OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from to
(as evidenced by American Depositary Receipts), each representing one-half of an Ordinary Share New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
ITEM 5 Nature of Trading Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
ITEM 9 Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . 91
ITEM 9A Qualitative and Quantitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199
ITEM 11 Compensation of Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210
PART II ITEM 14 Description of Securities to be Registered . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215
P r e s e n t a t i o n o f i n f o r m a t i o n
AXA (or “Company “) is a French société anonyme (a form of limited liability company). AXA refers to the
The “Mutuelles AXA” refers to four French mutual insurance companies that, acting as a group, owned 23.5% of the Company’s issued Shares representing 37.0% of the voting rights as of December 31, 1999.
“Shares” refers to the Company’s ordinary shares of € 9.15 each. “ADS” refers to the Company’s American
means the Company’s American Depository Receipts each of which represents one ADS. A glossary of certain insurance and related terms used in this report is included herein immediately following “Item 19: Financial Statements and Exhibits”.
AXA publishes its Consolidated Financial Statements in euros (“euros” or €). The Company’s Consolidated
Financial Statements for the years ended December 31, 1998 and 1997 were originally prepared and presented in French francs, and have been translated into euros for purposes of this document at the rate of
AXA’s Consolidated Financial Statements, including the notes thereto, are included in this Annual Report and have been prepared in accordance with generally accepted accounting principles in France (“French
GAAP”). French GAAP is based on requirements set forth in French law and in European regulations (refer to note 1 to the Consolidated Financial Statements for further details). Unless noted otherwise, the financial information contained in this Annual Report is presented in accordance with French GAAP. French GAAP
Various amounts set out in this document have been truncated into millions and, therefore, rounded, and accordingly may not total. Rounding differences may also exist for percentages.
Spain. In the aggregate, these members are referred to as “Euroland” in this document. The legal rate of conversion between French francs and euros was fixed on January 1, 1999 at FF 6.55957 = € 1.00.
Since January 1, 1999, the euro has been the lawful currency of the EMU states, although euro banknotes and coins are not expected to enter circulation until
For information on historical exchange rate information refer to “Item 8: Selected Financial Data: Exchange Rate Information”. For a discussion of the impact of currency fluctuations on AXA’s financial condition and results of operations, see “Item 9: Management’s Discussion and – General Information
“Item 1: Description of Business”, “Item 9: Management ’s Discussion and Analysis” and “Item 9A: Qualitative and Quantitative Disclosures About Market
Risk”, which are statements of future expectations and other forward-looking statements that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements including those discussed elsewhere in this Annual Report and in AXA’s other public filings, press releases, oral presentations and discussions.
AXA claims the protection provided by the safe harbor for forward-looking statements contained in the
AXA is the one of the largest insurance groups in the world and the largest French insurance group.
Overall, AXA is a leading operator in four of the world’s five largest life insurance markets: the United
With regard to asset management, AXA is a world leader in asset management with of funds under management of € 781 billion at December 31, 1999, including assets managed on behalf of third party clients of € 382 billion at December 31, 1999. The management of assets underlying the insurance products is predominantly carried out within AXA, notably by Alliance Capital Management and AXA
is engaged in investment banking in the United States with Donaldson, Lufkin & Jenrette, as well as, in some other financial services activities principally in Western
A X A ’ s s t r a t e g y In 1999, AXA established strategic guidelines to help define and focus its business objectives, and to apply sensible criteria for screening growth opportunities.
• AXA’s preferred distribution strategy is to maximize access to customers, preferably through AXA
In 2000 and beyond, AXA intends to maintain these strategic guidelines, which provide ample scope for the accomplishment of its financial objectives. These objectives include reaching or exceeding 15% return on equity and achieving an annual increase of 15%
Years ended December 31, (in euro millions except percentages) 1999 1998 1997
(**) Newly formed segment in 1999. Includes the former Reinsurance segment and the transnational activities formerly reported as a sub-segment within the Property and Casualty Insurance Segment. Prior year financial information has been restated accordingly.
International Insurance Segment are in part dependent upon the quality and performance of their general account investment portfolios. For the years ended December 31, 1999, 1998 and 1997, AXA’s net investment results (net investment income and net realized investment gains) on total assets backing insurance operations as a percentage of total revenues generated by the insurance operations was 21.4%, 22.4% and 20.8%, respectively. See “Item 9A: Qualitative and Quantitative Disclosures about Market
Risk” for a discussion of AXA’s investment strategies and risk management.
AXA should benefit from its focus on the provision of financial protection given the aging populations with increasing needs for protection and long-term savings.
It also positions AXA favorably as consolidation and convergence in the financial services industry intensifies, as illustrated by the repeal of the Glass-Steagal Act in the United States and numerous insurance and banking mergers in Europe.
The percentage on the left represents the economic interest and the percentage on the right represents the percentage of control. (a) Holding owning The Equitable Life Assurance Society of the United States. (b) Holding owning National Mutual Life of Association of Australasia, National Mutual Health Insurance and Australian Casualty & Life. (c) New corporate name as of May 17, 2000.
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AXA traces its origins to several French regional mutual insurance companies, Les Mutuelles Unies, which in 1982 took control of Groupe Drouot. Les Mutuelles
December 1990, the name of Compagnie du Midi was changed to AXA.
• In 1992, AXA acquired a controlling equity interest in The Equitable Companies Incorporated (the
Society of the United States (“Equitable Life”); • In 1995, AXA acquired a controlling equity interest in National Mutual Holdings (recently renamed and referred herein as “AXA Asia Pacific Holdings”) upon the demutualization of its subsidiary National
French holding company for a group of insurance and financial services companies, in a public exchange offer. This acquisition increased significantly the size of AXA most notably in Western
Germany enabling AXA to increase significantly its presence in these property and casualty insurance markets.
Internet to provide online information to its customers, employees and shareholders, as well as to securities analysts and investors.
In addition, AXA has defined specific strategy objectives in the domain of e-business, and already possesses important sources of leverage, including: • distribution channels that are close to their customers, including an international base of direct telemarketing insurance subsidiaries (in the United
T h e P e o p l e o f A X A
Train. To ensure that business-related training is adapted to local market conditions, it is handled at company level. Given the pace of change in the financial protection business, and the increasing number of competitors, training budgets are constantly on the rise. In addition, new technologies are being used to target training more effectively and enhance learning.
– The Columbus program, the logical extension of the AXA Manager program, was launched in the fall of 1998. Its purpose is to improve change management skills in AXA managers by clarifying changes in the operating environment and the corporate mission.
In 1999, AXA Université hosted more than 4,300 employees who completed the AXA Manager and
Putting customers at the heart of AXA’s organization is part of the Company’s long-term strategy. Designing new products, imagining innovative new services and original distribution channels, anticipating customer expectations, striving to be ever more responsive: these are the challenges that AXA faces in every one of its markets. Being perceived by customers as offering something different requires getting and staying ahead of the competition. But for innovation to play a decisive role, it must be supported by effective communications. The best ideas, projects and accomplishments that surface throughout AXA must be made known to all so that they can be adapted and disseminated more rapidly and at lower cost.
Equitable Holding Companies, Inc. is now publicly traded under the name AXA Financial, Inc., and has repositioned its financial planners’ distribution channel under the trademark AXA Advisors. In Australia and
As a result of the reorganization of its Belgian subsidiaries, the principal insurance company is now known as AXA Royale Belge and the banks, ANHYP
(34%) and Germany (29%). The AXA trademark is equally strong in Australia, New Zealand and
trademark is established in 15% principal territories in which AXA operates and notably in the United States.
was renewed in January 2000. Composed of six members, the Management Board is chaired by
Management Board and its Chairman, on the basis of the quarterly review of operating performances; – team dedicated to group level functions (Human
Shareholders’ Meeting. The Supervisory Board will recommend that the shareholders approve the election of Claude Bébéar to the Supervisory Board, which will subsequently appoint him as its Chairman.
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AXA. For more information regarding Year 2000 refer to “Item 9: Management’s Discussions and Analysis –
R a t i n g s a03-338 • Item 1 (US) ok 23/05/00 12:01 Page 17 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
(1) Formerly Equitable Companies, Incorporated, renamed during 1999. (2) Formerly National Mutual Holdings, renamed in February 2000.
Equitable Life’s demutualization. In 1992, pursuant to a plan of demutualization, through which Equitable
Life became a stock life insurance company and a wholly owned subsidiary of AXA Financial, Inc. (formerly Equitable Companies Incorporated), AXA
Inc. (AXA Financial, Inc.’s stock repurchase program during 1999 and 1998 is discussed in more detail in
Additional information about AXA Financial, Inc. or its subsidiary, Equitable Life, is provided in the AXA
Financial, Inc. Annual Report on Form 10-K for the year ended December 31, 1999.
Donaldson, Lufkin & Jenrette (DLJ). In 1998, AXA, through AXA Financial, Inc., Equitable Life and AXA
GRE on May 10, 1999 for a total consideration of £ 3,417 million ( € 5,110 million) partly financed by
As a result of this transaction, AXA’s ownership interest in SLPH decreased to 56.3% at December 31, 1999 compared to 71.6% at December 31, 1998. Following this acquisition, the 83.7% interest in Albingia (GRE’s
Royale Belge and ANHYP. In 1998, AXA acquired control of Royal Belge through a public offer and currently holds 100% of its shares. This acquisition was financed by AXA shares, cash and the issuance of
AXA Reassurance and Abeille Re. In 1993 and 1994, AXA Reassurance strengthened its financial structure, underwriting capacities and solvency ratio through capital increases of € 152.4 million and € 88.4 million, respectively. AXA’s reinsurance operations were further strengthened by the 1995 acquisition of Abeille Re, a Paris-based reinsurance company for € 383.6 million. Abeille Re’s operations were integrated into AXA Reassurance following the acquisition.
GRE acquisition, AXA Colonia obtained a 83.7% interest in Albingia Lebensversichenung AG (“Albingia”). As a result, AXA Colonia became the second largest property and casualty insurer and the fifth largest life insurer in Germany. Subsequent to the GRE acquisition and as at December 31, 1999, AXA Colonia increased its ownership interest in Albingia to 99% through acquisition of the remaining minority shareholdings for € 145.7 million. In addition, AXA has been increasing its ownership share in AXA Colonia, from 69% at and 86% at December 31, 1999.
(2) In the event that the closing price on the Paris Bourse of the AXA share is above or equal to € 137.3 for five trading days within a ten days consecutive trading period, the CGVs will be cancelled. The ten day consecutive trading period, during which the closing price of the AXA Share was above € 137.3 for five trading days, began on December 3, 1999.
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– AXA Minmetals. In China, AXA formed a life insurance joint venture, AXA Minmetals, with China
Minmetals Group. AXA has a 51% investment in the joint venture. The joint venture started to underwrite life insurance in June 1999.
As a result of these transactions, AXA reduced its exposure to real estate by approximately € 1 billion.
Dantai entered into an agreement to combine their business activities in Japan. AXA and Nippon Dantai will merge their Japanese life insurance operations and will create a new holding company called AXA
Nichidan. AXA will contribute cash up to ¥ 200 billion (approximate € 2 billion): ¥ 135 billion before
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Other Financial Services. In addition, there are nonoperating activities within the holding companies, including the Company. See “Item 9: Management’s
Financial Statements included in this Annual Report for more financial information.
(1998) and GRE (1999), impacted each of these business segments and the holding companies segment.
• The Belgian Life Insurance Group was created as a separate sub-segment. Previously the Belgian Life operations were included under the Other Life
Insurance Segment”, includes all aspects of global insurance and reinsurance risk coverage.
• The UK Property and Casualty Insurance Group was created as a separate sub-segment during 1999 due to the increase in related operations following the 1999 GRE acquisition. Previously the UK property and casualty operations were included within the
AXA is not dependent on any one, or a few, independent brokers or independent agents or other insurance companies for which a loss of business would have a material adverse effect on the earnings of any one of the segments or AXA.
L i f e i n s u r a n c e s e g m e n t AXA’s Life Insurance Segment offers a range of life insurance products primarily in the United States,
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Insurance Segment’s business are (i) price, (ii) financial strength and claims-paying ratings, (iii) size and strength of agency force, (iv) range of product lines and product quality, (v) quality of service, (vi) investment management performance, and (vii) with respect to participating contracts, historical levels of bonuses. The nature and level of competition varies amongst the countries in which AXA operates.
At December 31, (in euro millions except percentages) 1999 1998 1997 1999
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Equitable Companies Incorporated), which is a publicly traded company in the United States and, therefore, subject to the reporting requirements of the
Studies also indicate that intergenerational wealth transfers will be enormous, and that there will be a significant increase in the number of households seeking advice related to financial, tax and estate planning.
In addition, the trend continues among U.S. employers away from defined benefit plans (under which the employer makes the investment decisions) toward employee-directed, defined contribution retirement and savings plans (which allow employees to choose from a variety of investment options). The US Life
The US Life Insurance Group’s targeted customers include affluent and emerging affluent individuals such as professionals and owners of small businesses, as well as employees of tax-exempt organizations and existing customers. For variable life, the US Life
The continued growth of separate account assets remains a strategic objective of AXA Financial. Over the past five years, separate account assets for individual variable life and variable annuities have increased by €34 billion ($34.74 billion) to €44 billion ($44.36 billion) at December 31, 1999, including approximately €42 billion ($42.14 billion) invested through EQ Advisors Trust. At December 31, 1999 EQ
EQAT), and 15 of which were managed by unaffilia03 -338 • Item 1 (US) ok 23/05/00 12:01 Page 23 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
annuity and group pension products sold, and financial services provided, by the US Life Insurance Group.
Many other insurance companies offer one or more products similar to those offered by the Insurance
Insurance Group competes with banks and other financial institutions for sales of annuity products and, to a lesser extent, life insurance products and with mutual funds, investment advisers and other financial entities for the investment of savings dollars. The
Years ended December 31, General Separate (except percentages, in euro millions) Account Account
Individual retirement: Individual life: Other products: (a) Insurance reserves for group pension products include reserves of € 872 million primarily for non-participating wind-up annuities that have not been sold since 1991 by the US Life Insurance Group.
Wholesale distribution of products is undertaken through Equitable Distributors, Inc. (“EDI”). In 1999, the EDI distribution channel accounted for 39% of new business relating to individual insurance products.
Equitable Life is among the largest life insurance companies in the US. Ratings are an important factor in establishing the competitive position of insurance companies in the United States. As of December 31, 1999, the financial strength ratings for Equitable Life were as follows: AA from Standard & Poors (3rd highest of 22 ratings), Aa3 from Moody’s (4th highest of 21 ratings ), A+ from A.M. Best Company, Inc. (2nd highest of 16 ratings), and AA from Fitch IBCA Investors
French Life Insurance Group and the Mutuelles AXA, including those with respect to distribution, see “Item 4 - Control of Registrant - Relationships with the
Based on gross premiums, the French life insurance market had an average growth rate of 14.2%
Under the new tax legislation, the policyholder is taxed on the distribution arising from the savings contract paid at maturity. Previously, such amounts were untaxed. On the whole, the life insurance market, especially for savings-related retirement products, has been experiencing continued growth. In 1999, the market had estimated growth of 13%.
Products. The French Life Insurance Group offers individual retirement, individual life, individual health and group products. In connection with the UAP acquisition, AXA reviewed its AXA and UAP products in order to develop a unified life insurance product line AXA’s products are offered both through its general account and in its separate accounts, specifically assurance à
capital variable products (“ACAV”). AXA’s strategy is to focus on increasing its ACAV separate account business. Generally, with investment funds associated with life and annuity products that are placed in the separate accounts rather than in the general account, the investment risk (and reward) is transferred to the policyholders while the life company earns fee income from managing the separate account assets and, a03-338 • Item 1 (US) ok 23/05/00 12:01 Page 25 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
therefore the income streams on these products are much more predictable for the life company. Based on gross premiums for the year ended December 31, 1999, the ACAV products represented 31.2% compared to 24.8% and 17.4% in 1998 and 1997.
Competition. The French life insurance industry is concentrated among a few large companies that use financial institution distribution networks or traditional insurance company distribution channels. In 1998, the gross premiums of the ten largest insurance companies accounted for more than 76% of total life insurance gross premiums.
increased its presence in the UK health insurance market through PPP Healthcare, a former GRE subsidiary.
Analysis – Acquisition and Investments” for further details on the GRE acquisition.
Market. Based on gross premiums in 1998, the UK life insurance market has moved from being the fourth largest to the third largest market in the world overtaking the French life insurance market. The UK life insurance market accounted for nearly 10% of life insurance gross premiums written worldwide. The growth in new annualized business premiums has been approximately 18% per year during the period from 1995 to 1998. The main area of growth has been with investment -type products (such as, single premiums bonds).
This growth has exceeded the overall growth within the life insurance industry by 10% per year. Compared to the overall life insurance market, the sales volume on life products (such as protection, mortgage and savings ) has fallen by 9% and on pension products (representing 44% of the market), has fallen by 4%.
With regard to the private healthcare market, it is anticipated that the healthcare market will not change or grow significantly in the next couple of years (around 1 to 2%) due to current legislative views on offering private healthcare as there is an existing comprehensive national healthcare system.
The UK Insurance Regulatory bodies have issued rules and guidance which establish the basis of redress arising from the selling of certain pension products during the period from 1988 through to 1994. Since 1994, UK insurers have reviewed all past business sold through their representatives (exclusive agencies or direct sales force) involving transfers from employersponsored pension plans into personal pension products offered by the insurer or surrenders out of the employer-sponsored pension plan.
The UK Life Insurance Group has participated fully in this ongoing review and has established provisions, based on actuarial assumptions and current information available, to cover the cost of the review and the compensation to policyholders. In addition, provision has been made for levies under the Investors’ Compensation
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With PPP healthcare, AXA has diversified its products to include private medical insurance products that are offered to individuals, corporations and expatriates living overseas. The strategy, specific to these products, is to improve the profitability of corporate healthcare business, with some reduction in volume, and to stabilize the level of individual healthcare business.
■ Dividends, referred to as bonuses, paid on or credited to with-profits contracts are recommended by the company’s actuary and approved by its board of directors. There are two types of bonuses, regular bonuses and terminal bonuses. The bonuses are payable only at maturity or death for most types of with-profits business. The amount and rate of bonuses are not fixed until credited, in the case of regular bonuses, or until paid, in the case of terminal bonuses.
Regular bonuses are designed to provide a return to the policyholder through a periodic increase in benefits. These bonuses are credited to the policyholder at regular intervals that vary from product to product.
Terminal bonuses are designed to provide policyholders with their share of total investment performance (including investment income and realized and unrealized investment gains or losses) and other company experience (including expenses, mortality experience and income taxes). For longer-term contracts held to maturity, terminal bonuses have historically represented a significant portion (often exceeding 50%)
As a result of the considerations discussed in the preceding paragraph and competitive factors, AEL and
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Individual retirement products: Pension products: Individual life products: Regular premium life products: – Other contracts including with-profit contracts 7.1% 513 386 352 8,480
Management believes that, due to their strong solvency position, the companies’ ability to pay future benefits in excess of notional investment performance and fulfill the reasonable expectations for bonuses of remaining policyholders has not been impaired.
