We expect that dividends received from subsidiaries and other sources of funding available to us will continue to cover our operating expenses, including (i) interest payments on our outstanding fi nancing arrangements and (ii) dividend payments with respect to our outstanding ordinary shares.
Asia-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.
other restrictions on the transfer of funds. In 2011, certain of our principal subsidiaries may pay reduced (or no) dividends and we expect that some of our subsidiaries may continue to be dependent on the Company for capital resources and funding which may require us to provide signifi cant amounts to our subsidiaries through loans, capital injections or other mechanisms. In addition, as noted above, currency hedges used by AXA to manage foreign exchange rate risk may signifi cantly impact the statutory results (parent only) of the
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 Guaranteed Minimum Death Benefi ts
(the “accumulator guarantees”). These hedging techniques are designed to reduce the economic impact of unfavorable changes to our exposures under the accumulator guarantees due to movements in the equity and fi xed income markets and other factors. In certain cases, however, we may not be able to apply these techniques to effectively hedge our risks because the derivative market(s) in question may not be of suffi cient size or liquidity. The operation of our hedging program is based on models involving numerous estimates and management judgments, including among others, mortality, lapse rates, election rates, volatility and interest rates and correlation among various market movements. There can be no assurance that ultimate actual experience will not differ materially from our assumptions, which could adversely impact results of operations and fi nancial condition. In 2008, for example, we incurred substantial losses under the Accumulator guarantees principally because (i) the assumptions underlying our hedging models did not adequately anticipate the extreme levels of market volatility and the rapid decline of interest rates experienced in 2008 and early 2009; and (ii) indices used in our hedging program did not adequately refl ect the underlying separate account investment options available under these annuity contracts (basis risk).
Annuity products depends, among other factors, on AXA’s ability to effectively hedge the Accumulator guarantees.
infl ation, investment returns and other factors, and, in the life insurance business, assumptions concerning mortality and morbidity trends. The use of different assumptions about these factors could have a material effect on insurance reserves and underwriting expenses as well as on our DAC, NBV and
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
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 US and increasingly in the UK
and other European countries. 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. We have established reserves for insurance and reinsurance contracts related to environmental pollution and asbestos at December 31, 2010, which represent our best estimate of ultimate claims exposure at December 31, 2010, 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
Unpredictable events, such as hurricanes, windstorms, hailstorms, earthquakes, fi res, explosions, freezesand fl oods, as well as other natural or man-made disasters, including acts of terrorism, have the potential to adversely affect our operating results. Over the past several years, changing weather patterns and climatic conditions, including global warming, have added to the unpredictability and frequency of natural disasters in certain parts of the world and created additional uncertainty as to future trends and exposures. While experts may disagree on its magnitude and projections, global warming is now proven beyond doubt and has broad potential implications for AXA and the insurance sector generally. In addition to the immediate destruction caused by fl ooding
(and to a lesser extent by drought), global warming will likely have major implications for many human activities (particularly agriculture, timber production, healthcare and water activities)
We follow the evolution of these risks closely and generally seek to manage our exposure to them through individual risk selection, monitoring risk accumulation, purchase of reinsurance and use of available data in estimating potential catastrophic risks. However, we have experienced in the past and could experience in the future material losses from the types of risks discussed above and these losses could have a material adverse effect on our fi nancial position and results of operations. For additional information, please see Section 3.2 of this Annual Report “Quantitative and qualitative disclosures about market risk and risk factors”.
We may not be able to sustain the growth of our Insurance and Asset Management businesses
The strong growth of our insurance and Asset Management businesses in the years preceding the 2008 fi nancial crisis may not be sustainable in future years. Continued volatility in the fi nancial markets and reduced availability of credit coupled with recession and continued negative consumer sentiment in many of our major markets pose signifi cant risks to our ability to achieve continued growth at rates consistent with the recent past and our ability to continue growing through acquisitions.
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 – Continuing diffi cult conditions in the global fi nancial markets and the economy may materially adversely affect our business and profi tability, and these conditions may continue”.
Inadequate or failed processes or systems, human factors or external events may adversely affect our profi tability, reputation or operational effectiveness
Our reserves for these types of obligations and liabilities may be inadequate which could cause us to take additional charges that could be material to our results of operations.
The fi nancial crisis of 2008-2009 gave rise to numerous legislative and regulatory initiatives across many of the principal jurisdictions where the Group does business. Please see Section 1.2 “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 does business, with broad potential 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.
existing and newly-created government agencies and bodies to promulgate regulations implementing the law, a process anticipated to occur over the next few years. Management cannot predict with any certainty the requirements of the regulations ultimately adopted or how Dodd-Frank and such regulations will affect the fi nancial markets generally, impact the Group’s business, credit or fi nancial strength ratings, results of operations, cash fl ows or fi nancial condition or advise or require the Group to raise additional capital. Key risks associated with the Dodd-Frank Act that may have an impact on the Group include the following: ■ The newly created risk regulator – the Financial Stability
“systemically important” i.e., as a company whose material fi nancial distress, or whose nature, scope, size, scale, concentration, interconnectedness or mix of activities, could pose a threat to the fi nancial stability of the United States.
may also recommend that state insurance regulators or other regulators apply new or heightened standards and safeguards for activities or practices that the Group and other insurers or other fi nancial services companies engage in.
Federal Deposit Insurance Corporation as receiver, upon a determination that the company is in default or in danger of default and presents a systemic risk to US fi nancial stability.
■ Dodd-Frank creates a new framework for regulation of the over-the-counter (OTC) derivatives markets and certain market participants which could affect various activities of the Group and its subsidiaries.
within the Department of the Treasury to be headed by a director appointed by the Secretary of the Treasury. While not having a general supervisory or regulatory authority over the business of insurance, the director of this offi ce would perform various functions with respect to insurance
FSOC’s decisions regarding insurers (potentially including the Group and its subsidiaries), to be designated for stricter regulation. The FIO may recommend enhanced regulations to the states.
■ Dodd-Frank also includes various securities law reforms that may affect the Group’s business practices and the liabilities and/or exposures associated therewith, including a provision intended to authorize the SEC to impose on broker-dealers fi duciary duties to their customers, as applies to investment advisers under existing law, which new standard could potentially expose certain of AXA’s
FSB recommendations, including proposals governing consolidated regulation of insurance holdings companies by the Financial Services Agency (FSA) in Japan, proposals governing executive compensation by the fi nancial regulators in Germany (BaFIN) and the United Kingdom (FSA).
Our business is subject to extensive laws and regulations 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
Our insurance operations are subject to insurance laws and regulations, which are generally intended to protect policyholders, not our shareholders or creditors. Changes in existing insurance laws and regulations may materially affect the way in which we conduct our business and the products we offer. In addition, changes in pension and employee benefi t regulation, social security regulation, fi nancial services regulation, taxation and the regulation of securities products and transactions may also adversely affect our ability to sell new policies or our claims exposure on existing policies. Our asset management operations are also subject to extensive regulation in their respective jurisdictions. These regulations are primarily intended to protect investors in the securities markets or investment advisory clients and generally grant supervisory authorities broad regulatory powers. Changes to these laws and regulations may adversely affect our asset management operations. We are also subject to increasing regulation under various laws and regulations governing the solvency of insurers and other fi nancial institutions including with respect to such matters as capital adequacy, intragroup transactions, “double-gearing” of capital at multiple levels within a consolidated group (e.g. at the consolidated
“know your customer,” prohibited transactions with countries or counterparties subject to sanctions, and bribery and other anti-corruption measures.
Changes to tax laws may affect the attractiveness of certain of our products, which currently have favorable tax treatment.
In addition, changes in tax laws or regulations or an operating performance below currently anticipated levels may lead to a signifi cant impairment of deferred tax assets, in which case we could be obligated to write off certain tax assets. Tax assets may also need to be written down if certain assumptions of profi tability prove to be incorrect, as losses incurred for longer than expected will make it more unlikely that we would be able to use our tax assets. Any such development may have a material adverse impact on our results of operations and fi nancial condition.
In general, non-publicly traded debt and equity interests in investment vehicles would be treated as accounts and subject to the reporting requirements. In addition, the IRS has stated that certain insurance policies and annuities will be considered accounts for these purposes, and therefore information would be required to be reported in respect of certain
subsidiaries may be subject to U.S. withholding tax under the legislation. The possibility of such withholding tax and the need for accountholders, policyholders, annuitants and investors to provide certain information may adversely affect the sales of certain of the Group’s products. In addition, entering into agreements with the IRS and compliance with the terms of such agreements and with the legislation and any regulations or other guidance promulgated there under may substantially increase the Group’s compliance costs. Because most of the regulatory guidance remains to be written, it is diffi cult to accurately estimate the impact of this law on the Group.
Standards. These modifi cations include, among others, the following: ■ Financial assets and liabilities held by the AXA Group are recognised and measured under IAS 39 which is currently the subject of major potential amendments. Mandatory adoption dates range from 2013 to 2015. Optional adoption by issuers may be applicable in 2011 (depending on endorsement by the European Union). These amendments, which relate primarily to classifi cation of fi nancial assets and liabilities, impairment and hedge accounting principles, may have potentially signifi cant impacts on the Company’s future fi nancial statement presentation, shareholders equity and earnings and may also affect prior year comparatives depending on the adoption date; ■ Policyholders liabilities and related assets are currently accounted for according to IFRS 4 – Phase I which generally allows the continuation of accounting policies applied prior to the conversion to IFRS. The IASB issued a Discussion
This amendment, which is scheduled to be fi nalized in 2011, may signifi cantly affect policyholders’ liabilities and related assets such as Deferred Acquisition Costs negatively, by potentially increasing the portion of origination costs fl owing through P&L at underwriting date, when implementing the new standard by 2014 or 2015; ■ Consolidation, derecognition and lease are other areas of potential signifi cant amendments which may impact the
The terrorist attacks and responsive actions in recent years have signifi cantly adversely affected general economic, fi nancial and political conditions, increasing many of the risks in our businesses. Such attacks and actions may have a continuing negative effect on our businesses and results of operations over time. Our general account investment portfolios include investments in industries that we believe may be adversely affected by the terrorist attacks and responsive actions, including airlines, lodging and entertainment companies and non-life insurance companies. 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,
Finally, our results of operations and fi nancial condition may be materially affected by the general economic conditions such as the levels of employment, consumer lending or infl ation, in the countries in which we operate.
We cannot assure you that the interests of the Mutuelles AXA
ordinary shares on Euronext Paris which may consequently cause the trading price of AXA ADSs on the over-thecounter markets in the United States to also decline; ■ The US dollar equivalent of the proceeds that a holder of
On March 26, 2010, trading in AXA ADSs on the New
deregistered with the SEC in June 2010. Since then, the AXA
Since the delisting of the AXA ADSs from the NYSE on
June 2010, AXA has no longer been required to comply with the reporting and corporate governance requirements of the
The depositary for the AXA ADSs may not receive voting materials for AXA ordinary shares represented by AXA ADSs in time to ensure that holders of AXA ADSs can instruct the depositary to vote their shares. In addition, the depositary’s liability to holders of AXA ADSs for failing to carry out voting instructions or for the manner of carrying out voting instructions is limited by the Deposit Agreement governing the AXA ADRs facility. As a result, holders of AXA ADSs may not be able to exercise their right to vote and have limited recourse against the depositary or AXA if their shares are not voted according to their request.
The Deposit Agreement expressly limits the obligations and liability of AXA and the depositary. Neither AXA nor the depositary will be liable if they: ■ Are prevented from or delayed in performing any obligation by circumstances beyond their control; ■ Exercise or fail to exercise discretion under the Deposit
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: ■ Investor perception of our Company, including actual or anticipated variations in our revenues, earnings or other operating results; ■ Announcement of intended acquisitions, disposals or fi nancings or speculations of such acquisitions, disposals or fi nancings; ■ Changes in our dividend policy, which could result from changes in our cash fl ow and capital position; ■ Sales of blocks of our shares by signifi cant shareholders; ■ Hedging activities on our shares; ■ A downgrade of our credit or fi nancial strength ratings, including placement on credit watch, or rumors of such downgrades; ■ Actual or potential litigation involving us or the insurance or asset management industries generally; ■ Changes in fi nancial estimates and recommendations by securities research analysts; ■ Fluctuations in foreign exchange rates and interest rates; ■ The performance of other companies in the fi nancial services’ sector; ■ Regulatory developments in the principal markets in which we operate; ■ International or local political, economic and market conditions; and
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.
Managements responsible for: ■ Ensuring that the “second line of defense” is effective on all signifi cant risks; ■ Identifying, measuring and managing fi nancial, insurance and operational risks; ■ Defi ning and monitoring risk appetite on these risks – which strengthens risk reporting, limits and decision processes across four dimensions: earnings, value, capital, liquidity; ■ Implementing an internal capital model and leading the approval process with supervisors for future Solvency II; ■ Building a favorable environment – in terms of models/
In order to manage effi ciently local and global risks, the decision process within the risk governance structure is divided into 4 levels: ■ The Management Committee 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 fi ve Committees: the
Asset-Liability Management Supervisory Committee and the Group Investment Committee both chaired by the
Deputy CEO for fi nancial risks; Global Business Lines dedicated Board chaired by the CEO of each business Line for Life insurance risks and for P&C insurance risks; Risk &
Offi cer for Operational and Reputation risks. Based on risk reports presented by the Group Risk Management together with other central teams, including AXA Global P&C and AXA
(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 Chief Risk Offi cers head the local Risk Management teams within each operational entity and report both to a member of their Executive Committee (CEO/CFO) and to the
Management Department are: ■ Steer the Risk Management family and develop a risk culture throughout the Group; ■ Conduct, at local level, regular reviews of the technical reserves and of the model established by the operating units and regular reviews of models implemented throughout the
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) and to the Group CRO. The roles and responsibilities of local
A wide variety of risk management techniques are used to control and mitigate the market risks to which the AXA Group’s operating units and the Group itself are exposed. These techniques include: ■ A regular monitoring of the fi nancial risks on the 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; ■ Hedging of fi nancial risks when they exceed the tolerance levels set by the Group. Operational management of derivatives has stringent rules and is mainly performed by the Group’s specialist asset management teams (AXA
AXA’s exposure to market risk is strictly monitored. It is mitigated by: ■ Its broad range of operations and geographical positions, which provides good diversifi cation; and
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 unitlinked; ■ A rise in yields on fi xed-income investments (linked to interest rates or in spreads) reduces the market value of fi xed-income investments and could impact adversely the solvency margin, and increase the number of surrenders on some policies with competitive pressures; ■ A decline in asset market value (equity, real estate, alternatives, etc.) could impact adversely the solvency margin, as well as available surplus; ■ A rise in fi nancial market volatility may increase the cost of hedging the guarantees associated with some Variable
Overall, therefore, they present only a limited market risk for the Group through reduction of shareholders’ value; ■ 10% at the end of 2010 (9% at the end of 2009) of the
Property & Casualty and International Insurance technical reserves break down as follows: (in Euro million)
TOTAL – PROPERTY & CASUALTY INSURANCE EXCLUDING INTERNATIONAL INSURANCE 50,261 47,957
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; ■ 37% at the end of 2010 (33% at the end of 2009) of the
■ A rise in yields on fi xed-income investments (linked to interest rates or spreads) reduces the market value of fi xed-income investments and could impact adversely the solvency margin; ■ A decline in asset market values (equity, real estate, alternatives, etc.) could impact adversely the Group’s solvency margin, as well as available surplus; ■ A change on the foreign-exchange rates would have limited impact for the operating units since foreign-currency commitments are matched to a large extent by assets in the same currencies, but it could affect the earnings contribution in euros.
The investments of Property & Casualty insurance companies are managed so as to optimize the return on assets while considering all of the aforementioned risks and the requirements in terms of regulatory solvency. A large portion of investments is made in liquid fi xed maturities to secure the capacity to pay unexpected exceptional benefi ts and claims.
As stated previously, local insurance operating units are responsible for identifying, measuring, managing and monitoring their risk positions. Strategic asset allocations are based on thorough analyses and are implemented by asset management companies through investment mandates.
The ALM and investment processes of a local insurance operating unit can be defi ned as a sequence of seven steps: ■ A detailed analysis of the liability structure; ■ The proposal of a strategic asset allocation by the Chief
Departments and takes the form of detailed analyses that use consistent methods based on deterministic and stochastic scenarios. The aim of these analyses is to maximize the expected investment return, net of the cost of the economic capital required to support the strategy, while complying with a series of constraints: stability of earnings, protection of the solvency margin, and preservation of the liquidity. Due care is given to monitoring and analysing local and consolidated capital adequacy and solvency margin requirements. It is intended to ensure that AXA complies with its regulatory commitments and makes optimum use of capital resources at all times.
As part of an on-going capital allocation process, local insurance operating units perform at least twice-yearly simulations of the impact, on the various regulatory constraints, of severe scenarios for assets (in terms of both the market value of equity securities and interest rate trends).
(mainly AXA Investment Managers and AllianceBernstein) are responsible for the day-to-day management of investments.
Processes have been put in place in these companies to manage investments without exceeding agreed risk tolerance thresholds imposed by their client insurance companies in the investment management agreements. This organization makes the skills required in these activities available for the benefi t of all Group insurance companies.
Disclosures about Market Risk and Risk Factors”; ■ Exchange-rate risk related to the operating activities of
Life & Savings Value of Inforce (VIF) 20,087 20,087 18,456 18,456
The table above shows the reconciliation of IFRS shareholders’ equity to the Group EV.
