1.1. Profi le 4 1.2. Providing insurance for 150 years 5 1.3. Presentation of businesses and strategy 6 1.4. Selected fi nancial information 9
AND INTERNAL CONTROL 13 2.1. Report of the Chairman of the Board of Directors 14 2.3. Corporate governance structures 30 2.5. Internal control and risk factors 52 2.6. Statutory Auditors’ report on the report prepared by the Chairman of the Board of Directors 60 2.7. Statutory Auditors’ special report on related-party agreements and commitments 62
AND FINANCIAL REVIEW 69 3.1. Signifi cant events of the year 70 3.2. Market and business review 73 3.3. Financial review 79 3.4. Embedded value 84 3.5. Social and environmental information 94
THE COMPANY AND ITS CAPITAL 261 5.1. Annual General Meeting of 25 M ay 2010 262 5.2. General information Company i nformation 269 5.3. General information Information about the Company’s capital 272 5.4. Annual information document 288 5.5. Board of Directors’ report on CNP Assurances’ share grant plans 290 5.6. Summary table of the authorisations granted by the Annual General Meeting to the Board of Directors of CNP Assurances 292 5.7. Transactions carried out in 2009 under the share buyback programme 293 5.8. Persons responsible for the information and the audit of the accounts 295 5.9. Fees paid to the Statutory Auditors 296
This Registration Document was filed with the Autorité des Marchés Financiers on 26 April 2010, in accordance with Articles 211-1 to 211-42 of Autorité des Marchés Financiers Regulations. The Registration Document may not be used in connection with a financial transaction unless it is accompanied by an Information Memorandum approved by the Autorité des Marchés Financiers.
■ the annual management report of the CNP Assurances Board of Directors, to be presented to shareholders at the Annual General Meeting held to approve the financial statements for each financial year, in accordance with Articles L.225-100 et seq. of the Commercial Code.
The concordance table below provides cross references to the information provided in the two above-mentioned reports.
Translated and adapted from the French Document de Référence filed with the Autorité des Marchés Financiers. The complete Document de Référence, in French, is available on request from the Company and can also be downloaded from the CNP Assurances website Only the French language version is binding on the Company.
CNP Assurances designs and manages life insurance products for a client base spanning 15 countries. The Group’s mission is to provide clients with cradle-to-grave insurance protection against the risks of everyday life.
1868 Creation of the Caisse Nationale d’Assurances en cas d’Accident (CNAA) accident insurance fund and of the Caisse Nationale d’Assurances en cas de Décès (CNAD) death benefit fund.
1959 Creation of the Caisse Nationale de Prévoyance (CNP), a state institution combining the three above-mentioned funds within Caisse des dépôts.
1988 Creation of Ecureuil Vie with the Caisses d’Epargne savings banks.
1992 CNP becomes CNP Assurances, a société anonyme (public limited company) governed by the Insurance Code.
1998 Stock market flotation. Signing of the CNP Assurances shareholders’ agreement.
1999 Assumption of control over Global SA and Global Vida SA in Portugal.
2003 Signing of a partnership agreement with Mutualité Française up to 2013.
2008 Establishment in Cyprus and in Greece through the acquisition of a 50.1% stake in Marfin Insurance Holdings.
In keeping with its heritage and the strong public-service roots of its main shareholders and distribution partners, CNP Assurances fulfils its social responsibility as an insurer by establishing a relationship of trust with all stakeholders and helping to combat financial and social exclusion.
Presentation of CnP assuranCes1 Presentation of businesses and strategy 1.3. Presentation of businesses and strategy
CNP Assurances designs, develops, distributes and manages savings, pension and personal risk products. The corporate mission is to offer clients cradle-to-grave insurance protection, a commitment that reflects the Group’s proud heritage and deeply-held values.
The Group’s offers are designed to provide insurance solutions for all budgets. Each product range includes affordable products for clients in all income brackets, thanks to very low minimum premiums.
CNP Assurances’ constant concern is to provide long-term security for policyholders. In the sphere of life insurance, the Group aims to optimise and smooth yields over time to secure its non-unit-linked commitments in full. In the sphere of annuity contracts, the social added value for an insurer like CNP Assurances is to be able to make steady, increasing payments.
ll strategy based on long-term partnerships To make insurance easy to buy, CNP Assurances distributes its products in France and internationally under long-term distribution agreements with partners which have a strong presence in their local markets.
For more than a century now, CNP Assurances has focused on bancassurance, that is to say, the sale of insurance products through banking networks. In France, CNP Assurances’
ll a responsible insurer Trust is truly a bedrock issue for CNP Assurances, whose added value consists of providing the assurance of a more secure future. While important for any financial institution, trust is even more critical for a personal insurer that makes very long-term commitments to policyholders and carries them in its balance sheet.
At CNP Assurances, trust is built on three pillars: high ethical standards, effective policy design and administration, and financial management finely calibrated between security and performance.
The Group’s longstanding expertise and the size of its insurance book stand it in good stead when designing and pricing insurance cover. In France, where CNP Assurances is the leading writer of annuity contracts and loan insurance, detailed risk data are translated into loss tables which are certified and revised at regular intervals.
CNP Assurances’ high-quality financial management has nurtured a strong base of trust and the expertise and diligence of the Group’s teams are widely recognised. This is a particularly important issue in traditional endowment products, which offer policyholders a capital guarantee plus a capitalised annual yield. For such products, financial
Presentation of CnP assuranCes1 Presentation of businesses and strategy management techniques need to accommodate long-term security (given that policyholders generally have the right to surrender their contracts at any time), performance (to meet policyholders’ expectation of a competitive annual rate of return in relation to market interest rates) and regular increases in the capital sum.
CNP Assurances recognises that sustainable growth cannot be achieved without due regard for the social and environmental impacts of all economic activity. This awareness shapes all of the Group’s actions, which are anchored in the values of responsibility, partnership, sharing and solidarity. CNP Assurances acts for the good of its policyholders by combating financial exclusion through the provision of affordable products for the lowest income brackets and of micro-insurance for business founders. The Group is also a pioneer in the sphere of loan insurance for persons representing an aggravated health risk. Relations with partners are based on mutual respect and a long-term perspective. The Group is also committed to being an exemplary employer, with a pro-active human resources policy that emphasises career development and internal mobility. The promotion of equality in the workplace – gender equality, and the employment of young persons, seniors, minorities and disabled persons – is a key focus of the human resources policy. The Group’s efforts in this sphere were recognised by the award of the Diversity Label to CNP Assurances in January 2009.
The Group’s values are also reflected in its adherence from 2003 to the United Nations Global Compact, which urges businesses to adopt and support ten fundamental principles in the areas of human rights, labour standards, the elimination of discrimination, anti-corruption, anti-money laundering and the protection of the environment. CNP Assurances acts in favour of the community at large by vigorously supporting the economy and by providing sponsoring in the spheres of health and solidarity. This commitment to the good of mankind goes hand in hand with resolute action in favour of environmental protection. CNP Assurances participated from the outset in the European Carbon Fund, which aims to reduce greenhouse gas emissions in accordance with the Kyoto Protocol. At end-2007, the Group introduced the CNP Développement Durable fund of funds, which is partially invested in the renewable energy and water management sectors. Other measures taken include the reduction of electricity, paper and water consumption at all premises, the introduction of a waste-sorting system and the optimisation of transport usage. Employees’ discretionary profit-sharing is partially linked to the achievement of improvement objectives. The approach adopted requires the approval of the Board of Directors, which is responsible for setting targets in each area identified for improvement.
■ New moNey by busiNess seGmeNT (French GAAP, in € billions)
CorPorate governanCe and internal Control2 Report of the chairman of the Board of Directors 2.1. rePort of the Chairman of the board of direCtors 2009 financial year ll annual general meeting of 25 may 2010
In my previous reports, I discussed the new tougher legislative context, which has since been rounded out by the government order of 8 December 2008 prescribing how my report should be drawn up. A further addition to these rules has been the Corporate Governance Code, drawn up by the AFEP and the MEDEF in October 2003 and published in a combined format in December 2008 following publication of their recommendations on directors’ and officers’ compensation.
In November 2009, these institutions published a report that has since set a new standard in the establishment of best corporate governance practices.
This commitment to improving the transparency, clarity and comparability of information reported by listed companies is shared by CNP Assurances. The AFEP-MEDEF Code is the Company’s benchmark.
In this respect, the Board of Directors, eager to continue enacting best practices, revised compensation terms in regard to the Chief Executive Officer, at its meeting of 30 July 2009. These measures furthermore comply with the decree of 30 March 2009 concerning directors of public corporations.
The report comprises two sections, one dealing with the workings of the Board of Directors, and the other describing the internal control and risk management procedures.
The composition of the Board, which works in accordance with the corporate governance principles laid out by the AFEP-MEDEF Code, mirrors the Company’s ownership structure. As regards the proportion of independent directors on the Board, which comes up under the aforementioned code, the special situation of CNP Assurances stems from its shareholder structure, which comprises two majority shareholders (Caisse des dépôts et consignations and Sopassure). Furthermore, rules exist to organise the appointment of directors, specifically in regard to the agreement between the Company’s core shareholders.
In addition, the Board of Directors in late 2009 decided to initiate an assessment of its own workings and tasks. This duty was entrusted to the Company Secretary, who sits on the Board of Directors. The assessment was carried out on the basis of a detailed questionnaire supplemented by
Pursuant to the ethical standards in the Board of Directors’ internal rules, directors undertake to: ■ actively participate in all meetings of the Board and the committees to which they belong and in Annual General Meetings, and contribute their experience, competencies and analytical skills; ■ hold a minimum of fifty (50) Company shares; the minimum holding requirement for the Chairman of the Board of Directors is one hundred (100) shares (1).
Under the separation of authority, the Chairman of the Board of Directions has a strategic, decision-making and supervisory role, while the CEO is involved in day-to-day management.
Activities of board committees in 2009 In keeping with best corporate governance practices, the Board of Directors has set up an Audit Committee, a Remunerations & Nominations Committee, and a Strategy Committee.
The Audit Committee was created in January 2000, and has fulfilled its duties in accordance with the new government order of 8 December 2008, according to which such a committee is now mandatory. This legislation has furthermore led to the redefinition of some points of the Audit Committee’s internal rules, amended as of February 2010.
This committee makes recommendations to the Board concerning the appointment, re-appointment and removal from office of the Chief Executive Officer and the amount of his remuneration (as a corporate officer and as an employee).
In addition to usual matters, such as the distribution of directors’ fees, last year this committee brought the employment contract and corporate office of the CEO into compliance with regulations on the compensation terms for managers of publicly owned companies.
The Strategy Committee is tasked with preparing and organising all aspects of the Board of Directors’ work. It reviews changes that the Group is seeking to enact that it deems to be strategic. It is specifically entrusted with reviewing the following matters: ■ “defining CNP Assurances’ strategic growth initiatives on an ongoing basis both in France and abroad; ■ analysing proposed strategic arrangements and monitoring existing partnerships; ■ analysing proposed acquisitions or divestitures and proposals to create subsidiaries.
It deliberates on proposed changes in the strategic focus of CNP Assurances and reviews strategy at least once a year.”*
The Strategy Committee reviewed progress made on the Pensions project under way with Médéric Malakoff and the planned M&A deal involving Barclays. During its meetings, it furthermore reviewed the status of core international subsidiaries and the largest private equity interests in France.
It also seemed wise to meet with the heads of the departments that have specific responsibility for cross-company controls (Internal Audit and Risk Management & Compliance) as well as the heads of certain operating departments (Investments, Policyholder Services, Information Systems, Individual and Consumer Partnerships, and Human Resources) and the heads of the Accounting and Legal Affairs, the Actuarial Analysis and the Planning and Performance departments, so that they could describe to me the measures taken in the area of risk management. To prepare these meetings, each department head sent me a written report describing his or her department’s internal control and risk management set-
Report of the chairman of the Board of Directors up and activities, including risk exposure arising specifically from the financial crisis, as well as the measures that had been taken.
Lastly, I commissioned an independent outside study on CNP Assurances’ ability to cope in various post-crisis scenarios and the consequences thereof on the Company’s financial equilibrium. Emphasis was placed on specific major economic and financial risks in relation to the investigative tasks carried out last year for my previous report.
2.2 main initiatives in 2009 In 2008, a global crisis of exceptional proportions hit financial markets before exerting extreme pressure on the real economy. In 2009, financial markets rallied even though all sectors of the economy were still smarting from the aftereffects of the crisis.
Therefore, I have sought to analyse CNP Assurances’ ability to cope with various post-crisis scenarios and their consequences on the Company’s financial equilibrium, paying particular attention to the following: ■ the Company’s solidity and financial flexibility which reflects its ability to withstand shocks in an especially turbulent economic environment; ■ CNP Assurances’ exposure to issuers of debt instruments, especially those vulnerable to the financial crisis, e.g., sovereign debt and corporate paper; ■ the quality of management of risks arising from policyholder behaviour and market declines and volatility, through assetliability matching on non-unit-linked policies; ■ the tracking of insurance risks on personal insurance policies, loan insurance and collateral.
I have also been monitoring the progress made since my first internal control report, specifically concerning: ■ improvements enacted by CNP Assurances and its business partners in the areas of product distribution and management as well as policyholder relations. In recent years, this had led to the introduction of service level agreements signed with distributors, the definition of common procedures and systems, and broader indicators for measuring and tracking service quality and customer satisfaction; ■ the gradual extension of the quality certification programme, starting with all CRM processes, to be followed by all the other fundamental insurance processes; ■ progress on current projects to prepare for compliance with the Solvency II Directive and the strengthening of risk management procedures.
2.3 overview of the internal control system 2.3.1 AN orGANisATioN wiTh CleArly deFiNed ProCedures ANd ACCouNTAbiliTy sTruCTure
The system is multi-tiered: ■ line and staff management functions are required to establish first-tier controls either to manage risks associated with their activities or assess the risks incurred by the Company as a whole, including in other departments;
■ second-tier systems gauge risks, make sure they are effectively managed and verify the quality and suitability of mechanisms for assessing, mitigating and transferring them.
As part of our processes for managing and controlling risks, CNP Assurances regularly conducts forecasts assessing the potential consequences of different macroeconomic scenarios on the Company’s financial strength and flexibility. These forecasts form the basis of action plans drawn up to counter such occurrences.
At my request, within the context of this report, a specific study was conducted in late 2009 to assess our ability to deal with various post-crisis macroeconomic scenarios.
2009 was also overshadowed by investor uncertainty over sovereign debt issued by European countries faced with mounting public debt burdens. Sovereign default risk was monitored particularly closely. As with insurers in general, sovereign issues account for a significant portion of CNP Assurances’ fixed-income investments. Moreover, the spreads on debt issued by certain eurozone members (Greece, Portugal, Spain and Ireland) remain volatile. Therefore, the Company has stepped up surveillance of these countries’ macroeconomic indicators (debt/GDP, deficit/GDP, rates of unemployment, etc.).
Before any investment decision is validated, a review is carried out by our Investments department, of the quality of the underlyings, the securities’ ranking for repayment purposes, the risks, the results of stress tests, etc.
Hedge fund exposure Investments in hedge funds are exposed to a deterioration in the performance of the funds themselves and to default risk, should the financial viability of the funds themselves be threatened. After falling sharply in 2008 due to the unprecedented plunge in share prices, the constriction of credit markets and the liquidity drain, this asset class put in a positive performance in 2009.
The financial soundness of these funds may suffer if economic conditions sour, e.g. in the event of deflation coupled with increasingly scarce liquidity.
b. Risks relating to declines and volatility in financial markets asset-liability mismatch on traditional savings products A shortfall in coverage between financial asset investments and liabilities can expose insurers to sizeable risks that, in the event of sudden sharp movements on interest rates or a plunge in equity markets, can materialise in the form of losses arising from the gap between remuneration guaranteed to policyholders and the actual returns earned on assets.
Bear market in equities Trends in equity markets have a direct effect on the performances of equity investments held by insurance companies.
Following the plunge in 2008, with the CAC 40 ending the year 43% in the red, stocks recovered strongly last year as this index chalked up a gain of 22%.
Market fluctuations have been closely monitored and analysed throughout the year by top management (Executive
impact of guaranteed returns on unit-linked contracts For unit-linked life insurance, for which the value of the Company’s liabilities are matched by policy assets, insurers have set up guarantees shielding policyholders from significant declines in markets. CNP Assurances hedges its risks in terms of the guaranteed returns that must be paid out to policyholders using options or reinsurance protection.
In summary, four principles buttress the Company’s policy to limit exposure to declining or volatile markets: ■ tracking ALM risk through regularly updated simulations based on different market conditions, and using the results to measure the impact on the Company and develop appropriate investment and hedging strategies; ■ limiting guaranteed returns; ■ using an early warning system to adjust investment strategy to exceptional circumstances such as those observed in 2008; ■ performing more in-depth analyses of trends in premium income, surrender rates, transfers between contracts and life funds, as well as enhancing two-way communication with policyholders and business partners.
I would like to close this first section by reiterating my commitment to unremitting vigilance on the part of all our staff in identifying, tracking and analysing all crisis-related risks and their impact on the Company’s business and financial strength to anticipate as much as possible where weaknesses or stress flashpoints could arise. I will do my utmost to ensure that our risk management procedures are duly applied in full.
However, in addition to addressing the specific crisis-related challenges facing the Company, it is also my responsibility to describe the procedures for managing recurring risks in the insurance sector, a key priority for the Group.
Furthermore, the applications used to measure actual performance against targets also assess which new products should be launched and how they should be priced. These applications (i) set Group objectives at the level of the individual businesses, (ii) track the progress made by each business in meeting these objectives, (iii) take remedial measures wherever necessary, and (iv) analyse the components of earnings formation.
The reinsurance programmes of the Company and its subsidiaries round out our insurance risk management procedures. Reviewed at regular intervals, the programmes cover both direct business and inward reinsurance written for provident institutions and subsidiaries. The claims-paying ability of the Group’s reinsurers and reinsured risks are reviewed at regular intervals.
Throughout 2009, CNP Assurances continued to make preparations for Solvency II rules, which will come into force in the autumn of 2012.
These future regulations, applicable in the EU, have mainly been designed to calculate the capital requirements of insurance companies in accordance with their risk profile and the type of activities they operate. To comply with these rules, new assessment and reporting procedures will be needed to justify capital levels before supervisory authorities.
A project entitled “Roadmap Finance et Gestion 2012” is being carried out to provide uniform and certified financial information for managing all the Group’s finance tasks ahead of the implementation of new IFRS rules and the Solvency II Directive. Information will be gathered in a shorter timeframe in comparison with the current period-end closing procedure.
In the years ahead, we will pay particularly close attention to making sure these interlinked projects are properly coordinated.
Controls deemed satisfactory by the line managers are subjected to random testing to confirm the reliability of the information obtained through the self-assessment process. Furthermore, specific tests are used to check the consistency of self-assessments by gauging suitability and reliability, and the level of risk coverage. The results of all these tests are then reported to the various departments concerned.
The Internal Audit department assesses the quality and effectiveness of the internal control system and issues recommendations for improvement.
In order to be fully compliant with industry standards (4), a decision was taken to introduce a new methodology for managing the scope of the audit and develop a system in house
CorPorate governanCe and internal Control2 Report of the chairman of the Board of Directors for listing all entities and processes within CNP Assurances. This new approach makes it possible: ■ to establish an official list of entities that should be covered; ■ to determine the risk threshold for each entity so as to apply the most suitable audit cycle; ■ to define in precise terms how the scope of audit should be monitored.
Furthermore, the Company has enhanced the legal soundness of client documentation on both new and existing insurance products. CNP Assurances seeks to continue improving clarity of information and readability on client documentation.
The risk management systems set up in tandem with distributors are based on the allocation of professional licences to agents responsible for marketing products and on the training of salespeople. CNP Assurances has continued with efforts to provide training for distributors, with the specific objective of facilitating the advising of customers by salespeople. In this respect, distributors have made the advisory obligation (noting customer needs and suggesting solutions) an integral part of their sales procedure.
Analysis of disputed cases is another way of enhancing risk management, yielding improvements in contractual documents and the presentation of insurance products. The rate of originating summons has fallen steadily over the past decade and no deviation from this trend was witnessed despite the serious crisis that struck financial markets. However, it is vital to remain watchful as regards repeat or inter-industry disputes, both of which require close monitoring in conjunction with the various departments concerned so that impact and ramifications can be gauged.