Most regular premium with-profit contracts have specified maturity dates, typically from 10 to 25 years, with a majority of the contracts being in that range. Single premium with-profits investment contracts do not have specified maturity dates. Both of these types of contracts may be surrendered prior to maturity and for certain products account balances may be transferred into a separate account at any time. The amount paid on surrender or transfer is not guaranteed and may be subject to reduction (referred to as a market value adjustment) to reflect investment performance.
PPP HealthCare’s products are distributed mainly through two channels, direct sales 53% and through intermediaries / IFAs 47%.
Competition. The UK life insurance industry continues to consolidate. The top ten companies, which include the UK Life Insurance Group, accounted for 50% of annualized new business premiums in the UK life insurance market in 1998. In the private healthcare market, future growth is predicated on any potential changes in government legislation as historically healthcare has been provided through a comprehensive national healthcare system. Currently, there are two companies that dominate the private healthcare sector, BUPA and PPP healthcare. BUPA has approximately 40% of the market share and its corporate name is synonymous with private healthcare with significant brand name recognition. PPP healthcare has the second largest market share at 31%. Insurers which sell both life and property & casualty insurance
(that is, composite insurers) are increasing their presence in the private healthcare market. In 1999 there are approximately 25 companies that operate in the private medical insurance market, which include some companies with less than 1% market share.
Gross premiums and gross insurance reserves by geographical area are as follows: Item 1
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Market. During 1998, the Australian life insurance market moved from being the eleventh largest to the tenth largest life insurance market in the world based on gross premiums in 1998. Individual retirement products, group retirement products and individual life products represented 54%, 33% and 13%, respectively, of Australia’s life insurance annual gross premiums in force for the twelve months ended
Products. The individual retirement and group retirement products offered AXA in Australia and New
Zealand are primarily savings-oriented products that provide for lump sum payments at retirement or death prior to retirement.
Gross premiums and gross insurance reserves associated with the products sold by National Mutual Life are presented below: National Mutual Life Products Gross Premiums (a) Insurance Reserves
Group products: Term life insurance contracts and other 5.6% 143 140 107 105
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Distribution. In Australia and New Zealand, AXA distributes its products primarily through tied agents. In addition, AXA has expanded its distribution channels to include, financial advisers, brokers, and direct marketing. For the twelve months ended September 30, 1999, approximately 88.5% of AXA’s regular premiums and 73.2% of its single premiums in Australia and New
In Hong Kong, Macau and Taiwan, AXA distributes its life insurance products principally through agents.
Competition. National Mutual Life, along with other traditional life insurers, in recent years has encountered strong competition in Australia and New Zealand from banks, mutual funds and other distribution channels.
Traditional life insurers have continued to dominate the regular premium product market but this market has been declining while the single premium market has been growing. In Hong Kong and other Asian markets in which AXA operates, competition is predominately based on distribution, in particular, size and composition of the agency force. However, alternate forms of distribution such as bancassurance are growing in importance. Currently there are two main competitors in this market place. Based on annual gross premiums in 1998, National Mutual Life is the third largest life insurer in Australia, the third largest life insurer in New
Japanese life insurance market. In 1999, the Japanese life operation started to write new business. In 2000,
The life insurance activities in Germany are conducted through AXA Colonia and its subsidiaries, AXA Colonia
Arzteversicherung AG and Albingia Lebensversicherung AG (which was acquired in 1999 in connection with the GRE acquisition – see “Significant Acquisitions”
Krankenversicherung AG. In addition, AXA Colonia has subsidiaries in Austria and Hungary, the results of which are included in AXA’s Other Life Insurance
The life insurance market in Germany grew at an annual compound rate of nearly 10% for the years 1991 through 1995 as measured by gross premiums primarily due to the reunification of Germany. In recent years, the German market growth has declined to 4%
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vides a death benefit and an accumulating cash surrender value. Based on 1998 total gross premiums, such endowment policies accounted for nearly 65%
Products. The individual life and retirement products offered by the German Life Insurance Group are primarily endowment products with a specified death benefit and annuity products. In addition, disability and health insurance products are also provided.
Insurance Group are presented below: German Life Insurance Group Products Gross Premiums Insurance Reserves
Individual retirement: Individual life: AXA Leben (a) – – – 198 –
Artzeversicherung AG and Albingia Lebensversicherung AG. The remainder of the new business written during 1999 (based on adjusted new business premiums ), was placed via the broker network (24%), the bank distribution network (5%) and various other networks (10%). Adjusted new business premiums represent the sum of new business premiums written during the year plus premium adjustments on in-force insurance policies.
Group had a market share of 4.1%. Its main competitors are Allianz, Aachen Munchener, and Victoria.
Market. Based on 1998 gross premiums, the Belgian life insurance market is the fifteenth largest life insurance market in the world. Individual life insurance has experienced rapid growth in recent years partly as a result of the growth in savings-related products, representing to € 5.6 billion at the end of 1998, an increase of 47 %.
Individual retirement products: Individual health products – – – 2 –
Distribution. Based on 1999 gross premiums, products were distributed through brokers (53%), through independent bank agents (20%), and through other channels (27%) including its joint venture arrangement with La Poste (Belgium). The 1999 figures show an increase in the percentage of life products distributed through the independent bank agents due to the acquisition of ANHYP (a Belgium savings bank)
products. The Belgian Life Insurance Group is ranked third in the Belgian life insurance market with a 10.9%
AXA offers life, retirement and other savings-related products in other countries in Europe (Netherlands,
During the past three years ending December 31, 1999, the following activities have developed within these other countries: • Netherlands: AXA is becoming an important player in the life and health insurance market following the merger of AXA Leben and UAP Nieuw Rotterdam; • Italy: AXA has reorganized the Italian operations and has focused on developing its distribution channel through banks and financial advisors; • Spain: During 1998, the various operations and activities were merged into AXA Aurora with AXA
subsequently increasing its share in this company to 70%; • Morocco. AXA Al Amane, became the country’s second largest insurance company through the combination of Compagnie Africaine d’Assurance (a 100%
(or subscription fees), which are assessed at the issue of a contract, or surrender charges (charges assessed in the case of early surrender), which both are generally intended to offset a portion of the acquisition costs.
The ratio of surrenders and withdrawals to the average gross insurance reserves for the three years ended
Asia/Pacific Life Insurance Group - National Mutual Life 6.60% 7.40% 8.30%
(a) The 1998 figure included a portfolio transfer of approximately € 400 million.
P r o p e r t y a n d c a s u a l t y i n s u r a n c e s e g m e n t
Over the past three years there have been additional changes to the basis for which the Property and
Segment accounted for € 13.6 billion or 20% of AXA’s total revenues.
After several years of intensive competition and, consequently, reduced premium rates notably in the automobile and commercial risk products lines, the property and casualty insurance market during 1999 was characterized by an increase in premium rates in certain European countries. This improvement has minimized the unfavorable effects resulting from a general deterioration in claims experience during the year due to a number of natural catastrophes that occurred in 1999 and a general increase in the cost and frequency of claims (specifically relating to automobile claims).
(v) basis of distribution. The nature and level of competition varies across the geographical territories in which AXA operates.
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for direct selling to individuals. Each entity tailors its products, internal organization and strategy to its principal means of distribution. The portfolio transfers related to this restructuring were effective January 1, 1997. Due to market evolution and competition, AXA
France is currently in the process of reorganizing its life and property & casualty insurance operations.
Automobile insurance accounted for the largest share of the French property and casualty insurance market in 1998 with 47% of gross premiums. Property insurance represented approximately 30% of gross premiums.
Distribution. Gross premiums in 1999 were generated as follows: general agents (68%), brokers (22%), direct marketing (3%) and by specialized networks
The German Property and Casualty Insurance Group conducts its activities in Germany primarily through
Nordstern Allgemeine Versicherung AG was merged with AXA Colonia Versicherung AG as of January 1, 1999. In addition, AXA Colonia has subsidiaries in
Market. Based on 1998 gross premiums, the German property and casualty insurance market is the third largest in the world and accounted for nearly 9% of worldwide gross premiums. German property and casualty insurance market gross premiums written increased at an annual compound rate of over 7%
from 1991 to 1995, was fiat in 1996 and grew at
Products. The German Property and Casualty Group sells a broad range of insurance products including automobile, homeowners, property and liability insurance dedicated to both personal and commercial customers. Based on gross premiums written in 1998,
Versicherung AG, is one of the world’s leading insurers of fine art.
Insurance Group also sells automobile insurance through direct selling activities by Sicher Direct
There are approximately 180 companies operating in this marketplace. Based on 1998 gross premiums written, AXA Colonia (including Albingia Versicherung AG)
Germany (8.5% market share) and the fifth largest homeowner insurer in Germany (4.9% market share).
As a result of the GRE acquisition in May 1999, AXA
acquisition, this new sub-segment was created during 1999. In addition, a major integration is now well underway.
property and casualty insurance market is the fourth largest in the world and accounted for more than 6%
In addition, during the last ten years a major change has taken place in the personal automobile insurance market. Pioneered by another property and casualty insurer, there has been significant growth in selling and servicing personal automobile insurance contracts over the telephone. Aggressive pricing by this insurer in the early 1990’s coupled with the over supply of capital has resulted in intense price competition in the personal automobile insurance market.
Casualty Insurance Group primarily include: automobile and household cover for individuals and commercial property and liability cover for small to medium size businesses. All products (including the former GRE products)
Casualty Insurance Group product lines are ranked as follows: second in personal automobile (9.2% market share), fifth in personal household and domestic property (6.0% market share), sixth in commercial automobile (5.6% market share) and third in commercial property (9.2% market share). This market information does not take into account the CGU and Norwich
AXA Royale Belge is the resulting company of the merger between AXA Belgium and Royale Belge following AXA’s acquisition of Royale Belge’s minority interests in 1998.
Market. Based on 1998 gross premiums, the Belgium property and casualty insurance market is the fourteenth largest in the world. After several difficult years, the Belgian property and casualty insurance market made a modest recovery in 1998. The combined ratios, which had been high, showed some improvement in 1998 despite the increase in claims experience, reflecting efforts made by companies, to manage their claims, distribution and operations costs. The deterioration in claims experience continued into 1999 specifically relating to automobile cover due to increased frequency in physical damage. There has been slight improvement in claims experience relating to workers’ compensation insurance.
In first quarter 1999 there was some improvement in premium rates of almost 1%. This increase can be compared to growth of 2.3% and 0.1% in 1998 and 1997, respectively. This improvement was specifically attributable to growth in the automobile insurance product line due to modernization of national car parking lots, which led to greater needs for additional insurance cover against physical damage.
Insurance Group’s product range includes automobile insurance, workers’ compensation, fire, general liability insurance, transportation and legal expense insurance.
In addition, multi-risk products are offered to both individuals and small to medium size companies.
AXA offers personal and commercial property and casualty insurance products in other countries: Italy,
Singapore and Hong Kong. AXA expanded its operations in Turkey and Morocco in 1999. The products are tailored to the specific country market and are offered through different distribution channels, including brokers and direct sales force. AXA also has unconsolidated interests in other countries in South America and Africa, (refer to Note 26 to the Consolidated
During the past three years ending December 31, 1999, the following activities have developed within these other countries: • Netherlands: The market strategy of the property and casualty business is currently being refocused to offer standardized products to individuals and small to medium-sized businesses.
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Group, the various operations and activities were merged into AXA Aurora. A strategy to increase premium rates in the automobile insurance product line have resulted in improved operating results in the second half of 1999.
• Turkey. Prior to 1999, the AXA’s property and casualty operations in Turkey, Nordstern Imtas Sigorta, were consolidated into the German Property and
AXA Oyak is the first property and casualty insurer in Turkey. It offers a range of personal and commercial products through a network of agents, brokers and financial institutions.
France. Proportional and non-proportional reinsurance primarily to limit its maximum exposure to catastrophic events, environmental pollution risks and certain other risks. In 1999, € 203 million (less than 5% of gross premiums ) were ceded to third party reinsurers.
United-Kingdom. Most of all business written is protected on excess of loss treaties arranged via the
Germany and Belgium. Reinsurance is used mainly to limit maximum risk to major claims in the case of catastrophic events or certain other large risks. In
The Other Property & Casualty Insurance Group utilizes reinsurance to limit its maximum aggregate losses and to limit its maximum exposure to certain risks. In 1999, the Other Property & Casualty Insurance
Group ceded € 234 million (6.5%) of its gross premiums to reinsurers.
I n t e r n a t i o n a l i n s u r a n c e s e g m e n t
Reinsurance Segment (primarily AXA Re) and within the Transnational Insurance sub-segment of the
International Insurance Segment Years ended December 31, (in euro millions except ratios and percentages) 1999 1998 1997 AXA Ré
For the ten-year loss development of AXA’s property and casualty reserves refer to “Property and Casualty
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AXA’s reinsurance operations include AXA Re and other smaller reinsurance operations. It reinsures a geographically diverse portfolio which includes the following classes of business: property damage (including catastrophe exposure), third-party liability, marine, financial risk/guarantee and life and health insurance.
AXA Re operates principally in France, the United States, the United Kingdom, Canada and Singapore. Based on its worldwide gross premiums in 1998, AXA Re is the second largest French-based reinsurance group on specific product lines (such as, reinsurance assumed on personal property risk with catastrophe exposure and other catastrophe-type exposures). Compared to major reinsurers, AXA Re distributes its products principally through insurance / reinsurance brokers.
Re focuses more on underwriting profits rather than on premium growth. Due to the fall in premium rates in the past several years, in order to preserve underwriting profits, AXA Re has over time evolved from writing non-proportional contracts to proportional contracts. In addition, AXA retrocedes certain risks to limit its loss exposure to natural catastrophes.
However, there is still overcapacity within the reinsurance market due strong investment performance over the past few years, the evolution of alternative risk transfer to capital markets (which minimizes the capital that reinsurers must maintain for solvency purposes and, therefore, can be used to place additional reinsurance business), and the absence of devastating claims events between 1994 and 1997. Consequently, there is intense competition in premium rates of about 15% per year.
The products offered by AXA Re are generally multiline multi-year insurances which cover several lines of business for an agreement period of several years.
Insurance contracts of this kind are used increasingly to create an integrated insurance program for large national and international companies. In addition, it can reduce administrative expenses and complexity while increasing flexibility for the customer. AXA Re’s multi-line multi-year insurances focus primarily on the classes of business set out below.
Property and casualty: Third party liability (including automobile) 11.4% 157 262 214 1,512
(a) Excludes catastrophe equalization reserves and are before reduction for reinsurance ceded.
ness) and facultative contracts (reinsurance which is arranged individually on a particular risk and the terms on which the contract is accepted are subject to negotiation and the reinsurer is able to accept or reject the risk offered by the ceding company).
“Property and Casualty Reserves” within Item 1 which provides information on the insurance risks relative to Year 2000 as it relates to both the Property and Casualty Segment and the International
• Marine reinsurance encompasses both property damage and third party liability insurance.
Generally, marine reinsurance tends to involve shortterm risks. However, marine reinsurance can have a considerably longer-term development if it covers pollution or other environmental-related risks.
AXA Global Risks was created in January 1996 as the AXA company dedicated to underwriting large insurance risks for large national and international corporations. AXA Global Risks has operations in France, the United Kingdom and the United States with two branch offices in Italy and Germany. It also writes business and carries risks in other countries (Spain, Canada,
Holland and Belgium) and in Asia through internal reinsurance treaties with AXA insurance subsidiaries.
The types of risks underwritten by AXA Global Risks include casualty, automobile, property, marine, aviation and transport, construction risk, financial risk, and directors and officers liability. AXA Global Risks also provides loss-prevention and risk management services.
Risks operates are summarized as follows: (i) increasing size and sophistication of customers and therefore demand for self-insurance and tailor-made solutions, including risk management and financial analysis, (ii)
global concentration of suppliers (predominantly global insurance brokers and international insurance groups),
It uses reinsurance to limit its exposure to catastrophic events. In 1999, AXA Global Risks ceded 35% of its gross premiums to third party reinsurers.
UK’s business written prior to 1992 through a proportional reinsurance treaty.
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Asset management has become increasingly important to AXA both from a strategic and profitability perspective. The development of third party asset management activities is a key part of AXA’s financial services strategy, capitalizing on existing strengths and expanding client base. This strategy is founded on the belief that its asset management expertise will enable
Australia and New Zealand. All of these companies are responsible for the vast majority of AXA insurancerelated assets under management. In addition, these companies provide investment management services to third party clients both individuals and corporations. Consequently, AXA has asset management specialists in each of its major markets: Western
(1) Within this section, asset management and investment management are both used and have the same meaning to AXA.
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The table below presents the assets under management (based on estimated fair value) and related fees earned by AXA’s Asset Management Segment for the years indicated.
Assets under management: Fees earned for the years ended December 31,
(a) Includes fees earned on life insurance separate accounts (unit linked) products.
Alliance Capital, a subsidiary of AXA Financial, Inc, is the largest publicly traded asset manager in the United
approved a restructuring plan pursuant to which the business of Alliance Holdings was transferred to
billion in 1999. The sales growth does increase revenue volatility as revenues are based on the value of funds under management and mutual funds, specifically, generally hold a high percentage of equity investments. Therefore, the results of these operations have a greater exposure to the equity market variations. In addition, Alliance has experienced significant growth in institutional client separately managed funds, gaining over € 8.5 billion in new client mandates.
– Private Equity successfully raised two major funds during the course of the year and is well placed to take advantage of the considerable development of corporate investment in private equity funds.
expanded its operations into Hong Kong, Japan, and in Singapore, along with the overall expansion due to the acquisition of AXA Rosenberg in the beginning of 1999.
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At December 31, 1999, NMFM’s assets under management, including assets held on behalf of third-party clients, totaled €18.4 billion compared to € 15.3 billion as at December 31, 1998. The portion of total assets under management relating to the National
Competition. The asset management industry is highly fragmented as the basis for competing is changing globally. Currently the global asset management market has not yet fully evolved. There is no single competitor, or any small group of competitors, dominant in the worldwide market. The asset management operations are subject to substantial competition in all aspects of its business. The competitors include investment management firms, broker-dealers, banks and insurance companies. The nature of the competition is different in the United States compared to
It is anticipated that the United States asset management market will remain the largest market. The growth within the United States asset management market may possibly be sustained primarily due to the interest in baby-boomer generation to save for retirement. These retirement investments include an increasing portion of long-term risk assets (such as equities and mutual funds).
refer to its Annual Report on Form 10-K for the year ended December 31, 1999. At December 31, 1999,
DLJ is a leading integrated investment and merchant bank that serves institutional, corporate, governmental and individual clients both in the US and internationally. DLJ’s businesses include securities underwriting, sales and trading, merchant banking, financial advisory services, investment research, venture capital, correspondent brokerage services, securities lending, online interactive brokerage services, asset management and other advisory services.
