Annual Report. The determination of the amount of allowances and impairments vary by investment type and is based upon our periodic evaluation and assessment of known and inherent risks associated with the respective asset class. Such evaluations and assessments are revised as conditions change and new information becomes available. In considering impairments, management considers a wide range of factors including those described in Note 1.7.2 and uses its best judgment in evaluating the cause of the decline in the estimated fair value of the security and the prospects for near-term recovery. For certain asset classes, particularly debt instruments, management’s evaluation involves a variety of assumptions and estimates about the operations of the issuer and its future earnings potential. Management updates its evaluations regularly and refl ects changes in allowances and impairments as such evaluations are revised. There can be no assurance, however, that management has accurately assessed the level of impairments taken and allowances refl ected in our fi nancial statements and additional impairments and/or allowances may have a material adverse effect on our consolidated results of operations and fi nancial position.
(including Note 1.6.1 “Goodwill and i mpairment of g oodwill”) and an analysis of the goodwill asset refl ected on our consolidated balance sheet is set forth in Note 5 “Goodwill” to the 2009
Business and market conditions may impact the amount of goodwill we carry in our consolidated balance sheet as well as our pattern of DAC and VBI amortization and the value of our deferred tax assets. The value of certain of our businesses including, in particular, our US asset management and US unit-linked life insurance and annuity businesses, is signifi cantly impacted by such factors as the state of the fi nancial markets and ongoing operating performance. For the year ended December 31, 2009, management concluded that no impairment to the carrying value of our goodwill asset was required, however, to the extent that the operating performance of our businesses or market condition falls below expectation (including, in particular, our
US life insurance business) , we may be required to signifi cantly impair our goodwill, accelerate our amortization of DAC and VBI
Our accounting principles and policy with respect to valuation of our investments is set forth in Note 9.9 “Financial Assets
Recognized at Fair Value” in the 2009 Consolidated fi nancial statements included in this Annual Report. The determination of fair values in the absence of quoted market prices is based on a variety of factors including those described in Note 9.9.
Accordingly, during periods of declining interest rates, our profi tability may suffer as the result of a decrease in the spread between interest rates credited to policyholders and returns on our investment portfolios.
Conversely, in periods of increasing interest rates, surrenders of life insurance policies and fi xed annuity contracts may increase as policyholders choose to forego insurance protection and seek higher investment returns. Obtaining cash to satisfy these obligations may require us to liquidate fi xed maturity investments at a time when market prices for those assets are depressed because of increases in interest rates. This may result in realized investment losses. Regardless of whether we realize an investment loss, these cash payments would result in a decrease in total invested assets, and may decrease our net income.
Accelarated withdrawals may also cause us to accelerate amortization of deferred policy acquisition costs, which would also reduce our net income.
Ongoing volatility in interest rates and credit spreads, individually or in tandem with other factors such as lack of pricing transparency, market illiquidity, declines in equity prices and the strengthening or weakening of foreign currencies against the
While AXA seeks to manage its exposure to foreign currency fl uctuations through hedging, fl uctuations in the exchange rates may have a signifi cant impact on AXA’s results of operations and cash fl ows. For example, a strengthening of the Euro against the US Dollar and/or certain other currencies in 2010 and future periods may adversely affect AXA’s results of operations and the price of its securities. In addition, the currency hedges used by AXA to manage foreign exchange rate risk may signifi cantly impact the statutory results (parent only) of the Company and the amounts available for distribution as dividends to its shareholders because unrealized exchange rate gains and losses under these derivatives are recognized in the Company’s income statement
(unlike in the Group’s consolidated accounts where hedge accounting is applied to net investments in subsidiaries such that these exchange rate movements have no income statement impact at the consolidated Group level).
In addition, a failure to accurately anticipate higher infl ation and factor it into our product pricing assumptions may result in a systemic mis pricing of our products resulting in underwriting losses which would negatively impact our results of operations.
For additional information, please see Section 3.2 “Quantitative and q ualitative d isclosures a bout m arket r isk and r isk f actors”
Pacifi c Holdings, and AXA Germany, are also holding companies and are dependent on dividends from their respective subsidiaries for funds to meet their obligations. Regulatory and other legal restrictions may limit our ability to transfer funds freely, either to or from all our subsidiaries. In particular, our principal insurance subsidiaries are subject to restrictions on the amount of dividends and debt repayments that can be paid to us and our affi liates.
We use derivatives, including, among others, exchange traded equity futures contracts, treasury futures contracts, to hedge certain risks under guarantees provided to our clients, including
DAC, NBV and EEV. In addition, insurance reserves for minimum guarantees contained within certain of our Variable Annuity products, DAC balances, EEV and NBV may be signifi cantly impacted by the state of the fi nancial markets and signifi cant declines could have a material adverse effect on our consolidated results of operations and fi nancial position. Furthermore, certain of these assumptions can be volatile. While AXA’s NBV and EEV
calculations are done on a market consistent basis which is more conservative in many respects than traditional NBV and EEV
calculations, changes in assumptions used in calculating these measures may have a material adverse effect on the level of our
NBV and/or EEV. For example, our NBV is sensitive to interest rate movements and, consequently, incorrect assumptions about future interest rates may have a signifi cant impact on our NBV
International Insurance businesses. With the exception of disability annuities and workers compensation liabilities that are deemed structured settlements, the claims reserves are not discounted. Reserves do not represent an exact calculation of liability, but instead represent estimates, generally using actuarial projection techniques at a given accounting date. These reserve estimates are expectations of what the ultimate settlement and administration of claims will cost based on our assessment of facts and circumstances then known, review of historical settlement patterns, estimates of trends in claims severity, frequency, legal theories of liability and other factors. The process of estimating the insurance claims reserves is based on the most current information available at the time the reserves are originally established. However, claims reserves are subject to change due to the number of variables which affect the ultimate cost of claims, such as: ■ D evelopment in claims (frequency, severity and pattern of claims) between the amount estimated and actual experience; ■ C hanges arising due to the time lag between the occurrence of the insured event, notifi cation of the claim (from the insured party, a third party or a ceding company) and the fi nal settlement (payment) of the claim, primarily attributable to long- tail casualty claims that may take several years to settle due to the size and nature of the claim, and the occurrence of large natural catastrophes late in the fi nancial year for which limited information may be available at year-end; ■ J udicial trends; ■ E xpenses incurred in resolving claims; ■ R egulatory and legislative changes; ■ C hanges in economic conditions, including infl ation and foreign currency fl uctuations; and
Many of these items are not directly quantifi able, particularly on a prospective basis. As a result, actual losses may signifi cantly differ from the original gross reserves established. Consequently, the reserves may need to be re-estimated refl ecting those changes resulting in loss reserve redundancies (in cases where the original gross claims reserve was overstated) or defi ciencies (in cases where the original gross claims reserve was understated). Adjustments to reserves are refl ected in current results of operations.
We continually review the adequacy of the established claims reserves, including emerging claims development, and actual claims compared to the original assumptions used to estimate gross claims reserves. Based on current information available, we believe that our claims reserves are suffi cient; however, because the establishment of claims reserves is an inherently uncertain process involving numerous estimates, there can be no assurance that ultimate losses will not materially exceed our claims reserves and have a material adverse effect on our results
of operations. For example, there is a high degree of uncertainty with respect to future exposure from asbestos claims because of signifi cant issues surrounding the liabilities of insurers, diverging legal interpretations and judgments in different jurisdictions and aggressive asbestos related litigation, particularly in the
These uncertainties include the extent of coverage under insurance policies, whether or not particular claims are subject to an aggregate limit, the number of occurrences involved in particular claims and new theories of insured and insurer liability.
December 31, 2009, which represent our best estimate of ultimate claims exposure at December 31, 2009, based on our current knowledge of facts and law. However, given uncertainties surrounding the related claims, there can be no assurance that ultimate losses will not materially exceed our claims reserves and have a material adverse effect on our earnings. For additional information, see “Environmental Pollution and Asbestos” in
In our Life & Savings businesses, our earnings depend signifi cantly upon the extent to which our actual claims experience is consistent with the assumptions we use in setting the prices for our products and establishing the liabilities for obligations for technical provisions and claims. AXA uses both its own experience and industry data to develop estimates of future policy benefi ts, including information used in pricing the insurance products and establishing the related actuarial liabilities. However, there can be no assurance that actual experience will match these estimates. To the extent that our actual benefi ts paid to policyholders are less favorable than the underlying assumptions used in initially establishing the future policy benefi t reserves, or events or trends cause us to change the underlying assumptions, we may be required to increase our liabilities, which may reduce our net income. For example, certain Variable Annuity products issued or reinsured by certain of our subsidiaries contain various types of minimum guaranteed benefi ts such as GMDB, GMIB and/or GMWB. The determination of GMDB, GMIB and GMWB liabilities is based on models that involve numerous estimates and management judgments, including those regarding expected market rates of return and volatility, GMIB election rates, contract surrender rates and mortality experience. Determination of liabilities for our other lines of Life & Savings business, such as our annuity business also involve numerous assumptions and subjective judgments as to mortality and morbidity experience, investment returns, expenses, policy surrender rates, policy lapse rates, and other matters. There can be no assurance that the actual experience on these products will not differ, upwards or downwards, from management’s estimates. In addition, certain acquisition costs related to the sale of new policies and the purchase of policies already in force have been recorded as assets on our balance sheet and are being amortized into income over time. If the assumptions relating to various factors, including the future profi tability of these policies (such as future claims, investment income and expenses) and policy lapses and surrenders are not realized, the amortization of these costs could be accelerated and may even require write-offs due to unrecoverability. These factors could have a material adverse effect on our business, results of operations and fi nancial condition.
(particularly agriculture, timber production, healthcare and water activities) and for the insurers that cover these risks (i.e property, agricultural, business interruption, civil liability, marine
& aviation, life, health, etc.). The evolution of these risks poses major challenges for the insurance sector over the coming years and could adversely affect our business and operating results due to potential increases in claims, the emergence of new types of liability and growing uncertainties about the size of maximum potential losses, which have become harder to assess and to predict on the basis of past events.
Other risks, such as an outbreak of a pandemic disease, like the Avian Infl uenza A Virus (H5N1), or the A F lu H1N1, could also adversely affect our business and operating results. While outbreaks of the Avian Flu have occurred among poultry or wild birds in a number of countries in Asia, parts of Europe, and in
Africa, transmission to humans has been rare. If the virus mutates to a form that can be transmitted from human to human, it has the potential to spread rapidly worldwide and result in mortality and morbidity rates that far exceed the assumptions that we have used in pricing certain of our products. Both the contagion and mortality rates regarding any mutated H5N1 virus that can be transmitted from human to human are highly speculative at this point in time and we continue to monitor this situation. A
position and results of operations. For additional information, please see Section 3.2 of this Annual Report “ Quantitative and q ualitative d isclosures a bout m arket risk and r isk f actors ”.
We may not be able to sustain the growth of our insurance and Asset Management businesses
Accumulator line of annuities, often involve complex features and guarantees that are not easily translated and transposed into the legal, regulatory and tax regimes across multiple jurisdictions. Our inability to successfully execute these product reuse initiatives and/or to develop new distribution channels and partnerships for these products in a timely manner could adversely affect the growth of our Life & Savings business. See also “Risks relating to the fi nancial markets, our fi nancial strength ratings and fi nancial condition, the valuation of our assets and related matters –
RISK RELATING TO THE EVOLVING REGULATORY AND COMPETITIVE ENVIRONMENT IN WHICH WE OPERATE
Financial crisis related legislative and regulatory initiatives designed to reform the regulation of fi nancial institutions may adversely impact AXA’s business, results of operations and fi nancial condition
“Information on the Company – Additional factors which may affect AXA’s business” for a description of these initiatives. While many of these initiatives revolve around common themes and attempts are being made to coordinate and harmonize these reforms internationally, management believes that the multitude of reform initiatives under consideration may ultimately result in the enactment of a series of technically incoherent and inconsistent measures across the various jurisdictions where the
Group and its business. In particular, the question of whether the AXA Group and/or certain of its principal subsidiaries may be designated as “systemically signifi cant” and the potential implications of being so designated are unclear at the present time and have potentially signifi cant implications for the Group and its business. While management cannot predict with certainty at this time whether or when these future legislative or regulatory proposals may ultimately be enacted and the fi nal form they will take, certain of these proposals, if enacted, could have a material adverse impact on our business activities, results of operations and fi nancial condition.
Our business is subject to extensive laws and regulation and to signifi cant litigation risks in the various countries where we operate; changes in existing or new laws and government regulations in these countries and/or an adverse outcome in any signifi cant pending or future litigation or regulatory investigation may have an adverse effect on our business, fi nancial condition, results of operations, reputation or image in the market place
We are subject to detailed and comprehensive regulation and supervision in all the jurisdictions in which we operate.
prohibited transactions with countries or counterparties subject to sanctions, and bribery and other anti-corruption measures.
We are faced with signifi cant compliance challenges due to the fact that our regulatory environment is evolving rapidly and supervisory authorities around the world are assuming an increasingly active and aggressive role in interpreting and enforcing regulations in the jurisdictions where we do business.
We have been and may become in the future subject to regulatory investigations which, together with the civil actions often following these investigations, may affect our image, brand, relations with regulators and/or results of operations. We cannot predict with
Section 1.2 of this Annual Report for additional information on these matters.
which amendments may signifi cantly affect policyholders liabilities and related assets such as Deferred Acquisition Costs at the date of adoption by 2013 or 2014.
The effect of these events on the valuation of these investments is uncertain and could lead to impairments due to lasting declines in the value of investments. The cost, and possibly, the availability, in the future, of reinsurance coverage against terrorist attacks for our various insurance operations is uncertain. In addition, the rating agencies could reexamine the ratings affecting the insurance industry generally, including our companies.
Finally, our results of operations and fi nancial condition may be materially affected, from time to time, by the general economic conditions such as the levels of employment, consumer lending or infl ation, in the countries in which we operate.
In the less developed markets in which we operate, judiciary and dispute resolution systems may be less developed. As a result in case of a breach of contract, regulatory enforcement action or other dispute we may have diffi culties in making and enforcing claims against contractual counterparties and, if claims are made against us, we might encounter diffi culties in defending such claims. If we become party to legal or regulatory proceedings in a market with an insuffi ciently developed judiciary system, it could have an adverse effect on our operations and results of operations.
RISKS RELATED TO OWNERSHIP OF AXA ADSs (1) OR ORDINARY SHARES
Current diffi cult market conditions may require us to offer rights, warrants or similar securities at prices much below the thencurrent market price in order to help fund acquisitions and other expansion plans, as well as improvements to our existing infrastructure and other business activities. This may adversely affect the market price of our ordinary shares and our ADSs and have a dilutive effect on the ownership and voting percentages of existing shareholders.
Signifi cant shareholders of AXA may have interests confl icting with your interests
The trading price of AXA ADSs and dividends paid on AXA ADSs may be materially adversely affected by fl uctuations in the exchange rate for converting Euro into US dollars
ordinary shares on Euronext Paris which may consequently cause the trading price of AXA ADSs in the United States to also decline; ■ T he US dollar equivalent of the proceeds that a holder of
■ T he US dollar equivalent of cash dividends paid in Euro on the
Holders of AXA ADSs will have limited recourse if AXA or the depositary fails to meet its obligations under the Deposit Agreement and they wish to involve AXA or the depositary in a legal proceeding
The Deposit Agreement expressly limits the obligations and liability of AXA and the depositary. Neither AXA nor the depositary will be liable if they: ■ A re prevented from or delayed in performing any obligation by circumstances beyond their control; ■ E xercise or fail to exercise discretion under the Deposit
■ T ake any action based upon the advice of, or information from, legal counsels, accountants, any person presenting ordinary shares for deposit, any holder or owner of an AXA ADR or any other person believed by AXA or the depositary in good faith to be competent to give such advice or information. In addition, the depositary and AXA have the obligation to participate in any action, suit or other proceeding with respect to the AXA
ADSs which may involve them in expense or liability only if they are indemnifi ed.
These provisions of the Deposit Agreement will limit the ability of holders of AXA ADSs to obtain recourse if AXA or the depositary fails to meet their obligations under the Deposit Agreement or if they wish to involve AXA or the depositary in a legal proceeding.
Exchange Commission (SEC). AXA fi led its Form 25 with the SEC and the NYSE on March 16, 2010 to delist its ADSs and the delisting is expected to be effective on March 26, 2010. AXA plans to fi le its Form 15 to deregister with the SEC on March 26, 2010 and its deregistration with the SEC is expected to become effective within 90 days thereafter. Following delisting and deregistration AXA currently expects that its ADSs will continue to trade in the United States in the over-the-counter market.
The price at which our ADSs and ordinary shares will trade may be affected by a large number of factors, some of which will be specifi c to us and our operations and some of which will be related to the insurance industry and equity markets generally. As a result of these factors, you may not be able to resell your ADSs or ordinary shares at or above the price which you paid for them.
In particular, the following factors, in addition to other risk factors described in this Section, may have a signifi cant impact on the market price of our ADSs or ordinary shares: ■ I nvestor perception of our Company, including actual or anticipated variations in our revenues, earnings or other operating results; ■ A nnouncement of intended acquisitions, disposals or fi nancings or speculations of such acquisitions, disposals or fi nancings; ■ C hanges in our dividend policy, which could result from changes in our cash fl ow and capital position; ■ S ales of blocks of our shares by signifi cant shareholders; ■ H edging activities on our shares; ■ A downgrade of our credit or fi nancial strength ratings, including placement on credit watch, or rumors of such downgrades; ■ A ctual or potential litigation involving us or the insurance or asset management industries generally; ■ C hanges in fi nancial estimates and recommendations by securities research analysts; ■ F luctuations in foreign exchange rates and interest rates; ■ T he performance of other companies in the fi nancial services’
sector; ■ R egulatory developments in the principal markets in which we operate; ■ I nternational or local political, economic and market conditions; and
As a “foreign private issuer,” AXA is exempt from certain rules under the US Securities Exchange Act of 1934, as amended (the
“Exchange Act”), that impose certain disclosure obligations and procedural requirements for proxy solicitations under Section 14 of the Exchange Act. In addition, AXA’s offi cers, directors and principal shareholders are exempt from the reporting and “shortswing ” profi t recovery provisions of Section 16 of the Exchange
Act and the rules under the Exchange Act with respect to their purchases and sales of AXA ordinary shares and ADRs.
Judgments of United States courts, including those predicated on the civil liability provisions of the Federal securities laws of the
United States, may not be enforceable in French courts. As a result, our shareholders who obtain a judgment against us in the
United States may not be able to require us to pay the amount of the judgment.
Note 4 to the c onsolidated fi nancial s tatements included in Part 4 of this Annual Report which is covered by the Statutory Auditor’s
As an integrated part of all of our business processes, our Risk
Management is responsible for: ■ E nsuring that the second line of defense is effective on all signifi cant risks; ■ I dentifying, measuring and managing fi nancial, insurance and operational risks; ■ D efi ning and monitoring risk appetite on these risks – which strengthens risk reporting, limits and decision processes across four dimensions: earnings, value, capital, liquidity; ■ I mplementing an internal capital model and leading the approval process with regulators for future Solvency II; ■ B uilding a favorable environment – in terms of models/ metrics/
standards but also culture - for business lines to write risks within a risk appetite validated locally and by the Group.
In order to manage effi ciently our local and global risks, the decision process within our risk governance structure is divided into 4 levels: ■ T he Management Board defi nes business objectives and capital allocation with respect to investment return and risk. It also defi nes the Group appetite for risks in terms of impact on key fi nancial indicators; ■ Group Risk Committees integrate various existing Committees
Management Board member in charge of Finance, Strategy, and Operations, develops the risk framework in terms of limits/ thresholds (fi nancial, insurance and operational risks), standards, minimum requirements or processes, and oversees the operating entities’ adherence to the framework, supported by the local risk management teams; ■ Local Risk Management teams within each operational entity report to a member of their Executive Committee (CEO/ CFO).
These teams are responsible for controlling and managing risks within Group policies and limits, validating investment or underwriting decisions through Local Risk Committees.
