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■■ REGISTRATION STATEMENT PURSUANT TO SECTION 12 (B) OR (G) OF THE SECURITIES EXCHANGE ACT OF 1934 or ■■ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D)
N / A The Republic of France (Translation of Registrant’s (Jurisdiction of incorporation name into English) or organization)
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
The number of outstanding shares of each of the issuer’s classes of capital or common stock as of December 31 1999 was: 356,335,728 Ordinary Shares of euro 9.15 nominal value, including 11.507.662 American Depositary Shares
(as evidenced by American Depositary Receipts), each representing one-half of one Ordinary Share.
of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark which financial statement item the registrant has elected to follow: Item 17 ■■ Item 18 ■■ X
ITEM 6 Exchange Controls and Other Limitations Affecting Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
ITEM 10 Directors and Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205
ITEM 12 Options to Purchase Securities from Registrant or Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 212
PART III ITEM 15 Defaults upon Senior Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215
ITEM 16 Changes in Securities and Changes in Security for Registered Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215
Depository Shares, each of which represents the right to receive one-half of an ordinary share, and “ADR”
January 1, 1999. Unless it is otherwise noted, all amounts in this Annual Report are expressed in euros.
differs significantly from accounting principles generally accepted in the United States (“US GAAP”). See notes 28 and 29 to the Consolidated Financial
French GAAP and US GAAP and condensed consolidated US GAAP balance sheets and statements of income.
E x c h a n g e r a t e i n f o r m a t i o n Prior to January 1, 1999, the French franc was a part of the European Monetary System exchange rate mechanism (known as the “EMS”). Within the EMS, exchange rates fluctuated within permitted margins, fixed by central bank intervention. Under the provisions of the Treaty on European Union negotiated at
Maastricht in 1991 and signed by the then 12 members states of the European Union in early 1992, a
EMS on January 1, 1999 and a single European currency known as the “euro”, was introduced. The following 11 members states participate in the EMU and have adopted the euro as their national currency: Austria, Belgium, Finland, France, Germany, Ireland,
Italy, Luxembourg, The Netherlands, Portugal and a03-338 • Item 1 (US) ok 23/05/00 12:01 Page 5 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
Outstanding obligations denominated in national currencies will be converted at the legal rates established on January 1, 1999 (unless specific contracts provide for an alternative conversion rate). During the transitional phase, which is planned to begin on January 1, 2002 and end on July 1, 2002, national currencies, including banknotes and coins, will subsist as nondecimal denominations of the euro. There can be no assurance that these events will take place on time or otherwise as currently expected.
Report are not historical facts, including, without limitation, certain statements made in sections entitled
Forward-looking statements include, among other things, discussions concerning AXA’s potential exposure to market risks, as well as statements expressing management’s expectations, beliefs, estimates, forecasts, projections and assumptions, as indicated by a03-338 • Item 1 (US) ok 23/05/00 12:01 Page 6 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
“seeks, “outlook” or similar expressions. The key factors that impact AXA’s future financial results include: i) the intensity of competition from other financial institutions; ii) AXA’s experience with regard to mortality and morbidity trends, lapse rates and policy renewal levels relating to its life operations which also include health products; iii) frequency, severity and development of property and casualty claims including catastrophic events which are uncertain in nature, and policy renewal rates; iv) market risks related to (a) fluctuations in interest rates, equity market prices and foreign currency exchange, (b) the use of derivatives and AXA’s ability to hedge such exposures effectively, (c) counterparty credit risk as well as (d) the volatile nature of the investment banking operations and the potential losses that could result from DLJ’s merchant banking activities as a result of its capital intensive nature; v) AXA’s ability to develop, distribute and administer competitive products and services in a timely, costeffective manner and its ability to develop information technology and management information systems to support strategic goals while continuing to control costs and expenses; vi) AXA’s visibility in the market place and the financial and claims paying ratings of its insurance subsidiaries, as well as AXA’s access to adequate financing to support its future business; vii) the effect of changes in laws and regulations affecting AXA’s businesses, including changes in tax laws affecting insurance and annuity products as well as operating income and changes in accounting and reporting practices; viii) the costs of defending litigation and the risk of unanticipated material adverse outcomes in such litigation; ix) the performance of others on whom AXA relies for distribution, investment management, reinsurance and other services; and x) the effect of any future acquisitions.
Private Securities Litigation Reform Act of 1995, and assumes no duty to update any forward-looking statements. In light of these risks, the forward-looking statements contained in this Annual Report might not occur.
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O v e r v i e w The Company is the holding company for AXA, an international group of financial services companies focusing in insurance and asset management. AXA’s insurance operations include activities in life insurance, property and casualty insurance and international insurance, including reinsurance. The insurance operations are diverse geographically, with activities principally in Western Europe, North America and the
Japan (the largest life insurance market) with the acquisition of Nippon Dantai Life. AXA is also a leading operator in all major property and casualty markets in Western Europe and is in international insurance. AXA’s counterparty credit and insurer financial strength ratings by Standard & Poor’s at the end of 1999 were both AA. The ratings applies to its main operations, such as, AXA France, Equitable Life
These guidelines, communicated and used throughout AXA are as follows: • AXA is a worldwide leader in financial services focused on financial protection, in particular insurance and investment management. It is not intended that AXA will move significantly from these core businesses.
• AXA’s core competencies reside in its financial strength, risk pooling (diversity across product lines and geographical areas) and underwriting discipline, in addition to its asset management and advisory expertise. Its present and future businesses are supported by these competencies.
branded proprietary channels, but also secondarily through other distribution channels and by selling third-party products. This enables AXA to capitalize on the development of “open architecture” (whereby an asset management company can sell its products, but, can either perform the asset management services or delegate the asset management services to a third party through a fund management arrangement system).
• AXA has worldwide presence but is selective in its geographic coverage. AXA’s presence extends to major developed markets as well as emerging countries where sizeable and profitable operations can be developed and established under acceptable business conditions and corporate governance practices.
Item 1: Description of Business a03-338 • Item 1 (US) ok 23/05/00 12:01 Page 8 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
– financial services and holding companies 12,735 19% 9,529 17% 8,702 16%
Net asset value per ordinary share (in euros) 61.5 57.5 49.1
Share price (in euros) 138.40 123.48 71.00 *(*) Gross premiums for life insurance operations include deposits collected from policyholders on life investment products which under French GAAP are recorded as premium income and under US GAAP are reported as deposits in the balance sheet, with the total premiums reduced to reflect the actual fees charged to policyholders.
AXA considers and addresses restructuring and rationalization of its global operations in order to integrate effectively newly acquired companies and to improve cost efficiency within its operations.
December 31, 1999, 1998 and 1997 is summarized below: a03-338 • Item 1 (US) ok 23/05/00 12:01 Page 9 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
Financial services International insurance Asset Management Other Financial services a03-338 • Item 1 (US) ok 23/05/00 12:01 Page 11 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
In 1990 and 1991, the French insurance operations of AXA were reorganized and, as a part of this reorganization, Les Mutuelles Unies and the other mutual companies associated with the Company became the
Subsequent to the reorganization, AXA began a series of significant acquisitions and investments to expand and diversify geographically its operations as set out below.
Financial, Inc” during 1999) upon the demutualization of its subsidiary The Equitable Life Assurance
Europe; • In 1999, AXA through Sun Life & Provincial Holdings
a United Kingdom based insurer. GRE had principal operations in the United Kingdom, Ireland, and
which will increase significantly its presence in the life insurance market in Japan and in the Asia Pacific region.
Kingdom, Germany, France, Japan and Spain) that constitute an important logistical platform for capitalizing on the growth of e-business. Currently, nearly 15% of new business at Sicher Direct in
Japan originates through the internet; • key competencies in both insurance and financial services, supported by expertise in the e-business domain. DLJdirect, DLJ’s online brokerage service, is currently ranked third worldwide with more than 700,000 clients in the United States alone. DLJdirect has also begun to expand internationally, initially in
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Sprout, a subsidiary of DLJ, is one of the premier players in financing internet start-ups in the United
has achieved significant gains in productivity by managing its relations with healthcare service providers through the Internet; AXA has identified more than 200 initiatives and projects throughout the world, and is currently engaged in a process of strategic reflection with its principal subsidiaries aimed at: • defining best practice in the area of property-casualty claims management using Internet technologies; • leveraging the AXA Group’s distribution channels through successful global integration featuring a broad array of online services for customers and distributors.
• creating new business models that offer customers a full range of financial services that meet all of their insurance, investment management and other financial services needs; and
At December 31, 1999 AXA had nearly 140,000 employees and agents working in more than 60 countries. AXA’s human resources policy aims to ensure that this large and diversified workforce is united successfully around a global strategy through coordinated efforts to motivate, involve, train and connect employees.
Motivate. To respond to questions relative to the strategy of AXA, and thereby enable individual employees to better understand their role, “Simply Leaders” conventions were held around the world. In two and a half years, 64 Simply Leaders conventions have brought together nearly 95,000 AXA people. These conventions have given participants a clearer understanding of the relationship between their daily actions on the job, their company’s priorities and the AXA
Involve. Overall performance depends on employee affiliation, which in turn depends on the quality of the workplace environment. Every two years, an employee attitude survey is conducted group-wide to measure employee perceptions of workplace morale.
The results of the first worldwide survey, Scope 98, revealed that employees at several Group companies shared a number of common concerns. A set of action plans with defined priorities was developed to address these concerns. With the next edition of Scope in April 2000, the entire survey process will be conducted via the internet.
– Télémaque, launched in March 1997, is a training program for high potential managers. The second graduating class of 40 completed the program at the end of 1999. In the third phase of the program, all consulting assignments were focused on the customer relationship.
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Columbus programs. A third campus was opened in 1999 in the United States (state of Virginia).
Connect. One of the AXA’s key assets lies in the diversity of the knowledge and skills that its employees possess. To leverage this advantage, match needs with resources, and reduce both development costs and time to market, in 1998 AXA launched an ambitious program designed to strengthen synergies. An intranet web site was opened, featuring a database that lists both standing and newly formed synergy groups and newsgroups. In 1999, more than 1,500 AXA employees played an active role in this new project.
International mobility is also an ideal vehicle for promoting synergies. By the end of 1999, more than 450 AXA employees were working abroad.
C u s t o m e r i n n o v a t i o n
The AXA Customer Innovation Awards program was launched with the aim of promoting, identifying, rewarding and disseminating innovative ideas that offer a benefit to customers, for subsequent incorporation as a core brand attribute. The first edition of the annual awards program was held in 1999, and the results were promising: 118 entries, 28 semifinalists and seven winning projects. Some innovations concern the end customer directly (e.g. in the United
States, permanent customer access to investment portfolios, valued on a daily basis; introduction of a special insurance product tailored to the needs of women in Hong Kong), while others concern distributors and support functions (e.g. remote video inspection of damaged vehicles in the United Kingdom). In every case, the end result is the same: to deliver more efficient and cost-effective service to the customer.
T h e A X A t r a d e m a r k
New Zealand, National Mutual Life’s lines of products are now sold under the names of AXA Australia and
This only affected the holding companies. The life companies in AXA Financial, Inc and AXA Asia Pacific
Virtually all of AXA’s insurance and reinsurance operations now distribute their products under trademarks that include the AXA name. The Company and its subsidiaries co-finance advertising costs incurred to promote and build awareness of the AXA trademark. In
The notoriety of the AXA trademark has increased over the last few years. The AXA name is well known in the majority of the European countries, notable in
N e w M a n a g e m e n t O r g a n i z a t i o n
Management Board has implemented a new organizational structure. The aim of the new organization is to strengthen the responsibilities of AXA’s operating units and to leverage cross-border resources, thereby optimizing the benefits offered by the size and diversity of AXA. This new organizational structure includes: – “operating units” who will report directly to the
– Executive Officers responsible for preparing decisions for the Management Board, exchanging relevant information in the interest and for the benefit of AXA, and monitoring the strategic initiatives of AXA.
Board at that time. The Supervisory Board has approved this recommendation. Jacques Friedmann has expressed his decision to resign from the
The table below presents the number of employees in AXA’s consolidated entities at December 31, 1999 and 1998. Of the total number of employees at
December 31, 1999, approximately 81% were employed in the insurance and reinsurance operations and 19% were employed in the financial services operations. AXA’s employees in France and certain other countries are covered by various collective bargaining agreements, the application of which depends on the professional activity carried out, as well as collective agreements on working conditions and remuneration negotiated periodically with the union and employee representatives.
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United Kingdom 12,871 13,691 including direct marketing 967 1,377 including direct marketing 393 388
AXA’s information systems are central to, among other things, designing and pricing products, marketing and selling products and services, processing policyholder and investor transactions, client recordkeeping, communicating with agents, employees, affiliates, vendors and clients, and recording information for accounting, investment and management information purposes.
There have been no Year 2000 problems encountered that could have a material adverse effect on the business, financial condition or results of operations of
AXA SA Short Term Debt (Commercial Paper) Standard & Poor’s A-1
S i g n i f i c a n t a c q u i s i t i o n s a n d i n v e s t m e n t s Since 1991, AXA has made a number of acquisitions, entered into joint ventures and made direct investments. AXA continues to consider opportunities to increase the size and geographical diversity of its worldwide operations in insurance and asset management. Significant acquisitions or investments which have occurred since 1991 are summarized below and further detail is provided in the “Item 9: Management’s Discussions and Analysis” and Note 6 of the Consolidated Financial Statements included in this Annual Report.
(3) The acquisition of UAP was accomplished through a stock exchange and thus required no cash. (4) Investment net of realized gains on disposals following the acquisition.
(5) Represents investment in property and casualty direct marketing operations (France, Germany, Spain, Japan) and in life operations in Japan and China. Total cumulative investment by AXA up to December 31, 1999, including the amount invested in 1999 is provided in “Item 9 – Management’s Discussion and Analysis – Liquidity and Capital Resources”).
(approximately €1 billion) in Equitable Life, then a mutual life insurance company, in anticipation of
AXA Financial, Inc. will change from time to time due to the issuance of stock options and the issuance and/or repurchase of its own shares by AXA Financial,
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National Mutual Life and its subsidiaries in connection with National Mutual Life’s demutualization.
Compagnie UAP. In 1997, AXA acquired 91% of the outstanding shares of UAP in a public exchange offer.
This investment was financed through the issuance for 111.1 million ordinary shares, 2,057 bonds redeemable in ordinary shares and 128 million certificates of guaranteed value (“CVG”) for the outstanding UAP
shares1. AXA issued an additional 11.57 million shares when Compagnie UAP was merged into AXA. On
SLPH by a £ 1,114 million (€ 1,666 million) stock issue.
Colonia. Other subsidiaries of GRE deemed nonstrategic by AXA have been or are in the process of being sold outside the Group, such as the US operations, most of the UK life operations, as well as the insurance operations in France, in Luxembourg and in South Africa.
Certificates Guaranteed Value (“CGV”). At the end of 1999, the CGVs were cancelled with no cash payment required to be made in accordance with the terms and conditions of the CGVs2.
Belgium savings bank) through a public offer for € 541.6 million. The purpose of this acquisition was to consolidate Royale Belge’s banking operations, and, by this, to expand the bank distribution network of independent agents.
(1) The Certificates issued in connection with the Public Exchange Offer entitled their Holders, for each Certificates held as of July 1, 1999, to an amount equal to the difference, if positive, between € 59.8 and the reference price for one ordinary AXA share. The reference price was equal to the average of the opening stock market prices for ordinary shares on the Paris stock exchange for the thirty trading days immediately preceding July 1, 1999. Throughout the months of May and June 1999, the stock price was well above € 59.8.
AXA has continued its investment efforts in new start up operations and through joint ventures as summarized below.
– Direct marketing operations. AXA commenced direct sales of automobile insurance in France (1992),
Equitable Life sold Equitable Real Estate, its wholly owned real estate management subsidiary for US$
CIPM (France). In 1997, AXA sold a portion of its interest in Compagnie des Immeubles de la Plaine Monceau
Further details on the events, summarized below, are provided in the “Item 9: Management’s Discussion and
Consequently, AXA will have an equity interest of approximately 95% in AXA Nichidan.
Subsequent to December 31, 1999, in connection with the transactions above, AXA issued € 1.1 billion of 3.75% subordinated convertible notes due in 2017 and € 500 million of 7.25% undated subordinated convertible notes. The purposes of these borrowings is to finance the growth of the Company, or any of its subsidiaries, and to finance the buyout of AXA
UAP Convertible debt conversion. In January 2000, the € 282 million 6.0% mandatorily convertible notes issued by AXA in conjunction with the acquisition of
UAP in 1997 were converted into 4.1 million ordinary shares in accordance with the terms and conditions of these notes.
S e g m e n t i n f o r m a t i o n
As a result of these acquisitions, AXA increased significantly its participation in the insurance and financial services sectors. In part due to these acquisitions and due to the objectives of improving AXA’s reporting and analysis, to more closely align the business segments with the basis used by management to evaluate performance and to allocate resources, AXA has realigned its operating business segments and geographical groups within the segments over the course of the past three years as summarized below. In all cases, the prior years’ amounts have been restated accordingly for consistency.
• Prior to 1998 the Financial Services Segment was comprised of the US Financial Services Group and the International Financial Services Group. Because asset management has become increasingly important to AXA, both from a strategic and profitability perspective, AXA created two separate operating business segments being Asset Management and
No customer accounted for 10% or more of AXA’s consolidated revenues in 1999. No segment is dependent upon a single customer, or a few customers, the loss of which would have a significant effect on the earnings of the segment.
region. These products include both retirement products and life and health products for individuals and groups, with an emphasis on investment linked and other savings-oriented products. The Life Insurance
AXA’s life insurance gross premiums and gross insurance reserves for each of its major geographic markets is as follows: Item 1
Life Insurance Segment – Gross Premiums by Market Insurance Years ended December 31, Reserves
The life operations in the United States are conducted through Equitable Life and its insurance subsidiary and are referred to herein as Equitable Life. Equitable Life is a subsidiary of AXA Financial, Inc. (formerly,
Market. Based on gross premiums in 1998, the US life insurance market is the second largest in the world and accounted for 27.6% of life insurance gross premiums written worldwide.
Insurance Group continuously reviews its range of financial products and planning services to satisfy the needs of customers in these target markets.
Insurance Group has targeted certain markets, particularly executive benefit plans, the estate planning market and the market for business continuation needs (e.g., the use of variable life insurance to fund buy/sell agreements and similar arrangements), as well as the middle-to-upper income life protection markets.
The US Life Insurance Group’s target markets for variable annuities include, in addition to the personal retirement savings market, the tax-exempt markets
(particularly retirement plans for educational and nonprofit organizations), corporate pension plans (particularly 401(k) defined contribution plans covering 25 to 3,000 employees) and the IRA retirement planning market. Equitable Life’s Income Manager series of annuity products includes products designed to address the growing market of those at or near retirement that need to convert retirement savings into retirement income.