For several years now, we have been working closely with distributors to drive steady improvements in administrative efficiency. In addition to indicators on economic and financial conditions, which have been strengthened to monitor crisisrelated developments, controls in this area include: ■ the signature of service level agreements with Banque Postale and Caisses d’Epargne. These agreements, which are in addition to the partnership agreements, create a contractual framework defining roles and responsibilities in the areas of administration, production quality and policyholder service quality; ■ performance controls on the administration side based on shared procedures and systems, together with quality and efficiency standards; ■ monitoring investment performance, policy administration and information systems by committees meeting monthly or quarterly.
Risk management relies on reviews of all new products prior to their launch by the Head of Compliance. It also relies on a “quality approach” created in tandem with distributors. This
Report of the chairman of the Board of Directors entails the standardisation and optimisation of administrative processes such as admission to insurance schemes, payment of claims and benefits, and policyholder information. The ultimate aim of the programme is to obtain full certification for the entire policy administration process. Work has continued towards full certification of the CRM process, leading to the awarding of ISO 9001 certification.
Group policies cover essentially the same types of guarantees as individual policies and the inherent administrative risks are therefore the same. However, group policies also give rise to specific risks due to the delegation of decision-making authority to clients (mainly companies, mutual insurers and financial institutions), brokers and outside service providers.
Specific procedures have been used for a number of years to keep tabs on the activities of these partners: ■ formal delegations of authority are issued describing the respective responsibilities in the execution of administrative transactions; these documents are updated regularly to take into account regulatory changes and actual experience. The delegations of authority are subject to regular controls; ■ indicators are increasingly closely monitored in partnership with the Management Accounting and Actuarial Analysis departments to track marketing activity, portfolio profitability, asset-liability matches for the various plans, etc.; ■ diagnostics testing underpins the advice provided by CNP Assurances to business partners or service providers in the areas of marketing, operations and investments.
This section deals with a number of key processes for managing recurring risks.
Investment strategies based on asset-liability management analyses are reviewed on a quarterly or monthly basis (for the largest portfolios) in light of market conditions. This approach enables us to control our exposure to risks as well as our policyholder dividend policy.
CNP Assurances also avails itself of an information system on investment securities, which facilitates the control of financial flows (buying, selling, coupons and various entitlements) and securities positions (reconciliations, variance analysis, adjustments, etc.) as well as monitoring the equity and earnings exposure to market fluctuations in the context of IFRS. Lastly, this information system helps check compliance with investment strategies and exposure limits by issuer.
Transactions using financial futures must comply with the risk-hedging strategies approved annually by the Board of Directors. Derivatives positions are managed and valued by a dedicated unit using market-renowned software.
CNP Assurances operates a stringent recruitment policy in keeping with its business model. Various types of expertise are required while hiring needs to reflect changes affecting the insurance industry. Age distribution is well balanced and staff come from a variety of social backgrounds. One aspect of our HR policy is the integration of sophisticated skills in the fields of finance, accounting and actuarial analysis.
To make sure that staff skills and expertise are always at the forefront of the industry, CNP Assurances has developed a personalised training policy in terms of both content and method. E-learning has been part of this policy for the past three years.
The advances made in recent years have mainly concerned controls over data backup, security and protection, as well as information system uptime and transaction processing reliability. They include the following: Protection of data following a major incident and information systems reliability
All production data are backed up daily and stored at a secure off-site location. Another arrangement has been put into place in conjunction with a financial institution for secure off-site storage in a third location. Business-critical computer hardware and infrastructure (CPU servers and disks, programmes, etc.) are backed by redundant systems and linked to auxiliary power supplies.
In the coming years, priority will continue to be given to industrialising and continually enhancing the reliability of information systems. We continue to run projects to obtain certification of IT development and operations processes.
As well as these first-tier controls, special Board committees (Strategy Committee, Audit Committee and Internal Control Committee) provide second-tier controls, helping in the preparation of subsidiaries’ Board meetings.
Targets are managed based on two clear processes to closely monitor changes in the subsidiaries’ businesses, their business models (which determine their profitability) and their sources of value creation (such as changes in product mix, optimised business processes and investment projects): (i) strategic planning (implemented annually over the past five years) and (ii) performance monitoring.
The main statutory accounting risks concern the accuracy, completeness and fairness of accounting data, and compliance with regulatory deadlines for the publication of financial statements.
2.5 Proposed improvements In the coming years, we aim to expand projects for the deployment of new risk-screening and management tools ahead of Solvency II and continue our overhaul of Groupwide financial reporting.
I also want CNP Assurances to continue working with business partners to manage product marketing risks more effectively, particularly disclosure and advisory obligations in regard to prospective policyholders, and to track client satisfaction. I intend to closely monitor the quality certification drive initiated for management and IT processes, as well as strategies to enhance two-way communication between the Company, its partners and its policyholders.
CNP Assurances has shown that it can weather major risks. However, in today’s post-crisis conditions, laden with risk for all operators in the banking and insurance sectors, I will continue to ensure that CNP Assurances pursues stringent and conservative investment policies to maintain the Group’s solidity and financial flexibility.
I believe that over the coming year, it will be crucial to build on the measures already taken to develop and appraise forecasting tools and indicators for measuring and tracking impacts relating to the financial and economic environment. This will help us remain proactive amidst the current turbulence and to spot not only threats, but opportunities as well.
CorPorate governanCe and internal Control 2 governance 2.2. governanCe 2.2.1 Ilcorporate governance A key aspect of corporate governance is the implementation of guidelines aimed at ensuring the development and efficient functioning of the Company and its various structures.
The CNP Assurances Board of Directors, composed of eighteen directors and three non-voting directors, has chosen to separate the positions of Chairman and Chief Executive Officer. The Board elects a Chief Executive Officer from among its members and defines the decisions that the Chief Executive Officer can take, which must be approved by the Board.
The Board of Directors reflects the Company’s ownership structure, which primarily comprises two major shareholders. For the Company, the presence of reference shareholders, who were fully involved in defining the Group’s strategy, ensures that the interests of all CNP Assurances shareholders are taken into account and preserved. In this context, the Chairman ensures that governance is well balanced among the shareholders and that the Company’s governance structures function efficiently. It is the Chairman’s responsibility to organise and lead the work of the Board and to coordinate the work of its different committees. The Chairman of the Board of Directors is also the Chairman of the Strategy Committee and a member of the Remunerations & Nominations Committee.
Faced with the continuing global financial and economic crisis, in 2009 one of the Board of Directors’ committees, the Audit Committee, played its role of watchdog by examining the level of the Company’s exposure to the risks related to the financial crisis at each of its meetings.
This assistance includes following up issues relating to the preparation and control of accounting and financial information. The committee also assesses the efficiency of internal control and risk management systems. Finally, it is responsible for coordinating the efforts made by internal and external auditors to perform their assignments.
The Strategy Committee, which was set up by the Board on 10 July 2007 alongside the existing Audit Committee and Remunerations & Nominations Committee, examined CNP Assurances’ main national and international business development matters and projects and made a number of recommendations in keeping with the Group’s conservative approach.
Additional information regarding the functioning of the Board of Directors and its committees, as well as the preparation and organisation of their work in 2009 is also provided in the Report of the Chairman of the Board of Directors.
Following his appointment, the Chief Executive Officer set up an Executive Committee, comprising the Company’s four Deputy Chief Executive Officers, to carry out the Group’s operational management and implement the strategy decided by the Board of Directors.
The committee meets once a week on average. As well as acting in a strategic planning role, it coordinates and shares Group-level initiatives and monitors cross-functional projects. It combines a very broad range of managerial and operational skills within an internal structure.
Within this context, the Chief Executive Officer has full powers to act in the interests of the Company, within the limits of the corporate purpose and the annual budget set by the Board of Directors, except for a certain number of strategic operations which have to be reviewed by the Board of Directors before any decision is made.
■ Issue, on one or several occasions, bonds or similar securities for a maximum of €1.5 billion placed in France or on an international market. The securities issued under this authorisation may be dated or undated and subordinated or unsubordinated, and may pay interest at a fixed or variable rate (or any other form of remuneration). Any other debt securities or instruments of any kind may also be issued.
Details of the remuneration of corporate officers (Chairman, Chief Executive Officer, directors) are provided in section 2.4 “Remuneration”, in accordance with AMF recommendations and the AFEP-MEDEF Code.
The remuneration allocated by CNP Assurances to the Deputy Chief Executive Officers in relation with their employment contracts includes fixed and variable components, benefits in kind consisting of a company car, and for one of them, an additional employer’s contribution by CNP Assurances to a contract encouraging employees to take out individual death and disability insurance (EPI, a collective insurance policy entered into in favour of all the Company’s employees). In addition to the total amount of remuneration, an amount is paid in the form of a bonus to one of the Deputy Chief Executive Officers while holiday indemnities are paid to two of them.
Total fixed remuneration for the four Deputy Chief Executive Officers 1,191,367.56 1,191,367.56
Benefits in kind for the Deputy Chief Executive Officers (company car) 15,263.16 14,546.94
Miscellaneous (holiday indemnities, EPI, bonus) 76,465.05 89,916.82 totAl REmUNERAtIoN – dEPUty ChIEf ExECUtIvE offICERS 1,993,969.77 2,010,992.32
Giving an average remuneration per Deputy CEO of: 498,492.44 502,748.08 totAl REmUNERAtIoN – ExECUtIvE CommIttEE (CEo + dEPUty CEos) 2,911,199.64 2,954,412.81
StAtEmENt oN CoNvICtIoNS, bANkRUPtCIES, CoNflICtS of INtERESt ANd othER dISCloSURES CoNCERNINg CoRPoRAtE offICERS
None of the members of the Board of Directors or Executive Management has been associated with any bankruptcy, receivership or liquidation acting as member of an administrative, management or supervisory body or as Chief Executive Officer.
service contracts None of the members of the Board of Directors or Executive Management is linked by a service contract with CNP Assurances or any of its subsidiaries.
Conflicts of interest To the best of the Company’s knowledge and at the date of the publication of this document, there are no potential conflicts of interest between the duties of members of the Board of Directors or Executive Management and CNP Assurances, in the capacity as corporate officer, and their private interests and/or other duties. To the best of the Company’s knowledge and at the date of the publication of this document, no arrangements or agreements have been entered into with the main shareholders, customers or supplier providing for the appointment of a member of the Board of Directors or Executive Management. To the best of the Company’s knowledge and at the date of the publication of this document, with the exception of the issue noted in the section “Shareholders’ Agreement”, no restrictions have been accepted by the members of the Board of Directors or Executive Management concerning the sale of their interests in the Company’s capital.
CorPorate governanCe and internal Control2 corporate governance structures 2.3. CorPorate governanCe struCtures 2.3.1 Ilcorporate governance structures ComPoSItIoN of thE boARd of dIRECtoRS, lISt of tERmS of offICE ANd fUNCtIoNS of thE mEmbERS of thE boARd of dIRECtoRS*
Business address: CNP Assurances, 4 Place Raoul Dautry, 75015 Paris, France.
A member of the Supervisory Board of Caisse des dépôts et consignations from 1988 to 1993 and Chairman of the Commission Supérieure of Caisse Nationale de Prévoyance from 1988 to 1992, he was Chairman of the Supervisory Board of CNP Assurances from 1992 to 1993.
Law degree, graduate of Institut d’études politiques de Paris and École nationale d’administration.
Gilles Benoist began his career with the French Ministry of the Interior, where he helped draft the first decentralisation legislation, before becoming principal private secretary to the Minister of the Economy and Finance in 1981.
CNP Assurances shares and CNP mutual fund units held as of 31 December 2009: 2,741 and 84 respectively.
■ CNP UniCredit Vita (formerly CNP Capitalia Vita) (Italy), Director and member of the Remunerations & Nominations Committee.
■ CNP Caution (SA), representative of CNP Assurances on the Board of Directors.
■ Société Civile Immobilière l’Amiral (SCI), representative of CNP Assurances, legal manager.
■ Société Civile Immobilière de la CNP (SCI), representative of CNP Assurances, legal manager.
■ Société Immobilière de Construction et d’Acquisition de la CNP – Sicac (SCI), representative of CNP Assurances, legal manager.
■ Caisse des dépôts, member of the Group Management (since 2003).
■ Suez Environnement Company (SA), Director and member of the Strategy Committee.
■ Dexia (Belgium), Director, member of the Strategy Committee and of the Remunerations & Nominations Committee.
■ Fonds stratégique d’investissement - FSI (SA), Chairman of the Board of Directors.
■ Icade (SA), representative of Caisse des dépôts et consignations, Director.
■ Caisse des dépôts et consignations, member of the Group Management Committee.
■ Compagnie Nationale du Rhône (CNR) (SA), member of the Supervisory Board (term expired 1 September 2007).
Post-graduate degree in economics, graduate of HEC, Institut d’études politiques de Paris and École nationale d’administration.
After serving on the Supervisory Board of CNP Assurances since 4 April 2006, André Laurent Michelson was elected to the Board of Directors by the General Meeting of 10 July 2007. His current term expires at the Annual General Meeting to be called in 2012 to approve the 2011 financial statements.
■ Caisse des dépôts et consignations, Director of Finance and Strategy of Caisse des dépôts, member of the Caisse des dépôts and Group Management Committees.
■ CDC Entreprises Capital Investissement (SA), Chairman and Chief Executive Officer, Director (term expired 21 December 2009).
■ CDC Infrastructure (SA), Chairman of the Board of Directors, Director.
■ Compagnie des Alpes (SA), Director (previously member of the Supervisory Board until 19 March 2009), member of the Strategy Committee and of the Remunerations & Nominations Committee.
■ Compagnie Nationale du Rhône (SA), representative of Caisse des dépôts on the Supervisory Board.
■ Dexia (SA) (Belgium), member of the Board of Directors (term expired November 2009).
■ Réseau Ferré de France (EPIC), member of the Board of Directors (term expired 31 March 2008).
Business address: Compagnie des Alpes, 89 rue Escudier, 92772 Boulogne Billancourt, France.
After serving on the Supervisory Board of CNP Assurances since 25 April 2007, Franck Silvent was elected to the Board of Directors by the General Meeting of 10 July 2007. His current term expires at the Annual General Meeting to be called in 2012 to approve the 2011 financial statements.
■ Compagnie des Alpes (SA), Deputy Managing Director, Director of Finances, Strategy and Support Services.
■ Belpark BV (Belgium), representative of Compagnie des Alpes, Director (term expired 20 January 2009).
■ Domaine Skiable de Flaine – DSF (SA), member of the Supervisory Board (term expired 2 October 2009).
■ Domaine Skiable du Giffre – DSG (SA), member of the Supervisory Board (term expired 2 October 2009).
■ Premier Financial Services – PFS (Belgium), Director (term expired 20 January 2009).
■ CDC DIGMBH, representative of CDC, Director (term expired 23 December 2004).
■ CDC Holding Finance (SA), representative of CDC, Director and Chief Executive Officer.
■ CDC Ixis Asset Management Holding (SA), member of the Supervisory Board from 1 March 2004 to 23 December 2004.
■ CDC Ixis Investor Services, Director (term expired 12 January 2005).
■ CDC Ixis Italia Holding, representative of CDC on the Supervisory Board from 28 March 2003 to 28 July 2004.
■ Galaxy Fund Management, representative of CDC, Director (term expired 1 March 2004).
■ Caisse des dépôts group, Deputy Director, Finance and Strategy (from 2002 to 2005).
■ Liberté et Solidarité (SICAV), representative of CDC, Director (term expired 1 March 2004).
■ Société Nationale Immobilière (SNI) (SAEM), member of the Supervisory Board, Chairman of the Audit Committee (term expired 10 June 2006).
■ Sogeposte (renamed La Banque Postale Asset Management (SA)), member of the Supervisory Board from 15 October 2003 to 23 December 2004.
After serving as Vice-Chairman of the Supervisory Board of CNP Assurances since November 2002, Jean-Paul Bailly was elected to the Board of Directors by the General Meeting of 10 July 2007. His current term expires at the Annual General Meeting to be called in 2012 to approve the 2011 financial statements.
He is also a member of the Remunerations & Nominations Committee.
■ GDF Suez, representative of the French State, Director and member of the Ethics, Environment and Sustainable Development Committee.
■ La Banque Postale (SA), Chairman of the Supervisory Board and member of the Nominations & Remunerations Committee.
■ La Banque Postale Asset Management (SA), member of the Supervisory Committee.
■ Groupement des Commerçants du CCR Grand Var (GIE), representative of La Poste, member (term expired 2006).
■ SF2 (SA), representative of La Banque Postale, Director (term expired 11 April 2008).
Graduate of HEC, Institut d’études politiques de Paris and École nationale d’administration.
François Pérol was elected to the Board of Directors by the General Meeting of 21 April 2009 to fill the seat left vacant by the resignation of Charles Milhaud. His current term expires at the Annual General Meeting to be called in 2014 to approve the 2013 financial statements.
■ BFBP (Banque Fédérale des Banques Populaires), Chief Executive Officer (term expired 31 July 2009).
CNP Assurances shares held by Marc-André Feffer as of 31 December 2009: 100.
■ La Poste (EPIC), Deputy Managing Director responsible for Strategy and Innovation, International Development, Regulation, Legal Affairs and Information Systems.
Alain Lemaire was elected to the Board of Directors by the General Meeting of 21 April 2009 to fill the seat left vacant by the resignation of Nicolas Mérindol. His current term expires at the Annual General Meeting to be called in 2012 to approve the 2011 financial statements.
He is also a member of the Audit and Strategy Committees.
■ BPCE (SA), member of the Executive Board, Chief Executive Officer (part of the Caisses d’Epargne network).
■ Banque Privée 1818 (previously La compagnie 1818- Banque Privée) (SA), member of the Supervisory Board.
■ Caisse Nationale des Caisses d’Epargne (CNCE) (SA), member of the Executive Board, Chief Executive Officer (term expired 31 July 2009).
■ Crédit Foncier de France (SA), Director (previously Chairman of the Board of Directors).
■ Natixis Asset Management (SA), Chairman of the Board of Directors.
■ Banque de La Réunion (SA), representative of CEPAC, Director (term expired 2008).
■ Banque des Antilles Françaises (SA), representative of CEPAC, Director (term expired 2008).
■ Caisse Nationale des Caisses d’Epargne (CNCE) (SA), member of the Supervisory Board and Chairman of the Audit Committee (term expired 19 October 2008).
■ Financière Océor (SA), representative of CEPAC, member of the Supervisory Board (term expired 2008).
■ Proxipaca Finance (SAS), member of the Management Board (term expired 2008).
■ SCF Py & Rotja (non-trading forestry company), legal manager (term expired 2008).
■ Viveris Management (SAS), Chairman of the Supervisory Board (term expired 2008).
Business address: La Banque Postale, 115 rue de Sèvres, 75275 Paris Cedex 06, France.
■ Fonds de Garantie des Dépôts, member of the Supervisory Board, member of the Audit Committee.
■ La Banque Postale Asset Management (SA), Chairman of the Supervisory Board.
■ La Banque Postale Prévoyance (SA), Chairman of the Board of Directors.
■ Efiposte (SA), Chairman of the Board of Directors (term expired 16 December 2005).
Business address: DGTPE, 139 rue de Bercy, 75572 Paris Cedex 12, France.
■ Sanctions Commission of the Autorité des Marchés Financiers (AMF), French Government’s representative.
■ UGRC (Union Générale de Retraite des Cadres), Director (since 18 November 2009).
Business address: HFSB, 2nd floor, 167 Fleet Street, London EC4A 2EA, United Kingdom.
■ Goldman Sachs International, Vice-Chairman Managing Director (term expired in April 2008).
■ Scor Vie (SA) (renamed Scor Global Life SE in 2007), Director (term expired in 2007).
He is a member of the Strategy Committee and Chairman of the Remunerations & Nominations Committee.
■ Dalkia (SAS), member of the A and B Supervisory Boards.
■ Natixis (SA), Director (since 30 April 2009, formerly member of the Supervisory Board until 30 April 2009).
■ Caisse Nationale des Caisses d’Epargne (CNCE) (SA), nonvoting Director (term expired 31 July 2009).
■ Campus Veolia Environnement (SAS), Chairman (term expired 27 November 2009).
■ EOLFI (SA), Chairman of the Supervisory Board (from 6 April 2009 to 27 November 2009).
