UPDATE OF THE ANNUAL REPORT (DOCUMENT DE REFERENCE) ORIGINALLY FILED WITH THE AMF (AUTORITE DES MARCHES
I- UPDATE RELATED TO EVENTS SUBSEQUENT TO MARCH 31, 2005 (DATE ON WHICH THE DOCUMENT DE REFERENCE WAS FILED) 4 1.1. Annual General Meeting of April 20, 2005 1.2. Half-year financial disclosures 5 1.2.2. Half-year 2005 Management Report 13 1.2.4. Report of Independent Auditors on the limited review of interim financial statements 1.3.1. Important events related to business development 88 1.3.2. Investments and disposals 92 1.3.3. Other events subsequent to March 31, 2005 93
2.2.1. Major shareholders as of September 30, 2005 119 2.2.2. Dividend policy 2.3.1. Share capital as of September 30, 2005 120 2.3.2. Changes since fiscal year-end 2004 120 2.3.3. Self holding shares and Tresaury shares as of June 30, 2005 120 2.3.4. Fully diluted capital as of September 30, 2005 2.4.1. Anticipated sources of funds needed to finance the principal investments in progress or future 121 2.4.2. Financial data not extracted from audited financial statements 121 2.4.3. Legal and arbitration proceedings 121 2.4.4. Significant changes in the Group’s financial or trading position 121
• Continued focus on profitable growth driving strong performance - AXA Group underlying earnings up 28%1 to Euro 1,761 million - Life & Savings new business value up 20%2 to Euro 443 million - P&C revenues up 3%3 together with the combined ratio improving 1 point to 97.5%
Exceptional operations 27 126 Goodwill & related intangibles -4 -38 7 Fully diluted. Weighted average number of fully diluted shares was 1,958m in 1H05 versus 1,931m in 1H04.
Underlying Earnings 1H05 underlying earnings8 improved by 26% (or +28% at constant exchange rates) to Euro 1,761 million, driven by double-digit growth in Life & Savings, Property & Casualty and Asset Management.
Note: For underlying earnings analysis below, percentage changes between first half 2004 and first half 2005 are presented at constant exchange rates.
Underlying investment margin was Euro 1,098 million, down 3%, mainly driven by Japan. In Japan, the decrease in investment margin resulted from higher currency hedging costs and the portfolio restructuring (shift from US bonds into Japanese bonds) implemented in late 2004.
8 Underlying earnings are adjusted earnings, excluding net capital gains attributable to shareholders. Adjusted earnings represent net income before the impact of exceptional operations, goodwill and related intangibles amortization/impairments, and profit or loss on financial assets accounted for under the fair value option and derivatives related to invested assets (For more details see glossary in the Management Report). Adjusted and underlying earnings are non-GAAP measures and as such are not audited, and they may not be comparable to similarly titled measures reported by other companies. Management uses these non-GAAP measures as key indicators of performance in assessing AXA’s various businesses and believes that the presentation of these measures provides useful and important information to shareholders and investors as measures of AXA’s financial performance.
9 VBI: Value of Business In force 10 DAC: Deferred Acquisition Costs
Fees & Revenues were Euro 2,437 million, up 18%. Excluding the positive effect of MONY, Fees & Revenues were up 13%, driven by higher separate account balances resulting from both market appreciation and strong net inflows, notably in France, the UK and the US, and by strong overall sales of life products. The UK also benefited from the development of credit insurance business. In addition, mutual fund revenues were up 15% mainly driven by Australia.
Net technical margin was Euro 532 million, up 34%. Excluding MONY, net technical margin was up 12% driven by better morbidity margin on health products in Japan, better life mortality experience in the US and adverse 2004 claims experience in Group disability in France.
PROPERTY & CASUALTY. Property & Casualty underlying earnings were Euro 695 million, up 21%, due principally to a 1.0 point improvement in the combined ratio to 97.5%, together with premium growth, and higher investment income supported by strong cash flows. 1H’05 continued to benefit from improved claims frequency in individual motor and a low level of large claims, especially in Property. The main contributors to the P&C improvement were Germany, France, the UK & Ireland and Canada.
The loss ratio improved 1.5 point to 70.2% driven by improvement in the current year loss ratio and positive prior year developments in all countries.
The expense ratio increased 0.5 point to 27.3% mainly driven by acquisition expenses, notably in the UK with a continued shift towards lower loss/higher commission business. The administrative expense ratio was stable at 10%.
P&C performance was achieved while maintaining very strong premiums and claims ratios. The net technical reserves to net earned premiums ratio increased by 2 points to 199% compared to June 30, 2004 ratio while the net claims reserves to net claims paid ratio increased by 8 points to 262%.
Investment income increased Euro 105 million to Euro 819 million driven by higher average asset bases fueled by positive cash flows (Euro 1.6 billion)11 .
11 Net operational cash flows are written premiums net of claims paid, including expenses, taxes and investment income. Scope : France, UK + Ireland, Germany, Belgium and Southern Europe.
INTERNATIONAL INSURANCE. International Insurance underlying earnings were down 26% to Euro 103 million as AXA RE was impacted by major losses in 1H’05 (Euro 73 million, gross of tax), compared to none during the same period last year.
AXA RE underlying earnings were down 37% at Euro 55 million. 10 points of this decrease is explained by the transfer in October 2004 of AXA RE US entities to the Other International Activities segment (Euro 13 million of underlying earnings for 1H’04). On a comparable basis, underlying earnings decreased 27%, driven by (i) a 5.2 point deterioration of the loss ratio to 82.0% as major losses recorded in 1H’05 more than offset lower attritional claims, as well as (ii) unfavorable geographical mix of results negatively impacting the overall tax rate. At the same time, AXA RE continued to improve its expense ratio by 2.6 points to 15.0% following on-going cost control. As a result, AXA RE combined ratio was 97.0% versus 94.4% last year.
AXA Corporate Solutions Assurance underlying earnings were up 47% or Euro 12 million to Euro 38 million mainly driven by stronger investment income which benefited from the reinvestment of positive cash flows.
Alliance Capital underlying earnings increased 19% to Euro 98 million mainly driven by a 1.5 point improvement in the operating cost income ratio and by a 2.8% increase in the ownership interest of the AXA Group to 61% as of June 30, 2005.
AXA Investment Managers underlying earnings increased 53% to Euro 57 million driven by a strong increase of revenues14 (+21%) supported by higher average AUM (+19%), which benefited from strong net inflows, favorable market appreciation and higher performance fees. At the same time, expenses grew at a lower pace resulting in a 2.8 point improvement of the operating cost income ratio.
As of June 30, 2005 shareholders' equity was Euro 32.7 billion, up 15% compared to December 31, 2004, primarily benefiting from retained earnings and the appreciation of financial markets.
Fair value of invested assets recorded through shareholders’ equity was Euro 7.5 billion, up Euro 1.7 billion versus December 31, 2004.
The deleveraging of the balance sheet, in progress since year end 2000, accelerated in 1H’05 and as of June 30, 2005 gearing stood at 38% down from 42% as of December 31, 2004.
Exchange rates Compared to December 31, 2004, the US dollar recovered against the euro (by 12% from 1.36 to 1.21 USD/€), as well as the GBP (from 0.71 to 0.67 GBP/€) and the Yen (from 140.6 to 133.4 JPY/€).
Following this capital increase, AXA shares currently held by FINAXA and its subsidiaries, which amount to 336 million shares, would be cancelled. As a consequence, AXA's shareholders equity would be reduced by Euro 0.8 to 0.9 billion, following the merger. Under IFRS principles, this merger would be +1.2% accretive to AXA non-diluted EPS as soon as 2005 and -0.7% dilutive to fully diluted EPS. Mutuelles AXA15 and FINAXA currently own 20.35% of AXA outstanding shares and 32.20% of AXA voting rights. Following the merger, the Mutuelles AXA, which currently own 2.72% of AXA outstanding shares representing 4.38% of AXA voting rights and 71.69% of FINAXA outstanding shares representing 80.53% of FINAXA voting rights, would become the principal AXA shareholder, holding approximately 14% of AXA shares representing 23% of voting rights. The terms and conditions of the merger, including the exchange ratio, will be submitted to Court Appointed Merger Auditors (“Commissaires aux Apports et à la Fusion”) who will deliver their reports before December 16, 2005, the date of the Extraordinary General Assemblies of FINAXA and AXA at which the merger will be presented for approval to the shareholders of each company. AXA will undertake FINAXA rights and obligations as at January 1, 2005.
FINANCING OPERATIONS: On January 25, 2005, AXA issued, under its €5 billion Euro Medium Term Notes program, €250 million of undated deeply subordinated notes (“Titres Super Subordonnés”), allowing the Group to improve debt quality and to strengthen hybrid capital, whilst anticipating the refinancing of debts maturing in 2005 and after.
Events subsequent to June 30, 2005 On July 29, 2005, AXA announced its intention to acquire from the group Caixa Geral de Depósitos the insurance company “Seguro Directo Gere – Companhia de Seguros, S.A.”. Usually known as Seguro Directo, the company operates in the direct insurance market in Portugal (by telephone and Internet), where it has a market share of almost 50% and gross revenues of approximately Euro 23 million. This acquisition is consistent with the growth strategy of AXA Portugal and will allow the company to diversify its distribution channels and further improve the service to its 700.000 clients. AXA has the objective of growing the direct distribution channel and re-establishing the leadership position Seguro Directo once held in Portugal. The transaction is subject to regulatory approvals, including the Portuguese Insurance Institute and Antitrust Authority.
On September 14, 2005, AXA Financial, Inc., a Delaware corporation (the "Company"), and Merrill Lynch, Pierce, Fenner & Smith Incorporated, a Delaware corporation ("Merrill Lynch"), entered into a definitive Stock Purchase Agreement, dated as of September 14, 2005 (the "Stock Purchase Agreement"). Pursuant to the Stock Purchase Agreement, Merrill Lynch will purchase from the Company all of the issued and outstanding shares of capital stock of The Advest Group, Inc. ("Advest"), a Delaware corporation and a wholly owned subsidiary of the Company, for $400 million in cash, subject to adjustments in certain circumstances. The Company's estimated post-tax proceeds from the sale will be approximately $297 million. The Company preliminarily estimates that the purchase price will result in a pre-tax gain to the Company of approximately $6 million and a post-tax loss to the Company of approximately $96 million. This transaction reduces the Company's goodwill by approximately $190 million, representing 31% of the total goodwill related to the MONY acquisition in 2004. The sale of Advest is expected to close in the fourth quarter of 2005 and is subject to certain regulatory approvals.
Consolidated gross revenues for Half-Year 2005 were €36,499 million, up 4.6% compared to previous period.
€27 million (+14.8 %) mostly due to €17 million higher fees on account balance and €9 million front end fees. In Japan (-16.5%), excluding group pension transfers and conversion program, premiums decreased by 6% to €2,195 million. This was mainly due to a 22% decrease in Investment & Savings, primarily as a result of a reduction in group pension premiums (€-63 million) and individual fixed annuities sold via bancassurance partnerships (€-187 million). This trend was partially offset by the 17% health premium increase driven by the good retention on high margin medical products such as Medical Whole Life and Medical Riders.
International Insurance revenues were up 10.6% to €2,501 million, both attributable to AXA RE and AXA Corporate Solutions Assurance. AXA RE sticks to its underwriting strategy aiming at diversifying the portfolio both geographically in Property as well as in terms of lines of business. The growth in revenues (+15.4% to €1,056 million) was mainly driven by higher non life gross written premiums (97% of reinsurance activity) which increased by 15% on a comparable basis, notably including higher premiums in European proportional Property Cat and Credit business, as well as selected non proportional General Liability business. AXA Corporate Solutions Assurance revenues were up +9.2% to €1,059 million, as a result of the combined effect of increased activity in Marine (+17% to €224 million), Aviation (+28% to €109 million) and Construction (+42% to €81 million) lines partly offset by decrease in Liability (-3% to €255 million). However, it should be noted that marine and aviation growth benefited from seasonal effect in first half year 2005.
Asset management revenues increased by +5.7% to €1,550 million, driven by higher average Assets under Management and strong net inflows. Alliance Capital revenues were up +1.2% to €1,117 million, thanks to higher investment advisory fees, driven by higher average Asset Under Management (AUM) (+10%) and higher performance fees in 2Q05, offset by lower distribution revenues and lower shareholder servicing fees. AXA Investment Managers showed a +20.2% performance to €433 million, due to AUM growth (+19%) and higher performance fees.
17 Annual premiums equivalent is New regular premiums plus one tenth of Single premiums 18 Excluding MONY in the United States
(a) For the periods ended June 30, 2005 and June 30, 2004, the change in fair value of assets backing contracts with financial risk borne by policyholders had impacted the net investment result for respectively €+3,807 million and €+3,483 million and benefits and claims by the offsetting amounts respectively.
UNDERLYING EARNINGS 1 761 1 398 Net realized capital gains attributable to shareholders 370 263
(iv) Higher income tax expense (€-61 million to €-321 million) in line with higher pre-tax earnings
(vi) Minority interest increased by €9 million, of which €7 million on Turkey, previously accounted for under the equity method.
AXA Corporate Solutions Assurance improvement (€+12 million) mainly stemming from higher investment revenues, was more than offset by the deterioration in other transnational activities (€10 million or €-23 million on a comparable basis), as a result of a €-9 million mali on 2004 US hurricanes (exposure coming from the program business of AXA RE P&C Insurance Company, now in run off) and a €10 million decrease in US Life reinsurance earnings (decrease in premiums volume on this portfolio and the implementation cost of a dynamic hedging program on part of the business). In AXA Corporate Solutions Assurance, the combined ratio increased by 0.6 point to 100.5%, reflecting the loss ratio deterioration (up 0.6 point to 87.4%) while the expense ratio remained stable at 13.1%.
Asset Management underlying earnings increased by €+37 million to €154 million, attributable to both Alliance Capital and AXA Investment Managers. In Alliance Capital, the improvement was €+17 million (to €98 million) due to (i) slightly higher fees, commissions and other revenues (higher investment advisory fees driven by 10% higher average AUM and increased performance fees, partially offset by lower distribution revenues and lower shareholder servicing fees in the retail channel), whereas expenses remained flat, (ii) and higher ownership interest in Alliance Capital (from approximately 58% at June 2004 to 61% at June 2005 following the acquisition by AXA Financial of 8.16 million private units in H2 2004). The operating cost income ratio improved by 1.5 point from 71.6% in 2004 to 70.1% in 2005. In AXA Investment Managers (€+20 million to €57 million), the increase in fees, commissions and other revenues (mainly driven by management fees reflecting higher average AUM (+19% on a comparable basis), and higher performance fees) was beyond the increase in general expense, and resulted in an improved operating cost income ratio (-2.8 pt to 75.7%).
In Other Financial Services underlying earnings increased by €+34 million to €42 million, mainly attributable to (i) AXA Bank Belgium (€+22 million to €36 million), mainly due to an improved interest margin and the reversal of a provision for risks (€16 million), and (ii) CFP: €+14 million to €7 million, following positive run-off developments in first half 2005.
Net capital gains attributable to shareholders were up €+107 million to €370 million, mainly as a result of: - An additional €114 million release of valuation allowance on tax losses carried forward in Japan - Higher realized capital gains by €130 million (including impact of foreign exchange), - €-200 million in Japan related to a reserve strengthening following a change in future investment assumptions in 2005 (€-322 million pre-tax), and - €+65 million in the UK related to the unfavorable impact in 2004 of the transfer of ownership of the Isle of Man subsidiary. As a result, net realized capital gains remained nearly flat (€-5 million including impact of foreign exchange). As a result of higher underlying earnings and higher net capital gains, adjusted earnings were up €+471 million to €2,132 million.
• Higher positive change in fair value of derivatives partly offset by lower profit and loss on assets under fair value option (€+38 million net impact). This was mainly attributable to France (€+45 million) reflecting a higher positive change in fair value of derivative and positive performance of equities and fixed interest securities markets during the first half year 2005 partly offset by €-10 million in the US
• In the UK, the non symmetric accounting treatment on unrealized gains attributable to policyholders in Unit Linked Life (€-11 million tax impact)
Year 2004 included the goodwill amortization of the remaining balance in The Netherlands P&C (€-33 million; AXA Schade) following the sale of Unirobe, which was a distributor for AXA Schade, and the amortization of the goodwill related to the minority interest buy-out of AXA Re Finance (€-5 million). Half-Year 2005 goodwill expense only related to the normal amortization of Mony intangible asset.
Net income for the period 2 274 At June 30, 2005 32 680
(in euro million) 2005 2004 Gross written premiums 21 131 20 574 Fees and revenues from investment contracts with no participating feature 237 216 Revenues from insurance activities 21 368 20 790 Net revenues from banking activities 0 0 Revenues from other activities 543 300 TOTAL REVENUES 21 911 21 090 Change in unearned premium reserves net of unearned revenues and fees -119 -196 Net investment result excluding financing expenses (b) 11 221 9 233 Technical charges relating to insurance activities (b) -28 697 -26 188 Net result of reinsurance ceded 54 -3 Bank operating expenses 0 0 Acquisition costs -1 397 -1 152 Amortization of value of purchased life business in force and other intangible asset -362 -162 Administrative expenses -1 389 -1 264 Change in tangible assets impairment 2 -5 Others income and expenses -32 -49 Other operating income and expenses -31 821 -28 822 INCOME FROM OPERATING ACTIVITIES, GROSS OF TAX 1 191 1 304 Income arising from investment in associates - Equity method 4 16 Financing debts expenses -51 -39 OPERATING INCOME GROSS OF TAX 1 144 1 281 Income tax -101 -388 Minority interests share in income -70 -78 UNDERLYING EARNINGS 972 815 Net realized capital gains attributable to shareholders 213 168 ADJUSTED EARNINGS 1 185 983 Profit or loss (excluding change) on financial assets (under fair value option) & derivatives 41 -1
HY HY (in euro million) 2005 2004 France 6 587 5 948 United States 6 623 6 183 United Kingdom 1 130 1 176 Japan 2 322 2 890 Germany 1 718 1 672 Belgium 1 353 1 065 Southern Europe 717 572 Other countries 1 461 1 584 TOTAL 21 911 21 090 Intercompany transactions -4 -5 Contribution to consolidated gross revenues 21 907 21 085 (a) Gross written premiums including intercompany eliminations
ADJUSTED EARNINGS 1 185 984 Profit or loss (excluding change) on financial assets (under fair value option) & derivatives 41 -1
Exceptional operations (including discontinued operations) 0 -7 Goodwill and other related intangible impacts -4 0
Gross revenues increased by €638 million, or +10.7%, to €6,587 million resulting from - Strong growth in Investments & Savings (68% of gross revenues) of 11.2% to €4,487 million, as both general account and unit linked premiums grew by respectively 6% and 39%. - Steady growth in Life & Health (32% of revenues) of 9.8% to €2,099 million mainly due to rate increases in the Group Life & disability business.
APE grew by 7.8% (€+42 million) to €581 million reflecting increased investments and savings APE (+13%) due to strong growth in individual unit-linked premiums (up 39% to represent 28% of individual investments and savings APE) partly offset by Group business which was impacted by strict underwriting and significant large premiums reported in the first half of 2004.
Exceptional operations (including discontinued operations) 0 0 Goodwill and other related intangibles impacts 0 0 Net income group share 328 254
Underlying cost income ratio improved by 1.6% to 69.5% as a result of higher fees and revenues, increased technical margin and lower administrative expenses, partly offset by higher commissions paid.
As a consequence, and net of minority interests (which dropped following capital operations regarding real estate companies), underlying earnings improved by €31 million to €249 million.
Adjusted earnings improved by €18 million to €284 million, reflecting increased underlying earnings offset mainly by unrealized foreign exchange losses on currency macro hedge (€-39 million versus nil in 2004) and despite higher net realized gains mainly on equities (€+27 million to €74 million with gross realized gains at €235 million).
Gross revenues increased by 7.1% to €6,623 million or by 12% on a constant exchange rate basis. Excluding the contribution of MONY (€867 million), gross revenues decreased by 3% at constant exchange rate, as the 5% increase in Variable Annuity premiums and the 15% increase in First Year life premiums were more than offset by a 68% decrease in Real Estate Institutional Separate Account premiums, a 46% decline in Fixed Annuity premiums and a 4% decline in Life renewal premiums. Other revenues were up 25% driven by increases in asset management fund fees resulting from higher account balances.
APE increased by 21% to €829 million or by 26% on a constant exchange rate basis. Excluding the contribution from MONY's distribution channels, APE was up 3% primarily driven by Life APE (up 9%) and Variable Annuity APE (up 5%) partly offset by a 45% decline in Fixed Annuity APE, as, in the current interest rate environment, this product does not match Group profitability targets.
Underlying investment margin increased by €11 million to €374 million, or by €29 million on a constant exchange rate basis. Excluding the contribution of MONY in 2005, investment margin decreased by €34 million, or €19 million on a constant exchange rate basis. Investment income, despite a higher level of assets in the general account, decreased by €10 million to €999 million, primarily due to, (i) lower yields, (ii) lower prepayments on fixed maturities and (iii) lower partnership distributions. Interest and bonus credited increased by €9 million to €671 million as the impact of lower credited rates in life and annuity business were more than offset by higher general account balances.
Fees & revenues increased by €193 million to €648 million, or by €224 million on a constant exchange rate basis. Excluding the contribution of MONY in 2005, fees and revenues increased by €84 million, or €110 million on a constant exchange rate basis. This increase was mainly due to higher fees earned on separate account business, resulting from positive net cash flows and higher average account balances.