Products. The US Life Insurance Group offers a portfolio of insurance, annuity and investment products and services, including financial planning services, designed to meet a broad range of its customers’
needs throughout their financial life-cycles. These products include individual variable life insurance products and individual and group variable annuity products
Insurance Group also sells traditional whole life insurance, universal life insurance and term insurance products, and, through AXA Advisors, mutual funds and investment products.
Advisors Trust (“EQAT”) had 40 investment portfolios, 25 of which were managed by Alliance Capital
ated investment advisors. The US Life Insurance Group also offers an asset management account and money management products.
Gross premiums and gross insurance reserves for the various products offered by the US Life Insurance
Group and in some cases through similar marketing techniques. Several of the US Life Insurance Group’s principal competitors have announced their intention to demutualize by year-end 2000, giving them increased access to capital and other advantages of being publicly traded companies. In addition, the
Distribution. The US Life Insurance Group provides its financial professionals with training, marketing and sales support. Retail distribution of products and services is accomplished by more than 7,500 financial professionals of AXA Advisors and/or AXA Network
(including approximately 375 individuals who are engaged in related professions, in addition to offering the US Life Insurance Group’s products) organized into 19 geographic regions across the United States.
Competition. There is strong competition among companies seeking clients for the types of insurance, a03-338 • Item 1 (US) ok 23/05/00 12:01 Page 24 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
During 2000, management may from time to time explore selective acquisition opportunities in AXA
The French Life Insurance Group offers a variety of individual and group products throughout France. In 1998, the French Life Insurance Group was the second largest insurer in the French life insurance market measured on the basis of gross premiums.
AXA reorganized its French life insurance operations by distribution channel: AXA Assurances Vie for agents; AXA Conseil Vie for specialized networks and
AXA Collectives for brokers. AXA Collectives conducts the placement of all group life insurance business, regardless of the distribution channel used. Each entity tailors its products, internal organization and strategy to its principal means of distribution. In order to achieve this reorganization, numerous insurance portfolios, primarily those of the former UAP entities, were transferred within the French Life Insurance
Market. Based on 1998 gross premiums, the French life insurance market has moved from being the third largest to the fourth largest life insurance market in the world and accounted for almost 6% of life insurance gross premiums written worldwide.
between 1992 and 1996, 8.1% in 1997, negative growth of 14.4% in 1998 and further deterioration in 1999. This deterioration was due to a change in
Gross premiums and gross insurance reserves for the various products offered by the French Life Insurance
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In 1997 and 1998, AXA reorganized its life insurance activities in the UK. Sales teams were integrated and the insurance products were reviewed to develop a unified product line. This restructuring has now been completed.
Sun Life plc (“AXA Sun Life”) which was established following the acquisition of AXA Equity & Law by Sun
Life and Provincial Holdings (“SLPH”). Prior to January 1, 1998, the UK Life Insurance Group, through SLPH, offered life and pension products in the United
The government is proposing to introduce new legislation from 2001 that may change the pensions market. The proposal is to require employers to provide some form of pension scheme to all employees. This product (“Stakeholder Pensions”) is a low cost money purchase scheme aimed at those employees who currently rely on the state for provision of retirement benefits. To ensure value for all policyholders there will be a cap of 1% on annual charges that can be levied which will limit the expected margins on this type of relative to other life insurance business.
Products. The UK Life Insurance Group’s individual retirement products include personal pensions, pensions for the executive and directors markets, and immediate and deferred annuities. The group retirement products offered include principally separate accounts and with-profits contracts. The individual life products include regular premium life, such as traditional whole life and mortgage endowment, single premium investment products and other products, such as critical illness and permanent health insurance products. The UK Life Insurance Group also offers a range of offshore single and regular premium investment products.
Specific to the United Kingdom is the participating contracts also known as with-profits contract. Many life insurance companies in the United Kingdom offer this type of contract. The UK Life Insurance Group offers participating individual retirement products and individual life products. With profit contracts are further discussed below.
of the total amount paid at maturity. For a contract surrendered prior to maturity, a terminal bonus may be paid in an amount that is determined in the exercise of management’s judgment. Terminal bonuses are not guaranteed in advance of payment.
In addition to investment performance and company experience, the level of regular and terminal bonuses paid reflects management’s judgment. Management, in the exercise of its judgment, considers the overall financial and competitive position of the company, profits on the company’s other business, fairness among holders of contracts with different terms and maturity dates and its objective of meeting policyholders ’ reasonable expectations. The latter two considerations call for minimizing sharp fluctuations in the level of bonus payments policyholders from year to year and may result in greater fluctuations in reported earnings from year to year than would be the case if bonuses were based solely on investment performance. Minimizing fluctuations in the level of bonus payments is an integral characteristic of a UK withprofit contract from the policyholder’s perspective.
Sun Life Assurance have, in recent years, paid benefits on most maturing with-profit contracts which have been significantly in excess of the investment performance that management has notionally attributed to such contracts for the purpose of monitoring the busi-
Single premium investment products: - Other contracts including with-profit contracts 41.5% 2,993 592 462 5,454
Group life and retirement products: 2.0% 143 91 197 4,389 ness. The liabilities established for with-profit policyholder benefits are accrued currently and reflect (in addition to investment performance and company experience) management’s current judgment as to the impact of the considerations discussed in the preceding paragraph on future benefit payments, including management’s current expectations as to the extent to which future terminal bonuses will continue to exceed notionally attributed investment performance.
Group are presented below: a03-338 • Item 1 (US) ok 23/05/00 12:01 Page 29 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
AXA’s life insurance activities in the Asia/Pacific region are conducted primarily through AXA Asia
subsidiary, National Mutual Life and are referred to as the Asia/Pacific Life Insurance Group. AXA acquired a controlling interest in AXA Asia Pacific Holdings in
September 1995 and, through its life insurance subsidiaries, offers a full range of insurance products, primarily in Australia, New Zealand and Hong Kong.
AXA Asia Pacific Holdings (a): (a) Gross premiums and actuarial reserves for National Mutual Life are for the fiscal years ended and as at September 30 (being the financial year-end for National Mutual Life). (b) Includes the life insurance operations in Japan, Singapore and South Korea.
Traditional participating individual life insurance products are the predominant life insurance products offered in Hong Kong. The Hong-Kong life insurance market, measured in gross premiums, has grown at an average annual rate of 16.7% between January tion was passed in Hong Kong providing for mandatory pension funds to be established. The regulations required companies to establish pension funds on behalf of their employees by 2000.
National Mutual Life also offers immediate annuities, term life insurance, disability insurance and health insurance products on an individual and group basis.
It also provides supplemental health insurance to cover all or part of an insured’s health costs that are not covered under the Australian or New Zealand national health plans. In Hong Kong, AXA principally offers traditional participating individual and group life products, as well as individual and group retirement and health products.
Life Singapore. In South Korea, Dongbu AXA Life, a joint venture with the Korean conglomerate Dongbu, sells primarily protection and endowment products to individuals.
AXA acquired Nippon Dantai, the thirteenth largest life insurer and the second largest non-mutual in Japan, being the largest life insurance market in the world. The life operations of AXA and Nippon Dantai will be integrated with a new holding company, AXA Nichidan.
In June 1999, AXA commenced life insurance operations in China through its joint venture, AXA Minmetals. Operations commenced following the issuance of an insurance license to operate in May 1999. The insurance license is valid for 30 years. No significant commitments or related financial contingencies are attached to this license.
within this section). The private health insurance activities are conducted through AXA Colonia
German life insurance market is the fifth largest life insurance market in the world and accounted for nearly 5% of life insurance gross premiums worldwide.
in 1998 due to high unemployment and slow economic growth. During 1999, there was growth in the marketplace of approximately 11.6% attributable to an announcement by the German government to impose a tax on the savings element of many types of the life insurance policies. However, the government withdrew this announcement in December 1999.
The principal life insurance product in the German life insurance market has historically been long-term individual participating endowment insurance that pro-
of the German life insurance market. However, the popularity of endowment policies has declined over the last few years and in 1998 regular premiums on new business accounted for only 44% while annuity products have increased in popularity.
During 1999, the new business relating to unit-linked products nearly doubled from 8.4% to 16.4%. This growth reflects the general market trend in Germany whereby consumers are becoming more interested in participation in the investment market while maintaining insurance protection.
Gross premiums and gross insurance reserves associated with the products sold by the German Life
Years ended December 31, At December 31, (except percentages, in euro millions) 1999 1998 1997 1999
(61% based on adjusted new business in 1999) is sold by AXA Colonia’s exclusive agent network, Deutsche
Competition. Currently, there is a low level of market concentration in the German life insurance market. There are approximately 120 life companies operating in this market. In 1998 the ten largest companies accounted for less than 50% of the market.
Historically, the German market has been highly competitive due to the increasing number of publications on ratings and rankings As a result, the market has become more transparent to the customer. The more significant elements affecting new business include product pricing, financial strength and investment performance. In 1998, the German Life Insurance
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AXA’s insurance operations in Belgium are conducted through AXA Royale Belge. This company is the result of the merger of Royale Belge and AXA
Life Insurance Group are traditional life insurance products and savings-related contracts whereby the investment risk and reward is borne by the insurer and separate accounts (unit linked) products. Recently, group life insurance has developed as companies are increasing their insurance of risks associated with their employees’ health and disability.
in late 1998. For further information on ANHYP, refer to the “Other Financial Services Segment” in this section of the Annual Report.
Competition. The crossover of life insurance and bank operations through bancassurers has become prevalent in Belgium and competition between insurance companies has evolved into competition among financial services companies. As a result, insurance companies are competing with other financial services companies to find new non-traditional distribution networks in order to remain competitive. The main competitor, Fortis, has approximately 76% of the market share in 1998 relating to separate accounts (unit linked)
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Morocco in 1999. The products are tailored to the specific country market and are offered through different distribution channels, depending on the country, including general agents, salaried sales force, bank networks and brokers. AXA also has unconsolidated interests in other countries in South America, Africa and Asia Pacific (refer to Note 26 to the Consolidated
subsidiary of ONA, the Kingdom’s largest private group) with AXA Al Amane. It is anticipated that the integration of the operations will be achieved by June 2000 to create AXA Assurance Maroc. The resulting company will sell principally group pensions through brokers and individual products through the largest local bank; • Turkey. Prior to 1999, the AXA’s operations in Turkey were not consolidated. Due to the merger of the
AXA insurance operations and Oyak companies during 1999, AXA Oyak is consolidated into AXA’s results from January 1, 1999. AXA Oyak distributes principally individual life insurance products through a network of agents.
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Insurance Group sub-segment was created. Previously such business was included in the Other Property and
Casualty Insurance Segment has been reported. This is discussed in the beginning of the Item 1 section entitled “Segment Information”. Prior year amounts have been restated accordingly for comparative purposes.
AXA’s property and casualty insurance products are offered through traditional distribution channels and direct marketing insurance subsidiaries. AXA’s property and casualty insurance products include automobile, homeowners and commercial property and liability insurance. In 1999, the Property & Casualty Insurance
Excessive underwriting capacity, high competition and therefore low premium rates, overall, characterize the property and casualty insurance industry. The principle competitive factors are (i) price, (ii) financial strength and ability to pay claims, (iii) range of product lines and product quality, (iv) quality of service and
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Property and Casualty Insurance Segment (by Group) Years ended December 31,
For the ten-year loss development of the property and casualty reserves, refer to “ Property and Casualty
After the acquisition of UAP in 1997, AXA reorganized its French property and casualty operations in 1997 by distribution channel: AXA Assurances IARD for agents, AXA Courtage IARD for brokers, AXA Conseil for specialized networks and Direct Assurance IARD
French Property and Casualty Insurance Group and the Mutuelles AXA, including those with respect to distribution, see “Item 4: Control of Registrant - Relationships with the Mutuelles AXA.”
Market. Based on 1998 gross premiums, the French property and casualty insurance market is the fifth largest in the world and accounted for nearly 5% of worldwide gross premiums. This market grew steadily from 1992 to 1996 with gross premiums increasing at an annual rate of over 5%. This growth slowed from 2.5% in 1996 to deterioration of (1.0%) in 1998. The decrease is due to a decline in market demand, increased competition and premium rate reductions.
In 1999, the market had estimated growth of 1% due to growth in the French economy: the final market data is not yet available.
Group markets a full range of products including principally automobile insurance, property insurance and general liability insurance. In connection with the restructuring after the UAP acquisition, AXA reviewed the AXA and UAP products in order to develop a unified product line for each distribution channel.
Competition. The property and casualty insurance industry in France is highly competitive with more than 400 companies. Competition is primarily based on price, but is also based on scope of distribution system, quality of service and name recognition. Based on gross premiums in 1998, AXA was the largest automobile insurer in France with a 16.4% market share, the largest homeowners insurer in France with a market share of 17.3% and the largest commercial property insurer in France with a market share of 17.8%.
(which was acquired in connection with the GRE transaction in 1999), see “Significant Acquisitions and
Austria and Hungary, the results of which are included in AXA’s Other Property and Casualty
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1.4%, 1.9% in 1997 and 1998, respectively and deteriorated by 0.5% in 1999. This decline is attributable to severe price competition following market deregulation and the diminishing economic benefits following Germany’s reunification. The largest share of the German property and casualty insurance market in 1998 based on gross premiums written was automobile insurance (42%), followed by general liability insurance (12%). At the end of 1999, however, there were indications that major players in the marketplace intended to raise premium rates, especially in the automobile insurance product line.
Versicherung AG) primarily distributes its property and casualty products in Germany through exclusive agents and brokers which accounted for 49% and 51%, respectively, based on 1999 gross premiums written. The German Property and Casualty Group
Competition. The German property and casualty insurance market has been characterized for several years by deregulation and increased competition, leading to premium rate reductions, especially in automobile insurance and in industrial risk insurance products lines. Overall, the market remains highly fragmented.
In addition, Sicher Direct Versicherung is one of the leading direct insurers in the German market.
In the personal insurance product lines the main competitors are Allianz and HUK Coburg. In the commercial insurance product lines, the main competitor is
Allianz. Overall, AXA Colonia has moved from being the fifth largest to the second largest property and casualty insurer in Germany following the acquisition of GRE.
of worldwide gross premiums. The property and casualty market in the United Kingdom, both in the personal and commercial markets, is mature and has consequently experienced limited growth in recent years. There is currently an oversupply of capital and the market is highly competitive.
Traditionally, the market has been cyclical with a period of oversupply of capital leading to inadequate pricing (and losses) followed by a period of premium rate increases (and a return to profits). The opinion is divided as to how and whether this cyclical behavior will continue. Weather related experience largely accounts for any seasonality in claims experience which principally affects domestic and commercial property insurance (e.g. storms / burst pipes) but to a lesser extent also impacts automobile insurance.
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Kingdom are expected to have a significant impact on future personal injury claims costs. Refer to detailed information in “ Additional Factors which may affect
AXA’s Business – Regulation” included in this section of the Annual Report.
Distribution. Based on 1998 gross premiums, the main distribution channels used in the property and casualty market in the United Kingdom are independent intermediaries 69% (brokers 64% and other independent agents 5%), company agents 12% (company staff 8% and tied agents 4%), direct sales 15% and other 4%. The proportion of business written through brokers for each of these channels varies significantly by product. For example, approximately 75% of the commercial business is written through brokers while 31% of personal business is sold direct (over the telephone ).
Casualty Insurance Group’s business is written through brokers (51%), corporate partners (25%), direct sale telemarketing (14%) and direct sales force and other
Marketing through e-commerce is expected to expand significantly over the new few years which will decrease the total selling costs attributed to the writing of new insurance contracts to customers.
Competition. Over the past several years, consolidation across the sector, in relation to both the major insurance companies and the major brokers, has led to increased concentration among the top few players. AXA Insurance UK is now strongly positioned in the middle of a group of the five largest players.
Insurance Group offers its products through independent brokers and to a lesser extent, through the bank distribution network and its joint venture arrangement with La Poste. The independent broker channel generated nearly 85% of gross premiums in 1999.
Competition. The Belgian property and casualty insurance market is fragmented, with more than 160 property and casualty companies, of which nine companies write 80% of the gross premiums. Based on 1998 gross premiums, the Belgian Property and Casualty
Insurance Group is the overall leader in the Belgian property and casualty insurance market (20% market share) and the market leader in workers’ compensation products (25% market share) and in automobile insurance products (20.3% market share). It is ranked second in fire insurance products (18% market share).
AXA insurance operations and Oyak companies during 1999, AXA Oyak is reported separately and consolidated into AXA’s results from January 1, 1999.
Morocco”), the new company will sell general insurance products essentially through tied agents and brokers.
Germany, specifically, there has been a shift in the reinsurance structure from proportional to non-proportional treaties. For the year ended December 31, 1999, € 319 million (16%) of gross premiums were ceded to third party reinsurers in Germany and € 29.2 million (2.3%) of gross premiums were ceded to third party reinsurers in Belgium.
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AXA Global Risks and AXA Assistance). As a consequence of this change in segment presentation, prior year amounts have been restated accordingly for comparative purposes.
Due to the globalization of its largest clients, AXA is reorganizing its insurance and reinsurance operations to provide the best range of global insurance products and services on a worldwide basis. The result is
Solutions will include loss prevention, actuarial studies /risk analysis, run-off management (claims administration ), insurance and reinsurance risk transfer, including alternative risk transfer to capital markets
(insurer retains risk but financial instruments, such as derivatives, are used to finance the risks either prior to or after the loss has occurred) to cover the needs of global companies.
(a) See ‘’Glossary’’ for a description of the method by which claims and combined ratios are calculated. (b) Amounts exclude catastrophe equalization reserves and amounts are before reduction for reinsurance ceded.
AXA Re seeks to ensure that its property & casualty and life insurance portfolios are diversified geographically and by line of business in order to avoid concentration of loss exposure to single events. In addition, AXA
Market. There have been mergers, consolidations and departures within the global reinsurance marketplace.
In 1998 and 1999, the reinsurance market has experienced continued erosion in premium rates plus the occurrence of natural catastrophes. In 1998, there were freezing rainstorms in Canada, the Swissair crash and Hurricane George in Puerto Rico and the United
Products. Gross premiums and claims reserves by product line for AXA Ré are summarized below.
• Property damage reinsurance is divided into two major groups treaty contracts (an agreement whereby the ceding insurance company is bound to cede and the assuming reinsurance company is bound to accept a share of all risks defined in the treaty, for instance within a particular class of busi-
Years ended December 31, At December 31, (in euro millions except percentages) 1999 1998 1997 1999 (a)
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• Third-party liability reinsurance is generally characterized as “long-tail” since there is a generally long period of time between the occurrence of the event and the final settlement of the claim. Refer to
Fitch IBCA relating to counterparty credit and insurer financial strength. AXA Re Finance provides reinsurance generally to specialized insurers in primary areas(1): in
States guarantees relating to the issuance of municipal bonds and of securitized financial products.
In life reinsurance, AXA Re has changed its strategy in particular to develop asset based reinsurance products offering special cover associated with separate account products. There is a dedicated team in the United States responsible for developing this new product range.