DLJ’s principal business activities are, by their nature, highly competitive, and subject to volatile trading markets and fluctuations in the volume of market activity.
Consequently, DLJ’s revenues and net income have been, and are likely to continue to be, subject to wide fluctuations, reflecting the impact of many factors beyond DLJ’s control, including securities market conditions, the level and volatility of interest rates, competitive conditions and the size and timing of transactions.
AXA Bank Belgium, a subsidiary of AXA Royale Belge, offers a comprehensive range of financial services to individuals and to small businesses. AXA Bank Belgium has a network of independent bank agents supporting the sale of insurance products offered by AXA
In France, AXA Banque delivers banking services dedicated to AXA, which can be achieved directly or through subcontracting. Main activities are securities safekeeping, cash and securities flows management, real estate programs financing, providing bank account services to high net worth individual policyholders and to general agents, generally of AXA
French Life Insurance Group and the French Property and Casualty Insurance Group.
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I n s u r a n c e r e l a t e d i n v e s t e d a s s e t s
The management of the insurance-related invested assets is predominantly carried out by AXA’s Asset
Management Segment. The assets supporting the insurance operations (included within the three segments: the Life Insurance Segment, the Property and
The investment risks and rewards, including the investment returns, are transferred to the insurance company within AXA. These products do not participate in the investment results of the insurance company.
The investments are used to support the claims or benefits paid by the insurance company, which earns revenue that includes the net investment return.
Given the risks associated with investment performance, which could impact the payment of property and casualty claims or the benefits paid to the life contract policyholder, insurance companies must comply with applicable insurance laws and regulations in each of the local jurisdictions in which it operates. These laws and regulations prescribe the type, quality and concentration (counterparty, geographical and type of securities held) of investments. Insurance companies are, generally and within prescribed limits, permitted to invest in preferred and common equity securities, government and corporate bonds, mortgage-backed securities, real estate and certain other investments. In addition, the type of investments selected will depend on the underlying characteristics of the insurance obligations (including related regulatory and tax considerations ), and on the basis that the insurance company manages current liabilities and future insurance obligations. For example, the strategy may be to invest in fixed income securities in order to generate an investment income stream that is similar to the cash payout stream specific to a particular immediate annuity.
(ii) stock market conditions, (iii) interest rates fluctuations and (iv) asset allocation decisions.
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The strategic allocation of assets is generally determined through asset-liability analyses for both life and property & casualty businesses. The strategy may differ across the geographical territories and the different lines of businesses depending on the existing investment mix, the availability of alternative investment vehicles, and the underlying nature and duration of the in-force insurance contracts. Further information on how AXA manages investment risk is provided in “Item 9A – Qualitative and Quantitative
At December 31,1999 Insurance Insurance (in euro millions Book Market Book Market Book Market Book Market Book Market except percentages) value (a) value value (a) value value (a) value value (a) value value (a) value
– Including fixed maturities allocated to with-profit contracts (c) (3,559) (3,559) (3,559) (3,559) (1.6%) (1.5%)
Mortgage, policy and other loans 16,244 16,316 978 1,064 45 45 17,266 17,425 7.8% 7.4%
Due in one year or less 4,142 1,413 161 5,715 4.9%
Due after five years through ten years 35,052 4,646 2,083 41,781 35.5%
AXA’s fixed maturities and equity investments are, unless otherwise stated, predominately publicly traded. These investments together with real estate, mortgages and loans are concentrated in the market in which the entity operates. The life and property
(1998: 86%) of fixed maturity investments and approximately 95% (1998: 92%) of equity investments.
The fixed maturities investment category consists primarily of government bonds (67%) and corporate bonds (31%). At December 31, 1999, AXA held fixed maturity securities in Bayerische Hypotheken- and
The following table summarizes fixed maturities by remaining average life as of December 31, 1999.
Equities. At December 31, 1999 and 1998, AXA did not have any equity investment in any one issuer, including an issuer’s affiliates, that were in aggregate 10% or more of AXA’s total shareholders’ equity, or €1,354 million. At December 31, 1999, AXA held equity securities of Banque Nationale de Paris representing 8.3%of total stockholders’ equity.
and relate to certain participating life insurance business written by National Mutual Life.
Real Estate. At December 31, 1999, consolidated real estate investments totaled € 14.9 billion. The real estate investments are held in AXA’s insurance operations principally in France (43.8%), the United Kingdom
(10,8%). Valuation allowances of € 1.4 billion are held against the portfolio at December 31, 1999.
Valuation allowances of € 75 million are held against the mortgages portfolio at December 31, 1999. Of the mortgage loans held in the life operations in the
United States, at December 31, 1999, mortgage loans comprised commercial mortgages (53%), agricultural loans (34%), and residential loans (13%).
(substantially all of which are publicly traded) are determined on the basis of quoted market prices. The
UK Life Insurance Group appraises real estate investments on an annual basis. Unrealized investment gains accounted for approximately 43.6% of the estimated fair value of such assets as at December 31, 1999 as compared to 31.2% in 1998.
AXA generally uses derivative instruments to minimize adverse fluctuations in equity prices, interest rates and foreign exchange rates. The basis for which AXA manages these risks, the sensitivities associated with managing these types of risks, and the potential impact on the AXA consolidated financial results are set out in further detail in “Item 9A: Qualitative and Quantitative Disclosure about Market Risk” and in Note 17 to AXA’s Consolidated Financial Statements included in this Annual Report.
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With respect to AXA’s foreign property and casualty insurance operations, the claims reserves are established and monitored in the local currency in which the property and casualty entity operates. The claims reserves are translated into AXA’s reporting currency
(euro) at the year-end closing rates. The effect of foreign exchange on the claims reserves is presented in
AXA does not discount its reserves for claims and claims expenses except disability claims for which final settlement has been agreed and the payments are generally fixed over a period of time. The disability claims reserves have not been included in the Loss
In addition, certain AXA property and casualty operations are required by local regulations, in the countries in which they operate, to establish catastrophe and equalization reserves, see “Additional Factors which may affect AXA’s Business – Regulation” (within
Development Table as these reserves are no indication as to how claims have been reserved (initially) and the outcome upon settlement of such claims in future periods based on the underwriting and associated reserving methodologies adopted by AXA.
Development Table represent 11.5% of total gross reserves at December 31, 1999 (1998: 10.7%). These reserves are included as “Other Reserves” presented in the “Reconciliation of Loss Reserves to Consolidated
A reconciliation of beginning to ending gross outstanding claims reserves including claim expenses for each of the three years ended December 31, 1999, is presented in Note 12 to the Consolidated Financial
Statements included in this Annual Report. There have been no unusually large losses or gains reported during the year. The following information is provided in
impact on AXA’s claims reserves relating to the natural catastrophe events which occurred during the year, including the European storms late in December 1999, (ii) developments in the Holocaust review and
AXA’s Year 2000 exposure, and (iii) claims loss ratios and operating results arising from the property and casualty operations and other comments on trends and impact on operating results for the three years ending December 31, 1999.
The loss reserve development table presents the claims reserve development for calendar years 1990 through 1999. The top line entitled “gross reserves for unpaid claims and claims expenses” represents the original gross claims reserve liability reported at the balance sheet date for the year indicated. The upper portion of the table entitled “paid (cumulative)” represents the cumulative amount paid as of the end of each succeeding year with respect to the original gross claims reserve liability reported. The lower portion of the table entitled “Reserve re-estimated” represents the previously recorded liability as adjusted (that is, reestimated ) based on claims experience as of the end of each succeeding year. The estimate is increased or decreased as more information becomes known in future periods relating to unsettled claims. For example, the gross claims reserve as at December 31, 1994 a03-338 • Item 1 (US) ok 23/05/00 12:01 Page 57 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
was originally € 5,595 and adjusted to € 10,133 to reflect the UAP cumulative effect, and by the end of 1999, cumulative amounts paid was € 8,089 million and the original gross claims reserve has been re-estimated to be € 12,160 million at December 31, 1999.
The “cumulative redundancy (deficiency)” for each year represents the aggregate amount by which the original gross claims reserve liability as of that year-end has changed in subsequent periods. The effect on
Gross Loss Reserve Development Table At December 31, Property and Casualty Insurance Segment (b) (in euro millions except percentages) 1990 1991 1992 1993 1994 1995 1996 1997(b) 1998 1999(c)
Initial gross reserves in excess of re-estimated gross reserves: (a) It is not appropriate to extrapolate future redundancies or future deficiencies based on the loss reserve development presented in the table as conditions and trends that have affected the development of the liability in prior periods may not necessarily occur in the future periods.
(b) AXA acquired Compagnie UAP (“UAP”) on January 1, 1997. The operations of AXA and UAP were integrated in 1998. At the date of acquisition, UAP had net reserves of € 13.7 billion. The outstanding claims reserves and claim expenses of UAP’s property and casualty operations are included in the year end reserves as at December, 31, 1999, 1998 and 1997. Cumulative payments and reserve development for the 1998 year and thereafter include the development of the integrated property and casualty liabilities of AXA, including UAP, as loss development data specific to UAP is not available and there is no reasonable basis of allocating cumulative payments and reserves re-estimated between AXA and UAP post-acquisition.
(c) Includes gross reserves of € 5.6 billion and net reserves of € 5.1 billion of Guardian Royal Exchange (“GRE”) which AXA acquired on May 1, 1999.
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The majority of the business of the property and casualty insurance operations is short tail and therefore losses develop and are paid relatively quickly.
Approximately 40% of the claims reserves were paid in the year that the claim event occurs.
There have been no reportable changes in the claims payment patterns but there has been deterioration in claims reserves notably in automobile insurance due to an increase in frequency across our European property and casualty operations. Based on current information available, there is no immediate intention to change, significantly, the assumptions relating to this line of business. Overall, there have been no significant changes in assumptions during the current year or any material strengthening of existing claims reserves.
There have been no material reinsurance transactions or any significant changes to existing reinsurance arrangements during the current year. There have been neither material changes to the overall property and casualty insurance portfolio (other than that noted in the footnotes to the Loss Reserve
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Loss Reserve Development Table At December 31, AXA Re (in euro millions except percentages) 1990 1991 1992 1993 1994 1995(d) 1996 1997(c) 1998 1999
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There have been no reportable changes in the claims payment patterns. There have been no significant changes in assumptions during the current year or any material strengthening of existing claims reserves.
There have been no material retrocession transactions or any significant changes to existing retrocession arrangements during the current year. There have been no reportable changes to the reinsurance risk portfolio.
The following table reconciles, as of the dates indicated, the gross claims reserves and claim expenses in the Loss Development Tables presented above to that presented in the Consolidated Financial
(a) Represents disability claims and construction reserves. (b) Claims outstandings and related claims expenses on life insurance business. (c) Reinsurance ceded represents is not recognized separately as a debtor in the balance sheet but included with insurance provisions in accordance with French GAAP.
ENVIRONMENTAL, ASBESTOS AND OTHER EXPOSURES Environmental, asbestos and other related exposures are not material to AXA. Further details are provided in Note 18 to the Consolidated Financial Statements.
Holocaust related claims. Resolution of these uncertainties may ultimately result in additional claim losses to reinsurers, including AXA. Refer to “Item 9: Management ’s Discussion and Analysis” and Note 18 to the
European Union (‘’EU’’) directives which have had an impact on the regulation of the insurance industry in the EU as such directives are implemented through legislation adopted within each member state.
The 1992 EU insurance directives on life insurance and direct insurance other than life insurance, were implemented in France, the United Kingdom and certain other jurisdictions through legislation which became effective in July 1994. These directives are founded on the ‘’home country control’’ principle according to which the ongoing regulation of insurance companies, including their non-home insurance operations
The extent of regulation and supervision varies by country across AXA’s global operations. However, most jurisdictions have laws and regulations are based on the premise that (i) for life operations, the primary objective of the regulator is to ensure policyholders reasonable expectations, that is, to protect the interests of the policyholders against insurance company insolvency or other reason for failure to pay out claims when notified, and (ii) for property and casualty operations, contractual commitments must be fulfilled in respect of paying out claims to policyholders including other insurers and third parties. A summary of the more important regulatory requirements generally affecting AXA is set out below.
• Restrictions on the type of business which the insurance company can undertake (such as, in France, by law a French insurance company can not conduct both life and property & casualty insurance operations except under certain circumstances), and on the type of non-insurance business that subsidiaries may conduct.
• Maintenance of a minimum solvency margin in addition to the maintenance of a guarantee fund and in certain jurisdictions maintenance of risk based capital requirements (“risk based capital” is separately discussed below) or other bases for measuring capital adequacy which are generally set at a level
• Standards of conduct relating to the methods of training and selling undertaken by life insurance companies and their agents and direct sales force, selling by intermediaries and independent financial advisors and the provision of insurance and investment products to the consumer and, specifically, limitations on the types of products which the insurer can sell based on the authorized classes granted by the regulator.
• Limits on the premium rates and commission rates which can be charged to customers, policy forms which can be used, information required to be disclosed to the customer at the time of sale in connection with the projection of surrender and maturity values based on the insurers own charges and expenses, and commission to be paid or commission plus benefits and services to be provided to the salesperson as a reward for the introduction of business.
• Limits on the level of guarantee which can be offered by the insurance company, such as French and German regulation imposes a maximum on the annual rate of return that may be guaranteed for most individual retirement and savings general account products.
• Control of actuarial and claims reserves of the regulated insurer which must be adequate to allow the regulated insurer to fulfill its contractual commitments to pay on receipt of claims,
• Establishment of certain insurance reserves based on socioeconomic or environmental-related developments, such as catastrophe equalization reserves
• Periodic examination performed by the local regulatory authorities relating to the operations and the financial accounts and reports issued by the registered companies,
• Allocation of profits to the policyholders on participating life policies (excluding separate account policies ) where the allocation usually takes the form of an increase in guaranteed benefits but may also take the form of a reduction of future premiums: – France. The percentage to be allocated to the policyholders may be set by either the regulator (as in
France at least 85% of annual investment results on assets attributable to such policyholders plus at least 90% of other profits) or set by the company’s charter.
Restrictions on dividends paid by life insurance companies in the event that there are insufficient assets to support the policyholder liabilities or for other regulatory reasons, in particular, following its demutualization, Equitable Life is permitted to pay shareholder dividends only if it files notice of its intention to declare such a dividend and the amount thereof with the New York Superintendent of Insurance and if the
Florida Department of Insurance issued subpoenas, and in December 1999 the Florida Attorney General issued an additional subpoena, in each case requesting, among other things, documents relating to various sales practices. Equitable Life has completed its response to the 1998 subpoenas and is in the process of responding to the 1999 subpoena.
Risk Based Capital. Life insurers in the United States are subject to risk-based capital (“RBC”) guidelines which provide a method to measure the adjusted capital (statutory capital and surplus plus asset valuation allowance and other adjustments) that a life insurance company should have for regulatory purposes taking into account the risk characteristics of the company’s investments and products. The RBC requirements establish capital requirements for four categories of risk: asset risk, insurance risk, interest rate risk and business risk. For each category, the capital requirement is determined by applying factors to various asset, premium and reserve items, with the factor being higher for those items with greater underlying risk and lower for less risky items.
The PPB provides policyholders with a level of protection against insurance company insolvency. The protection covers all types of property and casualty insurance. Levies are not payable on a regular basis and are only charged when the PPB decides additional funds are necessary.
Catastrophe Equalization Reserves. Equalization reserves are required in certain jurisdictions, such as in the United Kingdom, Germany and France, to protect the Profit and Loss Account against the impact of large claims and catastrophes. The basis for which these equalization reserves are established is set out in the local country regulations based on pre-established formulae applicable to certain lines of business and may be capped at a maximum level. For example, in the United-Kingdom the principal classes of insurance affected are property and marine and the reserve to be established is defined in relation to premiums written. In addition, it is required that reserves are increased in years when there are no catastrophes and large losses are low. In years of catastrophe or of heavy large losses reserves may be written down to smooth the Profit and Loss result.)
Exchange Commission (“Commission”) and member firms of the New York Stock Exchange (“NYSE”), it is subject to the capital requirements of the Commission a03-338 • Item 1 (US) ok 23/05/00 12:01 Page 65 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
Modernization Bill removed barriers preventing banks from engaging in the insurance business and mutual fund business. There are a number of other existing or recently proposed federal laws which may significantly affect the US Life Insurance Group, including employee benefits regulations, the taxation of insurance companies and the taxation of insurance products. These initiatives are generally in a preliminary stage and, consequently, management cannot assess their potential impact on the US Life Insurance Group at this time. The Administration’s fiscal year 2001 revenue proposals announced in February 2000 contain provisions that, if enacted, could have a material adverse impact on sales of certain insurance products.
In addition, certain provisions would adversely affect the taxation of insurance companies, including a requirement to capitalize increased percentages of their net premiums to approximate acquisitions costs for certain categories of insurance contracts. Management cannot predict what other proposals may be made, what legislation, if any, may be introduced or enacted or what the effect of any such legislation might be.
Securities Investment Board (“SIB”) formally changed its name to the Financial Services Authority (“FSA”).
Markets Bill, which would create a new statutory regime, under which the FSA will acquire regulatory and registration functions currently exercised by several regulatory bodies within the United-Kingdom.
The Company’s current office, an office building of 725 square meters located in Paris, is owned in fee. In addition to its registered office, the Company has staff in other locations around Paris including 21 and 23 avenue Matignon. The Company also has major operating subsidiaries with headquarters located in several countries including France, the United States,
The headquarters of these subsidiaries are held on either a leasehold or a freehold basis. For additional information, see Notes 2 and 3 of Notes to the
AXA also holds numerous investment properties in connection with its insurance and other financial services operations.
Item 3: Legal proceedings The matters set forth in Note 18 of Notes to the
December 31, 1999 (Item 17 of this Report) are incorporated herein by reference.
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The following diagram sets forth the ownership structure of the Company as of March 1, 2000.
The Mutuelles AXA are parties to agreements pursuant to which they have stated their intention to collectively exercise majority control over Finaxa. These agreements affirm the intention of the Mutuelles AXA to utilize the synergies between the Mutuelles AXA and
have also established a strategy committee (comité de coordination stratégique) composed of nine members appointed by the boards of directors of the Mutuelles
The strategy committee is generally consulted on all b03-338 • Item 2 à 8 (US) 23/05/00 12:05 Page 68 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
AXA in the event of any sale or other disposition of shares of Finaxa (or subscription or other rights or options relating thereto), and agreed not to purchase additional shares of Finaxa without the prior consent of the strategy committee.
has its own board of directors, they have in common certain members of management and certain board members. The Mutuelles AXA, which have no employees, also use employees located in AXA’s French insurance subsidiaries pursuant to management agreements between the Mutuelles and those subsidiaries.
and the Company’s insurance subsidiaries that restrict in any way their ability to compete with one another.
AXA Courtage IARD, a property and casualty insurance subsidiary of the Company, and AXA Courtage
Mutuelle AXA, allocate between them the underwriting results of the property and casualty insurance business generated in France by insurance brokers. This allocation is achieved through a co-insurance agreement implemented through a GIE.