■ Société des Eaux de Marseille (SA), Director (term expired 27 November 2009).
■ Veolia Env. Serv. Australia (Australia), Director (term expired 19 October 2009).
■ Veolia Env. Serv. North America Corp. (USA), Director (term expired 19 October 2009).
■ CEO (SCA), member of the Supervisory Board (term expired June 2004).
■ Connex Transport UK (United Kingdom), Director (term expired April 2004).
■ Wasco (previously US Filter, USA), Director (term expired September 2004).
After serving on the Supervisory Board of CNP Assurances since September 2002, Jacques Hornez was elected as a non-voting member of the Board of Directors by the General Meeting of 10 July 2007. His current term expires at the Annual General Meeting to be called in 2012 to approve the 2011 financial statements.
■ Union Nationale de la Réassurance de la Mutualité Française (UNRMF), Director.
After serving as a non-voting member of the Supervisory Board of CNP Assurances since 19 September 1998, JeanLouis de Mourgues was elected as a non-voting member of the Board of Directors by the General Meeting of 10 July 2007. His current term expires at the Annual General Meeting to be called in 2012 to approve the 2011 financial statements.
■ AGICAM (previously AG2R Gestion d’actifs) (SA), Chairman of the Supervisory Board.
■ La Mondiale (SA), Chairman of the Board of Directors (term expired 20 February 2008).
■ Natexis Obli Premiere (SICAV), Chairman of the Board of Directors (term expired September 2008).
Graduate of Luigi Bocconi University (Milan, 1966), Master of Science, Massachusetts Institute of Technology
Business address: Promontory Financial Group France SAS, 27 Avenue de l’Opéra, 75001 Paris, France.
Paul Le Bihan was appointed by the Board as a non-voting Director by the General Meeting on 21 April 2009 to replace Bernard Comolet after his resignation. His current term expires at the Annual General Meeting to be called in 2012 to approve the 2011 financial statements.
■ GCE Assurances Production Services (SAS), member of the Supervisory Board.
Previously, Tommaso Padoa-Schioppa held the following positions, among others, member of the Executive Board of the European Central Bank (1998-2005), Chairman of the IASC Foundation – International Accounting Standard Committee – (2005-2006) and Chairman of the International Monetary and Financial Committee (IMFC).
He was also Director-General for Economy and Financial Affairs of the European Commission where he played a decisive role in the creation of the euro, and Chairman of the Commissione Nazionale per le Società e la Borsa.
In order to improve clarity and comparability, CNP Assurances uses the standardised format recommended by AFEP-MEDEF and the AMF for the disclosure of information concerning the remuneration of executive corporate officers.
■ remuNerATioN (Gross) PAyAble ANd sToCk oPTioNs ANd shAres GrANTed To eACh exeCuTive CorPorATe oFFiCer (In €)
Remuneration payable for the year (see breakdown in Table 2) 454,619 450,243
Remuneration payable for the year (see breakdown in Table 2) 1,027,943 1,026,823
Benefits in kind None None None None gilles benoist, Chief Executive officer
Salary 580,000 (of which 380,000 as an employee and 200,000 as a corporate officer)
580,000 (of which 380,000 as an employee and 200,000 as a corporate officer)
(2) The “Paid” columns show the total remuneration paid to each executive corporate officer for the duties performed for each of the periods. (3) Some companies pay directors’ fees for the current year (Y) in Y+1, whereas other companies make the payment in full in the current year. This explains the difference between the amount due and the amount actually paid, which may sometimes be slightly higher.
The directors’ fees “Paid” in 2008 correspond to the amounts received from: ■■ CNP Assurances (€52,500 of which €27,400 for 2007 and €25,100 for the first half of 2008); ■■ Subsidiaries Caixa Seguros (€15,596) and CNP UniCredit Vita (€5,781).
The directors’ fees “Paid” in 2009 (€81,897) correspond to the amounts received from: ■■ CNP Assurances (€52,500 of which €28,150 for the second half of 2008 and €24,350 for the first half of 2009); ■■ Subsidiaries Caixa Seguros (€18,397) and CNP UniCredit Vita (€11,000).
The directors’ fees “Paid” in 2008 correspond to the amounts received from: ■■ CNP Assurances (€34,200 of which €15,200 for 2007 and €19,000 for the first half of 2008); ■■ Subsidiaries Caixa Seguros (€15,596), CNP UniCredit Vita (€5,781) and Dexia (€32,598).
The directors’ fees “Payable” in 2009 (€117,602) correspond to the amounts granted based on decisions taken by the governing bodies of: ■■ CNP Assurances (€26,600 of which €15,200 paid in 2009 for the first half of 2009 and €11,400 to be paid in 2010, for the second half of 2009); ■■ Subsidiaries Caixa Seguros (€18,397), CNP UniCredit Vita (€7,680), Dexia (€29,815) and Suez Environnement Cie (€35,110).
Xavier Musca (the French State) 19,000 3,800 – – French Treasury
Ramon Fernandez (the French State) – – – 3,800 French Treasury
Paul Le Bihan (non-voting Director) – – – 15,200 Paul Le Bihan
Additional information on directors’ fees The total fees awarded to the Board of Directors by the Annual General Meeting of 21 April 2009 (for 2008 and subsequent years) amount to €721,650. Based on the recommendations of the Remunerations & Nominations Committee and the notifications received by the Company, 2009 directors’ fees were allocated as follows: the fee per Board meeting was set at €3,800 and the fee per meeting of the committees of the Board (Audit Committee and Remunerations & Nominations Committee) at €3,050.
Beginning in 2008, the Board of Directors’ meeting held on 18 December 2007 decided to pay directors’ fees for each half year as follows: the first payment is for the Board and the committee meetings held during the first half of the year and is made at the end of the first half; the second payment is for meetings held during the second half of the year and is made at the beginning of the following year.
valuation of stock options based on the method used for the consolidated financial statements
Not applicable Not applicable Not applicable Not applicable None Not applicable Not applicable tAblE 5*
Number of shares granted during the year valuation of shares based on the method used for the consolidated financial statements vesting date Availability date
Not applicable Not applicable None Not applicable Not applicable Not applicable
■ PerFormANCe shAres ThAT beCAme AvAilAble duriNG The yeAr For eACh exeCuTive CorPorATe oFFiCer
Information on stock options Agm date 1st Plan 2nd Plan 3rd Plan
ten employees (other than corporate officers) having received the greatest number of stock options and number of options exercised total number of stock options granted/ exercised
Edmond Alphandéry Chairman of the Board of Directors Appointed with effect from: 10 July 2007 Term of office expires: 2012 AGM to approve the 2011 financial statements X X X X
Gilles Benoist Chief Executive Officer Appointed with effect from: 10 July 2007 Term of office expires: 2012 AGM to approve the 2011 financial statements X X X X
In accordance with AMF recommendations dated 22 December 2009 on remuneration of senior executives and in compliance with Article 5-1 of French decree 2009-348 of 30 March 2009, it is specified that Gilles Benoist is both an employee and a corporate officer. The CNP Assurances Board of Directors decided that this situation must be regulated at the latest upon the renewal of his term of office as Chief Executive Officer which expires at the close of the Annual General Meeting held to approve the financial statements for 2011.
supplementary pension provisions theoretical gross annual benefit under the supplementary pension plan (in €)
Under the plan terms, the benefits vest when the individual retires, provided that he or she is still employed by the Group at that date.
The reference remuneration is the average gross annual remuneration (salary and variable bonus, excluding all other forms of remuneration) for the individual’s last three years of service with the CNP Assurances Group, up to €321,840.
The plan is funded by CNP Assurances, without any contributions from plan participants.
The plan came into effect on 1 January 2006. The theoretical gross annual benefit entitlement of each corporate officer is presented in the above table “Supplementary pension provisions”.
extract from the employment contract “The termination benefit, which will replace the severance pay or forced retirement benefit provided for in the collective bargaining agreement, where applicable, will correspond to the sum of: ■ the severance pay provided for in the collective bargaining agreement (in the case of either termination or forced
Remuneration retirement), calculated based on Gilles Benoist’s period of service with the Group since 1 October 1987; ■ an additional benefit equal to the difference between Gilles Benoist’s net remuneration* for the 12 months preceding the contract termination date (“the reference period“) and the annual net remuneration (including bonuses) for the grade at which he returns to the civil service.
The theoretical amount of the termination benefit – calculated based on an assumed departure date of 31 December of the year ended and corresponding to the benefits payable under the collective bargaining agreement and the provisions of the French Labour Code (Code du travail) – is presented in the above table “Termination benefits”.
Measurement of changes in EBIT: “Changes in EBIT will be calculated by the Board of Directors by comparing the EBIT for the last financial year prior to the date of notification of termination of Gilles Benoist’s contract (hereafter “EBIT for the last period”) and the average EBIT for the two accounting periods preceding the financial year in respect of which EBIT for the last period was calculated (hereafter “EBIT for the reference period”).
If EBIT for the last period is greater than or equal to EBIT for the reference period, the performance condition, assessed as of the date of notification of termination of Gilles Benoist’s contract, shall be deemed to be fulfilled.
Measurement of changes in market trends: However, if EBIT for the last period is less than EBIT for the reference period, the Board of Directors will assess the change in the market using the average recurring profit before unrealised capital gains for bancassurance companies similar to CNP Assurances.
retirement benefits If the Chief Executive Officer retires at 65 after completing at least five years’ service, he will be entitled to an ex gratia payment equal to 3/12ths of this last gross annual salary plus 1/120th of such salary per year of service up to ten years and 2/120ths per year of service thereafter. The reference gross salary includes bonuses and other salary-related payments.
* The net remuneration for the reference period will include all salaries, bonuses and allowances paid to Gilles Benoist during that period under his employment contract, but will exclude the termination benefit, accrued vacation pay, expense reimbursements, if any, and any amounts accruing to him under the statutory and/or discretionary profit-sharing plans, stock option plans or share grant plans.
internal control framework Our system of internal control is based on the integrated framework published by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). It comprises five interrelated components: ■ an efficient control environment, based on a clear, formal definition of roles and responsibilities; ■ regular risk assessment and monitoring; ■ control activities that serve to reduce risks; ■ regular pertinent and reliable information and communication; ■ monitoring of internal control by the management and oversight bodies.
scope of the internal control system ■ The internal control system covers: ■ CNP Assurances and its directly and indirectly-controlled subsidiaries,
■ It addresses all material financial, insurance and operational risks incurred by the Group.
First-tier controls are performed by line personnel, who are responsible for ensuring that the necessary controls are in place to manage the risks associated with their activities and for constantly monitoring the legality, security and validity of all transactions carried out in the course of their work.
2/ The Risk Management & Solvency department was created in January 2010, and is tasked with overseeing financial and technical risks at Group level, as well as: (i) calculating solvency, (ii) assessing a consolidated approach to risk profiling, and (iii) designing the internal model for solvency calculation. As such, this department corresponds to the Chief Risk Officer function provided for in Solvency II.
Third-tier controls are performed by the Internal Audit department, reporting directly to the Chief Executive Officer.
In addition, ad hoc internal control bodies supervise the monitoring of the quality and effectiveness of the internal control system within CNP Assurances.
CNP Assurances’ risk management system is based on i) documented key risk management procedures; and ii) regular assessment of the risks inherent in key business processes.
CNP Assurances has always strived to ensure that its financial and insurance risk management procedures, exposure limits and decision-making processes are clear and unambiguous.
The various components of the system are updated on an as-needed basis and the system itself is regularly subject to a global review. One such review was carried out in 2008 and involved, notably, a comparison between CNP Assurances and market practices.
The operational basis of these financial and insurance risk management procedures is a key factor in effectively managing the risks concerned. We will come back to this point in a later section.
The CNP Assurances risk map was reviewed in 2009 and now includes 55 major processes. The scope of risk management supervisory procedures was also considerably extended. A total of 23 major processes (compared with 14 in 2008) are now assessed for risk on an ongoing basis.
This approach provides an extremely detailed view of risks, allowing us to perform an in-depth analysis of each risk that is found to be inadequately controlled. It therefore has significant operational benefits.
It is built on control and risk assessments and generates key improvement measures.
The key aspects of the procedure, in place since 2006, are as follows:
■ controls are assessed by the line personnel responsible for their execution or their direct superiors, and the assessments are validated by the line manager; ■ the assessment is based on a standard questionnaire.
Control assessment is only one part of the Company’s residual risk assessment.
The controls identified previously should cover inherent (or gross) risk exposure, which is the “spontaneous” risk exposure in the absence of any internal control system.
Improvement measures focus on shortcomings in “key” control procedures. Key controls are: ■ all controls relating to critical or high gross risks; ■ all controls covering at least four moderate gross risks.
Action plans designed to fix defective controls and enhance risk management are monitored especially closely by the Chief Executive Officer and the Executive Committee who report on this matter annually to the Chairman of the Board of Directors.
These management information systems: ■ roll down Group objectives to the level of the individual businesses; ■ track the progress made by each business in meeting these objectives, in order to allow corrective action to be taken on a timely basis; ■ analyse the components of profit and value creation.
The results of the detailed analyses are consolidated by type of risk according to a central scenario based on the assumption that conditions in the financial markets will remain stable and that the Group will hold onto its market shares. Alternative scenarios are also used to assess the sensitivity of earnings to changes in premium income, conditions on the financial markets and policyholder behaviour.
These contracts have been classified by decreasing level of commitment, as follows: ■ contracts offering a guaranteed rate of return and participation on maturity,
■ contracts offering a higher fixed rate of return (generally 75% of the average government bond rate (TME)) over a maximum of eight years,
■ contracts offering a guaranteed rate of return representing less than 60% of the TME rate at the time of payment.
organisation of the investment management function Each category of contracts is backed by asset portfolios that are managed according to a strategy closely tailored to the profile of the related liabilities.
The management strategy may be either specified in the general policy terms or agreed with the client or partner.
For each portfolio, an investment strategy is defined covering: ■ asset allocation; ■ the choice of maturities and any hedging instruments; ■ profit-taking policy.
The strategy is based primarily on asset-liability management results and includes analyses of future liquidity gaps and interest rate mismatches, as well as medium and long-term simulations of the portfolio’s sensitivity to differing trends in the financial markets.
It is communicated to the portfolio manager who is responsible for implementing it as effectively as possible, within the defined limits, by selecting securities and timing transactions based on market opportunities.
The equity portfolios comprise units in diversified funds invested in European and international equities, and direct investments in euro zone stocks.
The portfolios invested directly in equities are also highly diversified. Portfolio performance is tracked on a monthly basis, in particular by comparison with appropriate benchmarks.
risk of having to record a liquidity risk reserve The French Insurance Code requires insurers to set up a liquidity risk reserve if the aggregate market value of positions valued at the level of each regulatory portfolio in accordance with Article R.332.20 of the code is less than their carrying amount net of provisions for other-than-temporary impairment. This rule mainly applies to equities, mutual funds and property investments.
Credit risk Our credit risk management strategy consists of holding investment grade securities and diversifying bond portfolios to avoid concentrations of credit risks by issuer or geographic area.
The CNP Credit Risks Committee meets periodically to set exposure limits.
At 31 December 2009, 93% of the Group’s bond portfolio (excluding Brazil) was invested in bonds rated A to AAA by the leading rating agencies, including more than 44% rated AAA.
As a result, the portfolios’ exposure to currency risks is very limited. Less than 1% of the investments of the French companies in the Group are denominated in currencies other than the euro.
Asset-liability simulations are carried out using proprietary software that takes into account the specific characteristics of the life insurance business. They are based on a certain number of typical interest rate scenarios. In addition, a large number of scenarios are generated at random to measure the statistical dispersion of results (stochastic simulations).
exposure to a fall in interest rates The impact of a possible fall in interest rates on our ability to fulfil our commitments to policyholders is analysed at regular intervals.
This situation is the result of the following measures, implemented for a number of years: ■ application of general policy terms that limit the duration and level of yield guarantees; ■ extension and annuitisation at 0% of single premium policies with a guaranteed rate of return; ■ conservative approach to determining technical reserves for annuity products; ■ matching of interest rate commitments with fixed rate bonds that have an at least equivalent life.
CorPorate governanCe and internal Control 2 internal control and risk factors exposure to an increase in interest rates The risk associated with an increase in interest rates is closely monitored and this is a key focus of our asset-liability management.
risk of lawsuits being brought by the insured and their beneficiaries The number of new lawsuits concerning the interpretation of policy terms dropped 11% in 2009, while the number of outstanding lawsuits fell by 3% to 1,620 at the year-end. This was less than the corresponding fall in 2008 (5%) because the number of claims dismissed fell 12% year on year.
The courts rule in favour of the Group in the majority of cases, with the proportion of successful outcomes remaining fairly stable over time. The percentage of lawsuits won by CNP Assurances (or abandoned by the plaintiff) increases on appeal. In 2009, the proportion of suits won or abandoned at first instance remained the same as 2008, at 62%, however the proportion won on appeal before the district court dropped eight percentage points to 65%. Successful outcomes from the Supreme Court of Appeal (Cour de cassation) increased from 80% in 2008 to 92% in 2009, which is highly favourable.
This risk, which has already been discussed in previous reports and whose origins lie in a ruling handed down by the Supreme Court of Appeal in 2006 against insurers, appears to be becoming less marked.
The Supreme Court of Appeal has qualified its position in this regard, enabling companies to limit the risk of late cancellation. The Court ruled, for example, that it is no longer possible to cancel a policy that had ceased to exist as the result of a full surrender. Furthermore, the measures initiated in 2007 to close loopholes in existing policies were taken up again at the end of 2009. New regulations resulting from the law transposing certain EU directives affecting the insurance sector into French law (the “DDAC” law) have given a more secure legal framework to pre-contractual information, which should in theory eliminate the risk with respect to new business.
The two lawsuits filed with the Paris district court in 2007 regarding the participation feature under Group loan insurance contracts, are still pending.
However, in 2009, the court handed down the following two decisions regarding one of the lawsuits: ■ an order stripping the plaintiff of its application seeking communication of the appendices to the Group’s financial agreements. The court held that such a request assumed that the aim of such communication would be to protect a legally recognised right or to ensure that such right be legally recognised. The court ascertained that the production of the appendices to the Group’s financial agreements was not essential to determine if a policyholder has an individual participation right;
Existing procedures and controls are updated to keep pace with new regulations. Significant changes took place in 2009, following the publication of texts transposing the Third EU Money Laundering Directive. Notable among these changes is the fact that anti-money laundering measures must henceforth be carried out within the context of a “risk-based” approach, i.e., each company must draw up its own money laundering risk map, paying particular attention to the types of products, customer characteristics, distribution channels and payment methods. The ensuing procedures must be adapted to the various risks. CNP Assurances has drawn up its risk map and identified the changes to be made to its procedures, which are in the process of being overhauled.
Current regulations also require that permanent controls be stepped up. To do this, CNP Assurances has decided to implement a more powerful, more flexible and faster analysis tool to perform ex-post monitoring of transactions and clients. The first version of this tool should be operational by late 2010.
The process put in place to identify, measure and monitor risks (as described above) ensures that all potential risks are efficiently managed. It comprises a series of measures designed to reduce the probability of the risks occurring and attenuate their impact. These include two cross-functional measures: the insurance programme and the contingency plan.
The levels of cover and of self-insurance are determined according to the type of business, the size and the claims experience of the main Group entities. Insurance premiums for 2009 amounted to well over €2 million. The overall level of insurance cover is considered satisfactory.
Contingency plan A contingency plan has been drawn up, describing the immediate action to be taken in a crisis situation.The plan seeks to minimise the disruption to operations and continue to offer clients and partners an adequate level of service.
Its practicality and effectiveness are tested several times a year, through emergency drills conducted at our various facilities.
All staff were prevented from accessing the premises and no advance warning of the drill was given.
The risk of a flu pandemic was dealt with separately, by a special unit tasked with defining, coordinating and monitoring events in line with public health information. In 2009, the action plan devised by this unit focused on prevention and communication measures and on the definition and preparation of measures to be taken in the event of a pandemic occurring. Special initiatives were put in place that would allow a significant number of employees to work from home, under appropriate security conditions, if necessary.
CorPorate governanCe and internal Control2 statutory auditors’ report 2.6. statutory auditors’ rePort, PrePared in aCCordanCe with artiCle l.225-235 of the frenCh CommerCial Code on the rePort PrePared by the Chairman of the board of direCtors
■ to attest that the report sets out the other information required by Article L.225-37 of the French Commercial Code, it being specified that it is not our responsibility to assess the fairness of this information.