Following the acquisition of GRE in 1999, the property and casualty portfolio formerly held by GRE’s
AXA provides assistance services through two groups, AXA Assistance and Interpartner Assistance.
A s s e t M a n a g e m e n t S e g m e n t 1
Inc. (formerly Equitable Companies Incorporated). In addition, since 1997 the asset management operations in Western Europe and Asia have been restructured and a new company was formed, AXA
The Asset Management segment in 1999 accounted for € 1.9 billion or 3% of AXA’s total gross revenues.
In recent years, rapid growth in sales of mutual funds to individuals and retail clients has augmented the traditional focus on institutional markets.
The table below presents AXA’s total assets under management (based on estimated fair value) for the years indicated.
Assets Under Management At December 31, (in euro millions) 1999 1998 1997
Assets Management Companies At December 31, (in euro millions) 1999 1998 1997
States. Alliance Capital provides diversified investment management services to a variety of institutional clients, including the US Life Insurance Group, as well as to individual investors. Its business can be divided into two broad categories: – mutual funds management consists of management, distribution, and servicing of mutual funds and cash management products, including money market funds and deposit accounts; and
– separately managed accounts consist primarily of the active management of equity and fixed income portfolios for institutional investors, including corporate and public employee pension funds and the general and separate accounts insurance business of Equitable Life.
Alliance Capital Management L.P. (“Alliance Capital”), a newly formed operating partnership, in exchange for all the units in Alliance Capital. As part of this restructuring, Alliance Holding offered its unitholders the opportunity to exchange their Alliance Holding units (which are publicly traded on the NYSE) for units in Alliance Capital (which are not publicly traded and are subject to significant transfer restrictions) on a onefor -one basis. Since the completion of this restructuring in October 1999, Alliance Capital has been the operating partnership conducting the diversified investment management services business (described in this section) and related activities.
During 1999, Alliance Capital experienced substantial growth in mutual funds management. In the US asset management market alone, the gross sales on the US
Alliance Capital services approximately 5 million shareholder accounts with total worldwide mutual fund sales exceeding € 54 billion. At December 31, 1999, Alliance Capital had approximately € 365 billion in assets under management (including € 299 billion for third party clients). Alliance’s assets under management at December 31, 1999 included approximately € 197 billion from separately managed accounts for institutional investors and high net worth individuals and approximately € 168 billion from mutual fund accounts. Equitable Life, is one of Alliance
AXA IM’s strategy is (i) continued improvement in the quality and performance of AXA’s assets, and (ii)
the development of its third party asset management business in promising markets through internal growth and acquisitions. In connection with this strategy, AXA IM’s focus is to provide investment expertise to the AXA companies, to institutional investors (using specialized expertise), and to individual investors (capitalizing on its distribution channels). As part of its mission as a full-service asset manager, AXA IM has two global business units providing for its clients’ investment needs and to develop opportunities in defined market segments. The two global business, set out below, units draw upon considerable experience in specialized investments at a time when the market for investment products is increasingly diversified.
– Quantitative & Structured Investments focuses on the creation and sale of structured fixed income and equity products. It includes AXA Rosenberg, the specialist investment manager in which AXA IM acquired a controlling stake at the beginning of 1999.
AXA IM manages assets in France, Germany, Belgium, the Netherlands, Italy and the United Kingdom through AXA Sun Life Asset Management (the resulting company in the United Kingdom following the merger of AXA Equity & Law Investment Management and Sun Life Investment Managers in connection with the UAP acquisition in 1997). In 1999, AXA IM
As of December 31, 1999, AXA IM’s assets under management (including assets backing insurance operations and assets managed on behalf of third party clients) totaled € 232 billion compare to € 195 billion as of December 31, 1998.
The Company is responsible for the wholesale and retail savings investment operations of AXA in Australia and New-Zealand. NMFM actively manages clients’
Mutual Life’s insurance asset portfolio was 69% and 71% as of December 31, 1999 and 1998, respectively.
Pan European players are developing fast. AXA’s asset management subsidiaries compete with other asset managers based on, primarily, the range of investment products offered, the investment performance of such products and the services provided to clients.
It is anticipated that the European and Asian asset management markets will experience strong growth in the years to come. The European asset management market is currently characterized by state pension plans in most countries but this is changing through privatization of state pension plans and increasing consumer demand for retirement-related savings products. In addition, the introduction of the
Euro currency has eliminated national European barriers to the large American and British asset management companies.
In addition, the asset management industry is shifting towards “open-architecture” whereby an asset management company can sell its products, but, can either perform the asset management services or delegate the asset management services to a third party through a fund management arrangement. As a result, the customer is offered greater product choice.
This is important given that customers are becoming increasingly focused on investment performance aided by new technological abilities, such as the ability to monitor investment performance and related information through the use of the internet and the existence of fund supermarkets (such as discount investment brokers and internet investment brokers).
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O t h e r f i n a n c i a l S e r v i c e s S e g m e n t
The Other Financial Services Segment’s operations consist primarily of DLJ, a US-based investment and merchant bank. In addition, the group has other financial services activities conducted primarily in Belgium and in France. The Other Financial Services segment in 1999 accounted for € 10.8 billion or 16% of AXA’s total gross revenues, of which almost 90% relates to
DLJ’s common stock. Assuming full vesting of restricted stock units and full exercise of all outstanding options,
Competition. DLJ encounters significant competition with other US and non-US securities firms, a number of which have greater capital, financial and other resources than DLJ. As a result of the Financial Services
ANHYP). IPPA and ANHYP merged in early 2000 resulting in a new bank named AXA Bank Belgium.
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AXA Crédit operations are specialized in retail financing. It develops a large range of products in line with the needs of the insurance customers and integrates these products within the products offered by the insurance companies.
Real Estate Operations relating to two credit establishments specializing in real estate: Sofapi and
UAP transaction in 1997. Sofapi specialized in real estate loans to individuals and originated only loans secured with a mortgage on the real estate or other real estate collateral. These companies no longer originate real estate loans or initiate real estate development activities. It is AXA’s intention to run off this business. In addition, AXA’s French real estate group manages real estate owned by AXA for its own account, real estate assets held in the books of the
General account life insurance products (participating ). The investment risks and rewards, including the investment returns, are transferred to the insurance company within AXA. However, given that these products participate in the investment results of the company, the return to the policyholder is largely based on the net investment return earned by the insurance company. Therefore, the revenue earned by the insurance company represents primarily the investment spread (being the difference between the investment return and the amount credited to the policyholder benefits), and policy fees charged to policyholders on investment management, mortality, morbidity and policy maintenance.
Therefore, depending on whether the liability is shortterm or long-term, liquidity requirements and therefore investment strategies will differ across the life and property & casualty insurance and reinsurance products offered by AXA. In addition, the investment strategy and investment results may be affected by (i) the amount and timing of cash available for investment,
(1) The International Insurance Segment includes a small portion of life reinsurance business, however, for the purpose of analysis within this section of Item 1 the assets backing the liabilities within the International Insurance Segment (in their entirety) are included within property and casualty.
AXA routinely monitors and evaluates the status of its investments in light of current and anticipated future economic conditions and trends, and other factors.
United Kingdom with-profit contracts) approximately fixed maturities and equity investments, respectively. In respect of the property and casualty business, of the insurance-related invested assets supporting this business, at December 31, 1999 approximately 48% (1998: 55%) and 33% (1998: 28%) represented fixed maturities and equity investments, respectively.
AXA’s insurance-related invested assets by insurance segment, including cash and cash equivalents.
Assets allocated to UK with-profit contracts (c) 25,332 25,332 25,332 25,332 11.4% 10.8%
(a) Amounts are net of valuation allowances. The valuation allowances relate to fixed maturities (€229 million), mortgage loans of (€73 million ), real estate (€1.4 billion) and equity investments (€595 million). See Note 3 to AXA’s Consolidated Financial Statements.
(b) These amounts exclude separate account (unit linked) assets and investments in companies accounted for under the equity method. (c) Trading account securities and assets allocated to UK with-profit contracts are carried at estimated fair value in the consolidated balance sheet of AXA. (d) Refer to Note 2 to AXA’s Consolidated Financial Statements included in this Annual Report that sets out the investment valuation methodology.
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Due after one year through five years 26,031 6,521 1,100 33,653 28.6%
At December 31, 1999, AXA held fixed maturity and equity securities in Bayerische Hypotheken- and
In respect of AXA’s significant insurance operations, the geographical distribution of the insurance-related invested assets backing the insurance liabilities is approximately 80% holdings in domestic investments
(in the local currency of the liabilities) and 20% holdings in investments in foreign markets.
Vereinsbank Group in the amount of € 2,058 million, which represented 10% of AXA’s total stockholders’
equity. At December 31, 1998, AXA did not have any fixed maturity investment in any one issuer, including an issuer’s affiliates, that were in aggregate 10% or more of AXA’s total shareholders’ equity, or € 1,354 million.
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Trading account securities. This represents equity and fixed maturity securities carried at estimated fair value in the Consolidated Financial Statements of AXA
Mortgages and policy loans. At December 31, 1999, mortgages and policy loans totaled € 18.1 billion. The mortgages and policy loans are held in AXA’s life insurance operations principally in the United
Assets allocated to UK with-profit contracts. These assets are carried estimated fair value in the
Consolidated Financial Statements of AXA due to the nature of this business written in the United-
Insurance Group” within Item 1 for further information on this specific type of business). At December 31, 1999, assets allocated to the UK with-profits contracts (at estimated fair value) include fixed maturities (€ 3,558 million), equity investments (€ 19,539 million), mortgage and policy loans (€ 191 million), and real estate (€ 2,044 million). The estimated fair values of the fixed maturities and equity investments
The net investment return on insurance-related assets by major operating entity are presented within the segment information provided in “Item 9: Management’s Discussion and Analysis” and Note 13 to the Consolidated Financial Statements.
P r o p e r t y a n d C a s u a l t y R e s e r v e s
(also referred to as “loss reserves”) fall into two categories as set out below.
Reserves for outstanding claims which have not yet been settled and are based on undiscounted estimates of the future claim payments that will be made in respect of the reported claims, including the expenses relating to the settlement of such claims; and
reserves are established on an undiscounted basis, to recognize the estimated cost of losses that have occurred but have not yet been notified to AXA.
These reserves, like the reserves for reported claims and claims expenses, are established to recognize the estimated costs, including the expenses associated with claims settlement, necessary to bring claims to final settlement.
The process of estimating the original gross claims reserve is based on information available at the time the reserve was originally established. However, claims reserves are subject to change due to the number of variables which affect the ultimate cost of claims, such as, (i) development in claims (frequency, severity and pattern of claims) between the amount estimated and actual experience, (ii) changes arising from the time lag from the occurrence of the insured event through to notification of the claim (from the insured party, a third party or a ceding company) and the final settlement
(payment) of the claim, primarily attributable to long tail casualty claims which may take several years to settle due to size and nature of claim, and the occurrence of large natural catastrophes late in the financial year for which limited information may be available at year end (iii) judicial trends, (iv) regulatory changes, and (v)
inflation. Therefore, actual losses may deviate from the original gross reserves established. Consequently the reserve may be re-estimated reflecting those changes resulting in loss reserve redundancies (original gross claims reserve was overstated) or deficiencies (original gross claims reserve was understated). AXA continually reviews the adequacy of the established claims reserves, including emerging claims development, and actual experience compared to the original assumptions used to estimate initial gross claims reserve. Based on current information available, AXA considers that these provisions are sufficient. These provisions are subject to audit on an annual basis by the auditors of AXA.
Note 12 to the Consolidated Financial Statements included in this Annual Report.
Since 1998, the information within this section has been presented for AXA’s property and casualty insurance operations, and AXA Réassurance, separately. Prior to 1998, information relating to AXA Global Risks UK was also presented, however, its property and casualty loss reserves were approximately 2.2% of total 1998 gross unpaid claims and claims expenses reserves. Therefore, separate presentation was no longer warranted and the loss development for AXA Global Risks UK was incorporated within the Loss Development Table for the property and casualty insurance operations. AXA
operations, (iii) a portion of this business is retroceded to other reinsurers through retrocession programs which are monitored separately within the reinsurance operations, and (iv) the business is accounted for on an underwriting year basis covering a 24 month period rather than a 12 month accounting period basis.
AXA’s French property and casualty insurance operations write construction cover with a ten-year contract term. In accordance with the French regulations, a specific provision is added to the claims reserves based on methodology established by the French government. This reserve is in addition to each single notified claim. This construction reserve is excluded from the Loss Reserve Development table as it is no indication as to how claims have been reserved (initially)
and the outcome upon settlement of such claims in future periods based on the underwriting and associated reserving methodologies adopted by AXA.
Expenses’. However, the catastrophe and equalization reserves are excluded from the Loss Reserve
income relating to changes in reserves for the three years ended December 31, 1999 is presented in Note 12 to the Consolidated Financial Statements included in this Annual Report under the caption “increase
Development table above) nor significant changes to the nature and/or type of property and casualty insurance written within AXA. The geographical concentration of the property and casualty insurance liabilities is as follows: France (29.1%), Germany (19.5%),
Gross reserves for claims and claims expenses in Balance sheet (b) 721 853 941 1,184 1,496 2,451 2,644 2,880 3,060 3,396
Initial gross claims reserves in excess of (less than) re-estimated gross claims reserves (369) (303) (424) (229) (157) (367) (248) (279) (683)
Initial net claims reserves in excess (less than) reestimated net claims reserves: Percent of original net reserve (a) (9.0%) (11.6%)(20.3%) 10.1% 14.0% 15.9% 20.0% 23.0% 12.9%
(a) It is not appropriate to extrapolate future redundancies or future deficiencies based on the loss reserve development presented in the table as conditions and trends that have affected the development of the liability in prior periods may not necessarily occur in the future periods.
(b) The loss reserve development table is presented on an underwriting year basis for AXA Re’s property and casualty business. Accordingly reserves re-estimated and the excess of re-estimated reserves in excess of the original reserves include reserves for losses occurring up to twelve months subsequent to the original year-end. For example, if an underwriting year reinsurance contract term was from January 1 to December 31, 1998 it may cover underlying policies with terms beginning both on January 1, 1998 and December 31, 1998. Losses incurred on underlying policies beginning on January 1, 1998 could occur as early as January 1, 1998 while losses incurred on underlying policies beginning on December 31, 1998 could occur as late as December 31, 1999.
(d) Includes the claims reserves of Abeille Re acquired in 1995.
Reserves for claims and claims expenses net of reinsurance 37,703 31,007
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A d d i t i o n a l f a c t o r s w h i c h m a y a f f e c t A X A ’ s b u s i n e s s
AXA operates within the various global financial service marketplaces. Consequently, AXA is subject to detailed, comprehensive regulation and supervision in all the jurisdictions in which it transacts business, principally insurance regulations.
(whether direct or through branches) is the responsibility of the home country insurance regulatory authority. The home country insurance regulatory authority monitors compliance with applicable regulations, the solvency of the insurer and its actuarial reserves as well as the assets of the insurer which support such reserves. As a result of the implementation of these directives, an insurance company that has been licensed to conduct insurance business in one jurisdiction of the EU may do business directly or through branches in all other jurisdictions of the EU without being subject to licensing requirements under the laws of the additional jurisdictions. Selling activities of nonhome insurance operations, however, are regulated by the regulatory authorities in the country in which the sale of the insurance product takes place.
• Authorization to carry on an insurance business in a jurisdiction through either a subsidiary or a branch operation after consideration of the applicant’s capital resources, proposed business plan, underwriting policy and reinsurance arrangements and the qualifications of its directors and management.
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• Administration of assets and liabilities and proper segregation of assets specifically assets supporting the general accounts and separate accounts life insurance business,
(deemed admissible based on type and investment mix concentration) which can be used to support the insurance operations including basis for valuing the assets and related liabilities and matching and localization requirements in respect of foreign liabilities which may be required to be matched, within certain limits, with assets in the same foreign currency.
• Approval by the regulator, and in certain jurisdictions court approval, prior to an intragroup transfer of assets, loans or dividends in order to protect insurance policyholders,
• System of accounting and form and content of financial statements and other associated regulatory reports which must be filed with the local regulatory authority on a routine basis,
– Australia. Under National Mutual Life’s Memorandum of Demutualization, and in accordance with the Life Insurance Act in Australia, which governs the management of the life insurance business in a03-338 • Item 1 (US) ok 23/05/00 12:01 Page 63 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
Australia and New Zealand, National Mutual Life must credit 80% of the profit or loss attributable to participating policies and 100% of the investment profit or loss attributable to investment account contracts to such policyholders’ retained earnings accounts.
Articles of Association and Sun Life Assurance’s Laws and Regulations, transfers of amounts to shareholders ’ funds (which hold amounts available for distribution to shareholders) from their respective longterm insurance business (life) funds may not exceed one-ninth of the current value of the bonuses credited to with-profits contracts and other participating policies. AXA Sun Life was formed with two underlying funds, a “with-profits” fund with a statute similar to the existing statutes in AEL and Sun Life
(unit linked) products of AXA Sun Life are written through the non-profits fund. The basis for which allocation is made to the with profit participating policies is discussed in detail in Item 1 “Description of Business – Segment Information – United Kingdom
– Belgium. At least 80% of the total amounts allocated to policyholders in connection with profit sharing must be credited to the policy no later than the policy anniversary date following the fiscal year in which the profit arises or when the policy expires prior to the anniversary date.
New York Superintendent does not disapprove such dividend. In 1999, Equitable Life was permitted to pay a dividend to AXA Financial, Inc in the amount of US$ 150,000,000. In 2000, Equitable Life has begun to review with the New York Insurance
Further commentary on specific regulatory matters effecting the AXA operations is summarized below.
Levies specific to the United Kingdom. Policyholder protection exists through two bodies the Motor
Protection Board (PPB). The MIB provides cover for victims of automobile accidents where there is no (or inadequate) insurance cover. The MIB is funded by levies on all automobile insurers and the levies are payable each year in proportion to the level of automobile insurance premiums written by each insurer.
States at both the Federal and state level. Various regulatory bodies are charged with safeguarding the integrity of the securities and other financial markets and with protecting the interests of customers participating in those markets. DLJ’s business may be materially affected not only by regulations applicable to it as a financial market intermediary, but also by regulations of general application. For example, the volume of DLJ’s underwriting, merger and acquisition and merchant banking businesses in any year could be affected by, among other things, existing and proposed tax legislation, antitrust policy and other governmental regulations and policies (including the interest rate policies of the Federal Reserve Board) and changes in interpretation or enforcement of existing laws and rules that affect the business and financial communities. From time to time, various forms of antitakeover legislation and legislation that could affect the benefits associated with financing leveraged transactions with high yield securities have been proposed that, if enacted, could adversely affect the volume of merger and acquisition and merchant banking business, which in turn could adversely affect DLJ’s underwriting, advisory and related trading revenues. As broker -dealers registered with the U.S. Securities and
and the NYSE. These capital requirements specify minimum levels of capital to be maintained by Broker-
Dealers. Compliance with regulatory capital requirements can restrict the entity’s ability to pay dividends, pay interest, repay debt and redeem or purchase shares of its outstanding common stock.