The missions of the Group Risk Management Department are: ■ C onduct, at local level, regular reviews of the technical reserves established by the operating units and regular reviews of models implemented throughout the Group in order to ensure the consistency between actuarial and fi nancial standards; ■ D efi ne and propose to the Management Board, with the support of AXA Cessions, the main features of the Group’s reinsurance coverage program; ■ C hallenge the Group asset allocation: (i) monitor risk concentration in assets, (ii) perform regular studies and reporting on exposure and performance, and (iii) defi ne standards in terms of Asset Liability Management (see
■ I mplement Economic Capital measures and co-lead the validation of the Group’s internal model for Solvency II; ■ D evelop and deploy models/metrics to measure risks and monitor the profi tability of the business lines (please see the
Section “Insurance risk”); ■ S teer the Risk Management family and develop a risk culture throughout the Group.
AXA Cessions, which advises and supports local entities in their reinsurance strategy (Property & Casualty; Life & Savings), centralizes the Group’s purchasing of reinsurance. Please refer to the Section “controlling exposure and insurance risk” for further details on our reinsurance strategy.
The Risk Management Departments of operational entities are managed by local Chief Risk Offi cers, who report directly to a member of their Executive Committee (CEO/ CFO). The roles and responsibilities of local Risk Management Departments are approved jointly by the Executive Committees of local entities and the Group Chief Risk Offi cer to ensure a better alignment of
ALM studies & asset allocation, reinsurance; ■ C oordinating pre-launch product approval procedures, and regular pricing reviews after launch; ■ C oordinating operational risk framework in the Company; ■ I mplementing risk appetite on all risks, with strengthened reporting, risk limits and decision processes; ■ P erforming the calculation of an internal capital model; ■ C arrying out the risk reporting.
and through the fi nancing of its activities as part of its equity and debt management. These two distinct sets of risks can be summarized as follows: MARKET RISK AND ASSET LIABILITY MANAGEMENT OF INSURANCE PORTFOLIOS
■ A wide variety of risk management techniques are used to control and mitigate the market risks to which the AXA Group’s operati ng units and the Group itself are exposed. These techniques include: ■ A regular monitoring of the fi nancial risks on the statutory, solvency, and economic position of the company; ■ Asset Liability Management (ALM), i.e the defi nition of optimal strategic asset allocations with respect to the liabilities they are supporting, to reduce the risk to a desired level. Please refer to next paragraphs for further details on ALM; ■ H edging of fi nancial risks when they exceed the tolerance levels set by the Group. Operational management of derivatives is performed by the Group’s specialist asset management teams
Furthermore, a large portion of AXA’s Life & Savings portfolios is made of unit-linked products, in which most of the fi nancial risks are borne directly by policyholders (the shareholder’s value is however still sensitive to fi nancial market evolution and volatility).
The market risks to which Life & Savings operating units are exposed arise from a variety of factors including: ■ A decline in returns on assets (linked to a sustained fall in yields on fi xed income investments or to lower equity markets) could reduce investment margins or fees on unit-linked;
at the end of 2007) of the Group’s Life & Savings technical reserves cover separate-account (unit-linked) products that do not materially affect AXA’s risk exposure. This category includes products that provide a guarantee on invested capital in the event of death. On these products, the underlying fi nancial market performance is mostly passed on to the policyholders.
Variable Annuities with guaranteed benefi ts. Suitable risk management policies have been put in place with respect to these products: • derivatives are used as part of the dynamic management of risks related to guaranteed benefi ts, in order to cover some market risks linked to Guaranteed Minimum Death Benefi ts,
European and Asian business manage the market risks on these products,
• policyholder s’ behavior on these products, notably lapses, longevity/ mortality and election rates, are closely monitored and the risk of deviations of these items from our underlying assumptions is limited through updating the dynamic management programs that are in place,
at the end of 2007) of the Group’s Life & Savings technical reserves cover products without guaranteed cash values upon surrender: • the in-force with-profi t policies of AXA UK are managed with a signifi cant surplus of free assets, used to adjust performance over the duration of such policies, while at the same time refl ecting fi nancial market performance in policyholders’ revenues,
• annuities in the payout phase are usually backed by fi xedincome assets with maturities that match the underlying payout schedules, thereby avoiding reinvestment and liquidity risks,
• in the UK, surrender options on fi xed-rate annuities are monitored through specifi c analyses and partially covered by interest-rate options; ■ 17% at the end of 2009 (16% at the end of 2008 and 14%
at the end of 2007) of the Group’s Life & Savings technical reserves are related to products offering one-year guaranteed rates that are updated every year. The risks arising from a sustained fall in interest rates in the fi nancial markets are limited for these types of products, as most concern policies in France and group annuity policies in Japan. Hedging programs have been implemented to cover long-term fi xed maturities from the risk of an increase in interest rates; ■ 33% at the end of 2009 (36% at the end of 2008 and 32%
at the end of 2007) of the Group’s Life & Savings technical reserves cover other products. These reserves cover surrender guarantees and, in some cases, a guaranteed long-term rate.
TOTAL – PROPERTY & CASUALTY INSURANCE EXCLUDING INTERNATIONAL INSURANCE 47,957 47,366 47,072
Operations, determines the Group asset liability management policies, ensures that the Group exposures are within the Group risks limits and evaluates the investment results. A regular communication is performed to the Management Board and to the Finance Committee of AXA’s Supervisory Board.
Operating units produce an asset allocation statement every month, to ensure that strategic allocations are being implemented.
This allows regular monitoring of certain key ALM indicators such as the duration and convexity of fi xed income portfolios.
Group Risk Management to give an overview for the whole Group and to allow any required action to be taken.
The ALM process of a local insurance operating unit can be defi ned as a sequence of six steps: ■ A detailed analysis of the liability structure; ■ the proposal of a strategic asset allocation that factors in longterm outlook as well as short-term constraints (the ALM study: see below); ■ T he validation of this allocation by the unit’s ALM Committee, subject to risk management opinion; ■ T he implementation of the allocation through the set-up of a mandate with asset management companies; ■ A tactical allocation and stocks selection by asset management companies; ■ A performance reporting and analysis.
In addition, AXA’s insurance operation units are subject to local regulatory requirements in all juridictions in which AXA operates.
Products that involve hedging programs using derivative instruments are designed with the help of dedicated teams at AXA Bank Europe, AXA IM and AllianceBernstein. This organization means that all entities benefi t from the best possible expertise and a high level of legal and operational security in these transactions, which are sometimes complex.
AXA performs sensitivity analyses to estimate Group exposure to movements in interest rates and equity markets. These analyses quantify the potential impact on the Group of positive and adverse changes in fi nancial markets.
It is noteworthy that in 2008, for other-than-life businesses, the presentation had been designed to align with the Group EV
A comparison between both methodologies for 2008 fi gures is provided hereafter: Group EV
IFRS shareholders’ equity at December 31 38,018 8,211 46,229 33,513 3,927 37,440 33,513 3,927 37,440
Life & Savings Adjusted Net Asset Value (ANAV) and Other Businesses Tangible Net Asset Value (TNAV) 17,290 (5,323) 11,967 14,750 (8,609) 6,141 14,750 3,927 18,677
Life & Savings Value of Inforce (VIF) 18,456 18,456 12,459 12,459 12,459 12,459
Group EV = AXA Life & Savings EEV + Other Businesses TNAV at December 31 35,745 (5,323) 30,422 27,209 (8,609) 18,600 27,209 3,927 31,136
However, the Life & Savings EEV is a key management metric measuring the risk-adjusted value of the business and tracking its evolution over time, and the Group EV provides a crucial link to processes that impact total Group value but can not be seen within the Life & Savings segment, such as hedging strategies executed at the Group level and also the impact of leverage on the Group.
The Group EV equals the Life & Savings EEV plus the other businesses TNAV. The TNAV for other-than-life businesses is refl ecting the consolidated IFRS shareholders’ equity adjusted for: ■ T he elimination of all intangible assets and all undated debt
(TSS/TSDI) that are treated as equity in IFRS; ■ T he addition of unrealized capital gains or losses not already included in equity; ■ T he mark-to-market of debt.
The Life & Savings VIF calculation by nature involves many assumptions about the future. For Life & Savings EEV, AXA has adopted a “market-consistent” approach to setting asset return assumptions. Each cash fl ow is discounted at an appropriate discount factor, so that starting with Euro 1 of bond or of equity, projecting expected cash fl ows and discounting, will simply give
average infl ation rate was assumed in 2009 (2.0% in 2008); ■ Expenses are adjusted for non-recurring expenses and onetime strategic spending; ■ S ome benefi t from future mortality improvement on Life business is included, while annuity business does have an allowance for the costs of longevity increasing in all markets; ■ N on-fi nancial risks are provided for through the cost of holding capital consistent with the necessary amount to obtain a AA
rating at each entity level; ■ A weighted average tax rate of 31.8% was assumed in 2009
(as in real life the rebalancing of hedging assets would at least partly offset the impact of the shock).
■ Downward parallel shift of 100 basis points in reference interest rates is the same as above but with a shift downward.
■ 10% higher value of equity markets at the start of the projection simulates a shock to the initial conditions just for equities. This means changes to current market values of equities, with related possible changes to projected capital gains/losses and/or fee revenues. Policyholder and management behaviors are adjusted to be consistent with these conditions. As noted in the defi nitions, these calculations refl ect a shock to the initial conditions for equities, but no changes in value for asset classes such as fi xed maturities or real estate are assumed to accompany the equity change. In reality, changes in value of other asset classes would probably lead to different results than shown here. It is also possible that a gradual movement in equity would produce different results than a sudden shock.
Life & Savings Other businesses Group Life & Savings Other businesses Group
(a) 2008 sensitivities are different from the ones disclosed last year for other businesses in order to refl ect the change in methodology for the Group EV.
All sensitivities are presented net of tax and non controlling interests, and where applicable, net of policyholders’ participation.
2009 interest rate sensitivities (% of Group EV) for other-than-life businesses of -4% to upward 100 bps and 4% to downward 100 bps (2008: -6% and 6%) refl ect mainly the impacts on fi xedincome assets, offset somewhat by derivatives. The majority of other-than-life reserves are not sensitive to interest rate changes.
Savings business of 4% to upward 10% or -4% to downward 10% (2008 3% and -3%) are more nearly symmetrical, with no complicating effects from changes of discount rates. The limited asymmetries refl ect the impact of guarantees and profi t-sharing rules, along with some hedging programs to limit potential losses.
The impacts of equity market value changes can come through general account exposures or through changing asset balances impacting future fee revenue on separate account business.
(2008: 1% and -1%) refl ect the impacts on equities including derivatives on equities.
Group assets at December 31, 2009 (89% in 2008 and 90% in 2007), assets and liabilities with foreign currency exposure were generally matched or hedged.
€72 million in 2008 and €338 million in 2007, and Japanese yen: €104 million vs. €136 million in 2008 and €335 million in 2007).
AXA France owns these units in order to diversify its investments and enable policyholders to benefi t from the performance of international fi nancial markets. AXA France controls and limits its exposure to exchange-rate risk by using foreign exchange forwards and derivatives (notional of €1,759 million vs.
The exposure in the non-profi t funds arises through: i. Foreign-currency investments in Group companies with a market value of €878 million (€569 million in 2008 and €868 million in 2007), of which €79 million of Mortgage loan with AXA Financial is hedged. In prior years, an investment in
Credit Default Swaps in place with a nominal value of €75 million
The exposure in with-profi t funds arises on assets with a market value of €1,426 million (€1,232 million in 2008 and €2,770 million in 2007), while foreign currency liabilities in the fund amount to €51 million (€86 million in 2008 and €136 million in 2007). The
At the end of 2009, the total assets denominated in foreign currencies (mainly US dollar) represented an amount of €7,942 million (€5,725 million in 2008 and €6,083 million in 2007). Excluding assets backing unit-linked contracts, the corresponding exchange rate risk was fully hedged through the use of derivatives.
Companies in the German Life & Savings segment hold investments denominated in foreign currencies (€3,642 million in 2009, €3,688 million in 2008, and €3,558 million in 2007), both directly and indirectly through investment funds, with the aim of diversifying their investments and taking advantage of foreign markets’ performance. These investments are mainly in
Switzerland Life & Savings foreign exchange exposure amounted to €16.7 billion (circa 41% of assets) at the end of 2009, of which €11.9 billion were hedged (€12 billion in 2008 and €10.7 billion in 2007).
In Belgium, in the United States, and in the Mediterranean and
Latin American Region, the Group’s Life & Savings companies do not have any signifi cant exposure to exchange-rate risk.
■ Property & Casualty business: 9% of Group assets at the end of 2009 (10% at the end of 2008 and 9% at the end of 2007): In France, AXA is exposed to exchange-rate risk through the units it owns in certain investment funds partly invested in foreign currencies mainly US dollar (€207 million vs. €151 million in 2008 and €492 million in 2007) and to a much lesser extent Pound
In the United Kingdom and Ireland, AXA is exposed to exchangerate risk through its AXA Insurance and AXA PPP healthcare subsidiaries, which operate in pounds sterling, and AXA Ireland but have diversifi ed their investment portfolios in line with asset liability management objectives as follows: i. directly owned foreign-currency investments and cash of €389 million (€203 million in 2008 and €86 million in 2007), of which €111 million of Mortgage loan with AXA Financial is hedged, ii. investments totaling €103 million (€97 million in 2008 and €184 million in 2007) of CDO equity funds and investment funds which predominately invest in foreign-currency investments, iii. Euro denominated Credit Default Swaps are in place with a nominal value of €143 million (€144 million in 2008 and €285 million in 2007) and there are foreign exchange forward contracts with a nominal value of €212 million (nil in 2008), iv. AXA Ireland also operates in Northern Ireland, and so manages a portfolio of pounds sterling policies in an amount of €167 million (€122 million in 2008 and €140 million in 2007), hedged with investments in the same currency of €139 million (€131 million in 2008 and €150 million in 2007).
in both 2008 and 2007) of the Group’s Property & Casualty companies’ assets.
■ International Insurance business (2% of Group assets at the end of 2009 vs. 3% in 2008 and 2% in 2007): In the course of its business, AXA Corporate Solutions Assurance carries some insurance liabilities, denominated in foreign currencies, particularly in US dollar (€1,343 million at the end of 2009 vs.
■ As regards holding companies (6% of Group assets at the end of 2009, 2008 and 2007), AXA SA has, since 2001, adopted a hedging policy on net investments denominated in foreign currencies, which aims at protecting the Group’s consolidated shareholders’ equity against currency fl uctuations, notably using cross-currency swaps and foreign-currency debt.
US Dollar 13.5 13.2 11.3 9.4 9.5 7.7 In respect of the US activities of which 4.9 9.6 7.7 3.4 6.9 5.2 Via cross-currency swaps
In respect of the Japan activities, mainly in the form of cross-currency swaps
In respect of the UK business, mainly in the form of debt
In respect of the Canadian business in the form of cross-currency swaps
AXA SA’s assets accounted for most of the assets of Group holding companies at the end of 2009.
Central Finance Department has defi ned and implemented formal management standards, as well as guidelines for monitoring and assessing fi nancial risks. These standards, which have been approved by the Management Board, are designed to permit the positions of each affi liate to be measured in a consistent manner.
The Group Central Finance Department is in charge of producing reporting data that consolidate interest rate, foreign exchange and liquidity exposures, as well as the interest expenses of the
equity, incur debt, engage in certain types of transactions with affi liates (including loans, sales of assets and other fi nancial transactions) or take certain other actions. As a result, internal cash fl ow projections (including dividend pay-outs) must take into account these constraints and possible future regulatory changes.
POLICY: the policy is defi ned in order to monitor and limit the potential medium-term variation in interest expenses and consequently to protect future levels of interest expenses, regardless of movements in interest rates.
POLICY: the objective is to limit variations in net foreign currencydenominated assets resulting from movements in exchange rates. The purpose of the policy is therefore to protect partially or in full the value of AXA’s net foreign-currency investments in its subsidiaries and thus reduce the variability of Group consolidated shareholders’ equity against currency fl uctuations, but also of other key indicators such as adjusted net asset value, European
ASSESSMENT: exchange rate sensitivity analyses measure the annual change in interest expenses resulting from a 10%
(excluding assets backing separate-account products where the fi nancial risk is borne by policyholders) as well as by banks and holding companies. These portfolios give rise to counterparty risk through the debt securities and derivative products held within them; ■ R eceivables from reinsurers resulting from reinsurance ceded by AXA.
AXA has a database consolidating the Group’s assets and analyzing them by issuer, credit rating, sector and geographic region, in order to assess the risk of concentration in its equity and debt security portfolios. This database allows AXA to monitor, on a monthly basis, exposure to the default risk of a given issuer, particularly through holding of its debt securities. It also allows the monitoring of equity exposure.
As regards debt securities issues, total issuer-specifi c exposure limits are set at Group level and at the level of each subsidiary.
ALM Supervisory Committee is regularly kept informed of the work performed. These tools also enable coordinated contingency measures to be taken for the most sensitive counterparties.
At December 31, 2008, the breakdown of the debt security portfolio (€305.5 billion, including €10.7 billion held through withprofi t funds) by rating was: 37% in AAA, 33% in AA, 19% in A, 8% in BBB, 2% in BB and lower, and 2% in other.
At December 31, 2007, the breakdown of the debt security portfolio (€303.2 billion, including €15.5 billion held through withprofi t funds) by rating was: 37% in AAA, 30% in AA, 19% in A, 9% in BBB, 1% in BB and lower, and 4% in other.
ASSET BACKED SECURITIES BY UNDERLYING TYPE OF ASSET (EXCLUDING COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS))
in CDO, 21% in Commercial MBS, 21% in Prime Residential, 7% in US Subprime & Alt-A, and 3% in Non conforming RMBS.
At December 31, 2009, the analysis by rating of the ABS portfolio was as follows and showed that 64% were AAA & AA.
At December 31, 2008, the breakdown of the ABS portfolio by rating was: 60% in AAA, 9% in AA, 13% in A, 11% in BBB, 2% in high yield, and 4% in NR/equity.
The positive gross fair value evolution of the ABS assets over the year 2009 was evaluated at €0.5 billion, of which €0.2 billion was recognized in the income statement and €0.4 billion was recognized in shareholders’ equity (versus €-3.5 billion in 2008, of which €-2.7 billion in the income statement and €-0.7 billion in shareholders’ equity).
Net of policyholders participation, tax and VBI/DAC reactivity, the positive fair value evolution of the ABS assets over the year 2009 was evaluated at €0.1 billion, of which €0 billion was recognized in the income statement and €0.1 billion was recognized in shareholders’ equity (versus €-1.3 billion in 2008, of which €-1.0 billion in the income statement and €-0.3 billion in the shareholders’ equity).
The AXA Group, as part of its investment and credit risk management activities, may use strategies that involve credit derivatives (Credit Default Swaps or CDS), which are mainly used as an alternative to corporate debt security portfolios, when coupled with government debt securities, but also as a protection on single corporate names or specifi c portfolios.
In addition, throughout 2009, the major part of the protection bought via CDS has been taken to build up Negative Basis
At December 31, 2009, the nominal amount of positions taken through credit derivatives was €32.3 billion (1) (cumulated notional amounts of protections bought and protections sold), of which €30.8 billion of CDS, which can be broken down as follows: i. €7.4 billion held through consolidated CDOs; (a) Mainly consumer loans ABS (plus some leases and operating ABS assets).
Group through these instruments is included in analyses of debt security portfolios as described in the previous Section “Invested assets”. Limits applied to issuers take into account these credit derivative positions.
The diversifi ed portfolio of wrapped US municipal bonds underwritten by Colisée RE (formerly AXA RE) and its subsidiaries prior to its run-off and reinsured by MBIA was fully commuted with effect on September 30, 2009. As a consequence, Colisée RE
Committee is in charge of assessing reinsurers’ quality and acceptable commitments. The Committee is under co-joined authority of GRM and AXA Cessions. This risk is monitored to avoid any excessive exposure to any specifi c reinsurer. The
Security Committee meets monthly – and more frequently during renewal periods – and decides on any action to be taken with the aim of limiting AXA’s exposure to the risk of default by any of its reinsurers.
Credit risks in the banks are: ■ R etail credit risk, resulting from the commercial activity - sales of mortgages and other type of loans to clients. Credit risk management is done through careful risk selection (scoring models frequently reviewed to ensure a risk selection consistent with each bank’s risk appetite, “Retail Credit Committee” that meets every month) and a continuous monitoring of portfolios by product management teams and risk management teams; ■ O ther than retail credit risk, resulting from the investment activity. This activity is limited with strong control processes in place: a limit framework (by country, currency, ratings, and individual issuer – based on internal rating system), a dedicated
Credit risks are reviewed regularly by the Management Board of each bank, and are subject to regulation.
Solvency and reduce volatility of key fi nancial indicators; ■ R eviews of technical reserves; ■ E merging risks initiative to share expertise within the underwriting and risk communities.