Mutuelles AXA as a Group (through controlling interests in Finaxa and directly)1 83,585,518 23.2% 36.7%
b03-338 • Item 2 à 8 (US) 23/05/00 12:05 Page 69 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
French stockbrokers (sociétés de bourse) and other authorized financial intermediaries, and takes place continuously on each business day from 9:00 a.m. to 5:05 p.m., with a pre-opening session from 7:45 a.m.
ParisBourseSBF SA (“ParisBourse”), a self regulatory organization responsible for supervision of trading in listed securities on French stock exchanges, publishes a daily Official Price List which includes price information on each listed security.
Securities listed on the Paris Stock Exchange are traded on one of three markets. The securities of most large public companies, including the Company, are traded on the premier marché. Securities of small and medium sized companies are traded on the second marché. Shares of certain other companies are traded on the nouveau marché. Shares listed on the Paris
Stock Exchange are placed in one of four categories depending on the volume of trading transactions. The
Item 5: Nature of trading market b03-338 • Item 2 à 8 (US) 23/05/00 12:05 Page 70 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
Trading in the listed securities of an issuer may be suspended by ParisBourse if quoted prices exceed certain price limits defined by regulations of the Conseil des Marchés Financiers (“CMF”), the self-regulatory organization that has general regulatory authority over the French stock exchanges and whose members include representatives of French stockbrokers.
The table below sets forth, for the periods indicated, the reported quarterly high and low sales prices per
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New York Stock Exchange. Each ADS represents one half an AXA Share. As of March 1, 2000, 13,162,620
ADS’s were outstanding in the United States and were held by 165 registered holders of record.
Under French law, the purchase by a company of its own shares, either directly or indirectly, is generally prohibited. However, an extraordinary general meeting of shareholders may authorize a company to purchase a limited number of shares for cancellation in order to effect a capital reduction. A company may also purchase its own shares in connection with certain stock option and other employee benefit plans.
Pursuant to authorization granted by the Company’s shareholders at a general meeting on May 5, 1999, the Company is authorized to purchase at a price of not more than € 183 (FF1200.4) and to sell at a price of not less than € 92 (FF 603.5) up to 35,000,000
Company’s next annual general meeting. Pursuant to such authorization, the Company did not buy or sell any shares.
In addition, the COB may require a company to provide additional information on, or justification for, such transactions.
A company may not own directly more than 10% of its total share capital or more than 10% of any class of its own shares. If a company purchases its own shares they must be held in registered form and be fully paid-up. Shares held by the Company are deemed outstanding under French law but are not entitled to dividends, voting rights or preferential subscription rights. See “Description of Capital Stock - Repurchase and Redemption of Shares”.
Under current French foreign exchange control regulations, there are no limitations on the amount of cash payments that may be remitted by the Company to residents of the United States. Laws and regulations concerning foreign exchange controls do require, however, that all payments or transfers of funds made by a French resident to a non-resident be handled by an accredited financial intermediary. In
Company’s statuts, there are no specific limitations on the right of non-resident or non-French persons to own or, where applicable, vote the Shares. Under current French foreign direct investment regulations, a notice (déclaration administrative) must be filed, however, with the French Ministry of the Economy for the acquisition of an interest in the Company by any person not residing in France or any group of non-French residents acting in concert or by any foreign controlled resident if such acquisition would result in (i) the acquisition of a controlling interest in the Company or (ii)
the increase of a controlling interest in the Company unless such person not residing in France or group of non-French residents already controls more than twothirds of the Company’s share capital or voting rights prior to such increase. Under existing administrative rulings, ownership of 20% or more of a French listed company’s share capital or voting rights is regarded as a controlling interest, but a lower percentage might be held to be a controlling interest in certain circumstances (depending upon such factors as the acquiring party’s intentions, the ability of the acquiring party to elect directors or financial reliance by the company concerned on the acquiring party).
(or group of persons acting in concert) who is not a resident of a member state of the European Economic
Area must obtain authorization from the French Ministry of the Economy prior to entering into a transaction to acquire a direct or indirect interest, or to increase or decrease its direct or indirect interest, in the Company if such transaction would allow such person (or group of persons acting in concert) to (i) acquire control of, or cease to control, the Company or (ii) increase its interest to 10%, 20%, 33 1/3% or 50% of the Company’s voting power (including through ADS’s). Furthermore, any such transaction allowing such person (or group of persons acting in concert) to hold Shares representing in aggregate in excess of 5% of the Company’s voting power requires such person to provide prior notice to the French Ministry of the Economy. No prior authorization or prior notice, as the case may be, is required for such a transaction entered into by a person (or group of persons acting in concert) who is a resident of a member state of the European Economic Area, although such person (or group of persons) is required to provide the
Item 6: Exchange controls and other limitations affecting security holders b03-338 • Item 2 à 8 (US) 23/05/00 12:05 Page 74 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
The term ‘’US Holder’’ means a beneficial owner of one or more Shares or ADRs that is (i) an individual who is a citizen or resident of the United States, (ii) a corporation created or organized under the laws of the
Federal income taxation on its worldwide income. In addition, this summary addresses some specific tax consequences pertaining to the ownership of Shares or
Shares or ADRs should consult their own tax advisors regarding all the particular tax consequences to them of their ownership and disposition of Shares or ADRs.
France normally imposes a 25 percent withholding tax on dividends distributed in cash or in the form of
French tax purposes. However, the Treaty generally reduces the withholding tax rate to 15 percent on dividends paid in cash or in the form of Shares to an
Item 7: Taxation b03-338 • Item 2 à 8 (US) 23/05/00 12:05 Page 75 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
(the ‘’Instruction’’), dividends paid in cash or in the form of Shares to an Eligible US Holder who is entitled to the ‘’avoir fiscal’’ (as discussed below) will no longer be subject to the French withholding tax of 25% (with this tax reduced at a later date to 15%, subject to filing formalities), but will be immediately subject to the reduced rate of 15% provided that such
Holder establishes before the date of payment that he is a resident of the United States under the Treaty.
Eligible US Holder is subject to US Federal income tax on both the dividend and the avoir fiscal. Second, a partnership or a trust (other than a pension trust, a real estate investment trust or a real estate mortgage investment conduit) in its capacity as an Eligible US
were payable by the Company to: – an Eligible US Individual Holder and the requirements are satisfied, such Holder would initially receive € 85 (FF 558, the € 100 dividend less a €
15 withholding tax). Such Holder also would receive an additional payment from the French Treasury of € 42.5 (FF 279), consisting of the avoir fiscal of €
US Individual Holder would be € 127.5 (FF 837, although, as discussed below, such Holder would recognize € 150 (FF 984) of income for US Federal income tax purposes.
Treasury of € 34,02 (FF 223), consisting of the avoir fiscal of € 40, less the 15 percent withholding tax on that amount. Thus, the total net payment to the
Holder would recognize € 140 (FF 918,4) of income for US Federal income tax purposes.
If an Eligible US Holder sells Shares in a trade executed on the monthly settlement market during a month during which a dividend payment date with respect to the Shares occurs, generally the seller, rather than the purchaser, will be entitled to the avoir fiscal with respect to the dividend paid on such dividend payment date. See ‘’Nature of Trading Market’’ for a summary of certain information relating to trading of the
The Company will pay a précompte in 1999. This précompte will be paid by means of offsetting French and/or foreign tax credits against the précomte liability.
As a consequence, any eligible US Holders that are not entitled to the full avoir fiscal may not obtain from the
French Treasury a refund of any précompte paid by the Company (or, in certain cases, by one of its direct subsidiaries).
Eligible US Holders must follow certain procedures in order to be eligible for the 15 percent dividend withholding tax and to receive a refund of the avoir fiscal
An Eligible US Holder entitled to the avoir fiscal who wishes to obtain a reduced withholding rate at source must (i) complete, (ii) have certified by the United
Depositary in the case of ADRs, a French form RF1 A
Revenue Service (‘’IRS’’) to the French tax administration. However, if an Eligible US Holder is not able to complete, have certified and file the Standard Form before the date of payment of the dividend, such
Depositary in the case of ADRs, with certain information with respect to such Eligible US Holder and his or her holding of Shares or ADRs before the date of payment of such dividend. Whichever procedure is followed, the avoir fiscal is not paid by the French
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If either of the above-described procedures has not been followed before a dividend payment date (or is not available to an Eligible US Holder), the Company or the French Paying Agent will withhold tax from the dividend at the normal French rate of 25 percent, and the Eligible US Holder will be entitled to claim a refund of the excess withholding tax and the payment of the related avoir fiscal by filing the Standard Form with the
The Standard Form with instructions, is available from the US Internal Revenue Service. The Depositary will provide to all US Holders of ADRs the Forms or certificates, together with instructions, and will arrange for the filing with the French tax authorities of all
States under the Treaty and who owns Shares or ADRs through an individual retirement account, a Keogh plan or any similar arrangement. (‘’Eligible Pension
Provided they are entitled to Treaty benefits under the limitation on benefits provisions in Article 30 thereof,
Individual Holder would be further entitled to an additional payment from the French Treasury of € 15, consisting of the partial avoir fiscal of 30/85ths of € 50
The Eligible Tax-Exempt Individual Holder, where required by the French tax administration, must show that it is the beneficial owner of the Shares or ADRs and that the holding of such Shares or ADRs does not have as one of its principal purposes the purpose of b03-338 • Item 2 à 8 (US) 23/05/00 12:05 Page 78 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
Eligible Tax-Exempt Holders may also be required to provide written evidence certified by the IRS of their status under US Federal income tax law. As a consequence, Eligible Tax-Exempt Holders are urged to contact their own tax advisors with respect to the procedures to be followed to obtain Treaty benefits.
Company before such redemption. Any such redemption generally would entitle the shareholders to the avoir fiscal and may trigger the précompte, provided it is pro rata among all the shareholders of the
French gift or inheritance tax under French domestic tax law will not be subject to such French tax by reason of the Convention between the United States of
Evasion with respect to Taxes on Estates, Inheritances and Gifts, dated November 24, 1978 unless (i) the donor or decedent is domiciled in France within the meaning of that Convention at the time of making the gift, or the time of his or her death, or (ii) the ADRs or Shares were used in, or held for use in, the conduct of business through a permanent establishment or a fixed base in France.
U n i t e d S t a t e s T a x e s
For US Federal income tax purposes, the gross amount of a distribution by the Company to US
Holders (including any amounts of French tax withheld ) will be treated as dividend income to the extent paid out of the Company’s current or accumulated earnings and profits (as determined for US Federal income tax purposes). If a US Holder has the option to receive a distribution either in cash or in the form of Shares, and such US Holder chooses to receive
Shares (a ‘’Stock Distribution’’), such US Holder will be treated for purposes of the preceding sentence as having received a distribution to the extent of the fair market value of these Shares. The gross amount of any related avoir fiscal or précompte payment also will be treated as dividend income. Such dividend income will not be eligible for the dividend received deduction generally allowed to corporations under Section 243 of the Code. To the extent that an amount received by a US Holder exceeds the US Holder’s allocable share of the Company’s current and accumulated earnings and profits, such excess will be applied first to reduce the Holder’s basis in his or her Shares or
ADRs, and then, any remaining such excess would constitute gain from the deemed sale or exchange of his or her Shares or ADRs. See ‘’Tax on Sale’’ below.
As discussed above, payments of dividends, the avoir fiscal, the partial avoir fiscal to a US Holder will be subject to French withholding tax. For US Federal income tax purposes, a US Holder may generally elect to treat such French withholding taxes as either a deduction from gross income or a credit against such US Holder’s
US Federal income tax liability. The maximum foreign tax credit allowable generally is equal to the US
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Distribution). Gain or loss arising from a sale or exchange of Shares or ADRs will be capital gain or loss if such Shares or ADRs are held as capital assets by the
US Holder, and will be short term or long term depending whether the holding period of the US Holder for such Shares or ADRs exceeds one year. In general, gain from a sale or exchange of Shares or ADRs by a US
The Taxpayer Relief Axt of 1997 (the “Relief Act”) has changed the US Federal income tax rates for capital gains of individuals, trusts and estates. Under the Relief
Act, any gain realized by such taxpayers from the sale or other taxable disposition of Shares or ADRs that have been held for more than 18 months generally will be subject to a maximum tax rate of 20%, while the maximum tax rate for Shares or ADRs that have been held for more than 12 months but not more than 18 months generally will be 28%.
■ Under certain circumstances, a US Holder who is an individual may be subject to backup withholding at a 31% rate on dividends received on Shares or
TIN provided is his or her correct number and that he or she is not subject to backup withholding. Any amount withheld from a payment to a US Holder under the backup withholding rules will be allowable as a credit against such Holder’s Federal income tax liability, provided that the required information is furnished to the IRS.
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AXA Asia Pacific Holdings and its subsidiaries use a fiscal year ending September 30 and are consolidated as of that date in AXA’s Consolidated Financial
December 31, 1999 and 1998 and the notes thereto, included in this Annual Report, are presented in euros
FF 6.55957 = € 1.00, the applicable rate established on January 1, 1999. The euro did not exist during any of these periods, and the conversion rate used may not reflect the FF/euro exchange rate that would have applied if the euro had existed at such times. Further information on the euro is provided in the beginning of this Annual Report under the heading “Exchange
(in US$ millions except per ordinary (in euro millions except share and ADS amounts) per ordinary share and ADS amounts)
Income Statement Data: Approximate amounts in accordance with French GAAP: Financial services revenue 12,858 12,736 9,529 8,702 5,544 4,629 Net investment results (a) 15,789 15,639 14,069 12,812 5,398 4,263 Total revenues 82,956 82,167 70,798 68,395 30,852 24,110 Income before income tax expense 4,222 4,182 3,717 3,153 1,352 893 Income tax expense (1,304) (1,292) (1,222) (1,189) (442) (307) Minority interests in income of consolidated subsidiaries (866) (858) (974) (802) (320) (155) Equity in loss income of unconsolidated entities (10) (10) 11 45 (9) (14) Net income 2,040 2,021 1,531 1,207 581 416 Net income per ordinary share (basic) (b) 5.78 5.73 4.52 3.71 3.10 2.57 Net income per ADS (basic) (d) 2.89 2.86 2.26 1.86 1.55 1.29 Dividends per ordinary share (e) 2.02 2.00 1.70 1.37 1.14 0.99 Dividends per ADS (d) (e) 1.01 1.00 0.85 0.69 0.57 0.50
Approximate amounts in accordance with US GAAP: Gross premiums (c) 31,953 31,649 29,203 26,276 8,155 8,384 Total revenues 56,884 56,343 44,657 39,719 15,140 14,161 Income before income tax expense 2,031 2,012 1,748 1,559 678 529 Net income 1,221 1,209 749 310 328 49 Per ordinary share (b): Net income per ordinary share (basic) 3.49 3.46 2.24 0.98 1.83 0.30 Net income per ordinary share (diluted) 3.35 3.32 2.11 0.90 1.73 0.26 Per ADS (d): Net income per ADS (basic) 1.75 1.73 1.12 0.49 0.91 0.15 Net income per ADS (diluted) 1.68 1.66 1.05 0.45 0.86 0.13
(c) Gross premiums received from policyholders in respect of life insurance products which are classified as “investment contracts” (such as, separate account products), in accordance with US GAAP, are recorded as revenue under French GAAP. Under US GAAP, such amounts received are recorded as deposits, and only the policy-related fees charged to the policyholders, for cost of insurance, administration, investment management, etc, are recorded as revenue.
(g) Includes future policy benefits and other policy liabilities, insurance claims and claims expenses, UK with-profit contract liabilities and unearned premium reserve and excludes separate account (unit linked) liabilities.
(j) AXA Asia Pacific Holdings (formerly National Mutual Holdings) and its subsidiaries have been consolidated in the Consolidated Financial Statements since the date of acquisition, September 1, 1995. Since AXA Asia Pacific Holdings and its subsidiaries use a fiscal year ending September 30 and are consolidated as of that date in AXA’s Consolidated Financial Statements, only one month of AXA Asia Pacific Holdings consolidated operating results were included in AXA’s consolidated operating results for the year ended December 31, 1995.
b03-338 • Item 2 à 8 (US) 23/05/00 12:05 Page 84 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
(b) In 1999, the segmentation of activities was revised to reflect certain changes during the period. The UK Property and Casualty Insurance Group was created subsequent to the acquisition of GRE in May 1999, and the International Insurance Segment is a newly-formed segment that includes the activities reported in the former Reinsurance Segment and the Transnational Property and Casualty Group (principally AXA Global Risks and AXA Assistance), formerly included in the Property and Casualty Insurance Segment. This segment includes notably AXA Reinsurance and AXA Global Risks, which underwrites large insurance exposures. Prior year financial information has been restated accordingly.
Net income per ordinary share (basic) 5.73 4.52 3.71 Net income per ordinary share (diluted) 5.39 4.24 3.48 a) In 1999, the segmentation of activities was revised to reflect certain changes during the period. The UK Property and Casualty Insurance Group was created subsequent to the acquisition of GRE in May 1999, and the International Insurance Segment is a newly-formed segment that includes the activities reported in the former Reinsurance Segment and the Transnational Property and Casualty Group (principally AXA Global Risks and AXA Assistance), formerly included in the Property and Casualty Insurance Segment. This segment includes notably AXA Reinsurance and AXA Global Risks, which underwrites large insurance exposures. Prior year financial information has been restated accordingly.
b03-338 • Item 2 à 8 (US) 23/05/00 12:05 Page 86 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
Assets under management At December 31, at estimated fair value General Separate Third Total accounts accounts parties (b)
(a) Consolidated assets under management, excluding assets managed for separate accounts. (b) Non-consolidated assets under management.
Subsequent to the payment of the 1998 dividend in 1999, AXA will pay dividends in euros, including the 1999 dividend to be paid in 2000.
Dividends paid to holders of ordinary shares and ADSs will generally be subject to French withholding tax at a rate of 25% which, subject to certain procedures and exceptions, may be reduced to 15% for holders who are residents of the United States. Certain holders of ordinary shares and ADSs may be entitled to receive a subsequent payment equal to the French avoir fiscal (or tax credit) in an amount equal to 50% of any dividends paid by the Company, less applicable French withholding tax. See “Item 7: Taxation of Dividends
Net Dividend Net income Gross dividend Net Gross per ordinary per ordinary per ordinary dividend dividend share share share1 per ADS2,3 per ADS1,2,3
(2) ADSs were first issued on June 25, 1996. (3) Translated solely for convenience into US dollars per ADS at the Noon Buying Rates on the respective payment dates. Because each ADS represents one-half of an ordinary share, amounts indicated in US$ per ADS equal one-half of the equivalent dividends per ordinary share. For convenience only, avoir fiscal amounts have been converted into US dollars at the Noon Buying Rate on such payment dates, although such amounts are paid subsequent to such payment dates. Also, the Noon Buying Rate may be different from the rate used by Depositary to convert euros to US dollars for purposes of making payments to holders of ADSs.
