PART II – THE AXA GROUP: OUR GLOBAL BUSINESS OPERATIONS, RECENT FINANCIAL PERFORMANCE AND FINANCIAL CONDITION 2.1 Selected Consolidated Financial Data 2.2 Information on the Company 2.3 Activity Report 2.4 Liquidity and Capital resources
PART III – CORPORATE GOVERNANCE, EXECUTIVE COMPENSATION, MAJOR SHAREHOLDERS AND RELATED MATTERS 3.1 Directors, Senior Management and Employees 3.2 Full disclosure on executive compensation and share ownership 3.3 Description of the Company’s share repurchase program 3.4 Major Shareholders and Related Party Transactions 3.5 The Offer and Listing
In Paris, AXA Group Financial Communication Department 25, avenue Matignon – 75008 Paris – France
In New York, AXA Financial Financial Communication Department 1290, avenue of the Americas New York, NY 10104 – USA
AXA Group Individual Shareholder Communications 25, avenue Matignon – 75008 Paris – France
Annual Report 2008 – Document de Référence This Annual Report is also available on the Company’s website at www.axa.com.
Contacts Readers can address any comments and questions on this document to:
It was filed with the AMF on March 26, 2009 and may, as a consequence, be used in connection with a financing transaction provided it is accompanied by a prospectus registered with the AMF.
This Annual Report also includes (i) all the components of the Annual Financial Report (Rapport Financier Annuel) referred to in paragraph I of article L.451-1-2 of the French Monetary and Financial Code as well as in article 222-3 of the AMF General Regulations (please see the table on page 552 of this Annual Report which indicates the relevant sections of this Document de Référence corresponding to the components required under the terms of article 222-3 of the AMF General Regulations), (ii) all the compulsory matters required to be covered in the Management Board’s Report to the Shareholders’ Meeting to be held on April 30, 2009, established pursuant to the articles L.225-100 and L.225-100-2 of the French Commercial Code (the relevant sections of this Document de Référence corresponding to these compulsory matters have been approved by the Management Board and are presented in the table found on page 549 of this Annual Report) and (iii) all information required under article R.225-83 of the French Commercial Code.
1.1 Presentation of information In this Annual Report (referred to herein as the “annual report” or “Annual Report”) unless provided otherwise, the “Company”, “AXA” or “AXA SA” refers to AXA, a Société Anonyme organized under the laws of France which is the publicly traded parent company of the AXA Group, and “AXA Group”, the “Group” or “we” refers to the Company together with its direct and indirect subsidiaries. The Company’s ordinary shares are referred to in this annual report as “shares”, “ordinary shares”, or “AXA ordinary shares”. The principal trading market for the Company’s ordinary shares is the Compartment A of Euronext Paris, which we refer to in this annual report as “Euronext Paris”. The Company’s American Depositary Shares and American Depositary Receipts are referred to in this annual report as “ADSs” and “ADRs”, respectively. The ADSs and ADRs are listed on the New York Stock Exchange (referred to in this annual report as “NYSE”). Each ADR evidences one ADS which, in turn, represents one AXA ordinary share.
Various amounts in this document are shown in million for presentation purposes. Such amounts have been rounded and, accordingly, may not total. Rounding differences may also exist for percentages.
1.3 caUtionary statements concerning the Use of non-gaaP measUres anD forWarD-LooKing statement
This Annual Report includes certain terms that are used by AXA management in analyzing its business operations and, therefore, may not be comparable with terms used by other companies. These terms are defined in the glossary provided at the end of Section 2.3 in Part II “The AXA Group: Our global business operations, recent financial performance and financial condition”, of this Annual Report.
Certain statements contained herein are forward-looking statements including, but not limited to, statements that are predictions of, or indicate, future events, trends, plans or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties and can be affected by other factors that could cause actual results and AXA’s plans and objectives to differ materially from those expressed or implied in the forward-looking statements (or from past results). These risks and uncertainties include, without limitation, the risk of future catastrophic events including possible future weather-related catastrophic events or terrorist related incidents. Please refer to Part IV “Risk factors, certain disclosures about market risks and related matters” of this Annual Report for a description of certain important factors, risks and uncertainties that may affect AXA’s business and/or results of operations. AXA undertakes no obligation to publicly update or revise any of these forward-looking statements, whether to reflect new information, future events or circumstances or otherwise.
PART II THE AXA GROUP: OUR GlObAl bUSINESS OPERATIONS, RECENT FINANCIAl PERFORMANCE AND FINANCIAl CONDITION
Table of principal subsidiaries with ownership and voting rights percentages 14
Glossary 108 2.4 lIqUIDITy AND CAPITAl RESOURCES Internal sources of liquidity: AXA’s subsidiaries 111
The selected historical consolidated financial data presented below have been derived from AXA’s consolidated financial statements and related notes for the years ended December 31, 2008, 2007, 2006, 2005 and 2004, in accordance with IFRS.
AXA’s Consolidated Financial Statements were prepared in accordance with IFRS and IFRIC interpretations that were definitive and effective as at December 31, 2008, as adopted by the European Union before the balance sheet date. However, the Group does not use the “carve out” option to avoid applying all the hedge accounting principles required by IAS 39. As a consequence, the consolidated financial statements also comply with IFRS as issued by the International Accounting Standards Board (“IASB”).
(in Euro million, except per share data) 2008 2007 2006 2005 2004
Result from discontinued operations, net of tax (a) – 480 123 97 166
(in Euro million, except per share data) 2008 2007 2006 2005 2004 bAlANCE SHEET DATA: in accordance with iFRS: (a) As described in Notes 1.10, 1.12.2 and 1.13.2 of Part V — consolidated Financial Statements of this Annual Report, these amounts take into account: (i) following clarification of iFRic agenda committee following iASB decision, AXA reclassified TSdi instruments (perpetual subordinated debts) into shareholders’ equity in 2006 with retrospective application in 2005 and 2004 with impact on net income, (ii) in line with accounting FRS27, the reclassification in the United Kingdom of some with-profits technical reserves to allow for all future terminal bonuses payable to with-profits policyholders within the allocated policyholder reserves, previously held in the unallocated policyholder bonus reserve, without any impact on earnings, and (iii) the restatement of The Netherlands’ activities as discontinued businesses.
(c) (i) the calculation of net income per share is based on the weighted average number of outstanding shares for each period presented, and (ii) shareholders’ equity per share is calculated based on the actual number of outstanding shares at each period-end presented. The calculations deduct shares held by AXA and its subsidiaries (i.e. treasury shares) in the calculation of weighted average number of outstanding shares (for net income per share) and outstanding shares (for shareholders’ equity per share). The calculation of basic and diluted net income per share for the three years ended december 31, 2008, 2007 and 2006 is presented in Note 26 “Net income per Ordinary Share” to AXA’s consolidated financial statements. Since 2008, the net income per share takes into account interest charges and foreign exchange impacts related to perpetual debts classified in shareholders’ equity, with retroactive impact on prior years.
(e) An annual dividend is generally paid each year in respect of the prior year after the Shareholders’ Meeting (customarily held in April or May) and before September of that year. dividends are presented in this table in the year to which they relate and not in the year in which they are declared and paid. A dividend of €0.40 per share will be proposed at AXA’s Shareholders’ Meeting that will be held on April 30, 2009. The dividend will be payable on May 12, 2009 with an ex-dividend date of May 7, 2009.
The following table sets forth, for the periods and dates indicated, certain information concerning the Noon Buying Rate of one Euro to U.S. dollars in New York City for cable transfers as certified for customs purposes by the Federal Reserve Bank of New York, which we refer to in this Annual Report as the “Euro Noon Buying Rate”. The Euro Noon Buying Rates presented below are for your convenience and were not used by AXA to prepare AXA’s consolidated financial statements included in Part V of this Annual Report.
(a) The average of the Euro Noon buying Rates on the last business day of each full month during the relevant period.
The Company pays dividends in Euro. Future dividends will depend on AXA’s earnings, financial condition and other factors. Proposals for dividend payments are made at the discretion of the Management Board, subject to prior approval by the Supervisory Board, and are submitted for final approval to AXA’s shareholders at their Annual General Meeting.
Dividend per Number of Net dividend share eligible Gross dividend Distribution shares per share for a tax relief per share Fiscal year (in Euro million) (as of December �1) (in Euro) (in Euro) (in Euro)
(a) Proposal to be submitted to the Shareholders’ Meeting to be held on April 30, 2009. (b) As of January 1, 2005 individual shareholders who were residents of France for tax purposes were eligible for a tax relief of 50% on the dividend, i.e. Euro 0.305 per share for fiscal year 2004.
(c) As of January 1, 2006 individual shareholders who were residents of France for tax purposes were eligible for a tax relief of 40% on the dividend, i.e. Euro 0.352 per share for fiscal year 2005.
Dividends not claimed within five years of the date of payout become the property of the French Treasury Department.
In 1988, AXA transferred its insurance businesses to Compagnie du Midi which operated under the name of AXA Midi and subsequently changed its name to AXA.
In 1997, AXA merged with its French competitor Compagnie UAP. This transaction enabled AXA to significantly increase its size and reinforce its strategic position in a number of important markets, particularly in Europe.
In 200�, AXA sold all its activities in Argentina and Brazil.
In 2004, AXA acquired the American insurance group MONY, which allowed AXA to expand its life insurance distribution capacity in the United States by approximately 25%. In addition, during 2004 AXA sold (i) its insurance activities in Uruguay (AXA Seguros Uruguay) thereby finalizing its disengagement from South America, (ii) its Dutch insurance broking operations (Unirobe), (iii) its Dutch health insurance operations, and (iv) its mortgage lending activities in Germany (AXA Bausparkasse AG).
In 2005, FINAXA, a listed holding company that was AXA’s principal shareholder, was merged into AXA. Prior to the merger, FINAXA owned the “AXA” brand which, upon consummation of the merger, became the property of AXA. This merger resulted in a simplification of AXA’s shareholding structure and an increase in the proportion of its publicly traded shares.
In 2007, AXA (i) acquired a 90% stake in Kyobo Auto (now called “Kyobo AXA General Insurance Company”) which has a leading position in the South Korean direct motor insurance market, (ii) established of a joint-venture in the Ukrainian P&C insurance market with UkrSibbank (the Ukrainian banking subsidiary of BNP Paribas) and subsequently acquired (together with UkrSibbank) 99% of the capital of Vesko, Ukraine’s 6th largest P&C insurer, (iii) completed the sale of its principal Dutch operations, comprising
(1) Source: HSBc, “Overview of Russian opportunities”. (2) Source: Asociacion Mexicana de instituciones de Seguros. (3) Source: Association of the insurance and Reinsurance companies of Turkey.
In 2008, AXA (i) completed the acquisition of 36.7% of the share capital of RESO, Russia’s 2nd largest P&C insurer 1 (June 2008), (ii) completed the acquisition of Seguros ING (subsequently renamed AXA Seguros, S.A. de Compañia de Valores), the 3rd largest Mexican insurer 2 with leading positions in key markets such as Motor or Health and also active on the Life market (July 2008) and (iii) acquired OYAK’s 50% share in AXA OYAK, Turkey’s 1st largest P&C insurer � (August 2008).
For a description of significant acquisitions and disposals undertaken by AXA please see Part II “The AXA Group: Our global business operations, recent financial performance and financial condition”, Section 2.3 “Activity Report” – “Operating highlights” and Note 5 “Goodwill” to the consolidated financial statements included in Part V “Consolidated financial statements” of this Annual Report.
For information concerning the ownership structure of the Group, see Part 3.4 – “Major Shareholders and Related Party Transactions” in this Annual Report.
(1) Source: Pensions & investments, Watson Wyatt Global 500 survey. 2007
(a) AXA also holds indirectly 100% of the general partner of AllianceBernstein. (b) Holding company that owns AXA Equitable Life insurance company. (c) Holding company that owns AXA Assurances inc. and AXA insurance (canada). (d) New corporate name (formerly Seguros iNG). company owned by AXA Mediterranean Holding, S.A. (Spain). (e) Holding company that owns AXA Assurance Maroc. (f) Holding company that owns AXA Belgium.
Financial Services AXA Bank Europe SA Magyarországi Fióktelepe (i) 100% 100%
(i) New corporate name (formerly ELLA Bank). (j) Holding company that owns AXA Assicurazioni S.p.A. and AXA interlife S.p.A.
(n) Holding company that owns AXA Versicherung AG, AXA Lebenversicherung AG and AXA ART Versicherung AG. (o) Holding company that owns dBV-Winterthur Lebensversicherung AG, AXA Krankenversicherung AG and dBV-Winterthur Versicherung AG. (p) Holding company that owns AXA Assurance Luxembourg and AXA Assurance Vie Luxembourg. (q) company owned by AXA Mediterranean Holding, S.A. (Spain).
(r) Holding company that owns Hilo direct de Seguros y Reaseguros, AXA Seguros Generales, S.A. de Seguros y Reaseguros, AXA Vida, S.A. de Seguros y
Reaseguros, Winterthur Service, S.A, AXA Winterthur Salud S.A. de Seguros and AXA Aurora Vida, S.A. de Seguros y Reaseguros. (s) New corporate name (formerly Winterthur Swiss insurance company). Holding company that owns 66.66% of Winterthur-ARAG.
(t) New corporate name (formerly Winterthur Life). (u) New corporate name (formerly AXA Oyak Holding A.S.). Holding company that owns 100% of AXA Hayat Sigorta A.S. and 72.55% of AXA Sigorta A.S. (v) Holding company that owns directly AXA Sun Life Plc, Guardian Royal Exchange and Bluefin Group Limited (formerly AXA Advisory Holdings Limited) and indirectly AXA Sun Life Plc, Winterthur UK Financial Services Group Limited, AXA insurance Plc and Thinc Group Holdings Limited.
Australia/New Zealand insurance AXA Asia Pacific Holdings Limited (w) 53.42% 53.15%
(x) Wholly owned by AXA Asia Pacific Holdings Limited. (y) Holding company that owns AXA Life insurance co. Ltd, AXA Non-Life insurance co. Ltd and AXA Financial Life insurance co. Ltd. (z) Holding company that owns AXA Life insurance Singapore Pte Ltd. Wholly owned by AXA Asia Pacific Holdings Limited. (aa) New corporate name (formerly Kyobo AXA Auto insurance co. Ltd).
Ratings of the Company’s long Term and Short Term Debt counterparty credit rating / Senior debt Standard & Poor’s A+
– Holdings and other companies (668) –17% (414) –8% (424) (457) –11%
(d) Underlying earnings correspond to adjusted earnings excluding net capital gains attributable to shareholders. (e) Adjusted earnings represent the net income (Group share) before the impact of: (i) Exceptional operations (primarily change in scope and discontinued operations) (ii) integration and restructuring costs related to material newly acquired companies (iii) Goodwill and other related intangibles, and (iv) Profit or loss on financial assets accounted for under fair value option (excluding assets backing liabilities for which the financial risk is borne by the policyholder) and derivatives related to invested assets, including all foreign exchange rate impacts on assets, liabilities and derivatives.
(a) Since 2008, the net income per share takes into account interest charges and foreign exchange impacts related to perpetual debts classified in shareholders’ equity, with retroactive impact on prior years.
AXA: Assets backing contracts with financial risk borne by policyholders (Unit-linked) 131,990 182,827 176,562
The table below sets forth AXA’s consolidated gross revenues by segment for each of its major geographic markets for the years indicated: BrEAKdoWn oF AXA’s gross rEvEnUEs years ended December �1,
Segment Market Segment Market Segment Market contribution contribution contribution contribtion contribution contribution (%) to total (%) to total (%) to total Segment (%) Segment (%) Segment (%)
(a) includes business fronted by AXA RE and fully reinsured by Paris RE ( fronting arrangement set in place in the context of the sale of AXA RE’s business to Paris RE).
For additional information on AXA’s revenues by segments, see Note 20 “Revenues by segment and net revenues from banking activities” included in “Part V – Consolidated Financial Statements” of this Annual Report. For additional information on AXA’s business segments, see “Part 2.3 – Activity Report”, and Note 3 “Segmental Information” included in “Part V – Consolidated Financial Statements” of this Annual Report.
LIFE & SAVINGS SEGMENT AXA offers a broad range of Life & Savings products including individual and group savings products, as well as life and health products for both individual and commercial clients. The Life & Savings segment accounted for €58.0 billion or 64% of AXA’s consolidated gross revenues for the year ended December 31, 2008 (2007: €59.8 billion or 64%).
The table below summarizes AXA’s Life & Savings consolidated gross revenues and gross insurance liabilities by geographic region for the periods and at the dates indicated: liFE & sAvings sEgMEnt: gross rEvEnUEs By coUntry
(c) As described in Note 1.10 of “Part V – consolidated Financial Statements”, the contribution of discontinued operations is stated in a separate line of the income statement.
(d) For APE and NBV: in 2006, Mediterranean & Latin American Region consisted of Spain, italy and Portugal. in 2007, also included Greece and Turkey. in 2008, also included Mexico.
The principal competitive factors affecting the Life & Savings business include: • Size, strength and quality of the distribution channels, in particular the quality of advisors, • Range of product lines and product quality, feature functionality and innovation, • Price, • Quality of service, • Investment management performance, • Historical levels of bonuses with respect to participating contracts, • Crediting rates on general account products, • Reputation, visibility and recognition of brand, • Quality of management, • Ratings for financial strength and claims-paying ability, and • Changes in regulations that may affect the policy charge structure relating to commission and administrative charges.
AXA competes with insurance companies and also with banks, asset management companies, investment advisers and other financial institutions for sales of savings-related investment products and, to a lesser extent, life insurance products.
The table below presents the main Life & Savings insurance markets in which AXA operates ranked by worldwide gross revenues in 2007, along with AXA’s estimated ranking (by market share): insUrAncE MArKEt – liFE & sAvings based on worldwide gross revenues in 2007
(a) Source: Swiss Re, Sigma report 2008 “World insurance in 2007”. (b) Source: AXA, mainly based on national insurance association data for each specific country in 2007. (c) Relates to variable annuity products. (d) Based on new business Annual Premium Equivalent (APE). Represents 100% of regular premiums + 10% of single premiums, in line with EEV methodology. (e) Excludes Health. (f) includes MPS Financial’s activity (based in ireland).
(g) indicative only, as AXA purchased business in Mexico in July 2008. (h) considering all companies part of the Group of Public insurer independently. if these companies were to be considered as a group in the rankings, AXA would rank 6th. (i) country statistics exclude Health and AXA data include Health.
PRODUCTS AND SERVICES AXA’s Life & Savings products include a broad range of investment and savings products as well as life and health products marketed to individual and commercial clients. The Life & Savings products offered by AXA include term life, whole life, universal life, endowment, deferred annuities, immediate annuities, and other investment-based products. The health products offered include critical illness and permanent health insurance products. The types and specificities of the products offered by AXA vary from market to market.
• Pure savings products, which provide investment return to policyholders, while AXA bears the investment risk. • Universal savings products, which is the same as universal life but has no significant death benefit component. See below for a description of universal life products.
• Endowment products, which pay a level death benefit for a limited period of time or to age 65. An endowment benefit is paid at the end of that period if the insured is still alive.
• Disability products, which pay a benefit in case of disability. The benefit can be a lump sum, or a percentage of the income paid over a specified period of time.
• Immediate annuity products, which are usually single premium products with no previous accumulation period, which promise regular payments for a fixed period of time or over a beneficiaries’ lifetime.
Health products 1 generally offer reimbursement of medical expenses or provide medical services.
• contracts with the financial risk borne by the policyholders (unit-linked), in which the investment risk (and reward) is generally borne by the policyholder while the issuing company earns fee income from managing the underlying assets.
The table below presents consolidated gross revenues (after inter-segment elimination) and gross insurance liabilities by major product for the periods and as of the dates indicated for AXA’s Life & Savings segment: liFE & sAvings sEgMEnt
Unearned revenues and unearned fees reserves 2,454 derivatives relating to insurance and investment contracts (1,156)
(a) UK with-profits business: A participating contract, specific to the United Kingdom and known as the with-profits contract, was offered by AXA Sun Life until 2002. Under with-profits contracts, the policyholders are entitled to receive a share of the profits arising from the invested policyholders’ premiums which includes regular bonuses and terminal bonuses. The regular bonuses are designed to provide a return to the policyholder through a periodic increase in benefits and are credited to the policyholder. Once credited, regular bonuses are guaranteed to be paid at maturity, death or as otherwise specified in the policy. Terminal bonuses, which are not guaranteed in advance of payment are designed to provide policyholders with their share of total investment performance and other experience of the fund (including expenses, mortality experience and income taxes) over several periods. Terminal bonuses can represent a significant portion of the total amount paid at maturity or upon surrender prior to maturity and are at the discretion of the Board of directors. Following policyholder and court approvals, in 2001 AXA Equity & Law underwent a financial reorganization whereby the life insurance funds were transferred to AXA Sun Life and fundamentally restructured. A portion of the assets that accumulated over the years (which we refer to in this Annual Report as the “inherited estate”) were attributed to AXA as the shareholder, less a portion allocated to the with-profits policyholders in the form of a reorganization bonus, based on the number of eligible policyholders that elected in favor of this plan.
(c) includes revenues from other activities (mainly commissions and related fees on mutual funds sales).
