• 50 million individuals and businesses have placed their trust in us: to insure their property (vehicles, housing, equipment) to provide life, health and other personal protection coverage for their families or employees to manage their personal or corporate assets
• 12,000 volunteers donating their time and skills to community organizations a • COB (US) intro/couv.(V5) 1/07/02 11:44 Page D Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
The AXA Group II A Word from the Chairman and the President
Contents a • COB (US) intro/couv.(V5) 1/07/02 11:44 Page E Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
Process once again took center stage and quality circles bent over their
“Ichikawa” quickly sprung up. Once again, in spite of the tendency to bureaucratize the concept of quality, real progress was made. But then Japan became mired in a long-term economic crisis, and its vaunted methods lost their luster as the 1987 financial collapse was succeeded by a series of real estate market fallouts in the early 1990s. Capital came back into fashion: businesses needed equity and, therefore, had to attract it. And in the same way that “enriched tasks” had earlier been supplanted by the notion of
“quality,” CEOs began replacing “quality” with the idea of “shareholder value.”
To some extent, this is where things still stand. One gets the impression, from reading quarterly and annual reports or listening to CEOs, that today’s businesses are not in the game to satisfy clients or create wealth for the benefit of all stakeholders, including employees – who are not even mentioned any more – but only to enrich investors, whether faithful or not.
of the Supervisory Board At the same time new planetary concerns have surfaced: What are we doing with the earth? Where will the unchecked race for wealth lead? Are certain working methods morally unacceptable? Is it normal that a few people are getting richer while others are getting poorer? What is the role of the corporation – which is going global, gaining power and dematerializing, all at the same time – in this rapid evolution? The concept of “sustainable development” is an attempt to address these issues. Sustainable development also has its prophets, who say businesses that fail to pay as much attention to clients, employees, and the physical and human environment as to their shareholders are doomed to disappear.
The so-called ethical or alternative funds proliferating today are a good sign –
And there is nothing wrong with criticizing corporate behavior, except when ideology or base ulterior motives win out over the truth.
AXA believes in sustainable development... within reason. Respect for the environment, respect for the truth, and generous corporate giving are necessary but not sufficient to move businesses and society as a whole forward.
Like all business organizations, AXA must begin by creating wealth and making decisions that guarantee its own longevity. This is the most basic prerequisite for sustainable development.
Interview with the For many observers, 2001 will be remembered as a very dark year. What impact did the year’s events have on AXA? Henri de Castries: The year 2001 was the worst in history for the insurance industry. It was the first time that a global economic recession, financial market depreciation, and a series of severe losses – in particular those related to the tragic terrorist attacks on the US – occurred simultaneously. These were all external events over which the AXA Group had no control whatsoever. Our situation was analogous to that of a ship caught in the eye of a storm. While some of our sails were torn to shreds, the ship came out unscathed and its crew is both stronger and wiser.
First of all, in the property-casualty sector. The successive jolts served as an effective wake-up call for clients, because they helped shed light on the need to insure risks and to seek coverage from sound and reliable carriers. Adequate cover has a price, but the good news is that clients are beginning to realize that factors other than price
Is our positioning as a provider of financial protection and wealth management services still relevant? H. de C: Our strategic choices remain valid. The important decisions we made in 2000 – to buy out the minority interests in the US and the UK, to sell the investment bank DL J at the right time, to acquire the US asset manager Sanford C. Bernstein and
Nippon Dantai in Japan – helped refocus the Group on its core business and key markets. Our positioning in geographic markets where affluence is on the rise is definitely an advantage, and it strengthens our core business fundamentals.
The importance of insuring property, protecting human beings, and setting aside money for the future is deeply entrenched in developed nations, and the outlook for these businesses has not changed. The series of mergers we have completed has given us critical mass. The time has now come to focus our energies on attaining operational excellence.
So you remain basically optimistic. Do you think that today’s difficulties can be transformed into opportunities in the long run? H. de C: Absolutely. The AXA Group is profitable and its revenues and business continue to grow. Our financial structure is sound, and the Group’s key subsidiaries have excellent financial strength ratings. But we also need to be realistic. We are coming off a speculative bubble, and it is important not to be overly reliant on market appreciation to boost earnings. Going forward, success will necessarily depend on our ability to improve operational performance. We have acquired an extraordinary level of expertise, which will support our bid to improve by offering our clients better service, acquiring additional market share, reducing operating costs and improving underwriting results. The Group has what it needs to reach these goals, and that is why I am confident: the answers to the challenges we face are in our hands.
What is your view of recent stock price volatility? H. de C: The AXA stock price fell because of the general decline in the world’s stock markets and the even steeper decline in insurance sector stocks. However, it is important to put this situation into perspective. Until 2001, our exposure to the US and Japanese markets, and our success in developing unit-linked product sales, were seen as critical strengths. In 2001, when the crisis kicked in, they suddenly came to be viewed as possible sources of weakness. This reaction is excessive. And it is not new: it happened in 1991, when AXA acquired control over Equitable. The wisdom of this acquisition was not widely understood at the time, and AXA’s stock price plummeted as a result. It happened again in 2000, when we bought out the outstanding minority interests in
Financial protection and wealth management mean responding to the evolving needs of our clients – whether they are individuals, small or medium-sized businesses or large corporations – in the areas of insurance, personal protection, savings and estate planning.
We have opted to unite our businesses under a global brand that stands for a shared set of values and commitments.
Commitments to our three key stakeholders: our clients, our shareholders, and our employees.
• We will work to build lasting, trust-based relationships with our clients, by delivering solutions that meet real needs and services that are responsive and efficient, and by upholding business practices that are consistent with our values.
• We will strive to improve performance consistently and cultivate relationships with our shareholders based on total transparency.
• With respect to our business partners, vendors and suppliers, we are committed to high standards of quality and on-time delivery.
The AXA Vision It’s how we see financial protection and wealth management and how we do business.
a • COB (US) intro/couv.(V5) 1/07/02 11:44 Page VI Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
These events combined to produce the strongest global economic slowdown the world has seen since 1974, which in turn led to a sharp decline in corporate earnings and sent stock markets tumbling.
The world’s central banks responded to the deepening recession by easing monetary policy. The US Federal Reserve Bank cut its key interest rates 11 times in one year, bringing them down from 6.5% to a low of 1.75%.
States, the Dow Jones fell by 7%, while Standard & Poor’s 500, down 13%, experienced its worst year since 1974. Nasdaq, the leading market for technology stocks, lost more than 21% in 2001, while in Asia the Nikkei 225 plunged 23.5%. The stock market tumble did not spare a single industry or sector.
Stoxx Insurance index down 30.5% in 2001. Recovery in property and casualty pricing was offset to some extent by a potential margin squeeze, arising from lower equity returns, lower interest rates and higher default rates, and by a slowdown in sales of mutual funds and investment-linked life products. The defensive characteristics of the insurance industry (that is, long-term growth driven by the demographic requirement for people to save for their retirement) were overshadowed by the perceived sensitivity to financial markets, making the sector as a whole more volatile.
This turbulent environment focused investors’ attention on balance sheet strength, and companies perceived to have leveraged balance sheet positions relative to overcapitalized companies were penalized by the markets.
+10.9%: AXA stock price increase between January 1, 2002 and March 19, 2002.
14%: Total return provided by AXA stock over five years. For the sake of comparison, over the same period stocks in the Stoxx Insurance, Stoxx 50 and CAC 40 provided a total return of respectively.
/2 9/0 1/3 1/0 2/2 8/0 3/3 0/0 4/3 0/0 5/3 1/0 6/2 9/0 7/3 1/0 8/3 1/0 9/2 8/0 10/3 1/0 11/3 0/0 12/3 1/0 1/3 1/0 2/2 8/0 3/1 9/0 a • COB (US) intro/couv.(V5) 1/07/02 11:44 Page VIII Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
In 2002, the markets have remained volatile, due to concerns that Enron-style corporate failures may be repeated. Investors have been wary of companies with opaque financial reporting and aggressive accounting methodology.
The insurance industry got off to a shaky start in 2002. Profit warnings, rating agency downgrades and capital concerns have exerted downward pressure on the sector.
Between January and March, seven insurance companies issued profit warnings, and rating agencies downgraded their recommendations and/or outlook on four insurers. The reporting of full year 2001 results did little to reassure investors. Most companies reported significant declines in their net asset values and some companies re-based their dividend policy to conserve capital.
and the Japanese Nikkei up by 11.9% since the start of the year.
terrorist attacks on September 11, 2001, the operating result was better than expected.
The 2001 operating results were perceived favorably by the markets on several levels: • The underlying operating performance showed strong improvement over 2000 (an increase of 28% to €1.5 billion, or an increase of 15% on a per share basis) despite difficult market conditions.
AXA’s expectation for growth of at least 20% in operating earnings in 2002 was welcomed, particularly in an environment where competitors have been unwilling to provide guidance for the coming year. This has provided analysts with a clear
+14.5% Growth in the dividend paid out over the last five years.
A LEADING STOCK The AXA share is included in the major European indices as well as the Dow Jones Global Titan Index, which is comprised of the stocks of 50 of the world’s largest US, European and Japanese multinational corporations, and Standard & Poor’s 100 Index, the first global index that groups the world’s 100 largest corporations based on earnings.
a • COB (US) intro/couv.(V5) 1/07/02 11:44 Page IX Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
TOTAL CONSOLIDATED GROSS PREMIUM AND FINANCIAL SERVICES REVENUES IN 2001: €74.8 BILLION (+2.1% on a comparable basis)
Managed on behalf of third parties 32% AXA (General account assets)
Savings 22% France a • COB (US) intro/couv.(V5) 1/07/02 11:44 Page X Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
2000** 2001 1, 1, * Since 2000, the operating results of AXA Group have been presented on a basis referred to as “adjusted earnings”, which represents AXA’s consolidated net income before the impact of exceptional operations and amortization of goodwill. Adjusted earnings is a non-GAAP measure, which management believes provides a meaningful understanding of the results. It should be noted that “Adjusted Earnings” as defined, may not be comparable with similarly-titled measures reported by other companies as it is not defined under either French GAAP or U.S. GAAP.
a • COB (US) intro/couv.(V5) 1/07/02 11:44 Page XII Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
a • COB (US) intro/couv.(V5) 1/07/02 11:44 Page XIII Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
(as evidenced by American Depositary Receipts), each representing one Ordinary Share New York Stock Exchange
a • COB (US) intro/couv.(V5) 1/07/02 11:44 Page 1 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
Item 1 Identity of Directors, Senior Management and Advisors....................................... 6 Item 2 Offer Statistics and Expected Timetable ............................................................... 6 Item 3 Key Information .................................................................................................. 6 Item 4 Information on the Company ........................................................................... 22 Item 5 Operating and Financial Review and Prospects................................................. 60 Item 6 Directors, Senior Management and Employees ............................................... 136 Item 7 Major Shareholders and Related Party Transactions ......................................... 149 Item 8 Financial Information...................................................................................... 152 Item 9 The Offer and Listing ...................................................................................... 152 Item 10 Additional Information .................................................................................... 156 Item 11 Quantitative and Qualitative Disclosures About Market Risk ............................. 184 Item 12 Description of Securities other than Equity Securities ....................................... 189
Item 17 Financial Statements ....................................................................................... 189 Item 18 Financial Statements ........................................................................................ F-1 Item 19 Exhibits ............................................................................................................ E-1
Pages Presentation of Information................................................................................. 3 Exchange Rate Information................................................................................. 3 Special Note Regarding Forward-Looking Statements.......................................... 4 a • COB (US) intro/couv.(V5) 1/07/02 11:44 Page 2 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
“ParisBourse”). The Company’s American Depositary Shares and Receipts are referred to in this annual report as
GAAP”. Unless noted otherwise, the financial information contained in this annual report is presented in accordance with French GAAP. French GAAP is based on requirements set forth in French law and in
GAAP differs significantly from accounting principles generally accepted in the United States of America, which we refer to in this annual report as “U.S. GAAP”. See notes 33 and 34 to the consolidated financial statements for a description of the significant differences between French GAAP and U.S. GAAP, a reconciliation of net income and shareholders’ equity from French GAAP to U.S. GAAP and condensed consolidated U.S. GAAP
Various amounts in this document are shown in millions for presentation purposes. Such amounts have been rounded and, accordingly, may not total. Rounding differences may also exist for percentages.
Exchange Rate Information France is a member of the European Monetary Union (“EMU”). On January 1, 1999 a single European currency known as the “Euro” was introduced and became the lawful currency of the EMU member states which include: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, The Netherlands, Portugal, Spain and
Greece. On such date, the legal rate of conversion between the French franc and the Euro was fixed at
FF 6.55957 = €1.00 and transactions denominated in Euro started to take place, including new public debt issues. Euro banknotes and coins came into circulation on January 1, 2002. Outstanding obligations denominated in national currencies have been converted at the legal rates established on January 1, 1999 (unless specific contracts provide for an alternative conversion rate). During the transitional phase, which began on January 1, 2002 and will end on July 1, 2002, national currencies, including banknotes and coins, will subsist as nondecimal denominations of the Euro. By July 1, 2002, the Central European Bank will withdraw the national currencies from circulation, and these currencies will no longer be legal tender for any transactions.
AXA publishes its consolidated financial statements in Euro (“Euro”, “euro” or € ). Unless noted otherwise, all amounts in this annual report are expressed in Euro. The currency of the United States will be referred to as “US dollars” or “US$” or “$”. For historical exchange rate information, refer to “Item 3-Key Information-
Exchange Rate Information”. For a discussion of the impact of foreign currency fluctuations on AXA’s financial condition and results of operations, see “Item 5-Operating and Financial Review and Prospects-Market
Special Note Regarding Forward-Looking Statements This annual report contains both historical and forward-looking statements concerning the financial condition, results of operations and business of AXA. All statements other than statements of historical facts are, or may be deemed to be, forward-looking statements. Forward-looking statements are statements of future expectations that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements, including those discussed elsewhere in this annual report and in AXA’s other public filings, press releases, oral presentations and discussions. Forward-looking statements include, among other things, discussions concerning the potential exposure of AXA to market risks, as well as statements expressing management’s expectations, beliefs, estimates, forecasts, projections and assumptions.
Forward-looking statements in this annual report are identified by use of the following words and other similar expressions, among others: • “anticipate” • “objectives”
materially from those expressed in the forward-looking statements included in this annual report: • the intensity of competition from other financial institutions; • AXA’s experience with regard to mortality and morbidity trends, lapse rates and policy renewal levels relating to its life & savings operations, which also include health products; • the frequency, severity and development of property & casualty claims including catastrophic events which are uncertain in nature, and policy renewal rates relating to AXA’s property & casualty business; • re-estimates of AXA’s reserves for future policy benefits and claims; • market risks related to (a) fluctuations in interest rates, stock market prices and foreign currency exchange rates, (b) adverse changes in the economy in AXA’s major markets and other adverse developments that may affect the value of AXA’s investments and/or result in investment losses and default losses, (c) the use of derivatives and AXA’s ability to hedge such exposures effectively, and (d) counterparty credit risk; • the continuing impact of the September 11, 2001 terrorist attacks on the United States, the ensuing military and other responsive actions and possibility of future terrorist-related incidents; • AXA’s ability to develop, distribute and administer competitive products and services in a timely, cost-effective manner and its ability to develop information technology and management information systems to support strategic goals while continuing to control costs and expenses; • AXA’s visibility in the market place, the financial and claims-paying ability ratings of its insurance subsidiaries, as well as AXA’s ability to access adequate financing to support its future business; • the effect of changes in laws and regulations on AXA’s businesses, including changes in tax laws affecting insurance (including annuity products) as well as operating income and changes in accounting and reporting practices; • the costs of defending litigation, the risk of unanticipated material adverse outcomes in such litigation and
The above factors are in addition to those factors discussed elsewhere in this annual report including matters discussed under “Item 3 - Key Information - Risk Factors”; “Item 4 - Information on the Company”; “Item 5 -
The historical data set out below is only a summary. You should read it in conjunction with the consolidated financial statements and related notes for the years ended December 31, 2001, 2000 and 1999 and as at
December 31, 2001 and 2000 included elsewhere in this annual report.
Most of the accounting policies set forth in the new French Regulations were already in effect at AXA and, therefore, the adoption had limited impact to the consolidated operating results and financial position of AXA.
The after-tax cumulative effect of the changes in French accounting principles was a charge of €593 million against consolidated shareholders’ equity at January 1, 2001, or a decrease of 2%. In addition, the new
French GAAP differs in certain material respects from U.S. GAAP. For a description of the material differences between French GAAP and U.S. GAAP relevant to AXA, please see “Item 5-Operating and Financial Review and Prospects –Reconciliation of French GAAP to U.S. GAAP” and notes 33 and 34 to the consolidated financial statements.
As a result of the sale of Donaldson, Lufkin & Jenrette (which we refer to in this annual report as “DLJ”) on
Please refer to “Item 5-Operating and Financial Review and Prospects”, included elsewhere in this annual report, for information regarding the impact of the adoption of the new French Regulations and other significant events affecting the comparability of AXA’s consolidated financial results for the year ended December 31, 2001 as compared to the years ended December 31, 2000 and 1999.
AXA Insurance Holding in Japan (formerly known as AXA Nichidan) and its subsidiaries use a financial year end of September 30 and are consolidated as at and for the year ended September 30 in AXA’s consolidated financial statements. In prior years, AXA Asia Pacific Holdings and its subsidiaries also had a financial year ending
Income Statement Data: In accordance with French GAAP: Gross premiums and financial
Equity in income (loss) from affiliated entities 15 17 (23) (10) 11 45
Income from continuing operations (after tax and minority interest) 1,321 1,484 951 864 618 156 Income from discontinued operations
Diluted Income from continuing operations (after tax and minority interest) 0.77 0.87 0.62 0.60 0.44 0.11
b • Items 1-4 (V5) 1/07/02 11:42 Page 7 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
(2) All per ordinary share amounts calculated in accordance with French GAAP and U.S. GAAP are based on the weighted average number of ordinary shares outstanding for each period presented. Shareholders’ equity per ordinary share is calculated based on the number of ordinary shares outstanding at each period-end presented. The U.S. GAAP calculations deduct ordinary shares held by AXA and its subsidiaries (that is, treasury shares) in the calculation of weighted average number of ordinary shares outstanding (for net income per ordinary share) and ordinary shares outstanding (for shareholders’ equity per ordinary share). The calculation of basic and diluted net income per ordinary share for each of the three years ended December 31, 2001 is presented in note 24 “Net Income per Ordinary Share” to AXA’s consolidated financial statements.
(6) Investments exclude separate account (unit-linked) assets. (7) Includes future policy benefits, including the U.K. with-profit contract liabilities, claims reserves and other insurance reserves and excludes separate account
(8) The financial data have been translated from Euro to U.S. dollars using the Euro Noon Buying Rate at December 31, 2001 of €1.00 = $0.8901 (see “–Exchange rate information”). These translations are solely for the convenience of the reader and should not be construed as representations that the converted amounts actually represent such U.S. dollar amounts or could have been (at the relevant date) converted into U.S. dollars at the rate indicated or at any other rate.
Balance Sheet Data: In accordance with French GAAP: Shareholders’ equity per ordinary share2,4 12.7 14.3 14.6 11.5 9.7 9.1
In accordance with US GAAP: Shareholders’ equity per ordinary share2,4 15.3 17.2 19.2 16.1 14.7 12.9
Impact of exceptional operations4 – 1,431 1,643 156 Goodwill amortization (group share) (681) (279) (279) (180)
INFORMATION ON EURO NOON BUYING RATES The following table sets forth, for the periods and dates indicated, certain information concerning the Noon
The table below sets forth the high and low Euro Noon Buying Rates for the most recent six months through to April 2002.
