PART III — CORPORATE GOVERNANCE, EXECUTIVE COMPENSATION, MAJOR SHAREHOLDERS AND RELATED MATTERS 115 3.1 Directors, Senior Management and Employees 116 3.2 Full disclosure on executive compensation and share ownership 132 3.3 Description of the Company’s share repurchase program 154 3.4 Major Shareholders and Related Party Transactions 156 3.5 The Offer and Listing 162
Annual Report 2007 — Document de Référence This Annual Report is also available on the Company’s website at www.axa.com.
It was filed with the AMF on March 28, 2008 and may, as a consequence, be used in connection with a financing transactions provided it is accompanied by a prospectus registered with the AMF.
AXA’s plans and objectives to differ materially from those expressed or implied in the forward looking statements (or from past results). These risks and uncertainties include, without limitation, the risk of future catastrophic events including possible future weather-related catastrophic events or terrorist related incidents. Please refer to Part IV of this Annual Report for a description of certain important factors, risks and uncertainties that may affect AXA’s business and/ or results of operations. AXA undertakes no obligation to publicly update or revise any of these forward-looking statements, whether to reflect new information, future events or circumstances or otherwise.
The Company publishes its consolidated financial statements in Euro (“Euro”, “euro” or “€”). Unless noted otherwise, all amounts in this annual report are expressed in Euro. The currency of the United States will be referred to as “U.S. dollars” or “USD” or “U.S.$” or “$”. For historical exchange rate information, refer to Part II “The AXA Group: Our global business operations, recent financial performance and financial condition”, Section “Exchange Rate Information” of this Annual Report. For a discussion of the impact of foreign currency fluctuations on AXA’s financial condition and results of operations, see Part II “The AXA Group: Our global business operations, recent financial performance and financial condition”, Section “Activity Report” of this Annual Report.
— Dividends 8 tHe aXa GRoUP: oUR Global bUSineSS oPeRationS, Recent Financial PeRFoRMance and Financial condition 2.2 inFoRMation on tHe coMPany
— Additional factors which may affect AXA’s business �9 2.� actiVity RePoRt — Insurance and Asset Management markets 44
The Consolidated Financial Statements were prepared in accordance with IFRS and IFRIC interpretations that were definitive and effective as at December 31, 2007, as adopted by the European Commission before the balance sheet date. However, the Group does not use the “carve out” option to avoid applying all the hegde accounting principles required by IAS 39. As a consequence, the consolidated financial statements also comply with IFRS as issued by the International Accounting Standards Board (“IASB”).
balance SHeet data: in accordance with iFRS: (a) As described in notes 1.10, 1.11.2 and 1.12.2 of Part V — Consolidated Financial Statements of this Annual Report : (i) Following clarification of IFRIC agenda committee following IASB decision, AXA reclassified TSDI instruments (perpetual subordinated debts) into shareholders’ equity in 2006 with retrospective application in 2005 and 2004 with impact on net income, (ii) in line with new accounting FRS27, the reclassification in the United Kingdom of some With-Profit technical reserves to allow for all future terminal bonuses payable to With-Profit policyholders within the allocated policyholder reserves, previously held in the unallocated policyholder bonus reserve, without any impact on earnings, and (iii) the restatement of The Netherlands’ activities as discontinued businesses.
(e) An annual dividend is generally paid each year in respect of the prior year after the annual general meeting of shareholders (customarily held in April or May) and before September of that year. Dividends are presented in this table in the year to which they relate and not in the year in which they are declared and paid. A dividend per share of €1.20 will be proposed at AXA’s Annual Shareholders’ Meeting that will be held on April 22, 2008. The dividend will be payable on April 29, 2008 with an ex-dividend date of April 24, 2008.
Report as the “Euro Noon Buying Rate”. The Euro Noon Buying Rates presented below are for your convenience and were not used by AXA to prepare AXA’s consolidated financial statements included in Part V of this Annual Report.
(a) The average of the Euro Noon Buying Rates on the last business day of each full month during the relevant period.
information on euro noon buying Rates > 2.1 Selected conSolidated Financial data
net dividend per share in euro tax credit per share in euro dividend per share eligible for a tax relief in euro
(a) Proposal to be submitted to the Shareholders’ Meeting to be held on April 22, 2008. (b) As of January 1, 2005 individual shareholders who were residents of France for tax purposes were eligible for a tax relief of 50% on the dividend, i.e. Euro 0.305 per share for fiscal year 2004.
(c) As of January 1, 2006 individual shareholders who were residents of France for tax purposes were eligible for a tax relief of 40% on the dividend, i.e. Euro 0.35 per share for fiscal year 2005.
As of January 1, 2008 individual shareholders who are residents of France for tax purposes are eligible for a tax relief of 40% on the dividend, i.e. Euro 0.48 per share for fiscal year 2007.
For information on AXA’s dividend policy, see Part V — “Consolidated Financial Statement” and Part VI — “Certain Additional Information — Dividends” of this Annual Report.
In 1��8, AXA purchased the minority interests of its subsidiary AXA royale Belge and, in 1999, AXA acquired Guardian royal Exchange in Great Britain through its subsidiary Sun Life & Provincial Holdings (“SLPH”). The Guardian royal Exchange acquisition allowed AXA to further establish its positions in both the United Kingdom and Germany.
In 2000, AXA: (i) acquired a majority ownership interest in a Japanese life insurance company, “Nippon Dantaï Life Insurance Company”, through a new Japanese holding company, “AXA Nichidan”, (ii) increased its interest in SLPH from 56.3% to 100%, (iii) sold its interest in Donaldson Lufkin & Jenrette (“DLJ”) to Credit Suisse Group, (iv) acquired Sanford C. Bernstein through its US based asset management subsidiary Alliance Capital (which subsequently changed its name to AllianceBernstein), and (v) acquired the remaining minority interests in AXA Financial, which is now a 100% owned subsidiary of AXA.
In 2001 and 2002, AXA acquired a banking platform in France, Banque Directe. AXA also continued to streamline its portfolio of businesses, selling its health business in Australia and insurance operations in Austria and Hungary, and reorganizing its reinsurance business.
In 2004, AXA acquired the American group MONY, which allowed AXA to expand its life insurance distribution capacity in the United States by approximately 25%. In addition during 2004, AXA sold (i) its insurance activities in Uruguay (AXA Seguros Uruguay) thereby finalizing its disengagement from South America, (ii) its Dutch insurance broking operations (Unirobe), (iii) its Dutch health insurance operations, and (iv) its mortgage lending activities in Germany (AXA Bausparkasse AG).
In December 2005, FINAXA, a listed holding company that was AXA’s principal shareholder, was merged into AXA. Prior to the merger, FINAXA owned the “AXA” brand which, upon consummation of the merger, became the property of AXA. This merger resulted in a simplification of AXA’s shareholding structure and an increase in the proportion of its publicly traded shares.
In 2006, AXA acquired the Winterthur Group, which was then active in 17 countries and served approximately 13 million clients worldwide. This operation gave AXA the opportunity to strengthen its leading position in several European markets and to increase its presence in a number of high growth markets including in Central and Eastern Europe and Asia. During 2006, AXA also acquired (i) “Citadel” in Canada, (ii) Thinc Destini (subsequently renamed Thinc Group) in the United Kingdom, and (iii) MLC Hong Kong and Indonesia via its subsidiary AXA Asia Pacific Holdings.
In December 2006, AXA completed the sale of AXA rE’s business to Paris re Holdings and took a 3.4% stake in Paris re Holdings, a newly created company sponsored by a consortium of international investors led by Stone Point Capital.
During 2007, AXA (i) acquired a 75% stake in Kyobo Auto (now called “Kyobo AXA Insurance Company”) which has a leading position in the South Korean direct motor insurance market (May 2007) and subsequently increased its shareholding to 90% (in September 2007) by subscribing to a capital increase and through a buyout of minority shareholders, (ii) acquired together with UkrSibbank, the Ukrainian banking subsidiary of BNP Paribas, 99% of the capital of Vesko, Ukraine’s 6th largest P&C insurer (in November 2007), in June 2007 AXA and UkrSibbank had already announced the establishing of a joint-venture in the Ukrainian P&C insurance market, (iii) completed the sale of its principal Dutch operations, comprising 100% of AXA Netherlands, Winterthur Netherlands and DBV Netherlands (September 2007), (iv) reached an agreement with Bao Minh Insurance Corporation (“Bao Minh”) to establish a
strategic partnership in the Vietnamese insurance market through AXA’s acquisition of 16.6% stake of the share capital of Bao Minh (September 2007), (v) finalized a long-term partnership agreement with the Italian bank BMPS for the distribution of life, non-life and pension business in Italy (in October 2007), and with AXA Investment Managers assuming the management of the insurance companies’ assets and open pension funds’ assets; and (vi) reached an agreement to acquire a 36.7% interest in reso Garantia’s (“rESO”) which represents AXA’s entry into the russian market in December 2007.
(1) Source: Pensions & Investments, Watson Wyatt Global 500 survey, 2006.
Please note that the percentages noted in the second column (“Ownership interest percentage”) represent the economic interest and the percentages noted in the third column (“Voting rights percentage”) represent the percentage of the company’s total voting power controlled by AXA.
(a) AXA also holds indirectly 100% of the general partner of AllianceBernstein. (b) Holding company that owns AXA Equitable Life Insurance Company. (c) Holding company that owns AXA Assurances Inc. and AXA Insurance (Canada). (d) New corporate name (formerly AXA-ONA). Holding company that owns AXA Assurance Maroc. (e) Holding company that owns AXA Belgium.
stake in AXA Oyak. (r) Holding company that owns AXA Sun Life Plc, AXA Insurance Plc, AXA PPP Healthcare Limited, Winterthur UK Financial Services Group Limited and AXA Advisory Holdings Limited.
(s) Holding company that owns The National Mutual Life Association of Australasia Limited, National Mutual Funds Management (Global) Limited and National Mutual International Pty Limited. AXA’s ownership interest and voting power in AXA Asia Pacific Group is divided between a direct holding of 50.32% and an additional 3.54% owned by the AXA Sun Life PLC.
(t) Wholly owned by AXA Asia Pacific Holdings Limited. (u) Holding company that owns AXA Life Insurance Co. Ltd , AXA Non-Life Insurance Co. Ltd and AXA Financial Life Insurance Co. Ltd (formerly Winterthur Swiss Life Insurance
Co., Ltd). (v) Holding company that owns AXA Life Insurance Singapore Pte Ltd. Wholly owned by AXA Asia Pacific Holdings Limited.
At March 26, 2008, the relevant ratings for the Company and its principal insurance subsidiaries are as follows:
(b) restated in full year 2006 means the restatement of The Netherlands’ activities as discontinued businesses. (c) Annual Premium Equivalent (APE): Measure of new business volume. represents 100% of regular premiums + 10% of single premiums, in line with EEV methodology. APE is
Managed on behalf of third parties (b) 658,921 652,413 543,174 total assets unDer manaGement 1,281,352 1,278,074 1,037,�30
(a) Winterthur represented €104 billion of total assets under management at the end of 2006. (b) Including Mutuelles AXA.
(a) In 2006, transfer of reinsurance activities formerly led by AXA rE to AXA Liabilities Managers (recorded in “Others”), following the sale of AXA rE activities to Stone Point Capital.
For additional information on AXA’s business segments, see “Part 2.3 — Activity report”, section “Operating results by Segment” and Note 3 “Segmental Information” included in “Part V — Consolidated Financial Statements” of this Annual report.
LIFE & SAVINGS SEGMENT AXA offers a broad range of Life & Savings products including individual and group savings products, as well as life and health products for both individual and commercial clients. The Life & Savings segment accounted for €59.8 billion or 64% of AXA’s consolidated gross revenues for the year ended December 31, 2007 (2006: €50.0 billion or 64%).
of which Australia and New-Zealand 545 420 428 51 38 32
(a) Annual Premium Equivalent (APE): Measure of new business volume. represents 100% of regular premiums + 10% of single premiums, in line with EEV methodology. APE is Group share.
(b) New Business Value: (NBV) The value of new business issued during the current year consists of the Value In Force of new business at the end of the year plus the statutory profit result of the business during the year. NBV is Group share.
marKets anD CompetItIon In the Life & Savings segment, AXA operates primarily in Western Europe (including France, the United Kingdom, Germany, Belgium, Switzerland and the Mediterranean region), the United States and Japan. In addition, AXA offers investments and savings, and life and health products in other countries such as Australia and New Zealand, but also in Asia (notably Hong Kong, Singapore, China and Indonesia), in Central and Eastern Europe (Poland, Hungary) and in the Middle East. The products in these markets are offered through various distribution channels, including exclusive agents, salaried salesforces, brokers, independent financial advisers, and bank networks. See the “Distribution channels” section below.
(mainly for group and third party businesses), and — changes in regulations that may affect the policy charge structure relating to commission and administrative charges.
For additional information on markets, see section “Insurance and Asset Management Markets” included in “Part 2.3 Activity report” of this Annual report.
— Pure savings, which provide investment return to policyholders, while AXA bears the investment risk.
— Whole life products, which provide a death benefit over a person’s entire lifetime or up to a certain age, such as age 95 or 100, as long as the required premiums are paid.
— Disability products, which pay a benefit in case of disability. The benefit can be a lump sum, or a percentage of the income paid over a specified period of time.
Health products1 generally offer reimbursement of medical expenses or provide medical services.
— contracts with the financial risk borne by the policyholders (unit-linked), in which the investment risk (and reward) is generally transferred to the policyholder while the issuing company earns fee income from managing the underlying assets.
To attract and retain clients, especially in the segments identified as strategic, AXA has developed solutions designed to meet the needs of the targeted customer groups. In addition, new products have been designed to support AXA’s cross-selling strategy and thus improve client retention and enhance value for the clients. AXA also aims to reuse across markets successful products and experiences developed for individual country markets.
The table below presents consolidated gross revenues (after inter-segment elimination) and gross insurance liabilities by major product for the periods and as of the dates indicated for AXA’s Life & Savings segment: lIfe & saVInGs seGment in Euro millon, except percentages
Fees and charges relating to investment contracts with no particpating features 740 608 509 60,625
Exclusive agents are individuals or firms commissioned by a single insurance company to exclusively sell its products on its behalf. Tied agents are exclusive agents.
Direct sales relate to all sales made through mail, telephone, and internet.
Brokers are independent firms who negotiate with insurance companies on behalf of customers. As opposed to exclusive agents, they can work with different insurance companies.
Partnerships are sales agreements between an insurance company and another company from the financial services industry, especially banks, or from another industry, such as car dealers. The insurance company and its partners might be involved in a joint-venture.
AXA’s distribution strategy focuses on strengthening traditional channels and developing new ones, such as direct selling and partnerships. Staff hiring, retention of veteran staff, professionalism and commercial performance are the main initiatives to strengthen traditional distribution channels. To face more volatile and more demanding customers, AXA believes that the diversification of distribution channels through the development of new channels improves opportunities for increased contact with AXA’s customer base.
Intermediaries / independent advisers / brokers other networks, including coporate partnerships and bank networks
surrenDers anD lapses For most Life & Savings products, fees and revenues are accrued over time, while costs to the issuing company in the first year are higher than costs in subsequent years due to first year commissions and the costs of underwriting and issuing a contract. Consequently, the rate of policies remaining in-force and not lapsing, also known as the “persistency rate”, plays an important role in profitability.
Total surrenders and lapses for 2007, and the ratio of surrenders and lapses to gross surrenderable insurance reserves at the beginning of the periods indicated are presented below: surrenDers anD lapses years ended December, 31 2007 total surrenders
(a) Amounts and percentages reported for the U.S. operations exclude lapses. (b) Including conversions in Japan. (c) In 2005 and 2006, Mediterranean region consisted of Spain, Italy and Portugal. In 2007, also included Morocco and Turkey.
AXA’s Property & Casualty Segment offers a broad range of products including motor, household property and general liability insurance for both personal and commercial customers, targeting mainly small to medium sized companies. In certain countries, health products are classified as Property & Casualty products1. The Property & Casualty segment accounted for €25.0 billion, or 27%
of AXA’s consolidated gross revenues for the year ended December 31, 2007 (2006: €19.5 billion or 25%).
The nature and level of competition vary among the countries in which AXA operates. AXA competes in each of its Property & Casualty products and geographic markets with other insurers. In Western European countries, a large portion of customers holds one or more Property & Casualty products.
Overall, the Property & Casualty insurance industry tends to be cyclical with surplus underwriting capacity leading to lower premium rates. Throughout 2007, the market cycle continued to soften, which resulted in increased pressure on insurance pricing. In addition, customers seemed to become very price-oriented when looking for a new insurer.
(a) Source: Swiss re, Sigma report 2007 “World insurance in 2006“. (b) Source AXA, mainly based on national insurance association data for each specific country in 2006. Excluding Winterthur in all countries except Switzerland. (c) United Kingdom, including Health, but excluding Ireland.
The table below sets forth gross revenues and gross insurance liabilities by major product for the periods and as at the dates indicated: property & Casualty seGment : Gross reVenues by proDuCt in Euro million, except percentages
Direct sales and marketing other networks, including coporate partnerships and bank networks
aXa Corporate solutions assurance is the AXA Group subsidiary dedicated to large Property & Casualty risk insurance for large European companies, and to aviation and marine insurance companies worldwide.
The table below summarizes AXA’s consolidated gross revenues and gross insurance liabilities (gross of reinsurance) for the International Insurance segment for the periods and at the dates indicated: InternatIonal InsuranCe in Euro million, except percentages
marKet anD CompetItIon aXa Corporate solutions assurance. The competitors in the global risks market are acting at a worldwide level with multinational clients placing their risks far beyond their countries of origin via international programs or in key global marketplaces. After several years of rate increases and program restructuring, the market has experienced soft underwriting conditions from 2005 onwards, notably on Property and Casualty insurance and Aviation, Marine and Space insurance worlwide. 2007 confirmed this trend on rates, which is to some extent due to low occurence of major natural disasters in the recent years. AXA Corporate Solutions Assurance is among the top five large corporate risks insurers in Europe1.
proDuCts anD serVICes aXa Corporate solutions assurance provides global insurance programs to large international corporations that require coverage for all their locations. AXA Corporate Solutions Assurance underwrites large insurance risks such as property damage, liability, construction risks, motor fleet, marine and aviation. AXA also offers loss-prevention and risk management services.
aXa assistance provides both emergency and daily services, and health management through a new range of products and claims management. AXA Assistance has developed its expertise in managing crisis situations, whether they are of a political nature, health-related or linked to natural disasters.
The table below presents the International Insurance segment’s gross revenues and gross insurance liabilities by major product for the periods and at the dates indicated: (1) Sources: Lehman Brothers, Merrill Lynch, JP Morgan, KBW, Annual reports. (2) Source: SNSA (National Syndicate of Insurance Companies).
DIstrIbutIon Channels aXa Corporate solutions assurance mainly distributes its products through international brokers, but also domestic brokers. Marine and aviation business is distributed through specialized brokers.
aXa assistance mainly operates as a business to business company although it also uses direct sales and marketing to sell its products. In countries in which AXA offers Property & Casualty insurance products such as France, Switzerland, Spain, the United Kingdom and Germany, AXA distribution networks offer assistance services in their insurance products. AXA Assistance aims at integrating service providers and developing capacities of distribution to final customers.
Also, in 2007, approximately €757 million of premiums were placed externally by aXa Cessions on behalf of AXA’s insurance subsidiaries (2006: €664 million).
AXA’s Asset Management companies are AllianceBernstein and AXA Investment Managers. The Asset Management companies manage assets on behalf of institutional clients, retail investors and private clients, as well as on behalf of companies affiliated with AXA.
AXA has asset management specialists’ teams in each of its major markets: Western Europe, the United States and the Asia / Pacific region.
asset manaGement seGment in Euro million assets managed by aXa’s asset managers at December 31, (a)
Assets backing contracts with financial risk borne by policyholders 95,225 94,999 89,622
(a) Based on estimated fair value at the dates indicated. Assets under management presented in this table are based on asset management companies only; AXA Group (including insurance companies) assets under management amounted to €1,281 billion, €1,278 billion (of which €104 billion linked to Winterthur) and €1,038 billion as of December 31, 2007, 2006 and 2005 respectively.
— Management of mutual funds sponsored by AllianceBernstein, its subsidiaries and affiliates, for individual investors,
AXA IM’s worldwide growth is reflected in the set up of new subsidiaries in 2007 in China (joint venture with SPDB) and India (joint venture with Bharti and AXA Asia Pacific Holdings). In addition, in 2007, AXA IM assumed management responsibility for the majority of Winterthur’s assets.