DISTRIbUTION CHANNElS AXA distributes its products through exclusive and non-exclusive channels that vary from country to country. Exclusive channels include exclusive agents, salaried sales forces and direct sales. Non-exclusive channels include brokers, independent financial advisors, aligned distributors or wholesale distributors and partnerships.
(a) in 2008, the share of other networks increased due to the acquisition of MPS, for which Life & Savings products are fully distributed through these channels.
Other networks, including Agents, salaried salesforce Intermediaries / independent corporate partnerships and direct sales advisers / brokers and bank networks
SURRENDERS AND lAPSES For most Life & Savings products, fees and revenues are accrued over time, while costs to the issuing company in the first year are higher than costs in subsequent years due to first year commissions and the costs of underwriting and issuing a contract. Consequently, the rate of policies remaining in-force and not lapsing, also known as the “persistency rate”, plays an important role in profitability. The majority of individual Life & Savings products issued by AXA may be surrendered for a cash surrender value. Most of the individual Life & Savings products issued by AXA have front-end charges to the policyholder (or subscription fees), which are assessed at the inception date of the contract and/or surrender charges (charges assessed in the case of early surrender). Both front-end charges and surrender charges are intended to offset a portion of the acquisition costs.
Total surrenders and lapses for 2008, and the ratio of surrenders and lapses to gross surrenderable insurance reserves at the beginning of the periods indicated are presented below: sUrrEndErs And lAPsEs years ended December, �1
Total surrenders & lapses Surrenders & lapses ratio (in Euro million) % % %
(a) Amounts and percentages reported for the United States operations exclude lapses and corporate separate accounts surrenders. (b) includes conversions in Japan. (c) in 2006, Mediterranean & Latin American Region consisted of Spain, italy and Portugal. in 2007, this region also included Morocco, Greece and Turkey and, in 2008, Mexico.
PROPERTY & CASUALTY SEGMENT AXA’s Property & Casualty Segment offers a broad range of products including motor, household property and general liability insurance for both personal and commercial customers, targeting mainly small to medium sized companies. In certain countries, health products are classified as Property & Casualty products 1. The Property & Casualty segment accounted for €26.0 billion, or 29% of AXA’s consolidated gross revenues for the year ended December 31, 2008 (2007: €25.0 billion or 27%).
Gross insurance Gross revenues liabilities years ended December �1, at December �1,
MARKETS AND COMPETITION In the Property & Casualty segment, AXA operates mainly in the largest Western European markets, including France, Germany, the United Kingdom, Belgium, Switzerland and the Mediterranean Region. AXA also offers personal and commercial Property & Casualty insurance products in other countries in Central and Eastern Europe as well as in Canada, Asia (notably Japan, Singapore, Korea and Hong Kong), the Middle East, and Latin America (Mexico).
The principal competitive factors are as follows: • Price, • Quality of service, • Distribution network, • Brand recognition, • Ratings for financial strength and claims-paying ability (mainly group business), and • Changes in regulations, which may affect premium rates charged or claims settlement costs paid.
ProPErty And cAsUAlty MArKEts based on worldwide gross revenues in 2007
would rank 4th. (g) country statistics include Health and AXA data exclude Health.
The split of distribution channels used by AXA’s Property & Casualty operations, based on gross revenues for the year ended December 31, 2008 and 2007, is presented below: BAsEd on gross rEvEnUEs in 2008
AXA Cessions is an intra-group reinsurance company. Most of the companies within the AXA Group cede internally some of their major claims and catastrophic exposure to AXA Cessions which analyzes structures and places reinsurance programs for these risks with third-party reinsurers. It also provides advice in risk management and purchase of reinsurance cover to AXA Group subsidiaries.
(a) in 2006 and 2007, revenues represent business fronted by AXA RE until October 2007, and fully reinsured by Paris RE (fronting arrangement set in place in the context of the sale of AXA RE’s business to Paris RE in 2006).
MARKET AND COMPETITION AXA Corporate Solutions Assurance. The competitors in the global risks market are acting at a worldwide level with multinational clients placing their risks far beyond their countries of origin via international programs or in key global marketplaces. Since 2005, after several years of rate increases and program restructurings, the market had experienced soft underwriting conditions on these lines of business. 2008 confirmed the slowdown of this trend and a general upturn of the pricing cycle is expected with January 1, 2009 renewals already showing rate increases in specialty lines of business. AXA Corporate Solutions Assurance is among the top five large corporate risks insurers in Europe 1.
(in Euro millon, except percentages) 2008 2007 2006 2008 derivatives relating to insurance and investment contracts (20)
DISTRIbUTION CHANNElS AXA Corporate Solutions Assurance mainly distributes its products through international brokers, but also domestic brokers. Marine and aviation business is distributed through specialized brokers.
Also, in 2008, approximately €818 million of premiums were placed externally by AXA Cessions on behalf of AXA’s insurance subsidiaries (2007: €757 million), mainly for Property & Casualty business but also increasingly in Life & Savings.
Assets backing contracts with financial risk borne by policyholders 60,955 95,225 94,999
MARKET AND COMPETITION, PRODUCTS AND SERVICES, AND DISTRIbUTION CHANNElS Alliancebernstein AllianceBernstein, a 65% subsidiary of AXA Financial, is a leading global investment management firm based in the United States. AllianceBernstein provides diversified investment management and related services to individual investors, private clients and to a variety of institutional clients, including AXA and its insurance company subsidiaries (which collectively are AllianceBernstein’s largest client). AllianceBernstein Holding L.P. is listed on the New York Stock Exchange under the ticker symbol “AB”.
AllianceBernstein provides diversified Asset Management and related services globally to a broad range of clients including: • Diversified investment management services through separately managed accounts, hedge funds, mutual funds, and other investment vehicles to private clients (such as high net worth individuals, trusts and estates and charitable foundations), • Management of mutual funds sponsored by AllianceBernstein, its subsidiaries and affiliates, for individual investors, • Management of investments on behalf of institutional investors, and • Independent research and brokerage-related services for institutional investors.
AXA Investment Managers (“AXA IM”) AXA IM, headquartered in Paris, is a significant player in the international Asset Management business. AXA IM provides its clients with a wide range of global products and expertise via mutual funds and dedicated portfolios. AXA IM’s clients include (i) institutional investors, (ii) individual investors to whom mutual funds are distributed through AXA and external distribution networks, and (iii) AXA’s insurance subsidiaries both for main fund and unit-linked fund backing insurance products.
BANKING SEGMENT The operations in the Banking segment are conducted primarily in Belgium, France and Germany. For the years ended December 31, 2008 and 2007, the Banking segment accounted for €0.4 billion and €0.3 billion, respectively, or less than 1% of AXA’s consolidated gross revenues.
This segment’s operations principally include: AXA bANK EUROPE AXA Bank Europe, a subsidiary of AXA Belgium, offers a comprehensive range of financial services to individuals and small businesses and has a network of approximately 950 exclusive independent bank agents, who also support the sale of products offered by AXA Investment Managers and of insurance products offered by AXA Belgium. AXA Bank Europe is the sixth bank in Belgium where the four largest banks represent 85% of the market 1.
The first line entitled “Gross reserves for unpaid claims and claim expenses developed initially at the booking date” represents the loss reserves developed in the balance sheet on the reporting date for the year indicated in the column heading. For example, the amount of €31,168 million appearing in the first line of the table in the 2005 column represents all loss reserves developed in all years of occurrence prior to and including 2005, recognized on the company’s balance sheet at December 31, 2005.
lOSS RESERVES DEVElOPMENT TAblE: PROPERTy & CASUAlTy AND INTERNATIONAl INSURANCE (EXClUDING AXA RE)
Cumulative redundancy (deficiency) from the initial gross reserves in excess of re-estimated gross reserves: (a)
(a) it is not appropriate to extrapolate future redundancies or future deficiencies based on the loss reserves development presented in the table, as conditions and trends that have affected development of the liability in prior periods may not necessarily occur in the future periods. Redundancy/deficiency disclosed includes forex impact between one year and the next.
(d) in 2006, Winterthur’s operations were integrated within AXA. Total loss reserves developed amounted to €41.3 billion including €8.7 billion in respect of Winterthur (final figure after PGAAP re-opening).
Gross reserves for unpaid claims and claims expenses developed initially at the booking date (a) �,060 �,�96 �,455 5,868 4,778 4,200 �,�14 4,52�
Cumulative redundancy (deficiency) from the initial gross claims reserves in excess of (less than) re-estimated gross claim reserves (�99) (�27) (442) 417 452 189 (�50) �69
(b) Represents premiums earned subsequent to the accounting year end and premium reinstatements / experience-rated premiums received and accrued from the ceding insurers as assumed losses were incurred.
Property & casualty and international insurance (excluding AXA RE) 44,046 44,020 41,301
(a) Total gross claims and other reserves developed are presented on the basis of the loss reserves development table. The reserves of AXA corporate Solutions insurance US were included in Property & casualty and international insurance loss reserves. The reserves of AXA RE P&c insurance company and AXA RE Reinsurance company (€165 million in 2008, €203 million in 2007 and €282 million in 2006) were included in AXA RE’s loss reserves development table.
REGUlATION AXA is engaged in regulated business activities on a global basis through numerous operating subsidiaries and the Group’s principal business activities of insurance and asset management are subject to comprehensive regulation and supervision in each of the various jurisdictions where the Group operates. AXA SA, the ultimate parent holding company of the AXA Group, is also subject to extensive regulation as a result of its listing on Euronext Paris and on the New York Stock Exchange and its interest in numerous regulated insurance and asset management subsidiaries. Given that the AXA Group is headquartered in Paris, France, this supervision is based to a significant extent on European Union (“EU”) directives, discussed more fully below, and on the French regulatory system. The AXA Group’s principal regulators in France are the Autorité des marchés financiers (“AMF”), which is the French financial market regulator, and the Autorité de Contrôle des Assurances et des Mutuelles (“ACAM”), which is the principal French insurance regulator.
REGUlATORy AND lEGISlATIVE INITIATIVES RElATED TO FINANCIAl MARKET CRISIS The financial market crisis of 2008 gave rise to numerous legislative and regulatory initiatives across various jurisdictions where the Group does business. Most of these initiatives, which were generally designed to stabilize financial markets and financial institutions around the world, were enacted during the fourth quarter of 2008 following the bankruptcy of Lehman Brothers and the bail-out of American International Group in September 2008. These initiatives included government programs in France, the United States and most of the other principal markets where the Group does business.
• Potential Legislative Initiatives designed to “cure” perceived excessive risk taking and misaligned financial incentives – Attempts to legislate corporate governance standards and principles – Increased responsibilities of Boards and Board Committees to specifically identify and address financial incentives that may lead to “excessive” risk taking by an institution with broad potential implications for fiduciary duties and liabilities of directors – Increased restrictions on, and new disclosure requirements with respect to, executive compensation – Increased restrictions on, and new disclosure requirements with respect to, related party transactions – Increased restrictions on, and new disclosure requirements with respect to, conflicts of interest – in particular aimed at misaligned financial incentives – Increased restrictions on, and new disclosure requirements with respect to, securitization transactions – in particular retention of risk by originators/ sponsors – Increased restrictions on, and new disclosure requirements with respect to, off-balance sheet arrangements.
• Potential Financial Market Regulation Reforms – Establishment of regulated trading markets for Credit Default Swaps (CDSs) and other derivatives – Potential regulation of CDSs as “credit insurance” requiring licensing of institutions offering these instruments – Regulation of ratings agencies and redefinition of the relationship (including compensation relationship) between agencies and issuers – Regulation of hedge funds, mortgage brokers, non-bank lenders and other participants in the “shadow” financial systems – Tighter regulation of short selling – Review of mark-to-market accounting rules and impairment rules.
– Proposals to subject “systemically significant” institutions to more stringent requirements.
• Potential Consumer Protection Reforms for Financial Products – Proposals to create consumer protections structures such as a “Consumer Financial Products Safety Commission” charged with broad oversight of all types of consumer financial products – from banking to insurance to asset management and beyond.
At the consolidated Group level, the Company is required to calculate, in accordance with applicable French “Solvency 1” regulations, a consolidated solvency margin ratio which represents the Company’s total available capital as compared to its required regulatory capital. Under applicable French regulations, 100% is the minimum required consolidated solvency margin for the Company. As at December 31, 2008 the Company’s consolidated solvency margin was 131% (or 127% taking into account the proposed 2008 dividend payment of €0.40 per share). The Company’s year-end 2008 solvency margin is lower than its consolidated solvency margin at December 31, 2007 (154%) and is also lower than the consolidated solvency margin ratios published by certain of the Company’s principal competitors.
Insurance regulators have broad discretion in interpreting, applying and enforcing their rules and regulations with respect to regulatory capital requirements and, during periods of extreme financial market turmoil of the type we have experienced over the past several months, regulators may become more conservative in the interpretation, application and enforcement of these rules which may involve them, for example, imposing increased reserving requirements for certain types of risks, greater liquidity requirements, higher discounts/“haircuts” on certain assets or asset classes, more conservative calculation methodologies or taking other similar measures which may significantly increase regulatory capital requirements.
Under Solvency 2, companies will be encouraged to improve their risk management processes and will be permitted to make use of internal economic capital models to enable a better understanding of risks and appropriate adaptation of the model to each insurer’s specific business mix and risks. In 2007, the Commission adopted a draft directive setting forth various policy principles and guidelines that will act as a framework for the development of the Solvency 2 regime. Implementing measures will be adopted by the Commission and the Member States, supplementing this framework, and Solvency 2 is expected to be implemented by 2012.
In addition to these directives governing solvency of insurance companies and groups, in France, Germany, the UK, and certain other European jurisdictions, Property & Casualty insurers are required to maintain equalization reserves to protect themselves against the impact of large claims and catastrophes. The basis on which these equalization reserves are established is set out in the local country regulations based on pre-established formulas applicable to certain lines of business and may be capped at a maximum level.
• Over the past several years a number of European jurisdictions, including France and Belgium, and other jurisdictions have enacted legislation that permits corporate entities to be charged with criminal offenses. The standard for attributing criminal conduct by corporate officers and employees to corporate entities is not clearly defined in many of these jurisdictions and government prosecutors and judges have broad discretion in this area. In recent years, indictments of corporate entities for alleged criminal offenses have become increasingly common. While a criminal indictment of a corporate entity may not pose material financial risk, it has broad potential implications for a regulated financial institution like AXA both from a reputation point of view and from a regulatory perspective because a criminal conviction can have potentially far reaching negative implications for other Group companies engaged in regulated businesses around the world including for their ability to obtain and/or maintain licenses to engage in certain types of regulated business activities.
Although the U.S. federal government generally does not directly regulate the insurance business, many federal laws affect the insurance business in a variety of ways, including the Federal Fair Credit Reporting Act related to the privacy of information and the USA Patriot Act of 2001 relating to, among other things, the establishment of anti-money laundering programs. Furthermore, many U.S. federal tax laws affect the business in a variety of ways. There are a number of existing, expiring, newly enacted and previously or currently proposed U.S. federal legislative initiatives, including U.S. federal tax initiatives, that may significantly affect AXA’s U.S. life insurance subsidiaries including, among others, the following: Estate and Related Taxes. Under federal tax legislation passed in 2001, exemption amounts have been increasing and rates have been decreasing for estate and generation skipping taxes. Under current law, such taxes are scheduled to be repealed for 2010, but to return to their 2001 levels thereafter. Legislative proposals range from eliminating the one-year repeal and continuing these taxes at or above the 2009 exemption amounts and rates to making permanent the 2010 one-year repeal. Although a continuation of the repeal beyond 2010 seems unlikely, elimination of the estate tax would likely have an adverse impact on life insurance sales since a significant portion of our life insurance sales are made in conjunction with estate planning. Conversely, a continuation or an increase of the estate tax would benefit sales and persistency.
Income, Capital Gains and Dividend Tax Rates. Federal tax legislation passed in 2001 also reduced income tax rates, and tax rates on long-term capital gains and qualifying corporate dividends. Such changes have lessened the tax appeal of cash value life insurance and annuity products. Unless extended, these lower rates are set to expire after 2010. The Obama administration has expressed an intention to increase the income tax rates for higher income taxpayers and to reduce income tax rates for middle and lower income taxpayers. The tax appeal of cash value life insurance and annuity products would benefit from higher income and capital gains tax rates but would be reduced by lower tax rates.
Other Proposals. The U.S. Congress may also consider proposals for, among other things, the comprehensive overhaul of the Federal tax law and/or tax incentives targeted particularly to lower and middle income taxpayers. For example, there may be renewed interest in tax reform options, which could present sweeping changes to many longstanding tax rules. One possible change includes the creation of new tax-favoured savings accounts that would replace many existing qualified plan arrangements. Another would eliminate or limit certain tax benefits currently available to cash value life insurance and deferred annuity products. Enactment of these changes or similar alternatives would likely adversely affect new sales, and possibly funding and persistency of existing cash value life insurance and deferred annuity products.
FINANCIAl MARKET REGUlATION AND RElATED MATTERS As a publicly-traded company with its securities listed on both Euronext Paris and the New York Stock Exchange, the Company must comply with the relevant rules for listing and trading on each of these exchanges and with a number of other laws and regulations including French and U.S. securities laws administered and enforced by, respectively, the AMF in France and the SEC in the U.S. These listing rules, other laws and regulations govern a wide variety of matters including (i) timely and accurate disclosure of information to investors, (ii) presentation of financial information in accordance with IFRS requirements (as well as in accordance with certain SEC requirements), (iii) restrictions on presentation of non-GAAP measures in the U.S., (iv) auditor independence requirements (including prohibitions on auditors furnishing certain types of non-audit services), (v) numerous corporate governance requirements (including independence requirements for audit committee members), (vi) certification of certain public reports by AXA’s Chief Executive Officer and Chief Financial Officer, and (vii) requirements to evaluate, document, and report on AXA’s internal controls over financial reporting and disclosure controls and procedures. The scope and impact of these requirements on the day-to-day operations of AXA has increased significantly since the adoption of the Sarbanes-Oxley Act in the U.S. in 2002 and the adoption of similar legislation in other jurisdictions, including the Financial Security Law (loi de sécurité financière) in France in 2003. While the spirit of these laws is very similar, their technical requirements often vary and conflict with one another. Management has devoted substantial resources to ensure compliance with both the letter and spirit of these laws and anticipates that considerable resources will continue to be devoted to this area in the future.
In addition to these requirements, a number of recent legislative and regulatory initiatives in France, at the EU level or in other jurisdictions where AXA operates have potential implications for AXA and its subsidiaries. Certain of these initiatives may help create more uniform practices across the EU and facilitate the development of more open and accessible European market for international companies like AXA. For instance, the European takeover directive, implemented into French law in 2006, provides a more uniform takeover regime within the EU, and the European directive relating to cross-border mergers, which was implemented into French law in 2008, considerably simplifies the regulatory framework applicable to these mergers. However, others initiatives may increase the compliance burden, associated expense and regulatory risk for AXA and other market participants, including the following: • Anti-money laundering and anti-terrorism legislations have been enacted and continue to evolve in the many jurisdictions in which AXA and its subsidiaries operate. These laws and regulations impose increasingly complex compliance requirements on international groups such as AXA and prohibit the Group from doing business with certain countries, individuals or organizations.
United Kingdom �. New annualized business (new regular premiums plus 10% of single premiums) was 6% lower than the same period in 2007. Concerns over global economies, the banking sector and a subsequent equity price collapse, alongside the impact of changes to capital gains tax announced in the Pre Budget Report, adversely affected Wealth Management business volumes (down 16%). Individual Pre and Post Retirement products are no longer benefiting from the post A-Day impact experienced in 2007 or the migration into Self Invested Personal Pensions, however other opportunities still exist in these markets. Fund Supermarkets and Wrap platforms continued to attract advisers and investors alike, while the transition to fee based advice gathered momentum. Annuity sectors faced significant threat from low interest rates. Protection market volumes were depressed as mortgage sales fell sharply driven by the ongoing ‘credit crunch’. AXA’s Protection sales (which represented 3% of AXA Life APE in 2008) rose by 15% over the first nine months of 2008 vs. the same period in 2007, capturing market share of 7.3% (vs. 6.7% in 2007) while the market fell by 4%. Within the United Kingdom, the traditional IFA and multi-tie channels represented collectively 77% of total market new business. AXA’s market share remained at 7.7% in 2008.
(1) Source: FFSA. (2) Please note that the numbers quoted for the market data (Life and annuity) are for the nine months ended September 30, 2008. Source: LiMRA and
VARdS (Morning Star). (3) Please note that the numbers quoted for the market data are for the nine months ended September 30, 2008. Source for market share: ABi/MSE© 2008
belgium 2. In Life, 2008 is expected to be flat or even down in terms of written premiums, due to the increase in interest rates and the turmoil on the financial markets. Individual Life is expected to decrease sharply, while Group Life kept on growing driven by new legal requirements on pension contracts. In 2008, Fortis, Dexia, KBC and Ethias were recapitalized by the Federal State. AXA ranked second in 2007 with a market share remaining above 14% �.