The Euro Noon Buying Rate on December 31, 2001 was €1.00 = US$ 0.8901.
(1) The exchange rates presented correspond to the year-end exchange rate and average exchange rate for a September 30 financial year. (2) Same as in footnote (1) above for 2000 and 1999. However, in 2001, the reporting year-end was changed to December 31 and, therefore, the average exchange rate corresponds to the period from October 1 to December 31 (15-month period) and the year-end exchange rate is at December 31.
b • Items 1-4 (V5) 1/07/02 11:42 Page 11 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
Dividends AXA pays dividends in Euro. Future dividends will depend on AXA’s earnings, financial condition and other factors. Proposals for dividend payments are made by the Management Board, subject to prior approval by the Supervisory Board and final approval by AXA’s shareholders at the ordinary annual general meeting of shareholders. Dividends paid to holders of ordinary shares and ADSs will generally be subject to French withholding tax at a rate of 25 % which, subject to certain procedures and exceptions, may be reduced to 15% for holders who are residents of the United States. Certain holders of ordinary shares and ADSs may be entitled to receive a subsequent payment equal to the French avoir fiscal (or tax credit) in an amount equal to 50% of any dividends paid by the Company, less applicable French withholding tax. See “Item 10-Additional
Information– Taxation of Dividends Avoir Fiscal” for a summary of certain United States federal and French tax consequence to holders of ordinary shares and ADSs.
The following table sets forth the total dividends paid per ordinary share with respect to each year indicated, with or without the French avoir fiscal, and before deduction of any French withholding tax. Dividends paid in each year are in respect of the prior year’s results.
(1) Payment equivalent to the French avoir fiscal or tax credit, less applicable French withholding tax, will be made only following receipt of a claim for such payment, and, in any event, not until after the close of the calendar year in which the respective dividends are paid. Certain US tax exempt holders of ordinary shares or ADSs will not be entitled to full payments of avoir fiscal. (see “Item 10-Additional Information – Taxation”).
(2) Restated to take account of the 4-for-1 stock split approved by the shareholders at the annual general meeting of shareholders held on May 9, 2001. (3) At the annual general meeting of shareholders of AXA held on May 3, 2002, the shareholders approved the declaration of a dividend in respect of 2001 of euro 0.56 per ordinary share, or euro 971 million in the aggregate based on the number of AXA ordinary shares outstanding at December 31, 2001. In 2000, dividends per ordinary share were based on the number of AXA ordinary shares outstanding at December 31, 2000 and also included the 4.9 million ordinary shares issued to the remaining minority interests in AXA Financial, Inc. following the completion of the merger of AXA Merger Corp. with and into AXA Financial, Inc. on January 2, 2001.
For information on AXA’s dividend policy, see “Item 8 – Financial Information” and “Item 10 – Additional
b • Items 1-4 (V5) 1/07/02 11:42 Page 12 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
SIGNIFICANT SHAREHOLDERS OF AXA MAY HAVE INTERESTS CONFLICTING WITH YOUR INTERESTS The Mutuelles AXA, four French mutual insurance companies, acting as a group, owned at March 19, 2002, directly and indirectly through Finaxa, a holding company they control, approximately 20.6% of the issued ordinary shares of AXA representing approximately 33.2% of the voting power. Most of the shares owned by the
Information – Certain Rights of AXA’s shareholders – Voting Rights” in this annual report. The Mutuelles AXA are parties to agreements pursuant to which they have stated their intention to collectively exercise majority control over Finaxa. Given the long-term nature of their relationship with AXA, we cannot assure you that the interests of the Mutuelles AXA will not, from time to time, conflict with your interests as a shareholder. For example, even though the Mutuelles do not hold a majority of the total voting power in AXA, a decision by the Mutuelles AXA
to decline or deter a future offer to acquire control of AXA, which other shareholders may find attractive, may prevent other shareholders from realizing a control premium for their AXA ordinary shares or ADRs. In addition,
Finaxa has the right to terminate, under certain circumstances, or limit AXA’s rights to use the AXA trademark, as described under “–Finaxa may terminate the licensing to AXA of the AXA trademark which we consider to be important to the marketing of our products and services”. The existence of this right of Finaxa may also deter potential acquirers from making an offer to acquire control of AXA. The Mutuelles AXA may decide to increase their interest in AXA, or to sell all or a portion of the ordinary shares they own, at some future date.
The Life & Savings business and the Property & Casualty business of the Mutuelles AXA and the Company’s
AXA and the Company’s insurance subsidiaries that restrict in any way their ability to compete with one another.
Most of the costs and expenses of operating the Life & Savings business and the Property & Casualty business in the Company’s French insurance subsidiaries (other than commissions) are shared by the relevant Company subsidiaries and the Mutuelles AXA and allocated among them through Groupements d’Intérêt Economique or GIEs. GIEs are partnerships that perform various common services for their members and allocate associated costs and expenses. These costs and expenses currently are allocated on the basis of actual use of the specific service, to the extent practicable. The manner of managing these insurance businesses or allocating these costs and expenses may change in the future in a way that may increase AXA’s operating costs and adversely affect its results of operations.
b • Items 1-4 (V5) 1/07/02 11:42 Page 13 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
A DECLINE OR INCREASED VOLATILITY IN THE SECURITIES MARKETS, AND OTHER ECONOMIC FACTORS, MAY ADVERSELY AFFECT OUR BUSINESS, PARTICULARLY IN RESPECT OF CERTAIN OF OUR INSURANCE PRODUCTS, MUTUAL FUNDS AND ASSET MANAGEMENT BUSINESSES, AND MAY ALSO ADVERSELY AFFECT OUR INVESTMENT RETURNS AND PROFITABILITY Fluctuations in the securities markets and other economic factors may adversely affect sales of our separate account (unit linked) products, including variable annuity products, variable life products, participating life insurance and pension products, mutual funds, and asset management services. In particular, a protracted or steep decline in the stock or bond markets would likely reduce the popularity of these products. For example, in the U.S. Life & Savings operations, a significantly lower percentage of annuity premium was invested in the separate account options in 2001 (59%) as compared to 2000 (72%).
In addition, the growth of our asset management business depends to a significant extent on factors such as investment returns and risk management. We will not be able to accumulate and retain assets under management if our investment results underperform the market or the competition. Such underperformance would likely result in asset withdrawals and reduced sales. In addition, poor performance in the financial markets, in general, may adversely impact the value of the assets we manage, our ability to accumulate and retain those assets, as well as the revenues and profits that we earn from management of those assets.
b • Items 1-4 (V5) 1/07/02 11:42 Page 14 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
These parties include the issuers whose securities we hold, borrowers under the mortgage loans we make, customers, trading counterparties, counterparties under swaps and other derivative contracts, clearing agents, exchanges, clearing houses and other financial intermediaries. These parties may default on their obligations to us due to bankruptcy, lack of liquidity, downturns in the economy or real estate values, operational failure or other reasons. The current uncertain trends and investment climates in various of our major markets, have resulted in an increase in investment impairments on our investment assets due to defaults, credit downgrades and overall declines in securities markets. A further downturn could result in increased impairments. For example, on a consolidated basis AXA recognized impairments on equity investments, including holdings in mutual funds, of €1,163 milllion in 2001 (2000: €626 million). We may realize additional losses in respect of our investment portfolios in the future, including losses in respect of our fixed maturity investments.
Conversely, in periods of increasing interest rates, surrenders of life insurance policies and fixed annuity contracts may increase as policyholders choose to forego insurance protection and seek higher investment b • Items 1-4 (V5) 1/07/02 11:42 Page 15 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
The profitability of our spread-based businesses depends in large part upon our ability to manage interest rate spreads, and the credit and other risks inherent in our investment portfolio. We cannot guarantee, however, that we will successfully manage our interest rate spreads or the potential negative impact of those risks.
We are subject to detailed and comprehensive regulation and supervision in all the jurisdictions in which we transact business. Our insurance operations are subject to insurance laws and regulations, which are generally intended to protect policyholders, not our shareholders. Changes in existing insurance laws and regulations may materially affect the way in which we conduct our business and the products we may offer.
Our asset management operations are subject to securities laws, which are primarily intended to protect investors in the securities markets or investment advisory clients and generally grant supervisory authorities broad administrative powers. Changes to these laws and regulations could have a material adverse effect on our asset management operations and on the company as a whole.
• development in claims (frequency, severity and pattern of claims) between the amount estimated and actual experience; • changes arising due to the time lag between the occurrence of the insured event, notification of the claim
(from the insured party, a third party or a ceding company) and the final settlement (payment) of the claim, primarily attributable to long tail casualty claims that may take several years to settle due to the size and nature of the claim, and the occurrence of large natural catastrophes late in the financial year for which limited information may be available at year end; • judicial trends; • regulatory changes; and
We continually review the adequacy of the established claims reserves, including emerging claims development, and actual claims compared to the original assumptions used to estimate initial gross claims reserves. Based on current information available, we consider that these provisions are sufficient. However, because the establishment of claims reserves is an inherently uncertain process, we cannot assure you that ultimate losses will not materially exceed our claims reserves and have a material adverse effect on our earnings.
As with other property & casualty insurers and reinsurers, our operating results and financial condition can be adversely affected by volatile and unpredictable natural and man-made disasters, such as hurricanes, windstorms, earthquakes, fires and explosions. We generally seek to reduce our exposure to these events through individual risk selection and the purchase of reinsurance. We have experienced in the past, and could experience in the future, material losses from such catastrophic events.
OUR ACQUISITIONS MAY DIVERT MANAGEMENT AND MAY INVOLVE RISK OF UNDISCLOSED LIABILITIES While management is currently focused on increasing synergies, operating efficiencies and profitability of AXA
Our acquisitions could result in the incurrence of additional indebtedness, costs, contingent liabilities and amortization expenses related to goodwill and other intangible assets, all of which could materially adversely affect our businesses, financial condition and results of operations. Future acquisitions may also have a dilutive effect on the ownership and voting percentages of existing shareholders.
The businesses we have acquired include life & savings, property & casualty insurance, asset management and retail banking operations. There could be unforeseen liabilities that arise out of the businesses we have acquired and may acquire in the future which may not be covered by, or exceed the amount of, the indemnification obligations of sellers.
AS A GLOBAL BUSINESS, WE ARE EXPOSED TO DIFFERENT LOCAL POLITICAL, REGULATORY AND BUSINESS RISKS AND CHALLENGES WHICH MAY AFFECT THE DEMAND FOR OUR PRODUCTS AND SERVICES, THE VALUE OF OUR INVESTMENTS PORTFOLIO AND THE CREDIT QUALITY OF LOCAL COUNTERPARTIES We offer our products and services in Europe, North and South America, the Asia/Pacific zone, the Middle East, and Africa through wholly-owned and majority-owned subsidiaries, joint ventures, companies in which we hold a non-controlling equity stake, agents and independent contractors. Our international operations expose us to different local political, regulatory, business and financial risks and challenges which may affect the demand for our products and services, the value of our investment portfolio, the required levels of our capital and surplus, and the credit quality of local counterparties. These risks include, for example, political, social or economic instability in countries in which we operate, fluctuations in foreign currency exchange rates, credit risks of our local borrowers and counterparties, lack of local business experience in certain markets, risks associated with the exposure to insurance industry insolvencies through policyholder guarantee funds or similar mechanisms set up in foreign markets and, in certain cases, risks associated with the potential incompatibility with foreign partners, especially in countries in which we are conducting business through entities we do not control.
Our expansion in emerging markets requires us to respond to rapid changes in market conditions in these countries. Our overall success as a global business depends, in part, upon our ability to succeed in differing economic, social and political conditions. We may not continue to succeed in developing and implementing policies and strategies that are effective in each location where we do business.
THE TERRORIST ATTACKS ON THE UNITED STATES AND ENSUING EVENTS MAY HAVE A CONTINUING NEGATIVE IMPACT ON CERTAIN OF OUR BUSINESSES Our losses arising from insurance claims in connection with the terrorist attacks on September 11, 2001 had a negative effect on our net income. The estimated cost for AXA for the year ended December 31, 2001, based on information available at such date, amounted to €846 million (before tax and net of reinsurance), or €561 million net of tax and reinsurance. These estimates are based on the best information available to management; however, they may be affected by a number of factors including, for example, possible bankruptcies of reinsurers who provide coverage to us and/or an adverse outcome of the litigation currently pending in New York as to whether the terrorist attack on the World Trade Center constitued a single insurable incident ot two separate incidents. Consequently, there can be no assurance that AXA’s ultimate exposure will not be greater than these estimates.
At this time, we cannot assess the future effects of the terrorist attacks, the ensuing U.S. military and other responsive actions and the possibility of further terrorist attacks, on our businesses. The terrorist attacks and responsive actions have significantly adversely affected general economic, market and political conditions, increasing many of the risks in our businesses noted in the previous risk factors. This may have a negative effect on our businesses and results of operations over time. In particular, the declines and volatility in share prices experienced following the reopening of the United States equity markets following the attacks have contributed and may continue to contribute to a decline in assets under management, which in turn could have a negative effect on fees we earn based on the value of assets under management.
Our general account investment portfolios, and particularly those of our US subsidiaries, include investments, primarily comprised of fixed maturity securities, in industries that we believe may be adversely affected by the terrorist attacks and responsive actions, including airlines, lodging and entertainment companies and non-life insurance companies. We also have equity securities in these industries. The effect of these events on the valuation of these investments is uncertain and could lead to increased impairments. The cost, and possibly the availability, in the future of reinsurance covering terrorist attacks for our various insurance operations is uncertain.
In addition, the rating agencies could reexamine the ratings affecting the insurance industry generally, including our companies.
At December 31, 2001 and on a consolidated basis, AXA had amounts owed to credit institutions of €6,608 million, outstanding subordinated debt instruments issued, including accrued interest, of €8,868 million and outstanding non-subordinated debt instruments issued of €6,140 million (2000: €9,412 million, €8,261 million and €6,897 million).
We expect that dividends received from subsidiaries will continue to cover our operating expenses, including interest payments on our outstanding financing, operating and subordinated debt and dividend payments with respect to our ordinary shares during each of the next three years. We expect that future acquisitions and strategic investments will be funded from available cash flow remaining after payment of dividends and operating expenses (including interest expense), cash on hand from previous securities offerings, proceeds of future offerings of securities, and proceeds from the sale of non-core assets.
JUDGMENTS OF U.S. COURTS MAY NOT BE ENFORCEABLE AGAINST US Judgments of U.S. courts, including those predicated on the civil liability provisions of the Federal securities laws of the United States, may not be enforceable in French courts. As a result, our shareholders who obtain a judgment against us in the United States may not be able to require us to pay the amount of the judgment.
b • Items 1-4 (V5) 1/07/02 11:42 Page 20 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
Risks related to ownership of AXA ADSS THE TRADING PRICE OF AXA ADSS AND DIVIDENDS PAID ON AXA ADSS MAY BE MATERIALLY ADVERSELY AFFECTED BY FLUCTUATIONS IN THE EXCHANGE RATE FOR CONVERTING EURO INTO U.S. DOLLARS Fluctuations in the exchange rate for converting Euro into U.S. dollars may affect the value of AXA ADSs.
Specifically, as the relative value of the Euro against the U.S. dollar declines, each of the following values will also decline: • the U.S. dollar equivalent of the Euro trading price of AXA ordinary shares on the Paris Bourse, which may consequently cause the trading price of AXA ADSs in the United States to also decline; • the U.S. dollar equivalent of the proceeds that a holder of AXA ADSs would receive upon the sale in France of any AXA ordinary shares withdrawn from the depositary; and
• the U.S. dollar equivalent of cash dividends paid in Euro on the AXA ordinary shares represented by the AXA
ADSs in time to ensure that holders of AXA ADSs can instruct the depositary to vote their shares. In addition, the depositary’s liability to holders of AXA ADSs for failing to carry out voting instructions or for the manner of carrying out voting instructions is limited by the deposit agreement governing the AXA American Depositary
HOLDERS OF AXA ADSS WILL HAVE LIMITED RECOURSE IF AXA OR THE DEPOSITARY FAILS TO MEET THEIR OBLIGATIONS UNDER THE DEPOSIT AGREEMENT OR IF THEY WISH TO INVOLVE AXA OR THE DEPOSITARY IN A LEGAL PROCEEDING The deposit agreement expressly limits the obligations and liability of AXA and the depositary. Neither AXA nor the depositary will be liable if they: • are prevented, delayed or forbidden from performing any obligation by circumstances beyond their control,
Introduction The Company is the holding company for AXA, a worldwide leader in financial protection and wealth management. AXA is the largest French insurance group and one of the largest insurance groups in the world, with consolidated gross revenues of €74.8 billion for the year ended December 31, 2001. AXA is also one of the world’s largest asset managers, with total assets under management as at December 31, 2001 of €910 billion, including assets managed on behalf of third party clients of €507 billion. Based on available information at December 31, 2000, AXA was the world’s fourth largest asset manager with total assets under management of €895 billion.
AXA operates primarily in Western Europe, North America and the Asia Pacific region and, to a lesser extent, in other regions including the Middle East, Africa and South America. AXA has five operating business segments: life & savings, property & casualty, international insurance (including reinsurance), asset management, and other financial services. In addition, various holding companies within the AXA group conduct certain nonoperating activities. The tables below summarize certain key financial data by segment for the periods and as at the dates indicated.
Years ended December 31, (in euro millions, except percentages) 2001 2000 1999
Adjusted earnings from operating segments 1,519 100% 2,482 100% 2,069 100%
(1) Gross premiums received from policyholders in respect of life & savings products which are classified as “universal life” or “investment contracts” (such as, separate account (unit-linked) products) for U.S. GAAP, are recorded as revenue under French GAAP. Under U.S. GAAP, such amounts received are recorded as deposits, and only the policy-related fees charged to the policyholders for cost of insurance, administration, investment management, etc, are recorded as revenue.
Share price as at December 31 (in euros) 23.5 38.5 34.6
(1) Restated in respect of AXA only, due to changes in presentation in accordance with new French Regulations effective January 1, 2001.
b • Items 1-4 (V5) 1/07/02 11:42 Page 23 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
For additional information on AXA’s business segments, see “Item 5 – Operating and Financial Review and
For information regarding the impact of the September 11, 2001 U.S. terrorist attacks on AXA’s operations, see “Item 5 – Operating and Financial Review and Prospects – Year 2001 Operating Highlights”.
AXA seeks to protect its clients against a variety of risks and help them build wealth over their lifetime. It does so by providing insurance, reinsurance, investment management, financial advice and related financial services.
AXA is a global company and offers its services in the world’s major developed markets. It is also present in a number of other markets where sizeable businesses can be developed ethically and profitably.
In realizing its vision, AXA strives to fulfill the needs of its three constituents: • Clients. AXA addresses the needs of individual clients, as well as, the needs of small to medium-sized companies, either directly or through proprietary and third party distribution channels. AXA also serves institutional and large corporate clients by leveraging strong market positions and generating synergies with other lines of business. AXA answers the needs of these clients by offering best-in-class advice, products and service.
• Shareholders. AXA intends to be one of the largest financial services providers by market capitalization in order to maintain flexibility and seize attractive external and organic growth opportunities. In addition,
To achieve its vision, AXA has identified three business objectives: • the implementation of aggressive operating priorities; • a more focused geographical presence aimed at “leadership or exit”, and
Over the next three years, AXA intends to reach its objectives primarily through organic growth and the success of its operating strategies. Its operational priorities are as follows.