We conducted our work in accordance with professional standards applicable in France.
We attest that the Chairman’s report sets out the other information required by Article L.225-37 of the French Commercial Code.
CorPorate governanCe and internal Control2 statutory auditors’ special report on related-party agreements and commitments 2.7. statutory auditors’ sPeCial rePort on related-Party agreements and Commitments
In accordance with Article L.225-40 of the French Commercial Code (Code de Commerce) and Article R.322-7 of the French Insurance Code (Code des assurances), we were informed of the following agreements and commitments approved by the Board of Directors.
At its meeting on 30 July 2009, the Board of Directors authorised the amendment of Gilles Benoist’s employment contract in order to bring it into compliance with the Decree of 30 March 2009 regarding the remuneration conditions for managers of companies aided by the state or receiving state support because of the economic crisis, and of the managers of publicly owned
Moreover, in accordance with the Decree of 30 March 2009, the termination benefit shall be capped at 23.5 months of the total remuneration allocated in respect of the employment contract and corporate office.
The benefit shall be paid if: ■ the Group’s last published EBIT prior to the date of termination is higher than the average EBIT recorded in the two preceding calendar years, or if this condition is not fulfilled, the fall in profitability for the market as a whole – as measured based on average recurring profit before capital gains of the bancassurance sector – is greater than the decline in CNP Assurances’ results.
■ and if the productivity gain objectives set by the Board of Directors each year are met. The following ratios are used to measure gains: ■ operating expenses/net profit from insurance activities France,
■ cost of managing in-force business/net profit from insurance activities France,
The payment of variable remuneration pursuant to the corporate office shall also be subject to criteria relating to recurring income and productivity gains.
In 2009, the Chief Executive Officer’s variable remuneration amounted to: ■ €110 thousand in respect of his corporate office; and
2 AgREEmENtS ANd CommItmENtS AUthoRISEd IN PRIoR yEARS thAt REmAINEd IN foRCE dURINg thE yEAR
At its meeting on 20 December 2005, the Supervisory Board authorised the setting up of a group defined benefit plan providing for the payment of supplementary pension benefits to plan participants. At its meeting on 18 December 2007, the Board of Directors approved an amendment to the supplementary pension plan.
Under the plan terms, participating executives receive supplementary pension benefits in an amount ranging from 0.2% to 4.50% per year of service up to 15 years.
The agreement, which was authorised by the CNP Assurances Supervisory Board on 20 March 2000, sets out the methods to be used to share management expenses and to determine the remuneration to be received by each partner, based on their respective tasks and the level of underwriting profit on the business.
Dexia CLF has given CNP Assurances a call option allowing CNP Assurances to acquire a blocking minority interest in Ifax, the parent company of the Dexia Sofaxis Group.
2.3 Capital contribution to ixis Asset management Group (since renamed Natixis Global Asset management Group [NGAm]) and signature of a shareholders’ agreement
■ a €50,936,122.14 receivable arising from the early redemption of Ixis Asset Management convertible bonds held by CNP Assurances.
The transactions led to the signature of a shareholders’ agreement, on 16 November 2004, between CNP Assurances and Caisse Nationale des Caisses d’Epargne, in the presence of Ixis Asset Management Group (since renamed NGAM).
In 2005, CNP Assurances exercised its call option and raised its interest in Ixis Asset Management to 20%.
At its meetings held on 12 and 18 December 2007, the Board of Directors authorised the signature of an addendum to the memorandum of understanding regarding CNP Assurances’ interest in NGAM, which the Board of Directors extended to 21 December 2007 on its expiry date of 17 December 2007.
The agreement provides for four exercise periods and three cases in which the option may be exercised early. It also describes the practical procedures, including the method for determining the exercise price. The last exercise period will end on 17 December 2011.
At its meetings of 4 March 2008 and 21 October 2008, the Board of Directors authorised Gilles Benoist, in his capacity as legal representative of CNP Assurances, to enter into and sign a shareholders’ agreement and an amendment to this agreement relating to Suez Environnment.
This shareholders’ agreement, which CNP Assurances signed on 5 June 2008, falls within the framework of the Suez Group’s restructuring and the creation of its subsidiary, Suez Environnement. The main purpose of this agreement is to ensure a stable shareholder base to enable the Company to implement its strategic development project.
The purpose of the addendum to the shareholders’ agreement is to simplify the decision-making and management process of the Suez Environnement Group.
2.5 Asset management contract with la banque Postale Asset management (previously named sogéposte)
On 4 April 2006, the Supervisory Board authorised an asset management contract with Sogéposte (renamed La Banque Postale Asset Management), an asset management company licenced by the French securities regulator (AMF) and a subsidiary of La Banque Postale. This contract, the terms of which are the same as for the contract with Ixis Asset Management in relation to pricing and operational integration, assigns to Sogéposte the management of an asset portfolio of Assurposte (renamed La Banque Postale Prévoyance), a subsidiary owned jointly with La Banque Postale, and a portfolio of Préviposte, a subsidiary. These portfolios represent a total of €3 billion.
Natixis AM receives a fee for its financial management services, determined as follows: ■ a fixed annual fee per portfolio (except for portfolios invested exclusively in mutual funds); ■ a variable fee calculated at a declining rate based on the value of assets under management, with different rates applying according to the type of securities held.
CorPorate governanCe and internal Control2 statutory auditors’ special report on related-party agreements and commitments
Pursuant to the asset management agreement of 11 November 1998, AEW Europe was responsible for managing real estate assets and real estate companies initially held by Ecureuil vie. On 31 December 2006, Ecureuil Vie announced its intention to terminate this agreement which was first extended to 30 June 2008 and then replaced by the framework agreement signed on 11 July 2008. Pursuant to this agreement, AEW Europe is responsible for managing the real estate portfolio set out in the agreement and providing assistance and advice for the definition and implementation of the strategy of investing in and managing new assets as well as assets and interests that were owned by Ecureuil Vie and are now held by CNP Assurances.
In 2009, fees paid by CNP Assurances to AEW for these services amounted to €5 million.
2.8 extension of the master partnership agreement between CNP Assurances and Groupe Caisse d’epargne
The remuneration received by Groupe Caisse d’Epargne as distributor corresponds mainly to a share of the premium and asset loading and the management fees charged on financial products.
The amount paid by CNP Assurances under the commission agreement between CNP Assurances and Groupe Caisse d’Epargne came to €547.4 million in 2009.
2.9 extension until 31 december 2015 of the master partnership agreement between CNP Assurances and la banque Postale
On 18 July 2006, the Supervisory Board authorised the extension until 31 December 2015 of the master partnership agreement between CNP Assurances and La Banque Postale. The agreement sets the terms and conditions of the cooperation of CNP Assurances and La Poste in the individual life insurance and savings market through La Banque Postale.
Fees paid by CNP Assurances pursuant to this agreement in 2009 amounted to €414.9 million.
CorPorate governanCe and internal Control 2 statutory auditors’ special report on related-party agreements and commitments 2.10 Agreement for the issue of perpetual subordinated notes between CNP Assurances and Caisse Nationale des Caisses d’epargne et de Prévoyance
Interest rate on the notes: 4.7825% until 2013 then Euribor +160 bps from 24 June 2013.
The interest expense recorded by CNP Assurances in 2009 amounted to €9.6 million.
Interest rate on the notes: 3-month Euribor +95 bps until 20 December 2026, and 3-month Euribor +195 bps thereafter.
2.13 sale of CNP Assurances’ interest in its subsidiary, CNP seguros de vida, to Caixa seguros and sale of most of CNP Assurances’ interests in Argentina to the brazilian holding company, CNP Assurances brasilia limitada
CorPorate governanCe and internal Control2 statutory auditors’ special report on related-party agreements and commitments 2.14 Acquisition of CNP uniCredit life
At its meeting on 16 December 2008, the Board of Directors authorised Gilles Benoist, in his capacity as Chief Executive Officer of CNP Assurances, to acquire CNP UniCredit Life.
A memorandum of understanding between CNP Assurances and UniCredit S.p.A was signed on 23 December 2008. Under this agreement, CNP UniCredit Vita, a subsidiary of CNP Assurances, agrees to sell CNP UniCredit Life to CNP Assurances for an amount of € 48 million.
On 12 January 2009 CNP Assurances was awarded the Diversity Label by a commission chaired by public authorities that includes both business and employee representatives. Seven companies were honoured with this award.
bANqUES PoPUlAIRES/CAISSES d’EPARgNE mERgER: tIES wIth CNP ASSURANCES to CoNtINUE UNChANgEd
On 24 February 2009, Caisse Nationale des Caisses d’Epargne (CNCE) informed the Company that CNCE had decided to transfer its indirect investment in CNP Assurances to the new central body of the merged Caisses d’Epargne and Banques Populaires groups.
On 25 June 2009, CNP Assurances and Barclays Bank PLC (Barclays) entered into a 25-year business alliance to develop their life insurance businesses via Barclays’ networks in Italy, Spain and Portugal.
Under the agreement, CNP Assurances paid Barclays upfront cash consideration of €140 million upon completion of the transaction. This amount is subject to a post-completion adjustment based on the value of BVP’s net assets at closing. In order to share out the value created on an equitable basis, the agreement also provides for a potentially significant earnout mechanism over 12 years based on the achievement of certain sales targets and margins and on the growth of the Barclays branch network.
The entire operation will be financed from internal resources and will not have a material impact on the Group’s solvency capital. The transaction is conditional on obtaining the necessary regulatory clearances.
2009 business and finanCial review 3 significant events of the year
At 31 december 2009 In € millions Spain Portugal Italy total
On 2 July 2009, CNP Assurances and MFP Services extended their partnership arrangement up to 31 December 2013, through their respective subsidiaries, MFPrévoyance SA and MFPrima. They also renewed their funding arrangement for the same period.
This range will include both existing policies as well as new policies to be designed in response to calls for tender put out by the various government agencies, either to replace or to round out the existing range of policies.
Rating agency Standard & Poor’s announced on 29 September 2009 that CNP Assurances’ rating was now AA- with a stable outlook, compared to the previous AA rating, with a negative outlook.
Following last year’s movement to a negative outlook, this change is the logical consequence of the decrease in the Company’s unrealised capital gains in connection with the financial crisis. These items influenced the results of Standard & Poor’s financial analysis.
Following the recent partnerships signed with Barclay’s Bank Plc in Italy, Spain and Portugal and with Marfin Popular Bank in Greece and Cyprus, this transaction refocuses CNP Assurances on its bancassurance core business.
This decision was made purely for asset management reasons and will have no impact on the operating relationship between the two companies. NGAM will continue to manage CNP Assurances’ life insurance assets generated by the Savings Banks network as well as other portfolios.
No material changes have occurred in the Group’s financial or commercial position since the reporting date.
2009 business and finanCial review 3 market and business review 3.2. market and business review 3.2.1. Ileconomic and financial environment In 2009, the leading developed countries recorded the greatest falls in GDP since World War II, ranging from 2.3% in France to 5.4% in Japan (2.5% in the United States, 4.7% in the United Kingdom and 4.8% in Germany). Emerging countries were also affected by the crisis, but to varying degrees; for example, the growth rate declined in China and flattened out in Korea and Brazil.
The crisis reached its climax in the first three months of 2009. After bottoming out in the second quarter, the advanced economies rebounded in the third, with the notable exceptions of Spain and the United Kingdom. However, the recovery came at the price of substantial budget deficits of 5% to 13% of GDP in the major economies as governments relied heavily on public financing to compensate the fall in private sector demand.
Businesses in advanced economies also benefited from measures designed primarily to lower their costs and contain the number of bankruptcies and redundancies, and to boost investment expenditure. Measures targeting companies’ cash flow, such as the accelerated refund of tax receivables and extended deadlines for tax payments, were aimed at relieving corporate financing difficulties. In Germany, costs were reduced by decreasing medical insurance contributions and by the State assuming part of the cost of temporary layoffs and shortened working time. In addition, most countries implemented tax deductions to promote business investment.
In order to ease tensions in the financial markets, governments intervened massively in support of financial institutions and the leading central banks slashed their benchmark rates. The American, Japanese and British central banks brought their base rates down to near-zero levels, leaving them with little or no room for further reductions. To further loosen monetary policy they resorted to other means, in particular direct purchases of debt securities.
The publication of encouraging macroeconomic data, offering the first signs of cyclical stabilisation, set the stage for a turnaround in global stock markets that began in midMarch. Investors’ willingness to venture back into risky markets continued to grow throughout the rest of the year. Climbing from its March low point of 2,465.46, the CAC 40 index ended the year at 3,936.33 points, representing a 22.3% rise year on year.
Like the vast majority of western countries, during the year under review France experienced its worst economic crisis since 1945. However, with a 2.3% decline in GDP, France held up better than most industrialised nations, thanks in particular to steady household consumption. Throughout the crisis, French consumers continued to spend, despite the rise in unemployment, the slowdown in wages and an all-time low in the consumer confidence index. Two key factors were behind this phenomenon.
During the year under review, French households shifted their investments in response to the fall in short-term interest rates and in the return on the Livret A savings account.
The Livret A interest rate fell from 2.50% in January 2009 to 1.75% in April 2009 and then to 1.25% in July 2009. The first half of 2009 was therefore a period of contrasting movements in Livret A savings levels. From January to April, it benefited from major inflows thanks to its extended availability and transfers from time deposits. However, from April 2009 the trend reversed as a consequence of the diminished return.
In 2009, inflows into time deposits, money-market funds and non-tax-exempt savings accounts fell significantly below 2008 levels, due to their low returns and the shift to Livret A savings accounts and life insurance products. Life insurance also benefited from savers’ hesitation to invest in stocks despite the rise in stock market indices.
3.2.2. IlBusiness review In 2009, premium income rose by 15.1% to €32.6 billion under IFRS or by 14.5% to €33.4 billion under French GAAP.
(1) The 6.3% decline is mainly attributable to a mutual insurer’s decision to in-source management of its death and disability contract, partly offset by a new reinsurance treaty.
Business increased in every operating region, with premium income gaining 4.9% in France, soaring 188.4% in Italy (97.8% under French GAAP) and rising 23.5% in Brazil.
The financial crisis led to a 30.6% drop in unit-linked sales, with a slightly more pronounced 51.3% decline in France.
Buoyed by structurally positive net new money, technical reserves rose by an average 6.1% in 2009, to end the year up 9.6% compared with 31 December 2008.
Unit-linked premium income ended 2009 down 51.3% yearon -year, with the result that unit-linked contracts accounted for just 4.6% of total savings and pensions premium income for the three main distribution networks. However, this portion improved sharply in the fourth quarter, rising to 8.3%.
la banque Postale 2009 was shaped by the successful launch of the Cachemire life insurance product and sustained strong premium income, at €11 billion for the year. This was down 6.3% from 2008, when La Banque Postale saw exceptional growth in a very depressed market. In the still uncertain economic environment, clients tended to prefer non-unit-linked products, although unit-linked demand picked up towards the year end. La Banque Postale Prévoyance went from strength to strength, crossing the two-million contract threshold.
Companies & local Authorities Business was underpinned by both personal risk products, thanks to several successful group policy launches, and pension products, lifted by supplementary pension institution (IRS) transfers. Because some of these IRS transfers qualified for treatment under IAS 39, premium income was lower under IFRS (down 7.6%) than under French GAAP (up 7.5%).
CNP Vita generated a solid €3.6 billion in new money, double the amount reported in 2008. Led by strong sales of the nonunit -linked Unigarantito product, this successful performance enabled the subsidiary to exceed its 2007 new money level.
In € millions In € millions % In € millions In € millions %
CNP Seguros de Vida (Argentina) (2) 7.9 6.3 +25.3 7.9 6.3 +25.3
(1) Excluding Cofidis outside France. (2) Average exchange rates. Argentina: €1 = ARS 5.37546 Brazil: €1 = BRL 2.81242
(1) Loan insurance in Italy comprises the Italian branches and Cofidis business in Italy. (2) Global, Global Vida and, under “Loan Insurance”, Cofidis Portugal and BVP Portugal. (3) Spanish branches, Cofidis Spain, CNP Vida and BVP Spain. (4) Cofidis Europe.
Financial review 3.3. finanCial review ll consolidated financial statements The consolidated financial statements have been prepared in accordance with the International Accounting Standards (IASs) and International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB), the recommendations of the French National Accounting Board (CNC 2005 R-01) concerning the presentation of the IFRS financial statements of insurance enterprises, and the guidelines contained in the reports of the CNC workgroups set up to examine the specific issues arising from the application of IFRSs by insurance enterprises (see notes to the consolidated financial statements).
EBIT and attributable recurring profit before capital gains are two key performance indicators used by the Group. They have the advantage of being unaffected by realised capital gains on equities and investment property attributable to shareholders or by fluctuations in the financial markets. Changes in these items are described hereafter.
Premium income advanced 15.1% on a reported basis and 14.2% like-for-like (see comments in section 3.2.2).
Acquisition costs, which include commissions and administrative expenses related to the acquisition of contracts, amounted to €3,048.3 million, a 2.4% increase compared with 2008. The increase was primarily driven by the €2,837 million in commissions paid to referral agents, a year-on-year increase limited to 2.4% thanks to the sharing of pricing efforts with referral agents in the interest of boosting premium income and future contracts.
At the level of technical accounting items, the 2008 financial statements benefited from provision reversals while in 2009 provisions were strengthened.
The year-on-year change in EBIT reflects the economic substance of these developments.
EBIT corresponds to operating profit before: ■ fair value adjustments to financial assets at fair value through profit (trading securities) net of realised gains and losses on this category of investments (corresponding for the most part to the realisation of fair value adjustments recognised in prior periods), after policyholder participation (representing €437.3 million in 2009, versus €882.3 million in 2008); ■ realised gains and losses on equities and investment property measured at fair value through equity (available-forsale financial assets), other-than-temporary impairments in value of these assets and recognised gains and losses on investment property. These items, which are considered as being stated net of policyholder participation, represented a positive €19.6 million in 2009 and a negative €404.7 million in 2008; ■ the €127.7 million impairment loss in 2009 on the value of the in-force business of the Italian subsidiary CNP Vita; ■ additional general provisions of €361.3 million included on the non-recurring line of the income statement.
EBIT, which decreased 25.8% from €2,368.7 million in 2008 to €1,756.3 million in 2009, included in the previous year the reversal of a temporary disability mathematical reserve (€222.1 million) which was no longer justified. Excluding the reversal of this provision, EBIT would have decreased by 11.9%. The fall in EBIT is attributable to (i) the weakness of revenues from proprietary trading in an unfavourable financial market environment; (ii) the decrease in capital gains on these transactions in 2009 compared to 2008; and (iii) the smaller contribution from the loan insurance business.
Non-controlling interests rose from €83.8 million in 2008 to €118.2 million in 2009, as in 2008 the Italian subsidiary CNP Vita was impacted by the commercial initiative in favour of clients who had suffered losses as a result of Lehman Brothers’ collapse. Excluding fair value adjustments and before realised capital gains and losses, net profit attributable to minority interests amounted to €154.2 million in 2009 versus €164.1 million in 2008.
Attributable recurring profit before capital gains corresponds to profit attributable to owners of the parent: ■ before realised gains and losses on investments (mainly equities) measured at fair value through equity (availablefor -sale financial assets), other-than-temporary impairments in value of investments classified as available-for-sale and recognised gains and losses on investment property. Impairment losses also include the €149.3 million writedown of goodwill and of the value of the CNP Vita’s in-force business.
Insurance and financial liabilities totalled €271.6 billion, 12.8% higher than at 31 December 2008 mainly due to the increase in the deferred participation reserve as a result of the turnaround of the financial markets.
As a result of the recovery of the financial markets, deferred participation has a debit balance (deferred participation reserve) in contrast to the previous year in which the net balance of the deferred participation recognised to offset fair value adjustments to assets, represented a deferred participation asset of €818.6 million.
Excluding the change in the deferred participation reserve, insurance and financial liabilities rose 9.6% year-on-year while average insurance and financial liabilities were 6.1% higher.
Equity attributable to owners of the parent leapt 15% or €1,510 million year-on-year to €11,548 million. The increase reflected the profit for 2009 (a positive €1,004 million impact), the payment of dividends (a negative €422 million impact), fair value adjustments recognised directly in equity (a positive €836 million impact), interest on deeply-subordinated debt (a negative €63 million impact) and translation adjustments (a positive €181 million impact).