In its Life & Savings activities, the AXA Group has set up prelaunch product approval procedures in each subsidiary, to ensure that new risks underwritten by the Group undergo a rigorous approval process before the products are offered to customers.
This harmonized approach also facilitates the sharing of product innovation within the Group.
These procedures are defi ned and implemented locally, and are structured and harmonized using the minimum requirements defi ned by GRM. The main characteristics of these procedures are as follows: ■ A lthough the decision to launch a new product is taken locally, it must be the result of a documented approval process that complies with local governance practices and AXA Group standards. For Variable Annuity products with guarantees, this review is centralized, and submitted to the Management
Board; ■ A ll signifi cant Life & Savings products must go through this process; ■ G uarantees and options embedded in the product must be quantifi ed using stochastic methods defi ned by GRM in order to ensure that they are correctly refl ected in pricing. This work also gives a better understanding of any asset-liability mismatch risk and the actual economic capital requirement at the product design stage. Where signifi cant fi nancial risks exist, an ALM study must be performed to confi rm the hedging strategy for the product; ■ S tress tests are required on key assumptions to ensure that appropriate ‘what if’ scenarios are considered in the development process; ■ P ricing reports are sent to GRM prior to launch.
to optimize the quality and cost of reinsurance cover. These analyses are performed in collaboration with the technical and reinsurance departments of Group operational entities.
They measure frequency risks as well as specifi c severity risks (natural catastrophes, storms, fl oods, earthquakes).
They provide guidance for determining the most appropriate reinsurance cover (retention levels and scope of cover) for each portfolio and for each type of risk, in accordance with objectives and capital allocation constraints; ■ E stimates of catastrophic risks are carried out on the basis of several pieces of modeling software available in the market.
Since 2006, this work has been extended to the Life & Savings business based on the same procedures as in the Property
AXA Cessions level to build internal Group reinsurance pools by line of business.
In 2009, four pools were managed by AXA Cessions: ■ Property (Catastrophe and per risk + Personal Accident); ■ General Liability; ■ Marine; ■ Life.
For Property & Casualty business, the Group Risk Management, together with Group P&C Insurance Operations, Group
Actuaries in charge of assessing reserves for claims payable do not use a single method but a selection of approaches such as: ■ M ethods based on the development of claims (paid or incurred)
Assumptions depend on available data relating to reported losses at the time of the estimates, as well as local regulations, claims management procedures, pricing, underwriting information and the type of activities and claims (coverage type, attritional or major claims, recent or old occurrence). They also depend on economic, social and environmental factors, as well as on the legislative and political context, which are important variables in terms of reserves. Assumptions are made following discussions with claims managers, pricing actuaries, underwriters and other specialized departments. These discussions lead to the defi nition of reasonable estimate ranges.
Global warming is now proven beyond doubt, although experts may disagree on its magnitude and projection. Even if it remains very diffi cult to estimate the local effect of climate change due to the large number of local geographical factors to be taken into account (sea currents, topography, etc.), some results are now available at regional level and used in our catastrophe risk estimations. However, it is still very diffi cult to estimate the consequences of extreme events (heat waves, droughts and fl oods, high winds and intense precipitation caused by cyclones), which are of particular concern to insurance companies. This led the Group to launch in 2007 the AXA Research Fund, which supports academic research projects on Climate.
Gradual premium rate adjustments will be required to widely refl ect these risk factors, but are not likely to be suffi cient to cover risks underwritten in the most exposed areas to fl ood or cyclone.
By seeking to develop new solutions and actively contributing to the overall debate about the issues involved – particularly as part of the Carbon Disclosure Project – AXA, along with other major market players, intends to promote a better understanding and better forecasting of the risks resulting from global warming.
January 2010, and AXA continues to monitor conditions while considering whether to issue another bond.
Responsibility for managing day-to-day operational risks lies mainly within operating subsidiaries, which are best positioned to take the appropriate measures to mitigate the risks faced by their organizations. However, AXA has defi ned a single Group framework for identifying, quantifying and monitoring the main operational risks, involving the deployment of a common system, and dedicated operational risk teams are in place in all the major entities of the Group.
■ In addition, a loss data collection process has been initiated in most companies of the Group in order to track and mitigate appropriately actual operational losses. This process is also used as a valuable source of information to back-test the assumptions taken in local risk assessments.
In the light of the 2008-2009 global fi nancial crisis, AXA reinforced measures in place to protect its reputation, and communicated to shareholders, customers, staff, and more broadly the fi nancial community, on its strength and fi nancial soundness through: ■ A tailored and daily basis communication at both internal and external levels (AXA’s intranet and specifi c hotline to answer questions of shareholders and staff, letters sent to customers and articles posted on AXA’s Web site); ■ A continuous monitoring of our online reputation (web and media monitoring system); ■ A n extensive communication of our management team to international media.
In line with this charter, each AXA Group company is required to maintain procedures based on Group standards and principles, in addition to those required by applicable local regulations, and to appoint an anti-money laundering offi cer. The “know your customer” principle is crucial in this respect, and is fundamental to all transactions. The Group Charter is reviewed and updated on a regular basis by taking into account international legal and regulatory developments.
European Union (“EU”) directives 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 fi nancial market regulator, and the Autorité de Contrôle des
Assurances et des Mutuelles (“ACAM”) (1) , which is the principal
Versicherungswerte (“KVAG”) following the squeeze-out in July 2007 of the minority shareholders of these two companies. In the United States, several AXA subsidiaries (including AXA
Equitable Life Insurance Company and AllianceBernstein) are involved in lawsuits (both class actions and individual litigations), investigations, and other actions arising in the various states and jurisdictions where they do business. For further information, please see Part 4 “consolidated fi nancial statements” – Note 30
Please see Part 4 – “consolidated fi nancial statements ” of this
Please see Part 4 – “consolidated fi nancial statements ” – Note 30
Company’s performance, prevailing fi nancial market conditions and the general economic environment) and, consequently, may fall outside the target 40%-50% range in certain years. In assessing the dividend to be paid in any given year, management tries to strike the appropriate balance between prudent capital management and an attractive dividend for shareholders.
For a description of certain developments since the date of the annual fi nancial statements included in this Annual Report, please see Part 4 – “consolidated fi nancial statements ” – Note 31
NOTE 31 Subsequent events 403 4.7 REPORT OF THE STATUTORY AUDITORS 404 4 CONSOLIDATED FINANCIAL STATEMENTS
Reinsurers’ share in insurance and investment contracts liabilities 11,320 11,745 11,315
Assets held for sale including discontinued operations 11,559 415 680 12 Cash and cash equivalents 19,565 32,227 18,684
(e) In accordance with IFRS 3, i.e. within 12 months following the acquisition date, the Group adjusted certain items impacting the allocation of Seguros ING (Mexico) purchase price, resulting in a €33 million increase in the goodwill to €512 million. Most of this increase in goodwill was due to adjustments to provisions for liabilities and claims reserves.
Liabilities arising from insurance contracts where the fi nancial risk is borne by policyholders (b) 103,281 85,916 113,654
LIABILITIES ARISING FROM INSURANCE AND INVESTMENT CONTRACTS 545,317 517,509 556,892 15 Provisions for risks and charges 9,538 9,348 8,654
(d) AXA Japan closes its full year accounts at September 30. According to IFRS principles whereby the fi nancial statements of the subsidiary shall be adjusted to refl ect the effects of signifi cant events that would have been recognised with a closing date aligned with the AXA Group, AXA Japan’s 2008 accounts were adjusted by €-106 million with the provisional loss refl ecting the further increase of the credit spreads from October to December 2008. This adjustment was reversed in 2009. No other adjustement was recorded in 2009.
(e) AXA Japan closes its book at September 30. To refl ect exceptional market condition in 2008, AXA Japan’s accounts were adjusted accordingly and translated using December 31, 2008 exchange rates. No adjustment was booked at the end of September 2009.
(f) In accordance with IFRS 3, i.e. within 12 months following the acquisition date, the Group adjusted certain items impacting the allocation of Seguros ING (Mexico) purchase price, resulting in a €33 million increase in the goodwill to €512 million. Most of this increase in goodwill was due to adjustments to provisions for liabilities and claims reserves.
Liabilities arising from insurance contracts where the fi nancial risk is borne by policyholders 103,281 85,916 113,654
Liabilities arising from investment contracts with no discretionary participating features and where the fi nancial risk is borne by policyholders 46,750 38,680 59,173
Change in fair value of other investments designated as at fair value through profi t or loss (h) 27,148 (51,994) 4,084 of which change in fair value of assets with fi nancial risk borne by policyholders (e) 23,861 (43,687) 7,476
Amortization of the value of purchased business in force (394) (393) (357)
Change in goodwill impairment and other intangible assets impairment (113) (126) (148)
(f) Includes net balance of income and expenses related to derivatives on fi nancing debt (however excludes change in fair value of these derivatives).
(i) Following AXA’s rights issue in 4Q09, the average number of shares has been restated to take into account an adjustment factor of 1.023. In the average number of shares calculation, the adjustment factor has been applied on outstanding shares prior to the date of the capital increase leading to an adjustment on average number of shares of 48.4 million shares in 2009, 47.7 million in 2008 and 47.9 million in 2007. As at December 31, 2009, total net outstanding number of shares was 2,264 million and average fully diluted number of shares was 2,133 million.
Employee benefi ts actuarial gains and losses through CI (1,021) (731) 628
Amounts are presented net of tax, policyholders’ participation and other shadow accounting related movements. Tax, policyholders’
participation and related effects are detailed further in the notes to the fi nancial statements.
Shareholders’ equity as at December 31, 2009 2,289,965 2.29 5,244 19,886 (505)
NB: amounts are p resented net of impacts of shadow accounting and of its effects on policyholders’ participation, deferred acquisition costs, and value of business in force.
(a) Undated subordinated debts (TSS, TSDI), and equity components of compounded fi nancial instruments (e.g convertible bonds) (see Note 13.1.1.c).
Shareholders’ equity as at January 1, 2008 2,060,753 2.29 4,719 17,363 (716)
Change in scope or method of consolidation - - - - -
Shareholders’ equity as at December 31, 2008 2,089,157 2.29 4,784 17,840 (547)
(a) Undated subordinated debts (TSS, TSDI), and equity components of compounded fi nancial instruments (e.g convertible bonds) (see Note 13.1.1c).
(c) Includes €-106 million loss recognized against Other payables. As a reminder, AXA Japan closes its books at September 30. According to IFRS principles whereby the fi nancial statements of the subsidiary shall be adjusted to refl ect the effects of signifi cant events that would have been recognized with a closing date aligned on the AXA Group, AXA Japan’s 2008 accounts were adjusted with the provisional loss from October to December 2008. This adjustment refl ects mainly the further increase of the credit spreads during this period.This adjustment was reversed in 2009.No adjustment was booked at the end of September 2009.
Shareholders’ equity as at January 1, 2007 2,092,888 2.29 4,793 18,398 (521)
Capital in excess of nominal value - - - (1,126) -
Employee benefi ts actuarial gains and losses through CI (b) - - - - -
(b) Actuarial gains and losses accrued since opening January 1, 2007.
Net change in deferred acquisition costs and equivalent (884) (1,474) (1,911)
Net change in liabilities arising from insurance and investment contracts (b) 31,467 (33,001) 22,940
Income arising from investments in associates – Equity method (8) (21) (13)
Adjustment of non cash balances included in the operating income before tax 6,251 21,615 18,317
Adjustment for reclassifi cation to investing or fi nancing activities 1,714 624 (5,786)
Investment income & expense recorded in profi t or loss during the period (11,704) (20,790) (16,237)
Investment expense (excluding interests on fi nancing and undated subordinated debts, margin calls and others) (6,413) (1,903) (1,959)
Other operating cash impact and non cash adjustment 988 2,032 1,401
Net cash impact of transactions with cash impact not included in the operating income before tax 15,974 21,513 17,967
Purchase of subsidiaries and affi liated companies, net of cash acquired (443) (2,273) (3,275)
Net cash related to changes in scope of consolidation (434) (2,424) (540)
Sales of equity instruments and non controlled investment funds (f) (g) 14,387 26,251 34,258
Sales and/or repayment of loans and other assets (g) (h) 39,784 44,507 35,262
Purchases of investment properties held direct or not (g) (1,815) (1,575) (1,292)
Net cash related to purchases and issuance of investments (f) (g) (h) (142,346) (131,375) (168,108)
Net cash related to sales and purchases of tangible and intangible assets (311) (339) (312)
Decrease in collateral payable / Increase in collateral receivable (13,633) (4,994) (289)
Net cash impact of assets lending/borrowing collateral receivables and payables (4,977) (1,707) 5,477
Cash and cash equivalent as at December 31 (j) 18,210 30,811 17,192
(f) Includes equity instruments held directly or by controlled investment funds as well as non controlled investment funds.
and has been listed since June 25, 1996 on the New York Stock
The consolidated fi nancial statements are prepared in compliance with IFRS standards and IFRIC interpretations that are defi nitive and effective as at December 31, 2009, as adopted by the European Union before the balance sheet date. However, the Group does not use the “carve out” option allowing not to apply all hedge accounting principles required by IAS 39. In addition, the adoption of the new IFRS 9 standard published by the IASB in November 2009 has not been yet formally submitted to the European Union. However, the Group would not have used the earlier adoption option of the standard in 2009. As a consequence, the consolidated fi nancial statements also comply with IFRSs as issued by the International Accounting Standards
The application of the following standards, amendments to standards and interpretations as at January 1, 2009, had no signifi cant impact on the Group’s consolidated fi nancial statements: ■ IFRS 8 – Operating Segments, published in November 2006 and the amendment to IFRS 8, published in April 2009, replaces IAS 14 – Segment Reporting. The new standard requires disclosed operating segments to be based on the segmentation used in the entity’s internal reporting, on the basis of which operational heads allocate capital and resources to the various segments and assess the segments’ performance.
I Note 1 Accounting principles 4.6 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Liquidation, published on February 14, 2008 respectively require i) certain puttable fi nancial instruments and obligations arising on liquidation to be classifi ed as equity if certain criteria are met and ii) disclosure on these instruments; ■ T he Improvements to IFRSs, published on May 22, 2008, include amendments that are not part of a major project. They are presented in a single document rather than as a series of piecemeal changes. They involve accounting changes for presentation, recognition or measurement purposes and terminology or editorial changes with minimal effect on accounting; ■ IFRIC 15, Agreements for the Construction of Real Estate, published on July 3, 2008, applies to the accounting for revenue and associated expenses by entities that undertake the construction of real estate directly or through subcontractors.
Derivatives, published on March 12, 2009, clarify that, on reclassifi cation of a fi nancial asset out of the “at fair value through profi t or loss” category, all embedded derivatives have to be assessed and, if necessary, separately accounted for in the fi nancial statements. No reclassifi cation of fi nancial assets, such as allowed by the amendments to IAS39 published in 2008, was made by the Group.
January 1, 2010, provides guidance on how an entity should measure distribution of assets other than cash when it pays dividends to its owners. The interpretation also requires an entity to provide additional disclosures if the net assets being held for distribution to owners meet the defi nition of a discontinued operation. The guidance is to be applied prospectively to distributions after the adoption date.
November 4, 2009 and effective for annual periods beginning on or after January 1, 2011, with earlier application permitted, simplifi es the disclosure requirements for government-related entities and clarifi es the defi nition of a related party. These changes are not expected to have a signifi cant impact on the
IFRIC 19 – Extinguishing fi nancial liabilities with equity instruments, published on November 26, 2009 and effective for fi nancial years beginning on or after July 1, 2010, with earlier application permitted, clarifi es the requirements when an entity renegotiates the terms of a fi nancial liability with its creditor and the creditor agrees to accept the entity’s shares or other equity
instruments to settle the fi nancial liability fully or partially. This interpretation is not expected to have a signifi cant impact on the
IFRS 9 – Financial instruments, published on November 12, 2009 and applicable to the Group from January 1, 2013 with earlier application permitted, represents the completion of the fi rst part of a three-part project to replace IAS 39. IFRS 9 uses a single approach to determine whether a fi nancial asset is measured at amortized cost or fair value. A fi nancial asset is measured at amortized cost if both a) the asset is held within a business model whose objective is to hold assets in order to collect contractual cash fl ows and b) the contractual terms of the fi nancial asset give rise on specifi ed dates to cash fl ows that are solely payments of principal and interest on the principal amount outstanding
As a result, the goodwill gross value disclosed in Note 5 represents the gross value of these goodwills net of cumulated amortization recognized in French GAAP as at December 31, 2003.
AXA elected the option to reset to zero all past cumulative currency translation differences for all foreign operations as at
All cumulative past actuarial gains and losses on all employee benefi t plans were recognized in retained earnings as at
As Group decided to early adopt Revised IFRS 3 – Business
Investment contracts with no discretionary participating features do not benefi t from the exemption permitted by IFRS 4 in phase I
These projections include assumptions regarding claims, expenses and fi nancial revenues, or they can be estimated on the basis of the new business value. In line with accounting practices in force before the adoption of IFRS, which may continue to be applied under IFRS 4, future premiums relating to acquired business may be recognized in the “Value of acquired business in force” item.
To the extent that these other intangible assets can be estimated separately, they can also be measured by looking at the purchased marketing resources that will allow to generate these future cash fl ows.
VBI. For business combinations that occurred before January 1, 2009, any contingent element was included in the cost of the combination to the extent the adjustment was probable and could be measured reliably. If the future events do not occur or the estimate needs to be revised, the cost of the business combination continues to be adjusted accordingly, taking account of the impact in terms of additional goodwill and/or adjustments of the valuation of acquired assets and liabilities. For business combinations on or after January 1, 2009, any change to the estimate of the contingent element between the acquisition date and the amount actually subsequently paid is recognized in the income statement.
Goodwill is measured as the excess of (a) the aggregate of the consideration transfe rred, the amount of any non-controlling interest in the ac quiree and in a business combination ach ieved in stages, the acquisition-date fair value of the Group’s previously held equity interest in the acquiree over (b) the net of the acquisition-date amounts of the identifi able assets acquired and the liabilities assumed.
Goodwill arising from the acquisition of a foreign entity is recorded in the local currency of the acquired entity and is translated into
Property & Casualty, International Insurance, Asset Management and Banking) to cash generating units corresponding (i) to the companies acquired or portfolios of business acquired according to their expected profi tability, and (ii) to the entities already within the AXA Group that will benefi t from the synergies of the combination with the activities acquired. This allocation of goodwill is used both for segment reporting and for impairment testing.
When control over a subsidiary is acquired, a put option may be granted to non-controlling shareholders. However, the recognition of the puttable instruments as a liability depends on the contractual obligations.
They also include customer relationships intangibles as well as distribution agreements recognized as a result of business combinations, provided that their fair value can be measured reliably and it is probable that future economic benefi ts attributable to the assets will benefi t to the Group. If these assets have a fi nite useful life, they are amortized over their estimated life. In all cases, they are subject to impairment tests, at each closing for assets with a fi nite useful life and at least annually for other assets. In the event of a signifi cant decline in value, an impairment is booked corresponding to the difference between the value on the balance sheet and the higher of value in use and fair value less costs to sell.
The variable costs of writing insurance contracts and investment contracts with discretionary participating features, primarily related to the underwriting of new business, are deferred by recognizing an asset. This asset is amortized based on the estimated gross profi ts emerging over the life of the contracts.
this asset is tested for recoverability: any amount above future estimated gross profi ts is not deemed recoverable and expensed.
For investment contracts with no discretionary participating features, a similar asset is recognized (DOC) but limited to costs directly attributable to the provision of investment management services. This asset is amortized by taking into account projections of fees collected over the life of the contracts. The amortization of DOC is reviewed at each closing date to refl ect changes in assumptions and experience. This asset is also tested for recoverability.
more than the net carrying value, previously recorded impairment is reversed to the extent of the difference between a) the net carrying value and b) the lower of the appraisal value and the depreciated cost (before impairment).
Depending on the intention and ability to hold the invested assets, fi nancial instruments are classifi ed in the following categories: ■ A ssets held to maturity, accounted for at amortized cost; ■ L oans and receivables (including unquoted debt instruments)
(Collateralized Debt Obligations); ■ P ortfolios of managed fi nancial investments whose profi tability is valued on a fair value basis: mainly securities held by consolidated investment funds, managed according to the Group Risk Management policy (“Satellite Investment
In practice, assets held through consolidated investment funds are classifi ed: ■ E ither as assets of the “Core Investment Portfolios” which include assets backing liabilities arising from insurance and investment contracts, managed according to AXA’s ALM strategy; ■ O r as assets of the “Satellite Investment Portfolios”, refl ecting the strategic asset allocation based on a dynamic asset management aimed at maximizing returns.