“mass affluent” clients, supported by effective Customer Relationship Management tools and processes; • Improved distribution capability: more training and resources for AXA’s captive distribution forces; the expansion of third-party distribution channels; the implementation of “open architecture” distribution
• Improved economic efficiency: group-wide optimization and standardization of core processes such as underwriting and claims handling; consolidation and leveraging of group-wide resources such as developments in information technology, resources and platforms; and
AXA originated from several French regional mutual insurance companies, known collectively as “les Mutuelles Unies”: • In 1982, les Mutuelles Unies took control of Groupe Drouot and following this transaction the new group began operating under the name of AXA.
• In 1992, AXA took control of the Equitable Companies Incorporated following the demutualization of Equitable Life. In 1999, the Equitable Companies Incorporated adopted the name AXA Financial, Inc.
• In 1995, AXA obtained a majority ownership interest in National Mutual Holdings following its demutualization.
National Mutual Holdings recently changed its name to AXA Asia Pacific Holdings Ltd.
• In 1997, AXA merged with Compagnie UAP. This transaction enabled AXA to significantly increase its size and reinforce its strategic positions, especially in Europe.
• In 1998, AXA purchased the minority interests of AXA Royale Belge and, in 1999, acquired Guardian Royal
Exchange in Great Britain through its subsidiary Sun Life & Provincial Holdings (“SLPH”). The Guardian Royal
Suisse Group, which was completed in November 2000. In October 2000, Alliance Capital, a subsidiary of
acquired the remaining minority interests in AXA Financial, which is now a 100% owned subsidiary of AXA.
For information relating to the ownership structure of the Group, see “Item 7 - Major Shareholders and
Related Party Transactions”, included elsewhere in Item 7 of this annual report.
SIGNIFICANT ACQUISITIONS Since 1991, AXA has undertaken a number of significant acquisitions and investments. A summary of these significant transactions is provided below.
For further information on this transaction, refer to note 4 to the consolidated financial statements included elsewhere in this annual report.
insurance company in Japan at that time. Subsequent to this acquisition, the operations of Nippon Dantaï
have been merged under AXA Insurance Holding Co. Ltd. and now operate through the subsidiaries AXA
– AXA acquired the remaining 44%, 40%, 26% and 30% minority interests, respectively, in AXA UK Holdings, formerly Sun Life & Provincial Holdings (United Kingdom), in AXA Financial (United States), in AXA China
(a Belgian savings bank) and merged it with AXA’s existing Belgian bank, IPPA, in early 2000 to create
AXA Bank Belgium. AXA Royale Belge was subsequently renamed AXA Belgium in February 2002.
• In 1997, AXA acquired Compagnie UAP (“UAP”), a French holding company for a group of insurance and financial services companies, through a public exchange offer. This acquisition increased significantly AXA’s operations in particular, in Western Europe.
• In 1995, AXA acquired a controlling equity interest in National Mutual Holdings (renamed AXA Asia Pacific
Life”), in anticipation of Equitable Life’s demutualization. Following the demutualization of Equitable Life in 1992, AXA’s initial investment was converted into a controlling equity interests in The Equitable Companies,
Incorporated (subsequently renamed AXA Financial, Inc.), the holding of Equitable Life.
SIGNIFICANT DIVESTITURES AXA has also sold a number of non-strategic assets and operations that are summarized below.
• In 2001, AXA completed the sale of Banque Worms to Deutsche Bank. Under the terms of the agreement,
AXA retained some of the assets, including those relating to discontinued business activities and a majority of its security portfolio and provided certain guarantees on potential non-performing loans.
Group. As at January 31, 2001, AXA had sold all of the shares of Credit Suisse Group received in this transaction.
(1) U.S. dollar amount has been translated to euro using the Euro Noon Buying Rate on November 3, 2000 of Euro 1.00 = U.S. $0.861), being the date the sale was completed.
AXA Group: Simplified Organization Chart as at December 31, 2001 Set forth below is a simplified organization chart of AXA as at December 31, 2001.
b • Items 1-4 (V5) 1/07/02 11:42 Page 28 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
Standard & Poor’s Corp. (“Standard & Poor’s”) AAA R (“extremely strong”) (“regulatory action”)
The rating scales for the agencies above are set out below.
The commercial paper rating scales for the agencies above are as follows: Rating Agency Highest Rating Lowest Rating
b • Items 1-4 (V5) 1/07/02 11:42 Page 31 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
Business overview The table below presents AXA’s consolidated gross premiums and financial services revenues by segment for each of its major geographic markets for the years indicated.
(%) to total (%) to total (%) to total segment (%) segment (%) segment (%)
AXA Investment Managers 13% 13% 12% National Mutual Funds Management 1% 1% 1%
LIFE & SAVINGS SEGMENT AXA’s Life & Savings Segment offers a broad range of life insurance products including retirement products as well as health insurance products for both individuals and groups (that is corporate clients), with an emphasis on savings-related products including separate account (unit-linked) products. The Life & Savings Segment accounted for €48.4 billion or 65% of AXA’s consolidated gross premiums and financial services revenues for the year ended December 31, 2001 (2000: €46.0 billion or 58%, respectively, or 66% after excluding the results of
The table below summarizes AXA’s Life & Savings gross premiums and gross insurance liabilities by geographic region for the periods and as at the dates indicated.
b • Items 1-4 (V5) 1/07/02 11:42 Page 33 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
In each of its principal markets, AXA operates through well-established life insurance companies. AXA’s principal life insurance subsidiaries are set out below.
Japan: AXA Life Insurance Co. and AXA Group Life Insurance Co. (formerly AXA Nichidan
The table below presents the life insurance markets in which AXA operates ranked by worldwide gross premiums in 2000, along with AXA’s ranking (by market share).
b • Items 1-4 (V5) 1/07/02 11:42 Page 34 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
Competition The nature and level of competition vary among the countries in which AXA operates. There is strong competition among companies for all the types of individual and group life & savings products sold by AXA.
• changes in regulations that may affect the policy charging structure relating to commission and administrative charges.
Country Statistics AXA Country Ranking1 % premiums written1 Ranking2 Market share2
(6) Based on annualized new business premium equivalent (regular premium plus one-tenth of new business single premium). The responsibility for publishing the Hong Kong market statistics changed during 2001 and, as a result, the market size increased by 20% due to new entrants in the market scope. Therefore, the published market data should be treated with caution, as it is not necessarily comparable to the prior period.
Based on worldwide gross life insurance premiums in 2000 b • Items 1-4 (V5) 1/07/02 11:42 Page 35 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
Products AXA’s Life & Savings products include a broad range of life, health and retirement / savings-related products to both individuals and corporate clients, the latter in the form of group contracts. The life and savings-related products offered by AXA’s operation include, term life, whole life, universal life, mortgage endowment, deferred annuities, immediate annuities, variable life and other investment-based products. The health products offered include critical illness and permanent health insurance products. The nature of the products offered by AXA’s
The table below presents consolidated gross written premiums (after intersegment eliminations) and gross insurance liabilities by major product for the periods and as at the dates indicated for AXA’s Life & Savings Segment.
Gross written premiums Gross insurance liabilities Years ended December 31, At December 31, 2001
The policyholder may participate in the investment return and/or in part of the operating profits earned by the life insurance company. The nature and extent of participation by the policyholder varies from country to country. Therefore, such participations, including policyholder participations on UK with-profit business
(with-profit) policyholders are entitled to receive a share of the profits arising from these investments.
b • Items 1-4 (V5) 1/07/02 11:42 Page 36 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
There are two types of bonuses, regular bonuses and terminal bonuses. Regular bonuses, designed to provide a return to the policyholder through a periodic increase in benefits, are credited to the policyholder at regular intervals and represent a partial return of investment income, but does not reflect the return earned by the insurance company in any one period. Once credited, regular bonuses are guaranteed to be paid at maturity, death or as otherwise specified in the policy. Terminal bonuses, which are not guaranteed in advance of payment, are designed to provide policyholders with their share of total investment performance (including investment income and realized and unrealized investment gains or losses) and other company experience (including expenses, mortality experience and income taxes).
Terminal bonuses can represent a significant portion of the total amount paid at maturity (often exceeding 50%) or upon surrender prior to maturity. The amount of terminal bonus to be paid is determined at the discretion of management.
Following policyholder and court approvals in 2000 and the termination of the policyholder appeal process in January 2001, AXA Equity & Law underwent a financial reorganization whereby the life insurance funds were fundamentally restructured in 2001. A portion of the assets that have accumulated over the years
Variable life and variable annuity product benefits may be linked to investments supporting such contracts, referred to in this annual report as “separate account (unit-linked) contracts” or “unit-linked contracts”. The investment risk (and reward) is transferred to the policyholder while the life company earns fee income from managing the separate account assets. The income streams to the life company on these unit-linked products are much more predictable than the income streams on traditional life insurance protection products, assuming stable stock market performance.
Over the past few years, AXA’s life & savings operations have experienced significant growth in savings-related unit-linked products. This growth has been notable in Europe and Asia Pacific and attributable to (i) an increase in consumer awareness of such products, (ii) government initiatives to move away from state funded pensions to private funded pensions and (iii) favorable financial market trends up to 2000. This trend has continued through to 2000 to a certain extent in the United States, where there is a more mature market in respect of such products. The global financial market performance has been unfavorable in 2001 and, consequently, gross premiums on such business decreased from €19.6 billion in 2000 to €16.8 billion in 2001. However, AXA believes it will experience growth in this product area.
The distribution channels used by AXA’s principal life & savings operations, based on consolidated gross premiums from new business for the year ended December 31, 2001, are presented below.
Surrenders For most retirement and life products, costs in the first year are higher than costs in subsequent years due to first year commissions and the costs of underwriting and issuing a contract. Consequently, the rate of policies remaining in-force and not lapsing, also known as the “persistency rate”, plays an important role in profitability.
have front-end charges (or subscription fees), which are assessed at the inception date of the contract and/or surrender charges (charges assessed in the case of early surrender). Both front-end charges and surrender charges are intended to offset a portion of the acquisition costs.
(2) Based on life insurance business only and excludes business from savings-related investment products.
(1) AXA Life Insurance Co. and AXA Group Life Insurance Co. (formerly known as Nichidan Life) includes the former operations of Nippon Dantaï that were acquired in March 2000. In addition, given that these operations have a September 30 year-end, only six-months of results were reported in 2000 as compared to a full year in 2001.
Based on gross premiums from new business in 2001: b • Items 1-4 (V5) 1/07/02 11:42 Page 38 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
respectively, or 22% after excluding the results of Donaldson Lufkin & Jenrette that was sold in November 2000).
Gross premiums and financial services revenues Gross insurance liabilities at Years ended December 31, December 31, 20011
For the ten-year loss development of the property & casualty claims reserves, see “–Property and Casualty
Market After several years of intense competition and, consequently, low premium rates, principally in the automobile and commercial risk products lines, premium rates in certain European countries increased over the past 3 years, notably in 2001. This improvement has minimized the unfavorable effects resulting from (i) a general deterioration in claims experience due to a number of natural catastrophes that have occurred over the last 3 years, (ii) an increase in the cost of claims, in particular relating to bodily injury due to changes in legislation or arising from judicial decisions, and (iii) a general increase in the frequency of claims, in particular, relating to automobile insurance cover.
Commentary on the 2001 market conditions in the geographical markets in which AXA operates is provided in “Item 5 – Operating and Financial Review and Prospects – Market Conditions in Year 2001”.
The table below presents the property & casualty markets in which AXA operates ranked by worldwide gross premiums in 2000, along with AXA’s ranking (by market share).
In addition to the principal markets discussed above, AXA offers personal and commercial property & casualty insurance products in the following countries: Italy, Spain, Netherlands, Portugal, Luxembourg, Switzerland,
Austria, Hungary, Canada, Morocco, Turkey, Japan, Singapore, and Hong Kong, as well as other countries in
Competition The nature and level of competition varies among the countries in which AXA operates. Overall, the property
• changes in regulations, which may affect premium rates charged or claims settlement costs paid.
b • Items 1-4 (V5) 1/07/02 11:42 Page 40 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
In France, Germany and Belgium, markets are fragmented with hundreds of insurers competing for business.
Products AXA’s property & casualty insurance operations offer a broad range of products including automobile, homeowners/household, property and general liability insurance for both personal and commercial customers, the latter specifically focusing on small to medium-sized companies.
Gross written premiums Insurance Reserves Years ended December 31, at December 31, 2001
General agents Intermediaries / Direct sales Other networks, independent advisers / and marketing including corporate brokers partnerships and bank networks
Based on gross written premiums in 2001: Distribution AXA distributes its property & casualty insurance products through a number of channels that vary from country to country. In Europe, the same distribution channels are used by both AXA’s life & savings operations and property & casualty operations. The distribution channels used by AXA’s property & casualty operations, based on gross written premiums for the year ended December 31, 2001, are presented below.
Represented by: (1) In accordance with the new French Regulations effective from January 1, 2001, the claims reserves are before reinsurance ceded and includes unearned premium reserves and equalization reserves.
Claims Reserves” included elsewhere in this section of the annual report.
Market and competition AXA Corporate Solutions operates principally in France, the United States, the United Kingdom, Canada and
The return in the large-risk corporate property & casualty market has been similar to that experienced in the reinsurance market. Coverages such as terrorism and internet (unauthorized access) risks will no longer be covered automatically. In addition to increasing premium rates, regulatory and market conditions are becoming more restrictive. As a consequence, cedents may be forced to retain greater risk.
The key features of this marketplace are as follows: • an increase in demand for risk management and financial analysis,
• global concentration of suppliers (predominantly global insurance brokers and international insurance groups).
AXA Cessions. AXA’s property & casualty subsidiaries reinsure a large portion of their business internally through AXA Cessions. AXA Cessions coordinates retrocession with external reinsurers to reduce the loss exposures of each subsidiary and of AXA as a whole.
AXA Assistance. AXA provides assistance services primarily through AXA Assistance. The services include medical aid for travelers and automobile road assistance. The clients include insurance companies, credit card companies, tour operators and automobile manufacturers.
The table below presents the International Insurance Segment’s gross written premiums and gross insurance liabilities by major product for the periods and as at the dates indicated.
Gross written premiums Gross insurance liabilities at Years ended December 31, December 31, 2001
Distribution AXA Corporate Solutions distributes its products principally through insurance and reinsurance brokers.
b • Items 1-4 (V5) 1/07/02 11:42 Page 44 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
Asset management has become increasingly important to AXA, from both a strategic and profitability perspective. The development of third-party asset management activities is a key part of AXA’s financial services strategy, which seeks to capitalize on existing strengths and to expand the client base. This strategy is founded on the belief that its asset management expertise will enable AXA to benefit in the future from the expected growth in savings-related products in the markets in which it operates in future years. The Asset
Management Segment accounted for €3.7 billion, or 5% of AXA’s consolidated gross premiums and financial services revenues for the year ended December 31, 2001 (2000: €3.0 billion or 3.7%, respectively, or 4.3%
The table below presents the total assets managed by AXA’s Asset Management Segment, including those assets managed on behalf of third parties, and the related fees earned by AXA’s Asset Management Segment on those assets as at the dates and for the periods indicated.
CONTRIBUTION TO AXA’s CONSOLIDATED GROSS PREMIUMS AND FINANCIAL SERVICES REVENUES 3,730 2,984 1,928
Assets Management Segment b • Items 1-4 (V5) 1/07/02 11:42 Page 45 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
AXA Investment Managers (“AXA IM”) AXA IM provides diversified asset management and related services globally to a broad range of clients, including (i) institutional investors and (ii) individual investors through mutual funds managed by AXA IM that are distributed through AXA’s distribution networks and external distributors and AXA’s insurance subsidiaries in respect of their insurance-related invested assets and separate account (unit-linked) assets, making it one of the largest asset management companies based in Europe.
As at December 31, 2001, AXA IM had €277 billion of assets under management, including €48 billion of assets managed on behalf of third party clients (2000: €256 billion and €44 billion, respectively).
OTHER FINANCIAL SERVICES SEGMENT The Other Financial Services Segment’s operations consist of activities conducted primarily in Belgium and in France. For the year ended December 31, 2001, the Other Financial Services Segment accounted for €1.1 billion, or 2% of AXA’s consolidated gross premiums and financial services revenues (2000: €11.8 billion or 15%, respectively, or after excluding the results of Donaldson Lufkin & Jenrette that was sold in November 2000, €1.1 billion or 2%, respectively). In prior years, this segment also included Donaldson, Lufkin & Jenrette b • Items 1-4 (V5) 1/07/02 11:42 Page 46 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
AXA Banque and AXA Crédit. Based in Paris, AXA Banque delivers banking services dedicated to AXA. Its main activities include cash and securities flows management and bank account services to high net worth individual policyholders and to general agents of AXA France Assurance. AXA Crédit provides short-term loans to customers of AXA’s French insurance operations.
The Other Financial Services Segment also included the operations of Banque Worms, acquired in connection with AXA’s acquisition of UAP in 1997 and was intended for disposal. In 2001, AXA completed the sale of
Banque Worms to Deutsche Bank, which is subject to certain guarantees.
Insurance-related invested assets The assets supporting AXA’s insurance operations (included within the three segments: the Life & Savings
Segment, the Property & Casualty Segment and the International Insurance Segment) consist of a diversified portfolio of investments. These assets are managed principally by AXA’s Asset Management Segment and consist of (i) general account assets whereby the insurer generally bears the investment risk and reward, and
(ii) separate account (unit-linked) assets, whereby the investment risk and reward is principally transferred to the policyholder.
The discussion below concerns the general account investment assets of AXA’s insurance operations, which are referred to in this annual report as “insurance-related invested assets.”
The general account liabilities of AXA’s Life & Savings operations can be divided into two primary types, participating and non-participating. For participating products, the investment results of the underlying assets determine, to a large extent, the return to the policyholder that is either reflected as an increase in future policy benefits or paid out in cash in the year the bonus is credited to the policyholder. The insurer’s profits on such business are earned from investment management, mortality and other charges. For non-participating or interest-sensitive products, the insurer’s profits are earned from a positive spread between the investment return and the crediting or reserve interest rate.
AXA routinely monitors and evaluates the status of its investments in light of current and anticipated future economic conditions and trends, and other factors. The strategic allocation of assets is generally determined through asset-liability analyses for both life & savings and property & casualty businesses. The strategy may differ across the geographical territories and the different lines of businesses depending on the existing investment mix, the availability of alternative investment vehicles and the underlying nature and duration of the in-force insurance contracts. Further information on how AXA manages investment risk is provided in “Item 11 – Quantitative and Qualitative Disclosures About Market Risk”.
Item 10 b • Items 1-4 (V5) 1/07/02 11:42 Page 47 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
The following table sets forth the distribution of AXA’s consolidated insurance-related invested assets including cash and equivalents, by insurance segment, at December 31, 2001.
(4) Refer to notes 2 and 6 to AXA’s consolidated financial statements included in this annual report that sets out the investment valuation methodology.