Mediterranean and latin American Region. Italy. The market evolution (–18% 4 in new business production) was impacted by financial markets mainly in corporate and index linked products. Spain. The market, with a +15% 5 growth, was characterized by the intense competition from bank deposits, stemming from the liquidity crisis initiated in 2007, and which appealed to domestic consumers who have traditionally a short term approach to saving. The industry saw the formation of large bank insurance JVs leading to a change in Top 5 players. Mexico. Life insurance market continued to grow by 10–13% 6, mainly driven by Individual products, the banks continuing to gain market share in Individual Life (from 37% to 41%), while losing market share in Group Life (from 22 to 20%). Turkey. The Life insurance market growth was up 2% 7, mainly driven by Private Pension Plan (PPP) companies, which have been very competitive since 2003. In Health business, despite a low penetration rate the market profitability remained low in a competitive environment, especially due to group policies. Portugal. Investment contracts were up 18% and insurance contracts up 3% 8. Greece. The market increased by 14% 9. Morocco. The market evolution in 2007 showed a strong double digit growth of 42% 10.
In Italy, AXA ranked 8th, in Spain 10th, in Mexico 7th, in Turkey 6th 11, in Portugal 7th, in Greece 8th, and in Morocco 5th. (Dec 2007).
Australia/New Zealand. Despite the considerable challenges posed by the current investment and economic environment, the fundamental characteristics that make the Wealth Management and Financial Protection markets attractive across Australia and New Zealand remained unchanged. During 2008 the Australian Wealth Management market was significantly impacted by the financial markets downturn, funds under management levels dropping 16% 12. AXA maintained a 4th place ranking for net funds flow during this period 1�. Despite stronger than expected uptake of the Government led KiwiSaver scheme, New Zealand retail funds under management levels fell 21% 14.
Hong Kong. The economy’s growth slowed down with GDP growing by 2% 18 in 2008. Hang Seng index dropped by 48% due to the financial market turmoil. Hong Kong remained a very attractive Life insurance market with high savings ratios and moderate Life insurance penetration. Individual Life market new business sales increased by 13% 19 for the first nine months of 2008. Life insurance premiums increased over the past few years partly because of growing products “à la carte”, strong growth in unit linked savings plan and the entry of banks and new distribution channels in the market. Hong Kong Life insurance market is relatively concentrated, with 54% of individual Life new business sales stemming from the top 5 companies and 75% from the top 10 players. Following recent acquisitions and strong organic growth, AXA is now number four for inforce premiums and five for new business.
(4) Source: italian Association of insurance companies: ANiA as of Nov 2008. (5) Source: Spanish Association of insurance companies: icEA as of dec 2008. (6) Source : AMiS Asociacion Mexicana de instituciones de Seguros. (7) Source: Turkish Association of insurance companies as of dec 2007. (8) Source: istituto de Seguros de Portugal as of dec 2008. (9) Source: Greek Private insurance Supervisory committee as of dec 2008. (10) Source: Moroccan Association of insurance companies as of dec 2007. (11) Source: Turkish Association of insurance companies as of dec 2008. (12) Source: Plan for Life as at September 2008 c.f. december 2007. (13) Source: Plan for Life, 12 months ending September 2008.
(14) Source: AXA New Zealand, as at 31 december 2008. (15) Source: Plan for Life, 12 months ending September 2008.
(16) Source: iSi statistics as at 30 September 2008. (17) Source: Plan for Life as at 30 September 2008, iSi statistics as at 30 September 2008. (18) Source: 3rd quarter 2008 year-on-year % change in real terms (latest). (19) Source: Oci statistics, 2007Q3YTd and 2008Q3YTd.
Central and Eastern Europe 7. Due to the financial crisis, between the first half of 2008 and the end of 2008, Life market growth declined from +12% to 0% in Poland 8 (excluding short term products), to –9% in Hungary 9 and went from +10% to +6% in Czech Republic 10 and Slovakia. AXA’s market share over the region was stable at 2.4%. AXA ranked 9th in Hungary, 10th in Czech Republic and 6th in Poland. In the Pension Funds market, AXA’s position improved. AXA ranked 1st in Slovakia, 2nd in Czech Republic and 5th in Poland and Hungary, with a market share of 7.8% over the region (as compared to 7.4% in 2007).
PROPERTy & CASUAlTy France 11. In 2008, market grew by an estimated 3%. In 2008, Motor business was estimated to have increased by 1%, after 2 years of decrease. Household business was estimated to have increased by 5% due to the high increase of property index (+5.4% estimated at end of November). Commercial business was estimated to have increased by 3% mainly thanks to Liability and Construction lines. AXA ranked 2nd in the French Property & Casualty market.
United Kingdom & Ireland 12. The general deterioration of economic conditions impacted market growth, especially on mortgage linked accounts within Corporate Partners. Despite this, market tariffs continued to be under pressure given competitive pressure and focus on retention. AXA continued to be ranked 4th in the personal lines market with continued growth in Motor through Swiftcover and in household. AXA’s Commercial lines revenues were flat reflecting difficult market conditions. In a competitive flat Healthcare market, AXA grew by 8% driven by strong new business and retention through product innovation and service, broadening distribution and further growth in International business. AXA further grew its share of the Healthcare market and remained ranked 2nd. In Ireland, AXA ranked 5th overall or 3rd in its core market of Motor. Throughout 2008 the market remained soft with average prices for Motor 40% lower than 2002. With declining profitability in the past few years, price increases did occur in late 2008 and early in 2009 but further significant rises are expected across the market during the course of 2009.
Germany1�. In 2008, total business increased by 0.2%. Personal and Commercial Motor lines fell by 2.0% in 2008 in the context of an intense price competition. Personal and Commercial Liability remained stable. In Personal non-Motor the situation was mixed: Accident slightly increased (+1%), Property increased considerably (+5%), caused by rate increases resulting from high claims in building in 2007, industrial property continued to decrease (–0.3%), suffering from ongoing pressure on prices. AXA ranked third (considering all companies part of the Group of Public Insurers independently) in the total Property & Casualty market in 2007.
belgium 15. The Property & Casualty market is expected to increase by 3% in 2008. In Motor, the growth should reach approximately 2%, still impacted by the high competiveness of this market. Household & Property should grow by 2% versus 8% in 2007, due to the non recurrence of the implementation of the natural disaster guarantee in Household policies. Liability should grow by 3% while Workers Compensation is expected to grow by 3%. Tariff increases fuelled the increase in Health (approximately +7%). AXA continued to rank first in 2008 with a 22.5% market share.
(1) Source: ciRc Statistics. (2) Source: Watson Wyatt AP Life Update. For china, data as of August 2008 for total weighted premium income and 2007 data for weighted new premium income. For indonesia, Life insurance Federation of indonesia (“AAJi”), data from January to June 2008. For Thailand, Thai Life Assurance Association (data from January to July 2008).For the Philippines, insurance commission based on 2007 data; ranking based on total premium income (unweighted). For Singapore, LiA annualized statistics (2005-2008) based on 2008 figures which are annualized (as per policies inforce as at June 30, 2008).
(3) Source: Watson Wyatt report, September 2008. (4) Source: TLAA Statistics.
(7) Ranking are based on 2007 (except Poland Life which is based on Sept. 2008) and market share and growth are based on Sept. 2008 estimation (except growth in Hungary which is based on dec. 2008).
(12) The ranking figures are based on publicly available interim Reported Results presentations, and are generally on an iFRS basis. They are reported on a different basis to statutory reporting through FSA Returns (which are (UKGAAP)). (13) Please note that the full year figures are preliminary estimation as of end February 2009. Source: GdV. (14) Source: FOPi (Federal Office of Private insurance).
(15) derived from the nine months ended September 30, 2008 figures (source: Assuralia (Belgian Professional Union of insurance companies)).
In Italy, AXA ranked 7th, in Spain 2nd, in Mexico 3rd, in Turkey 1st 6, in Portugal 2nd, in Greece 11th, in Gulf Region 6th, and in Morocco 1st. (Dec 2007).
Asia. South Korea 7. The Property & Casualty market increased by a robust 12% in 2008. However, the Motor market growth was only 4%, a much lower level than 2007, due to a strong contraction of the market in the second half of the year as the economic crisis affected car sales, as well as a fierce competition, with most insurers decreasing their tariffs following the relatively stable loss ratios enjoyed over 2007/2008. Premiums for long-term products (which include all contracts with a maturity above 3 years, in particular Health, Medical and Accident) grew by a remarkable 17%, despite the economic recession, even if new sales slowed down compared to previous years. Kyobo AXA ranked 1st in the Direct Motor insurance market or 6th in the total Motor market, increasing its market share from 4.4% in 2007 to 4.7% in 2008. Within the total P&C market, Kyobo AXA ranked 12th. Japan. The Property & Casualty market declined by 3% 11 in the year ending March 2008. Compulsory Automobile Liability Insurance and Personal Accident Insurance experienced the sharpest drops, while Motor insurance recorded a mild decrease of 1% 11. The Motor market further contracted in the second half of 2008, driven by decreasing car sales and the continuing shift of customer preferences towards small cars. AXA Direct ranked 3rd 2 in the Direct insurance market in September 2008, with a market share of around 17% 12. AXA Direct ranked 14th 12 among all insurers for Motor insurance. Singapore 1�. The insurance market grew by 14% in gross written premiums in the first three quarters of 2008. The growth was observed in most lines of business in particular, Motor, Workmen Compensation, Health and Bonds. AXA ranked 3rd for motor and 2nd for Marine Cargo in 2007 with a market share of 8% as at 3rd quarter 2008. Malaysia 14. The P&C industry grew by 10.1% in gross written premiums for the first three quarters of 2008, mainly contributed by growth in Motor and Property lines of business. AXA Malaysia ranked 15th with 3% of market share in 2008. Hong Kong 15.The P&C industry grew by 12.3% for the three quarters of 2008, mainly attributable to the strong economic growth during the first half of 2008. AXA ranked 8th with 3% of market share in 2007.
(5) Moroccan Association of insurance companies (dec 2007). (6) Source: Turkish Association of insurance companies as of dec 2008. (7) data based on insurance companies reports submitted to FSS, as of November 2008. (11) General insurance Association of Japan (data as of March 2008). (12) Rankings based on companies’ disclosures as of September 2008. (13) Monetary Authority of Singapore.
(14) insurance Services Malaysia Bhd. (15) Office of the commissioner of insurance.
(16) Growth information provided by the Office of the Superintendent Financial institutions (OSFi). (17) canadian insurance 2008 Annual Statistical issue. (18) Lehman Brothers, Merrill Lynch, JP Morgan, KBW Annual Reports.
Beginning in 2008 and continuing in 2009, governments around the globe and related central banks have aggressively taken actions designed to expand credit and liquidity, thereby creating demand for goods and services to ultimately spur a recovery. By stabilizing asset prices, the deflationary de-levering and the resulting recession that the global economy is currently experiencing can be addressed and help the real economy begin to level out. While global asset managers face significant headwinds in 2009, signs of sustainable economic recovery could spur investment activity. The lag that usually exists between capital market improvement and the return to risk by investors is expected to weaken asset flows in the near term. This weakness is expected to be most acute for retail oriented platforms and/or asset managers with inferior investment results. However, when the health of global economies improves, investors will and should begin to take advantage of attractive risk/return opportunities to the ultimate benefit of global asset managers. On a broader note, the necessity for world economies to save more aggressively continues to be evident. Investor sentiment towards controlling risk through diversification should be of tremendous benefit to global asset managers who offer a broad range of choices that are prudently managed with a focus on the long term.
At the beginning of the year, the sharp slowdown in the United States economy led to Federal Reserve (Fed) actions (decrease in interest rate and many other policy levers such as the $29 billion loan granted to JP Morgan to take over Bear Stearns). The main effect of the Fed policies was the drop in the dollar, which played a major role in the price of oil soaring to $145 a barrel in July. The continued rise in commodity prices in the first half of 2008 constituted the main reason for increased inflation expectations, thus leading to a tighter monetary policy from the European Central Bank (ECB) with a 25bp increase of its repo rate to 4.25% on July 3, 2008.
At the end of summer, under the weight of huge losses on their mortgage-backed portfolios, the United States government took over Fannie Mae & Freddie Mac, Lehman Brothers and Washington Mutual went bankrupt, and AIG was quasi-nationalized, triggering panic in stock markets. The United States Treasury launched a $700 billion plan, which was used to recapitalize banks.
The United States banking crisis did not take long to spread worldwide. In Europe, governments had to intervene in the banking system to guarantee debt issues or recapitalise their banks (Northern Rock, Bradford & Bingley, Lloyds TSB, HBOs and RBS in the United Kingdom, Fortis in Belgium, ING in the Netherlands, Commerzbank in Germany). The crisis brought about a “dollar squeeze” on European banks with the sharp rebound of the US Dollar versus the Euro (from $1.59 in July to $1.24 in October, before reversing its trend to finish the year at $1.40), mirroring to some degree the decline in the oil price to under $40 at the end of the year.
Stock Markets In 2008, two phases of accelerating falls can be distinguished: the first in January, following the contagion from the structured credit product de-leveraging process, and the second linked to the collapse of Lehman Brothers in September. Over the year, the Dow Jones and the S&P 500 lost 33% and 38%, respectively, while in London the FTSE decreased by 31%. In Europe, the CAC 40 gave up 42%, the DAX lost 39%, and the Euro Stoxx 50 lost 44%. In Japan, the Nikkei fell by 40%. The MSCI World Index decreased by 39% and the MSCI Emerging by 46%. Equity market volatility reached new extremes. The VIX index, derived from options on the S&P 500, peaked at over 80% in November, i.e. 4 times the previous average level.
and Ecuador). High Yield spreads exceeded 1,100bps, and emerging debt traded at 630bps at the end of the year. In the 4th quarter, credit markets remained severely impaired, as shown by the large difference between spreads on corporate bonds and on CDS equivalents, as liquidity in secondary credit markets remained particularly poor.
Exchange rates Compared to December 31, 2007, the US Dollar gained 5% against the Euro (closing rate moved from $1.47 at the end of 2007 to $1.40 at the end of 2008). The same was true for the Yen up 22% against the Euro (closing rate moved from Yen 163.6 at the end of 2007 to Yen 126.8 at the end of 2008) and the Swiss Franc up 10% against the Euro (closing rate moved from CHF 1.656 at the end of 2007 to CHF 1.494 at the end of 2008). The Pound Sterling lost 31% against the Euro (Closing rate moved from £0.733 at the end of 2007 to £0.958 at the end of 2008).
On an average rate basis, the US Dollar lost 7% against the Euro (from $1.37 over 2007 to $1.47 over 2008), the Yen lost 2% (from Yen 158.3 for the twelve months to September 2007 to Yen 161.7 for the twelve months to September 2008) and the Pound Sterling lost 16% (£0.684 over 2007 to £0.797 over 2008). The Swiss Franc gained 3% against the Euro (from CHF 1.642 over 2007 to CHF 1.587 over 2008).
SIGNIFICANT ACqUISITIONS AND DISPOSAlS Significant acquisitions In 2008: On February 6, 2008, AXA announced it had reached an agreement to acquire OYAK’s 50% share in AXA OyAK Holding A.Ş . (“AXA OyAK”), a joint-venture company established by AXA and OYAK in 1999. Under the terms of the agreement, AXA paid a purchase price of $525 million (€354 million) in cash for OYAK’s 50% share in AXA OYAK (in addition, according to the same agreement, AXA OYAK Holding bought, for $15 million (€9 million), the 1.5% interest that Mais Motors, an OYAK joint-venture company, holds in AXA OYAK’s non-life subsidiary). The transaction was closed on August 12, 2008. Following this transaction, AXA now operates in Turkey under the brand “AXA Sigorta”. The company became in 2008 market leader in P&C with a 12.6% market share in the high-potential P&C Turkish insurance market. Mainly focused on non-life, especially motor and commercial property, the company experienced strong top-line growth over the past years and is one of the most profitable players in the market. In L&S, on a market mainly driven by Private Pension companies, AXA Sigorta is ranked 6th.
On June 17, 2008, AXA completed the acquisition of 36.7% of the share capital of RESO GARANTIA, Russia’s 2nd largest P&C insurer for a total cash consideration of around €810 million. As part of the agreement, AXA will have the option to buy out the remaining stake through calls exercisable in 2010 and 2011. Founded in 1991, RESO has built one of the leading P&C insurance franchises in Russia (7% market share), notably focused on retail Motor, and supported by a network of 18,000 agents, the 2nd largest in Russia. Under the terms of the agreement, RESO’s current management team will continue to run the company and roll-out its successful strategy. With this acquisition, AXA will further increase its exposure to emerging insurance markets. As part of the agreement, AXA granted a 6-year $1 billion credit facility to RESO’s main shareholder, fully secured by his shareholding in the company.
In 2007 On January 12, 2007 (closing date), AXA United Kingdom announced that it had reached an agreement with insurance brokers Stuart Alexander and layton blackham to acquire both businesses. AXA United Kingdom acquired both firms through its subsidiary Venture Preference Ltd (renamed Bluefin Insurance Group Ltd from December 31, 2008), which already owned 38.9% of Layton Blackham Holdings Ltd. The total cash consideration paid for 61.1% of Layton Blackham Holdings Ltd and 100% of Stuart Alexander Group Ltd amounted to £58.5 million.
In connection with Alliancebernstein’s acquisition of the business of Sanford C. Bernstein, Inc. in 2000, AXA Financial Inc. entered into a purchase agreement under which certain former shareholders of Sanford C. Bernstein have the right to sell (“Put”) to AXA Financial, subject to certain restrictions set forth in the agreement, limited partnership interests in AllianceBernstein L.P. (“AllianceBernstein Units”) issued at the time of the acquisition.
On March 17, 2007, AXA Holdings Belgium SA reached an agreement with ELLA Holdings S.A. and its main shareholder Royalton Capital Investors to acquire 100% of the Hungarian retail bank EllA and its affiliates. The transaction closed on July 27, 2007 and the purchase price amounted to €123 million.
On March 23, 2007, AXA and banca Monte dei Paschi di Siena (bMPS) reached an agreement for the establishment of a long-term strategic partnership in Life and non-Life bancassurance as well as pensions business. On October 19, 2007, AXA acquired 50% of MPS Vita (Life and savings) and MPS Danni (P&C), as well as 50% of BMPS open pension funds business. Total cash consideration paid by AXA in this transaction was €1,165 million and was financed with internal resources.
On April 23, 2007 (closing date), AXA United Kingdom announced the acquisition of a leading independent commercial broker business, Smart & Cook. AXA United Kingdom bought the entire share capital of Smart & Cook Holdings Ltd through its subsidiary Venture Preference Ltd, (renamed Bluefin Insurance Group Ltd from December 31, 2008), which also houses recently acquired Stuart Alexander and Layton Blackham businesses, purchased in January 2007.
On May 22, 2007, AXA acquired 75% of Kyobo Auto for an amount of KRW 88 billion (€70 million). The Group ownership reached 90% as of the end of December 2007 following the buyback of minority interests.
On July 27, 2007, AXA and UkrSibbank, the Ukrainian banking subsidiary of BNP Paribas, announced that they reached an agreement to acquire 99% of the share capital of Vesko, Ukraine’s 6th largest P&C insurer. The transaction closed on November 13, 2007. The purchase price amounted to €17 million for AXA.
On November 9, 2007, in the context of its strategic partnership with bMPS, AXA announced that it held a strategic interest equal to 2.052% of BMPS’s total outstanding share capital. The acquisition of this interest was designed to reinforce the longterm relationship between the two companies and to demonstrate AXA’s full support for BMPS’s proposed acquisition of Banca Antonveneta. AXA would subscribe to its full allocation of BMPS shares as part of the rights issue contemplated by BMPS in connection with this acquisition. In line with the agreement between AXA and BMPS announced in March 2007, the bancassurance agreement between BMPS and AXA-MPS should be extended to Banca Antonveneta, significantly reinforcing AXA-MPS’s competitive position on the Italian insurance market. The legal and financial conditions for this extension of the bancassurance agreement are subject to the closing of the acquisition of Banca Antonveneta by BMPS.
On December 21, 2007, AXA announced that it had reached an agreement with Reso Garantia’s (‘RESO’) shareholders to acquire a 36.7% stake in the company for a total cash consideration of around €810 million. As part of this agreement, AXA will have the option to buy out the remaining stake through calls exercisable in 2010 and 2011. This transaction closed in the first half of 2008.
On May 15, 2006, AXA announced the squeeze-out of the minority shareholders of its German subsidiary AXA Konzern AG, whereby it would acquire the 3.2% of AXA Konzern shares it did not already own at a price of €134.54 per ordinary share and preference share. The resolution of the squeeze-out was endorsed at the Annual General Meeting of AXA Konzern on July 20, 2006. As announced on December 21, 2005, AXA made a voluntary public offer between January 9, 2006 and February 27, 2006 to purchase the minority shares of its German subsidiary AXA Konzern AG (“AXA Konzern”) from minority shareholders at a price of €129.30 per ordinary and preference share. AXA reached a direct and indirect holding of 96.8% of the share capital of AXA Konzern as of the end of the offer period, thereby exceeding the 95% threshold that is a condition to launching a minority squeeze-out. Under the terms of the voluntary public offer, shareholders who tendered their shares to AXA at €129.30 per share during the offer period would also benefit from the higher squeeze-out price of €134.54 per share. At the end of December 2006, the corresponding ownership rate of the group in the German subsidiaries amounted to 96.84% generating an additional goodwill of €92 million. AXA proceeded with a squeeze-out of the 0.44% minority shareholding in Kölnische Verwaltungs-Aktiengesellschaft für Versicherungswerte AG (“KVAG”) at a price of €2,042.01 per ordinary share. The principal asset of KVAG was a 25.6% stake in AXA Konzern’s share capital. The resolution of the squeeze-out was endorsed at the annual general meeting of KVAG, held on July 21, 2006. The total investment to reach a 100% ownership in both Axa Konzern and KVAG starting from the situation as at January 1, 2006 amounted to €309 million. A part of this amount remained to be paid in 2007 as the registration of the squeeze- out is subject to various procedures according to German law. In order to further streamline the organization in Germany, AXA Konzern launched in parallel the squeeze-out of the minority shareholders of its listed life insurance subsidiaries. Upon the completion of these transactions, AXA would own directly or indirectly 100% of all its German subsidiaries.