The operations in the Banking segment are conducted primarily in Belgium, France and Germany. For the years ended December 31, 2007 and 2006, the Banking segment accounted for €0.3 billion and €0.4 billion, respectively, or less than 1%, of AXA’s consolidated gross revenues.
This segment’s operations principally include: aXa banK belGIum AXA Bank Belgium, a subsidiary of AXA Belgium, offers a comprehensive range of financial services to individuals and small businesses and has a network of approximately 950 exclusive independent bank agents, who also support the sale of products offered by AXA Investment Managers and of insurance products offered by AXA Belgium. AXA Bank Belgium is the sixth bank in Belgium where the four largest banks represent 90% of the market1.
aXa banQue Based in Paris, AXA Banque had more than 610,000 registered customers at the end of 2007, with development focused on exclusive networks (exclusive agents and salaried salesforce) covering 75% of client scope. It offers a large range of retail banking products including deposit and saving accounts and consumer loans.
loss reserVe DeVelopment table The loss reserve development table shows movements in loss reserves between 1997 and 2007, based on previously applied accounting standards, in accordance with IFrS 4. All contracts concerned are insurance contracts as defined by IFrS.
With effect from the development of loss reserves at end of 2006, however, AXA uses the method which consists in completing each column of the table using the same scope as that used for “Gross reserves for unpaid claims and claims expenses developed initially at the booking date”. In practice, therefore, with effect from the 2006 column, the differences between the first and second rows are mainly due to exchange rate impacts and only marginally to changes in scope of consolidation.
loss reserVe DeVelopment table: property & Casualty anD InternatIonal InsuranCe (eXCluDInG aXa re) (in Euro million except percentages)
Ten years later 13,864 reserves re-estimated at : Nine years later 19,864 20,120
(a) It is not appropriate to extrapolate future redundancies or future deficiences based on the loss reserve development presented in the table, as conditions and trends that have affected development of the liability in prior periods may not necessarily occur in the future periods. redundancy/deficiency disclosed includes forex impact between this year and last year. This line also includes the impact of the unwind of discount rate on annuities (which are developed from 2006 on) for an amount of €100 million for 2006.
Gross reserves for unpaid claims and claims expenses developed initially at the booking date (a)
Gross reserves for unpaid claims and claims expenses developed in 2007 (d) 2,880 3,060 3,3�6 3,453 5,868 4,778 3,742 3,314 4,253
Ten years later 2,150 reserves re-estimated at: Nine years later 2,736 3,403
Re-estimated net claims reserves 1,690 2,146 2,203 2,042 2,721 1,980 2,276 2,274 2,175
Percentages of original net reserve (a) 34.9% 18.8% 25.7% 33.3% 35.5% 47.3% 30.6% 19.1% 32.1%
(a) The loss reserve development table is presented on an underwriting year basis for AXA rE business. Accordingly reserves re-estimated and the excess of re-estimated reserves of the initial reserves include reserves for losses occurring up to twelve months subsequent to the original year-end. 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 future periods.
reConCIlIatIon betWeen DeVelopeD reserVes anD total reCoGnIZeD ClaIm reserVes total Gross ClaIm reserVes (in Euro million)
Property & Casualty and International Insurance (excluding AXA RE) (a) 44,020 41,301 31,168
(a) Total gross claims and other reserves developed are presented on the basis of the loss reserve development table. The reserves of AXA Corporate Solutions Insurance US were included in Property & Casualty and International Insurance loss reserves. The reserves of AXA rE P&C Insurance Company and AXA rE reinsurance Company (€203 million in 2007, €282 million in 2006 and €409 million in 2005) were included in AXA rE’s loss reserve development table.
(b) Including reserves on acceptations (€699 million in 2007, €771 million in 2006 and €938 million in 2005). (c) In accordance with IFrS 3, i.e. within 12 months following the acquisition date, the Group has adjusted certain items impacting the allocation of Winterthur purchase price.
additional factors which may affect aXa’s business > 2.2 InformatIon on the Company
reGulatIon AXA is engaged in regulated business activities on a global basis through numerous operating subsidiaries and the Group’s principal business activities of insurance and asset management are subject to comprehensive regulation and supervision in each of the various jurisdictions where the Group operates. AXA SA, the ultimate parent holding company of the AXA Group, is also subject to extensive regulation as a result of its listing on Euronext Paris and on the New York Stock Exchange and its control shareholding interest in numerous regulated insurance and asset management subsidiaries. Given that the AXA Group is headquartered in Paris, France, this supervision is based to a significant extent on European Union (“EU”) directives, discussed more fully below, and on the French regulatory system. The AXA Group’s principal regulators in France are the Autorité des marchés financiers (“AMF”), which is the French financial market regulator, and the Autorité de Contrôle des Assurances et des Mutuelles (“ACAM”), which is the principal French insurance regulator.
InsuranCe relateD reGulatIon While the extent and nature of regulation varies from country to country, most jurisdictions in which AXA’s insurance subsidiaries operate have laws and regulations governing sales practices, standards of solvency, levels of reserves, permitted types and concentrations of investments, business conduct, agent licensing, approval of policy forms and, for certain lines of insurance, approval or filing of rates. In certain jurisdictions, regulations limit sales commissions and certain other marketing expenses that may be incurred by the insurer. In general, insurers are required to file detailed annual financial statements with their supervisory agencies in each of the jurisdictions in which they do business. Such agencies may conduct regular or targeted examinations of the insurers’ operations and accounts and make requests for information from the insurer. Certain jurisdictions also require registration and periodic reporting by holding companies that control a licensed insurer. This holding company legislation typically requires periodic disclosure concerning the corporation that controls the licensed insurer and other affiliated companies, including prior approval of transactions between the insurer and other affiliates such as inter-Group transfers of assets and payment of dividends by the controlled insurer. In general, these regulatory regimes are designed to protect the interests of policyholders rather than security holders.
In Europe, AXA operates in most major markets, including France, Germany, the United Kingdom (“UK”) and Belgium through free-standing subsidiaries that are subject to a comprehensive regulatory regime based on the European Union (“EU”) insurance directives on life insurance and insurance other than life insurance. These directives have been implemented in France, Germany, the UK and other European jurisdictions and are founded on the “home country control” principle, according to which the ongoing regulation of insurance companies, including their non-home country insurance operations (whether direct or through branches), is the responsibility of the home country insurance regulatory authority. The home country insurance regulator monitors compliance with applicable regulations, including regulations governing solvency, actuarial reserves, investment of assets, statutory accounting principles, internal governance and periodic reporting requirements. In France, ACAM monitors compliance with applicable regulations, the insurer’s capital base and actuarial reserves, as well as the assets of the insurer that support such reserves. Selling activities of non-home country insurance operations, however, are generally supervised by the regulator in the country in which the sale of the insurance product takes place. As a result of the implementation of these directives, an insurance company that has been licensed to conduct insurance business in one jurisdiction of the EU may do business directly or through branches in all other jurisdictions of the EU without being subject to additional licensing requirements in the other jurisdictions.
In addition to these directives governing solvency of insurance companies and groups, in France, Germany, the UK, and certain other European jurisdictions, Property & Casualty insurers are required to maintain equalization reserves to protect against the impact of large claims and catastrophes. The basis on which these equalization reserves are established is set out in the local country regulations based on pre-established formulas applicable to certain lines of business and may be capped at a maximum level.
European “business insurance” sector. Several of AXA’s European subsidiaries received questionnaires from the Commission in connection with this investigation, which began in June 2005, and cooperated fully with the Commission. While the Commission’s final report did not impose sanctions on any insurer or other party, it did suggest certain areas for possible legislative and/or regulatory action by European Member States including in connection with compensation of insurance intermediaries, certain pricing practices in insurance and reinsurance pools and various other areas. Management cannot predict with any certainty at this time the impact of these potential legislative or regulatory actions.
— Finally, there are numerous other legislative and regulatory initiatives within various European jurisdictions relating to a variety of matters, including such matters as distribution practices and changes to tax laws that may affect the attractiveness of certain of our products, which currently have favorable tax treatment. For example, in Italy, since 2007, insurance companies are no longer permitted to enter into exclusive agency agreements with their agents and in the UK, recently adopted modifications to the capital gains tax regime are expected to reduce the attractiveness of certain products we sell including life insurance bonds and adversely impact sales of these products and tax matters.
Although the U.S. federal government generally does not directly regulate the insurance business, many federal laws affect the insurance business in a variety of ways, including the Federal Fair Credit reporting Act related to the privacy of information and the USA PATrIOT Act of 2001 relating to, among other things, the establishment of anti-money laundering programs. Furthermore, many U.S. federal tax laws affect the business in a variety of ways. There are a number of existing, newly enacted or recently proposed U.S. federal legislative initiatives, including U.S. federal tax initiatives that may significantly affect AXA’s U.S. life insurance subsidiaries. For example, in June 2001, legislation was enacted which, among other things, provides several years of lower rates for estate, gift and generation skipping taxes (“GST”) as well as one year of estate and GST repeal (in 2010) before returning to 2001 law for the year 2011 and thereafter. Legislation has been proposed regarding extending or making permanent the repeal of the estate and generation skipping taxes or significantly increasing exemption amounts and lowering rates. If enacted, this legislation would have an adverse impact on sales and surrenders of life insurance in connection with estate planning. Other provisions of the 2001 legislation increased amounts which may be contributed to tax qualified retirement plans and allowed increased funding levels for tax qualified retirement products. These provisions, which were to expire after 2010, have now been made permanent. In 2003, reductions to income tax rates on long-term capital gains and qualifying corporate dividends were enacted which adversely impacted the attractiveness of cash value life insurance and annuity products relative to other investment alternatives that may qualify for these lower rates. While set to expire after 2010, there are proposals to extend or make such reduced rates permanent. Federal legislative proposals relating to the creation of new tax-favored savings accounts have been made for several years. recently finalized Treasury regulations modify the rules for non-qualified deferred compensation and qualified plans (including tax sheltered annuities). Proposed legislation, to the extent enacted or adopted, and the complexity of recent Treasury regulations, could adversely affect certain sales of life insurance as well as the attractiveness of certain qualified plan arrangements, and the use of cash value life insurance and annuities for such arrangements. The U.S. Congress may also consider proposals for the comprehensive overhaul of the Federal tax law which, if enacted, could adversely impact the attractiveness of cash value life insurance, annuities and tax qualified retirement products. For example, in November 2005, The President’s Advisory Panel on Federal Tax reform announced its tax reform options that, if enacted by Congress, would make sweeping changes to many longstanding tax rules. These changes would include the creation of new tax-favored savings accounts that would replace many existing qualified plan arrangements and would eliminate certain tax benefits currently available to cash value life insurance and deferred annuity products by annually taxing any withdrawable cash value build-up in such products. Management believes that the enactment of these options into law in their current or similar form would adversely affect sales, funding and persistency of cash value life insurance and deferred annuity products. Management cannot predict what, if any, legislation will actually be proposed or enacted based on these options or what other proposals or legislation, if any, may be introduced or enacted relating to AXA Financial’s business or what the effect of any such legislation might be.
International Commission on Holocaust Era Insurance Claims (“ICHEIC”). ICHEIC conducted an investigatory process to determine the status of life insurance policies issued to Holocaust victims between 1920 and 1945 and settled thousands of claims filed with the ICHEIC with respect to policies issued by the European insurers participating in ICHEIC. After having completed its archival research and audit processes as well as the payment of all valid claims submitted by Holocaust victims and their heirs, the ICHEIC concluded its work in March 2007. As a result of its participation in the ICHEIC process, AXA benefits from a statement of interest issued by the U.S. federal government which provides that ICHEIC should be recognized as the exclusive remedy for all Holocaust era insurance claims. This statement of interest is intended to protect AXA against future civil litigation in the U.S. by Holocaust claimants and to encourage judges handing this type of litigation to dismiss these claims. While this statement of interest provides AXA with a certain level of protection against future lawsuits of this type in the U.S., it does not offer complete protection and, consequently, AXA could still be subject to litigation in the U.S. brought by Holocaust claimants.
AXA’s life-insurance products’ advantageous tax treatment may be eliminated or adversely impacted for certain products by changes in tax laws that are considered from time to time in jurisdictions in which AXA operates. For example, the Japanese legislature recently adopted a change in the tax treatment of Increasing Term Products that eliminated tax advantages of these products and adversely affected sales of these products in the Japanese market. As in other regions of the world, regulators in the Asia-Pacific region have broad discretion in their application of regulation and to investigate licensed insurers, on an individual or sector basis, to examine specific issues. For example, in Japan, the FSA ordered an extensive examination of claims payment practices in the life insurance sector during 2007. As part of this investigation, AXA Japan reviewed several hundred thousand life insurance payments over the past 5 years to determine whether benefits had been paid correctly.
asset manaGement relateD reGulatIon AllianceBernstein and AXA Investment Managers are subject to extensive regulation in the various jurisdictions in which they operate. These regulations are generally designed to safeguard client assets and to ensure adequacy of disclosure concerning investment returns, risk characteristics of invested assets in various funds, suitability of investments for client investment objectives and risk tolerance, as well as the identity and qualifications of the investment manager. These regulations also generally grant supervisory agencies broad administrative powers, including the power to limit or restrict the conduct of business for failure to comply with such laws and regulations. In such event, the possible sanctions that may be imposed include the suspension of individual employees, limitations on engaging in business for specific periods, the revocation of the registration as an investment adviser, censures and fines.
AllianceBernstein and certain of its subsidiaries as well as certain U.S. subsidiaries of AXA Investment Managers and AXA Financial, Inc. are investment advisers registered under the United States Investment Advisers Act of 1940 (the “Investment Advisers Act”). Each of AllianceBernstein’s U.S. mutual funds is registered with the SEC under the U.S. Investment Company Act of 1940 (the “Investment Company Act”) and the shares of most of these funds are qualified for sale in all states in the United States and the District of Columbia, except for U.S. funds offered only to residents of a particular state. Certain subsidiaries of AllianceBernstein and AXA Financial, Inc. are also registered with the SEC as transfer agents and broker-dealers that are subject to minimum net capital requirements. Transactions between AXA Equitable and AllianceBernstein are subject to applicable provisions of the New York Insurance Law and transactions between AXA Investment Managers and its insurance company clients are subject to various insurance law regulations of the various jurisdictions where these clients are domiciled. These regulations generally require that the terms of transactions between the investment manager and its client be fair and equitable, that charges or fees for services performed be reasonable and that certain other standards be met. Fees must be determined either with reference to fees charged to unaffiliated clients for similar services or, in certain cases, which include ancillary service agreements, based on cost reimbursement.
fInanCIal marKet reGulatIon anD relateD matters As a publicly-traded company with its securities listed on both Euronext Paris and the New York Stock Exchange, the Company must comply with the relevant rules for listing and trading on each of these exchanges and with a number of other laws and regulations including French and U.S. securities laws administered and enforced by, respectively, the AMF in France and the SEC in the U.S. These listing rules, other laws and regulations govern a wide variety of matters including (i) timely and accurate disclosure of information to investors, (ii) presentation of financial information in accordance with IFrS requirements (as well as in accordance with certain SEC requirements), (iii) restrictions on presentation of non-GAAP measures in the U.S., (iv) auditor independence requirements (including prohibitions on auditors furnishing certain types of non-audit services), (v) numerous corporate governance requirements (including independence requirements for audit committee members), (vi) certification of certain public reports by AXA’s Chief Executive Officer and Chief Financial Officer, and (vii) requirements to evaluate, document, and report on AXA’s internal controls over financial reporting and disclosure controls and procedures. The scope and impact of these requirements on the day-to-day operations of AXA has increased significantly since the adoption of the SarbanesOxley Act in the U.S. in 2002 and the adoption of similar legislation in other jurisdictions, including the Financial Security Law (loi de sécurité financière) in France in 2003. While the spirit of these laws is very similar, their technical requirements often vary and conflict with one another. Management has devoted substantial resources to ensure compliance with both the letter and spirit of these laws and anticipates that considerable resources will continue to be devoted to this area in the future.
In addition to these requirements, a number of recent legislative and regulatory initiatives in France, at the EU level or in other jurisdictions where AXA operates have potential implications for AXA and its subsidiaries. Certain of these initiatives may help create more uniform practices across the EU and facilitate the development of a more open and accessible European market for international companies like AXA. For instance, the European takeover directive, implemented into French law in 2006, provides a more uniform takeover regime within the EU, and the European directive relating to cross-border mergers, which is expected to be implemented into French law in early 2008, should considerably simplify the regulatory framework applicable to these mergers. However, others of these initiatives may increase the compliance burden, associated expense and regulatory risk for AXA and other market participants, including the following: — Anti-money laundering and anti-terrorism legislations have been enacted and continue to evolve in the many jurisdictions in which AXA and its subsidiaries operate. These laws and regulations impose increasingly complex compliance requirements on international groups such as AXA and prohibit the Group from doing business with certain countries, individuals or organizations.
— Certain European jurisdictions have enacted legislation that impacts investment of the Group’s proprietary assets and may also affect the Group’s asset management activities for third-party clients in those jurisdictions, including by restricting investment in financial instruments issued by companies engaged in certain activities. These types of legislation, which often vary from one jurisdiction to another, increase compliance costs and risks for the Group in the various European jurisdictions where it operates.
— In France and at the EU level, there are continuing discussions concerning implementation of a “class action” litigation mechanism that would allow groups of plaintiffs to bring collective actions. The scope and form of any such mechanism, as well as the timing of introduction, are currently under discussion.
(1) Source: FFSA. (2) Please note that the numbers quoted for the market data (Life and annuity) are for the nine months ended September 30, 2007. Source: LIMRA and VARDS (Morning Star). (3) Please note that the numbers quoted for the market data are for the nine months ended September 30, 2007. (4) Source: Insurance Research Institute. Statistics of Life Insurance Business in Japan. Fiscal Year 2006. (5) Source: GDV. Please note that the full year figures are preliminary estimations.
Mediterranean region. In Spain, the liquidity crisis and the domestic debt levels, along with a new fiscal law which removed tax advantages from insurance, led to growth of 2.1%4. In Italy, 2007 market forecast5 for new business showed a 7.0% decrease, especially on bankinsurance (–10%) and agents networks (–19%) impacted by the strong drop in corporate contracts (–43%). After the recession started in 2003, the Portuguese economy started to recover, though the unemployment rate remained at high levels. The Life & Savings market grew by 6.9%6. Greece experienced a rapid growth, remaining as one of the European insurance markets with a low penetration rate. In this context, the Life & Savings segment grew in 2007 by 6.6%7. The Turkish economy maintained a fast growth. However, the competition of Private Protection Plan’s companies led to a decrease of the savings business. In Morocco, the penetration rate remained very low and the market experienced a boost in the Bankinsurance business in the last years focused on capitalization and traditional risk products. In Spain, AXA ranked 9th; in Italy, it ranked 13th in a highly concentrated market; in Portugal, AXA was the 7th player in a market dominated by Bankinsurance channels; in Greece, AXA was ranked 10th; in Turkey, it ranked 4th; in Morocco, it ranked 3rd (combining both Property & Casualty and Life & Savings segments).
(9) Source: DEXX&R. (10) Source: Plan for Life as of September 2007.
(11) 3rd quarter 2007 year-on-year % change in real terms. (12) Source: OCI statistics, 2006Q3YTD and 2007Q3YTD.
central and eastern europe. The Life market benefited from a strong development (respectively +9% in Poland6, +13% in Hungary7 and +14% in the Czech Republic8). AXA’s market share over the Region increased from 1.9% in 2006 to 2.5% in 2007. AXA ranked ninth in Hungary, tenth in Czech Republic and twelfth in Poland. Pension Funds market followed the same trend. AXA ranked second in Czech Republic and Slovakia and fifth in Poland and Hungary with a market share of 7.4% over the region (as compared to 5.0% in 2006).
Switzerland13. The Swiss P&C market ranked first worldwide in both premiums per capita and premiums in % of GDP. While the market grew by 2.6% in 2006, mainly due to tariff increases in the Motor and Liability business lines, it started softening in 2007 at an expected 1% due to fierce competition. Motor business (25% of the market) should grow by 1.5%. Both Property and Workers Compensation lines of business slowed growth to about 0.9%. AXA Winterthur ranked first with a market share above 15%.