AXA’s fixed maturity and equity investments are predominantly publicly traded. These investments together with real estate, mortgages and loans are concentrated in the markets in which AXA’s principal subsidiaries operate. The insurance operations in France, the United States, the United Kingdom, Australia / New Zealand,
Germany, Belgium and Japan accounted for approximately 89% of AXA’s total fixed maturity investments and approximately 94% of AXA’s total equity investments (2000: 90% and 96%, respectively). In addition, at
December 31, 2001 the insurance-related invested assets backing the insurance liabilities in these operations were predominantly holdings in domestic investments, or in the local currency of the liabilities. The breakdown of investments in fixed maturity and equity securities by industry sector were as follows: 32% in government institutions, 24% in financial services, 37% in non-financial services such as manufacturing and pharmaceuticals and 7% in mutual funds (2000: 40%, 20%, 30% and 10%, respectively).
Derivatives. AXA generally uses derivative instruments to minimize adverse fluctuations in interest rates, foreign exchange rates and equity prices. The basis for which AXA manages these risks, the sensitivities associated with managing these types of risks, and the potential impact on the AXA consolidated financial results are set out in further detail in “Item 11 – Quantitative and Qualitative Disclosures About Market Risk”
Operating and Financial Review and Prospects” and note 20 to AXA’s consolidated financial statements.
ESTABLISHMENT OF CLAIMS RESERVES AXA is required by applicable insurance laws and regulations and generally accepted accounting principles to establish reserves for outstanding claims (claims which have not yet been settled) and associated claim expenses that arise from its property & casualty and international insurance operations. AXA establishes its gross insuance liabilities, that is, its claims reserves, by product, type of insurance coverage and year, and charges them to income as incurred. Claims reserves (also referred to as “loss reserves”) fall into two categories namely: • Reserves for reported claims and claims expenses. These reserves are for outstanding claims which have not yet been settled and are based on undiscounted estimates of the future claim payments that will be made in respect of the reported claims, including the expenses relating to the settlement of such claims; and
• Reserves for incurred but not yet reported (‘’IBNR’’) claims and claims expenses. IBNR reserves are established on an undiscounted basis, to recognize the estimated cost of losses that have occurred but have not yet been notified to AXA. These reserves, like the reserves for reported claims and claims expenses, are established to recognize the estimated costs, including the expenses associated with claims settlement, necessary to bring claims to final settlement.
The process of estimating the original gross claims reserve is based on information available at the time the reserve was originally established. However, claims reserves are subject to change due to the number of variables which affect the ultimate cost of claims, such as: Item 1
(from the insured party, a third party or a ceding company) and the final settlement (payment) of the claim, primarily attributable to long-tail casualty claims which may take several years to settle due to size and nature of claim, and the occurrence of large natural catastrophes late in the financial year for which limited information may be available at year end; • judicial trends; • regulatory changes; and
AXA continually reviews the adequacy of the established claims reserves, including emerging claims development, and actual claims experience compared to the original assumptions used to estimate initial gross claims reserve. Based on current information available in the preparation of the consolidated financial statements included elsewhere in this annual report, AXA considers that these provisions are sufficient.
Property & Casualty Segment plus the insurance operations within the International Insurance Segment) and
(ii) the type of insurance and the nature of the risks and exposures covered is different compared to the insurance coverage provided by AXA’s property & casualty insurance operations,
In accordance with the French regulations, a specific provision is added to the claims reserves based on methodology established by the French government. This reserve is in addition to each single notified claim.
In addition, certain AXA property & casualty operations are required by local regulations, in the countries in which they operate to establish equalization reserves specific to catastrophe risks, see “- Additional Factors which may affect AXA’s Business – Regulation” for further details. In 2001, certain changes in accounting principles arising from a change in French accounting legislation affected the Property & Casualty Segment and the International Insurance Segment principally relating to certain equalization provisions, which are no longer permitted to be recognized under French GAAP. Effective from January 1, 2001, equalization provisions
(included in the insurance liabilities) can only include provisions for catastrophe risks (characterized by high cost and low occurence), whereas in prior periods, it also included a reserve for other unusual losses as required under local regulations. This change in accounting principle did not effect the Loss Reserve
Development Table, as equalization reserves are excluded from the Loss Reserve Development Table on the basis that these reserves provide no indication as to how claims have been reserved (initially) and the outcome upon settlement of such claims in future periods based on the underwriting and associated reserving methodologies adopted by AXA.
The property & casualty loss reserves that were excluded from the Loss Reserve Development Table represented 13.5% of total gross property & casualty insurance liabilities at December 31, 2001 (2000: 14.8%). For further information, refer to the “Reconciliation of Loss Reserves to Consolidated Financial Statements” table following the Loss Reserve Development tables.
The estimate is increased or decreased, as more information becomes known in future periods relating to unsettled claims. For example, the gross claims reserve as at December 31, 1994 was originally €5,595 and adjusted by €9,872 million primarily due to the UAP acquisition in 1997, and by the end of 2001, cumulative amounts paid was €8,799 million and the original gross claims reserve had been re-estimated to be €12,323 million at December 31, 2001. The “cumulative redundancy (deficiency)” for each year represents the aggregate amount by which the original gross claims reserve liability as of that year-end has changed in subsequent periods.
Cumulative redundancy (deficiency) from the initial gross reserves in excess of re-estimated gross reserves: (1) It is not appropriate to extrapolate future redundancies or future deficiencies based on the loss reserve development presented in the table as conditions and trends that have affected the development of the liability in prior periods may not necessarily occur in the future periods.
Loss Reserve Development Table: Property & Casualty including International Insurance operations (except for AXA Corporate Solutions Reinsurance)
December 31, 2001 under the caption “increase (decrease) in provision attributable to prior years”.
In 2001, there were no reportable changes in the claims payment patterns. In addition, (i) there have been no significant changes in assumptions during the current year and (ii) there have been favorable developments in Belgium that were partly offset by reserve strengthening in the United Kingdom, principally due to an increase in cost of bodily injury claims, and also in Hong Kong and the Netherlands (2000: material strengthening of existing claims reserves, in the United Kingdom, Ireland and Italy plus unfavorable loss reserve development reported in 2000 of €422 million related to the December 1999 storms in Western
Europe, mainly in the French Property & Casualty operations). See “Item 5-Operating and Financial Review and Prospects” for further information.
Initial gross reserves for claims and claims expenses in Balance Sheet2 853 941 1,184 1,496 2,451 2,646 2,880 3,060 3,396 3,455 5,868
Cumulative redundancy (deficiency) from the initial net claims reserves in excess of (less than) re-estimated net claims reserves: Percent of original net reserve1 (38.9%) (34.0%) 0.1% 2.0% 10.1% 18.0% 16.7% (0.7%) 3.2% 7.2% n/a
(1) It is not appropriate to extrapolate future redundancies or future deficiencies based on the loss reserve development presented in the table as conditions and trends that have affected the development of the liability in prior periods may not necessarily occur in the future periods.
(2) The loss reserve development table is presented on an underwriting year basis for AXA Corporate Solution Reinsurance’s business. Accordingly reserves re-estimated and the excess of re-estimated reserves in excess of the original reserves include reserves for losses occurring up to twelve months subsequent to the original year-end. For example, if an underwriting year reinsurance contract term was from January 1 to December 31, 1998 it may cover underlying policies with terms beginning both on January 1, 1998 and December 31, 1998. Losses incurred on underlying policies beginning on January 1, 1998 could occur as early as January 1, 1998 while losses incurred on underlying policies beginning on December 31, 1998 could occur as late as December 31, 1999.
(4) Includes the claims reserves of Abeille Re acquired in 1995.
Additional factors which may affect AXA’s business For information relating to certain matters that may effect AXA’s business, see “Item 3 – Key Information – Risk factors” included elsewhere in this annual report.
There are also other pending UK regulatory reviews that could affect the UK life business in future periods which include: (i) review of the manner in which UK with-profits business is managed, sold and reported on, (ii) the review of retail financial products (including with-profits business), looking at all aspects in which competition is conducted within the market, and (iii) review relating to the sale of mortgage endowment policies.
In the United States, AXA’s insurance operations are subject to regulation and supervision by all the various states and territories. Within the United States, the method of regulation varies but generally has its source in statutes that delegate regulatory and supervisory powers to an insurance commissioner. While regulation varies by jurisdiction, most jurisdictions have comprehensive laws and regulations governing approval of policy forms and rates, the standards of solvency that must be met and maintained (including risk based capital measurements), the establishment of reserves, the licensing of insurers and their agents, the nature of and limitations on investments, restrictions on the size of risks which may be insured under a single policy, deposits of securities for the benefit of policyholders, methods of accounting, periodic examinations of the affairs of insurance companies, and the form and content of reports of financial condition to be filed. In
Equitable Life, and in December 1999 the Florida Attorney General issued an additional subpoena to Equitable
Life, in each case requesting, among other things, documents relating to various sales practices. Equitable
United States Congress and various states designed to provide additional privacy protections to consumer customers of financial institutions. These statutes and similar legislation or regulations in other jurisdictions could impact AXA’s ability to market its products or otherwise limit the nature or scope of AXA’s insurance and financial services operations in the U.S.
The other jurisdictions in which AXA operates, including those in the Asia-Pacific region, generally also have comprehensive regulatory schemes and AXA must satisfy the local regulatory requirements in each of these jurisdictions. In general, insurance licenses issued by local authorities are subject to revocation and/or modification by those authorities. Consequently, AXA’s insurance subsidiaries could be prevented from conducting business in certain of the jurisdictions in which they currently operate should they not meet such local regulatory requirements. In addition to licensing requirements, AXA’s insurance operations in these jurisdictions are also generally regulated with respect to currency, policy terms and language, amount and types of security deposits, amount and type of reserves, amount and type of local investment and the share of profits to be paid to policyholders on participating policies. In certain jurisdictions, regulations governing constitution of technical reserves and similar regulations may prevent payment of dividends to shareholders and/or repatriation of assets.
U.S. mutual funds is registered with the SEC under the U.S. Investment Company Act of 1940 and the shares of most of these funds are qualified for sale in all states in the United States and the District of Columbia, except for U.S. Funds offered only to residents of a particular state. Certain subsidiaries of Alliance Capital are also registered with the SEC as transfer agents and broker-dealers that are subject to minimum net capital requirements. Transactions between Equitable Life and Alliance Capital are subject to applicable provisions of the New York Insurance Law and transactions between AXA Investment Managers and its insurance company clients are subject to various insurance law regulations of the various jurisdictions where these clients are domiciled. These regulations generally require diversification of invested assets, impose limitations on investments in certain asset classes and also generally require that the terms of transactions between the investment manager and the insurance company be fair and equitable, that charges or fees for services performed be reasonable and that certain other standards be met. Fees must be determined either with reference to fees charged to unaffiliated clients for similar services or, in certain cases, which include ancillary service agreements, based on cost reimbursement. In addition, under the New York Insurance Law and regulations certain investment advisory agreements and ancillary administrative services agreements between
Equitable Life and Alliance Capital are subject to either approval or disapproval by the New York
Property The Company’s headquarters are located in an office building located at 25 Avenue Matignon 75008 Paris,
France, which is owned by an affiliate of the Company. In addition to its registered head office, the Company has staff in other locations around Paris including at 21 and 23 Avenue Matignon 75008 Paris, France.
A summary of the material differences between French GAAP and U.S. GAAP relevant to AXA is included in note 33 to the consolidated financial statements. Material changes in accounting principles arising from the application of new French GAAP during the year ended December 31, 2001 are described in note 34.
This discussion and analysis also includes certain terms that are used by AXA in analyzing its business operations and, therefore, may not be comparable with terms used by other companies. These terms are defined in the glossary presented at the end of this section.
Since 1999, the global economic and financial markets have been adversely affected principally by the following: • Generally more restrictive monetary policies between August 1999 and October 2000; • A significant increase in oil prices between 1999 and 2000; • The bursting of the bubble in the high technology sector, in particular dot.com business in 2000; and
The events of September 11 and the aftermath only worsened existing deteriorated global economic conditions, the largest global economic slowdown since 1974.
As is often the case in financial crises, Wall Street proved to be the least-affected player, with the Dow Jones slipping only 7% in 2001. Standard & Poor’s 500 (the most representative index) fell by 13%, its biggest decline since 1974. Nasdaq, the leading market for technology stocks, lost 21%.
All industry sectors were adversely affected, although the energy and raw materials sectors were the least affected with a fall of 6% and 8%, respectively. The industry sectors most affected were technology and telecommunications, which recorded significant decreases of 28% and 26%, respectively. Like other sectors, financial services also suffered with a fall of 18%.
c • Item 5 (V5) 1/07/02 11:42 Page 60 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
BOND MARKETS 2001 was also marked by considerable easing of monetary policy, principally in the U.S. undertaken in a bid to stave off further economic deterioration. All the major central banks cut their interest rates, with the U.S.
Federal Reserve cutting the interest rates eleven times in 2001 from 6.5% to 1.75% and the European Central
Bank pruning its interest rates four times over the same period (from 4.75% to 3.25%).
In general, the bond yields, or performance in government bonds were weaker in 2001 as compared to 2000.
However, the 10-year German Bund yield rose to 4.98% at December 31, 2001 (4.84% at December 31, 2000), and the 10-year UK gilt was up 0.18 points to 5.07%. Overall the bond markets performed better than the stock markets with performance on average at 5% in 2001 (the yields on U.S. corporate bonds were up 9.8%, according to a Lehman Brothers index).
LIFE & SAVINGS In 2001, the life & savings markets in which AXA operates were affected by the changes in financial markets conditions mentioned above. Though it is difficult to specifically quantify their direct impact on consumer demand, it would be expected that consumers would reassess the sufficiency of their life insurance coverage and their exposure to volatility in the financial markets. Consequently, in 2001 the trend in many of the geographical life & savings markets in which AXA operates, was a general decrease of unit-linked savingsrelated investment products and an increase of traditional life and financial protection contracts, in particular, investment contracts that provide fixed rates of return. In general the demand for unit-linked products is expected to vary with performance of the financial markets.
United States. The trend among U.S. employers to move away from defined benefit plans (under which employers make the investment decisions) toward employee-directed, defined contribution retirement and
In 2001, gross variable annuity and variable life premiums were down approximately 19% and 12%, respectively, compared to 2000, mainly as a result of stock market volatility.
United Kingdom. Growth in new annualized business premiums (new regular premium plus 10% of single premium) was approximately 12% per year between 1996 and 2000, mainly due to growth in investmenttype products, in particular single premiums bonds. The UK life & savings market grew by 19% in 2001 compared to 2000, with continued growth in investment-type products in 2001, particularly relating to individual and group pensions. The growth in pension sales has, in part, been due to the introduction of
– Japan. 2001 saw a further year-on-year reduction of in-force business, principally due to weak economic conditions, coupled with well publicized problems in the banking, brokerage and insurance sectors, including bankruptcies. These factors have affected consumer confidence in financial services products. In addition, the (i) Japanese life & savings market continues to restructure (internally or with foreign insurance companies) due to these conditions, and (ii) the Japanese government has deregulated the health insurance market, allowing previously excluded major life and non-life insurance companies to enter this market resulting in increased competition. Nevertheless, there continues to be sporadic growth, especially amongst the newer foreign owned companies that have introduced innovative products or new business models. For the 12 months ended March 31, 2001, being the fiscal year end for Japan, approximately 60% of gross premiums related to individual life contracts and 26% of gross premiums related to group annuity contracts.
– Hong Kong. With wealthy consumers, an aging population and a rather low penetration. Hong Kong life insurance market is expected to grow by 9% on a compound annual growth rate over 2001-2004; whilst traditional participating individual life insurance products remained the predominant product offered in
Hong Kong in 2001 (63% of annualized first year premiums), there was a sharp increase in demand for unitlinked savings products, both regular and single premiums. The launch of a Mandatory Provident Fund in
Southern Europe. In Spain, life & savings market growth was primarily related to the outsourcing of pension fund management by companies and to the increase in sales of index-linked products. In Italy, the level of new business on investment products slowed down, primarily due to adverse conditions in the financial markets. However, traditional products with guaranteed rates have been boosted.
France. A low level of growth has persisted since 1996, primarily due to a decline in market demand, increased competition and premium rate reductions. Since 1999, gross premiums have increased by between 2% and 5% mainly due to growth in the French economy and an increase in premium rates on certain lines of business in particular, homeowners insurance. In 2001, growth is estimated to be approximately 5%
This growth was mainly due to an increase in premium rates. In the commercial lines business, premium rates continue to be competitive, however, there are signs of potential premium rate increases as insurers are no longer prepared to accept the substantial underwriting losses of recent years, especially after the U.S. terrorist attacks in September 2001.
United Kingdom. Both the personal and commercial property & casualty business in the United Kingdom have experienced limited growth over the last five years. The estimated market growth in 2001 is 7%, principally due to an increase in premium rates in both personal and commercial lines, mainly due to increasing claim costs. The main premium rate increases in the commercial insurance product lines of up to 40% were in liability, automobile insurance and to a lesser extent in property insurance products. Premium rates in the personal lines business were up by around 10%.
Belgium. There is strong competition in a saturated market for property & casualty insurance products.
Southern Europe. These markets reported significant growth in 2001 thanks to a recovery in premium rates.
Spain was positively affected by a significant improvement in the claims ratio for motor insurance. In Italy after the end of the one-year motor tariff freeze which was part of the anti inflation package of April 2000, premium rates increased sharply.
level of traditional underwriting capacity has been or will be greatly reduced. Reinsurance companies are seeking new underwriting conditions that will specifically exclude terrorism risks and will generally attempt to restrict reinsurance coverage through improved documentation and controls, with a significant increase in premium rates.
These changes in the international insurance environment should impact the 2002 renewal season. In addition, it is likely that the market will see a trend towards alternative risk transfer products. As a result of these events, further industry consolidation may occur, with weaker companies potentially disappearing from the reinsurance market or merging with other competitors.
U.S. TERRORIST ATTACKS ON SEPTEMBER 11, 2001 AXA’s insurance operations were directly affected by the U.S. terrorist attacks on September 11, 2001. The total cost associated with these attacks claim has been estimated by Tillinghast between $30 and $60 billion on a worldwide basis. The estimated cost for AXA for the year ended December 31, 2001 amounted to €846 million
The estimated cost was mainly attributable to AXA Corporate Solutions for €761 million before tax and net of reinsurance (€515 million net group share). The other impacts of the terrorist attacks were in respect of the US
IMPACT OF DECLINE IN STOCK MARKETS Following the significant decline in the global stock markets previously discussed, valuation allowances for other-than-temporarily impaired equity securities were recorded and totaled €995 million on a consolidated basis (€636 million net group share).
As there was an irrevocable commitment by AXA to purchase all the remaining outstanding shares of AXA
Financial in connection with the exchange offer completed in December 2000, the date of acquisition was
In November 2001, AXA Asia Pacific purchased Sterling Grace Portfolio Management Group (“Sterling Grace”), for €126 million (A$ 218 million). Sterling Grace, a retail financial planner, distributes its services through financial advisors. This acquisition will strengthen AXA’s penetration of the market both in Australia and New Zealand.
Worms to Deutsche Bank. Under the terms of the agreement, AXA has retained some of Banque Worms’
CAPITAL OPERATIONS On January 1, 2001, the outstanding 4.5% mandatory convertible bonds matured. The debt was converted into 28.7 million of AXA ordinary shares (on a post 4-for-1 stock split basis), of which 11.2 million ordinary shares are held by AXA subsidiaries. Consequently, consolidated shareholders’ equity increased by €320 million and the consolidated debt decreased by €192 million.
On May 9, 2001, at AXA’s annual general meeting of shareholders, the shareholders approved a four-for-one split of AXA’s ordinary shares and two-for-one split of the AXA’s American Depository Shares (ADS). As a result, the ratio of AXA ADSs to AXA ordinary shares has changed from one ADS representing one-half of an ordinary share to one ADS representing one ordinary share.