Solvency capital at 31 December 2009, estimated based on French GAAP equity in accordance with the guidelines issued by the French insurance watchdog (Autorité de Contrôle des Assurances et des Mutuelles), represented 111% of the regulatory minimum, versus 115% at 31 December 2008, excluding unrealised gains and losses, including subordinated debt, and net of intangible assets. The decrease in the coverage ratio results from the higher margin required due to the greater number of non-unit-linked products and the absence of subordinated notes issued.
Insurance investments at 31 December 2009 totalled €287 billion, up 13.5% compared to 31 December 2008 due to the increase in business and the upturn in the financial markets which increased the fair value of available-for-sale financial assets and trading securities.
Profit The net profit of CNP Assurances amounted to €934.3 million in 2009, versus €970.9 million in 2008 (down 3.8%).
equity Equity at 31 December 2009 amounted to €7,866.6 million, compared with €7,316.5 million at end-2008, with retained earnings accounting for most of the increase.
supplier payment deadlines CNP Assurances settles supplier invoices within the deadlines set out in the terms and conditions of sale and, by default, within 30 days of receipt.
Against this backdrop, CNP Vita’s net new savings (and pension money) amounted to €3,557.4 million compared to €1,770 million in 2008 (under French GAAP), i.e., a 100% rise. This corresponds to a 4.9% market share, compared to a market share of 4.2% at end 2008.
Profit attributable to owners of the parent under IFRS amounted to €5 million, excluding the impact of accelerated amortisation of in-force business and impairment of goodwill in the amount of €149 million.
2009 business and finanCial review3 embedded value 3.4. embedded value ll introduction Since 1999, the CNP Assurances Group’s financial reporting includes the publication of Embedded Value, which takes into account the value of the existing portfolio of contracts, as well as the publication of the Value of New Business (VNB). The scope is that of all the Group’s entities that have a material impact on the value of the CNP Assurances Group and its subsidiaries in France and abroad.
These indicators provide a picture of the present value of future profits that the insurer may expect from its portfolio. VNB offers a more detailed view of the New Business sold during the last year.
The published values stem from a “Market Consistent” approach. The calculations carried out by the CNP Assurances Group comply with the MCEV© (1) standards, as stated in the “European Insurance CFO Forum Market Consistent Embedded Value Principles”, with the exception of the valuation of Caixa Seguros, which is based on the traditional Embedded Value method.
ANAv – Adjusted Net Asset value 8,956 60.3 7,648 51.5 8,071 54.3 1,307 17%
In € millions €/Share In € millions €/Share In € millions %
Present value of future profits 663 4.5 590 4.0 73 12%
Time value of options and guarantees (150) (1.0) (86) (0.6) (64) 75%
Frictional costs of required capital (116) (0.8) (114) (0.8) (2) 2%
10% proportionate decrease in lapse rates 119 119 27 10% decrease in maintenance expenses 375 375 41
Required capital equal to regulatory solvency margin 100 100 10 5% proportionate decrease in base mortality/morbidity rates - longevity risk (43) (43) 0 5% proportionate decrease in base mortality/morbidity rates - Mortality and disability risk 113 113 49 25% increase in swaption implied volatilities (162) (162) (24)
The analysis of earnings highlights the significant contribution of operating earnings to the increase in MCEV between 2008 and 2009. Operating earnings remained sustained at €1,051 million, and break down as follows: ■ €333 million (€360 million including exchange rate effects) in VNB; ■ €698 million derived from the existing portfolio at 31 December 2008; ■ €20 million of operating experience differences and changes in operating assumptions.
Movements in financial markets in 2009 translated into a €594 million increase taken into account in economic variances. The impacts of the financial situation have also been evidenced by: ■ a significant increase of the time value of financial options and guarantees; and
2009 business and finanCial review 3 embedded value 3.4.2. IlBreakdown of results by country 3.4.2.1. vIf by CoUNtRy At 31 dECEmbER 2009
Change in the APE volume 381 12.4% 276 10.9% 105 19.7% 70 28.4% 33 13.0%
Change in the product mix 348 11.3% 231 9.1% 116 21.8% 84 33.9% 32 12.8%
Change in foreign exchange rates 360 11.5% 212 8.3% 148 24.5% 117 36.4% 30 11.8%
CNP Assurances Group primarily centres its activities on personal insurance: ■ traditional individual savings and unit-linked; ■ individual retirement savings; ■ individual and group risk; ■ group retirement savings; ■ credit life insurance.
2009 business and finanCial review 3 embedded value 3.4.3.2. AdJUStEd NEt ASSEt vAlUE
Adjusted Net Asset Value (ANAV) reflects the market value of the assets underlying shareholders’ equity after deduction of intangible assets, subordinated liabilities and the other elements used in the valuation of In-Force business.
Required capital is the level of capital the Company defines to reach a targeted credit rating or to comply with its internal risk assessment. The level of capital set by the CNP Assurances Group to manage its risk corresponds to 110% of the regulatory solvency margin requirement net of all other sources of funding such as subordinated debt. Subordinated debt covers 37% of the margin requirement at 31 December 2009 in Embedded Value calculations.
PvFP - Present value of future profits The PVFP corresponds to the present value of future profits net of tax generated by the In-Force covered business at the valuation date. This value is calculated using a Market Consistent methodology except for Caixa Seguros where the traditional methodology is used. According to this MCEV© methodology, no risk premium is included in the projected returns or discount rates. The reference discount curve is the swap yield curve.
Frictional cost of required capital The need to hold required capital in respect of covered business results in a cost of carry to be allocated to embedded value and the VNB. In market consistent modelling, frictional cost corresponds to the tax impact and investment costs on the assets backing the required capital.
The frictional cost of required capital also takes into account the cost stemming from the financing of a share of required capital by subordinated debt; this cost is calculated as the difference between the economic value and the face value of subordinated debt. The CNP Assurances Group defines this economic value as the net present value of the future cash flows paid to the debt’s holders, based on a discount rate which takes into account each security’s spread at inception. For New Business, required capital is assumed to be financed by subordinated debt to the same extent as for In-Force. This financing is ensured by newly issued subordinated debt, whose economic value is equal to the face value.
Time value of options and guarantees CNP Assurances has chosen a Market Consistent approach to estimate the time value of financial options and guarantees. The main options and guarantees contained in the covered business are: ■ minimum guaranteed interest rates; ■ discretionary participation features; ■ guaranteed annuity options; ■ guaranteed minimum death benefit within unit linked contracts; ■ guarantee of technical rate for annuity business and guaranteed acquisition premium associated with the Préfon portfolio; ■ guarantee on the surrender value, surrender options.
The assessment is therefore based on a stochastic model that uses a risk-neutral approach. This approach consists in defining the price of an asset as the expectancy of present value of future cash flows discounted at the risk-free rate. The economic generator of the CNP Assurances Group gives rise to 1,000 equally probably scenarios forecasting: ■ changes in a stock index; ■ dividend rate of shares; ■ inflation; ■ actual rate curves for maturities of between 1 and 30 years; ■ nominal rate curves for maturities of between 1 and 30 years.
The interest rate curve is obtained using the Heath, Jarrow and Morton framework (HJM) with two sources of risk. The growth index of the shares is modelled with a modified geometric Brownian motion, in which the drift is equal to
2009 business and finanCial review3 embedded value the short-term rate generated by the HJM framework. The methods used by the CNP Assurances teams to calibrate the economic generator are described in the “Assumptions” section of this report.
The CNP Assurances Group also introduced into its projection model an economic surrender component, taking into account the tendency of the insured to surrender their contracts when their return is diminished compared to a market benchmark.
Given the economic and financial context in Brazil, the CNP Assurances Group opted for a traditional approach for the valuation of Caixa Seguros. This decision is motivated by the difficulty in establishing financial parameters that are sufficiently stable to be used in valuations consistent with the principles of the CFO Forum. The activities carried out by Caixa Seguros mainly consist in the coverage of insurance risks; the financial options are considered marginal relative to the scale of the CNP Assurances Group.
definition of New business The projections used to estimate the value of New Business are based on the profile of the business written during 2009 with premium volumes from the same year.
New business is defined as the business generated from the sale of new contracts and in some cases increases to existing contracts during the reported period. In the absence of an assumption of premium recurrence beyond periodic premiums, subsequent payments are considered as one-off premiums.
The New Business volumes of L.441 contracts include new policies and ad-hoc one-off premium contributions on existing contracts. Future regular premiums on existing contracts are included in the Value of In-Force.
As future premiums on existing policies are not included in the Value of In-Force, New Business volumes are equal to the 2009 accounting premiums.
methodology The approach used to value the New Business is identical to the one used for the valuation of In-Force. The value of New Business is defined as the present value of projected profits of policies written during the year after deduction of frictional costs of required capital, of the time value of financial options and guarantees and of the cost of residual non-hedgeable risks.
The value of New Business is based on cash flow projections performed as of the subscription date. The economic assumptions are based on market conditions at 31 December 2009.
The Embedded Value calculations are based on economic conditions at 31 December 2009.
reference interest rate curve According to the CFO Forum recommendations, the values used to determine the interest rate curve are taken from the swap curve as provided by Bloomberg at 31 December 2009. After stripping out the coupons, the curve was smoothed using the Whittaker-Anderson method.
The illiquidity of the liabilities was determined by the CNP Assurances Group with regard to the following criteria: ■ scale of the financial risk in relation with other risks, such as underwriting risks; ■ whether or not the cash flows are sufficiently predictable for asset-liability matching; ■ whether or not there exists dynamic policyholder behaviour based on changes in economic conditions.
Swaption 20 year maturity 1 year 5 years 10 years 15 years 20 years
2009 business and finanCial review3 embedded value maturity 1 year 5 years 10 years 15 years 20 years
The correlation coefficient between hazard on interest rate and hazard on equities stands at 14% and is based on a historical correlation analysis of these two factors.
The rate applied to the capital of non-modelled risks and asymmetrical risks is set at 5% on the basis of the study of the remuneration offered during the most recent mortality cat bond issue. The capital required to account for uncertainty related to the establishment of assumptions is subject to the frictional costs of holding that capital.
Furthermore, a 2% inflation rate per annum was applied to unit costs.
We have reviewed the Embedded Value figures of the CNP Assurances Group at 31 December 2009. In the course of our work, we assessed the methodology and assumptions used as well as the calculations performed internally by the teams of the CNP Assurances Group under management responsibility. Our review covered Embedded Value at 31 December 2009, the 2009 VNB, the analysis of differences between Embedded Value at 31 December 2008 and 31 December 2009, and the sensitivities used.
In our opinion, the methodology used complies with Principles 1 to 16 of the “European Insurance CFO Forum Market Consistent Embedded Value Principles” and the calculations were carried out in compliance with this methodology. It should be noted that in accordance with Principle 14, the CNP Assurances Group added a 16 bp liquidity premium in excess of the swap rate to determine the reference rate for individual savings in euros, individual and group retirement savings.
The calculations performed for Caixa Seguros were carried out using a traditional Embedded Value approach which captures risk through the use of a risk premium.
The calculation of Embedded Values necessarily relies on numerous assumptions with respect to economic conditions, operating conditions, policyholders’ behaviour, taxes and other matters, most of which are not under the control of the management of the CNP Assurances Group. Although the assumptions used represent estimates that the CNP Assurances Group and Milliman believe are reasonable, actual outcomes may differ from those assumed in the calculation of Embedded Value.
2009 business and finanCial review3 social and environmental information 3.5. soCial and environmental information
2009 business and finanCial review 3 social and environmental information ll a responsible employer All the Group’s companies share four principles: ■ respect for human rights; ■ freedom of association and the right to collective bargaining; ■ support to employees throughout their careers; ■ promotion of equal opportunities.
ll Protecting the environment The business activity of a financial group like CNP Assurances has a limited direct impact on the environment. This impact primarily consists of CO
NRE indicators 2009 data 1. Total headcount 3,053 employees, including 264 civil servants seconded to the Company, i.e., 20 more employees than at 31 December 2008. 54% of employees are management grade and 62% are women. The average age of the workforce is 43.6 years.
The number of fixed-term employees remained stable year-on-year, representing 2% of the workforce. CNP Assurances’ total workforce (including Filassistance, Capéor, BVP and Marfin) amounts to 4,628 employees, an increase of 2.6% from last year. Women represented 59% of employees and the average age is 41.5 years. 4% of Group employees are on fixed-term contracts.
There is no plan to adjust headcount. Long-term career support remains a priority. In 2009, 56% of available permanent positions were filled internally. 90% of employees had a career assessment interview. 169 employees were promoted.
Full-time employees work a total of 1,575 hours per year, unchanged from 2008. In 2009, 18.30% of the workforce chose to work part-time. In the international subsidiaries, the average working week varies from 37 hours to 40 hours depending on the country.
Average gross annual salary increased to €50,457 in 2009, up 3.6% on 2008. Salaries were increased by 1.8% across-the-board for employees in categories 1 to 7. Women make up 50.5% of management grade employees, or 27.4% of the total workforce. 22.7% of senior executives are women and female senior executives represent 0.65% of the total workforce. The HR department is striving to reduce the remuneration discrepancies that still exist among senior executives. At Group level, women comprise 45.6% of management grade employees.
Labour relations are a priority for the Group. The number of consultation meetings held by CNP Assurances is above the 50% legal minimum.
Our current labour agreements cover all major employment issues, including measures to foster a healthy work/life balance through variable workweek arrangements (more than 70% of the workforce has a personalised schedule) and to ensure good physical and mental health with an in-house mediation system. A large number of agreements are negotiated and signed with employee representatives each year, including agreements on statutory and discretionary profit-sharing and the annual pay round. In 2009, several agreements were signed. These included salary negotiations; an update to the objectives for an increase in discretionary profit-sharing, with respect to the indicators set out in the 2009 profit-sharing agreement; an agreement on the early withdrawal of statutory profit-sharing bonuses and calculation formalities; and an agreement extending membership of the occupational health, safety and working conditions committee. The European Works Council will be set up and meet in 2010.
The occupational health, safety and working conditions committee monitors the safety of all employees and works to prevent the risks identified in the Document Unique (a risk evaluation document obligatory for French companies).
A collective agreement regarding the employment of disabled people has been in place since 1995. The percentage of disabled employees was 4.62% in 2009, compared to 4.15% in 2008.
Six people were hired under the CDD Senior fixed-term contract, a French programme to promote the hiring of people over the age of 57. CNP Assurances is one of the founding members of the Entrepreneurs de la Cité foundation, helping to provide insurance cover to the beneficiary entrepreneurs. The Group is also involved in the Cités Parternaires II investment fund, Business Angels, dedicated to helping entrepreneurs from underprivileged areas. Since 1999, the CNP Assurances Foundation has been committed to combating chronic pain and developing palliative care. Since 2009, the Foundation has been promoting the installation of defibrillators in public areas and working to raise public awareness about the first aid techniques to apply in the event of cardiac arrest. CNP Assurances also sponsors a chair set up by the Université Paris Dauphine on the risks and opportunities of demographic transitions.
The use of subcontractors is restricted to printing, consulting and telephone reception services. In 2003, CNP Assurances signed the Global Compact, systematically promoting its commitment to human rights to its subcontractors and suppliers. Compliance with labour regulations is a required clause in invitations to tender. This compliance is also required in the Group’s management of its investment properties, while social, environmental and corporate governance criteria have been introduced with respect to financial asset management. Similarly, since 2008, Caixa Seguros, the Brazilian subsidiary, has introduced corporate social responsibility clauses into its contracts.
22. Raw material consumption The Group’s activity is entirely devoted to personal insurance. As with financial services groups, paper is the main raw material consumed. Many initiatives have been launched to reduce the volume of paper consumed. Since 2007, to promote paper reduction, especially for internal operations, CNP Assurances has linked its paper reduction target to a 10% discretionary profitsharing bonus. Customer correspondence has been tightened while respecting regulatory obligations to keep policyholders informed.
Tools for delegated management have been developed to reduce the number of contractual documents printed. Internal operations, policyholder communications and contractual documents accounted for a total of 141 million sheets for CNP Assurances in 2009, a sharp drop on the 2008 figure. Recycled paper is used as often as possible. In 2009, 18% of paper used for internal operations was recycled paper.
23. Energy consumption The main energy used is electricity, in 2009 17.9 million kWh were consumed, down 2% like-for-like. In 2009, 4,367 tonnes of steam were used to heat the Paris site, 9.5% less than 2008. Gas used for heating the Angers and Arcueil sites increased to 206,351 cubic metres, from 164,748 cubic metres in 2008. The amount of fuel oil used for heating in 2009 totalled 75 cubic metres. The Group’s electricity consumption measured 19.4 million kWh.
Along with actions to reduce the use of paper, in 2007 CNP Assurances introduced measures to optimise building management by carrying out energy audits.
25. Use of renewable energy sources In 2009, none of the buildings occupied by Group entities were equipped with systems for generating renewable energy.
26. Land use Not relevant in view of the Group’s service activities.
In view of the nature of their business activities, Group entities have not taken steps toward obtaining environmental certification.
33. Expenditure incurred to prevent any harmful environmental impact of the Group’s business activities
Not relevant as regards direct impacts in view of the Group’s service activities.
34. Existence of internal departments for environmental management, resources allocated to mitigation of environmental risks, and a structure to deal with pollution incidents with consequences beyond the Group’s own establishments
The section of the intranet dedicated to sustainable development was accessed an average of six times per employee in 2009. Between 2007 and 2009, one fifth of the discretionary profit-sharing bonus was awarded on the condition of sustainable development initiatives. Numerous events are held during Sustainable Development Week. A target was also set to reduce emissions by 3% per year starting in 2010. Since mid-2009 a sustainable development training course is being developed in conjunction with Caisse des Dépôts et Consignations. Group subsidiaries have run awareness-raising initiatives for employees, primarily in Brazil and Italy.
37. Amounts of compensation paid following legal decisions relating to the environment
The Group has not been subject to any court rulings on environmental matters.
The subsidiaries share CNP Assurances’ objectives to reduce overall consumption, especially with respect to the three main sources of direct emissions: paper, both for internal use and for correspondence with policyholders, business travel, and the management of property used for business operations. The subsidiaries report to the Group on their social and environmental situation on an annual basis.
Value of business in force 7 70.2 169.2 186.4 total intangible assets 877.6 910.6 873.7
Securities held for trading 9 62,631.5 58,122.3 74,981.0 banking and other investments 71.7 83.8 272.4
Reinsurers’ share of insurance and financial liabilities 10 6,879.4 6,305.3 6,139.3
Investment and other financial expenses, excluding finance costs 19 (515.7) (559.0) (597.1)
total other recurring operating income and expense, net (46,157.9) (25,211.3) (41,171.1)
finanCial statements 4 consolidated financial statements 4.1.3. Ilconsolidated statement of income and expense recognised directly in equity
Sub-total net of deferred participation and deferred taxes 833.8 32.2 866.0
total income and expense recognised directly in equity 1,002.7 149.1 1,151.8
NEt INComE ANd ExPENSE RECogNISEd dIRECtly IN EqUIty 2,006.8 267.3 2,274.1
Reclassification of impairment losses to profit or loss 3,323.9 2.3 3,326.2
Sub-total net of deferred participation and deferred taxes (1,475.8) (19.8) (1,495.6)
total income and expense recognised directly in equity (1,601.2) (103.0) (1,704.2)
Reclassification of impairment losses to profit or loss 120.5 0.0 120.5
Net income and unrealised and deferred gains and losses for the period (1,475.8) 0.0 722.6 (117.4) (870.6) (19.2) (889.8)
- Issue of shares 0.0 0.0 - Deeply-subordinated debt, net of tax (71.5) (71.5) (71.5)
Adjusted equity at 1 January 2007 – IfRS 554.5 321.5 2,077.4 2,035.0 5,316.7 90.6 10,395.7 1,513.8 11,909.5
- Changes in scope of consolidation 61.9 (537.9) (476.0) (924.3) (1,400.3)
finanCial statements 4 consolidated financial statements 4.1.5. Ilconsolidated cash flow statement thE CASh flow StAtEmENt INClUdES: ■ Cash flows of fully-consolidated companies.
■ The Group’s proportionate share of the cash flows of jointly-controlled entities consolidated by the proportionate method.