Belgium14. The Property & Casualty market 2007 growth rate was still fuelled by the introduction of the natural peril coverage in mid-2006 and tariff increases in Health. The Motor market, which represented 32% of total Property & Casualty market was estimated to have grown by approximately 1.5%, following significant market pressure, while household premiums estimated growth was about 9% (natural peril). The Workers’ compensation market should confirm its growth pace in 2007 at around 4%. AXA continued to rank first in the market.
Mediterranean region. In Spain, the relative slowdown of the economy had an impact on the car sales industry — which showed a slight deceleration — and on the building industry. Price competition continued in the Motor insurance market, which registered a 2.7%15 growth. In Italy, 2007 market forecast in P&C16 showed a 1.9% gross written premium increase. In Portugal, insurance activity faced an unfavourable economic environment (+0.1% in P&C17). After the recession started in 2003, the Portuguese economy started to recover, but the unemployment rate remained at high levels. New regulation allowed clients to cancel their
(9) Source: FFSA. (10) The ranking figures are based on publicly available Interim Reported Results presentations, and are generally on an IFRS basis. They are reported on a different basis to statutory reporting through FSA Returns (which are UKGAAP).
Asia (excluding Japan). Singapore. The insurance market grew by 12% in gross written premiums in the first three quarters of 2007 as compared to the same period last year. Underwriting results remained profitable but declined due to higher incurred loss ratios particularly in motor class of business. AXA ranked 4th with 7.2%3 of market share (3rd for motor and 2nd for Marine cargo). Hong Kong. The P&C industry grew by 4.7% in Gross written premiums for the first three quarters of 2007). However, Motor business contracted by 3.9% despite the increase in number of insured vehicles due to the soft market. Underwriting results remained profitable although lower than prior year, which was mainly due to higher claims and management expenses. AXA ranked 8th with 3.1%4 of market share. The company was the 1st for Motor in 2006. Malaysia. The P&C industry grew by 3.9% in gross written premiums for the first three quarters of 2007. However, underwriting results showed a small loss in the same period, attributable to higher claims ratio particularly in Motor. AXA Malaysia ranked 18th with 2.6%5 of market share.
InternAtIonAL InSUrAnce AXA Corporate Solutions Assurance is the AXA Group subsidiary dedicated to Property and Casualty insurance of large multinational corporations, and to Aviation, Marine and Space insurance worldwide. After several years of rate increases and programs restructuring, the market experienced soft underwriting conditions on these lines of business from 2005 onwards. 2007 confirmed this trend on rates, which is to some extent due to low occurrence of major natural disasters in the recent years. AXA corporate Solutions Assurance is among the top five large corporate risks insurers in Europe7.
ASSet MAnAgeMent Starting in mid-2007, increasing subprime mortgage delinquencies led to recessionary fears in the US, resulting in a pronounced decline in residential construction and consumer confidence. Reimbursment defaults notably in structured products used to re-fund the loans hit the financial markets which faced significant outflows as the institutional investors needed cash to back losses or wanted to shift away from risky corporate debt. This liquidity crisis led numerous European investors to sell “dynamic” monetary funds while underlying assets were not liquid.
These developments generated concerns that global economic growth would slow, which in turn, had caused volatility in global equity markets as headlines about subprime losses, credit tightening and reduced liquidity persisted. In this context, the credit market registered a major spread widening due to assets illiquidity. Financial institutions became also increasingly cautious about extending credit, as they sought to maintain sufficient collateral coverage and capital to absorb potential losses, causing global growth to decelerate. The coordinated response of the central banks through rate cuts or increased liquidity were an important factor in addressing this crisis. In this environment, global asset managers continued to face near-term challenges such as deteriorated investment returns and heightened volatility. However, offsetting this threat are positive longterm demographic trends reflecting the continuing shift of retirement assets from corporate and government programs to defined contribution and individual plans. This social transfer and the increasing number of global baby boomers approaching retirement represent tremendous opportunities for asset management firms. Global investors shifted increasingly their focus, raising demand for outcome-oriented advice and services, such as lifecycle and lifestyle funds designed to ensure the preservation of retirement assets. In Europe, in particular the continuing shift to open architecture provided opportunities for asset managers to grasp some of the current captive pools of assets. In addition, a dramatic widening of risk premiums provided the basis for enhanced absolute and relative investment returns, benefiting investors worldwide. The rise in demand for more sophisticated global investment solutions, including alternative investments such as hedge funds and private equity, created expanded opportunities and a distinct advantage for large, globallydiversified asset managers.
(1) Hellenic Association of Insurance Companies as of September 2007. (2) Association of the Insurance and Reinsurance Companies of Turkey source as of September 2007. (3) Source: Monetary Authority of Singapore. (4) Source: Office of the Commissioner of Insurance.
(7) Sources: Lehman Brothers, Merrill Lynch, JP Morgan, KBW, Annual Reports.
Market conditions in 2007 > 2.3 ActIvIty report fInAncIAL MArKetS 2007 was a year of contrasts. Activity in the financial sphere was robust, fuelled by abundant sources of liquidity. Credit expansion was continuing apace, and mergers/acquisitions were at record levels, with more than US$1.5 trillion transacted in the first quarter alone. However, the US real estate correction that began in 2006 gradually revealed the fragility of the so-called subprime market. By summer, it had already became evident to most observers that the subprime loans granted (worth around US$1.5 trillion, nearly 15% of the total mortgage market) could be in real trouble. Hence, a financial crisis was born. In the first half of August, the ECB (European Central Bank) had to step in and put a halt to the liquidity crisis that was forming. The Fed injected US$88 billion, and the ECB added €228 billion, between the 9th and the 16th of August. In addition, the central banks took steps intended to make it easier for banks to get cash, in particular by broadening the spectrum of securities eligible to be used as collateral for repos. At the end of the year, it became necessary to take yet other steps, including massive injections of liquidity, in order to prevent the substantial liquidity needs that emerged in late December from creating further tensions. Stateside, the Fed lowered its key rates three times, bringing the Fed Funds rate to 4.25%. The Bank of England also lowered its rates, while the ECB and the Bank of Japan left theirs untouched.
Compared to December 31, 2006, the Dollar lost nearly 11% against the Euro (Closing exchange rate moved from 1.32$ at the end of 2006 to 1.47$ at the end of December 2007). The same was true for the Yen at September 2007 but to a lesser extent (Closing exchange rate moved from 149.3 yens at the end of September 2006 used for Full Year accounts to 163.6 yens at the end of September 2007). The Pound Sterling lost nearly 9% against the Euro (Closing exchange rate moved from 0.672£ at the end of 2006 to 0.733£ at the end of December 2007). The Swiss Franc lost 3% against the Euro (Closing exchange rate moved from 1.61CHF at the end of 2006 to 1.66CHF at the end of December 2007).
In connection with AllianceBernstein’s acquisition of the business of Sanford C. Bernstein, Inc. in 2000, AXA Financial Inc. entered into a purchase agreement under which certain former shareholders of Sanford C. Bernstein have the right to sell (“Put”) to AXA Financial, subject to certain restrictions set forth in the agreement, limited partnership interests in AllianceBernstein L.P. (“AllianceBernstein Units”) issued at the time of the acquisition. As of the end of 2006, AXA Financial, either directly or indirectly through wholly owned subsidiaries, had acquired a total of 24.5 million AllianceBernstein Units for an aggregate price of approximately $885.4 million through several purchases made pursuant to the Put. AXA Financial completed the purchase of another tranche of 8.16 million AllianceBernstein Units pursuant to the Put on February 23, 2007 for a total price of approximately $746 million. This purchase increased the consolidated economic interest of AXA Financial, Inc. and its subsidiaries in AllianceBernstein L.P. by approximately 3% from 60.3% to 63.2%.
On March 23, 2007, AXA and Banca Monte dei paschi di Siena (BMpS) reached an agreement for the establishment of a long-term strategic partnership in Life and non-Life bancassurance as well as pensions business. AXA acquired 50% of MPS Vita (Life and savings) and MPS Danni (P&C), as well as 50% of BMPS open pension funds business. AXA will also manage the insurance companies’ assets (€11.9 billion as of year-end 2007) and open pension funds assets (€0.3 billion as of year-end 2007). The partnership is a platform for developing AXA’s and BMPS’s operations in the Italian insurance market. Total cash consideration paid by AXA in this transaction was €1,165 million and was financed with internal resources. The transaction was closed on October 19, 2007.
On May 22, 2007, AXA acquired 75% of Kyobo Auto for an amount of KRW 88 billion (€70 million). The company has a leading position in the South Korean direct Motor insurance market with annual revenues of KRW 476 billion (€374 million) in 2007 and a market share above 30%. The Group ownership reached 90% as of the end of December 2007 following the buyback of minority interests. Thanks to this acquisition, the AXA Group will serve over 2 million clients through its direct distribution P&C operations worldwide.
On June 8, 2007, AXA and BNP Paribas announced they had reached an agreement for the establishment of a partnership on the Ukrainian Property & Casualty insurance market. AXA was to acquire from BNP Paribas’ subsidiary UkrSibbank, a 50% stake in its insurance subsidiary: Ukrainian Insurance Alliance (UIA). AXA will have management control of the joint company, which will benefit from an exclusive bancassurance distribution agreement with UkrSibbank for an initial period of 10 years. The transaction was closed on November 23, 2007. The purchase price amounted to €12 million.
On July 27, 2007, AXA and UkrSibbank, the Ukrainian banking subsidiary of BNP Paribas, announced that they reached an agreement to acquire 99% of the share capital of vesko, Ukraine’s 6th largest P&C insurer. Vesko’s revenues for 2006 of $28 million were well balanced between individual and Commercial lines and between proprietary and nonproprietary distribution. The transaction was closed on November 13, 2007. The combination of Vesko with Ukrainian Insurance Alliance will form the 3rd largest Property & Casualty insurer in Ukraine. The purchase price amounted to €17 million for AXA.
In March 2006, AXA Canada acquired Winterthur Canada Financial Corporation, whose main asset was the citadel general Assurance company (“citadel”). The acquisition was financed internally by the AXA Group. The purchase price amounted to €221 million, and the related goodwill to €99 million.
On May 8, 2006, AXA Asia Pacific Holdings announced it had completed the acquisition of MLc Hong Kong and MLc Indonesia. The purchase price amounted to €340 million. Related intangibles amounted to €309 million, of which €116 million of goodwill and €194 million Value of Business in Force (net of tax).
On December 22, 2006, AXA received all necessary regulatory approvals and consequently closed the acquisition of Winterthur.
On December 22, 2006, AXA Asia Pacific Holdings (AXA APH) reached an agreement with AXA SA to acquire Winterthur Life Hong Kong Limited (WLHK). This followed the announcement of the completion of AXA SA’s acquisition of the Winterthur Group from Credit Suisse. AXA APH acquired WLHK for consideration in the range of HK$1.7 billion to HK$2.4 billion ($AUD 278 million to $AUD 393 million). HK$1.9 billion ($AUD 311 million) were payable on completion. This amount was subject to an adjustment based on the future performance of the business measured in 2009. AXA APH obtained shareholder approval for this acquisition at the Annual General Meeting in 2007 and the transaction was completed in Q2, 2007. In addition, AXA APH declined the opportunity to acquire Winterthur’s Indonesian life insurance operations and Japanese operations.
On October 16, 2006, AXA entered into an agreement with Alpha Bank to acquire its insurance subsidiary Alpha Insurance for €255 million. AXA and Alpha Bank signed a long–term exclusive agreement to pursue and strengthen the existing bancassurance partnership. Alpha Insurance is one of the top ten composite insurers on the Greek market with solid positions on profitable segments and a strong distribution network. Alpha Insurance recorded revenues of €151 million in 2005. It was integrated to AXA’s Mediterranean Region platform. The transaction was completed in Q1, 2007.
In addition, Winterthur U.S. repaid US$636 million, of which US$79 million had already been repaid in Q4 2006 (€506 million taking into account hedges put in place by AXA for this transaction at 1 Euro = 1.26 US$) of intercompany loans to Winterthur Group. This transaction followed AXA’s decision to put Winterthur U.S. operations under strategic review, as initially announced on June 14, 2006.
On July 25, 2007, AXA announced it had reached an agreement with China Life Insurance Co Ltd., a Life insurance company incorporated in Taiwan, for the sale of Winterthur Life taiwan Branch (WLtB). In 2006, WLTB had a premium volume of circa €100 million (US GAAP) and a 0.35% market share. The transaction was closed on October 31, 2007.
On December 21, 2006, AXA completed the sale of AXA RE’s business to Paris Re Holdings, in which AXA had taken a 3.4% stake. Under the terms of the agreement, the business of AXA RE had been ceded to Paris Re Holdings, with the risks and corresponding net income related to AXA RE’s 2006 claims experience accruing to Paris Re Holdings. This transaction generated a capital gain of €66 million net of tax on the business ceded. AXA guaranteed the reserves pertaining to losses incurred on or before December 31, 2005. Starting with the 2006 accounts, the accounting results of AXA RE accruing to the AXA Group mainly comprised the impact of the loss reserve developments on the corresponding run-off portfolio and were reported in the Other International Insurance segment.
On December 2, 2005, AXA Financial Group sold Advest to Merrill Lynch. Advest was a wholly owned subsidiary of AXA Financial Group and part of its Financial Advisory/ Insurance segment. In accordance with the terms of the agreement, Merrill Lynch purchased all of the issued and outstanding capital stock of Advest for $400 million in cash. This transaction reduced AXA Financial Group’s goodwill by an estimated €152 million. Total net income impact of the transaction was €—71 million, post tax.
cApItAL operAtIonS On January 11, 2007, meetings of holders of AXA’s 2014 and 2017 convertible bonds were held to vote on an amendment of the final conversion dates of the bonds to January 26, 2007 in exchange for a cash payment in respect of the value of the conversion option. The meeting of holders of the 2014 convertible bonds approved the amendment. Consequently, holders who did not convert their bonds by January 26, 2007, received €16.23 per bond on January 31, 2007. The meeting of holders of the 2017 convertible bonds did not approve the amendment. Consequently, to fully neutralize the dilutive impact of the 2017 convertible bonds, AXA has purchased from a banking counterparty, for a total cash amount equivalent to the payment proposed to bondholders, call options on the AXA share with an automatic exercise feature. This feature is such that one option is automatically exercised upon each conversion of a convertible bond. Consequently, each issuance of a new share resulting from the conversion of the bond will be offset by the delivery by the bank to AXA (and subsequent cancellation) of an AXA share; the issuance of a share in respect of the conversion of the bond and the cancellation by AXA of the AXA share received will offset each other. As a result of this transaction, there will no longer be a change to the outstanding number of AXA shares created by the convertible bond conversion.
During 2007, AXA pursued its share repurchase program to control the dilution arising from share-based compensation and employee Shareplan program and to hedge the AXA Miles granted to Group employees. Excluding shares repurchased through the liquidity agreement, AXA purchased 70.4 million of its own shares for a total amount of €2,126 million.
On September 19, 2007, the AXA Group announced its integration into the dow Jones Sustainability Indexes, which select the top 10% most advanced companies in terms of sustainable development in the world. This evolution was an independent confirmation of the relevance of the Group’s sustainable development strategy since 2005.
On December 3, 2007, AXA has decided to coordinate its european retail banking operations through AXA Bank Europe, in close cooperation with its local insurance operations. The objective of these banking operations is to complement the Financial Protection offering with a range of retail banking products, while ensuring adequate development, control and risk management throughout Europe. AXA currently operates banking in Belgium, France, Germany and Hungary.
On February 12, 2008, AXA announced it had reached an agreement with ING for the acquisition of 100% of the share capital of its Mexican insurance subsidiary Ing Seguros, for a consideration of US$1.5 billion (approximately €1.0 billion). ING Seguros is the third largest Mexican insurer (12% total market share, 5.5 million clients), with leading positions in key markets such as Motor (2nd largest player with a 17% market share) and Health (2nd largest player with a 19% market share). AXA intends to accelerate and complete the initiated turnaround of ING Seguros by dedicating seasoned management capabilities and leveraging the Group’s global platforms and expertise, notably in IT and reinsurance. Upon completion of the transaction, ING Seguros will be integrated to AXA’s Mediterranean Region unit and benefit from its know-how in underwriting, claims management, client segmentation, service and brand management. AXA will finance the transaction with internal resources. Completion of the transaction was subject to customary regulatory approvals and is expected to take place in the course of 2008.
(1) As of June 30, 2007 — Source: Association of the Insurance and Reinsurance Companies of Turkey.
2005 published 2007/2006 of which Gross written premiums 57,773 48,268 48,786 42,972 43,496 19.7%
of which Fees and revenues from investment contracts with no participating feature 740 608 608 509 509 21.8%
consolidated gross revenues for full year 2007 reached €93,633 million, up 20% compared to 2006.
the United States APE increased by 19% to €2,099 million due to strong growth in sales of Variable Annuities (up 20%) as well as in Life products. Variable Annuities growth was primarily driven by the continued expansion in the third party distribution networks, especially independent financial advisory firms. The addition of certain new product features also contributed to the increase in sales. The Universal Life product range was enhanced by the launch of an updated product in 2007 (Athena).
france APE increased by 3% to €1,360 million driven by both Individual lines and Group business despite a contracting insurance market. In Individual lines, the Accumulator-type product “Capital Ressources” launched in March 2007 recorded €23 million of APE. Group business growth was largely driven by Life & Health while Group retirement remained stable following a strong 2006 performance. Unitlinked share of total APE was stable at 25%.
South east Asia & china APE was up 75% to €63 million. Philippines was up 126% to €8 million due to strong unit-linked sales notably in the bancassurance channel, Indonesia was up 112% to €21 million as clients moved to unit-linked products due to reduced local bank deposit rates, Thailand was up 70% to €14 million due to successful agent recruitment and improvements in bancassurance, Singapore was up 25% to €14 million and China was up 93% to €5 million.
Motor revenues grew by 5% mainly driven by (i) the Mediterranean region up 8%, following new product launches in 2006 and 2007 (mainly “Protezione al volante” in Italy and “Dynamic 2” in Spain) and new segmented tariffs notably in Turkey, (ii) the United Kingdom & Ireland up 21%, largely as a result of the new business written through its Internet company, Swiftcover, which benefited from increased volumes through aggregator websites, (iii) Asia up 15% which confirmed its strong momentum, and partly offset by (iv) Germany (+1%), France (+0%) and Switzerland (—1%), recording positive net new contracts in a context of softening markets.
Non-Motor revenues increased by 5% mainly driven by (i) the United Kingdom & Ireland (+9%) as a result of strong performance in both Health and Travel businesses, (ii) Mediterranean Region (+6%) with positive contribution of all business lines and (iii) France and Germany, both up 2%.
commercial lines (38% of p&c premiums) recorded a +2% growth on a comparable basis driven by both Non-Motor (+2%) and Motor (+2%).
performance from medical and cancer product sales as part of the company’s strategy to focus on these more profitable products (€+76 million) and the sales of US Dollar and Yen denominated variable annuity products (€+52 million) resulting in AXA increasing its bancassurance market share and becoming one of the top ten players. Unit-linked share of total APE increased to 21%.
Mediterranean region APE decreased by 5% to €206 million as a result of a drop in Group business (down 28%) due to the non recurrence of a 2006 outsourcing of pension fund contract in Spain. This was partly offset by the increase in Individual business (+2%) notably driven by the contribution of the Accumulator product (€13 million)1. Unit-linked share of total APE was 18%.
Australia / new Zealand APE was up 25% to €545 million mainly driven by continued strong inflows into Global Equity Value fund and ipac wholesale products, in addition to strong Personal superannuation flows into Summit & Generations platforms. (1) AXA Spain and AXA Assicurazioni. AXA-MPS sales were not consolidated in Full Year 2007.
AllianceBernstein revenues were up 6% or 15% on a comparable basis to €3,130 million largely due to higher base fees (+25%, with +28% in institutional clients, +20% in retail clients and +24% in private clients) driven by higher average assets under management (+21%) partly offset by lower performance fees (—66%), especially on hedge funds. Other revenues (mainly distribution fees, institutional research and other fees) were up 10%. AllianceBernstein net inflows of €23 billion were strong across all client categories (€13 billion from institutional, €4 billion from retail and €6 billion from private clients).
Fees and revenues from investment contracts with no participating feature 740 608 608 509 509
Technical charges relating to insurance activities (a) (88,961) (83,115) (84,074) (79,657) (80,827)
Amortization of value of purchased life business in force (357) (232) (241) (528) (529)
IncoMe froM operAtIng ActIvItIeS, groSS of tAX eXpenSe 7,983 6,745 6,876 5,149 5,233
(a) For the periods ended December 31, 2007, December 31, 2006, and December 31, 2005, the change in fair value of assets backing contracts with financial risk borne by policyholders impacted the net investment result for respectively €7,476 million, €15,158 million and €13,589 million, and benefits and claims by the offsetting amounts respectively.
