In addition to the adoption of these measures, regulators and lawmakers around the world are actively reviewing the causes of the fi nancial crisis and exploring steps to avoid similar problems in the future. In many respects, this work is being led by the Financial Stability Board (“FSB”), consisting of representatives of national fi nancial authorities of the G20 nations. The G20 and the FSB have issued a series of papers and recommendations intended to produce signifi cant changes in how fi nancial companies, particularly companies that are members of large and complex fi nancial groups, should be regulated. These proposals address such issues as fi nancial group supervision, capital and solvency standards, systemic economic risk, corporate governance including executive compensation, and a host of related issues associated with responses to the fi nancial crisis. The lawmakers and regulatory authorities in a number of jurisdictions in which the Group’s subsidiaries conduct business have already begun introducing legislative and regulatory changes consistent with G20 and
As a large, multinational fi nancial services provider we are also increasingly subject to detailed and comprehensive regulations governing such matters as money laundering,
We are faced with signifi cant compliance challenges due to the fact that our regulatory environment is evolving rapidly and supervisory authorities around the world are assuming an increasingly active and aggressive role in interpreting and enforcing regulations in the jurisdictions where we do business. We have been and may become in the future subject to regulatory investigations which, together with the civil actions often following these investigations, may affect our image, brand, relations with regulators and/or results of operations. We cannot predict with any certainty the potential effects that any change in applicable laws or regulations, their interpretation or enforcement, or that any enactment of new regulation or legislation in the future may have on the business, fi nancial condition or results of operations of our various businesses.
the conduct and operations of our business. Due to the nature of certain of these lawsuits and investigations, we cannot estimate the potential loss or predict with any certainty the potential impact of these suits or investigations on our business, fi nancial condition or results of operations.
Please see Part 4 – Note 31 “Litigation” and the “Additional
From time to time, governments in the jurisdictions in which we operate, have considered or implemented proposals for changes in tax law that could adversely affect our products.
These projects have included proposals to levy tax on the undistributed increase in value of life insurance policies or annuities or similar proposals that affect the tax-favored status of life insurance products and annuities in certain jurisdictions as well as other changes that could adversely affect the attractiveness of the insurance, asset management and other products we offer. For example legislation enacted in the
United States in December 2010 reinstated the estate tax in the United States on estates over $5 million ($10 million for married couples), at a rate of 35%. This rate and exemption amount will apply through December 31, 2012, at which time the estate tax is scheduled to increase to a 55% maximum rate with a $1 million exemption amount. However, future changes to estate tax legislation could reduce the impact of estate taxes, and therefore could have a negative impact on the sales of estate planning products by US life insurance companies, including our US subsidiaries since a signifi cant portion of life insurance sales in the US are made in conjunction with estate planning. The enactment of these or other similar types of legislation in the various countries where we operate, including proposals in the US to create or favor alternative taxfavored long-term savings vehicles, could result in a signifi cant decrease in sales of our currently tax-favored products. In addition, sales of certain of our asset management products may be negatively impacted to the extent that future legislative or regulatory proposals create tax incentives or disincentives to investing in certain asset classes or product types or affect investor sentiment towards or risk-appetite for certain asset classes or products generally.
U.S. policyholders and annuitants. For non-U.S. fi nancial institutions that fail to comply, withholding would apply without regard to whether the benefi cial owner of a withholdable payment is a U.S. person or would otherwise be entitled to an exemption from withholding tax under either an applicable tax treaty or federal tax law. “Withholdable payments” generally include, among other items, payments of U.S.-source interest and dividends and the gross proceeds from the sale or other disposition of property that may produce U.S.-source interest and dividends.
IRS may require (and to satisfy any requirements pursuant to such agreements and any related Treasury regulations or other guidance that has been or may be promulgated) to the extent necessary to avoid the imposition of a withholding tax on payments made to it. However, if the Group cannot enter into such agreements or satisfy the requirements thereunder (including as a result of local laws prohibiting information sharing with the IRS, as a result of contracts or
local laws prohibiting withholding on certain payments to accountholders, policyholders, annuitants or other investors or as a result of the failure of accountholders, policyholders, annuitants or other investors to provide requested information), certain payments to the Group including dividends from its US
option to avoid applying all the hedge accounting principles required by IAS 39. In addition, the adoption of IFRS 9 published by the IASB in November 2009 has not been yet formally submitted to the European Union. However, the
Paper in May 2007 and an Exposure Draft in July 2010 in order to defi ne principles to be applied for IFRS 4 Phase II.
Increased geopolitical risks and any future terrorist attacks may have a continuing negative impact on certain of our businesses
in the future, of reinsurance coverage against terrorist attacks for our various insurance operations is uncertain. In addition, the rating agencies could reexamine the ratings affecting the insurance industry generally, including our companies.
We offer our products and services in Europe, North America, the Asia/Pacifi c Region, the Middle East and Africa through wholly-owned and majority-owned subsidiaries, joint ventures, companies in which we hold non-controlling equity stakes, agents and independent contractors. Our international operations expose us to different local political and regulatory, business, and fi nancial risks and challenges which may affect the demand for our products and services, the value of our investment portfolios, the required levels of 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 or we transfer part of our business processes, including the risk of nationalization, expropriation, price controls, capital controls, fl uctuations in foreign currency exchange rates, credit risks of our local borrowers and counterparties, lack of local business experience in certain markets, risks associated with 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 different economic, social and political conditions. We may not continue to succeed in developing and implementing policies and strategies that are effective in certain locations where we do business.
We may, in the future, offer rights, warrants or similar securities at prices below the then-current market price which may adversely affect the market price of our ordinary shares, and our ADSs, and dilute the positions of existing shareholders.
Diffi cult market conditions may require us to offer rights, warrants or similar securities at prices much below the then-current market price in order to help fund acquisitions and other expansion plans, as well as improvements to our existing infrastructure and other business activities. This may adversely affect the market price of our ordinary shares and our ADSs on the over-the-counter markets and have a dilutive effect on the ownership and voting percentages of existing shareholders.
(1) Since the delisting of AXA’s American Depositary Shares (“ADS”) from the New York Stock Exchange (“NYSE”) on March 26, 2010, AXA’s ADSs are traded on the U.S. over-the counter market and are quoted on the OTC QX platform. Quotes are available on www.otcqx.com under the symbol
The Mutuelles AXA, two French mutual insurance companies, acting as a group, owned at December 31, 2010, approximately 13.94% of the issued ordinary shares of AXA
AXA’s charter (statuts), see Section “Voting rights” included in Part 5 of this Annual Report. The Mutuelles AXA have stated their intention to collectively vote their shares in AXA.
will not, from time to time, confl ict with your interests as a shareholder. For example, even though the Mutuelles AXA do not hold a majority of the total voting power in AXA, efforts by the Mutuelles AXA to decline or deter a future offer to acquire control of AXA, which other shareholders may fi nd attractive, may prevent other shareholders from realizing a premium for their AXA ordinary shares or ADRs. 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.
AXA ADSs would receive upon the sale in France of any
■ The US dollar equivalent of cash dividends paid in Euro on the AXA ordinary shares represented by the AXA ADSs.
As a result of its deregistration from the SEC and delisting from the NYSE, AXA is no longer subject to the reporting and corporate governance requirements of the SEC and NYSE
SEC and NYSE and AXA’s fi nancial reporting is no longer subject to SEC oversight. AXA continues to comply with the corporate governance standards and reporting requirements applicable to listed companies in France and is subject to the oversight of the French securities regulator, the AMF.
While French and US governance and reporting standards are similar in many respects, there are a variety of signifi cant differences. AXA remains committed to maintaining high levels of governance and transparency consistent with international best practices and intends to continue to publish periodic fi nancial and corporate information in the English language on its website but these practices may not be consistent in all respects with the NYSE and SEC standards to which AXA was previously subject.
The holders of AXA ADSs may not be able to exercise their voting rights due to delays in notifi cation to and by the depositary
■ Take any action based upon the advice of, or information from, legal counsels, accountants, any person presenting ordinary shares for deposit, any holder or owner of an
AXA ADR or any other person believed by AXA or the depositary in good faith to be competent to give such advice or information. In addition, the depositary and AXA
have the obligation to participate in any action, suit or other proceeding with respect to the AXA ADSs which may involve them in expense or liability only if they are indemnifi ed.
These provisions of the Deposit Agreement will limit the ability of holders of AXA ADSs to obtain recourse if AXA or the depositary fails to meet their obligations under the Deposit
In the event that we offer rights, warrants or similar securities to the holders of our ordinary shares or distribute dividends payable, in whole or in part, in securities, the Deposit
Agreement provides that the depositary (after consultation with AXA) shall have discretion as to the procedure to be followed in making such rights or other securities available to ADR holders including disposing of such rights or other securities and distributing the net proceeds in US dollars to ADR holders. Given the signifi cant number of AXA ADR
holders in the US, AXA generally would be required to register with the SEC any public offering of rights, warrants or other securities made to its ADR holders unless an exemption from the registration requirements of the US securities laws is available. Registering such an offering with the SEC can be a lengthy process which may be inconsistent with the timetable for a global capital raising operation. Consequently, we have in the past elected and may in the future elect not to make such an offer in the US, including to our ADR holders and rather only conduct such an offering in an “offshore” transaction in accordance with “Regulation S” under the US Securities Act of 1933, as amended (the “Securities Act”), or in the US in transactions exempt from the registration requirements of the Securities Act. Therefore, there can be no assurance that our ADR holders and ordinary shareholders in the US will be able to participate in such an offering, and our deregistration increases the likelihood that any such offering in the future will not be extended to the US holders of our securities, other than in transactions exempt from the registration requirements of the Securities Act.
■ Unforeseen events such as natural disasters or terrorist attacks and other developments stemming from such events and the uncertainty related to these developments.
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.
metrics/standards but also culture - for business lines to write risks within a risk appetite validated locally and by the
Within the AXA Group, Risk Management is the main responsibility of the Group Risk Management Department and supported by other central departments (DCFG, PBRC and
GIA). It is coordinated by the central team, supported by local
Global Life for insurance risks, they recommend actions to manage risks; ■ Group Chief Risk Offi cer heads the Group Risk Management
Group CRO. These teams are responsible for controlling and managing risks within Group policies and limits, validating investment or underwriting decisions through Local Risk
Group in order to ensure the consistency between actuarial and fi nancial standards;
■ Defi ne and propose to the Management Committee, with the support of AXA Global P&C and AXA Global Life, the main features of the Group’s reinsurance coverage program; ■ Monitor the Group asset allocation: (i) monitor risk concentration in assets, (ii) perform regular studies and reporting on exposure and performance, and (iii) defi ne standards in terms of Asset Liability Management (see
Section “Market Risks”); ■ Defi ne and coordinate a decentralized review of riskadjusted pricing and profi tability for new products prior to launch (the Product Approval Process) in Life & Savings and Property & Casualty. For Variable Annuity products with guarantees, the review is centralized, and submitted to the
The Group’s risk management structure is also reinforced by AXA Global P&C and AXA Global Life, which advise and support local entities in their reinsurance strategy (Property &
& asset allocation and reinsurance strategy; ■ Coordinating pre-launch product approval procedures and regular pricing reviews after launch; ■ Coordinating operational risk framework; ■ Implementing risk appetite on all risks, with strengthened reporting, risk limits and decision processes; ■ Performing the calculation of an internal capital model; ■ Carrying out the risk reporting.
Variable Annuities’ guarantees; ■ Reinsurance also offers solutions to mitigate certain risks; it is for instance used to de-risk part of the in-force GMIB
The breakdown of life insurance reserves by product type is as follows: ■ 20% at the end of 2010 (25% at the end of 2009) of the
AXA’s risk exposure. This category includes products that provide a guarantee on invested capital in the event of death. On these products, the underlying fi nancial market performance is mostly passed on to the policyholders.
Variable Annuities. Suitable risk management policies have been put in place with respect to these products: • derivatives are used as part of the dynamic management of risks related to guaranteed benefi ts, in order to cover market risks linked to Guaranteed Minimum Death Benefi ts,
Equitable for the US business and AXA Bank Europe for the European and Asian business manage the market risks on these products,
• policyholders’ behaviour on these products, notably lapses, longevity/mortality and election rates, are closely monitored and the risk of deviations of these items from the underlying assumptions is limited through updating the dynamic management programs that are in place;
TOTAL – PROPERTY & CASUALTY INSURANCE INCLUDING INTERNATIONAL INSURANCE 60,401 58,109
The market risks to which Property & Casualty operating units are exposed to arise from the following factors: ■ Infl ation may increase the compensation payable to policyholders, so that the actual payments may exceed the associated reserves set aside. This risk can be signifi cant for long-tail businesses but is managed through regular pricing adjustments or specifi c protections against peaks of infl ation; ■ A sustained fall in yields on fi xed-income investments would generally not present a material risk. The exceptions would be policies implicitly providing a guaranteed rate (disability income, workers’ compensation) – but the risk is mitigated by duration management; ■ 13% at the end of 2010 (16% at the end of 2009) of the
Group’s Life & Savings technical reserves cover products without guaranteed cash values upon surrender: • annuities in the payout phase are usually backed by fi xedincome assets with maturities that match the underlying payout schedules, thereby avoiding reinvestment and liquidity risks; ■ 20% at the end of 2010 (17% at the end of 2009) of the
Group’s Life & Savings technical reserves cover other products. These reserves cover surrender guarantees and, in some cases, a guaranteed long-term rate. Related risks are managed in the following ways: • products that are not surrender-sensitive are usually backed by fi xed-income investments with maturities and interest rates generally suffi cient to cover guaranteed benefi ts, so as to reduce as much as possible the reinvestment risk,
The capacity to have diversifi ed investments (real estate or equity securities) also offers a partial natural hedge against infl ation.
At Group level, the ALM Supervisory Committee, chaired by the Deputy CEO, determines the Group asset liability management policies, ensures that the Group exposures are within the Group risks limits; the Group Investment Committee, chaired by the Deputy CEO discuss implementation of investment strategy, steers tactical asset allocation, evaluates new investment opportunities and monitors Group investment performance.
Group CIO function has been created in 2009 to improve AXA’s risk-adjusted investment performance (centralized credit team, relationship with the asset managers) and strengthen checks and balances in the investment & ALM function through the clarifi cation of the roles of CIOs and CROs.
Operating units produce an asset allocation statement every month. This allows regular monitoring of certain key risk indicators such as the duration and convexity of fi xed income portfolios, and the credit concentration in any issuer.
This work is carried out by local teams and then consolidated by Group Risk Management to give an overview for the whole
Investment Offi cer that factors in long-term outlook as well as short-term constraints (the ALM studies: see below); ■ The validation of this allocation by the unit’s ALM Committee, subject to risk management opinion and respecting predefi ned Risk Appetite limits; ■ The implementation of the allocation through the set-up of a mandate with asset management companies with clear and pre-defi ned leeways; ■ A tactical allocation under each Chief Investment Offi cer responsibility with support from asset management companies; ■ Stock selection made by asset managers with the given mandates and related leeways; ■ A performance reporting and analysis.
ALM studies are based on the modelling of commitments resulting from insurance policies, and aim to defi ne asset allocation so that these commitments can be met with a high degree of confi dence while maximizing the expected investment return. This work is carried out by local ALM
In addition, AXA’s insurance operation units are subject to local regulatory requirements in all jurisdictions in which AXA
operates. These local regulations may prescribe: ■ The required category, nature and diversifi cation (by type of issuer, geographical zone and type) of investments; ■ The minimum proportion of assets invested in the local currency, considering commitments denominated in this currency (congruence rule).
The Group Central Finance Department consolidates these results, enabling it to assess operating units’ fi nancial fl exibility.
Products that involve hedging programs using derivative instruments are designed with the help of dedicated teams at AXA Bank Europe, AXA Investment Managers and
AllianceBernstein. This organization means that all entities benefi t from the best possible expertise and a high level of legal and operational security in these transactions, which are sometimes complex.
The main fi nancial risks for the AXA Group are as follows: ■ Interest-rate and equity risk related to the operating activities of Group subsidiaries; ■ Credit risk. Please read the next part “Credit risk” included in the Part 3 – Section 3.2 – “Quantitative and Qualitative
foreign exchange exposure and debt; ■ Liquidity risk. Please read “Liquidity position and risk management framework” included in Part 1 – Section 1.4 –
& Savings business, as described below; ■ Sensitivities of the Tangible Net Asset Value (TNAV) for other-than-life businesses.
Life & Savings Adjusted Net asset Value (ANAV) and Other Businesses TNAV 20,389 (6,324) 14,065 17,290 (5,323) 11,967
Group EV = AXA Life & Savings EEV + Other Businesses IFRS SHE at December 31 40,476 (6,324) 34,152 35,745 (5,323) 30,422
equity on the following main adjustments: ■ Addition of unrealized capital gains/losses not included in
IFRS shareholders’ equity; ■ Elimination of the value of all intangible assets; ■ Elimination of unrealized capital gains/losses included in the projection of future cash-fl ows (VIF); ■ Adjustment for the differences between AXA’s consolidated accounting basis and local regulatory bases.
The Group EV equals the Life & Savings EEV plus the other businesses TNAV (Tangible Net Asset Value). The TNAV for other-than-life businesses is refl ecting the consolidated IFRS
shareholders’ equity adjusted for: ■ The elimination of all intangible assets; ■ The reclassifi cation in the liabilities of all undated debt (TSS/
average infl ation rate was assumed in 2010 (2.1% in 2009); ■ Expenses are adjusted for non-recurring expenses and onetime strategic spending; Group EV
■ Some benefi t from future mortality improvement on Life business is included, while annuity business does have an allowance for the costs of longevity increasing in all markets; ■ Non-fi nancial risks are provided for through the cost of holding capital consistent with the necessary amount to obtain a AA rating at each entity level; ■ A weighted average tax rate of 31.6% was assumed in 2010
or fee revenues, 2) future reinvestment rates for all asset classes, and 3) risk-discount rates. Infl ation rates are not changed. Policyholder and management behaviors are adjusted following normal behavioural modeling. As noted in the defi nitions, these calculations refl ect discount rate changes in Life & Savings and for other-than-life discounted reserves, as well as changes to the value of fi xed-income assets, but no changes in value for asset classes such as equities or real estate are assumed to accompany the reference interest rate movements (although for Life &
Savings future returns are impacted as these equal the risk-free rate on average across scenarios in the market consistent valuation). In reality, changes in value of other asset classes would probably lead to different results than shown here. It is also possible that a gradual movement in interest rates would produce different results than a sudden shock, especially for dynamically hedged variable annuities business where a sudden shock tends to overestimate the sensitivities (as in real life the rebalancing of hedging assets would at least partly offset the impact of the shock).
■ 10% lower value of equity markets at the start of the projection same as above but a decrease.
Downard parallel shift of 100 bps in risk-free rates (2,440) -7% 1,718 5% (722) -2% (2,253) -7% 1,273 4% (980) -3%
10% lower value of equity markets at start of projection (1,536) -4% (727) -2% (2,263) -7% (1,140) -4% (567) -2% (1,707) -6%
2010 interest rate sensitivities (% of Group EV) for Life &
Savings business of 2% to upward 100 bps and -7% to downward 100 bps (2009: 3% and -7%) show an asymmetry predominantly driven by guaranteed interest rates having higher value when interest rates decrease, while higher reinvestment rates would need to be shared with policyholders limiting shareholders’ gains in a higher rate environment. However this classical pattern is not followed in some entities (e.g., the UK, the Mediterranean and Latin American Region, Australia/New
Zealand and Hong Kong), where the business has signifi cantly less interest rate guarantees and the EEV behaves more like a portfolio of fi xed-income assets. In addition, higher interest rates affect the value both positively through higher investment rate and negatively through lower starting value of fi xed income assets and higher discount rates for future profi ts. For different product types these interactions produce different results.
2010 equity market sensitivities (% of Group EV) for Life &
Savings business of 4% to upward 10% or -4% to downward 10% (2009: 4% and -4%) are more nearly symmetrical, with no complicating effects from changes of discount rates. The limited asymmetries refl ect the impact of guarantees and profi t-sharing rules, along with some hedging programs to limit potential losses. The impacts of equity market value changes can come through general account exposures or through changing asset balances impacting future fee revenue on separate account business.
2010 equity market sensitivities (% of Group EV) for other-thanlife businesses of 2% to upward 10% or -2% to downward 10%
(2009: 2% and -2%) refl ect the impacts on equities including derivatives on equities.