Adding the Life & Savings “Value of Inforce” (VIF) to the Life &
TSDI) that is treated as equity in IFRS; ■ The addition of unrealized capital gains or losses not already included in equity; ■ The 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 Euro 1 of value. Mechanically, this can be described as assuming that, in the future, all assets will earn the risk-free rate (referred to as the “reference rate” in the Embedded Value methodology) defi ned by the current market. However, cash fl ows are projected not only in a single scenario, but rather a stochastic set of scenarios is created, with the set maintaining the market-consistent condition that Euro 1 of any asset projected into the future gives a present value of Euro 1. Future earnings available to shareholders are assessed across this range of stochastic scenarios, with the present value being the
Life & Savings VIF. Our major assumptions include: ■ Actuarial assumptions refl ect best estimates based on recent experience; ■ No productivity gains in the future are assumed, while a 2.0%
Insurance, Asset Management, Banking and Holdings and other companies). 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
(31.8% in 2009); ■ Consistent with previous years, AXA used, at the end of 2010, reference rates which included, where applicable, liquidity premia over the swap curves for some of its entities.
The sensitivities of the Group EV to changes in major economic assumptions were calculated as follows for the 2009 and 2010 values: ■ Upward parallel shift of 100 basis points (bps) in reference interest rates simulates a sudden shock to the initial conditions. This means changes to: 1) the current market values of fi xed-interest assets, with related possible changes to projected capital gains/losses and/
10% higher value of equity markets at start of projection 1,401 4% 780 2% 2,181 6% 1,118 4% 575 2% 1,693 6%
2010 interest rate sensitivities (% of Group EV) for other-thanlife businesses of -5% to upward 100 bps and 5% to downward 100 bps (2009: -4% and 4%) refl ect mainly the impacts on fi xed-income assets, partly offset by derivatives and sensitivities to changes in debt value, should interest rates curve move, with all debt classifi ed as liabilities and remeasured at market value. The majority of other-than-life reserves in the fi nancial statements and therefore in TNAV is generally not sensitive to interest rate changes as not discounted in most cases.
€104 million in 2009). AXA France owns these invested funds in order to diversify its investments and enable policyholders to benefi t from the performance of international fi nancial markets.
At the end of 2010, the total assets denominated in foreign currencies (mainly US Dollars) represented an amount of €17,216 million (€7,942 million in 2009). Excluding assets backing unit-linked contracts, the corresponding exchange rate risk was fully hedged through the use of derivatives.
AXA Germany hold investments denominated in foreign currencies €3,671 million (€3,642 million in 2009), 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
Swiss entities are exposed to exchange rate risk through their investments in foreign currencies (mainly Euro and US Dollar)
In Belgium, in the United States, in the United Kingdom and in the Mediterranean and Latin American Region, the Group’s Life
These countries accounted for 95% at the end of 2010 (96%
■ Property & Casualty business: 10% of Group assets at the end of 2010 (9% at the end of 2009): 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 (€390 million vs.
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 €511 million (€465 (1) million in 2009), of which €131 million of intercompany Mortgage loan which foreign exchange risk has been hedged; ii. investments totalling €139 million (€103 million in 2009)
and there are foreign exchange forward contracts with a nominal value of €305 million (€212 million in 2009).
AXA Ireland also operates in Northern Ireland, and so manages a portfolio of Pound Sterling policies for an amount of €203 million (€167 million in 2009), hedged with investments in the same currency of €185 million (€139 million in 2009).
Property & Casualty companies do not have any signifi cant exposure to exchange-rate risk.
■ International Insurance business (2% of Group assets at the end of 2010 vs. 2% in 2009): In the course of its business,
US Dollar (€1,270 million at the end of 2010 vs. €1,343 million in 2009) and, to a lesser extent, Pound Sterling (€445 million at the end of 2010 vs. €539 million in 2009). The Company carries assets denominated in foreign currencies to ensure balance sheet congruence. The congruence between the
Company’s foreign-currency assets and liabilities is regularly adjusted, but is subject to unpredictable loss occurrence and the corresponding liabilities movements.
At December 31, 2010, the main hedging positions were as follows: Foreign currency hedging
In respect of the Canadian business in the form of derivatives
DEFINITION: interest-rate risk may result from: ■ A mismatch between types of interest rates (fi xed versus fl oating); ■ A mismatch between fl oating rate benchmarks; ■ A mismatch between fl oating rate renewal dates.
■ Interest rate sensitivity analyses assess changes in the value of interest rate positions by currency and by maturity following a 100bp upward shift in the yield curves.
Counterparty credit risk is defi ned as the risk that a third party in a transaction will default on its commitments. Given the nature of its core business activities, AXA monitors two major types of counterparties, using methods suitable to each type: ■ Investment portfolios held by the Group’s insurance operations (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; ■ Receivables from reinsurers resulting from reinsurance ceded by AXA.
As regards debt securities issues, total issuer-specifi c exposure limits are set at Group level and at the level of each subsidiary. These limits depend on the issuer’s risk, based on the computation of the weighted average credit rating of all the bonds pertaining to this issuer (corporate, government, state-owned companies and agencies). Note 9.4 of Part 4 –
At December 31, 2010, AXA’s invested assets included a net exposure to US subprime residential and Alt-A mortgage loans of approximately €0.8 billion. (17% equalling or above
ABS, 17% in CDO, 20% in Commercial MBS, 19% in Prime
Residential, 6% in US Subprime & Alt-A, and 2% in Non conforming RMBS. At December 31, 2009, AXA’s invested assets included a net exposure to US subprime residential and Alt-A mortgage loans of approximately €0.7 billion (30%
At December 31, 2010, the analysis by rating of the ABS
At December 31, 2010, the nominal amount of positions taken through credit derivatives was €25.0 billion (1) (cumulated notional amounts of protections bought and protections sold), of which €23.4 billion of CDS, which can be broken down as follows: i. €0.3 billion held through consolidated CDOs; ii. €6.1 billion of CDS protections bought to hedge credit risk with regard to certain investments in corporate bonds mainly in Japan (€3.9 billion) and Switzerland (€1.7 billion); iii. €17.1 billion of CDS protections sold and bought to manage our credit exposure, which corresponds to a €10.1 billion (2) net credit investment, of which €7bn representing our corporate credit risk overlay.
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.
(debt securities or credit derivatives). Note that the CDOs are consolidated in AXA‘s balance sheet, in line with IFRS rules, even though AXA‘s investments in these CDOs assets are limited.
Ambac and €55 million to MBIA (versus €454 million indirect exposure at the end of 2009, of which €149 million to Ambac and €151 million to MBIA).
Committee is in charge of assessing reinsurers’ quality and acceptable commitments. The Committee is under co-joined authority of Group Risk Management and AXA Global P&C.
The breakdown of all reserves ceded to reinsurers by reinsurer rating as of December 31, 2010 (€11.1 billion) was as follows: BBB
(1) This fi gure represents an accounting view i.e.100% of assets held directly and in consolidated “core block” and “satellite” funds.
Republic and Slovakia) was at €26 billion (€24 billion in 2009).
Internal Rating Based model and appropriate committees; ■ Regularly monitored earnings at risk and Risk-Adjusted
Return on Capital (RAROC) approach; ■ Quality sovereign, international institutions and bank counterparties portfolio closely monitored; ■ Adequacy to Group operational risk standards; ■ Tightly managed market, asset & liability, foreign exchange and interest rate risks including a strict collateral policy.
Credit risks are regularly reviewed by the Management Board of each bank, and are subject to regulation. AXA Bank
The bank aims to meet all regulatory capital obligations and to remain suffi ciently capitalized in the light of AXA internal capital model. As at December end 2010, AXA Bank Europe’s core tier 1 ratio was 19.5%.
Insurance risks for both Life & Savings and Property & Casualty businesses are covered through 5 major processes, defi ned at
Solvency and reduce volatility of key fi nancial indicators; ■ Reviews of technical reserves; ■ Emerging risks initiative to share expertise within the underwriting and risk communities.
In its Life & Savings activities, the AXA Group has set up 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, which has been further developed by AXA Global Life.
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: ■ Although 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 in terms of product features, pricing, hedging and aspects related to legal, compliance, regulatory and accounting. For Variable Annuity products with guarantees, as well as Long Term Care products, the local governance is supplemented by a centralized review, and submitted to the Management Committee; ■ All signifi cant Life & Savings products must go through this process; ■ Guarantees 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.
& Casualty as a regular technical & risk audit with methods adapted to the underwriting of risks, while maintaining the principle of local decision-making based on a documented approval procedure. The aim is threefold: ■ For pre-launch business, to ensure that new risks underwritten by the Group have undergone a rigorous process before the products are offered to customers and show adequate profi tability adjusted for the cost of capital; ■ For post-launch business, to ensure the appropriate profi tability and risks control of the in-force P&C
(mortality, longevity, long-term care, etc.) and uses the results of this work to enhance the structure of its product ranges and its reinsurance coverage. These exposure analyses are completed by risk models in Life & Savings (mortality, longevity, dependence…).
P&C, AXA Global Life and GRM 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; ■ Estimates of catastrophic risks are carried out on the basis of several pieces of modeling software available in the market. Although these software products are key to allow objective discussions with reinsurers, they are regularly assessed within GRM and adjusted to the specifi c features of AXA’s portfolio. Experience shows that these software products give imperfect estimates of real exposure, and can underestimate some important factors such as infl ation following a major catastrophe or the effects of climate change. In addition, they do not factor in risks relating to legal developments requiring an insurer retrospectively to cover a risk that, it believed, was excluded from its policies.
This work of centralization and harmonization of reinsurance purchase for the Life & Savings business is based on the same procedures as in the Property & Casualty business. Certain
Life, which has set up a retention pool protected by Group covers placed on the Reinsurance Market.
In order to build adjusted and optimized protection, the Group’s various operating entities place 100% of their reinsurance treaties with AXA Global P&C. Only a small part (10-20%) of most local treaties is placed directly on the reinsurance market through AXA Global P&C with the remainder is retained and combined at AXA Global P&C level to build internal Group reinsurance pools by line of business.
The retention rate and the level of these pools are designed to effectively protect the Group within the risk appetite framework.
In addition to controlling upstream risks through prior product approval and analyzing the reinsurance strategy, operational entities specifi cally monitor reserve risks, both in Life &
Savings and Property & Casualty businesses. Reserves have to be booked for claims as they are incurred or reported.
For Property & Casualty business, the Group Risk Management, together with Group P&C Insurance Operations, Group Claims
The Group’s methods for Property & Casualty reserves are based on applicable accounting and actuarial standards as well as internal and industry best practice.
Actuaries in charge of assessing reserves for claims payable do not use a single method but a selection of approaches such as: ■ Methods based on the development of claims (paid or incurred) using triangulation methods (e.g. chain ladder and link ratio) for which past experience is applied to each loss occurrence or underwriting year, in order to make reserves projections until their estimated fi nal development; ■ Methods based on claims ratios (such as the ultimate claims ratio); ■ Hybrid methods (such as Bornhuetter-Ferguson and Cape
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.
However, it must be kept in mind that estimates are based mainly on assumptions that may prove different from subsequent experience, particularly in the event of changes in the economic environment (e.g. a rise in infl ation), in the legal environment (case law) and in the social environment (class action suits), and especially if they affect the Group’s main portfolios simultaneously.
Aside from the immediate destruction caused mainly by fl ooding, and to a lesser extent by drought, climate change will have major implications for most human activities, particularly agriculture, timber production, healthcare and water activities, and therefore for the insurance used to protect them (property, agricultural, business interruption, civil liability, marine and aviation, life, health, etc.). The insurance sector thus faces major challenges in the coming years in the form of potential increases in Property & Casualty claims, the emergence of new liability claims and growing uncertainties about the size of maximum possible losses, which have become harder to assess and to predict on the basis of past events. Furthermore, certain key economic sectors, which work together with the insurance sector, are set to undergo radical changes, due in particular to greenhouse gas emission constraints, following the Copenhagen Climate conference in December 2009.
– 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.
AXA has developed a common operational risk typology listing around a hundred risks classifi ed in the following seven risk categories: ■ Internal fraud; ■ External fraud; ■ Employment practices and workplace safety; ■ Clients, products and business practices; ■ Damages to physical assets; ■ Business disruption and system failures; ■ Execution, delivery and process management.
■ In addition, a loss data collection process is in place 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.
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); ■ An extensive communication of our management team to international media.
(“the Guide”) in February 2004. The Guide, which was updated in 2006, covers all of the Group’s worldwide employees. It defi nes rules for day-to-day professional conduct and covers a variety of matters including specifi c rules concerning confl icts of interest, transactions involving AXA securities and those of its listed subsidiaries, anti-money laundering, confi dentiality and control of sensitive information.
liability, professional liability and fraud and are: ■ Group-wide insurance programs covering all AXA Group entities with the exception of AXA Asia Pacifi c Holdings and AXA Financial and their subsidiaries, which traditionally arrange cover within their local market; ■ Reviewed and approved annually by the Management
The Company has paid dividends on its shares for the past fi ve years. The Company pays dividends in Euro. Future dividends will depend on AXA’s earnings, fi nancial condition and various other factors. Proposals for dividend payments are made at the discretion of the Board of Directors, after examination and opinion of its Finance Committee, and are submitted for fi nal approval to the Shareholders’ Meeting.
NOTE 10 Investments in associates accounted for using the equity method 311
NOTE 29 Contingents assets and liabilities and unrecognized contractual commitments 401
NOTE 32 Subsequent events 408 4.7 REPORT OF THE STATUTORY AUDITORS 409
6 Value of purchased business in force (b) 3,105 3,617 7 Deferred acquisition costs and equivalent 19,642 18,789 8 Other intangible assets 3,647 3,143
Assets backing contracts where the fi nancial risk is borne by policyholders (c) 137,739 155,457 9 Investments from insurance activities 562,880 560,027 9 Investments from banking and other activities (d) 31,642 30,018 10 Investments in associates – Equity method 1,168 1,044
Receivables arising from direct insurance and inward reinsurance operations 13,378 12,687
Assets held for sale including discontinued operations (e) 22,848 11,559 12 Cash and cash equivalents 22,065 19,565
Share capital and capital in excess of nominal value 24,723 24,339
Liabilities arising from insurance contracts where the fi nancial risk is borne by policyholders (c) 108,587 103,281
Liabilities arising from investment contracts with no discretionary participating features and where the fi nancial risk is borne by policyholders 25,006 46,750
Other debts instruments issued, notes and bank overdrafts (e) 6,905 4,474
Collateral debts relating to investments under a lending agreement or equivalent 23,399 18,436
(f) Assets and liabilities related to the Australian and New Zealand operations, and some UK Life & Savings portfolios for which the disposal process is not fi nalized as of December 31, 2010 are classifi ed as held for sale. This classifi cation already applied for Australian and New Zealand operations as of December 31, 2009 (see Note 5.3).
Liabilities arising from investment contracts with discretionary participating features 37,233 39,650
Total Liabilities arising from other insurance and investment contracts 380,512 370,583
Fees and charges relating to investment contracts with no participating features 518 547
Change in unearned premiums net of unearned revenues and fees (511) (192)
Net realized gains and losses relating to investments at cost and at fair value through shareholders’equity (c) 1,921 1,634
Amortization of the value of purchased business in force (256) (394)
Change in goodwill impairment and other intangible assets impairment (117) (113)
5 Charges related to the partial disposal of UK Life & Savings operations (1,642) -
(h) Following AXA’s rights issue in 4Q09, the average number of shares has been adjusted 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. As of
December 31, 2009, total net outstanding number of shares was 2,264 million and average fully diluted number of shares was 2,133 million.
Reserves relating to changes in fair value through shareholders’ equity 1,588 5,116
NB: amounts are presented net of impacts of shadow accounting and its effects on policyholders’ participation, deferred acquisition costs, and value of business in force.
Notably dilution impact from AllianceBernstein deferred compensation (€-42 million group share, offset in minority interests) and €-171 million from open-market purchase of AllianceBernstein holding units (€-106 million group share and €-64 million minority interests).
NB: amounts are presented net of impacts of shadow accounting and of its effects on policyholders’ participation, deferred acquisition costs, and value of business in force.
Change in fair value of investments at fair value through profi t or loss (k) (18,810) (27,451)
Adjustment of non cash balances included in the operating income before tax 10,719 6,251
Adjustment for reclassifi cation to investing or fi nancing activities (1,271) 1,714
Investment expense (excluding interests on fi nancing and undated subordinated debts, margin calls and others) (1,455) (6,409)
Net cash impact of transactions with cash impact not included in the operating income before tax 22,176 15,672
Purchase of subsidiaries and affi liated companies, net of cash acquired (159) (443)
Disposal of subsidiaries and affi liated companies, net of cash ceded 2,257 8
Sales of investment properties held directly or not (g) 786 1,112
Purchases of equity instruments and non controlled investment funds (f) (g) (17,270) (13,229)
Net cash related to sales and purchases of tangible and intangible assets (381) (311)
(b) Includes impact of reinsurance and change in liabilities arising from contracts where the fi nancial risk is borne by policyholders.
(k) AXA Japan closes its full year accounts as of 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 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 adjustment was required in 2010 accounts.
(m) In order to improve the consolidated statement of fi nancial position presentation consistency across segments, balances disclosed so far as “Receivables arising from banking operations” and “Payables arising from banking operations” have been respectively reclassifi ed to the “Investments from banking and other activities” and to the new “Liabilities arising from banking activities” aggregates (see Note 1.20).
“Group”), is the holding (parent) company for an international fi nancial services group focused on fi nancial protection. AXA
AXA operates in the following primary business segments: ■ Life & Savings; ■ Property & Casualty; ■ International Insurance; ■ Asset Management; ■ Banking.
The consolidated fi nancial statements are prepared in compliance with IFRS standards and IFRIC interpretations that are defi nitive and effective as of December 31, 2010, 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 and amended in October 2010 has not been yet formally submitted to the
AMENDMENTS TO STANDARDS AND INTERPRETATIONS PUBLISHED AND ADOPTED ON JANUARY 1, 2010
July 31, 2008, clarifi es how the existing principles underlying hedge accounting should be applied. Additional guidance is given to illustrate how hedge accounting should be applied in (a) a one-sided risk in a hedge item, and (b) infl ation in a fi nancial hedged item ; ■ IFRIC 17 – Distribution of Non-cash Assets to Owners, published on November 27, 2008, 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 applied prospectively to distributions after the adoption date ;
■ the Improvements to IFRSs, published on April 16, 2009, include amendments that are not part of a major project.