Underlying cost income ratio decreased slightly to 77.3% versus 77.8% in 2004, as the strong improvement in fees & revenues was partly offset by higher expenses.
Income tax expenses increased by €25 million, or by €33 million on a constant exchange rate basis. Excluding the contribution of MONY in 2005, these amounts decreased by €9 million and €3 million, respectively.
Underlying earnings increased by €71 million to €388 million and by €89 million on a constant exchange rate basis. MONY contributed €61 million in 2005. Excluding the contribution of MONY in 2005, underlying earnings increased by €25 million on a constant exchange rate basis. This increase primarily reflects higher fees and revenues and net technical margin partially offset by higher expenses including DAC amortization.
Gross revenues decreased by 4% to €1,130 million or 2% on a constant exchange rate basis: Investment & Savings (67% of gross revenues) - Insurance Premiums (49% of gross revenues) decreased by 4% as a result of a reduction in premiums from Old World pension products that are categorized as Insurance. - Margins on Investments Products (18% of gross revenues) increased 15% reflecting higher fund management charges driven by net new money growth in 2004 and 2005 and improved stock market levels during 2005.
Life Insurance premiums (33% of gross revenues) decreased by 6% primarily due to lower volumes of single premium Creditor Insurance written in 2005.
Underlying investment margin decreased by €9 million or €7 million on a constant exchange rate basis to €97 million, driven by a €8 million reduction on shareholders' participation in With-Profit bonus payments.
attributable to the increasing volume of Creditor Insurance business and (ii) €16 million increase in fees earned due to higher average account balances coming from net new inflows and improved stock market levels.
Expenses, net of policyholder allocation21 increased by €70 million, or €75 million on a constant exchange rate basis to €288 million, mainly as a result of (i) €20 million lower allocation of expenses to the With-Profit fund due to the decreasing volumes of new business, (ii) €23 million increase in amortization of deferred expenses relating to single premium Creditor Insurance business written in 2004 and 2005 (offsetting the increase in loadings on premiums above) and (iii) €30 million increased expenses mainly relating to new investments in sales and customer service, including the acquisition of the sales force of the Britannia Building Society.
VBI amortization declined by €11 million both on a current and constant exchange rate basis to €12 million, due to changes in amortization patterns driven by recent favorable changes in lapse and mortality experience of Insurance products.
Gross revenues decreased by 16% on a constant exchange rate basis to €2,322 million. Excluding (i) group pension transfers (€13 million versus €61 million last year) and (ii) the conversion program started in January 2003 to life products (€32 million versus €147 million last year) and to health products (€82 million versus €258 million last year), premiums decreased by 6% to €2,195 million driven by the following factors: - Investment & Savings (31% of gross revenues excluding conversions and group pension transfers): Premiums decreased by 22% to €680 million reflecting (i) a reduction in group pension premiums (€-63 million) due to a lower inforce and (ii) a reduction in single premium individual fixed annuities sold via bancassurance partnerships (€-187 million) partly offset by higher recurring premiums from existing individual annuity contracts (€+17 million) especially after strong sales in 2004.
- Life (46% of gross revenues excluding conversions and group pension transfers): premiums decreased by 1% to €1,006 million mainly driven by lower regular premiums in Endowment and Whole Life as a result of lower in-force, since these products were not promoted for new business. This was partly offset by the strong sales in LTTP (Long-Term Term Product) launched in October 2004, LTPA (Long-Term Personal Accident) launched in March 2005 and term riders as a result of increasing clients’ needs for savings.
Underlying investment margin -41 11 Underlying fees & revenues 428 437 Underlying technical margin 70 50 Underlying expenses -310 -286 Underlying amortization of VBI -266 -68 Underlying operating earnings before tax -118 144 Underlying income tax expenses / benefits 240 -61 Minority interests -3 -3 Underlying earnings group share 118 80 Net capital gains attributable to shareholders net of income tax 114 119 Adjusted earnings group share 232 199 Profit or loss (excluding change) on financial assets (under FV option) & derivatives 3 10
Exceptional operations (including discontinued operations) 0 0 Goodwill and other related intangibles impacts 0 0 Net income group share 236 209
- Health (23% of gross revenues excluding conversions and group pension transfers): premiums increased by 17% to €509 million driven by the good retention on high margin medical products such as Medical Whole Life and Medical Riders.
Underlying investment margin decreased by €52 million, or €54 million at constant exchange rate, to €-41 million mainly driven by: - A €44 million reduction to €251 million in net investment income due to a lower gross investment yield from 2.5% to 2.0% as a result of higher currency hedge costs and a fixed-income portfolio restructuring at the end of 2004 (partly out of US bonds into Japanese government bonds).
- Higher interest credited (€2 million) to €285 million mainly due to increased contract in-force.
Net technical margin increased by €20 million, or by €23 million at constant exchange rate, to €70 million. The mortality margin improved by €38 million to €57 million driven by (i) a better morbidity on health products and (ii) a lower insurance reserve strengthening on annuity portfolio (€+11 million to €18 million). The surrender margin decreased by €15 million to €13 million mainly due to lower individual annuity conversions and surrenders partly offset by improved retention on Medical riders.
VBI amortization increased by €198 million or €209 million at constant exchange rate, to €266 million mainly due to a change in future investment assumptions.
Excluding this impact, income tax expenses reduced by €108 million, or €110 million at constant exchange rate, to €+48 million due to lower pre-tax earnings in 2005.
Underlying earnings increased by €38 million, or €43 million at constant exchange rate, to €118 million mainly driven by the release of valuation allowance on tax losses carried forward (€193 million) and improved mortality profits partly offset by lower net investment income and higher VBI and DAC amortization (€+122 million and €+14 million respectively) due to a change in future investment assumptions. Excluding the combined impact of the two significant items mentioned above, underlying earnings slightly decreased by €9 million or €6 million at constant exchange rate.
were offset by a strengthening of insurance reserves following a change in future investment assumptions in 2005 (€-326 million to €314 million); - Lower DAC and VBI amortization reactivity (€+62 million) linked to realized gains in 2004; - Lower income tax impact due to an additional €114 million release of valuation allowance on tax losses carried forward coupled with reduced tax expense resulting from lower pretax operating income in 2005.
Gross revenues rose by 3% (€+46 million to €1,718 million) mainly due to unit-linked business.
- Life (47% of gross revenues) were flat at €801 million. Decrease in Life non unit-linked premiums (-3%) was compensated by strong growth in unit-linked premiums (+19%). The share of unitlinked premiums thus rose to 15% (12% for the same period in 2004).
Underlying investment margin remained stable at €35 million due to an increase in net investment Income (€+31 million in Life) mainly driven by a higher proportion of fixed income securities in the asset mix, offset by a corresponding increase (€-32 million in Life) in policyholder participation.
Underlying investment margin 35 36 Underlying fees & revenues 45 37 Underlying technical margin 19 16 Underlying expenses -35 -31 Underlying amortization of VBI -6 -7 Underlying operating earnings before tax 58 51 Underlying income tax expenses / benefits -41 -50 Minority interests -1 0 Underlying earnings group share 15 1 Net capital gains attributable to shareholders net of income tax 2 -25 Adjusted earnings group share 17 -24 Profit or loss (excluding change) on financial assets (under FV option) & derivatives 0 -1
As a consequence, underlying cost income ratio improved by 18.8 points to 58.0%.
Tax expenses decreased by €9 million to €-41 million mainly explained by non recurring tax items in 2004.
- Individual Life and Savings (86% of gross revenues) increased by 31% to €1,158 million due to the growth in the main guaranteed rate product Crest (+23% to €722 million) and in unit-linked contracts (+126% to €249 million) following the successful launch of a new structured product (Millesimo) at the end of 2004.
- Group Life and Savings (14% of gross written revenues) went up by 9% to €194 million mainly due to the growth of Traditional products (+11%) which represent 86% of Group. Regular premiums increased by 6% to €172 million and single premiums by 42% to €23 million.
Net technical margin increased by €5 million to €25 million, mainly due to a higher mortality margin and a recovery on undue annuity paid to a social security body.
Exceptional operations (including discontinued operations) 0 0 Goodwill and other related intangibles impacts 0 0 Net income group share 64 88
APE was up by 36.4% driven by (i) increasing investment single premium sales, notably in Italy and Spain, and (ii) the strong activity from bank distribution agreements in Spain. In line with gross written premium evolution, APE increase should slow down over the second half year as explained above.
Underlying investment margin rose by €5 million to €28 million, driven by higher investment income (€+8 million to €162 million) as a result of a larger average asset base partly offset by higher interests credited (€3 million to €134 million) mainly following a new business shift towards products with a lower crediting rate.
(in euro million) 2 005 2004 Gross revenues 717 572 APE (group share) 71 52
Underlying investment margin 28 23 Underlying fees & revenues 53 47 Underlying technical margin 13 22 Underlying expenses -59 -54 Underlying amortization of VBI -3 -3 Underlying operating earnings before tax 32 34 Underlying income tax expenses / benefits -8 -11 Minority interests 0 0 Underlying earnings group share 25 23 Net capital gains attributable to shareholders net of income tax 4 6 Adjusted earnings group share 29 29 Profit or loss (excluding change) on financial assets (under FV option) & derivatives 2 0
Exceptional operations (including discontinued operations) 0 0 Goodwill and other related intangibles impacts 0 0 Net income group share 31 29
Net income was up €2 million to €31 million due to the positive change in fair value of consolidated funds and derivative products following improved equity markets.
HY HY (in euro million) 2005 2004 Australia / New Zealand 566 601 Hong Kong 357 363 The Netherlands 291 457 Other countries 246 162
Singapore 63 53 Switzerland 68 40 Canada 35 31 Morocco 27 28 Luxembourg 17 10 Turkey (a) 37 0
Singapore 0 0 Switzerland 1 1 Canada 0 1 Morocco 2 2 Luxembourg 2 1 Turkey 1 1
ADJUSTED EARNINGS 105 102 Profit or loss (excluding change) on financial assets (under fair value option) & derivatives 1 1
- Fees from investment contracts without discretionary participation features of €17 million remained in line with last year.
Underlying earnings increased by €1 million on a constant exchange rate basis to €29 million. Improvements in fees & revenues of €11 million largely from mutual fund fees as discussed above were partly offset by an €8 million decrease in net technical margin driven by a return to a normalized claims pattern from the income protection portfolio, consistent with expectations. As a result, the underlying cost income ratio increased marginally from 77.8% to 78.4% following higher commissions from the growing servicing business.
Adjusted earnings and net income increased by €6 million on a constant exchange rate basis to €32 million as a result of the increased underlying earnings mentioned above as well as €2 million higher net capital gains to €3 million reflecting improved Australian equity market. Last years result also included a tax expense of €3 million on the sale of AXA IM shares to the AXA parent company.
Underlying earnings of €36 million decreased by €3 million or by €1 million on a constant exchange rate basis mainly driven by a lower net technical margin (€-4 million) due to higher death claims resulting from a more severe and extended winter period partly offset by increased fees & revenues (€+3 million) reflecting increased sales and in-force portfolio.
23 The AXA Asia Pacific group is 51.6% owned by AXA earnings and APE are presented on a Group Share basis while revenues are presented on a 100% basis.
Adjusted earnings and net income increased by €2 million, or increased by €10 million respectively to €26 million and €27 million on a comparable basis, mainly due to lower valuation allowance of €30 million and higher realized losses of €24 million.
The tables below present the gross premiums and net income attributable to AXA’s Property & Casualty segment for the periods indicated.
(in euro million) 2005 2004 Gross written premiums 10 369 9 821 Fees and revenues from investment contracts with no participating feature 0 0 Revenues from insurance activities 10 369 9 821 Net revenues from banking activities 0 0 Revenues from other activities 21 21 TOTAL REVENUES 10 391 9 841 Change in unearned premium reserves net of unearned revenues and fees -1 217 -1 141 Net investment result excluding financing expenses 828 724 Technical charges relating to insurance activities -6 137 -5 896 Net result of reinsurance ceded -304 -342 Bank operating expenses 0 0 Acquisition costs -1 584 -1 457 Amortization of value of purchased life business in force and other intangible asset -1 0 Administrative expenses -931 -866 Change in tangible assets impairment 22 -14 Others income and expenses -14 -1 Other operating income and expenses -8 948 -8 575 INCOME FROM OPERATING ACTIVITIES, GROSS OF TAX 1 054 849 Income arising from investment in associates - Equity method 1 18 Financing debts expenses -9 -9 OPERATING INCOME GROSS OF TAX 1 047 858 Income tax -321 -260 Minority interests share in income -31 -21 UNDERLYING EARNINGS 695 577 Net realized capital gains attributable to shareholders 140 121 ADJUSTED EARNINGS 835 698 Profit or loss (excluding change) on financial assets (under fair value option) & derivatives 47 12
Exceptional operations (including discontinued operations) 0 0 Goodwill and other related intangible impacts 0 -32 NET INCOME 882 677 (a) before intercompany transactions
HY HY (in euro million) 2005 2004 France 2 797 2 668 Germany 1 802 1 807 United Kingdom & Ireland 2 311 2 391 Belgium 781 779 Southern Europe 1 558 1 466 Other countries 1 142 730 TOTAL 10 391 9 841 Intercompany transactions -77 -47 Contribution to consolidated gross revenues 10 314 9 794
(in euro million) France 195 164 United Kingdom & Ireland 161 145 Germany 105 68 Belgium 84 92 Southern Europe 70 67 Other countries 81 42
UNDERLYING EARNINGS 695 577 Net realized capital gains attributable to shareholders 140 121
ADJUSTED EARNINGS 835 698 Profit or loss (excluding change) on financial assets (under fair value option) & derivatives 47 12
Gross revenues increased by 4.8% to €2,797 million, or 3.8% to €2,770 million net of intercompany transactions, in a more competitive French market with some pressure on rates, mainly on the personal motor business and on commercial property. - Personal lines (61% of gross revenues) grew by 2.4% to €1,691 million, reflecting positive net inflows in Motor with +35,300 new contracts and tariff increase in Household. - The 6.1% increase in Commercial lines revenues (39% of gross revenues, €1,079 million) resulted from rate increases mainly on Construction and Liability.
- The prior years net technical result improved by €36 million to nil mainly due to adverse loss developments in construction in half year 2004 and positive developments in property in half year 2005 offset by reserve strengthening on natural events (€40 million related to 2003 drought) and the decrease of discounting rate on annuities.
Expense ratio increased by 0.9 point to 24% explained by higher acquisition ratio by 0.9 point to 14.9%. Expenses increased by €50 million to €591 million under the combined effect of (i) increased commissions by €15 million to €393 million in line with increased volume, (ii) slightly higher expenses (€+6 million to €150 million) due to IT costs, and (iii) a €28 million lower level of capitalization on acquisition costs to €48 million.
Current accident year loss ratio (net) 74,5% 74,9% All accident year loss ratio (net) 74,5% 76,4% Net technical result 628 552 Expense ratio 24,0% 23,1%
Underlying operating earnings before tax 311 260 Underlying income tax expenses / benefits -116 -96 Net income from investment in affiliates and associates 0 0 Minority interests 0 0 Underlying earnings group share 195 164 Net capital gains attributable to shareholders net of income tax 13 15 Adjusted earnings group share 208 179 Profit or loss (excluding change) on financial assets (under FV option) & derivatives 29 1
Exceptional operations (including discontinued operations) 0 0 Goodwill and other related intangibles impacts 0 0 Net income group share 237 180
Net underlying investment result increased by €26 million to €275 million reflecting higher income mainly in bonds following an increase in the average asset bases and in equities following higher dividend yield.
Gross revenues decreased by 1% to €2,311 million, or increased by 1% on a comparable basis. - Personal lines (35% of gross revenues) were up 4% at €809 million. This reflects continued growth in Property (+15%), and Creditor (+24%) driven by new business deals, partially offset by a 6% decrease following a fall of average premiums and lower volumes in Ireland.
- Commercial Lines (38% of gross revenues) were down 4% at €878 million. This reflects lower new business in liability lines (-9%) due to decreasing rates in the UK while Property remained flat. Motor performance (-7%) was mainly explained by falling premiums in Ireland.
Expense ratio deteriorated by 2.7 points to 31.8%, driven by an increase in commission ratio by 3.7 points to 19.8%, reflecting the change in business mix towards, higher commission products and increased profit share payments in Creditor business. This was partially offset by an improvement of the general expense ratio by 1.0 point to 12%, reflecting improved controls on management expenses together with reduced staff and associated costs following the sale of AXA Direct
Underlying operating earnings before tax 206 183 Underlying income tax expenses / benefits -46 -38 Net income from investment in affiliates and associates 0 0 Minority interests 0 0 Underlying earnings group share 161 145 Net capital gains attributable to shareholders net of income tax 28 37 Adjusted earnings group share 189 182 Profit or loss (excluding change) on financial assets (under FV option) & derivatives 0 0
Exceptional operations (including discontinued operations) 0 0 Goodwill and other related intangibles impacts 0 0 Net income group share 189 182
As a result, the combined ratio improved by 0.2 point to 97.3%.
Income tax expenses increased by €8 million to €-46 million, reflecting the higher proportion of earnings coming from the UK with higher tax rate.
Gross revenues decreased by 0.3% to €1,802 million, or decreased by 0.8% on a comparable basis25: - Personal lines (59% of total gross revenues) decreased by 0.2% due to the decrease in motor (0. 3%), partly offset by an increase in Liability (+2.3%) due to additional premium in services, craft and medical sector.
Net technical result improved by €2 million to €430 million, due to: - The current accident year loss ratio improved slightly by -0.3 point to 77.0%. - The all accident year loss ratio improved by -0.5 point to 69.4% due to €9 million higher boni in 2005. The €101 million boni in 2005 included €44 million on fire and weather related events, and €22 million mainly in aviation.
Net underlying investment result was up by €24 million to €130 million mainly driven by higher fixed income revenues as a consequence of a higher asset base coupled with a higher proportion of fixed income assets in the investment portfolio.
Income tax expense increased by €18 million in line with taxable earnings.
Underlying earnings improved by €38 million to €105 million, mainly driven by the increase in net investment income and lower expenses.
Net income improved by €94 million to €157 million, in line with the increase of adjusted earnings.
On a comparable basis, gross revenues were up by +6.3% to €1,558 million: - Personal lines (75% of gross revenues) rose by 6.4% to €1,172 million, reflecting a sustained growth in motor (+5.2% to €859 million) driven by the net inflow in all countries. Motor portfolio was up 2.6% increasing by 91,300 policies since December 2004. Non motor lines were up by 9.8% notably thanks to net inflows in household (+14,900 policies representing a 1.6% growth since December 2004).
- Commercial lines (25% of gross revenues) were up +5.7% to €386 million. Motor was down 0.6% following the non-renewal of one large fleet contract. Non-motor increased by +8.2% driven by commercial liability business developing on local administration agreements.
Net technical result improved by €22 million to €356 million driven by a 6.1% earned premium growth.
- The current accident year loss ratio slightly improved by 0.3 point to 80.6% driven by the favorable evolution of bodily injury claim frequency in motor. - The all accident year loss ratio remained almost stable at 75.1% (-0.1 point).
Expense ratio increased by 0.2 point to 24.0%. Commission ratio remained stable at 13.8% and other acquisition costs were up by €11 million reflecting gross written premium growth as well as an increase in marketing costs to further develop the direct distribution sales.
Net underlying investment result increased €15 million to €92 million mainly driven by a larger average asset base.
Underlying operating earnings before tax 104 89 Underlying income tax expenses / benefits -35 -22 Net income from investment in affiliates and associates 0 0 Minority interests 0 0 Underlying earnings group share 70 67 Net capital gains attributable to shareholders net of income tax 16 42 Adjusted earnings group share 86 109 Profit or loss (excluding change) on financial assets (under FV option) & derivatives 0 1
Exceptional operations (including discontinued operations) 0 0 Goodwill and other related intangibles impacts 0 0 Net income group share 86 110
Income tax expense increased by €12 million to €35 million due to higher pre-tax underlying earnings and the non-recurrence of a tax gain accounted for in 2004 following the sale of real estate in Spain.
of personal lines written premiums) remained stable (+0.1%) at €276 million due to a decrease in portfolio offset by rates increases. Household increased by 4.9% to €118 million as a result of rate increases.
- Other Lines decreased from €6 million in 2004 to nil 2005 due to the decrease of internal reinsurance and ceded premium.
Compared to first half 2004, the expense ratio slightly decreased by 0.2 point to 28.5%.
(in euro million) 2 005 2004 Gross revenues 781 779 Current accident year loss ratio (net) 81,6% 79,8% All accident year loss ratio (net) 68,0% 66,1% Net technical result 229 242 Expense ratio 28,5% 28,8%
Underlying operating earnings before tax 119 132 Underlying income tax expenses / benefits -36 -41 Net income from investment in affiliates and associates 0 0 Minority interests 0 0 Underlying earnings group share 84 92 Net capital gains attributable to shareholders net of income tax 37 21 Adjusted earnings group share 120 113 Profit or loss (excluding change) on financial assets (under FV option) & derivatives 5 -1
Income tax expense decreased by €5 million as a result of lower taxable earnings.
Net income increased by €13 million to €125 million with the increase of adjusted earnings and capital gains on mutual funds under fair value option.