■ Life & Savings business: 77% of Group assets at the end of 2010 (78% in 2009): In France, AXA is exposed to exchange-rate risk through the units it owns in certain investment funds partly invested in foreign currencies (particularly US Dollar: €2,184 million vs. €1,323 million in 2009, Pound Sterling: €163 million vs.
US Dollars €3,494 million (€3,200 million in 2009). Exchangerate risk exposure is hedged using forwards for a notional amount of €3,308 million (notional €3,071 million in 2009) and currency swaps for a notional amount of €380 million (notional of €681 million in 2009).
due to limited investment possibilities in Switzerland and to the traditionally low interest rate environment in Switzerland. As a result they hold foreign exchange exposure on equity securities as well as on fi xed maturities denominated in currencies other than Swiss Francs. However, the main part of the exposure is hedged back into Swiss Francs with foreign exchange swaps, options and forwards.
Switzerland Life & Savings foreign exchange exposure amounted to €19,119 million (circa 32% of assets) at the end of 2010, of which €17,418 million were hedged.
& Savings companies do not have any signifi cant exposure to exchange-rate risk.
at the end of 2009) of the Group’s Life & Savings companies’
€207 million in 2009) and to a much lesser extent Pound
France controls and limits its exposure to exchange-rate risk by using forwards in all these currencies (notional of €487 million vs. €210 million in 2009).
In Belgium, parts of AXA Belgium’s reinsurance portfolio liabilities are denominated in US Dollar. The foreign exchange risk associated to these liabilities is fully hedged through investments in US Dollar. The US Dollar exposure was €127.5 million at the end of 2010 (€100 million in 2009).
Germany P&C is exposed to US Dollar exchange rate risk on certain investment funds for €1,096 million (€1,143 million in 2009). Germany controls and limits its exchange rate risk by using forwards for a notional amount of €967 million (notional €688 million in 2009), currency swaps for a notional amount of €143 million (notional €175 million in 2009) and congruent coverage €57 million (€72 million in 2009).
In the United Kingdom and Ireland, AXA is exposed to exchange-rate risk through its AXA Insurance and AXA PPP
of CDO equity funds and investment funds which predominately invest in foreign-currency investments; iii. Euro denominated Credit Default Swaps are in place with a nominal value of €143 million (€143 million in 2009)
In Switzerland, foreign exchange exposure amounted to €3,966 million (circa 27% of total assets) at the end of 2010, of which €3,727 million were hedged with foreign exchange futures and forwards.
(1) Amount disclosed in 2009 was €389 million, difference relates to currency element of the loan swap being deducted from the underlying asset values.
These countries accounted for 93% at the end of 2010 (95%
AXA Corporate Solutions Assurance carries some insurance liabilities, denominated in foreign currencies, particularly in
■ As regards holding companies (6% of Group assets at the end of 2010, same as 2009), AXA SA has, since 2001, adopted a hedging policy on net investments denominated in foreign currencies, which aims at protecting the Group’s consolidated shareholders’ equity against currency fl uctuations, using derivatives instruments and foreigncurrency debt.
In respect of the Japan activities, mainly in the form of derivatives
Australian Dollar 0.8 1.3 0.6 0.8 Mainly in the form of debt
AXA SA’s assets accounted for most of the assets of Group holding companies at the end of 2010.
These reports, together with information about hedging strategies, are sent to and reviewed by the Finance Committee of AXA’s Board of Directors on a quarterly basis.
POLICY: the policy is defi ned in order to monitor and limit the potential medium-term variation in interest expenses and consequently to partially protect future levels of interest expenses against movements in interest rates.
ASSESSMENT: ■ Variability analyses assess the change in interest expenses over a medium term horizon resulting from a 100bp rise in interest rates;
ASSESSMENT: exchange rate sensitivity analyses measure the annual change in interest expenses resulting from a variation in the Euro against all other currencies together with the impact on the Group’s shareholders’ equity, liquidity, gearing ratio and
Information in this Section (except the Credit Derivatives pie chart) should be read in conjunction with Note 4 to the consolidated fi nancial statements included in Part 4 of this
AXA has a database consolidating the Group’s assets and analyzing them by issuer, credit rating, sector and geographic region, in order to assess the risk of concentration in its equity and debt security portfolios at group level, in addition to local procedures. This database allows AXA to monitor, on a monthly basis, exposure to the default risk of a given issuer, particularly through holding of its debt securities. It also allows the monitoring of equity exposure.
Group’s limit tolerances and determines coordinated actions for excessive credit concentrations. It is chaired by the Group
CIO teams. The ALM Supervisory Committee is regularly kept informed of the work performed.
At December 31, 2010, the breakdown of the debt security portfolio (€349.4 billion) by credit rating category was as follows: BBB
At December 31, 2009, the breakdown of the debt security portfolio (€325.3 billion, including €9.6 billion held through with-profi ts funds) by rating was: 33% in AAA, 31% in AA, 20% in A, 11% in BBB, 3% in BB and lower, and 2% in other.
At December 31, 2010, the breakdown of government bonds fair values (€191bn) by country was as follows: Switzerland
At December 31, 2010, the economic breakdown of the total value of ABS (€10.3 billion excluding assets held for sale as well as CMOs and agency pool ABS) was: Prime Residential
At December 31, 2009, the economic breakdown of the total value of ABS (€10.4 billion excluding asset sheld for sale, as well as CMOs) was: 22% in CLO, 14% in Consumer
At December 31, 2009, the breakdown of the ABS portfolio by rating was: 45% in AAA, 19% in AA, 10% in A, 8% in BBB, 14% in high yield, and 4% in NR/equity.
The positive gross fair value evolution of the ABS assets over the year 2010 was evaluated at €0.7 billion, of which €0.3 billion was recognized in net income and €0.4 billion was recognized in shareholders’ equity (versus €0.5 billion in 2009, of which €0.4 billion in net income and €0.1 billion in shareholders’ equity).
Net of policyholders’ participation, tax and VBI/DAC reactivity, the positive fair value evolution of the ABS assets over the year 2010 was evaluated at €0.3 billion, of which €0.1 billion was recognized in net income and €0.2 billion was recognized in shareholders’ equity (versus €0.1 billion in 2009, of which €0.1 billion in net income and €0 billion in the shareholders’
The AXA Group, as part of its investment and credit risk management activities, uses strategies that involve credit derivatives (mostly Credit Default Swaps or CDS), which are mainly used as an alternative to debt security portfolios, when coupled with government debt securities, but also as a protection on single corporate names or specifi c portfolios.
For these €10.1 billion CDS, the credit risk taken by the AXA
derivatives through a specifi c Group-wide policy. This policy includes a limit framework and an exposure monitoring process. Limits are set specifi cally for each authorized counterparty, based on an internal scoring system. This policy also includes daily to weekly collateralization for the majority of the Group’s exposure.
(excluding held for sale assets and businesses) to monoline credit insurers (“Monolines”) was insignifi cant and the indirect exposure (debt securities enhanced by Monoline reinsurers) in the general account was €169 million, of which €62 million to
At year end 2010, total invested assets of the banking segment
As such, AXA banks risk management policies are based on their stated Risk Appetite, with the following key principles: ■ Dedicated counterparty and credit risk functions with
Credit Committees’ that meet every month) and a regular monitoring of portfolios by product management teams and risk management teams; ■ Other than retail credit risk, resulting from investment activity. This activity is limited with strong control processes in place: a limit framework (by country, currency, ratings, and individual issuer – based on internal rating system), one dedicated Risk Committee meets every two weeks to validate new credit investments, to review portfolio of investments, and analyze adequacy to the risk limits.
This portfolio of investments is essentially composed of papers eligible to the European Central Bank’s refi nancing operations due to its primary purpose to serve as a buffer of liquid assets for the commercial activities of the Bank.
Europe’s internal capital adequacy assessment and strategic planning processes take into account capital required to mitigate all material risks, capital required for expected business growth, intra-risk diversifi cation benefi ts, liquidity requirements and stress testing results. Its capital allocation processes also incorporate Risk-Adjusted Return on Capital
Group level but performed jointly by central and local teams: ■ Profi tability analysis mainly through procedures governing pre-launch product approval (new product risk control) that complement strong and basic underwriting rules; ■ Regular exposure analysis to ensure that the Group’s current exposure is within our risk appetite at Group level; ■ Optimization of reinsurance strategies to mitigate the risks in order to cap the Group’s peak exposures to protect our
This work, along with an analysis of the return on capital across multiple scenarios, also gives a better understanding of any asset-liability mismatch risk and the actual economic capital requirement at the product design stage. Where signifi cant fi nancial risks exist, an ALM study must be performed to confi rm the hedging strategy for the product; ■ Stress tests are required on key assumptions to ensure that appropriate ‘what if’ scenarios are considered in the development process; ■ Pricing reports are sent to GRM prior to launch.
underwritings; ■ This profi tability framework complements strong and basic underwriting rules to ensure that no risks are taken outside the Group tolerances and that value is created by adequately pricing the risk.
GRM has developed and deployed common models/metrics to measure risks consistently throughout the Group. This is designed to check that the Group’s current exposure is within the Group’s consolidated risk appetite limits.
Reinsurance purchasing is an important part of the Group’s insurance activities and risk management.
For the Property & Casualty and Life & Savings operations, reinsurance programs are set up as follows: ■ Reinsurance placement is mainly handled centrally by AXA
Global P&C and AXA Global Life; ■ Prior to ceding risks, in-depth actuarial analyses and modeling are conducted on each portfolio by AXA Global
In 2010, four pools were managed by AXA Global P&C: ■ Property (Catastrophe and per risk + Personal Accident); ■ General Liability; ■ Marine; ■ Technological innovation.
All local Group companies ceding reinsurance are collectively protected by this Group coverage. The net fi nancial results of this Group protection are then retroceded to these entities.
Various statistical and actuarial methods are used in these calculations. Calculations are initially carried out locally by the technical departments in charge, and are then reviewed for a second opinion by local risk management teams or external technical experts.
Department and other entity specialists, performs in-depth reviews on specifi c portfolios to re-assess all underlying assumptions, methods and processes driving the exercise
Assumptions depend on available data relating to reported losses at the time of the estimates, as well as local regulations, claims management procedures, pricing, underwriting information and the type of activities and claims (coverage type, attritional or major claims, recent or old occurrence).
Through its Emerging Risks initiative, AXA has established processes to qualify and quantify emerging risks which could develop over-time and become signifi cant. These processes are designed to ensure that the Group’s exposure is within its risk tolerance. This initiative also allows expertise to be shared within the underwriting and risk communities and adequate underwriting policies to be defi ned.
The changing and growing risks caused by climate change and, more specifi cally, by global warming, represent a major challenge for all human activities and particularly insurance operations.
Gradual premium rate adjustments will be required to widely refl ect these risk factors, but may not be suffi cient to cover risks underwritten in the most exposed areas to fl ood or cyclone. By seeking to develop new solutions and actively contributing to the overall debate about the issues involved
As part of its mortality risk management, AXA issued in 2006 a “mortality” bond which provided the Group with some protection against mortality shocks. The redemption amount of this bond depended on general mortality thresholds. This instrument was transformed, where needed, by AXA Global
■ Across the Group, the most critical operational risks of each entity and a set of transversal Group stress scenarios are identifi ed and assessed following a forward-looking and expert opinion approach. These risks are then aggregated using actuarial methods to estimate the capital allocation needed to cover operational risks based on advanced models inspired by those proposed by the Basel Committee for banking supervision. Moreover, Operational Risk profi le is embedded into local governance through senior management validation to ensure adequate corrective and pre-emptive action of the main risks.
The “know your customer” principle is crucial in this respect, and is fundamental to all transactions. The Group Charter is reviewed and updated on a regular basis by taking into account international legal and regulatory developments.
(both class actions and individual litigations), investigations, and other actions arising in the various jurisdictions where they do business. For further information, please see Part 4
“consolidated fi nancial statements” – Note 31 “Litigation” of this Annual Report.
The purchase of insurance on the Group’s proprietary assets and risks is largely decentralized with Group subsidiaries responsible for identifying risks and purchasing their own insurance, such as property damage and public liability insurance, according to their local exposures and market conditions. As part of the general governance principles, subsidiaries may arrange protection with external insurers or with an internal AXA Group insurer.
Committee to ensure that AXA has achieved competitive terms and conditions. The insurers used by the Group are acknowledged international leaders and fi nancially sound.
3.3 CERTAIN FINANCIAL INFORMATION Please see Part 4 – “Consolidated fi nancial statements” of this
For a description of certain developments since the date of the annual fi nancial statements included in this Annual Report, please see Part 4 – “Consolidated fi nancial statements” –
4.1 CONSOLIDATED STATEMENT OF FINANCIAL POSITION 238 4.2 CONSOLIDATED STATEMENT OF INCOME 241 4.3 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 242 4.4 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 244 4.5 CONSOLIDATED STATEMENT OF CASH FLOWS 248 4.6 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 250
Other long-term assets 193 386 14 Deferred policyholders’ participation assets 636 678 19 Deferred tax assets 4,097 3,709
(a) AXA Japan closes its full year accounts at September 30, however balance sheet items have been translated using December 31, 2010 exchange rate, given signifi cant movement in foreign exchange rates since end of September 2010.
(d) In order to improve the consolidated statement of fi nancial position presentation consistency across segments, balances disclosed so far as “Receivables arising from banking operations” and “Payables arising from banking operations” have been respectively reclassifi ed to the “Investments from banking and other activities” and to the new “Liabilities arising from banking activities” aggregates (see Note 1.20).
Liabilities arising from investment contracts with no discretionary participating features 720 917
14 LIABILITIES ARISING FROM INSURANCE AND INVESTMENT CONTRACTS 536,737 545,317 15 Liabilities arising from banking activities (d) 27,209 23,810 16 Provisions for risks and charges 10,495 9,538 19 Deferred tax liabilities 4,098 4,934
Minority interests of controlled investment funds and puttable instruments held by minority interest holders 4,855 6,516
Payables arising from direct insurance and inward reinsurance operations 7,387 6,761
(b) AXA Japan’s 2008 accounts closed at September 30 were adjusted for consolidation purpose by €-106 million with the provisional loss refl ecting the further increase of the credit spreads from October to December 2008. This adjustment was reversed in 2009. No adjusment was required in 2010 accounts.
Liabilities arising from insurance contracts where the fi nancial risk is borne by policyholders 108,587 103,281
Liabilities arising from investment contracts with discretionary participating features and where the fi nancial risk is borne by policyholders 4,700 5,767
Total Liabilities arising from contracts where the fi nancial risk is borne by policyholders 138,293 155,797
Net realized gains and losses and change in fair value of investments at fair value through profi t and loss (d) 15,446 25,165 of which change in fair value of assets with financial risk borne by policyholders (e) 13,788 23,861
Income from operating activities before tax 4,453 6,124 10 Income arising from investments in associates – Equity method 85 8 24 Financing debts expenses (g) (488) (569)
(d) Includes realized and unrealized forex gains and losses relating to investments at cost and at fair value through shareholders’ equity
(i) Revised net income EPS takes into account interest payments related to undated subordinated debts classifi ed in equity, excluding forex impacts. Previously disclosed EPS included forex adjustments and, as of December 31, 2009, basic net income EPS amounted to €1.51 and fully diluted net income EPS to €1.51. Excluding forex refl ects implemented hedges which would qualify as net investment hedges with related changes in fair value recognised through translation reserves.
Net gains and losses recognized directly through shareholders’ equity 2,395 4,096
(c) Actuarial gains and losses acrrued since opening January 1, 2009.
Change in goodwill impairment and other intangible assets impairment (c) 117 113
Charges related to the partial disposal of UK Life & Savings operations 1,642 -
Net increase/(write back) in impairment on investments, tangible and other intangible assets 954 2,210
Income arising from investments in associates – Equity method (85) (8)
Dividends recorded in profi t or loss during the period (1,181) (1,022)
Investment income & expense recorded in profi t or loss during the period (15,393) (11,704)
Net cash provided by other assets and liabilities (g) 2,788 953
Net cash related to changes in scope of consolidation 2,098 (434)
Sales of equity instruments and non controlled investment funds (f) (g) 16,653 14,385
Sales and/or repayment of loans and other assets (g) (h) 38,445 39,768
Net cash related to sales and repayments of investments (f) (g) (h) 132,357 120,613
Purchases of investment properties held direct or not (g) (624) (1,815)
Net cash related to purchases and issuance of investments (f) (g) (h) (151,295) (138,744)
Net cash impact of assets lending/borrowing collateral receivables and payables (228) (4,977)
Other fi nancing cash impact and non cash adjustment 5 (53)
CASH AND CASH EQUIVALENT AS OF JANUARY 1 (J) 18,210 30,811
Impact of change in consolidation method and of reclassifi cations as held for sale (l) 335 361
Net impact of foreign exchange fl uctuations and reclassifi cation on cash and cash equivalents 3,658 (1,384)
CASH AND CASH EQUIVALENT AS OF DECEMBER 31 (J) 20,986 18,210
(h) Includes sales/purchases of assets backing insurance & investment contracts where the fi nancial risk is borne by policyholders.
AXA SA, a French “société anonyme” (the “Company” and, together with its consolidated subsidiaries, “AXA” or the
AXA is listed on Euronext Paris Compartiment A and had been listed since June 25, 1996 on the New York Stock Exchange
(NYSE). On January 25, 2010, AXA announced its intention to voluntarily delist its American Depositary Shares (ADS)
Securities and Exchange Commission (SEC). AXA’s delisting from the NYSE became effective on March 26, 2010. AXA fi led its Form 15F to deregister with the SEC on March 26, 2010 and its deregistration with the SEC became effective 90 days thereafter on June 25, 2010.
On April 29, 2010, the Shareholders’ meeting approved the replacement of AXA’s dual board structure (Supervisory Board and Management Board) with an unitary board structure in the form of a Board of Directors.
These consolidated fi nancial statements including all notes were fi nalized by the Board of Directors on March 9, 2011.
European Union. However, the Group would not have used the earlier adoption option as of today. As a consequence, the consolidated fi nancial statements also comply with IFRSs as issued by the International Accounting Standards Board (IASB).
The application of the following standards, amendments to standards and interpretations as of January 1, 2010, had no material impact on the Group’s consolidated fi nancial statements: ■ Eligible Hedged Items (an amendment to IAS 39 Financial
STANDARDS AND AMENDMENTS EARLY ADOPTED IN THE 2009 ANNUAL CONSOLIDATED FINANCIAL STATEMENTS
IFRIC 19 – Extinguishing fi nancial liabilities with equity instruments, published on November 26, 2009 and effective for fi nancial years beginning on or after July 1, 2010, with earlier application permitted, clarifi es the requirements when an entity renegotiates the terms of a fi nancial liability with its creditor and the creditor agrees to accept the entity’s shares or other equity instruments to settle the fi nancial liability fully or partially. This interpretation is not expected to have a material impact on the Group’s consolidated fi nancial statements.
Group from January 1, 2013 with earlier application permitted, represents the completion of the fi rst part of a three-part project to replace IAS 39. IFRS 9 uses a single approach to determine whether a fi nancial asset is measured at amortized cost or fair value. A fi nancial asset is measured at amortized cost if both a) the asset is held within a business model whose objective is to hold assets in order to collect contractual cash fl ows and b) the contractual terms of the fi nancial asset give rise on specifi ed dates to cash fl ows that are solely payments of principal and interest on the principal amount outstanding.
For equity instruments that are not held for trading, an entity can also make an irrevocable election to present in other comprehensive income subsequent changes in the fair value of the instruments (including realized gains and losses), dividends being recognized in profi t or loss. Additionally, for fi nancial liabilities that are designated as at fair value through profi t or loss, the amount of change in the fair value of the fi nancial liability that is attributable to changes in the credit risk of that liability is recognized in other comprehensive income, unless the recognition of the effects of changes in the liability’s credit risk in other comprehensive income would create or enlarge an accounting mismatch in profi t or loss. The adoption date of IFRS 9 including its different phases (the second and third phases respectively relate to the impairment methodology and the hedge accounting), its method of enforcement and its impact are currently being examined within the Group.
The Improvements to IFRSs, published on May 6, 2010, include amendments that will not be part of another major project. They are presented in a single document rather than as a series of piecemeal changes. They are generally applicable from January 1, 2011 unless otherwise specifi ed.