Government was elected and it had plans for significant changes to the regulatory structure and pensions legislation. A new financial regulatory organization was created on October 28, 1997, when the
With regard to property and casualty insurance business, a number of recent legislative changes in the
United Kingdom are expected to have a significant impact on personal injury claims costs. Some changes affect the timing of the payment of claims and other changes affect the amount paid in settlement. Given the changes are recent and the claims settlement period may take a period of time to complete, AXA is not yet able to assess the full impact of these changes, however, it is expected that the claims costs will increase in future periods for personal injury claims.
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The Mutuelles AXA are four mutual insurance companies engaged in the life insurance and property and casualty insurance business in France: AXA Assurances
(1) Amounts in bold type represent the percentage of outstanding voting stock owned. (2) Amounts in parentheses represent the percentage of total voting power represented by the voting stock owned. (3) Finaxa is listed on the Paris Stock Exchange. The voting stock of Finaxa not owned by the Mutuelles AXA or Paribas is publicly traded. (4) Directly and through holding companies.
AXA’s insurance subsidiaries so as to enhance their competitiveness while maintaining their separate identities. As part of these agreements, the Mutuelles AXA
AXA. The strategy committee elects a chairman from among its members who, at present, is Claude Bébéar.
significant matters relating to Finaxa. Under these agreements, each of the Mutuelles AXA has also granted a right of first refusal to the other Mutuelles
■ The Mutuelles AXA are engaged directly in the life insurance and property and casualty insurance businesses in France. These insurance businesses, which are the Mutuelles AXA’s only significant operating business activities, generated gross premiums of € 1.28 billion (FF 8.4 billion) in 1999.
Most of the costs and expenses of operating these insurance businesses (other than commissions) are shared among the relevant insurance companies and allocated through GIEs which perform various services for their members. Other GIEs provide specific services to their members, such as asset management, management of real estate assets and development and utilization of computer systems. The partnership agreement for each GIE provides for the operating costs and expenses of the GIE to be allocated among the members of the GIE in accordance with each member’s use of the services provided by the GIE. Such costs and expenses are allocated on the basis of actual use of the specific service to the extent practicable.
■ The table below sets forth as of March 1, 2000 all persons known by the Company to own, directly or indirectly, more than 10% of the issued Shares and the total amount of shares owned by Executive Officers and Directors of the Company (as a group).
Identity of person or Group Shares Percent of Class Percent of Voting Power
to 9:00 a.m. during which transactions are recorded but not executed. The Paris Stock Exchange has introduced continuous trading by computer during exchange hours for most listed securities, including the
Shares. Listed securities may generally be traded at any time outside the Paris Stock Exchange. Any trade effected after the close of a stock exchange session will be recorded on the next Paris Stock Exchange trading day at the closing price for the relevant security at the end of the previous trading day’s session. The
Shares are listed in the category known as continu A, which includes the most actively traded shares (i.e., a minimum daily trading volume of 250,000 or twenty trades).
Stock Exchange are settled in either of two ways, in the cash settlement market (marché au comptant) or the monthly settlement market (marché à réglement mensuel). Trades of the Shares are settled in the monthly settlement market. In the monthly settlement market, the purchaser may elect to settle on the third trading day following the trade (réglement immédiat or immediate settlement) or decide, on the determination date (date de liquidation), which is the fifth trading day prior to the last trading day of the month, either (i) to settle the trade no later than on the last trading day of such month or (ii) upon payment of an additional fee, to extend to the determination date of the following month the option either to settle no later than the last trading day of such month or to postpone further the selection of a settlement date until the next determination date (a procedure known as report). Such option may be maintained on each subsequent determination date upon payment of an additional fee. The transfer of ownership of equity securities traded on the monthly settlement market of the Paris Stock Exchange occurs at the time of registration of the securities in the appropriate shareholder ’s account. The majority of transactions in equity securities on the Paris Stock Exchange are settled on the monthly settlement market.
In accordance with French securities regulation, any sale of securities executed on the monthly settlement market during the month of, and prior to, a dividend payment date is deemed to occur after payment of the dividend, and the purchaser’s account will be credited with an amount equal to the dividend paid the seller and the seller’s account will be debited in the same amount.
the monthly settlement market, delivery of bearer or registered shares to the purchaser must occur on the third trading day following the trade. Registration with the company of transfer of registered shares may, however, take up to 19 business days thereafter. Payment for both bearer and registered shares takes place on the same business day as delivery. See “Description of Capital Stock – Holding and Transfer of Securities”
In particular, if the quoted price of a continu A security varies by more than 10% from the previous day’s closing price, trading may be suspended for up to 15 minutes. Further suspensions for up to 15 minutes are also possible if the price again varies by more than 5%. ParisBourse may also suspend trading of a listed security in certain other limited circumstances, including, for example, the occurrence of unusual trading activity in such security.
AXA Ordinary Shares Prices and Trading Volume on Paris Stock Exchange
Calendar Period High Low Total ADS traded (US) (US) (in thousands)
In addition, upon the express authorization of the shareholders at an ordinary general meeting fixing the terms and conditions relative to any purchases and sales, listed companies, such as the Company, may purchase and sell their own shares for stabilization purposes.
French law also requires a company to file a prospectus and a copy of the shareholders’ resolution authorizing any purchases or sales for stabilization or for cancellation purposes with the Commission des
Opérations de Bourse (“COB”), the independent commission responsible for overseeing the French securities markets, prior to engaging in such transactions, as well as a publicly available monthly report or, upon request by the COB, a more frequent report, of any purchases and sales thereafter. Purchases and sales by a company of shares may only be made to ensure the liquidity of the market and to reverse the trend reflected in the last quoted prices of the shares and may not account for more than 25% of the average total daily trading volume on the Paris Stock Exchange in shares of such company during a reference period of five stock exchange trading days immediately preceding such purchase or sale for shares traded in the monthly settlement market. Except during the issuance period of any new issue of shares, such transactions may be executed on behalf of a company by only one intermediary in each stock exchange session.
United States or any state thereof (including the District of Columbia) or (iii) a person otherwise subject to US
ADRs by certain tax-exempt entities organized under the laws of the United States. This summary is based on US
and French law and practice as of the date of this
United States of America and the French Republic for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and
Capital dated August 31, 1994 (the ‘’Treaty’’). This summary is subject to any changes to US or French law or practice occurring after the date hereof, including any change in applicable tax treaty provisions. It is also based in part on representations by the Depositary and assumes that the obligations under the Deposit
Agreement and any related agreements will be performed in accordance with their terms.
This discussion is intended only as a descriptive summary and does not purport to be a complete analysis or listing of all potential tax consequences of the ownership or disposition of Shares or ADRs. Because this summary is not exhaustive of all possible tax considerations (especially those applicable to persons who are subject to special tax treatment, including tax-exempt institutions, financial institutions, US expatriates, non-
Shares or ADRs as part of a conversion transaction, persons owning more than 10 percent of the capital of the
Company and persons carrying on a trade or business in France through a permanent establishment or fixed base for the purpose of which the Shares or ADRs have been acquired or held), prospective purchasers of
F r e n c h T a x e s
Under the Treaty, an ‘’Eligible US Holder’’ is a US Holder whose ownership of Shares or ADRs is not effectively connected with a permanent establishment in France and who is (i) an individual or other non-corporate holder, or (ii) a corporation that does not own, directly or indirectly, 10 percent or more of the capital of the
Company, provided in each case that such Holder is a resident of the United States under the Treaty, and is entitled to Treaty benefits under the limitation on benefits provisions in Article 30 thereof and such
Holder complies with the procedural rules described below. If a US Holder is a corporation that owns, directly or indirectly, 10 percent or more of the capital of the Company, the withholding tax rate will be
reduced to 5%, provided that all other requirements set forth in the preceding sentence are met.
Under French domestic tax law, a resident of France generally is entitled to the avoir fiscal (a tax credit) in respect of a dividend received in cash or in the form of Shares from a French Corporation in an amount equal to: – 50 percent of the net dividend received if the beneficiary of the distribution is an Individual; – 40 percent of the net dividend received if the beneficiary of the distribution is not an Individual.
Under the Treaty, an Eligible US Holder is generally entitled to a payment from the French Treasury that is the equivalent of the avoir fiscal. Such payment is made by the French Treasury not earlier than the
January 15th following the close of the calendar year in which the related dividend is paid, and only after receipt by the French tax administration of a claim for such payment in accordance with the procedures described below. However, there are certain limitations to the availability of the avoir fiscal under the Treaty.
Holder is entitled to the avoir fiscal only to the extent that its partners, beneficiaries or grantors, as applicable, are themselves Eligible US Holders (other than a regulated investment company) and are themselves subject to US Federal income tax on their respective shares of both the dividend and the avoir fiscal. Third, the Eligible US Holder, where required by the French tax administration, must show that he or she is the beneficial owner of the Shares or ADRs and that the holding of such Shares or ADRs does not have as one of its principal purposes the purpose of allowing another person to take advantage of the grant of the avoir fiscal under the Treaty.
Fourth, if the Eligible US Holder is a regulated investment company, it should not own, directly or indirectly, 10 percent or more of the capital of the
Company (but only if less than 20 percent of its shares should be beneficially owned by persons who are neither citizens nor residents of the United States under the Treaty).
Under the Treaty, any payment of the avoir fiscal is subject to the 15 percent dividend withholding tax.
Thus, for example, if a dividend of € 100 (FF 656)
50, less the 15 percent withholding tax on that amount. Thus, the total net payment to the Eligible
Company out of profits which have not been subject to French corporate income tax at the standard corporate income tax rate, which are distributed from the long-term capital gains reserve or which were earned and taxed more than five years before the distribution, would be subject to the ‘’précompte’’ (a French equalization tax). The précompte is a tax paid by the corporation at the time of a dividend distribution that is equal to 50% of the net dividend distributed, except that, when a dividend is distributed from the long-term capital gains reserve, the précompte is equal to the difference between a tax based on the regular corporate tax rate applied to the amount of the declared dividend and the taxes previously paid by the corporation on the income being distributed. The amount of any précompte would be charged to shareholders’
ADRs (the ‘’US Financial Institution’’), and (iii) file with the Company or the French person in charge of the payment of dividends on the Shares (the ‘’French
‘’Standard Form’’), before the date of payment of the relevant dividend. An Eligible US Holder that is a regulated investment company must also be identified as such on a list provided annually by the Internal
Eligible US Holder may still benefit from the Treaty if the US Financial Institution provides the Company or the French Paying Agent in the case of Shares, or the
Treasury earlier than the January 15th following the close of the calendar year in which the related dividend is paid.
Depositary or the French Paying Agent early enough to enable the Depositary or the French Paying Agent to forward such Standard Form to the French tax administration before December 31st of the year following the calendar year in which the related dividend was paid.
Not-For-Profit Organization’’, which is a tax-exempt entity organized in the United States, the use of whose assets is limited under US Federal or state laws, both currently and upon liquidation, to the accomplishment of the purposes that serve as the basis of its exemption from income taxation in the United States and which does not own, directly or indirectly, 10 percent or more of the capital of the Company, and (iii) any
‘’Individual Holding Shares in a Retirement Plan’’, meaning an individual who is a resident of the United
‘’Individuals Holding Shares in a Retirement Plan’’ are referred to collectively as ‘’Eligible Tax-Exempt
Eligible Tax-Exempt Individual Holders are entitled to receive from the French Treasury a payment equal to 30/85ths of the avoir fiscal (the ‘’partial avoir fiscal’’), less a 15 percent dividend withholding tax on such amount, notwithstanding the general requirement described above that the Individual holder be subject to US tax on both the dividend and the avoir fiscal.
Instruction are satisfied, such Individual Holder would initially receive € 85 (FF 558) (the € 100 dividend less a € 15 withholding tax). The Eligible Tax-Exempt
Eligible Tax-Exempt Holders are entitled to receive from the French Treasury a payment equal to 301/3/85ths of the avoir fiscal, less a 15 percent withholding tax on such amount. Thus, the total net payment to the
Tax-Exempt Holders generally must follow the procedures set forth above under ‘’Taxation of Dividends-
Holders with respect to the payment of the partial avoir fiscal and the refund of the précompte. Certain
Under the Treaty, no French tax is levied on any capital gain derived from the sale of Shares or ADRs by a
US Holder who (i) is a resident of the United States under the Treaty, (ii) is entitled to Treaty benefits under the limitation on benefits provisions of Article 30 thereof, and (iii) does not have a permanent establishment in France to which the Shares or ADRs are effectively connected or, in the case of an individual, who does not maintain a fixed base in France to which the Shares or ADRs are effectively connected.
Under French domestic tax law, any gain realized by a shareholder on a redemption of Shares by the
Company generally will be treated as a dividend and will be subject to French dividend withholding tax as described above under ‘’Taxation of Dividends-Withholding Tax’’, unless all the Company’s accumulated earnings and profits (as determined for French tax purposes) have been distributed to shareholders of the
Company. An Eligible US Holder generally would be entitled to Treaty benefits with respect to the avoir fiscal and the précompte related to his or her gain on a redemption of Shares that is treated as a dividend for French tax purposes.
French transfer taxes unless the transfer is effected by means of a written agreement that is executed or enforced within France. Should such written agreement be executed or enforced in France, it would be subject to transfer taxes at the rate of 1 percent, up to a maximum of FF 20,000 per transaction.
A transfer of Shares or ADRs by gift by, or by reason of death of, a US Holder that would be subject to
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For US Federal income tax purposes, dividends will be taxable to the US Holder of Shares or ADRs outstanding on the record date established by French law, which in the case of an annual dividend will be fixed by the shareholders at the shareholders’ meeting approving the distribution of dividends, and in the case of an interim dividend will be fixed by the Board of Directors approving the distribution of interim dividends. Any payment of the avoir fiscal or the partial avoir fiscal, plus the withholding tax thereon, will be included in the dividend income of a US Holder in the year in which such payment or refund is received
(except, possibly, if the US Holder unduly delays seeking such payment or refund). The amount recognized as dividend income by a US Holder will be equal to the US dollar value of the distributed French francs (or, in case of a Stock Distribution, the Shares) on the date of the recognition of such dividend for US Federal income tax purposes. Such French francs distributed will have a tax basis equal to their US dollar value at such time. Any gain or loss realized upon a subsequent conversion or other disposition of the French francs will be treated as ordinary income or loss from sources within the United States.
Holder’s US Federal income tax liability for the taxable year multiplied by a fraction, the numerator of which is the US Holder’s taxable income from sources without the United States and the denominator of which is the US Holder’s taxable income from all sources for the taxable year. That foreign tax credit limitation is applied separately to different ‘’baskets’’ of income. For purposes of applying the foreign tax credit limitation, dividends are generally included in the ‘’passive income’’ basket or, if received by a financial services entity and certain other conditions are met, the ‘’financial services income’’ basket.
In the case of an Eligible US Holder, if the full withholding tax rate of 25 percent is applied (because, for instance, the procedures described under ‘’French
Treaty Benefits’’ are not complied with by the dividend payment date), the refundable portion of the tax withheld by the Company or the French Paying Agent (representing the difference between the 25 percent and the 15 percent tax rates) would not be eligible for the foreign tax credit.
■ For US Federal income tax purposes, a US Holder generally will recognize gain or loss on any sale, exchange or other disposition of Shares or ADRs (unless a specific nonrecognition provision applies). Such gain or loss will be measured by the difference between the amount of cash (and the fair market value of any other property) received and the holder’s tax basis in the
Shares or the ADRs. A US Holder’s tax basis in the
Shares or the ADRs will generally equal the amount paid by such US Holder for the Shares or the ADRs (or, in case of Shares acquired by way of Stock Distribution, the amount included in income at the time of the Stock
ADRs. This withholding generally applies only if such individual Holder (i) fails to furnish his or her taxpayer identification number (‘’TIN’’) to the US Financial
Institution or any other person responsible for the payment of dividends on the Shares or ADRs, (ii) furnishes an incorrect TIN, (iii) is notified by the US
■ In addition to US Federal income taxes, US Holders may be subject to United States state and local taxes with respect to their Shares or ADRs. US Holders should consult their own tax advisors regarding such matters.
December 1996 and 1995, and at December 31, 1997, 1996 and 1995 have been derived from the audited Consolidated Financial Statements for 1997, 1996 and 1995, respectively.
The Consolidated Financial Statements have been prepared in accordance with French GAAP which differs in certain material respects from US GAAP. For a summary of the material differences between French GAAP
and US GAAP relevant to AXA, see “Item 9: Management’s Discussion and Analysis -Reconciliation of French GAAP to US GAAP” and Notes 28 and 29 of the Notes to the Consolidated Financial Statements.
Statements included on this Annual Report for significant events affecting the comparability of current year results with 1998 and 1997 results.
The AXA Consolidated Financial Statements for the three years ended December 31, 1999 and as at
Item 8: Selected Financial Data b03-338 • Item 2 à 8 (US) 23/05/00 12:05 Page 82 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
Approximate amounts in accordance with US GAAP, except for adjustment for unrealized investment gains on real estate allocated to United Kingdom with-profit contracts (f) Net income 2,260 2,239 1,457 1,263 493 378 Per ordinary share (b): Net income per ordinary share (basic) 6.47 6.41 4.36 3.99 2.75 2.28 Net income per ordinary share (diluted) 6.14 6.08 4.09 3.74 2.50 2.22 Per ADS (d): Net income per ADS (basic) 3.24 3.21 2.18 2.00 1.37 1.14 Net income per ADS (diluted) 3.07 3.04 2.04 1.87 1.25 1.11
(a) Includes investment income net of investment expenses and interest expense on short-term and long-term debt (other than interest expense on short-term trading instruments that is included in operating costs and expenses) and net realized investment gains or losses.
(d) Prior to June 25, 1996, no ADSs representing the Shares were outstanding. Solely for convenience, the historical per ordinary share amounts for periods prior to such date have been divided by two, the number of ADSs representing one ordinary share. This same calculation has also been performed for periods after such date.
(e) An annual dividend generally is paid each year in respect of the prior year after the annual general meeting of shareholders (customarily held in May or June) and before September of that year. Dividends are presented above in the year to which they relate, not the year in which they are declared and paid. At the ordinary general meeting of shareholders of the Company to be held on May 3, 2000, the shareholders are expected to declare a dividend in respect of 1999 of €2.00 per ordinary share. Dividends per ordinary share and per ADS do not include any French avoir fiscal which may be receivable from the French Treasury (See “Item 7: Taxation”). Dividends per ordinary share are based on the number of shares outstanding at the end of the year for each year presented.