FINANCING OPERATIONS In February 2001, in response to favorable market conditions, AXA issued $770 million (approximately €827 million) under its $5.0 billion U.S. debt shelf registration.
As part of the Plan, a reorganization bonus of £250 million (€397 million) has been allocated to all with-profit policyholders from the Inherited Estate, payable upon surrender, maturity or death. In addition, with-profit policyholders who accepted the plan received an incentive payment made by AXA, which in the aggregate totaled approximately £260 million (€420 million).
Effective from January 1, 2001, AXA changed its accounting principles relating to the UK “with-profit” funds in order to better reflect the policyholders’ rights (see “Life & Savings operations –United Kingdom” section for further details). The net impact of the change in accounting principles relating to the UK “with-profit” contracts and the financial reorganization mentioned above has reduced the opening shareholders’ equity by €79 million.
If this regulation had been applicable since January 1, 2000, net income for the year ended December 31, 2000 would have been €3,444 million, as compared to €3,904 million as reported under previous accounting principles. Adjusted earnings1 for the year ended December 31, 2000 would have been €2,292 million, as
(1) Adjusted Earnings represents AXA’s consolidated net income before goodwill amortization and exceptional operations. Adjusted Earnings is a non-GAAP measure, which management believes provides a meaningful understanding of the results. It should be noted that “Adjusted Earnings” as defined may not be comparable with similarly-titled measures reported by other companies as it is not defined under either French GAAP or U.S. GAAP.
c • Item 5 (V5) 1/07/02 11:42 Page 66 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
Total Life & Savings Property & Casualty International Other segments (in euro millions) Insurance
Restatement of certain assets at historical cost (40) (40) – – –
Cost of reinsurance – Disability Income Portfolio (211) (211) – – –
Restatement of realized capital gains on treasury shares (60) – (60) – –
Reconciliation of 2000 Net Income from Actual to Pro forma, by Segment
Cost of reinsurance – Disability Income Portfolio 1 1 – – –
(1) Adjusted Earnings represents AXA’s consolidated net income before goodwill amortization and exceptional operations. Adjusted earnings is a non-GAAP measure, which management believes provides a meaningful understanding of the results. It should be noted that “Adjusted Earnings” as defined may not be comparable with similarly-titled measures reported by other companies as it is not defined under either French GAAP or U.S. GAAP.
Reconciliation of 2000 Adjusted Earnings1 from Actual to Pro forma, by Segment c • Item 5 (V5) 1/07/02 11:42 Page 67 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
In addition, the new French Regulations resulted in minor changes in the presentation and disclosure provided in the consolidated financial statements and in the notes to the consolidated financial statements. In particular and as it relates to the Income Statement, the caption “Net investments results” includes the change in fair value of separate account (unit-linked) assets and the unrealized gains and losses on assets supporting the UK with-profit business, which were previously included within the Income Statement caption “Insurance benefits and claims”.
Over 1,000 people in 23 entities have been directly involved in the modifications, training and the communication linked to the change to the euro currency. Over 50,000 associates and 20 million clients have been, directly or indirectly, concerned by this change. The full cost of the operation reached €150 million
(0.28% of Euroland group revenues) over a two-year period, slightly below the budgeted amount.
RISK RESULTING FROM THE LATEST JURISPRUDENCE ON PROFESSIONAL DISEASES The French Supreme Court (Cour de Cassation) has recently extended the notion of inexcusable offense to professional diseases. AXA companies concerned by this new case law are currently reviewing their portfolio so as to identify the contracts that may be concerned by this extended guarantee.
The restatements from Old French GAAP to New French GAAP restatements (mainly deriving from realized capital gains on restatements of treasury shares and of assets at historical cost) amounted to euro 181 million (100%, pre-tax). Under New French GAAP and under New Presentation, the net investment result amounted to euro 9,908 million in 2000.
YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000 2001 consolidated gross revenues totaled €74.8 billion, or a decrease of €5.2 billion as compared to 2000. The decrease was mainly due to the sale of Donaldson, Lufkin & Jenrette (DLJ) in November 2000, which contributed €10.7 billion to 2000 consolidated gross revenues. 2001 consolidated gross revenues benefited from (i) the inclusion of twelve months of revenues from AXA Life Japan of €2.1 billion, as 2000 only included 6 months of post-acquisition revenues of Nippon Dantaï, and (ii) full year of revenues from the former Sanford Bernstein operations of approximately €0.6 billion, as 2000 included only 3 months of post-acquisition revenues. On a comparable basis, consolidated revenues increased by 2.1%.
Life & Savings Segment represented 65% of total consolidated gross revenues in 2001 compared to 57%
Property & Casualty Segment represented 21% of consolidated gross revenues compared to 19% in 2000.
primarily due to premium rate increases. The decrease in the United Kingdom was attributable to portfolio outflow following the reduction of non-profitable contracts.
Following the sale of DLJ, the consolidated gross revenues of Other Financial Services Segment decreased significantly and currently represents less than 2% of consolidated gross revenues compared to 15% in 2000.
Zealand (22.6%) and Belgium (20.6%). Sales performance was boosted by the success of separate account
(unit-linked) products. Revenue growth was more modest in the United States (4.1%) due to financial market volatility, which resulted in slower growth in gross premium in the second half of 2000. Gross premiums decreased by 3.7% in the United Kingdom compared to 1999, as in 1999 new business was supported by promotional campaigns on with-profit contracts, which were not repeated in 2000.
Revenue growth in the Property & Casualty Segment was 3.7% on a comparable basis, mainly due to growth in AXA’s operations in the Southern European countries, in particular, Italy (an increase of 15% due to growth in the portfolio) and Spain (an increase of 23%, primarily due to premium rate increases). Revenue growth was also recorded in the United Kingdom (1.6%, attributable to premium rate increases) and Belgium
(1.5%). Due to intense price competition, gross premium volume remained stable in France and was 0.3% in
Item 10 c • Item 5 (V5) 1/07/02 11:42 Page 71 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
(€2,071 million net group share and net of realized and unrealized losses on Credit Suisse Group shares received in respect of that transaction of €67 million); – realized losses and valuation allowances of €236 million (net group share) relating primarily to the US life
& savings high yield bond portfolio as a result of broad weaknesses in credit markets from a slowing economy during the third and fourth quarter of 2000, coupled with a review of investment strategy following AXA’s acquisition of the minority interests in AXA Financial; – provision of €125 million recorded during the period in connection with the sale of Banque Worms, which was agreed in February 2001 and completed in April 2001; and
– the cost of the Disability Income reinsurance treaty (€211 million), spread over life time in U.S. GAAP but would have been recorded as an immediate charge in New French GAAP and, therefore, an additional adjustment to 2000 pro forma net income on a consolidated basis.
Financial, and the acquisition of Sanford C. Bernstein and Nippon Dantaï.
c • Item 5 (V5) 1/07/02 11:42 Page 72 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
• the sale of DLJ in 2000 and, consequently, no more contribution to AXA’s adjusted earnings (2000: €197 million).
• the additional contribution to AXA’s adjusted earnings related to the buyout in minority interests in 2000 relating to (i) AXA Financial (total impact of €284 million), and (ii) AXA UK Holdings (total impact of €43 million).
In 1999, the exceptional operations included €156 million (net group share), which related to the acquisition of Guardian Royal Exchange (GRE) as set out below: • a dilution gain realized by the Company due to the decrease in AXA’s ownership in AXA UK Holdings (formerly
(ii) the increase of the U.S., France and other countries operating results, which benefited from increased level of sale activities in unit-linked business resulting in higher fees received; • the International Insurance operations (up by €199 million), mainly as a result of improved technical results in large corporate risks insurance, deriving from (i) a lower number of large losses in 2000 and (ii) improved pricing methods and a more selective underwriting policy; • Asset Management activities (up by €112 million), as Alliance Capital recorded a significant increase in revenues as a result of growth in average assets under management; and
Consolidated Shareholders’ Equity At December 31, 2001, consolidated shareholders’ equity totaled €24.8 billion. The movement in consolidated shareholders’ equity since December 31, 1999 is presented in the table below.
– Conversion of 6% mandatorily convertible notes at maturity 282 16
– Issuance of ordinary shares for AXA Financial, transaction2 3,131 84
December 31, 2000 (before net income for the year) 20,418 1,665
– Capital increase in January 2001 (buyout of remaining AXA Financial. Inc. common shares outstanding)2 737 20
Creation of Shareholder Value Certain information provided below, including earnings per share excluding the impact of exceptional operations, represent non-GAAP measures and, therefore, may not be comparable with similarly-titled measures reported by other companies as it is not defined under either French GAAP or U.S. GAAP.
Based on AXA’s consolidated adjusted earnings of €1,201 million, basic adjusted EPS was €0.70 (2000: €2,540 million and €1.67, respectively, and 1999: €2,045 million, and €1.45, respectively, both on a post 4-for-1 stock split basis). The diluted adjusted EPS was €0.70 (2000: €1.60 and 1999: €1.37, both on a post 4-for-1 stock split basis).
DIVIDENDS Dividends paid to shareholders have increased significantly in the last five years, from €0.29 per ordinary share paid in 1997 based on 1996 net income on a post 4-for-1 stock split basis (or €1.14 on a pre 4-for-1 stock split basis) to €0.56 per ordinary share to be paid in 2002 based on 2001 net income, which was approved by the shareholders at the annual general meeting held on May 3, 2002. Total dividends to be distributed in 2002 in respect of the 2001 financial year will be €971 million, as compared to €361 million paid in 1997 in respect of the 1996 financial year. The increase corresponded to a 14.5% growth based on a compounded average growth base.
Over the same period, the number of outstanding ordinary shares has increased from 772 million at December 31, 1996 (on a post 4-for-1 stock split basis) to 1,734 million at December 31, 2001.
Equity in income (loss) from affiliated entities 16 41 41 31
In 2001, the change in fair value of separate accounts had adversely impacted the net investment result for Euro -11,613 million.
c • Item 5 (V5) 1/07/02 11:42 Page 76 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
(1) Pro forma New French GAAP according to the new French Regulations that became effective on January 1, 2001, as if New French GAAP had been in force since January 1, 2000. The pro forma financial information was not subject to audit.
c • Item 5 (V5) 1/07/02 11:42 Page 77 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999 In 2000, the Life & Savings Segment accounted for 58% of AXA’s gross revenues as compared to 56% in 1999, and represented 71% of AXA’s insurance activity. Gross premiums increased by 24% primarily due to a favorable impact on foreign exchange rates, new business contributed by Nippon Dantaï in Japan and business growth in France. Specifically in France, AXA’s life insurance subsidiaries outperformed the savings market as a whole. On a comparable basis, growth in gross life & savings premiums was 8.4% in 2000.
(i) Germany had a favorable contribution due to a tax reform, (ii) the operating results included six months of post-acquisition operating results of AXA Nichidan (subsequently renamed AXA Life Japan), and (iii) contribution from AXA China Region increased as a result of the buyout of minority interests in November 1999. Despite significant gross premium growth, the contribution of the life & savings operations in France to AXA’s consolidated net income increased by only €54 million due to an increase in income tax expense (1999 benefited from a lower average tax rate, due to a significant level of realized capital gains taxable at a lower rate).
ANALYSIS OF INSURANCE GENERAL ACCOUNT INVESTMENT RESULTS The following table summarizes the net investment results of AXA’s Life & Savings operations for the principal categories of general account assets for the periods indicated. Certain invested assets and associated net investment results are not included, and net investment income is not reduced for investment expenses or interest expense on short-term and long-term debt. Accordingly, the net investment results summarized in the following table are not directly comparable to the net investment results discussed above.
Equity investments (including trading accounts): Related assets at year end 54,950 54,345 44,354
Other assets and cash and cash equivalents: Related assets at year end 11,828 22,062 12,438
(1) The investment yields were calculated on a constant structural basis using the average net carrying value of invested assets (for each catagory) in the period. The 2000 investment yield data excluded the realized gains on the sale of DLJ and the realized losses and valuation allowances in respect of the U.S. high-yield bond portfolio. The realized gains were net of realized losses and included the net change in valuation allowances on impaired invested assets as well as the unrealized gains and losses on investments carried at market value, notably the assets supporting the UK “with-profit” contracts.
management internally to evaluate performance and allocate resources within the Life & Savings Segment in line with AXA’s strategic objectives. Margin Analysis focuses on the underlying sources and changes in operating income during the period.
Even though the presentation of Margin Analysis is not the same as the Statement of Income, it is based on the same GAAP measures as used to prepare the Statement of Income in accordance with French GAAP.
Statement of Income and the components of Margin Analysis as set out below.
Analysis based on the nature of the revenue between “Fees and Revenues” and “Net Technical Margin”.
(ii) Policyholders’ interest in participating insurance contracts is reflected as a change in insurance benefits in the Statement of Income. In the Margin Analysis, it is allocated to the related margin, that is primarily the
Management is of the view that it is a better mechanism for discussing and analyzing operating performances in the period as it relates to the Life & Savings segment.
c • Item 5 (V5) 1/07/02 11:42 Page 80 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
Net of intercompany elimination, gross written premiums decreased by 12%, to €10,997 million, in 2001 as compared to 2000, while, over the same period, the market decreased by 8%. AXA’s strategy focus on unitlinked products (47% of total investments and savings versus 29% for the French market) contributed significantly to the 2001 performance gap as these products are sensitive to stock market trends. When compared to 1999, 2001 gross written premiums grew by 4%.
Premiums on general account individual savings business increased by 14%, as clients turned to safer products in the weak and volatile equity market environment.
Group retirement premiums (7% of total gross written premiums) declined by 19% as there were several important contracts underwritten a year ago, and the market was extremely competitive. Adjusted for large group additional premiums in 2000, gross written premiums were down by 4%. Unit-linked premiums now represented 32% of this activity versus 37% in 2000.
Fees and revenues decreased by €59 million in 2001 as compared to 2000. This decrease was primarily attributable to a decline of €46 million from unit linked savings products, mainly due to the fall in gross written premiums in 2001, partly offset by higher fees on larger average assets under management. Fees and revenues from general account business decreased by €37 million in 2001 as compared to 2000, due to product mix,
The ratio of gross operating expenses to total gross insurance reserves was 1.99% in 2001 (2000: 1.96%). Specific to retirement savings products, the ratio of general expenses to retirement savings reserves was stable at 1.40% in 2001. As at December 31, 2001 insurance reserves totaled €81 billion. During the year 2001, they have been adversely affected by €2.5 billion due to the change in fair value of the separate accounts. Excluding this negative impact, the ratio of gross operating expenses to total gross insurance reserves was 1.93%.
as the increase in expenses is in line with the rise in the technical margin partly offset by the decrease in fees and revenues.
Income tax expense increased by €43 million primarily due to a higher effective tax rate in 2001 (30.1%) as compared to 2000 (21.3%). The effective tax rate was lower in 2000 due to a high level of realized gains on the sale of certain equity investments during that period, which were subject to a low tax rate in France
c • Item 5 (V5) 1/07/02 11:42 Page 82 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
The decline in variable annuities was partially offset by €467 million of Single Premium Deferred Annuity
September to complete its product range and counteract the downtrend in variable annuity business. In the fixed annuity business, AXA estimates its market share at 2%, as compared to 0% last year.
• Life (25% of gross revenues) premiums decreased by 5% compared to 2000 due to tax legislation uncertainty early in the year, though life sales rebounded during the fourth quarter. In 2001, the wholesale channel more than tripled its sales in life products compared to 2000, which mitigated the decline of the retail channel. In variable life sales, AXA actually gained market share to rank number six at the end of December 2001 versus number seven at the end of December 2000.
• Other premiums (10% of gross revenues) increased by 15% compared to 2000 mainly due to higher institutional premiums.
• Other revenues (4% of gross revenues) declined by 7% compared to 2000 mainly due to a decrease in brokerage service fees, primarily on fees earned on mutual fund sales. In addition, asset management fees decreased slightly.
Fees and revenues decreased by €75 million in 2001 as compared to 2000, or a decrease of €105 million on a constant exchange rate basis, mainly due to lower fees earned on separate account business and to lower policyholder charges received in general account related business. The fall in fees earned on separate account business was €52 million and was attributable to the decline in separate account balances (– 13% in average separate account reserves in 2001 as compared 2000), mainly due to the depreciation in the financial markets. The decrease of policyholder charges received in general account business was €45 million and was principally due to lower contractual charges earned on health business related to the cession of the disability income line. Fees earned on mutual funds decreased by €8 million due to lower sales.
Net technical margin3 increased by €21 million in 2001 as compared to 2000, or €5 million on a constant exchange rate basis. The increase was mainly due to improved individual health morbidity experience of €64 million essentially reflecting the cession of the disability income line, which generated largely negative spreads in 2000. The increase was partly offset by less favorable mortality experience on the life business of €24 million and claims associated with the September 11, 2001 terrorist attacks of €30 million pre-DAC and pre-tax (or €16 million on a post-DAC and post-tax basis).
c • Item 5 (V5) 1/07/02 11:42 Page 83 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
Technology expenses net of capitalization of €115 million and (ii) a €114 million charge for severance costs related to staff reductions. The increase was however largely offset by (i) cost reductions of €99 million, in particular lower consulting fees and strategic initiative spendings, and (ii) lower DAC amortization of €94 million associated with reduced margins.
The ratio of gross operating expenses to total gross insurance reserves on a constant exchange rate basis deteriorated by 0.23 points to 2.12% in 2001 (2000:1.89%) primarily due to a decrease in separate account balances. As at December 31, 2001 insurance reserves totaled €93 billion. During the year 2001, they have been adversely affected by €6.5 billion (at closing exchange rate) due to the change in fair value of the separate accounts. Excluding this negative impact, the ratio of gross operating expenses to total gross insurance reserves was 1.98%.
Excluding the non-recurring severance costs, the cost income ratio was 86% in 2001.
Adjusted earnings increased by €145 million in 2001 as compared to 2000. On a comparable basis
c • Item 5 (V5) 1/07/02 11:42 Page 84 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
On a comparable basis (excluding minority interests in 2000 and on constant exchange rate basis), the change in basis of determining profit from participating “with-profit” funds and the financial reorganization represented a positive impact of €9 million on adjusted earnings. This positive impact is broken down as follows4: • €–47 million in the investment margin, as the amount recognized in 2000 included 10% of the investment result of the funds and 100% of the investment result on assets in excess of the “with-profit” policyholders’
• €+ 39 million in fees & revenues, technical margin and expenses net of DAC, attributable to the 2001 income recognition on a 100% basis in respect of the non-participating business previously within the “withprofit ” fund and recorded on a 10% basis in 2000.
• €+ 31 million impact on income tax expense attributable to (i) the above items, and (ii) an increased income tax expense recorded on a 10% basis in the “with-profit” funds related to a change in tax treatment on savings-type products in 2000.
Gross revenues grew 16% on a comparable basis to €9,086 million in 2001, including fees from sales of mutual funds and from dental capitation business of €67 million. Excluding Health, revenues increased by 18%, with life new business on an APE basis5 up 24%: this strong new business performance is a reflection of the benefits already captured from the second year of a project re-engineering the AXA Sun Life business, a four year investment program totaling approximately €280 million, AXA has generated improved levels of new business from a focus on high value independent financial advisors and distributors. AXA Sun Life has the infrastructure, expertise and experience of running an independent, tied agency and direct sales-force model, and is therefore well placed to operate successfully under the new regulatory framework recently proposed by the Financial Services Authority in the UK.