(c) Restated in full year 2006 means the restatement of The Netherlands’ activities as discontinued businesses.
Net realized capital gains or losses attributable to shareholders (b) 850 94 — (34) 910
(b) €–94 million includes €–66 million related to foreign exchange impact on TSDI.
Net realized capital gains or losses attributable to shareholders 1,175 1,107 1,130 910 850
Profit or loss on financial assets (under fair value option) & derivatives (596) (228) (226) 121 149
Life & Savings underlying earnings amounted to €2,670 million. Excluding the contribution of Winterthur (€286 million) and on a constant exchange rate basis, Life & Savings underlying earnings were up €230 million (+10%) mainly attributable to the United Kingdom (€+78 million), France (€+69 million), Germany (€+50 million), Belgium (€+22 million), partly offset by the United States (€—37 million).
This was partly offset by: (iv) Lower net technical margin (€—16 million) mainly driven by the United States (€—126 million mainly due to lower GMDB/IB margins mainly due to residual interest rate risk and higher volatility, as well as higher Fixed Life’s no lapse guarantee reserves resulting from increased sales of Universal Life to older clients), and the United Kingdom (€—71 million mainly as 2006 included favorable non recurring items including the reduction of possible endowment misselling provision and favorable movements in Unit-linked reserves following the finalization of compensation amounts to policyholders), partly offset by France (€+177 million mainly due to charges reclassified from technical margin to commission expenses in the context of the renewal of some group Life contracts, and the non recurrence of 2006 negative additional annuity reserves in Savings following change in regulatory mortality tables and additional reserves in individual disability business).
Partly offset by: (iv) Higher expenses (€—306 million) with a stable expense ratio at 28.4% (offsetting impacts between the acquisition ratio (+0.3 point) and the administrative expense ratio (—0.3 point)) driven by Germany (—1 point), and the Mediterranean region (—0.1 point), party offset by Belgium (+0.9 point) and the United Kingdom (+0.3 point).
International Insurance underlying earnings amounted to €218 million. Excluding the contribution of Winterthur (€19 million) and on a constant exchange rate basis, International Insurance underlying earnings increased by €70 million (+54%) mainly attributable to Other international activities (€+61 million), primarily due to the continuous favourable loss reserve development on some run-off portfolios in 2007.
Partly offset by, (ii) German Holding (€—29 million) primarily as a result of the absence of positive one off impact related to the recognition of the corporate tax refund of €30 million in 2006.
(iii) AXA S.A. (€—11 million) as the €+77 million profit linked to foreign currency options hedging AXA Group underlying earnings denominated in foreign currencies, and €+59 million due to a lower financial charge mostly related to a strengthening of the Euro, were more than offset by €—36 million higher expenses including higher AXA trademark support further to Winterthur acquisition, and €—108 million due to the non recurrence of 2006 positive items, mostly linked to Winterthur acquisition financing.
group net capital gains attributable to shareholders amounted to €1,175 million (of which €—400 million net related to impairments, or €—927 million gross related to impairments compared to €—192 million gross in 2006). Excluding the contribution of Winterthur (€—48 million) and on a constant exchange rate basis, group net capital gains attributable to shareholders were up €124 million mainly due to the Mediterranean region (€+115 million to €177 million, of which €+104 million in Property & Casualty and €+11 million in Life & Savings), France (€+88 million to €362 million, of which €+65 million in Life & Savings and €+24 million in Property & Casualty), partly offset by the United States (€—65 million to €—32 million in Life & Savings), and Belgium (€—59 million to €338 million, of which €—43 million in Life & Savings and €—16 million in Property & Casualty).
net Income amounted to €5,666 million. Excluding the contribution of Winterthur (€392 million) and on a constant exchange rate basis, net income increased by €335 million (+7%). This growth was the result of: (i) Higher adjusted earnings (€+695 million excluding
Winterthur and on a constant exchange rate basis). (ii) Lower result on financial assets accounted for under fair value option and derivatives including foreign exchange impact: €—368 million to €—596 million. These €—596 million can be analyzed as follows (a) a change in Fair Value and realized gains on mutual funds & other assets under fair value option of €—205 million mainly driven by €—138 million in Belgium Life & Savings and Property & Casualty, €—75 million in France Life & Savings, and €—45 million in Japan Life & Savings, partly offset by Switzerland Life & Savings and Property & Casualty (€+28 million) and Germany Property & Casualty (€+36 million), and (b) a change in Fair Value on derivatives, Forex and Tax of €—391 million, mainly driven by €—303 million in AXA SA, €—51 million in Japan Life & Savings and €—48 million in Switzerland Life & Savings and Property & Casualty.
— full year 2007 exceptional operations (€+2 million). — full year 2006 exceptional operations (€+189 million)
— Super subordinated debt and perpetual debts (including accrued interests) 238
— Actuarial gains and losses on pension benefits 612 contingency provision related to the sale of Advest (€3 million) and dilution gains (€9 million) in the US holdings, and (iii) €66 million related to the gain on the sale of AXA RE’s business.
(v) Integration costs of €—252 million of which €—163 million at AXA (of which €—148 million related to Winterthur integration) and €—89 million at Winterthur.
Adjusted earnings (euro per Share) 3.01 2.98 2.58 2.53 2.64 2.59 2.18 2.16 2.18 2.16 16.5% 17.7%
Underlying earnings (euro per Share) 2.43 2.41 2.01 1.98 2.06 2.03 1.71 1.70 1.73 1.72 20.8% 21.3%
decision, AXA reclassified TSDI instruments (perpetual subordinated debts) into shareholders’ equity with impact on net income, (iii) the restatement of The Netherlands’ activities as discontinued businesses.
(c) Following the capital increase related to Winterthur acquisition, the weighted average number of shares has been restated (IAS 33 §26) in 2006 and 2005 by using an adjustment factor of 1,019.
A new calculation has been implemented since the first half year 2007 closing, with the following principles: — For net income ROE: Calculation is based on consolidated financial statements, i.e. shareholders’ equity including perpetual debt (“Super Subordinated Debts” TSS / “Perpetual Subordinated Debts” TSDI) and Other Comprehensive Income “OCI”, and net income not reflecting any interest charges on TSS / TSDI.
— For adjusted and underlying ROE: • All perpetual debts (TSS / TSDI) are treated as financing debt, thus excluded from shareholders’ equity. • Interest charges on TSS / TSDI are deducted from earnings.
period ended, december 31, 2007 period ended, december 31, 2006 change in % points
(a) Including adjustement to reflect financial charges related to perpetual debt (recorded through shareholders’ equity). (b) Excluding change in fair value on invested assets and derivatives (recorded through shareholders equity), and excluding perpetual debt (recorded through shareholders’
change in unearned premium reserves net of unearned revenues and fees (275) (250) (271) (183) (197)
Net income from investments in affiliates and associates 22 12 12 10 10 operAtIng IncoMe groSS of tAX eXpenSe 3,808 3,366 3,445 2,449 2,504
Minority interests in income or loss (213) (193) (193) (149) (149)
Kingdom of some With-Profit technical reserves to allow for all future terminal bonuses payable to With-Profit policyholders within the allocated policyholder reserves, previously held in the unallocated policyholder bonus reserve, without any impact on earnings, and (iii) the restatement of The Netherlands’ activities as discontinued businesses.
2005 published contribution to consolidated gross revenues 59,845 49,952 50,479 44,585 45,116
(a) Restated means the restatement of The Netherlands’ activities as discontinued businesses. (b) Mediterranean Region includes Italy, Spain, Portugal, Greece, Turkey and Morocco.
Net capital gains or losses attributable to shareholders net of income tax 269 204 191 154
gross revenues increased by €250 million (+2%) to €15,052 million with positive contribution of both Individual and Group businesses.
(€+49 million to €—799 million) resulting from a volume effect, (iii) a €52 million increased general expenses mainly due to IT Costs and building lease, and (iv) higher amortization net of capitalization of deferred acquisition costs (€+32 million).
As a consequence, underlying earnings increased by €69 million (+15%) to €531 million.
Adjusted earnings increased by €134 million (+20%) to €800 million, resulting from the improvement in the underlying earnings (€69 million) and a €65 million higher increase in net realized gains to €269 million, mainly driven by important gains on real estate disposals.
net income decreased by €67 million (—9%) to €709 million mainly due to the adjusted earnings evolution and a €—201 million lower contribution of assets under fair value option and derivatives (mainly due to (i) €—91 million on real estate funds designated at market value (lower market reevaluation coupled with a €—51 million impact on deferred tax liabilities linked to an increased taxation of such real estate investments), as well as (ii) to the negative change in fair value in 2007 of some equities and some mutual funds exposed to credit and asset backed securities (versus positive change in fair value of such assets in 2006)).
Profit or loss on financial assets (under fair value option) & derivatives 40 — 9
Ape increased by €177 million (+9%) to €2,099 million on a reported basis, or +19% on a comparable basis due to strong growth in sales of Variable Annuities (up 20%) as well as in Life products. Variable Annuities growth was primarily driven by the continued expansion in the third party distribution networks, especially independent financial advisory firms. The addition of product features also contributed to the increase in sales. Universal Life product range was enhanced by the launch of an updated product for 2007 (Athena).
net technical margin decreased by €168 million to €466 million. On a constant exchange rate basis, net technical margin decreased by €126 million (—20%) primarily due to lower GMDB/IB margins mainly due to residual interest rate risk and higher volatility, as well as €37 million higher Fixed Life’s no lapse guarantee reserves resulting from increased sales of Universal Life to older clients.
— DAC amortization increased by €40 million on a constant exchange rate basis reflecting lower DAC unlockings in 2007 and higher revenues from separate account fees.
vBI amortization increased by €3 million to €—69 million. On a constant exchange rate basis, VBI amortization increased by €9 million (+14%).
Underlying cost income ratio increased to 57.9% versus 57.3% in 2006, notably due to a lower technical margin.
Income tax expense increased by €30 million to €—363 million. On a constant exchange rate basis, income tax expense increased by €63 million (+19%) principally due to the non recurrence of a €92 million favorable tax settlement in 2006, partially offset by a €36 million release of tax reserves in 2007.
Adjusted earnings decreased by €179 million to €851 million. On a constant exchange rate basis, adjusted earnings decreased by €102 million (—10%), primarily due to lower underlying earnings, impairment charges on fixed maturities (€82 million gross of which €31 million on Northern Rock) and lower capital gains net of DAC/VBI reactivity.
Net capital gains or losses attributable to shareholders net of income tax (26) 10 7 14
Ape increased by €454 million (+40%) to €1,588 million on a reported basis or +6% on a comparable basis. Wealth management was up 7% due to (i) individual pension business (up 14%) reflecting the strength of the combined AXA/Winterthur Individual pension offering as well as (ii) strong performance in the Offshore Estate Planning Bond (up 68%), partly offset by (iii) a drop in Offshore Bonds cash sales (—36%) resulting from a change in the tax environment of these products in 1Q07. Protection business was up 27% driven by new deals and improved propositions to IFAs as well as effective direct marketing campaigns. Group pension was up 2%.
vBI amortization increased by €39 million to €—46 million on a reported basis. Excluding Winterthur and on a constant exchange rate basis, VBI amortization increased by €38 million mainly as a result of higher lapses on Pension business. Winterthur contribution amounted to €—2 million.
The underlying cost income ratio increased from 68.7% to 81.9%. Excluding Winterthur, underlying cost income ratio increased by 12.5 points from 68.7% to 81.2% primarily due to the 2006 net technical margin positive one offs (7 points), the inclusion of Thinc Group (2 points), and the impact of the Wrap platform proposition (1.6 point).
Underlying earnings increased by €99 million to €255 million on a reported basis. Excluding Winterthur and on a constant exchange rate basis, underlying earnings improved by €78 million (+50%). Winterthur contribution amounted to €23 million.
(1) Part of these expenses are located in the With-Profit funds and therefore are borne by policyholders. (2) The deferred policyholder tax on unrealized gains is undiscounted when provided on Life unit linked assets and discounted when provided on unit linked liabilities. The IFRS
restatement between discounted deferred tax provision and undiscounted amount flows through net income.
Profit or loss on financial assets (under fair value option) & derivatives (96) (37) 6
net income group share 219 256 392 gross revenues increased by 2% to €5,116 million on a reported basis. On a comparable basis, and excluding group pension transfers (€51 million versus €299 million last year), revenues increased by €254 million (+5%) to €5,070 million, driven by: — Life (42% of gross revenues): Revenues decreased by 4%
Ape declined by 13% to €567 million on a reported basis. On a comparable basis, APE decreased by 17% (€—134 million)
mainly driven by individual business which decreased by 18% (€—123 million), notably: — Life: APE decreased by 47% (€—213 million) to €220 million mainly due to (i) €—182 million lower Increasing Term & LTPA sales following the announcement of tax regulation changes in March 2007 and April 2006 respectively, (ii) €—50 million Term Rider sales following the strategy to rebalance the non-proprietary portfolio to more profitable medical products, (iii) €—17 million lower Whole Life and Endowment sales (products not actively sold), partially offset by (iv) €+36 million higher LTTP sales and the newly launched universal Life product.
— Health: APE increased by 39% (€+76 million) to €245 million driven by €+48 million higher sales of Cancer product and €+27 million reflecting the successful implementation of the strategy to rebalance the portfolio towards more profitable medical products.
— Investments & Savings: APE increased by 15% (€+13 million) to €91 million due mainly to the €+52 million contribution of Accumulator-type products and €+7 million other variable annuity sales, partially offset by €—34 million lower SPA sales and €—12 million lower Fixed Annuity sales.
fees & revenues increased by €61 million (+7%) on a reported basis to €992 million. Excluding the contribution of Winterthur and on a constant exchange rate basis, fees & revenues were up €66 million (+7%) mainly driven by loadings on higher medical premiums. Winterthur contribution amounted to €91 million.
— Surrender margin decreased by €44 million to €—6 million predominantly due to the combined impacts of the 1Q07 medical whole Life conversion program (€—20 million) and normalized Safety-Plus surrenders from high 2006 levels (€—22 million).
— €22 million (+6%) higher non-commission expenses following increases in advertising spend, outsourcing expenses and payroll costs (including increased overtime & temp staff resulting from industry claim checking).
— €8 million higher net DAC expenses. Winterthur contribution amounted to €—44 million.
vBI amortization increased by €46 million on a reported basis to €—76 million. Excluding the contribution of Winterthur and on a constant exchange rate basis, VBI amortization increased by €15 million (+50%) driven by the combination of the one time 1Q07 old Medical Whole Life policies upgrade program (€9 million), higher Term & Whole Life surrenders and, to a lesser extent, differences between the positive impact of actuarial assumption changes (€33 million in 2007 versus €36 million in 2006). Winterthur contribution amounted to €—35 million.
Adjusted earnings increased by €25 million (+9%) on a reported basis to €319 million. Excluding the contribution of Winterthur and on a constant exchange rate basis, adjusted earnings increased by €36 million or 12% mainly driven by (i) higher net capital gains (€+18 million) mainly on Euro governments bonds following the asset portfolio rebalancing towards Japanese bonds and (ii) lower credited interests funded with capital gains (€+37 million), partially offset by (iii) the related tax & DAC/VBI reactivity (€—21 million). Winterthur contribution amounted to €21 million.
Ape increased by €170 million on a reported basis to €457 million. On a comparable basis, APE was stable as the strong growth in Investment & Savings (+12%), with notably the “TwinStar” Accumulator-type product (€84 million) was offset by (i) the non recurrence of 2006 large cases in Life Group business as well as (ii) the negative impact of traditional Riester products (notably in Winterthur’s portfolio) which had benefited last year from strong inflows as a result of a 2006 fiscal incentive. Unit-linked share in total APE was 38%.
fees & revenues increased strongly by €102 million to €229 million. Excluding Winterthur, fees & revenues increased by €31 million (+24%), driven by the growth in Health business and lower policyholder participation in Life and Health. Winterthur contribution amounted to €71 million.
net technical margin increased by €62 million to €112 million. Excluding Winterthur, net technical margin was up €26 million (+53%) due to improved technical result combined with lower policyholder participation in Life and Health. Winterthur contribution amounted to €36 million.
Underlying cost income ratio amounted to 33.1%. Excluding Winterthur, the ratio improved to 35.2% from 37.2% due to higher gross margin.
Adjusted earnings increased by €106 million to €182 million. Excluding Winterthur, adjusted earnings increased by €58 million (+77%) including €7 million higher net capital gains (mainly on equities). Winterthur contributed €48 million.
— Individual Life increased by €22 million (+3%) to €693 million, due to strong growth in unit-linked business of €74 million (+190%) to €108 million whereas traditional business decreased by €52 million (—8%) to €585 million.
2006 and 2005 numbers are related to AXA Switzerland before the Winterthur acquisition. As this acquisition increased dramatically the size of AXA in Switzerland, the following comments focus only on overall Switzerland numbers in 2007, without comparison to 2006.
Investment margin amounted to €61 million of which €55 million in Group Life favoured by increasing yields on bonds as well as equity dividends, partly offset by policyholders bonus distributed under the Swiss legal quote rule.
expenses amounted to €—167 million, of which €—107 million in Group Life (mainly non-commissions expenses reflecting the predominance of direct distribution). Other expenses (mainly related to Individual Life) amounted to €—60 million.
Underlying earnings reached €165 million, taking into account Income tax expenses of €—49 million.
Net capital gains or losses attributable to shareholders net of income tax 206 255 85
Profit or loss on financial assets (under fair value option) & derivatives (93) (10) (11)
— Group Life and Savings revenues increased by 22% to €619 million due to exceptional 2007 high production (including a €63 million single premium contract).
Ape increased by €40 million to €340 million on a reported basis. On a comparable basis, APE was up 8% to €340 million due to (i) individual life (+5% to €307 million) driven by both non unit-linked (largely Crest 40) and unit-linked products (TwinStar launched in September 2007), and (ii) Group business (+60% to €33 million including €6 million from a 2007 large case). Unit-linked share in total APE was 14%.
expenses increased by €58 million to €—252 million on a reported basis. Excluding the contribution of Winterthur, expenses increased by €32 million (+17%) mainly due to override commissions (€+19 million or +20%), acquisition costs (€+9 million or +17%), and administrative expenses (€+5 million or +8%). Winterthur contribution amounted to €—25 million.
Underlying cost income ratio increased from 69.8% to 70.5% on a reported basis. Excluding Winterthur contribution, underlying cost income ratio improved by 0.6 point to 69.2% due to the strong increase of underlying investment margin.
Underlying earnings increased by €25 million to €90 million on a reported basis. Excluding the contribution of Winterthur, underlying earnings increased by €22 million (+34%). This increase reflected higher investment margin partly offset by higher expenses. Winterthur contribution amounted to €3 million.
Net capital gains or losses attributable to shareholders net of income tax 19 7 10 10
The scope of the following analysis includes Italy (AXA alone), Spain (Winterthur + AXA), Portugal, Greece (Alpha Insurance, consolidated as of 01/01/2007), Turkey and Morocco. For volume indicators the comparable basis reflects this scope, for both 2006 and 2007. For earnings, Winterthur Spain is excluded from the comparable basis. MPS (Italy) P&L will be consolidated from 2008 on (full consolidation with an opening balance sheet as of 31/12/2007).
gross revenues increased by 30% on a reported basis to €1,924 million. On a comparable basis (including Winterthur in Spain and Alpha Insurance in Greece for both periods), revenues were down 5% (€—87 million) mainly due to (i) a non recurring single premium in Spain, related to the outsourcing of pension funds, in 2006 (€—116 million), (ii) a lower amount of activity with institutional clients (€—43 million), as well as (iii) a decrease on other non unit-linked individual saving products (€—84 million) — such as Protezione Patrimonio or Flexiplus — driven by the current market interest rate trend, which reduced the commercial attractiveness of these products, and due to a switch of new business towards a more profitable business. These were partially offset by the higher sales of individual unit-linked products — mainly driven by the new Accumulator product launched mid March in Spain and early June in Italy, increasing by €+151 million.
Investment margin increased by €18 million on reported basis to €91 million. Excluding Winterthur and on a constant exchange rate basis, investment margin increased by €3 million (+4%). Winterthur contribution amounted to €15 million.