These amendments are not expected to have a material impact on the Group’s consolidated fi nancial statements.
after July 1, 2011. It is not expected to have a material impact on the Group’s consolidated fi nancial statements.
■ any item recognized under previous GAAP that did not qualify for recognition as an asset or liability under IFRS was reclassifi ed into goodwill.
As a result, the goodwill gross value disclosed in Note 5 represents the gross value of the goodwill net of cumulated amortization recognized in French GAAP as of December 31, 2003.
Entities that are controlled in substance because of a specifi c statute or an agreement, even without any ownership interest, are also consolidated. In particular this relates to special purpose entities, such as securitization vehicles.
Companies over which AXA exercises a joint controlling infl uence alongside one or more third parties are consolidated proportionately.
Upon fi rst consolidation, all assets, liabilities and contingent liabilities (unless they are not present obligations) of the acquired company are estimated at their fair value. However, in compliance with an exemption permitted by IFRS 4, liabilities related to life insurance contracts or investment contracts with discretionary participating features are maintained at the carrying value prior to the acquisition date to the extent that this measurement basis is consistent with AXA’s accounting principles. The fair value of acquired business in force relating to life insurance contracts and investment contracts with discretionary participating features is recognized as an asset corresponding to the present value of estimated future profi ts emerging on acquired business in force at the date of acquisition
In the context of a business combination, only restructuring costs that can be measured reliably and which correspond to an existing liability of the acquired company prior to the acquisition date are included in restructuring provisions recognized in the acquired company’s statement of fi nancial position at acquisition date.
January 1, 2009, any contingent element was included in the cost of the combination to the extent that the adjustment was probable and could be measured reliably. If the future events do not occur or the estimate needs to be revised, the cost of the business combination continues to be adjusted accordingly, taking into account the impact in terms of additional goodwill and/or adjustments of the valuation of acquired assets and liabilities. For business combinations on or after January 1, 2009, any change to the estimate of the contingent element between the acquisition date and the amount actually subsequently paid is recognized in the income statement.
Since the balancing entry to this liability is not specifi ed by current IFRS, the Group’s method is (i) to reclassify minority interests from equity to liability, (ii) to re-measure this liability at the present value of the option price and (iii) to recognize the difference either as an increase in goodwill for puts existing before January 1, 2009 or as a decrease in equity (Group share) for a put granted after January 1, 2009, to the extent that there is no immediate transfer of risks and rewards.
Similarly, subsequent changes in the liability are recorded against goodwill for puts existing before January 1, 2009 and against equity (Group share) for puts granted after that date.
Intra-group transactions, including internal dividends, payables/receivables and related gains/losses are eliminated: ■ in full for controlled subsidiaries; and
Goodwill is considered to have an indefi nite useful life and is therefore not amortized. Impairment tests are performed at least annually. Impairment of goodwill is not reversible.
AXA performs an impairment test of goodwill at least annually based on cash generating units, using a multi-criterion analysis with parameters such as the value of assets, future operating
profi ts and market share, in order to determine any signifi cant adverse changes. It also considers the interdependence of transactions within sub-groups. Within each cash generating unit, a comparison is made between net book value and the recoverable value (equal to the higher of fair value less costs to sell and value in use). Value in use consists of the net assets and expected future earnings from existing and new business, taking into account the cash generating units’
1.6.4. Deferred acquisition costs (DAC) relating to insurance contracts and investment contracts with discretionary participating features – Rights to future management fees, also known as Deferred origination costs (DOC) relating to investment contracts with no discretionary participating features
The variable costs of writing insurance contracts and investment contracts with discretionary participating features, primarily related to the underwriting of new business, are deferred by recognizing an asset. This asset is amortized based on the estimated gross profi ts emerging over the life of the contracts. In conjunction to the liability adequacy test
(see Section 1.13.2) this asset is tested for recoverability: any amount above future estimated gross profi ts is not deemed recoverable and expensed.
DOC (see Note 7), but limited to costs directly attributable to the provision of investment management services. This asset is amortized by taking into account projections of fees collected over the life of the contracts. The amortization of
accounted for at amortized cost; ■ assets held for trading and assets designated as at fair value with change in fair value through profi t or loss; ■ available-for-sale assets accounted for at fair value with changes in fair value recognized through shareholders’
Loans which are not designated under the fair value option are accounted for at amortized cost using the effective interest rate method.
For equity instruments classifi ed as available for sale, a signifi cant or prolonged decline in the fair value below its carrying value is considered as indication for potential impairment, such as equity instruments showing unrealized losses over a 6 months period or more (prior to the closing date), or unrealized losses in excess of 20% of the net carrying value at the closing date.
Assets backing liabilities arising from insurance or investment contracts where the fi nancial risk is borne by policyholders are presented in a separate aggregate of the balance sheet so that they are shown in a symmetrical manner to the corresponding liabilities. This presentation is considered more relevant for the users and consistent with the liquidity order recommended by
IAS 1 for fi nancial institutions, since the risks are borne by policyholders, whatever the type of assets backing liabilities
For the statement of fi nancial position presentation, derivatives are presented alongside with the underlying assets or liabilities for which they are used, regardless of whether these derivatives meet the criteria for hedge accounting.
These comprise assets, particularly buildings or operations intended to be sold or discontinued within twelve months.
Details on information presented in the statement of fi nancial position and income statement are provided in the notes to the consolidated fi nancial statements.
Cash comprises cash on hand and demand deposits while cash equivalents are short-term, liquid investments that are readily convertible to cash and which are subject to low volatility.
UK liabilities. These assets instead retained their previous designation of fair value through profi t and loss. In order to minimize the accounting mismatch between liabilities and supporting assets, the Group had elected to use the option allowed under IFRS 4.24 to re-measure its provision. This revaluation was carried out at each reporting date based on guarantee benefi t projections and took into account interest rates and other market assumptions.
(insurance contracts because they include such guarantees or investment contracts with discretionary participating features), are build over the life of the contract based on a prospective approach: the present value of future benefi t obligations to be paid to policyholders in relation to these guarantees is estimated on the basis of reasonable scenarios. These scenarios are based on assumptions including investment returns, volatility, surrender and mortality rates. This present value of future benefi t obligations is reserved as fees are collected over the life of the contracts.
Death or Income Benefi ts (GMDB or GMIB), or certain guarantees on return proposed by reinsurance treaties, are covered by a risk management program using derivative instruments. In order to minimize the accounting mismatch between liabilities and hedging derivatives, AXA has chosen to use the option allowed under IFRS 4.24 to re-measure its provisions: this revaluation is carried out at each accounts closing based on guarantee level projections and takes into account interest rates and other market assumptions. The liabilities revaluation impact in the current period is recognized through income, symmetrically with the impact of the change in value of hedging derivatives. This change in accounting principles was adopted on the fi rst time application of IFRS on
Revenues received at contract inception to cover future services are deferred and recognized in the income statement using the same amortization pattern as the one used for deferred acquisition costs (see Section 1.6.4).
When unrealized gains or losses are recognized, a deferred participating liability (DPL) or asset (DPA) is recorded. The DPL
The estimated discretionary participating feature of such contracts is fully recognized in the liabilities. As a consequence, there is no component recognized as an equity component and AXA does not need to ensure that the liability recognized for the whole contract is not less than the amount that would result from applying IAS 39 to the guaranteed element.
■ and the extent to which resulting gains/losses may be allocated/charged to policyholders, i.e. profi t sharing between policyholders and shareholders.
Depending on the type of business, the future investment cash fl ows and discounting may be based on a best estimate and risk free rates, with corresponding participation, or in the case of Guaranteed Minimum Benefi ts, stochastic scenarios.
Testing is performed either by a comparison of the reserves booked net of related assets (DAC, VBI) to a reserve calculated directly by discounting the cash fl ows, or by ensuring that the discounted profi t net of participation arising from the release of the technical provisions exceeds net related assets.
Sensitivities of: ■ fi nancial assets and liabilities; ■ insurance and investment contracts related assets and liabilities including the value of Life & Savings business inforce; to interest rate risk and equity risk are disclosed in Note 4.2.
The AXA Shareplan issued under specifi c French regulatory framework includes two options: traditional and leveraged option.
The cost of the traditional option Shareplan is valued according to the specifi c guidance issued in France by the ANC (Autorité
des Normes Comptables). The cost of the leveraged option plan is valued by taking into account the fi ve-year lockup period for the employees (as in the traditional plan) but adding the value of the advantage granted to the employees by enabling them to benefi t from an institutional derivativesbased pricing instead of a retail pricing.
Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of past events, when it is probable that an outfl ow of resources will be required to settle the obligation, and when the provision can be reliably estimated. Provisions are not recognized for future operating losses. The same applies to contingent liabilities, except if identifi ed at the time of a business combination (see
Provisions are measured at management’s best estimate, at the closing date, of the expenditure required to settle the obligation, discounted at the market risk-free rate of return for long term provisions.
(including any embedded surrender option, i.e. without taking into account the “insurance” component);
Net revenues from banking activities include all revenues and expenses from banking operating activities, including interests and banking fees.
AXA Sun Life Plc Partial disposal of UK Life & Savings operations - - 100.00 99.99
AXA Affi n General Insurance Berhad (b) Dilution following a capital increase 42.41 42.41 50.48 50.48
AXA Czech Republic Pension Funds Minority interests buyout 99.99 99.99 92.85 92.85
(b) No change of the consolidation method since AXA Group still have a full control after dilution given the shareholders’ agreements.
(€104,097 million at the end of 2009), corresponding to 245 investment funds mainly in France and Japan and in majority relating to the Life & Savings segment.
Companies accounted for using the equity method listed below exclude investment funds and real estate entities: Change in scope
(b) AXA’s Group share of interest in operating unit of Reso Garantia is 36.68%.
Held assets amounted at €1,202 million as of December 31, 2010.
In 2009, AXA set up a new Group fi nancing and cash management company which benefi ted from a loan of £673 million.
Given the activities of AXA, the operating results are presented on the basis of fi ve operating business segments: Life & Savings, Property & Casualty, International Insurance,
The Group governance, including the process of reviewing the Group’s consolidated fi nancial information, has been modifi ed. On April 29, 2010, AXA’s shareholders approved the replacement of AXA’s dual board structure (Supervisory Board and Management Board) with a unitary board structure in the form of a Board of Directors. AXA’s Chief Executive Offi cer and
Deputy Chief Executive Offi cer, both of whom are members of the Board, are assisted by a Management Committee in the day-to-day operational management of the Group and by an Executive Committee to consider Group strategy. The fi nancial information relating to AXA’s business segments and holding company activities reported to the Board of Directors twice a year is consistent with the presentation provided in the consolidated fi nancial statements.
United Kingdom, Japan, Germany, Switzerland, Belgium, the Mediterranean and Latin American Region, and Other countries.
Property & Casualty: This segment includes a broad range of products including mainly motor, household, property and general liability insurance for both personal and commercial customers (commercial customers being mainly small to medium-sized companies). In some countries, this segment includes Health products. The Property & Casualty segment aggregates seven geographical operating components: France, Germany, the United Kingdom, Ireland, Switzerland,
Solutions Assurance. These products provide coverage to large national and international corporations. This segment also includes assistance activities, life reinsurance activities in run-off primarily AXA Corporate Solutions Life Reinsurance Company, and the Group’s run-off managed by AXA Liabilities Managers, including risks underwritten by Colisée RE (ex AXA RE) relating to 2005 and prior accident years. Years after 2005 are covered by a treaty ceding 100% of the reinsurance business to Partner
Re (ex Paris Ré). It also includes reinsurance activity managed by AXA Global Life and AXA Global P&C (ex AXA Cessions), which write reinsurance treaties of AXA entities after a selection of reinsurers. AXA Global P&C activity is mainly driven by its
The Banking segment includes banking activities (mainly retail banking, mortgages loans, savings) conducted primarily in France, Belgium, Switzerland, Germany and Central and
Change in unearned premiums net of unearned revenues and fees (333) (209) 30 - - - - (511)
Net realized gains and losses relating to investments at cost and at fair value through shareholders’equity 1,547 299 17 16 - 41 - 1,921
Net investment result excluding fi nancing expenses 30,075 2,269 290 91 (1) 31 (723) 32,031
Technical charges relating to insurance activities (75,027) (18,634) (2,021) - - - 292 (95,390)
Change in goodwill impairment and other intangible assets impairment (30) (84) - - (3) - - (117)
Other operating income and expenses (84,277) (27,314) (2,865) (3,284) (505) (558) 765 (118,038)
Income from operating activities before tax 2,453 2,401 481 492 (2) (527) (844) 4,453
Net realized gains and losses and change in fair value of investments at fair value through profi t and loss (b) & (c) 23,989 252 21 111 - 791 1 25,165 of which change in fair value of assets with fi nancial risk borne by policyholders 23,870 - - - - - (9) 23,861
Amortization of the value of purchased business in force (394) - - - - - - (394)
Change in goodwill impairment and other intangible assets impairment (25) (84) (1) - (3) - - (113)
Net income from operating activities before tax 3,127 2,219 473 744 (24) (976) - 5,564
Net income from operating activities after tax 2,272 1,555 329 587 (16) (693) - 4,033
Please refer to pages 214 to 215 of the “Quantitative and
Please refer to pages 225 to 228 of the “Quantitative and
section, except for the breakdown of CDS by underlying debt instruments’ rating on page 227.
AXA Bank Hungary (ELLA Bank) 2007 59 - 59 59 - 59
Rosenberg and other AXA IM transactions 1999 & 2005 178 - 178 169 - 169 of which: In this table, goodwill excludes goodwill related to entities accounted for using the equity method (see Note 10).
Rosenberg and other AXA IM transactions 169 - - - - 9 - 178
(c) Includes the impact of exercises and revaluations of minority interest buyout commitments. The €106 million on the UK Life & Savings line corresponds to the reclassifi cation as held for sale of the some portfolios for which the disposal process is not fi nalized as of December 31, 2010.
(d) IPAC, Sterling Grace and a part of the line Other are related to Australian and New Zealand. The movements are due to forex which are reclassifi ed as held for sale.
Sterling Grace (Australia & New Zealand) 103 - - - 28 (131) -
Rosenberg and other AXA IM transactions 167 - - - 2 - 169
(c) Assets and liabilities of the Australian and New Zealand operations (including local holdings) are classifi ed as held for sale separately from other assets and liabilities in the consolidated statement of fi nancial position as of December 31, 2009 (see Note 5.3).
(d) The Bluefi n Insurance Group was deconsolidated from the Property & Casualty segment of AXA UK.
Of which: (a) Please refer to the Note 5.3 for more details on partial disposal of UK Life & Savings opertions.
Of which: An impairment loss is recognized for a cash-generating unit if, and only if, the recoverable amount of the unit or group of units is less than the carrying amount of the unit or group of units.
The recoverable amount of each cash generating unit or group of units is the higher of (i) the cash generating unit or group of units’ fair value less costs to sell and (ii) its value in use.
are industry specifi c valuation methods which are consistent with the principles of discounted earnings approaches as the value of business in force results from the projection of distributable earnings. The current shareholders’ net asset value is adjusted to take into account any difference between the basis of cash fl ows projections used in the value of business in force calculations and IFRS;
The value of new business is computed either on the basis of multiples of a standardized year of new business contribution (present value of projected future distributable profi ts generated from business written in a year) or on a projection of each of the expected annual future earnings when multiples are not appropriate because of future growth specifi c patterns.
For each group of units of the Property & Casualty and
In these tests, for all segments, discount rates used range from 8% to 11% and growth rates where applicable from 2%
(“Proposal”) with AMP to AXA APH whereby AXA would dispose of its 54% stake in AXA APH to AMP and would acquire AXA APH Asian operations.
This joint offer would result in AMP acquiring AXA APH’s outstanding shares for AU$13.3 billion (or €10.1 billion (1)), of which AXA’s shares in AXA APH would be paid AU$7.2 billion
Under the Proposal, AXA APH shareholders will receive the equivalent of AU$6.43 per share, consisting of cash and AMP
The proposal (excluding the above dividend) comprises 0.73 AMP shares (worth AU$3.88 per share) and AU$2.55 cash per AXA APH share. AXA APH minority shareholders will receive full protection for a decline of AMP Post Scheme
VWAP down to AU$4.50 with additional cash to be provided to maintain the offer price equivalent of AU$6.43. AXA APH
minority shareholders will also participate in 50% of any increase in the AMP Post Scheme VWAP above AU$5.60.
The assets (including goodwill) and liabilities of the Australian and New Zealand operations are classifi ed as held for sale separately from other assets and liabilities in the consolidated statement of fi nancial position as of December 31, 2010.
(1) Translated from Australian Dollar to Euro using exchange rate as of December 31, 2010.
As of December 31, 2010, comprehensive income amounted to €272 million, and €332 million as of December 31, 2009.
Notes, which bear an effective interest rate of 6.5% per annum and are repayable in instalments over an 8 year period (4 years duration).
The transaction led to the recognition of a realized loss net of tax of €-1.6 billion, coming mainly from intangible assets impairments, of which goodwill €-0.8 billion, other intangibles €-0.7 billion as well as €-0.1 billion costs associated with the sale.
As of December 31, 2010, other comprehensive income amounted to €2 million.
As of December 31, 2010, the total goodwill of AXA MPS had a net value of €724 million.
The change in Value of Business In-force (“VBI”) in the Life & Savings segment was as follows: (in Euro million) 2010 (a) 2009 (a)
December 31, 2010 led to a decrease of the value of purchased life business in-force, gross of tax, in 2010 of €420 million, of which: ■ €194 million impairments (1); ■ €226 million related to remaining balances on businesses disposed of in the United Kingdom.
Deferred acquisition costs and equivalent relating to Property & Casualty and International Insurance 1,796 1,739
The partial disposal of UK Life & Savings operations and the classifi cation as held for sale of some UK Life & Savings portfolios for which the disposal process is not fi nalized as of
Other intangible assets represented €3,647 million net value as of December 31, 2010 and mainly included: (in Euro million)
Intangible assets recognized in business combinations 3,097 498 - 2,599 2,598
Bluefi n Insurance Group Ltd (previously Venture Preference limited) 72 - -
Investment in real estate properties at amortized cost 18,464 14,586 2.59%
Debt instruments designated as at fair value through profit or loss (b) 29,098 29,098 5.17%
Debt instruments (at cost) that are not quoted in an active market (c) 5,317 5,346 0.95%
Equity instruments designated as at fair value through profi t or loss (b) 3,908 3,908 0.69%
Other assets designated as at fair value through profi t or loss, held by controlled investment funds 7,795 7,795 1.38%
Assets backing contracts where the fi nancial risk is borne by policyholders 137,739 137,739 24.47%
Investments (excluding those backing contracts where the fi nancial risk is borne by policyholders) 429,732 425,141 75.53%
Certain investment properties (see Note 1), available-for-sale investments, trading assets, instruments designated as at fair value through P&L and all derivatives are measured at fair value in the fi nancial statements. In addition, this note also discloses the fair value of investment properties and fi nancial assets held at cost. Principles applied in measuring fair value generally described in Note 1 are further detailed in Note 9.2 (investment in real estate properties) and 9.9 (fi nancial assets recognized at fair value).
Non controlled investment funds designated as at fair value through profi t or loss (c) 2,096 2,096 0.37%
Breakdown of the carrying value and fair value of investments in real estate properties at amortized cost, excluding the impact of all derivatives: (in Euro million)
Fair value is generally based on valuations performed by qualifi ed property appraisers. They are based on a multi-criteria approach and their frequency and terms are often based on local regulations.
In 2009, the impairment increase for the period amounted to €483 million, of which €227 million without impact on AXA net income
Excluding the effect of derivatives, unrealized capital gains and losses on fi nancial investments, when not already refl ected in the income statement, are allocated as follows: Insurance
Debt instruments available for sale 295,599 305,603 305,603 15,934 5,930 266,931 274,530 274,530 12,169 4,569
Equity instruments available for sale 11,367 15,944 15,944 4,640 63 10,539 14,789 15,250 4,390 140
Non controlled investment funds held for sale 5,637 6,577 6,577 990 50 5,005 5,595 5,595 899 310
Debt instruments (at cost) that are not quoted in an active market 2,232 2,232 2,232 - - 1,544 1,544 1,544 - -
Equity instruments available for sale 2,672 2,911 2,911 239 1 2,938 3,125 2,664 188 1
Non controlled investment funds held for sale 189 186 186 - 3 153 153 153 1 -
(b) In order to improve the consolidated statement of fi nancial position presentation consistency across segments, balances disclosed so far as “Receivables arising from banking operations” and “Payables arising from banking operations” have been respectively reclassifi ed to the “Investments from banking and other activities” and to the new “Liabilities arising from banking activities” aggregates (see Note 1.20).