Cash and cash equivalents are short-term, highly liquid investments (sight deposits and other instruments) that are readily convertible into known amounts of cash and are subject to an insignificant risk of changes in value.
Cash and cash equivalents reported in the cash flow statement are stated net of bank overdrafts used for cash management purposes.
Cash flows from operating activities correspond essentially to the cash flows of the Group’s revenue-generating activities.
Charges to technical reserves for insurance and financial liabilities 21,003.7 1,087.9 17,489.0
Change in fair value of financial instruments at fair value through profit (other than cash and cash equivalents) (3,986.8) 10,770.8 (16.1)
Change in securities sold and purchased under repurchase and resale agreements (1,542.0) 714.6 (2,311.0)
Divestments of subsidiaries and joint ventures, net of cash sold 692.0 0.0 0.0
Net cash (used) provided by transactions with shareholders (454.4) (473.2) 255.7
finanCial statements 4 notes to the consolidated financial statements 4.2. notes to the Consolidated finanCial statements ll NoTe 1 significant events of the year 1.1 ImPACt of thE CRISIS IN
Under the terms of this agreement: ■ CNP Assurances acquired a 50% stake in Barclays’ life insurance subsidiary – Barclays Vida y Pensiones (BVP) – which operates in Spain and Portugal. The partners will also launch new insurance operations in Italy to bolster currently existing businesses. CNP Assurances has management and financial control over BVP and it was fully consolidated in its books at 31 December 2009; ■ the partners will enter into an exclusive agreement to distribute a comprehensive range of life insurance and pension products (including savings, pensions and personal risk insurance products) through Barclays’ networks in Spain, Portugal and Italy.
On 12 November 2009, CNP Assurances entered into an agreement with Rentipar Seguros SGPS for the sale of its stakes of 83.52% and 83.57% respectively in Global − Companhia de Seguros, S.A. and Global Vida − Companhia de Seguros de Vida, S.A. (together, Global Seguros), for a total consideration of €117 million, valuing both companies at €140 million for 100% of their share capital.
The price is subject to an adjustment mechanism based on the change in net asset value and should generate net gains for the Group of around €20 million in 2010. The operation will boost the Group’s solvency ratio by approximately 0.7%.
Following the recent partnerships signed with Barclay’s Bank Plc in Spain, Portugal and Italy, and with Marfin Popular Bank in Greece and Cyprus, this transaction completes the refocusing of CNP Assurances on its bancassurance core business.
1.4 CNP ASSURANCES ExERCISES PUt oPtIoN oN ItS NAtIxIS globAl ASSEt mANAgEmENt (NgAm) ShARES
Exercising the put option had a positive impact of €17.4 million on consolidated profit for the year, comprising a gain on disposal of €234.3 million, less tax of €13.1 million and derecognition of the put option carried at fair value for an amount of €203.7 million.
The Technical Risks Committee stresses that the decision of the Lyon Court of Appeal will not have a material impact on the Group’s consolidated financial statements and that the Group has made provisions to provide identical coverage to any former employees who formally request it to do so.
These multi-annual agreements bolster the partnership arrangements that have existed since 1947 between CNP Assurances, the public sector mutual insurers and their federation, especially those relating to their personal risk and loan insurance businesses.
The subsidiaries all apply Group accounting policies, as presented in these notes.
Amendment to IAS 23 — Borrowing Costs, published on 29 March 2007, stipulates that borrowing costs must be capitalised and prohibits immediate expensing of borrowing costs. Financial assets measured at fair value are excluded from the scope of this amendment. The application of this amendment does not have any material impact on the consolidated financial statements at 31 December 2009.
The consolidated financial statements are presented in millions of euros, rounded up or down to the nearest decimal.
They have been prepared according to the cost model, except for (i) insurance assets and liabilities and assets and liabilities related to investment contracts with a discretionary participation feature which have been measured by the methods used in the French GAAP accounts and (ii) the following assets and liabilities which have been measured by the fair value model: financial assets at fair value through profit (financial assets held for trading and financial assets designated upon initial recognition as at fair value through profit), available-for-sale financial assets, investment property held in unit-linked portfolios and derivative instruments separated from their host contracts.
Non-current assets and groups of assets held for sale are measured at the lower of their carrying amount and their fair value less costs to sell, with the exception of deferred tax assets, assets generated by employee benefits, financial assets, investment property measured at fair value, biological assets and assets arising under insurance contracts, all of which are measured using their own specific valuation basis.
They serve as the basis for the exercise of judgement in determining the carrying amounts of assets and liabilities which cannot be obtained directly from other sources. Actual values may be different from these estimates. Estimates and the underlying assumptions are reviewed at regular intervals.
The accounting policies described below have been applied consistently to all periods presented in the consolidated financial statements.
A subsidiary is an entity controlled by the Company. Control is defined as the power to govern the subsidiary’s financial and operating policies, directly or indirectly, so as to obtain benefits from its activities. Exclusive control is considered as being exercised when the Company holds more than half of the subsidiary’s voting rights, directly or indirectly. To determine whether control is exercised, account is taken of the existence and effect of potential voting rights that are currently exercisable or convertible as well as the contractual details of the shareholders’ agreement and, in particular, any partnership arrangements to distribute insurance products. Subsidiaries are fully consolidated.
A joint venture is a contractual arrangement whereby the Group and one or more other parties undertake an economic activity that is subject to joint control. Joint control is the contractually agreed sharing of control over an economic activity, requiring the consent of all the venturers to strategic financial and operating decisions that are essential to the goals of the joint venture.
Interests in joint ventures are recognised using proportionate consolidation, which consists of combining the Group’s share of each of the assets, liabilities, income and expenses of the jointly controlled entity with the similar items, line by line, in its financial statements.
It is presumed to be exercised when the Group holds at least 20% of the associate’s voting rights, directly or indirectly. However, this is only one of the yardsticks used, and the existence or absence of significant influence may be determined on the basis of other factors, regardless of the percentage of voting rights held. Other indicators of significant influence include representation on the Board of Directors or equivalent governing body of the associate and material transactions between CNP Assurances and the associate.
If the Group’s share of an associate’s losses is equal to or greater than the carrying amount of its investment in the entity concerned, the investment is reduced to zero and recognition of the Group’s share of future losses is discontinued, unless the Group has incurred legal or constructive obligations to bear a portion of future losses or to make payments on behalf of the associate.
All material intragroup balances, transactions, income and expenses are eliminated in full. Income and expenses from transactions with associates and joint ventures should be eliminated based on the Group’s share of the entity’s profit. Losses resulting from the impairment in value of an asset transferred in an intragroup transaction are not eliminated.
There are two types of deferred participation: 3.5.1 unconditional participation All differences in the calculation base of future rights between the separate financial statements and the consolidated financial statements are recognised in the deferred participation reserve.
This applies in particular to policyholder rights in positive and negative fair value adjustments and restatements of the separate financial statements of Group entities. Their amount is adjusted using a method that is consistent with the initial measurement and the pattern of recognition in profit of fair value adjustments and restatements.
3.5.2 Conditional participation This corresponds to the difference in rights between the separate and consolidated financial statements, whose payment depends on a management decision or the occurrence of an event.
These rights are recognised only when the event or management decision is highly probable. Conditional participation also arises from the application of the shadow accounting technique described in Note 3.12.1.
Income and expenses of foreign operations, other than entities operating in a hyperinflationary economy, are translated at the exchange rate on the transaction date. For practical reasons, the average exchange rate for the period is used as the rate on the transaction date for currencies that have been subject to only limited fluctuations during the period.
In accordance with IAS 21, foreign currency transactions are translated into the entity’s functional currency at the exchange rate on the transaction date. For practical reasons, in certain cases the average exchange rate for the period is used as the rate on the transaction date for currencies that have been subject to only limited fluctuations during the period.
At each reporting date, monetary balance sheet items are translated using the closing rate, and the resulting exchange differences are recognised in profit.
Non-monetary assets and liabilities measured using the cost model are translated into euros at the exchange rate on the transaction date, while non-monetary assets and liabilities measured using the fair value model are translated at the exchange rate on the date of remeasurement at fair value. When a gain or loss on a non-monetary item is recognised directly in equity, the difference arising on translation of the item is also recognised in equity. Similarly, when a gain or loss on a non-monetary item is recognised directly in profit, the translation difference is also recognised in profit.
Goodwill is equal to the difference between the acquisition cost to the buyer and the fair value of these identifiable assets and liabilities. Negative goodwill is recognised directly in profit.
For impairment testing purposes, goodwill is allocated to cash-generating units (CGUs) or groups of CGUs likely to benefit from the synergies developed within the scope of the business combination resulting from the acquisition. A cash-generating unit is defined as the smallest group of identifiable assets that generates cash inflows that are largely independent of the cash inflows of other assets or groups of assets. The Group identifies CGUs by entity or group of similar entities.
The value of business in force corresponding to purchased insurance portfolios, is generally amortised by the effective interest method over the portfolios’ remaining life.
Details of the fair value of properties measured using the cost model are also disclosed in these notes to the financial statements. Fair value corresponds to the probable realisable value of properties and shares in unlisted property companies. It is determined on the basis of five-year valuations performed by a qualified expert recognised by the French insurance supervisor (ACAM). In the period between two five-year valuations, fair value is estimated at each year-end and the amounts obtained are certified by a qualified expert.
Maintenance costs are added to the cost of the part of the property to which they relate when it is probable that they will generate future economic benefits and they can be measured reliably.
Financial assets are recognised in the balance sheet when the Group becomes a party to the contractual provisions of the instrument. Regular way purchases and sales of financial assets are recorded on the transaction date.
A financial asset is derecognised when the contractual rights to the cash flows from the financial asset expire or the asset is transferred in a transaction that transfers substantially all the risks and rewards of ownership of the financial asset.
Available-for-sale financial assets and financial assets at fair value through profit are subsequently measured at fair value.
Changes in fair value of financial assets at fair value through profit are recognised directly in profit, taking into account the impact on liabilities arising from insurance contracts and financial instruments with DPF (in accordance with the shadow accounting principle, see paragraph 3.12.1) and the deferred tax effect.
Financial assets other than those measured at fair value through profit are tested for impairment at each reporting date. A financial asset has been impaired if there is objective evidence of impairment based on one or a number of events whose impact on the asset’s estimated future cash flows may be reliably determined.
For debt instruments held to maturity or available for sale, an impairment loss related to their fair value is recognised in the income statement if future cash flows are unlikely to be entirely recoverable due to the existence of one or several objective indicators of impairment.
However, downgrading by a rating agency or widening credit spreads do not in themselves constitute objective evidence of impairment.
■ a significant decline in the fair value: the market price at the reporting date represents less than 50% of the average carrying amount.
Any subsequent decline in fair value is recognised in profit as an impairment expense.
3.9.3 derivative instruments A derivative is a financial instrument or other contract within the scope of IAS 39 with all three of the following characteristics: (a) its value changes in response to the change in a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index, or other variable (the “underlying”); (b) it requires no initial net investment or an initial net investment that is smaller than would be required for other types of contracts that would be expected to have a similar response to changes in market factors; and (c) it is settled at a future date.
Structured products held by the Group consist of financial instruments for which income is indexed to indices, baskets of equities, hedge funds, interest rates and credits. They may also comprise embedded derivatives that can modify the structure of revenues or repayments.
The Group negotiates with each arranger for prices to be quoted every month. These prices correspond to the products’ economic value. Their reliability is checked on a test basis and in the case of a significant change, using valuation techniques (for example, discounted cash flow analysis) or by asking the arrangers for details of the methods used. To date, these checks have consistently confirmed the reliability of the prices quoted by the arrangers. The Group checks the quality of the arrangers’ valuation methods and issues’ ratings and the absence of any credit events.
The aim of the valuation techniques is to obtain estimated values that approximate the economic value of a position using prices and rates corresponding to the underlying assets or benchmark interest rates. The prices quoted by the arrangers correspond to the estimated amount that a buyer would be willing to pay to purchase the asset. Actual prices could be significantly different from these estimates, due to various factors such as credit spreads, market liquidity, the size of the position, financing costs, and hedging costs and risks.
The Group uses the following three-level measurement hierarchy for financial instruments (see Note 9.2): ■ level 1: financial instruments measured using quoted prices in active markets. The fair value of most financial instruments held by the Group is determined based on the quoted market price, whenever quoted prices are readily and regularly available and represent actual and regularly occurring market transactions conducted on an arm’s length basis. The active market for such transactions is the market in which the most recent prices were quoted along with the largest volumes of transactions. The following financial assets are measured at their quoted market price: ■ equities, measured on the basis of quoted prices on their reference market,
■ bonds, EMTNs, BMTNs: for each instrument, the value is determined based on the most recent of the quoted prices available – on the stock exchange, from brokers, trading rooms or trading platforms, the ICMA Price Service (average prices) or BGN (average prices excluding highs and lows) – taking into account liquidity factors in the choice of market,
■ any other quoted financial instrument for which no active market exists; ■ level 3: financial instruments measured using inputs not based on observable market data (unobservable inputs). These are defined as inputs based neither on observable market transactions involving the same instrument at the measurement date, nor on observable market data available at the same date. Very few financial instruments used by the Group fall into this level but it could be used, for example, to classify asset-backed securities. For such instruments, the Group ensures that any change in inputs used for measurement purposes based on reasonable alternative scenarios would not have any material impact on the consolidated financial statements.
3.10 EqUIty 3.10.1 Components of equity Equity includes share capital, retained earnings, unrealised gains and losses from remeasurement at fair value of available-for-sale financial assets net of tax and shadow accounting adjustments, the capitalisation reserve net of tax, and subordinated debt instruments classified in equity due to the discretionary nature of interest payments (see Note 3.15).
At 31 December 2009, the insurance subsidiaries and the Group as a whole complied with these minimum solvency capital requirements. Details of the Group’s adjusted solvency capital based on the consolidated financial statements are reported each year to the French insurance supervisor (Autorité de Contrôle des Assurances et des Mutuelles).
The level of solvency capital is monitored regularly by each subsidiary as well as at Group level by the Finance Department. Five-year capital projections are produced using stress scenarios based on extreme conditions in the equity and fixed income markets.
Financial instruments without a Discretionary Participation Feature are recognised and measured in accordance with IAS 39. This category corresponds to unit-linked savings contracts that do not have any non-unit-linked component or guaranteed element.
Contracts that do not fulfil the criteria for classification as either insurance contracts (IFRS 4) or financial instruments without DPF (IAS 39) fall within the scope of: ■ IAS 18, when they correspond to the provision of services; or
Insurance risk is a risk other than a financial risk. Financial risk is the risk of a possible future change in one or more of a specified interest rate, financial instrument price, commodity price, foreign exchange rate, or other variable. In the case of a non-financial variable, if the variable is not specific to a party to the contract, the risk is financial; otherwise it is an insurance risk. Surrender risk, extension risk or the risk of higher-than-expected administrative costs are not insurance risks, unless they are risks originally incurred by the insured that are transferred to the Group under an insurance contract.
For each group of contracts with similar characteristics, the significance of the insurance risk is assessed based on a single representative contract. Under this approach, the insurance risk may be considered significant although the probability of the group of contracts generating a loss that has a material adverse effect on the financial statements is remote due to the pooling of risks.
Contracts that do not expose the Group to an insurance risk or for which the insurance risk is not material are qualified as financial instruments when they give rise to a financial asset or liability. Contracts are qualified as financial instruments with DPF when they incorporate a contractual or regulatory entitlement to receive, as a supplement to guaranteed benefits, additional benefits: ■ that are likely to be a significant portion of the total contractual benefits; ■ whose amount or timing is contractually at the Group’s discretion; and
Group’s accounting policies, the rights and obligations arising from the deposit component would not be recognised if the contract was not unbundled. The insurance component of an unbundled contract is accounted for under IFRS 4 and the deposit component under IAS 39.
Premiums on contracts in force during the period are recognised in revenue after adjustment for: ■ the estimated earned portion of premiums not yet written on group contracts comprising whole life cover; ■ estimated cancelled premiums, determined by reviewing written premiums and earned premiums not yet written. This adjustment is made for the main products based on the observed cancellation rate for contracts written and cancelled during the period.
Life premium reserves are determined using a discount rate that is equal to or less than the conservatively estimated forecast yield on the assets backing the liabilities.
An unexpired risks reserve is set up to cover claims and benefits outstanding at the period-end.
Earned premiums for the period are adjusted for: ■ estimated earned premiums not yet written at the periodend; ■ the change in the unearned premium reserve (corresponding to the portion of premiums written during the period that relates to the next period).
A reserve is recorded to cover timing differences between the coverage of risks and their financing in the form of insurance premiums.
Claims are recognised in the period in which they are incurred. The amount recorded covers both reported claims and estimated claims incurred but not reported (IBNRs).
The portion of gains or losses attributable to policyholders is determined based on the terms of participating contracts. Shadow accounting is not applied to non-participating contracts that fall outside the scope of regulations requiring payment of a guaranteed minimum participating dividend.
The amount of deferred participation calculated for each entity under shadow accounting principles is recognised either in liabilities as a deferred participation reserve or in assets as a deferred participation asset.
Inward reinsurance contracts give rise to a significant insurance risk and are therefore accounted for in the same way as insurance contracts.
Unit-linked contracts are subsequently measured at fair value, with changes in fair value recognised in profit.
Non-unit-linked investment contracts are subsequently measured at fair value, corresponding to their surrender value.
Property and equipment consists mainly of office equipment and miscellaneous installations.
At the beginning of July 2006, the Group set up a defined benefit supplementary pension plan governed by Article 39 of France’s General Tax Code. The annuity and financial risks arising from the retirement of plan participants are covered by an insurance policy.
Obligations for the payment of length-of-service awards and jubilees are measured by the projected unit credit method and recognised as a liability.
finanCial statements 4 notes to the consolidated financial statements disCouNT rATe
The discount rate corresponds to the Government bond rate or the interest rate for investment-grade corporate bonds traded in an active market with maturities that match the duration of the benefit obligation.
The Group has elected to apply the option available under IAS 19, allowing the recognition in equity of actuarial gains and losses under defined benefit plans. The plans are either funded or unfunded.
The Group has elected not to apply the corridor method and recognises gains and losses on post-employment defined benefit plans in equity. Actuarial gains and losses on other post-employment benefits are recognised directly in profit.
Actuarial losses recognised in current profit for definedbenefit plans comprise two elements: ■ current service cost and past service cost; ■ interest cost less the expected return on plan assets.
At the Combined General Meeting of 7 June 2005 (8th resolution), the shareholders authorised the Executive Board to make share grants on one or more occasions, representing an aggregate maximum of 0.4% of the capital, to certain categories of employees and management (Article L.225-197-1 II of the French Commercial Code) of the Company and related companies (Article L.225-197-2 of the code). The 0.4% rate takes into account the shares covered by the grants.
The Executive Board was authorised to issue new shares for allocation to grantees, in which case the pre-emptive right of existing shareholders to subscribe to the issue would automatically be waived.
No share grants were made in 2005. On 5 July 2006, the Executive Board made 52,920 share grants, representing 0.038% of the Company’s share capital at that date.
Both of these grants are subject to a two-year vesting period and a lock-up period.
The shares held for allocation when the share grants vest are recorded as a deduction from equity. The difference between the average cost of the shares and their fair value at the grant date is recognised in equity, with no impact on profit. The cost of the employee services received in exchange for the grants is measured by reference to the fair value of the shares, in accordance with IFRS 2, and is recognised in employee benefits expense over the vesting period, with a corresponding adjustment to equity. The cost recognised in profit takes into account the estimated number of grantees at each reporting date and the cost of managing the shares.
Underwriting expenses are presented by function: ■ claim and benefit handling expenses include the costs of the departments responsible for paying claims, endowments and periodic benefits and processing surrenders; ■ acquisition costs include all selling, distribution and administrative costs incurred for the acquisition of new contracts; ■ contract administration expenses include all the costs of managing in-force business;
Other costs are analysed between: ■ corporate costs, which are allocated to the operating centres using statistical cost allocation keys or actual business data; ■ operating costs, as adjusted to include corporate costs, which are allocated to the functions using a specific allocation key for each business.