Income tax expenses decreased by €3 million on a reported basis to €—21 million. Excluding Winterthur and on a constant exchange rate basis, income tax expenses decreased by €3 million, despite the €5 million increase on pre-tax earnings, following lower tax rate in the main countries. Winterthur contribution amounted to zero.
Adjusted earnings increased by €29 million on a reported basis to €92 million. Excluding Winterthur and on a constant exchange rate basis, adjusted earnings increased by €20 million (or +32%) including €10 million net capital gains. Winterthur contribution amounted to €8 million.
net income increased by €21 million on a reported basis to €84 million. Excluding Winterthur and on a constant exchange rate basis, net income increased by €16 million (+26%) with €—4 million integration costs. Winterthur contribution amounted to €4 million including €—4 million integration costs.
(a) Restated means the restatement of The Netherlands’ activities as discontinued businesses. (b) Includes Indonesia and Singapore.
(a) Restated in full year 2006 means the restatement of The Netherlands’ activities as discontinued businesses. (b) Restated in full year 2005 means: (i) transfer of the forex impact from adjusted earnings to net income, and (ii) the restatement of The Netherlands’ activities as discontinued businesses. (c) Includes Indonesia, Thailand, Philippines and Singapore.
contributions in Q2 and Q3’ 2007 as clients took advantage of transitional superannuation concessions.
— Gross written premiums and fees increased by €37 million to €1,018 million (+2% on a comparable basis), reflecting the impact of a shift from old to new style superannuation products that offset the growth in individual Life & Savings. As a reminder, new superannuation products are now predominantly sold through the Summit and Generations platforms and are thus accounted for on a fee basis — in contrast to old style superannuation products that were treated as insurance contracts.
Adjusted earnings were up €63 million (+66%) on a constant exchange rate basis to €162 million, reflecting the increase in underlying earnings and higher capital gains.
net income was up €59 million (+59%) on a constant exchange rate basis to €162 million, in line with the adjusted earnings increase.
net income increased by €25 million (+22%) to €141 million. Excluding Winterthur and on a constant exchange rate basis, net income increased by €36 million (+31%) in line with adjusted earnings. MLC and Winterthur contributions amounted to €13 million and €3 million (including €—2 million of integration costs), respectively.
central and eastern europe gross revenues increased by 13% on a comparable basis to €423 million driven by positive contribution of all countries.
Underlying earnings amounted to €0 million, as the positive investment margin, fees & revenues, and net technical margins (respectively €18 million, €80 million and €13 million, on a 100% basis), were offset by expenses (€—111 million on a 100% basis including €—12 million VBI amortization and €—16 million investments to accelerate growth and to develop AXA brand) and income tax (€—3 million).
net income amounted to €—1 million, as the adjusted earnings were offset by €—1 million integration costs of Winterthur (mainly rebranding costs) and €—2 million amortization of customer intangible assets.
Underlying earnings, adjusted earnings and net income decreased by €2 million to €2 million on a constant exchange rate basis mainly due to the negative impact of a change in tax regulation.
Ape of South East Asia entities1 increased by 73% on a comparable basis2 to €58 million, reflecting the strong relationships with bancassurance partners and an expanding agency footprint. APE in China was up 93% on a comparable basis to €5 million due to a buoyant investment market, the launch of the new AXA Adviser channel and continued growth in bancassurance.
Underlying earnings of South East Asia were up €6 million to €6 million as a consequence of an increase in sales volume and additional months of operation3. China4 reported an underlying loss of €1 million due to business development expenses that included the opening of several new branches.
net income of South East Asia increased by €5 million to €8 million in line with underlying earnings. China’s net income was €—15 million given the impact of its entry in the scope of consolidation (one-time recognition of past losses).
Fees and revenues from investment contracts without participating feature — — — — —
Minority interests in income or loss (50) (42) (42) (44) (44)
(a) Before intercompany transactions. (b) Restated in full year 2006 means the restatement of The Netherlands’ activities as discontinued businesses. (c) Restated in full year 2005 means: (i) transfer of the forex impact from adjusted earnings to net income, and (ii) the restatement of The Netherlands’ activities as discontinued businesses.
Profit or loss on financial assets (under fair value option) & derivatives 4 70 71 51 85
net technical result improved by €77 million or 6% to €1,467 million driven by 0.7 point improvement of the all accident year net loss ratio to 72.7% — The current accident year loss ratio improved by 0.3 point to 74.3%, reflecting the favorable claims experience in Property (both Personal and Commercial lines) and natural events, partly offset by an increase on Personal Motor current accident year net loss ratio (impact of 0.4 point on total loss ratio).
— prior accident year net technical result increased by €25 million to €85 million, mainly due to a higher level of positive loss reserves development in Property.
As a consequence, the combined ratio improved by 0.5 point to 97.0%.
Underlying earnings increased by €44 million (+12%) to €426 million reflecting an improved combined ratio and the growth in net investment result.
Adjusted earnings improved by €68 million (+15%) to €519 million resulting from the underlying earnings increase (€+44 million) and from higher net realised capital gains (€+24 million to €93 million) notably on equities.
property & cASUALty operAtIonS — UnIted KIngdoM & IreLAnd (in Euro million)
Profit or loss on financial assets (under fair value option) & derivatives (5) (9) 3 —
gross revenues increased by 8% to €5,111 million on a reported basis, and by 8% on a comparable basis reflecting significant growth in: — Personal lines (52% of gross revenues) revenues were up 12% to €2,662 million, mainly due to Motor growth of 21% to €747 million principally arising from new business written through the Internet platform Swiftcover which benefited from increased volumes through the aggregator websites, 10% growth across all classes in Health and 32% growth in Travel as a result of increased volumes from delegated authority business, partly offset by a decrease in the creditor business (—23%) due to a market contraction.
— Commercial (46% of gross revenues) revenues were up 3% to €2,365 million predominantly reflecting strong growth in AXA PPP Health business.
net technical result decreased by €127 million to €1,663 million on a reported basis, or €121 million (—7%) on a constant exchange rate basis: — The current accident year loss ratio increased by 8.1 points to 71.8%, mainly as a result of adverse weather events, including Kyrill storm (€56 million, +1.1 point), the June and July floods (€271 million, +5.5 points) and 0.9 point higher loss ratio on U.K. Commercial lines. While Commercial lines remained profitable overall, market pressure, including from new entrants, prevented rate increases from keeping up with claims inflation.
Income tax expenses decreased by €65 million to €—49 million on both current and constant exchange rate bases, reflecting the deterioration in the pre-tax result, and a €32 million benefit from a settlement on prior years, partly offset by a negative €18 million due to the decrease in deferred tax assets following the reduction in the Corporate tax rate (from 30% to 28%).
Underlying earnings decreased by €124 million to €262 million on a reported basis, or €124 million (—32%) on a constant exchange rate basis, primarily reflecting the adverse weather events experienced during the year including Kyrill storm and the June and July floods, partially offset by favorable prior year reserves development and a reduction in income tax expenses.
Adjusted earnings decreased by €128 million to €333 million on a reported basis, or €127 million (—28%) on a constant exchange rate basis, primarily as a result of the decrease in underlying earnings and €32 million higher realized capital gains offset by €36 million impairment charges including €13 million on Northern Rock.
Net income from investments in affiliates and associates 5 4 3 3
gross revenues increased by 28% to €3,531 million on a reported basis. On a comparable basis, revenues were up 2% despite the softening market: — Personal lines (64% of gross revenues) revenues were up 1% to €2,243 million. Motor was up 1% due to the strong positive net inflows. Property and Liability increased by 2% and +3% respectively, following the successful launch of the new packaged product “Profischutz“ for professionals and trades people.
— Commercial lines (30% of gross revenues) revenues were up 2% to €1,061 million mainly due to Motor as a result of higher average number of vehicles in existing fleets as well as to new business in Liability (+3%).
— Other lines (6% of the P&C premiums) grew by 6% to €202 million triggered by improved premiums in AXA Art (7%) and Assumed Business.
net technical result increased by 23% to €1,094 million. Excluding Winterthur, net technical result decreased by €31 million (—3%). — The current accident year loss ratio increased by 4.5 points to 78.7%, mainly driven by natural events and higher large claims impact. Excluding Winterthur, the current accident year loss ratio increased by 3.0 points to 77.2 % driven by the storm “Kyrill” with an impact of 1.9 point in 2007 and higher large claims charge on Commercial Property and Liability lines.
Winterthur current accident year loss ratio amounted to 84.4%, of which the Kyrill impact amounted to 1.4 point.
expense ratio amounted to 29.3%. Excluding Winterthur, the expense ratio improved by 1.0 point to 29.3% mainly due to a slight positive volume effect while overall expenses decreased by €11 million explained by the release of provisions on bad debts in reinsurance business and lower marketing expenses, partly offset by the release of VAT provisions in 2006. Winterthur expense ratio amounted to 29.3%.
net investment result increased by €100 million to €339 million. Excluding Winterthur, net investment result increased by €23 million (+10%) mainly as a result of a shift in the asset-mix towards higher yielding bonds as well as higher dividends from equities. Winterthur contribution amounted to €77 million.
Income tax expenses decreased by €35 million to €—74 million. Excluding Winterthur, income tax expense decreased by €79 million (—73%) reflecting the €42 million positive outcome of a tax audit on the ex-Albingia portfolio, the €31 million favourable impact of the new income tax rate on the deferred tax liabilities (32% versus 40% applicable on current income from 2008), and a €12 million tax reserve release. Winterthur contribution amounted to €—45 million.
Underlying earnings increased by €143 million to €325 million. Excluding Winterthur, underlying earnings
Adjusted earnings increased by €158 million to €416 million. Excluding Winterthur, adjusted earnings increased by €109 million (+42%) mainly driven by higher underlying earnings and higher net capital gains notably on equities. Winterthur contribution amounted to €48 million.
net income increased by €128 million to €410 million. Excluding Winterthur, net income increased by €89 million (+32%) driven by the increase in adjusted earnings, partially offset by €—24 million integration costs. Winterthur contribution amounted to €38 million including €—12 million integration costs.
Net capital gains or losses attributable to shareholders net of income tax 119 142 53
net income group share 272 283 183 gross revenues increased by 40% to €2,130 million on a reported basis. On a comparable basis, gross revenues increased by 1%. — Personal lines (60% of the P&C premiums) revenues were up 4% due to the implementation of the Natural Disaster guarantee in the household policies and Motor portfolio growth.
— Commercial lines (40% of the P&C premiums) revenues were down 3% reflecting losses in portfolio in the context of strong pressure on prices.
— The all accident year loss ratio increased by 1.4 point to 67.5%. Excluding the contribution of Winterthur, the all accident year loss ratio increased by 2.5 points to 68.5%, reflecting the unfavorable current accident year loss ratio and a decrease in prior years’ results (€—16 million).
expense ratio increased by 0.5 point to 29.8%. Excluding the contribution of Winterthur, the expense ratio deteriorated by 0.9 point to 30.3% driven by override commissions (0.6 point impact) and administrative expenses (0.3 point impact). Winterthur expense ratio amounted to 28.6%.
Adjusted earnings increased by €45 million to €335 million. Excluding the contribution of Winterthur, adjusted earnings slightly decreased by €—1 million, as the €16 million increase in underlying earnings was offset by a €16 million decrease in realized capital gains after a very high level in the first half year 2006 (€130 million). Winterthur contribution amounted to €46 million.
net income decreased by €11 million to €272 million. Excluding the contribution of Winterthur, net income decreased by €38 million (—13%) resulting from a €—22 million integration costs and a €—17 million unfavourable change in fair value on fixed income mutual funds under fair value option due to interest rate increase. Winterthur contribution amounted to €26 million including €—12 million integration costs.
Net income from investments in affiliates and associates — — — —
Net capital gains or losses attributable to shareholders net of income tax 172 57 29 29
The scope of the following analysis includes Italy (AXA alone), Spain (Winterthur+AXA), Portugal, Greece (Alpha Insurance consolidated as of 01/01/2007), Turkey and Morocco. For volume indicators the comparable basis reflects this scope, for both 2006 and 2007. For earnings, Winterthur Spain is excluded from the comparable basis. MPS (Italy) P&L will be consolidated from 2008 on (full consolidation with an opening balance sheet as of 31/12/2007).
net technical result increased by €512 million on a reported basis to €1,453 million. Excluding Winterthur and on a constant exchange rate basis, net technical result increased by €166 million (+18%). Excluding the newly acquired Greek entity contribution (€+29 million), net technical result increased by €137 million (+15%). — The current accident year loss ratio stood at 76.5%
— The all accident year loss ratio stood at 72.1% (—2.8 points). Excluding Winterthur, it improved by 1.8 point to 73.0% thanks to the favourable development of claims reserves from previous year (€+115 million) mainly focused on motor lines (€+138 million).
expense ratio remained stable at 23.3% on a reported basis. Excluding Winterthur, expense ratio decreased by 0.1 point to 23.1% as the increase in the commission ratio, mainly driven by an exceptional reimbursement of commissions in 2006 (€9 million) and a higher weight of the household portfolio in 2007, was offset by (i) the synergies arising in Spain from the merger with Winterthur (€8 million) and (ii) lower expenses on staff reduction plan in Portugal (€6 million). The Winterthur expense ratio stood at 23.8%.
As a result, the combined ratio improved by 2.7 points to 95.4%. Excluding Winterthur, the combined ratio improved by 2.0 points to 96.1%, driven by the lower loss ratio. The Winterthur combined ratio stood at 92.5%.
net investment result increased by €106 million on a reported basis to €351 million. Excluding Winterthur and on a constant exchange rate basis, net investment result increased by €43 million (+18%) driven by higher asset base, interest rates and dividends, and the implementation of a more dynamic asset management strategy including the switch to assets with a higher duration. Winterthur contribution amounted to €63 million.
Income tax expenses increased by €89 million on a reported basis to €—195 million. Excluding Winterthur and on a constant exchange rate basis, income tax expenses increased by €45 million (+42%). Tax rate remained stable as positive and negative exceptional elements compensated each other (positive litigation settlement in Italy (€+16 million), negative impact of decrease in tax rate in most countries due to a significant Deferred Tax Asset position (€—11 million), and Deferred Tax Liability cancellation in Italy (€—5 million) in 2006). Winterthur contribution amounted to €43 million.
Adjusted earnings rose by €303 million on a reported basis to €534 million. Excluding Winterthur and on a constant exchange rate basis, adjusted earnings increased by €190 million (+82%) including €+104 million higher net capital gains mostly focused on equities (mainly in Morocco) and real estate. Winterthur contribution amounted to €114 million.
Net income from investments in affiliates and associates — — —
Profit or loss on financial assets (under fair value option) & derivatives (10) — —
— prior years net technical result amounted to €47 million mainly driven by positive reserve development in Health and Liability.
Adjusted earnings amounted to €119 million stemming from the underlying earnings contribution and €—6 million net capital losses mainly on equities.
net income reached €84 million including a change in fair value of assets under fair value option and derivatives (€—10 million), Winterthur integration costs (€—7 million), and amortization of Winterthur customer intangible assets (€—17 million).
Profit or loss on financial assets (under fair value option) & derivatives
(b) Restated in full year 2006 means the restatement of The Netherlands’ activities as discontinued businesses. (c) Includes Malaysia, Hong Kong and Singapore.
Adjusted earnings increased by €13 million on a constant exchange rate basis to €135 million, driven by the improvement in underlying earnings by €16 million partly offset by lower net capital gains of €—2 million.
earnings (€+13 million), the non-recurring impact of 2006 Citadel’s restructuring costs (€+4 million), and the impact of foreign exchange (€+2 million).
Underlying earnings decreased by €1 million on both current and constant exchange rate bases to €0 million. The combined ratio reached 102.5%, slightly increasing compared to 2006, due to the deterioration of the loss ratio (+2.2 points at 65.5%) following unfavourable reserve developments on previous years. The expense ratio improved by 1.5 points to 37%, despite the additional costs linked to the launch of new products.
Singapore gross written premiums increased by €8 million on a constant exchange rate basis to €90 million, mainly driven by Private Motor, Commercial Property and Marine, notably thanks to a new rating structure and marketing campaigns.
Hong Kong gross written premiums decreased by €1 million on a constant exchange rate basis to €57 million, mainly attributable to the loss of a major account in Motor business (€2 million) and the hard market condition.
Both adjusted earnings and net income increased by €3 million on a constant exchange rate basis to €12 million, mainly due to an increase in capital gains (€5 million), which offset the lower underlying earnings.
Malaysia has been fully consolidated for the first time in 2007 (versus equity method consolidation in 2006).
gross written premiums were €58 million. On a comparable basis, premiums increased by €2 million, mainly attributable to a growth in private Motor and Health business.
net income decreased by €11 million to €7 million, attributable to recognition of net asset value through P&L for the first time consolidation last year (€13 million). Excluding this impact, net income increased by €1 million following the trend of adjusted earnings.
Underlying earnings decreased by €4 million to €—10 million mainly due to expenses resulting from the launch of the activity.
net income decreased by €4 million to €—10 million resulting from the underlying earnings decrease.
gross written premiums reached €203 million over 6 months. Motor accounted for 94% of total revenues, driven by the strong growth of the portfolio as well as the recent rate increase. Motor net new inflows reached 39 K policies over 6 months, bringing the total portfolio as of the end of December to 873 K contracts.
Underlying earnings reached €3 million over 6 months. The combined ratio reached 99.8% with a loss ratio at 72.5% and an expense ratio at 27.3%.
The following tables present the consolidated gross revenues, underlying earnings, adjusted earnings and net income for the International Insurance Segment for the periods indicated.
(a) Including €896 million in 2007 (€1,217 million in full year 2006) of business fronted by AXA RE and fully reinsured by Paris RE (fronting arrangement set in place from January 1, 2006 to September 30, 2007 in the context of the sale of AXA RE’s business to Paris RE).
Profit or loss on financial assets (under fair value option) & derivatives (1) (1) 5 (1)
(a) Restated means the transfer of the forex impact from adjusted earnings to net income. (b) Including AXA RE, other non life run-off businesses managed by AXA Liabilities Managers and AXA RE Life.
gross revenues increased by €125 million (or +7%) to €1,823 million driven by portfolio developments in Marine, Property, Motor and Construction.
net investment result increased by €18 million to €163 million due to a higher asset base.
Adjusted earnings increased by €8 million to €124 million resulting from the underlying earnings increase and partly offset by a decrease of €5 million to €27 million of realized gains.
net income increased by €7 million to €125 million in line with adjusted earnings evolution.
AXA ASSIStAnce gross revenues increased by 15% to €809 million or +16% on a comparable basis mainly due to Home Serve business in the United Kingdom (€+27 million), increased premiums in Travel business in Germany (€+15 million) and a good commercial performance in France.
Underlying earnings decreased by €2 million to €19 million mainly due to a provision for litigation. Excluding this exceptional one-off expense, underlying earnings amounted to €26 million.
Winterthur contribution amounted to €19 million, notably due to the favourable run-off development.
net income decreased by €8 million to €84 million. Excluding Winterthur contribution and on a constant exchange rate basis, net income decreased by €25 million (—27%) mainly as a result of the non recurring €66 million gain after tax on the sale of AXA RE’s business in 2006 partly offset by the €+28 million improvement in adjusted earnings, and the €12 million charge in 2006 related to the impairment of the goodwill formerly allocated to the reinsurance business. Winterthur contribution amounted to €19 million.
Profit or loss on financial assets (under fair value option) & derivatives 3 10 10 11
Underlying earnings increased by €13 million (+4%), or €41 million on a constant exchange rate basis to €314 million of which €+16 million due to the increased ownership interest.
Net capital gains or losses attributable to shareholders net of income tax — — — (1)
general expenses increased by €247 million (+19%) to €—1,577 million on a reported basis at a lower pace than revenues. This evolution was mainly explained by more commissions paid to third-party agents (directly correlated with the increase in revenues), more staff to support the business development, and higher staff incentive.
net income increased by €58 million to €274 million on a reported basis mainly driven by the underlying earnings growth as the negative change in fair value of “AWF and FIIS US” Libor plus funds1 (€—45 million net of tax) was partly offset by positive impacts from carried interests, forex and real estate funds.
The following tables present the consolidated gross revenues, underlying earnings, adjusted earnings and the net income attributable to AXA’s Banking for the periods indicated.