(d) Includes fi xed maturity investment funds and debt securities related to reverse repo.
Debt instruments designated as at fair value through profi t or loss (b) 1,683 1,750 5,053 8,487
Equity instruments available for sale 7,249 2,122 1,616 968 2,504 864 1,263 1,283 985 18,854
Equity instruments available for sale 7,881 1,801 1,480 948 2,051 820 804 1,171 959 17,915
Sub-total: Equity instruments held directly 9,048 3,316 2,088 1,387 2,477 1,017 1,368 1,325 1,383 23,408
TOTAL EQUITY INSTRUMENTS AS OF DECEMBER 31, 2009 10,823 4,149 2,357 1,633 2,806 1,178 1,492 1,545 2,695 28,679
Non controlled investment funds available for sale mainly holding equity instruments 1,582 1,271 26 26
Non controlled investment funds designated as at fair value through profi t or loss mainly holding equity instruments 734 - 12 -
Non controlled investment funds mainly holding equity instruments 2,320 - 270 -
Non controlled investment funds available for sale mainly holding debt instruments 1,530 1,367 - -
Non controlled investment funds mainly designated as at fair value through profi t or loss mainly holding debt instruments 192 - - -
Non controlled investment funds mainly holding debt instruments 1,722 - 116 -
(b) Amounts are presented excluding macro hedging and other derivatives but including the effect of related hedging derivatives (IAS 39 qualifying hedges or economic hedges).
Debt instruments (at cost) that are not quoted in an active market 7,578 - 7,578
Fair values of fi nancial assets traded on active markets are determined using quoted market prices when available. A
fi nancial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency and those prices represent actual and regularly occurring market transactions on an arm’s length basis between a willing seller and a willing buyer. For assets traded in active markets, quotes received from external pricing services represent consensus prices, i.e. using similar models and inputs resulting in a very limited dispersion.
The amount of assets for which fair value is determined in whole directly by reference to an active market is disclosed in
Impairment – Non controlled investment funds 1,077 86 (252) - 99 1,009
(b) Assets and liabilities of the Australian and New Zealand operations (including local holdings) are classifi ed as held for sale separately from other assets and liabilities in the consolidated statement of fi nancial position as of December 31, 2009 (see Note 5.3).
(c) In order to improve the consolidated statement of fi nancial position presentation consistency across segments, balances disclosed so far as “Receivables arising from banking operations” and “Payables arising from banking operations” have been respectively reclassifi ed to the “Investments from banking and other activities” and to the new “Liabilities arising from banking operations” aggregates (see Note 1.20).
market conditions. Characteristics of inactive markets can therefore be very different in nature, inherent to the instrument or indicative of a change in the conditions prevailing in certain markets.
The fair values of fi nancial instruments that are not traded in an active market are estimated: ■ using external and independent pricing services; or
The amount of assets which are not traded in an active market is disclosed in Level 2 and 3 of the table shown below in
External pricing services may be fund asset managers in the case of non consolidated investments in funds or brokers. To the extent possible, the Group collects quotes from external pricing providers as inputs to measure the fair value of assets held. Prices received may form tight clusters or dispersed quotes which may then lead to the use of valuation techniques.
The dispersion of quotes received may be an indication of the large range of assumptions used by external pricing providers given the limited number of transactions to be observed or refl ect the existence of distress transactions. In addition, given current market conditions since the fi nancial crisis and the persistency of complete inactivity of some markets since then, many fi nancial institutions closed their desks dedicated to structured assets deals and are no longer in a position of delivering meaningful quotes.
Black&Scholes models, etc.) based on quoted market prices for similar instruments or underlyings (index, credit spread, etc.) whenever such directly observable data are available and valuations are adjusted for liquidity and credit risk.
The breakdown by valuation method of fi nancial assets recognized at fair value is as follows: (in Euro million)
Financial investments and loans held for trading 517 746 5 1,269 480 835 10 1,325
TOTAL FINANCIAL INVESTMENTS AND LOANS ACCOUNTED FOR AT FAIR VALUE 271,652 101,275 10,512 383,439 235,442 126,323 9,487 371,252
Fair values for Level 2 and 3 assets include: ■ values provided at the request of the Group by pricing services and which are not readily publicly available or values provided by external parties which are readily available but relate to assets for which the market is not always active; and
As of December 31, 2009, a portion of bonds (mainly corporate debt instruments) could not be considered as active and were presented in Level 2 given the relative illiquidity of such markets.
Liquidity for debt instruments is assessed using a multi criteria approach including the number of quotes available, the place of issuance of such instruments and the evolution of the widening of bid ask spreads. Such bid ask spreads continued to narrow down through out the year 2010, leading to further transfers of corporate debt instruments back in Level 1.
Level 1 to Level 2 given the observed increased illiquidity in the market for such instruments.
b) Fair values of assets not quoted in an active market – no active markets (Level 2 and Level 3)
Amounts presented in Level 2 and 3 represent a variety of circumstances. A fi nancial instrument is regarded as not quoted in an active market if there is little observation of transaction prices as an inherent characteristic of the instrument, when there is a signifi cant decline in the volume and level of trading activity, in case of signifi cant illiquidity or if observable prices can not be considered as representing fair value because of dislocated market conditions. Characteristics of inactive markets can therefore be very different in nature, inherent to the instrument or be indicative of a change in the conditions prevailing in certain markets.
modeling, ABS and CDOs were ranked according to their underlying risks characteristics such as their underwriting and origination year for example to determine the appropriate set of assumptions to be used, giving consideration to market conditions in pricing these instruments. Cash fl ows were developed based on current observable inputs refl ecting the credit metrics of each type of underlying assets: for example weighted average rating factors – WARF – provided by rating agencies, historical default rates or third parties credit defaults studies, with loss severity assumptions and recovery lag, adjusted with adequate risk margins to refl ect the uncertainty related to these inputs and the historical dimension of some of these data. Risk adjusted discount rates have been based on interest rates and discount margins derived from observations of implied rates of return adjusted considering the current evolution of available quotes which refl ect spreads widening due to increased liquidity risks. The objective of these models is to arrive at the price at which an orderly transaction would take place between market participants (a willing buyer and a willing seller) at the measurement date.
For ABS and CDOs measured as of December 31, 2010 using the valuation techniques described above (€7,638 million): ■ using alternative credit risks assumptions higher by 25%
would have no material impact neither on the net income nor the Statement of Comprehensive Income; ■ using alternative discount margins higher by 25% would have no material impact on the net income, and would decrease the Statement of Comprehensive Income by €91 million.
Among such assets, the amount of Private Equity investments moved from €4.2 billion as of January 1, 2010 to €5.5 billion as of December 31, 2010. Private Equity investments held directly or through consolidated mutual funds categorized in Level 3 represent mainly shares of funds based on values determined by funds managers. As the valuation of these underlying Private Equity investments is often based on observable data but with signifi cant adjustments performed by funds managers, such assets were allocated to Level 3.
Level 3 assets to be noted are: ■ €+0.6 billion of new acquisitions; ■ €+0.5 billion of foreign exchange impact due to the Euro decrease (mainly in Switzerland, the United States and
Japan); ■ €-0.2 billion of sales of structured assets (mainly CMBS); ■ €+0.1 billion of changes in fair value; ■ and €-0.8 billion following the sale of Level 3 assets held in the partially disposed UK Life & Savings portfolios.
These assets (including investment in real estate properties) are measured at fair value through profi t or loss. Financial assets included in these investments are stated at fair value through profi t or loss under the fair value option.
Philippines AXA Life Insurance Corporation 20 - 6 - (1) 26
In 2010, “other changes” notably included: ■ the additional investments in AXA Minmetals (€23 million)
At the end of 2010, Reso Garantia’s fi nancial information was as follows (on a 100% basis and excluding goodwill on the AXA
(€976 million as of December 31, 2009); ■ gross revenues: €846 million (€621 million as of December 31, 2009).
Group share of Reso Garantia had a net value of €601 million
This excluded investment funds and real estate companies consolidated by equity method, which are presented under fi nancial investments.
Receivables from policyholders, brokers and general agents 4,663 (351) 4,313 4,313 3,944 (335) 3,609 3,609
Receivables relating to investments under lending agreements and equivalent 880 - 880 880 114 - 114 114
(b) Assets and liabilities related to the Australian and New Zealand operations, and some UK Life & Savings portfolios for which the disposal process is not fi nalized as of December 31, 2010 are classifi ed as held for sale. This classifi cation already applied for Australian and New Zealand operations as of December 31, 2009 (see Note 5.3). Thus the cash held by Australia and New Zealand (€643 million in 2010 and €988 million in 2009) and the cash held by UK Life & Savings not fi nalized disposal business (€162 million) are excluded from cash and cash equivalents.
(d) Including €658 million deposits in the central banks in 2010 and €161 million in 2009.
The table below reconciles assets and liabilities cash and cash equivalent balances with the statement of consolidated cash fl ows: (in Euro million) December 31, 2010 (a) December 31, 2009 (a)
(c) The “Cash and cash equivalents” balances shown in the Statement of Consolidated Cash fl ows do not include cash balances of consolidated investment funds from the Satellite Investment Portfolio (see Note 1.7.2). The “Cash and cash equivalents” item in the Statement of Consolidated Cash Flows excludes cash backing contracts where the fi nancial risk is borne by policyholders (unit-linked contracts).
As of December 31, 2010, total consolidated net cash and cash equivalents amounted to €20,986 million, net of €1,079 million bank overdrafts classifi ed under “Other debt instrument issued and bank overdrafts” in the consolidated statement of fi nancial position.
■ the Company €-709 million mainly due to margin calls paid under collateral agreements.
Net cash used in investing activities was €-17,263 million in 2010 and mainly refl ecting: ■ €-18,938 million of net cash used in purchases and sales of fi nancial invested assets; ■ United Kingdom €+3,162 million net cash proceeds related to the partial disposal of UK Life & Savings operations.
Net cash relating to fi nancing activities totaled €-3,529 million in 2009 mainly due to: ■ dividends payments of €-1,090 million; ■ capital increases of €+2,698 million including €2,421million in the Company; ■ €-4,350 million of net cash related to Group fi nancing activities, including €-4,565 million reimbursements of commercial paper by the Company.
As of December 31, 2010, the Company and its subsidiaries owned approximately 26 million AXA shares, representing 1.1% of the share capital, a decrease of 0.7 million shares or €10 million compared to December 31, 2009.
As of December 31, 2010, 2.3 million treasury shares backing contracts where fi nancial risk is borne by policyholders held in controlled investment funds were not deducted from shareholders’ equity. Their total estimated historical cost was €48 million and their market value €28 million at the end of
As described in Note 1.12.2 of the accounting principles, undated subordinated debts issued by the Group do not qualify as liabilities under IFRS.
As of December 31, 2010 and 2009, undated subordinated debt recognized in shareholders’ equity broke down as follows: (in Euro million)
equity included net paid accumulated fi nancial expenses of: ■ €-1,543 million as of December 31, 2010; ■ €-1,243 million as of December 31, 2009.
Undated subordinated debt often contains the following features: ■ early redemption clauses (calls) at the Group’s option, giving AXA the ability to redeem the principal amount before settlement without penalty on certain dates; and
As of December 31, 2009, 2.1 million treasury shares backing contracts where fi nancial risk is borne by policyholders held in controlled funds were not deducted from shareholders’ equity.
Shadow accounting on Value of purchased Business In force (629) (369)
Unrealized gains and losses (net of tax) – Equity accounted companies (c) 33 11
(c) Including unrealized gains and losses on assets held for sale.
participation. In jurisdictions where participating business represents an important portion of contracts in force and where required minimum local policyholders’ share in the entities’ results (limited to investment or not) are signifi cant, the reconciliation between gross unrealized gains and losses on available for sale fi nancial assets and the corresponding net reserve recognized in shareholders’ equity were as follows as of December 31, 2010: (in Euro million)
Shadow accounting on Value of purchased Business In force (32) - (36)
Unrealized gains and losses (net of tax) – Equity accounted companies 6 - -
UNREALIZED GAINS AND LOSSES (NET OF TAX) – 100% – TOTAL 1,778 57 981
Unrealized gains and losses (net of tax) 100%, as of January 1 4,687 (443)
Investments bought in the current accounting period and changes in value 2,519 5,538
UNREALIZED GAINS AND LOSSES (NET OF TAX) 100%, AS OF DECEMBER 31 6,651 4,687
The change in reserves for unrealized gains and losses on assets available for sale totaled €+5,044 million (net Group share), mainly attributable to the United States (€+1,092 million),
The total impact of foreign exchange rate movements was €+1 million (of which group share was €-30 million and minority interest was €+31 million) as of December 31, 2009.
Company (€-131 million mainly driven by change in fair value of derivatives and debts hedging net investments in foreign operations), Japan (€-182 million), partially offset by the United
The total impact of employee benefi ts actuarial gains and losses was €-1,021 million (of which group share was €-1,032 million and minority interest was €+11 million).
decrease in actuarial gains and losses on employee benefi t obligations were the United Kingdom (€-539 million),
Under IFRS, minority interests in most investment funds in which the Group invests consist of instruments that holders can redeem at will at fair value, and qualify as a liability rather than shareholders’ equity items. Please refer to Note 18 –
Debt (other than fi nancing debt). The same is true for puttable instruments held by minority interest holders.
(€+42 million); ■ dividends paid to minority interests’ holders for €-339 million.
Reinsurers’ share in claim reserves (b) 680 1,725 of which IBNR (e) 188 380
TOTAL LIABILITIES ARISING FROM INSURANCE CONTRACTS, NET OF REINSURANCE CEDED 385,070 48,141
Reinsurers’ share in insurance contracts liabilities relating to policyholders’ participation (€70 million in 2010, €46 million in 2009), as well as derivatives instruments (none in 2010 and 2009) are excluded from the table above.
(d) See Note 1.13.2 – Reserves measured according to the option offered by IFRS 4.24 for selective re-measurement of reserves at current market assumptions.
Liabilities arising from investment contracts with discretionary participating features 37,233 37,233 39,650 39,650
Liabilities arising from investment contracts where the fi nancial risk is borne by policyholders 29,706 29,706 52,516 52,516
Reinsurers’ share in future policy benefi t reserves 15 15 14 14
Reinsurers’ share in liabilities arising from investment contracts with discretionary participating features 15 15 14 14
Reinsurers’ share in future policy benefi t reserves - - - -
Reinsurers share in liabilities arising from investment contracts with no discretionary participating features - - - -
Reinsurers’ share in future policy benefi t reserves 256 256 6 6
Reinsurers share in liabilities arising from investment contracts where the fi nancial risk is borne by policyholders 256 256 6 6
TOTAL LIABILITIES ARISING FROM INVESTMENT CONTRACTS – NET OF REINSURANCE CEDED 67,389 67,389 93,063 93,063
NB: Liabilities relating to unearned revenues and fees (see Note 7.3), to policyholders’ participation (see Note 14.8), and derivative instruments (see Note 20.4), are excluded from the table above.
Claim reserves as of January 1 33,678 8,776 42,454 33,306 9,365 42,672
Claim handling cost reserves as of January 1 1,239 241 1,479 1,395 249 1,644
Loss reserves development (prior years) (1,061) (138) (1,199) (2,076) 45 (2,031)
Change in scope of consolidation and change in accounting method 27 9 36 (74) (31) (105)
Claim reserves as of December 31 35,176 8,833 44,009 33,678 8,776 42,454
Gross claim reserves as of December 31 (a) 36,408 9,067 45,476 34,916 9,017 43,933
(a) Excluding “other policy benefi ts liabilities” (mainly mathematical annuity reserves), which totaled €4.2 billion in 2009 and €4.4 billion in 2010.
Reinsurers’ share in total claim expenses 458 390 848 618 466 1,084
Reinsurers’ share in claim payments (757) (629) (1,387) (639) (763) (1,401)
14.4. CHANGE IN LIABILITIES ARISING FROM INSURANCE AND INVESTMENT CONTRACTS – LIFE & SAVINGS
14.4.1. Change in liabilities arising from insurance and investment contracts – gross of reinsurance
Surrenders, maturities and other claims and benefi ts paid net of charges and penalties (-) (42,350) (9,985) (52,335) (41,591) (11,170) (52,762)
Transfers following technical reserves/contract reclassifi cation 1,409 (1,409) - - - -
Change in scope of consolidation, portfolio transfers and change in accounting principles (26,662) (36,441) (63,103) (1,738) (6,604) (8,342)
In 2010, changes in the scope of consolidation totaled €-63,103 million, mainly due to the partial sale of UK Life and
Opening reinsurers’ share in technical reserves (b) 5,992 20 6,012 5,723 20 5,744
REINSURERS’ SHARE IN CLOSING TECHNICAL RESERVES (b) 5,675 270 5,945 5,992 20 6,012
Investment contracts with Discretionary Participation Features (DPF) measured with current assumptions (c) - -
(Unit-Linked) – Liabilities arising from contracts where fi nancial risk is borne by policyholders: Investment contract with Discretionary Participation Features (DPF) measured according to existing accounting policies (b) & (d) 4,700 5,767
Features in investment contracts with Discretionary Participation Features (DPF) measured with current assumptions (c) - -
(d) & (e) As unit-linked contracts, such contracts share the same reserves measurement determined on the basis of held assets units fair value (“current unit value”). Only the valuation of related assets is different: - for unit-linked contracts with a discretionary participating feature (d), an asset representing the deferred acquisition costs is recognized in continuity with previous accounting policies; - for unit-linked contracts with no discretionary participating feature (e), an asset representing the rights to future management fees is recognized in accordance with IAS 18 (Rights to future management fees also known as Deferred Origination Costs “DOC”) – see Section 1.6.4 and Note 7.
The recognition of investment contracts with discretionary participating features is subject to IFRS 4, which allows, under certain conditions, the use of accounting principles applied prior to the adoption of IFRS. However, these contracts must be treated in accordance with IFRS 7 with regards to the disclosures to be provided in the notes to the fi nancial statements. IFRS 7 requires the disclosure of fair value or value ranges for these contracts, unless the Group cannot reliably measure the participating features.
The loss reserves development table shows movements in loss reserves between 2000 and 2010, based on previously applied accounting standards, in accordance with IFRS 4. All contracts concerned are insurance contracts as defi ned by
represents the loss reserves developed in the balance sheet on the reporting date for the year indicated in the column heading.
Also with effect from year end 2006, IBNR reserves related to construction insurance in France (so called “PSNEM”) and the annuity reserves for the Property & Casualty segment have been included in the loss reserve development table for
The surplus (shortfall) of the initial reserve with respect to the re-estimated (gross) fi nal cost for each year represents, for a given year N, the difference between the amount shown in the second line (gross reserves for unpaid claims and claims expenses developed in 2010 adjusted for changes in exchange rates and scope of consolidation) and the amount shown in the fi nal diagonal under “Reserve re-estimated”.
A) LOSS RESERVES DEVELOPMENT TABLE: PROPERTY & CASUALTY AND INTERNATIONAL INSURANCE (EXCLUDING COLISÉE RE (EX AXA RE))
(In Euro million except percentages) 2000 2001 2002 2003 2004 (b) 2005 2006 (c) 2007 2008 (d) 2009 2010
Gross reserves for unpaid claims and claims expenses developed initially at the booking date (b) 26,916 28,636 28,465 27,825 29,128 31,168 41,301 44,020 44,046 44,470 46,367
Gross reserves for unpaid claims and claims expenses developed in 2010 adjusted for changes in exchange rates and scope of consolidation (b) 24,003 25,532 26,191 26,967 27,818 29,242 44,100 45,749 46,540 46,294 46,367
(b) In 2004, AXA Corporate Solutions Assurance US, AXA RE P&C Insurance Company and AXA RE P&C Reinsurance were transferred from Colisée RE (ex AXA RE) to “other international activities”. The reserves of AXA Corporate Solutions Assurance US were presented on an occurrence year basis and included in the Property & Casualty loss reserves development table. The reserves of AXA RE P&C Insurance Company and Coliseum RE (ex AXA CS Reinsurance Company) were presented on an underwriting year basis and included in the Colisée RE (ex AXA RE) loss reserves development table.