Morocco 73 70 Japan 73 63 Switzerland 60 59 Luxembourg 42 39 Turkey (a) 217 0 Hong Kong (a) 34 0 Singapore (a) 41 0
Morocco 13 10 Japan -6 -9 Switzerland 1 1 Luxembourg 4 3 Turkey 5 4 Hong Kong 6 5 Singapore 4 3
UNDERLYING EARNINGS 81 42 Net realized capital gains attributable to shareholders 7 23
Exceptional operations (including discontinued operations) 0 0 Goodwill and other related intangible impacts 0 -34
As a result, the combined ratio improved by 6 points to 88.6%.
Underlying earnings increased by €9 million or by €5 million on a comparable basis to €9 million, as current year technical result improved by €5 million mainly in Fire and Disability. Combined ratio improved by 9 points to 99% or by 5 points on a comparable basis due to an improvement of the P&C (excluding disability) accounting loss ratio.
Adjusted earnings increased by €13 million or by €8 million on a comparable basis to €15 million driven by underlying earnings and higher realized capital gains of €4 million due to the sale of real estate in 2005.
Net income increased by €46 million or by €40 million on a comparable basis to €15 million, as 2004 was impacted by goodwill impairment of €33 million.
JAPAN Gross revenues increased by 18.5% on a constant exchange rate to €73 million, mainly driven by motor business growth (+27%, 78% of revenues). Total motor portfolio (309,000 contracts) continued to show a sharp increase (+76,000 contracts compared to June 2004) thanks to competitive rates.
Underlying earnings improved by €2 million both on constant and current exchange rates, to €-6 million following the improvement of the combined ratio from 117.9% in June 2004 to 111.7% this year. This continuing improvement resulted mainly from the increased scale attributable to the motor portfolio growth.
Adjusted earnings and net income were up €2 million to €6 million as a result of realized capital gains on bonds.
(in euro million) AXA RE 55 88 AXA Corporate Solutions Assurance 38 26 AXA Cessions 4 10 AXA Assistance 10 9 Other -5 5
UNDERLYING EARNINGS 103 138 Net realized capital gains attributable to shareholders 32 22
ADJUSTED EARNINGS 135 159 Profit or loss (excluding change) on financial assets (under fair value option) & derivatives -3 2
Exceptional operations (including discontinued operations) 23 0 Goodwill and other related intangible impacts -0 -5
Gross revenues increased by 15% on a comparable basis up to €1,065 million, due to the nonrecurrence of some 2004 negative premium adjustments and to higher premiums in European proportional Property Cat and Credit business as well as in selected non proportional General Liability business in order to take advantage of favorable pricing conditions.
- Major losses cost was €73 million in 2005, due to Erwin storm and Suncor Energy fire versus nil in 2004.
Life net technical result increased by €19 million to €27 million due to the good performance of stock market in the first half year 2005.
Attritional current year loss ratio (a) (b) 56,9% 61,7% 63,2% Attritional all accident year loss ratio (a) (b) 57,6% 55,7% 58,0%
All accident year loss ratio (net) (c) 82,0% 76,8% 76,9% Net technical result (excluding fees) 100 123 153
Exceptional operations (including discontinued operation) 0 0 0 Goodwill and other related intangibles impacts 0 -5 -5 Net income group share 66 85 103
(a) Net of ceded reinsurance (cession and retrocession) (b) Attritional data exclude (i) major losses in claims charge and (ii) covers cost in ceded premiums (c) (Attritional claim charge and major loss cost on all accident years) divided by (net earned premiums, net of all reinsurance costs including covers) (d) Transfer of AXA RE US entities from AXA RE segment to "Other Transnational Activities" from October 2004
Expense ratio improved by 2.6 points to 15% as a result of a decrease in general expenses by €10 million to €83 million, due to lower employment costs.
Net underlying investment result increased by €10 million to €66 million in 2005, mainly driven by an increased asset base.
Underlying earnings decreased by €20 million to €55 million mainly as the result of lower technical result (as two major losses occurred at the beginning of 2005) and a higher effective tax rate.
Adjusted earnings decreased by €24 million to €64 million driven by the decrease in underlying earnings and lower realized capital gains attributable to shareholders net of tax (€-4 million to €10 million). Accordingly, realized gains gross of tax decreased by €6 million to €15 million explained by a €10 million negative impact of exchange rate derivatives.
Gross revenues increased by 7.9% to €1,068 million, reflecting a selective growth on Marine, Aviation and Construction. However, it should be noted that marine and aviation growth benefited from seasonal effect in half year 2005. Other lines experienced a more limited growth in a softening market.
- Increased prior accident year net technical result by €14 million to €15 million due to higher boni following positive experience in Property, Construction and Aviation. Overall, the all accident year loss ratio increased by 0.6 point to 87.4%.
As a result, the combined ratio increased by 0.6 point to 100.5%.
Current accident year loss ratio (net) (a) 88,6% 86,7% All accident year loss ratio (net) 87,4% 86,8% Net technical result 104 100 Expense ratio 13,1% 13,0%
Underlying operating earnings before tax 63 45 Underlying tax expenses / benefits -24 -18 Net income from investment in affiliates and associates 0 0 Minority interests 0 0 Underlying earnings group share 38 26 Net capital gains attributable to shareholders net of income tax 19 -5 Adjusted earnings group share 58 21 Profit or loss (excluding change) on financial assets (under FV option) & derivatives -3 0
Exceptional operations (including discontinued operation) 0 0 Goodwill and other related intangibles impacts 0 0 Net income group share 54 21
Underlying earnings increased by €12 million to €38 million resulting from the increase of the net investment income partly offset by the slight deterioration of the combined ratio.
AXA Cessions Underlying earnings and adjusted earnings decreased by €5 million to €5 million, mainly due to a decrease in the net technical margin (notably lower boni).
Other transnational activities The US based reinsurance Life and Non Life entities were transferred from AXA RE to the other transnational segment from October 2004.
Underlying earnings decreased by €-23 million to €-5 million on a comparable basis mainly due to a €-9 million mali on 2004 US hurricanes (exposure coming from the program business of AXA RE P&C Insurance Company, now in run off) and a €10 million decrease in US Life reinsurance earnings, mainly due to the decrease in premiums volume on this portfolio and the implementation cost of a dynamic hedging program on part of the business.
ADJUSTED EARNINGS 159 125 Profit or loss (excluding change) on financial assets (under fair value option) & derivatives -2 1
Fees, commissions and other revenues were down €35 million to €1,173 million, or up 1% on a comparable basis, due to higher investment advisory fees driven by 10% higher average AUM and increased performance fees, partially offset by lower distribution revenues and lower shareholder servicing fees in the Retail channel. In addition, Alliance has restructured its Private Client fee structure during the first half of 2005, effectively eliminating transaction charges while raising base fees.
The operating cost income ratio decreased by 1.5 point from 71.6% in 2004 to 70.1% in 2005.
Profit or loss (excluding change) on financial assets (under FV option) & derivatives 0 0
Assets Under Management ("AUM") were €382.4 billion as of June 30, 2005, increasing by €37 billion compared to December 2004 (+11% on a comparable basis) driven by positive net new money (€+12 billion), mainly from third-party institutional and retail clients, market appreciation (€+16 billion), foreign exchange variance (€+7 billion) and a change in scope on money market AUM (€+3 billion).
General expenses increased by €56 million to €444 million. Excluding commissions paid to thirdparty agents, expenses increased by 21.9% on a constant exchange rate basis. Excluding non-recurring costs, expenses increased by 19.7%, i.e. at a lower pace than fees, commissions and other revenues.
Underlying and adjusted earnings, increased by €18 million to €57 million as a result of business growth and an improvement in cost income ratio.
TOTAL 232 203 Intercompany transactions -7 -5 Contribution to consolidated gross revenues 225 198
(in euro million) AXA Banque (France) -2 -6 AXA Bank (Germany) 1 2 AXA Bank (Belgium) 36 14 Other 8 -2
UNDERLYING EARNINGS 42 8 Net realized capital gains attributable to shareholders 5 -0
AXA Bank (Belgium) Underlying earnings increased by €22 million to €36 million, mainly due to an improved interest margin (€+6 million) and the reversal of a provision for risks related to loan activities in France following a favorable Court decision (€16 million).
Adjusted earnings increased by €27 million to €41 million due to an increase in underlying earnings and in capital gains on equities (€+5 million).
Net income increased by €36 million to €45 million mainly driven by the increase in adjusted earnings and the change in fair value of derivatives.
Other CFP subgroup underlying earnings increased by €14 million to €7 million, explained by positive runoff developments in first half 2005.
Underlying earnings improved by €67 million from half year 2004. This was mainly due to (i) a €47 million non recurring tax benefit, (ii) the non-recurrence of the 2004 interest charge on the ORAN issued for Mony financing (€10 million), and (iii) a tax saving of €8 million related to withholding taxes on dividends received.
Adjusted earnings increased by €88 million to €-102 million mainly driven by the increase of the underlying earnings and an increase of €18 million on foreign exchange operations due to lower exchange losses and a better optimization of hedge accounting related to net investment hedges.
The Mark-to-Market on the portion of interest rate derivative instruments which were not considered as hedge accounting under IFRS, improved by €60 million mainly resulting from (i) the decline of €uro interest rates in H1 2005 and (ii) the widening of the €uro/USD interest yield curve differential. Offsetting this improvement, and mainly due to the rise of the USD against the €uro, the mark-tomarket on options hedging AXA’s underlying earnings denominated in foreign currencies decreased by €62 million during the first half 2005 against €-17 million in the first half 2004 closing.
UNDERLYING EARNINGS -205 -265 Net realized capital gains attributable to shareholders -25 -50
Underlying and adjusted earnings were nearly flat at €-11 million. Due to a favorable change in fair value of derivatives (€+26 million), net income was up €+24 million to €15 million.
Underlying earnings decreased by €16 million or €18 million on a constant exchange rate basis to €43 million due to higher net interest expense principally related to the MONY acquisition. Adjusted earnings decreased by €16 million, or by €18 million on a constant exchange rate basis, to €-42 million. Net income decreased by €52 million, or by €54 million on a constant exchange rate basis, to €-41 million reflecting the absence of the adjustment recognized in 2004 to income taxes on the gain on the sale of DLJ in 2000.
Underlying earnings increased by €8 million on a constant exchange rate basis to €4 million driven by positive income received on cross currency interest rate swaps used to hedge the US dollar denominated debt and investment in Hong-Kong.
As a result, adjusted earnings and net income increased by €19 million on a constant exchange rate basis to a loss of €4 million.
Adjusted earnings and net income increased by €3 million in 2005, both on current and constant exchange rate bases, to €-33 million due to a tax release, partly offset by a reduction in the net investment result.
Belgium Holding companies The net income decreased by €1.5 million to €-8 million, with lower financial charges due to an early repayment of a loan to AXA bank partly offset by higher tax income expense.
Despite the recent weather related events in the US and barring any new major catastrophic events, Management believes that the Group is well on track to deliver a strong double digit earnings growth for the full year 2005.
(i) The impact of exceptional operations (primarily change in scope, including restructuring costs related to a newly acquired company during the considered accounting period).
Adjusted earnings per share (adjusted EPS) represents the AXA's consolidated adjusted earnings, divided by the weighted average number of outstanding ordinary shares.
Adjusted earnings per share diluted (adjusted EPS diluted) represents the AXA's consolidated adjusted earnings, divided by the weighted average number of outstanding ordinary shares, on a diluted basis (that is to say including the potential impact of all outstanding dilutive stock options being exercised performance shares, and conversion of existing convertible debt into shares provided that their impact is not anti-dilutive).
Underlying earnings correspond to adjusted earnings excluding net realized capital gains attributable to shareholders.
Net realized gains or losses attributable to shareholders include - i) realized gains and losses (on assets not designated under fair value option or trading assets) ii)change in impairment valuation allowance, iii) foreign exchange rates impacts (including derivatives and except the ones mentioned above) net of tax, - related impact on policyholder participation net of tax (Life business), - DAC and VBI amortization or other reactivity to those elements if any (Life business).
Even though the presentation of Margin Analysis is not the same as the Statement of Income (underlying basis), it is based on the same GAAP measures as used to prepare the Statement on Income in accordance with IFRS. As a result, the operating income under Margin Analysis is equal to that reported in AXA’s Statement of Income for the segment.
Underlying Fees & Revenues include: (i) Revenues derived from mutual fund sales (which are part of consolidated revenues), (ii) Loading charged to policyholders on premiums / deposits and fees on funds under management for separate accounts (unit-linked) business, (iii) Loading on (or contractual charges included in) premiums / deposits received on all non unitlinked product lines, (iv) Deferral income such as capitalization net of amortization of URR (Unearned Revenue
Reserve) and UFR (Unearned Fees Reserve), (v) Other fee revenues, e.g., fees received on financial planning, sales of third party products.
(DAC) and net rights to future management fees only for investment contracts without DPF. (iii) Amortization of acquisition expenses on current year and prior years new business, including the impact of interest capitalized: amortization charge for Deferred Acquisition Costs (DAC) and net rights to future management fees only for investment contracts without DPF,
Underlying cost income ratio: Expenses as defined above / "underlying" operating margin, where: - Expenses are total expenses, excluding expenses related to mutual fund business net of
Participating Benefits, excluding deferral and amortization of Deferred Acquisition Costs (DAC) and net rights to future management fees and excluding amortization of Value of purchased Life Business In-force (VBI), - "Underlying" operating margin is the sum of (i) Underlying Investment margin; (ii) Underlying Fees and revenues excluding the change in deferral income, and (iii) Underlying Net technical Margin (all items defined above).
Underlying net investment result includes the net investment income less the recurring interest credited to insurance annuity reserves
Expenses include two components: expenses (including commissions) related to acquisition of contracts (with the related acquisition ratio) and all other expenses (with the related administrative expense ratio)
All accidents year loss ratio (Property & Casualty) net of reinsurance is the ratio of: (i) [ all accident years claims charge gross of reinsurance + claims-handling costs + result of reinsurance ceded on all accident years excluding the recurring interest credited to the insurance annuity reserves ]to ,
paid to the ceding companies and (b) received from the reinsurance companies, excluding commissions related to covers,
In our capacity as independent auditors and pursuant to Article L. 232-7 of the French Commercial Code (the Code de Commerce), we have: - performed a limited review of the activity and results table, presented in the form of consolidated half-year financial statements for AXA SA, for the period beginning on January 1, 2005 and ending on June 30, 2005, as appended to this report; - verified the disclosures made in the half-year report.
We conducted our limited review in accordance with the professional standards applicable in France. These standards require that we perform limited procedures to obtain reasonable assurance, below the level that would result from a full audit, that the half-year consolidated financial statements are free from material misstatements. A limited review of interim financial statements does not include all of the procedures and verifications of a full audit, but rather consists principally of applying analytical procedures and making inquiries of selected members of management and staff capable of providing the information we deem necessary to meet the standards of a limited review.
Based on our limited review, we are not aware of any material modification that should be made to the accompanying interim financial statements for them to be in conformity with IFRS, which should be applicable within the European Union and used by the Company to prepare the consolidated financial statements for the year ended December 31, 2005, as described in Notes 1 and 4 hereinafter.
This region28, which brings together AXA's subsidiaries in Belgium, Luxembourg, the Netherlands, Germany and Switzerland, represents 14% of AXA's 2004 consolidated life and savings revenues and 26% of consolidated P&C revenues. The new region has the following goals : Accelerate profitable growth in these countries which are relatively similar in terms of maturity, customer expectations and competition,
Facilitate synergies to reach operational excellence in the areas of : banking and insurance product innovation, development of distribution, investment and technical management, productivity.
The AXA Management Board has nominated Alfred Bouckaert as Group CEO for the "Northern Europe" region effective from 19th April 2005. He retains his current responsibilities as CEO of AXA Belgium.
First steps of the new organization at the regional level Serge Wibaut, member of the executive committees of AXA Bank Belgium and AXA Belgium, chief investment officer and member of the management board of AXA Konzern since July 14, 2005, is appointed regional chief investment officer in charge of asset allocation and asset liability management.
Christophe Dupont Madinier, currently chief financial officer of AXA Belgium and member of the executive committee of AXA Belgium, is appointed regional chief financial officer.
The terms and conditions of the merger, including the exchange ratio, have been submitted to Court Appointed Merger Auditors (“Commissaires aux Apports et à la Fusion”) who have delivered on November 9, 2005 their reports which will be provided to AXA and FINAXA’s shareholders.
Linked transactions In connection with the AXA-FINAXA merger, it is anticipated that the outstanding FINAXA exchangeable bonds will be replaced by AXA convertible bonds as provided for in the initial terms and conditions, subject to the approval of AXA shareholders29.
Filing of the Document E with the AMF. All legally required documents (including the reports of the Court Appointed Merger Auditors) to be made available to AXA and FINAXA shareholders ; November 24, 2005 FINAXA Bondholders’ Assemblies to approve the merger of FINAXA into AXA ; December 16, 2005 Visa from the AMF on the prospectus relating to the issue of the new AXA convertible bond expected ; AXA-FINAXA merger and related transactions submitted for approval to AXA and FINAXA shareholders’ General Assemblies. The exchange of FINAXA’s exchangeable bond for an AXA convertible bond and the cancellation of AXA shares received from the merger of FINAXA will also be presented to the AXA General Assembly for approval.
29 On the basis of one AXA convertible bond for one FINAXA exchangeable bond into AXA shares. The terms and conditions of the AXA convertible bond will replicate the terms and conditions of the FINAXA exchangeable bond set out in the FINAXA prospectus ( Note d’Information ) which received the visa from the AMF (n° 98-505) on June 16, 1998 (notably exchange rate of 4.06 AXA shares for 1 bond and redemption value of Euro 99.09, equivalent to a theoretical exchange price of Euro 24.41 per AXA share)
Under IFRS principles, this merger would be +1.2% accretive to AXA non-diluted EPS as soon as 2005 and -0.7% dilutive to fully diluted EPS32.
On August 24, 2005, AXA Asia Pacific Holdings Limited (AXA APH) signed a binding agreement with Bharti Enterprises Private Limited (Bharti) to establish a life insurance joint venture company. Under the agreement, AXA will have a 26% equity interest in the joint venture, the maximum currently permitted under Indian regulations, while Bharti will hold the balance of the equity in the joint venture. AXA will be responsible for day-to-day management of the joint venture and bring with it access to AXA’s global life insurance and asset management expertise. Bharti, India’s leading business conglomerate, will bring its strong local market knowledge and reputation, and presence. Bharti and AXA have entered into a distribution agreement with Bharti Tele-ventures Limited (BTVL), a part of the Bharti group, to offer products to its over 14 million customers and to its employees across the country. The joint venture is expected to start writing business in the first half of 2006, subject to regulatory approvals by local authorities of both AXA’s investment in the joint venture and the joint venture’s application for a life insurance license. The joint venture is expected to invest AUD 70 to 130 millions over the first three to four years of operations.
On July 29, 2005, AXA announced its intention to acquire from the group Caixa Geral de Depósitos the insurance company “Seguro Directo Gere – Companhia de Seguros, S.A.”. Usually known as Seguro Directo, the company operates in the direct insurance market in Portugal (by telephone and Internet), where it has a market share of almost 50% and gross revenues of approximately Euro 23 million. This acquisition is consistent with the growth strategy of AXA Portugal and will allow the company to diversify its distribution channels and further improve the service to its 700.000 clients. AXA has the objective of growing the direct distribution channel and re-establishing the leadership position Seguro Directo once held in Portugal. All the necessary regulatory approvals have been obtained and Seguro Directo’s acquisition was finalized on October 18, 2005.
Diversification of risks implies that AXA should need less capital at the Group level to support its businesses than the pure addition of local capital needs. The benefits of this risk diversification can be measured through economic capital tools that the Group has built since 2000.
Using those internal models which have not been audited, the total Group diversification benefit is estimated to be approximately -46% or Euro -16 billion35. 2004 total Group Economic Capital36 after diversification benefits is estimated to be Euro 19 billion, to be compared with Euro 35 billion of available assets. The Industry and AXA’s priorities over the coming years will be to have financial markets, rating agencies and regulators to acknowledge the benefits of diversification.
34 Source: AXA 35 Excluding diversification benefits within each local operation which are not measured 36 For a risk of default equivalent to a AA rating
Flexibility given by Economic Capital calculation, associated with a very prudently managed financial structure, should continue to enable the Group to weather extreme scenarios, to support its stated dividend policy and to control, through open market share purchases37, the dilution resulting from 2005 share based compensation grants as well as shares issued under the 2005 “Employee Shareplan” program.
AXA’s transaction is similar in principle to existing bank securitization transactions. It will allow AXA to: - benefit from a new risk transfer tool, outside the traditional reinsurance market, while eliminating counterparty risk, - have access to the risk management tools used by banks, - optimize its balance sheet, - anticipate the expected evolution of solvency rules.
For AXA’s shareholders, this transaction enables the Group to neutralize the potential dilution that may result from the issuance of new AXA convertible bonds to holders of the OE upon consummation of the merger between AXA and Finaxa as set out under the terms and conditions of the OE38.
In order to ensure equal treatment of all OE holders, AXA has offered to buy the OE on the French market from November 7th 2005 to November 15th (inclusive) at a price of Euro 118.10 per OE (including accrued interest). This price per OE is identical to that paid on November 3, 2005 for the block trade. Following the closing of this period, AXA will disclose the amount of additional OE purchased pursuant to this offer.