(4) At the ordinary general meeting of shareholders of the Company to be held on May 3, 2000, the shareholders are expected to declare a dividend in respect of 1999 of €2.00 (FF 13.12) per ordinary share (equivalent to US$ 1.01 per ADS, using the US$/euro rate at December 31, 1999 of € 0. 99 = US$1.00 [US$1.010 = €1.00]).
Market capitalization at December 31 (euro millions) 49,314 43,255 23,525 b03-338 • Item 2 à 8 (US) 23/05/00 12:05 Page 89 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
At end of period1 Average rate2 High Low Year € FF € FF € FF € FF
Euro and French Franc Exchange Rates Average Year End Exchange Rate Exchange Rate (b)
Franc exchanges rates and translated to euro using the legal rate of conversion at January 1, 1999 of
FF 6.55957 = € 1.00 as the euro did not exist prior to January 1, 1999.
technology sector (135%) and in the telecommunication sector (105%) in the Euroland (defined in
The performance in the bond (fixed maturity) markets was in direct contrast to the stock markets performance. Generally, the bond markets experienced their worst year since the crash of 1994. The worldwide improvement in business conditions led to higher long-term rates, particularly in the United States and in Europe. In addition, pressure to increase oil prices beginning in February further depressed bond returns worldwide.
January 1, 1999, the interest rates on government bonds in Euroland increased, leading to a 1.5%
Conversely, Japanese long-term interest rates showed little change in 1999, and remained largely uncorrelated to trends observed generally in the international markets. The Japanese bond market underperformed compared to the Japanese stock market with only a
The following discussion and analysis should be read in conjunction with the AXA’s Consolidated Financial
(”US GAAP”). A summary of the material differences between French GAAP and US GAAP relevant to AXA
The stock (equity) markets had growth of more than 30% in 1999 due to sustained economic growth supported by proactive monetary policy to maintain such growth.
The US, Japanese and European stock markets increased by 25% (Dow Jones Industrials), 37%
European counterparts with growth of more than 40%. In addition, there was notable growth in the b03-338 • Item 9 (US) ok 23/05/00 12:11 Page 91 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
In the beginning of 1999, the central banks continued a flexible monetary policy with the objective to decrease interest rates. This policy changed during the second half of the year in order to tighten the money supply.
The European Central Bank began and ended the year with its refinancing rate at 3%. Behind this apparent stability, however, a monetary policy shift was also under way. In the face of moderate inflationary pressure, on April 8, 1999 the European Central Bank reduced the refinancing rate on public bids by 50 basis points, to 2.5%. This rate was subsequently increased back up to 3% on November 4, 1999 as the economic outlook in Euroland improved and bond returns increased.
In Japan, the monetary policy remained flexible throughout the year in order to maintain the level of liquidity needed to sustain the domestic economic recovery and the restructuring of the country’s banking system.
In the foreign currency markets, the initial appreciation of the euro following its introduction as a single currency on January 1, 1999 was short-lived. In annualized terms, the euro fell 14% against the US dollar and 22% against the yen. This decrease was primarily due to the interest-rate margin in the euro to
US dollar exchange ratio. However, the decrease in the euro increased demand for exports from Euroland.
This growth coincides with increasing demand for retirement and other savings-related products, due in particular to the aging of world populations.
In 1998, tax reform measures in France had an adverse impact on the sale of life insurance products. In 1999, the French life and health protection product market increased by 15%. This growth is primarily attributable to the sale of separate account (unit-linked) products, which now account for 60% of new business. Unlike certain other European countries, French regulations do not yet offer incentives to group retirement savingstype products (such as pension funds).
(defined as recurring premiums plus one-tenth of single premiums) increased by nearly 11% in 1999. This increase is primarily attributable to the strong growth in the stock market resulting in a large volume of new business relating to single premium savings products.
In Germany, the life insurance market expanded by approximately 8% in 1999 in response to a tax reform announcement issued by the government that would have impacted insurance policies. The government in
In Belgium, the decrease in guaranteed rates reduced the volume of new business in traditional life insurance products. However, the market experienced net growth of approximately 25%, mainly due to the success of separate account (unit-linked) products sold primarily through bank distribution networks.
In contrast to 1998, an economic recovery was experienced throughout the Asia Pacific region, notably
Hong Kong; in Hong Kong, the life insurance market expanded with the introduction of mandatory pension funds. However, conditions continued to deteriorate in the Japanese life insurance market, with gross premiums declining by approximately 4.5%: in 1999, the Japanese life insurance market experienced several significant mergers and restructurings involving foreign insurers, such as Artemis acquired
After several years of intense competition, resulting in lower premium rates in key product lines with deteriorated claims experience, particularly in the automobile and commercial products lines, the property and casualty market, showed signs of a modest recovery in some European countries in 1999.
In 1999, there were a significant number of natural catastrophes, such as Hurricane Floyd in the United
The deterioration in the combined ratio for all insurance years (gross of reinsurance), estimated at close to 120% in 1999, was primarily due to the storms in
Italy and Portugal, growth is expected to be approximately 7% in 1999. The Belgian market is expected to be in line with the 1998 growth rate of approxi-
Other lines of business, such as third-party liability and construction risk, appear to have stabilized. The current year loss ratio deteriorated compared with 1998, and several major claims, including the natural disasters mentioned previously, have adversely affected many international insurers. There is a general view that the market is expected to improve with the year 2000 renewal season for which favorable operating results will be realized in 2001. This expectation is based on higher premiums rates given the claims experience in 1999. However, the large insurance risk market is highly competitive. Brokers and insurance companies, in this section, have reduced in number in the past few years due to mergers and acquisitions.
Pacific crisis that impacted the world’s financial markets in third quarter 1998, interest rates increased in 1999 and the stock markets experienced strong growth throughout the year. The asset management sector benefited from these conditions. In
A c q u i s i t i o n s a n d I n v e s t m e n t s
This acquisition was partly financed by a £1,114 million (€1,666 million) stock issue by SLPH and proceeds from AXA’s €1.5 billion 2.5% subordinated convertible notes issued in February 1999, which AXA
• sold GRE’s US operations to Liberty Mutual for £896 million (€ 1,340 million) on May 1, 1999; • sold GRE’s operations, not based in the United
(the Toro group) for € 73 million; • GRE’s operations in Portugal as well as its property and casualty operations in Hong Kong and
Singapore were merged with AXA’s existing operations in those countries; • the Company sold GRE’s equity interest in Le Foyer
As a consequence of this acquisition, SLPH is now ranked third in the UK property and casualty insurance market. In addition, SLPH became the second largest insurance company in the UK healthcare market and the leading property and casualty insurance company in Ireland. In addition, AXA Colonia has become the second largest property and casualty insurance company and the fifth largest life insurance company in the German market.
Goodwill of € 1,138 million (€ 764 million group share) was recorded in the opening balance sheet of the UK, Irish and German subsidiaries, of which € 739 million (€ 416 million group share) and € 364 million (€ 313 million group share) relates to the UK and
At December 31, 1999, total goodwill, net of the exceptional amortization charge, was € 485 million
AXA Rosenberg’s future performance. At December 31, 1999, the AXA Rosenberg Group had assets under management valued at nearly € 8.8 billion. This transb03 -338 • Item 9 (US) ok 23/05/00 12:11 Page 95 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
DLJdirect, DLJ’s online brokerage unit. A realized gain of €120 million (group share) was recorded in respect of this transaction.
The 1999 capital stock repurchases resulted in goodwill of € 60 million at December 31, 1999 which is being amortized over 30 years.
Financial, Inc.’s capital stock repurchase program and the exercise of stock options in AXA Financial, Inc. and its subsidiaries.
Total consideration for the purchase of the shares in 1999 was € 342 million and resulted in goodwill of € 100 million. Consequently, at December 31, 1999 total goodwill relating to AXA Colonia is € 233 million.
ONA, a Moroccan holding company. By combining their businesses, AXA Al Amane, 51% owned by AXA
and 49% owned by ONA, has become Morocco’s second largest insurer.
Turkey. The partnership agreement with Oyak was strengthened by the addition of AXA’s local subsidiaries, acquired previously from AXA Colonia, to the holding company AXA Oyak Holding. AXA Oyak
Following their merger, these companies will together become the country’s largest property and casualty insurer and its seventh largest life insurer. Goodwill of € 21 million was recorded on this acquisition, and will be amortized over 10 years.
Metals and Minerals Import and Export Corporation obtained a license to start life insurance operations in
Japan. AXA Direct Japan obtained a license to sell property and casualty insurance products and commenced operations in July 1999.
Luxembourg. In January 1999, AXA sold its 90% stake in PanEuroLife for € 96 million. AXA realized a net gain of € 22 million (group share) on this transaction.
– in February 1999, the Company issued €1.5 billion in 2.50% Subordinated Convertible Notes due
owns an 8.3% interest in BNP-Paribas; – in connection with the privatization of Crédit
Lyonnais, AXA acquired a 5.5% equity interest for € 482 million, thereby becoming one of the bank’s key shareholders; and
(“Certificates”). The Certificates1 matured on July 1, 1999 with no cash payment required. A hedging program set up by AXA in 1998 was settled in the first six months of 1999 for a total cost of € 71 million.
United Kingdom. A reorganization of AXA’s property and casualty operations commenced following the
December 31, 1999, expenditures totaled € 68 million, and the remaining provision for internal restructuring included was € 89 million.
(1) The Certificates issued in connection with the Public Exchange Offer entitled their Holders, for each Certificate held as of July 1, 1999, to an amount equal to the difference, if positive, between € 59,8 and the reference price for one ordinary AXA share. The reference price was equal to the average of the opening stock market prices for ordinary shares on the Paris Stock Exchange for the thirty trading days immediately preceding July 1, 1999. Throughout the months of May and June 1999, the stock price was well above € 59.8.
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(an unlisted private partnership) and offered to exchange all Units tendered for Units in Alliance
E v e n t s s u b s e q u e n t t o
March 2001. Consequently, AXA will have an equity interest of approximately 95% in AXA Nichidan.
(formerly National Mutual Holdings) purchased the minority interests of AXA China Region for approximately
The transaction was financed through a medium-term loan of € 521 million (see “Financing Operations”
In January 2000 the Company issued € 1.1 billion 3.75% subordinated convertible notes due January 1, 2017. In February 2000 the Company issued € 500 million 7.25% undated subordinated notes. The purposes of these borrowings is to finance the growth of the Company, or any of its subsidiaries, and to finance the buyout of AXA China Region’s minority interests and the acquisition of Nippon Dantai.
Services. Each operating segment is further analyzed by geographical area of operation for those large operations within the segment. In addition, there are nonoperating activities within the holding companies, including the Company. This basis is consistent with the basis used by management in establishing and assessing business strategies, performance targets and allocating resources across AXA. From time to time the operating segments and the geographical groups within the segments will change resulting from: • businesses acquisitions (such as the Compagnie UAP
in 1999) which may result in increased operations in geographical territories which were previously not significant and thereby necessitate the need for a new geographical group or a change in overall segment presentation, or
solidated results for the three years ended December 31, 1999 are set out below.
• The AXA Consolidated Financial Statements for the three years ended December 31, 1999 and as at
• The segmentation of activities has been revised to reflect certain changes during the period. The UK
Property and Casualty Insurance Group was created subsequent to the acquisition of GRE in May 1999, and the International Insurance Segment is a newlyformed segment that includes the activities reported in the former Reinsurance Segment and the
(fair value at date of acquisition) less estimated selling costs in the AXA Consolidated Financial Statements.
Therefore, at December 31, 1999 and in accordance with French GAAP, it has been accounted for in AXA’s
Since the 1998 year-end reporting date, the statements of income of companies outside of France are translated into euros (AXA’s reporting currency) using the average foreign currency exchange rates for the reporting period. Previously the year-end foreign exchange rates were used.
■ Except where otherwise stated, percentage changes set out in “Management’s Discussion and
Operations” are calculated on a constant exchange rate basis. Therefore, for purposes of comparison the current year financial data is restated using the prevailing foreign currency exchange rates in the prior year (applicable to non-French subsidiaries translating from the local currency to French francs. See
C o n s o l i d a t e d o p e r a t i n g r e s u l t s
The tables below present AXA’s consolidated revenues and net income for the years indicated.
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Gross revenues comprise gross insurance premiums, revenues arising from asset management fees earned, other financial service operations (including investment banking) and revenues arising from the holding companies.
– The International Insurance Segment (5.7% of total gross premiums) declined by 2.7%, with the increase in gross premiums earned by AXA Global
On a comparable basis, growth in consolidated financial services revenues was 23.5% in 1999 compared to 1998. The growth was primarily due to strong growth in the financial markets in 1999. The bulk of this business is conducted by the subsidiaries of AXA
Based on AXA’s consolidated net income and weighted average ordinary shares outstanding of 353.0 million shares in 1999 compared to 338.7 million in 1998, basic net income per ordinary share was b03-338 • Item 9 (US) ok 23/05/00 12:11 Page 102 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
The 1999 return on average equity (based on net income relative to average consolidated shareholders’
In 1999, AXA’s net income reflects the following other non-recurring events which represent a net gain of € 54, group share: In euro millions
– Insurance cost arising from the natural climatic events for property and casualty insurance (€ 97 million in France, € 13 million outside France) and international insurance (€ 89 million) (199)
– Gain realized in connection with the Initial Public Offering of DLJdirect tracking stock recorded by AXA Financial, Inc. (€ 64 million), Equitable Life (€ 52 million) and AXA Belgium Holding (€ 4 million) 120
– Gain on the sale of BNP equity securities by AXA France Assurance 101
– Deferred tax asset recorded on a UAP life reinsurance financing treaty 37
would have been € 1,811 million. This result represents an increase of € 274 million (18.0%) compared to the previous year of € 1,535 million, net of minority interest and non-recurring events (loss of € 4 million ). The increase is primarily due to: • AXA Royale Belge’s insurance operations of € 200 million, due particularly to the increase of AXA’s share of ownership in Royale Belge, and by AXA France’s insurance operations of € 109 million; • the significant increase in net income contributed by the subsidiaries of AXA Financial, Inc. € 125 million, particularly DLJ (€ 97 million), which was adversely affected in 1998 by the volatility of the world’s financial markets; and
The negative impact of exchange rate fluctuations between 1997 and 1998 totaled approximately € 0.6 billion, primarily attributable to the decline in the US
Insurance activities represented 83.2% of AXA’s gross revenues as opposed to 84.3% for 1997. On a constant exchange rate, methodological and structural basis, insurance revenues increased by 2.7% compared to 1997. This increase represents the combined effect of a 5.5% increase in the revenues of the Life
Insurance Segment, a 1.5% decrease in the revenues of the Property and Casualty Insurance Segment, and a 9% decline in the revenues of the International
Property into the International Insurance Segment). In the Life Insurance Segment, the United States and the
Europe, growth reached 2.2%, attributable to higher gross premiums earned in the United Kingdom
North America, AXA Financial, Inc.’s life insurance gross premiums increased by 18.5% over 1997 due to the ongoing success of a series of individual retirement savings products and the successful development of new distribution networks.
■ AXA’s consolidated income including minority interests totaled € 2,505 million as opposed to € 2,010 million, while net income, group share (“net income”)
Prior to 1998, AXA’s consolidated net income included operating results of foreign subsidiaries translated using the year-end foreign currency exchange rate.
This methodology was changed in 1998 whereby net income of AXA’s foreign subsidiaries is calculated using the average exchange rate for the accounting year.
In 1998, AXA’s net income reflects the following nonrecurring events, which represent a net loss of € 4 million: In euro millions
– The impact of the acquisition of Royale Belge minority interests which generated significant realized gains net of Value of Purchased Business Inforce (“VBI”) amortization and restructuring provisions (excluding Bank IPPA) 187
– A gain on the sale of BNP equity securities by AXA Assurance France 82
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Based on insurance company invested assets of € 183 billion (excluding assets supporting separate accounttype products), the invested assets in Asia (including
Japan) and South America total € 3 billion. AXA’s exposure to such countries is 1.5% of insurance company invested assets. Such exposure primarily concerns the
In 1998, AXA deconsolidated several investment and real estate companies held by French insurance and reinsurance companies in order to improve financial statement presentation. Previously, the financial statement presentation of investment and real estate companies differed depending on whether assets were held directly by insurance companies or indirectly through the investment or real estate companies. The deconsolidation of such entities better reflects the insurance companies’ economic purpose for holding such entities. If these companies had been consolidated in 1998, their combined contribution to net income would have been € 64 million, of which € 30 million related to exceptional items essentially relating to an unusually high level of gains realized by certain investment management entities. Had they been deconsolidated in 1997, net income would have decreased by € 31 million.
France, which is beginning to benefit from previous restructuring measures following the UAP acquisition in 1997, (ii) the United States, where Equitable Life benefited from improved underwriting margins and investment income; and (iii) in the United Kingdom, reflecting the positive trend in the financial markets in 1998.
The International Insurance Segment, which includes the former Reinsurance Segment operations, remained profitable despite the losses incurred by AXA Global
Risks due to the occurrence of significant claims. The contribution from the Other Financial Services
DLJ, which was adversely affected by the volatility of the financial markets in the third quarter of 1998 that adversely affected fixed maturity investments.
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The Company’s results over the last several years demonstrate the level of importance placed on the
– Shareholders’ equity, December 31, 1998 (before 1998 net income) 12,007
– Bond conversion (1995-1999, 4.5%) and exercise of stock options1 175
– Change in goodwill arising from UAP acquisition (due to AXA’s dilution in SLPH dilution and an adjustment to goodwill from Royale Belge acquisition charged to shareholders’ equity) 140
Dividends paid to shareholders have moved in a similar line, increasing from € 0.84 paid based on 1994 net income to € 2.00 recommended to be paid in 2000 based on 1999 net income. If the 1999 recb03 -338 • Item 9 (US) ok 23/05/00 12:11 Page 107 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
Net Income Year Ended December 31 Including Minority Interests Group Share ommended dividend is declared, total dividends distributed in 2000 in respect of 1999 will be € 713 million, compared with € 135 million paid in 1995 in respect of 1994 net income. In fact, at the same time, the number of ordinary shares outstanding has more than doubled between 1994 and 1999, in line with the Company’s growth.
Traditional financial statements fail to fully reflect shareholder value creation, particularly in life insurance companies. The Company is currently calculating indicators designed to improve the measurement and quantification of shareholder value creation, and expects to disclose these indicators for the first time in 2000.
R e s u l t s o f o p e r a t i o n s b y o p e r a t i n g s e g m e n t
The Life Insurance Segment accounted for 59.6% of the net income (group share and after excluding the impact of GRE) compared to 62.8% in 1998. There was a notable increase in the contribution to net income by the Asia/Pacific Life Insurance Group in 1999 compared to 1998 of € 104 million. This change is attributable to the Asian financial crisis in 1998, which effected the 1998 contribution to net income.