Revised IFRS 3 – Business Combinations and amendments to IAS 27 – Consolidated and Separate Financial Statements, published on January 10, 2008 and effective for fi nancial years beginning on or after July 1, 2009 with earlier adoption permitted, represent the second phase of the IASB business combination project. In the context of its 2009 annual consolidated fi nancial statements, the Group decided to early adopt it from January 1, 2009. Revised IFRS 3 introduces a number of changes in the accounting of business combinations that can impact the amount of goodwill to be recognized, the net income of the period of the acquisition and future results. The amendments to IAS 27 require that a change in the ownership interest of a subsidiary be accounted for as an equity transaction, with no impact on goodwill or net income. In addition, they introduce changes in the accounting for losses incurred by subsidiaries and the loss of control of an entity. These principles are detailed in section 1.3.2. From 2009 annual consolidated fi nancial statements, the changes apply prospectively for combinations (including step acquisition transactions) on or after January 1, 2009. Additionally, from 2009 annual consolidated fi nancial statements, the new rules regarding the accounting for additional purchases and sales of minority interests in a controlled subsidiary and the treatment of realizable deferred taxes subsequent to acquisition date are effective for transactions occurring after January 1, 2009 (even if the related original business combination was prior to that 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 material impact on the
IFRS 9 – Financial instruments, published on November 12, 2009, amended on October 28, 2010 and applicable to the
At initial recognition, an entity can use the option to designate a fi nancial asset at fair value through profi t or loss if doing so eliminates or signifi cantly reduces an accounting mismatch.
Financial Assets, published on October 7, 2010, increases the disclosure requirements for transactions involving transfers of fi nancial assets. The amendment is intended to provide additional information regarding risk exposures when a fi nancial asset is transferred but the transferor retains some level of continuing exposure to the asset. The amendment also requires disclosure where transfers of fi nancial assets are not evenly distributed throughout the period. The disclosure amendment is effective for annual periods beginning on or
The amendment to IAS 12 – Income Taxes, published on 20
December 2010 addresses the measurement of deferred tax liabilities and deferred tax assets, which depends on whether an entity expects to recover an asset by using the asset or by selling the asset. In some cases, it is diffi cult and subjective to assess whether recovery will be through use or through sale.
The amendment provides a practical approach in such cases, by introducing a presumption that an asset is recovered entirely through sale unless the entity has clear evidence that recovery will occur in another manner. The presumption would apply when investment properties, property, plant and equipment or intangible assets are remeasured at fair value or revalued at fair value. The amendment is effective for annual periods beginning on or after January 1, 2012 and is not expected to have a material impact on the Group’s consolidated fi nancial statements.
IFRS requires the use of estimates and assumptions. It requires a degree of judgment in the application of Group accounting principles described below. The main balance sheet captions concerned are goodwill (in particular impairment tests described in Section 1.6.1), intangible assets acquired in a business combination, the value of acquired business in force, deferred acquisition costs and equivalent, certain assets accounted for at fair value, liabilities related to the insurance business, pension benefi t obligations and balances related to share-based compensation. The principles set out below specify the measurement methods used for these items. These methods, along with key assumptions where required, are discussed in greater depth in the notes relating to the asset and liability items concerned where meaningful and useful.
As recommended by IAS 1, assets and liabilities are generally classifi ed globally on the statement of fi nancial position in increasing order of liquidity, which is more relevant for fi nancial institutions than a classifi cation between current and noncurrent items. As for most insurance companies, expenses are classifi ed by destination in the income statement.
The AXA Group’s transition date is January 1, 2004. The Group prepared its opening IFRS balance sheet at that date. The
Companies in which AXA exercises control are known as subsidiaries. Under the current defi nition of IAS 27, control is the power to govern the fi nancial and operating policies of a company so as to obtain benefi ts from its activities. Subsidiaries are fully consolidated from the date on which control according to the IAS 27/SIC 12 current model is transferred to AXA.
Control is presumed to exist when AXA directly or indirectly holds more than 50% of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are also considered when assessing whether AXA
Investment funds and real estate companies are either fully consolidated or proportionately consolidated or accounted for using the equity method, depending on which conditions of IAS 27/12 listed above they satisfy. For fully consolidated investment funds, minority interests are recognized at fair value and shown as liabilities in the statement of fi nancial position if the companies’ instruments can be redeemed at any time by the holder at fair value. Investment funds accounted for using the equity method are shown under the statement of fi nancial position caption “Financial investments”.
– First-time adoption of IFRS, business combinations prior to 2004 were not restated with respect to French accounting principles in force at the time.
VALUATION OF ASSETS ACQUIRED AND LIABILITIES ASSUMED OF NEWLY ACQUIRED SUBSIDIARIES AND CONTINGENT LIABILITIES
Investment contracts with no discretionary participating features do not benefi t from the exemption permitted by
IFRS 4 in phase I of the IASB’s insurance project such as described above, i.e. the fair value of acquired liabilities is booked through the recognition of an asset corresponding to the value of acquired business in force. Liabilities relating to investment contracts with no discretionary participating features are measured directly at fair value. In accordance with
IAS 39, the fair value of these contracts cannot be less than surrender value when they contain a demand feature.
(adjustment in the acquisition price conditional upon on one or more events). In the estimate of the contingent element, attention is paid to use assumptions that are consistent with the assumptions used for the valuation of intangible assets
Group is measured at fair value and the resulting adjustment is recognized through the net income. Similarly, when an additional purchase changes the control from signifi cant infl uence or joint control to control, any investment pre-existing in a former associate/joint venture is re-measured to its fair value with the gain or loss through net income (consequently also resulting in a change in the previous recognized amount of goodwill).
Goodwill is measured as the excess of (a) the aggregate of the consideration transferred, the amount of any minority interest in the acquiree and in a business combination achieved 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 Euro at the closing date.
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.
Purchase and sale transactions of minority interests in a controlled subsidiary that do not change the conclusion of control are recorded through shareholders’ equity (including direct acquisition costs).
In the event of an internal sale of an asset that is not intended to be held on the long term by the Group, deferred tax is recognized corresponding to the elimination of the current tax calculated on the realized gain or loss. The income statement impact of the potential policyholders’ participation resulting from this transaction is also eliminated, and a deferred policyholders’ participation asset or liability is posted to the statement of fi nancial position.
In addition, the transfer of consolidated shares, between two consolidated subsidiaries but held with different ownership percentages, should not impact the Group net income. The only exception would be any related tax and policyholders’
Group presentational currency are translated as follows: ■ assets and liabilities of entities in a functional currency different from Euro are translated at the closing rate; ■ revenues and expenses are translated at the average exchange rates over the period; ■ all resulting foreign exchange differences are recognized as a separate component of equity (translation differences).
As mentioned in Section 1.3.2, goodwill arising on the acquisition of a foreign entity is recorded in the local currency of the acquired entity and is translated into Euro at the closing date.
Financial Statements refl ects operating business segments; it is based on fi ve business lines: Life & Savings, Property
future cash fl ows. The value of future expected earnings is estimated on the basis of the life insurance and investment contracts embedded value fi gures published by AXA or similar calculations for other activities. Fair values less costs to sell are based on various valuation multiples.
They also include customer relationships intangibles as well as distribution agreements recognized as a result of business combinations. 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.
For investment contracts with no discretionary participating features, a similar asset is recognized, i.e. Rights to future management fees, also known as Deferred origination costs
In case of unrealized loss over 15%, an impairment is recognized for the difference between the net book value of the investment property and the fair value of the asset based on an independent valuation. Furthermore, at the level of each reporting entity, if the cumulated amount of unrealized losses under 15% (without offsetting with unrealized gains)
represents more than 10% of the cumulated net cost of real estate assets, additional impairment are booked on a line-byline approach until the 10% threshold is reached.
Life and Savings business, fair value was also applied to real estate assets that were used as the dividend basis of “withprofi t” contracts.
Depending on the intention and ability to hold the invested assets, fi nancial instruments are classifi ed in the following categories: ■ assets held to maturity, accounted for at amortized cost; ■ loans and receivables (including unquoted debt instruments)
“available for sale”, an impairment based respectively on future cash fl ows discounted using the initial effective interest rate or on fair value is recorded through the income statement if future cash fl ows may not be fully recoverable due to a credit event relating to the instrument issuer. A downgrade of an entity’s credit rating is not, of itself, evidence of impairment. If the credit risk is eliminated or improves, the impairment may be released. The amount of the reversal is also recognized in the income statement.
Unrealized gains and losses are recognized in the statement of income unless they relate to a qualifying hedge relationship as described below. The Group designates certain derivatives as either: (i) hedging of the fair value of recognized assets or liabilities or of a fi rm commitment (fair value hedge); or
1.10. ASSETS/LIABILITIES HELD FOR SALE INCLUDING THOSE RELATED TO DISCONTINUED OPERATIONS
concerned are measured at the lower of net carrying value and fair value net of selling costs. They are presented in separate
asset and liability items on the statement of fi nancial position.
held for sale are entered separately on the liability side of the consolidated statement of fi nancial position, with no netting against assets.
Undated subordinated debts and any related interest charges are classifi ed either in shareholders’ equity (in the “other reserves” aggregate) or as liabilities depending on contract clauses without taking into consideration the prospect of redemption under economic constraints (e.g. step up clauses or pressure from shareholders to pay a dividend).
A number of insurance and investment contracts contain discretionary participating features. These features entitle the contract holder to receive additional benefi ts or bonuses on top of these standard benefi ts: ■ they are likely to represent a signifi cant portion of the overall contractual benefi ts; ■ their amount or timing is contractually at the discretion of the Group; and
The Group classifi es its insurance and investment contracts into six categories: ■ liabilities arising from insurance contracts; ■ liabilities arising from insurance contracts where the fi nancial risk is borne by policyholders; ■ liabilities arising from investment contracts with discretionary participating features; ■ liabilities arising from investment contracts with no discretionary participating features; ■ liabilities arising from investment contracts with discretionary participating features where the fi nancial risk is borne by policyholders; these relate to unit-linked contracts or multifunds contracts containing a non-unit-linked fund with discretionary participating features; ■ liabilities arising from investment contracts with no discretionary participating features where the fi nancial risk is borne by policyholders.
Unearned premiums reserves represent the prorated portion of written premiums that relates to unexpired risks at the closing date.
Additional reserves are booked if there are any adverse impacts on reserves level caused by a change in the mortality table.
Until the sale operation on the UK Life and Savings business: ■ the “Fund for Future Appropriation” (FFA) relating to UK
with-profi t contracts principally covered future terminal bonuses according to the terms of these contracts. The combination of provisions on with-profi t contracts and the FFA varied in line with the market value of the assets supporting the participating with-profi t funds. Technical reserves were measured on a “realistic” basis in accordance with UK accounting standard FRS 27 and in line with the practice used by UK insurance companies with respect to these contracts; ■ liabilities within the UK with-profi t funds were supported by assets designated as investments at fair value through profi t or loss. When liabilities were transferred out of the
January 1, 2004 for contracts portfolios covered by the risk management program at that date. Any additional contracts portfolios covered by the risk management program after this date are valued on the same terms as those that applied on the date the program was fi rst applied.
In compliance with IFRS 4 option, shadow accounting is applied to insurance and investment contracts with discretionary participating features. Shadow accounting is applied to technical liabilities, acquisition costs and value of business in force to take into account unrealized gains or losses on insurance liabilities or assets in the same way as it is done for a realized gain or loss of invested assets.
or DPA corresponds to the discretionary participation available to the policyholders and is generally determined 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 United States or in Japan.
When a net unrealized loss (unrealized change in fair value, impairment, expense related…) is accounted for, a deferred participating asset (DPA) may be recognized only to the extent that it is highly probable that it can be charged to policyholders, by entity, in the future. This could be the case if the DPA can be offset against future participation either directly through deduction of the DPL from future capital gains or the
DPL netted against value of businesses in force or indirectly through deduction of future fees on premiums or margins.
Unrealized gains and losses on assets classifi ed as trading or designated at fair value through profi t and loss, along with any other entry impacting the income statement and generating a timing difference, are accounted for in the statement of income with a corresponding shadow entry adjustment in the statement of income. The shadow accounting adjustments relating to unrealized gains and losses on available-for-sale assets (for which change in fair value is taken to shareholders’
Group uses liquidity analyses performed by the entities to assess the capacity to hold assets showing unrealized loss position, if any, generating such debits. The Group then performs projections to compare the value of assets backing policyholders’ contracts with expected payments to be made to policyholders.
Contract specifi c risks (insurance risk, asset return risk, infl ation risk, persistency, adverse selection, etc.) directly related to the contracts that might make the net liabilities inadequate, are also considered.
DAC and VBI. For non-life insurance contracts, an unexpired risk provision is accounted for contracts on which the premiums are expected to be insuffi cient to cover expected future claims and claims expenses.
This category includes mainly unit-linked contracts that do not meet the defi nition of insurance or investment contracts with discretionary participating features. For these unit-linked contracts, the liabilities are valued at current unit value, i.e. on the basis of the fair value of the fi nancial investments backing those contracts at the closing date together with Rights to future managements fees, also known as Deferred origination costs (DOC, described in Section 1.6.4).
Fees received at inception of an investment contract with no discretionary participating features to cover future services are recognized as liabilities and accounted for in the statement of income based on the same amortization pattern as the one used for deferred origination costs.
Transactions relating to reinsurance assumed and ceded are accounted for in the balance sheet and income statement in a similar way to direct business transactions provided that these contracts meet the insurance contracts classifi cation requirements and in agreement with contractual clauses.
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 aggregate of the statement of fi nancial position.
The measurement of deferred tax liabilities and deferred tax assets refl ects the expected tax impact, at the balance sheet date. That would follow the way the Group expects to recover or settle the carrying amount of its assets and liabilities. When income taxes are calculated at a different rate if dividends are paid, deferred taxes are measured at the tax rate applicable to undistributed profi ts. The income tax consequences of dividends are only accounted for when a liability to pay the dividend is recognized.
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 statement of fi nancial position for employee benefi ts is the difference between the Defi ned Benefi t Obligation and the market value at the closing date of the corresponding invested plan assets after adjustment at fair value. If the net result is negative, a provision is recorded iunder the provision for risks and charges heading. If the net result is positive, a prepaid asset is recorded. 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.
January 1, 2004 are accounted for at fair value at the date they were granted and the fair value is expensed over the vesting period.
Restructuring provisions other than those that may be recognized on the statement of fi nancial position of an acquired company on the acquisition date are recorded when the Group has a present obligation evidenced by a binding sale agreement or a detailed formal plan whose main features are announced to those affected or to their representatives.
Gross written premiums correspond to the amount of premiums written by insurance and reinsurance companies on business incepted in the year with respect to both insurance contracts and investment contracts with discretionary participating features, net of cancellations and gross of reinsurance ceded. For reinsurance, premiums are recorded on the basis of declarations made by the ceding company, and may include estimates of gross written premiums.
■ the Group accounting methods do not otherwise require to recognize all obligations and rights arising from the “deposit”
Changes in unearned premiums reserves net of unearned revenues and fees include both the change in the unearned premiums reserve reported as a liability (see “Unearned premiums reserves” in Section 1.13.2) and the change in unearned revenues and fees. Unearned revenues and fees correspond to upfront charges for future services recognized over the estimated life of insurance and investment contracts with discretionary participating features (see “Unearned revenues reserves” in Section 1.13.2) and investment contracts with no discretionary participating features (see
They exclude bank operating expenses and change in bad debts provisions, doubtful receivables or loans, which are recorded in the item “Bank operating expenses”.
In respect of banking activities, interest income and expenses are included in the “Net revenue from banking activities” item
Subsequent events relate to events that occur between the closing date and the date when the fi nancial statements are authorized for issue: ■ such events lead to an adjustment of the consolidated fi nancial statements if they provide evidence of conditions that existed at the balance sheet date; ■ such events result in additional disclosures if indicative of conditions that arose after the closing date, and if relevant and material.
From 2010 on, the statement of fi nancial position presentation of the Group banking activities has been harmonized with other segments. Balances disclosed so far as “Receivables arising from banking operations” and “Payables arising from banking operations” have been respectively reclassifi ed to the
new disclosure (Note 15) has been created in relation with this new aggregate.
This change has been applied retrospectively to all 2009 disclosed information, i.e. including relevant notes when impacted.
AXA Asia Pacifi c Holdings Ltd (b) 54.03 54.03 54.08 54.07
DBV Holding AG Merged with WinCom Versicherungs-Holding - - 100.00 100.00
(b) AXA interest in AXA Asia Pacifi c Holdings Limited is 54.03% broken down into 53.93% direct interest holding and an additional 0.10% owned by the AAPH executive plan trust.
AXA Financial Life Insurance Co. Ltd. Merged with AXA Life Japan - - 100.00 98.40
AXA Czech Republic Insurance Minority interests buyout 100.00 100.00 79.49 79.49
New Zealand operations as of December 31, 2009. Additional information is provided in Note 5.3.
As of December 31, 2010, the 43 consolidated real estate companies corresponded to total invested assets of €8,058 million (€7,145 million at the end of 2009), mainly in
As of December 31, 2010, the 5 consolidated CDOs represented total investments of €202 million (€393 million at the end of 2009). These CDOs are consolidated in AXA’s statement of fi nancial position in line with IFRS rules even though AXA’s investments in these CDO’s assets represented €12 million out of €202 million.