(d) In accordance with IFRS 3, i.e.within 12 months following the acquisition date, the Group adjusted certain items impacting the allocation of Seguros ING (Mexico) purchase price, resulting in a €33 million increase in the goodwill to €512 million. Most of this increase in goodwill was due to adjustments to provisions for liabilities and claims reserves.
Gross reserves for unpaid claims and claims expenses developed initially at the booking date (a) 3,455 5,868 4,778 4,200 3,314 4,523
Cumulative redundancy (defi ciency) from the initial gross claims reserves in excess of (less than) re-estimated gross claim reserves (390) 391 583 373 (26) 599
Initial net claims reserves in excess of (less than) re-estimated net claims reserves as of December 31, 2010
Percentages of original net reserve (a) 31.7% 33.8% 46.5% 31.0% 20.8% 36.4%
(d) In 2004, AXA Corporate Solutions Assurance US, AXA RE P&C Insurance Company and AXA RE P&C Reinsurance were transferred from Colisée RE (ex AXA RE) to the “other international activities”. The reserves of AXA Corporate Solutions Assurance US were presented on an occurrence year basis and included in the Property & Casualty loss reserves development table. The reserves of AXA RE P&C Insurance Company and Coliseum RE (ex AXA CS Reinsurance Company) were presented on an underwriting year basis and included in the Colisée RE (ex AXA RE) loss reserves development table.
Property & Casualty and International Insurance (excluding Colisée RE (ex AXA RE)) (a) 46,367 44,470
TOTAL GROSS CLAIM RESERVES AND OTHER RESERVES FOR PROPERTY & CASUALTY AND INTERNATIONAL INSURANCE 49,917 48,189
(b) Includes reserves inward reinsurance (€762 million in 2010, €694 million in 2009).
It is common to have issues of allocation of responsibility among potentially responsible parties, as well as involvement of multiple insurers and multiple policy periods. Such issues raise considerable coverage issues.
Liabilities Managers focuses specifi cally on fi nal resolutions of exposures, either through commutations or other solutions.
3 - Year survival ratio excluding commutations (b) 39 years 41 years 36 years 38 years
(b) Reserves at the end of the year / Average yearly payments over the last 3 years (excluding in respect of commutations).
In 2010, AXA paid a net amount of €26 million for claims and legal costs in respect of asbestos (versus €35 million in 2009).
As can be seen from the above chart, the main reserves adequacy ratios on a net basis remained stable compared to their 2009 levels, due to the combined impact of low yearly payments and a small increase in IBNR.
Fund for Future Appropriation (FFA) – UK with-profi t contracts (b) - 1,938
(b) The decrease in Future Fund Appropriation (FFA) compared to 2009 is due to the partial sale of UK Life and Savings operations.
The deferred policyholders’ participation liability and asset include the impact of shadow accounting (see defi nition in 1.13.2) mainly in relation to unrealized gains and losses on invested fi nancial assets available for sale as described in 13.2.1, but also with regard to other temporary differences not necessarily linked to fi nancial assets. Note 13.2.1 also contains a focus on jurisdictions with signifi cant portions of participating business and where required minimum local policyholders’
share in the entities’ results are signifi cant. This note discloses for such jurisdictions unrealized gains and losses related to available for sale investments and related shadow accounting adjustments.
The fi gures shown in the fi rst line of the table below represent estimated undiscounted cash outfl ows in connection to death, incapacity and disability claims, surrenders, annuities, minimum guaranteed benefi ts for unit-linked contracts,
Property & Casualty and Health claims, net of premiums due from policyholders under contracts in-force. These cash fl ows are based on assumptions regarding mortality, incapacity and disability, surrender and settlement frequency for Property
The table hereafter and related comments exclude contracts where the fi nancial risk is borne by policyholders (unit-linked contracts).
By convention, contracts with zero guaranteed rates are deemed not-discounted, except for products offering guaranteed rates updated annually and for one year: these contracts are presented in discounted reserves. Reserves for savings contracts with non-zero guaranteed rates are discounted at the technical interest rate. Contracts for which the assumptions are revised in the fi nancial statements at closing mainly consist of certain UK with-profi t contracts and reserves for guarantees (Guaranteed Minimum Death Benefi ts, etc.).
In the Property & Casualty and International Insurance business, most reserves (92% at December 31, 2010) are not discounted, with the exception of disability annuities and worker’s compensation liabilities that are deemed structured settlements and where the discount rate is revised regularly.
Life & Savings – locked-in discount rate (b) 255,344 2.48% 239,573 2.60%
Life & Savings – unlocked discount rate 29,195 3.40% 40,722 3.23%
The tables in Note 21 set out the Group’s major insurance business areas, and refl ect the Group’s high level of diversifi cation.
This note describes the features that are embedded derivatives and meet the defi nition of an insurance contract on a standalone basis. The primary features can be divided into two main categories: guaranteed minimum death benefi ts (GMDBs) or guaranteed minimum income benefi ts (GMIBs) offered on unitlinked contracts and guaranteed annuity purchase rates.
The risk of GMDB and GMIB features to AXA is that protracted under-performance of the fi nancial markets could result in benefi ts being higher than the accumulated policyholder account balances could support. Reserves are established for these features on the basis of actuarial assumptions related to projected benefi ts and related contract charges. The determination of estimated GMDB and GMIB liabilities is based on models which involve numerous estimates and subjective judgments, including those regarding expected market rates of return and volatility, contract surrender rates and GMIB election rates. There can be no insurance that ultimate experience will not differ from management’s estimates. In addition to providing for risk through establishing reserves, AXA also manages the risk through a combination of reinsurance programs and active fi nancial risk management programs including investment in exchange-traded futures contracts and other instruments.
Guaranteed annuity purchase rates provide contract-holders with a guarantee that at a future date the accumulated balance on their contract will be suffi cient to purchase a lifetime annuity at currently defi ned rates. The risk to AXA in these features is either that longevity will improve signifi cantly so that contractholders electing to exercise this benefi t will live longer than assumed in the guaranteed purchase rates, or that investment returns during the payout period will be lower than assumed in the guaranteed purchase rates. Reserves are established for these features on the basis of actuarial assumptions related to projected benefi ts and related contract charges. The determination of this estimated liability is based on models which involved numerous estimates and subjective judgments,
including those regarding expected rates of return and volatility, contract surrender rate, mortality, and benefi t election rates.
Macro hedge derivatives relating to liabilities arising from banking activities 275 - - 275 1,658 - - 1,658
Liabilities arising from banking activities 24,562 1,416 1,232 27,209 22,210 1,018 581 23,810
(a) Assets and liabilities of the Australian and New Zealand operations, and some UK Like & Savings portfolios for which the disposal process is not fi nalized as of December 31, 2010 are classifi ed as held for sale. This classifi cation already applied for Australian and New Zealand operations as of December 31, 2009 (see Note 5.3).
16.2. CHANGE IN PROVISIONS FOR RISKS AND CHARGES (EXCLUDING EMPLOYEE BENEFITS AND SHARE-BASED COMPENSATION)
Changes in provisions for risks and charges (excluding employee benefi ts and share-based compensation) are set out below: (in Euro million)
Financial cost related to desactualization (2) - - - - (2)
(a) Assets and liabilities of the Australian and New Zealand operations (including local holdings) are classifi ed as held for sale separately from other assets and liabilities in the consolidated statement of fi nancial position as of December 31, 2009 (see Note 5.3).
Debt component of subordinated notes, 3.75% due 2017 (€) 1,360 1,306
Euro Medium Term Notes, 6.0% due through 2013, and BMTN 892 894
Other fi nancing debts instruments issued under euro 100 million 135 143
Derivatives relating to other fi nancing debts instruments issued (a) 35 (27)
Other fi nancing debts owed to credit institutions (under €100 million) 34 66
Financing debts owed to credit institutions at cost 887 796 921 797
The Group does not hold any fi nancing debt designated as at fair value through profi t or loss (fair value option or trading instruments).
Information on the fair value fi gures presented in this note is provided in addition to information on carrying values and should be used with caution. On the one hand, these estimates are based on closing date parameters such as interest rates and spreads, which fl uctuate over time, and resulting in instantaneous values, and on the other hand because there are multiple possible methods to derive these estimates.
The fair value of fi nancing debt as of December 31, 2010, excluding accrued interests, was €11,275 million, including related hedging derivative instruments. The fair value was €821 million above the carrying value mainly due to the decrease of interest rates compared to the average levels at the time of issuance.
The table below sets out the contractual maturities of fi nancing debt (excluding the impact of derivatives). Effective maturities may differ from those presented, mainly because some instruments include clauses allowing early redemption, with or without penalty.
(b) In order to improve the consolidated statement of fi nancial position presentation consistency across segments, balances disclosed so far as “Receivables arising from banking operations” and “Payables arising from banking operations” have been respectively reclassifi ed to the “Investments from banking and other activities” and to the new “Liabilities arising from banking activities” aggregates (see Note 1).
Other puttable instruments held by minority interest holders totaled €8 million as of December 31, 2010 (€146 million as of December 31, 2009). They represented the put option held by the minority interests of former Winterthur subsidiaries in
Central and Eastern Europe. Most of the put options were exercised in 2010.
AXA SA debts subscribed on behalf of French, English and German subsidiaries - 140
Derivatives on other debt instruments issued (other than fi nancing debt) – CDO (Collateralized Debt Obligations) 29 35
Derivatives on other debt instruments issued (other than fi nancing debt) – Other - -
Derivatives on other issued debt (excluding fi nancing debts) – AXA Bank Europe 34 28
APIV+EHV: mortgage loan based on Libor 3M + 120bps, due 2015 68 56
APIV+EHV: amortizing loan based on Euribor 3M + 160bps, due 2015 41 43
OTHER DEBT (OTHER THAN FINANCING DEBT) – OWED TO CREDIT INSTITUTIONS 2,139 2,313
Other debt instruments issued designated as at fair value through profi t or loss 257 490
OTHER DEBT INSTRUMENTS ISSUED AND BANK OVERDRAFTS (OTHER THAN FINANCING DEBT) (C) 6,870 4,446
(b) In order to improve the consolidated statement of fi nancial position presentation consistency across segments, balances disclosed so far as “Receivables arising from banking operations” and “Payables arising from banking operations” have been respectively reclassifi ed to the “Investments from banking and other activities” and to the new “Liabilities arising from banking activities” aggregates (see Note 1)
Other debt instruments issued held as trading - - - - - - - -
Other debt instruments issued designated as at fair value through profi t or loss - 257 - 257 - 490 - 490
Other debt instruments issued (other than fi nancing debt) (b) - 257 - 257 - 490 - 490
Other debt owed to credit institutions held as trading - - - - - - - -
Other debt owed to credit institutions designated as at fair value through profi t or loss - - - - - - - -
OTHER DEBT OWED TO CREDIT INSTITUTIONS (OTHER THAN FINANCING DEBT) (b) - - - - - - - -
Payables to policyholders, brokers and general agent 4,142 4,142 3,660 3,660
Payables arising from direct outward reinsurance operations 5,598 5,659 5,571 5,571
Carrying value of other debt instrument issued, notes and bank overdrafts by contractual maturity
The current tax amount due on foreign income amounted to €588 million in 2010 (versus €-79 million in 2009), including €127 million related to policyholders’ tax (versus €65 million in 2009).
A deferred tax expense of €350 million in 2010 (versus €1,096 million in 2009), corresponding to tax due on foreign income is disclosed in the table above, including €-51 million related to policyholders’ tax (versus €+346 million in 2009).
The reconciliation between the theoretical tax charge (pre-tax profi t multiplied by the applicable tax rate in France for the period concerned) and the effective tax charge was as follows: Income from operating activities, gross of tax expenses (excluding discontinued activities and result from investments consolidated using equity method) 3,966 5,555
Tax losses of prior years used in the current year without DTA recognized previously (34) (15)
Deferred tax assets recognized on tax losses of prior years (20) (95)
Deferred tax assets not recognized on tax losses of the year 29 4
Derecognition of deferred tax assets on tax losses of prior years (a) 10 1
Impact of adjustments, decrease in value and other items (313) (210)
Capitalisation” in France (€245 million reversal of deferred tax liability, partly offset by €71m exit tax).
Policyholder tax – Net deferred tax assets/(liabilities) - - - (279)
Deferred tax through reserves relating to hedge acounting and other items (b) (31) (1,647) 1,661 - - (17)
Deferred tax through reserves relating to the revaluation of tangible assets (1) - (6) (1) - (8)
Deferred tax through reserves relating to gains and losses on defi ned benefi ts pension plans 684 - 201 45 (4) 927
Deferred tax through reserves relating to stock options 10 - (7) 1 (1) 3
Net deferred tax assets/(liabilities) excluding policyholder’ tax (947) (457) 1,374 17 12 (1)
Deferred tax through reserves relating to hedge accounting and other items (44) 12 2 - - (31)
Deferred tax through reserves relating to the revaluation of tangible assets (1) - - - - (1)
Net deferred tax assets/(liabilities) excluding policyholder tax 1,737 (915) (1,096) 132 (806) (947)
Policyholder tax – Deferred tax through reserves relating to the fair value adjustment of cash fl ow hedge derivatives - - - - - -
Policyholder tax – Net deferred tax assets/(liabilities) 50 (332) 1 3 - (279)
TOTAL RECOGNIZED DTA BY LATEST DATE OF POSSIBLE USE 571 41 76 63 111 107 863 5,282 7,620 14,733
DTA recognized on tax loss carry forward 739 230 139 154 96 39 57 43 - 1,496
Other recognized deferred tax assets 1,963 307 396 375 2,041 162 1,387 4,134 - 10,766
DTA recognized on tax loss carry forward 13 12 17 14 42 8 152 221 1,017 1,496
Other recognized deferred tax assets 581 65 52 44 93 20 567 3,270 6,073 10,766
TOTAL RECOGNIZED DTA BY LATEST DATE OF POSSIBLE USE 594 77 69 58 136 28 720 3,490 7,090 12,262
Changes in net current tax were as follow: (in Euro million)
The table above includes current liabilities net of current receivables towards the tax administrations. It also includes some receivables and liabilities with non-consolidated entities members of a tax group which are classifi ed in “other receivables” and “other payables”
Maturity of notional amount as of December 31, 2010 (a) (b)
(iii) managing liquidity positions (including the ability to pay benefi ts and claims when due) in connection with asset-liability management and local regulatory requirements for insurance and banking operations, and (iv) limiting credit risk with regard to certain investments in corporate debt instruments.
While notional amount is the most commonly used measure of volume in the derivatives market, it is not used as a measure of risk because the notional amount greatly exceeds the possible credit and market loss that could arise from such transactions. The Group is exposed to credit risk in respect of its counterparties to the derivative instruments, but is not exposed to credit risk on the entire notional amounts. The
(over-the-counter) derivatives through a specifi c Group-wide policy. This policy includes a limit framework and an exposure monitoring process. Limits are set specifi cally for each authorized counterparty, based on an internal scoring system.
(i) 48% of the derivative instruments used consisted in swap contracts (48% at the end of 2009), (ii) 24% were option products, mainly caps, fl oors and swaptions (27% at the end of December 2009), (iii) 21% were futures and forwards (15%
at the end of 2009) and (iv) 6% were credit derivatives (10%
The equity derivative portfolio mainly consists in puts and calls. Equity puts and calls are options agreements that give the seller (puts) or the buyer (calls) the right to exercise the option and to sell or buy shares or indices at the strike price.
AXA’s hedging strategies to manage its equity exposure and represented a total notional value of €7,600 million at the end of 2010 (€8,024 million at the end of 2009). These instruments are mainly used by United States Life & Savings to hedge Variable Annuities (notional amount of €6,190 million compared with €5,665 million at the end of 2009).
(€94,905 million at the end of 2009). Their market value was €-429 million (€-8 million at the end of 2009).
(ii) AXA Bank Europe to hedge interest rate risk exposures arising in the context of its ordinary banking activities, in order to achieve an appropriate interest rate spread between its interest-earning assets and interest-bearing liabilities (notional value of €20,162 million versus €6,499 million at the end of 2009); (iii) Germany Life & Savings (notional amount of €17,536 million versus €13,143 million at the end of 2009) mainly due to the active fi nancial risk management program associated with the guaranteed minimum benefi ts on Variable Annuity products; (iv) Japan Life & Savings (notional amount of €15,882 million versus €10,472 million at the end of 2009) to manage interest rates on its fi xed income assets and to hedge guaranteed minimum benefi ts features included in
related to the active fi nancial risk management program associated with the guaranteed minimum benefi ts on
AXA Bank Europe (versus €3,005 million at the end of 2009).
December 31, 2010 (€8,111 million at the end of 2009), including €7,052 million at AXA Japan, and €4,265 million at AXA Bank Europe to hedge interest rate risk of a portfolio composed of mortgages loans and individuals bonds investments.
Italy to protect our ability to serve policyholder participation and credited rate mainly for general account products with guaranteed minimum rates of return.
December 31, 2010 was €34,609 million or 61% of the total notional amount of all interest rate options (€42,016 million or 74% at the end of 2009). The net fair value of caps and fl oors was €236 million at December 31, 2010 (€183 million at the end of 2009).
Swaptions represented 38% (€21,213 million notional at December 31, 2010) of the total notional amount of all interest rate options as of December 31, 2010, mainly (i) in
United States Life & Savings (€8,311 million in 2010 versus €837 million in 2009) to hedge interest rate volatility risk associated with Variable Annuity guarantees (€6,813 million versus €837 million at the end of 2009) and to hedge duration gap between assets and liabilities on general account for a notional amount of €1,498 million, (ii) in Germany Life
Life & Savings for €2,831 million (€2,766 million at the end of 2009) including €1,662 million (€2,226 million at the end of 2009) used to protect the reinvestment risk in the individual Life
Belgium Life & Savings for €1,219 million (€1,388 million at the end of 2009) to protect life funds against large movements in interest rates.
Futures are contracts that require settlement at a specifi ed price and on a specifi ed future date. Forwards are customized contracts between two entities where settlement takes place on a specifi c date in the future at today’s pre-agreed price.
On a consolidated basis, the notional amount of interest rates futures and forwards at December 31, 2010 was
As part of its investment and credit risk management activities, the Group uses strategies that involve credit derivatives
(Credit Default Swaps or CDS), which are mainly used as an alternative to debt security portfolios, but also as a protection on single corporate names or specifi c portfolios.
Currency future and forward contracts accounted for 46% of currency derivative instruments (based on notional amounts at December 31, 2010), compared to 42% at the end of 2009. Swiss entities use such contracts for a total notional amount of €29,574 million mainly to hedge exchange-rate risk arising from their investments in equities and debt instruments denominated in foreign currency (mainly € and US$). Japan
Currency swaps constitute another part of AXA’s hedging strategies to manage foreign currency cash fl ow exposures, and are primarily used by the Company (€36,547 million versus €31,910 million at the end of 2009) and AXA Bank
Europe (€2,677 million versus €1,216 million at the end of 2009) to manage fi nancing operations.
Debt instruments designated as at fair value through profi t or loss 28,815 - 283 29,098
Non controlled investment funds available for sale 6,577 376 29 6,982
Assets backing contracts where fi nancial the risk is borne by policyholders 137,740 - (0) 137,739
(h) Derivatives instruments used in hedge of net investment in a foreign operation, and not attached to a debt on the face of the consolidated statement of fi nancial position.
(a) Assets and liabilities of the Australian and New Zealand operations (including local holdings) are classifi ed as held for sale separately from other assets and liabilities in the consolidated statement of fi nancial position as at December 31, 2009 (see Note 5.3).
Liabilities arising from investment contracts with no discretionary participating features 720 - - 720 917 - - 917
Financing debt owed to credit institutions 887 - - 887 921 - - 921
Payables arising from direct insurance and inward reinsurance operations 7,387 - - 7,387 6,761 - - 6,761
Payables arising from outward reinsurance operations 5,598 - - 5,598 5,571 - - 5,571
Derivative instruments hedging net investment in a foreign operation (liabilities) - - - - - - - -
Total derivative instruments relating to insurance and investment contracts 20 (711) -
Derivative instruments relating to fi nancing debt, operating debt and other fi nancial liabilities 2 590 -
(a) Assets and liabilities related to the Australian and New Zealand operations, and some UK Life & Savings portfolios for which the disposal process is not fi nalized as of December 31, 2010 are classifi ed as held for sale. This classifi cation already applied for Australian and New Zealand operations as of December 31, 2009 (see Note 5.3).