Portfolios” are classifi ed as available-for-sale unless involved in a qualifying hedge relationship or more broadly when electing the fair value option reduces accounting mismatch. As specifi ed above, the fi nancial instruments held in the “Satellite Investment
For equity instruments classifi ed as available for sale, a signifi cant or prolonged decline in the fair value below its carrying value is considered as indication for potential impairment, such as equity instruments showing unrealized losses over a 6 months period or more (prior to the closing date), or unrealized losses in excess of 20% of the net carrying value at the closing date. If such evidence exists for an available for sale fi nancial asset, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment on that fi nancial asset already booked in the income statement – is removed from shareholders’ equity and an impairment is recognized through the income statement. Equity instruments impairment recognized in the income statement cannot be reversed through the income statement until the asset is sold or derecognized.
Assets backing liabilities arising from insurance or investment contracts where the fi nancial risk is borne by policyholders are presented in a separate aggregate of the balance sheet so that they are shown in a symmetrical manner to the corresponding liabilities.
This presentation is considered more relevant for the users and consistent with the liquidity order recommended by IAS 1 for fi nancial institutions, since the risks are borne by policyholders, whatever the type of assets backing liabilities (investment in real estate properties, debt instruments or equity instruments , etc.).
hedging of the fair value of recognized assets or liabilities or of a fi rm commitment (fair value hedge); or (ii) hedging of highly probable expected future transactions (cash fl ow hedge); or (iii)
The Group holds fi nancial investments that include embedded derivatives. Such embedded derivatives are separately recorded and measured at fair value through profi t or loss if the impact is deemed signifi cant.
For balance sheet presentation, derivatives are presented alongside with the underlying assets or liabilities for which they are used, regardless of whether these derivatives meet the criteria for hedge accounting.
These comprise assets, particularly buildings or operations, intended to be sold or discontinued within twelve months.
Details on information presented in the balance sheet and income statement are provided in the notes to the consolidated fi nancial statements.
Any fi nancial instrument issued by the Group with an equity component (for example an option granted to convert the debt instrument into an equity instrument of the company) and a liability component (a contractual obligation to deliver cash) is classifi ed separately on the liability side of the balance sheet with the equity component reported in Group shareholders’ equity (in the “other reserves” aggregate). Gains and losses relating to redemptions or refi nancing of the equity component are recognized as changes to shareholders’ equity.
Treasury shares and any directly related costs are recorded as a deduction to consolidated shareholders’ equity. Where treasury shares are subsequently sold or reissued, any consideration received is included in consolidated shareholders’ equity, net of any directly related costs and tax effects.
A number of insurance and investment contracts contain discretionary participating features. These features entitle the contract holder to receive additional benefi ts or bonuses on the top of these standard benefi ts: ■ T hey are likely to represent a signifi cant portion of the overall contractual benefi ts; ■ T heir amount or timing is contractually at the discretion of the
According to IFRS 4, recognition and derecognition are based on the AXA accounting policies existing prior to IFRS and are described below, except for the elimination of equalization provisions, selective changes as permitted by IFRS 4 (see below), the extension of shadow accounting and except where IAS 39 applies.
The “Liabilities arising from policyholders participation” caption includes the entire “Fund for Future Appropriation” (FFA) relating to UK with-profi t contracts, which principally covers future terminal bonuses according to the terms of these contracts. The combination of provisions on with-profi t contracts and the FFA
varies in line with the market value of the assets supporting the participating with-profi t funds. Technical reserves are measured on a “realistic” basis in accordance with UK accounting standard
When liabilities are transferred out of the UK with-profi t fund along with the supporting assets, the group is not permitted to reclassify the assets as available for sale assets, which would represent the relevant category to match the traditional valuation of non profi ts UK liabilities. These assets instead retain their previous designation of fair value through profi t and loss. In order to minimize the accounting mismatch between liabilities and supporting assets, the Group has elected to use the option allowed under IFRS 4.24 to re-measure its provision.
This revaluation is carried out at each reporting date based on guarantee benefi t projections and takes into account interest rates and other market assumptions.
Except when these guarantees are covered by a risk management program using derivative instruments (see next paragraph), guaranteed minimum benefi ts reserves relating to contracts where the fi nancial risk is borne by policyholders (insurance contracts because they include such guarantees or investment contracts with discretionary participating features), are build over the life of the contract based on a prospective approach: the present value of future benefi t obligations to be paid to policyholders in relation to these guarantees is estimated on the basis of reasonable scenarios. These scenarios are based on assumptions including investment returns, volatility, surrender and mortality rates. This present value of future benefi t obligations is reserved as fees are collected over the life of the contracts.
The DPL or DPA corresponds to the discretionary participation available to the policyholders and is generally determined by applying on the basis of estimated participation of policyholders in unrealized gains and losses and any other valuation difference with the local contractual basis. Jurisdictions where participating business is signifi cant are Switzerland (for example “legal quote”
for group insurance policies), Germany and France where minimum are set to respectively 90%, 90% and 85% of a basis which may include not only fi nancial income but also other components such as in Germany or Switzerland. Participating business is less developed in the US or in Japan.
VBI assets and deferred policyholders’ participation liability or asset. To perform these tests, entities group contracts together according to how they have been acquired, are serviced and have their profi tability measured. Entities use current best estimates of all future contractual cash fl ows as well as claims handling and administration expenses, and take into account guarantees and investment yields relating to assets backing these contracts.
Sensitivities of: ■ F inancial assets and liabilities ; ■ Insurance and investment contracts related assets and liabilities including the value of Life & Savings business inforce; to interest rate risk and equity risk are disclosed in Note 4.2.
Embedded derivatives that meet the defi nition of an insurance contract or correspond to options to surrender insurance contracts for a set amount (or based on a fi xed amount and an interest rate) are not separately measured. All other embedded derivatives are bifurcated and booked at fair value when material
if they are not considered as closely related to the host insurance contract and/or do not meet the defi nition of an insurance contract.
In accordance with IAS 39, these contracts are accounted for using “deposit accounting”, which mainly results in not recognizing the cash fl ows corresponding to premiums, benefi ts and claims in the statement of income (see “Revenue recognition”
section below). These cash fl ows shall rather be recognized as deposits and withdrawals.
This category includes mainly unit-linked contracts that do not meet the defi nition of insurance or investment contracts with discretionary participating features. For these unit-linked contracts, the liabilities are valued at current unit value, i.e. on the basis on the fair value of the fi nancial investments backing those contracts at the balance sheet date together with deferred origination costs (see section 1.6.4).
Financing debts issued to fi nance the solvency requirements of an operational entity or to acquire a portfolio of contracts are isolated in a specifi c balance sheet aggregate.
The present value of the future benefi ts paid by the employer, known as the DBO (Defi ned Benefi t Obligation), is calculated annually on the basis of long-term projections of rate of salary increase, infl ation rate, mortality, staff turnover, pension indexation and remaining service lifetime. The amount recorded in the balance sheet for employee benefi ts is the difference between the Defi ned Benefi t Obligation and the market value at the balance sheet date of the corresponding invested plan assets after adjustment at fair value. If the net result is negative, a provision is recorded in the balance sheet under the provision for risks and charges heading. If the net result is positive, a prepaid asset is recorded in the balance sheet. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are recognized in shareholders’ equity
(in the Statement of Comprehensive Income) in full in the period in which they occur. Similarly, any adjustment arising from the asset ceiling is recognized in shareholders’ equity. Unrecognized past service cost represents non-vested benefi ts on the date of a change in the amount of benefi ts following an amendment to the plan. It is amortized on a straight-line basis over the average vesting period. The impact in the income statement mainly relates to the service cost (annually accruing employee benefi t) and the interest cost (unwinding of discount applied to the liability), reduced by the expected return on assets dedicated to the plan.
Past service costs, settlements and curtailments also have an impact in the income statement.
des Normes Comptables). The cost of the leveraged option plan is valued by taking into account the fi ve-year lock-up period for the employees (as in the traditional plan) but adding the value of the advantage granted to the employees by enabling them to benefi t from an institutional derivatives-based pricing instead of a retail pricing.
Amounts collected as premiums from investment contracts with no discretionary participating features are reported as deposits net of any loadings and policy fees. Revenues from these contracts consist of loadings and policy fees relating to underwriting, investment management, administration and surrender of the contracts during the period. Front-end fees collected corresponding to fees for future services are recognized over the estimated life of the contract (see “Unearned fees reserves” section 1.13.3).
(depreciation expense relating to owner occupied properties is included in the “administrative expenses” aggregate); this item includes interest received calculated using the effective interest method for debt instruments and dividends received on equity instruments; ■ I nvestment management expenses (excludes fi nancing debt expenses); ■ R ealized investment gains and losses net of releases of impairment following sales; ■ T he change in unrealized gains and losses on invested assets measured at fair value through profi t or loss; ■ T he change in impairment of investments (excluding releases of impairment following sales).
Subsequent events relate to events that occur between the balance sheet date and the date when the fi nancial statements are authorized for issue: ■ S uch events lead to an adjustment of the consolidated fi nancial statements if they provide evidence of conditions that existed at the balance sheet date; ■ S uch events result in additional disclosures if indicative of conditions that arose after the balance sheet date, and if relevant and material.
Parent and Holding Companies Change in scope Voting rights percentage Group share of interests
AXA Asia Pacifi c Holdings Ltd (c) 54.08 54.07 53.42 53.42
(c) AXA interest in AXA Asia Pacifi c Holding Ltd is 54.08% broken down into 53.92% direct interest holding and an additional 0.15% owned by the AAPH executive plan trust.
AXA Canada Inc. (sub group including Citadel) 100.00 100.00 100.00 100.00
DBV Deutsche Beamten-Versicherung AG Non-controlling interest buyout 100.00 100.00 100.00 98.81
Other Change in scope Voting rights percentage Group share of interests
(€7,740 million at the end of 2008 and €7,643 million at the end 2007), mainly in Germany and France.
At December 31, 2009, the 7 consolidated CDOs represented total investments of €393 million (€417 million at the end of 2008 and €1,024 million at the end 2007). These CDOs are consolidated in AXA’s statement of fi nancial position in line with
At December 31, 2009, non-controlling interests in controlled investment funds amounted to €6,370 million (€4,847 million at
Life & Savings and Property & Casualty Change in scope Voting rights percentage Group share of interests
At December 31, 2009, real estate companies accounted for using the equity method represented total assets of €371 million
(€430 million at the end of 2008 and €338 million at the end 2007) and investment funds accounted for using the equity method represented total assets of €3,824 million (€3,036 million at the end of 2008 and €1,234 million at the end 2007), mainly in
France Vie. This structure was put in order to improve AXA
On July 6, 2007, AXA announced the closing of the €450 million securitization of its pan-European motor insurance portfolio
Germany, Italy and Spain). AXA consolidated its €192 million stake in the vehicle carrying the junior tranches.
segment includes all non-operational activities. The fi nancial information relating to AXA’s business segments and holding company activities is consistent with the presentation provided in the consolidated fi nancial statements.
Life & Savings: AXA offers a broad range of Life & Savings products including individual and group savings retirement products, life and Health products. They comprise traditional term and whole life insurance, immediate annuities and investment products (including endowments, savings-related products, such as variable life and variable annuity products). The Life & Savings segment aggregates nine geographical operating components: France, the United States, the United Kingdom, Japan, Germany,
Property & Casualty: This segment includes a broad range of products including mainly motor, household, property and general liability insurance for both personal and commercial customers (commercial customers being mainly small to mediumsized companies). In some countries, this segment includes
It also includes reinsurance activity managed by AXA Cessions, which writes reinsurance treaties of AXA entities after a selection of reinsurers based on strict standards. AXA Cessions activity is mainly driven by its Property pool which provides AXA entities with cover on natural catastrophes.
The inter-segment eliminations include only operations between entities from different segments. They mainly relate to reinsurance treaties, assistance guarantees recharging, asset management fees and interests on loans within the Group.
Net investment result excluding fi nancing expenses 33,260 2,054 197 176 (2) 1,200 (728) 36,157
Net result from outward reinsurance (74) (710) (84) - - - (50) (919)
Other operating income and expenses (87,579) (26,114) (2,734) (2,818) (480) (848) 610 (119,964)
Net revenues from banking activities - - - - 388 9 13 409
Net realized investment gains and losses (558) 472 31 (13) - (104) - (173)
of which change in fair value of assets with fi nancial risk borne by policyholders (43,687) - - - - - - (43,687)
Technical charges relating to insurance activities (15,213) (16,662) (2,691) - - - 227 (34,338)
Net result from outward reinsurance 913 (780) (362) - - - 132 (97)
Change in goodwill impairment and other intangible assets impairment (32) (91) - - (3) - - (126)
Income arising from investments in associates – Equity method 18 5 - (2) - - - 21
(b) AXA Japan closes its full year accounts at the end of September. According to IFRS principles whereby the fi nancial statements of the subsidiary shall be adjusted to refl ect the effects of signifi cant events that would have been recognised with a closing date aligned with the AXA Group, AXA Japan’s 2008 accounts were adjusted by €-106 million with the provisional loss refl ecting the further increase of the credit spreads from October to December 2008. This adjustment was reversed in 2009.
Net realized investment gains and losses 4,196 953 - 8 - 107 - 5,264
Change in fair value of other investments at fair value through profi t or loss 4,691 (75) 38 (22) - (550) 3 4,084 of which change in fair value of assets with fi nancial risk borne by policyholders 7,468 - - - - - 8 7,476
Technical charges relating to insurance activities (70,595) (16,723) (2,527) - - - 254 (89,592)
Amortization of the value of purchased business in force (357) - - - - - - (357)
Change in goodwill impairment and other intangible assets impairment (58) (89) - - (1) - - (148)
Please refer to pages 206 to 208 of the “Quantitative and Qualitative
An analysis of goodwill is presented in the table below: (in Euro million) Transaction year
(a) Assets and liabilities of the Australian and New Zealand operations (including local holdings) are reclassifi ed as held for sale separately from other assets and liabilities in the consolidated statement of fi nancial position as at December 31, 2009 (see Note 5.3.3).
At December 31, 2009, the mai n contributors in terms of cash generating units to the: ■ Life & Savings net goodwill of €7,799 million were the United
AllianceBernstein (€3,624 million); Goodwill presented in the table above also includes the balancing entry for the revaluation of non-controlling interests relating to buyout commitments recognized as liabilities under the “Minorities of controlled investments funds and puttable instruments held by non-controlling interest holders” caption: ■ T he amount relating to the puts owned by non-controlling interests in former Winterthur subsidiaries in Central and
December 31, 2009 following the purchase of the last puttable tranche of AllianceBernstein units on January 6, 2009, pursuant to the fi nal installment of the put agreement exercized by certain former shareholders (€7 million at December 31, 2008 and €328 million at December 31, 2007).
Bluefi n Insurance Group Ltd (previously Venture Preference limited) (d) (e) 241 - - - - (241) -
(c) Assets and liabilities of the Australian and New Zealand operations (including local holdings) are classifi ed as held for sale separately from other assets and liabilities in the consolidated statement of fi nancial position as at December 31, 2009 (see Note 5.3.3).
(e) The Bluefi n Insurance Group was deconsolidated from the Property & Casualty segment of AXA UK.
Bluefi n Insurance Group Ltd (previously Venture Preference limited) (c) 246 63 - 1 (68) - 241
AXA Financial, Inc. (minority buyout) 2,571 - - (2) 143 - 2,712
AXA China Region (minority buyout) 218 - - - 16 - 234
Rosenberg and other AXA IM transactions 93 - - - 6 - 99
Accumulated impairment losses transferred out relating to goodwill transferred in the “held for sale”
Fair value includes quotations when available and/or relevant or valuation techniques incorporating observable market data, adjusted when necessary to take into account control premia.
For Life & Savings businesses, such valuation techniques include discounted cash fl ows taking into account: ■ T he current shareholders’ net asset value plus future profi tability on business in force.
using a value in use approach is €0.9 billion which remains lower than before the global fi nancial crisis. To the extent that securities valuations remain depressed for prolonged periods of time and market conditions stagnate or worsen as a result of the global fi nancial crisis, revenues, profi tability, new business volumes, fi nancial market volatility, assets under management would likely be adversely affected. In addition, the future cash fl ow expectations and other assumptions underlying management’s current business plans could be negatively impacted by other risks to which the Group’s business is subject. As a result, subsequent impairment tests may be based upon different assumptions and future cash fl ow projections, which may result in an impairment of these assets in the foreseeable future.
Goodwill is mainly attributable to the following business combinations and entities: 5.3.1. Acquisitions during the period
The main acquisition of the year 2009 was the following: ■ O n February 10, 2010, AXA and Banca Monte dei Paschi di
Antonveneta following its acquisition by BMPS. This gave rise to an adjustment of the acquisition price of MPS that has been controlled by the Group since 2007. This adjustment was recognised at December 31, 2009 as it was probable and reliably measurable, resulting in an additional goodwill of €169 million, of which €144 million in AXA MPS and €25 million in AXA IM.
At December 31, 2009, the total goodwill of AXA MPS had a net value of €656 million.
The Bluefi n Insurance Group, AXA’s network of insurance brokers in the United Kingdom, was deconsolidated from the
On November 8, 2009, AXA announced an offer to the AXA
announced a revised joint offer to the AXA APH committee of independent directors on December 13, 2009.
On December 17, 2009, the revised proposal was rejected by the same Independent Committee. At the same time, AXA took note of an offer made by National Australia Bank Limited (NAB), which has been recommended by the AXA APH committee of independent directors.
and OYAK in 1999. Under the terms of the agreement, AXA paid a purchase price of $525 million (approximately €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 (approximately €9 million), the 1.5% interest that Mais
of the share capital of SBJ Group. The acquisition of SBJ will complement and enhance AXA’s UK advisory and broking capability, bringing a number of strengths to the Group, including increased scale, a wider national presence and access to new market areas.
At December 31, 2009, the goodwill had a net value of €68 million.
On July 22, 2008, AXA acquired 100% of the share capital of Seguros ING, the Mexican insurance subsidiary of ING, for $1.5 billion (€959 million). The purchase accounting was completed with an opening consolidated statement of fi nancial position as at July 1, 2008 and gave rise to a goodwill and an intangible (VBI) of respectively to €564 million and €48 million.
At December 31, 2009, the goodwill had a net value of €512 million.
On March 28, 2007, AXA and Alpha Bank, Greece’s second largest bank, signed a long-term exclusive agreement to pursue and strengthen the existing bancassurance partnership. AXA
Thinc Group, by increasing its stake to 100% for €51 million.
On March 22, 2007, AXA UK acquired the UK’s only 100% online insurer, Swiftcover, jointly owned by international insurer Primary
At December 31, 2009, the goodwill had a net value of €235 million.
At December 31, 2009, the goodwill had a net value of €46 million.
On October 19, 2007, AXA, as part of a long-term agreement with
BMPS in life and non-life bancassurance as well as in pension business in Italy, acquired 50% of MPS Vita (Life & Savings) and
At December 31, 2009, the goodwill had a net value of €656 million.
On July 5, 2007, AXA fi nalized defi nitive settlements with all claimants in litigations seeking nullity and avoidance (Nichtigkeitsund Anfechtungsklagen) of the squeeze-out resolutions adopted by the General Meetings of AXA Konzern AG and
The total investment to reach a 100% ownership in AXA Konzern,
At December 31, 2009, the goodwill had a net value of €188 million.
Asia/Pacifi c (€46 million); ■ €-133 million in 2007 as the acquisition of AXA-MPS Vita and
Danni (€105 million) was more than offset by the disposal of the Netherlands operations (€-238 million).
The change in Value of Business In-force (“VBI”) in the Life & Savings segment was as follows: (in Euro million) 2009 (a)
(a) Assets and liabilities of the Aus tralian and New Zealand operations (including local holdings) are classifi ed as held for sale separately from other assets and liabilities in the consolidated statement of fi nancial position as at December 31, 2009 (see Note 5.3.3).
Deferred acquisition costs and equivalent relating to Life & Savings 17,050 17,026 14,990
Deferred acquisition costs and equivalent relating to Property & Casualty and International Insurance 1,739 1,729 1,767
(a) Assets and liabilities of the Aust ralian and New Zealand operations (including local holdings) are classifi ed as held for sale separately from other assets and liabilities in the consolidated statement of fi nancial position as at December 31, 2009 (see Note 5.3.3).