AXA announced on June 14, 2006, that it had entered into a definitive agreement with Credit Suisse Group under which AXA would acquire 100% of winterthur for CHF12.3 billion (€7.9 billion) paid in cash. In addition, AXA refinanced CHF1.1 billion (€0.7 billion) of internal loans redeemed to Credit Suisse as of the closing date. AXA secured the total financing of the acquisition of Winterthur through: • €4.1 billion capital increase resulting in the issue of 208,265,897 news shares • €3.8 billion of perpetual deeply subordinated note issues • €0.7 billion financed through internal resources. On December 22, 2006, AXA received all necessary regulatory approvals and consequently closed the acquisition of Winterthur.
On October 16, 2006, AXA entered into an agreement with Alpha bank to acquire its insurance subsidiary Alpha Insurance for €255 million. AXA and Alpha Bank signed a long-term exclusive agreement to pursue and strengthen the existing bancassurance partnership. The transaction was completed in Q1 2007.
On December 14, 2006, ONA and AXA entered into an agreement for the buy-out of ONA’s 49% share in the capital of AXA-ONA (the holding company of AXA Assurance Maroc). The transaction valued AXA-ONA at MAD 6,382 billion (€573 million with December 31, 2006 exchange rate) for 100% of its share capital and was financed locally. The transaction closed on March 19, 2007.
On July 25, 2007, AXA announced it had reached an agreement with China Life Insurance Co Ltd., a Life insurance company incorporated in Taiwan, for the sale of winterthur life Taiwan branch (wlTb). In 2006, WLTB had a premium volume of circa €100 million (US GAAP) and a 0.35% market share. The transaction closed on October 31, 2007.
This hedging program had been implemented since June 2008 through a put spread strategy financed by the sale of call options and dynamically managed over the second half.
As at December 31, 2008, AXA benefited from equity protection through two main tranches: • €14 billion put spread, partly financed by the sale of call options on €9 billion, mainly on Eurostoxx 50 maturing in March 2010.
This hedge aims at (i) protecting against the potential losses of the equity portfolio if the equity markets decrease below the strike prices of the put options bought (included in a [3,301; 3,572] range) but do not decrease below the strike price of the put options sold (included in a [2,724; 2,858] range), and (ii) offering potential upside up to the strike prices of the call options sold (included in a [3,976; 4,185] range).
In connection with Alliancebernstein’s acquisition of the business of Sanford C. Bernstein Inc. in 2000, AXA Financial Inc. entered into a purchase agreement under which certain former shareholders of Sanford C. Bernstein have the right to sell (“Put”) to AXA Financial, subject to certain restrictions set forth in the agreement, limited partnership interests in AllianceBernstein L.P. (“AllianceBernstein Units”) issued at the time of the acquisition. As of the end of 2008, AXA Financial, either directly or indirectly through wholly owned subsidiaries, had acquired a total of 32.7 million AllianceBernstein units for an aggregate market price of $1,631 million through several purchases made pursuant to the Put. At December 31, 2008, AXA’s ownership in AllianceBernstein L.P. was approximately 62.4%. On January 6, 2009, the purchase of the last tranche of 8.16 million AllianceBernstein Units was completed for a total price of approximately $150 million pursuant to the final installment of the Put, increasing the ownership of AXA in AllianceBernstein L.P. by approximately 3% to 65.4%.
On March 17, 2009, AXA announced that it will subscribe for its share (approximately 53.1%) to the AUD660 million capital increase1 of AXA Asia Pacific Holdings (AXA APH), corresponding to an amount of approximately €178 million for AXA SA. This operation has (i) no impact on the Group’s Solvency I ratio and (ii) no material impact on AXA SA’s liquidity position, because AXA APH will use a portion of the proceeds from this capital increase to repay approximately €107 million of outstanding debt to AXA SA.
Of which Fees and revenues from investment contracts with no participating feature 662 740 608 608 –10.6%
(a) Net of intercompany eliminations. (b) Excluding net realized capital gains and change in fair value of assets under fair value option and derivatives, net banking revenues and total consolidated revenues would respectively amount to €473 million and €91,285 million for the period ending december 31, 2008, €320 million and €93,617 million for the period ending december 31, 2007, and €393 million and €77,984 million for the period ending december 31, 2006.
On a comparable basis means that the data for the current year period were restated using the prevailing foreign currency exchange rates for the same period of prior year (constant exchange rate basis). It also means that data in one of the two periods being compared were restated for the results of acquisitions, disposals and business transfers (constant structural basis) and for changes in accounting principles (constant methodological basis). In particular, comparable basis for revenues and APE in this document means including acquisitions, disposals and business transfers, and net of intercompany transactions in both periods.
Consolidated gross revenues for full year 2008 reached €91,221 million, down �% compared to 2007.
Taking into account the restatements to comparable basis, mainly the impact of acquisition of MPS (€2,660 million or –2.8 points) and the appreciation of the Euro against other currencies (€2,858 million or +3.1 points, mainly from the British Pounds and US Dollar), gross consolidated revenues were down 2% on a comparable basis.
Japan APE decreased by €52 million (–10%) to €482 million mainly driven by individual business which decreased by 9% (€46 million), notably: • Life: APE decreased by €23 million (–11%) to €188 million mainly due to lower revenues from lower margin products not actively promoted (Endowment, Whole Life and Group) and lower Term products revenues due to a regulator review of the tax deductibility; • Investments & Savings: APE decreased by €9 million (–10%) to €76 million mainly due to lower sales of variable annuity products following turbulent market conditions and heavier regulatory sales process; • Health: APE decreased by €14 million (–6%) to €212 million due to strong sales of medical products in 2007 and to the bankruptcy of a large non-proprietary distributor in the last quarter of 2008.
Switzerland APE increased by €49 million (+22%) to €280 million: • Group Life increased by €42 million (+26%) to €211 million resulting from successful and exceptional annual negotiations
Central & Eastern Europe APE increased by €37 million (+33%) to €164 million driven by Life & Savings (€91 million, +59%), mainly driven by short term Tax Wrapper product in Poland, and Pension Funds (€73 million, +10%). Main countries contributing to the growth were Poland (€90 million, +69%) and Czech Republic (€58 million, +18%).
Personal lines (61% of P&C gross revenues) were up �% on a comparable basis, stemming from both Motor (+2%) and Non-Motor (+3%).
Motor revenues were up 3%, with strong growth in (i) Mediterranean & Latin American Region (+9%) due to Mexico (+26% from both renewal and acquisitions of large contracts), partly offset by Spain (–9% due to economic slowdown), and (ii) Switzerland (+7%) driven by sales efforts, partly offset by (iii) the United Kingdom & Ireland (–2%) principally reflecting rate reductions in Ireland to address increased competition whereas the United Kingdom remained resilient.
International Insurance revenues were down 20% to €2,841 million due to the termination in October 2007 of the fronting agreement between AXA RE and Paris Ré. Revenues were up 7% on a comparable basis driven by AXA Corporate Solutions Assurance and AXA Assistance.
AXA Corporate Solutions Assurance revenues were up 6% to €1,954 million, driven by portfolio development and positive volume effect in Construction, Marine and Liability in a tough pricing environment.
Technical charges relating to insurance activities (a) (37,493) (88,961) (83,115) (84,074)
INCOME FROM OPERATING ACTIVITIES, GROSS OF TAX EXPENSE 6,�94 7,98� 6,745 6,876
Net income from investments in affiliates and associates 23 29 21 21
2006 The Netherlands 2006 (in Euro million) Published Restatement Restated (a)
Profit or loss on financial assets (under fair value option) & derivatives (226) (1) (228)
Net realized capital gains or losses attributable to shareholders (345) 1,175 1,107 1,130
(a) includes notably cdOs and real estate companies. (b) Restated in full year 2006 means the restatement of The Netherlands’ activities as discontinued businesses.
Excluding the contribution of AXA MPS (€28 million) and Mexico (€–4 million) and on a constant exchange rate basis, underlying earnings decreased by €–1,170 million (–44%) mainly resulting from: (i) lower net technical margin, down €–1,553 million (–110%). Excluding the €+26 million positive impact of a reclassification from fees & revenues in the United Kingdom, the net technical margin decreased by €–1,579 million (–112%), mainly driven by lower profits from Variable Annuity guarantees in the United States, mainly explained by underperformance of certain Separate Account funds versus hedge indices, the impact on fund balances of credit spread widening, and higher equity market and interest rate volatility.
b. Administrative expenses up €128 million (or +4%) mainly driven by the United Kingdom (up €223 million including significant strategic initiatives, such as the wealth management wrap platform and Architas investment sub-advisory platform), partly offset by the United States (down €72 million due to expense management initiatives and changes to employee benefit plans) and Switzerland (down €44 million notably due to change in own pension scheme).
c. Other fees & revenues down €78 million (–12%) driven notably by Switzerland due to more fees & revenues allocated to policyholders in Group Life.
(i) Higher technical result (including expenses) up €+571 million (or up €572 million excluding Mexico, AXA MPS and Gulf) due to: a. An all year loss ratio improving by 2.7 points to 67.1%. Excluding the contribution of AXA MPS, Gulf and Mexico, the all year loss ratio improved by 2.8 points to 67.0% owing to a lower impact of natural events in 2008 (storms in Germany for 0.3 point) than in 2007 (Kyrill storm for 0.9 point and floods in the United Kingdom for 1.1 points) and to more favorable prior year reserve developments. Partly offset by: b. Higher expenses (€–747 million), or €–475 million excluding the contribution of AXA MPS (€–20 million), Gulf (€–58 million) and Mexico (€–197 million), resulting in a 0.7 point increase in the expense ratio to 28.4% driven by the administrative ratio up 0.8 point to 10.0% (due to Germany and Mediterranean and Latin American Region), partly offset by the acquisition expense ratio down 0.1 point to 18.4%.
As a consequence, the combined ratio decreased by 1.9 points to 95.5%. Excluding AXA MPS, Gulf and Mexico, the combined ratio decreased by 2.1 points to 95.4%.
(iii) Higher income tax expense and minority interests (up €257 million or 33%). Excluding €44 million of lower positive tax one-offs mainly in Germany, tax expenses and minority interests increased by €213 million (+24%) due to higher pre-tax earnings.
International Insurance underlying earnings amounted to €188 million. On a constant exchange rate basis, underlying earnings decreased by €45 million (–21%) mainly driven by lower run-off results.
Holdings and other companies’ underlying earnings amounted to €–668 million. On a constant exchange rate basis, holdings underlying earnings decreased by €272 million mainly due to: (i) AXA SA (€–213 million) driven by €–96 million higher financial charge, notably related to external growth financing and internal refinancing, €–73 million lower profit on hedging of earnings denominated in foreign currencies, and €–31 million higher tax expenses resulting from higher dividends received from consolidated foreign subsidiaries and losses on tax credits.
Group net capital losses attributable to shareholders amounted to €–345 million. On a constant exchange rate basis, Group net capital gains and losses attributable to shareholders were down €1,568 million mainly due to: (i) €–2,415 million higher net impairments, to €–2,773 million in 2008 mainly on equity securities (€–1,836 million in 2008) and debt securities (€–503 million in 2008) as a result of the financial crisis.
Adjusted earnings amounted to €3,699 million. On a constant exchange rate basis, adjusted earnings were down €2,424 million (–39%) as a result of lower underlying earnings and lower net capital gains.
Net Income amounted to €923 million. On a constant exchange rate basis, net income decreased by €4,727 million (–83%) mainly as a result of: (i) lower adjusted earnings: €–2,424 million, on a constant exchange rate basis.
(ii) lower result on change in fair value of financial assets and derivatives including foreign exchange impacts: €–1,896 million to €–2,501 million in 2008. These €–2,501 million can be analyzed as follows: a. €+188 million corresponding to the cancellation of deferred tax liabilities on assets under fair value option overestimated in previous years in France.
e. An exceptional adjustment of €–106 million in Japan. As a reminder, AXA Japan closes its books at the end of September. According to IFRS principles whereby the financial statements of the subsidiary shall be adjusted to reflect the effects of significant events that would have been recognized with a closing date aligned on the AXA Group, AXA Japan’s 2008 accounts were adjusted with a provisional loss related to the activity from October to December 2008. This adjustment reflected mainly the impact of the further increase of credit spreads on the CDS and corporate bonds portfolio during this period.
(iii) lower exceptional operations result including discontinued operations: down €–534 million at constant exchange rates to €–49 million, as 2007 included €480 million related to the sale of the Dutch activities, while 2008 was impacted by €–10 million from the sale of the annuity portfolio in Australia as well as €–38 million of tax effect on transfer of AllianceBernstein units.
CONSOlIDATED SHAREHOlDERS’ EqUITy As of December 31, 2008, consolidated shareholders’ equity totaled €37.4 billion. The movements in shareholders’ equity since December 31, 2007 are presented in the table below: (in Euro million) Shareholders’ Equity
Treasury shares sold or bought in open market 169 deeply subordinated debt (including accrued interests) (719)
Fully Fully Fully Fully Fully basic (a) diluted (a) basic (a) diluted (a) basic (a) diluted (a) basic (a) diluted (a) basic (a) diluted (a)
weighted average number of shares 2,0�5.4 2,04�.6 2,042.7 2,060.8 1,947.8 2,0�1.7 1,947.8 2,0�1.7
Underlying earnings (Euro per Ordinary Share) 1.84 1.83 2.29 2.27 1.93 1.91 1.98 1.95 –19.6% –19.2%
(b) Restated in full year 2006 means the restatement of The Netherlands’ activities as discontinued businesses.
(in Euro million) Period ended December �1, 2008 Period ended December �1, 2007 Change in % points
Change in unearned premium reserves net of unearned revenues and fees (2�5) (275) (250) (271)
Net investment result excluding financing expenses (b) (�0,578) 21,857 28,198 28,656
Net income from investments in affiliates and associates 21 22 12 12
Profit or loss on financial assets (under fair value option) & derivatives (1,079) (237) 48 49
(a) Before intercompany transactions. (b) For the periods ended december 31, 2008, december 31, 2007, and december 31, 2006, the change in fair value of assets backing contracts with financial risk borne by policyholders impacted the net investment result for respectively €–43,687 million, € +7,468 million and €+15,158 million, and benefits and claims by the offsetting amounts respectively.
(a) Mediterranean & Latin American Region includes italy, Spain, Portugal, Greece, Turkey, Morocco and Mexico. (b) Restated means the restatement of The Netherlands’ activities as discontinued businesses.
Net realized capital gains or losses attributable to shareholders (784) 567 575 597
APE decreased by €14 million (–1%) to €1,347 million mainly due to group retirement (–45%) and individual savings (–6%) partly offset by strong health business (+82%).
Fees & revenues increased by €53 million (+4%) to €1,516 million resulting from a €117 million higher URR (Unearned Revenue Reserve) release offset by higher deferred acquisition costs amortization. Excluding URR, fees and revenues decreased by €64 million mainly due to lower revenues on unit-linked contracts (€–127 million) given lower premium and lower account balances partly offset by higher loadings on non unit-linked premiums (€+92 million).
Net technical margin rose by €202 million (+76%) to €467 million mainly due to higher favorable prior years development on group lines.
Expenses increased by €189 million (+10%) to €2,100 million mainly due to higher net amortization of deferred acquisition costs (€125 million) offsetting URR. Excluding DAC, expenses increased by €65 million (+3%) driven by an increase in general expenses (€47 million) due to new IT projects, marketing and advertising costs.
Income tax expenses increased by €7 million (+4%) to €185 million as the impact of the increased taxable result was largely offset by the increase of non taxable dividends.
Adjusted earnings increased by €185 million (+23%) to €986 million resulting from: (i) the evolution of underlying earnings (€+144 million) (ii) a positive impact of derivatives hedging assets attributable to shareholders, for which intrinsic value evolution is reported in adjusted earning (€+101 million) partly offset by (iii) lower net capital gains attributable to shareholders (€–59 million to €210 million) mainly due to higher impairment on equities.
Net income decreased by €284 million to €425 million reflecting (i) the improvement of the adjusted earnings by €185 million offset by (ii) a €–304 million unfavorable change in fair value (mainly due to mutual funds exposed to credit) and by (iii) a negative impact of derivatives for €–117 million (including €–40 million of time value of hedging derivatives in 2008) and foreign exchange for €–48 million. In 2008, the net change in fair value on assets under fair value option included a corrective gain of €147 million corresponding to the cancellation of deferred tax liabilities overestimated in previous years.
Net capital gains or losses attributable to shareholders net of income tax (153) (32) 30
Profit or loss on financial assets (under FV option) & derivatives 83 40 –
Gross revenues decreased by €2,486 million (–15%) to €13,757 million. On a comparable basis, gross revenues decreased by €1,448 million (–9%). • Variable Annuity premiums (69% of gross revenues) decreased by 14% reflecting a slowdown of sales primarily related to challenging market conditions.
• Mutual Funds gross revenues (5% of gross revenues) decreased by 8%.
APE decreased by €560 million (–27%) to €1,540 million. On a comparable basis, APE decreased by €420 million (–20%) driven primarily by a 15% decrease in Variable Annuities, reflecting challenging market conditions, and an anticipated decrease in Life for Fixed Universal Life products following price increases in 2007.
Fees & revenues decreased by €198 million (–11%) to €1,595 million. On a constant exchange rate basis, fees & revenues decreased by €80 million (–4%), primarily due to fees earned on lower separate account asset levels resulting from market decline in 2008.
Amortization of VbI decreased by €4 million (–6%) to €–64 million. On a constant exchange rate basis, amortization of VBI increased by €1 million (+1%).
As a consequence, the underlying cost income ratio increased by 78.5 points to 136.5%.
Income tax expenses decreased by €539 million (–148%) to a benefit of €175 million. On a constant exchange rate basis, income tax expenses decreased by €552 million (–152%) principally due to the lower pre-tax underlying earnings.
As a consequence, underlying earnings decreased by €1,108 million (–125%) to €–225 million. On a constant exchange rate basis, underlying earnings decreased by €1,125 million (–127%).
Underlying operating earnings before tax 57 224 297 income tax expenses / benefits 65 31 (142)
Profit or loss on financial assets (under FV option) & derivatives 232 21 (27)
Gross revenues decreased by €1,079 million (–23%) to €3,549 million. On a comparable basis, gross revenues decreased by €495 million (–11%): • Investment & Savings (79% of gross revenues): – Insurance Premiums (64% of gross revenues) decreased by 16% as a result of lower Onshore and Offshore bond premiums following recent tax changes and market turmoil.
– Fees on Investment products (15% of gross revenues) reduced by 3%, mainly driven by adverse stock market conditions. • Life Insurance Premiums (17% of gross revenues) increased by 1% due to strengthening of the AXA Protection Account brand and a strong direct proposition. • Other revenues (4% of gross revenues) increased by 23% as a result of growth in brokerage revenues.
APE decreased by €301 million (–19%) to €1,287 million. On a comparable basis, APE decreased by €89 million (–6%) as a result of: • 21% lower Onshore and Offshore bond premiums following recent tax changes and market turmoil. • 14% lower Individual and Executive Pensions businesses following falls in the stock market leading to lower transfers and average values.
• 19% higher Protection products sales due to strengthening of the AXA Protection Account brand and a strong direct proposition.
Investment margin decreased by €13 million (–5%) to €244 million. On a constant exchange rate basis, investment margin increased by €27 million (+10%) due to increased investment return on shareholder assets.
Net technical margin decreased by €44 million (–49%) to €46 million. On a constant exchange rate basis, net technical margin decreased by €37 million. Excluding the reclassification from fees and revenues (€–26 million), the net technical margin decreased by €63 million (–70%) mainly as a result of: • €37 million additional provision for potential policyholder compensation payments in both Traditional life and old unit-linked life businesses. • €22 million non recurrence of favorable provision movements in 2007.
Amortization of VbI increased by €50 million (+109%) to €–97 million. On a constant exchange rate basis, amortization of VBI increased by €66 million (+143%) due to the impact of 2008 market conditions.
Adjusted earnings decreased by €179 million (–78%) to €50 million. On a constant exchange rate basis, adjusted earnings decreased by €170 million (–74%) as a result of lower underlying earnings and €73 million higher impairments mostly on equities and bonds partly offset by €15 million higher net realized gains.
Net income increased by €41 million (+19%) to €257 million. On a constant exchange rate basis, net income increased by €83 million (+38%). In addition to the change in adjusted earnings, net income included the following positive evolutions: €163 million in undiscounted tax adjustment on unrealized gains attributable to policyholders in unit-linked life fund 1, €42 million on fixed income derivatives and €48 million on foreign exchange.