International Insurance revenues increased by 10% to Euro 3,183 million. The 13% increase at
AXA RE was due to the non-recurrence of some 2004 negative premium adjustments, increased reinstatement premiums linked to 2005 major events and selected development in lines with favorable pricing conditions. AXA Corporate Solutions Assurance was up 5%, driven by Marine and Aviation.
sale of Alliance Capital Cash Management Services. Over the third quarter of 2005 alone, revenue growth accelerated to approximately +13%.
The US continued to benefit from the MONY acquisition, with new business up 15% on a reported basis. On a comparable basis44, the US growth in Life and Variable Annuity businesses was partly offset by our cautious stance on Fixed Annuity. France new business growth reflected the continued focus on unit-linked products.
New Business Value (NBV) was up 18% to Euro 652 million, driven by most of our major operations, notably France, the US, Belgium, Southern Europe, Australia and Japan as a result of higher volume and product mix improvement.
As a result, NBV margin increased to 17.3% (or 17.9% on a comparable basis) from 16.3% in the first nine months of 2004.
Life & Savings 3,770 3,411 +10.5% +7.8% France 809 762 +6.3% +6.3% United States 1,245 1,080 +15.3% +4.3% United Kingdom 599 514 +16.5% +18.7% Japan 432 387 +11.7% +15.5% Germany 181 233 -22.5% -22.5% Benelux 200 163 +22.8% +22.9% Southern Europe 99 82 +20.0% +20.0% Australia/New-Zealand 155 145 +6.8% +4.5% Hong-Kong 50 45 +11.8% +15.1%
France new business increased by 6% with continued focus on profitability, as demonstrated by the increased share of unit-linked products. Investment & Savings APE was up 11%, reflecting strong growth in individual unit-linked premiums (up 39% to represent 27% of total Investment & Savings new business), driven by the focus on these products in proprietary channels with an acceleration in September following the launch, in the salaried employee network, of "Odyssiel", a new unit-linked product.
Group protection business was impacted by the non-recurrence of some large premiums in 2004.
44 As MONY was acquired in July 8, 2004, the constant scope in the US includes the contribution of MONY only for the discrete third quarters of both 2004 and 2005.
Japan new business increased by 16%. Individual business APE grew by 11%, driven by Term Life products and riders (following the launch of new products in October 2004 and March 2005), and Group Life APE was up 313%, primarily due to the New Mutual Aid product, a Group Term Life product featuring new cancer and disability riders. Japan new business growth accelerated strongly in 3Q05 to +28% as a result of strong momentum of new products and continued improved productivity in the AXA Advisors channel.
In the United Kingdom, new business was up 19% driven by strong sales of unit-linked investment bonds (+38%) and Group Pension products (+31%). Sales within the IFA channel were up 26%. In September, AXA announced it had gained a position on the Bankhall multi-tie panel, following a similar agreement with Sesame in July.
Southern Europe new business increased by 20%, mainly driven by traditional savings' new business in the agent network in Italy and strong activity in individual Life products (including the launch of new products), partly offset by lower unit-linked business as 3Q04 was particularly strong, benefiting from the launch of some significant bancassurance agreements.
Australia/New-Zealand new business was up 5%, with third quarter APE up 8%, driven by continuing strong sales into "Generations" and "Summit" dedicated platforms and increased sales of global equity growth and value funds.
(a The right to renew our UK Personal Direct business was sold to RAC in October 2004. In the first nine months of 2004, revenues from this activity amounted to Euro 95 million. (b) As of January 2005, Turkey, Hong-Kong and Singapore are now fully consolidated instead of being accounted for under the equity method. If full consolidation had been applied in 2004, other countries 9M04 P&C revenues would have been Euro 365 million higher. In addition, the Netherlands disability activity has been transferred from Life & Savings to Property & Casualty. Other countries 9M04 P&C revenues would have been Euro 70 million higher if disability had been included..
Personal lines (58% of P&C premiums) showed overall growth of 3%.
Non-motor revenues increased by 4%, mainly driven by household in France, the UK which also benefited from the growth in the creditor business, Belgium and Southern Europe, as a result of portfolio evolution and increased tariffs.
Non-motor revenues were up 1% mainly driven by France (+5%) as a result of tariff increases in most business lines, while maintaining a strict underwriting policy.
Insurance: AXA Corporate Solutions Assurance revenues increased by 5% reflecting a selective growth in the marine and aviation lines of business. Development remained cautious on commercial property and liability lines.
Asset Management revenues increased by 10% to Euro 2,404 million driven by higher average Assets Under Management (AUM) (+16% compared to 9M04). Both AXA IM and Alliance Capital contributed to very strong net inflows of Euro 42 billion, excluding the impact of the sale of Alliance Capital Cash Management Services. Over the discrete third quarter of 2005, revenue growth accelerated to approximately +13% and net inflows amounted to Euro 26 billion excluding Alliance Cash Management Services.
Alliance Capital: Revenues were up 7% as higher investment advisory fees, driven by 11% higher average AUM, and higher performance fees more than offset lower distribution revenues and lower shareholder servicing fees in the retail channel as well as lower transaction charges following Alliance's restructuring of its Private Client fee structure which effectively eliminates transaction charges while raising base fees.
AUM increased by Euro 66 billion from year-end 2004 to Euro 461 billion at the end of September 2005 as a positive exchange rate impact (Euro 53 billion), a favorable market impact (Euro 23 billion) and strong net positive long-term inflows (Euro 13 billion) more than offset the Euro 23 billion decrease in AUM related to the sale of the Cash Management Services to Federated Investors.
AXA Investment Managers: Revenues increased by 20%, while gross revenues, excluding management and front-end fees collected on behalf of external distributors, increased by 24%, driven by higher average AUM (+21%), mostly on segments with higher average fee levels, and by higher performance fees, especially on AXA Rosenberg's portfolios.
Annual Premium Equivalent (APE) and New Business Value (NBV) 9 main countries/regions and modeled business – First Nine Months of 2005 – Group share
Breakdown of APE between unit-linked, non unit-linked and mutual funds 9 main countries/regions and modeled business - First Nine Months of 2005 – Group share
France 33% + 2% 28% + 3% 9% + 4% 30% + 5% Germany 31% - 1% 29% - 0% 7% + 0% 26% - 1% 7% - 9% Belgium 36% + 0% 27% + 3% 6% + 3% 31% + 2% United Kingdom(a) 12% - 7% 23% + 7% 7% - 7% 30% - 4% 27% + 7% Southern Europe 57% + 5% 19% + 5% 6% + 3% 17% + 3% Canada 39% + 6% 16% + 8% 8% - 3% 36% + 5% The Netherlands 11% - 5% 35% + 9% 25% - 5% 30% - 1% Others 59% + 17% 26% + 5% 2% NS 15% + 8%
France 8 815 - 239 8 576 9 409 9.7% 9.7% United States 9 502 9 502 10 107 6.4% 0.2% United Kingdom 4 617 - 2 825 1 792 1 739 -2.9% -1.1% Japan 4 154 4 154 3 488 -16.0% -13.2% Germany 2 500 2 500 2 562 2.5% 2.5% Belgium 1 490 - 12 1 479 1 912 29.3% 29.3% Southern Europe 918 - 23 895 1 008 12.6% 12.6% Other countries (1) (2) 2 620 - 282 2 338 2 243 -4.1% 3.9%
of which Australia/New-Zealand 1 162 - 268 893 912 2.1% -0.1% of which Hong-Kong 569 - 13 556 575 3.5% 6.6%
France 3 860 3 860 3 998 3.6% 3.6% Germany 2 346 2 346 2 326 -0.9% -1.2% United Kingdom + Ireland (3) 3 504 3 504 3 381 -3.5% 0.8% Belgium 1 108 1 108 1 124 1.4% 1.4% Southern Europe 2 106 2 106 2 198 4.4% 4.4% Other countries (1) (2) 1 063 1 063 1 650 55.2% 8.0%
Asset Management 2 260 15 2 275 2 404 5.7% 10.1% Alliance Capital 1 699 15 1 714 1 737 1.3% 6.8% AXA Investment Managers 561 561 668 19.0% 20.1%
(2) As of January 2005, Turkey (Life + P&C), HK (P&C) and Singapore (P&C) are consolidated. If they had been consolidated in the first nine months of 2004, Life & Savings IFRS revenues would have been Euro 49 million higher and P&C IFRS revenues would have been Euro 365 million higher.
Chairman and CEO of FINAXA ; Director or member of the Supervisory Board of AXA Financial (US), BNP Paribas, Vivendi Universal and Mutuelles AXA ; Non-voting member of the Board of Schneider Electric
Senior Advisor Lazard Frères ; Managing partner of DD Finance ; Chairman of the Supervisory Board of Club Méditerranée; Director or member of the Supervisory Board of Casino and Fimalac; Non-voting member of the Board of Groupe Go Sport, Lazard Frère Banque and Eurazeo
Chairman and CEO of BOURBON, Sapmer, S.A. JACCAR, SAS, Vindemia SAS, Happy World Foods, Ltd
Chairman and CEO of Sofibus ; Chairman of the Supervisory Board of Emba NV (The Netherlands) ; Vice-Chairman of Gaspee (Switzerland) ; Senior Chief Officer and Director of Financière Hottinguer, Intercom and Profinor; Chief Officer of the Board of Directors of Hottinguer Finanz & Treuhand (Switzerland) ;Director of FINAXA, AXA France IARD and AXA France Vie ; Non-voting member of the Board of Didot Bottin
Chairman and CEO of Schneider Electric ; ViceChairman of the Board of Directors of Mutuelles AXA ; Director or member of the Supervisory Board of FINAXA, Vivendi Universal and Groupe Norbert Dentressangle ; Non-voting member of the Board of Fimalac
Chairman, Coca-Cola Enterprises – Groupe Europe ; First Vice-President, Union of European Soft Drinks Associations (UNESDA) ; Member of the Executive Committee of MEDEF ; Chairman, Union des Annonceurs (UDA) ; Member of the Board, ECR Europe ; Member of the Advosory Board, ING Direct
Professor of Politics and Chair of the Committee for European Studies, Princeton University (United States) ; Associate Professor, Institut d’Etudes Politiques (Paris) ; Member of the Management Committee of Institut Montaigne, Centre Américain, Institut d'Etudes Politiques (Paris) ; Member of the Editorial Committee of Comparative Politics, La Revue des Deux Mondes and Politique International
Lecturer in accounting and financial analysis, Bank and Finance program, Université Panthéon-Assas Paris II
Claude Bébéar 1958 Joined Anciennes Mutuelles, an insurance company in Rouen where he remained until 1975 working his way through various divisions of the company 1964 – 1966 Was sent on assignment to Canada where he created the life insurance division
Provinces Unies, a Canadian subsidiary of the Anciennes Mutuelles group. 1975 Was appointed Chief Executive Officer of Anciennes Mutuelles (which was renamed Mutuelles Unies in 1978). Created l'Ancienne Mutuelle de Réassurance – l'AMré – which later became AXA
Compagnie du Midi which became AXA in 1990 1990 – 2000 Chairman and Chief Executive Officer and Chairman of the Management Board of
AXA (1997/2000) Since May 2000 Chairman of the AXA Supervisory Board
Aventis 12/1999 – 05/2002 Vice-Chairman and Chief Executive Officer of Aventis Honory Chairman of Aventis and member of the Supervisory Board of
David Dautresme 1982 – 1986 Chairman and Chief Executive Officer of Crédit du Nord 1986 – 1999 General Partner of Lazard Frères Since 1999 Senior Advisor of Lazard Frères
Pitt, Kelton Limited (UK) Since September 2000 Chairman of AXA UK
Drouot March 1990 Chairman and Chief Executive Officer of Banque Hottinguer End of 1997 – December 2004 Chairman of the Supervisory Board of Crédit Suisse Hottinguer Since 1969 Chairman and Chief Executive Officer of Sofibus (Société Financière pour le Financement de Bureaux et d'Usines)
Michel Pébereau 1967 Auditor at the Treasury 1970 – 1974 Project leader and then Adviser to the Cabinet of the Finance Minister
Politiques (Paris) 1981 – 2000 Manager, Programm "Young Leaders" (fondation franco-américaine) Since September 1979 Professor of Political Sciences at the University of Princeton
Jacques Tabourot 1972 - 1978 Auditor to Deloitte, then Frinault Fiducaire 1978 - 1986 Assistant to the accounting Manager then Accountant Manager of Secours 1986 - 2003 Responsible of the AXA consolidation then Manager of the Accounting
Claude Brunet 1988 – 2001 Ford 1991 - 1992 Corporate Sales Division of Ford Switzerland 1992 - 1993 Corporate Sales Division of Ford France 1993 - 1996 Chairman and Chief Executive Officer of Ford Belgium 1996 - 2001 Chairman and Chief Executive Officer of Ford France
April 2001 Joined the AXA Group as a Member of the Executive Committee Since February 2002 Member of the AXA Management Board, in charge of Transversal
Christopher Condron 1989 Head of the Private Client Group of The Boston Company, now Mellon Private
Asset Management. 1993 Executive Vice President of Mellon 1994 Vice-Chairman of Mellon 1995 Assumed responsibility for The Dreyfus Corporation as Chairman & Chief
Executive Officer 1998 President and Chief Operating Officer of Mellon Bank N.A. 1999 - 2001 President & Chief Operating Officer of Mellon Financial Corporation Since May 2001 President and CEO of AXA Financial Inc. Chairman of the Board, President (since May 2002) and Chief Executive
Chairman of the Supervisory Board of AXA Chairman and CEO of FINAXA Director of AXA Assurances IARD Mutuelle, AXA Assurances Vie Mutuelle, AXA Courtage Assurance Mutuelle, BNP Paribas and Vivendi Universal
Chairman of the Supervisory Board of AXA Chairman and CEO of FINAXA Director of AXA Assurances IARD Mutuelle, AXA Assurances Vie Mutuelle, AXA Courtage Assurance Mutuelle, Schneider Electric, BNP Paribas and Vivendi Universal
April 1990 2007 AGM Vice-Chairman of the Supervisory Board of AXA Chairman and CEO of Vivendi Universal Chairman of the Supervisory Board of Groupe Canal+ Director of Sanofi-Aventis and Cap Gemini
February 2005 2007 AGM Chairman, Global Field Operations of SAP Director of SAP America, Inc. (US), SAP Global Marketing Inc. (US), SAP Asia Pte. Ltd.(Singapore), SAP JAPAN Co., Ltd.(Japan), SAP FRANCE S.A., S.A.P. ITALIA Sistemi, applicazioni, prodotti in data processing s.p.a., (Italy), SAP Hellas Systems Application and Data Processing S.A. (Greece), SAP (Beijing) Software System Co., Ltd., (China), Enigma Inc. (US)
Chairman, Global Field Operations of SAP Director of SAP FRANCE S.A, S.A.P. ITALIA Sistemi, applicazioni, prodotti in data processing s.p.a., (Italy), SAP Hellas Systems Application and Data Processing S.A. (Greece), SAP America, Inc. (US), SAP JAPAN Co., Ltd.(Japan), SAP Manage Ltd. (Israel), SAP Global Marketing Inc. (US)
Chairman, Global Field Operations of SAP Director of SAP Systems Integration AG (Germany), SAP FRANCE S.A, SAP Finland Oy (Finland), SAP Svenska Aktiebolag (Sweden), S.A.P. ITALIA Sistemi, applicazioni, prodotti in data processing s.p.a., (Italy), SAP Hellas Systems Application and Data Processing S.A. (Greece), SAP America, Inc. (US), SAP JAPAN Co., Ltd.(Japan), SAP Danmark A/S (Denmark), SAP Manage Ltd. (Israel)
April 1990 2007 AGM Senior Advisor Lazard Frères Managing partner of DD Finance Chairman of the Supervisory Board of Club Méditerranée Director of Casino, Fimalac Non-voting member of the Board of Groupe Go Sport, Lazard Frère Banque, EURAZEO
Chairman and CEO of Groupe BOURBON Chairman of Vindemia SAS Director of Sapmer, Happy World Foods, Ltd
January 1996 April 2009 Chairman of AXA UK Plc (United Kingdom) Director or member of the Supervisory Board, Pinault-Printemps-Redoute, Swiss Re Capital Markets Limited (United Kingdom), Binley Limited (United Kingdom), Tawa UK Limited (United Kingdom)
Chairman of AXA UK Plc (United Kingdom) Chairman of Fox-Pitt, Kelton Group Ltd (United Kingdom), Fox-Pitt, Kelton Nominees Ltd (United Kingdom), Eldon Capital Management Ltd (UK), Eldon Capital Holdings Ltd (UK), Byas, Mosley Group Ltd (UK), Byas, Mosley & Co Ltd (UK) Director or member of the Supervisory Board, Fox-Pitt,Kelton Ltd (UK), Binley Limited (UK)
Chairman of AXA UK Plc (United Kingdom) Chairman of Fox-Pitt, Kelton Group Ltd (UK), Fox-Pitt, Kelton Nominees Ltd (UK), Eldon Capital Management Ltd (UK), Eldon Capital Holdings Ltd (UK), Byas, Mosley Group Ltd (UK) Director or member of the Supervisory Board, Fox-Pitt,Kelton Ltd (UK), Binley Limited (UK)
Chairman and CEO of Sofibus Chairman of the Supervisory Board of Crédit Suisse Hottinguer, Emba N V (The Netherlands) Chairman of Hottinguer Capital Corp. (US) Vice-Chairman of Gaspee (Switzerland) Managing Partner of Hottinguer & Cie (Zurich) Senior Chief Officer and director of Intercom, Director or member of the Supervisory Board, FINAXA, Investissement Provence SA, Hottinguer International Fund (Luxembourg), Hottinguer International Asset Management (Luxembourg), Swiss Helvetia Fund Inc., Hottinguer US, Inc. Non-voting member of the Board of Didot Bottin
Chairman and CEO of Schneider Electric Director or member of the Supervisory Board, AXA Assurances Vie Mutuelle, AXA Assurances IARD Mutuelle, AXA Courtage Assurance Mutuelle, de FINAXA, Vivendi Universal, Groupe Norbert Dentressangle
Chairman and CEO of Schneider Electric Director or member of the Supervisory Board, AXA Assurances Vie Mutuelle, AXA Assurances IARD Mutuelle, AXA Courtage Assurance Mutuelle, AXA Conseil Vie Assurance Mutuelle, FINAXA, Vivendi, Groupe Norbert Dentressangle, ANSA, CNRS
January 1997 April 2007 Chairman and CEO of Suez Chairman of Suez Environnement, Suez-Tractebel (Belgium), Electrabel (Belgium) Vice-Chairman of Hisusa (Spain), Sociedad General de Aguas de Barcelona (Spain) Director or member of the Supervisory Board, Crédit Agricole S.A., Compagnie de Saint-Gobain, Taittinger Pargesa Holding S.A. (Switzerland)
Chairman and CEO of Suez Chairman of Société Générale de Belgique (Belgium), Tractebel (Belgium) Vice-Chairman of Hisusa (Spain), Sociedad General de Aguas de Barcelona (Spain) Director or member of the Supervisory Board, Crédit Agricole S.A., Compagnie de Saint-Gobain, Taittinger, Pargesa Holding S.A. (Switzerland),
Chairman and CEO of Suez Chairman of Société Générale de Belgique (Belgium), Tractebel (Belgium) Vice-Chairman of Hisusa (Spain), Sociedad General de Aguas de Barcelona (Spain) Director or member of the Supervisory Board, Crédit Agricole S.A., Compagnie de Saint-Gobain, Pargesa Holding S.A. (Switzerland), Casino, Metropole Television M6, Sagem, Société du Louvre Permanent representative of Fided at the Le Monde Entreprise’s board, of Sperans at the Fimalac’s board
Chairman of the Management Board of Suez Chairman of Tractebel (Belgium) Director or member of the Supervisory Board, Compagnie de Saint-Gobain, Sagem, Crédit Agricole Indosuez, Société du Louvre, Casino
Michel Pébereau Chairman of the Board of directors of BNP Paribas
January 1997 April 2009 Chairman of the board of BNP Paribas Director or member of the Supervisory Board, Saint Gobain, Total Lafarge, BNP Paribas UK, Banque Marocaine pour le Commerce et l'Industrie (BMCI) Non-voting member of the Board of Galeries Lafayettes
Chairman and CEO of BNP Paribas Director or member of the Supervisory Board, Saint Gobain, Total Fina Elf, Lafarge, Dresdner Bank AG (Germany), BNP Paribas UK Non-voting member of the Board of Galeries Lafayettes
Chairman and CEO of BNP Paribas Director or member of the Supervisory Board, Galeries Lafayettes, Compagnie Saint Gobain, Total Fina Elf, Lafarge Permanent representative of BNP Paribas at Renault and Dresdner Bank AG’s boards (Germany)
April 2005 April 2009 Chairman of Coca-Cola Enterprises – Groupe Europe Member of the Advisory Board of ING Direct
2.1.5. Total amounts set aside or accrued to provide pension, retirement or similar benefits
Like all AXA Group executives, the French members of AXA SA’s Management Board (Henri de Castries, François Pierson, Denis Duverne and Claude Brunet), the Chairman of the Supervisory Board (Claude Bébéar) and the member of the Supervisory Board representing the employee shareholders (Jacques Tabourot) are entitled to a supplementary retirement plan pursuant to Article 39 of the French Tax Code (the Code Général des Impôts).
Christopher Condron, also a member of the AXA SA’s Management Board and an employee of Equitable in the United States (a subsidiary of AXA SA), is also entitled to a supplementary retirement plan.