Capitalized interests for the period 684 1 650 - 639 -
DAC and similar costs capitalization for the period 2,392 184 2,667 250 3,104 362
Changes in amortization, capitalization and impairment 828 100 1,317 126 1,622 183
(a) Assets and liabilities of the Austr alian and New Zealand operations (including local holdings) are classifi ed as held for sale separately from other assets and liabilities in the consolidated statement of fi nancial position as at December 31, 2009 (see Note 5.3.3).
Other intangible assets represented €3,143 million net value as at December 31, 2009 and mainly included: (in Euro million) Gross value (a)
Bluefi n Advisory Services Limited (previously Thinc Group) 64 (21) - 43
Bluefi n Insurance Group Ltd (previously Venture Preference limited) 88 (10) - 77
Bluefi n Advisory Services Limited (previously Thinc Group) 42 (6) - 36
Bluefi n Insurance Group Ltd (previously Venture Preference limited) - 94 - (11)
Investment in real estate properties at amortized cost 16,919 13,406 2.39%
Investment in real estate properties designated as at fair value through profi t or loss (b) 2,197 2,197 0.39%
Debt instruments designated as at fair value through profi t or loss (b) 43,606 43,606 7.79%
Debt instruments (at cost) that are not quoted in an active market 1,758 1,804 0.32%
Equity instruments designated as at fair value through profi t or loss (b) 10,329 10,329 1.84%
Non controlled investment funds designated as at fair value through profi t or loss (b) 2,096 2,096 0.37%
Other assets designated as at fair value through profi t or loss, held by controlled investment funds 9,350 9,350 1.67%
Certain investmen t properties (see Note 1), available-for-sale investments, trading assets, instruments designated as at fair value through P&L and all derivatives are measured at fair value in the fi nancial statements. In addition, this note also discloses the fair value of investment properties and fi nancial assets held at cost. Principles applied in measuring fair value generally described in Note 1 are further detailed in Note 9.2 (investment in real estate properties) and 9.9 (fi nancial assets recognized at fair value).
Debt instruments (at cost) that are not quoted in an active market 1,132 1,212 0.24%
Equity instruments designated as at fair value through profi t or loss (a) 10,503 10,503 2.04%
Other assets designated as at fair value through profi t or loss, held by controlled investment funds 6,353 6,353 1.24%
Assets backing contracts where the fi nancial risk is borne by policyholders 131,990 131,990 25.67%
Investment in real estate properties at amortized cost 17,778 12,045 2.06%
Debt instruments designated as at fair value through profi t or loss (a) 55,152 55,152 9.44%
Non controlled investment funds designated as at fair value through profi t or loss (a) 2,298 2,298 0.39%
Loans designated as at fair value through profi t or loss (a) 39 39 0.01%
Assets backing contracts where the fi nancial risk is borne by policyholders 182,827 182,827 31.29%
Investments (excluding those backing contracts where the fi nancial risk is borne by policyholders) 406,979 401,410 68.71%
Fair value is generally based on valu ations performed by qualifi ed property surveyors. They are based on a multi-criteria approach and their frequency and terms are often based on local regulations.
(a) Assets and liabilities of the Australian a nd New Zealand operations (including local holdings) are classifi ed as held for sale separately from other assets and liabilities in the consolidated statement of fi nancial position as at December 31, 2009 (see Note 5.3.3).
In 2009, the impairment increase for the period amounted to €483 million, of which €227 million corresponding to some third party real estate funds operated by AXA Investment Managers but consolidated in AXA invested assets under IFRS rules and for which the Group holds non-controlling interests (no impact on AXA net income Group Share).
Debt instruments (at cost) that are not quoted in an active market 1,804 1,758 1,804 12 58
Non controlled investment funds held for sale 5,005 5,595 5,595 899 310
Debt instruments (at cost) that are not quoted in an active market - - - - -
Non controlled investment funds held for sale 153 153 153 1 -
Non controlled investment funds held for sale 5,158 5,748 5,748 900 310
(b) Includes Debt instruments issued by companies in which a State now holds interests following the 2008 fi nancial crisis.
Debt instruments (at cost) that are not quoted in an active market, the effect of derivatives (detailed in section 19.3) and loans and debt instruments backing contracts where the fi nancial risk is borne by policyholders are excluded from the tables below. The effect of derivatives modifi es in certain cases the profi le of the assets below. Most of the debt instruments and loans held by the
Group are fi xed-rate debt instruments (i.e. exposed to fair value interest rate risk).
More than 1 year up to 5 years More than 5 years Total net carrying value
TOTAL - FINANCIAL INVESTMENTS EXPOSED TO FAIR VALUE INTEREST RATE RISK 19,495 88,590 218,465 326,550
Loans designated as at fair value through profi t or loss (b) - - - -
TOTAL - FINANCIAL INVESTMENTS EXPOSED TO CASH FLOW INTEREST RATE RISK 2,777 4,927 14,775 22,479
TOTAL FINANCIAL INVESTMENTS EXPOSED TO INTEREST RATE RISK 22,272 93,516 233,240 349,028
TOTAL - INVESTED FINANCIAL ASSETS EXPOSED TO FAIR VALUE INTEREST RATE RISK 21,780 81,172 199,504 302,456
Debt instruments designated as at fair value through profi t or loss (a) 5,490 3,940 3,933 13,364
TOTAL FINANCIAL INVESTMENTS EXPOSED TO INTEREST RATE RISK 28,700 88,308 213,436 330,444
Debt instruments designated as at fair value through profi t or loss(a) 17,739 8,883 22,698 49,320
TOTAL - FINANCIAL INVESTMENTS EXPOSED TO FAIR VALUE INTEREST RATE RISK 33,870 70,583 199,833 304,286
TOTAL - FINANCIAL INVESTMENTS EXPOSED TO CASH FLOW INTEREST RATE RISK 1,235 8,475 13,440 23,150
(a) Corresponds to fi nancial assets held for trading purposes and fi nancial assets recognized designated as at fair value through profi t or loss.
Equity instruments designated as at fair value through profi t or loss 1,167 1,515 608 439
Equity instruments held by controlled investment funds (b) 1,775 833 269 247
(b) Designated as at fair value through profi t or loss.
Equity instruments designated as at fair value through profi t or loss 1,253 1,458 642 36
Equity instruments designated as at fair value through profi t or loss 2,739 2,243 388 730
TOTAL EQUITY INSTRUMENTS AS AT DECEMBER 31, 2007 21,077 5,440 5,662 2,677
Non-controlled investment funds break down as follows: Insurance Other activities Total
Non controlled investment funds designated as at fair value through profi t or loss mainly holding equity instruments 643 - 13 - 656 -
Non controlled investment funds mainly designated as at fair value through profi t or loss mainly holding debt instruments 136 - - - 136 -
Non controlled investment funds mainly holding debt instruments 1,354 - - - 1,354 -
Other non controlled investment funds available for sale (c) 2,972 2,739 153 152 3,125 2,891
Other non controlled investment funds designated as at fair value through profi t or loss 149 - - - 149 -
Other non controlled investment funds 3,182 - 153 - 3,335 -
(c) As at December 31, 2009, in Switzerland, non controlled P rivate E quity funds and hedge funds were classifi ed as “Other non controlled funds available for sale”, and fi xed maturity funds as “Non controlled funds mainly holding debt instruments” whereas they were classifi ed as “Non controlled funds mainly holding equities” as at December 31, 2008.
Impairment - non controlled investment funds 97 723 (61) - 75 834
The fair values of fi nancial instruments that are not traded in an active market are estimated: ■ U sing external and independent pricing services; or
Valuation techniques are subjective in nature and signifi cant judgment is involved in establishing fair values for fi nancial assets. They include recent arm’s length transactions between knowledgeable willing parties on similar assets if available and representative of fair value and involve various assumptions regarding the underlying price, yield curve, correlations, volatility, default rates and other factors. Unlisted equity instruments are based on cross checks using different methodologies such as discounted cash fl ows techniques, price earning ratios multiples, adjusted net asset values, taking into account recent transactions on instruments which are substantially the same if concluded at arm’s length between knowledgeable willing parties, if any. The use of valuation techniques and assumptions could produce different estimates of fair value. However, valuations are determined using generally accepted models (discounted cash fl ows, Black&Scholes models, etc.) based on quoted market prices for similar instruments or underlyings (index, credit spread, etc.) whenever such directly observable data are available and valuations are adjusted for liquidity and credit risk.
Valuation techniques may be used when there is little observation of transaction prices as an inherent characteristic of the market, when quotes made available by external pricing providers are too dispersed or when market conditions are so dislocated that observed data can not be used or need signifi cant adjustments.
In such cases, the Group uses valuation techniques including observable data whenever possible and relevant, adjusted if needed to develop the best estimate of fair value, including adequate risk premium or develops a valuation model based on unobservable data representing estimates of assumptions that willing market participants would use when prices are not current, relevant or available without undue costs and efforts: in inactive markets, transactions may be inputs when measuring fair value, but would likely not be determinative and unobservable data may be more appropriate than observable inputs. The objective of these models is to arrive at the price at which an orderly transaction would take place between market participants (a willing buyer and a willing seller) at the measurement date.
For those assets for which the Group used mark to model valuations because of dislocated market conditions, sensitivities are disclosed in section 9.9.2 below, even when such techniques are based on a majority of observable inputs.
December 31, 2009 (€1,192 million at December 31, 2008 and €1,160 million at December 31, 2007).
Fair values determined in whole directly by reference to an active market (column (1)) relate to prices which are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency and those prices represent actual and regularly occurring market transactions on an arm’s length basis, i.e. the market is still active. Such assets are categorized in the Level 1 of the IAS 39 fair value hierarchy.
Such assets are categorized in the Level 2 and 3 of the IAS 39 fair value hierarchy. The Level 3 category is detailed further below.
Financial investments and loans designated as at fair value through profi t or loss 37,762 28,879 66,641
sources (mainly quotes from external pricing providers) were no longer considered to be quoted in an active market and were therefore presented in column (2) because of the increasing illiquidity of such markets leading to markets which were no longer active. Liquidity for debt instruments is assessed using a multi criteria approach including the number of quotes available, the place of issuance of such instruments and the evolution of the widening of bid ask spreads. Such bid ask spreads narrowed down through out the year 2009, leading to a signifi cant although still only partial transfer of corporate debt instruments back in the fi rst column.
Amounts presented in column (2) represent a variety of circumstances. A fi nancial instrument is regarded as not quoted in an active market if there is little observation of transaction prices as an inherent characteristic of the instrument, when there is a signifi cant decline in the volume and level of trading activity, in case of signifi cant illiquidity or if observable prices can not be considered as representing fair value because of dislocated market conditions. Characteristics of inactive markets can therefore be very different in nature, inherent to the instrument or be indicative of a change in the conditions prevailing in certain markets.
As mentioned in 9.9.2.(a), many corporate debt instruments held by the Group were presented in column (2) as at December 31, 2008 as opposed to December 31, 2007 because of the signifi cant illiquidity of such markets at the end of the period.
CDOs (Collaterized Debt Obligations) held by the Group were transferred to column (2) as at December 2007 when markets became no longer active while still measured using the same valuation approaches (mainly external valuations and indices).
Such models incorporate factors that market participants would consider in setting a price and are consistent with accepted economic methodologies for pricing fi nancial instruments. They were applied except when the uncertainty surrounding valuation was assessed as being too signifi cant to exercise an adequate judgment in setting the appropriate risk margins (in which case assets remained measured on the basis of available quotes).
Statement of Comprehensive Income by €-5.6 million net of tax and policyholders’ participation related adjustments; ■ U sing alternative discount margins higher by 25% would impact net income by €-20.8 million, net of tax and policyholders’
Comprehensive Income by €-50.6 million, net of tax and policyholders’ participation related adjustments.
From January 1, 2009 to December 31, 2009, the amount of such Level 3 assets moved from €12.0 billion to €9.5 billion.
Given the deteriorating market conditions over the past two years, the Group anticipated the requirements to disclose an estimation of Level 3 assets and provided an indication of assets measured according to valuation techniques using a limited number of observable data. The sometimes existing lack of information led the Group to classifying €0.9 billion into Level 3 which, on the basis of further investigations are deemed to be reclassifi ed into other Levels.
(b) Assets and liabilities of the Australian and New Zealand operations (including local holdings) are classifi ed as held for sale separately from other assets and liabilities in the consolidated statement of fi nancial position as at December 31, 2009 (see Note 5.3.3).
Philippines AXA Life Insurance Corporation 17 - 6 (2) (1) 20
Kyobo AXA Investment Managers Company Limited - 24 1 (2) - 22
Banque de marchés et d’arbitrage 7 - 2 - (7) 1
AXA Asia Pacifi c Holdings associates 20 1 6 (3) (7) 17
Krungthai AXA Life Insurance Company Ltd 18 - 6 2 (4) 22
In 2009, “other changes” notably included: ■ T he change in consolidation method of Bharti AXA Life Insurance
investments from equity instruments available for sale to investments in associates accounted for using the equity method; ■ T he capital increase of AXA Minmetals (€16 million), included in the line “Other”.
In 2008, “other changes” notably included: ■ T he capital increase (€23 million) and the change in consolidation method (€66 million) of Neufl ize Vie (previously
NSM Vie). This company was proportionately consolidated and is now consolidated by equity method; ■ T he capital increase of AXA Minmetals (€11 million), included in the line “Other”; ■ T he capital reduction of Banque de Marchés et d’Arbitrage
■ Kyobo AXA Investment Managers Company Limited, with a goodwill of €7 million at December 31, 2008.
Winterthur Life (Hong Kong) Ltd. (b) 1 - - - - -
Krungthai AXA Life Insurance Company Ltd 13 - 3 1 - 18
In 2007, “other changes” notably included: ■ T he change in consolidation method of AXA Affi n General
This excludes investment funds and real estate companies consolidated by equity method, which are presented under fi nancial investments.
(c) At December 31, 2007, carrying value was €84 million higher than fair value on receivables arising from banking activities, mainly due to bank customer loans in Belgium. For these loans, the fair value is an estimation of the exit price in the case of an emergency sale to cover liquidity needs. However, clients have a contractual obligation to reimburse the capital borrowed.
Gross value Impairment Carrying value Fair value Carrying value Fair valueFair value
Net cash used in investing activities was €24,826 million in 2009 and mainly due to: ■ €-18,429 million of net cash used in the purchase and sale of fi nancial invested assets; ■ €-443 million of cash used in the purchase of subsidiaries and affi liated companies (net of cash acquired) and principally consisted in the extension of the bancassurance agreement between AXA and BMPS, following the acquisition of Banca
Net cash used in investing activities was €7,421 million in 2008 and mainly consisted in: ■ N et cash used in the purchase and sale of fi nancial invested assets amounted to €3,760 million; ■ C ash used in the purchase of subsidiaries and affi liated companies (net of cash acquired) amounted to €2,273 million and principally consisted in the acquisitions of Seguros ING,
Th e table above excludes cash held by consolidated investment funds in the “Satellite Investment Portfolio”, as defi ned in section 1.7.2.
NET CASH AND CASH EQUIVALENTS AS AT DECEMBER 31 (C) 18,210 30,811 17,192
The c onsolidated s tatement of s hanges in e quity is presented as a primary fi nancial statement following the amendment to IAS 1 as described in Note 1.
In 2009, the following transactions had an impact on AXA’s share capital and capital in excess of nominal value: ■ C apital increase of € 2,041 million by issuing shares (including €+399 million in nominal share capital); ■ E mployee share offering (December 2009) for €393 million
At December 31, 2009, the carrying value of treasury shares and related derivatives was €409 million. This fi gure included €0.3 million relating to AXA shares held by consolidated mutual funds (15,492 shares) not used to back contracts where fi nancial risk is borne by policyholders.
This caption also included €96 million premium paid in 2007 for call options on AXA shares.
At December 31, 2009, 2.1 million treasury shares backing contracts where fi nancial risk is borne by policyholders held in controlled funds were not deducted from shareholders’ equity.
Their t otal estimated historical cost was €51 million and their market value €34 million at the end of December 2009.
As described in paragraph 1.12.2 of the accounting principles, undated subordinated notes issued by the Group do not qualify as liabilities under IFRS.
Undated subordinated debt instruments are classifi ed in shareholders’ equity at its historical value as regards interest rates and its closing value as regards exchange rates. The corresponding exchange differences are cancelled out through the translation reserve.
At December 31, 2009, 2008 and 2007, undated subordinated debt recognized in shareholders’ equity broke down as follows: (in Euro million)
Undat ed subordinated debt often contains the following features: ■ E arly redemption clauses (calls) at the Group’s option, giving AXA the ability to redeem the principal amount before settlement without penalty on certain dates; ■ I nterest rate step-up clauses with effect from a given date.
In 2008, the following transactions had an impact on AXA’s share capital and capital in excess of nominal value: ■ E mployee share offering (November 2008) for €460 million
At December 31, 2008, the Company and its subsidiaries owned approximately 29 million AXA shares, representing 1.40% of the share capital, a decrease of 1.6 million shares or €169 million compared to December 31, 2007.
Their t otal estimated historical cost was €53 million and their market value was €41 million at the end of December 2008.
■ E xercise of stock options and share subscription rights for a t otal of €152 million (including €20 million in nominal share capital).
At December 31, 2007, the Company and its subsidiaries owned approximately 31 million AXA shares, representing 1.49% of the share capital, an increase of 1 million shares or €99 million compared to December 31, 2006.
AXA shares with an automatic exercise feature, to fully neutralize the dilutive impact of the 2017 convertible bonds.
At December 31, 2007, the carrying value of treasury shares and related derivatives was €620 million. This fi gure included €18 million relating to AXA shares held by consolidated mutual funds (0.9 million shares) not used to back contracts where the fi nancial risk is borne by policyholders.
At December 31, 2007, 2.7 million treasury shares backing contracts where the fi nancial risk is borne by policyholders held in controlled funds were not deducted from shareholders’ equity.
Their t otal estimated historical cost was €74 million and their market value €75 million at the end of December 2007.
• a £700 million undated subordinated note (approximately €1.0 billion) placed on October 16, 2007; ■ (ii) a €109 million decrease in equity component of fi nancial instruments issued: following the decision taken during the meeting of holders of the 2014 AXA convertible bonds to have a fi nal conversion date of the bonds on January 26, 2007 in exchange for a cash payment in respect of the value of the conversion option, the equity component of the bond (i.e. the conversion option), representing an amount of €109 million, has been cancelled as a counterpart to the payment.
The s tatement of c omprehensive i ncome, presented as primary fi nancial statements, includes net income for the period, the reserve relating to the change in fair value of available for sale fi nancial instruments, the translation reserve, and actuarial gains and losses on employee benefi t obligations.
Switzerland (€+862 million), the Mediterranean & Latin American region (€+458 million), France (€+451 million), and Belgium
Unrealized gains and losses (net of tax) – Equity accounted companies (d) 11 (1) -
UNREALIZED GAINS AND LOSSES (NET OF TAX) – 100% – TOTAL 4,687 (443) 4,753
Non-controlling interests’ share in unrealized gains and losses (e) (75) 35 (48)
UNREALIZED GAINS AND LOSSES (NET GROUP SHARE) (d) 4,691 (353) 4,846
(a) Unrealize d gains and losses on t otal available for sale invested assets including loans.
Unrealized gains and losses (net of tax) – Equity accounted companies - - -
UNREALIZED GAINS AND LOSSES (NET OF TAX) – 100% – TOTAL 1,845 36 637
Non-controlling interests’ share in unrealized gains and losses (d) (5) - -
(a) Unrealized gains and losses on t otal available for sale invested assets including loans.
Transfer in the income statement on the period (a) (214) 1,665 (1,309)
(a) Transfer induc ed by disposal of fi nancial assets, impairment write-back following reevaluation, or transfer of expenses following impairment charge during the period, and debt instruments discount premium impacts.
The total impact of foreign exchange rate movements was €+1 million (of which group share was €-30 million and noncontrolling interest was €+31 million).
(€-131 million mainly driven by change in fair value of derivatives hedging net investments in foreign operations), Japan (€182 million), partially offset by the United Kingdom (€+293 million),
decrease in actuarial gains and losses on employee benefi t obligations were the United Kingdom (€-539 million), Switzerland
The change in reserves for unrealized gains and losses on assets available for sale t otaled €-5,200 million (net Group share), mainly attributable to the United States (€-1,120 million), Belgium (€1, 064 million), France (€-605 million), the Mediterranean &
Latin American region (€-417 million) and the Company (€1, 099 million).