Net capital gains or losses attributable to shareholders net of income tax 92 65 38
Net technical margin decreased by €37 million (–27%) to €98 million. On a constant exchange rate basis, net technical margin decreased by €35 million (–26%) driven by: • €+14 million higher surrender margin to €15 million mainly driven by the non-recurrence of 2007 old Medical Whole Life upgrade program (€+15 million); • €–34 million lower mortality margin to €97 million due to less favorable experience; • €–14 million lower margin on Variable Annuity guarantees.
Expenses decreased by €21 million (–3%) to €–619 million. On a constant exchange rate basis, expenses decreased by €8 million (–1%) mainly driven by lower administrative expenses.
Income tax expenses decreased by €5 million (–3%) to €–150 million. On a constant exchange rate basis, income tax expense decreased by €1 million (–1%) in line with taxable income.
Adjusted earnings increased by €11 million (+3%) to €330 million or by €18 million (+6%) on a constant exchange rate basis, as the €11 million lower underlying earnings were offset by €29 million higher net realized capital gains (including €119 million higher credited interests being funded through adjusted earnings).
Net income decreased by €370 million to €–151 million. On a constant exchange rate basis, net income decreased by €371 million, reflecting mainly €+18 million higher adjusted earnings and the two following items: • the impact of the widening of credit spreads (€–261 million); • an exceptional adjustment of €–106 million. As a reminder, AXA Japan closes its books at the end of September. According to
Net capital gains or losses attributable to shareholders net of income tax (41) (1) 6
Profit or loss on financial assets (under FV option) & derivatives (59) 3 6
Gross revenues increased by €32 million (+1%) to €6,233 million mainly due to Health (€+42 million) driven by premium adjustment and the impact of high new business in prior year. In Life, gross revenues decreased (€–10 million) as a result of higher maturities in endowment business and cancellations in group business, partly offset by Investment & Savings unit linked business especially from “Twinstar” (Variable Annuities with secondary guarantee) product range.
Fees & revenues decreased by €8 million (–3%) to €221 million due to lower loadings on premiums in non unit-linked business (traditional Life business) segments partly offset by higher loadings on unit-linked business.
Adjusted earnings decreased by €179 million (–99%) to €2 million due to lower underlying earnings (€–139 million) and €–40 million higher net impairments and realized losses on equities and fixed maturities.
Net income decreased by €249 million (–139%) to €–70 million primarily driven by adjusted earnings evolution and €–48 million lower change in fair value of financial assets.
Net capital gains or losses attributable to shareholders net of income tax (245) (15) 4
APE increased by €58 million (+26%) to €280 million. On a comparable basis, APE increased by €49 million (+22%): • Group Life increased by €42 million (+26%) to €211 million resulting from successful and exceptional annual negotiations
Fees & revenues decreased by €21 million (–10%) to €190 million. On a constant exchange rate basis, fees & revenues decreased by €28 million (–13%) mainly due to Group Life (€–21 million) driven by more fees and revenues allocated to policyholders, and lower loadings on premiums due to tariff reduction.
Expenses decreased by €14 million (–9%) to €–153 million. On a constant exchange rate basis, expenses were down €20 million (–12%) mainly driven by the one-time positive impact of the change in own pension scheme (€17 million).
Amortization of VbI decreased by €18 million (–63%) to €–11 million. On a constant exchange rate basis, amortization of VBI decreased by €18 million (–64%) mainly attributable to Individual Life thanks to a positive unlocking effect.
As a consequence, the underlying cost income ratio improved by 11.0 points to 36.8%.
Profit or loss on financial assets (under FV option) & derivatives (249) (93) (10)
• Group Life and Savings revenues (24% of gross revenues) decreased by 3% to €606 million.
Net technical margin rose by €9 million (+15%) to €65 million mainly due to a more favorable mortality experience in 2008.
Expenses decreased by €24 million (–9%) to €–228 million due to a lower DAC amortization (€+14 million), a drop of overhead costs (€+7 million) and a decrease in commissions (€+2 million).
Amortization of VbI increased by €3 million (+102%) to €–6 million.
The underlying cost income ratio improved by 12.0 points to 58.4%.
Income tax expenses increased by €14 million (+84%) to €–30 million. Excluding the €26 million positive contribution in 2007 resulting from the favorable court decision for insurance companies on RDT (“Revenus Définitivement Taxés”: tax exemption on 95% of dividends on equities), income tax expenses decreased by €12 million (–28%) as a result of new tax allocation between Life and P&C.
Net income decreased by €788 million (–413%) to €–597 million mainly due to the drop of the adjusted earnings and to unfavorable change in fair value on fixed income mutual funds due to credit spread widening (€–197 million), partly offset by a positive change in fair value on derivatives (€+78 million).
Profit or loss on financial assets (under FV option) & derivatives (12) – –
APE increased by €200 million (+97%) to €406 million. On a comparable basis, APE remained stable, as the increase in Spain (+21% or €+19 million), driven by traditional savings products, was offset by Italy (–16% or €–11 million) due to the lower contribution from Index Linked products.
Investment margin increased by €164 million to €254 million, of which €138 million from AXA MPS and Mexico. On a constant exchange rate basis and excluding AXA MPS and Mexico, investment margin increased by €27 million (+29%) mainly due to high equity dividends in Italy and higher income in Spain.
Fees & revenues increased by €95 million to €266 million, of which €93 million from AXA MPS and Mexico. On a constant exchange rate basis and excluding AXA MPS and Mexico, fees & revenues increased by €2 million (+1%).
Expenses increased by €158 million to €–363 million of which €159 million from AXA MPS and Mexico. On a constant exchange rate basis and excluding AXA MPS and Mexico, expenses remained stable mainly due to a change in expense allocation in Spain between the L&S and the P&C segments.
Adjusted earnings decreased by €24 million to €68 million of which €+4 million from AXA MPS, Mexico and the buyout of minority shareholders in Turkey. On a constant exchange rate basis and excluding AXA MPS, Mexico and the buyout of minority shareholders in Turkey, adjusted earnings decreased by €27 million (–30%) as the higher underlying earnings was more than offset by equity impairments.
Net income decreased by €32 million to €52 million of which €+2 million from AXA MPS, Mexico and the buyout of minority shareholders in Turkey. On a constant exchange rate basis and excluding AXA MPS, Mexico and the buyout of minority shareholders in Turkey, net income decreased by €33 million (–39%), driven principally by the lower level of adjusted earnings and negative change in fair value of mutual funds.
lIFE & SAVINGS OPERATIONS – OTHER COUNTRIES The following tables present the operating results for the other Life & Savings operations of AXA: consolidAtEd gross rEvEnUEs 2006 2006 (in Euro million) 2008 2007 Restated (b) Published
South East Asia and china (a) 210 257 180 180 intercompany transactions (2) – – –
The Netherlands – – – 55 central and Eastern Europe 7 – – –
Australia and New Zealand 1 Gross revenues increased by €335 million (+24%) to €1,719 million. On a comparable basis, gross revenues increased by €390 million (+28%): • Gross written premiums and fees (79% of gross revenues) increased by €423 million (+42%) to €1,353 million, mainly driven by significant wholesale single premiums in wealth management guaranteed savings products (within the life company) reflecting the recent investors trend to seek more conservative investments given market volatility; • Revenues from mutual fund and advice business (21% of gross revenues) decreased by €34 million (–9%) to €366 million due to a decline in funds under management levels resulting from stock market decrease and lower Mutual Funds net sales which decreased by €2,423 million (–106%) to €–85m driven by both lower inflows and higher outflows.
APE decreased by €167 million (–31%) to €378 million. On a comparable basis, APE decreased by €156 million (–29%) mainly due to a drop in Mutual Fund and AllianceBernstein Joint Venture sales following negative market conditions in 2008 and the favorable legislation change in 2Q07 (peak in sales last year). These negative impacts were partially offset by the inclusion of some significant wholesale premiums (€+29 million) from institutional clients seeking more conservative investments, and by Accumulator product sales.
• Fees & revenues decreased by €34 million (–5%) to €698 million. On a constant exchange rate basis, fees & revenues increased by €11 million (+2%) mainly due to the acquisition of the financial advisor Genesys. Excluding Genesys, fees & revenues decreased by €46 million (–6%) on a comparable basis mainly due to lower average funds under management driven by the 2008 stock market decrease.
• Amortization of VbI increased by €20 million (+113%) to €–37 million. On a constant exchange rate basis, amortization of VBI increased by €22 million (+127%) due to lower assets under management in the life company and the amortization of Genesys VBI.
• Income tax expenses decreased by €19 million (–82%) to €–4 million. On a constant exchange rate basis, income tax expenses decreased by €18 million (–81%) mainly due the decrease in pre-tax underlying earnings.
Net income decreased by €232 million (–144%) to €–70 million. On a constant exchange rate basis, net income decreased by €237 million (–146%) in line with adjusted earnings, as the loss on the sale of the annuities portfolio (€–10 million) and a one-off tax expense (€–11 million) were offset by the positive change in value of interests rate swaps.
Gross revenues decreased by €131 million (–10%) to €1,126 million. On a comparable basis, gross revenues decreased by €45 million (–4%) mainly driven by a decrease in investment and savings inflows due to the investment market conditions (€–75 million), partially offset by an increase in individual life and health (€+17 million), group business (€+9 million) and bancassurance products (€+7 million).
APE increased by €57 million (+53%) to €164 million. On a comparable basis, APE increased by €37 million (+33%) driven by Life & Savings (€91 million, +59%), mainly driven by short term Tax Wrapper product in Poland, and Pension Funds (€73 million, +10%). Main countries contributing to the growth were Poland (€90 million, +69%) and Czech Republic (€58 million, +18%).
South East Asia and China APE increased by €3 million (+5%) to €66 million. On a comparable basis, APE increased by €8 million (+12%) mainly due to Indonesia (+23%) and Thailand (+31%) following the strong growth in sales force and in the bancassurance channel.
Amortization of value of purchased life business in force – – – –
INCOME FROM OPERATING ACTIVITIES, GROSS OF TAX EXPENSE �,415 2,647 2,162 2,21�
Net income from investments in affiliates and associates 5 5 9 9
(a) Before intercompany transactions. (b) Restated in full year 2006 means the restatement of The Netherlands’ activities as discontinued businesses.
(in Euro million) 2008 2007 2006 current accident year loss ratio (net) 74.8% 74.3% 74.6%
Underlying operating earnings before tax 962 657 592 income tax expenses / benefits (339) (230) (210)
Gross revenues increased by €257 million (+5%) to €5,633 million (or on a comparable basis +3%). • Personal lines (60% of gross revenues) increased by 4% to €3,378 million mainly reflecting higher net inflows in Motor (+133k new contracts stemming from all distribution channels) in a competitive market, and positive net inflows (+71k) combined with an increase in the average premium in Household.
Net Technical Result increased by €309 million (+21%) to €1,777 million: • Current accident year loss ratio increased by 0.4 point to 74.8% reflecting (i) the shift towards longer tail business (Construction and Liability) and (ii) the increase in Personal Motor current accident year net loss ratio due to pressure on tariffs. • Prior accident year net technical result improved by €269 million to €354 million reflecting a higher positive prior year reserves development (Motor, Liability, Construction).
As a consequence, the all accident year loss ratio decreased by 4.3 points to 68.5%.
As a result, underlying earnings increased by €196 million (+46%) to €623 million.
Adjusted earnings increased by €20 million (+4%) to €539 million as the underlying earnings increase was partly offset by higher impairment charges (€–143 million), mainly on equities and bonds, and lower realized capital gains (€–42 million).
Net income decreased by €308 million (–56%) to €245 million as (i) the evolution of adjusted earnings and (ii) a €35 million gain corresponding to the cancellation of deferred tax liabilities on assets overestimated in previous years, were more than offset by (iii) an unfavorable change in fair value (€–290 million) mainly on credit mutual funds due to the widening of corporate spreads, and (iv) a negative impact on foreign exchange for €–63 million.
(in Euro million) 2008 2007 2006 current accident year loss ratio (net) 69.3% 71.8% 63.6%
Gross revenues decreased by €641 million (–13%) to €4,471 million or €4,420 million after intercompany eliminations. On a comparable basis, gross revenues increased by €2 million (+0%). • Personal lines (52% of the gross revenues) were flat at €2,347 million with Motor up 2%, driven by +34% growth (or €66 million)
in Swiftcover direct business, offset by a decrease of intermediated business linked to price increase to address profitability, and competition driving down prices in Ireland. Non-Motor was flat with Property up 9% due to volume growth, and Health up 2% due to large corporate contracts, offset by creditor down 14% due to credit crunch.
• The all accident year loss ratio decreased by 3.3 points to 63.3% reflecting the improvement in current accident year loss ratio combined with +0.6 point favorable development in prior years reserves.
As a result, the combined ratio improved by 2.5 points to 99.0%.
Net investment result decreased by €28 million (–7%) to €352 million. On a constant exchange rate basis, net investment result increased by €14 million (+4%) as a result of increased average returns (higher bond yields) offset by lower asset base reflecting the current market conditions and the payment of claims related to 2007 weather events.
Income tax expenses increased by €42 million (+86%) to €–90 million. On a constant exchange rate basis, income tax expenses increased by €55 million (+112%) as the reduction in United Kingdom corporation tax rate was more than offset by the improvement in pre-tax earnings and a €3 million decrease in positive tax one offs.
Underlying earnings increased by €44 million (+17%) to €306 million. On a constant exchange rate basis, underlying earnings increased by €84 million (+32%).
Adjusted earnings decreased by €254 million (–76%) to €78 million. On a constant exchange rate basis, adjusted earnings decreased by €243 million (–73%) as the underlying earnings increase was more than offset by €108 million lower realized capital gains and €220 million higher impairments on equities, bonds and real estate.
Gross revenues �,554 �,5�1 2,759 current accident year loss ratio (net) 76.2% 78.7% 74.2%
Net income from investments in affiliates and associates 5 5 4
Net capital gains or losses attributable to shareholders net of income tax (57) 92 77
• Commercial lines (30% of gross revenues) were flat. • Other lines (7% of gross revenues) increased by 18% due to a one off effect in the Assumed business.
Expense ratio rose by 2.8 points to 32.1%, primarily driven by non-recurring items in 2007 and 2008. In 2007, the expense ratio was positively impacted by the release of a bad debt provision, whereas in 2008 non-recurring items (such as pension costs) had a negative impact.
Adjusted earnings decreased by €118 million (–28%) to €298 million due to lower realized capital gains and higher equity impairments partly mitigated by equity hedges.
Net capital gains or losses attributable to shareholders net of income tax (41) 119 142
Profit or loss on financial assets (under FV option) & derivatives (133) (29) (6)
Net technical result decreased by €23 million (–3%) to €669 million: • The current accident year loss ratio increased by 3.2 points to 80.9% mainly due to higher large claims (€+68 million) mainly in property, despite less natural events.
Expense ratio increased by 0.1 point to 29.9% driven by higher administrative expenses.
As a result, the combined ratio increased by 1.6 points to 98.8%.
Adjusted earnings decreased by €195 million (–58%) to €140 million reflecting lower underlying earnings and higher equity impairments.
Net income decreased by €289 million (–106%) to €–17 million mainly reflecting lower adjusted earnings and unfavorable change in fixed income mutual funds fair value due to credit spread widening.
(in Euro million) 2008 2007 2006 current accident year loss ratio (net) 76.2% 76.5% 77.2%
Underlying operating earnings before tax 8�� 591 �14 income tax expenses / benefits (235) (195) (106)
Net capital gains or losses attributable to shareholders net of income tax (43) 172 57
The Mediterranean and latin American Region includes the following changes in scope: • AXA MPS consolidated as of 01/01/2008 • Mexico consolidated as of 01/07/08 • Gulf Region consolidated as of 01/01/2008 • Turkey buyout of minority shareholders as of 01/07/08 For volume indicators, the comparable basis reflects 2008 scope.
• Commercial lines (35% of total revenues) were up 12% to €2,221 million with (i) Motor up 9% mainly driven by Mexico (+26% due to both renewal and acquisitions of large contracts), partly offset by Spain (–9% due to economic slowdown), and (ii) Non-motor up 13% mostly due to the positive contribution from Health up 45% mainly driven by new corporate contracts issued in the Gulf Region and Mexico.
Net technical result increased by €525 million to €1,979 million of which €253 million from AXA MPS, Gulf Region and Mexico. On a constant exchange rate basis and excluding AXA MPS, Gulf Region and Mexico, net technical result increased by €282 million (+19%). • The current accident year loss ratio decreased by 0.3 point to 76.2%. On a constant exchange rate basis and excluding AXA
Expense ratio rose by 1.5 points to 24.8%. On a constant exchange rate basis and excluding AXA MPS, Gulf Region and Mexico, the expense ratio increased by 0.9 point to 24.2% driven by a change in expense allocation in Spain, IT costs and the launch of a direct channel in Italy.
As a result, the combined ratio improved by 1.9 points to 93.3%. On a constant exchange rate basis and excluding AXA MPS, Gulf Region and Mexico, the combined ratio decreased by 3.1 points to 92.2%.
Net investment result increased by €63 million to €414 million of which €47 million from AXA MPS, Gulf Region and Mexico. On a constant exchange rate basis and excluding AXA MPS, Gulf Region and Mexico, net investment result increased by €21 million (+6%) driven by higher bonds income (volume effect and spreads increase).
Income tax expenses increased by €41 million to €–235 million, of which €5 million from AXA MPS, Gulf Region and Mexico. On a constant exchange rate basis and excluding AXA MPS, Gulf Region and Mexico, income tax expenses increased by €36 million (+19%) due to higher pretax earnings partly compensated by a tax rate decrease in some countries.
Underlying earnings increased by €195 million to €557 million, of which €+34 million from AXA MPS, Gulf Region, Mexico and the buyout of minorities in Turkey. On a constant exchange rate basis and excluding AXA MPS, Gulf Region, Mexico and the buyout of minorities in Turkey, underlying earnings increased by €164 million (+45%).
(in Euro million) 2008 2007 2006 current accident year loss ratio (net) 73.7% 77.6% 63.3%
Underlying operating earnings before tax �11 159 8 income tax expenses / benefits (70) (33) (1)
Gross revenues increased by €43 million (+2%) to €2,024 million. On a comparable basis, gross revenues decreased by €–26 million (–1%): • Personal lines (51% of gross revenues) improved by 1% to €1,053 million reflecting the strong positive net new contracts partly offset by tariff reduction in the context of a softening market. • Commercial lines (49% of gross revenues) decreased by 4% to €992 million mainly driven by price pressure in Workers’
Net technical result increased by €137 million (+28%) to €627 million. On a constant exchange rate basis, net technical result improved by €116 million (+24%): • The current accident year loss ratio decreased by 3.9 points to 73.7% mainly driven by the non-recurrence of large losses due to flood and hail events in 2007.
As a consequence, the combined ratio improved by 5.5 points to 93.6%.
Net investment result improved by €39 million (+28%) to €181 million. On a constant exchange rate basis, net investment result increased by €33 million (+23%) driven by higher volume and higher investment return, mainly on loans and bonds.
Income tax expenses were up €36 million (+109%) to €–70 million. On a constant exchange rate basis, income tax expenses increased by €34 million (+102%) driven by higher pre-tax earnings.
Adjusted earnings decreased by €50 million (–42%) to €68 million. On a constant exchange rate basis, adjusted earnings decreased by €53 million (–44%) reflecting higher impairments (€–140 million) and realized capital losses (€–19 million) mainly on equities as a consequence of the drop in financial markets, partly offset by higher underlying earnings.
Net realized capital gains or losses attributable to shareholders (44) 22 16 18
(a) includes Malaysia, Hong Kong and Singapore. (b) Restated means the restatement of The Netherlands’ activities as discontinued businesses.
Underlying earnings amounted to €103 million. On a constant exchange rate basis, underlying earnings decreased by €15 million (–12%) due to the deterioration of the combined ratio.
Adjusted earnings decreased by €70 million on a constant exchange rate basis to €61 million reflecting €15 million lower underlying earnings, €32 million higher equity impairments and €23 million lower realized capital gains.
South Korea Kyobo Auto was acquired last year and contributed 6 months to 2007 earnings.
Net income was €0 million, including the amortization of the acquired portfolio.
Adjusted earnings increased by €8 million, on both current and constant exchange rate bases, to €8 million due to higher underlying earnings and realized capital gains.
Asia (excluding Japan) Singapore Gross revenues increased by €21 million (+23%) to €111 million. On a comparable basis, gross revenues increased by €22 million (+24%) mainly due to motor business. Other lines benefited from some regulatory changes.
Hong Kong Gross revenues decreased by €4 million (–7%) to €53 million. On a comparable basis, gross revenues were stable.
Adjusted earnings decreased by €7 million due to lower equity realized gains.
The combined ratio deteriorated by 11.0 points to 94.5% mainly due to unfavorable reserves development on prior years in Motor.
Underlying earnings decreased by €2 million to €3 million in line with the deterioration of the combined ratio.
Adjusted earnings and net income decreased by €4 million (–58%) to €3 million mainly due to lower underlying earnings and lower capital gains.
Central and Eastern Europe (Poland) Gross revenues increased by €7 million (+60%) to €19 million. On a comparable basis, gross revenues increased by 86% reflecting strong portfolio development in Motor (+56k new contracts).