In most investment funds (particularly open-ended investment funds), minority interests do not meet the defi nition of shareholders’ equity. They are therefore presented as liabilities under “Minority interests of controlled investment funds and puttable instruments held by minority interest holders”. As of
December 31, 2010, minority interests in controlled investment funds amounted to €4,847 million (€6,370 million as of
Fonds Immobiliers Paris Offi ce Funds Deconsolidated - - 50.00 49.91 2.1.3. Main investments in companies accounted for using the equity method
France Life & Savings. This structure was put in order to improve AXA France Life & Savings assets/liabilities adequacy ratio by ceding receivables resulting from eligible insurance operations against cash. The main impact is a €193 million increase in the AXA Group’s other liabilities, and a parallel increase in receivables as of December 31, 2010.
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 €225 million stake as of December 31, 2010 in the vehicle carrying the junior tranches.
Through securitization, AXA transferred to the fi nancial markets the potential deviation of the cost of claims on the securitized insurance portfolios above certain thresholds.
In 2008, AXA France invested in Arche Finance, an investment vehicle dedicated to credit investment, which entered the scope of consolidation in June 2008 with a loan of €200 million.
Asset Management and Banking. An additional “Holding companies” segment includes all non-operational activities.
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).
Property pool which provides AXA entities with cover on natural catastrophes. Activity from both global lines of business are reported in international insurance.
The Holding companies segment (that includes all nonoperational activities), also includes some investment vehicles including certain Special-Purpose Entities (SPE) such as consolidated CDOs.
Fees and charges relating to investment contracts with no participating features 518 - - - - - - 518
Net result from outward reinsurance 197 (885) (282) - - - 150 (820)
Income arising from investments in associates – Equity method 54 33 - (2) - - - 85
Net income from operating activities before tax 2,414 2,428 477 459 (22) (1,701) (5) 4,051
Fees and charges relating to investment contracts with no participating features 547 - - - - - - 547
Net realized gains and losses relating to investments at cost and at fair value through shareholders’equity 1,337 205 53 25 - 15 - 1,634
Technical charges relating to insurance activities (79,201) (17,913) (1,939) - - - 381 (98,672)
Income from operating activities before tax 3,241 2,206 477 777 (3) 354 (927) 6,124
Income arising from investments in associates – Equity method (8) 18 - (2) - - - 8
Net consolidated income after tax 2,272 1,555 329 587 (16) (693) - 4,033
Net consolidated income – Minority interests 197 39 3 177 2 10 - 428
(b) Includes realized and unrealized forex gains and losses relating to investments at cost and at fair value through shareholders’equity.
(c) AXA Japan’s 2008 accounts (closed at September 30) were adjusted for consolidation purpose 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.
All of the following paragraphs form an integral part of the Group fi nancial statements. They appear in Section 3.2 “Quantitative and Qualitative Disclosures About Market Risk and Risk
Please refer to pages 228 to 232 of the “Quantitative and
Please refer to pages 104 to 109, “Liquidity and capital resources” section.
An analysis of goodwill is presented in the table below: (In Euro million)
(b) All the different goodwill of UK Life & Savings has been allocated to one single line “UK Life & Savings” in the context of the partial disposal of its business.
(c) €19 million were transfered to minority interest following dilution of Group share of interest.
(d) Following a revaluation of deferred tax assets booked at the time of the Nippon Dantaï acquisition, goodwill was reduced by an equivalent amount (€70 million in 2005, equivalent to €88 million as of December 31, 2010 due to change in foreign exchange).
As of December 31, 2010, the main contributors in terms of cash generating units to the: ■ Life & Savings net goodwill of €7,557 million were the
Mediterranean and Latin America Region (€912 million) and the United Kingdom (€584 million); ■ Property & Casualty net goodwill (€4,745 million) were
Mediterranean and Latin America Region (€1,565 million), the United Kingdom (€1,113 million), Germany (€902 million)
and Belgium (€563 million); ■ Asset Management net goodwill (€4,279 million) was
The total goodwill Group share amounted to €15,511 million as of December 31, 2010 and €15,299 million as of
Of which: (a) 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 €512 million goodwill. Most of this increase in goodwill was due to adjustments to provisions for liabilities and claims reserves.
(b) Includes the impact of exercises and revaluations of minority interest buyout commitments.
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. Value in use calculations are also based on valuation techniques.
Key assumptions include expected growth, expenses, cost of capital, future investment margins, fi nancial market volatility, fi rst assessed on a risk free basis (basic test) and then on the basis of illustrative investment assumptions suitable for a traditional embedded value approach if the previous recoverable value is lower than the carrying amount.
Asset Management businesses, the calculation uses cash fl ow projections based on business plans approved by management covering a three to fi ve year period and a risk adjusted discount rate. Cash fl ows beyond that period have been extrapolated using a steady growth rate and terminal value.
The results of these projections exceed the carried amount of each of the cash generating unit or group of units. The estimated amount of excess in United States Life & Savings markets (goodwill noted above) using a value in use approach has improved moderately during 2010; however, it 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, new business volumes and profi tability, fi nancial market volatility, assets under management and inforce portfolio value would likely be affected. In addition, the future cash fl ow expectations from both inforce and new business and other assumptions underlying management’s current business plans could be negatively impacted by other risks to which the Group’s business is subject. 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.
Commission’s (“ACCC”) rejection of a proposed transaction with NAB and reopening of discussion with AMP, AXA
(or €5.5 billion (1)) in cash, while AXA would acquire from AMP
100% of AXA APH’s Asian operations for AU$9.8 billion (or €7.5 billion (1)) in cash. AXA APH’s Australia and New Zealand businesses price would be AU$3.5 billion (or €2.7 billion (1)).
vote at the end of March 2011. This transaction is subject to court approvals and regulatory approvals from the Australian
Offi ce as well as other regulators notably in Asia. AMP has already received approval for the acquisition from both the
AXA SA also booked €49 million deferred tax liability, of which €141 million booked as of December 31, 2009 but partially released (€92 million as of December 31, 2010), refl ecting a taxation at long term rate from 2010 of temporary difference between the consolidated value and the tax base of the shares that it holds.
The major classes of assets and liabilities of the Australian and New Zealand operations that are classifi ed as held for sale include the following (amounts are presented net of inter-company balances with other AXA entities): (in Euro million)
On June 24, 2010, AXA announced that it had agreed to sell to Resolution Ltd its UK-based traditional life and pensions businesses, its IFA protection and corporate pension businesses, and its annuity businesses for a consideration of €3.3 billion.
(1) Amounts in Euro as published in press release on June 24, 2010.
The major classes of assets and liabilities of the United Kingdom operations not yet transferred that are classifi ed as held for sale include the following: (in Euro million)
Antonveneta following its acquisition by BMPS. This gave rise to an adjustment of the acquisition price of AXA MPS that has been controlled by the Group since 2007. This adjustment was recognised as of 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.
As of December 31, 2009, the Bluefi n Insurance Group, AXA’s network of insurance brokers in the United Kingdom, was deconsolidated from the Property & Casualty segment of AXA
UK. This led to a decrease in goodwill of €241 million.
The impact of acquisitions and disposals of subsidiaries and portfolios amounted to €-188 million in 2009, due to the classifi cation of the Australian and New Zealand operations as held for sale.
(1) Impairments net of tax amounted to €128 million (see Note 5.3 for more information).
Net deferred acquisition costs relating to Life & Savings (b) 17,752 16,202
Deferred acquisition costs and equivalent relating to Life & Savings 17,846 17,050
DAC and similar costs capitalization for the period 2,365 197 2,392 184
Acquisitions and disposals of subsidiaries and portfolios (426) (309) (340) (33)
Life & Savings deferred acquisition costs and equivalent net carrying value as of December 31 17,124 723 15,825 1,225
December 31, 2010 led to a decrease of the total deferred acquisition cost, gross of tax, in 2010 of €1,363 million, of which: ■ €703 million impairments (1); ■ €660 million related to remaining balances on businesses disposed of in the United Kingdom.
(1) Impairments net of tax amounted to €549 million (see Note 5.3 for more information).
Unearned revenues and unearned fees reserves 2,324 433 2,109 501 of which shadow unearned revenues reserves (150) - (151) -
DAC net of unearned revenues and unearned fees reserves 14,800 290 13,716 725
The revised 2010 pension law in France led to an increase of policyholders reserves (€480 million). Insurers have the right to increases prices and, in case of cancellation, collect penalties as granted by the new law. As a consequence, a corresponding €379 million amount was recognised as of December 31, 2010 in other intangibles refl ecting such rights with a fi nite useful life ending in 2015 the latest. The net impact on the consolidated statement of income (€-101 million gross of tax) is similar to the impact which would have been reported had the ANC
(French accounting standard setter) recommendation been implemented in Group IFRS accounts.
(a) Assets and liabilities of the Australian and New Zealand operations (including local holdings) are classifi ed as held for sale separately form other assets and liabilities in the consolidated statement of fi nancial position as of December 31, 2009. (see Note 5.3).
Investment in real estate properties designated as at fair value through profi t or loss (b) 1,122 1,122 0.20%
Each investment item is presented net of the effect of related hedging derivatives (IAS 39 qualifying hedges or economic hedges) except derivatives related to macro hedges shown separately. Details of the effect of derivatives are provided in
Investment in real estate properties designated as at fair value through profi t or loss (c) 2,197 2,197 0.39%
Equity instruments designated as at fair value through profi t or loss (c) 10,329 10,329 1.84%
Change in impairment and amortization of investments in real estate properties at amortized cost (all activities): (in Euro million)
Group Share, as related to some real estate funds operated by AXA Investments Managers in which AXA has no material investment but exercises control under IFRS principles.
Debt instruments (at cost) that are not quoted in an active market 5,346 5,317 5,346 14 44 1,804 1,758 1,804 12 58
Debt instruments available for sale 6,329 6,101 6,101 26 254 4,567 4,344 4,344 16 239
Debt instruments available for sale 301,927 311,704 311,704 15,961 6,184 271,498 278,875 278,875 12,184 4,807
Debt instruments (at cost) that are not quoted in an active market 7,578 7,549 7,578 14 44 3,348 3,302 3,348 12 58
Equity instruments available for sale 14,040 18,855 18,855 4,879 63 13,477 17,915 17,915 4,578 141
Non controlled investment funds held for sale 5,827 6,763 6,763 990 53 5,158 5,748 5,748 900 310
(a) In order to improve the consolidated statement of fi nancial position presentation consistency across segments, balances disclosed so far as “Receivables arising from banking operations” and “Payables arising from banking operations” have been respectively reclassifi ed to the “Investments from banking and other activities” and to the new “Liabilities arising from banking activities” aggregates (see Note 1.20).
Debt instruments designated as at fair value through profi t or loss (b) 4,533 7,558 11,815 23,907
Loans designated as at fair value through profi t or loss (b) - 4 - 4
TOTAL – FINANCIAL INVESTMENTS EXPOSED TO FAIR VALUE INTEREST RATE RISK 28,234 96,865 240,604 365,703
TOTAL – FINANCIAL INVESTMENTS EXPOSED TO CASH FLOW INTEREST RATE RISK 1,753 4,772 15,357 21,882
The tables below set out the contractual maturities of debt instruments held by the Group. Effective maturities may differ from those presented, mainly because some assets include clauses allowing early redemption, with or without penalty or duration extension features.
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).
TOTAL – INVESTED FINANCIAL ASSETS EXPOSED TO FAIR VALUE INTEREST RATE RISK 20,370 93,267 228,963 342,600
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 23,147 98,194 243,738 365,079
Equity instruments designated as at fair value through profi t or loss 224 18 7 2 13 3 1 14 158 440
Equity instruments held by controlled investment funds (b) 1,009 1,036 309 299 446 165 197 186 205 3,852
TOTAL EQUITY INSTRUMENTS AS OF DECEMBER 31, 2010 8,482 3,176 1,932 1,269 2,962 1,032 1,462 1,483 1,349 23,146
Equity instruments designated as at fair value through profi t or loss 1,167 1,515 608 439 427 197 563 154 424 5,494
Equity instruments held by controlled investment funds (b) 1,775 833 269 247 328 161 124 221 1,313 5,271
Non controlled investment funds trading mainly holding equity instruments 4 - 232 -
Non controlled investment funds trading mainly holding debt instruments - - 116 -
Other non controlled investment funds available for sale 3,465 2,999 161 164
Other non controlled investment funds designated as at fair value through profi t or loss 726 - - -
Other non controlled investment funds held for trading - - - -
Non controlled investment funds – Equity method (c) (d) 2,536 - 94 -
(d) As of December 31, 2010, in Germany, Belgium, Switzerland and France, a high yield fund was classifi ed as “Non controlled investment funds – Equity method” since the Group’s control was diluted, whereas it was classifi ed as “Debt instruments designated as at fair value through profi t or loss” as of December 31, 2009.
except derivatives related to macro hedges shown separately. Details of the effect of derivatives are provided in Note 20.3.
(c) Asset value including impact of discounts/premiums and accrued interests, but before impairment and revaluation to fair value of assets available for sale.
The Group applies the IAS 39 fair value hierarchy as described below for both assets measured at fair value (and assets at cost for which fair value is disclosed in the previous notes).
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 cannot be considered as representing fair value because of dislocated 9.8.2. Change in impairment on invested assets (excluding investment in real estate properties)
(a) Changes in the scope of consolidation and impact of changes in exchange rates.
(b) Assets and liabilities related to the Australian and New Zealand operations, and some UK Life & Savings portfolios for which the disposal process is not fi nalized as of December 31, 2010 are classifi ed as held for sale. This classifi cation already applied for Australian and New Zealand operations as of December 31, 2009 (see Note 5.3).
Impairment – Non controlled investment funds 834 386 (156) - 13 1,077
In such cases, the Group uses valuation techniques including observable data whenever possible and relevant, adjusted if needed to develop the best estimate of fair value, including adequate risk premiums or develops a valuation model based on unobservable data representing estimates of assumptions that willing market participants would use when prices are not current, relevant or available without undue costs and efforts: in inactive markets, transactions may be inputs when measuring fair value, but would likely not be determinative and unobservable data may be more appropriate than observable inputs. 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.
Amounts presented exclude the impact of all derivatives (set out in Notes 20.3 and 20.5) and investment funds consolidated by equity method. Investment funds accounted for using the equity method represented assets of €2,630 million as of
Financial investments and loans available for sale 245,744 86,752 5,580 338,076 197,200 100,966 5,120 303,286
Investments in real estate properties - 1,122 - 1,122 - 2,197 - 2,197
Other assets held by controlled investment funds designated as at fair value through profi t or loss 2,262 2,940 2,579 7,781 4,304 3,058 1,986 9,348
Financial investments and loans designated as at fair value through profi t or loss 25,391 13,776 4,927 44,094 37,762 24,522 4,357 66,641
Fair values determined in whole directly by reference to an active market 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.
a) Fair values determined in whole directly by reference to an active market (Level 1)
Private Equity funds of funds are measured on the basis of the latest Net Asset Values of funds provided to the Group.
CDOs (Collaterized Debt Obligations) held by the Group were transferred as Level 2 and 3 assets as of December 2007 when markets became no longer active while still measured using the same valuation approaches (mainly external valuations and indices). As of December 31, 2008, the turmoil reached a further point of dislocation. Many fi nancial institutions closed their desks dedicated to structured assets deals and were no longer in a position of delivering meaningful quotes with the appropriate knowledge and dedication at the end of year 2008. The lack of activity with very few prices representing arm’s length transactions between willing market participants restricted the possibility and the relevance to refer to the very limited number of observed deals. As a result, more valuation techniques were introduced at year end 2008 based on a maximum use of observable inputs whenever possible. Such modeled based valuation were maintained at the end of the year 2010 because of the continued inexistence of primary markets and the lack of transactions representing fair values during the period on the secondary market.
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). For the purpose of the
From January 1, 2010 to December 31, 2010, the amount of Level 3 assets moved from €9.5 billion to €10.5 billion, representing 2.7% of the total assets at fair value (2.6% in 2009) mainly because of changes in fair value with limited transfers in and out of the Level 3 category.
The increase in the value in such assets held in Level 3 mainly relate to changes in fair value (€+0.4 billion), new purchases
AXA Asia Pacifi c Holdings associates (a) - - 3 - (3) -
PT AXA Mandiri Financial Services 12 - 18 1 (8) 22
Company Limited (€19 million); ■ the deconsolidation of NEXTIA Life Insurance Company
investment): ■ total assets: €1,507 million (€1,337 million as of December 31, 2009); ■ total liabilities (excluding shareholders’ equity): €1,096 million
(€582 million as of December 31, 2009). Changes are related to foreign exchange impacts.
(€8,333 million as of December 31, 2009); ■ gross revenues: €883 million (€805 million as of December 31, 2009).
PT AXA Mandiri Financial Services 8 - 7 1 (5) 12
Krungthai AXA Life Insurance Company Ltd 22 - 7 (3) 3 29
Kyobo AXA Investment Managers Company Limited 22 - 1 1 (1) 24
In 2009, “other changes” notably included: ■ the change in consolidation method of Bharti AXA Life
Insurance Company Limited. This company is newly consolidated; ■ the change in consolidation method of Aragon AG (€40 million) included in the line “Other”. This company is now deconsolidated; ■ the reclassifi cation of AXA Canada associates (€27 million)
investments from equity instruments available for sale to investments in associates accounted for using the equity method; ■ the capital increase of AXA Minmetals (€16 million), included in the line “Other”.
In the years ended December 31, 2010 and 2009, AXA received cash dividends from companies accounted for using the equity method totaling €21 million, and €3 million respectively.
Current accounts receivable from other companies 1,289 (8) 1,281 1,281 1,122 (12) 1,111 1,111
Receivables arising from outward reinsurance operations 1,119 (93) 1,026 1,026 1,208 (92) 1,116 1,116
(a) Assets and liabilities of the Australian and New Zealand operations, and some UK Life & Savings portfolios for which the disposal process is not fi nalized as of December 31, 2010 are classifi ed as held for sale. This classifi cation already applied for Australian and New Zealand operations as of December 31, 2009 (see Note 5.3).