The total amount set aside or accrued by AXA SA and its subsidiaries to provide pension or retirement to the aforementioned executives is, as at June 30, 2005, 28.7 million euros47.
To date, no service contracts have been entered into between a member of the AXA Supervisory Board and AXA or one of its subsidiaries whose terms call for the payment of a benefit or entitlement of any kind.
To the best of the Company’s knowledge, the table below summarizes its capital ownership and voting power on September 30, 2005
To the best of the Management Board’s knowledge, no other shareholder owns more than 5% of the share capital. The Company has agreed to disclose any ownership in excess of 2% of its outstanding share capital known to it. To the best of the Management Board’s knowledge, this threshold was not exceeded in the first half of 2005.
Of the 1,910,743,786 shares composing the capital as at September 30, 2005, 410,182,448 shares entitled their holders to double voting rights.
AXA determines its dividend policy on the basis of its adjusted earnings48, and currently intends to distribute 40 to 50% of that sum on a recurrent basis. The dividend presented to the approval of the shareholders of AXA is proposed by the Management Board and Supervisory Board, which have the discretion to adjust this dividend at each year-end closing.
2.3. Share capital 2.3.1. Share capital as of September 30, 2005
On September 30, 2005, AXA’s fully paid up share capital totaled €4,375,603,269.94, evidenced in 1,910,743,786 shares with a par value of €2.29 and earning dividends as of January 1, 2005.
Except as disclosed in this update of the Annual report and/or in the 2004 Annual Report, there has been no significant change in the financial or trading position of the Group since December 31, 2004 and there has been no material adverse change in the prospects of the Group since December 31, 2004.
To date, AXA has not entered into any material contract, other than contracts entered into in the ordinary course of business, that contain any provision under which the group has any material obligation or entitlement.
III- PERSONS RESPONSIBLE FOR THE UPDATE OF THE ANNUAL REPORT AND INDEPENDENT AUDITORS
3.1. Person responsible for the update of the Annual Report and person responsible for investor information 3.1.1. Person responsible for the Annual Report (Document de référence) and update thereof
To the best of our knowledge, having taken all reasonable care to ensure that such is the case, the information contained in this document is in accordance with the facts ; it comprises all information required to enable investors to reach an informed opinion of the assets, activities, financial position, earnings and prospects of the Company ; it contains no misleading omissions.
Mr. Denis Duverne AXA 25, avenue Matignon, 75008 Paris Phone: 01 40 75 57 00
9. Operating and financial review 9.1. Financial condition p. 146-189 p. 17-77 10.2. Sources and amounts of cash flows p. 111-115 ; p. 274 Appendix p. 7, 89 10.3. Borrowing requirements and funding structure p. 115 ; p. 125 ; p. 238 ; p. 250-251 10.4. Restrictions on the use of capital resources N/A N/A
Information Items - Annex 1 of the Commission Regulation n° 809/2004
Update filed with the AMF on November 14, 14. Administrative, Management, and Supervisory bodies and senior management 14.1. Information on members of the administrative, management or supervisory bodies p. 14-15 ; p. 19-21 p. 107-116 14.2. Administrative, Management and Supervisory bodies’ conflicts of interests p. 12 ; p. 25 p. 117 15. Remuneration and benefits 15.1. Amount of remuneration paid p. 14 ; p. 24, p. 263 15.2. Amounts set aside or accrued to provide pension, retirement or similar benefits p. 117 16. Board practices 16.1. Date of expiration of the current term of office p. 15 ; p. 19 p. 114-116 16.2. Information about members of the management bodies’ service contracts with the issuer or any of its subsidiaries p. 118 16.3. Information on the audit committee and the remuneration committee p. 17-18 16.4. Statement of compliance with the country of incorporation’s corporate governance regime p. 11 17.3. Arrangements for involving the employees in the capital of the issuer p. 25-28 ; p. 43 ; p. 322-326 20. Financial information concerning the issuer’s assets and liabilities, financial position and profits and losses 20.1. Historical financial information * p. 196-275 ; p. 280-295 ; 20.2. Pro forma financial information N/A N/A
20.4. Auditing of historical annual financial information p. 276-277 p. 121 20.5. Age of latest financial information - 20.
Annual Report (Document de référence) filed with the AMF on March 31, 2005 under n° D05-0313
Update filed with the AMF on November 14, 23. Third party information and statement by experts and declarations of any interest 24. Documents on display p. 314 * Pursuant to Article 28 of Commission Regulation (EC) n° 809/2004 of April 29, 2004, the following items are incorporated by reference : - AXA’s consolidated financial statements for the year ended December 31, 2004 and the independent auditors’ report on them, respectively presented on pages 196-275 and on pages 276-277 of the Annual Report (Document de Référence) n°D05-0313 filed with the AMF (Autorité des Marchés Financiers) on March 31, 2005 ; - AXA’s consolidated financial statements for the year ended December 31, 2003 and the independent auditors’ report on them, respectively presented on pages 220-299 and on pages 300-301 of the Annual Report (Document de Référence) n°D04-0433 filed with the AMF (Autorité des Marchés Financiers) on April 7, 2004 ; - AXA’s consolidated financial statements for the year ended December 31, 2002 and the independent auditors’ report on them, respectively presented on pages 178-248 and on page 249 of the Annual Report (Document de Référence) n°D030418 filed with the AMF (Autorité des Marchés Financiers) on April 9, 2003.
4.10.3. Compound financial instruments ....................................................................................................................................3 4.10.4. Treasury shares ...............................................................................................................................................................3 4.11. Insurance and investment contracts liabilities ...................................................................................................3 4.11.1. Contracts classification ...................................................................................................................................................3 4.11.2. Insurance contracts and Investment contracts with discretionary participating feature (DPF)........................................3 4.11.3. Investment contracts without discretionary participating feature (DPF).........................................................................3 4.12. Reinsurance: Ceded Reinsurance .......................................................................................................................3 4.13. Other liabilities .....................................................................................................................................................3 4.13.1. Financing debts...............................................................................................................................................................3 4.13.2. Income taxes ...................................................................................................................................................................3 4.13.3. Pensions and other post-retirement benefits....................................................................................................................3 4.13.4. Share-based compensation..............................................................................................................................................3 4.14. Other provisions and liabilities ...........................................................................................................................3 4.14.1. Restructuring costs..........................................................................................................................................................3 4.14.2. Other provisions and contingencies ................................................................................................................................3 4.15. Revenue recognition .............................................................................................................................................3 4.15.1. Gross written premiums..................................................................................................................................................3 4.15.2. Fees and revenues from investment contracts with no participating feature ...................................................................3 4.15.3. Change in unearned premiums reserves net of unearned revenues and fees ...................................................................3 4.15.4. Net revenues from banking activities..............................................................................................................................3 4.15.5. Revenues from other activities........................................................................................................................................3 4.15.6. Net investment result excluding financing expenses.......................................................................................................3 4.16. Discontinuing operations/ assets held for sale....................................................................................................3 NOTE 5 : MAIN CHANGES IN THE SCOPE OF CONSOLIDATION............................................................................................ 3 NOTE 6 : SEGMENTAL STATEMENT OF INCOME ................................................................................................................. 3 NOTE 7 : INVESTMENTS 3 7.1. Breakdown of financial assets................................................................................................................................3 7.2. Investment properties and roll-forward of impairment and amortization of investment properties..............3 7.3. Unrealized gains and losses on financial investments ..........................................................................................3 7.4. Roll-forward of impairment on invested assets (excluding investment properties) ..........................................3 7.4.1. Breakdown of financial assets subject to impairment ..........................................................................................................3 7.4.2. Impairment on invested assets..............................................................................................................................................3
NOTE 11 : REVENUES BY SEGMENT AND NET REVENUE FROM BANKING ACTIVITIES ......................................................... 3 11.1. Total revenues.......................................................................................................................................................3 11.2. Net revenue from banking activities ...................................................................................................................3
1.2.4 Value of purchased business in force (1) 2 805 3 123 2 993 2 814 1.2.5 Deferred acquisition costs and equivalent (2) 14 785 13 008 11 954 10 993
Investments in real estate properties 12 351 12 233 11 702 11 727
Receivables arising from direct insurance and inward reinsurance operations 9 872 8 167 10 318 11 372 Receivables arising from outward reinsurance operations 2 284 2 134 0 0 Receivables arising from banking activities 11 651 11 481 11 417 10 956
Includes fixed maturities, equities, controlled and non controlled investment funds (4) Includes policy loans (5) Also includes assets backing contracts with Guaranteed Minimum features (6) Also includes trading financial assets; includes accured interest
Share capital and capital in excess of nominal value 19 397 19 385 19 719 18 056
Net income for the period 2 274 3 738 2 519 1 005 1.2.10 & 8 TOTAL MINORITY INTERESTS AND SHAREHOLDERS' EQUITY 35 511 31 030 28 363 25 870 Liabilities arising from insurance contracts 241 730 227 843 257 358 246 560 Liabilities arising from insurance contracts where the financial risk is borne by policyholders (1) (7) 83 632 73 578 113 929 101 004 Total liabilities arising from insurance contracts (2) 325 361 301 421 371 287 347 564 Liabilities arising from investment contracts with discretionary participating feature 32 431 31 662 - Liabilities arising from investment contracts with no discretionary participating feature 968 869 - Liabilities arising from investment contracts where the financial risk is borne by policyholders (3) 44 007 39 127 - Total liabilities arising from investment contracts (2) 77 406 71 659 - Unearned revenues and unearned fees reserves 1 784 1 675 - Liabilities arising from policyholder's participation (4) 24 632 19 798 14 871 13 037 Derivatives relating to insurance and investment contracts 229 (32) - 1.
Liabilities held for sale or relating to discontinued operations - - - -
(4) Also includes liabilities arising from deferred policyholder's participation (5) Financing debts balances are shown net of effect of derivatives instruments (please refer to notes 1.2.16 and 10) (6) Includes effect of derivatives instruments (please refer to notes 1.2.16 and 10) (7) Under French GAAP, liabilities arising from contacts with financial risk borne by the policyholders are shown within insurance contracts
(7) Notably includes financial charges in relation to other debt instruments issued and bank overdraft (8) Net balance of income and expenses related to derivatives on financing debt (however excludes change in fair value of these derivatives) (9) Includes change in impairment and amortization of intangible assets as well as negative goodwill
Adjusted earnings represent the net income (group share) before : (i) The impact of exceptional operations (primarily change in scope, including restructuring costs related to a newly acquired company during the considered accounting period). (ii) Goodwill and other related intangible impacts, and (iii) Profit and loss on financial assets accounted for under fair value option (excluding assets backing contract liabilities for which the financial risk is borne by the policyholder) and derivatives related to invested assets (excluding (i) all impacts of foreign exchange except the ones related to currency options in earnings hedging strategies and (ii) those related to insurance contracts valuated according to the “selective unlocking “accounting policy).
Includes changes in liabiities arising from insurance contracts and investment contracts (with or with no participating feature) where the financial risk is borne by policyholders
Other operating income and expenses (44 754) (41 097) (42 978) (46 282) Income from operating activities before tax 3 402 3 128 3 032 1 148 Income arising from investments in associates - Equity method 9 40 33 54
Result from discontinued operations net of tax - - - -
Minority interests share in net consolidated result 205 243 173 131
Adjusted earnings per share 1,13 0,95 0,89 0,21 Fully diluted adjusted earnings per share 1,12 0,90 0,85 0,21
(+) Other non-cash items included in income from operating activities (226) 83 Adjustments linked to non monetary items and to investing and divesting activities included in the income from operating activities 235 (378)
Net cash related to changes in scope of consolidation (234) (1 006) (+) Sales of fixed maturities 39 753 41 792 (+) Sales of equity securities 9 083 12 331 (+) Sales of investment property 606 589 (+) Sales and/or repayment of loans and other assets 5 358 2 332
Net cash related to sales and repayments of financial assets 54 800 57 045
Employee benefits actuarial gains and losses trough OCI (2) - -
Reserves relating to the change in FV of financial instrument s available for sale
Reserves relating to the change in FV of hedge accounting derivatives (cash flow hedge)
Impact of transactions with shareholders' 1 687 2,29 4 20 (12) (2) - - 236 - (1 164) (918) 86 Reserves relating to changes in fair value through shareholders' equity 1 674 23 - - 1 697
Net income of the period 2 274 2 274 205 Total recognised income and expense for the period (SORIE) - - - - - - - - - - 2 258 2 258 195
NB : amounts are presented net of impacts of shadow accounting and of its effects on policyholder's benefit, deferred asquisition costs, and value of business in force. (1) Mainly equity components of compounded financial instruments (i.e for example convertible bounds) (2) Actuarial gains and losses accrued since January 1, 2004
In its 2004 annual report, the Group stated that it would present consolidated financial statements in accordance with IFRS standards as of 2005 accounting exercise. The conversion project involved the Management Board approving and the Audit Committee reviewing of the accounting options and application principles adopted for the opening balance sheet and comparative figures for 2004 (first-half and full-year periods). The Audit Committee carried out its final review of these accounting options and principles in June 2005.
The restated 2004 financial statements were prepared in accordance with IFRS standards and with IFRIC (International Financial Reporting Interpretations Committee) interpretations that had been published and come into force, or that had been recently adopted at the time the statements were prepared (June 2005) and approved by the European Commission. AXA anticipated the amendment of IAS 39 relating to the fair value option, published by the IASB (International Accounting Standards Board) on June 16, 2005 and approved by the ARC (Accounting Regulation Committee) in July 2005. This amendment is likely to be approved by the European Commission in the second half of 2005. AXA also applied the amendment to IAS 19 adopted by the IASB in December 2004, and which is also due to be approved by the European Commission in the second half of 2005 following approval by the ARC in May 2005. The principles set out in this note concerning the opening balance sheet are the same as those applied to comparative data for the first-half and full-year periods in 2004 and those used for the preparation of financial statements to June 30, 2005 set out in note 4. The IFRS standards and IFRIC interpretations that will be applicable at December 31, 2005, including those optionally applicable, were not known with any certainty at the time the restated financial statements were prepared.
January 1, 2004 was lower than its carrying value. This fair value becomes their presumed cost in accordance with IFRS 1.
Value of purchased business in force (1) 2 814 396 3 210 Deferred acquisition costs and equivalent (2) 10 993 1 040 12 033 Other intangible assets 556 (31) 525
Assets backing contracts where the fiinancial risk is borne by policyholders (5) 101 002 (1 814) 99 188
Assets held for sale and relating to discontinued operations - 132 132
(4) Includes policy loans (5) Also includes assets backing contracts with Guaranteed Minimum features (6) Also includes trading financial assets; includes accured interest All financial assets balances are shown net of derivatives impact (please refer to notes 1.2.16 and 10) (7) Includes long term assets, i.e. when maturity is above 1 year (8) Includes short term assets, i.e. when maturity is below 1 year
Controlled investment funds minority interests liability - 3 403 3 403 Other debt instruments issued, notes and bank overdrafts (6) 4 518 1 492 6 010 Payables arising from direct insurance and inward reinsurance operations 6 714 (1 662) 5 051 Payables arising from outward reinsurance operations 1 598 1 900 3 498 Payables arising from banking activities 11 563 111 11 674 Payables - current tax position 388 105 493 Derivatives relating to other financial liabilities - 2 2
IFRS (*) French GAAP information is presented under the IFRS presentation format (1) Also includes liabilities arising from contracts with Guaranteed Minimum features (2) Balances shown gross of reinsurer's share in liabilities arising from contracts
(3) Liabilities arising from investment contracts with discretionary participating feature and investment contracts with no discretionary participating feature with financial risk is borne by the policyholder
The reconciliation between shareholders’ equity reported at December 31, 2003 from French GAAP to opening shareholders’ equity at January 1, 2004 under IFRS is as follows: The detailed reconciliation by type of adjustments 1of the opening shareholder’s equity from French GAAP to IFRS as of January 1, 2004, is as follows: 1 Adjustments net of tax and policyholder’s participation impacts, when applicable.
Share capital and capital in excess of nominal value 18 056 (486) 17 570 Reserves relating to the change in FV of financial instruments available for sale - 4 213 4 213 Reserves relating to the change in FV of hedge accounting derivatives (cash flow hedge) - 45 45 Reserves relating to revaluation of tangible assets - - -
Shareholders' equity under French GAAP 23 401 Difference in scope of consolidation (217) Goodwill and purchase accounting (1 260) Investment accounting and valuation 2 670 Derivatives and hedging activities 192 Property and Casualty reserves 260 Deferred acquisition costs and equivalent (127) Employee benefit and share based compensation (1 966) Treasury shares (510) Compounded financial instruments and debt / equity classification differences 120 Other adjustments (94) Shareholders' equity under IFRS 22 469
The main differences in accounting principles between French GAAP and IFRS are set out below. Above the impact resulting from changes to valuation principles, which affect various components of opening shareholders’ equity, numerous balance sheet items are affected by changes in presentation with no impact on net asset value. They include notably the presentation of unearned fees and revenues as liabilities instead of being deducted from deferred acquisition costs, the gross up of deferred tax impact of values of purchased business in force, etc….
Investment and real estate companies (principally held in AXA’s entities and backing insurance liabilities) are not consolidated under French GAAP, in compliance with the CRC Regulation 2000-05.
According to IFRS, all entities in which AXA has a significant influence should be consolidated with: – the full consolidation method if AXA exercises an exclusive control; – the proportionate method if AXA exercises a joint control; – the equity method if AXA exercises a significant long-term influence; The IFRS scope of consolidation is presented in section 1.2.1. The impact on the Group’s opening shareholders’ equity of the increase in the number of consolidated companies was €- 217 million.
For consolidated investment companies, minority interests are recognized at fair value and recorded as a liability under Controlled Investment Funds minority interest liabilities. The recognition of these minority interests induced an increase in invested assets and liabilities in the opening balance sheet by €3,403 million.
As mentioned in section 1.1.1 above, the Group opted not to restate past business combinations, in accordance with the exemption offered by IFRS 1. As a result, adjustments to opening goodwill are limited to the translation adjustments described below and restatements of any assets and liabilities recognized at the date of acquisitions which do not meet IFRS recognition criteria (see VBI relating to investment contracts without discretionary participation features).
P&L; - available for sale assets accounted for at fair value with change in fair value in shareholder’s equity.
Investment properties (excluding investment properties totally or partially backing contracts with financial risk borne by the policyholder) and owner-occupied properties, remain accounted for at amortized cost in IFRS, but using the component approach which was optional under French GAAP until 2004.
[1] This amount represents the valuation difference between French GAAP and IFRS. As a consequence, it does not include the reevaluation of assets backing unit - linked contracts, which were already recognized at fair value under French GAAP. Furtermore, it also excludes the reevaluation of assets recognized using the fair value option in the case of hedging by derivative instruments (see Derivatives and hedging activities sub-total).
Net impact on opening shareholder's equity of reevaluation of financial assets, excluding consolidated investment funds
According to IFRS 4 (« Phase I ») and IAS 39, contracts should be classified in 2 categories: insurance contracts or investment contract.
On the face of the balance sheet, information about deferred acquisition costs and deferred origination costs is presented gross of unearned revenues and unearned fees reserves. This led to a €1,646 million increase in Deferred acquisition costs and equivalent, with unearned revenues and unearned fees reserves as counterpart.
In compliance with the possibility offered by IFRS 4, the shadow accounting rules are applied, for insurance and investment contracts with discretionary participation, on insurance liabilities, deferred acquisition costs and value of business in force to reflect unrealized losses and gains attributable to policyholders (Cf. see additional amortization impacts mentioned above : DACs and VBI reactivity). This mechanism is identical in principle to the notion of deferred policyholder bonuses under French GAAP, and is also applied to temporary differences generated by differences between the two sets of standards and recognized through profit and loss (retained earnings in the opening balance sheet). The participation rate considered is the local best estimate rate based on constructive obligation.
- if they are an insurance contract. So far, total of embedded derivatives in insurance and investment contracts which are not accounted for at fair value do not seem to be material at Group level.
As mentioned in section 1.1.1 above, in accordance with the exemption offered by IFRS 1, the Group has chosen to recognize in opening shareholders' equity actuarial gains and losses arising from differences with respect to estimates and changes in assumptions, which were not recognized through profit and loss under French GAAP. This net cumulative adjustment arising from changes in assumptions, to align to IFRS, reduced opening shareholders' equity by €2,062 million, mainly in the UK and the United States.
The plans set up by the Group mainly involve direct remuneration in the form of shares, not cash. The main adjustment related to the release of a reserve established for this purpose under French GAAP, resulting in a limited impact on opening shareholders' equity (+€103 million). Only options granted after 7 November 2002 and not fully vested at January 1, 2004 are recognized under IFRS. Options are stated at fair value on the grant date, and changes in fair value until the vesting date are recognized as expenses over the vesting period.
Under French GAAP, treasury shares are accounted for as an investment in equity securities if they are held to stabilize the Company’s share price in the market, to be attributed to employees in connection with share purchase programs, or treated as an investment backing contracts in which financial risk is borne by the policyholder. Under IFRS, these treasury shares are eliminated against shareholders' equity. The net impact on opening shareholders’ equity (and invested assets) was €- 510 million.
Under IFRS, any compounded financial instruments issued by the Group comprising both an equity component (i.e. an option allowing a debt instrument to be converted into an equity instrument of the company) and a debt instrument (comprising a contractual obligation to deliver cash) are classified separately on the liability side of the balance sheet, and the equity component is presented under shareholders' equity. This resulted in a €120 million net increase in opening shareholders' equity.