Net realized capital gains or losses attributable to shareholders (5) 8 6
Underlying earnings increased by €19 million to €40 million mainly due to an increase in commercial margin (€+18 million) and a decrease in expenses (€+17 million) partly offset by lower fixed income capital gains (€—16 million) and higher credit losses (€—5 million).
net income decreased by €18 million to €12 million driven by higher integration costs related to early retirement pension plan (€—25 million), lower change in fair value in mutual funds (€—14 million) and the non-recurrence of 2006 trading equities activity (€—5 million) partly offset by the change in fair value of loans covered by fair value hedge and related derivatives (€15 million) and the increase in adjusted earnings.
AXA BAnqUe (frAnce) Underlying and adjusted earnings remained stable at breakeven.
net banking revenues decreased by €3 million to €24 million mainly due to increasing refinancing expenses for the credit business.
Net realized capital gains or losses attributable to shareholders 27 23 23 39 6
Profit or loss on financial assets (under fair value option) & derivatives (365) (341) (341) 30 (4)
AXA Group underlying earnings denominated in foreign currencies (2007 dollar earnings hedged at 1.28$/€ compared to 1.37 average rate),
— €+59 million due to a lower financial charge mostly related to a strengthening of the Euro (versus main other currencies) which reduced the interest charge denominated in foreign currencies and a positive carry (notably Yen/ Euro) on interest swaps backing debts,
— €—36 million higher expenses including higher AXA trademark support further to Winterthur acquisition,
Adjusted earnings decreased by 22 million to €—212 million including a €17 million decrease in realized capital gains.
The mark to market of derivatives non eligible to hedge accounting is booked in net income which accounted for €—218 million on interest rate derivatives and €—85 million on foreign exchange instruments notably covering debt instruments accounted for in shareholders’ equity. Compared to 2006, net income was up €52 million to €—532 million of which: — €+91 million change in the mark to market of interest rate and foreign exchange derivatives instruments, and — €—17 million of Winterthur integration costs (wind down costs related to the head office).
Adjusted earnings decreased by €14 million to €—25 million resulting from the underlying earnings decrease.
net income decreased by €18 million to €—25 million resulting from the adjusted earnings decrease and the non recurring 2006 tax gain (€3 million).
Adjusted earnings increased by €19 million to €34 million due to realized capital gains on shares by €20 million.
net income decreased by €25 million mainly due to the change in fair value of derivatives not eligible to hedge accounting (a €30 million loss versus a €15 million profit in 2006).
Adjusted earnings increased by €30 million (+22%) or €+20 million (+15%) on a constant exchange rate basis to €—105 million.
Underlying earnings remained stable at €—24 million. A reduction in net interest expense was offset by the relative EUR/ AUD foreign exchange impact. Adjusted earnings and net income increased by €2 million and €5 million respectively mainly due to relative AUD/NZD and AUD/USD foreign exchange impacts.
Underlying earnings increased by €89 million to nil. Excluding Winterthur and on a constant exchange rate basis, underlying earnings increased by €84 million principally resulting from the non recurring release in 2007 of a €66 million deferred tax provision held against un-remitted earnings as well as €8 million arising from a reduction in tax provision following the decrease in Corporation Tax rate. Winterthur contribution amounted to €5 million.
Adjusted earnings increased by €89 million to nil in line with the evolution of underlying earnings.
Underlying earnings decreased by €64 million to €—35 million. Excluding Winterthur, underlying earnings decreased by €29 million (—102%) primarily driven by the absence of positive one-off impact related to the recognition of the corporate tax refund of €30 million in 2006. Winterthur contribution amounted to €—35 million.
Adjusted earnings decreased by €—8 million to €—16 million in line with underlying earnings evolution.
net income increased by €471 million to €462 million following the sale of the Dutch activities end of August to SNS REAAL. It was decided to present all their contributions (result up to the closing date €74 million and gains on disposal €406 million) in one Geographical and Activity segment in view to isolate this 2007 non-recurring event. Belgium was chosen since it is the main shareholder of the former AXA Netherland subsidiary, but also because the gain was only realized on the historical AXA activities; the other shareholders are Germany Holding (for the former DBV activities) and Switzerland Life and Holding (for the former Winterthur activities).
In this environment and assuming equity markets stabilize at current levels, AXA should achieve positive revenue and underlying earnings growth in 2008: — In the Life & Savings segment (50% of earnings1), AXA
should continue to benefit from positive cash-flows as both our general account products and unit linked products with secondary guarantees are well-suited for customers in the current environment.
(1) Underlying earnings excluding Banking and Holdings and other companies segments.
glossary > 2.3 ActIvIty report comparable basis for revenues and annualized premiums equivalent
On a comparable basis means that the data for the current year period were restated using the prevailing foreign currency exchange rate for the same period of prior year (constant exchange rate basis). It also means that data in one of the two periods being compared were restated for the results of acquisitions, disposals and business transfers (constant structural basis) and for changes in accounting principles (constant methodological basis).
Adjusted earnings represent the net income (group share) before: (i) The impact of exceptional operations (primarily change in scope, including integration costs related to a newly acquired company during the considered full year accounting period).
— DAC and VBI amortization or other reactivity to those elements if any (Life business).
Diluted earnings per share (diluted epS) represent AXA’s consolidated earnings, divided by the weighted average number of outstanding ordinary shares, on a diluted basis (that is to say including the potential impact of all outstanding dilutive stock-options being exercised performance shares, and conversion of existing convertible debt into shares provided that their impact is not anti-dilutive).
Life & Savings Margin Analysis is presented on an underlying basis.
(iii) The “Investment Margin” represents the net investment result in the Statement of Income and is adjusted to take into account the related policyholders’ participation (see above) as well as changes in specific reserves linked to invested assets’ returns and to exclude the fees on (or contractual charges included in) contracts with the financial risk borne by policyholders, which are included in “Fees and Revenues”.
(iv) Change in URR (Unearned Revenue Reserve — capitalization net of amortization) is presented in the line “Change in unearned premiums net of unearned revenues and fees” in the underlying Statement of Income, whereas it is located in the line “Fees & Revenues” in the Margin Analysis.
— For investment contracts without DPF: (i) Deposit accounting is applied. As a consequence, fees and charges related to these contracts are presented in the underlying Statement of Income within Gross consolidated revenues on a separate line, and in Margin Analysis in the lines “Fees & Revenues” and “Net Technical Margin”.
Underlying investment margin includes the following items: (i) Net investment income. (ii) Interests and bonuses credited to policyholders and unallocated policyholder bonuses (and the change in specific reserves purely linked to invested assets returns) related to the net investment income.
Underlying fees & revenues include: (i) Revenues derived from mutual fund sales (which are part of consolidated revenues). (ii) Loading charged to policyholders on premiums / deposits and fees on funds under management for separate account (unit-linked) business.
Underlying net technical result includes the following components: (i) Mortality/morbidity margin: The amount charged to the policyholder in respect of mortality/morbidity for the related period less benefits and claims. It is equal to the difference between income for assuming risk and the actual cost of benefits, including changes in valuation assumptions and additional reserves for mortality risk. This margin does not include the claims handling costs and change in claims handling cost reserves.
(iv) Other changes in insurance reserves and economic hedging strategy impacts related to insurance contracts valuated according to the “selective unlocking” accounting policy allowing Liability adjustment so as to better reflect the current interest rates for these contracts.
Underlying expenses are: (i) Acquisition expenses, including commissions and general expenses allocated to new business, related to insurance products as well as to other activities (e.g., mutual fund sales).
Life & Savings underlying cost income ratio: Underlying expenses plus underlying VBI amortization divided by “underlying” operating margin, where “Underlying” operating margin is the sum of (i) Underlying investment margin; (ii) Underlying fees and revenues, and (iii) Underlying net technical margin (all items defined above).
Underlying net technical result is the sum of the following components: (i) Earned premiums, gross of reinsurance.
current accident year loss ratio net of reinsurance is the ratio of: (i) [current year claims charge gross of reinsurance + claims-handling costs + result of reinsurance ceded on current accident year excluding the recurring interests credited to the insurance annuity reserves], to
+ claims-handling costs + result of reinsurance ceded on all accident years excluding the recurring interests credited to the insurance annuity reserves], to
Asset Management net new Money: Inflows of client money less outflows of client money. Net New Money measures the impact of sales efforts, product attractiveness (mainly dependent on performance and innovation), and the general market trend in investment allocation.
Underlying cost Income ratio: general expenses including distribution revenues / gross revenues excluding distribution fees.
Over the past several years, AXA has expanded its insurance and asset management operations through a combination of acquisitions, direct investments and organic growth. This expansion has been funded primarily through a combination of (i) proceeds from the sale of non-core businesses and assets, (ii) dividends received from operating subsidiaries, (iii) proceeds from the issuance of subordinated convertible debt securities, other subordinated debt securities and borrowings (including debt issued by subsidiaries), and (iv) the issuance of ordinary shares.
Liquidity needs can also be affected by fluctuations in the level of surrenders, withdrawals and guarantees to policyholders including guarantees in the form of minimum income benefits or death benefits, particularly on variable annuity business (see Part 2.2 — “Information on the Company” Segment Information — Life & Savings — Surrenders and lapses).
sources of Liquidity At December 31, 2007, AXA’s consolidated balance sheet included cash and cash equivalents of €17.2 billion (2006: €19.8 billion), net of bank overdrafts of €1.5 billion (2006: €1.3 billion). At December 31, 2007, the Company’s cash and cash equivalents amounted to €2,533 million net of bank overdrafts (€9 million in 2007) versus €187 million at December 31, 2006 net of bank overdrafts (€130 million in 2006), an increase of €2,346 million in anticipation of 2.4 Liquidity and capital resources
the financing of a stake in Russia’s second largest insurer Reso Garantia, which was announced in December 2007, and of the third largest Mexican insurer ING Seguros, which was announced in February 2008.
At December 31, 2007, the Company had outstanding subordinated debt (excluding accrued interests) of €6,778 million (€7,862 million in 2006).
The increase of €583 million, or €739 million increase on a constant exchange rate basis (€156 million exchange rate impact, mainly stemming from dollar-denominated subordinated debt), was mainly due to the decrease in market value of interest rate swaps following the rise in rates in the Euro zone (€578 million), the consolidation of MPS Vita and Danni (€134 million), and a new debt in AXA Bank Belgium (€50 million), partially offset by the repayment of a €57 million debt by AXA RE Finance.
Starting January 2007, only the AXA’s 2017 bonds are still convertible (6.6 millions bonds at December 31, 2007). To neutralize the dilutive impact of the 2017 convertible bonds, AXA has purchased from a banking counterparty, for a total cash amount equivalent to the payment proposed to “bondholders 2017”, call options on the AXA share with an automatic exercise feature. This feature is such that one option is automatically exercised upon each conversion of a convertible bond. Consequently, each issuance of a new share resulting from the conversion of the bond will be offset by the delivery by the bank to AXA (and subsequent cancellation) of an AXA share. This issuance of a new share in respect of the conversion of the bond and the cancellation by AXA of the AXA share received will offset each other. As a result of this mechanism, conversion of AXA 2017 convertible bonds will not result in an increase of AXA’s outstanding shares.
At December 31, 2007, the number of shares issuable as a result of bond conversions was 27.5 million versus 65.7 million at the end of 2006.
The Company’s financing debt instruments issued (excluding accrued interests) totaled €3,549 million at December 31, 2007, an increase of €981 million compared to 2006 principally related to commercial paper issues.
Movements in this item are described in Note 16 of Part V — “Consolidated Financial Statements”.
At December 31, 2007, other debt instruments issued totaled €1,560 million, down from €4,715 million at the end of 2006. The decline of €3,155 million (or €3,090 million on a constant exchange rate basis) resulted mainly from a €2,796 million decrease following the sale of the Netherlands (included Holland Homes SPEs, which securitized mortgages in the Dutch DBV Life business), and a €428 million decrease in CDO’s instruments.
European Retail Income Venture II (€104 million), Real Estate Opportunity Fund II (€124 million), European Logistics Income Venture (€90 million) and Alternative Property Income Venture (€55 million), and a €96 million increase in European Retail Income Venture’s debt,
For several years, the AXA Group has been offering to its employees, the opportunity to subscribe for shares issued by way of a capital increase reserved to employees. In 2007, employees invested a total of €552 million leading to a total of 22.1 million newly issued shares. Employee (including agents) shareholders represented 5.23% of the outstanding share capital at the end of 2007.
During 2007, AXA pursued its share repurchase program to control the dilution arising from share-based compensation and employee Shareplan program and to hedge the AXA Miles granted to Group employees, as discussed below. Excluding shares repurchased through the liquidity agreement, AXA purchased 70.4 million of its own shares for a total amount of €2,126 million.
Dividends paid to the Company totaled €2,177 million in 2007 (2006: €1,581 million, 2005: €1,420 million), of which approximately €213 million were in currencies other than the Euro (2006: €109 million, 2005: €74 million). The €596 million increase in dividends in 2007 was mainly due to: (i) a €550 million increase in dividends received from
The Company is not subject to restrictions on dividend payments, provided that its accumulated profits are sufficient to cover them. However, many Group’s subsidiaries, particularly insurance companies, are subject to restrictions on the amount of dividends they can pay to shareholders. For more information on these restrictions, see Note 28.3 of Part V — Consolidated Financial Statements.
The Company anticipates that cash dividends received from operating subsidiaries will continue to cover its operating expenses including planned capital investment in existing operations, interest payments on its outstanding debts and borrowings, and dividend payments during each of the next three years. AXA expects that anticipated investments in subsidiaries and existing operations, future acquisitions and strategic investments will be funded from available cash flow remaining after payments of dividends and operating expenses, proceeds from the sale of non-strategic assets and businesses and future issues of debt and equity securities.
A European Directive dated October 27, 1998 requires a consolidated solvency margin calculation effective for periods ending on or after December 31, 2001. France transposed this directive under an ordinance dated August 29, 2001, decreed on March 14, 2002 and applicable from 2002. Additional supervision of credit institutions, investment companies and insurance companies belonging to “financial conglomerates” was introduced by the European Parliament and Council Directive 2002/87/EC of December 16, 2002. France transposed this directive through an ordinance dated December 12, 2004,
T H E A X A G R O U PPART II
which introduced the notion of financial conglomerate into the Insurance Code. According to article 20 of the Insurance Code, the provisions of this ordinance applied for the first time to periods starting on or after January 1, 2005.
(iii) admitted subordinated debt: €10.1 billion (€9.9 billion at December 31, 2006 and €8.1 billion at December 31, 2005),
In accordance with the practical methods of calculation implemented by AXA in line with existing regulations, AXA’s adjusted solvency ratio was estimated at 154% at December 31, 2007 compared to 186% at the end of 2006 (216% at the end of 2005). The decline resulted mainly from the decrease of the unrealized capital gains. The calculation methodology must be reviewed by the Autorité de Contrôle des Assurances et des Mutuelles (ACAM), which governs, in France, the application of these directives.
suBsequent events After deceMBer 31, 2007 iMpActing AXA’s Liquidity A dividend per share of €1.20 will be proposed at AXA’s Annual Shareholders’ Meeting that will be held on April 22, 2008. The dividend will be payable on April 29, 2008 with an ex-dividend date of April 24, 2008. For individuals whose fiscal residence is in France, this dividend gives rise to a 40% tax relief equal to €0.48 per share and the 11% social contributions will be withheld when dividend is paid. In the case of the option for an income withholding tax (“Prélèvement Libératoire”), the 11% social contributions will be withheld with an additional income tax (“Prélèvement libératoire”) at 18% and the 40% tax allowance will be not applicable.
Please refer to note 29 of Part V — “Consolidated Financial Statements for other subsequent events”.
— AXA subordinated convertible bonds as of December 31, 2007 158
Since 1997, AXA has had a dual corporate governance structure consisting of a Management Board and a Supervisory Board. This governance structure is designed to clearly separate the powers and responsibilities of management from those of supervision.
AXA’s Supervisory Board has established four Committees to review specific matters and report back to the Supervisory Board. In addition, AXA has a 14 member Executive Committee established to assist the Management Board in the performance of its duties.
The Supervisory Board supervises the Company’s activities and reports to the shareholders. The Supervisory Board appoints and dismisses members of the Company’s Management Board and supervises the executive management of AXA. Members of the Management Board may also be dismissed directly by AXA’s shareholders pursuant to a resolution duly adopted at a shareholders’ meeting.
The Supervisory Board meets at least five times a year. Prior to each meeting, Supervisory Board members receive documentation concerning matters to be reviewed, generally eight days in advance.
On December 31, 2007, the Supervisory Board was comprised of 14 members elected by the shareholders. Currently, 4 members of the Supervisory Board are nationals of countries other than France. In accordance with French law, one member of the Supervisory Board is elected by the Company’s shareholders every four years from among a list of candidates selected by the employee shareholders of the AXA Group pursuant to an internal selection process. No member of the Supervisory Board is elected directly by the employees. The Supervisory Board does not have any non voting members (censor).
The Supervisory Board has assessed the independence of all of its members on the basis of the recommendations contained in the Report AFEP / MEDEF and, for the members of the Audit Committee, on the basis of
composition of the supervisory Board on December 31, 2007 name (age) and office presently held at aXa principal occupation (as of December 31, 2007) principal business address First appointment /
Chairman and CEO of BOURBON BOURBON 33, rue du Louvre 75002 Paris
Financière Norbert Dentressangle — BP 83 Les Pierrelles Beausemblant 26241 Saint-Vallier-sur-Rhône Cedex
AXA UK PLC 5 Old Broad Street London EC2N 1AD UK
Chairman and CEO of Suez Suez 16, rue de la Ville l’Evêque 75008 Paris
Professor of Political Sciences at the University of Princeton (United States)
Jacques Tabourot (62) Member of the Supervisory Board, representing the employee shareholders
(a) Independent. (b) Appointed by the shareholders on May 14, 2007.
In 2007, the Supervisory Board met 9 times and the overall attendance rate was 87.30%. Within the framework of its principal missions such as described above the Supervisory Board notably focused on the following issues: — review of the Group strategy; — examination of the financial statements for the 2006 fiscal year; — review of the reports of the Supervisory Board Committees; — authorization of the main projects of acquisitions and disposals; — examination of agreements to form strategic partnerships projects; — authorization of the share buyback program.
Mr. Claude Bébéar is a graduate of the Ecole Polytechnique. Since 1958, Mr. Bébéar has spent his entire career in the insurance sector. From 1975 to 2000, he headed a group of insurance companies which became AXA in 1985. Currently, Mr. Bébéar is Chairman of the Supervisory Board of AXA. Mr. Bébéar established and chairs the Institut du Mécénat de Solidarité, a humanitarian and social welfare organization, as well as the Institut Montaigne, an independent political think tank.
AXA Assurances IARD Mutuelle, Director AXA Assurances Vie Mutuelle, Director BNP Paribas, Director Vivendi, Member of the Supervisory Board Schneider Electric, Censor (non-voting member of the Board)
Jacques de cHateaUVieUX, Vice-chairman and Member of the aXa supervisory Board 57, French nationality. Business address BOURBON — 33, rue du Louvre — 75002 Paris, France
Mr. Jacques de Chateauvieux is a graduate of the Institut Supérieur de Gestion and of Columbia University (New York). In 1975, he joined l’Union des Transports Aériens as a Management auditor. Since 1979 Mr. Jacques de Chateauvieux has been Chairman and Chief Executive Officer of BOURBON. From 1989 to 2001, he turned BOURBON into an international conglomerate and then floated it an the Paris Stock Exchange in 1998. From 2001, he set about a refocusing strategy which would make BOURBON a world leader in offshore oil and gas marine services. Mr Jacques de Chateauvieux has been a member of the AXA Supervisory Board since 2005.
BOURBON, Chairman and Chief Executive Officer JACCAR, Chairman and Chief Executive Officer SAPMER, Chairman of the Board of Directors CBo Territoria, Chairman of the Board of Directors Director or member of the Supervisory Board: — INNODIS — SINOPACIFIC Shipbuilding Group (China)
Vindemia S.A.S., Chairman Antenne Réunion Télévision, Chairman Happy World Foods, Ltd, Director léo apotHeKer, Member of the aXa supervisory Board 54, German nationality.
— SAP Asia Pte. Ltd (Singapore) — SAP JAPAN Co., Ltd (Japan) — SAP FRANCE S.A.
(Greece) — SAP (Beijing) Software System Co., Ltd (China) Schneider Electric, Censor (non-voting member of the Board)
SAP AG, Chairman Global Field Operations Ginger S.A., Director SAP Manage Ltd (Israel), Director SAP Systems Integration AG (Germany), Director SAP Finland Oy (Finland), Director SAP Danmark A/S (Denmark), Director Enigma Inc. (United States), Director SAP Svenska Aktiebolag (Sweden), Director norbert Dentressangle, Member of the aXa supervisory Board 53, French nationality.