Assets for which fair value is not based on observable market data (unobservable inputs) – Level 3
Among amounts presented as Level 3, fair values determined in whole or in part using a valuation technique based on assumptions that are not supported by a majority of prices from observable current market transactions in the same instrument or a majority of available observable market data represented as of December 31, 2010 net fair values of €+3 million of derivatives held by the Group (including an estimation of the extent to which external quotes on inactive markets are based on observable data), in comparison with net fair values of €-290 million as of December 31, 2009. There was no signifi cant transfer in or out of the Level 3 category and all changes relate to changes in fair value through income or expirations.
PROPERTY & CASUALTY 27,413 26,174 of which direct premiums 27,044 25,874 of which reinsurance assumed 292 223 of which revenues from other activities 78 77
INTERNATIONAL INSURANCE 2,847 2,860 of which direct premiums 1,978 1,898 of which reinsurance assumed 671 752 of which revenues from other activities 199 211
Fees, commissions and other revenues 199 211 - 21. 2.4. Liabilities arising from insurance contracts in the Property & Casualty and International Insurance segments
TOTAL – PROPERTY & CASUALTY EXCLUDING INTERNATIONAL INSURANCE 27,279 6,399 1,048 191 34,917 13,041 47,958
Investment in real estate properties as at fair value through profi t or loss 138 - 152 - 290
Non controlled investment funds designated as at fair value through profi t or loss 50 - 81 - 132
(a) Includes debt instruments held by consolidated investment funds, designated as at fair value through profi t or loss.
Net realized gains and losses and change in fair value of investments designated as at fair value through profi t or loss
Investment in real estate properties designated as at fair value through profi t or loss 210 - (223) - (14)
Debt instruments designated as at fair value through profi t or loss (a) 1,964 - 2,536 - 4,499
Non quoted debt instruments (amortized cost) 26 - - - 26
Equity instruments designated as at fair value through profi t or loss (b) 281 - 234 - 514
Non controlled investment funds available for sale 102 84 - (386) (199)
Non controlled investment funds designated as at fair value through profi t or loss 5 - (85) - (80)
Assets backing contracts where the fi nancial risk is borne by policyholders - - 23,861 - 23,861
Net realized gains and losses relating to investment at cost and at fair value through shareholders’ equity include write back of impairment following investment sales.
Investment Portfolios” as defi ned in Note 1.7.2; ■ changes in fair value of underlying hedged items in fair value hedges (as designated by IAS 39) or “natural hedges”
The changes in investments impairment for OCI Assets include impairment charges on investments, and releases of impairment only following revaluation of the recoverable amount. Write back of impairment following investment sales are included in the net realized capital gains or losses on investments aggregate.
Premiums ceded and unearned premiums ceded (1,419) (1,514) (984) 395 (3,522)
Premiums ceded and unearned premiums ceded (1,251) (1,500) (954) 322 (3,382)
In 2010, the net result of reinsurance ceded increased by €99 million compared to 2009 mainly due to: ■ Life & Savings (up €272 million) driven by €352 million increase of the change in claims reserves in United States due to the decrease of Variable Annuity book reserves ceded following improvement in equity markets; ■ Property & Casualty (down €174 million) mainly refl ecting lower natural catastrophes claims ceded to reinsurers (€156 million); ■ International Insurance (down €198 million) as a result of lower large claims were experienced in 2010.
The cost of the contributions paid was recognized as an expense in the income statement, and amounted to €96 million as of December 31, 2010 (€89 million in 2009, €82 million in 2008, €75 million in 2007 and €88 million in 2006).
The weighted-average assumptions used by AXA for pension plans in the principal regions in which AXA operates were as follows: DECEMBER 2010 ASSUMPTIONS
Expected return on plan assets and separate assets 6.2% 7.3% 1.1% 6.9%
In addition, in accordance with IAS 19, a category of assets referred to as “separate assets” is also recorded in the statement of fi nancial position. As defi ned by IFRS, separate assets are assets that may not be used to offset the DBO.
Within AXA, separate assets are insurance contracts issued by some subsidiaries to back their defi ned benefi t pension plans. The accounting consequence of these separate assets is a potential increase in the accrued liability or decrease in the prepaid asset. These assets are shown separately in the following table. In general, these funds are backing insurance contracts and are only available to general creditors in case of bankruptcy, so their economic nature is not different from plan assets on a going concern basis. However, as the separate account assets are available to the pension plan through an insurance contract, IFRS requires their classifi cation as separate assets despite their economic nature.
The table below presents the change in benefi t obligation and the change in plan assets associated with pension plans and other benefi t plans sponsored by AXA, together with an analysis of separate assets as of December 31, 2010.
During the fi scal year 2008, the main change in the scope was the acquisition of Seguros ING, now AXA Mexico, which was completed on July 22, 2008.
In Switzerland, where the issue arose after the acquisition of Winterthur, AXA amended its practice to eliminate the insurance contract rather than treat it as a plan asset as was originally presented.
Benefi ts paid by plan assets and by separate assets (464) (474) (434) (443) (419) - - - (0) (49)
Impact of foreign currency fl uctuations 1,018 241 (493) (737) (268) 36 (9) 19 (54) (66)
Benefi t obligation at the end of the year (A) 15,732 13,661 11,729 12,955 14,734 606 534 511 506 604
Fair value of plan assets at the beginning of year 6,181 4,662 7,057 8,216 4,693 4 3 3 9 14
Benefi ts paid by plan assets (393) (407) (370) (383) (246) - - - (0) (4)
Impact of foreign currency fl uctuations 528 230 (735) (546) 28 - - - - -
Fair value of plan assets at the end of the year (B) 7,834 6,181 4,662 7,057 8,216 5 4 3 3 9
Fair value of separate assets at the beginning of year 893 789 739 2,480 2,697 - - - - -
Actual return on separate assets 59 31 (25) 12 221 - - - - -
Benefi ts paid by separate assets (71) (66) (64) (60) (168) - - - - -
Overfunded status (plan by plan) 9 19 21 200 12 - - - - -
Plans with a positive net position (Asset) 6 8 20 199 11 - - - - -
Plans with a negative net position (Liability) (7,846) (7,431) (7,015) (6,017) (6,440) (600) (529) (506) (501) (595)
Net economic funding position (including separate assets) (6,855) (6,530) (6,206) (5,079) (3,950) (600) (529) (506) (501) (595)
(d) This amount includes additional contributions paid to plan assets in the United Kingdom and in the United States reducing the defi cit in 2010.
For pension plans where the benefi t obligation exceeds the fair value of plan assets, the aggregate benefi t obligation and fair value of plan assets were €15,690 million and €7,783 million, respectively, as of December 31, 2010.
Pension and other benefi ts expense 517 404 306 371 225 44 37 37 40 23 26.2.6. Net economic funding position
The evolution in the net economic funding position from January 1, 2010 to December 31, 2010 captures both the change in the liability recorded in the Group’s statement of fi nancial position and the change in separate assets, as presented in the table below: (in Euro million)
(c) This amount includes additional contributions paid to plan assets in the United Kingdom and in the United States reducing the defi cit in 2010.
During 2010, the deterioration of the net economic funding position was mainly due to actuarial losses (see Note 26.2.8) and negative impact of foreign currency fl uctuations partly offset by additional contributions paid to plan assets in the United Kingdom
(€572 million) and in the United States (€185 million) reducing the defi cit.
The roll-forward of the statement of fi nancial position liability from January 1, 2010 to December 31, 2010 captures only the evolution of the liability recorded in the Group’s statement of fi nancial position and not the separate assets. Therefore it is not a full economic picture. The table below shows the detailed roll-forward of the statement of fi nancial position liability, with the separate assets added at each year end.
Benefi ts directly paid by the employer 275 310 270 227 128 37 39 44 45 45
Net transfer In/(Out) (including acquisitions and disposals) (a) (b) (52) 884 50 (2,253) (548) - 0 (11) (20) (8)
Actuarial gains and losses recognized in the SoCI component (532) (1,493) (1,229) 1,022 392 (29) (36) 19 54 24
Statement of fi nancial position liability at the end of the year (7,840) (7,423) (6,995) (5,818) (6,430) (600) (529) (506) (501) (595)
Fair value of separate assets at the end of the year 985 893 789 739 2,480 - - - - -
The table shows the change in the SoCI component due to employee benefi ts (excluding net income impacts), before deduction of deferred tax and policyholder benefi ts, between
January 1, 2006 and December 31, 2010 due to adjustments arising on plan liabilities and adjustments arising on plan assets and separate assets.
Experience and assumptions adjustments on plan liabilities (704) (1,634) 799 1,055 226 (29) (35) 20 57 28
Adjustment due to the sale of the Netherlands activities - - - (4) - - - - (1) -
SoCI at the end of the year (3,150) (2,442) (955) 308 (720) 3 30 67 45 (4)
During 2010, the variation of the SoCI was mainly due to actuarial losses on pension liability (due to drop in discount rates in most countries, especially in the United States and in the United Kingdom), partly offset by actuarial gains on plan assets and separate assets (due to over-performance of actual returns versus expected returns) and negative impact of foreign currency fl uctuations.
equity after deduction of deferred tax and policyholder benefi ts was €-450 million (€-1,031 million in 2009, €-695 million in 2008, €612 million in 2007 and €252 million in 2006).
As of December 31, 2010, the cumulative impact amounted to €-2,076 million (€-1,626 million at the end of 2009).
The table below shows the asset mix for plan assets at the end of 2010: Asset mix for plan assets Total Group Europe North
Financial based on years of service and age. The life insurance benefi ts are related to age and salary at retirement for certain grandfathered retirees, and a fl at dollar amount for others.
AXA Financial continues to fund the postretirement benefi ts costs for these plans on a pay-as-you-go basis.
For 2010, postretirement benefi ts payments were made in the amounts of €28 million (€31 million in 2009), net of employee contributions.
(a) Net position (excluding separate assets) for pension benefi ts and other benefi ts as reported in Note 26.2.4.
(b) Included in the net position above but, as described in Note 1.10, the contribution of held for sale operations is stated on separate asset and liability items on the statement of fi nancial position.
(c) It corresponds to a liability of €8,615 million (as of December 31, 2010) included in the statement of fi nancial position under the caption “provision for risks and charges” and an asset of €14 million (as of December 31, 2010) included in the statement of fi nancial position under the caption “Other long term assets”.
All fi gures 100%, gross of tax (in Euro million) 2010 2009
In accordance with IFRS 2, the total employee share based compensation cost of €245.0 million for full year 2010 included expenses from share-based compensation instruments for grants made after November 7, 2002 which had not yet vested as of December 31, 2003.
The total charge is amortized over the vesting period and adjusted at each future closing date for the difference between actual and expected lapse to take into account actual service conditions and actual non-market performance conditions.
For members of the Executive Committee (since 2006) and benefi ciaries who are granted more than 5,000 options (since 2007), the fi rst two instalments vest unconditionally at the end of the vesting period, while the fi nal instalment is subject to the fulfi lment of a condition regarding the performance of the AXA
shares compared to the DowJones Europe Stoxx Insurance index. All options granted to the members of the Management
Committee (change in governance) in 2010 were subject to the fulfi llment of this market performance condition.
The number of outstanding options and the number of exercisable options as of December 31, 2010 and 2009 are shown below by maturity date: Expiry date of options (in million)
The number of outstanding options and the number of exercisable options as of December 31, 2010 and 2009 are shown below by maturity date for AXA SA plans granted after November 7, 2002: Expiry date of options (in million)
Les hypothèses de valorisation et la juste valeur des options pour 2010, 2009, 2008, 2007,et 2006 sont présentées ci-dessous : Assumptions (b)
(a) For employees who have been granted more than 5,000 options in 2007, 2008,2009, and 2010 the vesting of the fi nal instalment is subject to the fulfi lment of certain conditions regarding the performance of the AXA shares compared to the DowJones Europe Stoxx Insurance index. The options with performance criteria were valued at €1.68 per option granted in 2010 and €2.48 per option granted in 2009, based on a Monte-Carlo model (before 2009 capital increase €2.54 per option granted in 2009). The options without performance criteria were valued at €2.47 per option granted in 2010 and €1.86 per option granted in 2009, based on the Black & Scholes model (before 2009 capital increase €1.91 per option granted in 2009).
(American Depositary Receipt). These options were issued at the market value of AXA ADRs on the date of grant. Options granted prior to 2004 vest over a three-year period, with one third vesting on each anniversary date. However, starting in 2004, new grants generally vest over a four-year period with one third vesting on each of the second, third and fourth anniversary dates (generally in March). Options currently issued and outstanding have a 10-year contractual term from their date of grant.
Following these actions, AXA ADRs continue to trade in the over-the-counter markets in the U.S. and be exchangeable into
AXA ordinary shares on a one-to-one basis while AXA ordinary shares continue to trade on the Euronext Paris, the primary and most liquid market for AXA shares. Consequently, current holders of AXA ADRs may continue to hold or trade those shares, subject to existing transfer restrictions, if any.
None of the modifi cations made to AXA Financial’s sharebased compensation programs as a result of AXA’s delisting and deregistration resulted in the recognition of additional compensation expenses.
The following tables show a summary of the U.S. holding company’s AXA ADR stock option plans: Options (in million) Weighted price (in US$)
The following table shows information for grants after November 7, 2002: Options (in million) Weighted price (in US$)
The leveraged plan allows employees to purchase, on the basis of 10 times their personal investment, to AXA shares
to the reference price) Subscriptions amounted to 30.1 million shares, increasing the share capital by €330.4 million. This offering represented a total cost of €12.5 million taking into account the fi ve-year lock-up period.
[A] Discount to face value 20.00% 16.71% 18.30% (a) 18.30% (a)
TOTAL COST FOR AXA (in Euro million) 0.10 12.40 0.30 13.80
(a) In light of the capital increase launched by the Group on November 9, 2009 the initial discount of 20% was mechanically lowered to 18.30% for both plans.
On July 1, 2007, AXA granted 50 free shares per employee to all employees of the Group. In total, 2.3 million shares were granted to 46,899 employees in 24 countries on the 2+2 plan (i.e. two-year vesting period with a subsequent two-year restriction period), and 3.2 million shares were granted to 64,839 employees in 30 countries on the 4+0 plan (i.e. four-year vesting period with no subsequent restriction period).
The free shares are valued using the ANC approach described in the AXA Group Shareplan section using assumptions adapted to the structure of the plan (2+2 or 4+0 plan), based on a market price of €32 per share on July 1, 2007 and an estimated 5% pre-vesting lapse rate.
December 31, 2010 was €17.4 million. The accumulated cost already recognized as of December 31, 2010 represented 93%
In 2008, 2009 and 2010, Performance Shares were issued to executive offi cers and other key employees.
The Performance Shares are valued using the ANC approach described in the AXA Group Shareplan section using assumptions adapted to the structure of the plan.
Before 2010, if the number of Performance Units defi nitely acquired is less than one thousand, the employing entity pays in cash, 100% of the calculated value. If the number of
For the cash-settled instruments, the expected payment at the maturity date of the instrument is revised at each closing dates and amortized over the vesting period (prorate temporis)
The total cost of the Performance Units recorded in earnings in 2010 was €45.2 million (€3.2 million for the equity-settled portion and €42 million for the cash-settled portion).
AXA ADRs) and €1.0 million in respect of AXA ADR Restricted
Holding Units which are granted to certain key employees. In connection with the deferred compensation plan 11,594,207 restricted Holding Units were issued in 2010 (8,345,805
The total granted in 2010 including these awards was 13,064,764 restricted Holding Units.
In 2010: ■ short-term benefi ts: compensation paid to members of the Management Committee in respect of 2010 totaled €16.1 million, including fi xed salary, bonuses, directors’ fees and benefi ts in kind; ■ share-based compensation: the expense recognized in 2010 in respect of share-based compensation granted to
Management Board in respect of 2009 totaled €14.8 million, including fi xed salary, bonuses, directors’ fees and benefi ts in kind; ■ share-based compensation: the expense recognized in 2009 in respect of share-based compensation granted to
The decrease in 2010 compared to 2009 by 475 salaried employees was mainly due to: ■ United Kingdom (-1,784 employees), where Life & Savings activities records (-2,480 salaried employees) in 2010 mainly due to the staff transfered to Resolution Ltd following the sale of part of the Life & Savings business, and Property
& Casualty activities take on +696 salaried employees primarily relating to the continued growth within Direct business and the inclusion of an entity; ■ partly offset by new consolidated companies notably in Ukraine (+1,150 salaried employees) and in Poland
Revised net income EPS takes into account interest payments related to undated subordinated debts classifi ed in equity, excluding forex impacts. Previously disclosed EPS included forex adjustments and, as of December 31, 2009, basic net income EPS amounted to €1.51 and fully diluted net income
EPS to €1.51. Excluding forex refl ects implemented hedges which would qualify as net investment hedges with related changes in fair value recognised through translation reserves.
Net income including impact of undated subordinated debt (b) E 2,449 3,318
In 2010, the Company was party to the following transactions with related parties which may be deemed to have been material to AXA or the related party in question or unusual in their nature or conditions.
& Casualty insurance business and Life & Savings insurance business in France. As of December 31, 2010, the Mutuelles
Each Mutuelle AXA is supervised by a Board of Directors elected by delegates representing policyholders. Certain members of the Company’s Executive Management and Board of Directors serve as directors or executive offi cers of the Mutuelles AXA.
Property & Casualty insurance business generated in France by insurance brokers is underwritten through a coinsurance arrangement between AXA Assurances IARD Mutuelle and AXA
France IARD, a Property & Casualty insurance subsidiary of the Company. For coinsurance, AXA France IARD underwrites 89% of businesses and the Mutuelle AXA 11%. Technical results are shared between these companies in proportion to their written premiums. Aggregate written premiums recorded in this coinsurance agreement amounted to €1,665.9 million in 2010 (of which €1,482 million was attributed to AXA France
From time to time the Company enters into GIEs with certain of its subsidiaries. GIEs are intercompany partnerships, governed by French law, created to perform various common services for their members and to allocate associated costs and expenses among their members. The allocation of costs and expenses invoiced to GIE members may be based on various agreed criteria including particular activity drivers. The GIEs to which the Company was party during 2010 covered a variety of common services including services performed by the Group’s central functions for the benefi t of AXA Group companies
(e.g. fi nance, accounting and reporting, tax, legal, marketing and brand, internal audit, human resources, procurement, information systems, risk management, cash management) as well as certain other services. Expenses invoiced by these GIEs to the Company and its subsidiaries are generally invoiced at cost and are included in the consolidated expenses refl ected on Company’s audited consolidated fi nancial statements.
AXA has given numerous commitments and guarantees, including fi nancing commitments, guarantees given to fi nancial institutions and customers, pledged assets, collateralized commitments and letters of credit. For a detailed description of these commitments and guarantees, see
The Company, from time to time, makes capital contributions, loans, other extensions of credit, or otherwise provides liquidity and capital resources to its subsidiaries and affi liates for various business purposes including to fi nance their business operations and/or to promote the development of their business (e.g. to facilitate acquisitions, integration of acquired
businesses, distribution arrangements, internal restructurings, or similar transactions). These transactions may involve the
Company entering into various types of transactions with its subsidiaries and affi liates from time to time including loans or other types of credit arrangements, acquisitions or sales of assets, securities or other fi nancial instruments and/or similar transactions. In addition, the Company may from time to time borrow from its subsidiaries for various business purposes.
These transactions are carried out on arms-length terms and conditions with loans and other extensions of credit bearing interest at varying rates that generally refl ect prevailing market rates at the respective dates such loans were originated.
(including swaps or other types of derivatives), securitization transactions, and/or other types of arrangements or transactions to which the Company may be a direct party and/
AXA Group companies may, from time to time, purchase insurance, wealth management or other products or services offered by AXA in the ordinary course of its business. The terms and conditions of these transactions are substantially similar to the terms and conditions generally available to the public or to AXA employees in general.
The €4,072 million increase in fi nancing commitments received was mainly due to the Company unused credit lines (€+2,263 million) and to the United States Holding
Letters of credit received decreased by €133 million, to €1,011 million at the end of 2010, and were mainly related to the United States.