Despite the 1998 financial crisis, the 1998 performance can be attributed to improved investment results made possible by acquisitions and the restructuring of business operations. Transactions affected in connection with the acquisition of the Royale
The following table presents information regarding the US Life Insurance Group for the years indicated.
in 1998. Increased sales resulted from continuous expansion and penetration of the wholesale distribution network, increased productivity from the retail channel and the availability in 1999 of a complete line of annuities with more competitive product features and options. The sale of life insurance products increased by 1.3% due to the introduction of a new series of variable life insurance products beginning in the middle of 1999, for which the benefits through sales growth from this new series of product will not start to appear until first quarter of 2000.
Marketing Research Association (LIMRA) increased to 6.11% at the end of December 1999 compared to 5.71% at the end of 1998.
totaled € 481 million, an increase of 46.1% from 1998. DAC amortization increased due to the € 124 million non-recurring DAC adjustment resulting from the revisions to estimated gross profits related to the investment asset reallocation in the second quarter 1999. Excluding this non-recurring adjustment, DAC
amortization increased 8.5% due to the impact of higher separate account fees and higher margins.
■ On a constant exchange rate basis, gross premiums increased by 18.5%. This increase is primarily due to the development of individual insurance and annuity products, which outpaced the market and brought Equitable Life’s market share in this line of insurance from 3.6% in 1997 to 4.4% for the nine months ended September 30, 1998. Individual insurance and annuity products accounted for 59.2% of 1998 gross premiums, an increase of 33.0% on a constant exchange rate basis. Income
Manager, a series of individual retirement products launched in 1995, accounted for 26.4% of gross premiums in 1998 as compared to 15.5% in 1997.
Gross premiums for other retirement products increased by 4.4% on a constant exchange rate basis. Gross premiums remained stable for other individual life insurance products on a constant exchange rate basis, with the 4.3% increase in variable and interest sensitive life gross premiums partially offset by a 3.0% decline in traditional life product gross premiums.
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On a constant exchange rate basis, acquisition costs excluding the change in DAC increased 21.6% primarily as a result of the 38.0% increase in new business gross premiums. Acquisition costs capitalized increased 20.1% on a constant exchange rate basis in line with the increase in acquisition costs excluding the change in DAC. The amortization of DAC
totaled € 315 million, an increase of 6.3% on a constant exchange rate basis. In 1997, DAC amortization decreased by € 54 million due to the change in future estimated gross profit pattern related to income from equity real estate. Excluding the impact of this change, DAC amortization declined by 9.9% on a constant exchange rate basis due to favorable changes in estimates of persistency and interest spread for life and individual insurance and annuity products. Such changes reflect recent favorable experience.
in 1998 from 12.4% in 1997 and the ratio of general costs to insurance reserves increased to 1.54% in 1998 from 1.48% in 1997.
AXA’s economic interest in AXA Financial, Inc. increased from 57.5% at December 31, 1997 to 58.5% at
Inc.’s capital stock repurchase program. This increase in ownership generated goodwill of € 68 million.
Net income increased from € 58 million in 1997 to € 252 million in 1998. Foreign exchange fluctuations between the US dollar and French franc reduced net income € 4 million. As stated above, in 1997, additions to valuation allowances for equity real estate reduced net income by € 171 million, while the release of prior year tax provisions increased net income by € 40 million. Excluding the impact of these non-recurring items, net income increased by € 68 million primarily due to an increase in investment spread and the increase in fees received for variable annuity contracts.
■ The following table summarizes the net investment results of the US Life Insurance Group for the principal categories of general account assets for the periods indicated. Certain investment assets of the US Life
Insurance Group and associated net investment results are not included, and net investment income is not reduced for investment expenses or interest expense on short-term and long-term debt.
Accordingly, the net investment results summarized in the following table are not directly comparable to the net investment results of the US Life Insurance Group discussed above.
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US Life Insurance Group Net Investment Result by General Account Asset Category Year Ended December 31,
Mortgage loans on real estate: Related Assets at year end 5,377 4,265 4,211
(a) Yields are calculated on the basis of the average beginning and end of period asset carrying value for each asset category. All amounts are converted into French francs from local currency at year-end exchange rates.
(b) On a constant exchange rate basis, the yield for 1999 would have been 6.98% for fixed maturities, 17.3% for real estate, 9.08% for mortgage loans on real estate, 40.61% for equity investments, 6.86% for policy loans, 6.53% for cash and short term investments and 8.82% for all general account investments.
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(a) Includes investment income, net of investment expenses and interest expense on short-term and long-term debt, and net realized investment gains or losses. (b) Includes the net result of premiums, insurance benefits and claims and commissions ceded under reinsurance contracts. (c) Acquisition expenses are net of changes in the unearned revenue reserve, which is established for fees charged to policyholders that are not fully earned in the period assessed. Such amounts are recognized in net income over the periods benefited using the same assumptions and methods used for amortizing deferred acquisition costs.
■ Gross premiums increased 10.6% from 1998 and increased 9.1% on a constant structural basis. This net growth is attributable to the 14.3% growth in retirement savings-type products, which accounted for 69%
The growth attributable to its distribution network was associated with the agency distribution network
Insurance benefits and claims, which include costs relating to claims handling expenses and policyholder participation in the profits, increased by € 740 million
(6.3%) in line with gross premiums. The increase in 1999 was partly due to (i) a strengthening of disability insurance reserves of € 66 million, (ii) a strengthening of the reserves for future risks on former UAP
Acquisition costs (net of DAC) remained stable year on year despite the growth in new business due to a cost realignment across the life insurance products and lower commissions rates. Administrative expenses increased by € 158 million in 1999. These expenses include € 142 million provision for charges associated with implementation of the strategic change project in AXA France. Excluding this provision, the ratio of acquisition and administrative expenses to gross premiums was 13.9 % compared to 15.1 % in 1998, and, 1.95% of the insurance reserves compared to 2.12%
Offers for Paribas and Elf. Overall, income tax expense was much lower in 1999 compared to 1998 due to the € 55 million impact arising from a deferred tax asset recorded relating to financial reinsurance arrangements associated with UAP.
The French life Insurance Group contributed € 331 million (group share) to AXA’s consolidated net income, an increase of € 66 million from 1998. This result was affected primarily by the provision established in respect of AXA France’s change program.
■ Gross premiums declined by 3.0% compared to 1997 (3.5% on a constant methodological basis).
However, this decline was smaller than the French market decline for the same period. The French life insurance market as a whole dropped 13% according to the Fédération Française des Sociétés d’Assurance.
January 1, 1998. In anticipation of these tax changes, exceptionally high premium income was recorded in the last quarter of 1997 in order to avoid its effects. In addition, the insurance market was hurt by other adverse tax changes enacted in 1998. Despite the difficult environment in 1998, specialized distribution networks increased their gross premiums by 2.2%. In group retirement insurance, gross premiums increased due to several significant single premium policies sold at the end of the year. In addition, individual savingstype products benefited from strong growth in unitlinked policies, which account for 52.0% of new business gross premiums, as opposed to 32.0% in 1997.
Insurance benefits and claims, which include costs related to claims handling and policyholders’ participation in gains, increased 2.2 %. The increase in net investment results increased policyholders’ participation in gains by € 592 million which included a reserve strengthening of € 211 million as a result of the observations of the French Regulatory authority, the “Commission de Contrôle des
ums. The increase in other acquisition costs of € 11 million is primarily due to the reclassification of certain overhead costs.
Amortization of VBI increased by € 7 million due to the particularly high level of realized gains in 1998.
Income tax expense is increasing less rapidly than income before tax. The 1997 income tax expense reflected the increase in statutory tax rates, which increased the net deferred tax liability by € 10 million.
Net income (group share) increased sharply over 1997, climbing € 121 million to € 265 million. The 1997 result was affected adversely by the negative results for reinsurance ceded. However, the 1998 result reflected higher net investment results offset by additional reserves recorded due primarily to changes in mortality assumptions following changes in French regulations.
■ The following table summarizes the net investment results of the French Life Insurance Group for the principal categories of general account assets for the periods indicated. Certain investment assets of the
ment returns. In 1998, a new investment strategy has mitigated certain risks related to such contracts leading to a profit of € 26 million. Individual retirement products experienced an improvement in lapse rates leading to a reduction in insurance benefits of € 39 million as compared to an increase in insurance benefits of € 46 million in 1997. Such positive reserve development in 1998 was offset by increases in reserves on products with lower fee assessments.
Reinsurance ceded results improved considerably since 1997, when UAP Vie incurred losses of € 103 million on the cancellation of a reinsurance contract.
Acquisition costs increased by € 23 million and deferred acquisition costs decreased by € 22 million, primarily resulting from the decline in gross premiums on single premium products. Commissions declined by 4% in line with the drop in gross premib03 -338 • Item 9 (US) ok 23/05/00 12:11 Page 118 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
French Life Insurance Group Net Investment Result by General Account Asset Category Year Ended December 31,
Cash & Short Term: Related Assets at year end 3,407 2,889 2,082
(a) Includes investment income, net of investment expenses and interest expense on short-term and long-term debt, and net realized investment gains or losses. (b) Includes the net result of premiums, insurance benefits and claims and commissions ceded under reinsurance contracts. (c) Acquisition expenses are net of changes in the unearned revenue reserve established for fees charged to policyholders that are not fully earned in the period assessed.
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■ Gross premiums of € 7,205 million include eight months of activity relating to GRE’s health and long term care operations of € 664 million. For the year ended December 31, 1999 (including the four month period before AXA’s acquisition of GRE), health and long term care operations had gross premiums of € 1,046 million, growth of 8.0% due to premium rate increases on individual and group health contracts, as well as the transfer of health activity from
Gross premiums written by AXA Sun Life increased 24.7% as compared to 1998. The increase relates primarily to single premium investment contracts, which increased by 36.5% and represent 73% of the business written. The increase is attributable to the strong performance in the equity markets in 1999. Overall, savings -type contracts, of which 61% represents single premium investment contracts, increased 59%. The new business level was further supported by promotional campaigns on With-Profit contracts at the start of the year, and on separate account (unit-linked) contracts. Single premium retirement products increased by 10.8% primarily due to the launch of a new product directed at corporate management. Gross premiums on periodic premium paying contracts have grown slightly at 1.4% primarily due to the insurance market waiting for the launch of the new retirement product in the United Kingdom called the “Stakeholder pension ”. Further detail on this product is provided in “Item 1:Description of Business – UK Life Insurance Group”.
The net investment result of € 2,334 million includes the net investment results of the GRE companies of € 53 million. On a constant structural basis, the growth in the net investment result of € 268 million
AXA Sun Life has strengthened reserves specific to certain annuity contracts, as a result of the decline in yields expected on the assets supported by these products (€ 15 million).
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Acquisition costs amount to € 645 million of which € 47 million relates to GRE subsidiaries. The increase in acquisition costs for AXA Sun Life in 1999 compared to 1998(up 28.4%) is in line with the growth of annualized new business (up 25%). Acquisition costs, net of deferred acquisition costs, increased by 11.5 % primarily due to an exceptional amortization effected in 1998. This 1998 charge recorded following a review of the development of future profits on certain products. Administrative expenses of € 313 million include € 68 million relating to the GRE subsidiaries. This result represents an increase of 3.2% on a constant structural basis. Excluding restructuring costs of € 10 million borne in 1998 and the capitalization of software costs, which commenced in 1999 with the adoption of a new accounting principle, this represents an increase of 11.3%. The increase in administrative expenses is lower than the increase in premiums (up 24.7%) due to cost benefits arising from restructuring of operations which commenced in 1997 and was completed in 1998.
The ratio of general costs (acquisition costs, administrative expenses and claims handling expenses, which are included as part of insurance reserves) to gross premiums was 12.9% in 1999 compared to 13.4% in 1998. The ratio of general costs to insurance reserves was 1.32% in 1999 compared to 1.31% in 1998.
AXA’s consolidated net income (group share) totaled €194 million, of which € 26 million relate to GRE subsidiaries. This contribution by AXA Sun Life represents a decrease of € 44 million notably due to the effects of the dilution of AXA’s interest in SLPH following the acquisition of GRE (€ 25 million), as SLPH issued additional capital stock in connection with the acquisition thereby diluting AXA’s interest in SLPH. On a constant exchange rate and structural basis, the AXA Sun Life contribution represented a € 23 million decrease compared to 1998.
■ Gross premiums increased by 12.4% on a constant exchange rate basis. This increase relates primarily to individual single premium investment products, which increased 29.4% in a favorable investment climate.
These products represented 34.2% of gross premiums in 1998 as compared to 29.6% in 1997. In individual retirement insurance, gross premiums rose by 4.4%, with a 6.6% decline in new business on a constant exchange rate basis due to increased competition. In response to this decline, which reached 13.6% in individual life insurance, AXA Sun Life launched new, more competitive products in June 1998, that began to have a positive impact on new business in the fourth quarter. In addition, new business written in respect of group retirement products increased by 9.6% on a constant exchange rate basis.
Excluding the effects of the change in accounting principle discussed above, acquisition costs net of the change in DAC increased by 51.7% on a constant exchange rate basis. Excluding the change in DAC, the increase was 1.3% primarily due to an increase in new business gross premiums (3.6% on a constant exchange rate basis). DAC increased 15.3% on a constant exchange rate basis primarily due to the growth in AXA Sun Life’s DAC balance which was eliminated in the UAP purchase accounting. The growth in the
On a constant exchange rate basis, other insurance company expenses, € 233 million, decreased by 4.9%
Such increase was principally due to the impact of certain non-recurring costs, such as year 2000 costs and publicity costs for the AXA trademark. The ratio of general costs (acquisition costs, administrative expenses and claims handling expenses, which are included as part of insurance reserves) to gross premiums decreased from 15.3% in 1997 to 13.4% in 1998, while the ratio of general costs to insurance reserves declined from 1.48% in 1997 to 1.31% in 1998.
The 1998 amortization of VBI, recorded in connection with the acquisition of Sun Life, was € 25 million compared to € 43 million in 1997. This decrease is in line with previous estimates of future profit and also reflects a change in lapse assumptions made in 1998 on certain unit-linked contracts, which resulted in a decrease in amortization of approximately € 8 million.
Equity & Law in connection with the restructuring of its equity security portfolio (€ 28 million, group share)
and the adoption of new actuarial reserve accounting principles for unit-linked contracts (€ 27 million, group share).
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Fixed Maturities: Net unrealized investment gains (losses) (e) (1.96%) (200) 4.79% 437 2.02% 153
Real Estate: Net unrealized investment gains (losses) (e) 93.68% 2,044 (0.11%) (2) 0.81% 16
Cash & Short Term: Related Assets at year end 120 1,020 70
Total: Net unrealized investment gains (losses) (e) 11.83% 3,741 3.03% 810 8.36% 1,853
(a) Yields are calculated on a constant structural basis (i.e. excluding GRE investment result for 1999) and on the basis of average beginning and end of period asset carrying value for each asset category. Amounts relating to the fair value of assets allocated to with-profits contracts are included in each asset category. All amounts are converted into French francs from local currency at year-end exchange rates.
(c) On a constant exchange rate basis, the yields for 1998 would have been 14.5% for fixed maturities, 9.48% for real estate, 11.45% for equity investments, 5.42% for cash and short term investments and 12.14% for all general account investments.
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Minority interests in income loss of consolidated subsidiaries (82) 34 (139)
Such amounts are recognized in net income over the periods benefited using the same assumptions and methods used for amortizing deferred acquisition costs. (d) In 1999 and 1998, AXA used the weighted average exchange rate to translate the results of operation whereas in 1997 the year-end exchange rate was used.
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Net Income Year Ended December 31, Including Minority Interests Group Share b03-338 • Item 9 (US) ok 23/05/00 12:11 Page 126 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
(up 219%) due to favorable trends in 1999 in the financial markets after the financial crisis that occurred in 1998 in this region of the world. Net income also reflected this turnaround.
AXA China Region increased 3.9 % primarily due to savings and individual health products, which increased by 5.6% and accounted for 75 % of the Hong Kong business. This increase is primarily the result of growth in the portfolio despite a lower volume of new business
(down 13.9%) due to the economic crisis. Group retirement products, which accounted for 20% of the overall business, increased 1.8%. This growth is primarily due to the completion of a large corporate contract and the conversion of separate account (unit-linked) contracts into retirement insurance contracts. As the new regulations on pension funds are not yet in effect, individual retirement contracts are down by 10.6% compared to 1998. The ratio of general costs (acquisition costs, administrative expenses and claims handling expenses, which are included as part of insurance reserves) to gross premiums was 20.9% in 1999 compared to 23.1% in 1998. This improvement arises from, notably, a decrease in acquisition costs.
AXA China Region’s contribution to AXA’s consolidated net income, group share, increased by € 58 million compared to 1998 principally due to the increase in net investment result in 1999 representing € 64 million, (group share). In 1998, taking into consideration the collapse of the financial markets, AXA China
Region had proceeded to restructure its Asian real estate portfolio which had significant losses of b03-338 • Item 9 (US) ok 23/05/00 12:11 Page 127 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
AXA Life totaled € 114 million and remained stable given the reduction in agents in connection with the economic recession. In the context of the Korean markets, 1999 was more favorable than in 1998. AXA’s share of Dongbu AXA Life’s net income increased by € 30 million, due to significant realized gains associated with the turnaround in the Asian financial markets of € 7 million.
AXA’s share of AXA Life Singapore’s net income increased € 5 million primarily due to the realization of profits of € 1 million in 1999 compared to losses of € 4 million in 1998 due to the Asian financial markets crisis in 1998.
At a constant rate of exchange, net income increased by € 6 million attributable to favorable underwriting results. However, this was partially offset by large acquisition and administrative expenses incurred given that this entity is in the development stage of operations.
Total revenues decreased 23.4% on a constant exchange rate basis due to a 6.0% decrease in gross premiums and a 77.9% decrease in net investment results. The major restructuring of the equity securities portfolios of Asian subsidiaries resulted in significant realized losses due to the Asian financial market crisis in 1998. Income before income tax expense, a loss of € 67 million, declined by € 503 million as a result of the decline in 1998 total revenues.
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growth in disability products, in line with market trends. Gross premiums attributable to the group retirement products increased 7.5% as a result of a 1%
September 30, 1997 and 1998. National Mutual Life uses a fiscal year ended September 30. As a result,
NM Asia, renamed AXA China Region in January 1999, increased gross premiums by 13.9% on a constant exchange rate basis compared to 1997 principally due to growth in individual savings and health products’
Gross premiums increased by 3.1% on a constant exchange rate basis to € 44 million primarily due to increases in whole-life insurance and group insurance gross premiums of 27.5% and 58.3%, respectively.
In 1998, gross premiums for AXA Life Japan totaled € 67 million, versus € 38 million in 1997. New business gross premiums increased by 38.3% on a constant exchange rate basis compared to 1997. The net losses are attributable to the high level of general costs for an insurance company that is still in the development phase.
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(d) In 1999 and 1998, AXA used the weighted average exchange rate to translate the results of operations whereas in 1997 the year-end exchange rate was used.
(excluding Albingia, which was acquired in connection with the GRE acquisition), increased 7.6%. Total gross premiums of € 2,757 million included € 2,098 million for life insurance, € 494 million for health insurance, and € 165 million of gross premiums from
The increase in gross premiums related to growth in new business, particularly in the second half of 1999 in response to a German government announcement on tax reforms that would have reduced the tax advantages on certain insurance policies underwritten after January 1, 2000. These plans were withdrawn by the government in December 1999.