The reduction in gross unrealized gains and losses on assets available for sale t otaled €-6,452 million, mainly due to equity instruments (€-7,825 million) resulting from the accelerated market declines in January and September 2008, partly offset by a €+1,797 million increase from debt instruments following the reduction of interest rates and despite corporate spread widening.
The main contributors to the €-695 million decrease in actuarial gains and losses on employee benefi t obligations were the United
The change in reserves for unrealized gains t otaled €-2,917 million
was mainly due to the United States (€-1,242 million, principally due to the difference between the 2006 and 2007 closing $/€
exchange rates: $1.32 for €1 at the end of 2006 compared to $1.47 for €1 at the end of 2007), the United Kingdom (€470 million), and Japan (€-311 million), partially offset by the change in fair value of currency hedges set up by the Company to hedge net investments in foreign operations (€638 million).
(€+186 million), and partly offset by; ■ D ividends paid to non-controlling interest holders for €-263 million.
The € 213 million decrease in non-controlling interests to €+3,058 million was mainly due to: ■ D ividends paid to non-controlling interest holders for €-427 million; ■ C hange in the scope of consolidation mainly buy out of noncontrolling interests in Turkey (€-82 million) and in Germany
(€+42 million); ■ N et income attributable to non-controlling interests for €+313 million.
Liabilities arising from insurance contracts where the fi nancial risk is borne by policyholders 103,281 - - 103,281
TOTAL LIABILITIES ARISING FROM INSURANCE CONTRACTS, NET OF REINSURANCE CEDED 369,195 45,661 7,187 422,043
Reinsurer’s share in insurance contracts liabilities relating to policyholders’ participation (€46 million in 2009, €34 million in 2008 and €62 million in 2007), as well as derivatives instruments (none in 2009, 2008 and 2007) are excluded from the table above.
(e) See Note 1.13.2 – Reserves measured according to the option offered by IFRS 4.24 for selective re-measurement of reserves at current market assumptions.
At the end of 2009, insurance liabilities relating to UK with-profi t insurance contracts excluding the FFA (Fund for Future Appropriation)
amounted to €10,613 million versus €12,122 million at the end of 2008, and €17,761 million at the end of 2007.
Liabilities arising from investment contracts with no discretionary participating features 917 917 1,295 1,295 1,452 1,452
Reinsurers’ share in claim reserves (b) - - - - - -
Reinsurers’ share in other reserves - - - - - -
Reinsurers share in liabilities arising from investment contracts with no discretionary participating features - - - - - -
Reinsurers share in liabilities arising from investment contracts where the fi nancial risk is borne by policyholders 6 6 6 6 9 9
Claim reserves as at January 1 33,306 9,365 42,672 33,426 9,598 43,024 33,733 10,275 44,007
Claim handling cost reserves as at January 1 1,395 249 1,644 1,387 262 1,649 1,306 259 1,566
Claim handling cost reserves as at December 31 1,239 241 1,479 1,395 249 1,644 1,387 262 1,649
Reinsurers’ share in t otal claim expenses 618 466 1,084 510 488 998 573 784 1,357
Change in scope of consolidation, portfolio transfers and change in accounting principles (35) (44) (79) 199 57 256 22 (44) (22)
Impact of foreign currency fl uctuation 2 (224) (222) (67) 276 208 (19) (323) (341)
Reinsurers’ share in claim reserves as at December 31 1,935 2,871 4,806 1,988 3,436 5,424 1,964 3,861 5,825 14.4. CHANGE IN LIABILITIES ARISING FROM INSURANCE AND INVESTMENT CONTRACTS – LIFE & SAVING
Collected premiums net of loadings on premiums (+) 43,244 13,060 56,304 46,880 13,027 59,907 49,145 13,927 63,073
Transfers following technical reserves/contract reclassifi cation - - - 3 (3) - 364 (364) -
(equity-method instead of proportionately consolidated); ■ I n Italy, the entry of Quadrifoglio and Open Pension Funds in the scope of consolidation (€2,237 million and €341 million, respectively); ■ I n Mexico, the entry of Seguros ING Life in the scope of consolidation (€647 million).
(€3,664 million insurance liabilities and €12,696 million investment liabilities) and Alpha Insurance (€188 million), partly offset by: ■ T he disposal of the Netherlands (€-9,890 million) .
■ T he transfer of €-2,495 million towards pension liabilities in
14.4.2. Change in reinsurers’ share in liabilities arising from insurance and investment contracts
Reinsurers’ share in collected premiums net of loadings on premiums (+) 1,150 - 1,150 983 1 983 937 2 939
Reinsurers’ share in closing technical reserves (b) 5,992 20 6,012 5,723 20 5,744 4,630 22 4,653
(Non u nit-l inked) – Liabilities arising from: Investment contracts with Discretionary Participation Features (DPF) measured according to existing accounting policies (b) & (e) 39,650 38,081 40,121
Investment contract with no Discretionary Participation Features (DPF) measured at current unit value (e) 46,750 38,680 59,173
(d) & (e) As unit-linked contracts, they share the same reserves measurement determined on the basis of held assets units fair value (“current unit value”). Only the valuation of related assets is different: – for unit-linked contracts with a discretionary participating feature (d ), an asset representing the deferred acquisition costs is recognized in continuity with French GAAP; – for unit-linked contracts with no discretionary participating feature (e ), an asset representing the rights to future management fees is recognized in accordance with IAS 18 (“DOC”) – see section 1.6.4.
The recognition of investment contracts with discretionary participating features is subject to IFRS 4, which allows, under certain conditions, the use of accounting principles applied prior to the adoption of IFRS. However, these contracts must be treated in accordance with IFRS 7 with regards to the disclosures to be provided in the notes to the fi nancial statements. IFRS 7 requires the reporting of fair value or value ranges for these contracts, unless the Group cannot reliably measure the participating features.
The second line entitled “Gross reserves for unpaid claims and claim expenses developed in 2009 adjusted for changes in exchange rates and scope of consolidation” indicates the amount that would have been developed initially at the booking date, had the exchange rates for the current year been used (for reserves recognized by AXA Group entities that do not use the Euro as their functional currency) and assuming an identical scope of consolidation to that used for the last diagonal of the table.
Preparation of the last diagonal refl ects the fact that, following the merger of some newly-acquired portfolios with the AXA
“Gross reserves for unpaid claims and claim expenses developed initially at the booking date”. In practice, therefore, with effect from the 2006 column, the differences between the fi rst and second lines are mainly due to exchange rate impacts and only marginally to changes in scope of consolidation.
Also with effect from year end 2006, IBNR reserves related to construction insurance in France (so called “PSNEM”) and the annuity reserves for the Property & Casualty segment have been included in the loss reserve development table for Property &
The fi nal cost estimate varies year on year as information relating to losses still outstanding becomes more reliable.
Gross reserves for unpaid claims and claims expenses developed in 2009 adjusted for changes in exchange rates and scope of consolidation (c) 23,173 23,922 25,296 25,937 26,677 27,509 28,914 42,435 44,086 44,711 44,470
(a) It is not appropriate to ex trapolate future redundancies or future defi ciencies 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 / defi ciency disclosed includes forex impact between one year and the next. This line also includes the impact of the unwind of discount rate on annuities (which are developed from 2006 on) for an amount of €136 million for 2008 and €230 million for 2007.
(c) In 2004, AXA Corporate Solutions Assurance US, AXA RE P&C Insurance Company and AXA RE P&C Reinsurance were transferred from Colisée RE (ex AXA RE) to “other international activities”. The reserves of AXA Corporate Solutions Assurance US were presented on an occurrence year basis and included in the Property & Casualty loss reserves development table. The reserves of AXA RE P&C Insurance Company and Coliseum RE (ex AXA CS Reinsurance Company) were presented on an underwriting year basis and included in the Colisée RE (ex AXA RE) loss reserves development table.
B) LOSS RESERVES DEVELO PMENT TABLE: COLISÉE RE (EX AXA RE)
On December 21, 2006, the AXA Group fi nalized an agreement to sell the AXA RE reinsurance business to Paris Ré Holding.
protects AXA entirely from any claims occurring after January 1, 2006. Consequently, the table below shows the development of loss reserves recognized in AXA RE’s balance sheet at each yearend until December 31, 2005. Reserves recognized after that, which correspond to exposure assumed fully by Paris Ré, have not been developed.
Gross reserves for unpaid claims and claims expenses developed in 2009 (d) 3,396 3,453 5,868 4,778 3,742 3,314 4,253
Cumulative redundancy (defi ciency) from the initial gross claims reserves in excess of (less than) re-estimated gross claim reserves (260) (263) 566 728 494 32 624
Initial net claims reserves in excess of (less than) re-estimated net claims reserves as at December 31, 2009
(a) The loss reserves development t able is presented on an underwriting year basis for Colisée RE (ex AXA RE) business. Accordingly reserves re-estimated and the excess of re-estimated reserves of the initial reserves include reserves for losses occurring up to twelve months subsequent to the original year-end. It is not appropriate to extrapolate future redundancies or future defi ciencies based on the loss reserves development presented in the table, as conditions and trends that have affected the development of the liability in prior periods may not necessarily occur in future periods.
TOTAL GROSS CLAIM RESERVES AND OTHER RESERVES FOR PROPERTY & CASUALTY AND INTERNATIONAL INSURANCE 48,189 48,488 48,754
(b) Total gross claims and other reserves developed are presented on the basis of the loss reserves development table. The reserves of AXA Corporate Solutions Insurance US were included in Property & Casualty and International Insurance loss reserves. The reserves of AXA RE P&C Insurance Company and Coliseum RE (ex AXA CS Reinsurance Company) (€135 million in 2009, €165 million in 2008 and €203 million in 2007) were included in Colisée RE’s (ex AXA RE) loss reserves development table.
(c) Includes reserves inward reinsurance (€694 million in 2009, €798 million in 2008 and €699 million in 2007).
AXA’s exposure to asbestos and environmental (“A&E”) claims originates primarily from the following contracts: ■ I nsurance or reinsurance of US-originated risks: this exposure arises primarily from the reinsurance of US cedants or from direct policies written in the London Market (excess of primary covers). The underlying exposure is made-up of both asbestos and pollution claims; ■ E mployers Liability insurance in Europe: this created exposure to asbestos-related claims, in particular on the UK market.
AXA actively manages its exposure to A&E claims. Most of the
AXA Liabilities Managers manages these risks in a proactive manner, with a view to reducing AXA’s exposure to the uncertainties in these claims. All A&E claims are thus managed by dedicated teams of experts who use a variety of claimsresolution techniques including settlements, policy buy-backs and, in certain cases, litigation. In addition, AXA Liabilities
AXA’s reserving practices, and despite the particularly long-tail nature of those risks, reserves for A&E are undiscounted.
Due to the uncertainty surrounding A&E claims, it is not possible to determine their future cost with the same degree of certainty as for other types of claims. Although AXA considers its reserves for A&E claims to be adequate, it is possible that, under some adverse scenarios, they may turn out to be insuffi cient to cover future losses.
UK legal environment with regards to the pleural plaques, and is carefully monitoring any impact on the level of claims reserves.
At year-end 2009, key data relating to A&E claims were as follows: Key reserves data for asbestos
Impact of change in exchange rates (3) (3) 5 4 (4) (7)
Claims reserves at end of year 71 54 82 69 82 68 3 - Year survival ratio excluding commutations (c) 10 years 8 years 14 years 16 years 20 years 21 years
Cumulative Payments to date / Projected Ultimate Cost 68% 70% 65% 63% 61% 61%
During the year, AXA incurred losses and loss expenses of €79 million net of reinsurance (respectively €82 million in respect of asbestos and €-3 million in respect of environmental pollution).
As a result of those various changes and after allowing for movements in exchange rates, AXA held t otal reserves for A&E
As can be seen from the above chart, the main reserves adequacy ratios for asbestos claims improved compared to their 2008 levels due to increase in IBNR.
Fund for Future Appropriation (FFA) – UK with-profi t contracts 1,938 1,335 3,629
The deferred policyholders’ participation liability and asset include the impact of shadow accounting (see defi nition in 1.13.2) mainly in relation to unrealized gains and losses on invested fi nancial assets available for sale as described in 13.2.1, but also with regard to other temporary differences not necessarily linked to fi nancial assets. Note 13.2.1 also contains a focus jurisdictions with signifi cant portions of participating business and where required minimum local polycyholders’ share in the entities’ results are signifi cant. This note disclose for such jurisdictions unrealized gains and losses related to available for sale investments and related shadow accounting adjustments.
14.9. PAYMENT AND SURRENDER PROJECTIONS AND INSURANCE AND INVESTMENT CONTRACT LIABILITIES DISCOUNT RATES
The table below shows the bre akdown of projected payments and surrenders related to Life & Savings and Property & Casualty insurance and investment contracts excluding contracts where the fi nancial risk is borne by policyholders. Actual maturities may differ signifi cantly from the estimates set out below, mainly because some of the contracts contain a surrender option controlled by the policyholder that may reduce their duration.
The fi gures shown in the fi rst line of the table below represent estimated undiscounted cash outfl ows in connection to death, incapacity and disability claims, surrenders, annuities, minimum guaranteed benefi ts for unit-linked contracts, Property & Casualty and Health claims, net of premiums due from policyholders under contracts in-force. These cash fl ows are based on assumptions regarding mortality, incapacity and disability, surrender and settlement frequency for Property & Casualty, which are consistent with past experience in the Group’s business. They are gross of reinsurance. Given the strong use of estimates, it is likely that actual payments will differ.
(a) Assets and liabilities of the Austra lian and New Zealand operations (including local holdings) are classifi ed as held for sale separately from other assets and liabilities in the consolidated statement of fi nancial position as at December 31, 2009 (see Note 5.3.3).
The surrender value of contracts including a surrender option as at December 31, 2009 amounted to approximately €221 billion, the main difference between expected cash fl ows shown above and such value refl ecting the impact of discount and surrender penalties.
Life & Savings – locked-in discount rate (c) 239,573 2.60% 241,016 2.76% 225,765 2.82%
Non Life – unlocked discount rate 799 1.94% 822 2.05% 1,490 2.64%
(c) Subject to liability adequacy tests (not systematic but reviewed on a regular basis).
The risk of GMDB and GMIB features to AXA is that protracted under-performance of the fi nancial markets could result in benefi ts being higher than the accumulated policyholder account balances could support. Reserves are established for these features on the basis of actuarial assumptions related to projected benefi ts and related contract charges. The determination of estimated GMDB
and GMIB liabilities is based on models which involve numerous estimates and subjective judgments, including those regarding expected market rates of return and volatility, contract surrender rates and GMIB election rates. There can be no assurance that ultimate experience will not differ from management’s estimates.
Comments on provisions relating t o employee benefi ts can be found in Note 25 “Employees”.
Changes in provisions for risks and charges (excluding employee benefi ts and share-based compensation) are set out below: 2009 (a)
Impact of change in scope of consolidation and changes in accounting method 14 21 - - (158) (123)
Write back after fi nal cost review (19) (41) (1) - (91) (151) (76)
Debt component of subordinated notes, 3.75% due 2017 (€) 1,306 1,259 1,212
Subordinated n otes, euribor 6 months + 81bp 108 135 134
Derivatives on fi nancing debt instruments issued (a) (36) (50) (103)
Derivatives relating to other fi nancing debts instruments issued (a) (27) (52) (60)
Other fi nancing debts owed to credit institutions (under €100 million) 66 103 51
Partly offset by: iv. a €1,000 million increase in fi nancing debt instruments issued arising from AXA’s new senior notes under more favorable market conditions; v. a €758 million new issued loan.
Derivative instruments hedging fi nancing debts are commented in Note 19.
Financing debts owed to credit institutions at cost 921 797 1,216 1,227 175 175
The Group does not hold any fi nanci ng debt designated as at fair value through profi t or loss (fair value option or trading instruments).
Information on the fair value fi gures presented in this note is provided in addition to information on carrying values and should be used with caution. On the one hand, these estimates are based on snapshots taking into account closing dates of parameters such as interest rates and spreads, which in fact fl uctuate over time, and resulting in instantaneous values, and on the other hand because there are many possible methods of making these estimates.
(fi nancing debt instruments issued or fi nancing debt owed to credit institutions) are period-end market data that refl ect (i)
market interest rates by currency, (ii) AXA’s average spread by maturity and currency, distinguishing subordinated and senior debt and (iii) options included in issued contracts, such as issuer redemption options.
Carrying value of fi nancing debt by contractual maturity as at December 31,
Other puttable instruments held by non-controlling interest holders t otaled €146 million at December 31, 2009 (€261 million at December 31, 2008 and €559 million at December 31, 2007).
They represented the put option held by the non-controlling interests of former Winterthur subsidiaries in Central and Eastern
Derivatives relating to other fi nancial liabilities (c) 108 23 140
Debts relating to investments under lending agreements and equivalent 18,436 25,522 29,068
17.2. OTHER DEBT INSTRUMENTS ISSUED, NOTES AND BANK OVERDRAFTS (OTHER THAN FINANCING DEBT) BY ISSUANCE
AXA SA debts subscribed on behalf of French, English and German subsidiaries 140 42 86
CRL deposits held by Sterling Grace NZ on behalf of clients - 137 184
ERIV: amortizing loan – Euribor 3M + 145 bps, due 2011 199 200 203
ERIV: mortgage loan based on Euribor 3M + 85bps, due 2013 + 2x1 year 105 100 100
Vendome Commerce: mortgage loan based on Euribor 3M + 145bps, due 2011 195 200 203
REOF2: mortgage loan based on Euribor 3M + 65bps, due 2012 118 122 124
APIV+EHV: mortgage loan based on Libor 3M + 120bps, due 2015 56 48 -
APIV+EHV: amortizing loan based on Euribor 3M + 160bps, due 2015 43 57 -
OTHER DEBT (OTHER THAN FINANCING DEBT) – OWED TO CREDIT INSTITUTIONS 2,910 4,294 3,207
At December 31, 2009, other debt instruments issued (other than fi nancing debt) and bank overdrafts t otaled €5,217 million, a decrease of €1,459 million compared to December 31, 2008, mainly due to a €1,413 million decrease at AXA SA related to margin calls from banks under collateral agreement.
17.3. FAIR VALUE MEASUREMENT OF OTHER DEBT INSTRUMENTS ISSUED AND BANK OVERDRAFTS (OTHER THAN FINANCING DEBT)
Other debt owed to credit institutions held as trading - - -
Other debt owed to credit institutions designated as at fair value through profi t or loss - - -
OTHER DEBT INSTRUMENTS ISSUED AND BANK OVERDRAFTS (OTHER THAN FINANCING DEBT) (b) 5,188 6,644 6,258
Other debt owed to credit institutions held as trading - - - - - - - - -
OTHER DEBT OWED TO CREDIT INSTITUTIONS (OTHER THAN FINANCING DEBT) (a) - - - - - - - - -
Such fair values are based on a majority of observable data (see
Note 9.9 for a description of observable data) and are therefore considered as level 2 instruments.
Payables to policyholders, brokers and general agent 3,660 3,660 4,314 4,314 4,116 4,116
Payables arising from direct insurance and inward reinsurance operations 6,761 6,761 7,167 7,167 7,033 7,033
Current accounts payable to other companies (b) 4,053 4,053 4,324 4,330 4,128 4,128
Payables arising from direct outward reinsurance operations 5,571 5,571 6,211 6,220 6,024 6,024
At December 31, 2009, payables arising from direct outward reinsurance operations t otaled €5,571 million, a decrease of €640 million compared to December 31, 2008.
The table below sets out the contractual maturities of other debt instruments issued, notes and bank overdrafts (excluding the impact of derivatives). Effective maturities may differ from those presented, mainly because some instruments include clauses allowing early redemption, with or without penalty.
Carrying value of other debt instrument issued, notes and bank overdrafts by contractual maturity as at December 31, 2009
The current tax amount due on foreign income amounted to €-79 million in 2009 ( €1,208 million in 2008 and €1,732 million in 2007), including €65 million related to policyholders’ tax
Policyholders’ tax is a specifi c tax levied on the life business of the United Kingdom and Australian insurance companies charged to policyholders.