The table above excludes cash held by consolidated investment funds in the “Satellite Investment Portfolio”, as defi ned in
NET CASH AND CASH EQUIVALENTS AS OF DECEMBER 31 (C) 20,986 18,210
Net cash and cash equivalents increased by €+2,777 million compared to 2009 mainly due to: ■ United States Life & Savings €+1,198 million driven by higher repurchase agreement transactions before being reinvested; ■ Japan Life & Savings €+1,013 million mainly from improved operating cash infl ows refl ecting the end of signifi cant outfl ows since 2009 on Group Pension following the guarantee interest rate reduction from 1.25% to 0.8%; ■ Switzerland €+1,221 million mainly driven by margin call received on derivatives hedging foreign exchange rate risk; Partly offset by
Net cash used in investing activities was €-24,523 million in 2009 and mainly due to: ■ €-18,429 million of net cash used in the purchases and sales 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
I Note 13 Shareholders’ equity and minority interests 13.1. IMPACT OF TRANSACTIONS WITH SHAREHOLDERS
The Consolidated Statement of Changes in Equity is presented as a primary fi nancial statement following the amendment to
In 2010, the following transactions had an impact on AXA’s share capital and capital in excess of nominal value: ■ employee share offering (December 2010) for €330 million; ■ share-based payment for €59 million; ■ realized losses on AXA shares for €15 million.
As of December 31, 2010, the carrying value of treasury shares and related derivatives was €495 million. This fi gure included €0.8 million relating to AXA shares held by consolidated mutual funds (51,158 shares) not backing contracts where fi nancial risk is borne by policyholders.
In 2010, the change in other reserves was due to the redemption of undated subordinated debt (€33 million) in accordance with the redemption option granted to the issuer ten years after the issue date, €-300 million in interest expense related to the undated subordinated debt (net of tax), and €+332 million in exchange rate differences.
Undated notes – variables rates in € 660 660 693 693
Undated notes – (of which 500 MUS$ at 7.1%) in US$ 875 655 875 607
d) Dividends paid At April 29, 2010 Shareholders’ Meeting, shareholders approved a dividend distribution of €1,259 million with respect to the 2009 fi nancial year.
In 2009, the following transactions had an impact on AXA’s share capital and capital in excess of nominal value: ■ capital increase of €2,041 million by issuing shares (including €+399 million in nominal share capital); ■ employee share offering (December 2009) for €393 million
As of December 31, 2009, the Company and its subsidiaries owned approximately 26.4 million AXA shares, representing 1.15% of the share capital, a decrease of 2.8 million shares or €42 million compared to December 31, 2008.
As of December 31, 2009, the carrying value of treasury shares and related derivatives was €505 million. This fi gure included €0.3 million relating to AXA shares held by consolidated mutual funds (15,492 shares) not backing contracts where fi nancial risk is borne by policyholders.
Their total estimated historical cost was €51 million and their market value €34 million at the end of December 2009.
In 2009, the change in other reserves was due to the redemption of undated subordinated debt (€-151 million)
in accordance with the redemption option granted to the issuer ten years after the issue date, €-288 million in interest expenses on the undated subordinated debt (net of tax), and €+147 million in exchange rate differences.
The change in reserves for unrealized gains and losses on assets available for sale totaled €1,495 million (net Group share), mainly attributable to the United States (€+494 million),
Less unrealized gains and losses attributable to: Shadow accounting on policyholders’ participation (5,801) (5,685)
Unrealized gains and losses (net of tax) – Assets available for sale 6,618 4,676
Minority interests’ share in unrealized gains and losses (d) (203) (75)
At the end of 2010, most of the unrealized gains on assets available for sale related to the Life & Savings segment, leading to signifi cant movements in shadow policyholders’
Less unrealized gains and losses attributable to: Shadow accounting on policyholders’ participation (3,337) (448) (1,020)
Minority interests’ share in unrealized gains and losses (c) (5) - -
The change in reserves related to changes in fair value of available for sale fi nancial instruments included in shareholders’ equity relating to changes in fair value of assets in 2010 and 2009 broke down as follows: (in Euro million)
Transfer in the income statement on the period (a) (878) (214)
(€+891 million), the United States (€+725 million), partly offset by the Company (€-2,622 million driven by the change in fair value of derivatives and debts hedging net investments in foreign operations).
The total impact of employee benefi ts actuarial gains and losses was €-456 million (of which group share was €-450 million and minority interests was €-6 million) as of December 31, 2010.
decrease in actuarial gains and losses on employee benefi t obligations were the United Kingdom (€-154 million), the
The increase of gross unrealized gains and losses on assets available for sale totaled €+11,102 million, mainly due to debt instruments (€+7,072 million) resulting from the strong credit spread tightening and by improvement of the equity markets
The €+477 million increase in minority interests to €4,170 million was mainly due to: ■ net income attributable to minority interests for €+342 million; ■ foreign exchange impact attributed to minority interests for €+262 million mainly driven by Australia; ■ change in the scope of consolidation mainly due to a dilution impact on deferred compensation in AllianceBernstein
Liabilities arising from insurance contracts, including those where the fi nancial risk is borne by policyholders, were split by segment as follows: (in Euro million)
Claim reserves (b) 10,799 36,408 of which IBNR (e) 3,428 7,089
Liabilities arising from insurance contracts where the fi nancial risk is borne by policyholders 108,587 -
Reinsurers share in liabilities arising from insurance contracts where the fi nancial risk is borne by policyholders 8 -
NB: Liabilities relating to unearned revenues and fees (see Note 7.3), to policyholders participation (see Note 14.8), and derivative instruments (see Note 20.4) are excluded from the table above.
As of December 31, 2009, insurance liabilities relating to UK with-profi t insurance contracts excluding the FFA (Fund for Future Appropriation)
Liabilities arising from investment contracts with no discretionary participating features 720 720 917 917
Of which measured at current assumptions (c) - - - -
Reinsurers’ share in investments contracts liabilities relating to policyholders’ participation (none in 2010 and 2009), as well as derivatives instruments (none in 2010 and 2009) are excluded from the table above.
(c) See Note 1.13.2. – Reserves measured according to the option opened by IFRS 4.24 for selective re-measurement of reserves at current market assumptions.
14.3. CHANGE IN CLAIM RESERVES FOR PROPERTY & CASUALTY AND INTERNATIONAL INSURANCE (INSURANCE CONTRACTS)
Gross claim reserves as of January 1 (a) 34,916 9,017 43,933 34,701 9,614 44,315
Impact of foreign currency fl uctuation 1,318 463 1,780 362 (288) 74
Claim handling cost reserves as of December 31 1,232 234 1,466 1,239 241 1,479
Reinsurers’ share in claim reserves as of January 1 1,935 2,854 4,789 1,988 3,418 5,406
Change in scope of consolidation, portfolio transfers, change in accounting principles an dother changes 31 (19) 12 (35) (43) (78)
Impact of foreign currency fl uctuation 58 243 301 2 (224) (222)
Reinsurers’ share in claim reserves as of December 31 1,725 2,839 4,564 1,935 2,854 4,789
Collected premiums net of loadings on premiums (+) 42,601 13,164 55,764 43,244 13,060 56,304
Unit-Linked technical reserves value adjustment (+/-) 10,414 2,616 13,029 16,442 7,009 23,452
Change in reserves relating to technical and actuarial items (+/-) (c) 8,248 3,351 11,599 2,306 479 2,785
(b) Includes: future policy benefi ts reserves (including shadow accounting reserves), unearned premiums reserves, unexpired risk reserves, claims reserves, claims expense reserves, other policy benefi ts reserves.
Excludes: unearned revenues and unearned fees reserves, liabilities from policyholders’ participation.
Savings operations (€-52,976 million) and the classifi cation of some UK Life & Savings portfolios (€-8,559 million) as held for sale.
In 2009, changes in the scope of consolidation totaled €-8,342 million, of which €-8,438 million due to the classifi cation of the Australian and New Zealand operations as held for sale.
Reinsurers’ share in collected premiums net of loadings on premiums (+) 1,319 - 1,319 1,150 - 1,150
Reinsurers’ share in surrenders, maturities and other claims and benefi ts paid net of charges and penalties (-) (1,023) (2) (1,025) (921) (2) (923)
Reinsurers’ share in change in reserves relating to technical and actuarial items (+/-) (c) 47 (9) 38 (248) 2 (246)
Change in scope of consolidation and change in accounting principles (948) 259 (689) 330 - 330
Excludes: unearned revenues and unearned fees reserves, liabilities from policyholders participation.
(Non Unit-Linked) – Liabilities arising from: Investment contracts with Discretionary Participation Features (DPF) measured according to existing accounting policies (b) & (e) 37,233 39,650
Investment contract with no Discretionary Participation Features (DPF) measured at amortized cost 720 917
Investment contract with no Discretionary Participation Features (DPF) measured at fair value - -
NB: This information is presented net of the impact of derivatives, which is described in Note 20.4.1.
(c) See Note 1.13.2. – Reserves measured according to IFRS 4.24 option which allows to evaluate certain portfolios with current assumptions.
■ measurement principles, notably related to discount rates to be used and where to set the boundaries of contracts (level of future premiums to be included in projections)
As a result of these ongoing debates, there are too many remaining uncertainties and AXA cannot reliably disclose fair value or value ranges for investment contracts with a discretionary participating features.
The second line entitled “Gross reserves for unpaid claims and claim expenses developed in 2010 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.
Group’s existing portfolios, it is not always technically possible to distinguish, within payments made in a given year in respect of prior occurrence years, between those relating to the historical portfolio and those relating to the recentlyacquired portfolio. In these cases, the merged scope is used to prepare the last diagonal of the table, even in the columns corresponding to years before the one in which the most recent portfolio was acquired.
With effect from the development of loss reserves at end of 2006, however, AXA uses the method which consists in completing each column of the table using the same scope as that used for “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.
This line also includes the impact of the unwind of discount rate on annuities (which are developed from 2006 on) for an amount of €114 million for 2009.
(c) In 2006, Winterthur’s operations were integrated within AXA. Total loss reserves developed amounted to €41.3 billion including €8.7 billion in respect of Winterthur (fi nal fi gure after PGAAP re-opening).
December 31, 2005. However, the proportional treaty set in place as part of the agreement between AXA RE and Paris
(In Euro million except percentages) 2000 2001 (c) 2002 2003 2004 (d) 2005
Gross reserves for unpaid claims and claims expenses developed in 2010 (d) 3,453 5,868 4,778 3,742 3,314 4,253
(a) Total gross claims and other reserves developed are presented on the basis of the loss reserves development table. The reserves of AXA Corporate Solutions Insurance US were included in Property & Casualty and International Insurance loss reserves. The reserves of AXA RE P&C Insurance Company and Coliseum RE (ex AXA CS Reinsurance Company) (€118 million in 2010, €135 million in 2009) were included in Colisée RE’s (ex AXA RE) loss reserves development table.
These asbestos claims relate primarily to bodily injuries suffered by those who came in contact with asbestos.
AXA’s exposure to asbestos claims originates primarily from the following contracts: ■ insurance or reinsurance of the United States-originated risks: this exposure arises primarily from the reinsurance of the United States cedants or from direct policies written in the
London Market (excess of primary covers). The underlying exposure is made-up of asbestos claims; ■ employers Liability insurance in Europe: this created exposure to asbestos-related claims, in particular on the UK
There is considerable uncertainty as to the future cost of asbestos claims. The ultimate cost of claims is very much dependent on legal factors that are diffi cult to predict with any certainty. There have been in the past, and continue to be, frequent occurrences of inconsistent court decisions and judicial interpretations regarding the extent of liability and the level of damages awarded.
AXA actively manages its exposure to asbestos claims. Most of the Group’s asbestos claims are managed by AXA Liabilities
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 asbestos claims are thus managed by dedicated teams of experts who use a variety of claims-resolution techniques including settlements, policy buy-backs and, in certain cases, litigation. In addition, AXA
At year-end 2010, key data relating to asbestos claims were as follows: KEY RESERVES DATA FOR ASBESTOS
Claims reserves at end of year 1,087 1,050 1,064 1,027 of which Reported claims 214 191 219 189 of which IBNR claims 873 859 845 838
Cumulative Payments to date / Projected Ultimate Cost 36% 34% 36% 34%
As a result of those various changes and after allowing for movements in exchange rates, AXA held total reserves for asbestos (net of reinsurance) of €1,050 million at year-end 2010.
(excluding contracts where the fi nancial risk is borne by policyholders) of Life & Savings, Property & Casualty and
International insurance. Actual maturities may differ signifi cantly from the estimates set out below, mainly because some of the contracts contain a surrender option controlled by the policyholder that may reduce their duration.
The projections shown below cannot be compared with the reserves carried on the balance sheet and are higher than the published balance sheet fi gures because they represent expected cash fl ows without any discounting element. They are also shown net of infl ows of periodical premiums payable by policyholders.
Liabilities arising from insurance and investment contracts 25,020 73,333 438,248 536,600 24,708 72,466 425,131 522,305 of which Life & Savings liabilities relating to contracts including a surrender option with some surrender benefi t before maturity 12,893 55,117 324,284 392,294 13,398 53,104 308,279 374,781
The surrender value of contracts including a surrender option as of December 31, 2010 amounted to approximately €230 billion, the main difference between expected cash fl ows shown above and such value refl ecting the impact of discount and surrender penalties.
As shown in the table below, as of December 31, 2010: 89%
were discounted, of which 9% were subject to a revision of the discount rate and 80% retained the rate set at inception, subject to the liability adequacy test described in Note 1.
Such reserves are not sensitive to interest rate risks in fi nancial statements.
The rates presented in the table below are weighted average rates for all the portfolios under consideration. They should be analyzed with care. For contracts with guaranteed rates that are revised annually, rates are crystallized at the closing date.
Non Life – locked-in discount rate (b) 4,112 3.91% 3,958 3.99%
(b) Subject to liability adequacy tests (not systematic but reviewed on a regular basis).
In accordance with IFRS 7, the Group discloses, in Note 4 of its consolidated fi nancial statements, quantitative sensitivities of the Group “Embedded Value” (as defi ned in the “market risks”
The estimated impact of the unlocking of discount rates relating to Life & Savings reserves was €-568 million for 2010
participation and tax impacts and was included in the income statement of the period.
AXA reports separately at fair value because: ■ many of the features would be considered clearly and closely related to the host contract; and
■ many of the features themselves would qualify as insurance contracts under Phase I (IFRS4).
GMDB features provide a guaranteed death benefi t which may be higher than the contract account balances of the unit-linked contract, depending on performance of the unitlinked assets. GMIB features provide a guaranteed lifetime annuity which may be elected by the contract-holder after a stipulated waiting period, and which may be larger than what the contract account balance could purchase at then-current annuity purchase rates.
Banking liabilities Refi nancing with central banks - - 503 503
Banking liabilities Interbanking refi nancing 6,112 9 584 6,706 2,334 27 552 2,912
Banking liabilities Refi nancing with central banks - - - - 503 - - 503
As of December 31, 2010, the “Other provisions for risks and charges” were composed of the following elements: ■ provision for tax liability of €444 million mainly in United States Life & Savings (€346 million); ■ other provisions for risks and charges for €704 million, including various amounts, in particular €215 million related to the coding error of AXA Rosenberg at AXA Investments Managers.
Impact of change in scope of consolidation and changes in accounting method - (10) 1 - 1 (7)
Impact of foreign exchange fl uctuations 5 9 1 - 49 64
Impact of foreign exchange fl uctuations (1) - 1 - (1) -
Other fi nancing debt instruments issued (less than €100 million) 170 116
December 31, 2009 and December 31, 2010, or by €172 million at constant exchange rates, to €10,454 million.
The increase at constant exchange rates was mainly due to: i. €1,300 million increase arising from the Company’s issue of a dated subordinated debt in April 2010; ii. €413 million unfavorable change in fair value of cross currency and interest rate swaps.
Derivatives on fi nancing debt instruments issued (a) 35 35 (62) (62)
Debts relating to investments under lending agreements and equivalent 23,399 18,436
Minority interests in funds under this caption, totaled €4,847 million as of December 31, 2010 (€6,370 million as of
“Debts relating to investments under lending agreements and equivalent” totaled €23,399 million as of December 31, 2010, an increase of €4,963 million mainly due to increase of repurchases agreements activity in Japan, Switzerland and the
ERIV: mortgage loan based on Euribor 3M + 85bps, due 2013 + 2x1 year 100 105
Vendome Commerce: mortgage loan based on Euribor 3M + 145bps, due 2011 186 195
REOF2: mortgage loan based on Euribor 3M + 65bps, due 2012 116 118
OTHER DEBT INSTRUMENTS ISSUED, NOTES (OTHER THAN FINANCING DEBT) AND BANK OVERDRAFTS 6,905 4,474
The fair value of other debt instruments issued and bank overdrafts (other than fi nancing debt) was €6,914 million as of December 31, 2010. Among the elements included in the preceding table, fair value is only calculated for other debt instruments issued. Other items mainly comprise repository agreements balances or short-term liabilities carried by Group banks. By nature, their fair value is very close to their carrying amounts.
The fair value option is used to measure debt other than fi nancing debt designated as at fair value through profi t or loss included in the table above. The debt measured at fair value through profi t or loss mainly decreased following the CDO
(see Note 9.9 for a description of observable data) and are therefore considered as Level 2 instruments.
18.4. PAYABLES ARISING FROM DIRECT INSURANCE, INWARD REINSURANCE OPERATIONS AND DIRECT OUTWARD REINSURANCE OPERATIONS
Current accounts payable to other companies (b) 4,215 4,213 4,053 4,053
(b) Includes a quota share reinsurance treaty between Colisée RE (ex AXA RE) and Partner Re (€2,061 million in 2010 and €2,036 million in 2009) as part of the Group’s sale of AXA RE’s business in 2006.
The table below sets out the contractual maturities of other debt instruments issued, notes and bank overdrafts (excluding the impact of derivatives – detailed in Note 20.4). Effective maturities may differ from those presented, mainly because some instruments include clauses allowing early redemption, with or without penalty.