• On the other hand, financing debt expenses are isolated in a specific sub-total under IFRS, while they were presented net under net investment result under French GAAP. The same presentation change is applied for other debt expenses, which were presented net under net investment result under French GAAP but are now included in the Other income and expenses sub-total in the IFRS statement of income.
The reconciliation between earnings reported under French GAAP in the six months to June 30, 2004 and the earnings for the same period under IFRS is as follows: (million euros) French GAAP (*) IFRS FTA impacts IFRS
Fees and charges relating to investment contracts with no participating feature - 216 216
Change in unearned premiums net of unearned revenues and fees (1 608) (115) (1 723)
Net realized investment gains and losses (3) 1 462 1 294 2 755 Change in fair value of financial instrument at fair value through P&L 2 743 (870) 1 873 Change in financial instruments impairment (4) (218) 50 (168) Net investment result excluding financing expenses 10 518 548 11 065 Technical charges relating to insurance activities (5) (35 595) 1 912 (33 683) Net result from outward reinsurance (586) 1 (585) Bank operating expenses (75) 16 (58)
Change in tangible assets impairment (18) (0) (18) Other income and expenses (7) (117) (14) (131) Other operating income and expenses (42 978) 1 881 (41 097) Income from operating activities before tax 3 032 96 3 128 Income arising from investments in associates - Equity method 33 8 40
IFRS : (*) More details on the IFRS first time application impacts are available in note 1 (1) Excludes insurance and banking activities (2) Net of investment management costs (3) Includes impairment write back on invested assets after sale (4) Excludes impairment write back on invested assets after sale
(8) Net Balance of income and expenses related to derivatives on financing debt (however excludes change in fair value of these derivatives)
(5) Includes changes in liabiities arising from insurance contracts and investment contracts (with or with no participating feature) where the financial risk is borne by policyholders
Fees and charges relating to investment contracts with no participating feature - 417 417
Change in unearned premiums net of unearned revenues and fees 47 (152) (104)
Amortization of the value of purchased business in force and of other intangible assets (283) (185) (468)
(9) Includes change in impairment and amortization of intangible assets as well as negative goodwill
(6) Includes acquisition costs and change in deferred acquisition costs relating to insurance contracts and investment contracts with discretionary participating feature as well as change in rights to future management fees relating to investment contracts with no participating feature
Translation reserve and undistributed profits 4 870 (4 592) 278 Net income for the period 1 444 289 1 733 Translation reserves, undistributed profits, and net income of the period 6 314 (4 303) 2 011
Share capital and capital in excess of nominal value 19 719 (333) 19 385 Reserves relating to the change in FV of financial instruments available for sale - 5 720 5 720 Reserves relating to the change in FV of hedge accounting derivatives (cash flow hedge) - 53 53 Reserves relating to revaluation of tangible assets - - -
Difference in scope of consolidation (67) 260 (217) Goodwill and purchase accounting (839) (777) (1,260) Investment accounting and valuation 2,581 4,456 2,670 Derivatives and hedging activities 156 463 192 Property &Casualty reserves 277 269 260 Deferred acquisition costs and equivalent (236) (249) (127) Employee benefit and share based compensation (2,007) (2,161) (1,966)
Notes on income statement reconciliation and impacts on shareholders' equity at June 30, 2004 and December 31, 2004
The main changes to earnings for these two periods are as follows: • No goodwill amortization (positive impact of €340 million in the first half of 2004 and €607 million in full-
• Releases of impairment on financial assets following disposal and lower impairment change during these periods (net positive impact of €168 million in the first half of 2004 and €526 million in full-year 2004)
• Incomplete recognition of derivative hedging effects under IFRS (impact of almost zero in the first half of 2004 but a net positive impact of €254 million in full-year 2004)
• Additional restructuring charges relating to the acquisition of MONY in the second half of 2004 (€- 146 million net impact in full-year 2004), which are not recognized in the subsidiary's opening balance sheet under IFRS, whereas they were under French GAAP
Impact of adjustments to the scope of consolidation became positive at the end of the period as a result of higher financial markets, increasing the amount of adjustments on assets held by consolidated funds. These differences affect either income or the revaluation reserve within shareholders' equity, depending on the designation of assets held within the funds.
The absence of goodwill amortization under IFRS significantly increased earnings in the first half of 2004 (€+340 million) and in full-year 2004 (€+607 million). However, goodwill remains lower under IFRS by comparison with French GAAP since currency translation effects in 2004 are greater under IFRS (counterpart in accumulated translation adjustments.
Other significant adjustments affecting "Change in goodwill impairment" relate to the cancellation under IFRS of income resulting from the exercise of puts by the former shareholders of Sanford C. Bernstein: Million euros French
For information Cumulated impacts on shareholder's equity (millions euros) June 30, 2004 December 31, 2004 January 1, 2004
Net impact of AFS assets with change in fair value in shareholder's equity 3 778 5 513 (1) 4 091 Impairment of AFS assets (with change in fair value in shareholder's equity) (1 256) (1 105) (2) (1 445) Other impacts (mainly impact of reevaluation of financial assets including change in fair value 59 48 (2) 24 through P&L)
(1) Impacts are net of tax, bonus policyholders and amortization of DACs and VBI in revaluation reserves (2) Impacts are net of tax, bonus policyholders and amortization of DACs and VBI in the statement of income (3) Impacts are net of tax, bonus policyholders and amortization of DACs and VBI in the statement of income or in shareholders' equity (cash flow hedges)
For information: In this section, the impact of recognising derivatives and net hedging includes the revaluation of underlying items when appropriate in the cases of hedge accounting in the meaning of IAS 39 or in the cases of "natural hedging" (use of the fair value option to value the underlying item or selective use of current interest rates for insurance contracts).
The revaluation reserve for available-for-sale securities increased by €1,422 million excluding consolidated funds at December 31, 2004 (€-313 million excluding consolidated funds at June 30, 2004.).
• Translation impact on monetary items of the balance sheet. Fixed-income instruments are monetary assets and changes in their amortized cost due to exchange rates are recorded in the statement of income. Equities
Adjustments to French-GAAP net investment result increased significantly between June 30, 2004 (€548 million) and December 31, 2004 (€ 2.010 million). These adjustments mainly related to: • The impact of additional impairment on available-for-sale securities recorded in the opening balance sheet, which boosted realized capital gains and reduced the impairment reserves to be booked during the period2by comparison with French GAAP.
The additional gross charge corresponding to share-based compensation is recognized under Administrative expenses. It totalled €65 million net at December 31, 2004.
Buyback of shares in 2004 and changes in value of derivatives hedging part of these shares resulted in a net €-124 million decrease in the treasury share-related adjustment.
AXA China 100,00 76,28 AXA France Assurance 100,00 100,00 Colisée Excellence 100,00 100,00 AXA Participations II 100,00 100,00
Oudinot Participation Scope entry 100,00 100,00 Société Beaujon 99,99 99,99 AXA Technology Services 100,00 99,99
Asia/Pacific (excluding Japan) National Mutual International Pty Ltd 100,00 51,59 AXA Life Singapore Holding Scope entry 100,00 51,59 AXA Asia Pacific Holdings Ltd 51,59 51,59
Belgium AXA Holdings Belgium 100,00 99,92 Royale Belge Investissement 100,00 99,92
France AXA France Iard 99,92 99,92 Avanssur (formerly Direct Assurances Iard) 100,00 100,00 AXA France Vie 99,77 99,77
Japan AXA Group Life Insurance 100,00 97,59 AXA Life Insurance 100,00 97,59 AXA Non Life Insurance Co Ltd 100,00 97,59
Belgium Ardenne Prévoyante 100,00 99,92 AXA Belgium SA 100,00 99,92 UAB Merger with AXA Belgium SA - Servis (Formerly Assurance de La Poste) Buy-out of minority interests 100,00 99,92 Assurances de la Poste Vie Buy-out of minority interests 100,00 99,92
Spain Ayuda Legal SA de Seguros y Reaseguros Merger with AXA Aurora SA Iberica de Seguros y Reaseguros - Hilo Direct SA de Seguros y Reaseguros Buy-out of minority interests 100,00 100,00 AXA Aurora SA Iberica de Seguros y Reaseguros 99,70 99,70 AXA Aurora SA Vida de Seguros y Reaseguros 99,70 99,70 AXA Aurora SA Vida 99,96 99,67
Italy AXA Interlife 100,00 100,00 UAP Vita 100,00 100,00 AXA Assicurazioni 100,00 99,99
Portugal AXA Portugal Companhia de Seguros SA 99,61 99,37 AXA Portugal Companhia de Seguros de Vida SA 95,09 94,89
France AXA Banque 100,00 99,92 AXA Banque Financement 65,00 64,95 Compagnie Financière de Paris 100,00 100,00 Holding Soffim Merger with Compagnie Financière de Paris - Sofapi Merger with Compagnie Financière de Paris - -
b) Proportionally consolidated companies *: changes reported are by comparison with the IFRS scope of consolidation at January 1, 2004.
Equity-accounted real estate companies and mutual funds represent total assets of €243 million and €1,862 million respectively, mainly in France and the USA.
AXA’s consolidated financial statements are prepared at December 31 on the basis of individual accounts prepared at the same date, with the exception of three Japanese life insurance companies, which have a September 30 financial year-end.
No segment is dependent upon a single customer, or a few customers, the loss of which would have a significant effect on the earnings of the segment. AXA is not dependent on any one, or a few, independent brokers or independent agents or other insurance companies for which a loss of business would have a material adverse effect on the earnings of any one of the segments or AXA. No customer accounted for 10% or more of AXA’s consolidated revenues in 2004.
Life & Savings Segment products and services. 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). Health products offered include critical illness and permanent health insurance products.
International Insurance Segment products and services. Operations in this segment are principally focused on Reinsurance, large risks, and assistance. The reinsurance operations (AXA Re) principally focus on property damage, third party liability and marine and aviation property and third party liability reinsurance. The insurance products offered, which specifically relate to AXA Corporate Solutions Assurance, include coverage to large national and international corporations principally property damage, third party liability, marine, aviation and transport, construction risk, financial risk, and directors and officers liability.
Information described as “Insurance” below includes the three insurance segments: Life & Savings, Property & Casualty and International Insurance. Information described below as “Financial Services” includes both the Asset Management Segment and the Other Financial Services Segment.
Reinsurer's share in insurance and investment contracts liabilities 4 025 1 835 2 474 - - - (436) 7 898
Assets held for sales and from discontinued operations 62 0 - - - - - 62
Liabilities arising from insurance contracts 257 574 33 668 10 626 - - - (446) 301 421 Liabilities arising from investment contracts 71 659 - - - - - - 71 659 Unearned revenues and unearned fees reserves 1 675 - - - - - - 1 675 Liabilities arising from policyholder's participation 19 773 26 - - - - (2) 19 798 Derivatives relating to insurance and investment contracts (22) - (10) - - - - (32) Provisions for risks and charges 4 663 2 305 99 78 270 313 - 7 729
Liabilities from held for sale or discontinued operations - - - - - - - Total Liabilities excluding consolidated shareholder's equity 385 687 42 671 13 781 4 209 21 348 20 355 (15 013) 473 039
Other operating income and expenses (64 700) (17 432) (3 866) (2 618) (405) (284) 603 (88 703) Income from operating activities before tax 3 016 2 059 425 781 137 493 (322) 6 589 Income arising from investments associates - Equity method 10 34 1 - 10 0 - 55
Minority interests share in net consolidated income 129 39 2 277 21 4 - 473
The main goodwill are attributable to the following operations and entities: ACQUISITION OF MONY (2004) On July 8, 2004, AXA Financial acquired MONY for US$1.48 billion (€1.3 billion). The total cost of the transaction was US$1.63 billion, including: - US$1.55 billion of cash payments for MONY shares, - US$80 million of transaction costs borne by AXA Financial.
This transaction gave rise to a goodwill of US$672 million (€541 million).
At December 31, 2004, this goodwill had a net value of €351 million.
FINANCIAL REORGANISATION OF AXA EQUITY & LAW – AXA UK (2001) As a result of AXA Equity & Law’s financial reorganization, AXA acquired a portion of the surplus assets held in the participating ("With-Profit") fund and related future benefits based on the percentage of policyholders who elected in favor of the plan.
This acquisition was carried out via the payment of an incentive bonus of approximately £260 million plus £18 million of direct expenses associated with the transaction (a total of approximately €451 million based on the average £/€ exchange rate for the period).
At December 31, 2004, this goodwill had a net value of €366 million.
AXA at a price of €149.90 per share based on the December 22, 2000 quotation, the closing date of the initial offer period and before the 4-for-1 stock split,
At December 31, 2004, this goodwill had a net book value of €2,790 million.
SANFORD C. BERNSTEIN TRANSACTION (2000) The total purchase price was $3.5 billion (€4.0 billion) and consisted of $1.5 billion of cash and 40.8 million newly issued private units in Alliance Capital. The cash was funded by AXA Financial through a financing agreement whereby in June 2000, AXA Financial purchased units in limited partnership Alliance Capital Management L.P. for an aggregate purchase price of US$1.6 billion, and as a result recorded goodwill of €583 million. Added to the €3,689 million recorded at the time of acquisition, the total goodwill linked to the acquisition of Sanford Bernstein amounted to €4,272 million. In connection with this acquisition, AXA Financial agreed in 2000 to provide liquidity to the former shareholders of Sanford Bernstein over an eight-year period following a two-year lockout period. Not more than 20% of the original units issued to former Sanford Bernstein shareholders may be put to AXA Financial in any one annual period. At December 31, 2004, this goodwill had a net book value of €2,372 million.
UAP (1997) In 1997, AXA acquired UAP, resulting in goodwill of €1,863 being booked, of which €1,641 million was charged directly to retained earnings and reserves. As a result of purchase accounting adjustments made in 1998 and in 1999, the total goodwill increased to €1,866 million at December 31, 1999, of which €1,584 million represented the amount charged directly to retained earnings and reserves.
In 2003, following the release of a provision booked when the Group acquired German activities in 1997 and which took place after the Group sold its stake in Colonia Re JV to General Re, an exceptional amortization of €57 million was recognized.
At December 31, 2004, this goodwill had a net book value of €522 million.
Additionnal impairment relating to goodwill created on acquisitions of the period
1.2.4. Value of purchased life business in force a) Roll forward of net carrying value
Changes in contract acquisition costs and similar were as follows: (million euro) December 31st, 2004
Of which shadow accounting on DAC 635 Increase following Life portfolio acquisitions - Decrease following Life portfolio disposals - Increase following new subsidiaries acquisitions - Decrease following subsidiaries disposals - Decrease following the transfer of portfolios as " held for sale " - Impact of changes in scope and portfolios transfers - Changes in amortization and capitalized interests (902) (47) DAC and equivalent capitalization for the period 2 207 250 Increase in impairment for the period 38 Write -back in impairment for the period following a sale or a transfer - Changes in amortization, capitalization and impairment 1 342 203 Shadow accounting on DAC (157) Currency translation (485) (9) Other changes 1 (1) Life deferred acquisition costs and equivalent net carrying value as at 31 december, 2004 10 962 692 Of which shadow accounting on DAC 767 TOTAL
(2) Applicable to investment contracts with no Discretionnary participation feature NB : All balances are net of amortization and impairment.
c) Deferred acquisition costs and equivalent, net of unearned revenue reserve and unearned fees reserves
DAC net of amortization 10 962 692 Of which shadow DAC (767) Unearned revenue reserves 1 582 0 Of which shadow URR (298) DAC net of amortization and URR 9 380 692 Total for all types of contracts
The method for determining the fair value of investments stated at cost or amortized cost is as follows: - For real estate investments, fair value determination is usually based on studies conducted by qualified external appraisers. They are based on a multi-criteria approach, the frequency and terms of which are based on local requirements.
- In other cases, fair value is estimated based on financial and other information available in the market, or estimated discounted cash flows, including a risk premium.
The difference between the net carrying value and the estimated fair value represents the unrealized gains or losses. Upon disposal of the investment, the realized investment gains and losses may be impacted by the allocation to participating Life insurance contracts (as a change in future policy benefits), minority interests and tax.
Fair value Net book value % (val. Balance sheet) Fair value Net book value
Investment property at amortized cost 10 293 7 683 1,95% 82 61 0,54% 10 375 7 744 2%
Fixed maturities held to maturity 0 0 0,00% 0 0 0,00% 0 0 0,0%
Fixed maturities at fair value through profit and loss 41 886 41 886 10,62% 1 197 1 197 10,56% 43 083 43 083 10,6%
Equity securities available for sale 22 249 22 249 5,64% 642 642 5,66% 22 891 22 891 5,6%
Non controlled investment funds at fair value through profit and loss 2 093 2 093 0,53% 45 45 0,40% 2 138 2 138 0,5%
Non controlled investment funds held for trading 232 232 0,06% 0 0 0,00% 232 232 0,1%
Loans designated as at fair value through P&L 377 377 0,10% 0 0 0,00% 377 377 0,1%
Macro hedge and other derivatives 0 0 0,00% 76 76 0,67% 76 76 0,0%
Assets backing contracts where the financial risk is borne by policyholders 112 387 112 387 28,51% 112 387 112 387 27,7%
Roll forward on impairment and amortization of investment properties (all activities): Gross value (gross of impairment and amortization) (1)
Write back following recovery in value Other (1) December 31st, 2004
(1) incl. mainly change in scope of conso and change in exchange rate
Unrealized capital gains and losses on financial investments, including the value of corresponding derivative instruments, are broken down as follows: Cost or amortized cost (1) Fair value Carrying value
Fixed maturities held to maturity - - - - Fixed maturities avilables for sale 152 552 164 650 164 650 13 025 928 Fixed maturities at fair value through profit and loss 41 886 41 886 Fixed maturities held for trading 4 4 - Non quoted fixed maturities (amortized cost) 23 26 23 3 -
Fixed maturities held to maturity - - - - Fixed maturities avilables for sale 6 525 6 577 6 577 52 1 Fixed maturities at fair value through profit and loss 1 197 1 197 Fixed maturities held for trading 1 620 1 620 Non quoted fixed maturities (amortized cost) 2 2 2 - -
Equity securities available for sale 553 642 642 90 1 Equity securities at fair value through profit and loss 39 39 Equity securities held for trading 96 96
Fixed maturities held to maturity - - - - Fixed maturities avilables for sale 159 077 171 227 171 227 13 078 928 Fixed maturities at fair value through profit and loss 43 083 43 083 - Fixed maturities held for trading 1 624 1 624 - Non quoted fixed maturities (amortized cost) 26 29 26 3 -
Non consolidated investment funds available for sale 2 703 2 985 2 985 291 8 Non consolidated investment funds at fair value through profit and loss 2 138 2 138 - Non consolidated investment funds held for trading 232 232 - -
Total financial investments of insurance activities 262 339 262 336 - - (1) Gross of impairment - including amortization, premium and accumulated amortization (2) Net of impairment
(1) fair value equals net carrying value (2) including derivative instruments related to investments backing contracts where non controlled investment funds, and derivatives included in consolidated investment funds
Impairment Cost after impairment but before revaluation to fair value (2)
Fixed maturities held to maturity 0 0 0 0 0 Fixed maturities available for sale 159 440 (362) 159 077 12 149 171 227 Non quoted fixed maturities (amortized cost) 26 (0) 26 0 26 Fixed maturities 159 466 (363) 159 103 12 149 171 252 Equity securities 22 405 (3 939) 18 466 4 425 22 891 Non controlled investment funds AFS 2 869 (166) 2 703 283 2 985 Loans held to maturity 2 0 2 0 2 Loans available for sale 23 0 23 0 23 Mortgage loans 7 093 (28) 7 065 0 7 065 Others loans (3) 11 071 (304) 10 768 0 10 768 Loans 18 190 (332) 17 858 0 17 858 TOTAL 202 929 (4 800) 198 129 16 858 214 986 NB : Each investment caption is presented net of hedge derivatives (IAS 39) and economic hedge derivatives which are recognized as hedge in the meaning of IAS 39 (excluding macro hedge derivatives and other derivatives). Detail effect of derivatives is presented in the note 23 "Derivatives instruments" (1) asset value incl. amort./premium and accrued interests, but before impairment and reevaluation to fair value of assets AFS (2) asset value incl. Impairment, amort./premium, accrued interests, but before reevaluation to fair value of assets AFS (3) incl. policy loans
Write back following recovery in value Other (1) December 31, 2004
(1) Change in scope of conso and variation of exchange rate
Financial assets available for sale 171 325 25 308 196 620
Current accounts receivable from other companies 1 134 (77) 1 056 1 056 Receivable from policyholders, brokers and general agent 3 860 (193) 3 667 3 716 Premiums earned but not written 1 526 - 1 526 1 526
Receivables arising from direct insurance and inward reinsurance operations 8 460 (294) 8 167 8 215
Current accounts receivable from other companies 2 202 (75) 2 128 2 131
Receivables arising from outward reinsurance operations 2 208 (75) 2 134 2 137
Carrying value Fair Value Arising from insurance activities 19 761 19 761 Arising from banking activities 199 199 Arising from other activities 2 534 2 534 Cash and cash equivalents 22 494 22 494
- Capital increases arising from the conversion of ORAN bonds (bonds redeemable in cash or shares) totalling €252 million.
The change in other reserves is mainly due to a €625 million issue of deeply subordinated perpetual notes through the Euro Medium Term Notes (EMTN) program.
Dividends paid by AXA totalled €676 million in 2004 with respect to the 2003 financial year.