The reconciliation between the theoretical tax charge (pre-tax profi t multiplied by the applicable tax rate in France for the period concerned) and the effective tax charge was as follows: (in Euro million)
Impact of rate differences on notional tax charge (243) (3) (118)
Impact of differences in tax rates and tax basis 22 (941) (188)
Corrections and adjustments of tax relating to prior years (215) (393) (170)
Derecognition/Recognition of DTA on temporary differences of prior years (other than tax losses) (a) 1 27 (32)
Impact of adjustments, decrease in value and other items (210) (254) (215)
Excluding policyholders’ tax, the effective tax rate would have been 22% as at December, 31 2009 (same as 2008 and 2007).
Net deferred tax balanc es broke down as follows: December 31, 2008 Revised (b)
Deferred tax Assets/(Liabilities) concerning: ■ Deferred tax through profi t or loss 9,414 9,624 (210) 1,369 (725)
■ Deferred tax through reserves relating to the fair value adjustment of cash fl ow hedge derivatives 3 33 (31) (44) (3)
■ Deferred tax through reserves relating to gains and losses on defi ned benefi ts pension plans 692 8 684 298 (67)
Net deferred tax excluding policyholders’ tax 12,262 13,209 (947) 1,737 (1,401)
In the table above, the “net deferred tax position” column corresponds to the difference between deferred tax assets (DTA)
Deferred tax through profi t or loss 1,369 (926) - 118 (771) (210)
Deferred tax through reserves relating to the fair value adjustment of available for sale assets 99 - (1,516) 15 2 (1,399)
Deferred tax through reserves relating to the fair value adjustment of cash fl ow hedge derivatives (44) 12 2 - - (31)
Policyholder tax – Deferred tax through profi t or loss 47 (332) - 2 - (282)
The change in scope mainly corresponded to the reclassifi cation in held for sale of Australian operations.
Deferred tax through reserves relating to the fair value adjustment of available for sale assets (701) - 839 (42) 2 99
TOTAL NET DEFERRED TAX ASSETS/ (LIABILITIES) (2,383) 2,912 1,092 (18) 185 1,788
Deferred tax through reserves relating to the fair value adjustment of cash fl ow hedge derivatives (28) - 26 - (1) (3)
Policyholder tax – Deferred tax through profi t or loss (1,268) 183 - 94 7 (984)
DTA recognized on tax loss carryforward 739 230 139 154 96 39 57 43 - 1,496
TOTAL RECOGNIZED DTA BY EXPECTED DATE OF USE 2,702 537 535 528 2,138 201 1,444 4,177 - 12,262
DTA recognized on tax loss carryforward 331 50 33 90 44 10 28 376 - 963
TOTAL RECOGNIZED DTA BY EXPECTED DATE OF USE 2,616 496 416 548 2,068 267 2,302 4,627 - 13,341
DTA recognized on tax loss carryforward 175 171 19 21 24 18 32 10 - 469
TOTAL RECOGNIZED DTA BY LATEST DATE OF POSSIBLE USE 402 94 79 108 158 24 223 1,028 6,223 8,338
Unrecognized DTA on tax loss carryforward 1 20 21 5 7 18 61 7 196 337
Unrecognized DTA on tax loss carryforward 6 6 1 11 6 14 2 6 108 159
Changes in net current tax were as follow: (in Euro million) 2009 (a) 2008 2007
Net current tax liability as at January 1 (362) 1,028 1,051
Cash paid (-)/ received (+) in the period 228 (1,672) (2,292)
NET CURRENT LIABILITY TAX AS AT DECEMBER 31 (471) (362) 1,028
This note includes all types of derivatives excluding derivative instruments that meet the defi nition of equity instruments (see Note 13 for details) or derivative instruments held by consolidated investment funds in the “satellite investment portfolio” (see Note 1.7.2) which are recognized at fair value in accordance with IAS 39.
Hedging deri vative instruments broke down as follows: Derivative instruments used in fair value hedging relationship
Management within the Group, and describes its main principles and guidelines. In general, derivatives are used by the various entities and by the Company for economic hedging purposes, with the exception of certain credit derivatives. However, the notion of hedge accounting within the meaning of IAS 39 only applies to a small portion of derivatives used by the Group. The overall objectives of the economic hedging implemented by AXA
In the tables above, the fourth column includes derivatives that do not qualify for hedge accounting under IAS 39, but whose objective is nevertheless to provide economic hedging of a risk, with the exception of certain credit derivatives. They include
As at December 31, 2009, the notional amount of all derivative instruments t otaled €308 billion (€330 billion and €237 billion respectively at the end of 2008 and 2007). Their net fair value as at December 31, 2009 t otaled €-148 million (€3,754 million and €2,108 million respectively at the end of 2008 and 2007).
banking operations, (iv) limiting credit risk with regard to certain investments in corporate debt instruments .
Group is exposed to credit risk in respect of its counterparties to the derivative instruments, but is not exposed to credit risk on the entire notional amounts. AXA actively manages counterparty risk generated by OTC (over-the-counter) derivatives through a specifi c Group-wide policy. This policy includes a limit framework and an exposure monitoring process. Limits are set specifi cally for each authorized counterparty, based on an internal scoring system. This policy also includes daily to weekly collateralization for the majority of the Group’s exposure. The notional amounts do not represent the amounts actually exchanged by the parties and thus are not a measure of the AXA Group’s exposure to derivative instruments. The AXA Group’s exposure is represented by the market value of a derivative contract at a given point in time.
As at December 31, 2009 and based on notional amounts, (i) 48%
(45% and 50% respectively at the end of 2008 and 2007), (ii)
(27% and 28% respectively at the end of December 2008 and 2007), (iii) 15% were futures and forwards, mainly other than foreign currency products (20% and 17% respectively at the end of 2008 and 2007) and (iv) 10% were credit derivatives (7% and 6% respectively at the end of 2008 and 2007). Credit derivatives are mainly used as an alternative to corporate debt security portfolios, when coupled with government debt instruments, but also as a protection on single corporate names or specifi c portfolios. In 2009, the Group bought €4.4 billion in CDS
protection used for negative basis trades. This strategy consisted in purchasing (i) corporate debt instruments and (ii) CDS with the same name, maturity and seniority so as to lock associated liquidity premium.
(ii) cross-currency swap contracts to manage foreign-currency denominated cash fl ows or investments.
On a consolidated basis, the notional amount of such instruments at December 31, 2009 was €146,575 million (€148,246 million at the end of 2008 and €116,307 million at the end of 2007). Their market value was €-846 million (€-69 million at the end of 2008 and €1,429 million at the end of 2007).
Europe (€1,216 million at the end of 2009 versus €1,101 million and €577 million respectively at the end of 2008 and 2007) to manage fi nancing and trading operations.
Total return swaps, which consist in payment of all cash fl ows generated by the asset in exchange for payments based on a reference rate, represent a t otal notional amount of €11,468 million at the end of 2009. The €5,836 million increase versus 2008 is mainly attributable to the purchase of new instruments in the
The notional amounts of swaps used in fair value hedge relationships t otaled €9,578 million as at December 31, 2009
(€4,537 million at the end of 2008 and €6,002 million at the end of 2007), including €3,666 million at AXA Japan (mainly including €3,374 million of interest rate swaps and €292 million of equity swaps), €3,294 million of interest rate swaps for AXA Bank Europe to hedge interest risk of a portfolio composed of mortgages loans and individuals bonds investments and €1,156 million in France
The notional amounts of swaps used in net foreign investment hedge relationships t otaled €17,239 million (€21,558 million at the end of 2008 and €14,163 million at the end of 2007) and was only made up of currency swaps used by the Company.
& Savings operations in France, Italy and United States to protect our ability to serve policyholder participation and credited rate mainly for general account products with guaranteed minimum rates of return.
The notional amount of caps and fl oors at December 31, 2009 was €44,057 million or 53% of the t otal notional amount of all options (€44,936 million or 50% and €42,481 million or 66%
Variable Annuity guarantees, (ii) in Switzerland Life & Savings for €2,766 million (€2,235 million at the end of 2008) including €2,226 million (€2,209 million at the end of 2008) used to hedge the reinvestment risk in the Swiss Individual Life & Savings business, (iii) €1,683 million at AXA Bank Europe (€1,968 million at the end of 2008) mainly to hedge variable mortgages which are characterized by an embedded cap that can be activated at each repricing date of the loan, (iv) in Belgium Life & Savings for €1,388 million (€1,975 million at the end of 2008) to protect life funds against large movements in interest rates.
Equitable’s statutory liabilities. In addition AXA Equitable bought €2,791 million of call options on S&P 500 index to reduce or mirror some positions embedded in the put spread collar strategy,
• in the UK Life & Savings (€2,115 million puts at the end of 2009) mainly mitigating equity risks in the with- profi t funds and,
Futures are contracts that obligate settlement at a specifi ed price and on a specifi ed future date and can be traded on the market.
Forwards are customized contracts between two entities where settlement takes place on a specifi c date in the future at today’s pre-agreed price.
On a consolidated basis, the notional amount of futures and forwards at December 31, 2009 was €45,415 million
(€64,249 million at the end of 2008 and €39,649 million at the end of 2007). Swiss entities held future and forward contracts for a t otal notional amount of €17,522 million (€20,841 million at the end of 2008), including €2,270 million (€4,324 million at the end of 2008) designated as fair value hedges. In the US Life &
Currency future and forward contracts accounted for 70% of these instruments (based on notional amounts at December 31, 2009), compared to 55% at the end of 2008 and 76% at the end of 2007. Swiss entities use such contracts for a t otal notional amount of €17,476 million, to hedge exchange-rate risk arising from their investments in equities and debt instruments denominated in foreign currency (mainly € and US$). AXA Japan also uses futures and forward foreign currency contracts (for a t otal notional amount of €7,643 million) to hedge exchange-rate risk arising from its investments in fi xed-maturity debt instruments denominated in foreign currencies. In accordance with IAS 21 and IAS 39, the translation difference relating to these debt instruments is recognized in profi t and loss and offsets most of the change in market value of associated derivative instruments, which is also recognized in profi t and loss. In substance, therefore, the hedge impact of such contracts is recognized through profi t or loss without the need to use hedge accounting within the meaning of IAS 39.
As at December 31, 2009, 92% of the notional value of futures and forwards at the end of 2009 were used in hedging relationships that do not qualify for hedge accounting under IAS 39 (93% and 89% respectively at the end of 2008 and 2007).
On November 13, 2006, AXA announced a €1 billion pluri-annual shelf program to transfer mortality risk to the capital markets, of which approximately €345 million (converted at the transaction date) was invested in 2006. This risk transfer resulted in a derivative contract between AXA and a special purpose vehicle called Osiris Capital plc, indexed to the mortality levels observed in various countries in which AXA operates (France, Japan,
Australia and the United States for the 2006 investment). It is shown under the line item “Other derivatives”. The derivative was redeemed on January 15, 2010.
The impact of derivative instruments is presented in the consolidated statement of fi nancial position within their related underlying fi nancial assets (and liabilities, see section 19.4). The table below sets out the impact of derivative instruments on the related underlying assets.
Debt instruments (at cost) that are not quoted in an active market 1,804 - - 1,804
Equity instruments designated as at fair value through profi t or loss 10,273 - 57 10,329
Non controlled investment funds available for sale 5,595 (1) (6) 5,588
Non controlled investment funds held for trading 71 - - 71
(e) Carrying value (see (b)), but including effect of hedging instruments (IAS 39), economic hedging instruments not acting as hedging under IAS 39, macrohedge and other derivatives.
D ebt instruments designated as at fair value through profi t or loss 44,336 - (137) 44,199
Equity instruments designated as at fair value through profi t or loss 10,460 - 43 10,503
Non controlled investment funds available for sale 5,336 (5) 4 5,336
Non controlled investment funds designated as at fair value through profi t or loss 2,177 - 10 2,187
Assets backing contracts where the fi nancial risk is borne by policyholders 131,941 - 49 131,990
(f) Other investments held through consolidated investment funds designated as at fair value through profi t or loss .
Investment in real estate properties at amortized cost 12,025 - 20 12,045
Equity instruments designated as at fair value through profi t or loss 19,322 - - 19,322
Loans designated as at fair value through profi t or loss 39 - - 39
(g) Derivatives instruments used in hedge of net investment in a foreign operation, and not attached to a debt on the face of the consolidated statement of fi nancial position .
The impact of derivative instruments is presented in the consolidated statement of fi nancial position within their related underlying fi nancial liabilities (and assets, see section 19.3). The tables below set out the impact of derivative instruments on the related underlying liabilities.
Liabilities arising from insurance contracts where the fi nancial risk is borne by policyholders 103,281 - (30) 103,250
Liabilities arising from investment contracts with discretionary participating features 39,650 - - 39,650
Liabilities arising from investment contracts with no discretionary participating features 917 - - 917
Macro hedge derivative instruments on insurance and investment contracts (liabilities) - - (2) -
Other debt instruments issued, notes and bank overdrafts 5,188 28 - 5,217
(b) In accordance with IFRS 3, i.e. within 12 months following the acquisition date, the Group adjusted certain items impacting the allocation of Winterthur purchase price.
(e) Derivative instruments used to hedge the net investment in a foreign operation, and not attached to a debt on the face of the consolidated statement of fi nancial position .
Total – derivative instruments relating to insurance and investment contracts - - -
Macro hedge derivatives on insurance and investment contracts (2) - (2)
Derivative instruments relating to fi nancing debt and other fi nancial liabilities (hedge accounting) - (240) (240)
Other derivative instruments relating to fi nancing debt and other fi nancial liabilities 11 411 423
Total net value of derivative instruments – liabilities (4 ) 1,519
(1) and (2) refer to Note 9.9 regarding the principles applied by the Group in order to proceed with the classifi cation of fi nancial assets into the IAS 39 fair value hierarchy categories.
The fair value hierarchy applicable to fi nancial instru ments is described in Note 9.9. Same principles apply as far as derivatives instruments are concerned.
representing instruments not quoted in an active market involves a signifi cant level of judgement. Are considered as observable: inputs provided by external pricing services, information observable on data providers screens, rating agencies, external surveys. The extent to which such data are external to the Group and not assessed by internal valuation teams is one of the main criteria applied in assessing whether data are observable or not. Should those data be signifi cantly adjusted or would they be outdated because of the lack of new available factors, such inputs would be deemed unobservable. Another area of judgement is the assessment of the signifi cance of an input against the fair value measurement in its entirety. As a result, a different cut between observable and unobservable data and variances in the weighting of the signifi cance of each input against the fair value measurement in its entirety could produce a different categorization.
I Note 20 Revenues and liabilities by segment 20.1. TOTAL REVENUES
(b) Includes SPEs and CDOs previo usly disclosed in the Other Financial services segment which was renamed “Banking”.
Fees, commissions and other revenues 211 187 161 20.2.4. Liabilities arising from insurance contracts in the Property & Casualty and International Insurance segments
TOTAL – PROPERTY & CASUALTY INCLUDING INTERNATIONAL INSURANCE 32,352 10,103 1,121 358 43,934 14,176 58,110
TOTAL – PROPERTY & CASUALTY EXCLUDING INTERNATIONAL INSURANCE 26,923 6,383 1,231 164 34,701 12,665 47,366 47,072
TOTAL – PROPERTY & CASUALTY INCLUDING INTERNATIONAL INSURANCE 32,346 10,325 1,417 227 44,315 14,036 58,351 58,018
Investment in real estate properties at amortized cost 610 423 - (201) 833
Investment in real estate properties as at fair value through profi t or loss 210 (51) (173) - (14)
Debt instruments designated as at fair value through profi t or loss (a) 1,964 (574) 3,110 - 4,499
Non quoted Debt instruments (amortized cost) 26 - - - 26
Non controlled investment funds designated as at fair value through profi t or loss 5 (48) (36) - (80)
Non controlled investment funds held for trading 1 4 2 - 6
Other assets held by controlled investment funds designated as at fair value through profi t or loss 110 (148) (552) (589)
(a) Includes debt instruments held by consolidated investment funds, design ated as at fair value through profi t or loss.
(c) Net investment result included an impact of €0.2 billion related to Asset Backed Securities, of which €-0.2 billion was due to impairment charges, and €0.4 billion was related to change in fair value of investments designated as at fair value through profi t or loss. Also, note that the change in fair value of ABS had a gross impact of €0.4 billion on shareholders’ equity.
Change in fair value of investments designated as at fair value through profi t or loss (d)
Investment in real estate properties at amortized cost 599 474 - (137) 937
Non quoted Debt instruments (amortized cost) 30 - - - 30
Non controlled investment funds available for sale 165 (22) - (723) (579)
Non controlled investment funds designated as at fair value through profi t or loss 23 (6) (91) - (74)
Other assets held by controlled investment funds designated at fair value through profi t or loss 283 277 326 886
Assets backing contracts where the fi nancial risk is borne by policyholders 517 - (43,687) - (43,169)
Investment in real estate properties at amortized cost 524 633 - (38) 1,119
Investment in real estate properties as at fair value through profi t or loss 263 527 (541) - 250
Non quoted Debt instruments (amortized cost) - - - - -
Non controlled investment funds available for sale 89 157 - (38) 208
Non controlled investment funds designated as at fair value through profi t or loss 222 14 14 - 250
Non controlled investment funds held for trading - 3 (1) - 2
Assets backing contracts where the fi nancial risk is borne by policyholders 801 - 7,476 - 8,277
underlyings assets designated as at fair value through profi t or loss part of an economic hedge not eligible for hedge accounting as defi ned by IAS 39).
The changes in investments impairment include impairment charges on investments, and releases of impairment only following revaluation of the recoverable amount. Write back of impairment following investment sales are included in the net realized capital gains or losses on investments aggregate.
Claims ceded (including change in claims reserves) 2,053 518 654 (175) 3,050
Claims ceded (including change in claims reserves) 959 573 996 (209) 2,318
(down €1,231 million) as a result of: ■ A positive one time adjustment in 2008 of €424 million due to change in reserves ceded to Center Re offset by a similar change in the caption “Technical charges relating to insurance activities”; ■ A €721 million decrease of the change in ceded reserves due to the fi nancial market impact on the Variable Annuity book reinsured.
Financing debt expenses amounted to €569 million in 2009, and included income and expenses relating to hedging derivative instruments on fi nancing debt, mainly at AXA SA (€92 million).
(b) Change (capitalization and amortization) in deferred acquisition costs relating to insurance and investment contracts with discretionary participation features and changes in net rights to future management fees relating to investment contracts with no discretionary participation features.
The cost of the contributions paid was recognized as an expense in the income statement, and amounted to €89 million as at
December 31, 2009 (€82 million in 2008, €75 million in 2007, €88 million in 2006 and €72 million in 2005).
The assumptions for each of the liabilities are consistent with the economic features of the corresponding countries’ plans. The weighted-average assumptions used by AXA for pension plans in the principal regions in which AXA operates were as follows: DECEMBER 2009 ASSUMPTIONS
The assumptions used for 2008, 2007, 2006 and 2005 were as follows:
Expected return on plan assets and separate assets 6.5% 5.2% 1.3% 6.6%
The expected return on assets is the weighted average between the asset allocation and the expected return for each asset category.
DBO attributable to one year of additional service); ■ I nterest cost (cost of one year less discounting); ■ E mployee contributions; ■ C hange in plans (amendments, curtailments, settlements, business combinations, etc.); ■ A ctuarial gains and losses (due to assumptions and experience); ■ B enefi ts paid by employer, plan assets and separate assets.
In addition, in accordance with IAS 19, a category of assets referred to as “separate assets” is also recorded in the statement of fi nancial position. As defi ned by IFRS, separate assets are assets that may not be used to offset the DBO. Separate assets are insurance contracts issued by AXA to back its defi ned benefi t pension plans. The accounting consequence of these separate assets is a potential increase in the accrued liability or decrease in the prepaid asset. These assets are shown separately in the following table. These funds are dedicated to specifi c insurance contracts and are not available to general creditors, so their economic nature is not different from plan assets. However, as the separate account assets are available to the pension plan through an insurance contract, IFRS requires their classifi cation as separate assets despite their economic nature.