CNP Assurances and its main French subsidiaries have elected to file a consolidated tax return under French group relief rules. The companies in the tax Group are CNP Assurances, CNP IAM, Préviposte, Investissement Trésor Vie (ITV), CNP International, CNP Caution, Sogestop G, Sogestop J, Carrés bleus SA (formerly Sogestop C), Prévimut, Cicoge SA (a property investment company), Filassistance Services, Filassistance International, Âge d’or Expansion, AEP 3, AEP 4, Assurimmeuble, Boetimmo, Étages Franklin, Étendard, Kupka, Pyramides 2, Arrabida Gaia, Assurhelene, Foncière Investissement, Saint-Denis Talange, Center Villepinte, Écureuil Vie Crédit and Écureuil Vie Investissement.
Deferred taxes are recognised on temporary differences between the carrying amount of assets and liabilities and their tax base. However, for taxable temporary differences related to investments in subsidiaries, associates, joint ventures and branches, a deferred tax liability is recognised only when the Group is unable to control the period in which the temporary difference will reverse and it is improbable that it will not reverse in the foreseeable future.
The application of IFRS 8 has not had any major impact on the information previously prepared under IAS 14 as the operating segments reported under this standard already corresponded to the reporting basis approved by the Group’s Executive Committee which is regarded as the chief operating decision maker as defined by IFRS 8.
Reportable business segments have been defined based on the internal reporting system and the technical characteristics of the products distributed by the Group. Three business segments have been identified, that generate risks and returns which are separate from those of the other segments: ■ the Savings business concerns products enabling policyholders to build up capital which they can cash in. A key feature of these products is their sensitivity to changes in interest rates; ■ the Pensions business concerns products designed to enable policyholders to receive an annuity or lump sum on retirement. The main risk associated with these products concerns the probable annuity payment period; ■ the Personal Risk business includes products enabling policyholders to insure against the risks of death, accident or illness, property damage or liability claims. The return on these products depends on the occurrence of the insured risk.
The Group’s internal reporting system is based on the following indicators: ■ premium income: new money, corresponding to premium income measured under French GAAP, i.e., before adjustments related to the deposit component of financial instruments without a discretionary participation feature,
■ net new money: premium income as defined above, net of claims settled during the period, and excluding changes in the unexpired risks reserve,
■ general expenses: expenses allocated to each reportable segment based on analyses carried out by the Planning and Performance Division,
■ EBIT: operating profit adjusted for net fair value adjustments to financial assets and before finance costs, taxes and minority interests. EBIT is a key indicator of profit by reportable segment based on analyses by senior Group management. EBIT corresponds to attributable profit for the period adjusted for: ■ finance costs,
■ segment assets and liabilities: assets and liabilities under IFRS, broken out by reportable segment.
A contingent liability is: ■ a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group; or
Contingent liabilities are not recognised in the balance sheet but are disclosed in the notes to the financial statements, except when it is not probable that they will give rise to an outflow of resources.
Contingent liabilities are regularly reviewed to determine whether an outflow of resources has become probable or can be measured with sufficient reliability. If this is the case, a provision is recognised in the financial statements for the period in which the change in probability or measurability occurs.
CNP Assurances June 2004 Tec 10 +10 bps, capped at 9% € 250.0
CNP Assurances Nov. 2004 Tec 10+10 bps, capped at 9% € 50.0
CNP Assurances June 2005 7% until 2009, then 10-year EUR CMS +30 bps, cap at 10 times (10year EUR CMS – 2-year EUR CMS),
Number of shares outstanding at the beginning of the period 148,537,823 148,537,823 138,635,302
Number of shares outstanding at the end of the period 148,537,823 148,537,823 148,537,823
In 2007, CNP Assurances issued 9,902,521 new shares, raising the total number of shares outstanding to 148,537,823.
Number of ordinary shares at 1 January 148,537,823.0 148,537,823.0 148,537,823.0 weighted average number of shares at 31 december 148,111,842.8 147,963,801.8 148,134,914.4
After-tax effect of interest on convertible bonds 0.0 0.0 0.0 diluted profit attributable to ordinary shareholders 6.8 4.9 8.2
The total remuneration paid to members of senior management is disclosed in Note 4.7.
Commissions correspond to revenue received by BPCE and La Banque Postale on the sale of products managed by CNP Assurances.
Fees correspond to various expenses rebilled by Caisse des Dépôts et Consignations to CNP Assurances.
Dividends correspond to the 2008 dividend paid to the Group’s direct shareholders.
The following tables show material transactions between CNP Assurances subsidiaries and between Group shareholders corresponding to the payment of commissions or dividends, or interest on subordinated notes issued by a subsidiary that are held by another subsidiary.
finanCial statements4 notes to the consolidated financial statements 4.6.2 intragroup transactions in 2009 4.6.2.1 subsidiAries ANd joiNT veNTures
■ Short-term benefits: the short-term benefits (salaries, bonuses, directors’ fees and benefits in kind) paid to the Chairman, Chief Executive Officer, the four Deputy Chief Executive Officers and the members of the Board of Directors in 2009 amounted to €3,835,609.
■ Short-term benefits: the short-term benefits (salaries, bonuses, directors’ fees and benefits in kind) paid to the Chairman, Chief Executive Officer, the four Deputy Chief
■ Long-term benefits: the cumulative amounts provided for or recognised in respect of pension or other retirement benefits for the Chairman, the Chief Executive Officer and the four Deputy Chief Executive Officers total €6,047,552.
■ Short-term benefits: the short-term benefits (salaries, bonuses, directors’ fees and benefits in kind) paid to the Chairman, Chief Executive Officer, the four Deputy Chief Executive Officers and the members of the Board of Directors in 2007 amounted to €3,206,275.
CNP Europe (formerly CNP UniCredit Life) (1) Full Ireland Insurance 100.00% 100.00% 0.00% 0.00%
CNP ASSUR EURO SI Full France Mutual fund 97.02% 97.02% 99.07% 99.07%
ECUREUIL PROFIL 30 Full France Mutual fund 94.79% 94.79% 97.98% 97.98%
LBPAM PROFIL 80 D 5DEC Not consolidated France Mutual fund 0.00% 0.00% 90.29% 90.29%
CNP ACP OBLIG FCP Full France Mutual fund 49.71% 49.71% 49.67% 49.67%
CDC IONIS FCP 4DEC Full France Mutual fund 100.00% 100.00% 100.00% 100.00%
PROGRESSIO 5 DEC Full France Mutual fund 92.02% 92.02% 91.00% 91.00%
AL DENTE 3 3 DEC Full France Mutual fund 55.66% 55.66% 54.39% 54.39%
NATIXIS GLOBAL ASSET MANAGEMENT (4) Not consolidated France Asset management 0.00% 0.00% 11.34% 11.34%
summary financial information, on a 100% basis 31.12.2009 total assets Equity Revenue Profit
Natixis Global Asset Management 4,970 3,552 1,364 257 31.12.2007 total assets Equity Revenue Profit
Financial investments and investments in associates 244,146.2 29,086.8 13,805.5 110.4 287,148.9
Financial liabilities related to financial instruments (including deferred participation reserve) 149,011.1 6,269.7 292.6 0.0 155,573.4
Minority interests (154.2) Fair value adjustments on securities held for trading 280.7
Minority interests (164.1) Fair value adjustments on securities held for trading (409.7)
Cost Amortisation Impairment losses Reversals Carrying amount value of business in force 286.1 (116.9) 0.0 0.0 169.2
(1) Prior to transition to IFRS on 1 January 2005, intangible assets were amortised under Local GAAP.
finanCial statements 4 notes to the consolidated financial statements 7.2 goodwIll 7.2.1 Goodwill by company
At present, based only on an analysis of forecast cash flows through to the end of the current agreement in force, there is no need to recognise an impairment loss provision.
Given that these subsidiaries have been reclassified to assets held for resale, the related goodwill was written down in full.
In accordance with IFRS 3, the work involved in calculating the final goodwill for Barclays Vida y Pensiones must be completed by 1 September 2010. All adjustments to amounts initially recognised have been booked in goodwill at 31 December 2009.
Adjustments resulting from subsequent recognition of deferred tax assets 0.0 0.0 0.0
Non-current assets held for sale and discontinued operations (39.1) 0.0 0.0
CARRyINg AmoUNt At thE ENd of thE PERIod 775.6 712.2 659.2 7.3 vAlUE of bUSINESS IN foRCE
(1) The Group’s share in CNP UniCredit Vita’s in-force business was written down in full for an amount of €45 million net of tax (see Note 1.1). (2) The Group’s share in in-force business was recognised for an amount of €44.4 million following completion of the acquisition audit work.
finanCial statements 4 notes to the consolidated financial statements 7.3.2 Changes in the value of business in force gross at the beginning of the period 286.1 307.7 274.9
Accumulated amortisation and impairment at the beginning of the period (116.9) (121.3) (95.5)
CARRyINg AmoUNt At thE ENd of thE PERIod 66.5 169.2 186.4 (1) Pending final calculation of the value of Barclays Vida y Pensiones’ value of business in force in accordance with IFRS, the Group recognised an expense of €3.7 million
(the Group’s pre-tax share was €1.8 million) to reflect the amortisation of the value of business in force in the consolidated financial statements at 31 December 2009. However, as the amount in question was very small, and so as not to pre-empt the final allocation of goodwill, the Group has recognised this amortisation charge in the balance sheet, while impairment expense already recorded has been recognised in the income statement. Consequently, the amount of goodwill initially estimated and recognised for Barclays Vida y Pensiones (i.e., €164.5 million) has not been reduced by the afore-mentioned amount.
(2) The amount of impairment before tax of the value of business in force of CNP UniCredit Vita is accounted for in the income statement line item “Amortisation of value of in-force business acquired”.
Carrying amount at the beginning of the period 12.0 10.1 8.4
finanCial statements4 notes to the consolidated financial statements 7.4.2 other software and other intangible assets
Carrying amount at the beginning of the period 17.2 18.0 21.5
CARRyINg AmoUNt At thE ENd of thE PERIod 18.2 17.2 18.0 ll NoTe 8 investment and owner-occupied property The purpose of this note is to show depreciation and impairment losses recognised/reversed during the period through profit in respect of property and the captions impacted by the movements.
(i) additions; (ii) disposals; (iii) depreciation; (iv) impairment losses recognised and reversed during the period; (v) the net exchange differences arising on the translation of the financial statements into a different presentation currency, and on translation of a foreign operation into the presentation currency of the reporting entity; (vi) transfers to and from inventories and owner-occupied property and (vii) other changes; ■ the fair value of investment properties held in unit-linked portfolios.
Post-acquisition costs included in the carrying amount of property 59.3 15.2 7.6
CARRyINg AmoUNt At thE ENd of thE PERIod 466.1 520.6 445.7
Carrying amount at the beginning of the period 144.4 136.1 137.6
Post-acquisition costs included in the carrying amount of property 1.9 3.0 2.1
The following tables show the fair value of securities held by the Group, by category and intended holding period.
Investment property at fair value 466.1 466.1 * The classification of assets in unit-linked portfolios has been refined in the category “Assets at fair value through profit”.
In € millions last available quotation of assets quoted in an active market
Financial assets at fair value through profit (1) 50,615.7 14,649.2 27.7 65,292.6
Change in fair value through equity (3) 864.9 (36.7) 31.0 859.2
Financial liabilities – financial instruments without DPF (excluding unit-linked) 785.5 2.2 0.0 787.7
Financial liabilities (unit linked) – financial instruments without DPF 5,108.5 41.1 5,149.6
Financial liabilities – financial instruments without DPF (excluding unit-linked) 463.7 1.3 0.0 465.0
Financial liabilities (unit linked) – financial instruments without DPF 5,951.0 23.8 0.0 5,974.8
finanCial statements4 notes to the consolidated financial statements 9.2.3 reconciliation of movements for the period in financial instruments measured using a valuation model not based solely on observable market inputs
Financial assets at fair value through profit 219.3 203.7 0.0 0.0 0.0 12.1 0.0 0.0 0.0 27.7
Available-for-sale financial assets 279.3 0.0 8.9 59.6 0.0 126.9 0.0 150.4 75.4 531.9
Financial liabilities at fair value through profit 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
finanCial statements 4 notes to the consolidated financial statements 9.4 lENt SECURItIES
Available-for-sale financial assets 187,906.4 98,500.0 (78,055.2) 8,420.5 (579.4) 405.3 860.9 (619.2) 216,839.2
Available-for-sale financial assets 180,910.8 90,993.2 (74,541.4) (6,533.4) (3,326.2) 342.4 45.8 15.1 187,906.4
In € millions opening carrying amount Additions disposals fair value adjustments
Available-for-sale financial assets 173,932.8 86,355.7 (75,861.8) 24,710.7 (120.5) 138.2 (28,124.8) (119.6) 180,910.8 9.6 dERIvAtIvE INStRUmENtS
In € millions due within 1 year due in 1 to 5 years due in 6 to 10 years due in 11 to 15 years due beyond 15 years total fv+ fv- fv+ fv- fv+ fv- fv+ fv- fv+ fv- fv+ fv-
In € millions due within 1 year due in 1 to 5 years due in 6 to 10 years due in 11 to 15 years due beyond 15 years total fv+ fv- fv+ fv- fv+ fv- fv+ fv- fv+ fv- fv+ fv9. 7 CREdIt RISk 9.7.1 Analysis of the bond portfolio at 31 december 2009 by issuer rating
finanCial statements4 notes to the consolidated financial statements 9.7.3 Analysis of the bond portfolio at 31 december 2007 by issuer rating
9.8 ClASSIfICAtIoN of INvEStmENtS by tyPE of ASSEt ANd by gEogRAPhICAl REgIoN
The purpose of this note is to provide an analysis of investments by type of financial asset and by geographical region.
Held-to-maturity investments Debt securities 247 10 42 179 47 0 434 959 9.8.3 Classification by type of asset and by geographical region at 31 december 2007
Held-to-maturity investments Debt securities 243 10 42 209 47 0 562 1,113
Assets liabilities Currency to be received Currency to be delivered 9.9.2 Foreign currency transactions at 31 december 2008
finanCial statements 4 notes to the consolidated financial statements 9.10 CommItmENtS gIvEN ANd RECEIvEd
Commitments received correspond mainly to securities pledged to the Group by reinsurers, covering the theoretical commitments accepted by reinsurers under existing treaties.
10.1.1 Analysis of insurance and financial liabilities at 31 december 2009
■■ Bonuses and rebates (including claims equalisation reserve on Group business maintained in liabilities) 76.3 68.7 7.6
Financial instruments without dPF 5,937.3 5,695.3 242.1 derivative financial instruments embedded in financial instruments with or without dPF 0.0 0.0 0.0 deferred participation reserve 6,889.8 6,889.8 0.0 totAl INSURANCE ANd fINANCIAl lIAbIlItIES 271,596.8 264,717.3 6,879.4 deferred participation asset 0.0 0.0 0.0
finanCial statements 4 notes to the consolidated financial statements 10.1.2 Analysis of insurance and financial liabilities at 31 december 2008
finanCial statements 4 notes to the consolidated financial statements 10.2.1 Changes in mathematical reserves – life insurance 10.2.1.1 ChANGes iN mAThemATiCAl reserves – liFe iNsurANCe – 2009
mathematical reserves at the end of the period 247,772.8 242,115.7 5,895.2 10.2.1.2 ChANGes iN mAThemATiCAl reserves – liFe iNsurANCe – 2008
Net of reinsurance Reinsurance mathematical reserves at the beginning of the period 197,754.7 192,983.5 4,771.2
Net of reinsurance Reinsurance outstanding claims reserves at the beginning of the period 750.4 677.4 73.0
Non-current liabilities associated with held for sale and discontinued operations (141.5) (132.6) (8.9)
Net of reinsurance Reinsurance outstanding claims reserves at the beginning of the period 678.5 608.7 69.8
Newly-consolidated companies: Marfin Insurance Holdings Ltd 42.0 24.9 17.1 outstanding claims reserves at the end of the period 750.4 677.5 73.0 10.2.2.3 ChANGes iN TeChNiCAl reserves – NoN-liFe iNsurANCe – 2007
Net of reinsurance Reinsurance outstanding claims reserves at the beginning of the period 439.2 391.3 47.9
Newly-consolidated companies 0.0 0.0 0.0 outstanding claims reserves at the end of the period 678.5 608.7 69.8
Net of reinsurance Reinsurance mathematical reserves at the beginning of the period 7,881.2 7,553.8 327.4
Net of reinsurance Reinsurance mathematical reserves at the beginning of the period 9,389.9 8,978.5 411.4
finanCial statements 4 notes to the consolidated financial statements 10.3 dEfERREd PARtICIPAtIoN (ShAdow ACCoUNtINg AdJUStmENtS)
Commitments under savings contracts are managed primarily by matching asset and liability maturities; ■ unit-linked contracts, where the policyholder bears the entire investment risk and the insurer’s commitment is limited to any additional guarantees, such as a capital guarantee in the case of death.
The Group implements risk selection and reinsurance policies, as well as monitoring statistical data concerning the policyholder base and related loss ratios.
The components of technical reserves are defined in Article R.331-3 of the French Insurance Code for life insurance business and R.331-6 for non-life business.
(+/-) Revaluation (fair value adjustments, incorporation of policyholder surplus) 3,887.0 3,887.0
(+/-) Revaluation (fair value adjustments, incorporation of policyholder surplus) (5,367.6) (5,367.6)
(+/-) Revaluation (fair value adjustments, incorporation of policyholder surplus) 578.0 578.0
Financial liabilities – unit-linked financial instruments – balance sheet 36,591.3 33,772.7 41,506.3
Changes in financial liabilities – unit-linked – IAS 39 5,149.7 5,974.9 7,364.5
The purpose of this note is to provide an analysis of credit risk related to outward reinsurance contracts by reinsurer, for CNP France and the main subsidiaries in the Group.
10.6.1 Credit risk on reinsured business at 31 december 2009 31.12.2009 Credit rating Ceded technical reserves
totAl 6,305.3 10.6.3 Credit risk on reinsured business at 31 december 2007 31.12.2007 Credit rating Ceded technical reserves
Issuance date Interest rate Currency Amounts due within 1 year due in 1 to 5 years due in 5 to 10 years due in 10 to 15 years due beyond 5 years Undated fair value*
CNP UniCredit Vita Oct. 2003 6-month Euribor * The fair value of financial liabilities (IAS 39) is disclosed in accordance with IFRS 7. If subordinated debt had been measured at fair value through profit instead of at amortised cost, the impact would have been €73.9 million at 31 December 2009. The fair values of unit-linked liabilities are presented in Note 10.5. The fair values of financial instruments without DPF (Note 10.1) are not presented as the amounts involved are not material. IFRS 7 includes certain exemptions from the requirement to disclose the fair values of financial instruments with DPF. The Group considers that it fulfils the exemption criteria, particularly in light of the work underway in connection with IFRS 4, Phase 2, regarding the fair value of these instruments.
finanCial statements4 notes to the consolidated financial statements ll NoTe 11 insurance and reinsurance receivables 11.1 INSURANCE ANd REINSURANCE RECEIvAblES
finanCial statements 4 notes to the consolidated financial statements 11.2 othER RECEIvAblES
finanCial statements4 notes to the consolidated financial statements ll NoTe 13 Provisions This note analyses provisions for claims and litigation and other provisions.
New provisions set up during the period and increases in existing provisions 30.0 49.1 79.1
Changes in scope of consolidation 0.0 0.0 0.0 * The €214.8 million provision set aside in 2008 to cover the CNP UniCredit Vita plan to assist customers who invested in index-linked contracts based on Lehman
New provisions set up during the period and increases in existing provisions* 235.2 71.4 306.6
Change due to the passage of time and/or a change in the discount rate 0.0 0.0 0.0
Changes in scope of consolidation 0.0 0.0 0.0 * A provision amounting to €214.8 million (€90 million, net of deferred participation and deferred taxation) was set aside to cover the CNP UniCredit Vita plan to assist clients who invested in index-linked contracts based on Lehman Brothers bonds.