Impact of differences in tax rate and impact of taxes not linked to pre-tax income (b) (1) 289
Impact of differences in tax rates and tax basis (175) 22
Corrections and adjustments of tax relating to prior years (337) (215)
Derecognition/Recognition of DTA on temporary differences of prior years (other than tax losses) (a) (12) 1
(b) Including the effect of policyholders’ tax (€50 million in 2010 vs. €284 million in 2009)
Excluding policyholders’ tax, the effective tax rate would have been 23% as of December, 31 2010 (versus 22% in 2009).
The impact of rate differences on notional tax charge represents the difference between the expected tax calculated at each entity level with the applicable standard rate and the tax calculated using the 34.43% French tax rate. The blended standard rate was 30% as of December 31, 2010 and 2009.
Tax losses impact as of December 31, 2009 mainly included the recognition of deferred tax assets in the context of the early adoption of Revised IFRS 3 – Business Combinations
As of December 31, 2010, corrections and adjustments of tax relating to prior years (€-337 million) mainly included €-174 million following new regulation on “Réserve de
Permanent differences on fi nancial income and expenses mainly represented the impact in some countries of nondeductible fi nancial impairments and realized capital losses on equity instruments, or non taxable dividends and realized capital gains on equity instruments.
Deferred tax assets/(liabilities) concerning: ■ Deferred tax through profi t or loss 11,697 10,625 1,072 (210)
■ Deferred tax through reserves relating to the fair value adjustment of available for sale assets 2,082 4,061 (1,979) (1,399)
■ Deferred tax through reserves relating to hedge accounting and other items 16 32 (17) (31)
■ Deferred tax through reserves relating to the revaluation of tangible assets - 8 (8) (1)
■ Deferred tax through reserves relating to gains and losses on defi ned benefi ts pension plans 935 9 927 684
■ Deferred tax through reserves relating to stock options 3 - 3 10
(DTA) and deferred tax liabilities (DTL) carried on the Group’s consolidated statement of fi nancial position. Note that the breakdown of DTA/DTL disclosed in these tables corresponds to the deferred tax before the netting that occurs for balance sheet presentation purpose.
The change from a net liability position in 2009 to a nil position in 2010 mainly came from additional recognition of DTA on tax loss carry forward in the Company.
Deferred tax through profi t or loss (210) 1,190 - 94 (1) 1,072
Deferred tax through reserves relating to the fair value adjustment of available for sale assets (1,399) - (475) (122) 17 (1,979)
Policyholder tax – Deferred tax through profi t or loss (282) 51 - (9) 240 -
Policyholder tax – Deferred tax through reserves relating to the fair value adjustment of available for sale assets 4 - (2) - (2) -
Policyholder tax – Net deferred tax assets/(liabilities) (279) 51 (2) (8) 237 (0)
TOTAL NET DEFERRED TAX ASSETS/(LIABILITIES) (1,226) (406) 1,372 9 249 (1)
(b) The movements through shareholders’ equity mainly concern net investment hedge in the Company
The change in scope and other variations mainly corresponded to the classifi cation as held for sale of Australian and New Zealand and of some UK Life & Savings operations.
Deferred tax through reserves relating to gains and losses on defi ned benefi ts pension plans 298 - 412 - (26) 684
Deferred tax through reserves relating to stock options 16 - 6 - (11) 10
Policyholder tax – Deferred tax through reserves relating to the fair value adjustment of available for sale assets 3 - 1 - - 4
TOTAL NET DEFERRED TAX ASSETS/(LIABILITIES) 1,788 (1,247) (1,095) 135 (806) (1,226)
(b) 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.
The change in scope mainly corresponded to the classifi cation as held for sale of Australian and New Zealand operations.
Recognized Deferred Tax Assets (DTA) by maturity and expiration date: The tables below break down: (i) in the fi rst part the maturity by which the Group expects to use the Deferred Tax Assets (DTA)
DTA recognized on tax loss carry forward 37 11 13 43 17 67 182 705 2,155 3,229
Total tax carry forward losses increased by €4,787 million in 2010 mainly in the Company (€+3,058 million) because of tax losses notably in relation to foreign exchanges results and in the United States (€+1,813 million).
Unrecognized DTA on tax loss carry forward 14 15 4 4 2 5 3 89 152 288
I Note 20 Derivative instruments 20.1. DERIVATIVE INSTRUMENTS: MATURITIES, NOTIONAL VALUES AND FAIR VALUES
Derivative instruments: maturities, notional values and fair values (in Euro million)
(b) By convention, notional amounts are displayed in absolute value, and exclude potential netting out.
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)
Hedging derivative instruments broke down as follows: Derivative instruments subject to hedge accounting and other derivatives (in Euro million)
Derivative instruments subject to hedge accounting and other derivatives (in Euro million)
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 notably of certain credit derivatives. They include “macro-hedging” derivatives as defi ned by the IASB in its amendment to IAS 39.
Details of the impact of derivative instruments on fi nancial investments and liabilities are provided in Section 20.3 and 20.4.
As of December 31, 2010, the notional amount of all derivative instruments totaled €385 billion (€308 billion at the end of 2009). Their net fair value as of December 31, 2010 totaled €439 million (€-148 million at the end of 2009).
AXA’s local operations. Such economic hedging strategies include (i) managing interest rate exposures on fi xed maturity investments, long-term debt and guaranteed interest rates on insurance contracts, (ii) managing foreign-currency exposures on foreign-currency denominated investments and liabilities,
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 Group’s exposure to derivative instruments.
As of December 31, 2010, the notional amount of hedging derivative instruments as defi ned by IAS 39 (fair value, cash fl ow and net investment hedges) of the Group totaled €60,391 million (€43,964 million at the end of 2009). Their net fair value was €-3,350 million (€-624 million at the end of 2009), mainly driven by foreign exchange movements impacting net investment hedge strategies.
These puts and calls are predominantly used by the Company and represented a total notional value of €11,250 million at the end of 2010 (€3,541 million at the end of 2009). The Company notably bought in 2010 call options on an equity index maturing in June 2012 for €5,000 million notional amount.
Swap contracts are agreements between two parties to exchange one set of cash fl ows for another set of cash fl ows. Payments are made on the basis of the swap’s notional value. AXA primarily uses interest rate swap contracts to manage cash fl ows arising from interest received or paid, and cross-currency swap contracts to manage foreign-currency denominated cash fl ows or investments (see Note 20.2.4).
On a consolidated basis, the notional amount of interest rate swaps at December 31, 2010 was €131,436 million
At December 31, 2010, interest rate swaps accounted for 71% of all swaps used by the Group (versus 65% at the end of 2009). They are used mainly by: (i) the Company to limit the variability of its future net interest expenses resulting from its interest rate exposure on debt issued or amounts borrowed (notional amount of €56,371 million compared to €47,212 million at the end of 2009);
Variable Annuity products. The increase in notional value in 2010 was mainly driven by new sales of Variable
(notional amount of €1,847 million versus €2,121 million at the end of 2009); (vi) United States Life & Savings (notional amount of €4,638 million versus €1,854 million at the end of 2009)
Variable Annuity products and anticipatory hedge to protect against declining interest rates with respect to projected Variable Annuity sales. The increase is mainly due to dynamic interest rate hedging program on Variable
At December 31, 2010, 89% of the total notional amount of interest rate swaps was not subject to hedge accounting under IAS 39 (90% at the end of 2009), and included €56,371 million for the Company (€47,212 million at the end of 2009), €17,270 million for AXA Germany Life & Savings (versus €12,878 million at the end of 2009), and €15,697 million for
The notional amounts of interest rate swaps used in fair value hedge relationships totaled €13,562 million as of
The notional amounts of interest rate swaps used in cash fl ow hedge relationships totaled €1,043 million (€1,043 million at the end of 2009), including €501 million in Belgium Life & Savings, €266 million in Germany Life & Savings and €200 million in
The option portfolio hedging interest rates consists mainly in caps and fl oors. Interest rate caps and floors are options agreements where the seller agrees to pay the counterparty an amount equal to the difference, based on a notional amount, between the interest rate of the specifi ed index and the reference interest rate cap or fl oor. These products are used to hedge against interest rate increases (caps) or decreases (fl oor). Caps and fl oors are used predominantly by
& Savings (€6,690 million in 2010 versus €6,690 million at the end of 2009) to hedge interest rate risk on the fi xed income portfolio and Variable Annuity guarantees, (iii) in Switzerland
& Savings business, (iv) €1,224 million in Japan Life & Savings
€15,760 million (€5,801 million at the end of 2009) and are predominantly used in United States Life & Savings to hedge
As of December 31, 2010, 88% of the notional value of futures and forwards at the end of 2010 did not qualify for hedge accounting under IAS 39 (100% at the end of 2009).
At December 31, 2010, the notional amount of credit derivatives carried by the Group was €24,975 million (including €312 million held through CDOs), of which: ■ €1,956 million relating to exposures held within investment funds of the “satellite investment portfolio” (see Note 1.7.2).
(€736 million) and AXA Belgium (€351 million); ■ €23,019 million held directly or within “core investment portfolio” or CDOs. Such credit derivatives were mainly used in AXA Japan (notional amount of €6,692 million compared to €9,780 million at the end of 2009) and in France Life
& Savings (notional amount of €3,245 million compared to €3,245 million at the end of 2009) on debt instruments to enhance the return on their government bonds portfolios.
In addition, Japan Life & Savings, Switzerland entities and France Life & Savings also used credit derivatives to form negative basis trades, for a notional amount of €3,868 million, €1,692 million and €539 million respectively.
In accordance with IAS 21 and IAS 39, the translation difference relating to these debt instruments is recognized in profi t & loss and offsets most of the change in market value of associated derivative instruments, which is also recognized in profi t & loss. In practice, therefore, the hedge impact of such contracts is recognized through profi t or loss with no qualifi ed hedge accounting prescribed by IAS 39.
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 20.4). The table below sets out the impact of derivative instruments on the related
(b) Carrying value, i.e. net of impairment, discount premiums and related amortization, including accrued interest, but excluding any impact of derivatives.
Investment in real estate properties at amortized cost 14,586 - - 14,586
Investment in real estate properties designated as at fair value through profi t or loss 1,122 - - 1,122
Equity instruments designated as at fair value through profi t or loss 3,909 - (1) 3,908
Non controlled investment funds designated as at fair value through profi t or loss 4,188 - 79 4,267
Non controlled investment funds held for trading 4 - - 4
Derivative instruments hedging net investment in a foreign operation (assets) (h) - - - -
Investment in real estate properties at amortized cost 13,373 - 33 13,406
Investment in real estate properties designated as at fair value through profi t or loss 2,197 - - 2,197
Derivative instruments hedging net investment in a foreign operation (assets) (i) - - - -
(c) Carrying value, i.e. net of impairment, discount premiums and related amortization, including accrued interest, but excluding any impact of derivatives.
(f) 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.
(h) Other investments held through consolidated investment funds designated as at fair value through profi t or loss.
(i) Derivative 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 balance sheet within their related underlying fi nancial liabilities (and assets, see Section 20.3). The tables below set out the impact of derivative instruments on the related underlying liabilities.
Total liabilities arising from insurance contracts 451,146 - (722) 450,424 433,297 - (318) 432,979
Liabilities arising from investment contracts with discretionary participating features 37,233 - - 37,233 39,650 - - 39,650
Liabilities arising from investment contracts where the fi nancial risk is borne by policyholders 29,706 - (5) 29,702 52,516 - (1) 52,515
Total liabilities arising from investment contracts 67,659 - (5) 67,654 93,083 - (1) 93,082
Macro hedge derivative instruments on insurance and investment contracts (liabilities) - - 6 - - - (2) -
(a) Assets and liabilities related to the Australian and New Zealand operations, and some UK life & Savings portfolios for which the disposal process is not fi nalized as of December 31, 2010 are classifi ed as held for sale. This classifi cation already applied for Australian and New Zealand operations as of December 31, 2009 (see Note 5.3).
As of December 31, 2010, the fair value of derivatives related to macro hedges shown in Note 15 are used to hedge interest rate risk exposures in the context of ordinary banking activities, in order to achieve an appropriate interest rate spread between its interest earning assets and interest bearing liabilities. Related hedged assets are disclosed in Note 9.4.2 and liabilities in Note 15.
Minority interests of controlled investment funds and puttable instruments held by minority interests holders 4,855 - - 4,855 6,516 - - 6,516
Other debt instruments issued, notes and bank overdrafts 6,870 34 - 6,905 4,446 28 - 4,474
Payables arising from banking activities (c) - - - - - - - -
Derivatives relating to other fi nancial liabilities - - - - 94 94
(c) Financing debt, other debt instruments issued, notes and bank overdrafts, and Payables arising from banking activities issued are disclosed in the balance sheet net of the impact of derivatives. As a result, the amount showing in the column “value including effect of derivatives” is their carrying value.
(d) Other debts are presented excluding the effect of derivatives on the face of the consolidated statement of fi nancial position.
Instruments not quoted in an active market – No active market
Other derivatives on insurance & investment contracts (b) 15 (742) -
Macro hedge derivatives on insurance and investment contracts 6 31 -
Derivative instruments relating to fi nancing debt and other fi nancial liabilities (hedge accounting) 2 151 -
Other derivative instruments relating to fi nancing debt and other fi nancial liabilities - 439 -
(b) Other derivatives instruments that do not qualify for hedge accounting according to IAS 39.
Fair value determined directly by reference to an active market Level 1
The identifi cation of such derivatives among assets held at fair value representing instruments not quoted in an active market involves a signifi cant level of judgment. 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 judgment 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 21 Revenues and liabilities by segment 21.1. TOTAL REVENUES
LIFE & SAVINGS 56,923 57,620 of which direct premiums 52,164 53,338 of which reinsurance assumed 2,798 2,562 of which fees and charges on investment contracts with no participation features 518 547 of which revenues from other activities 1,444 1,174
Life contracts (including endowment contracts) 20,338 157,817 996 17,676 142,556 863
(a) Assets and liabilities related to the Australian and New Zealand operations, and some UK Life & Savings portfolios for which the disposal process is not fi nalized as of December 31, 2010 are classifi ed as held for sale. This classifi cation already applied for Australian and New Zealand operations as of December 31, 2009 (see Note 5.3), but are included in the following table.
(c) Relates to liabilities arising from investment contracts without discretionary participation features and investment contracts without discretionary participation features where the fi nancial risk is borne by policyholders.
As of December 31, 2010, liabilities classifi ed as held for sale represent for Australia and New Zealand €2.3 billion from insurance contracts and €7.8 billion from investment contracts; and €2.3 billion and €6.3 billion respectively for United Kingdom.
TOTAL – PROPERTY & CASUALTY EXCLUDING INTERNATIONAL INSURANCE 28,256 6,920 1,063 169 36,408 13,853 50,261
TOTAL – PROPERTY & CASUALTY INCLUDING INTERNATIONAL INSURANCE 33,390 10,619 1,140 326 45,476 14,925 60,401
TOTAL – PROPERTY & CASUALTY INCLUDING INTERNATIONAL INSURANCE 32,352 10,103 1,121 358 43,934 14,176 58,110 21.3. NET REVENUES FROM BANKING ACTIVITIES
Debt instruments designated as at fair value through profi t or loss (a) 1,727 - 1,342 - 3,068
Equity instruments designated as at fair value through profi t or loss (b) 242 - 14 - 256
Other assets held by controlled investment funds designated as at fair value through profi t or loss 211 - 378 - 589
Assets backing contracts where the fi nancial risk is borne by policyholders - - 13,788 - 13,788
Non controlled investment funds held for trading 1 - 5 - 6
Other assets held by controlled investment funds designated at fair value through profi t & loss 110 - (700) - (589)
(b) Includes equity instruments held by consolidated investment funds, designated as at fair value through profi t or loss.
(i.e. underlying 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).
Claims ceded (including change in claims reserves) 1,471 491 554 (220) 2,297
Financing debt expenses amounted to €488 million in 2010, notably €346 million for AXA SA and €49 million in the United
Financing debt expenses amounted to €569 million in 2009, and included income and expenses relating to hedging derivative instruments on fi nancing debt, mainly in the Company
Change in deferred acquisition expenses and equivalents (b) (1,452) 15 3 (1,434)
(a) Includes all acquisition expenses relating to insurance and investment contracts before capitalization/amortization of deferred acquisition expenses and equivalents.
Increase/(write back) of provisions for risk and charges 3 46 3 52
Other staff expenses and employees’ profi t sharing (a) 365 335
The annual change in the Defi ned Benefi t Obligation (DBO) is calculated on the basis of: ■ service cost for the period (representing the increase in the
■ change in plans (amendments, curtailments, settlements, business combinations, etc.); ■ actuarial gains and losses (due to assumptions and experience); ■ benefi ts paid by employer, plan assets and separate assets.
holding company, with preserved rights at the date of the sale and a related compensation implicitely included in the sale price.
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.
Benefi t obligation at the beginning of the year 13,661 11,729 12,955 14,734 11,421 534 511 506 604 716
Amendments (including acquisitions and disposals) (a) 110 (75) (150) (261) 3,625 4 (2) 12 18 (7)
Benefi ts directly paid by the employer (275) (310) (270) (227) (128) (37) (39) (44) (45) -
Actual return on plan assets 544 516 (1,498) 477 395 - (0) (1) (3) (4)
Net transfer In/(Out) (including acquisitions and disposals) (a) (b) 21 58 48 (1,724) (85) - - - - -
Impact of foreign currency fl uctuations - 0 (5) (69) (227) - - - - -
Underfunded status (plan by plan) (7,907) (7,500) (7,087) (6,098) (6,530) (601) (530) (507) (502) (595)
Cumulative impact of asset ceiling (2) (10) - - - - - - - -
Liability and asset recognized in the statement of fi nancial position (excluding separate assets)
Net position (excluding separate assets) (7,840) (7,423) (6,995) (5,818) (6,430) (600) (529) (506) (501) (595)
(b) This amount includes the effect of the reclassification of assets in the United States as plan assets rather than separate assets in 2007.