Balance Sheet Data: Approximate amounts in accordance with French GAAP: Total investments (l) 295,882 293,069 235,158 231,598 105,147 86,257 Total assets 512,352 507,480 384,835 368,064 171,857 143,841 Insurance liabilities (g) 217,009 214,946 185,295 170,634 71,669 63,061 Long-term debt: Financing debt (h) 3,322 3,290 2,842 3,607 3,365 3,969 Operating debt (h) 4,867 4,821 3,299 2,292 1,170 928 Mandatorily convertible bonds and notes (h) 479 474 474 474 192 320 Subordinated debt (h) 4,878 4,832 2,706 2,315 1,294 708 Shareholders’ equity 16,514 16,357 13,537 11,993 6,835 5,090 Shareholders’ equity per ordinary share (b) 46.34 45.90 38.65 36.19 35.39 30.96 Shareholders’ equity per ADS (d) 23.17 22.95 19.32 18.10 17.70 15.48
Approximate amounts in accordance with US GAAP: Total investments (l) 301,994 299,123 242,245 229,030 91,988 74,601 Total assets 538,169 533,052 407,702 380,913 160,582 133,810 Insurance liabilities 220,696 218,598 189,485 179,652 57,609 49,554 Long-term debt: Financing debt (h) 8,679 8,596 6,023 6,396 4,444 4,652 Operating debt (h) 4,867 4,821 3,299 2,292 1,170 928 Shareholders’ equity 22,890 22,672 20,355 16,747 6,933 5,449 Shareholders’ equity per ordinary share (b) 64.91 64.29 58.72 51.54 38.67 33.14 Shareholders’ equity per ADS (d) 32.46 32.15 29.36 25.77 19.34 16.57
Approximate amounts in accordance with US GAAP except for adjustment for unrealized investment gains on real estates allocated to United Kingdom with-profit contracts (f)
Shareholders’ equity per ordinary share (b) 65.51 64.89 59.27 52.08 39.63 34.04
(h) Operating debt includes debt, principally of AXA’s financial services subsidiaries, to provide working capital. Financing debt includes debt of AXA other than operating debt. Subordinated debt and mandatorily convertible bonds and notes are considered mezzanine capital for French GAAP purposes.
(i) The financial data have been translated from euros to U.S. dollars (“US$”) using the US$/euro rate at December 31, 1999 of € 0. 99 = US$1.00 (US$1.010= €1.00). These translations are solely for the convenience of the reader. These translations should not be construed as representations that the converted amounts actually represent such U.S. dollar amounts or could have been (at the relevant date) converted into U.S. dollars at the rate indicated or at any other rate.
(k) Compagnie UAP and its subsidiaries were acquired in a public offer of exchange on January 1, 1997 and, accordingly UAP’s operating results for the full year ended December 31, 1997 were included in AXA’s consolidated operating results.
Consolidated gross premiums and investment banking % change on and other financial services revenue by activity a constant structural, methodological Years ended December 31, 1999/1998 and exchange rate (in euro millions) 1999 1998 1997 % change basis (a)
Other financial and real estate companies 1,136 750 1,020 51.4% (6.6%)
(a) Percentage calculated on a constant exchange rate basis. Therefore, for purposes of comparison the current year financial data is restated using the prevailing foreign currency exchange rates in the prior year. See “Exchange Rate Information” in the beginning of this Annual Report, “ Exchange Rates” in this section of the Annual Report and Note 1 to the Consolidated Financial Statements for further information on exchange rates and translation rates used to prepare the Consolidated Financial Statements. A constant structural basis refers to the elimination of any impact on such percentage change caused by changes in the composition of a segment or group, by eliminating from both periods being compared the results of the acquired, transferred or disposed of operations. A constant methodological basis refers to the elimination of any impact on such percentage change caused by changes in accounting principles or methods by measuring results for both periods being compared using the new accounting principles or methods.
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Consolidated Net Income by Activity Years ended December 31, (in euro millions except per ordinary share amounts) 1999 1998 1997
Life Insurance United States 270 252 58 France 331 265 121 United Kingdom 194 211 198 Asia/Pacific 38 (66) 42 Germany 13 8 5 Belgium 186 234 94 Other countries 81 57 69 Total Life Insurance 1,112 962 587 Property and Casualty Insurance (a) France 244 163 152 Germany 48 70 37 United Kingdom 5 22 45 Belgium 239 136 93 Other countries 34 (3) 2 Total Property and Casualty Insurance 571 389 329 International Insurance (a) AXA Re 93 125 120 AXA Global Risks (151) (86) 13 Other transnational activities 6 4 (9) Total International Insurance (51) 44 124 Asset Management Alliance Capital 72 56 112 AXA Investment Managers 11 37 26 National Mutual Funds Management 1 1 3 Total Asset Management 84 94 141 Other Financial Services Donaldson, Lufkin & Jenrette (DLJ) 226 129 153 Other financial and real estate companies (5) 29 67 Total other financial services 221 158 220 Holding Companies
AXA France Assurance 61 74 (9) AXA Financial, Inc. 51 (5) 5 AXA Asia Pacific Holdings (17) (15) (11) Sun Life & Provincial Holdings (277) (70) (33) Other Holding Companies (20) 94 14 Total Holding Companies 84 (115) (194)
Total per share consolidated shareholders’ equity and net asset value At December 31,
(in euro millions, except share and per ordinary share amounts) 1999 1998 1997
Net income for the year, before deducting minority interests 2,879 2,505 2,010
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Avoir Fiscal” for a summary of certain United States federal and French tax consequence to holders of ordinary shares and ADSs.
(a) Dividends are paid with respect to the prior year results. Dividends are shown under the year to which they relate. (b) Including “avoir fiscal” tax credit. (c) Subject to the approval of the ordinary general meeting of shareholders to be held on May 3, 2000. (d) Total net dividend distribution as a percent of consolidated net income.
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per ordinary share and per ADS with respect to each year indicated, with or without the French avoir fiscal, and before deduction of any French withholding tax. Dividends paid in each year are in respect of the prior year’s results.
(1) Payment equivalent to the French avoir fiscal or tax credit, less applicable French withholding tax, will be made only following receipt of a claim for such payment, and, in any event, not until after the close of the calendar year in which the respective dividends are paid. Certain US tax exempt holders of ordinary shares or ADSs will not be entitled to full payments of avoir fiscal (see “Item 7: Taxation).
Share price highs and lows and market capitalization 1999 1998 1997
The following table sets forth, for the periods indicated, certain information concerning the Noon
dollar in New York City for cable transfers as certified for customs purposes by the Federal Reserve Bank of New York (the “Noon Buying Rate”) for the euro
(1) Noon Buying Rates of one euro for one US dollar in 1999 and of one French franc for one US dollar in 1995, 1996, 1997, 1998 and 1999. (2) The average of the Noon Buying Rates on the last day of each full month during the relevant period.
EXCHANGE RATES The year end and average exchange rates which are the rates AXA used in the preparation of the
Consolidated Financial Statements to translate the results of operations of its subsidiaries and affiliates, not denominated in euro, into euro are set out in the
(a) At September 30th. (b) In 1997, the year end exchange rates were used by AXA for the purposes of preparing the consolidated statement of income (see Note 1 and 2 to the Consolidated
table below. Prior year exchange rates to euro were determined using the previously reported French
Company’s Consolidated Financial Statements included elsewhere in this Annual Report on Form 20-F.
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Emerging stock markets also performed well, offering a global return in excess of 60 %. Individual emerging market performances were comparable: 62 % in
Latin America, 67 % in the emerging European markets and 63 % in Asia.
In the United States, the 10-year Treasury Bond rate increased to 6.43% as investors reacted to bond market performance trends in the first six months of 1999.
The overall US bond return was a negative 3% in 1999. Similarly, since the introduction of the euro on
Item 9: Management’s discussion and analysis of financial condition and results of operations
Statements. In addition, this section should be read in conjunction with information included under the heading “Cautionary Statements on Forward Looking
M a r k e t c o n d i t i o n s
The United States was the first country to raise its interest rates in June 1999. The Federal Funds rate increased to 5.5% by the end of the year. This shift in monetary policy was in response to continued growth in the economy and high consumer demand.
In Japan, the general improvement in the country’s economic outlook increased significantly the demand for the yen, particularly in the second half of the year.
Against a backdrop of rising interest rates, the world’s life insurance markets experienced substantial growth in 1999, due to a strong performance in the global stock markets. Consequently, there was noted growth in the sale of separate account (unit-linked) products.
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European countries was attributable to growth in separate account (unit-linked) products and distribution through banking networks. The estimated growth for the Spanish, Italian and Portuguese life insurance markets in 1999 is more than 30%.
In the United States, separate account products performed well due to the stock market performance in 1999, unlike the traditional life products. Premiums on variable annuity (individual retirement) products increased by more than 21%. Premiums on variable life products increased by more than 14%. In addition, the reform of the Glass-Steagal Act in 1999 could lead to an alignment of insurance companies and financial institutions in the future.
Due to strong economic growth and governmentsponsored measures (requiring employers to increase their contributions to pension funds by 1%), life and health insurance markets in Australia and New
Despite these difficult conditions, European property and casualty insurers were able to maintain their underwriting profits due to the strong performance in the equity markets, and cost benefits / economic synergies arising from the series of corporate mergers and consolidations that have occurred during the past few years.
Western Europe in late December 1999. The cost of these natural disasters to insurers and reinsurers has been particularly high.
In France, property and casualty gross premiums rose by 1.2% in 1999, after two consecutive years of decline. However, given the decline in average premium rates in both personal and commercial lines of business, actual growth failed to meet industry expectations. These forecasts were based in part on the increase in the number of vehicles in circulation.
Due to continued intense competition in the German market, growth in property and casualty gross premiums was flat. In addition, the claims experience deteriorated in 1999 due to the occurrence of several major commercial risk claims, higher claims frequency in automobile insurance and storm damage in late December 1999.
In the United Kingdom, gross premiums on automobile insurance increased due to an increase in premium rates. This increase is principally in response to deteriorating claims experience in automobile insurance attributable to higher costs associated with bodb03 -338 • Item 9 (US) ok 23/05/00 12:11 Page 93 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
ily injury claims. Competition remains fierce in all other product lines. Mergers and consolidations continue to occur in the property and casualty sector.
In Belgium, Italy, Spain and the Netherlands, the increase in claims frequency and in the average cost of claims in automobile insurance have led to deterioration in the claims experience and premium rate increases. This deterioration in claims has, consequently, resulted in growth in gross premiums. In
In 1999, the international insurance market continued to be adversely affected by surplus capacity. The large insurance risk market continued its downward trend, particularly in property and marine insurance cover leading to further reductions in premium rates.
The high number of catastrophe claims in 1999 also affected the reinsurance business. Like the large insurance risk market, it is expected that there will be a reduction in insurance portfolios and an increase in premium rates across the marketplace. This is in contrast to the relative absence of catastrophic events since 1994, which brought new capacity to the market, consequently reducing premium rates by approximately 15% per year and exacerbating competitive pressures. This general trend continued throughout 1999, but appears to have changed with respect to the 2000 renewal season.
Europe, individuals and small investors increased their equity market exposure in pension funds and separate account products, while large institutional investors turned to more sophisticated types of investments, such as investments which include derivative financial instruments. In the asset management sector, where size and international reach are critical factors, major mergers and acquisitions, including the Allianz’s acquisition of Pimco once again marked 1999.
granted as a loan to SLPH. As a result of this transaction, AXA’s ownership interest in SLPH decreased to 56.3% compared to 71.6% at December 31, 1998 and AXA recorded a dilution gain of € 469 million.
Kingdom and Ireland, to the Company for £584 million (€ 873 million); and
(Guardian Life) and in Ireland for £ 759 million and million, respectively) in July 1999.
Company (from SLPH) were sold externally or internally to other subsidiaries within AXA, as follows: • the Company sold its 83.7% interest in Albingia to
AXA Colonia in December 1999 for a total consideration of DM 1,279 million (€ 654 million). This intragroup transaction was partially financed by a loan AXA granted to AXA Colonia. Subsequent to this intragroup transaction, AXA Colonia increased its ownership interest in Albingia by 15.2%. At
ownership interest in Albingia; • the Company sold Guardian France to Continent
At December 31, 1999, the GRE operations consolidated within AXA include, the healthcare and property insurance operations in the United Kingdom, the property and casualty operations in Ireland, and its insurance operations in Germany, the Netherlands, Hong Kong and its branch operations in Singapore and in Portugal.
Irish subsidiaries, and the German subsidiaries, respectively. This goodwill is being amortized over 30 years.
Barr Rosenberg Group, a US asset management company. The Barr Rosenberg Group has since been renamed the AXA Rosenberg Group. This transaction included an up-front payment of US$ 125 million
In May 1999, DLJ completed its offering of 18.4 million shares of a new class of its common stock, priced at US $20 per share, representing a 17.9% interest in
As part of its capital stock repurchase program (30 million shares), AXA Financial, Inc. purchased 8.0 million shares of its own common stock in 1999 (approximately 1.8% of AXA Financial, Inc.’s 434 million capital stock outstanding at December 31, 1999) for US
$244 million (€242 million). In 1998, US$ 247 million (€211 million) was paid in respect of its purchase of 9.1 million in respect of shares under this program.
AXA’s investment in AXA Financial, Inc. will change from time to time due to the issuance of stock options and the issuance and/or repurchase of own shares by
AXA Financial, Inc. AXA’s interest in AXA Financial, Inc decreased slightly from 58.46% at December 31, 1998 to 58.43% at December 31, 1999 as a result of AXA
Germany. AXA’s ownership of AXA Colonia increased to 86% at December 31, 1999 compared to 73% and 69% at December 31, 1998 and 1997, respectively due to open market purchases of AXA Colonia’s shares.
Belgium. AXA acquired the remaining minority interests in Royale Belge and delisted the shares from public trading. In addition, the certificates of Contingent
Morocco. AXA Al Amane aligned its businesses with those of the insurance company Compagnie Africaine d’Assurance, formerly a wholly owned subsidiary of
Shanghai. The joint venture started to underwrite life insurance in June 1999.
France. Several acquisitions, investments and related activities that occurred in 1999 which are summarized below.
“Liquidity and Capital Resources” and in Note 10 to the Consolidated Financial Statements; (1) In the event that the closing price on the Paris Bourse of the AXA share is above or equal to € 137,3 for five trading days within a ten days consecutive trading period, the CGVs will be cancelled. The ten day consecutive trading period, during which the closing price of the AXA Share was above € 137,3 for five trading days, began on December 3, 1999.
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– after having thoroughly considered the financial terms and industrial rationale set forth in the public offer of exchange initiated by the Banque Nationale de Paris (‘BNP’) on Paribas, AXA tendered its Paribas stock in the BNP bid. On the basis of the stock prices during the three days before and after the first offering of Paribas shares, AXA realized a gain of € 333 million (group share). At December 31, 1999 AXA
France. AXA has recently experienced operational success in the insurance markets, driven by rapid external growth, recognized underwriting expertise, a highly decentralized management philosophy and the its ability to capitalize on the strengths of various channels of distribution. In spite of this successful growth, analysis of changes in customer expectations and the competitive environment has revealed the need to review AXA’s strategic objectives in France and the sources of its leadership over the medium term while maintaining the momentum of its operational success. In connection with this strategic change initiative, AXA France recorded a provision in 1999 of € 213 million (net of tax) to cover the costs of implementing this change initiative starting in 2000. The objectives of the program are: – to build a customer-centric organization featuring a broader array of products and services and a oneto -one approach designed to develop long-term customer relationships based on support for personal projects; – to set up a single sales and marketing structure for each market and overhaul existing exclusive distribution channels by setting up “Espaces AXA” and seeking partnerships; – to reduce administrative costs through the development of after-sales contract servicing centers in partnership with distributors; – to upgrade information systems by developing customer databases and e-commerce applications; and
GRE acquisition. The reorganization is scheduled for completion in 2001 due to the size of the acquisition and the nature of operations. Its key aspects include the streamlining and rebranding of product lines under the global AXA brand name, the development of a single management information system platform, and the co-location of employees to a reduced number of geographical operating premises. Related costs are estimated at €174 million, of which € 114 million was recognized in the opening balance sheet and € 39 million charged to income for the 1999 fiscal period. The program is expected to produce economies of scale of around € 130 million by December 2001. As of
Belge), the alignment of information systems was initiated. Product lines and distribution channels are gradually being unified. AXA Royale Belge’s bank subsidiary was merged with that of Anhyp (a Belgium
savings bank acquired by AXA Royale Belge in late 1998) effective January 1, 2000. The merged operation is known as AXA Bank Belgium.
United States. Alliance Capital Management’s asset management business was legally reorganized for the purpose of optimizing the tax status of its Partnership
Capital Management Holding L.P. (Alliance Holding, a public traded limited partnership since 1988) transferred its business to Alliance Capital Management L.P.
AXA Financial, Inc. and its subsidiaries tendered substantially all Units held in the exchange and will, therefore, save an estimated US $20 million as of 2000.
Other activities. As a consequence of the intense competition that prevails in the large risks and reinsurance markets, combined with the increasingly fine line distinguishing corporate insurance, reinsurance and financial reinsurance, AXA has decided to reorganize its operations in this sector. AXA Corporate
Solutions will serve as a single international point of entry for AXA’s large corporate clients, offering them a broad array of products and services that meet their full range of needs. AXA Corporate Solutions’ objective is to maintain profitable business in its portfolio during periods of market distress and will also seek to develop business in niche markets as well as in areas of consulting and other related services. AXA Global
Risks recorded a provision of €18 million in 1999 (gross of tax) for costs in connection with this alignment.
1999 was marked by a series of significant climatic events in all regions in which AXA operates, including Hurricane Floyd in the United States, earthquakes in Turkey and Taiwan, flooding in Southwest France and the December storms (Lothar and Martin) across western Europe. In total, these natural disasters have led to claims payments of € 1,140 million, of which € 675 million is covered by reinsurance contracts. In addition, AXA utilized € 142 million of its equalization provisions, which are established to cover these types of events. The impact of these natural climatic events on the AXA’s consolidated net income for 1999 was € (199) million, of which € (106) million can be attributed to the storms in Europe in December 1999.
HK$4.1 billion (approximately € 519 million). AXA China b03-338 • Item 9 (US) ok 23/05/00 12:11 Page 98 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
Before this transaction, AXA Asia Pacific Holdings had a 73.5% interest in AXA China Region. At the end of
interest in AXA China Region and has delisted this company from the Hong Kong Stock Exchange.
Pacific Holdings is September 30, the November 1999 transaction will not be presented in AXA’s Consolidated
Financial Statements until 2000. Goodwill recorded in respect of this acquisition is approximately € 300 million (€ 140 million, group share) which is to be amortized over 30 years.
In January 2000, the € 282 million 6.0% mandatorily convertible notes issued by AXA in conjunction with the acquisition of UAP in 1997 were converted into 4.1 million ordinary shares in accordance with the terms and conditions of these notes.
Refer to “Liquidity and Capital Resources” within this section of the Annual Report for further details.