The impact of exchange rate movements was mainly attributable to the United States (€-826 million), Japan (€-126 million) and Morocco (€-39 million). However, it was partly offset by the change in value of currency hedges set up to hedge net foreign investments (€+341 million).
CHANGES IN SHAREHOLDERS' EQUITY (million euros, except for number of shares and nominal value)
Capital in excess of nominal value 1 364 1 364 Including Proceeds from shares issued - Equity - share based compensation 28 28 Change in scope of consolidation 0 - - 3 - 3 (203) Treasury shares 124 124 Equity component of compound financial instruments - Super subordinated debt 625 625 Accrued interests - Super subordinated debt (2) (2) Dividends paid AXA (676) (676) Impact of transactions with shareholders' 130 341 2,29 298 1 392 124 0 - - 626 - (676) 1 766 (203) Reserves relating to changes in fair value through shareholders' equity 1 505 9 - - 1 514
Employee benefits actuarial gains and losses trough OCI (2) (319) (319)
Minority interests in Alliance Capital totalled €1,107 million at December 31, 2004.
Gross Unrealized gains and losses 16 614 Less unrealized gains and losses attributable to : Shadow accounting on policyholder's participation (1) (7 528) Shadow accounting on DAC (2) (467) Shadow accounting on VBI (530) Unallocated unrealized gains and losses (before tax) 8 088 Deferred tax (2 257) Unrealized gains and losses (net of tax) - 100% 5 832 Minority interests share in unrealized gains and losses (3) (205) Currency Impact (4) 94 Unrealized gains and losses (Net group Share) 5 720
1.2.11. Liabilities arising from insurance and investment contracts a) Liabilities arising from insurance contracts
Liabilities relating to insurance contracts, including those in which the financial risk is borne by the policyholder, were as follows by segment: Note: reinsurers' share of the policyholder bonus reserve, totalling €63 million, is not included in the table above.
Technical reserves relating to with-profit insurance contracts amounted to €18,207 million at December 31, 2004.
(1) includes reserve for claim handling costs (2) notably includes annuities mathematical reserves (3) see note 4-11-2 - option opened by IFRS 4.24 for selective re-measurement of reserves at current market assumptions NB : Excludes derivatives in relation to insurance and investment contracts
Future policy benefits reserve 31 548 0 0 31 548 Unearned premium reserve 0 0 0 0 Claims reserve (a) (1) 114 0 0 114 Liability adequacy test reserve 0 0 0 0 Other reserves 0 0 0 0 Liabilities arising from investment contracts with discretionary participating feature 31 662 0 0 31 662 Of which measured at current market assumptions (2) 0 0 0 0 Future policy benefits reserve 869 0 0 869 Claims reserve (1) 0 0 0 0 Other reserves 0 0 0 0 Liabilities arising from investment contracts with no discretionary participating feature 869 0 0 869 Future policy benefits reserve 38 926 0 0 38 926 Claims reserve (1) 2 0 0 2 Other reserves 200 0 0 200
Of which measured at current market assumptions (2) 0 0 0 0 Reinsurers' share in future policy benefits reserve 0 0 0 0 Reinsurers' share claims reserves (1) 0 0 0 0 Reinsurers' share in other reserves 0 0 0 0 Reinsurers share in liabilities arising from investment contracts with no discretionary particpating feature 0 0 0 0
Reinsurers' share in future policy benefits reserve 0 0 0 0 Reinsurers' share claims reserves (1) 0 0 0 0 Reinsurers' share in other reserves 0 0 0 0 Reinsurers share in liabilities arising from investment contracts where the financial risk is borne by the policyholders 0 0 0 0
c) Change in claims reserve in P&C and international insurance (insurance contracts)
Reinsurers' share in claims reserve as at December 31st 2004 1 628 2 051 3 680
Change in scope of consolidation, portfolio transfers and change in accounting principles (38) 2 (36)
Impact of foreign currency fluctuation (169) (415) (584) Claims reserve as at December 31st 23 708 8 890 32 599 Claims handling cost reserve as at December 31st 891 257 1 148
Gross claims reserve as at December 31st 2004 24 599 9 147 33 747 (1) excluding claims handling costs
N.B.: this table summarizes mathematical reserves on insurance and investment contracts for the Life & Savings segment, whether or not the risk is borne by the policyholder.
Changes in scope of consolidation relate mainly to the integration of MONY (€+13,300 million in the United States).
Reinsurers' share in future policy benefits reserve as at January 1st 3 095 0 3 095
Future policy benefits reserve as at January 1st 2004 230 502 66 528 297 030 Net pure premiums 31 501 8 206 39 707 Claims paid (27 379) (7 072) (34 452) Change in future policy benefits reserve 12 177 2 250 14 427 Technical income and other (292) 1 276 984 Transfers (1) 1 165 (1 165) (0) Change in scope of conso, portfolio transfers and change in accounting principles 11 212 1 833 13 045 Impact of foreign currency fluctuation (9 155) (513) (9 668) Future policy benefits reserve as at December 31st 2004 249 730 71 343 321 073 (1) Internal transfers
In prior years, AXA issued insurance policies and assumed reinsurance for cover related to environmental pollution and asbestos exposure. Its insurance companies have been and continue to be involved in disputes regarding policy coverage and judicial interpretation of legal liability for potential environmental and asbestos claims. AXA has received and continues to receive notices of potential claims asserting environmental and asbestos losses under insurance policies issued or reinsured by AXA. Such claim notices are frequently merely precautionary in nature. There are significant uncertainties that affect the insurance companies’ ability to estimate future losses for these types of claims. However, AXA still carries out regular actuarial reviews to ensure that loss provisions relating to these risks are adequate.
At December 31, 2004, AXA had insurance claim reserves (gross of reinsurance) of €1,021 million (of which €875 million related to asbestos and €146 million related to environmental pollution) or €914 million net of reinsurance
(Non UL) - Liabilities arising from : Investment contracts with DPF measured according to existing accounting policies (1) 31 662 Investment contracts with DPF - measured at current value (2) 0 Investment contract with no DPF measured at cost 140 Investment contract with no DPF measured at fair value 730
(3) et (4) : as unit linked contracts share the same reserves measurement determined on the basis of asstes units fair value ("current unit value"). The valuation of related assets only is different : - for UL contracts with discretionary participating feature (3), an asset representing the deferred acquisition costs is recognized in continuity with french GAAP, - for UL contracts with no discretionary participating feature (4), an asset representing the rights to future management fees is recognized in accordance with IAS 18 ('DOC") - Cf. section 1.2.5.
Policyholders' participation reserve 6 717 Fund for future appropriation (FFA) - UK with profits contracts (FFA) 5 015
of which €793 million related to asbestos and €121 million related to environmental pollution (2003: €944 million gross of reinsurance or €858 million net of reinsurance), including (i) €380 million for reported claims of which €298 million related to asbestos and €82 million related to environmental pollution (2003: €365 million) and (ii) €641 million for IBNR (incurred but not reported) claims of which €576 million related to asbestos and €64 million related to environmental pollution (2003: €579 million). The IBNR liabilities are estimated and evaluated regularly based on information received by management.
Reserve re-estimated at: One year later 5 303 5 607 5 537 19 425 19 040 23 041 27 069 27 425 26 856 27 527 Two years later 5 177 5 477 13 881 17 510 19 407 26 294 25 919 25 718 26 219 Three years later 5 278 13 376 13 864 17 971 22 048 25 542 24 864 25 610
(b) AXA acquired Compagnie UAP (“UAP”) on January 1, 1997. The operations of AXA and UAP were integrated in 1998. At the date of acquisition, UAP had net reserves of e13.7 billion. The outstanding claims reserves and claim expenses of UAP’s Property & Casualty operations are included in the year end reserves as at December, 31, 1997 and thereafter. Cumulative payments and reserve development for the 1998 year and thereafter include the development of the integrated Property & Casualty liabilities of AXA, including UAP, as loss development data specific to UAP is not available and there is no reasonable basis of allocating cumulative payments and reserves re-estimated between AXA and UAP post-acquisition.
Initial net claims reserves in excess of (less than) re-estimat 1 295 2 189 2 450 2 595 2 644 2 966 3 060 4 216 3 758 3 252 2 904 Paid (cumulative) at
Re-estimated net claims reserves: 1 109 1 698 1 670 1 755 2 237 2 320 2 184 2 852 2 200 2 607
Initial net claims reserves in excess of (less than) reestimated net claims reserves: Percent of original net reserve (a) 14,4% 22,4% 31,8% 32,4% 15,4% 21,8% 28,6% 32,4% 41,5% 19,8% na
(e) In 2004, the companies AXA Corporate Solution Insurance US, AXA RE P&C Insurance company and AXA RE P&C Reinsurance company were transferred from AXA RE to the Other transnational activities. The reserves of AXA Corporate Solution Insurance US were presented on an occuring year basis and included in Property & Casualty loss reserve development table (excluding AXA RE). The reserves of AXA RE P&C Insurance company and AXA RE Reinsurance company were presented on an underwriting year basis and included in AXA RE loss reserve development table.
(c) Includes the claims reserves of Abeille Re acquired in 1995. (d) In 2001, the claims reserve of AXA RE were adversely affected by the September 11th attacks.
Financial cost related to dezactualisation (1) - - - - Impact of change in scope of consolidation, portfolio transfers and changes in accounting principles 138 (0) - - (46)
AXA Financial Senior notes, 7.75%, due 2010 351 Obligations "Senior", 7%, due 2028 255 Senior notes, 6.5%, due 2008 183 Senior notes MONY, 8.35%, due 2010 253 MONY Group Inc. notes, due 2005 210 Derivatives on financing debt instruments issued 4
AXA UK Holdings GRE : Loan Notes, 6.625%, due 2023 219
Equitable Life Mortage notes, 4.92% / 12%, due 2017 257 Closed-Block Mony, 6.44%, due 2017 220 Derivatives on financing debt instruments issued 21
Other financial debt instrument issued ( less than €100 million ) 32 Derivatives on other debt instruments issued (1) (1)
Subordinated debt at cost 9 294 10 340 Subordinated debt held as trading 0 0 Subordinated debt designated as at fair value through P&L 0 0 Derivatives on subordinated debt (1) (1 205) (1 205) Subdordinated debt 8 089 9 136 Financing debt instruments issued at cost 3 168 3 290 Financing debt instruments issued held as trading 0 0 Financing debt instruments issued designated as at fair value through P&L 0 0 Derivatives on financing debt instruments issued (1) (265) (265) Financing debt instruments issued 2 903 3 024 Financing debts owed to credit institutions at cost 17 17 Financing debts owed to credit institutions held as trading 0 0 Financing debts owed to credit institutions designated as at fair value through P&L 0 0 Derivatives on financing debt owed to credit institutions (1) 0 0 Financing debt owed to credit institutions 17 17 FINANCING DEBT 11 009 12 177 (1) Hedging instruments according to IAS 39 and economic hedge derivatives which are not acting as hedge under IAS 39.
c) Non-subordinated debt instruments issued and bank overdrafts (other than financing debt)
AXA SA debts subcribed for french, english and german subsidiaries 215
CDO (Collateralized Debt Obligations) Aria A-1E5 195 Aria B-1E5 55 Aria C-1E5 55 Aria P-2G7 289
Other financial services in France Fonds Immobilier Paris Office Funds (FIPOF) 60 Rheinhyp Rheinische Hypotheken Bank, Akteingefellschaft (London Branch) 131 Other 66
Caryring value Fair value Deposits and guarantees 25 25 Current account payable to other companies 564 564 Payable to policyholders, brokers and general agent 3 119 3 119 Other payables 155 155 Payables arising from direct insurance and inward reinsurance operations 3 863 3 863
DEBT INSTRUMENT ISSUED AND BANK OVERDRAFTS (OTHER THAN FINANCING DEBT) 7 784 7 792 Including debt at fair value through Profit & Loss 1 600 1 600
(a) Breakdown between current and deferred tax: (million euros) December 31, 2004
Income tax - France 609 Current 519 Deferred 90 Income tax - Foreign countries 1 206 Current 761 Deferred 445
The reconciliation between the theoretical tax charge (pre-tax profit multiplied by the applicable tax rate in France for the period concerned) and the effective tax charge was as follows: O/S: AXA France Assurances doit saisir sa tax proof.
Notional tax rate 35,43% Notional tax charge 2 115 Impact of rates differences on notional tax charge (149) Impact of the change in tax rates (17) Income taxable to different tax rates 34 Impact of change in tax rates (132) Impact of tax losses used but not recorded in the previous year (12) Deffered tax assets booked on tax losses not previously recognized (24) Tax losses generated in the year but not recongnized 35 Tax losses impact (1) Permanent difference on financial income and expenses (288) Permanent difference on other income and expenses 94 Impact of permanent differences (194) Correction of payable tax on the previous year (60) Impairment of deferred tax assets 52 Other 34
Derivatives instruments not used in a hedging relationship under IAS 39 (freestanding derivatives)
< 1 yr 1 to 2 yr 2 to 3 yr 3 to 4 yr 4 to 5 yr > 5 yr
NB : This table includes all derivatives (assets and liabilities), i.e hedge, macrohedge and other, inactive and passive position (1) : By convention, notional amounts are displayed in absolute value, and exclude potential netting out.
Negative fair value Net fair valueNotional amount Maturity of notional amount* Positive fair value
Fixed maturities held to maturity - - - - - - - - - - - Fixed maturities available for sale 164 184 (153) 619 164 650 6 577 - - 6 577 170 761 (153) 619 171 227 Fixed maturities at fair value through profit and loss 41 907 - (21) 41 886 1 324 - (127) 1 197 43 231 - (148) 43 083 Fixed maturities held for trading 4 - - 4 1 571 - 49 1 620 1 575 - 49 1 624 Non quoted fixed maturities (amortized cost) 23 - - 23 2 - - 2 26 - - 26
Non controlled investment funds available for sale 2 921 - (1) 2 920 65 - - 65 2 986 - (1) 2 985 Non controlled investment funds at fair value through profit and loss 2 093 - (0) 2 093 45 - - 45 2 138 - (0) 2 138 Non controlled investment funds held for trading 199 - 33 232 - - - - 199 - 33 232
Macro hedge and speculative derivatives - - (242) (242) - - 536 536 - - 294 294
(2) Other debts are presented excluding effect of derivatives on the face of the balance sheet.
Total liabilities arising from insurance contracts 301 421 22 (40) 301 403 Liabilites arising from investment contracts with discretionary participating feature 31 662 (10) (4) 31 648
Liabilites arising from investment contracts with no discretionary participating feature 869 - - 869
Liabilites arising from investment contracts where the financial risk is borne by policyholders 39 127 - - 39 127
AXA Japan uses derivative instruments to cover currency risk on its investments in US and European bonds. In accordance with IAS 21 and IAS 39, some or all of the translation difference relating to these bonds is recorded in income and offsets most of the change in market value of associated derivative instruments, also recorded in income. The economic effect of this hedging is therefore reflected without the need to use hedge accounting in the meaning of IAS 39.
The notional amount of these instruments at December 31, 2004 was €10,028 million.
Total - derivatives instruments relating to financial assets 722 142 864
Derivatives instruments on insurance and investment contracts subject to hedge accounting 12 - 12
Other derivatives instruments on insurance and investment contracts (1) (47) 3 (44)
Other derivative instruments relating to financing debt, and other financial liabilities (2) (569) 10 (560)
Other countries 4 326 PROPERTY & CASUALTY 17 852 of which direct premiums 17 521 of which reinsurance assumed 288 of which revenues from other activities 42
AXA RE 1 056 AXA Corporate Solution Assurance 1 506 AXA Cessions 94 AXA Assistance 467 Others 240 ASSET MANAGEMENT 3 084 Alliance Capital 2 325 AXA Investment Managers 759 OTHER FINANCIAL SERVICES 387 French banks 101 German banks 24 AXA Bank Belgium 258 Other 4
Interests received and equivalent 500 Interests paid and equivalent (328) Net interests and equivalent 172 Commissions received 42 Commissions paid (21) Net commissions 20 Investment income 230 Realized investment gains and losses 49 Change in fair value of financial instruments at fair value through P&L (17) Change in financial instruments impairment (2) Net investment results 264 Other bank operating income 15 Other bank operating expenses (82) Net other bank operating income (67)
Change in claims reserve (846) (468) (1 314) Change in future policy benefits - - Change in liabilities arising from contracts where the financial risk is borne by policyholders (unit-linked) - - -
Net investment result excluding financing expenses and investment result included in technical result 1 795
Other revenues, net of benefits, claims and other deductions 25 INCOME FROM OPERATING ACTIVITIES GROSS OF TAX 2 059
Change in claims reserve 487 (75) 411 Change in future policy benefits (195) 0 (195) Change in liabilities arising from contracts where the financial risk is borne by policyholders (unit-linked) - - -
Other revenues, net of benefits, claims and other deductions 138 INCOME FROM OPERATING ACTIVITIES GROSS OF TAX 425
Investment result from financial assets of insurance and other activities (excluding investment result from financial assets of banks included in net banking revenues) was as follows: Changes in fair value of financial instruments at fair value through profit and loss on available-for-sale equities and bonds, relate to the changes in fair value of underlying items of fair-value hedges in Japan (in the meaning of IAS 39).
Investment property at amorthized cost 521 345 - (90) 776 Investment property at fair value through P&L 255 106 403 - 764
Other assets held by consolidated investment funds designated as at fair value through P&L - 0 1 - 1
Loans designated as at fair value through P&L - - (49) - (49)
(1) including fixed maturities held by consolidated investment funds designated as at fair value through P&L (2) including equity securities maturities held by consolidated investment funds designated as at fair value through P&L
Gross interest expenses on financing debt (583) Income / Expense linked to hedging derivatives on financing debt Net financing debt expenses (583)
Life & Savings P&C International insurance Total Insurance Asset management Other financial services Holdings Inter-segments elimination TOTAL
(1) Includes all acquisition expenses relating to insurance and investment contracts before capitalization/amortization of deferred acquisition costs and equivalents. (2) Claims handling expenses are included in the "Technical charges relating to insurance activities" P&L caption. (3) Investment management expenses are included in the "Net investment income" P&L caption.
Change in deferred acquisition costs and equivalents (2) 1 545 138 3 1 687 - - - - 1 687
The cost of the contributions paid is an expense in the statement of income, and amounted to € 81 million for the year ended December 31, 2004.
Discount rate 5.1 % 5.8 % 1.9 % 6.1 % Salary increase for future years 3.4 % 5.6 % 0% 3.6 % Expected rate of return on plan assets (used in pension expense) 6.0% 8.4 % 1.3 % 7.4 %
The balance sheet information for employee benefits captures the difference between the Projected Benefit Obligation (“PBO”) and the market value of the corresponding invested plan assets. When this difference is positive a contingency and loss reserve is booked within the balance sheet liability. When it is negative, an asset is recorded in the balance sheet.
Actuarial gains and losses are defined as experience adjustments (the effects of differences between the previous actuarial assumptions and what has actually occurred) and the effects of changes in actuarial assumptions. They include differences between the expected and actual return on plan assets.
In addition, as permitted by IFRS 1 in connection with the first time adoption of IFRS on January 1, 2004, AXA has recorded the unrecognized cumulative actuarial gains and losses at such date of € 2 986 million (€ 2 882 millions for pension benefits and € 104 millions for other benefits) against shareholders’ equity.
The tables presented below present the change in benefit obligation and change in plan assets associated with pension plans and post-retirement benefits sponsored by AXA along with an analysis of separate assets as at December 31, 2004.
Unrecognised Net (Gains) and Losses 38 0 Net position (excluding separate assets) -5 666 -572 Recorded in the balance sheet for plans : Witha positive net position (Asset) 3 0 With a negative net position (Liability) -5 669 -572
(million euros) 2004 2004 Estimated Future Benefits Paid (calculated on a PBO basis)
As pension liabilities are of a long-term nature, a mixture of bond, equity, and real estate investments are used in the plan assets. It should be noticed that the percentage of equity is higher in the Anglo-Saxon countries where the investment strategy is often determined by Plan trustees. This mixture has some degree of volatility of returns, but over the long-term is expected to provide a higher return than pure bond investments. Our expectation of higher return is consistent with experience in the past, but may not be true in the future.
The asset mixture is maintained close to the target level, with minor fluctuations over time due to the shifting market values of assets. The asset mix at the end of year 2005 should be very similar to the one presented above at the end of year 2004. There are diverse methods to determine the expected long term rate of return across the Group given each areas specificities. Globally it is based on the historic returns adjusted for future expectations on each asset class and for the shift of asset mix. In addition, external consultants review or compute these assumptions for reasonableness in most countries.
AXA provides certain medical and life insurance benefits (“post-retirement benefits”) to qualifying employees, managers and agents who retire after having met certain age and service requirements. The life insurance benefits are related to age and salary at retirement. The expected costs of providing post-retirement benefit are accrued during the period that the employees earn such benefits. AXA funds post-retirement benefits costs as the benefits are utilized, and made post-retirement benefits payments of €30 million for the year ended December 31, 2004.
Executive officers and other key employees may be granted options to purchase ordinary shares of AXA (the Company) pursuant to stock option plans maintained by the Company. While the precise terms and conditions of each option grant may vary, current options are (1) granted at a price not less than the average closing price of the ordinary share on the Paris Bourse during the 20 trading days preceding the date of grant (2) are valid for maximum term of ten years, and (3) become exercisable in instalments of 33% per year on each of the second through fourth anniversaries of the grant date which is generally end of March.