“Other benefi ts” includes postretirement benefi ts other than pensions, principally health care benefi ts, and post employment benefi ts after employment but before retirement.
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 €51 million and €42 million, respectively, as of December 31, 2010. As required by IFRIC 14, 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 annual expense for employee pension and other benefi ts recorded in the income statement, for the years ended December 31,
Expected return on plan assets (399) (362) (470) (489) (314) - (0) (0) (0) (0)
Expected return on separate assets (40) (34) (35) (33) (172) - - - - (0)
Employer contributions and benefi ts directly paid by the employer (c) 1,245 600 548 378 242 38 40 44 45 49
Impact of foreign currency fl uctuations (490) (11) (247) 123 83 (36) 9 (20) 54 66
Statement of fi nancial position liability at the beginning of the year (7,423) (6,995) (5,818) (6,430) (6,654) (529) (506) (501) (595) (703)
Pension and other benefi ts expense (517) (404) (306) (371) (225) (44) (37) (37) (40) (23)
Benefi ts paid through separate assets 71 66 64 60 168 - - - - -
Net transfer of separate assets to plan assets (c) - 41 10 1,695 155 - - - - -
Impact of foreign currency fl uctuations (490) (12) (242) 191 272 (36) 9 (20) 54 66
Net economic funding position at the end of the year (6,855) (6,530) (6,206) (5,079) (3,950) (600) (529) (506) (501) (595)
(c) This amount includes the effect of the reclassification of assets in the United States as plan assets rather than separate assets in 2007.
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 4.3).
Experience adjustments on plan assets and separate assets 164 151 (2,028) (33) 141 - (0) (1) (3) (5)
Impact of foreign currency fl uctuations (176) 6 (34) 10 24 3 (1) 3 (5) -
From year N+11 until the last benefi t payments is paid 25,568 689
The table below shows the asset mix for plan assets and separate assets at the end of 2010: Asset mix for plan assets and separate assets Total Group Europe North
less assets/(liabilities) held for sale (b) 31 41 - - -
settled instruments does not vary for a given plan while the cash settled instruments unit cost is updated at each closing.
The following table shows AXA SA stock options granted under all plans after November 7, 2002: Options (in million) Weighted price (in Euro)
Weighted average fair value per option at grant date in Euro (a) (c) 2.24 1.91 3.23 6.80 6.48
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, 2010 was €28.3 million
In fi rst quarter 2010, AXA voluntarily delisted the AXA ADRs from the New York Stock Exchange and fi led to deregister and terminate its reporting obligation with the SEC. AXA’s deregistration became effective in second quarter 2010.
volatility is based on AXA SA ordinary shares volatility, adjusted for the US$/€ exchange rate volatility. The expected dividend yield on AXA SA shares is based on the market consensus.
The risk-free interest rate is based on the U.S. Treasury bond curve for the appropriate maturity.
AXA offers to its employees the opportunity to become shareholders through special employee share offerings. In countries that meet the legal and fi scal requirements, two investment options are available: the traditional plan and the leveraged plan.
On October 28, 2010, the AXA Group made an employee share offering at €10.58 per share for the traditional plan (discount of 20% to the reference price of €13.22 representing the average over the twenty trading days ending on October 17, 2010) and at €11.01 per share for the leverage plan (discount of 16.71%
In 2010, the cost of the lock-up period was measured at 19.71% for the traditional plan and 16.53% for the leveraged plan (due to different discounts). In addition to the lock-up cost, the opportunity gain offered to the employees under the leveraged plan was measured at 3.16%.
The table below shows the main features of the plan, the amounts subscribed, valuation assumptions, and the cost of the plan for 2009 and 2010: Traditional Leveraged Traditional Leveraged
Amount subscribed by employee (in Euro million) 20.8 31.0 26.7 36.7
Total number of shares subscribed (in million shares) 2.0 28.1 1.8 24.6
[B] Cost of the lock-up for the employee 19.71% 16.53% 17.31% 17.30%
Total cost for AXA = [A] – [B] + [C] (as a percentage of the reference price) 0.29% 3.34% 0.99% 3.07%
of the total cost of these plans (of which 100% of the 2+2 plan).
In 2010 the valuation was based on a market price of €15.8 per share at grant date and an estimated 5% pre-vesting lapse rate. The grant date fair value of Performance Shares granted in 2010 was €10.5.
AXA issued Performance Units to executive offi cers and other key employees outside France in 2008, 2009 and 2010.
Performance Units defi nitely acquired at the end of the vesting period 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 (equitysettled ).
AXA APH grants stock options based on AXA APH shares, with both market and non-market performance conditions.
The total cost for this plan in 2010 was €4.4 million.
The total cost of AXA Financial share-based compensation plans in 2010 included €-0.9 million in respect of AXA Financial
AllianceBernstein grants Restricted Units and options to acquire AllianceBernstein Units, which are valued and booked according to IFRS principles.
AllianceBernstein also awarded restricted Holding Units in connection with certain employee and separation agreements.
Amounts provisioned or recognized by AXA SA and its subsidiaries for the payment of pensions or retirement benefi ts to the members of the Management Committee totaled €49.2 million as of December 31, 2010 (€36.3 million in 2009 as of December 31, 2009)
At December 31, 2010, the Group employed 102,957 salaried people on a full-time equivalent basis (103,432 at the end of 2009).
The Group calculates a basic net income per ordinary share and a diluted net income per ordinary share: ■ the 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; ■ the 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.
Net income including impact of undated subordinated debt (b) A 2,449 3,318
Fully diluted – weighted average number of shares (d) D 2,275 2,133
FULLY DILUTED NET INCOME PER ORDINARY SHARE F = E/D 1.08 1.56
AXA collectively owned 13.94% of the Company’s outstanding ordinary shares representing 21.87% of the voting rights.
Note 29 “Contingent assets and liabilities and unrecognized contractual commitments to the Group’s consolidated fi nancial statements”. Certain of these guarantees are given by the Company for the benefi t of its subsidiaries and affi liates for various business purposes including to promote development of their business (e.g. to facilitate acquisitions, integration of acquired businesses, distribution arrangements, internal restructurings, sales or other disposals of assets or businesses, sales or renewals of products or services or similar transactions), to support their credit ratings, and/or to promote effi cient use of the Group’s capital resources. In this context, the Company may guarantee repayment of loans or other obligations between its subsidiaries, guarantee obligations of its subsidiaries to third parties, or provide other types of guarantees for the benefi t of its subsidiaries. The benefi ciaries of these guarantees are generally required to compensate the
Company at a negotiated rate based on prevailing market rates and conditions for guarantees of a similar nature. In addition, from time to time, the Company may provide comfort letters or similar letters to rating agencies and/or regulators for the benefi t of its subsidiaries and affi liates for various business purposes, including facilitating specifi c transactions, achieving target rating levels and, more generally, helping to develop the business of these subsidiaries.
Commitments received by AXA totaled €64,244 million at the end of 2010, and increased by €15,452 million compared to the end of 2009, mainly due to an increase in fi nancing commitments received (€+4,072 million), an increase in guarantee commitments (€+2,329 million) and an increase in pledged securities and collaterized commitments
These commitments broke down as follows: Financing commitments received totaled €14,296 million at the end of 2010, and mainly consisted in: ■ the Company received credit facilities from banks for €10,668 million; ■ €2,013 million unused credit lines from the United States
Holding; ■ AllianceBernstein credit line (€932 million), including €186 million from credit facilities and €745 million from new 2010 credit facilities with various banks and other lenders to replace the previous credit lines; ■ Commitment lines granted to Japan Life & Savings as part of its operations (€496 million).
Guarantee commitments received totaled €11,888 million at the end of 2010, and mainly consisted in guarantees from customers related to mortgage loans (€10,361 million) received by Switzerland Life & Savings (€5,564 million) and Switzerland
The €2,329 million increase in guarantee commitments received was mainly driven by the increase of guarantees related to mortgage loans (€2,101 million), including Switzerland Life
Pledged securities and collaterized commitments received totaled €32,445 million at the end of 2010, and mainly consisted in: ■ mortgage security collateral taken for loans (€20,632 million), mainly from AXA Bank Europe (€15,800 million) and AXA
(€1,480 million) and Japan Life & Savings (€832 million); The €7,300 million increase in pledged securities and collaterized commitments received was mainly due to
Commitments given totaled €44,447 million at the end of 2010, an increase of €12,902 million compared to the end of 2009, mainly due to an increase in pledged securities and collaterized commitments given (€13,604 million).
Guarantee commitments given totaled €4,036 million at the end of 2010, and mainly consisted in: ■ €3,879 million guarantee commitments given to credit institutions mainly driven by the Company (€2,843 million)
including €2,623 million loans guarantees and €209 million backing IT contracts; ■ €157 million guarantee commitments given to customers.
and pledged assets collaterals for loans (€3,423 million); ■ €7,132 million in Japan Life & Savings, including pledged assets for securities repurchase agreements (€6,956 million)
Pledged assets and collaterized commitments given increased by €13,604 million in 2010 mainly including AXA Bank
Europe (€5,590 million) driven by pledged asset for securities repurchase and lending agreements, Belgium Life & Savings
(€377 million); ■ €1,609 million guarantees given by the Company as part of
& Savings as a commitments to purchase loans; ■ €1,224 million in the Company commitments given to guarantees regarding bank deposits in AXA Bank Europe; ■ €643 million of unamortized balance on the Company’s subordinated debt instruments: the Company issued subordinated debts with reimbursement premiums which are amortized over the life of the instrument at the effective interest rate for each debt; ■ €519 million commitments given by France Life & Savings as commitments from real estate funds; ■ €446 million in Germany Life & Savings commitments given to “Protektor” and “Medicator”, the German insurance guarantee funds in the case of a bankruptcy of insurance companies.
The €1,534 million decrease in other commitments given in 2010 is mainly explained by the partial disposal of UK Life
In force for a period of three years starting from August 5, 2010, this agreement is renewable automatically for successive periods of one year thereafter, unless one of the two parties decides to terminate the agreement earlier, in which case the terminating party is required to give three months notice prior to the next renewal date.
Supervisory Board on December 21, 2005, the AXA Group, the Mutuelles AXA and the Schneider Group entered into an agreement that provides for the maintenance of minimal cross-shareholdings. Under the terms of this agreement, the
In force for a period of one year from the date of signature, this agreement is renewable automatically for successive periods of one year thereafter, unless one of the parties decides to terminate beforehand, in which case the terminating party is required to give a three months notice prior to the next renewal date.
AXA subsidiaries are required to indemnify their employees against certain liabilities and costs that they may incur from time to time in performing activities within the scope of their employment duties. These activities may include, for example, service as a director, offi cer, agent, general partner, or in a similar capacity for (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. joint ventures, partnerships, or special-
AXA’s insurance subsidiaries are limited to net income for the year and retained earnings calculated in accordance with the statutory accounting policies used by the subsidiaries to prepare their local fi nancial statements. Further restrictions may be imposed by the local insurance regulators in countries where AXA operates. In some cases, amounts available for distribution are also subject to regulatory capital adequacy tests or the approval of an independent actuary, or subject to individual provisions contained in a company’s by-laws.
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. As of December 31, 2010, AXA’s subsidiaries complied with the applicable solvency and capital adequacy requirements.
February 28, 1989. The current appointment is for a term of 6 years, until the General Shareholders’ Meeting called to approve the fi nancial statements for the fi scal year 2011.
MEMBERSHIP IN A PROFESSIONAL BODY: Mazars is registered as an independent auditor with the
Meeting of the shareholders called to approve the fi nancial statements for the fi scal year 2011.
Legal, tax and employment consulting 4,312 4,023 10% 9% 28 - - -
Affi liated Companies/Mutual funds 12,068 10,391 - - 1,369 1,264 - -
Versicherungswerte (“KVAG”). Following the effective date of these squeeze outs in July 2007, certain former AKAG and
(both class action and individual), investigations, and other actions arising in the various jurisdictions where they do business, including the following: 31.2.1. United States Matters
Reports on Form 10-K for the year ended December 31, 2010 and subsequent reports on Form 10-Q, respectively, of AXA Financial, Inc. (SEC fi le no. 1-11166), AXA Equitable
Reports are publicly available and management encourages readers of the fi nancial statement to consult the Subsidiary
Copies of the Subsidiary SEC Reports can be obtained through the SEC’s EDGAR system (www.sec.gov).
and BRRC to comply with certain undertakings including a payment of approximately $217 million to redress harm from the coding error to the clients of ARIM and other ARG-affi liated advisers. The undertakings also include reorganization of the fi rms’ compliance functions and the hiring of an independent compliance consultant to conduct a comprehensive review of the fi rms’ overall supervisory and compliance policies and procedures — specifi cally the disclosure, recordkeeping and reporting processes for the quantitative investment model.
as fi nancial regulators in Ireland, Hong Kong, Singapore) are continuing.
AXA and certain of its subsidiaries are involved in various legal actions and proceedings arising out of transactions involving the acquisition or sale of businesses or assets, mergers or other business combination transactions, the establishment or dissolution of joint ventures or other partnerships, public exchange or tender offers, buy-outs of minority interests or similar types of transactions (“M&A Transactions”). In connection with M&A Transactions, AXA and its subsidiaries from time to time: ■ are involved in legal actions or other claims brought by purchasers, joint venture partners, shareholders or other transaction parties asserting claims for damages on various theories (including misrepresentation, failure to disclose material information, failure to perform contractual duties, breach of fi duciary duties), seeking contractual indemnifi cation, or otherwise seeking to impose liability on
In addition, AXA and certain of its subsidiaries are involved in various legal actions and proceedings with tax authorities in various jurisdictions including actions arising in connection with M&A Transactions, the Group’s ordinary course business activities or other matters.
or its affi liates, in their capacity as plan administrator, failed to properly effect equalization due to certain defects (including failure to execute amending scheme documentation, defects in the documentation equalized or defects in the form of amendment executed itself). AXA UK has asked a number of scheme trustees to check the equalization of their schemes.
to allow exceptions from the general prohibition on gender discrimination in access to and supply of goods and services.
Test-Achats claimed that this Belgian regulation permitting gender-based setting of tariffs in life insurance contracts is incompatible with the principle of equal treatment and nondiscrimination between men and women as a basic principle of European Union law. The Belgian Constitutional Court has referred this case to the European Court of Justice which rendered a decision on March 1, 2011 holding that
Article 5 (2) of the Gender Directive is invalid with effect from
December 21, 2012. While AXA was not party to this litigation, the effect of this decision will be to generally prohibit use of gender in the pricing of insurance contracts issued in the
On February 3, 2011, AXA received an administrative order approved by the United States Securities and Exchange
Commission settling charges against three AXA Rosenberg units and requiring payment of client compensation and penalty amounts, leading to €66 million net provision already refl ected in AXA’s half year 2010 accounts.
Australian and New Zealand businesses with AMP and the sale of AXA APH’s Asian businesses to AXA ; (iii) on March 7, 2011, the Supreme Court made orders approving the schemes of arrangement between AXA APH and its shareholders in relation to the proposed transaction ; (iv) on March 8, 2011, a copy of the Court’s orders has been lodged with the Australian Securities and Investments
AXA Life Ltd., of its entire 15.6% interest in Taikang Life, China’s 4th largest life insurer, to a consortium of new and existing shareholders. The consideration for this transaction amounts to USD 1.2 billion (or ca. Euro 0.9 billion). This corresponds to implied 2009 multiples of 21x net earnings and 6x book value (1).
I Report of Statutory Auditors on the consolidated fi nancial statements (For the year ended December 31, 2010)
This is a free translation into English of the Statutory Auditors’ report issued in French and is provided solely for the convenience of English speaking users. The Statutory Auditors’ report includes information specifically required by French law in such reports, whether modified or not. This information is presented below the opinion on the consolidated financial statements and includes an explanatory paragraph discussing the auditors’ assessments of certain significant accounting and auditing matters. These assessments were considered for the purpose of issuing an audit opinion on the consolidated financial statements taken as a whole and not to provide separate assurance on individual account captions or on information taken outside of the consolidated financial statements.
December 31, 2010, on: ■ the audit of the accompanying consolidated fi nancial statements of AXA, as attached to the present report; ■ the justifi cation of our assessments; ■ the specifi c verifi cation required by law.
We conducted our audit in accordance with the professional standards applicable in France. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated fi nancial statements are free of material misstatements. An audit involves performing procedures, on a test basis or by selection, to obtain audit evidence about the amounts and disclosures in the consolidated fi nancial statements. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made by management, as well as the overall presentation of the consolidated fi nancial statements. We believe that the audit evidence we have obtained is suffi cient and appropriate to provide a basis for our audit opinion.
