchasing policy, which requires that all paper purchased be from recycled or sustainable sources by 2020.
on account of increase usage of social and digital media and email distribution.
of product lifecycles, recycling and re-use are followed to better manage our waste wherever possible. AXA’s unsorted waste volume has decreased by 21% and for paper sorted for recycling by 8% compared to 2015 as a result of renovations and relocations. For example, entities such as AXA Belgium and
AXA Switzerland have put in place waste sorting process, thus increasing volumes. Concerning the recycling of ink cartridges and toners, AXA has also decreased from 68% to 62% in 2016.
AXA’s IT business unit, AXA Technology Services, for which electronic waste is of particular relevance, is a key contributor to this effort, as it strives to ensure compliance with the Waste
At the AXA headquarters, the waste food is separately collected in organic bins in order to recycle them. Since 2016, this canteen is also certifi ed as a “Green Restaurant”.
(see above sections). Indeed insurers are well equipped to address climate-related risks. They can fund and promote risk research and education. They possess claims loss data, as well as models and tools to analyse and project this data. They have a duty to disseminate knowledge about such new risks, including previously poorly known threats to society. Insurers, through their signifi cant investments, are also well positioned to send the right signals to the investment community and to the specifi c companies they invest in. This strategy addresses both the “mitigation” and the “adaptation” dimensions of climate change. They are not solely self-interested or commercially driven, but they need to be global and collective to be effective.
The Group is aware of the key role of the insurance sector in the climate debate. AXA’s work focuses on three main areas: ■ enhancing knowledge on climate risk; ■ reinforcing climate risk prevention services to help people better anticipate and adapt to the changing climate; ■ developing insurance products and investment policies that promote mitigation and adaptation.
Initiative at the University of Cape Town. It aims to make a signifi cant change in the research fi eld of climate related risk in the continent. The objectives of the long-term research programme include improving our understanding of past, present and future climate risks, both in terms of climate phenomena and exposure and vulnerability. It will also help identify and assess possible ways to reduce this exposure and vulnerability, and defi ne mechanisms that will enable the implementation of risk reduction and adaptation measures.
such as fuel tanks for backup electricity generators, or major air conditioning systems. In 2016, the Group reported 32 sites with a specifi c permit. Their impact on the neighbouring environment is minimal. Nevertheless, being classifi ed, those facilities benefi t from adequate maintenance and their compliance with local legal obligations is monitored regularly.
The full range of expenditures incurred to promote environmental preservation is minor, local and of a heterogeneous nature, and as such, is not monitored at Group level. No specific provisions or guarantees covering environmental risks have been set aside, considering the limited litigation risks arising from the management of AXA’s direct environmental footprint.
Number of employees on site, Full-Time Equivalent (FTEs) FTE 116,303 115,819
Business travel: airplane and train (c) Thousands of km 332,400 349,099
CO2 emissions: business travel: airplane and train T. eq CO2 61,372 65,023
CO2 emissions: business travel : AXA vehicle fl eet (f) T. eq CO2 33,441 31,304
Paper recycled and/or garanteeing sustainable management: offi ce % 62 61
KPI: Marketing and distribution paper consumption per customer (j) kg/customer 0.15 0.14
Paper recycled and/or garanteeing sustainable management: marketing & distribution % 65 69
(h) This data has been collected from 89,450 FTEs. Some sites in Asia and America are not equipped with water meters, which prevents accurate measurement and excludes them from the reporting scope before extrapolation. However, entities are starting to better track their water consumption with the installation of water meters (e.g. data centers, AXA Ireland).
(k) Unsorted wasted covers 86,829 FTEs, which is low as many entities are currently unable to monitor this waste fl ow.
Given that its operations are largely decentralized and its staff spread across a number of different locations, AXA’s activities generally have no signifi cant direct impact on local employment or development in any specifi c Region, nor does AXA engage in signifi cant levels of subcontracting.
Most importantly, AXA provides support to over 100 million customers around the world, including individuals, local communities and businesses. Our products and services help our customers protect their lives, their property and belongings, their health, and their savings, providing long-term peace of mind which allows them to build and invest in the future.