Business address Financière Norbert Dentressangle — BP 83 — Les Pierrelles — Beausemblant — 26241 Saint-Vallier-sur-Rhône-Cedex, France
In 1979, Mr. Norbert Dentressangle founded the Norbert Dentressangle Group, a transportation and logistics specialist, and served as its Chairman until 1998. He is currently Chairman of the Supervisory Board of Groupe Norbert Dentressangle. Mr. Norbert Dentressangle is also, since its creation in 1988, Chairman of the Board of Directors and Chief Executive Officer of Financière Norbert Dentressangle, the family-owned holding company which, in addition to a majority stake in Groupe Norbert Dentressangle, has also held equity interests in real estate, industrial and business service firms.
Director or member of the Supervisory Board: — FINAIXAM — Emin Leydier (SAS) — Siparex Croissance — Egnatia — Permanent Representative of Financière Norbert
Jean-Martin FolZ, Member of the aXa supervisory Board 61, French nationality. Business address Association Française des Entreprises Privées (AFEP) — 11, avenue Delcassé — 75008 Paris, France
Mr. Jean-Martin Folz is a graduate of the Ecole Polytechnique and ingénieur des Mines. Between 1975 and 1978 he held various government cabinet positions; his last position held was head of cabinet of the Secretary of State for Industry. In 1978, he joined Rhône-Poulenc to run the Saint-Fons plant, and then he was promoted to Senior Executive Vice-President of Rhône-Poulenc Specialty Chemicals. In 1984, he became Senior Executive Vice-President and then Chairman and Chief Executive Officer of Jeumont-Schneider (a Schneider subsidiary). In 1987, he was appointed Chief Executive Officer of Péchiney and Chairman of Carbone Lorraine (in 1988). In 1991, he became Group Chief Executive Officer of Eridania Béghin-Say and Chairman of Béghin-Say. Jean-Martin Folz joined PSA Peugeot Citroën in 1995 and became Chairman in 1997. He left PSA in February 2007.
Director or member of the Supervisory Board: — Saint-Gobain — Société Générale — Alstom — Carrefour — Solvay (Belgium)
Jean-rené FoUrtoU, Member of the aXa supervisory Board 68, French nationality. Business address Vivendi — 42, avenue de Friedland — 75008 Paris, France
Mr. Jean-René Fourtou is a graduate of the Ecole Polytechnique. In 1963, he joined Bossard & Michel as a consultant. In 1972, he became Chief Operating Officer of Bossard Consultants and Chairman and Chief Executive Officer of the Bossard Group in 1977. In 1986, he was appointed Chairman and Chief Executive Officer of the RhônePoulenc Group. From December 1999 to May 2002, he served as Vice-Chairman and Chief Operating Officer of Aventis. He is the Honorary Chairman of the International Chamber of Commerce. Mr. Fourtou co-chairs the Franco-Moroccan Economic Impetus Group created in September 2005, the objective of which is to propose measures for the improvement of economic relations between the two countries.
Vivendi, Chairman of the Supervisory Board Groupe Canal+, Chairman of the Supervisory Board
Director, member of the Supervisory Board or member of the Management Committee: — CapGemini SA — Sanofi Aventis SA — AXA Millésimes (SAS)1
AXA UK PLC1 (United Kingdom), Non-executive Chairman AXA Equity and Law1 (United Kingdom), Non-executive Chairman Director or member of the Supervisory Board: — AXA Financial, Inc.1 (United States) — Binley Limited (United Kingdom) — Tawa plc (United Kingdom) — Golf Club of Valderrama (Spain) — AXA Equitable Life Insurance Company1 (United States) — MONY Life Insurance Company1 (United States) — MONY Life Insurance Company of America1 (United States)
Fimalac, Censor (non-voting member of the Board) Tajan, Censor (non-voting member of the Board) Institut Montaigne, Vice-Chairman and Treasurer
Business address Suez — 16, rue de la Ville l’Evêque — 75008 Paris, France
Banca Monte dei Paschi di Siena S.p.A., Chairman of the Board Cassa dei Depositi e Prestiti (Bank for Deposits and Loans), Chairman of the Guidance Committee Italian Bankers’ Association, Director and member of the Executive Committee Director: — Sansedoni SpA (Italy) — Rosselli Foundation — Cotec Foundation — China Foundation Member: — Guidance Committee of Toscana Life Sciences Foundation — Promoting Committee of Symbola Foundation — General Council of Clear Pacts Consortium
BNP Paribas, Chairman and Chief Executive Officer Director or member of the Supervisory Board: — Total Fina Elf — Dresdner Bank AG (Germany) — BNP Paribas UK (United Kingdom)
The Coca-Cola Company, Chairman Europe ING Direct, member of the Advisory Board
Coca-Cola Enterprise – Groupe Europe, Chairman and Chief Executive Officer MEDEF, member of the Executive Committee ezra sUleiMan, Member of the aXa supervisory Board 66, American nationality.
Mr. Ezra Suleiman is a graduate of Harvard University and of Columbia University. In 1973, he started his career as a Professor at the University of California, Los Angeles. In 1985, he became Chairman of the Commission “Europe”, Fullbright Commission. Since September 1979, Mr. Ezra Suleiman has been a Professor of Political Sciences at Princeton University.
Jacques taBoUrot, Member of the aXa supervisory Board, representing the employee shareholders 62, French nationality. Business address AXA — 25, avenue Matignon — 75008 Paris, France
Mr. Jacques Tabourot started his career in 1972 with Deloitte as an auditor. In 1978, he became deputy Chief Accounting Officer and then Chief Accounting Officer of Secours. In 1986, he was appointed head of AXA’s consolidation then subsequently Chief Accounting Officer of the AXA Group. From 1990 to 2005, he was lecturer for masters in banking and finance at the University Panthéon-Assas Paris II.
Mr. Jacques Tabourot, who is the employee shareholders representative on the Supervisory Board, is currently party to an employment contract with the GIE AXA, an entity of the AXA Group as a “Cadre de réserve”. As such, he remains employee of the GIE AXA and he receives a reduced compensation. He is exempted from activity but may be recalled in order to carry out missions within the GIE AXA or others companies of the AXA Group, during periods which, in total, could not exceed 18 months. This contract will expire on April 1st, 2008.
To the knowledge of the Company, there are no family relationships among the members of the Supervisory Board or with members of the Management Board.
The Supervisory Board conducts each year an annual selfreview. This process involves individual interviews and a detailed questionnaire designed to help the Board assess its effectiveness and areas for potential improvement.
The role, organization and operating procedures of each Committee are set forth in the Supervisory Board’s Rules of Procedure and in a dedicated charter for the Audit Committee. Each Committee issues opinions, proposals or recommendations to the Supervisory Board within the scope of its responsibilities and is empowered to undertake or commission studies that may be of interest for the Supervisory Board. Each Committee may invite outside participants to attend its meetings. Committee Chairmen report on completed Committee work at the following scheduled Supervisory Board meeting. Committees have no decision making authority.
On December 31, 2007, the Audit Committee had four members having either finance or accounting expertise, all of whom were determined by the Supervisory Board to be independent according to the criteria contained in the Report AFEP / MEDEF as appreciated by the Supervisory Board and in the Sarbanes-Oxley Act. They were Anthony Hamilton (Chairman), Jean-Martin Folz, Henri Lachmann and Ezra Suleiman.
— to review such other matters as the Committee deems necessary or appropriate from time to time in order to assess the Group’s internal control environment, risk management practices and risk exposures.
The Audit Committee met seven times in 2007. The overall attendance rate was 92.86%. Within the framework of its principal missions such as described above, the Committee notably focused on the following issues: — annual and interim financial statements; — 2007 Group Audit Plan; — SOX 404 update; — fraud report; — local internal audit plans summary; — IFRS to US GAAP reconciliation; — auditors action plan; — significant litigation and regulatory matters; — Form 20F; — update of the Audit Committee Charter.
For the fulfilment of its missions, the Committee may request external consulting expertise.
The Finance Committee has the following principal missions: — to review the Group’s financial structure and the broad outlines of AXA’s asset management policy; — to examine plans to sell real-estate or equity interests with an appraised value exceeding the authorizations granted to the Management Board by the Supervisory Board; — to review all material financial transactions involving AXA that are proposed by the Management Board; and
The Finance Committee met four times in 2007. The global attendance rate was 89.47%. Within the framework of its principal missions such as described above the Committee notably focused on the following issues: — examination of AXA’s financial structure; — examination of the financial resolutions proposed to the
AXA shareholders’ assembly; — recommended dividend; — acquisitions and disposals; — share repurchase program; — subprime and market funds; — AXA Group exposure to ABS & CDO’s/CLO’s; — credit risk update.
— to be notified of AXA’s strategy in terms of Human Resources management.
Early in 2007, the Committee reviewed the qualifications of the Supervisory Board candidates (MM. Jean-Martin Folz and Giuseppe Mussari) whose appointment was put to the vote of shareholders on May 14, 2007.
The Compensation Committee has the following principal missions: — to make recommendations to the Supervisory Board on compensation levels for each Management Board member, on the amount of directors’ fees proposed to the Company’s shareholders for approval, and on stock options, free share or other equity compensation grants to members of the Management Board; — to examine the performance of the Management Board members and to give an account of its conclusions to the Supervisory Board; — to issue an opinion on the Management Board recommendations related to the policies and procedures governing executive pay and the Company’s proposed stock option, free share and other equity compensation grants to AXA Group employees; and
— to be informed by the Management Board of compensation levels set by the boards of AXA Group subsidiaries for their principal executive officers.
The Management Board generally holds weekly meetings to discuss Group strategy and operations.
The Management Board operates in accordance with the Company’s Bylaws and the Rules of Procedures of the Supervisory Board and Management Board.
Claude Brunet (50) Member of the Management Board, in charge of Transversal Operations and Projects, Human Resources, Brand and Communication
Christopher Condron (60) Member of the Management Board, President and CEO of AXA Financial, Inc. (United States)
AXA France Terrasse 1 — 313 Terrasses de l’Arche 92727 Nanterre Cedex
Members of the Management Board devote substantially all of their professional time to management of the Group and do not hold outside directorships or engage in professional activities outside the AXA Group that interfere with or impede in any material way their availability to focus on the Group and its business.
Henri de castries, chairman of the Management Board 53, French nationality.
Mr. Henri de Castries is a graduate of the Ecole des Hautes Etudes Commerciales (HEC) and obtained a law degree before completing preparatory studies for the Ecole Nationale d’Administration (ENA). After graduating from ENA, Henri de Castries began his career with the French Finance Ministry Inspection Office. Mr. de Castries joined AXA’s corporate finance department on September 1, 1989. He was appointed Corporate Secretary in 1991 and was appointed Senior Executive Vice-President for the Group’s asset management, financial and real-estate businesses in 1993. In 1997, Mr. de Castries was appointed Chairman of The Equitable Companies Incorporated (now AXA Financial). Mr. de Castries has been Chairman of the AXA Management Board since May of 2000.
Chairman of the Management Board: AXA Chairman of the Board of Directors: — AXA Assurances IARD Mutuelle — AXA Assurances Vie Mutuelle — AXA Financial, Inc. (United States) Director: — AXA France IARD — AXA France Vie — AXA Belgium SA (Belgium) — AXA Holdings Belgium (Belgium) — AXA UK PLC (United Kingdom) — AllianceBernstein Corporation (United States) — AXA Equitable Life Insurance Company (United States) — AXA America Holdings, Inc. (United States) — MONY Life Insurance Company (United States) — MONY Life Insurance Company of America (United States)
Chairman of the Board of Directors: — AXA Conseil Vie Assurance Mutuelle — AXA Courtage Assurance Mutuelle Vice-Chairman of the Board of Directors: — FINAXA Director or member of the Supervisory Board: — AXA France Assurance — AXA France Collectives — Lor Patrimoine — AXA Konzern AG (Germany)
In 1968, Mr. Alfred Bouckaert started working as a stockbroker with JM Finn & Co in London. In 1972, he joined
Managing Director: AXA Belgium SA (Belgium) Chairman of the Board of Directors: — L’Ardenne Prévoyante (Belgium) — Viaxis (Belgium) Chairman Managing Director: — Royale Belge Investissements (Belgium) Director: — Servis (Belgium) — Servis-Life (Belgium) — AXA Nederland BV (The Netherlands) — AXA Verzekeringen (The Netherlands) — AXA Bank AG (Germany)
Mr. Claude Brunet is a graduate of the Ecole Supérieure des Travaux Publics (ESTP). In 1991, he became Corporate Sales Division Head of Ford Switzerland and in 1992 became Corporate Sales Division Head of Ford France. In 1993, he was appointed Chairman and Chief Executive Officer of Ford Belgium and in 1996 he became Chairman and Chief Executive Officer of Ford France. In 2001, he joined the AXA Group as a member of the Executive Committee. Since February 2003, Claude Brunet has been a member of the AXA Management Board, in charge of Transversal Operations and Projects, Human Resources, Brand and Communications.
Member of the Management Board: AXA Chairman: AXA Technology Services (SAS) Chairman of the Management Board: GIE AXA Université Director: — AXA Group Solutions — GIE AXA Group Solutions — AXA Aurora Ibérica S.A. de Seguros y Reaseguros (Spain) — AXA Aurora Vida S.A. de Seguros y Reaseguros (Spain) — AXA Mediterranean Holding, S.A. (Spain) (formerly AXA
Aurora S.A.) — AXA Business Services (India) — AXA Japan Holding Co., Ltd (Japan) Permanent representative of AXA to the board of AXA Cessions
other information on members of the Management Board and of the supervisory Board
The members of the Management Board do not hold any directorships or other positions with companies outside the AXA Group, except for a limited number of outside directorships which do not interfere with or impede in any material way their availability to focus on the Group and its business. Certain members of the Supervisory Board, however, are executive officers and/or directors of companies that may have dealings from time to time with the AXA Group including extensions of credit, purchases of securities (for their own account or for third parties), underwriting of securities and/or furnishing of other types of services or goods. These dealings are generally fully negotiated and performed on arm’s length terms and conditions. Consequently, AXA does not believe these dealings give rise to any potential conflicts of interests between the duties to AXA of the Supervisory and Management Boards’ members and their private interests and/or other duties.
matters, provides that the AXA shareholders shall nominate a representative of BMPS on AXA’s Supervisory Board. Mr. Giuseppe Mussari was nominated for election consistent with the terms of this agreement and was elected to the AXA’s Supervisory Board at the Company’s General Shareholders’ Meeting on May 14, 2007.
Absence of any conviction in relation to fraudulent offences, any official public incrimination and/or sanctions, or any responsibility in a bankruptcy for the last 5 years
eXecUtiVe coMMittee The Executive Committee’s principal mission is to review AXA Group’s strategy.
AXA has an Executive Committee which is an internal management committee mainly composed of members of AXA’s Management Board and CEOs of the Group’s principal subsidiaries and / or business units. The seven principal business units of the Group are: Mediterranean region; Northern, Central and Eastern Europe region; United States; Asia-Pacific region and Japan; United Kingdom and Ireland; AXA Investment Managers; France / Canada / AXA Corporate Solutions / AXA Assistance.
Alfred Bouckaert Member of the Management Board, Chief Executive Officer for the Northern, Central and Eastern Europe business unit
Claude Brunet Member of the Management Board, in charge of Transversal Operations, Human Resources, Brand and Communications
Denis Duverne Member of the Management Board, Group Chief Financial Officer
François Pierson Member of the Management Board, Chairman and Chief Executive Officer of AXA France, responsible for Large Risks, Assistance and AXA Canada
sUBsiDiaries AXA’s principal subsidiaries, whether publicly traded or not, are governed by: — a board of directors whose membership includes independent or non-executive directors; and — various board committees including a compensation committee and an audit committee, whose membership includes independent or non-executive directors.
The table below sets forth the number of salaried employees of the AXA Group over the past three years broken down by line of business and geographic region: salarieD eMployees (Full Time Equivalent)
other Financial services (excluding aXa Bank Belgium) (c) 568 625 625 675 aXa technology, aXa consulting and e-business 2,163 2,649 2,979 3,525 total (eXclUDing wintertHUr at tHe enD oF 2006) 78,800 81,025 99,308 103,534 total wintertHUr at tHe enD oF 2006 (e) 14,984
Employees of non-consolidated companies or companies accounted for using the equity method are not included in the above table. Employees of companies proportionally consolidated are included, pro-rata, in accordance with the percentage of consolidation.
— Winplan disposal with —18 salaried employees. — Transfer of some salaried employees of Winterthur Switzerland entities to AXA Technology (330 salaried employees). (b) A portion of the employees of AXA’ s French affiliates are included in GIEs. In addition, the employees included in insurance and financial services activities in France are included in the “cadre de convention” of 4 not consolidated “mutuelles”.
3.2 Full disclosure on executive compensation and share ownership eXecUtiVe coMpensation anD sUperVisory BoarD MeMBers Fees compensation of the Management Board and the executive committee members
The executive compensation policy aims at: — attracting, retaining and motivating the best talents, — driving superior performance, — aligning compensation levels with business performance.
It follows 3 guiding principles: — compensation competitiveness on international markets, — internal equity, based on individual and collective performance, — financial ability to pay.
Executive compensation includes a fixed and a variable component. The fixed component is targeted to fall within the lower quartile of the market. The variable component is tied to AXA’s global performance, local performance, and the attainment of the executive’s individual objectives, weighted to reflect his or her level of responsibility. The variable portion is designed to represent the principal component of the executive’s annual global compensation such that, in the case of successful attainment of the objectives, the compensation levels of AXA executives will be in the top two quartiles of the going market rate.
The fixed compensation of the Chairman of the Management Board (€500,000) has not changed since he was appointed in May 2000.
— AXA stock performance, measured in comparison to that of its competitors,
— Individual performance, which is evaluated by the Remuneration Committee on the basis of the specific strategic objectives set at the beginning of the year.
Present Short-term 1 year Medium-term 2-4 years Long term 4-10 years
The part linked to the Group results and the AXA share performance accounts for 63% and the part linked to the individual performance for 37% of the variable remuneration.
Variable compensation for the year 2006 paid in 2007 €3,045,987 €2,500,000
For other members of the Management Board, four factors are taken into consideration: — Group performance, as measured by underlying earnings,
P&C revenues and new business value in Life & Savings, — AXA stock performance, measured in comparison to that of its competitors, — performance of the business unit or functional area of responsibility, measured against objectives set at the beginning of the year,
For Management Board members who have an operational role (A. Bouckaert, C. Condron and F. Pierson), the part of their variable remuneration linked to the AXA Group results and the AXA share performance accounts for 30%, the part linked to their operational entity results for 40% and the part linked to their individual performance for 30%.
The part of their variable remuneration linked to the Group results accounts for 20%, the part linked to their operational entity’s results for 40% and the part linked to their individual performance for 40%.
The table below provides the following information: — gross compensation paid by the Group in respect of 2007
Benefits in kind total compensation paid in respect of 2007 (€)
In the table above, remuneration that is not paid in Euro have been converted on the basis of yearly average exchange rate i.e. for 2007: USD/EUR 0.730; GBP/EUR 1.461; AUD/EUR 0.611; CHF/EUR 0.609.
(1) A. Bouckaert did also receive in 2007 a cash amount of €646,294 in respect of the Performance Units granted in 2004 and 2005 (see section “Performance shares and performance units” hereafter).
(2) C. Condron did also receive in 2007 a cash amount equivalent to €4,096,420 in respect of the Performance Units granted in 2004 and 2005 (see section “Performance shares and performance units” hereafter).
(3) Compensation and benefits in kind paid to J.R. Abat include benefits paid in respect of his expatriate status in Spain. J.R. Abat did also receive in 2007 a cash amount of €591,285 in respect of the Performance Units granted in 2004 and 2005 (see section “Performance shares and performance units” hereafter).
(5) P. Egger was employed by Winterthur until January 1, 2007 and was appointed as member of the Executive Committee on January 1, 2007. (6) F. Keuper was employed by Winterthur until January 1, 2007 and was appointed as member of the Executive Committee on April 11, 2007. (7) Compensation and benefits in kind paid to N. Moreau include benefits paid in respect of his expatriate status in the UK since July 1, 2006. (8) A. Penn did also receive in 2007 a cash amount equivalent to €38,411 in respect of the Performance Units granted in 2004 and 2005 (see section “Performance shares and performance units” hereafter).
(a) On February 27, 2008, J.-R. Fourtou resigned as Vice-Chairman of the Supervisory Board and was replaced by J. de Chateauvieux with immediate effect.