• Investment & Savings (75% of all UK Life & Savings revenues) revenues were up 21% due to increased sales of pension and investment bond contracts. Pension premiums increased by 11% on unit-linked and non unit-linked business due to (i) the successful launch of Stakeholder pension products and other pension products adapted to the new competitive environment, (ii) changes in tax law which encouraged customers to use carried forward contributions before the end of the tax year on April 6, 2001 and (iii) “single premium transfer” business. Investment bond revenues were up by 36% due to strong sales of With Profit bonds
• A €1 million decrease in fees earned on account balances due to the decline in the stock market, offset by the impact of the increase in overall new business.
• A €17 million decrease in loadings on premiums on life and pension products due to (i) a decrease in life new business following the decline in the stock market, (ii) changes to pension product design following the introduction of Stakeholder Pensions and (iii) the withdrawal from the mortgage endowment market.
Net technical margin increased by €21 million in 2001 as compared to 2000, on both a current and a constant exchange rate basis. Excluding the impact of the financial reorganization (€+ 20 million), the technical margin increased by €1 million due to slightly better mortality margins.
c • Item 5 (V5) 1/07/02 11:42 Page 86 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
Income tax expense decreased by €44 million in 2001 as compared to 2000, or €43 million on a constant exchange rate basis. Excluding the impact of the financial reorganization (€+ 31 million), income tax expense decreased by €12 million as a result of the lower operating result.
The net income attributed to minority interests decreased by €62 million in 2001 as compared to 2000 as a result of the buyout of the minority interests in Sun Life and Provincial Holdings plc (now AXA UK plc) in July 2000.
Adjusted earnings decreased by €12 million in 2001 as compared to 2000, or €8 million on a constant exchange rate basis. On a comparable basis (excluding minority interests in 2000 and on a constant exchange rate basis), adjusted earnings decreased by €70 million. The decrease was mainly due to the additional cost of strategic initiatives, lower investment income and the decrease in fees and revenues resulting from the fall in stock markets, partly offset by the positive impact of the change in basis of determining profit from participating funds and the financial reorganization. Excluding net capital gains, adjusted earnings on a comparable basis decreased by €4 million in 2001 compared to 2000.
(1) Pro forma New French GAAP as if New French GAAP had been in force since January 1, 2000.
Gross written premiums decreased by 8% to €5,475 million on a comparable basis as, in the fourth quarter 2000, AXA Japan benefited from a single premium related to the transfer of a large group contract. Restated for this contract transfer, gross written premiums decreased by 4% in 2001. AXA Japan continues to focus on higher margin individual life, investment & savings products, including unit-linked and health products.
– Investment & Savings (31% of gross written premiums): gross written premiums decreased by 9% following the non-renewal of group pension contracts. Individual product lines increased by + 10%, essentially as a result of a change in focus away from traditional products towards unit-linked products (which were introduced in the second half of 2000).
– Life (52% of gross written premiums): premiums were down 2% due to lower life group premiums (–10%)
following the deliberate non-renewal of certain low margin contracts, as well as to lower individual life business (– 4%), AXA Japan has been focusing on higher margin products, essentially health and unit-linked products.
Excluding the valuation allowances, the yield on invested assets has improved from 2.4% in 2000 to 3% in 2001 largely as a result of the restructuring of the investment portfolio and the active management of the loan portfolio.
Fees and revenues of €992 million in 2001 were positively impacted by a favorable change in product mix towards certain term life and health products that have higher policyholder charges.
Adjusted earnings amounted to a loss of €99 million in 2001. Excluding valuation allowances, adjusted earnings of €174 million were positively impacted by (i) an increase in investment yield, (ii) a change in product mix in favor of products with higher policyholder charges and (iii) cost control.
have changed their year-end from September 30 to December 31 in 2001. The following analyzes the results of operations for the 12 months ended September 30, 2001 versus the same period in 2000 and identifies separately the additional 3 months of activity for the three months ended December 31, 2001.
c • Item 5 (V5) 1/07/02 11:42 Page 88 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
– Health (24% of gross revenues): gross written premiums rose 11% as a result of the full year impact from government incentive programs introduced mid-2000 to increase the number of individuals with private insurance coverage.
(7) The AXA Asia Pacific Group is 51% owned by AXA.
c • Item 5 (V5) 1/07/02 11:42 Page 89 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
Adjusted earnings totaled €37 million8 for the 15 months ended December 31, 2001: • Adjusted earnings for the 12 months ended September 30, 2001 were €66 million, an increase of €22 million compared to the same period in 2000. This increase is mainly due to the improvement of the investment margin (€25 million impact on adjusted earnings) following (i) higher investment income of €9 million as AXA
This increase is partly offset by additional VBI amortization in 2001 compared to 2000 which benefited from the positive impact on VBI of a change in assumptions used to estimate the emergence of future profits
• Additional adjusted earnings for the 3 month period ended December 31, 2001 were a loss of €29 million, due to investment losses resulting from a change in strategy for the global active equity portfolio (€7 million net group share), realized losses on Enron debt securities (€16 million net group share), and valuation allowances recorded on certain impaired equity securities (€19 million net group share).
Adjusted earnings for the 15 months ended December 31, 2001 were a loss of €2 million. For the 12 months ended September 30, 2001, the loss amounted to €1 million9, a decrease of €1 million compared to the same period in 2000 due to adverse investment market conditions.
c • Item 5 (V5) 1/07/02 11:42 Page 90 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
approach adopted by the German market towards the implementation of the German pension reform.
Margin Analysis: given the regulated policyholder participation rates applied on all margins, the whole margin analysis is presented net of policyholder participation.
The policyholder crediting rate on participating contracts was also decreased, so that overall the statutory net interest rate served decreased from 7.6% to 6.4%, nevertheless comparing favorably to the market benchmarks.
Fees and revenues net of policyholder benefits increased by €9 million to €30 million mainly due to high loading on new business on unit-linked products, and despite lower fees and revenues on asset under management.
Net technical margin decreased by €2 million to €7 million in 2001 as compared to 2000 on a comparable basis, due to an increase in disability insurance claims reserves driven by a better cut-off process.
Expenses net of policyholder participation increased by €9 million mainly due to an increase in expenses relating to strategic projects, in particular new product development in response to the pension reform and an e-commerce financial portal project. As a result, the ratio of gross operating expenses to total gross insurance reserves increased by 0.1 points to 1.7% in 2001 (2000: 1.6%). The cost income ratio increased by 39.4 points from 47.5% in 2000 to 86.9% in 2001, due to a decline in the investment margin and an increase in expenses.
The health operating income decreased by €7 million to €19 million in 2001 as compared to 2000 on a comparable basis. The deterioration was primarily due to higher expenses in relation to the implementation of strategic projects, aiming at customer service and efficiency improvements.
The income tax expense decreased by €5 million down to zero in 2001 as compared to 2000 on a comparable basis, mainly due to (i) a lower operating income and (ii) a lower release of deferred tax in relation to the German tax reform.
Adjusted earnings decreased by €25 million to €21 million in 2001. Excluding realized capital gains, adjusted earnings decreased by €23 million to €20 million in 2001.
Gross written premiums were €1,686 million, up 53% as compared to 2000 due to the strong performance of new generation investment products, which allowed AXA to outperform an estimated 4.8% market growth.
• Investment & Savings (82% of total gross written premiums): premiums increased by 69% due to the particularly strong performance of individual non unit-linked products (192% compared with a 54% overall
Belgian market growth). This line benefited from the success of the CREST product, a single premium nonunit -linked product with a minimum guaranteed return of 3.75% for the contracts sold in 2001. Due to unstable investment markets, unit-linked business remained at the same level as prior year, which was quite satisfactory since the market declined by 11%.
• Life (17% of total gross written premiums): premiums grew 8% in a very mature market ; this performance benefited from a significant single premium contract in individual life.
• In 2001, a lower level of realized gains was recorded in respect of equity and real estate securities of €85 million compared to 2000, as 2000 included an exceptional €50 million capital gain on the sale of real estate assets.
Fees and revenues increased by €17 million in 2001, mainly explained by €3 million attributable to policyholder loadings on unit-linked products and €18 million on guaranteed rate investment products.
Income tax expense increased by €57 million mainly due to tax on realized capital gains from the sale of fixed maturity securities as compared to non-taxable gains on equity securities in 2000.
Adjusted earnings decreased by €107 million to €65 million in 2001 as compared to 2000 mainly due to the decrease in the investment margin affected by valuation allowances on equity investments and the increasing tax expense. Excluding the realization of capital gains and impairments, adjusted earnings decreased by €34 million to €47 million in 2001 as compared to 2000, mainly due to the increase in tax expense.
Life & Savings Operations - Other Countries The following tables present the operating results for AXA’s Life & Savings operations in other regions including the Netherlands and Spain for the years indicated.
c • Item 5 (V5) 1/07/02 11:42 Page 93 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
Spain. Gross written premiums increased by €105 million, or 24.9% on a comparable basis primarily due to a large single premium contract relative to externalization of pension funds, partly offset by a drop in unit- linked products sales due to poor financial markets.
(€7 million after tax), which was partly offset by lower realized capital gains in 2001. Expenses were higher by €2 million after tax.
Italy. Gross written premiums decreased by €31 million in 2001, or 8.1% on a comparable basis. Index-linked products with guaranteed rates of return increased by 40% or €26 million. Nevertheless, this could not compensate for the decrease in unit-linked products, for which new business fell by 72% or €93 million, as a result of the poor performance in the financial markets.
– 2001 benefited from a €20 million tax credit following the use of an investment reserve, while 2000 had been positively impacted by a €7 million adjustment on 1999 tax.
Other countries. The other countries’ adjusted earnings are summarized in the table below.
Property & Casualty Segment The following tables present the operating results for the Property & Casualty Segment as well as the gross revenues, adjusted earnings and net income contributed by the principal geographical regions for the periods indicated.
(1) Before intercompany transactions. (2) Pro forma New French GAAP as if New French GAAP had been applied since January 1, 2000.
Gross written premiums c • Item 5 (V5) 1/07/02 11:42 Page 95 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000 In 2001, Property & Casualty Segment accounted for 21% of AXA’s consolidated gross revenues (2000: 19%).
Its contribution to AXA’s consolidated adjusted earnings decreased by €55 million, as the €41 million increase in Germany (mainly attributable to tax reform) and the €44 million increase in France and in the “other countries” did not offset the €205 million deterioration of Belgian adjusted earnings (lower realized gains and equity securities impairment).
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999 In 2000, property & casualty gross premiums accounted for 19% of AXA’s consolidated gross revenues and 24% of AXA’s gross insurance premiums compared to 1999 (20% and 25%, respectively). Although the property & casualty markets in Europe were characterized as difficult markets, with intense price competition, all countries reported higher levels of business in 2000 as compared to 1999.
The contribution to AXA’s consolidated net income (excluding the impact of exceptional operations) decreased by €260 million in 2000 due to the strengthening of insurance reserves in the United Kingdom, lower net income from Belgium (which had significant realized gains in 1999), and a decrease in net income from the other Property & Casualty operations as a result of strengthening of insurance reserves in Italy and Ireland, and a valuation allowance established in Morocco. The German Property & Casualty operations had a significant increase in the net income contribution largely due to the positive impact of tax reform in 2000. The French
Property & Casualty operations had a higher net income contribution in 2000 due to an improved claims ratio, despite the increased insurance cost in 2000 from the December 1999 storms in Western Europe.
c • Item 5 (V5) 1/07/02 11:42 Page 96 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
ANALYSIS OF INVESTMENT RESULTS The following table summarizes the net investment results of AXA’s Property & Casualty operations for the principal categories of invested assets for the periods indicated. Certain invested assets and associated net investment results are not included, and net investment income is not reduced for investment expenses or interest expense on short-term and long-term debt. Accordingly, the net investment results summarized in the following table are not directly comparable to the net investment results discussed above.
Fixed maturity investments: Related assets at year end 15,726 15,259 15,456
Other assets and cash and cash equivalents: Related assets at year end 2,529 2,777 2,630
Total invested assets: Total Invested assets at year end 33,083 32,434 32,088
(1) The investment yields were calculated on a constant structural basis using the average net carrying value of invested assets (for each catagory) in the period. The realized gains were net of realized losses and included the net change in valuation allowances on impaired invested assets.
c • Item 5 (V5) 1/07/02 11:42 Page 97 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
• Personal (56% of gross written premiums): Gross written premiums increased by 3%, mainly due to the growth in non-automobile insurance lines (+ 4%). Personal automobile insurance (60% of personal lines)
increased by 4% due to rate increases in new business, mainly in the broker distribution channel.
• Commercial (44% of gross written premiums): Gross written premiums increased by 6%. Commercial automobile insurance (22% of commercial lines) increased by 4% due to higher rates and a better control of the automobile in-force portfolio in order to improve the risk selection. Commercial non-automobile insurance lines (78% of commercial lines) were up 7%, driven by rate increases initiated in the last quarter of 2000.
million in 2001 as compared to 2000. The deterioration was mainly due to (i) a €45 million unfavorable loss reserve development in respect of certain contracts on liability business which are now in run-off as compared to a favorable loss reserve development of €25 million in 2000 and to (ii) a lower unfavorable loss reserve development in respect of the December 1999 storms in Western Europe of €28 million after reinsurance in 2001 as compared to unfavorable loss development of €65 million in 2000.
Realized gains, which were mostly realized in the first half of 2001, totaled €268 million and are comparable to €271 million in 2000. As the majority of the portfolio has been held for a number of years, no impairment was necessary.
Adjusted earnings increased by €44 million to €266 million in 2001 as compared to 2000. The increase was mainly due to a higher net investment result of €50 million and a higher net technical result of €33 million, which were partially offset by higher expenses of €31 million and higher income tax expenses of €8 million in 2001.
Excluding net realized gains, adjusted earnings increased by €32 million to €78 million in 2001 as compared to 2000.
Item 10 c • Item 5 (V5) 1/07/02 11:42 Page 99 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
of personal lines), resulting from price competition on property, as well as portfolio restructuring in liability
The net technical result decreased by €84 million to €387 million in 2001 as compared to 2000 on a comparable basis.
• The current accident year loss ratio net of reinsurance deteriorated by 1.9 point to 90.7% almost fully due to the costs associated with the September 11, 2001 U.S. terrorist attacks (+ 1.7 point loss ratio impact, or €55 million before tax, net of reinsurance). Individual motor loss ratio decreased from 83.2% to 80.5%, due to lower claim frequency and increases in average premiums. This positive trend was compensated by negative development on commercial lines.
Adjusted earnings increased by €41 million to €85 million in 2001 as compared to 2000. This increase was mainly due to the exceptional tax gains, which were partly offset by the unfavorable technical reserves developments, the strategic investment costs, and the decrease in the net investment result.
Excluding the impact of the September 11, 2001 U.S. terrorist attacks and realized capital gains, adjusted earnings increased by €51 million to €77 million, primarily attributable to the exceptional tax gains, partly offset by the strategic investments and the deterioration in the technical result.
Consistent with AXA’s strategy of exiting unprofitable market segments, gross written premiums decreased by €207 million in 2001 as compared to 2000, or 7% on a comparable basis10. The decrease was mainly due to a 25% decline in personal lines gross written premiums (51% of gross written premiums), partially offset by the increase of 26% in commercial lines business (44% of gross written premiums).
Independent business, a UK insurer that became insolvent in 2001. Excluding this substantial source of new business, commercial lines increased by 16%, mainly as the result of rate increases across the non-motor lines. Non-motor premiums (excluding ex-Independent business) increased by 21%, as price increases of between 20% and 30% were successfully implemented. In commercial motor, strong rating action was offset by portfolio outflow.
• The current accident year loss ratio net of reinsurance improved by 2.5 points to 77.5% in 2001, despite a €21 million pre-tax (representing 1 point) charge for industry levies necessary to fund UK insurance company insolvencies during the year. This improvement related mainly to (i) the absence of material weather related losses in 2001, whereas in 2000, the personal household result was impacted by significant floods costing €79 million gross of tax, and (ii) the effect of strict underwriting and rating actions established mid-2000 to correct the profitability of the automobile insurance business.
(10) Excluding from 2000 the premium relating to discontinued activities now underwritten by AXA Corporate Solutions and on a constant exchange rate basis.
The combined ratio improved from 126.8% in 2000 to 117.3% in 2001.
The income tax expense decreased by €2 million on a constant exchange rate basis. Excluding a tax provision release of €23 million following a change in the tax authority’s treatment of relief for claim reserves, the income tax expense increased due to an improvement in the operating result before tax in 2001 compared to 2000.
Gross written premiums amounted to €1,331 million (before intercompany eliminations). Net of intercompany, gross written premiums increased by 2% to €1,323 million with growth in both commercial and personal lines.
• Personal (62% of total gross written premiums): Premiums increased by 1%. Motor (59% of personal lines)
was up by 2% as a result of tariff increases both in Third Party Liability (+ 1%) and Motor damage (+ 3%).
The expense ratio increased by 1.2 point to 32.0% in 2001 as compared to 2000 primarily due to expenses incurred relating to information technology. The year 2001 was characterized by necessary investments related to various projects leading to a more efficient and homogeneous information technology structure.
The combined ratio increased to 116.5% in 2001 as compared to 113.4% in 2000 (excluding workers’
Net investment result declined by €197 million to €216 million in 2001 as compared to 2000. The decrease included a valuation allowance of €88 million for impaired equity investments. Excluding the valuation allowance, the net investment result decreased by €109 million. In 2001 there was a lower level of realized gains on the sale of equity and real estate investments of €108 million due to the decline in the stock markets, whereas 2000 net investment result included an exceptional €73 million realized gain on real estate assets.
The all accident year loss ratio improved by 15.3 points as a result of: – An improvement of 2.7 points on current year loss ratio due to premium rate increases and policy cancellations following an insurance portfolio review.
(ii) an increase in expenses of €16 million, of which €4 million are related to the cost of closing unprofitable agencies and €2 million on advertising costs. The expense ratio increased by 0.7 point to 25.8% in 2001.
Spain. Gross written premiums increased by €103 million or 10.4% on a comparable basis as compared to 2000, mainly due to an increase in premium rates on personal automobile insurance of 11.8% on average.
Adjusted earnings decreased by €1 million in 2001. The increase in AXA’s ownership interest from 70% to 100% in December 2000 improved the adjusted earnings for 2001 by €2 million.
(i) the net investment result on an after-tax basis decreased by €7 million, mainly due to an impairment on equity securities of €5 million; (ii) the expense ratio increased by 0.9 point to 25.9% in 2001, mainly due to severance payments and a new restructuring provision in connection with staff reduction. This was partly offset by a 2.2 points improvement in the loss ratio to 80.9% in 2001 primarily due to the increase in premium rates on automobile insurance.
– Direct Seguros contribution (owned at 50%) improved by €2 million to a loss of €2 million.
Adjusted earnings decreased to €18 million, or by €4 million on a constant exchange rate basis in 2001 as compared to 2000. The decrease was mainly due to a €4 million after tax fall in the net investment result reflecting a valuation allowance on certain equity securities. The loss ratio net of reinsurance improved by 0.8 point to 72.0% as compared to 200011, mainly due to excellent results in Quebec. The expense ratio increased by 1.1 points to 33.1% in 2001 as compared to 2000 primarily due to the launch of a reorganization project in 2001, which aims to simplify the structure of the AXA Canada operations. The combined ratio increased by 0.3 point to 105.1% in 2001 as compared to 2000.