New provisions set up during the period and increases in existing provisions 5.3 2.7 8.0
Changes in scope of consolidation 0.0 16.6 16.6 ll NoTe 14 Liabilities arising from insurance and reinsurance transactions 14.1 lIAbIlItIES ARISINg fRom INSURANCE ANd REINSURANCE tRANSACtIoNS
Liability recognised in the balance sheet – defined contribution plans 32.2 29.7 26.8
Expected return on plan assets for the period 0.0 (0.5) (0.5)
Post-employment benefit expense – defined contribution plans 2.5 2.8 2.6 totAl PoSt-EmPloymENt bENEfIt ExPENSE 22.5 13.2 14.0 14.3.4 reconciliation of the amounts recorded in the balance sheet for defined benefit plans
Actuarial gains and losses recognised in the SoRIE (6) 3.8 9.2 2.5
Non-current liabilities associated with assets held for sale and discontinued operations (0.2) 0.0 0.0
Actuarial gains and losses recognised in equity at the beginning of the period 11.8 2.6 0.3
Premium loading on financial instruments without DPF (IAS 39) 62.6 47.7 30.1 15.3 PREmIUm INComE by PARtNERShIP CENtRE
Companies and local authorities 1,881.1 2,036.2 1,616.0 totAl PREmIUm INComE 32,585.6 28,322.2 31,529.5
finanCial statements 4 notes to the consolidated financial statements 15.4 PREmIUm INComE by bUSINESS SEgmENt sub-total personal risk and other 4,998.6 4,846.5 4,555.1 other business segments 0.0 0.2 0.0 totAl PREmIUm INComE 32,585.6 28,322.2 31,529.5 15.5 PREmIUm INComE by ComPANy
Barclays Vida y Pensiones 78.1 0.0 0.0 totAl PREmIUm INComE 32,585.6 28,322.2 31,529.5 15.6 dIRECt ANd INwARd REINSURANCE PREmIUmS
IfRS 4 and IAS 39 insurance contracts and financial instruments with dPf
Change in technical reserves – financial instruments with DPF 2,177.4 (2,170.1) (345.5)
■■ Including foreign subsidiaries and other businesses 796.7 752.2 735.1 ratio*
Change in ceded technical reserves 967.7 597.8 670.6 ll NoTe 19 investment income 19.1 INvEStmENt INComE ANd ExPENSE
This note discloses the main income, expenses, profits and losses generated by financial assets and liabilities that have
Net income from held-to-maturity investments 52.9 39.7 69.0 loans and receivables
Net income from loans and receivables 0.0 0.0 0.0 been recognised in profit or directly in equity for 2009, 2008 and 2007.
Profit (loss) on derivative instruments held for trading and hedging (459.4) 235.2 213.8
Net income (expense) from financial assets at fair value through profit 5,716.4 (8,913.9) 2,125.7 investment property
Interest on subordinated debt at fair value 0.0 0.0 0.0 total finance costs (85.4) (108.5) (106.5)
finanCial statements4 notes to the consolidated financial statements 19.2 fAIR vAlUE AdJUStmENtS to ASSEtS
Other (including lent securities and repos) 5,633.0 5,612.6 20.4 held-to-maturity investments
Other (including lent securities and repos) 5,612.6 5,146.4 466.2 held-to-maturity investments
finanCial statements 4 notes to the consolidated financial statements 19.2.4 reconciliation of fair value adjustments to the amounts reported in the “investments” note
This note discloses the nature and amount of impairment losses on financial assets recognised in profit, by significant category of financial assets.
finanCial statements4 notes to the consolidated financial statements ll NoTe 20 income tax expense The purpose of the table below is to disclose the main components of income tax expense (credit).
INComE tAx ExPENSE 444.2 187.9 547.8 tax proof In € millions
Income tax at the standard French tax rate 34.43% 539.4 34.43% 345.1 34.43% 663.4
Capital gains and losses taxed at reduced rate 11.18% 175.1 -13.09% (131.2) -3.57% (68.8)
Tax credits and tax loss carryforwards used -1.62% (25.4) 1.48% 14.8 -1.72% (33.1)
Effects of differences in foreign tax rates -1.13% (17.7) -3.84% (38.5) 0.00% 0.0 deferred taxes on: Fair value adjustments to financial assets held for trading 548.8 (1,900.7) (117.7)
Revaluations of owner-occupied property reclassified as investment property 0.0 0.0 0.0
finanCial statements 4 notes to the consolidated financial statements ll NoTe 21 interest rate risk on financial assets This note provides additional information about the Group’s exposure to interest rate risk on financial assets and liabilities, by category.
finanCial statements4 notes to the consolidated financial statements 21.2 EffECtIvE INtERESt RAtES
Effective interest rates are presented for the Group’s main insurance subsidiaries: ■ France; ■ Italy – CNP UniCredit Vita; ■ Brazil – Caixa; ■ Spain – CNP Vida.
Fixed rate debt securities euro euro real euro 31.12.2008 france Italy brazil Portugal Spain
Fixed rate debt securities euro euro real euro euro 21.2.2 effective interest rate at balance sheet date 31.12.2009 france Italy brazil Spain
finanCial statements 4 notes to the consolidated financial statements 21.3 CARRyINg AmoUNtS by mAtURIty 21.3.1 Carrying amounts by maturity at 31 december 2009
In € millions 31.12.2009 type of instrument due within 1 year due in 1 to 2 years due in 2 to 3 years due in 3 to 4 years due in 4 to 5 years beyond 5 years total
In € millions 31.12.2007 type of instrument due within 1 year due in 1 to 2 years due in 2 to 3 years due in 3 to 4 years due in 4 to 5 years beyond 5 years total
finanCial statements4 notes to the consolidated financial statements 21.4 CARRyINg AmoUNtS At mAtURIty – hEld-to-mAtURIty INvEStmENtS
Carrying amount of financial instruments measured at amortised cost due within 1 year due in 1 to 2 years due in 2 to 3 years due in 3 to 4 years due in 4 to 5 years beyond 5 years total 21.4.2 Carrying amount at 31 december 2008
Carrying amount of financial instruments measured at amortised cost due within 1 year due in 1 to 2 years due in 2 to 3 years due in 3 to 4 years due in 4 to 5 years beyond 5 years total 21.5 AvERAgE lIfE of SECURItIES
The following tables show the average remaining life of securities, weighted by carrying amount, in years.
finanCial statements 4 notes to the consolidated financial statements ll NoTe 22 interest rate risk on financial liabilities This note shows the breakdown of technical reserves, by guaranteed yield.
ll NoTe 23 Liquidity risk 23.1 fUtURE CASh flowS fRom ASSEtS
This note discloses future cash flows from assets (redemptions, interest payments, etc.) by period.
finanCial statements 4 notes to the consolidated financial statements 23.1.3 Future cash flows from assets at 31 december 2007
Held-to-maturity investments 161 726 277 103 23.2 PAymENt PRoJECtIoNS by mAtURIty
This note discloses estimated future payments on savings, pension and Property & Casualty contracts, including total and partial surrenders.
Insurance and financial liabilities (incl. unit-linked) 16,481.2 70,623.1 61,239.2 45,392.4 158,919.1 23.2.2 Payment projections by maturity at 31 december 2008
Insurance and financial liabilities (incl. unit-linked) 13,437.1 69,584.4 57,366.5 46,096.5 137,638.7 23.2.3 Payment projections by maturity at 31 december 2007
finanCial statements4 notes to the consolidated financial statements 23.3 CoNtRACtS wIth ImmEdIAtE SURRENdER oPtIoN
Investments in associates held to cover linked liabilities (consolidated mutual funds and non-trading property companies) 0.0 0.0 0.0
Other assets held to cover linked liabilities (e.g., non-financial assets held by consolidated non-trading property companies) 0.0 0.0 0.0
The CNP Assurances Credit Risks Committee meets periodically to set exposure limits.
A monthly reporting system has been set up to monitor credit risks by issuer and by type of security, such as equity instruments, subordinated debt and secured debt. A qualitative analysis of credit risks by issuer is performed by in-house credit analysts, mainly based on rating agency reports and investment bank and asset management research.
An internal system has been developed for monitoring issuer and counterparty risk based on a quantitative model used by investment banks.
The bulk of asset portfolios are invested in the securities of euro zone issuers.
Impact on equity -31.7 -6.0 -40.3 25.3 SENSItIvIty of mCEv© to mARkEt RISkS
The Group’s Embedded Value reporting is now based on CFO Forum MCEV© Principles (Market Consistent European Embedded Value Principles developed by a group of finance directors from Europe’s top insurance companies set up in
CNP Assurances uses valuation techniques for measuring financial options based on market consistent financial assumptions at 31 December 2009.
The calculation of Embedded Value necessarily relies on numerous assumptions with respect to economic conditions, operating conditions, policyholders’ behaviour, taxes and other matters, many of which are beyond the Company’s control. Although the assumptions are reasonable, actual future experience may vary from that assumed in the calculation of the Embedded Value results.
Caixa Seguros, which continues to be valued under the traditional approach, PVFP is calculated using the MCEV© methodology whereby risk premiums are excluded from the yield curves and discount rates used. Reference rates are based on the swap yield curve. In-force business includes the Embedded Value of the financial options and guarantees present in the portfolio of insurance contracts, excluding the time-value of said options and guarantees.
The market risk sensitivity of MCEV© is tested to measure the impact of interest rate and equity volatilities. MCEV© principles and the Group’s traditional value reporting procedure cover CNP Assurances SA, the Group’s main subsidiaries in France, the Brazilian subsidiary and the Italian subsidiary. Sensitivity tests are conducted using the following scenarios: ■ the impact of an immediate positive or negative 100-basis point change in the yield curve. This would affect inter alia the fair value of policies with a guaranteed yield and risk discount rates; ■ the impact of an immediate 10% fall in equity and property prices.
Impact on MCEV© 54.0 -222.0 -383.0 Scope: consolidated Group (excluding in-force business of CNP Seguros de Vida and Barclays Vida y Pensiones).
In € millions 100 bps increase in interest rates 100 bps decrease in interest rates 10% decrease in equity prices
ALM techniques – Renewal and surrender rate assumptions – Effects of changes in surrender rate assumptions: The Group performs regular simulations to test the behaviour of the various portfolios according to different interest rate and equity price scenarios.
Asset/liability simulations are carried out using proprietary software that takes into account the specific characteristics of the life insurance business. They are based on a certain number of typical interest rate scenarios. In addition, a large number of scenarios are generated at random to measure the statistical dispersion of results (stochastic simulations).
The impact of a possible fall in interest rates on the Group’s ability to fulfil its commitments to policyholders is analysed at regular intervals.
The risk associated with an increase in interest rates is closely monitored and this is a key focus of our asset/liability management.
In the case of a sharp rise in interest rates to above certain trigger points, the hedges acquired by the Group would generate additional revenues corresponding to the difference between the trigger rate and actual long-term interest rates on the financial markets, thereby improving the return on the hedged assets in a period of rising interest rates. The hedging programme is extended each year, to keep pace with growth in assets under management.
Three classes of business have been identified – savings, pensions and personal risk – in accordance with the differing nature of the Group’s commitment.
Savings contracts fall into two broad categories: ■ Traditional savings contracts, where the insurer is committed to paying a capital sum plus any guaranteed yield and a share of the investment yield over and above the guaranteed minimum in the case of death or when the contract is surrendered or matures; ■ unit-linked products, where the policyholder bears the financial risk and the insurer’s commitment is limited to the additional cover provided, consisting generally of a guaranteed death benefit.
The risk associated with these contracts is determined primarily by the insured’s age, gender and socio-professional category.
Traditional savings contracts – which give rise to a commitment to pay a capital sum – fall into four broad categories: ■ deferred capital insurance with counter-insurance of premiums, giving rise to the payment of a lump sum or annuities; ■ term life insurance, giving rise to the payment of a capital sum when the contract matures, regardless of whether the insured is still alive or not; ■ endowment insurance, giving rise to the payment of a capital sum to the insured when the contract matures or to a named beneficiary if the insured dies before the maturity date; ■ investment certificates, giving rise to the payment of a capital sum.
Unit-linked savings contracts do not involve any capital guarantee for the insurer, except for contracts that also include death and/or disability cover. For these latter contracts, the insurer’s commitment is limited to any positive difference between cumulative gross or net premiums and the value of the units.
Pension contracts – which give rise to a commitment to pay a life annuity – fall into the following categories: ■ voluntary individual pension accounts (“Article 82” accounts) giving rise to the payment of a life annuity from retirement. Retirement age is decided by the insured and a
finanCial statements4 notes to the consolidated financial statements reversionary pension may be paid to a named beneficiary. The contract includes an option to convert the annuity into a lump sum; ■ compulsory individual pension accounts (“Article 83” accounts) giving rise to the payment of a life annuity. The total annuities paid to the insured are based directly on the insured’s salary during the contribution period and a reversionary pension may be paid to a named beneficiary; ■ defined benefit plans (“Article 39” plans) funded by contributions based on total payroll. The contributions are paid into a mutual fund. When each plan participant retires, the total amount of future pension benefits is transferred from the mutual fund to the pension fund. Benefits are paid in the form of annuities; ■ points-based pay-as-you-go group pension plans (“Article L.441-1” plans) giving rise to the payment of annuities corresponding to the number of points earned during the contribution period multiplied by the value of one point. Annuities are adjusted based on changes in the value of a point.
Technical reserves are defined as follows: ■ mathematical reserves correspond to the difference between the present values of the respective commitments of the insurer and the insured;
The assessment of technical reserves is supported by: ■ detailed knowledge of effective dates and the timing of accounting recognition and processing of the various technical and management events, as well as of the exact specifications of period-end processing operations and their scheduling, in order to accurately determine the underwriting and loss years; ■ the creation of files at each period-end to check the consistency of reserves with technical flows; ■ recurring audits of management system calculations, based on random tests and detailed repeat calculations; ■ detailed risk assessments, based on prospective guaranteed yield calculations taking into account commitments in excess of regulatory limits, and on detailed statistical and other analyses of personal risk contracts, including loss monitoring (by contract/underwriting year/loss year) and tracking of the utilisation of reserves.
Uncertainties concerning insurance cash flows mainly relate to the timing of surrenders and the payment of death and other benefits.
25.5.2.8 seNsiTiviTy oF mCev To ChANGes iN surreNder rATes ANd loss rATios
All portfolios are covered by catastrophe excess-of-loss reinsurance obtained from professional reinsurers.
■ Group policies: a) death and disability risks on all Group policies (direct business net of risks ceded to co-insurers, and all quotashare reinsurance purchased from CNP Assurances by provident institutions and mutual insurers) are covered through the Bureau Commun des Assurances Collectives pool. The system provides successively for the retention of the two largest claims per insurer, €30 million in coinsurance cover (of which CNP Assurances’ share is 26%) and reinsurance cover purchased by the pool from external reinsurers. There are three levels of reinsurance cover, as follows: level 1: 20 XS €30 million; level 2: 100 XS €50 million and level 3: 250 XS €150 million with 200% paid reconstitution except for nuclear and NBC terrorism risks. A loss event is defined as involving three or more victims; b) catastrophe risks insured by CNP Assurances for provident institutions and mutual insurers are reinsured on the market. A loss event is defined as involving three or more victims. The Group and provident institutions (acting as a matter of priority on behalf of the two or three largest claimants) retain €1.75 million per loss event and the reinsurers cover €30 million per loss event and €60 million per loss year, except for nuclear, and nuclear, biological and chemical terrorism risks, for which the ceiling is €30 million per loss year.
All portfolios are also covered after 40 times the ceiling per loss year for high capital payouts in the case of IPA3 death of an insured.
Reinsured portfolios are analysed each year, covering: ■ the age pyramid, risk dispersion and concentration of insured populations; ■ the number, size and cause of paid claims, including a detailed analysis of the largest claims; ■ underwriting and reinsurance results.
Reinsurance balances are net settled at quarterly, halfyearly or annual intervals depending on the treaty. There are currently no disputed balances.
25.5.4 Financial options, guarantees and embedded derivatives not separated from the host contract
Exposure to interest rate and market risks associated with embedded derivatives not measured at fair value.
Technical reserves on unit-linked savings contracts are analysed by guaranteed yield in Note 22.
The Group regularly checks the solvency of its reinsurance partners. The discriminating criteria applied for the selection of these partners include their credit rating.
The number of new lawsuits concerning the interpretation of policy terms dropped 11% in 2009, while the number of outstanding lawsuits fell by 3% to 1,620 at the year-end. This was less than the corresponding fall in 2008 (5%) because the number of claims dismissed fell 12% year-on-year.
Two-thirds of lawsuits concern temporary disability clauses and a smaller number concern death benefits.
The Group has established management information systems designed to ensure that it fulfils its commitments to shareholders. These management information systems: ■ roll down Group objectives to the level of the individual businesses; ■ track the progress made by each business in meeting these objectives, in order to allow corrective action to be taken on a timely basis; ■ analyse the components of profit and value creation.
They are used to support underwriting and pricing decisions, based on specific analyses performed for each individual insurance application.
In particular: ■ budgets and business plans provide the basis for analysing the components of profit, assessing forecast profitability and measuring the impact of product decisions on future profits; ■ embedded value and new business calculations reflect the business’s current capital resources and its ability to create value. Each year, differences between forecast and actual value creation are analysed and presented at the same time as the financial statements.
In compliance with the assignment entrusted to us by your Shareholders’ Meeting, we hereby report to you, for the year ended 31 December 2009, on: ■ the audit of the accompanying consolidated financial statements of CNP Assurances; ■ the justification of our assessments; ■ the specific verification required by law.
Without qualifying our opinion, we draw your attention to the matter set out in Note 3.18 to the consolidated financial statements regarding the application of the new IFRS 8 on operating segments.
The financial crisis and resulting economic downturn have impacted companies, in particular their business activities and financial stability. The extreme volatility of the financial markets that have remained active, the scarcity of transactions in markets that have become inactive and a lack of future visibility have created specific conditions this year affecting the preparation of the financial statements, in particular as regards accounting estimates which are required under applicable accounting standards. These conditions are described in Note 1.1 to the consolidated financial statements. Against this backdrop, and in accordance with the provisions of Article L.823-9 of the French Commercial Code (Code de commerce), we bring to your attention the following matters: ■ Certain technical items specific to insurance and re-insurance, on both the assets and liabilities sides of the consolidated balance sheet, such as technical reserves and securities portfolios, are estimated based on statistical and actuarial considerations.
■ Goodwill is tested for recoverability at each period-end in accordance with the methods described in Note 3.8 to the consolidated financial statements. We verified that the measurement approaches used were based on assumptions that were consistent with the forecast data taken from the Group’s business plans.
■ Financial assets and derivative instruments are recognised and measured in accordance with the methods described in Note 3.9 to the consolidated financial statements. We obtained assurance that the measurement criteria were implemented and that the classification used was consistent with the Group’s documentation.
Receivables due from government and social security bodies 561,318 405,947 38.3%
finanCial statements 4 company financial statements at 31 December 2009 4.4.1.2. EqUIty ANd lIAbIlItIES
finanCial statements4 company financial statements at 31 December 2009 4.4.2. Ilincome statement at 31 December 2009 4.4.2.1. NoN-lIfE tEChNICAl ACCoUNt
Paid claims and benefits and change in claims reserves: (14,764) 8,032 (6,732) (19,921) -66.2%
finanCial statements 4 company financial statements at 31 December 2009 4.4.2.2. lIfE tEChNICAl ACCoUNt life technical account
mark-to-market gains on assets held to cover linked liabilities 3,496,171 0 3,496,171 1,653,545 111.4%
Internal and external management fees and interest (434,389) 0 (434,389) (604,638) -28.2%
mark-to-market losses on assets held to cover linked liabilities (1,408,906) 0 (1,408,906) (6,680,365) -78.9%
finanCial statements 4 company financial statements at 31 December 2009 4.4.4. IlProposed appropriation of 2009 profit Net profit for the year ended 31 December 2009 came in at €934,267,620.14 and the retained earnings account at the year end stood at €392,500,540.49. The total amount available for distribution is therefore €1,326,768,160.63, less a non-distributable portion of €12,489,703.25 which is transferred back to retained earnings in accordance with Article R.331-5-4 of the French Insurance Code. The Board of Directors will ask the shareholders at the Extraordinary General Meeting of 25 May 2010: ■ to transfer an amount of €868,664,988.38 to reserves; ■ to distribute a total dividend of €445,613,469 to be shared between all shareholders.
The total amount of the dividend distributed will be reduced by the amount corresponding to the number of any treasury shares held by the Company which will be transferred to the retained earnings account.
Private shareholders resident in France will be entitled to 40% tax relief on the dividend pursuant to Article 158-3-2 of France’s General Tax Code (Code général des impôts). Alternatively, these shareholders may elect to pay 18% withholding tax on their dividends (Article 177 quater of the General Tax Code).