B a s i s o f p r e s e n t a t i o n
Segment Information’, AXA has realigned its operating business segments and geographical groups within the segments (being the large geographical territories within each segment) over the course of the past three years. The prior years’ amounts have been restated accordingly for consistency.
Note 22 to the Consolidated Financial Statements included in this Annual Report.
December 31, 1999 which do not affect AXA’s conb03 -338 • Item 9 (US) ok 23/05/00 12:11 Page 99 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
December 31, 1999 and 1998 and the notes thereto included in this Annual Report are presented in euros (“euros” or €). The financial data for the years ended or as at a date prior to January 1, 1999 have been translated from French francs to euros for purposes of this document at the rate of FF 6.55957
= €1, the applicable rate established on January 1, 1999. The euro did not exist during any of these periods, and the conversion rate used may not reflect the FF/euro exchange rate that would have applied if the euro had existed at such times.
• For segment reporting purposes, the amortization of goodwill on acquired businesses is included as a charge against income of the acquired businesses and not of the acquiring company. Data for 1997 and 1998 have been restated for comparative purposes.
Segment. This segment includes AXA Reinsurance as well as AXA Global Risks, which underwrites large insurance exposures.
In addition, Banque Worms (a banking operation acquired in connection with the UAP acquisition, in which AXA has a 100 % interest) was to be sold within one year of the acquisition date. Consequently, and according to French GAAP accounting policies, the operating results of Banque Worms were not consolidated. Banque Worms was recorded at original cost
Consolidated Financial using the equity method of accounting (based on 100% holding).
Data – Exchange Rates” for further information on exchange rates and translation rates used to prepare the Consolidated Financial Statements.
A constant structural basis refers to the elimination of any impact on such percentage change caused by changes in the composition of a segment or group, by eliminating from both periods being compared the results of acquisitions, business transfers or disposals.
A constant methodological basis refers to the elimination of any impact on such percentage change caused by changes in accounting principles or methods by measuring results for both periods being compared using the new accounting principles or methods.
■ Total revenues comprise gross revenues, the change is unearned premium reserve (for the portion earned in the year) and net investment results (representing net investment income and realized gains and losses).
Gross revenues for 1999 totaled € 66,528 million, an increase of 17.3 % compared to 1998. On a constant exchange rate, methodological and structural basis, gross revenues grew by 10.4%. The positive impact of exchange rate fluctuations between 1998 and 1999 totaled € 1,334 million, primarily attributable to the appreciation of the US dollar
Insurance activities represented 80.9% of AXA’s gross revenues as opposed to 83.2% for 1998. On a constant exchange rate, methodological and structural basis, insurance revenues increased by 7.8% as set out below.
– The Life Insurance Segment (69.0% of insurance activity) increased by 10.8%, due to higher gross premiums earned mainly in the United Kingdom
France, Germany and Belgium, which together account for nearly 60% of gross revenues in this segment.
Financial, Inc. (Alliance Capital and DLJ), which accounted for nearly 90% of these revenues.
■ AXA’s consolidated net income totaled € 2,021 million in 1999, including a net non-recurring gain of € 156 million in connection with the acquisition of
Excluding the impact of this net non-recurring gain in connection with GRE, consolidated net income was
diluted net income per ordinary share was € 5.39, compared to € 4.24 in 1998, or an increase of 27.1%. Diluted net income per ordinary share takes into account potential dilution attributable to subordinated convertible debt (if converted into ordinary shares) and outstanding share options at December 31, 1999. Excluding the net non-recurring gain related to the GRE acquisition, basic net income per ordinary share was € 5.28 and diluted net income per ordinary share was € 4.98, an increase of 17.5%
At constant exchange rates, the 1999 results would have been reduced by € 17 million.
– Non-recurring gain on securities tendered in the Paribas and Elf public offers of exchange (AXA France (life) of € 137 million AXA France (property and casualty) of € 299 million 436
– Provision for the change program in France (€ 89 million for life insurance and € 124 million for property and casualty insurance) and for restructuring at AXA Global Risks (€11 million) (224)
– Exceptional write-down of deferred acquisition costs by Equitable Life due to asset reallocation (47)
– Reserve strengthening by the French Life Insurance Group mainly relating to its disability business relating to UAP (131)
Excluding the impact of the GRE acquisition of € 156 million and the aforementioned other non-recurring events in 1999 which represent a net gain of € 54 million, AXA’s consolidated net income (group share)
• the decline in net income recorded by the UK insurance operations of € 51 million, by AXA Investment
■ Gross revenues for 1998 totaled € 56.7 billion, an increase of 2.0% compared to 1997. On a constant exchange rate, methodological and structural basis, gross revenues increased by 4.5%. In 1998 AXA used the average exchange rate for the year to translate gross premiums into French Francs for non-French subsidiaries rather than the year-end rate as was used in prior years. Had AXA applied the year-end rate in 1998, gross premiums would have been € 55.1 billion.
and the Asia/Pacific currencies (€ 0.2 billion) relative to the French franc.
Segment (after restating the prior year segment information for the reclassification of the Transnational
The United States contributed € 8.6 billion to AXA’s consolidated financial services revenues which accounted for 90.5% of such revenues. On a constant exchange rate basis, financial services revenues grew 14.9% over 1997 primarily as a result of generally strong financial markets in 1998, despite their sharp decline in the third quarter.
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reached € 1,531 million versus € 1,207 million in 1997. Based on weighted average ordinary shares outstanding in 1998 of 338.7 million compared to 325.3 million in 1997, basic net income per ordinary share was € 4.52 compared to € 3.71 in 1997, an increase of 21.8%. The 1998 diluted net income per ordinary share was € 4.24 compared to € 3.48 in 1997, an increase of 21.8%.
The 1998 return on average equity (based on net income relative to average consolidated shareholders’
– Gain on the sale of treasury stock by French holding companies (Colisée Excellence) 93
– Gain realized by French subsidiaries on the sale of shares of companies within the Albert Frère group (Belgian entity) (€ 44 million) and treasury shares (€ 51 million) 95
– Restructuring provisions in France (€ 11 million for life insurance and € 13 million for property and casualty insurance), the Netherlands (€ 9 million for life insurance and € 2 million for property and casualty insurance), the United-Kingdom (€ 5 million for life insurance) and Australia/New Zealand (€ 8 million for life insurance) and Bank IPPA (€ 8 million) (56)
– Tax paid upon transfers among consolidated entities. The transactions involved the transfer of AXA Belgium, AXA Luxembourg and UAP New Rotterdam, sold by the Company to Royale Belge, and AXA Leben, sold by the UK Life Insurance Group to AXA Netherlands (99)
– Reserve strengthening by AXA Global Risks net of positive loss reserve development recorded not of the gain on the sale of GIE Réunion Aérienne (78)
– Impact of the financial crisis in Asia and emerging markets losses (realized losses, unrealized losses on trading securities and asset impairments) in the following region: € 109 million in Asia Pacific, € 46 million in Europe, and € 1 million in North America (excluding DLJ). These amounts correspond to realized losses and do not consider the absence of gains that would normally be realized (156)
Excluding the aforementioned 1998 and 1997 events, the increase in income is primarily attributable to the strong growth in net income recorded by the Life
Insurance Segment includes the losses recorded by direct marketing insurance subsidiaries, which are still in the start-up phase, and by a general decline in gross premiums.
At December 31, 1999, shareholders’ equity including minority interest and the 1999 consolidated net income totaled € 23,815 million, of which the group share was € 16,358 million. The evolution of shareholders ’ equity since December 31, 1997 is presented in the table below.
Pursuant to Article D 248-3 of the Decree of February 17, 1986, the goodwill associated with the issuance of new shares (€ 388 million) was charged directly to retained earnings and reserves. The remaining goodwill of € 748 million corresponding to the net assets acquired through the issuance of treasury shares, certificates of guaranteed value and cash was recorded as an asset and will be amortized over 30 years.
– Stock issuance for acquisition of Royale Belge minority interests 985
– Bond conversion (4.5%, 1995-1999) and exercise of stock options1 401
– Cumulative effect of change in accounting method for stock options (67)
– Shareholders’ Equity, December 31, 1999 (before 1999 net income) 14,336
(1) Shareholders’ Equity increased by € 333 million due to the conversion of this bond.
objective of creating value to its shareholders. Return on average equity has risen sharply, from 7.0% in 1994 to 13.4% in 1999 (excluding the impact of the
Diluted EPS net income per ordinary share has increased steadily and significantly, to € 4.98 in 1999
(excluding the impact of the GRE acquisition) as compared to € 2.12 in 1994, an annualized growth rate of 18.6% over the five year period.
Gross Premiums Year Ended December 31 (in euro millions) 1999 1998 1997
(*) The Austrian and Hungarian subsidiaries, formerly included in the German Life Group, are now included in the Other Life Group. Prior periods have been restated accordingly.
For the period from 1994 to 1999, the AXA share price posted average annual growth of 30.5%, reaching in 1999). Including dividend reinvestment, the AXA
The tables below present the gross premiums and net income attributable to AXA’s Life Insurance Segment for the years indicated.
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■ In 1999, the Life Insurance Segment accounted for 69.0% of AXA’s insurance related gross premiums (compared to 68.8% in 1998). On a constant exchange rate, structural and methodological basis, life insurance gross premiums increased 10.8%. The growth in life insurance gross premiums was primarily attributable to the UK, the US and the French Life
Insurance Groups. In 1999, gross premiums included € 664 million earned by GRE’s life and health insurance subsidiaries that are included in AXA’s operating results for the eight-month period following the GRE
acquisition in May 1999. The gross premiums in 1998 included € 455 million in gross premiums earned by
On a constant exchange rate, structural and methodological basis, life insurance gross premiums increased 5.5%. In 1997, € 198 million of gross premiums pertains to AXA Leben that was sold in 1998.
The contribution of life insurance operations to net income totaled € 990 million, accounting for 64.7%
Belge minority interests enabled Belgian subsidiaries to realize non-recurring gains, which increased net income by € 142 million, net of exceptional amortization of Value of Purchased Business Inforce (“VBI”).
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A n a l y s i s b y l i f e i n s u r a n c e g r o u p
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Equitable Life was ranked number two in variable life sales for 1999 as reported in the Tillinghast Towers
Perrin VALUE survey. Market share in 1999 was 6.87% down from 8.35% for all of 1998 due to the increased number of companies who now offer variable life products.
For variable annuities, Equitable Life improved its ranking in the industry to number four at the end of
The net investment results decreased by € 83 million or 7.5%. This decrease is due primarily to net realized losses of € 32 million in the 1999 period as compared to net realized gains of € 86 million in 1998. Realized losses from writedowns and sales of U.S. domestic high yield and emerging market fixed maturities were partially offset by realized gains on publicly-traded common equities and Equitable Life’s € 90 million share of the gain related to the sale of an approximately 18% interest in DLJ’s financial performance through the sale of a new class of DLJ common stock in the second quarter 1999. Net investment income decreased moderately in the 1999 period as a result of lower income on real estate due to its real estate disposal program, partially offset by higher yields on mortgages and higher earnings on equity interests.
Insurance benefits increased 8.1% principally as a result of the increase in gross premiums partially offset by lower benefits due to lower traditional life insurance mortality and the decrease in interest credited on policyholder account balances due to lower crediting rates.
increased by 8.8% primarily as a result of the increase in new business gross premiums offset by increases in fees on separate account balances and higher mutual fund sales. Acquisition costs capitalized increased substantially in line with the increase in acquisition expenses. The amortization of DAC
Administrative expenses increased by € 81 million primarily due to higher strategic initiative and infrastructure expenses, inflation and higher compensation and benefits.
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Income before income taxes and goodwill amortization of € 679 million increased €13 million over 1998 reflecting the above factors.
Life realized gains of € 149 million on the sale of real estate classified as “held for sale”. The reclassification of equity real estate to “held for sale” led to a reduction in real estate depreciation expense of € 57 million. At December 31, 1998, equity real estate designated as “held for sale” totaled € 979 million. The gains realized on the sale of equity real estate were partially offset by losses of € 21 million realized on sales of debt securities as compared to gains of € 86 million realized in 1997.
On a constant exchange rate basis, insurance benefits increased 14.3%, principally as a result of the increase in gross premiums and, to a lesser extent, due to deteriorating mortality experience, which was particularly strong in 1997. These decreases were partially offset by the decrease in policyholder interest crediting rate.
Income tax expense totaled € 228 million in 1998 as compared to a income tax benefit of € 45 million in 1997 that reflected the release of € 69 million of tax reserves related to years prior to 1989.
Real Estate (e): Related Assets at year end 1,313 1,588 2,404
Cash & Short Term: Related Assets at year end 1,421 1,396 243
(d) On a constant exchange rate basis, the yields for 1997 would have been 8.56% for fixed maturities, (13.39%) for real estate, 8.51% for mortgage loans on real estate, 24.62% for equity investments, 7.07% for policy loans, 1.53% for cash and short term investment and 6.90% for all general account investments.
(e) Real estate carrying values are shown, and real estate yields are calculated, net of third party debt and minority interests of € 350 million, of € 447 million, and € 863 million as of December 31, 1999, 1998 and 1997, respectively. Real estate investment income is shown net of operating expenses, depreciation, third party interest expense and minority interests. Third party interest expense and minority interests totaled € 26 million, € 44 million and € 55 million for 1999, 1998 and 1997, respectively.
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of total business activity. In respect of cumulative growth in 1998 and 1999 on savings-related retirement products, AXA had growth of 5% compared to a decline in the market of (4)%. Individual retirement savings-type products, representing 61% of this activity increased by 13.8% due to favorable results from the distribution network, the simplification of its range of products and no major changes in tax regulations.
(27.2% increase). In addition, due to the strong performance in the stock market, there was notable growth in separate account (unit linked) products, which represented 45% of gross premiums on individual retirement savings-type products compared to 37% in 1998. Group retirement business, which accounts for 8% of gross premiums, increased by 17.7% due to the underwriting of large corporate contracts.
The net investment result decreased by € 140 million primarily due to a reduction in net realized gains of and partially offset by a net increase in interest income of € 255 million. In 1999, net realized gains amounted to € 734 million, including € 413 million in connection with the tendering of Paribas and Elf equity securities. In addition there were capital losses of € 95 million on the sale of bonds in connection with a portfolio-restructuring program undertaken during a period of higher interest rates. Of the total increase in investment income, € 268 million relates mainly to the fixed maturity securities attributable to higher bond yields due to the pursuit of a policy favoring this type of long-term investment. In 1998, gains of approximately € 1,126 million were realized of which € 233 million was realized in connection with the buyout of AXA Royale Belge minority interests.
life contracts of € 75 million, and (iii) a reserve strengthening on former UAP disability contracts of € 76 million. This reserve strengthening is attributable to unfavorable trends in underwriting results from these contracts. Insurance liabilities for bodily injury annuities were estimated at December 31, 1999 using a discount rate of 3.25%, the rate used at December 31, 1998 following a rate reduction from 4.00% to 3.25% which increased the 1998 insurance liabilities by € 57 million in 1998.
Amortization of VBI decreased by € 9 million due to lower net investment results realized in 1999 given that amortization is based on actual gross profits arising on business. VBI after accumulated amortization
ject of a reduced tax, increased significantly mainly due to the realized gains on the Public Exchange
Gross premiums declined sharply in the first few months of 1998 after a new adverse tax regulation on individual retirement products went into effect on
Net investment results totaled € 3,832 million, an increase of € 592 million over 1997, and included realized gains, net of changes in valuation allowances, of more than € 1.1 billion versus € 0.7 billion in 1997. This increase was primarily due to (i) gains (€
233 million) realized on the sale of investments in various companies within the Albert Frère Group, and
(ii) the Company ’s ordinary shares in connection with the acquisition of Royale Belge’s minority interests. As in 1997, the French Life Insurance Group reduced its exposure to equity and debt markets by employing hedging strategies that reduced exposures to interest rate volatility and stock market drops. In addition, the group increased its investments in long-term fixed income securities.
Assurances” regarding primarily guaranteed interest rates prior to 1995. The participating policyholders’
share in gains relative to net investment results was 79% in 1998 versus 76% in 1997. In group insurance, insurance benefits were impacted by adverse changes to the mortality tables in 1998 (€ 67 million ). In addition, the interest rate for government obligations dropped leading to a decrease in the discount rate from 4.00% to 3.25% at December 31, 1998 used in the calculation insurance benefits on bodily injury annuity contracts. The change in the discount rate resulted in a charge of € 57 million to increase bodily injury insurance benefit. In addition the 1998 insurance liabilities further increased by € 67 million due to a change in assumption on mortality tables and a French Decree dated December 29, 1998 resulting in the establishment of a management reserve, which was not required in 1999. In 1997, insurance benefits were adversely affected by reserve strengthening on a savings contract, “Triplé” due to inadequate investb03 -338 • Item 9 (US) ok 23/05/00 12:11 Page 117 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
French Life Insurance Group and associated net investment results are not included, and net investment income is not reduced for investment expenses or interest expense on short-term and long-term debt. Accordingly, the net investment results summarized in the following table are not directly comparable to the net investment results of the French Life
The ratio of general costs (acquisition costs, administrative expenses and claims handling expenses which are included as part of insurance benefits) to insurance reserves was 2.12% in 1998 compared to 2.31% in 1997. The ratio of general costs to gross premiums increased to 15.1% versus 14.7% in 1997. The development of new cost accounting systems and the reallocation of administrative costs between life and property casualty insurance operations makes the comparison difficult between the two periods. Other general costs increased by 1.0%. Excluding costs related to the merging of operations, a 0.2% tax on life insurance premiums recorded in general costs for the first time in 1998, and despite the costs related to harmonizing benefits for AXA and UAP personnel, general costs excluding commissions decreased 5%.
(in euro millions Yield Amount Yield Amount Yield Amount except percentages) (a) (a) (a)
(a) Yields are calculated on the basis of the average beginning and end of period asset carrying value for each asset category. (b) Including investment income for loans that are not detailed in table above.
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The following table presents information regarding the UK Life Insurance Group for the years indicated.
Such amounts are recognized in net income over the periods benefited using the same assumptions and methods used for amortizing deferred acquisition costs. (d) In 1999 and 1998, AXA used the weighted average exchange rate to translate the results of operations whereas in 1997 the year-end exchange rate was used.
AXA Sun Life’s market share, calculated on the basis of the new business indicator used by the UK market
(or up 11.1% at a constant exchange rate) relates to higher level of net investment income compared to 1998 (up 9%) and realized gains on the sale of investments (up 14%). The increase in net investment income comes notably from the equity portfolio (up 14%), partially offset by the decline in income earned on real estate (down 29%) due to divestments.
Net realized gains of € 1,003 million represent an increase of € 144 million principally due to realized gains on fixed maturity securities (up 116% and totaled € 529 million in 1999. In order to optimize the duration period between the assets and the related insurance liabilities, AXA Sun Life reallocated a portion of its fixed maturity portfolio (with a 30-year duration period). Based on the UK methodology for profit allocation to participating policyholders, nearly all of these profits are attributed to the policyholders and, therefore increase insurance benefits.