Holdings plc (now AXA UK plc), in July 2000. The increase in adjusted earnings resulted mainly from an improvement in the net technical result and the net investment result, partly offset by higher expenses. The net technical result increased by €61 million after tax, attributable to a 17.4 points improvement of the all accident year loss ratio, down to 87.9% in 2001. This improvement is a result of (i) a better current year net loss ratio, down by 7.7 points to 85.4%, due to reduced personal automobile claim frequency and premium rate increases and to (ii) a significantly reduced level of reserve strengthening compared with the prior years. In 2000, reserves were strengthened by €96 million net of tax, of which €50 million related to business written prior to AXA’s acquisition of the company and was therefore charged against shareholder’s equity as a purchase accounting
c • Item 5 (V5) 1/07/02 11:42 Page 106 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
The net investment result increased by €5.3 million after tax, due to higher investment income of €3.8 million, coupled with a lower level of realized losses on the sale of equity and fixed maturity investments, which improved the result by €1.5 million.
Including Brokerage, the adjusted earnings decreased by €40 million, primarily due to a loss of €44 million for the property & casualty operations. In the property & casualty operations, the loss ratio for all accident years deteriorated by 26 points to 98%, and by 14.8 points when restated for the 2000 exceptional release of the
Millenium safety provision (€29 million). This deterioration was due to unfavorable loss reserve development as a result of a reserve strengthening on the automobile insurance bodily injury portfolio (€19 million after tax)
The combined ratio was 140.8% in 2001 as compared to 123% in 2000.
Other countries. Adjusted earnings of the other countries are summarized in the table below: Item 1
In Japan, adjusted earnings improved by €12 million, primarily attributable to (i) cost savings in areas such as information technology, staff and marketing, (ii) increase in volume of business and (iii) favorable underwriting results. Losses reflect the fact that Direct Japan has not yet reached its critical mass (operations commenced mid-1999).
c • Item 5 (V5) 1/07/02 11:42 Page 107 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
International Insurance Segment for the periods indicated: Years ended December 31, (in euro millions) 2001 2000 19991
c • Item 5 (V5) 1/07/02 16:08 Page 108 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
Other assets and cash and cash equivalents: Related assets at year end 1,597 1,181 1,072
(1) The investment yields were calculated on a constant structural basis using the average net carrying value of invested assets (for each catagory) in the period. The realized gains were net of realized losses and included the net change in valuation allowances on invested assets.
YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000 Gross revenues (before intercompany elimination) totaled €5,307 million, of which €27 million represented fees and commissions. After intercompany elimination, gross revenues amounted to €5,288 million in 2001 and increased by 56.7% as compared to 2000: • Reinsurance (68% of gross revenues): premiums increased by 85% to €3,590 million with a stable business mix. Property & Casualty lines (92% of reinsurance activity) increased by 86% mainly due to (i) higher reinstatement premiums primarily related to the US terrorist attacks, (ii) new business underwritten especially on proportional treaties in motor and non-proportional treaties in property and (iii) the upturn in the retrocession market for property catastrophe business.
This growth was partially offset by stricter risk selection in France and the cancellation of international contracts.
Net attritional margin on current accident year increased significantly by €482 million.
• For Reinsurance business, it increased by €521 million to €926 million in 2001, with a net attritional loss ratio improving by 6.5 points down to 70.0% in 2001. The €1,363 million increase (79%) in net earned premiums, resulting in part from the upturn in the market, was higher than the €601 million increase (58%) in cost of c • Item 5 (V5) 1/07/02 11:42 Page 110 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
attritional claims for the current year. This improvement was recorded despite the costs related to some large claims occurred in 2001 including the AZF claim, explosion of a chemical plant in France, and the Selby claim, railway accident in the United Kingdom, which totaled €37 million. Commissions paid to ceding companies increased by 86%, or €241 million, in relation with the increase in gross premiums.
• For Insurance business, the net attritional margin on the current accident year decreased by €39 million to €52 million in 2001, with a net attritional loss ratio deteriorating by 7,1 points up to 95.7% in 2001.
The €93 million increase in net earned premiums and fees was insufficient to offset the €133 million increase in cost of attritional claims, which included the AZF claim, the British Steel claim and the explosion in the
Other technical items deteriorated by €998 million as a result of the following: • Four major losses adversely impacted 2001 with a total estimated cost net of reinsurance of €991 million: (i) the September 11, 2001 U.S. terrorist attacks with an estimated cost net of reinsurance of €761 million
(€515 million after tax), (ii) the tropical storm Allison that hit the Gulf and East Coasts of the United States in June 2001 with an estimated cost net of reinsurance of €91 million, (iii) the collapse of a Brazilian oil platform with an estimated cost net of reinsurance of €60 million and (iv) the attack of Colombo Airport by Tamoul rebels for €79 million. There were no major losses in 2000.
As a result, the net technical margin decreased by €515 million to €–439 million in 2001 with a 16.9 point deterioration in the claims ratio for all accident years (net of reinsurance) to 113.4% in 2001. Excluding the
This increase was offset by a €35 million decrease in acquisition expenses related to the cancellation of international insurance contracts.
Net investment result decreased by €173 million to €415 million in 2001 as compared to 2000. This fall was due to a €194 million decrease in the level of net realized capital gains in 2001 as compared to 2000, including a €277 million decrease in equity securities of which €24 million in equity impairment, partly offset by a €111 million increase in fixed maturity securities after a €4 million depreciation on Enron.
Income tax expense decreased by €205 million to €193 million in 2001 primarily due to a decrease in the operating income in 2001.
States and to an active presence in the retrocession market. Gross life reinsurance premiums increased by 24% and accounted for 5% of gross premiums; this increase was due to growth in Asset Based Reinsurance products (coverage on a portfolio of separate account contracts).
• Insurance (33% of gross revenues): Premiums written decreased by 21.6% in 2000 as compared to 1999, or 15.6% on a comparable basis, due to non-renewal of business resulting from a more selective underwriting policy (e.g., –52% in United Kingdom).
(ii) a less favorable loss reserve development on prior years in 2000 (including negative impact from the
Net investment result increased by €39 million to €588 million in 2000, benefiting from slight increases both in investment income (€27 million, benefiting from higher yields on fixed maturity and from the strength of the U.S. dollar in 2000) and in net realized capital gains (€9 million).
2000 compared to 1999. Gross premiums written increased by 12% primarily due to growth in foreign subsidiaries, which accounted for more than two-thirds of total premiums (particularly the United Kingdom and Latin America). The contribution to AXA’s consolidated net income in 2000 was relatively stable due to ongoing efforts to improve the claims ratio.
c • Item 5 (V5) 1/07/02 11:42 Page 112 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
The increase was primarily due to growth from net new money of €39 billion, (excluding €8 billion inflow of assets mainly from a newly-formed joint venture with AXA Asia Pacific), despite very difficult conditions in the stock markets: €27 billion in the institutional business, €9 billion in retail and €3 billion in the private clients channel.
Administrative expenses increased by €526 million in 2001 as compared to 2000, or €455 million on a constant exchange rate basis. The increase in expenses was mainly due to higher compensation and general and administrative expenses related to the Sanford C. Bernstein acquisition. In addition, Alliance Capital selectively invested in several strategic initiatives aimed at increasing sales and improving efficiencies, including the expansion of global products and services and investments in technology and e-wholesaling capabilities.
Operating income increased by €63 million in 2001 as compared to 2000 or €40 million on a constant exchange rate basis. The increase was principally due to an increase in fees, commissions and other revenues resulting from the Sanford C. Bernstein acquisition. This was partly offset by lower assets under management during the second half of 2001 attributable to declines in global capital markets and higher operating expenses, principally employee compensation and benefits and general and administrative expenses.
c • Item 5 (V5) 1/07/02 11:42 Page 114 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
Alliance Capital from 33% to 53% as a result of the buyout of the minority interests in AXA Financial in
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999 On a constant exchange rate basis, Alliance Capital’s asset management revenues increased by 33.4% in 2000 to €2,577 million. In October 2000, Alliance Capital acquired substantially all of the assets and assumed substantially all of the liabilities of Sanford C. Bernstein, Inc., a U.S.-based asset management company.
Sanford C. Bernstein contributed €263 million to total revenues, including €61 million in respect of third-party research services, a new source of revenue for Alliance Capital. On a comparable basis (specifically excluding
The contribution to AXA’s consolidated net income increased by €56 million in 2000 as compared to 1999.
Excluding the impact of foreign currency fluctuations, net income increased by €39 million. The rise in net income was primarily due to an increase in revenues resulting from growth in average assets under management and an improvement in the ratio of general expenses to net revenues, from 63% in 1999 to 59% in 2000.
Sanford C. Bernstein contributed net income of €2 million (net group share), with operating income of €25 million (net group share) that was partly offset by the amortization of goodwill recorded in connection with the acquisition (€23 million, group share).
Asset Management Operations - AXA Investment Managers c • Item 5 (V5) 1/07/02 11:42 Page 115 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
Estate Investment Managers acquired as of January 1, 2001 (€14 billion), being partially offset by the net impact of exchange rates and the fall in the investment markets (€4 billion).
Performance fees also increased from €41 million to €54 million in 2001 due to strong performance relative to benchmarks, principally by AXA Rosenberg.
On a comparable basis, the expenses increased by €71 million, principally attributable to increases of personnel expenses by €24 million (13%) in relation with business growth, and to external distributor fees for €33 million. As a consequence, the operating cost income ratio, excluding internal operations eliminated in consolidation, was 81.3% in 2001 (77.3% for 2000).
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999 Before the elimination of intercompany transactions, revenues earned in 2000 totaled €557 million, or a 37.8%
increase as compared to 1999 on a comparable basis. In 2000, 16 new operating units were consolidated for the first time, contributing €70 million to revenues (and €2 million to AXA’s consolidated net income).
The increase in administrative expenses was due to an increase in the level of commissions paid to intermediaries resulting from business growth, and to the cost of finalizing the establishment of the holding company created to support and coordinate AXA IM’s business development strategy. The contribution to
c • Item 5 (V5) 1/07/02 11:42 Page 116 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
Other Financial Services Segment The tables below present the revenues and the net income for the Other Financial Services segment for the periods indicated: Years ended December 31, (in euro millions) 2001 2000 1999
Banque Worms: €45 million were due to losses realized during the second half of the year and €80 million were related to provision recorded by Compagnie Financière de Paris (“CFP”) in respect of given guarantees.
Adjusted earnings from the other financial companies increased by €68 million in 2001 as compared to 2000 as discussed below.
• French financial companies’ adjusted earnings increased by €57 million and resulted in a net gain of €68 million. The year 2000 included a net loss of €15 million attributable to Banque Worms for the first half of the year that was sold as at April 2, 2001. Real estate companies realized higher gains of €22 million in 2001 as compared to 2000, due to the sale of certain assets and recoveries of dismissed assets.
c • Item 5 (V5) 1/07/02 11:42 Page 117 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999 Despite the positive impact of foreign currency fluctuations, the contribution of DLJ to AXA’s consolidated net income decreased significantly in 2000 as it was sold on November 3, 2000. Consequently, its net income contribution reflects only nine months of operation in 2000. On a constant exchange rate basis, net income for the nine months ended September 30, 2000 was €160 million, or an increase of 10.4%, reflecting strong financial market performance in the first quarter of 2000 followed by a marked slowdown that began in April 2000.
Net income from the other financial and real estate companies decreased by €65 million in 2000 as discussed below.
Net income contributed by the real estate companies increased by €16 million to €28 million in 2000 due primarily to realized gains on the sale of real estate assets.
CFP recorded as at December 31, 2000 a provision of €80 million after tax in respect of guarantees given in connection with the memorandum of understanding concluded on February 6, 2001 concerning the sale of
Holding Company Activities The Holding company activities consist of AXA’s non-operating companies, including mainly AXA (the Company),
Adjusted earnings presented below exclude the impact of the above mentioned exceptional operations.
a valuation allowance of €34 million on non consolidated assets, (iii) realized foreign exchange losses of €19 million after tax, as compared to €11 million in 2000, and (iv) an increase in income tax expense of €12 million mainly on dividends paid in 2001,
Other French Holding Companies Adjusted earnings increased by €25 million, mainly due to higher realized capital gains.
AXA Asia Pacific Holdings. In 2001, the reporting year-end for AXA Asia Pacific Holdings and its subsidiaries changed from September 30 to December 31 and, therefore, the consolidated operating results include 15 months of operating results for these operations for the year ended December 31, 2001. Adjusted earnings decreased by €14 million to a loss of €38 million primarily as a result of the impact in 2001 of 15 months of interest financing costs (against 9 months in 2000) related to the debt used to fund acquisitions.
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999 The commentary provided below for the holding companies relates to net income excluding the impact of the above mentioned exceptional operations.
Foreign Holding Companies AXA Financial. In 1999, AXA Financial recorded a dilution gain of €64 million on the stock market introduction of DLJdirect tracking stock. Excluding this item, its contribution to AXA’s consolidated net income decreased by €8 million on a constant exchange rate basis.
AXA Asia Pacific Holdings. The €13 million decrease in AXA Asia Pacific Holdings’ contribution to AXA’s consolidated net income was primarily due to interest expenses related to the financing of the buyout of AXA
dividends received from operating subsidiaries, (iii) proceeds from the issuance of convertible debt securities and other debt securities, as well as borrowings (including from affiliates), and (iv) the issuance of ordinary shares.
Surrenders and Withdrawals”). AXA’s investment strategy is designed to match the net investment results
• In respect of AXA’s Property & Casualty Segment and International Insurance Segment, the liquidity needs can be affected by actual claims experience if significantly different from the estimated claims experience. See “ Item 4 – Information on the Company - Property & Casualty Claims Reserves.” The majority of AXA’s property & casualty insurance and international insurance operations generated positive cash flows from operating activities in each of the past five years. These positive cash flows, along with that portion of the investment portfolio that is held in cash and highly liquid securities, have historically been sufficient to meet the liquidity requirements of AXA’s property & casualty insurance and international insurance operations.
AXA’s asset management and financial services operations. The principal sources of liquidity relating to these operations are operating cash flows, proceeds from the issuance of ordinary shares (where applicable), lines of credit and other borrowings from credit institutions. The financing needs primarily relate to the asset management operations and include funds to support commissions paid on back-end load mutual fund sales, distributions to Unitholders (Alliance Capital), capital expenditures requirements and general working capital needs.
Sources of Liquidity As at December 31, 2001, AXA’s consolidated balance sheet included cash and equivalents of €18 billion
At December 31, 2001, the aggregate principal payments required to be made on debt instruments issued, amounts owed to credit institutions and mezzanine capital for 2002, the four years and thereafter amounted to €2 million in 2002, €6 million, €94 million, €473 million, €1 million and €14,430 million in 2007 and thereafter. Off-balance sheet commitments are discussed in note 26 to the consolidated financial statements.
At December 31, 2001, the potential number of ordinary shares which would be issued upon conversion of
AXA’s total outstanding subordinated convertible debt in accordance with the terms and conditions of the debt would be 64.0 million , as compared to 92.7 million at December 31, 2000 on a post 4-for-1 stock split basis, or 23.2 million on a pre-stock split basis. The decrease of 28.7 million ordinary shares was primarily due to the conversion of the 4.5% mandatorily convertible bonds at maturity on January 1, 2001.
December 31, 2000, which included €192 million of mandatorily convertible bonds and notes.
On a consolidated basis, the increase of € 414 million in 2001 was mainly due to the activities set out below.
(€128 million of debt was held by AXA affiliates and, therefore, eliminated on consolidation in prior periods).
registered debt program, issued in December 2000, by US$770 million (approximately €827 million at transaction date) to US$ 2,710 million (€3,042 million using 2001 year end exchange rates). The US dollar and euro tranches were as follows (i) US$350 million 8.6% due 2030; and (ii) €450 million 6.75% due 2020. This debt was used to refinance existing debt and borrowings outstanding under a credit facility and the French commercial paper program.
September 2001 of A$283 million (€174 million based on 2000 year end exchange rates). This debt was replaced by a subordinated loan from the Company for the same amount.
For further information see notes 14 and 15 to the consolidated financial statements.
December 2001 (€511 million based on the exchange rate as at December 31, 2000). This debt was replaced by a loan from the Company.
• The impact of foreign currency fluctuations, in particular the deterioration of the Euro to U.S. dollar exchange rate, as a significant amount of such debt outstanding is denominated in U.S. dollars.
For further information see in note 19 to the consolidated financial statements.
US$35.75 in cash and 0.295 of AXA ADS. Consequently, 19.7 million ordinary shares were issued and consolidated AXA shareholders’ equity increased by €737 million.
• Since 1994, AXA has regularly offered shares to its employees. In 2001, AXA employees invested a total of €323 million in the employee stock ownership program (€25 million on July 20, 2001 and €298 million on December 14, 2001) resulting in the issuance of 18.3 million of AXA ordinary shares. At December 31, 2001, AXA employees held 2.3% of AXA shares (including ADSs) compared to 1.3% at December 31, 2000, with two employees out of five being shareholders of AXA.
• Approximately 2.6 million ordinary shares were issued in connection with the exercise of AXA share options in 2001.
In addition in 2001, the number of AXA ordinary shares held in treasury increased by 12 million. As at
December 31, 2001, AXA held approximately 30.5 million of its ordinary shares at a book value of € 489 million, or 1.7 % of the total outstanding ordinary shares. Theses shares are allocated principally to the AXA
c • Item 5 (V5) 1/07/02 11:42 Page 124 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
In addition, 2000 benefited from €273 million received from the former Guardian Royal Exchange operations acquired in 1999. However, dividends paid by AXA Participations II were up by €98 million as a result of realized gains on investments.
China Region (Hong Kong), AXA UK Holding (formerly AXA Sun Life & Provincial Holdings in the United
Kingdom) and AXA Financial (United States). These transactions were funded primarily by subordinated debt securities issued by AXA, a syndicated loan facility and newly issued ordinary shares.
c • Item 5 (V5) 1/07/02 11:42 Page 125 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
Solvency Margins and Risk Based Capital Each insurance company within AXA is required by the regulations in the local jurisdictions to maintain the capital adequacy and solvency margin requirements. The primary objective of the solvency margin requirements is to protect policyholders. AXA’s insurance subsidiaries are in compliance with the applicable solvency requirements. The solvency and capital adequacy margins in general are calculated based on a formula which contains variables for expenses, inflation, investment earnings, death, disability claims, surrenders, premium dormancy and policyholder options, distribution of assets among investment categories, and the matching of specific categories of assets and liabilities.
Subsequent Events after December 31, 2001 Affecting AXA’s Liquidity At AXA’s ordinary general meeting of the shareholders held on May 3, 2002, the shareholders approved the recommended cash dividend to be paid in 2002 in respect of the 2001 financial year of €0.56 per ordinary share, or €971 million in the aggregate.
Consolidated Cash Flows YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000 Net cash provided by operating activities totaled €12.8 billion for the year ended December 31, 2001 (2000: €14.1 billion). Net cash provided from operating activities in 2001 was €1.3 billion lower than prior year mainly due to a lower level of growth in Life & Savings business in 2001 attributable to the deterioration in the global equity and economic markets in the year. In 2000 the Life & Savings operations continued to benefit from the sale of savings-related investment products, such as separate account (unit-linked) contracts, in respect of continued consumer demand for such products driven by overall strong performance of the global financial markets.
c • Item 5 (V5) 1/07/02 11:42 Page 126 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
• Cash settlement to former minority shareholders of AXA Financial following the completion of the squeeze out merger in January 2001, resulting in the payment of €2,078 million by the Company.