(in Euro million) 2008 2007 2006 current accident year loss ratio (net) 97.5% 94.1% 88.7%
Underlying operating earnings before tax 16� 161 144 income tax expenses / benefits (48) (63) (59)
Property (including an earthquake in China and floods in Australia). Current year loss ratio reached 97.5% (+3.4 points). • The prior accident year net technical result increased by €64 million to €181 million due to positive reserve developments in most lines of business.
As a result, the combined ratio increased by 1.3 points to 101.4%.
Net investment result increased by €28 million (+17%) to €190 million mainly driven by higher bonds revenues due to higher asset base and yield.
Income tax expenses decreased by €15 million to €–48 million mainly reflecting the booking of deferred tax assets on prior year tax losses on foreign branches.
Net income decreased by €97 million (–78%) to €27 million. On a constant exchange rate basis, net income decreased by €103 million (–83%) driven by the adjusted earnings evolution combined with a €77 million negative change in fair value mainly on credit funds as a result of widening of corporate spreads. In 2008, the net change in fair value on assets included a corrective gain of €6 million corresponding to the cancellation of deferred tax liabilities overestimated in previous years.
AXA ASSISTANCE Gross revenues increased by €61 million (+8%) to €870 million, or €751 million after intercompany eliminations. On a comparable basis, gross revenues increased by €79 million (+11%) driven by a strong development in Healthcare and Travel activities.
OTHER INTERNATIONAl ACTIVITIES Underlying earnings decreased by €47 million (–53%) to €41 million. On a constant exchange rate basis, underlying earnings decreased by €58 million (–65%) driven by higher losses on the Life run-off portfolio partly offset by higher results on the Non-Life run-off portfolios.
Adjusted earnings decreased by €46 million (–55%) to €38 million. On a constant exchange rate basis, adjusted earnings decreased by €57 million (–68%) in line with underlying earnings.
The following tables present the consolidated gross revenues, underlying earnings, adjusted earnings and net income for the Asset Management Segment for the periods indicated consolidAtEd gross rEvEnUEs
Net realized capital gains or losses attributable to shareholders – 1 1
Profit or loss on financial assets (under fair value option) & derivatives (163) 3 10
Underlying operating earnings before tax 7�4 97� 921 income tax expenses / benefits (151) (313) (260)
Profit or loss on financial assets (under FV option) & derivatives (45) – –
Assets under management (“AUM”) decreased by €212 billion from year-end 2007 to €331 billion at the end of 2008, driven by market depreciation of €–200 billion and net outflows of €–30 billion (€–17 billion for Retail, €–10 billion for Institutional and €–3 billion for Private Clients), partly offset by a €18 billion positive exchange rate impact.
General expenses decreased by €538 million (–23%) to €–1,768 million. On a constant exchange rate basis, general expenses decreased by €408 million (–18%). Excluding the decrease in market value of incentive compensation investments, general expenses decreased by €285 million (–12%) due to (i) employee compensation expenses (–11% or €–151 million) from workforce reduction partly offset by €44 million of severance costs, (ii) promotion and servicing (–18% or €–89 million) from lower sales, and (iii) other expenses (–9% or €–41 million) notably due to favorable litigation outcome.
The underlying cost income ratio increased by 0.5 point to 67.3%. Excluding the decrease in market value of incentive compensation investments, the underlying cost income ratio increased by 2.0 points to 68.8%.
Underlying operating earnings before tax 442 466 �79 income tax expenses / benefits (129) (141) (132)
Assets under management (“AUM”) decreased by €63 billion from year-end 2007 to €485 billion at the end of 2008 as €2 billion net new money (including €6 billion in Main funds, €3 billion in Institutional and €–7 billion in retail clients), and €17 billion change in scope (AXA MPS for €10 billion, AXA Korea for €9 billion, €2 billion Private Equity and Real estate due to further transfer of Winterthur assets and the Netherlands for €–4 billion), were more than offset by €–61 billion negative market impact due to the equity market turmoil, and €–20 billion unfavorable exchange rate impact.
Gross revenues decreased by €290 million (–14%) to €1,716 million, or €1,436 million after intercompany eliminations. On a comparable basis, gross revenues decreased by €236 million (–14%). Excluding distribution fees (retroceded to distributors), gross revenues decreased by €89 million (–6%) mainly due to an unfavorable client and product mix and the decrease in retail business, while average AUM remained stable.
Net investment result increased by €63 million (+167%) (both on current and constant exchange rate bases) to €101 million mainly due to a non recurring significant carried interest (€74 million) related to the performance of a real estate fund (offset in net income).
Net income decreased by €123 million (–45%) to €151 million. On a constant exchange rate basis, net income decreased by €108 million (–39%) mainly driven by negative change in fair value of Libor plus funds (€–74 million) as well as a negative impact coming from carried interest change in fair value of real estate funds (offset in net investment result).
The following tables present the consolidated gross revenues, underlying earnings, adjusted earnings and the net income attributable to AXA’s banking for the periods indicated consolidAtEd gross rEvEnUEs
Net realized capital gains or losses attributable to shareholders (64) (5) 8
Profit or loss on financial assets (under fair value option) & derivatives 4 – (15)
AXA bANK EUROPE (bElGIUM) Net banking revenues decreased by €22 million (–9%) to €224 million. On a comparable basis, net banking revenues increased by €33 million (+15%) to €249 million net of intercompany transactions mainly due to higher net interest and fee income, partly offset by a strong decrease of the net realized capital gains and impairments on equities and CDO’s and the unfavorable change in fair value of mutual funds and other assets covered with a fair value hedge or natural hedge.
Underlying earnings were stable at €–2 million due to a lower commission margin partly offset by lower expenses.
AXA1 Underlying earnings decreased by €213 million to €–437 million mainly due to: • €–96 million higher financial charge notably related to external growth financing and internal refinancing, • €–73 million lower profit on hedging of earnings denominated in foreign currencies, • €–31 million higher tax expenses resulting from higher dividends received from consolidated foreign subsidiaries and losses on tax credits.
Net income increased by €980 million to €448 million mainly driven by adjusted earnings evolution. Net income in 2008 included: • the mark-to-market of derivatives non eligible to hedge accounting booked in net income of which €–100 million on interest rate derivatives (versus €–218 million in 2007) and €–177 million on foreign exchange instruments, notably covering debt instruments accounted for in shareholder’s equity (versus €–85 million in 2007),
OTHER FRENCH HOlDING COMPANIES AXA France Assurance Underlying earnings, adjusted earnings and net income increased by €12 million to €–11 million, mainly due to lower tax expenses (€+10 million) resulting from lower dividends (eliminated in consolidation) received from operational entities.
FOREIGN HOlDING COMPANIES AXA Financial Inc. Underlying earnings increased by €15 million (+14%) to €–89 million. On a constant exchange rate basis, underlying earnings increased by €9 million (+9%) primarily due to lower interest expense on intercompany borrowings from AXA and the repayment of external senior debt, a decrease in share based compensation programs due to a decrease in the AXA share price and a decrease in income earned on interest rate and equity derivatives.
AXA Asia Pacific Holdings 1 Underlying earnings increased by €5 million (+22%) to €–19 million. On a constant exchange rate basis, underlying earnings increased by €4 million (+17%) mainly due to lower expenses partly offset by higher interest charge.
Adjusted earnings increased by €4 million (+19%) to €–19 million. On a constant exchange rate basis, adjusted earnings increased by €3 million (+14%) in line with underlying earnings.
Net income decreased by €17 million (–99%) to €–35 million. On a constant exchange rate basis, net income decreased by €20 million (–112%) as the higher adjusted earnings were more than offset by the negative change in value of interests rate swaps and foreign exchange losses on USD group debt.
Adjusted earnings decreased by €67 million to €–67 million. On a constant exchange rate basis, adjusted earnings decreased by €78 million in line with underlying earnings.
(1) AXA interest in AXA Asia Pacific Group is 53.42% broken down into 53.15% direct interest holding and an additional 0.27% owned by the AAPH Executive plan trust.
Net income decreased by €5 million (–13%) to €–44 million in line with adjusted earnings.
OTHER CFP Underlying earnings, adjusted earnings and net income increased by €6 million (+31%) to €24 million reflecting positive 2008 events on the run-off portfolio, allowing provision releases.
COMPARAblE bASIS FOR REVENUES AND ANNUAlIZED PREMIUMS EqUIVAlENT On a comparable basis means that the data for the current period were restated using the prevailing foreign currency exchange rates for the same period of prior year (constant exchange rate basis). It also means that data in one of the two periods being compared were restated for the results of acquisitions, disposals and business transfers (constant structural basis) and for changes in accounting principles (constant methodological basis).
ADJUSTED EARNINGS Adjusted earnings represent the net income (group share) before the impact of: (i) Exceptional operations (primarily change in scope and discontinued operations) (ii) Integration and restructuring costs related to material newly acquired companies (iii) Goodwill and other related intangibles, and (iv) Profit or loss on financial assets accounted for under fair value option (excluding assets backing liabilities for which the financial risk is borne by the policyholder), foreign exchange impacts on assets and liabilities, and derivatives related to invested assets.
UNDERlyING EARNINGS Underlying earnings correspond to adjusted earnings excluding net capital gains or losses attributable to shareholders. Net capital gains or losses attributable to shareholders include the following elements net of tax: • realized gains and losses and change in impairment valuation allowance (on assets not designated under fair value option or trading assets), • cost at inception, intrinsic value and pay-off of derivatives involved in the economic hedging of realized gains and impairments of equity securities and real estate backing general account and shareholders’ funds, • related impact on policyholder participation (Life & Savings business), • DAC and VBI amortization or other reactivity to those elements if any (Life & Savings business) and net of hedging if any.
• For adjusted and underlying ROE : – All perpetual debts (TSS / TSDI) are treated as financing debt, thus excluded from shareholders’ equity – Interest charges on TSS / TSDI are deducted from earnings – OCI is excluded from the average shareholders’ equity.
(ii) Policyholders’ interest in participating contracts is reflected as a change in insurance benefits in the Statement of Income.
In the Margin Analysis, it is allocated to the related margin, i.e. primarily “Investment Margin” and “Net Technical Margin”. (iii) The “Investment margin” represents the net investment result in the Statement of Income and is adjusted to take into account the related policyholders’ participation (see above) as well as changes in specific reserves linked to invested assets’ returns and to exclude the fees on (or contractual charges included in) contracts with the financial risk borne by policyholders, which are included in “Fees and Revenues”.
• For investment contracts without DPF: (i) Deposit accounting is applied. As a consequence, fees and charges related to these contracts are presented in the underlying
Statement of Income within Gross consolidated revenues on a separate line, and in Margin analysis in the lines “Fees & Revenues” and “Net Technical margin”.
Underlying Net Technical margin includes the following components: (i) Mortality/morbidity margin: The amount charged to the policyholder in respect of mortality/morbidity for the related period less benefits and claims. It is equal to the difference between income for assuming risk and the actual cost of benefits. This margin does not include the claims handling costs and change in claims handling cost reserves,
(iv) Policyholder bonuses if the policyholder participates in the risk margin, (v) Ceded reinsurance result,
Underlying Expenses are: (i) Acquisition expenses, including commissions and general expenses allocated to new business, related to insurance products as well as to other activities (e.g., mutual fund sales), (ii) Capitalization of acquisition expenses linked to new business: Deferred Acquisition Costs (DAC) and net rights to future management fees only for investment contracts without DPF, (iii) Amortization of acquisition expenses on current year and prior year new business, including the impact of interest capitalized: amortization charge for Deferred Acquisition Costs (DAC) and net rights to future management fees only for investment contracts without DPF,
Underlying VbI amortization includes VBI (Value of Purchased Life Business In-force) amortization related to underlying margins, as well as amortization of other intangibles related to the inforce business.
Underlying net technical result is the sum of the following components: (i) Earned premiums, gross of reinsurance, (ii) Claims charges, gross of reinsurance, (iii) Change in claims reserves, including claims handling costs reserves, gross of reinsurance, less the recurring interests credited to insurance annuity reserves, (iv) Claims handling costs, (v) Net result of ceded reinsurance.
All accident year loss ratio net of reinsurance is the ratio of: (i) all accident years claims charge gross of reinsurance + claims-handling costs + result of reinsurance ceded on all accident years excluding the recurring interests credited to the insurance annuity reserves, to (ii) Earned revenues, gross of reinsurance.
The underlying combined ratio is the sum of the underlying expense ratio and the all accident year loss ratio.
Liquidity management is a core part of our financial planning, among which our debt profile schedule, and more broadly our capital allocation process. Our liquidity resources result from the operations of our Life & Savings, Property & Casualty and Asset Management activities, as well as from capital raising activities.
The financing needs of asset management subsidiaries arise principally from their activities, which require working capital, in particular to finance prepaid commissions on some mutual fund-type products at AllianceBernstein or to constitute seed money at both AllianceBernstein and AXA Investment Managers.
• Reassuring debt profile with (i) no significant senior and subordinated debt repayments (excluding commercial paper) in 2009 and first step up call on hybrid debt in December 2010 (€1.1 billion), and (ii) debt ratios compliant with strong rating requirements and aligned with our main competitors (interest coverage: 9x 1, debt gearing: 35% 2).
Information on contractual maturities of debt securities held by the Group is presented in Note 9.5, of Part V – Consolidated Financial Statements. Information on credit risks with the split of debt securities by credit rating is presented in Note 4.2 – Quantitative and qualitative disclosures about market risk and risk factors, investments are presented in Note 9.1, and debt securities are disclosed by type of issuer in Note 9.4 of Part V – Consolidated Financial Statements.
The subordinated debt increase of €588 million, or €582 million on a constant exchange rate basis, arose mainly from the €554 million decrease in market value of currency swaps and interest rate swaps at AXA SA, and the new subordinated perpetual notes of €423 million from AXA Bank Europe, partly offset by the repayment of €466 million notes by AXA Bank Europe.
Movements in these items are described in Note 16 of Part V – “Consolidated Financial Statements”.
Financing debt instruments issued The Company’s financing debt instruments issued (excluding accrued interest) totaled €5,992 million at December 31, 2008, an increase of €2,443 million compared to 2007 principally related to commercial paper issues (€2.3 billion).
On a consolidated basis, AXA’s total financing debt instruments issued amounted to €6,564 million at December 31, 2008, an increase of €2,029 million from €4,535 million at the end of 2007. On a constant exchange rate basis, the increase was €2,050 million, mainly due to AXA SA issuances of commercial paper (€2.3 billion).
Movements in this item are described in Note 16 of Part V – “Consolidated Financial Statements”.
Other debt (other than financing debt) Other debt instruments issued At December 31, 2008, other debt instruments issued totaled €966 million, down from €1,560 million at the end of 2007. The decline of €594 million (or €544 million on a constant exchange rate basis) resulted mainly from a €462 million decrease in CDO’s instruments and a €169 million decrease of the AllianceBernstein short term commercial paper.
Other debts owed to credit institutions (including bank overdrafts) At December 31, 2008, other debts owed to credit institutions totaled €5,710 million (including €1,415 million of bank overdrafts), up €1,010 million compared to €4,700 million at the end of 2007 (including €1,493 million of bank overdrafts). The increase was €986 million on a constant exchange rate basis, and was attributable primarily to a €960 million increase at AXA SA related to margin calls from banks under collateral agreements.
USES OF FUNDS Interest paid by the Company in 2008 totaled €1,275 million (2007: €938 million, 2006: €530 million) or €1,134 million after the impact of hedging derivative instruments (2007: €646 million, 2006: €408 million). On a consolidated basis, total interests paid in cash in 2008 were €652 million (2007: €554 million, 2006: €539 million).
SOlVENCy MARGIN The Company’s operating insurance companies are required by local regulations to maintain a minimum solvency margin. The primary objective of the solvency margin requirements is to protect policyholders. AXA’s insurance subsidiaries monitor compliance with these requirements on a continuous basis and are in compliance with the applicable solvency requirements.
(€24.5 billion at December 31, 2007 and €23.3 billion at December 31, 2006) and less the net consolidated book value of its equity interests in credit institutions, investment companies and financial institutions: €4.6 billion (€4.9 billion at December 31, 2007 and €3.7 billion at December 31, 2006).
AXA is not considered as a financial conglomerate. However, in accordance with the decree of September 19, 2005, if a company is not subject to the additional supervision applicable to a financial conglomerate, its solvency margin is nevertheless reduced by the amount of its equity interests in credit institutions, investment companies or financial institutions if the Group holds more than 20% in the mentioned entities.
The Company has issued Dated Subordinated Notes, Undated Subordinated Notes (“TSDI”), and Undated Deeply Subordinated Notes (“TSS”), which include provisions designed to allow the Company to ensure the continuity of its activities in the event its financial position deteriorates.
Pursuant to the terms and conditions of AXA’s TSDI, the Company may, at its option, defer interest payment upon the occurrence of certain events (e.g. absence of dividend payment voted in the preceding annual shareholders’ meeting or receipt by the Company or by certain of its principal subsidiaries of a regulatory demand to restore their applicable minimum solvency margin level). Payment of deferred interest becomes due in certain specified cases (e.g. payment of a dividend, notification of the end of a regulatory demand to restore solvency, liquidation or redemption of the TSDI).
In accordance with the practical methods of calculation implemented by AXA in line with existing regulations, AXA’s adjusted solvency ratio was estimated at 127% at December 31, 2008 compared to 154% at the end of 2007 (186% at the end of 2006). The decline resulted mainly from the decrease of the unrealized capital gains. The calculation must be reviewed by the Autorité de Contrôle des Assurances et des Mutuelles (ACAM), which governs, in France, the application of these directives.
Special report of the Statutory Auditors on regulated agreements and commitments 186 3.5 THE OFFER AND LISTING 188
GOVERNANCE Structure: Management Board and Supervisory Board Since 1997, AXA has had a dual corporate governance structure consisting of a Management Board and a Supervisory Board. This governance structure is designed to clearly separate the powers and responsibilities of management from those of supervision.
In addition, AXA has a 18 member Executive Committee established to assist the Management Board in the performance of its duties.
SUPERVISORy BOARD Role and powers The Supervisory Board supervises the Company’s activities and reports to the shareholders. It is responsible for appointing and dismissing members of the Company’s Management Board and supervises the executive management of AXA. Members of the Management Board may also be dismissed directly by AXA’s shareholders pursuant to a resolution duly adopted at a shareholders’ meeting.
General Meeting; • the dividend payment date and any interim dividends.
Operating procedures The guidelines governing the operation, organization and compensation of the Supervisory Board and its Committees are set forth in the Board’s Rules of Procedure.
The Company’s Bylaws require each member of the Supervisory Board to own a minimum of 100 AXA ordinary shares. In addition, to ensure that their interests and those of the Company are appropriately aligned, the Board’s Rules of Procedure provide that Supervisory Board members must own AXA shares with a value at least equal to the gross director’s fees earned in respect of the previous fiscal year.
Each year the Supervisory Board assesses the independence of all of its members on the basis of the recommendations contained in the AFEP / MEDEF Code and, for the members of the Audit Committee, on the basis of the criteria set forth in the SarbanesOxley Act. As of February 18, 2009, the Supervisory Board determined that eleven of the fourteen Supervisory Board members were independent after assessing the criteria of the AFEP / MEDEF Code: Mrs. Dominique Reiniche, Messrs. Jacques de Chateauvieux, Léo Apotheker, Norbert Dentressangle, Jean-Martin Folz, Anthony Hamilton, Henri Lachmann, François Martineau, Gérard Mestrallet, Giuseppe Mussari and Ezra Suleiman. In addition, the Supervisory Board has determined that all the members of the Audit Committee meet the independence criteria set forth in the Sarbanes-Oxley Act.
Principal occupation (as of December 31, 2008) Principal business address First appointment /
Financière Norbert Dentressangle – BP 83 Les Pierrelles Beausemblant 26241 saint-Vallier-sur-Rhône cedex – France
Jean-Martin Folz (61) (a) Member of the supervisory Board chairman of the AFEP (Association Française des Entreprises Privées)
Jean-René Fourtou (69) Member of the supervisory Board chairman of the supervisory Board of Vivendi
Attorney at Law Lussan & Associés 250bis, boulevard saint germain 75007 Paris – France
Annual general Meeting gérard Mestrallet (59) (a) Member of the supervisory Board chairman and cEO of gDF sUEZ
gDF sUEZ 22, rue du Docteur Lancereaux 75008 Paris – France
January 1997 / 2011 Annual general Meeting giuseppe Mussari (46) (a) Member of the supervisory Board chairman of the Board of Banca Monte dei Paschi di siena s.p.A. (italy)
Banca Monte dei Paschi di siena s.p.A. Piazza salimbeni, 3 53100 siena – italy
Michel Pébereau (66) Member of the supervisory Board chairman of the Board of Directors of BNP Paribas
Professor of Political sciences at the University of Princeton (United states)
Jacques de CHATEAUVIEUX, Chairman and member of the AXA Supervisory Board 57, French nationality.
Norbert DENTRESSANGLE Vice-Chairman and member of the AXA Supervisory Board 54, French nationality.
Business address Financière Norbert Dentressangle – BP 83 – Les Pierrelles – Beausemblant – 26241 Saint-Vallier-sur-Rhône-Cedex, France
Previous directorships held during the last five years Director or member of the Supervisory Board: • FINAIXAM • Emin Leydier (SAS) • Siparex Croissance • Egnatia Permanent Representative of Financière Norbert Dentressangle, Director of Via Location Permanent Representative of Financière Norbert Dentressangle, Director of Financière Egnatia
Léo APOTHEKER, Member of the AXA Supervisory Board 55, German nationality.