Of the total insurance benefits of € 8,310 million, € 560 million related to the GRE subsidiaries and € 7,750 million related to AXA Sun Life. Compared to the increase in AXA Sun Life’s total revenues, its insurance benefits were slightly higher. AXA Sun Life’s insurance benefits increased 24.5% compared to 20.9% in 1998. In 1999, AXA Sun Life reviewed the basis for measuring and deferring acquisition costs which resulted in an increase in technical charges of € 45 million. In addition, AXA Sun Life strengthened its reserve for “Pension Misselling” by € 107 million in 1999 compared to € 58 million in 1998. In addition,
The net investment result increased by 16.7% on a constant exchange rate basis. The increase was due to the particularly high level of realized gains on the sale of equity securities in 1998 (€ 596 million compared to € 280 million in 1997), as AXA Sun Life restructured its equity security portfolio in order to better diversify its holdings. The change in net investment results compared to 1997 also reflected € 23 million in realized gains on real estate sales in 1998 compared to € 118 million in 1997.
On a constant exchange rate basis, insurance benefits and claims increased by 12.7% principally due to the 13.4% increase in total revenues. It should be b03-338 • Item 9 (US) ok 23/05/00 12:11 Page 122 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
In 1998, new accounting principles were adopted for the calculation of insurance reserves for certain unitlinked products. The application of the previous calculation methods for such contracts, which amortized certain profits over the life of the contracts, did not reflect the economic results of such contracts as such calculation methods reflected losses when financial markets increased and gains when financial markets declined. The new method of accounting better reflects the economics of these contracts. The reduction in the insurance benefits of € 100 million was partially offset by additional DAC amortization of € 51 million due to this change. The increase in net income for this change was € 27 million. If such principles had been applied in 1997, net income would have increased by € 11 million.
DAC balance also led to an increase of 268% in DAC
compared to 1997. It should be noted the 1997 total included restructuring provisions related to the merger between Sun Life and AXA Equity and Law (€ 45 million ). An additional € 10 million provision was recorded in 1998. Despite the effect of synergies resulting from the restructuring, administrative expenses increased 11.6% on a constant exchange rate basis.
In the UK, life insurance companies are principally taxed based on investment income less certain deductible expenses. Accordingly, income tax expense does not vary directly with income before income tax expense.
211 million compared to € 198 million in 1997. The negative impact of the Pound Sterling French franc exchange rate was approximately € 3 million. The 1997 total reflected both the group share gain of €
18 million realized on the sale of AXA Equity & Law
International (Isle of Man) and the € 11 million impact of the change in tax rates. Excluding these non-recurring events, net income increased € 45 million due to an increase in gains realized by AXA
■ The following table summarizes the net investment results of the UK Life Insurance Group for the principal categories of general account assets for the periods indicated. Certain investment assets of the UK Life
Insurance Group and associated net investment results are not included, and net investment income is not reduced for investment expenses or interest expense on short-term and long-term debt. Accordingly, the net investment results summarized in the following table are not directly comparable to the net investment results of the UK Life Insurance Group discussed above.
UK Life Insurance Group Net Investment Result by General Account Asset Category Year Ended December 31,
Equity Investments: Net unrealized investment gains (losses) (e) 20.78% 3,733 2.57% 375 13.53% 1,684
(b) On a constant exchange rate basis, the yields for 1999 would have been 9.03% for fixed maturities, 17.5% for real estate, 27.98% for equity investments, 7.57% for cash and short term investments and 20.46% for all general account investments.
(d) On a constant exchange rate basis, the yields for 1997 would have been 10.79% for fixed maturities, 13.78% for real estate, 18.97% for equity investments, 1.22% for cash and short term investments and 15.63% for all general account investments.
(e) Includes net unrealized investment gains (losses) on assets allocated to UK with-profits contracts.
■ On a constant exchange rate basis, gross premiums decreased by 4.4%, primarily in Australia and New
Net income from the Asia/Pacific region increased by € 105 million compared to 1998 on a constant exchange rate basis, due to strong growth in investment results, partially offset by an increase in tax expense.
Gross premiums decreased by 11.2% attributable to the transfer of activity on the short-term savings products to an external third party and due to policy terminations and a fall in policy renewals of 51.6% associated with a change in tax regulations on certain types of retirement contracts. Excluding these two factors, gross premiums increased by 2.9% primarily due to (i)
the development of disability products (up 6.1%) and health products (up 7.5%) benefiting from tax incentives effective since January 1999, and (ii) partially offset by the stability of the retirement products (up 0.3%), which represented 40% of the business.
The rate of general costs (acquisition costs, administrative expenses and claims handling expenses, which are included as part of insurance reserves) to gross premiums was 20.6% in 1999 compared to 18.5% in 1998. After excluding the two factors impacting the decrease in gross premiums, noted above, the ratio of general costs to gross premiums was 24.7% in 1999 compared to 25.6% in 1998.
Net investment results increased by € 246 million attributable to the favorable results arising from the financial markets in 1999 compared to 1998, which was affected adversely by the Asian financial market crisis. However, this improvement was partially offset by deterioration in claims on earlier periods relating to disability products. National Mutual Life uses a fiscal year ended September 30. As a result, National Mutual
€ 162 million, or € 54 million, group share. In addition, operating results for the period include an increase in amortization of value of purchased business inforce of € 23 million due principally to the increase in net investment results in 1999.
The operating results of Dongbu AXA Life are consolidated, on a proportional basis, into AXA’s operating results as AXA has a 50% interest. On a constant exchange basis, gross premiums written by Dongbu
AXA Australia, the close of the 1999 financial period was pushed back to September 30, 1999. Therefore, only nine months of activity is included in the AXA consolidated operating results.
During the nine-month period, AXA Life Singapore had gross premiums of € 59 million, an increase of 28.0% compared to the twelve-month period in 1998
(up 93.4% using comparable data). The growth in new business (up 100.6%) is attributable to endowment insurance products (up 173.5%) and the benefits arising from a promotion campaign on single premium contracts distributed through the bank distribution channel.
Gross premiums increased by 65.9% principally due to regular premium paying policies. These policies represent 90% of the total business and increased 63.4% (on a constant exchange rate basis). In particular, the level of new business was 43% higher in 1999 compared to 1998 and relates to the life insurance products.
China (51% interest). Its Chinese partner Minmetals holds the 49% interest. AXA Minmetals started operations in June 1999. In the first seven months of operation, 5,760 policies were sold, primarily employee benefits/personal protection contracts. The formation of the distribution network is under way with the recruitment of nearly 700 agents. AXA’s share of the net loss in AXA Minmetals totaled € 2 million and relates primarily to the acquisition and administrative expenses incurred given that this entity is in the development stage of operations.
Australia and New Zealand, non-traditional insurance products are primarily taxed on investment results less certain deductible expenses. The significant decline in net income for the Asia/Pacific Life Insurance Group compared to 1997 is primarily due to the negative impact of the Asian financial market crisis, estimated at € 88 million (realized losses, unrealized losses on trading securities, and asset impairments). The financial crisis also prevented the group from realizing gains it would have otherwise realized. In addition, net income was affected by a National Mutual Life’s provision for restructuring its operations in Australia and
Gross premiums declined 12.1% on a constant exchange rate basis after exclusion of € 106 million in additional gross premiums received in March 1997 from policyholders that opted to purchase insurance coverage with proceeds obtained in connection with the demutualization. Such decline was primarily as a result of a 66% decrease in short-term savings products ’ gross premiums due to their volatility and the transfer of part of this portfolio to a third party asset manager. Such products represent 8.2% of 1998’s gross premiums. Partially offsetting this decline was a 22.3% increase in internal replacements (internal transfers among products). Excluding these three nonrecurring events, gross premiums declined 0.2% on a constant exchange rate basis. There was also 7.3%
increase in mandatory employer contributions to pensions due to new regulation. These increases were offset by the decline in traditional life insurance and savings products.
Net income for 1998 decreased by € 8 million primarily as a result of the financial market crisis between
National Mutual Life’s 1998 results of operations presented above do not yet reflect the positive impacts of the recovery of financial market in the fourth quarter of 1998. Net investment results declined by 68.6%
on a constant exchange rate basis, much of which is reflected in insurance benefits as most of the Australian products pass the investment risk and reward on to the policyholders. These events were partially offset by improved margins on term life and disability insurance products, an improvement in health insurance results due to an increase in premiums rates and an improvement in the administrative cost margin. The ratio of general costs (excluding the restructuring provision ) to gross premiums increased from 15.3% in 1997 to 18.5% in 1998 principally due to a decrease in gross premiums for short term savings products which have lower general costs relative to their gross premiums. Excluding the impacts of the three nonrecurring events on gross premiums discussed above, the ratio of general costs to gross premiums increased from 23% in 1997 to 23.4% in 1998. In addition, net income was reduced by € 5 million as a result of recording a restructuring provision.
gross premiums (14.2%) and group retirement products (22.8%). Despite the financial crisis, new business gross premiums for individual insurance products increased 3.6% due to the introduction of a new insurance product designed exclusively for women. This product accounted for 22.0% of new business gross premiums in 1998. However, gross premiums on new b03-338 • Item 9 (US) ok 23/05/00 12:11 Page 129 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
business written decreased slightly principally due to a decline in group retirement products’ new business.
Such decline was as a result of the anticipation of the establishment of new government-mandated pension funds.
Net income was down sharply due to the Asian financial markets crisis. In 1997, AXA China Region recorded significant realized gains in its equity securities portfolio of € 60 million (€ 20 million, group share). In 1998, in light of the downward trend in the financial markets that began in October 1997, AXA
China Region sold most of its equity securities in connection with the restructuring of its investment portfolio, recording significant realized losses on Asian securities (€ 200 million, € 66 million, group share).
Considering gains realized on other securities, the realized losses, net of gains, totaled € 162 million (€ 54 million, group share). In addition, due to a downward revision in investment yield assumptions, amortization of VBI increased by € 22 million (€ 7 million, group share). Finally, AXA China Region continued to reduce general costs, which represented 23.1% of gross premiums in 1998, compared 24.9% in 1997.
The operating results of Dongbu AXA Life are consolidated, on a proportional basis, into AXA’s operating results as AXA has a 50% interest. On a constant exchange basis, Dongbu AXA Life had contributed gross premiums of € 93 million. Despite the major economic slowdown in 1998 and the reduction of its agency force, gross premiums remained stable on a constant exchange rate basis.
AXA Life of €14 million, as well as (iii) total amortization of the remaining balance of value of purchased inforce business of € 9 million.
AXA Life recorded a loss of € 2 million, versus net income of € 8 million in 1997. The 1997 net income reflected the positive impact of actuarial assumption changes on insurance benefits and DAC amortization. The 1998 result includes realized losses in connection with the restructuring of AXA Life Singapore’s equity securities portfolio to reduce its financial market exposure.
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was higher than the growth in operating revenue of 6.0%. The increase in insurance reserves related to an increase in the profit sharing rate associated with participating insurance policies (95.6% in 1999 compared to 95.2% in 1998), which remains at a high level because of the competitive market conditions.
General costs (acquisition costs, administrative expenses and claims handling expenses, which are included as part of insurance reserves) totaled € 452 million, representing an increase of € 27 million compared to 1998. This increase is attributable to increased acquisition expenses net of DAC (4.6% on a constant structural basis), which is in line with the level of new business. The ratio of general costs to gross premiums decreased slightly to 17.4% in 1999 compared to 17.6% in 1998. The ratio of general costs to insurance reserves decreased slightly to 2.22% in 1999 compared to 2.26% in 1998. In addition, the ratio of general costs to gross premiums for
The 1999 income tax expense decreased € 16 million compared to 1998. This decrease is primarily due to (i) the decrease in the tax rate applied to deferred taxes, (ii) the realized gains on the sale of
On a constant structural basis, given the German rules of distribution to policyholders and the strong competition in the life insurance market, the policyholder distribution rate was over 95%. AXA’s share of
AXA Colonia’s 1998 gross premiums on a constant exchange rate and structural basis are as follows: life b03-338 • Item 9 (US) ok 23/05/00 12:11 Page 132 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
increased by 2.5% while health insurance gross premiums (€ 449 million) grew by 8.7%. Due to the restructuring of its operations and distribution channels, AXA Colonia’s life insurance gross premium growth was less than the German market and new business gross premiums declined. Health insurance operations, launched by AXA Colonia in 1996, outpaced the market due to Colonia Kranken’s recent development of products, which provide limited guarantees.
On a constant exchange rate and structural basis, net investment results in 1998 totaled € 1,017 million, an increase of € 165 million compared to 1997.
Net investment results were comprised of investment income of € 964 million and realized gains of € 54 million. The strong increase in investment income was the result of gains realized to take advantage of the positive financial market climate.
The relatively small amount of realized gains is due to the fact a large portion of the investment portfolios is actively managed within mutual funds (“special funds”) and distributions are in the form of dividends, therefore the gains realized by these funds are included in net investment income. In 1997, provisions of € 29 million, before policyholder interests, were recorded on Asian investments impaired as a result of the Asian financial crisis; in 1998, these provisions were strengthened by € 3 million.
Administrative expenses declined by 8.2% on a constant structural basis due to a reduction in the workforce. On a constant structural basis, the 1998 ratio of general costs (acquisition costs, administrative expenses and claims handling expenses, which are included as part of insurance reserves) to gross premiums was 17.6% compared to 18.8% in 1997. The ratio of general costs to insurance reserves was 2.26% compared to 2.39% in 1997. After the amortization of VBI of € 9 million, the net VBI balance at
German Life Insurance Group and associated net investment results are not included, and net investment income is not reduced for investment expenses or interest expense on short-term and long-term debt. Accordingly, the net investment results summarized in the following table are not directly comparable to the net investment results of the German Life
(in euro millions Yield Amount Yield Amount Yield Amount except percentages) (a) (a) (a) (b) (a) (a) (c) (a)
Cash & Short Term: Related Assets at year end 210 80 147
Such amounts are recognized in net income over the periods benefited using the same assumptions and methods used for amortizing deferred acquisition costs. (d) In 1999 and 1998, AXA used the weighted average exchange rate to translate the results of operations whereas in 1997 the year- end exchange rate was used.
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■ On a constant structural basis, gross premiums remained level compared to 1998. Individual life insurance business, which represents 66% of gross premiums, increased specifically relating to savings-related products. This increase is principally attributable to the bank distribution network (in particular, ANHYP), mitigated by the loss of new business due to the drop in the minimum rate guaranteed to policyholders, which came into effect the beginning of the year.
Insurance benefits and claims remained stable compared to 1998 and in line with growth in gross operating revenue.The minimum guaranteed rate dropped from 4.75% to 3.25% as of January 1, 1999 due to a change in Belgian regulations. In addition, AXA
Royale Belge reduced slightly the rate accruing to policyholders (guaranteed interest and profit sharing)
within the context of the overall decline in interest rates. The policyholder profit sharing rate remained low in 1999 at 65%, as a result of the high level of net realized gains, as Belgian regulation does not require a minimum rate for policyholder participation in the profits of the company.
VBI net of accumulated amortization was € 95 million at December 31, 1999.
Belgian market mainly due to the strong development of banking distribution channels in Belgium. Beginning in 1999, the Belgian Life Insurance Group should benefit from the distribution network of Banque ANHYP, acquired at the end of 1998.
In 1998, general costs (acquisition expenses, administrative expenses and claims handling costs, which are included as part of insurance reserves) increased € 63 million compared to 1997. Excluding the impact of a restructuring provision of € 47 million, the ratio of general costs to gross premiums in 1998 was 18.5%
61 million of the increase as VBI is amortized in relation to the recognition of profits. The balance of net
Lambert transaction (€ 41 million). Excluding these non-recurring events, the increase in the Belgium Life
■ The following table summarizes the net investment results of the Belgium Life Insurance Group for the principal categories of general account assets for the periods indicated. Certain investment assets of the
Belgium Life Insurance group and associated net investment results are not included, and net investment income is not reduced for investment expenses or interest expense on short-term and long-term debt.
Belgian Life Insurance Group Net Investment Result by General Account Asset Category Year Ended December 31,
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Other Life Insurance Group increased by 7.4%. On a constant structural basis, the increase in AXA’s share of the Other Life Insurance Group’s net income of € 27 million was attributable primarily to the Italian life operations.
The level of activity in the life insurance operations declined by 3.9% as a result of the termination of certain products offered to customers at January 1, 1999.
This decision led to a decline in new business (18% on single premium products and 13% on regular premium products) which was unable to be offset by the growth of separate account (unit-linked) products. The separate account (unit linked) products represented 40%
of gross premiums and 87% of new business. On a comparable basis, gross premiums on health insurance products increased by 14.1% due to an increase in premium rates in line with market trends as a consequence of the poor underwriting results. After eliminating disability income posted in 1998 under property and casualty insurance and taking into account AXA’s increase in share of ownership, the contribution to AXA’s consolidated net income of € 40 million represented a small decrease of € 5 million compared to 1998. The life insurance business contribution to net income, €
49 million, was reduced by € 4 million in particular due to the realization of capital losses on fixed maturity investments, unlike in 1998 which resulted in capital gains. The health insurance business contribution had a net loss of € 9 million, because of continued underwriting losses despite the increase in premium rates which were effective since the beginning of 1999.
Italy. The 24.2% growth in gross premiums is primarily a result of new distribution networks (financial advisors and bank distribution arrangements). This growth principally relates to the separate account (unit-linked)
The contribution to net income totaled € 12 million in 1999 compared to € 9 million in 1998. This contribution was broken down as follows: approximately € 7 million from Portugal, € 1 million from Austria and
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Income before income tax expense increased by € 17 million. Insurance reserves decreased, particularly in the Netherlands due to a decrease in gross premiums and an improvement in underwriting estimates.
General costs increased slightly primarily due to restructuring provisions recorded in the Netherlands.
Spanish subsidiaries, partially offset by the growth in the Netherlands’ contribution.
The Netherlands. Gross premiums for the life and health insurance operations in the Netherlands decreased by 2.1% on a constant exchange rate and methodological basis, to € 835 million. Life insurance gross premiums totaled € 662 million and health insurance gross premiums totaled € 172 million. Life insurance gross premiums decreased by 0.6% on a constant exchange rate and methodological basis due to the lower level of single premium life and retirement product gross premiums recorded in 1998 as compared to 1997. Partially offsetting this decrease was the 7.0% growth on a constant methodological and structural basis in individual savings products, which represent approximately 51% of gross premiums, due to the continuing success of AXA Leben’s Universal Life product. Gross health insurance premiums declined by 7.5% on a constant exchange rate basis. The 6% price increase in premium rates initiated at the beginning of 1998, which was higher than the market as a whole, resulted in a decrease in new business and higher surrenders, as compared to 1997. Net income totaled € 38 million, a € 16 million increase over 1997. After the acquisition of Royale Belge’s and AXA
Italy. Eurovita, proportionately consolidated until 1997, is 30% owned by AXA Assicurazioni. Beginning in 1998, the entity is accounted for using the equity method. Eurovita’s gross premiums totaled € 75 million in 1997. Gross premiums decreased by 0.1% on a constant exchange rate and structural basis over 1997, to € 276 million. In 1997, AXA Assicurazioni assumed certain risks underwritten by Eurovita.