Net cash used in financing activities totaled € 1.6 billion for the year ended December 31, 2001 (2000: net cash provided of €11.7 billion). 2001 was in marked contrast to 2000, which had a high level of financing activities as AXA raised cash of €3.7 billion through the issuance of ordinary shares and approximately €7.2 billion from the issuance of subordinated debt and obtaining other borrowings to (i) finance the buyout of minority interests in SLPH, AXA China Region and AXA Financial, and (ii) the acquisitions of Nippon Dantaï
The operating, investing and financing activities described above, as well as the impact of foreign exchange and change in scope of consolidation, resulted in an decrease in net cash and cash equivalents of €10.0 billion in 2001 (2000: increase of €11.9 billion).
“amounts owed to credit institutions” in AXA’s consolidated balance sheet (2000: €29.0 billion on a restated gross basis and €26.0 billion net of bank overdrafts as reported in prior year, respectively).
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999 Net cash provided by operating activities totaled €14.1 billion for the year ended December 31, 2000, which was attributable to growth in the Life & Savings business (1999: € 33.8 billion).
• net cash proceeds of approximately €7.2 billion from the issuance of subordinated debt and other long term borrowings, which was used primarily to fund the buyout of minority interests in AXA China Region and AXA
The net impact of foreign exchange was approximately €1.0 billion increase in net cash for the year ended
December 31, 2000 (1999: increase of €0.8 billion). The net change is due to foreign currency exchange rate impact of the U.S. dollar, Australian dollar and Japanese Yen to the Euro in 2000.
At December 31, 2001 AXA’s total consolidated invested assets of € 258.6 billion (which exclude investments in affiliated companies and separate account assets) consisted of € 248.2 billion from insurance activities
(96%) and € 10.4 billion from non-insurance activities (4%). Of the € 258.6 billion in total consolidated invested assets, (i) € 151.8 billion were fixed maturity investments, of which approximately 16% were not publicly-listed securities with a carrying value of € 23.7 billion, (ii) € 65.1 billion were equity investments, of which approximately 23% were not publicly-listed securities with a carrying value of € 15.0 billion, and (iii) the balance of € 41.7 billion consisted of real estate; mortgages, policies and other loans; and investments in participating interests.
In 2001, AXA recorded increases in valuation allowances for other-than-temporary impairment on fixed maturity and equity securities of € 1,178 million and € 419 million, respectively, before participating benefits,
There are a number of risks and uncertainties inherent in our assessment methodology described above.
In respect of AXA’s fixed maturity and equity investment holdings at December 31, 2001, (i) the amount of gross unrealized and unrecognized gains was € 5.5 billion and € 3.2 billion, respectively, and (ii) the amount of gross unrealized and unrecognized investment losses was € 1.2 billion and € 1.7 billion, respectively. In the case of unrealized and unrecognized losses, management concluded that based on the methodology described above, including the ability and intent to hold the securities in question, these securities did not have an other-than-temporary decline in value. Based on the information available and to the best of management’s knowledge, there was no single fixed maturity or equity security on which AXA had a gross unrealized and unrecognized investment loss in excess of 5% of the total unrealized and unrecognized losses for such class of securities above.
SIGNIFICANT ACCOUNTING POLICIES The notes to the consolidated financial statements contain a summary of AXA’s significant accounting policies under French GAAP (see note 2) and a discussion of the differences between French GAAP and U.S. GAAP, which materially affect the determination of AXA’s consolidated net income and shareholder’s equity, including a discussion of recently-issued accounting pronouncements (see notes 33 and 34). Most of these policies are considered to be important to the portrayal of AXA’s consolidated financial position and consolidated operating results, especially those which require (i) the use of estimates and assumptions, for example, in respect of establishing insurance future policy benefits and claims reserves, or (ii) management to make difficult, complex or subjective judgments.
Consolidated net income in accordance with French GAAP 520 3,904 2,021
The assets supporting the UK with-profit contracts consist primarily of fixed maturity and equity securities. Under French GAAP, in accounting for UK with-profit contracts, revenue and expense are matched in net income by including both changes in the estimated fair values of assets allocated to UK with-profit contracts and corresponding increases or reductions in the liability for UK with-profit policyholder benefits. US GAAP, which was developed in an environment that differs from the one in which the UK with-profit contract was developed, required the change in unrealized investment gains on assets allocated to UK with-profit contracts be excluded from net income (as such assets, principally fixed maturity and equity securities were classified as “available-forsale ”). However, the recognition of the corresponding change in the liability for with-profit policyholder benefits was recorded in net income. Accordingly, AXA believed this exclusion resulted in amounts that did not fully reflect the economic effect of the UK with-profit contracts. An increase in the fair value of these assets results in an increase in the liability for policyholder benefits and a reduction in AXA’s consolidated US GAAP net income. The adjustment below, for the years ended December 31, 2000 and 1999 eliminated the change in unrealized investment gains and losses on assets allocated to UK with-profit contracts, which were included in net income in accordance with “US GAAP, except for adjustment for the change in unrealized investment gains on assets allocated to UK with-profit contracts”. Under the transition rules of FAS 133, AXA reclassified its fixed maturity and equity securities supporting the UK “with-profit” business to “trading”, whereby the unrealized investment gains and losses will be included in net income. The after-tax cumulative effect of such change in accounting principle was included in the 2001 reconciliation of net income above and totaled €2,698 million (€3,853 million before tax).
Unrealized investment gains (losses) on assets allocated to UK N/a (477) 1,030 with-profit contracts, net of deferred tax
Net income per ordinary share: Amounts in accordance with French GAAP1
(1) 2000 and 1999 per share data restated to take account of the 4-for-1 stock split approved by the shareholders at the annual general meeting held on May 9, 2001.
c • Item 5 (V5) 1/07/02 11:42 Page 130 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
(or approximately €31,492 million at transition date) of fixed maturity and equity securities supporting the
UK “with-profit” business from “Available-for-sale” to “Trading”. Under French GAAP such investments were already stated at market value with changes in market value included in French GAAP net income.
• A €762 million release of unallocated policyholder dividend liability (included in future policy benefits) to income as a result of the transfer of non-participating business from the existing participating “with-profit”
fund to a non-participating fund, as a result of the fund restructuring in connection with the plan. This was offset by a €433 million charge against income corresponding to the payment of the incentive bonus paid to the with-profit policyholders that elected in favor of the plan by one of the UK holding companies. Under
French GAAP, these items were recorded in AXA’s consolidated shareholders’ equity, which resulted in an overall decrease of €79 million after the recognition of (i) goodwill of €451 million corresponding to the incentive payment to the with-profit policyholders and the direct costs associated with this transaction, and
Excluding the impact of the plan of financial reorganization of AXA Equity & Law, AXA’s consolidated net income under U.S. GAAP was lower than the consolidated net income under French GAAP by €1,703 million primarily due to the following items: Investment accounting and valuation. Under U.S GAAP, the investment holdings in mutual funds are stated at market value whereby under French GAAP such investments are held at cost. Consequently, due to the deterioration in the global stock markets in 2001, net unrealized investment losses in these investments were recognized under U.S. GAAP but not under French GAAP: AXA’s Life & Savings Segment (€291 million)
Equity & Law in connection with the Plan of Financial Reorganization undertaken in 2001, under French
“with-profit” fund (revenues and expenses) are included in AXA’s consolidated net income. Consequently and primarily due to the deterioration in the global stock markets in 2001, this gave rise to an additional charge of €310 million against AXA’s consolidated operating results.
Item 10 c • Item 5 (V5) 1/07/02 11:42 Page 131 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999 The French GAAP to U.S. GAAP adjustments were primarily attributable to the following items: • Accounting treatment of unrealized investment gains and losses on UK “with-profit” contracts.
Unrealized investment gains and losses are included in net income under French GAAP and included in
and U.S. GAAP relate to (i) the different methods of determining the purchase price attributable to the issuance of ordinary shares of AXA (or of an affiliate) and settling / exchanging outstanding employee stock options in the target company, (ii) the differences in the underlying accounting principles used for determining the value of net assets acquired between French GAAP and U.S. GAAP, and (iii) the portion of goodwill charged directly to shareholders’ equity under French GAAP, when ordinary shares are issued. As a consequence, the adjustment to U.S. GAAP net income in 2000 was a decrease of €1,228 million, of which €828 million was attributable to the cost of settling / exchanging outstanding employee stock options in connection with the buyout of the minority interests in AXA Financial in 2000 (1999: decrease of €17 million).
• Shares issued by subsidiaries’. Under both French GAAP and U.S. GAAP, in the event a subsidiary issues shares, the ownership interest held by the parent company decreases and a realized gain or loss is recorded.
Glossary COMPARABLE BASIS On a comparable basis means that the data for the current period were restated using the prevailing foreign currency exchange rate of the prior period (constant exchange rate basis) and eliminated the results of acquisitions, disposals and business transfer (constant structural basis) and of changes in accounting principles (constant methodological basis), in one of the two periods being compared.
ADJUSTED EARNINGS Adjusted earnings represent the net income (group share) before the impact of exceptional operations and amortization of goodwill.
(iii) Valuation allowance & release in respect of impaired invested assets.
(iv) Other fee revenues, e.g., fees received on financial planning, sales of third party products.
Net Technical result is the sum of the following components: (i) Mortality/morbidity margin: The amount charged to the policyholder in respect of mortality/morbidity for the related period less benefit claims. It is equal to the difference between income for assuming risk and the actual cost of benefits, including changes in valuation assumptions and additional reserves for mortality risk. This margin does not include the claims handling costs and change in claims handling cost reserves.
(iv) VBI : amortization of Value of Purchased Life Business In-force.
total gross insurance reserves, where: – gross operating expenses are total expenses excluding (1) expenses related to mutual fund business
(mainly fees paid to the sales force), (2) deferral or amortization of Deferred Acquisition Costs (DAC), and
– gross insurance reserves are total insurance liabilities, gross of reinsurance, including benefit and claims reserves, unearned premiums reserves, and separate account liabilities.
(iii) Valuation allowances & release in respect of impaired invested assets.
Net technical result is the sum of the following components: (i) Earned premiums, gross of reinsurance.
Current accident year loss ratio (Property & Casualty) net of reinsurance, is the ratio of: (i) [current year claims charge gross of reinsurance + claims-handling costs + result of reinsurance ceded on current accident year], to
Major losses are defined as any event whose net ultimate cost is greater than $50 million (approx. 3% of
(ii) Claims charge all accident years, net of reinsurance, including major losses.
Net attritional margin on current accident year includes the following elements: (i) Earned premiums, net of cession / retrocession (reinsurance ceded excluding covers),
Operating Cost Income Ratio: operating expenses over gross revenues (including performance fees).
Item 10 c • Item 5 (V5) 1/07/02 11:42 Page 135 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
Item 6: Directors Senior Management and Employees In 1997, following the merger with Compagnie UAP, AXA choose an organization with a Supervisory Board and a Management Board. In its role of directing and managing AXA, the Management Board is assisted by the Executive Committee.
Supervisory Board The Supervisory Board oversees management of the Company and the AXA Group and answers to the shareholders. The Supervisory Board also names the Chairman and the members of the Management Board.
AXA’s Supervisory Board consists of 14 members appointed by a majority vote of the shareholders at their annual general meeting. Four of the current Supervisory Board members are not French citizens.
Supervisory Board member must own shares of the Company at least equivalent in value to the directors fees received during the course of the year.
In addition, following the recommendations of the Selection Committee held on July 4, 2001, the Supervisory
Management Board and head of life insurance and asset management activities in the United States, to replace Mr. Edward Miller on the Company’s Management Board.
d • Items 6-7 (V5) 1/07/02 11:41 Page 136 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
As of the date of this annual report, the Supervisory Board consists of the following 14 members: Name and Age Current Post Directors Fees Principal Occupation Beginning and Received in 2001 or Employment End of Term
Chairman of the Supervisory Board of Finaxa; Director of AXA Financial, Inc., Schneider Electric and BNP Paribas
Chairman of the Supervisory Board of Bazar de l’Hotel de Ville (BHV); Vice Chairman of the Supervisory Board of Galeries Lafayette; Director or Supervisory Board Member of Cottin Frères, Société Générale, Vivarte (Groupe André) and Société Foncière Lyonnaise.
Vice Chairman of the Supervisory Board of BNP Paribas; President of BNP Paribas (Switzerland); Vice Chairman of Pargesa Holding (Switzerland); Director or Supervisory Board Member of Schneider Electric, LVMH, Total Fina Elf and Finaxa.
Chairman and Chief Executive Officer of Schneider Electric; Director or Supervisory Board Member of Finaxa, Vivendi, CNRS and A.N.S.A.
Chairman and Chief Executive Officer of Suez; Chairman of the Board of Tractebel (Belgium); Director or Supervisory Board Member of Saint Gobain, Sagem, Crédit Agricole S.A., Société du Louvre and Casino
Chairman of Phoenix House (United States); Director of KeySpan Energy Corporation (United States), Topps Company, Inc. (United States) and the United Way of Tri-State (United States)
Chairman and Chief Executive Officer of BNP Paribas; Director or Supervisory Board Member of Galeries Lafayette, Saint Gobain, Total Fina Elf, Lafarge; Permanent Representative of BNP Paribas on the Supervisory Boards of Renault and Dresdner Bank
Chairman of Lazard Paris; Executive Committee member of Lazard; Chairman and Chief Executive Officer of EURAZEO; Director or Supervisory Board Member of Saint Gobain, Pinault Printemps Redoute, Thalès, Sofina and Cap Gemini Ernst & Young
(1) Members of the Supervisory Board are not considered independent in the event that they are: – executive officers of companies in which AXA has a significant shareholding interest, or – former employees of AXA.
d • Items 6-7 (V5) 1/07/02 11:41 Page 137 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
The Chairman calls and presides over the meetings of the Supervisory Board. The members of the Supervisory
Board, the Supervisory Board confirmed the organization of four special committees. The Supervisory Board designates the members as well as the President and defines the responsibilities of these committees.
The Supervisory Board has the benefit of an Audit Committee, a Finance Committee, a Compensation
Committee can decide to invite outside participants or other persons of its choice to participate in its meetings.
• The Committee is also consulted on the selection of the Company’s Independent Auditors and reviews the independent auditors’ audit plan, the results of their audits, their recommendations and planned follow-up steps. Events that may expose AXA to material risks are referred to the Audit Committee by the Management
• The Audit Committee is also informed of accounting practices in force at AXA, and it reviews projected changes in accounting policy or method.
• The Audit Committee also reviews the program and goals of the AXA’s Central Audit Department and reports produced by this department or by firms that it may mandate from time to time. The Committee may, at its discretion, also request that internal and external audits be carried out.
• The Audit Committee may also examine any and all matters it deems appropriate and report to the
The Finance Committee is composed of the following seven members of which four are independent: Claude Bébéar (Chairman), Thierry Breton, Jacques Calvet, Michel François-Poncet, Gérard Mestrallet, Alfred von Oppenheim and Michel Pébereau.
• In addition, the Finance Committee examines all proposed material financial transactions involving AXA that are proposed by the Management Board.
• The Committee also examines the broad outlines governing AXA’s asset management policy and, more generally, all issues that pertain to AXA’s investment management policy.
• The Compensation Committee recommends to the Supervisory Board compensation levels for the members of the Management Board, the amount of directors fees for Supervisory Board members (which are subject to approval of the Company’s shareholders), as well as proposed grants of AXA stock options (which may be either subscription or purchase options) to members of the Management Board.
• The Selection Committee formulates proposals for the Supervisory Board with respect to nominations of members for the Supervisory Board and the Management Board, their respective Chairman and Vice
Chairman, as well as the members of Supervisory Board Committees and their respective Chairmen.
• The Selection Committee is kept informed of appointments of AXA’s principal executives and officers, and, in particular, of the Executive Officers.
• In addition, the Committee examines proposals to increase the number of non-French members and to reduce the overall number of the Supervisory Board members.
Members of the Management Board are named for a term of three years by the Supervisory Board and the terms of the current Management Board Members will end in 2003. The Management Board meets weekly to discuss and act on strategic matters and/or day-to-day management of the Group.
Françoise Colloc’h (58) In charge of Human Resources, the AXA Trademark and Communication
Under French law, the Management Board of a listed company may be composed of up to seven members that are appointed by the Supervisory Board. Members of the Management Board may be reappointed without any limitation for additional terms. The Supervisory Board appoints one of the members of the
Board. Any member of the Company’s Management Board may be removed from office by a decision of a majority of AXA’s shareholders present at a shareholders’ meeting or by a majority vote of the Company’s
Supervisory Board. Removal without cause or reason may constitute grounds for a claim for damages.
Under French law, the Management Board has responsibility for day-to-day management of the Company and has broad authority to take actions in the name of the Company within the scope of the corporate purpose, subject to the authority expressly reserved by law to the shareholders and the Supervisory Board.
The Chairman of the Management Board or any of its members who has been granted the same authority may represent the Company in transactions with third parties. Any limitation on the powers of the Management
Board is not enforceable against third parties, who may bring legal action against the Company to enforce commitments made in its name by the Chairman of the Management Board or any other member granted the same authority to represent the Company, provided that the necessary publicity requirements with respect to the power of these persons to represent the Company have been met.
Members of the Management Board may, with the approval of the Supervisory Board, assign among themselves specific tasks and positions in relation to the management of the Company. Despite any such allocation of tasks, members of the Management Board are still under an obligation to meet regularly to discuss essential management issues related to the Company and to exercise the requisite due diligence in managing the business and affairs of the Company. The Management Board may at its discretion entrust one or more of its members or any non-member with special assignments, whether of a permanent or temporary nature, and grant the necessary powers to allow the assignee to perform his or her task.
Supervisory Board for review. The Management Board also submits a proposal to the Supervisory Board with respect to the allocation of the earnings for the fiscal year.
The members of the Management Board need not be shareholders; however, they must be individuals.
Executive Officers All Executive Officers of the Company are members of the Company’s Executive Committee. The Executive
The 17 members of the Executive Committee meet once each quarter in the context of quaterly business reviews (“QBRs”). These QBRs were implemented in 2000 and are intended to: • examine the performance of the operating business units in a transparent and coherent context: tracking operating activities and the status of various projects in accordance with key performance indicators defined with members of the Management Board,
Françoise Colloc’h Member of the Management Board In charge of Human Resources, the AXA Trademark and Communication 1991
Claus Michael Dill Chairman of the Management Board of AXA Konzern AG (Germany) 1999
Denis Duverne Group Executive Vice President Finance, Control and Strategy 2000
Gérard Member of the Management Board de La Martinière In charge of Finance, Control and Strategy 1991
Les Owen Managing Director of AXA Asia Pacific Holdings (Australia) 1999
Stanley Tulin Vice Chairman and Chief Financial Officer of AXA Financial (United States) 2000 d • Items 6-7 (V5) 1/07/02 11:41 Page 141 Philippe Jobs Phil 1:JOBS 1:AXA:04-587-COB 2001:COB (US):
Management Board and its Chairman. These units are as follows: Name Responsibility
Executive Officer of AXA Financial and who is currently a member of AXA’s Supervisory Board. The continuity agreements were approved by a special committee of AXA Financial’s Board of Directors, formed in connection with that transaction, in order to promote the stability of AXA Financial’s management and its focus on the ongoing business of AXA Financial. In addition to severance benefits, the continuity agreement provides