The overall amount of directors’ fees to be paid is determined by the shareholders, in accordance with applicable laws, and apportioned by the Supervisory Board to its members for their Board and Committee duties as follows: — half of the amount of directors’ fees is distributed evenly among members of the Supervisory Board as a fixed component, with the Chairman and Vice-Chairman each receiving a double fee; — a portion of the remainder is distributed among members of the Supervisory Board in proportion to their actual attendance at the meetings of the Supervisory Board, with the Chairman and Vice-Chairman each receiving a double fee; — the remainder is allocated by the Supervisory Board to the various specialized Committees and distributed among their members in proportion to their actual attendance at Committee meetings, with the Chairmen of Committees receiving a double fee.
The amount of the supplementary pension aims, for a minimum executive seniority of 20 years, at achieving a global pension equivalent to: — 40% of the average gross remuneration of the past 5 years preceding the retirement date, if this average is superior to 12 annual Social Security ceilings; — 50% of the average gross remuneration of the past 5 years preceding the retirement date, if this average is inferior to 8 annual Social Security ceilings; — 2.4 Social Security ceilings +20% of the average gross remuneration of the past 5 years preceding the retirement date, if this average is between 8 and 12 annual Social Security ceilings.
Christopher Condron, member of the Management Board and employee of AXA Equitable in the United States, benefits from a contractual supplementary pension arrangement providing for a payment at the age of 65 of an annual pension equivalent to 2% of his annual gross remuneration per year of service within the AXA Group.
The annual gross remuneration is defined as the average of the 36 highest monthly remunerations received during the past 60 months preceding retirement.
The financing of this scheme is ensured by an employee contribution of 4% of fixed salary, and a contribution by AXA Holdings Belgium in order to guarantee the capital due at the age of 65.
The total amount set aside or accrued by the Company and its subsidiaries to provide pension or retirement to the aforementioned executives was €34.8 million as at December 31, 2007.
Christopher Condron, member of the Management Board and employee of AXA Equitable and AXA Financial (together “AXA Equitable”) in the United States, benefits from a contractual clause stating that in case of termination of its position within AXA Equitable by this company for any other reason than gross misconduct, he would continue to receive from AXA Equitable during a period of 2 years after his departure a remuneration equivalent to his fixed salary plus target annual bonus, i.e. currently $5.5 million. Payment of this remuneration would cease as soon as he would resume a professional activity during the 2 year period.
Each year, the Management Board proposes a global option pool to the Supervisory Board’s approval. The pool of options allocated to beneficiaries of each business unit is essentially determined on the basis of its contribution to Group performance the previous year.
Individual option grants are decided by the Management Board, provided that grants to members of the Management Board shall receive the prior approval of the Supervisory Board (acting on the recommendation of its Compensation Committee).
Since 2006, options granted to Management Board and Executive Committee members, as well as since 2007 to any beneficiary receiving a minimum of 5,000 options, are associated with a performance condition: the last tranche, i.e. 1/3 of the options granted, will be exercisable only if the AXA share price has outperformed the Euro Stoxx Insurance index over the period from the grant date to the date at which the last tranche becomes exercisable.
— 8,440 purchase options on ADRs granted by AXA Financial at an average price of $43.50 to 10 beneficiaries in the United States.
(1) This percentage has been calculated disregarding the dilution related to the exercise of stock options. (2) In light of an AXA Financial all-employee stock options program in 2001.
Discount number of options exercised as at 31/12/2007 options cancelled, forfeited or not granted as at 31/12/2007
total options granted to executive committee number of beneficiaries executive committee
starting date of the exercise of options expiry date Vesting schedule exercise price in euro
stock options granted and/or exercised by management bodies’ members in 2007 aXa stocK options aXa aDr stocK options options granted options exercised options granted options exercised
In the table above all dates that are indicated shall read day/month/year. (a) Underligned numbers indicate exercises of options where the AXA shares have been retained by the beneficiaries or donated upon exercise. (b) Mr. de Castries, at his own initiative, renounced to be granted options in 2007. NB: At the date of grant, May 10, 2007, the fair value of these options for accounting purposes under IFRS was deemed to be E6.67 per share. This is an historic value at the date of grant calculated for accounting purposes pursuant to the methodology described in Note 25.3.1 to AXA’s 2007 Consolidated Financial Statements included in Part V of this Annual Report and does not represent a current market or other current valuation of these options or the actual amounts that may be realized on exercise of these options if and when they become vested.
stock options held by management bodies’ members and executive committee members (options granted but not exercised as at December 31, 2007)
Performance units/shares aim at: — Rewarding and retaining the best talents by associating them to the intrinsic performance of the AXA Group and of their operational business unit as well as to the performance of the AXA stock price in the medium-term (2 to 4 years); — Reducing shareholder dilution by granting less stock options.
Grant criteria for performance units are similar to those used for stock options.
The principle of performance units/shares is as follows: — Each beneficiary receives an initial grant of performance units/shares which will be used to calculate the actual number of units/shares that will be definitely acquired at the end of a 2-year acquisition period (3 years for the 2004 performance unit plan), under the condition that the beneficiary is still employed by the AXA Group at that date.
— The performance targets in 2004 and 2005 have been: • for the business units: underlying earnings and adjusted earnings; • for the AXA Group: underlying earnings and adjusted earnings per share.
AXA Group and the operational business unit: • underlying earnings, P&C revenues and New Business
— At the end of the acquisition period, units/shares initially granted each year become definitely acquired depending on the degree of performance targets, subject to the beneficiary being still employed by the AXA Group.
— If the number of units definitely acquired is equal to or higher than 1,000 the beneficiary only receives 70% of the value in cash to allow him/her to pay social contributions and income taxes calculated on 100% of that value. 30% of the value is reinvested into AXA shares which are restricted from sale during a 2-year period, in order to develop employees’ share ownership and align employees and shareholders’ interests.
Performance shares, even if shares ultimately delivered to beneficiaries are newly issued shares (until now, AXA has always delivered existing shares), represent less shareholder dilution than stock options, due to the smaller grant volume.
The 3-year acquisition period of this plan ended on March 26, 2007 and at that date 645,604 performance units were definitely acquired by 1,537 beneficiaries. The settlement of these performance units was made both in cash (€17.4 million) and in shares (91,997 shares) subject to a 2-year restriction period until March 26, 2009.
A third performance unit plan was launched on March 31, 2006 and 1,453,441 performance units were initially granted to 2,072 beneficiaries outside France. The 2-year acquisition period will end on March 31, 2008.
The 2-year acquisition period of this plan ended on April 21, 2007 and at that date 1,202,986 performance shares were definitely acquired by 1,341 beneficiaries. The shares are subject to a 2-year restriction period until April 21, 2009.
NB: — In the table above all dates that are indicated shall read day/month/year. — 28,076 Performance Units granted in 2006 and 2007 to AXA Netherlands employees have been definitely acquired in 2007 following the disposal of AXA business in the
Netherlands. —1,128 Performance Units granted in 2006 have been acquired further to the deaths of 3 beneficiaries in 2006 and 2007.
Performance/Restricted shares initial grant shares actually granted shares at stake at 31/12/2007 shares cancelled at 31/12/2007 shares acquired at 31/12/2007
In the table above all dates that are indicated shall read day/month/year. (a) Performance shares granted as a replacement for 250,306 Performance Units 2004 cancelled. (b) Restricted shares granted as a replacement for 143,630 Performance Units 2004 cancelled.
Performance units/shares initially granted to the top 10 beneficiaries (outside the Management Board) during 2007 number initially granted
Performance units granted in 2007 to the 10 employees of the Company or of eligible AXA Group’s subsidiairies who received the highest number of performance units 88,243
Performance units/shares grants for the Management Board members are1: Performance Units Plan 2004 initial grant Units actually granted Units at stake at 31/12/2007
(b) Restricted shares granted as a replacement for Performance Units 2004 cancelled. (c) The numbers indicated for A. Bouckaert and C. Condron correspond to Performance Units.
In the table above all dates that are indicated shall read day/month/year. (a) The settlement of 11,523 Performance Units acquired by A. Bouckaert has been made through a cash payment of €253,917.68 and 3,457 AXA shares subject to a minimum of 2-year restriction period, i.e. until March 26, 2009.
(b) The settlement of 85,045 Performance Units acquired by C. Condron has been made through a cash payment of 2,480,877.32 US dollars and 25,514 AXA ADRs subject to a minimum of 2-year restriction period, i.e. until March 26, 2009.
Performance Units/Shares Plan 2005 initial grant shares/Units actually granted shares/Units at stake at 31/12/2007 shares/Units cancelled at 31/12/2007 shares/Units acquired at 31/12/2007
In the table above all dates that are indicated shall read day/month/year. (a) The numbers indicated for A. Bouckaert and C. Condron correspond to Performance Units.
Performance Units/Shares Plan 2007 initial grant shares/Units actually granted shares/Units at stake at 31/12/2007 shares/Units cancelled at 31/12/2007 shares/Units acquired at 31/12/2007
H. de Castries — — — — — — — — —
sHare ownersHip oF ManageMent BoarD anD sUperVisory BoarD MeMBers Members of the Management Board
This policy requires that each member of the Management Board and the Executive Committee holds, during the entire duration of their functions, a minimum number of AXA
shares representing a multiple of their annual target total cash remuneration (fixed salary plus target annual variable remuneration).
— The Chairman of the Management Board is required to hold the equivalent of 3 years target total cash remuneration.
To the best knowledge of the Company, each of the Management Board member held, as of December 31, 2007, the number of AXA shares or ADR, and units of AXA Actionnariat mutual funds indicated in the table below.
number of shares and number of units of mutual funds owned as of December 31, 2007 aXa shares aXa aDr Units of aXa actionnariat mutual funds
The following count towards the shareholding requirements: — AXA shares or ADRs owned, whether they have been acquired directly on the market, through stock options exercise or through performance shares/units or restricted shares.
— Shares of listed companies of the AXA Group (AllianceBernstein, AXA Asia Pacific Holdings).
Each member of the Management Board and of the Executive Committee should meet this requirement within a period of 5 years from the latter of (i) January 1, 2007 and (ii) their appointment date at the Management Board or Executive Committee.
As at December 31, 2007, based on the AXA share value at that date (price of €27.39), every member of the Management Board met the shareholding requirement.
Remunerations indicated in the table above are the ones for 2007.
To the best of the Company’s knowledge, the members of the Management Board made the following disclosures in the course of 2007 concerning their transactions involving Company stock. Detailed information about all of these transactions, as well as individual disclosures filed in accordance with Articles 223-22 and 223-25 of the AMF’s (Autorité des marchés financiers) General Regulations, are published on the Company’s website (www.axa.com) and on the the AMF website (www.amf-france.org).
Members of the Management Board name sale of aXa shares (number)
Freely allotted shares subscription options subscription and sale sale of units of aXa group mutual funds invested in ordinary shares of aXa shares
To the best knowledge of the Company, each of the Supervisory Board member held, as of December 31, 2007, transactions involving company stock completed in 2007 by members of the supervisory Board
the number of AXA shares or ADR indicated in the table below.
number of shares owned as of December 31, 2007 aXa shares aXa aDr
Freely allotted shares subscription options subscription and sale sale of units of aXa group mutual funds invested in aXa shares
subscription to units of aXa group fund invested in ordinary shares of aXa stock (number)
(ii) granting free shares (actions gratuites) to employees and former employees of the AXA Group enrolled in an employee savings plan sponsored by the Company or the AXA Group, and/or
(iii) granting free shares to some or all employees and eligible directors and officers of the Company and its affiliates as defined in Article L.225-197-2 of the French Commercial Code, in accordance with the provisions of Articles L.225197 -1 et seq. of the French Commercial Code, c) holding or tendering such shares later in payment or in exchange, especially in connection with acquisitions, in compliance with the market practices accepted by the AMF, d) delivering shares upon the exercise of rights attached to bonds with an immediate or future claim on shares of the Company, e) cancelling some or all of these shares, subject to the Shareholders’ Meeting of April 22, 2008 approval of the 20th extraordinary resolution hereinafter, which authorizes this cancellation, and/or, more generally, f) performing any other types of operations in compliance with the laws and regulations in force.
Maximum percentage of share capital, maximum number and types of securities that may be repurchased by the company and maximum purchase price share repurchase program submitted to shareholders approval on april 22, 2008 type of securities Maximum % of share capital Maximum number of shares (a)
Number of shares cancelled since the beginning of the program 63,103,647
In connection with its share repurchase programs, which were approved respectively by AXA’s Shareholders at their Annual Meeting held on May 4, 2006 (8th resolution) and at their Annual Meeting held on May 14, 2007 (13th resolution), AXA, in accordance with the provisions of article L.225-209 of the French Commercial Code, has continued the liquidity agreement put in place on May 16, 2005 that complies with the AFEI Code of Conduct approved by AMF with an initial duration of one year tacitly renewable, and entrusted its implementation to Crédit Agricole Cheuvreux.
Between January 1, 2007 and May 13, 2007, 8,906,796 shares were purchased under this liquidity agreement for an average weighted gross unit price of €32.08, and 9,581,677 shares were sold for an average weighted gross unit price of €32.35. Related transaction fees incurred over the same period amounted to €134,000.
Between May 14, 2007 and December 31, 2007, 18,574,843 shares were purchased under this liquidity agreement for an average weighted gross unit price of €29.59, and 16,704,843 shares were sold for an average weighted gross unit price of €29.92. Related transaction fees incurred over the same period amounted to €266,000.
These 70,548,264 treasury shares were acquired to enable the Company to reduce the dilution from the exercise of stock options and the issue of shares in connection with the capital increase reserved for the employees of November 2007 (Shareplan 2007). The purpose of these operations of repurchase was also to cover the grant of free shares to employees of the Group.
Treasury shares held directly by the Company 9,896,268 0.48% [0.42%] (c)
To the best of the Company’s knowledge, no shareholder held more than 5% of the Company’s outstanding ordinary shares as of December 31, 2007, except (i) as indicated in the table above, and (ii) BNP Paribas which held 5.87% of AXA’s outstanding ordinary shares which represented 7.67% of the total voting power at that date.
Significant changes in ownership of the Company’s share capital between December 31, 2005 and December 31, 2007 are set forth in the table below.
Treasury shares held directly by the Company 9,896,268 0.48% [9,896,268] (c) [0.42%] (c) 2,554,613 0.12% [2,554,613] (c) [0.11%] (c) 653,857 0.03% [653,857] (c) [0.03] (c)
(a) In this table voting power is calculated on the basis of all the shares to which the votes are attached, notwithstanding the fact that they may be deprived of voting power by law or otherwise (for example, treasury shares are deprived of voting power under French law).
aXa sUBorDinateD conVertiBle BonDs as oF DeceMBer 31, 2007 subordinated convertible bonds from February 17, 2000
relateD party transactions, eMployee sHareHolDers anD cross-sHareHolDing agreeMents related party transactions
For information concerning related party transactions, please see Part V “Consolidated Financial Statements” — Note 27 “Related Party Transactions” of this Annual Report.
The traditional plan allowed employees to subscribe through a personal investment to AXA shares (either through mutual funds (FCPE) or through direct share ownership) with a 20% discount. The shares are held within the Group Company
Savings Plan and are restricted from sale during a period of 5 years (except specific early exit cases allowed by applicable laws). Employees are subject to the share price appreciation, up or down, as compared to the subscription price.
The Shareplan 2007 program was carried out through a share issue that took place in November 2007 and was open to almost all Group employees through voluntary contributions: — 43,877 employees took part in Shareplan 2007, up 49%
— A total of 22 million new ordinary shares were issued, each with a par value of €2.29. These shares began earning dividends on January 1, 2007.
As of December 31, 2007, AXA employees and agents held 5.23% of the Group’s outstanding ordinary shares and 6.01% of the voting rights. These shares are owned through mutual funds or directly, in the form of shares or ADRs.
The AXA Miles program resulted in a grant of 5,586,900 AXA shares to 111,738 employees in 54 countries.
The totality of these shares have been purchased by AXA and the program will not entail any capital increase.
In 24 countries, including France, the shares granted will be acquired after a 2-year acquisition period (i.e. on July 1, 2009), subject to a presence condition within the AXA Group, and will then be subject to a 2-year restriction period (i.e. until July 1, 2011).
On December 15, 2005, and after authorization by the AXA Supervisory Board on June 29, 2005, the AXA Group and the BNP Paribas Group entered into an agreement that replaces a prior agreement between them dated September 12, 2001.
The new agreement maintains the provisions of the prior agreement concerning minimal and stable crossshareholdings. Pursuant to the agreement, the AXA Group undertakes to hold at least 43,412,598 shares of BNP Paribas stock and the BNP Paribas Group undertakes to hold at least 61,587,465 shares of AXA stock. These amounts are subject to adjustment to reflect the impact of certain capital transactions, including, but not limited to: capital increases, free allotments of stock, stock splits or similar transactions. In addition, the parties have agreed to a reciprocal repurchase option in the event of a hostile takeover attempt on either AXA or BNP Paribas.
PricewaterhouseCoopers Audit Mazars & Guérard 62, rue de Villiers 61, rue Henri Régnault 92208 Neuilly-sur-Seine Cedex 92400 Courbevoie special report of the statutory auditors on regulated agreements and commitments
Agreements and commitments authorized during the 2007 fiscal year: In accordance with Article L.225-86 of the French Commercial Code, no regulated commitment or agreement was submitted to us.
of AXA stock. The number of shares held under this crossshareholding agreement will be adjusted as needed to reflect the impact of capital transactions, including but not limited to free allotments of stock or share tenders involving the same company (stock splits or regrouping, etc.). In addition, the parties have consented to a reciprocal repurchase option in the event of a hostile takeover on either AXA or Schneider. In force for a period of one year as of the date of signature, this agreement is renewable automatically for successive periods of one year thereafter, unless one of the parties decides to terminate beforehand, in which case it is required to give three months notice prior to the next renewal date.
PricewaterhouseCoopers Audit Mazars & Guérard Yves Nicolas — Eric Dupont Patrick de Cambourg — Jean-Claude Pauly
MarKets The principal trading market for the Company’s ordinary shares is the Compartment A of Euronext Paris. The AXA ADSs, each representing one AXA ordinary share, are listed on the New York Stock Exchange.
The table below sets forth, for the periods indicated, the reported high and low prices (closing and intraday) in Euro for the Company’s ordinary shares on Euronext Paris: calendar period closing High (€) (a) closing low (€) (a) intraday High (€) intraday low (€)
— Risks relating to the nature of our business and the environment in which we operate 168
You should carefully consider the following risks. These risks could materially affect our business, results of operations or financial condition, cause the trading price of our ordinary shares and/or ADSs to decline materially or cause our actual results to differ materially from those expected or those expressed in any forward looking statements made by or on behalf of the Company. The risks described below are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition, results of operations or cash flows.
Fluctuations in the securities markets may affect sales of our participating life insurance and pension products, mutual funds, asset management services and products with financial risk borne by the policyholders (unit-linked), including variable annuity products and variable life products. In particular, protracted or steep declines in the stock or bond markets typically reduce the popularity of unit-linked products.
In addition, increased financial market volatility, the reduced availability of credit and other effects of the “sub-prime” crisis since mid-2007 including slowing economic growth, the risk of recession, and increasingly negative consumer sentiment in certain of our major markets may adversely affect our revenues, profitability, ability to pursue attractive acquisition opportunities and to achieve our growth targets which may adversely affect the prices of our ordinary shares and other securities.
Losses due to defaults by third parties, impairment of our investment assets and unrealized losses could negatively affect the value of our investments and reduce our profitability
The default of a major market participant (including, for example, a default by a credit insurer) could disrupt the securities markets or clearance and settlement systems in our major markets, which could in turn cause market declines or volatility. A failure of a major market participant could also cause some clearance and settlement systems to assess members of that system or could lead to a chain of defaults that could adversely affect us. For risks relating to defaults by reinsurers and retrocessionaires to which we have transferred part of our risks, see “Risks relating to the nature of our business and the environment in which we operate — Reinsurance may not be adequate to protect us against losses and we may incur losses due to the inability of our reinsurers to meet their obligations”.
Business and market conditions may impact the amount of goodwill we carry in our consolidated balance sheet. As the value of certain parts of our businesses, including in particular our asset management businesses, is significantly impacted by such factors as the state of financial markets and ongoing operating performance, significant declines in the financial markets or operating performance could also result in impairment of other goodwill carried by us and result in significant write-downs, which could be material.