During the fi scal year 2007, AXA reviewed the treatment of separate assets and insurance contracts backing the pension obligation in the United States and in Switzerland in light of prevailing practice that has developed in the industry. In the
United States, the insurance contract was amended to add a transferability clause, and so it is now treated as plan assets rather than separate assets as shown in prior years. In Switzerland, where the issue arose after the acquisition of Winterthur, AXA
Benefi t obligation at the beginning of the year 11,729 12,955 14,734 11,421 9,573 511 506 604 716 581
Amendments (including acquisitions and disposals) (a) (75) (150) (261) 3,625 46 (2) 12 18 (7) 18
Benefi ts paid by plan assets and by separate assets (474) (434) (443) (419) (402) - - - (49) (50)
Benefi ts directly paid by the employer (310) (270) (227) (128) (115) (39) (44) (45) - -
Benefi t obligation at the end of the year (A ) 13,661 11,729 12,955 14,734 11,421 534 511 506 604 716
Net transfer In/(Out) (including acquisitions and disposals) (a) (b) (c) 924 (27) (811) 3,220 88 - - (3) - 1
Fair value of plan assets at the end of the year (B ) 6,181 4,662 7,057 8,216 4,693 4 3 3 9 14
Actual return on separate assets 31 (25) 12 221 206 - - - - -
Cumulative impact of asset ceiling (10) - - - - - - - - -
Plans with a positive net position (Asset) 8 20 199 11 1 - - - - -
Plans with a negative net position (Liability) (7,431) (7,015) (6,017) (6,440) (6,655) (529) (506) (501) (595) (703)
Net position (excluding separate assets) (7,423) (6,995) (5,818) (6,430) (6,654) (529) (506) (501) (595) (703)
For pension plans where the fair value of plan assets exceeds the benefi t obligation the aggregate fair value of plan assets and aggregate benefi t obligation were €77 million and €58 million, respectively, as at December 31, 2009. A surplus is recognized to the extent that it is recoverable, either through future contribution reductions or a refund to which the Group has an unconditional right.
The increase in expense from 2008 to 2009 was mainly due to the decrease in the 2009 expected return on plan assets mainly driven by the level of assets as at December 31, 2008 lower than December 31, 2007.
The evolution in the net economic funding position from January 1, 2009 to December 31, 2009 captures both the change in the liability recorded in the Group’s statement of fi nancial position and the change in separate assets, as presented in the table below: Pension benefi ts Other benefi ts
25.2.7. Change in the liability recognized in the statement of fi nancial position (excluding separate assets)
The roll-forward of the statement of fi nancial position liability from January 1, 2009 to December 31, 2009 captures only the evolution of the liability recorded in the Group’s statement of fi nancial position and not the separate assets. Therefore it is not a full economic picture. The table below shows the detailed roll-forward of the statement of fi nancial position liability, with the separate assets added at each year end.
The SoCI is an integral part of the statement of changes in shareholders’ equity. It includes actuarial gains and losses as well as net income for the period (see Note 1).
Statement of fi nancial position liability at the beginning of the year (6,995) (5,818) (6,430) (6,654) (5,666) (506) (501) (595) (703) (572)
Adjustment due to separate assets (41) 15 (23) (232) (210) - - - - -
Benefi ts directly paid by the employer 310 270 227 128 115 39 44 45 45 44
Net transfer In/(Out) (including acquisitions and disposals) (a) (b) 884 50 (2,253) (548) - - (11) (20) (8) (23)
Net transfer of separate assets to plan assets (c) 41 10 1,695 155 82 - - - - -
Impact of foreign currency fl uctuations (12) (242) 191 272 (355) 9 (20) 54 66 (64)
Fair value of separate assets at the end of the year 893 789 739 2,480 2,697 - - - - -
(b) This amount includes the effect of the elimination of the insurance contract in 2007 and the reclassifi cation of general account assets as plan assets in 2009 in Switzerland.
SoCI at the beginning of the year (955) 308 (720) (1,112) (445) 67 45 (4) (28) -
Experience adjustments on plan assets and separate assets 151 (2,028) (33) 141 426 - (1) (3) (5) 3
Adjustment due to the sale of the Netherlands activities - - (4) - - - - (1) - -
So CI AT THE END OF THE YEAR (2,442) (955) 308 (720) (1,112) 30 67 45 (4) (28)
The estimated amount of 2010 employer contributions for pension benefi ts is €474 million (€246 million estimated in 2008 for 2009) and for other benefi ts is €1 million (€1 million estimated in 2008 for 2009). These amounts are subject to uncertainty as they will be driven by economics of future years and are cash contributions with no direct link to the pension and other benefi ts expense under IFRS.
The table below shows the asset mix for plan assets and separate assets at the end of 2009: Asset mix for plan assets and separate assets Total
As pension liabilities have a long-term nature, a mix of equity instruments, debt instruments and real estate investments is used in the plan assets and separate assets. The percentage of equity instruments is generally higher in the Anglo-Saxon countries, where investment strategy is often determined by the
Plan trustees. This asset mix generates some degree of volatility in returns, but, over the long-term, is expected to provide a higher return than investing in pure debt instruments. A higher return is consistent with long term past experience, but may not be the case in the future.
For 2009, postretirement benefi ts payments were made in the amounts of €31 million (€36 million in 2008 and €37 million in 2007), net of employee contributions.
Net position (excluding separate assets) (a) (7,952) (7,501) (6,319) (7,025) (7,357)
(a) Net position (excluding separate assets) for pension benefi ts and other benefi ts as reported in Note 25.2.4.
(c) It corresponds to a liability of €8,117 million (as at December 31, 2009) included in the statement of fi nancial position under the caption “provision for risks and charges” and an asset of €14 million (as at December 31, 2009) included in the statement of fi nancial position under the caption “Other long term assets”.
(b) The 2007 cost of the AXA SA stock option plans shown above excluded the cost of the stock options granted to the employees of AXA Netherlands, which was sold in 2007. The expense corresponding to the amortisation period before the transaction was included in the results arising from discontinued operations. The remaining cost (including the cost triggered by accelerated vesting given to the employees) was deducted from the capital gain of the transaction..
In accordance with IFRS 2, the total employee share based compensation cost of €164.3 million for full year 2009 included expenses from share-based compensation instruments for grants made after November 7, 2002 which had not yet vested at December 31, 2003.
AXA treasury shares. While the precise terms and conditions of each option grant may vary, options are currently (i) granted at a price not less than the average closing price of the ordinary share on the Paris Stock Exchange during the 20 trading days preceding the date of grant, (ii) valid for a maximum term of ten years, and (iii) vest in instalments of 33.33% per year on each of the second, third and fourth anniversaries of the grant date.
For members of the Executive Committee (since 2006) and employees who are granted more than 5,000 options (since 2007), the fi rst two instalments vest unconditionally at the end of the vesting period, while the fi nal instalment is subject to the fulfi lment of certain conditions regarding the performance of the
AXA shares compared to the DowJones Europe Stoxx Insurance index. All options granted in 2009 to the members of the
The number of outstanding options and the number of exercisable options as at December 31, 2009 are shown below by maturity date: Expiry date of options Outstanding options Exercisable options
The number of outstanding options and the number of exercisable options at December 31, 2009 are shown below by maturity date for
AXA SA plans granted after November 7, 2002: Expiry date of options Outstanding options Exercisable options
Black & Scholes option pricing model. The effect of expected early exercise is taken into account through the use of an expected life assumption based on historical data. AXA SA share price volatility is estimated on the basis of implied volatility, which is checked against an analysis of historical volatility to ensure consistency. The expected AXA SA dividend yield is based on the market consensus. The risk-free interest rate is based on the
(a) For employees who have been granted more than 5,000 options in 2007, 2008 and 2009, the vesting of the fi nal instalment is subject to the fulfi lment of certain conditions regarding the performance of the AXA shares compared to the DowJones Europe Stoxx Insurance index. The options with performance criteria were valued at €2.48 per option granted in 2009, at €3.54 per option granted in 2008 and €6.67 per option granted in 2007, based on a Monte-Carlo model. The options without performance criteria were valued at €1.62 per option granted in 2009, at €3.76 per option granted in 2008 and €7.02 per option granted in 2007, based on the Black & Scholes model.
The total cost of the AXA SA plans is amortized over the vesting period and an estimated 5% pre-vesting lapse rate is applied. On that basis, the expense recognized in profi t or loss for the year ended December 31, 2009 was €29.6 million (€-0.3 million for the 2005 grants, €2.7 million for the 2006 grants, €10.1 million for the 2007 grants, €7.2 million for the 2008 grants, €2.3 million for the 2009 grants and €7.6 million relating to AXA SA ordinary share options granted to AXA Financial employees).
The following table shows information for grants after November 7, 2002: POST NOVEMBER 7, 2002 AXA ADR STOCK OPTION PLANS
In 2009, the cost of the lock-up period was measured at 17.31%
Amount subscribed by employee (in Euro million) 26.7 36.7 29.3 42.4 74.0 47.0
Total amount subscribed (in Euro million) 26.7 367.0 29.3 431.0 74.0 478.3
Interest rate on employee loan 8.05% 8.05% 8.46% 8.29% 7.54% 7.47%
Total cost for AXA = [A] – [B] + [C] (as a percentage of the reference price) 0.99% 3.07% 1.53% 3.22% 6.55% 3.35%
Total cost for AXA (in Euro million) 0.3 13.8 0.6 16.1 6.0 18.7
The total cost of the AXA Miles is amortized over the vesting period (i.e. over 2 years for the 2+2 plan and over 4 years for the 4+0 plan) starting on July 1, 2007. On that basis, the expense recognized in the profi t or loss for the year ended
December 31, 2009 was €32.7 million. The accumulated cost already recognized as at December 31, 2009 represented 80%
Performance Units defi nitely acquired is less than one thousand, the employing entity pays in cash, 100% of the calculated value.
If the number of Performance Units defi nitely acquired is more than one thousand the employing entity pays in cash, 70% of the calculated value and the remaining 30% is simultaneously invested on behalf of the benefi ciaries in AXA shares restricted for a minimum period of two years (equity-settled).
In 2005, 2006, 2007, 2008 and 2009, Performance Shares were issued to executive offi cers and other key employees.
The total cost of Performance Shares was €17.8 million in 2009.
The total cost for this plan in 2009 was €6.3 million.
Appreciation Rights (as they are subject to variations in the basis of recognition due to changes in the market value of AXA ADRs)
Performance Accelerated Restricted Shares granted to senior executives and non-employee directors.
Units to acquire AllianceBernstein units. In connection with 2009 deferred compensation plan 8,345,805 restricted Holding Units were issued in December 2009.
In 2009: ■ S hort-term benefi ts: compensation paid to members of the
In 2008: ■ S hort-term benefi ts: compensation paid to members of the
Supervisory Board) totaled €36.3 million as at December 31, 2009 (€31.6 million in 2008 as at December 31, 2008)
The Group calculates a basic net income per ordinary share and a diluted net income per ordinary share: ■ T he calculation of the basic net income per ordinary share assumes no dilution and is based on the weighted average number of outstanding ordinary shares during the period; ■ T he calculation of diluted net income per ordinary share takes into account shares that may be issued as a result of stock option plans. The effect of stock option plans on the number of fully diluted shares is taken into account only if options are considered to be exercisable on the basis of the average stock price of the AXA share over the period.
This feature is such that one option is automatically exercised upon each conversion of a convertible bond. Each issuance of a new share resulting from the conversion of the bond will be offset by the delivery by the bank to AXA (and subsequent cancellation) of an AXA share. The issuance of a share in respect of the conversion of the bond and the cancellation by AXA of the AXA share received will offset each other. As a result of this transaction, there will no longer be a change to the outstanding number of AXA outstanding shares created by the convertible bond conversion.
Following AXA’s rights issue in 4Q09, the average number of shares has been restated to take into account an adjustment factor of 1.023. In the average number of shares calculation, the adjustment factor has been applied on outstanding shares prior to the date of the capital increase leading to an adjustment on average number of shares of 48.4 million shares in 2009, 47.7 million in 2008 and 47.9 million in 2007. As at December 31, 2009, total net outstanding number of shares was 2,264 million and average fully diluted number of shares was 2,133 million.
Weighted average number of ordinary shares (net of treasury shares) – opening 2,108 2,078 2,112
NET INCOME PER ORDINARY SHARE (d) C = A/B 1.51 0.43 2.69
Potentially dilutive instruments: ■ Subordinated convertible Notes – February 8, 2000 due 2017 - - -
(b) Taking into account the impact of potentially dilutiv e instruments.
(c) Except for number of shares (million of units) and earnings per share (Euro).
(d) Basic and diluted net income per share from discontinued operations represented €0.23 for full year 2007.
(e) Following AXA’s rights issue in 4Q09, the average number of shares has been restated to take into account an adjustment factor of 1.023. In the average number of shares calculation, the adjustment factor has been applied on outstanding shares prior to the date of the capital increase leading to an adjustment on average number of shares of 48.4 million shares in 2009, 47.7 million in 2008 and 47.9 million in 2007.
In 2009, the Company was party t o the following transactions with related parties which may be deemed to have been material to AXA or the related party in question or unusual in their nature or conditions.
Each Mutuelle is supervised by a board of directors elected by delegates representing policyholders. Certain members of the
From time to time the Company enters into GIEs with certain of its subsidiaries. GIEs are intercompany partnerships, governed by
GIE members may be based on various agreed criteria including particular activity drivers. The GIEs to which the Company was party during 2009 covered a variety of common services including services performed by the AXA Group’s central functions for the benefi t of AXA Group companies (e.g. fi nance, accounting and reporting, tax, legal, marketing and brand, internal audit, human resources, procurement, information systems, risk management, cash management) as well as certain other services. Expenses invoiced by these GIEs to the Company and its subsidiaries are generally invoiced at cost and are included in the consolidated expenses refl ected on Company’s audited consolidated fi nancial statements.
The Company, from time to time, makes capital contributions, loans, other extensions of credit, or otherwise provides liquidity and capital resources to its subsidiaries and affi liates for various business purposes including to fi nance their business operations and/or to promote the development of their business (e.g.
to facilitate acquisitions, integration of acquired businesses, distribution arrangements, internal restructurings, or similar transactions). These transactions may involve the Company entering into various types of transactions with its subsidiaries and affi liates from time to time including loans or other types of credit arrangements, acquisitions or sales of assets, securities or other fi nancial instruments and/or similar transactions. In addition, the Company may from time to time borrow from its subsidiaries for various business purposes. These transactions are carried out on arms-length terms and conditions with loans and other extensions of credit bearing interest at varying rates
that generally refl ect prevailing market rates at the respective dates such loans were originated.
Management Board as well as various other executive offi cers and directors of other AXA Group companies may, from time to time, purchase insurance, wealth management or other products or services offered by AXA in the ordinary course of its business. The terms and conditions of these transactions are substantially similar to the terms and conditions generally available to the public or to AXA employees generally.
(c) 2008 fi gure was revised to exclude internal letters of credit commitments in the US holding (€1,243 million).
Commitments received by AXA totaled €48,792 million at the end of 2009, an increase of €5,431 million compared to the end of 2008, mainly due to an increase in guarantee commitments to customers (€+4,670 million).
The €4,584 million increase in guarantee commitments received was mainly due to the reclassifi cation from the caption “pledged securities and collaterized commitments received” in AXA
Pledged securities and collaterized commitments received totaled €25,145 million at the end of 2009, and mainly consisted in: ■ M ortgage security interests taken by AXA Bank Europe for home loans and other business loans (€14,737 million); ■ €3,746 million in AXA Bank Hungary related to the National
Bank of Hungary bonds and collaterals on properties; ■ S ecurity repurchase agreement (€3,205 million) mainly due to
■ €1,764 million in the US Life & Savings related to a potential failure in the payment by reinsurers mainly for disability income business.
The €2,147 million decrease in pledged securities and collaterized commitments received was mainly due to €-2,103 million decrease of security repurchase agreement in Japan Life &
Letters of credit received increased by €457 million, to €1,144 million at the end of 2009, and were mainly related to the
Other commitments received totaled €2,720 million at the end of 2009, and were broken down as follows: ■ €1,115 million received by France Life & Savings mainly due to commitment to real estate funds; ■ €694 million received by AXA SA due to a loan guarantee under $1 billion loan agreement; ■ €600 million commitments received by AXA Bank Europe related to foreign exchange and money market activities.
Commitments given totaled €31,545 million at the end of 2009, a decrease of €1,879 million as compared to the end of 2008, mainly due to a decrease in pledged securities and collaterized commitments given (€2,248 million).
including €165 million granted by AXA Banque mainly consisting in guarantees given on investment funds.
Guarantee commitments given decreased by €964 million, mainly due to a decrease in guarantees on structured products given by AXA Banque (€-792 million).
Letters of credit given totaled €357 million at the end of 2009 and were mainly related to the run-off activities of reinsurance operations (€286 million).
Other commitments given totaled €14,498 million at the end of 2009 and consisted in: ■ P otential capital call to P rivate E quity funds (€5,238 million)
Life in 2001 (the “Scheme”) details arrangements under which assets from the inherited estate, attributed to AXA through the reorganisation, may be transferred on a temporary, or permanent, basis to the with-profi t f unds as required to support the capital requirements of these funds, as determined under the scheme.
These amounts are subject to adjustment to refl ect the impact of certain capital transactions, including, but not limited to: capital increases, free allotments of stock, stock splits or similar transactions.
ordinary shares. The number of shares held under this crossshareholding agreement will be adjusted as needed to refl ect the impact of certain capital transactions, including, but not limited to: capital increases, free allotments of stock, stock splits or similar transactions.
In addition, the agreement includes an option for each party to repurchase its shares in the event of a hostile change of control of the other party.
(i) an AXA Group company other than the employee’s principal employer or (ii) a company outside the AXA Group where service is at the request of (or for the benefi t of) the Group (e.g.
In accordance with European Union directives, insurance companies with their registered offi ce in a European Union member country are required to maintain minimum solvency ratios which must be supported by capital, retained earnings and reserves and unrealized capital gains on marketable securities and real estate as reported in regulatory fi lings or subject to approval by local regulators in some countries. AXA’s insurance operations in countries outside the European Union are also subject to local capital adequacy and solvency margin regulations. At December 31, 2009, AXA’s subsidiaries complied with the applicable solvency and capital adequacy requirements.
In addition, the currency hedges used by AXA to manage foreign exchange rate risk may signifi cantly impact the statutory results
MEMBERSHIP IN A PROFESSIONAL BODY: PricewaterhouseCoopers Audit is registered as an independent auditor with the Compagnie Régionale des Commissaires aux
MAZARS: 61, rue Henri Régnault – 92075 Paris-La Défense Cedex, represented by Messrs. Philippe Castagnac and Jean-Claude
Mr Patrick Frotiée: 63, rue de Villiers – 92208 Neuilly-sur-Seine, fi rst appointed on May 17, 1995. The current appointment is for a period of 6 years, until the annual General Meeting of the shareholders called to approve the fi nancial statements for the fi scal year 2011.
July 2007, certain former AKAG and KVAG shareholders brought an action in Germany alleging that the cash compensation offered by AXA SA was not adequate. Management believes that these claims are without merit and intends to vigorously defend them. Management also believes that these judicial proceedings are likely to continue for several years before they are defi nitively resolved due to the complexities, procedural and otherwise, of the matter.
United States involving insurers’ sales practices, alleged agent misconduct or misrepresentation, alleged failure to properly supervise agents, compensation of intermediaries and numerous other matters. Some of these actions have resulted in the award of substantial judgments against insurers (including material amounts of punitive damages) or in substantial settlements. In certain jurisdictions, juries have substantial discretion in awarding punitive damages.
AXA Equitable and certain of its subsidiaries, like other life and health insurers in the US, are involved in these types of litigations as well as in a wide variety of other matters including the following: ■ AXA Equitable and/or AXA Advisors LLC is currently the subject of four putative class actions fi led between July 2006 and
AXA Equitable, et. al.; and Dhruv v. AXA Advisors, LLC, et al.
Court granted fi nal approval of the settlement; ■ A putative class action entitled Eagan, et al. v. AXA Equitable
Life Insurance Company was fi led in the District Court for the
December 1, 2000 or who will receive such benefi ts in the future, excluding certain retired agents, and (ii) eliminated the claim based on a breach of fi duciary duty and certain claims related to health care costs. Since 2007 the litigation has continued on procedural and substantive aspects, including on the question of class certifi cation with respect to certain of the plaintiffs’
Restitution Fund in February 2009 and we expect distribution activity to be completed in 2010.
In addition to the matters set forth above, AXA Financial, AXA
■ B enefi t from contractual rights to indemnifi cation from third party sellers or other transaction counterparties that are designed to protect the Group against existing or potential future litigation exposures or other types of contingent liabilities of the acquired businesses or assets. These indemnities generally constitute unsecured obligations of the indemnifying party and, consequently, their value may be substantially impaired or rendered worthless in the event of the bankruptcy or insolvency of the indemnifying party.