AXA develops various products and services with added environmental value. AXA’s products – general insurance, savings and associated services – do not pose direct health and safety concerns for our customers. On the contrary, through our products, we encourage and reward healthy and environmentally responsible behaviour, as well as help reduce social exclusion.
“Prevention” (e.g. pricing incentives that help customers identify and prevent or reduce risks), “Environment” (e.g. paperless contract, products offering incentives or pricing benefi ts when covering buildings using material that respect the environment), and “Fairness” (e.g.: product accessibility for populations usually excluded from insurance mechanisms). Based on an internal rating, AXA France launched a customer facing label, Assurance
Insurance leverages its partnership with Mandiri Bank to propose Credit-linked products to all Mandiri’s microbusiness clients; Thailand: AXA GI launched a partnership with a leading mobile network operator in Thailand, to distribute General
■ EMEA LATAM – Morocco: AXA partners since 2012 with a large Microfi nance institution, to provide 140,000 microentrepreneurs with credit-linked products; Nigeria: AXA
AXA France and Macif (French Insurance Company) have offered a microinsurance product, in partnership with the French organization to aid microenterprise development, ADIE. Three policies are available: two Comprehensive Business Insurance packages for entrepreneurs starting up either at home or on dedicated business premises, a Motor Policy and a Business
This is notably undertaken via (1) applying certain sector-specifi c exclusions (currently related to “controversial weapons”, coal, tobacco and palm oil), (2) the Group underwriting guidelines for P&C Commercial lines that require local AXA entities to exclude certain sensitive sectors or activities, and (3) the
As part of this strategy, AXA will be working closely with a number of civil society partners. These partnerships address key social and/or environmental issues; they include AXA’s longstanding partnership with CARE. This partnership was renewed at the end of 2016 for a further three years. Together, AXA and
I Community involvement: social & cultural activities, philanthropy, education, employee volunteering
AXA’s employees worldwide support disadvantaged people through “AXA Hearts In Action”, the Group’s employee volunteering program. In 2016, thousands of AXA Hearts In
The AXA Research Fund, AXA’s scientifi c philanthropy initiative, supports global fundamental research to understand and better prevent environmental, life, socio-economic risks and data/
technology-related risks. Since 2007, the Fund committed €166 million to support research in 34 countries. The awarding of grants is based on strict academic criteria, following a transparent and rigorous selection process, which is overseen by a Scientifi c Board mainly composed of recognized senior academics. Five funding schemes are used to support excellent researchers in the most relevant way to: ■ support academic innovation: Chairs (up to €3 million),
The Chief Procurement Offi cer monitors the Procurement staff’s compliance with these principles.
The Guide covers a variety of matters, including specifi c rules concerning conflicts of interest, transactions involving AXA
securities and those of its listed entities, confi dentiality and control of sensitive information as well as record keeping and retention. The Guide also seeks to refl ect AXA’s values. Most of AXA’s principal operating entities have developed ethical guidelines that comply with local regulatory and statutory requirements. The Guide is available on the Group’s website
International France. As such, AXA supports TI’s vision, values and founding principles. This includes a commitment to promote
The structure of “Article 173” differs from the FSB TCFD (1)
More recently, as described below, “carbon”-related metrics have complemented our ESG framework.
Committee to examines the Group’s Corporate Responsibility strategy and other related issues, notably Climate Change.
Group’s General Account assets, complementing RI research and products launched by AXA Investment Managers since 2000. The process of ESG integration, centrally coordinated by the RIC, encourages our asset managers to include ESG metrics in their investment analysis across asset classes and Regions.
Our RI strategy is currently based on four main pillars: 1)
Our Global RI Policy and sector guidelines can be found on www.axa.com . The AXA Group as well as its two Asset
Management affi liates (AXA IM and AB Global) are signatories of the UN-backed Principles for Responsible Investment (UN
teams with input from portfolio managers. This tool covers more than 5,000 companies, 100% of the MSCI World index and 150 countries with ESG research. RI Search provides ESG and carbon metrics for each security and assesses these scores against peers, thus enabling the portfolio managers to take ESG
risks into account, identify areas of improvement, set targets or guide shareholder engagement. The RI team also conducts thematic research investigating transversal material ESG issues.