Gross health insurance premiums increased by 10.1% as a result of an increase in premium rates that took effect on January 1, 1999.
The net investment result increased € 20 million primarily resulting from the restructuring of mutual funds (“special funds”), which generated significant interest income. This increase was partially offset by low interest rates in 1999.
Amortization on VBI was € 8 million in 1999. VBI net of accumulated amortization was € 188 million at
increased dividends, which are subject to a lower tax rate in Germany than unallocated income.
AXA Colonia’s net income was € 13 million (€ 6 million from the life operations and € 7 million from the health insurance operations) and Albingia broke even, with no contribution to net income.
On a constant exchange rate and structural basis, insurance benefits and claims increased 9.6%. In life insurance, the 8.4% constant exchange rate basis increase in insurance benefits is in line with the rise in total revenues. In health insurance, despite the fact that paid claims rose in line with gross premiums, insurance benefits (€ 430 million) increased by 17.9% on a constant exchange rate basis due to the decrease in policy cancellations.
The decline in new business gross premiums resulted in lower acquisition costs, which fell to 13.0% of gross premiums from 13.7% in 1997.
Net income increased by € 3 million on a constant structural basis due to the increase in net investment results despite the increase in the participation by policyholders in statutory profits, from 95.0% in 1997
German Life Insurance Group Net Investment Result by General Account Asset Category Year Ended December 31,
Mortgage Loans on Real Estate: Related Assets at year end 2,032 1,785 1,743
(b) On a constant exchange rate basis, the yields for 1998 would have been 5.70% for fixed maturities, 4.84% for real estate, 7.32% for equity investments, 5.65% for mortgage loans, 7.37% for policy loans, 2.95% for cash and short term investments and 5.97% for all general account investments.
(c) On a constant exchange rate basis, the yields for 1997 would have been 5.56% for fixed maturities, 4.71% for real estate, 5.70% for mortgage loans on real estate, 5.70% for equity investments, 7.70% for policy loans, 1.76% for cash and short term investments and 5.54% for all general account investments.
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1999 was marked by growth in individual separate account (unit-linked) products, which currently represents over 14% of all policies, compared to 5% in 1998. In group life insurance (representing 34% of the business), the increase in the level of new group policies written (with terms that allow individual policyholder exit conditions) was offset by a sharp decrease in separate account (unit-linked) products mainly due to the cancellation of a bank insurance agreement.
General costs (acquisition expenses, administrative expenses and claims handling costs, which are included as part of insurance reserves) decreased by € 56 million. After eliminating the reorganization provision of € 47 million, which was established in 1998, the ratio of general costs to gross premiums was 17.7% in 1999 compared to 18.5% in 1998. The ratio of general costs to insurance reserves was 1.96% in 1999 compared to 2.2% in 1998. The decrease in general costs corresponds to the reduced number of employees offset by expenses relating to the internal restructuring which was completed in 1999.
The income tax expense remained low, as in 1998, primarily because of the absence of tax on realized gains attributable to the disposal of equity securities in Belgium.
Due to the low level of realized gains in 1999, the amortization charge on VBI was € 14 million in 1999 compared to € 67 million in 1998, given that VBI is amortized in relation to the recognition of profits. The
The 1998 operating result was affected by a high level of net realized gains on the sale of equity securities which was partially offset by provision for restructuring and an exceptional amortization on VBI, of € 142 million, group share. After eliminating these items, AXA
Royale Belge’s contribution increased in 1999 from 1998 because of AXA’s greater percentage ownership interest in AXA Royale Belge (99.8% as of December 31, 1999, compared to 47.6% for the first seven months and 98.7% for the last five months of fiscal b03-338 • Item 9 (US) ok 23/05/00 12:11 Page 136 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
■ On a constant exchange rate basis, 1998 gross premiums increased 7.2% compared to 1997. The increase is primarily due to sales growth in the fourth quarter in anticipation of a reduction of guaranteed interest rates announced for 1999. The growth is notably a result of the rapidly expanding market for separate account (unitlinked ) products, which accounted for 4.8% of 1998 gross premiums compared to 1.2% in 1997. In addition, sales of group insurance products increased by 41.0%, due to the launch of a new series of flexible premium retirement products that also allow flexibility in their choice of guarantees. However, growth for the Belgian subsidiaries remains lower than the growth in the
Net investment results increased by € 364 million due to strong performance in the Belgian financial markets and the high level of gains realized in transactions associated with the acquisition of Royale Belge’s minority interests. In 1997, Royale Belge benefited from the realization of € 86 million of non-taxable gains on the
increase in insurance benefits and claims, on a constant exchange rate, is in line with the growth in gross premiums. The rate at which the policyholder participates in the life company’s statutory profits decreased slightly as compared to 1997.
The increase in VBI amortization was primarily due to the increase in realized gains which accounted for €
The relatively insignificant amount of income tax expense relative to income before income tax expense is a result of the fact that realized gains on equity securities sales are not taxed. In addition, the nondeductibility of the restructuring provision resulted in a deferred tax asset of € 19 million.
Insurance Group’s 1998 net income reflects € 142 million of exceptional gains realized in connection with the Royale Belge minority interest acquisition, net of the impact on VBI amortization, and the establishment of a restructuring provision.
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Accordingly, the net investment results summarized in the following table are not directly comparable to the net investment results of the Belgium Life
Mortgage Loans on Real Estate: Related Assets at year end 1,220 1,182 1,022
Cash & Short Term: Related Assets at year end 184 42 43
(b) On a constant exchange rate basis, the yields for 1998 would have been 6.23% for fixed maturities, 7.90% for real estate, 32.0% for equity investments, 5.56% for mortgage loans, 14.52% for cash and short term investments and 11.89% for all general account investments.
(c) On a constant exchange rate basis, the yields for 1997 would have been 5.78% for fixed maturities, 5.48% for real estate, 5.91% for mortgage loans on real estate, 11.41% for equity investments, 3.36% for cash and short term investments and 7.00% for all general account investments.
PanEuroLife (subsidiary sold in January 1999, which contributed approximately gross premiums of € 455 million in 1998, and AXA Oyak (Turkish subsidiary that was consolidated in 1999), gross premiums for the
(a) Includes investment income, net of investment expenses and interest expense on short-term and long-term debt, and net realized investment gains or losses. (b) Includes the net result of premiums, insurance benefits and claims and commissions ceded under reinsurance contracts.
(c) Acquisition expenses are net of changes in the unearned revenue reserve which is established for fees charged to policy that are not fully earned in the period assessed. Such amounts are recognized in net income over the periods benefited using the same assumptions and methods used for amortizing deferred acquisition costs. (d) In 1999 and 1998, AXA used the weighted average exchange rate to translate the results of operations whereas in 1997 the year- end exchange rate was used.
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The following table sets forth certain summarized financial information for the Other Life Insurance
Net Income Year Ended December 31, Including Minority Interests Group Share b03-338 • Item 9 (US) ok 23/05/00 12:11 Page 140 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
■ The Netherlands. On a constant exchange rate basis, gross premiums for the life and health insurance operations in the Netherlands increased 1.5%. Life insurance gross premiums totaled € 634 million and health insurance gross premiums totaled € 241 million.
products, which in 1999 represented 41% of gross premiums compared to 19% in 1998. The contribution to AXA’s consolidated net income by the Italian subsidiaries represented an increase of € 28 million.
This increase is primarily due to a partial recovery of € 7 million impairment provision established in 1998 on South American government bonds. The contribution to AXA’s consolidated net income was € 21 million, group share.
Aurora Vida was the result of the success of a new separate account (unit-linked) product launched in June 1999. Separate Account products accounted for 16.5% of gross premiums in 1999. The contribution to AXA’s consolidated net income decreased by € 6 million (group share) compared to 1998. This decrease relates to an increase in insurance reserves due to the use of new mortality tables, which decreased net income by € 13 million (group share).
Luxembourg. After eliminating the sale of PanEuroLife in January 1999, which contributed some € 455 million to gross premiums in 1998, activity increased by 12.1% due to the sale of cross-border insurance products by AXA Luxembourg. After excluding PanEuroLife, the contribution to net income remained stable at € 2 million (group share).
Other countries. At a constant exchange rate compared to 1998, gross premiums from the Portuguese,
Turkish subsidiary was consolidated for the first time in 1999. Gross premiums attributable to this subsidiary totaled € 24 million. Activity increased in all these countries.
Hungary, € 2 million from Switzerland, € 1 million from Canada and Morocco, and € 1 million from
Total revenues decreased by € 11 million versus 1997; however, gross premiums were up 3.4% on a constant methodological and exchange rate basis.
Net income decreased € 13 million primarily due to the declining contribution from the Italian and
Nederland’s minority interests, and subsequent to the internal legal entity restructuring, AXA’s economic interest in UAP New Rotterdam and its subsidiary AXA
Leben was 98.6%, compared to 67.3% and 71.6%, respectively, in 1997. The increase in net income is principally a result of the improvement in underwriting results and gains realized on sales of bonds despite its impact of increasing VBI amortization.
Spain. Gross premiums for AXA Aurora Vida increased by 0.1% on a constant exchange rate basis, totaling €
315 million. In 1997, gross premiums were impacted by strong sales of single premium products, particularly savings-type retirement products. In 1998, the launch of a new individual savings indexed-linked contract positively affected gross premiums. Net income declined by € 10 million versus 1997, to € 7 million. Until
in AXA Aurora and 100% in UAP Iberica. Following the contribution of UAP Iberica securities to AXA Aurora,
AXA’s interest in its Spanish subsidiaries was brought to 70%. The decline was € 8 million on a constant structural basis after giving effect to these changes in ownership percentages. The write-off of the entire VBI balance for entities acquired in connection with the UAP
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Excluding the impact of this item, gross premiums increased 5.3% compared to 1997 due to an increase in the productivity of general agents and initiation of distribution through financial advisors. The decline in net income from € 16 million in 1997 to a net loss of € 3 million in 1998 was principally due to impairment of Latin American government bonds (€ 21 million)
Morocco, Austria and Hungary, and Canada totaled € 301 million, an increase of 9.8% on a constant exchange rate basis compared to 1997. Gross premiums increased in all countries. Net income was € 9 million compared to € 11 million in 1997, of which € 6 million was earned by the Portuguese subsidiary, € 2 million in Canada, € 1 million in Morocco and
• The former Reinsurance Segment was combined with the Transnational Property and Casualty
• UK Property and Casualty Insurance Group was created as a separate group during 1999 due to the increase in related operations following the 1999
The tables below present the gross premiums and net income attributable to AXA’s Property and Casualty
(*) The Austrian and Hungarian subsidiaries, formerly included in the German Property and Casualty Group, are now included in the Other Property and Casualty Group. Prior year financial information has been restated accordingly.
Net Income Year Ended December 31, Including Minority Interests Group Share b03-338 • Item 9 (US) ok 23/05/00 12:11 Page 144 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
In 1999, 94.4% of the property and casualty operating results are derived from AXA’s European operations.
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The net investment result increased by € 296 million, largely due to the € 279 million increase in realized gains in 1999, including gains totaling € 386 million on Paribas and Elf securities tendered in connection with public offers of exchange. As a result of these gains, the level of realized gains on the rest of the equity security portfolio was voluntarily reduced. These transactions, combined with the general increase in the financial markets, significantly increased the yearend level of unrealized gains. The increase in realized gains was partly offset by realized losses of € 12 million on the sale of fixed maturity securities in 1999, compared to realized gains of € 43 million in 1998.
With regard to insurance claims, the 2.1% deterioration in the claims ratio, net of reinsurance, to 79.5%, can be attributed primarily to the occurrence of severe storms in France at the end of 1999. These storms cost a total of € 591 million (net of reinsurance) after the utilization of € 87 million from the equalization reserve. At December 31, 1999, the total equalization reserve was € 88 million. Excluding the year-end storms, the 1999 claims ratio would have been 75.7%, representing a 1.7% improvement largely due to a reduction in the reserve for claims handling expense after more refined methods were adopted for calculating the reserve, and to operating cost efficiencies of € 65 million.
The net reinsurance ceded result improved by € 443 million, primarily due to the recoveries related to natural catastrophes at year-end 1999.
The decrease in acquisition expenses can be attributed to the change in gross premiums and the application of a new commission rate schedule.
Income tax expense decreased by € 15 million as a result of the decrease in the effective tax rate, from 39.7% in 1998 to 27.5% in 1999, due to the higher percentage of income from capital gains, which is taxed at a lower rate.
Net income increased by € 82 million, primarily due to the increase in net investment results attributable to realized gains on securities tendered in the Paribas and Elf Public Offers of Exchange. This increase was offset partly by the establishment of a provision to cover costs connected with the strategic plan and by the occurrence of storms at the end of the year.
French Property and Casualty Insurance Group’s gross premiums. Despite an increase of more than 50,000 contracts, personal automobile insurance gross premiums decreased primarily due to competitive pressure. In property insurance, gross premiums declined by 1.4% due to a reduction in premium rates, particularly for commercial risks, as a result of competitive market pressures. General liability and construction gross premiums declined despite the rise in premium rates due to the adoption of more stringent underwriting standards in 1998. Direct marketing gross premiums increased 28.3% to € 91 million.
The net investment result in 1998 was relatively unchanged compared to 1997. Net realized gains decreased by € 38 million in 1998 primarily a result of 1997 investment sales in connection with the restructuring of the historical UAP portfolio which generated significant realized gains. Net investment income increased € 44 million primarily as a result of an increase in fixed income security investments.
The reinsurance ceded result improved by € 38 million primarily due to the transfer to Saint Georges Ré
Group, the development of new cost accounting systems and changes in the allocation of administrative costs between life and property and casualty insurance has made it difficult to compare costs between 1998 and 1997. Excluding the impact of costs related to merging operations, general costs decreased by 2.0%. The reduction in commission rates, excluding reinsurance assumed, is due to the continuing impact of an agreement reached with general agents at the end of 1996 to gradually decrease their commission rates. The combined ratio remained stable at 104.8%
in 1998. Excluding the impacts of costs related to b03-338 • Item 9 (US) ok 23/05/00 12:11 Page 148 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
Group and associated net investment results are not included, and net investment income is not reduced for investment expenses or interest expense on shortterm and long-term debt. Accordingly, the net investment results summarized in the following table are not directly comparable to the net investment results of the
French Property and Casualty Insurance Group - Net Investment Results by General Account Asset Category Year Ended December 31,
The following table presents information regarding the German Property and Casualty Insurance Group for the years indicated.
Property and Casualty Group include € 352 million in gross premiums earned by Albingia, consolidated as of May 1999 following the GRE acquisition.
Excluding Albingia, gross premiums decreased by 0.8% on a comparable basis. Intense competitive pressures, particularly in automobile and commercial risk insurance (which account for 27 % and 5% of gross premiums, respectively), combined with a difficult economic market, continued to exert downward pressure on premium rates. Gross premiums earned by the direct marketing insurance subsidiary
Sicher Direct totaled € 80 million, up 33.4%, with an increase of 31,000 contracts.
Excluding Albingia, net investment results increased by € 71 million to € 419 million, compared to 1998.
This increase is due to the increase in investment income related to the restructuring of AXA Colonia’s mutual funds.
Insurance claims, which totaled € 1,971 million, were adversely affected by the occurrence of significant claims in commercial risk insurance and by the increase in claims frequency in automobile insurance during the period. Including direct marketing insurance, and on a constant structural basis, the claims ratio for all accident years (net of reinsurance) was 79.6%, a 2.4% increase. This deterioration was due to the 3.6% increase in the claims ratio for the current accident year, the 0.4% decline in positive prior year loss development and a 1.6% decline to a lower basis of provisioning for the equalization reserve, which was strengthened by € 2 million, bringing the total equalization reserve to € 491 million at December 31, 1999. The claims ratio for all accident years, net of reinsurance for Albingia, was 73.0% in 1999.
Excluding Albingia, income tax expense remained constant in 1999 compared to 1998, after the exclusion of non-recurring items which reduced income tax expense by € 23 million in 1998. This stability is due to tax impact on a € 10 million decline in pre-tax income and the impact of new tax regulations effective in 1999 (€ 13 million).
After amortization of goodwill on Albingia of € 8 million, goodwill net of accumulated amortization was
Group totaled € 48 million, including a loss of € 35 million provided by direct marketing insurance operations, which are still in the development phase, and a loss of € 3 million provided by Albingia, which includes the amortization of goodwill. The net income is still affected adversely by the underwriting results.
Germany (excluding direct marketing insurance), a decline of 6.8% on a constant exchange rate basis.
In a market marked by intense competitive pressures and more selective underwriting, gross premium declined for all lines of business but the decreases were sharpest in automobile and commercial risk b03-338 • Item 9 (US) ok 23/05/00 12:11 Page 151 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
Despite the decline in gross premiums, insurance claims increased slightly compared to 1997 due to the occurrence of significant claims during the period. Excluding direct marketing insurance, the claims ratio for the current accident year went from 87.6% in 1997 to 89.2% in 1998. Positive prior year loss reserve development remained constant as compared to 1997: € 261 million in 1998 versus € 248 million in 1997. The deterioration in the claims ratio for all accident years, from 75.8% in 1997 to 76.5%
The € 96 million improvement in reinsurance ceded is attributable to reinsurance coverage of certain significant claims that occurred in the third quarter 1998. In addition, AXA Colonia is gradually reorienting its reinsurance coverage policy toward the less expensive non-proportional treaties.
However, excluding direct marketing insurance, the expense ratio increased from 27.1% in 1997 to 28.3% in 1998 due to higher fixed costs incurred in 1998. The combined ratio excluding direct marketing insurance increased from 103.0% in 1997 to 104.8%
in 1998 while the ratio including Sicher Direct went from 105.2% to 106.9%.
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Cash & Short Term: Related Assets at year end 367 253 192
(d) Including investment income for loans that are not detailed in table above.
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increase in gross premiums from other lines of business (which account for 47% of all gross premiums)
was due to the decision to cease selling unprofitable products, and to the decrease in premiums from the business portfolio put into run-off during the period.
was affected by the increase in interest rates in 1999. Excluding the impact of GRE, AXA Insurance reported a strong increase in net investment results of € 53 million. This includes an increase in realized gains of € 67 million, primarily due to the sale of equity securities under favorable market conditions, and a slight decline in investment income (down 5%, principally on fixed maturity securities). Net investment results for the prior year were adversely affected by the 1999 Asian financial market crisis
The AXA Insurance claims ratio for all accident years, net of reinsurance, was 74.1%, a 1.8% improvement compared to 1998. The low claims ratio in respect of
Acquisition expenses and administrative expenses were € 363 million for AXA Insurance and € 295 million for GRE subsidiaries. They include restructuring costs incurred in connection with the operational integration of GRE subsidiaries (€ 38 million, of which € 35 million was charged to AXA Insurance).
and a high claims experience. Excluding the impact of dilution related to the GRE acquisition, and on a constant exchange rate basis, AXA Insurance increased net income by € 10 million due to an increase in realized gains on the sale of assets (€ 32 million net of minority interests), partially offset by the establishment of a restructuring reserve (€ 13 million net of minority interests).