Other commitments received totaled €4,604 million at the end of 2010, and were broken down as follows: ■ €2,826 million received by AXA Bank Europe related to money market activities; ■ €748 million received by the Company due to a loan guarantee under $1 billion loan agreement; ■ €672 million received by France Life & Savings mainly due to commitments to real estate funds.
Financing commitments given totaled €2,872 million at the end of 2010, and mainly consisted in fi nancing commitments to customers (€1,973 million), notably comprising loan commitments granted by AXA Bank Europe (€915 million) and by AXA Banque (€782 million) to their customers.
Guarantee commitments given increased by €241 million, including €383 million increase on guarantees related to fi nancial obligations from AllianceBernstein partly offset by €153 million decrease on payment guarantees on investment funds from AXA Banque.
Pledged securities and collaterized commitments given totaled €24,211 million at the end of 2010, and mainly consisted in: ■ €9,397 million in AXA Bank Europe to fi nance institutions in respect of security repurchase agreements (€5,973 million)
■ €2,835 million in Belgium Life & Savings including pledged assets for securities repurchase and lending agreements €2,422 million and pledged assets collaterals for loans €340 million.
Letters of credit given totaled €365 million at the end of 2010 and were mainly related to the run-off activities of reinsurance operations (€306 million).
Other commitments given totaled €12,964 million at the end of 2010 and mainly consisted in: ■ capital call options to Private Equity funds (€3,701 million)
Group insurance contracts; ■ €1,272 million commitments given by Germany Life
On August 5, 2010, and after authorization by the AXA Board of Directors on August 3, 2010, the AXA Group and the BNP
Paribas Group entered into an agreement that replaces a prior agreement between them dated December 15, 2005.
Schneider stock and the Schneider Group undertakes to hold at least 8,816,681 AXA ordinary shares. The number of shares held under this cross-shareholding agreement will be adjusted as needed to refl ect the impact of certain capital transactions, including, but not limited to: free allotments of stocks or of exchange of stocks of the same company (stock splits, stock grouping, etc.). In addition, the agreement includes an option for each party to repurchase its shares in the event of a hostile change of control of the other party.
purpose investment companies or funds). The potential amount of compensation relating to commitments covered by these obligations cannot be evaluated with any certainty, and the Group purchased the D&O (directors and offi cers)
The Group did not provide any material support without having a constructive obligation to do so to non consolidated entities during the period.
While AXA seeks to manage its exposure to foreign currency fl uctuations through hedging, fl uctuations in the exchange rates may have a signifi cant impact on AXA’s results of operations and cash fl ows. For example, a strengthening of the Euro against the US Dollar and/or certain other currencies in 2011 and future periods may adversely affect AXA’s results of operations and the price of its securities. In addition, the currency hedges used by AXA to manage foreign exchange rate risk may signifi cantly impact the Company cash position and its statutory results (parent only) because unrealized exchange rate losses are recognized in the Company’s statutory income statement (unlike in the Group’s consolidated accounts where hedge accounting is applied to net investments in subsidiaries such that these exchange rate movements have no income statement impact at the consolidated Group level).
Statutory audit and certifi cation of local and consolidated fi nancial statements 31,209 38,409 69% 82% 8,053 8,234 82% 97%
(a) Including Technology, IT systems consulting and other internal services (Solvency II, EEV).
KVAG shareholders brought an action in Germany alleging that the cash compensation offered by AXA SA was not adequate.
Management believes that these claims are without merit and intends to vigorously defend them. Management also believes that these judicial proceedings are likely to continue for a signifi cant period of time before they are defi nitively resolved due to the complexities, procedural and otherwise, of this matter.
AllianceBernstein (SEC fi le no. 000-29961) fi led with the SEC
SEC Reports for a full description of all the various litigations and related matters in which these subsidiaries are involved.
AXA Rosenberg. In April 2010, AXA Rosenberg, a quantitative asset manager owned 75% by AXA Investment Managers at that time (now fully owned), communicated to its clients that a coding error in its risk model, corrected in November 2009, had not been reported in a timely manner. AXA Rosenberg’s Board of Directors hired an independent law fi rm to conduct an internal investigation into this matter and an independent consultant was engaged to assist in assessing the impact of this error on the performance of each client’s account. On February 3, 2011, the United States Securities and Exchange Commission charged three AXA Rosenberg entities with securities fraud for concealing this error which was determined to have caused $217 million in investor losses. Without admitting or denying the SEC’s fi ndings, AXA Rosenberg Group LLC (ARG), AXA
Rosenberg Research Center LLC (BRRC) consented to the entry of an SEC order that requires them to cease and desist from committing or causing any violations and any future violations of certain provisions of US federal securities laws; censures them; and orders them jointly and severally to pay a $25 million penalty. The SEC’s order also requires ARG, ARIM
Discussions with various other regulatory authorities involved in this matter (including the AMF, the United Kingdom FSA, the
On February 4, 2011, a class action law suit was fi led against
Guam Retirement Fund) and all others similarly situated. This suit was fi led in the Federal District Court for the Northern
For example during 2010, as part of AXA UK’s sale of part of its Life insurance business to Resolution, Ltd., AXA UK
(typically 65 and 60 respectively). Many trustees and employers decided to equalize their schemes by increasing the woman’s retirement age to 65, in line with the man’s retirement age at the time, but until equalization was done correctly, benefi ts for men and women had to accrue at the more generous age of 60 (if that was the woman’s retirement age). Certain pension plan trustees/employers have alleged that AXA UK
France and Belgium, have enacted legislation that permits corporate entities to be charged with criminal offences. The standard for attributing criminal conduct by corporate offi cers and employees to corporate entities is not clearly defi ned in many of these jurisdictions and government prosecutors and judges have broad discretion in this area. In recent years, complaints against or indictments of corporate entities for alleged criminal offences have become increasingly common and certain AXA Group companies have been the subject of penal complaints and/or indictments from time to time including in Belgium and France. While a criminal complaint against or indictment of a corporate entity may not pose material fi nancial risk, it has broad potential implications for a regulated fi nancial institution like AXA both from a reputation point of view and from a regulatory perspective because a criminal conviction can have potentially far reaching negative implications for AXA Group companies engaged in regulated businesses around the world including for their ability to obtain and/or maintain licenses to engage in certain types of regulated business activities such as asset management, insurance and banking.
Achats (together with two private parties) brought an action for annulment of the Belgian Act of December 21, 2007 amending the Act of May 10, 2007 (the “Act”) designed to combat discrimination between men and women with respect to gender in insurance matters. Specifi cally for the purpose of calculating insurance premiums and benefi ts, the Act allows direct distinctions to be drawn on the basis of gender. As a condition, a regulation stipulated that the distinction must be proportionate and sex must be a determining factor in the assessment of risk on the basis of relevant and accurate actuarial and statistical data. In enacting this regulation, the Belgian legislature made use of the “opt-out possibility”
In addition to the matters noted above, AXA and its subsidiaries are also involved in various legal actions and proceedings of a character normally incident to their business including claims litigation arising in connection with the Group’s insurance business and litigation arising from the Group’s asset management business.
in Part 1 of this Annual Report, “Risk Factors” in Part 3 of this Annual Report and Note 29 to the Group’s consolidated fi nancial statements in Part 4 of this Annual Report. Some of the litigations described above have been brought on behalf of various alleged classes of claimants, and certain of the claimants in these actions seek signifi cant or unspecifi ed amounts of damages, including punitive damages. In some jurisdictions, juries have substantial discretion in awarding punitive damages.
In March 2011, AXA APH announced the following: (i) on March 1st, 2011, AXA APH announced that it has been notifi ed that the proposed merger of AXA APH’s Australian and
New Zealand business with AMP and the sale of AXA APH’S
On March 11, 2011, AXA announced the sale of 15.6% stake in Taikang Life. China Insurance Regulatory Commission
(« CIRC ») has issued its approval in connection with the proposed transfer by AXA’s wholly-owned Swiss subsidiary,
In compliance with the assignment entrusted to us by your General Meeting, we hereby report to you, for the year ended
These assessments were made in the context of our audit of the consolidated fi nancial statements taken as a whole, and therefore contributed to the opinion we formed which is expressed in the fi rst part of this report.
As required by law, we have also verifi ed the information given in the Group’s management report in accordance with the professional standards applicable in France.
Changes in the capital 415 5.2 DESCRIPTION OF AXA’S SHARE CAPITAL 416
Offi cer and the Deputy Chief Executive Offi cer(s) will receive compensation which amount and conditions will be set by the
Board of Directors, upon the proposal of the Compensation and Human Resources Committee. Members of the Board of
Meeting and apportioned by the Board of Directors among its members. Notwithstanding the above, no directors’ fee shall be paid to directors exercising in the Executive Management
An individual aged seventy or older may be appointed or re-appointed to the Board of Directors exclusively for a two-year term of offi ce. His/her term of offi ce can be renewed only once.
Board of Directors has set for each Board member, whether an individual or a permanent representative of a legal entity to whom directors’ fees were paid, the objective of holding, within two years after fi rst being appointed, a number of shares in the Company which value on the basis of the closing price of the AXA share on December 31 of the preceding fi scal year shall correspond to an amount at least equivalent to the gross director’s fees earned in respect of the previous fi scal year.
The shares purchased for the purpose of this holding objective have to be held in registered form.
Meeting of AXA. The double voting right will automatically terminate for any share that has been converted into a bearer share or for which ownership has been transferred. Any transfer of shares as a result of merger, split-up, inheritance, division of community property by spouses or donation to a spouse or heir does not affect the double voting rights of such shares.
In the event of a capital increase by capitalization of existing reserves, profi ts or premiums, shares granted for free to any shareholder as a result of the holding by that shareholder of shares entitled to double voting rights will also carry double voting rights.
Under French law, AXA is required to allocate 5% of its net income in each fi scal year, after reduction for losses carried forward from previous years, if any, to a legal reserve fund until the amount in that fund equals 10% of the nominal amount of its share capital. The legal reserve is distributable only upon
Upon proposal by AXA’s Board of Directors, the shareholders of AXA may decide to allocate all or part of distributable profi ts to special or general reserves, to carry them forward to the next fi scal year as retained earnings, or to allocate them to the shareholders as dividends. If AXA has earned a distributable profi t since the end of the previous fi scal year, as refl ected in an interim balance sheet certifi ed by its Statutory Auditors, the Board of Directors may distribute interim dividends to the extent of the distributable profi t without shareholders approval in accordance with French law. AXA’s Charter requires AXA to distribute dividends between its shareholders prorata according to their share in the capital. The right to receive the dividend is due to the shareholders holding their shares at the record date.
This subscription right is transferable and normally trades separately during the subscription period for a capital increase. In order to issue additional shares without preferential subscription rights, except for issues already approved or authorized by AXA shareholders, AXA must obtain the approval of a two-thirds majority of voting rights at an Extraordinary
Any surplus will be divided among all shareholders, subject to rights arising, if any, from the different classes of shares, in proportion of the rights they own in the Company’s share capital.
At least 15 days (or 6 days if convened, in the event that the
Shareholders are convened, meet, and deliberate in accordance with applicable French law and AXA’s Charter. All shareholders are entitled to attend these meetings, either in person or by proxy, provided that they show valid proof of ID
Meetings of companies whose stock is traded on a regulated market or transactions of a central depository is evidenced by an accounting entry showing the number of shares in the name of the shareholder of record (or the intermediary of record for the account) in accordance with the seventh paragraph of
Article L.228-1 of the French Commercial Code, on the third business day preceding the meeting at midnight (Paris time), either in the nominee share ownership records kept by the
Shareholders may participate either in person, be represented by a spouse, a partner with whom a civil solidarity pact was entered into, another shareholder, the Chairman of the meeting, or any other natural or legal person, or, as provided for by the Charter and subject to approval by the Board of
Directors, participate by videoconference or by any means of telecommunications allowing shareholders to be identifi ed in accordance with applicable laws. In addition, a holder of bearer shares who is not a French resident may be represented at Shareholders’ Meetings by an appointed intermediary.
French law requires mergers and certain consolidations to be approved by two-thirds of the shareholders attending or represented at the Extraordinary Shareholders’ Meeting convened to decide on such matters. French law also requires the affi rmative vote of the shareholders of the surviving corporation of a merger at an Extraordinary Shareholders’
The Company’s share capital may be modifi ed only under the conditions stipulated by the legal and regulatory provisions in force. The provisions of the Charter or the Bylaws shall not prevail over the law governing changes in the Company’s share capital.
New equity issue reserved for employees of AXA (SharePlan 2008) 24,735,608 403,190,812 2,089,110,866 4,784,063,883
New equity issue reserved for employees of AXA (SharePlan 2010) 30,082,363 260,922,313 2,320,074,529 5,312,970,671 31/12/2010 Exercise of stock options 30,708 250,919 2,320,105,237 5,313,040,993
APPENDIX XI COMMISSION REGULATION OF APRIL 29, 2004 - CORRESPONDENCE TABLE 535
Article L.225-37 of the French Commercial Code, the conditions of preparation and organization of the Board of Directors’
Committees” Sections of the Group’s Annual Report for the year ended December 31, 2010. For information on specifi c limitations of the powers of the Chairman & Chief Executive
AXA Management and has taken into account information furnished to the Board of Directors with respect to the Group’s internal control environment. This report was assessed by the
The AXA Group is engaged in the fi nancial protection and wealth management business on a global scale. As such, it is exposed to a very wide variety of risks – insurance risks, fi nancial market risks and other types of risk – which are described in detail in the
Section 1.2 “Information on the Company – Additional factors which may affect AXA’s business” and Part 4 – “Consolidated fi nancial statements” – Note 31 “Litigation”.
In order to manage these risks, the Group has put in place a comprehensive system of internal controls designed to ensure that Management is made aware of signifi cant risks on a timely and continuing basis, has the necessary information and tools to appropriately analyze and manage these risks, and that the
(both fi nancial and non-fi nancial) to the markets are timely, accurate and complete.
Executive Management oversees implementation of the internal control system and the existence and appropriateness of internal control and risk management monitoring systems within the Group.
On April 29, 2010, AXA’s shareholders approved the change of AXA’s governance structure. The former dual structure consisting of a Management Board and a Supervisory Board was replaced by a unitary Board of Directors. This unitary board structure was implemented in order to enhance the effi ciency and reactivity of the Group’s governance processes and has been carefully designed to ensure an appropriate balance of powers. In the uncertain market, regulatory and competitive environment coming out of the fi nancial crisis, greater reactivity and effi ciency in the Group’s governance processes were considered critical to the Group’s continued future success.
A detailed description of AXA’s corporate governance structures including the composition and missions of the Board of
The Board of Directors determines the Company’s business strategy and oversees its implementation. The Board sets out the objectives of the Company’s internal control system through its ongoing activities and work.
The Audit Committee has four members all of whom are independent in accordance with the criteria of the AFEP/
Directors, which defi nes the Committee’s principal missions, including the following: ■ review annual and half year fi nancial statements; ■ monitor the statutory audit of AXA’s annual and consolidated fi nancial statements; ■ overseeing the activities and systems of internal control over events that expose the Group to signifi cant risks; ■ monitor the fi nancial reporting process; ■ review professional and regulatory developments and understand their impact on the fi nancial statements; ■ review the risk appetite with regard to fi nancial, operational, insurance and other exposures; and
AXA’s principal subsidiaries, whether publicly traded or not, are generally governed by: ■ a board of directors or a supervisory board whose membership includes independent or non-executive directors; and
■ various board committees including a compensation committee and an audit committee, whose membership include independent or non-executive directors.
Over the past years, AXA initiated a process designed to harmonize corporate governance standards throughout the Group. This effort is focused, among other matters, on standardizing, to the extent practicable, principles relating to a number of corporate governance matters including board composition and size, directors’ independence criteria, Board
AXA’s principal subsidiaries to establish an Audit Committee and a Compensation Committee in addition to any other Board
AXA Group has various management structures and control mechanisms designed to ensure that Management has a clear and timely view of the principal risks facing the Group and the tools necessary to analyze and manage these risks.
AXA’s Management Committee, the Chief Executive Offi cers of the Group’s principal subsidiaries and/or business units and selected other senior executives. While the Executive
Group and its principal business units on a continuing basis and to identify any new material risks or issues facing the
For more information about the Executive Committee including its composition, please see Section 2.1 “Directors, senior management and employees” of the Group’s 2010 Annual
When appropriate, this work leads to the implementation of decisions that affect the Group’s risk profi le, helping to monitor the solvency position and manage the volatility of
The PBRC’s role encompasses principally the following: ■ establishing and distributing both consolidation and reporting standards and instructions; ■ managing the Group’s fi nancial reporting system; ■ producing the consolidated fi nancial statements and analyzing key performance indicators; ■ managing the Internal Financial Control (IFC) programme; ■ developing and using management control tools; ■ steering the European Embedded Value process; ■ coordinating the production of AXA’s Document de
As it relates to the fi nancial statements included in the
PBRC has defi ned and implemented a set of policies and procedures to ensure the consolidation process leading to the consolidated fi nancial statements is timely and accurate. This consolidation process and its related controls are based on the following: Defi nition of standards and maintenance of an information system
Group accounting standards, which are consistent with accounting and regulatory principles for consolidated fi nancial statements, are set forth in the AXA Group Accounting Manual and updated regularly by PBRC experts. These guidelines are submitted to AXA’s Statutory Auditors for review before being made available to AXA subsidiaries.
At entity level, AXA subsidiaries are responsible for entering and controlling accounting and fi nancial data that comply with the AXA Group Accounting Manual and refl ect consolidation rules under IFRS accounting standards. In this respect, the
In all cases, the procedures are those described above, which generally work as follows: ■ all changes in the AXA Group accounting policies are validated by PBRC experts and implemented after discussions with the Statutory Auditors; ■ the main audit issues are addressed and resolved through
Statutory Auditors who present the outcome of their audit work; and
Department manages a wide range of compliance related matters including (i) semestrial reporting from Group companies on signifi cant compliance, litigation and regulatory matters,
Departments of AXA’s principal subsidiaries on legal, regulatory, and compliance matters impacting those companies. In order
The Group Audit Department fulfi lls its responsibilities as follows: ■ it oversees the quality and performance of the local internal audit teams; sets internal audit policy and standards; reviews the application of the standard related to the local audit committees; coordinates the audit planning of local internal audit teams to ensure adequate risk-based audit coverage; monitors the audit coverage and activity, and the key risks and issues raised by local internal audit teams; fosters the development of professional internal audit practices, processes and systems; and
Offi cer role and oversees the implementation of AXA’s standard on internal fraud control globally.
AXA’s Chairman & Chief Executive Offi cer (with a functional reporting line to AXA’s Deputy Chief Executive Offi cer) and also has a direct and regular contact with the Chairman of
Head of Group Audit liaises with the control and monitoring functions of the 2nd line of defence, including Group Risk
Local internal audit teams are placed under the responsibility of a Chief Audit Executive, who reports directly to the Head of Group Audit and with a functional reporting line to the local
Chief Executive Offi cer or to the local Chief Financial Offi cer or a member of the local Executive Committee as well as to the Chairman of the local Audit Committee. These local teams focus mainly on identifying the key risks facing their business units, and on evaluating the design and operation of associated controls.
Compliance Committee to ensure that the Group has: ■ a comprehensive view of the various risks facing the Group on a continuing basis; ■ a dedicated forum for reviewing, analyzing and prioritizing these risks; ■ defi ned action plans to manage these risks; and
In addition to its other activities, the Committee has undertaken a comprehensive risk mapping exercise covering the aggregate risks to which the Group is exposed including fi nancial,
AXA has put in place a comprehensive programme coordinated by PBRC, (the Internal Financial Control (IFC) programme), designed to ensure that AXA’s Chief Executive Offi cer (CEO)
AXA Group company, as part of the IFC programme, 3. Disclosure Controls & Procedures Certifi cates required to be submitted by AXA Executive Committee members, regional CFOs and certain other executives (including heads of GMS Department) pursuant to which each of these executives is required to review the Group’s
(ii) the effectiveness of disclosure controls and procedures and ICOFR at companies under his/her responsibility
MEDEF Code that are in line with the long-established corporate governance principles initiated by the Company.