Outstanding January 1, 52,3 22,69 Granted 10,3 17,68 Capital increase Subscribed (1,2) 9,44 Expired (1,5) 23,94
In respect of share option plans issued by AXA for AXA ordinary shares, the number of share options outstanding and the number of share options exercisable at December 31, 2004 are set out below.
In respect of share option plans issued by AXA for AXA ordinary shares, and granted after 7 November 2002, the number of share options outstanding and the number of share options exercisable at December 31, 2004 are set out in the two tables below: Exercisable until Number
The Black-Scholes option pricing model was used in determining the fair values of the AXA SA Share Options. The effect of expected early exercise is taken into account through the use of an expected life assumption based on historic data. The AXA SA volatility assumption is estimated using the implied volatility which is checked against an analysis of the historical volatility to ensure a reasonable assumption for the option term is used. The expected AXA SA dividend yield assumption is based on the average market consensus. Risk-free interest rate is based on the Euro government benchmark curve for appropriate term. The option pricing assumptions and fair values for 2004 and 2003 are as follows: Amortizing this equity-settled plan expense against the vesting period and applying a 5% pre-vesting yearly estimation of forfeiture rate, the total cost for the AXA SA Share Options recorded in earnings for the year ended December 31, 2004 is € 19,3 million (€ 9,7 million for the 2003 grant and € 9,6 million for the 2004 grant).
AXA ADR's Options Number Weighted Average 2004 Outstanding Exercise Price (in millions) (in U.S. Dollars)
The number of post 7 November 2002 exercisable shares is set out below: AXA ADR's Options Outstanding at December 31, 2004 (in millions)
The Black-Scholes option pricing model was used in determining the fair values of the AXA ADR Share Options. The effect of expected early exercise is taken into account through the use of an expected life assumption based on historic data. The AXA ADR volatility assumption is the AXA SA volatility assumption adjusted with the exchange rate US$/€ volatility and correlation to ensures that consistency is maintained between the volatility assumptions for the share prices denominated in the two different currencies. The AXA ADR expected dividend yield is similar to the AXA SA expected dividend yield. Risk-free interest rate is based on the US Treasury bonds of an appropriate term. The option pricing assumptions and fair values for 2004 and 2003 are as follows: Dividend paid 3,10% 4,30%
AXA offers its employees the opportunity to become shareholders through a special equity issue reserved for them. In the countries that meet the legal and tax requirements, two investments options are proposed: the traditional plan and the leverage plan. In the traditional plan, the employee invests funds in AXA shares, at a discount to the market price for unrestricted shares. These shares are normally only available after a 5 year period of restriction. In the leverage plan, an independent bank completes the employee investment so that the total investment is a multiple of the cash paid by
Assumptions used in order to value the Group Shareplan 2004 are as follows: • 5 years borrowing rate: 7,37 % • AXA volatility spread between retail and institutional market: 7,00 %
The total cost for the AXA Group Shareplan recorded in earnings for the year ended December 31, 2004 is € 19,1 million (€ 1,5 million for the classic plan and € 17,6 million for the leverage plan). The shares are considered to vest immediately, so the full cost is reflected in the current period.
In a less significant extent, AXA APH grants share options on APH share with both market and nonmarket performance conditions which are valued according to the Australian local IFRS. The total cost for this AXA APH share option plan recorded in earnings for the year ended December 31, 2004 is € 1.1 million.
AXA ADR Share Options 11.5 2003 grants 6.3 2004 grants 5.2
The statement of cash flows for the 12-month period ended December 31, 2004 is as follows: STATEMENT OF CASH FLOWS (million euros) December 31,
Income from operating activities, gross of tax expenses 6 589 Net capital gains / (losses) from investing activities (3 668) Net amortization expense 649 Net change in valuation allowances 455 Change in deferred acquisition costs (1 548) Change in insurance liabilities and financial liabilities related to investment contracts 24 689 Net allowance to other provisions (37) Dividends recorded in P&L during the period (1 344) Interests recorded in P&L during the period (10 786) Change in fair value of financial instruments as at fair fair value trough P&L (excluding cash and cash equivalent) (12 301)
Purchases and/or issues of loans and other assets (including those allocated to unit-linked contracts) (8 284)
Net cash related to purchases and issuance of financial assets (126 421) Sales of tangible and intangible assets 33 Purchases of tangible and intangible assets (221) Net cash related to sales and purchases of tangible and intangible assets (187) Net cash provided by investing activities (17 381) Issuance of equity instruments 2 298 Repayments of equity instruments Transactions on treasury shares Dividends payout (924) Net cash related to transactions with shareholders 1 374 Cash provided by financial debts issuance 791 Cash used for financial debts repayments (2 048) Interest on financing debt paid in year (excluding acurred interest) (775) Net interest margin of hedging derivatives on financing debt Net cash related to Group financing (2 032) Net cash provided by financing activities (659) Cash and cash equivalent as of 1st January 18 858 Net cash provided by operating activities 20 884 Net cash provided by investing activities (17 381) Net cash provided by financing activities (659) Net impact of foreign exchange fluctuations on cash and cash equivalents (252) Impact of changes in scope on cash and cash equivalents 292 Impact of reclassification on cash and cash equivalents 86 Net cash provided by discontinued operations Cash and cash equivalent at 31 December 21 830
The Company 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 ordinary shares outstanding for 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 and convertible bonds. 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 price of AXA share over the period. The effect of convertible bonds (number of shares and income) is integrated in the calculation if it actually generates a dilution of the net income per share.
Fully diluted - weighted average number of shares D 1935 NET INCOME (2) E 3844 Fully diluted net income per ordinay shares F = E / D 1,99 (1) Weighted average (2) Fully diluted
According to IAS 24, parties are considered as related parties if one of them can control or is deemed to have a significant influence on the other during financial and operating decisions making process.
Groupement d’intérêt économique (GIE) or “Mutuelles”. From time to time AXA and some of its affiliates enter into partnerships that perform various common services for their members and allocate associated costs and expenses among its members. These partnerships are governed by the French law applicable to “Groupement d’Intérêt Economique” (GIE). The expenses invoiced to entities through the GIE may be calculated using allocation keys. In 2004, expenses invoiced by GIEs to the Company, its subsidiaries and affiliates amounted to €558 million.
Relationships with the Mutuelles AXA. The Mutuelles AXA are three mutual insurance companies engaged in the life & savings insurance business and property & casualty insurance business in France: AXA Assurances IARD Mutuelle, AXA Assurances Vie Mutuelle and AXA Courtage Assurance Mutuelle. These insurance businesses, which are the Mutuelles AXA’s only significant operating business activities, generated gross premiums of €1,578 million in 2004. The insurance businesses of the Mutuelles AXA and the insurance businesses of the Company’s French insurance subsidiaries use similar distribution channels and are managed as single businesses, subject to legal and management arrangements established to maintain the legal distinctions between their respective businesses.
The Mutuelles AXA do not have shares outstanding and the business of each Mutuelle AXA is supervised by a board of directors elected by delegates representing policyholders. As of February 28, 2005, the Mutuelles AXA, acting as a group, owned, directly and indirectly through intermediate holding companies (including FINAXA), approximately 20.34% of the Company’s outstanding ordinary shares representing approximately 32.35% of the total voting power.
While the Company and each of the Mutuelles AXA has its own board of directors (or similar corporate governance structure), they have in common certain members of management and certain members of the Company’s management and/or Supervisory Board also hold directorships and/or management positions in the Mutuelles AXA. The Mutuelles AXA, which have no employees, also use employees of the Company’s French insurance subsidiaries pursuant to management agreements between the Mutuelles AXA and those subsidiaries. There are no agreements between the Mutuelles AXA and the Company’s insurance subsidiaries that restrict in any way their ability to compete with one another.
The Property & Casualty insurance business generated in France by insurance brokers is underwritten through a coinsurance arrangement between AXA France IARD, a Property & Casualty insurance subsidiary of the Company and AXA Courtage Assurance Mutuelle, one of the Mutuelles AXA engaged in the Property & Casualty business. Technical results are shared between entities in proportion with their written premiums. Aggregate written premiums (AXA Courtage Assurance Mutuelle and AXA France IARD) recorded in the agreement amounted to €1,407 million in 2004 (of which €1,252 million attributed to AXA France IARD).
In 2004, a corporation controlled by an investor group including certain members of the Supervisory Board and the Management Board of the Company engaged AXA Millesimes, a wholly-owned subsidiary of the Company, to manage a nineyard owned by the corporation and provide services related to the vineyard's wine production. The agreement was entered into on an arms-length basis and reflects prevailing terms and conditions for similar transactions.
AXA/FINAXA Trademark License. The name “AXA” and the AXA trademark are owned by FINAXA. On May 21, 1996, the Company and FINAXA entered into a licensing agreement subsequently amended pursuant to which FINAXA (1) granted the Company a non-exclusive license to use the AXA trademark in the jurisdictions in which AXA currently has operations and in any additional jurisdictions in which the AXA trademark is registered, and (2) agreed not to grant licenses to use the AXA trademark to any other company or partnership unless (i) that company or partnership holds an ownership interest in FINAXA or (ii) FINAXA and/or the Company hold, directly or indirectly, an interest in that company or partnership. The non-exclusive license grants the Company the right, subject to the prior written approval of FINAXA, to grant sub-licenses to companies controlled, directly or indirectly, by the Company. FINAXA has no obligation to grant any such approval. Over the past several years, a number of the Company's principal subsidiaries around the world have begun to use the AXA name pursuant to sublicenses granted by the Company. Pursuant to a supplemental agreement entered into on May 3, 2005 with a retroactive effect as of January 1, 2005, the Company is obligated to pay FINAXA an annual fee of €762,245 as well as 80% of any net royalties received from sub-licensees. AXA’s non-exclusive license may be terminated at any time by either party, three months after delivery to the other party of a written notice of termination. FINAXA has, however, agreed not to exercise its right to terminate the license so long as FINAXA is the Company’s largest shareholder. Upon termination, the Company and the companies to which it has granted sublicenses are required to cease utilization of the AXA trademark and any sublicenses will immediately terminate. On April 20, 2005, FINAXA and AXA announced their intention to merge FINAXA into AXA. It consummated AXA will become the owner of its trademark.
Loans/Guarantees/Capital Contributions. The Company from time to time makes capital contributions and/or loans to its subsidiaries and affiliates to finance their business operations. As at December 31, 2004, the aggregate amount outstanding in respect of loans made by the Company to its subsidiaries or affiliates was approximately €3.1 billion. This amount represents approximately forty separate loans originated at different times and bearing interest at varying rates that generally reflected prevailing market rates at the respective dates such loans were originated. In order to facilitate certain intra-group financing arrangements, support credit ratings of its subsidiaries, and/or to promote efficient use of the Group’s capital resources generally, the Company from time to time guarantees repayment of loans extended from one of its subsidiaries to another and/or guarantees other obligations of its subsidiaries. As of December 31, 2004, the principal amount of such intra-group loans guaranteed by the Company was €2,217 million and the aggregate liabilities covered by the other guarantees extended to its subsidiaries was approximately €5,683 million. The beneficiaries of these guarantees are generally required to compensate the Company at a negotiated rate based on prevailing market rates and conditions for guaranties of a similar nature. In addition, from time to time the Company provides comfort or similar letters to rating agencies and/or regulators for the benefit of its subsidiaries for various business purposes, including for purposes of facilitating specific transactions, achieving target ratings levels and, more generally, helping develop the business of these subsidiaries. At December 31, 2004 and 2003, there were no loans outstanding from the Company to any member of AXA’s Management Board or Supervisory Board. For additional information concerning commitments and guarantees given by the Company, see note 1-2-27 “Contingent assets and liabilities and unrecognized contractual commitments”.
Agreement with BNP Paribas. On September 12, 2001, the AXA and BNP Paribas Groups entered into an agreement (the “BNP Agreement”) which provides for maintaining a certain level of cross-shareholding between the parties and facilitating the potential disposition of BNP Paribas’ investment in FINAXA. Specifically, the BNP Agreement provides that the AXA Group will hold a minimum number of 43.412.598 shares in BNP Paribas which, on July 31, 2004, represented an approximate 4.91% ownership interest in BNP Paribas; and that BNP Paribas will hold a minimum number of 15,795,357 shares in Finaxa (following adjustment linked to Finaxa’s share capital increase of July 20, 2004) which, on July 31, 2004, represented an approximate 20.90% ownership interest in Finaxa. Additionally, the BNP Agreement grants both BNP Paribas and the Company a right of first refusal to acquire the other party’s equity investment (not including any shares held in excess of the minimum amount) during a one-year period following any termination of the agreement. Further, each party has an option to repurchase the ownership interests of the other party if there is a change in control of the other party. Initially entered into for a three-year period commencing from the execution date of the agreement, a supplemental agreement was entered into by the parties on October 26, 2004 which provides that the agreement is renewed for a two-year period commencing on September 12, 2004 and is automatically renewed thereafter for additional oneyear periods. However, either party may terminate the agreement early if it gives the other party notice at least three months prior to the expiration of the current two-year period or the subsequent one-year periods. This agreement and the supplemental agreement were filed with and made public by respectively the Conseil des Marchés Financiers on September 28, 2001 and the Autorité des Marchés Financiers on October 28, 2004.
AXA Technology Services. As one of many initiatives designed to better leverage the AXA Group's global scale, the AXA Group has established a technology services company, AXA Technology Services ("AXA Tech"), which provides technology services to various AXA Group companies. AXA Tech also negotiates and administers relationships with various IT providers on a Group-wide basis. Services provided by AXA Tech to Group companies are generally provided pursuant to contracts with fully negotiated terms and conditions (including service level standards, and fees) which are based on market standards and conditions. Total fees paid by AXA Group companies to AXA Tech in 2004 were approximately €634 million. AXA also from time to time provides guaranties to AXA Tech in order to facilitate certain contractual arrangements that AXA Tech has entered into with various third party service providers for technology and/or telecommunications equipment and/or services, including a guaranty provided by AXA SA in connection with an agreement between AXA Tech and France Telecom, dated December 15, 2003, pursuant to which AXA SA provided a performance guaranty to France Telecom on behalf of AXA Tech which is capped at €50 million during the term of the agreement.
Reinsurance. In order to achieve optimal pricing in the market and cost efficiencies on a Group level, various insurance subsidiaries of the Company cede reinsurance through AXA Cessions. AXA Cessions acts on behalf of the ceding AXA insurers to arrange reinsurance cover with suitable third-party reinsurers. Total premiums ceded by AXA Group insurers through AXA Cessions were approximately €631 million for the year ended December 31, 2004 and total claims reserves with respect to this ceded reinsurance were approximately €1,470 million at December 31, 2004.
Guarantee commitments totalled €2,807 million and consisted mainly of guarantees received from customers of Life & Savings entities (€1,437 million) and Belgian banking entities (€1,139 million) in the form of third-party pledges and mortgages on buildings relating to customer loans. The fall of €189 million was mainly due to a reduction in letters of credit representing AXA Corporate Solutions Assurance's reinsurance commitments.
Other Pledged assets and Collaterized commitments 10 191 4 202 5 5 844 5 055
Other commitments totalled €2,931 million at December 31, 2004. This amount broke down as follows: - €863 million of securities managed by AXA France Vie on behalf of provident societies (third-party management), a rise of €86 million compared to 2003.
- €91 million of collateral received by AXA Bank Belgium as part of its cash management activities, (€-280 million compared to 2003).
- €816 million of commitments backing life insurance contracts used as collateral for loans granted by French banks, classified as pledged assets in 2003.
Off-balance sheet commitments given by AXA totalled €18,953 million at December 31, 2004. This increase mainly resulted from higher collaterized commitments (up €1,387 million), partly offset by a decrease in letters of credit (down €427 million) and a lower level of guarantee (down €220 million).
Commitments to finance given totalled €2,559 million at December 31, 2004 consisting mainly of: - €2,478 million of commitments to customers, comprising €1,175 million of commitments relating to home loans made by AXA Bank Belgium (up €276 million due to higher production of home loans), €592 million of credit facilities and overdraft authorizations granted by French banks to their customers (up €66 million due to growth in this business) and around €711 million of new commitments representing the commitment for MONY subsidiary Advest relating to transactions carried out with or on behalf of institutional customers. These increases were offset by AXA Versicherung's withdrawal from unlisted companies in 2004, which cancelled the related financial commitments (€313 million in 2003).
- €81 million of commitments to credit institutions (2003: €69 million) consisting mainly of €43 million of guarantees given on loans granted to French general agents and €27 million of real estate commitments received by AXA France IARD. These guarantees were stable compared to 2003.
Letters of credit given totalled €670 million at December 31, 2004 and mainly related to international insurance operations, notably those of AXA RE Paris (€455 million) and AXA RE Finance (€93 million). Such commitments were given in 2001 in connection with future claims settlements arising from the US terrorist attacks of September 11, 2001. The fall in letters of credit was in line with the lower revenues of AXA RE.
Other commitments given totalled €4,316 million at December 31, 2004 and consisted mainly of: - €503 million of commitments given on forward foreign exchange transactions (€152 million), €54 million transfer commitment on a real estate fund managed by AXA Reim, FDV Venture, and €296 million on derivative products hedging ABR contracts. Commitments have been received for an equal amount on these contracts.
The scheme governing the financial reorganization of AXA Sun Life in 2001 (the "Scheme") details arrangements under which assets from the inherited estate, attributed to AXA through the reorganization, may be transferred on a temporary or permanent basis to the "With-Profit" funds as required to support the capital requirements of these funds, as determined under the Scheme. In the case of a temporary transfer, assets and related investment income remain attributable to AXA since they will be returned when they are no longer required to support the capital requirements of the "With-Profit" funds, under the stringent tests set out in the Scheme. If all or part of the assets transferred are unlikely to be returned in the foreseeable future (taking into consideration the duration of in-force "With-Profit" policies), then the relevant part of the transfer would be designated permanent. Only a permanent transfer to the "With-Profit" funds would result in a charge against the profit and loss account. The maximum amount that could be transferred under the Scheme is capped at the market value of surplus assets in the non-profit funds, which was £1.5 billion (€2.1 billion) at December 31, 2004, before taking into account the transfer described below.
At December 31, 2004, this transfer amounted to £754 million (€1,069 million), corresponding to the total amount transferred on January 1, 2004 plus the corresponding financial revenues. According to the rules of the plan, an annual test must be carried out at least once every 12-month period, possibly resulting in an additional transfer. The test on January 1, 2005 is unlikely to result in an additional transfer. Current projections, consistent with management’s strategic plans, indicate that these cumulative transfers can reasonably be expected to be returned by the "With-Profit" funds over time and are therefore not permanent.
On September 12, 2001 an agreement was established between AXA and BNP Paribas for a period of three years, under which AXA guaranteed the liquidity of BNP Paribas’ holdings in ordinary shares of Finaxa. Finally, in
connection with Alliance Capital's acquisition of Sanford Bernstein in October 2000, former shareholders of Sanford Bernstein received 40.8 million unlisted private units in Alliance Capital, the liquidity of which has been guaranteed by AXA Financial Holding since October 2002. At the end of 2002, former shareholders of Sanford Bernstein sold 8.16 million of these units to AXA Financial. In March and December 2004, they sold a total of 16.32 units to AXA Financial. The remaining 16.32 million Alliance Capital units can be sold at market price to AXA Financial over the next five years, until 2009, but not more than 20% of the original total of 40.8 units may be sold to AXA Financial in any one annual period.
Note 2 : Operating highlights of the period a) Capital and financing operations
On June 29, 2005, the Management Board of AXA (following a meeting of the Supervisory Board) and the Board of Directors of FINAXA approved the terms and conditions of the merger of FINAXA into AXA which had been announced on April 19,2005.
For AXA and its shareholders, this merger simplifies the shareholder structure, improves the standing of the stock and increases the proportion of publicly traded shares. In addition, AXA will obtain ownership of the “AXA” brand which is currently the property of FINAXA. For FINAXA shareholders, this transaction improves the liquidity of their securities and eliminates the discount which affects the value of their securities.
Following the studies conducted by the committees of independent directors appointed within the Supervisory Board of AXA and the Board of Directors of FINAXA, the Management Board of AXA and the Board of Directors of FINAXA have set an exchange ratio of 3.75 AXA shares for one FINAXA share, corresponding to 15 AXA shares for 4 FINAXA shares. Independent banks respectively appointed by the Supervisory Board of AXA and the Board of Directors of FINAXA have each given a fairness opinion confirming that the exchange ratio is fair to the shareholders of each company.
Following this capital increase, AXA shares currently held by Finaxa and its subsidiaries, which amount to 336 million shares, would be cancelled. As a consequence, AXA's shareholders equity would be reduced by Euro 0.8 to 0.9 billion, following the merger.
The terms and conditions of the merger, including the exchange ratio, will be submitted to Court Appointed Merger Auditors (“Commissaires aux Apports et à la Fusion”) who will deliver their reports before December 16, 2005, the date of the Extraordinary General Assemblies of FINAXA and AXA at which the merger will be presented for approval to the shareholders of each company. AXA will undertake FINAXA rights and obligations at January 1, 2005.
In order to further protect the Group balance sheet exposure to the USD, an additional $1.950 billion economic hedges have been implemented in the first half year 2005, through Cross Currency Swaps.
AXA operates in the following primary business segments: • Life & Savings, • Property & Casualty, • International Insurance, including reinsurance, and • Asset Management and Other Financial services.
These consolidated interim financial statements have been approved for issue by the Management Board on 19 September 2005.