This analysis process covers 76% of AXA’s General Account assets (€597 billion). In addition to its deployment on the
or Planet Bonds funds, addressing respectively talent management and environmental Fixed Income issues. More information about our ESG methodology, criteria, outcomes and actions implemented can be found here: axa-im.com .
The 2015 COP21 ”Paris Agreement” stressed the need for businesses and investors to transition away from carbonintensive models of development, towards a more sustainable, low-carbon economy. This energy transition will, in due course, trigger signifi cant shifts in industrial, fi nancial and consumption patterns. Some businesses will benefi t from this shift, while others may fail to adapt or grasp new opportunities. This will impact their ability to generate profi ts, which becomes a
“transition risk” for investors. To date, the Group’s main energy transition-related initiatives include: ■ coal divestment – Carbon emissions will require signifi cant curbing in order to reduce the risk climate change, which may place business constraints on carbon-intensive industries, leaving some assets “stranded”, which in turn may lead to reduced valuations. Current valuation models may not account for such risks adequately. In May 2015, following a careful analysis of this “stranded assets” hypothesis, AXA decided to divest from companies most exposed to coal-related activities.
The divestment reduced portfolio risk but also sent a positive signal to markets and regulators, it is consistent with our ESG
investments across different asset classes, including infrastructure debt and equity, green bonds and private equity.
Green bonds – including the pioneering sovereign Green bond issued by the French Government in January 2017; ■ carbon footprinting: AXA signed the “Montreal Carbon Pledge”
■ internal “ESG Impact reports”: AXA IM develops ad hoc reports with ESG and carbon data, across a large variety of funds.
IM strives to add data such as “Green Share”, energy mix
Our physical risk assessment methodology uses the approach of our Risk Management team to analyse the extent to which natural catastrophes (“NatCat” models – generally used to assess claims-related exposure) would impact our assets. We have performed the assessments using the most common catastrophic events in Europe, cross-checked with an individual geolocalisation of each RE asset. Specifi c “destruction rates”, which factor location, building type and construction materials are used to determine potential damage rates.
Our results show that if a severe 100-year storm were to happen this year, the cumulated loss experienced by the two portfolios would be roughly €15 million. With an average annual loss approach, the combined portfolios have an average annual destruction loss of €0.8 million. If we consider that these investments last around 30 years, we can conclude that the cumulative annual losses experienced over these 30 years may be €24 million. This novel analysis requires further refi nement, such as an extension to more portfolios or more catastrophic event types. This work is described in more detail here: https://
Converting international climate objectives (such as those derived from the COP21 Paris Agreement, French or EU
scenario, and 2) testing the contribution of our investments to the energy and ecological transition measured by the percent of companies’ revenues derived from “eco-activities”, or so-called
To meet subsequent potential climate goals, we used three methodologies for improving investment decisions: ■ assessing transition risk in high-carbon sectors; ■ back-testing portfolios to identify a plan for stock reallocation to meet the 2°C benchmark; ■ maximizing energy and ecology transition impact by increasing
This approach matches securities with their current and planned physical underlying assets and production levels by technology.
For example, each electric utility is matched with both the current owned and formally planned generation assets by generation type, then compared to the energy mix outlined under the IEA
(in order to estimate their future production), then compared to required production curves under the IEA 2°C scenario.
By assessing the type and nature of the business activities of the companies in which we invest, and back-testing portfolios against energy transition scenarios, we believe we can better identify “transition risks” as well as encourage this energy transition. However, many shortcomings remain in the various methodologies we have tested, and these will need to be addressed through further research.
AXA’s work on risk analysis as well as the overall consistency of our approach.