UK Property and Casualty Insurance Group Net Investment Result by General Account Asset Category
Real Estate: Net investment gains (losses) (3.77)% – – – – –
(a) Yields are calculated on a constant structural basis (i.e. excluding GRE investment result for 1999) and on the basis of average beginning and end of period asset carrying value for each asset category. All amounts are converted into French francs from local currency at year-end exchange rates.
(d) On a constant exchange rate basis, the yields for 1997 would have been 6.29% for fixed maturities, 3.24% for real estate, 4.53% for equity investments, 8.63% for cash and short term investments and 6.23% for all general account investments.
(e) Including investment income for loans that are not detailed in table above.
The following table presents information regarding the Belgian Property and Casualty Insurance Group for the years indicated.
(a) Includes investment income, net of investment expenses and interest expense on short-term and long-term debt, and net realized investment gains or losses. (b) Includes the net result of premiums, insurance benefits and claims and commissions ceded under reinsurance contracts. (c) In 1998, AXA used the weighted average exchange rate to translate the results of operations whereas in 1997 the year-end exchange rate was used.
due to higher premium rates. Gross workers’ compensation insurance premiums (19% gross premiums)
increased slightly by 0.5%, with the loss of several large contracts offset by an increase in temporary employment agency customers and by a significant increase in coverage targeting small- and mediumsized businesses. The decrease in premiums is primarily attributable to a decrease in gross premiums from commercial fire insurance, and the loss of several large contracts in a highly competitive market.
Acquisition expenses and administrative expenses of € 409 million, decreased by € 116 million compared to 1998. In 1998, a provision of € 127 million was recorded to cover the cost of restructuring property and casualty operations in Belgium. Excluding this provision, the expense ratio was 31.6% in 1999, compared with 31.4% in 1998.
In 1999, the Belgian subsidiaries recorded an income tax benefit of € 6 million, compared to an income tax benefit of € 31 million in 1998. This decrease is due to significant level of gains realized on sales of equity securities in 1998 as realized gains are not taxed in
Goodwill relates to the acquisition of Royale Belge minority interests at the end of July 1998. The amortization charge in 1999 of € 11 million relates to a twelve-month period. The 1998 amortization charge was recorded for a five-month period given that the minority interests were acquired at the end of July 1998.
■ In a market that grew slightly, gross premiums declined by 0.1% on a constant exchange rate and structural basis, to € 1,310 million principally due to more selective underwriting. In addition, gross premib03 -338 • Item 9 (US) ok 23/05/00 12:11 Page 159 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
ums were affected by the decrease in average premium rates in workers compensation insurance and commercial risks in a particularly competitive market. In automobile insurance, gross premiums remained stable.
Net investment results increased € 143 million compared to 1997, to € 568 million. In 1998, Royale Belge and AXA Belgium realized net gains of € 285 million versus € 125 million in 1997. The level of realized gains in 1998 was partly due to investment sales made in connection with the acquisition of Royale Belge’s minority interests whereby the Albert Frère Group agreed to reacquire certain of its shares held by Royale
Belge. In 1997, the sale of Banque Bruxelles Lambert resulted in a realized gain of € 87 million.
In 1998, the Belgian subsidiaries recorded an income tax benefit of € 31 million versus income tax expense of € 10 million in 1997. The income tax benefit was due to the non-deductibility of the restructuring provision, which resulted in the recording of a deferred tax asset of € 51 million and the fact that gains realized on sales of equity securities are not taxed in Belgium.
Bruxelles Lambert transaction of € 42 million, the € 84 million increase in net income (group share) is primarily attributable to the high level of realized gains on the sale of equity securities in 1998 partly offset by the establishment of a restructuring provision, accounting for an increase in net income of € 45 million. In addition, the buyout of Royale Belge minority interests brought AXA’s economic interest in Royale
■ The following table summarizes the net investment results of the Belgium Property and Casualty Insurance
Group for the principal categories of general account assets for the periods indicated. Certain investment assets of the Belgium Property and Casualty Insurance group and associated net investment results are not included, and net investment income is not reduced for investment expenses or interest expense on shortterm and long-term debt. Accordingly, the net investment results summarized in the following table are not directly comparable to the net investment results of the
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Belgian Property and Casualty Insurance Group Net Investment Result by General Account Asset Category
(c) On a constant exchange rate basis, the yields for 1997 would have been 7.61% for fixed maturities, 5.58% for real estate, 5.70% for mortgage loans on real estate, 15.81% for equity investments, 3.19% for cash and short term investments and 8.91% for all general account investments.
Gross Premiums Year Ended December 31, (in euro millions) 1999 1998 1997
■ Gross premiums increased by 3.8% on a constant structural and exchange rate basis. Subsidiaries operating in Ireland (gross premiums of € 257 million),
(gross premiums of € 88 million) and the GRE subsidiaries in Hong Kong, Singapore, the Netherlands and Portugal (gross premiums of € 71 million results for the eight month period following the acquisition of GRE in May 1999) were included in AXA’s consolidated operating. They contributed a net loss of € 2 million to net income.
reserve strengthening effected in 1998, and (iii) the 2.5% reduction in the expense ratio (to 26.3%) due to operating cost efficiencies following the integration of operations. At the same time, income tax expense increased by € 18 million due to changes in tax regulations regarding the deductibility of certain claims reserves.
Spain. AXA Aurora Iberica recorded gross premiums totaling € 690 million in 1999, while Direct Seguros, which began operations in 1997, recorded gross premiums of € 39 million. The 7.4% increase in gross premiums recorded by AXA Aurora Iberica was primarily due to an increase in automobile insurance (which accounts for 60% of gross premiums) attributable to premium rate increases implemented since 1998 by anticipating a general market trend, before other property and casualty insurers, in a market that remains extremely competitive. Gross premiums for Direct
Seguros, which sells automobile insurance, increased by 71.1%, and 41,000 new contracts were added to the portfolio.
Ireland. Gross premiums recorded by AXA Ireland totaled € 257 million (for the eight months following the acquisition of GRE in May 1999). Over the full year, gross premiums increased by 10%, principally in the automobile insurance product line, which accounts for 81% of gross premiums. The automobile insurance business benefits currently from a positive economic environment. Net income totaled € 4 million, including realized losses of € 6 million on disposals and goodwill amortization of € 2 million. The combined ratio was 103.1%.
(classified under life insurance business). Their gross premium contribution for the year ended December 1998 was € 41 million and € 26 million, respectively.
Gross premiums for the year ended December 31, 1999 included gross premiums earned by the GRE
On a comparable structural basis, gross premiums decreased by 1.1%. This decrease represents the impact of a 2.2% increase in gross automobile insurance premiums (39% of gross premiums) offset by the 4.8% decrease in gross premiums on fire insurance cover (32% of gross premiums). The decrease in gross premiums on fire insurance cover is the result of a decision by some brokers to follow the Year 2000 recommendations of the National Insurers’
Excluding non-recurring items recorded in 1998 and on a constant structural basis, the combined ratio net of reinsurance deteriorated by 1.5% due to an increase in claims frequency in the current accident year and a deterioration in loss development on liability business from prior insurance years.
in 1999. The deterioration in claims is essentially due to the strengthening of claims reserves which, in compliance with regulations, are calculated on the rate of settlements, which increased significantly in 1999. In addition, a mandatory change in estimates used to calculate workers’ compensation benefits in 1998 led to significant positive loss development.
Excluding these non-recurring items, the claims ratio for the current accident year was stable.
Other countries. Gross premiums increased in most other countries, particularly in Austria, Hungary and
Hungary, € 8 million (versus € 11 million in 1998); Luxembourg, € 4 million (compared to € 2 million in 1998); Switzerland, € 2 million (versus € 2 million in 1998); Turkey, € 4 million; and the Asian subsidiaries, a loss of € 40 million (compared to a loss of € 20 million in 1998), including a loss of € 30 million from the direct marketing insurance company that was established in Japan in 1998 and began operating in 1999.
of gross premiums, despite a market-wide premium rate increase of approximately 10%, gross premiums declined slightly due to a contraction in the portfolio due to the closure of unprofitable agencies. Gross premiums for other lines of business increased by 0.5%. Net loss totaled € 29 million versus € 34 million in 1997. The combined ratio for all accident years remained high although it improved from 118.8% in 1997 to 115.6% in 1998. Current year claims experience improved due to the implementation of selective underwriting policies in 1997; however, the ratio for all accident years suffered from b03-338 • Item 9 (US) ok 23/05/00 12:11 Page 166 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
certain loss reserve strengthening recorded for prior accident years on automobile liability and general liability insurance due to an unexpected increase in mandated settlement amounts. The improvement in the expense ratio from 29.3% in 1997 to 28.8% in 1998 was as a result of a decrease in the workforce.
UAP businesses completed in 1998 did not have a negative impact on gross premiums and new automobile insurance products were launched in October 1998. On a constant structural basis, AXA Aurora
The net loss recorded by Direct Seguros, 50% owned by Banco Bilbao Vizcaya, was € 5 million in 1998 as compared to € 4 million in 1997. The loss declined due to the favorable impact of the recognition of a deferred tax asset of € 5 million related to tax loss carryforwards. Such poor results were directly related to the incidence of business development costs.
Canada. On a constant exchange rate basis, gross premiums declined 0.4% in 1998. In a market that experienced rapidly declining gross premiums, AXA
Without such agreements, the loss of its business would have been 4.3% on a constant exchange rate basis. In personal insurance, which accounts for 58%
The Netherlands. On a constant exchange rate basis, gross premiums declined by 4.3% on a constant exchange rate basis, to € 301 million, primarily due to the movement in the maturity date of certain professional disability contracts from December 31, 1998 to January 1, 1999. Excluding the impact of this item, gross premiums declined by 1.3% on a constant exchange rate basis. Automobile insurb03 -338 • Item 9 (US) ok 23/05/00 12:11 Page 167 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
As a result of the acquisition of Royale Belge minority interests, AXA’s economic interest in this subsidiary increased to 98.6% as of July 31, 1998 compared to 67.3% previously. Assessments of a guaranty fund established for potential Year 2000 claims reduced net income by € 19 million. In addition, the strengthening of IBNR reserves in disability insurance reduced net income by € 3 million and the establishment of certain reserves for policies written in the
(excluding brokerage business) for all accident years and the combined ratio increased to 69.5% and 111.2%, respectively. These losses were partially offset by increases in the gains realized on the sale of equity securities and a € 4 million gain realized upon the sale of a German branch by UAP New
Morocco. Gross premiums for Al Amane increased 1.2% on a constant exchange rate basis, to € 60 million. This growth is principally the result of a large increase in fire insurance gross premiums and the development of bank distribution networks. In automobile insurance, the loss of several large contracts caused a loss in this line of business. The € 14 million increase in the contribution to net income is principally due to the increase in net investment results and an improvement in the claims ratio for all exercise years from 90.7% in 1997 to 63.2% in 1998. This increase was a result of a mandatory change in estimates used in calculating workers compensation insurance reserves. The combined ratio improved to
I n t e r n a t i o n a l I n s u r a n c e S e g m e n t
As previously stated, from time to time AXA may change its segment presentation. In 1999, the former Reinsurance Segment was combined with the
Transnational Property and Casualty Insurance Group activities, which was previously reported as a group within the Property and Casualty Insurance Segment.
Segment” covering all aspects of global insurance and reinsurance risk coverage. Prior year financial information has been restated accordingly.
AXA Cessions and certain operations in run-off such as English & Scottish and St Georges Re. In 1999, the
International Insurance Segment accounted for 5.8% of AXA’s insurance related gross premiums
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Insurance claims remained stable in 1999 compared to 1998. Insurance costs related to natural catastrophes declined (€ 99 million, versus € 267 million in 1998), but the claims ratio for the current accident year deteriorated sharply as the downward cycle in the world reinsurance market continued. Hurricane
Floyd resulted in insurance costs before retrocessions of € 70 million. Negative loss development in respect of prior accident years was € 10 million in 1999, primarily due to reserve strengthening mainly in connection with Hurricane George. Positive loss development in respect of prior accident years was € 36 million in 1998.
The net result on retrocessions declined by € 87 million, as insurance benefits retroceded in 1998 (€ 133 million) was particularly high due to the large number of significant claims that occurred during the period. As in 1998, AXA Re took advantage of favorable conditions to set up excess of loss cover at attractive rates and also benefited from a profit-sharing clause that generated € 116 million on this cover
(compared with € 99 million in 1998). Excluding the effect of exchange rates, particularly against the US
dollar, which is the currency of choice in retrocession cover programs, the cost of such programs remained unchanged. The claims ratio for all accident years, net of reinsurance, was 92.5%, versus 85.5% in 1998.
The 13% decline in acquisition expenses was due to the decrease in the change in unearned commissions related to the growth in proportional treaties during 1999 and lower commissions paid as a consequence of deteriorating underwriting results. General administrative expenses remained stable in 1999 compared to 1998. Net income declined by € 31 million due to low reinsurance premium rates worldwide.
■ On a constant exchange rate basis, gross premiums rose by 1.6% to € 1,359 million. In property and casualty reinsurance, which accounts for nearly 88% of total reinsurance gross premiums, increases in proportional reinsurance gross premiums offset the reductions in non-proportional reinsurance gross premiums due to a decline in premium rates. Excluding proportional retrocessions and on a constant exchange rate basis, gross premiums for property casualty reinsurance remained stable. In life reinsurance, gross premiums totaled € 89 million, a 62.0% decline due to the termination in early 1998 of unprofitable
US health reinsurance treaties. The increase of € 56 million in unearned premium reserves is principally due to the receipt of large proportional treaties at the end of 1998.
Net investment results, which rose by 9.0%, reflected a decrease in net investment income of € 20 million due to the decrease in bond revenue caused by the drop in the US dollar to French franc exchange rate.
Unlike 1997, AXA Re recorded several major claims in 1998, including Hurricane Georges in the
The net result on retrocessions increased from € 100 million in 1997 to € 153 in 1998. In a competitive retrocession market, AXA Re increased catastrophe coverage in 1998, as it was able to retrocede certain risks at advantageous rates. Such increase allowed
AXA Re to recover approximately € 133 million related to retrocessions of risks associated with
Canada. In addition, AXA Re benefited from retrospectively rated contracts allowing them to recover losses on coverages greater than € 99 million. The claims ratio for all accident years rose from 74.9% in
The reduction of the income tax expense is due to the increase in net income for countries with low income tax rates. Net income increased by € 5 million due to the results of reinsurance ceded, net and the increase in net investment results. AXA Re, with a ratio of reserves to gross premiums of 334% and 337% in 1997 and 1998 (gross of retrocessions) maintained its conservative claims reserving policy.
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AXA Global Risks Year Ended December 31, (in euro millions) 1999 1998 1997
Claims experience for prior accident years improved by € 87 million as a result of a lower level of reserve strengthening required in 1999 compared to 1998.
In 1998, AXA Global Risks (US) strengthened claims reserves for prior period claims, and AXA Global Risks
SA strengthened reserves for construction and legal liability lines of business (€ (112) million net of favorable loss development on property and casualty reinsurance due to the sale of GIE Réunion Aérienne). The reserve strengthening was attributable to overall deterioration in claims experience.
Acquisition expenses and administrative expenses increased by € 40 million, primarily due to the establishment of a restructuring provision (€ 18 million) to cover the costs of aligning AXA Global Risks with AXA
Re, scheduled to be completed in 2000. Excluding this provision, the expense ratio improved, from 29.2% in 1998 to 26.0% in 1999, principally due to the increase in premiums.
Spatiale. The 1997 gross premiums for these businesses totaled € 357 million. On a constant exchange rate and structural basis, gross premiums declined 21.3% due to the world-wide decline in premium rates in all AXA Global Risks lines (particularly, aviation, marine, transport and large risk), the restructuring of treaties with other AXA companies, and more selective underwriting.
Global Risks SA in France recorded a net loss of € 32 million, versus net income of € 13 million in 1997, €
9 million of which was transferred to AXA Courtage in 1998. Net income was reduced by € 44 million and b03-338 • Item 9 (US) ok 23/05/00 12:11 Page 174 PHILIPPE PHILIPPE 2:JOBS:AXA:03-338 • AXA COB 1999 (US):
■ Gross premiums recorded by AXA Assistance increased by 1.2% compared to € 278 million in 1998.
The growth in international business was offset by a decrease in gross premiums earned in France due to the cancellation of significant, but unprofitable, contracts. Net income totaled € 11 million, an increase of € 1 million over 1998. This increase relates primarily to a 0.7% decrease in the expense ratio to 26.9%, partly offset by a decrease in the net investment results, attributable to the lower level of realized gains on the sale of equity securities and real estate assets compared to 1998.
AXA Cessions had a net loss of € 7 million, largely attributable to an adverse impact of certain natural catastrophes (€ 20 million after tax, particularly in
recorded 1998 net losses of € 3 million, € 10 million and € 10 million, respectively. AXA Cessions’ net income declined by € 5 million versus 1997 primarily due to freezing rain claims in Canada which decreased net income by € 9 million. English &
Scottish reduced its net loss due to the decline in the reserve strengthening recorded for pre-1992 business received from AXA Global Risk UK from € 14 million in 1997 to € 13 million in 1998.
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(a) Includes net income from Equitable Real Estate of €15 million in 1997. (b) Include trading investment income, net of investment expenses and interest expense on short-term and long-term debt (other than interest expense on short-term trading instrument, which is included in financial services companies expenses), and net realized trading investment gains or losses.
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ing companies was € 143 million in 1999, an increase of € 55 million compared to 1998. Excluding the impact of appreciation of the US dollar (€ 6 million), net income increased by 55.6% (on a constant exchange rate basis), due to (i) growth in the factors described above impacting revenues, (ii) strong growth in performance-based fees (€ 152 million in 1999 compared to € 48 million in 1998), and (iii)
general improvement in the ratio of general operating costs to revenue, which decreased from 65.9%
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December 31, 1997) and a change in the character of assets under management. The proportion of mutual fund assets under management, which generate higher asset management fees than institutional accounts, increased 39.5% as compared to a 25.7%
Because Alliance units are publicly traded, Alliance would have been treated as a corporation for federal income tax purposes commencing January 1, 1998.
Alliance utilized an option in 1998 whereby it maintained its partnership tax status while paying a 3.5%
Net loss of other entities included in the group totaled € 32 million as compared to a gain of € 69 million in 1997. Net income in 1997 included the € 6 million contribution of Equitable Real Estate until its sale and the € 90 million gain realized on its sale in June 1997. In 1998, net income includes a € 11 million dilution gain related to the exercise of stock-options.
Excluding the impact of these items, net income decreased by € 16 million principally due to the increase in 1998 of income tax expense resulting from the increase in Alliance LP’s net income, the 1997 release of tax reserves, and the 1997 reduction of the recorded value of Cursitor Eaton.