Expertise and experience Mr. Léo Apotheker is a graduate in International Relations and Economics of the Hebrew University in Jerusalem. Before joining ABP Partners, Mr. Apotheker held various positions at McCormack & Dodge Europe and Swift. He also served as founding Chairman and COO of ECsoft, one of the largest European venture capital start-up from 1992 to 1994. From 1994 to 1995, he was Manager Partner at ABP Partners, a strategic management consulting company specialized in global strategy definition and implementation and in restructuring of ailing software companies. Since joining the SAP Group, Mr. Léo Apotheker has held various positions: from 1995 to 1997, he was CEO and founder of SAP France and SAP Belgium; from 1997 to 1999, Chairman of SAP for the South-West Europe region; from 1999 to 2002, Chairman of SAP EMEA (Europe, Middle East and Africa) and from 2002 to 2008, worldwide Chairman Customer Solutions & Operations. Since April 2008, Mr. Léo Apotheker has been co-CEO of SAP AG.
Directorships currently held SAP AG, co-CEO Director or member of the Supervisory Board: • SAP America, Inc. (United States) • SAP Global Marketing Inc. (United States) • SAP Asia Pte. Ltd (Singapore) • SAP JAPAN Co., Ltd (Japan) • SAP FRANCE S.A.
• S.A.P. ITALIA Sistemi, applicazioni, prodotti in data processing S.p.A. (Italy) • SAP Hellas “Systems Application and Data Processing S.A.” (Greece) • SAP (Beijing) Software System Co., Ltd (China) • Schneider Electric
Previous directorships held during the last five years SAP AG, Deputy Chief Executive Officer and President Customer Solutions & Operations SAP AG, Chairman Global Field Operations Director: • Ginger S.A.
• SAP Manage Ltd (Israel) • SAP Systems Integration AG (Germany) • SAP Finland Oy (Finland) • SAP Danmark A/S (Denmark) • Enigma Inc. (United States) • SAP Svenska Aktiebolag (Sweden)
PART III – cORPORATE gOVERNANcE, EXEcUTiVE cOMPENsATiON, MAJOR sHAREHOLDERs AND RELATED MATTERs wendy COOPER, Member of the AXA Supervisory Board, representing the employee shareholders 58, American nationality.
Expertise and experience Ms. Wendy Cooper is a graduate of Fordham Law School, New York, NY, from which she holds J.D. degree. From 1981 to 1987, she was Assistant Counsel to New York Governors Carey and Cuomo. Then, from August 1987 to March 1995, she was the First Deputy Superintendent of Insurance of the New York Insurance Department. From January 1990 to June 1990, she held the position of Superintendent of Insurance of the New York Insurance Department. In May 1995, she joined The Equitable, which became AXA Equitable, as Vice President & Associate General Counsel. Since September 1999, she has been Senior Vice President & Associate General Counsel of AXA Equitable in charge of the Government Relations function representing the AXA Equitable’s legislative and regulatory interests in front of U.S. Congress, state legislatures, state insurance departments, state and national trade associations and other external audiences. In April 2008, Ms. Wendy Cooper was appointed member of the AXA Supervisory Board, representing the employee shareholders of the Group.
Previous directorships held during the last five years Peugeot SA, Chairman of the Management Board Automobiles Peugeot, Automobiles Citroën, Banque PSA Finance, Peugeot Citroën Automobiles, Chairman Faurecia, Director
Expertise and experience Mr. Henri Lachmann is a graduate of the Ecole des Hautes Etudes Commerciales (HEC) and holds an accounting degree. In 1963, he joined Arthur Andersen, the international auditing firm, where he served successively as Auditor, then, as Manager of the Accounting Review Department. In 1970, he joined the Strafor Facom Group where he held various management positions until June 1981, when he was appointed Group Chairman. Director of Schneider Electric since 1996, Mr. Henri Lachmann became Chairman and Chief Executive Officer of the Group in 1999. Since 2006, he has been Chairman of the Supervisory Board of Schneider Electric.
Directorships currently held Schneider Electric, Chairman of the Supervisory Board Centre Chirurgical Marie-Lannelongue, Chairman of the Board of Directors Institut Telemaque, Chairman Fondation pour le droit continental, Chairman Vivendi, Vice-Chairman and Member of the Supervisory Board Director, member of the Supervisory Board or Management Committee: • AXA Assurances IARD Mutuelle • Groupe Norbert Dentressangle • AXA Millésimes1 (SAS) • ANSA Fimalac, Censor (non-voting member of the Board) Tajan, Censor (non-voting member of the Board) Institut Montaigne, Vice-Chairman and Treasurer
Business address Lussan & Associés – 250bis, boulevard Saint-Germain – 75007 Paris, France
Expertise and experience Mr. Gérard Mestrallet is a graduate of the Ecole Polytechnique and the Ecole Nationale d’Administration (ENA). He joined the Compagnie de Suez in 1984 as Vice-President in charge of Special Projects. In 1986, he was appointed Executive Vice-President in charge of Industrial business and then in February 1991, Executive Director and Chairman of the Management Committee of Société Générale de Belgique. In 1995, he became Chairman and Chief Executive Officer of Compagnie de Suez and in June 1997, Chairman of the Management Board of the Suez Lyonnaise des Eaux. On May 4, 2001, Mr. Gérard Mestrallet was appointed Chairman and Chief Executive Officer of Suez. Since July 22, 2008, Mr. Gérard Mestrallet has been Chairman and Chief Executive Officer of GDF SUEZ.
Directorships currently held Banca Monte dei Paschi di Siena S.p.A., Chairman of the Board Italian Bankers’ Association, Director and member of the Executive Committee Director: • Sansedoni SpA (Italy) • Rosselli Foundation • Cotec Foundation • Italy-China Foundation Member: • Guidance Committee of Toscana Life Sciences Foundation • Promoting Committee of Symbola Foundation • Steering Board of ABI - ANIA
Michel PÉBEREAU, Member of the AXA Supervisory Board 66, French nationality.
Business address BNP Paribas – 3, rue d’Antin – 75002 Paris, France
Directorships currently held BNP Paribas, Chairman of the Board of Directors Director or member of the Supervisory Board: • Saint-Gobain • Total • Lafarge • EADS N.V. (the Netherlands) • Banque Marocaine pour le Commerce et l’Industrie (BMCI) (Morocco) • Pargesa Holding S.A. (Switzerland) Galeries Lafayette, Censor (non-voting member of the Board) Académie des Sciences Morales et Politiques, member
Previous directorships held during the last five years BNP Paribas, Chairman and Chief Executive Officer Director or member of the Supervisory Board: • Dresdner Bank AG (Germany) • BNP Paribas UK (United Kingdom)
Business address The Coca-Cola Company – Groupe Europe – 27, rue Camille Desmoulins – 92784 Issy-les-Moulineaux Cedex 9, France
Directorships currently held The Coca-Cola Company, Chairman Europe ING Direct, member of the Advisory Board UNESDA (Union of European Beverages Associations), Vice-Chairman CIAA (Confederation of the Food and Drink Industries of the EU), Member of the Executive Committee and member of the Board
Previous directorships held during the last five years Coca-Cola Enterprise – Groupe Europe, Chairman and Chief Executive Officer MEDEF, member of the Executive Committee
Ezra SULEIMAN, Member of the AXA Supervisory Board 67, American nationality.
PART III – cORPORATE gOVERNANcE, EXEcUTiVE cOMPENsATiON, MAJOR sHAREHOLDERs AND RELATED MATTERs
Service contracts between the AXA Group and members of the Supervisory Board Ms. Wendy Cooper, who is the employee shareholders representative on AXA’s Supervisory Board, is an employee of AXA Equitable, which is a subsidiary of AXA in the United States.
In early 2009, a formal self-assessment of the Board and its Committees was carried out in two steps: (1) a detailed questionnaire was completed by all members of the Board, and (2) the corporate secretary of the Supervisory Board and a representative of the Group legal department then interviewed each Board member to discuss in further detail the answers provided through the questionnaire process as well as the Members’ views regarding the functioning of the Supervisory Board and areas for improvement. Conclusions of this self-assessment and the main identified areas for improvement that have been discussed at the Supervisory Board meeting of February 18, 2009, are the following: the Supervisory Board acknowledged the high quality of Corporate Governance and appreciated the genuine discussions that take place on key issues. The main areas for improvement relate to the addition of insurance skills amongst Board members, in particular after the departure of Mr. Claude Bébéar, as well as stronger involvement in discussing strategic priorities for AXA.
The Audit Committee charter is reviewed on a regular basis and updates are submitted to the Supervisory Board for approval.
The Committee’s review of financial statements by the Audit Committee is accompanied by a presentation from the Company’s external Auditors on the Group’s consolidated financial position and results of operations which includes the auditors’ views on the accounting choices adopted by management. The Committee also receives a presentation from the Group Chief Financial Officer describing the Company’s principal risks exposures and its material off-balance-sheet commitments.
The Group Chief Financial Officer, the Deputy Group Chief Financial Officer as well as the head of the Group Internal Audit Department attend each Committee’s meetings. The external Auditors of the Group, the Group Chief Accounting Officer as well as the head of the Group Legal Department attend the Committee’s meetings on a regular basis.
Missions and activities The Finance Committee has the following principal missions: • to examine and issue an opinion on any plan to sell real estate or equity stakes, when their value exceeds the authorizations granted to the Management Board by the Supervisory Board; • to examine and issue an opinion on any plan to establish sureties or grant guarantees in favour of third parties, when their value exceeds the authority delegated to the Management Board by the Supervisory Board; • to examine and issue an opinion on the following plans presented by the Management Board: – issuance of securities giving access, directly or indirectly, to the Company’s ordinary shares, – share repurchase programs presented to the ordinary General Meeting of shareholders, – financial operations that might substantially change the Company’s financial structure, – acquisitions, in any form, when their value exceeds €500 million, – strategic partnership agreements, – proposed distributions of the Company’s annual profit and the amount of the proposed dividend presented to the ordinary
General Meeting of shareholders, – dividend payment dates and any interim dividends; • to examine any significant financial transaction involving the Company or any affiliate as well as the asset management policy of the AXA Group and, more generally, all significant financial matters concerning the Group.
Selection, Ethics, Governance and Human Resources Committee Composition As of December 31, 2008, the Selection, Ethics, Governance and Human Resources Committee had five members, three of whom were determined by the Supervisory Board to be independent in accordance with the criteria set forth in the AFEP / MEDEF Code. At December 31, 2008 the Committee members were: Messrs. Jean-René Fourtou (Chairman), François Martineau, Gérard Mestrallet, Michel Pébereau and Ezra Suleiman. The Chairman of the Supervisory Board also takes part in the Committee’s works and attends its meetings on a regular basis.
The Committee also examined the impact of the changes in the Supervisory Board members on the composition of its four special-purpose Committees.
The Compensation Committee met four times in 2008. The average attendance rate was 86.67% and the Committee focused, in particular on the following matters: • compensation paid to members of the Management Board and of the Executive Committee; • compensation policy and principles; • stock option and performance share allocation; • Directors’ fees for Supervisory Board members; • AFEP / MEDEF recommendations of October 2008 concerning executive compensation.
Name (age) Principal Office presently held in AXA (as of February 18, 2009)
Positions currently held in the AXA Group Chairman of the Management Board: AXA Chairman of the Board of Directors: • AXA Assurances IARD Mutuelle • AXA Assurances Vie Mutuelle • AXA Financial, Inc. (United States)
Alfred BOUCKAERT, Member of the AXA Management Board 62, Belgian nationality.
Positions currently held in the AXA Group Member of the Management Board: AXA Managing Director: • AXA Holdings Belgium (Belgium) Chairman of the Board of Directors: • AXA Belgium SA (Belgium) • AXA Participations Belgium (Belgium) • AXA Bank Europe SA (Belgium) • AXA Luxembourg (Luxembourg) • AXA Assurances Luxembourg SA (Luxembourg) • AXA Assurances Vie Luxembourg (Luxembourg) • AXA Konzern AG (Germany) • AXA Service AG (Germany) • AXA ART Versicherung AG (Germany) • AXA Versicherung AG (Switzerland) • AXA Leben (Switzerland) • AXA Lebensversicherung AG (Germany) • AXA Versicherung AG (Germany) Director of member of the Supervisory Board: • L’Ardenne Prévoyante (Belgium) • Contere (Luxembourg) • AXA Insurance SA (Greece) • RESO (Russia)
Permanent representative of AXA to the Supervisory Board of AXA Ukraine (Ukraine) (formerly Ukrainian Insurance Alliance) and AXA Insurance (Ukraine) (formerly Insurance Company Vesko)
Positions currently held outside the AXA Group Consuco (Belgium), patrimonial family company De Waere (Belgium), patrimonial family company
Mr. Claude Brunet is a graduate of the Ecole Supérieure des Travaux Publics (ESTP). In 1991, he became Corporate Sales Division Head of Ford Switzerland and in 1992, Corporate Sales Division Head of Ford France. In 1993, he was appointed Chairman and Chief Executive Officer of Ford Belgium and in 1996 he became Chairman and Chief Executive Officer of Ford France. In 2001, he joined the AXA Group as a member of the Executive Committee. Since February 2003, Mr. Claude Brunet has been a member of the AXA Management Board, in charge of Transversal Operations, Communication, Marketing and Human Resources.
Positions currently held in the AXA Group Member of the Management Board: AXA Chairman: AXA Technology Services (SAS) Chairman of the Management Board: GIE AXA Université Director: • AXA Group Solutions SA • GIE AXA Group Solutions • AXA Mediterranean Holding, S.A. (Spain) • AXA Aurora Vida S.A. de Seguros y Reaseguros (Spain) • AXA Vida, S.A. de Seguros y Reaseguros (Spain) • AXA Seguros Generales, S.A. de Seguros y Reaseguros (Spain) • AXA Winterthur Salud S.A. de Seguros (Spain) • AXA Business Services (India) • AXA Japan Holding Co., Ltd (Japan) Permanent representative of AXA to the board of AXA Cessions
Positions currently held in the AXA Group Member of the Management Board: AXA Director, President and Chief Executive Officer: • AXA Financial, Inc. (United States) Director, Chairman of the Board, President and Chief Executive Officer: • AXA Equitable Life Insurance Company (United States) • AXA Equitable Life Financial Services, LLC (United States) • MONY Life Insurance Company (United States) • MONY Life Insurance Company of America (United States) • MONY Financial Services, Inc. (United States) • AXA Life and Annuity Company (United States) • AXA Distribution Holding Corporation (United States) Director and President: AXA America Holdings, Inc. (United States) Director, Chairman and President: ACMC, Inc. (United States) Director: • AllianceBernstein Corporation (United States) • AXA Art Insurance Corporation (United States) • American Council of Life Insurers (ACLI) (United States) Director, Chairman and Member: Financial Services Roundtable (United States)
Denis DUVERNE, Member of the AXA Management Board 55, French nationality.
Previous directorships held during the last five years Director: • AXA France Assurance • AXA France Collectives
Positions currently held in the AXA Group Member of the Management Board: AXA Chairman and Chief Executive Officer: • AXA France IARD • AXA France Vie Chairman: AXA France Assurance (SAS) Chairman of the Board of Directors: AXA Corporate Solutions Assurance Vice-Chairman of the Board of Directors: AXA Canada Inc. (Canada) Director: • AXA Assurances IARD Mutuelle • AXA Assurances Vie Mutuelle • AXA Assurances Inc. (Canada) • AXA Insurance (Canada) • AXA General Insurance (Canada) • AXA Pacific Insurance Company (Canada) • AXA Assurances agricoles Inc. (Canada) • AXA Holding Maroc (Morocco) • AXA Assurance Maroc (Morocco)
Previous directorships held during the last five years Chief Executive Officer – non Director: • AXA Assurances IARD Mutuelle • AXA Assurances Vie Mutuelle • AXA Courtage Assurance Mutuelle Director: AXA Japan Holdings Ltd (Japan)
Service contracts between the AXA Group and members of the Management Board The French members of the AXA Management Board (Messrs. Henri de Castries, Claude Brunet, Denis Duverne and François Pierson) are employed by AXA under employment contracts.
Mr. Christopher Condron and Mr. Alfred Bouckaert, also members of the Management Board, have employment contracts, respectively, with AXA Equitable in the United States and AXA Holdings Belgium. For a description of termination provisions of those contracts, please refer to Section 3.2 below.
Family Relationship To the knowledge of the Company, there are no family relationships among the members of the Management Board or with members of the Supervisory Board.
To the best of the Company’s knowledge, there are no arrangements or understandings that have been entered into with major shareholders, customers, suppliers or others pursuant to which a member of the Management Board or the Supervisory Board was selected, except for Mr. Giuseppe Mussari who was proposed for election to the AXA’s Supervisory Board consistent with the terms of a bancassurance partnership agreement entered into in March 2007 between AXA and Banca Monte dei Paschi di Siena (BMPS), an Italian bank. This agreement, among other matters, provides that the AXA shareholders shall appoint a representative of BMPS on AXA’s Supervisory Board. Mr. Giuseppe Mussari was nominated for election consistent with the terms of this agreement and was elected to the AXA’s Supervisory Board at the Company’s General Shareholders’ Meeting on May 14, 2007.
Absence of any conviction in relation to fraudulent offences, any official public incrimination and/or sanctions, or any responsibility in a bankruptcy for the last 5 years To the best of the Company’s knowledge based on information reported to it, none of the members of its Management Board or Supervisory Board has been, during the last 5 years (i) subject to any conviction in relation to fraudulent offences or to any official public incrimination and/or sanction by statutory or regulatory authorities, (ii) disqualified by a court from acting as a member of the administrative, management or supervisory bodies of an issuer or from acting in the management or conduct of the affairs of any issuer, or (iii) associated as a member of the administrative, management or supervisory bodies with any company that has declared bankruptcy or been put into receivership or liquidation, provided, however, that AXA has from time to time sold, discontinued and/or restructured certain business operations and voluntarily liquidated affiliated companies in connection with these or similar transactions and certain members of AXA’s Management Board and/or Supervisory Board may have been associated with other companies that have undertaken similar solvent liquidations.
EXECUTIVE COMMITTEE The Executive Committee’s principal mission is to review AXA Group’s strategy.
The Executive Committee conducts quarterly business reviews (QBRs), during which the performance of the AXA Group is reviewed. These reviews were introduced in 2000 to provide a clear and consistent framework for: • reviewing operational performance and monitoring the progress of key projects using quantifiable standards of measurement defined in collaboration with the Management Board; • assessing the status of Group transversal projects; and • exchanging ideas and information on key Group strategic orientations.
As an internal management committee, the Executive Committee has no formal decision making authority. The Executive Committee is a sharing and communication body as well as a sounding board for the Management Board. Its members use their collective knowledge to discuss and orient global business issues, as well as to provide peer review opportunities within the Executive Committee itself. In particular, they provide views to the Management Board on key business issues. As a team, they also contribute to shape and disseminate AXA’s management culture.
Henri de castries chairman of the Management Board christopher condron Member of the Management Board, President and chief Executive Officer of AXA Financial, inc. (United states)
John R. Dacey chief Executive Officer for the Japan, Asia-Pacific business unit
gerald Lieberman President and chief Operating Officer of AllianceBernstein (United states)
SUBSIDIARIES AXA’s principal subsidiaries, whether publicly traded or not, are generally governed by: • a board of directors whose membership includes independent or non-executive directors; and • various board committees including a compensation committee and an audit committee, whose membership includes independent or non-executive directors.
At December 31, At December 31, At January 1, At December 31, (FULL TIME EQUIVALENT) 2006 2007 2008 (a) 2008
– Belgium (including AXA Bank Europe) (c) 5,981 5,762 5,762 5,541
AXA Technology, AXA Consulting, AXA Group 2,649 6,572 6,715 7,149 Solutions, AXA Business Services and e-business
Employees of non-consolidated companies or companies accounted for using the equity method are not included in the above table. Employees of companies proportionally consolidated are included, pro-rata, in accordance with the percentage of consolidation. (a) The employees at January 1, 2008 are restated to be on the same structural basis as December 31, 2008. The main restatements are: • Transfer of the salaried employees of AXA group solutions, included in services group in 2007 and independently consolidated in 2008 (143 salaried employees). • Acquisition of siNOPRO securities investment consulting Enterprise in singapore (+16 salaried employees).
PART III – cORPORATE gOVERNANcE, EXEcUTiVE cOMPENsATiON, MAJOR sHAREHOLDERs AND RELATED MATTERs 3.2 FULL DiscLOsURE ON EXEcUTiVE cOMPENsATiON AND sHARE OWNERsHiP
EXECUTIVE COMPENSATION AND SUPERVISORy BOARD MEMBERS FEES Compensation of the Management Board and the Executive Committee members The general principles of AXA’s executive compensation policy are regularly presented to the Compensation Committee of the AXA Supervisory Board. This policy applies to all executive officers of the Group and is adapted to local regulations under the supervision of the Boards of Directors and compensation committees of the Company’s subsidiaries. The effective application of these principles is regularly reviewed by the Compensation Committee of AXA.
The executive compensation policy is designed to: • attract, retain and motivate the best talents, • drive superior performance, • align compensation levels with business performance.