(the Credit team initiates further reviews, potentially leading to shareholder engagement), to “Overriding concerns”
Managers conducted 230 direct engagements and supported 6 collaborative initiatives. Environmental issues represent 30% of this engagement. AXA Investment Managers also discloses its “dissenting” voting statistics. See AXA Investment
Managers Stewarship Report: ; ■ AXA Investment Managers joined “Aiming for A” in 2015, a major collective shareholder engagement initiative urging certain companies to improve their reporting on transition risks; ■ following the 2015 Volkswagen emissions scandal, AXA
also joined the ShareAction initiative, seeking answers to specifi c questions regarding carbon and SOX/NOX emissions standards from the automotive sector.
AXA communicates on Climate Change on an on-going basis towards the general public as well as its clients via various publications, videos, conferences, etc. and online (https://
Recent examples of this approach include: ■ AXA was named Vice-Chair of the G20/FSB Task Force on Climate-related Financial Disclosures (TCFD) in 2015.
Its mandate is to develop voluntary, consistent climaterelated fi nancial risk disclosures for use by companies in providing information to investors, lenders, insurers, and other stakeholders. The fi nal report, which was submitted to the Financial Stability Board (FSB) and the G20 in early 2017, considers the physical, liability and transition risks associated with climate change, and suggest effective financial disclosures across industries. The Task Force’s recommendations also apply to fi nancial-sector organizations, including banks, insurance companies, asset managers, and asset owners. AXA and the TCFD hope that ultimately the recommendations will help institutionalize how climate-related risks and opportunities are assessed within companies, and will promote an informed understanding of climate-related risks and opportunities by investors; ■ since January 2017, AXA chairs the Expert Group on
FI) and is an Advisory Board member of the OECD’s Centre on Green Finance and Investment.
The following table cross-references the above content (based on the structure of the “Article 173” decree as well as Grenelle 2)
Management oversight ■ Chapter 7.5 Responsible Investment > ESG and climate-related governance
■ Chapter 4.1 Risk factors ■ Chapter 7.2 Environmental information >
Risk Management Risk identifi cation ■ Chapter 4.1 Risk factors ■ Chapter 7.5 Responsible Investment> Integrating
Physical and transition risks ■ Chapter 4.1 Risk factors ■ Chapter 7.5 Responsible Investment > Integrating
Metrics used to assess climate risks ■ Chapter 4.1 Risk factors ■ Chapter 7.5 Responsible Investment> Integrating
■ Chapter 7.5 Responsible Investment > Portfolio alignment with decarbonization objectives
Direct carbon emissions and targets against GHG Protocol Scopes 1, 2 and 3
I Report by one of the Statutory Auditors , appointed as an independent third party, on the consolidated human resources, environmental and social information presented in the management report
Reporting Protocol and the Community Investment Survey Guide used by the Company (hereinafter the “Guidelines”), summarised in the management report and available on request from the Company’s head offi ce.
We compared the CSR Information presented in the management report with the list provided in Article R.225-105-1 of the French
For any consolidated information that is not disclosed, we verifi ed that explanations were provided in accordance with Article R.225105, paragraph 3 of the French Commercial Code.
We conducted a dozen interviews with 6 persons responsible for preparing the CSR Information in the departments in charge of collecting the information and, where appropriate, responsible for internal control and Risk Management procedures, in order to: ■ assess the suitability of the Guidelines in terms of their relevance, completeness, reliability, neutrality and understandability, and taking into account industry best practices where appropriate; ■ verify the implementation of data-collection, compilation, processing and control process to reach completeness and consistency of the CSR Information and obtain an understanding of the internal control and Risk Management procedures used to prepare the CSR Information.
(organisation, policies, actions), performed analytical procedures on the quantitative information and verifi ed, using sampling techniques, the calculations and the consolidation of the data. We also verifi ed that the information was consistent and in agreement with the other information in the management report; ■ at the level of a representative sample of entities, composed of AXA Colpatria, AXA Assistance Colombia, AXA US, AXA Life
We believe that the sampling methods and sample sizes we have used, based on our professional judgement, are suffi cient to provide a basis for our limited assurance conclusion; a higher level of assurance would have required us to carry out more extensive procedures. Due to the use of sampling techniques and other limitations inherent to information and internal control systems, the risk of not detecting a material misstatement in the CSR information cannot be totally eliminated.