P r o p e r t y a n d C a s u a l t y I n s u r a n c e S e g m e n t As previously stated, AXA from time to time may change its segment presentation. In 1999, the following changes were made to the Property and
Insurance Group activities, which was previously reported as a group within the Property and
Casualty Insurance Segment. The new segment is named “International Insurance Segment” covering all aspects of global insurance and reinsurance risk coverage.
France, Germany, the UK, and Belgium contributed total gross premiums written in Europe.
■ On a constant exchange rate and structural basis, consolidated gross premiums decreased 1.5% primarily as result of the more stringent underwriting standards employed in 1998 with the objective of increasing profitability. The € 389 million contribution of the Property and Casualty Insurance Segment represented 25.4% of the AXA’s 1998 consolidated net income. The 1998 contribution of the Property and
Casualty Insurance Segment increased by € 60 million compared to 1997. The increase is primarily due to the strong increase in the Belgian Property and
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A n a l y s i s b y P r o p e r t y a n d C a s u a l t y I n s u r a n c e G r o u p
The following table presents information regarding the French Property and Casualty Insurance Group for the years indicated.
On a constant structural basis, 1999 gross premiums decreased by 1.1%. Automobile insurance gross premiums, which account for 45% of gross property and casualty insurance premiums, decreased by 1.7% due to intense premium rate competition affecting both new business and renewal business. Gross premiums earned by Direct Assurance in 1999 totaled € 109 million, an increase of 18.2% compared to 1998 on a constant methodological basis, with the number of contracts in the portfolio of automobile business increasing by 37,000. In property insurance (32% of total gross property and casualty insurance premiums), gross premiums decreased by 3.1% due to the more stringent underwriting standards adopted in 1998 with the objective of increasing profitability rather than business volume.
In order to improve the overall yield on the fixed maturity portfolio in light of rate increases, the property and casualty insurance companies acquired units in mutual funds (OPCVM) invested in corporate bonds and reduced their exposure to government bonds.
Administrative costs decreased by € 43 million, not including the € 199 million provision relating to the strategic change program being conducted by AXA
France. Excluding this provision, the expense ratio was 26.5% in 1999, a 1% improvement compared to 1998. In 1998, the expense ratio was adversely affected by additional costs in relation to the mergers of property and casualty operations. The combined ratio, net of reinsurance, was 111.3% in 1999 compared to 104.8% in 1998. Excluding the aforementioned provision for change project costs, the combined ratio was 106.0%, primarily due to the year-end weather-related events.
■ For the French Property and Casualty Group, 1998 was marked by several restructurings that resulted in the following insurance portfolio transfers: • AXA Global Risks transferred to AXA Courtage its commercial risks portfolio for French companies with less than 1,000 employees. Gross premiums and net income in 1997 for this operation totaled € 148 million and € 9 million, respectively.
Conseil IARD its bodily injury portfolio. Gross premiums and net income in 1997 for this portfolio totaled € 35 million and € 2 million, respectively.
• Transfers to other AXA subsidiaries, the deconsolidation of certain entities and the former UAP IARD’s sales of its foreign branch offices. Gross premiums in 1997 for these businesses totaled approximately
Insurance claims reflect an improvement of 0.7 points to 68.4% in the claims ratio excluding claims handling expenses for all accident years (68.0% in 1998 from 68.9% in 1997 excluding direct marketing insurance).
Prior accident years’ negative loss reserve development for catastrophe insurance increased by € 35 million, net of reinsurance. In addition, reserve strengthening was recorded for foreign insurance originating from UAP IARD which was restructured in 1998. The claims ratio for the current accident year improved by 0.6 points in both individual and commercial insurance. In individual insurance, the strong results for the current accident year were the result of more stringent underwriting and claim cost control. In commercial insurance, 1998 was marked by less serious claims events.
the loss incurred by UAP IARD’s foreign business (€ 29 million) and the reinsurance recoveries on natural catastrophe claims, principally droughts. In addition, the policy regarding reinsurance has shifted toward non-proportional reinsurance.
The expense ratio (including direct marketing expenses) increased to 36.4% as compared to 35.7%
in 1997. As is the case for the French Life Insurance
merging the operations and direct marketing operations, the ratio improved to 103.8% relative to 104.3% in 1997 (103.9% in 1998 excluding direct marketing operations).
Net income was € 163 million of which direct marketing insurance recorded a net loss of € 19 million while the other distribution channels recorded net income of € 182 million. The contribution of the latter remained stable from 1997 to 1998, with underwriting results that remained solid. The loss in direct marketing insurance is in line with its business plan that forecasts losses until 2000.
■ The following table summarizes the net investment results of the French Property and Casualty Insurance
Group for the principal categories of general account assets for the periods indicated. Certain investment assets of the French Property and Casualty Insurance
(in euro millions Yield Amount Yield Amount Yield Amount except percentages) (a) (a) (b) (a) (c)
Cash & Short Term: Related Assets at year end 1,014 171 694
(a) Yields are calculated on the basis of the average beginning and end of period asset carrying value for each asset category. (b) Direct Insurance has been included in the Property & Casualty French Group in 1998. 1997 yields have not been restated as Direct Insurance net investment result and assets represented € 7 million and € 90 million, respectively. (c) Including investment income for loans that are not detailed in table above.
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Excluding Albingia, the € 15 million improvement in net reinsurance ceded is primarily attributable to coverage for AXA Colonia of a significant marine claim which occurred at the end of the year.
Acquisition expenses and administrative expenses increased by € 21 million. The expense ratio went from 29.8% in 1998 to 32.2% in 1999 (including direct marketing insurance), primarily due to the decline in average premiums. The combined ratio was 111.8% in 1999 compared to 106.9% in 1998.
insurance: gross premiums down 10% and 14%, respectively. Gross premiums for the direct marketing insurance subsidiary Sicher Direct were € 60 million, up 13.1% on a constant exchange rate basis, with an increase of almost 60,000 contracts.
Realized gains, net of provisions, increased by € 33 million principally due to sales of equity securities not held in such funds.
Acquisition expenses and other insurance company expenses, € 718 million, decreased by € 27 million compared to 1997. The cost-cutting plan that has been in effect for several years continued to produce an impact, as reflected in lower personnel costs.
Net income for AXA Colonia increased by € 24 million as compared to 1997 primarily due to the strong net investment results in 1998. The € 9 million reduction of Sicher Direct ’s net loss was due to improved net investment results and declining administrative costs.
■ The following table summarizes the net investment results of the German Property and Casualty
Insurance Group for the principal categories of general account assets for the periods indicated. Certain investment assets of the German Property and
Casualty Insurance Group and associated net investment results are not included, and net investment income is not reduced for investment expenses or interest expense on short-term and long-term debt.
Accordingly, the net investment results summarized in the following table are not directly comparable to the net investment results of the German Property and Casualty Insurance Group discussed above.
German Property and Casualty Insurance Group - Net Investment Result by General Account Asset Category Year Ended December 31,
(b) On a constant exchange rate basis, the yields for 1998 would have been 6.21% for fixed maturities, 8.57% for real estate, 7.02% for equity investments, 4.24% for cash and short term investments and 6.71% for all general account investments.
(c) On a constant exchange rate basis, the yields for 1997 would have been 6.20% for fixed maturities, 5.14% for real estate, 5.50% for equity investments, 5.39% for cash and short term investments and 5.74% for all general account investments. Sicher Direct has been included in the Property & Casualty German Group in 1998. 1997 yields have not been restated as Sicher Direct net investment result and assets represented € 1 million and € 22 million, respectively.
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(a) Includes investment income, net of investment expenses and interest expense on short-term and long-term debt, and net realized investment gains or losses. (b) Includes the net result of premiums, insurance benefits and claims and commissions ceded under reinsurance contracts. (c) In 1999 and 1998, AXA used the weighted average exchange rate to translate the results of operations whereas in 1997 the year- end exchange rate was used.
The 1999 gross premiums include € 874 million written by the GRE subsidiaries in the eight-month period following the acquisition in May 1999. There was an 18% decrease in gross premiums written over a twelve month period due to the adoption of a more stringent risk underwriting policy in automobile insurance and the decision to cease underwriting and to run off unprofitable business from GRE
The increase was mainly attributable to sales of automobile insurance products sold through the broker network, up 33.2% despite the adoption of higher automobile insurance rates to improve profitability, and higher sales via direct marketing insurance operations. The relatively modest 0.3%
Net investment results included a € 45 million contribution from GRE subsidiaries realized in the eightmonth period to December 31, 1999 following the acquisition by AXA. The amount contributed by GRE
Insurance claims include € 799 million from GRE subsidiaries, whose claims ratio for all accident years, net of reinsurance, was 80.8%, primarily due to negative underwriting results on automobile insurance policies sold through automobile dealerships. In 1999,
Guardian Insurance ceased underwriting new business from this source and substantially increased premium rates on renewals.
Thomas Cook business offset the deterioration in the automobile claims ratio for all accident years due to the higher average cost of bodily injury claims.
Excluding the Thomas Cook contract, the claims ratio for all accident years, net of reinsurance, rose by 0.6% to 76.5%. A provision of € 5 million was made to the equalization reserve (€ 4.5 million in respect of
The net reinsurance ceded represented a charge of € 40 million for GRE subsidiaries and a charge of € 13 million for AXA Insurance. This can be compared to AXA Insurance’s charge of € 34 million in 1998. This improvement can be primarily attributed to the negotiation of more favorable terms in 1999 b03-338 • Item 9 (US) ok 23/05/00 12:11 Page 155 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
Excluding these restructuring costs, the expense ratio for AXA Insurance rose by 1.6%, to 32.2%, primarily due to high commissions paid on the Thomas Cook contract. Excluding the impact of this contract, the general expense ratio declined by 0.7%, to 29.9%.
Net income totaled € 5 million, with AXA Insurance contributing € 26 million and the GRE subsidiaries providing a loss of € 21 million. The loss provided by the latter was primarily the result of realized losses
Net income for AXA Insurance UK was € 22 million, a decrease of 50.1% on a constant exchange rate basis. This decline was primarily due to deterioration in the combined ratio for all accident years, which rose to 106.5% in 1998 versus 100.6% in 1997. The 1997 claims ratio was unusually low as it reflected positive loss reserve development for years prior to 1997. Poor claims experience in 1998 was noted in automobile insurance. The expense ratio decreased slightly from 30.7% in 1997 to 30.6% in 1998. Net investment results increased 8.0% on a constant exchange rate basis.
■ The following table summarizes the net investment results of the UK Property and Casualty
Insurance Group for the principal categories of general account assets for the periods indicated. Certain investment assets of the UK Property and Casualty
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(b) On a constant exchange rate basis, the yields for 1999 would have been 8.24% for fixed maturities, 17.62% for real estate, 20.08% for equity investments, 6.63% for cash and short term investments and 12.74% for all general account investments.
(c) On a constant exchange rate basis, the yields for 1998 would have been 11.09% for fixed maturities, 31.32% for real estate, 4.66% for equity investments, 6.99% for cash and short term investments and 8.23% for all general account investments.
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■ On a constant structural basis (after the exclusion of Royale Belge Re which has been in run-off with gross premiums of € 122 million in 1999), gross premiums decreased by 1.6% compared to 1998. Gross premiums on individual household insurance premiums (17% of all gross premiums) remained constant, with a 2% loss of contracts inforce offset by higher average premiums. Gross automobile insurance premiums (43% of gross premiums) increased by 1.2%
The net investment result decreased by € 122 million due to an exceptionally high level of net realized gains in 1998. Investment income decreased by € 20 million, primarily due to the sale of assets to fund the dividends paid.
On a constant structural basis, the claims ratio for all accident years, net of reinsurance, was 83.7%, a 2.6%
improvement compared to 1998. In 1998, the claims ratio was affected by the strengthening of annuity reserves in connection with changes to mortality tables for workers’ compensation benefits (€ 14 million), and the strengthening of the claims reserves attributable to legal protection cover associated with automobile insurance of € 22 million. Despite the increase in claims frequency in personal automobile cover, the claims experience improved by approximately 1% due to a decline in large workers’ compensation claims and the reduction in claims frequency in the personal household insurance.
The increase in net income is attributable to the increase in AXA’s ownership of AXA Royale Belge
On a constant structural basis, the improvement in net income versus 1998 was due to the restructuring reserve recorded in 1998, and to the improvement in the claims experience, partly offset by the decline in realized gains.
The decrease in insurance claims was due to the 2.6 point improvement in the claims ratio for all accident years, which went from 88.9% in 1997 to 86.3% in 1998. In 1997, the claims ratio was impacted by the strengthening of claims reserves in connection with the run-off of reinsurance assumed on third party liability contracts in the United States. In 1998, annuity provisions were strengthened € 14 million in connection with changes to mortality tables for workers’ compensation liabilities and claims reserves were strengthened by € 22 million for attributable to legal protection cover associated with automobile insurance. Excluding workers ’ compensation and reinsurance assumed, the claims ratio for all accident years deteriorated from 79.5% in 1997 to 81.7% in 1998 principally due to poor claims experience in automobile insurance which experienced an increase in claims frequency and severity, a trend noted throughout the market.
Acquisition expenses and administrative expenses increased by € 129 million, to € 525 million as a result of the recording of a € 127 million provision related to the restructuring of property and casualty operations in Belgium. Excluding this provision, the expense ratio was 31.4% versus 30.0% in 1997. Such decline is due to information system costs incurred in preparation for the euro and costs incurred preparing the restructuring plan.
Belge in the last five months of 1998 to 98.7% versus 47.6% previously.
Cash & Short Term: Related Assets at year end 79 36 55
(b) On a constant exchange rate basis, the yields for 1998 would have been 7.76% for fixed maturities, 7.87% for real estate, 34.27% for equity investments, 7.60% for cash and short term investments and 12.47% for all general account investments.
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The Other Property and Casualty Insurance Group includes principally AXA’s insurance operations in Italy,
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The following table sets forth certain summarized financial information for the Other Property and
Net Income Year Ended December 31, Including Minority Interests Group Share b03-338 • Item 9 (US) ok 23/05/00 12:11 Page 163 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
Italy. The 2.5% increase in gross premiums was primarily due to a 4.9% increase in automobile insurance, which represents 63% of gross premiums. The average premium rate increased by 7% largely offset by the reduction in the portfolio due to the closure of unprofitable agencies and the impact of new automobile sales, which were lower in volume terms compared to 1998. This was due to expiration of incentives designed to support the automobile market.
Net income was break-even in 1999, principally due to an improvement in net investment results, including several significant realized gains (€ 19 million net of minority interests), and in the combined ratio, which declined by 7.4% to 108.2% as a result of (i) a selective underwriting policy implemented in 1997, (ii)
7 million) increased by € 2 million due to a claims ratio that remains high in a difficult market in which the company continues to build its portfolio of business.
Canada. Gross premiums increased 2.7% on a constant exchange rate basis due partly to partnership agreements initiated by AXA Canada with new brokers. In automobile insurance, which accounts for more than 50% of total gross premiums, gross premiums increased by 2.6% despite a decline in premium rates. Gross commercial insurance premiums increased by 3.4%.
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Net income decreased by € 10 million due to a reduction in the level of gains realized on the sale of equity securities, which was high in 1998, and to a 2% deterioration in the claims ratio for all accident years, net of reinsurance. The deterioration in the claims ratio reflects the impact of the occurrence of significant commercial risk claims and bad weather conditions in Quebec in June and July of 1999.
Excluding the impact of the freezing rainstorms in 1998, the claims ratio for all accident years, net of reinsurance, deteriorated by 4.4%. In addition, the expense ratio increased by 0.7% due to higher IT
costs and the payment of commissions on the transfer of broker portfolios, partly offset by the release of a € 6 million tax provision that was deemed no longer necessary.
Schade sold its German branch outside the Company and transferred its disability portfolio to AXA Zorg
Federation. This decision taken by some brokers led to the transfer of their business portfolios to companies (generally American) that did not exclude Year 2000-related risks from their coverage and were not members of the Millennium pool.
On a constant structural basis (including the restatement of the ownership percentage related to the buyout of AXA
Royale Belge minority interests at the end of 1998), the € 10 million improvement in net income was primarily due to provisions totaling € 23 million (group share) established in 1998, partly offset by realized gains. The 1998 provisions included € 19 million (group share) for membership in a Dutch insurance pool for commercial risks related to Year 2000 and € 4 million for risks underwritten in the London market.
In 1999, the claims ratio for all accident years, net of reinsurance, and the combined ratio (excluding broker -related business) were 70.7% and 112.7%, respectively (versus 87.4% and 129.1% in 1998).
to the cancellation of large contracts, particularly in the automobile, fire, illness/accident and transport lines of business.
The € 7 million increase in net income from AXA Al
Amane can be attributed primarily to the increase in net investment results (up by € 25 million), partially offset by the 45.2% deterioration in the claims ratio for all accident years, net of reinsurance, to 108.4%
GRE’s Portuguese branch (€ 29 million in 1999), gross premiums were up 4.7%, outperforming the market as a whole. On a constant exchange rate and structural basis, and amidst a general economic slowdown, gross property and casualty insurance premiums recorded in the Asia/Pacific region decreased by 10.6% due to a more restrictive underwriting policy.
Turkey, consolidated for the first time in 1999, contributed €139 million to gross premiums.
Other countries provided a net loss of € 14 million in 1999, versus a net loss of € 1 million in 1998, broken down as follows: Portugal, € 8 million (as opposed to € 4 million in 1998); Austria and
■ Despite the 1.0% decrease in gross premiums on a constant exchange rate basis, total revenues increased by € 61 million due higher net investment results primarily related to the positive climate in the financial markets in 1998.
The € 21 million increase in income before income tax expense was mainly due to an increase in total revenues. The Other Property and Casualty Group contributed net loss of € 3 million in 1998 versus € 2 million in 1997. This decrease was due to losses recorded by direct marketing operations in Japan and reduction in the Netherlands’ contribution to net income partially compensated by the contribution from Morocco
Italy. AXA Assicurazioni gross premiums remained relatively stable at € 882 million. In automobile liability insurance, which represents approximately 61%
Spain. On a constant exchange rate basis, gross premiums decreased 2.2%, totaling € 666 million, of which € 643 million was recorded by AXA Aurora
Iberica and € 23 million by Direct Seguros which began operations in 1997. Gross premiums for AXA
Aurora Iberica declined 4.3% on a constant exchange rate basis due to a decline in automobile insurance which was affected by increased price competition and the implementation of more stringent underwriting standards. Regarding other matters, the restructuring of historical AXA and historical