AXA applies the recommendations of the AFEP/MEDEF Code in the conditions detailed, for the most part, in Sections 2.1
In order to take into account certain specifi cities of its governance practices, AXA has decided to adapt the following provisions of the AFEP/MEDEF Code: ■ Section 14.2.1 of the AFEP/MEDEF Code relative to the review of the accounts by the Audit Committee: for practical reasons, the review of the accounts by the Audit Committee generally occurs on the day preceding the Board of Directors’
AFEP/MEDEF Code. However, the Company endeavours, so far as possible, to provide the members of the Audit
AXA shares once the compulsory holding period of their performance shares has expired.
Paris). AXA’s Charter is also available on the Company’s website (www.axa.com). In addition, the information referred to in Article L.225-100-3 of the French Commercial Code is made public in the Report of AXA’s Board of Directors which is included in AXA’s Annual Report for 2010.
In our capacity as Statutory Auditors of AXA, and in accordance with Article L.225-235 of the French Commercial Code, we hereby report to you on the report prepared by the Chairman of the Board of Directors of your Company in accordance with Article L.225-37 of the French Commercial Code for the year ended December 31, 2010.
■ to attest that the report sets out the other information required by Article L.225-37 of the French Commercial Code, it being specifi ed that it is not our responsibility to assess the fairness of this information.
■ determining if any material weaknesses in the internal control procedures relating to the preparation and processing of fi nancial and accounting information that we may have identifi ed in the course of our work are properly described in the Chairman’s report.
AXA’s IFC programme is based on AXA’s IFC Standard which is an internal control and governance standard developed by AXA
In order to assess the effectiveness of ICOFR, fi nancial reporting risks are initially identifi ed at an AXA Group level with a focus on identifying those risks that may result in a material misstatement of AXA’s consolidated fi nancial statements not being prevented or detected in a timely manner. This top-down risk-based approach starts with AXA’s consolidated fi nancial statement line items and is used to identify in-scope AXA Group companies and processes.
A material weakness is a defi ciency or a combination of
defi ciencies in internal control over fi nancial reporting, such that there is a reasonable possibility that a material misstatement of the company’s fi nancial statements will not be prevented or detected on a timely basis.
Management conducted an evaluation of the effectiveness of AXA’s ICOFR in accordance with the AXA IFC Standard as described above. Based on this evaluation, management concluded that AXA’s ICOFR was effective as of
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective may not prevent or detect misstatements and can provide only reasonable assurance with respect to fi nancial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or if the degree of compliance with policies or procedures deteriorates.
PricewaterhouseCoopers and Mazars have performed audit procedures in order to be able to obtain reasonable assurance as to whether management’s conclusion as to the effectiveness of AXA’s ICOFR based on the IFC Standard is fairly stated.
internal control over fi nancial reporting as of December 31, 2010, in order to be able to obtain reasonable assurance as to whether
The Company’s management is responsible for maintaining effective internal control over fi nancial reporting and for establishing a statement on its assessment of the effectiveness of internal control over fi nancial reporting as of December 31, 2010. A company’s internal control over fi nancial reporting is a process designed to provide reasonable assurance regarding the reliability of fi nancial reporting and the preparation of fi nancial statements for external purposes in accordance with IFRS accounting principles. The assessment of the effectiveness of internal control is based on criteria established in the Internal Financial Control standard of
Pursuant to Article 222-7 of the AMF General Regulations (réglement général de l’Autorité des marchés financiers), the table below sets forth all information published or otherwise made public by the Company over of the previous twelve months in one or more
Second year results of the AXA Research Fund: return on 2009 (05/04/2010)
AXA announced today that it has reached an agreement with Resolution Ltd to dispose part of its UK life & savings operations (06/24/2010)
Half Year 2010 Earnings – Confi rmation of AXA’s operating model strength (08/04/2010)
Update on the AXA APH transaction – ACCC to conduct market enquiries (08/09/2010)
Extension of AXA APH proposal following ACCC announcement to conduct market enquiries (08/09/2010)
ICBC Joined Forces with AXA and Minmetals to Expand in China Insurance Market Together (10/28/2010)
AXA announces the subscription prices for its 2010 employee share offering (Shareplan 2010) (10/29/2010)
AXA Global P&C announces the successful placement of €275 million catastrophe bonds (11/02/2010)
AXA and AMP make a joint proposal to AXA APH whereby AXA would dispose of its 54% stake in AXA APH to AMP and would acquire AXA APH Asian operations (11/15/2010)
AXA Central & Eastern Europe continues its expansion: acquisition of B&B Insurance in Belarus (12/30/2010)
No additional material impact expected from AXA Rosenberg settlement with the US SEC (02/03/2011)
Notice of Meeting (Shareholders’ Meeting to be held on 04/29/2010) (03/19/2010)
Extract of the minutes of the Shareholders’ Meeting of 04/29/2010 related to the change of the governance by adopting a structure with a Board of Directors
Extract of the minutes of the Shareholders’ Meeting of 04/29/2010 related to the appointment of the members of the Board of Directors, to the re-appointment of an incumbent Statutory Auditor and to the appointment of an alternate Statutory Auditor
Extract of the minutes of the Shareholders’ Meeting of 04/29/2010 related to the fi nancial authorizations
The Statutory Auditors’ certifi cate on the global amount of the sums entitled to the tax cut
Form 6-K for March 2010: Press Release, issued on March 16, 2010, entitled “AXA announces fi ling to voluntarily delist from the NYSE”. Press release issued on March 18, 2010 by AXA, announcing the fi ling of its 2009 Annual Report (Document de Référence) with the French stock exchange regulatory authority on March 17, 2010.
(France) until the fi ling of AXA’s next Annual Report (Document de Référence): ■ The Charter of the Company; ■ The reports and other documents prepared by any expert at the Company’s request, any part of which is included or referred to in this Annual Report; ■ The parent Company fi nancial statements as well as the consolidated fi nancial statements of the Company for each of the two fi nancial years preceding the publication of this Annual Report.
I confi rm that, to the best of my knowledge, the fi nancial statements have been prepared in accordance with applicable accounting standards and fairly present the assets and liabilities, the fi nancial position and the profi t or loss of the Company and its consolidated subsidiaries, and that the Management Report, the various sections of which are mentioned on page 534 of this Annual Report, fairly presents the evolution of the business, results and fi nancial position of the Company and its consolidated subsidiaries, and describes the principal risks and contingencies facing the Group.
FINANCIAL AUTHORIZATIONS TO ISSUE SHARES OR OTHER TYPES OF SECURITIES AS OF DECEMBER 31, 2010
Capitalization of reserves, earnings or premiums – 1 billion (a) 26 months June 30, 2011
Ordinary shares and other securities giving a claim to ordinary shares of the Company through subscription, conversion, exchange, redemption, presentation of a warrant or otherwise 6 billion (c) 2 billion (d) 26 months June 30, 2011
Maximum nominal amount of the capital increase (in Euro or in percentage of the share capital) Term Expiration
Ordinary shares or securities giving a claim to ordinary shares of the Company through subscription, conversion, exchange, redemption, presentation of a warrant or otherwise (b) 6 billion (c) 20% (f) 26 months June 30, 2011
Ordinary shares or securities giving access to the capital, reserved for employees – 150 million (g) 18 months October 29, 2011
Shares issued in connection with the exercise of stock options – 2% (j) 38 months June 22, 2011
(b) Including the issue of ordinary shares or securities (i) in the event of public exchange offers initiated by the Company, (ii) in consideration for contributions-in-kind for up to 10% of the Company’s share capital, or (iii) as result of securities issue by subsidiaries of AXA.
(i) At the date on which performance shares are granted by the Board of Directors.
consent. They will be submitted to the General Shareholders’ Meeting for approval on April 27, 2011: Issues with preferential subscription rights for shareholders
Capitalization of reserves, earnings or premiums – 1 billion (a) 26 months June 27, 2013
Ordinary shares and other securities giving a claim to ordinary shares of the Company through subscription, conversion, exchange, redemption, presentation of a warrant or otherwise 6 billion (c) 2 billion (d) 26 months June 27, 2013
Ordinary shares or securities giving a claim to ordinary shares of the Company through subscription, conversion, exchange, redemption, presentation of a warrant or otherwise (b) 6 billion (c) 1 billion 26 months June 27, 2013
(h) At the date on which restricted shares are granted by the Board of Directors.
(i) At the date on which stock options are granted by the Board of Directors.
Board of Directors increased the Company’s share capital in one offering, through the issue of shares to the benefi t of
Shareplan 2010, and participating employees invested a total of more than €330 million, as follows: ■ €20.8 million in the traditional plan; and
December 2010, AXA issued a total of more than 30 million new shares each with a par value of €2.29, all of which were entitled to dividends for 2010.
CHF1.7 billion hedges, and the unwinding of a USD6.6 billion net position to limit the potential negative impact on liquidity and solvency as well as of a AUD1.3 billion net position ahead of the potential disposal of the subsidiaries in Australia and
The fi nancial statements for the previous fi scal year showed an exceptional €1,946 million gain resulting from an equity option strategy implemented by the Group in 2008 and unwound during 2009.
Dividends received from insurance companies declined by €63 million to €2,420 million owing principally to the following factors: ■ A €852 million dividend from AXA France Assurance, representing a reduction of €1,135 million from the previous year, owing to the payment in 2009 of a €900 million dividend in shares; ■ €728 million in dividends received from the Northern, Central and Eastern Europe Region, compared with €301 million in 2009; ■ €168 million in dividends paid by the Mediterranean and
Latin America Region stemmed fi rstly from the increase in statutory income during 2009 and, secondly, from the policy implemented in 2010 of prioritizing the payment of dividends over the repayment of loans; ■ A dividend of €74 million from AXA UK, which did not pay a dividend in 2009; ■ Dividends received from companies located principally in Asia, Australia and Canada amounted to €520 million, compared with €124 million in 2009 owing notably to the fi rst dividend paid by AXA Japan Holding amounting to €355 million.
Net financial expenses, which include interest expenses net of interest income from loans and investments, totaled €1,195 million, compared with €855 million in 2009, representing an increase of €340 million.
Financial charges amounted to €1,298 million, up €27 million, owing mainly to a €1.3 billion issuance of subordinated debt ahead of the repayment of debt maturing late 2010.
■ a net loss on swaps of €31 million in 2010 compared with a profi t of €122 million in 2009, representing a fall of €153 million resulting primarily from €297 million in cancellation payment.
AXA SA will benefi t from lower Euro interest rates in the future after these transactions.
Operating expenses rose by €32 million to €330 million owing principally to initiatives to deploy shared systems and preparatory work for the implementation of Solvency II within the Group.
Capital operations resulted in a loss of €3,954 million in 2010, versus a profi t of €2,551 million in 2009, which broke down as follows: ■ A €3,698 million exchange rate loss, as opposed to a €186 million gain in 2009. In 2010, the exchange rate loss primarily comprised a €1,863 million allowance for exchange-rate risk provisions mainly owing to the Euro’s depreciation against the Swiss franc and the Japanese yen and its impact on net investments in foreign currencies, as well as an exchange rate loss of €1,835 million, mainly due to the renewal of hedges that expired or were unwound during the year. This loss is economically more than compensated by the subsidiaries fair value increase but these investments remain on the balance sheet at historical cost; ■ Other allowances for provisions for contingent liabilities totaled €445 million including an allowance of €214 million corresponding to the mark-to-market revaluation of an intra
The corporate income tax benefi t amounted to €944 million, compared with a tax charge of €154 million in 2009, which mainly includes the tax benefi t linked to the €197 million carryback receivable in respect of the loss recorded in the 2008 fi scal year, €553 million tax receivable from members of the tax consolidation group in France and a €188 million release of the provision for the risk of tax repayments.
Intangible fixed assets amounted to €322 million, and principally included the AXA brand acquired upon AXA’s absorption of FINAXA as part of the 2005 merger and valued at €307 million based on brand royalties billed to Group subsidiaries and to the Mutuelles AXA.
Loans amounted to €803 million and mainly arose from a $1 billion credit facility granted to shareholders in RESO
Miscellaneous receivables totaled €326 million, including €140 million in fi nancial income receivable and €164 million in tax receivable from entities belonging to the AXA tax consolidation group.
Marketable securities decreased to €200 million, representing a reduction of €40 million following sales of mutual funds, and treasury shares under the liquidity agreement.
Cash instruments totaled €425 million and chiefl y comprised €260 million in premiums for call options on equity index, €58 million of call options acquired in 2007 to neutralize the dilutive impact of the 2017 convertible bonds, as well as €41 million in premiums paid for a Swiss franc hedging strategy and €26 million in premiums paid for currency options to protect the 2011 foreign currency earnings of the Group’s main subsidiaries.
Unrealized foreign exchange losses amounted to €667 million, of which €260 million related to the deferred recognition of exchange rate losses in line with the principles of hedge accounting, and the depreciation of the Euro against the Australian dollar, which reduced the value of the deeply subordinated notes by €103 million. This item refl ects unrealized losses on assets and liabilities denominated in foreign currencies arising from their revaluation at the balance sheet closing exchange rate.
Group equity swap and €647 million in provisions for the possible repayment of tax savings to subsidiaries belonging to the French tax consolidation group. The €1,926 million increase was mainly attributable to the €1,863 million allowance to provisions for exchange rate risk.
Financial debt stood at €16,166 million, versus €13,701 million at December 31, 2009: ■ Bonds amounted to €6,686 million, up €443 million owing to the restructuring of an AXA Life Japan loan in the form of a €368 million bond, with a corresponding reduction in payables to subsidiaries; ■ Borrowings from and payable to banks totaled €5,774 million, representing an increase of €1,857 million due to a €1,844 million increase in outstanding commercial paper, which primarily ensure the fi nancing of margin calls under collateral agreements, protecting the Company’s from counterparty risk on derivative instruments; ■ Payables to subsidiaries, which amounted to €3,694 million, rose by €160 million. This increase was primarily attributable to the €477 million increase in loans from other Group entities, partly offset by the restructuring of the debt issue referred to above.
Debt relating to non-current assets totaled €183 million and included shares issued by entities but not yet fully paid, including €75 million for AXA Life Europe and €54 million each for AXA Italia and AXA Reinsurance Ireland.
Supplier invoices to be paid at December 31, 2010 amounted to €4 million, which is due within three months (application of
Net book value on the sale of fi xed assets (486) (38)
III. NET INCOME FOR THE FINANCIAL YEAR VI + VII +VIII (488) 3,953
a) Capital-Ordinary shares (in Euro million) 4,793 4,719 4,784 5,244 5,313 b) Ordinary shares (numbers in million) 2,093 2,061 2,089 2,290 2,320 c) Bonds convertible into ordinary shares (numbers in million) 16 7 7 7 7(a)
2 - INCOME STATEMENT SUMMARY (IN EURO MILLION) - - - - a ) Gross revenues before sales tax 1,882 2,628 3,171 3,134 4,134 b) Pre-tax income from continuing operations, before depreciation, amortization and releases 1,067 1,420 1,561 1,568 2,529 d) Net after-tax income after depreciation, amortization and releases 1,433 1,765 (1,253) 3,953 (488)
3 - PER SHARE DATA (IN EURO) - - - - a ) After tax income, before depreciation, amortization and releases 0.75 1.08 0.90 1.25 0.69 b) After tax income, after depreciation, amortization and releases 0.68 0.86 (0.60) 1.73 (0.21)
(b) Dividend of €0.69 per share proposed to the Shareholders‘ Meeting of April 27, 2011, based on 2,320,105,237 outstanding ordinary shares.
CIE FINANCIERE DE PARIS 9 97 100.00% 184 137, rue Victor Hugo - 92687 LEVALLOIS PERRET
AXA GENERAL INSURANCE HONG KONG 15 28 99.99% 65 21/F, Manhattan Place, 23 Wang Tai Road
Wolfe Tone House - Wolfe Tone Street - DUBLIN - Irlande
AXA EQUITY AND LAW PLC 1 1,220 99.96% 1,133 5 Old Broad Street LONDON EC2N 1AD
Graadt van Roggenweg 500 - Postbus 30810 3503 AP UTRECHT - PAYS BAS
AXA LIFE INSURANCE COMPANY LTD 5 1 100.00% 90 151 Gloucester Road - Wan Chai - HONG KONG
AXA GLOBAL P&C (ex AXA CESSSIONS) 85 26 100.00% 105 9, avenue de Messine - 75009 PARIS
AXA INSURANCE SINGAPORE PTE LTD 59 9 100.00% 54 143 Cecil street, 01-01 GB Building, SINGAPORE 069542
a) French subsidiaries (total) 134 b) Foreign subsidiaries (total) 141 2) Participating interest not shown in section A a ) In French companies (total) 35 b) In foreign companies (total) 53
I Notes to the fi nancial statements as at December 31, 2010
The net loss for the fi scal year ended December 31, 2010 was €488 million, compared with a net gain of €3,953 million in the year ended December 31, 2009. This loss was mainly due to a foreign exchange rate loss of €3,698 million, including €1,835 million of realized losses and a €1,863 million allowance for exchange rate risk provisions. These results refl ect the
In the Company’s consolidated fi nancial statements, hedge accounting is applied to net investments in subsidiaries, such that exchange rate movements have no impact on Group results. However, in the parent company fi nancial statements no hedge accounting is possible given the principle of recording investments in subsidiaries in Euro at historical cost, leading to unrealized exchange rate losses being fully booked.
In accordance to CRC regulation 2008-15, treasury shares are recorded in “Marketable securities”. At December 31, 2010, 3,000,000 shares were held under the liquidity program, and 5,273,983 shares were allocated to hedging purposes, representing respectively €35 millions and €78 million.
Find below a summary of options and performances shares granted in 2010 and 2009 to Board of Directors paid by
Securities are classifi ed using the following criteria: ■ Investments in subsidiaries and affi liates are securities representing at least 10% of the share capital of the issuing company plus those which AXA deems held for the long term; ■ Other fi nancial assets comprise securities representing less than 10% of the share capital and which are not investments in subsidiaries and affi liates.
The income statement distinguishes between ordinary operations and capital operations: ■ Ordinary operations include dividends, revenues from other investments, fi nancial expenses, operating expenses and income from transactions in investments; ■ Capital operations include gains or losses on the disposal of investments in subsidiaries and affi liates and portfolio management investments, impairment charges and reversals in respect of these securities and related receivables, gains and losses arising from exchange rate movements, charges and reversals of provisions for risks and charges, and exceptional income and expense; ■ Disposals of investments in subsidiaries and affi liates are measured using the weighted average unit cost method.
Tangible assets are recognized at acquisition cost or transfer value. Buildings are depreciated using the straight line method over fi fty years, and fi tting work is depreciated over fi ve or ten years as appropriate.
AXA’s ownership in these subsidiaries and excludes factors relating to short-term market volatility. Net book value is compared with the going concern value, which is the value of the assets and expected profi ts of existing and new business, taking into account the entity’s future prospects. The value of future profi ts is estimated on the basis of calculations of the
AXA SA has issued two subordinated bonds: ■ 2.5% bonds, maturity January 1, 2014: 9,185,581 bonds with a par value of €165 and a redemption value of €230.88 were in circulation at December 31, 2010. The redemption premium amounts to €606 million; ■ 3.75% bonds, maturity January 1, 2017: 6,613,129 bonds with a par value of €165.50 and a redemption value of €269.16 were in circulation at December 31, 2010. The redemption premium amounts to €688 million.
On January 11, 2007, the Meetings of holders of AXA’s 2014 and 2017 convertible bonds were held to vote on an amendment of the fi nal conversion dates of the bonds to
January 26, 2007 in exchange for a cash payment in respect of the value of the conversion option.
Pursuant to this review, the employee benefi t liability amounted to €8 million at December 31, 2010.
■ interest rate swaps: these transactions are recognized by applying the accrued interest method. A distinction is made in the income statement and balance sheet between income from the principal transaction, which is the subject of the swap, and the net income from the swap transaction.
■ AXA Life Europe, a company created to write unit-linked life insurance contracts with guaranteed minimum features via branches in several European countries, received a capital injection of €111 million; (b) The net decrease of €217 million mainly resulting from €700 million in loan transfers, notably as part of the internal restructuring following the partial sale of the UK Life & Savings business to Resolution Ltd, and €417 million in repayments of loans granted to AXA Investment Managers, partly offset by a new £730 million loan granted to Beaujon.
(d) The €56 million increase is due to the exchange-rate fl uctuation impact and accrued interest.
(in Euro million) Gross value Less than 1 year 1 to 5 years More than 5 years
Undated deeply Subordinated Notes (nominal) 5,880 240 6,120 3.11. Provisions for contingent liabilities