In our opinion, the consolidated fi nancial statements give a true and fair view of the assets and liabilities and the fi nancial position of the Group as at December 31, 2010 and of the results of its operations for the year then ended in accordance with International
The on-going economic downturn and related uncertainties, as well as the evolution of the fi nancial crisis and its monetary consequences on the euro zone continue to give rise to specifi c circumstances for the preparation of the fi nancial statements, in particular with respect to the accounting estimates. In the context of these economic and fi nancial uncertainties, and in accordance with Article L.823-9 of the French Commercial Code requiring Statutory Auditors to justify their assessment, we bring to your attention the following matters: ■ your company details in Notes 1.7.2, 4.3 and 9.9 to the consolidated fi nancial statements the valuation methods it applies to fi nancial assets. We have assessed the appropriateness of the process of the fi nancial assets valuation, as well as the information disclosed in the above mentioned notes; ■ certain consolidated balance sheet items that are specifi c to the insurance and reinsurance business are estimated on the basis of statistical and actuarial data, such as actuarial reserves, deferred acquisition costs and their amortization, the value of business in force and future policyholders’ benefi ts. The methods and assumptions used to calculate the carrying values of these items are described in Notes 1.13, 1.6.4 and 1.6.2 to the consolidated fi nancial statements. We have assessed the reasonableness of the assumptions used to calculate these values, particularly with respect to the Group’s experience and its regulatory and economic environments. We also assessed the overall consistency of these assumptions; ■ the carrying values of purchase goodwill are tested at each closing for recoverability using the methods described in Notes 1.6.1 and 5.2.2 to the consolidated fi nancial statements. We have in particular ensured that the valuation approaches used rely on assumptions that are consistent with the forecasts that emerge from the strategic plans established by the Group. We have also examined the elements gathered by the Group to assess the other assumptions considered as well as the sensitivity tests performed; ■ deferred tax assets and liabilities are recorded and measured using the methods described in Note 1.16.1 of the notes to the consolidated fi nancial statements. We have verifi ed that the valuation methods used take into account the nature of tax differences, business plans established by the Group and, when accounting policies permit, its intentions ; ■ derivatives and hedging activities are recognized in accordance with the methods and procedures described in Note 1.9 to the consolidated fi nancial statements. We have assessed whether the hedging activities that abide by hedge accounting have been duly documented in accordance with hedge accounting rules.
The Company is a holding company organized under the laws of France as a Société Anonyme (SA) (a public company). The
Directors receive a fi xed annual directors’ fee, the maximum overall amount of which is determined by the Shareholders’
For further information please see Part 2 – “Corporate governance, executive compensation, major shareholders and related matters” of this Annual Report.
When the number of Board members aged seventy or older exceed one-third of the directors in offi ce, the oldest director is deemed to have resigned automatically unless any member of the Board of Directors aged seventy or older voluntarily resigns within three months.
In accordance with the AFEP/MEDEF Code of Governance, the directors shall be shareholders of the Company and own a signifi cant number of shares in the Company; if they do not own such shares at the time they are fi rst appointed, they shall use their directors’ fees to acquire AXA shares. Accordingly, the
Double voting rights may be terminated at any time upon the decision of an Extraordinary Shareholders’ Meeting, provided that such decision is confi rmed by a two-thirds majority of the holders of double voting rights voting separately.
AXA may distribute dividends to its shareholders from net income in each fi scal year after deductions for depreciation and provisions, as increased or reduced by any profi t or loss carried forward from prior years, and as reduced by the legal reserve fund allocation described below.
Under AXA’s Charter, the actual dividend payment date is decided by the Board of Directors. AXA must pay any dividend within nine months of the end of its fi scal year. Dividends not claimed within fi ve years of the date of pay-out become the property of the French Treasury Department.
Under AXA’s Charter, at an Ordinary Shareholders’ Meeting, the shareholders may grant each shareholder the choice of receiving dividends in either cash or additional ordinary shares.
If AXA is liquidated, the assets remaining after it pays its debts, liquidation expenses and all prior claims will fi rst be used to repay AXA shareholders up to the amount of the liquidation balance and of the shares par value held by each shareholder.
(“société anonyme”) generally have the power to amend the Charter of the Company. Such an amendment requires the approval of two-thirds of the shareholders attending or represented at an Extraordinary Shareholders’ Meeting.
However, no such Extraordinary Shareholders’ Meetings may decide (i) to increase the liability of the shareholders in respect of the company or a third-party; or (ii) to reduce the individual rights vested in each shareholder (such as voting rights, the right to distributable profi ts of the company when allocated as dividends, the right to sell one’s shares and the right to sue the company).
Company is subject to a tender offer, for purposes of approving measures the implementation of which would be likely to cause such tender offer to fail) prior to the date set for the meeting on fi rst call, and at least 10 days (or 4 days if convened, in the event that the Company is subject to a tender offer, for purposes of approving measures the implementation of which would be likely to cause such tender offer to fail) before any second call, the Company shall send a fi nal notice containing, among other things, the fi nal agenda, place, date and other information in respect of the meeting by mail to all registered shareholders who have held shares for more than one month prior to the date of this fi nal notice and publish this fi nal notice in a newspaper as well as in the BALO.
Company or in the bearer share records kept by a qualifi ed intermediary. The accounting registration or recording of the shares in the bearer share accounts on the books of the qualifi ed intermediary is evidenced by a certifi cate of attendance delivered by the latter.
In accordance with applicable laws and regulations, shareholders may also transmit mail voting cards in paper form and/or, subject to approval by the Board of Directors published in the notice of meeting, by electronic means.
However, a number of French law provisions including certain provisions of the European Directive of April 21, 2004 (which was implemented in France in 2006) concerning takeover bids, may have certain anti-takeover effects. In the case of
Company’s ability to repurchase its own shares regarding legal requirements and the existence of AXA shares with double voting rights.
Meeting. However, no Shareholders’ meeting of the merged company is required in the case of a merger of a wholly-owned subsidiary with its parent company.
As of December 31, 2010, AXA had 2,320,105,237 ordinary shares, each with a par value of €2.29. All these shares were fully paid up and non assessable and began earning dividends on January 1st, 2010. The following table sets forth changes in the number of shares from December 31, 2007 to December 31, 2010: Date Transaction
New equity issue reserved for employees of AXA (SharePlan 2009) 26,390,246 332,756,023 2,289,895,799 5,243,861,380
APPENDIX IV STATEMENT OF THE PERSON RESPONSIBLE FOR THE ANNUAL REPORT 435
work (Part 1) as well as the internal control and risk management procedures implemented by the Company (Part 2). The report also presents the principles and the rules adopted by the Board of Directors in order to determine the compensation and the advantages granted to the corporate offi cers (Part 3). Finally, the report indicates the Company’s Corporate Governance
Code of reference and specifi es the provisions of that code, if any, that have not been applied by the Company and why they have not been applied (Part 4).
For information on the conditions of preparation and organization of the Board of Directors’ work please see Part 2 – “Corporate governance - Executive compensation, major shareholders and related matters”, “Board of Directors” and “Board of Directors
“Corporate governance - Executive compensation, major shareholders and related matters”, “The Chairman & Chief
Executive Offi cer” Section of the Group’s Annual Report for the year ended December 31, 2010.
Group has a sound and comprehensive system of internal control well adapted to its business and the specifi c risks inherent to its activities. This report is not intended to provide a comprehensive description of all internal controls and procedures in place within the Company and its subsidiaries, but rather to provide an overview of the Group’s principal internal control mechanisms and procedures.
In preparing this report, the Chairman of the Board of Directors has consulted, as he deemed appropriate, members of
Please see, in particular, Part 3 – “Risk Factors, Certain disclosures about market risks and related matters”, Part 1 –
These mechanisms and procedures principally include: (i) the Group’s corporate governance structures which are designed to ensure appropriate supervision and management of the Group’s business as well as clear allocation of roles and responsibilities at the highest level; (ii) management structures and control mechanisms designed to ensure that the Group senior Management has a clear view of the principal risks the Group faces and the tools necessary to analyze and manage these risks; (iii) internal control over fi nancial reporting (“ICOFR”), designed to ensure the accuracy, completeness and timeliness of the Group’s consolidated fi nancial statements and the other fi nancial information that the Group reports to the markets; and
These mechanisms and procedures, taken together, constitute a comprehensive control environment that Management believes is appropriate and well adapted to the Group’s business.
Directors as well as the structure and composition of the Board of Directors’ Committees is set forth in Section 2.1 “Directors, senior management and employees” of the Group’s 2010
All of the Board Committees constitute an important part of the Group’s overall internal control environment. However, the
For more information about the Audit Committee including its composition and the principal matters it handled in 2010, please see Section 2.1 “Directors, senior management and employees” of the Group’s 2010 Annual Report.
Committees that they consider necessary or appropriate for their specifi c businesses. The role, duties, and composition of these Committees (including the requirements for participation of independent directors) are specifi ed in the Audit Committee
Audit Committee Standard requires the Audit Committees of Group subsidiaries to have a signifi cant number of independent directors in order to ensure that this Committee is independent from Management given the Committee’s critical role in reviewing fi nancial results and other fi nancial information prepared by the Management, fi nancial reporting and control processes, critical accounting policies, particular accounting issues, key risks and systems of internal control, fraud and similar issues.
Every month, the Management Committee reviews aspects of the Group strategy during a full day dedicated session.
AXA currently has a 20-member Executive Committee which is an internal committee composed of the members of
Each quarter the Management Committee conducts QBRs, during which performance of the AXA Group is reviewed.
These QBRs constitute an important management control mechanism to monitor the operating performance of the
AXA’s earnings through improved understanding of the risks taken and to optimize capital allocation.
Group and is supported by local Risk Management teams within each operating unit. The types of risk covered include risks coming from the invested assets, from the insurance liabilities, asset/liability mismatch risks and operational risks.
Department and aggregated at the Group level. GRM also monitors the corresponding exposures on a monthly basis, and ensures that local operating units comply with the concentration limits established by the Group; ■ economic capital is estimated quarterly for each product line and operating unit and then aggregated at the Group level. This is based on stochastic modelling approach and enables to properly assess together asset, liability and operational risks; ■ GRM proposes annually to the Management Committee, with the support of AXA Global P&C and AXA Global Life, the main features of the Property & Casualty and Life reinsurance coverage program of the Group; ■ GRM coordinates the activity of decentralized operational risk teams to ensure proper and consistent identifi cation, measurement and management of the most important operational risks.
IFRS as adopted by the EU applied by AXA and IFRS as adopted by the International Accounting Standards Board.
At PBRC level, accounting and fi nancial information reported by entities are reviewed and analyzed by teams that liaise with subsidiaries on a full-time basis. In particular, these teams review the compliance with the Group Accounting Manual and
“clearance meetings” in which local and central fi nancial teams participate, as well as the Statutory Auditors; ■ the principal options for closing the consolidated accounts are presented to the Audit Committee and then to the Board of Directors; ■ the auditing of accounting and fi nancial data is fi nalized at the accounts closing stage in meetings attended by local and central fi nancial teams, as well as local and central
The Group Legal Department is responsible for identifying and managing the signifi cant legal, regulatory and compliance risks to which the Group is exposed. It provides expertise and advice on all signifi cant corporate legal matters at the
Group level and manages the legal aspects of transactions undertaken by the Group as well as signifi cant litigation, regulatory, and compliance matters.
Corporate Finance, Securities Law and Corporate Law matters; ■ Corporate Governance & Company Law; ■ Litigation, Regulatory & Compliance; ■ Global Business Lines, Business Support & Development and US Legal Matters.
to optimize integration, coordination and ensure open lines of communication across the Group’s global Legal & Compliance
Steering Group meets on a regular basis and serves as an effective forum for addressing transversal issues, sharing best practices and experiences in a wide variety of areas, and ensuring open lines of communication between General
Audit Committee and the Management Committee with an independent and objective assurance on the comprehensiveness and effectiveness of internal controls as well as proposals to help improve the management of risks, enhance performance and identify business opportunities.
Committee and the Audit Committee on strategic and management issues to evaluate assumptions and achievement of objectives, strategies, and plans and, whether the management teams are effi ciently and effectively carrying out their functions of planning, organizing, directing and controlling. Opportunities for improving management control, operational effi ciency, profi tability, and AXA’s image are identifi ed and communicated to the Management
Group’s overall internal audit process and capability, and the internal audit teams set up within Group subsidiaries. The
Management and Group Legal & Compliance. The Committee usually meets on a quarterly basis.
The Committee is comprised of the following 11 GMS Departments, each of which is responsible for presenting to the Committee the signifi cant risks within its scope: 1. Group Risk Management (GRM); 2. Group Corporate Finance and Treasury (DCFG); 3. Group Audit; 4. Group Legal & Compliance; 5. Group Tax; 6. Planning Budgets Results Central (PBRC); 7. Information Technology (IT)/Operational Excellence; 8. AXA Global P&C; 9. AXA Global Life; 10. Group Human Resources; 11. Group Communication.
solvency, insurance, operational, legal and compliance, tax, audit, human resources, and communication risks. As part of the process, priorities and action points were established for the various GMS Departments that manage these risks.
The IFC programme is based on AXA’s IFC Standard which is an internal control and governance standard developed by AXA.
In accordance with the IFC Standard, the in-scope AXA Group companies must (i) document the signifi cant processes and controls, as well as the rationale of how the associated risk of material misstatements due to error or fraud can be reduced to an acceptable level, (ii) test the design and operational effectiveness of key controls based on the test plans elaborated by management with insights into risks, and
This process is based on the following four pillars: 1. CFO Sign-Off Certifi cates required to be submitted by all local CFOs to PBRC, together with the required subsidiary fi nancial reporting & consolidation information, 2. IFC Management Reports required to be submitted by the
(with specifi c disclosure of any signifi cant defi ciencies or material weaknesses). In addition, as part of this “subcertifi cation” process, these executives are required to review and comment on a number of transversal disclosures in the Annual Report relating to risk and other matters.
However, all internal control systems, no matter how well designed, have inherent limitations and do not constitute a guaranty or provide absolute certainty. Even systems determined to be effective by Management may not prevent or detect all human errors, all systems malfunctions, all fraud or all misstatements and can provide only reasonable assurance. In addition, effective controls may become inadequate over time because of changes in conditions, deterioration of compliance with procedures or other factors.
Part 2 – Section 2.2 “Full disclosure on executive compensation and share ownership” of the Group’s 2010 Annual Report.
AXA’s registered offi ce or on its website (www.axa.com) under the “Corporate Governance” Section.
“Directors, senior management and employees” and 2.2 “Full disclosure on executive compensation and share ownership”
Committee with the required documents early enough to allow their proper examination; ■ Section 20.2.3 of AFEP/MEDEF Code relative to stock options and performance shares: (i) holding of shares subsequent to subscription options or allotment of performance shares: in 2007, the
Company decided to implement strict rules pertaining to shareholding requirements for AXA’s Executive Directors.
This policy requires each Executive Director to hold, during the entire duration of his/her functions, a minimum number of AXA shares representing a multiple of his/
The Chairman & Chief Executive Offi cer is consequently required to hold the equivalent of his/her total cash remuneration multiplied by three and the Deputy Chief
ADSs of AXA or other quoted subsidiaries of the Group are taken into account to calculate the number of shares actually held. Each Executive Director is required to meet with this minimum shareholding requirement within a period of fi ve years from (i) January 1, 2007 or (ii) the date of his/her fi rst appointment as Executive Director if he/she was appointed after January 1, 2007. Considering the already high level of this shareholding requirements imposed upon Executive Directors, the Board of Directors, upon recommendation of its Compensation & Human
Resources Committee, has decided that it was not necessary to set higher shareholding thresholds after the initial 5-year period. For the same reasons, the Board of Directors has decided that it was not appropriate to compel Executive Directors to acquire a number of
They generally begin 30 days prior to the disclosure of the annual and half-year earnings. The Compliance and Ethics
Guide prohibits the sale of shares acquired subsequent to the exercise of stock options (“subscription and sale”
I Report of Statutory Auditors prepared in accordance with Article L.225-235 of the French Commercial Code on the report prepared by the Chairman of the Board of Directors of AXA (For the year ended December 31, 2010)
This is a free translation into English of the Statutory Auditors’ report issued in the French language and is provided solely for the convenience of English speaking readers. This report should be read in conjunction with, and construed in accordance with, French law and professional auditing standards applicable in France.
It is the Chairman’s responsibility to prepare, and submit to the Board of Directors for approval, a report describing the internal control and risk management procedures implemented by the Company and providing the other information required by Article L.225-37 of the French Commercial Code in particular relating to corporate governance.
AXA Group company. The IFC programme and the conclusion of management as to the effectiveness of AXA’s ICOFR are also reviewed by AXA’s Audit Committee.
AXA’s ICOFR includes policies and procedures that: ■ pertain to the maintenance of records that, in reasonable detail, accurately and fairly refl ect the transactions and dispositions of Group assets,
■ provide reasonable assurance that transactions are recorded as necessary to permit the preparation of fi nancial statements in accordance with the applicable generally accepted accounting principles,
■ provide reasonable assurance that receipts and expenditures are being made only in accordance with the authorization of management and directors of the Group, and
Group level, to evaluate their impact on AXA’s consolidated fi nancial statements, considering their likelihood, potential impact, compensating controls and other qualitative factors.
I Report of the Statutory Auditors on Internal Control Over Financial Reporting
As Statutory Auditors of AXA and at your request, we have performed audit procedures on AXA and its subsidiaries (the “Company”)
AXA (the “IFC standard”), which is an internal control and governance standard developed by AXA and used as the framework for its IFC programme, as described in Management’s Annual Evaluation of Internal Control Over Financial Reporting on page 429 of this Annual Report. Our responsibility is to express an opinion on the Company’s management’s assertion, based on our audit procedures.
In our opinion, the Company’s management’s assertion that internal control over fi nancial reporting as of December 31, 2010, is effective, in all material respects, is fairly stated based on the criteria established in the IFC standard.
States that are party to the Agreement on the European Economic Area (EEA) or in one or more third countries outside the EEA in order to fulfi ll the legal or regulatory obligations in those countries with respect to fi nancial securities, issuers of fi nancial securities and markets in fi nancial securities.
AXA shareholders approve AXA’s change in governance Dual board structure replaced by a Board of Directors (04/29/2010)
AXA confi rmed today it is in discussion to dispose part of its UK Life & Savings operations (06/14/2010)
AXA has completed the sale of part of its UK life & savings operations (09/15/2010)
(1) Press releases issued prior to March 16, 2010 were listed in the Annual Information Document included in the AXA 2009 Annual Report.
AXA, AMP and AXA APH have signed transaction documents to implement proposal (11/29/2010)
Christopher “Kip” Condron to retire fi rst of the year (12/03/2010)
Results of the AXA Group employee share offering in 2010 (12/06/2010)
Full Year 2010 Earnings - Proposed dividend per share up 25% (02/17/2011)
AXA’s sale of 15.6% stake in Taikang Life; main regulatory hurdle cleared (03/11/2011)