Executive cash compensation includes a fixed and a variable component. The fixed component is targeted to fall within the lower quartile of the market. The variable component is tied, with different weightings according to the level of responsibility, to AXA’s global performance, local entity performance, and the attainment of the executive’s individual objectives. The variable portion is designed to represent the principal component of the executive’s annual global compensation such that, in the case of successful attainment of the objectives, the compensation levels of AXA executives will be in the top two quartiles of the going market rate.
The proportion linked to the Group results accounts for 60% and the proportion linked to the individual performance for 40% of the variable remuneration.
The variable compensation amounts awarded to the Chairman of the Management Board since he was appointed demonstrate the stretched targets and the genuine variability of this pay component: Actual Target % Target
Variable remuneration for the year 2000 paid in 2001 €1,381,373 €1,750,000 79%
Variable remuneration for the year 2001 paid in 2002 €719,967 €1,750,000 41%
Variable remuneration for the year 2002 paid in 2003 €1,419,277 €2,000,000 71%
Variable remuneration for the year 2005 paid in 2006 €2,671,626 €2,000,000 134%
For other members of the Management Board, the variable remuneration is also determined on the basis of an individually predefined target amount and includes three factors: • Group performance, as measured by the underlying earnings per share, P&C revenues, new business value in Life & Savings and customer scope index, • Performance of the business unit or functional area of responsibility, measured against objectives set at the beginning of the year, • Their individual performance, evaluated on the basis of predetermined strategic objectives.
For Management Board members who have a functional responsibility (C. Brunet and D. Duverne), the proportion of their variable remuneration linked to the AXA Group results accounts for 40%, the proportion linked to the performance of their functional area of responsibility for 30% and the proportion linked to their individual performance for 30%.
The performance of operational entities is determined on the basis of a grid made of the following performance indicators: • underlying earnings, • technical operating cash flow (Life net inflow), • P&C revenues, • Life New Business Value, • combined ratio, • expenses, and • customer scope index.
For each performance indicator that measures both the Group and the operational entities’ performance, targets, floors and caps are defined at the beginning of the year: • a target, aligned with the strategic plan, the attainment of which will deliver 100% of the variable component linked to the indicator, • a floor, below which no variable component linked to the indicator will be paid, • a cap, from which the variable component linked to the indicator is capped at 150%.
Variable compensation for AXA’s Management Board members (including its Chairman) with respect to 2008 was, in the aggregate, down by 47% as compared to 2007.
For the other members of the Executive Committee, the variable component of pay is also determined based on a predefined individual target amount and depends on Group performance, the performance of their business unit or area of responsibility and their individual performance.
On December 18, 2008, the Supervisory Board decided that the total value of stock options and Performance Shares granted each year from and after 2009 to each Management Board member shall not exceed 150% of their target total cash remuneration (fixed + target variable remuneration).
In the tables below, remunerations which are not paid in Euro have been converted on the basis of yearly average exchange rate for 2008 as follows: EUR/USD 1.470623; EUR/GBP 0.796994; EUR/AUD 1.743740; EUR/CHF 1.586637; EUR/JPY 152.392563; EUR/HKD 11.454885.
Substantial differences in the tax systems to which AXA’s executive officers are subject make meaningful comparisons of the compensation and benefits they earn difficult. For information, the relevant marginal tax rates are as follows: Australia: 46.50%; Belgium: 53%; France: 51% (including an additional 11% for social taxes); Germany: 51.52%; Hong-Kong: 17%; Japan: 50%; Spain: 43%; Switzerland (Zurich): 41.40%; the United Kingdom: 40% and the United States (New York): 43.27%.
Frank Keuper cEO germany germany 1,207,885 335,125 – 191,800 1,734,810 1,179,707 209,517 – 237,720 1,626,944 gerald Liebeman cOO AllianceBernstein
Mark Pearson (4) cEO Japan Japan 793,003 54,897 – – 847,900 805,659 27,721 67,920 67,920 969,220
On April 1, 2008, the fair value of one option was e3.39 for options without performance condition and e2.89 for options with performance condtion, and the fair value of one performance share/unit was e16.98.
(1) The amounts of 400,000 euros reported in 2007 and 500,000 euros reported in 2008 under “Value of performance units granted during the year” correspond to units of the AXA investment Managers Long Term incentive Plan.
(2) D. carrel-Billiard has been appointed as member of the Executive committee from January 1, 2008. (3) g. Harlin has been appointed as member of the Executive committee on July 10, 2008. (4) M. Pearson has been appointed as member of the Executive committee on July 10, 2008. (5) V. Weill has been appointed as member of the Executive committee on January 1, 2009.
In addition, C. Condron benefits from a credit of flight hours from use of a private jet and F. Pierson benefits from airplane tickets between Paris and his domicile in Marseille.
(Gross amounts Euro) Country Fixed remuneration Variable remuneration Exceptional remuneration Board fees Benefits in kind TOTAL Fixed remuneration
(a) compensation and benefits in kind paid to J.R. Abat include benefits paid in respect of his expatriate status in spain. (b) compensation and benefits in kind paid to J. Dacey include benefits paid in respect of his expatriate status in France. (c) compensation and benefits in kind paid to N. Moreau include benefits paid in respect of his expatriate status in the UK. (d) compensation and benefits in kind paid to M. Pearson include benefits paid in respect of his expatriate status in Hong-Kong, then in Japan.
Former members of the Supervisory Board claude Bébéar (b) 40,568.84 132,462.00
The overall amount of directors’ fees to be paid is determined by the shareholders, in accordance with applicable laws, and apportioned by the Supervisory Board to its members in accordance with its Rules of Procedure: • half of the amount of directors’ fees is distributed evenly among members of the Supervisory Board as a fixed component, with the Chairman and Vice-Chairman each receiving a double fee; • a portion of the remainder is distributed among members of the Supervisory Board in proportion to their actual attendance at the meetings of the Supervisory Board, with the Chairman and Vice-Chairman each receiving a double fee; • the remainder is allocated by the Supervisory Board to the various specialized Committees and distributed among their members in proportion to their actual attendance at Committee meetings, with the Chairmen of Committees receiving a double fee.
Due to the importance of their role and the significant demand on their time, members of the Audit Committee receive a higher proportion of directors’ fees.
In addition of its directors’ fees, Mr. Jacques de Chateauvieux receives as Chairman of the Supervisory Board an annual gross remuneration of €230,000.
STOCK OPTIONS Since 1989, AXA has promoted a stock options program, for its directors, officers and employees in France and abroad, aimed at rewarding their performance and aligning their interests with those of the Group by linking them to AXA’s stock performance over the long term.
Within the global cap authorized by the Shareholders, the Supervisory Board approves all stock options programs prior to their implementation.
Annual grants are made during the first quarter of the year, generally 20 trading days after the date annual consolidated earnings are released. As such in 2008, the annual consolidated earnings were released on February 28, 2008 and the options grant took place on April 1, 2008. The strike price was equal to the average of the stock price during the 20 trading days before the grant date.
Options may be granted during the year in the United States to newly-hired or newly-promoted employees or when the performance measures that give rise to option grants are available after the first quarter of the year.
The Supervisory Board, acting on the recommendation of its Compensation Committee, decided on December 18, 2008 that: • all options granted to Management Board members from 2009 onwards will be subject to this performance condition measured either since the initial grant date or over the last three year period; • the total number of options granted to the six Management Board members each year from 2009 onwards may not exceed 20% of the aggregate number of options granted to all beneficiaries during the same year.
As of December 31, 2008, 8,787 AXA employees own 80,226,817 outstanding subscription options, representing 3.84% of the share capital on the same date (disregarding the dilution related to the exercise of these options), and 1,615 employees in the United States own 12,271,049 outstanding purchase options on ADRs, representing 0.58% of the share capital.
Date of the Management Board 09/05/2001 30/05/2001 (b) 27/02/2002 14/03/2003 14/03/2003 02/04/2003 (b) 26/03/2004 14/04/2004 (b) 29/03/2005
Expiry date of options 09/05/2011 30/05/2011 27/02/2012 14/03/2013 14/03/2013 02/04/2013 26/03/2014 14/04/2014 29/03/2015
Number of options exercised at 31/12/08 92,377 – 2,606,652 4,119,417 1,846,242 547,589 1,344,172 – 320,428
(a) Numbers of options and exercise prices have been adjusted, pursuant to applicable regulation, as a result of operations on the AXA stock. (b) Options that were initially granted by FiNAXA that merged into AXA on December 16, 2005.
Start date of exercise 29/03/2007 06/06/2007 27/06/2007 01/07/2007 21/09/2007 31/03/2008 31/03/2008 31/03/2010 25/09/2008
Date of the Shareholder meeting 20/04/2005 20/04/2005 20/04/2005 20/04/2005 20/04/2005 20/04/2005 20/04/2005 20/04/2005 20/04/2005
Total number (a) of shares to be subscribed, from which to be subscribed by : Directors : Henri de Castries Alfred Bouckaert Claude Brunet Christopher Condron Denis Duverne François Pierson wendy Cooper The first 10 employees beneficiaries
Date of the Management Board 29/03/2005 06/06/2005 27/06/2005 01/07/2005 21/09/2005 31/03/2006 31/03/2006 31/03/2006 25/09/2006
Expiry date of options 29/03/2015 06/06/2015 27/06/2015 01/07/2015 21/09/2015 31/03/2016 31/03/2016 31/03/2016 25/09/2016
Number of options exercised at 31/12/08 114,178 – 2,118 - – 2,809 – – –
Expiry date of options 25/09/2016 13/11/2016 10/05/2017 10/05/2017 10/05/2017 24/09/2017 24/09/2017 19/11/2017 19/11/2017
Options cancelled at 31/12/2008 66,332 111,192 – – – – –
Date of the Shareholders’ meeting 20/04/2005 20/04/2005 22/04/2008 22/04/2008 22/04/2008 22/04/2008 22/04/2008
Start date of exercise 01/04/2010 01/04/2012 19/05/2010 19/05/2012 22/09/2010 22/09/2012 24/11/2012
François Pierson chairman & cEO AXA France 01/04/2018 1/3 of options: Eurostoxx insurance index
The fair value of stock options is determined based on IFRS norms. This is an historical value at the date of grant, calculated for accounting purposes as described in Note 25.3.1 to the 2008 Consolidated Financial Statements included in Part V of this Annual Report. This value does not represent a current market value or other current valuation of these options or the actual proceeds if and when the options are exercised.
stock options granted during the year by AXA or any eligible AXA group’s subsidiaries, to the ten employees, outside management bodies’ members of the company or of eligible AXA group’s subsidiaries, who received the highest number of stock options (aggregate information) 578,075 21.51 stock options on AXA or any eligible AXA group’s subsidiaries, exercised during the year by the ten employees, outside management bodies’ members of the company or of eligible AXA group’s subsidiaries, who exercised the highest number of stock options (aggregate information) 568,067 21.55
Alfred Bouckaert cEO North, central & Eastern Europe Business Unit 1,383,482 –
PERFORMANCE SHARES AND PERFORMANCE UNITS Since 2004, stock options have been partially replaced by Performance Units.
Performance Units/Shares aim at: • rewarding and retaining the best talents by associating them to the intrinsic performance of the AXA Group and of their operational business unit as well as to the performance of the AXA stock price in the medium-term (2 to 4 years); • reducing shareholder dilution by granting less stock options.
Performance Shares are usually granted to beneficiaries domiciled in France while Performance Units are granted to beneficiaries domiciled outside of France.
• In 2004 and 2005, the performance indicators determined by the Management Board have been: – operational business units performance: underlying earnings and adjusted earnings; – the AXA Group performance: underlying earnings and adjusted earnings per share.
• In 2006 and 2007, the performance indicators determined by the Management Board have been for both the AXA Group and the operational business units: underlying earnings, P&C revenues and new business value in Life & Savings. • In 2008, the performance indicators determined by the Management Board have been: – to measure operational business units performance: underlying earnings, P&C revenues and new business value in Life
& Savings; – to measure the AXA Group performance: underlying earnings per share, P&C revenues and new business value in Life
& Savings. • The achievement of these performance targets determines the number of units/shares that will be acquired by the beneficiary at the end of the acquisition period, subject to the beneficiary being still employed by the AXA Group. The number of units/shares acquired may vary between 0% and 130% of the Performance Units/Shares initially granted.
As far as Performance Shares are concerned: • Shares acquired at the end of the 2-year acquisition period are restricted from sale during a 2-year period.
Within the global cap authorized by the Shareholders, the Supervisory Board approves all Performance Shares programs prior to their implementation.
The Supervisory Board, acting on the recommendation of its Compensation Committee, decided on December 18, 2008 that the total number of Performance Shares granted to the six Management Board members each year from and after 2009 may not exceed 20% of the aggregate number of Performance Shares granted to all beneficiaries during the same year.
The acquisition period of the Performance Unit plan launched on March 31, 2006 with 1,453,441 Performance Units initially granted to 2,072 beneficiaries outside France, ended on March 31, 2008. At that date, a total of 1,365,787 units had been acquired by 1,838 employees. The settlement of these units was made partly in cash (€24.3 million) and partly in AXA shares (238,019 shares) which are subject to a 2-year restriction period until March 31, 2010.
The acquisition period of the Performance Unit plan launched on May 10, 2007 with 1,361,869 Performance Units initially granted to 2,346 beneficiaries outside France will end on May 10, 2009.
The acquisition period of the Performance Shares plan launched on March 31, 2006 with 893,326 Performance Shares granted to 1,186 beneficiaries in France, ended on March 31, 2008. At that date, a total of 885,312 shares had been acquired by 1,132 employees. These shares are subject to a 2-year restriction period until March 31, 2010.
A new Performance Shares plan was launched on April 1, 2008 and 1,367,967 Performance Shares were initially granted to 1,566 beneficiaries in France representing 0.065% of the share capital as of December 31, 2008, corresponding to a theoritical level of achievement of performance targets equal to 100%. The 2-year acquisition period of this plan will end on April 1, 2010. The theoretical shares acquired will be subject to a 2-year restriction period until April 1, 2012.
In 2008, a second Performance Shares plan was launched on April 28, 2008 with 50,000 Performance Shares granted to 13 beneficiaries. On the one hand, 27,500 Performance Shares were granted to 7 beneficiaries domiciled in France. The acquisition period for these Performance Shares is 2 years and will end on April 28, 2010. The acquired shares will be restricted for another 2-year period, i.e. until April 28, 2012. On the other hand, 22,500 Performance Shares were granted to 6 beneficiaries domiciled outside of France. The acquisition period for these Performance Shares is 4 years and will end on April 28, 2012. The acquired shares will not be subject to any restriction period.
(a) The 18,472 Performance Units of the 2007 Plan, acquired by anticipation, related to two deceased beneficiaries and AXA Netherlands employees following the disposal of AXA business in the Netherlands.
Performance units/shares initially granted to the top 10 beneficiaries (outside corporate bodies’ members) during 2008
Performance Units granted during the year by AXA or any eligible AXA group’s subsidiaries, to the ten employees, outside management bodies’ members of the company or of eligible AXA group’s subsidiaries, who received the highest number of Performance Units (aggregate information)
Performance shares granted during the year by AXA or any eligible AXA group’s subsidiaries, to the ten employees, outside management bodies’ members of the company or of eligible AXA group’s subsidiaries, who received the highest number of Performance shares (aggregate information)
Henri de castries chairman of the Management Board 01/04/2008 84,000 0.004% 1,426,320 01/04/2010 01/04/2012 – underlying earnings per share
Denis Duverne group chief Financial Officer 01/04/2008 67,200 0.003% 1,141,056 01/04/2010 01/04/2012 – underlying earnings per share
The fair value of Performance Shares is determined based on IFRS norms. This is an historical value at the date of grant, calculated for accounting purposes as described in Note 25.3.1 to the 2008 Consolidated Financial Statements included in Part V of this Annual Report. This value does not represent a current market value or other current valuation of these performance shares or the actual proceeds if and when the performance shares are acquired.
Alfred Bouckaert cEO North, central & Eastern Europe Business Unit 01/04/2008 49,000 832,020 01/04/2010 01/04/2012 – underlying earnings per share
– P&c revenue – new business value Life claude Brunet chief Operating Officer – – – – – –
Alfred Bouckaert cEO North, central & Eastern Europe Business Unit claude Brunet chief Operating Officer
This policy requires each member of the Management Board and the Executive Committee to hold, during the entire duration of his/her functions, a minimum number of AXA shares (the “Minimum Shareholding Requirement”) representing a multiple of his/her annual total cash remuneration (fixed salary plus annual variable remuneration) received for the previous fiscal year.
• The Chairman of the Management Board is required to hold the equivalent of his total cash remuneration multiplied by 3. • Other Management Board members are required to hold the equivalent of their total cash remuneration multiplied by 2. • Executive Committee members are required to hold the equivalent of their total cash remuneration multiplied by 1.5.
Each member of the Management Board and the Executive Committee is required to meet this Minimum Shareholding Requirement within a period of 5 years from (i) January 1, 2007 or (ii) the date of his/her first appointment to the Management Board or Executive Committee.
The following table summarizes the current status of each Management Board Member in relation to his Minimum Shareholding Requirements as of December 31, 2008, based on the AXA share value at that date (€15.85): Annual remuneration 2008 Shareholding requirement Shareholding at 31/12/2008
Subscription options Subscription and sale Sale of units of AXA Group mutual funds invested in AXA shares
This scheme, which has existed since January 1, 1992, has been modified with effect from January 1, 2005.
The amount of the supplementary pension is calculated at the time of retirement and is in addition to the total amount of retirement pensions paid under mandatory schemes (Social Security, ARRCO, AGIRC) and under any other retirement scheme to which the beneficiary may have participated during his/her career, both within or outside the AXA Group.
Social Security ceilings; • 2.4 Social Security ceilings +20% of the average gross remuneration of the past 5 years preceding the retirement date, if this average is between 8 and 12 annual Social Security ceilings.
Alfred Bouckaert, member of the Management Board, benefits from a contractual supplementary pension arrangement with AXA Holdings Belgium providing for a capital at the age of 65 equivalent to N/40 x (25% T1 + 75% T2) x 12.2221, where: N = number of years of service T1 = annual Social Security ceiling (€46,895 in 2008) T2 = part of the fixed salary exceeding T1
Christopher Condron, a member of the Management Board and Chief Executive Officer of AXA Financial, Inc. and AXA Equitable (together “AXA Equitable”) in the United States, benefits from a contractual clause with AXA Equitable stating that in case AXA Equitable terminates his employment for any reason other than gross misconduct, he would continue to receive compensation equivalent to his fixed salary (currently, $950,000) for a period of two years after his termination. In addition, Mr. Condron would receive a prorated bonus for the year of termination based on his target bonus amount (currently, $4.75 million) and additional payments equal to two annual bonuses at the target bonus amount. In the event Mr. Condron were to commence a competitive professional activity during the 2-year period following his termination, the payments based on his fixed salary would cease and the amount of the additional payments would be reduced based on the number of days elapsed from his termination date.
(a) Mr. Henri de castries, chairman of the company’s Management Board, has been employed by AXA under an employment contract since he joined the group in 1989. in accordance with the provisions of the AFEP / MEDEF code, the supervisory Board intends to consider the renewal of its employment contract prior to the end of its term of office on October 11, 2009.
(b) While Mr. de castries, like all other executive employees of AXA group companies in France, is covered by the collective Agreement of March 3, 1993 described above, he does not benefit from any contractual or other commitments for compensation, indemnities or other advantages from the company, any entity controlled by the company or any shareholder of the company that would be triggered by the termination of his position as chairman of AXA’s Management Board.
In countries that met the legal, regulatory and tax requirements for participation in SharePlan, two investment options were offered in 37 countries in 2008: • the traditional plan, offered in 36 countries, • the leveraged plan, offered in 36 countries.
The traditional plan allowed employees to subscribe through a personal investment to AXA shares (either through mutual funds (FCPE) or through direct share ownership) with a 20% discount. The shares are held within the Group Company Savings Plan and are restricted from sale during a period of 5 years (except specific early exit cases allowed by applicable laws). Employees are subject to the share price appreciation, up or down, as compared to the subscription price.
The leveraged plan allowed employees to subscribe, on the basis of 10 times their personal investment, to AXA shares (either through mutual funds (FCPE) or through direct share ownership) with a 14.15% discount in 2008. The shares are held within the Group Company Savings Plan and are restricted from sale during a period of 5 years (except specific early exit cases allowed by applicable laws). Employees’ personal investment is guaranteed by a bank, and employees also benefit from 70% of the share appreciation, as compared to the non-discounted reference price. The leveraged plan is not accessible to Management Board and Executive Committee members.
The SharePlan 2008 program was carried out through a share issue that took place in November 2008 and was open to almost all Group employees through voluntary contributions: • 35,561 employees took part in SharePlan 2008, representing 29.6% of eligible employees.
• A total of 24.7 million new ordinary shares were issued, each with a par value of €2.29. These shares began earning dividends on January 1, 2008.
PART III – cORPORATE gOVERNANcE, EXEcUTiVE cOMPENsATiON, MAJOR sHAREHOLDERs AND RELATED MATTERs 3.3 DEscRiPTiON OF THE cOMPANy’s sHARE REPURcHAsE PROgRAM
Share repurchase program submitted to Shareholders approval on April 30, 2009
Number of shares purchased since the beginning of the program 36,015,728
Number of shares sold since the beginning of the program 39,550,205
Number of shares transferred since the beginning of the program 2,192